Is DCFTA implemented in Transnistrian region or not?

It has been a year since the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU was extended to cover the whole territory of Moldova, which is the Transnistrian region as well, but there is no official confirmation of any progress made in this regard. The insufficiency of information generates suspicions and, probably, confusion about the real process of aligning Tiraspol with the commitments made by Chisinau as regards the liberalization of trade with the EU. This article specifies particular aspects (mentioned in an IPN article of January 12) and also presents a general view on the DCFTA in the Transnistrian region, formulating questions for the authorities and the European partners.

Finding an acceptable solution

Under the commitments made to the EU, the DCFTA became mandatory for implementation on January 1, 2016. Such a provision derives from the Association Agreement (Art. 462) that was signed in June 2014 and fully took effect in July 2016. The ignoring of this clause can generate serious consequences, in particular the annulment of the preferential trade regime for the territory that does not comply, which is the Transnistrian region.

In the course of 2015, Chisinau and Tiraspol held all kinds of negotiations to agree an acceptable formula that would enable to implement particular aspects of the DCFTA (elimination of duties on imports from the EU, meeting of quality requirements and ensuring of Moldovan authorities’ access to the region for performing surveillance activities etc.). Instead, the Transnistrian enterprises are allowed to continue exporting.

In November 2015, Brussels received from the Moldovan authorities a list of commitments made by Tiraspol, entitled “Measures to facilitate Transnistrian enterprises’ access to EU market”. The EU made public the positions of the two sides, avoiding yet too much publicity so as not to affect the rather difficult negotiation process. However, not the EU, but Chisinau, together with Tiraspol, are responsible for the appropriate implementation of the DCFTA. Ultimately, the separatist administration accepted a series of measures that were agreed by Chisinau and the EU. Afterward, on December 18, 2015, the senior body constituted based on the Association Agreement – the EU – Moldova Association Council – decided that the DCFTA should be implemented all over Moldova starting with January 1, 2016.

“Mechanism” accepted by Tiraspol

In reality, there is no clear mechanism by which the Moldovan side ensures the implementation of the DCFTA in the Transnistrian region, if only a set of commitments (“a roadmap”) made by Tiraspol that are not known by the public. Many of the measures were implemented earlier, when the autonomous trade preferences were in place, and remain valid (such as the specialized authorities’ access to Transnistrian exporting enterprises).

The most problematic measures mainly concern the elimination and reduction of duties on imports from the EU, which come to US$10-15 million and account for about 5% of the region’s budget revenues. If these incomes are abandoned, compensation is needed from other sources. The key solution, which is considered the most opportune, but also the most difficult one, is to amend the fiscal policy and to introduce VAT that does not exist in the region now. The introduction of VAT will affect the prices of imported consumer products. Inevitably, this will significantly affect the purchasing power of the Transnistrians and will influence the public attitude to the separatist authorities.

The “mechanism” for implementing the elements of the DCFTA strictly depends on the political calculations of Tiraspol, adjusted to the economic interests of the conglomerate Sheriff, which gained control of the separatist legislature and executive. At the same time, as in the case of other actions of Tiraspol in relation to Chisinau and the EU, the advancing of the “given mechanism” has been impossible without the consent of Russia, since its formulation in 2015.

Is DCFTA implemented or not?

According to the decision of the EU – Moldova Association Council of December 2015, the implementation of the DCFTA in the Transnistrian region should be re-examined in ten months, which is in November 2016, and then once a year.

The same decision provides that the Committee for Association, which consists of high-rankings Moldovan and European functionaries, is responsible for implementation monitoring. This must report the progress to the Association Council that includes members of the Government of Moldova and representatives of Brussels (Council of the EU and European Commission) at least once a year. There is no provision to make Chisinau and Brussels present the monitoring results in public.

The Association Council’s decision says the authorities should know how the DCFTA is implemented in the Transnistrian region, but the fact that the monitoring data are absent show transparency in the process does not count much.

The unwillingness of the Moldovan authorities and, of Brussels too, to clarify this subject is related to the situation in the Transnistrian region. On the one hand, the Europeans and Chisinau want to keep things calm around this issue that is sensitive for Tiraspol, which has to combine the Eurasian integration as a permanent geopolitical objective with the de facto gradual liberalization of trade with the EU as an economic objective (IPN, September 2016). On the other hand, the silence of Chisinau and the EU, within the Association Council, could mean that Tiraspol has implemented nothing significant so far as the process is generally very difficult.

The political situation in the region is volatile, while the conglomerate Sheriff, which merged with the political power in Tiraspol, wants to benefit from the previous trade preferences, preferably without making any fiscal changes (VAT). That’s why Chisinau and Brussels follow attentively the moves of the new Transnistrian leader Vadim Krasnoselky and the separatist legislative body that is dominated by the satellites of Sheriff.

For the EU, the reduction and gradual elimination of import duties are essential. That’s why the adjustments initiated to the customs tariff policy referring to particular categories of products (Transnistrian administration, December 2016) are a positive signal. But this seems insufficient to show that the elements of the DCFTA are really and irreversibly implemented by the region. For example, the objectives of the new Transnistrian administration go against these expectations. According to them, the increase in fiscal pressure on the Transnistrian enterprises and private individuals is excluded. On the contrary, Krasnoselsky for 2017 planned new tax concessions and “springs”. Such decisions do not favor at all the introduction of VAT that would stimulate even more the reduction or annulment of import duties.

Instead of conclusion…

For now, there is no clear evidence presented by the official Chisinau or Brussels concerning the implementation of the central elements of the DCFTA by Tiraspol, namely the elimination and reduction in duties on imports from the EU.

However, the exports from the region continue to reach the EU market based on the old practices that existed during the regime of autonomous trade preferences, but only because Tiraspol pledged to comply. So, for now we can say that the European side and Chisinau implement the DCFTA and this enables Tiraspol to export. The same thing cannot be yet said about the Transnistrian region.

Transparency in the process of implementing the DCFTA in the Transnistrian region is omitted even if this principle is stipulated in the body of the Association Agreement. Both Chisinau and Brussels are obliged to familiarize the public opinion in Moldova and the EU with the developments.

Ultimately, a possible “mechanism” for implementing the DCFTA in the separatist region should be first of all institutionalized and then made public, including the monitoring results. Otherwise, it looks as if the process is made secret, particular things being deliberately hidden from the Moldovan and European public.

The article was initially published on IPN News Agency (23 January 2017)

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