Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia

AMBIVALENT EFFECTS OF TRADE LIBERALISATION WITH THE EU: INSIGHTS FROM MOLDOVA AND GEORGIA Julia Langbein, Denis Cenusa, Irina Guruli ZOiS REPORT No.1 / 2022 · February 2022 ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 2 Content 02 ___ Summary 04 ___ Introduction 07 ___ EU trade relations with Moldova and Georgia: The big picture 11 ___ Zooming in (I): Moldova’s liberalised trade with the EU — Who benefits? 13 ______ Metals and vegetable products: Clear links to oligarchic networks 15 ______ Machinery: Towards exclusive development? 15 ______ Moldova’s textile and wine industry: Towards inclusive development? 17 ___ Zooming in (II): Georgia’s liberalised trade with the EU — Who benefits? 18 ______ Minerals and metals: Close links to oligarchic networks 20 ______ Agri-food and textiles: Between exclusive and inclusive development 22 ___ Conclusion and implications 24 ___ List of Interviews 24 ___ Imprint Summary Through its new Eastern Partnership (EaP) beyond 2020 the EU aims to ‘deliver for all’. In economic terms, this objective translates into the promotion of inclusive economies that create opportunities and ensure prosperity for all citizens in the partner countries. Trade liberalisation is one of the tools the EU has available to promote inclusive economies. But how effective is it? Drawing on the cases of Moldova and Georgia, this report reveals ambivalent effects: trade liberalisation has certainly helped to foster closer trade relations between the EU and the two Eastern partners and induced increasing growth rates in Moldova’s and Georgia’s exports to the EU. Yet a closer look at the ownership structures of top export sectors to the EU reveals a more nuanced picture. This report points to a variety of effects in Georgia’s and Moldova’s top export sectors, ranging from a) inclusive development, which benefits a broad range of economic actors, including small and medium-sized local enterprises (SMEs); through b) exclusive development, which benefits only a narrow group of economic actors, mainly big and foreign firms; to c) the consolidation of powerful oligarchic networks. Further, we show that a key factor in ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 3 the effect of trade liberalisation with the EU on sectoral development in the partner countries is the type of coalition between public and private actors that dominates in the different export sectors. Given the scarcity of business statistics on export performance at the sectoral level, our analysis relies predominantly on expert interviews as well as on articles and reports published by media outlets and non-governmental organisations. Our findings suggest that: – With regard to the top five export sectors, trade liberalisation with the EU has offered more opportunities for exclusive and even inclusive development in Moldova than in Georgia. – A large share of Moldova’s exports to the EU (about 41 % in 2020) is produced in sectors dominated by exclusionary or even inclusionary developmental coalitions between private actors and local state authorities. Only about 31 % of Moldova’s exports to the EU in 2020 came from sectors clearly controlled by rent-seeking coalitions. – In Georgia, liberalised trade with the EU predominantly helps to maintain oligarchic structures. More than 60 % of exports to the EU in 2020 came from sectors dominated by rent-seeking coalitions like minerals and metals, where the key market players are closely connected to the ruling oligarchic network under the leadership of billionaire Bidzina Ivanishvili. These findings hold important implications for the future governance of market integration in the context of the EaP. To more effectively promote inclusive development through trade liberalisation that ‘delivers for all’, the EU should: – facilitate a better assessment and monitoring of the extent to which firms of different sizes, including SMEs, can truly reap the benefits of access to the EU market. Eurostat and / or national statistical offices in the partner countries should therefore systematically collect business statistics in terms of export performance, number of export companies, their field of export (e.g. sectors), and type of company. – take into account the ownership structure of top export sectors and the involvement of these key owners in rent-seeking practices when implementing policies and programmes that aim to facilitate access to the EU market for firms from the Eastern partners. – make sure that existing or planned EU initiatives, such as EU4Business and the Economic and Investment Plan, tailor their assistance for enhancing export competitiveness and integration into European value chains to firms not linked to oligarchic networks, as the latter are a key obstacle to good governance in the partner countries. Instead, the focus should lie on integrating SMEs that are less exposed to political control in sectoral clusters to foster know-how and innovation. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 4 Introduction1 Making economies more inclusive is a declared objective of the EU’s Eastern Partnership (EaP) initiative: strategic documents on the EaP underline that inclusive economies are supposed to ‘deliver for all’ by creating benefits for all people living in the partner countries. Along these lines, inclusive development is conceived of as a precondition for social cohesion and, ultimately, political stability in the neighbourhood.2 It is true that the EaP countries have drawn closer to the EU in economic terms over the past decade due to increasing trade volumes. With a view to the new strategy on the EaP beyond 2020, which was endorsed at the recent EaP summit in Brussels in December 2021, it is nevertheless timely to ask whether closer trade relations go hand in hand with inclusive development and whether the EU’s existing tools and programmes are well equipped to achieve this objective. The Deep and Comprehensive Free Trade Areas (DCFTAs), which the EU established in 2014 with Georgia, Moldova and Ukraine as part of their Association Agreements3, are key in this respect. In the context of the DCFTAs, the EU’s main tools to promote inclusive development are trade liberalisation and regulatory integration. Trade liberalisation aims at abolishing tariff and non-tariff barriers4 to trade in order to facilitate market access. Regulatory integration foresees that the three associated EaP countries take on EU norms and rules in dozens of policy fields ranging from food safety to competition law in order to improve the local business climate and consumer safety, and enhance competitiveness. Compared to regulatory integration, which is confronted with quite some resistance from powerful rent-seeking groups who often favour the status quo,5 the immediate development consequences of trade liberalisation are already visible, since the EU has almost completely lifted its tariff barriers 1 The authors thank Tsypylma Darieva, Claudia Eggart, Félix Krawatzek, Sabine von Löwis, Irina Mützelburg, Stefanie Orphal and Gwendolyn Sasse for their valuable comments on an earlier draft. Research assistance by Willi Stieger and Verena de Lange is gratefully acknowledged. The usual disclaimer applies. 