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Cross-Border Cooperation in the Western Balkans: A Driver of Reform?

Cross-Border Cooperation in the Western Balkans: A Driver of Reform?

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Montenegro, with a population of 657,000, was offered a Membership Action Plan (MAP) by NATO in 2009 and granted approval to begin EU membership talks in June 2012
Montenegro, with a population of 657,000, was offered a Membership Action Plan (MAP) by NATO in 2009 and granted approval to begin EU membership talks in June 2012

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Published by: STEFAN MEDO VLAHOVICH on Oct 07, 2013
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May 10, 2013
Cross-Border Cooperation in the Western Balkans: A Driver of Reform?
Heather A. Conley and David L. Phillips
Introduction
The vision of a Europe “whole, free, and at peace” has been a fundamental tenet of U.S. foreign policy. In its earliermanifestation, U.S. and EU policy concentrated on the political and economic liberalization and transformation of Central and Eastern Europe. In the eyes of Washington, this objective was largely completed in 2004, after themajority of these countries were accepted into the European Union and NATO. However, for most Western Balkancountries, the goal of full European integration is yet to be achieved.To reach this objective, the United States and Europe firmly believed that the magnetic attraction of both theEuropean Union and NATO would be sufficient to spur political reconciliation and economic reform by the politicalelite and civil society in the Western Balkans, as had been the case in Central Europe. The transatlantic policycommunity pointed to the Former Yugoslav republic of Slovenia as an example of the region’s most significantsuccess. Montenegro, with a population of 657,000, was offered a Membership Action Plan (MAP) by NATO in 2009and granted approval to begin EU membership talks in June 2012. Croatia is likely to formally join the EuropeanUnion in 2013, strongly reinforcing the enduring success and relevance of this policy.Yet reform efforts were successful in Central Europe not only due to unprecedented levels of policy focus andassistance by the United States and Europe, but also to the receptivity for internal reform across the politicalspectrum within each aspirant country. Unfortunately, despite a significant amount of Western investment in theWestern Balkans, there is no politically unifying vision among the elite and civil society to maintain sufficient reformmomentum for rapid transformation. Moreover, traditional reform tools, even on a very large scale, such as the EURule of Law (EULEX) mission in Kosovo, were unable to achieve desired institutional and integration success.
1
 Assistance funds were occasionally unspent or spent unwisely. For example, in August 2012 it was reported thatgovernment officials in Kosovo tapped into funds intended for human capital retention to raise salaries and hire theirown party members.
2
Clearly, Western strategies and technical programs that were successful a decade ago inCentral Europe have fallen on uncertain and, on occasion, infertile soil in the Western Balkans. As time has passed,regional reform efforts have grown more uneven and precarious in the Western Balkans. Simultaneously, NATO andEU membership have become more aspirational than inevitable.Concurrently, both the United States and Europe are internally consumed with their own domestic debt and deficitchallenges. The European Union has particularly struggled with the need to correct the structural flaws of its currencyunion, which has prevented it from constructing a more coherent, cohesive, and common foreign policy followingratification of the 2009 Lisbon Treaty. For example, four years after Kosovo’s declaration of independence in 2008,and following the end of international supervision, five EU members have yet to formally recognize the country. Voidof political leadership, the EU enlargement agenda and its policies have become perfunctory and technical in naturerather than bold and visionary. Although the magnetism of EU membership demonstrates that from time to time itstill has some “pull,” as the recently successful Serbia-Kosovo agreement demonstrated, the EU accession process
1
European Court of Auditors, “European Union Assistance to Kosovo in the Rule of Law,” Special Report No. 18 2012,http://eca.europa.eu/portal/pls/portal/docs/1/17766744.PDF.
2
Muhamet Brajshori, “EU’s blue card attracts Balkan professionals,”
Southeast European Times
 
2normally boils down to a series of progress reports, visits by senior EU officials, and technical assistance. The road toEuropean integration and accession has never seemed so distant for the Western Balkans.The United States has been eager to focus on new regions of interest and opportunity, specifically the Asia Pacific, asit seeks to unwind itself from its longstanding security presence in South Asia, the Middle East, and Europe. Forexample, commenting on Albania’s EU accession process in June 2012, Deputy Assistant Secretary of State PhilipReeker said, “There are 12 key recommendations that the European Union provided over a year ago. It is time towork on that because the window is rapidly closing. The European Commission will soon set to work on its annualreport—the status report—and so there is an opportunity now to make some real progress, particularly in three keyareas: parliamentary reform, electoral reform, and lifting of immunities.” It is unclear whether U.S. encouragement of EU-demanded reforms enhances the prospect of reform or simply reverberates in an increasingly loud policy echochamber.Transatlantic policy toward the Western Balkans appears to be a “perfect storm” of outdated policies that are out of sync with the region, ineffectual policy tools, and of waning policy interest. Therefore, it is time to examine potentialnew drivers of reform that emanate from within the region. One such driver is cross-border cooperation.
The International Conference on the Albanian Neighborhood
With generous support from the Rockefeller Brothers Fund, the Center for Strategic and International Studies andColumbia University’s Program on Peace-building and Rights at the Institute for the Study of Human Rights launchedan initiative entitled, “The Albanian Neighborhood Project: Fostering Albanian Cross-Border Cooperation in theWestern Balkans.” This project was designed to examine one driver of regional reform: cross-border cooperation or“interest solidarity” among ethnic Albanians in Albania, Kosovo, the Former Yugoslav Republic of Macedonia,Montenegro, and Serbia with an emphasis on people-to-people and cultural contacts in the fields of:
 
