Main benefit from Customs Union

The most discussed political topic in Armenia now is the issue of Armenia joining a proposed Customs Union made of Belarus, Russia and Kazakhstan. Armenian president Serzh Sargsyan has come up with announcement saying that Armenia is committed to joining the Union. Most people who oppose to or are for joining the Union do not really know what it is. The Customs Union is a treaty in participation of two or more countries on adoption of one common tariff system and cancellation of trade limitations. Customs fees are raised for the member states and customs control does not apply between those countries. There may be also cancellation of limitations related to movement of labour and people. Russia-Belarus-Kazakhstan union was de-jure established in 2009 by signing a treaty. The agreement on establishing such union was reached in 1995. These countries were not able to establish a customs union, however, they are establishing Eurasia Economic Union (EurAsEs). Armenia has a status of an observer at EurAsEs. In 2007 an agreement was made on creation of a customs union on the basis of EurAsEs. It as expected that Russia-Belarus-Kazakhstan Customs Union would start its operation in 2010, however, the project was suspended due to disagreements with Belarus. Even Russian president Vladimir Putin announced that the Union could be formed without Belarus. The disagreements were resolved and in July 2011 these three countries cancelled customs control between their borders and moved that function to external borders.

The deep and comprehensive agreement with Europe would not make Armenia a member, but would give a status of privileged customs partner and would raise many limitations on trade. Is it possible to sign the deep and comprehensive agreement and meanwhile be a member of the Customs Union? According to Europeans, it is not possible. According to Russian officials, it is possible.

In case of Armenia one of the challenges is the absence of physical borders with Russia The Russian government has convinced Armenians that it is not a problem. However, there are regulations that are different in these two geopolitical formations. It is impossible to play a game with different rules at the same time. Besides technical issues, there are interests that won’t make it possible. Why does Russia oppose to Ukraine’s prospect of signing an association agreement with Europe and meanwhile being a member of the Customs Union? Russian officials have announced that there is a risk that by being member of two agreements Ukraine may import European products without customs payment and resell in Russia without paying customs fees there either, thus making prices down and harming local producers. However, the other side of the coin is that in the same way Ukraine could take products from Russia and resell in Europe. In a word, it is not realistic to be beneficiary of both agreements at the same time.

By the way, the reason why Ukraine cannot enjoy the benefits of both possibilities is that Chinese products flow into the markets of Kazakhstan, and then to Russia without passing through customs control. This means that by joining the Customs Union such products will come to Armenia, too, and will harm local producers (according to the Russian concept). This topic is not being discussed yet.

There is something else that has been forgotten. In the beginning of this PM Tigran Sargsyan, who was against joining the Customs Union because of absence of common borders, brought up another factor. “The structure of the Armenian economy is very different from that of the Customs Union countries, where there are a lot of energetic resources and where domestic production is protected by high customs fees. Generally customs fees in those countries are twice higher than those in Armenia,” said the Prime-Minister. This means that for import from third countries (primarily Europe) higher customs fees will be applicable. This means that many products will be twice more expensive in Armenia. Supporters of the Customs Union say that it will stimulate bilateral trade, thus fostering higher economic growth. For example, they say that by 2015 Russia will benefit about 400 billion dollars from the Customs Union, and Belarus and Kazakhstan each will benefit 16 billion. Experts believe that it is primarily Russia and Russian large companies that will benefit because they have more influence and will be more successful in new markets. For example, on August 30 Russia put limitations on import of pork meat from Belarus, and now they are discussing the possibility of limiting import of dairy products. Leonid Zayko, an economist from Belarus, says, “We have created very bad conditions for bilateral trade. Creation of the Customs Union was a big failure. The export of Belarus has fallen by 25%.” People in Kazakhstan are not very happy either. Being a member of the Customs Union does not mean that there will be no limitations on trade. For this reason, even EurAsEs countries are reluctant to join the Customs Union.

In 2011 Kirgizstan expressed interest in joining the customs union, however, they are still working on documentation and legislation issues. They may become a member in the end of this year or early next year.

Tajikistan wants to join the union too, however they condition their decision with Kirgizstan’s decision.

Uzbekistan does not want to join this union and has even cancelled participation in EurAsEs. In December 2011 the president of Uzbekistan came up with announcement saying that certain powers were trying to activate nostalgia toward the Soviet Union, however, they had forgotten the totalitarian regime of those times. Russia’s economy itself is not good as the rate of economic growth is around 1-1.5 percent and unemployment is growing. The Russian economy is thriving due to energetic resources, which is not an engine for supporting growth in other adjacent countries. The economic system is oligarchic and corrupt. This means that we should not hope for better economic system in the near future. Comparison of potential benefits and losses in case of joining the customs union shows that Armenia will have more losses than benefits. To become a full member of the union and enjoy the benefits, Armenia will need time, which may stretch up to two years.

It is also worth taking into consideration the potential losses Armenia would have in case of opposing to Russia and refusing to join the union. Such examples of potential problems could be increased gas price, deportation of labour migrants in Russia, etc. In addition to the mentioned potential economic losses, there could be geopolitical losses, meaning Karabakh first of all. This means that by making decision to join the Customs Union Armenia is thinking not of potential benefits but is securing itself from potential losses. The main benefit the Customs Union is going to give is that its members, primarily Russia, will not try to harm us.

By Babken Tunyan