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Moldova: Time to Overwrite the Mind Traps

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Image By Andrez1 - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=39746488

Moldova is usually assigned the title of the poorest country in Europe mired in financial and corruption scandals. The ’frozen’ Transnistrian conflict is said to further divide the country between chimeric pro-Russian and pro-Western camps. Oligarchs are blamed for having captured the state and preventing democracy to flourish; and so goes on the litany of reputational prejudices about Moldova.

Although these clichés hold some water, they have generated mind traps and have prevented any alternative reading of Moldova. Caught in a thug of war between Brussels and Moscow, Europe has three options on how to approach Moldova: oppose Moscow on Moldovan territory; scale back its engagement; or honour its commitment to strengthen the rule of law and deepen economic cooperation with Chisinau. The last option requires the political maturity to accept that Chisinau can be a partner of both Brussels and Moscow.

The Bright Side of Scandals

Moldova made headlines in 2014 when the banking sector was defrauded of one billion dollars. Courtesy of the testimony of one oligarch, Ilan Shor, who himself has been convicted of involvement in the fraud, the former Prime Minister Vlad Filat was convicted and sentenced to nine years imprisonment. Despite his own conviction, Ilan Shoris now the mayor of the small town of Orhei, heads the Shor party and recently won a seat in the parliament. For many, this was a typical “à la moldave” scenario where most of the thieves got off scot-free whilst only one sits behind bars. Taken from another angle, even though Ilan Shor has been granted some form of witness protection and has escaped punishment himself, at least some part of the truth has been divulged and justice has been partly served. Following Shor’s revelations about the scandal, people took the streets and a citizen movement emerged under the name of Dignity and Truth, now a political party headed by politician Andrei Nastase.

The one-billion theft has understandably attracted a lot of public attention, as did the role of Moldova in the Russian Laundromat, a scheme that laundered tens of USD billions from Russia between 2010 and 2014, involving over one hundred countries. Following these two scandals, Moldova launched a large package of reforms of its banking and judiciary systems, and put in place a National Integrity and Anti-Corruption Strategy for 2017-2020. These improvements have not gone unnoticed: the World Bank extolled the efforts of the National Bank of Moldova and the country’s economic progress, which should boost investors’ trust. Furthermore, criminal activities, such as smuggling, have been curtailed thanks to international cooperation, but the grey zone of Transnistria remains a thorn in Moldovan development.

Transnistria – A Peaceful Frozen Conflict

The active phase of the short 1992conflict lasted four months and left a thousand people dead. Due to the prolonged absence of military engagement, the situation was branded as a frozen conflict – thisvague concept was coined to qualify the blurry simmering situations of violence that followedthe several wars in various post soviet republics. As time passed, the term conflict has become redundant in the context of Transnistria; not much is frozen: population travels freely, students from Transnistria study in Chisinau and Transnistrians voted for the first time in the most recent February elections. There is a need to rethink our reading of this so called frozen conflict in Transnistria – violence is unlikely to resume between Tiraspol and Chisinau as long as escalating tensions between Moscow and Brussels do not boil over.

Former Vice-Minister of Foreign Affairs, Professor Osmochescu, asserts that the settlement was on right track with the 1992 Settlement Agreement, although he questions the decision to include Transnistrian representatives in the joint commission as it eventually gave Russia – allied with Tiraspol – the upper hand. The former diplomat is convinced that settlement dialogue should only include Russia, Ukraine, Romania and Moldova, excluding Tiraspol authorities that continue to insist on international recognition as a state. It is highly unlikely that European countries will recognize Transnistria owing to the fact that the EU Council has adopted restriction measures against the leadership of Transnistria for stalling progress of the political settlement.

Thecurrent process is a 5+2 settlement format, named after its composition including 5 negotiators (Russia, Ukraine, OSCE, Moldova and Transnistria) + 2 observers (EU and US). Unfortunately it has not yielded any meaningful results with the tensions between Russia and the West increasingly running counter-productive to the intent of the mechanism. During the recent conference on Transnistria, Russian academic Natalia Kharitonova underlined the unprecedented situation whereby relations between the external participants to the settlement process are far worse than between the parties to the conflict.

