1. Institute for
Development and
Moldova’s Foreign Policy statewatch Social Initiatives
“Viitorul”
Issue 12, November 2010
The misleading easTern alTernaTive:
republic of moldova and The russia –
KazaKhsTan – belarus cusToms union
Eduard Țugui
Next topics
Moldova’s Foreign Policy Statewatch represents a series of brief
analyses, written by local and foreign experts, dedicated to the
to be covered:
most topical subjects related to the foreign policy of Moldova,
major developments in the Black Sea Region, cooperation with Free trade Agreement
international organizations and peace building activities in the region. between Moldova and eU
It aims to create a common platform for discussion and to bring
together experts, commentators, officials and diplomats who are the treaty regarding the
concerned with the perspectives of European Integration of Moldova. border regime between
It is also pertaining to offer to Moldova’s diplomats and analysts a Moldova and romania
valuable tribune for debating the most interesting and controversial
points of view that could help Moldova to find its path to EU.
T
he internal political instability and its collateral effects are marked
in the Republic of Moldova from the perspective of foreign policy
orientation, which on the geopolitical background are orbiting between
the European integration and the integrationist projects from the former
soviet space, articulated around Russia. Despite the greater openness
of the European Union towards Moldova, the new Russian geopolitical
project: Russia – Kazakhstan – Belarus Customs Union was rapidly
seized by some Moldovan political parties in the campaign for the
elections of parliament that will take place on November 28, 2010 and
will be perhaps a real issue of foreign policy in negotiating the future government
alliances. As for Moldova, this alternative does not represent only a simple tactical
move but a strategic perspective, it is important to emphasize a series of economic
indicators primordial in sustainable development which do not support the inclusion
of Moldova in the Eurasian economic space.

2. 2 Moldova’s Foreign Policy statewatch
Resuscitation of the former soviet
space integration
On the background of the inefficiency of the Commonwealth of Independent States, the former
soviet space has tried different integration models, from state unions to joint military structures designed
according to the interests of Russia, which is forced to propose alternatives against EU in Eastern Europe
and against China in Central Asia. At the end of 2009, the presidents of Russia, Kazakhstan and Belarus
signed the hasty establishment, under an agreement concluded on 6 October 2007 within the Eurasian
Economic Community (EvrAzEs), of the Customs Union (CU), which provides a common custom tax on
the territory of these 3 countries, the elimination of the customs control at the borders between them and
the implementation of common regulatory mechanism of external trade1. The agreement entered into
force beginning with 1st January 2010, and beginning with July 6 the new joint customs code is applied,
after a confrontation on gas related issues between Russia and Belarus, and from 2012, the aim is to
create a Common Economic Space.
Institutional uncertainty
For Moldova it is difficult to integrate, first of all, institutionally in a customs union and even
more in common Eurasian market. Since 2001 Moldova is a member of World Trade Organisation
(WTO), whereas the CU members are in different stages of negotiating accession to the organisation.
Russia (the leader of any possible post-soviet integration) is negotiation the accession to WTO since
1993 and has tried at a certain moment to negotiate a “package” accession, together with Belarus and
Kazakhstan, or through the voice of PM V. Putin to blackmail the western partners that they renounced
to WTO membership, in favour of regional (protectionist) integration. The subsequent resumption of the
negotiations with Americans for speeding up the individual accession of Russia, make the CU for the time
being an instrument in the negotiations with US and EU or a “geopolitical asylum” for the amortization of
the risks of the future trade openness.
The fact is that Russia is not yet a member of the WTO and the trade is often hampered by the
bilateral political relationship between Chisinau and Moscow, and repeated embargoes in 2006 and 2010
imposed by Russia to Moldovan wine and other food products have preceded the (geo)political events.
Otherwise, since Russian investors control many companies in the sector, it is difficult to understand
how to develop a competitive sector of the Moldovan economy when even the state of origin of these
investments disputes the quality products made by them. If Russia eventually joins the WTO, it is still
uncertain the legal relationship of CU with WTO as uncertain remain the settlement mechanisms of
potential trade disputes within the Eurasian space. Will we address to World Trade Organization, as
most of the countries do, or we will continue to settle the problems in Moscow? Furthermore, the fact
that Ukraine is not, at least for now, a CU member brings an additional uncertainty on the geographical
customs unification between Moldova and the current members.
