EU trade liberalisation, sectoral coalitions and development: insights from Moldova and Georgia

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.


Introduction
The question of how the EU -through its trade policy -affects development in its trading partners has received increasing scholarly attention in recent years.Scholars have examined the extent to which EU trade policy is prioritising EU market interests over its normative ambitions by revealing the conditions under which EU free-trade agreements include non-commercial, political objectives (Meissner and McKenzie 2019;Orbie, Alcazar, and Sioen 2022;Saltnes 2021).Others have looked into the macro-level economic effects of EU trade liberalisation in terms of trade flows, economic growth or (un-)employment rates (see, for example, Nekhay, Delgado, and Cardenete 2021;Tröster et al. 2020) or examined how EU trade agreements reduce the local 'policy space' for development (Langan and Price 2015).Still others have investigated how domestic factors in the EU trading partners influence how EU trade policy affects local development.Along these lines, Langan (2015) analysed how corrupt power networks in less developed economies consolidate their position thanks to financial assistance provided by the EU as part of its trade agreements.Further, Potjomkina (2021) investigated how domestic power relations shape the extent to which different local stakeholders are included in trade negotiations with the EU and how this affects local development agendas.
This paper contributes to scholarship on the link between EU trade policy and development by introducing insights from the political economy literature on development to the study of how the EU affects its trading partners through trade liberalisation (Bollen, De Ville, and Orbie 2016).Drawing on authors who reject a depoliticised view of development, we start from the assumption that embarking on (or changing) developmental pathways requires coalitions between public and private actors that are ready to seize opportunities for development, including those arising from trade liberalisation (Doner and Schneider 2016;Evans 1989).In other words, state agencies, research institutes, marketing agencies and business associations need to coordinate and exchange knowledge with firms in order to ensure that the latter are able to benefit from trade liberalisation.For example, to increase their export capacity, firms need to have the technology and knowledge to comply with the prevailing product and process standards in highvalue markets (Stiglitz and Charlton 2006).To facilitate this, the state needs to be autonomous from status quo-oriented groups since the political connections of firms may result in misallocations of trade benefits, e.g.via preferential access to state aid or monopoly profits (Atkin et al. 2022).
Against this background we focus on EU trade liberalisation with Moldova and Georgia and examine what kinds of sectoral coalitions between public and private actors have evolved in these countries' top export sectors to the EU and how these coalitions determine which firms benefit from EU trade liberalisation in these sectors, as indicated by their ability to increase their exports.We take a closer look at the composition of exports to the EU to identify top export sectors, determine the dominant exporters in these sectors and their possible political connections, and analyse the sectoral coalitions in which these firms are embedded.We argue that particular types of sectoral coalitions, which we conceptualise as inclusionary and exclusionary development coalitions, as well as rent-seeking coalitions, affect which firms benefit from EU trade liberalisation, thereby setting export sectors on pathways towards exclusive or inclusive development or helping to consolidate rent-seeking behaviour.What is more, we reveal the different mechanisms that link particular types of sectoral coalitions to specific developmental pathways induced by trade liberalisation.
Our paper reveals that the type of sectoral coalition between public and private actors is an important factor in who reaps the benefits of EU trade liberalisation.We therefore add to existing studies that analysed how domestic power relations in the EU's trading partners shape the effects of EU trade policy on local development (Langan and Price 2015;Potjomkina 2021).While these studies focused on the dynamics underlying the negotiation of EU trade agreements, our study emphasises the effects of EU trade liberalisation and how they are shaped by vested interests in the trading partners.Our argument is also politically relevant, since inclusive development, which creates benefits for a broad range of economic actors, including small and medium-sized enterprises (SMEs), is at the programmatic heart of the EU's trade and development policy (European Commission 2017).Having a better understanding of the conditions under which trade liberalisation helps to bring about inclusive development can contribute to making the EU's respective toolbox more effective.The paper proceeds as follows: in the next section we discuss the link between trade liberalisation, the type of sectoral coalitions in top export sectors and sectoral developmental outcomes, and conceptualise key variables.We also justify our case selection and discuss our methods.Sections three and four zoom in on the cases of Moldova and Georgia.The conclusion summarises our theoretical and empirical contribution to the literature on EU trade policy and discusses the implications of our findings for advancing an EU trade policy that can live up to its normative ambition of promoting inclusive development in its partner countries.

