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Activity of public institutions

Parliament
Government
President

CIS Summit and European Integration by Igor Botan
Regional economic integration of Moldova: overview of the options by Valeriu Prohnitschi

I. Activity of public institutions

1. Parliament

On September 25 the Parliament convened for the fall session, the sixth session since it was elected. As usual in her inaugural speech the Chair of the Parliament, Eugenia Ostapciuc set short-term and long-term goals for the legislative body. Furthermore, she also referred to the tasks the Parliament has to complete in order to confirm the initiation of the negotiation process in view of the Republic of Moldova's integration into the European Union. Although the initiative came as a logical follow-up to the proclamation made by the President as well as the recent developments in the country's foreign policy, the opposition was rather skeptic towards the principles outlined by the Parliament Chair. It demanded that the rhetoric to be backed up by concrete actions, such as denouncing CIS agreements and developing a new Conception on the foreign policy.

During the first week of the fall session the Parliament passed several important pieces of legislation, Law on the Ratification of the Protocol on canceling the exceptions to the Free Trade Agreement with Russian Federation being one of them. Its is worth mentioning that in 1993 Republic of Moldova and Russian Federation concluded a free trade agreement. Later on, a series of products were excluded from the agreement, such as sugar, ethyl alcohol, and tobacco. Under the protocol, in the years 2004-2012 all the aforesaid products shall be re-included in the free trade agreement and their circulation would be liberalized (exempted from additional customs fees). Commencing January 1, 2004 only the tobacco shall be liberalized. Ratification of the agreement shall represent a major step boosting the export of Moldovan goods on the Russian market, however it might well happen that Russia would delay the enforcement of the agreement, especially given the upcoming Duma elections.

Under Law on Modification of the Law on Supreme Court of Justice the structure of the institution has been modified, whereby Chairs of the colleges created within the Court shall be assisted by Deputy Chairs. Opposition criticized the amendments on the grounds that creating new administrative positions within the judiciary would further enhance the administrative control over the judges and would limit their independence. Authors of the modification, representing the majority faction, replied that the said position already existed and had been established under the ruling of the Chair of the Supreme Court of Justice, which ran counter to the Law on Judiciary.

Law on the Modification of the Law on Social State Allocations for Certain Citizen Categories standardizes the legislation regulating the two types of social payments: state social pensions and state social allocutions. Some beneficiaries were unjustified, as the quantum of payments differed. The law also provides for increasing the allocations for handicapped children and for children who lost their tutors. The total cost of the law is estimated at 820 million MDL per year.

Under Law on Simplified Visa Regime, entry-exit visas shall be issued for free each year during a 15-day period for the National Wine Celebrations. It is hoped that the move would bring more foreign tourists to the country during the aforesaid celebrations.

2. Government

Reshuffles

The Government ousted Lilia Pogolsa, Deputy Minister of Education. The same day, Vasile Sturza, Republic of Moldova Ambassador to Bulgaria was also assigned as Ambassador to Union of Serbia and Montenegro, whereas Emil Ciobu, Republic of Moldova Ambassador to Romania, Greece and Cyprus was recalled from his position.

Decisions

Government endorsed the draft Conception of State National Policy developed by the Presidency, which was harshly criticized by political parties, non-governmental organization, mass media, Writers Union, etc. Probably because of this criticism the Government recommended the wording of the Conception to be "carefully edited", as well as submitted for expertise and public debates. The Government stressed that "a new wording of the Conception is necessary so as to avoid any overlaps with other legislative acts, to use appropriately notions, to observe the scientific truth, to exclude ambiguities, which are to be found even in the document title, and to edit the language". In this respect, it is worth mentioning that recently the Parliament established a commission entrusted to improve the draft Conception of State National Policy. The commission, headed by the leader of the Communist faction in Parliament Victor Stepaniuc, includes seven Communist deputies, two deputies of Moldova Noastra Alliance, one Christian-Democrat deputy and an independent deputy. It remains to be seen whether Communist deputies would have the skill to revise the draft in such a manner as to leave little room for criticism from civil society, while accommodating President Voronin who is the author of the document.