Today, some observers claim that a new conflict is poised because of Russian troops’ presence in Transnistria and in 2018 the UN General Assembly adopted a resolution introduced by Moldova on the withdrawal of foreign troops, specifically targeting Russian troop and armament presence. These elements demonstrate that Transnistria is being utilised by both the West and Russia in pursuit of their own strategic objectives and, arguably, Transnistria is more an international affair than an internal one.

An Unhelpful International Involvement

For decades the presence of Russian troops in Transnistria has been a major concern for NATO, which has been amplified by the situation in Ukraine; and in its efforts to counter Russia, NATO opened an Information Office in Chisinau in December 2017. In view of the militarisation of the region and the recent collapse of the Intermediate-Range Nuclear Forces (INF),the NATO-Russia confrontation directly affects Moldovan sovereignty and security. The Foreign Policy Advisor to the President, Mr Ciocoi, acknowledged that his country is trapped between a rock and a hard place:‘as a constitutionally neutral country, we are not pleased with the presence of Russian troops or NATO on our soil. It is a legacy of the past and a consequence of today’s geopolitical realities. We have to deal with it.’

With most international efforts focusing on security issues and more recently on the fight against so-called Russian propaganda, little effort has been comparatively made to promote sustainable economic development and the rule of law in Moldova. Moldovans’ daily concern is about making ends meet and employment, whilst Brussels and Moscow use the carrot and stick approach to promote their policies. Using economic incentives and sanctions, Brussels and Moscow are forcing Chisinau to choose between the West and the East. This dilemma is leading nowhere as Moldova is both West and East with the country depending on Russia for its energy and the EU market to export its goods. No reasonable politician or businessman in Moldova today embraces a west or east approach, but all favour a mixed approach. It is thus misleading to label President Dodon as a pro-Russian or the tycoon Plahotniuc as a pro-Western.

Blame it on the Rich

An oligarch turned politician, Vlad Plahotniuc presides over the Democratic Party, which won 30 seats at the recent parliamentary elections. Often described as the puppet-master who captured the state, most people blame him for all wrongs in the country and believe that he pulls the strings of the country including the judiciary system.

In a recent discussion with Vitali Garmurari, the Spokesperson for the Democratic Party said that the accusations against Vlad Plahotniuc need to be substantiated. Only a court can rule over the guilt of a person and so far, Mr Plahotniuc has not been sentenced, he added. Recently, Interpol rejected the request of Russia to place Mr Plahotniuc on their wanted list for alleged involvement in the attempt on the life of German Goruntsov, a Russian banker. For Vlad Plahotniuc’s detractors, the absence of condemnation is not a proof of his innocence but evidence of his control over the judiciary.

In Moldova and abroad, rumours flourish about this man who has unquestionable power thanks to his key role in the energy sector. As a veteran in the oil and gas business, he has forged strong connections in the US, who are obsessed with replacing Russia as the leading gas exporter to Europe. The situation though is not as straightforward as it seems. Moldova relies completely on Transnistria for its energy and the region acts as a small hub for Russian gas to the Balkans. Moldovagaz – a joint venture between the Ministry of Industry of Transnistria, the Moldova Government and the Russian giant Gazprom – has the monopoly over gas transactions. One of the issues is that Moldova has committed to the European Third Energy Package that calls for the unbundling and opening of the energy market. As part of its commitment Moldova must strip Moldovagaz of its privileged position and, given the complexities at play, Chisinau was granted an exceptional delay until 1 January 2020. This European requirement corners Moldova as the country is totally dependent on Russian gas and Gazprom holds 50% of Moldovagaz shares and, de facto, the 13% nominally held by Transnistria. The situation gets even more complicated as the contract between Gazprom and Moldovgaz are valid until the end of 2019and Moldova does not have a meaningful gas alternative in place. Mr Plahotniuc understands perfectly the gains to be by playing Russian, the US and European against each other in the energy sector. In 2017,his close ally Vasile Botnari was appointed as the new head of Moldovagaz.

The ruthless energy competition between Russia and the United States for the European market is driving their political and security agendas. The year 2019 will be pivotal in the Moldovan energy market and, as this deadline approaches, the manoeuvrings of those invested parties both within Moldova and externally will be a riveting game to observe.

An Oligarchy on the Way to Democracy?

In the meantime, the Moldovan constitutional court has validated the result of the 24 February elections and Plahotniuc’s Democratic Party has emerged as the party with second largest number of seats. Alongside the Democratic Party with 30 out of 101 seats, the Socialists gained 35 seats, the ACUM group gained 26 and the remaining 10 seats were shared between the Shor party and independents.

