Moldova received EAEU observer status. What next?

_ Yuri Kofner, head, Eurasian Sector, CCEIS, National Research University – Higher School of Economics, analyst of the OECD – HSE Research Centre. The views of the author may not necessarily reflect the official position of the HSE. Moscow, 3 June 2018.

On May 14, 2018, at the meeting of the Supreme Eurasian Economic Council, i.e. the summit of the heads of the of the member states of the Eurasian Economic Union (EAEU), the Republic of Moldova was finally granted  the status of an observer state with the EAEU.

More than a year before that, the post-Soviet media claimed that this status had already been given to Moldova at the meeting of the Supreme Eurasian Economic Council that took place in April 2017 in Bishkek. But in fact, at that time, the presidents of the Eurasian Union had only decided that “granting such a status” to Moldova and to other CIS countries “would be a good idea”. However, at that moment neither the judicial conditions, nor the decision mechanism for granting such status, nor its content, were developed.

“In view of the next meeting of the Supreme Eurasian Economic Council, the Eurasian Economic Commission (EEC) intends to develop a special mechanism to provide Moldova with the status of observer state with the Eurasian Economic Union,” was declared by the Chairman of the EEC Board Tigran Sargsyan, following that meeting in Bishkek.

Observer States

 1. Any state has the right to apply to the Chairman of the Supreme Council for being grated the observer status with the Union.

2. The decision to grant the status of observer state with the Union or to refuse to grant such a status shall be taken by the Supreme Council taking into account the interests of the development of integration and the achievement of the objectives of this Treaty.

3. Authorized representatives of the observer state with the Union having received an invitation may be present at the Union bodies, receive documents adopted by the Union bodies that are not confidential documents.

4. The status of an observer state with the Union does not give the right to participate in the decision-making process in the Union bodies.

5. The state receiving observer status with the Union shall be obliged to refrain from any action that may discredit the interests of the Union and of its Member States, the objects and purpose of this Treaty.

This example illustrates the growth pains of this young integration block. The observer state status was already provided in the EAEU Treaty of 2014 (Article 109), however, within the next three years no Provision, stipulating the content and details of such a status, had been added. Perhaps the attractiveness of the Eurasian Union in the post-Soviet space had not been expected at such an early stage.

After the Bishkek summit, everybody expected that Moldova would officially become an observer state with the EAEU at the next meeting of the Supreme Eurasian Economic Council, which was held in October 2017 in Moscow. But this didn’t happen either.

The reason for this lies in the well-known clash of interests between two opposing sides of the small republic’s elite. International experts have noted the opposite positions of the president and the government. While the president of the Republic of Moldova Igor Dodon is “pro-Russian”, the government of the country has traditionally expressed clearly Russophobe and pro-European positions. Within the Eurasian expert community it is rumoured that neither Russia nor Kazakhstan by some premature step  wanted to provoke a situation similar to the one that happened in Ukraine, when the alleged foreign policy choice became the reason for an armed coup d’état by the pro-Western opposition, which later turned into a full-fledged civil war.

Moreover, like Ukraine, Moldova is a member of the EU Eastern Partnership and, even before Kiev, in 2013 signed the Association Agreement with the EU (EU AA), including the Deep and comprehensive free trade area agreement (DCFTA agreement).

Moldova’s pro-Western elite, as well as their patrons in Brussels and Washington, doesn’t want any rapprochement of their country with the Eurasian Economic Union. To this end they systematically distort the real position of Igor Dodon, of the Kremlin and of the EEC, which have always supported the idea of EU-EAEU “integration of integrations” and the possibility of Chisinau’s equal cooperation with both trade blocks.

“The signing of the Memorandum of cooperation between the EEC and the Republic of Moldova does not contradict any previously signed international agreements. Moreover, I believe that signing this document and the implementation of its provisions will contribute to the achievement of an equilibrium in the economic relations of the Republic of Moldova with its Western and Eastern partners”, Dodon stressed in early April 2017. “Our position is that the relations with the EU and the EAEU should be mutually complementary, not mutually exclusive”, Chairman of the EEC Board T. Sargsyan declared at the same event.

