Shadow Report: Six year of implementation of the EU-Moldova Association Agreement

Authors: Iulian Groza, Iulian Rusu, Stanislav Ghilețchi, Mariana Platon, Victoria Nemerenco

EXECUTIVE SUMMARY

During the sixth year of implementation of the Association Agreement (1 September 2019 – 1 September 2020), while summarising the results and constraints identified in the current Shadow Report, there is progress in those areas and sectors of the EU-Moldova Association Agreement, which have been conditioned by the budget support and macro-financial assistance programmes offered by the EU. The EU remains the most important economic partner of the Republic of Moldova, with over 63% of Moldovan exports oriented to the European market and almost 50% of imports that are of EU origin. No tangible progress was attained in the implementation of the values part of the Association Agreement.

At the same time, the EU has diversified the support framework for various actors of change, strengthening dialogue and cooperation with civil society, local authorities, SMEs and local communities. The EU’s image among citizens continued to improve. Thus, over 63% of Moldovans say they trust the European Union, according to a recent survey conducted in the Republic of Moldova and other Eastern Partnership countries.

The process of implementation of the Association Agreement has been hampered by the lack of a new national planning document for the year 2020. For the most part, national authorities have focused their efforts on gaining on the 2017-2019 NAPIAA arrears and the priority actions provided for in the 2017 Memorandum of Understanding on EU Macro-Financial Assistance, as well as the eight additional general requirements set by the EU in February 2020. Priorities relevant to the commitments in the Association Agreement were reflected in the Government Action Plan. The COVID-19 pandemic affected the efficiency of the coordination and enforcement process of legislative and implementing measures planned for 2020. At the same time, on 1 July 2020, the Governmental Commission for European Integration approved the Calendar on monitoring the implementation of the backlogs of the 2017-2019 NAPIAA for the period 2020- 2023, a Government internal planning document that has not been made public.

The EU-Moldova political dialogue was influenced by internal political developments, the level of achievement of the key reforms’ agenda, related to the functioning of democratic institutions, justice and respect for human rights, but also by the COVID-19 pandemic crisis. The negotiation of a new Association Agenda, development of a new Action Plan to implement the Association Agreement and inputs to finalise the new deliverables of the Eastern Partnership post-2020 are the key priorities of the political dialogue, which could also provide opportunities to reset Moldova’s European agenda.

Democratic institutions remain fragile and continue to be affected by narrow political and economic interests. We are witnessing insufficient progress in the area of justice, freedom and security. The regulatory framework in the field of foreigners and their integration has been completed. The controversial regulations on so-called ‘investment citizenship’ have been repealed by Parliament. Six years after visa liberalization, 2.3 million citizens travelled to the EU using biometric passports. In the latest report on the application of the visa suspension mechanism, the European Commission considered Chisinau’s actions generally positive, but drew attention to the need to reduce unfounded asylum applications from Moldovan citizens. The extension of EUBAM’s mandate until 2023 is being negotiated. The rule of law remains a challenge, given the controversial initiatives of the SCM, as well as the judges who have been proposed to be appointed to leadership positions at the Court of Appeal and Supreme Court. However, progress has been made in promoting a new strategic planning document in the justice sector. The TI corruption perception index worsened in 2019 compared to 2018. The activity of the General Prosecutor’s Office did not provide the expected results on investigating the cases related to the Bank Fraud and “Russian laundromat”. The Parliament adopted new regulations on the application of sanctions for money laundering and a draft strategic planning document in this area was drawn up for the next five years.

As in previous years, we are witnessing moderate progress in the field of EU-Moldova sectoral cooperation. Although progress has been made in the analysed areas, in some sectors initiatives have been partially implemented or their level of implementation was not as planned. Public administration reform did not make significant progress. The construction of the Ungheni-Chisinau Gas Pipeline (120 km of linear section) was completed. The development of infrastructure, including local roads, remains a key priority, given the current state of road arteries. Household waste continues to be a major challenge for the authorities. The field of regional development made significant progress in adjusting policy documents and changing the sector’s approach, from reducing disparities to increasing competitiveness and promoting sustainable development. The help of development partners was crucial in supporting the public health system afloat. The COVID-19 pandemic highlighted the low capacity and weak resilience of the national public health system in the Republic of Moldova. In the future, the approach to the medical system should changed and emphasis should be on increasing investment in hospital modernisation. Limited progress was made, and the technical actions implemented have not contributed to increasing media freedom or solving the monopoly in advertising. The new Law on Non-Commercial Organizations was adopted in the final reading, but the dynamics of the relationship between civil society and authorities remain difficult.

