Foreign trade

EVOLUTIONS: 1 SITUATION: 1 PERSPECTIVES: 0

Source: NBS

Figure 19 Dynamics of exports, imports and trade defi cit during 2000-2006, million USD

The need for an economic leap the exports of goods of Moldovan origin can

have free access to the Romanian market.

But this doesn’t necessarily mean that 75%

of the export of the goods of Moldovan ori-gin will end up on the market of the neigh-bouring country. In order to gain access to the EU market, which is characterized by very high requirements and standards for import goods, some time and additional fi -nancial resources will be needed, along with adjustment of the Moldovan goods off er to the new export requirements of this coun-try, which will be similar to the EU ones.

Th e exports of food goods were af-fected the most, because most of the spe-cialized enterprises do not have ISO 9001 certifi cates, based on which exports to EU are carried out. And due to the quite high customs taxes, the business in Romania be-came less profi table. But in the long term, this will contribute to an increase of the competitiveness of Moldovan enterprises that are currently on the Romanian market.

If Moldova acquires a share equal to that es-tablished for Bulgaria, this would give our state the possibility to signifi cantly increase the wine exports to EU and diminish the impact of the distortions, appeared in the trade with Russia.

In this context, the preventive approv-al by European Commission of Autono-mous Trade Preferences for the Republic of Moldova in November 2007, as a foregoing measure to the asymmetrical trade regime with EU that will be enforced in 2008, will allow an exemption from export customs taxes, which will make an additional impulse to increase the EU share in total exports.

Risks

Th e Government policies measures are implemented on the background of several risks. Th e growth rate of local production is clearly lower than the growth rate of the domestic demand, this stimulating the im-ports to increase. Th e “active” measures of internal market protection and foreign trade optimization are limited due to the WTO membership.

In the medium term, Moldova’s exces-sive dependence of the agri-food sector, as well as excessive trust in CIS markets in-crease the economy’s vulnerability to

ad-verse shocks. Another risk is the fact that the Republic of Moldova relies on imported energy resources, it’s economy showing one of the lowest indicators of energy effi ciency.

In order to approach these problems, the Government should promote an economic diversity of production base and export markets. In addition, the fact that the Re-public of Moldova relies on imported energy resources should grant the energy effi ciency and renewable energy sources the status of medium term priority objective (see EN

ERGY SECTOR).

2007 was an unfavourable year for for-eign trade, but there were some positive trends as well. Th e impact of external shock that the Republic of Moldova was exposed to, turned out to be lower than initially ex-pected. Th e negotiations for EU Autono-mous Trade Preferences have ended suc-cessfully, but Moldova will not be able to restore the 2005 level of export unless the defi ciencies related to infrastructure, quality and standardization are addressed.

Th e wine exports to the Western mar-kets are diffi cult because the Moldovan pro-ducers have not yet established sustainable relationships with the large distribution net-works. Th ere isn’t any effi cient mechanism to attract foreign investors in the wine-making sector, the general stereotype being that “no one should teach Moldovans how to make wine”. Th ere is no “brand” of Moldovan wine that would be promoted at the level of the entire sector. A permanent degrada-tion of the grapevine plantadegrada-tions can be also observed, and it decreases the potential of raw material for export. Also a branch level strategy of wine products promotion on ex-ternal markets is currently missing.

Governmental policies

Till 2005 the commercial relations with EU were based on the Partnership and Co-operation Agreement. Th e results were lim-ited, the agreement failing to materialize into a development of bilateral trade rela-tions. In comparison with other agreements that EU signed with third countries, this Agreement did not stipulate any accession perspective. Th e most remarkable progress of the Republic of Moldova in 2001 is that it adhered to the World Trade

Organisa-The need for an economic leap

tion. Until signing the EU-Moldova Action Plan in 2005, the Government policies on foreign trade consisted in adoption of sev-eral regulatory and legislative acts¹⁰⁰. Aft er 2005, the signature of the EU-Moldova Ac-tion Plan established a serious base for the intensifi cation of bilateral trade negotiations on a much higher level due to the possibility of getting Autonomous Trade Preferences, provided that an eff ective control over the origin of goods is secured.

In this regard, it was necessary to adopt the Regulations on fi lling in, legalization and issue of certifi cates on the origin of goods ex-ported from the Republic of Moldova to EU under a preferential trade regime. Th e Cus-toms Service replaced the Chamber of Com-merce and Industry as the institution respon-sible for certifi cation of the origin of goods, with the “one-stop shop” principle imple-mented in four customs offi ces. At the same time, the provision of Autonomous Trade Preferences (ATP) was possible due to im-plementation in the Customs Service of ASY-CUDA WORLD information system, which gave the possibility to cut down the time of customs clearance from 500 to 70 minutes.