2 EuropeanCommission / EEAS,ReviewoftheEuropeanNeighbourhoodPolicy,SWD(2015) 500final,JointCommunicationtotheEuropeanParliament,theCouncil,theEuropeanEconomicandSocialCommitteeandtheCommitteeoftheRegions,18November2015,https:// ec.europa.eu/neighbourhood-enlargement/document/download/a61891ff-e1a9-4118-91cc4ee7e6b226af_en(p.3);EuropeanCommission/EEAS,EasternPartnershipPolicybeyond2020, SWD56final,18March2020,https://eeas.europa.eu/sites/default/files/1_en_act_part1_v6.pdf. (pp. 4 – 7) 3 TheDCFTAswereprovisionallyappliedin2014(GeorgiaandMoldova)andin2016(Ukraine),althoughtheEUopeneditsmarketbasedonDCFTAprovisionsasearlyasApril2014forUkrainianproducts.TheAssociationAgreementsenteredintoforcein2016(GeorgiaandMoldova) and2017(Ukraine),respectively. 4 Tariff barriers relate to a tax that is imposed on a good imported into a country, either as a fixedsumperunitoradvalorem,whenitisappliedatapercentageratewithreferenceto the value of the import. Non-tariff barriers can, for example, include rules that dictate how a product should be manufactured in terms of product quality and safety or quotas that limit the amount of a particular product that can enter a market, cf. https://stats.oecd.org/glossary/ index.htm. 5 JuliaLangbein,Transnationalization and regulatory change in the EU’s Eastern neighbourhood.Ukraine between Brussels and Moscow(London:Routledge,2015);EstherAdemmer, Russia’s impact on EU policy transfer to the post-Soviet space: The contested neighborhood(London: Routledge,2017). EaP countries have drawn closer to the EU in economic terms. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia  5 for imports from the three DCFTA countries by now.6 Therefore, this ZOiS report focuses on trade liberalisation:7 to what extent has liberalised trade helped the EU to achieve its self-declared objective of creating inclusive economies in the associated Eastern partners? In order to evaluate the effectiveness of trade liberalisation for inclusive development, it is not sufficient to analyse macro-level effects in terms of trade flows, however.8 We also need to take a closer look at the ownership structures of the partner countries’ key export sectors to the EU in order to identify the main beneficiaries of liberalised trade with the EU and the respective consequences for economic and political developments in the partner countries. Conceptually, trade liberalisation may produce three different types of development outcomes at the level of export sectors, depending on the nature of the dominant sectoral coalition between public and private actors: First, trade liberalisation may help to promote inclusive development, which creates benefits for a broad range of economic actors, including small and medium-sized local enterprises (SMEs).9 This outcome is more likely if export sectors are dominated by an inclusionary developmental coalition between different state authorities and a broader set of private actors, including firms or associations of different sizes.10 Second, it may lead to the emergence of exclusive development, which produces growth that is mainly beneficial for a narrow group of economic actors, mostly big and powerful firms.11 The presence of exclusionary developmental coalitions between state actors and a narrow group of economic actors in key export sectors increases the likelihood that trade liberalisation will set those sectors on the pathway of exclusive development. In such a context, big and powerful, mostly foreign, firms often seek to capitalise on peripheral economies’ convenient location and cheap labour. The state’s role is limited to accommodating the needs of strong economic actors and implementing investment-friendly policies.12 6 Thatsaid,theEUstillappliessomebarriers,suchastariff-ratequotas,forcertainagri-foodimportsfromGeorgia,MoldovaandUkraine.Cf.MichaelEmersonandDenisCenusa,Deepening EU–Moldovan Relations. Updating and upgrading in the shadow of Covid-19(Brussels:Centrefor EuropeanPolicyStudies,2021);MichaelEmersonandTamaraKovziridze,Deepening EU-Georgian Relations. Updating and upgrading in the shadow of Covid-19(Brussels:CentreforEuropean PolicyStudies,2021). 7 ThisreportispartofalargerZOiSprojectontheeffectofeconomicintegrationwiththeEUon political and economic developments in the three associated Eastern partners. Future research will investigate the extent to which the process of regulatory integration helps to bring about inclusive development. Cf. https://en.zois-berlin.de/research/research-clusters/deep-free-tradewith-the-eu-and-its-effects-on-post-soviet-regime-stability. 8 See,forexample,RicardoGiucci,VeronikaMovchanandWoldemarWalter(2019)Theeconomic effectoftheDCFTAonUkraine,MoldovaandGeorgia.AcomparativeAnalysis.BerlinEconomics;Nekhay,Olexandr,M.CarmenDelgado,andM.AlejandroCardenete‘DoesAbolishing TariffsinBilateralTradeMatterforaCountry’sEconomicGrowth?TheImpactoftheEU-Ukraine DCFTA’Europe-Asia studies73,no. 7(2021),pp. 1257 – 1278;CEPS(2021)Ex-postevaluationof theimplementationoftheDeepandComprehensiveFreeTradeAreasbetweentheEUandits Member States and Georgia and Moldova, https://www.dcfta-evaluation.eu/wp-content/uploads/2021/07/ex-post_DCFTAs_Draft_Inception_Report_updated-002-incl-services.pdf 9 SamHickey,KunalSenandBadraBukenya,The Politics of Inclusive Development: Interrogating the Evidence(Oxford:OxfordUniversityPress,2017);DaronAcemogluandJamesRobinson, WhyNationsFail(NewYorkCity:CrownBusiness,2012). 10 AcemogluandRobinson(2012);JuliaLangbein,IldarGazizullinandDmytroNaumenko,‘Trade liberalizationandopeninginpost-Sovietlimitedaccessorders’,East European Politics37no. 3 (2021):pp. 1 – 20. 11 PeterEvans,‘Predatory,developmentalandotherapparatuses:AcomparativepoliticaleconomyperspectiveontheThirdWorldstate’,Sociological Forum4,(1989):pp. 561 – 587(p. 563). 12 AndreasNölke,andArjanVliegenthart,‘Enlargingthevarietiesofcapitalism:Theemergence ofdependentmarketeconomiesinEastCentralEurope’,World Politics61,no. 4,(2009): pp. 670 – 702;PetrPavlínek,Dependent growth: Foreign investment and the development of the automotive industry in East-Central Europe(Berlin:Springer,2017). ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 6 Third, trade liberalisation may contribute to consolidating the power position of rent-seeking elites. It is a global trend that big business tends to benefit most from trade liberalisation, as larger companies find it easier to access new markets and value chains due to economies of scale.13 However, in less-developed economies, including the Eastern partners, big firms are often owned by economic elites who use their privileged access to economic and political resources for the sake of private gains. The dominance of rentseeking coalitions in key export sectors therefore increases the likelihood that trade liberalisation will help to consolidate rent-seeking behaviour.14 Taking a closer look at the beneficiaries of liberalised trade with the EU and their embeddedness in different types of coalitions with public and / or other private actors is thus key to revealing potential positive but also (unintended) negative consequences of reduced trade barriers between the EU and the three associated partner countries. To this end, our study focuses on two associated Eastern partners, Moldova and Georgia, for which an indepth analysis of the beneficiaries of liberalised trade with the EU is still lacking.15 Parts of our empirical research for this report rely on statistical data from Eurostat, the Moldovan National Bureau of Statistics and the National Statistics Office of Georgia as well as on government documents. It turned out to be more difficult than initially assumed to get access to data showing the share of SMEs vis-à-vis larger firms in total exports to the EU for most of the top Georgian or Moldovan export sectors. That is because neither the EU nor national statistical offices systematically collect business statistics by sector and size class (i.e. number of employees and value-added) in terms of export performance. Further, the ownership structures of economic sectors in Moldova and Georgia and rent-seeking practices at the level of particular sectors or firms are an extremely under-researched topic in the scholarly literature. Therefore, we conducted semi-structured expert interviews in 2020, and extensively reviewed other primary and secondary sources, predominantly articles and reports published by media outlets and nongovernmental organisations, such as Transparency International Georgia, the Center for Investigative Journalism of Moldova, or sectoral business associations. In most cases, especially with regard to the disclosure of a firm’s ties to oligarchic structures or their involvement in rent-seeking practices, we were able to secure at least two sources for an empirical observation. However, sometimes only one source of information, such as data from an expert interview, a newspaper article or a report published by a NGO, was available. 13 DaniRodrik,‘Imperfectcompetition,scaleeconomies,andtradepolicyindevelopingcountries’. InBaldwin,RE.(ed)Tradepolicyissuesandempiricalanalysis(Chicago:UniversityofChicago Press,1988),pp. 109 – 144.Economiesofscalerefertothephenomenonthatthecostforproducing a particular unit of output decreases with an increasing magnitude of output. 14 Langbein,GazizullinandNaumenko(2021). 15 Anin-depthanalysisofthecaseofUkraineispresentedinLangbein,GazizullinandNaumenko (2021).Thearticleshowsthat,thusfar,theliberalisationoftradebetweentheEUandUkraine hasproducedambivalenteffects:sinceUkraine’smainexportsectorstotheEUaredominated byfirmswithclosetiestooligarchicstructures,tradeliberalisationbetweenthetwopartieshas so far helped to consolidate the power position of rent-seeking elites. Only in some sub-sectors ofUkraine’stopexportsectors,suchasagri-foodandmachinery,wheredominantmarket playersdonotenjoytiestooligarchicstructures,hastradeliberalisationyieldedbenefitsfora broader group of economic actors. Ownership structures of economic sectors in Moldova and Georgia are an underresearched topic. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 7 Our report is structured as follows: We first look into general trends regarding EU trade relations with Moldova and Georgia that suggest a positive development since the early 2000s in terms of trade volumes, the significance of the EU as an export market for the two partner countries, and the numbers of local companies exporting to the EU. We then zoom in on Moldova’s and Georgia’s key export sectors, their ownership structures and the quality of sectoral coalitions, revealing a more ambivalent picture: On the one hand, trade liberalisation with the EU (unintentionally) contributes to strengthening the power position of rent-seeking coalitions in both countries, albeit to a higher degree in Georgia than in Moldova. On the other hand, EU trade liberalisation offers opportunities for at least exclusive and in some cases even inclusive development in some sectors of Moldova’s economy and to a far more limited degree in Georgia. We conclude by discussing the implications of our findings for the future governance of market integration in the context of the Association Agreements and DCFTAs. EU trade relations with Moldova and Georgia: The big picture Trade statistics suggest that trade liberalisation has thus far gone hand in hand with closer economic relations between the two Eastern partners, Moldova and Georgia, and the EU. Asymmetrical trade liberalisation between the EU and Moldova began in the late 1990s and has gathered pace since 2006.16 Between 2004 and 2007, Moldova’s exports to the EU more than doubled. But it was only once the DCFTA between the EU and Moldova entered into force in 2014 that the EU liberalised imports from Moldova for almost all goods, except for some agrifood products.17 As a result, Moldova’s exports to the EU increased by 61 % between 2013 and 2019 ( FIGURE1). What is more, over the past 15 years, the EU has turned into Moldova’s most important export destination, while other partners like the Commonwealth of Independent States (CIS), above all Russia, lost their significance as export markets ( FIGURE2). In terms of inclusiveness, the number of Moldovan companies exporting to the EU in 2019 was, at over 1 800, 32 % higher than in 2015.18 That said, it is difficult to say whether this trend also implies greater diversification as regards the size of export companies, since it was not possible to obtain statistical data on the ratio of SMEs to large firms in Moldova’s total export volumes to the EU in recent years. According to expert assessments, however, Moldovan SMEs play a more limited role when it comes to reaping the benefits of increasing trade liberalisation with the EU, especially in terms of exports.19 16 In1998,MoldovabecameabeneficiaryoftheGeneralizedSystemofPreferences(GSP),followedbysubsequentarrangementsresultinginfurtherliberalisationin2006(specialincentive arrangementforSustainableDevelopmentandGoodGovernance,GSP+)and2008(AutonomousTradePreference,ATP). 17 EmersonandCenusa(2021). 18 Authors’interviewwithanofficialfromtheEUdelegationtoMoldova,20December2021, online. 19 InstitutulpentruPoliticișiReformeEuropene(IPRE),OnlineConsultationMeetingonEx-post evaluationofEU-MoldovaAA / DCFTAimplementation,17December2021. Over the past 15 years, the EU has turned into Moldova’s most important export destination. