Earlier this year, on May 29, a who’s who of dictators met up in the Kazakh capital of Astana to finalize the details of an agreement that is supposed to be of “epoch-making significance.” The treaty signed was to create the Eurasian Economic Union (EEU), an amalgamation of the Russian Federation, Kazakhstan, and economic powerhouse Belarus, to commence on Jan. 1, 2015. Creating a sort of free trade bloc, as well as getting rid of work permit regulations, the EEU is still, much to Russian President Vladimir Putin’s chagrin, not as big as he would like it to be.
The Presidents of Russia, Belarus, and Kazakhstan finalizing the details for the Eurasian Economic Union
Putin had previously stated that he wanted to get all of the ex-Soviet nations, including the European Union’s (EU) Estonia, Latvia, and Lithuania, to sign on to the treaty, fully knowing that it is all but impossible for one country to be a part of both blocs. Already out of the running are Ukraine, Moldova, and Georgia, which recently signed deals with the European Union that should prepare them for entry into the EU (at some point in the distant future) by taking steps like raising quality controls to modern standards and increasing competition. Azerbaijan has also withdrawn any interest in the deal, as have Uzbekistan and Turkmenistan.
Of the Soviet republics then, only Tajikistan and Kyrgyzstan—not exactly world beaters when it comes to their respective economies—have interest in joining the new Russian Customs Union. Armenia’s position is one worthy of investigation. Just about a year ago, it looked like Armenia was going to reach a similar deal with the EU as Ukraine, Moldova, and Georgia did. Armenia had an opportunity—an exceedingly rare opportunity—to bring itself closer to Europe, with potential EU membership a (distant) possibility.
But much like Putin strong-armed then-Ukrainian President Viktor Yanukovych into ditching talks with the Europeans, which resumed after the Euromaidan protests, the Russian president called his Armenian counterpart to Moscow. President Serge Sarkisian quickly told the media he had committed Armenia to joining the EEU.
Sarkisian’s sudden flip-flop surprised the Europeans, namely Swedish Foreign Minister Carl Bildt, who mentioned that the agreement with the EU was four years in the making. And who can blame him? One would expect Belarus (exceedingly dependent on Russia) and Kazakhstan (a state whose dictator, Nursultan Nazarbayev, may have been switched at birth with Putin, such are their ideological similarities) to side with Russia. But the statistics do not make sense from the Armenian perspective. According to the International Monetary Fund, adjusted for factors like currency valuations, combined GDP in the EEU is about $2.9 trillion, give or take. This is less than the GDP of just Germany alone. The EU’s GDP is closer to $16 trillion. The EU also has three times the people of the EEU.
Of course, Armenia does trade with Russia more than any other country, and bilateral trade between the nations is close to $900 million a year, according to data from the UN. That being said, there is more bilateral trade between Armenia and Mexico than between Armenia and Kazakhstan. Armenia trades with Sweden more than it trades with Belarus. If Georgia, Ukraine, or both were involved in the EEU, it would have made some sense for Armenia to hop aboard. Combined, bilateral trade between Armenia and the EU is around $1.6 billion, almost double the trade with the current EEU countries. The economics simply do not make sense for Armenia.
Gazprom owns 80 percent of Armenia’s energy infrastructure, and the Russian government is in charge of most of Armenia’s power plants. Russian firms own large parts of Armenia’s rail and mining sectors, as well as parts of the telecommunications market. Sarkisian’s hands may be tied by the deep-rooted nature of Russia in Armenia’s economy, implanted mostly before he took power in 2008.
One thing to note here is that although trade with Russia is not nearly as high as with the EU, Russian firms—state-run and private—own several important Armenian entities. Gazprom owns 80 percent of Armenia’s energy infrastructure, and the Russian government is in charge of most of Armenia’s power plants. Russian firms own large parts of Armenia’s rail and mining sectors, as well as parts of the telecommunications market. Sarkisian’s hands may be tied by the deep-rooted nature of Russia in Armenia’s economy, implanted mostly before he took power in 2008.
Yes, it will be much easier and cheaper for Armenia to import Ladas, and these savings will be passed onto consumers. But in joining the EEU, Armenia will have to raise tariffs on goods from outside the bloc, which totals over 80 percent of imports. Not only will this petty protectionism prevent imports from stronger economies with higher quality goods, it may actually hurt Armenia’s status as a member of the World Trade Organization (WTO). Armenia will be forced to pay compensation to members of the WTO affected by this raising of tariffs. It will be more difficult for countries outside the EEU to do business with Armenia, creating an even greater dependence on Russia.
The geography does not make sense, either. Both Kazakhstan and Belarus share borders with Russia, and Kyrgyzstan would extend these further. One of the main points of a customs union is to increase trade and transnational business. This is made just a tiny bit harder when the country in between Armenia and Russia is Georgia, which has already indicated that it is firmly on Team Europe, and probably won’t be doing any favors for the EEU. Whatever economic benefits there could be by trading more with the EEU are in part nullified by the increased burden of transportation, as well as the decline in trade with other, stronger economies. Anybody that doubts whether this is a political move by Putin needs only to realize that Armenia shares no border with the EEU, nor will it ever. Meanwhile, with Georgia looking like a potential member of the EU down the line, and Turkey slowly but surely getting closer, Armenia could be even more isolated than it already is.