Theorising the link between trade liberalisation, sectoral coalitions and development
Development is a broad concept.The notion that some countries are poor, while others are rich is, however, implicit in the term 'development', suggesting that an important dimension of development is economic growth, which is -among others achieved through higher productivity and integration in transnational markets and value chains (Bruszt and McDermott 2014;Gereffi, Humphrey, and Sturgeon 2005;Szirmai 2015).Over the past decades, additional dimensions of development have entered the debate.They range from a decline in income equality, to the reduction of poverty, the provision of public goods like health or education, democratisation and good governance, and the notion that economic growth must be generated in a sustainable manner (for an excellent overview of this debate, cf.Szirmai 2015).
In this paper, we apply a narrow definition of development and conceive it as a process creating welfare gains.More precisely, we are interested in how some firms in exporting sectors manage to benefit from trade liberalisation by increasing their export shares and getting access to transnational value chains.The existing literature defines three possible effects of trade liberalisation on firms in export sectors: In inclusive development, better market access creates welfare gains that are distributed evenly across firms of all sizes in export sectors.This is the case if an increasing number of firms, including domestic SMEs, can take advantage of market opening by managing to increase their competitiveness and get access to transnational value chains (Acemoglu and Robinson 2012).But trade liberalisation may also create losers, as it may increase the vulnerability of local industries, or even marginalise or exclude a large share of firms in exporting sectors (Stiglitz and Charlton 2006).This is mainly because SMEs, in particular, often find it difficult to align with transnational regulatory norms and to export and become part of transnational value chains (Gereffi, Humphrey, and Sturgeon 2005). 1 By contrast, big business tends to benefit most from trade liberalisation, as larger companies find it easier to access new markets and value chains due to economies of scale and lower opportunity costs (Baccini 2019;Chase 2003).Therefore, trade liberalisation can also promote exclusive development, which is mainly beneficial for a narrow group of economic actors, mostly big, powerful and often foreign firms (Evans 1989, 563).Even worse, in many developing economies exporting firms with political connections may use their privileged access to trade for seeking and obtaining rents defined as an 'income which is higher than the minimum which an individual or firm would have accepted given alternative opportunities' (Khan and Jomo 2000, 5).Hence, trade liberalisation might even help to consolidate rentseeking behaviour, imposing welfare losses on society (Adserà and Boix 2002;Hirschman 1968).
Economists tend to explain uneven distributions of trade benefits across exporting firms or sectors with reference to differences in factor endowments or levels of intraindustry trade (for excellent overviews cf.Martin 2015;Peterson and Thies 2015).In a contribution to this debate, proponents of New New Trade Theory stress that different levels of productivity explain the uneven distribution of trade benefits.Put differently, increased trade forces low productivity firms out of the market, while high productivity firms can reap the benefits of better market access (Bernard, Jensen, and Schott 2006;Fernandes 2007).Such approaches help us to understand why different firms and sectors gain more from open markets than others in terms of value added.Yet, such a depoliticised view neglects political economy dynamics that may affect why in some export sectors, a broad range of firms, including SMEs, are able to meet export requirements, while in others, predominantly large (mostly) foreign firms or firms with strong political connections are able to benefit from new export opportunities.While we do not want to deny the validity of economic approaches when it comes to explaining the uneven distribution of trade benefits, we wish to enrich the debate by looking at the process through the lens of political economy.
When studying the link between development and trade liberalisation, political economists suggest that the type of coalition between public and private actors affects whether and how opportunities for development are used in a particular sector.Drawing on these insights, we identify three types of sectoral coalitions that are likely to mediate the effect of trade liberalisation on development.These coalitions differ as regards the range of public and private actors who participate in them and how these actors interact when it comes to enabling firms to reap the benefits of trade liberalisation: First, export sectors can be dominated by an inclusionary developmental coalition characterised by the involvement of a broad range of actors in entrepreneurial activities.Such coalitions include different state authorities, firms of different sizes, business associations, research institutes and/or marketing firms (Acemoglu and Robinson 2012;Doner and Schneider 2016;Langbein, Gazizullin, and Naumenko 2021).Inclusionary development coalitions help firms to pool resources, obtain intimate knowledge about sectoral needs with regard to skills or technological know-how, and identify market niches (Gereffi, Humphrey, and Sturgeon 2005).We argue that inclusionary development coalitions are likely to set exporting sectors on a pathway towards inclusive development through a mechanism that we call inclusive empowerment, because such coalitions ensure that a broad range of firms (domestic and/or foreign; small, medium and large firms) manages to access transnational markets.Accordingly, we take an increasing number of firms that are able to export after trade liberalisation -especially SMEs or companies without political connections to ruling elites -as an indicator for inclusive development.
Second, exclusionary development coalitions are formed between state actors and a narrow group of economic actors.Big and powerful, mostly foreign, firms often seek to capitalise on peripheral economies' convenient location and cheap labour.However, they rarely engage in technology or know-how transfer that would help their subsidiaries to achieve a better position in transnational value chains.The state's role is limited to accommodating the needs of strong economic actors and implementing investment-friendly policies rather than nurturing the capacities of domestically owned business for market integration and upgrading (Nölke and Vliegenthart 2009;Pavlínek 2017).We suggest that trade liberalisation is more likely to contribute to exclusive development if export sectors are dominated by exclusionary development coalitions.The latter focus on enabling a narrow group of actors to increase exports as tariff rates decline through a mechanism that we call exclusive empowerment.If only a narrow group of large, mostly foreign firms without political connections to ruling elites manages to increase their export volumes following the reduction of tariff rates, we take this as an indicator for exclusive development.
Third, when ties between state and non-state actors are based on clientelism and corruption, the coalition becomes rent-seeking.In this case, state officials provide business actors with monopoly profits or subsidies to secure their loyalty (Khan and Jomo 2000).Applied to the dynamics underlying trade liberalisation, exporting firms with political connections to the ruling elite are able to reap most of the benefits of trade liberalisation thanks to preferential treatment.In turn, these firms often use their rents to finance the ruling elites and their political parties, thereby reinforcing their political connection to the latter (Hirschman 1968).The dominance of rent-seeking coalitions in top export sectors therefore increases the likelihood that trade liberalisation will help to consolidate rent-seeking behaviour through a mechanism that we call clientelist empowerment.

