Will European concessions save the Armenian economy?

Armenian media, citing sources, write that the Armenian government is “terrified of Russian sanctions” and has received instructions from Nikol Pashinyan to behave with restraint. It is reported that this line will be maintained until it becomes clear how the Russian pressure will end in the matter of choosing between the EU and the EAEU.

“It is said that even the most ardent pro?Western figures are obeying this directive, since even during closed discussions about Armenia’s accession to the EU, almost everyone noted the expected risks and advised the leadership to pursue this path only if there were clear guarantees from the EU. And in this matter, Pashinyan turned out to be more adventurous than the Soros supporters,” the newspaper Hraparak wrote.

The guarantees are just that — guarantees, and on September 15 the European Parliament will vote on granting Armenia customs benefits. There can be no doubt that the issue will be resolved positively. There will probably be some votes against, based on the interests of the EU's internal market, but the EP will definitely vote for the introduction of benefits.

Some time ago, it became known that the Council of the European Union approved a temporary, two-year, abolition of duties on 80 percent of Armenian goods imported into the EU. The measure, as reported, is designed to support Armenia against the background of trade restrictions from Russia.

The benefits will cover almost 99 percent of the fruits and vegetables exported from Armenia, as well as more than 90 percent of beverages and alcoholic products. As is known, Russia previously refused to accept these products. And recently it became known that Belarus rejected Armenian cognac with the catchy name “Yerevan 2800”, deeming it unsafe.

In exchange for these benefits, Armenia will have to comply with a number of requirements. These are the rules governing the origin of goods, participation in administrative cooperation with the EU, and the obligation not to impose restrictions on imports from the European Union.

The preferential agreement also includes measures to protect the European market from possible negative impacts. This is because the reaction of European farmers is unlikely to be positive. Anticipating this, the European Commission has included built?in safeguard mechanisms (Safeguard measures) in the agreement. As practice shows, European farmers are extremely sensitive to duty?free imports (as was the case with Ukrainian or Moroccan products). To reassure the local agricultural sector, Brussels initially included strict protective measures in the regulation. If a sharp increase in supplies from Armenia begins to cause economic damage to producers within the EU, the European Commission has the right to promptly reinstate duties or limit import volumes.

From an economic perspective, the threat to the interests of European farmers is minimal, because production volumes in Armenia cannot possibly compete with them. The capabilities of this country’s agricultural sector will never match those of such agricultural giants as France, Italy, or Spain. Furthermore, unlike Ukraine, Armenia is located far away, and this also complicates the task of organizing large?scale exports. Logistics costs offset the advantages that Armenian producers would gain from the temporary abolition of duties, because transportation will in any case drive up the price of the goods, even if they are duty?free. This means that Armenian apricots will not be much cheaper than, for example, Spanish ones.

By and large, the European market does not need Armenian vegetables and fruits. The European market is already oversaturated with such products; all niches are occupied, and roles are clearly defined. It’s clear to everyone that the reason for this decision was the desire to support the country that is seeking to be under the EU’s wing in its confrontation with Russia. This was a political decision. In order to somehow ensure the competitiveness of Armenian products, the EU introduced this lenient mechanism. After all, once the supplies of Armenian products began, it was repeatedly reported that they were not in demand among Europeans and were sold only in stores owned by the diaspora.

In any case, according to the media, European agricultural producers will closely monitor customs statistics (especially in Southern Europe regarding stone fruit crops and vegetables). Although European farmers do not see Armenian fruits and tomatoes as a serious threat to themselves in the near term.

Georgia, as a country seeking to join the European Union, has been enjoying customs benefits since 2014 and received candidate status for accession in December 2023. All products of Georgian origin, except for garlic, exported to the European Union are exempt from duties.

Today, Armenia also declared its European choice and began the “divorce process” with Russia. Brussels, which is pursuing a policy of EU enlargement, could not fail to support Yerevan. This is understandable. There is no economic logic in the EU’s decision. It is a reward for abandoning Russia and moving into the European camp. In other words, the preferences on the European market are not linked to WTO principles, but to the course chosen by the state (by the way, Armenia has been a WTO member since 2003).

Azerbaijan is the only independent player in the South Caucasus. It has never sought to join the European Union or any other similar unions, owes nothing to anyone, and pursues an independent policy. In its relations with the EU, Baku insists on an equal partnership. Therefore, it pays in full.

However, until January 1, 2014, our country also enjoyed benefits. From that date, Azerbaijan was removed from the GSP Plus system, which previously allowed Azerbaijani goods to enter EU countries without quotas. This system allows economically underdeveloped countries to export their products to the EU on preferential terms. After Azerbaijan was included in the list of moderately developed countries, it was automatically removed from this system, and since then, Azerbaijani products have been subject to duties in the EU market, which, of course, affects their competitiveness. But in this case, it seems we should say, “Thank God for that.”

Zero or minimal duties apply mainly only to raw materials that Europe itself needs. First and foremost, these are oil and gas. Agricultural products (fruits, vegetables, nuts) and finished industrial goods from Azerbaijan are subject to the EU’s established import duties. There are also strict non?tariff barriers for agricultural products.

As Azerbaijani Minister of Agriculture Mejnoun Mammadov previously stated at public hearings of the Committee on Agrarian Policy of the Milli Majlis, Germany and Italy are among the top five European countries to which Azerbaijan exports agricultural products. The main share of exports to these countries consists of hazelnuts. “The European Union protects its markets and products that are of interest to it. Among the goods exported from Azerbaijan, only those that are in demand in Europe are exempt from duties. The remaining products are subject to duties, which creates difficulties in terms of competitiveness,” he said.

The European Union actively uses non?tariff barriers for political and geopolitical purposes, although officially they are most often justified as measures to protect consumers, to care for the environment, or to address safety issues. This is pointed out by Russian experts.

It should be noted that Russia also uses these methods for the same purposes. Its refusal to accept Armenian products was justified precisely by non?tariff barriers.

These barriers are very convenient as a tool — they allow for regulating import flows without violating WTO rules. This is a method of political pressure that is often used during diplomatic disputes or to protect one’s own farmers. These methods are applied selectively, and they are forgotten when it comes to loyal exporters. Armenia is a loyal exporter. Georgia is already on the brink, but the EU is still only threatening to revoke all its previous benefits and preferences, apparently unwilling to fully place the country under Russia’s wing. And only Azerbaijan stands apart.

As for how the adopted measures will affect the Armenian economy, one shouldn’t expect miracles. Armenian experts say so. Armenian producers are ordinary farmers, and the costly phytosanitary procedures required to enter the EU market are beyond their means. In other words, it’s not worth talking about strict compliance of Armenian products with EU standards. Given geopolitical interests, such “minor details” won’t be given much attention now, but there won’t be an export volume that would be significant for the economy either. Temporary preferences will not have a significant impact on Armenia; they will merely serve as a temporary painkiller. Especially given the increased transportation costs.

In Yerevan, they cannot help but understand that the preferences can be revoked just as quickly as they were granted. The moment Armenia does something wrong and ceases to be “convenient,” this will inevitably happen.

The EU’s decision is not a solution for Armenia. The solution for Armenia lies in the countries neighboring it. That’s what she needs to think about carefully.