Via another decision Government approved the draft law regulating the statute of towns and villages. The draft is intended to standardize domestic legislation in the field by providing an obligatory sample-statute for organization and functioning of towns and villages of the Republic of Moldova. Thereby, administrative-territorial units statute shall include the name of the locality, its administrative territory, residence locality, territorial boundaries, number of inhabitants, their ethnic representation, patrimony of the locality, educational, cultural, healthcare and social care institutions, press, etc. Under the draft citizens representing a national minority are entitled to speak their native language in the local public administration, as well as to preserve, develop and express their ethnic, linguistic and religious identity.

Furthermore, the Government approved the membership of the Republican Census Commission, which is to coordinate the preparations and conduct of the census scheduled for April 1-8, 2004. It will be conducted in the eastern regions of Moldova as well. It is still not clear whether Transdnistrian authorities would agree on a centralized census or they would insist on a separate census for Moldova and Transdnistria.

Payments for imported gas

Prime Minister Vasile Tarlev met with Deputy Chair of the Russian Gazprom, Alexandr Reazanov, to talk about payments of gas import, transit of gas from Kazakhstan, Uzbekistan, and Turkmenistan through the Moldovan territory. Russian side was dissatisfied that Moldova failed to pay in full the imported gas, and this given that as much as 40 percent of the fuel delivered by Gazprom via Moldova-Gas company is lost during transport. The parties agreed on measures to secure the payment for the consumption of gas, including in exchange for goods. According to BASA-Press, Moldovan debt for gas deliveries was 121.1 million USD as of July 1, 2003.

3. President

Yalta Summit

Several days after the CIS Summit in Yalta, when his statement that from now on Moldova would take firmer action towards the European Union was interpreted by domestic and foreign mass media as intention to break away from CIS, Vladimir Voronin declared that the press misinterpreted him. At the briefing on the results of his participation at the 58th UN General Assembly session, Vladimir Voronin indicated that Moldova could not give up its membership in CIS, even if SEA stood for the end of CIS modernization.

58th Session of the UN General Assembly

President Vladimir Voronin attended the 58th session of the UN General Assembly. In his speech delivered before the UN Assembly, President Voronin referred to the problems Moldova was confronted with and two top priorities of his governing, i.e. the first one, resolution of the Transdnistrian conflict and the second one, European integration. Noteworthy, Vladimir Voronin referred to federalization as the only viable solution for settling the Transdnistrian conflict. At the end of his speech, the President indicated that the number of permanent and non-permanent members of the Security Council should be enlarged in view of a larger representation.

President Voronin also met Kofi Annan, General Secretary of UN; Jaap de Hoop Scheffer, Dutch Foreign Minister and Chairman-in-Office of OSCE; Colin Powell, US State Secretary; Javier Solana EU foreign and security policy chief, and Mark Brown, UNDP Administrator. Discussions during all the meetings, except that with Mark Brown where PRSP was at issue, centered around Transdnistrian conflict resolution and pledges of international organizations to support the conflict resolution process.

IV PACE Session

Another event President Voronin attended was PACE session. Addressing the Session of the Parliamentary Assembly of the Council of Europe President Voronin referred to the constructive collaboration with the Council of Europe in settling the political crisis in Moldova. When talking about the 2002 political crisis and PACE Resolutions, President claimed his country fulfilled most of the recommendations. Vladimir Voronin informed the Assembly that Moldovan Government approved the Conception of European Integration of the Republic of Moldova, providing that federalization was the only way for the country re-integration.

Also in Strasbourg, Vladimir Voronin met Council of Europe Secretary General, Walter Schwimmer; PACE Chair, Peter Schieder; Council of Europe rapporteur on Moldova, Josette Durrieu; Chair of the European Court for Human Rights, Luzius Wildhaber, as well as experts of the Venice Commission. During the meetings President Voronin reiterated Moldova's interest in European integration and indicated that one of the Moldovan Parliament's priorities was to bring domestic laws in accordance with the European legislation. He also expressed his hope that in 2004-2007 Republic of Moldova would be accepted to the stabilization and association process. While talking about the outcomes and obstacles in the activity of Joint Constitutional Commission, President asked for the Council of Europe support in the resolution of the Transdnistrian conflict.

