AmCham President talks about the Eurasian Economic Union (EEU)

When talking about the Eurasian Economic Union (EEU), we unintentionally compare it to the European Union (EU) and try to understand its challenges and opportunities. The main difference lies in the fact that initially, at the basis of the EU, there was a foundation of economic integration, after which only gradually the political factor came forward, thus creating a number of issues. Regarding the EEU, it was created as a political body from the very beginning, which created the basis for the current issues related to the EEU. We should also take into account the fact that Armenia joined the EEU late, as compared to other members of this union. And here is where the main tactical issues are coming from, since the structure itself is in the formation stage. One of the comparative advantages the EEU has compared to the EU is the fact that it can utilize the experience of the latter. It should be noted that the EEU committee members do not deny the fact that the EEU structure, subdivisions, governance system, and the ministerial positions have been duplicated from this model. They do not hide that they are learning from EU experience.

 

Currently, the EEU involves a significant staff of 1000 highly paid specialists. They are involved in the process of the formation of the regulatory field. The main issue I see today is that Armenia can still not have the role, which other EEU member states have.  Belarus and Kazakhstan have an integration history. They were able to form institutions during the years of membership in the Customs Union, and their governance system has already adjusted to the integration processes. In our case, the situation is quite challenging. There are various types of documents developed within the EEU, such as analytical, legal, technical regulations, as well as codes, and international contracts.  In my opinion, our system cannot digest the volume of these documents. And not only does this relate to the state system, but also to the business sector, which often cannot even find time to open these files. Our government and responsible business unions receive around 300 materials daily, which are sent to them as drafts for discussion. We cannot follow up on all documents and even do not manage to read them, whereas this is process, and we are significantly lagging behind this process. 

 

We should also pay attention to the fact that in contrast to the EU, there is a dominant country in EEU, namely Russia, which has significantly larger opportunities and resources. This fact significantly diminishes the opportunities of other EEU countries to protect their economic interests. However, I should mention that we are not ready to use even this small opportunity available to us. I hope that this is a tactical issue and has a temporary character. 

 

The other issue I see lies in the fact that until new elections, which will take place this year, with the new committee starting its work on January 1, 2016, our ministers, who are members of the EEU committee, as compared to the representatives of other countries, do not have areas of responsibility and are actually ministers without portfolios, who only have voting rights.  To a certain extent, this fact as well reduces our participation in the process of setting the rules of the game in the EEU. Unfortunately, today Armenia is in a situation where its actions are of a more reactive nature. It is only when a certain decision affects the interests of a particular business would the business raise its voice, and the country and our ministers start rather active lobbying and negotiations. I hope that this situation as well is temporary, but our governance system has to adjust to the new situation, and our EEU ministers and government have to form this system.

 

Regarding the economic perspective, it was clear from the very beginning that in the case of the formation of the EEU, Armenia could not escape the process. Being inside we should be able to use the potential opportunities to the maximum.

 

It is also important to note that the critical situation in Russia could not but affect the countries becoming integrated to EEU. Its economic impact and consequences can be seen in our country as well. At this point, it is early to evaluate the consequences of EEU membership. It might make sense talking of global strategic directions in a longer perspective. As regards to the tactical directions, they relate to time. However, in my opinion, in our country the tactical decisions related to the EEU are not taken in a timely manner by responding to a particular market situation. On the other hand, the strategic issues too are not being addressed. Now, we behave like a poorly trained fireman. The trained one can choke a fire in a speedy and effective way, while we are not able to do so. 

 

It is hard to evaluate the opportunities that will arise from EEU membership. For doing so, we have to objectively evaluate our competitive advantages, first of all within the EEU and then, outside the Union. It is but clear that we cannot compete in the main industrial markets occupied by Russian Federation and Belarus. We cannot be a competitor in particular in the mining sector, since we have serious competitors like Russia and Kazakhstan. It is absolutely clear that we are mostly competitive in the agricultural products market and have to use this opportunity thanks to our favorable climate conditions, in particular, advantages of “Armenian” sun and the graces of nature, such as the water quality, altitude above sea level, etc. to occupy strong positions in certain markets by investing in industrial agriculture sector. This will allow us to provide for the productivity peculiar to the global market leaders. Following the same principle, we can also develop fish breeding, horticulture, and greenhouse industries.

 

As regards to our potential position in the food industry, I would really wish us to occupy a market, since we have serious issues here related to the policy pursued by Russian Federation (RF), where the food industry markets have appeared in the hands of transnational companies. Here, we have to understand that we are competing not with Russian companies, but with large American and European transnational companies and businessmen, which are based in the RF.  It should be mentioned that we are not competitive given our low productivity, with the exception of certain sectors, including beverage production. It would be much better for us to sell apricot juice and not the apricots, which will be much more profitable for us. However, even in the juice market, I cannot imagine how we will be able to compete with let`s say J7 or Pepsi beverages. We have to be able to provide for niche production, such as walnut jam or premium class products, e.g. organic apricots.  We have to try squeezing ourselves into competition.  Our apricot is competitive and is the best product, but in the case of juice production, we face certain issues which shall be addressed through non-standard approaches, such as naming the product “premium class apricot juice” or something like this. In any case, we have a development potential here. As regards to tomato paste, in my opinion, Armenia unfortunately cannot export this product, since there is already a large producer of this product in the market, namely China.

 

The competitive advantage of Armenia also lies in the fact that we have implemented reforms more effectively, which is proven by the rankings and indices of various reputable international structures. If we are not able to capitalize on this factor today, tomorrow we may lose this opportunity, since it is hard to believe that Belarus will stay as it is or Russia will not change.  However, today, we can become a good internal business off-shore for EEU countries, off-shore not from financial but from a business organization perspective. The companies registered in EEU member countries receive equal rights, irrespective of their place of registration. Armenia can capitalize on its business environment comparatively successfully by taking a few steps in this direction. This is a possible option that we can use. Other opportunities relate to the world outside the EEU. By observing the experience of Kazakhstan and Belarus, we can see that one of these countries has tried to use the fact of its closeness to European markets and the other one to China.  This means that we have to advocate inside the EEU for establishing certain type of relations with Iran. Armenia finds itself in a very interesting position. Taking into account the fact of the possible removal of sanctions on Iran, irrespective of our advocacy, the EEU will initiate the process of establishing favorable regime with Iran in a speedy manner. We have to be able to get involved in this process and act in accordance with our interests. At the same time, it should be noted that the business environment in Iran is not favorable, the role of the government is too big, and the Islamic banking system operates based on certain laws of Islamic states and a Shariah-based judicial system.  Therefore, I do not think that western business will be very happy entering, getting registered, and operating in this market. Armenia can benefit from this situation as well.  Armenian-Georgian relations as well allow us to capitalize markets.

 

Armenia has significant benefits in the EEU. First, it was able to preserve its trade regime with Georgia, and it has to continue with this approach. It is also important to note that we have a grace period before we reach the customs rates applied in the EEU, as well as the fact that we were able to preserve the GSP plus trade system with the European Union. In fact, we have 10 years ahead of us, which is a decisive time period for Armenia. After this, our opportunities will be relatively limited. However, this does not mean that we will be used. We have to establish corresponding institutes, expert groups, which will have to work effectively and take steps beneficial for the country.

 

If we can formulate our issues in a right way and use our unique opportunities effectively, the EEU can be rather beneficial to Armenia in a global sense.