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Opinion: Armenia pins high hopes on Meghri Free Economic Zone

20 December 2017

The newly established Free Economic Zone in Meghri "may play a vital role in diversifying the Armenian economy, and help strengthen its ties with neighbouring Iran", says Benyamin Poghosyan in this op-ed.

On December 15, 2017 the Meghri Free Economic Zone (FEZ) was officially launched in Syunik region of Armenia, near the Armenia - Iran border. The Prime Minister of Armenia Karen Karapetyan, along with other ministers, participated in the ceremony. The FEZ will be developed in two stages. During the first stage the necessary infrastructure will be constructed, and first companies will launch their activities. The second stage will see an increase of FEZ territory by an additional 70 hectares, including the establishment of a 10 hectares logistic hub.

Given the tough geopolitical situation of Armenia, and its isolation from the main transit projects implemented in the South Caucasus, this new initiative may play a vital role in diversifying the Armenian economy, and help strengthen its ties with neighbouring Iran. Armenia, as a member of the Eurasian Economic Union (EAEU), enjoys tariff free exports to the EAEU markets. Simultaneously, Armenia has access to the EU GSP+ system, and is able to export goods categorized under 6.400 tariff lines to the EU with zero or reduced tariff. The launch of FEZ will give opportunities for Iranian companies to establish branches here, and export their products both to EAEU and EU markets. Currently negotiations are underway to sign a free trade agreement between EAEU and Iran. Armenia is the only EAEU member which has a land border with Iran, and this creates opportunities for EAEU member states to use Meghri FEZ as a launchpad to enter the Iranian market. The involvement of Iranian companies in the FEZ was one of the key issues discussed during the visit of the Armenian Prime Minister    to Iran in October 2017. The Iranian side was particularly interested in cooperation given the existence of the Iranian Araz Free Economic zone n on the Iranian side of the Armenia - Iran border. Araz was established 10 years ago, and currently 4000 Iranian companies are involved there. Preliminary negotiations are underway to launch cooperation between these two FEZs and the Iranians have expressed their willingness to share their experience.

Armenia is currently negotiating with several Chinese companies to secure their involvement in the Meghri FEZ. Armenia has proposed to them to use FEZ as a launchpad to enter the Iranian market with zero tariffs once a Free Trade Agreement is signed between the EAEU and Iran. Another opportunity for Chinese companies is to export products with zero tariffs from Aermenia to Southern Russia given the geographical proximity of Armenia to the North Caucasus, Krasnodar and Stavropol regions. Thus, both Armenia, Iran, China and EAEU member states may benefit form Meghri FEZ.

Meanwhile, this initiative has economic significant beyond Armenia. Currently, Armenia is under   joint Azerbaijani - Turkish pressure as a result of the Nagorno Karabakh conflict. Both Baku and Ankara spare no efforts to deepen the isolation of Armenia, and worsen its economic situation.  With no breakthrough in the Karabakh negotiations looming, the Armenia - Azerbaijan - Turkey geopolitical competition will remain in place for the foreseeable future.  In the current circumstances Armenia needs state modernization, investments and new opportunities to boost its economy and stop the migration which creates negative demographic trends. The EU and Euro-Atlantic community in general may play a role and provide such opportunities. Armenia is making efforts to develop its relations with the West, and the Armenia - EU Comprehensive and Enhanced Partnership Agreement signed on November 24 is a right move towards that direction. However, given   strategic disagreements between Russia and western countries, and the level of Russian influence over Armenia, Yerevan has little if any chances to develop deeper, more strategic relations with Western institutions.

In the current situation, the connections with both China and Iran are available options for Armenia to diversify its foreign policy and attract much needed investments. Since 2016 negotiations have been underway to launch the "Persian Gulf - Black Sea" transportation corridor. The Iranian initiative envisages the transportation of goods from Iran via Armenia to the Georgian Black Sea ports and then to Greece and Bulgaria. If implemented, this project may well enhance the Armenia's position as a launchpad for Iranian companies to enter the EU markets using GSP+ system. The final agreement on the "Persian Gulf - Black Sea" transportation corridor is scheduled to be signed in Spring 2018. Armenia hopes that by the end of 2018 the first Iranian companies will establish their branches in Meghri FEZ, subsequently using the new corridor as an easy way to export their products to the EU. This perspective may significantly increase the geopolitical importance of Armenia in the region, and will support Armenia's efforts to overcome economic isolation imposed by Azerbaijan and Turkey.

The US new administration tougher policy towards Iran, which was once more emphasized in the US new national security strategy published on December 18, may create complications for Armenia in its efforts to deepen relations with Iran. However, it should be noted that since independence Armenia was successful in gaining tacit US acceptance for its relations with Iran. The bottom line of the Armenian argument was the economic blockade imposed by NATO member Turkey. Armenia was clear in its message to the US:pressure Turkey to re-open its border with Armenia and we are ready to discuss the nuances of Armenian - Iranian relations. Otherwise, Armenia has no possibility to totally depend on Georgia for its export - import activities. Even after the June 2010 UN Security Council resolution imposing new sanctions on Iran, Armenia continued developing its relations with Iran without triggering a harsh reaction from the US.

Thus, the opening of Meghri FEZ may paly a critical role in Armenia's efforts to boost its economy, involve foreign direct investments and serving as a launchpad for Iranian, Chinese, and EAEU companies to enter Iranian and EAEU markets using Armenia's unique position as an EAEU member state, with simultaneous access to EU GSP+ system. Along with the launch of 'Persian Gulf - Black Sea" transportation corridor these new developments may well enhance Armenia's position in its long-term competition with Azerbaijan.       

source: Dr. Benyamin Poghosyan is the Executive Director of the Political Science Association of Armenia. He contributed this op-ed to commonspace.eu

photo: Armenian Prime Minister Karen Karapetyan at the opening of the new Free Economic Zone in Meghri on 15 December 2017

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