The Boomerang Effect of Russian Trade Policy Measures Against Estonia

International political economy literature has highlighted that trade sanctions fail to achieve desired outcomes most of the time. Some scholars have argued that multilateral sanctions tend to be more effective than unilateral sanctions. Other scholars have highlighted that unilateral sanctions can be as effective if they are implement by the largest trading partner against targeted country.

This research focuses on unilateral Russian trade policy measures against Estonia in the last twenty years. It demonstrates that so-called double-tariffs on Estonian exports from 1995-2004, trade restrictions in response to relocating a Second World War memorial from the center of capital city to a military cemetery in 2007 as well as the Russian embargo on the Estonian agricultural exports in 2014 have failed to deliver fulfilment of economic and political goals.

We argue that sanctions fail to achieve intended results even when they are imposed by the largest trade partner against targeted country and especially when they are imposed unilaterally. Furthermore, we demonstrate that trade sanctions actually benefit targeted country as long as other countries do no cooperate with the sanction regime and instead open its borders for the exports of targeted country. Trade restrictions can create additional incentives to diversify trade relations and reduce economic dependence on a country, which exploits trade policy measures for political ends. Unilateral trade sanctions by largest export partner can speed up globalization of economy - especially when it is combined by unilateral free trade policy by targeted country.

High Russian tariffs on the Estonian exports from 1995 to 2004 encouraged exporters to seek markets in the west.  By 2000, the share of exports to Russia of total Estonian exports had dropped to 2 percent from 24 percent in 1993, when Russia was the largest trade partner of Estonia. As of 1995, Estonia imposed unilateral free trade regime without tariffs on imports, including agricultural goods. As various indexes have shown within twenty years Estonia has become economically one of the most globalized countries in the world.

The abolition of the double tariffs resulting from Estonia’s membership in the European Union in 2004 led to rapid increase of Estonian exports to Russia. Its share quickly reached 10 percent of total exports by 2008 and Estonia started to run constant trade surpluses with Russia. The political tensions in 2007 led to the reduction of transit trade but not to a reduction of Estonian exports to Russia. Similarly, the 2014 Russian embargo hit primarily dairy exporters, who have small share in total exports and had already found new markets. As the Russian embargo came immediately after the use of sanitary measures by Russian authorities against large Estonian dairy producers, then it strengthened their resolve to diversify their export markets.

The 20 years of experience demonstrates that Russian political goals could have achieved better results without sanctions. Stronger trade relations and deeper economic integration with Russia would have given leverage to interest groups more supportive of the policy goals of Russian government.