Trade Liberalization and FTAs

The case of Albania1

A. Mancellari2

1
The paper was presented at the Conference “Trade Liberalization in the Western Balkan Countries”, held in Tirana,
21.10.2005.
2
Prof. Dr. Ahmet Mançellari is a lecturer at the Faculty of Economics, University of Tirana and an external expert in the
Albanian Centre for International Trade (ACIT).
2

Abstract

While trade liberalization and integration processes in Albania are going

ahead, the country is facing a number of challenges: (i) competitiveness of the
economy is quite low and trade deficit is too high, resulting in a relatively low
scale of economic openness and a high current account deficit as well; (ii) the
positive effects of regional trade integration in the frame of bilateral FTAs are
only meagre; (iii) tariff reduction is having a negative impact on fiscal revenues
while it seems that the benefit is going to a large extent to importers rather than
the consumers of the imported goods; (iv) the voice of businesses of certain
sectors is increasing, requiring greater support from the government to protect
them from increased competition from imports, and being under such pressure
the government is revising a number of MFN bound rates; just to mention some
of them. All these trade-related problems deserve close attention and deep
analyses. In this paper we analyse the trade liberalization process in Albania,
being focused on the bilateral regional FTAs and their effects. The idea that
global, regional and European integration of the country are complementary
processes is underlined in the paper. The prospect of European integration of the
country, and also the increased liberalization with the rest of the world, are
increasing the expected positive effects of the regional integration. Institutional
capacity development and pushing ahead the structural reforms are considered to
be the main synergic effects expected by such complementary liberalization and
integration processes.
 3

1. Introduction
The transition process towards a market based economy is being also a
process of economic opening up of Albania against the international markets.
The trade liberalization and economic opening up process has been highly
influenced by the country accession in the WTO, and also by the regional and
European integration processes which Albania is involved in. While trade
liberalization and the opening up process of the economy is going ahead, the
country is facing a number of challenges: (i) competitiveness of the economy is
quite low and trade deficit is too high, resulting in a relatively low scale of
economic openness and a high current account deficit as well; (ii) the expected
positive effects of regional trade integration in the frame of bilateral FTAs are
only meagre; (iii) tariff reduction is having a negative impact on fiscal revenues
while it seems that the benefit is going to a large extent to importers rather than
the consumers of the imported goods; (iv) the voice of businesses of certain
sectors is increasing, requiring greater support from the government to protect
them from increased competition from imports, and being under such pressure
the government is revising a number of MFN bound rates; just to mention some
of them.
All these trade-related problems deserve close attention and deep
analyses. In this paper we analyse the trade liberalization process in Albania,
being focused on the bilateral regional FTAs and their effects.
Many analysts of the transformation processes in transition countries
share the common opinion that in trade liberalization and in all other first
generation reforms, Albania was fast, adopting the radical approach. This has
set Albania, as Kaminski asserts, “apart from all former Soviet republics excluding
the Baltic States and all Balkan countries excluding Slovenia” and in line with the
radical reformers in Central Europe (World Bank 2002, p. 78). It pays to have a look
to the factors analyzed by Kaminski, of Albania towards the first generation
reforms. Kaminski highlights some main factors which made possible such radical
approach, the first of which3 is a ‘negative’ one, namely the lack of state capacity.
“The almost complete disintegration of political and economic institutional
structures underlying the communist regime has clearly created…a ‘window of
3
The two other factors analyzed by Kaminski are the lack of “popular resistance to market reforms, as the communist
regime had no support after a prolonged time of party dictatorship and repression”, and the “strong public support to re-
integrate country into international structures” (World Bank 2002. p. 78).
4

opportunity’ to pursue a radical approach to economic reforms. Gradualism

requires at least some minimal state capacity to enforce its regulations. When the
state capacity is lacking as was the case in Albania at the time the alternative is
either chaos, or liberalization minimizing the need for state interventionism and
micromanagement” (World Bank 2002. p. 78). But it was just this factor which later
on turned to act as the main hindrance in the success of the second generation
reforms–structural and institutional reforms. Delays and inconsequence in structural
reforms were at the base of the pyramid savings schemes’ collapse and the
subsequent social unrest in 1996-1997. It’s just the institutional weaknesses that
have set Albania now behind many other Balkan countries involved in transition
processes.
The following section gives a picture of trade liberalization processes in
Albania and their main effects, identifying also some main problems related to
trade. Albania has been relatively fast and successful in liberalizing trade. It quickly
liberalized prices, abolished the state monopoly over foreign trade, and introduced
convertibility of domestic currency. The trade liberalization processes was
intensified by the accession of Albania in WTO in the year 2000. It is being further
intensified by the involvement of the country in the regional integration through a
network of bilateral FTAs; and by the country engagement in the stabilization and
association process with the EU. Despite such developments, Albania is being
faced with serious macro-trade problems and with a low competitiveness of
Albanian products and firms in the international markets. Except for backwardness
inherited from the past, such a situation is closely related to the delays and
inconsequence in structural and institutional reforms. Putting ahead such reforms
would also pave the rode to solving such trade-related problems.
In section 3 we describe the network of bilateral FTAs between Albania and
regional countries and analyze the conformity of these FTAs with MoU requirements. It
seems that Albania’s FTAs, like many other FTAs in the region, not fully meet such
requirements.
In section 4 we analyze the trade impacts of FTAs, trying to identify some main
factors of relatively low positive effects of regional integration.
In section 5, various options of harmonizing the FTAs and intensifying the
regional integration, are discussed. Institutional capacity development and pushing
ahead the structural reforms are considered to be the main synergic effects expected
by such complementary liberalization and integration processes. Section 5 concludes
the paper.
 5

2. Trade liberalization processes and their effects in Albania

Trade liberalization was among the first steps of transition reforms in

Albania. Unlike other countries in the region (except for Bosnia and
Herzegovina), Albania, despite its hermetic isolationism under the communist
regime of before ‘90s established a relatively liberal trade regime. Other
countries in the region like Croatia and Macedonia (FYROM) continued for
several years the same inherited import substituting protectionism applied by
former Yugoslavia. Former Republic of Yugoslavia continued ‘a much distorted,
none-transparent, corruption-ridden regime until the end of the Milosevic era,
when the new Federal government introduced far-reaching trade reforms’
(World Bank, 2002).
During the years 1990-1992 a bunch of trade liberalization reforms were
undertaken. Since 1990 the price liberalization reform started and by mid 1996
government controls over prices of almost all commodities (including almost all
tradables) were removed4. The state monopoly over foreign trade was formally
brought to end in 1991, but since 1990 there was a significant expansion in
private imports. The Law on State Enterprises extended the right to conduct
foreign trade activity to all firms independently of their ownership. In 1992,
Albania introduced convertibility of domestic currency on most current account
transactions and adopted a floating exchange rate regime, still in place, which
effectively removed a major barrier to engaging in imports, i.e., access to
foreign exchange. With the termination of the state’s monopoly tariffs were
bound to emerge as a major instrument of controlling imports. At the beginning
the tariff structure was relatively uniform, with low rates. Then, in the mid-1990s
it became increasingly complex and more protectionist and afterwards it turned
back to a simpler structure with lower rates in responds to requirements of the
WTO accession. Starting from the year 1991, quantitative restrictions on
imports and exports underwent a reduction and elimination process.

