Cefta Study

CEFTA
2007-2010
EXPERIENCES, POTENTIAL AND PERSPECTIVE
Belgrade, February 2011

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New Policy Centre
Vasina 3, Belgrade, Serbia
www. cnp.rs
office@cnp.rs
Authors:
Goran Nikolic
Nikola Jovanovic
Vladimir Todoric
We are grateful for assistance and cooperation of the Balkan Trust for Democracy

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SUMMARY
Balkan countries, including Moldova, have signed the Central European Free Trade Agreement (CEFTA) on December 19, 2006, which replaced a network of bilateral free trade agreements. The countries which remained members of the agreement - Serbia, Albania, Bosnia and Herzegovina, Macedonia, Croatia, Montenegro, UNMIK-Kosovo and Moldova – presently form a joint market of approximately 27 million consumers.
CEFTA provides conditions for harmonized commercial trade within the region and indirectly brings significant benefits which are primarily related to the possibility of easier entrance in neighbouring markets which were difficulty available (Croatian market for Serbia, for example) and increased participation in other markets within this Agreement. The advantage of CEFTA, as a market not too small for Europe, is also the fact it makes each of the countries of the region a more attractive destination for foreign capital, which significantly increases investors' interest. More than one hundred types of non-customs barriers are the biggest problem, such as complicated border-crossing procedures, extensive administrative work, insufficient number of internationally recognized accreditation and certification bodies.
In a way, CEFTA is a small playroom for joining the EU, in which all countries of West Balkans should prepare themselves for obligations implied by EU membership. Joint market of similar countries may serve as a test range for readiness to join the open trade game which is governing the EU market.
One should consider the political significance of the free trade zone in Southeast Europe, and the fact that it is mostly an EU project, whose goal is to improve cooperation among the said countries and pacification of the region. Thus, receipt of financial assistance and the speed of approaching the EU, and the World Trade Organization as well shall mostly depend on the economical cooperation of Serbia with its neighbouring countries.
***
Economic leader in the region of West Balkans is certainly Croatia. Nevertheless, Croatia shall soon join the EU (2013 seems to be the most probable year), so Serbia, as a central CEFTA country (although, strictly geographically speaking, it is Bosnia and Herzegovina) is to become the new leader. Namely, Croatia has the most competitive processing industry (where the most of commercial export trade originates from), but Serbia is slowly catching-up (which can be seen in the decrease of Serbia's deficit in the trade with Croatia, which should turn into a surplus in next several years, especially when Serbia joins the European customs union and when Serbia adopts asymmetrical tariff ratio in favour of our Country). In any case, there is no doubt that Croatia and Serbia are the two countries with greatest economic potential and political significance.
On grounds of theoretical and empirical research, and based on the data on the relative significance of the countries in West Balkans as well, Croatia (and then Serbia) should have the greatest benefits from implementation of CEFTA agreement. Its relative

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significance is "dominant" and the easiest profit from free business activities at the single market shall be gained by companies from Croatia. On the other hand, the share of Serbia in all economic indicators increased in the period after the year 2000.
By far the biggest merchandise exporter in the region of West Balkans is Croatia, although its relative importance is decreasing, in favour of the countries which have significantly improved their export in the given period, first of all Serbia, observed through absolute figures (commercial export nearly doubled). Surely, if one takes the trade or export of services into account, the advantage of Croatia is by far greater given that the prospects indicate that the export of services by the said country increased by as much as 8.4b billion euros in 2010 (imports amounted to 2.7 billion euros), while the relative significance has fairly improved in case of Montenegro (export of services 0.7 billion euros, import 0.3 billion euros in 2010). Bosnia and Herzegovina had exported services of approximately 1.9 billion and import of almost 0.9 billion euros in 2010)
Serbia, as well as the remaining countries of West Balkan, had a relatively modest trade in services; export of approximately 2.6 and import amounting to 2.6 billion euros in 2010. It is clear that there is a great potential for growth of bilateral trade in most countries of West Balkans. Since the region of West Balkans is heavily affected by the world economic crisis, its recovery shall mostly depend on the economic trends in the EU. There are three exit strategies, among numerous possible, which the countries of WB might apply, or which they already apply partially, in order to achieve economic recovery as quick as possible: (1) improvement of bilateral trade, (2) attraction of production- oriented investments and (3) finding bilateral financial assistance from friendly countries in case of withdrawal of banks from their markets (presently a less probable option)
There are more than one hundred different types of non-customs barriers (complicated border-crossing procedures; extensive administrative work and mutual non-compliance of customs activities and inspection departments; insufficient number of internationally recognized accreditation and certification bodies, as well as authorized laboratories and institutions; non-recognition of quality assurance certificates; complicated visa regime; corruption and smuggling. It is necessary to improve the infrastructure of quality up to a level at which Serbian certificates, and certificates for products of other WB countries, would be recognized in all countries of the EU and CEFTA. In this area, a certain progress has been achieved in 2009 and 2010 by passing certain laws which regulate it. There is a lack of institutionalized accreditation bodies, which is the reason why consistent implementation of CEFTA agreement is not possible.
With the amount of 0.5 billion euros, Croatia is, among CEFTA members, the biggest investor in Serbia (Croatian FDI in Serbia represent more than 19% of total Croatian FDI, positioning Serbia on the second place in Croatian foreign investments, and Croatia holds the 6th place as the foreign investor in Serbia). On the contrary, Serbian investments in Croatia amount only to 45 millions of euros.
The structure of trade of WB countries is mainly based on the products from early processing stage (raw materials, semi fabricates) and to a lesser degree final products with low added value. The trade mainly consists of food products (vegetables, fruit,

