1375) Political and economic dilemma over Turkey's border and embargo of Armenia, implications vis-a-vis Azerbaijan

An overview.

By Adil Baguirov, Ph.D.

Synopsis: This article is to argue that the embargo (trade sanctions) of Armenia by Turkey and Azerbaijan, proved to be - and remain so -- a rather effective policy and humanitarian tool, which: reprimanded the aggressor, aided the victim and sent the right message to the world community about the real state of affairs in the region.

However, like all trade sanctions as opposed to true blockades, it has its limitations, with grey and shadow trade offsetting some of the intended economic consequences - i.e., it has reduced, not completely eliminated, trade and economic relations with Armenia.

Until Armenia complies with the legitimate demands of Turkey and Azerbaijan,namely relinquishes land claims and stops occupation of Azerbaijani lands,including Karabakh, the border should remain closed. This article is not all-encompassing, but is one of the first attempts to analyze the issues are stake. Author intends to continue research in this sphere and present an updated paper.

Introduction
Caucasus, one of the most culturally and ethnically diverse regions in the world, a choking point where Europe and Asia converge, has always been a turbulent region. The dramatic events of the 1980s, when the bipolar world and the Cold War were ending, and the once mighty Soviet Union was disintegrating, found that ancient region as a hotbed again.

Because of the humanitarian catastrophe that ensued in Azerbaijan as a result of the Armenian aggression (1988-1994), and due to enormous outpouring of emotions of the Turkish people, as well as passage of four UN Security Council resolutions in 1993 condemning the aggression and demanding halt of occupation, Turkey completely sealed its border with Armenia that year, aiming to halt the aggression and show its support for the international law. Azerbaijan closed its borders with Armenia earlier -partially in

1989 and fully in 1991. The border remains closed to this day.

Further reasons for such a move were what appeared as Armenia being a state sponsor of terrorism, aiding ASALA and other Armenian terrorist organizations in killing Turkish and Azerbaijani citizens worldwide; Armenian claims of alleged genocide and its constant campaign around the world (this is despite the fact that Armenians massacred an estimated up to 2,5 million Turks, Azerbaijanis and other people in the early part of the 20th century); and what is perceived as territorial claims to Turkey which are enshrined in the Armenian Declaration of Independence (1991).

In major part because of the dual embargo by Azerbaijan and Turkey, Armenian military machine was exhausted, its finances strained and aggression unsustainable, with Azerbaijani army liberating some of the previously illegally occupied lands, and a temporary cease-fire signed in 1994, and sustained since. Without a doubt, had Azerbaijan not been itself in an even worse situation, than Armenia, economically and financially, suffering from separatism on its north, south and west, civil war and domestic political infighting, the military liberation campaign could have been much more successful in ridding the lands of occupation - much like was the case in the summer of 1992, when the Azerbaijani army nearly freed all of its lands and prematurely celebrated victory.

Currently, Armenia occupies some 16% of Azerbaijan, as a result of which around 850,000 Azerbaijanis are refugees and displaced (one out of every 8 Azerbaijanis is displaced, one of the largest such ratios in the world at the time), some 30,000 Azerbaijanis, mostly civilians, were killed, and over 100,000 wounded and maimed. Armenia committed the most atrocious and heinous crimes of the war, which is the massacre of Khojaly (Hojali) in February 1992, when over 700 women, children and elderly were brutally slaughtered in one night. The economic damage from the military aggression and occupation is at least $26 billion (for reference, the 2003 Azerbaijani nominal GDP was $7.1 billion, or over $29 billion purchasing power parity (PPP) adjusted. Armenia's GDP was $2,8 billion, or PPP adjusted GDP is $11 billion [World Development Indicators database, WorldBank, July 2004]). If it were not for the dual embargo, Armenia would undoubtedly have been more successful in its policy of ethnic cleansing and occupation. At the time, no one helped Azerbaijan as much as Turkey.

Thus, the embargo proved to be - and remains -- a rather effective policy and humanitarian tool, which punished the aggressor, helped the victim and sent the right message to the world community about the real state of affairs in the region.

