INTEGRATIONINTHEBALKANS:ALBANIAANDKOSOVO*

RobertZ.Lawrence,†ErmalFrasheri,‡MariaQazi§

Cambridge,MA,October2014

*ThisreportwascreatedtosupporttheEconomicGrowthinAlbaniaProjectattheCenterforInternationalDevelopmentatHarvardUniversity.TheauthorswouldliketothanktheexpertsattheMinistriesofEconomy,Agriculture,andFinanceofAlbaniaandtheMinistryofTradeandCustomsAuthoritiesofKosovo,andrepresentativesofthebusinesscommunitiesforsharinginformationandperspectives.TheauthorsaregratefulforthefinancialsupportoftheOpenSocietyFoundation.

†RobertZ.Lawrence:AlbertL.WilliamsProfessorofInternationalTradeandInvestment;Mossavar-RahmaniCenterforBusinessandGovernment,HarvardKennedySchool.‡ErmalFrasheri:Fellow,CenterforInternationalDevelopmentatHarvardUniversity.§MariaQazi:MPAIDCandidate,HarvardKennedySchool.

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INTEGRATIONINTHEBALKANS:ALBANIAANDKOSOVO

Abstract

Despitetheirhistoricandethnicties,tradeandinvestmentbetweenAlbaniaandKosovoremainsunderdeveloped.Tobesure,eveniffullydeveloped,KosovoisunlikelytoplayamajorroleinAlbanianexternaleconomicrelations.Nonetheless,increasedeconomicintegrationbetweenthetwocountriescanserveasthebasisnotonlyforenhancingthetiesbetweenthetwocountries,butalsoforspurringthemeasuresthatcouldactasaspringboardforAlbania’sintegrationwithrespecttoothercountriesintheBalkansaswellaswiththeEU.

TABLEOFCONTENTINTRODUCTION………………………………………………………………………………………………………4FREEMOVEMENTOFGOODS……………………………………………………………………………………...5 StateofPlay……………………………………………………………………………………………..5 TradeTrends…………………………………………………………………………………………...8 ProblemAreas……………………………………………………………………………………….12 Customs……………………………………………………………………………………...12 ExistingInstitutionalFramework……………………………………...12 Recommendations……………………………………………………………13 DisputeSettlementSystem…………………………………………………………..15

ExistingInstitutionalFramework………………………………………15 Issues……………………………………………………………………………….16 Recommendations……………………………………………………………16 Standards(Agriculture)……………………………………………………………….19

ExistingInstitutionalFramework………………………………………19 Issues……………………………………………………………………………….20 Recommendations……………………………………………………………21FREEMOVEMENTOFSERVICES....…………………………………………………………………………...…22 StateofPlay………………………………………………………………………………………...…22

DataAnalysis……....…………………………………………………………………………………24Issues…………………………………………………………………………………………………….29Recommendations…....…………………………………………………………………....………30

FREEMOVEMENTOFWORKERS………………………………………………………………………………..32

ExistingInstitutionalFramework……………………………………………………….......32 Issues…………………………………………………………………………………………………….33 Recommendations………………………………………………………………………………....33

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FREEMOVEMENTOFCAPITAL/INVESTMENT……………………………………………………………….34ExistingInstitutionalFramework…………………………………………………..............34Issues…………………………………………………………………………………………………....38

Recommendations………………………………………………………………………………....38CONCLUSIONS………………………………………………………………………………………………………39BIBLIOGRAPHY……………………………………………………………………………………………….….…42

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INTRODUCTION:WHYINTEGRATION?

WhenonethinksaboutadvancingcooperationordeepeningintegrationbetweenAlbaniaandKosovo,itishelpfultocontextualizeitbyidentifyingthefollowingcirclesofintegration.Ontheonehand,AlbaniahasafreetraderegimewithKosovo,intheframeworkoftheCentralEuropeanFreeTradeAgreement(CEFTA)whichregulatestradeingoodsbetweenthetwocountriesandotherregionalpartners.Andontheotherhand,Albania’straderelationswithmostoftheEuropeancountriesaregovernedbytheStabilizationandAssociationAgreementwiththeEuropeanUnionanditsMemberStates,whereaswiththenon-EUcountries,throughitsmembershipintheWorldTradeOrganization.

Inthiscontext,adeeperintegrationwithKosovocouldgobeyondwhatis

alreadycoveredbyCEFTA,andinparticularbyenlargingthescopeoftraderelationsinordertoincludenotonlyanexpandedanddeepenedtradeingoods,butalsotradeinservices,movementofcapital,andmovementofworkers.Inotherwords,adeeperintegrationwithKosovocouldconsistinthecreationofacommonmarketbetweenthetwocountries.Thisparticularprocessiscomplementarytotheotherintegrationprocesseswithregionalcountries,withtheEuropeanUnion,andwithintheWTOframework.Furthermore,asregionalcountriesmoveseparatelytowardsaccessionintheEU,itisworthexploringthepossibilityofdevelopingclosertiesandaregionalapproachvisávistheEUaccessionprocess.

ThevirtueoffocusingonKosovoisthatbeyondtheobvioushistorical

reasonsandgovernments’intentionsinbriningthetwocountriesclosertooneanother,adeeperintegrationwithKosovocouldservetolaunchprovenmechanismsfordeepeningtieswiththerestofregionalcountries,andultimatelytoadequatelycreatecapacitiesandbetterprepareAlbaniafortheeventualaccessionintheEuropeanUnion.Hence,althoughourrecommendationscontainedinthisintroductoryreportareaddressedtotradewithKosovo,theyalsohaveapplicationwithregardtoothercountriesandintegrationprocesses.

DuringourworkinAlbania,wenoticedasenseoffrustrationthatdespite

CEFTA’sfreetraderegimeorgoodwillgesturesfrompublicofficials,therewasn’tmuchofasenseofconnectionbetweenthetwoeconomies.WhenonelooksatthenumberofKosovarbusinessesinAlbania,orAlbanianbusinessesinKosovo,aswellasatthenumberofKosovarworkersinAlbaniaandviceversa,itisdifficultnottoconcludethatbothcountriesarelateintakingactivestepstoenhancebusinessformation,lateincreatingconditionsforlabormobility,andinactivewhenitcomestoeffectivelydealingwithtradeorinvestmentdisputes.

Theeconomicimperativeforbringingthetwocountriesclosertoone

anotherrequiresactiontoremoveinstitutionalbarriersthatcouldunlockthepotentialforgreatersynergybetweenthem.Aproactiveapproachtowardscreatingalargereconomyispremisedontheideathatdeeperintegrationbetweentwo

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countriesofsimilarsocio-economicdevelopmentcouldenhancewelfarebycreatingeconomiesofscale,increasinginvestmentsandimprovingthecompetitivenessofthebusinesssectors,harnessingtheintellectualcapacitiesinbothcountries,andpreparingthebureaucraciestoeffectivelyaddresschallengesposedbytheencounterwithEuropeanorglobalmarkets.

Regardingthemethodsofintegration,deeperregionalintegrationcouldhappenmainlythroughaverticalapproachthatwouldconsistofformalinternationalagreementsbetweentwocountries,whichinturnwouldneedtobeincorporatedandimplementedintherespectivedomesticlegalsystems,inoralternatively,throughahorizontal,bottomup,projectoriented,andsystemicefforttocreatemeaningfulconnectionandaccessforusersandconsumersofdeeperintegration.Theseapproachesarecomplementarybutwefavoranemphasisonthelatterbecauseweareoftheopinionthathorizontalnetworksofregulators,experts,andprivateactors,combinedwithinfrastructureandpublicworksprojects,aswellaswithspecificinitiativestoconnectandcomplementeconomicandsocialsectorscanbemoreinfluential

Inthefollowingfoursectionsofthisreport,weexaminethestateofplayin

thetradeingoods,tradeinservices,movementofworkersandmovementofcapitalinordertoidentifypotentialissuesandofferrecommendationsthatcouldhelpunbindinstitutionalconstraintsandassuchfacilitatetheprocessofdeeperintegrationbetweenAlbaniaandKosovo.Thescopeofthistypeofendeavorisratherlarge,andwiththisintroductoryreport,wewouldliketoraisekeyquestionsandthemesthatwehopewouldgeneratefeedbackfromthegovernment,privateactorsandotherpublicsectorrepresentativesinordertoturnanideaintoanactionplan.

FREEMOVEMENTOFGOODS

I. StateofPlay

TradeingoodsbetweenAlbaniaandKosovo,andtheirregionalpartners,isgovernedbythreemainagreements:

1. CEFTA(CentralEuropeanFreeTradeAgreement–2006):TheCEFTAisan

agreementwhichcurrentlyconsistsofsevenmemberstates:Albania,Serbia,Montenegro,Macedonia,Kosovo,BosniaandHerzegovina,andMoldova,withthestatedaimoffacilitatingthegrowthofthesestatestowardsEUaccession.AprerequisitetoEUaccessionisdeeperregionalintegrationandCEFTAaimstohelptheBalkanstatesachievethatgoal.

UnderCEFTA,thefollowingpointsaresalientwithrespecttotradeingoods:• Quantitativerestrictionsonimportsandexportsaretobeabolished;• Customdutiesonexportsaretobeabolished;

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• Customdutiesonimportsweretobeplacedatastandstillatthetimeofratification.Existingdutieswouldeitherbeabolishedorinsomecasesbereducedtozerowithinatransitionphaseendingin2008.MFNdutieswouldbeapplicableonagriculturalimportswhichwereallowedtohavenonzerodutiesinthetransition;

• Customfeesaretobeabolished;• Cooperationandnegotiationofagreementsonsanitaryandphytosanitary

measures(SPS)areencouragedwiththegoalofeventuallycomplyingwithEUstandards(thesewillbediscussedlaterinthisreport);

• Partiesaretoeliminateexistingtechnicalbarrierstotrade(TBT),andcommittoarrivingatnegotiatedagreementsontheharmonizationoftechnicalstandardsandconformityassessmentprocedures;

• PartiesagreetoabidebyWTOrulesonissuessuchasSPSandTBT.(ThesefeaturesofCEFTAwithrespecttotradeingoodswillbeimportantcornerstonesinnavigatingtheroadblocksintradebetweenAlbaniaandKosovo.)

