Trade Across Asymmetric Alliances

This study focuses on the influence of intra-alliance trade-off between states of an asymmetric alliance on across-alliance trade. It is widely accepted in the literature that trade across a political-military alliance would bring to the disruption of those trade relations if they raise negative security externalities for the alliance. However this model works when both states of a political-military alliance receive security benefits from an alliance and the aggregate security position of an alliance is the sum of its members’ security. But what kind of outcome is expected when the alliance is formed between states of disparate material capabilities and, hence, provide different benefits for the states in the alliance? Why do states continue to trade with states that pose threat to their allies? Why have the negative security externalities generated by Armenian-Iranian trade brought about trade containment between these two states while the negative security externalities generated by Azerbaijani-Russian trade have not significantly influencedtrade relations between them?The accepted model in the literature has limitations in explaining asymmetric types of alliances where states receive different benefits from an alliance: large ally receives greater policy autonomy over the small ally, while the small ally receives security benefits. This paper argues that the negative security externalities generated by across-alliance trade in asymmetric alliances are mediated through the trade-off between autonomy and security benefits from an alliance, and not necessarily bring about trade containment. The negative security externalities are expected to bring about trade containment when concerning to autonomy benefits, while they would not have significant effect when concerning to the security benefits.We add the trade-off between security and autonomy benefits from an alliance for understanding the influence of asymmetric alliance on trade relations across the politicalmilitary alliance in the example of Armenian-Russian alliance in the South Caucasus. IranArmenia natural gas trade and Russia-Azerbaijan arms trade are examined from the perspective of their influence on the Armenian-Russian alliance and vice versa.In Chapter 1 “The autonomy-security trade-off and across-alliance trade: Theoretical framework” the theoretical framework is developed to study the influence of autonomy-security trade-off on across-alliance trade. We argue that the trade-off between security and autonomy benefits from an alliance should be added for understanding the influence of asymmetric alliance on trade relations across a political-military alliance. We develop two hypotheses to ascertainthe role of security-autonomy trade-off on across alliance trade by proposing that first, security externalities matter differently for dyads of an asymmetric alliance due to different benefits received from the alliance and different material capabilities, and, second, trade across asymmetric politico-military alliances would generate different security externalities for the dyads of an alliance thus bringing different outcomes in trade relations with third states-containment or non-containment.Then we elaborate the methodology and main concepts used in the research. In theoretical terms, this study shows how the system-level variables in the form of a politicalmilitary alliance bring to different international political outcomes when they concern to specific(asymmetric) type of alliances. Asymmetric alliances refer to the types of alliances in which one partner receives autonomy benefits and the other, security benefits from the alliance as opposed to the capability aggregation model where both allies receive security from an alliance. International trade influences the security levels of states engaged in it differently from symmetric alliances to asymmetric ones: if trade influences the security levels of allies of a symmetric alliance negatively, it is likely to bring to trade containment as the main benefit from the alliance is security while the outcome in case of asymmetric alliances where allies receive different benefits(autonomy and security) is not that straightforward. Both trade-containment and non-containment can be observed dependant on the trade-off between allies.As case we have taken the trade across Armenian-Russian with third states during 2000s-2014 in the South Caucasian region. This study attempts to show how the disparities in material capabilities in Armenian-Russian alliance mediated through the benefits received from the alliance, brought to different outcomes in the trade relations of Armenia and Russia with Iran and Azerbaijan.In Chapter 2 “Armenian-Iranian natural gas trade: Trade containment” a correlation between Armenian-Russian alliance and the containment of Armenian-Iranian trade is displayed as a consequence of different benefits received from the alliance. The energy trade between Iran and Armenia and its influence on Russian interests in the region is viewed. Two factors of the trade of energy resources between Armenia and Iran influenced the autonomy benefits of Russia received from the Armenian-Russian