Promises can be like piecrust

In August, President Vladimir Putin of the Russian Federation visited Azerbaijan and numerous Russian observers did not regard his trip as evidence of support of President Aliyev during the next elections – for the simple reason that the Azerbaijani leader did not need his Russian counterpart’s backing; he was sure to win the race.

Putin’s visit was a signal to Yerevan that was quickly moving toward the initialing of the Free Trade Area Agreement with the European Union. (Armenia is supposed to do so together with Ukraine and Moldova in November, in Vilnius.) This signal addressed the most obstinate members of the Collective Security Treaty Organization, reminding them that Moscow kept the key to that security. To make that signal more convincing, Moscow agreed to supply arms to Azerbaijan, a shipment worth three billion dollars.

While threatening Ukraine – and now Moldova – with trade and customs wars, Russia has found Armenia’s most vulnerable spot. Armenia would not be able to meet Azerbaijan and Turkey’s challenges, even if given a degree of support from Iran. Official Yerevan was well aware of this when it came up with a number of problems that [allegedly] impeded its Customs Union membership – first and foremost, the absence of a common frontier. How could any customs barriers be lifted, considering that goods on their way from Russia to Armenia had to survive customs clearing procedures twice? Yerevan followed in Kyiv’s footsteps, insisting on cooperation as per some rather than all treaty clauses. It was further stressed that Armenia’s EU membership would not impede close contacts with the Customs Union. Under different circumstances, Moscow would have agreed, but after the fiasco of the Kremlin’s plan in regard to Ukraine and Moldova, along with the complicated relations with Belarus, President Putin refused to put up with any ambivalence. The president of Armenia had to agree to CU membership when visiting Moscow, after being exposed to all kinds of pressure.

Political conjuncture apart, President Serzh Sargsyan’s announcement of Armenia’s Customs Union membership sounded absolutely unfounded in terms of business and economy.

First, Armenia was among the first CIS countries to receive WTO membership. As a result, it doesn’t have to worry about its domestic market as much as the CU countries do, because the Armenian market is more open for imports. Armenian customs duties on most goods are much lower than the Customs Union’s Common External Tariff. Armenian businesses are more into go-between than production transactions, so raising the customs tax rate to meet the CU standard will impede imports. Getting the procedures straight will take time, considering that customs duties make up 60 percent of Armenia’s central budget revenues; that, after joining the Customs Union, this budget income item will be supervised by the supranational Eurasian Economic Commission, and that no one can guarantee that its resolutions will meet Armenia’s national interests.

“What made Armenia so important was the fact that Yerevan wanted to sign the papers in Vilnius. Now it was top priority for Moscow diplomats to talk Yerevan into making an about-face and promising, at best, to join the CU. This was so important, President Vladimir Putin stepped in. Another important aspect was that this problem had to be solved before the G20 summit. When it took place in St. Petersburg, Russia, Syria came on top of the agenda, as well expected. And so, Moscow had made every effort to please and threaten Yerevan at the same time.”

For Armenia, the European market remains the number one customer. In 2011, Armenia’s 45.5 percent of exports were aimed at EU countries, compared to 20.1 percent for CIS countries, including 17.3 percent for CU members and 16.6 percent for Russia.

Second, whereas Ukraine – and later Moldova, with reservations – were being talked into joining the Customs Union by promises of lower gas supply costs, no such promises were made to Armenia. Conversely, it is expected to pay $279 instead of $180 per thousand cubic meters. Unless the Armenian political leadership can solve this issue, serious inner problems are in the offing.

Third, the Customs Union, being an integrated structure, implies extensive industrial cooperation. What the Armenian businesses can manufacture to contribute to the CU market remains anyone’s guess. Under Soviet times, the Armenian Soviet Socialist Republic’s production was mostly within the boundary lines of the military-industrial complex (MIC), along with the light industry. Nothing is left and Russia’s MIC actually doesn’t need Armenia’s contribution, considering that most of Armenia’s MIC businesses have long been under Russian control. In other words, nothing of interest in Armenia, unlike Belarus.