One of the features of the Moldovan political landscape is the fact that oligarchs head several parties: Vlad Plahotniuc heads the Democrats, Ilan Shor has his eponymous party and Renato Usatii is the president of Our Party. According to popular narratives, oligarchs are involved in politics to further their own profit and wealth; however their involvement does not necessarily pose a barrier to democracy. Commenting on the recent elections and the political landscape, Professor Osmochescu sees the emergence of these parties as a genuine mirror of the diverse opinions held by the population. Looking back at the political developments over the past thirty years, Professor Osmochescu recalls the evolution from an early enthusiasm with plethora of parties, the uncertainties around the future and the disillusion with both Russia and Europe. Today, he is hopeful that the leading parties will observe democratic principles and contribute to a new political paradigm.

The OSCE statement on the recent elections echoes the same opinion: although violations were recorded, fundamental rights have been generally respected, says the preliminary report. Taken as a whole, Moldova is transitioning and some are definitely looking at the cup half full rather than focusing on shortcomings.

It’s All About the Money

Conflict specialist Iulia Cozenco has worked on various projects in Transnistria over the past decade and today she has one message: efforts should be directed towards social inclusion, and not only in Transnistria. Due to all the challenges Moldova has gone through over the past three decades, the population has become increasingly vulnerable and the country lacks a social protection system capable of responding to all the problems. She concludes that international assistance should be directed at broader social inclusion and protection initiatives rather than narrow Tiraspol-Chisinau confidence-building projects.

Commenting on the situation in Transnistria, Dumitru Budianschi, an economist at the Moldovan ExpertGrup,has observed that, the lack of a political settlement between Tiraspol and Chisinau does not prevent economics agreements from forging on. These agreements cover energy and mobile communications, however Mr Budianschi has raised the concern that these agreements lack transparency and have been extremely profitable to a select few people on both sides of the river. Unsurprisingly, the lack of settlement is perversely convenient for such shady deals. According to Mr Budianschi, the international policy of small steps in Transnistria will not pay off and a crackdown on the criminal activities in the region is needed in order to give any settlement a chance of succeeding. The growing trade with Europe, Moldova’s first export partner, is a positive development that can no longer accommodate the black holes around Transnistria.

International involvement in Moldova is both a part of the problem and the solution. Should involvement take the shape of interference advancing eastern or western interests, it will only serve to polarise and destabilise Moldova and will ultimately backlash on European security. Disengagement would be equally damaging as Moldova today relies on both Brussels and Moscow and wishes to maintain relations with both partners. At this point in time, Chisinau needs international cooperation with Moscow and Brussels to assert itself as a solid partner to both the West and the East.

Eastern Europe

South Caucasus’ Role will be overshadowed by the US-Russia Competition Elsewhere in Eurasia

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Recent geopolitical developments in Eurasia indicate that the South Caucasus’ relative importance could be overshadowed by West-Russia competition over Belarus, Ukraine and Central Asia. This trend was quite visible during Mike Pompeo’s visit to Belarus, Ukraine, Uzbekistan and Kazakhstan which laid out the US administration’s priorities in the former Soviet Union for 2020 and well into 2021. Yet another reason for the South Caucasus’ ambiguous position is Russia’s growing concern with Minsk and Kyiv in the west and Tashkent’s maneuvers to eschew to Moscow’s attempts to expand its influence over these geographically and economically important states. 

The South Caucasus plays an important role in the US/EU’s strategic calculus. One of the biggest imperatives of since the breakup of the Soviet Union was to enable newly independent Georgia and Azerbaijan to use their geographic position as a nodal point in the nascent South Caucasus energy and transport corridor. For the West the effectiveness of the South Caucasus corridor would potentially underpin a much bigger project, the Trans-Caspian Corridor (consisting of a pipeline, intensive port-to-port contacts, etc.), which, though still only an idea with some minor success (successful division of the Caspian seabed among the littoral states reached in August, 2018), but could, under altered circumstances, become a geopolitical reality.

All these initiatives inevitably increase the South Caucasus’ independence against Russian (old Soviet) transportation networks as the Caspian Sea oil and gas resources open up to the West.

