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Правительство Российской Федерации

Федеральное государственное автономное образовательное учреждение высшего профессионального образования «Национальный исследовательский университет «Высшая школа экономики»

МАГИСТЕРСКАЯ ДИССЕРТАЦИЯ

Strategies of coping with the impact of economic sanctions on russian globally-tradingcompanies

Коротаев Михаил Александрович

Научный руководитель

к.п.н., проф.

А.А.Варфаломеев.

Нижний Новгород, 2016

Introduction

Problem statement

The specialists are seeking the answers for controversy questions such as:

· What are the threats and opportunities from existing and potential sanctions implemented by Western countries for Russian businesses?

· How can Russian business community save its potential and effectiveness in the present conditions?

· What are the alternative strategies for coping with the effects of sanctions' influence?

The topic of the present investigation is “Strategies of coping with the impact of economic sanctions on Russian globally-trading companies”.

The aim of this study is to analyze the impact of economic sanctions on Russian medium-sized globally-trading companies and design the effective adaptation strategies for the investigated company in the sphere of its foreign economic activity. economic sanction trading business

The overall investigation has the inductive nature. The topic is analyzed in accordance with global and local practice of addressing the studied issue. Then the information is filtered concerning the findings of the study held in the investigated company. The final conclusions attached the undertaken research and form practical recommendations for the chosen company and its model of business.

Research Question

Which strategies will show positive outcome in affecting the negative impacts of economic sanctions on Russian medium-sized globally-trading company Mikromontazh LLC?

The aim of the study: to analyze the negative impact of economic sanctions on Russian medium-sized globally-trading companies on the example of Mikromontazh LLC and design the effective strategy of influencing the negative economic consequences of this impact.

Object of the study: Mikromontazh LLC (ООО “НПП “МИКРОМОНТАЖ'').

Scope of the study: Effective strategies of adaptation to the negative influence of the present economic sanctions that impact the activity of the investigated company Mikromontazh LLC.

Objectives:

· To analyze the influence of economic sanctions on Russian business in present

· To determine and systemize the effects of economic sanctions on the model of business that applies to Mikromontazh LLC.

· To determine the strategies used by Russian businesses to cope with the studied problem

· To determine the particular issues faced by Mikromontazh LLC in present with respect to economic sanctions.

· To design recommendations for Mikromontazh LLC for implementing the effective adaptation strategy.

Methodology.

1. Methods of collecting data

Review of the relevant literature. The theoretical materials are analyzed in the fields of politics, macro- and microeconomics.

Secondary data collection from such sources as The World Bank, The Central Bank of Russia, OECD Reports, WTO, PWC.

Expert interviews with representatives of the studied company responsible for decision making in the field of solving the studied problems: The CEO and the development manager. This is used as primary qualitative data gathering method.

Observation: The production process, the range and features of key products.

Practical session (in accordance with the interview results) in the form of participation: Meeting with potential clients from India (Military air force commandors) at their business visit.

2. Methods of data processing:

Inductive analysis and synthesis. The study is designed within the model of induction. The theoretical part proceeds from the global macro analysis of economic sanctions gradually to the model of the studied case of the company.

System analysis. The influence of sanctions on Micromontazh is described on macro and micro levels as a system considering the interactions and relationships between its elements.

Case study. The phenomenon is studied on the example of concrete enterprise (Mikromontazh LLC).

Content analysis. This method is used in processing the data gathered with the expert interviews.

Novelty of the study

The present research represents a piece of the contribution to the existing theoretical ground for adapting to the new economic conditions on the Russian market that are posed by the economic sanctions. The novelty itself lies in creating a potentially effective model of behavior for Russian industrial SME that is involved in the international trade and faces difficulties staying within the previously used course of market behavior.

Limitations

There are particular limitations that apply to this research:

Dent (2014) explains the topic structurally. In March 2014, the EU and the US, along with other parties, implemented an array of restrictive measures that target a number of Russian organizations and individuals. These were an addition to other measures which the EU had undertaken in towards, for instance, Iran and Libya, that are more far-reaching. Subsequently, economic sanctions have been introduced, covering sector cooperation and exchanges with Russia through bans on trade and export/import embargoes in the financial, oil-drilling and military and defense sectors. Similar sanctions apply to individuals and entities in Crimea the case of which remains constantly disputed.