alliance: the possibility of transformation of Iranian gas into European markets and the growth of Iranian share of Armenian natural gas market. The influence took place in the following form: in the case of transportation of Iranian natural gas into European markets, Russian understanding was that Armenia(Russian ally) should not engaged into trade relations that would appear to be harmful to the Russian interests in the region. These demands from the Armenian side are perceived in terms of autonomy benefits. As Morrow notes, a major power could form an alliance with a minor power that reduces its security but raises its autonomy through concessions made by the minor power to secure the alliance. “These concessions could include military bases that provide strategic location for the projection of power or agreements that allow the major power to intervene in the minor power’s domestic politics in the future. Deals between major and minor powers are natural in this situation: the minor power will make autonomy concessions to the major power in return for the security the major power can provide”. These concessions may include also changes in minor power’s positions on international issues.The asymmetric structure of the alliance implies that Russia controls certain policy options for Armenia at the expense of providing security benefits in the form of political military alliance.The possible share of Iranian natural gas of the Armenian market is defined in terms of autonomy benefits, too. Armenia would expand its policy options under the diversification of natural gas supplies which are of course reducing the autonomy benefits received by Russia.Hence the trade relations between Armenia and Iran had potential to significantly change the status quo within Armenian-Russian alliance by reducing the autonomy benefits received by Russia. Under the possibility of changing status quo, states of an asymmetric political-military alliance have two policy options: to prevent the change of status quo or change the initial obligations. Under current tense political situation in the region, alteration of the initial obligations of the Armenian-Russian alliance seemed to be harmful to both parties’ interests. Thus the negotiations took place in the direction of minimizing the effects of the new factor(Iranian-Armenian natural gas pipeline) over the Russian interests.In Chapter 3 “Azerbaijani-Russian arms trade: trade non-containment” we view how the structural variable in the form of alliance has not influence the across-alliance trade relations in the form of Russia-Azerbaijan arms trade. We show that the common alliance with Armenia has not significantly influenced the Russia’s arms exports into Azerbaijan thus indirectly posing threat to Armenia. Armenia and Azerbaijan are in a warlike situation with only a fragile ceasefire achieved and with ceasefire violations increased by 130 percent in the period of 2013-14. Armenian government has multiply expressed its concern over Russian arms-trade to Azerbaijan. The aggregation model of alliance would predict arms trade containment between these two countries because the security of the alliance is the mechanical sum of allies security levels and thus allies would not trade with the enemies of their allies. Therefore, the power-aggregation model does not explain the continued arms trade between Russia and Azerbaijan. The autonomy-security trade-off model assumes that as long as the major ally receives autonomy benefits from an asymmetric alliance, the security of the small ally is important to the degree that does not alter the autonomy gains from the alliance. The arms trade between Azerbaijan and Russia can be explained from the perspective of autonomy-security model arguing that the arms trade doesn’t alter the autonomy benefits received by Russia from Armenian-Russian alliance.Then, a model based on the Armenian-Russian across-alliance trade outcomes is developed considering the theoretical framework outlined in the Chapter 1. The model displays a variation across trade outcomes according to the benefits it concerns. ArmenianIranian trade raised negative security externalities for Russian side defined in terms of autonomy benefits and thus brought to trade containment. While the negative security externalities generated by Russian-Azerbaijani arms trade defined in terms of security benefits have not significantly influenced trade relations between these countries. The security of the small ally has little to add to the aggregate security of an asymmetric alliance. From the perspective of the major ally it’s important to the extent that gives opportunity to enjoy the autonomy benefits from the alliance. Thus, the trade relations that can bring to the reduction of the autonomy benefits received from an alliance is supposed to be contained: while they will not have significant effect if they concern to the security benefits.The analysis of Iran-Armenia gas trade and Russian-Azerbaijani arms-trade proves our hypotheses about the correlation between security externalities and variation in benefits received from an asymmetric alliance and the influence of this correlation on acrossalliance trade relations.