Why Armenia Chose the Eurasian Economic Union

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On January 1, 2015, the Eurasian Economic Union (EEU) will go into effect and alongside Kazakhstan, Belarus, and Russia will be Armenia as one of its four founding members.

When President Serzh Sargsyan announced that Armenia would be joining the Eurasian Customs Union more than a year ago, the decision was met with skepticism in some circles. Now that Armenia is officially a member of the Eurasian Economic Union, as of October 10, 2014, that skepticism still exists.

“Why the EEU and not the European Union?” critics asked. Some suggested that Russia used Armenia’s dependence on its energy and security to influence the decision. Others raised questions about potential customs checkpoints being implemented at the Artsakh border.

The truth is that choosing membership in the EEU over an association agreement with the EU is much more logical. For starters, the majority of Armenian citizens support an EEU membership. According to a Gallup International poll that was conducted in October of last year, 64 percent of Armenians favored membership into the union.

Populism aside, Armenia sits between two sworn enemies, one which regularly fires upon it. When making political decisions, its foremost concern is, and must be, security. Today, Armenia’s security fundamentally depends on its military alliance with Russia, which was formed in 1997 and extended in 2010. As part of this agreement, Armenia receives discounted and advanced military hardware as well as security provided by Russian soldiers at the Turkish and Iranian borders. In return, Russia maintains a stronghold in the strategic South Caucasus among other regional powers like Iran and Turkey.

Armenia has become even more dependent on Russia as a result of the extraordinary increase in military spending by Azerbaijan. Due to the country’s massive oil revenue, Azerbaijan has used its new wealth to increase its defense budget by nearly 500 percent. According to the Stockholm International Peace Research Institute (SIPRI,) Azerbaijan allocated $3.44 billion for defense in 2013 while Armenia spent a meager $427 million in comparison.

But, despite the fact that Armenia has a defense budget that’s dismal compared to its enemy’s, the country has successfully maintained a military balance, prevented a potentially devastating war, and avoided any territorial losses. Russia often plays both sides, although, for lack of an alternative, Armenia has put in its lot and the alliance has proven fruitful in many regards.

Moreover, Armenia has been historically reliant on Russia to defend against its more traditional foe: Turkey. During the Artsakh War, and before the establishment of the Collective Security Treaty Organization (CSTO,) a significant portion of Armenia’s military resources were kept in Armenia proper rather than Artsakh due to fear of a potential invasion by Turkey. If not for the presence of Russian soldiers at the Turkish-Armenian border, it’s likely Turkey would have invaded once the tide of the war turned for Azerbaijan.

It is this self-interested Russian support that Armenian authorities are cautious not to endanger; any erosion in this relationship could prove fatal to Armenia and to the Artsakh Republic.

By contrast, Armenia’s potential path to EU membership, by way of the European Union Association Agreement, would provide no security guarantee and would risk alienating the country’s sole security guarantor, Russia. If the EU Association Agreement was signed, not only would Russia decrease its level of support as a consequence, the sacrifice would be in the name of future benefits that may never actually materialize.

The EU’s impotence in cases of international enmity is on display in Cyprus. For all its economic might, the European Union has been unable to apply any meaningful pressure on Turkey for the return of occupied territories in Cyprus, one of its member states.

When it concerns Armenia, the European Commission — the executive body of the European Union — has previously questioned the presence of Russian soldiers on Armenian soil and it’s been suggested that the existence of a Russian military base in the country impedes Westernization and reform in Armenia. But despite these critiques, the EU has failed to suggest how Armenia can otherwise ensure its security.

Beyond its security needs, Armenia has other reasons to prefer membership in the EEU. By opting into the EEU, Armenia will reap notable monetary benefits, like a massive share in annual tariff revenue. According to an International Monetary Fund (IMF) representative in Armenia, the country’s membership in the union will bring in about $250 million a year in customs revenue. Russia is already a big trading partner with Armenia, but entry into the EEU will give Armenia additional opportunities to build export relationships. As an added bonus, Armenia will secure privileges for 752 products in the first five years, meaning that EEU taxes won’t apply to the country during this time due to its union membership.