Historical background (Naxcivan and Zangezur)

The Azerbaijani-Armenian war over Karabakh officially re-started in 1987, because of Armenian claims to historic Azerbaijani territories of the entire Karabakh region, as well as Naxcivan and other regions. Because of the war, Naxcivan, a small Azerbaijani exclave bordered by Armenia, Iran and Turkey, got cutoff from all communications and transportation links with Azerbaijan in 1989 - and because of the continued existence of the USSR, there were no links with Turkey or Iran, the other bordering countries (the "life bridge" to Turkey was built only in the early 1990s). Thus, Naxcivan was in real blockade because of Armenian aggression.

The truth is that Naxcivan, just as Karabakh, is historically part of Azerbaijan, was part of the ancient states of Mannae and Medes (c. IX - VI centuries B.C.), Caucasian Albania (IV century B.C. - VII century A.D.), the capital of the Azerbaijani Atabek Ildegezids (XII century) and Naxcivan Khanate (XVIII-XIX centuries). After Soviets gained power of Azerbaijan in April 1920, which led to the demise of the Azerbaijan Democratic Republic (ADR) of 1918-1920, the foundation stone for the legal status of Naxcivan was laid by the Moscow Treaty on March 16, 1921 and its successor, the Kars Treaty on October 13, 1921.

These international treaties are still in force. They stipulated that Naxcivan remain within Azerbaijan, a legal fact that prevented the Soviets from awarding it to Armenia. This did not, however, prevent them from giving small bits of Naxcivani territory to Armenia throughout the 1920s and in 1930s (which forced Turkey to exchange territory with Iran not to get cutoff from a land border with Naxcivan), as well as continued occupation today of the Kerki village in the north of Naxcivan by Armenia since 1990 - in total violation of all the international laws and treaties!

Naxcivan used to be "connected" to the rest of Azerbaijan by the Zangezur region, which was awarded to Armenia in December 1920. Effectively, assigning this strip (46 km) to Armenia separated Azerbaijan in two sections, cutting off Turkey from the other Turkic-speaking peoples in Central Asia.

Zangezur, as other Azerbaijani regions, was continuously emptied of its indigenous residents.

According to the official Russian censuses, in 1897 its population was 51.7% Azerbaijani, but by 1926, it had declined to 6.4%. During the same period, the ratio of Armenians increased from 46.1% to 87%! Tens of thousands of Azerbaijanis had to flee for their lives in much the same way as they have had to do in the late eighties and nineties.

Trade embargo, sanctions (aka "blockade")

In 1989, the democratic forces of the Popular Front of Azerbaijan imposed a partial embargo on Armenia, and in 1991, when Azerbaijan declared its independence from USSR, the trade sanctions became full and permanent until the cessation of aggression.

One of the reasons for the embargo, aside from aggression, occupation, and killings by Armenians in Azerbaijan, was that the railroads, pipelines, and other communications, went through the Azerbaijani territories that were attacked and occupied by Armenians, thus making it impossible to continue normal trade anyways. In fact, Armenians dismounted their section of the railroad that went from Baku to Naxcivan via Megri region in Armenia.

Meanwhile, trade embargo, economic sanctions and blockades are common practice in today's international affairs, with the leading state favoring usage of such a non-military pressure tool (a "stick") against all kinds of states, even those not posing any real security threat such as Cuba, are the United States.

Under the pressure of the Armenian lobby, Section 907 of the Freedom Support Act of 1992 was passed in the Congress, banning all U.S. government-to-government aid, due to which Azerbaijan received only some $335 million in U.S. aid, versus $1,336 billion for Armenia, in the past decade (U.S. State Department figures for 1992-2003).

It was not until 2002, when President Bush started to annually exempt Azerbaijan from this discriminatory provision. Moreover, Azerbaijan is still subject to the Jackson-Vanik provisions in Title IV of the Trade Act of 1974, which govern the extension of normal trade relations (NTR) to non-market economy nations ineligible for such status as of the enactment of the Trade Act (Armenia was recently graduated from this law). Both nations were first granted NTR in 1992 under an annual waiver from the freedom of emigration requirements of the statute.

Turkey closing the border with Armenia

In solidarity with Azerbaijan and in full conformity with the international law and will, Turkey closed the border with Armenia in 1993 (almost two years after Armenia's independence). Nonetheless, under international pressure, Turkey was pressured to open the air corridor to Armenia in 1995, ostensibly for "humanitarian" cargo. Later on, travel restrictions for Armenian citizens were lifted as well (Armenian citizens can now pay the regular one-month visa fee at the airport and freely travel to Turkey, which they do in sizeable numbers), regular weekly passenger flights from Yerevan to Istanbul commenced, unofficial (gray) trade in the border districts in existence, and Turkish goods widely on sale in the Armenian market.

