Armenian Experts’ Debate: “Membership in the EEU in Exchange for Security”
Supreme Eurasian Economic Council,
Moscow, May 8, 2015
In
Login if you are already registered
(no votes) |
(0 votes) |
Armenian experts Vagram Ter-Matevosian, senior research associate at the Institute of Oriental Studies of the National Academy of Sciences, and Arshaluis Mgdesian, journalist and political observer, argue why Armenia is gravitating towards the EEU, what kind of hopes the country pins on the integration body, what sort of changes have taken place in the country’s economy immediately after it acceded to the EEU, and what possibilities the EEU member states have in order to further expand their collaboration. The experts were asked to answer five identical questions in order to see whether their visions of Armenia’s EEU accession coincide or differ.
In January 2015, Armenia became an official member of the Eurasian Economic Union (EEU), having refused to sign an Association Agreement with the European Union. Armenia has no common borders with the Customs Union member states; therefore, its EEU accession treaty includes a special procedure for the transportation of freights between foreign countries and the EEU member states. So far the country has a limited representation in the Eurasian Economic Commission and will enjoy preferential customs duty rates until 2022.
In the context of its accession to the EEU, Armenia embarked on negotiations to revise some of its commitments to the WTO (Armenia became a member in 2003). Its membership in the EEU envisages shared trade policies regarding third countries and requires a revision of its membership in the WTO, which is an important condition for the involvement in the new economic bloc. Armenia’s tariff rates are lower than those elsewhere in the EEU; however, WTO rules prohibit a unilateral increase in tariff rates. Therefore, the talks between Armenia and the WTO will focus on an increase in rates in significant sectors of the economy to the level adopted in the EEU .
In the meantime, the Eastern Partnership (EaP) Summit, which took place on 21 and 22 May in Riga, Latvia, discussed new formulas for cooperation with Armenia, as well as Azerbaijan and Belarus, which did not sign Association Agreements with the EU, either. Armenia and the EU were supposed to begin negotiations over a new format for their relationship; however, the talks were postponed, because the Council of the European Union did not adopt a corresponding negotiating mandate.
Armenia mostly regards its accession to the EEU as a means to ensure a free movement of goods, services, and labor.
Armenian experts Vagram Ter-Matevosian, senior research associate at the Institute of Oriental Studies of the National Academy of Sciences, and Arshaluis Mgdesian, journalist and political observer, argue why Armenia is gravitating towards the EEU, what kind of hopes the country pins on the integration body, what sort of changes have taken place in the country’s economy immediately after it acceded to the EEU, and what possibilities the EEU member states have in order to further expand their collaboration. The experts were asked to answer five identical questions in order to see whether their visions of Armenia’s EEU accession coincide or differ.
How does Armenia perceive the goals and objectives of the EEU?
Vagram Ter-Matevosian
Vagram Ter-Matevosian, senior research associate at the Institute of Oriental Studies of the National Academy of Sciences: Armenia mostly regards its accession to the EEU as a means to ensure a free movement of goods, services, and labor. Russia’s leading role in Armenia’s trade turnover also tipped the scale in favor of the EEU. In 2012, Russia accounted for 23% of Armenia’s export and 25% of import supplies in the country. Russia is the main creditor with 40% of combined foreign investments in Armenia. Russia’s major companies — Gazprom, Russian Railways, INTER RAO UES, United Energy Company, Rusal Armenal , etc. — own 100% of some of Armenia’s open joint-stock companies. This goes to show that Russia is actively involved in the leading sectors of the Armenian economy, including energy supply, electricity processing and distribution, transport, telecommunication, the banking sector, insurance, and mineral production. That being said, the Armenian authorities must perceive the EEU, which is mostly lobbied by Russia, as a bloc capable of ensuring the country’s economic security.
The EEU member states need to be governed by the principle of providing mutual assistance in case the organization encounters any crisis developments and meet their commitments instead of burying their heads in the sand and waiting for better times.
Armenia’s propensity for the EEU integration option is also a result of its heavy dependence on Moscow’s military assistance. Before Armenia made its choice in favor of the EEU, there was a popular opinion in the country that the EU, facing a slew of intraregional problems, is incapable of offering the same guarantees of security that Russia is ready to provide should there be any threats to Armenia.
There is another, little-studied yet important, reason why Armenia opted for the EEU — the role of the Armenian Diaspora in Russia. There are some 1.2 million Armenians living in Russia, according to the most recent population census, whereas experts believe the actual figure may be as high as 2.5 million. Most of the Russian investors in Armenia also belong to the Armenian Diaspora (29% of all investors). As a result, the Armenian authorities are unable to disregard the needs and political preferences of the Armenians who live in Russia and call for official Yerevan to join the EEU.
Armenia regards the EEU as an organization that is capable of helping the country effectively address its economic problems in the near term, compared to the long-term benefits of cooperation with the EU.
