MOLDOVA

FOUNDATION FOR SOCIAL

AND ECONOMIC RESEARCH

FEASIBILITY STUDY

Trade liberalisation between Moldova

and the European Union

September 2005, Chisinau

British Embassy
Chisinau

This study was supported by the British Embassy Chisinau through the Global Opportunities Fund

Reuniting Europe as part of the project Capacity Building for Further Trade Liberalization
between Moldova and EU, implemented by the Moldovan NGO CASE Moldova Foundation

All authors of this study are independent experts. Their opinion shall not be taken as the official opinion of
the British Embassy or CASE Moldova Foundation

Content
Executive summary
Introduction
CHAPTER I: LEGAL AND INSTITUTIONAL FRAMEWORK OF EU-MOLDOVA TRADE
Svetlana Diomin
1.1 EU-Moldova bilateral legal trade framework
1.2 Generalised System of Preferences
1.3 EU Moldova foreign trade institutional framework
CHAPTER II: COMMERCIAL FLOWS BETWEEN MOLDOVA AND THE EU
Svetlana Diomin
2.1 Trade market and regulatory reform
2.2. Analysis of the trade flows between the EU and Moldova
2.3 Tariff policy and utilisation of the GSP scheme
CHAPTER III: TECHNICAL BARRIERS TO TRADE WITH EU
Eugen Hristev
3.1 Hidden trade barriers obstacles to entry
3.2 The need for harmonised standards
3.3 Evolution of the system of standardisation, metrology, certification and accreditation
3.4 Impact of diverging regulations
3.5 Moldovas WTO commitments
CHAPTER IV: SCENARIO I: AUTONOMOUS TRADE PREFERENCES EU - MOLDOVA
Mariana Puntea
4.1. The format of an autonomous trade preferential arrangement
4.2. Benefits and drawbacks of an ATP
4.3. Examples of autonomous trade preferential arrangements
CHAPTER V: SCENARIO II: ASYMMETRIC FREE TRADE AGREEMENT BETWEEN EU AND
MOLDOVA
Octavian Calmac, Svetlana Diomin
5.1 Pre-requisites for signing Free Trade Agreement
5.2 Classical structure of the Free Trade Agreement
5.3 Standard commercial effects arising from the Preferential Trade Agreements
5.4 A simulated cost-benefit analysis of a non-reciprocal Free Trade Area
CHAPTER VI: THE EFFECT OF SECOND-WAVE EU ENLARGEMENT FOR MOLDOVAN TRADE.
FOCUS ON ROMANIA
Evghenia Sleptsova
6.1 Overall effects of EU enlargement for Moldovan trade
6.2 Romania acceding to the EU and renouncing the Free Trade Agreement with Moldova
6.3 Scenarios for Moldova upon Romanias accession

Conclusions and Recommendations

Bibliography
Annexes

LIST OF ABBREVIATIONS
ATP
CEECs
CIS
CAP
CEN / CENELEC
EA
EN
EOTC
EU
EU[10]
EU[15]
EUROMET
EC
ETSI
FDI
FTAs
FSU
GDP
GOST
GSP
GN
ISO
MFN
PCA
SPS
SME
TBT
WB
WTO

Autonomous Trade Preferences

Central and East European Countries
Commonwealth Independent States
The European Union Common Agricultural Policy
Comite Europeen de Normalisation/Electrotechnique
European Cooperation for Accreditation
European Standard
European Organization for Conformity Assessment
European Union
Cyprus, Czech Republic, Estonia, Hungary, Latvia, Kithuania, Malta, Poland,
Slovakia, Slovenia,
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Portugal, Spain, Sweeden, The Netherlands, United
Kindgdom,
European Collaboration in Measurement Standards
European Commission
European Telecommunications Standards Insitute
Foreign Direct Investment
Free Trade Agreements
Former Soviet Union
Gross domestic product
Soviet Union Standardisation Institute
Generalized System of Preferences
General Nomenclature
International Organisation for Standardisation
Most-Favored-Nation
Partnership and Cooperation Agreement
Sanitary and Phytosanitary
Small and Medium Enterprise
Technical Barrier to Trade
World Bank
World Trade Organization

Executive Summary

(i)

Amongst Former Soviet Union States Moldova has suffered one of the worse balance of
payments shocks since independence. Geographical and compositional trade diversification has
become crucial for diminishing countrys vulnerability to external shocks. In spite of a range of
policy and structural reforms, in early years after regaining its statehood, Moldova was not
ready to cope with the consequences of the Russian financial crisis of 1998, when the national
economy experienced a severe plunge down. Trade reorientation towards European Union, the
biggest and the closest market, has been taking place very slowly. As of now, the share of the
EU in Moldovas world trade is still below its potential: only 28.8 percent in first half of 2005,
versus 50 percent respectively.

(ii)

The European Union has been very supportive of Moldovas economic and political
reforms. The two parties concluded a Partnership and Cooperation Agreement in 1994, endorsed
in 1998, which established a bilateral partnership in almost every socio-economic aspect of life
and the basis for a political dialog. The PCA also set the institutional framework to strengthen
the cooperation between the parties. Since early 1995, Moldova has been enjoying GSP
preferences for textiles, which in 1999 were broadened to include a larger spectrum of goods.
On top of that, the EU has been supporting the reforms through other mechanisms, such as
technical, macroeconomic and humanitarian assistance. Later developments have brought the
two parties to signing an EU-Moldova Action Plan that established the road map for actions in
the next couple of years. Enhancement of bilateral trade has received large attention: in the
medium term, the EU is considering the possibility of granting Moldova an Autonomous Trade
Preferential arrangement.
(iii)
Despite a large variety of actions, Moldova has been registering modest successes in
penetrating the EU market. The negative trade balance in trade with the EU contries has
increased over years. The recent EU enlargement has not helped Moldova to strengthen its
position in the EU-10 member states. In spite of the fact that the average bound tariff after
accession has become lower in the new member states, the EU is more protective against
imports in agricultural and food processed products, of which predominantly are made
Moldovan exports. Only 60 percent of Moldovan exports have taken advantage of granted
preferences, partially due to the complexity of rules of origin system, partly due to low
preferential margins. Only one third of goods from Moldova enter the EU duty free, whereas
two thirds of the EU goods enjoy zero customs tariffs entering Moldova. Poor product quality,
non-competitiveness and low scale production capacity of Moldova are other serious drawbacks
that limit its export capacity. Additional barriers hinder the access of Moldovan exports to the
EU.
(iv)
Tariff barriers are not the only obstacles faced by Moldovan exporters. Moldovas current
export flow to the EU is underperforming compared with its potential that cannot be explained
solely by trade protection by the EU. Internal limitations to businesses are wrong signals sent
by the current regulatory system. Furthermore, the existing quality infrastructure does not allow
Moldovan exports to reach EU markets. There are other in-country factors like poor business
environment, insufficient direct investment, rigid administrative structures and the current
system of mandatory standards, which probably limit most the ability of exports to reach
developed markets of the EU. In a globalising world, they are essential for production and
exchange.
(v)

When harmonised, standards support market development, facilitate trade and promote
integration with global markets. Good standards allow for a more efficient allocation of
production resources and for transfer of technical knowledge. Moldova has two ways of dealing
with the problem: either to adopt the EU standards and technical regulation for major staples as

they are without translation, following the example of Bulgaria, or to harmonise its system to
that of the EU.
(vi)

In dealing with high tariff barriers to the EU, Moldova could pursue negotiating a
preferential arrangement for its exports to the EU. Preferential agreements signed by the EU
with other countries and the special arrangements for Western Balkans could be a model for the
future-to-be trade arrangements between the EU and Moldova. The introduction of the EUs
exceptional trade measures for the Western Balkans in September 2000 provided the region with
uniform and wide-ranging free access to the Unions market for almost all goods. Western
Balkan exports to the EU have increased substantially since the late 1990s. This was due to a
combination of factors such as post-conflict reconstruction, transition to a market economy and
granting of trade concessions by the EU, the regions biggest trade partner. The tariff reduction
was significant for most exported products. In the context of parallel EU trade liberalisation
towards other third countries, the trade measures have assisted the Western Balkan countries in
maintaining their preferential position on the EU market.

(vii) The practice has shown that in order to fully benefit from the EUs trade preferential
measures (Autonomous Trade Preferences), the countries need to increase competitiveness,
diversify production, raise awareness among economic operators of the potential of the trade
measures, facilitate a dialogue with business counterparts on the EU market and upgrade trade
related institutions. They need to further harmonise their standards with those of the EU,
including in the veterinary and the sanitary and phytosanitary field. To exploit the underlying
potential, the countries must attract sufficient levels of foreign direct investment; to broaden
their export base; to increase their production capacity and productivity; and to ensure
compliance with the EC standards. Additionally, governments need to pursue structural reforms,
modernise administrations, including in particular the judiciary; and to ensure the rule of law.
(viii) Even though the European Union authorities have not yet expressed support for accepting an
asymmetric Free Trade Agreement or association with Moldova in the near future, due to some
objective reasons, the willingness of both sides to strengthen their partnership in the view of
European Neighbourhood Policy is definitely an expression of positive political will. Having
signed amongst first an Action Plan with the EU, and having expressed its firm commitment to
implement it, Moldova has gained an advantage over other CIS countries that declared their
aspiration for the European integration.
(ix)

The current bilateral legal framework is not sufficient to advance further development of
trade. Obtaining Autonomous Trade Preferences from the EU or signing a Free Trade
Agreement with EU represents the necessary legal framework and the political basis for further
trade promotion. It could also serve as one of the instruments advancing Moldovas strategic
objective the European integration.

(x)

The recent actions undertaken by the Republic of Moldova in creating a favourable business
environment and guaranteeing foreign investments represent just the beginning of some
domestic positive developments. The continuous actions aimed at increasing the credibility of
the regulatory reform in Moldova will create premises for a safer business environment. All in
all, these will have positive repercussions for the economic growth by direct stimulation of
domestic activities and by ensuring the growth in direct domestic and foreign investments
together with the benefits associated with the transfer of technologies.

(xi)

A simulation of a cost-benefit-analysis revealed that if the EU were to grant unilateral dutyfree access for Moldovan exports in 2004, under a most favourable preferential treatment, the
tariff revenue losses would have been around 27 million Euro, very much comparable to what
the EU is already spending in Moldova on technical assistance only. The real loss for the EU
would have been smaller because the revenue loss, in the accounting domain of both Moldova
and the EU, is to be shared amongst Moldovan exporters/producers and the EU
consumers/importers. Moldovan producers/exporters would take advantage of released
6

resources to produce more and sell, whereas the EU consumers would enjoy cheaper prices.
Given the small size of Moldovan economy, the impact on the EU producers is going to be
minimal, but additional analysis could be undertaken for sensitive products and related
industries to assess possible negative consequences. The paper also argues that because none of
the Autonomous Preferential Agreements have granted full duty-free access, these losses could
be substantially smaller.
(xii) Apart from other benefits, a preferential bilateral arrangement between Moldova and the EU
would enlarge the spectrum of commitments undertaken by Moldova in various domains, such
as competition policy, restricting state aid, government procurement, customs and
standardisation. The adoption and the effective implementation of the new practices and laws in
these domains, compatible with those of the EU, will require significant extension of capacity
and efficiency of Moldovan legal system. The faster reforms move domestically and necessary
premises for singing an FTA with EU are created, the more credible Moldova will become for
the European Community and the more efficient will be the bilateral relations, which will send
an important message to investors and traders.
(xiii) Accession of Central and Eastern European economies to the EU has already affected the
volume of exports to the EU from the third countries, including those from Moldova, and will
further affect terms of trade as remaining tariff barriers are eliminated for products considered
sensitive prior to accession. The most important enlargement effects for Moldovan exports stem
from the forthcoming accession of Romania, since it is Moldovas third major trade partner
(other CEE economies playing only a minor role in Moldovan trade). The analysis in this paper
shows that the hardest enlargement-related effects in trade with Romania have materialised yet
before accession Moldova lost its role of the major supplier of some agricultural products to
Romania, such as sugar and meat, being replaced by the EU.
(xiv) Forthcoming accession, however, will bring about abrogation of the Moldova-Romania free
trade agreement, in force since 1995, further liberalisation of trade between the EU and erection
of even stricter non-tariff barriers. The product-by-product overview shows that despite the fact
that exports of most sensitive products have already contracted, other important export items
(eggs, vegetables, crops other than wheat, sunflower-seeds oil) will have to face significant
tariffs upon Romanias accession, and given their high price sensitivity a fair share of
Romanias market may be lost. Potential negative effects of Romanias accession for Moldova
cannot be taken up in claiming compensation within WTO, since this case does not fall under
increase of bound duties condition, however a potential loss of a market accounting for 10
percent of total exports should be an additional argument in negotiating more favourable
concessions within an autonomous trade preferential agreement and perhaps subsequently
within an asymmetric FTA.
(xv) In pursuing the special preferential trade arrangement with the EU Moldova has to be ready
to bring strong arguments at the negotiation table. In doing so, Moldovan decision makers could
make a special case of Moldovas special circumstances in several areas:
a.
Geographical: proximity to the EU (soon-to-be neighbour), high vulnerability to
external shocks, small country etc;
b.
Economic: the poorest country in Europe, small-size transitional economy, low
diversification of exports, where agricultural exports prevail, lack of economies of
scale, poor production capacity with obsolete capital stock; and finally widening trade
deficit with the EU and on overall,
c.
Regulatory drawbacks: lack of proper quality control system, soviet-type inherited
standardisation system, high administrative costs, higher transport costs, etc;
d.
Technical limitations: insufficient technological and human capacity to carry out
quality controls for a wider spectrum of exported products. This dictates the need for
significant investments in creation of relevant standardisation and metrology and
accreditation bodies, as well as for the equipment of existing and new laboratories;
e.
Regional developments: Moldova may lose Romanian market (3rd strategic partner)
with the accession of the former to the EU;
7

f.

Small tariff losses: For the EU the loss of tariff revenues if duty free access was
granted for Moldovan exports as of 2004 would have represented 0.00226% of its
tariff revenue. The gain for Moldovan exporters would have been quite noticeable as it
compares with the levels of development assistance the EU is currently granting to
Moldova;

and
g.

Strong Political will for reforms: Moldova is willing to pursue further integration into
the EU system by harmonising its legislation, standards, technical regulations with
those of the EU and there is a strong consensus amongst its political leaders on the
strategic course of the country towards the European integration.

(xvi) The above listed positions could be used by Moldovan negotiators to request from the EU a
most beneficial Autonomous Preferential Agreement, similar to the ones signed with Western
Balkans that could basically resemble a non-reciprocal Free Trade Agreement, under which the
EU were to grant Moldova duty free access to almost all goods except the ones that could harm
some market segments more substantially. For counterbalance, Moldova has to commit itself to
implementing market-oriented reforms, limiting government interference in the private sector
operations, fight against corruption and red tape. A time frame should be established for creating
sound rules of origin control system, reforming the activity of the national customs authorities,
establishing with the assistance of other donor of a sound quality control system, adopting or
approximating the existing standards and technical regulations for the major exported goods to
the EU in the nearest 5 years.

Introduction

Upon independence Moldova suffered one of the worse balance of payments shocks amongst
Former Soviet Union (FSU) states. The shift in national political agenda has set different foreign
trade policy objectives and included the expansion of Moldovan external sector. Geographic trade
redirection and trade reorientation towards the EU has become crucial.
The possibility of signing a Free Trade Agreement (FTA) with the EU was first time mentioned in
the Partnership and Cooperation Agreement (PCA) in 1994. Given countrys economic
development and the vulnerability of the domestic market to imports from the EU, the issue of an
FTA has been postponed. Key preconditions for signing an FTA are: a comparable level of
competitiveness of goods, appropriate economic environment, removal of any sorts of constraints
(bureaucracy, corruption, uncertainty over the legal situation, customs clearance delays, etc). As an
interim measure to signing an FTA, the EU proposed granting Moldova a unilateral asymmetric
commercial regime. The initiative was first time uttered in the Communication of the European
Commission from 13 March 2003 on the EU New Neighborhood Policy but no decision has been
taken yet.
This report builds on the past experience of the EU-10 and on the one of Central and East European
Countries (CEEC) with regard to preferential and asymmetric trade regimes with the EU and on the
trade theory. It draws recommendations for decision makers in Moldova on the issues that must be
tackled during negotiations with the EU in order to draw maximum benefits under these
arrangements. The report is structured in the following way:

Chapter I of this report describes the bilateral trade legal framework between EU and Moldova
and gives an overview of the institutions involved in decision-making.

Chapter II analyses the commercial flows between the two parties and estimates the general
trends, short-term forecasts and behavior models.

In Chapter III we argue that other than tariffs trade barriers and administrative obstacles harm
the exports more than any other restrictions and this has two sides: external trade barriers for
one countrys exports and internal incoherences with international standards and quality systems
that impede local businesses in reaching the outside markets, thus sending wrong signals to
the business community inside the country.

Chapter IV builds on the experience of Balcan states that have preferential trade arrangemets
with the EU and describes the benefits Moldova could have should it receive the same
treatment.

Chapter V elaborates on next-to-be stage in EU-Moldova trade liberalisation and brings to

attention that such an agreement implies commitments to liberalise trade on Moldovas side.
Here we cite the estimated quantitative costs/benefits of such arrangements.

Chapter VI estimates the consequences that accession of Central and East European countries
entails for Moldovan external trade. The chapter particularly focuses on Romanias accession,
which has an FTA in effect with Moldova that will be abolished on the day of accession.

In conclusion we provide a list of recommendations to the government and related decision-making

bodies on how to negotiate and how to pursue further trade liberalisation. The report covers only
trade in goods and does not cover cross-border services. While recognising limitation of such
approach the general conclusions of the report shall not be undermined. Another factor, which may
influence the analysis, is the portion of the foreign trade conducted via Transnistrian territory,
analysis of which shall require a separate study.

Chapter I: Legal and institutional framework of EU Moldova Trade

Moldovas foreign trade and domestic legal framework has seen a lot of developments since
independence. Between 1991- 1999 Moldova has adopted a range of basic reforms in support of
market economy. As a result its foreign trade was almost fully liberalised, export quotas eliminated
and import tariffs substantially reduced. Domestic currency leu has become fully convertible for
current account transactions. Since 1999, Moldova has signed 33 bilateral agreements on trade and
economic cooperation with CIS, the European Union, the United States of America and some other
countries, including neighbouring Romania. Free Trade Agreements were signed with CIS and
some countries in Central and South Eastern Europe. In July 2001 Moldova became a member of
the World Trade Organisation. This alone has marked a turning point in Moldovas external trade
development, which makes mandatory upgrading key regulatory instruments: the registration
system, licensing, certification, accreditation, rules of origin, etc. As of now, Moldovas trade
regime is ranked by the IMF as a one (the most liberal) on the ten points index of the
restrictiveness of formal trade policies.
1.1

EU-Moldova bilateral legal trade framework

The bilateral legislative framework between the EU and Moldova is based on the two pillars: 1) the
Partnership and Cooperation Agreement between the EU and Moldova (signed in 1994 and
enforced in 1998) and the EU-Moldova Action Plan (AP) (signed in February 2005). These two
important documents set the basis for the development of regulatory and institutional framework
needed for bringing Moldovan standards closer to the European values. They contain provisions on
trade, but also in areas supporting economic development, competition, rule of law, approximation
of legislation, standards, etc. The fulfilment of these commitments is a precondition for opening a
new stage of collaboration between the parties.
Box 1. Partnership and Cooperation Agreement on FTA
Art. 4 of the PCA stipulates: The Parties undertake to
consider, in particular when the Republic of Moldova has
further advanced in the process of economic reform,
developments of the relevant Titles of this Agreement, in
particular Title III and Article 48*, with a view to the
establishment of a free trade area between them. The
Cooperation Council referred to in Article 82 may make
recommendations on such developments to the Parties. Such
developments shall only be put into effect by virtue of an
agreement between the Parties in accordance with their
respective procedures. The Parties shall consult each other in
the year 1998 as to whether circumstances, and in particular the
Republic of Moldova's advances in market oriented economic
reforms and the economic conditions prevailing there at that
time, allow the beginning of negotiations on the establishment
of a free trade area.
* Title III and art 48 contains provisions on competition.

Art 4 of the PCA mentions the possibility

of establishment of the EU-Moldova Free
Trade Area subject to a separate agreement.
Such an agreement would have liberalised
the trade between the parties, eliminating
(almost all) customs tariffs between them,
but not for imports from third countries.
The EU-Moldova AP1 comes in support of
the PCA2, bringing the partnership to new
heights. Moldovan side regarded the AP as
a road map towards negotiation of an
association agreement with the EU.
Although discussions on the accession
agreement are premature and are subject to
further
negotiations
following
the
implementation of the EU-Moldova AP, the

possibility remains open for the future.

As written in the EU-Moldova Action Plan, the document will build solid foundations for further
economic integration based on the adoption and implementation of economic and trade-related rules
and regulations with the potential to enhance trade, investment and growth 3. Moreover, it moves the
1

Has a time frame of three years upon which an assessment report on the implementation progress will be issued.
Initially the PCA was signed for 10 years with an automatic renewal if none of the parties decides otherwise.
3
EU-Moldova AP (p.1).
2

10

bilateral trade negotiations to a new stage, by introducing the possibility of the EU granting
Autonomous Trade Preferences (ATP), with the condition of ensured effective control of the origin
of Moldovan goods.
As could be seen from the Box 2, the EU
had tabled several conditions to be
fulfilled by Moldova before the ATP could
be singed. It includes fulfillment of
obligations under international trade
agreements and PCA obligations; and also
supplementary measures both from public
and private sector.

Box 2. EU-Moldova Action Plan. Provisions on trade

Trade Relations
Full implementation of PCA commitments in title III, and
fulfilment of all obligations linked to WTO membership
Successful implementation of the WTO obligations
(including the TRIPs agreement) and PCA obligations
Gradual removal of licensing requirements which are not
in conformity with Moldovas WTO and PCA obligations
and transparent management thereof
Efforts to increase transparency of application of
regulatory measures
(25) Promote Moldovas exports capacity and diversification of
export products
Promotion of Sectoral groups of producers for joint action
for promotion of Exports on foreign markets, as foreseen
in MEPOs programme
Ensure effective control of the origin of goods in order to
be able to fully benefit from the Generalised System of
Preferences
Improve institutional framework and procedures on control of
origin by reinforcing customs and reviewing the division of
responsibilities for the issuing and verification of both
preferential and non-preferential certificates of origin with the
Chamber of Commerce in order to build a solid basis for
possible Autonomous Trade Preferences.

Additionally Action Plan lists necessary

steps to implement reform in trade related
sectors: customs; standards, technical
regulations and conformity assessment
procedures; streamlining administration;
and sanitary and phytosanitary measures
(see Annex 1). Amongst customs related
actions it is worth mentioning: the creation
of a single window approach for all
international trade related documentation
and control, strengthening of the
administrative capacity and ensuring
effective control of origin of goods and
valuation of goods, and implementing a Customs Ethics Policy. October this year Moldovans will
introduce at all customs units nationwide the Asycuda World tracking system, the single-window
international software system.
1.2

Generalised System of Preferences

In 1999 the EU granted Moldova the Generalised System of Preferences (GSP) under which exports
to the EU enjoy partial or total exemption from customs duties4. The basic GSP allows lower duties
than the Most Favored Nation (MFN) rates, provided that exports fulfill the EU rules of origin
requirement. This system covers 7,000 processed products (of the just over 10,000 products in the
Combined Nomenclature), including the majority of industrial products and a great many
agricultural and fish products. Nearly half of all products (non-sensitive) are admitted at a zero rate
while the other, more sensitive half, are granted a limited reduction of 3.5 percentage points
(exception: MFN tariff minus 20% for textile and clothing products; and on specific duties the
reduction is 30%, except for ethyl alcohol, for which it is 15%).
Moldova predominantly has taken advantage of the preferences granted to unprocessed agricultural
products and textiles. Furthermore, in 2000, after fulfilling a special social arrangement, Moldova
was first to benefit of additional preference to sensitive products from eligible countries (currently
only Moldova and Shri-Lanka [that fulfilled the environmental clause] took advantage of the social
clauses). To be able to take advantage of the special incentive arrangements for the protection of
labour rights Moldova had first to comply with the so-called "core labour standards". These are the
standards laid down in the eight ILO Conventions concerning the four areas to which the 1998 ILO
Declaration on Fundamental Rights and Principles at Work refers: No 29 and No 105 on the
elimination of all forms of forced or compulsory labor, No 87 and No 98 on the freedom of
association and the effective recognition of the right to collective bargaining, No 100 and No 111 on
4

An agreement regarding trade in textiles has already been in place since 1993.

