Friday, 17 October 2014

Competition authorities should listen to Jean Tirole

by Maria Salfi

The recent Nobel Prize winner in Economics, Jean Tirole, has brought very important contributions to economics – and competition policy authorities should take on some of the key conclusions from his research.

In Industrial Organization, every model analyzing how firms interact with each other in a static and/or dynamic contest is based on some assumptions such as perfect market competition, the number of firms in the industry, homogeneous or heterogeneous preferences of consumers, constant (increasing or decreasing) return to scale. Moreover firms are treated as acting in the same way in different industries and there is little differentiation about the nature of the industry. All the analysis that has been done for years on how industries work and how firms interact with each other has potential to change. Tirole’s work differentiates between industries and takes into consideration the fact that firms can act in a different manner depending on the industry they are in. What are the implications for the competition authorities?

First of all, past cases in which firms would have been accused of unfair competitive behavior would have a different outcome now. During the presentation of his work at the Royal Swedish Academy of Sciences, Tirole made a clear example. Newspapers give away information at a very low price in order to acquire market share and increase advertising revenues. What at first can be perceived as a predatory behavior by the press firms, it is actually not. There is clearly a trade off between price and market share/advertising revenues. According to this line of reasoning, the context does matter. Different rules should then be applied to different industries and each case should be investigated individually.

Second, consumers should be taken into consideration. If the assessment of a merger or a monopolistic behavior are a priori considered detrimental for society it is then counterproductive. There are cases in which consumers have actually been harmed by a competition authority’s decision. Monopolies usually arise because they are the most efficient firms in the industry and it is not necessarily harmful for consumers.

Competition authorities can now utilize a solid tool to improve society. The definition of fair competition might then be reformulated, taking into consideration the real consequences and the effects that the competition authority’s decision can have on the market and on consumers.

Tuesday, 14 October 2014

Cracking the mainstream notion of fiscal competition

by Maria Salfi

There is a general widespread notion within the European Union that a lower corporate tax rate can harm society. In fact, the European Commission strongly advises the EU’s member states to raise the rate until a certain threshold – about 30% - and to harmonize the tax among countries. A lower corporate tax rate leads to a lower return in government revenues and therefore a lower public goods’ provision for society. Corporate tax rate can be used as a fiscal tool in order to attract capital and labor because firms have an incentive to relocate in a country where the tax rate is lower.

According to the figure below, the corporate tax rate differs across EU countries. Newly member states tend to have lower tax rate compared to countries such as France, Italy or Germany which are characterized by a rate of 30% or more. Being the EU’s average tax rate 21%, half of the member states are actually below or equal to the average (Estonia and the United Kingdom are two examples). 

                                       Source: KPMG

However there are some misleading ideas about the role of the corporate tax rate in society and about the popular “race to the bottom” argument. Although the economic literature widely investigates fiscal competition and its impact on society and it strongly affirms that firms relocate where tax is lower and that it can indeed lead to a lower supply of public goods, the economic models date back to the 80s such as Zodrow and Mieszkowski (1986) or late 90s such as Keen and Marchand (1997). Empirical literature is quite more recent nonetheless it reports controversial results.

Yet, the general public looks at only one side of the coin. First of all, firms are influenced by different factors when relocating to a country - and corporate tax rate is only one of them. According to Ernst and Young (2004), firms look at 18 main factors[1], where corporate tax rate occupies only the 11th place on the list. Second of all, following the argument that a low tax rate will attract multinationals, it leads to a larger tax base. Since a higher amount of firms relocate in one country, the tax base is enlarged and the government can re-balance the tax return although the tax rate is lower. Third, harmonization of the tax rate will not necessarily lead to welfare gain. Countries will find another tool to enhance fiscal competition. In fact, fiscal competition’s studies often forget that corporate tax is not the only tool that countries can use to attract capital and labor: public spending can be used in a similar way to achieve similar results.  Government can indeed increase public spending in certain categories in order to attract firms. Generally speaking, a country investing in domestic infrastructure will not only benefit society and domestic industries per se but also foreign firms which will want to relocate to profit from the business environment, causing an agglomeration effect.  Nonetheless governments should be careful when allocating public revenues since using public expenditure as a fiscal tool can provoke a shift in the supply of public goods. Infrastructure expenditures could be increased at the expenses of social spending. 

