feasibility study f

7/25/2019 Feasibility Study F

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M O L D O V A FOUNDATIONFORSOCIAL

ANDECONOMICRESEARCH

FEASIBILITYSTUDY


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+ll authors of this study are independent e-perts. Their opinion shall not be ta/en as the offi!ial opinion ofthe British Embassy or C+,E %oldo&a Foundation

Content

Exeutive su!!ar"

Introdution

C#A$TE% I& LE'AL A(D I(STITUTI)(AL F%AME*)%+ )F EU,M)LD)-A T%ADESvetlana Diomin

1.1 EU-Moldova bilateral legal trade framework1.2 Generalised ystem of !referen"es1.# EU $Moldova foreign trade institutional framework

C#A$TE% II& C)MME%CIAL FL)*S BET*EE( M)LD)-A A(D T#E EU

Svetlana Diomin

2.1 %rade market and regulatory reform

2.2. &nalysis of the trade flows between the EU and Moldova2.# %ariff 'oli"y and utilisation of the G! s"heme

C#A$TE% III& TEC#(ICAL BA%%IE%S T) T%ADE *IT# EU

Eugen Hristev

#.1 (idden trade barriers $ obsta"les to entry#.2 %he need for harmonised standards#.# Evolution of the system of standardisation) metrology) "ertifi"ation and a""reditation#.* +m'a"t of diverging regulations

# , Moldovas %/ "ommitments


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LIST OF A!E"IATIO#S

&%! &utonomous %rade !referen"esCEECs Central and East Euro'ean CountriesC+ Commonwealth +nde'endent tatesC&! %he Euro'ean Union Common &gri"ultural !oli"yCE5 6 CE5E7EC Comite Euro'een de 5ormalisation6Ele"trote"hniueE& Euro'ean Coo'eration for &""reditationE5 Euro'ean tandard

E/%C Euro'ean /rgani8ation for Conformity &ssessmentEU Euro'ean UnionEU91:; Cy'rus) C8e"h 4e'ubli") Estonia) (ungary) 7atvia)


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Exeutive Su!!ar"

>i? &mongst ormer oviet Union tates Moldova has suffered one of the worse balan"e of'ayments sho"ks sin"e inde'enden"e. Geogra'hi"al and "om'ositional trade diversifi"ation hasbe"ome "ru"ial for diminishing "ountrys vulnerability to e0ternal sho"ks. +n s'ite of a range of'oli"y and stru"tural reforms) in early years after regaining its statehood) Moldova was notready to "o'e with the "onseuen"es of the 4ussian finan"ial "risis of 1@@A) when the nationale"onomy e0'erien"ed a severe 'lunge down. %rade reorientation towards Euro'ean Union) the

biggest and the "losest market) has been taking 'la"e very slowly. &s of now) the share of theEU in Moldovas world trade is still below its 'otential only 2A.A 'er"ent in first half of 2::,)versus ,: 'er"ent res'e"tively.

>ii? %he Euro'ean Union has been very su''ortive of Moldovas e"onomi" and 'oliti"alreforms. %he two 'arties "on"luded a !artnershi' and Coo'eration &greement in 1@@*) endorsedin 1@@A) whi"h established a bilateral 'artnershi' in almost every so"io-e"onomi" as'e"t of lifeand the basis for a 'oliti"al dialog. %he !C& also set the institutional framework to strengthen

the "oo'eration between the 'arties. in"e early 1@@,) Moldova has been enoying G!'referen"es for te0tiles) whi"h in 1@@@ were broadened to in"lude a larger s'e"trum of goods./n to' of that) the EU has been su''orting the reforms through other me"hanisms) su"h aste"hni"al) ma"roe"onomi" and humanitarian assistan"e. 7ater develo'ments have brought thetwo 'arties to signing an EU-Moldova &"tion !lan that established the road ma' for a"tions inthe ne0t "ou'le of years. Enhan"ement of bilateral trade has re"eived large attention in themedium term) the EU is "onsidering the 'ossibility of granting Moldova an &utonomous %rade!referential arrangement.

>iii? = it l i t f ti M ld h b i t i d t i


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they are without translation) following the e0am'le of Bulgaria) or to harmonise its system tothat of the EU.

>vi? +n dealing with high tariff barriers to the EU) Moldova "ould 'ursue negotiating a

'referential arrangement for its e0'orts to the EU. !referential agreements signed by the EUwith other "ountries and the s'e"ial arrangements for estern Balkans "ould be a model for thefuture-to-be trade arrangements between the EU and Moldova. %he introdu"tion of the EUse0"e'tional trade measures for the estern Balkans in e'tember 2::: 'rovided the region withuniform and wide-ranging free a""ess to the Unions market for almost all goods. esternBalkan e0'orts to the EU have in"reased substantially sin"e the late 1@@:s. %his was due to a"ombination of fa"tors su"h as 'ost-"onfli"t re"onstru"tion) transition to a market e"onomy andgranting of trade "on"essions by the EU) the regions biggest trade 'artner. %he tariff redu"tionwas signifi"ant for most e0'orted 'rodu"ts. +n the "onte0t of 'arallel EU trade liberalisationtowards other third "ountries) the trade measures have assisted the estern Balkan "ountries inmaintaining their 'referential 'osition on the EU market.

>vii? %he 'ra"ti"e has shown that in order to fully benefit from the EUs trade 'referentialmeasures >&utonomous %rade !referen"es?) the "ountries need to in"rease "om'etitiveness)diversify 'rodu"tion) raise awareness among e"onomi" o'erators of the 'otential of the trademeasures) fa"ilitate a dialogue with business "ounter'arts on the EU market and u'grade trade

related institutions. %hey need to further harmonise their standards with those of the EU)in"luding in the veterinary and the sanitary and 'hytosanitary field. %o e0'loit the underlying

'otential) the "ountries must attra"t suffi"ient levels of foreign dire"t investment to broadentheir e0'ort base to in"rease their 'rodu"tion "a'a"ity and 'rodu"tivity and to ensure"om'lian"e with the EC standards. &dditionally) governments need to 'ursue stru"tural reforms)modernise administrations) in"luding in 'arti"ular the udi"iary and to ensure the rule of law.

>viii? Even though the Euro'ean Union authorities have not yet e0'ressed su''ort for a""e'ting an

t i % d & t i ti ith M ld i th f t d t


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resour"es to 'rodu"e more and sell) whereas the EU "onsumers would enoy "hea'er 'ri"es.Given the small si8e of Moldovan e"onomy) the im'a"t on the EU 'rodu"ers is going to beminimal) but additional analysis "ould be undertaken for sensitive 'rodu"ts and relatedindustries to assess 'ossible negative "onseuen"es. %he 'a'er also argues that be"ause none ofthe &utonomous !referential &greements have granted full duty-free a""ess) these losses "ould

be substantially smaller.>0ii? &'art from other benefits) a 'referential bilateral arrangement between Moldova and the EU

would enlarge the s'e"trum of "ommitments undertaken by Moldova in various domains) su"has "om'etition 'oli"y) restri"ting state aid) government 'ro"urement) "ustoms andstandardisation. %he ado'tion and the effe"tive im'lementation of the new 'ra"ti"es and laws inthese domains) "om'atible with those of the EU) will reuire signifi"ant e0tension of "a'a"ity

and effi"ien"y of Moldovan legal system. %he faster reforms move domesti"ally and ne"essary'remises for singing an %& with EU are "reated) the more "redible Moldova will be"ome forthe Euro'ean Community and the more effi"ient will be the bilateral relations) whi"h will sendan im'ortant message to investors and traders.

>0iii? &""ession of Central and Eastern Euro'ean e"onomies to the EU has already affe"ted thevolume of e0'orts to the EU from the third "ountries) in"luding those from Moldova) and willfurther affe"t terms of trade as remaining tariff barriers are eliminated for 'rodu"ts "onsideredsensitive 'rior to a""ession. %he most im'ortant enlargement effe"ts for Moldovan e0'orts stemfrom the forth"oming a""ession of 4omania) sin"e it is Moldovas third maor trade 'artner>other CEE e"onomies 'laying only a minor role in Moldovan trade?. %he analysis in this 'a'ershows that the hardest enlargement-related effe"ts in trade with 4omania have materialised yet

before a""ession $ Moldova lost its role of the maor su''lier of some agri"ultural 'rodu"ts to4omania) su"h as sugar and meat) being re'la"ed by the EU.

>0iv? orth"oming a""ession) however) will bring about abrogation of the Moldova-4omania freetrade agreement) in for"e sin"e 1@@,) further liberalisation of trade between the EU and ere"tion

f t i t t iff b i %h d t b d t i h th t d it th f t


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". Small tari"" losses or the EU the loss of tariff revenues if duty free a""ess wasgranted for Moldovan e0'orts as of 2::* would have re'resented :.::223 of itstariff revenue. %he gain for Moldovan e0'orters would have been uite noti"eable as it"om'ares with the levels of develo'ment assistan"e the EU is "urrently granting toMoldova

and

g. Strong #olitical will "or re"orms$ Moldova is willing to 'ursue further integration intothe EU system by harmonising its legislation) standards) te"hni"al regulations withthose of the EU and there is a strong "onsensus amongst its 'oliti"al leaders on thestrategi" "ourse of the "ountry towards the Euro'ean integration.

>0vi? %he above listed 'ositions "ould be used by Moldovan negotiators to reuest from the EU amost benefi"ial &utonomous !referential &greement) similar to the ones signed with esternBalkans that "ould basi"ally resemble a non-re"i'ro"al ree %rade &greement) under whi"h theEU were to grant Moldova duty free a""ess to almost all goods e0"e't the ones that "ould harmsome market segments more substantially. or "ounterbalan"e) Moldova has to "ommit itself toim'lementing market-oriented reforms) limiting government interferen"e in the 'rivate se"toro'erations) fight against "orru'tion and red ta'e. & time frame should be established for "reating

sound rules of origin "ontrol system) reforming the a"tivity of the national "ustoms authorities)establishing with the assistan"e of other donor of a sound uality "ontrol system) ado'ting ora''ro0imating the e0isting standards and te"hni"al regulations for the maor e0'orted goods tothe EU in the nearest , years.


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U'on inde'enden"e Moldova suffered one of the worse balan"e of 'ayments sho"ks amongstormer oviet Union >U? states. %he shift in national 'oliti"al agenda has set different foreigntrade 'oli"y obe"tives and in"luded the e0'ansion of Moldovan e0ternal se"tor. Geogra'hi" traderedire"tion and trade reorientation towards the EU has be"ome "ru"ial.

%he 'ossibility of signing a ree %rade &greement >%&? with the EU was first time mentioned inthe !artnershi' and Coo'eration &greement >!C&? in 1@@*. Given "ountrys e"onomi"develo'ment and the vulnerability of the domesti" market to im'orts from the EU) the issue of an%& has been 'ost'oned. bureau"ra"y) "orru'tion) un"ertainty over the legal situation) "ustoms "learan"e delays) et"?. &s aninterim measure to signing an %&) the EU 'ro'osed granting Moldova a unilateral asymmetri""ommer"ial regime. %he initiative was first time uttered in the Communi"ation of the Euro'eanCommission from 1# Mar"h 2::# on the EU 5ew 5eighborhood !oli"y but no de"ision has beentaken yet.