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confectionery, cereals), agricultural raw materials, electricity, gas, oil derivatives, paper, cardboard and cellulose products, basic metals (steel plates, aluminium profiles, copper cathodes), chemical and textile products. Significant improvement of mutual trade in near future is not realistic, and the last decade in which we noted stagnation of the trade structure within CEFTA shows it.
Bosnia and Herzegovina is the most important importer of products from other countries of the trade agreement CEFTA and it has a high deficit in trade with Croatia and Serbia (although for the most part, these deficits are related to cantons with Croatian majority, and with Republic of Srpska and Brcko district, referred to in scientific literature as "ethnic trade"). In its trade with CEFTA, Bosnia and Herzegovina have the same sum value of export and import as in the trade with Germany, Italy or Slovenia. Considering the high trade deficit, economic crisis affected Bosnia and Herzegovina to decrease the trade deficit with CEFTA countries by even higher decrease of exports in 2009. In 2010, Bosnia and Herzegovina achieves growth of exports to CEFTA countries which is much faster than the growth of imports, thus continuing to decrease the imbalance in trade.
Gravitational model, which measures the difference between potential and actual trade, shows that Serbia has a possibility to increase the trade with Croatia and Albania, while the trade with Bosnia and Herzegovina, Macedonia and Montenegro are significantly above the potential. It is clear that trade with countries from former Yugoslavia cannot be nearly as high as within their once common state, but due to cultural similarities, old economic ties and recognition of trademarks by consumer, the trade shall be easier. The greatest barriers for trade are numerous non-customs barriers. Apart from them, many "sensitive" industrial products have not been covered by the CEFTA agreement (customs duties are decreased in phases for such products), neither are agriculture or services (efforts are made to change this).
Regional economic integration is a particularly good solution for small and middle sized countries (such as Serbia), which are highly dependent on international trade. Short-term, and to a lesser extent mid-term costs can be higher than benefits, but benefits arrive as smaller "meals". Long-term benefits from economic integration are higher than costs. Total effects of integration are more important than measurable economic indicators and they can be construed as expansion of possibilities and development potentials.
One should not expect CEFTA to provide a strong stimulus for economies of West Balkans, especially not in comparison to connecting with the EU which is of crucial importance for all these states, but in the mid-term and in the long-term the benefits (lower prices, economy of scale, commercial supply of higher quality, savings due to short spatial distance) shall be higher than costs. Countries in the region have technologically obsolete industries, they are mutual competitors for exports to the EU and they practically do not have much to offer to each other. Companies with supply of moderate quality shall get the most benefits from non-customs space, by being able to reach new consumers more easily, while the companies which survived due to difficult appearance of surrounding competitors at the domestic market shall be the main losers. Anyhow, unification due to EU competition has little sense, considering that all WB

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countries are to join the EU in relatively near future, as well as their mutual competition in exports to the EU market.
Officials of WB countries are aware that faster joining with the EU demands regional economic cooperation and market reforms. Long, complicated and non-transparent procedures at border-crossings, expensive and large-scale testing and controls and lack of accredited laboratories for control of merchandise which crosses the border are the biggest non-customs barriers which slow the economic cooperation in the region down. There still are numerous obstacles for implementation of regional economic integration, creation of powerful regional retail companies, regional trade balance, and big investors' influence.
In 2011, further liberalization of trade by agricultural and food products in the region should come into force. Non-customs barriers, especially those related to technical barriers and phytosanitary measures are to be withdrawn in 2011. It is expected that measures shall be adopted in near future, which would make some of the barriers, primarily mutual non-recognition of quality assurance certificates (sanitary, phytosanitary, veterinary) of agricultural manufacturers, void. Agreements in principle were made regarding coordinated utilization of pre-joining funds from the IPA programme, especially components III, IV and V, which provide possibilities for dynamisation of economic growth and cooperation.
It should be concluded that in the West Balkan, intensification of economic ties is done only to serve carrying-out of national policy. Therefore, significant presence of Serbian products in Montenegro and Bosnia and Herzegovina, primarily in Republic of Srpska, should not be surprising, nor should the very distinct foreign trade surplus with these countries. In Bosnia and Herzegovina, that is, Republic of Srspka, Serbia has significant presence in the area of foreign direct investments as well, although it is few bigger investments. CEFTA is an example of how interests of Serbia, countries of the region and international community can be optimally made more coherent. Namely, it is clear that CEFTA is primarily a political project of the EU, whose goal is pacification of the region and its preparation for EU membership.
Economic cooperation of the countries of West Balkans is surely a strategic interest of Serbia, and therefore advocacy by our country's political leaders, but also by academic circles (particularly economists) and businessmen in its favour is fully expected. Economic cooperation is followed by renewal of cultural ties, which is rather successful, namely due to practically common language and similar cultural matrix, which is a legacy of Ex Yugoslavia (although it had been present even before its foundation)
***
By far the most economic partner of Serbia in the EU, and then in CEFTA, to which more than nine tenths of Serbian export and approximately three thirds of domestic