4
With the exception of electricity, water, telecommunications and public passengers transports, which were set close to
cost recovery levels.
6

At the time of accession to the WTO (Sept. 2000), the country’s tariff
offer presented a quite liberalized regime. According to the offered schedule, by
the year 2009 the maximum bound would be 20%; 29% of goods nomenclature
would be under the tariff level at 20%; 37% of goods nomenclature would be
under the tariff level at 10%; and 34% of goods nomenclature would be under
the tariff level at 5 or 0% (26.1% under the tariff level of 0%). At the time of
accession, 80% of the bound rates were the same as the applied rates and
there were no quantitative restrictions of any sort. The final simple average final
bound tariff rates for all goods were 7.0%; for agriculture goods 9.4% and for
non-agriculture goods 6.6%. The respective simple tariff rates applied in 2001
were respectively 7.5%, 9% and 7.2% (WTO website:
http://stat.wto.org/countryProfiles/Al_e.html). The final simple average bound
rates are comparable with those of Croatia (respectively 6%, 9.4% and 5.5%)
and Macedonia (FYROM) (respectively 6.9%, 11.3% and 6.2%). These bound
rates are quite lower than those applied in Bulgaria (25%, 35.6% and 23%) and
Romania (40%, 98.4% and 31.6%). Unlike all these countries, Albania has no
national peaks (Annex, Table A1: World Bank, 2005).
Table 1 gives information about import tariff change over the period
1991-2005. From the table we see that average import tariffs have been
declining over all the period. The table distinguish simple average tariff from
tariff lines weighted average tariff. The former is generally lower then the latter,
reflecting the fact the share of tariff lines with higher tariffs rates is higher. For
the years 2003, 2004 and 2005 two figures are given for simple non-tariff lines
weighted average tariffs. The figures in brackets are lower then the ones
without brackets, reflecting the facts that the number (scales) of tariff rates is
actually higher then the one generally reported. Table 1 also shows that import-
weighted average tariffs are generally higher than simple average tariffs,
reflecting a higher share of imports belonging to higher tariff lines.
 7

Table 1. Albania: Import tariff reduction during 1991-2005

1991 1999 2000 2002 2003* 2004* 2005*

Tariff levels
5(0- 4(0- 4(0- 4(0, 2, 10, 4(0, 2, 4(0, 2, 4(0, 2,
30%) 20%) 18%) 15%) 10, 15%) 10, 15%) 10, 15)

4.23; 17.2; 24.2;

3; 39.6; 25.5;
Percentage of each 3; 39.6; 41.39; 30.3; 25.9;
26.2; 28.0;
tariff scale 26; 31,4 26.87; 25.1; 27.3;
31.2 23.3; 23.2
27.51 27.5% 22.6

Simple non-tariff lines

6.75 6.75
weighted average 19.0 14.1 9.9 6.75 6.75
(5.71)** (6.33)**
tariff (%)

Simple tariff lines

weighted average 10.86 10.21 7.64 7.22 6.49 6.68***
tariff (%)

Import-weighted
8.12 7.85 6.98
average tariff (%)

Source: Albania’s General Directory of Customs, ACIT, and own calculations.

* For years 2003, 2004 and 2005 also some other tariff rates are applied, such as 3.%, 5%,
6.5%, but covering only e very limited share of tariff lines.
**Nominal average considering other present tariff levels as well.
*** For the first 6 months.

In the year 2004, following the demand from the respective businesses,
government decided rescheduling of tariff reduction for a number of ‘sensitive’
products. The WTO was notified about such rescheduling and the consent was
given. Table 2 shows that for the year 2004, the bound rates were “not
respected” for more than 38% of tariff lines. Higher tariff rates were applied to
more than 6%, averaging in 9.95 percentage points higher than the bound
rates. Anyway, in total, the applied tariff rates for the year were in average
2.25% lower than the bound rates.
8

Table 2. Albania’s import tariffs: Actual rates differences as compared to bound

rates, 2004

Tariff lines (%) Average tariff change in

percentage points

Lower actual rates as 32.2 -4.52

compared to bound rates

Actual rates equal to bound 61.4 0

rates

Higher actual rates as 6.4 9.95

compared to bound rates

Overall actual rates change 100 -2.12

as compared to bound rates

Source: ACIT, and own calculations.

Trade liberalization process in Albania is being further intensified through

the bilateral Free Trade Agreements (FTAs) in the region which we will analyse
in the next sections. A stronger impact is expected to come from the FTA with
the EU, which will come as a part of the Stabilization and Association
Agreement (SAA) expected to be signed in the near future and will come into
force immediately when the SAA is signed.
What are the trade and economic effects of tariff liberalization in Albania?
Effects of trade liberalization have been widely discussed in the theoretical and
empirical literature. While main potential benefits include cheaper consumption
and better choice; increased production and allocation efficiency; new ideas and
technology, main potential costs include fear from anti-competitive behavior (by
multinational companies); reduced opportunity for learning by doing, increased
inequality, etc. (McCulloch et al, 2001).
Deep analyses of the benefits and costs associated with trade
liberalization are necessary for constructing effective policies. In this paper we
focus only on some of them, mostly related to the macroeconomic situation in
the country.
 9

International official aid (particularly in the first period of transition) and

remittances from expatriates have fuelled expansion in the domestic demand
and imports and weakened incentives to develop exports of goods. On the other
hand, the relatively high rates of economic growth (averaging at 6.27% for the
period 1993-2003, (World Bank, 2004)) have been associated with a low scale
of economic openness of the country as shown in table 3. The economic
openness index for Albania is much lower compared to other regional countries,
almost half as much (World Bank, 2002). The economic openness index
increases considerably as we take into consideration private transfers
(emigrants’ remittances). Fro example, in the year 2004 the index is increased
from 36.9% to 49.8%. Not only remittances are very important for the Albanian
economy (reaching at 13.3% of GDP and being 1.73 times higher than the
revenue fro exports of goods in 2004, (Bank of Albania, 2004) but emigration as
such can be considered as an important aspect of opening up process of
Albania (reaching at more than 20% of the actual Albanian population (Ministry
of Labour).
The economic openness index increases further more when trade in
services and then foreign direct investments are taken into consideration. For
the last three years the economic openness index has shown generally a trend
of decreasing.

Table 3. Albania: Trade and economic openness

Openness index, as % to GDP 1993 2000 2001 2002 2003 2004

(Goods Export + Import)/GDP (%) 44.1 36.0 39.9 40.4 39.1 36.9

(Exp+Imp+Priv. Transfers)/GDP (%) 47.6 53.1 53.2 52.8 49.8

Goods exp./GDP (%) 6.9 7.4 7.3 7.8 7.96

Export growth rates (%) -7.2 19.3 8.4 35.4 34.9

(Goods + Services export +import)/GDP (%) 59.8 63.7 66.5 65.8 62.0

(Goods + Services Exp+ Imp + Private

71.4 76.9 79.3 79.5 74.9
Transfers)/GDP (%)
10

Openness index, as % to GDP 1993 2000 2001 2002 2003 2004

(Goods + Services Exp + Imp + Private Transfers +

75.3 82.0 82.3 82.6 79.4
FDI)/GDP (%)

Source: Bank of Albania (2005); INSTAT; ACIT; and own calculations.

This situation of economic openness is also reflected in a relatively

fragile macro-trade situation, as shown in table 4. The trade deficit, reaching at
1/4 to 1/5 of GDP and being financed in a large scale by remittances, is very
high, although decreasing since 2002. The current account deficit is also high
and has been at critical levels in previous years, although showing e declining
trend starting from 2003. Table 4 also shows custom duties revenue relative to
GDP. The figures are decreasing, reflecting the trend of import tariff reduction,
but still their level is too high compared to the other countries in the region. For
example, in 2003 the figure for Albania was 1.9%, while for Croatia, Bulgaria
and Romania, only 0.7% (IMF 2005B). It’s a reflection of low efficiency scale of
taxation system in Albania.

