regional trade integration in see benefits and challenges(1)

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INSTITUTE OF ECONOMICS - SKOPJE

REGIONAL TRADE INTEGRATION IN

SOUTH EAST EUROPE:

BENEFITS AND CHALLENGES

Proceedings of International Conference

Editor

Silvana Mojsovska


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Dr. Silvana Mojsovska

Editor

REGIONAL TRADE INTEGRATION INSOUTH EAST EUROPE:


Proceedings of International Conference

Institute of EconomicsSkopje

University St. Cyril and Methodius

2013


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SOUTH EAST EUROPE:

BENEFITS AND CHALLENGESProceedings of International Conference

Editor:

Dr. Silvana Mojsovska

Publisher:

Institute of EconomicsSkopje

University St. Cyril and Methodius

Prolet 1, 1000 Skopje

Republic of Macedonia

For the publisher:

Dr. Biljana Angelova, Director

Computer preparation and printing:

VIDEKS BV - Skopje

ISBN: 978-608-4519-09-6

The findings, interpretations and conclusions expressed in this publication

reflect the views of the authors and not necessarily of the Institute ofEconomicsSkopje. The Institute does not guarantee the accuracy of the

data included in the publication.

All rights reserved. No part of this publication may be reproduced, stored in

a retrieval system or transmitted in any form or by any means, electronic,mechanical, photocopying or otherwise, without the prior permission of the

authors.


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CONTENT

Predrag BjelicNON-TARIFF BARRIERS AS OBSTACLES TO

CEFTA 2006 INTRAREGIONAL TRADE .............. (1532)

Irena KikerkovaEFFECTS OF ECONOMIC INTEGRATION

WITHIN CEFTA-2006EVIDENCE FROM THE

MACEDONIAN EXPERIENCE ............................... (33-49)

Silvana Mojsovska, Krum Efremov, Marija Ackovska

CEFTA 2006 IMPLEMENTATION

INSTITUTIONAL AND POLICY PERSPECTIVES (51-68)

Vanco UzunovCOMPETITIVENESS OF MACEDONIAN

ECONOMY DURING THE TRANSITION

PERIOD (1991-2011) ................................................. (71-91)

Tatjana Petkovska Mirchevska, Tatjana Petkovska,

Jasmina Majstoroska, Iskra Stanceva GigovTHE INFLUENCE OF THE NON-PRICE

FACTORS OF COMPETITIVENESS ON THEADVANCEMENT OF THE EXPORT OFFER OF

THE REPUBLIC OF MACEDONIA WITHIN

CEFTA ....................................................................... (93-116)

Danijela JacimovicFDI EFFECTS TO THE BALANCE OF

PAYMENT IN THE WESTERN BALKANS

COUNTRIES .............................................................. (119-131)

Silvana Mojsovska, Gordana ToshevaTRADE INTEGRATION OF THE SEE

COUNTRIES WITHIN THE REGION AND WITH

THE EUROPEAN UNION:

COMPLEMENTARITY AND EFFECTS ................. (133-151)

Biljana Sekulovska-Gaber

BILATERAL VS MULTILATERAL APPROACH

TOWARDS REGIONAL INTEGRATION IN

SOUTHEAST EUROPE ............................................ (153-170)


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FOREWORD

This publication contains papers presented at the International

Conference: Regional trade integration in South East Europe:

Benefits and Challenges, held in December 2011. The Conference

was co-organized by the Institute of Economics Skopje at the

University St. Cyril and Methodius, Republic of Macedonia and

South East European Research Network (SEERN), established under

the auspices of the Faculty Development in South East Europe

Programme coordinated by the London School of Economics andPolitical Science, United Kingdom.

The Conference has been part of the events dedicated to celebration

of the 60th

anniversary of the Institute of Economics Skopje

(established 1952) and part of the activities envisaged in the research

project of the Institute of Economics (2010-2012): Possibilities for

advancement of the regional trade integration of the Republic of

Macedonia, financed by the Ministry of education and science.

The Conference was supported by the University St. Cyril and

Methodius and we owe appreciation to the Rector, Dr. Velimir

Stojkovski. We are also very grateful to the Institute of Economics

Skopje, in particularly to Dr. Biljana Angelova, Director, for

organization of the Conference and publishing of these Proceedings.

The co-organization of the Conference with SEERN has been result

of intense cooperation among the Institute of Economics-Skopje andresearchers from SEERN within the Faculty Development in South

East Europe Programme. In this context, we would like to express

special gratitude to Dr. Vesna Bojicic Dzelilovic, coordinator of the

Programme, for her support in the process of organization and

realization of the Conference.

Special thanks to Skopje Fair that sponsored the Conference by

providing premises for holding the event.


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The main aim of the Conference was to bring together academics,

institutions and practitioners from the South East Europe dealing

with the trade integration of the region. We would like to thank theauthors of the papers, moderators, as well as participants for their

valuable contributions. We believe that the Conference delivered

interesting ideas, brought the attention to the crucial issues and

provoked substantial debate about the future of the regional

integration of the SEE countries.

Editor,Dr. Silvana Mojsovska


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CONFERENCE AGENDA


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INTERNATIONAL CONFERENCE


SOUTH EAST EUROPE:


Date: 12 December 2011

Venue: Skopje Fair, Diplomatic Hall, Skopje

AGENDA

09:00-09.30 Registration

09:30-09:45 Opening remarks

Dr. Velimir Stojkovski, Rector of the University

St. Cyril and Methodius Skopje

Dr. Biljana Angelova, Director of the Institute ofEconomicsSkopje

Dr. Vesna Bojicic Dzelilovic, LSE

09:45-11:15 First panel: CEFTA 2006

Speakers:1. Mrs. Renata Vitez, CEFTA 2006achievements and

issues

2. Dr. Predrag Bjelic,Non-tariff barriers as obstacles to

CEFTA 2006 intraregional trade3. Dr. Silvana Mojsovska, Dr. Krum Efremov, Dr. Marija

Ackovska, CEFTA 2006 implementation institutional

and policy perspectives

4. Dr. Irena Kikerkova,Economic integration of the

Western Balkan economies within CEFTA 2006 -

evidence from the Macedonian experience

Discussionoderator: Dr. Vesna Bojicic Dzelilovic, LSE

11:15-11:45 Coffee break


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11:45-13:00 Second panel: THE IMPACT OF THE REGIONAL

TRADE INTEGRATION ON THE MACECONIAN

COMPETITIVENESSSpeakers:

1. Dr. Vanco Uzunov, The competitiveness of the

acedonian economy during the transition period

(1991-2011)2. Dr. Tatjana Petkovska Mirchevska, Dr. Tatjana

Petkovska, Dr. Jasmina Majstoroska, M.Sc. Iskra Stanceva

Gigov, The impact of the non-price factors for

advancement of the export of the Macedonian companies

in the CEFTA 2006 countries3. Mrs. Ljubica Nuri,Effects of the regional trade

integration on the Macedonian companies

Discussionoderator: Dr. Silvana Mojsovska, Institute of

conomics - Skopje

13:00-14:15 Lunch break

14:15-15:30 Third panel: PERSPECTIVES FOR FURTHERREGIONAL INTEGRATION IN SOUTH EAST

EUROPE

Speakers:1. Dr. Danijela Jacimovic, The impact of regional trade

integration on FDI in the SEE countries

2. Dr. Silvana Mojsovska, Dr. Gordana Toseva, Trade

integration of the SEE countries within the region and

with EU: complementarity and effects3. Dr. Biljana Sekulovska-Gaber,Bilateral versus

multilateral approach towards regional integration in

South East Europe

Discussionoderator: Dr. Krum Efremov, Ministry of Foreign

ffairs of the Republic of Macedonia

15:30-15:45 Closing remarks

Dr. Silvana Mojsovska, Institute of Economics - Skopje


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PART 1

CEFTA 2006


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Dr. Predrag Bjelic; Non-tariff barriers as obstacles to CEFTA 2006

15

UDC 339.543.32:339.5.012.42(4-19:497)"2006"

Dr. Predrag Bjelic1

NON-TARIFF BARRIERS AS OBSTACLES TO CEFTA 2006

INTRAREGIONAL TRADE

Abstract

Due to the achievements of the General Agreements on Tariffs

and Trade (GATT) 1947, the custom tariffs have been significantly

reduced through eight rounds of multilateral trade negotiations.

During the application of GATT 1947, the non-tariff barriers have

been perceived as an obstacle to international trade and some of

them have been regulated by this Agreement. However, some of the

non-tariff barriers are still present today, when the World Trade

Organization (WTO) serves as a guardian of the global trade regime.

