Nico Groenendijk

Johan Skytte Institute of Political Studies, University of Tartu, Estonia nicolaas.groenendijk@ut.ee

Abstract

The implementation of Deep and Comprehensive Free Trade Agreements (DC-FTAs) within the framework of the EU Eastern Partnership (EaP), comes with costs and benefi ts for the three EaP countries involved (Georgia, Moldova, and Ukraine). Association processes are different from earlier accession processes in the sense that they have a more limited scope (by focusing mainly on limited access to the Single European Market) and do not necessarily lead to EU membership. Still, the approach followed by the EU in the EaP is to a large part path-dependent and builds on earlier enlargement practices. It is questionable whether this approach is the most effective.

In this paper, a typology is presented of the (economic) costs and benefi ts of implementation of DC-FTAs in the three EaP countries, for different sectors in society, and differentiated over time (short, medium and long-term). The magnitude and dynamics of these costs and benefi ts of association are tentatively compared to similar costs and benefi ts of earlier accession processes. From this analysis it follows that association involves higher costs, lower benefi ts, and misses out on the bonus of EU membership. In the case of association there is far more front-loading involved than with accession. The paper also looks at the potential implications this has for popular support of integration of the three EaP countries into the EU. In conclusion, it argues for more differentiation, more fl exibility, and more gradualism in implementing the DC-FTAs in Georgia, Moldova and Ukraine, in order to prevent costly and unpopular front-loading.

Key words: Deep and Comprehensive Free Trade Agreement (DC-FTA), Association Agreement, Eastern Partnership, EU accession, European neighbourhood, front-loading

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Introduction

Deep and comprehensive Free Trade Agreements (DC-FTAs) go beyond mere liberalization of the trade regime between the European Union (EU) and third countries. They involve:

– traditional reduction of trade-barriers (TBs): tariffs and quotas;

– reduction of non-trade barriers (NTBs), i.e. barriers ‘behind-the-border’:

the ‘deep’ aspects (for example: food safety standards);

– legal approximation to EU law in various areas: the ‘comprehensive’

aspect, involving more general issues as, for example, public procurement and dispute settlement.

DC-FTAs are used by the EU in a broad and diverse range of economic relations with third countries. The focus here is on the use of DC-FTAs as the economic core of the so-called Association Agreements (AAs), in the Eastern Partnership (EaP). The EaP was launched in 2009 as part of the European Neighbourhood Policy (ENP) and aims at strengthening and deepening the relations between the EU and its six Eastern neighbours:

Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. Currently, there are AAs in place with three of the six EaP countries. DC-FTAs with Georgia and Moldova became formally operational in July 2016, but were already implemented provisionally in September 2014. The DC-FTA with Ukraine has been provisionally implemented in January 2016.

The use of DC-FTAs in the EaP was brought about as part of the changes made in the ENP in 2009, which was originally copied from the model of the EU’s enlargement policy and followed a one-size-fi ts-all approach (Koeth 2014). The DC-FTAs have a clear economic focus, and are bilateral by nature.

They do use part of the acquis communautaire to establish the obligations of the countries involved, but it can be argued that they have a more mutual character; this fi ts in well with the new EU approach to trade policy which relies less on the World Trade Organization (WTO), i.e. on multilateralism, and more on bilateral agreements (Koeth 2014: 23). However, doubts can still be raised regarding the two-sided nature of the DC-FTAs, as the EaP countries involved are not given full access to the Single European Market (SEM), have limited access to EU funding, and have a very limited say in setting the contents of their DC-FTAs. Most importantly, there seems to be asymmetry in the way the EaP AAs/DC-FTAs are perceived by the EaP countries and by the EU. Whereas the EU has repeatedly signalled that the AAs do not necessarily lead up to EU membership, such membership is actively pursued by Georgia and Moldova. This seems to be inherent to the

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ENP ‘roots’ of the EaP: as Cadier (2013) argues, the ENP was not originally designed as an alternative to enlargement, but it was suffi ciently vague for some aspiring countries to conceive of the ENP as such an alternative.

For the EU the ENP has been a surrogate to enlargement rather than an alternative (Cadier 2013: 55), meaning that to a large extent the ENP could be modelled on earlier accession processes. This has brought the conditionality logic into EaP accession processes: compliance with the EU acquis (which comes with costs) precedes SEM access and other benefi ts.

