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Evolution of the Moldova-EU trade flows after 2 years of DCFTA implementation

Publishing date: Tuesday, 11 April 2017
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The continuous political instability in the Republic of Moldova, together with the less favourable national/regional economic situation (banking crisis, theft of the billion, MDL devaluation, US dollar appreciation, unfavourable climatic conditions, decrease in the international prices for some products, etc.) had a negative impact on the country’s trade performance during the first two years of DCFTA implementation . The country’s performance was already affected by the restrictive tariff and non-tariff measures imposed by the Russian Federation against the Republic of Moldova (with few subjective exceptions for some business entities), as well as by the regional geopolitical tensions (armed conflict in eastern Ukraine, economic sanctions and mutual trade restrictions between the EU and the Russian Federation).

At the same time, we must be aware that most of the tariff benefits existed under the previous unilateral tariff regime ATP (Autonomous Trade Preferences). Thus, the tariffs did not decrease dramatically under DCFTA (except for products subject to quotas falling under entry price and anti-circumvention mechanism), which would have led to a further ‘explosion of exports’. On the other hand, all trade benefits obtained over time (GSP, ATP and finally DCFTA) could be fully harnessed with the expansion of commitments, not only in terms of tariffs, but also of all non-tariff components of DCFTA. Nonetheless, adapting to new circumstances needs a longer period of time.

In these circumstances, the official data show a lower value of exports (-2.3%) for 2015 due to the above-mentioned shocks, but after these constraints receded, the exports of the Republic of Moldova to the EU started growing again in 2016, exceeding the level of 2014 by 6.9%.

The agrifood products have benefited the most from DCFTA, as expected from the start. The value of their export increased by about 25% during the reference period, managing to compensate to a certain extent the loss of eastern markets. In addition, about 63% of the agrifood exports to the EU increased in terms of quantity.

Thus, naturally, the most dynamic agrifood exports consist of products subject to quotas falling under the anti-circumvention mechanism, where we note a major use of the allocated quotas (wheat, corn, barley, sugar), which indicates that the export potential is higher than the allowed levels. Also, we draw attention to the spectacular evolution of exports of products included in the category of processed cereals (ethyl alcohol). The evolution of wine export can be also appreciated, the quota for which was cancelled, as well as of the natural honey, which is also part of the few products of animal origin allowed to be exported to the EU. Of all agrifood products subject to quotas and exempted from entry prices, the quotas for grapes and plums were practically fully used. Unfortunately, the quota for apples remains unused.

Exports of non-agricultural products to the EU had a more stable evolution than to other destinations, even though their value decreased by 2.5% during the reference period. However, 68% of the non-agricultural exports to EU increased in terms of quantity. The categories of non-agricultural products that registered the highest decrease in exports to the EU are dominated by those related to the textile industry (clothes and shoes), due to the lower demand for such products on the EU market.

In terms of geographic profile, the exports to 7 of the 10 most important EU countries for Moldovan exports registered a positive evolution. Obviously, the most important trade partner in this region, and in general, continues to be Romania, with a share of 25% in the country’s total export, followed by Italy and Germany with 9.7% and 6.2%, respectively.

Despite many fears and speculations about the invasion of agrifood products from EU, the general image shows a contrary evolution. Thus, the agrifood imports from EU decreased by 15% during the reference period. Most of the products that dropped are in direct competition with the local products (undenatured ethyl alcohol, potatoes, live birds, concentrated milk and sour cream, cheese and curd). On the other side, the imports of sugar, bear and poultry grew. In addition, the positive evolutions of some imports were determined by the needs to develop the plant-growing and livestock sectors (sunflower and corn seeds for sowing or fertilised birds’ eggs). All these show the inconsistency of the existing arguments supporting the theory of invasion by the European products.

The imports of non-agricultural products continue to be dominated by petroleum products. Even though, the value of their import decreased by 25% during the reference period, the quantity of exports increased on the background of low international prices for these categories of products. Meanwhile, the imports of a range of products decreased due to the constant drop in the re-exports to the Russian Federation market, including in the context of restrictions imposed by it against imports from the EU.
In addition, both the structure and the evolution of the main non-agricultural imports reveal the needs of the national industry, particularly of the specialised electric circuits and textile industries (insulated wire, copper wire, equipment for connection, fabrics, leather items, etc.), as well as the agricultural sector development (insecticides, tractors, etc.).

Thus, despite the existence of a range of constraints, the positive impact of the DCFTA on the trade flows registered by the Republic of Moldova in relation to the EU, shows the viability of assumptions supporting the opportunity to negotiate such a document. It is however a fact that its potential continues to be untapped, which shows the need to strengthen the institutional efforts in implementing all the assumed commitments.

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This publication was developed under the Project “Understanding the EU’s Association Agreements and Deep and Comprehensive Free Trade Areas (DCFTA) with Ukraine, Moldova and Georgia”, lead by the Centre for European Policy Studies (CEPS) at Brussels, in partnership with Expert-Grup (Moldova), Institute for Economic Research and Policy Consulting (Ukraine) and “Reformatics” advisory center (Georgia), with the support of the Swedish International Development Cooperation Agency (SIDA). The opinions presented in this document belong to authors and do not necessarily reflect the views of CEPS and SIDA.

 

Tags: Natalia Chitii

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