The EU is keen to have its trade policies with its neighbours translate into better economic growth and higher incomes in its neighbourhood. Indeed, modernization and social stabilization will only be achieved there if more citizens benefit from rising prosperity.
The EU wants to strengthen cooperation with countries in its neighbourhood and to deepen trade relations, for example, with the European Economic Area (EEA) and the European Free Trade Association (EFTA), but above all with Deep and Comprehensive Free Trade Areas (DCFTAs). Since 2014, the agreements on free trade areas have constituted the largest (economic) part of association agreements with the EU neighbourhood countries Ukraine, Moldova and Georgia (the so-called “DCFTA3”). Since 2017, there has also been a Partnership Agreement with Armenia. Although a member of the Russia-dominated Eurasian Customs Union, Armenia at the same time seeks deeper political and economic cooperation with the EU.
“DCFTA” stands for “deep and comprehensive free trade area.” A “free trade area” is a form of economic integration in which the participating countries do not levy customs duties among each other and remove trade barriers. However, unlike a customs union (e.g., the EU), the member states continue to pursue an independent customs policy toward third countries.
“Comprehensive” and “deep” mean that it is not only about open markets for goods (duty-free for most products and abolition of export duties and quantity-related restrictions), but also about access to the services and capital markets. In addition, it covers regulatory issues, such as fair competition conditions (e.g., harmonized protection of intellectual property), access to public tenders, and uniform customs procedures. “Deep” refers to the harmonization of the regulatory environment with EU standards (e.g., technical rules for product safety for food and industrial products, but also standards in environmental, social and labor law) in order to meet (often international, agreed-to-via-the-WTO) safety levels and to reduce trade costs.
The EU follows this model in its new trade agreements with third countries (except developing countries). With respect to its eastern and southern neighbours, the goal is to have all legal and administrative regulations within the European Union (the so-called acquis communautaire) adopted. However, in this case, the degree of harmonization is flexible.
The so-called “DCFTA3” are the “most comprehensive” free trade areas outside the EU internal market. These Deep and Comprehensive Free Trade Agreements constitute the largest part of the EU Association Agreements with Moldova, Georgia and Ukraine. They are key instruments of theEuropean Neighbourhood Policy to facilitate policy convergence with the EU and, in connection with that, economic integration.
In full force and effect
June 2014 – June 2016
Since July 2016
Sept. 2014 – June 2016
Since July 2016
Jan. 2016 – Aug. 2017
Since September 2017
*Autonomous trade measures in force from April 2014 to Dec. 2015 allowed duty-free access to the EU market.
In 2016, the Bertelsmann Stiftung – in partnership with the Vienna Institute for International Economic Studies (wiiw) – analyzed the costs and benefits of the “DCFTA3” (see on right: Benefits and Costs of DCFTA: Evaluation of the Impact on Georgia, Moldova and Ukraine). After what has now been at least two and a half years of implementation, the project will review and update its findings in consultation with the stakeholders. What impacts have the agreements had or been having on the reform dynamics in Moldova, Georgia and Ukraine?
Relationship between trade and better living conditions
Since 2015, the EU and Tunisia, its neighbour to the south, have been negotiating a free trade area (ALECA). For the countries of the southern neighbourhood (to which the EU is not offering any prospect of accession), the DCFTAs have a different incentive structure than for countries of the Eastern Partnership, the majority of whose citizens are seeking “a return to Europe” or EU membership. Arab societies do not see the European model of democracy and social market economy as the only point of reference. They primarily view the EU as a donor and trading partner.
This raises questions about useful insights and experiences from the so-called “DCFTA3”: What is the relationship between the benefits of regulatory cooperation and the loss of national sovereignty rights, and which level of cooperation benefits all parties involved? Are the EU and the governments of neighbouring countries on an equal footing in negotiations? For the complex agreements to be accepted and enacted, are transparency as well as parliamentary and civil society participation enough?
Building on success – opportunities for a strategic (trade) policy
One special focus of the project is to strengthen direct exchange between the transformation countries from the eastern and southern neighbourhoods, and to make the experiences of the “DCFTA3” available to the states of the southern neighbourhood (initially for currently ongoing negotiations between the EU and Tunisia).
The project helps develop the EU´s trade and economic policy in its neighbourhood in a way that leads to better living conditions - and thereby improved social stability -- in these countries. In addition, in keeping with the #EUGlobalStrategy's concept of resilience, the project aims to assist the EU in preventing potential political and economic crises as well as in helping states and societies cope with existing crises better.
Economic integration and trade offer an opportunity for a nuanced policy that the highly integrated EU can develop with a ring of differently integrated countries for the benefit of all.