Regional Trade Integration in SEE Benefits and Challenges

Silvana Mojsovska
Editor
REGIONAL TRADE INTEGRATION IN

SOUTH EAST EUROPE:
BENEFITS AND CHALLENGES
Proceedings of International Conference
INSTITUTE OF ECONOMICS - SKOPJE
Dr. Silvana Mojsovska

Editor

SOUTH EAST EUROPE:
Institute of Economics Skopje

University St. Cyril and Methodius
2013

SOUTH EAST EUROPE:
Editor:
Publisher:
Institute of Economics Skopje
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 of
Economics Skopje. 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

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CONTENT
Predrag Bjelic
NON-TARIFF BARRIERS AS OBSTACLES TO
CEFTA 2006 INTRAREGIONAL TRADE ..............
(1532)
Irena Kikerkova
EFFECTS OF ECONOMIC INTEGRATION
WITHIN CEFTA-2006 EVIDENCE FROM THE
MACEDONIAN EXPERIENCE ...............................
(33-49)
Silvana Mojsovska, Krum Efremov, Marija Ackovska
CEFTA 2006 IMPLEMENTATION
INSTITUTIONAL AND POLICY PERSPECTIVES
(51-68)
Vanco Uzunov
COMPETITIVENESS OF MACEDONIAN
ECONOMY DURING THE TRANSITION
PERIOD (1991-2011) .................................................
(71-91)
Tatjana Petkovska Mirchevska, Tatjana Petkovska,
Jasmina Majstoroska, Iskra Stanceva Gigov
THE INFLUENCE OF THE NON-PRICE
FACTORS OF COMPETITIVENESS ON THE
ADVANCEMENT OF THE EXPORT OFFER OF
THE REPUBLIC OF MACEDONIA WITHIN
CEFTA .......................................................................
(93-116)
Danijela Jacimovic
FDI EFFECTS TO THE BALANCE OF
PAYMENT IN THE WESTERN BALKANS
COUNTRIES .............................................................. (119-131)
Silvana Mojsovska, Gordana Tosheva
TRADE 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)
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 and
Political 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 and
researchers 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.
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 the
authors 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,
CONFERENCE AGENDA
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 of
Economics Skopje
Dr. Vesna Bojicic Dzelilovic, LSE
09:45-11:15 First panel: CEFTA 2006
Speakers:
1. Mrs. Renata Vitez, CEFTA 2006 achievements and
issues
2. Dr. Predrag Bjelic, Non-tariff barriers as obstacles to
CEFTA 2006 intraregional trade
3. 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
Discussion
Moderator: Dr. Vesna Bojicic Dzelilovic, LSE
11:15-11:45 Coffee break
11:45-13:00 Second panel: THE IMPACT OF THE REGIONAL

TRADE INTEGRATION ON THE MACECONIAN
COMPETITIVENESS
Speakers:
1. Dr. Vanco Uzunov, The competitiveness of the
Macedonian 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 countries
3. Mrs. Ljubica Nuri, Effects of the regional trade
integration on the Macedonian companies
Discussion
Moderator: Dr. Silvana Mojsovska, Institute of
Economics - Skopje
13:00-14:15 Lunch break
14:15-15:30 Third panel: PERSPECTIVES FOR FURTHER
REGIONAL 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 effects
3. Dr. Biljana Sekulovska-Gaber, Bilateral versus
multilateral approach towards regional integration in
South East Europe
Discussion
Moderator: Dr. Krum Efremov, Ministry of Foreign
Affairs of the Republic of Macedonia
15:30-15:45 Closing remarks
Dr. Silvana Mojsovska, Institute of Economics - Skopje
PART 1
CEFTA 2006
Dr. Predrag Bjelic; Non-tariff barriers as obstacles to CEFTA 2006
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-tariff
measures 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

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

Most of the Western Balkan economies were part of a single
Yugoslav 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 finally
resulted 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,
16
Chart 1: Structure of exports of selected Western Balkan economies

by main export markets, 2009
EU
Se
rb
ia
M
on
te
ne
gr
o
ro
at
ia
iH
CEFTA
2006
RoW
lb
an
ia
100%
80%
60%
40%
20%
0%
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 of
Montenegro 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 EU
products. 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.
17
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
Export
of
Albania
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
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
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
42
69
93
71
134
49
64
60
53
69
2008
2009
Montenegro
Kosovo3
Import
of
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
11.113
12.198
13.348
9.544
9.106
817
949
1.051
778
811
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
449
572
701
755
817
534
576
713
689
797
Montenegro
Kosovo10
2006
2007
2010
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, State
Agency for Statistics of the Republic of Macedonia, Statistical Office of Kosovo.
Disclaimer: The amounts related to Bosnia and Herzegovina have been converted from
Convertible 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 EUR
being valid on June 30, 2006 (1 USD = 0.7825 EUR). The amounts related to Kosovo trade
with EU in 2010 are estimations.
As a separate customs territory defined under UNSCR 1244.
18
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 flows
were 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 the
Western 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 reduced
in 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 Working
Paper no. 185) Washington D.C.: The World Bank, p.8.
19
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 the
possibility 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 delatnost
Ekonomskog fakulteta, Beograd, Vol.1, 2009, p. 2.
20
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, many
countries 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 the
administrative 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 the
foreign 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 Cooperation 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.
21
Table 2: Ranking of barriers faced by Western Balkans exporters,

by market, 2004
Ranking
(by importance
of barrier)*
1
2
EU Market
Technical standards
and certification
Quality control and
consumer protection
Customs barriers
---
South-Eastern European
market
Customs procedures
Bureaucratic registration
Technical standard and
certification
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 the
remaining of the paper.
22
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 from
differences 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 became
part 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 for
International Law T.M.C. Asser Institute, The Hague, 1975, p. 8.
23
Procedural barriers to trade are second major group of

administrative barriers and they represent all administrative
procedures that obstruct international trade and, especially, imports.
They are referred to as trade procedures in WTO and include all
activities, practices and formalities in connection to collection,
presentation, communication and data processing necessary for
movement of goods in international trade. All economies in the
world require some administrative procedures before goods are
released on the local market. Many of these procedures are
important, like testing of goods, in order to protect environment of
the local economy and the health of its citizens. Usually, the
administrative procedures are divided into two groups: border
barriers and intra-economy procedures. The border barriers are
closely connected with operation of the customs authorities and other
state bodies at the border, like sanitary and phytosanitary inspectors.
The intra-economy procedures incorporate all administrative
procedures necessary for obtaining various approvals and clearances
that serve as a precondition for imports, as well as exports. Many of
the administrative procedures are usual and necessary for the
protection of health and wellbeing of a nation, while some of them
are obstructive to the international trade, unnecessary from the
standpoint of health protection and usually very recently adopted.
These administrative procedures have a protective character for the
local economy.8
According to a study by the Chamber of Economy in
Montenegro, the most important administrative trade barriers in
Southeast Europe are:
1. Discrepancy between working hours of Customs and working
hours of various inspections;
2. Excess number of forms and documentations for border
control;
3. Nonrecognition of Quality certificates;
8
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 delatnost
Ekonomskog fakulteta, Beograd, Vol.1, 2009, p. 4.
24
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 subindicator 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 Border
Administration 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 similar
ranking 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.
Chamber of Economy of Montenegro, CEFTA week 2009: To European

Integration through Regional Economic Cooperation, podgorica, 2009, p. 22.
25
Chart 2: Results of Trading across Border Indicator for Countries in

transition
Iran
131
76
Afganistan
183
169
Ukraine
139
178
162
141
156
181
Russian Federation
Kyrgyz Rep.
35
Georgia
177
82
69
Armenia
34
Montenegro
66
98
Croatia
71
75
Albania
50
100
150
200
Source: World Bank, Doing Business 2011 Report, Trading Across Borders Indicators, 2011.
If we focus on the Western Balkan countries, we can see that

Montenegro 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 98th place, as it
26
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
EXPORT
Economy
Rank
IMPORT
Documents
(number)
Time
(days)
Cost
(USD per
container)
Documents
(number)
Time
(days)
Cost
(USD per
container)
Albania
75
19
725
18
710
B&H
71
16
1,240
16
1,200
Croatia
98
20
1,281
16
1,141
Macedonia
66
12
1,376
11
1,380
Montenegro
34
14
775
14
890
Serbia
74
12
1,398
14
1,559
Source: World Bank, Doing Business 2011 Report, Trading Across Borders Indicators, 2011.
According to the Logistics Performance Index (LPI) shown

in 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.
27
Table 4: Results of Logistics Performance Index (LPI) for

Countries in transition, 2010
Country
LPI
Customs
Infrastructure
International
shipments
Logistic
competence
Tracking
&tracing
Timeliness
Turkey
Kazakhstan
Uzbekistan
Macedonia
Croatia
Europe
&Central Asia
Serbia
B&H
Azerbaijan
Kyrgyz Rep
Georgia
Russian
Federation
Ukraine
Iran
Moldova
Turkmenistan
Albania
Montenegro
Tajikistan
Afghanistan
3.22
2.83
2.79
2.77
2.77
2.82
2.38
2.20
2.55
2.62
3.08
2.66
2.54
2.55
2.36
3.15
3.29
2.79
2.83
2.97
3.23
2.60
2.50
2.76
2.53
3.09
2.70
2.96
2.82
2.82
3.94
3.25
3.72
3.10
3.22
2.74
2.35
2.41
2.92
2.60
2.75
3.33
2.69
2.66
2.64
2.62
2.61
2.19
2.33
2.14
2.44
2.37
2.30
2.22
2.23
2.09
2.17
3.41
3.10
3.05
3.18
2.73
2.55
2.30
2.48
2.37
2.57
2.67
2.68
2.65
2.33
2.67
2.80
3.18
3.15
3.10
3.08
2.61
2.15
2.38
2.72
2.51
2.60
3.23
2.57
2.57
2.57
2.49
2.46
2.43
2.35
2.24
2.02
2.22
2.11
2.14
2.07
2.17
1.90
2.22
2.44
2.36
2.05
2.24
2.14
2.45
2.00
1.87
2.79
2.44
2.83
2.31
2.64
2.54
2.42
2.24
2.59
2.65
2.17
2.34
2.39
2.32
2.25
2.09
2.49
2.50
3.00
2.38
2.39
2.44
2.25
2.37
3.06
3.26
3.17
3.51
3.01
2.65
3.16
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 crosscountry benchmarking studies, such as the Global Competitiveness
Report. In the publication Global Enabling Trade Report, WEF
publishes the results of the Enabling Trade Index (ETI) which
shows how easy is to access markets of observed countries. One
segment 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.
28
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 and
Croatia, 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 as
Macedonia, 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
Singapore
Georgia
Montenegro
Albania
Croatia
Turkey
Serbia
Macedonia,
Armenia
B&H
Azerbaijan
Ukraine
Russia
Kyrgyz Rep
Kazakhstan
Tajikistan
Burundi
BORDER
ADMINISTRATION
SUBINDEX
Efficiency of
Customs
Administration
Efficiency of
Import-Export
Procedures
Transparency
of Border
Administration
1
37
55
59
60
61
64
75
84
90
105
106
109
115
121
122
125
1
31
74
49
54
69
64
108
76
106
38
110
85
81
103
114
125
1
38
49
62
74
52
68
59
89
58
123
98
110
116
125
124
104
2
42
54
73
59
62
68
58
109
108
87
102
115
123
81
89
125
Source: World Economic Forum, The Global Enabling Trade Report, Davos, 2010.
29
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 ranked
considerably 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 trade
flows 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.
30
References
1. Bjeli, Predrag (2004) Necarinske barijere u meunarodnoj
trgovini Prometej, Beograd.
2. Bjeli, Predrag (2005) Trade Policy of the European Union as
a 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 for
Comparative 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.
31
7. Gauait Wittich, Vitalija (2005) Some Aspects of Recent

Trade Developments in South-East Europe (UNECE
DISCUSSION PAPER SERIES No. 2005.6), Geneva: United
Nations 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 in
Central 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 and
Development, Working Paper No. 113, February 2010.
32
Dr. Irena Kikerkova; Effects of economic integration within CEFTA-2006 ...
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 CEFTA2006 EVIDENCE 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 memberstates experienced a positive impact upon their mutual trade
exchange of goods. This is especially true for Croatia that was the
greatest 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 h a d
managed to realize a trade surplus of about half billion American
Full-time professor, Faculty of Economics, University St. Cyril and Methodius

Skopje
33
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 substantial
progress 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 diagonal
cumulation.
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 are
very uncertain.
34
Introduction
CEFTA-2006 is a free trade area created among the Western
Balkan 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 investors rights.2
During the last five years it was evident that the political
doubts on the establishment of CEFTA-2006 among Albania, Bosnia
and 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
Balkans free trade area is however not completely available. Despite
the effort of the CEFTA-2006 Secretariat on the establishment of the
CEFTA-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 countries at the export side. At the import side this
country 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
See: Official Gazette of the Republic of Macedonia, Nr. 69/2007, Skopje, 2007
35
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 American
dollars, 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 the
trade 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 evidenced
in 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.
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. 20
4
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. 18
36
1. Effects from the creation of CEFTA-2006 in the

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 memberstates 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 the
trade 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 economic
situation 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. 67
6
www.statistics.gov.mk
37
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 Import
2006*
2007
2008
2009
2010
787.51
991.72
1,408.95
1,000.42
1,018.32
400.19
613.70
761.68
600.36
628.11
Total Trade Exchange

with CEFTA-2006
1,187.70
1,605.42
2,170.63
1,600.78
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 the
Republic 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 and
Monte 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 by

the 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 to
CEFTA-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.
www.statistics.gov.mk
38
Table 2: Trade exchange of goods of the Republic of Macedonia

and CEFTA-2006 member- states (in million US dollars) *
Year
Serbia
E
Croatia
I
B&H
I
Albania
I
Moldavia
E
I
Monte Negro
E
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
0,17
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
84.94
49.12
72.38
22.89
0.35
0.92
27.43
1.43
113.3
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 2011
Macedonia 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
www.mchamber.mk
39
2. Trade pattern of the trade exchange of goods of the

Republic of Macedonia and CEFTA-2006 memberstates
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 trade
partner 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 confectionary
products 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. CEFTA2006 creates about 30% of the total import of agricultural goods in
Macedonia. About 33.5% of this amount comes from Serbia, while
Kikerkova, I. (2009): CEFTA-2006 as basis for economic reintegration 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, p. 164 and
www.mchamber.mk
40
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 from
the 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 the
total 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 nonagricultural goods for Macedonia are again Serbia and Croatia.13
It is evident that the most frequently exchanged nonagricultural 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

Methodius University, Faculty of Economics - Skopje, Skopje, p. 165 and
www.mchamber.mk
11
www.mchamber.mk
12
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. 849
13
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
41
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 the
Macedonian 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 out
that 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 convenient
circumstances 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

42
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 interindustrial 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 EUcountries 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 socalled 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 effectively
implement 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.

Methodius University, Faculty of Economics - Skopje, Skopje, p. 167
43
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 the
imposition 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 other
markets 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 memberstates with the EU regarding the interregional trade exchange of
15
See: Official Gazette of the Republic of Macedonia, Nr. 69/2007, Skopje, 2007
www.mchamber.mk
17
www.mchamber.mk
16
44
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 area
among 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 administrative
barriers 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 to
customs, customs to government and customs to business
cooperation;
18
www.mchamber.mk
Official Gazette of the Republic of Macedonia, Nr. 184/2011, Skopje, 2011
20
www.mchamber.mk
21
CEFTA E-Newsletter/03, October, 2011
19
45
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 among
member-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 national
certificates 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 CEFTA
Sub-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
23
www.mchamber.mk
CEFTA E-Newsletter/03, October, 2011
46
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 same
time 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 accession
of 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 and
UNMIK 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
47
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 economic
capacity of each of its member-states and the low level of their
productiveness and competitiveness. The fact that all of the memberstates 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 trade
liberalization 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 nontrade 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 has
increased 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 nontraditional 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.
48
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 economic
reintegration 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 the
Macedonian 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 CEFTA2006 for the Western Balkans Trade Exchange of Goods in
Chinese Business Review, Volume 10, Number 10, David
Publishing 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, 2007
7. 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
49
Dr. Silvana Mojsovska, Dr. Krum Efremov, Dr. Marija Ackovska; CEFTA 2006 ...
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 2006
institutional 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.
Full-time professor in International Economics, Institute of Economics Skopje,

Ph.D in Economics, Head of Directorate for Economic Diplomacy at the Ministry
for foreign Affairs of the Republic of Macedonia
3
Assistant professor, Institute of Economics Skopje
2
51
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. CEFTA
2006 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 the
trade 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 regulating
this 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 69/2007
5
The implementation of CEFTA 2006 started in 2007
6
World Trade Organization (www.wto.org)
52
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 directly
competitive 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 period
exceeding 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 particular
sensitivity of the agricultural market, if imports of products
originating in one party, which are the subject of concessions
cause 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 measures
shall 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)

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)
8
53
to the other parties could pose serious threat to the system, if this
mechanism is often used by the parties.
Another area for trade protection under CEFTA 2006 is related
to serious balance of payment difficulties. In such case, the party
concerned may adopt restrictive import measures on an erga omnes
basis in accordance with WTO provisions. Such measures shall, in
particular, be of limited duration and may not go beyond what is
necessary to remedy the balance of payments situation. The
measures shall be progressively relaxed as balance of payments
conditions improve and they shall be eliminated when conditions no
longer justify their maintenance. The party shall inform the other
parties forthwith of their introduction and, whenever practicable, of a
time schedule for their removal.11
In addition to these measures, CEFTA 2006 parties are also
entitled to undertake antidumping measures (Article 22), in case of
disclosed distortion of the domestic market caused by imported
products. The provisions on antidumping and safeguard measures are
in line with GATT 1994 (Article VI), while WTO legal framework
should be also respected during implementation of CEFTA 2006.
This has been regulated with Common declaration for
implementation of the WTO rules and procedures signed by CEFTA
2006 parties, provided that some of them were not WTO members at
the time of conclusion of the Agreement.12
Along with the possibility for trade protection within CEFTA
2006 under specific conditions, the Agreement also contains
provisions about the mechanisms for fulfillment of obligations by the
parties, such as mediation (Art.42) and arbitrage for dispute
resolution (Art.43). These mechanisms are rather important, as the
broad definition of the possibility for the parties to undertake
protection measures was expected to be a subject of various
interpretation by the parties (in their favor), therefore leading toward
introduction of measures which would not be accepted as allowed by
11
Ibid, Article 25 (http://www.cefta.int)

At the time of conclusion of CEFTA 2006 Agreement, WTO members were
Albania, Croatia, Macedonia and Moldova.
12
54
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
of transit procedures, implementations of additional customs duties
and other measures. Some of these measures were considered as not
allowed by the parties, to which they were imposed, resulting into
issue among both parties. Over the period 2007-2011, there were 65
measures (in total) introduced between the CEFTA 2006 parties.
According to the subject, they could be classified in the following
areas:13
Agriculture - 46 issues (mainly related to phytosanitary

measures)
Industry 5 issues (mainly related to technical barriers of
trade)
Combined (agriculture and industry) 14 issues (mainly
related to the nontariff barriers)
13
The data about the issues raised among the CEFTA 2006 parties were provided by
the CEFTA 2006 Secretariat
55
In more details, the issues raised in agriculture included:

Complicated and expensive inspection procedures
Introduction of safeguards and import prohibition without
notice
Means of quotas allotment and abolition of concessions
Prices of inspection and customs offices services
Vine categorization
Customs valuation of the import prices
Obligations for products labeling
Quantitative export restrictions
Different excise rates for tobacco products
Re-assessment of the rules of origin certificates
Non-recognition of the phytosanitary certificates
Issues raised in industry included:
Non-sufficient transparency of the public procurement
procedures
Non-recognition of the different types of licenses for subcontracting jobs
Favoring domestic companies on tender procedures
Complicated procedures for registration and mutual
recognition of the medical production
Partial recognition of the certificates of rules of origin and
EUR1
In addition, the combined measures (industry and agriculture)
included:
Practice of adoption of legislation without notification to
the other parties
Procedures of customs valuation by referent prices
Procedures for obtaining transport licenses for transit
Trade embargo
Introduction of additional taxes
Mutual recognition of customs offices stamps
Verification of EUR1 according to the rules of origin
Access to the information for import/export procedures
56
The classification shows that the interpretation of the trade

protection measures vary among the parties, in particular with
regards to the agricultural products. Such situation was expected to
occur, given the wide framework for trade protection provided with
Articles 23 and Article 23bis, as well as differences in the parties
policies, procedures and standards. Particularly harmful for the
process of trade integration could be Article 23bis, given the
possibility for the parties to undertake measures without prior
consultation to the parties. Successful implementation of CEFTA
2006 depends upon extensive harmonization of trade rules,
procedures and standards in the region. This is rather difficult to be
achieved in a relatively short period of time, as well as it represents
resource consuming process, but undeniably indicates the need for
institutional and policy adjustment among the CEFTA 2006 parties.
On the other hand, adjustment or harmonization is closely linked
with the importance of the intra-regional trade for the countries - the
more countries trade among each other, they would be more
interested for simplification and unifications of the rules and
procedures.
1.3. Volume and structure of the CEFTA 2006 intraregional trade
The period since formation of CEFTA 2006 has been short,
but enables perception about the importance of the intra-regional
trade for the CEFTA 2006 countries. As indicated on the Graphic 1,
the intra-regional exports increased in the absolute terms over the
period 2009-2011 (from EUR 5847m up to EUR 7241m), but the
share of intra-CEFTA 2006 exports in the total exports dropped from
28.2% in 2009 to 24.6% in 2011. The absolute increase of the
exports was largely attributable to the overall increase of the CEFTA
2006 countries trade over the period, while the decline of the
exports in the total performance confirms the primary trade
orientation of the SEE countries toward the EU. The intra-CEFTA
2006 share of about 25% in the total exports of the SEE was largely
attributable to Serbia, Croatia and B&H which absorbed around 82%
57
of the intra-regional exports in 2011, while Macedonia had share of

additional 12%. This shows that intra-CEFTA 2006 exports have
been mostly done on the former Yugoslav market.
On the imports side, there has been also an increase of the
import flows over the period 2009-2011 (from EUR 5426m up to
EUR 6792m), while the share of the intra-CEFTA 2006 trade has
slightly increased from 11.8% to 12.2%. Again, B&H, Serbia and
Croatia absorb around 61% of the total intra-CEFTA imports. This
pattern would change as Croatia will leave CEFTA 2006 on 1st of
July 2013 upon EU membership, but the former Yugoslav market is
likely to remain core of further trade integration of the region.
Graphic 1. CEFTA 2006 trade 2009-2011 (in EUR mil)
Source: CEFTA 2006 Statistics (www.cefta.int)
The regional trade integration within CEFTA 2006 is

predominantly determined by the intra-regional structure of the
exports and imports. As presented on Table 1 and Table 2, the
Parties trade with similar products mostly mineral fuels, iron and
steel. This indicates that the countries do not have wide range of
products on their exports and imports lists, implying effect of
substitution, rather than complementarity in their intra-regional
trade. In this context, limited diversification of the exports acts as
58
obstacle to deeper regional integration. This should be taken into

account by the policy-makers, in perspective of promotion of
CEFTA 2006 as an attractive market for the domestic exportoriented companies.
Table 1. Most exported products within CEFTA 2006 (data refer to 2010)
Albania
B&H
Iron and steel
Mineral fuels
Aluminum and
aluminum
products
Iron and steel
processed
products
Beverages,
alcohol and
vinegar
Croatia
Macedonia
Moldova
Montenegro
Serbia
Kosovo
Source: National Statistical Offices of CEFTA 2006 countries
Table 2. Most imported products within CEFTA 2006 (data refer to 2010)
Albania
B&H
Croatia
Macedonia
Iron and steel
Mineral fuels
Sugar and
sugar processed
products
Iron and steel
processed
products
Paper and
paper products
Moldova
Montenegro Serbia
Kosovo
X
X
Source: National Statistical Offices of CEFTA 2006 countries
59
Another aspect which should be mentioned with regards to the

structure of CEFTA 2006 trade is the technological level of the
traded products. In 2009, around 59% out of the total exports of
CEFTA 2006 (intra and extra CEFTA) consisted of intermediate
products from industries with lower or mid-upper technology.14 No
precise data were available for CEFTA 2006, although the
percentage of the intermediate products is even higher, based on the
fact that the industries where final products dominate in the exports
do not participate extensively in the intra-CEFTA 2006 export. This
particularly refers to the textile industry, which exports consists of
around 93% final products, but its share in the intra-CEFTA 2006
exports has been only 5%, as well as industry producing machinery
and equipment with share of 60% of the final products, out of which
24% have been subject to intra-CEFTA exports. The situation has
been better with regards to the industry of food, beverages and
tobacco with 85% share of the final products, out of which 50% has
been classified as intra-CEFTA 2006 exports. Implicitly to its higher
share on the exports side, this industry has been important on the
imports side, as well, where final products have share of 80% in the
total imports, out of which 30% has been absorbed by the regional
market.15
Limited diversification of the exporting and importing
industries in CEFTA 2006 parties, in particular with regards to the
export of final products, indicates that the countries have been
specialized in similar industries, which could be positive from the
perspective of the development of the intra-regional trade if
countries have well designed foreign trade policies for allocation of
the production factors in the most effective and efficient manner.
Otherwise, the possibilities for trade decrease. On the other hand,
achievement of the policy compliance among CEFTA 2006 parties is
rather challenging process and requires substantial policy-makers
willingness and institutional capacity.
14
15
Calculations based on OECD BTDixE Database