Illegal Armenian migrants and workers do not seem to have problems with getting into Turkey, too.

The international pressure on Turkey, speculating with its membership into EU and WTO, by using either the unfounded genocide claims or the urges to open the border and pressure Azerbaijan to capitulate, are all Armenian-lobby inspired. If anything, Turkey must be rewarded for acting as the most responsible member of the international community, by upholding the international law and leading by example, when it sealed the border with Armenia. It was a reaction and effect for Armenia's actions. Had Armenia not made territorial claims to Azerbaijan and Turkey, had it not attacked and occupied parts of Azerbaijan, killed its people and damaged economy, the border could have been open and everyone would have been benefiting from normal trade relations. However, once Armenia pushed all limits and violated every single fundamental principle of international law, it opened itself to all types of penalties at the disposal by sovereign states in accordance with the principles of the international law.

Thus, today the border is only nominally closed, making the trade and business links somewhat more expensive, but possible and not more complex than with, for example, Iraq. Yet, the issue of border opening became very prominent in the recent years, a real sore in the relations between Azerbaijan and Turkey, with some groups, such as the Turkish-Armenian Business Development Council (TABDC) speculating wildly about the fantastic payoff, financial and economic advantages of official border opening with Armenia based on just one outdated study (nonetheless, TABDC has never commissioned a new study about those elusive financial gains from the border opening).

Border opening: political motives

Ordinarily, everyone wants to have cordial relations and free trade. It is a normal thing for Turkey, much like Azerbaijan, wishing to have normal relations with all neighbors, including Armenia. Yet, to have normal relations, the behavior has to be normal as well, which means in line with international law.

Unfortunately, Armenian aggression and occupation continues to this day, some 17 years after the beginning of the war. Furthermore, the campaign for the recognition of so-called "Armenian genocide" has intensified and there are no signs of stopping, while the Armenian government and opposition leaders still making or hinting territorial claims. Turkey has been among the first states to recognize Armenia's independence in 1991, and has closed the border only two years later, and then weakened that regime two years after that - indicating more than a fair portion of goodwill, which unfortunately has never been either recognized, appreciated or repaid in kind. How can normal relations be established in such a situation?

There are fair and just preconditions for normal relations to be established, and they were clearly articulated by the Turkish government from day one.

When the border was sealed, Turkey made very clear the reasons, intentions and preconditions for re-opening of the border. As mentioned above, they were the

following:

1) Halt the aggression and withdraw from all occupied Azerbaijani territories of Karabakh and other regions;

2) Discontinue the international campaign of recognition of the so-called "Armenian genocide";

3) Remove any hints of territorial claims to Eastern Turkey from official Armenian documents.

The biggest reasons that made Turkey seal its border were of course moral and humanitarian, as Armenia was literally killing Azerbaijan in the chaotic 1993, and no Turk could look at this as an unemotional bystander, everyone pressuring the government to do something. Before the 1993 closing of the border, President Turgut Ozal - who is one of the most popular Turkish leaders in Azerbaijan to this day - ordered army maneuvers on the border with Armenia in May 1992, when Armenia was attacking Naxcivan, and Turkish Chief of Generals Staff Gen. Gunes reminded about the Kars Treaty, moral and legal obligation to protect Naxcivan. Even though Turkey did not materialize its vows, it was an important symbolic gesture to all Azerbaijanis, and probably hindered Armenian intentions.

Today, nothing has changed - not even one of the three preconditions is satisfied. Turkey, not only due to moral, ethical and humanitarian concerns should not open the border, but also because of political. First, because it is an important bargaining chip in all of the above issues, and second, because Turkey, as any great country, should always keep its word - or its image, above all, would suffer greatly.

Part of the reason the West is pushing both Turkey and Azerbaijan to open the borders with Armenia, is based on false notion that because of the dual embargo, Armenia is not within the Western sphere of influence, and is forced to cooperate with Iran and Russia.

Another part of the argument, based on the famous thesis of American political scientist Paul Kennedy, goes that liberal democracies rarely go to war against each other and free trade is the most important part of this "insurance against war". While it is doubtless that with the dual embargo lifted, the trade will increase and Armenian economy grow, it is nevertheless important to keep one's word, to uphold the law and it should not be forgotten that Armenia has made a choice when it decided to break the international law and illegally occupy its neighbor's territory, while ethnically cleansing those lands. It made a further choice to ignore all the appeals by the international community and restore the status quo. Azerbaijan and the international community are not asking for any sacrifice or present -- simply return what does not belong to you in the first place, even if it is destroyed and ravaged and you will not be asked to pay for all those damages.