Table 4. Albania: Macro-trade developments over the period 1992-2004

(Percent to GDP) 1992 1995 1997 2000 2001 2002 2003 2004

Trade Balance -57.2 -17.5 -23.6 -22.2 25.0 -25.7 -23.4 -21

C.A. Balance
-38.6 -6.4 -12.2 -7.4 -6.4 -9.7 -8.2 -7.3
-offic. transfers excluded
-offic. transfers included
2.9 -2.1 -8.7 -4.4 -3.3 -7.2 -5.6 -5.3

Private transfers 18.61 11.1 11.4 11.9 13.2 13.3 13.7 13.3

Custom duties revenue/GDP 2.5 2.5 2.8 2.6 2.1 2.0 1.93 1.7

Source: International Monetary Fund (2005B); Bank of Albania (2005), Ministry of Finance.
 11

Is the trade liberalization itself, namely the import tariff liberalization,

“responsible” for such a situation in trade and current account balances? The
figures show that although imports are several time higher than exports during
almost all the period (table 3), the share of imports to GDP in Albania is still low
compared to other countries. Over all the period the main source of financing
imports, which means the main factor “responsible” for imports, have been
remittances, as can be shown by the Graph 1.
The overall positive effects of trade (including the welfare effects) would
be higher, the lower costs of trade. The reduction and elimination of import
duties certainly reduces costs of trade but is not the only and the main factor.
Theoretical and empirical analyses indicate that for reducing costs of trade, a
focus on logistical, institutional and regulatory barriers (such as custom
clearance, transport, and standards and their conformity assessment) is
required. The latter are often “more costly than tariffs and generate no offsetting
revenue” (WB, Global Economic Prospects 2005, p.77). It will help not only in
making imports cheaper, but also in decreasing costs and inducing exports. In
conclusion, the economic situation of Albania indicates that “responsible” for the
high trade and current account deficits, are much more exports (the low level)
than imports. For increasing exports and reducing the macro-deficits, attention
should be focused in structural reforms, improving the business climate and
increasing competitiveness.
12

Graph 1: Import financing sources, as % to imports value

100%

80%

60%

40%

20%

0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

-20%

eksports/imports private transfers/imports officail transfers/importe

other income/imports services /imports CAD/imports

Source of data: Bank of Albania and own calculations

 13

3. Albania’s FTAs and their conformity with the MoU provisions

All the South-East Europe region is being involved in an integration

process which has three dimensions: the regional dimension formalized by the
bilateral FTAs; the European dimension which involves primarily their relations
with the European Union (EU) being formalized for a number of countries in the
region by the Stabilization and Association Process and Stabilization and
Association Agreements (SAAs); and the global dimension, which involves their
trade relations with the rest of the world and is formalized by the WTO
accession and requirements.
While the European dimension of the integration processes has taken
the highest attention by the countries of the region since the EU is by far the
most important trading partner and source of direct investment for them, ‘they
can not afford to ignore the other two dimensions: their relations with the EU will
yield greater benefits, if they are pursued within a liberal trade environment
towards the rest of the world; and the same is true for their relations with their
neighbors which are also on a path to integrate in the European structures (WB,
2002).
In effect, all three dimensions are complementary to each other, or, at
least, can be designed and implemented in a complementary way. If the
implementation of the FTAs with neighbors and SAA with the EU is
accompanied by the lowering of the Most Favored Nation (MFN) tariffs, the
potential for trade diversion and welfare losses associated with it will be
minimized. The likelihood of replacing low-cost suppliers from the ROW with
high-cost suppliers from the preferential trade areas decreases significantly with
lowering of the external tariffs (Maliszewska and Kolesnichenko, 2004). On the
other hand, the regional cooperation and the process of integration to EU can
help countries in the region to better meet the requirements of the WTO,
particularly those related to non-tariff issues. And, the integration process to the
EU, accelerate the two other dimensions of integration.
In this triangle relationship, the focal point is the EU integration of the
SEE countries. For the Balkans’ countries, because of political and economic
reasons, i.e. a tendency of national insularity and political instability, regional
integration is a must, unlike the countries of central Europe, for which regional
14

integration was a consequence rather than a precondition for EU integration

(Grupe and Kušić, 2005). For the other countries in the region, which share the
same heritage of SFR Yugoslavia, the common history and stage of
development make it relatively easier the process of regional economic
cooperation and integration, despite the disintegration processes during 1990s
(Uvalic, 2005). It’s quite different with Albania, which has had a quite singular
position. Under the socialist regime Albania had resorted under an autarkic
policy and one of the immediate results of the transition was the orientation of
trade towards the EU countries, mostly Italy and Greece (see table A1, Annex).
In the year 2000, under the frame of the Stability Pact for Southeastern
Europe (created by the international community after the 1999 Kosovo crisis),
EU launched the Stabilization and Association Agreement (SAA) initiative which
sets the overall legal framework that will guide the future economic and political
relationships between the EU and the SEE countries. The SAAs5 envisage the
establishment of free trade areas between the EU and each of the five countries
- as well as between the countries themselves, based on contractual
undertakings FTAs.
The regional FTAs were expected to give a number of positive effects,
including ….the need to avoid the ‘hub and spoke’ pattern of trade which tends
to result in the hub getting the bulk of the benefits especially regarding
investments (WB, 2002, p. 11; Adam at al, 2003; Benedictis at al., 2005;).
The countries in the region have opted for setting up a network of
bilateral agreements instead of a single regional FTA. This situation would
result in undesired effects, since “uncoordinated series of bilateral FTAs
involving different product coverage, depth of preference, rules of origin and so
forth, is an invitation to disaster. The ‘spaghetti bowel’ of agreements would be
extremely difficult to implement, in light of tremendous weaknesses in the
customs authorities in the region” (WB 2002, p. 11). The implementation of such
agreements would not lead to dynamic gains in terms of economies of scales,
technology transfer or international bargaining power, which are considered as
critical to their success (Grupe and Kušić, 2005).

5
The SAAs involve much more than FTAs, going beyond trade and covering matters related to political conditions and
institutional capacities. The aim of SAAs is to bring the institutions, legislation and regulations of the countries in line
with those in EUso as to facilitate their future integration into the EU.
 15

Because of such concerns, the international community through the

Stability Pact Working Group on Trade Liberalization and Facilitation (under the
leadership of the EU and World Bank) encouraged the setting of minimum
standards for the FTAs through an agreement between the countries in the
region. Such an agreement known as ‘Memorandum of Understanding of future
trade liberalization in the region’ was reached in June 2001, being signed by the
five countries in the region and also Bulgaria and Rumania6.
The MoU was important for political and also economic reasons.
Politically it pushed the countries in the region to reach bilateral agreements by
the end of 2002. Such a pressure was very important, considering the post-
conflicts situation in Balkans. Economically, perhaps the most important
contribution was the setting of principles for product coverage of tariff
liberalization for both existing and future FTAs among participating countries.
The principle was for FTAs to cover ‘at least 90% of the parties’ mutual trade by
value and of the HS tariff lines. Import duties or charges having equivalent
effect on a large majority of goods should be preferably abolished upon entry
into force of each FTA. Those on sensitive goods would be progressively
reduced during a transitional period of not more than 6 years'. On the other
hand, export duties or charges having equivalent effect, and also all quantitative
restrictions on imports and exports and measures having equivalent effect,
should be abolished upon entry into force of each agreement. (Stability Pact,
2001: MoU, art 1.1; 1.2.1; 1.2.2; 1.2.3)
The MoU also includes, ‘refrainment, upon signature of the
Memorandum, from taking any new trade restrictive or distorting measure’
(MoU, art. 1); ‘an appropriate common set of preferential rules of origin’ (M0U,
art. 3); ‘WTO-consistent provisions on contingent protection (antidumping,
safeguard and counter valuing measures (CV), and also transparent and non-
discriminatory measures on ‘beyond the border’ issues, such as public
procurement, state aid and state monopolies’ (MoU, art. 4); future liberalization
of services (art. 6); harmonization of legislation with that of EU (specifically on
custom procedures; methodologies of collecting trade statistics; company law,
company accounts and taxes; banking law; competition law, standards,
technical regulations, etc.) (MoU, art. 5, 7, 8, 9). The MoU ‘ensures that all

6
Also Moldova expressed its desire to join the other signatory countries.
16

these Free Trade Agreements enhance the integration of Signatory Countries

into EU structures (Stability Pact, 2001: MoU, art 4).
Since the beginning of 2005, 29 FTAs are in force in the region. Albania,
Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Moldova, Romania,
and Serbia and Montenegro have already created a full network of bilateral
FTAs, as shown in table A3 (Annex). Kosovo/UNMIK has already a FTA with
Albania and is in process of negotiations or examinations of FTAs with the most
of other regional countries. As a result, Albania is involved in 8 FTAs, namely
with Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Moldova,
Romania, Serbia and Montenegro, and Kosovo/UNMIK. The first FTA applied is
with Macedonia in 2002, July 15 and the last one is with Bosnia and
Herzegovina in 2004, December 01. These FTAs are to conform to the
principles underlined by the MoU, such as trade coverage and liberalization
pace, compliance with the WTO rules, and content on specific topics.
Trade coverage and liberalization pace in case of Albania’s FTAs is
presented in table A4 (Annex). The data are taken from Messerlin and Miroudot
(2004, January). Table A6 (Annex) shows that none of the Albania’s FTAs meet
both 90% coverage criteria; only three of them (ALB-B&H; ALB-MAC; and ALB-
S&M) meet the 90% tariff lines criterion; and the remaining three (out of six
FTAs as for the beginning of 2004 – ALB-BUL; ALB-CROAT; and ALB-ROM) do
meet none of the 90% criteria.
Several points to be considered as analyzing trade coverage.
First, in table A4 only FTAs are classified, disregarding the trade
coverage attained by each signatory to the same agreement. For example, Alb-
B&H agreement is falling into the second group although Albania meets both
criteria.
Second, the share of mutual trade liberalization is quite small compared
to the share of tariff lines liberalized. The former is a fragile indicator, being
highly influenced by the type of products exchanged and by the year chosen,
since the volume of trade between Albania and some of the other countries is
quite low (as, for example, Bosnia and Herzegovina, and Moldova, as we will
see in the following section). In order to have import-weighted trade coverage in
line with that of tariff lines, flows of trade should be significant and diversified
(Wijkman, 2003).
 17

