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Trade facilitation in CEFTA: "a means to support economic growth agenda of south east Europe".

It is recognised that CEFTA, (1) a modern and comprehensive regional free trade agreement, designed as an integral and complementary part of CEFTA signatories pre-accession agenda, provides strong legal basis for policy formulation and implementation in key intervention areas related to trade and investment. Successful implementation of the Agreement with full liberalisation of trade in goods has largely contributed to creation of a free trade area in South East Europe.

In this article it is aimed to provide a short outlook of the successes recorded in the implementation of the Agreement, and the priorities determined by CEFTA Parties until 2020. Thereafter, an emphasis is made to trade facilitation which is one of the two main priorities of CEFTA for the years between 2014 and 2020, and its role to play for inter-connectivity and to support the economic growth agenda of the CEFTA Region.

Achievements of CEFTA Between 2008 and 2014

Following the signature of CEFTA, the CEFTA Secretariat has been established in 2008, and implementation of the Agreement has thereafter become fully underway. In these six years of implementation between 2008 and 2014 the CEFTA Parties have recorded an eye-catching success in implementation of the Agreement.

The Parties have fully liberalised their bi-lateral trade in goods, and eliminated all tariffs in goods including agricultural products. This is a remarkable success in global scale as similar regional free trade agreements in different parts of the World in general include various measures to protect trade in agricultural products.

The CEFTA Parties have successfully completed all the technical preparations required to apply diagonal cumulation in CEFTA, and with EU, and Turkey under the Western Balkans Cumulation Zone. In 2013 Annex IV of CEFTA (Origin Protocol) has been amended in a way to establish a link with the Pan-European Mediterranean Convention which five out of seven CEFTA Parties have so far ratified (Albania, Bosnia and Herzegovina, Macedonia, Montenegro, and Serbia). Such amendment in CEFTA allows applying diagonal cumulation under the PEM Convention and will let the Parties to cumulate with its bi-lateral free trade partners such as the EU, EFTA States, and Turkey once all the relevant free trade agreements have been modified to link with the PEM Convention.

In these six years of implementation, CEFTA Parties agreed to open their public procurement markets mutually, notify their state aid schemes to each other, review their signing of all the relevant international intellectual property conventions, and they have been committed not to discriminate each other's investments.

The Agreement enhances the transparency in implementation of trade policy and measures. In concrete terms, such transparency has been ensured in the CEFTA Transparency Pack which makes the information on trade policies and measures of each CEFTA Party easily reachable through internet (www.cefta.int).

Above all the Agreement provides the countries with stable and predictable open markets even during the years of financial crisis. Furthermore the Agreement supports competitiveness of the Parties to allow them to increase their exports continuously to their main export destinations. (Figure 1)

Last but definitely not least, the CEFTA Parties have launched negotiations to liberalise trade in services. These negotiations are in progress and will hopefully be concluded in the upcoming years to liberalise trade in services which represents more than 50% of CEFTA Parties' balance of payments.

Trade Facilitation as a Means to Support Economic Growth

After the decision taken at the WTO Ministerial in Bali in December 2013 concluding the negotiations on WTO Trade Facilitation Agreement, Trade Facilitation has become on the top of global trade agenda. In very simple terms, the Agreement aims at removing bottlenecks and cutting red tape for international trade so that goods cross border more quickly and at lower cost. According to the United Nations Conference on Trade and Development (UNCTAD), in developing and least developed countries, the extra costs of delays, red tape, inefficiency and in some cases corruption can add as much as 15% to the price of goods. (2)

In another estimation which was made for the members of Asia Pacific Economic Cooperation (APEC), trade facilitation efforts may increase their intra-APEC trade by USD 254 billion. This would represent approximately a 21% increase in intra-APEC trade flows and suggest an increase in APEC average GDP per capita of 4,3%. (3)

In a recent study, it has been found that the upper segment of developing countries in terms of GDP per capita are the ones who have more notified their readiness to implement by the time the Agreement enters into force than the countries which have lower GDP per capita (Please see the graph below) Such measures are defined as Category A, provisions which a developing or least developed country of WTO members notifies as it will implement immediately after the Agreement enters into force (or in the case of a least-developed country member within one year after entry into force). (4) (Figure 3.)