The remaining non-tariff barriers which were not regulated by WTO

rules include administrative trade barriers and, at some extent,

technical barriers to trade.In the processes of regional trade liberalisation, their members

tend to go into deeper trade integration and eliminate more

instruments that obstruct the trade, in particular non-tariff barriers,

compared to the WTO regime. However, in the revised Central

European Free Trade Agreement from 2006 (CEFTA 2006), there is

still high presence of non-tariff barriers. These barriers are different

then barriers applied in trade with the most important partners, such

as European Union. This paper focus on the applied non-tariffmeasures in the intraregional trade and explore the differences with

regards to the measures applied by the EU trade regime, which

would be relevant for CEFTA 2006 economies in the future. Since

CEFTA 2006 is sub-regional trade integration, and all members have

aspirations for EU membership, the different stages of their EU

integration processes create additional non-tariff obstacles to

intraregional CEFTA 2006 trade.

1 Associate Professor, Faculty of Economics, University of Belgrade


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Regional trade integration in SEE: Benefits and challenges p.(15-32)

16

1. Intraregional trade in Western Balkans

Most of the Western Balkan economies were part of a singleYugoslav market in the past, but after the breakdown of Yugoslavia,

the single market was dissolved and trade relations between the

former Yugoslav Republics were disrupted due to the violent

disintegration of the former state. This region was one of the last in

the world to establish regional trade integration, as many of the

regional actors were hesitant to suggest it. In 2000, under the

initiative of the EU, the Western Balkan economies have entered the

process of liberalization of intraregional trade. This process finallyresulted in signing of a new Central European Free Trade Agreement

in 2006 (referred to as CEFTA 2006). Signatories of this document

were Albania, Bosnia and Herzegovina, Croatia, Montenegro,

Macedonia, Moldova, Serbia and United Nations Mission in Kosovo

(UNMIK), on behalf of customs territory of Kosovo, while Romania

and Bulgaria have left the Agreement when they became members of

EU in 2007. The trade concessions were exchanged on a bilateral

basis and significantly liberalize intraregional trade in goods,creating a regional free trade area for goods. The additional

liberalization in the area of services, agriculture and investments is

also envisaged in the future.

After CEFTA 2006 came into force in 2007, the intraregional

trade in the Western Balkans significantly increased, especially in

2008. The CEFTA 2006 agreement envisages removal of the

customs tariffs and quotas in the intraregional trade, although, there

are still significant obstacles in the mutual trade of the CEFTA 2006

signatories. These obstacles include other non-tariff barriers,

particularly in the area of standards and technical regulations. One of

the problems could be that the signatories perceive CEFTA 2006 as a

transitory and sub-regional integration and their interest in trade

integration is primarily focused on the EU membership.2

2 More in: Predrag Bjeli and Danijela Jaimovi Impact of World Economic

Crisis on Trade and Foreign Investments in the Western Balkans" Proceedings,

European Association for Comparative Economic Studies, Faculty of Economics,University of Belgrade, Serbia and University of Podgorica, Montenegro, EACES,


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Chart 1: Structure of exports of selected Western Balkan economies

by main export markets, 2009

0%

20%

40%

60%

80%

100%

Alb

ania Bi

H

C

roatia

Monte

negro

Serbia

EU

CEFTA

2006RoW

Source: Authors calculations based on national statistical agencies data.

The European Union (EU) has been the main export market

for the large majority of the West Balkan economies. More

specifically, over half of the exports of all Western Balkan

economies are destined to the EU single market, except in case ofMontenegro and Kosovo. This high level of dependence of the

Western Balkan exports on EU market is further stimulated by the

EU trade preferences and prospects of EU membership. Furthermore,

the mentioned export dependence was a main channel for

transmission of the economic crisis from the EU market to the

Western Balkan economies. More specifically, the EU is an

important trade partner of the US and the financial crisis in the US

has caused significantly lower demand for imports of the EUproducts. Implicitly, EU companies had to decrease their imports,

too, including imports from the Western Balkans.

Workshop "Market Failures and the Role of Institutions" Miloer, Montenegro,September 22-24, 2011.


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Table 1: Exports and Imports of the Western Balkan economies to

European Union and CEFTA 2006 economies, 2006-2010.

In million of EUR

European Union CEFTA 2006

Exportof 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Albania 558 652 730 586 797 23 36 49 36 34

Bosnia & H. 1.526 1.743 1.898 1.537 1.984 870 1.089 1.277 1.078 1.224

Croatia 5.228 5.429 5.841 4.560 5.439 1.577 2.005 2.253 1.601 1.665

Montenegro 293 314 258 133 176 141 131 147 127 112

Macedonia 1.745 1.617 1.606 1.082 1.531 1.006 727 958 715 767

Serbia 2.932 3.603 4.029 3.196 4.235 1.553 2.072 2.458 1.881 2.126

Kosovo3 42 69 93 71 134 49 64 60 53 69

Import

of 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Albania 1.580 1.820 2.168 2.087 2.201 105 164 131 107 163

Bosnia & H. 2.792 3.404 4.007 3.107 3.205 1.631 2.072 2.415 1.698 1.884

Croatia 11.11 3 12 .1 9 8 1 3.34 8 9.544 9.106 817 949 1.051 778 811

Montenegro 690 941 1.081 620 537 502 696 883 648 668

Macedonia 2.099 1.907 2.249 1.885 2.187 509 450 517 429 472

Serbia 5.696 7.687 9.073 6.533 7.069 857 1.141 1.291 932 1.095

Kosovo10 449 572 701 755 817 534 576 713 689 797

Source: Data of Bank of Albania, Bosnia and Herzegovina Statistical Agency, State Agency

for Statistics of Croatia, Statistical Office of Montenegro, National Bank of Serbia, StateAgency for Statistics of the Republic of Macedonia, Statistical Office of Kosovo.

Disclaimer: The amounts related to Bosnia and Herzegovina have been converted fromConvertible marks to EUR using the exchange rate 1 EUR = 1.95 BAM. The amounts related

to Macedonia for 2006 have been calculated from USD values using exchange rate for EURbeing valid on June 30, 2006 (1 USD = 0.7825 EUR). The amounts related to Kosovo trade

with EU in 2010 are estimations.

3 As a separate customs territory defined under UNSCR 1244.


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19

The Western Balkan region consists of countries, excluding

Albania, that were the part of a single Yugoslav market and had

traded extensively among themselves. As mentioned, this trade flowswere disrupted during Yugoslav wars and each country started to

trade more intensively with EU, due to the EU unilateral trade

preferences. However, the trade among these countries has been

restored in the past decade. Serbia and Croatia are the biggest

exporters in the Western Balkan region and have significant surplus

in the intraregional trade in goods, while Montenegro, Kosovo and

Bosnia and Herzegovina are more integrated in the intraregional

trade through their imports. The intraregional trade among theWestern Balkan economies is relatively concentrated, as the top six

products participate with 40% in the total imports. These products

include four commodity products - mineral fuels, iron and steel, steel

products and aluminium, and two other manufactured products, such

as beverages and electrical machinery and equipment.4

In the past, the main obstacles for more intensive trade

relations between West Balkan economies were related to political

factors, but nowadays, when customs tariffs are significantly reducedin intraregional trade due to the CEFTA 2006 Agreement, the main

obstacles are non-tariff barriers.

2. Non-tariff barriers and intraregional trade in

CEFTA 2006

In the global trade system, the tariffs have been significantly

reduced due to the application of the General Agreement on Tariffs

and Trade (GATT). In some cases, the regional and bilateral

agreements led to even further decline of the custom tariffs. In this

context, we state that the principle instruments of trade policy at the

present are measures different than tariffs, i.e. the non-tariff barriers.

4 Borko Handjiski, Robert Lucas, Philip Martin, Selen Sarisoy Guerin, (2010)

Enhancing Regional Trade Integration in Southeast Europe (World Bank WorkingPaper no. 185) Washington D.C.: The World Bank, p.8.