Membership in the EEU will also help Armenians working in Russia, as well as the families they subsequently support back in their homeland. Today, hundreds of thousands of Armenians who work in Russia contribute more than $1.5 billion annually to Armenia’s economy in the form of remittances. Many of these Armenians are seasonal workers who often don’t have legal status in the country and risk illegal work conditions and deportation. Being a part of the Eurasian Economic Union will undoubtedly help facilitate better labor conditions across member states, which will improve the quality of life for these workers and ensure stability for the Armenian economy dependent on their support.

Further, accession to the Eurasian Economic Union will guarantee Armenia’s stability in the energy market and secure preferential rates for the future. This is particularly important considering Armenia is fully reliant on Russia for its gas supply. As part of the negotiations for membership in the EEU, Armenia has been able to guarantee preferential gas rates that will be upheld until 2018.

This is the opposite of what Armenia can expect as a former Soviet republic in the European Union’s sphere of influence. Russia has a history of imposing retaliatory energy policies on Eastern European countries that have drifted toward the West. In fact, the five countries with the highest gas rates are all former Eastern Bloc members that are now EU members or candidates. At the moment, Armenia receives the second-lowest rate for Russian gas in all of Europe, after Belarus.

In spite of all these indisputable facts, there are potential advantages that the Association Agreement could have provided. Perhaps the most important of these is the prerequisite of better business and government regulatory laws that are in line with EU standards. These regulations are intended to lead to a more independent judiciary, a freer economy, and improved civil society.

However, as attractive as all of these qualities may be, simply agreeing to the Association Agreement will not lead to reform in a culture that’s been developed under centuries of corrupt Ottoman and Soviet occupation. This can be seen in many former Eastern Bloc EU members, like Bulgaria and Croatia, where corruption is rampant and the respective economies continue to underperform.

More importantly, there is no reason to believe that any of the potential benefits promised under the Association Agreement cannot be achieved from within Armenian society and without external pressure. If Armenia is to transform into a more open and just society, it will be up to the citizenry of the republic and not a technocrat posted in Brussels.

Another potential benefit of the Association Agreement was the opportunity to increase trade with the European Union, as part of the mutual and gradual tariff elimination. The European Union offers a market of about 500 million people as well as the world’s biggest collective economy, which together trump the economic breadth of the Eurasian Union.

But along with a highly developed economy comes a high level of competition. Even with reduced tariffs, it’s unrealistic to expect Armenian goods to be competitive in such an aggressive market. At the moment, most of Armenia’s exports are raw materials rather than produced goods. The low level of tariffs will not change the fact that Armenia’s economy has a long way to develop. On the other hand, the markets of the EEU are much less developed and competitive, meaning Armenian companies will have a better chance to create a demand for their goods in this more realistic marketplace.

Doing business with less corrupt and more economically potent nations will not improve Armenia simply by association any more than doing business with the United States or Europe makes Saudi Arabia more democratic or less misogynistic. Any potential long-term benefits provided by the European Union are attainable by Armenia if there is an internal understanding of the importance of such improvements. Given Armenia’s current geopolitical realities, the Eurasian Union is a pragmatic decision with returns that will ensure the stability of Armenia in the near future while creating new opportunities for the country’s economy.

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17 Comments

  1. “Doing business with less corrupt and more economically potent nations will not improve Armenia simply by association any more than doing business with the United States ”

    Oh, come on Mr. Almasian! You seriously think that Armenia doing business with America WOULDN’T improve Armenia economically? Russia FORCED Armenia into this, there was no choice, plain and simple! I can’t believe for one second that this was not some kind of bully tactic!

    • No it wouldn’t.
      RoA simply does not manufacture anything that can possibly be competitive in US.
      US consumer markets are flooded with Made in China products: quite impossible to compete with that.

      There is a growing software industry in Armenia: that one can and will be competitive.
      In fact there is one application, I think for smartphones, developed in Armenia that is a worldwide best seller.
      Armenia can be highly competitive in software development: there is no competitive manufacturing capacity (yet), but there is brains in abundance in Armenia, and in Armenians everywhere.