Moreover, Armenia made a free choice to aggressively pursue the charges of genocide around the world, and trying to undermine Turkey every step of the way, whether it is in the US Congress, membership in WTO, EU prospects or OSCE conference in Istanbul. Finally, as this article shows, both the official and gray trade between Armenia and Turkey exists, with many barriers weakened by Turkey over the years one-by-one in fruitless hope of appreciation and reciprocity on the part of Armenia. Furthermore, as trade statistics reveals, the neighboring pro-Western Georgia is amazingly not even one of the largest trading partners for Armenia. And low trade with the West, while higher trade with Russia and Iran are not indicative of any geopolitics, but are an example of real economics -- Armenian economy needs cheaper goods and it is easier to attract investments from its neighboring Iran, and Russia with its large and wealthy diaspora. In the event of border opening, the trade and other links with Iran and Russia would hardly diminish.

As of the insurance against war -- neither Armenia, nor any other state in the region are liberal, Western-style democracies yet, and even then, an embargo is meant to be one of the most effective sticks in the hands of a democracy aimed at averting a military conflict yet punish the offender --this is why the United States, for one, is the most active user of the trade sanctions. In addition, the international law was developed primarily by Western democracies and exists for one clear reason -- to be followed and abided by. As soon as one violates it, a negative precedent is set and others follow suit. To be considered a democracy, one has to follow the basic rules and international laws. This is an absolutely important precondition that must be fulfilled.

The issue of border opening is without a doubt one of the most important aspects of Turkish-Azerbaijani relations - every single Azerbaijani cares about this issue, and expects Turkey to keep its word. It would not be an exaggeration to state that if the borders status as being closed is weakened any more than it already was since 1995, it would irreparably damage the bilateral relations. It would be correct to state that due to the mess in this issue, there is already some disillusionment between the two states, which as a boomerang is damaging the trade and economic relations. As this article will show, with grossly exaggerated financial gains being too slim to make a big difference, it should be no problem for the Turkish government and Turkish people to keep the border officially closed until at least Armenian aggression and occupation is ceased (that is because it is impossible that Armenia would ever truly stop genocide charges to satisfy the other two preconditions).

Border opening: economic motives and financial incentives?

The World Bank Study

The true economic benefits of opening border with Armenia are speculative at best, and grossly exaggerated as worst. Usually, when there is any issue of such importance on the table, independent or government-sponsored think tanks and research institutions, whether in Turkey, EU or USA, conduct comprehensive studies and present thorough reports, with concrete facts, figures and data. Strangely enough, for more than a decade now, no such reports have been presented, with the exception of just one from the World Bank.

In 2000, during the intense peace-talks between the presidents of Azerbaijan and Armenia, the World Bank commissioned a series of studies of transport, trade and telecommunications infra-structure in the three South Caucasus states, and to show the positive side of peacemaking through the prism of the economy. The U.S., EU and IBRD promised some $1 billion for the development of the region should it end the conflicts and come to a permanent peace. The six studies looked at current issues and future prospects in the region for trade flows, trade facilitation, roads, railroads, telecommunications and tourism. The basic premise of these studies is that for the region as a whole, the major economic benefit from a peace settlement will come from the benefits of trade. Yet even as the WB itself admits:

"A common theme emerging from these six studies is that closed borders, blockades, and war-damaged infrastructure provide only a partial explanation for the dramatic drop in exports of the three countries.

Even in areas where no serious political obstacles to commerce exist, there are institutional, bureaucratic and structural barriers to trade that will need to be lifted, before trade will expand and the countries can reap any substantial economic benefits from a re-opening of borders. To quote Trade Facilitation in the Caucasus: "In the long run a peace settlement will only generate widespread and sustainable benefits, if the institutional and physical milieu is sufficiently supportive. The realization of these potential benefits appears highly unlikely, at present, as the current institutional and physical milieu is anything but supportive and offers few incentives for new development."

