Paper presented at the IAMO Forum 2005 “How effective is the invisible hand? Agricultural and Food Markets in Central and Eastern Europe”

16 – 18 June 2005, Halle (Saale), Germany

CONSEQUENCES OF JOINING THE WTO ON THE AGRICULTURAL FOREIGN TRADE OF THE REPUBLIC OF MOLDOVA

DRAGOŞ CIMPOIEŞ, AURELIA LITVIN∗

ABSTRACT The given article tries to examine both positive and negative impacts of joining the WTO on the export activity of the Moldavian entrepreneurs. In particular, it was establish that since 2000, Moldova is in a stage of stabilization and the be-ginning of economic growth. According to the preliminary data of the Depart-ment of Statistics, the volume of foreign trade of Moldova increased signifi-cantly during the investigation period. At the same time, both overall trade bal-ance and agricultural trade balance of the country did not suffer any significant change. Despite the fact that agricultural trade balance is strongly positive, the overall trade balance remains to be negative. The paper discusses the prospective benefits and disadvantages of WTO acces-sion for such countries like Moldova. In particular, we investigate whether not being a WTO member has put the country at a disadvantage, compared with similar WTO members, in terms of market access for its exports of agricultural products and commodities. Keywords: export, WTO, trade balance, Moldova.

1 INTRODUCTION

There is no common opinion between leading economists concerning the influ-ence of the World Trade Organization (WTO) on the economics of developing countries. Nevertheless, the position that exactly poor countries can take a big advantage from the liberalization of trade prevails. Development demands growth, and a greater access on the world markets - is a necessary condition for a faster growth. Therefore, poor countries have the most to gain from a more freely functioning world market, or - stated in negative - the poor countries have the most to loose from a failure of WTO. The poorest developing countries are still predominantly agricultural, with 60 percent or more of their labour force in agriculture and 40 percent or more of their GDP originating in agriculture. Further, for many of them agriculture is a major source of export earnings. Therefore, access to a freely functioning market for agricultural products is vital to their development (MCCALLA, 2001).

∗ State Agricultural University of Moldova, Chisinau, Republic of Moldova. Email: dcimpoies@uasm.md; aurelia_litvin@mail.ru

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Moldova is an agricultural country. About one third of population is employed in agricultural sector; the export quota of agro-food production constitutes over 60% while the import quota of the same goods makes about 13%. Proceeding from the aforesaid, it is possible to assert that well-being of the country, in many respects, depends on the development of agriculture. As to the development of agriculture, the last in many respects depends on the trade and economic policy. Foreign trade plays not the last role in it. Therefore, the subject of the analysis of foreign trade tendencies represents by itself a huge interest, both for research, and for the development of agriculture. In this connection, it is necessary to note that, success of economic reforms, as well as the economic growth based on liberalization of the foreign trade's mode and integration of the country in the world trade system, are necessary conditions for the poverty re-duction. The purpose of the given work - to prove, that, despite the existence of any sort of fears, the accession to WTO did not have, until now, any serious negative im-pact on local agricultural producers. The reason for this - the main commodity market for Moldavian agricultural production is the CIS countries - not members of WTO, with which bilateral agreements are concluded. At the same time, it is necessary to note the fact that accession to WTO still can have a serious nega-tive influence. Many local experts believe that joining the given organization was premature for Moldova. Domestic foodstuffs are not yet ready to compete with foreign ones, because of absence of technology, equipment etc. In the second section, an attempt of generalization of potential advantages from the accession to WTO is made. In addition, it is given a brief description of the process of accession, the obligations accepted by Moldova and, changes in the trading legislation, directly related with the accepted obligations. In the follow-ing section, a brief description of the foreign trade activity up to, and after the accession, is given. In particular, the trading balance of the country, since the year 2000 is examined, as well as the changes that have occurred in import and export of agro-food products. In addition, some of consequences, basically nega-tive, which Moldova has faced after the accession to WTO, are generalized. In the last section, the appropriate conclusions on the stated material are made.