The more worrisome aspect of the EEU is the potential for further integration. Belarusian President Alexander Lukashenko has already indicated that he would support a common currency, as well as closer political and military ties. Kazakhstan has sought to keep its relationship with the EEU as purely an economic one. The former is an unsettling thought. With the flak Russia is already receiving after the crisis in Crimea, and then the downing of MH17, its economy has taken a massive hit. Russia is an energy powerhouse. That’s about it. The ruble frequently oscillates in value, particularly now in the face of sanctions. Tethering the Armenian economy to three weak and undiversified economies is a death sentence, not to mention the Putin Doctrine of “rescuing” Russian speakers and nationals in foreign countries. While there are few native Russian speakers in Armenia, there are plenty of dual nationals.
Securing cheaper gas for Armenia is always nice, but the key tenet to the Russian plan to control Armenia is surely embedded in security guarantees. Despite keeping thousands of troops in Armenia, the Russians continue to sell weapons to the growing Azeri Army, as does Belarus, according to the UN Register of Conventional Arms. Neither country seems intent to stop. Perhaps Sarkisian was fine with the status quo, and Putin threatened to play into Azerbaijan’s hand even more if Armenia deviated from the EEU. Considering that Russia has not recognized Nagorno-Karabagh as an independent nation, it could theoretically get out of any commitment to defend Armenia by pointing this out. Armenia gains so little in this deal, though, that it is clear that Sarkisian must not have had much of a choice.
Ukraine, Georgia, and Moldova all certainly faced similar coercion from Putin, yet all three decided to continue on their path to European integration. Moldova’s economy is just about half that of Armenia’s, despite having about as many people. Georgia faces the threat of Russian invasion as in 2008, and the Russians have already supported two separatist nations inside its borders. Ukraine was threatened with increased energy prices and barriers to trade. Although none have as serious a security crisis as Armenia, all three of these countries decided to stay the course and get closer to the EU. Sarkisian capitulated.
But worse than all this, worse than impending economic stagnation, is the set of new values that Putin and his cronies are seeking to create. Members of the Russian diplomatic team have mentioned the desire to create a more conservative and traditional set of political values. This “new set of values” includes things like homophobia, silencing of the independent press, and autocracy.
Armenia is a democracy that is capable of running somewhat proper elections. Russia, Belarus, and Kazakhstan are not. The latter two have had the same dictator in charge since the fall of the Soviet Union, and Putin is known for his electoral antics, to say the least. Armenia is a country with a mostly independent press. According to Reporters without Borders, Armenia ranked 78th, roughly middle of the pack, ahead of countries like Greece and Israel. Russia came in at 148th, a disappointing ranking until you consider that it is better than both Belarus and Kazakhstan. Not so surprisingly, the three best faring ex-Soviet countries are Estonia, Lithuania, and Latvia, in that order, all members of the European Union.
When a country tries to get closer to Europe, it is forced to provide freedoms as opposed to taking them away; Ukraine has been forced to release political prisoners, for instance. Armenia should strive for this, as opposed to cozying up to dictators.
When a country tries to get closer to Europe, it is forced to provide freedoms as opposed to taking them away; Ukraine has been forced to release political prisoners, for instance. Armenia should strive for this, as opposed to cozying up to dictators. Of course, Nazarbayev and Lukashenko seek closer ties to Russia; they would rather not have the Europeans breathing down their respective necks about such petty issues as “human rights” or, even worse, “democracy” in return for some economic gain.
Picking Europe or Eurasia is a very difficult decision to undo. Since Armenia would have to raise tariffs on goods from countries outside of whatever trade bloc it joins, it cannot be part of both the EU and the EEU. This is a decision that will shape Armenia for the coming decades. Armenia can go the way of the Baltic nations, and of former Warsaw Pact nations like Poland and Romania, or it can lag behind, tied to weak and one-dimensional economies. The problem is that Armenia may very easily have no choice in the matter.
It is difficult to juxtapose the security requirements of Armenia, and the economic, as well as social, deficiencies that would result from Armenia joining the EEU. Perhaps Sarkisian should find a way to delay the agreement with the Russians until he knows more of what it will entail, as opposed to signing the EEU treaty this October, as announced by Armenian Prime Minister Hovik Abrahamyan. By feeding Putin with assurances that Armenia is getting ready to join the EEU, Sarkisian may be able to fend off Russian advances, while simultaneously trying to rehash relations with Europe. Sarkisian may also cite the aforementioned geopolitical events as reason for Armenia to reconsider its relationship with Russia. There may be a path in between both worlds, a bit like the path Armenia has followed in the past, and this would be ideal. Armenia could reap the rewards of increased economic engagement with Europe, while not threatening national security.
All of this is a Catch-22. Either Armenia sacrifices both its economy and wellbeing for a potential security alliance, or Armenia seriously risks losing Nagorno-Karabagh by doing what is best for its people. It seems unlikely that Sarkisian will flip-flop once again as to where his loyalties lie. Whether or not the EEU is, as Hillary Clinton put it, an attempt to “re-Sovietize” the former Soviet republics, the EEU makes little to no sense for Armenia from an economic or social perspective—if it has a choice in the matter.
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