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 8 Moldova'skeyexportdestinations Table 1: Moldova’s key export destinations (share in Moldova’s total exports) *GeorgianotcountedasCISfrom2009on *UkrainenotcountedasCISfrom2014on *Thedatadonotreflecttheimport/exportoftheTransnistrianregion *ThedatafortheEUin2004don'tincludeRomania,Bulgaria,andCroatia Note:GeorgiaisnotcountedasCISfrom2009on.UkraineisnotcountedasCISfrom2014on.Thedatadoesnotreflectimport/exportofTransdniestria.EUdatatakesshiftingmembershipsintoaccount. Source:MoldovanNationalBureauofStatistics. 30.1% 15.1% 35.9% 1.2% 0.01% 17.7% 46.8% 12.0% 26.0% 5.2% 0.3% 9.6% 66.5% 3.7% 8.8% 7.0% 0.5% 13.6% EU CIS Russia Turkey China Others 2004 2013 2020 Source: Moldovan National Bureau of Statistics. The data do not reflect Transnistrian imports / exports. Source: Moldovan National Bureau of Statistics FIGURE1 Trade flows between Moldova and the EU 2004 – 2020(inmlnUSD) FIGURE2 Moldova’s key export destinations (shareinMoldova’stotalexports) Turnover ExportImport 2004 2020 2013 Compared to Moldova, Georgia was a frontrunner in terms of trade liberalisation with the EU. As early as 2006, 90 % of Georgia’s trade turnover with the EU was at zero tariff due to a decision by the Georgian government to scrap most tariffs on EU imports.20 The EU, for its part, extended tariff preferences to Georgia from 1999 under its Generalised Scheme of Preferences (GSP) as part of a special incentive arrangement to reward development and 20 The Georgian government did the same with most tariffs on imports from the rest of the world. Note: Georgia is not counted as CIS from 2009on.UkraineisnotcountedasCIS from2014on.Thedatadoesnotreflect import / exportofTransdniestria.EUdata takes shifting memberships into account. Figure 1: Trade flows between Moldova and EU, 20042020 (in mln USD) Millions,USD 2004 2005 2006 2007 2008 2009 Export 297 443 537 679 820 667 Import 775 1039 1219 1681 2105 1421 Turnover 1072 1482 1756 2360 2925 2088 Julia:IchfindedieseaberohneZahlen,abermitBeschriftungdery-Achseambesten(MillionUS$-imvertikalenSchriftzug) Stefanie:ichweißnicht,warumdieVerknüpfungzudenDatennichtangezeigtwird.HabedieGrafikausderTabelleerstellt. Source: Moldovan National Bureau of Statistics. 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Turnover Import Export MillionUS$ ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia  9 good governance (GSP+).21 Between 2005 and 2007, Georgia’s exports to the EU increased by 63 %. When the DCFTA between the EU and Georgia was provisionally enforced in 2014, its immediate impact on bilateral trade was therefore limited: Georgia’s exports to the EU increased by ‘only’ 32 % from 2014 to 2019 ( FIGURE3). Unlike for Moldova, the EU is Georgia’s second most important export destination, whereas the CIS, including Russia, is still the most important export market for Georgian products. Further, China has gained significance as a trading partner for Georgia after the Free Trade Agreement between the two parties came into force in 2018 ( FIGURE4). 21 EconomicPolicyResearchCenter,EuropeanUnion’sAgreementonDeepandComprehensiveFree TradeAreaandGeorgia,EPRC,2014,https://eprc.ge/wp-content/uploads/2022/01/eu_eng_web. pdf?fbclid=IwAR36E5e_NCSXhbTZaAmpw44oZrK_S7KKJCiidCsN0yjdnpxzxM1s2PipEO8. Turnover ExportImport Source: Geostat FIGURE3 Trade flows between Georgia and the EU 2004 – 2020(inmlnUSD) Source: Geostat FIGURE4 Georgia’s key export destinations (shareinGeorgia’stotalexports) Georgia’skeyexportdestinations 2004 2013 2020 EU 15.00% 20.00% 21.00% CIS (excl. Russia) 35.00% 49.00% 32.00% Russia 16.00% 7.00% 13.00% Turkey 18.00% 6.30% 5.70% China 0.20% 1.20% 14.00% Others 15.80% 16.50% 14.30% Source: Geostat Note: Ukraine is not counted as CIS from 2014 on. EU data takes shifting memberships into account. Julia:Gefälltmir,nurdasLayoutderZahlenmüsstevonderGrafikerinvielleichtnochmaletwasnachgebessertwerden. 15.0% 35.0% 16.0% 18.0% 0.2% 15.8% 20.0% 49.0% 7.0% 6.3% 1.2% 16.5% 21.0% 32.0% 13.0% 5.7% 14.0% 14.3% EU CIS (excl. Russia) Russia Turkey China Others 2004 2013 2020 2004 2020 2013 Note:UkraineisnotcountedasCIS from2014on.EUdatatakesshifting memberships into account. Turnover ExportImport Figure2:TradeflowsbetweenGeorgiaandEU,2004-2020(inmlnUSD) Millions,USD 2004 2005 2006 Export 111 165 158 Import 604 627 948 Turnover 716 793 1106 Source: Geostat Julia:IchfindedierechteGrafikambestenohnedieAngabederZahlen.EsgehtmehrumTrends,dieZahlenmachenesunübersichtlich. IchfindedieseaberohneZahlen,abermitBeschriftungdery-Achseambesten(MillionUS$-imvertikalenSchriftzug) 0 500 1000 1500 2000 2500 3000 3500 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Turnover Export Import MillionUS$ ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 16 The ownership structure of Moldova’s textile industry is diverse: apart from a few large companies, the majority of producers are SMEs.47 The sector represents a pathway towards inclusive development as it is characterised by a remarkable level of inclusionary sectoral organisation. Most textile companies are members of the Light Industry Employers Association (APIUS). Together with Moldovan government agencies, the Technical University of Moldova, and with the support of USAID, APIUS initiated several public-private partnerships (PPPs) from 2012 onwards to boost competitiveness and promote the integration of Moldova’s textile industry into European value chains. Moldova’s State Agency on Intellectual Property (AGEPI) actively supported the project, in particular by training participating companies in the use of intellectual property (IP) systems to protect their brands and designs. According to industry representatives, the joint promotional campaign ‘From the Heart — Brands of Moldova’, which started in 2012, contributed to changing perceptions of Moldovan brands by both foreign investors and local consumers.48 Further, the ZIPHouse Center of Excellence and Acceleration in Design Technologies, established in 2015, serves as a platform for innovation and entrepreneurial development in the industry.49 Moldova’s wine sector occupies a tiny place in total exports to the EU, accounting for about 2 to 3 % of the country’s total exports to the European market. In fact, Russia’s import ban on Moldovan wine in September 2013 seems to have helped to bring about a coalition between state authorities and local wine producers to attract new markets in the EU. To begin with, the National Vine and Wine Office (NVWO) started to enhance transparency and quality protection by introducing an electronic wine register in 2013 with the help of the Czech Development Agency and USAID. Western donors also helped smaller companies to form associations like the Association of Small Wine Producers of Moldova, which today controls about one-third of the vineyards.50 The fact that hundreds of wineries and dozens of producers and exporters organised themselves in sectoral business associations prevented the establishment of monopolies and the subsequent development of rent-seeking schemes. To sum up, Moldova’s trade liberalisation with the EU has so far created more opportunities for exclusive and even inclusive development than for consolidating the power position of rent-seeking elites. In 2020, machinery, textiles and wine accounted for around 41 % of Moldova’s exports to the EU. An exclusive developmental pathway characterises the machinery sector, where foreign investors from EU countries have been the main beneficiaries of liberalised trade with the EU thanks to an exclusionary developmental coalition with 47 UnitedNationsEconomicCommissionforEurope(UNECE)(2021),‘UNAlliancesupports Moldova’seffortstoturnitsfashionindustryintoadriverofsustainabledevelopment’,https:// unece.org/media/news/356784. 