16.

The export potential of the food industry of the Republic of Moldova: the wine cluster; the cluster of the vegetable and fruit preparations.
Business cluster geographic concentration of international business, suppliers, associated institutions in particular filed. Is also characterized resources reach critical fresh rod (prag) with decesive competitive advantage: - Porter cluster affect competition in 3 ways: - Increasing of productivity of component in cluster - Driving innovations - Stimulating new business in filed Classifications of cluster (technical point) - Horizontal - Vertical supply chain cluster Origin point: - Techno cluster (ex. Silly way India) - Historical know-how = based clusters (ex. London financial Center) The concept of export potential . The components of export potential of a branch of a country consists in: - Overproduction the amount exceeding the absorbtion capacity of domestic market - The competitiveness of overproduction through the price and trademark - The corresponding demand of the external markets Factors that influence the export potential are the following: - Direction of exports since the prices of the same products vary through different regions - The composition of the exports (the degree of processing of raw materials )bulk wine, bottled wine The category food staffs, tobacco, beverages represent the 1st place comparative advantage of RM. It share in total exports involved : 1998 55,4%; 2008 19,6%; 2009 21,7%. Wine cluster- the competitive groups: The related and supporting branches of wine cluster 1) groups cultivation total surface of vineyards, in 2006 150 th. Ha which 26% offers to wine varieties , 14% mass varities. 2) Sugar industry 3) Bottles industry 4) Labels industry 5) Wine tourism (tertiary sector) 6) Elaboration and maintains of trademarks 7) Wine industry : 15 wine enterprises, 126 primary winemakers, 6 secondary production wineries, 18 mixed wineries that do both, 7 brandy factories - Dry table wines 10% - Semidry and semisweet wines 75% - Fortified wines 5% Moldavian wine exports on the Russian market: Moldavian producers lost the Russian market due to the political events but also due to some real economic problems: The reinforced competition from the part of the Central European countries (Ukraine #2, Armenia #7, 2009), West European countries (France #1, Italy #3, United Kingdom #4, Spain #5, Germany #6), but also American countries (USA #9, Chile #13, Argentina #17), which managed to promote the trademark of the New World wines. Evolved market architecture the consumers increase their preferences for dry wines with 12 percent alcohol, while Moldovan producers used to export mostly semisweet and semidry wines, with an alcohol percentage of 9 percent (low-price (US$1.802.20/bottle) and medium-price (US$3.00/bottle) markets. Capacity constraints in Moldovas wine sector. For example, the rising level of wine imports of Moldova from Romania. The ignorance of the need to protect and maintain our wine trademarks. Political problems. Moldavian wine exports on the E.U. market

On the West-European markets, the Moldovan wines are not competitive so far, because of: Exporting the ordinary low- and medium-price wines (9 % alcohol), unable to gain competition with similar wines from Italy, Spain, Portugal and France, abundant irrigation, use of fertilizers etc. The Europeans consider the wines to be sensitive products their production is often subsidized. Many tariff and non-tariff barriers for the Moldovan wine exports in the E.U. Autonomous Trade Preferences applied from March 2008, exclude the wines with < 15 % of alcohol, providing quotas for them. Still, the European wine market (total imports of the E.U.-27) expanded from 7.52 billions USD (2001) till 16.19 billions USD (2008) and the share of the R. Moldova is continuously increasing from 0.045 % in 2001 (II place among the C.I.S. exporters to this market) till 0.136 % in 2008 (I place among the C.I.S. exporters to this market. The cluster of the vegetable & fruit preparations Fruits & vegetables growing. Plastic and paperboard packages industry. Bottles industry. Labels industry. Elaboration and maintenance of the trademarks of the vegetable & fruit preparations. Sugar industry. Vegetable & fruit preparations industry 25 medium and small enterprises (2008), employing 3000 persons; registers positive rates of output growth but diminishes its share in the total exports of our country. R. Moldovas exports in the group 20.Vegetable, fruit, nut preparations Evolution
2009 year: 50'117'000 USD

Composition
2009 year: to E.U.: 77,9 % juices; 16,5 % - gems, marmalades to C.I.S.: 66,3 % prepared or preserved vegetables; 14 % juices; 11 % cucumbers preserved by vinegar Juices

Direction
2009 year: E.U. (35,8 %) C.I.S. (63,1 %) Russia; Kazahstan; Belarus

to E.U.: 2007 y. 41'670'000 USD, 2008 y. 12'726'000 USD, 2009 y. 13'985'000 USD

2009 year: E.U. (75,5 %) Germany, Austria, Poland

R. Moldovas exports in the group 22.Beverages, spirits and vinegar Evolution

2005 year: 314'548'000 USD (29 % in total export) 2007 year: 135'503'000 USD (10 % in total export) 2009 year: 159'462'000 USD (12.4 % in total export)

Composition

Direction

2009 year: 2005 year: Russia 75 %; traditional products: wine of Belarus 12 %; Ukraine fresh grapes (80,7 % in gr. 6 %, Kazahstan, Poland, exp. ); cognacs (16,5 % in gr. Georgia, Romania. exp.); 2009 year: Russia (32 %) snail: vermouth and the like; Belarus (27,8 %), emerging products: beer made from malt; mineral and Kazahstan (9,5 %), Ukraine (8,5 %), Poland (5,9 %) aerated waters (ap plat); stars: nonalcoholic beverages (excl. water, juices, milk); fermented beverages, nes; vinegar and substitutes for vinegar.

