Prospects and challenges of deeper economic cooperation between Moldova and the EAEU

_ Yuri Kofner, director, Center for Eurasian Studies, research fellow, IIASA. Moscow, 14 August 2017.

Introduction

On April 3rd, 2017 the Chairman of the Board of the Eurasian Economic Commission Tigran Sargsyan and the President of the Republic of Moldova Igor Dodon signed in Chisinau a Memorandum of Cooperation and Understanding. [1] At the following summit of the Supreme Eurasian Economic Council in Bishkek on April 14th, 2017 Heads of the Member States of the EAEU welcomed the intention of the Republic of Moldova to obtain observer status at the EAEU and instructed the Eurasian Economic Commission to develop and submit to the next session of the Supreme Eurasian Economic Council a position paper on the status of an observer state. [2] At the same time, from September 1st, 2016 Moldova is an associate member of the European Union .[3]

In this regard Eurasian and European think researchers should discuss the following issues: the current status and potential deepening of trade and economic cooperation between Moldova and the EAEU; the essence of the provisions of the Memorandum of Cooperation and Understanding between Moldova and the EAEU, as well as of the "observer state" status; potential forms of cooperation or integration between Moldova and the EAEU (FTA, FTA +, a trade and economic partnership, joining the EAEU); the domestic political context both in Moldova and in Europe; prospects for deepening trade and economic cooperation between Moldova and the EAEU within the concept of an "EU -EAEU common economic space".

Trade statistics

In 2015, 22% of Moldovan exports went to the Eurasian Economic Union, compared to 62% export to the European Union. Most of the Moldovan exports to the EAEU flow to the Russian Federation (12%) and Belarus (7%). Ther has been very little export to Kazakhstan (3%) and no exports at all to Armenia or Kyrgyzstan. Almost half of the imports to the Moldovan Republic came from the European Union (49%) and only 16% were imports from the Eurasian Union, mostly Russia (13%). [4]

The share of exports from Moldova to the Eurasian Union decreased from 37% in 2012 to 22% in 2015, whereas the share of the European Union increased from 47% to 62% during the same period. The share of goods imported from the Eurasian Union into Moldova decreased from 19% to 16%, whereas the share of EU goods delivered to Moldova increased from 44% to 49% from 2012 to 2015. [5]

In 2016, the top 10 export goods from the Eurasian Economic Union to Moldova were: oil products (79,9%), nitrogen fertilizers (23,2%),  mixed mineral fertilizers (20,7), medicines (15,6). At the same time, the top 10 goods imported from Molfova to the EAEU were all agricultural products: apples, pears, quince (74,3%), natural grape wines (40,0%), apricots, cherries, peaches, plums, tern (38,6%),  fresh or dried grapes (36,3%). [6]

Competing integration or "integration of integrations"?

Here, I would like to share my personal view on the correct approach to the "integration of integrations".

Firstly, strengthening of trade and economic cooperation between Moldova and the EAEU should not be perceived as a "zero sum game", but rather as conceived within the wider concept of a common economic space from Lisbon to Vladivostok.

Secondly, as long as Brussels does not recognize the international legal personality of the Eurasian Economic Union, the Eurasian side might not necessarily chase after a "mega deal" between the European and Eurasian commissions, as proposed by Evgeny Vinokurov, director of the Center for Integration Studies, Eurasian Development Bank. [7] Rather, a potentially successful experience of cooperation of the smaller Eastern European countries, such as Serbia, Georgia and Moldova, both with the EU and the EAEU, may pave the way for an agreement between the two unions in the future, as proposed by his colleague Yaroslav Lisovolik, chief economist, Eurasian Development Bank. [8]

Third, I propose the creation of a trilateral commission consisting of the representatives from Moldova, the EAEU and the EU for conducting consultations and to find a mutually beneficial format of cooperation.

According to a study published in 2016 by the German IFO-Institute (Munich), Moldova would significantly benefit from the combination of the EU and CIS free trade zones. In the case of such a scenario, real GDP per capita of Moldovan citizens would grow by 6.3% (98 euros per person), revenues would go up by 6.9%, while inflation would fall by 2.8%.  Garment manufacturing, agriculture and retail trade would be among the sectors of the Moldovan economy that would benefit the must from such a scenario. [9]

Legal framework

Next we have to briefly sum up the legal framework for economic cooperation between Moldova and the EAEU.

Thus, the Association Agreement between the European Union and the Republic of Moldova (2014) does not exclude the possibility of creating a free trade zone between Moldova and third parties. However, any such initiative must be approved by the European Union (article 157; nr. 2, nr. 3 of article 437;  nr. 4 of article 438 of the Agreement). [10]

At the same time, the Treaty on the Eurasian Economic Union (2014) provides for the possibility of establishing free trade zones between the EAEU and third parties (article 7 of the Treaty), and does not prevent the Member States of the Union to sign other international agreements, as long as they do not contradict the purposes and principles of the Treaty (article 114 of the Treaty). [11]

Policy recommendations

Now, I would like to go into the details of the prospects and challanges of deeper economic cooperation between Moldova and the EAEU.