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In fact, the non-tariff barriers are similar to tariffs as they are

regulatory measures and influence the trade regime established

between the countries in the world.The non-tariff barriers are all measures other than tariffs that

can serve as an obstacle to the international trade, not just

restricting it, but also "unnaturally" promoting the export from one

country, and whose main aim is the protection of domestic

market from foreign competition and not just the alimentation of

state budget.5

We classify non-tariff barriers into three broad groups:1. Traditional non-tariff barriers, which include quantitative

barriers, subventions, antidumping measures, compensatory

measures, local content requirement measures and others;

2. Technical non-tariff barriers, which include non-tariff

measures derived from different national standards and

technical regulation;

3. Administrative non-tariff barriers, which include all barriers to

trade that are derived from national laws and regulations and

administrative procedures that affect foreign trade.6

During the existence of GATT 1947, some non-tariff measures

have been recognized and regulated by Contracting Parties of GATT.

In this context, the regulation means that all of these measures have

been put into GATT legal framework and some of them were not

forbidden, such as quantitative restrictions (quotas), but GATT had

stipulated terms for proper use of these measures. These procedures

were necessary, in order to prevent the countries to abuse thepossibility for use of these measures. The non-tariff barriers that

were present during the existence of GATT 1947 and regulated by

this agreement are referred to as traditional non-tariff barriers.

5 Predrag Bjeli Necarinske barijere u meunarodnoj trgovini Prometej, Beograd,2004.6 Predrag Bjeli and Ivana Popovi Petrovi Administrative Trade Barriers and

Trade Facilitation in: Aleksandra Praevi, Boidar Cerovi, Miomir Jaki

(editors) Economic Policy and Global Recession Centra za izdavaku delatnostEkonomskog fakulteta, Beograd, Vol.1, 2009, p. 2.


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However, GATT 1947 did not stipulate regulation of certain

measures that belong to the category of non-tariff barriers, such as

technical and administrative barriers to trade. In this respect, manycountries have continued to use them as important tool of trade

policy. We have to stress out that many of these measures are

necessary for facilitation of trade in goods and services, in purpose

of protecting health, well-being and security of the people and the

environment. Nevertheless, many of these measures are abused by

some countries in order to protect their domestic producers from

more competitive foreign producers. Actually, this aspect has been

taken into consideration when we discuss the restrictive effect of theadministrative barriers in the international trade. With the

establishment of the World Trade Organization (WTO), the Parties

adopted Agreement on Technical Barriers to Trade (TBT

Agreement), implying that the administrative barriers to trade

remained single unregulated non-tariff barriers in the GATT/WTO

framework. Efforts for elimination of these barriers have been

undertaken within the Doha round of multilateral trade negotiations,

but they still remain one of the most significant obstacles in theforeign trade among the countries, including the Western Balkans

region, too.

With the establishment of World Trade Organization (WTO)

the Agreement on Technical Barriers to Trade (TBT Agreement)

have been adopted so the only unregulated non-tariff barriers in

GATT/WTO framework that remain are administrative barriers to

trade. In WTO a trade facilitation initiative is launched under Doha

round of multilateral trade negotiations that aims to eliminate

administrative trade barriers.

According to the Western Balkans companies survey in 2004(Table 2), carried out by the Organisation for Economic Co-

operation and Development (OECD), the main obstacles in trade,

reported by these companies, were technical barriers to trade. With

regards to the exports to the South-Eastern European market, the

major obstacles included customs procedures and bureaucratic

registration, which fall into the category of administrative barriers to

trade.


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Table 2: Ranking of barriers faced by Western Balkans exporters,

by market, 2004

Ranking

(by importance

of barrier)*

EU MarketSouth-Eastern European

market

1Technical standards

and certificationCustoms procedures

2Quality control and

consumer protectionBureaucratic registration

3 Customs barriersTechnical standard and

certification4 ---

Quality control and

consumer protection

Source: OECD "Non-tariff barriers in CEFTA: Analysis of Technical and Administrative

Barriers to Trade" Presentation at Roundtable on Non-Tariff Barriers in the CEFTA area,Budapest, 8 October 2009, Based on Western Balkans survey (2004)

More specifically, the surveyed companies in Western

Balkans indicated that the most prevalent measures that imply

difficulties include:- Product characteristic requirements (70% of the surveyed

companies);

- Labelling and/or packaging requirements (67%);

- Testing, inspection and quarantine requirements (60%);

- Traceability requirements, like origin, processing history etc.

(57%).

Given the importance of the administrative barriers for the

intraregional CEFTA 2006 trade, we will focus more on them in theremaining of the paper.


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3. Administrative trade barriers and intraregional

trade in CEFTA 2006

As previously mentioned, the administrative barriers to trade

are a special category of non-tariff barriers, deriving from

administrative regulations and procedures that have restrictive effect

on the international trade. Some authors specify that administrative

barriers are administrative measures in the process of levying

customs, applying health and other regulations. However, the most

comprehensive definition of administrative barriers to trade defines

these measures as obstacles to international trade derived fromdifferences in national legal and administrative regulations and

administrative procedures that exporter had to carry out in order to

put its product on a foreign market.7

All administrative barriers, by their origin, can be divided into

two main groups:

1. Legal barriers to trade;

2. Procedural barriers to trade.

Legal barriers to trade are caused by different laws and

administrative regulations in national economies. Every national

economy in the world with a full autonomy in international trade

relations can adopt laws and regulations that unilaterally define its

trade regime with other economies in the world. In the past, when the

international trade has not been treated as a significant source of

economic growth, setting of administrative barriers to trade was not

purposefully a subject to the regulation. However, many of the laws

that were enforced contained some restrictions, but theyve becamepart of the overall business climate accepted by the companies.

Nowadays, the economies tend to introduce more complicated and

more restrictive laws, in some cases opposite to the international

legal obligations of the countries, with a sole aim to protect domestic

markets from foreign competition.

7 Pieter J. Slot Technical and administrative obstacles to trade in the EEC

Interuniversity Institute forInternational Law T.M.C. Asser Institute, The Hague, 1975, p. 8.


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4. Nonrecognition of mutual technical standards and certificates;

5. Untransparent excize duties.9

There are many cross-country studies which try to estimate the

level of presence of administrative trade barriers in international

trade. The quantification of these barriers is important as we would

like to compare the presence of these barriers between countries and

to follow the level of these barriers in each country over the time.

The main indicators for calculating administrative barriers in

international trade are:

1. Trading Across Border Indicators, developed by the World

Bank and their results are published each year in Doing

Business Report;

2. Logistics Performance Index (LPI), developed by the World

Bank, and especially important because it contains sub-

indicator on customs efficiency;

3. The Enabling Trade Index (ETI), developed by the World

Economic Forum and published each year in Global Enabling

Trade Report and most relevant subindex is BorderAdministration Subindex.

According to Trading Across Border Indicator, the countries

of Western Balkans were positioned in the middle of the ranking

table, except for Montenegro that was ranked on 34 place in the

global context. Other countries in transition also have mixed results.

Out of the countries belonging to the former Soviet Union, Georgia

had good rank, while all other countries in transition have similarranking as the Western Balkans. The countries from Central Asia

were positioned at the bottom of the global list and one of the main

reasons could be located to the fact that they are landlocked

countries.

9

Chamber of Economy of Montenegro, CEFTA week 2009: To EuropeanIntegration through Regional Economic Cooperation, podgorica, 2009, p. 22.


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Chart 2: Results of Trading across Border Indicator for Countries in

transition

Source: World Bank,Doing Business 2011 Report, Trading Across Borders Indicators, 2011.

If we focus on the Western Balkan countries, we can see thatMontenegro achieved its position due to the low number of required

documents in the export-import procedures - only 6, as well as

duration of the exports/imports procedure for 14 days and average

cost of 775 USD per container in exports, and around 890 USD per

imports. As presented in the Table 3, all other Western Balkan

economies have more complicated, longer-lasting and more costly

procedures. In this context, they have been all positioned around 70th

place on the list, except for Croatia ranked on 98

th

place, as it

75

71

9866

34

6982

17735

181156

141162

178139

169183

76131

0 50 100 150 200

Albania

Croatia

Montenegro

Armenia

Georgia

Kyrgyz Rep.

Russian Federation

Ukraine

Afganistan

Iran


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requires 8 documents in imports, around 20 days in exports and cost

of the container above 1.000 USD.

Table 3: Results of Trading across Border Indicator for

Western Balkan economies

Economy Rank

EXPORT IMPORT

Documents(number)

Time(days)

Cost(USD per

container)

Documents(number)

Time(days)

Cost(USD per

container)

Albania 75 7 19 725 9 18 710

B&H 71 5 16 1,240 7 16 1,200Croatia 98 7 20 1,281 8 16 1,141

Macedonia 66 6 12 1,376 6 11 1,380

Montenegro 34 6 14 775 6 14 890

Serbia 74 6 12 1,398 6 14 1,559

Source: World Bank,Doing Business 2011 Report, Trading Across Borders Indicators, 2011.