48 OctavianApostolandLilianaVieru,‘BrandsofMoldova:acutabove’,WIPOMagazine,October 2016,https://www.wipo.int/wipo_magazine/en/2016/05/article_0009.html. 49 BjörnVogler,‘PotentialsandKeyFeaturesofPilot-ClusterStructuresintheAutomotiveSupplyandTAFL(Textile,Apparel,FootwearandLeatherGoods)IndustryinMoldova’,German EconomicTeamMoldova,PolicyPaperSeries,No. PP / 03 / 2017,October2017,http://www. get-moldau.de/wordpress/wp-content/uploads/2017/11/PP_03_2017_en.pdf. 50 MariaGheorgitaandCorneliaCrucerescu,‘TheImpactofCooperationModelsofMoldovanCompaniesontheGrowingofAddedValue’, Journal of Social Science1,no.1(2018): pp. 126 – 132;PressReleaseofWine-and-Spirits.md,‘Associationofsmallwineproducersfrom Moldova:10yearsofsuccess’,WineandSpirits,1May2020,https://wine-and-spirits.md/ro/ asociatia-micilor-producatori-de-vinuri-din-moldova-10-ani-de-succese/. Hundreds of Moldovan wineries and dozens of producers and exporters organised themselves in sectoral business associations. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 17 Moldova’s state authorities. By contrast, Moldova’s textile and wine industries seem to be on track towards inclusive development by virtue of inclusionary sectoral coalitions between business associations, universities and state authorities. Nevertheless, as of 2020, almost one-third (31 %) of Moldova’s total exports to the EU came from sectors that are in the hands of or closely linked to oligarchic networks. While the importance of metal exports as a source of revenue for Moldova’s big business is shrinking, oligarchic networks have encroached upon Moldova’s vegetable production. EBRD loans have even helped those networks to shore up their monopoly position. Zooming in (II): Georgia’s liberalised trade with the EU — Who benefits? As in the case study of Moldova, we begin our analysis of key beneficiaries of Georgia’s liberalised trade with the EU by looking at how the structure of the country’s exports to the EU has changed since trade liberalisation began in 2006. The significance of individual sectors started to change after 2007 ( TABLE3), the only exception being minerals, which maintained its top position. Without a doubt, agri-food (mainly nuts, mineral waters and wine, according to Geostat data) was the sector that received the greatest boost from EU trade liberalisation. Chemicals and textiles were able to increase their export share, both in per cent and volume. Metals, stone and glass lost in significance, while machinery did not witness sustainable growth perspectives. Since statistical data on the export performance of different firm sizes in Georgia’s top five export sectors to EU is not available (as in the case of Moldova), our analysis of key Georgian exporters again relies on company websites, expert interviews, and reports by the media and NGOs. The broader political economy context of Georgia is similar to that in Moldova; here too, oligarchic networks control access to economic and political resources. This is despite improvements to Georgia’s governance capacity after the 2006 Rose Revolution, which put it in a better position to deal with oligarchs than Moldova and other Eastern Partnership countries. Back then, the fight against petty corruption was impressive. However, property rights violations and high-level corruption remained widespread.51 In 2012, billionaire Bidzina Ivanishvili, who united various opposition parties in the coalition Georgian Dream (GD), won the elections and managed to concentrate power in his hands. He no longer held an official position after 2013, but had a stint as GD chairperson in the run-up to the 2018 elections before resigning from all duties. Ivanishvili’s wealth is estimated at 6 billion USD, mostly built on Russian assets.52 He owns a huge network of companies and 51 EstherAdemmer,JuliaLangbeinandTanjaBörzel,‘VarietiesofLimitedAccessOrders:The nexusbetweenpoliticsandeconomicsinhybridregimes’,Governance 33,no. 1(2019): pp. 191 – 208. 52 CristinaGherasimov,‘PoliticalEliteRenewalinGeorgia,MoldovaandUkraine’,ChathamHouse RussiaandEurasiaProgramme,ResearchPaper5 / 2019,May2019,https://www.chathamhouse.org/sites/default/files/2019-05-14-Political%20Elite%20Renewal.pdf. Georgia’s agri-food was the sector that received the greatest boost from EU trade liberalisation. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 18 uses control over the judiciary and other state institutions to protect his and his allies’ power and wealth.53 Similar to the case of Moldova, we would therefore expect liberalised trade with the EU to mainly benefit oligarchic networks, as they control access to political and economic resources in Georgia. For each top export sector to the EU, we therefore take a closer look at the firms dominating exports to the EU, identify their key owners, and investigate whether the latter are embedded in rent-seeking or (inclusionary or exclusionary) developmental coalitions. Minerals and metals: Close links to oligarchic networks Minerals (in particular copper ore) were Georgia’s key export commodity to the EU in the period from 2004 to 2020. Rich Metals Group (RMG) Copper is Georgia’s most important exporter of copper ore. According to Geostat data, the company was among the top 50 exporters every year from 2004 to 2019. Since 2019, RMG copper has been owned by Mining Investments LLC, 53 WojciechKononczuk,DenisCenusaandKornelyKakachia,‘OligarchsinUkraine,Moldovaand Georgiaaskeyobstaclestoreforms’,3DCFTAs,March2017,https://www.researchgate.net/publication/317596551_Oligarchs_in_Ukraine_Moldova_and_Georgia_as_key_obstacles_to_reforms. Rank Pre-GSP+ 2004 export share, total export volume inmln€ Post-GSP+ / Pre-Crisis 2007 export share, total export volume inmln€ Post-Crisis 2011 export share, total export volume inmln€ Pre-DCFTA 2013 export share, total export volume inmln€ Post-DCFTA 2020 export share, total export volume inmln€ 1. Mineral products (58.4 %;183.7) Mineral products (55,8 %;256,0) Mineral products (63.2 %;388.5) Mineral products (57.3 %;382.0) Mineral products (60 %;460.0) 2. Metals (13.3 %;41.9) Agri-food (19,2 %;87,9) Agri-food (14.6;89.5) Agri-food (18.4 %;122.9) Agri-food (18.2 %;139.3) 3. Agri-food (10.7 %;33.5) Metals (11,9 %;54,5) Chemicals & Allied Industries (10.1 %;62.0) Metals (7.9 %;52.8) Textiles (6.8 %;52.0) 4. Chemicals & Allied Industries (6.6 %;20.6) Chemicals & Allied Industries (4.29 %;19.7) Metals (6.8 %;41.5) Chemicals & Allied Industries (6.7 %;44.6) Chemicals & Allied Industries (5.5 %;42.0) 5. Stone/Glass (3,8 %;11.8) Machinery (2.4 %;11.1) Textiles (1.8 %;11.2) Textiles (3.6 %;23.7) Metals (3.4 %;25.8) Source: Eurostat data series ‘EU trade since 1988 by HS2-4-6 and CN8’ (DS-645593), authors’ calculations. TABLE3 Georgia’s top five export sectors to the EU (shareintotalexportstotheEUin%/shareintotalexportvolumetotheEUinmln€) ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia  19 which is controlled by Russian billionaire Dmitriy Troitskiy.54 Together with other Russian businessmen, Troitskiy had already controlled RMG B.V., the previous owner of RMG Copper. The Georgian NGO Green Alternative has documented close links between RMG and Bidzina Ivanishvili’s networks.55 A case in point is the decision taken by the Georgian Ministry of Culture in 2013 to revoke the status of the world’s oldest gold mines in Sakdrisi as a protected historical site. As a result, RMG was allowed to start mining operations there.56 Further, Georgia’s government authorities turn a blind eye to RMG’s environmentally and socially harmful mining operations.57 Individuals directly or indirectly connected with RMG reportedly donated more than 800 thousand GEL (approx. 192,000 euros) to the ruling party Georgian dream, which is close to Ivanishvili, in the run-up to the 2020 parliamentary elections.58 The metals sector is also closely linked to Georgia’s ruling elites. Its significance for exports to the EU declined, however, in particular after the DCFTA entered into force ( TABLE3). Georgian Manganese LLC (GM) is Georgia’s leading producer and exporter, according to the company’s website.59 From 2006 to 2013, 75 % of GM’s shares belonged to the Ukrainian Privat Group. Privat Group is one of the most closed and non-transparent Ukrainian holdings. Its founders Igor Kolomoisky and Henadiy Boholyubov are among the five richest people in Ukraine.60 In 2013, Privat Group transferred GM to the US-American Holding Georgia American Alloys, an offshore company assumed to be registered in Luxembourg.61 GM has a dubious track record. It has faced repeated accusations of exploitative labour practices and pollution: the company was fined on a few occasions up to 2017 for environmental damages and tax evasion. The payment of these fines ensured that GM was discharged from liability for the environmental damages.62 Such deals first became legal in 201263 and used to be considered a prominent rent-seeking activity in Georgia.64 In 2017, Nikoloz 54 GreenAlternative,‘RichMetalGroup.CompanyProfile’,GreenAlternative,March2021,https:// greenalt.org/app/uploads/2021/05/RMG_Eng_2021.pdf. 55 SeealsoAlexanderKupatadze,‘InformalGovernanceandCorruption — TranscendingthePrincipalAgentandCollectiveActionParadigms’,BaselInstituteonGovernance,July2018,https:// baselgovernance.org/sites/default/files/2019-04/georgia.informalgovernance.country_report. pdf. 56 AlexanderKupatadze,‘PoliticalcorruptioninEurasia:Understandingcollusionbetweenstates, organizedcrimeandbusiness’,Theoretical Criminology19,no. 2(2015):pp. 198 – 215. 57 JesseSwann-Quinn,‘Miningthehomeland:imaginingresources,nation,andterritoryinthe RepublicofGeorgia’, Eurasian Geography and Economics,60,no. 2(2019):pp. 199 – 151. 58 InstituteforDevelopmentofFreedomofInformation,‘PoliticalDonations:FreewillorBusiness Investment?’,InstituteforDevelopmentofFreedomofInformation,24June2020,https://idfi. ge/en/idfis-research-political-donations. 59 https://www.gm.ge/en/. 60 HeikoPleines,‘ThepoliticalroleofbusinessmagnatesincompetitiveauthoritarianRegimes’, Jahrbuch für Wirtschaftsgeschichte60no. 2(2019):pp. 299 – 334. 61 NinoGujaraidze,‘GeorgianManganese — CompanyProfile’,GreenAlternative,2019,https:// greenalt.org/app/uploads/2021/04/GM_Eng_2019.pdf. 62 ChrisKavanagh,‘GeorgianManganesefacing$160mfine,managementshakeup’,Fastmarkets MB,19May2017,https://www.metalbulletin.com/Article/3718531/Georgian-Manganesefacing-160m-fine-management-shakeup.html;NinoGujaraidze,‘GeorgianManganese — CompanyProfile’,GreenAlternative,March2021,https://greenalt.org/app/uploads/2021/05/ GM_Eng_2021.pdf. 63 TheLawonMakingAmendmentstoSomeLegislativeActsofGeorgia(Source:www.matsne. gov.ge,registrationcode:360000000.05.001.016640). 64 NinoGujaraidze,‘SecretlyConcludedAgreementsAgainsttheEnvironment’,GreenAlternative,2013,http://greenalt.org/wp-content/uploads/2013/04/secretly_concluded_agreements_ against_the_environment.pdf. The practice is no longer applied today. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 20 Chikovani was appointed special manager at GM. Chikovani is a protégé of the Georgian Dream Party and was installed to neutralise claims by environmental activists that GM was breaching environmental and work safety standards. In fact, under Chikovani’s management nothing has changed and GM still operates unsafe mine quarries and continues to damage the environment.65 In sum, the previous discussion shows that more than 60 % of Georgia’s exported goods are produced in sectors where rent-seeking coalitions dominate. Leading companies are owned by Russian oligarchs or enjoy close relationships to the pro-government camp led by the Georgian Dream Party that is close to oligarch Bidzina Ivanishvili, and use these ties to receive preferential treatment by state authorities. Agri-food and textiles: Between exclusive and inclusive development Georgia’s agri-food and textile industries made up roughly 25 per cent of the country’s exports to the EU in 2020. The ownership structures of these sectors are more diverse than in the case of minerals: a few larger foreign and domestic companies dominate, with an increasing number of SMEs. Still, the benefits of trade liberalisation are very unequally distributed, in particular in the case of textiles. An exclusionary developmental coalition has emerged in the textile sector, setting it on a path towards exclusive development. Accommodating state policies help to produce profits for a few international brands and larger local companies at the expense of high social costs for the local workforce. To begin with, tariff eliminations in the context of GSP+ and the DCFTA, along with other favourable government decisions, helped to boost foreign direct investment in Georgia’s textile industry from 2006 onwards. In this respect, the government’s decision to create special economic zones and the launch of the ‘Produce in Georgia’ programme in 2014 certainly played an important role in attracting investors with reduced tax rates, competitive labour