reaping the benefits of trade and investment integration in south east europe

7/28/2019 Reaping the Benefits of Trade and Investment Integration in South East Europe

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IMPLEMENTING THE CEFTA 2006 AGREEMENT:

Reaping the beneits o trade

and investment integration inSouth East Europe


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APPROACH

The conclusions contained in this brochure are the result o close collaborative process involving

the OECD Investment Compact, the governments o the eight signatories economies to the

CEFTA 2006 Albania, Bosnia and Herzegovina, Croatia, the ormer Yugoslav Republic o

Macedonia, the Republic o Moldova, Montenegro, Serbia and UNMIK/Kosovo1 the CEFTA

bodies and the CEFTA Secretariat, as well as the private sector and civil society. This process

spanned three years and included analyses both quantitative and qualitative o intra-regional

trade and investment ows, reviews o institutions, policies and legislation, and policy dialogue with

stakeholders through working groups and roundtables.

1Throughout the brochure, UNMIK-Kosovo reers to the United Nations Interim Administration Mission in Kosovo on behal o Kosovo inaccordance with United Nations Security Council Resolution 1244.


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In 2007, the Western Balkan economies and the Republic o Moldova ratiied thenew Central European Free Trade Agreement (CEFTA) 2006. Emerging rom a

network o more than 30 bilateral ree trade agreements, it created a uniied trademarket o nearly 30 million consumers. The Agreement provided or the immediateliberalisation o trade in industrial products and the gradual liberalisation o tradein agricultural products and services.

In addition to implementing traditional trade-related liberalisations such as tarireductions and elimination o non-tari barriers, CEFTA 2006 obliges the adheringParties to undertake certain commitments: to co-ordinate their investmentpolicies, progressively open their government procurement markets and eectivelyprotect intellectual property rights. As such, CEFTA 2006 constitutes a trulymodern and ambitious ree trade agreement.

In co-operation with the CEFTA Secretariat, the European Commission and theGovernment o Hungary, since 2007 the OECD Investment Compact or South EastEurope (OECD-IC) has provided support to the CEFTA Committees in monitoring

the implementation o investment-related provisions and the elimination o non-tari barriers.

This brochure contains the main conclusions rom this work conducted with theCEFTA signatory Parties on issues including:

NATIONAL TREATMENT RESTRICTIONS AND BILATERAL TREATIES

INTELLECTUAL PROPERTY RIGHTS

TRADE INTEGRATION, INDUSTRY CONCENTRATION AND FDI INFLOWS NON-TARIFF BARRIERS

PUBLIC PROCUREMENT

It highlights key achievements, major challenges and oers recommendations togovernments on ways to improve policy implementation so that the economieso the Western Balkans are able to seize all o the opportunities or investment,

growth and development that the CEFTA 2006 treaty oers.

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National Treatment Restrictions and

Review o Bilateral Investment TreatiesThe report on National Treatment Restrictions and Review o Bilateral Investment

Treaties in the CEFTA 2006 Signatory Parties reviews two important aspects othe investment-related clauses o the agreement, specically restrictions tonational treatment and the consistency o bilateral investment treaties (BITs)signed among the CEFTA parties.

ACHIEVEMENTS

The principle o national treatment provides that governments treat those investments controlled by oreigners no

less avourably than similar investments controlled by domestic investors. The report confrms that to date, CEFTA

Parties have indeed taken signifcant steps to modiy or eliminate restrictions to national treatment in their primary or

secondary legislation covering oreign investment and certain sector-specifc laws.

It also notes that the majority o CEFTA Parties have stopped using horizontal screening procedures or oreign

investment. In most cases, a oreign-controlled enterprise is simply required to notiy its entry in the host economy

by registering with local commercial courts (e.g. Bosnia and Herzegovina, Croatia, the ormer Yugoslav Republic o

Macedonia, Montenegro and Serbia). The study nds that the CEFTA Parties are maintaining reorms designed

to strengthen the principle o national treatment.

In terms o the network o bilateral investment treaties (BITs) signed amongst the CEFTA 2006 Parties,

the study conrms that they are broadly consistent in terms o the treatment and protection they provide

to investors and their investments. The majority o these BITs use similar defnitions and terms and provide

comparable standards o treatment including most avoured nation (MFN) treatment at the post-establishment phase

o investment; compensation against expropriation; rights to transer capital and returns; and dispute settlement

mechanisms at the state-to-state and investor-to-state level.

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REMAINING CHALLENGES AND WAY FORWARD

International best practice suggests that investment treaties or ree trade agreements with investment chapters

which defne the terms investor and investment provide governments with greater clarity regarding their treaty

obligations. In the current text o the CEFTA Agreement, these terms are undefned. The CEFTA Parties might

consider undertaking a detailed review o the agreement to nd ways o clariying the intended meaning oterms such as investment and investor.