[1] The factors are: domestic market, transport logistic infrastructure and telecommunication network, flexibility of employment regulations, local labor skills level, availability of sites, cost of land and regulations, R&D quality and capacity, potential productivity gains, labor costs, corporate taxation, access to financial investors, aid and support measures from public authorities, specific treatment for expatriate executives or corporate headquarters, transparency and stability of the regulatory environment, social climate, language and culture, quality of life.  

Sunday, 12 October 2014

Railways derailing EU-Japan talks?

By P. Messerlin
Professor Emeritus at Sciences-Po Paris and Chairman of the Steering Committee of the European Centre for International Political Economy (ECIPE) Brussels

Since the mid-2000s, the EU has made the opening of public procurement markets one of its key priorities in the WTO and in the bilateral agreements it negotiates with the US and Japan.

In this context, the Japan-EU negotiations are crucial because they raise all the key problems to be faced. First and foremost, they involve firms with very different legal and economic status. Most of the EU railways companies are public, subject to very limited competition and deeply in debt. The Japanese railway market is competitive, consists of a mix of a small number of relatively small public companies and many totally private companies, including a number of former Japan Railway companies which have been privatized).  In particular, the three largest Japanese railways companies which represent 60 percent of the whole EU28 rail passenger market are totally private and profitable.  It took some time in Europe to realize these key differences.  The reason for the healthy situation in Japan is that, since the Meiji era, the Japanese railways companies have worked as true urban planners—connecting their tracks and large stores—something that the EU railways companies have started to do only a decade or so ago (and at a very small scale with their very limited station spaces).

Of course, this situation means that it is impossible to include private firms under public procurement rules. However, an option could satisfy both negotiating partners: a “railways” chapter with a public procurement section covering most of the EU rail companies and the few Japanese firms of similar statute and with a private section covering the private Japanese firms and the (possibly increasing number of) EU firms of similar statute. Drafting different but equivalent concessions for the two sections is not be so difficult because the Japanese rail sector is as large as the whole EU28 sector and because a progressive and balanced deal could be expressed on a firm by firm basis (individual private Japanese rail passengers firms and individual state-owned EU rail firms).

Such a simple solution seems currently rejected by a few vested interests—led by the French railway equipment company Alstom. Opposition by vested interests is not a new thing in trade negotiations. But this one is particularly astonishing for five reasons.

First, France has massive offensive interests in getting a Japan-EU agreement concluded. For instance, such a deal is the only insurance policy to protect her agrifood exports in Japan (Japan is the 3rd export market in the world) against the conclusion of the Trans-Pacific Partnership which includes all the key competitors of French agriculture (Australia, Canada, Chile, the US, New Zealand). Bowing to Alstom means creating huge troubles for the French farmers and agrifood business.

Second, French consumers need more competition in the rail equipment. SNCF has been able to buy French because of massive subsidies. The bad state of the French public finance means that such a mechanism is out of reach for a very long time. And SNCF will not be allowed to raise its prices for political reasons. The only option for SNCF—and the host of French commuters using daily local and inter-city trains—is to get better deals when buying its equipment. This situation is not new: it happened with Air France buying Boeing aircraft.

Third, the Japanese rail passengers companies have the same problem than SNCF: getting cheaper equipment thanks to more competition. It happens that the Japanese equipment market is huge. For instance, the three major private Japanese rail companies own 23,000 electric railcars, whereas SNCF owns 3,000.

Fourth, the GE-Alstom deal has induced some commentators to talk about Alstom as leading a future “Trainbus”—a term making a reference to Airbus. Such a perspective needs clarification. Airbus has never aimed at being a “national champion” in European closed markets. Rather, it has chosen to face international competition and to make the necessary industrial alliances to operate successfully in worldwide markets. A Trainbus which would try to keep the EU rail equipment markets closed is certain to be on a collision course with not only SNCF but also with all the EU rail companies of passengers and cargo transport, on behalf of the 400 billions of passengers-kilometer in the EU 28.

Last but not least, the golden market for the next two or so decades is the Chinese market. For instance, in 2012, there have been 145 billion passenger-kilometers of fast-speed trains in China, compared to 51 in France and 79 in Japan. This market is much too big for Alstom alone. Alstom needs to join forces with rail equipment companies which enjoy a great reputation in Asia and which know already well the Chinese markets. Japanese firms are the only ones to master these two cards.  As a result, the “railway” chapter of the Japan-EU agreement should include  “cooperation” aspects enhancing the EU-Japan industrial alliance, in particular at the third countries including China.