Economic Development
 
Infrastructure
 
Education and Culture
 
Media and CommunicationWith invaluable assistance from the Institute for Contemporary Studies in Tirana, Albania, and with support from themunicipality of Tirana, the project hosted a major international conference there that examined the benefits of “interest solidarity” as a tool for conflict prevention and to raise awareness and understanding of the dynamics of cross-border cooperation in the “Albanian Neighborhood” for U.S. and European policymakers. How can thiscooperation complement regional integration and enhance the Euro-Atlantic aspirations of the region? The findingsof this paper are based on the conclusions from the international conference and subsequent research.The International Conference was held in Tirana on July 8–10, 2012. In his opening remarks to the seniorgovernmental and civil society participants from the region, Prime Minister Sali Berisha of Albania told the over 250assembled guests that EU integration remained the preeminent project for the region, a sentiment with whichregional and diaspora leaders strongly agreed. There was also strong agreement that the best path toward Europeanintegration included the promotion of free movement of goods, health, education, and culture across borders. Thesefactors, combined with a renewed governmental commitment to fight rampant crime and corruption, improvegovernance, and build strong institutions will help these countries pursue reform from within. Developing “interestsolidarity” through cross-border cooperation could be a critical tool through which these reforms can beimplemented.
Economic Development
As the saying goes, “a rising tide lifts all boats.” In the Western Balkans, greater regional economic growth anddevelopment through cross-border collaboration and improved economies of scale would provide a tremendousboost to both internal reform efforts and external policy momentum. However, the regional economic figures are
 
3daunting. Albania currently has an import/export ratio of 3:1 and a GDP per capita of $4,000.
3
Neighboring Kosovohas a GDP per capita of just over $3,500 and an import/export ratio close to 8:1.
4
Foreign direct investment (FDI) inthese countries has been directly impacted by the European debt crisis, with foreign investment in Kosovo decliningfrom €420 million in 2007 to €314 million in 2010. This has been the case in other countries in the region as well: inthe Former Yugoslav Republic of Macedonia, FDI inflows fell from $693 million in 2007 to $211 million in 2010, and inSerbia FDI has sharply declined from $2.9 billion in 2008 to $1.34 billion in 2010.
5
The trend is projected to continueas the euro crisis persists well into 2013.FDI also has been deeply impacted by endemic corruption and crime in the region. Transparency International ranksthe Western Balkan countries between 2.9 and 4.0 on a 10-point scale, with 0 representing the highest levels of corruption. Montenegro and the Former Yugoslav Republic of Macedonia rank 66 and 69 out of 182 countriesrespectively, while Kosovo and Albania fall within the lower half at 105 and 113.
6
Serbia is ranked near the median at80. According to a Gallup Balkan Monitor poll, in 2010 more than 91 percent of surveyed Kosovars believed theirgovernment was corrupt, and 85 percent were skeptical about the legality of business practices.
7
A lack of transparency in public procurement tenders, difficulties enforcing laws and ensuring appropriate governmentaloversight, and cronyism and graft have driven away potential investment and impaired the regional business climate.The international conference identified several opportunities to facilitate cross-border collaboration in the “AlbanianNeighborhood” and enhance economic development in the region. One important idea is the creation of a regionalfree trade agreement (FTA), modeled after the “Benelux” FTA in Western Europe. A “Balkan Benelux” among thecountries of Albania, the Former Yugoslav Republic of Macedonia, Montenegro, and Kosovo would form a regionalfree trade network and, most importantly, would develop clear and transparent trade and investment standards forthe “neighborhood.” Because foreign investment requires predictability and transparency, the creation of andadherence to such trade standards in the context of an FTA would encourage greater investment in the region andeliminate corruption loopholes.In addition to a regional FTA, some economies of the Western Balkans would benefit from the creation of a jointcapital market. Kosovo and Albania do not yet have capital stock markets, and the relatively low levels of economicdevelopment in each country do not make the establishment of independent exchanges viable. However, bycombining the resources of both countries it may be possible to offset this disadvantage. Both countries have a greatdeal of economic potential. Kosovo’s banking sector is small but stable, having weathered the global crisis, andAlbania is rich in a number of natural resources.
8
A joint capital market would provide a broader source of financingfor firms to harness this latent potential.Additionally, the vast majority of companies in the Western Balkans are small- to medium-sized enterprises, andmany are family run. A capital market would provide a source of external financing to encourage the expansion of these firms into joint stock companies. This would improve efficiency and development by separating the role of management from that of ownership, thereby also reducing incentives for corrupt behavior. The development of a joint stock exchange could serve as another way to enhance transparency and create regional accounting standardsby requiring detailed financial auditing of participating companies. Making these audits publicly available for publicly
3
World Bank Data, “Per Capita GDP,” 2011,http://data.worldbank.org/indicator/NY.GDP.PCAP.CD;Albanian Institute of Statistics/Instituti i Statistikave.
4
World Bank Data, “Per Capita GDP,” 2011,http://data.worldbank.org/indicator/NY.GDP.PCAP.CD;Kosovo Agency of Statistics,Office of the Prime Minister.
5
UNCTAD Stat, “Foreign Direct Investment Inward Flow Report,” 1970–2011,http://unctadstat.unctad.org/TableViewer/tableView.aspx?ReportId=88. 
6
Transparency International, “Corruptions Perceptions Index 2012.” http://cpi.transparency.org/cpi2012/interactive/.
7
Gallup Balkan Monitor, “2010 Summary of Findings,” 2010, http://www.balkan-monitor.eu/files/BalkanMonitor-2010_Summary_of_Findings.pdf.
8
IMF, “Republic of Kosovo: Request for Stand-By Arrangement,” April 2012,http://www.imf.org/external/pubs/ft/scr/2012/cr12100.pdf.

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