In today's reality of the world market Russian economy is put in the conditions of economic crisis. The Impact of sanctions of the exchange rate of national currency and international trade affects negatively the inner market relationships. Companies suffer from various problems forcing them to undertake radical decisions from large dismissals to complete liquidation of production. Each company seeks design of strategies allowing to adapt to these conditions according to its own circumstances and features. There is also a possibility to create such a strategy that can be applicable to sector-specific conditions or other common characteristics in number of companies.

In the aggregate the above listed circumstances lead to the negative synergetic effects that also impact the dynamics of Russian export, its industrial structure, geographical orientation and the results of governmental support on non-oil and gas export. The development of foreign economic sector on the whole will be materialized in radically new conditions, therefore the foreign treats and internal limitations require considering them while the planned export policy course of the Russian government is being implemented: The state program called “The Development Of Foreign Economic Activity”, the “road map” of the Strategic Initiative Agency (SIA) called “The Access To Foreign Markets Support and The Export Support”, etc. These plans are usually inevitably corrected.

The state promises the local exporters the necessary support while entering global markets including lobbying of their interests via mechanisms of World Trade Organization (WTO). However, the situation in Russian foreign economic sector in the recent year has been developing contradictorily. Thus, the measures for offshore reduction policy are taken and its implementation may lead to ambiguous aftermath for local exporting companies. The business community fears that the adoption of the bill for tightening of the offshore practice in its present version can negatively affect the exports, especially in technological products segment (Borisov, 2011).

It is necessary to highlight that one of the basic reasons for Russian companies to use offshore is putting down the creditor risks in financing and sells of large export contracts. But particular problems may also arise not only due to the new legislation but also in the sphere of law-implementation practice in the future.

The obvious particularity of today's stage of development of Russian foreign economic sphere including the export sector is the influence of three basic factors:

· Low conjuncture of world markets due to the uncertain situation in global economy;

· The stagnation of national economy and its main sectors;

· The introduction of the political sanctions and limitations of trade and economic nature.

It is also important to consider the shrinking export potential of Russian business and the degradation of its structure as natural limiters for the general economic growth. Karaseva (2011) has brought the evidence that, for instance, according to the data of the Federal Customs Service (FCS), the export of goods from Russia in 2013 has grown only by 0,3 per cent, while its part for ex-Soviet countries has dropped by more than 7 per cent. The part of energy supplies has acquired 74,5 per cent, and over the first half-year of 2014 has reached 75,5 per cent. The density of mechanic and electric export in general country's export appeared to be just 5,4 per cent while the Defence Industrial Complex (DIC) production forms the part of more than 50 per cent in this cathegory, according to the scholar.

As a result, during the first eight months of 2015 the growth of export has almost stopped (100,5 per cent to the same period of 2014), while in case of European Union exports, that were the biggest market for sales, it has dropped by 1,5% (exports to the key partners has even decreased by 30-40 per cent). This data is provided by the World Bank (2015).

Export to ex-Soviet markets dropped by 4,5 per cent, including 1,5 per cent downturn in the Ukrainian market.

The conflict in Ukraine, obviously lead to noticeable shortening of Russian sales in the market which was 5^th largest market for Russia in 2012, due to gas supply limitation and reduction of export in other product segments. This tendency is caused by the growing risks for the companies for maintaining the deals and large limitations introduced on the Ukrainian side.

This reduction is not likely to be compensated by the corresponding export growth in other countries of post-Soviet landscape as the substituting group of markets according to the present uncertainty of political and economic situation within CIS. The extension of export to the markets of developed countries in conditions of modern geopolitical environment seems to be problematic as well.

Nevertheless, the economic stagnation, especially in the industrial sector, leads to the shrinking export production and first of all non-commodity production. New expert forecasts and even official forecasts point at possibly lower export costs in the nearest perspective, also considering the continuously falling oil prices.

