Searching for trade partners: Assessing the feasibility of free trade agreements using principal component analysis

The article tackles a problem of rating the Russian Federation’s trading partners based on the advisability of concluding free trade agreements with them. When constructing the rating, the indicators of foreign trade of the Russian Federation and a potential partner are taken into account, which can be divided into three blocks: (1) the economic attractiveness of the partner for the Russian Federation, (2) the potential for reducing trade barriers, and (3) the risks of opening the domestic market. For each block, using the principal component method and the best proximity point, integral indicators are constructed that characterize each of the three aspects of advisability. The indicators for individual blocks are combined into a common indicator of the advisability of concluding a free trade agreement, based on which a rating of partners is compiled. The methodology for assessing the advisability was developed considering Russia’s tasks in increasing non-resource non-energy exports and priority goods for export, Russia’s need for imports, as well as possible threats to the competitiveness of national industries posed by the liberalization of trade in goods “sensitive” to imports. Priorities for exports and the need for imports are determined in accordance with national priority projects, orders of the Government of Russia and decisions of the Supreme Eurasian Economic Council. As a result, rankings of 39 potential partners are presented. The first place in the final rating by a significant margin is occupied by Mongolia, with which a free trade agreement has already been signed but has not yet been ratified by members of the Eurasian Economic Union. Among the leaders of the rating were Kenya, Turkey, India and Tanzania.