11

the elimination of discrimination in respect of employment and occupation, and No 138 and No 182
on the effective abolition of child labor.
The arrangements mentioned above offer additional tariff preferences for imports of all sensitive
products included in the general arrangements, unless the decision granting the special incentive
arrangements excludes certain sectors where the conditions are not fulfilled. Under the social
clause the tariffs are reduced by another 10-35% from the preferences given by the basic GSP. For
textiles, the total reduction is therefore 40%, for specific duties it is 60% (except for ethyl alcohol,
where it is 30%). For ad valorem duties, however, the additional reduction is more than the basic
reduction. Instead of 3,5 it is 5 percentage points (thus raising the total reduction to 8,5 percentage
points). Again, where duties include ad valorem and specific duties, only the ad valorem duties are
reduced. Where both the special incentive arrangements for the protection of labour rights and the
ones for the protection of the environment are present, they apply simultaneously.
This gives Moldovan goods classified in the sensitive group (like flour, almost all vegetables and
fruits, vegetable oils, chocolate, marmalade, pastries, some kinds of tobacco, textiles and textiles
products) a reduction of 15% from the MFN rate. Non-sensitive products (like, for example,
leather and skins, walnuts, footwear, wood products, ceramics and glass, lightning equipment, etc.)
benefit from a reduction from 30% to 100% of the MFN duty. Currently Moldova utilises the GSP
only up to 60%5, which fact diminishes the beneficial effects that the system could provide.
Nevertheless, the preferences granted by EU under current system will come to an end by
December 2005.
Starting next year, EU will put in place a new Generalized System of Preferences (GSP+) with
additional preferences for the timeframe 2006-2015 that will be offered to developing countries and
countries in transition6. The new system will be more stable, predictable, objective and simple in
administration, including in terms of fulfilment of the rules of origin requirement. Furthermore, the
system will extend the list of preferences by including more sensitive goods into the category of
non-sensitive (300 additional products mostly in agriculture and fishery sectors). Access to
additional preferences within the new GSP+ will be granted conditionally to countries that pursue
sustainable development and that accept the main international conventions, while the Community
will withdraw entitlement whenever there are systemic failings on the part of beneficiary countries.
Under the new regime products from beneficiary countries, which in a given sector account for
more than 15% of EU imports, will be graduated and will cease to benefit from GSP beneficial
access. In the case of textiles and clothing the threshold is 12.5%.
The deadline for submitting the application for the new GSP+ is October 31 2005, and according to
Moldovan authorities, Moldova will meet the necessary requirements to renew its eligibility to
GSP7. It is going to be an intermediate step in obtaining an Autonomous Trade Preferential
Arrangement with the EU, or any other preferential trade agreement (unilateral or reciprocal).
1.3

EU Moldova foreign trade institutional framework

The institutional framework of the EU-Moldova trade relationship is composed of both national
institutions and community ones (see Annex 1 for a complete overview) and on bilateral level is
represented by several institutional bodies created under the PCA. All of them have either direct or
indirect influence on trade related issues. These are 1) the Cooperation Council (formed of members
of the Government of the EU Member States and Moldova, and those of the European
Commission); 2) the Coordination Committee (that assists the Cooperation Council and is
composed of high ranking officials from both sides) and the Parliamentary Cooperation Committee
(made of MPs from Moldovan and European Parliaments).
5

WB The Republic of Moldova: Trade Diagnostic Study December 23, 2004.

Official Journal, 30 June, Council Regulation 980/2005 applying a scheme of generalized tariff preferences.
7
Directorate of Multilateral Trade Relations, Ministry of Economy.
6

12

At one of the meetings of the Cooperation Council (1998) a decision was taken to attribute different
functions of the Cooperation Committee to several subcommittees, one of which [Sb #1) was set up
to deal with trade and investment issues. This subcommittee was responsible for the decision in
1998 that prior accession of Moldova to the WTO is a prerequisite for starting negotiations on the
FTA. Furthermore, it was decided that a feasibility study is needed to estimate the implications for
the creation of a Free Trade Area. The conclusion of that study was that an FTA would be beneficial
only if it were set up in an appropriate economic environment where companies and individuals are
free and capable of take advantage of created business opportunities. The Wider Europe
communication (COM(2003) 104) concluded that for Moldova, which does not currently possess
the competitive strength or administrative capacity to take on the reciprocal obligations of an FTA
yet, the EU is ready to consider developing new initiatives to grant better market access, in line with
WTO obligations. At the last meeting of the Sb #1 on Trade and Investment (June 2005) experts
discussed the possibility of extending the bilateral trade relationship to an intermediate step, by
signing an Autonomous Preferential Trade agreement by which the EU will grant unilaterally to
Moldova additional trade preferences.

13

Chapter II: Commercial flows between Moldova and the EU

2. 1 Trade market and regulatory reform
Among all areas of regulatory reform, price and trade liberalisation were the areas where Moldova
has made most progress8. As early as in 1992, the government liberalised most prices and abolished
the state trading monopoly. Next years followed the unification of the exchange rate and suspension
of most export restrictions. In 1995 Moldova has made the current account fully convertible and
since then reduced and simplified dramatically tariffs on imports. The share of exports and trade in
GDP increased steadily over years, indicating openness of the economy. In its Transition Report
EBRD indicates that trade to GDP ratio grew from 87% in 1998 to 106 % in 2003 respectively (for
comparison: 96% for Ukraine, 87% for Bulgaria, 70% for Romania, 61% for Poland, 52% for
Serbia and Montenegro, 49% for Russia). Nonetheless, experts express concerns on data reliability
and doubt that the official data on trade reflect accurately the reality, pointing to shadow export
pricing, and to a possible sub-estimation of the real GDP. Also there are strong indications that subestimation of remittances from workers abroad leads to recurring overestimation of the current
account deficit9.
Stimulation of private sector development took place at a relatively lower speed than the trade
policy reforms. Moldova focused its external trade policy agenda on trade diversification and
geographical reorientation. Because the reform has not been backed by a fierce stimulation of
competition, increase in productivity and quality enhancement, locally produced goods are less
competitive on international markets. Despite the regulatory reform and trade related reforms,
international financial institutions still regard the internal administrative barriers to trade as
essential. In December 2002 a series of export restrictions and the refusal to set up a pre-shipment
inspection were cited as some of the reasons for the suspension of the IMF programme.
2.2. Analysis of the trade flows between the EU and Moldova
The EU distribution market, due to both advanced economic development and geographical
proximity, was regarded by Moldova as one of the most attractive ones. The EU GDP is 40-50 times
bigger than the one of Russia (main Moldovan trade partner). As income is one of the main
determinants of trade, EU market became one of the craved targets of local exporters. Different
sources estimate the potential share of trade with the EU closer to or above 50% 10. Nevertheless, for
different reasons and the most obvious dependence on traditional trade links with FSU countries
and low competitiveness of local goods, trade reorientation has taken place at a much slower pace
then was predicted in early years since Moldovas independence.
Moreover, as in a small country, Moldovas trade is extremely vulnerable to external financial and
economic shocks. Export levels nearly halved in 1993 (second year of independence) from levels in
Soviet times, because of the crisis in its traditional FSU markets, while the Russian financial crisis
in 1998 lead to nearly halving exports between 1998 and 1999.
Moldova-EU trade relationships have evolved quite slowly. During 1997- 2004 the share of the EU
in the world Moldovan exports advanced from 10% to almost 30% in 2004, of which some 3% was
the contribution of the accession of Central and East European Countries and Baltic states in 2004 11.
The rest of trade in 1997 went predominantly to CIS (70%), other CEECs (8%) and the rest of the
world (9%). Redistribution occurred mostly on expense of the decreased share of CIS (from 70% in
8

EC Staff Working paper European Neighborhood Policy. Country Report, Moldova SEC (2004) 567, 12.05.2004
WB The Republic of Moldova: Trade Diagnostic Study December 23, 2004
10
WB, Brenton (1999), Moldovan Economic Trends Report, Quarterly Issue, Moldova, June 2005, EBRD etc.
11
The official data does not include the trade of Transnistria with EU p.19
9

14

1997 to 51 % in 2004). The GSP scheme has also had a positive effect on redirecting some of the
commercial flows to the EU-15 member states.
Diagram 2.1. World Moldovan Exports 1997-2004

Source: National Bureau of Statistics

The share of CEECs in exports increased slightly to 11 percent and of these Romania alone
accounts for 10 percent. This indicates that a change in trade relations with Romania, once
Moldova-Romania FTA comes to an end with the accession of the former to the EU, the situation
might change dramatically for the exports to our immediate neighbour (see more in chapter VI).
On the import side, the share of the EU countries rose from 25 percent (in 1997) to 33 percent
(2004), that has a built-in contribution of 7 percent from the new EU-10 Member States after
enlargement. Allarmingly enough in the first half of 2005 the share of the EU (25) in total
Moldovan exports decreased to 28.8 largly in the result of a recently introduced double cheking
system of iron and steel exports, mainly originating in Transnistria. Ministry of Economy says that
the problem is going to be solved and the trade in these items should resume in fall.
Diagram 2.2. World Moldovan Imports 1997-2004

Source: National Bureau of Statistics

On the whole, the pace of growth of exports to the EU-25 was faster than the growth of imports to
the EU, explained by the initially very low share of exports to the EU compared to the potential one.
Over the last eight years exports grew in nominal terms 2.5 times on overall, while imports 2
times12. In terms of year-to-year growth, the trend has changed recently and the growth pace of
imports exceeds the one for the exports. In 2004, Moldovan exports to the EU grew by 40 percent,
whereas imports from the EU grew almost by 50 percent over the last year.
It is worth mentioning that during 1997-2004 imports from the new EU-10 member states grew at a
faster rate (2.3 times) than the imports from the old EU-15 MS (1.9 times). On the export side, the
12

One should be careful in interpretation of these figures and keep in mind the deflation of the US dollar versus Euro,
since the deflation of USD skewed the real growth picture.

15

picture was quite the opposite: exports to the EU-15 almost tripled compared to 1997, whereas
exports to the EU-10 were merely 20% larger than those in the base year. In spite of the fact that
generally average tariff has become lower in the EU (10) countries as compared with times before
accession, it has not helped Moldova to advance its exports to the EU, while it helped the new EU
member states to strengthen their positions in the Moldovan market.
On the EU side, the share of both exports and imports to/from Moldova was pretty small (below
1%). Over the last five years Moldovas average share of the world imports to the EU was 0.03%,
and the EU exports to Moldova represented only 0.06% of the total EU exports (the data includes
trade with Transnistria) 13.
Moldovan exports are highly concentrated in few commodities that account for more than of the
total exports to the EU. As of 2004, the main products exported to the EU consist of 4 major groups:
i) textile items (39%) ii) raw hides and skins, leather and skins (21%); iii) vegetable products (10%)
and iv) food products, beverages, tobacco (9%).
Diagram 2.3. Bilateral trade with EU per product group 1997-2004

Source: National Bureau of Statistics

As fas as imports are concerned, the picture is quite similar, being represented by 5 major clusters
of products that represent about 60 percent of total EU imports to Moldova. A great part of these
products are the ones that Moldova does not have or has a very low capacity to produce locally: i)
machines, electronic devices and equipment (23%); ii) textile products (17%); iii) vehicles, aircrafts
(7%); iv) plastics and articles thereof (7%); and v) chemical products (13%).
By the end of 2004 the volume of foreign trade with the EU reached 879.7 mln USD, while the
trade deficit has hit 286.6 mln USD. In the first half of 2005 the trade deficit with the EU almost
doubled compared to the same period of 2004, raising domestic economists concerns. If this trend
persists, by the end of the year 2005 the trade deficit might widen up to four-fold. Whereas imports
from the EU increased by 31 percent, the exports to the EU decreased by 1.2 percent, a first ever
negative performance in the last five years. The fall-down in exports to the EU could be partly
explained by the recent strengthening of the rules of origin regime and by the fact that Transnistrian
companies were denied access to certificates of origin on grounds that they are not registered as
Moldovan companies. The export/import coverage in bilateral trade with the EU fell to 43 percent
in the first half of 2005.
Both local and international think tanks forecast a further widening of the trade deficit in the
following years, which will be partly offset by the remittances from Moldovans working abroad.
The situation with the escalating petrol prices on international markets points to an even larger than
ever overall trade deficit14.

13

EU Bilateral Trade and Trade with the World (DG Trade: www.europa.eu.int/comm/trade/issues/bilateral/)
Earlier the IMF estimated that a 10$ per barrel increase in oil prices would raise Moldovas trade deficit by 2.5
percent of GDP and consumer prices by 22.5 percent (Republic of Moldova: 2004 Article IV Consultation
IMF Staff Report)))h, D
14

16

The qualitative analysis of bilateral trade points to some persisting problems faced by Moldovan
exports in finding their niche in the EU. An amalgam of the still relatively high tariff protection in
combination with low competitiveness of domestic goods, poor marketing skills, adjacent non-tariff
barriers to trade (see chapter III) characteristic for a transitional economy and a sophisticated
conformity assessment in the EU might substantially harm the ability of Moldovan goods to
penetrate the EU market. The trend of the recent years has shown that domestic production is very
inelastic to increased local demand in Moldova. This also speaks for the very low capacity of local
producers to increase export-oriented production. The government will have to pay more attention
to developing policies stimulating production growth and private sector development.
2.3

Tariff policy and utilisation of the GSP scheme

As surprising as it may seem the average tariff applied to Moldovan imports to the EU (5.6%, with
the actual utilisation of the GSP with additional labour preferences)15 is still higher than the average
weighted tariff on EU exports to Moldova (4.3%) 16. The situation is even more to the advantage of
the EU if to compare that a big bulk of the EU exports enters Moldova duty free. Since 1999, more
than 2/3 (75% in 200517) of goods have been imported from the EU with a zero tariff rate 18, whereas
less than 1/3 of Moldovan imports have entered the EU market duty free. Furthermore, only few
exported commodities fall in this category, whereas 70% benefits of GSP scheme. Ironically, the
strategic export product wine (and other alcoholic beverages) falls in the 1% of goods treated
neither under the MFN zero tariff, nor under the GSP. In consequence, wine exports that make a
bulk of Moldovan exports to Russia, are unnoticeable in the bilateral trade with the EU.
Furthermore, wine subsidies in EU and quality assessment procedures create additional difficulties
in achieving an appropriate level of competitiveness for Moldovan wines in Western European
markets.
World Bank recently (December 2004) estimated that only 60% of the exports eligible for GSP
actually received preferential treatment. If Moldova fully utilised the preferences under the GSP
labour clause, the average tariff on total Moldovan exports to the EU would fall to 4.1%, almost 50
percent of the MFN tariff and 70% of the standard GSP 19. For Moldova it is crucial to understand
several issues: (1) why a substantial proportion of trade eligible for GSP does not actually make use
of those benefits, (2) what percentage of Moldovan exports actually uses preferences or is imported
to the EU duty free, and finally 3) what should be done to make domestic production capable of
both meeting the steadily growing domestic consumption and realising the potential for expansion
of supply to the EU market.
If preferences are granted for products that Moldova does not produce and has no capacity to
produce and therefore could not export, the benefit from such a preference in short-term is close to
zero. Because the actually utilised average tariff under the GSP with labour preference is higher
than the potential (5.6% versus 4.1% respectively) one could conclude that most of the exported
goods fall in the relatively high-duty category. Therefore it is important for Moldovan decision
makers to account for this aspect when negotiating lowering preferential tariffs for those categories
of goods that Moldova could actually export. Furthermore, the under-utilisation of the preferential
scheme points to either overregulation or far too costly procedures to be worth undertaking. Finally,
seeking preferential treatment has to be backed up by domestic policies stimulating production
growth to ensure competitiveness, competition and diversification of local goods.
In terms of trade diversity, the prevalence is also on the EU side. It is striking that EU imported
about 70 percent of goods from the General Nomenclature (GN) to Moldova, whereas Moldova
15

WB The Republic of Moldova Trade Diagnostic Study December 23, 2004

Ministry of Economy data
17
Ministry of Economy data
18
Paul Brenton, Trade policies in the EU and Moldova: Implications for a FTA, 1999
19
WB The Republic of Moldova Trade Diagnostic Study December 23, 2004
16

17

imported goods covering only 17 percent of the GN20 (to update with current data). The high
weighted average tariff therefore implies that Moldovan exports are concentrated in several
commodities that bear higher than average tariffs. A simple analysis proves this assumption: for
example, the average weighted tariff for clothing was 9.7% (with actual utilisation), for cotton
fabrics 5.1%, for fruit juices 20.4%. On the sector level the average tariff with labour clause with
actual utilisation in agriculture was 5.1%, while in manufacturing 5.7%.21
Evidently, the increase in imports of technology-intensive products (imports of machinery and
equipment increased between 1997 and 2004 from 150,7 mln USD to 239,7 mln USD 22) is seen as a
positive trend, as it contributes to upgrading the capital stock in Moldova, which ultimately
increases the competitiveness of Moldovan products on the European markets. Such imports are,
however, most often associated with the inflow of FDI to the country, which has been particularly
low in Moldova USD 210 per capita once poorer than Moldova Albania attracted more almost
twice more USD 377.23 Therefore, the upgrading of productive capacity and, accordingly,
integration into the world economy would be higher for Moldova should levels of FDI reach higher
levels. Large share of imports of textile products (17%) reflects intensive outward-processing links
in this sector, which are considered to be of relatively low value-added for the recipient economy.
However, job-generating nature of this production should not be underestimated.
Additionally, the current pattern of trade a high share of land- and labour-intensive products in
exports, and capital-intensive goods in imports is typical from the point of view of trade theory
for a country at the beginning stage of its integration with a wealthier economic partner. Further on,
however, as the experience of Central and East European countries has shown, deeper integration
should be associated with convergence of trade patterns with those typical for economies with
similar levels of income initially lower-income economies upgrade their production structures,
register increased productivity, higher labor costs, and move up in the value chain and towards
higher share of capital and human-capital intensive exports. It seems, however, that Moldova is at
the very beginning of this way, as it faces difficulties even with penetrating the European market
with labour intensive products. The dynamics of European economic integration is showing,
nevertheless, that as labour costs were increasing in fast reforming CEECs, labour-intensive
production was flowing to Romania and Bulgaria, and as the same happens in the latter countries,
such investors are starting to move further East, including to Moldova.
To conclude, it is extremely important for Moldovan side to negotiate additional preferences for
staple Moldovan exports to the EU, bringing in the preference net such products like alcoholic
beverages and processed agricultural products. The key reasoning is going to be centered on the fact
that the volume of Moldovan exports is not capable of harming on overall the EU single market.
For some sensitive products like apple juice preferential tariffs could be lowered by a lower margin
to account for its larger share in Moldovan exports and to the possible negative effects on EU
producers. In case of alcoholic beverages, the reasoning in support of lowering tariffs goes even
beyond that: existing subsidies in the EU and quality assessment requirements make Moldovan
wines and brandies less competitive. This said, lowering existing tariffs would not result in an
immediate boost of exports to the EU, because there are other more serious barriers in trade that
local exporters encounter.

20

Brenton (1999) Trade policies in the EU and Moldova: Implications for a FTA. pp. 69, 71
WB The Republic of Moldova Trade Diagnostic Study December 23, 2004 p.43
22
National Bureau of Statistics, www.statistica.md
23
EBRD Transition Report 2004, p. 45
21

18

Chapter III. Technical barriers to trade with EU

3.1

Hidden trade barriers - obstacles to entry

Tariff barriers are not the only obstacles faced by Moldovan exports. As seen from the analysis in
the previous chapter, Moldovas current export flow to the EU is underperforming compared with
its hypothetical potential and this cannot be explained solely by trade protection by the EU and
other trade partners. We argue that internal limitations to businesses and wrong signals sent by the
current regulatory system and the existing quality infrastructure does not allow Moldovan exports to
reach EU markets. There are in-country factors like business environment, insufficient direct
investment and rigid administrative structures. The current system of mandatory standards is one of
those obstacles, which probably limits most the ability of exports to reach developed markets of the
EU.
This chapter argues that a faster move towards a modern standards and conformity assessment
system, which relies on international and EU standards and practices, will be enabling for foreign
investment and trade with all trade partners and will foster economic development. Furthermore, it
highlights some of the key issues related to non-tariff aspects of Moldovas trade with its one of its
major trade partners with - EU countries. Non-tariff barriers to trade include issues of
standardisation, intellectual property rights, customs procedures, import licensing, trade regulations
and administrative measures but we will focus on the basic elements forming the quality
infrastructure system first internal checkpoint for Moldovan goods attempting foreing markets.
The inherited soviet type standardisation system was created to serve the needs of the command
economy, where the state dictated what to produce, how to produce it and in what quantities. For
that to happen, the standards had to be mandatory and explicit like a recipe. Any change to the
existing standards was a result of research, which was concentrated in the state-owned research
institutes and did not reflect the developments of the external demand or other market incentives.
In the period of transition to a market economy, the existing system of quality infrastructure
management based on mandatory standards slowed economic development in Moldova with several
consequences:

It inhibited direct investment by creating a cumbersome mechanism for set up new production
according to western standards and practices, which in most of the cases differ form the ones
accepted in Moldova;

It delayed the transfer of knowledge and technical know-how to local companies, which had to
comply with at least two approaches (and sometimes conflicting standards and procedures)
one local and anoter one brought by foreing investors;

It contributed to a negative business environment because of the too many layers of authorities
and certificates that a company needs to go through as well as the lack of clear rules and
sufficient, easy to access information about the existing requirements. A high level of discretion
in applying the rules and regulations made their implementation unnecessary complicated and
non-transparent;

It mposed a burden on exporters as well as on importers due to the high level of transaction
costs for obtaining the necessary certificates.

19

All former socialist countries have undertaken steps towards modernising their standardisation
infrastructure and introducing international standards. Countries like the Czech Republic, Poland,
Romania and Bulgaria, as well as other CEE countries have completed this process, while Moldova
is implementing it at a much slower pace. Because translating and transforming all relevant
international standards into national language is a lengthy and expensive process, Bulgaria, for
example, has taken a short cut by declaring all standards voluntary and recognising international
standards without translating them. This allowed Bulgarian producers adopting European standards
before they were formally introduced as Bulgarian State Standard and instantly reduced barriers to
imports from the EU. This was also the experience of Poland and other CEE countries.
As logic may suggest that for small developing economies it is most efficient to borrow what they
need from best international practice instead of developing from scratch standardisation
infrastructure. Adoption of international standards opens the domestic market for competition and
increases the efficiency of the local producers, making them more prepared for the world
competition. Therefore adoption of voluntary standardisation system used by the European Union is
a recommended option. Technical regulations can also be directly adopted, after determining what
the countrys priorities in that area are. When deciding on how to develop its standardisation
infrastructure, the country should take into account its trade needs. It is most cost efficient to adopt
the standards of the major trading partner.
In the context of Moldova, there are concerns that its major trading partners Russia, Ukraine and
other CIS countries have standardisation systems, which are the same as Moldovas and certificates
for conformity are mutually recognised. Therefore, Moldova should not adopt international or EU
standards too fast because this might have a negative impact on its trade with those countries. There
seem to be several factors, which should eliminate these concerns:

The evidence that Moldova has not reached yet its potential, estimated around 50% by different
sources, speaks for the presence of other factors deterring normal development of bilateral trade
with the EU. Of these, complying with standards and technical regulations are one of the most
prohibitive.