2. StabilizationandAssociationAgreementwithEU:TheStabilizationandAssociationAgreement(SAA)withtheEU,whichenteredintoforceonApril1,2009,containsobligationsonarangeofpolitical,trade,andeconomicissues.Underthisagreement,goodsfromEUareimportedatzerotariffsandmostAlbaniangoods,withafewexceptions,aretradedfreelywiththeEU.Thekeyprovisionswithrespecttogoodsareasfollows:

• Abolitionofquantitativerestrictionsonimports(industrial,agriculturalandfisheryproducts)andexports(industrialproductsonly);

• Abolitionofanychargeshavinganequivalenteffecttocustomsdutiesonimports(industrialproducts).Customsdutiesoncertainindustrialproducts,tobephasedouttozerograduallyoverafive-yearperiod.Customsdutiesoncertainagriculturalproductstobeprogressivelyreduced;

• Abolitionofexportduties(industrialproducts);• Specialsafeguardforagricultureandfisheriesproducts.Specific

arrangementsforironandsteelproductsandwinesandspiritsrespectively.

3. MembershipintheWTO:AlbaniaaccededtotheWTOinSeptember2000,andnowgrantsMFN,orpreferentialtreatmentbasedonFTAs,toallitstradingpartners.4

4WTOTRADEPOLICYREVIEW:ALBANIA2010-IITradeandInvestmentRegimehttp://www.wto.org/english/tratop_e/tpr_e/tp329_e.htm.

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PolicyreportsandstudiesshowthatAlbaniahasmadeconsiderableprogresstowardsliberalizingandstreamliningitstraderegimeinlinewithAlbania'sWTOobligationsandwiththeacquiscommunautaire,inpursuanceofitsgoalofEUaccession.5Customsproceduresarestreamlinedandacentralizedelectronicsystemisinuse.Thishasreducedcustomsclearancetimes.HowevertheuseofreferencepricesforcalculationofVATonimportsremainsapracticeforsomegoodswhichisoftenacauseforcontention.6

Regardingtaxation,AlbaniaappliesaVATatageneralrateof20%,on

importedanddomesticallyproducedgoods.Excisetaxesareleviedoncertaingoods,includingcoffee;fruitjuicesandothernon-alcoholicbeverages,beer,wine,alcohol,andotherspirits;tobaccoandtobaccoproducts;petroleumby-energyproducts;incandescentbulbs;andperfumesandeaudetoilette.7

Therearefewnon-tariffmeasuresthatAlbaniaappliestoitstrade.Therearenoprohibitedimports,exceptforproductsconsideredtobehazardoustopublichealth,andimportlicensingisusedmainlyforSPSpurposes,security,protectionoftheenvironment,andforcompliancewithobligationsunderinternationalconventions.UndertheSAA(Article75),AlbaniaiscommittedtograduallyconformwithEUtechnicalregulationsandEuropeanstandardization,metrologyaccreditation,andconformityassessmentprocedures.However,itoftenfacestradedisputesoverconformityoftechnicalregulationsandSPSstandards,intheabsenceofbilateralmutualrecognitionagreements.8Noexporttaxesareappliedandlicensesmustbeobtainedforonlyahandfulofmostlysensitiveproducts.Albaniahasafewspecialcustomsregimesthatcontainspecificprovisionsortreatmentforexports.9

5SeealsoWTOTRADEPOLICYREVIEW:ALBANIA2010–IIITradepoliciesandpracticesbyMeasurehttp://www.wto.org/english/tratop_e/tpr_e/tp329_e.htm.6Id.7Id.8Id.9Id.

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II. TradeTrends

Albaniahastradedeficitingoodswiththerestoftheworld,asseeninthegraphbelow:

(Source:INSTAT)

Minerals,FuelsandElectricityandTextilesandFootwear(alsoknownasFason),weretheonlyproductcategoriestohaveapositiveexternaltradebalance.Thesearealsocurrentlytheleadingexportcategories,followedbyconstructionmaterialsandmetals.

AhistoricalgrowthtrendofthesekeyexportcategoriesshowsthatwhileMinerals,FuelsandElectricityhaveshownsteadygrowth,possiblyduetohighcommodityprices,growthintheFasonsectorhasbeenslower,withConstructionmaterialswitnessingnegativegrowthinexportsinrecentyears.

-400,000

-200,000

0

200,000

400,000

600,000

2009 2010 2011 2012 2013

TotalTradewiththeWorld[Value,LEK]

TotalExports TotalImports TradeBalance

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(Source:INSTAT)

Intermsofexportdestinations,Albania’skeymarketsareEUcountries,withCEFTAandEFTAfollowingwithsmallershares.In2013,thisdistributionstoodasfollows:

0 20,00040,00060,00080,000100,000120,000

Foods,beverages,tobaccosMinerals,fuels,electricity

PlasticandchemicallyproductsLeatherandarticlesthereofWoodandpaperproducts

TextilesandfootwearConstructionmaterialsandmetals

Machinery,equipmentandsparepartsOthers

ForeignTradebyProducts,2013[ValueinLEK]

Imports

Exports

0

20,000

40,000

60,000

80,000

100,000

120,000

2009 2010 2011 2012 2013

Exports,LEK

GrowthTrendofKeyExports2009-2013

Minerals,fuels,electricity

Textilesandfootwear

Constructionmaterialsandmetals

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(Source:INSTAT)

Albania’stradelinkswithKosovo,whilesmall,areanexceptiontothosewithothercountries.WithinCEFTA,KosovoholdsthelargestshareofexportsfromAlbaniaandthispointstotheimportanceofKosovoasaleadingregionalmarketforAlbanianexports.Amongtotalexports,KosovoisthethirdlargestmarketofAlbaniangoods,afterItalyandSpain.

(Source:CEFTAwebsite)

TradewithKosovohasseenanincreasingtrendoverthepastfiveyears,withKosovobeingoneofthefewtradingpartnerswithwhichAlbaniaenjoysafavorabletradebalance.Exportsrosefasterthanimports,butleveledoffinrecentyears.ThishelpshighlighttheimportanceofboostingexportstoKosovothroughfacilitationofintegration.

86%

12%2%

TotalExports,2013[Value,LEK]

EUcountries

CEFTAcountriesEFTAcountries

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(Source:INSTAT)

AlbaniahasatradesurpluswithKosovoinmostproductcategories,withthemostimportantproductsbeingConstructionMaterialsandMetals,Minerals,FuelsandElectricity,andFood,BeveragesandTobacco.

0

5,000

10,000

15,000

20,000

2009 2010 2011 2012 2013

TradewithKosovo[Value,LEK]

Exports Imports

-2,000 0 2,000 4,000 6,000 8,000 10,000

Foods,beverages,tobaccos

Minerals,fuels,electricity

Plasticandchemicallyproducts

Leatherandarticlesthereof

Woodandpaperproducts

Textilesandfootwear

Constructionmaterialsandmetals

Machinery,equipmentandspareparts

Others

TradewithKosovo-MajorCategories2013

TradeBalance

Imports

Exports

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III. Problemareas

Afterreviewingtheinstitutionalframeworksthatgoverntradeingoods,statisticaldata,andmultipleconsultationswithgovernmentofficials,privatesectoroperatorsandfieldvisits,wehaveoutlinedthefollowingaskeyareasrequiringattentiontopromotetradeofgoodsbetweenAlbaniaandKosovo:

- Cross-cuttingissues:

o Customs:Inefficienciesinthecustomssystemleadingtorestrictionsintrade.

o DisputeSettlement:IneffectivedisputesettlementmechanismunderCEFTA,andconcernsaboutunfairtradepractices.

- Sectorspecificissues–Agriculture:

o Standards:Problematicmutualrecognitionofstandards,especiallyinFood–VeterinaryandSanitary-Phytosanitary(SPS)regulationsforagriculturalproducts.

A. Customs:Inefficienciesinthecustomssystemleadingtorestrictionsintrade

ExistingInstitutionalFramework

UndertheCEFTA,allpartiesarerequiredtosimplifyCustomsadministrationproceduresandminimizethebarrierscausedbylengthyprocedures.(AlbaniaisalsoamemberoftheWorldCustomsOrganization.)Albaniahassignedbilateralagreementsoncustomsassistancewith:Italy;Greece;FormerYugoslavRepublicofMacedonia;theInterimAdministrationMissioninKosovo(UNMIK);Moldavia;Bulgaria;Slovenia;Romania;Turkey;Croatia;andCyprus.10Thefollowingareafewsalientfeaturesoftheprocess:

• Customslegislationdoesnotrequireimportersandexporterstohavealicense,otherthangoodswhichhavesensitivehealthorsafetyhazards.

• Thereisasimpleimporttariffstructure,witheither0%,2%,5%,or10%beingleviedonallimports.11

10WTOALBANIATRADEPOLICYREVIEW2010–IITradePolicyandMeasures.11AccordingtoCEFTA’sSecretariat,importintoAlbaniaissubjecttocustomstariffwhichareonly"ad-valorem".Customstariffapplyonthe8-digitCombinedNomenclatureofClassificationofGoods.ThisClassificationisfullyincompliancewiththeEuropeanCommunityCombinedNomenclature.Thetariffsystemisverysimple.Themost-favored-nationtariffsystemapplicableis:0%,2%,5%,6%,10%and15%.UnderFTA-s,AlbaniaappliespreferentialimporttariffsforCEFTAparties,EFTAparties,EUMemberStatesandTurkey.Incaseofindustrialproducts(chapters25-97ofClassificationofGoodsNomenclature)thetariffis0%,whileforagriculturalproductstheyare,assetoutintherelevantagreements.Availableat

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• Alongwithtariffs,customsprimarilyadministersthecollectionofVATandExciseduty(Oncertainproducts)onimports.

• AcentralizedcustomssoftwaremonitorstheflowofgoodsacrossAlbania’sborders.Thissystemalsoconductspreliminaryriskanalysisandcategorizesshipmentsaccordingtorisklevel.

• Tariffsanddutiesaresupposedtoappliedontransactioncostofgoodsbylaw,however,inpractice,customsofficialcontinuetousereferencepricesasthebasisforcalculatingtaxestobepaidinsomecases.Theauthoritiescitedunder-invoicingasthekeyreasonforthisprecaution.InrelationtotradewithKosovo,thereisastrongwillandcommitmenton

bothsidestofurtherstreamlinetheprocessorcustoms.Forexample,atthebordercrossingbetweenAlbaniaandKosovoatMorina,aonestop–onechecksystemhasbeenimplemented,withpeopleandtrucksonlyrequiredtoprovideverificationatoneterminalinsteadoftwo.Transitrequirementshavebeensimplified.ExportdeclarationsforgoodsdestinedforKosovoaremadeattheportofDurresandtrucksaresealed,whichhasreducedtransittimeatMorinaby4.5hoursaccordingtocustomsauthorities.However,smugglingandtraffickingwascitedbytheauthoritiesatMorinaasathreat,largelyduetodivergenceinVATandExcisetaxesbeingappliedbyKosovoandAlbania.

