Trade liberalization and FTAs

With the support of the European Commission

1

Trade liberalization and FTAs

A. MançellariFaculty of Economics, UTAlbanian Centre for International Trade (ACIT)

Paper presented at the Conference “Trade Liberalization in the Western Balkan Countries”, Tiranë, 21. 10. 2005

With the support of the European Commission

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?


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.


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. • 2004 – following the demand from the respective businesses, a

rescheduling of tariff reduction for a number of ‘sensitive’ products was required from WTO.


…Trade liberalization

1991 1999 2000 2002 2003* 2004* 2005*

Tariff levels 5(0-30%)

4(0-20%) 4(0-18%) 4(0, 2, 10, 15%)

4(0, 2, 10, 15%)

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; 31.2

4.23; 41.39; 26.87; 27.51

17.2; 30.3;25.1; 27.5%

25.5; 28.0;23.3; 23.2

24.2; 25.9;27.3; 22.6

Nominal average tariff (%)

19.0 14.1 9.9 6.75 6.75 6.75 (5.71)

6.75 (6.33)

Tariff-lines weighted average tariff (%)

10.86 10.21 7.64 7.22 6.49 6.68

Import-weighted average tariff (%)

8.12 7.85 6.98


Actual and bound rates

Import tariffs: Actual rates as compared to bound rates, 2004

Tariff lines (%)

Average tariff change in percentage points

Tariff reduction as compared to bound rates

32.2 -4.52

The same tariff as the bound rates

61.4 0

Tariff increase as compared to bound rates

6.4 9.95

Net change as compared to bound rates

100 -2.12


…Trade and economic openness

Openness index, as % to GDP

1993 2000 2001 2002 2003 2004

(Goods Export+Import)/GDP

44.1 36.0 39.9 40.4 39.1(Mac-83.3)

36.9

(Ex+Im+Pr Tr)/GDP 47.6 53.1 53.2 52.8 49.8

Goods exp./GDP 6.9 7.4 7.3 7.8(Mac-30)

7.96

Export growth rates (%) -7.2 19.3 8.4 35.4 34.9

(Goods +services export +import)/GDP

59.8 63.7 66.5 65.8 62.0

(Ex+Im+S+Private Transfers)/GDP

71.4 76.9 79.3 79.5 74.9

(Ex+Im+S+Private Transfers+FDI)/GDP

75.3 82.0 82.3 82.6 79.4


…Macro-trade situation

(Percent to GDP)

1992 1995 1997 2000 2001 2002 2003 2004

Trade Balance (IMF)

-57.2 -17.5 -23.6 -22.2 25.0 -25.7 -23.4 -21

C.A. Balance -offic. transfers excluded -offic. transfers included (IMF)

-38.6

2.9

-6.4

-2.1

-12.2

-8.7

-7.4

-4.4

-6.4

-3.3

-9.7

-7.2

-8.2

-5.6

-7.3

-5.3

Private transfers (IMF)

18.61 11.1 11.4 11.9 13.2 13.3 13.7 13.3

Custom duties revenue/GDP (Min. Fin)

2.5 2.5 2.8 2.6 2.1 2.0 1.93 (0.7% for Cr., Rom., Bulg.)

1.7


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.


II. MoU and FTAs in the region

• MoU (27 June 2001):– Free trade between the signatories through a network of FTAs (May 2005 - 29 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)


II. FTAs conformity with MoU


FTAs: Trade coverage

FTA (year of entry into force)

Country Trade coverage (art. 1.2.2) Liberalization pace (art. 1.2.3)

Share of HS lines harmonized (%)

Share of mutual trade liberalization1 (%)

Share of HS lines fried upon entry into force (%)

ALB-BIH(2003)

AlbaniaBosnia and Herzegovina

91.093.0

91.788.6

4.726.6

ALB-MAC(2002)

AlbaniaMacedonia 91.6

93.179.589.6

87.459.8

ALB-S&M(2003)

AlbaniaS&M 89.7

89.337.589.1

85.988.6


FTAs: sectorial trade coverage

FTA Country

Share of HS lines harmonized (%)

Share of mutual trade liberalization1 (%)

All products Agric. Manu. All products Agric. Manu.

