Yerevan and Tehran are preparing for a breakthrough
Iran and Armenia will soon start negotiations on a free trade area (FTA). The initiative was suggested by Tehran when its official representative put forward the proposal a few days ago. How realistic is it that this project will be implemented and what benefits will it have for the parties – the correspondent of the New Eastern Outlook (NEO) is asking these and other questions from Deputy Director of the Noravank Foundation, a think-tank in Yerevan, and an Iranian studies expert Sevak Sarukhanyan.
Firstly, how serious is the proposal to establish a free trade zone taking into account the fact that Iran continues to remain under Western sanctions, albeit they are slightly softening? Secondly, does it not contradict the plans of Armenia to join the Customs Union (CU) and the Eurasian Economic Union (EEU)?
The idea of creating a free trade zone between Iran and Armenia is not new. It, with varying intensity, has been discussed for twenty years. In recent years it has been hardly spoken about, and apparently its existence is somewhat forgotten. Now the idea has re-emerged for two reasons.
Firstly, Iran is still under sanctions and is attempting to liberalize its trade and economic relations with its closest neighbors. In Tehran, this line is called the policy of establishing free trade zones and free terminals. With these structures in place, Iran is attempting to circumvent the restrictions imposed by the sanctions.
Secondly, in Armenia there has been a certain reinterpretation of economic cooperation with Iran due to the fact that trade with that country has steadily declined, and, if nothing is done, our cooperation will soon be limited solely to energy. The FTA is a good tool to maintain and increase trade and to develop relations with Iran.
The fact that the idea has once again been revived is probably due to the fact that Karen Chshmaritian has been reappointed to the office of Minister of Economic Development and Trade of Armenia; during his previous term, the trade and economic relations with the Islamic Republic of Iran developed rapidly and steadily. The FTA does not conflict with Armenia’s accession to the Customs Union in the same way as the emerging Iranian-Turkish FTA is not contrary to Turkey’s FTA with the European Union. The free trade zone should not be interpreted to mean that the goods produced in Iran can enter the territory of the Customs Union free from customs duties. This is a purely an Armenian-Iranian project and all Iranian products coming from the territory of Armenia to the territory of the Customs Union will be subject to customs duties.
How strong, in your opinion, is the political component of the project of creation of a free trade area between Iran and Armenia, especially if we take into account Iran’s jealous attitude towards the ambitious and outspoken Turkish claims to being a regional leader?
I do not see any political subtext to this project. There probably would be such a subtext, if the Iranian side was seeking to “reach out” to the heart of the Armenian government through economic channels just like it once tried to do in Georgia through investments in Adjara. Iran does not need to use this strategy with Armenia because the political cooperation between the two countries has been ahead of our economic cooperation.
Does it mean that the political relations between Yerevan and Tehran are more developed compared with the economic relations; and how are they different?
Our political relations are of course more developed than our economic relations. Yerevan has never taken steps that would affect the vital interests of the Islamic Republic of Iran. For example, Armenia has never aspired to join NATO and has never suggested that its territory could be used to carry out any operations against Iran. By the same token, Iran has never been involved in the politics of embargoes against Armenia. Iran has twice blocked anti-Armenian resolutions in the Organization of Islamic Cooperation, which was at the time called the Organization of the Islamic Conference (OIC). I should also note that, Armenia and Iran share common interests with regard to the issues of regional policy,. Here, by “Armenian”, I mean not so much the government of Armenia, but rather Armenian communities and their organizations in the region. For example, the oldest Armenian party in Lebanon, the Armenian Revolutionary Federation (also known as Dashnaktsutyun), is in an alliance with the pro-Iranian Hezbollah. In Syria, the Armenian community as a whole is extremely opposed to overthrowing the Bashar al-Assad regime. All this creates a certain context that affects the relations between our countries. It is important that these relations are not let to free-float in the autopilot mode. And this may happen if there are no new projects or ideas. The FTA is able to give momentum to the development of Armenian-Iranian cooperation which may eventually subside if there are no new ideas and no practical action is taken.
Several years ago, they also talked about the agreements signed to set up common Armenian-Iranian energy initiatives and even about the construction of a refinery in the Armenian border areas with Iran, about projects in the transport sector. What is the status of these projects at the moment?
Unfortunately, there are no agreements between Armenia and Iran in these fields. Only memorandums of understanding were signed at a certain point. The projects certainly look very interesting. There were plans to build a new high-voltage transmission line running from Armenia to Iran. Financing was planned to come from the Iranian side. But the project was unable to raise funds because of the sanctions. Currently, Iran has no money to invest abroad. And there is no acute need of receiving electricity from Armenia either. There were also plans to build a petroleum pipeline or a product pipeline as it was called in the project on energy supplies from Iran to Armenia. But the project got stuck because Iran who is experiencing a shortage of gasoline is not exporting it anywhere. As a matter of fact, I had doubts about this project before as well. The idea of construction of an Iranian-Armenian railway was and still remains relevant. But it will completely lose its value after the commissioning of the Qazvin-Rasht-Astara railway line which will connect Iran’s railway system with Azerbaijan and Iran will have a further exit point to Russian and Georgian ports. If this line is put into operation, then Iran will have no need for a railway to Armenia for purely economic reasons. Especially taking into account that currently, the Abkhazia railway does not connect the South Caucasus region with Russia.
There was also a very promising proposal by Iran to Armenian truckers to introduce zero transit tariffs not only on Iranian roads, but also in the Iranian ports of Bandar-e Anzali and Bandar Abbas.
This too, unfortunately, did not amount to anything.
What is the reason for the economic relations between the two neighboring countries to remain at a level where they are clearly not reaching their potential?
I call the cause “excessive relations”, there has not yet been a real breakthrough in the economic development of Armenia and Iran and even the existing joint projects will often seem superfluous.
Yuriy Simonyan, columnist of Independent Newspaper, exclusively for the online magazine “New Eastern Outlook”.