The formalization of direct trade between Armenia and Turkey has raised a wave of new discussions in the regional economic and political agendas. Although the land border between the two countries remains closed, and the circulation of goods is carried out by complex logistics chains, the new legal regulations may change the rules of the market game to some extent.
While diplomatic circles are trying to understand the political context of this move by Ankara, the issues in the economic field are much more pragmatic. what will the consumer gain and what risks will the local producer face in conditions of unequal competition? VERELQtalked with an economist on the topic Suren Parsyan with analyzing the price of “direct paper trade” for the Armenian economy and the impact of the Azerbaijani energy factor on the decisions made by Ankara.
Suren Parsyan is in the photo, the source is Factor.am
VERELQ. Will the formalization of direct trade bring any practical changes in terms of logistics and product pricing, or is it simply a reformulation of customs statistics that legitimizes existing imports through third countries?
Suren Parsyan. In my opinion, the formalization of direct trade with Turkey is primarily a step to formalize legal and customs relations, not a structural change in the economy. In fact, a significant part of Turkish goods have been entering Armenia through Georgia, Iran, the Arab Emirates or other countries for years. In other words, the consumer has been using Turkish products for a long time, it’s just that it has often been accessed through other sources or mediated chains.
However, there may still be a practical difference. If trade is formalized, brokerage costs, double shipments, relabeling and documentation costs are reduced. This can result in a 5-15% price reduction for some products. Especially in the sectors of construction materials, textiles, household goods and food, Turkish products can become more competitive.
But there will be no significant logistic revolution without a physically open border. If the cargo continues to pass through Georgia or another route, then we simply get a “legal formulation of direct trade”, not full economic integration.
VERELQ. Considering that the circulation of goods is mostly one-way, what new risks arise for the local producer of Armenia, and is the market protected from disproportionate competition?
Suren Parsyan. Here the risks are much more serious. The economies of Armenia and Turkey are incomparable in size and productivity. Turkey has a large-scale industry, state subsidies, cheap labor and a lot of export experience. The small and medium producer of Armenia is very vulnerable in the conditions of such competition.
Light industry, furniture production, some branches of building materials, processing of agricultural products, textile and shoe production are especially at risk.
If the market is opened without protective mechanisms, the Armenian producer may simply be pushed out of the market. We already have such experience with cheap imports from other countries.
The state should apply anti-dumping policy, certification control, local producer subsidy and preferential lending. Otherwise, we will not have competition, but disproportionate economic penetration.
It should be understood that Turkey is primarily an exporter, not an import market for Armenia. In other words, trade turnover will most likely remain one-sided.
VERELQ. From the perspective of economic pragmatism, how heavy is Ankara’s energy and investment dependence on Baku? Do these ties exclude the opening of the border with Armenia in the near future?
Suren Parsyan. Today, Turkey’s energy and strategic ties with Azerbaijan are extremely deep. Azerbaijan is not only a source of gas and oil for Turkey, but also an important geopolitical partner in the Caucasus and Central Asia.
TANAP, Baku-Tbilisi-Ceyhan oil pipeline, gas projects and joint investment projects have formed a long-term interdependence. Under these circumstances, Ankara is unlikely to take such steps that Baku will perceive as neglecting its interests.
This means that regarding the opening of the border with Armenia, Turkey continues to connect its policy with the Armenian-Azerbaijani process. In other words, even if economic logic suggests opening a border, the political decision still depends on regional arrangements.
But at the same time, Turkey also understands that in the long term the closed border limits its own economic opportunities in the South Caucasus. That is why Ankara is trying to keep the possibility of dialogue and “managed opening”.
VERELQ. Can this decision be seen as a mere political gesture to the international community, or does it nevertheless prepare some economic ground for regional de-blocking?
Suren Parsyan. I think this is both a political gesture and an economic preparation. Just calling it a political gesture does not fully reflect the reality.
Turkey wants to show the international community that it is ready for regional communication and economic cooperation. This is especially important in relations with Western partners.
But on the other hand, the economy always precedes the great political opening. When countries begin to build even a limited economic relationship, it creates business interests, logistical links, and financial mechanisms that can later contribute to broader deregulation.
In other words, the current step can be considered as an “experimental economic platform” without a complete political solution.
VERELQ. What is the cost of such a “direct paper trade” regime without a physically open border for Armenia’s economy? What unnecessary costs or losses does our economy incur due to complicated logistics?
Suren Parsyan. “Paper trade” without a physically open border is quite expensive for Armenia’s economy.
The first problem is transportation costs. When Turkish goods arrive in Armenia via detours, shipping time, storage costs, insurance fees, commissions, and duplicate customs and logistics services increase.
For example, the direct road from Kars to Gyumri could take hours, while now cargo often bypasses the territory of Georgia for hundreds of kilometers.
Secondly, Armenia is losing its opportunities as a transit country. If the border were open and the railways and roads were functioning, Armenia could receive logistics revenues, development of services and new jobs.
Third, a closed border reduces investment attractiveness. An investor always evaluates market access and transport links. A country with a closed border is considered an additional risk.
Thus, the current regime imposes an “artificial inflation tax” on the economy. Both the business and the consumer pay that cost in the end.
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