With the support of the European Commission 1 Trade liberalization and FTAs A. Mançellari Faculty of Economics, UT Albanian Centre for International Trade (ACIT) Paper presented at the Conference “Trade Liberalization in the Western Balkan Countries”, Tiranë, With the support of the European Commission

2 1.Trade liberalization, structural reforms and integration - synergic processes 2.Bilateral FTAs and their conformity with MoU 3.Trade impacts of FTAs 4.Toward a regional free trade agreement?

With the support of the European Commission 3 I. Trade liberalization, structural reforms and integration From an extreme isolation, now deeply involved in an opening up process. Main steps: –Price and trade liberalization; current account liberalization; quantitative restrictions abolished; export liberalization and import tariffs reduction; emigration ; –WTO membership (2000) - substantial trade liberalization and institutional reforms; –Bilateral FTAs in the region; –SAA with EU-almost fully negotiated and hopefully soon to be signed; Complementary effects – economic, structural and institutional ones. Economic effects: In the literature – Potential benefits (cheaper consumption and better choice; increased production and allocation efficiency; new ideas and technology); potential costs (fear from anti- competitive behavior; reduced opportunity for learning by doing). –In reality: positive but insufficient; fragile macro-trade situation.

With the support of the European Commission 4 WTO and trade liberalization At the time of accession to the WTO (Sept. 2000), the country’s tariff offer presented a quite liberalized regime: –The maximum bound rate was 20%; –29% of goods nomenclature had the tariff level at 20%; –37% of goods nomenclature had the tariff level at 10%; –34% of goods nomenclature had the tariff level at 5 or 0%. –80% of the bound rates were the same as the applied rates; and –There was no quantitative restrictions of any sort. –According to ‘Sectorial Initiatives’, a reduction of tariffs within 10 years from the date of accession – following the demand from the respective businesses, a rescheduling of tariff reduction for a number of ‘sensitive’ products was required from WTO.

With the support of the European Commission 5 …Trade liberalization *2004*2005* Tariff levels 5(0- 30%) 4(0-20%)4(0-18%)4(0, 2, 10, 15%) 4(0, 2, 10, 15) Percentage of each tariff scale 3; 39.6; 26; 31,4 3; 39.6; 26.2; ; 41.39; 26.87; ; 30.3; 25.1; 27.5% 25.5; 28.0; 23.3; ; 25.9; 27.3; 22.6 Nominal average tariff (%) (5.71) 6.75 (6.33) Tariff-lines weighted average tariff (%) Import-weighted average tariff (%)

With the support of the European Commission 6 Actual and bound rates

With the support of the European Commission 7 …Trade and economic openness Openness index, as % to GDP (Goods Export+Import)/GDP (Mac-83.3) 36.9 (Ex+Im+Pr Tr)/GDP Goods exp./GDP (Mac- 30 ) 7.96 Export growth rates (%) (Goods +services export +import)/GDP (Ex+Im+S+Private Transfers)/GDP (Ex+Im+S+Private Transfers+FDI)/GDP

With the support of the European Commission 8 …Macro-trade situation (Percent to GDP) Trade Balance (IMF) C.A. Balance -offic. transfers excluded -offic. transfers included (IMF) Private transfers (IMF) Custom duties revenue/GDP (Min. Fin) (0.7% for Cr., Rom., Bulg.) 1.7

With the support of the European Commission 9 Some conclusions Albania has moved relatively quickly in liberalizing trade, but Reduction and removal of tariffs (and quantitative restrictions), although very important, is neither responsible nor the ‘golden key’ for solving the trade and macroeconomic problems. Why? First, for decreasing costs of trade, a focus on logistical, institutional and regulatory barriers (such as custom clearance, transport, and standards and their conformity assessment) is required. The latter are often “more costly than tariffs and generate no offsetting revenue” (WB, Global Economic Prospects 2005, p.77). Second, for increasing exports and improving the macro-trade situation, attention should be focused in structural reforms, improving the business climate and increasing competitiveness.