2 ACCESSION TO WTO: LEGISLATIVE FRAMEWORK AND POSSIBLE BENEFITS.

Accession to the World Trading Organization is a rather difficult and complex process, demanding a high level of competence and coordination of government institutions, as well as the political consent in the advancement of state interests. The given process involves exhaustive bilateral, as well as multilateral agree-ments with all members of the organization which are interested in policies car-

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ried out by the candidate and which can postpone the process of accession. Candidate countries are obliged to study and join all multilateral agreements. Actually, contracting parties to the above-mentioned agreements expect that candidates will become a part of the given agreements during the accession to WTO. The given condition automatically turns into an obligation, observed by the WTO countries during multilateral trade negotiations. Accession of Moldova to WTO is determined by advantages of using the legisla-tive framework of international trade. The goal of joining the WTO consists in acceleration of the integration process in the world economy, stipulating obser-vance of principles of the market economy. In addition, the accession was caused by certain minuses of the non-member status, in conditions when bilat-eral agreements are insufficiently advanced. Not being a member of the given organization, Moldova has lost many opportunities in signing of various bilat-eral agreements with countries of Central and Eastern Europe (MINCU, 2001). Foreign investors are strongly discouraged by the absence of clear rules, which would allow them to develop their business based on the internationally recog-nized principles. Thus, the WTO accession should improve the image of the country in the eyes of investors. During the process of WTO accession, except the necessity of acceptance of a trading concept that would meet multilateral obligations of WTO, Moldova had to accept concessions concerning the access on the commodity market and con-solidation of the custom duties, as well as concerning obligations in the field of internal support of agriculture. It is necessary to note, that during the accession of Moldova, the attitude of the main trading partners to the candidate countries became more rigid in comparison with the period of accession into GATT. Ac-cession "standards" were considerably overestimated. Some of the WTO mem-bers accepted a more resolute position, demanding from the candidate countries to undertake bigger obligations in comparison with those accepted by initial members of the organization. In practice it means, that Moldova had to accept a level of tariffs consolidation comparable with the level of the developed coun-tries. At the same time, Moldova did not have the opportunity to take any benefit from certain conditions, stipulated by WTO agreements, which provide render-ing a special and preferential mode to developing countries. By the time of ac-cession in negotiations, status of developing country was not given to any coun-try candidate with a transition economy that has seriously affected negotiating process for Moldova in comparison with other candidates included in the list of the developing countries of the United Nations. As a result of negotiation process, Moldova has taken up the following obliga-tions:

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- the annual level of allowable subsidies should not exceed 15,98 million SDR and is additional to a minimum level of 5% from annual agricultural gross output;

- Moldova can apply governmental programs on development of the agricul-tural sector, based on direct subsidies;

- a higher level of custom duties (12, 5%) in comparison with the applied during last years, up to accession not exceeding 5% on average.

Negotiating process lasted long because of the negative impact of some factors. Among them, it is necessary to mention the absence of an adequate institution structure, as well as mechanisms of the policy development, necessary for action of a market economy in the beginning of the negotiation process, which were assumed to provide fast development of the last. Therefore, for acceleration of the process of accession, both Government and Parliament of the country had to develop and accept a number of legislative acts in the field of trade, which would not be in contradiction with legal regulations of WTO. In the given context, we shall note only that amendments to the legislation are related to the accepted obligations with regard to:

- policies affecting trade market, namely licensing, customs tax-free, applica-tion of VAT by principle of final destination, changes of tax structure concerning application of ad valorem customs etc.;

- customs sphere: customs valuation, application of the rules of exclusive and non-privileged origin, application of the preshipping inspection;

- subsidizing policies: interdiction of subsidies on export etc; - application of the WTO agreement on sanitary and phyto-sanitary meas-

ures etc; - application of the WTO agreement on technical barriers in trade: accep-

tance of the law on protection of the rights of consumers, implementation of the goods' coding, creation of the Centre of standardization and me-trology and so on.

