Monitoring Risks by Dr. Ziva Rozen-Bakher

Analysing in-Depth Security & Political Risks and Economic & Strategic Risks

Monitoring Risks https://www.rozen-bakher.com/monitoring-risks-1

**Dr. Ziva Rozen-Bakher**

**A Researcher in International Relations and International Business with a Focus on Security and Political Risks & Economic and Strategic Risks** **Related to Foreign Direct Investment (FDI), International Trade and Mergers and Acquisitions (M&As)**

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USA Coalition vs. Russian Coalition: FDI and International Trade Analysis, 30 March 2022

Previous Relevant Post: Sanctions against Russia: USA Coalition vs. Russian Coalition

Since the start of the Ukraine war, the war-sanctions has intensified between USA Coalition vs. Russian Coalition, yet doubtful if all policy-makers understand the mechanism of sanctions/counter-sanctions, and importantly, the distinction between formal vs. informal sanctions/counter-sanctions. Moreover, if we look at the data of FDI and International Trade, then apparently, the quantity of FDI and Trade of the USA coalition is bigger than the Russian Coalition, but if we look at the data in-depth, then we get a more complicated picture because of the missing data among countries of Russian Coalition that de-facto hides the activity of FDI and International Trade, and as a result, it also hide the informal counter-sanctions.

Missing Data/Delayed Data of FDI and International Trade

Non-Governmental Organizations (NGOs) like World Bank (WB) and UNCTAD are collecting data about various indicators in order to compare different countries via the same indicators. Still, it is based on two principles: i) Countries should forward data to NGOs based on the standardization of the indicator to allow comparing between different countries. However, if the data of a certain country are not aligned with the standardization of a certain indicator, then the NGO does not publish the data, and it is mentioned as ‘Missing Data’, still, if a country provided data from a few years earlier, then this data is mentioned in my tables as 'Delayed Data'. ii) Countries should provide voluntarily the data to NGOs, yet if a country decided to not provide the data to NGOs, then it is also mentioned as a 'Missing Data'.

In the light of the above, we get the same outcome namely, there is a 'Missing Data' on the country, regardless of the reasons mentioned above. If we look at the countries that have missing data/delayed data on International Trade, then most of the countries belong to Russian Coalition, rather than to USA Coalition. Importantly, all the missing data/delayed data belong to small countries/territories of the USA coalition (e.g. Liechtenstein, Monaco and San Marino), while most of the missing data/delayed data belong to big/significant countries of the Russian coalition, such as Cuba, Iran, North Korea, Syria, Turkmenistan, United Arab Emirates, Bahrain, Libya, and Venezuela. Besides, if we look at the core of each coalition, then most of the countries with missing data/delayed data are belong to the core of the Russian coalition. That means that each country with missing data that belong to Russia Coalition has more ability to carry out informal counter-sanctions because of the lack of transparency. Even a significant delay in providing data could give a time frame to manipulate the data in terms of counter-sanctions.

To summarise, firstly, the comparison of data of International trade and FDI between the USA coalition and the Russian coalition does not reflect the whole activity of the Russian coalition because 15 countries have missing data/ while 28 countries have delayed data that may not reflect the current activity. Secondly, the missing data/delayed data reflect a lack of transparency, which creates the potential to carry out informal international trade and FDI that could serve as a tool for counter-sanctions or even as a tool for bypassing sanctions.

Formal vs. Informal Sanctions/Counter-Sanctions

Considering the Missing Data/Delayed Data outlined above, formal sanctions/counter-sanctions imposed by official authorities of countries via formal declarations about it, such as the formal sanctions imposed by the USA and the EU against Russia (e.g. Ban on oil imports from Russia to the USA), or vice versa, the formal counter-sanctions imposed by Russia against the West (e.g. Ban on the export of Russian commodities). However, informal sanctions/counter-sanctions are done without official declaration about it, yet the outcome is the same as formal sanctions/counter-sanctions.

Counter-Sanctions vs. Bypassing Sanctions

Regardless of the above, we need to distinguish between counter-sanctions and bypassing sanctions. Counter-sanctions are imposed against those who were imposed in the first place sanctions while bypassing sanctions refers to avoiding sanctions via the help of a third party. Bypassing sanctions could carry out via informal channels, so in this case, it reflects informal trade that does not appear in the official data of a country. Thereby, countries with Missing Data/Delayed Data of International Trade can more easily engage in helping to bypass sanctions. Nevertheless, bypassing sanctions could also carry out by formal channels, yet are needed neutral third parties that will serve as middlemen. For example, a German exporter could export its goods to an importer in Turkey, while after that, an exporter in Turkey could export the same goods to an importer in Russia. Hence, the mechanism of bypassing sanctions, either formally or informally, explains why the sanctions are not effective, which is opposite to the common view of many decision-makers.

Mechanism of Informal Sanctions/Counter-Sanctions

Informal sanctions/counter-sanctions could carry out at the country level via export, import, FDI Inward, and FDI Outward, as follows:

Export. Each coalition could find new importers for its export among the members of its coalition in order to create sanctions/counter-sanctions via export. Thus, under this informal mechanism, the allocation of exports leads de-facto to sanction/counter-sanctions, without formally declaring about it.
Import. Each coalition could find new exporters for its import among the members of its coalition in order to create sanctions/counter-sanctions via import. Thus, under this informal mechanism, the allocation of imports leads de-facto to sanction/counter-sanctions, without formally declaring about it.
FDI Inward. In FDI bids, each coalition could give priority to countries from its coalition. That's can also apply in privatizations and even in some cases of M&As.
FDI Outward. In FDI outward, each coalition could give priority to investments in host countries from its coalition.

To conclude, my analysis indicates that the war-sanctions between the USA Coalition and Russian Coalition will lead to a transformation in the global order. It will create two coalitions that will compete against each to win the war-sanctions. USA coalition has an advantage in the market size, while Russian Coalition has advantages in the energy, the number of countries that belong to its coalition, and the ability to carry out informal counter-sanctions and even to bypass sanctions. It's going to be a tough war!