So, why to make troubles when the pros and cons are so clear? Is it the traditional French trade negotiation strategy that consists in playing the “naughty kid” up to the last minute in order to get a few short-term advantages—at the costs of building long-term resentment among our EU partners and in the rest of the world? Or, is it the incapacity of the French government to make the French national interest prevail over narrow vested interests?

One country, two internets: China and Hong Kong

Shenzhen, also known as China’s Silicon Valley, is located less than 30 km north of Hong Kong. As a leading ICT capital, Shenzhen’s economic growth is gradually catching up with Hong Kong – and this mainland city has already surpassed European countries like Slovenia, Portugal and Greece in GDP per capita. 

The Shenzhen-Hongkong metropolitan area is divided by a clear line by the policy of "one country, two systems". While the citizens in Shenzhen are well-informed of the crises in Ukraine and the Middle-East, they were initially oblivious about Occupy Central happening right next door. The public broadcaster CCTV was late to report from the student protests; while Twitter, Facebook and major foreign news websites have been blocked on Chinese mainland for decades. When the images from the umbrella revolution started to appear on Instagram (one of the few foreign social media allowed in China), it was immediately shut down by Chinese censors, but only on mainland China – Beijing knows too well that internet censorship in Hong Kong would only backfire.

Credit: Instagram/@troyadestroyer

Deng Xiaoping, the first post-Mao chairman, supposedly has said that the modernisation of China will take a hundred years divided into three equal instalments: the first period to secure the "territorial integrity” of the motherland (i.e. the civil war and the reunification of Hong Kong), the second to modernise its economy – and finally the third period of political reforms. The People’s Republic is turning 66 next year – or two-thirds of a century if you so wish – and is now weighing on the threshold to its last stage of reforms. Not even the most rabid China-basher would deny that China has gone a long way, and the Chinese people are now enjoying more freedoms than ever before. 

Arguably, one of the most important of freedoms came with its market economy. Yes, it may be volatile, or perhaps a little corrupt, but nonetheless: Chinese market liberalisation created millions of jobs that made the Chinese dream possible and spawned the first-ever generation of Chinese who were able to accomplish their dreams without emigrating; it created the first-ever privately-owned Chinese multinationals – like Huawei, the global leader in telecom engineering, or the e-retailer, who recently completed largest IPO in history raising $25 billion. It is not a coincidence that both are tech firms operating out of Shenzhen: China is now the world’s largest internet economy with 700 million users online, where more than half a billion people are active on blogs or online forums where the political debate is increasingly outspoken and candid.  

The statue of Deng Xiaoping in Shenzhen (incidentally facing Hong Kong)
Credit: Flickr/Ian Roland

For the central government in Beijing, the internet is an indispensable tool for economic growth, but also a valve to let off some steam from the pressure cooker we call Chinese modern life, with local mismanagement, smog, wide-spread corruption in schools and hospitals. In short, let malcontent crowd microblogs like Weibo (in any case limited to 140 characters) rather than on Tiananmen Square. In any event, there is a kill switch – the ubiquitous state censorship demands that all websites must apply for content provider licences that comes with editorial responsibilities and criminal sanctions that few Western publishers or e-commerce operators would accept. Furthermore, all web and email traffic in and out of the country is routed through checkpoints where censors can block or scan anything. Foreign search engines or apps that compete with Chinese services are sometimes blocked or slowed down to render them useless. This filter between China’s two systems caught Instagram and its thousands of images from Hong Kong Central.

Credit: Instagram/@billiethakid

Nonetheless, Beijing's main concern in Hong Kong is neither photo-blogs nor the calls for democracy. The legendary Chinese top diplomat Qian Qichen, who negotiated the Hong Kong handover, fervently recalls in his autobiography how the British started to push for democratic reforms during the handover – after refusing political rights or citizenships to Hong Kong for a century – with the intent of handing over a ticking bomb to China. Qian’s point may seem banal, but still a valid point in 2014: Hong Kong has never been democratic. Occupy Central is first and foremost a protest against Beijing’s interference in Hong Kong’s internal affairs: Democracy just happens to be the best alternative to Beijing rule.