World Trade Organization (WTO) today represents a general institutional struc-ture for the development of trade relations among its members, based on princi-ples coordinated at the international level by a number of multilateral agree-ments. Integration of developing countries, as well as the countries with a transi-tion economy into the international trading system gives them a good opportu-nity to take advantage from participation in the globalization process. The above-mentioned countries consider the WTO as a structure that offers big op-portunities for integration in world economy and improvement of their national legislative base in the field of economy and commerce.

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In most cases, the decision of countries to join WTO is closely related to politi-cal factors, as their economic and trade interests are not major factors initiating the process of accession. On the other hand, candidate countries feel certain in-conveniencies from the stay outside WTO, as bilateral and multilateral agree-ments are not universal. Furthermore, the image of a non-member state is unfa-vorable among foreign investors. What are then the basic advantages from the accession into WTO, what makes such attractive the membership in the given organization? First, the WTO agreements are compulsory for every country, big or small, de-veloped or in developing. Without a multilateral forum, such is the WTO, the most developed countries would have had more freedom to impose unilaterally their will on smaller, in developing countries. WTO agreements open to its members new opportunities for the trade develop-ment. For Moldova, it means the establishment of stable trade relations with more than 140 countries, WTO members. Without the WTO, it would take Moldova many years to achieve similar opportunities. Free trade reduces living expenses. Many researches have been done on the con-flict between protectionism and free trade. Protectionism is always expensive, as always rises prices. The WTO system pursues the purpose of removing trade barriers by following the rules of the game set by mutual agreement and is based on the principle of non-discrimination. Consequently, this brings lower produc-tion costs, lower prices for goods and services and finally, life becomes less ex-pensive. WTO multilateral agreements provide a safer business environment and a greater confidence in trade relations. Bilateral agreements cannot serve as an effective mechanism for the promotion of a uniform policy, as they reflect only trade relations between two co-participating countries. For example, in relation to Ukraine, Moldova would not be able effectively promote its trade interests on a bilateral level without reference to the WTO generally accepted rules and prin-ciples. The world trading system offers a wider range of various products. Import pro-vides a better choice of goods and services of different quality. Even the quality of local goods can be improved in conditions of competition generated by im-port. Imported goods are not used only as finished product, but also as materials, components and equipment for the production of local goods. This allows manu-facturers to broaden the assortment of products, services and technologies ap-plied, that finally brings an essential contribution to the increase of exports. WTO members have access to a dispute-solving mechanism to protect their commercial rights and interests. Only within the WTO framework would such a small country like Moldova hope to advocate for itself in trading disputes with

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more powerful and influential partners. A good example in this context is the interdiction, by Romania, of livestock and dairy product imports from Moldova. A solution to similar disputes is possible only within the WTO framework, where both countries are members. Trade increases income. Analysis and estimates of the impact of the Uruguay Round or of the creation of the common market of the EU, proved that these processes brought considerable additional revenues, which considerably stimu-lated economic development. Trade incurs challenges and certain risks - local producers must offer products of the same quality as the imported ones. Yet, not all manufacturers succeed in this. However, the fact that there are additional revenues means that there are sufficient resources for the governments allowing for redistribution of the existing benefits. This can help business operators be-come more competitive both in traditional fields and in the newly developed and promising ones. WTO agreements give a bigger transparency to the trade policies and practices, thus promoting the stabilization of trade relations. Being a small country, Moldova can count only on international leverage in monitoring and implement-ing the trade liberalization measures in other states. National trade interests can be best ensured within an international trading framework, with well-established rules. In the WTO framework, the Government is in a better position to defend itself from being lobbied by different groups of interest. Thus, the Government can carry on such commercial policy that would satisfy all interested parties in-volved in the economy. At first sight, application of certain restrictions on im-ports serves as effective methods of supporting the economic sector. In fact, it imbalances the economy and affect other sectors. At the same time, it is well known that making exemptions leads indirectly to tax evasion and corruption. In some cases, even the protected sectors are affected. When the state policy of support is inconsistent and is not rendered until the final consolidation of the capacities of enterprises, the latter at a certain point can go bankrupt or be ab-sorbed by big corporations. The WTO system encourages a good government. Governments frequently use the WTO framework as a practical external restriction for the elaboration of economic policies, by giving the following reason, "we cannot operate differ-ently as it goes in contradiction with WTO regulations". According to the WTO rules, if a commitment was accepted, it will be not easy to change this decision. For business, this means a greater stability and clarity in conditions of trade. For government, it means more discipline and correctness. Accession to the WTO: possible consequences on the foreign trade activity of the Republic of Moldova in the agro-food area.