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import is related (considering the fact that CEFTA countries, excluding Moldavia, shall probably join the EU in next 10 or 15 years, it is obvious that importance of the trade with EU shall increase additionally).
Notwithstanding the thesis that sub regional arrangements may have a complementary role in the process of pan European bonding (CEFTA, Free Trade Agreements with Russia, Turkey, Belarus, joining the World Trade Organization in near future), things could be observed differently from Serbian perspective. The market of CEFTA, that is, of the WB countries is of major significance for economy of Serbia, primarily due to the fact that Serbia has a continuous surplus at it, whose continuance of growth is expected in 2011, judging by the present monthly export and import trends (in 2010, surplus shall exceed 1.3 B euros, having been somewhat below one billion of euros in 2007). Secondly, which is even more important, EU share in total export and import is between 53% and 57%; while share of the West Balkans countries in Serbia's export is about one third and in its import approximately 8%. When we compare data on the number of EU citizens (500 million) and West Balkan without Serbia (16 million), with data on relative importance for export expansion, we get data on intensity of merchandise trade. Anyhow, it was empirically proven that strong ties exist between the countries' mutual borders and several times increased trade in comparison with the trade among the non-bordering countries. In case of Serbia, additional factors exist, such as common language, mentality and habits.
For Serbia, the WB region has significance as an export market more than four times greater then as an import market. Serbia has a trade deficit with Croatia (coverage of import by export increased from somewhat more than two fifths in 2007 up to two thirds in 2010), while it has high surpluses with other observed countries. While in trading with the countries of West Balkans, or CEFTA (Moldova can be practically excluded from the analysis due to its marginal share in Serbian trade) it has surplus, in trading with the rest of the world, Serbia has several times higher trade deficit. Considering that it has the highest population and a central position, it is possible that Serbia, if it attracts FDI into its industrial sector, may have high benefits from the integration. CEFTA countries are therefore very important market for out country, especially Bosnia and Herzegovina, Montenegro and Macedonia, with whom the most part of the trade is done, and which are "responsible" for the achieved surplus (marginal trade exists with Albania and Moldavia, while a constant surplus is achieved with the territory of Kosovo-UNMIK).
The structure of merchandise trade of Serbia with these countries did not change, for the most part, in previous years. Serbia's trade with WB countries mostly resembles the trade among the developing countries and is far from the trade models among more developed countries in transition. Serbia's export to WB countries is primarily composed of final food products, but also agricultural raw materials, electricity, non-ferrous metals, and chemical and textile products. As for imports, oil and derivatives, natural gas, paper, cardboard and cellulose products, vegetables and fruit, iron and steel represent their greatest share. In contrast to other markets where we participate with relatively small number of products, such as iron, steel, raspberries, corn, tires, here we have a wide range

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of products, and at the exact instances where we are not qualified to join the EU market due to certain high standards, here our companies survive.
For Serbia as well as the other WB countries, the potential of economic cooperation with neighbouring countries is of significance, but great limitations also exist. This primarily refers to unfavourable structure of Serbian export and a low number of large exporters. While it is possible to solve the second problem by means of a good export strategy, stimulating measures and attraction of large export companies' investments, the first problem is difficultly solvable in short-term.
The advantage of Serbia is that since the beginning of crisis in September 2008 until the end of 2010 it had depreciation of dinar amounting to 27% (actually about 10%), while other countries of WB practically had unchanged currency exchange rates (Bosnia and Herzegovina has a fixed regime due to monetary board, Kosovo and Montenegro use euro, and Albanian, Macedonian and Croatian currencies practically remained unchanged in previous years). This stimulated Serbia in the context of price competitiveness growth in comparison with the neighbours (and the EU), and the improvement of foreign trade balance was more distinct in the last couple of years.
Considering the relatively low level of Serbia's foreign trade with some of the surrounding countries and the expected continuance of growth of total domestic foreign trade (which was striking in 2010; 22% in euros), it is realistic that in 2011 and in the years to follow, growth trend shall continue with the countries in the region (IMF- October 2010- projects growth of export and import of countries in the region in 2011 amounting to 9-10%, since Serbia was much more successful in 2010 than the average export growth of the countries in the region, in 2011 one could expect a growth rate of total merchandise export in euros amounting to 11-16%). This will be, among other things, conditioned by an increased inflow of foreign capital (that is, by arrival of transnational companies, most of which have plans for expansion of export in the surrounding areas near). Considering the projections from MAT and FREN studies, which indicate that export should have two-figure growth rates in the second decade of the 21st century, while growth of exports to CEFTA market should be approximately two percentage points lower on average, it is realistic to assume that there will be a light decrease of trade participation of WB region countries. This is not unexpected, since a certain saturation of markets exists, particularly those at which Serbia achieves the highest export rate. Import growth rate of WB countries could also be a somewhat lower than the growth rate of sum of imports in the following table.
Since Serbia has very diversified supply of products in small quantities, transport costs have a limiting effect on exports to distant markets. In trade with CEFTA countries – Serbia achieves surplus (due to good position at the market of Bosnia and Herzegovina, Montenegro, Macedonia and UNMIK-Kosovo), while the level of coverage of imports by exports decreases as geographical distance from Serbia increases.
Until 2020, one should not expect more significant changes of export destinations. Truly, share of EU and CIS ought to increase, and to decrease in CEFTA countries. Growth of

