Armenia’s Membership in the EEU Raises More Questions than it Answers

BY BABKEN DERGRIGORIAN

Upon reading Harut Sassounian’s latest article “The West Must Offer Armenia Incentives Rather than Decry its Ties with Russia,” I have been compelled to write a response addressing its shortcomings and inaccuracies, increasingly common also within the broader narratives regarding Armenia’s accession into the EEU in the Armenian community.

On September 3rd, 2013, after Armenia completed nearly three years of negotiations with the European Union on an Association Agreement, which included years of European-funded legislative reforms, President Serzh Sarkisian was summoned to Moscow for a meeting with President Vladimir Putin. After just an hour, Sarkisian emerged to announce a U-turn in Armenia’s policy, stating his intentions to pull out of the EU Association Agreement process, join the Russian-led Customs Union, and become a member of the eventual Eurasian Economic Union. This decision was made against the backdrop of Russian pressure on all Eastern Partnership countries engaged in the Association Agreement negotiation process, including Georgia and Moldova, and most notably Ukraine. It is important to note that from the onset, the EU had made it clear that that its Association Agreement, and specifically its Deep and Comprehensive Free Trade Agreement (DCFTA) component, was incompatible with membership in the Customs Union. As membership in the Customs Union results in loss of the ability to sign bi-lateral trade agreements, this was a technical incompatibility not a political one.

Regional integration is an extremely important decision for Armenia. As a small state, Armenia needs to expand its access to markets and lower the cost of imports. Furthermore, regional integration can help Armenia develop and modernize its various political and economic institutions. Not all regional integration projects are created equal, however. The type of regional integration Armenia adopts will determine its long-term growth and sustainability as a state. Harut Sassounian’s article glosses over many important factors in Armenia’s choosing the EEU over the EU’s Association Agreement, and in so doing, paints an inaccurate description of the Russian-Armenian relationship.

Firstly, there were never any “lengthy heated debates” on the merits of joining the EEU vs. the EU – not in Parliament, and not in the mainstream Armenian or Diasporan press. Even as late as the morning of September 3rd, 2013 – the day Sarkisian announced the U-turn — Galust Sahakyan, then head of the Republican Party faction in Parliament, was quoted in an interview with Azatutyun Radio saying that Armenia was on track to initial the Association Agreement in Vlinius in November. President Sarkisian’s announcement a few hours later caught many by surprise — even those in his inner circle. For more than three years, all statements by Armenian government officials, from Sarkisian himself, to then Prime Minister Tigran Sargsyan, as well as numerous statements by the Foreign Ministry, pointed towards Armenia’s initialing of the EU Association Agreement. Moreover, for over three years Armenian legislators had drafted and passed reforms aimed at increasing compliance with the EU’s Association Agreement requirements — reforms that were already being undertaken. On September 3rd, this was all undone during a brief meeting with Putin.

Mr. Sassounian’s article also states self-evident facts with regards to a long history of Russian influence in Armenia. What he fails to mention is Russian presence in the region has from its onset been imperialistic and colonial in nature. Armenia did not voluntarily join the Soviet Union. Instead, on December 2nd 1920, the first Republic of Armenia, under Simon Vratsian, was forced to Sovietize against the wishes of the country’s leadership. While the merits of Sovietization of Armenia can be argued, it still remains a fact that for 70 years Armenia was governed by policies developed in Moscow. More importantly, in doing so, Armenians lost the opportunity to build an independent state that would be governed in its own interests. Imagine what sort of country Armenia would have been, had it remained independent in 1920. As benevolent as Moscow may have been during the 70 years of Soviet rule, Armenian governance was not primarily in the interests of the Armenian people.

Mr. Sassounian raises three essential questions surrounding Armenia’s membership in the EEU. I would like to address them in turn, and also pose questions of my own.

1) Mr. Sassounian insists that Armenia’s membership in the EEU is crucial for continued sales of advanced weapons to mitigate the growing threat from Baku, stating that it is Russia, not the United States, Great Britain or France, that can provide this. This claim fails to take into account exactly where this threat is coming from. In fact, it is Russia, Armenia’s “strategic military partner” that has been selling billions of dollars of advanced weaponry to Baku, as recently as this past summer. It is Russia that is fueling the arms race in the region and profiting from increased tensions, both financially, through the sales of weapons, and politically, by maintaining a leverage on both Armenia and Azerbaijan. I am not suggesting that the US or Europe would be more willing to come to Armenia’s aid in the event of a renewal of conflict. However, any state that sells weapons to a state with whom Armenia is at war surely does not deserve the title of “strategic military partner.” If Russia’s sale of weapons to Azerbaijan was to increase pressure on Yerevan to commit to the Eurasian Union, as many in Armenia quietly concede, that is called blackmail, not partnership.