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3 ACCESSION TO THE WTO: POSSIBLE CONSEQUENCES ON THE FOREIGN TRADE ACTIVITY OF THE REPUBLIC OF MOLDOVA IN THE AGRO-FOOD AREA

During the Soviet period, the bulk of export of agricultural production fell on the republics of the former USSR, an insignificant part reaching the countries of Eastern Europe. However, with independence, Moldova lost relations with the countries of the former USSR that has had a negative impact on its economy. Adjustment of new trade relations and renewal of the old ones is a very difficult process. Especially because the majority of the offered goods are not enough competitive on the world market.

Nevertheless, hitherto in the agro-food export prevail CIS countries, namely Russia, Ukraine and Belarus. About three quarters of the volume of export fell on their share (Table 1).

Table 1: Main directions of agro-food export of the Republic of Moldova

2000 2001 2002 2003 2004 Directions of export mil.

USD % mil. USD % mil.

USD % mil. USD % mil.

USD %

CIS countries 219,0 75,2 276,4 77,3 285,2 70,3 342,8 74,1 400,0 75,8 including:

- Russia 177,4 61,0 207,0 57,9 204,5 50,4 268,3 57,9 295,4 56,0 - Ukraine 15,1 6,2 33,0 9,2 36,5 9,0 23,3 5,0 29,0 5,5 - Belarus 19,7 6,8 28,3 7,9 35,7 8,8 37,5 8,1 55,1 10,5 EU countries 23,6 8,1 28,8 8,0 34,4 8,5 40,8 8,8 68,1 12,9

including: - Germany 5,4 1,9 5,8 1,6 9,0 2,2 12,9 2,8 15,1 2,9 CEE countries 38,7 13,4 33,9 9,5 53,0 13,1 58,4 12,6 32,1 6,1

including: - Romania 22,0 7,5 17,0 4,8 29,9 7,4 37,3 8,1 28,0 5,3 Other countries 9,7 3,3 18,5 5,2 33,0 8,1 21,0 4,5 27,5 5,2

including: - USA 10,0 2,8 19,1 4,7 10,4 2,2 Export - total 291,0 100 357,6 100 405,6 100 463,0 100 527,7 100 Source: Department of Statistics and Sociology of the Republic of Moldova.

In this context, it is necessary to note that, despite of substantial growth of the volume (on 82,6%), the share of export which fall on CIS countries remains ap-proximately at the same level, varying within the limits of 75%. During the ana-lyzed period, the volume of export to Russia increased on 66,5%, however the share of the Russian market decreased. This speaks about a more serious growth of export on other CIS markets. Thus, for example, the growth on 2,8% of ex-port to Belarus is conditioned, basically, by the conclusion of an intergovern-mental agreement that stipulate delivery of Moldavian agricultural products in exchange for Belarus agricultural machinery and equipment, that is nothing else than barter relations.

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Despite the fact that the volume of export significantly increased (about three times) in the EU countries, the share of the group of countries remains to be ex-tremely insignificant, making only 12,9%. Germany is the main European part-ner of Moldova. As to CEE countries, both the volume and share of Moldavian export signifi-cantly decreased, because of an essential reduction (by two times) of the export to Romania - the main trade partner in the given region. The only explanation of the above-mentioned reduction is the attempt of the Romanian authorities to impose some sanctions on Moldavian foodstuffs, especially meat, eggs and dairy produce, motivating such actions as the necessity of adaptation of its legislation to the EU requirements. In fact, it was nothing more nor less than an attempt of protection of the local market from more competitive products. So far, the agro-food trade balance is still positive (figure 1). Figure 1: Trade balance of the Republic of Moldova and agro-food

trade balance.