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export share in EU shall be a result of intraindustrial trade growth, and in CIS it shall be a result of utilisation of favourable trade approach to markets of the countries. Decrease of share of CEFTA countries, with expected high growth of export value, shall be a result of relative saturation of markets by the existing level of trade. The absolute growth of export value shall be a result of intensification of merchandise trade between countries where it is below potential level (Serbia-Croatia, Federation of Bosnia and Herzegovina – Serbia, Republic of Srpska – Croatia... ), and as a result of renewal of cooperation at the production level.
During the second decade of the 21st century, due to joint exposure to external risks, Serbia should, with WB countries, develop as close economic cooperation as possible, renewing old and forming new production-processing ties. Arrival of, for example, German, Slovenian or Italian manufacturers in Serbia, in order to retain their market positions in the EU by means of price competitiveness, and to win third markets, is an example of positive events in the direction of normalization of economic relations and creation of new foreign trade potentials. Development of economic cooperation with UNMIK-Kosovo is necessary in order for companies from Serbia to retain market positions which they are already holding at this territory. Bad political relations influenced Macedonia and Germany to become bigger exporters than Serbia, and Serbian share in total import of UNMIK-Kosovo to decrease from 22% in 2002 to half of its amount in 2010.
Estimates contained in the "Post-crisis model of economic growth and development of Serbia 2010 - 2020‟‟ study indicate possible growth rates of export to countries which presently form the CEFTA agreement, in the next decade. Namely, at an annual merchandise export growth rate of 10.6% in the 2008-2020 period, merchandise export to CEFTA would grow somewhat slower, 8.6% (to the EU 11.1%, somewhat faster), decreasing the CEFTA share from one third in 2008 to 27% in the year 2020.

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Economic cooperation of CEFTA countries (West Balkan):
A view from Serbia1
Economic connections of Balkan countries have led to signing of Central European Free Trade Agreement (CEFTA) on December 19, 2006. After they joined the EU on January 1, 2007, Romania and Bulgaria left CEFTA2. Countries which remained in the agreement: Serbia, Albania, Bosnia and Herzegovina, Macedonia, Croatia, Montenegro, UNMIK-Kosovo3 and Moldova, presently form a joint market of approximately 27 million of consumers. Since these countries, excluding Moldova (which, due to its marginal share in CEFTA trade, as in foreign trade with Serbia, shall not be analysed in this study) are the more and more often referred to as West Balkan (WB), we shall use this term as an alternate one.
Serbia was the last to ratify the CEFTA agreement (24.9.2007), and two months later it started to be officially implemented in all countries signatories. Ban of discrimination of products from various member countries, free flow of merchandise and services over
1 Goran Nikolic, economist in CNP
2 Similar structure of economy, population habits and needs in Bulgaria and Romania represent a key trump-card for better marketing of Serbian products at those markets, and through them in the EU.
3 By means of Resolution 1244 SB UN dated 10.6.1999, mechanisms were created for activities of UNMIK, KFOR, and in late 2008, EULEX..

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administrative borders and a strong competition are the basic economic principles of the EU. Reaching these criteria at a smaller, more homogenous market shall assist countries which are CEFTA members to prepare as well as they are able for the market economy and competition within the EU.
CEFTA agreement has replaced a network of as much as 32 free trade arrangements in the Southeast Europe region, which had been applied since 2001. CEFTA has positively influenced intensification of mutual trade, which is indicated by the reference statistical data, which will be shown in the next chapters of this Study. Naturally, the last three- month period of 2008 and 2009 should be treated in a specific manner, by taking into consideration a strong decrease of total domestic and global trade, which influenced the rapid decrease of trade among countries in CEFTA agreement.
CEFTA provides conditions for harmonized commercial trade within the region and indirectly brings significant benefits which are primarily related to the possibility of easier entrance in neighbouring markets which were difficulty available (Croatian market for Serbia, for example4) and increased participation in other markets within this Agreement. The advantage of CEFTA, as a market not too small for Europe, is also the fact it makes each of the countries of the region a more attractive destination for foreign capital, which significantly increases investors' interest. In order to have mutual investments, administrative and other barriers should be removed, and the final goal is to form a joint investment market with coherent investment politics
CEFTA agreement has nine annexes. Among them, one can find lists of industrial and agricultural products, which have not been fully liberalized by going into effect. Most important novelties of CEFTA agreement in comparison to previous bilateral agreements, which are of special interest for economy are the following: possibility of utilization of diagonal cumulation of merchandise origin5, introduction of gradual liberalization of trade in services, obligation of treatment equalization for domestic and foreign investors of the region, gradual opening of public procurement market and equal treatment of domestic suppliers and suppliers from countries in the region. Besides, it is important to ensure protection of intellectual property rights in accordance with international standards, improved mechanism for resolution of disputes which occur in the course of Agreement application, obligation of compliance with WTO rules, regardless of whether the country is or is not its member. CEFTA agreement directs to eliminate all quantitative limitations, customs duties and other levies among the countries of the region, which is
4 It is easier to make pressure in order to open neighbouring markets by means of CEFTA agreement than in a bilateral manner.
5 As in bilateral agreements, liberal or non-customs trade with CEFTA is possible only for merchandise which has domestic origin status. Contrary to the bilateral agreements, where only bilateral cumulation of merchandise origin is applied, which means that a raw material imported, for example, from Bosnia and Herzegovina and included in a final product manufactured in Serbia, can be exported without customs duties only to Bosnia and Herzegovina, but not to other countries of the region. CEFTA enables diagonal cumulation, that is cumulation (adding) of origins of merchandise from several countries in the region, which shall have a domestic origin status. Possibility of application of diagonal cumulation of merchandise origin in trade among countries in the region and whole region with EU, as well as with EFTA and Turkey, should benefit the non-customs trade of greater range of merchandise.