Third, share of liberalization is much higher in manufacturing, compared

to agriculture sector. While manufacturing is almost fully liberalized in terms of
tariff lines (table A5, Annex) in all Albania’s FTAs, the liberalization scale in
agriculture in some FTAs is very low, like in case of ALB-BUL (5.1% for Albania
and 11% for Bulgaria), in case of Alb-CRO (5.1% and 14.2% respectively), in
case of Alb-ROM (5.3% and 10.3% respectively). It is just the liberalization in
agriculture products which differentiates the groups of FTAs described in table
A6. This situation reflects the particularly higher sensibility of agriculture
products in the countries of the region, compared to manufacturing. Anyway,
meeting the overall 90% tariff-line coverage criterion is not a particularly difficult
task for Albania and other countries of the region, since agriculture products
capture only 729 six-digit lines of the Harmonized System 2002 (HS), out of
5224 in all. It means that when manufacturing is fully liberalized (say, 99%), a
liberalization of at least 250 lines of agriculture products, or 35% of agriculture
HS lines, is sufficient to meet the criterion (Messerlin and Miroudot, 2004,
January). If we consider the import-weighted liberalization, the distinction
between the two sectors is much more pronounced: manufacturing can now be
considered as fully liberalized, while the liberalization indicator for agriculture
goes in many cases down to zero (as in ALB-BUL and ALB-CRO FTAs, table
A5, Annex). Returning to liberalization of industrial products, it should be noted
that almost all Albania’s FTAs provide a negative list of exemptions from
immediate or a scheduled full liberalization, which is the same for all the
agreements.
Table A4 (Annex) presents the share of HS lines freed upon entry into
force of the FTAs, and also at the end of the transition period. From the table
we see that the liberalization scale upon entry into force of the agreement is
quite high for all the FTAs, being quite close to the liberalization indicator for the
all period of transition. The only exemption is the ALB-B&H agreement, in which
case the HS lines trade coverage indicators are respectively 4.7% and 91.0%.
On the other hand, the length of the transition period is in any case within the
term agreed in MoU.
If you look at the Albania’s FTAs, you can find no quantitative restriction
at all, which is not the case with some other countries in the region.
Nevertheless, ‘another type of quantitative restriction is common in the FTAs:
the use of tariff quotas (TRQs) to grant concessions in agriculture’ (Messerlin
18

and Miroudot, 2003; 2004 January). Such quantitative restrictions are not used
to create barriers to trade but to offer preferential duty rates on a limited quantity
of agriculture products, but, in effect, such measures can result as barriers
rather than as a promoter to trade7. The Albania’s FTAs case illustrates such a
conclusion. Out of 8 Albania’s FTAs, only 2 of them do not provide TRQs,
namely the agreements with Bosnia and Herzegovina and Moldova. For all of
the 6 remaining FTAs, a full liberalization is provided within the limits defined. In
any case, the list of agriculture products falling under this category of
concessions is relatively short. Out of 6 FTAs which provide TRQs, only the
agreement with Kosovo offers a symmetric list of TRQs, which is actually a list
with only one article, ‘beer’, being for both sides at the same amount, 500 tones.
Statistical figures on Albania’s imports included in the lists of TRQs reveal that
the quotas provided in the agreements have not been binding in the majority of
cases. Table 5 displays the levels in which quotas for exports to, and imports
from, Macedonia are fulfilled.

Table 5: The fulfillment of quotas in Albania’s trade with Macedonia

Code Description Annual Traded Traded in Share to

Quota in 2003 2004 total in
2004 (%)

Exported 0701 Potatoes, fresh or chilled 300 11.8 - 0

tones tones

0702 Tomatoes, fresh or chilled 150 35.5 76.263 24

tones tones

22082012 Cognac 200 hl 2000 hl - 0

Imported 040610 Fresh cheese, including 50 tones 7 tones 3,283 1.5

7
The arguments that Messerlin and Miroudot (2004, January) give about it goes like this: ‘If one assumes that the pre-
FTA level of protection was low, the frequently observed absence of any trade for the tariff lines under TRQ before the
FTA signature suggests that there was no need for quantitative limits on market access. If, alternatively, one assumes
that the pre-FTA level of protection was high (so that potential trade was already severely constrained), the small
amount of quantities allowed under most of the TRQs suggests that the potential expansion of trade will rapidly meet the
constraints imposed by the quota component of the TRQs. In both cases, TRQs are trade barriers’ (p. 12). Such
arguments are reinforced by problems associated with TRQ, such as the incentives created for trade deflection, and
also the difficulties and costs in allocating import licences’.
 19

Code Description Annual Traded Traded in Share to

Quota in 2003 2004 total in
2004 (%)
whey and curd cheese

0702 Tomatoes, fresh or chilled 150 490 59.67 12.2

tones tones

0707 Cucumbers and gherkins, 100 20.3 3.65 17.9

fresh or chilled tones tones

080810 Apples 3000 3123 5,827.301 183.6

tones tones

1602 Prepared or preserved 100 0.5 tones 3.56 0.1

meet, meet offal or blood tones

1704 Sugar confectionery 200 1.62 4.112 0.3

(including white chocolate) tones tones
not containing cocoa

Source: ACIT yearly reports 2003 and 2004, and own calculations.

Out of six products imported from Macedonia, which are in the list of
TRQs, in only one case (apples) quota is bounding for imports. In all the other
cases the quantity imported is much lower than quota, as shown in the last
column of the table. Even for apples, large quantities have been consistently
imported even before the FTA was applied (ACIT, Yearly Report 2004, Annex,
table 14). As for exports, the table denotes that quotas have been not binding at
all for the three products with a positive value of exports in 2003. For cognac,
even though in 2003 the quota was surpassed by 10 times, the quantity
exported in 2004 was just zero.
Table 6 reveals the problem of asymmetries which the regional FTAs
suffer from and which generates difficulties and impediments in regional trade
integration. The abundance of the answer “no” in the table testifies for
harmonization deficiency of the Albania’s FTAs, which is a drawback of all the
regional FTAs (Messerlin and Miroudot 2004, January).
20

Table 6: Harmonization scale of Albania’s regional FTAs

ALB-
ALB- ALB- ALB- ALB- ALB- ALB- ALB- KOSOV
B&H BUL CRO MAC ROM S&M MOL O/UNMI
K

Industrial goods
1
-Negative list of exemptions ? Yes Yes Yes Yes Yes Yes Yes Yes
-Lists of goods with progressive
reduction of custom duties?
Yes Yes Yes Yes Yes Yes Yes Yes
--The same
list? Yes No No No No No Yes No
--The same Yes No No No No No Yes No
schedule?
-Abolishment of custom duties for all
other industrial goods? No Yes Yes Yes Yes Yes No Yes
2
-Quantitative restrictions? No No No No No Yes No No

Agriculture goods
-Lists of goods with reciprocal
abolishment of custom duties?
--The same Yes No No Yes No Yes Yes Yes
list?
Yes - - Yes - Yes Yes No
-Lists of goods with progressive
reduction of custom duties
--The same Yes No No No No No Yes No
list?
Yes - - - - - Yes -
--The same
schedule? Yes - - - - - Yes -

-Lists of goods with TRQs No Yes Yes Yes Yes Yes No Yes
3
--The same No No No No No No No Yes
list?