B35

7,6

405,

6

463,

0

527,

7

291,

010

9,6

143,

5

147,

1

204,

4

225,

0

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004

Export Import

A

568,

1

643,

9

790,

0

892,

7

1038

,5

1403

,4

471,

5

986,

4

776,

5

1774

,2

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004

Export Import

Source: Department of Statistics and Sociology of the Republic of Moldova.

In spite of the fact that during the investigating period the volume of export of agro-food products (figure B) has increased by twice, any significant changes in the trade balance of the above-mentioned category of goods is not observed. We can ascertain only an insignificant reduction of the share of export. As about im-port of agro-food products, a high share belongs to CIS countries (38,6%) and

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EU (29,2%). It is necessary to note a significant growth of the volume of im-ports from Russia and Ukraine whereas the import from EU remained almost at the same level. Nevertheless, in quantitative expression the given indices are in-significant enough, especially in comparison with the volume of export to above-mentioned countries (86,7 mil. USD against 400,0 mil. USD). As to the trade balance of the country, the situation is completely different, i.e. the share of import is considerably higher than of the export, but even in this case there are no significant and serious changes in dynamics. As five years ago, the negative balance exists due to a high level of import from the EU, CEE and other countries. Only in the case of the CIS countries, export prevails, in many respects due to the realization of agro-food products, for which the CIS coun-tries still remain the main commodity markets. Finally, during the analyzed period there were only insignificant changes in the agro-food foreign trade of the Republic of Moldova. Among the CIS countries, which have shown a maximal initiative to joining the WTO is possible to attribute and Moldova. The country has joined WTO on 27 June 2001. Terms of the negotiating process appeared record-breaking com-pressed - about 4 years. However, in conditions of world globalization Moldova, as appeared subsequently, was not ready to such step. All the expectations, con-nected with the WTO accession, in many respects were not justified and instead of "god-send'' the country collided with the undermining of the competitiveness of separate sectors of the national economy. Moldova has joined to WTO with the status of a developed country; therefore, the transition period has made up only 4 years. However, Moldova is one of the poorest countries of Europe, and in this sense, an injustice has been shown with respect to the country. Being an agricultural country, Moldova has accepted very tough terms about agricultural tariffs, thus reducing measures of support to such vulnerable sector. In this context, it is necessary to note that the Strategy of Ex-port Promotion describes in rosy colors "a number of advantages" of our pres-ence in the given organization: a significant level of annually allowable subsi-dies established for Moldova (15,98 mil. SPR in addition to the minimum of 5% of annual volume of agricultural production), a high level of import tariffs (12,5%) etc. At the same time, if to correlate them with the rates of duties, for example, in Poland (on sugar - 96%, corn - 85%, butter - 102%) advantages from the joining of Moldova to the rules of "civilized" trade in WTO framework will not look so convincingly. The existing average level of import tariffs did not provide a proper level of pro-tection of the domestic foodstuffs. Joining to WTO even more will tie up the government's opportunities in this sphere.