Generally, according to a recent literature overview (Kostanyan 2017), the literature on the use of conditionality in the ENP is rather negative about its effectiveness due to the lack of a membership prospect. Most authors argue that the EU’s offer to the EaP countries (limited SEM access, EU funding, visa liberalization) is not sizeable enough to offset the costs of domestic change (Kostanyan 2017: 36). Moreover, conditionality is not suffi ciently tailored by the EU to the capabilities of the countries involved (Kostanyan 2017: 62), which calls for further differentiation within the EaP.

Given the relative short period of implementation, it is understandable that most recent research on the effects of DC-FTAs focuses on the immediate effects these arrangements have had in terms of changes in trade fl ows between the EU and the countries involved, i.e. on short-term and static effects. As argued by Adarov, Havlik (2016), the chain of economic impacts of DC-FTAs is, however, far more complicated and diverse. As a  fi rst-order effect the reduction of TBs and NTBs impacts the costs of trade and the prices of goods, and thus changes export and import fl ows.

But combined with approximation to the EU law, the reduction of TBs and NTBs also has second-order effects on the general business environment, on FDI fl ows, on competition, on global value chains, on employment, on tax revenues, and ultimately on real (per capita) income and on the quality of life (see Adarov, Havlik 2016: 25 for an adequate visualization of this causal chain of impacts). It thus makes sense to have a more comprehensive approach to the impacts of DC-FTAs than just focusing on immediate trade effects.

The analysis of the implementation of DC-FTAs as part of the EaP is also interesting in light of the changes that the Lisbon Treaty brought to EU trade & investment policy and policymaking (see Woolcock 2010 for a  detailed overview of these changes). In addition to trade in goods, all trade in services, trade related to intellectual property rights (TRIPs), and FDI were brought into exclusive EU competence. The role of the European Parliament (EP) was strengthened as well: under the Lisbon Treaty trade

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legislation follows the ordinary legislative procedure, there is an increased role for the EP Committee on international trade (INTA), and all trade agreements have to be ratifi ed by EP. Moreover, EU trade and investment policy is explicitly made part of the wider EU’s external action. Article 207 TFEU states that ‘[…] The common commercial policy shall be conducted in the context of and the principles and objectives of the Union’s external action’, as outlined in Chapter 1 Title V TEU: support for democracy, the rule of law and human rights, as well as more specifi c aims such as sustainable economic, social and environmental development, and good global governance. Some attention (see for example Osteikoetxea 2013) has been given to the impact these treaty changes have had on the effectiveness of EU trade negotiations in the post-Lisbon era, on the ‘ownership’ of trade issues in the European Commission, and on the potential intervening role the High Representative for Foreign and Security Policy has to ensure policy coherence. However, it is interesting to see how such policy coherence, and the increased embedding of trade policy in the wider EU’s external action, have played out in practice, for instance in the case of DC-FTAs with the EaP countries. While this paper does not explicitly address that issue, it does link trade and non-trade aspects, and the more general societal costs and benefi ts of DC-FTAs within the larger framework of AAs.

Finally, looking at the implementation of AAs/DC-FTAs is interesting from the perspective of the dynamics of these costs and benefi ts of association, as compared to the dynamics of costs and benefi ts of earlier accession processes, leading to the 2004 and 2007 enlargements of the EU. The EaP association processes differ from earlier CEE accession processes in various ways. First, as mentioned above, the AAs (including the DC-FTAs) are less comprehensive as they do cover important parts but not the full acquis communautaire. Secondly, while the accession processes had a clear end point (accession to the EU), albeit not defi ned beforehand in time, in the EaP association processes the end point is ambiguous (both in content and time), and does not necessarily involve EU membership.

What the two types of processes have in common is conditionality: the third country has to comply with (parts of) the acquis in order to get rewarded (for example by means of limited access to the SEM). From the perspective of the association/accession country this means that costs generally precede benefi ts (‘front-loading’), which can be detrimental to popular support in EaP countries for integration into the EU.

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This paper addresses three issues. First (in the next section), it identifi es and clusters the main costs and benefi ts of association for the three countries (Georgia, Moldova and Ukraine) involved in the EaP AAs/DC-FTAs, by developing a typology of (positive and negative) effects of DC-FTAs, differentiated over time (short/medium/long-term). Importantly, by doing so, the paper will draw attention to the cost side as well as the benefi t side of DC-FTAs. Secondly (in the subsequent section), the paper will address the dynamics of costs and benefi ts of association, compared to earlier accession processes, and the potential impact front-loading has on popular support in the three EaP countries for the EU. Thirdly, the concluding section addresses the question how DC-FTAs can be implemented in such a way that costly frontloading is prevented.