Source: Albania’s FTAs texts, Ministry of Economy.

1
Industrial goods considered as agriculture goods.
2
Only on the side of Yugoslavia and only for still products.
3
Only for beer product.
 21

Other principles underlined in the MoU, such as those related to

technical barriers to trade, rules of origin, agriculture and special safeguard,
general safeguard, antidumping measures, intellectual property rights etc., are
part of all Albania’s FTAs, although the respective provisions seems to be too
general and difficult to apply because of legal and institutional weaknesses.
Table A6 (Annex) indicates some of such measures (such as specific and
general safeguard, and antidumping and CVD), and the scale at which the
requirements of WTO are reflected in some of the Albania’s FTAs.
22

4. Trade and economic impacts of FTAs

As graph 2 shows, the volume of trade with the FTAs’ countries has been
increasing, but the share is quite low.

Graph 2. Albania: geography of exports (E) and imports (I), in mln

US dollars and percent to total, 2002-2004

100%

80%

60%
Percent

40%

20%

0%
E 2002 E 2003 E 2004 I 2002 I 2003 I 2004

Other 13.30 18.91 18.67 255.20 545.85 610.36

SEE 12.70 17.36 42.91 113.30 130.98 165.57
EU 304.20 417.78 543.86 1121.0 1319.44 1520.1

Source: ACIT, and own calculations

To make it comparable with the past decades, we separate Italy, Greece

and Germany from the EU (these three countries count for more than 95% of
Albania’s exports and imports with the EU), and include in SEE all the countries
which constituted the former Republic of Yugoslavia and also Romania and
Bulgaria. Graph 3 shows that in 1980 the share of SEE countries, EU
(considering only the selected three countries) and all the other countries
(ROW) are rather the same (32.7%, 30.6% and 36.7% respectively).
 23

Graph 3 . Albania: geography of exports (E) and imports (I) in percent to total, 1980-2004

100%

80%
60%
40%

20%
0%
E E E E E I I I I I
1980 1989 2002 2003 2004 1980 1989 2002 2003 2004

Other 36.7 50.7 6.1 7.13 4.83 41.6 47.2 25.9 29.96 34.29
SEE 30.6 24.3 3.9 3.87 7.09 28.2 19.1 7.6 7.04 7.21
It+Gr+Germany 32.7 25 90.00 89.00 88.08 30.2 33.70 66.5 63.00 58.50

Source: ACIT, and own calculations

In 2002 the share of SEE drops down to only 3.9% for exports and 7.6%
for imports. In 2004, while the share of imports is almost unchanged (7.21%),
the share of exports is almost doubled (from 3.9% in 2002 to 7.09 in 2004).
The dynamics of the Albania’s geography of trade (exports plus imports
of goods) for all the period starting from 1980 is also shown in graph 4.
24

Graph 4 . Albania: geography of trade (T), 1980-2004

90
80
70
60
Percent

50
40
30
20
10
0
T 1980 T1989 T 2002 T 2003 T 2004

It. +Gr. +Germany SEE Other

Source: ACIT, and own calculations

Graph 5 indicates the share of individual SEE countries in Albania’s

imports and exports, to SEE total as a region, for the period 2002-2004 which is
the period when regional FTAs were put into effect.
 25

Graph 5 : SEE countries' share of Albanias' exports to (E) and imports

from (I), 2002-2004
100%

80%

60%

40%

20%

0%
E 2002 E 2003 E 2004 I 2002 I 2003 I 2004

Serbia and M ontenegro 58.8 20.3 5.9 12.9 6.8 11.7

Romania 0.5 0.6 0.6 12.4 12.1 7.3
M oldova 0.0 0.0 0.0 0.0 0.5 1.9
Croat ia 0.9 2.2 1.0 30.1 22.4 21.6
Kosova 53.7 68.7 3.1 3.5
M acedonia 38.5 21.5 19.1 16.9 14.7 19.5
Bosnia & Herzegovina 0.6 0.3 0.9 0.7 1.1 0.9
Bulgaria 0.8 1.4 3.9 26.9 39.4 33.6

Source: ACIT, and own calculations

In Albania’s exports to regional countries, it is Kosovo/UNMIK which

counts for more than half (respectively 53.7 and 68.7%) of the total. In the
second and third place are Macedonia, and Serbia and Montenegro (with 19.1
and 5.9% respectively in the year 2004). On the Albania’s imports side, it is
Bulgaria in the first place with 33.8% in 2004, followed by Croatia (21.6%) and
Macedonia (19.5%).
26

With all the countries in the region except Kosovo, Albania suffers from
high trade deficit, as table 7 shows. Kosovo/UNMIK is the only country in the
region with which Albania has a positive trade balance quite high in relative
terms.

Table 7: Albania’s trade balance with SEE countries (in thousand US dollars)
KOSOVO/
B&H BUL CRO MAC ROM S&M MOL
UNMIK

Exports
45 197 323 3,098 82 2,933 0 7,749
to
Imports
1,361 48,575 27,557 18,069 14,875 8,349 567 3,845
2003 from

Trade -1,316 -48,377 -27,234 -14,973 14,793 5,416 567 3,904

balance1 (-96.7%) (-99.6%) (-98.8%)
(-82.9%) (-99.4%) (-64.9%) (-100.0%) (101.5%)

Exports
377 1,574 395 7,723 228 2,401 0 27,809
to
Imports
2004 1,388 50,730 32,637 29,393 11,053 17,549 2,802 5,274
from

Trade -1,011 -49,157 -32,242 21,670 -10,826 -15,148 -2,802 22,534

balance (-72.8%) (-96.9%) (-98.8%) (-73.7%) (-97.9%) (-86.3%) (-100.0%) (527.3 %)

Source: ACIT and own calculations

1
Trade balance is measured in absolute terms as difference between exports and imports, and
also in relative terms, as percentage of the absolute trade balance to the value of imports.

Several questions arise from the above tables and graphs: Why is the
Albania’s trade share with the SEE region so small and why the regional
bilateral FTA’s haven’t head significant effects? Why are the Albania’s export
figures to the regional countries so small and the resulting trade deficit so high
in relative terms? Can we however identify positive effects of bilateral regional
FTAs?
 27

To give an answer to the above questions one should consider the

recent history of Albania and other regional countries. The collapse of Albania’s
trade with the Council of Mutual Economic Assistance and then former
Yugoslavia coupled with a deep fall in output in the first years of transition
determined the deep changes in geographical and sectoral composition of
trade. The EU become the major trading partner of Albania, while exports of
natural resources intensive products were replaced by labor-intensive products,
such as textiles, and leather and shoe products (WB, 2002). Other authors
(Christie, 2005) underline some specific factors which apply to Albania and also
other regional countries, such as (i) the small size of the regional economies
(small peripheral economies with regard to Western Europe); (ii) infrastructure
problems, particularly related to transport (from which Albania suffers much
more than other countries in the region); border management problems, etc.
Another factor with a specific relevance for Albania, explaining the low
level of exports and the very high levels of Albania’s trade deficit with other
countries in the region, is the important role of emigrants’ remittances as a
source of financing imports as shown in the first section of the paper. Also,
delays and inconsequence in some cases in applying structural and institutional
transition reforms have negatively contributed to the restructuring of the
economy and in this way impeding the increasing of its competitiveness and
improving export performance. Analyzing the trade of Albania with most of
regional countries, one can hardly find revealed comparative advantages of the
country, except for some peripheral cases (Gligorov, 2004; Xhepa, 2004).
Nevertheless, Albania’s bilateral FTAs are playing a positive role in
overall economic development of the country. Even the trade picture given in
table 7 reflects some positive effects of Albania’s regional bilateral FTAs, as can
be read from the general trend of increasing exports and imports. The FTAs are
also playing a role in improving the climate of cooperation between businesses,
people, and governmental and non-governmental institutions. Although much is
to be done, improvements are being realized in trade facilitation and
infrastructure and ‘they are in the right track’ (Chriestie, 2005). And, any step
forward in regional cooperation is at the same time a step forward in the rode of
EU integration of the country.
The perspective of the EU integration of the SEE countries (a North-
South type of integration) is an important factor for accelerating the positive
28

static (related to trade-creation and trade-diversion) and dynamic effects, and

mitigating the negative ones. The new theory of trade put emphasis to the
dynamic effects, such as enhancing efficiency through mutual learning,
increasing competition, enabling economies of scale and economies of scope,
increasing attractiveness to FDI, securing better bargaining power, etc, Even
such factors can lead to negative results for the most disadvantaged economies
by concentrating the positive effects to the most developed economics, in case
of a South-South type of integration such as the SEE regional integration. On
this ground, the simultaneity of North-South and South-South integration
appears as the most-promising strategy (Grupe and Kušić, 2005). Such strategy
helps in establishing of the domestic body of laws and regulations in line with the
EU acquis communautaire.
On the other hand, the short experience with the bilateral FTAS reveals a
number of weaknesses and problems and calls for actions to increase the
effectiveness of regional integration. Problems encountered in implementing
FTAs may be overcome in a process of harmonizing FTAS and regulatory
regimes.
 29

