• Jeyhun Aliyev

Politico-economic Compatibility of Deep and Comprehensive Free Trade Agreements

How the Practices of the Wider Black Sea Region Can Assist


Photo credit: https://www.sipri.org/news/2019/sipri-informs-black-sea-security


Introduction


European Neighborhood Policy is renowned for the vision of expanding the EU’s influence over its neighbors and for being the most favored policy by the EU vis-à-vis eastern European countries. As the majority of agreements work differently for different countries, the EU needs to conclude diversified provisions within treaties.

Deep and Comprehensive Free Trade Agreements (DCFTAs) serve as a prime example of this. This agreement allows the country to become integrated with the European Single Market in a limited manner with four freedoms. They include the movement of goods, capital, services, and people. The general rules are similar but the details are distinct for each country’s case. Moldova, Ukraine and Georgia became the party of this agreement because they have DCFTA articles in their Association Agreements (AAs) with the EU as well. The research will discuss politico-economic results of DCFTAs in connection with another major EU-led policy: It is called the Wider Black Sea Region (WBSR). WBSR projects are also part of the European Neighborhood Policy. The common success of WBSR and DCFTA is the key for the well-functioning of the DCFTAs from uncountable perspectives. The idea of this analysis is to discuss how this success could be achieved with exemplary projects of WBSR not only economically, but also politically. DCFTA texts usually adopt a laissez-faire approach for businesses. They do not show the EU’s specific economic intentions, and do not state which measures of cooperation would increase the enterprises’ assets most both for public and private good. This is quite opposite in the Wider Black Sea projects. They are more direct in terms of sectors or facilities that will be developed, implementation details, and most crucially, the EU’s benefits from them. Furthermore, the projects are primarily inter-governmental. The core focus of this conjunctive analysis is to reveal the common working methods for both DCFTA and WBSR policies. They both intend to have lasting economic and political impacts on the Black Sea region and in its wider geography but by other means.


Trade is the most well-established cornerstone of the EU and exerts an immense force over the geopolitical realm. For decades, the EU has openly employed it to its advantage over geographical rivals – first, by cooperating with countries in question, followed by their accession into the single market or just sphere of economic influence. The main purpose of Eastern European countries is to become EU members, unlike other countries which signed trade treaties with the EU.


The instrument’s power is hindered by its clarity that the three eastern European countries are on the way to joining the EU. Because a forefront contender, Russia, with its traditional, perhaps even more suitable political and economic tools, is exacerbated with the outlook that bears proximity to idealism (the expansion of the EU values) and realism (financial benefits) (Koeth, 2014). However, the WBSR programmes sometimes include Russia and do not make it feel like an outsider or a rival. The same cannot be said about the DCFTAs. Additionally, all three signatories of DCFTAs have undergone enormous political problems with Russia, and including them in the same group to any treaty with the EU would trigger grief on the Russian side. Hence, the signatories of DCFTAs with the EU, namely; Moldova, Ukraine and Georgia face obstacles of DCFTAs on political and economic grounds.

This article argues that the EU incentives for further cooperation in regards to the Wider Black Sea projects should be incorporated into DCFTA provisions. This could result in more compatible and less Russian challenged DCFTAs. Furthermore, North African countries’ experiences of negotiations on the DCFTAs will be included. Moreover, WBSR countries’ trade and project experiences with the Union will be reviewed in order to comprehend the tangible benefits of WBSR policy and drawbacks of some of the DCFTA terms.


Deep and Comprehensive Free Trade Agreements


The deep side of the agreement translates into two main groups of provisions (Adarov & Havlik, 2016, p.19) (Hoekman, 2016). The first one is concerned with technical requirements of the specific products and services such as non-tariff barriers, food safety, etc. The second part, by nature of the word deep, constitutes acquis communautaire. This phrase encompasses the body of EU values, norms and political aims. If countries sign DCFTAs, they are not only responsible for economic actions, but also are demanded to modify the regulations of trade according to acquis standards. Also, if a country wants to become an EU Member it must fulfill three accession criteria, also known as the Copenhagen criteria. In fact, one of the three accession criteria is the provision of acquis (EUR-Lex).


The comprehensive aspect is reflected by the increased number of areas that the agreement includes e.g., trade in services, public procurement, cross-border investment, intellectual property (Adarov & Havlik, 2016, p.19). Nonetheless, the scope of the agreement is restricted by many factors. Most notably, some domains of production are deemed as sensitive both by the EU and the three countries, and they acquired gradual transmission permits from 3 to 15 years depending on the field of production (Adarov & Havlik, 2016, p.24).