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expected to occur in the years to come (and to stop introducing new barriers). There are certain limitations regarding the list of products which may be imported in non-customs manner, that is, the list of products to which rules of preferential trade do not apply.6 Nevertheless, the biggest problems are probably more than one hundred non-customs barriers (such as complicated border-crossing procedures, extensive administrative work, insufficient number of internationally recognized accreditation and certification bodies).
Political aspect of CEFTA and importance of CEFTA for positioning of Serbia in Europe
CEFTA agreement enables its signatories to prepare in order to join the EU. Namely, only since 2007 until late 2010, EU invested more than a billion euros in improvement of regional cooperation in Balkan. Cooperation of countries in the region considerably improved, but the region still did not, nor shall it improve in 2011; in all likelihood, it shall not achieve the growth rates which it had before crisis in 2012 as well, so it is necessary to assure investors that there is a rule of law at the market. In any case, EU shall continue to politically and financially support CEFTA agreement, and the reforms which are important for WB countries in order to join EU.
In a way, CEFTA is a small playroom for joining the EU, in which all countries of WB should prepare themselves for obligations implied by EU membership. Joint market of similar countries may serve as a test range for readiness to join the open trade game which is governing the European market.
Economic cooperation of the countries of West Balkans is surely a strategic interest of Serbia, and therefore advocacy by our country's political leaders, but also by academic circles (particularly economists) and businessmen in its favour is fully expected. Economic cooperation is followed by renewal of cultural ties, which is rather successful, namely due to practically common language and similar cultural matrix, which is a legacy of Ex Yugoslavia (although it had been present even before its foundation). It
It should be concluded that in the West Balkans, intensification of economic ties is done only to serve carrying-out of national policy. Therefore, significant presence of Serbian products in Montenegro and Bosnia and Herzegovina, primarily in Republic of Srpska, should not be surprising, nor should the very distinct foreign trade surplus with these countries. In Bosnia and Herzegovina, that is, Republic of Srpska, Serbia has significant presence in the area of foreign direct investments as well, although it is few bigger investments.
Economic leader in the region of West Balkans is certainly Croatia. Nevertheless, Croatia shall soon join the EU (2013 seems to be the most probable year), so Serbia, as a central CEFTA country (although, strictly geographically speaking, it is Bosnia and
6 Based on a tariff number, these lists can be checked and one can determine whether limitations exist for any of the selected products.

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Herzegovina) is to become the new leader. Namely, Croatia as the most competitive processing industry (where the most of commercial export trade originates from), but Serbia is slowly catching-up (which can be seen in the decrease of Serbia's deficit in the trade with Croatia, which should turn into a surplus in next several years, especially when Serbia joins the European customs union and when Serbia adopts asymmetrical tariff ratio in favour of our Country). In any case, there is no doubt that Croatia and Serbia are the two countries with greatest economic potential and political significance.
For Serbia as well as the other WB countries, the potential of economic cooperation with neighbouring countries is of significance, but great limitations also exist. This primarily refers to unfavourable structure of Serbian export and a low number of large exporters. While it is possible to solve the second problem by means of a good export strategy, stimulating measures and attraction of large export companies' investments, the first problem is difficultly solvable in short-term.
The greatest share in Serbia's export to WB belongs to products in early processing phase. The added value of foreign trade of such products is low. 7Change of structure of export products is a time-demanding process, faced by all countries in transition. Those which succeeded are today able to boast of high growth of competitiveness, export and whole economy (Czech Republic and Hungary each have merchandise export approximately ten times higher than Serbia). Nevertheless, Serbia still has not found an adequate solution for this problem. Interesting thing, if you observe the structure of export of Serbian economy in the period before and after the World War One, is that you shall see that it is dominated by cereals, meat, basic metals and wood; not very different from reading a statistical report about the structure of export in 2010.
One should consider the political significance of the free trade zone in Southeast Europe, and the fact that it is mostly an EU project, whose goal is to improve cooperation among the said countries and pacification of the region. Thus, receipt of financial assistance and the speed of approaching the EU, and the World Trade Organization as well shall mostly depend on the economical cooperation of Serbia with its neighbouring countries.
Main economic parameters of CEFTA or WB countries
Indeed, WB states with greatest economic potentials are Croatia and Serbia, and IMF projects that Serbia's GDP is expected to grow faster than the Croatian.8 Table 1 contains GDP indicators per capita for countries of West Balkan and estimates of their trends until 2015. Crisis hit all countries, but recovery (measured as current dollar GDP pc) is already significant in 2011. Although GDP growth of 1.5% is noted in Serbia in 2010, due to actual depreciation of dinar, GDP per capita actually decreased in the said year as well.
7 i.e., if one uses wood as raw material, you process it and export building material, the value of that wood is doubled. Nevertheless, if you export final products, value of the wood is increased as much as seven times. If an exporter is also a big importer of raw materials, which is common in Serbia, his effect on the final balance of foreign trade can be very low.
8 Differences in GDP PPP are gradually decreasing and Serbia is to outrun its western neighbour as for the said indicator.

