1. FTA of EU- EaP countries
vs Customs Union
Socio-economic perspectives of
Azerbaijan

2. Presenter
• Ziya Alili;
• CFA candidate;
• Director of CESD School of European Studies;
• Econometric-Researcher at Centre for Economic and
Social Analysis;
• Consultant on EaP at Centre for Economic and Social
Development;
• BSc in Financial Management;
• MSc in Risk Management;
• Mobile: 00994 50 684 0119;
• Landline: 00994 12 497 5684;
• Email: AliliZiya@CESD.Az
• Email: Ziya.Alili@Gmail.Com

3. Agenda
• EU –Azerbaijan cooperation within EaP;
o Recent development
• EU-Azerbaijan trade turnover;
• Economic integration steps: FTA vs CU;
• Global Simulation of FTA and CU: Wealth creation
• EU-EaP FTA vs CU
• Conclusion;

4. EU and Azerbaijan: Timeline

5. EaP and Azerbaijan
No
development
in biopassports
3 rounds of
suc’l disc-ns
Agreement
expected by
end 2013
Visa
Facilitation
Diversification
of oil supplies
Current and
future energy
projects
Energy
Security
Compliance
with WTO
policies
100+ policy
amendments
Policy
Converges

6. Important meetings
• S.Fule, may 2013;
o Last round of visa negotiations: Agreement by end 2013
o Azerbaijan can be member of EaP and CU simultaneously;
• V.Putin, august 2013;
o No remarks on CU union accession;
• Azerbaijani delegation trip to Brussels, august 2013:
o Minister of Economic Development
o Deputy Minister of MoFA;
o Financing agreement: EUR 19.5 mln

7. EU-Azerbaijan Trade
relations
63.8%
70.7% 71.0%
67.1%
54.6%
47.7%
57.3%
27.7%
56.7%
43.6%
47.3%
57.2%
46.9%
20.1% 19.6% 19.4%
32.4%
29.2%
25.4%
28.9%
26.7% 26.7%
25.2%
23.8%
29.6%
25.4%
6.0%
3.6%
4.9% 6.1% 6.1% 7.0% 7.1%
10.8%
1.8%
6.1%
3.9%
7.2%
4.3%
26.8%
18.0%
26.1%
20.1%
23.2%
19.1%
25.2%
22.8% 22.9%
20.8%
23.5%
19.7%
18.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
-
5,000,000.0
10,000,000.0
15,000,000.0
20,000,000.0
25,000,000.0
30,000,000.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Azerbaijani export to EU
Azerbaijani imports from EU
EU % in total Exports, 2nd axis
EU % in total Imports, 2nd axis
CU % in total Exports, 2nd axis
CU % in total Imports, 2nd axis
Oil 840%;
Articles of iron and steel 460%;
Edible fruit and nuts 23%;

8. Establishing the Economic
Integration of EaP countries
with EU
Free Trade Zone assessment

9. Economic Integration Steps
• Political Union
o MU + common politics, etc.
• Monetary Union
o EU + common currency
• Economic Union
o CU + Common economic policy
• Common Market
o CU + free movement for factors of
production
• Customs Union
o FTA + Common customs policy
• Free Trade Agreement;
o All products exempted
• Preferential FTA;
o Single product exempted
EU-EaP FTA
CU of
Russia, Belarus, Kazakhstan
Eurasian Economic Union

10. Assessing trade
implications of EaP-EU FTA
and CU
GSIM: Global Simulation Analysis of Industry-Level Trade Policy

11. GSIM: the model
• World Bank, UNCTAD
• Available via WITS platform
o Wits.worldbank.org
• Trade Analysis and Information System
• Partial Equilibrium Model
o Imperfect substitution;
o Demand inelasticity;
o Supply inelasticity;

12. GSIM: Two Models
Parameter Model 1 Model 2
Database TRAINS
Reporter EU, EaP countries Customs Union, Azerbaijan
Partner EU, EaP countries Customs Union, Azerbaijan
Year 2012
Products Top 10 exports of Azerbaijan;
Scenario
Reporter EU. EaP CU, Azerbaijan
Partner Azerbaijan
Tariff Rates Cut by 100%;
Products Top 10 exports of Azerbaijan;
271019 Petroleum oils and preparations
271121 Natural gas in gaseous state
170199 Refined sugar, in solid form, nes
81070 Persimmons
300490 Medicaments nes, in dosage
151620 Veg fats &oils&fractions hydrogenatd,inter/re-esterifid,etc,ref'd/not
760120 Aluminium unwrought, alloyed
151219 Sunflower-sed/safflower oil&their fractions refind but nt chem modifid
390110 Polyethylene having a specific gravity of less than 0.94

13. GSIM: Results
Welfare creation Model 1 Model 2
Consumer surplus 0 0
Producer surplus 0 0
Trade creation 0 0
Trade diversion 0 0
Query ID 397826 397815
Why no effect?
Model 1: GSP of EU;
Model 2: CIS FTA;

14. Hedonic Estimation Model:
Short term implication of CU

15. Azerbaijan and CU: long term
implications
Stakeholderanalysis
International Partners
Businesses
Society
Sectorialanalysis
Energy
Agriculture
Construction, Tourism, Transp
ort
Non-oil production

16. FTA of EU-EaP or CU?
• CU will impose common external tariffs;
o Not a case in EU EaP FTA
• CU has non-trade requirements:
o Energy policy;
o Line up with common domestic energy prices;
o Not a case in EU EaP FTA
• CU may hamper Azerbaijan’s relations with EU and
Turkey;
o EU EaP FTA will not damage Azerbaijan’s relations with Russia and other
CIS members;

17. Questions?
• Ziya Alili
• Mobile: 00994 50 684 0119;
• Landline: 00994 12 497 5684;
• Email: AliliZiya@CESD.Az
• Email: Ziya.Alili@Gmail.Com