Armenia-Iceland Trade Barriers and Prospects Of Trade Relations Development: Perspective from Armenia

Introduction

According to the official data presented by the Foreign Ministry of Armenia, the trade between Armenia and Iceland has been facing a relevantly consistent low volume throughout years, despite the absence of substantial trade barriers between these states (MFA, 2023). Moreover, the government initiatives aimed at empowering sectors of the economy such as agriculture or IT appear to have caused  a small impact on the increase in the figures of trade between actors of the aforementioned parties. The lack of centralization of the private sector indicates the increasing role of private enterprises in the development of interstate trade. Nevertheless, without the government-supported initiatives to encourage trade, the private sector does not generate major activities in this domain. The lack of designated barriers that would hinder trade between Armenia and Iceland, the research proposes a possibility that the private sector lacks understanding of foreign markets. The lack of government efforts to encourage trade in this particular region and the historic inactivity between interstate trade in this context fortifies the aforementioned claim. 

To support the claim, there was a previously conducted analysis to identify the ongoing issues that the Armenian businesses face in the operations related to export and trade outside of Armenia. The data will be used to facilitate the arguments made in the upcoming sections. The current research focuses on the interstate trade and economic cooperation aspects between Armenia and Iceland. Being a part of an “Armenia-Scandinavia Trade” research project, this particular piece of research sheds light on three important points of interstate relations in the trade domain.

1. The existing settings and environment of the relations. This implies exploration of political conditions, international agreements and participation in international organizations.  

2. The overview of non-tariff barriers, non-tariff measures and technical barriers to trade relevant to Iceland. Application of such conditionalities to the Armenian private sector.   

3. Prospects of trade development based on the increased cooperation in the private sector with policy facilitation and complementary activity of the public sector.

Taking into consideration the aformentioned goal of the research, the main question posed to be answered is: What are the main barriers of increase in trade between Armenia and Iceland? 

The hypothesis offered for this research is as: Lack of intensification of the private sector by the government and public sector. Lack of assistance in the procedure of standardization of the business operation prior to the foreign market entry. Uncertainty in the information on NTB, NTM, TBT and the prospects of overcoming the latter. 

This research is an overview of the existing conditions, which implies that separate aspects of the topic may require more in-depth and separate examination in scope of individual research.   

Historical dynamics of trade/economic interstate relations

As mentioned in the earlier chapter, the lack of any meaningful international efforts, such as sanction, are absent in regards to the interstate trade between Armenia and Iceland. It is, however, important to also assess the positive aspects that enable the trade between the parties. 

Political conditions

The main aspect of this analysis is the political environment under which the markets of Armenia and Iceland operate. Underneath, the research identifies the common international agreements and organizations that both Armenia and Iceland are parts of. 

International agreements and Participation in common organizations

Out of 18 international organizations that Armenia is part of, Armenia and Iceland are commonly participating in 11 organizations, with the majority of them being United Nations agencies (MFA, 2023).

• Council Of Europe

• European Union Food And Agriculture Organization

• International Committee Of The Red Cross (ICRC)

• International Organization For Migration

• North Atlantic Treaty Organization

• Organization For Security And Cooperation In Europe

• United Nations Children’s Fund (Unicef)

• United Nations Educational, Scientific And Cultural Organization (UNESCO)

• United Nations High Commissioner For Refugees (UNHCR)

• United Nations Industrial Development Organization (UNIDO)

• United Nations Organization World Intellectual Property Organization

  
  

The peculiarity of the list of the common organizations that both Armenia and Iceland are parts of, is their nature of universality and humanitarian characteristic. In contrast to such modality that the common organizations carry, regional organizations that Armenia is part of such as the Eurasian Economic Union or the Black Sea Economic Cooperation, are more focused on the facilitation of regional economic and trade cooperation. 

The application of the aforementioned information on the data previously gathered through interviews with the private sector representatives, a claim can be formed, that the private sector, especially the small and medium enterprises, commonly find benefits from the smaller-scale regional organization, which facilitate informational, legal and regulatory transparency to the parties intending to engage in transnational trade activities. A particular case can be the issue with logistics and transportation that countries with no substantial history of transnational trade face. Being a major issue that the interviewees of the previously conducted research indicated, it is also considered to be a major barrier that parties in the region tackle. In this regard, organizations that provide such transparency in key bureaucratic activities for businesses are highly valued.  An example of such organization is Transport Corridor Europe Caucasus Asia (TRACECA), the officially stated purpose of which is to inform, facilitate and promote logistical availability to the participant states. It is necessary to mention that the role of regional organizations should not be overestimated, as they do not carry major capacities of assistance and development, such as provision of foreign direct investments (FDI) in the scope of agreements and programs. On contrary, a claim can be made that certain types of regional organizations may carry a beneficial functionale in better optimizing and facilitating the assistance gained from international, major organizations.

Non-Tariff Measures 

Non-tariff measures (NTMs) are governmental actions that may have an economic impact on global commerce in products. They are affecting who trades what and how much, and they are progressively forming trade. NTMs provide a set of barriers for importers, exporters, and policymakers. Although the protection of the environment and public health is the primary goal of many NTMs, information, compliance, and procedural expenses have a significant impact on commerce.