However,despitetheseimprovements,thereismuchscopeforfurthersimplificationoftheprocessbetweenAlbaniaandKosovoiftheyaretobeviewedasonecommonmarketforpracticalpurposes.InaccordancewiththeframeworkagreementsignedbythegovernmentsofAlbaniaandKosovoinJanuary2014,ajointactionplanseekstoundertakemeasurestofurthersimplifycustomsprocessesbetweenthetwocountries.Accordingtogovernmentofficials,aworkinggroupiscurrentlyinplacetoaddresstheseissuesinparticularwiththeircounterpartsinKosovo.Howeverthereisnoconcreteplandevelopedasofyet.Recommendations

• Inclusionofbusinesscommunityintheworkinggroups.ThereiscurrentlyinplaceaworkinggroupconsistingofrepresentativesfrombothcountrieswhichisdevelopingalistofwaysinwhichcustomsbetweenAlbaniaandKosovocanbeunifiedfurther.Onewayofstrengtheningtheworkofthisgroupistoincluderepresentativesofkeyexportersandimportersfrombothcountries.Thiswilladdanotherveryimportantdimensiontothedialogueoncustomsunificationandwillbridgethegapbetweentherealityandlegislation.

• ImproveinformationflowandunificationofprocessesItisimportanttodevelopsystemsofinformationflowwhichfacilitatethesharingof

http://www.ceftatradeportal.com/albania/index.php?option=com_k2&view=item&layout=item&id=51&Itemid=66&lang=en.

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informationinordertoreducebarriers.ThiscouldincludetheuseofasinglecustomselectronicsystembetweenKosovoandAlbaniainwhichbothauthoritieshaveaccesstothesamedataandrequirementstoavoidduplicationofeffortanddelaysofcommunication.Itisalsoveryimportanttoreducethepaperworkrequiredandmakeasmanyprocesseselectronicaspossibleinordertoavoiddelays.

• Removereferenceprices.Inprinciple,theuseofreferencepricesisunlawfulaccordingtoGATT/WTOandhasintherecentpastbeenthesourcetradeskirmishesbetweenAlbaniaandKosovo.Itisveryimportanttoworktowardstheeliminationofthispractice.

• Facilitationoftransittrade.WiththebuildingofahighwayontheAlbania-

KosovosectionofCorridor8ofthePan-Europeantransportnetworkhasledtoadrasticdecreaseinthetimetakenforgoodsandpeopletomovebetweenthetwocountries.Whereaspreviouslyitwouldtake10hourstotravelfromTiranatoPrishtina,thisjourneycannowbecompletedinjustthreeandahalfhours–cuttingthetransporttimebyabouttwothirds.ThishasseriousimplicationsfornotonlytradebetweenKosovoandAlbania,butalsotransittradedestinedforKosovo,sincetransportationcostshavesignificantlybeenreduced.(ThehighwayhasalsothepotentialtolinkupwiththehighwaysystemtoSerbia.)Further,developingandincreasingtheprocessingcapacitiesatthePortinDurresisacorollaryofmaximizingtheuseofthehighway.Hence,theportinDurrescouldserveasalogisticshubforKosovarandregionaltrade,andwithimprovedcapacitiesandhighwaynetworkcompetewithThessalonikiinservingregionalmarkets,e.g.,Montenegro,Macedonia,andSerbia.

Accordingtocustomsauthorities,thishighwayhasledtothediversionofKosovoboundtransitgoodsfromMontenegrotoAlbania.Asaresult,thisisagreatopportunitytostrengthentheconnectionsbetweenthetwoeconomies,andtransittradeshouldbefacilitatedfurtherbyreducingadministrativerequirements.TheCustomsworkinggroupshouldconductananalysisregardingthetransitprocessandeliminatenodesatwhichthereisunnecessaryholdup.

• PossibilityofharmonizingexcisetaxesandVAT.DuringourmeetingsattheCustoms,wewereinformedthatdifferencesintheVATratesbetweenKosovoandAlbaniahadleadtoinstancesoftaxevasionandsmuggling.Moreover,differencesintaxratescreateconditionsfordistortionsinthetradepatterns.Therefore,therespectiveMinistriesofFinanceshouldexaminethepossibilityforconvergingexciseandVATtaxrates.

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B. DisputeSettlementSystemExistingInstitutionalFramework

TheexistingCEFTAframeworkprovidesthatthepartiestothefreetradeagreementoughttofirstattempttosolvedisputesregardingtheinterpretationandapplicationofCEFTArulesthroughcooperationandconsultations.12TheJointCommittee,whichisthemaindecisionmakingbodyofCEFTA,canbeconsultedatthediscretionofpartiesinordertoarriveatamutuallysatisfactoryresolutionofdisputes.13ApartfrominvolvingtheJointCommitteeindisputeresolutions,CEFTAmemberstatescanconductconsultationsinthepresenceofamediator.14Whenthepartiestoadisputecannotagreetoamediator,theJointCommitteeappointsoneforthem.15Incasethemediatorfailstoprovideasolution,theJointCommitteethenattemptstodealwiththeissuewithaviewtofindingacommonlyacceptablesolution.16Ifthisapproachalsofails,theJointCommitteeisentitledtorecommendmeasurestothepartiestoadispute.17

ArbitrationisanothervehiclebywhichCEFTAmemberstatescansolvetradedisputes.Article43oftheAgreementprovidesthatarbitrationcanbeusedafterconsultationsintheJointCommitteehavefailedtosolveorsettletradedisputes.18Onceamemberstaterefersadisputetoarbitrationithastonotifynotonlytheotherpartytothedispute,butalsoithastosendcopiesofnotificationstoallCEFTAmemberstates.19TheArbitralTribunalistaskedwithsettlingdisputesinaccordancewithCEFTAprovisionsandanyotherapplicablerulesofinternationallaw.20TheTribunalcanconsideramicuscuriaebriefsfromapartynotinvolvedinthedispute.21TheawardoftheArbitralTribunalismeanttobefinalandbindinguponthepartiestothedispute.22

CEFTAprovidesthatdisputesunderconsultationorarbitrationarenotbesubmittedtotheWTOfordisputesettlement.23Further,anissueoradisputebeforetheWTODisputesettlementbodyisnottobesubmittedforarbitrationunderCEFTA’sprovisionsonarbitration.2412SeeCEFTAArticles24and42.13SeeCEFTAArticle42.14Id.15Id.16Id.17Id.18SeeCEFTAArticle43.19Id.20Id.21Id.22Id.23Id.24Id.

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Issues

• AccordingtoCEFTAinstitutionalframework,itisnotclearwhetherthereisanyparticularprotocolorprocedureforhowconsultationsbetweentwomemberstatesoramongmorethantwoaretobeconducted,andwhatthatdecisionmakingprocesslookslike.

• BecausethedecisionsintheJointCommitteearebasedonconsensusamong

memberstates,thedisputesettlementsystemcontainedinCEFTAisstructurallyproblematicsinceanyoneofthememberstatescanimposeitsvetoincasesofconflictsofinterests.25

• Further,eveninthecaseofArbitration,thepartiesarelefttotheirown

devicesinordertocomeupwithproceduresandalegalframeworkunderwhichArbitrationcouldproperlyandeffectivelyfunction.26

Recommendations

Inourviewboththedecision-makingmechanismsandtheenforcementoftherulesonwhichdisputesettlementisbasedneedtobeenhanced.ThisdoesnotrequireadditionalagreementstoCEFTA.TheCEFTAallowsforconsultationpriortoformaldisputeresolutionanditestablishesthatWTOrulesshouldserveasthebasisforundertakingmeasuresrelatingtounfairtrade.However,inpractice,CEFTAmembersarestymiedbytheneedforconsensuswithrespecttodisputesettlementsandAlbaniahasnotactuallydevelopedtheinstitutionalmechanismstoimplementtheWTOrules.Inourview,especiallywithrespecttodisputeswithKosovo,aprotocolforbindingarbitrationshouldbereached,andinaddition,AlbaniashoulddeveloptheinstitutionalcapacityintheformofaFairTradeCommissiontoemploythetraderemediesitisentitledtouse.ThereshouldbeanunderstandingtoresolvedisputesbilaterallybetweenKosovoandAlbaniainsteadofseekingconsensusinCEFTA.

DuringourinterviewsattheMinistryofEconomy,MinistryofAgriculture,andattheCustomsAuthoritiesinAlbania,aswellasattheTradeMinistryinKosovo,wehavecometolearnthattherehavebeeninstancesofunfairtradepracticesanddisputeswhereparties,andespeciallyAlbania,couldhavebenefitedfromaneffectivedisputesettlementmechanismaswellasfromanefficientenforcementofremediesagainstunfairtradepractices.IfCEFTA’stradereportsareanindicatorofourassumptionsabouttheineffectivenessofCEFTA’sdisputeresolutionprocedures,AlbaniahasonlyreportedtwocasestoCEFTA’sJoint

25SeeCEFTAArticle41.26SeeAnnex9toCEFTAAgreement.

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Committee,andintotalthereareninecaseswhereAlbaniaisapartytoadispute.27Thesestatisticsdemonstrateaneedforarobustdisputeresolutionmechanismandprocedures.Therefore,werecommendthatAlbanianauthoritiesfocusonthefollowingproposals:

• AprotocolforarbitrationpriortotheuseoftheCEFTADisputeSettlementSystemBecauseCEFTAhasanineffectivedisputesettlementsystem,itcreatestheopportunityforKosovoandAlbaniatodevelopamorerigorousandeffectiveprotocolforresolvingtradedisputes,betweenthetwoofthem.AlthoughCEFTAprovidesaroleformediation,fortheinterventionoftheJointCommittee,andforarbitration,itdoesnotexcludeorprohibitotherformsofdisputeresolutionsystems.Hence,weproposethatAlbaniaandKosovoexplorewaystocomeupwithabilateralarrangementforresolvingandsettlingtradedisputes.(Suchanarrangementcouldtakedifferentforms,forinstance,itcouldbeapermanentbodyoftradeexpertsandsectorialspecialists,oradhoccommittees,withexecutivepowerstosolveandsettletradedisputes.)