Ibid.
60
2. Institutional and policy-set up of CEFTA 2006

With regards to the implementation, CEFTA 2006 represents
complex agreement which involves different institutions at national
level, as well CEFTA 2006 bodies. Although the Agreement
stipulates consultation and/or notification about the changes into the
foreign trade system of an individual party, the practice indicates that
the process of implementation faces difficulties, in particular caused
by introduction of different safeguards by the parties, adoption of
regulation without proper notification to the other parties, as well as
existence of different customs procedures and taxes, non-recognition
of licenses and other trade documentation and limited transparency
with regards to the introduced measures. CEFTA 2006 institutional
structure has been set to reduce or alleviate such difficulties in the
process of implementation, but its effectiveness is determined by the
willingness and commitment of the policy-makers for intra-regional
trade advancement.
2.1. Institutional structure of CEFTA 2006
The Agreement on CEFTA 2006 has stipulated establishment
of several joint bodies of the parties, in purpose of providing driving
force for the implementation of the Agreement. These includes: Joint
Committee; Sub-committee for agriculture, including sanitary and
phyto-sanitary measures; Sub-committee for tariffs and rules of
origin; and Sub-committee for technical barriers in trade and nontariff barriers.
Joint Committee that consists of Ministers responsible for
foreign economic relations in each party is responsible for
supervision and administration of the implementation of CEFTA
2006. As stipulated in the Agreement, should any divergence with
respect to the interpretation and application of this Agreement arise,
the parties concerned shall make every attempt through co-operation
and consultations, if necessary in the Joint Committee, to arrive at a
61
mutually satisfactory resolution.16 The agreements of the Joint

Committee should be made by consensus. Due to the high level of
the Joint Committee representatives, and, in purpose to enhance the
efficiency in the implementation of the Agreement, CEFTA 2006 has
set three additional sub-committees to deal with the operational
issues.
The Sub-committee for agriculture, including sanitary and
phyto-sanitary
measures
consists
of
senior
civil
servants/representatives from respective Ministries or other
institutions dealing with issues in this area in the CEFTA 2006
parties. It has a task to facilitate trade in agricultural products within
the region and to ensure that protection of plant health, animal health
and food safety and other measures applied in agricultural trade do
not unjustifiably restrict trade.17 In this context, this Sub-committee
should primarily serve as a forum for regular exchange of
information between the Parties, relevant for the trade in agricultural
products, in particular with regards to foreseen or undertaken
measures between the parties and planned or adopted regulation.
Also, the Sub-committee should deal with complaints by a party
concerning the possible discriminatory application by other parties of
measures contrary to the CEFTA Agreement. In this manner, it is
expected for most of the issues related to the trade in agricultural
measures, sanitary and phyto-sanitary measures to be resolved on the
Sub-committee level. Only the most complicated should be
transferred to the Joint Committee.
The Sub-committee for tariffs and rules of origin consists of
Directors-General of Customs authorities and senior civil servants
from CEFTA 2006 parties. The main responsibility of this Subcommittee is to simplify and facilitate customs procedures and
reduce, as far as possible, the formalities imposed on trade. Also, the
focus should be on implementation of the common rules of origin in
all the parties in line with procedures in CEFTA 2006. The Subcommittee should serve as a regular forum for exchange of relevant
16
17
CEFTA 2006 Structures (www.cefta.int)

Ibid.
62
information among Customs authorities and enhancement of their

cooperation, in particular with regards to setting-up integrated border
management systems, single windows and data harmonization in the
region. Implementation of common rules of origin is issue of specific
interest for all CEFTA 2006 parties, which is primarily related to
ensuring validity of the certificates of origin on the territory of the
region that should be facilitated by this Sub-committee.
The Sub-committee for technical barriers in trade and nontariff barriers (NTBs) has very important role in CEFTA 2006, given
the rising significance of the NTBs in the world trade system. The
Sub-committee consisting of senior civil servants responsible for
dealing with these issues in national administrations should identify,
review and propose measures for elimination of technical barriers to
trade and non-tariff barriers among the parties. One of the main tasks
of the Sub-committee includes exchange of information on a regular
basis to identify and review complaints in each party concerning
NTBs and propose appropriate procedures to eliminate barriers to
trade. In addition, the Sub-committee should undertake activities to
identify and oversee the elimination of unnecessary technical barriers
to trade, in particular to encourage harmonization of technical
regulations, standards and mandatory conformity assessment
procedures with WTO and EU rules and procedures, as well as
among the CEFTA 2006 parties.
Taking into consideration the above mentioned, the CEFTA
2006 institutional structure has been set up to ensure proper
functioning of the Agreement, as well as to give impetus to the intraregional trade. However, the actual implementation of the
Agreement is within competence of the national authorities
(Ministries in charge of foreign trade, Customs Offices and other
relevant institutions). Provided the nature of CEFTA 2006 as a free
trade zone, there is no obligation of the parties for adoption of single
foreign trade policy and unification of the procedures, implying that
the national authorities would be predominantly focused on
individual foreign trade policies. In addition, the functionality of
CEFTA 2006 institutions largely depends on the parties readiness to
63
exchange information and increase the transparency of introduced or

planned measures that would affect intra-CEFTA 2006 trade. In this
context, national authorities and policy-makers should be the driving
force of the implementation of CEFTA 2006 Agreement.
2.2. Policy perspectives of CEFTA2006 implementation
The current level of trade integration within CEFTA 2006
could be assessed as partial with regards to the geographical and
industrial scope. The intra-regional trade has been concentrated on
the former Yugoslav market, while the exports and imports structure
have been scarce. It could be argued that the integration, apart of the
policy-makers engagement for formalization of the Agreement, has
been mostly driven by the ad-hoc interests of the companies. The
institutional set-up of CEFTA 2006, as discussed above, provides
preliminary conditions for implementation of the Agreement and
exchange of information among the parties, while the creation of
genuine conditions for trade advancement should be done by the
national authorities, given the shortcomings into the exports and
imports diversification. In this respect, the issue about the impact of
the CEFTA 2006 parties policies on the intra-regional integration
occurs.
The main specific of the policy-making process in the CEFTA
2006 parties is the principle of sovereignty of the national states in
formulation of the national policies. Even in the case of the policies
with external aspects, such as foreign trade policy, where
international agreements (and implicitly, obligations) take place, the
parties often introduce measures based on domestic interests. The
issues raised among the CEFTA 2006 parties, mentioned above,
point out such practice. However, this should be treated as an
expected behavior of all countries, given the primary aim of the
policy-makers to operate in purpose of advancement of the national
economy, which sometimes implies protective measures. In this
context, the foreign trade policies of the CEFTA 2006 parties could
have significant impact on the CEFTA 2006 implementation,
64
particularly if there is a deviation from the main course of trade

liberalization and cooperation within the region, reflected into
intense introduction of protective measures.
At what extent the foreign trade policies of the respective
CEFTA 2006 countries could actually affect the integration depends
on their relationship with other national policies. More specifically,
if the foreign trade policy is not substantially related to the industrial
and foreign exchange rate policy, it is likely to expect that
coordinated activities towards using of the potential of the regional
integration could be rare. The limited diversification of the export
offer in the CEFTA 2006 region indicates lack of coordination
among foreign trade and industrial policies in these countries, which
is crucial for deepening of the trade integration. In this case, it could
be argued that the foreign trade policies are rather passive and
defensive. However, better coordination among these policies does
not necessarily mean lower inclination of the foreign-trade policymakers towards introduction of protective measures, but, it would
contribute towards increase of the complementarity of the industrial
structure and export offer. That would certainly create conditions for
trade enhancement. In addition, there havent been substantial
relation between the foreign trade policy and foreign exchange
policy in the CEFTA 2006 region, primarily with respect to use of
the instruments of the latter to boost the exports of the individual
countries. The foreign exchange policies in the CEFTA 2006 have
been characterized with the pegged exchange rate, which promotes
stability, instead of export and growth promotion.
Apart of the mentioned policies, deepening of the regional
trade integration also involves coordination (inside the parties, as
well as among them) with other policies such as agricultural
policy, investment policy, sanitary and phyto-sanitary regulation,
technical standards, competition rules, conformity with the
standards, procurement rules, etc. According to the Agreement, the
parties have obligation for mutual notification about adoption of new
regulation or introduction of a measure, as well as notification about
changes in the agricultural policy, due to the special treatment of the
agricultural products within the regional integration and investment
65
policy. Nevertheless, this exchange of information does not have

primary aim of harmonization of the policies, due to the principles of
sovereignty in formulation of the national policies, so the
harmonization could occur with regards to the specific issue, which
would comply with the interests of all parties. However, due to the
differences in interest and commitment to the parties to the CEFTA
2006 integration, this approach is not likely to significantly promote
the regional trade integration, imposing the need for establishing of
more systematic approach towards policies compliance by the
policy-makers.
Conclusion
CEFTA 2006 is a complex agreement, which implementation
is related to many challenges. Some of them derive from the content
of the Agreement, while others from the existing conditions for trade
integration in the region. With regards to the former, the Agreement
allows introduction of trade protection measures, such as
antidumping measures, general safeguards, temporary measures and
measures related to difficulties of the balance of payment. Over the
period 2007-2011, there were 65 issues raised between the CEFTA
2006 parties, out of which 46 issues into the area of Agriculture, 5
issues in industry and 14 combined issues (agriculture and industry).
The main issues included introduction of safeguards, adoption of
regulation without proper notification to the other parties,
differentiation of the customs procedures and non-recognition of the
standards. Particularly important in the legal settings of CEFTA
2006 is the possibility for undertaking of temporary measures
without prior consultation to the other parties, which could
potentially bring harmful effects to the integration.
CEFTA 2006 has institutional set-up which includes Joint
Committee and three sub-committees on agriculture, including
sanitary and phyto-sanitary measures; tariffs and rules of origin and
technical barriers in trade and non-tariff barriers. Although these
bodies have been established in purpose to enable functioning of
66
CEFTA 2006, the driving force of the implementation of Agreement

are national policy-makers who should promote the regional trade
integration through CEFTA 2006 structures. In this context, the
functionality of CEFTA 2006 institutions largely depends on the
parties readiness to exchange information and increase the
transparency of introduced or planned measures that would affect
intra-CEFTA 2006 trade. Apart of the institutional structure, another
important aspect related to the implementation of the Agreement is
limited coordination and harmonization of the national policies, in
particular foreign trade policy with industrial and foreign exchange
policy on the national level, as well as compliance of the foreign
trade policies among the parties. Given the scarce export
diversification and predominance of intermediate products into intraregional trade, more systematic approach towards policies
compliance could be a solid platform for increase of the trade effects
of CEFTA 2006.
References
1. Amurgo-Pacheco A and Pierola D.M (2008), Patterns of
Export Diversification in Developing Countries: Intensive and
Extensive margins, Policy reseacrh Working Paper 4473,
World Bank, Washington D.C
2. Agreement on the amendment of and accession to the original
Central European Free Trade Agreement, Official Gazette of
the Republic of Macedonia 69/2007
3. CEFTA Trade Statistics 2010 (www.cefta.int)
5. Commission of the European Communities (2010), An
Integrated Industrial Policy for the Globalization Era: Putting
Competitiveness and Sustainability at Centre Stage, COM
(2019) 614, Brussels, Commission of the European
Communities.
67
6. Communication from the Commission (2006): The Western

Balkans on the road to the EU: Consolidating Stability and
Raising Prosperity, Brussels
7. EBRD Transition Report 2003: Integration and Regional
Cooperation (2003), EBRD London
8. European Balkan Observer (2006), Belgrade Centre for
European Integration and Vienna Institute for International
Economic Studies, Vol.4, No.1
9. EU Trade database (http://ec.europa.eu/trade/)
10. Kaminski, B. and De la Rocha, M. (2003) Stabilization and
Association Process in the Balkans: Integration Options and
Their Assessment, World Bank Policy Research Working
Paper No. 3108
11. Mojsovska S. (2006), Regional Trade Integration of South
East European Countries, European Institute-Sofia
12. Pjerotic, Lj. (2008) Trade Liberalization in South East Europe,
PANOECONOMICUS
68
PART 2
THE IMPACT OF THE REGIONAL TRADE
INTEGRATION ON THE MACECONIAN
COMPETITIVENESS
Dr. Vanco Uzunov; Competitiveness of Macedonian economy during the
UDC 339.137.2(497.7)"1991/2011"
Dr. Vanco Uzunov1
COMPETITIVENESS OF MACEDONIAN ECONOMY

DURING THE TRANSITION PERIOD (1991-2011)
Abstract
This paper is dedicated to the competitiveness of the Republic
of Macedonia, being a topic of vital importance for economic
development, reduction of unemployment and integration of
Macedonia into the European Union. Within the very broad
competitiveness context, the paper tackles issues of the institutional
framework of Macedonian economy which can be upgraded on short
and medium-term to lay the foundations for competitiveness
creation, economic growth and accession into EU.
Full-time professor, Faculty of Law, University St. Cyril and Methodius - Skopje
71
Introduction
Republic of Macedonia achieved political independence in
1991, after which the transition of its political and economic systems
commenced. From that perspective, same as most Central and
Southeast European countries in transition, EU accession was set as
the ultimate transition goal of the country. Within the 20-year period
since, Macedonia has passed several stages of the EU accession
process, yet it is still relatively far from the completion of that goal.
Several reasons account for that, one is political the dispute with
Greece over the name issue, while another is the fact that Macedonia
is far from real economic integration into the EU. In introductory
context, it suffices to say that unless Macedonia upgrades its
competitiveness ultimately it will not be able to become a fully
integrated EU country2. Further on, the observations of the ideas and
plans of the current Macedonian government as to how is that to be
achieved, allows the notion that this aspect is actually unrecognized
as issue of high importance. Hence, this paper strives to analyze the
competitiveness of Macedonian economy in the entire transitional
period, aiming at an attempt to impose different way of looking at
this topic.
In structural terms, the paper is organized as follows: after this
introduction, follows a short part which defines the term nations
competitiveness; the next section is devoted to measuring the
competitiveness of the Macedonian economy; while the last section
turns to the question of how the situation to be improved in the
future.
1. Defining nations competitiveness
Numerous definitions within contemporary economic literature
illustrate that the term nations competitiveness (competitive
capability of nations) is very complex and intricate for defining. In
2
This is apparent considering the s.c. EU accession criteria, especially the second of
the three of them.
72
general, the policy of creating nations competitiveness is considered

as economic reaction to, or due to, globalization challenges. Or
else, it is set of facts and rules about the ways of organizing an
economy for wandering in the contemporary global economic
constellation. Actually, in view of the fact that in an environment
wherein nations are or better said gradually become
internationally integrated economic entities with certain degree of
attractiveness for doing business, the nations competitiveness
paradigm indicates an economy which is home base of businesses
capable of creation and utilization/commercialization of
technological progress, creation of higher added value and of
successful positioning on world markets; correspondingly, the
creation of a competitive economy is a policy which upgrades the
quality and the attractiveness of the domestic economic environment,
with the intention to generate smooth and successful (i.e. effective
and efficient) doing business.
In this context, the European Competitiveness Report 2009
provides the following definition on competitiveness:3
Competitiveness refers to the overall economic
performance of a nation measured in terms of its ability to
provide its citizens with growing living standards on a
sustainable basis and broad access for jobs to those willing
to work. At the roots of competitiveness we find the
institutional and microeconomic policy arrangements that
create conditions under which businesses can merge and
thrive and individual creativity and effort are rewarded. Of
equal importance are macroeconomic policies to promote a
safe stable framework for business activity and the
development of a strategic vision for a low-carbon economy
to ensure environmental sustainability.
European Competitiveness Report 2009, Commission staff working document,

SEC(2009)1657 final, European Commission, DG Enterprise and Industry, pp.18.
73
Having that in mind, it is also necessary to highlight several

important aspects that are related to the economic policy for creating
competitiveness of national economy. Namely4:
"The main part of the discussion of competitiveness and
economic development is still focused on macro-economic,
political, legal and social aspects that encourage
[development] of a successful economy. It is well
understood that smart fiscal and monetary policy,
confidential and efficient legal system, the sum of stable
democratic institutions and progress in terms of social
conditions significantly contribute to [building] a healthy
economy.
However, these conditions are necessary but not sufficient.
They provide the opportunity to create prosperity, but they
themselves do not create prosperity. Welfare actually is
created on the microeconomic level of the economy, rooted
in promoting companies and the quality of microeconomic
business surrounding in which the firms compete in an
economy. If these microeconomic capabilities are not
advanced, macroeconomic, political, legal and social reforms
will not lead to full effect."
2. Measuring the competitiveness of Macedonia

In order to be practically implemented and/or upgraded, the
competitiveness of a nation has to be measured. The literature
contains vast number of methodologies, while there are also regular
(annual) reports on the competitiveness of some countries in the
world based on a specific methodology developed by the World
Economic Forum. On the other hand, as indicated in the 2009 Report
on Competitiveness EU5, the competitiveness of an economy can be
4
5
Porter Michael, 2004, pp. 29 (parentheses and underlined by VU).

European Competitiveness Report 2009, p. 18 and 27.
74
observed as: (1) collective context, whereas most important

indicators are productivity, rates of employment and unemployment
and costs of labor, observed at the level of the economy, sectors,
industries or businesses; (2) external competitiveness, whereas most
important indicators are revealed comparative advantages (RCA),
relative balances of payments (RTB) and relative unit labor cost
(RULC). They are supplemented by indicators for export
performance and attraction of foreign direct investment.
In the case of the Republic of Macedonia, the standpoint is that
the performance in terms of exports and international capital
transactions provide credible depiction of the degree of its
competitive abilities. The main point lays in the fact that, since it is a
very small economy, in order to ensure sustainable growth of living
standards, it is of vital interest for the Republic of Macedonia
to create business environment appropriate for creation of export
products with (relatively) higher added value, and to attract larger
scope of foreign direct investment. Hence, the analysis of
competitiveness of Macedonian economy, which is presented in
the charts attached hereinafter or in the Annex6 allows for valid and
reliable conclusions.
The first point of interest are the changes of the volume of
Macedonian exports and imports in the period 1991-2011. Those
trends are depicted on Chart 1, and point out that during the first
decade of transition (until 2002), the volumes of exports and
imports were constant; a period of a steady increase followed
until 2008, which was converted to a decrease in 2009 and less so
in 2010 and 2011, primarily as a result of the concurrent world
financial and economic crisis. Furthermore, another fact which is
clearly evident is that trends of exports and imports are entirely
parallel - as exports grow, imports grow, too. That, among other
things, undoubtedly indicates the import dependence of exports.
6
All analyzes in the text are based on the data on export of the Republic of
Macedonia by sections of SMTK for the period 1990-2009, that were taken from the
web site of NBRM www.nbrm.gov.mk, as well as the data of export and import
of Macedonia on produce and economies in 2009, taken from web site of DZS
www.stat.gov.mk.
75
Since Macedonia is a very small economy, such relations are

actually not unexpected.
imports
Chart 1. Macedonian Exports and Imports 1990 - 2010 (in mil. US$)
exports
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
I-IX
The next point of interest is the structure of Macedonian

exports presented on Chart 2.
Chart 2. Cluster Map of Macedonian exports (in % of total exports)
Materials/
metals
Forest
products
Petroleum/
chemicals
Basic industry
Semiconductors/
computers
1991
44
2001
46
35
41
15
2010
1
Multiple
business
54
38
Transportation
Food &
beverages
Housing/
household
Power gener &

distribution
Office
equipment
Textiles/
apparel
Telecommunications equipment
Health care
products
Personal goods
Industrial &
support activi
Defence
10
Sport/Entertein
ment goods
10
12
52
35
21
4
1
76
Final consump
goods
43
31
3
0
41
The structure of Macedonian exports had very slightly

changed during the entire 20 year period of transition;
restructuring of ownership (privatization of social/state
capital), which was the overriding reform during the first
transition decade, did not result in sufficient restructuring of
Macedonian companies technological and production
processes, whereas during the next transition decade there was
lack of active and efficient industrial policy for supporting the
attainment of that goal;
Macedonian export products contain very low component of
added value; more precisely, Macedonian competitiveness is
revealed in three clusters: materials/metals, textile/apparel and
food/beverages; however, the products of the materials/metals
cluster are mostly primary/intermediate products which are
further processed into final (consumer) goods in production
capacities abroad; in the textile/apparel cluster Macedonian
companies actually perform the service of sewing using lowskilled and mostly female labor force; while in the case of
the food/beverages cluster Macedonian exports are mostly
primary/intermediate agricultural products sold on regional
(neighboring) markets; exports of the petroleum/chemicals
cluster, which have increased in last couple of years, comprise
petroleum derivatives from Macedonian refinery sold solely on
the market of Kosovo.
Chart 3 is a Cluster Map7 of Macedonian exports and imports
by product categories, which is analogous to detecting Revealed
Comparative Advantages. It thus appears that Macedonian economy
has export competitiveness solely in its textiles/apparel cluster.
Before and, at the start of the transition, Macedonia also had
(revealed) export competitiveness in its materials/metals cluster, but
during the restructuring it was lost. Whereas the food/beverages
cluster reveals somewhat slender export competitiveness only in
relation to some neighbouring markets. This again confirms the
7
Cluster map for Macedonian imports is attached in the statistical annex.

