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EaP players missing: are Georgia and Moldova to score with DCFTA?

While Vilnius Summit is to be a decisive round in the EU’s trade relations with the Eastern Partnership (EaP) countries, how many out of the six initial EaP players  (Belarus, Azerbaijan, Ukraine, Moldova, Georgia, Armenia) do actually remain at the gaming  table?

Who’s playing?

To start with, Association Agreement (AA) and its integral part, namely Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, have never been seriously considered in Azerbaijan and Belarus. Neither of these countries is a member of World Trade Organization (WTO) and thus they are not even eligible for DCFTA, a precondition of which WTO membership represents. Leaving the Ukrainian case aside for the moment, Vilnius Summit was meant to mark the initialization of the AA-DCFTA by three aspiring countries (Georgia, Moldova, and Armenia) with which the EU had already completed negotiation round in the course of the year 2013.

However, one of the players suddenly decided to switch the team: on September 3, 2013, Armenian president Serzh Sargsyan voiced his decision to join Russian-led Customs Union (CU) with Belarus and Kazakhstan. EU’s hopes for Armenia were, therefore, destroyed due to the internal incompatibility of the CU and AA-DCFTA schemes: DCFTA is all about reducing customs tariff, while CU membership entails its raise. What is more, for DCFTA implementation full autonomy in the areas covered by the agreement is required, while CU member state loses sovereignty over its own trade policy. Last but not the least, preferential relations remain exclusively within the Customs Union and are not meant to extend to the EU. Even more, President Vladimir Putin has plans of upgrading the CU into the so called ‘Eurasian Union’ (as opposed to the European Union), desirably involving all the EaP countries. Hence, Russia is trying to shatter last resisting countries like Moldova, Georgia, Ukraine in the form of the trade restrictions and even puts pressure on the host of the Vilnius Summit – Lithuania, in order to prevent the EU from appropriating Russia’s self-proclaimed “sphere of influence“. Against this background, the Vilnius Summit directly concerns only three of the EaP countries, but can and will indirectly affect the future of many others.

Georgia and Moldova

The spotlight is on Ukraine. This country is supposed to sign AA-DCFTA with the EU at the Vilnius Summit, but having hard time resisting the  Russian pressure, Georgia and Moldova are also justifiably expecting their share for staying true to the EU. Just like it happened after Russian ban of September, 2013 when the commission launched an initiative for opening internal market for the Moldovan wine. It needs to be noted that initializing DCFTAs with the EU has also political implications for both countries, given the Russian involvement in the unresolved secessionist conflicts on their territories.

Georgia and Moldova seem to sit at the same side of the table. Image source: http://www.popgive.com/

At the workshop held at the European Parliament on November 5th, 2013 in Brussels, Deputy Minister of Economy and Sustainable Development of Georgia, Mr. Mikheil Janelidze, took note of the achievements of the previous Georgian government and listed the working priority areas of the new one. Acknowledging Georgia’s success in fighting corruption, developing infrastructure and business friendly public services, Mr. Janelidze marked out remaining problems that the current Georgian government is intended to tackle. That is, inefficiency of labour market, insufficient protection of property rights, dispute settlement mechanism and private arbitration system deficiencies. Mr. Janelidze used EP platform to bring to the EU’s attention the supreme importance that preferential trade regime with the EU has for Georgia and asked the EP inter community to vote for the renewal of Generalized Scheme of Preferences GSP+. He also expressed his hopes of signing and provisionally applying AA-DCFTA by the end of 2014.

Regarding the second player, Moldova, being sometimes even termed as ‘EaP success story‘, is expected to sign AA-DCFTA with the EU already  in September, 2014. It seems that for the present time Moldovan government’s only concern remains the Transnistrian region, which is opting out of the DCFTA. With Transnistrian participation in the trade agreement, Moldovan GDP can rise by 3.6%, but decreases by 5.2% without it. It gives a substantial difference of 8.8%.

All in?

Economic advantages impel the Georgian and Moldovan governments to bet on DCFTA with the EU. Image source: http://www.poker-cash.org/

DCFTA is the largest integral part of the AA. It represents a demanding free trade agreement rather close to European Economic Area (EEA) in its nature. DCFTA entails acquis compliance, making it highly challenging for the EaP countries to meet the EU requirements. Though the reforms that EaP countries are undertaking are inevitable, regardless the DCFTA demands, if these states are to develop internationally competitive economies. Benefits from signing the AA-DCFTA with the EU are not to be questioned neither for Ukraine, nor Georgia and Moldova. The EU is the number one trading partner not only for the first country, but also for two latter ones, accounting for 30% of total import and 18% of total export in case of Georgia and 54% of Moldova’s total trade respectively. According to Trade Sustainability Impact Assessment (TSIA),  through the DCFTA Georgia’s exports to the EU will increase by 12% and import by 7.5%. The national income is supposed to go up to  292 million euros in the long run, translated into a GDP growth of 4,3 %. Regarding Moldova, GDP is expected to increase by 5.4% and its exports to the EU by 16.2%. National income is estimated to rise up to 75 millions in the short run and 142 millions in the longer run. Therefore, AA-DCFTA does not only represent the geopolitical choice that Georgia and Moldova make between East and West, but also promises improved economic conditions and better life standards in these countries.