Overview
Latest update: March 2002

• Partnership and Cooperation Agreement

• Political Situation

• Economic Situation

• Trade between the EU and Moldova

• EU Assistance to Moldova

  • Technical

  • Macro economic

  • Humanitarian

  • Food security programme

• Prospects for the Future

• Basic data

Partnership and Cooperation Agreement

The Partnership and Cooperation Agreement (PCA) signed on 28 November 1994 between Moldova and the EU and its Member States entered into force on 1 July 1998 and forms the basis of EU-Moldova relations. 

The Agreement provides a framework for political relations based on democratic values, including political dialogue. The PCA's provisions governing goods, services, labour, and capital introduce extensive, legally binding requirements, with considerable implications for the domestic legislation of the Parties. The PCA is an important instrument in bringing Ukraine in line with the legal framework of the single European market. The PCA contains a number of evolutionary clauses, including the prospect of a free trade area. Finally, the agreement provides a framework for wide-ranging co-operation in the commercial, industrial, scientific and administrative fields. 

The PCA established the following bilateral institutions, which meet on average once a year:

• The Cooperation Council meets at Ministerial level. Representatives of the EU troika and the Moldovan government participate. It has overall responsibility for the running of the PCA  - including the political dialogue.

• The Cooperation Committee meets at senior civil servants level. It is supported by sub-committees specialising in specific sectors and deals with more technical issues.

• The Parliamentary Cooperation Committee, on which sit members of the European and Moldovan Parliaments

The first meeting of the Cooperation Council took place on 14 July 1998. Implementation of the PCA has demonstrated steady progress so far. The second meeting took place on 25 January 2000. The third meeting took place on 15 May 2001.

Overall, EU-Moldova relations are good in both political and economic areas.

Political situation

In late 2000, changes introduced to the Moldovan Constitution, reducing the powers of the President, made Moldova the only parliamentary democracy in the CIS. In the parliamentary election of February 2001, the Communist Party obtained 50% of the vote, winning 70% of parliamentary seats. The new Parliament proceeded to elect the Communist party's leader Vladimir Voronin as President. In April, a new government led by Prime Minister Vasily Tarlev was confirmed, which, however, contained six ministers from the previous government, suggesting a continuation of Moldova's reformist course. Hitherto, the Moldovan political landscape had been characterised by unstable majorities and short-lived governments. 

The EU remains highly concerned about the ongoing situation in  Transdniestria (a separatist region in Moldova). Deadlock still persists over the status of this region, where separatists declared independence from Moldova when Moldova became independent in 1991. Despite the signing of an agreement about the withdrawal of Russian forces in 1994 and the commitments taken by Russia at the 1999 OSCE summit in Istanbul, there are still around 2600 Russian soldiers in the region - including those involved in peace-keeping activity. Moreover, a significant amount of Russian equipment and ammunitions remain in the area. Observers report that the area has become a ground for illegal arms dealing and organised crime. 

Moldova is a member of the Stability Pact for South Eastern Europe.

Economic situation

Following the emergence of Moldova as an independent state in 1991, the economy contracted dramatically until 1997, when modest growth (1.6%) was achieved. In 2000, economic growth (1.9%) returned after a period of decline (6.5% in 1998, 3.4% in 1999), which resulted from the 1998 financial crisis in Russia. Although industrial output has increased, agriculture continues to be in profound crisis, with a continued decline in production. Acceleration of land privatisation is an imperative for reversing this trend.

The foreign trade liberalisation measures adopted in 2000 and the relative stability of the Moldovan currency have helped bring down inflation (18.5% in December 2000, down from 43.8% a year earlier), despite the negative impact of high fuel prices in the world market. Despite these improvements, Moldova continues to have one of the lowest incomes per capita in Europe and ranks second lowest (before Tajikistan) among all East European and NIS economies in the UNDP's human development index (104th out of 174 countries listed). The Moldovan authorities, in cooperation with international financial institutions, have been working on a strategy aimed at achieving rapid and sustainable growth and at addressing the acute problems of poverty and income inequality.

Trade between the EU and Moldova

The EU is an important trading partner for Moldova. In the first nine months of 2000, 22.9% of Moldovan exports went to the EU and 27.7% of imports were from the EU. Moldova’ s main exports to the EU are agricultural and food products, textiles and base metals and articles, its main imports from the EU are machinery and electrical products, agricultural products and textiles.