%his re'ort builds on the 'ast e0'erien"e of the EU-1: and on the one of Central and East Euro'eanCountries >CEEC? with regard to 'referential and asymmetri" trade regimes with the EU and on thetrade theory. +t draws re"ommendations for de"ision makers in Moldova on the issues that must beta"kled during negotiations with the EU in order to draw ma0imum benefits under these

arrangements. %he re'ort is stru"tured in the following way

Chapter %of this re'ort des"ribes the bilateral trade legal framework between EU and Moldova

and gives an overview of the institutions involved in de"ision-making.

Chapter %%analyses the "ommer"ial flows between the two 'arties and estimates the general

trends) short-term fore"asts and behavior models.

+n Chapter %%%we argue that other than tariffs trade barriers and administrative obsta"les harm

th t th th t i ti d thi h t id t l t d b i f


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Chapter I& Le/al and institutional 0ra!ewor1 o0 EU 2Moldova Trade

Moldovas foreign trade and domesti" legal framework has seen a lot of develo'ments sin"einde'enden"e. Between 1@@1- 1@@@ Moldova has ado'ted a range of basi" reforms in su''ort ofmarket e"onomy. &s a result its foreign trade was almost fully liberalised) e0'ort uotas eliminatedand im'ort tariffs substantially redu"ed. =omesti" "urren"y $ leu $ has be"ome fully "onvertible for"urrent a""ount transa"tions. in"e 1@@@) Moldova has signed ## bilateral agreements on trade ande"onomi" "oo'eration with C+) the Euro'ean Union) the United tates of &meri"a and some other"ountries) in"luding neighbouring 4omania. ree %rade &greements were signed with C+ andsome "ountries in Central and outh Eastern Euro'e. +n July 2::1 Moldova be"ame a member ofthe orld %rade /rganisation. %his alone has marked a turning 'oint in Moldovas e0ternal tradedevelo'ment) whi"h makes mandatory u'grading key regulatory instruments the registrationsystem) li"ensing) "ertifi"ation) a""reditation) rules of origin) et". &s of now) Moldovas traderegime is ranked by the +M as a KoneI >the most liberal? on the ten 'oints inde0 of therestri"tiveness of formal trade 'oli"ies.

3.3 EU,Moldova bilateral le/al trade 0ra!ewor1

%he bilateral legislative framework between the EU and Moldova is based on the two 'illars 1? the!artnershi' and Coo'eration &greement between the EU and Moldova >signed in 1@@* andenfor"ed in 1@@A? and the EU-Moldova &"tion !lan >&!? >signed in ebruary 2::,?. %hese twoim'ortant do"uments set the basis for the develo'ment of regulatory and institutional frameworkneeded for bringing Moldovan standards "loser to the Euro'ean values. %hey "ontain 'rovisions ontrade) but also in areas su''orting e"onomi" develo'ment) "om'etition) rule of law) a''ro0imation

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bilateral trade negotiations to a new stage) by introdu"ing the 'ossibility of the EU granting&utonomous %rade !referen"es >&%!?) with the "ondition of ensured effe"tive "ontrol of the originof Moldovan goods.

&s "ould be seen from the Bo0 2) the EUhad tabled several "onditions to befulfilled by Moldova before the &%! "ould

be singed. +t in"ludes fulfillment ofobligations under international tradeagreements and !C& obligations and alsosu''lementary measures both from 'ubli"

and 'rivate se"tor.&dditionally &"tion !lan lists ne"essaryste's to im'lement reform in trade relatedse"tors "ustoms standards) te"hni"alregulations and "onformity assessment

'ro"edures streamlining administrationand sanitary and 'hytosanitary measures

>see &nne0 1?. &mongst "ustoms relateda"tions it is worth mentioning the "reationof a Hsingle windowI a''roa"h for allinternational trade related do"umentationand "ontrol) strengthening of theadministrative "a'a"ity and ensuringeffe"tive "ontrol of origin of goods andvaluation of goods) and im'lementing a Customs Ethi"s !oli"y. /"tober this year Moldovans will

i t d t ll t it ti id th & d ld t ki t th H i l i d I

o$ %& E'(Mol)ova Action Plan& Provisions on tra)e

rade Relations

$ ull im'lementation of !C& "ommitments in title +++) andfulfilment of all obligations linked to %/ membershi'

$ u""essful im'lementation of the %/ obligations>in"luding the %4+!s agreement? and !C& obligations

$ Gradual removal of li"ensing reuirements whi"h are notin "onformity with Moldovas %/ and !C& obligationsand trans'arent management thereof

$ Efforts to in"rease trans'aren"y of a''li"ation ofregulatory measures

'25( #romote )oldo!a*s e+ports capacity and di!ersi"ication o"

e+port products

$ !romotion of e"toral grou's of 'rodu"ers for oint a"tionfor 'romotion of E0'orts on foreign markets) as foreseenin ME!/s 'rogramme

$ Ensure effe"tive "ontrol of the origin of goods in order tobe able to fully benefit from the Generalised ystem of

!referen"es+m'rove institutional framework and 'ro"edures on "ontrol oforigin by reinfor"ing "ustoms and reviewing the division ofres'onsibilities for the issuing and verifi"ation of both

'referential and non-'referential "ertifi"ates of origin with theChamber of Commer"e in order to build a solid basis for

'ossible &utonomous %rade !referen"es.


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the elimination of dis"rimination in res'e"t of em'loyment and o""u'ation) and 5o 1#A and 5o 1A2on the effe"tive abolition of "hild labor.

%he arrangements mentioned above offer additional tariff 'referen"es for im'orts of all sensitive'rodu"ts in"luded in the general arrangements) unless the de"ision granting the s'e"ial in"entivearrangements e0"ludes "ertain se"tors where the "onditions are not fulfilled. Under the Hso"ial"lauseI the tariffs are redu"ed by another 1:-#, from the 'referen"es given by the basi" G!. orte0tiles) the total redu"tion is therefore *:) for s'e"ifi" duties it is 3: >e0"e't for ethyl al"ohol)where it is #:?. or ad valorem duties) however) the additional redu"tion is more than the basi"redu"tion. +nstead of #), it is , 'er"entage 'oints >thus raising the total redu"tion to A), 'er"entage

'oints?. &gain) where duties in"lude ad valorem and s'e"ifi" duties) only the ad valorem duties are

redu"ed. here both the s'e"ial in"entive arrangements for the 'rote"tion of labour rights and theones for the 'rote"tion of the environment are 'resent) they a''ly simultaneously.

%his gives Moldovan goods "lassified in the HsensitiveI grou' >like flour) almost all vegetables andfruits) vegetable oils) "ho"olate) marmalade) 'astries) some kinds of toba""o) te0tiles and te0tiles

'rodu"ts? a redu"tion of 1, from the M5 rate. H5on-sensitiveI 'rodu"ts >like) for e0am'le)leather and skins) walnuts) footwear) wood 'rodu"ts) "erami"s and glass) lightning eui'ment) et".?

benefit from a redu"tion from #: to 1:: of the M5 duty. Currently Moldova utilises the G!

only u' to 3:,

) whi"h fa"t diminishes the benefi"ial effe"ts that the system "ould 'rovide.5evertheless) the 'referen"es granted by EU under "urrent system will "ome to an end by=e"ember 2::,.

tarting ne0t year) EU will 'ut in 'la"e a new Generali8ed ystem of !referen"es >HG!OI? withadditional 'referen"es for the timeframe 2::3-2:1, that will be offered to develo'ing "ountries and"ountries in transition3. %he new system will be more stable) 'redi"table) obe"tive and sim'le inadministration) in"luding in terms of fulfilment of the rules of origin reuirement. urthermore) the

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&t one of the meetings of the Coo'eration Coun"il >1@@A? a de"ision was taken to attribute differentfun"tions of the Coo'eration Committee to several sub"ommittees) one of whi"h 9b P1? was set u'to deal with trade and investment issues. %his sub"ommittee was res'onsible for the de"ision in

1@@A that 'rior a""ession of Moldova to the %/ is a 'rereuisite for starting negotiations on the%&. urthermore) it was de"ided that a feasibility study is needed to estimate the im'li"ations forthe "reation of a ree %rade &rea. %he "on"lusion of that study was that an %& would be benefi"ialonly if it were set u' in an a''ro'riate e"onomi" environment where "om'anies and individuals arefree and "a'able of take advantage of "reated business o''ortunities. %he Hider Euro'eI"ommuni"ation >C/M>2::#? 1:*? "on"luded that Hfor Moldova) whi"h does not "urrently 'ossessthe "om'etitive strength or administrative "a'a"ity to take on the re"i'ro"al obligations of an %&yet) the EU is ready to "onsider develo'ing new initiatives to grant better market a""ess) in line with%/ obligations.I &t the last meeting of the b P1 on %rade and +nvestment >June 2::,? e0'ertsdis"ussed the 'ossibility of e0tending the bilateral trade relationshi' to an intermediate ste') bysigning an &utonomous !referential %rade agreement by whi"h the EU will grant unilaterally toMoldova additional trade 'referen"es.
http://trade-info.cec.eu.int/doclib/html/116785.htmhttp://trade-info.cec.eu.int/doclib/html/116785.htm


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Chapter II& Co!!erial 0lows between Moldova and the EU

4. 3 Trade !ar1et and re/ulator" re0or!

&mong all areas of regulatory reform) 'ri"e and trade liberalisation were the areas where Moldovahas made most 'rogressA.&s early as in 1@@2) the government liberalised most 'ri"es and abolishedthe state trading mono'oly. 5e0t years followed the unifi"ation of the e0"hange rate and sus'ensionof most e0'ort restri"tions. +n 1@@, Moldova has made the "urrent a""ount fully "onvertible andsin"e then redu"ed and sim'lified dramati"ally tariffs on im'orts. %he share of e0'orts and trade inG=! in"reased steadily over years) indi"ating o'enness of the e"onomy. +n its %ransition 4e'ortEB4= indi"ates that trade to G=! ratio grew from AF in 1@@A to 1:3 in 2::# res'e"tively >for"om'arison @3 for Ukraine) AF for Bulgaria) F: for 4omania) 31 for !oland) ,2 forerbia and Montenegro) *@ for 4ussia?. 5onetheless) e0'erts e0'ress "on"erns on data reliabilityand doubt that the offi"ial data on trade refle"t a""urately the reality) 'ointing to shadow e0'ort

'ri"ing) and to a 'ossible sub-estimation of the real G=!. &lso there are strong indi"ations that sub-estimation of remittan"es from workers abroad leads to re"urring overestimation of the "urrent

a""ount defi"it@

.timulation of 'rivate se"tor develo'ment took 'la"e at a relatively lower s'eed than the trade

'oli"y reforms. Moldova fo"used its e0ternal trade 'oli"y agenda on trade diversifi"ation andgeogra'hi"al reorientation. Be"ause the reform has not been ba"ked by a fier"e stimulation of"om'etition) in"rease in 'rodu"tivity and uality enhan"ement) lo"ally 'rodu"ed goods are less"om'etitive on international markets. =es'ite the regulatory reform and trade related reforms)international finan"ial institutions still regard the internal administrative barriers to trade as

i l + = b 2::2 i f i i d h f l hi


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1@@F to ,1 in 2::*?. %he G! s"heme has also had a 'ositive effe"t on redire"ting some of the"ommer"ial flows to the EU-1, member states.

