Monday, March 30, 2009

Evolution of Transnistrian External Trade: Prospects of Conflict Settlement

Despite its unrecognized status, unsustainable nature of foreign trade volume and also prevalence of centrifugal drifts in politico-economic landscape, Transnistria’s external trade is on surge. It is mostly due to the fact that after ownership privatization new business elite – local entrepreneurs and foreign investors – have been formed in the region. Apart from it, normalization (or legalization) of customs regime accelerated the process of Transnistrian economic development. The main challenge for the new elite to expand their businesses, using huge industrial capacity of the region, is the problem of recognition, which is wholly resulted by the hesitant position of ruling government. Thus, the evolution in economy with emerging of new business elite and normalization of customs regime call for sooner removal of status-quo in settlement process, solution of the legal status of PMR to legalize rising businesses and expand its coverage (being part of international economic relations), which can also be explained as getting a move on going to feasible compromises in ‘Transnistrian issue’.

Transnistria’s external trade

The conflict between Moldova and its most developed region – Transnistria has exceeded the limits of intrastate confrontations and epitomized regional constituents. The economic concerns have at all times lain behind the flare-up of “Transnistrian issue” and since outburst of the conflict, this underlying principle has been ever building up to the vanguard. Two encouraging historical phenomenon can critically back up this postulation:[1] First, After demise of Soviet Union, there was a wide acceptance that Transnistria’s striving for secession has been motivated to a great extent by economic grounds of the would-be displaced elite group. Indeed, first move of Transnistria heading towards breakaway from MSSR and shaping a separate administrative unit was the resolution of local deputies on founding a “Transnistrian Free Economic Zone”. Eventually, these interests have been toughened by monetary privatization (since 2002) with immense participation of both regional elite and foreign investors (mostly from Russia).

However, the unclear legal status of Transnistria, which made it impossible for local economic actors to enjoy equal rights with other players in the international economic relations, has shaped a specific nature of the Transnistrian economy. The limited potential of the local market gave rise to extreme openness of economy and dependence on the regional and international market. The excessive openness and dependence resulted in non-competitiveness of market and increased import of a variety of products, mostly of food-processing industry. Hence, external trade exposes the situation in the real sector of the Transnistrian economy and diametrically encroaches on the economy.[2]

If one analyzes external trade of Transnistria, one can come to the conclusions that (a) export-import turnover are unsustainable and depends strongly on changing conditions; (b) commodity composition of export is pretty limited; (c) external trade is relatively well diversified.

Unsustainable external trade volume: Though Transnistrian external trade volume increases, from year to year, export and import turnover becomes more unsustainable. From 1995 until 1997, there was a registered debit balance in trade. However, this practice has not carried on and import embarked on exceeding export until 2006. Beginning from 2006, export started again surpassing import. So, the rise in the foreign trade volume of the region is pretty paradoxical: while export during the last ten years doubled up, the import reduced twofold. (See: Graph 1 and 2).

Graph 1. Dynamics of Transnistrian Export and Import in 1995-2007 years, with Mio US$[3]

Limited commodity composition of export: Commodity composition of export is pretty limited. In 2005 and 2007 years, basically, share of four commodity groups – metallurgical products, products of light industry, products of machine-building sector and cement – in Transnistrian export comprised 93%. 65% of export counts on metallurgical product produced by Moldovan Metallurgical Works in Rybnitsa. The second place is occupied by the products of light industry with 17%. (See Graphs 3 and 4).

Graph 2. Structure of Transnistrian Commodity Export in 2007, with Mio MDL[4]

Relatively well diversified external trade: Though trade relations, in general, are unsustainable and dependent, Transnistria tries to expand geography of external trade. In 2005, Transnistria carried out foreign trade relations with about 100 countries (In 2000, it was 70 countries).[5] CIS countries, mostly Russia, Ukraine, Belarus, Kazakhstan and Uzbekistan are traditional external trade partners of Transnistria, of which share in external trade is quite high. However, as can be seen from the below graph, Transnistria managed to diversify its external trade orientation beginning from 2007. While share of EU countries in Transnistrian export was 32% in 2005, it exceeded 38% in 2007. (See: Graph 3)

Graph 3. Structure of export of Transnistria for 2005 – 2007 years, with Mio MDL[6]

New rules for transport of goods: Legalization of the Transnistrian foreign trade activities

Entry of Moldova into WTO in 2001 and forthcoming entry of Russia and Ukraine (Ukraine is already member of WTO since May, 2008) into the same organization created new prospects for both Transnistrian external trade and “Moldo-Moldovan” (Moldova and Transnistria) relationships. Control over state borders to legalize external trade activities turned out to the most important issue.

First agreement on harmonizing customs legislature and liquidation of internal customs posts was reached in 1996. At that time Transnistria managed to legalize its external trade by getting the customs seals of the Republic of Moldova, while performing export-import operations. In 2001, when Moldova was admitted into WTO, the situation was changed. In the same year, Moldova introduced new rules which ceased giving customs stamps to Transnistria. Transnistria was deprived of the right which was granted to the region by Moldova in 1996. The region responded the new changes very quickly. They protested it mentioning Moscow Memorandum, which grants rights to the foreign economic operations to Transnistria.[7] 20% customs duty was introduced to the import of all Moldovan goods and migration control was set up for foreign citizens.[8] The reaction of Ukraine was rather late, as its economic agents were actively involved in traffics in Transnistria. The Protocol on recognition of shipping, commercial and customs documents was signed in May 2003. However, despite the official protocol between Moldova and Ukraine, Ukraine carried on recognizing old customs stamps from Moldova as valid. Further, in July 2003, Moldova introduced new resolution (#712). Under this resolution, the economic agents of Transnistria could execute documents necessary for export-import transactions only after temporary registration at the State Registration Chamber of Moldova.[9] The consequences of the new rules were: accesses of Moldovan goods to Transnistrian market were pretty restrained: special customs duty increased up to 100%; Regional market “was given” to Ukraine, of which goods are not subject to levying of duties.[10]

In July, 2004, Moldovan Government issued a decree that any economic agent from Transnistria may only perform export-import operations within internationally recognized borders of Moldova in accordance with national legislation and international norms. As a result, EUBAM Mission started to operate along Moldovan-Ukrainian border in December, 2005. Though the export of economic agents of the Left Bank was expected to swing down after this decree, as it can be seen from the Graph 1, in 2004-2005 years, foreign economic transactions of Transnistria have been growing.