• EffectiveUseofExistingInstitutionalFrameworkstoAddressUnfairTrade

Practices.CEFTAprovidesthatifapartyconsidersthatanothermemberstatehasfailedtofulfillanobligation,andbilateralconsultations,mediationortheJointCommitteehavefailedtoarriveatacommonlyacceptablesolution,thepartyconcernedmaytakeprovisionalrebalancingmeasures.28AccordingtotheparagraphfourofArticle42,measurestakenoughttobenotifiedimmediatelytothepartiesandtotheJointCommittee,whichoughttoholdregularconsultationswithaviewtotheirabolition.29ThemeasuresaretobeabolishedwhenconditionsnolongerjustifytheirmaintenanceintheviewoftheJointCommittee(basedonaconsensualdecision),or,ifthedisputeissubmittedtoarbitration,whenanarbitralawardhasbeenrenderedandcompliedwithasdecidedbytheJointCommittee.30AccordingtoArticles22and23ofCEFTA,partiescanusetheWTOlegalframeworkinordertorespondtounfairtradepractices.31Therefore,whereaproductisbeingimportedinsuchincreasedquantitiesandundersuchconditionsastocauseorthreatentocauseseriousinjurytodomesticproducersoflikeordirectlycompetitiveproductsintheterritoryoftheimportingParty,orseriousdisturbancesinanysectoroftheeconomywhich

27SeeCEFTAtradereports,availableathttp://192.232.255.119/~ceftamab/report_dcrp.php.28SeeCEFTAArticle42.29Id.30Id.31SeeCEFTAArticles22and23onantidumpingandgeneralsafeguardsprovisions,respectively.

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couldbringaboutseriousdeteriorationintheeconomicsituationoftheimportingParty,theimportingPartymaytakeappropriatebilateralsafeguardmeasuresagainsttheotherParty.32Regardlessofwhetheraneffectivedisputesettlementsystemisinplaceornot,inordertoenforceArticles23and24,theAlbanianauthoritiesarefullyentitledtoconducttheirowninvestigationsandapplythosemeasuresthatintheirjudgmentareconsistentwiththenatureoftheinjuryordisturbanceinquestion.ThereisnothinginCEFTA,orintheWTOlegalframework,torestricttheabilityordiscretionofAlbanianauthoritiesinrespondingtowhattheydetermineareunfairtradepractices.

Inthiscontext,sincetherearenoeffectivemechanismsforidentifyingwhenproblemsariseandforpursuingthem,weproposetheestablishmentofaFairTradeCommissionthatwouldhavethecapacitytoinvestigateandimplementCEFTAonantidumpingandcountervailingduties.

• UseoftheEuropeanCourtofJusticejurisprudenceinordertoevaluatethe

exceptionstothefreetradearrangementsprovidedforinArticle17.Accordingly,CEFTAdoesnotprecludetheprohibitionorrestrictiononimports,exports,orgoodsintransitjustifiedongroundsofpublicmorality,publicpolicyorpublicsecurity,theprotectionofhealthandlifeofhumans,animalorplants,theprotectionofnationaltreasurespossessingartistic,historicorarchaeologicalvalue,protectionofintellectualpropertyorrulesrelatingtogoldorsilverortheconservationofexhaustiblenaturalresources,ifsuchmeasuresaremadeeffectiveinconjunctionwithrestrictionsondomesticproductionorconsumption.33However,suchprohibitionsorrestrictionsarenotmeanttoconstitutemeansofarbitrarydiscriminationoradisguisedrestrictionontradebetweentheParties.34TheEuropeanCourtofJusticehasanextensivebodyofjurisprudencewithrespecttothedefinitionsandinterpretationsoftheexceptionstothefreemovementofgoods.InlightoftheEUintegrationprocesses,bothAlbanianandKosovarauthoritiescouldbenefitfromusingtheEUjurisprudenceinordertocomeupwithimpartial,andrecognized,standardsofadjudication.

32SeeCEFTAArticles23and24.33SeeCEFTAArticle17.34Id.

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C. Standards(Agriculture):Problematicmutualrecognitionofstandards,especiallyinFood–Veterinary(FV)andSanitary-Phytosanitary(SPS)regulationsforagriculturalproducts

ExistingInstitutionalFramework:

Withregardtoagriculturalproducts,CEFTAoutlinescertainrequirementstoapproachtheissueofFVandSPSregulations.Theseare:

• Allmembersarerequiredto‘co-operateinthefieldofsanitaryand

phytosanitary(SPS)measures…withtheaimofapplyingrelevantregulationsinanon-discriminatorymanner’andto‘enter,whereappropriate,intonegotiationstoconcludeagreementsonharmonizationormutualrecognitioninthesemattersinaccordancewiththerelevantprovisionsoftheWTOAgreementontheApplicationofSanitaryandPhytosanitaryMeasuresandotherrelevantinternationalagreements’.Currently,thereexistsanSPSCommitteewhichservestoaddresstheseconcerns.

• Formationofacommitteeontechnicalbarrierstotradeto‘facilitateandharmonisetechnicalregulations,standardsandmandatoryconformityassessmentprocedureswiththeaimofeliminatingtechnicalbarrierstotrade’andconformstoWTOrequirementsinthisregard.Ifachangeinregulationisbeingeffected,thismustbecommunicatedbythepartiesinvolvedinadvance.

• CEFTAalsostipulatesthatpartiesenterintonegotiationstoconcludeagreementsonharmonizationoftheirtechnicalregulationsandstandards,andthemutualrecognitionofconformityassessmentproceduresinaccordancewiththerelevantprovisionsoftheWTOAgreementonTechnicalBarrierstoTradeandotherrelevantinternationalagreementsbefore31December2010.

TheSPSAgreementintheWTOreferencedaboverequiresthatmembersoftheWorldTradeOrganization(WTO)shallbasetheirsanitaryorphytosanitarymeasuresoninternationalstandards,guidelinesorrecommendationswhich,inthecaseoffoodsafety,arethoseestablishedbytheCodexAlimentariusCommission.TheSPSAgreementpermitsmemberstointroduceormaintainadifferentstandardofsanitaryorphytosanitarymeasuresifthereisscientificjustification,supportedbyassessmentofriskbasedonappropriatescientificevidence35.

Similarly,theTechnicalBarrierstoTrade(TBTAgreement)citedbyCEFTAcoversallmeasuresorregulationsconcerningtechnical,commercial,ethicalorreligiousmatters–exceptsanitaryorphytosanitarymeasures-appliedtoall35MutualRecognitionAgreementsinInternationalFootTrade:Malik,Rajhttp://www.fao.org/docrep/w9474t/w9474t05.htm.

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industrialandagriculturalproductsininternationaltrade.Whenmovingtowardsachievinganybilateralormultilateralagreementoramutualrecognitionagreement,itisnecessarythattherequirementsundertheTBTAgreementarealsofullytakenintoconsiderationastheyconcernqualitycharacteristics,fraudulentpracticesandmattersofconsumerinformationthroughlabellingwhichmaynotstrictlybefoodsafetyissues.

Therearetwoimportantthingstonotehere.Firstly,thattheCEFTAcallsontheenforcementofWTOagreementsandrequirementsonTechnicalBarrierstoTradeandapplicationofSanitaryandPhytoSanitarymeasures.Secondly,andmoreimportantlyforourcontext,thereisnoclearcutspecification,orroadmapforagreement,onmutualrecognitionandconformityassessment.ThishasledtoaplethoraofproblemswhichkeepsCEFTAtradebelowitspotential,andalsolimitsAlbania’saccesstoEUmarketsinagriculturalproductsandliveanimals.Issues

• InrelationtotradewithKosovo,therearenumerousexamplesinwhichtradehasbeenblockedduetoproblemswithmutualrecognitionsofstandards.Problemsarisewhenlegislationsonstandardsarenotharmonizedbetweenthetwocountries.Sincebothcountriesareintheprocessofharmonizingalllegislationwiththeacquis,problemsarisewhenthisprocessleadstochangesinrequirementswhichareunanticipated.Forinstance,inearly201336milkfromtwoAlbanianproducerswasblockedbyKosovoduetoconcernsthatlevelsofaflatoxinwerehigherthantheEUacceptablestandards.UponinvestigationitwasfoundthatthelevelsofaflatoxinwereindeedhigherthanEUstandards,butthattheywerewithinthelimitssetbyCodexAlimentariusasprescribedbytheWTO.ThissuddenchangeinstandardsrequiredbyKosovohasbeencitedasacommerciallydrivenmove,butithighlightstheroomfortradedisruptionprovidedbyalackofagreementsofmutualrecognitionandconformityassessment.Inordertoaddressconcernssuchasthese,therehasbeenaFrameworkAgreementreachedbytheCouncilofMinistersinAlbaniaandtheGovernmentoftheRepublicofKosovoonJanuary11,2014,focusedoncooperationforpromotionandfacilitationoftrade.ThisagreementhasculminatedinaJointActionPlan37whichaddressesinparttheissueofstandardsintheareaoffoodsafety,veterinaryandplantsafety.Thisagreementhasalsoledtothecreationofthreecross-countryworkinggroups,withaspecificgroupdedicatedtoharmonizationoflegislationintheareaofSPSstandardsandregulations.Thisgrouphassofardevelopedadraftreportontheprocess.However,thereissomecauseforconcernregardingthefutureoftheseproposals,sincetheagreementdoesnotspecify

36http://www.balkaninsight.com/en/article/albania-kosovo-trade-dispute-escalates.37JointActionPlan:Draft,20February2014.

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whattheimplementationstrategywillbeandwhowillbetheagenciesorministriesresponsibleforoverseeingtheprocess.

• LackofestablishedcommunicationchannelsbetweenrelevantMinistriesand

privatestakeholdersisalsoakeyconstraint.ThroughdiscussionsheldwithdifferentMinistriesresponsiblefortradeingoods,italsobecomesapparentthatthereisaclearfailuretocommunicatekeyconcernswhichleadstoamisalignmentofprioritiesandfailuretoact.AsreportedonCEFTAwebsite’sMarketAccessBarriersDatabase,Albaniareportstheleastnumberofcasesoftradebarriersandthisislargelyowingtothegapincommunicationofthebarriersfacedtotherelevantauthoritieswithinthegovernment.AnyattemptatreachingagreementonmutualrecognitionofstandardsbetweenAlbaniaandKosovomustthereforeovercomethisbarrierinordertoidentifythekeyareasofconcernfortheAlbanianeconomy.

Recommendations

• AugmentationofcurrentAlbania–KosovoworkinggroupsontradeissuesundertheFrameworkAgreement.Thecurrentcross-countryworkinggroupsinplacehavedevelopedadraftplantoharmonizelegislationunderSPSandTechnicalBarrierstoTrade.However,itisimportanttomodifythestructuresofthesegroupsinordertomaximizethepotentialtobegainedfromsuchaconcertedeffortbetweenthetwocountries.Firstly,itisimportanttoestablishclearmechanismsofimplementationandfeedback.ItisnecessarytoidentifywhichMinistryorOrganizationisprovidingoversightandtakingresponsibilityforimplementation.Additionally,thereneedtobepathwaysoffeedbackbuiltintothesysteminordertohoneandimproveupontheimplementation.Secondly,itisimperativetobringprivatesectorrepresentativesintothepolicydialogue.Thiswillservethepurposeofbothhighlightingtherealconstraintsonthegroundtodrivepolicy,andalsotodevelopnetworksofprivatesectoractorsbetweenthetwocountrieswhichwillhavepositivespilloversforintegrationinothermarkets.