Seminar
The yield productivity of Moldovan vineyards is low, for instance in 2008, the average white grape yield was 4,5 t/ha, which compares poorly to that in key competitor countries such as Georgia where yields in 2001 were about 5 MT/ha, although they were not significantly higher than other major rivals in the CEE, such as Bulgaria (3.2 MT/ha) and Romania (3.4 MT/ha). Despite these yields remain extremely poor in comparison to international standards such the EU-15 average of 7.8 MT/ha, and those of Australia where average yields are over 13 MT/ha. The primary reason for the low yields is due to the limited application of inputs (particularly fertilizer and crop-protection chemicals), limited use of irrigation, as well as farmers limited technical skills who inherited small areas of vineyards after the privatization process. The wine processing industry in Moldova comprises 197 of wine producers that specialise in producing still wine, sparkling wines, and spirits. Despite investment to purchase modern equipment for grape processing, wine storage and bottling, mainly from Western Europe, capacity remained low with most enterprises using only 20-30 percent of their production capacity. 2.3 WEAKNESSES Macroeconomic factors:

Excessive reliance on Russian export market (now suspended), little export activity in EU as yet EU rather new (in comparison to Russia) and unknown market for Moldova No previous recognition of Moldova in the EU market Late penetration into the EU market in comparison to Australia, Chile, etc. penetration is more difficult and competition is higher Insufficient government support, insufficient collaboration between and within government and private sector Absence of a national well-planned wine-making strategy for product penetration and promotion onto the EU market. Resources: Microsphere Lack of financial resources for country and companies promotion Insufficient marketing and institutional capacity High cost of credits

Some vitis labrusca varietals unmarketable in EU 70 cl bottle size problem Overly 'sweet' wine style for much of EU countries Some wineries need complete re-equipping Little innovation in new developments such as screw-caps, labelling can be old-style Insufficient winery management Underutilisation of factory capacity Old age of vineyards Large stocks of wines The yield productivity of Moldovan vineyards is low.

Core problems: 1. COMPETITION High competition in the EU market together with Moldovas lack of recognition abroad, crisis of overproduction, world economic crisis all these factors make difficulties for Moldovan producers to penetrate and be competitive in the EU market. Solution: country promotion campaign by means of mass media, trade fairs, wine experts, etc. in order to promote Moldovas image in EU. LACK OF FINANCE FOR PROMOTION Difficult economic situation of Moldova, recent political vulnerability impeded the allocation of funds for country promotion abroad.Solution: stimulate Moldovan government and attract financial resources from foreign investors through NGOs, projects, banks, etc LACK OF ADAPTABILITY TO CHANGES Modern world winemaking industry has suffered sufficient changes in the last 10-15 years. Increased competition, shifts in consumption, modern technologies imposed producers all over the world to be extremely reactive in order to remain competitive. In this sense, Moldova still needs to improve a lot and is suffering from underutilisation of its capacity.Solution: to elaborate local unique wine variety which will be associated with the country to reorient production toward dry wines to involve modern production facilities to invest in new developments (screw caps, modern design, innovative marketing approaches)

2.

3.

to be adaptive to market trends and innovation

17. The export potential of the agricultural sector of the Republic of Moldova.
Features of the Moldovan agricultural sector: So far, it doesnt form clusters independently. By supplying raw materials, it takes part in the respective clusters of the food and beverages industry; It directly provides two categories of exports: II. Produces of the vegetal field; I. Livestock and produces of the animal field. During transition, their evolution differed substantially: the produces of the vegetal field, despite fluctuations due to their sensitivity to the climate conditions, have kept an important share in the total export 13,2 % (2008 y.) & 21,5 % in 2009 year (in conditions of world economic post crisis period) the category Livestock and produces of the animal field had registered an increase of its share till 1997 year but subsequently it diminished to just 0,7 % (2009 y.) of the total countrys export. The pure ecological agricultural products could offer the possibility of developing a promising and independent cluster.
1. The agriculture of RM confronts a series of problems on the economic, ecological and social order. The situation

