Wednesday, 18 September 2013

Armenia Chooses Customs Union over EU Association Agreement

Published in Analytical Articles

By Armen Grigoryan (the 18/09/2013 issue of the CACI Analyst)

After nearly four years of negotiating the Association Agreement with the EU, Armenian president Serzh Sargsyan made an abrupt turn, announcing his intention to instead join the Customs Union with Russia, Belarus, and Kazakhstan. It is not possible to combine the two frameworks because of contradicting tariff regulations. Sargsyan’s statement was made after increased political and economic pressure from Russia in recent months. Armenia’s participation in Russia-led integration projects will imply very limited possibilities for cooperation with the EU. It will also result in Armenia’s deeper isolation and cause additional complications for the Nagorno-Karabakh conflict resolution process.

BACKGROUND: After meeting Russian President Vladimir Putin in Moscow on September 3, Armenia’s President Sargsyan announced his country’s intention to join the Russia-led Customs Union. Sargsyan stated that such a decision serves Armenia’s interests, primarily from a security point of view. After Sargsyan’s statement, European officials declared that the EU-Armenia Association Agreement, the initialing of which had been planned for November, was now “off the table.” Although the EU-Armenia negotiations on the Association Agreement and a Deep and Comprehensive Free Trade Area (DCFTA) have been ongoing for over three years and were finalized just six weeks before Sargsyan’s visit to Moscow, the different regulations and tariffs applied by the EU and the Customs Union make it impossible to conclude agreements with both free trade zones at the same time.

In recent months, Russian pressure on Armenia included a rise in gas prices and a shipment of heavy weapons worth nearly US$ 1 billion to Azerbaijan. Russian officials, including former Ambassador to Armenia Vyacheslav Kovalenko, made numerous threatening or contemptuous statements. A few days before Sargsyan’s visit to Moscow, the first secretary of the Russian Embassy in Armenia Alexander Vasilyev demanded that the agreements reached during the EU-Armenia negotiations should be disclosed, and threatened a “hot autumn” in Armenia.

A large part of Armenia’s population views Sargsyan’s stance as a preparation to surrender state sovereignty. Since membership in the Customs Union must be followed by joining the Eurasian Economic Union in 2015, the general perception is that Armenia will no longer make foreign policy decisions on its own. The prevalent opinion is that Sargsyan’s yielding to Russian demands came as a result of threats to provoke a war with Azerbaijan.

Opposition to Putin’s and Sargsyan’s plans may grow in the next few months and the coming anniversary of Armenia’s Independence Day on September 21 could be a critical point for mobilizing protests. Activists perceive a need to act fast, expecting that the situation may soon deteriorate and that the authorities may increasingly adopt Russian-style oppression, including bans on demonstrations, Internet censorship under the pretext of protecting children from dangerous information, mock trials, and so forth.

IMPLICATIONS: After Sargsyan’s statement, the leaders of Georgia, Moldova, and Ukraine reaffirmed their determination to continue integration with the EU, which in turn is now considering the possibility of assigning more financial assistance for those three countries. Russia’s ongoing “trade war” on Ukraine has not convinced the Ukrainian government to consider joining the Customs Union but has to the contrary consolidated the support for association with the EU. Russia is currently most interested in getting Ukraine – one of the largest European countries with significant natural resources and industrial capabilities – into its projects. Moldova’s government also remains determined despite growing Russian pressure; during a recent visit to Chisinau Russian Deputy Prime Minister Dmitry Rogozin threatened to cut gas supply to Moldova during winter, and Russia recently imposed an import ban on Moldovan wine.

Russia’s possible further actions in the South Caucasus should be examined carefully, and it should also be considered that the Russian economy is in recession. A decision to cut budgetary expenses by 5 percent has just been made, while internal dissatisfaction with Putin’s regime is growing. Furthermore, Russia faces a significant decline in revenues in the mid and long term as the U.S. will start exporting liquefied natural gas while reducing oil imports, and several European countries are exploring shale gas.

Desperation caused by the inability to persuade Ukraine to participate in the Eurasian project together with a need to boost oil prices may induce Putin to use Russia’s influence in Armenia and the region’s unresolved conflicts for gaining an even stronger domination in the South Caucasus. Russia may increase its military presence in Armenia, and perhaps also deploy some troops in Nagorno-Karabakh under the disguise of peacekeepers as tensions mount on the line of contact. Russia may also target Georgia, aiming at Finlandization of the country at gunpoint but also not excluding the possibility of full-scale aggression. Controlling Georgia would be crucial as it would allow Russia to control the pipelines supplying Azerbaijani oil and gas to Europe. Ultimately, Russia might seek to increase its oil revenues while restoring domination of the entire Caucasus region.

A stronger Russian domination, including manipulation of the unsolved conflicts, would not only undermine regional security and prevent the region’s democratization; it could also easily result in a drastic increase of energy prices with immediate negative consequences for the U.S. and EU.

So far, European decision makers have reacted to Sargsyan’s intention to join the Customs Union by stating that none of the planned agreements with Armenia will be signed, and the implementation of a Twinning project providing support for legal and institutional reforms has been suspended. This means that the option of offering more economic assistance and some security guarantees to help resisting Russian blackmail is not being considered. It is also quite obvious that the National Assembly of Armenia will rubber stamp any law and ratify any treaty signed by Sargsyan, so Customs Union membership will be formally approved unless a strong protest movement comes to the fore.

In the U.S. and EU, there is seemingly a tendency to consider Sargsyan a victim of Putin’s pressure. In addition, U.S. and European politicians have invested a high degree of trust in Sargsyan’s administration and seem careful not to offer overt criticism that may undermine the Armenian regime.

CONCLUSIONS: Recent statements by European politicians exclude the possibility to initial the Association Agreement with Armenia in November, as there is a general understanding that further engagement of Sargsyan’s administration in the EU association process is useless. It is now up to Armenia’s civil society to try preventing the signing and ratification of the Customs Union agreement. Otherwise, the ongoing economic decline and infringements of civil liberties will continue to stimulate emigration and depriving the country of human capital.

So far, Sargsyan’s statement about the intention to join the Customs Union has induced European decision-makers to indicate that agreements with Georgia and Moldova, after being initialed in November, may be signed and enter the ratification phase earlier than previously planned. As further policy options are considered, it is reasonable to assume that Russian pressure in the region, particularly against Georgia, may intensify within a few months, coming to a peak soon after the Sochi Olympics.

AUTHOR’S BIO: Armen Grigoryan is an Armenian political scientist. His research interests include post-communist transition, EU relations with Eastern Partnership countries, transatlantic relations, energy security, and conflict transformation. He is the author of several book chapters, conference reports and analytical articles.

Read 15176 times Last modified on Wednesday, 25 September 2013

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