5. Towards a regional free trade agreement?

The countries in the region have so far opted for setting up a network of
bilateral FTAs, by eschewing efforts to set up a single FTA area and. Reasons
might be political (the lack of consensus to set up an overall FTA involving the
five countries, possibly including Bulgaria and Romania) and economic as well
(sufficient economic differences in the level of development8.). On the other
hand, an uncoordinated series of bilateral FTAs involving different product
coverage, depth of preference, rules of origin and so forth, being extremely
difficult to implement in light of the tremendous weaknesses in the customs
authorities in the region, is ‘an invitation to disaster’ (World Bank, 2000b).
Realizing such problems, the ‘Strategy and Action Plan for 2005’ of the
Working Group on Trade Liberalization and Facilitation (Stability Pact, 2005A)
identify key objectives for near-term, medium-term and long-term. While in near-
term, the fully and effectively implementation of FTAs and the conclusion of
additional agreements with UNIMIK/Kosovo are considered as a priority, in
medium-term the objective is ‘to deepen and broaden integration in accordance
with the MoU and by harmonizing both the scope and regulatory provisions of
the FTAs’. In the long-term, the main objective is to further liberalize and
facilitate trade in the region by implementing an institutional framework for the
countries to manage the regional free trade area ‘in a way that enables them to
realize their vision of accession to the European Union, each in due course and
on its own merits, and to integrate into the international economy’.
In the near-term, having into consideration the main problems the
implementation of FTAs is coping with, more attention was given to such issues,
as (i) operating the procedures for eliminating non-tariff barriers (NTB); (ii)
implementing the preferential rules of origin; (iii) meeting sanitary and
phytosanitary standards and promoting agriculture exports; (iv) consistent
application of safeguard clauses and remedies; and (v) promoting awareness of
new trade and investment opportunities.

8
The GDP/capita of Croatia, as the more developed country in the region, being more than 10 times higher than the
GDP/capita of Moldova, as the least developed country in the region (Grupe and Kušić, 2005, p.9)
30

In the medium term, the focus is put on the (i) harmonization of FTAs
(identifying and then expanding a ‘common list’ of liberalized goods, particularly
the agriculture ones); (ii) harmonization of regulatory regimes in services; (iii)
harmonization of legislation; (iv) intensification of regional cooperation in
services.
In the longer term, several options are being discussed. Any option
should meet the criteria of (i) being in conformity with the MoU; (ii) being a
modern agreement (including clauses dealing with issues such as services,
intellectual property rights, standards, etc); (iii) being inclusive (allowing the
participation of all parties to the MoU so as to provide a genuine free trade area
throughout the region).
Messerlin and Mirodout (2004, September), discuss five options of
harmonizing FTAs general provisions: (i) an expended Trade Working Group
(TWA); (ii) An expended CEFTA; (iii) a ‘minimal classical SEEFTA’; (iv) a
‘maximal classical SEEFTA’; (v) a ‘modern SEEFTA’.
The first approach (an expended TWA) would aim in minimizing the costs
of operating the all web of FTAs by expanding the role of TWG and keeping
unchanged the current FTAs texts. Under this approach the harmonization
exercise is limited to two groups of formal issues: operating9 and
implementing10 rules, leaving untouched the four other issues included in FTAs
‘General Provisions (exceptions, competition rules, contingent protection, and
new trade issues). As the others pint it out, this option entails small costs, but
benefits are expected also to be limited because of the constraints deriving from
the existing texts of FTAs and the differences in national laws and regulations of
the signatories.
The second option (an expended CEFTA) would be less costly for the
countries which have already used the CEFTA text between themselves, but

9
Progress could be made in some harmonization of rules of origin within the region (by facilitating a multilateral
commutation of origin within the region and, maybe, a Pan-European diagonal commutation of origin. Progress also
could be made in facilitating the administrative cooperation between the signatories’ Custom Offices by creating a
Customs working group at the regional level. An expended TWG could also be attractive to involve in customs issues
the business community.
10
An expanded TWG could tackle the implementing rules by being conceived as “Joint Committee” of all the FTAs,
which implies not eliminating the bilateral Joint Committees which could remain the “first instance” with TWG playing the
role of an “appeal” body, by being in charge of the monitoring exercise and by insuring the consistency of the
implementation of the various FTAs once the liberalization would be achieved.
 31

more costly for the other countries of the region. The benefits for the first
category of countries would also be very limited since they soon would be
members of EU; the benefits for the second category would also be limited
since CEFTA has no provision on new trade issues, such as services or public
procurement.
The three other options are in effect sub-options of the same option –
creating an effective regional FTA, a SEEFTA. The authors make two remarks
related to this option. First, the option should not be necessarily undertaken by
all the countries in the region. Second, none of the sub-options require
necessarily a unique “consolidated” text, although such a text would be
desirable. Different but harmonized texts would be sufficient (but more costly in
implementation).
The first sub-option is characterized by the authors as a “minimal
classical SEEFTA”, ‘classical because it deals only with trade in goods, and
minimal because it does not go further than mere harmonization aligning on the
best available texts’. The harmonization exercise is therefore confined to two
groups of existing FTAs ‘General Provisions’ – competition rules and disciplines
on contingent protection, both of which are included in a vast majority of FTAs.
The second sub-option is characterized by the authors as a “maximal
classical SEEFTA”. Again, it is ‘classical’ because it deals only with trade in
goods. But it is ‘maximal’ because it aims at making rules related to ‘General
Provisions’ consistent with the EC rules. In this way this second sub-option
would put the intra-SEEFTA trade under economically sound rules, like the
ones governing the intra-EC trade. It would result a clear difference between the
intra-SEEFTA trade and the extra-SEEFTA trade (excluding trade with the EU).
For example, in case when a subsidizing country violates the rules on state aid,
it is forced by the rules to withdraw its state aid if it is the intra-SEEFTA trade
which is mostly concerned, as in the case of state aid within EU. But, if it is the
extra-SEEFTA trade which is mostly involved, the measure would consist in the
importing countries imposing countervailing measures, as in the case of
subsidies under WTO law.
The third sub-option is characterized by the authors as a “modern
SEEFTA”. It is ‘modern’, because it shifts the focus of the FTAs on the
emerging core of trade relations, such as services, public procurement,
32

intellectual property rights, etc. A modern SEEFTA would embody the EC

respective principles, such as mutual recognition principle, country of origin
principle, etc. Adopting such principles, a modern SEEFTA would facilitate the
progressive integration of the region to the EC services, technology and public
procurement markets. As a result, it would facilitate the overall progressive
integration of the region to the EU.
Table A6 (Annex) comprises costs and benefits (calculated by Messerlin
and Miroudot, 2004 September) for each of the five options (sub-options). Costs
of implementing a “modern SEEFTA” are much higher compared to other
options, since the harmonization and improvements needed are immense. But
benefits are even higher compared to the other options. The ‘net benefit’ in case
of a ‘modern SEEFTA’ is 1.7 times higher as compared to a ‘maximal classical
SEEFTA” and 3.2 times higher as compared to minimal classical SEEFTA. The
net benefits for a ‘CEFTA’ and an ‘expended TWG’ are negligible.
As it is underlined in the Ministerial Statement on Trade Liberalization in
South Eastern Europe of 10 June 2005 (Stability Pact, 2005C) ‘a single free
trade agreement by furthering harmonization, transparency and consistent
application of rules would enhance regional co-operation, increase regional
ownership of the trade liberalization process, improve efficiency and stimulate
trade and direct investment in the region’. According to this Statement, a single
free trade agreement could be based on the text of CEFTA (Centre European
Free trade Agreement) and also on modern and comprehensive provisions, a
high level of liberalization and open to all parties in the region under the
condition to be mutually agreed. While during the year 2005 exploratory talks
would take place, a single agreement could be concluded in the course of 2006.
Anyway, considering the political and economic situation in the region on
one side, and the main purposes of the regional integration under the frame of
Stability Pact, it seems that ‘… a fully free trade across the whole of Southeast
Europe will only truly come about as part of an enlarged EU…’ (Christie, 2005).
 33

