Lisbon 2 Vladivostok

_ Yuri Kofner, research assistant, IIASA. The views of the author may not necessarily reflect the official position of IIASA. Vienna, 21 April 2019.

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

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

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

Observer States

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

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

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

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

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

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

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

The reason for this lies in the well-known clash of interests between two opposing sides of the small republic’s elite. International experts have noted the opposite positions of the president and the government. While the president of the Republic of Moldova Igor Dodon is “pro-Russian”, the government of the country has traditionally expressed clearly anti-Russian and pro-European positions. Within the Eurasian expert community it is rumoured that neither Russia nor Kazakhstan by some premature step wanted to provoke a situation similar to the one that happened in Ukraine.

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

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

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

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

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

Armenia is a good example. In November 2013, the Transcaucasian Republic decided that it was not profitable for it to sign the AA and DCFTA with the European Union. Instead, in 2015, it became one of the member states of the Eurasian Economic Union. However, this did not prevent Armenia to sign the EU Agreement on Comprehensive and Enhanced Partnership (CEPA) in November 2017 in Brussels. This document, in fact, is the same DCFTA with the exception of sections of trade policy, which are now in the competence of the EEC.

Nevertheless, claims that Moscow in 2013 allegedly blackmailed Yerevan not to sign agreements with the EU, and to join instead the Eurasian Economic Union, are not sustainable. The participation of Armenia in the EAEU is economically justified. For example, the volume of mutual trade in industrial products of Armenia and the other member states of the EAEU increased by 40.3% in 2016, and in 2017 by 57.4%. At the same time, the growth of industrial production in the Republic of Armenia reached 6.7%, and in 2017, 12.6%. In 2017, exports of food and agricultural products from Armenia increased by 23.7% (57.6% of total exports of the Republic of Armenia in mutual trade), textiles, textiles and footwear – in 1 , 5 times (13.7%), machinery, equipment and vehicles – 1.6 times (5%).

Moreover, as with Ukraine and Moldova, the EEC, on the contrary, welcomed Armenia’s desire to become a bridge between the two integration blocks. “Armenia’s position has always been that we should work with both the EU and the Eurasian Economic Union. We should not oppose these two vectors”, was as stated by the head of the EEC T. Sargsyan in February 2017.

From a legal standpoint, the Association Agreement between the European Union and the Republic of Moldova does not exclude the possibility of creating a free trade zone between Moldova and third parties. However, any such initiative must be approved by the European Union (article 157; nr. 2, nr. 3 of article 437; nr. 4 of article 438 of the Agreement).

At the same time, the Treaty on the Eurasian Economic Union (2014) provides for the possibility of establishing free trade zones between the EAEU and third parties (article 7 of the Treaty), and does not prevent the Member States of the Union to sign other international agreements, as long as they do not contradict the purposes and principles of the Treaty (article 114 of the Treaty).

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

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

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

Secondly, a more important issue is the quality of Moldovan agro-food products and the complex reform process to comply with EU technical regulations and standards.The FTA between Moldova and the EU is “deep and comprehensive” in character, which implies that Moldova takes over the EU’s normative regulation in many areas of tariff regulation, sanitary and phytosanitary measures, energy, banking regulation, etc., despite not being a member of the European Common Market.

Fortunately, here we can note one positive trend. The Eurasian Economic Union is gradually and purposefully introducing international technical regulations and standards, which, in effect, are identical to the European ones. Thus, an essential regulatory framework is already being created for the creation of the EU – EAEU common economic space as a whole, and for the barrier-free exports of Moldovan products to the Eurasian market in particular. Until now it is likely, that the most favored nation treatment, which Russia introduced against Moldova in 2014, will continue (which is an exemption from the CIS FTA), yet phytosanitary and veterinary restrictions will gradually be removed. The prerequisites for the removal of restrictions would be both the solution of purely technical issues (improvement of the phytosanitary and veterinary control system in Moldova, as well as the improvement of Moldovan product quality, close cooperation in customs), as well as favourable political factors.

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

Moving away from a zero-sum mentality in Eastern Europe could open many new opportunities for businesses and communities in the region. At the same time, due to the current political cool down in East-West relations the ultimate goal of creating a common economic space from Lisbon to Vladivostok currently looks like a (very) far away reality. However, first steps in this direction should nevertheless be continued. An approach of step-by-step trust (re-)building in a bottom-up way involving expert, business, and policy communities from the EU, Moldova and the EAEU, should be initiated. It could start from the least politicized matters by finding common and mutually acceptable approaches to such issues as technical regulations, customs procedures and rules of origin.

 

 

 

 

 

 

 

 

 

 

 

 

 

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