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TRADE POLICY IN THE CONTEXT OF BULGARIA’S ACCESSION TO THE EUROPEAN UNION
Part 1

General overview
 

1. Definition of the objective

To achieve the goal of becoming a member of the European Union means to commit ourselves to the principles described in the Treaties on which the European Union is founded (i.e. to become a Party to these treaties).

 

Taking into account the task set out in Article 2 of the Treaty on European Union (the Maastricht Treaty) means to start preparing to accede to a degree of integration which has taken the EU Member States nearly four decades to reach.

 

Therefore a clear understanding is needed on the basic principles founding the European Union in the economic area with due regard to the stages involved and the tasks set out for each one of these stages in order to arrive at the present stage of integration.

 

In the economic area the EU integration process evolved from the Treaty of Rome (1957) establishing a common market and a progressive approximation of the economic policies of Member States, through the Single European Act (1986) providing for the establishment of the internal market, comprising an area without internal frontiers, to the Treaty on the European Union (1992) committing EU members to another significant deepening of integration namely the establishment of economic and monetary union, ultimately including a single currency.

 

The achievement of the goals of the Treaty on European Union is expected to take place by the year 1999.

 

2. Characteristics of the series of stages involved in the EU integration process related to the free movement of goods:

 

2.1. The Common market - stage one; based upon the objective of customs union which covers all trade in goods and which involves the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries as provided for under Article 9 of the Treaty establishing the European Economic Community (the Treaty of Rome); The progressive establishment of the common market was to take place during a transitional period of twelve years.

 

The establishment of the Common market started with the entry into force of the Treaty of Rome in 1958 and was completed by 1968. The Common market comprises the following activities (the list is related only to free movement of goods and thus not exhaustive):

- achievement of duty-free access for all goods between Member States;

- adoption of common external tariff in the relations of Member States with third countries;

- mutual abandonment of anti-dumping and anti-subsidy measures;

- approximation of the laws of member States to the extent required for the proper functioning of the common market.

 

2.2. The Internal market- stage two; based upon the objective of adopting measures with the aim of progressively establishing the internal market over a period expiring on 31 December 1992. The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured (Article 13 of the Single European Act); This stage has been targeted for completion by the end of 1992 and a lot of progress has been achieved so far, but the process is not completed yet.

 

The measures to be implemented under the Single European Act are aiming to achieve the following:

- free movement of goods, labour, capital, services;

- removal of border controls;

- harmonisation of VAT rates;

- mutual recognition of standards and certification procedures;

- common external trade policy;

- open government procurement;

- strong Community control of competition policy and state aids.

 

The implementation period for Member States is five years and the changes necessary are so radical that many of the Member Sates have not yet passed all the legislation that was supposed to have been in place by the end of 1992. 1)

The successful accomplishment of the task set out in the Single European act will result in the establishment and proper functioning of the Single market.

 

 

2.3. The economic and monetary union - stage three.

The objective set out in the Treaty on European Union is to promote economic and social progress which is balanced and sustainable, in particular through the creation of an area without internal frontiers, through the strengthening of economic and social cohesion and through the establishment of economic and monetary union, ultimately including a single currency in accordance with the provisions of the Treaty (Art. B of the Treaty of the European Union); the achievement of this objective is targeted for the year 1997-1999.

 

2.4. Accordingly the present stage of integration of the European Union is described by the following principle (Art. 2 of the Treaty on European Union):

"The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of standard of living and quality of life, and economic and social cohesion and solidarity among Member Sates".

 

The achievement of this task comprises the following activities as defined under Article 3 of the Treaty on European Union (the list is exhaustive in order to illustrate the dimension of the efforts required to achieve the goal of membership):

 

(a) the elimination as between Member States, of customs duties and quantitative restrictions on the import and export of goods, and of all other measures having equivalent effect;

(b) a common commercial policy;

(c) an internal market characterised by the abolition, as between Member States, of obstacles to the free movement of goods, persons, services and capital;

(d) measures concerning the entry and movement of persons in the internal market as provided for in Article 100c;

(e) a common policy in the sphere of agriculture and fisheries;

(f) a common policy in the sphere of transport;

(g) a system ensuring that competition in the internal market is not distorted;

(h) the approximation of the laws of member states to the extent required for the functioning of the common market;

(i) a policy in the social sphere comprising a European Social Fund;

(j) the strengthening of economic and social cohesion;

(k) a policy in the sphere of environment;

(l) the strengthening of the competitiveness of Community industry;

(m) the promotion of research and technological development;

(n) encouragement for the establishment and development of trans-European networks;

(o) a contribution to the attainment of a high level of health protection;

(p) a contribution to education and training of quality and the flowering of the cultures of Member States;

(q) a policy in the sphere of development co-operation;

(r) the association of the overseas countries and territories in order to increase trade and promote jointly economic and social development;

(s) a contribution to the strengthening of consumer protection;

(t) measures in the spheres of energy, civil protection and tourism.