Case selection
In order to test whether our theoretical assumptions hold for the case of EU trade liberalisation, we focus on trade relations between the EU and two Eastern neighbours, Moldova and Georgia, as part of the EU's European Neighbourhood Policy (ENP).This is the most likely case for reinforcing tendencies towards inclusive development because the EU combines trade liberalisation with relatively far-reaching assistance to enable local firms to benefit from market access (Bossuyt et al. 2017).This assistance has been stepped up since the EU established Deep and Comprehensive Free Trade Areas (DCFTAs) with Moldova and Georgia as part of their Association Agreements in 2014. 2 If we find that EU trade liberalisation is only likely to contribute to inclusive development under certain conditions even in the context of two associated Eastern partners, we can assume that the EU faces similar limitations in other contexts.
Further, our focus on Moldova and Georgia keeps a couple of potential country-level explanatory variables for different development effects of EU trade liberalisation constant: For most of the time in the period under scrutiny (2004-2020), both countries were classified as lower middle-income economies (LM) 3 and were hardly integrated in transnational markets and value chains (EBRD 2020).Further, Moldova and Georgia received similar amounts of EU assistance under the ENP (Wolczuk and Zeruolis 2018).With regard to corruption, which is often seen as an obstacle to development (cf., for example, Cieślik and Goczek 2018;Mauro 1996), Georgia has scored better than Moldova (and many other LMs) in Transparency International's Corruption Index since 2009. 4This is due to the effective fight against petty corruption.High-level corruption based on connections between political and economic elites, however, remained widespread in both Moldova and Georgia (Transparency International Georgia 2023).
In Moldova, oligarchic groups controlled the country for their own benefit during the period under scrutiny (Marandici 2021).Up to 2016, state institutions were embedded in the networks of two dominant oligarch politicians: Vladimir Filat (the leader of the Liberal-Democratic Party, PLDM) and Vladimir Plahotniuc (a billionaire who de facto controlled the Democratic Party, PDM).After 2016, Plahotniuc's network monopolised political power (Marandici 2021).In the run-up to the 2019 parliamentary elections, Moldova's heterogeneous opposition groups united to oust Plahotniuc, who escaped to the US to avoid prosecution.Despite the temporary unification of the opposition, rent-seeking practices by no means disappeared.They simply lost their centralised character (Interviews 1 and 2).While the 2020 presidential and 2021 parliamentary elections brought a reform-oriented and pro-European leadership to power for whom the fight against corruption is a key priority, it remains to be seen whether it will be successful in undermining rent-seeking practices (Baltag and Burmester 2021).
Georgia's broader political economy context is similar; here too, oligarchic networks control access to economic and political resources, despite improvements to Georgia's governance capacity after the 2006 Rose Revolution.Back then, the fight against petty corruption was impressive.However, property rights violations and high-level corruption remained widespread (Ademmer, Langbein, and Börzel 2019).In 2012, billionaire Bidzina Ivanishvili, who united various opposition parties in the coalition Georgian Dream (GD), won the elections and managed to concentrate power in his hands.He no longer held an official position after 2013, but had a stint as GD chairperson in the run-up to the 2018 elections before resigning from all duties.Ivanishvili's wealth is estimated at 6 billion USD, mostly built on Russian assets.He owns a huge network of companies and uses control over the judiciary and other state institutions to protect his and his allies' power and wealth (Gherasimov 2019).
While a number of country-level factors for different development effects of EU trade liberalisation are constant in our case selection, we create variation on the mediating variable, i.e. the type of sectoral coalitions between public and private actors in top export sectors.More precisely, we selected two countries that differed in the structure of their exports to the EU in 2004 -two years before trade liberalisation gathered pace (Tables 1 and 3).Unlike in Moldova, the major share of Georgia's exports to the EU come from resource sectors.The latter produce more opportunities for rent-seeking (Torvik 2002), particularly in the context of weak institutions and governance quality (Chambers and Munemo 2018).We therefore expect to detect more rent-seeking coalitions in Georgia's top export sectors.We can also assume that trade liberalisation with the EU is more likely to set Moldova's export sectors on a pathway to exclusive or even inclusive development, while in Georgia we expect to mainly detect the consolidation of rent-seeking practices.
Last but not least, for reasons of data availability we decided to focus on the top five export sectors in each country.Since they account for more than 80-90% of exports to the EU at each point in time under scrutiny, our analysis reveals the dominant trend regarding the effects of EU trade liberalisation on development in Moldova and Georgia.

