As it is known, recently the “Yelq” fraction of the RA National Assembly has come up with a legislative initiative aimed at withdrawing Armenia from the Eurasian Economic Union, as a result of which debates on the economic benefits received from the EAEU have become more active in the RA social and political circles. According to claims by some circles, Armenia has no other alternative than the Eurasian Economic Union. Others claim that the EAEU is an artificial union which only hinders Armenia’s economic growth.
In response to the enquiry on this issue sent by the “Union of Informed Citizens” NGO, the RA Ministry of Finance informed with a letter that the approaches of the ministry in regard to the assessment of additional economic benefits to be received from Armenia’s membership in the EAEU are reflected in the article entitled “Economic Assessment of Armenia’s Membership in the Eurasian Economic Union as Regional Integration” authored by Vardan Aramyan.
According to this article, the cumulative net result of Armenia’s gains and losses from the EAEU membership is equivalent to additional 2.35% GDP growth. According to the author, the positive gross effect from EAEU membership is driven by four main elements: benefit from elimination of non-tariff barriers (+0.35% economic growth), benefit from elimination of customs duties on gas in Russia (+1.3% growth), additional budget revenues from high customs duties (+0.8% growth) and decline in welfare due to increase of customs duties (-0.1% growth). Nevertheless, it should be noted that this analysis cannot be considered a comprehensive assessment of economic impact of the EAEU. Below we provide a few arguments in support of this conclusion.
Elimination of Non-Tariff Barriers
As it has been noted, according to the article, part (0.35%) of the additional 2.35% gross economic growth will be ensured through elimination of non-tariff barriers between EAEU member countries. This assessment finds its justification in the research conducted by Richard Baldwin and Chechin, according to which “the impact of non-tariff barriers on the expenses of businesses is estimated as 10% decline”. Thus, the author claims that Armenian exporters will benefit at least that much when they export commodities to the EAEU, which will result in additional 0.34% GDP growth.
Nevertheless, according to the estimates of the prestigious “Chatham House”, the elimination of non-tariff barriers has never been a priority for the EAEU, as a result of which the process of establishment of common technical regulations, approximation of phytosanitary standards, as well as exclusion of state sponsorship through public procurements and other tools is very slow.
According to different calculations, currently there are 200 to 450 non-tariff type barriers between EAEU countries. Moreover, according to the estimates of the Eurasian Development Bank, in 2016, these barriers had negative impact on EAEU internal trade which is equal to the customs duties reaching 30%.
On the other hand, there have been many cases in the recent years when different EAEU member countries have limited imports from other counties, especially under the pretext of violation of food safety standards (there are numerous examples).
Hence, the author’s claim that elimination of non-tariff barriers will result in 0.34% additional economic growth has not been expressed in our economic reality.
Impact of Elimination of Customs Duties on Gas
According to the article, the next element of positive economic impact expected from the Eurasian Economic Union is the elimination of customs duties of gas export by Russia (30%), due to which Armenia was supposed to receive 1.3% additional economic growth. However, this claim is not sufficiently justified either.
Thus, the price for Russian gas supplied to Armenia formed 190 USD for 1000 m3 in December 2013. At the same time, “Gasprom” supplied gas to European countries by around 390 USD. During the last 3.5 years, the price for Russian gas supplied to Armenia has declined and reached 150 USD, while currently the same Russian gas is supplied to Europe by 175 USD on average. Hence, it is not correct to relate the reduction of price for gas to EAEU membership. It is a global tendency.
On the other hand, the change in price for gas supplied at the border cannot have any significance for the RA economy as it has not been reflected in the sale price of gas. According to the information of National Statistical Service, the price of gas has decreased by 6% for the population, while for the major (industrial) consumers and gas stations it has remained almost the same. Thus, the expected additional economic growth of 1.3% is not an accurate assessment. It is first of all on account of the low specific weight of the branches directly dependent on energy carriers within overall GDP structure of RA. On the other hand, it shall be noted that before commencement of EAEU integration process in 2012 gas tariff in Armenia was 132 AMD forming less than the current tariff of 139 AMD.
Losses Due to Increase of Current Customs Duties
In parallel to the increased benefits expected due to EAEU membership the paper states that the economy of RA will suffer only 0.1% because of the increased customs duties for import. It shall be started with the fact that in 2013 Armenia’s average customs duty weighted by import volumes was 3.1% while the same index for EAEU is 8.14%. Under these conditions the increase in customs duties will lead to proportionate losses in welfare and purchasing power of the population. Furthermore, the paper provides assessment of potential losses in main import commodities of Armenia, which are later compared to benefits resulting from imports redirected to EAEU member states (import without customs duties).
However, it should be noted that data on first half of 2017 indicate that the hypothesis of trade redirection of Armenia starts demonstrating an opposite effect: in the beginning of this year the share of EAEU member states in RA imports formed 22.2% in contrast to 30% recorded in 2016. Therefore, in case of preserving the tendencies of changing the geographical structure of imports the negative impact caused by increased rates set by EUEU will be expanded leading to price increase for a larger quantity of goods.
On the other hand, the author suggests that the EUEU customs duties will gradually decrease by 2020 due to Russia’s membership in WTO.
However, the new Customs Code which is currently in ratification process does not envisage any such reduction. Therefore, the assessment of the aggregated impact of these two effects is also less reliable.
The above mentioned arguments indicate that this scientific publication has quite shakable basis. In addition to issue of accuracy of the assessment regarding the factors discussed above the study is not sufficiently profound and comprehensive since EAEU is not solely a customs union anymore but it is also an economic union. Thus it would be incomplete to consider the results of membership only from the perspective of changing the trade conditions.
While assessing the impact of this new economic structure it is essential to assess the potential changes in capital flows and investments amounts. Moreover, a comprehensive economic assessment of such important issues should also include the component of alternative expenditure (the lost opportunities from the EU association), which is not incorporated in Mr. Aramyan’s article.
To sum up, the only study on benefits of Armenia from EAEU membership is weakly grounded with unrealistic predictions and even distorted facts.