aggravated as a consequence of the application of the privatization program in the 90s, which led to the failure of cultivation technologies and to the drastic reduction of investments into this sector. Currently, the situation in the industrial sector in RM can be compared to the situation in Europe in 1970s. The productivity of this sector is 2 or 3 times lower than in Europe. 2. A good opportunity for the development of the agriculture sector in RM could be ecologic agriculture. However, for this we need to solve a wide range of problems: Creation of a system of coordination of activities in the field of ecologic production, to interest the participants in this type of activity and to support farmers in their transition to ecologic agriculture. Strengthening of the technological and research capacities in order to ensure all the technological processes for obtaining ecological products. Intensification of education activities and personnel consulting to prepare them for obtaining and processing such products. Allocation of governmental subsidies to producers and attracting local and international investors. 3. Currently RM does not have a national system of inspection and certification of households which obtain and process agricultural products. These inspections are made by controlling institutions from European Union, such as BioKontrol (Hungary), Bioinspecta (Switzerland), Ecocert (France) etc. Such inspections are rather expensive and they require significant investments. 4. In the agricultural sector, there is a deficit of labor force, because of immigration of population in rural areas. Since agriculture in RM is mostly based on manual labor, if this tendency persists, than the consequences will be critical. 5. According to Veaceslav Ioni, currently the producers from RM cannot face efficiently the restrictions imposed by the EC. We still have to work on it. The main restrictions of EU are the administrative barriers: certification and quality of goods. Producers from RM are used to work without respecting the norms imposed by the European Union. 6. Peasant households are rather small and they need to be consolidated. Only large firms can afford passing to modern production technologies and consequently, to advanced methods of conducting business. The power of the cluster comes in it capacity to interact with different sectors of the economy, the consolidation. Agricultural cluster doesnt form independent cluster like industrial cluster. Past crisis increases the demands for agriculture. Nuts are relatively competitive 15th place among countries supplying this product in EU.

18. The competitiveness and the export potential of the Moldavian light industry: textiles, garments, carpets. Textiales are relatively competitive, leaders of carpets in Russian market, 7th place in Romanian. Main niche in market produce influence consumers, that leads to education of consumers. Clusters have the capacity to find investments. The category XI. Textiles and articles thereof in 2007 for the first time situated on the I place (20,6 %) in the total exports of R. Moldova, 2009 year 19,9 % (II place). Simultaneously, the textile industry of the R. Moldova manufactures from imported raw materials the category XI has got a high share in the total imports of our country (7,5 % in 2009 year). At the beginning of transition, the crisis of the textile enterprises was due to:

 The decrease of the purchasing power of the population as result of the general economic crisis; The breaking of the traditional links with suppliers of raw materials and external sales markets; The free access on the domestic market of the import garments. Later on, the recovery by the exports redirecting to the E.U. due to: The cheap & qualified domestic labor force the Lohn operations; Quick responses to incoming orders lack of alternative employment opportunities. The canceling by the E.U. of both tariff & non-tariff barriers for the Moldovan textile exports Outward Processing Traffic arrangement (the duty-free importation of all inputs + the taxation of the value-added portion only upon re-export to the E.U.; The FDI, the creation of the Joint Ventures. The geographical location between the east and the west (relatively low costs of transporting). Evolution 2009 year: 9.9 % in tot. exp. Composition Direction 62. Textile articles not knit or Italy (48 %), Germany, Poland, crochet: Romania 1) Mens suits, jackets, trousers; 2) Womens suits, jackets, dresses, skirts 61. Textile articles knit or United Kingdom; Italy, Turkey, crochet: Romania 1) Women's blouses & shirts, knitted or crocheted; 2) T-shirts, vests, knitted or crocheted 57. Carpets and other textile Russia (62,7 %); Romania (13,8 floor coverings: %); Ukraine (13,3 %) 5702. Carpets & other textile Russia; Romania; Ukraine floor coverings woven, not tufted/flocked

2009 year: 7.6 % in tot. exp.

2009 year: 1.7 % in tot. exp. 2009 year: 99.8 % in exp. gr. 57

Seminar: The successful brands made in the textiles cluster of the Republic of Moldova as a reflection of the competitiveness stage of our economy.
There are 13 enterprises of textile and 7 enterprises of sewing industry. These occupy leading positions in light industry. The light industry ranks second after agriculture in its size. Over 95% of the production is exported. Textiles and clothing as well as shoes have become important export articles. Their production has utilized low wages. Companies are mainly engaged in contract manufacturing for Italian and German firms. They rarely have own brand-names or even own design products. Only few Moldovan firms are able to move up the value chain as a quick-turnaround supplier to the European fashion industry. Moldova has recently attracted some investors and contracts which had left Romania due to rapidly rising wages there. But low wages in Moldova hinder the further expansion of this industry due to the lack of labor force.On the other hand, even these wages may be too high compared to Asian producers. The recent currency appreciation reduced the competitiveness of the clothing sector and caused exports to decline in the first nine months of 2008. It. continues to remain of critical importance because it is based on one of the most important resources available in Moldova, a strong and competent labor force. It is a sector with long-standing traditions in exporting a wide range of products. It is the countrys top export and one of the most profitable and viable industries in the economy. . One of the key advantages for Moldova is its proximity to European markets, which allows C&M orders to be filled in four to five days, as compared to China, which requires four to six weeks. Out of the total value of textile and apparel products, the CIS market represented only 9.8 percent in 2007 and was mainly textiles (Own Label products) while the EU market for C&M services represented 90.2 percent and the main clients are Italy, Germany, and Belgium. Over the last five to seven years, certain support industries were created and are slowly developing, such as embroidery service providers, distributors of accessories, equipment and gadgets, and spare parts, and academic facilities for labor force training.

