Monday, February 24 2014

To assess the expediency of Armenia's accession to the Customs Union with Russia, Belarus and Kazakhstan, it is necessary to conduct a comparative analysis of the approaches to the customs policy implemented in Russia and Armenia after the collapse of the Soviet Union, second president of Armenia Robetr Kocharyan said in an interview with 2rd.am. 

"Russia has inherited USSR's powerful industrial potential covering nearly all the sectors of economy with a strong emphasis on the military-industrial field.

However, that potential has not been integrated with the global economy and was mostly concentrated in the domestic market and the post-Soviet countries. In the Soviet Union, export of oil and gas made up 65% of total exports. To protect its industry from more competitive imports, Russia used to apply high customs duties, while domestic market was big enough to keep its industry function. Imposing export taxes on energy resources and export quotas, the government ensured low domestic tariffs, which supported the relative competitive ability of Russia's economy. This allowed Russia to avoid economic collapse, something that happened in Armenia in early 90s. Now, accessing the WTO, Russia is gradually revising foreign trade rules for full integration into the global economy. This will lead to some short-term problems, but the country will sure benefit from it in the long- term outlook," Kocharyan said.

Further, in the interview, the second president analyses the situation in Armenia: "We have inherited the industrial potential oriented at the Soviet market which no longer existed by that time. Domestic market was miserable for that industry. Having neither common border not railway communication with Russia, Armenia made vein efforts to restore its erstwhile cooperation. Some economy sectors in Russia were also in poor state in mid-90s. With the collapse of the Soviet Union, Armenia began to export the significant part of industry losing its traditional sales market and partners. Inherently, it was senseless protecting many industrial sectors, except agriculture and processing, with customs duties.  Protectionism could be expressed with application of instruments quite different from customs barriers. 

Furthermore, Armenia was in blockade that increased the transportation costs of nearly all products.  Therefore, the Government of Armenia launched foreign trade liberalization in the mid-90s and Armenia joined WTO in 2003 to speed up the process of full integration into the world economy.  Actually, Russia and Armenia have been implementing different approaches to the customs policy because of some objective circumstances and their economic realities. And the customs codes of our countries were based on those very approaches. Considering that the Customs Union's approaches are based on Russia's Customs Code, a question arises as to whether Armenia will manage to reverse its approaches painlessly and what tasks of its economy the country is settling by higher customs charges. Kocharyan said.

Robert Kocharyan said he does not share the Armenian leadership's optimism over accession to the CU, as economy is sluggish and abrupt turnabouts are counter indicated. "People have built their business on effective rules for years, and they need to time for changeover. Obviously, some businesses will improve their positions, while some others will experience decline and even collapse. A deep and open CU market analysis on all groups of products is needed to foresee possible consequences," he said.  The second president said that the EU will probably revise the Generalized System of Preferences (GSP+) for Armenia, as EU ambassadors hint at that. Some problems will probably emerge also with the WTO and the coordinated customs duties. "This will lead to response measures regarding our products. How will this influence Armenia's economy and its long-term investment attractiveness is hard to assess," Kocharyan said. 
The growing tariffs of import from the countries outside the CU are another problem, he said. Considering that such goods dominate in the consumer market and the level of trade balance deficit we have in Armenia, this import is rather large-scale. The formula is simple: the higher are customs fees, the higher is the product price in the market. There is a third option: replacement of such goods with similar ones from the CU countries, if there are such.    

For instance, meat and dairy products from Belarus may become cheaper in Armenia and our wine and brandy may become cheaper in Belarus. Time will show if our cattle breeding industry can stand such competition.  Household equipment, devices and cars imported from other countries will rise in price, unless there are relevant exceptions. Everything can be assessed and forecasted and the people must be informed of these assessments and calculations. We can prevent price hikes only by introduction of a long list of exceptions and synchronize it with gradual reduction of customs duties, which is part of Russia's commitments to the WTO.  All this depends on the results of the negotiations with the CU countries that will also make their own requirements. This is a very hard process of accommodation of interests and any hasty step may result in undesirable consequences," Kocharyan explained.  He stressed that he consciously avoid making any assessments of the damage the CU accession process has caused to Armenia's image and the EU's concerns over it.

"Nothing can be changed now. We should not have started the process of the Association with the EU in a company with the GUAM countries and with such obtrusive PR. It gave the process excessive geopolitical coloring. Russia's nature was quite predictable. Anyway, we are where we are. I'd like the country to access the CU calmly with minimum geopolitics and with maximum consideration of long-term interests of Armenia's economy. Any miscalculations will affect all the residents of Armenia," the second president said for conclusion.