On October 21-22, the members of the “3DCFTAs Project” took part in the 4th Association Exchange Forum in Kyiv that was organized by the International Renaissance Foundation and the New Europe Center within the EU-funded EU4USociety project, in partnership with the Institute for European Policies and Reform (Chișinău), the EU integration program of the Open Society Georgia Foundation and co-funded by Soros Foundation Moldova.
On the second day of the conference, Michael Emerson and Tinatin Akhvlediani (CEPS), Veronika Movchan (IER), and Denis
Cenusa (Expert-Grup) presented some of the findings of the projects’ work at the panel “DCFTAs: still for purpose?” moderated by Kataryna Wolczuk (Chatham House) (see the video recording here).
Below you will find the main points raised by each speaker.
Veronika Movchan (IER):
- Is DCFTA still fir for purpose for Ukraine? Yes and no.
- Free trade agreements (FTAs) definitely helped in terms of mutual opening of the markets with removal of almost all tariffs. The effect can be seen in changes of trade structure, expansion of variety and enhanced level of processed products shipped to the EU. Moreover, DCFTA pushed Ukraine for regulatory approximation with the EU.
- At the same time, it is important what we are still lacking in DCFTA:
1) We have “blind spots” when talking about the trade part. For instance, the issues of road permits for Ukrainian carriers by the Member States was not expected to be a problem. It is a bilateral issue that creates a barrier for EU-UA trade.
2) DCFTAs are not carved in stone: there are new spheres that are not fully covered or not covered at all in DCFTAs since they have developed after the AA/DCFTA was negotiated (Digital Single Market, Transport Union, Energy Union). Ukraine tries to bring this into the agenda.
- Do understand whether DCFTAs fir for purpose we need to understand what is its purpose To have exports growing? Investments growing? Or improve welfare? Here we coming to the issue of indirect linkages: one cannot talk only about DCFTAs without taking into account the whole AA and domestic political environment, political fundamentals, plus wider socio-economic issues. Thus, it is hard to deliver substantial results right now.
- Another issue is that we are coming to the end of transition period for many sectors, and the question now is “what is next”. The concept “do your homework and that is it” is not enough in the given political environment, we need to think about what we will have after, what is our next big ambition. Otherwise, the moment will be lost. As Lewis Caroll wrote, you have to run fast to stay where you are, and to achieve something you have to run even faster.
- When replying on questions regarding fundamentals, Ms Movchan stressed that deficiencies in the reform of the rule of law, judiciary reform and the fight against corruption are the major reason why we do not see flow of foreign and domestic investments in Ukraine. Adoption of technical regulations is not enough without protections of property rights.
- DCFTA did deliver: without it, the shocks would be much worse; exports to the EU now is much more diversified, and Ukraine exports worldwide. However, we might have much more with the rule of law in place. Therefore, there is a need to do things simultaneously.
- When addressing the question about the update and upgrade of the AA/DCFTA, Veronika Movchan argued that Ukraine needs both. EU legislation is changing, and AA is built on the idea of dynamic alignment. However, while the update is happening, we need also upgrading: ad new dimensions (Digital Single Market, for instance) and upgrade institutional mechanisms. In particular, the EU has to verify the implementation of AA/DCFTA permanently, not on an ad hoc basis. We also need monitoring of political issues.
- Ms Movchan did not completely agree with the idea of Michael Emerson that some of the most complicated for implementation parts of AA may be dropped: for instance, the financial sector in Ukraine is actually implementing relevant regulations in order to obtain the right for internal market treatment. Thus, one should not skip implementation due to its difficulties.
- When replying on the question regarding EU-certified labs in countries, Veronika Movchan stated that it is beneficial for the internal market, as well as for expansion to the third, non-EU markets (Arab world, China). If ACAA is adopted, Ukraine’s will be much better positioned to sell machinery to the outside world.
- On the issue of the EaP and Trio, Ms Movchan is a strong proponent of the fast track for the Associated Trio, although the regional dimension of the EaP remains worthwhile in some respect despite geopolitical changes (for instance, for such spheres as transport, customs, borders, flows of information).
Tinatin Akhvlediani (CEPS):
- The deep and Comprehensive part of DCFTA (including sustainable trade provisions) was the primary added value for Georgia since the country has liberalised trade back then already.
- There are many achievements (for instance procurement procedures, Customs code), but the main question is what we are among for? It should be an intensification of trade and not just a simple copy paste of the EU law.
- How much did trade intensify? GEO exports are not picking up (50% of Georgia’s EU trade goes to Bulgaria and Romania). Indeed, several hundreds of new companies started to export to the EU, but it less than 1% of Georgian enterprises.
- The share of trade did not change since the implementation of DCFTA and remains almost the same. One of the main reasons for this - the country’s economy is not self-sufficient and cannot provide continuous export. Plus, there is no land border with the EU and transportation is costly.
- When it comes to DCFTA, it remains costly for businesses to meet EU standards (to obtain certificates). Even to export raw materials is a gamble for Georgian business since much of it are returned back after not passing regulatory checks there (for example, hazelnuts). Thus, EU should help Georgia to put laboratories into practice. It would be beneficial for the Georgian economy since it will not rely completely on non-stable markets of CIS countries (especially, Russia).
