Using trade agreements to help bind the Balkans

By Eric Jansson in Belgrade and Kerin Hope in Athens
>Published: December 6 2005 02:00 | Last updated: December 6 2005 02:00
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Recent moves have raised hopes that the Balkan region may one day join the European Union. Accession negotiations have been launched with Croatia, Serbia-Montenegro is in talks on a "stabilisation and association agreement" and Brussels decided this month to start talks with Bosnia.

But while praise flows thick and fast to presidents and prime ministers in Zagreb, Belgrade and Sarajevo for invigorating efforts to apprehend fugitives indicted for war crimes of the 1990s, efforts to build a regional market economy in the former Communist enclave have barely attracted notice.

The region's trade negotiators have undertaken a quiet but ambitious effort to bind the republics of the former Yugoslavia together with Romania, Bulgaria and Albania, thereby creating Eur-ope's second-largest trading area, bridging the large territory between the Adriatic and Black seas.

Last month saw the establishment under EU tutelage of the South East Europe Energy Community, slashing regulations on cross-border electricity trading between Romania, Bulgaria, Croatia, Serbia-Montenegro, Bosnia, Macedonia, Albania and Kosovo. Officials from the Stability Pact, the international community's Brussels-based office for conflict-prevention in the Balkans, praised the electricity deal as a "highly ambitious" step. Although it will take time and at least $15bn (€12.8bn, £8.7bn) of investment to create a genuine electricity market, officials compared it to the European Coal and Steel Community Treaty, which in 1951 planted the seeds for the EU.

Following the conclusion of more than two dozen bilateral trade agreements since 2002, western companies active in the region say the elimination of tariffs on most products has encouraged them to take more seriously small, poor Balkan markets such as Macedonia with only 2m people.

"The countries we have grouped together have a population of 55m, a sizeable market worth developing and investing in, provided we can treat the sub-region as one market," says Martina Kastler, chairman of Unilever South Central Europe, which co-ordinates the consumer goods manufacturer's business in seven Balkan countries from headquarters in Romania.

Since signing a raft of trade agreements, Bosnia has watched its exports grow 50 per cent annually, says Seadeta Ceric, the Sarajevo economist who signed the deals as Bosnia's chief trade negotiator.

With other cash-strapped Balkan countries benefiting from export growth, support is growing for a unified regional treaty to simplify trade. Imports have grown even faster thanks to remittances from south-east Europeans working in the EU, and an explosion in consumer lending by foreign-owned banks in the Balkans.

Such trading zeal counteracts the political fragmentation that became widely known as "Balkanisation" and followed the collapseof communism in 1989.

Further fragmentation is still possible, especially in Serbia, whose partner republic Montenegro and breakaway province Kosovo aim to declare independence next year. But EU officials argue that closer economic relations will create incentives to patch the region back together again politically.

However, some officials and traders still warn against exaggerating the progress on Balkan trade. A catalogue of non-tariff barriers governments have failed to eliminate include items as absurd as Serbia's practice of testing imported cosmetics for radiation levels.

Inadequate roads, rail networks and large numbers of bureaucratic border crossings, resulting from countries' small size, have also slowed the growth of trade within the region. For example, a Romanian truck driver hauling goods to Bosnia must obtain visas for both himself and his vehicle at Bosnia's consulate in a third country, Hungary.

New trade disputes also dog some Balkan capitals, with Ms Ceric accusing Bosnian political leaders of applying the new trade rules selectively. Officials in Sarajevo act "without any economic logic" in order to protect favoured domestic companies such as meat exporters, she says.

Mary O'Mahoney, trade expert at the Stability Pact, that helped negotiate the bilateral deals, says some of the "non-tariff barriers" will have to be left to an over-arching trade deal that is next on the region's menu.