In August, 2005, Decree on regulation of traffics, performing foreign trade transactions, was issued by Moldovan Government, through which Moldovan Registration Chamber was charged to introduce Transnistrian enterprises in the State Registry (temporary) to obtain “C”-type certificates of origin and “CT-1”-type for export to Ukraine. “A”, “CT-1”, “RM” and “EUR”-type certificates of origin can be given to those enterprises which registered permanently. This regulation was taken effect since March, 2006. Indeed, Transnistria opposed new changes: first, TD authorities recommended region’s enterprises not to register in Moldovan authorities; and later conducted quite an effective PR-campaign against “economic blockade”. The aim was to get political and economic support from Russia. Despite Transnistria’s authorities claimed that the region’s budget and Ukrainian economic agents could loose daily 2 Mil. US$ from the “new border and customs regime”, the official figures show differing scene. If one analyses the official statistical data issued by the Ministry of Reintegration, one can see the foreign export of the region increases even faster than it did until March 2006. (See: Graph 4). For example, volume of export products from Transnistria for the first half of 2008 increased 62,3% and 52,9% as against the appropriate period of 2005 and 2007 respectively.[11]

Since introduction of new regulation up to July 1, 2008, 441 economic agents of Transnistria were registered in the State Registration Chamber of the Republic of Moldova. 156 out of them are permanent and 285 are temporary.[12]

Graph 4. Dynamic of export and import of Transnistria since 2006, with EUR[13]

Prospect of settlement of the conflict

The biggest business group of the region is Sheriff. According to US Institute of Peace, in 2005 the annual turnover of this holding company was about 2 billion USD, while Transnistrian budget was estimated to the amount of 85 million USD.[14] The Sheriff Group became the biggest taxpayer in Transnistria in 2006, having contributed US$31.3 million to the regional budget, or 11.2% of it.[15] There is a wide acceptance that “if publicly Smirnov remains unchallenged, influence of Sheriff on political and economic life cannot be denied. The population depiction of PMR has also shifted from ‘Papina I maja respublika’ towards ‘Sheriff Republic’”.[16] Together with its entrepreneurial activities, political ambitions of Sheriff have also grown. With the backing of Sheriff, Renewal movement was established. In the parliamentary elections of 2005, it won the majority which challenged pro-Smirnov Republican Party. Growing towards both political and economic power in the region, Sheriff has not agreed with the isolation of the region. It is true that the official policy of Renewal is international recognition, but some local and international politicians bring an argument that within certain framework, Sheriff is ready to yield Transnistria’s independence demands to get its business legalized.[17]

Deployment of EUBAM and Moldovan-Ukrainian Agreement of March 2006, which strengthened border control and requested Transnistrian enterprises to register in the respective bodies of Moldova, threatened Smirnov’s patrimonial rule. Legalization of borders pushed him to worry about to strengthen his internal position in this difficult economic situation. That is why he recommended Transnistrian enterprises not to register in Moldovan authorities, trying to convince them that Moldova attempts ‘to take them out from Transnistrian “legal area” and financial-budgetary system’.

So, normalization of situation by the tightened border control with coming of the EUBAM to the region, as well as by the customs agreement of March 2006 and economic growth with emerging new business elite produce optimistic judgement that the conflict can find its solution in the near future (?).

[1] Anatol Gudum, “Transnistria: Conflicts and Pragmatism of the Economy”, CISR.
[2] CISR: “Transnistrian Market and its impact on Policy and Economy of the Republic of Moldova”, 2005. pp.12
[3] Export data for 1995-2005 were taken from “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, CISR, Chisinau 2007, pp. 5, which cited to “Статистический ежегодник ПМР”. Data for 2006 and 2007 were collected from EUBAM Monthly reports
[4] Official data of the Ministry of Reintegration of RM for 2007
[5] “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, CISR, Chisinau 2007, pp. 4
[6] Official data of the Ministry of Reintegration of RM for 2007
[7] Anatol Gudum, “Transnistria: Conflicts and Pragmatism of the Economy”, CISR.
[8] “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, CISR, Chisinau 2007, pp. 34
[9] Ibid, pp. 34
[10] Ibid, pp. 34
[11] Official data of the Ministry of Reintegration of RM for the first half of 2008
[12] Ibid.
[13] Data were collected from EUBAM Monthly reports
[14] Daria Isachenko and Klaus Schlichte, “The crooked ways of state-building: How Uganda and Transnistria muddle through the international system”, Working Papers Micropolitics No 4/2007, pp. 22, cited to Profil, Austrian Magazine, “The Dollars from Sheriff” business, 14 March 2005
[15] Infotag, 17.05.2007
[16] Daria Isachenko and Klaus Schlichte, “The crooked ways of state-building: How Uganda and Transnistria muddle through the international system”, Working Papers Micropolitics No 4/2007, pp. 23
[17] Ibid, pp. 22

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