Economic integration

Economic integration of the Western Balkans – why is it necessary?

For the six economies of the Western Balkans, regional cooperation is proclaimed as a condition of their journey towards European integration. Stability Pact, Regional Cooperation Council, CEFTA, RYCO, Energy Community and Transport Community as well as the Berlin Process from 2014 are some of the initiatives and organizations created to achieve this goal. But, of course, if regional cooperation is seen as a mere condition, it will serve no purpose – regional cooperation should be seen as a necessity for all.

That is why, at the Sofia Summit of the Berlin Process in November 2020, the leaders of the Western Balkans recognized the need to start to better integrate economically, with each other and with the EU. They launched the Regional Common Market initiative, which revolves around the four freedoms (free movement of goods, services, capital and people) while also covering aspects of digital policy, investment, innovation and industrial.

This makes it the most ambitious regional integration effort to date in the Western Balkans! It should be emphasized that regional economic integration in the Western Balkans is based on EU rules and a closer association with the EU single market in order to help the candidate and potential candidates in their accession process . In addition, as a virtuous circle, the accession process and the gradual alignment with the acquis communautaire will help to strengthen intra-regional integration.

The region is currently characterized by economic fragmentation. For example, trucks spend 28 million hours waiting at borders each year, a burden that costs 1% of the region’s GDP. The Common Regional Market Action Plan aims to secure mutual recognition agreements, remove barriers and reduce the costs and time needed for goods, services, capital and people to move freely in the region. .

Growth and employment opportunities will be enhanced as trade liberalization, capital ows and mobility lead to market expansion, technology sharing and more investment among the BM6. The great potential for economies of scale will remain untapped unless the transfer of goods, services, capital and people is hampered across the region. The main general objectives are to closely align the rules and regulations with the fundamental principles that govern.

The EU internal market based on the four freedoms approach and to increase the attractiveness of the
region for foreign investors. In addition, the integration of the Western Balkans into the pan-European digital space and the modernization of the industrial base and innovation infrastructure are agreed as other key objectives to be pursued.

In addition, to pursue these objectives, it is planned to remove other types of obstacles: travel in the region only with identity documents for WB6 citizens as well as harmonized procedures for the movement of third-party citizens and the Mutual recognition of diplomas, professional qualifications and certificates form part of the philosophy of free movement of persons for the Western Balkans.

If we add a green agenda to achieve the goal of ‘Carbon-free Western Balkans by 2050’, we should get a full picture of the region’s goal of not only pursuing EU membership, but also to connect each of its economies with Europe.

There are five sectors recognized by the Green Agenda for the Western Balkans to boost the environment
transformation of the region towards climate neutrality. Decarbonization comes first and includes climate, energy and mobility policies and measures in the field of circular economy, where the WB must move from a linear economy to a circular economy and decouple growth economic use of resources.

The Green Agenda declaration lists measures to ensure a sustainable supply of raw materials, extend product life, minimize waste generation and explore recycling possibilities. Cleaning up air, water and soil is another important pillar to protect the health of our citizens and ensure the survival of humanity. The protection of agriculture and food production is also the sector to which much attention has been devoted.

Finally, Green Agenda recognizes that our region represents a European hotspot in terms of biodiversity. Now the most difficult phase is yet to come and that is the implementation. It will be demanding, not without many challenges, but we nevertheless hope that it will be possible to achieve the goal of net zero emissions over the next three decades.

Why are all these activities necessary? The most obvious and logical answer is for the economic development of all the people living in the region. The disruptive effects of the COVID-19 crisis on the economies of the Western Balkans abated somewhat in the third quarter of 2020, when the region’s GDP fell 4.5% year-on-year, after falling 9.3% % in the previous quarter.

The region’s current account deficit increased further to 7.2 percent of GDP in the four quarters through September, the highest level since the second quarter of 2013, due to continued large losses in exports of services, such as tourism, as well as, in some cases, decreasing remittances.

With the significant decline in FDI inflows in the post-COVID-19 period, global competition for investments is expected to increase dramatically. As a result, there is a need to put in place aggressive attraction programs as well as the convergence of regional investment standards and legal frameworks with the EU. The FDI filtering mechanism, which is also envisaged with the CRM agenda, is very important as it will also promote cross-border investment flows within the region.

On the other hand, the economies of the Western Balkans are able to cooperate and deliver results. In the aftermath of the COVID-19 pandemic, the region quickly mobilized to establish greenways to allow the free flow of medical supplies and essential goods. As a result, 80% of all trucks used these corridors and 600,292 trucks took advantage of priority transit and streamlined procedures in 2020, resulting in lower trade costs.

The waiting time at WB6 borders (75 min on average) were half that of border posts with EU Member States. It was calculated that by having all common border crossings within WB6 operating 24/7, the region would save 800,000,000 euros per year (2 euros is lost every minute that a truck driver is late due to the queue at a border post).

Photo: pixabay

This is important to keep in mind – when there is a clear interest and need, the region is more than able to cooperate successfully. However, the WB6 cooperation should not stop there as there are many other potential possibilities for development and cooperation with the EU. One of the most notable is the inclusion of the Western Balkans in supply chains.

The study “It’s time to move to the Western Balkans: How the diversification of global supply chains can benefit the resilience of the EU” prepared by Zoran Nechev and Marie Jelenka Kirchner explains that the COVID-19 pandemic has shown that the benefits of diversifying the supply base and shortening supply chains are considerable, especially in the long run, as they not only promote greater security and increase resilience, but can also help companies to better cope with ongoing trade wars, political instabilities and pressures for sustainability performance.

This study focuses on the localization of supply chains, redirecting supply chains to suppliers in specific countries and regions in close proximity to the end customer. And not just proximity, but they give many other arguments why a reorientation of suppliers towards the Western Balkans is important and necessary. The Western Balkans offers something more that no other region can offer European businesses, as this region is made up of economies integrating between them using European standards for goods and services.

This is what the Action Plan for the Common Regional Market, approved by the six leaders of the Western Balkans, is
everything on. And also, the ever-stronger regional economic integration process, as defined in
CRM contributes to increasingly harmonized investment, trade and other policies towards a single investment space.

The document does not reflect the opinions of CIPE and IDSCS or any of their employees, and CIPE and IDSCS are not responsible for the accuracy of any information included in the report.

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