In this regard, the Armenian market is required to adapt to a new set of standards, especially the smaller and medium-scale enterprises. A method to adapt to such requirements is the facilitation of a clear information channel that allows companies to incubate their operations into fitting standards that meet the rules and regulations of the circumstances in the given market. This is necessary not only for the universal compliance of the given rules and regulations by the market players aiming to engage in import and export operations in Iceland, but also for the establishment of a common ethic for adaptation to other regulatory frameworks.  

Non-Tariff Barriers

The main difference between the Non-Tariff Barriers (NTB) from the NTMs is their domestic market protectionist purpose against the foreign market entry operations. Non-tariff trade obstacles have been generally avoided by Iceland, while certain products—particularly in the agricultural sector—are subject to licensing restrictions. Certain items are subject to stringent sanitary and phytosanitary regulations; importation may also be prohibited or limited in certain circumstances. Although there is legislation governing contingency measures, no such measures have been employed since the World Trade Organization was founded. Iceland applied to become a member of the WTO Government Procurement Agreement in June 1998 and is now an observer. The procurement laws in Iceland are made in accordance with EEA guidelines. There are very few Icelandic standards, and Iceland's technical norms and standards are mostly based on those of the European Economic Area. Test results and certifications from other EEA nations are acceptable. 

It is important thus, to assess and identify the Armenian market and its conditionality in this domain. As mentioned in the earlier sections, the Armenian private sector operates under lesser informability and experience in the transnational trade sector. One of the reasons may be considered the low quantitative capacity of production of goods and services originated in Armenia. Nevertheless, due to the lack of optimized capacity that the majority of the Armenian private-sector enterprises face, the companies representing Armenia potentially pose lesser risk towards native production of foreign markets, making the protectionist approach towards the domestic production less applicable to the case of the latter parties. Moreover, the diversification of partnering parties from a newly introduced state, which poses lesser risk to the domestic market, opens possibilities for the enhancement of market safety in forms of diversification of international trade partners in a sense of mutual introduction to new types of goods and services, as well as an exchange of market insight for the lesser active regions in the domain of transnational trade.

Taking into consideration the above-mentioned, the Armenian market may offer a safer partnership framework, given the lack of expansionist capacity that may damage the domestic market, as well as offering a comprehensive insight on the regional trade in the South Caucasus and nearby regions, due to its relatively higher participation and activity in trade with partners of the aforementioned regions.  

Technical Barriers to Trade

Iceland has mostly embraced European product standards and laws since entering the European Economic Area (EEA) in 1994. Importers of various items have occasionally faced challenges due to the implementation of these new standards and the concomitant necessity to apply the CE marking to demonstrate that a product has satisfied EU consumer safety, health, or environmental regulations.

Iceland is a member of the international standards organizations International Electrotechnical Commission (IEC) and International Organization for Standardization (ISO), as well as the European Committee for Standardization (CEN), European Committee for Electrotechnical Standardization (CENELEC), and European Standards Organization (ETSI). This implies that the exporters must attach the CE marking to their products in order to sell them in Iceland and the EU.

Prospects of contribution of the interstate trade positive dynamic 

The interview results conducted with the Armenian private sector representatives suggest that despite the intention of engagement with foreign markets, the lack of informability in the realm of standardization of export procedures remains a major barrier. Moreover, Iceland, as a relatively lesser discovered market for Armenia, has its own procedural and regulatory specifics and barriers for the foreign market entry. 

While the provision of centralized channels of communication between the public and private sector for the sake of the establishment of transparency in import and export domain between Armenian and Iceland markets is not a sole solution that can address all active issues universally, it may appear as a solid foundation upon which other decisions and steps may be implemented. 

Armenia may potentially appear as a safe partner for such operations, given the small scale of private sector operating capacity for the majority of medium scale business enterprises. The latter implies lower perception of the need for the protectionist approach towards domestic production, goods and services in Iceland. Furthermore, in a sense of foreign market exploration and identification of prospects of new cooperation, Armenia may pose as a fitting partner for the exploration of the South Caucasus and associated regions overall, where Armenia has a historically large scale of import and export related operations. Same applies for Iceland and its role in the region as a country with which trade is more active in the region. 

Conclusion

In conclusion, the research underscores that the persistent low trade volume between Armenia and Iceland is not due to significant trade barriers but rather a combination of factors related to market engagement and regulatory adaptation. Despite the absence of formal trade restrictions, Armenian businesses face challenges in navigating the complexities of international markets, particularly those related to non-tariff measures (NTMs) and technical barriers to trade (TBTs). 

The lack of substantial government-supported initiatives to bolster private sector engagement in international trade exacerbates these difficulties. Armenian enterprises, especially small and medium-sized ones, often struggle with adapting to the stringent standards required by Iceland, which aligns closely with European Economic Area (EEA) regulations. This situation is compounded by a general lack of familiarity with foreign market conditions and regulatory frameworks.

Additionally, the research highlights that while both Armenia and Iceland participate in numerous international organizations, these memberships primarily serve humanitarian and universal goals rather than directly facilitating trade. Regional organizations, although helpful, do not fully address the specific needs of businesses facing logistical and regulatory challenges.

To improve trade relations, it is crucial for the Armenian government to implement more targeted support mechanisms for the private sector, including clearer information on regulatory compliance and better market access strategies. Enhancing cooperation and communication between the public and private sectors will be essential for overcoming these barriers and fostering more robust trade development between Armenia and Iceland.