This report has been widely used by Armenian propaganda, in the U.S. Congress and EU, putting pressure on Turkey to open the border completely, since that would help to offset the damaging impact of Turkey's and Azerbaijan's dual embargo, estimated by the World Bank at up to $720 million a year. Contrary to logic, the potential dollar benefit to Turkey is never advertised, whilst the benefit to Armenia vary wildly, thus making the projections - and intentions - highly suspicious.

However, as always, several very important facts and points were omitted, grossly misinterpreted and deliberately selectively quoted out of context. First, as the World Bank itself makes clear, all its figures and projections are highly hypothetical. Prognosis of economic potential and financial benefits is in general an ungrateful thing to do, as it is almost always wrong. Throughout the late 1990s and 2000s, several studies by major think tanks were commissioned about the Caspian, and specifically Azerbaijani, oil and gas, and the viability of the Baku-Ceyhan Main Export Pipeline (BTC MEP). Time and time again all those studies predicted that the BTC MEP is financially unfeasible, economically unjustified, unprofitable and geostrategically not as important .

Many of those seemingly authoritative and usually trustworthy sources were Armenian-inspired and headed, such as the Petroleum Finance Corporation (PFC), Platts News, The James A. Baker III Institute for Public Policy at Rice University, Petroleum Institute at the University of Southern California and others.

Those biased studies did not withstand the test of time - there are indeed large deposits of oil and gas in the Caspian, its export already brings significant profits, energy prices will remain high, the Baku-Ceyhan is being built and already 75% complete, oil through it will flow in mid-2005, gas will be shipped by the end of 2006, and bring a windfall of revenues and profits.

Second, the World Bank made clear that the border has to be opened by both Turkey and Azerbaijan for its projections to be even minimally correct. Obviously, Azerbaijan cannot have normal trade and economic relations with an aggressor country, which holds 16% of its lands occupied and damaged infrastructure. All such relations can commence only after the conflict is settled in line with international law and territorial integrity of Azerbaijan.

Third, the World Bank acknowledges that the full economic benefit of free trade would come only after the conflict settlement - thus, even if one is to open the borders today, it will be not until the complete peace deal is signed, infrastructure rebuilt and confidence reestablished that the WB projections are met. And if any recent history in Afghanistan and Iraq taught us anything, is how hard it is to rebuild the economy.

Fourth, it is further admitted above that closed borders, embargo/blockades, and war-damaged infrastructure are only one part of an explanation for decreased trade between the countries. Another major hindrance to increased trade are institutional, bureaucratic and structural barriers. Before these are dealt with as well, no "substantial economic benefits from a re-opening of borders" can be enjoyed. It would seem only logical that these are dealt first, before the border is actually open.

Fifth, the World Bank study showed that all the neighboring states would benefit, not just Armenia and, for example, Turkey. Thus, if Azerbaijan, a dwarf when compared to Turkey in terms economy, decides to make a principled stand and put moral and political considerations in keeping the border closed above potential economic and financial gains, it seems Turkey should be able to sustain the same posture.

Sixth, since the publication of the study, a lot of regional transportation developments, bypassing Armenia, have been established or are considered, linking Russia with Iran through Azerbaijan and Turkey with Azerbaijan through Georgia (instead of through Armenia, as was in Soviet times). Armenia's rail link to Russia, its principal strategic partner, depends on the unsettled conflict in Abkhazia, where just like in Karabakh, situation is escalated and possibility of military action a reality. Needless to say, with this and the fact that both oil and gas pipelines bypass Armenia, there remains very little Armenia can benefit from as a transit country, as it offers no comparative advantage.

Thus the study, done in 2000, is obsolete and its figures of perceived economic benefits exaggerated, as later evident from official statements by Minister Oskanyan, who operates with substantially lower estimates. One needs to keep in mind that the largest trading partners of Armenia generally are Iran, Belgium, UAE, Germany, Israel, Russia, the United Kingdom and the United States. Thus, from neighboring countries only Iran makes the list, whilst Georgia, with which it has a Free-Trade Agreement, and through which a lot of illegal, cross-border and grey trade with Azerbaijan and Turkey occurs, does not even make the list. So if the border with Georgia is open, a free-trade agreement is present, a sizeable ethnic Armenian population is living there and two of the four neighboring countries enforce an economic and trade embargo, why is the trade turnover between Armenia and Georgia so low?

Regional economic comparison

It is doubtless that trade with Georgia was, is and will remain to be very important to Armenia.