- At the same time, Georgia is a service-based economy, thus we should go beyond trading goods. There are new areas where DCFTAs should be updated (digital services, in particular).
- DC part of DCFTAs fits for purpose. But it is about proper implementation. However, there are areas that should be
upgraded and updated.
- Rule of Law issues are inseparable from FDI flows and the business environment. “Fundamentals” should get much more attention in Georgia than they are given now (for instance, when it comes to digital, the recent leaks harmed Georgia’s reputation in terms of respect of privacy).
- Georgia also should be more vocal regarding violation of democratic standards in Belarus
- GEO negotiated moderate deadlines in AA/DCTFTA. While it is hard to change the Agreement, one should focus on updating the annexes (for instance on digital services, GDPR).
- It is important to discuss issues with those who do exports. DG Trade opened public consultations on the evaluation of GEO and MD DCFTAs.
Denis Cenusa (Expert-Grup):
- The opening of the EU market helped to mitigate Russian sanctions. But its opening started before DCFTAs, in 2008.
- DCFTAs aimed at helping European integration of the country. Russian factor was a trigger that helped implementation.
- Indeed, geography is a factor for Moldova: Romania is close (25% of Moldova exports go there). For the EU it was clear that ROM would be the first market for MD goods.
- DCFTA: do we want just to implement some EU regulations? Or do we want to end up with sustainable development of the whole economy?
- Foreign companies looking for workers in MD but cannot find them: qualified workers left because salaries offered in free zones are low (around 300 EUR).
- Now we need to translate DCFTAs into people-centred approach (Green Economy, digitalisation etc).
- The efficiency of state institutions is crucial: most important ministries are understaffed (economy, agriculture). DCFTAs not only about foreign policy and diplomacy, it has implications on the whole country, thus the local authorities should be involved in the process of implementation of AA/DCFTA.
- When it comes the Rule of Law and DCFTA, Denis Cenusa argued that the issue of oligarchs is important. For instance, there were two options for foreign companies to do business in Moldova: going to free economic zones or having good connections with decision-makers (which were close to oligarchic groups – “state capture”). RoL is crucial and should involve: demonopolisation, deoligarchsations, de-offshorization, and making sure that regulators are functional. That would make companies not to go to special free trade zones but to the whole county, bringing more welfare to citizens.
- Speaking about problems of legal approximation, Denis Cenusa argued that Moldova became a victim of linguistic affiliation with Romania: a lot of translations of EU acquis in Romanian are not understandable for those who implement the AA/DCFTA on the ground. Thus, the secondary legislation should be more specific, and local stakeholders should be involved in the discussion.
- On the future of EaP and Trio, Denis Cenusa argues that the latter format should be better institutionalised, particularly on middle levels of government, and Trio should discuss openly the developments in other EaP countries, even despite some of the security concerns (the need for demarcation of borders between neighbours).
Michael Emerson (CEPS):
- Do DCFTAs fir for purpose?
“YES,” fit for purpose: political and regulatory norms are a long-term game.
“No”: there is a need for fresh political momentum. There is no answer on “what is next” after AAs/DCFTAs?
1) Associated Trio should be prioritised, while the EaP put on the 2nd role. The trio should be regarded as Europe’s Eastern frontline for European values given the Russian threat remains. It is clear for all of us that the Joint Staff document heading into the EaP summit is not motivating Azerbaijan and Belarus to move closer to Europe – it does not work that way. However, by not emphasising the Trio it is communicating discouraging messages to the Trio.
2) Green Deal: more interesting for Ukraine, but also for the other two. CBAM negative effect should be mitigated, while the Green transition should be pushed through.
3) Staged enlargement concept:
- Enlargement should be broken into a set of stages rather than being a binary “yes” or “no” process.
- The staged accession model developed together with Western Balkan experts provides for more explicit conditionality for “more for more principle” based on approximation ratings within chapters, thus making it more credible.
- Stage 1 accession: more structural funds for more achievements according to advancement in quantitative ratings.
- Sage 2: more advanced institutional participation (with speaking but not without voting rights);
- Stage 3: “new member states” (answers the question “what do we get if we do everything right?”) - full participation in the EU with 2 exceptions (no veto powers, but participation in QMV; no delegated member for the EC).
- Stage 4: conventional Member States
- One of the possible ways for the EU reform: reduction of veto powers of MS that would require amendment of the Treaty (which could be done via Passerelle clause).
- But is Stage 3 a second class membership? No, it leads to Stage 4 (full membership).
- This proposal could address concerns of more conservative MS regarding further enlargement.
- When replying on the question regarding AA review, Mr Emerson argued that it is very difficult to identify a chapter that one would like to drop. In some chapters latest versions of regulations are too complex (Financial Services Directive on derivative trading - example where one could pass in terms of updating). But one should not remove any of chapters from the AA.
- Regarding the issue of prioritization of some chapters, Mr Emerson argued that if country performs poorly in terms of AA implementation, the respective chapter/sector should not be dropped, particularly “political” chapters. At the same time, some spheres may look too bureaucratic (such a road transport), but are still very important (for trade, it is the issue of EU MS road transport quotas for UA).
P.S. The findings of the 3DCFTAs Project were used in the publication “Implementation of Association Agreements in Georgia, Moldova and Ukraine: a comparative overview 2021” presented during the 4th Association Exchange Forum.