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ABSTRACT
This paper contributes to the literature on EU trade policy by introducing insights from the political economy literature on development to the study of how EU trade liberalisation affects development in trading partners. Drawing on a comparison of EU trade liberalisation with Moldova and Georgia, we argue that the type of coalition between public and private actors in partner countries’ top export sectors determines which firms benefit from better market access to the EU, as indicated by their ability to increase their exports. We show that liberalised trade with the EU tends to contribute to achieving the EU’s declared objective of inclusive development if the presence of inclusionary development coalitions ensures that a broad range of firms is enabled to increase their export capacities through a mechanism that we call ‘inclusive empowerment’. Otherwise, trade liberalisation contributes to exclusive development, benefitting big, mostly foreign firms, or, at worse, consolidating rent-seeking practices.
Acknowledgments
The authors thank seminar participants at the workshop ”The political economy of growth in peripheral economies” organised at the Max Planck Institute for the Study of Societies from 14 to 16 April 2021, participants at the panel 'EU Association in a challenging neighbourhood: Trade vs. Geopolitics' at the 10th Conference of the ECPR Standing Group on the European Union from 10 – 12 June 2021, as well as four anonymous reviewers for their excellent comments and suggestions on previous drafts. Research assistance by Willi Stieger and Verena de Lange is gratefully acknowledged.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Correction Statement
This article has been corrected with minor changes. These changes do not impact the academic content of the article.
Notes
1. Certainly, trade liberalisation may also create losers, if local producers cannot compete with imports (Stiglitz and Charlton Citation2006). The focus of this paper is, however, on the effect of trade liberalisation on exporting sectors and firms.
2. The DCFTAs were provisionally applied in 2014. The Association Agreements entered into force in 2016.
3. Georgia was classified as an upper middle-income country (UM) in 2015. In 2018 the country was again classified as an UM. Moldova has only been classified as an UM since 2020 according to the World Bank (cf. https://datacatalogfiles.worldbank.org/ddh-published/0037712/DR0090754/OGHIST.xlsx, accessed 4 May 2023).
5. According to Regulation Nr. 1284/2002 of 02.10.2002 ‘On the conduct of the competition for obtaining the waste marketing license and scrap ferrous and non-ferrous metals’, Metalferos was the only company to receive the license, see also: Munteanu et al. (Citation2020); Rață (Citation2017).
6. According to the Moldovan Agency for Intervention and Payments in Agriculture (AIPA), Monicol SRL received a total amount of MDL 4.1 million (around EUR 193,000) in subventions from 2014 to 2018 (Gulca and Necşuţu, Citation2019). In 2017, Monicol exported 95% of its production to the EU (https://www.eumonitor.nl/9353000/1/j9vvik7m1c3gyxp/vkj6g5k5ypzs?ctx=vhyzn0ozwmz1
7. These companies include, among others, DRÄXLMAIER Group, Gebauer & Griller, Fujikura Automotive MLD. Their local subsidiaries operate mainly in the free economic zone ZEL ‘Bălţi‘ (cf. http://zelb.md).
8. 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 of the Georgian government to scrap most tariffs on EU imports.The EU for its part extended the tariff preferences to Georgia under a special incentive arrangement rewarding development and good governance (GSP+) in 2006. When the DCFTA between the EU and Georgia was provisionally enforced in 2014, its immediate impact on bilateral trade was therefore limited (Economic Policy Research Center, Citation2014).
11. The Law on Making Amendments to Some Legislative Acts of Georgia (Source: https://www.matsne.gov.ge, registration code: 360000000.05.001.016640)
12. Miscellaneous comprises commodities such as furniture, bedding and mattress supports.
13. The data exclude Transnistria, cf:https://ec.europa.eu/eurostat/cache/metadata/Annexes/enpe_esms_an1.pdf. It is worth mentioning, however, that Transnistrian companies seem to take advantage of trade liberalisation with the EU. Cf. Gumene (2019).