With the support of the European Commission 10 II. MoU and FTAs in the region MoU (27 June 2001): –Free trade between the signatories through a network of FTAs (May FTAs): at least 90% of the parties mutual trade by value and of the HS tariff lines –major tariff reduction in the beginning, with a transition period of 6 years. Elimination of quantitative restrictions (Art 1.1; 1.2.1; 1.2.2; 1.2.3). –Appropriate common set of preferential rules of origin (Art. 3); –WTO-consistent provisions on contingent protection (antidumping, and safeguard and CV measures, and also transparent and non-discriminatory measures on ‘beyond the border’ issues, such as public procurement, state aid and state monopolies (Art. 4); –Future liberalization of services (Art. 6); –Harmonization of legislation with that of EU (specifically on custom procedures; methodologies of collecting trade statistics; company law, company accounts and taxes; banking law; competition law, standards, technical rgulations, etc.) (Art. 5, 7, 8, 9). –FTAs enhance integration of the Signatory Countries into EU structures.(Art 1.4)

With the support of the European Commission 11 II. FTAs conformity with MoU

With the support of the European Commission 12 FTAs: Trade coverage FTA (year of entry into force) Country Trade coverage (art )Liberalization pace (art ) Share of HS lines harmonized (%) Share of mutual trade liberalization 1 (%) Share of HS lines fried upon entry into force (%) ALB-BIH (2003) Albania Bosnia and Herzegovina ALB-MAC (2002) Albania Macedonia ALB-S&M (2003) Albania S&M

With the support of the European Commission 13 FTAs: sectorial trade coverage FTACountry Share of HS lines harmonized (%) Share of mutual trade liberalization 1 (%) All productsAgric. Manu. All productsAgric. Manu. ALB-BIHAlbania Bosnia and Herzego vina ALB- MAC Albania Macedonia ALB- S&M Albania S&M

With the support of the European Commission 14 FTAs: conformity with other provisions of MoU (Messerlin and Miroudot (2003) Notes [a] i=initialled, s=signed, a=applied. [b] yes=notification of changes of agricultural policy; no=no notification. [c] 1=consultation required, 2=serious disturbances, 3=immediate measures, 4=proportionality. [d] 1=import surge, 2=serious injury, 3=like-product, 4=directly competitive product, 5=serious disturbances, 6=regional injury, 7=reference to the WTO safeguard provision. [e] 1=infant industry, 2=cap on the tariff, 3=cap on the import coverage, 4=limited to the implementation period, 5=reference to the Joint Committee. [f] 1=measures to be taken, 2=non- discriminatory measures, 3=no longer than necessary. [ g] 1=measures to be taken, 2=limited duration, 3=not to go beyond. [h] 1=only antidumping, 2=antidumping and CVD, 3=non classifiable. FTA ALB- BIH ALB- BUL ALB- CRO ALB- S&M ALB- MAC ALB- ROM 1. Agric. and special safeguard -Agricult. Policy [b] -Special safeguard [c] yes 1-4 yes 1-3 yes 1-4 yes 1-4 yes 1-3 yes Gen. safeguard and associates General safeguard [d] Structural adjustments [e] Re-export [f] Balance of payments [g] Antidumping and CVD Antidumping and CVD [h ] 1-2 1

With the support of the European Commission 15 Conformity with MoU-some conclusion Trade coverage : None of the Albania’s FTAs meet the import- weighted criterion, but some meet the tariff-line criterion. But ‘… the most important part of the trade barrier reduction …has already taken place’ (Christie, 2005) As in other countries, the figures for agriculture are too low. Conformity with other provisions : the provisions in FTAs-too general, vague and incomplete; legal and institutional problems. (Ex. rules of origin). Trade statistics related problems (HS 1996-HS 2002; etc.)

With the support of the European Commission 16 III. Trade and economic impacts of FTAs Hard facts and observations (see the following graphs and tables) –The share of trade with FTAs’ countries, too low (only about 7% in 2004), but a slight trend of increasing. ( Why? Trade potentials? Economic situation and size of economy; the stage of structural and institutional reforms; size of informal economy; infrastructure (hard and soft one); etc. Christie (2005): ‘…EU was, is, and will continue to be the most important trading partner for each country in the region’. –Tariff quotas (TRQ) in most of the cases, not fulfilled at all. (Why in literature TRQs are considered as a barrier? ) –With almost all the counterpart countries (except for UNMIK-Kosovo), Albania has a negative trade balance.