      And there are many agricultural canned goods from RoA sold in Armenian owned or other ethnic markets and supermarkets in California.
      I buy them all the time: quite good. But, not always available.
      Armenia could sell 10X the amount of agricultural goods to Russia today if it had the capacity.
      Russia is practically begging RoA (and others) for more meat, produce, canned goods, etc.

      And there are military related technologies that RoA produces for Russian weapons industry: did you know that ?
      Armenia also started producing locally designed smartphones and PC-pads for the markets in the region. Lots of great things will happen: but only if there is security and peace for RoA and NKR.

      Bully tactic ? Mr. ALMASIAN already gave the rational and cold calculus RoA’s leaders must have gone through to choose the one and only choice they could have logically made to join the EEU in the present geostrategic situation Armenia is in, and will be for the foreseeable future.
      But if you are so concerned about bully tactics: everybody uses it to get their way if they can, including US and EU.
      US Neocons are forcing EU to join their destructive economic war against Russia.
      US doesn’t have much trade with Russia, but EU is losing billions of sales to Russia.
      The common working people in Europe are against it, but have no say.
      EU leadership forced Bulgaria to stop working on the South Stream project, even though Bulgaria is a net loser of jobs and transit fees. Bulgarians are screaming bloody murder, but EU couldn’t care less, (pssst: Western Europeans have always looked down on Eastern Europeans, and don’t consider them ‘real’ Europeans)
      btw: Bulgaria is still in the same mess it was before joining EU. And as a bonus, EU bureaucrats force them to do things that are against their national religion, their culture, and their traditions – or they get punished. You can figure out for yourself what those are.

    • Mher Almasian on

      Mr. Ashot, I wasn’t talking about economics, but rather transparency and democracy. I was referring to the argument that is often made by the pro-west crowd that Armenia should develop ties with the West because European countries are more democratic and free compared to EEU nations; as if to imply simply associating with those nations would make Armenia more democratic or free. Corruption in Eastern Europe exists as part of centuries old legacy of Ottoman and Soviet rule. It’s going to take a transformation from within Armenian society for these to change. Not values imposed from abroad, many of which contradict values of Armenian society.
      But even if you want to consider economics, I would say there is very limited business Armenia can do with the US. As Mr. Avery pointed out, there is very little produced in Armenia that would be competitive in America. Moreover, America has shown very little interest in investing in Armenia despite the efforts of the Armenian-American lobby. Short of any investments, the only realistic “trade” that can take place between the two nations is more American imports in Armenia further contributing to the Armenia trade deficit.

  2. Thank you Mher Almasian, this an excellent analysis for the geo political and economic events concerning Armenia. To those who worship the USA/ EU alliance with Armenia , I have one word. “Thank you “, USA all along with NATO EU has become a warmongering country, having one concern ONLY and that is attacking peaceful countries, plotting conspiracies in Ukraine and Syria and everywhere, supporting criminal countries like Israel, Turkey , Seoudi Arabia, creating and training and funding ISIS/Daech to massacre all those who stand on the way of Zionist America, and to save the Wall Street and the petrodollar. In short USA /NATO/Israel coalition has become the number one criminal entity in this world. It is still astonishing to see blind people around. USA DENIES the Armenian Genocide, DO NOT give a damn for Gharapagh and worship the AZERI oil and has one concern in Caucasus, get rid of RUSSIANS IN ARMENIA to replace it with NATO !!!!!!!!

  3. Another excellent, rational, well reasoned article by Mr. Mr. ALMASIAN.
    I will add two items to disabuse those Armenians who still harbor illusions that either US or EU give a hoot about RoA or the welfare of Armenians in RoA and NKR.

    1. Nuclear Power Plant

    About 40% of RoA’s electrical needs are met by the NPP.
    Yet EU has urged Armenia since her independence to shut down the NPP.
    Yes, shut it down. What does EU offer in return ? Zilch, nothing, nada.
    Ask yourself: why would EU urge RoA to simply reduce its electric generating capacity by 40% ?
    What’s it to EU ? Qui bono ?