There are some developments in the implementation of the Deep and Comprehensive Free Trade Area with the EU (DCFTA). During 2020, Annex no. XV-C of the Association Agreement was updated, thus increasing the tariff quotas for some products (table grapes, plums and fresh cherries). The effects of the pandemic generated by COVID-19, as well as the severe drought faced in 2020 by the Republic of Moldova are key factors that will affect the level of trade with the EU, especially in the case of agricultural products included in the list of goods exposed to the circumvention mechanism. The negotiation, signing and implementation of the Agreement on Conformity Assessment and Acceptance of Industrial Products (ACAA) remains yet to be finalised. Although the measures and actions to be implemented to ensure the export products of animal origin (chicken and category B eggs) have been agreed, this right has not yet been obtained. The process of electronic customs clearance of goods has been facilitated and a large infrastructure project is being implemented for the rehabilitation of six customs posts at the Moldovan- Romanian border. Improving governance in the financial sector is one of the areas that will be included in the new programme with the International Monetary Fund. Strengthening the independence of the National Bank of Moldova (NBM) and reforming the non-banking financial sector will be the goals pursued by the authorities by summer 2023. Although both development partners and national experts continue to emphasize the importance of actions to increase the independence of the National Bank, some initiatives of political actors, on the contrary, seeks to diminish it. The activity of the Competition Council focused on areas such as advertising on the audio-visual market and fuel prices. However, the activities planned in the National Strategy in the field of Competition and State Aid have not been reported and evaluated, and another planning document in the field has not yet been prepared. Six years after the entry into force of the Association Agreement, including the Free Trade Area, the EU has initiated the procedure for carrying out the ex-post assessment of the social and economic impact of the implementation of DCFTA.

Cooperation in the field of financial assistance, anti-fraud and control (Title VI) attests to some developments, but also important constraints. The EU remains the main development partner of the Republic of Moldova. Financial assistance was resumed in the second half of 2019, with the EU providing over EUR 53 million in direct budget support and EUR 60 million in macro-financial assistance, consistently applying the principle of strict conditionality. However, the Republic of Moldova missed the last tranche, of EUR 40 million, of the macro-financial assistance due to the non-fulfilment of the outstanding conditions on time. In response to the COVID-19 crisis, the European Commission initiated a reorientation of more than EUR 87 million to address the socio-economic consequences of the pandemic. Another EUR 100 million as anti-crisis macro-financial assistance (Omnibus) will be transferred to the Republic of Moldova by the summer of next year. The first tranche of EUR 50 million is being offered following the ratification, in early September 2020, of the Memorandum of Understanding and the Credit Agreement. The second tranche of EUR 50 million will be disbursed once all six technical conditions agreed with the EU have been met. In addition, under the “Team Europe” approach, the EU has allocated around EUR 140 million in emergency assistance to Eastern Partnership countries, including the Republic of Moldova. Chisinau will also be able to benefit from the EUR 700 million targeted at SMEs, programmed by the EU in partnership with the EIB and the EBRD.

EU-Moldova cooperation in the field of anti-fraud continued on the basis of cooperation agreements between the NAC, the Customs Service and the Court of Auditors with the European Anti-Fraud Office (OLAF). The activity of the National Integrity Authority (NIA) and the Agency for the Recovery of Criminal Assets (ARO) has been strengthened compared to the first half of 2019. However, both NIA and ARO continue to show low efficiency. The biggest challenge in NIA’s activity is related to the extended control of the conflict of interests and of the formal assets held by persons affiliated to the subjects of the declaration and to the evaluation of the assets at real market prices. ARO’s work also needs to be strengthened through the adoption of a National Strategy on the Effective Recovery of Criminal Assets.

This publication is developed within the IPRE Project “Monitoring the implementation of the Association Agreement between the Republic of Moldova and the European Union”, carried out with the support of the Konrad Adenauer Foundation (KAS). For its cooperation in drafting and finalising this report, IPRE is grateful to the Delegation of the European Union to the Republic of Moldova, the Ministry of Foreign Affairs and European Integration, the Ministry of Economy and Infrastructure, the State Chancellery of the Government of Moldova, the National Anticorruption Centre and other national public authorities. The authors of the report also thank public service experts, civil society representatives and development partners for participating in the review process. We also thank our colleagues from the National Platform of the Eastern Partnership Civil Society Forum, the EU-Moldova Civil Society Platform. The publication was edited by Sorina Ștefîrță, Chairwoman of the IPRE Board.