With the support of the European Commission 17 EU countries remain the main trade partners of Albania

With the support of the European Commission 18 …but a slightly increasing role of SEE

With the support of the European Commission 19 …Continued

With the support of the European Commission 20 FTA Albania-B&H Applied: As for 2004 –Exp: 0.06% (0.93%) –Imp: 0.06% (0.92%) Exported: –Clothing, animal skins, melons, etc. Imported –Machineries, construction materials, detergents, etc. –Top 10 products – 57% of imports.

With the support of the European Commission 21 FTA Albania-Bulgaria Applied: As for 2004 –Exp: 0.26% (3.89%) –Imp: 2.21% (33.6%) Exported: –Copper, furniture, etc. Imported –Electrical transmitters, unprocessed sunflower oil, etc. –Top 10 products – 36% of imports.

With the support of the European Commission 22 FTA Albania-Croatia Applied: As for 2004: –Exp: 0.07% (0.98) –Imp: 1.42% (21.64) Exported: –Vegetal products, medicinal herbs, skins and wool, etc. Imported –Natural gas, wheat, cement, electical energy, etc. –Top 10 products – 69% of imports.

With the support of the European Commission 23 FTA Albania-Macedonia Applied: As for 2004 –Exp: 1.28% (19.07) –Imp: 1.28% (19.49) Exported: –Petroleum bitumen, wooden furniture, carbomn producs, etc. Imported –Fruits, cigarettes, medicaments, etc. –Top 10 products – 41% of imports.

With the support of the European Commission 24 FTA Albania-Moldova Applied: As for 2004 –Exp: 0.0% (0.0) –Imp: 0.12% (1.86) Mostly imported –Sunflower seed oil, natural honey, etc. –Top 10 products (out of 12) – 99% of imports.

With the support of the European Commission 25 FTA Albania-Romania Applied: As for 2004 –Exp: 0.04% (0.56) –Imp: 0.48% (7.33) Exported: –Clothing, wooden furniture, etc. Imported –Mostly industrial product (detergents, hydro sanitry equipments, etc; also live animals, sunflower seeds, etc. –Top 10 products – 64% of total imports

With the support of the European Commission 26 FTA Albania-Serbia & Montenegro Applied: As for 2004 –Exp: 0.4% (5.93) –Imp: 0.76% (11.64) Mostly exported: –Bitumen oil, wood, fish, etc. Mostly imported: –Wheat, mice, sugar, wood, iron stakes, etc. –Top 10 products – 58% of imports.

With the support of the European Commission 27 FTA Albania-UNMIK/Kosovo Applied: –Exp: 4.59% (68.6%) –Imp: 0.23% (3.5%) Exported: –Concrete reinforcing bars and rods, bitumen oil, spare parts for printers, wood furniture, etc. Imported: –Transportation vehicles, aluminum waste and scrap, iron and still bars, potatoes, fruit juices, etc. –Top 10 products – 36% of imports.

With the support of the European Commission 28 IV. Toward a regional free trade agreement? For the moment: FTAs in the region, but not very effective. In the longer term (by ?): Christie (2005): ‘…fully free trade across the whole of Southeast Europe will only truly come about as part of an enlarged EU…’. By making FTAs ‘effective’, the way to EU is shortened for each country of the region. Problems encountered in implementing FTAs may overcome in a process of harmonizing FTAS and regulatory regimes. Various alternatives are discussed in the literature (Messerlin and Mirdout, 2003; 2004; etc), such as (i) expanding the competences of the TWG; (ii) an expanded CEFTA; (iii) creating a SEEFTA.

With the support of the European Commission 29 A SEEFTA? A classical SEEFTA (dealing only with trade in goods) or a modern SEEFTA (dealing also with ‘emerging core trade relations’, such as services, public procurement, intellectual property rights, etc)? The last option - seems to be the most effective one: –it implies the most important principles of the EU (such as the mutual recognition principle and the country of origin principle) –regional countries are at the same time ‘moving’ towards Europe. Economic models show a quite higher outcome of the modern SEFTA or a ‘maximal classical’ SEFTA compared to other options. The WGT Progress Report of May 2005 underlines that “A single Agreement would be more transparent for the business community and easier for governments to manage” (Stability Pact for South and Eastern Europe, 2005, p.3).