Though important geopolitically, many politicians and analysts in the South Caucasus at times tend to overemphasize the role the region plays in the West’s and Russia’s foreign policy. In fact, what various recent political and economic trends in the region show is that major geopolitical battle grounds will be opening up elsewhere in Eurasia far beyond the South Caucasus.

A partial reason for this is Russia whose geopolitical attention since 2014 has been primarily diverted to the Ukraine crisis. Moreover, for the past year or so, Moscow increased its efforts in other directions. In relations with Belarus, which has traditionally pursued a pro-Russian policy, Russia raises the ante by reportedly demanding the territorial, economic and military merger as a part of the agreement signed between Minsk and Moscow in December 1999. As Belarus successfully resists Moscow’s efforts, it is likely that the Kremlin’s moves to influence Belarus will continue to grow in 2020-2021. Another central issue will be Ukraine, where Moscow and Kyiv have reached some understanding on the need to de-escalate the situation in Donbas and find a long-term solution to the problem. 

Another region which will be an active theater of Russian diplomatic and economic moves is Central Asia. There, Uzbekistan with its industrial and political might and resting on a fertile Fergana Valley and bordering on four other Central Asian states, the country is a key to Moscow’s geopolitical ambitions. Various reports emerged throughout 2019 indicating that Moscow was in active negotiations with Tashkent to have it join the Eurasian Economic Union. There are also indications that Tashkent is resisting the idea and the probability is, at least from the open source material, that Uzbekistan will join EEU as an observer.

This regional context is important to understand the evolving importance of the South Caucasus for 2020-2021. Belarus and Uzbekistan (on top of Ukraine) represent those focal points in the Eurasian landmass where the US’ and to a lesser degree the EU’s attention will drawn to. Indeed, during his recent visit Mike Pompeo did not tour the South Caucasus, but visited Belarus, Ukraine and the Central Asian region (specifically Uzbekistan and Kazakhstan) to increase western efforts in battling Russian initiatives. The visit was followed by the publication of a new US strategy document for Central Asia further indicating a growing role of the region in the western perspective.

These long-term trends show that Russia’s large political and economic moves are not expected in the South Caucasus. The situation in the region remains complex, but it nevertheless is relatively stable as Russian military and economic presence is predominant. Moscow has reached a certain limit to its power in Georgia, where through Abkhazia and Tskhinvali Region, it successfully prevents Tbilisi from becoming a NATO/EU member. In Armenia too, which is Russia’s closest ally in the region, Moscow achieved its primary geopolitical goals through the stationing of its troops as well as buying Armenia’s strategic infrastructure capabilities. This is while Azerbaijan tries to pursue a balanced, one might even call an independent foreign policy based on its large revenues and influence from oil and gas trade as well as strategic position at the Caspian Sea. However, as long as Baku has an unresolved problem of Nagorno Karabakh, Russia is not particularly worried about Azerbaijan’s geopolitical goals.

This creates an interesting geopolitical picture in the South Caucasus when Russia is unlikely to make any particularly ambitious moves as its vital interests are secured for the foreseeable future. Hence, Moscow’s larger economic and political attention will be drawn to other regions such as Belarus, Ukraine and Central Asia.

The South Caucasus’ relative inconspicuousness in regional geopolitics was also well apparent in the Iran crisis which broke out this January following the general Qasem Soleimani’s killing in Baghdad. Geographically bordering on Iran, it was expected by many in the analytical community that the Soleimani crisis could increase the US/EU interests in Georgia, Armenia and Azerbaijan. However, compared to the western attention paid to Iraq, Persian Gulf or Afghanistan amid the Iran-US confrontation, there was little similarity in the US/EU thinking regarding the South Caucasus.

Surely, this is not to say that the South Caucasus’ importance declines in the Eurasian affairs. The region remains an important transit corridor connecting the Black and Caspian Sea. Moreover, it also connects Central Asia to Eastern Europe and serves for Russia as a connection point with the volatile Middle East. These basic geopolitics will keep the South Caucasus crucial to the regional players.

However, when compared to other regions across the Eurasian landmass which, as we argued above, are bound to be geopolitically active, it is clear that for the West and Russia, Belarus, Ukraine and Central Asia will of bigger importance for the rest of 2020 and well into 2021. There is too much economically at stake in these aforementioned regions. Since Russia’s interests in the South Caucasus are well-preserved for the foreseeable future, it is unlikely to expect any significant political and military moves from Moscow.

