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Trade Integration in the Western Balkans Budapest April 4, 2005
Message Overall architecture beginning to fall into place, but a lot more work needed, mainlyon the home front, to yield full results
Roadmap • Diagnostic • What is happening? • Why? • Priorities
SEECs have received unprecedentely strong incentives to (re)integrate with EU and among themselves • The Autonomous Trade Preferences(ATPs): wider market access to the EU than provided under the Europe Agreements with the CEECs. • The Stabilization and Association process (SAp): from multilateral trade preference to bilateral Stabilization and Association Agreements. • A network of Bilateral Free Trade Agreements (BFTAs) among SEEs more liberal than CEFTA
SEEs have not yet been able to take full advantage of this liberalized trade regime… ATPs quotas are underutilized and market penetration is still limited
…and fuelingprotectionist tendencies • Before BFTAs, intra-WBC trade less than 10 percent of WBC trade with EU • More recently, • safeguard measures from Bosnia against Croatia and SAM • Export subsidization in Serbia • Tariff hikes in Montenegro
Disappointing trade performance are due primarily toinsufficient progress with domestic reforms • Slow progress in privatization and enterprise restructuring (Serbia, BiH), particularly in SOEs and “poorly privatized” enterprises (mass privatization, insiders takeover). • Labor market rigidities (fYRs) • Other costs for business entry, operations and exit remain high
Remaining obstacles to trade • Fragmented economic space within (BiH, SaM) and across countries (bFTAs) • Trade facilitation bottlenecks (e.g., border crossings, technical standards, backbone services)
And retarding SEE’s insertion in international division of labor under the aegis of EU multinationals • Low involvement in intra-sectoral trade (fastest segment of world/EU trade) • Low participation in network-led trade
Lack of FDI complicating the shift away from unskilled labor-intensive activities where WBCs have a hard time competing
Priority 1: Completing domestic reforms • Accelerating enterprise privatization and restructuring, including through secondary transfer of ownership and improving the business environment to increase domestic and foreign investment: • Reforming labor markets (ongoing) • Labor codes and industrial relations (BiH, Croatia, Macedonia) • Labor taxation (shift to general taxation)
Priority 2: Unifying the economic space • Unifying internal economic spaces (BiH, SaM) • Folding BFTAs into single free trade area • Option 1: Expand the geographical coverage of CEFTA to the whole region • Option 2:Move towards a new SEEFTA,based on a modernized/upgraded CEFTA, or on texts of modernized bilateral FTA and supplemented by the "new" trade issues (services, investment, IPR, procurement). • Expanding Pan-European Accumulation of Rules of Origin • Complete WTO accession process
Priority 3: Greater focus on trade facilitation and trade institutions • Strengthen regulation (national and regional) and competition in network industries as a basis for upgrading the quality of infrastructure and lowering the cost of services inputs (telecom, transport) • Athens MoU on regional electricity market, an example • Pursue services liberalization as a means to reducing the cost of back bone services • Continue ongoing customs reforms, streamlining border crossing procedures, and improving coordination among border authorities • Modernize the standards and technical regulations regimes in line with EU and international standards.
Both the SA process and active participation at the multilateral level are needed • Harmonization of laws, regulations, and institutions to the acquis communautaire and according to WTO rules. • Increased focus on implementation of trade measures • Participation in global trade talks to influence the broader development agenda incudingdismantling of distortive export subsidies (e.g., from EU) and services liberalization