Free Trade Agreement between the European Union and the Federation of Russia: A CGE Assessment

The aim of this paper is to assess the impacts of different levels of a trade agreement between Russia and the European Union. Various scenarios of such an agreement have been simulated using the CEPII’s computable general equilibrium model, MIRAGE and the CEPII’s database on tariffs, MAcMap. The scenarios consider three levels of agreement between the Federation of Russia and the European Union: a “minimum” agreement, a total liberalisation except for sensitive products and the creation of a free trade area (FTA) with the abolition of all protection between the two blocks. Different sets of international conditions are modelled: the conclusion of the Doha Round Agreement and the entry of Russia in the World Trade Organisation. Several conclusions can be drawn. A free trade agreement between the EU and Russia leads to welfare loss for Russia even if combined with multilateral trade liberalisation because of adverse terms of trade. But this FTA is always trade enhancing for both partners and particularly for Russia where initial protection is higher and thanks to the depreciation of its real exchange rate. These results are also contrasted by sectors. As the industrial sector is by far the most important in the composition of trade of these two economies, it is also the sector which concentrates most of the gains. Concerning agro-food, gains are more modest in absolute terms but increases in trade in relative terms are significant for dairies, meats, cereals, fisheries and food for Russia; meats, dairies and other crops for the EU.