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As expected, Croatia has by far the highest GDP pc, Serbia is in the middle, while Kosovo and Albania are at the tail.
Table 1
Current dollar GDP per capita
2010
2011
2012
2013
2014
2015
Albania
3616
3730
3932
4165
4437
4764
BIH
4158
4275
4585
4929
5263
5623
Croatia
13528
13872
14572
15381
16238
17146
Kosovo
2604
2776
2925
3058
3151
3268
Macedonia
4635
4868
5204
5532
5885
6242
Montenegro
6117
6197
6530
6883
7163
7443
Serbia
5262
5574
6421
7007
7655
8257
IMF World Economic Outlook database October 2010. If we observe GDP per capital from the angle of purchasing power (in billions of dollars), the image is somewhat different, since it includes levels of prices in each country. In 2010, Serbia is the biggest economy of WB according to this indicator (according to the GDP level, it shall become one only in about ten years, when it outruns Croatia). Poorer countries have lower prices and one can see, if one divides the figures in the Table with the number of citizens, that GDP pc is roughly double than that of most WB countries, while this difference is smaller in case of Croatia (Table 2).
Table 2
GDP PPP (per purchasing power) of West Balkan countries, in billions of dollars
2008
2009
2010
2011
2012
2013
2014
2015
Albania
21.9
22.8
23.6
24.7
25.9
27.4
29.2
31.2
BIH
30.5
29.8
30.2
31.5
33.5
35.8
38.1
40.5
Croatia
82.5
78.4
78.0
80.3
83.4
87.2
91.3
95.7
Kosovo
4.0
4.2
4.4
4.7
5.0
5.4
5.7
6.0
Macedonia
18.9
18.9
19.3
20.2
21.4
22.5
23.8
25.2
Montenegro
6.9
6.6
6.5
6.9
7.4
7.9
8.3
8.8
Serbia
79.8
78.1
79.9
83.3
88.7
95.0
101.9
109.0
IMF World Economic Outlook database October 2010.
According to IMF, in 2010 all countries but Croatia shall have positive growth rates ((Albania 3,1%, Croatia -1,5%, Montenegro 0,3%, Macedonia 1%, Kosovo 4,6%, BIH 0,5%).9 The following Table contains IMF estimates for the next five years, and one can see that the highest growth rates shall be achieved by Serbia, Kosovo and Albania, while most modest growth is expected in Croatia, which is also in accordance with the rule that economies at the higher level of development progress more slowly.
9 http://www.cnbc.com/id/40469379