Dia/ra! 4.3. *orld Moldovan Exports 3667,4889

Source$ ational -ureau o" Statistics

%he share of CEECs in e0'orts in"reased slightly to 11 'er"ent and of these 4omania alonea""ounts for 1: 'er"ent. %his indi"ates that a "hange in trade relations with 4omania) on"eMoldova-4omania %& "omes to an end with the a""ession of the former to the EU) the situationmight "hange dramati"ally for the e0'orts to our immediate neighbour >see more in "ha'ter R+?./n the im'ort side) the share of the EU "ountries rose from 2, 'er"ent >in 1@@F? to ## 'er"ent>2::*?) that has a built-in "ontribution of F 'er"ent from the new EU-1: Member tates afterenlargement. &llarmingly enough in the first half of 2::, the share of the EU >2,? in totalMoldovan e0'orts de"reased to 2A.A largly in the result of a re"ently introdu"ed double "heking

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'i"ture was uite the o''osite e0'orts to the EU-1, almost tri'led "om'ared to 1@@F) wherease0'orts to the EU-1: were merely 2: larger than those in the base year. +n s'ite of the fa"t thatgenerally average tariff has be"ome lower in the EU >1:? "ountries as "om'ared with times before

a""ession) it has not hel'ed Moldova to advan"e its e0'orts to the EU) while it hel'ed the new EUmember states to strengthen their 'ositions in the Moldovan market.

/n the EU side) the share of both e0'orts and im'orts to6from Moldova was 'retty small >below1?. /ver the last five years Moldovas average share of the world im'orts to the EU was :.:#)and the EU e0'orts to Moldova re'resented only :.:3 of the total EU e0'orts >the data in"ludestrade with %ransnistria?1#.

Moldovan e0'orts are highly "on"entrated in few "ommodities that a""ount for more than S of the

total e0'orts to the EU. &s of 2::*) the main 'rodu"ts e0'orted to the EU "onsist of * maor grou'si? te0tile items >#@? ii? raw hides and skins) leather and skins >21? iii? vegetable 'rodu"ts >1:?and iv? food 'rodu"ts) beverages) toba""o >@?.

Dia/ra! 4.5. Bilateral trade with EU per produt /roup 3667,4889

Source$ ational -ureau o" Statistics


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%he ualitative analysis of bilateral trade 'oints to some 'ersisting 'roblems fa"ed by Moldovane0'orts in finding their ni"he in the EU. &n amalgam of the still relatively high tariff 'rote"tion in"ombination with low "om'etitiveness of domesti" goods) 'oor marketing skills) ada"ent non-tariff

barriers to trade >see "ha'ter +++? "hara"teristi" for a transitional e"onomy and a so'histi"ated"onformity assessment in the EU might substantially harm the ability of Moldovan goods to

'enetrate the EU market. %he trend of the re"ent years has shown that domesti" 'rodu"tion is veryinelasti" to in"reased lo"al demand in Moldova. %his also s'eaks for the very low "a'a"ity of lo"al

'rodu"ers to in"rease e0'ort-oriented 'rodu"tion. %he government will have to 'ay more attentionto develo'ing 'oli"ies stimulating 'rodu"tion growth and 'rivate se"tor develo'ment.

4.5 Tari00 poli" and utilisation o0 the 'S$ she!e

&s sur'rising as it may seem the average tariff a''lied to Moldovan im'orts to the EU >,.3) withthe a"tual utilisation of the G! with additional labour 'referen"es?1,is still higher than the averageweighted tariff on EU e0'orts to Moldova >*.#?13. %he situation is even more to the advantage ofthe EU if to "om'are that a big bulk of the EU e0'orts enters Moldova duty free. in"e 1@@@) morethan 26# >F, in 2::,1F? of goods have been im'orted from the EU with a 8ero tariff rate 1A)whereasless than 16# of Moldovan im'orts have entered the EU market duty free. urthermore) only few

e0'orted "ommodities fall in this "ategory) whereas F: benefits of G! s"heme. +roni"ally) thestrategi" e0'ort 'rodu"t $ wine >and other al"oholi" beverages? $ falls in the 1 of goods treatedneither under the M5 8ero tariff) nor under the G!. +n "onseuen"e) wine e0'orts that make a

bulk of Moldovan e0'orts to 4ussia) are unnoti"eable in the bilateral trade with the EU.urthermore) wine subsidies in EU and uality assessment 'ro"edures "reate additional diffi"ultiesin a"hieving an a''ro'riate level of "om'etitiveness for Moldovan wines in estern Euro'eanmarkets.

ld B k l >= b 2::*? i d h l 3: f h li ibl f G!


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im'orted goods "overing only 1F 'er"ent of the G52: >to u'date with "urrent data?. %he highweighted average tariff therefore im'lies that Moldovan e0'orts are "on"entrated in several"ommodities that bear higher than average tariffs. & sim'le analysis 'roves this assum'tion for

e0am'le) the average weighted tariff for "lothing was @.F >with a"tual utilisation?) for "ottonfabri"s $ ,.1) for fruit ui"es 2:.*. /n the se"tor level the average tariff with labour "lause witha"tual utilisation in agri"ulture was ,.1) while in manufa"turing $ ,.F.21

Evidently) the in"rease in im'orts of te"hnology-intensive 'rodu"ts >im'orts of ma"hinery andeui'ment in"reased between 1@@F and 2::* from 1,:)F mln U= to 2#@)F mln U= 22? is seen as a

'ositive trend) as it "ontributes to u'grading the "a'ital sto"k in Moldova) whi"h ultimatelyin"reases the "om'etitiveness of Moldovan 'rodu"ts on the Euro'ean markets. u"h im'orts are)

however) most often asso"iated with the inflow of =+ to the "ountry) whi"h has been 'arti"ularlylow in Moldova $ U= 21: 'er "a'ita $ on"e 'oorer than Moldova &lbania attra"ted more almosttwi"e more $ U= #FF.2# %herefore) the u'grading of 'rodu"tive "a'a"ity and) a""ordingly)integration into the world e"onomy would be higher for Moldova should levels of =+ rea"h higherlevels. 7arge share of im'orts of te0tile 'rodu"ts >1F? refle"ts intensive outward-'ro"essing linksin this se"tor) whi"h are "onsidered to be of relatively low value-added for the re"i'ient e"onomy.(owever) ob-generating nature of this 'rodu"tion should not be underestimated.

&dditionally) the "urrent 'attern of trade $ a high share of land- and labour-intensive 'rodu"ts ine0'orts) and "a'ital-intensive goods in im'orts $ is ty'i"al from the 'oint of view of trade theoryfor a "ountry at the beginning stage of its integration with a wealthier e"onomi" 'artner. urther on)however) as the e0'erien"e of Central and East Euro'ean "ountries has shown) dee'er integrationshould be asso"iated with "onvergen"e of trade 'atterns with those ty'i"al for e"onomies withsimilar levels of in"ome $ initially lower-in"ome e"onomies u'grade their 'rodu"tion stru"tures)register in"reased 'rodu"tivity) higher labor "osts) and move u' in the value "hain and towardshigher share of "a'ital and human-"a'ital intensive e0'orts. +t seems) however) that Moldova is at

h b i i f hi i f diffi l i i h i h E k


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Chapter III. Tehnial barriers to trade with EU

5.3 #idden trade barriers , obstales to entr"

%ariff barriers are not the only obsta"les fa"ed by Moldovan e0'orts. &s seen from the analysis inthe 'revious "ha'ter) Moldovas "urrent e0'ort flow to the EU is under'erforming "om'ared withits hy'otheti"al 'otential and this "annot be e0'lained solely by trade 'rote"tion by the EU andother trade 'artners. e argue that internal limitations to businesses and Dwrong signals sent by the"urrent regulatory system and the e0isting uality infrastru"ture does not allow Moldovan e0'orts torea"h EU markets. %here are in-"ountry fa"tors like business environment) insuffi"ient dire"tinvestment and rigid administrative stru"tures. %he "urrent system of mandatory standards is one ofthose obsta"les) whi"h 'robably limits most the ability of e0'orts to rea"h develo'ed markets of theEU.

%his "ha'ter argues that a faster move towards a modern standards and "onformity assessmentsystem) whi"h relies on international and EU standards and 'ra"ti"es) will be enabling for foreigninvestment and trade with all trade 'artners and will foster e"onomi" develo'ment. urthermore) it

highlights some of the key issues related to non-tariff as'e"ts of Moldovas trade with its one of itsmaor trade 'artners with - EU "ountries. 5on-tariff barriers to trade in"lude issues ofstandardisation) intelle"tual 'ro'erty rights) "ustoms 'ro"edures) im'ort li"ensing) trade regulationsand administrative measures but we will fo"us on the basi" elements forming the ualityinfrastru"ture system $ first internal "he"k'oint for Moldovan goods attem'ting foreing markets.

%he inherited soviet ty'e standardisation system was "reated to serve the needs of the "ommande"onomy) where the state di"tated what to 'rodu"e) how to 'rodu"e it and in what uantities. or

h h h d d h d b d d li i lik i & h h


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&ll former so"ialist "ountries have undertaken ste's towards modernising their standardisationinfrastru"ture and introdu"ing international standards. Countries like the C8e"h 4e'ubli") !oland)4omania and Bulgaria) as well as other CEE "ountries have "om'leted this 'ro"ess) while Moldova

is im'lementing it at a mu"h slower 'a"e. Be"ause translating and transforming all relevantinternational standards into national language is a lengthy and e0'ensive 'ro"ess) Bulgaria) fore0am'le) has taken a short "ut by de"laring all standards voluntary and re"ognising internationalstandards without translating them. %his allowed Bulgarian 'rodu"ers ado'ting Euro'ean standards

before they were formally introdu"ed as Bulgarian tate tandard and instantly redu"ed barriers toim'orts from the EU. %his was also the e0'erien"e of !oland and other CEE "ountries.