19. The forms of the underground economy: classification according to the way of their influence on the competitiveness of the national economy. The causes of the underground economy in the world countries, peculiarities of the R. Moldova.
The underground economy comprises those forms of economic activity, unauthorized by the state administration, not reflected in the official statistics, which are harmful to the development of the country. The forms of the underground economy may be classified according to the way they influence the competitiveness of the national economy:

Quality of the state policy showing the corruption of the state administration: Bribery; Illegal tax exemption; Illicit distribution of the foreign technical assistance; Public procurements manipulations; Firms strategy & rivalry: Tax dodge (evasion); Illicit privatization; Fictitious bankruptcy of the enterprises; Illegal barriers to entry the sectors the racket. Demand parameters: Counterfeiting of products; Black market; Forgery of money and securities. Resources endowment & Structure of the national economy implicitly, these forms mostly relate to the external environment: Smuggling; Dilapidation money laundering; Illegal migration of the labor force (undeclared incomes); Human trafficking. Causes of the underground economy: 1. Moral causes: mentality of population, due to Institutional factors and historical background 1989 the size of unofficial economy: RM- 29%, Russia- 18%, Max: Azeirbaijan, Georgia, Uzbekistan 33% 2. Poverty causes: lower GDP/ cap -> higher tendency to develop corruption 3. Increase of the service sector share both in GDP and labor force distribution intangible goods requires good legislation 4. Increase of state implication in economy: level of corruption is not determined by the extend of state implication, but the way of state implication Causes in RM: 1. Legal causes: controversial and out of date legislation 2. Institutional: low transparency in decision making process, policy generating rent seeking of public officials 3. Economic causes: low wages for budgetary employees, 4. Political implying interest of some groups to increase the political power 5. Social and moral: public tolerance of corruption The effects of the underground economy:

1. Social effect: imply the decrease of funds destined to public social services, lack of social assistance of
participants to the underground economy, increase of the social inequity gap. 2. Environmental effect 3. Political effects: - formation of political and economic oligarchy, leading to the failure of policies supporting small business and paralyzing the state institutions -crime expansion, as corruption penetrates also the judiciary system, some roots of drug trafficking in RM, the annual volume of narco business can be estimated to 200-260 mln $ 4. Economic effect imply the decrease of economic growth through a. Worsening of business climate (increase of transaction cost) b. Degradation of public and private investments. Paper of Mauro estimated that an increase of 2 points in CPIleads to an increase of investments with 4 points and additional ec growth of 0.5% c. Undetermining the state economic policy through distortion of the Macroeconomic indicators d. Undetermining the production activity- throught :- excessive rotation of financial means in the distribution, circulation and consumption sphere.In transition countries, underground economy is located in the Distribution sphere:, unlike developedproduction -The smuggling the economic spheres with largest share of smuggling: energy distribution sector (Trannistria), software sector, railroad transporting, cigarettes sector.

20.The methods of estimating the size of the underground economy; the structure of the unobserved economy in the R. Moldova. The international ranking of R. Moldova according to the Corruption Perception Index. There are several methods of estimating the size of the underground economyi: Direct approaches: Sample survey; Tax audit. Indirect approaches: National accounting statistics; Labor force statistics; Physical inputs (electricity consumption)services sector & others; Transactions method; Currency demand method. Center of Studying the Market Problems attached to the Ministry of Economy of the R. Moldova applied the Currency demand method, estimating the underground economy in R. Moldova had registered: 1994 48 % to the official GDP; 1999 108 %; 2002 65 %

For the next years, the National Bureau of Statistics applied: The Labor force statistics method: in 2009, of the total labor force, 11.7 % were engaged in the informal sector; also 30 % had an informal job.