77
conclusion that Macedonian export products contain low component

of added value. Or, in other words, Macedonian foreign-trade
specialization is exclusively focused in segments in which there are
certain given (comparative) advantages, but not created competitive
advantages. Moreover, this entire analysis actually reveals one of the
main reasons for the relatively unfavorable economic situation of the
Republic of Macedonia the low competitive ability.
Chart 3. Cluster Map of Macedonian exports minus imports
(in mill. USD)
Materials/
metals
197
Forest
products
Petroleum/
chemicals
Basic
industry
Semiconductors/
computers
184
1991
11
-2
2001
-204
2010
-30
-22
-12
Multiple
business
Transportation
-69
-6
-201
-582
-55
Power gener. &

distribution
Office
equipment
-76
-724
Industrial &
supp. activitie
Defence
20
-59
-206
-63 -117
-43
-417
-10
-354
Food &
beverages
-14
-2
Housing/
household
-82
Textiles/
apparel
-36
-143
Health care
products
Personal
goods
Sport/entertainment goods
-996
Final consumption goods

162
345
73
5
142
8
-74
-23
-67 -76
-168
-15
152
-10 -14
-62
-293
-386
The analysis further on tackles the export competitiveness of

Macedonia economy in relation to EU member states, as well as
countries of Southeast Europe. In this context, the data presented on
Chart 4 points that in 2009 Macedonia exported to 18 (of the 27) EU
member states, among which most important markets are those of
Germany, Greece, Italy and Bulgaria. The share of overall
Macedonian exports in EU member states in 2009 was 55.4 percent
of total exports, while the share of exports in SEE countries was 26.8
78
percent (whereas over 12 percent are exports to the Republic of

Serbia).
Chart 4. Structure of Macedonian exports cy countries in 2009 (in % of total
exports)
55.4
50
40
30
26.8
16.8
12.5
8.1
12.7
8.0
Total SEE
Other European countries.
Turkey
Montenegro
Bosnia
Albania
Serbia
Croatia
Total EU
Denmark
Poland
France
Sweden
Austria
Slovakia
Romania
Slovenia
Spain
Belgium
G. Britain
Netherlands
Italy
Bulgaria
Greece
Germany
Hungary
3.2
Non-European
10.8
10
Czeck Republic
20
A more detailed analysis of Macedonian export

competitiveness in relation to EU and SEE states is presented on
Chart 5 whereas, depending on the average utilization of production
factors, Macedonian exports are distributed into five types of
industries8. This distribution confirms the notion about the low
competitiveness of Macedonia vis--vis EU economies, since largest
part of Macedonian exports to EU states are produced by laborintensive industries; second largest share have exports produced by
market-led industries (which include food industry); third is the
share of exports manufactured by resource-based industries; while
8
The distribution by types of industries is made according to a taxonomy developed

by Peneder (Peneder, M.2003, Industry classifications, aim, scope and techniques,
Journal of Industry, Competition and Trade, Vol. 3, No. 12, pp. 109-129). This
methodology is used in the analysis of competitiveness of EU (source: European
Competitiveness Report 2009, Commission staff working document,
SEC(2009)1657 final, European Commission, DG Enterprise and Industry), pp 678.
79
the share of exports produced by technologically intensive industries

is negligible. The structure of Macedonian exports to SEE countries
in this context is somewhat different, which verifies the fact about
the somewhat higher competitiveness of Macedonia vis--vis SEE
countries9.
Chart 5. Types of industries producing Macedonian exports in 2009 (in %)
1%
3%
2%
22%
33%
30%
1%
25%
16%
15%
18%
25%
55%
15%
Technology-driven
industries
Marketing-driven
industries (incl. food
industry)
Capital-intensive
industries
52%
43%
Labour-intensive
industries
7%
Exports to EU
member states
25%
Exports to SEE
countries
2%
Exports to other
countries
12%
Mainstream industries
Total exports
Since the highest share of Macedonian exports is produced by

labor-intensive industries, the analysis further on Chart 6
presents a classification of Macedonian exports distributed into four
industry types according to the average utilization of labor of
different qualification levels10. Those indicators also confirm the
notion of the low level of competitiveness of Macedonian economy,
especially vis--vis EU member states. Low-skilled (hence cheap)
labor is the most significant factor which can create competitive
advantage of Macedonian economy in relation to EU countries (in
the case of 93 percent of exports); only one percent of Macedonian
exports to EU member states are produced by high-skilled labor. The
structure of Macedonian exports to SEE countries again is somewhat
9
For more detailed analysis see annex.

This distribution by types of industries is made according to a taxonomy
developed by Peneder (2003). This methodology is used in the analysis of
competitiveness of EU (European Competitiveness Report 2009, pp. 67-8).
10
80
different, which verifies the fact about the somewhat higher

competitiveness of Macedonia vis--vis SEE countries11.
Chart 6. Average qualification of labour utilized in Macedonian exports
1%
3%
1%
0%
2%
3%
9%
16%
7%
6%
10%
93%
High-skill
industries
31%
60%
72%
86%
Mediumskill/white-collar
workers
Medium-skill/bluecollar workers
Low-skill
industries
Exports to EU
member states
Exports to SEE
countries
Exports to other
countries
Total exports
To wrap-up this analysis, Chart 7 presents data on Gross

Domestic Product (GDP) and Relative Individual Consumption
(RIP) of 37 European countries in 2008. The data illustrate the
competitive positioning of the Republic of Macedonia vis--vis
European countries, i.e. the ability of Macedonian economy to
ensure sustainable growth of citizens living standard (as
competitiveness is defined). In terms of relative positioning, out of
37 countries Macedonia ranks 35-th, ahead only of Bosnia and
Albania. Or, of the EU (27) average GDP, Macedonia's GDP is 32
percent, while as to the relative individual consumption; average
consumption in Macedonia is 42 percent.
11
For more detailed analysis see annex.

81

Chart 7. GDP and RIP Indices per capita in 2008; EU27=100
300
GDP
RIP
250
200
150
100
50
32
42
Albania
Serbia
Bosnia
Macedonia
Bulgaria
Turkey
Montenegro
Romania
Latvia
Poland
Croatia
Lithuania
Estonia
Hungary
Slovakia
Malta
Portugal
Czech R.
Greece
Slovenia
Italy
Spain
Cyprus
France
Belgium
Germany
Finland
G. Britain
Sweden
Iceland
Denmark
Austria
Ireland
Netherlands
Norway
Switzerland
Luxembourg
Source: Lars Svennebye, Eurostat Statistics in Focus 95/2009, Economy and Finance.
3. The road towards competitive Macedonian economy

The creation of competitive economy is very complex and
difficult task due to several factors. First, it is a long-term task,
actually a process of economic upgrading which has to be performed
continuously in a long period of time; but, within the enduring
period, short- and medium-term aspects are distinguished. Second,
the competitiveness is a moving target; it is a target whose
coordinates change in parallel as previously set benchmarks are
achieved. And third, it is a task in which very huge number of actors
are included concurrently; even more, those actors are not part of a
consistent group, but of groups with clashing interests.
Having in mind the complexity, only certain general short and
medium-term relevant issues of the economic (institutional)
framework of the competitiveness creation of Macedonia are tackled
here, those that can create fertile basis for the upgrading to follow on
long-term. In fact, the creation of an institutional structure, which
includes institutions, laws, regulations, customs, etc., can be in
principle completed on short-term (couple of years), while the part of
capacity creation (upgrading the quality of human capital) for
82
implementing strategies and policies by both the private and the

public sector remains a medium-term task.
Starting point is the tenet that the development of Macedonian
economy as a contemporary market economy above of all entails
development and improvement of the private sector. In final
instance, the most important goal and task of the competitiveness
creation of Macedonia is to create businesses capable of producing
goods and services with high value added component which will be
sold (i.e. demanded) on foreign markets. Yet, in the realization of
that goal, the public and the civic sector are included as well. The
three sectors are linked, and in the competitiveness creation policy
there are points which necessitate their close cooperation,
particularly at the definition of policy goals and priorities.
Speaking about the competitiveness creation of Macedonian
economy in the context of its gradual accession into the European
Union it is a fact that one part of the task is the continuous
approximation and implementation of the EU regulatory framework.
This is the (more) formal part of the task, while the other (more)
essential part is upgrading the capacity of the economy. In this
second instance huge part of the affairs are at a beginning point.
Next, speaking about policy instruments and measures for
supporting the business upgrading, the emphasis is on support not
protection. Businesses have to be supported, their functioning has to
be made easier but, in a bottom-line, the job of getting prepared to
meet the competition on the markets of EU member states has to be
performed by the businesses themselves. By the same token, it
should also be emphasized that the contemporary measures and
instruments of policy used by EU member states are not of the kind
which huge part of business executives in Macedonia are used to and
are expecting. The issue is not to support the businesses through
protection from foreign competition, through socialization of debts
or unpaid arrears and so on.
The focus of activities for competitiveness creation of
Macedonian economy from the institutional framework point of view
has to be directed towards the following four facets:
83
Securing the fundamentals for private business sector growth;

Creating general policy framework and network of programs
for supporting businesses;
Redesigning of public institutions and capacity upgrading of
civil servants; and
Creating public-private-civic sector partnerships.
Diagram 1
Private sector development
Pillars which
underpin
entrepreneurship
Fundamentals
for private
sector growth
Securing level
playing field
Securing
access to
favorable
financing
Upgrading of
qualifications
and
knowledge
no favoritism,
discrimination
and reducing
the informal
sector
suitable micro
and small
credits for
supporting
start-up SMEs
enhancing the
general quality
of human
capital and
management
capabilities
Rule of law
High quality physical and social infrastructure
Favorable domestic macro(economic) environment
Favorable global macro environment
Source: UNDP 2004. p. 15
In respect to the first facet, issues depicted on Diagram 1 are

summary of empirical best practice and policy of building a
competitive private sector. Plus, the responsibility for securing the
overall matrix belongs to the government, adding that if those
matters are not in place, the entire policy and all other measures and
instruments will not have even partial effect.
The general policy framework, its institutional structure and
the network of programs for supporting businesses in Macedonian
84
economy are depicted on Diagram 2. They are crossing points

between the microeconomic policy matrix and the matrix of
essentials within the corpus of corporate competitiveness strategies.
In this way both a separation and a link between the horizontal
(networking) and the vertical (clustering) competitiveness policy
segments is done. By the same token, the vertical policy segment is a
focal point, while the horizontal policy segment is a network of
policy programs and projects which pertain equally towards all
foreign and domestic - business entities, their primary objective
being to support and strengthen the positions of the clusters in
Macedonian economy. Each existing and prospective cluster in
Macedonia will embrace as much points from the network as are
needed in its specific case.
Framework and network of the competitiveness creation policy
in Macedonia
Targeting FDI
Business and technological

linking
Upgrading the quality of

production factors
Export promotion
Promotion of SMEs
Promotion of FDI
Internal
reorganization and
restructuring of
business entities and
clustering
Policies for reducing

labor market rigidity
Education of management
and entrepreneurship
Stimulation of business
integration
R&D
policy
Regulatory
reform
Upgrading of corporate
governance
Business
restructuring
Business
modernization
Diagram 2.
85
The programs of the network are also levers through which the
economy of Macedonia will gradually catch-up with EU member
states. Within all separate policy programs and projects huge number
of tangible tasks are contained, but they cannot be separately
explained here. In general, the sector approach of policy has to be
supplemented by a project approach, meaning that support should be
given to promising projects not to entire economic sectors. Policy
implementation of the three projects on the left side of the
framework necessitates establishing institutions investment, export
and SMEs promotion agencies, while the other project groups
actually are strategies under the umbrella of the competitiveness
strategy.
Within the redesigning and capacity upgrading policy two
dimensions are important: politics (work of politicians) and
institutions and civil servants, as well as two standpoints: short and
long-term. Short-term reforms are labeled redesigning, while longterm ones are capacity upgrading. Yet, both the short and the longterm reforms are processes, meaning that it is incorrect to consider
short-term reforms as one-shot-game after which all things are
settled and that only long-term reforms are processes, since
redesigning policy is also a process. It should also be added that,
speaking of policies of redesigning and capacity upgrading of
institutions and civil servants, both national and local government
levels are considered, as well as the three governing pillars legislative, executive and judiciary.
Redesigning of politics (the way politicians do their work)
includes three different attributes which have to be put into practice:
(i) credibility, which is achieved through: (a) predictability of rules,
(b) full consistency in their implementation, and (c) transparency of
the work; (ii) initiatives of politicians; and (iii) respect of the limits
of government. Capacity upgrading of politics (on long-term)
includes the following attributes which have to be put into practice:
(i) effective rules and restraints in the behavior (of politicians); (ii)
respect (solely) of professionalism and competence; (iii) dedication
(of politicians) towards the goals of competitiveness creation; and
(iv) competition to all political positions.
86
Public institutions redesigning includes the implementation of

four different features: (i) reduction of the number of (all different
kinds of) public institutions and of civil servants to an optimum; (ii)
introducing competition in the civil servants establishment through
the implementation of: (a) merit-based system of personnel
recruitment, (b) new system of promotions, (c) new system of
remuneration, and (d) new code of behavior; (iii) introducing
competition in the public services sector through (a) privatization,
and (b) outsourcing of (part of) public services to private
entrepreneurs; and (iv) decentralization. Capacity upgrading of
public institutions in general means strengthening the strategic
orientation and capacity for policy implementation of the civil
servants.
Private-Public Partnerships are an important part of the overall
institutional structure of contemporary economies. This is a
relatively new concept even in other (advanced) countries, and in
Macedonia its completely new. Yet, as practices other countries
show, public-private-civic sector partnerships are constituent part of
every contemporary institutional social network with a special role
and duties, due to the fact that, the otherwise entirely separated
sectors of the economy, are actually interrelated. Their decisions
frequently overlap, meaning that goals are mutual, even though the
decisions are brought by distinct decision-makers. In case the
overlapping decisions are not harmonized, divergence of efforts to
achieve goals appears, which leads to ineffectiveness (absence of the
correct goals) and to inefficiency (high costs) and this halts progress.
A solution of that dissonance are private-public partnerships.
87
References
1. Baldwin Richard E. (1999): Agglomeration and Endogenous
Capital, European Economic Review, Vol. 43, No. 2,
February 1999, Elsevier Science B.V., North-Holland.
2. European Council (2000): The Lisbon European Council An
Agenda of Economic and Social Renewal for Europe.
Contribution of the European Commission to the Special
European Council in Lisbon, 23 24th March 2000,
DEC/00/7, Brussels.
3. European Commission (2004): A New Partnership for
Cohesion: Convergence Competitiveness Cooperation,
Third Report on Economic and Social Cohesion.
4. European Competitiveness Report 2009, Commission staff
working document, SEC(2009)1657 final, European
Commission, DG Enterprise and Industry.
5. Hatzichronoglou Thomas (1996): Globalisation and
Competitiveness: Relevant Indicators, OECD Directorate for
Science, Technology and Industry, STI Working Papers
1996/5, OCDE/GD(96)43, Paris Cedex 16, France.
6. Jennifer Blanke, Fiona Paua & Xavier Sala-i-Martin (2004):
The Growth Competitiveness Index: Analyzing Key
Underpinnings of Sustained Economic Growth, The Global
Competitiveness Report 2003 2004, World Economic
Forum, Oxford University Press
7. Krugman Paul (1999): The Role of Geography in
Development, in: Pleskovic Boris & Stglitz Joseph E. (eds.)
(1999): Annual World Bank Conference on Development
Economics 1998, The World Bank, Washington D.C.
8. Mrak Mojmir, Potocnik Janez & Rojec Matija (coordinators)
(1998): Strategy of the Republic of Slovenia to the European
Union: Economic and Social Part, Institute of
88
Macroeconomic
Slovenia
Analysis
and
Development,
Ljubljana,
9. Porter Michael (2004): Building the Microeconomic

Foundations of Prosperity: Findings from the Business
Competitiveness Index, The Global Competitiveness Report
2003 2004, World Economic Forum, Oxford University
Press
10. T.J.A. Roelandt and P. den Hertog (1998): Cluster Analysis
and Cluster-Based Policy in OECD Countries: Various
Approaches, Early Results and Policy Implications, Draft
Synthesis Report on Phase 1, OECD-Focus Group on
Industrial Clusters, Note Prepared for the OECD-Secretariat
and the OECD TIP Group, Presented at the 2nd OECD
Workshop on Cluster Analysis and Cluster-Based Policy,
Vienna, 4-5 May, The Hague, May 1998
11. UNDP (2004): Unleashing Entrepreneurship. Making
Business Work for the Poor, Report to the Secretary -General
of the United Nations, New York, USA.
12. UNIDO (2000): Promoting Enterprise Through Networked
Regional Development,
http://www.unido.org/userfiles/PuffK/networkE.pdf
13. (2001):

, ,
.
14. (2001):
,
.
15. World Economic Forum (2002): The Lisbon Review 20022003. An Assessment of Policies and Reforms in Europe.
16. World Economic Forum (2004): The Global Competitiveness
Report 2003 2004, Oxford University Press
89
Statistical Annex
Cluster Map of Macedonian imports (in mill. USD)
Materials/
metals
Forest
products
Petroleum/
chemicals
Basic
industry
Semiconductors/
computers
1991
2001
47
26
20
2
Multiple
business
Transportation
46
43
23
17
2010
21
20
1
Power gener. &

distribution
Office
equipment
Industrial &
supp. activitie
Defence
22
12
14
10
Food &
beverages
Housing/
household
1
0
Textiles/
apparel
Health care
products
Personal
goods
Sport/entertainment goods
Final consumption goods
37
13
15
22
16
2
11
18
1
10
4
35
32
10
1
Types of industries by factor inputs which produce Macedonian exports to EU member states in 2009
100%
Technology-driven
industries
90%
80%
M arketing-driven
industry)
70%
60%
Capital-intensive
industries
50%
40%
30%
Labour-intensive
industries
20%
10%
M ainstream
industries
EU
To
ta
l
Po
la
nd
ed
en
ch
Sw
Cz
e
ia
nc
e
Fr
a
Ro
m
an
ia
us
tri
a
A
la
nd
s
et
he
r
N
90
Sl
ov
en
in
ri t
ai
n
Sp
a
.B
G
ia
Be
lg
iu
m
ly
ec
e
Ita
re
G
Bu
lg
ar
er
m
an
y
0%

Types of industries by factor inputs which produce Macedonian exports to SEE countries in 2009
100%
Technology-driven
industries
80%
Marketing-driven
industry)
60%
Capital-intensive
industries
40%
Labour-intensive
industries
20%
Mainstream industries
lS
EE
To
ta
ro
M
on
ten
eg
Tu
rk
ey
Al
b
an
ia
Bi
H
Cr
oa
tia
Se
rb
ia
0%
Average Qualifications of Labour Utilized in Macedonian Exports to EU Member States in 2009
100%
High-skill
industries
90%
80%
70%
Mediumskill/white-collar
workers
60%
50%
40%
Mediumskill/blue-collar
workers
30%
20%
10%
Low-skill
industries
um
ai
n
G
.B
r it
ai
N
n
et
er
la
nd
s
Sl
ov
en
ia
A
us
tr
Ro ia
m
an
ia
Fr
an
ce
Sw
ed
e
Sz n
ec
h
R.
Po
la
n
To d
ta
lE
U
Sp
Be
lg
i
I ta
ly
ga
r ia
Bu
l
G
er
m
an
y
G
re
ec
e
0%
Average Qualifications of Labour Utilized in Macedonian Exports to SEE countries

100%
High-skill industries
80%
Medium-skill/whitecollar workers
60%
40%
Medium-skill/bluecollar workers
20%
0%
SE
E
ta
l
To
ne
gr
o
M
on
te
rk
ey
Tu
a
an
i
A
lb
Bi
H
at
ia
Cr
o
Se
rb
ia
Low-skill industries
91
Dr. T. P. Mirchevska, Dr. T. Petkovska, Dr. J. Majstoroska, M.Sc. I. S. Gigov; The...
UDC 339.564:339.137.2]: 339.5.012.42(4-19:497.7)

Dr. Tatjana Petkovska Mirchevska1
Dr. Tatjana Petkovska2
Dr. Jasmina Majstoroska3
M.Sc. Iskra Stanceva Gigov4
THE INFLUENCE OF THE NON-PRICE FACTORS OF

COMPETITIVENESS ON THE ADVANCEMENT OF THE
EXPORT OFFER OF THE REPUBLIC OF MACEDONIA
WITHIN CEFTA
Abstract
In the period of globalisation, the existence and the growth of
national economies is closely connected to the export effectiveness
on national, regional and global level. In this direction, the
multilateral and bilateral free trade agreements becomes an
imperative for the increase of potential market opportunities and
greater competitiveness on micro and macro level.
The effects of the regional trade integration could be static
realized in the short run, and dynamic realized in the long run.
Basically, they determine the need for greater competitiveness, where
non-price factors of competitiveness are outlined.
The focus of the paper is on the importance and the influence
of non-price competitiveness factors for the export development
between Republic of Macedonia and CEFTA. Moreover, it analyses
1
Full-time professor, Institute of Economics, University St. Cyril and Methodius Skopje
2
Full-time professor, Institute of Economics, University St. Cyril and Methodius Skopje
3
Ministry of Economy of the Republic of Macedonia
4
Assistant at the Institute of Economics, University St. Cyril and Methodius Skopje
93
the dynamics and structure of trade and the nature of competition

(pricing and non-pricing), and determines the difference between
pricing and non-pricing factors on competitiveness. Based on the
theoretical elaboration, quantitative data and qualitative analysis, this
paper gives some directions and opportunities for increasing the nonpricing factors competitiveness on different level important for the
multilateral cooperation as a condition for prosperity and future EU
membership.
94
Introduction
Numerous phenomena, state of affairs and tendencies in the
world economy derive from the importance and role of the
competitiveness. The integration of any national economy into the
global economic processes has been determined from the current
level of its competitiveness. The inauguration of the competitive
advantages into dynamic strategic instrument of the economic
growth, as well as a complex category, has been a result from
coordinated interaction of significant number of factors. Therefore,
the non-price factors of the competitiveness, against to the price as a
factor, got considerable importance into the modern global world.
The Republic of Macedonia, as a small and highly liberalized
economy, has not been immune to the global economic trends. By
countrys signing of free trade agreements, the Macedonian
companies got easier access to the markets of 650 million
consumers. Nevertheless, the current state of affairs in its regional,
as well as global trade exchange is characterized with low
competitiveness and unchanged export structure in the last twenty
years. This has been largely attributable to the long-term weaknesses
in the field of technical-technological development and innovation
that has significantly affected the product policy of the companies.
Most of the companies have not applied proactive business strategies
towards prompt adjustment of their production lines to the changes,
which lead to inadequate diversification of the production, as well as
rather unattractive and not competitive product offer.
The CEFTA membership of the Republic of Macedonia is very
important with regards to the advancement of its regional trade, as
well as for the countrys preparation for the EU membership. The
structure of the Macedonian exports to CEFTA, as well as to the
other markets, mostly consists of traditional industries ruled by the
price competitiveness of the low value added products. Implicitly,
the non-price factors of competitiveness should be taken into
consideration with regards to the increase of the competitiveness and
export potential of the companies.
95
1. The competitiveness of the Macedonian economy and

the non-price factors of the competitiveness
In the developed world, the competitiveness has been
perceived as a cumulative indicator of the specifics of the national
economy. One of the means for assessment of the national
competitiveness is the ability of the nation to sell sufficient amount
of goods and services to the world (this ability has been usually
measured through the current account balance or by the nations
share on the world market). 5 The competitive advantages could be
created by active approach and well defined micro, mezzo and macro
strategies. As phenomenon related to the foreign trade, these
advantages represent structural attributes of the economy and also
serve as well set terms for evaluation of the problems at the level of
companies, sectors and national economy.
The main concepts of the competitiveness havet been based on
price competitiveness and structural competitiveness. 6 The first
concept refers to the impact of the price on the competitiveness,
while the latter implies the need for efficient coordination of the
entrepreneurial policies in purpose of creation of the structural
competitiveness. According to the competitiveness schools and
concepts in the economic theory, there are several competitiveness
factors. The most common division includes price and non-price
factors.7
With regards to the price factors, there is a global trend of
deterioration of the importance of the price as competitiveness
factor, against the increase of the non-price factors. More
specifically, there is a perception that the demand of more expensive
and more complex products prevails at the markets in developed
countries, inducing differentiation among the countries as price
5
Aiginger , A framework for evaluating the dynamic competitiveness of countries,

