European Commission Directorate-General for Trade

South Caucasus

Since 2004, the EU has become the main trade partner of each country (in 2009 trade with the EU represented 30.4% of overall trade for Armenia, 42.8% for Azerbaijan and 29.4% for Georgia). These countries' share of overall EU trade remains very low, however (less than 0.5% altogether).

Preferential access to EU markets

All three South Caucasus countries benefit from the EU's Generalised System of Preferences (GSP). Under the current GSP Regulation covering the period from 1 January 2009 to 31 December 2011, all of them qualify for the special incentive arrangement for sustainable development and good governance (GSP+), offering them a particularly advantageous access to the EU market.

Bilateral arrangements between the EU and respectively Armenia, Azerbaijan and Georgia

The EU trade relations with each of these three countries are governed by a Partnership and Cooperation Agreement (in force since July 1999), including measures for:

• non-preferential trade - the parties are forbidden to impose discriminatory tariffs on each other or restrict the quantity of goods traded between them.
• gradual alignment of the partner country's legislation and procedures to the EU's main trade related laws and standards, aiming to further deepen the partner's trade and economic integration with the EU, including a better practical access for its products to EU markets.

European Neighbourhood Policy (ENP) and Eastern Partnership (EaP)

Armenia, Azerbaijan and Georgia each have an action plan under the ENP, designed to help, inter alia, their closer trade and economic integration with the EU, in particular through gradual regulatory alignment. The implementation of the action plans should also enable the countries to progressively become ready to negotiate, implement and sustain an ambitious "deep and comprehensive" free trade area with the EU. However, so far the three countries have made only limited progress in fulfilling their respective action plans, particularly in implementing the laws they have adopted. For more information, see ENP progress reports (April 2008, April 2009 and May 2010).

A particularly serious concern are the poor levels of intellectual property protection in all three countries.

The new EU Eastern Partnership (EaP) launched in May 2009 builds upon the ENP and aims at enhancing the EU relations with the Eastern ENP countries1. The EaP has brought in particular a perspective of new enhanced bilateral framework agreements – Association Agreements - between the EU and its Eastern Neighbours, and firmly embedded possible future bilateral deep and comprehensive free trade areas in this framework. A future Association Agreement would include either establishment of a deep and comprehensive free trade area or at least an objective of establishing such a free trade area in the future once the partner country has become ready for it. In the long-term, the partner countries are also encouraged to establish deep and comprehensive free trade areas among themselves.

Through the ENPI (European Neighbourhood and Partnership Instruments), the EU provides substantial financial and technical assistance to support the regulatory alignment of the partners' trade and investment related laws and procedures. Soon, the assistance opportunities are going to be significantly enhanced through a Comprehensive Institution Building (CIB) programme for each country developed in the framework of the EaP's implementation.

WTO membership

Closer economic ties are also dependent on the partner countries' membership in the World Trade Organisation. Georgia and Armenia have been members since 2000 and 2003 respectively. Azerbaijan applied for membership in 1997, and the process is ongoing. Azerbaijan is receiving technical assistance from the EU to help it to prepare for membership.

Possible future bilateral free trade areas (FTAs)

In 2008, a feasibility study on possible future FTAs between the EU and respectively Armenia and Georgia - both WTO members - showed that deep and comprehensive FTAs could bring significant economic benefits to both countries. However, neither of the two countries was yet able to negotiate such a far-reaching trade liberalisation and even less to implement and sustain the commitments that it would require. Once each of the two countries achieves necessary progress in this regard, negotiations on a deep and comprehensive FTA will start in the framework of the negotiations on the respective bilateral Association Agreements launched in mid-July 2010.

As regards Azerbaijan, the country first needs to accomplish its accession to the WTO before negotiations of an FTA could be considered. Therefore the future Association Agreement between the EU and Azerbaijan, negotiations on which also began in mid-July 2010, will include only an objective of negotiating a deep and comprehensive FTA in the future once Azerbaijan has become ready for it. At the same time, with a view to create a more solid basis for Azerbaijan's future WTO membership and subsequent eventual bilateral deep and comprehensive FTA, the ongoing Association Agreement's negotiations include negotiations on upgrading the existing trade related provisions of the Partnership and Cooperation Agreement.  

Energy

The South Caucasus region plays an important role both in supplying energy to the EU and as a transit route for it.

Azerbaijan is a major supplier of oil and gas to the EU. Its special strategic importance is recognised in the EU-Azerbaijan memorandum of understanding on energy concluded in 2006.

Oil and gas from the Caspian Sea is shipped to the EU in particular through pipelines crossing Georgia and Turkey (Baku-Tbilisi-Ceyhan, Baku-Supsa and Baku-Tbilisi-Erzurum). Caspian oil is also transported from Azerbaijan to the Georgia port of Poti and Batumi by rail. In future, energy supplies should be shipped via a completed 'southern corridor' that should include, inter alia , the Nabucco gas pipeline.

All three countries participate in the Baku energy initiative.

1. The EU Eastern Neighbours are Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova and Ukraine ¶