In spite of these successes, our short-term commercial perspectives are less bene-fi cial than those of other countries. Ukraine, for example, has negotiated with EU a “deep free trade agreement”, whereas Moldova will be granted “autonomous trade preferences”.

Th e new trade regime will not give prefer-ence to goods of strategic importance to the Republic of Moldova (wines, cereals, sugar, textiles), which will be exported within the limits of certain quotas.

In December 2006, the European Com-mission submitted to the European Parlia-ment and Council of Ministers a communi-qué on strengthening the European Neigh-bourhood Policy. Th e Communiqué came with a General Progress Report on imple-mentation of action plans, signed with the neighbouring countries, including a report on Moldova. Th e report shows that in 2006, Moldova attained a “good progress” in its commercial negotiations with the EU.

Specifi cally, the animal products resi-due monitoring plan was developed and submitted to the European Commission for examination. Th is measure was necessary so that the local exporters would be able to fully benefi t of the ATP opportunities. Ap-proval of the “one-stop shop” concept¹⁰¹ and creation of the Interministerial Commission of “one-stop shop” implementation¹⁰² will give the possibility to implement the “one-stop shop” principle not only in the customs clearance process, but also in all the subdi-visions placed at the border. Th e local sani-tary and phytosanisani-tary standards have been adjusted to the European ones by develop-ing and passdevelop-ing the draft Law on Veterinary Sanitary Activity and four basic regulations regarding the hygiene and safety of food-stuff s and offi cial controls of veterinary au-thorities¹⁰³. Th e strategy for resizing labora-tories of reference in the area of food safety and animals’ health was developed. Cur-rently, with fi nancial support from EC, the laboratories of reference are being provided with the necessary equipment. Another es-sential progress is the transfer on January 1, 2008 of the authority to issue preferen-tial certifi cates CT-1 for export to CIS from the Chamber of Commerce and Industry to the Customs Service. At the same time, providing the Customs Service with enough human and technical resources to ensure a continuous and fast customs process in the future will be crucially important.

Recommendations

For a better commercial integration of the coun-try in the EU it is necessary to ensure the renova-tion and modernizarenova-tion of the Moldovan indus-try with the purpose of generating capacities of high added value production and diversifi cation of industrial goods supply (by facilitating the establishment of joint ventures, industrial parks,

100 Among the most important regulatory and legislative acts we mention the Decision of the Government of the Republic of Mol-dova Establishing the Export Promotion Organization no. 105 dated 02.02.1999; the Republic of Moldova Law on Technical Barriers to Tra-de no. 866 dated 03.10.2000; the Decision of the Government of the Republic of Moldova Approving the Republic of Moldova Export Pro-motion Strategy for 2003-2005 no.80 dated 01.29.2002; the Decision of the Government of the Republic of Moldova on Rules of Origin of Goods no.1599 dated 12.13.2002; the Decision of the Government of the Republic of Moldova Approving the Regulations on implemen-tation of customs regimes no. 207 dated 02.26.2003; the Decision of the Government of the Republic of Moldova on Elimination of Barri-ers to Export of Goods no. 478 dated 04.22.2003.

101 Republic of Moldova Customs Service Order no.131-o dated 04.23.2007.

102 Order of the Government of the Republic of Moldova no. 88-d, dated 09.28.2007

103 854 EC Regulation on organization of offi cial controls on products of animal origin intended for human consumption, 852 EC Regulation on the hygiene of foodstuff s, 853 EC Regulation on specifi c hygiene rules for goods of animal origin, 882 EC Regulation on Regulation on offi cial controls performed to ensure the verifi cation of compliance with feed and food law, animal health and animal welfare rules.

The need for an economic leap

etc.). In this context, certifi cation of enterprises in the ISO 9001 system is very important (only 80 enterprises had ISO certifi cates in 2006).

An increase of investments amount in market-ing and sales streamlinmarket-ing strategies will give the possibility of expansion to new markets and recovery of a share of the traditional markets. In Romania, wine makers invest in strategies about 10% of the profi t, whereas in Moldova this fi gure is about 1%. Most big exporters have opened ex-clusive distribution companies in Russia, Ukrai-ne, Germany, etc., this allowing them to organi-ze their sales more rationally, but they need the assistance of competent state services to fi rmly establish on these markets (MIEPO, the Cham-ber of Commerce and Industry, Ministry of Fo-reign Aff airs and European Integration). At the same time, the winemaking companies must analyze the possibilities of getting into alliance with world-renowned wine making companies.