costs, good transportation links, and a more favourable investment environment.66 Indeed, Georgia’s textile and apparel industry has witnessed a considerable increase in production (up 30 % since 2008) and export volumes (up 24 % in the period from 2009 to 2015). But the government’s tendency to give investors and larger local textile producers a free rein, especially when it comes to labour standards, comes at a high social cost for the local workforce.67 The key beneficiaries of these developments are mainly international brands, which engage in hardly any technological transfer or upgrading, 65 Gujaraidze(2019);BusinessandHumanRightsResourceCenter,‘GeorgianManganese.CompanyProfiles’,BusinessandHumanRightsResourceCenter,June2021,https://www.businesshumanrights.org/documents/36051/Georgian_Manganese.pdf. 66 OECD‘OECDInvestmentPolicyReviews:Georgia’,OECDInvestmentPolicyReviews,2020, https://doi.org/10.1787/0d33d7b7-en.;InvestinGeorgia(2016)InvestmentOpportunitiesin Apparel and Textile Industry of Georgia. Available at https://www.investingeorgia.org/en/ajax/ downloadFile/821/Investment. 67 TamunaChkareuli,‘InsideGeorgia’stextileindustry:Ajournalisticinvestigation,’Friedrich Ebert-StiftungandOCMedia,2020,http://library.fes.de/pdf-files/bueros/georgien/17505.pdf. More than 60 % of Georgia’s exported goods are produced in sectors where rentseeking coalitions dominate. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 21 and larger local players. More precisely, Georgia has become an attractive low-cost production base for some leading world-class brands like Adidas and Moncler. Over 98 % of Georgia’s textile exports go to Turkey and Germany, where they are further processed to be integrated into EU value chains. These international brands work closely with the local apparel industry, which comprises around 200 enterprises. Georgia’s market leader in apparel production is Imeri, which — as the only apparel producer — has been ranked among the country’s top 50 exporters fifteen times between 2004 and 2019 according to GeoStat data. Imeri does not seem to have direct personal connections to Ivanishvili’s network. However, in the past, Imeri benefitted from a few simplified procurements, which allowed the company to bypass e-tender procedures. Such procedures are usually assumed to increase the risk of corruption.68 An unequal distribution of the benefits of EU trade liberalisation also characterises parts of Georgia’s agri-food industry. Here, nuts and wine are the main export commodities. Two large companies, Dioskuria XXI and Westnut, dominate Georgia’s nut exports to the EU. Russian citizen Nona Kharebava owns Dioskuri XXI. Westnut is owned by Georgian businessmen and UK-based companies. Westnut receives it raw materials from approximately 2 000 farmers. However, most small Georgian nut producers export their production through intermediary companies (traders). This practice indicates a pathway towards exclusive growth that mainly benefits intermediaries from Turkey or the targeted EU countries. Intermediaries or larger companies take care of the regulatory and export procedures, thereby providing small producers with a better chance of increasing their sales. Yet, this procedure diminishes the benefits for Georgian producers, since intermediaries offer much lower prices relative to the price for which they will later sell the nuts on the EU markets.69 As for Georgia’s wine industry, two large companies, Tbilvino and Telavi Wine Cellar, dominate the market. Leading company figures seem to enjoy some political connections to the ruling Georgian Dream Party. For example, Zurab Nakeuri, who sits on Tbilvino’s supervisory board, is also the Director General of Maestro TV, which in 2017 became part of the Imedi Holding — a pro-government (pro-Georgian Dream) media outlet.70 Further, Kakha Zukakishvili, a member of Telavi’s supervisory board, made several 68 InstituteforDevelopmentofFreedomofInformation,‘Assessmentoftheexecutionofthelaw ontransparencyofpublicprocurement’,InstituteforDevelopmentofFreedomofInformation, 2017,https://idfi.ge/public/upload/IDFI_Photos_2017/tppr/PPL_Implementation_Assessment_ Georgia_geo.pdf. In fact, inquiries by Transparency International revealed a relationship betweenpartydonationsforIvanishvili’sGeorgianDreamPartyandsuccesswithpublictenders (Source:TransparencyInternationalGeorgia,‘CorruptionandAnti-CorruptionPolicyinGeorgia: 2016 – 2020’,TransparencyInternationalGeorgia,21October2020,https://www.transparency. ge/ge/post/korupcia-da-antikorupciuli-politika-sakartveloshi-2016-2020-clebi.) 69 EuropeforGeorgia,‘ExportPotentialforAgrifoodandotherNichemarketsinEU’,Europefor Georgia,6May2016,http://eugeorgia.info/ka/article/433/saeqsporto-potencialis-mqoneagroproduqtebi-da-nishuri-bazrebi-evrokavshirshi/;EastFruit,‘Georgiariskslosingmorethan $80milliononhazelnutsexports’,EastFruit,2April2021,https://east-fruit.com/en/horticulturemarket/market-reviews/georgia-risks-losing-more-than-80-million-on-the-export-of-hazelnuts/. 70 TransparencyInternationalGeorgia,‘WhoownsGeorgia’smedia?’,TransparencyInternational Georgia,2018,https://transparency.ge/en/post/who-owns-georgias-media. Georgia has become an attractive low-cost production base for some leading worldclass fashion brands. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 22 donations to the ruling Georgian Dream Party in 2017 and 2020.71 Unlike the minerals and metals sectors, Georgia’s wine industry is, however, not controlled by a rent-seeking coalition. And SMEs make up a higher market share than in the nuts and textile industries. Indeed, the number of SMEs operating in the wine industry is also on the rise (Interview 3). The fact that most of the 300 wine companies exporting between 2017 and 2020 were SMEs suggests a path towards inclusive development. Government agencies and business associations help to boost their competitiveness. The National Wine Agency (founded in 2014) and the Georgian Wine Association (founded in 2010) played an important role in diversifying the industry’s ownership structures. They helped local wine producers to overcome information asymmetries, initiated certification procedures for export companies, and fostered participation at international fairs, which increased brand awareness of Georgian wines.72 EU twinning initiatives facilitated exchange between Georgian authorities and their EU counterparts.73 All of these measures have paved the way for an inclusionary developmental coalition. Nonetheless, it should be remembered that Georgia’s wine sector only accounts for 3.5 % of total exports to the EU. All in all, Georgia’s trade liberalisation with the EU has so far created more opportunities for consolidating the power position of rent-seeking elites than for exclusive — let alone inclusive — developmental pathways. Conclusion and implications This ZOiS report has examined how effective