Inessence,theseworkinggroupswillhaveatripartiterole:1. Identifytheconcernsofstakeholdersinvolvedintheimportandexportof

productswhosetradesuffersfrombarrierscreatedthroughnon-conformityinassessmentandlackofrecognitioninstandards

2. UndertakeanalysisandformulateacoherentstrategytoresolvethehighlightedconcernsProvidefeedbackonpolicyimplementationtoensurethatthepolicyissolvingtheproblemsitsetouttoaddressinsteadcreatingnewones.

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• CreationofTradePolicyAdvisoryGroup,andinparticularwithacommitteeon

agriculturaltradeissues.Whilethereappearstobepoliticalwillingnesstoaddressexistingchallengesinbothcountries,informationalasymmetriesbetweendifferentactorsinAlbanialeadtofailuresinhighlightingtheimportantissues.Torectifythisproblem,weproposethedevelopmentofanoverarchingTradePolicyAdvisoryGroup.Theprimaryaimofthisgroupwouldbetoserveasacross-functionalgroupofactorswhowillbringtolightthecriticalissuesandbarrierstotradethatexist.Thegroupwouldbestructuredtoincludesub-groupscreatedaroundspecificareas.InthecontextofSPSstandardsandregulationsinagriculture,thereneedstoasub-groupdedicatedtoissuesrevolvingaroundtradeinagriculturalproducts.Thisgroupwouldconsistofrepresentativesofallthekeystakeholderswhichconduct,regulateandfacilitatethistrade.Theseinclude:TradeDepartment,MinistryofAgriculture,CustomsDepartment,Legalexperts,Exportersofagriculturalproducts,andRegulatorsoffoodandanimalsafetystandards.Thiswillhelphighlighttheissuesfacedonthegroundwhicharethebindingconstraints,andwillprovideamechanismfortheswiftescalationofproblemsfacedtotherelevantauthoritiesandchannels.Toserveitspurpose,thisgroupshouldconveneonaregularbasistoshareinsightsandvoiceconcernsandensurethattherightproblemsarebeingaddressed.WhileKosovoandAlbania,orotherCEFTAmember,couldadoptthehigherEUstandardsinthisfield,theyshouldrecognizethatsincetheywillmovetowardsadoptingsuchstandardsattheirownpace,anearlyadoptionofEUstandardsshouldnotbeanimpedimenttointra-regionaltrade.Inthiscontext,theWTOstandardsshouldcontinuetobeacceptableuntilmembersformallyaccedetotheEuropeanUnion.

FREEMOVEMENTOFSERVICESI.StateofPlay

CEFTArefersinpassingtothetradeinservicesasanareathatneedstobeaddressedandliberalizedbyitsmembersatalaterstage(whilepointingouttotheGeneralAgreementonTradeinServices(GATS)asthebackgroundsetofnormsandprinciplesthatgoverntradeinservicesforWTOMembers).Inthiscontext,CEFTAislargelysilentregardingspecificareasofcooperationandthewaystobringaboutgreaterliberalizationordeeperintegrationamongregionalcountries.Asaresult,tradeinservicesamongtheCEFTAmembers,andparticularlybetweenAlbaniaandKosovo(bearinginmindthatKosovoisnotyetaWTOMember)couldbenefitfromamorerigorousandholisticapproachtowardsdeeperintegration.

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Traditionally,tradeinservicesconsistsofabundleofspecificelements,andWTOclassifiesitaccordingtofourdifferentmodes.Theseinclude:

1. Mode1:Cross-bordersupplyofservices,includingfinancial,transportation

andprofessionalservices.2. Mode2:Tradeinwhichconsumptionoccursabroadandtheprovidersand

consumersaregeographicallywithinthesameboundaries,suchastourism,healthcarefacilitiesetc.

3. Mode3:EstablishingacommercialpresenceorFDI.4. Mode4:Movementofindividualsprovidingprofessionalservices.

Withinthesemodes,therearefurtherspecificclassificationsconsistingofbusinessandprofessionalservices,communicationservices,constructionandrelatedservices,distributionservices,educationalservices,financialservices,tourismservices,healthandsocialservices,transportservices,andmovementofnaturalpersons(workers).38

TheinstitutionalframeworkinplacethatregulatesAlbania’srelationship

withotherregionalcountries–apartfromKosovo,ontheonehand,andtheEuropeanUnionMemberStates,ontheother,regardingthetradeinservicesisestablishedeitherbythemembershipintheWTO,orbytheStabilizationandAssociationAgreementwiththeEUanditsMemberStates.

SinceKosovoisnotaWTOmember,andsincetradeinservicesfallsoutside

thescopeofCEFTA,thereisthereforeaninstitutionalgapbetweenAlbaniaandKosovowithregardtothemovementofservicesbetweenthetwocountries,whichpotentiallyputsKosovoatadisadvantagevisávisotherregionalcountriesandtheEUMemberStatesandviceversa.Thisgapcouldbefilledouteitherbyaframeworkagreementinservices,orbysector-by-sectoragreementsthatwouldcontainsimplificationmeasuresregardingestablishmentandoperationofserviceproviders,cross-borderprovisionofservices,thepositionofself-employedpersons,therightsofservicerecipients,andmeasuresthatwouldlayoutandstrengthenmutualcooperationbetweenregulatoryagenciesinbothcountries.

38WTO/GATSclassification.TheEuropeanUniongenerallyclassifiesthetradeinservicesasfollows:distributivetrades(includingretailandwholesaleofgoodsandservices);regulatedprofessions(suchaslegalandtaxadvisers,architects,engineers,accountants,surveyors);constructionservicesandcrafts;business-relatedservices(suchasofficemaintenance,managementconsultancy,eventorganization,debtrecovery,advertisingandrecruitmentservices);tourismservices(e.g.travelagents);leisureservices(e.g.sportscentersandamusementparks);installationandmaintenanceofequipment;informationsocietyservices(e.g.publishing–printandweb,newsagencies,computerprogramming);accommodationandfoodservices(hotels,restaurantsandcaterers);trainingandeducationservices;rentalsandleasingservices(includingcarrental);realestateservices;householdsupportservices(e.g.cleaning,gardeningandprivatenannies);financialservices;electroniccommunicationsservices;transportservices;healthcareservices;temporaryworkagencies'services;privatesecurityservices;audiovisualservices;gambling;servicesprovidedbynotariesandbailiffs(appointedbyanofficialactofgovernment).

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TheactualmovementofservicesbetweenAlbaniaandKosovoisfarbehindthegovernments’goalsofthefreetradeinservices.ConsideringtheweightserviceshaveinthenationalGDP,itisimportanttoeasetheflowofservicesbetweenthetwocountriesinordertofacilitatethecreationofcommonbusinessnetworksandsupplychains,particularlyfocusingonMode3andMode4.AccordingtorepresentativesfromboththeKosovarandAlbaniangovernment,thereismuchtobedoneinthisregard.Forexample,currentlythereareveryfewAlbanian-runbusinessesinKosovoandviceversa.Inparticular,thereare581totallyorpartiallyKosovarownedcompaniesregisteredinAlbania,outofatotalof4654foreignorjointventurescompanies.39Similarly,professionalsfromKosovofacethesamebarriersandquotasasforeignnationalsdowhenattemptingtoprovideprofessionalservicesintheAlbanianmarket.Theseareimportantbarrierstowardstogreaterintegrationandmustbeaddressed.II.Dataandanalysis

TradeinservicesformsasignificantpercentageoftheGDPinAlbania,measuringat35%in2012.However,inthesameyear,totaltradeingoodsandservicesamountedto85%oftheGDP,indicatingthatalargerportionofthetradewasingoods(50%).40HistorictrendsshowthattradeinservicesasashareofGDPhasbeendecreasinginrecentyears,asshowninthegraphofservicesimports(%GDP)overtimebelow.Itisworthinvestigatingwhatthereasonsforthisdecreaseare.

39Source:INSTATandNationalRegistrationCenter.40WorldBankData,retrievedfrom:http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS?display=default.

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BasedondatareceivedfromtheNationalStatisticsInstituteINSTAT,netservicesexportshaveseenadrasticdecreaseeveninabsolutevalueterms:

OnerecurrentthemeisthatthiswasafalloutoftheGlobalRecessionintotheAlbanianeconomy.However,sincethedataisnotindicatingarecovery,itbecomesevenmoreimportanttofocusonotherwaysinwhichthistradecanbefacilitatedandboosted.

Itisalsoinformativetolookatthebreakdownofdifferentservicesectorsandthisdataisdepictedinthegraphbelow:41

41BasedondatareceivedfromINSTAT.

-200.00

-100.00

0.00

100.00

200.00

300.00

400.00

2005 2006 2007 2008 2009 2010 2011 2012 2013

MillionUSD

NetExports-TotalServices

TotalServices

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Basedonthissetofstatistics,itisclearthatAlbaniaisandhasbeenanetimporterofTransportandSecurityServices.ThisissomewhatcounterintuitivesinceAlbaniaisuniquelypositionedtoactasanimportanttransitlocationforregionalandnon-regionaltrade.Itislikelythatnegativenetexportsintransportareduetoalackofadequatetransportinfrastructure.ThebuildingoftheDurres–PristinahighwayhashelpedcreateafavorableenvironmentforAlbaniatoexploititsgeographicallocation,andthismustbecomplementedbyfurtherpoliciestoencouragetransittrade42.TravellinghashadpositivenetexportsforAlbaniaintherecenthistory,andthisisdrivenmainlybyhightourismdemand.However,thisdatahassomefailingsinthatthelargestsectorinrecentyearsisanunclassified‘Other’category.Additionally,thereisnoclassificationonprofessionalservicesandotherimportantcontributorssuchasfinancial,communicationandconstructionservices.Inordertoassesthesesectors,weturnedtotheWorldBank’sServicesTradeRestrictionsDatabase(STRD).

Inordertoincreasetheknowledgeanddatawhichexistsregardingservicestradeglobally,theWorldBankhasdevelopedaServicesTradeRestrictionsDatabasewhichcataloguesthekeybarrierstoservicestradeinplacein103countries,andthencategorizesthembasedonanindexofrestrictiveness.43AccordingtothisIndex,AlbaniahasanoverallServicesTradeRestrictivenessIndex

42ThesearecoveredearlierunderthediscussionofcustomsfacilitationinthesectiononFreeMovementofGoods43Moreinformationaboutthisdatabasecanbefoundhere:http://iresearch.worldbank.org/servicetrade/aboutData.htm.