Moreover, in 2006 Moldova became a member in the Central European Free Trade Agreement
(CEFTA), which includes Moldova into a southeast European free trade area, along with the Balkan states,
aimed to adjust the trade and economic standards to European members, not Belarusian standards. Thus,
membership in the CU, which involve common customs tariffs, would suggest to impose, for the Balkan
states, the tariff regime modeled after the Russian economy, given that we are with them in a free trade
area aspiring to integrate into a common European market. To not mention that part of the negotiations
on the Association Agreement between Moldova and the European Union launched in January 2010,
there will be negotiations on the signing of a Deep and Comprehensive Free Trade Agreement, expected
to be launched in early 2011. It is an irreversible process, and Moldova cannot afford not to benefit from
1 Договор о создании единой таможенной территории и формировании Таможенного Союза. Art. 2; 3. [On-Line]. 2010. http://
www.tsouz.ru/Documents/TCform_dog.doc. (accessed 20.10.2010).
str. iacob hîncu 10/1, chişinău Md-2005 republic of Moldova 373 / 22 221844 phone 373 / 22 245714 fax office@viitorul.org www.viitorul.org

3. Moldova’s Foreign Policy statewatch 3
free access to European markets, respectively, to suspend a comprehensive mechanism of negotiations
with the European Union.
Economic incompability
As an economic entity, CU is a market of 170 million consumers with a GDP of 1.86 trillion
dollars2 and a share (for the whole CIS) of 3% of world trade.3 Difficult to compare with the EU, which
represents a market of 500 million consumers with a GDP of 17 trillion dollars and a 42% share of world
trade in goods.4 Specializing in oil exports, which bring the largest reserves in the case of Russia and
Kazakhstan, this entity may give to other candidates, as is the case of Belarus, only lower prices for
oil and segments of the market for some goods under the global market quality. The engine of the new
structure – Russia, has no productive capital and technology to be invested in the economies of CU
partners, and they link, in turn, hopes of a real economic recovery (not based on high prices on raw
materials) of Western technology and investments. European companies, which until 2007 had invested
17 billion Euros in the Russian economy,5 provide approximately 75% of FDI stock in Russia and entire
Russian economic sectors (from cars construction to food industry) link its future to European productive
capital.
In the context in which Russia already sells gas and oil at market price throughout the former
Soviet Union, including Belarus, its partners cannot revive the economies by stimulating production with
low energy prices. However, despite it calls for creating an internal market, even a common currency,
Russia does not want to liberalize energy markets, including oil transport infrastructure that would allow
direct purchase of energy from Central Asia. Thus, in a common economic space, the Russian state will
have a monopoly on transportation and on the price of hydrocarbons. If we assume that the CU becomes
attractive to foreign investors, although it could never compete with the EU that attracts half of global
direct investment, then there is a real risk that Western capital and technology will move further towards
the market where energy is cheaper, and the Government has cash (at least compared with Moldova)
to support in times of crisis, some Western companies, as was the case of Renault. Moreover, Russia
as not being WTO member, seeks to protect with customs tariffs certain industrial sectors that Moscow
is willing to re-launch, and high taxes were imposed in the CU to the import of cars and textiles, for
example. For other members, this will mean an inflationary pressure, the more expensive European cars
(well preserved) and Chinese textiles (let’s say affordable).
For Moldova, thus, economic recovery and return of its citizens home is more real within an
integrationist project in which European companies, trying to recover from the global economic crisis
will prefer eastern markets in the EU. Also, an economy with free trade with the EU, not to speak of
a common market, will attract a large flow of Asian investments, particularly Chinese, who have been
seeking for a while for opportunities to penetrate the largest market in the world. Moldovan workers flow
into the European labor market, inevitably the first phase, will stabilize and reverse the process once
there will be opportunities to work at home.