Current State of Play in CEFTA Parties in Complying with WTO Trade Facilitation Agreement

If the scores given by the World Bank Doing Business Reports are taken as benchmarks, CEFTA Parties involved in the SEE 2020 require on average 3 documents to export and 2 documents to import than the EU. Such situation at least leads to 3 days delay in time to export and to import than the days spent to export and import in the EU. Therefore, Operators in CEFTA have to pay USD 252 more to export and USD 227 to import per container than the operators in the EU. (5)

According to the self-assessment made by CEFTA Parties with the support of USAID, 69% of provisions have been identified as Category A. (6) Whereas, the five CEFTA Parties which have completed their self-assessment consider 13% of provisions as Category B, 11% for Category C, and 6% for Category B and C.

The same self-assessments (7) suggest establishing enquiry points for trade information, facilitating pre-arrival processing, and creating single windows as common challenges among CEFTA Parties. It is recommended as a cross-cutting issue that establishing national trade facilitation committees should be prioritised to each CEFTA Party, and the CEFTA Parties should leave their customs authority centric approach in creating those trade facilitation committees.

The importance of creating national trade facilitation committees is particularly underlined by the analysis made by USAID on the basis of the self-assessments as these committees are expected to make efforts to lead nationally all the relevant agencies involved in trade, and private sector stakeholders in a collective manner to realise the procedural and implementing measures required by the WTO Trade Facilitation Agreement.

Furthermore, through facilitating trade CEFTA Parties will not be better connected to their partners in CEFTA, but also to EU member states which they trade most like Germany, Italy, and Romania or to their free trade partners like Turkey, Russia and the EFTA States. (Figure 4.)

Trade Facilitation and Liberalisation of Trade in Services as Priorities of CEFTA in 2014 and 2020

CEFTA Structures have played active role since the very beginning of preparations in elaborating the South East Europe 2020 Strategy (SEE 2020). In particular, CEFTA Structures have identified the regional priorities related to trade and investment under the Integrated Growth Pillar of the Strategy. These priorities are the same ones with regard to the implementation of CEFTA. Thus, such merged prioritisation in the SEE 2020 and CEFTA has reached its the second year of implementation.

CEFTA Structures have indentified trade facilitation and liberalisation of trade in services as their two main priorities for the period of 2014-2020. Such bi-prioritisation of the upcoming period in the implementation of CEFTA has also been reflected in the actions underlined by the SEE 2020. In this framework, the CEFTA Parties have also agreed that CEFTA Subcommittees on Customs and Rules of Origin, Agriculture and SPS, and NTBs and Technical Barriers to Trade are to work under the objective of trade facilitation, and to extend the scope of cooperation with each other while dealing with the different aspects of trade facilitation in relation to the areas under their mandates. Furthermore, CEFTA Parties have agreed to establish Committee of Trade Facilitation.

In its meeting of November 2014 in Skopje, CEFTA Ministers have launched negotiations for a framework agreement with the following scope:

a. Simplification of inspections related to all clearance procedures, and reducing formalities to the possible maximum extent,

b. Determining the means and obligations of exchange of data between customs authorities to the extent that each national legislation allows.

c. Recognising mutually the national Authorised Economic Operators Programmes in each CEFTA Party provided that both legislation and implementation of each national programme is fully in line with the relevant EU acquis.

d. Recognising EU Authorised Economic Operators (AEO) by each CEFTA Party

According to the work plan agreed in 2014, the negotiations of framework agreement are expected to start in January 2015 and to be concluded by the end of 2015.

Furthermore, there are two upcoming Technical Assistance Projects of which the CEFTA Structures are to be directly beneficiaries in the area of trade facilitation.