—Just don't call me Dr. Qissinger
Foreign Minister Qian Qichen, chief negotiator of the Hong Kong handover in 1997
Credit: Wikipedia/Wikicommons

Contrary to what many outsiders believe, China is a relatively loose statehood and a frail federal construct – not dissimilar to the EU. China is on the verge of unravelling at every economic crisis and inflation spike; the tensions between Beijing and the provinces have been a constant throughout the history. The key states act as kingmakers and bargain over budgets and Politburo and State Council nominations – once again, not entirely dissimilar to the EU. Let it remain unsaid whether the current leadership of Xi actually share Deng’s view on the timing and the end of the third and final reforms but no Chinese leader – neither current or past – is willing to risk a return to the time before year Zero, the time before Mao, and the dissolution of the central state. This political instinct explains why Deng resorted to using force in 1989 (albeit reluctantly) – and why Instagram is blocked in 2014.

The nimble art of predicting political unrest in China

Beijing is about 2,000 km from Occupy Central – twice as far as Taipei, where the Chinese enjoy free speech and free elections. There are almost forty daily flights to Taipei compared to only twenty to Beijing from Hong Kong. The old cliché says globalisation and the internet have shortened the distances – but the rift between Hong Kong and Beijing is ever-increasing. Technology, more than anything else, made it possible for the two systems to co-exist in China for another 33 years, if deemed necessary.

A Swedish version of this text was printed as an op-ed in SvD on Oct 9th, 2014

Thursday, 9 October 2014

East African Community and the EU’s Economic Partnership Agreement: Do African countries suffer from the victim complex?

By Maria Salfi

A week has passed and the deadline to ratify the Economic Partnership Agreement (EPA) missed. African countries are at the borderline, giving up 12 years of negotiations with the EU. Enjoying the duty-free quota-free access since January 2008, Kenya is being diminished to a step lower. In fact its export now follows the Generalized System of Preferences (GSP) since they did not implement the agreement within the 1st October’s deadline. The other members of the East African Community (EAC) – of which Kenya is part of – are being placed under the “everything but arms” system that enables them to have only duty-free access to the EU market.

Set it up in 1971, the GSP ensures that exporters from developing countries pay lower duties than the official duty applicable (Most Favoured Nation). It is basically a system of unilateral preferences toward Least Developed Countries (LDC) offering accesses to the EU market similar to EPAs. LDCs which do not have an EPA with the EU can therefore benefit from a special export regime although the GSP is not as favourable as the duty-free quota-free system. Nonetheless, it is a unilateral system meaning that the EU does not get the same treatment that it gives.

Thanks to this special scheme, developing and least developed countries can improve their trading capacity and enter markets that they could not do under the MFN arrangement. Therefore they have always profited from a special position that the “developed world” has proposed to them. However, when finally they had the occasion to implement an Economic Partnership Agreement with the EU, they made a step back.  There is a general feeling that African countries perceive the EPA as being biased toward the EU. Yet, they have enjoyed a distinctive position in terms of trade with the Union for quite some time. Ratifying the EPA would have only improve it and make it official. Instead, their economy is facing major costs in terms of trade. Kenya is now incurring costs on its export which did not have before. Its flower market – Kenya is a major flower exporter to the EU - is suffering from a 5% to 8.5% tariff, risking a loss of some of its business permanently.  

Tuesday, 30 September 2014

#ECIPEdebates: will Malmström change the course of EU trade policy? 

Following the nomination of Cecilia Malmström as the new European Commissioner for Trade, ECIPE asked its Twitter followers whether the new Commission would change the course of EU trade policy. In light of yesterday’s EP hearing, we evaluate the responses and conclude that both the Yes- and No-camps might claim their predictions have been confirmed.


According to Iana Dreyer, Editor-in-Chief at, the new Commission configuration could lead to an injection of (geo-)politics in a policy area that is supposed to be based on sound economics. This traditional idea that trade policy-making should be insulated from political/public pressure to avert protectionism and beggar-thy-neighbour policies has been the foundation of the EU’s institutional set-up in trade, making it one of very few areas in which the Commission has firmly been in the driver’s seat since 1957. 

Effectively elected by the European Parliament, new Commission president Juncker has vowed to increase the democratic legitimacy of the EU’s executive by increasing the EP’s powers, including in the area of trade. Citing the “Political Guidelines” he presented to the EP in July as “somewhat akin to a political contract”, his letter to Trade Commissioner-designate Malmström listed enhancing transparency towards citizens and the European Parliament during all steps of the negotiations as one of six priorities.   