    Russia has at least provided loans to RoA to extend the NPP operation into 2026.
    Armenia _desperately_ needs a modern NPP. Preferably 2, or even 3 small ones, for redundancy.
    And I am a little disappointed that Russia hasn’t given the $5 billion or so needed for a new NPP to RoA.
    Not sure why.
    But in the same vein, the West would gain tremendous goodwill with the people of Armenia if they wrote a cheque for $5-$10 billion: it is peanuts to them.
    But they want RoA and NKR to remain weak.
    Guess why.

    2. Closed border with Turkey.

    Since some Armenians are so impressed with EU and US, allow me to bring up this item which will prove that not only (Neocon run) US does not want RoA to thrive economically, but quite the contrary.
    (nothing against Armenia: just geopolitical business)

    NATO member Turkey has imposed a total transport blockade on RoA since 1993.
    To be clear, Turkey has no obligation to trade _with_ Armenia. No country does.
    But blockading commerce to/from a country is an act of war.
    RoA can move goods to/from EU far more cheaply and faster thru Turkey than presently through Georgia.
    US and EU can easily pressure Turkey to lift the blockade.
    US and EU can devastate the economy of Turkey if they want to, and if Turkey does not comply.
    But EU and US don’t pressure Turkey: all they offer is hot air and b_____s_____ advice to RoA to patch thing up with Tureky, whatever the heck that means.
    Can people who are so trusting of EU and US tell us why ?

  4. {YEREVAN. – The Armenian parliament on Thursday ratified treaty on Armenia’s accession to the Eurasian Economic Union with a majority of votes (Photos).
    As reported by the Armenian News-NEWS.am correspondent, the treaty was ratified with 103 votes“for” , 7 “against” and one abstention.
    The treaty was supported by ruling RPA, Prosperous Armenia, ANC and Orinats Yerkir factions. Only Heritage party voiced criticism against the deal.}

    http://news.am/eng/news/242459.html

    I am shocked, shocked that Heritage Party did not support the accession.
    And all this time I thought Mr Raffi Hovannisian and Zaruhi Postanjyan had high regard and respect for Pres Sargsyan.

  5. [ARF Dashnaktsutyun to vote for joining Eurasian Union]
    http://news.am/eng/news/242411.html

    {YEREVAN. – Armenia’s accession to the Eurasian Union is an examination that the country should pass according to “what does not kill me makes me stronger” principle, MP from ARF Dashnaktsutyun believes.
    Armen Rustamyan agreed with the assertions that Armenia could hold better talks while drafting a treaty on accession to the Eurasian Economic Union. “Today we must make decisions taking into account the situation. Armenia and NKR are in a blockade and in a state of war. The world is in a state of new Cold War. The struggle for influence between super powers has brought to direct confrontation. For Armenia, it is important to decide how to behave in this situation,” Rustamyan emphasized. The MP stressed that if we want peace, we should be prepared for war. The task is to hand over 42 thousand square kilometers of Armenian land to the next generation.“If you do not have a better alternative for the security of the country, you should preserve the existing ones. Calm down, it’s a fact. For ARF this treaty is a solution for safety,” he resumed.

    “The task is to hand over 42 thousand square kilometers of Armenian land to the next generation”

    Emphasis on 42,000.
    Well said Mr. Rustamyan.
    A true patriot.

    • Mher Almasian on

      Well put by Mr. Rustamyan
      As far as the Metsamor Power Plant goes, I absolutely agree with you. the EU has constantly demanded for it to be shut down. Yet, they haven’t exactly mentioned how Armenia is expected to pay roughly $300 million for its decommission process, or how Armenia is supposed to spend $5 billion for its replacement. Just providing financing through loans would a great gesture, but no such step has been taken.

      Russia most likely hesitates to provide support for Armenia’s nuclear plant because of the fact that building a new plant would make Armenia much less dependent on Russian gas and hence decrease the Russia leverage against Armenia.

