First Step On Long Road To EU Accession


Moldova's signing of an Association Agreement (AA) and Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union, alongside Ukraine and Georgia on June 27, marks a significant step forward in the country's progress towards EU candidate status. The ongoing crisis in neighbouring Ukraine continues to test the resolve of the pro-EU government in Chisinau, especially given the frequent calls from the breakaway republic of Transnistria for Russian assistance to facilitate its independence. However, given the long-term political and economic benefits that Moldova would receive from closer EU ties, we do not believe the government, or its successor should it lose power in the November parliamentary election, will be able to backtrack from its path towards EU member status. We have previously highlighted the likely implications of the signing for Moldova-Russian relations, primarily the imposition of higher trade tariffs and the extension of a ban on Moldovan wine exports to Russia ( see 'Russia Warning Highlights Risks Of EU Deal', June 20).

While we do not expect Moldova to join the EU as a full member state in the next decade, the signing of an AA will result in an increase in funding from Brussels intended to assist the development of the country's democratic institutions. Moldovan institutions suffer from an image problem both domestically and abroad, with the country ranked 102nd of 177 states globally in Transparency International's 2013 Corruption Perceptions Index , alongside Ecuador and Panama. The development of these institutions will improve the business environment, making Moldova a more attractive location for foreign investment, which is crucial if Moldovan agriculture and industry is to remain competitive in the European marketplace. Moldova currently scores 46.9 out of 100 in our proprietary business environment ratings, just below the global average.

With regard to the implications for economic relations with the EU, we believe that the AA and DCFTA will benefit Moldovan economic activity in the long term, as exporters are able to reach a market of more than 500mn consumers without tariffs, and EU funding assists in the development of the country's infrastructure, institutions and quality standards. Nevertheless, in 2014 and 2015 the imposition of these quality standards that are likely to constrict Moldova's growth potential.

EU Quality Standards To Hit Food Exports
Moldova - Main Export Groups, % of Total

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This article is tagged to:
Sector: Country Risk
Geography: Moldova