Fourth, Moscow could offer Yerevan some $500 billion worth of compensation for joining the Customs Union, to help Armenia upgrade its railroad network. Geographically, this issue has everything to do with the opening of a railroad communication through Abkhazia. This issue cannot be resolved without settling the relationships between Abkhazia and Georgia that remain deadlocked. Even if this loan is granted, the money will vanish into thin air, and that will be the end of the Armenian railroad upgrading project.

The only remaining argument is [national] security and its guarantees as provided by Russia. This is also a complicated issue. There is the Russian military base in Gyumri, but in case of conflict it will be of minor significance. This military base is isolated from Georgia and will not be able to operate jointly with Russia, no matter what government comes to power. The international community will not allow Moscow to send troops to Armenia through Georgia, thus starting another war in the Caucasus. If and when, Azerbaijan would be backed by Turkey, a NATO member. No one in the Kremlin would accept a confrontation with a single Europe-America front.

One keeps wondering about official Yerevan’s fears. Moscow can no longer shrug off Armenia, just as it can no longer pressure President Alexander Lukashenka of Belarus the way they would like. In fact, Moscow is forced to keep Lukashenka happy, considering that the Eurasian Union is topping the political agenda.

Serzh Sargsyan will have a hard time coming to terms with the Opposition and the Cabinet, starting with Prime Minister Tigran Sargsyan as one of the key supporters of Armenia’s European course. Tigran Khzmalyan, leader of the Pre-Parliamentary Movement, when asked whether public unrest could be expected in the aftermath of recent political events, replied he believed this scenario was “not only possible, but also necessary.”

Armenia’s political leadership is most likely to apply the procrastination tactic. There is a difference between membership declarations and actual membership. Kyrgyzstan is a good example. This country has long been making clear it wants to join the Customs Union, that there are no political obstacles, yet all this remains on paper. Kyrgyzstan borders on CU member Kazakhstan, and problems keep mushrooming. Linas Antanas Linkevicius, Prime Minister of Lithuania (currently chairing the European Union), said Armenia’s CU membership would block FTA: “We respect the choice made by any given country, but no bilateral agreement can be signed by countries with different customs tariffs.” Diplomatically, he pointed out that there would be fewer ambitions involved in EU integration and cooperation.

The European Union suspended its Twinning Program in Armenia, after launching some 18 similar projects in that country, in collaboration with various government agencies, including one meant to upgrade the performance of the State Commission for Protection of Economic Competition (completed in the spring of 2013). That summer the EU was expected to provide one million euros for the Twinning Program. A tangible sum for Armenia, but then the European Commission notified the Armenian government that the project had been suspended.

Why should Russia try so hard to drag Armenia into the Customs Union, in the absence of economic, even military strategic revenues?

There was the shattering fiasco of Moscow’s diplomatic, even image-building plans concerning Ukraine and Moldova. Something had to be done to repair that image, even though the Customs Union’s image leaves much to be desired, what with constant friction and tensions between its members. Something had to be done, on a Urbi et Orbi basis to secure CIS integration. No problems with Kyrgyzstan and Tajikistan, considering that both countries had long agreed to join the CU. What made Armenia so important was the fact that Yerevan wanted to sign the papers in Vilnius. Now it was top priority for Moscow diplomats to talk Yerevan into making an about-face and promising, at best, to join the CU. This was so important, President Vladimir Putin stepped in.

Another important aspect was that this problem had to be solved before the G20 summit. When it took place in St. Petersburg, Russia, Syria came on top of the agenda, as well expected. And so, Moscow had made every effort to please and threaten Yerevan at the same time.

Promises can be like piecrust. Even now it is clear that Yerevan will make every effort to apply this piecrust strategy, and that Moscow will be hard put to do anything to counter it, the more so that Moscow needs symbols rather than end results – and that it has made quite some progress doing just that.