According to the Logistics Performance Index (LPI) shownin Table 4, only five economies are above the average performance

of the Europe and Central Asia region. Those are Turkey,

Kazakhstan, Uzbekistan, Macedonia and Croatia. The other Western

Balkan economies are also positioned very high and much better

than other counties in transition, except Albania and Montenegro

which are at the bottom of the regional list.

In purpose of quantification of the administrative trade

barriers, we consider the sub-index on customs efficiency to be a

very helpful indicator, shown in the third column of Table 4. As

evident from the data, all Western Balkan countries have customs

efficiency sub-index lower than the level of LPI, implying that there

is significant room for improvement of the functioning of the

customs administration in these countries.


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Table 4: Results of Logistics Performance Index (LPI) for

Countries in transition, 2010

Country LPI Customs Infra-

structure

International

shipments

Logistic

competence

Tracking

&tracing Timeliness

Turkey 3.22 2.82 3.08 3.15 3.23 3.09 3.94

Kazakhstan 2.83 2.38 2.66 3.29 2.60 2.70 3.25

Uzbekistan 2.79 2.20 2.54 2.79 2.50 2.96 3.72

Macedonia 2.77 2.55 2.55 2.83 2.76 2.82 3.10

Croatia 2.77 2.62 2.36 2.97 2.53 2.82 3.22

Europe

&Central Asia 2.74 2.35 2.41 2.92 2.60 2.75 3.33

Serbia 2.69 2.19 2.30 3.41 2.55 2.67 2.80

B&H 2.66 2.33 2.22 3.10 2.30 2.68 3.18

Azerbaijan 2.64 2.14 2.23 3.05 2.48 2.65 3.15

Kyrgyz Rep 2.62 2.44 2.09 3.18 2.37 2.33 3.10Georgia 2.61 2.37 2.17 2.73 2.57 2.67 3.08Russian

Federation 2.61 2.15 2.38 2.72 2.51 2.60 3.23

Ukraine 2.57 2.02 2.44 2.79 2.59 2.49 3.06

Iran 2.57 2.22 2.36 2.44 2.65 2.50 3.26

Moldova 2.57 2.11 2.05 2.83 2.17 3.00 3.17

Turkmenistan 2.49 2.14 2.24 2.31 2.34 2.38 3.51

Albania 2.46 2.07 2.14 2.64 2.39 2.39 3.01

Montenegro 2.43 2.17 2.45 2.54 2.32 2.44 2.65

Tajikistan 2.35 1.90 2.00 2.42 2.25 2.25 3.16

Afghanistan 2.24 2.22 1.87 2.24 2.09 2.37 2.61

Source: World Bank, Logistic Performance Index, Intenet,http://info.worldbank.org/etools/tradesurvey/mode1a.asp, 2010.

The third mentioned indicator is produced by World

Economic Forum (WEF), which has specialized in global cross-

country benchmarking studies, such as the Global Competitiveness

Report. In the publication Global Enabling Trade Report, WEFpublishes the results of the Enabling Trade Index (ETI) which

shows how easy is to access markets of observed countries. Onesegment of ETI is dedicated to custom tariff market access and the

other to non-tariff barriers. For the purpose of exploring

administrative barriers to trade, the most interesting indicator is the

Border administration sub-index, which shows the efficiency of

customs administration and other state agencies present at the border.

This sub-index consists of three indicators:

- efficiency of customs administration;

- efficiency of import-export procedures;

- transparency of border administration.


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The results of the Border Administration Sub-index and its

components for 2010 are presented in the Table 5. The best

positioned countries from the region are Montenegro, Albania andCroatia, ranked 50, 59 and 60, respectively. They are followed by

Serbia and Macedonia, on places 64 and 75, respectively, while

Bosnia and Herzegovina is lagging behind as positioned at 90th

place. However, all countries from the Western Balkans are ranked

considerably better compared to the average ranking of the countries

in transition. We have to notice that some of the countries from the

region have much lower efficiency of customs services than the

general score of border administration sub-index, such asMacedonia, Bosnia and Herzegovina and Montenegro, so these

economies must work further on customs administration reform.

Table 5: Results of Border Administration Subindex of The Enabling

Trade Index (ETI) for Countries in transition, 2010

Economy

BORDER

ADMINISTRATION

SUBINDEX

Efficiency of

Customs

Administration

Efficiency of

Import-Export

Procedures

Transparency

of Border

Administration

Singapore 1 1 1 2

Georgia 37 31 38 42

Montenegro 55 74 49 54

Albania 59 49 62 73

Croatia 60 54 74 59

Turkey 61 69 52 62

Serbia 64 64 68 68

Macedonia, 75 108 59 58

Armenia 84 76 89 109B&H 90 106 58 108

Azerbaijan 105 38 123 87

Ukraine 106 110 98 102

Russia 109 85 110 115

Kyrgyz Rep 115 81 116 123

Kazakhstan 121 103 125 81

Tajikistan 122 114 124 89

Burundi 125 125 104 125

Source: World Economic Forum, The Global Enabling Trade Report, Davos, 2010.


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All three analyzed indicators are important for the discussed

topic, but we have to note that their comparison reveals certain

inconsistencies. More specifically, some countries are rankedconsiderably lower in some of the indexes compared to the other,

despite the similar entry variables. Even if they are based on

different methodologies, we consider that large discrepancies should

not occur. In this respect, measurement of the administrative trade

barriers remains area for further research.

Conclusions

In the past two decades, the Western Balkans experienced

disruption of the intra-regional trade flows due to the turmoil in the

region. The important impulse for enhancement of the regional trade

came with the EU initiative for trade liberalisation across the region

in 2000, but full potential was achieved with conclusion of the

CEFTA 2006 Agreement. However, despite the revival of the trade

links among the Western Balkan countries, these intraregional tradeflows are nowadays obstructed by significant administrative barriers.

According to three global benchmarking studies that observe the

presence of administrative trade barriers in the international trade of

the Western Balkan economies, they are ranked in the middle of the

global list and positioned better than the most of the countries in

transition. Nevertheless, there are significant differences among the

countries with regards to presence of administrative barriers to trade,

implying that considerable efforts are needed for removal of these

barriers and advancement of the intra-regional trade. In this respect,

some initiatives to remove administrative trade barriers exists on a

global level, such as the trade facilitation initiative launched by

WTO, but there is a need for more initiatives on a regional level.


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References

1. Bjeli, Predrag (2004) Necarinske barijere u meunarodnojtrgovini Prometej, Beograd.

2. Bjeli, Predrag (2005) Trade Policy of the European Union asa Factor of Regional Trade Integration in Southeast Europe

(London School of Economics and Political Science CsGG

Discussion Paper), London: London School of Economics and

Political Science.

3. Bjeli, Predrag and Ivana Popovi Petrovi (2009)Administrative Trade Barriers and Trade Facilitation in:

Aleksandra Praevi, Boidar Cerovi, Miomir Jaki(editors) Economic Policy and Global Recession Centra za

izdavaku delatnost Ekonomskog fakulteta, Beograd, Vol.1, p.2.

4. Bjeli, Predrag and Danijela Jaimovi Impact of World

Economic Crisis on Trade and Foreign Investments in the

Western Balkans" Proceedings, European Association forComparative Economic Studies, Faculty of Economics,

University of Belgrade, Serbia and University of Podgorica,

Montenegro, EACES Workshop "Market Failures and the

Role of Institutions" Miloer, Montenegro, September 22-24,2011.

5. Chamber of Economy of Montenegro, CEFTA week 2009: To

European Integration through Regional Economic

Cooperation, Podgorica, 2009.

6. Gligorov, Vladimir, Peter Havlik, Michael Landesmann, Josef

Pschl, Sndor Richter et al. (2010) Crisis Is Over, but

Problems Loom Ahead, The Wienna Institute for International

Economic Studies, Current Analyses and Forecasts, no. 5,

Economic Prospects for Central, East and Southeast Europe,

February 2010.


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7. Gauait Wittich, Vitalija (2005) Some Aspects of Recent

Trade Developments in South-East Europe (UNECE

DISCUSSION PAPER SERIES No. 2005.6), Geneva: UnitedNations Economic Commission for Europe.

8. Handjiski, Borko, Robert Lucas, Philip Martin, Selen Sarisoy

Guerin (2010) Enhancing Regional Trade Integration in

Southeast Europe (World Bank Working Paper no. 185)

Washington D.C.: The World Bank.

