EAEU-India Free Trade Area: Potential Tariff Liberalization Effects for Russia

Abstract

In 2017, negotiations on the free trade area between India and the EAEU countries entered an active phase. The directions of the negotiation process cover the issues of import tariff liberalization, and the elimination of non-tariff restrictions. The study aims at quantifying the potential impact of mutual tariff liberalization on the dynamics of bilateral trade between Russia and India, in order to develop key principles for Russia's negotiating position (as part of the EAEU), taking into account its strategic priorities. The research methodology bases on the SMART partial equilibrium model and a qualitative analysis of contemporary trends in import demand and the degree of India’s trade protectionism towards imports from the EAEU countries. The study found that the symmetric bilateral tariff liberalization may result in the higher potential increase in Russian exports to India than in the corresponding effects on imports, which will increase the bilateral trade surplus. This is in the interests of Russia, but it hardly meets the strategic interests of India due to its chronic trade deficit. The free trade area may lead to the diversification of the commodity component of Russian exports due to the growing export supplies of Russian coal, to a lesser extent – of metals (aluminum, copper and articles thereof). However, the opportunities to increase the share of high-tech products in the structure of Russian exports remain limited. The free trade area can become an important tool for strengthening Russian exporters of fertilizers, as well as certain categories of agricultural products. In turn, Indian exporters can strengthen their positions on the Russian market of medicines, as well as increase the share of textile products, jewelry and certain categories of agricultural products. The results can serve for developing the position of Russia (as a EAEU member) in multilateral negotiations.