EU loses Armenia to Russia’s Customs Union

Sarksyan and Putin.jpg

Armenia will join a customs union led by its former Soviet master Russia, the country’s President Serzh Sargsyan said yesterday (3 September), a move incompatible with the free trade agreement the EU is preparing with Yerevan.

Sargsyan announced the decision after talks with his Russian counterpart Vladimir Putin in Moscow. Putin welcomed the move as a diplomatic victory at a time when Russia is struggling to bring former Soviet republics closer together and stop Ukraine from slipping into the the European Union's orbit.

"The Russian side supports the decision by Armenia to enter the customs union … We will fully work for this to happen," Putin was quoted as saying by Reuters.

The EU appeared to be taken by surprise.

“Seems as if Armenia will break talks on free trade agreement with EU and integrate with Russia instead. U-turn,” tweeted Carl Bildt, the Swedish foreign affairs minister, during a dinner with Nordic and Baltic foreign ministers he hosted in the medieval Swedish city of Visby.

“Destiny of our Eastern partners is in their hands and we do care about neighbours of our neighbours,” Štefan Füle, the enlargement and neighbourhood commissioner, tweeted from the same event.

Russia is Armenia's largest trading partner, and bilateral trade grew 22% to $1.2 billion (€910 million) last year. Russia is also the biggest foreign investor in the small Eurasian economy, with a total of $3 billion (€2.27 billion) investments last year in a country whose GDP amounted to $9.9 billion (€7.5 billion) in 2012, according to the World Bank.

From a Russian perspective, Yerevan’s decision to join its customs union is more important politically than economically. As the EU prepares to host a summit in Vilnius with its eastern neighbours – Ukraine, Moldova, Belarus, Georgia, Armenia and Azerbaijan –, Russia has simultaneously stepped up the pressure to keep those countries within its own orbit.

On 28-29 November, the EU's Lithuanian presidency will host the Eastern Partnership Summit, where association agreements with Moldova, Georgia and Armenia are expected to be initialled, and where an EU-Ukraine association agreement is expected to be signed. These agreements are accompanied by Deep and Comprehensive Free Trade Agreements (DCFTA) with the EU, which are making Moscow nervous.

Russia has set up its own so-called Customs Union, joined by Belarus and Kazakhstan. EU officials made it clear that membership of the Customs Union is incompatible with the DCFTAs.

Financial offer to Ukraine

Russia has so far failed to draw Ukraine into the Customs Union, but continues to apply pressure on Kyiv to join. Yesterday (3 September), the Russian daily Kommersant reported that Putin’s advisor Sergei Glyazev had made a financial offer to Ukraine for it to join.

According to Glyazev, Ukraine would benefit $11 to $12 billion (€8.34 to €9.1 billion) per year “in case of its participation to the Eurasian integration process”. Kyiv’s benefit from reduced Russian gas prices would amount to as much as $8 billion (€6 billion), he was quoted as saying. Custom duties on gas and oil would also be abolished, the advisor said, as well as “safeguard” and “technical” barriers to bilateral trade.

Glyazev said that if Ukraine signs the association agreement with the EU, it would “lose its independence” and would “stop being a full partner” with Russia.

Putin’s advisor called the EU-Ukraine association agreement “asymmetrical”, arguing that the “EU will receive everything, and Ukraine will get only what EU deems necessary”.

Wine war with Moldova

Meanwhile, Russia is also stepping up pressure on Moldova.

On Monday (2 September), Russian Deputy Prime Minister Dmitry Rogozin warned Chi?in?u, the Moldovan capital, that signing an association agreement with the European Union would have “serious consequences” for the country’s future. And a Moldovan news website reported yesterday that Moscow had threatened Chisinau with a “wine war” if went ahead with its plan. Wine is the flagship export product of Moldova.

According to the website, the Russian Sanitary Service “Rospotrebnadzor” announced that that some alcoholic beverages originating from Moldova did not comply with Russian health and safety regulations.

“Rospotrebnadzor” warned that if the competent authorities in Moldova did not take action, Russia might decide to ban imports of wines and other alcoholic beverages from Moldova.

The Moldovan economy relies mainly on agriculture and exports to the Eastern market, such as Russia, Ukraine and other former Soviet republics, said.

EU ministers are expected to discuss “neighbourhood policy” at their Gymnich-type informal meeting in Vilnius on Friday and Saturday. However, the potential presence of US State Secretary John Kerry and the situation in Syria are expected to eclipse the issues concerning the eastern partners.

Gunnar Hökmark MEP, Vice-Chairman of the EPP Group in the European Parliament responsible for neighbourhood policies said that Armenia is turning away from Europe. "By saying yes to a Customs Union with Russia, Armenia is saying yes to more dependence on the Putin regime and No to a Free Trade Agreement with the European Union. With this step, the prospects for democracy will be weakened and the risk of increased Russian influence over its neighbours will increase"

Russia, Kazakhstan and Belarus agreed to form a customs union in 1995, followed in 1999 by a pact to create a common economic space.

In 2007 the Commission of the Customs Union was created, which took over some powers previously held by national authorities. The union was launched in 2010, establishing common tariff and non-tariff regulations amongst the member states.

The common economic space entered into force in January 2012, with the creation of the Eurasian Economic Commission the next month.

The establishment of a Eurasian Economic Union is scheduled for 2015.

  • 6-7 Sept.: Gymnich-type informal meeting of EU foreign affairs ministers, Vilnius
  • 28-29 Nov.: Eastern Partnership Summit, to be held in Vilnius under the Lithuanian EU presidency. Ukraine hopes to sign the agreement there.

Subscribe to our newsletters