Moldova has initialed the EU Association Agreement as part of the Eastern Partnership Vilnius Summit in November 2013. RuBaltic.Ru discussed the agreement’s preparation, the political mood and its economic consequences with Moldovan former Deputy Minister of Economics and Trade (2008-2009) and member of the Moldovan Parliament’s Permanent Bureau (2010-2014) Iurie MUNTEAN. We present the first part of our talk:
- Mr. Muntean, please tell us about the mood surrounding the preparations for the signing of Moldova’s EU Association Agreement and the creation of the free trade area.
I will start with a look at recent history. In 1994, the Moldovan Republic and the European Community signed the Partnership and Cooperation Agreement. Incidentally, Russian Federation signed a similar agreement that year. Article 4 of this Agreement stipulates an obligation of both sides, in the case of progress with economic reforms, to look into the question of expanding the Agreement’s scope, mainly in expanding good trade and competition with the goal of transitioning – if Moldova will be appropriately ready – to a free trade mode. And, as you may notice, no one rushed or pushed us to do it until 2010. Moreover, many times the European Union directly and indirectly pointed out Moldova’s objective unreadiness to any serious consideration of free trade with EU from both the standpoint of goods and products competitive power, and structural competitive power, not even mentioning the non-economic factors. Such as political stability, rule of law, education producing competitive labor qualifications, the quality of public administration, social interaction and the constant dialogue between multiple social groups, social, institutional and mental flexibility among others. For example, in 1999, the EU analyzed the economic feasibility of creating an EU-Moldova free trade area (FTA), which came to a conclusion that, due to the imperfection of legislative, administrative and economic conditions Moldova won’t get the desired benefits for the FTA’s creation.
Later, in 2003, the European Commission literally stated the following: “Moldova is currently not ready to take upon itself the responsibility of creating a free trade area with EU due to the underdeveloped competitive field and administrative capabilities, due to which the EU is willing to consider new possibilities of allowing Moldovan goods unto the European market within the framework provided by the WTO.”
In full accordance with these inauspicious, but honest conclusions the trade with the European Union developed: 1995 – preference in textile export (partially active since January 1993); 1999 - Generalized System of Preferences (GSP) – partial or full exemption from tariffs and using lower tariff relative to MFN (Most Favorable Nation) tariffs, covering 25-97 commodity groups of the Harmonized Commodity Description and Coding System; 2006 – addition to the Generalized System of Preferences (GSP+) – preferences covering 300 goods, mostly agricultural; 2007 - Autonomous Trade Preferences (active since 1 March 2007) – theoretically provided one-sided free (no tariffs and no quotas) access to the EU market for all good produced in Moldova, the exceptions were wine, a series of agricultural products, which were and still are under the effects of quotas, among other requirements.
This approach allowed to at least somehow compensate the difference in competitive power between Moldovan companies and the ones of European Union. And with this, despite the fairly significant successes of 2001-2009, which were achieved by the Moldovan government in restoring the economy from the 1990s desolation, the corresponding gap was still obviously significant, that you couldn’t seriously talk about transitioning from autonomous trade preferences (which cover Moldovan goods on EU markets, but not European goods in Moldova) to a bilateral regime of free trade with the world’s biggest economy, which EU was at the time (Moldova’s share in EU trade with third countries did not exceed 0.05-0.06%), dutiful experts and the absolute majority of the companies didn’t even think of it. And this was at the same time as the world financial and economic crisis and in conditions, where the amount of goods exported into the EU was made up of only three or four commodity groups on any customs classification, and the deficit was nothing to joke about.
Moreover, one of the most renowned economic cooperation organizations in the world - the Organization for Economic Cooperation and Development (OECD), in 2013, ranked Moldova on the lowest seventh level in terms of economic situation and investor and creditor risks. These risks for Moldova were deemed unacceptable by this organization. But the cronies who came to power in Moldova, in 2009, were not interested in it, they had their own agenda, which as it turned out (to the surprise of many!) fit the European Commission’s position, which was comprised mostly of liberals and conservatives, who with all sane and insane stubbornness and tenacity began creating another “buffer zone” around the Russian Federation, the Eastern Partnership program.