The first project is to be financed by the GIZ, and will be about "Addressing Market Access Barriers in Selected Supply Chains in CEFTA". The main objectives of the project are to identify the main trade distorting market access barriers in all clearance stages (i.e. before the border, border and behind the border measures) and to provide recommendations for their eventual elimination. In the implementation of the project, the participation of private sector representatives is to be strongly encouraged, particularly in the stage of identification of market access barriers. Implementation of the Project is expected to start early 2015 and to last until mid 2016.

The second project is to be financed by the EU in the framework of IPA II Multi-beneficiary programmes. The EU-financed Trade Facilitation Project in CEFTA is to have three different components. The first component is to be about addressing and eliminating main trade distortive NTBs in CEFTA Trade, with a particular focus on the behind-the-border measures in EU non-regulated areas. The second component is to provide technical assistance to CEFTA Parties in the implementation of Framework Agreement, once it is signed with the scope written above. In this regard, it is expected that the EU TF Project will provide technical assistance for strengthening the implementation of AEO Programmes, risk management systems of border agencies, and electronic exchange of data. The last component is to be about preparing documentary requirements maps to identify redundant and overlapping data submission requirements in CEFTA Parties.

In parallel, the CEFTA Secretariat is to receive financial assistance from the EU to establish its Management Information Capacity in order to provide one stop-shop service to provide data related to trade from a regional point of view. Therefore, the current databases under the CEFTA Transparency Pack are to be merged under the CEFTA MIS (management information system) along with on-line trade and trade facilitation statistics and reports.

CEFTA Trade Facilitation Concept as Regional Programme to Support Economic Growth Agenda of South East Europe Strategy 2020

CEFTA Parties have eliminated all their tariffs in their regional trade in goods. Though such elimination shows their clear and robust commitment in the implementation of the Agreement, trade facilitation has become the sole means to promote trade in goods, and to utilise trade policy so as to support regional economic growth agenda of the CEFTA Parties. (8)

CEFTA has therefore developed its Trade Facilitation Concept with an objective to facilitate the regional trade in CEFTA through utilising all types of legislation to be harmonised with the EU and other international rules and measures by the CEFTA Parties, and through creating regional tools under CEFTA with an aim to simplify and standardise the implementation of the relevant rules and procedures applied in trade.

CEFTA Trade Facilitation Concept is established on three pillars; simplification, harmonisation and standardisation. (9) Those pillars can be defined as such:

--Simplification: Process of eliminating all unnecessary elements and duplications in formalities, processes and procedures

--Harmonisation: Alignment of national procedures, operations and documents with the EU acquis, and other international conventions, standards and practices.

--Standardisation: Process of developing internationally agreed formats for practices and procedures, documents and information.

In addition, the Concept unorthodoxly incorporates the addressing and elimination of Non-Tariff Barriers (harmonisation) into its scope along with simplification and standardisation related the areas which are also covered by the WTO Trade Facilitation Agreement. Such approach has been assumed in order to undertake the actions meeting the logic of intervention below.

Logic of Intervention

The CEFTA Trade Facilitation is exclusively "regional" and thus, all the areas of intervention should define actions in which regional intervention is justified and should make possible to adopt a regional legal instrument as part of CEFTA.

Areas of Intervention

Under such logic, the areas of intervention are decided according to the three criteria below by taking into account the fact that all CEFTA Parties are in the EU alignment process but having limited private sector capacity. Once these two are combined, it may cause a substantial implementation challenge at the operational level in particularly, the areas related to trade facilitation which requires a high level of coordination. Thus, the Concept has to give a preference to the actions which are specific and result oriented as the third criteria in order to support the first two.

--"Acquis +": Actions should provide additional steps which are not required per se by the national EU alignment process while they are not prohibited by the acquis. In this regard all the actions are based on the EU acquis and other relevant international rules and do not require developing any region specific "standards".

--"Private Sector Oriented": Actions should be private sector oriented. Thus, the actions to be taken in the framework of CEFTA Trade Facilitation Concept should be taken the involvement of private sector as its core.