 

For the purposes of this study only the activities related to the free movement of goods will be explored in details (i.e. points (a), (b), (c) and partially point (h).

3. Short summary of the historical widening and deepening of the EU (to illustrate the unevenness of the steps now facing the countries wishing to join the European Union

 

3.1.Early years of the Common market

The current EU was formed when the Treaty of Rome went into effect in 1958. At that time six countries joined and although it was often called the Common market, the EEC of the 1950s and the 1960s did not correspond to its name until 1968 when all tariffs were removed on intra-EEC trade. (The EEC-6 consisted of three powerful economies (West Germany, France and Italy) and three small rich countries (Belgium, Netherlands and Luxembourg).

 

3.2. North-west enlargement in the 1970's

Negotiations concerning the first enlargement started in 1970 soon after the EEC accomplished its goal of removing all internal tariffs and quotas (with the United Kingdom, Norway, Denmark and Ireland). The accession Treaties were signed in January 1972. When the United Kingdom, Ireland and Denmark joined (Norway did not join the EEC), the EEC was not much more than a free trade zone with common external tariffs and some harmonisation of sectoral policies (the Common Agricultural Policy and the Coal and Steel Community). 2)

 

3.3. Southern enlargement in the 1980's

In 1961 the EEC signed an Association Agreement with Greece. In 1970 it signed one with Spain. Portugal had a free trade agreement with the EEC since 1973 as a member of EFTA.

 

The stage of bilateral free trade in industrial goods lasted 20 years for Greece, 16 years for Spain and 14 years for Portugal before their respective accession.

 

Greece applied for membership in 1975 and was admitted six years after it had tendered its application. Compared with the degree of integration implied by the Treaty on European Union, membership did not involve a big step for Greece. At that time even the Single European Act had not yet been conceived and actually the EEC at that time was very little more than a Customs Union and a Common Agricultural Policy. The accession of Greece was based mainly on political considerations as at that time its per capita income was only 80% of that of Ireland and only 41% of the EEC-9.

 

Portugal and Spain applied for membership in 1977 and joined the EEC in 1987. These countries joined knowing that they would have to comply with the Single European Act. Since this Act stipulated an extremely large increase in the integration of all Community nations, Spain and Portugal faced a considerable step to membership. Both countries were granted long transitional periods of up to 15 years for many single market measures and massive transfers.

 

3.4. North-east enlargement in the 1990's

The most recent enlargement exercise (with Austria, Finland, Norway and Sweden) began in 1992 and has gone rather smoothly and rapidly by all accounts (compared with previous enlargements).

 

The three new Member States (Austria, Finland and Sweden) had bilateral duty-free industrial trade with the EU for two decades before taking the next step towards accession (after referendum Norway did not join the EU).

 

The accession Treaties of Austria, Finland and Sweden entered into effect on 1 January 1995. It is considered that the reason for this comparatively easy enlargement is due to the fact that the great majority of the policy changes necessary to bring the applicants' policies in line with the EU's were already accomplished during the talks with these countries on the European Economic Area (EEA) agreement. Under its provisions these countries had already agreed to accept almost all the Acquis communautaire pertaining to the Single market. The European Economic Area came into being in 1993 and is considered as a Single market stage for the acceding States.

 

4. Trade liberalization policy in the context of regional integration

 

The debate over the positive and negative sides of trade liberalisation is a long-standing one. Political economy analyses of trade policy formation emphasise the asymmetric political influence of competing interests within the domestic economy. The costs of protection to consumers may be large in the aggregate, but they are widely distributed among thousands or millions of individual households. Export-oriented firms often fail to perceive the extent to which their ability to export is reduced by their own country’s import barriers. Similarly, workers whose jobs would be at risk if trade barriers were reduced are aware of it, whereas the workers who would obtain the new jobs in the expanding export industries if barriers were reduced are seldom aware that continued protection is costing them jobs. For all these reasons, pro-liberalisation forces tend to be under-represented in the trade policy making process because they do not lobby extensively. In contrast, import competing firms and workers have a clear and concentrated interest in lobbying for protection. In these circumstances, and as far as pressures exercised by different interested parties in the economy are concerned, a protectionist bias to trade policy decisions is more likely to be introduced than a liberalisation bias. An important question, therefore, in examining the effects of regional integration is their potential to shift the politics of the trade policy making process in a more liberal or more protectionist direction. That is exactly how according to our understanding the purpose of this comprehensive work on future Bulgarian membership to the EU is to be considered.

