International Finance

Free trade with Russia could bring benefits for Germany and EU

A free trade agreement could boost Russia’s exports to the EU by around €71 billion

February 22, 2017: A free trade area for the European Union, Russia and other states would have economic advantages for all concerned, according to model-based calculations by the Ifo Institute.

According to Ifo’s research results, a comprehensive agreement between the EU and the Eurasian Economic Community could lead to a 0.2 percent increase in real per capita income in the EU, corresponding to an annual €91 upturn in per capita income. For Russia, this increase could be as high as three percent or €235 per year.

“These income gains stem from the fact that the economic structures on all sides are highly complementary,” explained Gabriel Felbermayr, Director of the Ifo Center for International Economics speaking at a conference held at the Ifo Institute entitled: “Common Economic Space from Lisbon to Vladivostok.”

“A free trade agreement is barely conceivable as long as the Ukraine conflict remains unsettled. Such a pact could nevertheless form an integral part of a new strategic partnership between the EU and Russia,” noted Felbermayr.

For Germany, a free trade agreement with Russia and the other states in the Eurasian Economic Community could lead to growth of €31 billion in exports, which would have to be offset against negative trade diversion effects totaling €9 billion. These negative effects would be due to higher Russian exports to the EU in sectors like metal products, for example, which would crowd out Germany’s exports of such products. Other EU countries may also stand to benefit from a free trade agreement.

The model indicates that a free trade agreement would boost Russia’s exports to the EU by around €71 billion. Russia’s exports to the rest of the world would also pick up thanks to the availability of cheaper machinery and intermediate products from the EU, which would boost Russia’s overall competitiveness and give it advantages in third-party markets. Overall, Russia’s exports would increase by around €77 billion. Other countries in the Eurasian Economic Community would also stand to benefit from a free trade agreement, according to the Ifo study conducted on behalf of the Bertelsmann Foundation.

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