By Mina Muradova (07/02/2014 issue of the CACI Analyst)

The ongoing crisis in Ukraine has pushed several post-Soviet countries to decide whether they are primarily oriented toward the West or Russia. On June 27, Azerbaijan’s neighbor Georgia, along with Ukraine and Moldova, signed landmark partnership agreements with the European Union, which establish closer economic ties between these economically weak states and the EU. They obligate the countries to observe EU regulations governing customs, exports, and economic competition, and will allow them access to European markets.

At the same time, Azerbaijan’s other neighbor, Armenia, has committed to joining the Russia-dominated Eurasian Economic Union (EEU). Russia, Kazakhstan and Belarus signed an agreement on the establishment of the EEU in Astana on May 29. The summit was also attended by Armenian President Serzh Sargsyan, who nevertheless did not sign the agreement but asked for additional time.

Yet Baku has stuck to a pragmatic approach and has publicly rejected the Kremlin’s invitation to join the EEU, while being in no apparent hurry to enter any other agreement. Azerbaijan’s broader foreign policy of regional balance, favoring Euro-Atlantic integration while at the same time seeking to maintain good relations with Russia, allow Baku to reap benefits from all possible partnerships.

In June 2014, Russian ministers and high-level officials visited Azerbaijan to persuade Baku to enter closer cooperation with Moscow. Russia’s Economy Minister Alexei Ulyukayev visited Baku in early June to discuss economic cooperation and invite Azerbaijan to join the EEU. Russia’s Foreign Minister Sergei Lavrov then arrived on June 18-19 for a continuation of what he described as “a most active dialogue.” In addition, Azerbaijan hosted visits by Russia’s Deputy Prime Minister Dmitry Rogozin, Duma Speaker Sergei Naryshkin, and Development Minister Igor Slyunayev.

“Azerbaijan is our strategic partner … Our cooperation is being actively developed not only in a two-side format, but also in multi-side directions, including issues of stability and security in the Southern Caucasus and Caspian region,” Lavrov said at a news conference in Baku on June 18. The two sides discussed the situation in Ukraine, and Lavrov said that Azerbaijan has not been formally invited to join either the Customs Union or the EEU, but added that Moscow would welcome any partner interested in collaboration with those organizations.

Baku has indicated that it has no plans to join those blocs. “Azerbaijan yet has no intentions and doesn’t think about joining the Eurasian Union,” the Deputy Head (and Director of the Foreign Relations Department) of Azerbaijan’s Presidential Administration, Novruz Mammadov, told reporters on June 11.

According to Lavrov, the frozen conflict in Nagorno-Karabakh will not affect the Eurasian integration processes: “it is a subject of other international negotiations.” Kazakhstan’s President Nursultan Nazarbayev previously remarked that “the treaty with Yerevan must have a special provision about Armenia’s internationally recognized borders that do not encompass Nagorno-Karabakh.”

Commenting on Armenia’s accession to the Eurasian Union, Mammadov stressed that Azerbaijan has no reason to express any concern on this issue. Referring to an appeal from Baku to the presidents of Russia, Kazakhstan and Belorussia, that Armenia can join any organization under the same conditions as outlined in the treaty with the World Trade Organization, meaning within its internationally-recognized borders, Mammadov stressed that “this is our demand and it will be fulfilled.” Yet it is still unclear how this will be controlled.

Armenia’s ruling party insists that Karabakh will not join the EEU de jure, but Gagik Minasyan, the head of the committee on financial and budgetary affairs at the Armenian parliament, said that Armenia’s membership in the EEU will open new economic opportunities for Nagorno-Karabakh. Minasyan stressed that “Armenia and Nagorno-Karabakh are a single economic area and there can be no customs point between them.”

It appears that Azerbaijan’s refusal to join the EEU will not prevent continued arms sales from Russia. Dmitry Rogozin, who is overseeing the Russian defense industry and heading the Azerbaijan-Russia intergovernmental commission for cooperation also visited Baku in June.

According to the Atlas Analytical Research Centre, “The arms deals are beneficial for both Moscow and Baku. Moscow will get more money from arms sales and will keep Azerbaijan as a traditional market for Russian arms, while Baku will keep a strategic partnership on a high level and insure itself from serious problems with its Northern neighbor.” According to Atlas, Russian weapons sales makes up 80 percent of all Azerbaijan’s arms deals, which totaled about US$ 4 billion in the last four years and has included the transfer of many advanced systems to Azerbaijan.

In addition, Azerbaijan is willing to enhance its economic and humanitarian cooperation with Russia. Eleven commercial agreements were signed at a big Azerbaijan-Russia economic forum held in Gabala, with the participation of over 200 representatives from 25 regions of the Russian Federation. The sides discussed the expansion of transit traffic for all types of transport and agreed to ease border crossing procedures, particularly for automobile traffic.

Andrey Kazantsev, Director of the Analytical Center at the Moscow State Institute of International Relations, noted that the visits of Moscow’s emissaries to Baku constitute an attempt to maintain Russia’s sphere of influence in post-Soviet countries: “the competition for influence in post-Soviet countries has increased. While some of them have already determined who they are going to be with, there are still countries which continue to keep multi-direction policies and here either Russia or the West increases their efforts to attract them.”