Th e Moldovan laws on taxes and duties should be further harmonized with the provisions of the WTO, which our country is already part of, and other regulatory acts should be adjusted to com-ply with EU legislation in the fi eld.

Next, it is necessary to simplify and decrease the number of documents requested for import-ex-port transactions, computerize and automate the customs procedures and eliminate the internal barriers to wine products export. A full trans-fer of responsibility for certifi cation of origin of goods to the Customs Service (regardless of the export destination) and promotion of the “one-stop shop” principle in all customs offi ces is ne-cessary.

In the long term, the Republic of Moldova sho-uld negotiate the inclusion of wine export in ATP (without quotas) and adequately inform the economic units about the benefi ts of ATP.

The need for an economic leap

Indicators 2001 2002 2003 2004 2005 2006*

Total population 3639,6 3631,5 3623,1 3612,9 3589,9 3581,1

Economically active population 1616,7 1615,0 1473,6 1432,5 1422,3 1357

Employed population 1499,0 1505,1 1356,5 1316,0 1318,7 1257,3

Number of wage earners 899,2 891,8 868,2 840,9 830,8 842,4

Unemployed according to ILO 117,7 109,9 117,1 116,5 103,7 99,9

Unemployed registered in employment

offi ces at the end of the year 27,6 24,0 19,7 21,0 21,7

Inactive population 2022,9 2016,5 2149,5 2180,3 1963,7 1576,0

Persons declared as working or searching for

employment abroad 172,0 231,3 291,0 345,3 394,5 310,0

Diagnosis

A constant decrease of the employment indicators on the labour market was ob-served during the past years. From 2000 to 2006, the number of active population has dropped from 1654 thousand to 1357 thou-sand people¹⁰⁴. Th e number of the employed population dropped from 1514 thousand to 1257, whereas the number of unemployed people, calculated by the ILO methodology dropped from 140 thousand to 100 thou-sand people (Table 7). Analyzing the rate of employment in the Republic of Moldova in comparison with other EU countries it can be noticed that it is a lot smaller – 45.4% as opposed to 63.3% European average, which points out again that both the functional-ity of the labour market and the qualfunctional-ity of economic growth of the past years were not very high.

Among the main factors that have de-termined the drop of employment indica-tors the following can be considered:

Demographic factor: Th e Republic of Mol-dova is facing a negative demographic balance and population aging (BIRTH AND DEATH RATE CRISIS section). Th e decrease of human potential has a major impact on the worsening of the employment indicators, impact that will become even more important in the future.

Labour force emigration (see EMIGRATION section): Th e main cause that fosters emigration is the lack of attractive employment

opportuni-ties on the national labour market. Th e shortage of well paid jobs, the low salary level, the pes-simistic perspectives of professional growth and low quality of life more and more motivate the able-bodied people to look for jobs outside the country.

Quality of economic growth: Th e analysis of GDP growth by the components of aggregate de-mand shows that GDP growth is mainly due to growth of fi nal consumption of households, ma-inly of those in rural areas (REAL ECONOMY).

Th e intensifi cation in 2006-2007 of gross capital formation is still not enough to ensure a sustai-nable economic growth. Such a model of econo-mic growth does not contribute to multiplicati-on of attractive and productive jobs.

Processes of structural modernization of the economy: Th e market relationships, which rely fi rstly on competitiveness and effi ciency, make the economic units minimize their production costs, hence optimizing the number of jobs at their enterprises. In particular, a constant drop in the number of jobs is observed in agriculture.

Th e salary increase from the past years is due to the modernization of economic market mecha-nism, contributing at the same time to a diminu-tion of the employment level.

Together with the drop of employment indicators, there have occurred signifi cant changes in the structure of employed popu-lation by age, sex, environment, activity fi eld, etc. Consequently, a signifi cant decrease in the share of population employed in the branches that cannot ensure a high work productivity is observed, and hence an in-crease in the salary income (primarily in ag-riculture). Signifi cant changes are observed in the structure of the employed population by age, meaning aging of human resources.

In most of the big companies the average age of the staff is close to the retirement age. Th e attempts of young persons with vocational studies to be employed in such companies usually fail. Th e owners are not willing to hire persons with no relevant experience, and the quality of formal education is oft en unacceptable (see VOCATIONAL EDU

CATION). Oft en young people cannot ac-cept the salaries the owners off er, and the persons close to retirement do not hurry to leave their job in favour of youth.