-200.00

-150.00

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

250.00

300.00

2005 2006 2007 2008 2009 2010 2011 2012 2013

MillionUSD

Years

NetExports-ServicesCategories

SecurityServices

TransportServices

Travelling

OtherServices

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of19.4,44whichislowerthanthemedianindexfor103countriesof23.7.45TheIndexisconstructedsuchthatascoreon0signifiescompletelyopentradeinservices,whereasanindexvalueof100signifiescompleterestrictiveness.Asperthischaracterization,Albaniaisvirtuallyopenwithsomebarriers.Ifwebreakthisdownintothedifferentsectorsofservices,thisgivesusthefollowingmapping:

(Source:WorldBankSTRD)

Accordingtothedatabaseofpoliciesinplace,whileservicestradeisquiteliberalized,therearesomesystematicbarriersinplaceforforeignfirmsandindividualstoprovideservicesinAlbania.Forexample,licensingrequirementsforforeignanddomesticapplicantsaredifferentforsomeservices,withalimitednumberoflicensesavailable.Foreignfirms,inthefinancialandprofessionalservicessector,needtoclearanEconomicNeedsTest(ENT)tobeallowedtoestablishacommercialpresence.Theyalsofacerestrictionssuchasnationality

44RetrievedfromtheServicesTradeRestrictivenessDatabasetoolonline:http://iresearch.worldbank.org/servicetrade/default.htm45Brochertetal.,PolicyBarrierstoInternationalTradeinServices(2012).

7.533.3

00

27.8

45

0

20

40

Banking

Insurance

Telecommunications

Retail

Transportation

Professional

ServicesTradeRestrictivenessIndex(STRI)bySector

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requirementsfortheirboardofdirectors,andemployeenationalityrequirements.However,therearenoequityrestrictionsonforeignerslookingtoincorporateinAlbania.

Thediagramabovemakesitclearthatthefollowingarethekeyservicessectorswhichimposethegreatestamountofrestrictionsintradeacrossborders:

• ProfessionalServices.Thisincludesaccounting,auditingandlegalservices,outofwhichaccountingandauditingismorerestrictive46.UnderAlbanianLawitisnotallowedforforeigncorporationsandprofessionalstoofferaccountingandauditingservicesinAlbaniaunlesstheyhaveanauthorizedcommercialpresencelocally,henceMode1ofservicestradeisblocked.Formostprofessionalservices,foreignfirmsareallowedtosetupabusinessinAlbania.Howevertheyfaceadomestichiringcondition47aswellasrestrictionsonservingdomesticstate-ownedfirms.Therearealsodifferentiallicensingcriteriaforforeignersandnationals,andlimitedquotaofforeignlicensesavailable.Forforeignprofessionals,foreignqualificationsareattimesrecognized,butentrantsmustpassalocalqualificationexaminordertopractice.Additionally,thereisaquotainplaceforforeignnationals.ThiswascorroboratedbyaseniorrepresentativeoftheAlbanianBarAssociation,whostatedthatforeignfirmscannotpracticelawinAlbaniaunlesstheyenterintoapartnershipwithalocalfirm,andforeignlawyersarenotallowedtorepresentcasesinacourtoflawunlesstheypasstheAlbanianBar.Legalservices.AccordingtorepresentativesoftheAlbanianBarAssociationtherearealargenumberoflawdegreeholdersandprofessionalsinAlbania,nearly7600.However,muchfewer,around1000,actuallypracticelaw.Whileseverallawyerschoosetotakeupotherprofessions,thereisalsoaconsiderabledegreeofinformalityinthemarket.Asizeableproportionofprofessionallawyerschoosetopracticeinformallyinordertoevadetaxes,andthesearefocusedonlegaladvisoryinnon-criminalandcivilcaseswherechancesofdetectionarelow.Additionally,owingtothesmallmarketsize,thereisalackofspecializationamonglawyersaswell.Comparatively,Kosovohasamuchsmallernumberofqualifiedlawyers,andliberalizationoflegalservicestoallowprofessionalstopracticeacrosstheborderwillallowforcompetitionandequalizationofdemandandsupplyoflegalservices.Financialservices.Withinfinance,bankingismoreliberalized,withseveralforeignbanksinoperation,thantheinsurancesector.AccordingtotheWorldBankdatabase,marketentryinallowed,but33%oftheemployeesneedto

46AccountingandAuditinghasahigherSTRIof50ascomparedto41.7forlegalservices.47ThisisbasedontheWorldBankSTRDdatabasewhichincludesinformationonrestrictivepoliciesinplace.Thisupdatedtill2008.

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beAlbanian.Similartoprofessionalservices,therearedifferentiallicensingrequirements,withforeignquotasinplace.

TherehasrecentlybeenadialogueamongCEFTApartiesonregionalmobilityforprofessionalsintheregionandnegotiatinggreaterMode4access.48Thiscoveredtopicssuchasmechanismsofmutualrecognitionofprofessionalqualificationsandpoliciestoenhancelabormobilityattheregionallevel.However,thereisnoagreementinplacetoimplementthesemechanismsandthispresentsanareawhereAlbaniaandKosovocanmadeadvancements.

AlbaniaandKosovohavedeeplinkagesasfarastourismisconcerned.AccordingtodatareceivedfromtheCustomsborderpostatMorinainAlbania,nearly1.5millionpeoplecrosstheborderpostinbothdirectionsduringthecourseoftheyear.Thisflowintensifiesduringthetouristicsummermonths,whenKosovarsflocktotheAlbaniancoastline.Otherreasonsincludeeducationandaccessinghealthcarefacilities.ThisindicatesthatmovementunderMode2isrelativelyliberalbetweenthetwoeconomies.

III.Issues

Basedonthediscussionabove,movementofservicesisrelativelyopeninMode2,withsomerestrictionsplacedinMode3(establishingacommercialpresence).Mode4isalsoproblematic,withbarriersinplaceinrecognizingforeignqualifications.WhilenegotiatingamultilateralagreementunderCEFTAislikelytobealongandpainstakingprocess,thereisscopeforshorter-termgainsbynegotiatingagreementsbetweenKosovoandAlbania.

Themostimportantissuesthenare:

1. LackofaMostFavoredNationstatus(MFN)andnationaltreatmentforKosovarprofessionalsandfirmsseekingtoprovideservicesinAlbaniaeitherbysettingupanestablishmentinAlbaniaorbyprovidingcross-borderservices.

2. Lackofarecognitionsystemforforeignprofessionalserviceproviders.

3. Nocleardefinitionoftradeinservices.Thismeansthatthereisverylittledataavailableonthemovementofservices,andthisisinadequatelycategorized.Asaresult,wedonothaveaclearestimateofthemagnitudeoftradethatoccurswithKosovoandotherregionalpartnerswithrespecttothedifferentchannelsofmovementthatexist.

48CEFTAWebsite.Retrievedfrom:http://192.232.255.119/~cefta/events/dialogue-regional-mobility-professionals-ceftaon7/17/14.

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IV.Recommendations• Frameworkagreementforservicestradeorsector-by-sectoragreements.

Althoughthetwocountrieshaverecentlynegotiatedaframeworkagreementtofacilitatetradeingoodsbetweenthem,thereisnosuchagreementinrelationtoservicestrade.Sinceasignificantshareofexportsistakenupbyservices,thisisanimportantareaforcooperation.Thefirststepistodevelopamutualcommitmenttowardsliberalizationofservices.ThemostimportantchannelsareModes3and4,whichwillnotonlyhelptapintothepotentialofAlbania-KosovoasonebiggermarketbutwillalsohelpthetwocountriesmovetowardstheirgreateraimofEUaccession.Assuch,regardlessoftheformat,anagreement,shouldcommittoembodyaprincipleofequaltreatmentwhenitcomestomarketaccessandconditionsofoperationinthemarket.Inparticular,theagreementshouldcommitto:

o Givedirecteffecttotheprincipleoffreedomofestablishment,whichenablesaneconomicoperator(whetherapersonoracompany)tocarryonaneconomicactivityinastableandcontinuousway;aswellastotheprincipleofthefreedomtoprovideservices,whichenablesaneconomicoperatortoofferservicesonatemporarybasiswithouthavingtobeestablished.

o Simplifyproceduresandformalitiesthatserviceprovidersneedtocomplywith.

o Grantingmostfavorablenationstatus,marketaccess,andnationaltreatmentwithreferencetotheabilityofnaturalandlegalpersonstoprovideservicesinAlbaniaandviceversa,aswellastoreceiveservices.

o RemovebarriersexistingonbothsidesinestablishingacommercialpresencesuchthatKosovarsshouldfacethesameregulationsasanAlbanianational.

o Eliminatebarrierstowardsthemovementofprofessionalsintheregionandtheirabilitytoprovideservices.

o Setupsinglepointone-stopshopsthroughwhichserviceproviderscanobtainallrelevantinformationandcompleteallproceduresrelatingtotheiractivities.

o Ensurethatformalitiesandprocedurescouldbecompleteindistanceandviaelectronicmeans.

o Periodicreviewandevaluationofauthorizationandlicensingrequirementswithaviewtoincreasetheirtransparencyandsimplification.

Asafirsttask,thiswillinvolvedefiningtherelevantsectorsandidentifyingthepolicyconstraintswhichareinplace.Itwillbeimportantalsotohold

31

consultationswiththeprivatesectorandindividualserviceproviderstomapoutissuesfacedontheground.Thesecondtaskwouldbetoidentifymodesofliberalizationandharmonizetheexistingframeworksinbothcountries.Anongoingprocesswillbetodevelopafeedbackchannelandacommunicationplatformwhereissuescanbehighlightedonacontinuousbasis.

• MutualRecognitionofProfessionalQualificationsbetweenAlbaniaandKosovo.

ItisusefultorefertotheEUdirectiveconcerningrecognitionofprofessionalservices.49Thisprovidesthreesystemstoenablemutualrecognitionofqualifications.

o Thefirstisautomaticrecognition.Thisisapplicableinprofessionswhereharmonizationoftrainingandeducationhasbeenachieved.

o Thesecondisthegeneralsystem,whichallowsforsomerequirementtobefulfilledinordertoharmonizequalifications.Thiscouldbeanaptitudetestoratrainingperiod.

o Thethirdcaseisoneinwhichmutualrecognitioncanbeextendedbasedonprofessionalexperienceinthehomecountry.

InstatingasystemliketheoneproposedbytheEUwillnotonlybecrucialinthecreationofaneffectivesinglemarketforservicesbetweenAlbaniaandKosovo,butcanalsobeseenasajointmovetopreparethetwocountriesforeventualEUaccession.ThisisespeciallytrueifharmonizationofminimumtrainingrequirementsisdonetomatchtheEUcriteria.Suchasystemisparticularlyimportantforthecaseoflegalservices,wherethereareclearlyopportunitiestoclearthemarketandfunctionmoreefficiently.