The FTA between Moldova and the EU is "deep and comprehensive" in character, which implies that Moldova takes over the EU's normative regulation in many areas of tariff regulation, sanitary and phytosanitary measures, energy, banking regulation, etc., despite not being a member of the European Common Market,

On the other hand, the all the EAEU states are part of the CIS free trade area with Moldova, which creates favorable conditions for trade and economic relations. Therefore, in terms of "integration of integrations" it is advisable to think about the combination of two free trade zones - the EU DCFTA and the CIS FTA. This was the topic of recent negotiations between vice-premiers Rogozin (Russia) and Kalmyk (Molfova) in 2016 as part of the bilateral commission on trade and economic cooperation.

Thus the most realistic scenario looks as follows: the most favored nation treatment, which Russia introduced against Moldova in 2014, will continue (which is an exemption from the CIS FTA), yet phytosanitary and veterinary restrictions will gradually be removed. The prerequisites for the removal of restrictions would be both the solution of purely technical issues (improvement of the phytosanitary and veterinary control system in Moldova, as well as the improvement of Moldovan product quality, close cooperation in customs), as well as favourable political factors. [12]

In the political sphere the results of the parliamentary elections scheduled in Moldova for autumn 2018 will play a crucial rule. As a result the Socialist Party could increase its influence in Moldovan politics and redress some of the most deteriorated elements of Russo-Moldovan relations.

For Moldova in relation to the EAEU the task at this point is to make full use of the observer status at the EAEU. It is advisable to exchange information on key competencies of the EAEU in the field of customs tariff and non-tariff regulation. It is important to note, that the official Moldovan delegation to the EEC can be formed only by the parliament and government of Moldova, which, in opposite the president, at the moment is stongly pro-Western and anti-Russian.

It is technically possible to match the EU and CIS free trade zones by implementing and monitoring "rules of origin", which allow to prevent the re-export of European goods to the Eurasian market by illigaly marking them as goods from Moldova that would be exempt from customs duties in the EAEU. The "rules of origin" institute is successfully being used worldwide.

When considering the creation of a trilateral EAEU - Moldova - EU commission, one could set start by setting up a prototype of such a negotiation platform in a scientific and expert format. This could be done at IIASA, known for its science diplomacy and science-to-policy approach, which conducts the international research project "Prospects and challenges of wider a European and Eurasian economic space". [13]

Notes:

1. Tigran Sargsyan: "We must meet each other, and each step must be reconciled and bring benefits to the citizens of our countries." EEС. Chisinau, 3 April 2017. (Tigran Sarkisyan: «My dolzhny idti navstrechu drug drugu, i kazhdyy nash shag dolzhen byt' vyverennym i prinosit' pol'zu grazhdanam nashikh stran». YEEK. Kishinev, 3 aprelya 2017.) // http://www.eurasiancommission.org/ru/nae/news/Pages/3-04-2017-3.aspx

2. The Supreme Eurasian Economic Council gave the EEC new powers in the sphere of customs regulation. EEC. Bishkek, April 14, 2017. (Vysshiy Yevraziyskiy ekonomicheskiy sovet nadelil YEEK novymi polnomochiyami v sfere tamozhennogo regulirovaniya. YEEK. Bishkek, 14 aprelya 2017.) // http://www.eurasiancommission.org/ru/nae/news/Pages/14-04-2017-1.aspx 

3. Moldova–European Union Association Agreement. Wikipedia. Last date of retrieval: 14 August 2017. // https://en.wikipedia.org/wiki/Moldova%E2%80%93European_Union_Association_Agreement 

4. Krupin S. Trade and economic cooperation between Moldova and the EEA and EU countries: a comparative analysis. EEC. Mosow, 19 May 2017. (Krupin S. Torgovo-ekonomicheskoye sotrudnichestvo Moldovy so stranami YEAES i YES: sravnitel'nyy analiz. YEEK. Moskva, 19 maya 2017.) // http://eurasian-studies.org/archives/3724

5. Ibid.

6. Ibid. The value of EAEU export to Moldova does not take into account Russian pipeline gas exports.

7. Vinokurov E. EU – EAEU Mega Deal Amid a Relationship Crisis. Journal "Russia in Global  Affairs". Nr. 4. Saint-Petersburg, 18 December 2014. // http://greater-europe.org/archives/3209 

8. Lisovolik Y. Serbia’s FTA with the Eurasian Union: A Window of Opportunity, Moscow, 2 March 2017. // http://greater-europe.org/archives/3212

9. Freihandel von Lissabon bis Wladiwostok. Wem nutzt, wem schadet ein eurasisches Freihandelsabkommen? Bertelsmann Stiftung; IfO-Institut. 216 S. 2016. // http://greater-europe.org/archives/2490

10. EU-Moldova Association Agreement. Last date of retrieval: 4 August 2017. // http://www.3dcftas.eu/documents/key/eu-moldova-association-agreement

11. Treaty on the Eurasian Economic Union. Last date of retrieval: 4 August 2017. //  http://www.un.org/en/ga/sixth/70/docs/treaty_on_eeu.pdf

12. Devyatkov A. Moldova between European and post-Soviet integration projects. Journal of World of Change. №2. Moscow, June 2017. (Devyatkov A. Moldova mezhdu yevropeyskim i postsovetskim proyektami integratsii. Zhurnal «Mir peremen». №2. Moskva, iyun' 2017). // http://eurasian-studies.org/archives/4392

13. Challenges and Opportunities of Economic Integration within a Wider European and Eurasian Space. IIASA. Last date of retrieval: 4 August 2017. //  http://www.iiasa.ac.at/web/home/research/eurasian/EconomicIntegration.html

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