--"Specific": Actions should be specific and result oriented as much as they can be. Thus, all the actions should lead to a tangible result at the regional level whose impact on trade facilitation can be measurable.

In this regard, the actions foreseen by the CEFTA Trade Facilitation Concept may not include some of the areas which are included by the WTO Trade Facilitation Agreement or some of the areas which may refer to the issues in individual clearance stages though they may have a direct relation to facilitating trade in CEFTA.

For example, any action related to the harmonisation of product specific technical regulations by each CEFTA Party with the relevant EU acquis is not part of the Concept though such alignment may substantially eliminate some market access issues appeared in pre-clearence. Any regional instrument before a regionwide harmonisation is reached might not be justifiable while still some regional networking can be possible. On the other hand, in some areas such as mutual recognition of trade partnership programmes can be established as an additional step though it is not obliged by the EU acquis alignment but recommended by the relevant international Agreements and Conventions provided that the national legislation is fully in line with the EU.

Challenges

The first and utmost challenge of the actions to be undertaken by the concept is "coordination" which is required in different levels.

National Coordination: Coordination is required in different policies directly related to trade policy, and coordination between the public authorities which are in charge of formulation and implementation of those policies related to trade policy. In particular, Ministries and authorities in charge of trade, transport, finance (taxation and customs), technical legislation (TBT) and Sanitary and Phyto-sanitary measures including market surveillance should coordinate themselves not only for national actions but also for actions to be taken at the regional level while the implementation requires national measures. Absence of direct and single owner of those policies is the main challenge of trade facilitation related coordination. There seems a tendency that Customs Authorities are considered as the bodies to coordinate for trade facilitation. However, coordination between those policies related to trade facilitation goes well beyond to the mandate of customs authorities which are mainly in charge of the implementation and enforcement but not policy formulation.

Regional Coordination: In the CEFTA Region, the regional coordination between CEFTA Structures and other relevant regional organisations is necessary to give a coordinated response to the challenges under trade facilitation. In CEFTA, the Ministers agreed to establish a regional Trade Facilitation Committee to which the CEFTA Subcommittees on Customs and Rules of Origin, Agriculture and SPS, and TBT and NTBs are to report. The efficiency of the CEFTA Trade Facilitation Committee will be very much dependent on the success of national coordination in each CEFTA Party. We expect that the CEFTA Trade Facilitation Committee may facilitate the creation of national trade facilitation committees as required by the WTO Trade Facilitation Agreement.

In addition, for different cross-cutting policy areas horizontal coordination can be ensured between the relevant regional organisations. Still the regional coordination between those organisations can only perform, if it is backed by the strong national coordination.

Coordination between Regional and National Actions: Any legal instrument to be adopted at the regional level should be implemented at the national level. In this regard, national coordination should not only be in place before any regional act is adopted but also be sustainable for its robust implementation.

Coordination between "Projects" at regional and national levels: Challenges in policy coordination and coordination between the relevant public authorities at both regional and national level are squarely similar to the coordination between projects at regional and national level. In the CEFTA Region, the majority of projects are for supporting the EU alignment process which requires in principle national level of intervention. By definition those EU alignment projects are to support the beneficiary countries to align their legislation with the EU acquis, and establish the administrative capacity to implement. This provides a strong and sustainable basis for financial and technical assistance provided that the prioritisation of national projects in a synchronised manner in the Region. This requires a strong interaction between national and regional project prioritisation and planning. In the area of trade facilitation, the regional priorities are provided in the Integrated Growth Pillar of the South East Europe 2020 Strategy. All those priorities in the SEE 2020 are also the ones for the implementation of CEFTA and have a direct relation with the relevant EU acquis. Still the mechanisms to coordinate between regional and national projects in a way to prioritise national projects to support the regional projects need to be strengthened.