• Creationofaservicessub-groupinthetradepolicyadvisory.Aspartofthe

tradepolicyadvisorygroupwhichwillconsistofprivatesectoractors,itwillbeimportanttoalsohaveaservicessub-groupwithinthisgroup.Thiswillconsistofprofessionalsandindividualserviceproviders,corporations,alongwithregulators,whowillconveneonaregularbasistoidentifythenextstepsintheliberalizationofservicesmovement,specificallyacrosstheborderwithKosovo.Theywillassesscurrentpolicybarriersandhelpescalatetheseconcernstopolicymakerswithinthegovernment.

• Improvedcategorizationandcollectionofservicestradedata.Thereisa

dearthofclearandusefuldataontheservicessectordatawhichiscollectedandmaintainedbythegovernment.ThecategoriesofservicesincludedarefewanddonotcoverimportantclassificationssuchasprofessionalservicesandICTandcommunication.Inaddition,thereisnoclassificationaccording

49Directive2005/36/EChttp://ec.europa.eu/internal_market/qualifications/directive_in_practice/index_en.htm.

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thedifferentmodesofexchange.Inparticular,thereislittleornoinformationcollectiononMode4–whichisthemovementofprofessionalstoprovideservices.Thesedataareessentialinordertoinformmorerelevantandeffectivepolicymakinginthisarea.

FREEMOVEMENTOFWORKERSI.ExistingInstitutionalFramework

TheresidenceandemploymentrelationsinAlbaniaforforeignersaremainlyregulatedbytheStatuteonAliens(No.108/2013)50andtheLaborCode.51TheStatuteregulatestheconditionsofentryandresidenceofforeigncitizens,aswellastheconditionsunderwhichforeigncitizensmayenterintoemploymentrelations(includingself-employment).52TheStatuteprovidesforpreferentialtreatmentforEUandUScitizensbyexcludingthemfromtheneedtoobtainmostofresidenceandworkpermits,aswellasprovidingforthemequaltreatmentwithAlbaniancitizensregardingemploymentrelationsandconditions.53Forinstance,Article147providesthatUScitizenscanstayinAlbaniaforatleastoneyearwithoutaresidencepermitandafterthatperiod,theinitialresidencepermitcanbeissuedforuptofiveyears.54Whereas,regardingemployment,UScitizensenjoyequalrightsasAlbaniancitizens.55TheLaborCode,ontheotherhand,providesthegeneralnormativeframeworkthatgovernsemploymentrelationsandconditionsforAlbanianandnonAlbaniancitizensalike.

Currently,thereare462workpermissionsforKosovars,comparedto2712workpermissionsforEUcitizens,followedby11workpermissionsforBosnians,219forCroatians,321forMacedonians,68forMontenegrins,and151forSerbians.56During2013,therehasbeena50percentincreaseinworkpermissionsforKosovars.57Thistrendreflectedageneralincreaseinthenumberofworkpermitsforforeignersduring2013(a75percentincrease,outofwhichtheKosovarratiorepresented7.5percentofthetotal).58Thegeneralnumberofemployees,

50LawonForeigners,No.108(2013).51LaborCode,No.7961(1995).InadditiontotheLaborCode,thereareanumberofotherregulationsinthearea,suchastheStatuteonSafetyandHealthattheWorkplace,No.10237(2010).52Inparticular,theStatuteregulatesthreemainareas:residencepermitsincludingtypesofvisas,workpermits,anddeportationandtransportationofforeignersinAlbania.53LawonForeigners,No.108(2013).54Article147,LawonForeigners,No.108(2013).55Id.56StatisticsfromtheMinistryofSocialWelfareandYouthfortheperiod2006-2013.57Id.58Id.

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includingself-employedpersons,inAlbaniaisestimatedtovarybetweenapproximately850,000to955,000.59

Recently,theCouncilofMinistersadoptedaDecisiontoexcludeKosovocitizensandAlbaniansfromSerbiafromtheobligationtoobtainworkpermitsorcertificatesofemploymentregistrationwhentheyarelawfullyresidinginAlbaniaandenjoyingtherighttoemploymentandtoself-employment.60II.Issues

ThecurrentstateofplayregardingtheintegrationoflabormarketssuggeststhatthereisroomforinstitutionalinterventionsinordertoensurethefreemovementofworkersbetweenAlbaniaandKosovo.

Inparticular,theprincipleofnon-discriminationoughttounderpin

situationsconcerningoffersofemployment,remuneration,andworkconditions.Inthiscontext,positiverightssuchas:

• therighttoacceptoffersofemployment,• therighttomovebetweenAlbaniaandKosovoforthatpurpose,• therighttostayineithercountryforthepurposeofemployment,• andtherighttoremain(undercertainconditions)intheStateafter

employmenthasended,oughttosatisfytheequaltreatmentofAlbanianandKosovarcitizensrespectivelyinKosovoandAlbania,aswellastoacceleratelabormobilitybetweenthetwocountries.III.Recommendations

InordertostartanddeepentheintegrationoflabormarketsandthereforeprovideforthefreemovementofworkersbetweenAlbaniaandKosovo,whilemaintainingapublicserviceexception,werecommendthattheAlbanianauthoritiesfocusonthefollowingproposals:

• ExtendthepreferentialtreatmentequaltothatofEUcitizensorUScitizensto

Kosovocitizens.WhiletheStatuteonAliensprovidesforapreferentialtreatmentofEUandUScitizenswhenitcomestoexcludingthemfromtheobligationstoobtainresidenceandworkpermits,itdoesnotaddressthesituationwhenKosovocitizenswanttoresideinAlbaniainordertoacceptoffersofemployment,whileatanemploymentrelationshipandtoremainin

59INSTAT.60DecisionoftheCouncilofMinistersNo.2655(2014)ExcludingCitizensoftheRepublicofKosovoandoftheAlbanianCitizensoftheRepublicofSerbiafromtheObligationtoObtainWorkPermitsandCertificatesofEmploymentRegistration.

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thecountryinordertoseekemploymentaftertheiremploymentrelationshiphasbeenterminated.

• Extendthesametreatmenttofamilymembersofprincipalworkers.Ifaworker

mayfacedifficultiesinbringingfamilymembersalong,thentheconceptoffreemovementofworkersbecomesdiluted,hencefamilymembersoughttobeincludedinthemeasuresthataimtoliberalizeandintegratelabormarketsbetweenthetwocountries.

• RemoveworkquotasforKosovocitizens.Article82oftheStatuteonAliens

providesforworkquotasforforeigncitizensinAlbania,andassuchitrepresentsabarriertothefreemovementofworkers.

• BroadinterpretationofDCMNo.2655(OntheWorkPermitsforKosovo

citizensandAlbaniannationalsinSerbia).TheimplementingauthoritiesshouldtakeanexpansiveinterpretationofthesaidDecisioninordertoaddresssituationssuchasthedurationoftheworkpermit(whethertheDecisionismeanttoregulateshorttermorlongtermpermits),orthetypeofemployment(whethertheexclusionfromobtainingaworkpermitisrelatedtoaspecificjoborwhethertheDecisionauthorizesjobtransfers).

• Negotiateanagreementonpensionsschemes.TheMinistryofSocialWelfare

andYouthhasalreadynegotiatedandconcludedaseriesofinternationalagreementsonretirementcontributionswithcountrieswithlargeAlbaniandiaspora.AlthoughatthistimethenumberofKosovocitizensinAlbaniaandAlbaniansinKosovoisminimal,anagreementonpensionswithKosovowouldrepresentasymbolicgesturefordeepeningintegrationbetweenthetwocountries.

FREEMOVEMENTOFCAPITAL/INVESTMENTSI.ExistingInstitutionalFramework

AccordingtotheUNConferenceonTradeandDevelopment,Albaniahasenteredinto44BilateralInvestmentTreatiesoutofwhich34areinforce61.ItalsohasotherInvestmentAgreementswithregions,includinganFTAwithEFTAcountries,anFTAwithTurkey,CEFTA,andaSAAwiththeEUwhichalsocoversinvestmentagreements.62

61Retrievedfrom:http://investmentpolicyhub.unctad.org/IIA/CountryBits/2#iiaInnerMenu.62Retrievedfrom:http://investmentpolicyhub.unctad.org/IIA/CountryOtherIias/2#iiaInnerMenu.

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AlbaniahasenteredintoaBilateralInvestmentTreatywithKosovo(BIT–2004),whichprovidesforfairandequitabletreatmentofrespectiveinvestments.63TheagreementgrantsdomesticorMFNtreatmenttoinvestorsfromeachcountry,itstipulatesagainstexpropriationsortakings,itprovidesforthefreemovementofcapitalbetweenthetwocountries,aswellasitaddressesthequestionsofdisputesettlementsbetweenthetwoPartiesandbetweenaninvestorandoneofthePartiestotheagreement.64BasedoninterviewsattheMinistryofEconomy,wehavecometolearnthatnegotiationsaretakingplacebetweenAlbaniaandKosovoaimingtoconcludeanewBilateralInvestmentTreatywithKosovo.

IntermsofFDI,AlbaniaisthemostimportantcontributorforKosovoafter

EUstates65.Thiscanbeseeninthegraphbelow:

(Source:InvestmentinKosovo2013–KPMGReport)WhenanalyzingthestateofplayinthemovementofinvestmentbetweenAlbaniaandtherestoftheregion,specificallyKosovo,itisusefultoconsiderthefollowingareasofcooperationandliberalization:63AgreementbetweenAlbaniaandUNMIKontheReciprocalPromotionandProtectionofInvestments(2004).64Id.65InvestmentinKosovo2013–KPMGReport,availableat:https://www.kpmg.com/AL/en/IssuesAndInsights/ArticlesPublications/Brochures/Documents/2013-Investment-in-Kosovo-website.pdf.