Structural Change and Economic Dynamics 9 (1998) p. 174
6
Gutierrez Eva, IMF Working paper, Export performance and external
competitiveness in the Former Yugoslav Republic of Macedonia, november 2006,
.3.
7
Arsovski S: Kvalitet i konkurentnost, www.cgm.rs/2010/pdf (01.11.2011)
96
markets and quality markets. The first group consists of countries

with lower purchasing power of their consumers, implying
supremacy of the price strategies of the companies. Opposite to that,
the non-price competitiveness prevails on the markets of the
developed countries, characterized with higher purchasing power of
the consumers.
In global terms, the technical-technological development and
advancement of the technological processes increase the
opportunities of the companies to minimize their costs of production,
organization and distribution. The production costs and implicitly,
the possibilities for variation of the prices have been reduced,
opening a new frontier for the non-price factors. The non-price
factors typically include quality, technological advantages, industry
specialization, specifics of the export companies, business
environment, marketing, etc.8 There are considerations that the
quality integrates all other non-price factors of the competitiveness
and therefore, it represents sublimation of their effects.
The trade competitiveness generally provides verification of
the competitiveness of the national economy at the markets abroad.
The Macedonian export mainly consists of price-ruled traditional
industries which have limited contribution in providing terms for
growth and sustainability. The low value added macedonian products
are generally non-competitive, given the lack of quality, design,
brand, promotion and other attributes, while, on the other side, the
import dependence of the Macedonian export makes it more
expensive and non-competitive.
With regards to the competitiveness drivers, since 2007, the
Republic of Macedonia has been classified into the countries driven
by the efficiency enhancers9 (Table 1).
J. Monteagudo and F. Montaruli, European Commission, Directorate General for

Economic and Financial Affairs, Analysing non-price competitiveness in euro area
countries, www.tesoro.it/export/sites/sitodt/modules/documenti_it.., (15.11.2011)
9
Global
Competitiveness
Index
(World
Economic
ForumWEF,
www.weforum.org, 15.11.2011)
97
Table 1. Republic of Macedonia: Ranking in the Global

Competitiveness Index of the World Economic Forum
Global Economic Forum
2007
(131)
2008
(134)
2009
(133)
2010
(139)
2011
(142)
Global Competitiveness Index
94
89
84
79
79
Basic Requirements subindex
72
68
73
70
69
Institutions
102
90
83
80
81
Infrastructure
85
89
90
91
86
Macroeconomic environment
53
31
49
47
37
Health and Primary Education
47
55
60
69
80
Efficiency enhancers subindex
98
92
85
83
87
Higher education and training
75
73
70
72
80
Goods market efficiency
98
98
76
57
63
Labor market efficiency
112
113
86
71
72
Financial market development
83
83
75
87
82
Technological readiness
90
83
52
64
67
Market size
106
104
103
106
107
Innovations and sophistication factors

subindexsophistication
Business
101
105
93
97
104
108
107
96
96
105
Innovations
92
99
92
97
105
Source: World Economic Forum www.weforum.org
From the perspective of the non-price competitiveness factors,

it is noteworthy to mention that in the second sub index of the
efficiency enhancers, the Republic of Macedonia has been ranked at
105 position in 2011. The business sophistication encompasses
quality of the business networks in the country, as well as quality of
the companies strategies and activities (trade mark, marketing, value
chains, production of unique and sophisticated products) which
would lead towards sophisticated and modern business processes.
With regards to the business sophistication in the Republic of
Macedonia, the exporting companies mainly deal with resource or
labor intense production (metals and textiles) against to the
companies from the developed countries that focus on product
design, marketing and sale, logistic and post-sale services.
98
For the economies based on efficiency enhancers to which the

Republic of Macedonia should strive, the competitiveness has not
been based on low prices, but quality of the products, increased
productivity and innovations. In this phase, the increased
productivity implies higher labor price, which would further lead to
increase of the efficiency of the technological processes and quality
of the products and services. This serves as a preparation for the
third phase in which the economies are driven by the innovation,
when the competitive advantages derive from the sophistication of
the production lines and manufacture of new sophisticated products
and services with highest value added.10
With regards to the market size (tenth pillar), there is no
possibility for direct, but rather indirect means of increase by
expansion of the domestic market through bilateral and multilateral
free trade agreements. Based on the preferential treatment
agreements, over 87% of the Macedonian exports have been placed
on the foreign markets, which imply a need for advancement of the
competitiveness of the Macedonian products.
2. Effects of the Regional Trade Integrations (RTI) and

CEFTAs importance
In the international economy, the regional trade integration
contributes to the creation of two types of effects: static and
dynamic.11 The static effects refer to the benefits related to trade
expansion and trade diversion. The former one is perceived as
positive with regards to the trade increase within the integration,
while the latter is mostly viewed as negative, due to the diversion of
10
National Report on Competitiveness, Skopje 2010, pp. 10-11

Kikerkova Irena, CEFTA-2006, Effects upon the macedonian foreign trade
exchange, 2008, str. 122
(http://docs.google.com/viewer?a=v&q=cache:poQYagUAQ9MJ:oliver.efri.hr/~euc
onf/2009/docs/Session7/7%2520Kikerkova.pdf+CEFTA2006,+effects+upon+the+m
acedonian+foreign+trade+exchange&hl=mk&pid=bl&srcid=2008 (01.12.2011)
11
99
the trade from the third countries to the members of the trade
integration that are not necessarily more efficient.
Apart of the static effects, there are dynamic effects that affect
the economic growth and welfare in a long run. They include:
economies of scope, stronger competition pressure and investment
enhancement. The economies of scale have their foundation in the
larger market potential that creates possibilities to sell
products/services on lower prices within the integration. Due to the
price decline, the competition rises and there is a need for enchanced
diversification of the companys offer through implementation of
non-price measures and activities, such as advancement of the
product design and quality, better promotion, launching of new
products, etc. All this reflects into the need of making new
investment and introduction of new technology.12
For the CEFTA member states, including the Republic of
Macedonia, joining of the integration meant establishment of a
regional trade bloc that would liberalize the regional economy,
eliminate import duties and trade barriers, as well as provide
opportunities for the parties to prepare for the potential membership
into the EU. By CEFTA enforcement in 2006, it was expected that
the trade will significantly increase in the region, which would
further lead to increase of its competitive advantages.13
CEFTA member states have had many similarities. They are
all small economies with similar level of economic development, due
to which they have strong interest and need for membership in such
regional trade integration. One of the most important characteristics
of most of the CEFTA parties is their offer of insufficiently
competitive (labor and resource intense) products with low value
added.14 In the total production of CEFTA parties, Republic of
12
Ibid, 123
Report on Foreign Trade of Macedonia 2007, Ministry of Economy of the
Republic of Macedonia, USAID 2007
14
Zenic Zejkovich J., Influence of CEFTA 2006 in Serbian trade of industrial goods
in the region-conditions, issues and prospects, CEFTA 2006- challenges and
opportunities, Beograd 2011, p. 28
13
100
Macedonia has share of 8%, while largest producers are Serbia and
Croatia that create about 70% of the total production in the region.
Five years after CEFTA 2006 enforcement, according to
certain analyses15 and opposite to the forecasts, there has been no
increase of the intra-regional trade. The trade balance still remains
negative for most of the countries. In terms of economic blocks, EU
27 is a major trade partner for the Republic of Macedonia which
absorbed over 2/3 (71%) from its exports in 2010. This shows that
the countries in the region are more inclined to trade with the EU
than into the region, despite the signed free trade agreement. This is
largely attributable to the fact that following the trade liberalization
and tariff abolishment, the CEFTA parties began to apply non-trade
barriers, such as technical barriers, lack of transparency in the trade
regulation, administrative burdens and frivolous calculation of the
tariffs during the custom procedure.
The CEFTA agreement has been important for the Republic of
Macedonia as it bears significant potential from the perspective of
the size and closeness of the markets, cultural and tradional
similarities, long-term cooperation, etc. The efforts for advancement
of the trade exchange with this integration should be focused on
competitiveness increase and diversification of the export offer,
development of attractive products, increase of the quality and other
non-price factors of the competitiveness.16
15
Report on Foreign Trade of Macedonia, Ministry of Economy of Republic of

Macedonia and University American College, Skopje, 2011, p. 66
16
The Republic of Macedonia has signed the Central European Free Trade
Agreement- CEFTA in February 2006. In that manner, it become fourth member of
CEFTA along with Bulgaria, Romania and Croatia. In paralel to the process of
gaining CEFTA membership, the activities for signing regional free trade agreement
were intensified. After serious negotiations and efforts for definition of the terms of
integration, it was agreed that CEFTA would continue to exist as a form for
integration of the countries from South East Europe (SEE), with certain alleviation
of the conditions. The Agreement for enlargement and modernisation of CEFTA has
been signed on 19th December 2006 and the new agreement, in purpose of
terminological differentiation was named CEFTA 2006. CEFTA 2006 consolidates
all 32 bilateral free trade agreements previously concluded among the SEE countries
(Macedonia, Albania, B&H, Moldova, Serbia, UMNIK/Kosovo, Croatia and
Montenegro). Compared to the bilateral free trade agreements, CEFTA 2006
101
3. Specifics of the Republic of Macedonias trade with

CEFTA
The Republic of Macedonias trade exchange with CEFTA
amounts up to 20% of the total Macedonian trade, and remained at
the same level in the whole period of countrys membership in this
integration (Table 2).
Table 2. Total trade of the Republic of Macedonia with CEFTA
(000 USD) in the period 2008-2011
TOTAL
Country
2008
Value
2009
%
Value
2010
%
Value
8 2010
%
Value
8 2011
%
Value
Albania
142,429
6.5
108,047
6.7
95,281
5.8
58,868
5.8
81,038
6.1
Serbia
1,466,734
67.4
734,646
45.9
690,204
41.9
413,236
40.6
526,597
39.7
Kosovo
0.0
324,200
20.3
459,823
27.9
296,873
29.1
390,665
29.4
39,785
1.8
26,633
1.7
28,874
1.8
18,194
1.8
22,726
1.7
B&H
157,443
7.2
133,174
8.3
134,065
8.1
81,728
8.0
119,505
9.0
Croatia
366,673
16.8
271,061
16.9
236,909
14.4
149,396
14.7
185,764
14.0
3,393
0.2
3,024
0.2
1,278
0.1
760
0.1
1,241
0.1
Total CEFTA
2,176,457
100.0
1,600,785
100.0
1,646,434
100.0
1,019,055
100.0
1,327,536
100.0
Total trade of
Macedonia
10,829,904
7,734,643
8,852,498
5,350,021
7,470,297
Share in
CEFTA in %
20.1
20.7
18.6
19.0
17.8
Montenegro
Moldova
Source: Authors calculations based on the data from State Statistical Office and Ministry of
Economy of the Republic of Macedonia, 2011
On the exports side, the highest performance has been

registered in 2008, while there has been a decrease in 2009, due to
the world economic crisis (Table 3).
represents an international framework for increased trade liberalisation and regulates
areas that were previously not a subject of agreement. In this context, apart of the
trade liberalisation, CEFTA 2006 for the first time opens room for increased
cooperation between her members in the following areas: trade of services, public
procurement, investment and intelectual property protection.
102
Table 3. Republic of Macedonias exports to CEFTA

Export
Country
2008
Value
2009
%
Value
2010
%
Value
August 2010
%
Value
August 2011
Value
Albania
106,773
7.6
83,949
8.4
72,384
7.1
44,268
7.0
56,624
7.0
Serbia
934,717
66.1
337,591
33.7
271,813
26.7
157,565
24.8
207,804
25.6
Kosovo
0.0
314,542
31.4
437,772
43.0
284,002
44.7
365,456
45.1
38,572
2.7
24,882
2.5
27,435
2.7
17,495
2.8
21,669
2.7
B&H
104,841
7.4
86,644
8.7
84,944
8.3
51,863
8.2
59,838
7.4
Croatia
228,959
16.2
152,720
15.3
123,623
12.1
79,285
12.5
98,824
12.2
Montenegro
Moldova
28
0.002
93
0.01
355
0.03
207
0.0
909
0.1
Total CEFTA
1,413,890
100.0
1,000,421
100.0
1,018,326
100.0
634,685
100.0
811,124
100.0
Total trade of
Macedonia
3,978,231
2,691,528
3,301,829
1,995,384
2,846,361
Share in
CEFTA in %
35.5
37.2
30.8
31.8
28.5
On the import side, there has been also a decline in 2009

compared to the year ago (Table 4).
Table 4. Republic of Macedonias imports to CEFTA
Import
Country
2008
2009
2010
August 2010
August 2011
Value
Value
Value
Value
Value
Albania
35,656
4.7
24,098
4.0
22,897
3.6
14,600
3.8
24,414
4.7
Serbia
532,017
69.8
397,055
66.1
418,391
66.6
255,671
66.5
318,793
61.7
0.0
9,658
1.6
22,051
3.5
12,871
3.3
25,209
4.9
1,213
0.2
1,751
0.3
1,439
0.2
699
0.2
1,057
0.2
52,602
6.9
46,530
7.8
49,121
7.8
29,865
7.8
59,667
11.6
137,714
18.1
118,341
19.7
113,286
18.0
70,111
18.2
86,940
16.8
3,365
0.4
2,931
0.5
923
0.1
553
0.1
332
0.1
Total CEFTA
762,567
100.0
600,364
100.0
628,108
100.0
384,370
100.0
516,412
100.0
Total trade of
Macedonia
6,851,673
5,043,115
5,550,669
3,354,637
4,623,936
Share in
CEFTA in %
11.1
11.9
11.3
11.5
11.2
Kosovo
Montenegro
B&H
Croatia
Moldova
103
Nevertheless, there has been certain stable trend of the share of

the export/import in/from CEFTA into the total trade of the Republic
of Macedonia in the analyzed period. With regards to the exports,
this share is about 30% (with minor oscillations), while the CEFTA
parties have share of about 11% in the imports.
The structure of the total trade exchange with CEFTA has
experienced almost no changed during the whole period of analysis,
i.e. the largest part of the trade has been conducted with Serbia and
Kosovo. The structure of the trade according to the CEFTA parties in
the period January-August 2011 has been illustrated on the Graphic
1.
Graphic 1. The structure of the Republic of Macedonias trade
according to the CEFTA parties in the period
January-August 2011 (in %)
Moldova, 0.1
Montenegro,
1.7
Albania , 6.1
Croatia, 14
B&H, 9
Serbia, 39.7
Kosovo, 29.4
Source: Authors calculations based on the data from State Statistical Office of the Republic of
Macedonia
The export to Kosovo, which has been put into evidence for
the first time in 2009 and represented 31.4% of the total exports to
CEFTA (Table 3), registered continuous increase and rose up to 45%
of the total exports to CEFTA in the first 8 months of 2011. Opposite
to that, the export to Serbia in the same period declined from 66% in
2008 down to 25,6% of the total CEFTA export in the period
January-August 2011, which partially occurred due to the changes in
the trade evidence with Kosovo.
104
Serbia, as a member of CEFTA, has been holding the top

position in the Republic of Macedonias imports. In the analyzed
period (2008-2011), its share (with small oscillations) has been over
60% in the total imports of the Republic of Macedonia from CEFTA.
In the trade with Serbia, the Republic of Macedonia ran trade deficit
in the period 2009-2011. It is noteworthy to mention that despite the
low trade exchange with Moldova, Macedonia had permanent trade
deficit with this country in the period 2008-2010, which has been
surmounted in the first eight months of 2011. In terms of the share of
other countries in the total Macedonian import from CEFTA, follows
Croatia with 16.8%, B&H with 11,6%, while other countries have
significantly lower share (Table 5, Graphic 2)
Table 5. Republic of Macedonias deficit/surplus in the
trade with CEFTA
Country
Deficit/surplus
2008
2009
2010
8 2010
8 2011
71,117
59,851
49,487
29,668
32,210
402,700
-59,464
-146,578
-98,106
-110,989
304,884
415,721
271,131
340,247
Montenegro
37,359
23,131
25,996
16,796
20,612
B&H
52,239
40,114
35,823
21,998
171
Croatia
91,245
34,379
10,337
9,174
11,884
Moldova
-3,337
-2,838
-568
-346
577
651,323
400,057
390,218
250,315
294,712
-2,873,442
-2,351,587
-2,248,840
-1,359,253
-1,777,575
Albania
Serbia
Kosovo
Total
CEFTA
Total trade of
Macedonia
105
Graphic 2. Republic of Macedonias deficit/surplus in the

trade with CEFTA
Macedonia
In terms of the sectors, their share into the macedonian exports

to CEFTA in the analysed period has been presented on the Graphic
3, while the share in the imports on the Graphic 4.
Graphic 3.
Macedonia
106
As could be noted from the Graphic 3, in terms of sectors, the

products classified according to the material (Sector 6) dominate in
the export structure, with prevalence of iron and steel products,
cement, steel constructions, fuel oils, gas oil, kerosene, etc. In
addition, the sector of food and live animals is mostly represented in
the exports with tomatoes, grapes and some bakery products. From
the perspective of the competitiveness according to the quality, the
export of some pharmaceutical products matters (Sector 5, Chemical
products).
Graphic 4.
Macedonia
On the side of the imports, the products from the sector of

food and live animals prevail (agricultural raw materials and
products), followed by products classified according to the material
(steel semiproducts), chemical products, mineral fuel and lubricants,
electrical energy, raw materials, animal oils and beverages. It is
important to note that this structure has not been subject to changes
in the first eight months of 2011, i.e. no significant oscillations have
occurred with regards to the share of higher quality and
technologically superior products in the export or import structure.
107
In purpose of analyzing the sectors according to the specifics

of the actual competitiveness (price or non-price), we have
determined the unit values of the exports/imports. The unit value
indicates if the exporting or importing sector has achieved either
higher quality or lower price compared to the competitive products
on the targeted markets. This is an important indicator that by
comparison of the quantities and unit values at the level of products
or sectors enables to determine the nature of the competitiveness based on price or quality.17
The analysis has been made on the basis of assessment of the
dynamic competitiveness of the unit value as an indicator for the
quality based competitiveness. The unit value of the imports/exports
has been defined as nominal sale divided with the measure of
quantity - usually kilograms.
The unit price at the exports indicates the nominal exports
divided with kilograms and represents the indicator of the
productivity. It denotes if there is a higher quality or more
sophisticated processing, as well as better marketing that increases
the unit value18 and could provide basis for assessment if certain
products on the selected markets have price or non-price
competitiveness, most often reflected through the quality of the
products.
17
For instance, higher value (surplus) in quantity and unfavorable terms of trade
higher exports than imports in quantity, but lower unit value of the exports
compared to imports, indicates higher price competitiveness. The quality
competitiveness is present if the higher quantity of exports compared to imports has
been achieved with higher export prices, which indicated higher demand of quality
products at the market. The country that has higher unit value of the exports could
sell the product by higher price, which encompasses various non-price
competitiveness factors (quality, promotion, marketing), that increases the value of
the products itself (Grupa autora Analiza osetljivosti spoljnotrgovinskih sektora na
promene rezima u procesu pristupanja STO, Beograd, 2003, p.16).
18
Aiginger ., A framework for evaluating the dynamic competitiveness of
countries, Structural Change and Economic Dynamics 9, (1998) p. 166-167
108
Table 6. Selected sectors according to price/non-price

competitiveness (market segmentation) for the
period 2007-201119
SITC
2007
2008
2009
2010
2011
01-Meat and meat

preparations
02-Dairy products and

birds eggs
05-Vegetables and fruit
11-Beverages
12-Tobacco and tobacco

manufactures
54-Medicinal and
pharmaceutical products
56-Fertilizers (other than

raw)
57-Plastics in primary
forms
73-Metalworking
machinery
82-Furniture and parts

thereof
84-Articles of apparel and

clothing accessories
85-Footwear
Macedonia
19
In the Table 6, the competitiveness advantages in the trade with CEFTA of

selected, more important sectors have been denominated per year (in the period
2007-2011). In this context, 1 stands for the years marked with quality
competitiveness (QI>QU, CI>CU). Furthermore, 2 stands for years marked with
price competitiveness (QI>QU, CI<CU), while 3 stands for years marked with
low prices, but with trade deficit, as well. The mark 4 has been applied to the
years when the price competitiveness has been lost (QI<QU, CI>CU).
109
The structure of the trade exchange with CEFTA suggests low

unit values20 on the side of exports, as well as imports, which implies
that the actual competitiveness position has been mostly based on the
price of the products. In terms of selected sectors, the nature of the
competitiveness for the period 2007-2011 has been analyzed and
presented in Table 6. As evident from the data, apart of the sectors
and periods marked with trade deficit or lost of price competitiveness
(3 and 4), most of the sectors have price competitiveness. In
particular, there is strong price competitiveness in the sectors
Vegetables and Fruit (05), Tobacco and tobacco manufactures (12),
as well as Furniture and parts thereof (82).
4. Considerations for advancement of the export offer to

CEFTA from the perspective of the non-price factors
of the competitiveness
The dominant influence of the price on the competitiveness of
the macedonian products is an implication of many determinants that
has been present for decades. In the period following the countrys
independence, the state has registered negative tendencies in the
technical-technological development, unfavorable economic
structure, outdated technical and technological equipment in the
production processes, particularly in the leading industrial branches
that were mainly labor intense and with low technological
contribution. The Macedonian economy was less and less able to
20
. The low unit value of the exports has been a characteristics for most of the
countries in transition and have been 0,5-2,5 $US/kg., while in developed countries
it amounts up to 7,5$US/kg. The reasons for that are mainly related to the
exports/imports structure with higher share of the low processed goods, raw
materials and energy, while the share of quality products with higher value added is
rather low. At the instance, the price based competition dominates if lower prices
contribute to the higher quantity of the exports, and vice versa, the higher prices lead
towards lower quantity of the exports. The quality based competition dominated in
opposite conditions the higher prices go along with higher quantity of exports and
lower prices go along with lower quantity of exports (Konkurentnost privrede
Srbije, Jeffersson institute, 2003, . 106-107)
110
provide complete production lines to the foreign markets, in

particular with regards to more sophisticated phases of production.
The absence of marketing oriented product policy had various
negative implications which could be recognized into the narrow,
shallow and non-consistent product lines, as well as slow dynamic of
changes with regards to launching new, modification of existing and
abandoning the outdated products. Most of the Macedonian products
have had the attribute new only from the perspective of their
producing company. The process of innovation was only local, as the
products have not gained the quality that would have promoted them
as new high quality products.
Due to the dynamics of the non-price factors, their adjustment
and advancement shouldnt be understood as a spontaneous process,
but as organized and coordinated process based on well defined
strategy on micro, mezzo and macro level. In this regard, the
accountabilities of each business function in that process should be
located (in particular to the production and marketing), which would
enable additional effect of synergy. There is a need for
implementation of policies, measures and activities on macro level
that would provide support to the companies to achieve high rates of
productivity growth, to encourage their cooperation, as well as to
stimulate innovation and internationalization.
The Industrial Policy of the Republic of Macedonia (20092020) is integrated policy aiming towards advancement of the
competitiveness of the domestic industry by stimulation of the
production of knowledge, innovation and research based products
and services. The fields of activities include: internationalization
(export promotion and foreign investment), development of the
entrepreneurship, clusters, research and development and innovation,
development of eco-technologies, products and services. 21 The
measures and instruments of the industrial policy should create
preconditions for enhancing the competitiveness at the level of
companies and enhancement of their cooperation into clusters, while
21
Report on Foreign Trade of Macedonia, Ministry of Economy of RM and