&s logi" may suggest that for small develo'ing e"onomies it is most effi"ient to borrow what they

need from best international 'ra"ti"e instead of develo'ing from s"rat"h standardisationinfrastru"ture. &do'tion of international standards o'ens the domesti" market for "om'etition andin"reases the effi"ien"y of the lo"al 'rodu"ers) making them more 're'ared for the world"om'etition. %herefore ado'tion of voluntary standardisation system used by the Euro'ean Union isa re"ommended o'tion. %e"hni"al regulations "an also be dire"tly ado'ted) after determining whatthe "ountrys 'riorities in that area are. hen de"iding on how to develo' its standardisationinfrastru"ture) the "ountry should take into a""ount its trade needs. +t is most "ost effi"ient to ado'tthe standards of the maor trading 'artner.

+n the "onte0t of Moldova) there are "on"erns that its maor trading 'artners $ 4ussia) Ukraine andother C+ "ountries have standardisation systems) whi"h are the same as Moldovas and "ertifi"atesfor "onformity are mutually re"ognised. %herefore) Moldova should not ado't international or EUstandards too fast be"ause this might have a negative im'a"t on its trade with those "ountries. %hereseem to be several fa"tors) whi"h should eliminate these "on"erns

%he eviden"e that Moldova has not rea"hed yet its 'otential) estimated around ,: by different

k f h f h f d i l d l f bil l d


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is di"tated by the market. or e0am'le) the +/ @::: uality assuran"e standards are growing in'o'ularity and are often 'er"eived as essential for a""essing foreign markets and for in"reasingdomesti" sales as well. %he system of voluntar* stan)ar)sgives the 'rodu"ers the freedom to

de"ide how to 'rodu"e) to be innovative and to adhere to the standard) whi"h is "losest to the marketwhere they want to sell their goods. +t also allows 'rodu"tion of different range of goods in terms of

'ri"e and uality. hat to 'rodu"e and how should be determined by the market demand.

%he issue of sa0et"is addressed by the tehnial re/ulations. 7abeling reuirements ensure thatsuffi"ient information about the 'rodu"t is 'rovided to the "onsumer) so he "an make an informedde"ision whether this level of uality for that 'ri"e satisfies his needs.

+n terms of their fun"tion) standards "an be "ategorised as produt standards$ defining a 'rodu"ts

"hara"teristi"s or 'erforman"e reuirements) and prodution proess standards$ determining the"onditions under whi"h 'rodu"ts are made.

%he term Htechnical regulationsI >%4? refers to mandatory standards) whi"h are develo'ed andenfor"ed by governments to guarantee 'rote"tion of safety) health and environment. +t should benoted that te"hni"al regulations) as defined above) are fundamentally different from mandatorystandards) whi"h were used in the soviet system and still 'revail in Moldova. %e"hni"al regulationshave a 'ubli" good fun"tion and their main 'ur'ose is to s'e"ify 'erforman"e indi"ators) limits and

thresholds rather than design or des"ri'tive "hara"teristi"s) whi"h is ty'i"al for the G/% standards.or e0am'le te"hni"al regulation on fire-resistant door "ould s'e"ify that Hthe door must be fireresistant with a #:-minute burn through timeI and it should not s'e"ify how the 'rodu"t must bemade) e.g.) Hthe door must be made of steel) one in"h thi"kI. E0am'les of %4 in"lude labelingreuirements) fire "odes) 'harma"euti"al testing) motor vehi"le safety reuirements andenvironmental 'rote"tion regulations.

& modern stan)ar)isation s*stem +stan)ar)s inrastructure-of a "ountry "onsists of several layers.

h " l i h b di f h i l h i h d d i ld


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Bulgaria # 1* *2 @3 1@@ 2,@ *3@ AA#C8e"h 4e'ubli" 1A: #33 F*3 1**# 1,:: #A,, ,32F4omania *2 31 21* 23@ *33 1:#2 13F:

Moldova 1 , , 3 12 1#Source.Standardiation ser!ice o" )oldo!a,www.iso.md,www.club/000.org

=es'ite the fa"t that in the last three years in Moldova more "om'anies have been +/ @:::"ertified then in the five years before) the data from the table above shows that Moldova had a mu"hslower 'ath then its neighbors.

hen standards and te"hni"al regulations are diverging) trade is im'a"ted negatively be"ause of theadditional "osts in"urred by e0'orting firms. %hese are the so-"alled te"hni"al barriers to trade andhave the 'otential to be 'owerful 'rote"tionist 'oli"y tools.

%he in"reased "osts of e0'orts due to te"hni"al regulations and standards make the latter a 'ossible'oli"y tool for 'rote"tion of domesti" industries.

%he "osts for e0'orters from diverging regulations may be summarised into four "ategories

oss o" economies o" scale $ the need to adust 'rodu"tion to meet diverse te"hni"al

reuirements in individual markets in"reases the unit "ost of 'rodu"tion.

Con"ormity assessment costs$ the fee for "ertifi"ation of the 'rodu"tion is o'erating "ost and isin"luded in the 'ri"e of the 'rodu"t. Conformity assessment and "ertifi"ation servi"es are uitee0'ensive) es'e"ially in the "onte0t of a develo'ing "ountry "om'any 'aying for the servi"es ofa 'rivate "om'any from estern Euro'e or the U&.

%n"ormation costs$ these in"lude "osts of translating and disseminating 'rodu"t information)

training of e0'erts) et".

Surprise costs$ the ones when an e0'orter is "onfronted with new regulations) and in"urs

d
http://www.iso.md/http://www.iso.md/http://www.iso.md/http://www.club9000.org/http://www.club9000.org/http://www.club9000.org/http://www.iso.md/http://www.club9000.org/


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&long with the ena"tment of the basi" 7aw on tandardisation in 1@@,) the first ste' towardsreforming the old system of standardisation has been made by leaving only health) labour) andenvironmental standards as mandatory. %he 7aw on tandardisation e0'ressly 'rovided that

Moldovan standards have to be based on modern s"ientifi" resear"h) te"hniues and te"hnology) aswell as harmonisation with international and regional standards.

or the first time) the amendments to the 7aw on tandardisation and the 7aw on %e"hni"al Barriersto %rade 5o. A33-+R of 1: Mar"h 2::: sti'ulated that the a''li"ation of national standards will

be"ome voluntary) e0"e't for the "ases where a referen"e in %e"hni"al 4egulations is 'rovided.(owever) following a diffi"ult e"onomi" situation) and the absen"e of elaborated te"hni"alregulations) Moldova "onsidered mandatory standards the only 'ra"ti"al way to kee' out 'oor uality

or dangerous 'rodu"ts.Moldova had a rather late start in the 'ro"ess of drafting its own legislation in the field ofstandardisation) metrology) "ertifi"ation and "onformity assessment "om'ared to its neighboursfrom Central and Eastern Euro'e. irst own laws on standardisation and metrology were ena"tedonly four years after inde'enden"e. %he law on "ertifi"ation was ena"ted only four years ago.Con"erning the 'ro"ess of harmonisation with EU and international standards) whi"h for e0am'lewas mostly "om'leted by -ulgaria in //6) Moldova is lagging seriously behind. Certifi"ation had

a mandatory "hara"ter for 'rodu"ts or servi"es that "an affe"t life) health) and "onsumers 'ro'ertyand environment. %hese 'rodu"ts or servi"es were introdu"ed into the list of 'rodu"ts and servi"essube"t to mandatory "ertifi"ation) a''roved by the =e'artment of tandards) Metrology and%e"hni"al u'ervision.

%he "ertifi"ation 'ro"edures for s'e"ifi" "lasses of 'rodu"ts were s'elled out by ea"h a""reditedbody and a''roved by the =e'artment of tandards) Metrology and %e"hni"al u'ervision in"onformity with the Moldovan tandard M *,-2 H5ational Certifi"ation ystem of the 4e'ubli" ofMoldova !rodu"t "ertifi"ationI. %hese "ertifi"ation 'ro"edures) testing methods and "ertifi"ation


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Conventions regulating the safety of "hemi"al) to0i") inflammable) e0'losive and other substan"es.(owever) in Moldova there are no s'e"ifi" regulations or reuirements "overing ele"tri"al safety)tele"ommuni"ations eui'ment) medi"al devi"es and other "lasses of eui'ment.

Currently) the "ertifi"ation regime in the 4e'ubli" of Moldova is "arried out by #1 "ertifi"ationbodies) of whi"h 23 for 'rodu"ts) 2 for servi"es) 1 for 'ersonnel) 2 for uality systems and 1,3testing laboratories) a""redited within the 5ational Certifi"ation ystem of the 4e'ubli" of Moldovain "onformity with 'rovisions of E5 *,::: tandard. %here is also one ins'e"tion body. %henomen"lature of 'rodu"ts sube"t to mandatory "ertifi"ation in"ludes foodstuffs ele"troni"s

'rodu"ts and te"hnologies with high level of danger goods for "hildren "osmeti"s 'rodu"ts"onstru"tion materials ma"hines and eui'ment and furniture. %he servi"es sube"t to mandatory

"ertifi"ation in"luded hotels) dry "leaning) motor-re'air) audio and video re'air and householdele"tri"al a''lian"es re'air servi"es. (owever) the list seems to be too large and does not alwaysustify the 'ur'ose of "ertifi"ation.

%hrough the 'arti"i'ation in the te"hni"al "ommittees) domesti" 'rodu"ers are being made aware ofthe "ontents of drafts on standards. Besides the national standards Moldova a''lied internationalstandards >+/) +EC?) regional standards >G/%) E5? and 4omanian standards >%&) 4?.

Current 'ra"ti"e of re"ognition by Moldovan "ertifi"ation bodies of the "ertifi"ates issued in C+

"ountries and 4omania is based on bilateral agreements. (owever) there is a s'e"ial 'ro"edure to befollowed.

E+ample$%esting 'roto"ol shall be atta"hed at the border of 4ussia. !roblems arise mostly in thearea of wine e0'orts) sin"e in 4ussia there is a different "lassifi"ation of wine "om'ared with theestern Euro'ean markets.

=ue to the la"k of finan"ial resour"es) and weak institutional "a'a"ity) Moldova su""eeded to alesser e0tent to develo' its 'arti"i'ation in the Euro'ean standardisation bodies su"h as Euro'ean


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a. %t inhibits 9oreign 1irect %n!estment

ome of the fa"tors attra"ting foreign dire"t investment are adeuate infrastru"ture and trans'arent)non-arbitrary regulations and 'ro"edures. Countries meeting world standards tend to attra"t more

investors.b. %t contributes to a negati!e business en!ironment

%he system of standards and "onformity assessment is uite "om'li"ated with no "lear rules) whi"hleaves room for dis"retion. un"tions) relationshi' and res'onsibilities of different state bodies"om'rising the system are not "learly defined and very often are overla''ing. +nformation is notreadily available and the rationale behind some of the reuirements is not obvious.

%here are three bodies issuing reuired "ertifi"ates for food $ the !reventive Medi"ine =e'artment

within Ministry of (ealth"are) the Ministry of &gri"ulture and HMoldova tandardI. Many of theitems tested by ea"h body are the same. Quite often) only one of the bodies "arries out the test) andthe other two issue their "ertifi"ate on the basis of the first one.