MOST PROMINENT TYPES OF RESTRICTIONS TO NATIONAL TREATMENT AMONG CEFTA PARTIES:

49% oreign ownership limitation in industries and sectors related to arms manuacturing, trading, andproduction (e.g., Bosnia and Herzegovina, the ormer Yugoslav Republic o Macedonia, Montenegro, Serbia

and UNMIK-Kosovo);

Foreign ownership o agricultural land (nearly all CEFTA Parties);

Restrictions on the purchase o real estate in sensitive areas such as border zones, national parks, andhistorical areas (all CEFTA Parties);

Restrictions on maritime transport services (e.g., Albania, Croatia, Montenegro, and Serbia) air transport(e.g., Bosnia and Herzegovina, Croatia, and Serbia) and fshing (e.g., Albania, Croatia, and Montenegro).

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Intellectual Property Rights in

the CEFTA 2006 Signatory PartiesThe paper Intellectual Property Rights and the CEFTA 2006 reviews the legal and

regulatory rameworks in place that protect intellectual property rights in theCEFTA Parties.

ACHIEVEMENTS

The report conrms that the CEFTA Parties have made considerable progress in revising their intellectual

property (IP) laws to be consistent with EU legislation and rules adopted by the World Trade Organization (WTO).

Croatia, or example, has ratifed all 25 intellectual property conventions and agreements noted in Annex 7 o the

CEFTA agreement. With the exception o UNMIK/Kosovo, the remaining CEFTA Parties have ratifed a vast majority o

those same conventions.


The challenge or CEFTA Parties remains properly enorcing IP laws. Inringement o trademarks, copyrights and

related rights is still common, and inringing goods remain easily accessible. None o the CEFTA Parties have ormed

special IP courts, thereore the competence or resolving IP rights inringement lies within general or commercial

courts which tend to be already overburdened. In UNMIK/Kosovo court practice regarding IP rights is practically non-

existent. International donor assistance will be necessary in the near term to provide capacity building support or

institutional structures in the CEFTA Parties charged with protecting and enorcing IP laws.

In view o EU membership, CEFTA Parties still have to make signicant strides in IP protection and

enorcement, including the ull implementation o EU regulations and standards. Governments will also have

to undertake eective communication campaigns to change public perception so that citizens come to see that

intellectual property deserves to be protected as much as physical property does.

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ESTIMATED PERSONAL COMPUTER SOFTWARE PIRACY RATES

Note: Data or UNMIK/Kosovo not available.

Source: Seventh Annual BSA-IDC Global Sotware 09 Piracy Study.

ALB: Albania

BIH: Bosnia and Herzegovina

HRV: Croatia

MKD: The ormer Yugoslav Republic o Macedonia

MDA: The Republic o Moldova

MNE: Montenegro

SRB: Serbia

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Trade Integration, Industry Concentration

and FDI Infows: The Experience in Centraland South Eastern Europe

Over the past twenty years, the economies o Central and South East Europe(CEE and SEE) have undergone undamental reorms the opening o new

markets, major policy reorms, deeper intra- and inter-regional economicintegration and institutional improvements which have signicantly alteredthe landscape o economic activity and oreign investment in the region. TradeIntegration, Industry Concentration and FDI Infow: the Experience in South East

Europe investigates how this growth has impacted the geographical location oeconomic activity in the region as well as oreign direct investment (FDI) fows.

ACHIEVEMENTSThe report looks at whether CEE countries have experienced more economic dispersion -- thereby reducing industry

concentration in certain geographic areas -- due to increased regional and European Union integration. It concludes

that this has indeed been the case (see graph p.9), and that regional and EU integration has resulted in a more

equal cross-country distribution o economic activity.

The study also shows that industries which have been most successul in overcoming concentration during the

period 2001-2005 -- a period o accelerated market integration -- were those with the lowest trade costs. This

suggests that governments which have enacted measures to lower trade costs have been more successul inovercoming industry concentration.

As regards whether increased regional and European Union integration has impacted FDI in CEE and SEE, the study

concluded that FDI is both market and efciency seeking. The greater the market potential o a particular country,

the higher FDI tends to be. In addition, a higher ratio o labour productivity to hourly labour costs (i.e. lower unit cost)

makes a country attractive or FDI. Evidence shows that the largest economies in the region have attracted the

greatest FDI infows, while FDI in manuacturing was directed mainly to sectors where SEE countries already

had revealed comparative advantages.

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The report confrms the positive correlation between trade openness and rising levels o FDI. It notes that the

combination o CEFTA implementation - with the resulting lowering o trade barriers it has brought amongst members

and reorms aimed at improving the investment climate would lead to greater FDI inows. This implies that CEFTA

implementation, greater trade openness and investment climate reorms mutually reinorce each other to

bring the highest levels o FDI to the region.