Moree than that, the implementation of government programs for supporting the export companies is grounded in considerable growth of the budgets devoted to first of all the extension of financial measures for support of non-commodity export (through the state corporation “Vneshekonombank” (VEB) and its daughter structures. However in the present situation of large budget limits it is not likely to be a reliable possibility even in mid-term (Poljak, 2013).

Counting largely on WTO instruments is also not a good measure (at least in mid-term) for protection and development of Russian business: the experience has shown that these are hard to operate in terms of real benefits. Moreover, the government seems not to believe in the export as an economic development driver. The main bets are made on active financing from the budget, investment and credit attraction for business, including the foreign investments, as the growth stimulators. However, these seem to be less and less reliable as well in conditions of ever-tightening sanction policies.

The element of uncertainty is brought to the realization of plans for new markets access and the support for exports is brought since spring of 2014 by step-by-step implementation of sanctions from the Western side, involving more and more countries and new political tensions. In general there are more than 40 countries involved in the situation, mainly formed by OECD members. More than that, some countries, especially from Anglo-Saxon block introduce particular sanctions on the national level. On the whole, the above mentioned states and groups of states (The EU, the US, EFTA, Canada, Australia, etc.) form 2/3 of Russian product turnover and export, a considerable part of services and technology export and direct foreign investment (DFI) (Aristov, 2010).

It is necessary to mention that the examination of the theoretical aspects of economic sanctions has not found widespread interest in the scientific literature yet. Thus, while analyzing the implementation of international sanctions towards Russia, Russian and foreign experts take as an example the situation that has been taking place for last 8-10 years in Iran and some other countries, but it appears to be a mistakable approach.

According to Katzman (2016), broad international sanctions imposed on Iran during 2010-2013 harmed Iran's economy and contributed to Iran's acceptance of agreements that exchange constraints on its nuclear program for sanctions relief. The sanctions and related diplomatic pressure, at least in part, caused or contributed to the following:

· Iran's crude oil exports fell from about 2.5 million barrels per day (mbd) in 2011 to about 1.1 mbd by mid-2013. The effect of that export volume reduction was further compounded by a fall in oil prices since mid-2014. Sanctions also made inaccessible about $120 billion in Iranian reserves held in banks abroad.

· Iran's economy shrank by 9% in the two years that ended in March 2014, before stabilized in 2015 as a result of modest sanctions relief under an interim nuclear agreement that went into effect on January 20, 2014.

· Iran's ability to procure equipment for its nuclear and missile programs and to import advanced conventional weaponry was constricted. However, Iran was still able to develop its missile programs and to assist pro-Iranian movements and governments in the region.

· Sanctions might have contributed to the June 2013 election as president of Hassan Rouhani, who articulated a priority of obtaining relief from international sanctions and isolation.

From the above mentioned it can be concluded that the case of Iran is rather a non-comparable or at least comparable to a very little extent case. The main reasons are that the initial purposes of sanctions are different, for example the main targeted sectors mainly include others than those in Russian sanctions. However, there are some similarities such as shrinking economy, which is rather classic sanction influence, the large oil-exporting activities of the country and the suffering banking sector from several sanctions implemented directly on it. But in general it is necessary to notice that the Iranian economy characteristics, country's geographical and political position and the intentions of countries that introduce the policy are in many senses not the same. This does not allow making a sufficient comparison between sanctions in Iran and in Russia.

According to the density and scale of the present geopolitical conflict, the modern circumstances are better off compared to the line followed by the Western countries in the USSR in 80s, concerning the military operations in Afghanistan in December 1979. For instance, in January 1980 the USA and its allies started to introduce whole-scale sanctions upon Soviet Union including the organized boycott of the Olympic Games in Moscow. Immediately, the countries took collective action to influence trade and finance, for example:

· The embargo for technology supply and other critical goods (i.e. wide diameter pipes for gas pipelines, agricultural crops, etc.);

· Limitations for key product groups import from Soviet Union;

· The veto for foreign loans

These measures made a significant impact on the misbalanced planned administrative economic system of Soviet Union (Shirkunov, 2014).