Capacity: Though the capacity of Public Authorities in the EU alignment process is an issue, it is expected that such capacity is to be strengthened in parallel to the progress in each national EU alignment process. However, the capacity of private sector remains a substantial challenge. In particular, outputs of the technical assistance are in general at the policy level while the implementation requires operational tools. However, the absent advisory capacity of private sector at the operational level becomes negatively disturbing how to translate policy recommendations to implementation. Improving capacity in private sector will also be of utmost importance to strengthen the ownership of trade facilitation process by the public authorities as they will be main beneficiary of the process.

CEFTA will do its best efforts to take initial steps in developing such capacity in the private sector at the regional level through different projects. Still it may remain an issue to be dealt in the medium term.

Conclusion

Reducing cost to trade through eliminating unnecessary regulatory barriers, cutting the red tape will not only promote trade. Stimulating trade will also give a strong impetus to economic growth through strengthening the integration of countries into global value chains according to their competitive advantages. This is an important element to be considered by the policy makers in CEFTA Parties as the Region aims to reach substantial level of economic growth by 2020. Given that five out of eleven economic headline targets of the SEE 2020 are related to trade and investment, the importance of facilitating trade as the tool to support the regional economic growth will be understood better.

However, it needs to be stated that trade facilitation efforts at both regional and national scale should be considers as tools to support the reforms in other macroeconomic policies. The main reform therefore requires in CEFTA to strengthen economic governance, and capacity building in economic policies formulation, coordination, and implementation. Otherwise, efforts to facilitate trade may not lead to the expected positive results as the overall competitiveness of the Region may not reach at the expected level to stimulate growth.

(1) On December 19, 2006, Albania, Bosnia and Herzegovina, Croatia, Macedonia, Moldova, Montenegro, Serbia and the United Nations Interim Administration Mission in Kosovo (UNMIK)--on behalf of Kosovo, in accordance with United Nations Security Council Resolution 1244--signed an Agreement to amend and enlarge the Central European Free Trade--CEFTA 2006 (to be referred either as CEFTA or the Agreement).

(2) Mukhisa Kituyi, Secretary General of the UNCTAD "Cutting Red Tape in Trade Supports Development", Huffington Post, 12 February 2014.

(3) John S. Wilson*, Catherine L. Mann+ and Tsunehiro Otsuki**, "Trade Facilitation and Economic Development: Measuring the Impact", World Bank Policy Research Working Paper 2988, March 2003.

(4) In accordance to special and differential treatment (SDT) provisions of the WTO Trade Facilitation Agreement that developing and least-developed countries (LDCs) are allowed to determine when they will implement individual provisions of the Agreement and to identify provisions that they will only be able to implement upon the receipt of technical assistance and support for capacity building.

To benefit from SDT, a member must categorize each provision of the Agreement, as defined below, and notify other WTO members of these categorizations in accordance with specific timelines outlined in the Agreement (see below).

* Category A: provisions that the member will implement by the time the Agreement enters into force (or in the case of a least-developed country member within one year after entry into force)

* Category B: provisions that the member will implement after a transitional period following the entry into force of the Agreement

* Category C: provisions that the member will implement on a date after a transitional period following the entry into force of the Agreement and requiring the acquisition of assistance and support for capacity building.

(5) World Bank Doing Business Report 2014, CEFTA Secretariat computations.

(6) Paul Feteke, USAID, 2014 Excluding Serbia and Bosnia and Herzegovina, the CEFTA Parties where the self-assessments were in progress during the preparation of the report of USAID.

(7) Ibid.

(8) Under the Integrated Growth, Western Balkan Countries of SEE 2020 agrees to increase their intraregional trade in goods by more than 230% and their overall FDI inflows to the Region by at least 120% by 2020. (South East Europe Strategy 2020--www.rcc.int).

(9) Source: Jan Hoffman, UNCTAD.

Mr. Umut Ergezer, CEFTA Secretariat.
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Author:Ergezer, Umut
Publication:Crossroads Foreign Policy Journal
Date:Mar 1, 2015
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