31 Jan 2014

Countdown to the Vilnius Summit: The EU’s Trade Relations with Moldova and the South Caucasus

Michael Emerson

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CEPS Senior Research Fellow Michael Emerson was commissioned by the Committee on International Trade of the European Parliament to prepare a background paper for discussion at a workshop it organised on 5 November 2013 on “The EU's trade relations with Moldova and the South Caucasus”. His paper reviews the Association Agreements (AA), incorporating Deep and Comprehensive Free Trade Agreements (DCFTA), which have been under negotiation with the Eastern Partnership states in the South Caucasus and Moldova. Of the three South Caucasus states, however, Azerbaijan is not interested, given its very different economic and political situation. Both Armenia and Georgia had, as also had Moldova, completed negotiations in the course of 2013, and all the texts were due to be initialled at the Eastern Partnership summit on 28-29 November. But, as is well known, Armenia dropped out, in favour of the Russian-led customs union.

Sections 2 and 3 of the paper give background on the economies of the four states, and of their evolving trade structures.

There follow in sections 4 and 5 a presentation of the strategic ideas behind the AA/DCFTA process first from the EU’s standpoint, and then from a political economy perspective in the partner states.

Section 6 then goes into the content of the DCFTA. This is somewhat limited since the texts for Georgia and Moldova have not been made public. However the EU had already initialled text of the AA/DCFTA with Ukraine, and this is understood to have served as the template for negotiation of the other agreements, albeit with some differences. For this reason the content of the Ukrainian agreement is set out in some detail, together with comments on likely variations in the cases of Georgia and Moldova. This indicates the very substantial commitments to EU acquis compliance that the partner states are making, which raises some questions about their implementation. The overall nature of the DCFTAs in relation to the wide spectrum of the EU’s free trade agreements world-wide is sketched in section 7.

Given that Russia has been aggressively trying to undermine the AA/DCFTA process, and has had one ‘success’ in deterring Armenia from proceeding with the EU, some account of Russia’s tactics and intentions is presented in section 7. This leads in turn (in section 8) to some implications of the AA/DCFTAs of Georgia and Moldova for their relations with Abkhazia and South Ossetia, and Transnistria respectively, where Russia is of course a dominant influence.

Finally some conclusions are drawn in section 9.