  6. “As an added bonus, Armenia will secure privileges for 752 products in the first five years, meaning that EEU taxes won’t apply to the country during this time due to its union membership.”

    I agree that this is an important privilege, as well as the fact that Russian – Armenians are the dominant contributors to the country if one is looking to rank the Diaspora in contributions. But I am skeptical of such an exact number on exported goods. My optimism is for an economy where digital information is the largest export.

    well written all around Mher Almasian

    • Mher Almasian on

      Thank you very much

      Those are two important points. Armenia’s development in IT is its best hope of developing an economy and reversing its trade deficit. The industry has grown by 20 percent annually since 2008 and is expected to reach 1 billion dollars by 2018.

      Also, Armenia’s dependence on Russian-Armenian remittance exists regardless of Armenia’s economic agreements. Until Armenia develops an improved economic that doesn’t depend on aid from abroad, it is going to be affected by the Russian economy regardless of what union it joins.

      As far as the 752 figure, it was provided by Deputy Minister of Economy Emil Tarasyan on Nov 24th during parliament.

  7. What a disaster of an article. As a small economy, nothing could be worse for Armenia than to cut it off from free trade with the world. The author’s lack of understanding about basic economics is sadly apparent.

    Let us not pretend like this isn’t a capitulation to our Russian masters. All these mental gymnastics to avoid looking at the truth. We’re choosing to live on our knees rather than risk dying on our feet.

    • Mher Almasian on

      First of all you assume that simply joining an economic union is the equivalent of surrendering to our “masters”. Yet I assume you, like many others who oppose this decision, would have no objection to Armenia joining the EU and submitting to the masters in Brussels. It would be fine if the EU forced Armenia to shut down its power plant, as has been their demand for the past two decades. It would be acceptable if they demanded Armenia remove the Russian military base as part of eventual membership as was implied to Tigran Sargsyan in march of 2011. None of this would qualify as surrendering any freedom. However, if anyone in the EEU dares to ask Armenia to make minor economic changes, it’s the equivalent of the Red Army marching into Yerevan.

      Moreover, you make a false analogy based on the above false assumption. I would hardly consider Armenia taking over a year to negotiate terms which include various benefits living on our knees. While dying on your feet may sound poetic to you, I don’t take the risk of the destruction and annihilation of my nation, which has independence for the first time in 600 years, and the death of thousands of my countrymen, very lightly. You show your absolute lack of military knowledge by glorifying the utter hopeless situation that would ensue if Armenians were to attempt to defend Artsakh without the balance provided by Russia military equipment. I’m not sure what Hollywood scenario you imagine when you picture this, but even if by some miracle the Armenian forces in Artsakh came out victorious against Azerbaijan, the mere event of a war would undo the billions of dollars of investments in Artsakh, killing thousands, fueling massive emigration, and leaving the region in shambles. Russia didn’t force Armenia to have a need for it’s military aid. Russia didn’t create Azerbaijan’s energy reserves that enable it to build its military budget to 10X Armenia’s. Armenia is free to chose otherwise, but Armenia’s need for security gives Russia leverage. Armenia shouldn’t have to pick between the dramatic exaggerated situation that you envision in your head between death or miserable life. Azerbaijan’s energy revenue will have significantly decreased by the end of this decade. Moreover the mere price of oil at the moment is causing Azerbaijan to lose 25% of its annual revenue at the moment. Azerbaijan’s corrupt “golden era” is almost at an end. In a few years, with Azerbaijan in a much more critical condition, Armenia will have much better position in negotiating with Russia.

      Finally I never pretendeded to have an expertise is economics, though I do have a basic of understanding of it. But perhaps you should share some of your expertise. Your basic assumption that Armenia had free trade with the world to begin with is fundamentally wrong. Armenia at its present moment doesn’t have free trade agreements with many of its key trade partners. Furthermore, joining the EEU simply sets the rates of tariffs in Armenia to the EEU levels with the exception of the exemptions secured by Armenia. This hardly qualifies as surrendering to our “Russian masters”. In fact, association with the EU might have risked Armenia’s most important free trade agreement: with Russia. Moreover there is no reason to assume that as the EEU grows it will not collectively sign many of its own free trade agreements with other partners-possibly even the EU.