University American College, Skopje, 2011, p. 66
111
the export promotion should assist in creation of possibilities for

successful diversification and advancement of the export offer
designated for the CEFTA markets, as well as other export markets
on regional and global level.
At the level of companies, there is a need for long-term
increase of the capacities, sustainable development and
competitiveness, implementation of marketing, design, innovations
and advancement of the quality by acquiring knowledge and skills
that would be used for development of high quality and knowledge
based products.
In the region of CEFTA, the creation of the value chains will
contribute towards optimal production in the context of global
competitiveness by development of action plan oriented towards
specific sectors, clustering, overcoming of administrative barriers,
etc. The region of CEFTA still does not have single market due to
various non-tariff barriers: administrative/legal, technical and
political, and their elimination will significantly contribute to the
advancement of the total trade. Setting-up of a knowledge based
economy is a precondition for the Western Balkan economies to
develop higher value added production through investment in human
capital, creation of policies and instruments that would support
knowledge building and absorption, creation of clusters, research
centers, incubators, etc. In that manner, by strengthening of the
competitiveness and multilateral cooperation, conditions for
prosperity and future membership of the Republic of Macedonia into
the EU will be created.
Conclusion
Although the problem of low or declining competitiveness of
the Macedonian economy is permanently present, it couldnt be
stated that it has been sufficiently elaborated so far. The low
competitiveness of the companies is largely attributable to the
nonconformity of the structure of production to the market demand,
low quality of the products, inappropriate design, product
112
inconsistency, perception of the price as the most important

competitiveness factor, outdated equipment, low level of
technological innovations, insufficient level of logistical support,
inappropriate packaging, inadequate promotion of the products and
generally inadequate conceptual treatment of the market, low
flexibility and diversification, insufficiently developed and applied
marketing approach based on monitoring of the market demand, etc.
There is a need for restructuring of the Macedonian economy
in purpose of increasing the export offer (export diversification) and
turning the production towards products which are not import
dependent (enabling exploitation of the domestic resources), as well
as goods and services with high value added or final products. In that
manner, the macedonian export would achieve higher growth rate
through advancement of the non-price factors of the domestic
products and services.
The implementation of the CEFTA agreement should
contribute to the integration of its parties into the single EU market
prior to their political integration into the Union. The free trade
agreements signed by the Republic of Macedonia provide framework
for development of the regional cooperation, advancement and
expansion of the markets, and therefore, increase of the possibilities
for political and economic integration into the EU.
The process of trade liberalization within the frame of these
agreements enables the companies to increase their business
activities and to prepare themselves to cope with the competitiveness
pressure, which is recognized as a dynamic effect in the process of
integration. In that context, the role of the state policies and
programmes for competitiveness is to stimulate the companies
towards higher internationalization and use of the possibilities
provided by the regional and other free trade agreements.
In the trade exchange with CEFTA, the competitiveness of the
Macedonian products has been mainly based on the price factors.
The most important export products are low processed and it is
difficult to be placed on the Western European markets. This data is
not encouraging given the fact that even prior to signing the CEFTA
113
agreement, the Macedonian exporters were losing their positions on

the traditional Balkan markets.22
Implementation of the non-price competitiveness factors could
significantly contribute to the advancement of the export and
competitiveness of the national economy with regards to the CEFTA
markets, as well as to the other markets, too. Considering the
advancement of the competitiveness of the export offer to the
CEFTA market, there is a need for coordinated activities on micro,
mezzo and macro level. The activities should be focused towards
expansion of the production chains, attraction of the foreign capital,
joint efforts for elimination of the non-trade barriers, enhancement
and development of the cooperation within the clusters and
establishment of regional clusters, creation of new products,
branding, implementation of standards, active promotion, etc.
Creation of competitive economy is a process which should be
realized on micro, mezzo and macro level. The role of the state is to
create favorable business climate, institutions, policies, programmes
and measures that affect the development and support of the
competitiveness factors through better information, support of the
innovation, technological development, export promotion, facilitated
access to finances, skills upgrading, etc. The Republic of Macedonia
has already developed several strategic documents which create
framework for creation of knowledge, competitiveness and
innovations based economy that should provide support for the
development of the industrial sector and increase of the higher value
added products offer.
CEFTA remains important market for the Macedonian
companies, so the joint action on all levels should enable use of the
possibilities that CEFTA offers as a precondition for future
membership into the EU. It is likely that the companies that would
not manage to cope with the competition on CEFTA market would
have difficulties to work and survive in the overall integration
processes.
22
Kikerkova Irena, CEFTA-2006 , effects upon the macedonian foreign trade

exchange, str.8.
114
References
1. Aiginger ., A framework for evaluating the dynamic
competitiveness of countries, Structural Change and Economic
Dynamics 9, 1998.
2. Report on Foreign Trade of Macedonia, Ministry of Economy,
USAID, 2007.
3. Grupa autora, Analiza osetljivosti spoljnotrgovinskih sektora
na promene rezima u procesu pristupanja STO, Beograd,
2003.
4. Gutierrez E., IMF Working Paper, Export Performance and
External Competitiveness in the former Yugoslav Republic of
Macedonia, November 2006.
5. Drucker F.P., Menadzment za budunost, Grme, Beograd,
1995.
6. Zbornik radova: CEFTA 2006- chalanges and opportunities,
Beograd 2011.
7. Konkurentnost privrede Srbije, Jeffersson institute, Beograd,
2003.
8. Kusakatov H: Aktuelnite sostojbi so izvozot od Republika
Makedonija i strateskite opredelbi, Ekonomski razvoj, br.23/2002, Ekonomski institut, Skopje.
9. National Report on Competitiveness, Skopje 2011.
10. Petkovska T. Necenovnite faktori i konkurentskata sposobnost
na industriskite pretprijatija, Ekonomski institut Skopje,
2001.
11. Popovska Z: Politika na tehnoloski razvoj, Ekonomski fakultet
- Skopje, 2000.
12. Sector analyses, Food and Drink Industry in the EU and in the
Republic of Macedonia, Ministry of Economy, Skopje, 2007.
115
13. Report on Foreign Trade of Macedonia, Ministry of Economy

of the Republic of Macedonia and University American
College, Skopje, 2011.
14. Uzunov V. Strategija i politika na kreiranje konkurentnost na
makedonskata ekonomija, Praven fakultet, Skopje, 2001.
Internet sources
1. Arsovski S., Kvalitet i konkurentnost (www.cgm.rs/2010/pdf)
2. Monteagudo J. and Montaruli F., European Commission,
Directorate General for Economic and Financial Affairs,
Analysing non-price competitiveness in euro area countries,
www.tesoro.it/export/sites/sitodt/modules/documenti_it..,
(15.11.2011)
3. Kikerkova I., CEFTA-2006, Effects upon the macedonian
foreign trade exchange,
(http://docs.google.com/viewer?a=v&q=cache:poQYagUAQ9
MJ:oliver.efri.hr/~euconf/2009/docs/Session7/7%2520Kikerk
ova.pdf+CEFTA2006,+effects+upon+the+macedonian+foreig
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4. World Economic Forum, Global Competitiveness Index
www.weforum.org
116
PART 3
PERSPECTIVES FOR FURTHER REGIONAL
INTEGRATION IN SOUTH EAST EUROPE
Dr. Danijela Jacimovic; FDI effects to the balance of payment in the
UDC 339.72.053(497-15):339.727.22
Dr. Danijela Jacimovic1
FDI EFFECTS TO THE BALANCE OF PAYMENT IN THE

WESTERN BALKANS COUNTRIES
Abstract
The privatization process was the main engine for the foreign
investment inflows in the Western Balkan region. The countries were
competing to provide favourable conditions to foreign investors,
implying some domestic companies to be very affected. In the
region, the foreign direct capital flows were directed mostly into the
sector of services, such as: banking, telecommunications, trading,
and energy and partly in real estate. The investments in industrial
sector or greenfield investments were significantly lower compared
to the share of services sector in FDIs.
As financial crisis affected the FDI flows worldwide, the high
openness and high dependence of this region have made the Balkan
countries also vulnerable to this process. Lower inflow of foreign
direct investments, along with the crises had effect on slowing down
the economic development of the Balkan countries. In addition, the
export oriented FDI had mostly positive effects on trade balance,
while the investments in banking, trade, basic infrastructures were
largely focused on overtaking larger share of the domestic markets,
which was predominantly the case in the Western Balkan countries.
It also affected the balance of payments in the analysed countries, as
FDI served as a means for financing of the current account deficits
across the region.
Associate Professor, Faculty of Economics, University of Montenegro

119
Introduction
At the start of the 21st century, there were numerous papers
that examined interaction between FDI and trade (Lane and MilesiFerretti, 2004, Rose and Spiegel, 2004, Swenson, 2004). These
researchers have argued that larger FDI inflows will lead to the
higher volume of trade, and will contribute to the increase of total
factor productivity growth and higher output rates.
On the other hand, other authors (Lipsey, E. 2002, Borensztein
and Lee 2004, Mencinger 2003) have found that FDI only
marginally affected GDP growth. FDI inflow could be favourable or
unfavourable for an economy, depending on the incentives offered
by host- country policies, like the level of education of a countrys
labor force, (Shiells, 2003, Chen and others, 2008) or adequate
foreign trade policy. The efficiency of FDI in promoting growth
would be increased by an export promotion policy and decreased by
an import substitution policy. (Busse, 2006)
Also, some of the papers stressed out the complexity of the
two-way positive feedback link between FDI and international trade
and suggested that larger benefits would be associated with reduction
of trade restriction (Aizenman and Noy 2005). On the other hand,
some recently developed papers (Mencinger, 2003, 2007, Cocozza
2011, Kinoshita 2011) have shown that FDI have influenced trade
balance by affecting exports and imports, whether the effects of FDI
on trade balance are positive or negative depending on the sectoral
structure of FDI and presumed strong links between FDI and
manufacturing sub-account (Aizenman and Noy, 2005, Walsh, 2010,
Mitra 2010). In this respect, one would expect positive effects on the
trade balance, if the major aim of FDI is to take advantage of cheaper
labor in the host compared to home country, and negative, if the
major aim of FDI is to acquire new markets. (Menzinger 2007). In
overall, the FDI effect on current account deficit, in a short and long
run, are closely linked to effects that FDI have on domestic savings
and economic growth. The aim of this article is to examine the FDI
impact to the balance of payment in the Western Balkan countries.
120
1. FDI flows to the Western Balkan countries

Western Balkan countries have started the process of
transition later than other countries, and therefore, faced significant
challenges deriving from political, institutional, economic and social
environment. Particular challenge was lack of domestic investment
and countries have become oriented towards the imports of capital.
The level of domestic savings in the Balkans was insufficient for
financing of radical reform, which imposed the situation for FDI to
be considered as crucial source of capital. Nevertheless, while FDI
flows to the Central and Eastern Europe have been quite large over
the 1990s, only small share was directed towards the Balkan
countries.
Table 1: Flows of Foreign Direct investments in the Balkan
countries 1991-2000 (in US$ mil)
1991-96
1998
1999
2000
45
41
143
-1
56
154
147
216
932
1,467
1,089
Macedonia
15
118
32
1,777
Serbia and Montenegro
66
113
112
25
370
3,832
3,666
5,208
Albania
Bosnia and Herzegovina
Croatia
Total
58
Source: UNCTAD, FDI/TNC database (data 2003).

eEstimation
1991-1996 average data for period.
The FDI inflow of foreign direct investment in the Balkan

countries in period 1991-2002 is presented in Table 1. In the early
1990s it was insignificant, but along with the increase of the political
and economic stability in region, the inflows rose in the period 1995
2002 and reached level of US$5.2 billion on the regional level.
Certain decline was registered in the period 200-2005, while 20062008 were marked with intense FDI flows on a regional level. (Table
121
2). In terms of individual countries, the largest single absorber of

foreign capital was Croatia, as the most developed country of the
region, as well as most advanced with regards to the integration with
the European union. In addition, over the period, larger inflow of
foreign capital was recorded in Montenegro, which had one of
highest per capita FDI inflows in Europe. The financial crisis from
2008 has affected the FDI flows to the region, implying significant
decrease of the FDIs of 49% in 2009 (Table 2). The most significant
drop of the investment occurred in Croatia, where FDI decreased for
about 2.5 times.
Table 2: FDI Inflow in the Balkan countries 2000-2009 (in mil )
2004
2005
2006
2007
2008
2009
Albania
278
213
259
481
675
698
B&H
567
493
611
1517
725
361
Croatia
950
1468
2765
3670
4192
1875
Macedonia
261
77
345
506
400
181
Montenegro
53
384
493
673
625
944
772
1268
3392
2513
2018
1410
2880
3903
7864
9360
8636
5469
Serbia
Southeast
Europe
WIIW: Database on Foreign Direct Investment 2010.
The process of privatization was the main engine for the

inflow of foreign investment in the Western Balkan region. The FDIs
were predominantly directed into the sector of services, such as:
banking, telecommunications, trading, and energy, as well partly in
real estate. Investments in industrial sector were significantly lower
than share of the sector of services in foreign investment. Dominant
investors were EU countries.
The absolute numbers indicate the positive trend of FDI flows
in the region up to the crises in 2008, but in purpose of getting more
realistic picture about the FDI inflows in the Western Balkans, we
would use FDI/GDP indicator (Table 3).
122
Table 3: FDI inflows/GDP in the Western Balkan 2000-2009 (in %)
Albania
B&H
Croatia
Macedonia
Montenegro
Serbia
Average for
the region
2000
2004
2005
2006
2007
2008
2009
4.0
2.7
4.9
6.0
0.0
0.2
4.7
7.0
2.9
6.0
3.2
4.1
3.2
5.6
4.1
1.7
21.2
6.2
3.6
6.2
7.1
6.8
22.9
14.6
6.1
13.7
8.6
8.5
25.1
8.7
7.6
5.0
8.9
6.0
20.3
22.8
8.2
1.4
4.6
2.7
31.7
4.5
3.0
4.6
7.0
10.2
11.8
11.7
8.8
WIIW: Database on Foreign Direct Investment 2010.
This indicator is relevant with regards to the differences in the

size and level of development of the countries in the region. The data
from the Table 3 show that the countries in the region have had low
level of FDI/GDP indicator in 2000 or 3% as average for the region.
This indicator refers to the year marked with relatively high inflow
of FDIs in the region, but the GDP performances of the countries
have been rather low across the region. Further on, the trend in FDI
inflow/GDP indicator indicates continuous increase up to 2009,
which was largely attributable to the higher FDIs, as well as rising
rates of growth in the region in the first decade of the new
millennium. The highest level of FDI inflow/GDP indicator has been
reached in 2007 (11.8%) and 2008 (11.7%) or almost 3 times higher
compared to the level in 2000. In terms of individual countries, the
most notable performances have been registered in Montenegro
(25.1% in 2007) and Serbia (22.8% in 2008).
Increase of this indicator is very important with regards to the
Western Balkan countries need for foreign capital, in terms of
support of the development of the countries. It we take in
consideration Central and Eastern European countries, on the base of
WIIW data, we have found that the FDI inflow/GDP indicator has
been also 3% at the start of their transition process in 1995. The
Baltic countries have achieved 9% of FDI/GDP in 2007, while
123
Vishegrad countries only 6%. Due to the crisis, both groups of

countries experienced decline of this indicator in 2009 down to 3.2%
and 1.3%, respectively. Different start was noted only with regards to
Bulgaria and Romania where this indicator was 1%, but they have
experienced huge increase up to 17% in 2007 during the investment
boom, as well as after entrance into the European Union. As result of
the crisis, this indicator decreased to 6.6% in 2009. This confirms
that the inflow of FDI depends on many factors, while FDI also
affect the national economy in different ways.
2. Trade flows and balance of payment in the Western

Balkan countries
The indicator of FDI inflow/GDP have shown that the
countries have been making efforts for attraction of more FDIs,
reflected into the increase of the respective indicators over the years.
In this respect, it could be argued that the high competition and
demand for FDI in the region could have adverse effects to the local
driving forces of the economic development. The significant FDI
increase in the Western Balkan countries in the period of high
international liquidity have brought significant effects like
stabilization and economic growth, but, at the time, contributed to
cover up the structural imbalances in these countries, as FDI were
used for financing of their current account deficits.
High trade openness and high dependence of this region have
made the Balkan countries vulnerable during the period of crisis. In
this perspective, the decrease of inflow of foreign direct investments
has also contributed to slow down of the economic development of
the Balkan countries. The international flow of capital decreased,
inducing a situation for the countries which were more exposed to
the inflow of foreign capital to face many problems. With regards to
the countries in the region, the crisis caused decrease of the exports
(Table 4), in particularly to their traditional export markets, such as
EU. As indicated on the Table 4, the export of goods as percentage
of the GDP has rapidly decreased down to 17.8% in 2009 from the
124
peak performance of 32.9% a year earlier. Their export

predominantly consists of commodities and low value added labour
intensive manufactured products, which could not cope well with the
crises. Significant decrease was noted also on the import side (Table
5). The imports dropped to 43.6% of GDP in 2009, compared to the
incredible peak of 77.5% a year ago.
Table 4: Export of goods / GDP in the Western Balkans
2000
Albania
2004
2005
2006
2007
2008
%
2009
7.0
8.3
8.1
8.8
10.0
10.4
8.7
B&H
20.5
20.8
23.5
27.3
27.8
27.9
23.8
Croatia
21.5
20.2
20.2
21.6
21.5
20.7
16.9
Macedonia
Montenegro
36.8
31.1
35.1
37.7
41.4
39.9
28.5
0.0
27.1
25.4
30.2
19.2
15.1
9.9
6.9
17.3
19.7
21.9
22.2
83.6
19.0
15.5
20.8
22.0
24.6
23.7
32.9
17.8
Serbia
Average
The trade/GDP data for 2008/2009 could not be treated as

typical, given the effect of the crisis on the exports and imports. The
analysis of the previous period 2000-2008 shows stable, continuous
growth of the export and import as percentage of GDP (apart of the
exports which that slightly dropped in 2007), with the import/GDP
indicator always more than double compared to the exports/GDP.
The movements of increase/decrease for the export and imports
mostly match in terms of periods of expansion/contraction,
suggesting strong import dependence of the exporting industries of
the Western Balkan countries. This results in significant trade
deficits of the countries across the region.
125
Table 5: Import of goods / GDP in the Western Balkans

2000
2004
2005
2006
2007
2008
%
2009
Albania
29.8
30.0
30.6
31.9
36.9
37.8
35.3
B&H
70.7
66.3
68.8
61.9
65.0
66.1
51.6
Croatia
36.6
40.7
41.3
43.0
43.5
43.5
33.3
Macedonia
56.1
52.2
53.5
57.4
61.2
66.0
51.5
Montenegro
0.0
52.0
53.7
69.7
78.0
82.6
55.9
Serbia
13.7
44.6
40.8
43.3
45.2
168.7
34.2
Average
34.5
47.6
48.1
51.2
55.0
77.5
43.6
The differences into the volume of exports and imports

(evident through the share in GDP) over the analysed period, with
imports more than twice higher then exports, point out to the serious
dis-balances into the level of development of the countries, as well as
low level of competitiveness. The trade data and several studies
(Mencinger 2007, Becker and Weissenbacher, 2011) indicate that no
significant structural changes occurred on the export side in these
countries over the period, while the increase of the exports was
largely attributable to the general market expansion. It could be
noted that the trend of trade increase (exports and imports) has same
direction as FDI trend, but it could hardly be argued that the
financial boom has affected the export structure, as most of the FDIs
went to the service sector. Nevertheless, it could be argued that the
FDI played a specific role with regards to the trade (in)balances,
marked with considerable trade deficits, and implicitly, high current
account deficits.
According to data presented in Table 6, the current account
deficit in Western Balkan countries was 3% of GDP in 2000, it rose
up to 9.3% in 2004 and reached the peak of 20.1% in 2008. Due to
the crises and trade contraction in 2009, it decreased to 11.8%. These
indicators are rather high and correspond to the level of development
of the countries in the region, as well as import dependence. For
comparison, according to WIIW data, the Baltic countries, Romania
and Bulgaria have started the transition process with an average
126
current deficit equal to 5% of the GDP, reached 10% in 2004 when

they entered the EU, while the ratio almost doubled in 2008. Over
the period, Vishegrad countries stood at the level of average 5%
current account deficit as 5 of the GDP.
Table 6: Current account as a % of GDP in the Western Balkans
Albania
B&H
Croatia
Macedonia
Montenegro
Serbia
Average
2000
-5
-7
-2
-3
.
-1
-3
2004
-6
-16
-4
-8
-7
-14
-9.3
2005
-9
-17
-5
-3
-8
-9
-8.6
2006
-7
-8
-7
0
-25
-10
-9.5
2007
-11
-10
-8
-7
-40
-16
-15.3
2008
-15
-15
-9
-13
-51
-18
-20.1
2009
-15
-8
-5
-7
-30
-6
-11.8
Wiiw: Database on Foreign Direct Investment 2010.
The indicators show different experience with regards to the

country groups, while the situation is certainly more diverse with
regards to individual countries. In the case of the Western Balkan
countries, Montenegro has been facing the most serious challenge
with regards to the current account deficit, as it reached 51% in
2008. It dropped to 30% in 2009, but still represents very high
indicator which poses challenges with regards to its financing. In
addition, Serbia and Albania have been also characterised with
relatively high current account deficits prior to the crisis, while the
crisis and trade contraction contributed to decrease of the current
account deficits in all the countries, apart of Albania. Nevertheless,
the general trend in the first decade of 21st century has been
widening of the trade deficits, which caused deepening of the current
account imbalances.
The current account deficits in the Western Balkan countries
have been mostly financed by the net FDI (Becker and
Weissenbacher, 2011). For most of the countries, comparison of the
indicators FDI inflows/GDP (Table 3) with current account/GDP
(Table 6) shows lower inflow of the FDI compared to the current
account deficits, implying the dilemma if FDI inflows in the Western
127
Balkan countries, with their sector distribution, have contributed

more to expansion of domestic consumption (and implicitly increase
of imports) than to the increase of the export. In this context, it
become evident that the FDI should not be solely treated as a cure to
the lack of capital and investment in the region, but should be
incorporated into development strategies of the countries with a
focus on export oriented sectors.
Conclusions
The transition of the Western Balkan countries has been
marked with lack of capital and investment, which resulted for FDI
to be perceived as an important source of capital. In the first decade
of the 21 s t century, there was notable increase of the FDI flows
into the region, which was reflected into increase of the FDI
inflows/GDP from 3% in 2000 up to 11.8% in 2007. However, most
of the FDI were done in the service sector, primarily in banking,
telecommunications, trade and energy, as well as partly in the real
estate. There were less FDI in the industrial sector, implying smaller
effects on the export structure of the countries, which has not been
favourable in terms of competitiveness, as intermediate and labourintense products dominate in the export offer of the region. In this
respect, it could hardly be argued that the FDI affected significantly
the development of the industrial sector in the region. Nevertheless,
it could be argued that the FDI played a specific role with regards to
the trade (in)balances, marked with considerable trade deficits, and
implicitly, high current account deficits.
Over the period 2000-2009, the Western Balkan countries
faced increase of the current account deficits, attributable to the
general trade expansion and considerable import dependence of the
countries. The trend of trade expansion occurred along with the trend
of increase of the FDI, but comparison of the indicators FDI
inflows/GDP with current account/GDP showed lower inflow of the
FDI compared to the current account deficits, implying the dilemma
if FDI have contributed more to expansion of domestic consumption
128
than to the increase of the export. Nevertheless, the FDI to a large

extent have contributed to financing of the current account deficits in
all Western Balkan countries, which was undeniably positive in
situation of lack of capital in these countries. On the other hand, it
become evident that attaining more valuable effects from the FDI
requires incorporation of the FDI policies into broader development
strategies of the countries with a focus on the export oriented sectors.
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131
Dr. Silvana Mojsovska, Dr. Gordana Tosheva; Trade integration of the SEE ...
UDC 332.135:339.5(4-12)
Dr. Silvana Mojsovska1
Dr. Gordana Tosheva2
TRADE INTEGRATION OF THE SEE COUNTRIES WITHIN
THE REGION AND WITH THE EUROPEAN UNION:
COMPLEMENTARITY AND EFFECTS
Abstract
This paper addresses the specifics of the regional trade
integration of the SEE countries, which has been conducted in two
directions with the EU and within the region via CEFTA 2006. The
aim of the paper is to provide insight into the characteristics of both
processes and dissusion about their complementarity and effects. The
data for the research were provided from official statistical sources
of EU and CEFTA 2006. The main findings from the reserch suggest
that the SEE countries are naturally inclined towards the trade
integration with the EU, due to the attractiveness of the EU market
attributable to its size and absorption capacity. Given the difference
in the level of development of the SEE coutnries and the EU, the
trade integration of the region with the EU resembles to hub-andspokes model, with the EU 27 as a hub and SEE countries as
spokes, which implies potentially harmful effects for the region. On
the other hand, the co-existing trade integration within the region,
hardly allow for occurrence of the hub-and-spokes model within
CEFTA 2006 due to the similar characteristics of the SEE countries.
In this respect, CEFTA 2006 could serve as an alternative to the
hub-and-spokes model with the Union, although its success would
depend on serious change in the policy-makers approach towards use
of the CEFTA 2006 potential.
1
Full-time professor in International Economics, Institute of Economics Skopje