A Map of Deep and Comprehensive Free Trade Agreements




DCFTAs began to gain momentum in December 2011 after the Arab spring. Egypt, Jordan, Morocco and Tunisia were the target countries. In contrast, negotiations with Egypt (European Commission, 14 June 2021) and Jordan (European Commission, September 2021) have not started yet. The negotiations were further prevented by the political and economic concerns that the uprising brought to the region. For example, Morocco’s negotiations were put on hold soon (March 2013 until July 2014) over the concerns of the economically affected areas by the agreement (Hoekman, 2016) (European Commission, 24 June 2021). Tunisia began to negotiate in October 2015, without much zeal. Tunisian civil society considered the deal as “neo-colonialism” from the EU, since there are particular markets that will be under direct competition pressure (Gonzales, 2021). The last fourth round of negotiations was held in April-May 2019 (European Commission, 9 June 2021). Tunisia’s negotiations have been on hold since then. Furthermore, Turkey might be the next DCFTA if the EU-Turkey Customs Union agreement becomes successful (Szigetvári, 2020, p. 75-77) (European Commission, 2016). Armenia was coerced to cancel the negotiations when it encountered considerable Russian opposition on September 3, 2013. Just after the discussions with Vladimir Putin, Armenian President announced at the press conference in Moscow that his country will not join the DCTFA: “We have…held a detailed exchange of views on issues of Eurasian integration, and I confirmed Armenia’s desire to join the Customs Union and to join in the formation of the Eurasian Economic Union.” (Gardner, September 2013).

DCFTA entered into full-scale force in Ukraine on 1 September 2017, while the full-scale implementation began in July 2016 both in Georgia and Moldova. The EU is the main trading partner of both Moldova and Ukraine (around 54 % and 42%), and it is one of the main trading partners of Georgia (23%) (The Council of the EU and the European Council, 2019) (European Commission, April 2021). These facts play a huge role, nonetheless, the definitive role is played by the desire to join the EU. This factor was absent for the negotiating Arabic countries, which could explain their choice not to adopt EU legal and administrative norms with huge costs on some sectors.


Wider Black Sea Region


The EU has not provided a precise vocabulary for defining the Wider Black Sea Region, but Scholars on WBSR would define it mostly as the Black Sea coastal states and neighboring countries of them (Hamilton & Mangott, 2008, page v). The projects are carried out by various actors or their teams, for example states, the EU and international organizations, among others.


Enlargements of the EU to Romania and Bulgaria in January 2007 was the expression of the EU’s increased interest in the region and marked its access to the Black Sea. Ukraine and Georgia are the Black Sea countries, whereas Moldova lies within close proximity of the Sea. Black Sea Region plays a vital role in Europe’s energy, security and trade. Half of Europe’s energy transports go through this region and NATO regards Black Sea as the major smuggling road for counterfeit goods, radioactive materials, and terrorist financing (Houston et al., 2010, p. 20-21) (Aurescu, 2011, p. 41). Fisheries generate direct jobs for more than 23.500 persons and marine-related industries directly provide jobs to nearly 40.000 people (FAO United Nations, 2018).


Nevertheless, the region enjoys a massive concentration of projects, a substantial number of which are not carried out constructively. As such, there had been many initiatives that were not fully implemented (e.g., Nabucco, TRACECA-reconstruction of historical silk road). The greatest number of territorial conflicts is concentrated in this region as well. Black Sea Economic Cooperation (BSEC) was established in 1992 and it includes many countries on the coast and the ones that heavily trade via the Black Sea. So far, BSEC is the most influential organization in the region in terms of its longevity and number of permanent members where the EU became a permanent observer in 2007. An analysis of the idea of the Wider Black Sea Region illustrates that the effectiveness of the DCFTA depends on it to a huge extent.


Conjunctive Politico-Economic Analysis


The clauses of DCFTAs that are completely opposite to Russian-made trade treaties damage the regional partners of signatories and, consequently, all parties to the treaty. For example, the Russian GOST standards are flawed and require huge amendments so they can meet international food safety requirements (Hoekman, 2016, p.10). However, radical change that comes with DCFTAs doesn’t only put the country in a difficult position before Russia, but before many post-Soviet or regional states that are used to having GOST. This raises the cost for workers and businesses from many perspectives. Having said that, unsurprisingly, Russia has shown to be against the DCFTAs. Russian opposition was made apparent in the case of Armenian negotiations with the EU in 2013. The country was compelled to stop it in the face of pressure and join the Russian-driven Eurasian Economic Union (Gardner, September 2013).