liberalised trade with the EU has thus far been in achieving one of the declared objectives of the EaP, namely the promotion of inclusive economies in the partner countries. By drawing on the cases of two associated EaP countries, Moldova and Georgia, our analysis suggests that the effects of trade liberalisation with the EU on economic development in the two partner countries are ambivalent and shaped by the quality of dominant coalitions in different export sectors. With regard to the top five export sectors, trade liberalisation with the EU has offered more opportunities for exclusive and even inclusive development in Moldova than in Georgia. That is because a large share of Moldova’s exports to the EU (41 %) is currently produced in sectors dominated by exclusionary or even inclusionary developmental coalitions between private actors and local state authorities, while only about 31 % of Moldova’s exports to the EU come from sectors clearly controlled by rent-seeking coalitions. By contrast, more than 60 % of Georgia’s exports to the EU currently come from sectors like minerals and metals where the key market players are closely connected to the ruling oligarchic network under the leadership of billionaire Bidzina Ivanishvili. That said, given the scarcity 71 TransparencyInternationalGeorgia,‘PartyDonations’,TransparencyInternationalGeorgia, 2021https://www.transparency.ge/politicaldonations/ge/entrepreneurial-activity/7336. 72 TheFinancial,‘GeorgianWineMarketing:ASuccessStory,orNotYet?’,TheFinancial,4July 2016,https://www.finchannel.com/interviews/58418-georgian-wine-marketing-a-success-storyor-not-yet;Vinoge,‘TheChairmanoftheNationalWineAgencyabouttheRegulationofCertification’,Vinoge,18February2015,http://en.vinoge.com/news/chairman-national-wine-agency-about-new-regulation-certification. 73 EU4Business,‘Turningan8,000-yearWineTraditionintoSuccessinGeorgia’,EU4Business,11 October2016,https://eu4business.eu/success-stories/turning-an-8-000-year-wine-traditioninto-success-in-georgia/. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 23 of statistical data on the significance of SMEs for total production and exports to the EU at the level of key export sectors, future research should engage in a more fine-grained sectoral analysis of the export performance of different firm sizes, in particular SMEs. Notwithstanding these limitations, our findings hold important implications for effectively promoting inclusive economies through trade liberalisation in the context of the EaP: First, a better assessment and monitoring of the extent to which firms of different sizes, including SMEs, can truly reap the benefits of access to the EU market is needed. This would also raise more awareness, both among policymakers and the public, of the thus far limited role local SMEs play when it comes to benefitting from trade with the EU, especially in terms of export opportunities. Eurostat and / or national statistical offices in the partner countries should therefore systematically collect business statistics in terms of export performance, number of export companies, their field of export (e.g. sectors), and type of company. Second, when implementing policies and programmes that aim to facilitate access to the EU market for firms from the Eastern partners, the EU is well advised to take into account the ownership structure of top export sectors and the involvement of these key owners in rent-seeking practices. For example, during future negotiations on the extension of tariff-rate quotas (TRQs) for product groups that have already reached the pre-determined limit of exports, the EU should extend TRQs first and foremost in sectors that are not dominated by firms with links to oligarchic structures. This would certainly increase export opportunities for the SMEs operating in these industries. Third, existing or planned EU initiatives, such as EU4Business and the Economic and Investment Plan, which is part of the new EaP, obviously need to put greater emphasis on creating and / or strengthening sectoral clusters and programmes to foster cooperation between a diverse set of private and public actors in promising sectors and where firms not linked to oligarchic networks are important market players (e.g. Moldova’s and Georgia’s textile industry and wine production). As previous experience in Central and Eastern Europe has shown, cooperation among firms, business associations, consultants, research institutions, and regulatory authorities plays a vital role in facilitating (technological) innovation and upgrading and equipping local firms with the necessary know-how to find their niches in European supply chains.74 Taken together, these measures will broaden access to trade and entrepreneurial activities for a wider group of economic actors, thereby laying the basis for more inclusive export-led development in the associated Eastern partners. 74 GergöMedve-BálintandVeraŠćepanović,‘EUfunds,statecapacityandthedevelopmentof transnationalindustrialpoliciesinEurope’sEasternperiphery’,Review of International Political Economy 27,no. 5,(2020):pp. 1063 – 1082;VisnjaVukov,‘Europeanintegrationandweak states:Romania’sroadtoexclusionarydevelopment’,Review of International Political Economy 27,no. 5(2020):pp. 1041 – 1062;OlgaMarkiewicz,‘Stuckinsecondgear?EUintegrationand theevolutionofPoland’sautomotiveindustry’,Review of International Political Economy 27 no. 5(2020):pp. 1147 – 1169. The EU should take into account the ownership structure of top export sectors and involvement of key owners in rent-seeking practices. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia 24 List of Interviews Interview 1: Dumitru Alaiba, Member of Parliament of the Republic of Moldova, representing the Action and Solidarity Party (PAS) parliamentary group, 20 January 2021, online. Interview 2: Igor Munteanu, researcher in politics and governance and lecturer on public policy at the Academy of Economic Studies in Chisinau, former Member of Parliament of the Republic of Moldova and former Ambassador of Moldova to the US, 25 January 2021, online. Interview 3: Giorgi Gudabandze, Export Development Association of Georgia, 22 January 2021, online. Imprint Authors Julia Langbein, Denis Cenusa, Irina Guruli Published by © Centre for East European and International Studies (ZOiS) gGmbH Address Centre for East European and International Studies (ZOiS) gGmbH Mohrenstraße 60 10117 Berlin [email protected] www.zois-berlin.de Citation Julia Langbein, Denis Cenusa, Irina Guruli: ‘Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia’, ZOiS Report 1 / 2022, (https://en.zois-berlin.de/fileadmin/media/Dateien/ 3-Publikationen/ZOiS_Reports/2022/ZOiS_ Report_1_ 2022.pdf) ISSN 2627-7233 Layout Yuko Stier This report is licensed under a CC BY-NC 4.0 license. ZOiS Report 1 / 2022 Ambivalent Effects of Trade Liberalisation with the EU: Insights from Moldova and Georgia  25