Methods
Parts of our empirical research for this study rely on statistical data from Eurostat, the Moldovan National Bureau of Statistics and the National Statistics Office of Georgia.Based on this data, we measure the extent to which sectors benefit from trade liberalisation on the basis of changes in their shares in total exports to the EU from 2004 to 2020.To account for the price effect, we also look at changes in the total volume of sectoral exports to the EU.We then analyse the structure of those exports to assess the development effects of trade liberalisation, because liberalised trade leads to an expansion of foreign trade (Helleiner 1994).An important caveat that remains is that we cannot precisely establish to what extent larger exports to the EU  are due to better terms of trade or result from a loss of export opportunities for other markets (esp.Russia and other post-Soviet countries).That said, the opportunity for Moldovan and Georgian exports to re-orient towards the EU also depends on greater accessibility of the EU market.
It turned out to be more difficult than initially assumed to access data on the share of SMEs vis-à-vis larger firms in total exports to the EU from most of the top Georgian or Moldovan export sectors.That is because neither the EU nor national statistical offices systematically collect export performance statistics by sector and size class (i.e.number of employees and value added).Further, ownership structures of economic sectors in Moldova and Georgia and rent-seeking practices at the level of particular sectors or firms are an extremely under-researched topic in the scholarly literature.Therefore, we relied on other publicly available primary and secondary sources.For example, in the case of Georgia, we got information about top export companies from the National Statistics Office of Georgia.For each company that consistently featured in the category of top exporters, we then accessed company registration dates and registration statements through the website of the public registry (reestri.gov.ge) in order to reveal possible connections to oligarchic groups and/or leading figures in ruling political parties.Further, the website companyinfo.gecreated by Transparency International Georgia was used to trace (changes in) company owners and managers.On this basis, we were able to identify power networks and corporate relationships across different companies and to track down business interests and possible rent-seeking behaviour.
We used articles and reports published by media outlets, non-governmental organisations or sectoral business associations as an additional resource for both case studies.In most cases, especially with regard to the disclosure of a firm's ties to oligarch structures or their involvement in rent-seeking practices, we were able to secure at least two sources for an empirical observation.
Interviews played only a minor role in the data collection since only few experts appeared to have intimate knowledge about the relationship between public and private actors in top export sectors.That said, expert interviews with two key decision-makers from Moldova, who initiated and implemented the parliamentary inquiry into rentseeking practices in the post-2014 period, provided further validation of the data collected through the study of media articles and reports.Another interview with a representative of Georgia's exporters' association gave us more insights into the share of SMEs in exports to the EU and obstacles to SME development.

Moldova's top export sectors to the EU: on a pathway towards inclusive and exclusive development
Trade liberalisation between Moldova and the EU started to gather pace in 2006 when Moldova became a beneficiary of the special incentive arrangement for Sustainable Development and Good Governance (GSP+).Hence, we start our analysis prior to GSP+ in 2004 by looking at the top five export sectors at each point in time under scrutiny.Table 1 suggests that between 2004 and 2020 the significance of individual sectors for exports to the EU changed with increasing liberalisation.Moldova's agrifood sector is the biggest winner of EU trade liberalisation.Machinery and textiles rank second and third, respectively.These sectors were able to significantly increase their export volumes to the EU.By contrast, export shares and volumes of metals, transport vehicles and footwear have declined since 2004, suggesting that these sectors did not benefit to the same extent from EU trade liberalisation.
To understand the effects of liberalised trade with the EU on the type of development characterising Moldova's top export sectors, we will take a closer look at changes in key market players and their ownership structures over time and examine the type of sectoral coalitions that exist between public and private actors.Our analysis shows that with regard to Moldova's top five export sectors, trade liberalisation with the EU has offered more opportunities for exclusive and even inclusive development than for consolidating rent-seeking practices.

Metals and vegetable products: clear links to oligarchic networks
Two of Moldova's top export sectors to the EU are clearly embedded in a rent-seeking coalition between key exporting companies and the ruling political elites: metals and vegetable products.
The key player in Moldova's metals sector, which accounted for 9.5% of total exports to the EU in 2020 (Table 1), is the state-owned Metalferos (European Business Association 2020).The company is an important source for rent-seeking, as it is used to distort economic operations with scrap metal.Recently leaked documents from Moldova's General Prosecutor's Office revealed that before the scrap metal market was liberalised in the second half of 2019, oligarchic networks operated a scheme that allowed them to buy scrap metal cheaply by artificially dumping the prices on the local market.They then sold it through proxy companies at a higher price to Metalferos, which used to hold the monopoly for the export of scrap metal thanks to a regulation dating back to 2002. 5 As a result, Metalferos became the major exporter of metals to the EU and has thus far been able to maintain this position (EBA 2020).According to media reports, Metalferos' revenues were used to finance the PDM when the party was in power between 2015 and 2019 and controlled by oligarch Vladimir Plahotniuc (Necşuţu 2021;Ziarul de Gardă 2021).Further, a recent report revealed a long list of discriminatory measures taken by Moldovan state authorities against Metalferos' competitors to undermine their entrepreneurial activities despite the formal de-monopolization of the scrap metal market in 2019 (EBA 2020).This shows that rent-seeking practices are still widespread even if Plahotniuc left Moldova in summer 2019 to avoid prosecution (Esanu, Calmus, and Mosneag 2020).
Another leading export sector dominated by rent-seeking coalitions between monopolists and the Moldovan state is vegetable products (nuts, oil seeds and vegetable oil and grain), which accounted for about 21% of total exports to the EU in 2020 (Table 2).These coalitions promoted state aid policies that allowed key market players in this sector to access financial resources on a preferential basis.
For example, one of the biggest Moldovan exporters of walnuts, Monicol SRL, owned by Dumitru Vicol, has steadily increased its share on the local walnut market since 2014 thanks to generous state aid. 6At about the same time, Vicol was able to build close personal connections to the oligarchic network of Vladimir Plahotniuc, then the unofficial leader and sponsor of the leading political party PDM (Agora.md 2019a;Gulca and Necşuţu 2019).
Similar trends can be seen in the production of oilseeds and vegetable oils, which increased their export shares between 2007 and 2020 (Table 2).About 90% of Moldova's processing capacities for sunflower oil belong to FFA Trans Oil LTD (hereinafter TransOil) (Agrobiznes.md 2018).It controls not only companies in the oil production field, such as Floarea Soarelui SA, but also important infrastructure like silos and transportation routes to Moldova's only port -Giurgiulesti International Free Port.Despite changing ownership structures involving different Russian individuals, TransOil managed to maintain its close relationship with Plahotniuc (Gulca and Necşuţu 2016).With Plahotniuc's backing, Moldovan state authorities facilitated the construction of more transportation capacities for TransOil via rail and air, securing the company's monopoly of the local grain business (Gulca and Necşuţu 2016;JurnalTV 2018).TransOil used its control over storage and transportation to dump local grain prices.As a result, it was able to consolidate its position as a leading exporter to the EU in this sector and make massive profits with grain exports.Similar developments shaped the dynamics on the local oilseed market (Gulca and Necşuţu 2016).
Our analysis shows that at least up until 2020, trade liberalisation helped to consolidate rent-seeking practices in the metals and vegetables sectors, since the dominant exporters used their close political connections to the ruling elites to get preferential treatment, allowing them to reap most of the benefits of better market access to the EU.In exchange, they supported the ruling parties.As mentioned earlier, since 2019 pro-European political forces have tried to dismantle monopolies (Agora.md 2019b;Ziarul National 2019).Recently adopted anti-monopoly legislation under Sandu's leadership aims at weakening monopolies, at least in Moldova's metal and nuts industries (Government of the Republic of Moldova 2019; see also Infotag 2019).The jury is still out as to whether these changes will suffice to eradicate rent-seeking practices (Marandici 2021).