Ph.D in Economics, Senior Advisor at the USAID-funded Investment
Development and Export Advancement Support Project in Macedonia.
2
133
1. Specifics of the trade integration of the SEE countries

The South East European countries (SEE countries) - Albania,
Bosnia and Herzegovina (B&H), Croatia, Macedonia, Montenegro,
Serbia and Kosovo3 are relatively small economies that pursue the
concept of trade openness, as substantial for their economic
development. Some of them are members of the World Trade
Organization (WTO) Albania (2000), Croatia (2000) and
Macedonia (2003), while others are in the process of accession to the
WTO. This clearly indicates their orientation towards liberalized
trade, while the evidence shows that the region has been also
inclined to provide better terms of trade with their main trade
partners. In this context, the SEE countries have been engaged in the
regional trade integration, in accordance with the GATT 1994,
Article XXIV. Moldova has been also analyzed as a part of this
group, given its participation into the process of trade integration of
the region.
The regional trade integration of the SEE countries has been
conducted in two directions with the EU and intra-regionally. EU
has been the major trade partner of all SEE countries, implying their
interest for free trade access to the Union. In addition, the SEE
countries also follow an agenda of trade integration within the
region, supported and monitored by the European Union, as it should
serve as a preparation phase for the future membership into the
Union. The specifics of both processes would be discussed below.
1.1. Trade integration of the SEE countries with EU
The trade integration with the EU has been of crucial
importance for the SEE countries, given the share of the EU in their
trade. The EU share in the total exports of the SEE countries ranged
from 46% - Croatia to 89% - Albania in 1998,4 while the same
3
In accordance to the UN Resolution 1244

The Road to Stability and Prosperity in Southeastern Europe (2000) Regional
Strategy Paper, World Bank, Table 3.2b: Direction of Trade Flows of the SEEC-7,
by Major Partner, 1998
4
134
indicator in 2010 was in the range 59% - Macedonia to 87% Montenegro.5 Also, EU have considerate share in the SEE imports,
ranging from 42% - B&H to 77% - Albania in 1998,6 while it ranged
from 61% - Croatia to 73% - Albania in 2010.7 In this context, all the
SEE countries undertook actions to advance their trade with the
European Union.
The main instruments of trade integration of the SEE countries
with the EU include Autonomous Trade Preferences and
Stabilisation and Association Agreements (apart of Moldova). Both
are part of the Stabilisation and Association Process (SAP) for the
region, which has been EU tailor-made process for the SEE
countries. It was launched in 1999,8 encompassing wide range of
components aiming towards achievement of the main goal
establishing political stability and functional market economies in
the SEE countries. SAP also has strong regional dimension, focusing
on advancement of the intra-regional trade.
The Autonomous Trade Preferences (ATP) were introduced
in 2000 as unilateral measures by the EU, serving to alleviate the
access to the EU market for the products originating from the SEE.9
ATP represent generous instrument enabling one-side liberalization
of the EU market for most of the industrial products originating from
the SEE countries, as well as considerable opening of the EU market
for the agricultural products from the region.
The Autonomous Trade Preferences for the SEE countries
were conditioned upon their readiness to engage into the
implementation of the effective economic reforms and regional trade
cooperation with other countries from the Stabilization and
Association Process, in particular through establishing free trade
5
Eurostat, DG Trade Statistics

The Road to Stability and Prosperity in Southeastern Europe (2000), op. cit, Table
3.2b
7
Eurostat, DG Trade Statistics
6
http://europa.eu/legislation_summaries/enlargement/western_balkans/r18003_en.htm
Council Regulation (EC) 2007/2000, 18 September 2000, Official Journal of the

EC L 240 applying to Albania, B&H and Croatia and Council Regulation (EC)
2563/2000, 20 November 2000 , Official Journal L 295 applying to
Macedonia and Federal Republic of Yugoslavia
135
zone in accordance with the Article XXIV, GATT 1994 and other
relevant WTO provisions.10 In fact, the Autonomous Trade
Preferences represent temporary EU instrument which enables
prompt and efficient access to the EU market for the SEE products.
According to the current regulation, their implementation shall
terminate at 31 December 2015. 11 ATP are the still of vital
importance for Moldova and Kosovo, as they serve as a main
instrument for regulation of their trade to the EU, while their
importance declines for the other SEE countries with the conclusion
of Stabilisation and Association Agreements (SAA), provided that
SAA introduces regulation of the trade cooperation among the
parties in the more consistent manner.
Stabilisation and Association Agreement (SAA) provides
regulation of the bilateral relations among the EU and the countries
from the SEE region. The Agreement represents the cooperation
framework among individual SEE country and EU, which shall
apply up to its eventual membership into the Union. In this manner,
SAA do not pledge ultimate EU membership for the SEE countries
against the European Agreements concluded among the EU and the
Central European countries, which assured their entrance into the
Union. Conclusion of SAA is a subject of negotiations among the
EU and SEE country, based on fulfillment of defined criteria by the
EU. As noted, each country concludes separate SAA with the Union,
and, therefore, the Agreement incorporates specific terms relative to
the country. Nevertheless, there are some common characteristics of
the SAAs. The similarities derive from the EU regional approach
towards the SEE, as well as EU efforts to employ the Stabilization
and Association Process as a channel for EU integration of the SEE
countries. The SAA provides asymmetrical trade regime in favor of
the SEE party, while the liberalization of the SEE markets should be
gradually achieved, usually in a timeframe of 10 years. In addition,
10
Article 2.2 of Council Regulation 2007/2000/Article 1.4 of Council Regulation

2563/2000
11
Regulation (EU) No 1336/2011 of the European Parliament and of the Council of
13 December 2011 amending Council Regulation (EC) No 1215/2009, Official
Journal of the EU L 347
136
the SAAs stipulate relatively similar structure of the provided

preferences to the parties, in purpose of preventing possible trade
diversion from one to another country in the region. Furthermore, the
SAAs contain same rules applying to the origin of the goods from
the region, as precondition for better utilization of the trade
preferences. In this respect, once again, it shall be stressed out that
the SAAs mostly ensure better terms of trade for the SEE countries
compared to the autonomous trade preferences.
Currently, the legal setting of the trade cooperation among the
EU and SEE countries has almost been completed. The trade
exchange among the EU and SEE countries has been performed
within the frame of their respective SAA (Macedonia, Croatia,
Albania and Montenegro) or Interim Agreements (B&H and Serbia)
that serve as temporary documents until enforcement of the SAA. As
mentioned, Kosovo trades with EU under the conditions stipulated
with the autonomous trade preferences, while Moldova also benefits
from ATP, given that its relations with the EU are regulated with the
non-preferential Partnership and Cooperation Agreement since 1994
that should be replaced with Association Agreement.12
1.2. Trade integration within the SEE region
Despite the considerate importance of EU as a trade partner
for the SEE countries, the SEE export has been characterized with
limited diversification. The SEE countries have similar scope of
industrial products, implying direct competition among them. In
these circumstances, advancement of the SEE countries trade needs
to include diversification of their export offer, but also expansion of
the intra-regional trade. As noted above, the regional approach was
promoted as one of the main postulates of the EU policy towards the
SEE countries,13 while the implementation of the regional trade
integration was divided into two phases signing of bilateral free
trade agreements (FTAs) among SEE countries and conclusion of
12
13
The EU-Moldova Association Agreement is currently under negotiation

Conclusions of the General Affairs Council, 26 February 1996
137
single multilateral agreement focusing on establishing common free

trade area (CEFTA 2006).
The regional trade cooperation among the SEE countries was
set as a precondition for further integration of the region with the
EU. As declared by the Council of EU in 2000, entitlement to
benefit from the preferential arrangements shall equally be subject to
their readiness to engage in effective economic reforms and in
regional cooperation with other countries concerned by the European
Union's Stabilization and Association process, in particular through
the establishment of free trade areas in conformity with Article
XXIV of the GATT 1994 and other relevant WTO provisions. 14
The first coordinated efforts of the EU and the SEE countries
towards trade integration of the region were undertaken within the
initiative known as Stability Pact. 15 The working group on trade
within the Stability Pact started the process for trade liberalization
and facilitation in the South East Europe through initiation of
bilateral trade agreements among all countries in the region. The
minimum standards with regards to the content and form of these
Agreements were defined in the Memorandum of Understanding on
Trade Liberalization and Facilitation, signed in 2001, which
stipulated: 16
Completion of the process of conclusion of bilateral trade
agreements among SEE countries by the end of 2002;
Export duties, quantitative restrictions on imports or exports,
or charges having equivalent effect to be abolished upon entry
into force of each agreement;
Import duties or charges having equivalent effect to be
abolished on at least 90% of the parties mutual trade by value
and of HS tariff lines by the end of the transitional period;
14
Council Regulation 2007/2000, September 2000

The Stability Pact initially included Albania, B&H, Bulgaria, Croatia, Macedonia,
Romania, Serbia and Montenegro. In addition to these countries, Moldova joined
signing of the Memorandum of Understanding. In May 2003, UNMIK on behalf of
Kosovo joined the Memorandum.
16
Memorandum of Understanding on Trade Liberalization and Facilitation, Stability
Pact Working Group on Trade Liberalization and Facilitation, 27 June 2001
15
138
Import duties or charges having an equivalent effect on a large

majority of goods to be preferably abolished upon entry into
force of each FTA; those on sensitive goods would be
progressively reduced during a transitional period of not more
than 6 years;
Appropriate common set of preferential rules of origin to be
included in the Agreement, along with rules and procedures
regarding the application of antidumping, countervailing and
safeguard measures consistent with the WTO provisions and
Ensure maximum consistency with all WTO provisions and
acquis communautaire.
The process has been significantly delayed and conclusion of
32 bilateral agreements was completed in 2006. Despite the formal
completion, no significant changes appeared into the intra-regional
trade. Therefore, in parallel with finalization of this process, the EU
has launched an initiative for replacement of the bilateral trade
agreements with a single regional free trade agreement. The idea
included entering of the SEE countries to the CEFTA (Central
European Free Trade Agreement) that was already set as a
mechanism for trade integration of the Central European countries
prior to their EU membership.
The transformation of the EU bilateral trade approach towards
the SEE countries with the regional one has been mainly driven by
the insignificant advancement of the trade integration of the region.
The major weaknesses of the bilateral trade agreements laid down
into the inconsistency of the level and dynamic of trade liberalization
among the countries. In this context, the minimum standards
envisaged into the Memorandum have not ensured establishment of
the common trade rules in the region, as the parties accustomed the
agreements towards their specifics. The study conducted by
Messerlin and Miroudot in 2004, aiming to review the effects of 23
FTAs signed at that time, have shown that the conformity of the
FTAs with the Memorandum of Understanding has not been
sufficient, in particular with regards to the trade liberalization. In
practice, the FTAs delivered lower level of liberalization than the
139
foreseen 90% of the tariff lines, as well as limited liberalization of

trade with agricultural products.17
The underperformance of the trade liberalization was largely
attributable to the conceptual framework of the process. More
specifically, the large number of FTAs 32, each with different
scope in regards to the tariff lines and different timeframe of
liberalization, created large and complex set of trade rules into a
relatively small region. This situation posed a challenge to the
customs offices in the SEE countries from the perspective of
administration of the custom rules for preferential trade, as well as to
the business community with respect to obtaining correct
information in regards to the terms of trade. Furthermore, the FTAs
have not contained provisions on the diagonal cumulation of origin,
i.e. the possibility for products that incorporate raw materials
originating from two SEE countries to be eligible for preferential
treatment on the market of the third SEE country or EU market. This
represented a serious restrain to the intra-regional trade, and also
limited the possibilities for business strategies and investment related
to development of supply chains in the region. In addition, the need
for transformation of the bilateral with regional trade approach in the
SEE countries derived from the serious shortcomings into the
institutional set-up of the system. The FTAs should have been
implemented bilaterally among the parties, which could hardly
provide substantial regional outcomes. In purpose of overcoming the
identified weaknesses, the Stability Pact suggested upgrade of the
process of regional integration of the SEE by creation of a single
regional free trade agreement or CEFTA 2006.18
The main aim of CEFTA 2006 has been elimination or, at
least, reduction of the shortcomings in the trade integration of the
SEE region. The integration includes all countries of the SEE
(Albania, Bosnia and Herzegovina, Croatia, Macedonia, Moldova,
Montenegro, Serbia and Kosovo) and established ground for
17
Messerlin, P., Miroudot, S. (2004) Trade Liberalization in South East Europe:

Review of Conformity of 23 FTAs with the MoU, Groupe DEconomie Mondiale
18
Stability Pact for Southeast Europe (2005) Boosting Trade and Investment in
SEE, Summary Progress Report, Working Table II
140
promotion in all segments relevant for regional trade integration,

such as trade in goods and services, investment, procurement rules
and intellectual property rights. In particular, the Agreement
stipulated common set of trade rules in the region, against the
previous bilateral solutions applied among the countries. In addition,
CEFTA 2006 treated the issue of diagonal cumulation of origin that,
apart of the SEE countries, also includes the EU countries, EFTA
and Turkey.19 However, the implementation of this mechanism has
been conditioned with specific terms on bilateral level of the parties
involved. Also, CEFTA 2006 promotes no fiscal discrimination
within the region, as well as compliance of the state aid rules, which
provides solid ground for increase of the competitiveness in the
region, as well as trade advancement.
2. Statistical evidence of the regional trade integration of

the SEE countries
The effects of the regional trade integration of the SEE
countries could be primarily analyzed through the volume of trade.
The period since formation of CEFTA has been rather short, which
implied the analysis to be done for the period 2009-2011.
Nevertheless, this enables perception of the mainstreams in the SEE
trade. As indicated on the Table 1, the intra-regional exports (within
CEFTA 2006) has increased in the absolute terms over the period
2009-2011 (from EUR 5847m up to EUR 7241m), but it registered
decrease in a relative terms, i.e. the share of intra-CEFTA 2006
exports in the total exports dropped from 28.2% in 2009 to 24.6% in
2011. The absolute increase of the exports corresponds to the general
level of trade attributable to the relative recovery of the world
economy, including the most important market for the SEE countries
European Union. On the other side, the decline of the share of the
19
Agreement on the amendment of and accession to the original Central European

Free Trade Agreement, Official Gazette of the Republic of Macedonia 69/2007,
Annex 4, article 3 - 4
141
exports in the total performance confirms the primary trade

orientation of the SEE countries toward the EU (Table 2). However,
the intra-CEFTA 2006 share of about in the total exports of the
SEE countries indicates that CEFTA 2006 has been perceived as an
important export destination for some of the members. On the
imports side, there has been also increase of the import flows over
the period 2009-2011 (from EUR 5426m up to EUR 6792m), while
the share of the intra-CEFTA 2006 trade has slightly increased from
11.8% to 12.2%.
Table 1. Merchandise trade of the SEE countries 2009-2011 (EUR mil.)
Source: CEFTA 2006 Statistics (www.cefta2006.com)
The Table 2 provides more detailed insight into the trade

partners of the SEE countries in 2010. Kosovo has not been included
in the Table, due to lack of respective data. According to the CEFTA
2006 statistics, significant part of Kosovos trade has been conducted
with EU 38.5%, while the CEFTA region participated with 34.2%
in 2011.20 As evident from the presented data, the share of EU 27 in
the total trade ranges from 45.3% for Moldova to 73% for
Montenegro. As noted above, all SEE countries enjoy the
preferential regime with the EU and focus primarily to this market.
However, the Table 2 shows that there is potential for the regional
integration within CEFTA 2006, which has been pursued in parallel
to the bilateral trade integration of the SEE countries with the EU, as
trade partners from the region have been important to B&H, Serbia,
Croatia and Macedonia.
20
CEFTA 2006 Statistics

(http://192.232.255.119/~cefta/sites/default/files/CEFTA%202011%20STATS.pdf)
142
143
As illustrated on the Graphic 1, around 82% of the intraregional exports within CEFTA 2006 has been done by Serbia,
Croatia and B&H, while Macedonia had share of additional 12%,
which indicates uneven distribution of intra-regional trade and
concentration of the regional flows on the former Yugoslav market.
Similar situation with the major actors involved could be noted on
the imports side, as B&H, Serbia and Croatia absorb around 61% of
the total intra-CEFTA imports. This implies that advancement of the
intra-CEFTA trade largely depends on the potential of these
countries for trade creation. Meanwhile, it has to be taken into
consideration that Croatia would leave CEFTA 2006 with the
entrance into the EU on 1st of July 2013, which would provoke
changes in the trade patterns within CEFTA 2006.
Graphic 1. Share of SEE countries
export into the total intraCEFTA export (2011)
Graphic 2. Share of SEE countries

imports into the total intraCEFTA imports (2011)
Source: CEFTA 2006 Statistics
Source: CEFTA 2006 Statistics
The statistical evidence indicates that trade integration of the

SEE countries with the EU has been favored, while the CEFTA 2006
trade have been built upon traditional links among the companies on
the former Yugoslav market. More successful implementation of
CEFTA 2006 largely depends on the willingness and capability of
144
the parties to commit to this FTA. In this regard, the main issue
would be related to the complementarity of both processes EU
integration that dominates on the agenda of the SEE countries, or
regional integration which is often perceived as an assignment within
the EU integration. The driving forces for the EU integration are
rather strong, as the SEE countries are mostly focused on the EU
market, given its size and absorption capacity. On the other hand, the
integration of the SEE market could extent the market for the SEE
companies, as well as investors, bringing many benefits in the
economic terms. However, achieving balance among both processes
is related to serious challenges. Some of them would be discussed
below.
3. Complementarity of the processes of the regional trade

integration of the SEE countries
Parallel conduction of both processes of trade integration of
the SEE countries within the region and with the EU provokes
discussion of their complementarity and effects. One of the models
that treat co-existence of trade partners with different importance and
effects of the regional integration is so called hub and spokes
model. This model has been primarily promoted by Kowalczyk and
Wonnacott in the context of effects from NAFTA.21 According to the
authors, if a hub-and-spoke trade system emerges with the US as a
hub, ... a spoke like Canada can expect to benefit from its own
bilateral spoke agreement with the United States. However, as the
United States then goes on to add new spokes, each substitute
agreement will hurt the existing spoke, while each complementary
agreement will provide further benefit to the existing spoke. 22 In
this respect, complementarity is of crucial importance to the success
of the regional trade integration.
21
Kowalczyk,C., Wonnacott, RJ. (1992) Hubs and Spokes, and Free Trade in the
Americas, NBER Working Papers No. 4198
22
Ibid, p.17
145
The idea on hub-and-spokes has been also applied to the EU15

and Central and Eastern European countries (CEECs) prior to their
membership to the Union by De Benedictis, De Santis and
Vicarelli.23 As a large and rich market, the EU 15 have naturally
attracted, as a gravitational pole, the flows of goods and services
originated by the opening up of the Eastern European economies.
That provided conditions for emergence of hub-and-spokes model,
with EU15 being the hub. The authors conclude that EU15 has
undeniably served as a hub to the CEECs at the start of their
integration processes towards the EU, but the establishment of
CEFTA (the original structure) and bilateral FTAs restored and
developed trade flows between the CEECs also within a broader EU
framework. From this perspective, FTAs among spokes (CEECs)
limited the reinforcement of a (harmful) hub-and spoke relationship
between CEECs and EU.24
The concept of the regional trade integration of the SEE
countries is rather similar with the trade integration of the CEECs. In
this context, the statistical evidence presented above indicates that
EU 27 serve as a hub to the SEE countries. The asymmetrical
preferential regimes of the SEE countries with the EU provide
favorable access to the EU market of the goods originating from the
region, which attracts the SEE companies. During the application of
the asymmetrical regimes, it could be expected that the spokes could
benefit from the hub-and-spokes model. In the opposite case,
according to Kaminski and De la Rocha, the hub-and-spoke pattern
is potentially harmful as it may produce significant distortions in
allocation of resources. There are two sources of distortions:
differences in market access and rules of origin. Distortions due to
market access are mainly at the expense of spoke countries, as the
hub-and-spoke situation puts spoke firms in disadvantage vis-vis hub firms simply because the latter have better market access
than spoke firms to other spokes. Firms, especially those operating
23
De Benedictis, L., De Santis, R., Vicarelli, C. (2005) Hub-and-Spoke or Else?