The National accounting statistics method:

Contribution (%) to the formation of the GDP

Economic activities

Informal sector

Households production for their own consumption 2003 10.7 1.3 0.1 0.0 0.0 0.0 2008 3.6 0.6 0.1 -

Economy hidden formal sector 2003 0.1 3.5 0.3 1.6 0.2 0.6 2008 0.0 2.1 0.6 1.6 0.4 0.7

in

Total

2003 Agriculture Industry Buildings W & R Trade Hotels, restaurants Transports, communications Other services Total Total, 2010 year 3.3 1.3 1.0 2.9 0.2 0.4

2008 2.0 0.8 1.4 2.6 0.1 0.5

2003 14.1 6.1 1.4 4.5 0.4 1.0

2008 5.6 3.5 2.1 4.2 0.5 1.2

0.3 9.4 7.3

0.5 7.9

1,9 14,0 9.6

2.4 6.7

0.5 6.8 6.3

0.8 6.2

2.7 30.2 23.2

3.7 20.8

The international assessment. Corruption Perception Index (the scale is descending of 10 to 0, with 0 representing total corruption and 10 total lack of it) according to the CPI 2010, the Republic of Moldova scored 2.9 corresponding to the rank of 105 among the 178 countries (the last rank detained by Somalia). Table 6.2. Evolution of the C.P.I. of some world countries. Corruption Perception Index score & world rank The country New Zealand Denmark Singapore Sweden Finland 1999 9.4 (#3) 10.0 (#1) 9.1 (#7) 9.4 (#3) 9.8 (#2) 2009 9.4 (#1) 9.3 (#2) 9.2 (#3) 9.2 (#3) 8.9 (#6) 2010 9.3 (#1) 9.3 (#1) 9.3 (#1) 9.2 (#4) 9.2 (#4)

Estonia Georgia Romania Rep. of Moldova Belarus Ukraine Russia Uzbekistan

5.7 (#27) 2.3 (#84) 3.3 (#63) 2.6 (#75) 3.4 (#58) 2.6 (#75) 2.4 (#82) 1.8 (#94)

6.6 (#27) 4.1 (#66) 3.8 (#71) 3.3 (#89) 2.4 (#139) 2.2 (#146) 2.2 (#146) 1.7 (#174)

6.5 (#26) 3.8 (#68) 3.7 (#69) 2.9 (#105) 2.5 (#127) 2.4 (#134) 2.1 (#154) 1.6 (#172)

The ways to reduce the size of the underground sector in the Republic of Moldova. The Regional Conference of the Central and Eastern European Countries in fighting corruption (Bucharest, 30-31 March, 2000) mentioned 3 main elements of a successful campaign against corruption: The will. The relevant legislation. 3. The relevant mechanism of implementing the legislation. A successful campaign against underground sector and corruption in the Republic of Moldova requires the participation of the three main sectors of the society: 1. 2. The state administration (government); The business community; The civil society, represented by the NGOs

21.The social, environmental, political, and economic effects of the underground economy in the Republic of Moldova. The directions of the anti-corruption policy.
The directions of the anti-corruption policy :
Adopting and implementing the European and other international instruments expanding international cooperation (European Union-Republic of Moldova Action Plan 2005-2008 years; Republic of Moldova joined in June 2001 year the GRECO group of countries against corruption; Strengthening the legislation and promoting the state based on law, which would include:

the implementation of the Guillotine approaches: Law No. 424-XV, 16 December 2004 Guillotine I and Law No. 235-XVI, 20 July 2006 Guillotine II. the adopting of a Law on Lobbying Promoting good governance: Increasing transparency; Increasing efficiency; optimization of the governmental structure. In April 2005 a total administrative reform was initiated: First stage, April-May 2005 the Government became one-level structure, consisting only of 15 ministries instead of 16 ministries and 14 departments; Second stage gradual cut of the governmental size, staff by 70 %. The Customs Service of the R. Moldova: since 2005, the introduction of the ASYCUDA World (Automated SYstem for Customs DAta) developed by the UNCTAD; of the system of rotation of customs officers. Creating a viable private sector: The fiscal reform that was launched in April 2007 year:

A zero rate of the Corporative Profit Tax on the profit that is reinvested is introduced starting with 1 January 2008. Supervising the competition environment of the economy State Agency of Protecting the Competition. Promoting an active civil society. Some of the measures: - Increasing access to information. Strengthening the capacity of the NGOs to lobby, raise public awareness

Canceling of the historical debts of the enterprises; Legalizing the capital;

The effects of the underground economy: 1. Social effect: imply the decrease of funds destined to public social services, lack of social assistance of participants to the underground economy, increase of the social inequity gap. 2.Environmental effect 3.Political effects: - formation of political and economic oligarchy, leading to the failure of policies supporting small business and paralyzing the state institutions -crime expansion, as corruption penetrates also the judiciary system, some roots of drug trafficking in RM, the annual volume of narco business can be estimated to 200-260 mln $ 4. Economic effect imply the decrease of economic growth through Worsening of business climate (increase of transaction cost) Degradation of public and private investments. Paper of Mauro estimated that an increase of 2 points in CPIleads to an increase of investments with 4 points and additional ec growth of 0.5% Undetermining the state economic policy through distortion of the Macroeconomic indicators Undetermining the production activity- throught :- excessive rotation of financial means in the distribution, circulation and consumption sphere.In transition countries, underground economy is located in the Distribution sphere:, unlike developed- production -The smuggling the economic spheres with largest share of smuggling: energy distribution sector (Trannistria), software sector, railroad transporting, cigarettes sector.