Author’s note: first published in Caucasus Watch

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Eastern Europe

Defeat of Azerbaijan Began in Khojaly, Nagorno-Karabakh

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Azerbaijanis and their PR supporters will begin their yearly media blitz about events that took place in the town of Khojaly in the region of Nagorno-Karabakh in February 1992. It was in Nagorno-Karabakh where the indigenous Armenians fought the Azerbaijani Army. We will read that events in Khojaly were genocide with victims lacking justice as handed out at  Nuremberg. These two claims are an insult to the term genocide and the judgments at Nuremberg. Justice does not begin with falsifying events, selectively deleting massive amounts of information, and using the calamity at Khojaly to convince the world and an otherwise defeated Azerbaijani state that Armenians are barbarians. Let’s look at the record.

First, nobody would have died on either side if Azerbaijan didn’t base its emerging national ethos on the expulsion of Armenians from within the borders granted them jurisdiction by Joseph Stalin.

Second, 90% of Stepanakert, the regional capital of Nagorno-Karabakh, was destroyed mainly from indiscriminate shelling from Khojaly. Azerbaijan had to assume Khojaly was a lead target needing neutralizing.

Third, by February 1992, shelling from Khojaly had killed over 30 members of the Russian 366 Mountain Rifle group stationed in Stepanakert. The Azerbaijanis must have known this military detachment would eventually retaliate.

Fourth, when Armenians finally reached Khojaly and ended the shelling, for a week, Armenians publicly announced on megaphones, radio, and TV, to the civilian population to get out as a final battle was clearly in the works. However, the Azerbaijani military did what it could to prevent civilians from leaving Khojaly.  During a last-minute exit of Azerbaijani civilians,  using a corridor created by Armenian fighters, shooting began between Azerbaijani soldiers and Armenians, after which many, on the order of a hundred or so Azerbaijani civilians, were killed. Their names registered in human rights reports. Within weeks, that number began to rise until it was assumed 600+ was good enough.  Azerbaijanis never make mention of Armenian losses.

The defeat of Khojaly forced from office then Azerbaijani President Mutalibov. Mutalibov describes the Azerbaijani political engineering of events at Khojaly in an interview with Czech reporter Dana Mazalova in the April 2 issue of Nezavisimaya Gazeta newspaper.  Of course, several years after this interview and reiterated earlier this month, Mutalibov claimed he never made such statements, even though the papers exist.

Within hours of the deaths in Khojaly, the famous Azerbaijani video journalist Chingiz Mustafayev recorded the destruction. Four days later, Mustafayev returned and found many of these bodies moved from Khojaly to many km inside the Azerbaijani side of the contact line. Mustafayev videoed these same bodies postmortem mutilated, surrounded by Azerbaijani soldiers. Some reporters recognized the earlier Khojaly bodies subsequently mutilated. Azerbaijan claims Armenians hacked up the victims, yet all show wounds that hadn’t bled. Dead bodies don’t bleed. Two months later, Mustafayev lost his life under mysterious circumstances. Mustafeyev’s second film was kept under strict censorship by Azerbaijan until 2017 when Chingiz Mustafayev’s brother Vahid, released the film after Azerbaijani authorities closed down his TV station in Baku.

Azerbaijanis provide “photos of Khojaly,” which included photos of mothers grieving over dead children, but they were photos from a 1980s-era earthquake in Erzerum, Turkey. Periodically, Azerbaijan would present what they claim as photographic evidence of events in Khojaly. As an example, Azerbaijan took previously color photos from the mid-1990s carnage in Yugoslavia, made them into black and white, and claimed they were bodies from the events in Khojaly in 1992. Last year’s Azerbaijani “Khojaly commemoration” in Iran had a photograph from the 1915 Turkish genocide of the Armenians, claiming it was from in Khojaly in 1992. That photo is in the US National Archives. If events in Khojaly were so evident, Azerbaijan would not have to plagiarize evidence.

Less than two months after the Khojaly event, early morning on April 10, 1992, Azerbaijani soldiers captured the peaceful Armenian village of Maragha. The soldiers murdered, hacked up, and burnt alive nearly 100 Armenian civilians. Azerbaijanis have forgotten this act of premeditated barbarism.