Machinery: towards exclusive development?
Moldova's machinery sector is a clear winner of trade liberalisation with the EU.Since 2011, it has witnessed impressive growth rates in export volumes to the EU (from 2% in 2007 to 26% in 2020).Increasing exports went hand in hand with the emergence of an exclusionary development coalition between foreign investors and Moldovan state authorities.Local authorities made sure that foreign investors in Moldova's machinery sector were shielded from corruption and non-transparent business practices and could execute their entrepreneurial activities smoothly, especially in the seven free economic zones that the Moldovan government has established over the last 19 years, starting in 2001 (Ministry of Economy and Infrastructure 2014).Particularly since the DCFTA with the EU was provisionally enforced in 2014, the sector has witnessed an inflow of large foreign component producers. 7They established assembly and production platforms for low value-added automotive parts and components in Moldova.Engagement in research and development (R&D) activities is, however, limited, although some local experts are optimistic that more value-added activities are likely to develop in the future (Shehadi 2019).In exclusionary development coalitions, the state's role is generally limited to accommodating the needs of foreign investors rather than nurturing backward linkages with local component producers.That said, the achievements of the exclusionary development coalition in Moldova's machinery sector are clear: statements by top managers of foreign investors in the sector suggest that the state's investment-friendly policies were key to their decision to open subsidiaries in Moldova (InvestMoldova 2022).As a result, machinery exports to the EU more than doubled between 2013 and 2020 (Table 1), and characteristic of exclusive development, these exports are driven by foreign investors, mainly from European countries (InvestMoldova 2022).

Moldova's textile and wine industry: towards inclusive development?
As for Moldova's textile industry, its share in the country's total exports to the EU decreased from 23% in 2004 to 12% in 2020, while the export volume more than doubled during the same period (Table 1).The ownership structure of Moldova's textile industry is diverse: apart from a few large companies, the majority of producers are SMEs (UNECE 2021).There is a remarkable level of inclusionary sectoral organisation here.Most textile companies are members of the Light Industry Employers Association (APIUS).Together with Moldovan government agencies, the Technical University of Moldova, and with the support of USAID, APIUS initiated several public-private partnerships (PPPs) from 2012 onwards to boost competitiveness and promote the integration of Moldova's textile industry into European value chains.Moldova's State Agency on Intellectual Property (AGEPI) actively supported the project in particular, by training participating companies in the use of intellectual property (IP) systems to protect their brands and designs.According to industry representatives, the joint promotional campaign 'From the Heart -Brands of Moldova', which started in 2012, contributed to changing perceptions of Moldovan brands by both foreign investors and local consumers (Apostol and Vieru 2016).Further, in 2015, the Technical University of Moldova established the ZIPHouse Center of Excellence and Acceleration in Design Technologies.The project serves as a platform for innovation and entrepreneurial development in the industry, targeting in particular young designers, start-ups and SMEs (Kosta 2023;Vogler 2017).In terms of exports to the EU, the sector is on a pathway to inclusive development.Micro and small businesses tend to focus on the domestic market, but in the past ten to fifteen years an increasing number of mainly locally owned medium to large businesses has emerged in the sector.Sectoral studies suggest that these firms benefitted from better market access to the EU thanks to the aforementioned horizontal networks with universities, business associations and state authorities, which facilitated the transfer of know-how about how to produce competitive products for the EU market and access the respective value chains.They started to manufacture for export and occasionally even managed to export their own brands to surrounding countries (Kosta 2023;Vogler 2017).
Moldova's wine sector occupies a tiny place in total exports to the EU, accounting for about 2% to 3% of the country's total exports to the European market.An inclusionary development coalition helped local wine producers to attract new markets in the EU.To begin with, the National Vine and Wine Office (NVWO) started to enhance transparency and quality assurance by introducing an electronic wine register in 2013 with the help of the Czech Development Agency and USAID.Western donors also helped smaller companies to form associations like the Association of Small Wine Producers of Moldova, which today controls about one-third of the vineyards (Gheorgita and Crucerescu 2018).The fact that hundreds of wineries and dozens of producers and exporters organised themselves into sectoral business associations not only prevented the establishment of monopolies and the development of rent-seeking schemes.It also helped to overcome information asymmetries regarding EU funding criteria and export certificates (Business Intelligence Service 2020).According to a recent study, the Moldovan wine sector is dominated by micro, small and mediumsized wineries.Only about 6% of wineries can be classified as large.Considering that about two-thirds of Moldovan wine is exported, of which nearly 40% is exported to the EU, it is safe to say that trade liberalisation benefits not only large producers but also SMEs (Business Intelligence Service 2020).This is indicative of inclusive development in Moldova's wine industry.
Summing up, we showed that quite a few of Moldova's top export sectors to the EU have recently seen the emergence of exclusionary and inclusionary development coalitions.An exclusionary development coalition in Moldova's machinery sector mainly served the interests of larger foreign firms.Through a mechanism that we call 'exclusive empowerment', the Moldovan state implemented investment-friendly policies targeted at big foreign machinery producers, but neglected to nurture a local component industry and create corresponding backward linkages.By contrast, inclusionary development coalitions in Moldova's wine and textile industries enabled a broader range of firms to reap the rewards of trade liberalisation through a mechanism that we accordingly call 'inclusive empowerment'.As a result, Moldova's trade liberalisation with the EU has so far created more opportunities for exclusive (machinery) and even inclusive development (textiles and wine) than for consolidating rent-seeking practices.In 2020, machinery, textiles and wine accounted for around 41% of Moldova's exports to the EU.
Still, as of 2020, almost one-third (31%) of Moldova's total exports to the EU came from sectors (metals and vegetables) that are controlled by rent-seeking coalitions between key sectoral players and state authorities.Through a mechanism which can best be described as 'clientelist empowerment', these coalitions ensured that firms with political connections enjoyed preferential treatment, allowing them to reap most of the benefits of better market access to the EU.While the importance of metal exports to the EU as a source of revenue for Moldova's oligarchic networks is shrinking, Moldova's vegetable production sector has seen growing exports to the EU.

