TIRANA, May 21 – A decade after joining the CEFTA regional trade agreement, non-tariff barriers continue to hamper trade exchanges among EU aspirant Western Balkan countries where intra-regional trade has failed to expand and continues to be concentrated on goods with low value added, a European Commission report has shown.
Examining untapped potential in the Western Balkans intra-regional trade, a European Commission discussion paper says burdensome import and export procedures is one of the main reasons behind the relatively low trade among the six Western Balkan countries.
“There are no tariffs and quantitative restrictions on trade in manufactured products between the Western Balkan countries and substantial progress has been made on reducing tariffs on agricultural goods under CEFTA, the Central European Free Trade Agreement. However, as in other regional free trade areas, non-tariff barriers continue to act as an impediment to the free flow of goods across borders,” says the Commission, noting that technical and administrative barriers to trade as well as sanitary and phytosanitary measures are the main non-tariff barriers applied in the region.
However, in the latest Doing Business report, Albania, Serbia and Macedonia rank among the top 25 performers out of 190 global economies in the ‘trading across borders’ indicator measuring time and cost to export.
Poor connectivity within the region is described as a major obstacle to economic development, trade and investment, with experts noting that for some Western Balkan capitals it is actually faster to reach Vienna than another capital in the region.
“The economies in the region share some similarities. All Western Balkan economies are very small and still relatively underdeveloped, with average GDP per capita in purchasing power standard at approximately one third of the EU level. In addition, they have significant domestic and external imbalances. Importantly, the stock and quality of transport infrastructure – a major trade facilitation factor, in general, is relatively poor,” says the report.
The Albania-Kosovo highway, known as the Highway of Nation, which Albania completed in 2010 and Kosovo three years later, is mentioned as an example of new infrastructure with a noticeable impact on both distance and time.
The EU is by far the main trading partner and investor of all Western Balkan countries, accounting for more than two-thirds of total imports and exports as well as foreign direct investment.
After trade with the EU, intra-regional trade comes second in importance, representing a fifth of all exports and a tenth of imports, but overall intra-regional trade has been rather stagnant, both in terms of volume and structure, over the last decade, says the report.
Serbia, the region’s largest economy, and Macedonia, the Western Balkan economy with the lowest tax burden, dominate regional exports.
“Intra-regional exports in the Western Balkans are geographically concentrated and most of them originate from Serbia. In 2016, around half of all merchandise intra-regional exports originated from Serbia, while slightly more than a fifth came from the former Yugoslav Republic of Macedonia,” shows the report, adding that exports are mainly absorbed by Kosovo and Bosnia and Herzegovina.
Differently from EU-dominated garment and footwear exports, Albania’s exports to the region are dominated by base metals, minerals and vegetables which comprised nearly three quarters of its regional exports in 2016 and were close to 70 percent of them a decade ago in 2007.
Albania’s exports of goods and services as a share of the GDP stand at 29 percent, being one of the region’s lowest. The low levels of exports indicates the country’s poor diversification of exports, three quarters of which rely on low value added ‘garment and footwear,’ ‘minerals, fuels and electricity’ and ‘construction materials and metals,’ exposing the country’s economy to industry-specific shocks such as the mid-2014 slump in commodity prices significantly reducing the country’s key oil and mineral exports.
Regional economic area
The European Commission report comes at a time a time when Western Balkan countries prepare to adopt measures for an EU-backed regional economic area, a test before their apparent eventual European Union integration which the EU has indicated could see some candidate countries join by 2025.
Back in mid-2017, Western Balkan leaders agreed to develop an EU-backed regional economic area of 20 million consumers where goods, services, investments and skilled workers can move without obstacles.
The regional economic area initiative foresees implementation of actions at all levels in the period between 2017 and 2020 with some actions extending until 2023.
“Fostering regional economic integration is seen as supplementing these countries’ efforts to join the EU, building upon previous initiatives, in particular the establishment of CEFTA,” says the European Commission report.
An earlier report by UNCTAD, the United Nations body responsible for international, has shown regional EU aspirant Western Balkans countries need to undertake business climate reforms and boost cooperation to attract increasing levels of foreign investment.
FDI in the Western Balkans, largely perceived as lacking rule of law and where corruption remains a key barrier to attract big investors, accounted for only about 0.27 percent of total global FDI in 2016, and declined by an annual 5 percent, at a faster pace compared to global FDI, unveiling the region’s lack of competitiveness.
Albania has a trade gap with all regional countries except from neighbouring ethnic-Albanian Kosovo.
Albania’s current cooperation with CEFTA member countries that includes six Western Balkan member countries and Moldova is currently poor and already hurt by frequent trade disputes and barriers.
Albania’s exports to CEFTA countries account for only about 14 percent of the total while imports for only 7 percent, compared to more than three-quarters of exports and two thirds of imports to and from EU member countries, according to Albania’s institute of statistics.
In its latest ‘Spring’ European economic forecast report, the EU’s executive arm, expects the Albanian economy to slow down to 3.6 percent in 2018, down from a nine-year post crisis high of 3.8 percent and recover to 3.9 percent in 2019 to register the highest growth rates among regional EU candidates.
The slowdown is related to this year’s completion of TAP and Devoll hydropower, the two major energy-related projects that drove Albania’s FDI and economic recovery for the past four years.