The 1999 Moldova's trade deceleration was due to a decrease in imports from the EU following a strong depreciation of the Moldovan currency after the 1998 Russian financial crisis, but the resumption of growth has led to an upsurge of imports, which has not been matched by a far less significant growth in exports. This is indicative of the weak recovery of Moldova's traditional export-oriented industries (food, beverages and tobacco products) from the effects of the 1998 crisis.

EU-Moldova trade 1995-2001 (in million €)

Source: Eurostat Comext

Moldova benefits from the EC General Preference System (GSP). Most Moldovan exports to the EU in the framework of the GSP fall under the categories "very sensitive" (15% reduction of customs duties) and "sensitive" (30% reduction of customs duties). Since 2000 Moldova benefits from additional reductions of customs duties under the GSP thanks to the application of an incentive scheme for countries applying certain ILO conventions.

Article 4 of the PCA states that the parties shall examine jointly whether circumstances allow the beginning of negotiations on the establishment of a Free Trade Area (FTA). The Cooperation Council of 1998 assigned priority to Moldova’s accession to the WTO. Following the finalisation of accession negotiations in February 2001, Moldova's membership of the WTO is expected to be formalised in May 2001 (pending ratification by existing member-states). In the meantime, joint studies on the feasibility of the FTA were undertaken. Their outcome is that the establishment of a FTA might bring benefits to Moldova, but that the Moldovan legal and administrative framework for business needs further improvement before creating a free trade area.

An agreement regarding trade in textiles is also in place.

EU Assistance to Moldova

EU assistance to Moldova is provided through different channels.

Technical assistance

Over the 1991-99 period, the Tacis programme provided around ECU/€70 million for Moldova, including the national, multi-country and inter-state programmes.

The Tacis priorities for 1996-99 were focused on three areas: food production, processing and distribution, private sector development and human resources development.

The 2000-2003 Indicative Programme includes the following  priority sectors: 

• Institutional, legal and administrative reform 

• Support for enterprises and assistance for economic development

•  Social consequences of transition

The 2001 Action Programme has a budget of € 21 million.

Tacis for Moldova is implemented through a number of instruments:

•  The main one is the national  Action Programme (AP), prepared once every two years.

• The Small Projects Programme (SPP). This programme includes actions such as: Policy Advice, NGO Programme, Managers' Training Programme, Customs Programme, Statistics Co-operation, and TEMPUS.

• Moldova benefits also from the Tacis Regional Programme. Moldova takes part in INOGATE, several Environmental projects and Justice and Home Affairs activities.

• The Cross-Border Co-operation Programme (CBC) launched as of 1996. It aims to strengthen border management and to activate regional co-operation between the eastern borders of Central European accession countries and the western borders of Russia, Ukraine, Belarus and Moldova.

Macro-economic assistance

Moldova has also benefited from balance of payment loans. The first of these was disbursed in two instalments between 1994 and 1995 and amounted to ECU 45 million, the second was disbursed in December 1996 providing ECU 15 million. A third one of  €15 million will likely be disbursed in 2001.

Humanitarian assistance

In 1999, the EC allocated around € 4 million to Moldova for humanitarian actions to be implemented by ECHO. These measures helped in tackling the social consequences of poverty. The actions concentrate on the supply of vaccines, medicines and food to children and the elderly. This aid is being phased out since ECHO is concentrating on crisis linked to conflicts and natural catastrophes, whereas the Moldovan problems are of a structural nature.

Food Security Programme

The Commission has started a new sector programme with the objective of promoting long-term food security and poverty reduction in Moldova. This entails budgetary support in grant form for the Moldovan government in order to promote structural reforms in the agricultural and social sectors. The 2000 budget is € 5.5 million.

Finally, between 1996 and 1999, Moldova has benefited from € 42.14 million in financial assistance from EU member-states and from € 81.30 million in EBRD credits.

Prospects for the Future

The EU hopes, in contacts in the coming months, to establish the intentions of the new Communist government regarding future political and economic policy and the resolution of the Transdniestrian situation. In a statement of 25 April 2001, the EU welcomed Moldova's free and fair parliamentary elections, while urging the country to continue to move forward with reforms essential for stability and economic development. It noted that close cooperation with the IMF was important in this context.

The EU believes that the resolution of the Transdniestrian conflict and Moldova's continuing openness regarding trade and investment, in line with its WTO commitments, will improve the prospects for poverty alleviation in the country.

Basic data

* Economic indicators do not cover Transdniestria