“The Eurasian Union will be built on universal integration principles as an integral part of a harmonious community of economies from Lisbon to Vladivostok, united by common values of freedom, democracy and market laws”, Putin wrote in his article on the ultimate goals of Eurasian integration.

“I think it is wrong to oppose relations with the European Union to relations that countries of the region develop with the Eurasian Economic Union”, Russian foreign Minister Sergey Lavrov said.

At the current difficult times, however, the creation of a common economic space from Lisbon to Vladivostok seems to be a utopia. The European Commission, although already cooperating with the EEC “under the radar”, as they say, still does not hurry to recognize the international legal subjectivity of the Eurasian Economic Union. Under such circumstances, development of trilateral relations of some Eastern Partnership countries, such as Moldova and Armenia, with both the EAEU and the EU, can make small steps towards a greater goal.

Armenia is a good example. In November 2013, the Transcaucasian Republic decided that it was not profitable for it to sign the AA and DCFTA with the European Union. Instead, in 2015, it became one of the member states of the Eurasian Economic Union.  However, this did not prevent Armenia to sign the EU Agreement on Comprehensive and Enhanced Partnership (CEPA) in November 2017 in Brussels. This document, in fact, is the same DCFTA with the exception of sections of trade policy, which are now in the competence of the EEC. Nevertheless, claims that Moscow in 2013 allegedly blackmailed Yerevan not to sign agreements with the EU, and to join instead the Eurasian Economic Union, are just another black myth of the Western “expert” community. The participation of Armenia in the EAEU is economically justified. Moreover, as with Ukraine and Moldova, the EEC, on the contrary, welcomed Armenia’s desire to become a bridge between the two integration blocks.

“Armenia’s position has always been that we should work with both the EU and the Eurasian Economic Union. We should not oppose these two vectors”, was as stated by the head of the EEC T. Sargsyan in February 2017.

Thus, there never was, nor is, an alleged choice of “either EU or EAEU”, at least from Moscow’s perspective. Moreover, there are a number of factors that would favour to the development of relations of Chisinau with both sides at the same time.

Firstly, against the background of this EU – EAEU rhetoric, the existence of the CIS free trade zone, established in 2011, is often forgotten. Both FTA’s, the CIS FTA and EU – Moldova DCFTA, already give Moldova free access to both markets. From this point of view, there already are relatively low tariff barriers to trade between Moldova and the Eurasian Union. Under these conditions, in 2015, 62% of Moldova’s exports went to Europe, while only 22% to the EAEU countries (12% to Russia and 7% to Belarus).

According to a study published in 2016 by the German ifo Institute in Munich, Moldova would benefit significantly from a more unified EU-CIS free trade area. In case of such a scenario, real GDP per capita in Moldova would increase by 6.3% (98 euros), incomes would increase by 6.9%, and inflation would decrease by 2.8%. The sectors of the Moldovan economy that would benefit the most would be the garment industry, agriculture and retail trade.

Secondly, a more important issue is the relatively low quality of Moldovan agro-food products and the complex reform process to comply with EU technical regulations and standards. Fortunately, here we can note one positive trend. The Eurasian Economic Union is gradually and purposefully introducing international technical regulations and standards, which, in effect, are identical to the European ones. Thus, an essential regulatory framework is already being created for the creation of the EU – EAEU common economic space as a whole, and for the barrier-free exports of Moldovan products to the Eurasian market in particular.

Thirdly, it is possible to prevent the re-export of European goods to the EAEU under the guise of Moldovan goods, i.e., what many fear would happen when two regional FTAs overlap, by introducing international trade practices such as “rules of origin” and “regional value added” (RVO) regulations. The system of digital marking and traceability of goods launched within the framework of the EAEU’s 2025 Digital Agenda can help to promote their implementation.

On May 14, the Supreme Council approved:  1) an Agreement on international treaties of the EAEU with third states, international organizations or international integration blocks; 2) Provisions on the observer state status with the EAEU and the decision to grant this status to the Republic of Moldova.

