REGIONAL COOPERATION AND ECONOMIC INTEGRATION

PART II:
INTRODUCTION
Central European Free Trade Agreement was originally signed by Poland, Hungary, Czech
and Slovak Republic in 1992. The objectives of that Agreement were: a) to promote,
through the expansion of trade, the harmonious development of the economic relations
between the CEFTA members and thus to foster in the members the advance of economic
activity, the improvement of living and employment conditions, and increased productivity
and financial stability; b) to provide fair conditions of competition for trade between the
member countries; c) to contribute in this way, by the removal of barriers to trade, the
harmonious development and expansion of world trade (Central European Free Trade
Agreement, 1992, pp.2). CEFTA 2006 Agreement has expanded the list of objectives. The
most important include: improvement of conditions for further promotion of investment,
including foreign direct investment; expand trade in goods and services; provide appropriate
protection of intellectual property rights in accordance with international standards; and to
provide effective procedures for the implementation and application of this Agreement
(Annex 1 CEFTA 2006, 2006, pp.3). The Agreement entered into force on 26 July 2007
for five Parties - Albania, Macedonia, Moldova, Montenegro and UNMIK/Kosovo, while
for Croatia it entered into force on 22 August, for Serbia on 24 October and for Bosnia
and Herzegovina on 22 November 2007. Full implementation of CEFTA 2006 started at
the end of 2007 (CEFTA 2006, 2009). Consequently, a long term analysis of the impact
of the CEFTA 2006 Agreement on foreign direct investment and foreign trade among
member countries is limited. The strengthening of economic ties in the region is of a great
importance since the main goal of this integration is the preparation of business sectors for
the competition in the EU. Products of CEFTA 2006 countries can withstand competition in
the market of the region itself, but need additional adjustment to meet strict EU standards to
compete alongside the products from the EU. Therefore, the cooperation for consolidation
of competitiveness for their products in the joined EU market is necessary.
Concerning investment, the principal competitive advantages lie in the low labor costs,
flexible labor policy and increased future productivity potential. The region is especially
appealing for its low labor costs. The SEE region trails behind other European countries in
the quality of infrastructure, research and development (R&D) and governance. Even so,
it is the continent’s most attractive region for establishing factories and other production
units (FIAS, The Multi-donor Investment Climate Advisory Service of the World Bank
Group, 2007, pp. 2).
1. Basic macroeconomic indicators of CEFTA 2006 countries
As already mentioned above, full implementation of the CEFTA 2006 Agreement started at
the end of 2007. Member countries of this Agreement are: Albania, Bosnia & Herzegovina,
Croatia, Macedonia, Moldova, Montenegro and Serbia. When comparing some of their
basic macroeconomic indicators it is evident that the indicators show different degree of
coherence over the years and among countries. Indicators like inflation, current account
balance, export (as the percentage of GDP) and FDI inflows show large oscillation over
the past ten years, and they also differ from country to country in the region. One of the
indicators that had shown great oscillations in the early nineties for all countries is the
GDP growth rate. The annual GDP growth rate displayed great variation in that period and
even after 2002. Figure 1 and Figure 2 show the GDP growth rates in the period 1992-2008
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