Technical Note - 2021 - November- Número 03 - Dinte

Economic Impacts Of A Free Trade Agreement Between Brazil And Russia: A General Equilibrium Approach

Autores: Fernando J. Ribeiro, Gerlande Andrade, Alicia Cechin

Acesse o PDF (613 KB)

The bilateral relationship between Brazil and Russia was not much significant until the year 2000, but they grew rapidly in the following decade, as both countries benefited from the commodities supercycle, accelerated GDP growth rates and the deepening of their integration in the world economy. Brazilian exports to Russia reached a peak of US$ 4.6 billion in 2008, while Russian exports to Brazil reached US$ 2.0 billion in the same year. Unfortunately, they were not able to sustain those trends. In 2020, Brazilian exports have been reduced to US$ 1.5 billion, a third of the record registered in 2008, and Russian exports had large fluctuations, with yearly amounts staying around US$ 2 billion. They had an impressive growth in 2019-2020, reaching its historical record of almost US$ 3 billion, but it´s too early to say that´s a sustainable movement.

Anyway, it seems clear that bilateral trade is well beyond its potential, what can be assessed by the low share of the countries in each other’ total trade flows and by the small diversification of the trade bill. The share of the countries in each other´s export bill is less than 1%, and Brazilian market-share in Russian imports is also below 1% (though it has already reached 2% to 3% shares between 2001 and 2010). The share of Russia in Brazilian imports is somewhat higher, of 1.8%, but ¾ refers to fertilizers, a crucial input for the dynamic agricultural sector in Brazil. These products, added to crude oil and fuel oils, has represented 80% to 90% of Russian exports to Brazil during the last decades. The degree of concentration is also high on the Brazilian side, with 80% to 90% of the exports related to agricultural and food products, especially meat, sugar, coffee and soybeans.

Even considering the geographical distance and differences in cultural and historical backgrounds, it is possible to claim that Brazil and Russia have space to strengthen their trade ties, as both have huge economies and, though both have clear comparative advantages in commodities, they also possess reasonably diversified productive structures, including in various industrial activities. The aim of this paper is to assess the possible economic impacts of a free trade agreement between Russia and Brazil – in fact, between Eurasian Economic Union and Mercosur, so that, as customs unions, any trade agreement must be negotiated by all the members. The simulations are made using a computable general equilibrium model based on GTAP database, version 10. The next section presents the features of the simulations, and the results are discussed in section 3. Finally, section 4 summarizes the main conclusions.