Romania and other CEE countries have also adopted international and EU standards. Goods,
which have access to the EU market, should be marketable in those countries as well.

Russia and Ukraine have taken major steps towards recognising international standards. Also,
the demand for higher quality goods has increased significantly there as well.

Despite the great deal of harmonization of standards under the ISO and EN, the regulations guiding
their implementation are country-specific and this imposes additional costs to firms and individuals
involved in international trade. These costs arise from the need to comply with technical regulations
in the destination market and include translation cost. For example a company needs to hire foreign
experts to explain foreign regulations, or to hire a foreign certification body to certify that the
foreign (or international) requirements are met. Quite often, adjustment of production facilities or
redesign of products is required to meet foreign regulations. These costs are higher when the home
country of the exporting company has different standardisation system and those standards are
mandatory. It can be impossible to satisfy both foreign and domestic requirements, which
automatically exclude one of the two markets or necessitate two separate production lines that lead
to lower efficiency. When these overlapping requirements are coupled with lack of transparency of
the process of certification and impeding business environment, the overall burden on trade can be
quite significant.
The WTO Technical Barrier to Trade (TBT) agreement, based on ISO guide, defines a standard as a
document approved by a recognised body that provides, for common and repeated use, rules,
guidelines or characteristics for products or related processes and production methods, with which
compliance is not mandatory24. Development, adoption and compliance with voluntary standards
24

The Results of the Uruguay Round of Multilateral Trade Negotiations: The legals texts; Geneva, 1994, p.157

20

is dictated by the market. For example, the ISO 9000 quality assurance standards are growing in
popularity and are often perceived as essential for accessing foreign markets and for increasing
domestic sales as well. The system of voluntary standards gives the producers the freedom to
decide how to produce, to be innovative and to adhere to the standard, which is closest to the market
where they want to sell their goods. It also allows production of different range of goods in terms of
price and quality. What to produce and how should be determined by the market demand.
The issue of safety is addressed by the technical regulations. Labeling requirements ensure that
sufficient information about the product is provided to the consumer, so he can make an informed
decision whether this level of quality for that price satisfies his needs.
In terms of their function, standards can be categorised as product standards defining a products
characteristics or performance requirements, and production process standards determining the
conditions under which products are made.
The term technical regulations (TR) refers to mandatory standards, which are developed and
enforced by governments to guarantee protection of safety, health and environment. It should be
noted that technical regulations, as defined above, are fundamentally different from mandatory
standards, which were used in the soviet system and still prevail in Moldova. Technical regulations
have a public good function and their main purpose is to specify performance indicators, limits and
thresholds rather than design or descriptive characteristics, which is typical for the GOST standards.
For example technical regulation on fire-resistant door could specify that the door must be fire
resistant with a 30-minute burn through time and it should not specify how the product must be
made, e.g., the door must be made of steel, one inch thick. Examples of TR include labeling
requirements, fire codes, pharmaceutical testing, motor vehicle safety requirements and
environmental protection regulations.
A modern standardisation system (standards infrastructure) of a country consists of several layers.
The first layer comprises the bodies of technical experts, who write the standards in Moldova
these are the technical committees where governmental bodies such as Standardization Sercive of
Moldova and the National Institute for Standardisation and Metrology are represented together with
the representatives of private sector (relevant industries). The second layer is the conformity
assessment procedures technical procedures such as testing, verification, inspection and
certification which confirm that products fulfill the requirements laid down in regulations and
standards. The third layer is the accreditation and recognition system the audit system that
ensures that conformity assessment is working properly. Each country needs a standards
infrastructure, which meets its own domestic and trading needs. The development of such
infrastructure is market-driven, depends on the structure of the economy and the structure of
exports, but is guided by government policies.
3.2 The need for harmonised standards
The need for standards is axiomatic. In a globalising world, they are essential for production and
exchange. When harmonised, standards support market development, facilitate trade and promote
integration with global markets. Standards allow for a more efficient allocation of production
resources and for transfer of technical knowledge.
Table 1 shows the number of companies, certified for ISO 9000 in several CEE countries. It is
evident that the country with the highest number of certified companies (the Czech Republic) is also
the country with the best economic performance among those in the table.
Table 3.1. Number of companies certified for ISO 9000
ISO 9000 Certification
1995

1996

1997

21

1998

1999

2000

2001

2002

Bulgaria
Czech Republic
Romania
Moldova

3
180
42
1

14
366
61

42
746
214

96
1443
269
5

199
1500
466
5

259
3855
1032
6

469
5627
1670
12

883
13

Source: Standardization service of Moldova, www.iso.md, www.club9000.org

Despite the fact that in the last three years in Moldova more companies have been ISO 9000
certified then in the five years before, the data from the table above shows that Moldova had a much
slower path then its neighbors.
When standards and technical regulations are diverging, trade is impacted negatively because of the
additional costs incurred by exporting firms. These are the so-called technical barriers to trade and
have the potential to be powerful protectionist policy tools.
The increased costs of exports due to technical regulations and standards make the latter a possible
policy tool for protection of domestic industries.
The costs for exporters from diverging regulations may be summarised into four categories:

Loss of economies of scale the need to adjust production to meet diverse technical
requirements in individual markets increases the unit cost of production.

Conformity assessment costs the fee for certification of the production is operating cost and is
included in the price of the product. Conformity assessment and certification services are quite
expensive, especially in the context of a developing country company paying for the services of
a private company from Western Europe or the USA.

Information costs these include costs of translating and disseminating product information,
training of experts, etc.

Surprise costs the ones when an exporter is confronted with new regulations, and incurs
adjustment costs.

3.3. Evolution of the system of standardisation, metrology, certification and accreditation

The evolution of the system of standardisation in Moldova can be divided in three stages that reflect
different periods of the development of the national system of standardisation and the establishment
of its own infrastructure.
First period, 1991-1994, was characterised by the efforts to create the national standardisation
bodies, and elaboration of the first national standards. Having inherited the institutional structure of
the former centrally planning economy, Moldovas standardisation, metrology, certification and
accreditation functions were performed by the Department for Standardisation and Metrology of the
Republic of Moldova, with a legal mandate for all the above-mentioned areas. Of about 17,000
regional GOST standards, available within the territory of the Republic of Moldova, Moldova
applied approximately 8,000 standards, of which about 2,000 were mandatory. During this period
little has been accomplished to change the institutional and legislative framework of the old system
of standardisation. The new market relations increasingly demanded a new approach in regulating
standardisation.
The former structure turned to be a low efficiency mechanism. Due to a vague legislation, on the one
side, it created a heavy bureaucratic burden on the private sector, stimulating rent-seeking behaviour
and leaving little incentive for reforms. On the other side it did not stimulate foreign investment and
subsequently reduced the export potential of the country.
Second period, 1995-2001, was characterised by the establishment of the basic legislative
framework in the field of standardisation pursuant to the new realities of the market economy. A
wave of harmonisation of the existing standardisation system with the WTO requirements has
started.
22

Along with the enactment of the basic Law on Standardisation in 1995, the first step towards
reforming the old system of standardisation has been made by leaving only health, labour, and
environmental standards as mandatory. The Law on Standardisation expressly provided that
Moldovan standards have to be based on modern scientific research, techniques and technology, as
well as harmonisation with international and regional standards.
For the first time, the amendments to the Law on Standardisation and the Law on Technical Barriers
to Trade No. 866-XIV of 10 March 2000 stipulated that the application of national standards will
become voluntary, except for the cases where a reference in Technical Regulations is provided.
However, following a difficult economic situation, and the absence of elaborated technical
regulations, Moldova considered mandatory standards the only practical way to keep out poor quality
or dangerous products.
Moldova had a rather late start in the process of drafting its own legislation in the field of
standardisation, metrology, certification and conformity assessment compared to its neighbours
from Central and Eastern Europe. First own laws on standardisation and metrology were enacted
only four years after independence. The law on certification was enacted only four years ago.
Concerning the process of harmonisation with EU and international standards, which for example
was mostly completed by Bulgaria in 1998, Moldova is lagging seriously behind. Certification had
a mandatory character for products or services that can affect life, health, and consumers property
and environment. These products or services were introduced into the list of products and services
subject to mandatory certification, approved by the Department of Standards, Metrology and
Technical Supervision.
The certification procedures for specific classes of products were spelled out by each accredited
body and approved by the Department of Standards, Metrology and Technical Supervision in
conformity with the Moldovan Standard SM 45-2 National Certification System of the Republic of
Moldova Product certification. These certification procedures, testing methods and certification
activities are for domestic and imported products, regardless of the products origin and type of
business organisation of the applicant. Unified form certificates, protected with watermarked signs,
were issued by the National Certification System of the Republic of Moldova. Moldova recognised
only certificates of conformity, issued by the certification bodies with which bilateral or multilateral
agreements of recognition had been signed.
Also, during this period, Moldova initiated the process of accession to the WTO, which has had an
additional impetus for the reforms in the area of standardisation and conformity assessment. The
country had to comply with the basic requirements of the WTO TBT agreement in regard to the
transition to the voluntary standardisation system and non-discriminatory application of standards
and conformity assessment procedures. In 1997, Moldova became the correspondent member of the
International Organisation for Standardisation.
Despite some changes in the system of standardisation the basic institutional framework remained
unchanged (mandatory standardisation and no independent accreditation body), thus causing
contradictions with the developing private sectors needs. Moreover, Moldova confronted the need
to adjust its standardisation system with the WTO requirements. The latter highlighted the weak
institutional and financial capacity of the country to meet new challenges in this regard.
Third period, 2001 to present, is characterised by harmonisation of the standardisation system
with the international and regional (European) requirements, and by the process of shifting to the
system of voluntary standardisation according to the WTO requirements (TBT agreement).
The collection of current standards includes 196 standards developed in Moldova, 300 Romanian
standards applied as national (of which 104 are harmonized with ISO, and 51 are identical to EN
standards), 125 standards of Russian Federation (GOST R) applied as national standards, 5 standards
from Belarus, 6 Ukrainian standards and 2227 interstate GOST standards, some of which (528) are
also harmonised with the international or European standards). Moldova acceded to the International
23

Conventions regulating the safety of chemical, toxic, inflammable, explosive and other substances.
However, in Moldova there are no specific regulations or requirements covering electrical safety,
telecommunications equipment, medical devices and other classes of equipment.
Currently, the certification regime in the Republic of Moldova is carried out by 31 certification
bodies, of which 26 for products, 2 for services, 1 for personnel, 2 for quality systems; and 156
testing laboratories, accredited within the National Certification System of the Republic of Moldova
in conformity with provisions of EN 45000 Standard. There is also one inspection body. The
nomenclature of products subject to mandatory certification includes: foodstuffs; electronics;
products and technologies with high level of danger; goods for children; cosmetics products;
construction materials; machines and equipment; and furniture. The services subject to mandatory
certification included hotels, dry cleaning, motor-repair, audio and video repair and household
electrical appliances repair services. However, the list seems to be too large and does not always
justify the purpose of certification.
Through the participation in the technical committees, domestic producers are being made aware of
the contents of drafts on standards. Besides the national standards Moldova applied international
standards (ISO, IEC), regional standards (GOST, EN) and Romanian standards (STAS, SR).
Current practice of recognition by Moldovan certification bodies of the certificates issued in CIS
countries and Romania is based on bilateral agreements. However, there is a special procedure to be
followed.
Example: Testing protocol shall be attached at the border of Russia. Problems arise mostly in the
area of wine exports, since in Russia there is a different classification of wine compared with the
Western European markets.
Due to the lack of financial resources, and weak institutional capacity, Moldova succeeded to a
lesser extent to develop its participation in the European standardisation bodies such as European
Committee for Standardisation (CEN), European Committee for Electrotechnical Standardisation
(CENELEC), and European Telecommunication Standards Institute (ETSI), which fact inhibits
local standardisation process.
Certification of products and services in the Republic of Moldova was carried out in the framework
of the National Certification System, on the basis of the Law on Certification No. 652 of 28 October
1999, Law on Consumer Protection Rights of the Republic of Moldova, Law on Standardisation,
and in concordance with ISO, ISO/CEI Guides, and normative documents of National
Standardisation and Certification Systems, harmonised with the above. In the Republic of Moldova
the mandatory and voluntary certification was carried out in conformity with General Procedure
PG-01-05-92 issued by the Department Moldova Standard.
Certification had a mandatory character only for products or services that can affect life, health, and
consumers property and environment. These products or services were introduced into the
Nomenclature of products and services subject to mandatory certification, approved by the
Department of Standards, Metrology and Technical Supervision. The certification procedures for
specific classes of products were spelled out by each accredited body and approved by the
Department of Standards, Metrology and Technical Supervision in conformity with the Moldovan
Standard SM 45-2 National Certification System of the Republic of Moldova Product
certification. These certification procedures, testing methods and certification activities are for
domestic and imported products, independent of the products origin and type of business
organisation of the applicant.
3.4.

Impact of diverging regulations

In the period of transition to a market economy, the existing system of mandatory standards in
Moldova slows economic development for the following reasons:
24

a. It inhibits Foreign Direct Investment

Some of the factors attracting foreign direct investment are adequate infrastructure and transparent,
non-arbitrary regulations and procedures. Countries meeting world standards tend to attract more
investors.
b. It contributes to a negative business environment
The system of standards and conformity assessment is quite complicated with no clear rules, which
leaves room for discretion. Functions, relationship and responsibilities of different state bodies
comprising the system are not clearly defined and very often are overlapping. Information is not
readily available and the rationale behind some of the requirements is not obvious.
There are three bodies issuing required certificates for food the Preventive Medicine Department
within Ministry of Healthcare, the Ministry of Agriculture and Moldova Standard. Many of the
items tested by each body are the same. Quite often, only one of the bodies carries out the test, and
the other two issue their certificate on the basis of the first one.
Inspections are also overlapping, with different departments of the same agency being in charge of
various aspects of the inspection process. A World Bank study25 points out that in 2002 Moldovan
businesses were, on average, subject to 19.5 inspections per year.
Another result of the same study is that senior management in Moldova dedicate on average 7
percent of their time to dealing with regulations and spend 2 percent of revenues to get things
done.
c. The high level of transaction costs for obtaining the necessary certificates
The need to certify goods and production processes is daunting both for exporters and importers
because of the high direct and indirect costs.
The companies exporting to the EU are mostly joint ventures or some other form of foreign capital
involvement, which is bringing knowledge about export markets, the certification requirements, etc.
This implies high information costs as well.
The conformity assessment and certification system is the second most important deterrent for
exporters to seek realisation of their production in the local market as well. The most important
factor remains the need to pay import duty on imported inputs when the final product is sold in the
domestic market.
The fact that most of the inputs, the production and each of the final products have to be certified
imposes a burden on producers, especially SMEs and those who manufacture a large variety of
goods, since each new variety has to be certified.
Exports to CEE countries are also affected. As those countries are swiftly adopting international and
European standardisation systems, Moldovan goods are more likely to be rejected due to
conformity assessment reasons. One example is Moldovas exports of meat and dairy products to
Romania. They were declared as non-conforming to EU requirements and thus were prevented from
being imported even though there were no legal grounds for doing so.
d. The existing testing, inspection and certification bodies have no incentives to change their way
of work. The current system encourages bureaucracy and rent seeking behaviour of the state-owned
certification bodies.
Even though the Government is trying to move forward on the issue of bringing the standardisation
system in line with best international practice, there is no budget allocation. The preparation of
technical regulations have started in the sense that working groups have been created within the
relevant ministries, but this work is not paid additionally and it is not envisaged to hire consultants
from outside the respective ministry to assist with drafting regulations. The possibility of adopting
directly other countries technical regulations and standards has not been explored rigorously. Also,
25

Moldova Investment Climate Assessment, The World Bank (Draft, September 9, 2003)

25

members of working groups are not experienced in drafting technical regulations, which may lead
to the creation of unsuitable regulations, which in turn may resemble more the existing mandatory
standards, rather then comply with the EU approach. Little has been done in terms of providing
information to the public about international standards, EU requirements and the system of
conformity assessment, how the system of accreditation is working, what are the world-wide
developments and what is the importance for trade. Not much is being done also in training the staff
of the various agencies.
e. Exerts a heavier burden on exporters who wish to reach both EU and local markets. A large
number of firms exporting to the EU work with imported materials and technology and follow
international quality requirements and standards as defined in their contracts. If such a company
decides to sell part of its production in Moldova, they have to obtain a number of certificates. The
Bulgarian experience shows that companies, who had to redesign their export products to conform
to the requirements of the EU single market, were able to expand their sales both on the Bulgarian
and the CEE market (after moving to a system of voluntary standards). There is no reason to doubt
that higher quality and better-packaged goods, conforming the EU requirements, will be better
appreciated by markets in the CIS.
f. Limits innovation. The current standards, some of which date back to 1938, are too prescriptive
and do not allow for easy incorporation of new materials without going to the process of changing
the standard.
g. Does not promote transfer of technical knowledge by limiting the possibility to use international
and EU standards instead of Moldovan standards, thus crowding out FDI and related transfer of
technical knowledge and know-how. This point is even more valid for production method standards.
h. Obstructs competition by limiting the ability of a producer to adjust its production in response to
market demand in a timely manner. Moldovan standards are also quite specific about the packaging,
which makes it quite difficult to have such offers as get 25% more for the same price.
Thus, Moldovas current practice appears overly restrictive in its reliance on government-togovernment agreements, and fails (a) to establish non-discriminatory treatment of imports from
countries with which it does not have bilateral recognition agreements and (b) to develop procedures
for acceptance of conformity assessment results from bodies located outside of Moldova as part of its
implementation of the TBT Agreement.
3.5

Moldovas WTO Commitments

Initial WTO commitments

Upon accession to the World Trade Organisation in 2001 Moldova undertook to implement the
system of voluntary standardisation starting from 1 January 2003. However, due to a number of
circumstances (poor legislative framework, lack of funding and technical expertise of the
responsible bodies) the implementation of this objective was postponed by the Moldovan
Parliament for another two-year period until 2005. (See Box 3 26 for a list of Moldovas WTO
commitments). There are several steps to be undertaken to implement the WTO and complete the
transition toward voluntary system of standardisation. Some of them include the following:
First, elaboration of own technical regulations
This approach, however, may be very costly and with the longest period of implementation. For
instance, Russia has evaluated that it needs a 7-year transition period in order to fully implement the
26

Working party report on the accession of the Republic of Moldova to the WTO

26

system of voluntary standardisation and technical regulations. Given Moldovas econominc

situation the time frame may be far longer.
As first step, Moldova established Graph 3.1. National Budget allocations on technical
the following two major institutional regulations
pillars in order to implement the
system of voluntary standardisation
and
elaboration
of
technical
regulations:
a.

Intergovernmental Steering
Committee for supervision of the
process of conversion of
mandatory
standards
into
technical
regulations
and
implementation of the voluntary
system of standardisation.

b.

National Program for

Elaboration
of
Technical
Regulations 2003-2008 with the
priority for the agri-processing
sector, for which the elaboration of technical regulations are set out for the first years 2003-2005
Regretfully, so far, there is no expressly provided program for standardisation in the new budget
law.
According to the last amendments in the National Programme on transition to the voluntary
standards and technical regulations, starting with 1 January 2005 Moldova will apply voluntary
standards. This explains why the biggest portion of the budget for the conversion is allocated to the
year 2004 (see Graph 3.1).
Where there will be no technical regulations adopted by that time, mandatory standards will be
applied along with technical regulations. For example, currently, based on the laws on wine and
vineyards, and law on tobacco and tobacco products, technical regulations are elaborated in these
areas. However, they are not harmonised with the international ones.
According to the working programme of the intergovernmental committee each line ministry shall
estimate the cost of transition and their priorities.
Second, direct transposition of EU standards and directives into relevant Moldovan legislation
An example in this respect is the Governmental Decision No. 996 of 20.08.2003 on labeling of
foodstuff and chemical products, which incorporated relevant provisions of similar EU directives.
Similarly, relevant EU directives were used for the Law on biological security and subsequent
Governmental Decision No. 1153 of 25.09.2003 on authorisation of activities related to the
production, testing, use and trade of genetically modified organisms.
However, lack of appropriate knowledge and training, as well as high employee turnover due to low
salaries, and subsequently lack of motivation of the full-time staff of the Department of
Standardisation, does not allow implementing this program effectively. Additional resources are
drawn from the international donor community. For instance, within its Tacis programme the EU
launched a project on harmonisation of Moldovas system of standardisation, technical regulation
and conformity assessment with the WTO requirements.
Moldova has also scheduled a separate task in metrology: the production of the testing equipment in
order to ensure international recognition of the Moldovan tests. The five-year programme with the
total budget of MDL 20 million has been adopted by the Department of Standardisation for the
introduction of etalons, however no financing for the current and next year budgets was foreseen.
27

1.

Box 3. List of Moldovas commitments within the scope of the WTO TBT Agreement
By 1 January 2002 the authorities of the Republic of Moldova will develop and make known the technical
regulations, derived from the present mandatory standards.

2.

The newly developed standards will be harmonised with ISO standards and the existing standards would be
harmonised over time through a process of periodic revisions.
3. Free access to all normative documents on standardisation and certification procedures will be guaranteed
for all applicants for certification from the Republic of Moldova and other countries.
4. To introduce modifications to the Law on Certification No. 652-XIV from 28th of October 1999 to bring
Article 4 paragraph 5 of that Law into line with the requirements of Articles 5 and 6 of the TBT Agreement
in the area of application of conformity assessment procedures.
5. Articles 8 and 12 of the TBT Law and Article 13 of the Law on Certification would also be amended to
ensure that the procedures of conformity assessment applied to imported goods were identical to the
procedures applied to local production, and would conform to the provisions of Articles 5 and 6 of the
WTO TBT Agreement. These amendments would be in force prior to the date of Moldovas accession.
6. The Code of Good Practice and all terms and definitions necessary for the implementation of the TBT
Agreement would be in operation prior to the date of Moldovas accession to the WTO.
7. Legal instruments would be issued during 2001 to provide for the complete transformation of Moldovan
practice from pre-existing mandatory standards into a system based on technical regulations and appropriate
voluntary standards.
8. From 1 January 2003, the application of all national standards would become voluntary. At the end of this
period, national standards would remain mandatory only by reference to a technical regulation, adopted by
a public authority in accordance with legitimate objectives, such as national security, preventing of misuse
practices, protection of the health and life of physical persons, of the health and life of animals, plants
protection, and environment protection.
9. Prior to the date of accession, Moldova would amend its laws and regulations to ensure that its conformity
assessment procedures reflected options for achieving confidence in the technical competence of bodies
located in the territory of other WTO members to perform conformity assessment and have their results
accepted by Moldovan authorities. Such options would include: the conclusion of agreements with
conformity assessment bodies in other countries (e.g., accreditation bodies; certification bodies); the
acceptance and non-discriminatory consideration of applications for accreditation from conformity
assessment bodies located in other WTO members and the acceptance of conformity assessment results
from qualifying bodies; and other means of recognition of equivalent procedures.
10. Moldova would implement the WTO Agreement on Technical Barriers to Trade from the date of accession,
without recourse to any other transition.
11. Moldova would accede to the Convention on Plant Protection and implement the new revised text of the
Convention, as approved by resolution 12/97 of the twenty-ninth session of the FAO Conference in
November 1997 by the end of the year 2000.
12. Moldova would ensure the implementation of the SPS Agreement prior to accession and would apply
internal legislation in conformity with the provisions of the WTO Agreement on SPS.