+ns'e"tions are also overla''ing) with different de'artments of the same agen"y being in "harge ofvarious as'e"ts of the ins'e"tion 'ro"ess. & orld Bank study2,'oints out that in 2::2 Moldovan

businesses were) on average) sube"t to 1@., ins'e"tions 'er year.

&nother result of the same study is that senior management in Moldova dedi"ate on average F'er"ent of their time to dealing with regulations and s'end 2 'er"ent of revenues to Hget thingsdoneI.

c. he high le!el o" transaction costs "or obtaining the necessary certi"icates

%he need to "ertify goods and 'rodu"tion 'ro"esses is daunting both for e0'orters and im'ortersbe"ause of the high dire"t and indire"t "osts.

%he "om'anies e0'orting to the EU are mostly oint ventures or some other form of foreign "a'ital


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members of working grou's are not e0'erien"ed in drafting te"hni"al regulations) whi"h may leadto the "reation of unsuitable regulations) whi"h in turn may resemble more the e0isting mandatorystandards) rather then "om'ly with the EU a''roa"h. 7ittle has been done in terms of 'roviding

information to the 'ubli" about international standards) EU reuirements and the system of"onformity assessment) how the system of a""reditation is working) what are the world-widedevelo'ments and what is the im'ortan"e for trade. 5ot mu"h is being done also in training the staffof the various agen"ies.

e. E+erts a hea!ier burden on e+porters who wish to reach both E: and local markets. ; largenumber of firms e0'orting to the EU work with im'orted materials and te"hnology and followinternational uality reuirements and standards as defined in their "ontra"ts. +f su"h a "om'any

de"ides to sell 'art of its 'rodu"tion in Moldova) they have to obtain a number of "ertifi"ates. %heBulgarian e0'erien"e shows that "om'anies) who had to redesign their e0'ort 'rodu"ts to "onformto the reuirements of the EU single market) were able to e0'and their sales both on the Bulgarianand the CEE market >after moving to a system of voluntary standards?. %here is no reason to doubtthat higher uality and better-'a"kaged goods) "onforming the EU reuirements) will be bettera''re"iated by markets in the C+.

". imits inno!ation. %he "urrent standards) some of whi"h date ba"k to 1@#A) are too 'res"ri'tive

and do not allow for easy in"or'oration of new materials without going to the 'ro"ess of "hangingthe standard.

g. 1oes not promote trans"er o" technical knowledgeby limiting the 'ossibility to use internationaland EU standards instead of Moldovan standards) thus "rowding out =+ and related transfer ofte"hni"al knowledge and know-how. %his 'oint is even more valid for 'rodu"tion method standards.

h. 3bstructs competitionby limiting the ability of a 'rodu"er to adust its 'rodu"tion in res'onse tomarket demand in a timely manner. Moldovan standards are also uite s'e"ifi" about the 'a"kaging)


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'raph 5.3. (ational Bud/et alloations on tehnial

re/ulations

system of voluntary standardisation and te"hni"al regulations. Given Moldovas e"onomin"situation the time frame may be far longer.

&s first ste') Moldova established

the following two maor institutional'illars in order to im'lement thesystem of voluntary standardisationand elaboration of te"hni"alregulations

a& +ntergovernmental teeringCommittee for su'ervision of the

'ro"ess of "onversion ofmandatory standards intote"hni"al regulations andim'lementation of the voluntarysystem of standardisation.

0& 5ational !rogram forElaboration of %e"hni"al

4egulations 2::#-2::A with the'riority for the agri-'ro"essingse"tor) for whi"h the elaboration of te"hni"al regulations are set out for the first years 2::#-2::,

4egretfully) so far) there is no e0'ressly 'rovided 'rogram for standardisation in the new budgetlaw.

&""ording to the last amendments in the 5ational !rogramme on transition to the voluntarystandards and te"hni"al regulations) starting with 1 January 2::, Moldova will a''ly voluntary


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Box 5. List o0 Moldova>s o!!it!ents within the sope o0 the *T) TBT A/ree!ent

1. By 1 January 2::2 the authorities of the 4e'ubli" of Moldova will develo' and make known the te"hni"alregulations) derived from the 'resent mandatory standards.

2. %he newly develo'ed standards will be harmonised with +/ standards and the e0isting standards would beharmonised over time through a 'ro"ess of 'eriodi" revisions.

#. ree a""ess to all normative do"uments onstandardisation and "ertifi"ation 'ro"edures will be guaranteedfor all a''li"ants for "ertifi"ation from the 4e'ubli" of Moldova and other "ountries.

*. %o introdu"e modifi"ations to the 7aw on Certifi"ation5o. 3,2-+R from 2Ath of /"tober 1@@@ to bring&rti"le * 'aragra'h , of that 7aw into line with the reuirements of&rti"les , and 3 of the %B% &greementin the area of a''li"ation of "onformity assessment 'ro"edures.

,. &rti"les A and 12 of the %B% 7aw and &rti"le 1# of the 7aw on Certifi"ation would also be amended to

ensure that the 'ro"edures of "onformity assessment a''lied to im'orted goods were identi"al to the'ro"edures a''lied to lo"al 'rodu"tion) and would "onform to the 'rovisions of &rti"les , and 3 of the%/ %B% &greement. %hese amendments would be in for"e 'rior to the date of Moldovas a""ession.

3. %he Code of Good !ra"ti"e and all terms and definitions ne"essary for the im'lementation of the %B%&greement would be in o'eration 'rior to the date of Moldovas a""ession to the %/.

F. 7egal instruments would be issued during 2::1 to 'rovide for the "om'lete transformation of Moldovan'ra"ti"e from 're-e0isting mandatory standards into a system based on te"hni"al regulations and a''ro'riatevoluntary standards.

A. rom 1 January 2::#) the a''li"ation of all national standards would be"ome voluntary. &t the end of this

'eriod) national standards would remain mandatory only by referen"e to a te"hni"al regulation) ado'ted bya 'ubli" authority in a""ordan"e with legitimate obe"tives) su"h as national se"urity) 'reventing of misuse

'ra"ti"es) 'rote"tion of the health and life of 'hysi"al 'ersons) of the health and life of animals) 'lants'rote"tion)and environment 'rote"tion.

@. !rior to the date of a""ession) Moldova would amend its laws and regulations to ensure that its "onformityassessment 'ro"edures refle"ted o'tions for a"hieving "onfiden"e in the te"hni"al "om'eten"e of bodieslo"ated in the territory of other %/ members to 'erform "onformity assessment and have their resultsa""e'ted by Moldovan authorities. u"h o'tions would in"lude the "on"lusion of agreements with"onformity assessment bodies in other "ountries >e.g.) a""reditation bodies "ertifi"ation bodies? the


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Chapter I-& Senario I& Autono!ous Trade $re0erenes EU , Moldova

9.3 The 0or!at o0 an autono!ous trade pre0erential arran/e!ent

/ver 1#: 'referential trade agreements with EU were formed in the last ten years $ morethan in the 'revious ,: years taken together. 5early all "ountries are "urrently members ofat least one 'referential trade agreement and nearly a third of world trade is "arried outunder a 'referential treatment.

%here is a 'rovision in the %/ for develo'ing "ountries allowing treating themdifferently from develo'ed states in various regards) in"luding granting trade 'referen"es.

+n other words) develo'ed states may dis"riminate against other develo'ed "ountries intheir trade 'oli"y 'rovided that it benefits develo'ing "ountries. %his is 'ermitted underthe so-"alled D1@F@ Enabling Clause.

5e0t to the G! s"heme) a''lied by the most develo'ed "ountries in order to grant trade'referen"es for develo'ing and transition e"onomies) the Euro'ean Community designeddis"riminatory 'referential s"hemes for a subset of "ountries 7ome Convention >re'la"ed

by Cotonou &greement? for FF &fri"an) Caribbean and !a"ifi" "ountries Everything But

&rms +nitiative for least develo'ed "ountries and &utonomous %rade !referen"es >&%!s?for the estern Balkans.

+n 1@@F the Euro'ean Union laun"hed the 4egional &''roa"h +nitiative for the esternBalkans) whi"h "over the following fields trade >a''li"ation of autonomous trade

'referen"es?) finan"ial assistan"e and e"onomi" "o-o'eration. %he trade 'referen"esgranted by the Euro'ean Union) known as the autonomous trade 'referen"es) basi"allyallow virtually all 'rodu"ts originating in the benefi"iary "ountries to enter the EU without


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o$ 1& Con)itionalities or o0taining ATPs

- e0isten"e of a national system of rules of origin) whi"hmean "om'lian"e with the definition of the "on"e't ofHoriginating 'rodu"tsI

- abstention of the "ountries from introdu"ing new dutiesor "harges having euivalent effe"t and new uantitativerestri"tions or measures having euivalent effe"t fromim'orts originating in the Community or fromin"reasing e0isting levels of duties or "harges or fromintrodu"ing any other restri"tions from the day of theentry into for"e of the 4egulation

- the involvement of benefi"iaries in effe"tiveadministrative "oo'eration with the Community in orderto 'revent any risk of fraud

- readiness to engage in effe"tive e"onomi" reforms andin regional "oo'eration with other "ountries "on"erned

by the Euro'ean Unions tabilisation and &sso"iation'ro"ess) in 'arti"ular through the establishment of freetrade areas

- trade 'referen"es "an only be granted to "ountries orterritories 'ossessing a "ustoms administration

&t its meeting in 7isbon on 2# and 2* Mar"h 2:::) the Euro'ean Coun"il "on"luded thattabilisation and &sso"iation &greements with the estern Balkan "ountries should be

're"eded by asymmetri"al trade liberalisation.

%he Euro'ean Commission 'ro'osedthe 'referential trade arrangement asa 'art of tabilisation and&sso"iation !ro"ess) following thes'e"ial situation in the region.Conditions for entitlement to the

'referential arrangements) whi"h are

sube"t of the se"ond generation) ares'e"ified in the &rti"le 2 of the4egulation 2::F62::: >see Bo0 *?.

&utonomous trade 'referen"esforesee an integral elimination of the"ustoms duties and uantitativeuotas for all 'rodu"ts originating

from the states 'arti"i'anting in thetabilisation and &sso"iation!ro"ess) with the e0"e'tion of beef)some fish 'rodu"ts and individual"on"essions for wine.

/btaining autonomous trade 'referen"es from the Euro'ean Union is a short-termobe"tive of the 4e'ubli" of Moldova) of strategi" im'ortan"e though. u"h 'referen"es


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o$2 EC !e3uirements

General re4uirements$

-to have an "om'etent "ustoms authority to manageeffe"tively 'referential and non-'referential rules oforigin

- to 'ublish) following reuired 'ro"edures)instru"tions) notifi"ations or guides on 'referentialrules of origin for the staff of "ustoms servi"e and

businessmen- to inform ne"essary servi"es on a''lied system of

rules of origin.