9. OECD and CEFTA Secretariat (2010) Trade Integration,

Industry Concentration and FDI Inflows: The Experience inCentral and South Eastern Europe. Paris: OECD.

10. OECD "Non-tariff barriers in CEFTA: Analysis of Technical

and Administrative Barriers to Trade" Presentation at

Roundtable on Non-Tariff Barriers in the CEFTA area,

Budapest, 8 October 2009.

11. Sanfey, Peter "South-eastern Europe: lessons from the global

economic crisis" European Bank for Reconstruction andDevelopment, Working Paper No. 113, February 2010.


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Dr. Irena Kikerkova; Effects of economic integration within CEFTA-2006 ...

33

UDC 339.5.012.42(4-19):339.92(487.7)"2006"

339.92(497.7)"2006"

Dr. Irena Kikerkova1

EFFECTS OF ECONOMIC INTEGRATION WITHIN CEFTA-

2006EVIDENCE FROM THE MACEDONIAN

EXPERIENCE

Abstract

The five year period of the existence and functioning of

CEFTA-2006 as a free trade area of the Western Balkan

countries has confirmed that the skepticism and the resistance upon

its establishment were completely unrealistic. All the member-

states experienced a positive impact upon their mutual trade

exchange of goods. This is especially true for Croatia that was thegreatest opponent of the creation of the free trade area, but

happened to be a major trading partner in the region. Another major

trading partner from the region is Serbia that has also recorded

significant benefit from the trade liberalization within the region.

CEFTA-2006 has created a positive effect upon the trade exchange

of Bosnia and Herzegovina, Macedonia and Montenegro and to a

lesser extent upon Albania, Kosovo and Moldova.

In the case of Macedonia, the creation of CEFTA-2006

provided enhancement of trade links with traditional trade partners

from the region and increased the participation of the trade exchange

of goods from only 8% in the period before signing the free trade

agreement to 28% at the end of 2011. Furthermore, Macedonia had

managed to realize a trade surplus of about half billion American

1

Full-time professor, Faculty of Economics, University St. Cyril and MethodiusSkopje


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dollars, which is especially important knowing that the deficit in

the trade balance has been constantly rising.

Some authorities find out that there has been a substantialprogress in the implementation of the CEFTA-2006 Agreement

considering the efforts put on trade liberalization in goods,

unification of transit procedures, establishment of a mutual portal

and trade liberalization in services, especially in insurance.

However, there is still a problem with the presence of non-trade

barriers and nonrecognition of national laboratories for quality

control of products. Other important issues include the rules of

origin and the problem of full implementation of the diagonalcumulation.

The Western Balkan countries are economically still very

weak and politically very fragile. Further progress of CEFTA-2006

could be intimidated by the soon expected full accession of Croatia

into the EU, as Croatia happens to be one of the most important

regional traders. The possible collapse of the Euro-zone could be

another major threat to the stability and the well-being of the small

Balkan economies. Therefore, the prospects of the free trade area arevery uncertain.


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Introduction

CEFTA-2006 is a free trade area created among the WesternBalkan countries, supposed to eliminate all qualitative and

quantitative barriers in trade of agricultural and non-agricultural

goods, to enable mutual recognition of sanitary and phytosanitary

certificates under the TBT agreement, to establish free trade of

services and provide protection of intellectual rights, as well as

foreign investorsrights.2

During the last five years it was evident that the political

doubts on the establishment of CEFTA-2006 among Albania, Bosniaand Herzegovina, Croatia, Macedonia, Moldova, Montenegro, Serbia

and UNMIK Kosovo were unrealistic. The creation of the free trade

area had a positive economic effect upon the total trade exchange of

goods within the region. The leading trading positions belonged to

Croatia and Serbia as expected.

The full insight in the effects of the creation of this Western

Balkansfree trade area is however not completely available. Despite

the effort of the CEFTA-2006 Secretariat on the establishment of theCEFTA-2006 trade portal and dissemination of all relevant

information on the trade exchange of goods and important outcomes

of regional trade liberalization, the statistical reporting of the

member-states has not been unified, yet. Only Croatia and Kosovo

accepted a statistical methodology on regular reporting on their trade

exchange with CEFTA-2006 member-states. The rest of the

countries have not accepted to create a special data base on the trade

exchange of goods within the free trade area. For example, in

Macedonia the statistical reporting follows up the trade exchange of

Western Balkan countriesat the export side. At the import side thiscountry provides data on trade exchange of goods with developing

countries. Bosnia and Herzegovina has a statistical record on the

trade exchange of goods with European countries in development,while Serbia records MERKOSUR, although it does not have any

2 See: Official Gazette of the Republic of Macedonia, Nr. 69/2007,Skopje, 2007


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trade links with this region. However, Serbia does not report on

CEFTA-2006 trade exchange of goods at all.

Also, only Macedonia reports its trade exchange in Americandollars, while all of the other member-states report in euro.

3

It is important to point out that there has been a significant

discrepancy in the so-called mirror statistical evidence of export and

import flows of the member-states. This causes doubts that

differences in the reported data are not a result only of differences in

the statistical methodology, but there might be also other hidden

issues. However, the greatest obstacle for adequate analyzes of the

trade exchange of goods within CEFTA-2006 is the fact that thetrade statistics within the region is not fully publicly available.

4

Nevertheless, available published evidence clearly points out

that all of the countries of the free trade area have benefited from the

liberalization of the trade in goods. The positive impact was

especially significant in Croatia as a major trading partner in the

region, although it was the country that was openly opposing the

creation of the free trade area. The second biggest trader in the

region is Serbia, and significant positive effects were also evidencedin the economies of Bosnia and Herzegovina, Macedonia and

Montenegro, and to some extent of UNMIK Kosovo and Albania.

Only Moldova, that actually does not belong to this region and has

traditionally had very weak economic links with it, has not recorded

any significant impact from the effectuated trade liberalization.

3 Handziski, B., Lucas, R., Martin, P., Gunerin, S. S. (2010, January): Enhancing

Regional Trade Integration in Southeast Europe, World Bank Working Paper

No.185, The World Bank, Washington D.C., p. 204 Handziski, B., Lucas, R., Martin, P., Gunerin, S. S. (2010, January): Enhancing

Regional Trade Integration in Southeast Europe, World Bank Working PaperNo.185, The World Bank, Washington D.C., p. 18


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1. Effects from the creation of CEFTA-2006 in the

Republic of Macedonia

According t o the official statistical data of the Republic of

Macedonia, the creation of the free trade area had an immediate

positive impact on the total trade exchange of goods of the member-

states which was evident even in the first years after its

establishment. Actually, only two years since the creation of

CEFTA-2006, Macedonian total trade exchange of goods with the

countries from the free trade area almost doubled at the export, as

well at the import side. Macedonia started to realize surplus in thetrade exchange of goods with CEFTA-2006 member-states. The

trade surplus reached its peak in 2008 when it amounted 647.27

million American dollars.5

The economic crises which started in 2008, however, had a

negative impact upon the total trade exchange of goods of all

CEFTA-2006 member-states. Croatia and Serbia were especially

affected by the crises and had to take immediate care of the serious

deficit in their balances of payments. The very fragile economicsituation made those countries impose various measures and try to

restrict their import of goods. At the same time they tried to obstruct

further liberalization of the trade exchange of goods within the free

trade area. As they are the major trades within the region, their

actions immediately decreased the total trade exchange of goods

within CEFTA-2006. Therefore, the Macedonian trade surplus

realized with the trade exchange of goods with CEFTA-2006

member-states decreased to only 400 million American dollars by

the end of 2009, which was a decrement of 38.6% in comparison

with the surplus recorded at the end of 2008. At the same time the

participation of CEFTA-2006 trade exchange of goods fell down

from 28% in 2008 to only 20% of the total trade exchange of the

country in 2009.6

5 The Ministry of Economy of the Republic of Macedonia and the USAID (2008):

Report on Foreign Trade of Macedonia 2008, The Ministry of Economy of the

Republic of Macedonia and the USAID, Skopje, p. 676 www.statistics.gov.mk


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Table 1: Trade exchange of goods of the Republic of Macedonia

with CEFTA-2006 countries in the period 2006-2010

(in million American dollars)

Year Total Export Total ImportTotal Trade Exchange

with CEFTA-2006

2006* 787.51 400.19 1,187.70

2007 991.72 613.70 1,605.42

2008 1,408.95 761.68 2,170.63

2009 1,000.42 600.36 1,600.78

2010 1,018.32 628.11 1,646.43

Source: According to the Ministry of Economy of the Republic of Macedonia and the USAID

(2008), Report on Foreign Trade of Macedonia 2008, The Ministry of Economy of theRepublic of Macedonia and the USAID, Skopje, p. 67 and www.mchamber.mk

*Note: Data for 2006 are given for comparison purposes. The implementation of the

Agreement between Macedonia, on the one hand, and Albania, Kosovo, Moldova andMonte Negro, on the other, began on the 26th of July 2007; with Croatia on the 22nd of

August 2007; with Serbia on the 24th of September, 2007 and with Bosnia and

Herzegovina on the 22nd November 2007. Data consider the whole year period of time

(Statistical Office of the Republic of Macedonia, 2008).