II. Transnistria

A chapter of the draft Constitution signed

After two months of negotiations, Chisinau and Tiraspol signed one chapter of the draft Constitution of the future federative state, regulating the citizen's rights and freedoms. The parties failed to reach a consensus on citizenship, education, healthcare and social security. Therefore, 14 out of the total 51 Articles of the Chapter II are still to be negotiated. As for the basic constitutional principles of the future federation, it would be difficult to reach any consensus as Chisinau insists on an asymmetric federation, whereas Tiraspol on a "contractual federation" similar to Serbia and Montenegro.

As Tiraspol sees it, Republic of Moldova and Transdnistria, "currently independent states" are to establish a federal center endowed with "as much sovereignty" as need to fulfil international obligations, while "federation subjects" are to preserve the prerogatives required for the rest of activities. Prerogatives are to be delegated to the federal center only if the parties fail to fulfil them on their own. The future state is to be called Federation of Moldova and Transdnistria and have other flag, coat of arms, and anthem than those of the Republic of Moldova or Transdnistria. Also Transdnistrian side insists on a bicameral Parliament, the Supreme Chamber is to be formed out of the "Chisinau and Tiraspol legislative bodies". Its decisions shall have a legal force only if approved by both Parliaments in an "independent and separate" manner. The President of the future state is to be elected in direct elections, whereas the Government is to deal with matters at the federal level. Transdnistrian draft proposal entitles federation subjects to leave the federation wherever one of the subjects decides to join another state; federal state loses its independence; or basic constitutional principles and "sovereign rights of the federation subjects" are violated. Tiraspol insists on the dissolution of the Republic of Moldova and Transdnistrian armies so as to secure a status of demilitarized state. Moreover, the federative state is to be a single economic zone, however with separate financial and fiscal systems, patrimony (including natural resources in the possession of federation subjects). Each of the federation subjects is to have its own budget a part thereof is to be transferred to the federal budget in the amount proportional to the economic potential of the parties and their need in federal services. And finally monetary emissions are to be made by the "National Banks" of the parties, procedure not even provided for in the draft of EU Constitution.

Peacekeepers structure and negotiation format

William Hill, Chief of OSCE Mission to Moldova, refuted the statement attributed to him on replacing the current peacekeeping format with a more international one. Moreover, William Hill indicated that OSCE Mission supports EU forces involvement in the peacekeeping operations, however, the existing format would not be changed without prior consultations with all the parties involved in the negotiation process.

In a related note, the major opposition party Moldova Noastra Alliance has recently issued a statement reading that Moldovan and Transdnistrian armies should be dismissed, Russia should withdraw its military presence from the region, and new peacekeeping forces should be deployed while their structure is to be decided within a "renewed international mechanism". Once demilitarization is completed, peacekeepers will be replaced by an international police squad to be deployed until a complete settlement of the conflict effects. Moldova Noastra also opts for a change in the current negotiation format, namely three new parties US, EU, and Romania should be involved in the negotiation process along Russia, Ukraine and OSCE. According to Moldova Noastra this "renewed international mechanism" of mediation would be able to boost the negotiations.

Deputy head of the US mission to OSCE also demanded the withdrawal of Russia's military presence from Transdnistria. Davidson said that Washington is deeply concerned about the lack of progress in the Russian-troop withdrawal and the stalemate in resolving the Transdnistrian conflict. He indicated that unless Russian troops and munitions were not evacuated by the end of the year, Russia alone would be blamed for that.

Yet another option of settling the Transdnistrian conflict was offered by the Party of Reform. The party opposes federalization, instead it proposes transferring Transdnistria for a certain period of time into the sole jurisdiction of EU. This would imply not only deployment of EU peacekeeping forces but also EU direct control over the borders with Ukraine, army, policy, customs and other spheres, which currently "keep the Tiraspol regime alive".

III. Foreign affairs

Republic of Moldova - European Union

On September 22, in Brussels the second session of the sub-committee no. 4 on cooperation between EU and Republic of Moldova was held. At issue was the current situation in Moldova in the energy, transportation, telecommunications and environment fields, as well as measures to be taken by the next session in order to improve the situation. The two parties also followed on how Moldova was enforcing the Memorandum on the regional electricity market in the Southeastern Europe. Moldovan side expressed its interest to adhere to a similar Memorandum, which is being developed on gas.