REMAINING CHALLENGES AND WAY FORWARDThe study underlines that in order to maximize benefts arising rom trade liberalisation at regional and European

level, the CEFTA Parties need to work simultaneously on implementing the CEFTA agreement, the EU Association

and Stabilisation Agreements and on improving the investment climate through economic reorms and institutional

development, such as upgrading skills, implementing regulatory reorms and strengthening the role o competition

authorities. Focusing on trade liberalisation alone, without connecting it with investment climate reorms, will not lead

to higher FDI inows in tradable sectors. The CEFTA Parties should thus intensiy their actions in reducing barriers

both to intra-regional trade, ocusing on the removal o NTBs, and to intra-regional and extra-regional FDI ows.

Going orward, the OECD Investment Compact will undertake urther work to extend the analysis conducted within

Trade Integration, Industry Concentration and FDI Infow: the Experience in South East Europe. Specically, a

more disaggregated analysis will be conducted to determine in greater detail the dynamics o economic

concentration and the location o FDI within specic SEE economies.

DISPERSING ECONOMIC ACTIVITY

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Ineective implementation remains another key challenge. A lack o administrative capacity and ragmented

institutional responsibility, the slow pace o legislative change, and inadequate or outdated equipment hinder the

application o regulations and standards. Companies consistently report difculties with changing requirementsregarding packaging, traceability and labelling.

There is also a lack o technical knowledge on the part o representatives o business groups such as

Chambers o Commerce (as well as some ocials) in identiying dierent types o NTBs.

The OECD Investment Compact has submitted to the CEFTA Parties a number o recommendations or actions to be

taken going orward to reduce and eliminate NTBs in terms o improving the structure and unctioning o the CEFTA

bodies, increasing inormation exchanges between the CEFTA bodies and with the private sector, and ollowing

progress through a monitoring system that has been developed based on the OECD-ICs Investment Reorm Index.

REGIONAL TOTAL GOODS TRADE, 2009

EU remains the dominant trade partner but the share o CEFTA intra-regional trade is increasing

CHANGE IN COMPOSITION OF INTRA-REGIONAL TRADE, 2004-2009

(2004 = 100)

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Round Table on Public Procurement

Public procurement accounts or a considerable share o total internal demandin the CEFTA 2006 area. The CEFTA 2006 Parties are now going througha process o bringing their public procurement legislative and regulatoryramework, as well as public procurement practices, in line with those o

the European Union and have asked or the support o the OECD InvestmentCompact in this process.

ACHIEVEMENTS

In November 2009, the OECD Investment Compact and the Government o Slovenia jointly organised a Round Table

on Public Procurement in Ljubljana to examine the progress made by the Parties in aligning their public procurement

legislation and procedures with that o the EU and the CEFTA 2006.

The workshop noted that considerable progress has been made by all CEFTA Parties in harmonising their public

procurement legislation and procedures with the EU and the CEFTA 2006. Moreover, appropriate institutions

have been established in all Parties and are operational. CEFTA Parties are now in the process o harmonising

their public procurement legislation and procedures with that o the EU as part o their EU accession process and

in some cases (e.g. the Republic o Moldova) World Trade Organisation (WTO) requirements. In addition, the eight

Parties have committed themselves to ensuring that procurement takes place in a transparent and reasonable matter,

treats all supplies o the other Parties equally and is based on the principle o open and eective competition. The

Parties have also agreed that the goods, services and suppliers o the other Parties are granted a treatment no lessavourable than that accorded to domestic goods, services and suppliers.

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Despite progress, certain Parties have progressed urther than others in harmonising their legislation and

procedures. For example, Bosnia and Herzegovina aces particular challenges due to its complex political situation.

Although they are in place in all CEFTA Parties, the institutions that have been created to oversee this

harmonisation process all ace constraints in terms o stang and nancial resources. This has beenexacerbated by the fnancial crisis, which has led to an even urther decrease in budgets and lowered the scope and

scale o procurement oers.

Ensuring transparency throughout the entire public procurement system is important. The rapid pace o legislative

change in the CEFTA Parties as part o the EU accession process can lead to hidden dangers, including

unintended consequences o dierent laws on the public procurement systems.

The next Round Table on Public Procurement will be held in the ourth quarter o 2010. This second Round Table

will ocus on monitoring the public procurement commitments taken under CEFTA and increasing thetransparency and dissemination o inormation.

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KEY CONTACT INFORMATION:

OECD INVESTMENT COMPACT FOR SOUTH EAST EUROPE PROGRAMME:

Mr. Antonio Fanelli, Deputy Head of the OECD Private Sector Development [email protected]

CENTRAL EUROPEAN FREE TRADE AGREEMENT SECRETARIAT:

Liudmila [email protected]

FOR FURTHER INFORMATION OR TO DOWNLOAD THE FULL REPORTS, PLEASE SEE:

www.investmentcompact.org

or

www.cefta2006.com

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www.investmentcompact.org

www.cefta2006.com

Cover photo: Binkski - Fotolia.com

reaping the benefits of trade and investment integration in south east europe

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