Arshaluis Mgdesian, journalist, political observer: the EEU is primarily associated with Russia in Armenians’ perception. There are several reasons: Moscow in the main guarantor of Yerevan’s security and main supplier of weapons to the Armenian army. Russia is Armenia’s primary trade partner. Most of the commodities made in Armenia are supplied to the Russian market. Armenia can benefit from the four freedoms offered within the framework of the EEU — free movement of goods, services, labor, and capital — mostly in the context of Russia. Armenia’s accession to the EEU will enable the country to acquire rough diamonds, oil products, and natural gas at internal prices (adjusted to logistics fees). Money transfers by labor migrants, as well as representatives of the numerous Armenian Diaspora, to their Armenian relatives bring an estimated $1.5 billion to the state budget every year, accounting for half of budget revenues. Armenia may eventually establish closer ties with Belarus, Kazakhstan, and Kyrgyzstan, but as of today, for Armenia, the EEU stands for “Russia.”
How can the EEU facilitate or impede the resolution of Armenia’s economic challenges?
Vagram Ter-Matevosian: Armenia regards the EEU as an organization that is capable of helping the country effectively address its economic problems in the near term, compared to the long-term benefits of cooperation with the EU. The slow recovery after the crisis of 2008–2009 and the large number of languid economic, structural, and social reforms have increased the poverty level in Armenia. The drop in FDI, heavy tax burden on small business, and thriving shadow economy, monopolies in various import and export segments, reliance on the export of a limited number of commodities, and complicated external economic conditions have made the Armenian economy fragile and sensitive to possible changes. These tendencies brought about a surge in labor migration to Russia. The Armenian authorities were looking for ways to stabilize the economy fast and effectively and opted for the EEU option.
Armenia may eventually establish closer ties with Belarus, Kazakhstan, and Kyrgyzstan, but as of today, for Armenia, the EEU stands for “Russia.”
When it comes to the accession to the EEU, we should keep in mind Armenia’s dependence on Russian energy. Under the “assets for debts” scheme, some of Armenia’s strategic assets have been handed over to Russian companies as debt payments. In 2013, the governments of Armenia and Russia signed an agreement to grant Gazprom the exclusive right to supply natural gas to Armenia until 2044. Furthermore, Gazprom became a full owner of Armenia’s gas network once it sold its shareholding to pay to the debt for Russian natural gas consumed in 2011–2013, which came to $300 million. In exchange for control in the Armenian gas sector, Russia reduced the gas fee for Armenia from $270 per 1,000 cubic meters to $189 and undertook to supply 2.5 billion cubic meters of gas to Armenia within the next 24 months.
Arshaluis Mgdesian
Arshaluis Mgdesian: The drop in consumption volumes in the EEU market caused by negative trends in the Russian economy has had a direct impact on Armenian producers. Supplies of Armenian goods to Russia are falling, and the depreciation of the Russian currency made it unprofitable for Armenian manufacturers to pay in Russian rubles, causing losses. The lower value of the Russian national currency resulted in a situation when Russian commodities in the Armenian market became cheaper than those made domestically, for example, flour. However, after the single economic space has been established within the EEU, the Armenian government will not be able to limit Russian imports or impose import quotas. The only thing that it will be able to do is subsidize local makers. Many weaker economies — such as Bulgaria, Romania, and Estonia — were faced with the same challenge when they joined an integration union — the EU — where big players dominate.
How can the accession to the EEU influence Armenia’s relationships with other countries or international organizations?
The EEU member states need to be governed by the principle of providing mutual assistance in case the organization encounters any crisis developments and meet their commitments instead of burying their heads in the sand and waiting for better times.
Vagram Ter-Matevosian: Up until the summer of 2013 Moscow seemed to have no concerns about the prospects of the four EaP countries — Ukraine, Moldova, Georgia, and Armenia — to associate with the EU; however, ahead of the EaP Summit in Vilnius in November 2013, the Kremlin decided to make use of geopolitical reasons to prevent the withdrawal of those countries from Russia’s sphere of influence. Armenia became the first country, where the security card was played to keep the country within Moscow’s area of influence. The Yerevan precedent was expected to become an indication for official Kyiv and force the Ukrainian administration to give up on its EU ambition.
On 3 September, President Serzh Sargsyan announced Armenia’s acceding to the EEU, which implied that the country refused to initial the Association Agreement, which had been negotiated for more than three years. The main reason for that decision by official Yerevan was the traditional security problem and tense regional environment. The persistent conflict in Nagorno-Karabakh, frequent violations of ceasefire agreements on the Karabakh frontline and the border between Armenia and Azerbaijan, and Azerbaijan’s growing defense expenditure, which exceeds Armenia’s state budget, have limited the room for maneuver for official Yerevan. Turkey’s refusal to establish diplomatic relations with Armenia and remove the blockade from Europe’s last closed border, which is also the customs border of the European Union, as well as the exclusion of the country from regional energy and communication projects also predetermined Armenia’s choice.