As mentioned above, according to the Provision, representatives of the state with such a status at the invitation may be present at the meetings of the EAEU bodies without the right to participate in decision-making and to receive documents adopted by the Union bodies that are not confidential. The state having observer status is obliged to refrain from any action that could harm the interests of the Union and that the member states.

However, exactly the last point may be compromised by potential provocations by the pro-European government of Moldova, such as when it adopted a law in February 2018 prohibiting the retransmission of news, political, analytical and military programs of the Russian Federation.

Here, the determining factor will be the results of the parliamentary elections in Moldova scheduled for autumn 2018, as a result of which Igor Dodon’s party might increase its influence in Moldovan politics.

In this regard, it is now of crucial importance of how and to what extent Moldova and the EAEU will use the observer status. Here, a couple of important recommendations:

Firstly, the Eurasian Economic Commission should create a separate website to inform entrepreneurs and citizens of Moldova about the advantages and opportunities of the Eurasian Economic Union. It is important to explain in simple language the procedures and conditions for exporting and employment in the EAEU market. The information provided should cover different spheres (tariffs, customs procedures, employment issues, etc.). Of course, it is necessary to emphasize those preferences that distinguish membership in the Union from a mere observer status, which in turn can stimulate Moldovan businesses to lobby Moldova’s accession to the Eurasian Union in the future.

Secondly, with the same purpose, the EEC in cooperation with the expert community should develop and hold a broad agenda of introductory workshops for the Moldovan business community and expert round tables to inform the Moldovan side about the benefits and opportunities of the Union. These event should be held throughout the year in different Moldovan cities.

Thirdly, as part of the EU’s drive to draw Chisinau closer, the European Union and the European Bank for Reconstruction and Development (EBRD) are gradually launching programs on crediting and technical assistance to small and medium-sized businesses in Moldova. In the next few years, the institutions of the European Union will spend several tens of millions of euros for the implementation of specific investment projects in the country.

Against this backdrop, a lack of investment activity from the Eurasian development institutions will become a noticeable omission. It is necessary to consider the possibility of launching a number of infrastructure and investment projects in Moldova by the Eurasian Development Bank (EDB). Perhaps even in cooperation with the EBRD. For this, however, Moldova must first become a member state of the Eurasian Development Bank. The experience of Tajikistan shows that this is indeed possible and appropriate. The mountainous and economically underdeveloped country is not a member of the EAEU, but it is a member of the EDB and the associated Eurasian Fund for Stabilization and Development (EFSD). And Dushanbe is gaining significant dividends from this: the country implements six investment projects of the Bank with a total value of $ 51.4 million. In addition, the economy received over $ 110 million from the EFSR to ensure its macroeconomic stability.

Fourthly, in along with the current observer status, it is necessary to develop an additional Agreement on trade and economic cooperation between the Republic of Moldova and the EAEU. This could be a transitional step from the observer status to full membership in the Union and would provide the country with preferences in such areas as simplification of customs procedures, rules of origin of goods, mutual recognition of technical regulations. Here, it would be important to supplement this multilateral agreement between Chisinau and Eurasian Commission with bilateral agreements between Moldova – Belarus, Moldova – Russia, etc., which would specify preferences in sectors that are not yet within the competence of the EEC. The priority sections here could be issues of employment, trade in services, the digital economy.

Fifth, Russia and other EAEU member states should take further steps to facilitate the voluntary reintegration of Transnistria into Moldova and the final settlement of the Transnistrian crisis. The condition for this however, would have to be a legal guarantee (either as an amendment to the Constitution or as an international multilateral agreement) of Moldova’s non-accession to NATO.

In the end, along with all the above mentioned points, it is always worth emphasizing our ultimate goal:  EU – EAEU integration and the creation of a common economic space “from Lisbon to Vladivostok” within the framework of a Greater Eurasian Partnership. The establishment of a tripartite EU – Moldova – EAEU negotiation platform might help to achieve this goal.  Its tasks would be to find common and mutually acceptable approaches to such issues as technical regulations, customs rates and rules of origin. Even now, prototypes of this format can be created at least at the scientific expert level. For example, at the International Institute for Applied Systems Analysis (IIASA) in Laxenburg, Austria.

First published at EurasiaFuture.

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