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Joining to WTO, Moldova has neglected trade relations with the CIS countries, its traditional market. As a consequence, Russia and Ukraine introduced some discrimination measures against Moldova, having a great negative impact on the agro-food sector of the country. In this context, it is necessary to note the fact, that domestic agricultural produc-ers did not especially succeed in opening the way on the European markets be-cause of a high regulation and trade procedures imposed by the countries-importers. To the last, basically, tariff and non-tariff barriers, concern. (MURAVSCHI et al., 2003). Hitherto, the EU's agro-food markets are protected by the system of tariffs. Cus-toms vary between 20% and 40%, and are significantly higher than Moldavian ones within the WTO framework. Contrary to consecutive measures, within the WTO framework, on liberalization of agro-food trade and reduction of tariff bar-riers, these purposes, unfortunately, cannot be achieved in the nearest future. As to non-tariff barriers, on one hand they include withdrawings, stipulated in agreements of free trade with Russia, Ukraine and Romania. On the other hand, they include a number of customs and administrative barriers such as: customs procedures, import licenses, internal duties etc. Moldova is one of the youngest members of the WTO. Therefore, it is difficult to assess the impact of its membership in WTO on the national economy. How-ever, according to the dynamics of GDP - the key social and economic index, it is possible to conclude that accession to WTO has not affected essentially the national economy. However, if on economy, as a whole, are not observed any changes, it is neces-sary to note that its separate sectors were subject to a negative external influence and determined probably by the WTO factor. After the country's accession, at least sugar and winemaking industries have been seriously affected. Since 2002, import of sugar has grown out from 0,3 thousand up to 57 thousand tons. The import stream of sugar was increased due to the deliveries of the raw sugar from Brazil and Cuba, for a further processing on Moldavian enterprises. As a result, sugar-processing enterprises had an opportunity of increasing their capacities to the maximum, but thus sharp inflow of import has made unprofitable the domes-tic production. Moreover, Ukraine and Russia have taken out sugar from the free trade regula-tions, being afraid of its powerful inflow from Moldova on their domestic mar-kets. This has sharply limited the export opportunities of the sugar producers. As to wine industry, making about 30% of export, it has been strongly affected by discrimination measures of Russia, removing wine from the regime of free trade. It is necessary to note, that Moldavian wines occupied about 80% of the Russian wine market. Therefore, rates of growth of industrial production shifted

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into low gear that finally was reflected in the rates of economic growth of the country. Joining to WTO, Moldavian leadership hoped to get a wider access on the agro-food world markets, in particular wine market. However, the results have not justified the expectations. The main trade partners of Moldova do not always respect Main WTO principles, especially the treatment as a privileged country, application of direct duties (excises, VAT) etc. Taking into account insignificant terms of the participation of Moldova in WTO, it is prematurely to draw any serious conclusions. Nevertheless, it is fact that becoming member of this organization, Moldova has actually opened its market for importing goods and services, nothing having received in exchange. Experi-ence of Moldova has proved, once again, that for an economy not ready enough to liberal and rigidly regulated conditions of the world trade, WTO participation does not lead to the improvement of the economic foreign trade activity of the country. It is necessary to note that, in itself membership does not guarantee automati-cally any benefits. They entirely depend on a number of conditions, including a part, which are not under the country's control. For example, the situation can be cardinally changed after the accession of the main trade partners - Russia, Ukraine and Belarus. Even if their membership will provide only a guarantee against unilateral, unpredictable changes in their commercial policy and will al-low solving the arisen disputes in a constructive way, using WTO regulations, it will conduct to the reduction of prices of domestic products on world markets through the reduction of tariffs and transportation fees. The WTO is not a panacea for governments. Eliminating the regulatory barriers that constrain the ability of domestic industries to exploit the opportunities for specialization offered by full integration into the world economy requires more than WTO-consistency. The WTO can play a helpful role, especially as a credi-bility enhancing mechanism. However, very much will continue to depend on the policies that are pursued independently by government.

4 CONCLUSIONS So far, experts argue concerning the advantages and shortcomings of the WTO system, especially for the agriculture of such developing countries like Moldova is. Their opinions are divided: one half strictly stands up for WTO and insist that accession will render only benefits to developing countries. The others have a completely different position. As a result of the conducted research, there have been established an absence of any significant impact of WTO on the development of agriculture of the Repub-lic of Moldova. In particular, the ratio between import and export, both the

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whole on the country, and on the foodstuffs, indicate a significant growth, in quantitative expression, of the foreign trade activity. However, the study of the agro-food trade balance did not disclose any changes during the analyzed period: as five years ago, the ratio between import and ex-port remains at the same level. Nothing has changed in the structure of commodity markets either: as before, two thirds of foodstuffs are sold on the CIS countries, in Russia, Ukraine and Belarus. Despite of the received results, the WTO system has a number of serious advan-tages, described in detail in the second section of the paper. It has been estab-lished that non receipt by Moldova of serious advantages from the WTO acces-sion is connected above all with the fact that main trade partners are not WTO members and, therefore obligations of the given organization are not spread to them. Though on macro level were not fixed any major negative consequences from the WTO accession, it has been noted that some branches as, for example sugar and wine-making industries, however, have been subject to a negative external impact, in many respects due to the WTO membership.