6. Conclusions and policy recommendations

Since the beginning of the last decade, Albania has been intensively
involved in a trade liberalization process, which is a synergic process of
accession to WTO, involvement in the regional integration process, and also in
the EU integration process. Compared to other countries in the region, Albania
has applied since the beginning of transition, a quite liberal trade regime.
Despite the relatively high level of trade liberalization, the trade and
economic openness indices for Albania are significantly lower and trade and
current account deficits are significantly higher, compared to other countries in
the region. The competitiveness of the Albanian economy is low even compared
to counties in the region. Structural and institutional reforms are necessary in
order to increase the export potentials of the country.
A full network of bilateral FTAs between Albania and other countries in the
region is already in place. Albania’s FTAs like the other SEE’s bilateral FTAs,
are not fully in conformity with the MoU principles and standards, including the
trade coverage standards. Albania’s FTAs suffer also from asymmetries in
liberalization provisions. The less liberalized sector is the agriculture one.
Almost all Albania’s FTAs provide TRQs, which in many cases are asymmetric.
Trade statistics indicate that the bulk of TRQs have not been binding at all.
Based on the arguments given in the literature, it would be advisable to
eliminate TRQs and shift the goods in question in the main list of the products to
be liberalized, when they are not binding. When TRQs are binding and
constitute a small share of domestic consumption, a further liberalization should
consist in reducing the over-quota tariff. Only when TRQs are binding and the
quota component is large relative to domestic consumption, further liberalization
should consist in increasing quota.
The trade share of Albania with the regional countries is quite small. The
Albania trade is mostly oriented to EU. Low trade figures and high trade deficits
with the regional countries are a testimony of low effectiveness of bilateral
regional FTAs. Anyway, a positive trend of increasing trade with the SEE
countries is revealed recently and Kosovo is now the only country Albania has a
positive trade balance. The positive effects of FTAS go beyond the trade
figures. By making FTAs ‘effective’, the way to EU is shortened.
34

Problems encountered in implementing FTAs may be overcome in a

process of harmonizing FTAs and regulatory regimes. Various alternatives are
discussed in the literature, such as: (i) expanding the competences of the TWG;
(ii) an expanded CEFTA; (iii) creating a SEEFTA. A single agreement is
becoming now a political project.
For formulating appropriate regional integration policies and making them
effective, of a particular importance are: (i) Supporting such policies by research
and deep analyses; (ii) Dissemination of relevant information in particular to
business people; (iii) improving the related legislation and institutions; (iv)
Improving the infrastructure.
 35

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Xhepa, Selami (2004) Avantazhet e Shfaqura Krahasuese dhe Marrëveshjet e
Tregtisë së Lirë, Qendra Shqiptare për Tregtinë Ndërkombëtare
(www.acit-al.org) .
 37

United Nations Development Programme (2005), Support for Trade Regulation

and Trade Promotion-ANE Strategic Plan for 2005, EU Cards Project No
2004/084-899
Uvalic, Milica (2005), Trade Liberalization in Southeast Europe – Recent Trends
and Some Policy Implications, University of Perugia.
Wijkman, Per Magnus (2003), A Free Trade Area in South Eastern Europe?
Prospects and Problems, presented at the Conference “Trade and
Economic Integration of the Western Balkan Countries in the European
Union, Tirana.
World Bank (2002), Trade Policies and Institutions in the Countries of South
Eastern Europe in the EU Association and stabilization Process; Regional
Report, June 28, 2002.
World Bank (2004), Albania-Sustaining Growth Beyond the Transition; A World
bank Country Economic Memorandum, November 27, 2004.
World Bank (2005), Global Economic Prospects-Trade, Regionalism, and
Development, chapt. 4 (Beyond Trade Policy Barriers: Lowering Trade
Costs Together, p. 77-92).
World Trade Organization (2005), World Trade Report 2005: Exploring the links
between trade, standards and the WTO.
World Trade Organization (2005), Country Report: Albania (www.wto.org).
World Trade Organization (2005), Results from Monitoring of Implementation of
the first Free Trade Agreement Albania-Macedonia (www.wto.org).
 38

Annex
Table A1: Final MFN bound tariffs

Import Binding Simple average Duty-free HS Non-advalorem Maximum ad- National peaks
market coverage (per subheadings duties valorem duty (per cent)
s cent)

All Agri Non All Agri Non All Agri Non All Agri Non All Agri Non All Agri Non
c - c - c. - c. - c. - c. -
agri agri agri agri agri agri
c c c c c c

Albania 100 100 100 7 9.4 6.6 26. 10. 28. 0 0 0 20 20 20 0 0 0

1 9 4

Bulgaria 100 100 100 25 35. 23 4 4.6 3.9 2.1 15. 0 98 98 40 1.3 0 0
6 7

Croatia 100 100 100 6 9.4 5.5 25 15. 26. 2.4 18. 0 55 55 25 1.9 5.2 0.3
1 5 3

Macedo 100 100 100 6.9 11. 6.2 35. 34 36. 1.4 10 0.1 60 60 25 3.2 9.7 2.3
nia 3 9 2
(FYRO
M)

Romani 100 100 100 40 98. 31. 0.4 0.1 0.5 0 0 0 333 333 220 4.3 3.4 0
a 4 6

Source: World Bank 2005 Report: Exploring the links between trade, standards and the WTO, pp. 303-304.
 39

Table A2: Share of SEE countries in Albania’s exports and imports, 2002-2004

Partner countries Exports Imports

2002 2003 2004 2002 2003 2004

USD % of USD % of USD % of USD % of USD % of USD % of

mln total mln total mln total mln total mln total mln total

EU Countries 304.20 92.10 417.78 93.20 543.86 89.83 1121.0 75.3 1319.44 71.00 1520.1 66.2
From which:

Italy 236.80 71.70 335.45 74.87 442.04 73.01 530.0 35.6 629.19 34.00 760.7 33.1

Greece 42.40 12.80 57.58 11.00 72.53 11.98 388.4 26.1 440.95 24.00 462.5 20.1

Germany 18.30 5.50 15.21 4.00 18.73 3.09 71.6 4.8 93.928 5.00 120.6 5.3

SEE countries 12.70 3.90 17.36 3.87 42.91 7.09 113.30 7.60 130.98 7.04 165.57 7.21

Macedonia 4.90 1.50 3.09 0.69 7.72 1.28 19.20 1.30 18.07 0.97 29.39 1.28

Former RY 7.50 2.30 5.86 1.31 4.80 0.79 14.60 1.00 16.97 0.91 35.10 1.53

Croatia 0.10 0.00 0.32 0.07 0.39 0.07 34.20 2.30 27.56 1.48 32.64 1.42

Bulgaria 0.10 0.00 0.20 0.04 1.57 0.26 30.50 2.00 48.57 2.61 50.73 2.21

Romania 0.10 0.00 0.08 0.02 0.23 0.04 14.00 0.90 14.87 0.80 11.05 4.48

BiH 0.10 0.00 0.04 0.01 0.38 0.06 0.70 0.00 1.36 0.07 1.39 0.06

Kosovo 7.75 1.73 27.81 4.59 3.84 0.21 5.27 0.23

USA 5.50 1.70 2.26 0.51 3.12 0.52 8.40 0.60 10.54 0.57 28.29 1.23

Turkey 3.40 1.00 3.74 0.83 11.39 1.88 93.30 6.30 126.18 6.79 164.63 7.17

Other 4.40 1.30 12.9 2.88 4.16 0.69 153.50 10.30 409.13 22.00 474.44 18.18

Total 330.2 100.0 448.05 100.00 605.4 100.00 1489.50 100.00 1859.55 100.0 2296.06 100.00

Source: ACIT Trade Reports 2002, 2003, 2004, 2005/1.