To that extent the Department of Standardisation prepared all the necessary steps to become a
signatory to the Convention of the Metre, and to the subsequent agreements, and will thus be
offered the accreditation, based on which Moldova will be able to recognise the tests.
The main conclusions may be drawen form the above analysis:
General lack of the state resources to implement the program suggests a different path of
reforms in this area, namely, involvement of the private sector as the main stakeholder in
both the elaboration and harmonization of the national standards. With much more financial
resources the private sector will have the means and incentive to pay for the implementation
of the EU standards following the example of other Eastern European countries that adopted
similar strategies. The role of the Government will be to set up favorable conditions for the
FDI flows and promote trade.
Additional resources have to be drown from international donor community such as World
Bank, TACIS program, and others. The WB pledged about 9,6 mil. UDS for improvement of
the quality system infrastructure in Moldova. TACIS already for several years implements a
similar program, however with a more limited scope.
28

Chapter IV: Scenario I: Autonomous Trade Preferences EU - Moldova

4.1 The format of an autonomous trade preferential arrangement
Over 130 preferential trade agreements with EU were formed in the last ten years more
than in the previous 50 years taken together. Nearly all countries are currently members of
at least one preferential trade agreement and nearly a third of world trade is carried out
under a preferential treatment.
There is a provision in the WTO for developing countries allowing treating them
differently from developed states in various regards, including granting trade preferences.
In other words, developed states may discriminate against other developed countries in
their trade policy provided that it benefits developing countries. This is permitted under
the so-called 1979 Enabling Clause.
Next to the GSP scheme, applied by the most developed countries in order to grant trade
preferences for developing and transition economies, the European Community designed
discriminatory preferential schemes for a subset of countries: Lome Convention (replaced
by Cotonou Agreement) for 77 African, Caribbean and Pacific countries; Everything But
Arms Initiative for least developed countries; and Autonomous Trade Preferences (ATPs)
for the Western Balkans.
In 1997 the European Union launched the Regional Approach Initiative for the Western
Balkans, which cover the following fields: trade (application of autonomous trade
preferences), financial assistance and economic co-operation. The trade preferences
granted by the European Union, known as the autonomous trade preferences, basically
allow virtually all products originating in the beneficiary countries to enter the EU without
quantitative restrictions and customs duties, the only exemptions being imports of wine,
baby beef and some fishery products to which tariff quotas apply.
Granting of autonomous trade preferences is linked to respect for fundamental principles
of democracy and human rights and to the readiness of the countries concerned to develop
economic relations between themselves. Furthermore, another condition for obtaining
autonomous trade preferences is readiness of a country to engage in effective economic
reforms and in regional cooperation, in particular through the establishment of free trade
areas in line with relevant GATT/WTO standards. Trade preferences can only be granted
to countries or territories that have a full-fledged customs administration. In addition,
entitlement to benefit from autonomous trade preferences is conditional upon the
beneficiaries' involvement in effective administrative cooperation with the Community in
order to prevent any risk of fraud.
The ATPs are, however, subject to a standstill clause27 (under which the preferences will
be suspended if the beneficiary country introduces new or increases existing duties,
charges and quantitative restrictions or measures, which have equivalent effect for imports
originating in the EU. Another requirement for granting an ATP is the obligation of the
exporting country to comply with the concept of origin of goods and to prove that the
goods, which are exported to the EU, are in fact produced in the country. Thus, it is not in
the interest of the countries themselves that these generous preferences be abused.
Consequently, good management of the preferences is a matter of interest of the
beneficiary country as a whole, and not just of one entity or sector.
The conditions described above are part of the first generation of autonomous trade
preferences.
27

Article 2(1) of the Council Regulation No. 2007/2000.

29

At its meeting in Lisbon on 23 and 24 March 2000, the European Council concluded that
Stabilisation and Association Agreements with the Western Balkan countries should be
preceded by asymmetrical trade liberalisation.
The European Commission proposed
the preferential trade arrangement as
a part of Stabilisation and
Association Process, following the
special situation in the region.
Conditions for entitlement to the
preferential arrangements, which are
subject of the second generation, are
specified in the Article 2 of the
Regulation 2007/2000 (see Box 4).
Autonomous
trade
preferences
foresee an integral elimination of the
customs duties and quantitative
quotas for all products originating
from the states participanting in the
Stabilisation
and
Association
Process, with the exception of beef,
some fish products and individual
concessions for wine.

Box 4. Conditionalities for obtaining ATPs

- existence of a national system of rules of origin, which
mean compliance with the definition of the concept of
originating products;
- abstention of the countries from introducing new duties
or charges having equivalent effect and new quantitative
restrictions or measures having equivalent effect from
imports originating in the Community or from
increasing existing levels of duties or charges or from
introducing any other restrictions from the day of the
entry into force of the Regulation;
- the involvement of beneficiaries in effective
administrative cooperation with the Community in order
to prevent any risk of fraud;
- readiness to engage in effective economic reforms and
in regional cooperation with other countries concerned
by the European Union's Stabilisation and Association
process, in particular through the establishment of free
trade areas;
- trade preferences can only be granted to countries or
territories possessing a customs administration

Obtaining autonomous trade preferences from the European Union is a short-term

objective of the Republic of Moldova, of strategic importance though. Such preferences
come in the form of an asymmetric trade preferential regime, granted by the EU
unilaterally. This is one of the "priorities for action" identified in the EU-Moldova Action
Plan. Therefore, EU and Moldova have made the first step towards setting the conditions
and requirements for obtaining ATP. It is the issue of high priority for Moldova to start and
finalise the necessary procedures as early as possible.
Should the reform of the system of certification of origin show its viability, EU services
are predisposed to launch internal procedures to grant the ATP for Moldova? It should be
mentioned that this process is quite complex and requires time and effort to be coordinated with each member state.
The Republic of Moldova submitted to the EC an advisory opinion on the Governmental
Programme on Enforcing RM-EU Action Plan, in particular the background information
for granting the autonomous trade preferences. The main EC requirement in this respect is
the effective control of the origin of goods, including the transfer of the responsibility for
issuing and verifying the certificates of origin to the Customs Service. In more detail, the
requirements put forward by the European Union are presented below (Box 5).

30

In order to meet the above-mentioned

requirements, the Government of the
Republic of Moldova has adopted an
action plan to improve the regulatory
and institutional frameworks on
certification of origin of exported
goods in conformity with the EU
requirements. In particular, the
Customs Code of the Republic of
Moldova should be improved, as well
as the Government Decision no. 1599
from 13 December 2002 on the rules
of origin of commodities. An action
plan should be drawn up with the aim
to support the Custom Service of
Moldova with required equipment and
staff training in the field of
certification of origin of exported
products. For this propose the
assistance of the European Union,
including technical assistance, is
crucial.

Box5 EC Requirements
General requirements:
- to have an competent customs authority to manage
effectively preferential and non-preferential rules of
origin;
- to
publish,
following
required
procedures,
instructions, notifications or guides on preferential
rules of origin for the staff of customs service and
businessmen;
- to inform necessary services on applied system of
rules of origin.
Issuing of preferential certificates of origin and
verification of authenticity of the import certificates of
origin:
-

these functions should be exclusively the subject of

customs authorities, without the involvement of the
Chamber of Commerce and Industry;
notification of the EU services on customs specimen
of the Republic of Moldova;
notification of the custom service staff on the customs
specimen of the EU and its members states;
customs service of the Republic of Moldova should be
authorised with verification functions and control of
authentication of origin.

4.2 Benefits and drawbacks of an ATP

Preferential treatment by European Union of its imports from developing and transition
economies clearly is an important element of the overall web of economic (and political)
relations between the EU and its trade partners. Autonomous trade preferences aim to
foster economic growth in beneficiary countries. ATPs create premises for producers to
engage in economically rewarding activities; helps them at early stages to enlarge their
market, specialise, increase production scale and raise productivity and, therefore, become
internationally competitive. For that reason, their fundamental purpose is to provide
beneficiary countries with better opportunities to achieve a self-sustained improvement of
their economic, and hence hopefully social and political fate.
Trade preferences, including autonomous trade preferential arrangements are seen by
many economists as a possible alternative to financial and technical assistance, as
reflected in the slogan trade rather than aid. It is certainly a persuasive argument that the
countries in transition, like the Republic of Moldova, should be given better opportunities
for improving its economic situation through its own activities, with a hopefully lasting
positive effect, rather than being dependent on aid provided by developed countries.
The expected benefits from trade preferences are economic advantages such as better
access to developed country markets, increased export volumes and prices, improved
economic welfare, more jobs, and more rapid economic growth. In addition, there can be
soft (but nevertheless important) advantages such as better familiarity with sophisticated
markets in developed countries, growing awareness of the need to improve quality, a more
outward-oriented attitude of the economy, and new business alliances.
Unfortunately these benefits are very hard to identify and measure empirically. The major
reason is that it is very difficult to tell which particular development was actually caused
by ATPs and would not have otherwise occurred. The observed growth rate of beneficiary
31

countries exports to the European Union is not a reliable indicator as it is not clear how
exports would have behaved should no preferential treatment been in the absense of ATP.
A somewhat better impression might be gained by comparing the growth of developing
country exports to developed countries granting preferences with the growth of exports to
developed countries not granting preferences. However, it cannot be concluded that
exports to preference-giving countries would have, in the absence of preferences, evolved
in the same way as exports that actually went to developed countries not granting
preferences.
In addition to the direct effects on production, investment and employment, exports may
also provide soft benefits to exporting countries. Exports to the European Union and
other developed markets require upgrading product quality, health and safety standards,
which is likely to spread to all products of a supplier, including those designated for
domestic consumption. Exports can increase the scale of production, introduce more
efficient production methods and technologies, and hence increase productivity and
income, stabilise earnings and lower consumer prices.
As in most aspects of life, trade preferences have not only benefits, but also costs. While
most of the benefits take the form of direct economic advantages, the costs tend to be
more disguised, and in part come only in the longer term. However, they are nevertheless
real and have to be weighed against the benefits. Moreover, the benefits from preferences
may decline over time, while the costs may remain constant, or can even increase.
At a completely different level, preferences cause costs resulting from their technical
implementation. In particular, granting of preferences implies strong system of control of
rules of origin, to make sure that only, or primarily, domestic production in the beneficiary
countries benefits. Typically, rules of origin are quite complex, and the texts specifying
them are usually much longer than the texts setting out the trade preferences as such. In
the beneficiary countries, all sorts of administrative efforts have to be made to comply
with the rules of origin and to satisfy the requirements of the preference-giving countries.
Depending on the size of the preference margin, the costs of implementing the rules of
origin may actually be larger than the value of the preference.
Comparing with other trade preferences granted by the European Union, it should be
mentioned that trade preferences received through the Stabilisation and Association
Agreement provide more security of market access rather than the ATPs which involve a
unilateral EU action. Moreover, eligibility for a new contractual arrangement would
require commitments that would start the alignment and harmonisation of Moldovan
legislation and regulation to those of the EU, which would be helpful in the long-run
integration of Moldova into the European structures.
4.3 Examples of autonomous trade preferential arrangements
4.3.1 Autonomous Trade Preference for the Western Balkans
In order to enhance the democratisation and economic transformation of the entire
Western Balkan region comprising Albania, Bosnia and Herzegovina, Croatia, former
Yugoslav Republic of Macedonia and the State Union of Serbia and Montenegro, the
European Union launched in 1997 the Regional Approach that covered several
important issues: trade, financial assistance and economic cooperation. In that context, it
unilaterally granted generous trade preferences to those countries.

32

Initially the special Trade Preferences were introduced in 199728 for Croatia, Bosnia and
Herzegovina and, for a short period of time, for Yugoslavia (later on removed by a
Council decision for the non-compliance with the Council conditionalities from April
1997 concerning the maintenance of peace and stability within the region). These
preferences are considered as Autonomous Preferences of the first generation.
Those preferential trade concessions applicable to the countries formerly part of
Yugoslavia were set out in the Cooperation Agreement between the European Economic
Community and the Socialist Federal Republic of Yugoslavia, signed on 2 April 1980 and
denounced on 25 November 1991.
Albania and Macedonia were not subject to the autonomous trade preferences due to the
fact that at that moment a Cooperation Agreement, concluded in 1997, governed the trade
relationships between Macedonia and the European Union (with trade preferences at a less
preferential level) and Albania benefited from the preferences given under the EU GSP
scheme. These arrangements eventually had to be replaced by provisions contained in
bilateral agreements to be negotiated further with the countries in question.
The preferential concessions of first generation comprised exemption from duties and the
abolition of quantitative restrictions for industrial products, except for certain products
subject to tariff ceilings, and special concessions for various agricultural products
(exemption from duties, reduction of the agricultural components, tariff quotas). For
industrial products that were not subject of the free trade regime, the level of ceilings had
to be increased annually by 5%. Tariff concessions, tariff quotas and reference quantities
were kept for some types of agricultural products (baby beef, some fruits and fruit spirit,
tobacco). A single scheme of trade preferences has been applied for all three countries.
The textile products originating from these countries hade to be accepted for import into
the European Community within annual quantitative limits, fixed under the EC Regulation
517/94.
In September 2000 the EU granted exceptional trade treatment to the countries and
territories, which participate in the EUs Stabilisation and Association Process (SAP) 29.
These measures provide the Western Balkan countries with duty- and quota-free access to
the Unions market for practically all goods, except for some fishery products, beef and
wine for which there are duty-free or preferential quotas. In 2001, these provisions were,
by and large, put into a contractual agreement with Croatia and the former Yugoslav
Republic of Macedonia by signing the respective countries Stabilisation and Association
Agreements (SAA). Pending the ratification of the SAAs, the Unions trade relations with
these two countries are governed by Interim Agreements.
The trade measures established a uniform system of trade preferences for the countries of
the Western Balkans and were the culmination of several years of gradual trade
liberalisation. All countries except Serbia and Montenegro qualified for some form of
preferential treatment previously. Albania benefited from the EU Generalised System of
Preferences (GSP), while Bosnia and Herzegovina, Croatia and the former Yugoslav
Republic of Macedonia had limited access to the GSP (only for agricultural and fisheries
products) and had been entitled to trade preferences under the first generation of trade. As
of 1998, trade with the former Yugoslav Republic of Macedonia was governed by the cooperation agreement with the European Union.
28

Council Regulation (EC) No 70/1997, amended by Regulations 2636/97 (for 1998) and 2863/98 (for
1999)
29
Council Regulation (EC) No. 2007/2000 of 18 September 2000, amended by Council Regulation (EC) No.
2563/2000 and 2487/2001.

33

The new format of ATP provides duty-free entry for over 95% of goods for Albania,
Bosnia and Herzegovina, Croatia and Kosovo, as defined by the UNSC resolution 1244 30,
grants limited concession for Montenegrian aluminium products originating in the Former
Republic of Yugoslavia and continues granting concessions for wine in the form of global
tariff quotas, which equally applies to Macedonia and Slovenia (pending the conclusion of
wine agreements with these countries). In the light of positive developments (in the Union
of Serbia and Montenegro) the General Affairs Council has further amended the
Regulation 2007/2000 by extending its provisions to Yugoslavia and Macedonia (Council
Regulations 2563/2000 and 2487/2000).
The ATP provides the countries of Western Balkans with duty-free access to the Unions
market for practically all goods, including agricultural products, with no quantitative
restrictions, except for duty-free or preferential quotas for some fishery products, babybeef, and wine. The greatest change compared to previous system was almost a complete
liberalisation of imports of agricultural and fishery products and the abolishment of quotas
for sensitive industrial products.
At that time the general level of imports from the Western Balkan countries was less than
0,6 % of all Community imports. Further market opening was expected to contribute to
the process of political and economic stabilisation in the region while not creating
negative effects for the Community. Since these measures were proposed by the EU as
part of the EU Stabilisation and Association process, in response to the specific situation
in the Western Balkans, the Preamble to the EC Regulation 2007/2000 clearly stipulates
that they should not constitute a precedent for Community trade policy with other third
countries.
The Regulation also provides restrictions for a group of products, described below:
A. Textile products
As regards textile products, only those originating in the Union of Serbia and Montenegro
and indicated in Annex III B of Council Regulation (EC)No 517/94 of 7 March 1994 on
common rules for imports of textile products from certain third countries, are limited to
the Community annual quantities set out in Regulation (EC)No 517/94. The trade in
textile products with other Wesernt Balkan countries is covered by bilateral agreements.
B. Agricultural products:
For certain fishery products and for wine originating in these countries, customs duties
applicable to imports into the Community are suspended during the periods, at the levels,
within the limits of the Community tariff quotas and under the conditions indicated for
each product.
The customs duties applicable to imports into the Community of baby-beef products
originating in the countries is 20 % of the ad valorem duty and 20 % of the specific duty
as laid down in the Common Customs Tariff, within the limit of an annual tariff quota of
11 475 tones expressed in carcass weight. The volume of the annual tariff quota of 11 475
tones is distributed among the beneficiaries. Sugar is subject to preferential tariff quotas
(except for Croatia where this is currently being negotiated). But given the particular
sensitivity of the agricultural and fishery markets, if imports of agricultural and fishery
products cause serious disturbance to the Community markets and their regulatory
30

Kosovo is administered under UN Security Council Resolution 1244.

34

mechanisms, the Commission may take the appropriate measures and suspend the imports
from these countries.
In case the Commission finds that there is sufficient evidence of fraud or failure to provide
administrative cooperation as required for the verification of evidence of origin, or that
there is a massive increase of exports into the Community above the level of normal
production and export capacity or by countries, it also may take measures to suspend in
whole or in part the provided arrangements for a period of three months.
The import arrangements provided under the ATP scheme had to be renewed on the basis
of the conditions established by the Council and in the light of experience gained in
granting these arrangements. Therefore it was considered appropriate to limit the duration
of the arrangements to 31 December 2005. Recently, the Commission has proposed
renewal of these trade preferences until 2010 to foster economic development.
According to the art. 2 of the Regulation 2007/2000, products originating in the Republic
of Croatia and the former Yugoslav Republic of Macedonia continue to benefit from the
provisions of this Regulation when so indicated or for any measures provided in this
Regulation, which are more favorable than the trade concessions provided for in the
framework of bilateral agreements between the European Communities and these
countries.
4.3.2 Impact of EU preferential measures
Between 1999 and 2002, Western Balkan exports to the EU have increased by some 40
percent (by approximately 8 % per annum), but remain low at about 5 billion euros (see
Table 4.1). The EU is by far the most important export market for the five countries,
receiving about 60 percent of their exports. The largest importers are Italy, Germany,
Austria, France and Greece, which absorb about 90% of the regions exports to the EU.
Croatia is the largest exporter accounting for close to half of all exports from the five
countries. Although, the regions share of the EU market remains low at about 0.5%, it has
nevertheless increased between 1999 and 2002.
Table 4.1. Volume and market share of Western Balkan exports to the EU in 1999 and 2002
Exports ( million)
Change (%) Share of EU imports (%)
Country
1999
2002
2002/1999
1999
2002
Albania
228
330
44
0.030
0.035
Bosnia-Herzegovina
358
624
75
0.047
0.066
Croatia
1892
2357
25
0.251
0.250
Former Yugoslav
591
552
-7
0.078
0.058
Republic of Macedonia
Serbia and Montenegro
563
1.287
129
0.075
0.136
Western Balkans
3663
5150
42
0.481
0.545
Source: Eurostat.

As was mentioned above, the countries have been provided with gradually increased trade
preferences in a complex way since the mid-1990s. This makes it difficult to identify
when and where the trade measures have come into effect. The effects on exports from the
region caused by the trade measures compared to changes caused by post-conflict
reconstruction and the gradual transition from central planning to a market economy are
further likely to be small.

35

The impact of the trade measures on the countries varies, depending on the structure of
their exports and on previous trade arrangements. At this stage, Albania and Serbia and
Montenegro appear to have benefited the most from the trade measures, which brought
about lower tariffs for about half of their exports, the other half already benefiting from
duty-free access to the EU market. The tariff reduction was significant for most exported
products. In the context of parallel EU trade liberalisation towards other third countries,
the trade measures have assisted the Western Balkan countries in maintaining their
preferential position on the EU market.
Given the short period of time since the introduction of the EUs trade measures, they
could be expected to promote an increase in exports of products that are already supplied
by the region and which have experienced a change in tariff payable. Table 4.2 shows that
tariffs on relatively few exported products were lower in 2002 compared to 1999, affecting
about 17% of the regions exports31. About half of the exports of Albania and Serbia and
Montenegro were subject to abolished tariffs following the introduction of the trade
measures. The tariff cut was significant (>5%) for 22% and 30% of their respective
exports.
Table 4.2. Number of, and tariffs facing, Western Balkan exports to the EU in 1999
and 2002
Country
Albania
Bosnia-Herzegovina
Croatia
Former Yugoslav
Republic of Macedonia
Serbia and Montenegro
Western Balkans

No. of products
exported
1999
2002
34
44
128
42

23
40
126
37

80
n.a.

70
n.a.

Number of products for which 2002 tariff is:

(% of exports in parentheses).
Zero MFN
Same as in Lower than in 1999
1999
7 (8%)
2 (6%)
14 (54%)
12 (18%)
26 (48%)
1 (1%)
32 (22%)
83 (37%)
3 (2%)
5 (10%)
27 (48%)
2 (4%)
15 (11%)
(16.6%)

0
(28.3%)

45 (48%)
(16.9%)

Source: {COM(2004) 203, 204, 205, 206} Evaluation of the Stabilisation and Association Process

The rate of increase in overall exports from Albania and Serbia and Montenegro (the two
countries mainly affected) amounted to 44% and 129%, respectively, between 1999 and
2002 (see Table 4.2). The corresponding rate of increase in exports for products, which
experienced lower tariffs in 2002 compared to 1999, is 58% for Albania and 213% for
Serbia and Montenegro. Too few products of the other three countries obtained improved
market access to allow a meaningful comparison.
The effects of the trade measures have far mainly applied to conventional products that
experienced a reduction in tariffs following the introduction of the trade measures in 2000
and which have survived the problems and disruptions of recent years. As the trade
measures cover a much wider range of products it is plausible that as normality
increasingly returns to the region and as investment in productive capacity becomes
operational, new exports will emerge, which will benefit from substantial advantages due
to special trade measures.
To fully benefit from the EUs trade measures, the countries need to increase
competitiveness, diversify production, raise awareness among economic operators of the
potential of the trade measures, facilitate a dialogue with business counterparts on the EU
market and upgrade trade related institutions. They need to further harmonise their
31

As calculated by Eurostat.

36

standards with those of the EU, including in the veterinary and the sanitary and
phytosanitary field. An examination of the regions long-term prospects of exports to the
EU shows a significant untapped potential. Exports from the countries of the region to the
EU could be considerably higher than is currently the case. To exploit the underlying
potential, the countries must attract sufficient levels of foreign direct investment to
broaden their export base and to increase their production capacity and productivity and
to ensure compliance with the EU standards. Governments need to pursue structural
reforms, modernise administrations, including in particular the judiciary, and to ensure
the rule of law to realise this objective. Since in the nearest future Moldova will also be
granted such a preferential arrangement, lessons learned from other ATP beneficiaries
could be considered as a useful starting point to be taken into account by the Government
and the business community.

37

Chapter V: Scenario II: Asymmetric Free Trade Agreement between EU and

Moldova
5.1 Pre-requisites for signing Free Trade Agreement
In what refers to negotiating and signing of an asymmetric Free Trade Agreement between
the Republic of Moldova and EU, it is worth mentioning that this move is deemed as
much more important and consistent for the Republic of Moldova as compared to the
access to the EU Autonomous Trade Preferences, which implies creation of a bilateral
legal framework with explicit commitments undertaken by both counterparts.
Furthermore, in order to negotiate such an Agreement it is necessary to create political
pre-requisites and to contribute considerable efforts to make it happen.
The following are the conditions for signing of a Free Trade Agreement between the
Republic of Moldova and EU:
-

strong political will of the Republic of Moldova to adhere to the European

structures;

successful implementation of the EU-Moldova

Cooperation Agreement and the Action Plan;

legal coverage offered by the EU-Moldova Partnership and Cooperation

Agreement and by the Action Plan, which allow for negotiating and signing a
Free Trade Agreement;

importance of this Agreement for the establishment and strengthening a system

of stability in Europe, based on cooperation and having the Community as one
of the cornerstones of this system;

importance of establishing and developing of a regular political dialogue for

discussing bilateral and multilateral issues representing common interest for
the counterparts;

desire of the European Community to extend firm support

to the
implementation of the reform and to grant assistance for the Republic Moldova
to give good account when facing economic and social consequences of
structural readjustment, explicitly stated in the neighborhood policy promoted
by the EU;

commitment of the Republic of Moldova to liberalize commerce, especially in

compliance with the rights and obligations arising from the Marrakesh
Agreement concerning constitution of the WTO;

importance of creating new environment for the bilateral economic relations

and especially for the development of trade and investments as indispensable
instruments underlying economic restructuring and technological upgrading;

importance of developing cultural cooperation and more pronounced technical

assistance.

