Armenia officially became a member of the Eurasian Economic Union (EEU) on Friday one day after the Russian-led trade alliance of ex-Soviet states started functioning amid Russia’s deteriorating economic outlook.
Russian Foreign Minister Sergey Lavrov congratulated his Armenian counterpart Edward Nalbandian on the occasion in a phone call. The Russian Foreign Ministry said the two men discussed “integration cooperation and bilateral relations.” Nalbandian’s press office issued no statements on the conversation.
Announcing the completion of Armenia’s accession process at a summit in Moscow late last month, Russian President Vladimir Putin said membership in the EEU “corresponds to the fundamental national interests” of the South Caucasus country. Putin, who has increasingly sought to reassert Russian influence in the former Soviet Union over the past decade, cited “broad horizons” opening up for the Armenian economy.
Sarkisian and his political allies have given similar assurances ever since the Armenian president unexpectedly decided in 2013 to make his country part of the Russian-led bloc at the expense of an Association Agreement with the European Union. The foreign policy U-turn is widely thought to have been the result of strong Russian pressure. Some Armenian leaders have implied that failure to join the EEU would have endangered continued Armenian control over Nagorno-Karabakh.
Surprisingly, Sarkisian did not mention Armenia’s accession to the EEU in his New Year’s address to the nation. He spoke instead of unspecified “turbulent developments in the world” that are having negative effects on the domestic economy. “We will be developing our economy in the new conditions by making use of opportunities that will open up in the foreseeable future,” he said vaguely.
A senior government official in Yerevan said last month that EEU membership will translate into an extra growth rate of between 1.2 percent and 2.5 percent annually for the Armenian economy. Economic growth in the country actually slowed down in 2014 because of knock-on effects of an unfolding recession in Russia.
The Armenian government expects growth to pick up to just over 4 percent this year. The International Monetary Fund has come up with a more cautious forecast: 3.3 percent. Some analysts say that even this projection may be overly optimistic given the possibility of a further drop in international oil prices, which would spell more trouble for the Russian economy.
In a December 30 statement, the IMF said that the Armenian authorities “should also pursue deeper integration beyond the EEU to enhance growth prospects and reduce vulnerabilities.” A senior official from the World Bank similarly cautioned in October that entry into the EEU alone will not speed up Armenia’s economic development. She said it needs to be complemented by closer commercial ties with Europe.
Armenia is now replacing its traditionally liberal trade regime with more protectionist policies pursued by the EEU’s three member states. As a result, Yerevan will have to renegotiate terms of its membership in the World Trade Organization.
Armenia’s accession treaty with the EEU signed in October allows it to temporarily exempt around 800 types of goods imported from beyond the EEU, including key foodstuffs and fuel, from higher customs duties set by Russia, Belarus and Kazakhstan. But they will have to be gradually raised to the EEU levels by 2020.
Many other imported products, notably clothing, are expected to become more expensive already this year. Armenian officials say that this will be offset by Armenian manufacturers’ improved access to the vast common market of Russia, Kazakhstan and Belarus. Critics counter that the three states account for less than one-quarter of Armenia’s foreign trade.
Also, import duties collected by the Armenian customs service will now have to be transferred to the EEU budget. Armenia will then be entitled to receiving 1.13 percent of the union’s total customs revenue. Some officials estimate that this will bring more than $100 million in extra budgetary revenue to its cash-strapped government already in 2015.