In reality, despite all mentioned above, in 2010, the European Commission hands Moldova an extensive questionnaire on the start of negotiations on creating an area of free, deep and all-encompassing trade. And, the questionnaire itself, instead of being a detailed and responsible piece of work, that requires months at the minimum, was done in the record time of three days - from 31 May until 2 June 2010. And, seven rounds of negotiations on the agreement itself in top secret mode are completed in less than one year. And every round of negotiations lasted for like two to three days, including all “traditional” entertainment, like visiting the famous Cricovo wine cellars. I will also note that in that regard, this was probably one of the most difficult agreements in the history of Moldovan statehood.
We have even had “elementary” agreements on encouraging and mutually protecting investments be prepared for years, and here – presto! – an agreement that affected literally every citizen and in a literal and figurative sense divided the whole country.
But wait, there is more: Moldovan officials who were part of the negotiations, citing the European Union, outright refused to show the text of the agreement not only to the general public, but even to the members of the government, who weren’t part of the negotiations, as well as – and this is the punchline – the highest legislative body of Moldova (a country, which is a parliamentary republic, according to its constitution), which made 19 (nineteen!) inquiries to the Minister of Economy and the Vice-PM Valeriu Lazăr, who was the main negotiator, about seeing the text of the project agreement. Of course, EU representatives in Brussels, as well as the ones in Chișinău, denied this, but also completely refused to show the next of the agreement.
It is noteworthy that in the end, the main EU-side negotiator Pierre Devin confessed that there were such directives from the European Commission until a so-called “text stabilization” of the agreement, which means until its initialing. And, the agreement was initialed only in English, which is against Moldova’s laws and was published only in January 2014, so almost two months after the initialing. This practice raises many questions of the integrity of our European partners, even more so in the context of the Ukrainian events. I am not even mentioning that the nationwide consensus in these circumstances is highly problematic, and the popularity of European integration among Moldova’s citizens will obviously continue its inevitable decline, and not only due to the current government that completely discredited itself, while covering up with an EU flag, but also due to this so-called “neighborly” treatment from the European Union itself. And, if before 2009, 75-76% of Moldovan citizens considered European integration one of the county’s main priorities, then, right now, this number dwindles around 30-35% if we are being generous.
- Did the European colleagues listen to Moldova’s position?
Not to be unfounded, I will give a word to my European colleagues themselves. European experts, in 2013, not long before the initialing of the EU Association Agreement and free trade area, made a secret report, which had a rather objective assessment of the risks accompanying the agreement with Moldova. In this report, the authors were very frank, not skimming over the geopolitical issues, that Chișinău’s interests were considered less than Brussels and Tiraspol’s interests weren’t even on the table. The report says, that “…the European Union desperately needs a “success story” on its post-Soviet campaign, at the same time trying to confirm its own ability to be the center of attraction for the majority of post-Soviet space states. In this context, the DCFTA (Deep and Comprehensive Free Trade Area) with Moldova is seen as an instrument to create such a “success story”. However, the constant use of the DCFTA topics and visa regime liberalization to affect the domestic political situation in Moldova and preserving one or another group in power greatly devalues the significance of these agreements. It becomes a lot clearer that the trade and visa issues for Brussels are more about political content, and there is no hope that the situation will radically change in the near future”.
And the experts have stressed numerous times that the Free Trade Agreement as part of the Association Agreement does not consider “…real consequences for Transnistria, Moldova and the whole regional interaction system…”
It is curious that the name of the agreement “Deep and Comprehensive Free Trade Area Agreement” was invented to limit Moldova’s ability to partake in other integrational projects, in particular – the Customs Union, which does not violate WTO rules. It is like – beware Moldova, you don’t have just some simple free trade area agreement, but a deep and comprehensive one! Fancy that!
- What advantages and disadvantages did this agreement promise for Moldova? Was it more pros and cons?
