The Deep and Comprehensive Free Trade Agreement (DCFTA) between Armenia and the EU will provide new opportunities but also challenges. It will lead to increased trade and exports to the EU in the long run, however many Armenian companies currently do not meet EU standards. While the EU is Armenia's largest trading partner, regulatory reforms and adapting to EU rules will be difficult without investments in technology and human resources. Overall the DCFTA is expected to boost Armenia's economy and integration with the EU over the long term, but some sectors may face tough competition in the short term.

1. Deep and Comprehensive Free Trade
Agreement
Impact on Armenian Economy

2. EU-Armenia current trade relations
 The EU is Armenia’s largest trading partner, covering some
32% of its trade. Bilateral trade in goods amounted to
€951million in 2012.
 The country already benefits from preferential access to the EU
market through the EU Generalized System of Preferences with
additional incentives for sustainable development and good
governance ("GSP+"). This means that existing import duties
are already very low, so the benefits of the DCFTA, although
they also include tariff reductions, will lie predominantly behind
the border. Regulatory reform will focus on areas such as
sanitary and phytosanitary issues, aiming to bring food safety
standards in Armenia up to a par with those in the EU. Armenia
will also adapt various laws relating to industrial goods, with
an emphasis on domestic safety and consumer protection.

3. History of Association Agreement
 The EU began negotiating an Association Agreement with Armenia
in July 2010. The aim was to replace the old Partnership and
Cooperation Agreement with a more advanced relationship. The
negotiations on the trade part of this agreement – the Deep and
Comprehensive Free Trade Area (DCFTA) – were launched in May
2012.
 After seven rounds of negotiations, final agreement was reached on
24 July 2013. The Commission will now report to the EU Member
States on the negotiated DCFTA text. After that, the EU and
Armenia will carry out the next steps to formally mark the finalization
of the DCFTA as part of the Association Agreement.

4. EU financial assistance
 Armenia receives funding from the European
Neighborhood and Partnership Instrument (ENPI)
through a national programme as well as ENPI regional
and interregional programmes.
 EU bilateral assistance to Armenia amounts to €157 m
for 2011-13 (compared to €98.4 m for 2007-10).

5. Possible positive impact of trade
liberalization
 An independent study suggests that in the long run the Armenian
economy could gain an extra €146 million a year, representing a
2.3% increase in GDP. Removing non-tariff measures is key to
realizing these benefits. For its part, the EU is expected to gain by
some €74 million.
 The DCFTA will have significant impacts on Armenia’s trade. The
forecast 15.2% increase in Armenian exports and 8.2% increase in
its imports in the long run will lead improve Armenia’s trade balance
in relative terms.

6. Official Statement
 The Commission also argues that the deal will strengthen Armenia's
economic integration with the EU, by providing better market access
for goods and services. It is hoped that Armenia will be able to
modernize its trade relations and harmonize the laws and
regulations governing a range of trade-related sectors. This should
in turn help bring key areas of the Armenian economy in line with
EU standards.
 The DCFTA envisages that the vast majority of customs duties on
goods will be removed as soon as the Agreement enters into force.
It covers the following areas:
a) trade facilitation
b) intellectual property rights
c) customs and rules of origin
d) sanitary and phytosanitary (SPS) reforms
e)contains provisions on sustainable development

7. Challenges on Intellectual property
and Rules of Origin
Intellectual property
Local companies worry about the so called GI (Geographical
Indications) matters. This refers mostly to spirit industry. Mainly in
CIS markets “Armenian Cognak” is well known. After signing the
Association Agreement it will be impossible to use such a word. On
the other hand our manufacturers do understand the position of
European Commission. So called “Champaign” manufacturers will
also suffer
Rules of Origin
It is proposed that Armenia will join the Regional Convention on Pan
Euro-Mediterranean preferential rules of origin where not only EU
member countries do participate. On the other hand the Convention
is effective in case when there are bilateral agreements as well. The
idea of the Convention is to use cumulative approach from all
participating countries. In case of Armenia (due to some political
reasons) companies from different sectors including textile still
cannot benefit from.

8. Challenges on Trade Facilitation
Negotiations on trade facilitation
 As a result of negotiations customs duties for most of industrial and
agricultural products have to be eliminated
 With some exceptions for rest of products (which can be very
sensitive for economies) transition period (from 1 to 7 years) and
quotation methods have been applied.
 Special rules for services have been adopted as well. Such rules
contain very comprehensive approach mostly from EU side
including different sectors of member country.
Main Challenges
 State budget will lose from elimination of tariffs which are now
applied from European imported products
 Some Armenian manufacturers will suffer from competition with
European companies in the local market. This refers mainly to
agricultural products (meat and dairy, sweet and candy, etc)

9. New opportunities and barriers
 Instead Armenian manufacturers get an advantage to
export more to EU member countries mostly with 0%
customs duties. However competitiveness and size of
local companies remain as main barriers on this way.
 On the other hand in order to enter the EU market a
number of technical regulations and standards should be
followed which need qualified Human Resource,
technology, investment, etc. In order to meet such
requirements companies need time. This is one of main
reasons that the Association Agreement will mostly have
long-term effect.
 Many local companies (particularly SME-s) are not
ready to produce according to such standards

10. Opportunities
 Still there are companies in Armenia that are
able to meet EU standard requirements and
export under preferential regime
 In the long run many companies (which still do
not meet such requirements) can adjust their
products to European standards through
modernizing their processes. This means that in
the future some of them will be able to compete
in the European market
 Local customers of consumer and industrial
products will gain through purchasing products
of higher quality

11. Priority sectors
The European Union opens up its market of 500 million population to
Armenian can be exports. However entering such a market is not an
easy task and companies not from all sectors can me competitive.
According to the survey done by European organization recently
Eastern Partnership countries have potential in the following specific
sectors:
a) Information technologies
b) food processing
c) textile
d) alternative energy
e) tourism
f) sustainable construction
g) transport and logistics

12. Main Conclusions
Opportunities
 Association Agreement gives better opportunities for
long-term period
 New opportunities will appear in terms of new export
markets and investments and technologies
 EU will continue its support in legislation approximation
and economy transformation processes
Challenges
 Companies will face tough competition in the local
market
 Government will lose it’s income from import tariffs
 In particular SME-s can suffer more