Alexandroupolis, Greece 5-7 December 2004 The Emergence of a Free Trade Area in SEE:

1. Alexandroupolis, Greece 5-7 December 2004 The Emergence of a Free Trade Area in SEE: Why, How, What and Where to? Per Magnus Wijkman Technical Expert to Working Group on Trade Liberalisation and Facilitation of the Stability Pact

2. I. Why liberalise and facilitate trade? • To ’join Europe’ requires postwar reconciliation and reconstruction in the region • Trade contributes importantly to both objectives • Good neighbours make good traders and vice versa

3. Trade liberalisation may: • triple intra-regional trade • quadruple trade between Western and Eastern Balkans • between Western Balkans and Romania (8x) • between Western Balkans and Bulgaria (3x) • double trade within Western Balkans • Source: World Bank

4. Potential growth of intra-regional trade Source: World Bank 2000 Potential Potential

5. II. Howto liberalise trade • Big Bang (A single agreement) OR • Evolutionary process (A network of bilateral agreements) …the first is easier to negotiate, to administer, and to apply

6. Six bilateral Free Trade Agreements existed prior to June 2001 One country had three bilaterals, three countries had two bilaterals and one had one agreement. Croatia Moldova BiH Romania S & M Bulgaria Albania Macedonia

7. Uncertain of success and risk avert, countries chose the network approach • Seven SEE Ministers sign Statement of Intent to liberalise trade in Geneva, January 2001 and Memorandum of Understanding at Ministerial meeting in Brussels, June 2001. Moldova joins. • Target: free trade in SEE region. • Milestone: conclude at least 1/2of the agreements and open negotiations on all by Ministerial in June 2002. • Deadline: conclude 21 bilateral trade agreements by end of 2002. …… a tight schedule but all 28 agreements are now in force.

8. Network of Free Trade Agreements February 22, 2002 Initial scepticism lead to slow start. Only 2 negotiations concluded and 8 opened in 8 months. Most activity in Western Balkans. Croatia Existing before June 27 2001 Signed after June 27 2001 Under negotiation Moldova BiH Romania S & M Bulgaria Albania Macedonia

9. Network of Free Trade Agreements as of May 8, 2002 Breakthrough at Washington? Only 2 more negotiations concluded and 3 more opened. But Eastern Balkans catching up- greater balance. Concern focuses on Bulgaria and FRY. Croatia Existing before June 27 2001 Signed after June 27 2001 Under negotiation Moldova BiH Romania S & M Bulgaria Albania Macedonia

10. Network of Free Trade Agreementsas of mid October 2002 June milestone met in October. FRY and Bulgaria negotiating with all. But 10 negotiations to be completed in 2 months! 5 existing before June 27 2001 6 signed after June 27 2001 10 under negotiation (Numbers exclude Moldova) Commitment: 21 signed by end of 2002. Croatia Moldova BiH Romania Yugoslavia Bulgaria Albania Macedonia

11. Chairman of WT II in November calls a crisis meeting • Show-and-tell time set for December 2002 registers major progress • Establish which countries would fail to meet their commitments by Ministers (only two agreements – 3 countries) • Stop the clock over at year end to allow one remaining agreement to be finalised • Success in February 2003

12. Reasons for success • SEE ownership, small countries lead • Dedicated WG leadership, high-level representation, concrete targets, deadline and milestones, peer pressure, professional expertise, entrepreneurial secretariat • Donor country support, essential for candidate countries • EC overcame SEE scepticism by SAAs and by Thessaloniki Declaration 2003

13. III. What do the FTAs provide? • Free trade in goods within six years –tariffs and non-tariff barriers abolished Almost Completed • Harmonisation of trade-related legislation based on EU acquis and WTO rules and procedures In full progress • Evolutionary clause for liberalising trade in services Just starting

14. High-tariff countries and products

15. Eliminate tariffs on 90% of traded goods • Zero tariffs for manufactures in almost all agreements. • Zero tariffs for agricultural goods in only five agreements. Virtually no liberalisation of agriculture in six agreements. Limited in rest. • Thus, about half the agreements pass the overall 90 % test. Seven fail the overall test, rest borderline. • Agriculture is the critical sector for 5-10 agreements to conform to Mou.

16. Seven agreements fail both criteria of trade coverage – ten passbothGem report, July 2004 Alb-Mol, Alb-Mac Alb-S&M, BiH-Bul BiH-Rom, Cro-Mac, Cro-S&M Fail import-weighted coverage test Alb-Bul, Alb-Cro Bul-Mac, Bul-Mol Cro-Rom, Mac-Rom Mac-Mol Alb-Rom, Bul-S&M Cro-Mol, Rom-S&M, Fail HS-lines coverage test test

17. Measures under way to facilitate trade • Simplify customs procedures • Implement common rules of origin • Adopt EU competition policy • Implement international SPS procedures • Improve regional transport infrastructure

18. Customs procedures • The MoU requires countries to ”simplify customs procedures, …harmonise legislation, documentation and procedures with those of the EU; engage in mutual assistance between customs administrations…” • Queues and problems at border crossings are costly for business. Time is money. • Considerable TA being provided, EC, World Bank also by USA, Ireland in SP

19. Rules of origin • The MoU calls on the countries to apply a ”common set of preferential rules of origin”. • Major activity for 2005/6 is to implement Pan-european preferential rules of origin • Target is to cumulate origin diagonally within the SEE region – crucial for domestic and foreign investors • This will prove to EU that SEE countries are ready to participate in cumulation of origin on a Pan-European basis

20. Competition policy • MoU requires the countries to ”harmonise their competition law with that of the EU” and to strengthen the enforcement capacity of the relevant authorities. • If SEE countries adopt EU rules they will not use countervailing duties or anti-dumping measures against each other • CARDS/OECD assistance in 2005 on implementing competition rules.

21. Sanitary and phytosanitary standards • The MoU requires that legislation inter alia ”relating to plant, animal and human health … are compatible with the provisions of WTO, EU…” • Meeting SPS is essential for boosting agriculture exports and improving farmers income. • Major programmes for Food Quality and Infrastructure in 2003-07 by Sweden

22. Transport and communications infrastructure • Transport infrastructure essential to facilitate trade • Credible commitment to the SEE free trade area is crucial to obtain funding for regional infrastructure projects

23. Services • The MoU requires a clause in FTAs ”foreseeing the future liberalisation of trade in services” • Sweden funded a major study by the OECD to assess the ”prospects for regional co-operation” • EC CARDS is funding a major programme to harmonise regulatory regimes for key services on the EU acquis.

24. IV. Where is trade liberalisation going? • Increase transparency for business through one agreement rather than 28 • Inform business and consult with it • Create new institutions to manage a more extensive and complex agreement • Increase regional ownership of the process and its institutions ..The Working Group on Trade Liberalisation and Facilitation is currently considering these issues

25. Congratulations to the countries of the region and good luck! • www.stabilitypact.org • per.wijkman@telia.com