%ssuing o" pre"erential certi"icates o" origin and

!eri"ication o" authenticity o" the im'ort "ertifi"ates oforigin

- these fun"tions should be e0"lusively the sube"t of"ustoms authorities) without the involvement of theChamber of Commer"e and +ndustry

- notifi"ation of the EU servi"es on "ustoms s'e"imenof the 4e'ubli" of Moldova

-notifi"ation of the "ustom servi"e staff on the "ustomss'e"imen of the EU and its members states

- "ustoms servi"e of the 4e'ubli" of Moldova should beauthorised with verifi"ation fun"tions and "ontrol ofauthenti"ation of origin.

+n order to meet the above-mentionedreuirements) the Go!ernment o" the

Republic o" )oldo!a has adopted an

action plan to impro!e the regulatoryand institutional "rameworks on

certi"ication o" origin o" e+ported

goods in con"ormity with the E:

re4uirements. +n 'arti"ular) theCustoms Code of the 4e'ubli" ofMoldova should be im'roved) as well

as the Government =e"ision no. 1,@@from 1# =e"ember 2::2 on the rulesof origin of "ommodities. &n a"tion

'lan should be drawn u' with the aimto su''ort the Custom ervi"e ofMoldova with reuired eui'ment andstaff training in the field of "ertifi"ation of origin of e0'orted

'rodu"ts. or this 'ro'ose theassistan"e of the Euro'ean Union)in"luding te"hni"al assistan"e) is"ru"ial.

9.4 Bene0its and drawba1s o0 an AT$

!referential treatment by Euro'ean Union of its im'orts from develo'ing and transition


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"ountries e0'orts to the Euro'ean Union is not a reliable indi"ator as it is not "lear howe0'orts would have behaved should no 'referential treatment been in the absense of &%!.& somewhat better im'ression might be gained by "om'aring the growth of develo'ing

"ountry e0'orts to develo'ed "ountries granting 'referen"es with the growth of e0'orts todevelo'ed "ountries not granting 'referen"es. (owever) it "annot be "on"luded thate0'orts to 'referen"e-giving "ountries would have) in the absen"e of 'referen"es) evolvedin the same way as e0'orts that a"tually went to develo'ed "ountries not granting

'referen"es.

+n addition to the dire"t effe"ts on 'rodu"tion) investment and em'loyment) e0'orts mayalso 'rovide Hsoft benefitsI to e0'orting "ountries. E0'orts to the Euro'ean Union and

other develo'ed markets reuire u'grading 'rodu"t uality) health and safety standards)whi"h is likely to s'read to all 'rodu"ts of a su''lier) in"luding those designated fordomesti" "onsum'tion. E0'orts "an in"rease the s"ale of 'rodu"tion) introdu"e moreeffi"ient 'rodu"tion methods and te"hnologies) and hen"e in"rease 'rodu"tivity andin"ome) stabilise earnings and lower "onsumer 'ri"es.

&s in most as'e"ts of life) trade 'referen"es have not only benefits) but also "osts. hilemost of the benefits take the form of dire"t e"onomi" advantages) the "osts tend to be

more disguised) and in 'art "ome only in the longer term. (owever) they are neverthelessreal and have to be weighed against the benefits. Moreover) the benefits from 'referen"esmay de"line over time) while the "osts may remain "onstant) or "an even in"rease.

&t a "om'letely different level) 'referen"es "ause "osts resulting from their te"hni"alim'lementation. +n 'arti"ular) granting of 'referen"es im'lies strong system of "ontrol ofrules of origin) to make sure that only) or 'rimarily) domesti" 'rodu"tion in the benefi"iary"ountries benefits. %y'i"ally) rules of origin are uite "om'le0) and the te0ts s'e"ifying


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+nitially the s'e"ial %rade !referen"es were introdu"ed in 1@@F2Afor Croatia) Bosnia and(er8egovina and) for a short 'eriod of time) for Wugoslavia >later on removed by aCoun"il de"ision for the non-"om'lian"e with the Coun"il "onditionalities from &'ril

1@@F "on"erning the maintenan"e of 'ea"e and stability within the region?. %hese'referen"es are "onsidered as &utonomous !referen"es of the Hfirst generationI.

%hose 'referential trade "on"essions a''li"able to the "ountries formerly 'art ofWugoslavia were set out in the Coo'eration &greement between the Euro'ean E"onomi"Community and the o"ialist ederal 4e'ubli" of Wugoslavia) signed on 2 &'ril 1@A: anddenoun"ed on 2, 5ovember 1@@1.

&lbania and Ma"edonia were not sube"t to the autonomous trade 'referen"es due to thefa"t that at that moment a Coo'eration &greement) "on"luded in 1@@F) governed the traderelationshi's between Ma"edonia and the Euro'ean Union >with trade 'referen"es at a less

'referential level? and &lbania benefited from the 'referen"es given under the EU G!s"heme. %hese arrangements eventually had to be re'la"ed by 'rovisions "ontained in

bilateral agreements to be negotiated further with the "ountries in uestion.

%he 'referential "on"essions of first generation "om'rised e0em'tion from duties and theabolition of uantitative restri"tions for industrial 'rodu"ts) e0"e't for "ertain 'rodu"tssube"t to tariff "eilings) and s'e"ial "on"essions for various agri"ultural 'rodu"ts>e0em'tion from duties) redu"tion of the agri"ultural "om'onents) tariff uotas?. orindustrial 'rodu"ts that were not sube"t of the free trade regime) the level of "eilings hadto be in"reased annually by ,. %ariff "on"essions) tariff uotas and referen"e uantitieswere ke't for some ty'es of agri"ultural 'rodu"ts >baby beef) some fruits and fruit s'irit)toba""o?. & single s"heme of trade 'referen"es has been a''lied for all three "ountries.%he te0tile 'rodu"ts originating from these "ountries hade to be a""e'ted for im'ort into


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%he new format of &%! provides dut",0ree entr" 0or over 6:? o0 /oods for &lbania)Bosnia and (er8egovina) Croatia and 'ending the "on"lusion ofwine agreements with these "ountries?. +n the light of 'ositive develo'ments >in the Unionof erbia and Montenegro? the General &ffairs Coun"il has further amended the4egulation 2::F62::: by e0tending its 'rovisions to Wugoslavia and Ma"edonia >Coun"il4egulations 2,3#62::: and 2*AF62:::?.

%he &%! 'rovides the "ountries of estern Balkans with duty-free a""ess to the Unions

market for 'ra"ti"ally all goods) in"luding agri"ultural 'rodu"ts) with no uantitativerestri"tions) e0"e't for duty-free or 'referential uotas for some fishery 'rodu"ts) baby-

beef) and wine. %he greatest "hange "om'ared to 'revious system was almost a "om'leteliberalisation of im'orts of agri"ultural and fishery 'rodu"ts and the abolishment of uotasfor sensitive industrial 'rodu"ts.

&t that time the general level of im'orts from the estern Balkan "ountries was less than:)3 of all Community im'orts. urther market o'ening was e0'e"ted to "ontribute to

the 'ro"ess of 'oliti"al and e"onomi" stabilisation in the region while not "reatingnegative effe"ts for the Community. in"e these measures were 'ro'osed by the EU as

'art of the EU tabilisation and &sso"iation 'ro"ess) in res'onse to the s'e"ifi" situationin the estern Balkans) the !reamble to the EC 4egulation 2::F62::: "learly sti'ulatesthat they should not "onstitute a 're"edent for Community trade 'oli"y with other third"ountries.

%he 4egulation also 'rovides restri"tions for a grou' of 'rodu"ts) des"ribed below


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me"hanisms) the Commission may take the a''ro'riate measures and sus'end the im'ortsfrom these "ountries.

+n "ase the Commission finds that there is suffi"ient eviden"e of fraud or failure to 'rovideadministrative "oo'eration as reuired for the verifi"ation of eviden"e of origin) or thatthere is a massive in"rease of e0'orts into the Community above the level of normal

'rodu"tion and e0'ort "a'a"ity or by "ountries) it also may take measures to sus'end inwhole or in 'art the 'rovided arrangements for a 'eriod of three months.

%he im'ort arrangements 'rovided under the &%! s"heme had to be renewed on the basisof the "onditions established by the Coun"il and in the light of e0'erien"e gained ingranting these arrangements. %herefore it was "onsidered a''ro'riate to limit the durationof the arrangements to #1 =e"ember 2::,. 4e"ently) the Commission has 'ro'osedrenewal of these trade 'referen"es until 2:1: to foster e"onomi" develo'ment.

&""ording to the art. 2 of the 4egulation 2::F62:::) 'rodu"ts originating in the 4e'ubli"of Croatia and the former Wugoslav 4e'ubli" of Ma"edonia "ontinue to benefit from the

'rovisions of this 4egulation when so indi"ated or for any measures 'rovided in this4egulation) whi"h are more favorable than the trade "on"essions 'rovided for in theframework of bilateral agreements between the Euro'ean Communities and these"ountries.

1&4&% Impact o E' preerential measures

Between 1@@@ and 2::2) estern Balkan e0'orts to the EU have in"reased by some *:'er"ent >by a''ro0imately A 'er annum?) but remain low at about , billion euros >see


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%he im'a"t of the trade measures on the "ountries varies) de'ending on the stru"ture oftheir e0'orts and on 'revious trade arrangements. &t this stage) &lbania and erbia andMontenegro a''ear to have benefited the most from the trade measures) whi"h brought

about lower tariffs for about half of their e0'orts) the other half already benefiting fromduty-free a""ess to the EU market. %he tariff redu"tion was signifi"ant for most e0'orted

'rodu"ts. +n the "onte0t of 'arallel EU trade liberalisation towards other third "ountries)the trade measures have assisted the estern Balkan "ountries in maintaining their

'referential 'osition on the EU market.

Given the short 'eriod of time sin"e the introdu"tion of the EUs trade measures) they"ould be e0'e"ted to 'romote an in"rease in e0'orts of 'rodu"ts that are already su''lied

by the region and whi"h have e0'erien"ed a "hange in tariff 'ayable. %able *.2 shows thattariffs on relatively few e0'orted 'rodu"ts were lower in 2::2 "om'ared to 1@@@) affe"tingabout 1F of the regions e0'orts#1. &bout half of the e0'orts of &lbania and erbia andMontenegro were sube"t to abolished tariffs following the introdu"tion of the trademeasures. %he tariff "ut was signifi"ant >Y,? for 22 and #: of their res'e"tivee0'orts.

Table 9.4. (u!ber o0= and tari00s 0ain/= *estern Bal1an exports to the EU in 3666

and 4884(o. o0 produts

exported

(u!ber o0 produts 0or whih 4884 tari00 is&

? o0 exports in parentheses.

Countr" 3666 4884 ero MF( Sa!e as in

3666

Lower than in 3666

&lbania #* 2# F >A? 2 >3? 1* >,*?Bosnia-(er8egovina ** *: 12 >1A? 23 >*A? 1 >1?Croatia 12A 123 #2 >22? A# >#F? # >2?


