Lisbon 2 Vladivostok

_ Yuri Kofner, junior economist, Institute for Market Integration and Economic Policy. Munich, 19 August 2020.

«The EAEU is the Kremlin’s neo-imperial project. The EAEU only creates barriers for the Belarusian economy. The EAEU is disadvantageous to the Republic of Belarus», – this narrative can sometimes be read on Belarusian media. It is especially popular among the pro-European white-red-white opposition in Belarus. However, statistical facts and economic empirics refute this opinion. In fact, the EAEU is economically beneficial for Belarus. Moreover, of all the union’s member states, Belarus is the greatest beneficiary of Eurasian economic integration.

All the information below was formulated by the author on the basis of statistical data from the Eurasian Economic Commission and WITS (Comtrade). More details about specific data sources can be found by following the links to my research papers.

Orientation towards the EAEU

The common goods market of the EAEU is of great importance for Belarus. In 2019, mutual trade with other countries of the union accounted for 51 percent of all trade in the republic. Exports to the Eurasian market accounted for 44.2 percent of the country’s total exports. And import – as much as 56.3 percent of all import supplies to BLR.

Facilitating access to the Russian market, which in 2018 amounted to USD 4.1 trillion in PPP (87 percent of the EAEU’s GDP) with a combined population of 147 mln people (80 percent of the Union’s total population), was one of the main reasons for Belarus, to decide in favour of participating in the Eurasian integration project. In 2018, Russia accounted for almost 40 percent of Belarus’ export geography.

Thus, a hypothetical severance of the trade and economic relations of Belarus with the EAEU and Russia, for example, by leaving the former or by closing the border with the latter, would have extremely negative consequences and would lead to a long-term structural depression in the republic – most likely of a larger scale than which Ukraine continues to experience from the severance of trade and economic relations with the Russian Federation.

Without oil: significant trade surplus with Russia

The country’s deficit in commodity trade with the Russian Federation is often criticized. Indeed, in 2012-2018, it amounted to USD 8.5 billion on average annually. However, this deficit is not as bad as it is often portrayed. And it certainly cannot be one of the main reasons for criticizing the Eurasian integration of Belarus.

Belarus a goods trade deficit not only with Russia, but also with the European Union and China. Also, over the past six years it grew much more slowly with the Russian Federation (1.4 percent) compared to that with the EU (7.1 percent) and China (73.4 percent annually).

In goods trade excluding fuels (gas, oil, coal) only with Russia does Belarus have a significant trade surplus of USD 2.1 billion on average each year.

Both in personal cross-border transfers and FDI the country has a net surplus with Russia.

The annual average surplus in BLR-RUS cross border payments and personal remittances constituted USD 809 m over 2012-2019

The annual average surplus in BLR-RUS foreign direct investment contributed another USD 770 m over 2010-2018 to the Belarussian economy.

If we consider not all trade in goods, but only non-fuels trade, then the Republic of Belarus has a significant positive net balance in trade and economic relations with the Russian Federation: 9.5 billion US dollars on average annually or comparable to a 15.7 percent contribution to the country‘s GDP in 2018.

Moreover, Belarus imports crude oil from the Russian Federation, refines it at its oil refineries, and sells finished petroleum products, i.e. goods with higher added value, to Europe. On average, earnings from the export of petroleum products made to the EU amount to another USD 1.5 billion per year.

EAEU helps the industrialization of Belarus

In 2014, in reaction to Western sanctions, the Russian Federation adopted a ban on food imports from various Western countries and introduced a protectionist industrial import substitution policy. These unilateral steps by Moscow are often criticized as the main obstructions to the declared free movement of goods within the EAEU by de-facto creating a “two-tier customs union” and by skewing the formally unified foreign trade policy.

However, empirical data show, that Belarus was able to benefit significantly from participation in the Eurasian integration process and from Russia’s unilateral countersanction policy.

On average, half of Belarussian goods import from Russia is raw materials. In return, almost 100 percent of Belarussian export (back) to Russia is finished products. Moreover, between 2012 and 2018 the share of finished products in BLR exports to RUS increased from 86.8 to 98.2 percent. This trend, as well as the Belarusian-Russian import-export structure in itself, indicates the benefit of Minsk’s decision to participate in the creation of the EAEU common economic space. It also suggests that Belarus imports Russian raw materials and energy carriers, processes them, and then sells them back to the Russian market as finished goods.

A study by the Vienna Institute for International Economic Research (wiiw) from 2018 using a gravity model found that, thanks to the creation of the Eurasian customs union, factual export volumes from Belarus to Russia were on average one third higher in 2010-2015 than they could have been without its establishment, and, that, in fact, the greatest “trade creation effect” of the Eurasian customs union was noticeable for the Republic of Belarus.

Between 2012 and 2018, Minsk was able to significantly increase its share in Russian imports in all three food groups affected by the Moscow’s import ban: fruit & vegetables – from 0.6 to 4.5 percent; animals and products thereof – from 5.2 to 34.6 percent; and dairy products from 34 to 81 percent!

In the industrial sector Belarus was also the main beneficiary from Eurasian integration and from the cooldown in the Russo-Western economic relationship. Significant gains on the Russian market were made in such areas as: semi-finished textiles & clothing; finished chemicals (including pharmaceutical drugs) from 1.7 to 3.5 percent; transport equipment from 2.7 to 5.4 percent – motor vehicles and railroad equipment in particular (the latter from 0 to 15 percent!); and elevators (from 12 to 25 percent).

Also, between 2012 and 2019 Belarusian real goods exports to the other countries of the integration bloc more than doubled from USD 14.2 billion to USD 31 billion. The average year on year real export growth rate for 2013-2019 was 12.3 percent.

Leaving the EAEU: economic crash

Above, significant net economic benefits from the trade and economic partnership between Belarus and Russia and from the country‘s participation in Eurasian economic integration processes were described. So, what would happen if Belarus would hypothetically leave the EAEU?

The author estimated the expected consequences of such a step using a partial equilibrium model.

Withdrawal from the EAEU customs union and the return of customs posts on the Belarusian-Russian border would lead to a drop in the country’s GDP by 3.7 percent.

Even more significant would be the losses from leaving the EAEU’s single economic space and the return of already eliminated non-tariff barriers, i.e. if Minsk introduces technical standards different from the EAEU, SPS measures, labelling requirements, etc. In this case, exiting the EAEU common economic space would be a huge blow to the Belarusian economy, which would drop by one fifth (-20.3 percent).

Leaving the common labour market of the EAEU would lead to another loss of 0.8 percent of the country’s GDP.

All the scenarios taken together, the hypothetical complete exit of Belarus from the EAEU would reduce the republic’s GDP 21.1 percent. Moreover, of all the member states of the integration bloc, it is the Republic of Belarus, for the above reasons of trade and economic interdependence, that would suffer the most from leaving the Eurasian Economic Union.

Literature:

Kofner Y. (2020). Did the other EAEU member states profit from Eurasian integration and Russia’s countersanction policy? URL: https://miwi-institut.de/archives/400

Kofner Y. (2020). Is the Belarussian trade deficit with Russia really so bad? URL: https://miwi-institut.de/archives/385

Kofner Y. (2020). The price of Eurasian disintegration. URL: https://miwi-institut.de/archives/114

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