Transnistria needs more engagement, not isolation

transnistria 2Alongside rapidly evolving international developments in the Syrian civil war and the broader confrontation stemming from Russian involvement in Ukraine the stability of Transnistria seems a remote and inconsequential consideration. However the failure of Transnistria as an entity, an increasingly plausible scenario in the coming months, would present Europe with another crisis that its already stretched institutions would be ill-equipped to handle.


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The Transnistrian economy faces a number of serious structural problems, both as a result of the entity’s perceived role in the ongoing Russia-West/Russia-Ukraine confrontation and as a direct result of policy decisions in Tiraspol and Chisinau.


Ukrainian concerns that Transnistria may be used as an entry point for Russian personnel into Odesa Oblast have led to Kyiv restricting entry and exit by male Russian passport holders between the ages of 16-65 to and from Transnistria. Travel restrictions represent a serious economic sanction on Transnistria, which relies on remittances paid by its residents working abroad for a considerable proportion of its GDP. Trade with Ukraine has also suffered significantly.


Following the revocation of the Ukrainian law permitting Russian military transit to Transnistria on June 8th 2015 these travel restrictions also apply to Russian military personnel, with the exception of those deployed as part of the tri-lateral peacekeeping mission that monitors the Moldovan-Transnistrian border.


The Ukrainian and Moldovan governments’ acceptance of an EU Association Agreement (AA), and its accompanying Deep and Comprehensive Free Trade Agreement (DCFTA) represent another grave challenge to the Transnistrian economy. Transnistria currently benefits from Moldova’s EU Autonomous Trade Preferences (ATP) regime that offers favourable access to the European Common Market, however the AA is due to supersede the ATP. The reticence of the Transnistrian leadership to join negotiations regarding the AA and its impact on trade and regional travel regulations risks Transnistrian goods being excluded from its provisions and thus losing access to the EU as a market, with additional consequences for trade with Ukraine and Moldova. An announcement by the Transnistrian presidential administration on December 7th 2015 indicates that a temporary agreement was reached to extend the ATP regime beyond the deadline of January 1st 2016, saving the state budget from an immediate shortfall. However the EU confirmation of this agreement states that if Moldova is not able to ensure the full implementation and enforcement of the AA in Transnistria then the EU will reconsider the AA’s continued application in those areas outside of Chisinau’s control.


The Transnistrian economy relies heavily on the export of a few key products, such as electricity exported to metropolitan Moldova and steel and textiles to the European Union. These products remain regionally competitive due only to heavily subsidised gas imports from Russia, thus any Ukrainian actions aimed at inhibiting the import of Russian gas would cripple Transnistrian industry. This would leave Transnistria totally reliant on direct subsidies from the Russian state, which in any case have recently been reduced, and on those migrant workers currently abroad. Should Russia act to curtail gas exports to Ukraine then precedent suggests Kyiv may siphon Russian gas exports that transit its territory, including to Transnistria.


Furthermore, the leadership in Tiraspol seem now seriously concerned that Moldova will not renew the annual contract concerning the import of Transnistrian electricity. This is no small decision for Chisinau, as Transnistrian electricity accounts for a large proportion of the Moldovan national grid, but such a decision would be another blow for the already flat-lining Transnistrian economy. This worry is given credibility by Moldovan projects to import more electricity and natural gas from Romania. With the Iasi-Ungheni gas pipeline due to be extended to Chisinau by 2018 Transnistrian concerns appear justified. The current Transnistrian export contract expires on the 1st April 2016, a crucial date to watch for those concerned with stability in the region.  


This economic pressure has forced some reaction from the Shevchuk administration, most notably a ratcheting up of rhetoric aimed at the corrupt and inefficient nature of the entities’ privatised industries (in particular the omnipresent Sheriff conglomerate) whilst reducing pensions and the salaries of public sector employees. This has been accompanied by a rigorous pursuit of those companies making use of offshore accounts for the purpose of tax avoidance. However these measures are undermined by an artificial retention of the Transnistrian rouble at its 2012 level, harming competitiveness. The victory of the Sheriff-backed Renewal party at the parliamentary and local elections held on November 29th 2015 further highlights the struggle between the Transnistrian executive and major business interests.


Transnistria’s increasing economic isolation is unlikely to bring about any constructive progress in the ongoing peace process, indeed it is likely to bring about a more hard-line attitude. Engagement with Transnistria remains the only way to keep the process alive and stave off its economic collapse.


What remains of legitimate trade between Transnistria and its neighbours and the EU should be encouraged. This should not be misconstrued as tacit diplomatic recognition, but as a legitimate way to encourage pluralism in Transnistria’s economic relations. This would follow past EU efforts, termed ‘Engagement without Recognition’, to build political, economic and cultural relations with Abkhazia in an effort to decrease Abkhazia’s reliance on Russia.


The signing of two Moldovan/Ukrainian border cooperation agreements, long advocated by the EU Border Assistance Mission, on November 4th 2015 is an excellent example of this. These agreements should help re-open Transnistria as a transit corridor, giving it more of a stake in regional development. The Moldovan application of EU visa liberalisation to residents of Transnistria is also to be welcomed.


It is also important to consider that under the previous Smirnov administration the Transnistrian business community represented one of the most vocal constituencies in favour of the conflict resolution process, purely because it was in their economic interest. A more nuanced approach to implementing the AA/DCFTA in Transnistria in the future should thus be considered, taking into account the nature of Transnistria’s economy and tariff regime. Practical measures in this regard include a slower pace of tariff liberalisation than has been agreed with Moldova.


These measures should be coupled with a greater effort to reduce the opacity of trade whilst capitalising on the new Odesa administration’s focus on corruption to reduce smuggling. Smuggling undermines regional governance and border regimes, sullying further negotiations on trade programmes. The nature of smuggling between Transnistria and Ukraine has been broadly understood since the deployment of the EU Border Assistance Mission in 2005, however these observations could not be acted upon due to the complicity of Ukrainian law enforcement apparatus in the process. The appointment of Mikheil Saakashvili and his group of reformers to the Odesa Governorship may just provide the impetus that has been lacking.


Now more than ever it is in Ukraine and Moldova’s interest that their borders with Transnistria remain stable. A breakdown of its governing structures as a result of an economic collapse would cause a refugee crisis of which Ukraine is likely to bear the brunt, possibly accompanied by the regional proliferation of Transnistria’s stockpile of small arms. Maintaining trade where possible and leaving uninhibited Russian gas supplies to Transnistria seem to be the most feasible means to prevent such a scenario. Financial assistance to the Transnistrian authorities by any state other than Russia is politically unpalatable, while political turmoil in Moldova makes any productive return to the conflict resolution process unlikely in the short term.


In essence what is needed is a careful maintenance of the status quo, whilst taking into consideration the new role of Transnistria in the changing regional security situation. Transnistria is by no means a priority for regional governments, but total economic isolation should be avoided. It is in no-ones interest that Transnistria collapses, as this would add considerably to an already fraught regional security dynamic. Policy-makers must accept that Transnistria will continue to exist for the foreseeable future and plan accordingly.


Thomas Frear is a Research Fellow at the European Leadership Network (ELN). Prior to the ELN Thomas has held posts at the Russian Institute of Oriental Studies and within the British Parliament. Thomas holds a Master’s Degree in International Relations from the University of Kent and a Master’s Degree in International Relations in Eurasia from the Higher School of Economics in Moscow.