The Caucasus, the EU, and the Eurasian Union

When Tolstoy wrote The Prisoner of the Caucasus, he could not have foreseen a day when this extraordinary part of the world would become quite such a complex web. But he did know that nothing happens there without some kind of a fight

The Caucasus: great beauty and great division
Daniel Hamilton
On 10 March 2015 14:16

In June last year, the Governments of Georgia, Ukraine and Moldova signed Eastern Partnership Association Agreements with the European Union. The signing of the agreements was rightly enthusiastically welcomed.

It was a critical step towards strengthened political and economic links between EU states and a trio of countries who are still recovering from the ravages of Soviet rule, and dealing with the realities of a series of revanchist territorial adventures launched by Russia against their sovereign territories.

I am warmly enthusiastic about the trade-related aspects of the deal which will essentially extend the EU customs union to three growing economies as well as the prospects that exist for deeper cooperation in the fields of educational exchanges and the liberalisation of the current visa regime.

As with most international agreements, however, there are downsides and benefits for new signatories.

From my perspective, the immigration and customs-related aspects of the deal have had negative implications for “domestic” South Caucasus relations rather than strengthening them.

My first experience of the new regime was in September last year when crossing the border between Georgia and Armenia at Sadaxlo and Bagratashen.

The crossing had always been a fairly painless affair, with personal vehicles and taxis being fast-tracked through customs while major goods vehicles whose merchandise had originated in Iran, Turkey and Russia reviewing the bulk of the attention from customs guards on both sides of the border.

It was noticeably different last year, with Georgian and Armenian officials conducting significantly reinforced checks on the boots of vehicles. This included checking that tobacco, alcohol and even agricultural export quotas had not been exceeded, as reflected by Georgia’s status as a member of the Eastern Partnership with the EU, and Armenia’s then-imminent signing of the Eurasian Union accords – a mechanism administered by Russia.

While I fully understand the politics behind the new border arrangements, I must confess to having found them a little uncomfortable. During the Soviet era, I am told that the border crossing was effectively an administrative boundary with perfunctory ID checks while, in the post-Soviet space, traffic had always been allowed to flow relatively freely. As such, the dawn of the Eastern Partnership Association Agreement and Eurasian Union has effectively brought about an artificial division between the two states that had hitherto not existed.

There can be no doubt here that the loser will be Armenia.

While the border between Georgia and Russia only operates intermittently, the country enjoys relatively easy trade with Azerbaijan and Turkey -- two boom markets.

On the contrary, Armenia’s borders with Azerbaijan and Turkey have been closed since the early 1990s -- leaving them reliant upon trade routes from Iran to the south (which is itself subject to international export bans on many manufactured goods) and the Georgian crossing to the north, whose operation is itself subject to whatever Tbilisi and Moscow are quibbling about that day.

Increased delays on this border and the effective demarcation of Armenia as part of one trade block and Georgia the other has already led to the significant curtailment of trade flows between the two.

I suspect the effect on Armenia of this new economic reality will, in the short to medium term, be a grim one; regardless of how much money Russia throws at the country to upgrade its road and rail infrastructure under the auspices of the Eurasian Union.

Georgia has not been entirely spared any problems when it comes to the implications of the Eastern Partnership accords – which nonetheless remain an overwhelmingly positive thing for the country.

Since the election of Mikheil Saakashvili in 2003 until late last year, Georgia had operated arguably the most liberal immigration and visa regime in the world. As a British citizen, I enjoyed the right to enter Georgia for work and tourism purposes for a total of 365 days at a time, with the period easily being reset back down to zero after a quick trip across the Armenian or Azeri borders and back into Georgia.

This system was especially effective at attracting foreign investment to the country, as well as allowing it to develop a status as a regional cultural leader.

From the perspective of Iran, I find the new visa regime particularly concerning. While the bulk of western and western-aligned countries have operated a particularly tough visa regime in respect of Iran, the free movement and employment opportunities offered to Iranian citizens by Georgia created a vital bridge from theocracy to the type of market and social liberalism that is ever-present in downtown Tbilisi, Kutaisi and Batumi.

Without these opportunities, the many young Iranians who delighted in the sanctuary and enlightenment provided by Georgia will continue to be isolated behind a wall of theocracy.

There is also a degree of economic realism that needs to be applied to this discussion. That requires looking beyond the packed bars and restaurants of Tbilisi, the dazzling new buildings and freshly-asphalted inter-city roads.

While Georgia’s economy has come on leaps and bounds in recent years with the development of a burgeoning financial services sector, its number one export remains scrap metal. The only real “cash cow” the country has that it can successfully milk in the short to medium term is the tourism sector -- which I can personally vouch for as being outstanding

As such, the comments from Justice Minister Thea Tsouloukiani celebrating the fact that the “immigration reforms that entered into legal force on 1st September have resulted in the reduction of tourists by 42,000″ and that the “influx of Chinese, Iraqis and Egyptians was suppressed” should be greeted with concern.

The developments, she said, would help Georgia achieve “success in Riga”, where a summit will take place shortly under the auspices of the Latvian Presidency of the EU to assess the adherence to date of Eastern Partnership states with their transposition of EU standards.

It’s one thing to please the European Union’s assessors but quite another to cause harm to your country’s economy via the imposition of a misguided visa regime that will harm not only the tourism sector but also future prospects for investment in domestic projects -- from the financial services sector to the development of hydro power.

In my view, it is time that the Georgian Government sat down with European Union negotiators and conducted a comprehensive review of the positive and negative elements of the Eastern Partnership.

It was clearly not the intention of the agreement to further isolate Armenia, to harm valuable “soft power” cultural exchange with Iranian civil society or to undermine the growth of Georgian tourism.

Solutions to these problems can be easily found – and would be of benefit to the entire region.

It is understood -- albeit with a degree of regret -- that Armenia has made a decision to align itself with the Eurasian Union on the basis of the security guarantees provided by Russia in respect of Nagorno Karabakh.

Given the existential importance Armenians place on this issue and the widespread degree of regret expressed by its political and diplomatic corps at having to withdraw from the Eastern Partnership, the country continues to command widespread sympathy in western capitals.

As such, Brussels will be open to a deal to guard against Armenian isolation post-Eastern Partnership.

As a starting point, a dedicated tripartite committees involving representatives of the Georgian and Armenian governments, as well as those from the European Union and Eurasian Union, should be established in order to resolve technical difficulties that exist in respect of the free movement of goods around the region.

I hope there is enough political will in both Brussels and Tbilisi to do so.

Daniel Hamilton is a Partner at Bell Pottinger LLP. He writes in a personal capacity

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