Free Trade Agreements in the Enlarged European Union, The European Journal of
Comparative Economics, Volume 2, p. 245 260;
24
Ibid, p.256
146
in increasing returns-to-scale industries, may seek to exploit

advantages offered by differences in trade barriers and relocate or
expand their activities at hub at the expense of spokes. Although
preferential access to hub markets and low wages in spoke
economies may offset significant relocation of industrial activity to
hub and generate dynamic growth effects in spokes, the hub-andspoke pattern reduces benefits of integration to a Southern
partner.25
Given the differences into the level of development among the
EU and SEE countries, as well as similarities in the level of
development and industrial structure of the SEE countries, there is
limited possibility for complementarity of the FTAs of the spokes
with the hub. More specifically, over 40% of the export offer of the
SEE countries consisted of four industries Textile, Food,
Beverages and Tobacco, Basic Metals and Machinery.26 This
concentration indicates that there has not been significant
diversification of the export branches in the individual SEE
countries, which is relevant with regards to their competitiveness on
the EU market. According to the level of finalization of the products,
the first two branches mainly deliver final products, but do not
contribute to outstanding net foreign exchange effect, as the textile
industry is labor-intense and import depending industry. In this
respect, it could be discussed that the FTAs of the SEE countries
with the EU (the hub) are rather substitute, then complementary
agreements.
Following the experience of trade integration of the CEECs
into the EU, the potential harmful impact of the hub-and-spokes
model for the SEE countries could be theoretically alleviated with
advancement of the trade integration within the region (CEFTA
2006). As illustrated with the statistical evidence, some of the
countries from the region are more committed to the intra-regional
trade than the others. Nevertheless, the similar characteristics of the
25
Kaminski, B and De la Rocha, M. (2003) Stabilization and Association Process in

the Balkans: Integration Options and Their Assessment, World Bank Policy
Research Working Paper No. 3108, p. 7
26
OECD Statistics
147
SEE countries hardly allow for occurrence of the hub and spoke
model within CEFTA 2006. Therefore, CEFTA 2006 could serve as
a correcting mechanism to the EU-SEE trade model with dominance
of the EU27 as a hub, but it should be taken into consideration that
more serious diversion of trade from EU towards SEE is needed for
notable results. Currently, around 25% of the SEE trade has been
conducted intra-regionally (with expected decline in 2013 due to
Croatias membership into the EU), while the share of the EU 27 is
still considerably high in all SEE countries. Increase of intra-regional
merchandise trade is related to diversification of the industrial
structure in the SEE countries, which is rather difficult and time
consuming process for the SEE countries, but inevitable with regards
to the trade advancement. If changes in the industrial structure do not
occur and SEE countries remain focused to the EU market, the huband-spokes effects are likely to reinforce, causing serious damage to
the SEE economies. In this perspective, the processes of the regional
integration of the SEE countries with the EU and within the region
(CEFTA 2006) should be perceived from the perspective of their
potential for complementarity, as both will continue to co-exist. The
main difference is natural inclination of the SEE countries towards
the EU market, while the CEFTA 2006 approach could actually
deliver considerably more benefits for them, if recognized by the
policy makers and appropriately included in the trade and industrial
policy-making.
Conclusion
The SEE region consists of relatively small economies
(Albania, B&H, Croatia, Macedonia, Moldova, Montenegro, Serbia
and Kosovo) whose development is determined by their trade
performances. In that context, these countries are actively involved
into trade processes that would enable them with better terms of
trade. In the past decade, the SEE region have pursued two parallel
processes of regional trade integration with the EU (each country
individually) and within the region. Given the aspirations of the SEE
148
countries for EU membership, as well the attractiveness of the EU

market attributable to its size and absorption capacity, it could be
argued that the countries have been naturally inclined towards the
trade integration with the EU. The main instruments provided by the
EU for trade integration of the region included Autonomous Trade
Preferences (ATP) and Stabilisation and Association Agreements,
which provided favorable access to the EU market of the products
originating from the SEE countries. The importance of these
instruments is rather considerable, given that share of the EU in the
total trade of the SEE countries ranged from 45.3% (Moldova) to
73% (Montenegro) in 2010.
In parallel with the trade integration of the EU, the SEE
countries have been included in the process of regional integration,
under the auspices of the EU. The process that originally foreseen
completion of 32 bilateral FTAs among the SEE countries was
transformed into a regional approach aiming towards conclusion of a
single FTA known as CEFTA 2006. The major weaknesses of the
bilateral trade agreements laid down into the inconsistency of the
level and dynamic of trade liberalization among the countries, which
were prevailed with the regional FTA. However, the conclusion of
CEFTA 2006 has provoked discussion about the complementarity of
the trade integration within the region with the trade integration of
each SEE country with the European Union. Although CEFTA 2006
has been incorporated in the SEE countries agenda for accession to
the EU, the effects of both processes of trade integration could be
rather diverse. More specifically, the trade integration of the region
with the EU resembles to hub-and-spokes model, with the EU 27
as a hub and SEE countries as spokes. Given their industrial structure
and therefore, similar export offer to the EU, the FTAs of the SEE
countries could be rather treated as substitutes then complementary
agreements, which increases the potential for occurrence of harmful
effects of the hub-and-spokes model of the region with the EU.
Trade integration within the region, via CEFTA 2006, could
serve as an alternative to the hub-and-spokes model with the
Union, as the similar characteristics of the SEE countries hardly
allow for occurrence of the hub-and-spokes model within CEFTA
149
2006. However, that requires more serious diversion of trade from

EU towards SEE and intensification of the intra-regional trade,
which is related to diversification of the industrial structure in the
SEE countries, as well as genuine recognition of the potential
benefits of the CEFTA 2006 by the policy-makers and implicitly,
business community. Without changes in the policy-makers
approach towards potential benefits from CEFTA 2006, the natural
inclination of the SEE companies towards the EU market would
likely reinforce the existing effects of the hub-and-spokes model
with the EU.
References
1. Agreement on the amendment of and accession to the original
Central European Free Trade Agreement, Official Gazette of
the Republic of Macedonia 69/2007
4. Council Regulation 2007/2000, September 2000
5. Conclusions of the General Affairs Council, 26 February 1996
6. Conclusions of the General Affairs Council, 29 April1997
7. Communication from the Commission (2006): The Western
Balkans on the road to the EU: Consolidating Stability and
Raising Prosperity, Brussels
8. De Benedictis, L., De Santis, R., Vicarelli, C. (2005) Hub-andSpoke or Else? Free Trade Agreements in the Enlarged
European Union, The European Journal of Comparative
Economics, Volume 2
9. EBRD Transition Report 2003: Integration and Regional
Cooperation (2003), EBRD London
10. EU Trade database (http://ec.europa.eu/trade/)
150
11. Kaminski, B. and De la Rocha, M. (2003) Stabilization and

Association Process in the Balkans: Integration Options and
Their Assessment, World Bank Policy Research Working
Paper No. 3108
12. Kernohan, D. (2006) Reverse Balkanization? Trade
Integration in Southeast Europe, Centr for European Policy
Studies no. 249, August 2006
13. Kowalczyk,C., Wonnacott, RJ. (1992) Hubs and Spokes, and
Free Trade in the Americas, NBER Working Papers No. 4198
14. Memorandum of Understanding on Trade Liberalization and
Facilitation, Stability Pact Working Group on Trade
Liberalization and Facilitation, 27 June 2001
15. Messerlin, P., Miroudot, S. (2004) Trade Liberalization in
South East Europe: Review of Conformity of 23 FTAs with
the MoU, Groupe DEconomie Mondiale
16. Mojsovska S. (2006), Regional Trade Integration of South
East European Countries, European Institute-Sofia
17. Michalopoulos, C. (2001) The Western Balkans in World
Trade, An Essay in Memoriam of Bela Balassa, World Bank
18. Pjerotic, Lj. (2008) Trade Liberalization in South East Europe,
PANOECONOMICUS
19. Regulation (EU) No 1336/11 of the European Parliament and
of the Council of 13 December 2011 amending Council
Regulation (EC) No 1215/09, Official Journal of the EU L 347
20. Stability Pact for SEE (2005) Boosting Trade and Investment
in SEE, Summary Progress Report, Working Table II
21. The Road to Stability and Prosperity in Southeastern Europe
(2000) Regional Strategy Paper, World Bank
22. Trade Policies and Institutions in the Countries of South
Eastern Europe in the EU Stabilization and Association
Process (2003), Regional Report No. 24460, World Bank
151
Dr. Biljana Sekulovska-Gaber; Bilateral VS multilateral approach towards
UDC 332.135:339.5(4-12)
Dr. Biljana Sekulovska-Gaber1
BILATERAL VS MULTILATERAL APPROACH TOWARDS

REGIONAL INTEGRATION IN SOUTHEAST EUROPE
Abstract
The appearance, development and achievements of regional
integration processes in Southeast Europe (SEE) is in accordance
with all regional initiatives in general, including the development of
multilateral cooperation as basis for economic development,
economic and political stability and strengthening of good
neighborly relations. Since the EU strategy in SEE is a combination
of bilateral and multilateral approach, the aim of this paper is to try
and see how these two approaches were coordinated and whether
regional cooperation between countries in SEE, and especially the
level of trade is such that fosters economic cooperation and
strengthens political stability and good-neighborly relations.
Full-time professor, Faculty of Economics, University St. Cyril and Methodius Skopje
153
Introduction
Examples from international relations history have shown that
regional integration agreements reduce tension between potential
enemies and improve security for its member countries. Security
threats have moved neighboring countries to form regional
integrations, such as the European Coal and Steel Community
(ECSC, 1951) and the European Economic Community (EEC, 1957)
and actually reduced tensions and the threat of war in Europe. In
fact, the same was most probably true and acted as a major incentive
to most countries of Central and Eastern Europe (CEE) while
applying for membership to the EU. Thus, regional cooperation is
one of the consistent elements of European integration itself [and]
serves to bring about peaceful cooperation, economic development
and democratization and has therefore repeatedly been advanced and
promoted by the EU as a successful example and development model
for other regions of the world (Council of the EU, 1997, Presidency
conclusions).
What is the state of play in Southeast Europe, commonly
referred as Western Balkans? Could we speak about regional identity
in terms of regional cooperation in the Western Balkans? Today, we
are actually talking about seven independent entities (Albania,
Bosnia and Herzegovina, Croatia, Republic of Macedonia, Serbia,
Montenegro and Kosovo) which are surpassing transition activities
and processes that operate neither very easily nor without
difficulties; yet, it is a regional identity which is mostly defined in
negative terms, based on economic backwardness, political
incompetence and lack of security, to the point that the notion of
Balkanization entered the political parlance to denote conflictprone and uncivilized way of conducting any kind of affairs (from
the personal to the state, regional or international) (Anastasakis,
2002:73). This was mainly the reason why regional initiatives in this
part of Europe have mostly focused on instant problem solving. On
the other hand, the regional cooperation concept is not and should
not be perceived as something artificially imposed in SEE. On the
contrary, since it has emerged naturally as a result of the need for
154
unification of standards in the countries of the region on their road to

EU, SEE countries ought to continue intensive mutual (economic)
collaboration, and open even more intensive routes of
communication between them.
The existence of multilateral EU approach towards SEE
integration could be perceived through the Stability Pact which was
EU inspired but involved the wider international community. Yet,
the Stabilization and Association Process (SAP) still remains the
most important bilateral contribution of the EU, offering a more
committed and long-term bilateral framework of relations between
EU and the Western Balkan region. At the core of this process, the
Stabilization and Association Agreements (SAAs) have been
designed to regulate bilateral relations between the EU and
individual Western Balkan countries in fields of trade, competition,
state aid rules and intellectual property, while bringing countries in
the region closer to EU norms and standards.
It is more than obvious that there is very tight coordination
between bilateral and multilateral aspects of regional cooperation in
Southeast Europe, while at the same time the contribution is two
dimensional: political and economic. So, that is why regional issues
and international obligations, among which an obligation to
continue to promote the transition from the Stability Pact to more
regionally owned cooperation framework and effective
implementation of the Central European Free trade Agreement
(CEFTA) were part of the Council decision on the principles,
priorities and conditions contained in the Accession Partnership,
presented by the Commission on 6.11.2007 (COM (2007) 659, p.8).
In order to check how regional cooperation in Southeast
Europe was materialized in these two, equally important areas, part 1
will analyze the elements of political cooperation between SEE
countries, i.e. the activities of the Stability Pact (the Regional Cooperation Council). Part 2 will proceed with an analysis of economic
cooperation, especially its most important component - inter-state
trade, concentrating on the results of the CEFTA-2006 agreement.
Based on the findings, presented in part 3, we will finally conclude
whether or not regional cooperation and especially the level of trade
155
in SEE are such that foster economic cooperation and strengthen

political stability and good-neighborly relations?
1. Political dimension of cooperation in the Region of

Southeast Europe
The concept of regional cooperation in SEE definitely
contains a political dimension, since it has been positively
influencing regional politics in view of political stability. In the last
twelve years, the western approach towards the Balkans has changed
dramatically, from ignorance through involvement to advocating
integration. In 1999, as the first comprehensive conflict prevention
strategy was drafted, the International Community launched the
Stability Pact for South East Europe. Emerging mainly under the
pressure of then circumstances such as Kosovo War, the Stability
Pact aimed at strengthening the efforts of the countries of Southeast
Europe in fostering peace, democracy, respect for human rights and
economic prosperity. It provided a framework to stimulate regional
cooperation and expedite integration into European and EuroAtlantic structures. So, after a decade of an ill-defined policy in
SEE, the EU was more constructively involved in the region, more
committed regarding the European integration of the countries in the
region, better informed on the regional and local specificities and
necessities and more focused on its developmental strategy in the
Balkans (Anastasakis, 2002:v).
Following a European Council decision in Lisbon (March
2000) the regional approach was transformed into a Stabilization
and Association Process (SAP), whereby Southeastern European
countries for the first time received open perspectives for progressive
integration into the EU, dependent on the individual
accomplishments in the transformation process of each separate
state. Direct product of SAP and main tool for implementation of
these objectives were the Stabilization and Association Agreements
156
(SAA). These agreements did not change the previous conditions2.

The only thing that had changed was "the nature of the contractual
relations on offer - replacing the prospect of a Cooperation
Agreement with that of a Stabilization and Association Agreement, a
more advanced relationship" (Commission of the European
Communities, COM (2000) 49 final). At the same time, as the
Preamble of the Agreement had pointed out, the speed of accession
will depend upon the progress that each country of the Region will
make in regional cooperation, the respect of fundamental rights and
ethnic minorities. The first test therefore, was to check whether
countries of the region were able to establish good neighborly
relations.
Today, SAAs are directly financially supported by the
Instrument for Pre-Accession Assistance (IPA), which initially
springs from the Community assistance for reconstruction and
stabilization (CARDS) program. IPA is especially directed towards
countries of the Balkan region. Regional issues and international
obligations, including the obligation to continue to promote the
transition from the Stability Pact to more regionally owned
cooperation framework and effective implementation of the Central
European Free trade Agreement (CEFTA) were part of the Council
decision on the principles, priorities and conditions contained in the
Accession Partnership, presented by the Commission on 6.11.2007
(COM (2007) 659, p.8).
The Stability Pact has encountered difficulties and criticism on
its effectiveness to deliver the ambitious goals it initially set. The
Pacts Secretariat3, faced multiple difficulties from onset, mainly
2
Rule of law, democracy, respect for and protection of human and minority rights
(including media), free/fair elections, full implementation results, absence of
discriminatory treatment, implementation first steps economic reform (privatization,
abolition price controls), good neighborly relations, conditions for concluding
negotiations, substantial results in field of political/economic reforms (stabile
economic environment, liberalization prices, competitive banking sector, and
Dayton compliance (for B&H, Croatia and FRY).
3
Located in Brussels, it was organized into three units each dealing with an issue
area Working Table I focusing on democratization and human rights, Working
Table II focusing on economic reconstruction, cooperation and development matters
157
because of not having its own legal entity that would ensure its
funding. Instead of this, its functioning was merely through
independently funded projects and initiatives. The process also made
significant use of peer pressure. For example, Erhard Busek
mentioned the existence of: the Investment Compact, managed by
the OECD, which improved the overall business climate and boosted
investment promotion activities; the Foreign Investors Councils
which stimulated the development of small and medium-sized
enterprises (SMEs); as well as the Business Advisory Council (BAC)
for South-East Europe that had advised the Stability Pact on private
business issues (Busek, 2005:36).
As the region itself started to move from mere post-conflict
reconstruction to democratic reforms and to European integration
inspired transformation processes, the Pact had to be transformed
into a more regionally owned and led cooperation framework that
would meet the newest needs of the countries of the region in the
light of forthcoming European integration (Statute of the Regional
Cooperation Council - RCC)4. This was the main motive in
launching the transformation of the Stability Pact into its successor
organization, the Regional Cooperation Council (RCC). The new
structure was designed around priorities defined by the region itself
and was officially launched at the joint session of the final Stability
Pact Regional Table and inaugural meeting of the Regional
Cooperation Council in Sofia, on 27 February 2008, with the full
commitment and support from Southeast European countries, donor
countries and other international actors, such as the European
Commission. The fact that the Commission is member of RCC and
its Board, not only guarantees financial support for the Secretariat,
and Working Table III with security issues. Each of the participant countries
(Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Republic of Macedonia,
Romania and FR Yugoslavia) appointed a national coordinator to adjust the SP
activities to the need of each country. After the independence of Montenegro in
2006, Serbia and Montenegro started to participate separately, as well as Kosovo,
under the auspices of the United Nations, pursuant to UN Security Council
Resolution 1244 of 10 June 1999.
4
Available at: http://www.stabilitypact.org
158
but also demonstrates effort and policy consistency as it still

continues to finance some of the initiatives established under the
Stability Pact. It also plays an active role in donor coordination and
is maintaining close contact with the RCC SG and the RCC liaison
office in Brussels. The Commissions contribution to the RCC
budget is 1 million Euros per year (COM Decision 2008/020-477).
RCC inherited the mandate of the Stability Pact to oversee
cooperation processes in Southeast Europe and to support European
and Euro-Atlantic integration of the region. Although some see
Regional Cooperation Council as a waiting room until the next
wave of EU Enlargement, its mission is more or less justified. While
at the outset it served mostly as platform to channel funds for
reconstruction and coordination of donor activities, focusing on the
hardware of regional cooperation, it later evolved in a forum where
countries of the region and international actors could sit side by side
on an equal basis to identify common problems and devise shared
strategies to tackle them. Besides just preserving the obtained
accomplishments, RCC will probably meet the international
communitys expectations more than Stability Pact and bring new
quality in regional cooperation.
The latest Regional Cooperation Council was held in Sarajevo
(16.11.2011), where more than 70 participants, representing
beneficiaries from the Western Balkans and Turkey took part in the
so called: Instrument for Pre-accession Assistance (IPA) MultiBeneficiary Programme Coordination Meeting on regional
cooperation. This two-day meeting, hosted by the Regional
Cooperation Council (RCC) Secretariat and the Parliament of Bosnia
and Herzegovina, allowed the European Commission to identify, in
sync with beneficiaries and the RCC Secretariat, strategic
interventions in a number of priority sectors for the new 2012
programme as well as preliminary outlines for the programme in
2013.
The programme supports regional cooperation in several key
political and economic sectors. The 131 million euro worth projects
discussed relate to higher education, public administration reform,
parliamentary cooperation, fight against organized crime and
159
corruption, statistical cooperation, Western Balkans Investment

Framework, civil protection, youth action, and improved governance
and management in the region.
2. Economic dimension of cooperation in the Region of

Southeast Europe
Theoretically speaking, besides the political dimension,
regional cooperation has an economic dimension as well. The
ultimate goal of the economic dimension of regional cooperation is
to reconnect western Balkan countries with all their neighbors, EU
Member States and candidate countries alike: in many areas,
such as trade, energy and transport, because of the limited size of
each western Balkan country and the fragmentation of the economic
space in the region, there is no other option but to embark on intense
regional cooperation as the only realistic way forward. Enhanced
regional cooperation in the economic field is just plain common
sense (European Communities, 2005).
In other words, regional cooperation is extremely important
for economic growth because economic development favors stability
and security in the region. Despite extensive criticism, the Stability
Pact managed to contribute towards cooperation and create a certain
potential for the future. It brought together on many occasions
different social groups, intensified regional political dialogue on a
wide array of matters and provided grounds for discussion between
countries from the region and the international community,
especially by stimulating free trade, energy and transport
infrastructure. By signing a Memorandum of Understanding on
Liberalization and Facilitation of Trade in 2001, the governments of
Albania, B&H, Bulgaria, Croatia, Republic of Macedonia, Romania
and FR Yugoslavia made an important step towards the
establishment of free trade area, firstly by creating a network of
bilateral free trade agreements by the end of 2002 and allowing for at
least 90% of goods to be exchanged freely without tariffs. Further
on, in accordance with the Stability Pact Memorandum of
160
Understanding on Trade Facilitation and Liberalization, 2006 saw

an establishment of a free trade area in the Region of SEE through
the CEFTA agreement. Thus, the idea that emerged directly from the
Stability Pact was directed towards supporting the Stabilization and
Association Process in establishing free trade zone, trade
liberalization and facilitation that would provide access to wider
market for practically all products.
One other aspect of the economic dimension of regional
cooperation that needs to be closely observed as well is the potential
of the recently launched energy (Energy Community Treaty) and air
transport (European Common Aviation Area) agreements linking
countries of the region with those of the EU directly. Building on
CEFTA, which created a free-trade area of 55 million consumers,
these treaties demonstrate that the region is dedicated to building
attractive and stable surrounding, sending important signals to the
investor community on the high absorption potential of the SEE
market for industrial and consumer goods, while fostering the
process of integration of the region closer to EU, with trade as center
of interest. But, what is the real situation in the field of regional
distribution of trade of SEE countries?
Before proceeding further with analysis of data, we have to
point out that any quantitative analysis on trade in Southeast Europe
is impeded by a relatively low reliability of data, due to: systematic
underreporting in order to avoid tariffs, as well as to institutional
weakness. As a result, the degree of unrecorded trade appears to
have been significant during the last 15 years, as well as divergence
in trade data reported by the countries in the region and the data
reported in the trade data base of Eurostat, which is based on the
reporting of EU Member States (European Commission, 2006:45).
Concerning regional distribution of exports of SEE countries
in 2004, i.e. before concluding the CEFTA 2006 (data given in Table
1), one could notice that the EU was by far the most important
trading partner, with shares in total commodity exports ranging
between 53% (Serbia and Montenegro) and 91% (Albania). Data
also shows that for some of them, like for Albania, the ratio EU25/SEE-5 is especially extreme (90.6% versus 1.7%).
161
Table 1: Regional Export structure, 2004

Serbia &
Montenegro
64.6
57.0
53.4
19.3
28.9
28.5
0.3
1.4
0.6
14.4
2.0
17.0
4.8
4.1
B&H
Croatia
EU-25
90.6
54.0
SEE-5
1.7
37.6
0.2
Albania
Republic of
Macedonia
Albania
B&H
0.1
Croatia
0.1
20.4
Republic of
Macedonia
1.2
0.8
0.9
Serbia
0.4
16.2
3.7
6.8
20.8
Source: European Commission, 2006:43.
Interestingly enough, the same was true for CEE countries

whose economies immediately before full accession in the European
Union were also far less integrated within their own region than with
EU economies. Thus before accession into EU the annual growth of
exports in these countries was much lower (numbers in bold reported in Table 2), except in the pick of financial crisis year
2009.
162
Table 2: Annual growth of exports in EU (12) as %

Year
BG
CZ
ES
CY
LA
LI
HU
MT
PO
RO
SL
SK
2001
11.1
12.7
1.4
10.6
10.0
26.3
11.0
-20.0
12.2
10.0
6.3
10.3
2002
8.6
9.0
4.5
-3.5
7.9
20.8
10.5
1.5
9.4
16.3
6.6
11.2
2003
14.2
7.4
14.1
-3.0
13.1
15.6
6.9
-0.1
15.1
10.6
4.4
27.0
2004
15.3
31.4
21.9
84.3
25.3
31.4
22.3
5.6
28.9
20.0
15.3
11.1
2005
17.4
14.9
37.1
95.7
44.6
40.1
18.7
-0.3
23.0
15.4
17.5
13.0
2006
17.0
29.2
37.7
-40.0
24.6
24.0
31.9
7.0
33.6
16.4
23.4
48.9
2007
14.4
31.1
-1.5
-15.6
26.5
10.7
30.8
-2.0
25.6
26.3
25.2
59.2
2008
15.1
14.7
2.0
-0.4
23.2
47.5
9.0
-11.7
19.4
17.0
5.3
31.6
2009
-29.9 -40.1 -37.6
-5.3
-29.7 -46.0 -40.7 -19.2 -25.4 -18.0 -32.0 -41.5
2010
38.0
21.0
48.0
41.4
45.1
51.5
25.8
8.4
28.4
40.6
23.2
51.4
Source: Eurostat, http://appsso.eurostat.ec.europa.eu
The situation for SEE countries has drastically changed after