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• Entryandestablishment:ThisreferstotheabilityofforeignfirmstoestablishacommercialpresenceinAlbania.AccordingtotheWorldBankInvestingAcrossBorders(IAB)indicators66,Albaniafaresbetterthanbothitsregionalpartnersaswellastheglobalaverage.Theseindicatorsareillustratedbelow:

IndicatorsCountryscore

IABregionalaverage

IABglobalaverage

Procedures(number) 7 8 10Time(days) 7 22 42Easeofestablishmentindex(0-100) 84.2 76.8 64.5(Source:WorldBankInvestingAcrossBorders(IAB))

Easeofentryandestablishmentincludethefollowingcriteria:o Ownershipandcontrol:Basedonourdiscussionswiththerepresentatives

oftheNationalRegistrationCentre,thereisnodiscriminationbetweenforeignandnationalcitizenswhenitcomestosettingupacommercialpresence.Theprocessofregistration,whetherasanaturalpersonorasacompanyoftwoormore,hasbeengreatlystreamlinedsothatitiscompletedwithinthetimeframeof24hours.Forforeignfirms,thereisanextrarequirementofdocumentsfromtheirhomecountry’sregisteringauthority,buttherearenorestrictionssuchasequityownershiprequirements.

o Accesstoland:TheWBIABindicatorsonacquiringindustriallandshowthatAlbaniadoesbetterthantheglobalaverageinstrengthofownershiprightsindex,accesstoandavailabilityoflandinformationindices,andhasamuchshortertimetoleaseprivatelandthantheglobalaverage67.Regionally,itappearstobeatparwiththeregionalaverages.Whilethereareclearlysomestrongassumptionswhichgointotheconstructionoftheseindices,theygiveagoodsnapshotoftheeasewithwhichlandisaccessiblerelativetotheregion.

IndicatorsCountryscore

IABregionalaverage

IABglobalaverage

Strengthofleaserightsindex(0-100) 80.7 82.9 82.1Strengthofownershiprightsindex(0-100) 100 97.6 92.2Accesstolandinformationindex(0-100) 47.4 50.3 41.4

66Retrievedfrom:http://iab.worldbank.org/Data/Explore%20Economies/Albania#/Starting-a-foreign-business67Ib.

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Availabilityoflandinformationindex(0-100) 85 78.9 70.6Timetoleaseprivateland(indays) 36 43 61Timetoleasepublicland(indays) 129 133 140(Source:WorldBankInvestingAcrossBorders(IAB))

o Approvalandadmission:Whiletherearesomerestrictionsinplaceingrantinglicensestoforeignprofessionalsandcompanieslookingincertainsectors,ingeneralthereisnopreferentialtreatmentgiventonationalswhenaccordinglicensesaccordingtorepresentativesoftheNationalLicensingCentre.

• Treatmentandoperation: o CapitaltransferandFOREX:BasedonourdiscussionsfortheGovernorof

theBankofAlbania,capitalmovementisveryopenandtherearevirtuallynorestrictionstothemovementacrosstheborderwithKosovo.

o Disputesettlement:Asmentionedabove,AlbaniahassignedaBITwithKosovowhichmentionsalternativedisputesettlementalternativesinthecaseofinvestor-statedisputes.TheWorldBankIABindicatorsfordisputesettlement68areasfollows:

IndicatorsCountryscore

IABregionalaverage

IABglobalaverage

Strengthoflawsindex(0-100) 84 82.5 85.2Easeofprocessindex(0-100) 40.7 69.7 70.6Extentofjudicialassistanceindex(0-100) 68.5 64.4 57.9(Source:WorldBankIAB)

ThisshowsthatAlbaniaisatparwiththeregionalandglobalaveragewithregardstostrengthoflaws,butperformsmuchlowerthanboththeregionalandglobalaverageindexforeaseofprocess.

68Ib.

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II.Issues

Basedonaninvestorsurveyconductedrecently(Dec.2011-Jan.2012)onbehalfoftheAlbanianInvestmentDevelopmentAgency(AIDA),69whichtheoreticallyincludesalsoKosovarbusinessesinAlbania,thefollowingareasneedtobeexaminedmorecloselyinordertoforegroundproblemsandinturntoprepare,adoptandapplyremedies:

• Reviewoflicensingandauthorizationprocedureswiththeaimofreducingandsimplifyingproceduresandbureaucraticpractices,aswellasincreasingthetransparencyandaccountability;

• Improvementofcapacitiesandmanagementoffiscaladministrationinordertoimproveenforcement,increasetransparencyandaccountabilityoftaxcollectionproceduresandpractices;

• Establishmentofmechanismsandprocessestomobilizefeedbackfromtheprivatesector;

• Systematicimplementationandenforcementoftechnicalregulations;• Accesstolandandlandtitlereform;• FinancialincentivesforR&Dandtraining;• Governanceandpublicsectorintegrity;• Judicialreform;• Zoningregulationsandproceduresregardingconstructionpermits;• Settingupfreeeconomicorindustrialzones;• Creationofaskilledworkforce;• Clarityoflegislation;• Qualityofinfrastructure;• Abilitytosourcelocally.

III.Recommendations

AmeaningfulanddeepintegrationwithKosovo’smarketsdemandsthefreemovementofcapitalandinvestmentswherebyallrestrictionsonthemovementofcapitalandpaymentsbetweenAlbaniaandKosovoandwiththirdcountriesareprohibitedexceptincircumstanceswherethemovementofcapitaltoandfromthirdcountriescausesorthreatenstocauseseriousdifficultiesfortheoperationofoneoftherespectiveeconomiesofAlbaniaorKosovo.

Towardsthisend,anapproachconsistingoftreatmentnolessfavorablethanAlbanianpersons(naturalorlegal),minimumharmonization,homecountrycontrol,andmutualrecognitioncouldensurethatinvestors,aswellasindividuals,wouldface:

• asinglesetofrulesconcerningfinancialservices;

69AIDA,InvestorsSurvey(December2011–January2012).

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• haveequalaccesstotheseserviceswithoutdiscrimination;• aretreatedequallywhenoperatinginthemarket.

Inthiscontext,thefollowingmeasurescouldbetakenwithrespecttothe

renegotiationoftheBilateralInvestmentTreatywithKosovo:• Developmentofamechanismofpreliminaryinvestigationandadjudication

betweenAlbaniaandKosovo:WhilethebilateralagreementwithKosovo(BIT)providesfortheprotectionofrespectiveinvestmentsaswellasforthefreemovementofcapital,werecommendthattheAlbanianauthoritiesfocusonsettinguparbitrationproceduresorprotocolsinordertofacilitatetheresolutionofinvestmentdisputesbetweenAlbaniaandKosovoaswellasdisputesbetweeninvestorsandoneofthePartiestotheagreement.

• EstablishmentofcommonbusinessregistriesbetweenKosovoandAlbania:DuringthediscussionswiththeNationalRegistrationCentreitbecameclearthatwhilethereisnocleardiscriminationbetweenforeignandnationalapplicantswhenformalizingregistration,foreignapplicantshaveanextrasetofdocumentationtosubmitwhichisissuedbyregistrationauthoritiesintheirhomecountry.OnewaytomaketheprocesseasierforbusinessesfromtheothersideoftheborderistocreateacommonregistrybetweenAlbaniaandKosovo.Thiswouldaidinformationflowandsharing,reduceverificationrequirementsandreducetheregistrationrequirementsforapplicants.

CONCLUSIONSThereareafewcommonthemes(apartfromthespecificcommentsand

recommendationsthataddressedissuesintheareasofmovementofgoods,services,workersandcapitaldiscussedearlierinthisreport)thatemergefromouranalysisoftheexistinginstitutionalframeworkinAlbania.Thesethemesarecentraltothenextstepsthatcouldbetakeninordertoimproveinternationaltradepolicy,deepenregionalintegration,andcontributetowardsgreatereconomicdevelopment.

Inparticular,wewouldliketodrawattentiontothefollowing:

Inter-ministerialcommunication.Internationaltradepolicyandregional

integrationarecoordinationintensiveendeavors,andthereforeimprovedcoordinationproceduresamongministriesarecentralinordertoincreasetheeffectivenessofpolicymakingandreflectthediverseinstitutionalinterests.

Feedbackmechanisms.Thereisaneedtosetupconcretemechanismstomobilizesmallactors(corporationsandindividuals)toalertrelevantauthorities

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regardingtraderelatedbarriers,andprovideinputforgeneraltradepolicyquestions.

TradePolicyAdvisoryGroup.Albanianeedsacentralorganizationdedicatedtopreparingandmonitoringtheimplementationoftradepolicies.TheTradePolicyAdvisoryGroupwouldstreamlinetheinputandfeedbackfromanumberofgovernmentalandnon-governmentalactorsandthereforetakeaholisticandcomprehensiveperspectivewhenformulatingtradepoliciesandadvice.Thisbodycouldconsistofareaexperts,governmentalrepresentatives,andrepresentativesfromtheprivateandnon-profitsectors.

Networksofexpertise.Whatoftenmakesintegrationworkarehorizontalnetworksofpeople.Inthiscontext,weproposethatAlbanianandKosovarauthoritiessetupformalandinformalnetworksofexpertsandregulatorsfromthepublicandprivatesectors,whothroughsystematicinteractionwouldcometosharethesamevernacularandsensitivitiesofthefield,wouldidentifybarrierstotradeandaccordinglyproposesolutions,andinthiswayinfluencethedecision-makingprocessandmakeinroadstowardsdeeperintegrationinmorewaysthansimplyrelyingonverticalorformalrelationshipsbetweentherespectivegovernments,andagencies.

LinkswithregionalandEuropeanmarkets.Botheconomies,i.e.,AlbanianandKosovar,needtobelinkednotonlywithoneanotherandotherregionalpartners,buttheyneedtotapintotheresourcesofEuropeanUnionpublicandprivateactors,andhaveaccesstotheEuropeanUnionmarketsinwaysthatwouldenablethemtoconnectlaggingwithleadingEUsectors.LinkingupwithEuropeanUnionmarketsegmentsandoperatorshastheadvantageofnotonlyensuringmarketaccessforAlbanianandKosovarsuppliers,butalsoinassistingthemwithadoptinghigherEUstandards,andasaresult,withadequatelypreparingbothcountriesfortheeventualaccessionintotheEuropeanUnion.

Regionalinfrastructureprojects.DevelopingabilateralandregionalapproachtowardsinfrastructureprojectswouldpositAlbaniaandKosovoinanoptimalplacetomakeeffectiveuseoftheirgeographicallocationtofacilitateintraregionaltradeaswellastradewiththeEuropeanUnionmarkets.

Disputesettlementsystem.SinceKosovoisnotyetaWTOMember,andsinceCEFTAdoesnotprovideaneffectivedisputesettlementsystem,itisindispensibleforAlbaniaandKosovotocomeupwiththeirownalternativesystemtosolvetradeandinvestmentdisputes,whichmightincreaseinfrequencyasthetwocountriesmovetowardsdeeperintegrationwitheachother.

Onalastnote,thisreportispreparedfortheAlbanianGovernmentwithaviewtoraisekeyquestionsthatneedtobediscussedinthecontextofdeepeningintegrationwithKosovobutalsowithotherregionalcountries.Assuch,we

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welcomefeedbackfromourpartnersinthegovernment,fromtheprivatesector,aswellasfromotherpublicsectororganizations.

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