More than that, without going deep into the conspiracy theories it is possible to claim that during the years 1985 to 1986 Saudi Arabia has increased the oil production by around 200 per cent. This lead to the oil price drop from 30 to 12 US dollars per barrel on the world market. This caused dramatically negative effect on the domestic markets of the USSR, while the economy was critically dependent on oil exports and foreign loans. During the Perestroika period these sanctions were stepwise cancelled, but it didn't contribute sufficiently against the systematic problems of the Soviet economy.

It is remarkable that Soviet Union received a status of the supervisor in General Agreement on Tariffs and Trade (GATT) only in 1990 (after ten years of insufficient discussion over this problem) and this can be factually called the end of the “Afghani” sanctions. Thus, today it can be said that Russia is de-facto put into the international isolation which is expected to last for several years. The USA and Ukraine still consider the Crimea accession and an annexation of Ukrainian territory which may still threaten Russia with serious consequences.

Even the partial cancellation of limitations in the perspective will not change anything considerably. It should be taken into consideration that the introduction of sanctions is not a difficult process for the EU and the USA in terms of legal procedures according to the big political resonance of the event. However, it is difficult to cancel them due to the influence of the interests of the parties involved.

For example, such delay occurred with the correction of Jackson-Vanik Ammendment (in 1974) that was terminated in the USA in 2012. And it was only for a reason that Russia has joined WTO (the requirement for so-called complete regime of maximum favor in trade), but simultaneously was replaced with the other discriminating document, the Magnitsky Act (Poljak, 2013).

Some European institutions have a steady and significant caseload involving Russian and CIS parties. Others have even seen a substantial increase in the number of cases involving such parties. In any event, the Russian sanctions - while they may result in some additional administrative steps - do not preclude parties from referring their disputes to arbitration at an EU-based institution. As such, it is very much business as usual for both the institutions and the parties (Dent, 2014).

It is inevitable to understand that international economic relationships are complex dynamic systems that exist in certain equilibrium. If any imbalance appears, the recovery of these systems requires considerable time to pass and effort to be contributed, regarding the globality and interconnection of political and economic processes involved. As a result of the implemented direct and latent sanctions a number of negative effects on country's businesses are to be expected, especially in case of activity of companies representing the exporting sector in short- and mid-term perspectives:

* The implementation of sanctions on international and national levels (involving no contradiction with WTO norms) towards Russian Federation, its legal entities and individuals is expected to cast a negative light on the image of local exporters and become a serious obstacle to their activity on certain foreign markets regionally and country-wise;

* The cancellation or delay of major number of contract types between developed countries and Russia in the sphere of economics and trade takes place. It declines the quality of management, monitoring and planning of the whole complex of foreign economic relationships between Russian and foreign partners in both public and private sectors in bilateral and multilateral forms;

* The selective abandonment of cooperation of NATO, NASA, etc. with Russia does not affect the interaction for partners in key areas, but limits Russian side in use of the spheres that are particularly attractive to it, such as financing of common programs, supply of technology, access to information, the exchange of human resources, etc.;

* The drop of sovereign (credit) rating of Russian Federation, certain local companies and banks is likely to raise the costs of new external loans and debt restructuration (re-crediting). That can also be used by means of export development, first of all considering the leading state-owned enterprises in the sphere of commodities and industrial export (Heuer, 2010).

As a result, the hardest strike that hits the Russian economy is the ban of mid- and long-term financing of Russian state banks and companies including the sphere of export contracts:

* Freezing of the procedures in the existing and new common projects involving foreign capital will reduce not only the inflow of FDI in the country, but also the transition of modern technologies and pioneering experience of management that will influence the development of perspective spheres of economy including the companies of country's exporting sector.

