Prospects and consequences of opening Armenian-Turkish border

How the opening of the border with Turkey may affect Armenia’s economy

The peculiarity of Armenia-Turkey relations, as Jrbashyan recalled, is that in the early 2000s, during the negotiations on Armenia’s membership in the World Trade Organization (WTO), after long discussions, Turkey agreed to vote for Armenia’s membership with two reservations (for WTO membership there must be consensus: all members of the organization must be ‘in favor’).

Under the first reservation Turkey stipulated that it would not apply WTO rules in its trade relations with Armenia, and under the second reservation Armenia undertook not to oppose Azerbaijan’s accession to the WTO, regardless of when the latter would apply for membership.

In case of opening the border with Turkey, the economist notes, a new trade agreement is also expected to be concluded, although both countries are WTO members. However, Armenia, being a member of the EAEU, is not authorized to conduct such negotiations.

‘Therefore, in my opinion, before assessing the impact of the possible opening of the border, one should also realize that the opening of borders is still a problem in terms of access to the markets of our two countries,’ Jrbashyan said.

At the same time, he noted that certified products of Turkish origin are still present in the Armenian market. However, they enter the country mainly through the neighboring Georgia, providing a certain ‘premium’ to Georgian intermediaries. It is assumed that if the borders are opened and the issue of a trade agreement is resolved, this ‘premium’ may be reduced if the trade agreement provides for zero conditions, as would be the case under a full-fledged WTO agreement.

In this case, according to the expert’s estimates, the presence of Turkish goods in Armenia’s domestic market will be very limited. If the ‘premium’ is cancelled, the goods will become more competitive, exactly by their value.

Perspective of Armenian goods export to Turkey

As a recent analysis of an export strategy has shown, there are almost no commodity groups with export potential to Turkey that could be competitive in the Turkish market, except for electricity, says Jrbashyan.

Taking into account the uneven distribution of electricity in Turkey, and especially with its deficit in the regions bordering Armenia, it is not excluded that Turkey may be interested in Armenia as an exporter of electricity. But this would also have to be resolved within the framework of a trade agreement. And given that about 30 per cent of Turkey’s electricity is coal-based, there are problems with the carbon footprint of selling Turkish products to European markets.

‘In the case of transit, there could be quite major changes, given that we can get overland access to the EU. But much more important is our access to the deep-water ports of the Mediterranean Sea, which both in terms of their status and infrastructure are disproportionately more efficient and offer better conditions than the Georgian ports of Poti and Batumi operating today,’ Jrbashyan notes.

Noting the unconditional benefit of cross-border trade for both sides in terms of activation of regions, the expert stressed that this border is not just a border between Armenia and Turkey, but a border between the EU-Turkey customs union on the part of Turkey and the EAEU on the part of Armenia. According to the EU customs treaty, the countries jointly resolve issues of tariff and non-tariff regulation when crossing the border for third countries.

Jrbashyan believes that today the most favorable model for Armenia is EU mediation in the process of opening borders. On the other hand, since Armenia is a member of the EAEU, this border is not only Armenia’s border, but also the customs border of the Eurasian Union. Therefore, it will be a rather complicated border regulated by trade-economic, legal regimes both for the countries themselves and in terms of membership of large unions.

Consequences and risks of opening the Armenian-Turkish border

Jrbashyan mainly attributes the risks of opening the border to the absence of trade regimes, which makes it difficult to predict the behavior of the parties following the negotiations.

‘I think the best solution would be to commit to applying WTO conditions and not even enter the negotiation process, but, of course, this depends on the willingness of the parties, and I don’t know how ready Turkey will be for this,’ the expert says.

Another problem, according to him, is related to transit, which is very interesting for the Armenian side. The economist notes with regret the fact that Armenia inefficiently uses its membership in the WTO club of landlocked countries. Jrbashyan considers this a serious problem, as this club protects common interests, in particular, preferential treatment for these countries related to access to sea ports.

Investments or politics?

Turkish investments in other countries, according to the economist’s estimates, are quite politicized, but also quite pragmatic.

‘There may be an inflow of such investments in Armenia too, but we need to prepare for it by changing the internal regulations of our country. The stronger your country’s institutional system is, the less political influence investments can have. I am in favor of investment, but I see a problem with possible political influence. I think this is a problem for Armenia today, because Armenia does not have such an institutional structure and system. We have to realize that the investment sector needs much clearer and correct regulation, excluding possible political influences, not prohibiting them. There should be rules of the game, but we mostly don’t have them,’ Jrbashyan said.

There will be no apocalypse, but….

It is important to remember that the Armenian market has as much Turkish goods as it can consume. As a result of the opening of the border, according to Jrbashyan, the picture will change slightly – goods will arrive without Georgian intermediation, as a result of which the share of Turkish products in the market will slightly increase.

‘But I am sure there will be no apocalyptic images that our market will be completely flooded with Turkish products, resulting in a significant decrease in domestic production and a sharp increase in unemployment,’ the economist said.

He is of the opinion that in the 21st century it is unwise to rely on closed borders.

‘We need to realize that we need to be able to develop in fair competition and ensure the growth of our economy and the well-being of the population. For countries with small domestic markets like ours, the only guarantee for development is to trade with as few restrictions as possible so that we can export, import and actively participate in international trade with open borders. Of course, this can happen when your trading partners apply WTO rules. Closed borders cannot be the vision of the future, and I think sooner or later borders will open. And the sooner we realize this and start preparing ourselves legislatively and institutionally, the sooner we will be ready to be part of the global economy, successfully compete and cooperate with global players,’ concluded Jrbashyan.