Thursday, 21 December 2017

Armenia Signs Framework Agreement with EU, Attracts Russian Ire

Published in Analytical Articles

 By Armen Grigoryan

December 21, 2017, the CACI Analyst

The new framework agreement between Armenia and the European Union creates some opportunities to implement governance reforms and to amend the legal framework, which would improve the investment climate. The new agreement excludes free trade provisions which would contradict Armenia’s commitment to the Russia-led Eurasian Economic Union (EEU). Meanwhile, EEU membership continues to undermine the welfare of Armenian citizens, despite previous official assurances, while the lack of political will deriving from both internal and external factors may potentially limit the government’s readiness to implement reforms.





BACKGROUND: At the fifth Eastern Partnership summit in Brussels on November 24, Armenia and the EU signed the Comprehensive and Enhanced Partnership Agreement (CEPA). While in many respects resembling the Association Agreement negotiated but not signed in 2013, when Armenia’s President Serzh Sargsyan changed his mind overnight after a meeting with his Russian counterpart Vladimir Putin (see the 09/18/2013 Issue of the CACI Analyst), the CEPA does not contain free trade arrangements which would contradict Armenia’s commitment to the EEU.

Although the CEPA was initialed in March 2017, it remained unclear whether it would be signed until the day of summit. Particularly, Sargsyan had another snap meeting with Putin on November 15 and Russian Foreign Minister Sergei Lavrov visited Yerevan on November 20, adding to the intrigue. For several months preceding the signing of CEPA, speculations circulated concerning the Armenian Nuclear Power Plant (ANPP), claiming that the EU would demand its immediate closure. These rumors persisted even after the publication of the negotiated draft agreement in mid-October. Contrary to such claims, the CEPA provides for exchange of technologies, best practices and training in the fields of safety, security and waste management in order to ensure the safe operation of nuclear power plants, and mentions that the adoption of a road map for decommissioning the ANPP should take into consideration the need for replacing it with new capacity to ensure Armenia’s energy security.

The CEPA is supposed to lead to a better regulatory environment, which will improve the business climate and investment opportunities, product safety and consumer protection, as Armenia should attempt to reduce the differences with EU standards. It also includes some practical steps, such as the opening of a visa liberalization dialogue, which may eventually lead to visa free travel already enjoyed by citizens of Georgia, Moldova, and Ukraine, as well as opening negotiations on the Common Aviation Area Agreement which may hopefully result in opportunities for the entry of low-cost airlines in the Armenian market.

IMPLICATIONS: Following the signing of CEPA, several Armenian officials expressed their satisfaction with the EU’s “pragmatic” approach, which supposedly was a prerequisite for continued bilateral cooperation. This attitude suggests that the EU, rather than Russian meddling, was to blame for Armenia’s failure to sign the Association Agreement in 2013. Over the past four years, officials have frequently argued that the EU behaved “aggressively” by offering an “either-or” approach, so that Armenia could not sign the Association Agreement and join the EEU at the same time. However, it was clear that EU association and EEU membership could not be compatible as the former assumed full trade liberalization with the EU, while the latter required higher customs duties on most EU-made goods. More importantly, free trade with the EU would allow bilateral free trade agreements with third parties including Russia (on the condition that rules of origin would be observed, i.e. goods from third countries would not be labeled as Armenian and re-exported to the EU), while EEU members cannot have free trade with non-members.

While the CEPA may eventually be beneficial for Armenia’s economy and governance, positive effects may be observed only after a few years or, in the case of the visa liberalization dialogue, after about 1.5 years according to the most optimistic estimates. At the same time, the population has increasingly been feeling the effects of the deteriorating economy. Consumer prices have grown in the past three months, with an especially sharp increase in the prices of meat and dairy products. The price growth is likely a sign that the market is adapting to the full implementation of EEU rules. From January 2018, the temporary exemption from the higher customs duties negotiated before joining the EEU in 2015 will expire, and the prices of close to 800 consumer products, including some of the most demanded foodstuffs, are expected to grow. Furthermore, EEU standards for the certification of goods are expected to reduce the competitiveness of Armenian companies that import goods from non-EEU member countries.

Another critical issue is Russia’s policy vis-à-vis Armenia, which may ultimately turn openly hostile. Although Russian officials and analysts keep saying that Moscow does not oppose Armenia’s policy of carefully developing relations with other partners, the audience of such assurances is limited to Armenian media and a few Russian online news outlets. At the same time, Russian television, the country’s most popular news medium, has launched an intensive anti-Armenian campaign.

Five days before the Eastern Partnership summit the Zvezda TV channel of the Russian Ministry of Defense speculated that Armenia was going to “follow Ukraine’s path,” not only by moving towards the EU but also “rehabilitating fascism.” The logo of the ruling Republican Party of Armenia was compared to Nazi symbols. Armenia’s ambassador to Russia later reported that Zvezda’s president apologized, but that this information only reached the Armenian audience as no apologies were offered during the Russian channel’s broadcast.

After the signing of CEPA, Russian mainstream TV channels launched a defamation campaign in their news reports and daily talk shows. Since November 24, Armenia is constantly presented as another enemy to Russian TV audiences, together with Ukraine and the West, with a wide set of threats and insults, as well as speculations about the West’s “perfidious” attempts to reduce Russian influence. In that context, some TV shows featured prolonged speculations about the proposals for developing renewable energy in Armenia (see the 06/09/17 Issue of the CACI Analyst), claiming that the U.S. Ambassador Richard M. Mills could be the mastermind of an anti-Russian conspiracy.

CONCLUSIONS: The ongoing anti-Armenian propaganda in Russian TV is probably aimed primarily at the domestic Russian audience. Although it is highly unlikely that any challenger in Russia’s March 2018 presidential elections would be able to present a serious threat to Vladimir Putin’s regime, Russian propaganda needs to refresh the enemy image in order to boost the fortress-under-siege mentality and to consolidate the loyal voters. Putin’s recent demand that Russian industrial producers should be prepared to adjust their output to the military’s needs and some other statements seem to serve the same purpose. However, at the same time, such propaganda works as a tool for increasing the pressure on Armenia. Therefore, Armenian authorities can be expected to adopt an exceedingly cautious approach in order to avoid threats to regime stability, especially taking into account the high stakes involved in the planned final transition from a presidential to a parliamentary system, as President Sargsyan’s intention to stay in power as either prime minister or party leader can hardly be concealed.

At the same time, while reforms needed in order to fulfill the CEPA commitments would benefit the general public in the long term, the implementation of such reforms depends on political will, which is weakened by both the Russian factor and the oligarchic influence on Armenia’s domestic policy. It remains to be seen whether sufficient social demand will materialize to stimulate the government’s willingness to reform.

AUTHOR’S BIO: Armen Grigoryan is an Armenian political scientist, and the author of several book chapters, journal articles, and policy papers. His research interests include post-communist transition, EU relations with Eastern Partnership countries, transatlantic relations, energy security, and conflict transformation.

Image source: By European External Action Service, via flickr accessed on 12.21. 2017

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