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CAROLINE FREUND: MOST DIFFICULT ISSUE FOR ARMENIA IS RISE IN TARIFFS THAT CU REQUIRES
18:45 24/01/2014 " INTERVIEWS
Panorama presents an interview with Dr. Caroline Freund, expert in
international economics, senior fellow at the Peterson Institute
for International Economics. Dr Freund speaks about the risks that
Armenia is facing on her way to the Customs Union.
Nvard Chalikyan: Dr. Freund, as you know Armenia is currently
negotiating the terms of membership to the Russia-led Customs Union.
Armenian economists have identified a number of challenges in Armenia's
CU accession, among them a marked increase of prices for imported goods
as a result of raised tariffs, suffocation of local producers by cheap
flows of goods from CU countries, isolation from the external world
and other issues. What major risks would you point out for Armenia
on this path?
Caroline Freund: Economically, the most difficult issue for
Armenia is the rise in tariffs that the CU requires. A large body
of literature shows that openness to trade is good for growth. In
addition, preferences on Russian goods in the face of high tariffs
will allow imports from Russia to expand at the expense of other
countries. This so-called trade diversion is bad for Armenia because
consumers get higher priced goods (or they would have imported them
from Russia when tariffs were the same across the board), but the
country no longer receives tariff revenue from the goods it imports,
since Russian goods enter duty free.
Perhaps the biggest issue is the potential for isolation, especially
from the EU. By joining the CU with Russia, Armenia is placing its
future integration with its Eastern neighbours, which may prevent it
from joining supply chains and expanding export markets elsewhere.
N. C.: When Russia and Armenia joined the WTO, each of them signed
accession agreements with WTO on different terms (for instance Russia
preserved some of its protectionist policies while Armenia didn't have
any). When both countries join in a single customs union, which WTO
standards (based on which agreement, according to which principle)
are to apply? Can Armenia mitigate the above-mentioned risks by
referring to its WTO membership?
Caroline Freund: Armenia can protect itself under the WTO, by refusing
to raise bound tariffs. In WTO each country is responsible for its own
concessions. Moreover, there is a WTO regulation that the CU shouldn't
increase the overall level of protection. This means that in principle
a CU should converge on the policies of the lower protection member.
If Armenia instead moves to Russian levels, other countries in the WTO
could in principle object and demand compensation... The difficulty
is that Armenia's tariffs are not bound that low-so this may only
work for some tariff lines.
The issue with Armenia however is that because of its relatively small
size, other countries may not deem it worthwhile to initiate a dispute
(it is costly), especially if they risk offending Russia.
N. C.: Do you think that Russia-led Customs Union/future Eurasian
Union will move towards isolation (and rivalry with the EU) or that
it will eventually have to come to common terms with the EU?
Caroline Freund: Over the next 10 years, I think it will be a competing
union, and as a result isolating. After that I think there will be
a strong incentive for broader economic integration and a common
agreement will be reached.
The interview was conducted by Nvard Chalikyan
http://www.panorama.am/en/politics/2014/01/24/caroline-friend/
18:45 24/01/2014 " INTERVIEWS
Panorama presents an interview with Dr. Caroline Freund, expert in
international economics, senior fellow at the Peterson Institute
for International Economics. Dr Freund speaks about the risks that
Armenia is facing on her way to the Customs Union.
Nvard Chalikyan: Dr. Freund, as you know Armenia is currently
negotiating the terms of membership to the Russia-led Customs Union.
Armenian economists have identified a number of challenges in Armenia's
CU accession, among them a marked increase of prices for imported goods
as a result of raised tariffs, suffocation of local producers by cheap
flows of goods from CU countries, isolation from the external world
and other issues. What major risks would you point out for Armenia
on this path?
Caroline Freund: Economically, the most difficult issue for
Armenia is the rise in tariffs that the CU requires. A large body
of literature shows that openness to trade is good for growth. In
addition, preferences on Russian goods in the face of high tariffs
will allow imports from Russia to expand at the expense of other
countries. This so-called trade diversion is bad for Armenia because
consumers get higher priced goods (or they would have imported them
from Russia when tariffs were the same across the board), but the
country no longer receives tariff revenue from the goods it imports,
since Russian goods enter duty free.
Perhaps the biggest issue is the potential for isolation, especially
from the EU. By joining the CU with Russia, Armenia is placing its
future integration with its Eastern neighbours, which may prevent it
from joining supply chains and expanding export markets elsewhere.
N. C.: When Russia and Armenia joined the WTO, each of them signed
accession agreements with WTO on different terms (for instance Russia
preserved some of its protectionist policies while Armenia didn't have
any). When both countries join in a single customs union, which WTO
standards (based on which agreement, according to which principle)
are to apply? Can Armenia mitigate the above-mentioned risks by
referring to its WTO membership?
Caroline Freund: Armenia can protect itself under the WTO, by refusing
to raise bound tariffs. In WTO each country is responsible for its own
concessions. Moreover, there is a WTO regulation that the CU shouldn't
increase the overall level of protection. This means that in principle
a CU should converge on the policies of the lower protection member.
If Armenia instead moves to Russian levels, other countries in the WTO
could in principle object and demand compensation... The difficulty
is that Armenia's tariffs are not bound that low-so this may only
work for some tariff lines.
The issue with Armenia however is that because of its relatively small
size, other countries may not deem it worthwhile to initiate a dispute
(it is costly), especially if they risk offending Russia.
N. C.: Do you think that Russia-led Customs Union/future Eurasian
Union will move towards isolation (and rivalry with the EU) or that
it will eventually have to come to common terms with the EU?
Caroline Freund: Over the next 10 years, I think it will be a competing
union, and as a result isolating. After that I think there will be
a strong incentive for broader economic integration and a common
agreement will be reached.
The interview was conducted by Nvard Chalikyan
http://www.panorama.am/en/politics/2014/01/24/caroline-friend/