Currently, most land traffic and cross-border trade goes though Georgia. Perhaps, after including all the unaccounted black- and grey-market trade, the true figures of trade turnover between the two countries would make Georgia a principle trading partner. Then it creates another dilemma: if this is to stop - and opening the borders would certainly greatly reduce Georgia's attractiveness to Armenian businesses - that country will lose, its economy get weaker and the delicate balance upset. It could be stated that after opening of even one of the borders, every dollar invested or paid to/from Armenia directly is a dollar away from Georgia's pocket. Georgia is an ally country to both Turkey and Azerbaijan, and must be supported during its fragile post-"revolution of roses" period.

The rest of major trading partners for Armenia are located far away from its borders - for example for the first two months of 2005 the situation was as

follows: USA (5% of exports), Germany (21%), Israel (13%), Belgium (15% of exports, and 12% of imports), Switzerland (8%), Netherlands (11%), UK (8% imports) and UAE (5% imports) [Source: Armenia this week, April 25, 2005]. For example, in 2002, total U.S.-Armenia bilateral trade amounted to just $134 million. The trade turnover between Russia and Armenia was only

$128.4 million in January-November 2002, of which around $50 million was the share of the city of Moscow. By 2003-2004 it made a modest increase to just under $200 million, which raised even displeasure of the Russian PM Fradkov during his meeting with Armenian PM Markarian.

In comparison, Georgia's principal trading partners in

2001 (with their respective shares of total trade

turnover) were: Turkey (17.3 percent); Russia (16.4 percent); Azerbaijan (8.3 percent); Germany (7.7 percent); Ukraine (6.1 percent); United Kingdom (4.8 percent); Turkmenistan (4.6 percent); and The United States (3.7 percent).

Similar trends are true for Azerbaijan, which among its chief trading partners (over 5% of total turnover) counts Georgia and Turkey, with projected for 2004 total exports amounting to $2,6 billion, and total imports to $3 billion. Over the next decade, Azerbaijan, due to the Baku-Ceyhan and Baku-Erzerum oil and gas pipelines, will be experiencing a spectacular economic boom, which will have a positive spillover effect on all of its friends and allies, such as Georgia and Turkey.

All the countries of the region, including Armenia, are given a chance to see the trade benefits from broader multi-dimensional regional initiatives like the "Silk Road", under restoration now, and complemented by the EU-sponsored TRACECA (Transport Corridor Europe Caucasus Asia) initiative, which includes the five Central Asian and three Caucasus republics. EU goals are to link the East-West transport corridor to the Trans-European Corridor.

Additionally, there is the Black Sea Economic Cooperation (BSEC) and GUUAM, the group of four countries (Georgia, Ukraine, Azerbaijan, and Moldova), the energy corridor East-West and the transportation project North-South which is to compete with the Suez channel for cargo to be delivered faster and cheaper from Europe through Russia, Azerbaijan and Iran and back.

The main battle right now is for the railroads and Iran

With renewed mutual interest to the trade and economic relations with Iran, Azerbaijan and Turkey are well positioned to maximize the gains. With the successful visit of Turkish PM Erdogan to Iran, a new page has been opened in the relations between the two countries, and economic relations having good prospects, in particular regarding the negotiations concerning Iranian gas.

The recent high-level exchange of visits between Iran and Azerbaijan, culminating with the official visit of President Mohammed Khatemi to Baku in August 2004, during which inter-state agreements on roads, railroads, gas and electricity were signed, with the acceleration of the following concrete regional

projects:

1) Iran's Export Development Bank extended a $75 million loan to improve the power grid in the Azerbaijani exclave of Naxcivan;

2) Azerbaijan, in turn, has expressed support for Iran's participation in a transit system connecting Europe and Asia, known as TRACECA;

3) The construction of a tripartite railway and road network, involving Azerbaijan, Iran and Russia, named as North-South project, was agreed upon, with the creation of the consortia planned in September and costs estimated at about $600 million.

Furthermore, Russian energy monopoly RAO UES is interested in supplying electricity to Iran through Azerbaijan - and to Turkey. Additionally, the completion of the Baku-Tbilisi-Akhalkalaki (Georgia) - Kars with possible continuation to Europe, is of great importance to the regional economies. On 25 May 2005, the presidents of Turkey, Georgia and Azerbaijan signed a declaration on the 98-km railway, at a cost of $400 million.

