Armenian Businesses Weigh Customs Deal

As the Armenian government moves further towards joining the Moscow-led Customs Union, many businessmen are worrying about the effect the trade arrangements could have on their livelihoods.

On November 6, Prime Minister Tigran Sargsyan formally launched the accession process by signing a memorandum with Viktor Khristenko, head of the Eurasian Economic Commission, the regulatory body that oversees the Customs Union.

The current members of the Customs Union are Russia, Belarus and Kazakstan, a market of 170 million people. Kyrgyzstan is planning to join, and Tajikistan may do so in future. The bloc is part of a broader project called the Eurasian Economic Union, planned for 2015.

In Armenia, people are still trying to have figure out what membership would mean for them.

Being part of the grouping would remove trade barriers with other Customs Union members, but it would also raise the customs duty chargeable on imports from other states. That has to be a worry for Armenia, whose trade with the European Union alone far exceeds that with Russia, Belarus and Kazakstan taken together.

Officials are insisting membership will help an economy that has yet to recover from the contraction it suffered after the 2008 financial crisis, but so far they have been short on detail.

Interviewed by the Ukrainian news site Segodnya.ua, Prime Minister Sargsyan said the country would benefit from closer integration with Customs Union members.

At the same time, he acknowledged that there were risks. “Customs Union tariffs are more than double our customs barriers with third countries. We will have to struggle with various difficulties.”

Until September, Sargsyan and other officials were making very similar claims about the benefits of integration with a different economic bloc, the European Union. Then President Serzh Sargsyan surprised everyone by announcing http://iwpr.net/report-news/after-eu-talks-armenia-swings-back-moscow that Armenia was going to join the Customs Union. Three years of negotiations for an EU “association agreement”, which had only just been successfully completed, went down the drain as European officials made it clear the country could not be part of two different trading arrangements.

When IWPR asked Deputy Economy Minister Karine Minasyan whether there were any positive economic projections associated with Customs Union membership, she replied, “At the moment we do not possess conclusive data on that, and I’d struggle to give you figures. A great deal depends on the terms under which our country joins the Customs Union.”

The deputy minister said the government had formed a working group to hammer out the best possible terms of accession.

Weighing the pluses and minuses of the deal, Minasyan said, “It is a positive thing that Armenian goods and services gain access to markets in Russia, Belarus and Kazakstan without customs barriers. For us it’s a problem that there are high customs barriers against imports of goods [from non-members], since Armenia imports more than it exports.”

The latest official statistics show that 76 per cent of Armenia’s external trade is with countries outside the Customs Union zone. This implies higher levies on imports from most trading partners, and hence higher consumer prices for Armenians.

“In Armenia’s current economic structure, imports are very important. If the cost of imported goods rises because of high duties, then life will get more expensive,” Armenak Chatinyan, economic columnist for the Civilnet.am website, told IWPR. “If we intend to join the Customs Union at an accelerated pace, then inflationary trends will continue. People will have to pay more while their earnings remain where they are.”

Local businessmen worry that they will end up caught in the middle.

Khachatur Sukiasyan, who owns the SIL Group, one of Armenia’s largest trading and manufacturing firms, warned that businesses would be forced to try to deal with Customs Union states, which they were not doing now,

“It’s unclear how this will happen,” he told IWPR. “At the [October 2013] meeting in Minsk, it was clear that the heads of these [existing member] states intend to bring in new members on terms beneficial to themselves, often ignoring the interests of these new members. Our government needs to understand that the accession process isn’t going to be simple, since these are countries which are larger and better-resourced than Armenia, and which want to protect their own interests. That’s what worries Armenian businessmen.”

Moscow, the biggest economy in the Customs Union and the driving force behind it, has been keen to draw in new members like Armenia, as much for political as for economic reasons. (See Armenian Leader Accused of Caving in to Moscow on the political pressures to join.)

Samson Avetyan, who heads the investment fund Arrow Global Ltd, fears that if the Russian economy runs into trouble, other Customs Union members could suffer the consequences.

“Despite high oil prices on international markets, Russia’s economy has slowed for the seventh quarter in a row. This shows not only that the country is unable to secure economic growth from [income from] its energy customers, but also that it has systemic problems,” Avetyan told IWPR. “It follows that Russia might have serious economic problems next year. To deliver economic growth, it’s likely to close off its market through higher customs barriers…. Armenian businessmen would face being strangled by big Russian companies in a closed market.”

Tigran Gevorgyan is a freelance journalist in Armenia.