Extract
Trade in Southeast Europe: recent trends and some policy implications.
1. Background
Trade liberalisation in Southeast Europe (SEE) has been strongly promoted by the European Union (EU) in recent years, as part of its initiatives aimed at stimulating regional cooperation among the SEE countries. Although regional cooperation in SEE has been a declared objective of the EU since as early as 1996, when the EU formulated its 'Regional Approach' for the western Balkan countries--Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia and FR Yugoslavia (Serbia and Montenegro) due to adverse political conditions in the region very little progress had been achieved. After the end of the Kosovo war, in mid-1999, the EU launched the Stabilisation and Association Process (SAP) for the five countries of the western Balkans--or the SEE-5--which explicitly requires that these countries implement regional cooperation in various areas. In the economics field, trade liberalisation has become one of the principal instruments for promoting regional cooperation in SEE. The trade liberalisation initiative has been carried forward within the activities of the Stability Pact for SEE adopted in mid-1999 to help reconstruction efforts of the SEE countries affected by the 1999 conflict-in addition to the SEE-5, also Bulgaria and Romania (or the SEE-7). A Memorandum of Understanding on Trade Liberalisation and Facilitation (MoU) was signed on 27 June 2001 in Brussels by the Foreign Trade Ministers of the seven SEE countries, while Moldova has also joined in the meantime. (2) The MoU envisaged the conclusion of bilateral free trade agreements (FTA) among the seven (today eight) SEE countries, providing for a substantial reduction or elimination of tariff barriers. After some initial delays, the process has by now been completed. Whereas at the end of 2003, some 23 (out of a total of 28) of these free trade agreements had been signed, of which a number of them were also waiting to be ratified, by early 2006 some 31 bilateral FTAs have been signed and ratified (only for UNMIK-Kosovo has the process been somewhat delayed). Since these bilateral FTAs have been criticised as representing a 'spaghetti bowl' of differentiated trade relations, creating risks of trade diversion and trade deflection, another important agreement has been concluded among the SEE countries in April 2006 in Bucharest--the Bucharest Declaration. In the 2006 Bucharest Declaration, the SEE countries have committed themselves to transform these FTAs into a single FTA, by means of enlarging and modernising the current CEFTA agreement. Formal negotiations on the single FTA were to start by 31 May 2006, while it ought to be implemented in 2007. Trade liberalisation in SEE has emerged as an important EU policy objective for both political and economic reasons (see Bartlett, 2001, Uvalic, 2001). As the transition countries in Central and Eastern Europe had been encouraged to cooperate within CEFTA, similarly the SEE countries are expected to establish closer economic links among themselves, in preparing their future membership in the EU (Uvalic, 2002). Following the break-up of the Yugoslav federation, disruption of trade flows and military conflicts of the 1990s, the underlining assumption is that trade liberalisation in SEE could have a positive impact on both economic recovery and political stability. Trade liberalisation is expected to increase intra-regional trade flows, and if foreign trade increases sufficiently it could create exceptionally strong impulses for economic development and growth. Trade liberalisation is also likely to improve the investment climate in the SEE region and thus attract more foreign direct investment, since it will further reduce political instability and country risk, create bigger market opportunities for foreign companies, and enable ec...See the full content of this document
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