Trade with Armenia today

Meanwhile, contrary to popular beliefs, official foreign trade between Armenia and Turkey is alive and well. Armenia exported $1.130 million to and imported

$33.756 million from Turkey in 2001, according to the official figures from the trade balance of the Republic of Armenia.

By 2004, all media, experts and government officials estimated the trade turnover to be $120 million. It is unlikely that this figure has a real potential to increase significantly, since even with Russia, the biggest partner and asset-holder, Armenia has only some $200 million trade turnover, whilst with the U.S., the biggest economy in the world and a fellow WTO member state, where Armenia has special trade treaties with some of the states such as California, the turnover was only $134 million? It is also notable that total Armenian trade turnover, its total imports and exports, amounted in 2004 to only just over $2 billion. This is several times less than either Azerbaijan or Georgia, or any Turkic state in Central Asia.

Thus, the prospects of hundreds of millions, billions of "Armenia" dollars that would flow to Turkey - or any other country - on annual basis, are hollow and greatly overstated. One needs to look at Turkish trade turnover with Georgia - or even with Azerbaijan or its exclave of Naxcivan - to make an accurate and logical conjecture about the potential of trade with Armenia.

Instead of chasing hollow benefits, it is better to at least preserve the trade turnover with those with proven and real capabilities. Unfortunately, in part due to the negative propaganda incited by the foes of Turkey and Azerbaijan, the turnover between the countries has decreased, according to Ahmet Erentok, the leader of the Union of Turkey-Azerbaijan businessmen (ATIB), from $457 million to around $300 million (Zaman, 19 August 2004). However, during the visit of President Ilham Aliyev, an ambitious, but realistic goal of doubling the trade turnover was put - much like was done with Russia and Iran. As is with Russia, Azerbaijan wishes to have approximately $1 billion in trade turnover with Turkey, which taking into the account the booming economy of Azerbaijan, will be achieved in two years time. This is a realistic projection based on solid facts, and can be achieved if the border with Armenia remains closed.

Armenian economy and its true potential

Armenia's population is shrinking dramatically, officially at 3,2 million and unofficially at just around 1,5-2 million people, its purchasing power increasing very slowly, with lack of hard currency to buy Turkish goods apparent. Meanwhile, Armenian economy found ways to cope with trade sanctions and embargo, thus the effect of lifting the Turkish embargo would bring too little of a benefit to Turkey.

Moreover, according to the World Bank, the Armenian population is getting older and thus will be depending on low fixed-income, such as pensions and government subsidies, severely limiting their ability to purchase consumer goods from Turkey - or afford new Turkish-built apartments and offices.

Let's take a brief look at the structure and potential of Armenian economy. All oil and gas and other fossil fuels, Armenia's biggest import, gets from Russia and other CIS countries, something Turkey can never replace. It is self-sufficient in electricity generation, and in fact exports small surplus of it since 1996 to Iran and Georgia. Its major produce and export are fruits and vegetables and other agricultural products and foodstuffs - which are hardly needed in Turkey, rich in its own agricultural products, with the remaining imported from Georgia and Azerbaijan, leaving Armenia no place. Its heavy machinery, equipment, tools, other industrial products and weapons are from Russia and the CIS, as well as major WTO trading partners. Tourism development has very little potential in Armenia, and would hardly benefit Turkey long-term to raise a competitor in its backyard. Neither are Armenian hi-tech products of great interest - or its cheap labor.

The only commodities that can and do present limited interest to Turkey, are tobacco, diamonds, construction stones, and mineral products. Aside from diamonds, all of the above is abundant in Azerbaijan, as well as Turkey itself. So what remains, where does Turkey fit in? As we can see from this brief overview, the potential is slim and unimpressive.

Armenia's government constantly declares it is building an export-led economy, thus being interested in exporting more than importing. Thus, it can be argued that it would be Turkey flooded with cheap Armenian labor, grapes, wine, cognac, produce, electronics and other IT-products. That would leave little room for Turkish exports or benefits to the local economies of the Turkish regions bordering with Armenia.

The true benefits, amounting to hundreds of millions of dollars in revenues, to Armenia's economy can be brought only through participation in large-scale projects, such as the oil and gas pipelines carrying Caspian (Azerbaijani) energy. When Armenia was made a more than generous offer of laying the pipelines through its territory along with complete restoration of trade, economic and diplomatic relations with both Azerbaijan and Turkey in exchange for peacefully returning even part of what historically and legally belongs to Azerbaijan in the first place - six of seven occupied regions outside of Karabakh, with the status of Karabakh and the road through the remaining district of Lachin to be determined at a later stage -and thus allow the return of some of the refugees and rebuilding of the war-damaged infrastructure, Armenia refused. This was the second most shortsighted and unwise decision made by the government of Armenia - first being the aggression against Azerbaijan, ethnic cleansing and occupation of its territory.