 

The postwar history of regional integration agreements provides numerous examples of countries acceding to an existing arrangement. In an increasing number of instances, the desire for accession is motivated by market access "insurance" motives. The goal is not so much to obtain duty-free access to the integrated market - average MFN tariffs are relatively low for most products after the conclusion of the Uruguay Round of Multilateral Trade Negotiations, and some potential members are treated preferentially in any event - but rather to eliminate the threat of contingent protection, such as anti-dumping and countervailing duties. Another objective may be to secure a privileged trading relationship with a large trading partner as an insurance policy in the event of breakdown in the world trading system. If a regional agreement involving a substantial number of high income countries provides the opportunity for a limited set of developing countries to join, accession by one low-income nation may create a domino effect. Fears of trade discrimination and "investment diversion" may then lead other developing countries also to try to join the agreement.

 

The above is a purely theoretical conclusion from the economics which however proved quite accurate through the postwar history and seems relevant also to the present situation in Europe where two main levels of trade and economic liberalisation could be noted:

 

The first, is the one among the fifteen Member States of the European Union. This is the deepest level of integration and it is extended for the most part through the EEA to West European countries that have remained in EFTA.

 

The second, is composed of those countries in Central and Eastern Europe, with whom the European Community has concluded reciprocal trade agreements. Among this latter group of countries, trade remains restricted except among the members of CEFTA.

 

CEFTA was created with the view to foster existing longstanding trade flows, but it also helps strengthen the respective countries "bargaining position" vis-И-vis major trading partners, better defend themselves against possible discriminatory effects.

 

The EFTA was also established in 1960 by countries concerned with the EC’s supranational aspects and the likely level of the common external tariff (recently, many Asian countries have considered their options In the light of the completion of the EC’s Single Market and NAFTA).

 

In this respect, several recommendations could be drawn concerning the Bulgarian approach to the issue of European integration process.

 

In most of the cases the preferential tariff margin can no longer be considered a major incentive for trade vis-И-vis third countries.

 

First. Bulgaria is to further develop its integration with the EU as its major trading partner, in order not to fall apart from the group of the associated Central and East European countries. This will lead to trade discrimination and "investment diversion" vis-И-vis those countries that are applying for membership to the EU.

Following the conclusion of the Uruguay Round of Multilateral trade negotiations and the respective drastic cuts in tariffs, the Europe Agreement with its goal - the establishment of a Free Trade Area is to some extend already overtaken by events.

 

Second. The concerted action of CEFTA (through dismantling tariffs and trade policy alignment) in the application for membership to the EU gives those four countries a theoretical possibility for a lead vis-И-vis Bulgaria and Romania in the process. Romania concluded a Free Trade Agreement with the Czech Republic and the Slovak Republic. Bulgaria is still in the process of negotiations. It is logical, that any form of FTA with the CEFTA countries prior to the actual start of membership negotiations with the EU will enhance our chances for better terms of accession to the EU, i.e. better stay for the Bulgarian economic operators on the single market.

 

Third. The EU trade policy system is based on the multilaterally agreed principles and rules - those stipulated in the Marrakesh Agreement establishing the WTO and its Annexes. It is hardly conceivable that the actual process of negotiations for membership could even start before the accession of Bulgaria to the WTO. Bulgaria is the only one among the Central and East European countries in transition that is still not a WTO member.

 

Fourth. While there seems no sound alternative to the EU membership for Bulgaria, the major real economic question faced by the society is rather "how to match the current state of the Bulgarian economy with the necessity of further trade liberalisation when acceding to the EU" due to trade policy alignment.

 

It is worth mentioning that the above list of recommendations should in no way be considered exhaustive.

 

 

5. Conclusions

 

- The establishment of an association between the Community and its Member States on the one part and the Republic of Bulgaria on the other part is providing for the appropriate framework for the gradual integration of Bulgaria into the Community;

- The Agreement sets out the objective to gradually establish a free trade area between the Community and Bulgaria covering substantially all trade between them and to promote the expansion of trade and the harmonious economic relations between the parties and so to foster the dynamic economic development and prosperity in Bulgaria;

- It is understood that the conclusion of such an agreement involves the political will of the parties concerned and also contributes to the fulfilment between the parties of the basic principles on which the European Community is founded; To this effect the association agreement is a necessary prerequisite for an accession agreement;

 

 

 

Notes:

1)According to latest statistics (as of June 1995) the average transposition rate is 92.6% while the threshold rate established for the proper functioning of the Single market is 95%. For the time being the problem sectors with a transposition rate of about 70% are: public procurement; insurance; free movement of persons (mutual recognition of professional training and education); intellectual and industrial property (trade mark Directive and rental rights Directive. Meanwhile the European Commission launched a series of studies on the effects of the Single market without frontiers with a view to publishing a report on the impact of the single market by mid-1996.

2) It is worth mentioning that upon accession Ireland's per capita GDP was about 50% of the EEC-6 average.


 

 
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