In October 2019, the preferential trade agreement between the Eurasian Economic Union (EAEU) and Iran entered into force. In the present study, we estimated its expected impact on mutual trade flows at aggregate and sectoral levels using the gravity model of trade based on the global sample of bilateral trade flows at the harmonized system six-digit level. The analysis suggested that the implementation of the agreement will boost mutual trade for both trading partners, with relatively greater gains expected for the EAEU’s exports to Iran. The total gains in mutual trade were estimated to reach over USD 72 million, with exports from the EAEU to Iran anticipated to increase by 19.1%, compared with a rise in exports from Iran to the EAEU of up to 7%. The difference in the impact is highly heterogeneous across the five EAEU countries and across sectors. The major export gains are estimated to accrue in the agri-food sectors—especially, trade in miscellaneous fruits and vegetables—and in the chemicals, textile, polymer production and selected electrical and machinery manufacturing sectors.
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For additional discussion, see also Adarov (2019).
The data were also cross-checked for general consistency with the data reported by Iran for the available years, as well as with the data obtained from the Eurasian Economic Commission.
Note that Iran is importing gas and electricity from some neighboring countries, such as Armenia and Turkmenistan. The reason was that Iran’s area is vast and the infrastructure to supply energy to the northern parts of Iran is insufficient, whereas its oil and gas fields are mostly located in the south-west of the country, necessitating energy imports.
De facto, the PTA implementation did not dramatically change the trade regime in the textiles sector on either the EAEU or the Iranian side: on the one hand, the EAEU prior to the PTA already maintained a very low import tariff (0.95%), which decreased slightly further after the PTA implementation; conversely, Iran maintains a very high level of protection for textile products even after the PTA implementation, with an average import tariff of 29.82%.
The major traded item in this sector was polymer production.
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We gratefully appreciate the anonymous referees and the editor of the journal of Eurasian Economic Review for their constructive comments that enhanced the quality of this paper.
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Adarov, A., Ghodsi, M. The impact of the Eurasian Economic Union–Iran preferential trade agreement on mutual trade at aggregate and sectoral levels. Eurasian Econ Rev 11, 125–157 (2021). https://doi.org/10.1007/s40822-020-00161-2
- Trade agreement
- Gravity model
- Poisson pseudo-maximum likelihood