As it becomes clear, Turkey stands to gain much more through increasing trade with the truly oil-booming economies of Azerbaijan, its blockaded region of Naxcivan, and with Georgia, than with shrinking and stagnant Armenia, that lives on foreign aid (currently, some 11% of its GDP) and on ripping Azerbaijani natural resources on the occupied territories (mineral water, gold and other metals, wood, airwaves, as well as cultivation of narcotics and terrorist training camps). Every dollar invested into Armenia without strings attached currently fuels further groundless claims and occupation, whilst investment to Azerbaijan and Georgia, along with other Turkic countries, creates economic growth, prosperity and more economic opportunities with positive return on investment.

Conclusion

The border was originally closed for a reason and a purpose in mind, with the three preconditions for reopening of the border set forth clearly. None of the preconditions have been satisfied by the offender, while grave violations of international law continued and unfounded claims carried on, especially on the grassroots level, where deep hate against anything and everything Turkish is encouraged and has been deeply rooted in the psyche. With such obvious obstructionism and clear-cut ignorance of all the opportunities and olive branches, Turkey should not make a unilateral and defeatist move to open the border - it would be morally wrong, psychologically self-defeating while breathing fresh life into the motives of the aggressor, and economically unjustified. Most of all, it will be detrimental to the future status of Turkey among all Turkic nations and Georgia, and will be most damaging, including economically, to the relations with Azerbaijan.

With Armenian economy being too small and its population shrinking and ageing, with its trade turnover with all regional countries known and reflected in the official statistical figures, all of the perspective multi-million trade and transportation projects bypassing it, the hypothetical projections of a windfall of hundreds of millions of dollars from the Turkish border opening are outdated and hollow at best. Moreover, as the WorldBank correctly estimates, it takes two to tango - i.e., Azerbaijan, too, needs to open its border with Armenia, which will never happen until the Armenian-Azerbaijani war is finally settled within realm of international law and the territorial integrity of Azerbaijan inviolable.

What Turkey needs to do is galvanize its pressure on the international community and Armenia to comply with the UN Security Council resolutions, namely, cease the occupation and allow the return of all the refugees, which in turn would allow the rebuilding of all infrastructure and communications, and open the borders. Many factors allow to make a reasonable prediction that the Karabakh conflict will be settled in several years time, thus one last push is needed and the common position of Azerbaijan and Turkey is crucial to the success of the peace deal. If the border gets opened unilaterally, it will either delay the peace deal - or push Azerbaijan into the corner.

The latter is what the Armenian policy makers strategize and wish for, by carrying out a strategy to drive a wedge between the two brotherly states -without understanding that such a "victory" would be Pyrrhic, and Azerbaijan would never reconcile with a forced-upon peace deal in which it is coerced to give up even a small part of its territory. The Armenian-Azerbaijani war is either settled for good, based on international law and territorial integrity, or it will rage in the future again.

Even more important is for Turkey not to allow itself be fooled by the hollow prospect of imaginary profits in trade with Armenia, but instead to develop and cultivate its relationship with its natural and true allies elsewhere in the CIS, with Georgia, and above all with Azerbaijan. With Baku, the goal of doubling the trade turnover to nearly one billion USD in the near perspective is realistic, whilst there is no reason why a higher goal could not be achieved - after all, Azerbaijani economy is truly booming and being modernized, reformed, with GDP set to double in the next four years, and with rapid economic development being the number one campaign promise of the current president, a promise most observers believe he is on track to achieve.

Most importantly, such leadership by example on the part of Turkey vis-à-vis refusal to bow to the pressure and intrigues to unilaterally open the border, would send the best signal yet to Armenia that it needs to clean up its act and act responsibly, if it wants to be trusted by its neighbors. The sooner Armenian government will realize that its illegal occupation of Azerbaijan and unfounded claims towards Turkey have brought nothing more than arrested development for its people and damaged its country, and no scheming and machinations would ever replace true good-neighborly and partner relations based on sound economics and peaceful coexistence.