Additionally, the discussion shall take its start at the fact that loyal national business communities of the developed countries, in spite of the declared protests, in general will follow the political course of their governments rather than show full independency in the commercial sphere. Some Russian companies count on the foreign partners to find loopholes in sanctions, but it has been yet never justified since those hardly appear to take such risks. The overseas suppliers and economic operators in this case have a lot to fear and their reaction is reasonable. For instance, in summer of 2014 BNP Paribas paid almost 9 billion US dollars because of the claims regarding the bypass of the sanctions against Sudan, Iran and Cuba. Later on, after a few months the German bank Commerzbank was blamed for the same actions and the monetary fine may reach at least 650 million US dollars. Unfortunately, in this situation it is far less costly for the foreign companies to leave the Russian market;

* The denial to negotiate agreement projects in key directions of trade and investment cooperation with Russia on behalf of the leading developed economies significantly blurs the perspectives of development in the new forms of interaction, including the sphere exporting goods, services, technologies and FDI from Russia (Bulatov, 2012).

In particular, in the beginning of March 2014 the EU refused to hold negotiations with Russia concerning the New Framework Agreement on Visa Facilitation, the USA terminated the discussion of the draft agreement on trade and investment issues, Japan cancelled the conclusion of a new investment agreement, etc.;

* Moreover, the termination of Military Technical Partnership between the developed countries and Russia and local sanctions towards country's defense industry manufacturers make the deterrent influence on the scale and diversification of Russian weaponry and dual-use goods export in the mid-term.

More than that, in July 2014 the European Union and number of other developed countries arranged a full embargo on import and export of military equipment and machinery and relevant technologies to and from Russia which directly damages national DIC and weaponry export as significantly important source of its development. The figure is calculated to be the loss of 15 billion US dollars in 2013 (Avdokushin, 2010).

Firstly, Russian companies lose the market share by several billion US dollars annually not only in the developed countries but also the markets of their political allies because the weaponry trade is highly politicized.

Secondly, although the import of military equipment and machinery, accessories and technologies from the developed countries counts is estimated at several hundred million US dollars only, it is a critically important product sector for manufacture of modern weaponry for both national needs and trade in the overseas markets;

* International sanctions in general and the delay of negotiations about the agreements on the establishing an FTA with the Customs Union by the EFTA countries and New Zealand causes indirect negative effects on various aspects of integration processes within the frameworks of the Common Economic Space (CES). A number of other geopolitical aspects related to the conflict in Ukraine influence the relationships with other CIS countries as well;

* Russian Federation's withdrawal from G-8, freezing of the negotiations on entering the OECD and weakening of the activity in international organizations not only lead to high reputation costs for the country but also isolate Russia from the participation in decision-making disputes about global problems that is significantly damaging its positioning in the world economy (Ivashenko, 2012).

In the aggregate, the above mentioned consequences lead to mutual damage for all parties but the losses for Russia are and will be much bigger. This approach is determined by the fact that there is an asymmetric relationship between Russia and other states involved in the situation in the area of trade and economic relationships.

For this reason it is important to objectively estimate all the factors considering the 15 to 20 times non-comparative foreign trade and economic potential of Russian economy before the economies of the opposite countries.

In total, the overall damage cast by sanctions is estimated by experts to be 1-1,5 per cent of Russia's GDP. This figure is formed by the volume of the capital outflow abroad, the fall of national “blue chips” at MICEX and London Stock Exchange, the increase in credit costs and other losses including the lost profit. Along with this the above mentioned factors came in the same period with general aggravation of country's economy by coincidence that creates a negative synergetic effect.

Talking about the foreign trade affairs in the Russian economy, there is a statistical proof of large-scale downturns of both exports and imports (see graphs 2 and 3 respectively).

It is important to mention that even the threat of sanctions itself creates a phenomenon of uncertainty in the economy that is in particular cases somewhat more effective than the intended restrictions or embargo. Additionally, it is better to respond adequately to these sanctions in order not to make the situation ever worse and undertake the odd asymmetric counter-measures. Russian economy is highly dependent on export and import, so serious limitations regarding national import or export of goods and services might considerably empower the stagnation and push the other problems of national economy forward deeper.

