investment in these services sectors.<sup>15</sup> The results of the estimates are listed in table 2.<sup>16</sup> In the case of maritime and air transportation services, we assume that the barrier will only be cut by 15 percentage points, since pressure from the Working Party in these sectors is not strong.

**Share of Expatriate Labor Employed by Multinational Service providers.** The impact of liberalization of barriers to foreign direct investment in business services sectors on the demand for labor in these sectors will depend importantly on the share of expatriate labor used by multinational firms. We explain in the results section that despite the fact that multinationals use Russian labor less intensively than their Russian competitors, if multinationals use mostly Russian labor their expansion is likely to increase the demand for Russian labor in these sectors.<sup>17</sup> We obtained estimates of the share of expatriate labor or specialized technology that is used by multinational service providers in Russia, but which is not available to Russian firms, from the Russian research institutes that specialize in these sectors. In general, we found that multinational service providers use mostly Russian primary factor inputs and only small amounts of expatriate labor or specialized technology. In particular, the estimated share of foreign inputs used by multinationals in Russia is: telecommunications, 10% plus or minus 2%; financial services, 3%, plus or minus 2%; maritime transportation, 3%, plus or minus 2%; and air transportation, 12.5%, plus or minus 2.5%.

# **Tariff and Export Tax data**

Tariff rates by sector are taken from the paper by Tarr, Shepotylo and Koudoyarov (2006). Tarr, Shepotylo and Koudoyarov estimate the tariff rates by sector in our model based on the following data and methodology. For the purpose of calculating the tariff rates, they obtained data on the quantity and value of imports for 2001, 2002 and 2003 from the electronic database of the commercial company Academy-Service.<sup>18</sup> This dataset provides information on the Russian tariff structure at the tariff line level, i.e., the 10-digit level. The source of information on tariff rates is the Decree of the Government of Russian Federation on import duties #830.<sup>19</sup> The decree is available, for example, at <u>www.consultant.ru.</u>

> 14 The three papers by Kimura, Ando and Fujii as well as the underlying responses to the surveys are available at <u>www.worldbank.org/trade/russia-wto</u>

> 15  Warren estimated quantity impacts and then using elasticity estimates was able to obtain price impacts. The estimates by Kimura et al. that we employ are for “discriminatory” barriers against foreign direct investment. Kimura et al. also estimate the impact of barriers on investment in services that are the sum of discriminatory and nondiscriminatory barriers.

> 16  See Jensen, Rutherford and Tarr (forthcoming) for an explanation of the estimate in telecommunications. 17 See Markusen, Rutherford and Tarr (2005) for a detailed explanation on why FDI may be a partial equilibrium substitute for domestic labor but a general equilibrium complement.

> 18 <u>http://www.ftinform.com</u>

> 19 We looked at three editions of the decree: first, dated by 11.30.2001 for 2001; the second, dated by 02.06.2003 for 2002 rates, and the third, dated by December 2003 for 2003 rates.

14