Which Free Trade Agreement in South Eastern Europe?
Executive Summary

For simplicitly, the recommendations listed below assume that there will be one regional FTA (as shown in the attached note, the same results can be achieved by a regional set of bilateral FTAs, but at higher costs and greater uncertainty). They focus on five countries (Albania, Bosnia-Herzegovina, Croatia, Macedonia and FR Yugoslavia), but they can be easily extended to other participants of the Stability Pact. If the existing FTAs are kept in force, their provisions should be made similar to the provisions of the regional FTA (through the evolutionary clause). The recommendations are explained and presented in detail in the attached note, in the same order.

Recommendations on the Provisions of the FTA Text

The recommendations follow the sequence of provisions adopted in the majority of the texts of the existing FTA.

Objectives

1.All the FTA essential outcomes should be reached at dates specified in the Treaty, with an “acceleration” clause at the disposal of the Signatories.

2.The FTA should, in principle, cover all the agricultural and industrial goods (“substantially all the trade”). Transitory exceptions should be explicitly listed in annexes.

Free movement of goods

3.As already done in the existing FTAs, the FTA should include standstill provisions in all the domains to be liberalized.

4.If a progressive liberalisation of trade barriers is felt necessary, it should be imposed as much as possible uniformly on all the goods (one should avoid different time schedules for products covered by the liberalisation process).

5.The FTA should induce Signatories to converge to the EC acquis communautaire in technical standards in manufacturing and agriculture, as is enforced by the Member state of their choice.

6.The FTA should not include a special safeguard provision in agriculture. Alternatively, it should subject its use to a time period specified in the Treaty: for instance, “x” (say 3) years after the inclusion of the farm good into the intra-FTA tariff regime, the use of such a provision should be prohibited.

7.The FTA does not need to include a specific provision refering to the national agricultural policy (as many current FTAs do) since other provisions of the Treaty could cope with all the aspects of such a policy. If a reference to farm policy is felt necessary, it should clearly state that such a policy will be carefully designed for decoupling farm production and trade issues from farm income issues.

Services, investment, public procurement and TRIPs

8.The FTA should state the principle of liberalisation in services, to be complemented by two types of specific provisions. First, the FTA should focus on telecommunications, by including the core principles (in particular, the so-called “reference paper”) of WTO liberalisation in this service, and by laying down the foundation of a joint and independent Regulatory Authority for regional telecommunications. Second, the FTA should specify a “built-in agenda” listing services to be liberalized (with specified dates and the possibility of an accelerating clause).

9.The FTA should prepare the ground for domestic liberalisation in investment, by a joint commitment to follow the core principles of the two OECD Codes on capital movements and invisibles.

10.Taking into account the importance of reconstruction, the FTA should include the core provisions of the WTO Plurilateral Agreement on public procurement with, in an Annex, an agreed short list of public bodies to abide by these provisions for a specified range of public bids.

11.In the context of the enforcement of the WTO TRIPs Agreement, the FTA should urge the Signatories to enable their independent competition authorities to deal with TRIPs-related provisions in a competition-friendly way.

Common provisions

12.The FTA should specify that each Signatory will have at most three tariff schedules: the preferential schedule between themselves, the preferential one with the European Community, and the MFN schedule. The FTA should contain a provision urging the Signatories to make these three schedules as close as possible to each other (see recommendation 21).

13.The application of rules of origin should be waived for goods for which the difference between the MFN (highest) and lowest preferential tariff rates is less than specified percentage (say 5%).

14.The FTA should not allow safeguards for infant industry, balance of payments and export reasons. Its antisubsidy provision should be drafted in the same spirit than Article 87(ex92) of the Treaty of Rome.

15.The FTA should include a general safeguard provision. A first option could be to draft such a clause in the same spirit than Article 134(ex115) of the Treaty of Rome. As this option requires a regional decision-making procedure, an alternative could be to follow the WTO approach, that is, imposing strict deadlines to safeguard measures.

16.The intra-FTA general safeguard provision reduces greatly the need for an intra-FTA antidumping procedure. If the Signatories want to keep such a procedure, they should discipline it, for instance, by banning the initiation of antidumping cases for goods subject to “small” (say 5 to 10%) and similar tariffs.

17.The FTA should urge the Signatories to enable their independent competition authorities to discipline public monopolies which could behave in a non-competitive manner only in cases of general interest.

Recommendations on the Annexes

18.The FTA should adopt a tariff-only policy on all the farm products currently subjected to tariff-quotas which have been not fulfilled during the “x” (say 3) last consecutive years. Abolished quotas should be replaced by preferential (positive) tariffs.

19.For those farm products maintained under the tariff-quota regime, the FTA should specify that quotas should be allocated under the “past performance” method, with a specified proportion of the quotas to be “transferable” (operators can sell and buy transferable licences).

20.The FTA should specify the progressivity with which these measures will be enforced.

21.The FTA should include similar measures for the industrial goods included in the Annexes, and subjected to quantitative restrictions.

Recommendations on the MFN Tariff Schedule

The following provision on the MFN tariffs of the FTA members is the most important provision for the economic success of a regional FTA (as illustrated by the EC history).

22.The FTA should contain a joint commitment by the Signatories to make their MFN tariffs converge towards the lowest MFN tariffs existing among the FTA partners, or to the EC tariffs, according to a specified time table.