Partnership

and

The following could be deemed as key objectives of a Free Trade Agreement between the
Republic of Moldova and EU:
-

ensuring adequate framework for launching political dialogue between the

counterparts so as to allow for strengthening and intensifying political
relations;

38

promoting development of trade as well as harmonized economic relations

between the counterparts, thus enhancing the economic development in the
Republic of Moldova;

ensuring basis for the economic, social, financial and cultural cooperation;

promoting harmonious economic relations and progressively developing free

trade areas between the Republic of Moldova and European Community;

encouraging regional cooperation in the domains representing reciprocal

interest for both counterparts, especially in economics, culture and science.

The experience gained by the Central and Eastern European Countries shows certain
comparative advantages offered through the Free Trade Agreements with the EU. Taking
into account the importance of trade and investments for the economic progress, the free
economic areas could deliver notable economic benefits, provided such are introduced
into adequate economic environment in which any company or any individual are free and
capable of exploiting available business opportunities.
The economic theory demonstrates that from the viewpoint of a member-State,
development of preferential trade is not always beneficial for them. Positive effects of
abolishing customs tariffs will tend to be higher by as much as are the initial tariffs.
Likewise, reduction of the number of foreign trade barriers against other trade partners
will contribute to cutting down retargeting of the flows of foreign investments as a result
of the core role played by the EU partner in the field of Free Trade Agreements.
Traditional trade policies applied with regard to techniques of commercial protection
nearing tariff and non-tariff nature are slackening on their importance as restrictions on
preferential trade. In this case it does not go without exceptions; for instance, textile
industry and in particular, agriculture. Excluding these from the Free Trade Agreement
would significantly undermine the economic benefits for the Republic of Moldova. The
nature and implementation of a spectrum of internal policies influencing investment and
consumption decisions taken by the domestic and foreign companies are of prime
importance for the modern economic environment. In their turn, these policies influence
the level of the development of domestic technologies.
In the nowadays global economy the effects produced by non-tariff policies pursuing
market segmentation and constraining competition as well as differences in regulatory
policies turned into a decisive factor in making economic decisions in relation to trade and
investments.
If Moldova desires to become integrated into a wider system of the
European production, which at the moment is typical of the performances displayed in
many sectors, then it is necessary to take effective measures for harmonizing its policies
with the EU and to ensure reciprocal recognition of the respective regulations. This work
requires considerable efforts to ensure institutional building and effective implementation
of such regulations in Moldova. However, it is not mandatory that all these should take
place within the framework of a free trade Agreement with the EU.
The key elements of the classical Free Trade Agreements are the dynamic effects that
occur through the changes in the economic growth rate resulting from the impact of larger
investments. It especially applies to direct foreign investments as well as to enhanced
technological capacity. Quite clearly, for the transition economies these problems are of
prime importance, especially for the CIS countries, channeled to which were only minor
flows of direct investments at the background of long lasting periods of economic
contraction.

39

Free Trade Agreements are playing a rather important role in unclenching domestic
reforms. However, a free trade Agreement may have no or rather negligible effect if the
process of domestic reforms has not proven coherent and credible. Free Trade Agreement
could supplement implementation of domestic reforms.
As it has been mentioned in Chapter IV, the experience gained by the Central and Eastern
European Countries through their preferential relations with the EU, suggests that Free
Trade Agreement by itself is far from offering a universal solution for the investments and
economic growth. It is clear that domestically promoted policies and their implementation
serve as the most important determinative elements for obtaining sustainable economic
effects. A Free Trade Agreement could enhance liberalization of economy and ensure
credibility of reforming programs.
It is worth noticing that signing Free Trade Agreement with the EU or the European
Agreement of Association represents basic legal and political framework for the
promotion and development of partnership relations as well an instrument for impelling
movement towards gradual achievement of the strategic objective pursued by the country,
i.e. European integration.
Although, due to existence of certain objective issues, the management of the European
Union has not yet made a clear statement on accepting Moldovas association in the near
future, effectiveness of the arrangement and preparedness of the community authorities of
all levels to carry out the respective provisions as soon as practically possible, could be
appreciated positively and taken as an indirect political signal. In that sense it is true that
the Republic of Moldova finds itself in a more advantageous position as compared to the
rest of the CIS countries that have stated their intentions concerning European
integration.
The European Agreement of Association or a Free Trade Agreement will serve to enlarge
the spectrum of commitments assumed by Moldova in diverse domains, such as
competition policy, assistance granted by the state, public procurements, customs
procedures and observance of technical standards. Adoption and effective implementation
of the new practices and laws compatible with the EU ones in these domains will require
significant enlargement of the capacity and efficiency featured by the legislative and
judicial system of Moldova. Intensifying domestic reforms and creating pre-requisitions
for signing European Agreement of Association or Free Trade will serve to considerably
enlarge the credibility of relations with the EU and will contribute to enhancing the
efficiency of such while sending an important signal to the investors and merchants.
5.2. Classical structure of the Free Trade Agreement
The European Agreement of Association implies the need to ensure liberalization of
trading goods and services, ensuring free movement of capital and individuals and also
making provisions for certain incentives and attracting investments.
Thorough analysis of the European Agreements of Association signed with the EU by the
Central and Eastern European Countries as well as the European Agreements of
Stabilization and Association signed with the EU by the Western Balkan countries allows
one to identify the following core elements due to be taken into consideration:
i

Preamble, which de facto mirrors the legal basis and historical relations between
the cosignatory parties;

40

ii General principles or the horizontal legal provisions serving to reflect all the
domains covered by herewith mentioned Agreement;
iii Political dialogue and clear commitment undertaken by the parties targeted
towards ensuring and developing bilateral relations leading to an eventual
association of the Republic of Moldova with the EU;
iv Free movement of goods or having in place basic elements of the Free Trade
Agreement composed of another 4 basic components, namely:
1. General principles governing preferential bilateral trade relations;
2. Regulatory framework in trading industrial products;
3. Regulatory framework in trading agricultural products;
4. Common provisions, which incorporate legal provisions concerning the
procedures of applying techniques of commercial protection, state assistance,
public procurements, general clause of safeguarding, clause of penury,
conditions concerning transit, state monopoly and other such issues:
-

Movement of goods, the right of establishing and rendering services;

Current payments and free movement of capital;

Approximation of legislation and application of laws in the following domains:

intellectual, industrial and commercial property; competition and other
economic provisions; public contracts; metrology, standardization,
accreditation and assessment of conformity;

Justice and interior affairs, which suggests ensuring provisions in the domains
referred to strengthening institutions and legislation as well as its application;
visas, frontier control, asylums and migration issues; prevention and control of
visa and illegal migration issues; combating money laundering and crimes as
well as other illegal actions; cooperation in the domain of illegal drugs
trafficking;

Cooperation policies, which contain actions of cooperation in the following

domains: industrial cooperation, investments promotion and protection,
scientific and technological cooperation, education and professional training,
agriculture and agro-industrial sector, energy, environment, transport,
telecommunications, banking and insurance services, regional development,
cooperation in such domains as social, tourism, small and medium size
enterprises, etc.;

Financial cooperation, which implies allocation of funds on behalf of the EU to

support development programs;

Institutional provisions, both general and final. It is suggested to establish a

Council of Association so as to ensure supervision over the implementation of
provisions set out by this Agreement. This Council will hold its meetings at the
ministerial level once a year or as many times as necessary to examine any of
the important issues that have appeared within the framework of the Agreement
as well as any other bilateral or international issues representing reciprocal
interest.

41

In general the structure of the European Agreements of Association that were already
signed between the EU and CEEC (Bulgaria, Romania, Baltic countries, Poland and
others) is similar to that of the European Agreement of Stabilization and Association
signed by the EU with each of the Western Balkan countries after the war in the former
Federal Republic of Yugoslavia. Moreover, the Agreements of Stabilization and
Association imply commitments on behalf of the EU through allocation of additional
funds for the recovery of the economic potentialities of the countries in the region y
creating certain exception conditions for the access to the EU goods and services market
without considerable restrictions.
The key element of the European Agreement of Association is the section, which refers to
ensuring free movement of goods. The available practice shows that the majority of these
Agreements contain an element, which is rather important and essential for the signatory
states, and that is the element of asymmetry.
Thus, the parties may agree to progressively set up free exchange zone based on reciprocal
obligations and balanced in compliance with provisions set forth by the 1994 General
Agreement on Tariffs and Trade (GATT) and WTO as well as by the following essential
conditions:
-

The EU undertakes to abolish all quantitative restrictions on export, customs

duties, duties with equivalent effect on import and export from the date of the
effectiveness of the Agreement, thus ensuring free movement of goods of
Moldovan provenience in the territory of the EU states, with some exceptions
referred to the matter of bilateral negotiations;

The Republic of Moldova undertakes to progressively, during 10 years

following grace period (usually 5 years) liberalize access of EU provenience
goods to its market;

Negotiating and signing special arrangements for trading metallurgical and

textile products; etc.

Ensuring access to special community funds for the development and

encouraging competition.

5.3 Standard commercial effects arising from the Preferential Trade Agreements
In general, the economists are viewing liberalization of trade as delivering benefits to both
for the states accepting liberalization and for the rest of the world. Trade barriers result in
separation of domestic prices from the international ones.
Furthermore, provisions set out by the WTO allow for the preferential reduction of
customs duties and other barriers as part of regional arrangements. Reduction or lifting
customs duties applicable in relations between member-states as part of certain regional
arrangements should not be extended to other states. Preferential regional arrangements
thus constitute an important exception from the rule of the clause of most favored nation.
In view of protecting commercial interests of the third countries, the WTO envisages
extremely strict conditions in what concerns making out the like arrangements. Amongst
others, these conditions envisages that:
-

Member States making part of regional arrangements should eliminate

customs duties and other trade barriers that are substantially affecting the
reciprocal commerce as a whole; and

42

The arrangements should not lead to creation of new barriers in the commercial
relations with other countries.

The like arrangements could take the shape of customs unions or free trade areas. In both
cases the trade between Member States is displayed without customs duties while for the
other countries such duties continue to apply under the regime of most favored nation. In
case of customs unions, customs duties paid by the member States are harmonized and
applied uniformly to the goods imported from the third countries. As a result, the regional
trade enjoys constant growth with an increasing share of world trade implemented on the
regional basis.
A referential trade Agreement will produce positive effect over the wellbeing in case when
it generates new trade links between the counterparts. This commercial creation appears
if the domestic relatively inefficient product is replaced by cheaper products manufactured
by the counterpart. Despite all these, if the preferential reduction of trade barriers expands
commercial exchanges between the counterparts in favor of most efficient producers from
the rest of the world, then we will end up with a commercial diversion. In such a case,
maintaining duties against countries that are not Member States inflicts additional costs
due to importing from the producers from the free trade area that are producing at
relatively high prices and losses of proceeds from duties. An extra positive effect will
occur if the Free Trade Agreement will lead to a lower price and thus to a higher domestic
consumption of a product. As a rule, the like effect is accompanied by the commercial
creation. If the adverse effect onto the trade caused by the commercial diversion exceeds
the positive effect caused by the commercial creation and higher consumption, then the
general wellbeing or the real income will drop down.
This leads to a recommendation that the countries creating free trade areas should reduce
simultaneously the level of external protection faced by the trade partners that are not
members of this zone. The effects of regional integration will tend to be beneficiary if the
latter is implemented in a package with the much more open and liberal regime vis--vis
third countries.
In case of Moldova this suggests the obligation of maintaining the status of a member of
the WTO. Maintaining this status ensures that the trade barriers will not be raised beyond
the established level and that the barriers overall are not higher or restrictive as before
the implementation of the Free Trade Agreement (Article XXIV (GATT (1947)). Thus, the
quality of a member of the WTO ensures that an area of free trade with the EU will not be
accompanied by the general more protectionist treat vis--vis other countries. Besides,
participation in the WTO system allows for access to the rounds of multilateral
commercial negotiations pursuing ongoing liberalization of trading goods and services.
Furthermore, Moldova has conducted a rather considerable liberalization of the formal
trade barriers. In 2005 the simple average customs tariff on import to the Republic of
Moldova constituted about 6 %, while the weighted average tariff was about 3.7 %; at the
same time in the EU States the average customs tariffs on import amounts to about 4.6 %.
Likewise, it is worth noticing that the Republic of Moldova applies zero customs duty on
import for about 50 % of the tariff lines. Moreover, the Republic of Moldova does not
apply customs duties on export and quotas on export or import. Likewise, in the Republic
of Moldova there are only 49 types of basic activities, which pursuant to the national
legislation are subject to licensing. The mechanism of obtaining licenses is the nondiscriminate one based on the principles of the clause of the most favored nation and of
national treatment.

43

In 2004 the Republic of Moldova renounced on charging customs duties on import for
over 75 % of the value of goods imported from the EU. However, the average duties that
the Moldovan exports to the EU are confronted with considerably higher duties. In case of
industrial products the average duty in 2004 was about 6 % (in cases when the benefits
offered by the Generalized System of Preferences (GSP) are fully used), although due to
drop down in line with the gaining access to the new Generalized System of Preferences
(GSP+), which is expected to be launched on 01.01.2006 or rather reduced in case of
obtaining Autonomous Trade Preferences on behalf of the EU. This situation reflects large
share of clothing in the Moldovan export to the EU for which customs duties are relatively
high.
Obviously, there exists a sector in which the external protectionism on behalf of the EU
remains very high and where Moldova and other countries members of the CIS could
enjoy significant benefits due to preferential access: and that is the agriculture. Until
presently the Free Trade Agreements of the European Union do not include agriculture in
a substantial way. The consistency of these Agreements with the international commercial
rules is not clear. Article XXIV of the GATT (1947) asserts that trade barriers should be
eliminated between the partners actually in all sectors of trade. This gave rise to a rather
flexible interpretation of the Article. Understanding that was reached on interpretation of
Article XXIV in the course of Uruguay Round of multilateral commercial negotiations
asserts that members of the GATT recognize that contribution of the customs unions and
free trade areas to the expansion of international trade increases if the elimination of the
reciprocal trade barriers applies to all the sectors of trade and decreases if one of the
major sectors is included. This was interpreted in certain circles as adopting by the WTO
of a more firm attitude vis--vis coverage requirements of the Free Trade Agreement.
It is quite clear that the benefits of a Free Trade Agreement for Moldova will be smaller if
the agricultural products will b excluded from the process of reciprocal liberalization.
Currently, processed and non-processed agricultural products amount to almost 50 % of
the Moldovan export to the EU. Furthermore, it is worth noticing that exported from the
Republic of Moldova are preponderantly raw material of agricultural origin. Thus, export
of walnut kernels, sunflower seeds and cattle hives amounts to about 60-70 % of total
export from the republic of Moldova to EU. It is also desirable that the new Free Trade
Agreement with the EU comprises the majority of agricultural products of interest, in the
first place for the Republic of Moldova, such as: alcoholic beverages, natural juices and
canned fruits and vegetables domains in which the Republic of Moldova is holding a
comparative advantage and technological skills. Exclusion of the agricultural products
will infringe provisions set out by the WTO and as a result the Free Trade Agreement will
not support the spirit of cooperation and intensive economic development of the Republic
of Moldova.
Under this context, it is worth mentioning that the media of customs duties on importing
processed agricultural products to the EU are less than 5 %, which mirrors the fact that
predominating in the structure of exports from the Republic of Moldova is raw material
and semi-finished products, featuring an advanced level of protection on behalf of the EU.
The key objective pursued by the Republic of Moldova is to stimulate and create
considerable pre-requisites to promote export of finished agricultural products with
maximum value added. It is worth noticing that currently the EU applies customs duties
on import of these categories of products of approximately 20 %.
Despite of all these, currently the main constraints on exploiting the agricultural
potentiality of Moldova are of domestic nature. The effect of lifting EU duties will be
extremely weak if the barriers remain in place although the perspectives of access to the
44

EU market freed from customs duties could stimulate a more rigorous approach to lifting
domestic constrains on spreading agriculture in the Republic of Moldova.
More intense commercial exchange with the advanced European countries will allow
access to the advanced technologies as well as to the intermediary assistance. Likewise,
there exist a number of channels through which a Free Trade Agreement could produce
positive influence onto the investment climate in the Republic of Moldova. Firstly, lifting
duties will reduce the cost of funds imported from the EU, which in its turn, will lead to
higher rate of return on investments and thus, to the growth of capital accumulation rate.
Probably this effect will be small, since import of investment goods in general are subject
in Moldova to some duties equal to zero.
Secondly, if the Agreement suggests
liberalization of the services rendered by the financial sector and higher competition and
efficiency in banking and financial sectors, then the cost of capital funds for the
investment purposes could go down. Thirdly, if the Free Trade Agreement (FTA) acts
towards strengthening domestic reform and ensuring bigger stability and certitude for the
political framework, then generated for the business will be much more favorable
environment. And finally, the FTA could lead to a growth of the amount of direct foreign
investments (DFI). The DFI, besides ensuring capital resources, also serve as a direct
channel for the transfer of technologies and technique. Likewise, it is important to notice
that it is rather improbable that the benefits of regional integration will materialize as a
result of signing and agreement with Russia and other countries members of the CIS.
In conclusion, actions attempted by the Republic of Moldova in creating favorable
business climate supported by the respective guarantees of foreign investments are highly
welcome. Furthermore, likewise highly appreciated are the actions attempted by the
government in increasing benefits extended to the foreign investors when making certain
investments in the
Republic of Moldova as well as in reforming the regulatory
framework, which some time ago was the biggest barrier for the development of the
business climate in the Republic of Moldova. Continuing actions targeted towards
enhancing credibility in the regulatory reform under run in the Republic of Moldova will
offer more reliable business environment, ensuring positive repercussion onto the
economic growth through direct stimulation of domestic activities and by ensuring growth
of direct domestic investments in line with the associated benefits resulting from the
transfer of technology and technique.
5.4 A simulated cost-benefit analysis of a non-reciprocal Free Trade Area
5.4.1. Related studies on EU-Moldova full FTA
The most recent and so far the only quantification of the effects of an FTA with the EU
was done in 1999 upon request of the European Commission 32. That study considered
three possible scenarios, under which Moldova could have concluded a full FTA covering
all products, an FTA restricted to exclude agriculture, and an FTA on a trilateral basis
which also includes Romania, so as to mimic the simultaneous entry of Romania to the
EU.
The results of the General Equilibrium Model developed in that study showed that the
beneficial effects from bringing tariffs to zero for the four major groups of products
(agriculture, manufacturing, energy and services) were relatively small for all scenarios
32

Paul Brenton and John Whalley, Evaluating A Moldova-EU Free Trade Agreement Using a Numerical
General Equilibrium Trade Model, 1999.

45

but the full EU-Moldova FTA. Under that only scenario, EU imports from Moldova would
have increased by 16% for manufactures and 25% for agriculture. At the same time
Moldovan imports from the EU would have increased by around 7% for manufactures and
38% for agriculture ceteris paribus. Nonetheless, the welfare effect of an FTA with the EU
on Moldova would have been devastating as under all scenarios Moldova lost substantial
revenue (19-30%). Furthermore, Moldova will have seen small impact on own
consumption and negligible effects on increase in production.
It is worth mentioning that the current GSP system came into force after conclusion of the
study. Therefore it is not possible to transpose the findings of the study to the present
situation, since the effects of tariff elimination in the bilateral trade with the EU as of now
will be much lower than the ones cited in the paper 33. Additionally, because the model was
based on trade data from 1997, no time changes were taken into consideration and this in
our view substantially harms the trustworthiness of the quantification.
Ultimately the assumptions made by its authors on elasticities in production, substitution
in consumption and regional substitution were based on intelligent guesses and were not
reflecting the real elasticity figures for those goods in South Eastern Europe and especially
Moldova because nobody has regressed those before. We think that the elasticities (set at
2, 2 and 1.25 respectively) were in reality much lower in this country 34, because it has the
lowest capacity in short term to switch production to alternative products or diversify
products based on changes in demand in Europe, and seemingly has low capacity in the
short-run to reorient its trade to/from other regions.35 Therefore, additional research should
be undertaken to quantify exactly the elasticities for major Moldovan staples.
Nonetheless, the major merit of the paper was to conclude that agricultural products
remain of greatest importance for Moldvan exports and it is prerequisite for Moldovans to
negotiate with the EU the inclusion of agriculture in a possible free (or preferential 36) trade
agreement to draw maximum benefits from such an arrangement.
5.4.2. A simulation of a cost benefit analysis for an ideal duty-free access to the EU
For this specific paper, we consider that it is not worthy undertaking an econometric
analysis based on the current tariffs, because the system is going to change as of beginning
of 2005 and it is neither clear whether Moldova will manage to renew its eligibility for the
new GSP+ arrangement in due time, nor is it clear what kind of Autonomous Trade
Preferences will be granted unilaterally by the EU. Since both forthcoming preferential
arrangements imply lowering the existing GSP tariffs, the results of our model would not
guarantee the models applicability for the effects that an Asymmetric free trade agreement
could have had. Consequently we believe that this could be more precisely estimated once
Moldova has an Autonomous trade arrangement in place and remains an option for further
research.
Noting the above listed limitations, for the sake of exercise, we estimate roughly the
implicit transfers to both Moldovan producers/consumers and to EU consumers if the EU
decided unilaterally to grant duty free access to all goods as of 2004. It basically
represents the would-be losses in EU tariff revenues. The implicit transfer would have
been of 24.7 million Euro, assuming that the average GSP tariff with actual tariff
33

Since some of the increase in trade has already occurred due to the existing preferential treatment.
given that it is the poorest country in Europe according to the most recent UN Development Report (2005)
35
authors comment
36
weighted tariff as calculated in the WB Trade Diagnostic Study, p. 41
ibid
34

46

utilisation 5.637 is applied to 60 percent of all exports, whereas the rest 40 percent pay the
average weighted MFN of 7.938. Having noticed that official Moldovan statistical data
differs from the official EU statistical data we did the same quantifications based on DG
trade official figures and the transfer is somewhat larger 27,2 million Euro and implies
the share of Transnistria.
Table 5.1. A rough estimation of the EU tariff loss if the EU granted Moldova duty
free access for all Moldovan exports

Ofificial
Moldovan
statistics
Official EU
statistics

Moldovan
Export to the
EU
mio Euro
I

60% of total
exports
mio Euro
II=0.6*I

40% of total
exports
mio Euro
III=0.4* I

EU tariff
loss, export
subject to
GSP
mio Euro
IV=0.056*II

EU tariff
loss from
exports
subjet to
MFN
mio Euro
V=0.079*III

Total EU
tariff loss
(mio Euro)
VI=IV+V

386*

231.6

154.4

12.9

11.7

24.7

425**

255

170

14.3

12.9

27.2

Source: *NBS, ** DG Trade, own calculations.