22. The Transnistria illegal entity, its impact on the competitiveness of the Republic of Moldovas economy.
Till the 1991 year, Transnistria region was characterized by positive balance of migration. More than 1/3 of the total industrial output of the SSRM was produced there. In addition, 90 % of electrical energy was produced by the electrical power stations from Dubsari and Cuciurgan that was also exporting to Ukraine and other countriesmembers of the CMEA. The current state of the Transnistria economy is characterized by the following: 1)External constraints: 1.1) Political instability implying also the fact that the world community doesnt recognize the term Transnistrian economic agent, therefore all the economic agents have to be registered by the official authorities of the R. Moldova. The political instability is due firstly to the presence of the Russian troops (at present, 1500 persons) the former 14-th Russian Army, which during the soviet period was representing substantial consumption power in the region due to the numerous military staff, supplying also some jobs to the local population. 1.2) Enormous debts to the Russian Gazprom. According to the official data, they constituted 1.53 billions USD at the 1 January 2006 year. Taking into account that Russian Gazprom is generally known as a company succeeding in prosecution of its debtors, it is believed that the debts of Transnistria are linked to the political interests of Russia. 1.3) Extremely low diversification of exports and imports. The exports are dominated by metallurgical items produced solely by the Moldavian Metallurgical Mill from Rbnia. Simultaneously, the Transnistria industry is fully relying on the import of raw materials, as the region is not at all endowed with mineral resources. Thus, the imports are dominated mainly by: common metals and mineral resources imported from Russia, Ukraine and food stuffs imported largely from Ukraine and very little from Republic of Moldova, because of customs duties representing 100 % (!) of the commodities value. However, the population of Transnistria is allowed to introduce from R. Moldova goods for personal use in small quantities. 2)Internal constraints: 2.1) Privatization and competitional environment settled by the political & economic oligarchy of Transnistria. The initial privatization took place during 2002-2003 years referring just to the industry 144 enterprises. So far, in Transnistria doesnt exist private property on the agricultural land, which is state owned and may be just rented. At present, the majority of the large enterprises are privatized by the local and the Russian investors, although the results of privatization are not recognized by Chiinu. Another problem of privatization is the frequent reselling of the enterprises. Thus, the Moldavian Metallurgical Mill from Rbnia founded in 1985, initially was privatized by the Ukrainian investors, then it was resold to the Russian billionaire A. Usmanov, the general director of Gazprom-investholding. Nowadays, this is a high-technology mill

producing competitive products and it is also member of many international organizations of Metallurgy Producers. The Cuciurgan Power Station was sold at the end of 2003 year to a Russian-Belgian company for just 29 millions USD. In 2005 year the power station was bought by the Russian corporation RAO EES. Competitional environment. Sheriffland is another name of Transnistria. As of 2006 year, 13810 persons were employed by the Sheriff holding. The company succeeded to set relations with partners from all over the world (USA, Brazil, Argentina, WestEuropean countries and others). Starting with 1996 year Sheriff company put into operation a whole trade network comprising many supermarkets and wholesale depots; few oil depots. In 2005 year Sheriff company privatized the Cereal Products Plant and the Bakery Factory from Tiraspol; in 2006 the Wine & Cognac factory Kvint. The company is the shareholder of the Transnistrian bank Agroprombank detaining Tirotex the largest textile mill in the region and the Moldavizolit plant. The Sheriff company has got the exclusive right to represent and sell in the region the products of Mercedes-Benz Corporation.The company owns few channels television, a publishing house, an advertising agency, the Interdnestrkom company which is the largest supplier of mobile and stationary communication, and the most important Internet-provider in the region. In 1997 the sport club Sheriff was founded. The sheriff football team is many fold champion of Moldova and the holder of many cups. In 2002 was inaugurated a sports center comprising: the main football arena that was given by FIFA the maximal score. Finally, Sheriff holding is actively participating in the political sphere of Transnistria by means of its political party Obnovlenie which detains the majority of mandates in the Supreme Soviet, the leader of the group being the speaker of the Legislative body. The most important tax-payers of Transnistria: 1.Sheriff holding; 2.Moldavian Metallurgical Mill; 3.Moldavian System Regional Electrical Central (CERS) of Cuciurgan; 4.Ltd Tiraspoltransgaz-Transnistria; 5.Savings Bank of Transnistria; 6.Electromas; 7.South-East Electrical Networks. 2.2) Labor force migration and alcoholism. At present, more than 1/3 of the disposable active population of Transnistria is working abroad. In 1990 the total population constituted 750000 people; the labor force 273000 employees. In the 2006 year the total population represented 540000 people; the labor force 130000 employees. In the 2006 year the birth rate constituted 8.9 per 1000 inhabitants; the death rate 15.4 per 1000 inhabitants; there were registered 59.4 divorces per 100 marriages. According to the official statistics, 10000 inhabitants of Transnistria are alcohol addicted, in reality the figure is at least 5 times bigger. Besides, 2000 persons are stated to be narcotics addicted. In conclusion, even if the problems related to the privatization and investments will be solved in the future, the deficit of labor force will continue to affect seriously the economic development of the region.