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standards with those o" the E:, including in the !eterinary and the sanitary and

phytosanitary "ield. ;n e+amination o" the region*s longterm prospects o" e+ports to the

E: shows a signi"icant untapped potential. E+ports "rom the countries o" the region to the

E: could be considerably higher than is currently the case. o e+ploit the underlyingpotential, the countries must attract su""icient le!els o" "oreign direct in!estment to

broaden their e+port base and to increase their production capacity and producti!ity and

to ensure compliance with the E: standards. Go!ernments need to pursue structural

re"orms, modernise administrations, including in particular the 7udiciary, and to ensure

the rule o" law to realise this ob7ecti!e. Since in the nearest "uture )oldo!a will also be

granted such a pre"erential arrangement, lessons learned "rom other ;# bene"iciaries

could be considered as a use"ul starting point to be taken into account by the Go!ernmentand the business community.


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Chapter -& Senario II& As"!!etri Free Trade A/ree!ent between EU and

Moldova

:.3 $re,reuisites 0or si/nin/ Free Trade A/ree!ent

+n what refers to negotiating and signing of an asymmetri" ree %rade &greement betweenthe 4e'ubli" of Moldova and EU) it is worth mentioning that this move is deemed asmu"h more im'ortant and "onsistent for the 4e'ubli" of Moldova as "om'ared to thea""ess to the EU &utonomous %rade !referen"es) whi"h im'lies "reation of a bilaterallegal framework with e0'li"it "ommitments undertaken by both "ounter'arts.

urthermore) in order to negotiate su"h an &greement it is ne"essary to "reate 'oliti"al're-reuisites and to "ontribute "onsiderable efforts to make it ha''en.

%he following are the "onditions for signing of a ree %rade &greement between the4e'ubli" of Moldova and EU

- strong 'oliti"al will of the 4e'ubli" of Moldova to adhere to the Euro'eanstru"tures

- suess0ul i!ple!entation o0 the EU,Moldova $artnership andCooperation A/ree!ent and the Ation $lan

- legal "overage offered by the EU-Moldova !artnershi' and Coo'eration&greement and by the &"tion !lan) whi"h allow for negotiating and signing aree %rade &greement

- im'ortan"e of this &greement for the establishment and strengthening a systemof stability in Euro'e) based on "oo'eration and having the Community as one


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- 'romoting develo'ment of trade as well as harmoni8ed e"onomi" relationsbetween the "ounter'arts) thus enhan"ing the e"onomi" develo'ment in the4e'ubli" of Moldova

- ensuring basis for the e"onomi") so"ial) finan"ial and "ultural "oo'eration

- 'romoting harmonious e"onomi" relations and 'rogressively develo'ing freetrade areas between the 4e'ubli" of Moldova and Euro'ean Community

- en"ouraging regional "oo'eration in the domains re'resenting re"i'ro"alinterest for both "ounter'arts) es'e"ially in e"onomi"s) "ulture and s"ien"e.

%he e0'erien"e gained by the Central and Eastern Euro'ean Countries shows "ertain"om'arative advantages offered through the ree %rade &greements with the EU. %akinginto a""ount the im'ortan"e of trade and investments for the e"onomi" 'rogress) the freee"onomi" areas "ould deliver notable e"onomi" benefits) 'rovided su"h are introdu"edinto adeuate e"onomi" environment in whi"h any "om'any or any individual are free and"a'able of e0'loiting available business o''ortunities.

%he e"onomi" theory demonstrates that from the view'oint of a member-tate)develo'ment of 'referential trade is not always benefi"ial for them. !ositive effe"ts of

abolishing "ustoms tariffs will tend to be higher by as mu"h as are the initial tariffs.7ikewise) redu"tion of the number of foreign trade barriers against other trade 'artnerswill "ontribute to "utting down retargeting of the flows of foreign investments as a resultof the "ore role 'layed by the EU 'artner in the field of ree %rade &greements.

%raditional trade 'oli"ies a''lied with regard to te"hniues of "ommer"ial 'rote"tionnearing tariff and non-tariff nature are sla"kening on their im'ortan"e as restri"tions on

'referential trade. +n this "ase it does not go without e0"e'tions for instan"e) te0tile


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ree %rade &greements are 'laying a rather im'ortant role in un"len"hing domesti"reforms. (owever) a free trade &greement may have no or rather negligible effe"t if the

'ro"ess of domesti" reforms has not 'roven "oherent and "redible. ree %rade &greement

"ould su''lement im'lementation of domesti" reforms.

&s it has been mentioned in Cha'ter +R) the e0'erien"e gained by the Central and EasternEuro'ean Countries through their 'referential relations with the EU) suggests that ree%rade &greement by itself is far from offering a universal solution for the investments ande"onomi" growth. +t is "lear that domesti"ally 'romoted 'oli"ies and their im'lementationserve as the most im'ortant determinative elements for obtaining sustainable e"onomi"effe"ts. & ree %rade &greement "ould enhan"e liberali8ation of e"onomy and ensure

"redibility of reforming 'rograms.

%t is worth noticing that signing 9ree rade ;greement with the E: or the European

;greement o" ;ssociation represents basic legal and political "ramework "or the

promotion and de!elopment o" partnership relations as well an instrument "or impelling

mo!ement towards gradual achie!ement o" the strategic ob7ecti!e pursued by the country,

i.e. European integration.

;lthough, due to e+istence o" certain ob7ecti!e issues, the management o" the European:nion has not yet made a clear statement on accepting )oldo!a*s association in the near

"uture, e""ecti!eness o" the arrangement and preparedness o" the community authorities o"

all le!els to carry out the respecti!e pro!isions as soon as practically possible, could be

appreciated positi!ely and taken as an indirect political signal. %n that sense it is true that

the Republic o" )oldo!a "inds itsel" in a more ad!antageous position as compared to the

rest o" the C%S countries that ha!e stated their intentions concerning European

integration.


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ii General 'rin"i'les or the hori8ontal legal 'rovisions serving to refle"t all thedomains "overed by herewith mentioned &greement

iii !oliti"al dialogue and "lear "ommitment undertaken by the 'arties targetedtowards ensuring and develo'ing bilateral relations leading to an eventualasso"iation of the 4e'ubli" of Moldova with the EU

iv ree movement of goods or having in 'la"e basi" elements of the ree %rade&greement "om'osed of another * basi" "om'onents) namely

1. General 'rin"i'les governing 'referential bilateral trade relations

2. 4egulatory framework in trading industrial 'rodu"ts

#. 4egulatory framework in trading agri"ultural 'rodu"ts

*. Common 'rovisions) whi"h in"or'orate legal 'rovisions "on"erning the'ro"edures of a''lying te"hniues of "ommer"ial 'rote"tion) state assistan"e)'ubli" 'ro"urements) general "lause of safeguarding) "lause of 'enury)"onditions "on"erning transit) state mono'oly and other su"h issues

- Movement of goods) the right of establishing and rendering servi"es

- Current 'ayments and free movement of "a'ital

- &''ro0imation of legislation and a''li"ation of laws in the following domainsintelle"tual) industrial and "ommer"ial 'ro'erty "om'etition and othere"onomi" 'rovisions 'ubli" "ontra"ts metrology) standardi8ation)a""reditation and assessment of "onformity

- Justi"e and interior affairs) whi"h suggests ensuring 'rovisions in the domains


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+n general the stru"ture of the Euro'ean &greements of &sso"iation that were alreadysigned between the EU and CEEC >Bulgaria) 4omania) Balti" "ountries) !oland andothers? is similar to that of the Euro'ean &greement of tabili8ation and &sso"iation

signed by the EU with ea"h of the estern Balkan "ountries after the war in the formerederal 4e'ubli" of Wugoslavia. Moreover) the &greements of tabili8ation and&sso"iation im'ly "ommitments on behalf of the EU through allo"ation of additionalfunds for the re"overy of the e"onomi" 'otentialities of the "ountries in the region y"reating "ertain e0"e'tion "onditions for the a""ess to the EU goods and servi"es marketwithout "onsiderable restri"tions.

%he key element of the Euro'ean &greement of &sso"iation is the se"tion) whi"h refers to

ensuring free movement of goods. %he available 'ra"ti"e shows that the maority of these&greements "ontain an element) whi"h is rather im'ortant and essential for the signatorystates) and that is the ele!ent o0 as"!!etr".

%hus) the 'arties may agree to 'rogressively set u' free e0"hange 8one based on re"i'ro"alobligations and balan"ed in "om'lian"e with 'rovisions set forth by the 1@@* General&greement on %ariffs and %rade >G&%%? and %/ as well as by the following essential"onditions

- %he EU undertakes to abolish all uantitative restri"tions on e0'ort) "ustomsduties) duties with euivalent effe"t on im'ort and e0'ort from the date of theeffe"tiveness of the &greement) thus ensuring free movement of goods ofMoldovan 'rovenien"e in the territory of the EU states) with some e0"e'tionsreferred to the matter of bilateral negotiations

- %he 4e'ubli" of Moldova undertakes to 'rogressively) during 1: yearsfollowing gra"e 'eriod >usually , years? liberali8e a""ess of EU 'rovenien"e


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- %he arrangements should not lead to "reation of new barriers in the "ommer"ialrelations with other "ountries.

%he like arrangements "ould take the sha'e of "ustoms unions or free trade areas. +n both"ases the trade between Member tates is dis'layed without "ustoms duties while for theother "ountries su"h duties "ontinue to a''ly under the regime of most favored nation. +n"ase of "ustoms unions) "ustoms duties 'aid by the member tates are harmoni8ed anda''lied uniformly to the goods im'orted from the third "ountries. &s a result) the regionaltrade enoys "onstant growth with an in"reasing share of world trade im'lemented on theregional basis.

& referential trade &greement will 'rodu"e 'ositive effe"t over the wellbeing in "ase whenit generates new trade links between the "ounter'arts. %his o!!erial reationa''earsif the domesti" relatively ineffi"ient 'rodu"t is re'la"ed by "hea'er 'rodu"ts manufa"tured

by the "ounter'art. =es'ite all these) if the 'referential redu"tion of trade barriers e0'ands"ommer"ial e0"hanges between the "ounter'arts in favor of most effi"ient 'rodu"ers fromthe rest of the world) then we will end u' with a o!!erial diversion. +n su"h a "ase)maintaining duties against "ountries that are not Member tates infli"ts additional "ostsdue to im'orting from the 'rodu"ers from the free trade area that are 'rodu"ing at

relatively high 'ri"es and losses of 'ro"eeds from duties. &n e0tra 'ositive effe"t willo""ur if the ree %rade &greement will lead to a lower 'ri"e and thus to a higher domesti""onsum'tion of a 'rodu"t. &s a rule) the like effe"t is a""om'anied by the "ommer"ial"reation. +f the adverse effe"t onto the trade "aused by the "ommer"ial diversion e0"eedsthe 'ositive effe"t "aused by the "ommer"ial "reation and higher "onsum'tion) then thegeneral wellbeing or the real in"ome will dro' down.

