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Potential economic consequences of new customs regime
Iurie Gotisan, March 14, 2006
The new customs regime in the Transnistrian section of the Moldovan-Ukrainian border has challenged hot reactions of the Chisinau media and a propagandistic hysteria in Tiraspol. However, we will try to identify some potential economic consequences of the new customs regime beyond resuscitating of some political reactions. We must admit from the very beginning that the current situation will affect economic agents from both banks of the Dniester river from economic or, better saying, commercial point of view. Of course, their losses will have different sizes and if what the Transnistrian administration describes as "blockade" will last.
We consider that Moldovan economic agents that export to Ukraine, Russia or other CIS countries and cross Transnistria, especially the exports by trains (Cuciurgan customs station) will suffer the smallest losses. Perhaps these economic agents will have some afferent expenses for the covered distance (km/h) in addition, since Chisinau has redirected the motor transport through the customs stations in the north, south-east and south and the trains through the northern and southern railway junctions of Moldova (Ocnita and Basarabeasca). These eventual spending will be included in the final price of exported production, expenses that the exporters will finally recover and they will be included in the final cost of production (which will be probably higher).
This is the picture for economic agents working in the eastern breakaway enclave of Transnistria, even for those which have got registered with specialised structures in Chisinau and hold the customs documentation of Moldova, while the "economic blockade" - a term that the Tiraspol administration is pompously and bombastically using in its statements - is rather a self-blockade. In addition, if the situation perpetuates, it will have dramatic consequences on Transnistria's economy because the foreign trade holds an important enough share in the formation of GDP of the region. Despite the old industrial potential, a huge consumer of energy and mostly unstructured potential of Transnistria, the foreign trade holds about 80 percent of Transnistria's GDP, while most of local budget revenues are raised from export-import relations.
Even more, Transnistria's exports have demonstrated a strong trend of faster rise than imports and this is not the case of the Republic of Moldova in general. According to data of the central bank in Tiraspol, the Transnistrian exports turned over about 600 million dollars in 2005, exports comparable with the annual budget of Moldova, and almost half of them went to Russia and districts on the right bank of the Dniester river of Moldova. As for example, the siderurgical production, engineering and metal processing sector in the overall industrial production hold 70 percent of GDP and about 90 percent of this production is exported. The Tiraspol economics minister said last week that Transnistria has lost more than 3 million dollars in one week.
At the same time, we do not find an explanation to dissatisfaction of the Tiraspol administration and economic agents in Transnistria which export their production to the CIS regarding the new customs regime. It is well-known that many enterprises in the region have been awarded certificates that allow them to perform exports to Central Europe and the European Union after getting registered with the Chisinau structures. The list of such enterprises includes Tirotex, Odema, Vesta, the cement plant in Ribnita, Moldavcabeli, Buket Moldavii, Kvint, the Camenca-based cannery, and others. Such an export regime is absolutely transparent and it works for a long period without payment of any duties. Both Transnistrian entrepreneurs and their partners in Europe are satisfied with these rules of games.
Interesting statistics. Moldova is the forth exporter of steel to the U.S. market due to the exports of metals from the Ribnita-based metallurgical plant (which has an annual production potential of 700,000,000 tons). It is interesting that Ukraine and Romania have been the main providers of raw material for the steel industry of Transnistria. According to data of the Moldovan customs department, Romania alone supplied about 2 million tons of used metal for the needs of the Ribnita plant in 2001. Poland is another large provider, especially of raw materials and agricultural products such as sugar, potatoes, etc.
Forecasts. If we make a retrospective of the events that happened five years ago, we observe that Chisinau has harvested success by establishing control levers on exports and imports from the Transnistrian region, by withdrawing the customs stamps that the Tiraspol regime was illegally using. This action was an efficient tool, at least partial, used to cut the roots that financially fuelled the so-called Transnistrian statehood. The economic-commercial relations between Moldova and Russia could take another turn behind very tense political relations between Chisinau and Tiraspol, if taking into account the loyalty of the Transnistrian region towards Moscow. Let's remember the so-called economic sanctions that the Russian Federation has introduced for importation of many Moldovan products starting last spring, or the Russian side could raise more pretensions regarding gas prices while negotiating with Chisinau.