The last table of the column represents the would-be losses in tariff revenues based on the
official data of both countries, that Moldovan decision makers could quote if they were to
make a case of how much they are asking to be granted. Since we used the average
weighted tariff with actual GSP utilisation we think that the figure could be somewhat
larger but not up to doubling. Please note that the calculated amount would be the worse
case scenario, as if all tariffs were written off. Nevertheless, based on the experience of
CEECs, the asymmetric free trade agreements had reservations about some sensitive
products, including agriculture, so much important for Moldova, and this implies not
exactly duty free access for such products like apple juice, sugar, wheat or wine.
Therefore, some possible increases from high-duty product lines would have been offset
by remaining tariffs for some sensitive products, and the EU tariff loss in reality is going
to be smaller.
It is worth mentioning that the simulated transfer is going to be shared by both Moldova
and the EU accounting domains since it will benefit Moldovan exporters who could use
the saved means to produce/export more to the EU, and will benefit the EU consumers
who will get imports at lower prices. In a perfect economic trade environment the transfer
(the lost EU tariff revenues) would be equally shared between Moldovan domestic
producers/consumers and the EU consumers with some implicit losses for the EU
producers. The effects on EU producers will be hardly substantial since they are already
competing with producers from the new Member States (EU-10).
Since Moldova is a small country, the impact on the EU single market will be
unnoticeable, while for Moldova it will represent a substantial inflow of financial aid for
private sector development. It is worth noting that the EU technical assistance was 25
million Euros for 2003-2004, and 42 million Euros was allocated for 2005-2006. The
conditional (depending on fulfilment of IFIs conditionalities by Moldova)
macroeconomic assistance in the amount of 15 million Euros granted by the EU to
Moldova in 2003, still has not been disbursed since IMF so far has not signed a
programme for Moldova. Ironically if Moldova fails to secure an IMF programme,
37

38

47

Moldova will have lost the 15 million by the end of 2005 because the grant deadline
elapsed. On the contrary, the revenue loss for the EU if a non-reciprocal Free Trade
Agreement is signed could be regarded as macroeconomic assistance for Moldova that
does not depend on other factors to be accounted for. Furthermore, such kind of
development aid has been encouraged by the United Nations since 1968, on the grounds
that preferential treatment comes as a form of donor assistance.
Assuming the worse scenario (the loss of 24.7 million Euro a year), the costs for the EU
would have represented roughly a 0.000024% of its world imports (1 029 326 mio Euro) 39
in 2004 and 0.00226% of its tariff revenue (11989.9bn Euro 40). Because the EU is very
careful about losing its tariff revenues (75% of which goes to the EU budget 41), Moldova
will have to prove that none of the market players could abuse the special treatment, by
specifically setting up a sound rules of origin certification system.
Some experts may argue that high-sensitive products could actually harm a specific
market segment to a larger extent. We agree that the situation might happen even in the
case of Moldova in some goods (e.g. apple juice, sugar). At the same time we argue that
the loss, as a share of the world imports to EU in those specific goods, is still very small.
More sophisticated simulations could be undertaken on the EU side to see what potential
have some sensitive group of products or goods to harm the EU producers. For instance
the most cited case of apple juice, which was in the recent past substantially cheaper in
Moldova than in any country in the EU, certainly needs careful consideration (although
the data show that this market has been lost for Moldova 42 with the accession of the
CEEC, and especially Poland with its cheaper apple juices). Additionally, wines, sugar,
textiles, processed food and tobacco could be examined each in part. For this reason, it is
important to assess Moldovan domestic production elasticity and account for certification,
standardisation, conformity assessment, subsidies, rules of origin, administrative
constraints etc. As experience has shown, once strong sectors of Molovan economy have
as of now an extremely low capacity to expand.
Again to exemplify the kind of analysis that could be undertaken at a later stage we
selected the major groups of Moldovan exports to the EU and calculated the loss of tariff
revenue per each major product line. We presented our findings in a table with simulated
transfers for major staples in Moldovan exports as of 2004 in Annex 5. The table
summarises the would-be quantification on the EU side per major imports from Moldova.
Please note that the sector share distribution differs and so does the total imports to the EU
from Moldova, since we operated with official data from the European Commission DG
Trade database and it includes the trade with Transnistria, which we have not included
elsewhere in the report. There is some discrepancy in the sector distribution as, according
to official EU data, imports from Moldova of iron and steel products represented 35
percent of all imports from Moldova, wich is not the case when we look at the official
Moldovan data.
Most of those exports are coming from the Metallurgical Plant in Ribnita (Transnistria)
and since Moldova introduced the double control system for exports originating from
Transnistria early in 2005, iron and steel exports could not be exported to the same extent
39

Eurostat
Report on budgetary and financial management 2004, DG Budget
http://europa.eu.int/comm/budget/infos/publications_en.htm
41
Council Decision (currently 2000/597/EC, Euratom re:
http://europa.eu.int/comm/budget/financing/index_en.htm#point1)
42
Apple juices market share was about 13.5% of the world EU imports in the group while only 0.0006% in
2004 (re: DG trade database)
40

48

anymore until companies located on the left side of the Dniester river are not registered
with Moldovan State Registration Chamber and are not reporting to Moldovan authorities.
The main point that the table reveals is that the 80% of the goods presented in the table are
roughly43 paying 12 million Euro in tariffs as of now. All but one of the major Moldovan
exported products has below 1% shares in total world EU exports in their product
category. The exception is shelled walnuts that are number-one product in the upcoming
graduation scheme under the GSP+. The textiles apparently pay the largest tariffs as a
group and because almost 90% of the group preparations of vegetables, fruit or other is
represented by fruit juices that enjoy as of now high tariffs, the losses are going to be more
noticeable there. Therefore the losses of EU tariff revenues in reality may be lower than
our estimations earliear in this chapter.
Finally the tariffs are not the only impediment hindering Moldovan exports in penetration
of the EU market. Non-tariff barriers remain to be a serious drawback. FDI remaining to
be the lowest in Europe and Moldova being the poorest country in the region make strong
arguments in support of granting an either most-preferential ATP or an Asymmetric Free
Trade Agreement with a grace period of at least 15 years.
Moldova has to make a case of its special conditions: both economic and geographical 44.
The size of the country, the highest poverty indicators and the lowest level of FDI in
Europe are strong arguments at the negotiation table that Moldova could take advantage
of. Technical/macroeconomic assistance that the EU grants to Moldova is certainly not
the only efficient instrument to help it through its transition period. Moldovan exports to
the EU will never be able to affect the EU the same way it was affected by cheap textiles
from China. The totally free trade with the EU, assuming all goods comply with the rules
of origin (an ideal situation, very hard to meet) would mean a 24.7 million Euro loss in
tariff revenue, very much comparable to the size of development aid EU grants Moldova
as of now. We say that the transfer is going to be much lower than that because the
benefits will be shared between the EU consumers and Moldovan exporters, and because
as of now Moldova exports heavily those goods that enjoy duty free access anyways.
Finally, in order to succed at negotiations, Moldovan government has to train a team of
civil servants to enable Moldovan delegations with strong negotiating skills. The support
of WTO Member States and knowledge of specific clauses could also help in bringing in
the preferential net the products in which Moldova specialises.

43

because we assumed that all product groups utilize the existing GSP at 60%, whereas in reality this could
change for different product lines the GSP take up could substantially vary, being larger or smaller than that.
Further detailed quantification per each product line could be more representative and requires further
research
44
as a soon-to-be neighboring country

49

Chapter VI. The effect of second-wave EU enlargement for Moldovan trade.

Focus on Romania
6.1 Overall effects of EU enlargement for Moldovan trade
Accession of CEECs to the EU in terms of trade implies first of all their entering into the EU
Customs Union immediately upon accession new member states replace their import tariffs with
the EU common customs tariffs; start to apply EU trade arrangements with third countries in case
of Moldova the Generalised System of Preferences; and all the standards and technical regulations
of the EU single market, both with respect to their domestic production and to imports from third
countries. Imports from third countries are paid particular attention, since once they enter one of the
member states they can freely circulate in the rest of the EU. Unlike the goods produced inside the
Union, which are subject to numerous standards and requirements already at the production stage,
and prices for which are (or will become in the medium term) more or less balanced in the single
market, the same cannot be ensured with third countries products, and therefore border and nonborder protection becomes a key instrument. Thus, as of 1 May 2004 when supplying goods to the
ten new EU members Moldovan exporters are paying the same MFN tariffs that they are paying to
the EU-15, with the eligibility to reductions under GSP scheme (see in more detail about these
reductions in Chapter I). The same will concern exports to Romania, Bulgaria and Croatia, once
they join the EU.
Enlargement implies both static and dynamic trade effects both for the new and old members, and
for the non-acceding countries. Static allocation effects occur due to immediate change of terms of
trade, first of all of tariff and non-tariff protection in the new members of the EU upon accession.
Dynamic effects are deeper as they involve changes in competition, adjustment of product
composition of trade, technological advances, changes in domestic policies leading to
harmonisation with the EU policies and standards. The latter are more difficult to quantify, but there
is a common agreement that in the long run non-acceding countries will gain due to increased catchup growth in the EU-10 and hence increased demand for imports, and due to upgrading of
production specialisation in the neighbouring partners with that of the enlarged EU45.
In terms of static effects, the main issue subject to debate is a change in tariff and non-tariff
protection. In terms of tariffs, enlargement is said to benefit the third countries, since these
countries average tariff protection significantly goes down on average, EU overall applied
external tariff is lower than that of new members about 3 percent vs 6.5 percent respectively 46.
However, this masks significant asymmetry in EU and CEE protection: EU employs lower
protection on industrial goods and higher on agricultural, while in CEECs the opposite is true.
The Table 6.1 below shows the difference in trade protection in the EU and in new member states
prior to their accession. It is evident how non-uniform the EU import tariffs are relatively low
average tariff conceals significant peaks in agricultural trade, in particular on wheat, sugar, meat
and diary products exporters to these countries are now facing more than tripled tariffs on these
categories of goods compared to previous CEE tariffs. Protection on industrial products, on the
contrary, has reduced, especially with respect to energy and oil, iron and steel, heavy industry. The
effects of such changes for third countries will accordingly depend on those countries specialisation
and comparative advantages. It is clear that (tariff effects taken alone) countries rich in natural
resources and exporting oil, gas, iron and steel or machinery, such as Russia and Ukraine for
example, will find the CEECs market expanded as a result of enlargement. Moldova, in contrast,
has none of these advantages, and will only see some of its agricultural exports shrinking.

45
46

See for example Pelkmans and Casey (2003) EU enlargement: external economic implications.
Ibid.

50

Table 6.1. A comparison of protection rates on imports in CEECs and EU-15

Agricultural products

CEECs

EU-15a

Wheat
Other grains
Vegetables, fruit, nuts
Oilseeds
Beet and cane sugar
Other crops
Bovine animals
Other animal products
Raw milk
Bovine meat
Other meat
Dairy
Processed sugar
Other processed food
Extraction
Tobacco and beverages

-3.9b
-5.8b
11.1
-6.0b
0.0
11.3
2.1
3.4
33.3
2.6
4.4
29.0
14.1
10.2
1.4
43.7

49
13.7
4.2
0.0
45.5
2.1
63.8
3.5
93.6
63.8
4.9
93.1
50.5
6.5
0.1
14.7

a
b

Industrial products
Textiles
Clothing and Leather
Furniture and Lumber
Petroleum products
Chemicals
Iron and Steel
Non-ferrous metals
Motor vehicles
Other manufacturers
Electrical machinery

CEECs

EU-15 a

11.6
13.0
7.4
7.9
8.1
7.0
3.8
14.4
8.7
8.4

6.3
7.3
1.3
0.5
2.7
1.9
0.8
6.7
1.9
3.4

Post-Uruguay round average MFN tariffs that should be fully in effect by 2005.
Negative tariff protection can take place in case of import subsidies.

Source: Francois and Rombout (2001) Trade effects from the integration of the Central and East European
countries into the European Union.

Various studies have tried to assess the potential for trade creation or trade diversion for third
countries, including for the Former Soviet Union, as a result of enlargement of the EU Customs
Union. The common conclusion of most of them47 is that after accession CEECs will experience
trade creation particularly in the agricultural sector, and partially it will happen to the detriment of
the CIS, causing trade diversion for them. As was described above in Chapter V the report,
enlargement of a customs union leads to trade diversion in cases, where exports of the new (perhaps
less efficient) members increase due to elimination of tariffs at the expense of reduced exports from
(more efficient) non-acceding countries. Trade in industrial products, apart from textiles and
clothing, has been largely liberalised long before the accession and most of the effects for third
countries in this respect have already taken place. Therefore most of the policy-making debate is
now about the agricultural effects of enlargement, and to a certain extent about textiles and clothing,
and exactly these sectors are of primary concern for Moldova.
Francois and Rombout (2001) have assessed the possible trade creation/diversion effects of
enlargement for the CIS and CEE countries. As can be seen from the table below, the greatest trade
creation effects for the CEECs are due in the most sensitive sectors: bovine animals, bovine meat,
raw milk, dairy products, processed sugar, other grains, motor vehicles, as well as in textiles and
clothing. Bearing in mind the aggregated nature of the picture, the mirroring effects can be easily
observed in the CIS: where CEECs gain most, CIS countries lose, especially in exports of bovine
meat, milk and dairy products, other grains, and to some extent in textiles and clothing. On the other
hand, CIS countries are likely to gain with other animal products, other meat, raw cane or beet
sugar. This stems from cuts in protection of CEECs relative to the EU common customs tariff and
from possible changes in these countries product specialisation.

47

See for example Frandsen et al., (1998), Eremenko (2001), Kazlauskiene and Meyers (2003).

51

Table 6.2. Trade creation/diversion effects for the CIS and CEECs, percentage change in value
of exports
Group of products
Wheat
Other grains

% change in
exports, CEECs

% change in
exports, CIS

-28.0
18.5

1.7
-4.5

Vegetables, fruit, nuts

Oilseeds
Beet and cane sugar
Other crops
Bovine animals
Other animal products
Raw milk
Bovine meat
Other meat
Dairy
Processed sugar
Other processed food
Extraction (incl. oils)
Tobacco and beverages

-21.32
-17.9
0.28
-21.1
343.2
-36.0
324.5
345.0
-21.5
262.4
57.7
6.4
-4.5
68.6

0.9
0.8
5.5
1.5
-17.2
5.2
-3.0
-7.9
5.9
-10.2
-3.2
0.1
0.0
1.2

Textiles
Clothing and Leather
Furniture and Lumber
Petroleum products
Chemicals
Iron and Steel
Non-ferrous metals
Motor vehicles
Other manufacturers
Electrical machinery

11.8
35.9
-11.9
-1.4
-1.47
-2.9
0.6
80.2
-8.6
26.6

-0.8
-2.2
1.7
1.0
0.2
0.3
0.1
-1.8
1.2
-0.1

Share in MD
exports to
CEECsa, 2004
0.0
2.2
(incl. crops)
5.3
1.9
0.2
0.0
0.0
0.2
0.3
0.7
0.16
0.02
0.4
4.2
4.1
28.8
(incl. wine 25.0)
1.5
28.0
0.3
0.0
1.8
1.9
0.9
0.5
7.4
1.6

Data includes CEE-8 plus Romania and Bulgaria

Source: Francois and Rombout (2001), Moldovan Customs Department database.

The comparison with the whole block of the CIS countries gives a very rough picture given the
heterogeneity of their comparative advantages and production structures. The effects for Moldova
can be guessed by highlighting the sectors, which have biggest weights in total exports to Central
and Eastern Europe. Although being an agricultural economy, from the point of view of current
export structure Moldova is not exposed to risks of trade diversion with products most sensitive
prior to accession its exports of bovine animals/meat, milk and diary products, processed sugar
were close to zero yet at the time of accession. However a big question here is whether this was the
case due to Moldova not having comparative advantage in these products or due to CEECs tariff
and non-tariff protection, largely influenced by the run up to accession to the EU.
Some product lines accounting for significant share in Moldovan exports to the CEE are, however,
exposed to the risk of trade diversion. These are grains other than wheat, which account for 2.2
percent in total exports to CEE, and textiles, clothing and leather, the latter holding a lions share
29.5 percent of total exports to this region, for which trade creation for CEECs can be driven by
CEE-EU liberalisation effects, respectively creating trade diversion potential for Moldova. On the
other hand, slight trade creation effects for Moldova can occur in vegetables, fruits and nuts (5.3
percent of exports to CEE), sunflower seeds and oil (1.9 percent), tobacco and beverages (28.8
percent) and other manufactures (7.4 percent). This potential will, however, be largely determined
by two interrelated factors: (1) price elasticity of supply of these goods, which might be high for

52

those products that have no problems conforming to the EU standards and (2) non-tariff barriers to
trade in these sectors, which may offset tariff reductions and anyway exert a hampering effect on
Moldovan exports.
Although over a year has already passed since the enlargement took place, this time is insufficient
to draw conclusions on the effects of enlargement for Moldovan exports to Central and Eastern
Europe. Another factor, which makes such assessment difficult, is the fact that while exports to
Central and Eastern Europe accounted for 14 percent of total Moldovan exports in 2004, 10.1 of
them went to Romania48. Therefore the shares of other individual CEE partners are too small to be
representative of any trends in such a short period of time.
With second-wave accession countries, Romania and Bulgaria, Moldova has signed free trade
agreements, however the latter was only signed in early 2005 in the framework of the Stability Pact
for South-eastern Europe therefore this FTA did not play any major role in trade between Bulgaria
and Moldova. Free trade agreement with Romania was introduced back in 1995, and Romania was
Moldovas 3rd major trading partner in 2004 49. Both these FTAs will be suspended when Romania
and Bulgaria join the EU. Given the role that Romania plays in Moldovan external trade, the rest of
the chapter will analyse the implications for Moldova of Romania joining the EU.
6.2

Romania acceding to the EU and renouncing the Free Trade Agreement with
Moldova

Romania is the only non-CIS country with which Moldovan trade is conducted on the basis of a full
Free Trade Agreement, which has been in effect as of 1 January 199550. In 2004 Romania was
Moldovas third biggest export market (USD 98.9 mln.), after Russia and Italy (USD 353.3 mln.
and USD 136.4 mln. respectively). Once Romania joins the EU, the FTA with Moldova will be
entirely suspended, and external EU common customs tariff will apply to all imports of Moldovan
goods to this country.
Graph 6.1. Moldovan-Romanian trade, 1997-2004
Moldova will, of course, be eligible to all
tariff reductions it enjoys under current GSP
scheme, but evidence shows that GSP has
only a marginally positive effect on exports
to the EU from Moldova51, and from most of
the other third countries52. To estimate the
effects of abrogation of the FTA, it is
essential to look at the evolution of
Moldovan trade with Romania as it was
preparing for accession, and to identify the
key factors determining this evolution.
Compared to pre-agreement levels, by 2003
overall trade with Romania has increased by
5-13 percent, according to different Source: National Bureau of Statistics, www.statistica.md
estimates, but at the same time Moldovan
exports to Romania have halved, and

48

National Bureau of Statistics, www.statistica.md

ibid.
50
FTAs with Southeast European countries, including Bulgaria, will be gradually phased in, with sensitive products still
being subject to import duties. A limited FTA with Bulgaria was signed only in early 2005 and will be at the time of
accession, which is envisaged to take place on 1 January, so it is unlikely to have a sizeable impact on MD-BG trade.
51
World Bank Trade Diagnostic Study, 2004.
52
Brenton and Manchin (2003)
49

53

Graph 6.2. Evolution of MD exports to Romania

Romanian exports to Moldova - doubled.53 1996-2003, distribution by agricultural and
This leads to conclude that on the whole, the industrial exports, thous. USD
free trade agreement did not succeed in
expanding the share of Moldovan goods on
the Romanian market.
Graph 6.1 shows that Moldovan exports
have been consistently much lower than
imports from Romania, though have
experienced certain growth from a low USD
37.8 mln level in 2000. A highly changeable
pattern and low level of Moldovan exports
to Romania suggests that factors other than
duty-free treatment determine commercial
relations between these two countries. But
the cause of low exports is unlikely to be
low exporting capacity of Moldova or
exports being inelastic to tariff cuts a
range of other export constraining factors
played a role as well. These factors are Source: External trade of the RM: statistical yearbook, 1996closely related to the composition of 2001, 2001-2003
Moldovan exports to Romania.
Graph 6.2 provides an observable pattern Moldovan exports to Romania are largely represented
by agricultural products, whose share has been falling dramatically since 1996. Remarkably,
agricultural supplies had been falling yet before first bans on Moldovan products occurred in 2000.
This decline was partially caused by dramatic decline in the share of sugar in exports (in 1996
23.7% of total exports to Romania, 1997 53.8%, 1998 33.2%, 1999 16.1%, 2000 2.8%,
since then varying between 2.5% and 9%), which was caused by imposition of quotas, and
partially by reorientation of Romanian trade towards the EU. In 2000, both bovine meat and pork
were banned from entering the Romanian market, and have not been resumed until now. This ban
was followed by recurrent suspensions of imports of eggs, milk and diary products, and tight quotas
on sugar.
Graph 6.3 illustrates in more detail the dramatic decline of agricultural exports to Romania
particularly the shrinking share of sugar in the group IV explains the overall negative trend. Groups
II and III are characterised by relative increase mostly on account of oilseeds and oilseeds oil.
Banned meat imports from Moldova are reflected in the group I trend, which did not, however, had
such a significant importance as sugar in agro-food exports to Romania (maximum share of meat
was registered in 1998 14.5%, compared to the weight of sugar 53.8% in 1997). This reflects the
vulnerability of being dependent on exports of low-processed products, but a rough suggestion can
be made that the hardest effects of Romanias accession for agriculture have already taken place. A
major task for Moldovan policy-makers will be, however, to keep the position in the remaining
important export products sunflower seeds, sunflower-seeds oil, beans and corn, and some others.
Both in order to maintain current positions and to achieve asymmetrical liberalisation of trade with
the EU, Moldova will need to upgrade its institutional capacity to comply with the standards and
quality requirements of the EU.

53

World Bank Trade Diagnostic Study, 2004.

54

Graph 6.3. Moldovan agricultural exports to Romania, 1996-2002

45 000,0
40 000,0

I. Live animals and animal

products

thous. USD

35 000,0
30 000,0

II. Vegetable products

25 000,0
20 000,0
15 000,0

III. Animal or vegetable fats

and oils

10 000,0
5 000,0

IV. Foodstuff products,

alcoholic and nonalcoholic
drinks, tobacco

19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03

0,0

Source: External trade of the Republic of Moldova statistical yearbook 1996-2001, 2001-2003.

As seen from graph 6.4 below, exports of industrial products are more heterogeneous and are
characterised by a growing trend in the last 3-4 years. The main export items have recently been
glass containers, textiles and clothing, and leather. Exports of leather were driven by FDI, while
textiles are predominantly determined by outward processing. Significant increase of the other
industrial group of products in 2003 is explained by high volume of exports of fuel (USD 4.5 mln.),
which is rather a structural event (and re-export), and thus does not characterise any developments
in comparative advantage.
Graph 6.4. Evolution of industrial exports to Romania, 1996-2003
16 000,0

VI. Chemical products

14 000,0
VIII. Raw hides and skins,
leather, f urskins and articles
thereof
XI. Textiles and textile articles

thous. USD

12 000,0
10 000,0
8 000,0

XIII. Articles of stone,

plaster, cement, ceramic,
glass or similar materials
XV. Base metals and articles
of base metal

6 000,0
4 000,0
2 000,0

XVI. Machinery , equipment

and mechanical appliances;

19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03

0,0

XVI. Other industrial

Source: External trade of the Republic of Moldova statistical yearbook 1996-2001, 2001-2003.

The following factors could explain such evolution of commercial relations between Romania and
Moldova:
(1)

In 1997 Romania joined CEFTA54, which fact increased dramatically Romanian imports from
CEFTA countries (from 4 percent in 1995-1996 to 23 percent in 1998) and reinforced the
asymmetrical liberalisation with the EU, since CEFTA members could start to align their
commercial patterns to those of the future common market 55. Hence not only nominal tariff

54

Central European Free Trade Agreement, whose members are Bulgaria, Czech Republic, Hungary, Poland, Romania,
Slovakia and Slovenia.
55
OECD (2000). Review of agricultural policies, Romania

55

liberalisation, but also prospects of future common EU membership stimulated a share of

Romanian trade to reorient towards CEE economies, and it seems that trade diversion to the
detriment of Moldova began already at that stage.
(2)

Internal economic reforms in Romania. Fall in agricultural exports from Moldova to

Romania also coincided with the radical trade liberalisation reform in Romania of 1997-1998,
when imports became less restrictive and Moldova has lost its relative advantage against the
rest of the world compared to years 1995-1997. Thus, in 1998 Moldova was Romanias 7th
major import market and 8th export market 56, mainly on account of beef and sugar, which, as
was shown above, were particularly hit by these developments and have fallen dramatically
since then.