Sadly, the Moldovan government, which is acting in an external control mode has still yet to present to the country anything resembling an analysis of the Association Agreement and free trade consequences, using only dumbed-down slogans and clumsy metaphors in vein with Cold War-times Hollywood. These, without simplification, can be summed up as “bullet points” that Europe equals civilization and the future, and the Customs Union is the vast and cold tundra, bears and burly drunk men in ushankas who hate democracy and have never heard of Rembrandt.
And, the Moldovan government, apparently, at least had a clear understanding of the main risks with the economy when faced with the Association Agreement. This is proven, among other things, by a letter of the aforementioned Economy Minister and Vice-PM Valeriu Lazăr, dated 24 June 2013 and sent to the Parliamentary Commission on Economy, Budget and Finances, where – and this is important! –after the conclusion of the negotiations and preparing to initial the Free Trade Agreement between Moldova and EU, he writes about two things. First, the need to develop a plan to raise the national economy’s competitive power. Second, the negative influence of the liberalized import from EU on the competitive power of domestic products. And, why should we rush headfirst into hell-knows-where in this case? But more precisely – we know where! Why did we drive our citizens crazy with panic by trying to urgently and at any cost initial something in Vilnius and then sign it? With certain Moldovan businesses back in late August 2013, three months before the agreement’s initialing, demanded Lazăr’s resignation for his criminal treatment of the domestic production. And still nobody can find an answer to the question of who authorized the Economy Ministry to lead these free trade area negotiations.
And, a few more remarks on the aforementioned Economy Minister’s letter. All of the agreement’s advantages of free trade between Moldova and the EU, which were outlined, fall within the arithmetic margin or the size of “increasing” pensions “paid” by the current Moldovan government to our citizens for the last 5-6 years. What about the wage increase in the long term up to 4.8% or the decrease of consumer prices by 1.3% in the same long term, so not earlier than in seven years! The only somewhat measurable value is the expected long term (so, the same seven years!) increase in national income by 142 million euro.
But for heaven’s sake, that is more than twice as less than the yearly savings on Moldova’s gas consumption – at least 400 million US dollars – which the country could have gotten as part of the Customs Union.
That is not even mentioning the other advantages that our country would have gotten from the Customs Union.
In addition, the average share of the energy component in the Moldovan goods production costs is around 12%, which is six times as much than the production costs of similar European goods, which directly compete with ours. And this, as you understand, doesn’t leave us any chances not only in the “planned” increase of Moldovan export into the EU, but also our positions on CIS markets, where we have to compete with European goods. Moreover, there are questions about the future of Moldovan manufacturers on the domestic market. “How about that?”, as the Americans say.
The way the Moldovan side handled the negotiations can’t be seen as anything other than treason.
For example, how would one explain that, after the Agreement takes effect, Moldova opens its market to a minimum of 810 types of European goods and the country’s budget loses around $ 90 million a year according to the most modest forecasts. Europe will allow only 56 types of Moldovan goods unto its market after the Agreement takes effect. In addition, the quotas defined for our products as part of tariff-free entry into the EU market is 1.5% to a maximum of 15-20% in comparison to our export capabilities, and on our main positions the corresponding quotas are 5-7 times less than the amount of the Customs Union exports. That is not mentioning, that EU has reserved the right to freeze the import from Moldova if it will be found that these quotas are filled too quickly. And, any goods from Moldova in order to enter the European market will have to undergo a minimum of five complex and prolonged entry procedures. One of the confirmations of this is the European Commission’s decision last year on lifting the limits of the import of the Moldovan wine unto the EU market, which did not lead to any kind of increase of Moldovan wine exports.
And how would one explain the fact that Free Trade Area agreement protects 1518 geographic wine brands and 20 alcoholic beverages produced in the EU, while Moldova protects only two geographic brands, while having hundreds of them? Or how should we view the unfunny incidents such as quota for tariff-free export of garlic into the EU in the amount of one railcar per year; the ban on selling any psoriasis medication on Moldovan territory expect the ones produced in designated EU member-states; the ban of selling souvenir lighters, etc.?
What does this show, if not that the European Union and its “partners” needed to force Moldova to initial the agreement specifically on the Vilnius Summit at any cost?
To be continued…
Translated by: Pavel Shamshiev