Andrey Deviatkov: Achieving compliance: Transnistria in the free trade with the EU

In 2015, after a long process of negotiations in the context of creating EU-Moldova Deep and Comprehensive Free Trade Area, the Transnistrian government reached an agreement with the European Commission about keeping the regime of autonomous trade preferences for the regional trade until January, 1 2018. In return Tiraspol committed itself to liberalize import tariffs, to provide compliance with sanitary, veterinary and phytosanitary regulation and to harmonize its tax system with international standards. Among these issues the issue of import tariffs seems to be the most urgent one: the European Union is not able to further tolerate the asymmetric trade regime with Transnistria, what originates from the fact that the region may export its industrial products to EU markets under zero tariffs while companies from the EU have had to pay high import duties. That’s why the main question for the Transnistrian foreign trade is now whether the region will be able to keep the preferential regime with the European Union in the next year. Particularly important it is for the Transnistrian rolled steel: about 80 % of it is going currently to the EU market. Textiles, footwear and some agri-food supplies are also substantially concerned.

As we described earlier, the Transnistrian government made the first step in providing compliance by having adopted a special Regulation on June, 1, amending the previous legislative act on Common Customs Tariff of the break-away republic for the period of 2017-2018. According to this document, zero import tariffs for some categories of products coming from the EU countries were installed. But that time the government managed to liberalize the trade regime only partially, because high duties were kept for many segments of both industrial and agricultural products. Tiraspol’s authorities were evidently interested in both defending some local producers and fulfilling its own fiscal aims.

On October, 10 a new regulation appeared. This document clearly states: import duties are not charged for products, in case the EU countries are countries of origin. At the same time the regulation of the government established a list of exemptions. While looking at this list, we can clearly see that import duties, which remained functional in the previous regulation from June, 1, are eliminated practically for all industrial goods (electrical equipment, metal products, furniture, cosmetic products, jewelry etc.). High tariff defense is still valid only in case of textile products, footwear and non-white portland cement. These items are of interest, but it can be argued that not only of Transnistrian producers, but probably also of European investors, which actively use tolling schemes in textile and footwear branches in Transnistria. Chisinau also uses tariff defense for these segments, but Moldova’s tariffs are surely lower.

Agricultural and food products are also concerned. Due to the new regulation of October, 10 Tiraspol fully liberalized the import regime for vegetables (except champignons), beverages (except apple and tomato juices), sugar, eggs, rice. Import duties of 5-10 % remained for the following categories: chicken and pork meat, sausages, milk products and fresh cheese, some fruits (apples, cherry, peaches, plums, strawberry), bakery products and some meal items. It should be mentioned that Chisinau also uses tariff defense for agricultural and food stuff, both in form of higher tariffs and quotas. It is not clear how special quotas extra for the Transnistrian region can be negotiated within the DCFTA, that’s why it seems to be normal that customs duties used by Tiraspol are higher than those established by Chisinau. All the current changes made to Common Customs Tariff of Transnistria can be observed in the Table 1.

To this end, it can be concluded that Transnistria made substantial progress in fulfilling its obligations for keeping preferential trade with the EU. It is also a result of active negotiations with representatives of the European Commission and EU Delegation to Moldova, who used to visit Tiraspol quite often in recent months. We do not know exactly, whether Tiraspol is now meeting all the commitments, made in the special agreement with the EU in 2015 (it had never been published), but the most obvious part of these commitments seems to be carried out. Probably Transnistria is obliged to further decrease its tariffs for sensitive goods, but if so, it should be done within some time periods, like in Moldova.

With regard to the tax system, we will see any possible changes soon, because the government is currently preparing the fundamental tax reform. In the sphere of sanitary, phytosanitary and veterinary regulation it should be mentioned that Ukraine and Moldova are trying to introduce now the Moldovan regulation for Transnistrian importers, what should obviously urge both the Transnistrian authorities and the local business to strive for complying in this area too.

The main problem for the local authorities is now how to cover the fiscal losses which will definitely appear after the implementation of the amendments to Transnistrian Common Customs Tariff. They can amount to at least ten million dollar (the import from EU countries was about 180 million dollar in 2016), what will heavily burden the Transnistrian budget system.

Table 1. Customs duties on selected goods imported to Transnistria