CEFTA 2006: A New Reg ional Trade Agreeme nt for the Balkans
| Author | Christian Pitschas |
| Position | Lawyer based in Geneva, Switzerland, and Director of WTI Advisors |
| Pages | 06 |
Christian Pitschas, JD 1993 (Freie Universitt Berlin, Germany); LL.M. 1994 (University of Georgia, USA); SJD 2000 (Freie Universitt Berlin, Germany). The author is a lawyer based in Geneva, Switzerland, and Director of WTI Advisors. He can be reached at: christian.pitschas@wtiadvisors.com. The author acted as senior advisor to the national focal points of the Balkan countries on non-tariff barriers to trade (NTBs) in 2006 and 2007. He wishes to thank Karina Lubell for her patience as well as her editorial help. The author bears sole responsibility for any error and omission.
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It took the Balkan states only eight months to negotiate the Central European Free Trade Agreement (CEFTA) but it will take them much longer to reap all the potential benefits that may come from this regional trade agreement. The immediate advantage offered by CEFTA is that regional trade is not governed any longer by 31 (different) bilateral agreements but by one single agreement: CEFTA. However, in many respects, CEFTA is less ambitious than one could have hoped for, especially in the area of trade in services. CEFTA's success therefore depends on whether the body responsible for supervising and administering its implementation, the Joint Committee, will effectively and smoothly function. This article discusses the rationale for concluding a regional trade agreement in the Balkans, including the European Union's role in negotiations. Next, the article identifies the main elements of the CEFTA and their connection with relevant World Trade Organization (WTO ) and European Community (EC) rules. Finally, the article looks more closely at some issues that arise with respect to both trade in goods and trade in services. The article concludes by identifying CEFTA as an important step towards the creation of a free trade area within the region, but only the first step among many along the road to liberalization and harmonization of trade regulation.
CEFTA 20061 is a regional trade agreement (RTA)2 concluded by the Balkan states3 (hereinafter referred to as the Parties). It was signed on 19 December 2006 and entered into force on 26 July 2007. CEFTA 2006 replaces the 31 bilateral free trade agreements that hitherto governed the bilateral trade relations between the Parties. This network of criss-cross trade agreements may have stimulated trade between some of the Parties on a bilateral level but failed to do so on a regional level. Among other factors, this was due to the fact that: (i) traders had a hard time identifying the relevant rules governing cross-border trade with a particular country (i.e. there was a lack of transparency resulting in unnecessary information costs); and (ii) the patchwork of various rules of origin and preferences which applied to cross-border trade between the Parties considerably raised the compliance costs for traders.
Against this backdrop, the Parties agreed to negotiate an RTA with a view to achieving at least two objectives. The first objective was to overcome the legal diversity und uncertainty caused by the different bilateral free trade agreements by streamlining the rules on cross-border trade in the region.4 The second objective was to add new rules on subject matters such as trade in services, investment and government procurement. The first objective, in particular, is intended to level the playing field for all traders in the region so as to avoid the diversion of intraregional trade flows and to create a viable basis for increasing these trade flows.5 In turn, it is hoped that vitalizing the regional trade links may help in forging closer political ties between the Parties.6 Furthermore, the new RTA aims at improving the regional investment climate through new rules on investment.7 This goal is said to be of paramount importance given that foreign direct investment flows in the Balkans' region are rather low.8
The negotiations did not start from scratch; rather, they built upon the former CEFTA, which had involved some of the Parties.9 As a result, the negotiations did not last very long, beginning on a political level on 6 April 2006.10 Hence, there was a mere eight months between the first negotiations and the Page 16 signing of the agreement. Technically speaking, these negotiations resulted in "The Agreement on Amendment of and Accession to the Central European Free Trade Agreement," commonly referred to as CEFTA 2006.11
The European Union (EU) was heavily involved in the aforementioned negotiations principally for the following reasons. First, the EU plays a leading role, both politically as well as financially, in the "Stability Pact for South Eastern Europe," an instrument which provides the countries of that region with a framework for cooperation, especially in the areas of: (i) economic and social development; (ii) justice and home affairs; and (iii) security.12 Since the negotiations on CEFTA 2006 were conducted within that framework, the EU assumed a role of technical facilitator and political mediator for these negotiations. Accordingly, Brussels was chosen as "neutral" place for conducting the negotiations. The second reason for the EU's involvement in negotiations is that all of the Parties aspire to become members of the EU at some point in the future even though future EU membership may be a very distant prospect.13 Thus, both the Parties and the EU had an interest in ensuring that the new RTA would not-in some way or the other- become a stumbling block on the, albeit uncertain, path to EU membership.
It is interesting to note, in this context, that the EC started its own bilateral negotiations with the Parties on "Stabilization and Association" agreements, to be concluded between the EC and its member states, on the one hand, and each of the Parties, individually, on the other. These agreements are a first step towards EU membership and, consequently, go beyond trade issues. Agreements with Croatia and Macedonia have already entered into force.14 Additionally, the EU has commenced parallel accession negotiations with Croatia.15
CEFTA covers trade in both goods and services. The rules on trade in both agricultural and industrial goods comprise provisions on, among others: (i) the reduction and elimination of customs duties on both exports and imports;16 (ii) the abolition of quantitative restrictions and measures having equivalent effect;17 (iii) the application of SPS and TBT measures;18 (iv) rules of origin, administrative cooperation and assistance in customs matters, and trade facilitation;19 (v) the prohibition of fiscal discrimination;20 (vi) trade remedies (anti-dumping duties and safeguards);21 (vii) government procurement;22 and (viii) the protection of intellectual property.23 By comparison, the rules on trade in services are much less comprehensive. In addition, CEFTA establishes rules on: (i) competition;24 (ii) investment;25 (iii) transparency;26 and (iv) arbitration.27
Before addressing some of the objectives of CEFTA and the provisions that assist in their attainment, it must be highlighted that CEFTA places great emphasis on some of the rules of both the WTO and the EC for attaining the objectives under CEFTA.
The "Joint Declaration concerning the Application of WTO Rules and Procedures," which is an integral part of CEFTA according to its Article 47 (1), states as follows: To the extent that references are made in the context of this Agreement, to the rules and procedures set out in Annex 1A, Annex 1B and Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, the Parties agree to apply them irrespective of whether or not they are members of WTO.28
The core message of this joint declaration is that even those Parties which are not yet members of the WTO are bound by the WTO rules and procedures referred to in CEFTA.29 This message must be seen in light of the fact that the majority of the Parties are WTO members. Only Bosnia and Herzegovina, Montenegro and Serbia have not yet become members of the WTO, however, they are currently in the process of negotiating their accession to the WTO.30
The areas where CEFTA most heavily relies on the relevant WTO agreements are: (i) sanitary and phytosanitary (SPS) measures; (ii) technical barriers to trade (TBT); (iii) trade remedies; and (iv) the protection of intellectual property. Some of these areas are revisited below
The "Joint Declaration on Articles 20 and 21," which is an integral part of CEFTA according to its Article 47 (1), provides the following in its second paragraph:
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"The competition provisions in the domestic legislation of the Parties concerned shall be brought into compliance with the principles of Articles 81, 82, 86 and 87 of the Treaty Establishing the European Community."31 This obligation must be read in conjunction with the first paragraph which mandates that the Parties put their relevant domestic provisions into effect by 1 May 2010 at the latest. Articles 20 and 21 of CEFTA address "rules of competition concerning undertakings" and "state aid", respectively. Articles 81, 82, 86 and 87 of the EC Treaty are the corresponding provisions on these subject matters as regards the...
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