The Moldova-EU Association Agreement: A One-Sided Choice Kishinev Cannot Afford to Make

June 16, 2014
Anthony T. Salvia
Director, American Institute in Ukraine

Moldova is preparing to sign an Association Agreement (AA) with the European Union (EU), which, like the very same sort of document that brought Ukraine to grief, is presented by Brussels as an exclusive deal: sign with us and put all your eggs in Europe’s basket. Forget the existence of a vast Eurasian market that speaks your language and has a history and culture of buying the sorts of things Moldova produces. Cast your lot exclusively with us even though we have no use for anything you produce. And don’t mind us as we insist you withdraw subsidies from inefficient, large state firms (provoking mass unemployment), while European firms move in and buy up the few economically viable firms in the country. This practice is well-established in Europe. Just ask the Latvians, Croatians, Bulgarians and others.

Moldova’s elite appears content to go along with this despite mounting public opposition -- only 44% of the population supports signing the EU Association Agreement. Meanwhile, overwhelming majorities reject the AA in the regions of Gagauzia, Taraclia, and Prednestrovie.

Gagauzia voted overwhelmingly (96%) to join the Russian-led Customs Union in a referendum last February opposed by Kishinev. Its success inspired ethnic Bulgarians in Taraclia to petition Kishinev to grant them “national-cultural” status within Moldova. Prednestrovie asked to join the Russian Federation shortly after Crimea voted to return to the Russian fold.

Recent economic trends in Moldova suggest a preview of coming attractions in the event the AA goes through: in the first four months of 2014, Moldova’s exports to the CIS shrank by 38% (those to Russia alone fell 26.5%). Expect Moldova-Russia trade to contract further following implementation of the AA as Moscow moves to protect domestic manufacturers from European products re-exported by Moldova into Russia.

Meanwhile, in the same time period, Moldova’s public debt increased by 1.13 billion lei compared to the same period last year. Moldova’s adoption of associate status in the EU is likely to land it in a state of debt servitude to Western lending institutions.

Whereas the Ukraine-EU AA was accompanied by a so-called “Deep and Comprehensive Free Trade Agreement”, the Moldovan one is not. To be sure, it calls for cutting tariffs (ostensibly in the interest of freer trade), but then retains import and export quotas for protectionist reasons.

Consider the case of Moldovan apples. Moldovan farmers asked Brussels to increase its import quota from 20,000 to 150,000 tons per year. In the end, Brussels agreed to increase it to 50,000 tons – 100,000 tons fewer than Moldova wanted. In any case, it is by no means clear that Moldova’s apples meet European standards of product quality, which will give Europe a motive for barring them all together. Moldovan producers simply haven’t the money to modernize their production methods to meet Western standards. Meanwhile, all its politicians can do is make breezy pronouncements about the happy effects – over the long-term, of course -- of exposing domestic producers to trans-continental competition.

As Moldova’s economy goes down and the politicians prove helpless to halt the slide, they impose austerity measures to placate foreign lenders (no wonder public support for the AA is tanking), content themselves with blaming Russia for the country’s problems, and keep a close eye on how Ukraine is dealing with its “separatists” in the event Kishinev should feel compelled to act against its own alienated regions.

A recent statement by the head of Moldova’s liberals, Mikhail Ghimpu recently expressed the hope that “after the situation in the east is clarified -– Donetsk, Slavyansk, Lugansk -– Ukraine will help us resolve the Prednestrovie problem. Until now they did not want to, or could not do so, or feared to do so, but now they understand this microbe of instability must either be cured or destroyed.” So much for European values.

What was needed in Ukraine (and still is), and what might yet have a chance of working in Moldova is dialogue between the central authorities and the regions with a view to finding solutions that work for the nation as a whole. This will require economic integration with the east and the west simultaneously, and the rejection of any notion -- whether coming from Brussels or Moscow – of having to chose one vector at the expense of the other.

That is a recipe for national tragedy as we are now witnessing in Ukraine.