IV. Studies, analyses, comments

1. CIS Summit and European Integration
by Igor Botan

Albeit there were quite a lot of speculations lately on the European vector of the Moldovan foreign policy, still there is much doubt on the sincerity of the Communist authorities in this respect. The skeptic and reserved way in which official medial outlets covered the recent CIS Summit held in Yalta on September 18-19, lead us to believe that perceptions over the said structure have changed considerably. Let us just remember the grandiose manner in which domestic media covered the CIS Summit held in Chisinau, despite the fact that no major events took place, except for the 50th birthday of the Russian President Vladimir Putin. Indeed, official propaganda did it best to create a sensation out of the Summit. To mention just the way it reported on how Vladimir Voronin and Vladimir Putin informally exchanged notes during the meeting of the CIS chief of states, whereby the former was encouraging the later to boost the integration processes within the CIS alike EU, so that later on the first structure could integrate into the later. As it was intended to, the Russian President greatly appreciated the initiatives made by his Moldovan counterpart. This propagandistic trick was largely exploited throughout the recent electoral campaign in view of local elections.

However, one year later President Voronin has had to make public his extremely negative position on the most outcome of the Yalta Summit, namely the decision of the countries having the greatest development potential in the region: Russia, Ukraine, Belarus and Kazakhstan to establish the so-called Single Economic Area (SEA). Under certain circumstances Moldovan ruling party would have been excited about the event as it envisages a higher economic integration and political coordination between the member-states. President Voronin's negative reaction was determined by the fact that the new integrating project within CIS failed to take into account the interests of other CIS members, as well as by the fact that the perspectives of their integration into SEA are still unclear. President Voronin did not hesitate to compare Yalta agreement with that made in Belovejskaia Pushia that had led to the dissolution of URSS.

Opposition in Moldova referred to Voronin's attitude as a belated understanding of the geopolitical trends ongoing in the former soviet space. One may say that Voronin's discontent with the establishment of the SEA was determined by different views over the CIS development. There is no doubt that Moldovan President is an ardent proponent of Moldova's integration into CIS, however the integration process should be gradual and uniformed. This is the reason why the President promoted the idea of employing EU integration formula for the CIS in the first place, having in mind an eventual integration of the CIS countries into EU. The problem is that President Voronin's innovative ideas failed to take into consideration Russia's interests. Indeed, why did Voronin decide that Russia would want to join EU? It is known for a fact that the Russian political elite has been obsessed with "multi-polar world", whereby a special and self-sufficient role is reserved to Russia itself. This desideratum is backed up from a historic perspective by the huge potential Russia is endowed with. Last summer during his visit to Great Britain, President Putin stated that Russia was interested to keep strategic partnership relations with EU, however it had no intention to join it.

On the other hand it seems obvious that alone Russia would not be able to keep up to its ambitions of becoming an attractive pole in the multi-polar world it seeks. In this respect, President Vladimir Putin reiterated on numerous occasions that CIS integration was among the top priorities of his foreign policy and that the integration would go along different dimensions and at a different speed. One thing is for sure, the latest development in the international political scenery - US faces serious troubles in Iraq and Afghanistan, whereas EU minds its own integration - allow Russia enough room for maneuvers in order to satisfy its own ambitions, especially as the leaders of Belarus and Ukraine seem to be preoccupied with matters of surviving on the political scenery, and Russia is the only one able to help them on this. Those actions point to the extreme pragmatism of Russian leadership.

In the first place, former soviet Republics are differentiated, despite the fact that they all have things in common - they fall within Russia's influence zone. From this perspective, it is worth pointing that in order to achieve its interests Russia does not hesitate to exercise pressure on the Baltic States, which are already NATO members and due to join EU next May. Their economy heavily relies on the transit of goods and fuel from Russia to EU. That is a reason for Russia to resort to economic and diplomatic levers in settling the so-called violation of Russian minority' s rights in the Baltic States.

Going back to CIS countries, they are differentiated based on their economic and geo-strategic potential. There is no doubt that for Russia the countries it borders with have a far greater significance then the rest. Besides having common borders with Russia, both Belarus, Ukraine and Kazakhstan are by far the most developed republics, endowed with a huge economic and demographic potential, which in the long run might enable them to go on their own. These factors determined the inclusion of the said countries into the SEA and there is no doubt that Russia would assume a leading role in it. By doing so it hopes to satisfy its ambitions in the "multi-polar world" game.