As presented in Table 1, the situation improved slightly bythe end of 2010. At that period of time, the Macedonian trade

exchange of goods within the region increased by 2.8% and reached

a total of 1,646.43 million American dollars, of which 1,018.32

million were realized at the export side and 628.11 million at the

import side. Most of the increment was realized through the trade

exchange of goods with UNMIK Kosovo, which increased by

41.8% and with Montenegro which registered an increment of

8.4%. By the end of 2010 the realized export from Macedonia toCEFTA-2006 member states created 31% of the total Macedonian

export.7

The recovery was also fellt in all of the member-states of

CEFTA- 2006, as confirmed by data presented in Table 2.

7 www.statistics.gov.mk


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Table 2: Trade exchange of goods of the Republic of Macedonia

and CEFTA-2006 member- states (in million US dollars) *

YearSerbia

E ICroatia

E IB&H

E IAlbania

E IMoldavia

E IMonte NegroE I

2001 266,94 189,41 58,49 46,49 6,04* 8,46* 9,77* 0,56* - - - -

2002 245,21 189,41 59,08 55,36 19,20 14,30 13,86 1,13 - - - -

2003 273,80 215,73 66,10 63,67 20,83 11,75 15,34 3,93 - - - -

2004 347,60 243,72 80,16 65,78 33,22 16,31 23,59 6,35 0,04 * 0,32* - -

2005 459,54 264,20 81,05 75,23 50,46 23,58 27,52 9,07 0,06 0,27 - -

2006 557,85 282,85 124,23 78,96 64,70 26,53 40,56 11,72 0,1 7 0,13 - -

2007 639,42 448,40 163,87 109,74 88,02 34,52 72,69 19,52 0,04 0,18 27,69 1,34

2008 934,72 532,02 228,96 137,71 104,84 52,60 106,77 35,66 0,03 3,36 38,57 1,21

2009 337,59 397,05 152,72 118,34 86,64 46,53 83,95 24,10 0,09 2,93 24,88 1,18

2010 271.82 418.39 123.62 113.3 84.94 49.12 72.38 22.89 0.35 0.92 27.43 1.43

Source: The Ministry of Economy of the Republic of Macedonia and the USAID (2008):Report on Foreign Trade of Macedonia 2008,The Ministry of Economy of the Republic of

Macedonia and the USAID, Skopje, pp. 68-78 and www.statistics.gov.mk

*Note: As the free trade agreements with Bosnia and Herzegovina (B&H) and with Albania

were enforced in 2002, data on 2001 are given only for comparison purposes.

** Note: Until 2008 data on trade exchange of goods of Macedonia with Serbia also

comprised the trade exchange with Kosovo. The total Macedonian exports to Kosovo

in 2009 amounted 314.54 million American dollars, and the total import from Kosovo

amounted 9.65 million American dollars. In 2010 the realized export to Kosovo

reached 437.77 million American dollars, and the import from Kosovo amounted

22.05 million American dollars.

Positive effects of the trade exchange of goods within the

region were also registered in 2011, which influenced positive

impact upon the trade exchange of goods of Macedonia with

CEFTA-2006 member-states. At the end of the third quarter of 2011Macedonia recorded an increment of its total trade exchange with all

the member-states, except with Moldova, and Macedonian export

within CEFTA-2006 increased by 27%. About 28% of the total

Macedonian trade exchange of goods was done with the countries

from the region.8

8 www.mchamber.mk


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40

2. Trade pattern of the trade exchange of goods of the

Republic of Macedonia and CEFTA-2006 member-

states

By analyzing data on the trade exchange of goods of the

Republic of Macedonia with CEFTA-2006 member-states, it is easy

to realize that the most important partner from the region for

Macedonia is Serbia. Croatia has also been an important trade

partner from the region for the Macedonian economy, but in

comparison to Serbia, its importance is much less significant.

Actually, at present, Serbia is the second most important tradepartner worldwide for Macedonia, right after Germany.

The statistical evidence confirms that in the case of

Macedonia the region of CEFTA-2006 is especially important for

the realization of the export of agricultural goods, as it absorbs more

than a half of the total Macedonian export of this kind of goods. The

geographic closeness to the region is especially important for this

kind of export from the country, as about 1/3 of it consists of

fresh vegetables. Other important export items are confectionaryproducts and cigarettes. About 40% of the agricultural export from

Macedonia in CEFTA-2006 goes to Serbia, and a significant

amount is realized within the territory of UNMIK Kosovo, as it

happens to be important importing trade partner for fresh

vegetables and fruits. Less than 15% of the agricultural export is

done with Croatia, and about 11% with Bosnia and Herzegovina.9

On the other hand, import of agricultural goods from the

region is also important for the Republic of Macedonia. CEFTA-

2006 creates about 30% of the total import of agricultural goods in

Macedonia. About 33.5% of this amount comes from Serbia, while

9 Kikerkova, I. (2009): CEFTA-2006 as basis for economic reintegration ofWestern Balkan countries in Regional Cooperation and Economic Integration

Challenges and Opportunities, Third International Conference, Ss. Cyril and

Methodius University, Faculty of Economics - Skopje, Skopje, p. 164 andwww.mchamber.mk


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Croatia provides 17.8%. The most important import items from the

region are wheat, vegetable oil and animal fat.10

Despite the dependence on import of agricultural goods fromthe region, Macedonia manages to realize a small trade surplus in the

trade exchange of this kind of products with CEFTA-2006 trade

partners.11

However, the capacity of the Macedonian economy is much

weaker when it comes to the trade exchange of non-agricultural

goods. The most important exported non-agricultural items from

Macedonia destined for the markets of CEFTA - 2006 are mineral

fuels and iron and still. These goods create more than 1/4 each of thetotal Macedonian exports of non-agricultural goods in the region.

Other important export items are also iron and steel products,

pharmaceuticals, and some electrical machinery and equipment, but

with significantly smaller participation in the total trade exchange

within CEFTA-2006.12

The import of non-agricultural goods in Macedonia from

CEFTA-2006 consists mostly of steel and iron, mineral fuels,

electrical machines and equipment, plastics, paper and paper board.The most important CEFTA-2006 trade partners for non-

agricultural goods for Macedonia are again Serbia and Croatia.13

It is evident that the most frequently exchanged non-

agricultural items in the Macedonian economy are semi-processed

industrial products, and to a much lesser degree some sophisticated

goods. As this is also the case on the import side, it is evident that

10 Kikerkova, I. (2009): CEFTA-2006 as basis for economic reintegration ofWestern Balkan countries in Regional Cooperation and Economic Integration Challenges and Opportunities, Third International Conference, Ss. Cyril and

Methodius University, Faculty of Economics - Skopje, Skopje, p. 165 and

www.mchamber.mk11 www.mchamber.mk12 Kikerkova, I. (October, 2011): The Importance of CEFTA-2006 for the WesternBalkans Trade Exchange of Goods in Chinese Business Review, Volume 10,Number 10, David Publishing Company, Illinois, p. 84913 Kikerkova, I. (October, 2011): The Importance of CEFTA-2006 for the Western

Balkans Trade Exchange of Goods in Chinese Business Review, Volume 10,Number 10, David Publishing Company, Illinois, p. 850


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the trade pattern of the Macedonian trade exchange of goods within

the region has still been inter-industrial. The relatively low economic

capacity and the unsatisfactory level of production do not allow theMacedonian economy to become significantly dependent on imports

of industrial products with higher level of finalization and substantial

added value from the region. This also protects the balance of

payment of the country from further deepening of the trade

balance deficit.