Azerbaijan failed to thoroughly cleanse Armenians that were placed under their jurisdiction by Joseph Stalin, demonstrated by sovereignty exercised by the Armenians of Nagorno-Karabakh today. Azerbaijanis continue to use the term genocide to describe events in Khojaly to a world audience that has been fed a story with most of the facts deleted and others manufactured.

For more facts associated with this event, see March 6, 2017, Times of Israel article “Genocides that Never Were: Jenin, West Bank, and Khojaly, Nagorno-Karabakh.”

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Ten reasons why joining the EAEU could be beneficial for Azerbaijan

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Azerbaijan joining the Eurasian Economic Union (EAEU) could reduce the costs of imported intermediate goods for the Azerbaijani industry, increase exports of the agricultural and non-oil sectors of the republic by USD 280 million, improve the working and living conditions of Azerbaijani labor migrants and create favorable conditions for attracting foreign direct investment . As a result, Azerbaijan’s GDP could be 0.6% higher than it is now.The Eurasian Economic Union is primarily a customs union and the desire to create common markets for the free movement of goods, services, labor, capital and digital data. In addition, the EAEU is in the process of forming an extensive network of free trade areas around the world. Accordingly, it would be necessary to analyze the possible difficulties and likely benefits of closer cooperation between Azerbaijan and the EAEU in all of these areas.According to a survey conducted by the Analytical Center under the Government of the Russian Federation in the summer of 2018, almost 40% of the business community in Azerbaijan would welcome closer trade and economic relations between the republic and the Eurasian Union.

Commodity Market

In the beginning, it must be recognized that in foreign trade the republic does not depend on the EAEU as a buyer of Azerbaijani products. Only 2% of its exports go to the countries of the Eurasian Union. However, the point is not that the voluminous Eurasian market of 184 million people is not interesting for Azerbaijani entrepreneurs, but in Azerbaijan’s overwhelming focus on the sale of mineral products, which make up almost 95% of the republic’s export. With such an export structure, it certainly competes with the EAEU, where oil and gas also make up almost 63% of supplies to foreign markets. It is not surprising that the composition of Azerbaijani exports corresponds to the structure of the EAEU import by only 7%. For comparison, in Uzbekistan and the EAEU, the index of trade complementarity is 36%.But this is not so bad either. Firstly, large flows of mutual trade are desirable for regional economic integration, but not necessary. In such integration associations as MERCOSUR and USMECA, the share of mutual trade in the entire trade of the bloc is only 14-16%. The EAEU falls into this category. At the same time, creating one’s own regional market for the sale of non-commodity goods is an important step towards getting rid of the “oil curse”.

This was one of the important reasons that led Russia and Kazakhstan to integration. What can really become a regional market for potential sales of non-raw materials for Baku? The Middle East, on the one hand, and the post-Soviet space, on the other. This is the first argument in favor of the EAEU.By the way, since October 2019, the EAEU has a free trade area with Iran. Now, Armenia as well has a preferential access to the Iranian market. And due to the combined weight of the “Eurasian” market, the conditions that were agreed upon during the negotiations between the Eurasian Economic Commission (EEC) and Tehran are much more beneficial for Armenia than if Yerevan would have held negotiations in a bilateral format. This is the second argument why participation in the EAEU could be interesting for Baku – to improve its negotiating position with respect to third parties. In the near future, the EEC plans to sign FTA agreements with Egypt and India. And this is only southward.Secondly, 20% of all imports to Azerbaijan come from the EAEU countries. This is a significant amount. Many people think that participation in integration associations is necessary only so that their country can export better and more to such an enlarged market. But this is actually only half the question.

Trade liberalization within the framework of a regional integration bloc also helps to improve the quality of imported goods and make them cheaper. After all, producing everything by oneself is simply ineffective. As a result, both households and national businesses benefit from better and cheaper imports.The EAEU’ export structure corresponds to the Azerbaijani import structure by 38%, which is quite a lot. In 2018, the three main goods imported from the EAEU into the republic were: metal products for USD 325 million (14.5% of all imports from the EAEU), timber for USD 268 (12%), and grain for USD 225 million (10%). The first two are semi-finished products, the third is a raw material. That is, with a hypothetical entry into the EAEU, Azerbaijan in principle would abolish its import duties on these goods. Consequently, this import will become cheaper for the further processing by Azerbaijani enterprises, which means an increase in the profit of the national businesses, and, possibly, cheaper products for the final consumer. This is the third argument in favor of the EAEU.The fourth argument in favor of Eurasian integration is that it would open up significant opportunities for increasing Azerbaijani exports to the Eurasian market. Using a gravity model to assess export potential (Decreux et al. 2016), we can estimate that, upon joining the EAEU, Azerbaijan’s exports to the Union’s common market could increase by USD 251 million, which is equivalent to an increase in Azerbaijan’s GDP by 0.5%. In this case, the total exports to the EAEU member countries would be almost 4% of the republic’s world exports. Conventionally, from the entry of the republic into the EAEU, every Azerbaijani would become richer by USD 25 thousand.

