ARKA’s exclusive interview with Deputy Minister of Economic Development of the Russian Federation Alexei Likhachev
ARKA – Mr. Likhachev, what do you think about the prospect for the development of Armenian-Russian interregional economic cooperation?
Likhachev - We hope that the outlook is optimistic. There is a two-way interest and this is why we hope that economic relations will advance both on interstate and inter-regional levels. This is confirmed by proportionally growing bilateral trade. In 2012 it amounted to $1.2 billion while in the first ten months of 2013 it reached $900 million. This suggests that the prospects are good.
ARKA - What are the opportunities for diversification of the Armenian- Russian trade turnover?
Likhachev - Understandably, the vast majority of Russian exports to Armenia – some 78 percent- are energy resources, primarily natural gas. Anticipated investment projects, I mean in the first place the reconstruction of the Armenian nuclear power plant, estimated to cost about $350 million are likely to give a new quality to the bilateral trade. The reconstruction will create in turn a number of services.
The second aspect is related to the restart of Nairit chemical plant in Yerevan, which has a huge debt, but I hope that our central banks will find a key to solve this problem – verbal arrangements in this regard have been reached already. This project also implies billions of investment.
There is also a potential in the field of infrastructure construction – I mean motor roads and railways, including fueling, logistics and cargo services. This is the third direction. I think that our countries have also a great potential in the area of trade in services.
I think that Russian ruble should be used more actively in bilateral settlements not only by companies but in general as a financial instrument. I mean lending and leasing schemes. There is nothing to restrict economic freedom. On the contrary, de-dollarization of the Armenian economy and use of other currency would give additional push to economic advancement.
As an example I would like to mention agricultural machinery. In principle, Russian agricultural machines are very attractive in terms of price and quality. The question is that we can not offer normal leasing (financial) leverages. If we find them, coupled with more active use of Russian currency we would be able to increase the bilateral trade.
ARKA- Many people in Armenia fear that the accession to the Customs Union may push up customs duties in Armenia. Are their fears justified?
Likhachev – The difference between customs duty rates does exist. Now the average customs duty rate in Armenia is about 3.5 %, while in the Customs Union is about 7 %. But we are reducing the rate because of our commitment to the WTO. In the next 2 years it is expected to drop to around 5.5%.
In this sense, the customs duties in Armenia will slightly increase. There are both advantages, and challenges. The challenges mean that importers may face new problems. In this regard we will need to work to reduce the cost of deliveries to compensate for higher customs duties. As for advantages, they are big. First, it is support to local producers. Of course, any producer in Armenia always competes with imports, and a small two-percent additive in cost will give them a definite advantage.
Armenia’s membership in the Customs Union I think should seriously affect the investment climate in Armenia. Some companies are taking interest in deployment of some of their industries in Armenia to sell their goods not only to Armenia, but also to its southern neighbors.
The case of RUSAL ArmenAl aluminum foil producer shows that we can set up effective production in Armenia and sell produces to Europe. This was proven by the ruling of the General Court of the European Union that ordered the cancellation of an anti-dumping duty imposed on aluminum foil manufactured by Rusal Armenal in Armenia.
(The anti-dumping duty and a provisional duty was imposed in September 2009 for aluminum foil imported into EU from Armenia, Brazil and China. In December 2009, Rusal Armenal filed an application to the General Court of the EU to annul the EU council’s order, as the duties had violated the council’s regulation on protection against dumped imports from non-EU member countries, and General Agreement on Tariffs and Trade 1994. In its judgment of November 5, 2013, the court annulled the regulation, and ordered the EU to pay the costs incurred by the Armenian company for the case- ARKA).
I think that together we will cope with difficulties. We certainly understand that the Armenian side will propose that we establish transitional periods for these duties. Two processes will be combined: you will slowly move, and we will decline customs duties rate because of our commitments to the WTO.
ARKA- Can the absence of common border and the passage of Armenian goods through the territory of third countries affect the competitiveness of Armenian goods at Customs Union markets?
Likhachev - I think here there is a little confusion of concepts. If goods are delivered , say, to Russia, Belarus and Kazakhstan, whatever the routes they go through, no transit country, including Georgia, does charge import duties. Moreover, there are a number of examples when countries joined customs or economic unions without having a common border with any of their members. An example is Greece. Russia has exclaves - Kaliningrad, which, unfortunately, was isolated from the territory of Russia and, accordingly, the Customs Union. In this sense, there should be interaction between customs services in order to make customs control the least burdensome.
ARKA- Nevertheless, the process of Armenian goods going through the Armenian- Georgian border is complicated due to logistical problems.
Likhachev- all the existing problems need to be addressed in a multilateral forma. This is rather a political than economic question, and I think that the leaders of Russia and Armenia will be actively working on it.
ARKA- Do you mean the opening of the railway through Abkhazia?
Likhachev - Yes. The railway operates, but a number of issues, of course, require solution. -0