Georgia's top export sectors to the EU -towards the consolidation of rentseeking practices
As in the case study of Moldova, we begin our analysis of the effects of Georgia's liberalised trade with the EU by looking at how the structure of the country's exports to the EU has changed between 2004 and 2020.The significance of individual sectors started to change after trade liberalisation gathered pace as a result of GSP+ 8 (Table 3), the only exception being minerals, which maintained its top position.Without a doubt, agrifood (mainly nuts, mineral waters and wine, according to Geostat data) was the sector that received the greatest boost from EU trade liberalisation.Chemicals and textiles were able to increase their export share in both percentage and volume.Metals, stone and glass lost in significance, while machinery lacked sustainable growth perspectives.
Our analysis shows that where Georgia's top five export sectors are concerned, trade liberalisation with the EU has offered more opportunities for consolidating rent-seeking practices than for exclusive or inclusive development.

Minerals and metals: close links to oligarchic networks
Minerals (in particular copper ore) were Georgia's key export commodity to the EU between 2004 and 2020.Rich Metals Group (RMG) Copper was the key market player during this time period.According to Georgia's National Agency of Public Registry, 9 RMG Copper has been owned by Mining Investments LLC, which is controlled by Russian billionaire Dmitriy Troitskiy, since 2019.Together with other Russian businessmen, Troitskiy had already controlled RMG B.V., the previous owner of RMG Copper.The Georgian NGO Green Alternative documented close links between RMG and Bidzina Ivanishvili's networks (Green Alternative 2021), pointing to the existence of a rentseeking coalition in this sector (see also Kupatadze 2018).A case in point is the decision taken by the Georgian Ministry of Culture in 2013 to revoke the status of the world's oldest gold mines in Sakdrisi as a protected historical site.As a result, RMG was allowed to start mining operations there (Kupatadze 2018).Furthermore, government authorities turned a blind eye to RMG's environmentally and socially harmful mining operations (Swann-Quinn 2019).These decisions helped to consolidate the concentration of mine ownership within RMG.In terms of exports, RMG Copper benefitted from its central position in Georgia's mining business.According to Geostat data, the company was among the top 50 exporters every year from 2004 to 2019 and is Georgia's most important exporter of copper ore to the EU.RMG uses parts of its revenues to maintain its close political connections to the ruling elite.Individuals directly or indirectly connected with RMG reportedly donated more than 800 thousand GEL (approx.192,000 euros) to the ruling GD party, which is close to Ivanishvili, in the run-up to the 2020 parliamentary elections (IDFI 2020).Trade liberalisation with the EU therefore contributes to consolidating rentseeking practices in Georgia's mining industry.
The metals sector is also closely linked to Georgia's ruling elites.Its significance for exports to the EU declined, however in particular, after the DCFTA entered into force (Table 3).According to the company website, 10 Georgian Manganese LLC (GM) is Georgia's leading producer of ferroalloys and manganese ore.From 2006 to 2013, 75% of GM's shares belonged to Privat Group, one of the most closed and non-transparent Ukrainian holdings.During this time, its founders Igor Kolomoisky and Henadiy Boholyubov were among the five richest people in Ukraine (Pleines 2019).In 2013, Privat Group transferred GM to the US-American Holding Georgia American Alloys, an offshore company assumed to be registered in Luxembourg (Gujaraidze 2021).
GM has a dubious track record and is said to be closely linked to the GD party, which is de facto controlled by oligarch Bidzina Ivanishvili (Gujaraidze 2021;Mtivlishvili 2021).There are a few indicators for the existence of a rent-seeking coalition in Georgia's metals sector, which helped GM maintain its dominant market position.To begin with, GM has faced repeated accusations of exploitative labour practices and pollution: the company was fined on a few occasions up to 2017 for environmental damages and tax evasion.The payment of these fines ensured that GM was discharged from liability for environmental damages (Gujaraidze 2021;Kavanagh 2017).Such deals first became legal in 2012 11 and used to be considered a prominent rent-seeking activity in Georgia, since the fines were assumed to fill the pockets of corrupt state officials (Gujaraidze 2013).Further, in 2017, Nikoloz Chikovani, a protégé of the GD Party, was appointed special manager at GM. Until today, GM still operates unsafe mine quarries and continues to damage the environment with GD's backing (Gujaraidze 2021; Business and Human 12 Rights Resource Center, 2021).In terms of exports, GM was among the top 50 exporters every year from 2004 to 2019 according to Geostat data and is Georgia's most important exporter of copper ore to the EU.Trade liberalisation with the EU has therefore brought benefits to a company heavily involved in rent-seeking practices to avoid criminal prosecution. 13