REUTERS / David W Cerny
Nikolay Mezhevich: “Money in the Morning —
Chairs In The Evening” or “Eastern Partnership”
before the Riga Summit
Arshaluis Mgdesian: Armenia’s accession to the EEU has already produced a major impact. The main reason is Armenia’s refusal to sign the negotiated Association Agreement with the EU — which came as a surprise to many — which was for the most part due to security considerations. That was a major blow on Armenia’s international reputation. However, Armenia and the EU are already negotiating a new legal framework for a future relationship. Armenia’s joining the EEU also necessitates a revision of WTO membership terms — the country originally joined the WTO on quite unbeneficial terms. Some economists believe the accession to the EEU will enable Armenia to improve the conditions of its WTO membership, with the assistance of the Eurasian Economic Commission. When it comes to Armenia’s relations with the United States, the country’s EEU accession has not had any effect (at least visible) on the Armenia–U.S. relationship. On the contrary, negotiations began between Yerevan and Washington on visa facilitation.
Economic integration implies the willingness of all of the member states to share their risks. How do you think the economic crises in other EEU member states will affect the economy of your country?
Kazakhstan’s priority in the bloc is economics, Russia focuses on geopolitics, Belarus sees it as a new chance to obtain economic dividends from Russia, and Armenia treats the Union as a possibility to ensure its national security.
Vagram Ter-Matevosian: The economic slowdown in Russia, which affects that country’s demand for Armenian products and labor migration from Armenia, was not accounted for when Armenia joined the EEU. Armenia’s foreign trade dropped by 28% from the 2014 level, which has impacted the EEU’s image in Armenia and became a good reason for Armenian opponents of the EEU to criticize the accession decision by the Armenian administration. However, any integration union can suffer a setback. A crisis implies not only threats, but also new opportunities. The EEU mechanism is not as smooth as many wish it were, but that is not the bottom line. The EEU member states need to be governed by the principle of providing mutual assistance in case the organization encounters any crisis developments and meet their commitments instead of burying their heads in the sand and waiting for better times.
Alexander Krylov: Azerbaijan–Armenia;
heat is getting stronger
Arshaluis Mgdesian: Everything depends on the degree of integration of the national economies. The Armenian economy is very sensitive to changes in the Russian economy. For example, the panic caused by the depreciation of the ruble in the winter of 2015 caused a significant depreciation of the Armenian dram. Economic hardships in Russia bring about a curtailment of Armenian supplies to the Russian market, which is regarded in Yerevan as a serious challenge to the national economy.
The EEU is supposed to reach is “design capacity” in 2025. What do you think the bloc will look like in ten years?
Vagram Ter-Matevosian: It is hard to say what will happen in ten years’ time; however, when it comes to Armenia, I would like the EEU to help the country reduce its unemployment rate and revise the taxation policies, because even the most attractive integration project may fail to live up to the expectations and hopes of a society in predominantly depressed spirits.
The EEU is primarily associated with Russia in Armenians’ perception.
Arshaluis Mgdesian: As long as the founders of the EEU — Russia, Kazakhstan, and Belarus — fail to patch up their differences as to the operation of the free economic zone, it will be hard to make forecasts about the future of this organization. It is equally important to make it clear whether the EEU will remain a purely economic organization or it will eventually acquire some political implications. When we give a closer look to the EEU, we will see that Kazakhstan’s priority in the bloc is economics, Russia focuses on geopolitics, Belarus sees it as a new chance to obtain economic dividends from Russia, and Armenia treats the Union as a possibility to ensure its national security. The Western sanctions against Russia have potential for expediting integration processes within the EEU; however, the future of the organization remains vague unless some of the main internal disagreements are effectively addressed.
Conclusion:
The following conclusions can be drawn from the debate of the Armenian experts concerning the country’s membership in the EEU, potential challenges and opportunities:
- For Armenia, the EEU is a possibility to have short-term economic aid from Russia, unlike long-term benefits offered by an Association Agreement with the EU;
- Armenia is concerned over economic difficulties in Russia, which cause a reduction in Armenian export supplies to the Russian market, and resulting deterioration of the economic situation in the country;
- Armenia hopes that the EEU member states will adhere to the principle of mutual assistance in case crisis phenomena should emerge;
- The traditional security problem, tense regional environment, and dependence on Moscow’s military support influenced Yerevan’s choice of the EEU;
- Despite the accession to the EEU, Armenia’s cooperation with the EU has resumed, and negotiations are underway over a new regulatory framework for the future development of the bilateral relations.
Prepared for publication by Galiya Ibragimova, PIR Center Advisor.
(no votes) |
(0 votes) |