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Table 3
Estimated growth rates of GDP PPP
2011
2012
2013
2014
2015
2015/2008
Albania
4.5
5.0
5.8
6.5
6.9
42.5
BIH
4.3
6.4
6.8
6.3
6.4
33.0
Croatia
3.0
3.9
4.5
4.7
4.8
16.0
Kosovo
7.2
6.8
6.6
5.6
6.4
52.0
Macedonia
4.4
5.9
5.5
5.7
5.9
33.5
Montenegro
5.9
6.9
6.6
6.0
5.8
27.5
Serbia
4.3
6.4
7.1
7.3
6.9
36.7
IMF World Economic Outlook database October 2010.
Until 2008, Serbia had a very high deficit of balance of payments current account (almost 18%), and then it strongly decreased during the crisis, with estimates that it could amount to approximately 8-9% of GDP in 2010. Countries in the region have also decreased their relatively high deficits of balance of payments; in 2010, deficit of balance of payments current account of BIH amounts to 6%, Croatia 3%, Albania approximately 11%, Montenegro 29%. Also, Montenegro and Kosovo have exceptionally high deficits of their balances of payment, which is a consequence of very large capital inflows (in comparison with the GDP of those territories) to those countries in previous years and of undeveloped export sector as well.
Fiscal deficits in general are not so high and are significantly lower than EU average. Nevertheless, considering the fact that it is very difficult for these countries to become indebted at financial markets, deficits of public consumption are not a small problem. In Serbia in 2010, consolidated budget deficit amounts to 4.8% of GDP; it is projected to 4.1% of GDP in 2011, which is an encouraging drop, conditioned by adoption of so- called fiscal rules under the patronage of IMF (fiscal deficit in 2010 shall amount 4.2 % of GDP in Croatia, 3% in Albania, 4.5% in BIH, 7.2% in Montenegro, 2.5% in Macedonia). Public debt is also low for EU standards, but its rapid growth (in last two years it increased almost up to 39% of Serbia's GDP, which represents growth of as much as 14 percentage points) creates potential problems for these states. Foreign debt is a bigger problem in case of Croatia and Serbia, since these countries are highly indebted according to standards of the World Bank, or are on the border of highly indebted countries (Serbia with almost 80% of its GDP).
As for the changes in currency exchange rates, from the beginning of crisis in September 2008, until late 2010, Serbia had depreciation of dinar amounting to 28% (actually about 10%), while other countries of WB practically had unchanged exchange rates (BIH has a fixed regime due to a monetary board, Kosovo and Montenegro use euro, and Albanian, Macedonian and Croatian currencies practically remained unchanged in previous years). This stimulated Serbia in the context of price competitiveness growth in comparison with the neighbours (and the EU), and the improvement of foreign trade balance was more distinct in the last couple of years.
On grounds of theoretical and empirical research, and based on the data on the relative significance of the countries in West Balkans as well, Croatia (and then Serbia) should have the greatest benefits from implementation of CEFTA agreement. Its relative

16
significance is "dominant" and the easiest profit from free business activities at the single market shall be gained by companies from Croatia. On the other hand, the share of Serbia in all economic indicators increased in the period after the year 2000.
Foreign trade performances of CEFTA or West Balkan countries
Before the global crisis 2007-2010, countries of West Balkans had higher growth rates of mutual merchandise trade in comparison with the growth of trade with the rest of the world, which influenced the growth of mutual relative foreign trade significance. Mutual trade was hit much stronger than trade with the rest of the world by the Crisis, while post- crisis recovery of export is based on demand from the rest of the world, with stagnation or mild growth of import. The following tables present mutual merchandise trade of all West Balkan countries (and growth rates in the 2000-2010 and 2005-2005 periods), sum of their trade, their total export and import as well as trade with most important partners of the region: Germany and Italy, and with most important partners from the surrounding area: Slovenia, Turkey and Greece, as well as with Russia, which is an important import partner of certain countries.
In foreign trade, and in many other economic performances, there are a lot of similarities among the countries of West Balkans. Those are primarily: very low merchandise export – absolute and relative (in relation with GDP, import, per capita...); high foreign trade deficit (which are financed by money orders, loans, external loans and donations). World economic crisis made it much more difficult for these states to finance the imbalance of trade balance significantly more difficult. Namely, export value of the West Balkan countries is relatively low, while import value is much higher (although import is also at low level in comparison with more advanced countries in transition), so these countries have high trade deficit. Deficit was, due to decreased inflow of foreign currency for financing from 33.4 billion euros in 2008 to only 23.8 billion euros in 2009. In 20101, further slight decrease of trade deficit continued, but with much higher growth rate of export in comparison with import growth (it is estimated that the foreign trade deficit shall amount approximately to 21.1 billion euros).
Share of seven observed countries and territories of West Balkans mostly amounts to about 0.16% of global export in the 2005-2010 period. As for the merchandise import of seven observed countries, their share in global import is also low but significantly higher and it most commonly amounts to somewhat over 0.3% in years from 2005 to 2010. The estimate for 2010 was prepared on grounds of growth projections of global merchandise trade: 23% in USD (based on the trends in first nine months of 2010).10
10 In "dollars with constant exchange rate” with inflation taken into account, growth of 13.5% was projected for 2010 (WTO projections dated 1.12.2010). http://www.wto.org/english/news_e/news10_e/stts_01dec10_e.htm
Note: Differences in booking value of export of a certain coutry and value of import of another country from the first one exist almost always (that is why values of global export and import are not identical). Part of the difference is "money laundring", which, according to estimates, amounts approximately to 5% of the world trade. Part of the difference can be a result of the fact that trade with Kosovo can be registered separately or as a part of trade with Serbia.