The European Parliament already gained more powers in trade through the Lisbon Treaty, as its consent is now required to conclude FTAs. Under the consent procedure, the Parliament is limited to an up-or-down vote and cannot make amendments. However, the assembly’s rejection of ACTA has shown that MEPs are not afraid of using the nuclear option if a trade deal prompts stark public opposition.

Those who see the appointment of Juncker as yet another step towards the complete politicisation of EU trade policy will certainly have discerned elements corroborating their views in yesterday’s hearing. Malmström used most of her opening 10 minutes to appease those MEPs who expressed concerns about environment, health and consumer standards, which she vowed to “never trade against economic concessions”. On ISDS, she admitted that it could be improved, without ruling out its inclusion in TTIP, as the original version of her written answers to the EP had promised.

In addition, she promised to increase transparency during the negotiations of trade deals by publishing her list of meetings with stakeholders, and more importantly, by sharing negotiating documents with all 751 MEPs. So far, only the members of the Committee on International Trade (INTA) had access to these. Malmström conditioned the commitment on the Parliament creating “a system that ensures confidentiality”, but seems to have opened the door for a strong increase in interference from the EP during trade negotiations. 


On the other side of the debate, Dr. Gabriel Siles-Brügge, Lecturer in Politics at the University of Manchester, predicted no change of course in EU trade policy to take place, other than an increased focus on “selling TTIP”. Recent academic literature offers two explanations as to why the appointment of a new Commission(er) cannot drastically alter the EU’s trade course or agenda. 

A first strand of thought argues that while institutions play a role, economic interests are the dominant drivers of trade policy. In a world economy marked by increasingly globalised supply chains, this means that exporters will tend to lobby in favour of trade openness and liberalisation, as tit-for-tat protectionism would be highly damaging to their businesses. This rationalist view makes abstraction of the policy ideas and values of political agents, but instead considers trade policy as defined by the balance of domestic economic interests, which in a strongly integrated market such as the EU would generally tip in favour of global exporters. 

A second explanation, as offered by Dr. Siles-Brügge himself in a recent paper, looks at ideas rather than interests. Siles-Brügge argues that trade policy-makers “construct” the political reality by creating an ideational imperative that limits the policy debate. By pointing out the abject failure of protectionist policies in the past, political leaders rule out a whole spectre of trade policy and consistently frame continued openness as the only option that creates jobs and growth.

Evidence for this view could be found yesterday as well, when French MEP Yannick Jadot (G/EFA) suggested taking a break in on-going FTA negotiations to evaluate the wider EU trade strategy as there is no proof that it has created “millions of jobs”. Malmström replied that she has a different point of departure and that she thinks trade is “a very powerful tool to get out of the economic crisis”. Earlier, she illustrated what Siles-Brügge means by “ideational imperative” when she equated “trade policy (…) driven by the interests of citizens” to being ambitious in trade negotiations “in order to create jobs and growth”. 


Watching yesterday’s discussion between Commissioner-designate Malmström and INTA members, some will conclude that trade policy will never be the same again. The new trade commissioner has opened the door for increased political interference from the EP by giving it more power and addressing its concerns on TTIP. Many trade economists might therefore rue her contribution to the politicisation of a policy area that is traditionally considered better off in the safe hands of experienced bureaucrats. 

The main question is however whether politicisation in this form is necessarily a bad thing. Based on the Lisbon Treaty (Art. 207 TFEU), it is the right of every MEP to be kept abreast of trade negotiations, as it is not specified that only the INTA should be consulted by the Commission. It may prove a great move by Malmström to sell this as a favour to the Parliament now, rather than having to reluctantly concede it later down the line. It will certainly make MEPs less susceptible to the “behind-closed-doors” criticism that drives the opposition against TTIP.

Moreover, increasing democratic legitimacy seems an inevitable consequence of the expanding scope of trade policy. Instead of brokering deals on obscure tariff lines, trade negotiators now deal with issues such as intellectual property, investment protection and services regulation, i.e. policy areas which lie closer to the core of the nation state. Involving a democratically elected body in this process from the earliest stages will undoubtedly lead to protracted negotiations, but could also serve to bring legislators on board of the “ideational imperative” of trade openness in the long run.