Small countries not bordering Russia represent the second category of CIS countries. Further, these small countries may be classified in sub-categories. One of these sub-categories is represented by countries with breakaway conflicts instilled by Russia, and kept under its influence by means of separatist regimes. Republic of Moldova as well as other Caucasus countries falls under this category. Even though it borders Russia, Georgia falls nonetheless within the same sub-category. Yet, another sub-category is represented by Central Asia Republics not bordering Russia. Things are rather complicated on that front, as Russia is trying to promote its interests in that region by creating military basis, alike that in Kyrgyzstan. Turkmenistan, for instance, is kept within Russia's influence zone by its heavy dependence on the transit of its oil through Russian territory. Interestingly, Russia's economic interests in Turkmenistan overshadow those of defending the rights of the Russian minority. Needless to say, Russians in Baltic States are considerably better off than Russians in Turkmenistan. Nonetheless, in the case of the former, Russia reacts with might and main, whereas in the latter with a kind of indulgence so as not to undermine its future.

Indeed countries of the second category, especially those afflicted by separatist conflicts would be more of a deadweight to the boosting economic growth of the SEA. That is why at the Yalta Summit the message - you are not wanted for now - was made clear to them. Indeed so, separatist conflicts already hold those countries tight to Russia and there are no real chances for them to unchain. On the other hand, a would-be economic breakthrough in the SEA would make the structure quite attractive to the political elite in those countries, which is constantly fighting for power. Under the circumstances, it would be much easier for Russia to have its saying on the acceptance of new members into a well-off structure, especially in as far as the conflict resolution is concerned, which at the end of the day, it instilled itself. Given the aforesaid, Russian officials insist that the contractual federation formula might be used in Georgia following the example of Moldova, so as to settle Abkhazia and South Osetia conflicts in the next 10 years or so.

Such perspectives are not convenient at all to the Moldovan President who had the courage to voice his disagreement with the Yalta agreements. First of all, Moldova has been left out of the integration process and most importantly its potential benefits, especially in as far as equaling the fuel price on the domestic market, i.e. Russia, and external market, SEA, is concerned. Secondly, there are no perspectives of settling Transdnistrian conflict within the CIS given the "vertical axis of power" recently established in Moldova.

In this respect domestic observers have pointed to the fact that President Voronin's declaration on bolstering European integration efforts could be read like a threat to leave the CIS, rather than a conscious decision to join the EU. To integrate into EU Republic of Moldova has to take steps to meet its standards, which is an impossible task to bring to an end for the incumbent ruling party. Scandalous treatment of foreign investors, revision of privatization, establishment of the "vertical axis of power", last electoral campaign - to cite just a few examples in this respect. On the other hand, the much-promised modernization of the Communist Party by President Voronin might end in being a complete failure and in the long-run result in the loss of the party's influence.

Most likely things would evolve in Moldova along the same path as they did in Ukraine, when several years ago Kuchma declared EU and NATO integration a top priority, however nowadays under the pressure of loosing the power has become the founding member of the SEA. Nonetheless, the future of the SEA is still quite vague. A top priority for Ukraine is a single energy tariff policy. And it still remains to be seen whether Russia would be ready to give up millions of dollars just for the sake of having Ukraine and Belarus in SEA. Moreover, the integration of the SEA member states into WTO, by the way Ukraine is far ahead of Russia in the negotiation process, would raise further obstacles for those countries. It might well happen that President Voronin had been right when indicating that SEA establishment was the first step towards CIS dissolution. Under those circumstances, both the ruling party and opposition should engage into a meaningful dialogue on the long-term strategic development of the country. Needless to say, various national conceptions, linguistic and history issues raise further unjustly obstacles in the process.

2. Regional economic integration of Moldova: overview of the options
by Valeriu Prohnitschi

Moldova and the poles of economic attraction

Moldova lies at the crossroads of economic potential of three distinct geo-economic areas, namely Eastern Europe and post-soviet Asia, Central and South Eastern Europe (former socialist countries or their successors) and European Union. Although all of them are directed towards EU, Central and South Eastern European (CEE) countries may be viewed as a distinct group characterized by specific economic patterns developed as a result of transition to market economy.