Agrifood and textiles: between exclusive and inclusive development
Georgia's agrifood and textile industries made up roughly 25% of the country's exports to the EU in 2020.The ownership structures of these sectors are more diverse than in the case of minerals: a few larger foreign and domestic companies dominate, with an increasing number of SMEs.
Thus far, exclusionary development coalitions have emerged in Georgia's textile sector and in nut production, setting these industries on pathways towards exclusive development.In textiles, an exclusionary development coalition between state authorities and a few international brands and larger local companies have empowered the latter.More precisely, tariff eliminations in the context of GSP+ and the DCFTA, along with other favourable government decisions, helped to boost foreign direct investment in Georgia's textile industry from 2006 onwards.The government's decision to create special economic zones and the launch of the 'Produce in Georgia' programme in 2014 certainly played an important role in attracting investors with reduced tax rates, competitive labour costs, good transportation links, and a more favourable investment environment (Invest in Georgia 2016; OECD 2020).Indeed, Georgia's textile and apparel industry witnessed a considerable increase in production (up 30% since 2008) and export volumes (up 24% in the period from 2009 to 2015).But the government's tendency to give investors and larger local textile producers a free rein, especially when it comes to labour standards, comes at a high social cost for the local workforce (Chkareuli 2020).Georgia has become an attractive low-cost production base for some leading world-class brands like Adidas and Moncler.These international brands work closely with the local apparel industry, which comprises around 200 enterprises, but seldom engage in any technological transfer or upgrading.
Similar developments characterise Georgia's nut production sector.As increasing export volumes suggest, the two large companies that dominate Georgia's nut exports to the EU -Dioskuria XXI and Westnut -have benefitted from better market access.Russian citizen Nona Kharebava owns Dioskuri XXI and Westnut is owned by Georgian businessmen and UK-based companies.Westnut receives its raw materials from approximately 2,000 farmers.However, most small Georgian nut producers cannot reap the full benefits of free trade because they export their product through intermediary companies from Turkey or EU countries that take on the burden of regulatory and export procedures.While this approach helps small producers to increase their sales, the prices paid to them by the intermediaries are much lower than the sale prices on the EU market (EastFruit 2021; Europe for Georgia 2016).
As for Georgia's wine industry, two large companies, Tbilvino and Telavi Wine Cellar, dominate the market.Leading company figures seem to enjoy some political connections to the ruling GD Party, as indicated by several donations to the party in 2017 and 2020 (Transparency International Georgia 2021).Unlike the minerals and metals sectors, Georgia's wine industry is, however, not controlled by a rent-seeking coalition.SMEs operating in the wine industry are on the rise and make up a higher market share than in the nuts and textile industries (Interview 3).Most of the 300 wine companies exporting between 2017 and 2020 were SMEs, and the emergence of an inclusionary development coalition between government agencies, business associations and a broad range of firms has helped set the sector on an inclusive path.The National Wine Agency (founded in 2014) and the Georgian Wine Association (founded in 2010) played an important role in diversifying the industry's ownership structures.They helped local wine producers to overcome information asymmetries, initiated certification procedures for export companies, and fostered participation at international fairs, which increased brand awareness of Georgian wines (The Financial 2016;Vinoge 2015).EU twinning initiatives facilitated exchange between Georgian authorities and their EU counterparts (EU4Business 2016).Nonetheless, it should be remembered that Georgia's wine sector only accounts for 3.5% of total exports to the EU.
All in all, the above analysis shows that more than 60% of Georgia's exported goods are produced in sectors where rent-seeking coalitions dominate.These rent-seeking coalitions engage in clientelist empowerment, as they give preferential treatment to leading exporters with political connections to Ivanishvili's oligarch network, thereby enabling them to reap most of the benefits from trade liberalisation in exchange for political loyalty.Only a minor share of Georgia's exports to the EU are produced in sectors dominated by exclusionary or inclusionary development coalitions, which empower firms without political connections to benefit from better access to the EU market.Georgia's trade liberalisation with the EU has thus so far consolidated the power position of rent-seeking elites rather than supporting exclusive -let alone inclusive -developmental pathways.