According to Kazantsev, the U.S. is seeking to isolate Russia diplomatically due to its position on the Ukrainian crisis, and Russia is in turn trying to counteract these moves through the post-Soviet countries. Another key reason for Moscow’s activities is to brief Baku regarding Armenia’s accession to the EEU to avoid harming its strategic partnership with Azerbaijan, which is justified by arms sales and other economic agreements.

Published in Field Reports
Wednesday, 02 July 2014 12:35

Georgia Takes a Step Closer to the EU

By Eka Janashia (07/02/2014 issue of the CACI Analyst)

On June 27, Georgia’s Prime Minister Irakli Garibashvili, the European Council’s President Herman van Rompuy, and the European Commission’s President José Manuel Barroso signed the Association Agreement (AA) including a Deep and Comprehensive Free Trade Agreement (DCFTA), which was initialed at the EU’s Eastern Partnership summit in Vilnius in November 2013. At the same ceremony, the EU inked the AA with Ukraine and Moldova. The AA sets priorities for the period of 2014-2016 to achieve closer political association and economic integration between Tbilisi and the EU.

“It is very difficult to express in words the feelings I am experiencing now. June 27 will be remembered as a historic and special day. Today a new big date is being written in the history of my homeland, which gives hope and which our future generations will be proud of,” PM Garibashvili said at the signing ceremony. In his speech, Garibashvili also addressed Abkhazians and South Ossetians, pledging that a step towards the EU will bring benefits for them too.

The signature of the AA was initially planned for the end of this year but developments in Ukraine induced Brussels to accelerate the process. The AA has replaced the EU-Georgia European Neighborhood Policy Action Plan of 2006 and involves both political and economic components. It envisages reforms aimed at enhancing the quality of democracy by strengthening the rule of law, independence of the judiciary, respect for human rights, as well as peaceful conflict resolution, and cooperation on justice, freedom, and security. The economic component includes the DCFTA and stipulations on cooperation in the energy, transport, employment and social policy sectors.

To this end, Georgia should establish an adequate institutional framework comprising an Association Council, committees, subcommittees and trade-related working groups as well as monitoring mechanisms which will ensure Georgia’s gradual approximation to EU standards and regulations in trade, customs procedures and quality controls. Although the process of approximation does not imply eventual integration with the EU, it paves the way for potential membership at some point in the future.

Georgia is supposed to ratify the agreement in the second half of July. Whereas the process of ratification by the parliaments of EU member states might take several years, the treaty foresees provisional application that could start tentatively in October 2014.

The EU will support the process of implementing the AA through providing financial, technical, information sharing and capacity building support. In July, Brussels envisages the adoption of new assistance programs worth 101 million Euros to advance Georgia’s justice sector and the potential of small and medium business.

After signing the AA, PM Garibashvili welcomed Russia’s “constructive” approach. In his words, Moscow pledged not to obstruct the process and it kept the promise. However, on June 25, Russia’s Foreign Minister Sergei Lavrov said that if the DCFTA between the EU, Georgia, Ukraine and Moldova harms the free trade regime of the Commonwealth of Independent States’ (CIS), Moscow will apply “protective measures in complete accordance with the WTO rules.” In response, European Commission President José Manuel Barroso stated that “these Agreements are for something, not against anyone” and that the EU does not seek exclusive relationship with these partners.

The Trade Sustainability Impact Assessment 2012 report, commissioned by the EU, examined the DCFTA’s potential impact on Georgia’s economy. It suggests that the DCFTA might increase Georgia’s GDP by 4.3 percent in the long-term. Tentatively, full implementation of the trade-related reforms will increase Georgia’s exports to the EU by 12 percent and its imports by 7.5 percent, which will improve the country’s long-lasting trade deficit.

While these estimations are based on a long-term perspective, it is unclear what the immediate consequences would be of the “protective measures” that Moscow may impose on Georgia due to the alleged negative implications of DCFTAs between the EU, Georgia, Ukraine and Moldova for the CIS free trade zone. Georgian and Russian experts have even arranged technical consultations to examine the potential effects of the DCFTA on trade between Russia and Georgia.

According to Georgia’s state statistics office, Georgia’s export to CIS member countries in January-May 2014 reached US$ 627.6 million, compared to US$ 253 million to the EU. Moreover, Azerbaijan, Armenia and Russia constituted Georgia’s largest export markets at US$ 240.4 million, 129.7 million, and 108.3 million, respectively.

However, the DCFTA does not restrict the existence of FTAs between Georgia and other countries. Georgia has bilateral free trade agreements (FTA) with major trading partners including Russia and Turkey, and penetration into the EU market will not necessarily take place at the detriment of those of post-Soviet countries.

Although the AA has both political and economic components, the latter has attracted more attention from the public and observers. Most Georgians seemingly assess the agreement in light of the opportunities the AA may provide in terms of improving welfare and the country’s overall economic performance rather than as an instrument for enhancing the quality of democracy. 

Published in Field Reports
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The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.

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