23.The international economic agreements concluded by R. Moldova, their implications on the external trade of our country. The juridical framework of the R. Moldova relations with European Union
Bilateral agreements concluded by the R. Moldova: 43 agreements as to the mutual protection and promotion of investments; 38 bilateral agreements as to the economic and trade cooperation; 18 Free-trade agreements (of which 2 have been cancelled at 1 January 2007): CIS countries (10) Russia, Ukraine, Belarus, Georgia, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan. South Eastern Europe Stability Pact (8) Romania (cancelled), Bulgaria (cancelled), Albania, Bosnia & Herzegovina, Croatia, Macedonia, Serbia, Montenegro, (Kosovo). Multilateral agreement: The World Trade Organisation (WTO); without custom`s duty and no single policy. Moldova adhered to the WTO in May 2001, ensuring privileged access to the markets of WTO by MFN clause. RM adhered earlier than Ukraine and Russia. No tariff quota for imports The Partnership and Cooperation Agreement with European Communities; signed in 1994, came into force 1998 for 10 years. European Union-R. Moldova Action Plan within the frame of the European Neighbourhood Policy; , in the frame of European Neighbourhood Policy-> refers to interdependence, not enlargement. EU granted RM few preferential schemes:

GSP (Generalized System of Preferences) GSP+ Autonomous Trade Preferences. GSP is also granted by USA, Canada, Japan, Switzerland. It is more beneficial for economic agents to pay specific tax instead of advalorem tax. January 12, 2010 Negotiations of an Association Agreement between RM and EU, providing also negotiation of deepen comprehensive FTA (DCFTA) The South East Europe Stability Pact, recently CEFTA + Regional Cooperation Council; - RM became a full member in June 2001, memorandum of trade promotion and liberalization The Free Trade Agreement with CIS; concluded in April 2994, but the enclosed protocol was signed in April 1999. Unlike it is a theoretical one, due to excemptions.Derogation from FTA between Ukraine and RM include: sugar, seeds, spirits, leather, iron and steel, copper and articles Agreement on creation of a Free-Trade Area between GUAM states. + Preferential trade schemes granted by some world regions Implementation of the WTO commitments good progress: A four year scheme of gradual reduction was implemented during 2001-2005 years strong commitments of Moldova as a developed country: relatively low simple average of ad valorem final bound duties 6 % for the industrial products, and 12,2 % for the agricultural produces. No tariff quotas and no special safeguard measures, excepting sugar. Very liberal horizontal commitments in the service sector. Moldova has assumed such commitments for 148 services subsectors from the total 165 services subsectors subjected to WTO settlement. So far 131 subsectors have been fully liberalized.

European Union-R. Moldova Action Plan Key priorities: Political dialogue; Justice, freedom, and security; Economic reform and trade:

 Macroeconomic stability; Agreement with IMF on a new lending programme; Improvement of the business climate; Reforming the system of certification of origin. Customs Improve control of origin for Autonomous Trade Preferences applied starting with 1 March 2008 year. Sectorial issues: Educational reform in line with Bologna process; Regulator for electronic communications; Convergence with the E.U. internal electricity & gas markets; Adopt & implement a Road Safety Action plan; Cooperation in protection of the Danube and Black Sea. 29 February 2008. European Communities to the World Trade Organisation Request for a Waiver for the application of Autonomous Preferential Treatment to MOLDOVA 1. Circumstances justifying the waiver: Moldova is the poorest country (with a GDP per capita around 1400 1) on the European continent + the two external shocks in 2006 (the increase in prices of natural gas supplies from Russia and Russian ban on imports of Moldovan wine) + the drought in summer 2008 have had a significant negative impact on the economic situation of Moldova. The Republic of Moldova currently benefits from the GSP+. Import duties are still levied for around 14% of imports from Moldova. The European Communities' committed itself in the 2005 European Neighbourhood Action Plan for Moldova to consider granting additional autonomous trade preferences. In 2006 Moldova reformed its customs legislation and a satisfactory level of implementation of the new legislation was reached at the beginning of 2007. Since the year 2000 a similar regime of autonomous trade preferences has been extended to the countries of the Western Balkans (Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Serbia, Montenegro, Kosovo2). In 2005 this arrangement was extended for another 5 years and the extension of a waiver for the autonomous trade preferences for the Western Balkans was adopted by the WTO General Council. 2. Description of the measures for which a waiver is requested all products originating in Moldova shall be admitted for imports into the European Communities without quantitative restrictions and with exemption of customs duties, except for certain agricultural products, which cover the following: Imports of meat, meat products, dairy products, eggs, cereals, white sugar and wine are subject to annual duty free tariff quotas. Imports of tomatoes, cucumbers, garlic, courgettes, grapes, apples, pears and quinces, apricots, cherries, peaches and nectarines, plums are admitted for import with exemption of the ad valorem component of the import duty.