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CIMPOIES, D., SCHULZE, E. (2004): Основные экономические проблемы сельского хозяйства Молдовы [Osnovnye èkonomičeskie problemy sel’skogo hozjaistva Moldovy], IAMO Discussion Paper No.60, Halle/Saale, IAMO.

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Итоги деятельности Правительства Республики Молдова по выполнению Программы деятельности «Возрождение экономики – возрождение страны» за 2001-2004 годы [ Itogi dejatel’nosti Pravitel’stva Respubliki Moldova po vy-polneniju Programmy dejatel’nosti “Vozrozhdenie èkonomiki – vozrozhdenie strany” za 2001-2004 gody].

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MCCALLA, A. (2001): What the developing countries want from the WTO, The Estey Centre Journal of International Law and Trade Policy, Vol. 2, pp.165-177.

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Tendinţe în Economie: Moldova (2004), ediţie trimestrială.

Consequences of Joining the WTO on the Agricultural Foreign Trade of the Republic of

MoldovaDragoş Cimpoieş Aurelia Litvin

str. Mircesti 44, MD-2049 Chisinau, MoldovaPhone: 00 373 22 434-432; Fax: 00 373 22 312-276

e-mail: dcimpoies@uasm.mdState Agricultural University of Moldova

Agro-food export developmentDuring the Soviet period, the bulk of export of agricultural production fell on the republics of the former USSR, an insignificant part reaching the countries of Eastern Europe. Hitherto, CIS countries prevail in the agro-food export, namely Russia, Ukraine and Belarus. About three quarters of the volume of export fell on their share.Despite of a substantial growth of the volume (on 82,6%), the share of export which fall on CIS countries remains approximately at the same level, varying within the limits of 75%. The volume of export toRussia increased on 66,5%, however the share of the Russian market decreased. This speaks about a more serious growth of export on other CIS markets.

There is no common opinion between leading economists concerning the influence of the World Trade Organization on the economy of developing countries. Nevertheless, the position that exactly poor countries can take a big advantage from the liberalization of trade prevails. The poorest developing countries are still predominantly agricultural, with 40 percent or more of their GDP originating in agriculture. For many of them agriculture is a major source of export earnings. Moldova is an agricultural country. About one-third of population is employed in agricultural sector; the export quota of agro-food production constitutes over 60%. Development demands growth and a greater access on the world markets – is a necessary condition for a faster growth. Therefore, accessto a freely functioning market for agricultural products is vital to Moldova’s development.

Moldova has joined to WTO with the status of a developed country. However, Moldova is one of the poorest countries of Europe, and in this sense, an injustice has been shown with respect to the country. Being an agricultural country, Moldova has accepted very tough terms about agricultural tariffs, thus reducing measures of support to such vulnerable sector. In this context, it is necessary to note that the Strategy of Export Promotion describes in rosy colors "a number of advantages" of our presence in the given organization: a significant level of annually allowable subsidies established for Moldova (15,98 mil. SPR in addition to the minimum of 5% of annual volume of agricultural production),

IAMO Forum 2005, June 16-18, 2005, Halle (Saale), Germany

Thus, for example, a 2,8% growth of exports to Belarus is basically conditioned by the conclusion of an intergovernmental agreement that stipulate delivery of Moldavian agricultural products in exchange for Belarus agricultural machinery and equipment, that is nothing else than barter relations.Despite the fact that volume of export significantly increased (about three times) to the EU countries, their share remains to be extremely insignificant, making only 12,9%. Germany is the main European partner of Moldova.As to CEE countries, both the volume and share of Moldavian export significantly decreased, because of an essential reduction (by two times) of the export to Romania - the main trade partner in the given region. The only explanation of the above-mentioned reduction is the attempt of the Romanian authorities to impose some sanctions on Moldavian foodstuffs, especially meat, eggs and dairy produce, motivating such actions as the necessity of adaptation of its legislation to the EU requirements. In fact, it was nothing more nor less than an attempt of protection of the local market from more competitive products.

