New CASE report on Trade Integration in South East Europe

The report titled Regional Free Trade Agreements of Bosnia and Herzegovina: Analysis and Policy Recommendations  by Amir Hadziomeragic, Małgorzata Jakubiak, Nermin Oruc and Wojciech Paczynski looks at regional trade integration in SEE from the perspective of Bosnia and Herzegovina, a country that until recently was characterized by a disappointing export performance and very large trade and current account deficits.

The report concludes that several problems hindering the development of foreign trade in Bosnia and Herzegovina are related to the general economic and institutional framework, investment climate and conditions for entrepreneurship. In other words, the first set of key barriers to improved trade performance is of a domestic nature. Therefore, recommendations call for simplifying the institutional framework for economic policy management, speeding up privatization and restructuring of state-owned enterprises, increasing flexibility in the labour market and improving physical infrastructure.

Recommendations related to trade policy are related to the coverage of trade agreements in the region. The report argues that from the BiH perspective, opting for more ambitious liberalization appears more promising than attempts to protect selected domestic sectors. Improvements are needed in the functioning of  internationally recognisable institutions for certification, accreditation, metrology and standards. Some modifications of the tariff structure – broadly speaking – could also be helpful. Additionally, continued reforms of the customs service and enhanced export promotion deserve attention.

So far, regional trade integration has produced positive albeit relatively small results for Bosnia and Herzegovina. The reasons for this are manifold, including the small economic size of the SEE region and the short time that has passed since the free trade agreements were implemented. The experience of other regional trade integration initiatives suggests that it takes time for the effects to translate into a better foreign trade record. Transformation of the network of regional free trade agreements into a multilateral agreement - CEFTA 2006 should be viewed as a positive development.