Georgia and Moldova one step closer to a privileged trade relation with the EU

Agreements Brussels, 29 November 2013

The EU initialled today the Association Agreements with Georgia and Moldova, including provisions establishing the Deep and Comprehensive Free Trade Areas (DCFTAs). This event opens a new chapter in our bilateral relations and paves a way to establishing a privileged trade relationship with both countries.

How did we get here?

The negotiations on the trade part of the Association Agreements started with both countries in February 2012 and were concluded with Moldova in June 2013() and with Georgia in July 2013. This paved the way to the official closure of the negotiating process with the initialling ceremony today in Vilnius.

What are the trade provisions of the Association Agreement?

The Deep and Comprehensive Free Trade Areas (DCFTAs) cover trade in goods including tariff elimination or reduction, provide for further opening of the services markets and improvement of establishment conditions for investors. They contain also provisions on the facilitation of customs procedures, on anti-fraud measures and trade defence instruments. These rules aim to ensure that trade is liberalised to the fullest extent possible but provide for necessary precautions so that only eligible goods qualify for preferential treatment. A bilateral dispute settlement procedure is envisaged to solve issues in an expeditious manner.

Furthermore, Georgia and Moldova commit to bring their legislation closer to that of the EU in a wide number of regulatory policy areas, such as rules for export of agricultural goods and food safety in general, regulations for industrial products and conformity assessment, management of customs, including enforcement of intellectual property rights at the border, rules on public procurement and wide alignment to the EU rules in services areas.

Phasing out existing customs tariffs and regulatory barriers will increase the variety and quality of products and services. The competition stemming from liberalisation of market access will encourage specialisation, thereby lowering costs and generating innovation. Better products and services will enhance the overall standard of living for consumers and citizens of Georgia and Moldova.

The gradual approximation to the EU acquis will create a more favourable business climate, boost exports, attract investors and strengthen the competitiveness of the Eastern Partnership partners' companies, while ensuring higher levels of social, environmental and consumer protection. It will provide stable and more predictable governance rules, especially for the SMEs, which are more vulnerable.

What we want to achieve?

The DCFTAs are part of the respective Association Agreements, which have the overall objective to significantly deepen political association and economic integration of these Eastern Partners with the EU, and thereby offering a path to more prosperity and better governance for their citizens.

The DCFTAs are new generation agreements, reflecting the EU's privileged relations and increased trade with Georgia and Moldova. The DCFTAs go significantly further than classical forms of free trade integration, offering not only improved trade and investment opportunities but also deep reforms and EU assistance for those reforms, aiming to contribute to economic recovery and growth and to better integration of the Eastern Partner's economies with the world markets.

What is the expected economic impact?

An independent study predicts that the DCFTA will increase Georgia’s export to the EU by 12% and import by 7.5%. Georgia’s GDP could increase by 4.3% or €292 million in the long term, provided that the DCFTA is implemented and its effects sustained.

For Moldova, the change in national income is estimated to be around €142 million, i.e. 5.4% of the country’s GDP, while its exports to the EU and imports are expected to increase by as much as 16% and 8%respectively, driving an increase in wages and offering better prices to consumers.

Why do we believe a comprehensive approach like a DCFTA is the right one?

The real economic integration between the EU and Eastern Partners provided for in DCFTAs can only be fostered by going beyond a simple tariff dismantling for goods.

The Eastern Neighbours are important partners for the EU. However, much economic and export potential of our partners remain untapped and the key to progress lies in economic reforms. This potential can be realised thanks to gradual approximation with the EU legislation. Only a “deep and comprehensive” type of free trade area can provide the necessary framework to achieve this objective, as it addresses regulatory approximation in all the trade related areas where such approximation to the EU laws and standards leads to increased trade and results in a greater economic integration.

Furthermore, with the relative weight of services and investment growing steadily in our modern economies, the liberalisation of these areas of trade is crucial for further progress of mutual trade and economic relations. EU companies are increasingly interested in investing in the region, which offers, thanks to its proximity to the EU, significant opportunities for growth. Therefore, a deep and comprehensive approach, covering also market access in services, investment and public procurement, is key to exploiting the full potential of the economic integration process.

When will the agreements become operational?

The initialling of the Association Agreement will be followed by a signature and implementation of the DCFTA parts of those Agreements as soon as possible. The EU aims for signature in the course of 2014, followed by a decision to provisionally apply the trade parts, pending the full ratification in the national parliaments of the EU Member States.

What about the reform-related assistance?

Georgia and Moldova have been assisted in their reform efforts already before the start of the negotiations. This assistance continues to date and will be further boosted for the purpose of implementing the DCFTAs, in particular in those areas that are subject to gradual approximation with the EU acquis. Moldova and Georgia are committed to reform and improve their legislation which in many areas are necessary in order to benefit fully from the gains offered by the DCFTA. These reforms remain a crucial part of the DCFTA. The EU will assist both countries in their further reform process, providing technical assistance in terms of finance and know-how.

The EU has already been assisting both countries in this regard in the framework of the European Neighbourhood and Partnership Instrument, including a DCFTA-focussed Comprehensive Institution Building programme (2011-2013). It included financial assistance as well as trainings and advisory activities (e.g. twinning, TAIEX).

Bilateral assistance of EU Member States also takes place in coordination with EU efforts. Further significant assistance, devoted specifically to the implementation of the DCFTA, is planned under the new European Neighbourhood Instrument (2014-20).

EU trade with Georgia and Moldova in numbers

The EU is the number one trading partner for Georgia (26% of its total trade) and Moldova (53% of its total trade). The EU is also the number one investor in these countries. In 2012, the total trade turnover with Eastern Partnership countries amounted to €74.6 billion out of which €2.6 billion with Georgia, and €3 billion with Moldova. The EU exports to Georgia consisted mainly of machinery and transport equipment, mineral fuels and related materials, chemicals and other manufactured goods. The EU imported from Georgia mainly raw materials and mining products, fertilisers, as well as wine, mineral waters and nuts. The EU exports to Moldova consist mainly of mineral fuels, as well as electrical machinery and equipment. Those products constitute also the main imports to the EU, together with clothing and animal and vegetable fats and oils.

For further information

Opening remarks by President Barroso at initialling ceremony of the Association Agreements with Georgia and Moldova On EU trade relations with the South Caucasus countries

On EU trade relations with Moldova

On Eastern Neighbourhood summit in Vilnius