Conclusion
This study makes a theoretical and empirical contribution to the literature on EU trade policy.On a theoretical level, we introduce insights from the political economy literature on development to the study of how the EU -through trade liberalisation -affects development in its trading partners.In so doing, we reveal an additional yet under-researched factor affecting who benefits from increased trade liberalisation with the EU: the type of sectoral coalition between public and private actors in top export sectors.Our analysis shows that particular types of sectoral coalitions, which we conceptualise as inclusionary and exclusionary development coalitions, as well as rent-seeking coalitions, mediate the effect of increasing EU trade liberalisation on development, as they set sectors on pathways towards exclusive or inclusive development or help to consolidate rent-seeking practices.Relatedly -and here we also add to the literature on the link between trade liberalisation and development more generallyour analysis reveals three different mechanisms by which the type of sectoral coalition mediates the effects of trade liberalisation on export sector development by enabling different groups of firms to reap the benefits of trade liberalisation.We call these mechanisms inclusive empowerment (of a broad range of firms including SMEs), exclusive empowerment (of a narrow group of -mostly big and foreign -firms) and clientelist empowerment (of politically connected firms).
Our findings are based on a comparative study of EU trade liberalisation with Moldova and Georgia.We show that despite being a most likely case for reinforcing inclusive development, EU trade liberalisation with the two Eastern neighbours does not necessarily contribute to this type of development.In fact, it may also contribute to exclusive development or even to the consolidation of rent-seeking practices, depending on the type of coalition between public and private sectors present in top export sectors.Further, our focus on Moldova and Georgia allowed us to establish variation when it came to the assumed presence of rent-seeking coalitions in top export sectors.A similar causal relationship between trade liberalisation, the type of sectoral coalition characterising top export sectors and the type of sectoral development is therefore likely to be found in EU trade relations with other partners which have similar country-level characteristics to Moldova and Georgia, but receive even less assistance with capitalising on better access to the EU market.Here we think especially of most countries in Northern Africa with which the EU is cooperating through its partnership with the Southern Neighbourhood.
Regarding our empirical contribution to the literature on EU trade policy, to our best knowledge this study is the first to examine the type of sectoral coalitions present in Moldova's and Georgia's top export sectors and how they shape the effect of EU trade liberalisation on sectoral development.Our analysis thus helps us to understand under what conditions the EU can achieve its declared objective to promote inclusive development in its neighbourhood, which is seen as a precondition for social cohesion and, ultimately, political stability (European Commission and EEAS 2020).More precisely, we show that trade liberalisation with the EU has offered more opportunities for exclusive and even inclusive development in Moldova than in Georgia.By contrast, the majority of Georgia's exports to the EU comes from resource sectors like minerals and metals where the key market players are embedded in a rent-seeking coalition closely connected to the ruling oligarchic network under the leadership of billionaire Bidzina Ivanishvili.
Our findings suggest an important avenue for future research: While it is well established that natural resources produce more opportunities for rent-seeking (Torvik 2002), in particular in the context of weak institutions and governance quality (Chambers and Munemo 2018), more work is needed to systematically examine the factors behind the emergence of exclusionary or inclusionary development coalitions in non-resource sectors.According to the existing literature, the way the EU ties trade liberalisation to the provision of assistance to enable a broad group of domestic economic actors to reap the benefits of trade liberalisation may be key in this respect (Bruszt and Langbein 2020).
Notwithstanding this, our findings already hold important implications for the conditions under which the EU can live up to its normative ambition of promoting inclusive development through trade liberalisation.First, when implementing policies and programmes aimed at facilitating access to the EU market for firms from less developed trading partners, the EU would be well-advised to take into account the ownership structure of top export sectors and the involvement of key owners in rent-seeking practices.Doing so may help the EU to avoid the risk that trade liberalisation and related funding to facilitate market access will help to stabilise the power position of rent-seeking elites.
Second, our analysis suggests that the emergence of inclusionary development coalitions is closely linked to the provision of assistance targeted at strengthening sectoral organisation, e.g. through promoting the establishment of business associations, and/or bringing different public and private actors together.To improve local conditions for inclusive development, the EU could therefore make sure that trade liberalisation goes hand in hand with assistance programmes that put greater emphasis on fostering cooperation between a diverse set of private and public actors in promising sectors where firms not linked to oligarchic networks are important market players.Such a strategy will help to broaden access to trade for a wider group of economic actors, thereby laying the foundation for more inclusive development in the EU's Eastern neighbours and beyond.(around EUR 193,000) in subventions from 2014 to 2018 (Gulca and Necşuţu, 2019).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.

List of interviews
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, 2014).9. https://napr.gov.ge/10. https://www.gm.ge/en/ 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).

Interview 1 :
Dumitru Alaiba, Member of Parliament of the Republic of Moldova, representing the Action and Solidarity Party (PAS) parliamentary group, 20 January 2021, online.Interview 2: Igor Munteanu, researcher in politics and governance and lecturer on public policy at the Academy of Economic Studies in Chisinau, former Member of Parliament of the Republic of Moldova and former Ambassador of Moldova to the US, 25 January 2021, online.Interview 3: Giorgi Gudabandze, Export Development Association of Georgia, 22 January 2021, online.Notes 1. Certainly, trade liberalisation may also create losers, if local producers cannot compete with imports (Stiglitz and Charlton 2006).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).4. Cf. https://www.transparency.org/en/cpi/2022 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. (2020); Rață (2017).6.According to the Moldovan Agency for Intervention and Payments in Agriculture (AIPA), Monicol SRL received a total amount of MDL 4.1 million

Table 1 .
Moldova's top five export sectors to the EU (share in total exports to the EU in %/share in total export volume to the EU in mln €).

Table 2 .
The top five Moldovan agri-food products exported to the EU (%).

Table 3 .
Georgia's key sectors with the highest shares in exports to the EU (%).