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.
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.
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.
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.
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.
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
Latvia developed new tasks for NATO soldiers
Member of the Latvian Saemas’ national association “Everything for Latvia!” and Freedom”/LNNK Jānis Dombrava stated the need to attract NATO troops to resolve the migration crisis. This is reported by la.lv. In his opinion, illegal migration from the Middle East to Europe may acquire the feature of an invasion. He believes that under the guise of refugees, foreign military and intelligence officers can enter the country. To his mind, in this case, the involvement of the alliance forces is more reasonable and effective than the actions of the European border agencies. Dombrava also noted that in the face of an increase in the flow of refugees, the government may even neglect the observance of human rights.
The Canadian-led battlegroup in Latvia at Camp Ādaži consists of approximately 1512 soldiers, as well as military equipment, including tanks and armoured fighting vehicles.
Though the main task of the battlegroup in Latvia is country’s defence in case of military aggression, Latvian officials unilaterally invented new tasks for NATO soldiers So, it is absolutely clear, that Latvian politicians are ready to allow NATO troops to resolve any problem even without legal basis. Such deification and complete trust could lead to the full substitution of NATO’s real tasks in Latvia.
It should be noted that NATO troops are very far from being ideal soldiers. Their inappropriate behaviour is very often in a centre of scandals. The recent incidents prove the existing problems within NATO contingents in the Baltic States.
They are not always ready to fulfill their tasks during military exercises and training. And in this situation Latvian politicians call to use them as border guards! It is nonsense! It seems as if it is time to narrow their tasks rather than to widen them. They are just guests for some time in the territory of the Baltic States. It could happen that they would decide who will enter Latvia and who will be forbidden to cross the border!
Changes are Possible: Which Reforms does Ukraine Need Now?
The past 16 months have tested our resilience to sudden, unexpected, and prolonged shocks. As for an individual, resilience for a country or economy is reflected in how well it has prepared for an uncertain future.
A look around the globe reveals how resilient countries have been to the COVID-19 pandemic. Some have done well, others less so. The costs of having done less well are almost always borne by the poor. It is for this reason the World Bank and the international community more broadly urge—and provide support to—countries to undertake economic and structural reforms, not just for today’s challenges but tomorrow’s.
One country where the dialogue on reform has been longstanding and intense is Ukraine. This is particularly true since the economic crisis of 2014-2015 in the wake of the Maidan Revolution, when the economy collapsed, and poverty skyrocketed. Many feared the COVID pandemic would have similar effects on the country.
The good news is that thanks to a sustained, even if often difficult, movement on reforms, Ukraine is better positioned to emerge from the pandemic than many expected. Our initial projection in the World Bank, for example, was that the economy would contract by nearly 8 percent in 2020; the actual decline was half that. Gross international reserves at end-2020 were US$10 billion higher than projected. Most important, there are far fewer poor than anticipated.
Let’s consider three reform areas which have contributed to these outcomes.
First, no area of the economy contributed more to the economic crisis of 2014-2015 than the banking sector. Powerful interests captured the largest banks, distorted the flow of capital, and strangled economic activity. Fortunately, Ukraine developed a framework to resolve and recapitalize banks and strengthen supervision. Privatbank was nationalized and is now earning profits. It is now being prepared for privatization.
Second, COVID halted and threatened to reverse a five-year trend in poverty reduction. Thanks to reforms of the social safety net, Ukraine is avoiding this reversal. A few years back, the government was spending some 4.7 percent of GDP on social programs with limited poverty impact. Nearly half these resources went to an energy subsidy that expanded to cover one-in-two of the country’s households.
Since 2018, the Government has been restructuring the system by reducing broad subsidies and targeting resources to the poor. This is working. Transfers going to the poorest one-fifth of the population are rising significantly—from just 37 percent in 2019 to 50 percent this year and are projected to reach 55 percent in 2023.
Third, the health system itself. Ukrainians live a decade less than their EU neighbors. Basic epidemiological vulnerabilities are exacerbated by a health delivery system centered around outdated hospitals and an excessive reliance on out-of-pocket spending. In 2017, Ukraine passed a landmark health financing law defining a package of primary care for all Ukrainians, free-of-charge. The law is transforming Ukraine’s constitutional commitment to free health care from an aspiration into specific critical services that are actually being delivered.
The performance of these sectors, which were on the “front line” during COVID, demonstrate the payoff of reforms. The job now is to tackle the outstanding challenges.
The first is to reduce the reach of the public sector in the economy. Ukraine has some 3,500 companies owned by the state—most of them loss-making—in sectors from machine building to hotels. Ukraine needs far fewer SOEs. Those that remain must be better managed.
Ukraine has demonstrated that progress can be made in this area. The first round of corporate governance reforms has been successfully implemented at state-owned banks. Naftogaz was unbundled in 2020. The electricity sector too is being gradually liberalized. Tariffs have increased and reforms are expected to support investment in aging electricity-producing and transmitting infrastructure. Investments in renewable energy are also surging.
But there are developments of concern, including a recent removal of the CEO of an SOE which raised concerns among Ukraine’s friends eager to see management independence of these enterprises. Management functions of SOE supervisory boards and their members need to remain free of interference.
The second challenge is to strengthen the rule of law. Over recent years, the country has established—and has committed to protect—new institutions to combat corruption. These need to be allowed to function professionally and independently. And they need to be supported by a judicial system defined by integrity and transparency. The move to re-establish an independent High Qualification Council is a welcome step in this direction.