2) Next, Mr. Sassounian turns to the issue of energy dependency. Here, I must agree, we are overly dependent on Russia for our energy needs, and if membership in the EEU leads to lower rates for natural gas, then that is a clear benefit. The broader issue here is why exactly is Armenia overly dependent on Russia for its energy needs, especially with an oil rich neighbor to its south. Firstly, over the past 15 years Armenia has sold practically its entire energy infrastructure to Russia in a deal where assets were traded for debt. The fact of the matter is that Armenia is capable of diversifying its energy supply. This year, Iran stated that it is ready to offer gas and oil to Armenia for a lower price than it currently pays for Russian gas. Furthermore, with the questionable quality of Russian gas, Iranian gas can be incredibly beneficial and is an option that deserves greater attention.

3) Mr. Sassounian’s claim that Russia is Armenia’s largest trading partner is patently false. Armenia’s largest trading partner is in fact the EU. In light of this reality, it would make more economic sense for Armenia to sign the EU Association Agreement, simultaneously giving Armenia open access to its number one trading partner and largest economy in the world, while lowering the cost of imports. Furthermore, it would facilitate the modernization of Armenia’s institutions and regulations, easing the way toward trade deals with the US and beyond.

Political Considerations

Mr. Sassounian states “The intended objective of forming EEU is to facilitate the free movement of goods, services, capital, and labor across member states.” This is only half accurate. While the Customs Union, which was founded in 2010, was primarily an economic project, the Eurasian Union is a political one. By ignoring this fact, Mr. Sassounian fails to discuss the political implications of joining the EEU, such as national security, constitutionality, and path dependency of state institutions.

The first point to consider is the structural differences between the EEU and the EU Association Agreement. The EEU is a formal union, whereas the Association Agreement is a bilateral framework for cooperation between two parties. To date, the EU has signed Association Agreements with countries as far away as Chile and South Africa, as well as with Lebanon, Syria, and Egypt. This does not imply membership in the European Union, nor does it sacrifice a state’s sovereignty.

By contrast, membership in the EEU means handing over crucial parts of economic policy making, such as customs regulation and trade policy, over to a body called The Eurasian Economic Commission, based in Moscow. Decisions of the Commission are binding for all member states. Member states have voting rights in the Commission, two per state. Essentially, what this means is that Kazakhstan, an ally of Azerbaijan, will have equal say in key areas of Armenia’s economic policies as Armenia. As Artur Ghazinyan, head of the European Studies Department at Yerevan State University eloquently put it, “The difference between the EEU and the Association Agreement is that in the case of the Association Agreement, Armenia holds the pen when writing economic policy, whereas with the EEU, Armenia gives the pen to someone else to write”.

The broader issue here however, is that under the Constitution of the Republic of Armenia it is unconstitutional to formally hand over any portion of policy making to another entity, as this, strictly speaking, undermines de jure sovereignty. Essentially, by joining the EEU, Armenia is losing the sovereignty it gained 23 years ago, after generations of its absence. Is sovereignty of our State a value we wish to uphold, or are we comfortable with being relegated to a vassal state?

The next political consideration is based on the development of Armenia’s institutions. For over 23 years, Armenia has made significant progress in many of its political institutions, from the establishment of an administrative (misdemeanor) court and human rights defender’s office to its various ministries. To be fair, there is still a great deal of work to be done in this realm, especially in elections, and increasing judicial independence. Armenia’s choice of regional integration will affect the development of its state institutions and the values they uphold. The graph below plots the level of corruption against governmental effectiveness among EU states and EEU states. Where do we wish to see Armenia on this graph?

The political component of the EU Association Agreement would help Armenia’s institution reforms processes with programs for increasing the independence of its judiciary, decreasing institutional corruption, improving health and safety regulations, increasing transparency of elections, and ensuring fundamental human rights. These of course represent values that are not only European, but I would argue, are intrinsically Armenian and as such, are enshrined in the Armenian Constitution and personified within our Armenian communities throughout the world.

