1 September saw the one-year anniversary of the implementation of the Association Agreement between Moldova and the EU. Moldovan experts were not too optimistic, commenting on this event. In general, they admitted what had been said back in 2013: Moldova's economy was still too weak and low-powered to benefit from the deep and comprehensive free trade area (DACFTA) with the EU. According to statistics, Moldova's exports to the EU increased by only 0.9 percent in the first half of 2015 as compared to the same period in 2014. At the same time Moldova has lost much in eastern markets: its CIS exports is down 37 percent.
«Our expectations from the free trade agreement were false since it was clear back then that the EU market was rather intricate and exquisite, and our economy was very primitive and did not meet the EU standards," says analyst Viorel Girbu to the evzmd. md portal.
We continue the analysis we began in late August of what might happen if Pridnestrovie joins the DACFTA. This is what EU representatives insist on, otherwise, they say, Pridnestrovie's exports will lose the current duty-free access to the EU market.
However, joining the DACFTA on conditions established for Moldova does not suit Pridnestrovie. The problem does not only lie in the fact that Pridnestrovie will get into the unequal system of labour division for many years. The problem is also that the authorities will lose a lot of opportunities in the sphere of economic regulation. That is this will undermine the economic sovereignty and possibility of taking independent economic decision (including anti-crisis).
Unfortunately, there is no detailed investigation in Moldova as for how this cumbersome legal mechanism composed of numerous articles of the Agreement and enclosures to it affects and will affect the country's economic independence. Much is clear, though. Today we will try again to word several problems on the surface. We expect that economic experts will also join our discussion and supplement us.
1. Let us start from the end of the Agreement. Article 434 provides for the establishment of the so called Association Council after signing the document. As far as it is known, this body was established at the beginning of the year and held its first meeting in Brussels.
Judging from the Agreement text, the Association Council has substantial supervisory powers and monitors the implementation of the Agreement. In fact, this makes the council a supranational body. The Association Council's decisions may be theoretically superior to those of the Moldovan government.
The Association Council will be supplemented by another multidivisional bureaucratic structure — the Association Committee which includes dedicated sub-committees: customs, sanitary and phytosanitary, trade, geographical identifications, etc.
It is recalled that Moldova's ex-president, Vladimir Voronin, said at the time when his Communist Party had not yet yielded its positions to oligarchs that, in case the Agreement was signed, «those new bodies would rule our country, and there would be no need for either parliament or the government.»
And here a number of questions arise: How will the Association Council's decisions sort with the Pridnestrovian economy? Will Pridnestrovie's trading interests be taken into account by the Council? Will the Council consider Pridnestrovie as an independent subject of a negotiation process? Based on the Agreement text, the answer to all these questions is negative.
2. Article 147 of the Agreement provides for the elimination of import duties, which is supplemented by Article 153: «Neither Party shall adopt or maintain any prohibition or restriction on the import of any good of the other Party or on the export or sale for export of any good destined for the territory of the other Party, except as otherwise provided in
this Agreement.» This is the key stone principle of free trade. But it will do more harm than good to Pridnestrovie. The government may lose such an instrument of domestic market protection as import duties.
And this instrument has been very helpful in recent years: Pridnestrovie has imposed special and seasonal duties on chicken, pork, dairy products, peaches, portland cement. Thus Pridnestrovie has promoted import substitution and the development of domestic production. And it is in this area where certain results, as is known, have been achieved. What will happen to all these if Pridnestrovie, Moldova and Ukraine are part of the EU association process on common terms?
It is evident that a decline in industrial and agricultural production due to the openness of the market (it is to be open for all EU free trade zone participants) will result in a reduction of budget revenues and unemployment growth.
3. Chapter 10 of the Agreement is fully dedicated to competition. It says a lot about the importance of free and undistorted competition in trading relations, as well as the inadmissibility of anti-competitive business practices.
What is meant here? Article 339, providing for state aid, says: «State aid granted by the Union or the Republic of Moldova, or through the resources of one of the Parties, in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and services and which affects trade between the Parties, shall be incompatible with this Agreement.»
When paraphrased, this strict legal formula prohibits any active state intervention in the economy. In case with Pridnestroive, this may call into question the agreements the government has signed and signs with enterprises, granting them individual tax benefits and energy payment benefits. For many Pridnestrovian enterprises this is a matter of survival. But from the EU's point of view, this may be deemed an anti-competitive practice and of course may cause sanctions. Thus, the republic will lose another important anti-crisis instrument.
Article 339 also stipulates that, joining the EU association process on the proposed terms, Pridnestrovie will not be able to use the energy resources it receives at reduced cost, for example, as part of cooperation with Eurasian Union states.
4. Chapter 11 of the Agreement — Trade-related energy — generally correlates with the previous one. It has a reference to the Protocol concerning the Accession of the Republic of Moldova to the Energy Community. According to this protocol, «the price for the supply of gas and electricity for non-household customers shall be determined solely by supply and
demand," that is, through market methods.
It is no secret that Pridnestrovie's enterprises enjoy below market prices for energy carriers. We are just stating the fact without revealing objective and subjective reasons for that. So, upholding the letter of the European association process, tariffs will have to be increased and rather quickly, which will drive enterprises into shock and their production will turn non-competitive in Europe. There is no need to explain what will follow.
Article 347 provides for the prohibition of dual pricing for energy goods: domestic and export prices for such goods shall be the same. How will this affect, for example, the Moldavskaya GRES power station that supplies power to both to Pridnestrovie and Moldova and Romania? And how will it affect Pridnestrovie's domestic market? Shall prices be raised up to the European level?
When summing up, it should be emphasised that the abrupt joining to the existing free trade zone with the EU may deprive Pridnestrovie of some important instruments of macroeconomic, customs and tariff policy. It will also exert negative influence on budget and financial processes in the republic. A rise in tariffs, which the EU may require of Pridnestrovie, will result, among other things, in falling living standards. This is why, if the EU does not really want the expansion of poverty in the region, it is necessary to search other ways.
Pavel Uvarov