(3)

Integration to the EU market in the run up for accession:

a.Romanias Europe Agreement was ratified in 1995. In the following years trade balance
with the EU was deteriorating, and Romanias task was to improve its competitiveness,
as products with low processing and low value added were dominating its exports,
especially in agriculture. Only in 2002 Romania was approved by the EU as a third
country, from which imports of meat can be done. However, in order to obtain this
approval Romania had to move on early with restructuring this sector, partially by
embarking on import substitution/support to domestic meat industry path, as well as to
prove that it can control the origin and conform to quality standards, and respectively cut
down imports from Moldova, which had held a major share on the Romanian market
before. Similar reasons and measures concerned other Moldovan exports sugar and
dairy products already in 1998 the EU was the major supplier of these product lines to
Romania, and Moldova was displaced by the EU in its role of a primary supplier of
sugar to Romania.

56

ibid.

56

b. Romania is the biggest agricultural market in Europe after Poland, and liberalisation is
normally expected to bring about export increases especially in those sectors, which face
higher protection prior to accession and are the country comparative advantage. Thus, in
numerical modelling of integrating the Romanias economy into the EU customs union
Scrieciu (2004)57 finds that enlargement is going to benefit mainly Romanian producers
of live (bovine) animals, meat, sugar and cereals, as it is particularly in these sectors,
where positive trade and output effects of increased foreign market access outweigh the
negative production effects of cheaper imports. At the same time, these gains influence
Romanias imports from the rest of the world. Scrieciu argues that the biggest losses for
third countries exporters to Romania are due in live animals (down 740 percent), dairy
products (-86 percent), other food products (-67 percent), sugar (-29 percent), meat
products (-52 percent), crops other than wheat (-19 percent). And these estimates do not
take account of free trade arrangements that Romania may have, therefore potential
losses for Moldova may be even higher. In line with the above analysis of CEECs
accession, in sectors of importance for Moldova, such as vegetables, fruits and nuts,
oilseeds, vegetable oils and fats, beverages and tobacco, and textiles, exporters of the
rest of the world can even gain as a result of Romanias accession (though on a smaller
scale than is the case with losses). This assessment was, however, also made on the
assumption of decreasing applied tariffs with respect to third countries, whereas this will
not be the case for Moldova. But here the good news for Moldova is that at least trade
diversion effects are not expected as a result of price changes and reallocation effects in
production. It is hard to predict for the future, but certainly Moldova has already
experienced a part of these negative effects.
(4)

6.3

Structure of exports from Moldova to Romania has been converging with that to the EU
milk, diary products and eggs taken together have constituted 0.1-0.8 percent of exports to the
EU between 1996 and 2002, meat virtually zero 58, the same trends are observed with exports
to Romania. As far as other agricultural exports are concerned, a risk-group is preparations of
fruits and vegetables, which has seen a decline of about 85 percent in exports to the EU
between 1996 and 2002 the same can happen with Romania. At the same time, growth of
exports of textiles and leather resembles the trend experienced with the EU. What is worrying
is that should Moldova fail to adjust its comparative advantages to the strict EU quality and
standardisation requirements and further convergence to the MD-EU trade takes place, it can
l0ose its market share in Romania with sunflower seeds and sunflower-seeds oil, which
represent a relatively low share in exports to the EU (1.3 and 0.02 percent respectively) 59.
Deeper liberalisation of trade with the EU, either in the form of ATP or asymmetrical FTA,
could help overcome these trends.
Scenarios for Moldova upon Romanias accession

1st scenario: Pessimistic or short term - Romania suspends the FTA and tariffs go up as it
applies GSP
Chapter V of this report described the state-of-play in negotiations between Moldova and EU on
further bilateral commercial relations. The short term prospective for Moldova is to obtain an
Autonomous Trade Preference (ATP) arrangement from the EU, which will foresee unilateral
57

Scrieciu (2004) Assessing the economic impacts of incorporating Romanias agricultural and food sectors into EUs
Customs Union: an Applied General Equilibrium Model.
58
External trade of the Republic of Moldova statistical yearbook 1996-2001, 2001-2003
59
Customs Department Database, Exports to the EU in 2004.

57

suspension of EU import duties on all major Moldovan products, including very sensitive ones.
This will, however, depend on Moldova successfully proving its ability to control and prove the
origin of its goods (a major problem in this case being the porous Ukrainian-Moldovan border,
controlled by Transnistrian regime). Although major steps are taken by the Moldovan side to meet
the requirements for obtaining the ATP and there is a commitment from the European Commission
in this regard, a pessimistic scenario should be considered as well, under which for a certain period
of time EU-Moldovan trade, as well as Romanian-Moldovan trade, will be conducted under present
terms with GSP treatment. The length of such period is very hard to predict as it can vary from
nearest future to a couple (or even several) years, which fact makes it reasonable to consider what
would happen under status quo treatment of trade with the EU. Here we look mainly at the tariff
effects.
In addition to some EU average tariff estimates by industries and sectors mentioned elsewhere in
this report, it is interesting to have a look at the example of tariffs that would be applied to actual
Moldovan exports to Romania should Romania adopt the existing EU tariffs with all GSP
preferences enjoyed by Moldova (Table 6.3). Looking at the snap-shot of top 20 Moldovan
products exported to Romania in 2004 (at 6-digit level, therefore shares of individual products, not
groups, are not strikingly high), one can see that such agricultural products as barley, corn, residues
of wheat, sugar would have to face particularly high protection on the Romanian market, even
taking into account all the GSP preferences granted to Moldova. Final prices on these products
would more than double if levied with MFN tariff, and increase by more than 50% with maximum
utilisation of GSP preferences and since under normal conditions agricultural products are highly
price sensitive, this would mean that Romanian market would be lost for these products.
The only agricultural goods in this set left unaffected by Romanias accession and still enjoying
zero duty would be beans and sunflower seeds, which account for 0.9 and 6.8 percent in total
exports to Romania respectively. Sunflower seeds and sunflower oil are an important export
category for Moldova, holding a big share of Romanias market (98 percent in 2003 60) and by and
large after Romanias accession will not suffer from such significant tariff increases as will do
highly sensitive products.
At the same time, agricultural products unaffected by tariff increases may still become vulnerable to
non-tariff barriers sanitary, phytosanitary and other quality standards, or to CAP interventions,
which dump internal EU prices.
Table 6.3. Top 20 Moldovan export products to Romania in 2004 and respective EU tariffs61
Product
Share in total
EU MFN tariff, EU tariff with GSP b
exports to RO,
percent
percent
Eggs
1.89
13.52
33.8 a
Beans
0.9
0
Barley
1.6
130.6
52.24
Corn
5.6
52.9
21.2
Sunflower seeds
6.8
0
0
Sunflower-seeds oil
2.4
9.6
3.84
Processed sugar
3.4
150.9
60.36
Residues of wheat
0.9
136.9
54.8
Gypsum
1.5
0
0
Crude oil
0.9
0
0
Electrical energy
14.78
0
0
Pharmaceutical products
0.8
0
0
Articles of leather
7.6
6.2
0
Carpets
1.0
8.0
0
60
61

World Bank Trade Diagnostic Study, 2004.

Products were selected based on 6-digit HS classification from the Customs Department database.

58

Apparel articles
Footwear
Glass containers
Iron and steel
Parts of steam turbines
Chairs

11.5
2.9
5.8
1.3
1.8
0.9

11.6
0
5.0
0
0
0

6.96C
0
0
0
0
0

EU simple average MFN tariff for third countries, ad valorem equivalent (Memorandum by the British Egg Industry
Council). Calculating ad valorem equivalent based on Customs Department data would be erroneous due to
incompatibility of measures.
b
GSP Tariff with labour clause preferences that Moldova is eligible to. I.e. specific tariffs on sensitive agricultural
goods are reduced by 60%, ad valorem tariffs on industrial goods by 8.5 p.p., and on textiles by 40%.
c
Applied only to the value added in Moldova.
Source: Own calculations based on Customs Department database, EU TARIC.

As far as trade in industrial goods is concerned, the most important export lines glass containers,
textiles and leather, which are considered sensitive in the EU trade policy 62, under MFN treatment
will be subject to import duties of 5, 11.6 and 8 percent respectively, but for leather and glass
containers GSP preferences will ensure zero-duty treatment. However, an important point to
mention here is that trade in textiles has been on the rise to the EU, in particular to Italy and
Germany, even being subject to import tariffs. But the fact that import duty is levied only on the
value added in Moldova, which is estimated to be around 20 percent 63, and that this production is
anyway ordered by the European enterprises, it did not deter exports of clothing to the EU. The
same sounds plausible regarding trade with post-accession Romania. Low utilisation of GSP
preferences may also hinder the take up of zero duties on leather and glass containers, especially as
long as the related compliance costs might not justify the elimination of 5-6% duty.
The above analysis highlights that certain losses from Romanias accession to the EU, provided that
no additional liberalisation is undertaken towards Moldova, are almost bound to occur. WTO rules
provide for protecting the countries losing out from their partners accession to a customs union.
Thus, article XXIV.6 of the GATT obliges the EC to enter into negotiations with third countries
having negotiating rights in any of the acceding countries in order to agree on compensatory
adjustment if the adoption of the ECs external tariff regime results in an increase in tariff beyond
the level for which the acceding country has bound itself at the WTO, whilst taking due account of
reductions of duties on the same tariff line made by other constituents of the customs union upon its
formation.64 However, this article only refers to cases, where the countrys bound tariffs (or
maximum nominal rates) increase, not the applied ones, and neither the cases of renouncing free
trade agreements in place prior to accession. At the Uruguay round of WTO Romania had a
developing country status and managed to negotiate particularly high bound rates in agriculture
the average was 114.5 percent, while it was only 44.2 percent for Poland, where agriculture is also a
strategic sector, 30.9 Hungary and 12.8 Czech Republic. The same average tariff in agriculture
for the EU was 17.6 percent65. Therefore, this article will not apply to Romania, and Moldova will
have no grounds for claiming compensation from the EU for losing the free trade agreement with
one of its major partners.
The fact that, in reality, Moldova faces tariff rises is taken into account in the overall (economic)
assessment under article XXIV.5, which obliges the EC to submit documentation in order to
establish that the accession of the 10 new Member States to the EC meet the criteria that: the duties
and other regulations of commerce imposed at the institutions of any such union shall not on the
whole be higher or more restrictive than the general incidence of the duties ad regulations of
commerce applicable in the constituent territories prior to the formation of such union 66. This
62

Also under new GSP scheme for the period 2006-2015, which broadened the range of non-sensitive products .
World Bank Trade Diagnostic Study, 2004. p. 41.
64
Trade implications of EU enlargement: Facts and Figures. EC MEMO/04/23.
65
Chevassus-Lozza and Unguru (2001)
66
Trade implications of EU enlargement: Facts and Figures. EC MEMO/04/23.
63

59

requirement, however, is not meant for the purposes of compensation under article XXIV.6 and
would unlikely change the terms of Romanias accession with regard to losses borne by Moldova.
2nd scenario: Moldova is granted Autonomous Trade Preferential arrangement by the EU
The above analysis was meant rather to demonstrate the costs that Moldova would pay should the
commercial relations with the EU and Romania remain under the same framework that Moldova
enjoys today. The policy agenda already in the short term, however, foresees unilateral liberalisation
of trade on the side of the EU in the form of autonomous trade preferential arrangement (ATP),
which will be granted separately on top of the provisions of Partnership and Cooperation agreement
that govern commercial relations between the two sides. In the medium term though it is sensible
that the EU and Moldova sign an asymmetrical free trade agreement, which would represent a
strong political sign both to foreign investors and to the EU importers.
The impact of Romanias accession to the EU on Moldovan economy will pretty much depend on
the conditions of the European Unions ATP arrangement. Taking into account a very high
concentration of Moldovan exports, with four major product lines (textile articles, raw hides and
skins, leather and skins, vegetable products and food products, beverages, tobacco) representing
over of exports67, it is imperative that the main income generating traded Moldovan goods, which
are sensitive on the EU market, but are the main comparative advantage of Moldova fruits,
vegetables and nuts, wine, vegetable fats, certain meat and diary products, as well as textiles,
clothing and leather, be included in the duty-free treatment under ATP, all the more so since the EU
has admitted that the potential volume of Moldovan exports is unlikely to have any harmful effect
on the EU market. Otherwise the utility of ATP for Moldova will be as marginal as is GSP.
In this case the main issue for Moldova will be to cope with high competitive pressure on the
enlarged EU market, and to overcome the non-tariff barriers, such as rules of origin, technical and
quality standards. And the need for institutional capacity building in this regard has been
extensively described in Chapter III of this report. Apart from efforts on the Moldovan side, it
would also highly facilitate EU-Moldovan trade if Moldova were included in the pan-European area
of cumulation of origin, although certainly for that Moldova first needs to meet the condition for
obtaining the ATP by proving that it can effectively control the origin of its goods.
It is important to appreciate, however, that even when Moldova is granted ATP, some trade
diversion effects with regard to exports to Romania are very likely to occur due to further
integration of Romania to the EU customs union, to substitution effects, some price changes and
necessity to face standard conformity requirements. Romanias accession to the EU would have
negative impact for Moldova even if Moldova had a free trade agreement with the EU, due to the
substitution effect of imports from third countries in favour of goods from the internal market. As
was assessed by Brenton (1999), Romania benefits from an FTA by increasing its exports to the EU,
while substitution effects against Moldovan products appear: 1.8 percent change in manufactures
and -2.2 percent in agriculture. Obviously, while staying outside the free trade regime with the EU,
Moldova would face higher costs from trade diversion.
Despite a lowering level of external trade protection in CEECs, EU enlargement is generally likely
to have trade diversion effects for CIS countries due to more restricted non-tariff access to the EU
market. However, accession of CEE-8 will have a limited impact on Moldovan exports due to their
low share compared to other major Moldovan economic partners EU-15, CIS and Romania.
Forthcoming accession of Romania and the need to align import and quality assurance policies to
the EU standards has already exerted a downward pressure on agricultural exports to this country,
regardless of the fact that the free trade agreement is still in force.

67

See above in chapter II.

60

Upon accession, on some major Moldovan export items (such as eggs, crops, sugar) Romania will
adopt particularly high EU tariffs, which will almost inevitably result in Moldova losing the
Romanian market for these products. Trade in industrial products will also face some tariff rises,
but will be less affected than agriculture. The loss of a market accounting for about 10 percent of
total exports should be an additional argument in negotiating more favourable concessions within
an autonomous trade preferential agreement and perhaps subsequently within an asymmetric FTA.

61

Conclusions and recommendations

It is vital to take effective measures to ensure ongoing harmonization of the domestic policies with
the requirements of the EU as well as adopting a new system of standardization and assessment of
conformity based on technical provisions stipulated by the EU. This requires considerable efforts in
creating institutional and legal framework adequate to the task pursued as well as ensuring their
practical implementation. With due account for the aforementioned, implementation of these
strategic objectives is pivoted by the existence of a Free Trade Agreement with the EU. Moreover,
by obtaining certain results in these domains Moldova will fortify its political declarations of
European integration and create pre-requisites for gaining access to the EU funds in the domain.
The experience gained by the Central and Eastern European Countries through their preferential
relations with the EU, suggests that Free Trade Agreement by itself is far from offering a universal
solution for the investments and economic growth. It is clear that domestically promoted policies
and their implementation serve as the most important decisive elements for obtaining sustainable
economic effects. A free trade Agreement could enhance liberalization of economy and ensure
credibility of reforming programs. Domestic policies and their implementation represent one of the
most important determinative of the economic results achieved at the national level. In the best
case, Free Trade Agreement could be a supplementing element to the domestic reforms.
Signing Free Trade Agreement with the EU or the European Agreement of Association represents
basic legal and political framework for the promotion and development of partnership relations as
well an instrument for impelling movement towards gradual achievement of the strategic objective
pursued by the country, i.e. European integration.
Free Trade Agreement with the EU or the European Agreement of Association should go beyond
simple lifting of duties and other cross-border barriers. Considering practice of other CEE countries
we believe it is necessary to intensify discussions with the European structures on this matter and to
launch discussions and negotiations on some negative lists of products that will not be accepted
by the EU so as to benefit on the asymmetric trade preferences extended to the republic of Moldova.
Key points for the improvement of the legal framework between the Republic of Moldova and EU:
o

taking into account requirements and deadlines set by the EU, we believe that the
Republic of Moldova should file an appeal with the EU services before October 31,
2005 so as to obtain access to GSP+ to become effective as of January 1, 2006;

following implementation of the recommendations of the EU in certification of the

origin of goods designed for export, to solicit insistently Autonomous Trade Preferences
to be granted to Moldova on the basis of a negative approach (see comments above);

implement in a good manner the Moldova-EU Action Plan so as to create political and
practical pre-requisites for launching negotiations on signing an Asymmetric Free Trade
Agreement with the EU.

An Agreement with the EU will involve adoption of EU legislation and practices and will require
effective implementation of such in such domains as customs administration, standardization,
accreditation, assessment of conformity, metrology, assistance granted by the state, policy in the
domain of competition and practices of public procurements. The Agreement vis--vis problems
of profound integration will be accompanied by the extensive legal requirements that will have
significant implications for the Republic of Moldova.
Effective adoption and implementation of new legislation and practices compatible with the EU
ones will require considerable extension of the capacity and efficiency of the legislative and
judiciary system of Moldova. One of the important differences will be the capacity of efficient
62

administration of the system of the rules of origin as well as application of EU rules in different
domains.
Taking into account the important role played by the trade and investments in the economic
development of a country, the free trade areas between the EU and Moldova could bring significant
economic benefits, provided it is placed into the respective economic environment in which
companies and natural persons will be free to use business opportunities created for them.
At the moment, the mode of implementing microeconomic and macroeconomic policies in Moldova
and instability of the domestic legal framework create incertitude amongst local and foreign
businessmen. Key problem lies with the implementation and application of the national legislation
in space and time. The experience shows that mere adoption of the laws is not sufficient to ensure
proper functioning of modern market economies. The mode of practical application of these rules
and regulations seems to be of significant importance.
In pursuing the special preferential trade arrangement with the EU Moldova has to be ready to bring
strong arguments at the negotiation table. In doing so, Moldovan decision makers could make a
special case of Moldovas special circumstances in several areas:
a.

Geographical: proximity to the EU (soon-to-be neighbour), high vulnerability to

external shocks, small country etc;

b.

Economic: the poorest country in Europe, small-size transitional economy, low

diversification of exports, where agricultural exports prevail, lack of economies of
scale, poor production capacity with obsolete capital stock; and finally widening trade
deficit with the EU and on overall,

c.

Regulatory drawbacks: lack of proper quality control system, soviet-type inherited

standardisation system, high administrative costs, higher transport costs, etc;

d.

Technical limitations: insufficient technological and human capacity to carry out

quality controls for a wider spectrum of exported products. This dictates the need for
significant investments in creation of relevant standardisation and metrology and
accreditation bodies, as well as for the equipment of existing and new laboratories.

e.

Regional developments: Moldova may lose Romanian market (3rd strategic partner)
with the accession of the former to the EU

f.

Relatively small tariff losses: For the EU the loss of tariff revenues if duty free access
was granted for Moldovan exports as of 2004 would have represented 0.00226% of its
total tariff revenue. The gain for Moldovan exporters would have been quite noticeable
as it compares with the levels of development assistance the EU is currently granting
to Moldova.

and
g.

Strong Political will for reforms: Moldova is willing to pursue further integration into
the EU system by harmonising its legislation, standards, technical regulations with
those of the EU and there is a strong consensus amongst its political leaders on the
strategic course of the country towards the European integration.

The above listed positions could be used by Moldovan negotiators to request from the EU a
most beneficial Autonomous Preferential Agreement, similar to the ones signed with Western
Balkans that could basically resemble a non-reciprocal Free Trade Agreement, under which the
EU were to grant Moldova duty free access to almost all goods except the ones that could harm
some market segments more substantially. For counterbalance, Moldova has to commit itself to
implementing market-oriented reforms, limiting government interference in the private sector
operations, fight against corruption and red tape. A time frame should be established for creating
63

sound rules of origin control system, reforming the activity of the national customs authorities,
establishing with the assistance of other donor of a sound quality control system, adopting or
approximating the existing standards and technical regulations for the major exported goods to
the EU in the nearest 5 years.

64

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financial
management
http://europa.eu.int/comm/budget/infos/publications_en.htm

2004,

DG

Budget

36. Scrieciu (2004) Assessing the economic impacts of incorporating Romanias agricultural and
food sectors into EUs Customs Union: an Applied General Equilibrium Model. Paper
presented at the conference on The new frontiers of European Union organised by Centre
dEtudes Prospectives et dInformations Internationales in Marrakesh (Morocco), March 16-17
2005
37. Transition Report 2004, EBRD
38. Thessalonica Agenda for the Western Balkans General Affairs and External Relations
Council, June 16, 2003
39. World Bank (2004), The Republic of Moldova Trade Diagnostic Study, WB Report No.
30998-MD

66

Annex 1. EU Republic of Moldova Action Plan stipulates

* * *
Customs
(26) Implementation of customs legislation aligned with international and EU standards
Implement provisions of the Customs Code as well as provisions on customs control of precursors,
counterfeit and pirated goods, dual use goods, and cultural goods.
Moldova to adopt and keep up to date the HS in use, with a view to adopting the CN
Implement the principle of risk based customs control and set the necessary organisational framework
(27) Improve functioning of customs service; simplify and modernise customs procedures
at borders and inland
Strengthen the overall administrative capacity, in particular to ensure effective control of the origin of goods
and the correct implementation of customs valuation rules, and provide the customs administration with
sufficient internal or external laboratory expertise as well as sufficient operational capacity in the IT area
Develop a single window approach for all international trade related documentation and control starting by
increased co-operation between customs services and other agencies working at the border (e.g., State
Border Guards, Police, and Veterinary Service).
Set up a mechanism to ensure regular consultation/ information of the trade community on import and
export regulations and procedures.
Adopt and implement a Customs Ethics Policy based on internationally recognized standards (Arusha
Declaration).
Develop EU-Moldova co-operation with regard to risk based customs control, including safety and security
of goods imported, exported or in transit.
* * *
Standards, technical regulations and conformity assessment procedures (EU harmonised areas)
(28) Move toward EU and international legislative and administrative practices for standards, technical
regulations and conformity assessment
Jointly identify priority industrial sectors for legislative approximation (with the possibility to be included in
an Agreement on Conformity Assessment and the Acceptance of Industrial Products, ACAA, provided that
all the required conditions are accepted and fulfilled) including through consultations with roducers and
exporters. Continue the revision of existing Moldovan standards, removing the mandatory elements and
harmonising them with international and European standards.
Reinforce institutional capacity on standardization, accreditation, conformity assessment, metrology and
market surveillance, integrating the Moldovan institutions, to the extent possible, in the European structures,
namely the European Cooperation for Accreditation (EA), CEN, CENELEC and ETSI. Full membership of
the International Standards Organisations ISO, IEC and ITU. Revise the institutional arrangements in this
area to avoid the concentration of functions within a single institution.
Approximate legislation on liability for defective products and general product safety.
Simplify procedures to avoid compulsory certification of non-risk products and multiple testing of products.
Develop market surveillance capacities based on best practice of EU Member States.
* * *
Elimination of restrictions and streamlined administration (EU non-harmonised areas)
(29) Facilitate the movement of goods and improve administrative co-operation.
Prevent discriminatory measures and ensure interested parties have the opportunity to identify problems and
comment on draft legislation.
Ensure there is a contact point dealing with implementation of the movement of goods, which could also be
used to improve information flows between the EU and Moldova and to exchange information with
operators.
Analyse legislation and procedures to identify and progressively remove any discrimination against
imported products. Analysis could initially focus on national measures covering the weight, composition,
labelling, manufacture and description of products.
* * *
Sanitary and phytosanitary issues
(30) Increase food safety for Moldovan consumers and facilitate trade through reforms and modernisation of the
sanitary and phytosanitary sectors.
Fully implement the requirements of the WTO Agreement on the Application of Sanitary and Phytosanitary
Measures (SPS) and the Agreement on Technical Barriers to Trade (TBT).
Accede to the European and Mediterranean Plant Protection Organisation and increase its active
participation in the World Organisation for Animal Health (OIE), International Plant Protection Convention
and Codex Alimentarius.
Assess the sanitary and phytosanitary control systems, in particular, at the state border, to compare with EU
and international requirements.
On the basis of the reply by the Commission on Trade in Animal Products, draw up a comprehensive list of

67

measures for gradual convergence towards EU principles of hygiene in food processing, accompanied by
timetables for the transposition of EU legislation and a financing plan. Start approximation to EU legislation
on the hygiene in food processing.
Increase convergence of food law with EU food safety principles (Regulation 178/2002/EC) and EU general
foodstuff labelling requirements (Directive 2000/13/EC); and progressive abolition of pre-market approval
systems for food products.
Prepare first steps for setting up of an animal identification and traceability system (in particular for cattle)
Fulfilment of EU requirements on animal health and for the processing of animal products (c.f.: General
Guidance for third country authorities on the procedures to be followed when importing live animals and
animal products into the European Union, DG SANCO/FVO October 2003)
Identify national reference laboratories in the sanitary and phytosanitary sectors, with a special attention
given to the necessary equipment and appropriate methods of analysis (residues of pesticides/contaminants)
and their accreditation.

