Enhancing Regional Trade Integration in Southeast Europe
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WORLD BANK WORKING PAPER NO. 185 Enhancing Regional Trade Integration in Southeast Europe Borko Handjiski Robert Lucas Philip Martin Selen Sarisoy Guerin Copyright © 2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First Printing: January 2010 Printed on recycled paper 1 2 3 4 13 12 11 10 World Bank Working Papers are published to communicate the results of the Bank’s work to the development community with the least possible delay. The manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally‐edited texts. Some sources cited in this paper may be informal documents that are not readily available. 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Contents Acknowledgments ................................................................................................................. vii Foreword ................................................................................................................................. viii Acronyms and Abbreviations ................................................................................................. x Executive Summary ................................................................................................................. xii Part I: Evolution of Intra‐regional Trade in Southeast Europe: The Role of CEFTA for Enhancing Regional Trade Integration ............................................... 1 Abstract ....................................................................................................................................... 2 1. Introduction ............................................................................................................................ 3 2. Trade Patterns in the SEE Region ....................................................................................... 5 Patterns and Structure of Trade Flows in SEE ................................................................ 7 Decomposition of Intra‐regional Trade ......................................................................... 11 Intra‐ versus Inter‐industry Trade .................................................................................. 15 Quality of Foreign Trade Statistics for the Region ....................................................... 18 3. The Role of Trade Regulations, Trade‐related Business Environment, and Rules of Origin in Trade Expansion and Integration ................................................ 22 Technical Regulations and Standards ............................................................................ 22 Trade‐Related Business Environment ............................................................................ 29 Cost and Quality of Trade Logistics ............................................................................... 35 Rules of Origin .................................................................................................................. 38 4. How Are Firms Reacting to Regional Trade Integration? ............................................ 41 The Case of Agrokor ......................................................................................................... 41 The Case of ArcelorMittal ................................................................................................ 42 5. Conclusions and Recommendations ................................................................................ 44 Annexes ..................................................................................................................................... 46 Annex I.A. Trade Structure by HS‐2 Product Category in 2007 ................................. 46 Annex I.B. Trade Structure by HS‐2 Product Category in 2008 .................................. 48 Annex I.C. Net Exports to CEFTA, the Top and Bottom Five HS 2‐digit Products in 2008 .............................................................................................................................. 50 Annex I.D. Description of 2‐digit HS Categories .......................................................... 51 Part II: Labor Mobility in Southeast Europe......................................................... 53 Abstract ..................................................................................................................................... 54 6. Introduction .......................................................................................................................... 55 7. CEFTA: The Setting ............................................................................................................ 56 Population and Labor Force ............................................................................................ 56 Economic Growth and Employment .............................................................................. 58 iii iv Contents Migration Patterns ............................................................................................................ 61 The Diaspora ..................................................................................................................... 64 Migrants’ Education Levels ............................................................................................. 64 Migrant Stocks in the CEFTA Countries ........................................................................ 66 Irregular Migration ........................................................................................................... 68 Remittances ........................................................................................................................ 69 8. Labor Mobility Provisions in Free Trade Agreements ................................................. 71 Asia‐Pacific Economic Cooperation (APEC) ................................................................. 71 ASEAN Free Trade Area (AFTA) ................................................................................... 72 Caribbean Community (CARICOM).............................................................................. 72 East Africa Community (EAC) ........................................................................................ 74 Mercado Comun del Sur (Mercosur) ............................................................................. 75 North American Free Trade Agreement (NAFTA) ...................................................... 76 European Union (EU) ....................................................................................................... 76 Lessons from Labor Mobility Provisions of FTAs ........................................................ 79 9. The Benefits (and Costs) of Labor Mobility Provisions ............................................... 83 Overall Production and Productivity ............................................................................. 83 The Distribution of Benefits and Costs .......................................................................... 84 The Transition to EU Requirements ............................................................................... 86 10. Implementing Mobility in CEFTA ................................................................................. 87 Migration Management: Alignment with the EU ......................................................... 87 Informal Economies and Work Permits ......................................................................... 89 Credential Recognition, Social Security, Other Issues ................................................. 90 11. Conclusions ........................................................................................................................ 92 Part III: The Impact of Establishing a Virtual Customs Union between Southeast Europe and the European Union .........................................................