Compared to the scenario without integration, Azerbaijan’s exports to Armenia could increase on average by 107%, to Belarus by 154%, to Kazakhstan by 161%, to Kyrgyzstan by 121%, to Russia by 44% and to the EAEU as a whole by half.Azerbaijani tomatoes and fruits have the greatest export potential. Becoming member of the Union, additional deliveries of only tomatoes from Azerbaijan to the markets and supermarkets of the EAEU may amount to USD 101 million.But this is not all. As already mentioned, the EAEU has free trade agreements with Serbia, Iran, Vietnam and Singapore. By 2025 (most likely much earlier), FTAs with India, Israel and Egypt will be concluded. Upon joining the EAEU, Azerbaijan would gain free access to these markets, which could lead to an increase in exports to them by USD 28 million additionally. Thus is the fifth argument for the EAEU.Thus, in total, upon joining the Eurasian Economic Union, Azerbaijan’s GDP could be 0.6% higher and every Azerbaijanian could be USD 28 thousand richer than without joining. To be correct, it should be noted that the above estimates are quite preliminary and do not take into account possible negative effects due to a possible increase in the average tariff protection of the republic in relation to third parties by 2.2% to the customs union level. At the same time, the final positive effects may be even higher, because this model does not take into account the multiplicative intersectoral effect in the economy, i.e., how the above-mentioned increase in exports can lead to an increase in demand for goods and services of indirect sectors.

Transit

The largest and well-known transport and infrastructure project, which is of interest to Baku, is the North-South International Transit Corridor (“Spice Way”) project. This railway freight corridor should connect the northwestern part of the EAEU with India, with which the EEC plans to sign an agreement on a free trade area, through Iran, with which the Union already has a free trade agreement. Geographically, Azerbaijan would be ideally located in order to become the central link on this route. The volume of potential cargo flows within the North-South corridor is estimated at 20 million tons per year. However, non-participation of the republic in the CIS free trade area and non-membership in the EAEU have so far been one of the main factors restraining the break-even feasibility of such a corridor.Along with this, work is underway within the EAEU to create a single transport space. In fact this means that domestic tariffs for the railway transportation of goods have already been unified. Concurrently, the EAEU member states are also negotiating the introduction of a unified transit tariff. The effects are already evident: for the period from 2014 to 2018, railway freight turnover (measured in ton-kilometers) inside the EAEU grew by almost 3% on average annually, while in Azerbaijan it fell by 11.5% on average every year. This is the sixth argument: Azerbaijan could significantly benefit from its geographical position by becoming a member of the EAEU’s unified transport space.

Labor market

The success of the EAEU was most pronounced in creating the single labor market. All citizens of member states are free to move and work throughout the territory of the Eurasian Economic Union. Everyone enjoys the same labor and social rights, including: hiring in most professions without additional documents and permits; mutual recognition of most educational certificates; tax and pension residency; free basic health insurance – including all family members; free education (from kindergarten to university) – including all family members. Therefore, the seventh argument is: as a member of the Eurasian Economic Union, Azerbaijani citizens who come to work in the other member states of the Union will receive the same preferences as the citizens from all the other member states.The effect of creating a single labor market is noticeable: the annual growth rates of money transfers of individuals from Russia to the EAEU countries in 2015-2018 were on average one and a half times higher than such transfers to Azerbaijan. Over the past five years, about 25 thousand Azerbaijani citizens arrived annually in Russia. Most came for work. Their remittances amounted to USD 800 million on average annually.