CEFTA-2006 entered into force. Data for intra-regional trade (Table
3) shows that we are finally closer to a regionalist theory perspective
which speaks in favor of a policy of regional cooperation, taking into
account the geographic proximity, common origins, shared
communist experiences and knowledge of languages. In other words,
export shares within the region of SEE rose significantly in 2007 in
comparison to 2004 (from 1.7% to 17.97% in case of Albania and
from 19.3% to 32.24% in case of Croatia). Data for Serbia and
Montenegro is incomparable due to differences in reporting (one
state versus two states after the independence of Montenegro);
results for Bosnia and Herzegovina are almost the same (37.6% in
2004 and 36.97% in 2007), while only data for the Republic of
Macedonia show decline in the level of regional cooperation (28.9%
in 2004 and 17.97% in 2007).
163
Table 3: Exports structure in the region of SEE, 2006 and 2007

Albania1)
Albania1)
B&H2)
Croatia2)
2)
Macedonia
Montenegro1)
Kosovo2)
Serbia1)
TOTAL
B&H2)
Croatia2)
0.3
20.86
0.32
0.28
14.4
2.17
1.63
12.6
0.97
17.97
2.62
4.55
3.2
12.2
36.97
Macedonia2) Montenegro1)
1.6
0.1
0.95
4.88
1.4
1.1
4.0
32.24
0.32
10.5
4.5
17.97
Serbia1)
2.75
1.25
9.93
5.36
0.82
19.05
27.413)
11.7
1.8
11.7
18.32
Serbia &
Montenegro
5
Kosovo2)
0.93
48.45
Source: Reported in Sekulovska-Gaber (2009)

Note: 1) Data is for 2006; 2) Data is for 2007; 3) It includes Kosovo as well
The results are quite expected taking into account the fact that
the Republic of Macedonia was the only country having signed
bilateral free-trade agreements with all countries in the group
before concluding CEFTA-2006, which was not the case with the
rest of the countries. This might be the reason for more favourable
results on their side, comparing with the results for Macedonia. What
is also inevitable from the data is the fact that low levels of trade
between SEE countries were overtaken. Thus, for most of the
countries in the region, one neighbour is dominant trading partner
(Serbia and Montenegro for Albania; Croatia for Bosnia and
Herzegovina, and vice versa; Serbia for Macedonia and Montenegro;
Albania, Macedonia and Serbia for Kosovo, and finally Bosnia and
Herzegovina for Serbia).
Looking further into CEFTA-2006 data, relating to the third
quarter of 2011 (as reported in table 4), one may conclude that
neighbours started to be more compact: export shares range between
12.24% and 36.85%, while import shares range between 5.98% and
43.53%.
Table 4: Export and import shares from CEFTA parties, 3rd quarter of
2011
Albania
Bosnia &
Herzegovina
Croatia
Macedonia
Montenegro
Serbia
Kosovo
Exports
12.24
35.26
18.34
31.57
36.85
29.61
26.1
Imports
9.25
25.25
5.98
11.62
43.53
8.49
36.5
Source: CEFTA trade data. Reporting period: 1 January-30 September 2011
164
3. Does trade foster economic cooperation and strengthen

political stability and good-neighborly relations?
The evidence has proven that international mechanisms, which
were mostly EU inspired, accelerated good political relations among
neighbors in SEE and significantly helped the process of replacing
nationalism and intolerance with political dialogue in the region. It
has also been shown that due to raised trust between them and
especially after signing CEFTA-2006 agreement, trade between
neighboring countries improved significantly thus for most of the
countries in the region one of the neighbours became dominant
trading partner. No matter the fact that there are still issues in the
Western Balkans which need to be addressed urgently, many things
are moving in the right direction and have been positively
influencing the politics in the region and favored stability and
security. So, let us focus on positive developments:
Firstly, the clear European perspective that was given at the
Thessaloniki European Council in 2003 has been already
materialized through signed SAAs between EU and all countries in
the region5, as well as through the recent membership of Albania and
Croatia in NATO (accession on April 1, 2009);
Secondly, the process of democratization is certainly
irreversible. All elections (rounding up with the last conducted in
2011 in Macedonia and Albania) were monitored by the
Organization for Security and Cooperation in Europe and were
conducted in a free and fair manner;
Thirdly, considerable progress has been achieved in the area
of return of refugees and internally displaced people, which was not
5
The first was signed between the Republic of Macedonia and the European Union
(09.04.2001), the second between the Croatia and EU (29.10.2001), the third
between EU and Albania (12.06.2006), the fourth between EU and Montenegro
(15.10.2007), the fifth with Serbia (29.04.2008) and the last with Bosnia and
Herzegovina (16.06.2008). For Kosovo, a partially recognized breakaway province
of Serbia, negotiations on a Stabilization Tracking Mechanism began in 2003 and
are still ongoing. The EU is still divided on how exactly to continue the SAP with
Kosovo, as some of its members remain opposed to Kosovo's independence.
165
only critical for ethnic reconciliation, but also an indicator of

democratic maturity;
The fourth very positive point is the decision of the European
Commission to grant visa-free travel to citizens of Albania, Bosnia
and Herzegovina, Montenegro, Republic of Macedonia and Serbia;
The fifth element is an arrest of Radovan Karadzic and Ratko
Mladic which was a significant breakthrough for the new moderate,
progressive and democratically oriented government in Serbia,
leading a country towards EU membership;
The sixth very important point is Kosovos declaration of
independence on 17 February 2008 by unanimous quorum (109
members present), which declared Kosovo to be independent from
Serbia. Independence has been vigorously opposed by Serbia,
supported by Russia. Up to-date, more than 50 countries have
recognized Kosovo, including the U.S. and most EU member states.
The last given candidate status to Serbia is very much dependent on
the acceptance of the "legal" status of Kosovo;
The seventh point is the Montenegrin referendum on
independence from the State Union of Serbia and Montenegro that
was held on 21 May 2006, making Montenegro the last of all former
Yugoslav republics to cut ties with Serbia, 15 years after the
dissolution began and now, after gaining a status of candidate
country it is waiting for a decision to start negotiations with EU;
The eighth positive point is the fact that economic and
investment climate has improved significantly in the region.
According to the report given by the World bank (WB, Annual
Report 2011:47), GDP grew on average 5% annually in real terms
and per capita GDP in EUR nearly doubled between 2000 and 2006.
These rather high growth rates, without taking into consideration the
results of the present world economic crisis, came mostly as a
consequence of low historic output and low starting base levels from
the 1990s. In the first couple of years, growth was sluggish in
Montenegro and Macedonia, but toward the end of the period all
countries experienced considerable growth rates. The Bank's
projections were that the region will grow by an average of 2.5% in
2011, and then slow to 2.1% in 2012, well below the 5.9% rate
166
registered in 2008, but four times higher than the 0.5% growth the
EU is expected to post next year. In spite of all problems the crisis
has brought about and growing uncertainties over the near-term
future, deeper EU integration remains the best growth model for
countries in the region, the Bank stressed.
A ninth positive point is the effort for reducing poverty in the
region, due to improvements in political stability and the
introduction of market economy. According to WB poverty data
(2008 World Development Indicators, pp.16-17) poverty was a
common feature to all Balkan countries and varied between 21.7% in
Macedonia, 19.5 in Bosnia and Herzegovina, 18.5 in Albania and
11.1 for Croatia.
The tenth point is presence of temporary or circular migration,
because many migrants (predominantly from Albania), return to their
country of origin as a consequence of present economic crisis,
political reasons or changes in personal circumstances. These
returning migrants bring back home not only money in the form of
remittances, but also skills, while setting up firms in order to
increase cooperation and enhance domestic and foreign investment
or providing their services to subsidiaries of foreign companies in
their home countries. According to different estimates, the number of
this kind of migrants is close to hundreds of thousands (Each-For
Case study report, p.19).
Conclusion
One of the main dilemmas facing EU policy in Southeast
European region is linked to the need for coordination of bilateral
and multilateral approaches, i.e. the SAA, as bilateral instrument of
integration and the Stability Pact, as a regional multilateral tool for
Southeast Europe. The first has only recently managed to come up
with a more consistent regional policy, based on the SAP, financial
assistance and a reassured political presence in the region; yet, as
regards the Stability Pact (now RCC), as the most prominent
regional initiative involving SEE, there is still much to be desired.
167
No matter the fact that everything is a matter of perception, while

measuring the regional aspects of EU integration in Southeast
Europe and how much has been achieved in the Region we may
choose a positive perception and repeat once again that the glass is
half full, instead of saying that it is half empty!
Even though the regions heterogeneity was present, the
challenge of adoption of regional strategy was a rather successful
story. CEFTA-2006, which emerged as Stability Pact initiative, was
directed towards supporting the Stabilization and Association
Process in establishing free trade zone, trade liberalization and
facilitation that provided access to the wider market for practically
all products. So, after signing CEFTA-2006, neighbours started to be
more compact, in a sense that low levels of trade between SEE
countries were overtaken and neighbours were back for most
countries in the region.
So, despite a common perception among Western academics,
analysts and journalists that Balkan regional identity is mostly
defined in negative terms, based on economic backwardness,
political incompetence and lack of security, to the point that the
notion of Balkanization entered the political parlance to denote
conflict-prone and uncivilized way of conducting any kind of affairs,
the last ten years, the region has learned to assume regional
ownership authentically. It has evolved in a forum where countries
of the region and international actors could sit side by side on equal
basis to identify common problems and devise shared strategies to
tackle them, in order to foster economic cooperation and strengthen
political stability and good-neighborly relations. But still, no matter
the fact that EU gives support to regional cooperation, either through
bilateral or multilateral channels, concentrating on political or
economic dimension, further concrete initiatives have to come from
the countries of the region themselves. In this respect, the Southeast
Europe cooperation process (SEECP) is further consolidating its role
as the voice of the region while trying to play a crucial role in
moving forward regional cooperation.
168
References
1. Anastasakis, Othon & Vesna Bojicic-Dzelilovic (2002),
Balkan Regional Cooperation & European Integration, The
Hellenic Observatory, The European Institute, The London
School of Economics and Political Science, July 2002
2. Busek, Erhard (2005), South-East Europe on the way to
Euro-Atlantic integration, in European Economic Integration
and South-East Europe, Challenges and Prospects. Edward
Elgar Publ. Inc., pp. 30-38.
3. Commission of the European Communities (2007), Council
decision on the principles, priorities and conditions contained
in the Accession Partnership, presented by the Commission in
COM (2007) 659, Brussels, 6.11.2007.
4. Commission of the European Communities (2008), COM
(2008)/020-477
5. European Commission (2006), Western Balkans in
transition, European Economy, Enlargement papers, No.30,
December 2006.
6. Commission of the European Communities (2000), COM
(2000) 49 final
7. Each-For Case study report
(www.each-for.eu/documents/CSR_Balkans_Draft_090331.pdf)
8. European Communities (2005), Regional cooperation in the

western Balkans, A policy priority for the European Union.
9. Eurostat, http://appsso.eurostat.ec.europa.eu
10. Sekulovska-Gaber, Biljana (2009),Trade links between the
countries in the region of southeast Europe: Are the neighbors
of the Republic of Macedonia back?, 3rd International
Conference: Regional cooperation and economic integration
challenges and opportunities, Skopje, 15-17.10.2009, pp.171180
169
11. World Bank (2008), World Development Indicators 2008,

Poverty data, a supplement to World Development Indicators
2008
12. World Bank (2011), World Bank Annual Report 2011
170
LIST OF MODERATORS, SPEAKERS AND AUTHORS OF

THE CONFERENCE PAPERS
Dr Vesna Bojicic- Dzelilovic, London School of Economics and
Political Science, UK
Dr Vesna Bojicic-Dzelilovic is Senior Research Fellow at the
Department of International Development at the London School of
Economics and Political Science. Her main area of research is
political economy of conflict and post-conflict reconstruction. She
has published academic and policy papers with a focus on South East
Europe. She is currently working on a project Governance, Justice
and Security in Conflict- affected Situations. She is also coordinator
of the LSE-based programme of support to higher education
institutions in South Europe, and the academic network: South East
European Research Network (SEERN) created under its auspices.
Dr. Silvana Mojsovska, Institute of Economics Skopje, Republic

of Macedonia
Dr. Silvana Mojsovska is a full-time professor at the Institute of
Economics Skopje, University St. Cyril and Methodius,
Republic of Macedonia. Her main area of interest is international
political economy and EU integration. Currently, she serves as a
Head of the Department of International Economics at the Institute.
Dr. Mojsovska has worked on many projects and provided
consultancy services for domestic state institution, as well as various
international organizations, including OECD, World Bank, GIZ,
UNDP and USAID. She has realised numerous research and study
stays at prominent Universities, including London School of
Economics and Political Science (LSE), Sorbonne Paris 1 and
Bologna University. She is a member of the LSE South East
European Research Network, operating under the auspices of
London School of Economic and Political Science.
171
Dr. Krum Efremov, Ministry of foreign affairs of the Republic of

Macedonia
Dr. Krum Efremov is a State counselor and Director of the
Directorate of Economic Diplomacy in the Ministry of foreign
affairs of the Republic of Macedonia. His main area of research is
international trade. He was actively involved in the process of
accession of the Republic of Macedonia to the World Trade
Organization and he served as a Chief Negotiator of the Republic of
Macedonia for Agreement on amendment of and accession to the
Central European Free Trade Agreement CEFTA 2006. In the
period 2004-2009, Dr. Efremov was president of the Council for
Consumer Protection of the Republic of Macedonia. His working
experience also includes chairmanship of the Stability Pact Trade
Working Group and participation in the Selection Committee for
recruitment of the staff for CEFTA 2006 Secretariat. He has realized
several study visits at WTO, including trade policy course.
Ms. Renata Vitez, Director of the CEFTA Secretariat, Brussels,

Belgium
Ms. Renata Vitez is Director of the CEFTA Secretariat, established
by eight signatory Parties of the CEFTA 2006 agreement, with the
objective to facilitate the implementation of the Agreement.
Previously, she has worked in both - public and private sector in
Slovenia and the Western Balkans. In the period 2000-2005, Ms.
Vitez has served as the State Secretary of the Slovene Ministry of
Economy where she was heavily involved in Slovenias participation
in CEFTA and in its accession to the EU. Her professional
experience also includes extensive consultancy work related to EU
integration matters.
172
Ms. Ljubica Nuri, Chamber of Commerce of the Republic of

Macedonia
Ms. Ljubica Nuri is Director of the Directorate for international
cooperation, promotion and information at the Chamber of
Commerce of Macedonia. She has over 35 years of working
experience and her professional interest is mainly in the areas of
international trade, EU integration and regional initiatives. She was a
contributor to SECI initiative and executive secretary of MAKPRO,
as well as member of Association of Balkans Chambers, Balkan
Centre for Trade Promotion and CEFTA Chambers Forum.
Dr. Irena Kikerkova, Faculty of Economics Skopje, Republic of

Macedonia
Dr. Irena Kikerkova is a full-time professor at the Ss. Cyril and
Methodius University, Faculty of Economics Skopje. In the focus
of her research are topics related to foreign direct investment in the
world, as well as in transition economies; regional integration and
the multilateral trade system under the WTO. She is the Chief of the
Department of International Trade on the first cycle of studies, as
well as Director of the European Studies at the second cycle of
studies at the Faculty of Economics. In September, 2009 she was
appointed as Director of the Regional Training Centre World
Customs Organization for the Republic of Macedonia opened as an
organizational unit at the Faculty of Economics Skopje by the
General Secretary of the WCO Mr. Kunio Mikuriya and in
partnership with the Customs Administration of the Republic of
Macedonia.
173
Dr. Biljana Sekulovska Gaber, Faculty of Economics Skopje,

Dr Biljana Sekulovska Gaber is a full time professor at the Faculty of
Economics, University St. Cyril and Methodius, Republic of
Macedonia. Her professional engagement is mainly in the field of
European Integration and Economic Statistics. She has published
two books and many academic papers. Dr. Sekulovska Gaber was a
member of the team preparing the National Strategy of the Republic
of Macedonia for EU membership, first director of the European
Documentation Centre within the Faculty of Economics, and at
moment, Head of the European Integration Training Centre (EITC)
within the same faculty. She has realized academic visits at
prominent Universities in Europe, USA and Australia.
Dr. Vanco Uzunov, Faculty of Law Skopje, Republic of

Macedonia
Dr. Vanco Uzunov is a full-time professor at the Faculty of Law,
University St. Cyril and Methodius, Republic of Macedonia. He has
worked on over 30 research projects, including preparation of
various national strategic documents. Dr. Uzunov has been Advisor
of the President of the Republic of Macedonia Branko Crvenkovski
on European Integration Issues (June 2003 November 2005), and a
member of the National Entrepreneurship and Competitiveness
Council of Macedonia. His academic visits include LSE and Graz
University, as well as University of California at Berkeley. He is a
Fulbright alumni and a member of the South East European Research
Network (SEERN), operating under the auspices of London School
of Economic and Political Science.
174
Dr. Tatjana Petkovska, Institute of Economics Skopje, Republic

of Macedonia
Dr. Tatjana Petkovska is a scientific adviser/full-time professor at the
Institute of Economics Skopje, University St. Cyril and
Methodius, Macedonia. Her main area of research is marketing. Her
assignments include lecturing on the postgraduate courses at the
Institute of Economics, as well as research activities mainly related
to the marketing issues on microeconomic level. She has academic
publications on marketing related topics.
Dr. Tatjana Petkovska Mirchevska, Institute of Economics

Skopje, Republic of Macedonia
Dr. Tatjana Petkovska Mirchevska is a scientific adviser/full-time
professor at the Institute of Economics Skopje, University St.
Cyril and Methodius, Macedonia. Her main area is marketing issues
and she has published several books and academic articles on
marketing related topics. Dr. Petkovska Mirchevska took part in
various research projects, as a team leader or participant. She has
participated on many scientific forums, seminars, conferences and
summer schools in the Republic of Macedonia and abroad.
Dr. Marija Ackovska, Institute of Economics Skopje, Republic of

Macedonia
Dr. Marija Ackovska is assistant professor at the Institute of
Economics Skopje, University St. Cyril and Methodius,
Macedonia. She works at the Department of International Economics
at the Institute. Her assignments include lecturing course on
International Trade on the postgraduate studies at the Institute of
Economics - Skopje, as well as research activities on several national
and international scientific projects.
175
Dr. Pregrag Bjelic, Faculty of Economics Belgrade, Serbia

Dr Predrag Bjeli is associate professor at the Faculty of Economics,
University of Belgrade, Serbia. His main area of lecturing and
research is international trade. He has worked on many projects and
realized cooperation with prominent institutions, such as WTO,
UNCTAD Virtual Institute, Economic Scientific Association of
Serbia -NDES. His academic visits include London School of
Economics and political science, UK; Harvard University,
Cambridge, USA and Faculty of Economics University of Oslo,
Norway. He has published several books and academic papers
related to international trade. He is a member of the South East
European Research Network (SEERN).
Dr. Danijela Jacimovic, Faculty of Economics Podgorica,

Montenegro
Dr. Danijela Jacimovic is associate professor at the Faculty of
Economics, University of Montenegro. She has over 15 years of
working experience, including lecturing and research activities in the
area of international economics. Dr. Jacimovic has realised several
academic visits at prominent Universities across Europe, including
London School of Economics and political science, UK and
established research cooperation with Bologna University and
Vienna Institute of Economics. She is a member of the South East
European Research Network (SEERN).
Dr. Gordana Toseva, USAID IDEAS project, Macedonia

Dr. Gordana Toseva holds a Ph.D in International Economics. In the
past 14 years, she has provided advice to the Government of
Macedonia under several USAID projects on issues that mostly
involved international trade regulation and compliance. Also, Dr.
Toseva was part of the team that advised the Government of
Macedonia in the process of accession to the World Trade
Organization. Currently, Dr. Toseva works at the USAID-funded
176
Investment Development and Export Advancement Support Project

as a senior advisor responsible for industrial policy coordination
support.
Dr. Jasmina Majstoroska, Ministry of Economy, Republic of
Macedonia
Dr. Jasmina Majstoroska holds a Ph.D in Economics from the
Institute of Economics Skopje, University St. Cyril and
Methodius, Macedonia. She works at the Ministry of Economy of
the Republic of Macedonia, at the Sector for industrial policy. Dr.
Majstoroska has been engaged in the process of elaboration of
several strategic documents, policies and programmes related to the
economic development and competitiveness. In addition, she has
served as a representative of her home institution in several
international projects undertaken by UNIDO, OECD, PHARE,
MIGA, World Bank, NATO, GIZ, USAID, etc.
M.Sc. Iskra Stanceva Gigov, Institute of Economics Skopje,

M.Sc. Iskra Stanceva Gigov is a research assistant at the Institute of
Economics Skopje, University St. Cyril and Methodius, Republic
of Macedonia. She works at the Department of International
Economics at the Institute. Her research activities include
assignments on several national and international scientific projects.
She currently works on the preparation of Ph.D thesis untitled The
impact of the international trade on the economic growth in the
Republic of Macedonia at the Institute of Economics Skopje.
177
CIP -
".
",
332.135:339.5(4-12)(0.034.44)
REGIONAL trade integration in South East Europe [
] : benefits and challenges : proceedings of international
conference / editor Silvana Mojsovska. - Skopje : University "St.
Cyril and Methodius, Institute of economics, 2013. - 1
- ; 12
PDF , 178 . - .
ISBN 978-608-4519-09-6
1. Mojsovska, Silvana []
) - - CD-a
COBISS.MK-ID 94668298

Regional Trade Integration in SEE Benefits and Challenges

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Regional Trade Integration in SEE Benefits and Challenges

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Silvana Mojsovska

REGIONAL TRADE INTEGRATION IN

Proceedings of International Conference

INSTITUTE OF ECONOMICS - SKOPJE

Dr. Silvana Mojsovska

REGIONAL TRADE INTEGRATION IN

Institute of Economics Skopje

REGIONAL TRADE INTEGRATION IN

The findings, interpretations and conclusions expressed in this publication

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

This publication contains papers presented at the International

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

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

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

Associate Professor, Faculty of Economics, University of Belgrade

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

1. Intraregional trade in Western Balkans

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

Chart 1: Structure of exports of selected Western Balkan economies

Source: Authors calculations based on national statistical agencies data.

Workshop "Market Failures and the Role of Institutions" Miloer, Montenegro,

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

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

As a separate customs territory defined under UNSCR 1244.

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

The Western Balkan region consists of countries, excluding

2. Non-tariff barriers and intraregional trade in

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

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

Predrag Bjeli Necarinske barijere u meunarodnoj trgovini Prometej, Beograd,

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

However, GATT 1947 did not stipulate regulation of certain

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

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

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

More specifically, the surveyed companies in Western

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

3. Administrative trade barriers and intraregional

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

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

Procedural barriers to trade are second major group of

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

4. Nonrecognition of mutual technical standards and certificates;

Chamber of Economy of Montenegro, CEFTA week 2009: To European

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

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

If we focus on the Western Balkan countries, we can see that

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

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

According to the Logistics Performance Index (LPI) shown

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

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

Source: World Bank, Logistic Performance Index, Intenet,

The third mentioned indicator is produced by World

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

The results of the Border Administration Sub-index and its

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

All three analyzed indicators are important for the discussed

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

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

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

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

EFFECTS OF ECONOMIC INTEGRATION WITHIN CEFTA2006 EVIDENCE FROM THE MACEDONIAN