Russian Bilateral Trade Talks With Belarus

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Bilateral trade at record highs while EU misfires on Belarus sanctions policy 

Presidents Putin of Russia and Lukashenko of Belarus met last Friday (February 18) in Moscow to discuss bilateral trade development. The two countries are members of the Eurasian Economic Union (EAEU) which also includes Armenia, Kazakhstan, and Kyrgyzstan. The EAEU also has Free Trade Agreements with Serbia, Iran, Singapore and Vietnam and is having discussions with China, Egypt, and India among many others.

Putin meets Lukashenko. The closer the relationship, the smaller the table.

Putin stated that bilateral trade had reached US$35 billion and had grown over the year by 38%, a stronger bilateral situation bought about by European Union sanctions on Belarus moving its trade corridors east. Belarus borders Latvia, Lithuania and Poland with the EU now committed to building physical fenced borders between Belarus and the EU. That trade dynamic has instead gone to Russia, the EAEU and to some extent, China.

Polish soliders erect razor wire on the border with Belarus. EU-Belarus trade has collapsed.

Lukashenko stated that “Our economic sector has been advancing. Despite the external factors – particularly, the externally-imposed inflation factors that we cannot avoid – I see that both in Russia and in Belarus we are making every effort possible in the current conditions to counteract inflation, and this is not easy. Both Russia and Belarus saw good economic growth last year. It is very important that now, at the beginning of this year, we should focus our efforts on countering any external economic pressure both against us; the sanctions make the situation more difficult.”

The two then discussed continuing the development of Belarussian trade – it is a major producer of potash and fertilizers and EU sanctions have meant both that the EU has to find alternative sources and Belarus has to find new clients. It did so last week with Russia and Brazil agreeing for the latter to source fertilizers – much of which will be transhipped from Belarus. Brazil is a significant agricultural player on global markets. The EU in contrast is facing a fertilizer shortage with farmers facing a 9% deficit of available product during 2022 and fertilizer commodities at record highs.

This implies that EU sanctions, when imposed, are not especially well thought out and that countries such as Belarus and Russia have had contingency plans in place in expectation of them.

Lukashenko finished the meeting again discussing “developments regarding our major companies and efforts that need to be made to retain growth” and comments that Belarus-Russian economic development “proves that Western sanctions will fail, and they will not destroy us.”

Lukashenko has been quick to counter EU sanctions. Intra-EAEU trade rose by 33% in the first half of 2021, while Belarus trade within the non-EAEU countries rose by 58% during the same period, with a significant proportion going East to Asia and China rather than to the traditional EU markets.

The EU’s import trade growth rose by 23% in 2021, while ASEAN and China import growth rose by 23.8% and 19.5% respectively, meaning that Belarus – and Russia – have managed to replace exports to the EU with exports to Asia. That is set to grow further as numerous ASEAN countries, together with China and India look to develop free trade agreements with the EAEU.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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