In relation to this, the claims of many Russian politicians, experts and other decision-making individuals about the absence of any serious risks and threats of sanctions are usually not more than just bravado.

The brightest example in this case is brought by the implementation of counter-sanctions represented by total taboo on import of food supply from the developed markets. According to the claims made by Russian officials, “all this is the answer to the sanctions of the West that has harmed itself more than Russia” (own translation) (Ivashenko, 2012). However, by means of objectivity it is necessary to notice the evolution of the economic approaches of the government towards their higher realism (Ibid.).

The sanctions can be adapted to and even bypassed since they create certain new opportunities for business. This feature is one of the important aspects on which the research of this paper is built. In terms of these opportunities, an interesting example is the mobilized opportunities of SAR in the period of the international embargo. The preventive measures are sometimes also used in order to minimize the possible damage to the economy in general and its particular key sectors.

Russian government is trying to design the strategies of resisting the sanctions and cutting down the losses caused, but after all it is the conception of isolationism that stands behind their activities: the forced implementation of financial transactions in rubles, the creation of national payment system, tight anti-offshore policy that is being undertaken, clotting of the connections with developed countries and the declaration of the new foreign political course frequently called “a turn to the East”.

Eventually, the political elite of the country declares the policy of import replacement as a national idea that relies on the number of economic sectors, which can be somewhat justified by the devaluation of ruble, the shortage of the borrowed funds and, of course, the influence of the international sanctions. In the domestic politics the old recipes of the past crisis are used: capitalization of state-owned banks and financial institutions, preferential loans and governmental guaranties to the “backbone” enterprises. It is assumed that the intention to provide large-scale import replacement by the efforts of the big players underlies this approach (Gryaznova and Markina, 2012).

Even in case of the resolved geopolitical conflict with Ukraine in possible perspective, the consequences of sanctions will require many years of professional and coordinated effort of the Russian side for normalizing the situation in the foreign economic sector, and first of all in the area of export potential development in the country. Here the topic is about the minimization of the damage, determination of the external risks and inner reserves, the increase of openness of the economy and the most importantly, the use of opportunities appearing for introducing the efficient reforms.

In the conditions of the sanction policies implemented the support for small and medium-sized entrepreneurship is one of the top priority objectives because in number of production industries, such as textile and food production, agriculture, small and medium-sized business plays a key role.

However, at the same time SMEs appear to be vulnerable to some sensitive changes in the economic environment. For SMEs that are on the stage of market entry there are so-called preferential tax programs and other tax reliefs used, along with some insurance payment relieves. The governmental support is provided in the form of subsidies for production modernization and leased equipment purchases. It is possible that simplification of the labor law requirements for SMEs may become a new and effective measure in this field as well. This step will compliment the increase of production volumes and expansion of the employee number in the production companies (Bulatov, 2012).

Along with it, the present situation gives an opportunity for maximally effective reorientation of the Russian economy and the recovery of the industrial potential that has been lost in the 90s. Today Russian industrial and agricultural manufacturers have acquired a chance to retrieve the missed positions and take the respectable place among the world's most noticeable producers and become competitive on both foreign and domestic markets. Russia has the necessary resource base for expanding to the global markets: human and natural resources, the needed governmental support and the temporary absence of solid foreign competitors in certain spheres. These sufficiently facilitate the access to bringing these plans to life.

However, for the most effective approach at maximum it is inevitable to maintain a complex of events devoted to technical and technological modernization of production, enhancement of quality of goods and services, increase in volume and range of the produced goods. The execution of the above mentioned points allows stabilizing the standing of Russian companies on the world market, preserve the position of national business with the arrival of new trade partners and the return of the competitors from the sanction list.

1.2 International trade in the conditions of economic sanctions in Russia

The international trade is an exchange of goods and services between state and national economies. The development of the world trade has led to emergence of the world market of goods. The world market is the complex of interconnected and interacting national markets of particular countries that participate in the international division of labor and connected to each other through the system of international economic relationships (Heuer, 2010).