Actually, the whole trade exchange in the Macedonian case,

not only with trade partners from the region, but also with the rest of

the world is still inter-industrial. The trade pattern clearly points outthat in the past 20 years Macedonia did not manage to restructure its

economy and to overcome the problems of using outdated

technology in most of its manufacturing plants. This seriously affects

the general level of productivity of the economy, as well as the

competitiveness of its products on foreign markets. The lack of

productivity, competitiveness and economic capacity could be also

confirmed by the lack of capability to boost exports to all the

important trade partners at once in periods of convenientcircumstances in the world economy. Time series confirm that in

2001 when Macedonia signed the Stabilization and Association

Agreement with the EU, it started to increase trade exchange with

EU member-states, but at the same time the trade exchange with

other traditional trade partners started to decrease. This especially

affected the trade exchange with Western Balkan countries, which

decreased to only 8% of total Macedonian trade exchange by the

beginning of 2006, when more than half of the trade exchange of

goods was done with the EU. Immediately with signing of the

CEFTA-2006 Agreement, the Macedonian trade exchange of goods

diverted form EU towards CEFTA-2006 trade partners and only in

two years it reached about 28% with the countries from the region.

At the same time the trade exchange of goods with the EU registered

a certain decrement.14

14

Kikerkova, I. (2009): CEFTA-2006 as basis for economic reintegration ofWestern Balkan countries inRegional Cooperation and Economic Integration


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43

However, all of the members of CEFTA-2006 had the same

experience as Macedonia and it seems that they faced the same

challenges in their own economies. They all follow the inter-industrial pattern of trade, not only among each other, but also with

other trade partners from the world. When it comes to the trade

exchange within CEFTA-2006 each of them has only one, at most

two important trade partners from the region and negligible trade

exchange with the rest of the member-states. They all produce

mostly semi-finalized industrial products, with some exceptions in

the cases of Croatia and Serbia. In addition, they all register

fluctuations in their trade exchange among each other and EU-countries that happen to be their most important trading partners. In

order to increase the trade with one group of countries, they all have

to diminish the trade exchange with other groups of countries.

Therefore, we may conclude that the whole region of the so-

called Western Balkan severely suffered from the split-off of the

former Yugoslav state. The problem of loss of the most important

distribution and supply chains created additional problems during the

period of transition and the countries could not effectivelyimplement all necessary transition reforms along with the

privatization processes and economic restructuring. This is the main

reason why the whole region is still below the level of development

reached in 1989.

Challenges and Opportunities,Third International Conference, Ss. Cyril andMethodius University, Faculty of Economics - Skopje, Skopje, p. 167


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3. Progress in the process of economic integration within

CEFTA-2006

CEFTA-2006 was created not only to liberalize trade exchange

of agricultural and non-agricultural goods, but also to provide trade

liberalization in the exchange of service, the public procurement and

investment and to provide protection of intellectual property rights.15

The creation of the free trade area among Western Balkan countries

has already provided increment of their mutual trade exchange of

goods, which was a benefit for all the member-states without

exception. The creation of CEFTA-2006 also prevented theimposition of new barriers to trade, which is partly true even in the

period of the economic crises in 2008.

Fully aware that the potential of the regional cooperation is

used far below its real capacity, member-states of CEFTA-2006 tried

to improve the preconditions for even greater mutual cooperation. In

this manner they decided to sign an agreement on unification of

transit procedures at the beginning of 2011, as they found out that a

substantial amount of goods is transiting towards EU and othermarkets through their own territory.

16

Serbia, Montenegro and Bosnia and Herzegovina proposed

that not only movement of goods, but also movement of persons

should be liberalized and instead of presenting a passport, borders

should be passed by presenting an ID. This is however not fully

applicable for Moldova, as its passengers should still obtain a visa in

order to enter certain countries within CEFTA-2006. Having this on

mind, Macedonian authorities began a process of revision of the visa

regime for Moldavian citizens.17

One of the most important benefits that CEFTA-2006 provides

for its member-states is the so-called diagonal cumulation of origin.

The diagonal cumulation is available among each of the member-

states with the EU regarding the interregional trade exchange of

15 See: Official Gazette of the Republic of Macedonia, Nr. 69/2007,Skopje, 200716

www.mchamber.mk17 www.mchamber.mk


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45

goods. However, last year the diagonal cumulation of origin became

applicable among Albania, Macedonia, Montenegro, Serbia, Turkey

and the EU and provides a full implementation of the free trade areaamong these countries.

18

CEFTA has also provided a fully implementation of

diagonal cumulation among EFTA-countries, Albania, Croatia,

Macedonia and Serbia.19

In March 2011 during the meeting in Belgrade, CEFTA

2006 member-states decided to create an Interchamber CEFTA Working Group on Insurance. This group should provide gradual

liberalization of trade regulations and abolishment of administrativebarriers to providers of insurance services within the free trade area.

It should also try to establish co-insurance services among member

states.20

In order to provide all relevant information not only on

different trade export and import procedures, but also an on-line

availability of all forms and documents needed for completion of

customs procedures, CEFTA-2006 member-states established a

mutual trade portal.

21

4. Challenges for the CEFTA-2006-member states

Despite the achieved progress, the countries of CEFTA-2006

are facing some serious challenges. Most of them are in regard with:

Full implementation of the diagonal cumulation of origin;

Further trade facilitation by enhancement of customs tocustoms, customs to government and customs to business

cooperation;

18 www.mchamber.mk19 Official Gazette of the Republic of Macedonia, Nr. 184/2011,Skopje, 201120

www.mchamber.mk21 CEFTA E-Newsletter/03, October, 2011


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Implementation of simplified customs procedures on

regional level as a preparatory step towards achievement of

the status of authorized economic operator;

Mutual recognition of the national status of authorized

economic operator;

Non-existence of regional logistic centers, without which

the whole trade exchange of the region could face, loses on

long-term basis.

However, one of the greatest challenges that should be dealt

with immediately is the existence of non-trade barriers amongmember-states. Member-states confirmed the problem of the use of

TBT and NTB barriers to trade, among which especially negative

impact have the sanitary and phytosanitary certificates. Although

they all agreed at the beginning of the creation of the free trade area

that they are going to fully remove them, the mutual recognition of

technical standards, as well as sanitary and phytosanitary certificates

has not been reached yet. There is also a problem of identification of

national laboratories that would fulfill the procedure of nationalcertificates recognition. However, the problem is even more difficult

than it seems as traders in the region got so used to the existence of

the non-trade barriers that have lost awareness of their actual

presence. But in the day-to-day practice some of these barriers

completely prevent the free trade exchange of goods, which is

especially evident in the meat-processing industry.22

Having on mind that these problems are opposed to the

provisions in the CEFTA-2006 Agreement, last June the CEFTASub-Committee on NTBs and TBT launched the first NTBs

reduction monitoring cycle on the basis of Multilateral Monitoring

Framework proposed by OECD, and its results are due by the end of

this year. This monitoring also would follow up the mutual

recognition of national laboratories for control of quality of the

products, until their full harmonization.23

22

www.mchamber.mk23 CEFTA E-Newsletter/03, October, 2011


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This initiative gave positive results at the beginning of this

year, as the ministries on agriculture of Serbia and Macedonia signed

a bilateral Agreement on Phytosanitary Cooperation. At the sametime the director of the Food and Veterinary Agency of the Republic

of Macedonia signed a bilateral Agreement on Cooperation on Food

Safety and Veterinary. The event took place in Belgrade at the

beginning of February 2012. The agreements provide bilateral

recognition of national sanitary and phytosanitary standards, and

abolishment of non-trade barriers in trade of agricultural goods

between Serbia and Macedonia.24

Another major challenge for the region would be the accessionof Croatia to the European Union, planned to take place in 2013.

Regarding the significance of Croatia as major trader within

CEFTA-2006, its abandoning of the free trade area might cause

serious damage to free movement of goods and further

functioning of the Agreement. However, there have not been any

comments yet if this could cause a total collapse of the free

trade area, regarding the economic problems and instability of

Bosnia and Herzegovina and the complex situation of Serbia andUNMIK Kosovo.

At the end, nobody is free to believe that further trade

liberalization in the region could take place if the crises within the

European Union escalate and this further causes threats upon the

sustainability of the whole Euro-zone.

Conclusion

The creation of CEFTA-2006 has provided certain positive

effects upon the total trade exchange of goods within the Western

Balkan and all its member-states have benefited from it. The free

trade area has also a positive impact upon the trade exchange of

goods of the Republic of Macedonia which has resulted with a trade

surplus in the trade with the countries from the region.