Statistical metrics from governments and researchers illustrate that DCFTAs increase the trade volume, but do not increase FDIs from other countries by a considerable degree (Szigetvári, 2020, p. 78) (World Bank, Moldova Trade Study, 2016, p. 18) (World Bank-Ukraine, 2019) (World Bank- Georgia, 2019). But the idea of DCFTAs had been to increase FDIs from non-EU countries too (Messerlin et al., 2021, p. 34-35). It might be the partial reason why Tunisia and other Arabic countries have not signed the treaty and accused it of neo-colonialist tendencies. FDIs are to be positively impacted in the case of administration of WBSR projects. Presumably, acquis would come at a higher regulatory cost for Russia as well. If acquis does not reflect on the increased FDIs from other trading partners besides the EU, imposing new standards of trade may prove to be a harsh decision for the countries that do not wish to become EU members in the long-run.


Few well-known EU policies and initiatives in the WBSR include, namely, the Black Sea Synergy, the Eastern Partnership, the EU Strategy for the Danube region (Aurescu, 2011). Especially, the success story of the Indicative TEN-T Investment Action Plan for 2020 and 2030 must be mentioned for additional studies (European Commission, January 2019). This plan was very inclusive and comprehensive. It proved that acquis can be achieved through other avenues than trade deal obligations. Additionally, The Black Sea to the Baltic rail project (2020-2021) by Poland and Ukraine included three Russian ports: Ust-Luga, St. Petersburg and Kaliningrad (The Maritime Executive, 2020). Another WBSR project that included Russia is Burgas Vision Paper- A Blue Growth Initiative for 2030 (Celac et al. 2012). The existence of The Black Sea Naval Cooperation Task Group (BLACKSEAFOR) likewise underpins the idea that Russia can collaborate in diverse settings when its interests are met to some degree (Aurescu, 2011).


Apart from Russia as a regional force, there are other global actors that are willing to increase their market share with more conducive terms: China in particular (Hoekman, 2016, p. 11). The idea of DCFTA as a conflicting deal can be eradicated with the successive strategy of many WBSR plans: they can include any interested countries and enterprises. However, in the latter case, the EU will state the terms for the participant countries, and not other actors such as Russia or China. The initiators might include the World Bank or IMF as long as the politico-economic aims are not challenged.


Chart of the DCFTAs and WBSR projects as a contributing part of the ENP



1. Deep and Comprehensive Free Trade Agreements:

  • Economic Challenges: food safety standards are too high, less FDIs from non-EU countries, acquis requires costly economic solutions, etc.

  • Political Viability Issues: the economic cooperation of signatories with other trade partners is ignored, less or no room given in determination of the norms of trade (acquis), Russia with Eurasian Economic Union is against it.


2. Wider Black Sea Region projects:

  • Economic Challenges: too many projects that are not implemented or started yet. Already established country agreements and blocs on the Black Sea region reduce the economic strength of aims.

  • Political Viability Issues: the EU does not possess a clear definition of the WBSR and introduces initiatives from now and then. Already established country agreements and blocs on the Black Sea region reduce the political strength of aims.

*The focus of this study is on the DCFTA.


Conclusion:


It is not too late to change the image of DCFTA in the eyes of both opponents and potential signatories. Stated realities imply a lot for the EU. It should examine WBSR practices in order to increase the efficiency of DCFTAs. Amendment of respective provisions such as food safety, grounds for FDI and acquis requirements in some articles would lay the basis for more harmonious transition periods. Consequently, the EU and all related countries would incur less cost both economically and politically. The win-win mindset can induce Russia to be part of the development initiatives in DCFTAs as it did in WBSR. In turn, this will create more political backing for DCFTA’s success within the wider region.



Reference List:

  1. Adarov A. & Havlik P (December, 2016). Benefits and Costs of DCFTA: Evaluation of the Impact on Georgia, Moldova and Ukraine. The Vienna Institute for International Economic Studies Wiener Institut für Internationale Wirtschaftsvergleiche and Bertelsmann Stiftung. Retrieved from the website: https://wiiw.ac.at/benefits-and-costs-of-dcfta-evaluation-of-the-impact-on-georgia-moldova-and-ukraine-dlp-4111.pdf

  2. Aurescu B. (2011). The European Union in the Wider Black Sea Region. Turkish Policy Quarterly