The impact of the Eurasian Economic Union–Iran preferential trade agreement on mutual trade at aggregate and sectoral levels

Abstract

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.