%his leads to a re"ommendation that the countries creating "ree trade areas should reduce


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+n 2::* the 4e'ubli" of Moldova renoun"ed on "harging "ustoms duties on im'ort forover F, of the value of goods im'orted from the EU. (owever) the average duties thatthe Moldovan e0'orts to the EU are "onfronted with "onsiderably higher duties. +n "ase of

industrial 'rodu"ts the average duty in 2::* was about 3 >in "ases when the benefitsoffered by the Generali8ed ystem of !referen"es >G!? are fully used?) although due todro' down in line with the gaining a""ess to the new Generali8ed ystem of !referen"es>HG!OI?) whi"h is e0'e"ted to be laun"hed on :1.:1.2::3 or rather redu"ed in "ase ofobtaining &utonomous %rade !referen"es on behalf of the EU. %his situation refle"ts largeshare of "lothing in the Moldovan e0'ort to the EU for whi"h "ustoms duties are relativelyhigh.

/bviously) there e0ists a se"tor in whi"h the e0ternal 'rote"tionism on behalf of the EUremains very high and where Moldova and other "ountries members of the C+ "ouldenoy signifi"ant benefits due to 'referential a""ess and that is the a/riulture. Until

'resently the ree %rade &greements of the Euro'ean Union do not in"lude agri"ulture ina substantial way. %he "onsisten"y of these &greements with the international "ommer"ialrules is not "lear. &rti"le +R of the G&%% >1@*F? asserts that trade barriers should beeliminated between the 'artners Ha"tually in all se"tors of tradeI. %his gave rise to a ratherfle0ible inter'retation of the &rti"le. Understanding that was rea"hed on inter'retation of&rti"le +R in the "ourse of Uruguay 4ound of multilateral "ommer"ial negotiationsasserts that members of the G&%% re"ogni8e that "ontribution of the "ustoms unions andfree trade areas to the e0'ansion of international trade Hin"reases if the eliminationI of there"i'ro"al trade barriers Ha''lies to all the se"tors of trade and de"reases if one of themaor se"tors is in"ludedI. %his was inter'reted in "ertain "ir"les as ado'ting by the %/of a more firm attitude !isA!is"overage reuirements of the ree %rade &greement.

+t is uite "lear that the benefits of a ree %rade &greement for Moldova will be smaller if


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EU market freed from "ustoms duties "ould stimulate a more rigorous a''roa"h to liftingdomesti" "onstrains on s'reading agri"ulture in the 4e'ubli" of Moldova.

More intense "ommer"ial e0"hange with the advan"ed Euro'ean "ountries will allowa""ess to the advan"ed te"hnologies as well as to the intermediary assistan"e. 7ikewise)there e0ist a number of "hannels through whi"h a ree %rade &greement "ould 'rodu"e

'ositive influen"e onto the investment "limate in the 4e'ubli" of Moldova. irstly) liftingduties will redu"e the "ost of funds im'orted from the EU) whi"h in its turn) will lead tohigher rate of return on investments and thus) to the growth of "a'ital a""umulation rate.!robably this effe"t will be small) sin"e im'ort of investment goods in general are sube"tin Moldova to some duties eual to 8ero. e"ondly) if the &greement suggests

liberali8ation of the servi"es rendered by the finan"ial se"tor and higher "om'etition andeffi"ien"y in banking and finan"ial se"tors) then the "ost of "a'ital funds for theinvestment 'ur'oses "ould go down. %hirdly) if the ree %rade &greement >%&? a"tstowards strengthening domesti" reform and ensuring bigger stability and "ertitude for the

'oliti"al framework) then generated for the business will be mu"h more favorableenvironment. &nd finally) the %& "ould lead to a growth of the amount of dire"t foreigninvestments >=+?. %he =+) besides ensuring "a'ital resour"es) also serve as a dire"t"hannel for the transfer of te"hnologies and te"hniue. 7ikewise) it is im'ortant to noti"ethat it is rather im'robable that the benefits of regional integration will materiali8e as aresult of signing and agreement with 4ussia and other "ountries members of the C+.

%n conclusion, actions attempted by the Republic o" )oldo!a in creating "a!orable

business climate supported by the respecti!e guarantees o" "oreign in!estments are highly

welcome. 9urthermore, likewise highly appreciated are the actions attempted by the

go!ernment in increasing bene"its e+tended to the "oreign in!estors when making certain

in!estments in the Republic o" )oldo!a as well as in re"orming the regulatory


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but the full EU-Moldova %&. Under that only s"enario) EU im'orts from Moldova wouldhave in"reased by 13 for manufa"tures and 2, for agri"ulture. &t the same timeMoldovan im'orts from the EU would have in"reased by around F for manufa"tures and

#A for agri"ulture "eteris 'aribus. 5onetheless) the welfare effe"t of an %& with the EUon Moldova would have been devastating as under all s"enarios Moldova lost substantialrevenue >1@-#:?. urthermore) Moldova will have seen small im'a"t on own"onsum'tion and negligible effe"ts on in"rease in 'rodu"tion.

+t is worth mentioning that the "urrent G! system "ame into for"e after "on"lusion of thestudy. %herefore it is not 'ossible to trans'ose the findings of the study to the 'resentsituation) sin"e the effe"ts of tariff elimination in the bilateral trade with the EU as of now

will be mu"h lower than the ones "ited in the 'a'er##. &dditionally) be"ause the model wasbased on trade data from 1@@F) no time "hanges were taken into "onsideration and this inour view substantially harms the trustworthiness of the uantifi"ation.

Ultimately the assum'tions made by its authors on elasti"ities in 'rodu"tion) substitutionin "onsum'tion and regional substitution were based on intelligent guesses and were notrefle"ting the real elasti"ity figures for those goods in outh Eastern Euro'e and es'e"iallyMoldova be"ause nobody has regressed those before. e think that the elasti"ities >set at

2) 2 and 1.2, res'e"tively? were in reality mu"h lower in this "ountry#*

)be"ause it has thelowest "a'a"ity in short term to swit"h 'rodu"tion to alternative 'rodu"ts or diversify

'rodu"ts based on "hanges in demand in Euro'e) and seemingly has low "a'a"ity in theshort-run to reorient its trade to6from other regions.#,%herefore) additional resear"h should

be undertaken to uantify e0a"tly the elasti"ities for maor Moldovan sta'les.

5onetheless) the maor merit of the 'a'er was to "on"lude that agri"ultural 'rodu"tsremain of greatest im'ortan"e for Moldvan e0'orts and it is 'rereuisite for Moldovans to

#3


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utilisation ,.3#Fis a''lied to 3: 'er"ent of all e0'orts) whereas the rest *: 'er"ent 'ay theaverage weighted M5 of F.@#A. (aving noti"ed that offi"ial Moldovan statisti"al datadiffers from the offi"ial EU statisti"al data we did the same uantifi"ations based on =G

trade offi"ial figures and the transfer is somewhat larger $ 47=4 !illion Euroand im'liesthe share of %ransnistria.

Table :.3. A rou/h esti!ation o0 the EU tari00 loss i0 the EU /ranted Moldova dut"

0ree aess 0or all Moldovan exports

MoldovanE0'ort to the

EU

mio Euro+

3: of totale0'orts

mio Euro

++Z:.3L+

*: of totale0'orts

mio Euro

+++Z:.*L +

EU tariffloss) e0'ortsube"t to

G!mio Euro

+RZ:.:,3L++

EU tariffloss frome0'orts

subet toM5

mio EuroRZ:.:F@L+++

%otal EUtariff loss

>mio Euro?

R+Z+ROR

/fifi"ialMoldovan

statisti"s 5


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Moldova will have lost the 1, million by the end of 2::, be"ause the grant deadlineela'sed. /n the "ontrary) the revenue loss for the EU if a non-re"i'ro"al ree %rade&greement is signed "ould be regarded as ma"roe"onomi" assistan"e for Moldova that

does not de'end on other fa"tors to be a""ounted for. urthermore) su"h kind ofdevelo'ment aid has been en"ouraged by the United 5ations sin"e 1@3A) on the groundsthat 'referential treatment "omes as a form of donor assistan"e.

&ssuming the worse s"enario >the loss of 2*.F million Euro a year?) the "osts for the EUwould have re'resented roughly a :.::::2* of its world im'orts >1 :2@ #23 mio Euro?#@

in 2::* and :.::223 of its tariff revenue >11@A@.@bn Euro*:?. Be"ause the EU is very"areful about losing its tariff revenues >F, of whi"h goes to the EU budget *1?) Moldova

will have to 'rove that none of the market 'layers "ould abuse the s'e"ial treatment) bys'e"ifi"ally setting u' a sound rules of origin "ertifi"ation system.

ome e0'erts may argue that high-sensitive 'rodu"ts "ould a"tually harm a s'e"ifi"market segment to a larger e0tent. e agree that the situation might ha''en even in the"ase of Moldova in some goods >e.g. a''le ui"e) sugar?. &t the same time we argue thatthe loss) as a share of the world im'orts to EU in those s'e"ifi" goods) is still very small.

More so'histi"ated simulations "ould be undertaken on the EU side to see what 'otential

have some sensitive grou' of 'rodu"ts or goods to harm the EU 'rodu"ers. or instan"ethe most "ited "ase of a''le ui"e) whi"h was in the re"ent 'ast substantially "hea'er inMoldova than in any "ountry in the EU) "ertainly needs "areful "onsideration >althoughthe data show that this market has been lost for Moldova *2with the a""ession of theCEEC) and es'e"ially !oland with its "hea'er a''le ui"es?. &dditionally) wines) sugar)te0tiles) 'ro"essed food and toba""o "ould be e0amined ea"h in 'art. or this reason) it isim'ortant to assess Moldovan domesti" 'rodu"tion elasti"ity and a""ount for "ertifi"ation)


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anymore until "om'anies lo"ated on the left side of the =niester river are not registeredwith Moldovan tate 4egistration Chamber and are not re'orting to Moldovan authorities.

%he main 'oint that the table reveals is that the A: of the goods 'resented in the table areroughly*#'aying 12 million Euro in tariffs as of now. &ll but one of the maor Moldovane0'orted 'rodu"ts has below 1 shares in total world EU e0'orts in their 'rodu"t"ategory. %he e0"e'tion is shelled walnuts that are Hnumber-oneI 'rodu"t in the u'"ominggraduation s"heme under the G!O. %he te0tiles a''arently 'ay the largest tariffs as agrou' and be"ause almost @: of the grou' H're'arations of vegetables) fruit or otherI isre'resented by fruit ui"es that enoy as of now high tariffs) the losses are going to be morenoti"eable there. %herefore the losses of EU tariff revenues in reality may be lower than

our estimations earliear in this "ha'ter.

inally the tariffs are not the only im'ediment hindering Moldovan e0'orts in 'enetrationof the EU market. 5on-tariff barriers remain to be a serious drawba"k. =+ remaining to

be the lowest in Euro'e and Moldova being the 'oorest "ountry in the region

feasibility study f

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