Finally, we know change is possible because after nearly twenty years, Ukraine on July first opened its agricultural land market. Farmers are now free to sell their land which will help unleash the country’s greatest potential source of economic growth and employment.
Ukraine has demonstrated its ability to undertake tough reforms and, thanks to the COVID-19 pandemic, has seen the real-life benefits of these reforms. The World Bank looks forward to providing continued assistance as the country takes on new challenges on the way to closer European integration.
This article was first published in European Pravda via World Bank
Liberal Development at Stake as LGBT+ Flags Burn in Georgia
Protests against Georgia’s LGBT+ Pride parade turned ugly in Tbilisi on July 5 when members of the community were hunted down and attacked, around 50 journalists beaten up and the offices of various organizations vandalized. Tensions continued the following day, despite a heavy police presence.
On the face of it, the Georgian state condemned the violence. President Salome Zourabichvili was among the first with a clear statement supporting freedom of expression, members of parliament did likewise and the Ministry of Internal Affairs condemned any form of violence.
But behind the scenes, another less tolerant message had been spread before the attacks. Anxiety about this year’s events had been rising as a result of statements by the government and clergy. Prime Minister Irakli Garibashvili suggested the march “poses a threat of civil strife.” The Georgian Orthodox Church meanwhile condemned the event, saying it, “contains signs of provocation, conflicts with socially recognized moral norms and aims to legalize grave sin.”
For many, these statements signified tacit approval for the abuse of peaceful demonstrators. Meanwhile, the near-complete absence of security at the outset of the five-day event was all too obvious in Tbilisi’s streets and caused a public outcry. Many alleged the government was less focused on public safety than on upcoming elections where will need support from socially conservative voters and the powerful clergy, in a country where more than 80% of the population is tied to the Georgian Orthodox Church.
The violence brought a joint statement of condemnation from Western embassies. “Violence is simply unacceptable and cannot be excused,” it said. The Pride event was not the first and had previously been used by anti-gay groups. Violence was widespread in 2013 — and the reality of attacks against sexual minorities in Georgia remains ever-present.
In a socially conservative country such as Georgia, antagonism to all things liberal can run deep. Resistance to non-traditional sexual and religious mores divides society. This in turn causes political tension and polarization and can drown out discussion of other problems the country is marred in. It very obviously damages the country’s reputation abroad, where the treatment of minorities is considered a key marker of democratic progress and readiness for further involvement in European institutions.
That is why this violence should also be seen from a broader perspective. It is a challenge to liberal ideas and ultimately to the liberal world order.
A country can be democratic, have a multiplicity of parties, active election campaigns, and other features characteristic of rule by popular consent. But democracies can also be ruled by illiberal methods, used for the preservation of political power, the denigration of opposing political forces, and most of all the use of religious and nationalist sentiments to raise or lower tensions.
It happens across Eurasia, and Georgia is no exception. These are hybrid democracies with nominally democratic rule. Armenia, Georgia, Kyrgyzstan, and others have increasingly more in common, despite geographic distance and cultural differences.
Hungary too has been treading this path. Its recent law banning the supposed propagation of LGBT+ materials in schools must be repealed, European Commission President Ursula von der Leyen said on July 7. “This legislation uses the protection of children . . . to discriminate against people because of their sexual orientation . . . It is a disgrace,” she said.
One of the defining features of illiberalism is agility in appropriating ideas on state governance and molding them to the illiberal agenda.
It is true that a mere 30 years since the collapse of the Soviet Union is not enough to have built a truly liberal democratic state. Generations born and raised in the Soviet period or in the troubled 1990s still dominate the political landscape. This means that a different worldview still prevails. It favors democratic development but is also violently nationalistic in opposing liberal state-building.
Georgia’s growing illiberalism has to be understood in the context of the Russian gravitational pull. Blaming all the internal problems of Russia’s neighbors has become mainstream thinking among opposition politicians, NGOs, and sometimes even government figures. Exaggeration is commonplace, but when looking at the illiberal challenge from a long-term perspective, it becomes clear where Russia has succeeded in its illiberal goals. It is determined to stop Georgia from joining NATO and the EU. Partly as a result, the process drags on and this causes friction across society. Belief in the ultimate success of the liberal agenda is meanwhile undermined and alternatives are sought. Hybrid illiberal governments are the most plausible development. The next stage could well be a total abandonment of Euro-Atlantic aspirations.
Indeed what seemed irrevocable now seems probable, if not real. Pushback against Georgia’s Euro-Atlantic choice is growing stronger. Protesters in front of the parliament in central Tbilisi violently brought tore the EU flag. Twice.
The message of anti-liberal groups has also been evolving. There has been significant growth in their messaging. The anti-pride sentiment is evolving into a wider resistance to the Western way of life and Georgia’s Western foreign policy path, perhaps because it is easily attacked and misrepresented.
To deal with this, Western support is important, but much depends on Georgian governments and the population at large. A pushback against radicalism and anti-liberalism should come in the guise of time and resources for the development of stronger and currently faltering institutions. Urgency in addressing these problems has never been higher — internal and foreign challenges converge and present a fundamental challenge to what Georgia has been pursuing since the days of Eduard Shevardnadze – the Western path to development.
Author’s note: first published at cepa
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