ALB-BIH AlbaniaBosnia and

Herzegovina

91.0

93.0

38.3

51.4

99.5

99.7

91.7

88.6

59.5

0.0

100.0

100.0

ALB-MAC

AlbaniaMacedonia

91.693.1

41.952.0

99.599.6

79.589.6

19.465.0

99.9100.0

ALB-S&M AlbaniaS&M

89.789.3

29.427.0

99.499.4

37.589.1

14.60.0

100.0100.0


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]

yes1-4

yes1-3

yes1-4

yes1-4

yes1-3

yes1-3

2. Gen. safeguard and associates General safeguard [d] Structural adjustments [e] Re-export [f] Balance of payments [g]

1-61-511-2

1-61-51-31-2

1-61-51-31-2

1-61-51-31-2

1-61-51-31-2

1-61-511

3. Antidumping and CVD Antidumping and CVD [h] 1-2 1-2 1-2 1-2 1-2 1


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.)


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.


EU countries remain the main trade partners of Albania

0%

20%

40%

60%

80%

100%P

erc

en

t

Albania: Geography of trade, 2002-2004, share in %

Other 4.03 4.16 3.08 17.1 27.34 26.6

SEE 3.85 3.82 7.09 7.6 6.56 7.2

EU 92.13 92.01 89.83 75.3 66.10 66.2

E 2002 E 2003 E 2004 I 2002 I 2003 I 2004


…but a slightly increasing role of SEE

0%

20%

40%

60%

80%

100%

Albania: geography of trade as percentage to total, 1980-2004

Other 36.7 50.7 6.1 7.13 4.83 41.6 47.2 25.9 30 34.3

SEE 30.6 24.3 3.9 3.87 7.09 28.2 19.1 7.6 7.04 7.21

It+Gr+Germany 32.7 25 90.00 89.00 88.08 30.2 33.70 66.5 63.00 58.50

E 1980

E 1989

E 2002

E 2003

E 2004

I 1980

I 1989

I 2002

I 2003

I 2004


…Continued

Albania: geography of trade, 1980-2004

0

10

20

30

40

50

60

70

80

90

T 1980 T1989 T 2002 T 2003 T 2004

Per

cent

It. +Gr. +Germany SEE Other


FTA Albania-B&H

• Applied: 1.12.2004• 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.

Exports to, and imports from, Bosnia and Herzegovina, 2000-2005, as % to regional

total

-0.2

0.6

1.4

2.2

3

2002 2003 2004 2005/1

Per

cent

Exports to B&H

Imports from B&H


FTA Albania-Bulgaria

• Applied: 1.9.2003• 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.

Exports to, and imports from, Bulgaria, 2000-2005, as % to regional total

0

5

10

15

20

25

30

35

40

45

2002 2003 2004 2005/1

Perc

ent

Exports toBulgaria

Imports fromBulgaria


FTA Albania-Croatia

• Applied: 1.06.2003• 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.


Exports to, and imports from, Croatia, 2000-2005, as percentage to regional total

0

5

10

15

20

25

30

35

40

45

50

2002 2003 2004 2005/1

Perc

ent Exports to Croatia

Imports from Croatia


FTA Albania-Macedonia

• Applied: 15.07.2002• 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.

Exports to, and imports from, Macedonia, 2000-2005, as percentage to regional total

-2

1

4

7

10

13

16

19

22

25

2002 2003 2004 2005/1

Perc

ent

Exports toMacedonia

Imports fromMacedonia


FTA Albania-Moldova

• Applied: 1.11.2004• 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.

Exports to, and imports from, Moldova, 2000-2005, as percentage to regional total

-0.2

0.1

0.4

0.7

1

1.3

1.6

1.9

2.2

2002 2003 2004 2005/1

Perc

ent

Exports to Moldavia

Imports fromMoldavia


FTA Albania-Romania

• Applied: 1.01.2004As 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

Exports to, and imports from, Romania, 2000-2005, as percentage to regional total

0

3

6

9

12

15

2002 2003 2004 2005/1

Perc

ent

Exports toRomania

Imports fromRomania


FTA Albania-Serbia & Montenegro

• Applied: 1.08.2004• 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.

Exports to, and imports from, Serbia & Montenegro, 2000-2005, as percentage to

regional total

-2

6

14

22

30

38

46

54

62

70

2002 2003 2004 2005/1

Per

cent

Exports to Serbia &Montenegro

Imports from Serbia &Montenegro


FTA Albania-UNMIK/Kosovo

• Applied: 1.10.2003• 2004

– 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.


Exports to, and imports from, Kosovo, 2003-2005, as percentage to regional total

53.72

68.65

51.79

3.12 3.50 3.450

10

20

30

40

50

60

70

80

90

100

2002 2003 2004 2005/1

Perc

ent

Exports toKosovo

Imports fromKosovo


IV. Toward a regional free trade agreement?

• For the moment: FTAs in the region, but not very effective.• In the longer term (by 2010-20015?): 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.


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).

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Trade liberalization and FTAs