The problem of cohesion
Any kind of economic openness is accompanied, at least in the mid-term, with series of negative
externalities that are directly felt by economy and some social segments. Moldova, in which a large
part of its budget revenues are from taxing imports / consumption, would substantially reduce customs
/ budget revenues, that would happen in a case of free trade area with the EU and CU with Russia.
At the same time, Moldovan farmers and companies will compete, unprotected by tariffs, with highly
2 United Nations Conference on Trade and Development. Handbook of Statistic 2009. [On-Line]. 2010. p. 416. http://www.unctad.org/en/docs/
tdstat34_enfr.pdf (accessed 10.10.2010).
3 The World Trade Organization. World and regional Exports Profiles 2009. [On-Line].2010. http://www.wto.org/english/res_e/statis_e/world_re-
gion_export_09_e.pdf (accessed 20.10.2010).
4 Idem.
5 For details see: http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia/index_en.htm.
str. iacob hîncu 10/1, chişinău Md-2005 republic of Moldova 373 / 22 221844 phone 373 / 22 245714 fax office@viitorul.org www.viitorul.org

4. 4 Moldova’s Foreign Policy statewatch
subsidized farmers and companies, both in West and East. Also, when the European Community has
entered the phase of the Customs Union (1968), France managed to establish the Common Agricultural
Policy, the policy that absorbed about 90% in the first decades of the Community budget and through
which are subsidized European farmers. Preparations to complete the internal market and later the
Economic and Monetary Union, assumed the creation of financial mechanisms and policies (Structural
Instruments) which only in the current financial framework (2007-2013) will allocate 347 billion of Euros6
to disadvantaged states and regions to support investments in infrastructure, education, health, business
and administrative reforms.
Lack of such compensatory mechanisms in the CU, will create financing problems of the Moldovan
economy and local producers will be disadvantaged compared with those from Russia, for example.
Large currency reserves of Russia allow it to invest in infrastructure projects (although not so many)
or to support their own producers by tax exemptions. Although it has decided to reduce agricultural
subsidies, they will anyway remain enormous compared with possibilities of Moldovan budget, which
will return slowly after the deficit and the losses of some revenues from imports. Republic of Moldova, at
least in the medium term will not have comparable reserves (per capita obviously) with those of Russia,
that could massively intervene from the state budget with big infrastructure projects to stimulate private
investments, thus European grants is currently the only alternative.
Conclusions
Therefore, the Eurasian economic space that is articulated by Russia based on the Customs
Union is a misleading alternative to the economic and institutional modernization of the Republic of
Moldova. On the other hand, socio-economic development of the Moldovan state may have the strongest
support for European integration, expressed in structural investments aimed at developing the most
important factors of production.
Important is that Moldova should keep the European path, through a prudent and technical well-
supported sectorial European integration. A political exercise which is not easy, especially since Russia
will often remind us about the eastern structure.
It is also important that the liberalization of visa regime to precede trade liberalization or as a
backup scenario, the two liberalization processes should occur concomitantly and Moldovan citizens
could begin to move freely on the European market along with the goods.
Finally, the Moldovan authorities must negotiate with the European capitals to increase financial
assistance grants for the Republic of Moldova. In the negotiation of EU budget for 2014-2020, the
Moldovan state may ask in this period for funding through the Instrument for Pre-Accession Assistance
(from which benefit Balkan states that are potential candidate), financial instrument absolutely providential
for domestic producers in an area free and comprehensive trade with the EU.
6 For details see: http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia/index_en.htm.
This publication was produced by idis “viitorul” with the financial support of soros Foundation
Moldova and the national endowment for democracy. The opinions expressed in this publicati-
on reflect the author’s/authors’ position and don’t necessary represent the views of the donors.
str. iacob hîncu 10/1, chişinău Md-2005 republic of Moldova 373 / 22 221844 phone 373 / 22 245714 fax office@viitorul.org www.viitorul.org
str. iacob hîncu 10/1, chişinău Md-2005 republic of Moldova 373 / 22 221844 phone 373 / 22 245714 fax
office@viitorul.org www.viitorul.org