68

Annex 2. National Moldovan and EU bodies responsible for trade related matters:
sub 1 Trade and Investments
Ministry of Economy, Department for Standardisation and Metrology
State veterinary department
State Customs Service
Chamber of Commerce
TAXUD
DG Trade Euro commission
Moldova Standard Department
National Institute of Standardisation and Metrology
Hygienic Certificate :
Ministry of Health
Preventive Medicine Direction
National Scientific and Practical Center of Preventive Medicine
Phytosanitary Certificate
State Principal Inspectorate for Phitosanitary Quarantine
Veterinary Certificate
Ministry of Agriculture and Food
Veterinary Medicine Direction with the State Principal Veterinary Inspection
Fire-safety Certificate
Emergency Situations Department
National Agency for Technical Supervision
The certification of imported goods, which are under the purview of the agency, must undergo the conformity assessment
certification. The National Agency for Technical Supervision has a unit that is accredited within the Moldovan Conformity
Assurance System that performs conformity assessment on imported products. The procedure of conformity assessment is carried out
in accordance with the general regulations used in conformity assessment of products.
Telecommunications Ministry Certificate/Conclusion
Imports of non-certified telecommunications equipment and cables into Moldova require an import authorisation from the State
Inspectorate of Communications.
State Inspectorate of Communications
Product Certification Bodies
Independent Non-for-Profit Organisation Inspection, Certification, Quality
Area of accreditation: Products of the light and textile industries
National Institute of Standardisation and Metrology
Director: Alexandru Tarlajanu
Area of accreditation: food and agricultural products; industrial goods: technological equipment for the food industry, trade, public
nutrition, computers and calculus machines; transformers; electronic devices; cosmetic products; soap, detergents; essential oils;
paints; lacquers; dissolvent; plastics; toys; autovehicles; auto parts; tractors; agricultural machines, light industry products (clothing,
furs, wool, textiles, paper, books, etc.)
Conservstandard Certification Center
Area of accreditation Products of the canning industry and agricultural products
Center for Testing and Certification of Wooden Furniture and Items
Area of accrediation: Furniture for residences and public locales, wooden items and parquet
Center for verification of the quality of raw materials of the meat and dairy industry
Area of accreditation: Products of the meat and dairy industries
Republican Center for Veterinary Diagnostics
Area of accreditation: Fresh and frozen meat; animal fats; edible offal; eggs; egg products; fresh, frozen or smoked fish; crustaceans,
mollusks.
Certification Body of the National Agency for Technical Supervision
Area of accreditation: Lifting installation; devices under pressure; home appliances running on solid, liquid and gaseous fuel;
welding materials, mineral fuel, oil processing products, bituminous substances, chemical products, mineral fertilizers, chemical
protection means; solid fuels and coals; primary sources of electricity; electrical devices; electrogenerating devices; electrical
transformers ; electrical equipment and products.
Inmacomproiect Certification Center
Area of accreditation: Binding materials; construction materials except for aggregates and ores for the manufacture of concrete; wall
materials; plating, covers, concrete, prefabs and items of concrete and reinforced concrete; insulating materials; raw clay; timber
wood; wooden products and items; lacquers, paints, dyes, plaster, ceramic fittings and fixtures, dispersions, home vases and articles
made of plastic.
Construction Scientific Research Institute INCERCOM
Area of accreditation: Concrete; elements of concrete and reinforced concrete; binding materials; wall materials; construction
materials from non-metallic ores and concrete aggregates; finishing materials; roofing; heat insulators for window frames, door
frames and carpentry.
Center for Standardisation and Determination of Quality of Fodder and Cereal Products Cereale - Cer
Area of accreditation: Cereals, oleaginous and leguminous cultures, flour, bran, milled cereals, vegetable oils, raw materials for
fodder
Certification Body within the State Inspectorate for Communications
Area of accreditation: Equipment for wired telephony, radio communications, radio-broadcast and television.
Center of Science and Technical Expertise Moldtestenergo

69

Area of accreditation: Electrotechnical, electrical and thermoenergetical equipment and machinery

Certautotest SRL
Area of accreditation: Trucks, tractors, buses, cars, dump truck, trailers, truck-mounted cranes, truck-mounted mixers, fire trucks,
scooters, bicycles, motorcycles, pneumatic tires, car batteries, technical rubber products, brakes, safety belts, bulbs, detachable
trunks, traction and coupling devices, etc.
Service Certification Bodies
Center for Standardisation and Metrology Balti
Area of accreditation: Public nutrition; repair of electronic devices, electric home appliances, tourism; hotel business; auto repairs
National Institute of Standardisation and Metrology
Area of accreditation: Public nutrition; repair of electronic devices and electric home appliances; tourism; hotel business; auto
repairs; apartment refurbishing; dry laundry
Certification Body within the State Inspectorate for Communications
Area of accreditation: Cable and wireless broadcasting of radio and TV; mobile phone services; intermediary communications;
electronic transmission of information; telephony services; Telefax; Internet; mail services
CERTAUTOTEST SRL
Area of accreditation: Passenger transport by bus in urban traffic, local, inter-city or international; special passenger transport;
tour and excursion transportation; auto service.
Personnel Certification Bodies
Certification Body of the National Agency for Technical Supervision
Area of accreditation: Certification of personnel in product certification (including genetic security), service certification,
accreditation of certification bodies, personnel certification, and environmental management.
Quality System Certification Bodies
National Institute of Standardisation and Metrology
Aside from the certification bodies accredited by the Moldovan Accreditation Center, a few companies assist local companies in
implementing ISO9000 series quality system standards to get the ISO certification from foreign institutions. One of these companies
is listed below.
TUV Qualitat: TUV Qualitaet assisted several local companies in getting certified by Germanys TUV CERT.

70

Annex 3. Comparative Analysis of Commercial Aspects comprised by Agreements concluded by the European Union with third
countries
Association Agreement (European Agreement)

Stabilization and Association Agreement

General provisions
The Association Agreement presumes a progressive and asymmetric establishment of a free
The Stabilization and Association Agreement mentions the contractual form/specimen of the
exchange zone for industrial goods and agricultural products during the transition period lasting ten
preferential trade regime, which presumes a gradual establishment of a free-exchange zone during
years at most (five years for the European Union, ten years for the Central and Eastern European
ten years at most since the moment of Agreement enforcement. 69
Countries - CEEC), divided into two successive stages five year each, the first stage beginning
The main customs tariffs/fees subject to successive concession are the "erga omnis" applied on the
concomitantly with the Agreement enforcement. 68
day preceding the agreement conclusion or the customs fee notified by the WTO framework for
The free-exchange zone is based on mutual and balanced obligations in compliance with the
2002.
Association Agreement provisions and with the G.A.T.T. provisions as well. The basic customs
tariff for each product, on which successive concessions would be applied, is the 'erga omnes' (valid
for all) for the day preceding the Agreement enforcement.
Scheme of tariff concessions applied on merchandise market
Industrial goods
The Agreement provisions apply to all goods produced by the CEEC and the EU comprised by
The Agreement provisions apply to goods from Croatia/Macedonia included in Chapters 25-97 of
Chapters 25-97 of the combined List of goods, except for the goods comprised by Annex I. (animal
the combined List of Goods. The Agreement provisions do not apply to the sale of goods subject to
albumen, milk powder, natural cork, cotton, linen and hemp fibers). Likewise, the Agreement
provisions of the EU Constitution Treaty on Atomic Energy.
arrangements do not apply to textiles and goods subject to provisions of the EU Constitution Treaty
on Coal and Steel, which sale is regulated by separate arrangements.
A.
Community Commitments
B.
Community Commitments
The Import Customs Fees applicable in the EU for most of goods produced in the CEEC are subject
to abolishment immediately after the Agreement comes into effect. Exempted goods are listed in
Annexes II and III. A progressive scheme of abolishment has been developed on this purpose.
Annex II (Rubber and items from rubber; leather and items from leather; certain wood items; castiron, iron or steel, copper, zinc, aluminum items; household appliances and equipment; trailers for
motor vehicles). The customs fees are abolished progressively in concordance with the following
time-table:

Note: By the moment the Stabilization and Association Agreement comes into effect the customs
fees applicable to industrial goods imported into the EU have been eliminated by the Autonomous
Trade Preferences, granted by the European Commission to countries participants to the
Stabilization and Association Process as a result of the Lisbon Council Decision from 2000.
The Council Regulations 2007/2000 on extraordinary trade measures for countries participants to
the Stabilization and Association Process70 (amended by Regulations 2563/2000 on extension of its
provisions over the former Republic of Yugoslavia) grants free access to the EU market to all

68

Taking into account the fact that negotiations of Association Agreement with Slovenia began later in comparison with other countries candidates, the Agreement
provides a six-year period to settle a free-exchange zone.
69
The term settled for creation of a free-exchange zone varies, being established individually for each country. Currently, Stabilization and Association Agreements
have been signed with two countries only (Croatia and Macedonia) out of five countries participants to the Stabilization and Association Process. A relatively shorter
period of time (six years) in comparison with Macedonia (ten years) has been established for Croatia due to its more advanced economic situation.
70

Preferences granted via the Regulations 2007/2000 are considered of second generation because the first version of Autonomous Trade Preferences was granted
previously in 1997 to countries participants to the armed conflict only (Croatia, Bosnia-Herzegovina and Yugoslavia for a short period of time) as a component of the
Regional Initiative of the European Commission, a Derivative of Raymond Process. The first generation of Autonomous Trade Preferences provided full elimination of
customs fees and quantitative restrictions imposed on industrial goods (with limited exceptions for metallurgical products, which are considered sensible on the
Community market) and partially for agricultural products (for some of which contingencies and tariff quotas were provided).
At that moment Albania benefited from facilities granted within the Generalized System of Preferences, while trade with Macedonia was regulated by the Cooperation
Agreement, signed in 1998.

71

On the day the Agreement comes into effect each customs fee is subject to lowering by 50%
of the main customs fee;
All the remaining customs fees are eliminated in full on the day the Agreement comes into
effect.
The customs fees imposed on some imported items from Annex II (household and industrial
appliances and equipment) are lowered progressively from the date the Agreement comes into
effect, i.e. annually by 20% of the main customs fee so that all customs fees are abolished in full by
the end of the fourth year since the Agreement was put into force.
Annex III. Products from the CEEC comprised by Annex III benefit from import customs fees
suspending within certain EU annual contingencies or tariff thresholds, which are subject to
progressive increase so that all customs fees imposed on imports of these products are abolished not
later than by the end of the fifth year since the Agreement entered into force. Quantitative
restrictions and measures that have effect similar to quantitative restrictions on imports of goods
produced in the CEEC are abolished by the date the Agreement comes into effect.

industrial goods and most of agricultural products without any quantitative restrictions (except for
the tariff quotas imposed on certain fish products, veal and concessions for wine).
Trade of textiles is regulated by a separate trade arrangement.
These measures represent a unique case in the Community practice, taking into consideration the
specific situation in the West Balkan Region.
Granting Autonomous Trade Preferences is caused by the need to observe the EU Council
recommendations from April 1997, providing for the following conditions:
Countries capacity to maintain stability in the Region;
Countries capacity to promote the regional cooperation;
Countries Administrative capacity to cooperate with the Community Customs
services.
According to Regulations 2007/2000, the Autonomous Trade Preferences are subject to inclusion in
the Association and Stabilization Agreements.

72

CEEC
Import Customs fees applicable in the CEEC to goods produced in the EU are subject to immediate
elimination since the date the Agreement comes into effect for the items mentioned in Annex IV
(ores, fine arts items and writing materials) only.
Customs fee gradual lowering timetable will by applied to the items included in Annex V (minerals,
chemical products, toys and entertainment items) as follows:
Up to 80% of the main customs fee by the date the Agreement comes into force;
Up to 40% of the main customs fee after three years since the Agreement came into force;
Up to 0% of the main customs fee after five years since the Agreement came into force.
Customs fee gradual lowering timetable will by applied to items included in Annex VI (motor
vehicles, trailers to motor vehicles) as follows:
Up to 80% of the main customs fee by the date the Agreement comes into force;
Up to 70% of the main customs fee after three years since the Agreement came into force;
Up to 60% of the main customs fee after five years since the Agreement came into force;
Up to 40% of the main customs fee after seven years since the Agreement came into force;
Up to 20% of the main customs fee after eight years since the Agreement came into force;
Up to 0% of the main customs fee after nine years since the Agreement came into force.
Import Customs fees applicable in the CEEC to goods produced in the EU, other than the ones
comprised by Annexes IV, V and VI, are lowered according to the following timetable:
Up to 80% of the main customs fee after three years since the Agreement came into force;
Up to 60% of the main customs fee after five years since the Agreement came into force;
Up to 50% of the main customs fee after six years since the Agreement came into force;
Up to 35% of the main customs fee after seven years since the Agreement came into force;
Up to 20% of the main customs fee after eight years since the Agreement came into force;
Up to 0% of the main customs fee after nine years since the Agreement came into force.
Products related to the nuclear industry produced in the EU and imported by the CEEC benefit from
import customs fee suspension within certain annual contingencies and are subject to annual
progressive increase. Customs fees applicable to quantities that exceed the contingencies are subject
to progressive abolishment, being lowered by 10% annually.
Quantitative restrictions imposed on imports of items produced in the EU to the CEEC are subject
to abolishment by the date the Agreement comes into force.

Countries participants to the Stabilization and Association Process

a. Croatia
All import customs fees applicable in Croatia for industrial goods produced in the EU, except for
those mentioned in Annexes I and II, are subject to abolishment since the date the Agreement comes
into force.
Separate schemes for customs fees lowering have been proposed for items comprised by Annexes I
and II:
Annex I. (some mineral products; petroleum and petrol products; coal, hydro-carbides and fuel;
pharmaceutical and cosmetic products; rubber and items from rubber, leather and items from
leather, items from wood; paper and cellulose items; shoes; cement and asbestos; cast-iron and steel
items; equipment and motor vehicles):
Customs fees are subject to lowering up to 60% of the main customs fee on the day the
Agreement enters into force;
Lowered further up to 30% by January 1, 2003;
Abolished in full by January 1, 2004.
Annex II (some mineral products; chemical industry products; oils and perfume products; plastic
items; paper and cardboard; items from stone; glass and items from glass; cast-iron and forged iron;
aluminum and items from aluminum; tools and tackles, nuclear industry products):
Customs fees are subject to lowering up to 70% of the main customs fee on the day the
Agreement enters into force;
Lowered further up to 50% by January 1, 2003;
Lowered further up to 40% by January 1, 2004;
Lowered further up to 30% by January 1, 2005;
Lowered further up to 15% by January 1, 2006;
Abolished in full by January 1, 2007.
Likewise, both parties shall eliminate all restrictions imposed on exports by the date the Agreement
comes into force.
b. Macedonia
The conditions of gradual elimination of customs fees are similar, except for the reduction
timetable, planned for a ten-year period.

Export fees
The EU abolished all fees imposed on goods from the CEEC, each fee having an effect equivalent
to import customs fees, by the day the Agreement came into force.
In their turn, the CEEC eliminated all fees imposed on imports from the EU, each fee having an
effect equivalent to import customs fees, by the day the Agreement came into force, except for the
fee of 0.5% 'ad valorem' for customs procedures, which is subject to abolishment in compliance
with the following timetable:
Lowering by 0.25% 'ad valorem' by the end of the third year;
Elimination by the end of the fifth year at latest since the Agreement entered into force.

73

At the same time, each party declared that it is available to lower its customs fees in the trade with
the other party more rapidly than it is provided by the aforementioned timetables, in case its general
economic situation and the situation in the relevant economic sector allow for it.
Agricultural products
The term agricultural products applies to items comprised by Chapters 1-24 of the combined List
The term agricultural products applies to items comprised by Chapters 1-24 of the combined List
of Goods.
of Goods.
A. Community Commitments

A. Community Commitments

The EU shall liquidate by the date the Agreement comes into effect, the quantitative restrictions
imposed on agricultural products imported from the CEEC. Agricultural products produced in the
CEEC, comprised by Annexes XI a) and XI b) (live animals, meat and meat products, mild and
dairy, some vegetables and fruits, cereal seeds etc.) benefit since the date the Agreement comes into
force from reduction of quantities within the EU quotas or from lowering the customs fees with the
condition to observe the import minimal price.

The Community party shall eliminate all existing quantitative restrictions (including the
Autonomous Trade Preferences) by the date the Agreement comes into force.
The Agreement provides the elimination of customs fees for live animals, congealed beef and
establishes a fixed quantity of veal imports.
However, according to Regulations 2007/2000, in case the concessions granted within the
Autonomous Measures are more favorable than the ones provided by the bilateral agreements with
the EU, the former provisions shall apply.

B. CEEC

B. Countries participants to the Stabilization and Association Process

CEEC shall eliminate all quantitative restrictions imposed on imports of agricultural products from
the EU by the date the Agreement comes into force.
The UE and CEEC granted concessions to one another (20% by the end of the first year the
Agreement comes into force, 40% by the end of the second year and 60% during the following
years) on a harmonious and mutual basis.
Taking into account the volume of mutual trade with agricultural products, the outstanding
sensibility of this sector, the EU rules on Joint Agricultural Policy, the role of agriculture in the
CEEC economy, and the consequences of multilateral commercial negotiations, carried out within
GATT, the CEEC and EU consider periodically, item by item, on a mutual and well organized basis,
the possibility to grant new concessions to one another.

By the date the Agreement comes into force the EU shall eliminate all existing quantitative
restrictions. Croatia shall eliminate gradually customs fees imposed on products specified by Annex
VI(a): poultry, pork and canine, exotic fruits, tee, coffee, cereals, vegetal and animal greases,
concentrated juices, certain types of canned items by the date the Agreement comes into force.
Import tariff quotas shall be imposed on products mentioned by Annex VI(b).
Since the first year of Agreement implementation Croatia shall liquidate customs fees imposed on a
series of products comprised by Annex VI(c): chicken eggs, exotic fruits, products made from
vegetables and fruits.
The scheme for customs fee lowering for the rest of products is included below:
Customs fees are subject to lowering up to 60% of the main customs fee on January 1, 2003;
Lowered further up to 40% on January 1, 2004;
Lowered further up to 20% on January 1, 2005;
Abolished in full on January 1, 2007.
Likewise, the customs fee established under the most favored nation clause is subject to lowering
up to 50% since the date the Agreement comes into force.
The sale of wine and spirit is regulated by a separate arrangement.

74

Annex 4. The EU tariff revenue losses as calculated per official EU statistics of bilateral trade with Moldova (2004)
Major Moldovan staples exported to the EU

1
II. VEGATABLE PRODUCTS
0802 Edible fruits of which
080232 shelled walnuts
12 Oil seeds of which
1206 Sunflower seeds
Total per major products in the group
IV. FOODSTUFF PRODUCTS, ALCOHOLIC
AND NONALCOHOLIC BEVERAGES
20 preparations of vegetables, fruit or other plants
2009 Fruit juices
200971Apple juice
22 Beverages, spirits and vinegar
Total per major products in the group
VIII RAW HIDES AND SKINS, LEATHER
41 Raw hides and skins-whole
XI. TEXTILE ITEMS
- 61 Articles of apparel and clothing knitted
- 62 Articles of apparel and clothing not knitted
- 63 Other made-up textiles
Total per major products in the group
XII Footwear, headwear, umbrellas
- 64 footwear
XV. BASE METALS AND ART-S THEREOF
-72 Iron and steal (scrap)
721391 Bars and rods, hot-rolled
721420 Bars and rods, iron or non-alloy steel
-74 Cooper and articles thereof (scrap)
-76 Aluminum and articles thereof
Total per major products in the group
Total per highlighted products
Total Moldovan exports to the EU

Volume
exported
to EU in
2004
mio
EURO
2
24,9
20,8
19.5
3.8
-3.6

% share
of the
total
MD
export to
the EU
3
5.5%

% of world
imports to the
EU per
respective
product group

AVR GSP
tariff with
labor clause
assuming
actual utiliz-n

Average
MFN

5
12.4***
4.0*
4.0*
0
0

0.2%
17.6%
0.1%
1.4%

6
9.6***
5.1*
5.1
0
0

EU loss in revenues
+gain for EU
consumers + gain for
MD exporters
*Assuming 60% GSP
utilize-n mio EUR
7=2 x 5
1.85
0.49
0.46
0
0

EU loss in revenues
+gain for EU
consumers + gain for
MD exporters
*Assuming 40% MFN
utilize-n mio EUR
8=2 x 6
0.95
0.42
0.39
0
0

20.5***

24.6***

2.6

2.1

20.4*
13.7*
12
4.1***

22.2*
18.8*
18
7.0***

Total EU revenue
loss
Mio EURO
=7+8
2.8
0.91
0.85
0
0
0.91

21.0

4.7%

12.7
11.0
3.7
6.0

0.3%
0.9%
0.1%
0.1%

1.55

4.7
1.12

0.90
0.30

2.67
0.82
0.26

0.15

1.63
0.56

0.17

0.31
2.98

18.0
11.2
116.0
27.3
58.7
25.0

3.9%
25.7%

0.4%
0.1%
0.1%
0.2%
0.5%

0
6.0*
5.7*
5.1*
9.7*

1,43**
7.9*
7.9*
8.4*
12.3*

0.06 mio

4.1

3.7
0.93
1.8
1.4

0.06
7.8

0.86
1.85
0.84

1.79
2.65
2.24
6.7

33.1
159.0
150.0
78,6
57.7
3.5
3.8
338.9
425

7.3%
35.2%

0.3%
0.4%
14%
9%
0.1%
0.03%

82.3%
100

n/a

1.0*
0

8.6*
0

0**
0****
0****
0****
0****

0**
00****
00****
0****
0****

5.6*

7.9*

0.2

1.14

1.34

0
0

0
0

0
0

0
0
0

0
0

0
0

0
0

14.3

13.4

27.73 Mio

0
11.9

* World Bank Moldova Trade Diagnostic Study, 2004 p. 43, ** Brenton, 1999, *** Agricultural trade Preferences and the Developing Countries, Economic Research Services/USDA
http://www.ers.usda.gov/publications/err6/err6e.pdf, ****EU TARIC database and own calculations

75

Assumptions: 1). 60% of all Moldovan exports enjoy a weighted average GSP tariff of 5.6% as calculated by the WB trade diagnostics study, 2) 40% of the remaining exports pays a 7.9%
MFN tariff, 3) if the EU were to grant full duty free access to Moldova as of beginning of 2004, the country would not have been able to take advantage and increase significantly trade
due to low production capacity and non-tariff barriers in trade with the EU, 4. the average weighted tariffs did not change since WB has done its study.

76