All in all, Malmström did not deviate much from the lines taken by her predecessor Karel De Gucht. While she was lenient on process and struck a more diplomatic tone - at times the hearing seemed nothing short of a conversation - she stood firm on substance. If her transparency measures will be what ultimately draws the Parliament over the line in support of ambitious trade deals, Malmström’s strategy of openness may yet end up saving the EU’s trade agenda rather than jeopardising it. To be continued. 

Friday, 12 September 2014

#ECIPEdebates: Are EU sanctions on Russia working?

Following the agreement reached at the special European Council held on 30th August, the EU has announced the implementation – effective from today - of new sanctions against Russia. 

These will expand to three state-controlled oil companies the restriction to raise new money in EU capital markets. According to The Wall Street Journal, three oil companies (Gazpromneft, the oil-production and refining subsidiary of Gazprom, Transneft and Rosneft) as well as three Russian defence companies (United Aircraft Corporation, Uralvagonzavod and Oboronprom) will be forbidden from raising funds of longer than 30 days' maturity. The same will apply to five Russian state-owned banks already targeted in the July measures. 

Brussels is also broadening its ban on sales of so-called dual-use technologies to Russian customers and imposing new restrictions on the provision of services for deep-water oil exploration, arctic oil exploration or production and production and shale oil projects in Russia - quite unpleasant given Russian dependency on these technologies to exploit new drilling sites situated offshore and above the Arctic Circle. A further 24 people - including people linked to the rebels in eastern Ukraine and Russian officials and oligarchs – have also been added to the list of those barred from entry to the bloc and whose assets in the EU are frozen.

This is the second wave of sanctions following those announced by Brussels in July and to which Moscow has responded imposing a one year-long ban on imports of meat, fruits and vegetables, fish and dairy products from Australia, Canada, the European  Union, Norway, and United States. And while Moscow denies the allegations, it has started reducing its gas supplies to some EU countries in the attempt to prevent them from re-exporting Russian gas to Ukraine. 

Is this tit-for-tat working?

We have asked this question to several experts in the field which seem to agree more with Hungarian Prime Minister Viktor Orban – who, criticizing the sanctions, remarked that “in politics, this is called shooting oneself in the foot” – rather than with Lithuanian Foreign Minister Linas Linkevicius – who considers that it is “better to shoot yourself in the foot, than let yourself be shot in the head”.

In his blog entry in reply to our question, Philip Levy speculates on the objective that US and EU are trying to achieve. He presents four alternatives:

1. Compel Russian withdrawal from Crimea and the Eastern Ukraine. 
2. Ensure that international accords, such as the 1994 Budapest Memorandums on Security Assurance, are credible. [This was the one in which Russia, the United States and the UK promised to defend Ukraine’s territorial integrity if Ukraine gave up nuclear weapons]. 
3. Make sure Russia goes no further, e.g. by threatening NATO Article V allies such as Estonia (where the President just visited). 
4. Signal displeasure.

He argues that so far only the fourth objective has been achieved and that a stronger action is required to send a clear signal to Russia. An action which would include new defense capabilities within NATO, supply of advanced weapons to Ukrainian military and full-scale economic sanctions, as suggested by Chicago Council President Ivo Daalder.

The trade war is already causing significant unrest on both sides given the strong economic dependencies of the two economies, and various estimations of the impact of EU sanctions on Russia as well as of Russian counter-sanctions forecast substantial possible costs.

The reply to #ECIPEdebates question received by CATO Institute stresses the costs that Russian-imposed sanctions might bring to the Russian economy. The high import penetration in the food sector - around 60% of food sold in Moscow and other major cities is imported – is likely to bring new pressure to the rising food prices. The latest quarterly food inflation figures show a two percentage points increase compared with the first quarter of the year (see figure).


While CATO Institute suggests that Russian consumer discontent could play a role in the eventual end of this wave of restrictions, Russia is preparing to announce new trade sanctions, perhaps targeting European automotive and textile industries.

Any chance for a mutual removal of sanctions?

ECIPE Director Hosuk Lee-Makiyama, in a recent interview by The Moscow Times, considers that both sides cannot afford to uphold the sanctions more than six to eight months. The rapid tightening of the sanctions and the upcoming winter might force the two parts to find a solution even quicker.