24 www.mchamber.mk


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Though, the potential of this free trade agreement could not be

used up to its full potential, which is not due only to the fragile

political situation in the region, but also to the weak economiccapacity of each of its member-states and the low level of their

productiveness and competitiveness. The fact that all of the member-

states have not signed a Stabilization and Association Agreement

with the EU does not allow the full implementation of the diagonal

cumulation of origin, which is essential for easier access of goods

from the region to the EU-market.

The region has experienced a certain level of trade

liberalization in the trade of goods, and tries to provide tradeliberalization in the trade of services. Although the imposition of

additional trade barriers was successfully prevented, member-states

have not been able to deal with elimination of technical and non-

trade barriers in order to fully implement provisions of the

Agreement. They have not provided recognition of national

laboratories accredited for certification and have not provided mutual

recognition of national certificates, yet.

The trade exchange of goods within CEFTA-2006 hasincreased during the last five years. However, it did not provide

important incentive on economic growth or economic restructuring.

The trade exchange of goods within the free trade area remained

inter-industrial and each of the trade partners is trading mostly with

two other trading partners from the region, due to traditional past

experience and traditionally established trade links, without making

any effort on establishing new links and channels with non-

traditional CEFTA-2006 partners. Any given opportunity for an

increment of trade exchange of goods with trading partners out of the

free trade area means immediate decrement of the trade exchange of

goods within CEFTA-2006, and vice versa.

CEFTA-2006 is facing additional challenges in near future,

knowing that in a year period of time Croatia, as major trading

partner, is going to leave it in order to become a full EU member.


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References

1. Handziski, B., Lucas, R., Martin, P., & Gunerin, S. S. (2010,January). Enhancing Regional Trade Integration in Southeast

Europe,World Bank Working Paper No.185, the World Bank,

Washington D.C.;

2. Kikerkova, I. (2009): CEFTA-2006 as basis for economicreintegration of Western Balkan countries in Regional

Cooperation and Economic Integration Challenges and

Opportunities, Third International Conference, Ss. Cyril and

Methodius University, Faculty of Economics - Skopje, Skopje;

3. Kikerkova, I. (2010): CEFTA-2006 effects upon theMacedonian trade exchange in Kandzija, V. & Kumar, A.,

eds. Economic integrations, competition and cooperation,

University of Rijeka, Faculty of Economics, Rijeka;

4. Kikerkova, I. (October, 2011): The Importance of CEFTA-

2006 for the Western Balkans Trade Exchange of Goods in

Chinese Business Review, Volume 10, Number 10, DavidPublishing Company, Illinois;

5. The Ministry of Economy of the Republic of Macedonia and

the USAID (2008), Report on Foreign Trade of Macedonia

2008,Ministry of Economy of the Republic of Macedonia and

the USAID, Skopje;

6. Official Gazette of the Republic of Macedonia, Nr. 69/2007,

Skopje, 20077. Official Gazette of the Republic of Macedonia, Nr. 184/2011,

Skopje, 2011

8. CEFTA E-Newsletter/03, October, 2011

9. www.mchamber.mk

10. www.statistics.gov.mk


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Dr. Silvana Mojsovska, Dr. Krum Efremov, Dr. Marija Ackovska; CEFTA 2006 ...

51

UDC 339.5.012.42(4-19)"2006"

Dr. Silvana Mojsovska1

Dr. Krum Efremov2

Dr. Marija Ackovska3

CEFTA 2006 IMPLEMENTATION - INSTITUTIONAL AND

POLICY PERSPECTIVES

Abstract

This paper addresses some institutional and policy

perspectives of the implementation of CEFTA 2006. The paper aims

to provide insight into the most important challenges related to the

implementation of CEFTA 2006, which derive from the content of

the Agreement, in particular with regards to the provided possibility

of the parties to introduce protective trade measures (upon special

conditions and in line with WTO rules). The role of CEFTA 2006institutional structures has been elaborated in the paper, as well as

volume and structure of trade, indicating that the intra-regional trade

has been more important for the former Yugoslav countries, while

further trade integration mostly depend on the willigness and

capacity of the national policy-makers. In this perspective, the

limited coordination and harmonization of the national policies was

discussed, as well as compliance of the foreign trade policies among

the parties. Given the scarce export diversification and predominance

of intermediate products into intra-regional trade, the main findings

of the research suggest that more systematic approach towards

policies compliance would be a solid platform for deepening of the

trade integration within CEFTA 2006.

1 Full-time professor in International Economics, Institute of EconomicsSkopje,2 Ph.D in Economics, Head of Directorate for Economic Diplomacy at the Ministry

for foreign Affairs of the Republic of Macedonia3 Assistant professor, Institute of EconomicsSkopje


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1. Trade protection within CEFTA 2006

CEFTA 2006 is a regional free trade agreement (FTA) 4

concluded among Albania, Bosnia and Herzegovina (B&H), Croatia,

Macedonia, Moldova, Montenegro, Serbia and Kosovo in 2006,5

with main aim to create more favorable terms of trade for the parties

and to boost the intra-regional trade. The Agreement stipulated

common set of trade rules in the region, treated the issue of diagonal

cumulation of origin, investment, intellectual property rights and

promotes no fiscal discrimination within the region, protection of

competition, as well as compliance of the state aid rules. CEFTA2006 has been created in line with the World Trade Organization

(WTO) legal framework, in particularly Article XXIV of GATT

1947 and Agreement on interpretation of Article XXIV of GATT

1994.6

This legal setting allows for creation of trade areas (free trade

zones and customs union) with preferential treatment to the

contracting parties compared to the other WTO members. However,

CEFTA 2006 also allows for trade protection among the parties,

although under special conditions, but it could act as a restrain to thetrade integration of the region.

1.1. Legal settings

Despite the general purpose of trade enhancement through

intense liberalization, CEFTA 2006 Agreement stipulates possibility

for trade protection of the parties, on the ground of ensuring safety of

the products entering the market or in the case of serious economic

turmoil in the country. The specific CEFTA 2006 Articles regulatingthis matter include Article 23 on General Safeguards, Article 23bis

on Temporary Measures and Article 25 on Balance of Payment

Difficulties. The Article 23 allows the CEFTA 2006 importing

parties to apply bilateral safeguard measures if any product is being

4 Agreement on the amendment of and accession to the original Central European

Free Trade Agreement, Official Gazette of the Republic of Macedonia 69/20075

The implementation of CEFTA 2006 started in 20076 World Trade Organization (www.wto.org)


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imported in such increased quantities and under such conditions

from a party to this Agreement as to cause or threaten to cause:7

a) serious injury to domestic producers of like or directlycompetitive products in the territory of the importing

party, or

b) serious disturbances in any sector of the economy which

could bring about serious deterioration in the economic

situation of the importing party.

According to conditions and terms for undertaking bilateral

safeguard measures, they shall contain clear elements progressively

leading to their elimination and shall not be taken for a periodexceeding one year. In addition, they can be renewable two times at

most and no measure shall be applied to the import of a product that

has previously been subject to such a measure for a period of two

years since the expiry of the measure.8

Article 23bis on Temporary Measures provides basis for

further protection. It states the following: given the particularsensitivity of the agricultural market, if imports of products

originating in one party, which are the subject of concessionscause serious disturbance to the markets or to their domestic

regulatory mechanisms, in another party, both parties shall enter into

consultations immediately to find an appropriate solution. Pending

such solution, the party concerned may take the appropriate

measures it deems necessary.9

This implied a practice by the parties

first to introduce a measure and later to enter into consultation. The

conditions and procedures for undertaking measures (Art. 24)

envisage the process of consultation, as well as that the measuresshall be restricted with regard to their extent and duration to what is

strictly necessary in order to remedy the problem and shall not be in

excess of the injury caused by the practice.10 However, the granted

possibility to the parties to undertake measures prior to notification

7 CEFTA 2006 Agreement, Article 23 (http://www.cefta.int)8 CEFTA 2006 Agreement, Article 24 (http://www.cefta.int)9

Ibid, Article 23bis (http://www.cefta.int)10 Ibid, Article 24 (http://www.cefta.int)


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the other party. This has been already confirmed in the CEFTA 2006

practice, as the parties raised different measures for trade protection,

which would be discussed in the section below.

1.2. Classification of measures raised by the CEFTA 2006

parties

The possibility for introduction of trade protection measures

provided to the CEFTA 2006 parties have been used by most of

them, while the protective measures were mostly related to the

implementation of sanitary and phyto-sanitary requirements,technical barriers to trade, improper application of customs

liberalization and implementation of custom tariff quotas, application

of non-tariff measures, customs valuation procedure, untimely

distribution of custom tariff quotas, conformity assessment, burden