BizCLIR

Armenia developed an advanced industrial sector during the Soviet era consisting of production of machine tools and textiles and an agricultural sector consisting of large agro-industrial enterprises. The break-up of the Soviet Union and the conflict in Nagorno-Karabakh led to a significant contraction in Armenia's GDP, estimated at 50% between 1991 and 1995. An ambitious IMF-sponsored economic program in the early 1990s, focusing on privatization and macroeconomic stability, paved the way to resumed economic growth in 1995.

Exports in 2000 were estimated to total $284 million, comprising diamonds, scrap metal, machinery and equipment, brandy, and copper ore. Imports in 2000 were estimated to total $913 million, chiefly consisting of natural gas, petroleum, tobacco products, foodstuffs, and diamonds. Much of the resulting trade deficit was offset by continuing infusions of international aid and foreign direct investment.

Armenia's major export destinations are the European Union (35%), followed by Russia (14.9%), the United States (12.7%), Iran (9.3%), and Georgia (5.2%). Armenia is a member of the CIS free trade zone and has free trade relations with Georgia, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, and Ukraine. In addition, Armenia has Most Favored Nation trading status with most of its major trading partners, including the U.S and the European Union.

While Armenia's official population statistics indicate a population of 3.8 million; this number is probably overstated. Many observers consider that anywhere from 25% up to 50% of the population has emigrated to Europe, Russia, and elsewhere in search of economic opportunity. Unemployment and underemployment appear to be widespread, especially outside the capital city. Unemployment in 1998 was estimated to be 20%, and per capita GDP (modified through a purchasing power parity index) is estimated to be $3,000.

a. Geographic Considerations
Access to international markets is particularly important for Armenian businesses and consumers. Armenia is a landlocked country, located in the southern Caucasus, and is bordered by Azerbaijan, Nagorno-Karabakh, Iran, Turkey, and Georgia.

Contributing to the Armenian economy’s persistent sluggishness are the low intensity conflicts that permeate the Caucasus. The war with Azerbaijan over the region of Nagorno-Karabakh led to closure of all Armenian border crossings with Turkey and Azerbaijan. This is significant because Armenia's principal transportation corridors with the region run through both those countries. The unfortunate result is that Armenia's economic lifelines are concentrated in a handful of road and rail connections with Georgia and a single road link to the Iranian border. These links, however, are in poor condition and difficult to traverse.

Rail freight connections to Russia and beyond have also been interrupted, as trains cannot move between Georgia and the hotspots of Abkhazia and Chechnya. Armenian Airlines, the national carrier, flies to many international destinations, including Istanbul. However, the airline is effectively bankrupt and cannot sustain itself in its present form.

These problems put Armenian exports at a significant competitive disadvantage due to increased transportation costs.

b. International Economic Relations
Armenia has entered into a number of bilateral and multilateral agreements to break out of its economic isolation. For example, trade relations between Armenia and the European Union (EU) are governed by a Partnership and Cooperation Agreement (PCA). The PCA defines the legal parameters for trade between Armenia and the EU, and specifies trade concessions such as most-favored-nation (MFN) status and access to the Generalized System of Preferences (GSP). Measures for phased liberalization of trade in services, FDI, capital transfers, and protection of intellectual property rights are also addressed. The PCA also creates a framework for on-going cooperation, primarily in the form of an annual Ministerial Cooperation Council, and a Parliamentary Cooperation Committee. Armenia's customs regime substantially conforms to European standards, where customs value is defined as the sum of the sales price, transportation costs, freight, insurance, storage fees, and any other costs not foreseen in the contract price.

A bilateral investment treaty and a treaty on double taxation govern trade relations between the U.S. and Armenia. Under this agreement, the parties extend mutual Most Favored Nation (MFN) status.

The Republic of Armenia began the accession process to the WTO in 1995, with active negotiations ensuing through 1996. By the end of 1997, however, attention to accession negotiations in Geneva appear to have wavered, and Armenia reportedly devoted most of its efforts in this period toward implementation of laws that would bring its regime closer to WTO provisions. During bilateral consultations at and after the Seattle Ministerial Conference at the end of 1999, Armenia re-energized its negotiations with interested WTO Members, particularly with the United States. This has advanced the process, both in market access and protocol discussions, to the point where there appear to be only a few substantive issues remaining to be resolved prior to preparing the completed protocol package for submission to the Working Party (WP) for review and adoption and then to WTO Members for final approval.

With respect to market access commitments, Armenia is in the last stages of completing negotiations. Consensus is near on the terms for tariff and services commitments, two of the four elements of the accession package. As of January 2002, final agreement had not been reached on how to calculate the value of Armenia’s agricultural domestic support, the so-called aggregate measure of support (AMS).

Concerning protocol commitments, the most important remaining issues concern Armenia’s enactment of legislation to amend its legal regime to bring it into line with the provisions of various WTO Agreements, e.g., the Agreements on Trade Related Aspects of Intellectual Property Protection (TRIPS), Technical Barriers to Trade, Sanitary and Phytosanitary Measures, Import Licensing Procedures, and Customs Valuation. Armenia has submitted its revised legislation on these and other issues concerning implementation of WTO provisions to the WP for review. A hand full of other, sometimes fundamental, issues remain to be examined and/or resolved, including the critical issue of application of the value added tax (VAT) to agricultural products.

WP Members have not yet reached formal agreement on the text of the WP report and protocol. Discussion at the last WP meeting in June 1999 has identified a number of outstanding issues, however, and the government of Armenia is moving to address them, with a view to closing out the negotiations in the near term. Therefore, notwithstanding that the date of Armenia’s WTO Membership cannot yet be determined, it is an appropriate time to consider what form of decision making and operational organizations will be necessary for Armenia’s participation in the WTO, both for the transitional period leading to full Membership and for the stewardship of an active WTO Membership that will soon follow. Establishment of this machinery will also have implications for trade policy formulation outside the WTO context.