EFFECTS OF ECONOMIC INTEGRATION WITHIN CEFTA – EVIDENCE FROM THE MACEDONIAN EXPERIENCE Irena Kikerkova, Ph.D. Ss. Cyril and Methodius University, Faculty of Economics - Skopje

Methodological problems on following trade exchange among CEFTA-2006 member-states Problem of unification of member-states statistical reporting: - Member-states did not accept to create a special data base and to report regularly on the trade exchange within the free trade area, with exception of Croatia and Kosovo; - Macedonia is reporting on the trade exchange of “Western Balkan countries ” ; - Bosnia and Herzegovina is reporting on “European countries in development” ; - Serbia does not report on CEFTA-2006 trade exchange of goods at all ; - All of the other member-states are reporting in euro. Only Macedonia is reporting its trade exchange with CEFTA-2006 in American dollars.

There is also a significant discrepancy in the so called mirror statistical evidence of export and import flows of the member-states which causes doubts that differences in the reported data are not a result only of differences in the statistical methodology (Handziski, 2010); 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.

Statistical evidence on the Macedonian trade exchange of goods with CEFTA-2006 countries The creation of the free trade area had an immediate positive impact on the total trade exchange of goods of the member- states which was evident until the beginning of the economic crises in 2008; Total Macedonian export to CEFTA-2006 member-states almost doubled in the period from Similar tendencies were also registered on the import side; The effect upon the Macedonian trade balance was positive, as Macedonia recorded a surplus in the trade within the region in all of the years after the creation of the free trade area; The trade surplus reached a pick at the end of 2008 with a total amount of million American dollars.

The most important traders in the region – Croatia and Serbia - were severely hit by the crises and they both tried to protect their balance of payment positions by imposing various restrictions and impediments to trade and imports of goods. In the case of Macedonia, the crises restricted the participation of CEFTA-2006 trade exchange of goods to only 20% of the total Macedonian trade exchange by the end of Trade partners from CEFTA-2006 created 37.2% of total Macedonian exports and only 11.9% of total Macedonian imports. Even under these inconvenient circumstances Macedonia realized a trade surplus of about 400 million American dollars. However, the realized surplus in the trade with CEFTA-2006 in 2009 decreased by 38.6% in comparison with the one realized in 2008.

In 2010 the situation slightly changed and there was some recovering of the trade flows of goods among member-states. However, in comparison with 2009 total Macedonian trade within CEFTA-2006 increased by only 2.8% and reached the amount of 1.64 billion American dollars, of which billion American dollars were registered at the export, while billion American dollars were registered at the import side. Most of the increment of the Macedonian trade within the region was due to the increment of the trade with Kosovo (of 41.8%) and with Montenegro (of 8.4%). At the end of 2010 Macedonian export to CEFTA-2006 member-states created 31% of the total Macedonian export.

The trade pattern of Macedonian trade exchange within CEFTA-2006 The Macedonian economy faces a continuous decrement of competitiveness of its ready-to sell products due to the weak productivity and outdated technology engaged in its processing industry; The weak capacity of the country is obvious, as it can not provide larger export to one region without diminishing its export to another region. The most important trade partners for the Macedonian economy come from two regions: the EU and CEFTA-2006; Macedonian trade flows towards EU and CEFTA-2006 trade partners fluctuate from year to year regarding the economic situation in both of the regions, as Macedonian exporters did not have the capacity to boost their total production, as well as their total exports.

For Macedonian exporters CEFTA-2006 is especially important for export of agricultural goods. More than half of total Macedonian export of agricultural goods is exported in CEFTA-2006, of which almost 1/3 consists of fresh vegetables, and the rest are confectionary products and cigarettes. Over 60% of the exported agricultural products go to Serbia (and within it in Kosovo), less to 15% go to Croatia and about 11% to Bosnia and Herzegovina.

At the same time Macedonia depends on imports of agricultural products, especially wheat and vegetable and animal oils. The import of agricultural goods from CEFTA creates around 30% of total Macedonian imports of this kind of products and the greatest Macedonian trade partners in the region are Serbia which provides more than 2/3, and Croatia with 17.8% of the total amount of this kind of imports. Nevertheless, Macedonia still realizes trade surplus in the trade in agricultural goods within the region, which for the first 9 months of 2011 amounts about 36 million American dollars.

The most important non-agricultural export items for Macedonian exporters within CEFTA-2006 are: mineral fuels and iron and steel which create more than 1/4 each of total Macedonian exports to the region, followed by much smaller participation of iron and steel products, pharmaceuticals and some electrical machinery and equipment. Macedonian imports from the region are mostly steel and iron; mineral fuels; electrical machines and equipment; plastics and paper and paper board. The most important trade partners from the region both for exporting and importing of non-agricultural products are Serbia and Croatia.

The structure of exchanged goods in the Macedonian case clearly points out that the trade pattern is still inter-industrial and is mostly unlikely to change looking from a short-term perspective. However, data on trade exchange from other members of CEFTA-2006 confirm the inter-industrial pattern, as well. The trade pattern is inter-industrial between CEFTA-2006 and the EU. All CEFTA-2006 members are oriented to export one type of raw-materials and semi-processed goods and at the same time to import another type of raw-materials or sophisticated industrial goods.

Progress in the process of economic integration within CEFTA-2006 Established a mutual trade portal a year ago to provide all relevant information not only on different export and import procedures of CEFTA-2006, but also an on-line availability of all forms and documents needed for completion of the customs procedure. Since the beginning of this year, an agreement on unification on transit procedures within CEFTA-2006 has been signed. Serbia even proposed (and Montenegro and Bosnia and Herzegovina supported the proposal) that movement of persons should be allowed only with a valid identification card, instead of a passport –not possible for Moldova;

Creation of the Interchamber CEFTA-Working Group on Insurance at the beginning of March 2011 in Belgrade in order to provide gradual liberalization of the trade regulative and abolishment of administrative barriers to providers of insurance services within CEFTA-2006 and establishment of co-insurance services among member states; Establishment of a Regional Training on Taxation with a project supported by the Ministry of Finance and implemented by the Public Revenue Office of the Republic of Macedonia.

Challenges faced by CEFTA-2006 member-states The presence of non-trade barriers - 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; Full implementation of the diagonal cumulation of origin - Since 1st of November 2011 the implementation of diagonal cumulation is possible for Albania, Macedonia and Serbia with EFTA countries. Also, all of the CEFTA-2006 countries have to actively participate in the revision of the Pan- Euro- Med rules;

Further trade facilitation by enhancement of customs to customs, customs to government and customs to business cooperation; Implementation of simplified customs procedures on regional level, as well as providing mutual recognition of the provided national status of authorized economic operators; Establishment of regional logistic centers.

Threats to the process of economic integration within CEFTA-2006 The Croation accession into the EU due to be realized in 2013; The jeopardy of a new economic crises in 2012; The increased indebtedness of Greece, Ireland, Spain, Portugal, but also of Italy and other EU member-states; The instability of the Euro zone and the threat of its collapse.

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