Since 1997 there is a tendency of balancing Moldova's trade with the three areas. CIS share reduced from 70% in 1997 to 55.8% in 2002, this decline has continued throughout the first half of 2003 with 52.9% respectively. Throughout 1997 - 2002 EU share in the exports raised from 10.3% to 23.2%, whereas that of CEE from 10.9% to 12.9%. On the other hand, imports are more balanced: over January - July 2003, 42.1% of the imports came from CIS, 28.2% from EU, and 17.1% from CEE. As for foreign direct investments, CIS accounts for around 49%, followed by EU with only 36%.

Despite the traditional economic ties with the former soviet republics, EU has a far greater power of attraction for Moldova than the East, as its purchasing power exceeds by far that of Russia and Ukraine. According to the foreign trade gravitational theory, if it were not for certain economic, political and cultural factors, Moldovan foreign trade with EU would have exceeded that with CIS. The aforesaid factors include among others tensed political relations with Romania, prohibitive customs tariffs imposed by EU, inconsistency of quality and technical norms, unstable investment climate, and last but not least incompatible Moldovan and European business culture.

Once the aforesaid factors are eliminated it would be possible to conduct a structural adjustment of the foreign trade and foreign direct investments to Moldova by increasing the EU share (of course without diminishing the total CIS one). We believe EU integration would contribute to the achievement of this task and would have a positive impact on the economic development and economic security of Moldova. However, in contrast to the claims of the Chisinau leadership, EU integration runs counter to a deeper integration within the Eurasian regional structures.

Economic effects of being part of CIS

Statistics indicate that from 1995 (Moldova joined CIS in 1994) to 2002 the share of Moldovan exports to CIS in the total amount of exports decreased by around 1.1 percentage points per year, in the case of Russia the decrease was even greater - 1.5 percentage points. During the said period, exports to EU increased on average by 1.66 percentage points. Having said that, what kind of economic integration are we talking about if there is a constant decline tendency?

As for the foreign direct investments, one may say CIS didn't play any role at all in this respect. The considerable share of Russian investments in Moldovan economy is due to personal contacts between Russian businessmen and Moldovan politicians, rather than to CIS. A part of the Russian capital was invested in Moldova as a result of converting the debts into securities issued to the Russian creditors.

As they are outlined in the founding documents, the economic reasons for establishing CIS are rather ambitious. The major goal is creating "a single economic area", however a detailed outline of this concept is nowhere to be found in the official documents. Needless to say, since CIS was established not even a free trade zone was made possible. Interestingly, Russia, the greatest verbal promoter of the integration permanently opposed the establishment of such an area.

Moldovan trade with CIS countries was based on bilateral agreements rather than on favorable terms agreed at a multilateral level. Even the multilateral trade agreements have been revised and denounced several times. One can hardly say that CIS has ever existed from an economic point of view.

Therefore, breaking away from CIS would not bring to an end any multilateral trade agreements of major importance for Moldova. In the time period between breaking away from CIS and association to EU, Moldovan trade with Russia, Ukraine, Belarus and Kazakhstan might be regulated by the same bilateral agreements. Even if some unfavorable economic conditions surface in the meantime, I suppose those would be produced by the CIS punitive actions rather than by the economic developments as such. In the eventuality of joining EU, bilateral agreements would have to be renegotiated in line with EU customs policy.

The new Single Economic Area

The establishment of the Single Economic Area (SEA) by Russia, Ukraine, Belarus and Kazakhstan at the Yalta Summit in September 2003 heralds the end of CIS. The establishment of the SEA only by four states was determined by the impossibility to reconcile the interests of all the post-soviet actors within a larger framework. At least Russia, Belarus and Kazakhstan are sincere in their desire to integrate. Ukraine, however, is a different story. President Kuchma put his signature under the agreement for electoral rather than strategic reasons. Nevertheless, this is the country to have a saying either in the consolidation or downfall of SEA.

Limited to four founding countries, SEA represents 90% of the CIS economic potential and is a self-sufficient structure from an economic point of view. If successful, SEA might become a strong pole of attraction for the rest of CIS countries. However, the latter are likely to be admitted only after making political or economic concessions to the initial founders.