  8. I will reproduce here an excellent, if chilling, hypothetical scenario from the blog TheGampr.com.
    Hopefully reading it will shake all the keyboard warriors from their gamebox fantasy of what real war is all about.

    http://thegampr.com/2013/12/02/anti-putin-protests-whats-the-point/

    By: Sedrak Mkrtchyan
    What’s the objective? What’s the point? I don’t understand…
    Taking into consideration those who do not want Armenia to associate with Russia, let me propose the following scenario:
    1) Russia announces that it is against Armenia’s membership in the Customs Union and the path toward association with the European Union is open,
    2) Russia removes its armed forces from Armenia,
    3) Armenia is forced to defend its borders with Turkey and Iran with solely its own armed forces, necessitating an increase in the size of the military by at least 30%, which is impossible for Armenia to do because of a lack of resources,
    4) The price of natural gas rises,
    5) The price of purchasing guns and artillery from Russia rises,
    6) In the case of war started by Azerbaijan, there is no help from Russia nor from the Collective Treaty Security Organization (CSTO). The number of people and amount of land lost in Artsakh and Armenia in the ensuing meat grinder is anyone’s guess,
    7) A potential Turkish military expansion, the extent of which is impossible to predict.
    How might the European Union help with all of this [if Armenia “chose” Europe at the expense of Russia]?
    1) Military assistance by the EU is excluded. They have one little problem with Turkish-occupied Northern Cyprus and they are unable to do anything about getting it back for an official member of the European Union [Cyprus],
    2) Any member country of NATO is excluded [from helping Armenia] so long as Turkey, Europe’s largest and strongest armed forces, has shared interests with Azerbaijan [note: Turkey indeed has the largest military in Europe but the strongest is likely the United Kingdom]; they could swallow Armenia up and not pay it a second thought,
    3) Exports to the EU increase, some business grow, some businesses are enriched. Armenia’s long-term economic situation is improved.
    It’s being curiously presented these days that if Armenia signs the EU Association Agreement, people in Armenia will become beautiful, tall, and their hair color will get a little lighter; fashionistas from the pages of monthly magazines will be walking on Armenia’s streets, red double-decker buses will be making the rounds, and the names of all cities and villages might see the addition of the word “New” before them.
    I cannot stand Russians – and the more I immerse myself in the study of history, the more that is the case. But before hanging a nightgown [in protest], it’s imperative to look at the issue a bit more [deeply], beyond the most basic level.
    [end text by Mkrtchyan]

    • I don’t understand comments as trivial as these, and why they are written. Not only do you not offer an explanation, you add nothing to the conversation – rendering comments such as yours part of the status qua of discharging conjecture without any clear formulation of thought. The Armenite has taken a topic that has not been discussed in depth by the community and analyzed it because community members such as yourself choose to belittle any intellectual discourse on a complicated topic.

      • Totally agree with you, Patrick. Mher’s analysis is thorough and spot-on. In fact, not a single argument has been made in the discussion so far to refute any of his points. I just want to commend the author on his (rare) grip on objective truths about the situation of Armenia. As we know well, there is far too much ideological demagoguery in the Diaspora.

  9. Choosing CU over EU was this biggest mistake for Armenia. The over-dependence on Russian will increase even more and soon Armenia will loose its sovereignty from inside as Russian is already controlling almost everything. Soon Armenia won’t be able to make any decision on its own thus becoming an outpost in Caucasus under complete control of Russia.
    And talking about corruption, of course EU wouldn’t solve the problem, but as least it would create a conditions for tackling this huge problem, while in CU the situation will get even worse.
    Also, at the moment Armenian goods may not be competitive but this is because of old structured economy which is in need for modernization. AA would have given patterns, know-how and finances for Armenia to become competitive economy and after choosing CU these opportunities of modernization are less possible.
    Over all, Russian doesn’t need prosperous Armenia as prosperous countries are more difficult to control, therefore I see in no way how CU membership can be beneficial.

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