3. The entitlement to benefit from the preferences is subject to the following conditions: (a) compliance with the rules of origin of products and the procedures related thereto; (b) compliance with the methods of administrative co-operation; (c) the involvement of Moldova in effective administrative co-operation with the European Communities in order to prevent any risk of fraud; (d) the abstention of Moldova from introducing new duties and new quantitative restrictions for imports originating in the EU or from increasing existing levels of duties or charges or from introducing any other

restrictions from the day of the entry into force of the preferential regime; (e) Moldova's continued engagement in the implementation of the ENP Action Plan for Moldova of 2005, in particular as regards effective economic reform; (f) Moldova maintaining the ratification and effective implementation of the conventions listed in Annex II and accepting regular monitoring and review of its implementation. The Law regarding the State Settlement of the External Trade Activity (adopted on 08.06.2000): The basic principles of the state settlement of the external trade activity (Article 5): Unique external trade policy; Centralisation of the system of the state settlement of the external trade activity; Unity of the customs territory of R. Moldova; Priority of the economic tools; Non-discrimination of the participants to the external trade activity; State protection of the rights by law of the participants to the external trade activity; The Free-trade. The methods of state settlement of the external trade activity (Article 8): The tariff settlement; The non-tariff settlement. Custom Code came into force in 2004. It refers to the customs activity organizations. Third chapter refers to Taxation of Commodities: Taxes on imports: custom duties, customs procedures fees, VAT, excises, other taxes Taxes on exports: customs procedures fees, tax for license issuance and prolongation, tax for participation to the custom option, other taxes, TVA se intoarce Law regarding Custom Values regarding to the way of formation and application of Custom Tarrifs.Second Chapter specify the types of Custom Duties: ad valorem, specific, mixed custom duties, exemptions (special duty, antidumping duty, compensatory duty) 5th Chapter refers to the Determination of Origin country: when commodity was entirely produced in that country, sufficient processing of the good(criteria- intrabranch) Budget Law and Fiscal Code Law regarding Custom Value (2007) The customs regimes (chapter 2 of the Customs Code): The importation; The transit; The customs warehouse; The temporary admission; The active improvement; The processing under the customs supervision; The passive improvement; The exportation; The Customs destinations: The duty-free shop; The free areas; The re-exportation; The annihilation; The renunciation in favour of the state. The Budget Law & Fiscal Code (III-rd Title) mention the following rates of the VAT: -

The standard-rate: 20 % of the taxed value in the case of the domestic goods as well as in the case of the imported ones; The reduced rates: 8 % for sugar, for the bread & bakery produces; the milk & dairy produces delivered internally and 5 % for the natural and liquid gas, both for those imported and for those delivered internally; The zero rate: for some commodities and services delivered according to the articles 103 and 104 of the Fiscal Code VAT is not perceived on: t The imported goods and services constituting the result of the entrepreneurial activity in R. Moldova; t The commodities introduced on the customs territory being placed under all the customs regimes mentioned at the Second chapter of the Customs Code excepting for the importation regime + the exported goods and services + all type of international transporting of commodities and passengers. t The imported goods and services constituting Humanitarian Aids; t The imported goods and services in order to be sold exclusively to the diplomatic missions and their staff; t The raw materials imported to be used in the production by the Invalids Society, Blinds Society and Deafs Society. The methods of estimating the customs value of the commodity (the Law regarding the Customs Tariff of the R. Moldova, chapter 4): According to the value of the transaction with the respective commodity or according to the price that was / will be paid; According to the value of the transaction with identical commodity; According to the value of the transaction with similar commodity; According to the unitary cost of the commodity; According to the calculated value of the commodity; Reserve method. The Moldovan Customs Service issues preferential origin certificates upon the export of commodities: Certificate of commodities circulation EUR.1 confirming the origin of the commodities exported to the European Union in the frame of the Autonomous Trade Preferences (ATP); Transporting certificate EUR.1 confirming the origin of the commodities exported to the countries members of CEFTA; Certificate of origin Form A confirming the origin of the commodities exported to the countries that are not E.U. members, still granting the GSP to Republic of Moldova; Certificate of origin Form CT-1, confirming the origin of the commodities exported to the countriesmembers of the FTA inside CIS.