Under the founding agreement, the following tasks are to be fulfilled in view of efficient economic integration within the SEA:

• Adopting single principles regulating the natural monopolies;
• Adjusting macro-economic policies;
• Adjusting and bringing in accordance the regulating framework of the economy and trade;
• Establishing a free economic zone, without any derogation or limitations;
• Establishing a single customs policy and single competition and subsidies rules;
• Integrate technical and sanitary norms and standards.

The adjustment of economic policies would necessitate a single currency, of course the Russian ruble. Moldova's eventual adhesion to this agreement would make EU integration impossible. At a closer look at the document one may find that the founding states intend to establish a supranational body. In particular the agreement provides for the establishment of a single regulating body, to which member states would delegate some of their national competencies based on international agreements. Decisions adopted via level-headed voting (according to Article 4, the number of votes attributed to each member state shall be proportional to its economic potential) shall be binding for all the parties to the agreement. All the international draft agreements of the SEA shall be adopted only upon endorsement by at least three countries, which account for at least 2/3 of the SEA overall GDP. There is no doubt that such decision-making mechanisms enable Russia to control all the decisions taken.

Assessing EU integration

The key to SEA success is Ukraine's willingness to cooperate. However, given that EU integration has been declared a top priority for Ukraine, it is very likely that SEA would have the same fate as many other CIS initiatives (ex. GUUAM and Eurasian Economic Union). EU is the only relevant option of regional integration for the Republic of Moldova, not only economically but also politically.

Nonetheless, EU integration means costs but also benefits. CEE countries, which already joined or are due to join EU, were meticulous in assessing the economic effects they were counting on. They also did their best in negotiating the most advantageous terms of accession. Given that Moldova's negotiating potential is very low, we have all the reasons to believe that EU itself would decide the terms rather than Chisinau.

The main negative effect to be expected from Moldova's accession to EU is an overturn in the trade balance with CIS, which currently accounts for 44% of the total foreign trade. Considering the present tendencies, it might well happen that before Moldova joins the European customs union CIS share would shrink even further. By mutually eliminating customs barriers, the trade diversion against CIS would be compensated/diminished by trade creation effects against EU. There might be an increase in Moldova's trade deficit with EU, as Moldovan exports would probably grow slower than the imports from EU. Only by improving considerably the quality and structure of Moldovan exports this risk could be diminish.

Another risk is that inefficient domestic producers would be cast out facing tough competition from European producers. However, there are fields with great potential in Moldova, such as: agriculture and food processing, textiles, as well as such services as tourism, IT, banking, etc. The flow of foreign investments from the West would also increase, as was the case of CEE after their accession to EU. Due to cheap labor in Moldova, some of the investments currently placed in CEE might gradually migrate to Moldova.

Joining EU would also mean giving up customs tariff, which would then go to the EU budget. This might have a negative impact on the domestic budget, as currently customs is the main source of income in the national budget. Furthermore, there is the cost of implementing "aquis communautaire" to be considered. Moldova could partially decrease the cost if Romania provides the European legislation it had already translated into Romanian. During the accession, net budgetary effects were positive in CEE, due to the fact that those countries benefited of the EU structural budget funds. It remains to be seen whether Moldova would benefit of those funds as well.

There would be a social-economic impact as well. Prices would go up as a result of Moldova's economic convergence however it would be compensated by a salary raise. It might be expected that the unemployment would rise as a result of bankruptcy of some state companies, on the other hand it is also expected that there would be new workplaces created as a result of direct foreign investments. In general, the most positive effect increased competition would bring - higher efficiency in allocating public money as well as better protection of contractual parties (ex. consumers).

Accession to EU would also require meeting financial and economic convergence criteria. The replacement of the national currency with the European one would diminish or even abolish certain national economic policy instruments (such as foreign currency or monetary policy), as well as limit the areas in which the fiscal policy is applied. These costs would be compensated by a greater stability in case of an international financial or monetary crisis, increased transparency of the prices and markets, diminished transaction costs, diminished interest rates and a lower risk rate in the financial sector.

We should also take into account that individual or sector costs might also mean social benefits. Loses one sector may bear or cast out companies might free resources which are to be allocated more efficiently into other sectors or companies. It is also necessary to compare political costs and benefits, not merely the financial ones, both in the case of EU and CIS. Otherwise, Moldova's involvement in Eurasian integration processes following the argument of "cheaper natural gas" is nothing but a crime against next generations.