40

Table A3: The FTAs in SEE as of May 2004

Source: Stability Pact For South Eastern Europe

 41

Table A4: Albania’s FTAs compliance with article 1.2 of the MoU

FTA (year of Trade coverage (art. 1.2.2) Liberalization pace (art. 1.2.3)
entry into
force) Share of HS lines Share of mutual Share of HS lines End of transition
Country harmonized (%) trade fried upon entry into period
liberalization1 (%) force (%)

ALB-B&H Albania 91.0 91.7 4.7

(2003) 1 January 2008
Bosnia and 93.0 88.6 26.6
Herzegovina

ALB-BUL Albania 86.2 70.0 83.7

(2003) 1 January 2007
Bulgaria 87.0 83.8 72.4

ALB-CRO Albania 85.7 95.8 82.0

(2003 1 January 2008
Croatia 87.4 53.2 84.0

ALB-MAC Albania 91.6 79.5 87.4

(2002) 1 January 2008
Macedonia 93.1 89.6 59.8

ALB-ROM Albania 85.8 99.6 83.4

(2003) 1 January 2007
Romania 86.5 82.0 82.9

ALB-S&M Albania 89.7 37.5 85.9

(2003) 1 January 2007
S&M 89.3 89.1 88.6

Source: P. Messerlin & Sébastien Mirodout, ‘Trade Liberalization in South East Europe: Review of
Conformity of23 FTAs with the MoU, January 2004.
1
Based on national statistics, bilateral imports 2002 (2001 for Serbia and Montenegro). Imports for Bosnia
and Herzegovina are replaced by partner country’s exports. When missing, bilateral imports are replaced
by world imports.
42

Table A5: FTAs trade coverage by sector

1
FTA Country Share of HS lines harmonized (%) Share of mutual trade liberalization (%)

All products Agriculture Manufacturing All products Agriculture Manufacturing

ALB-B&H Albania 91.0 38.3 99.5 91.7 59.5 100.0

Bosnia and 93.0 51.4 99.7 88.6 0.0 100.0

Herzegovina

ALB-BUL Albania 86.2 5.1 99.4 70.0 0.0 100.0

Bulgaria 87.0 11.0 99.4 83.8 0.0 100.0

ALB-CRO Albania 85.7 5.1 98.6 95.8 0.0 100.0

Croatia 87.4 14.2 99.0 53.2 0.0 100.0

ALB-MAC Albania 91.6 41.9 99.5 79.5 19.4 99.9

Macedonia 93.1 52.0 99.6 89.6 65.0 100.0

ALB-ROM Albania 85.8 5.3 98.9 99.6 80.4 100.0

Romania 86.5 10.3 98.9 82.0 0.0 100.0

ALB-S&M Albania 89.7 29.4 99.4 37.5 14.6 100.0

S&M 89.3 27.0 99.4 89.1 0.0 100.0

Source: P. Messerlin & Sébastien Mirodout, ‘Trade Liberalization in South East Europe: Review of
Conformity of23 FTAs with the MoU, January 2004.
 43

Table A6: FTAs’ classification according to trade coverage criterion (as for January 2004)

Group Criterion Free Trade Agreements

Group I Agreements fulfilling B&H-CRO

(8 FTAs both 90% trade B&H-MAC
coverage criteria MAC-S&M
MOL-ROM
B&H-MOL
B&H-S&M
BUL-CRO
BUL-ROM

Group II Agreements fulfilling Tariff-based Import-based

(8 FTAs) only one of the two indicator under indicator under 90%:
90% trade coverage 90%: ALB-B&H
criteria ALB-MAC
ROM-S&M ALB-S&M
B&H-BUL
B&H-ROM
CRO-MAC
CRO-S&M

Group III Agreements under BUL-S&M

(7 FTAs) both 90% trade CRO-ROM
coverage criteria ALB-ROM
BUL-MAC
MAC-ROM
ALB-BUL
ALB-CRO

Source: Source: P. Messerlin & Sébastien Mirodout, ‘Trade Liberalization in South East Europe:
Review of Conformity of23 FTAs with the MoU, January 2004.
44

Table A7: Conformity with other MOU principles

FTA ALB-B&H ALB-BUL ALB-CRO ALB-S&M ALB-MAC ALBROM

1. Agric. and special

safeguard
-Agricult. Policy [b]
yes yes yes yes yes yes
-Special safeguard [c]
1-4 1-3 1-4 1-4 1-3 1-3

2. Gen. safeguard and

associate.
-General safeguard [d]
1-6 1-6 1-6 1-6 1-6 1-6
-Structural adjustments [e]
1-5 1-5 1-5 1-5 1-5 1-5
-Re-export [f]
1 1-3 1-3 1-3 1-3 1
-Balance of payments [g]
1-2 1-2 1-2 1-2 1-2 1

3. Antidumping and CVD

-Antidumping and CVD [h] 1-2 1-2 1-2 1-2 1-2 1

Source: Source: P. Messerlin & Sébastien Mirodout, ‘Trade Liberalization in South East Europe:
Review of Conformity of23 FTAs with the MoU, January 2004.
Notes
[a] i=initialled, s=signed, a=applied.
[b] yes=notification of changes of agricultural policy; no=no notification.
[c] 1=consultation required, 2=serious disturbances, 3=immediate measures, 4=proportionality.
[d] 1=import surge, 2=serious injury, 3=like-product, 4=directly competitive product,
5=serious disturbances, 6=regional injury, 7=reference to the WTO safeguard provision.
[e] 1=infant industry, 2=cap on the tariff, 3=cap on the import coverage,
4=limited to the implementation period, 5=reference to the Joint Committee.
[f] 1=measures to be taken, 2=non-discriminatory measures, 3=no longer than necessary.
[g] 1=measures to be taken, 2=limited duration, 3=not to go beyond.
[h] 1=only antidumping, 2=antidumping and CVD, 3=non classifiable.
[g] 1=reference to GATT/WTO, 2=reference to IMF, 3=non classifiable.
 45

Table A 8: Albania: Exports to, and imports from, regional countries, in thousand USD

Regional 2002 2003 2004 2005 (31.08)

countries
Exports to Imports Exports to Imports Exports to Imports Exports to Imports
from from from from

Bosnia and 75 743 45 1,361 377 1,388 438 1,005

Herzegovina

Bulgaria 98 30,508 197 48,574 1,574 50,730 2,148 53,841

Croatia 119 34,161 323 27,557 395 32,637 76 16,634

Kosovo 7,749 3,845 27,809 5,274 17,174 7,294

Macedonia 4,895 19,230 3,096 18,069 7,723 29,393 6,723 20,996

Moldova 0 275 0 567 0 2,802 4 608

Romania 58 14,030 82 14,875 228 11,053 1,106 13,028

Serbia 7,481 14,628 2,933 8,349 2,401 17,549 3,496 11,892

&Montenegro

Total 12,726 113,575 14,425 123,197 40,507 150,826 31,165 125,298

Source: General Directory of Customs and ACIT

46

Table A9: Main options for harmonizing the FTAs: a synopsis of the expected benefits

Rules in the An expanded A CEFTA [b] A "classical" SEEFTA [c]

TWG [a]
A "modern"
SEEFTA
"General minimal maximal
Provisions"
benefits costs benefits costs benefits costs benefits costs benefits costs

1. Operating rules 1.25 1 1.25 1 1.25 1 1.25 1 1.25 1

2. Competition rules -- -- 3 2 5 3 8 4 8 4

3. Rules on -- -- 3 2 5 3 8 4 8 4
contingent protection

4. Exceptions -- -- -- -- -- -- -- -- -- --

5. New trade issues -- -- -- -- -- -- -- -- 10 4

6. Implementation 1.25 1 1.25 1 1.25 1 1.25 1 1.25 1

rules

Total 2.5 2 8.5 6 12.5 8 18.5 10 28.5 14

Source: see text. Notes: "--"=no impact. [a] TWG=Trade Working Group. [b] for the non-CEFTA members
only. [c] SEEFTA=South-East European FTA.