International trade grows and develops due to the profitability and rationality of the international division of labor, concentration of production of certain products with the aim of further sale on the global market and fulfillment of the needs of other countries that conduct a demand for these products on their markets.

For more sufficient evidence it is important to analyze the influence of sanctions on the international trade. For example, in 2013 the import of food products counted to 43 billion US dollars while 51 per cent of this figure then was placed under sanctions. Thus, from the perspective of customers around one half of all products imported in Russia have been sanctioned.

Countries that are included in the list of sanction policies appear to have a very large share: 37 per cent of product import is supplied by these countries. Addressing this issue in more detail, more than 30 per cent of them are the countries of European Union, while the USA has 4 per cent, 2 per cent belong to Canada and Australia and Norway take 1 per cent each (Avdokushin, 2010).

The EU clearly outstands the rest of the countries, therefore it has been decided to further analyze mainly the countries of European Union. Here 5 of member countries shall be highlighted among the most affected. These are the countries that are historically involved in active trade relationships with Russia: Poland, Lithuania, Finland, Estonia and Denmark. These countries actively trade in many product sectors and a big extent of this production has been sanctioned. There is also certain number of countries that is subject to solid sanctions only in particular areas of trade.

It happened that Poland, Lithuania, Finland and Estonia are economies with the negative trade surplus according to international statistics of ITC (2015). These countries import more products than they export. Taking into account the size of possible loss in the sanctioned areas (when the products are in sanction list and the trade cannot be conducted on the territory of Russian Federation and the Customs Union), the interesting figure appears: the influence on the trade surplus in Poland accounts to 52 per cent and in Lithuania it is 47 per cent (Borisov, 2011).

This can seriously affect the trade surplus and therefore the budgets of these countries. Talking about the sensitivity of the economy and companies, the case of Lithuania should be highlighted: around 3,74 per cent of the whole agricultural export put under sanctions was imported to Russia from Lithuania. For this reason the country can bear direct losses in its international trade as well as in its budget and gross domestic product. Almost 3,8 per cent is the brightest indicator among all. The significant figure in Poland is 0,56 per cent (Karaseva, 2011).

Speaking about the most interesting products for Russian customers it can be clearly observed that the dependency of Russia on the suppliers from the EU was relatively high. For instance, European countries shared more than 60 per cent in Russian import of cooled pork. The share in imported cabbage was 67 per cent. Various kinds of cheese and cottage cheese held 60 per cent. 60 per cent were also for pears and apples from the EU. This is more than 15 per cent of the overall export of pears and apples in the European Union.

Thus, for the EU such products as apples proved to be very sensitive in terms of percentage of shares related to sales on the Russian market. In monetary terms the most sensitive positions are of course pork, cheeses, cottage cheese, because annual supply of each product sector exceeded 1 billion 200 million UD dollars. In fact, besides Poland and Lithuania that has active trade relationships with Russia and in cases of many product exports appeared to show sensitivity to the sanctions, there are number of countries for which sanctions are considerable threat only in terms of particular markets.

For example Greece supplied Russia with fruits and nuts accountable for 143 million dollars. This position is also meaningful for Cyprus because 14 of 17 million US dollars of exports is also related to fruits and nuts. At the same time Hungary that was rarely mentioned in researches of such kind exported pork to Russia for 54 million USD and Ireland's export was 77 million (Poljak, 2013).

Analyzing the structure and changes in the external indicators of trade in the Russian Federation according to the WTO Statistics (2014), the following picture appears:

· The share of trade in GDP the country is 51.5%; the export of industrial products the country ranks 10th place, while services are on 21st place in world trade, and imports respectively 16th and 10th.

· With the growth of GDP and exports in 2013 can compared with the base of 2005 year by 3%, imports grew by 10%.

· The net export is positive (Export takes almost 1.5 times more than import), the export quota is about 25%, and import is 16.4%.

· Country implements 2.78% of world merchandise exports and acquires 1.82% of world imports.

· The structure of exports is dominated by fuel and mining products (45.8% exports) and the main trading partner, the European Union, holds a share equal to 45.8% of all Russian exports.