By contrast, membership in the EEU Armenia’s institutions can be expected to build path dependency towards a different set of values, where corruption is rampant, elections are blatantly falsified, and fundamental human rights and freedoms are continuously violated, as is the case in Russia, Kazakhstan, and Belarus today. Do we want to see an Armenia that becomes increasingly authoritarian and restricts the rights of its citizens, or one that upholds the values of democracy, human rights, and justice, as outlined in the Armenian Constitution? As the graph below illustrates, EEU member states are extremely deficient in providing political rights and civil liberties to their citizens. Does the Armenian citizen today not deserve to live in an open society that respects the rule of law, the electoral process, and the freedom of expression? These are, after all, the same rights and liberties we exercise as a community through our various lobbying efforts in Washington and Brussels, and throughout our local political and social outreach activities.

Finally, an issue that has not yet been resolved is whether Armenia will be forced to establish customs check points at its border with Nagorno-Karabakh. Kazakhstan, having relayed concerns from its ally Azerbaijan, stated in May of this year that Armenia could only join the Eurasian Union through its internationally recognized border; in other words, without Karabakh. By contrast, the EU Association Agreement held no such pre-condition. Do we want to see a border check point between Armenia and Nagorno-Karabkh, manned not by Armenian and Karabakh soldiers but customs officials from the EEU? How will this impact the national security of Karabakh and Armenia? Moreover, why does the prerequisite of “internationally recognized borders” apply to Armenia with regards to Karabakh, but not to Russia with regards to Crimea? Even before Armenia’s membership takes effect, we are seeing the lack of fairness and equality in this union.

Economic Considerations

Many, including Mr. Sassounian, have touted the economic benefits of membership in the Eurasian Union. Here too, however, the facts do not add up. Economic opportunities would have been much greater with the Association Agreement than in the Eurasian Union. For example, the combined GDP of the Eurasian Union member states stands at nearly 1/6th the GDP of the EU. This means that the Association Agreement would have given Armenia access to a much larger market, first of all to sell its own goods and services, but also to import greater goods at lower rates.

Next, we look at GDP per capita, where Eurasian Union member states are also dismally low compared to their EU counterparts. This translates into, on average, less money in people’s pockets to purchase the Armenian goods and services in the Eurasian Union.

We next turn to the issue of customs control. While it is true that Armenia will now be able to sell its goods in the Russian, Kazakh, and Belarussian markets, membership in the Eurasian Union will also impose higher customs taxes on goods from outside the EEU. Since the EU is Armenia’s largest trading partner, many of the goods Armenia now imports from Europe – from cars to building materials, will have an additional customs tax, making many of these goods either unattainable for the Armenian population, or making their import economically unsustainable. Indeed, there is precedence here: since its membership in the Customs Union, Kazakhstan has seen prices for goods skyrocket.

Finally, there is the issue of economic freedom, a problem that has been plaguing Armenia since independence. As the chart below demonstrates, economic freedom in the EU is much higher, meaning there is more opportunity for new businesses to establish themselves and operate. With the signing of the EU’s Association Agreement, Armenia would have gradually come into compliance with regulations that could curb economic monopolies and create an even playing field for businesses. It would reform state institutions, increasing judicial independence to combat economic corruption. By contrast, the economic conditions within the Eurasian Union, especially in Russia and Belarus, can be expected to reinforce and consolidate the oligarchic tendencies in Armenia, making it less attractive for new investments and start-ups than it otherwise could be.

Conclusion

While Armenia has already signed the Treaty on accession into the Eurasian Economic Union, its membership is pending ratification by the three member states as well as by the Armenian Parliament. Initially, the changes will be modest, but membership into the EEU sets Armenia on a trajectory that puts into question its sovereignty, its national security, its economic development, and its overall sustainability. It may well be that Armenia simply had no choice, given the geopolitical realities of the region and those imposed by Moscow. Nevertheless, it would behoove the proponents of the Eurasian Union within the Armenian Diaspora to speak with more clarity on the matter, rather than tout a project that is far from beneficial and may potentially be disastrous in the long run. Let us be frank. Armenia did not join the Eurasian Union because of a lack of proper incentives by the West, as Mr. Sassounian suggests. Armenia did not join the Eurasian Union because of a clear political or economic benefit to the country. Armenia joined the Eurasian Union because it had no other choice. Armenia joined the Eurasian Union because Moscow left Armenia with no choice. This is merely a continuation of the colonial relationship between Russia and Armenia. Let us admit that fact bluntly, and work towards increasing Armenia’s agency on matters of existential importance. To do otherwise would be tantamount to shuffling the deck chairs of the Titanic.

Babken DerGrigorian is a researcher in political economy at the London School of Economics. His research focuses on economic development in Armenia.