Agro-food balance tradeSo far, the agro-food balance is still positive. In spite of the fact that during the investigating period the volume of export of foodstuffs hasincreased by twice, any significant changes in the trade balance of the above-mentioned category of goods is not observed. We can ascertain only an insignificant reduction of the share of export. As about import ofagro-food products, a high share belongs to CIS countries (38,6%) and EU (29,2%). It is necessary to note a significant growth of the volume ofimports from Russia and Ukraine whereas the import from EU remained almost at the same level. Nevertheless, in quantitative expression, the given indices are insignificant enough, especially in comparison with the volume of export to above-mentioned countries (86,7 mil. USD against400,0 mil. USD).

Conclusions

Introduction

Structure of agro-food export

2000 2001 2002 2003 2004mil. USD % mil. USD % mil. USD % mil. USD % mil. USD %

CIS countries 219,0 75,2 276,4 77,3 285,2 70,3 342,8 74,1 400,0 75,8including:

- Russia 177,4 61,0 207,0 57,9 204,5 50,4 268,3 57,9 295,4 56,0- Ukraine 15,1 6,2 33,0 9,2 36,5 9,0 23,3 5,0 29,0 5,5- Belarus 19,7 6,8 28,3 7,9 35,7 8,8 37,5 8,1 55,1 10,5EU countries 23,6 8,1 28,8 8,0 34,4 8,5 40,8 8,8 68,1 12,9

including:- Germany 5,4 1,9 5,8 1,6 9,0 2,2 12,9 2,8 15,1 2,9CEE countries 38,7 13,4 33,9 9,5 53,0 13,1 58,4 12,6 32,1 6,1

including:- Romania 22,0 7,5 17,0 4,8 29,9 7,4 37,3 8,1 28,0 5,3Other countries 9,7 3,3 18,5 5,2 33,0 8,1 21,0 4,5 27,5 5,2

including:- USA 10,0 2,8 19,1 4,7 10,4 2,2Export - total 291,0 100 357,6 100 405,6 100 463,0 100 527,7 100

Directions of export

Agro-food balance trade

357,

6

405,

6

463,

0

527,

7

291,

010

9,6

143,

5

147,

1

204,

4

225,

0

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004Export Import

Trade balance of Moldova

568,

1

643,

9

790,

0

892,

7

1038

,5

1403

,4

471,

5

986,

4

776,

5

1774

,2

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004Export Import

2000

8%

1%68%

23%

Animals alive and products of animal originProducts of vegetable originFats and oil of vegetable and animal originFoodstuffs, drinks and tobacco

20044%

23%

8%65%

Animals alive and products of animal originProducts of vegetable originFats and oil of vegetable and animal originFoodstuffs, drinks and tobacco

In spite of the fact that the volume of export has increased, by twice, there were no significant changes in the structure of export. As before, the main export quota belongs to foodstuffs, drinks and tobacco - about 65%. It is necessary to note that approximately one half of the above-mentioned figure constitutes wines and other alcoholic beverages.

As to other categories of goods, we shall mention only an essential decrease of the share of "animals alive and products of animal origin", caused by the introduction of sanctions, by Romania, on cattle-breeding production from Moldova. During the given period also, it is possible to note a significant growth

of the export quota of the category "fats and oil of vegetable and animal origin".

a high level of import tariffs (12,5%) etc. At the same time, if to correlate them with the rates of duties, for example, in Poland (on sugar - 96%, corn -85%, butter - 102%) advantages from the joining of Moldova to the rules of "civilized" trade in WTO framework will not look so convincingly.The existing average level of import tariffs did not provide a proper level of protection of the domestic foodstuffs. Joining to WTO even more will tie up the government's opportunities in this sphere. In this context, domestic agricultural producers did not especially succeed in opening the way on the European markets because of a high regulation and trade procedures imposed by the countries-importers.Though on macro level were not fixed any major negative consequences from the WTO accession, it has been noted that some branches as, for example sugar and wine-making industries, however, have been subject to a negative external impact, in many respects due to the WTO membership.