Direct investments

Foreign direct investment regulation is not directly assigned to the supranational level of the EAEU and is not within the powers of the EEC. Nevertheless, it can be assumed that regional economic integration within the Union created relatively more favorable conditions in this area. So, due to the economic crisis as a whole, direct investments from Russia to the countries of the post-Soviet space fell in 2015-2018. However, they fell to the EAEU member states on average 15 times less than the annual average than Russian FDI to other CIS countries. Over this period, Russian FDI in Azerbaijan amounted to USD 27.5 million on average annually. Thus, the eighth argument is: joining the Eurasian Economic Union can create more favorable conditions for attracting Eurasian investments to the republic.By the way, Azerbaijan could also consider becoming a member of the Eurasian Development Bank (EDB) and the Eurasian Fund for Stabilization and Development (EFSD). The terms of participation, most likely, could be similar to the terms of participation of Belarus, which has a similar level of GDP by PPP as Azerbaijan: USD 189 billion and USD 179 billion, respectively. Having contributed 1% (USD 70 million) to the bank’s charter capital (USD 7 billion), Belarus receives almost 14% of funds (USD 1.2 billion) from the total investment portfolio of the bank (USD 8.9 billion). And having contributed 0.1% (USD 10 million) to the fund’s total funds (total USD 8.5 billion), Minsk can claim 21% (USD 1.8 billion) of these funds in the form of loans and grants. The portfolio volume, taking into account the implemented and ongoing EFSD projects in the Republic of Belarus, amounted to USD 4.6 billion by the beginning of 2020. The EDB provides investments at preferential rates for infrastructure projects mainly in the fields of energy, transport, industry and agrobusiness. The EFSD aims to support macroeconomic stability and long-term economic development. The main “donors” in both development institutions are Russia and Kazakhstan (EDB: 66% and 33%; EFSD 88% and 11%). Profitable investment and financial support from the EDB and the EFSD is the ninth argument in favor of Baku’s potential Eurasian orientation.

National sovereignty

Upon joining the Union, Azerbaijan’s GDP would be 4% of the total economy of the EAEU, and its population – 5% of the total population of the integration bloc. In such an enlarged Union the Russian Federation would still make up 81% of its GDP and 76% of the population of the Union. At the same time, the combined economic and demographic weight of other member states would expand to 19% and 24%, respectively. Thus, in 2018 terms, GDP at purchasing power parity of such an expanded EAEU would ammount to USD 4.9 trillion, its population – to 194 million people.But this is actually not so important. Unlike what populist propaganda insists on, the EAEU’s bodies and decision-making mechanism are built on a democratic basis. All decisions between the member states must be made by consensus, and each member state has one vote, regardless of economic weight or population size.Not Vladimir Putin, but Nursultan Nazarbayev as the first of the post-Soviet statesmen proposed in 1994 to create the Eurasian Union. In his opinion, the new Union should be based on new principles: the priority of economic benefits over political considerations, the preservation of national sovereignty, voluntary and gradual integration, non-interference in the internal political system of member states. That is the wording which is now enshrined in the Treaty on the EAEU.

Unlike the EU, the EAEU integration agenda and the powers of its Eurasian Economic Commission are limited exclusively to economic issues. The Eurasian Economic Union does not pursue a “value policy” and does not intervene in the internal political system of its member states. David Lane, a researcher at Cambridge University, wrote the following about this: “The Eurasian Economic Union creates horizontal democratic conditions between its member states, while the European Union, at its discretion, prescribes” democratization “within states.”Based on WTO rules and the European integration experience, the EAEU seeks to create greater legitimacy, better conditions for a liberal market economy and strict multilateral “rules of the game”, which all member states, including Moscow, must adhere to. And despite periodic exceptions and barriers, in terms of institutional integration and the formation of common markets, the EAEU is now in second place after the European Union, ahead of such associations as MERCOSUR and ASEAN.By the way, the headquarters of the EEC does not resemble an old-fashioned Soviet ministry, but a modern office of some international consulting firm. In such an atmosphere, the EEC is constantly trying to implement best practices and standards from around the globe. In addition, the EAEU Court, which is located in Minsk, works pretty well and has already made a number of important cases against Russian actors and in favor of supranational law, for example, according to which EAEU sportsmen cannot be considered as foreign legionnaires. For the first time in the history of Eurasia, the Eurasian integration project is the first fully peaceful, voluntary, formally democratic, equal and market-oriented association of countries and peoples of the region. The goals, structure and decision-making mechanism in the EAEU are the tenth argument why Azerbaijan should consider joining the Eurasian Economic Union.

From our partner RIAC

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