17
In the two following Tables, a relatively modest value of merchandise export is visible and, to a lesser extent, import of the West Balkan countries. Cumulative growth of merchandise export amounted to 57%, and of import 26%, i the second half of the first decade in the 21st century (average discreet growth rate of export amounted to 9.5%, while it amounted to 4.7% for collective import).
By far the biggest exporter of merchandise in the region of West Balkans is Croatia, although its relative importance is decreasing, in favour of the countries which have significantly improved their export in the given period, first of all Serbia, observed through absolute figures (commercial export nearly doubled). Surely, if one takes the trade or export of services into account, the advantage of Croatia is by far greater given that the prospects indicate that the export of services by the said country increased by as much as 8.4 billion euros in 2010 (imports amounted to 2.7 billion euros), while the relative significance has fairly improved in case of Montenegro (export of services 0.7 billion euros, import 0.3 billion euros in 2010). Bosnia and Herzegovina had exported services of approximately 1.9 billion and import of almost 0.9 billion euros in 2010)
Serbia, as well as the remaining countries of West Balkan, had a relatively modest trade in services; export of approximately 2.6 and import amounting to 2.6 billion euros in 2010.
Table 4
Total export of West Balkan countries
In millions of euros
2005
2006
2007
2008
2009
2010
Montenegro
369,000
441,000
455,000
416,000
276,982
330,300
Croatia
7,044,027
8,260,448
9,017,165
9,599,212
7,510,067
8,902,000
Serbia + shipping to Kosovo
3,750,958
5,307,893
6,660,427
7,637,751
6,172,201
7,632,200
Macedonia
1,639,058
1,911,058
2,448,487
2,714,435
1,929,923
2,426,000
Albania
528,536
630,963
786,208
920,878
780,074
1,252,000p
BIH
1,917,861
2,728,641
3,028,987
3,412,599
2,817,392
3,629,000
Kosovo
48,939
110,774
165,112
198,463
165,328
279,339p
Collective merchandise export of WB
15,298,379
19,390,777
22,561,386
24,899,338
19,651,967
24,450,839
Official national statistics; www.trademap.org
The lowest trade is achieved by Kosovo and Montenegro, but Kosovo marks a dynamic growth thanks to partial transfer of foreign trade from the grey zone to the official statistics as well. Anyhow, it is probable that the growth of merchandise export of Kosovo shall be the highest in the region in the years to come, considering their low basis, in comparison with the number of citizens in the province.

18
Table 5
Total import of West Balkan countries
2005
2006
2007
2008
2009
2010
Montenegro
1,043,000
1,457,000
2,073,000
2,530,000
1,654,044
1,654,600
Croatia
14,903,270
17,116,782
18,843,392
20,883,720
15,203,053
15,127,000
Serbia
8,400,014
10,485,662
13,535,431
16,478,100
11,504,700
12,621,900
Macedonia
2,591,960
2,995,261
3,813,679
4,681,581
3,616,095
4,333,000
Albania
2,099,221
2,433,810
3,064,661
3,568,517
3,261,286
3,616,700p
BIH
5,663,910
6,017,448
7,091082
8,284,037
6,290,796
6,965,000
Kosovo
1,180,022
1,305,879
1,576,186
1,928,236
1,935,541
1,970300p
Collective merchandise export of WB
35,881,397
41,811,842
49,997,431
58,354,191
43,465,515
46,288,500
Trade deficit is a rule in trade of all these countries. None of the 7 WB countries in 6 observed years did not have a trade surplus in foreign trade. The highest summed deficits in the 6 observed years are: Croatia, as much as 51.5 B euros, Serbia 35.9 B euros, BIH 22.7 B euros, Albania 13.1 B euros, Kosovo 8.9 B euros, Macedonia 8.5 B euros, Montenegro 8.2 B euros (which is a very large amount for a country of that size, coverage of imports by export is extremely low, on average only 23.3%; the situation is even worse in case of Kosovo: only 9.4%). In the period 2005-10, Serbia has the 50.7% coverage by export, Croatia 49.7%, Macedonia 60.7%, BIH 43.4%, and Albania 26.8%. The average coverage for all 7 countries in observed 6 years is at low 45.9%, but with a trend of slow growth if import, especially for last three years.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2005
2006
2007
2008
2009
2010p
Montenegro
Serbia
WB

19
Chart 1
Coverage of import by export in the selected countries 2005-2010
Merchandise export per capita shows that Croatia has the best position, while Macedonia, BIH and Serbia have half the export pc. Kosovo hold the last position, behind Albania and Montenegro. Croatia holds the pole position in case of import per capita as well, but in this instance Montenegro is very well ranked. Kosovo also has the lowest import pc, while Serbia stands somewhat below average. Namely, more advanced countries in transition most commonly have merchandise export and import per capita of over 6000 euros in the observed years, and that speaks in favour of their far greater integration in international division of labour. In last few years, neighbouring Bulgaria had double the merchandise export per capita than that of Serbia, while the difference in favour of Romania is less distinctive. 11
Table 6
Merchandise export and import of West Balkan countries per capita, in euros
Export pc 2009
Export pc 2010
Import pc 2009
Import pc 2010
Montenegro
447
533
2668
2669
Croatia
1707
2023
3455
3438
Serbia with shipping to Kosovo
834
1031
1555
1706
Macedonia
941
1183
1764
2114
Albania
257
417
1076
1206
BIH
854
1037
1906
1990
Kosovo
75
140
880
985
Collective merchandise export of WB pc
854
1061
1890
2002
The following Tables show the importance of foreign trade in the region of ZB for each of the 7 observed countries. Additionally, data is provided on total trade of WB countries with other countries of West Balkans. BIH is the most important country for mutual economic flows and it generates high trade deficits with Croatia and Serbia, which highest surpluses in mutual trade of 7 observed countries. Nevertheless, it is interesting that Macedonia, due to its high surplus with Kosovo, also achieves surplus. Albania, BIH, Montenegro and Kosovo have a trade deficit in their trade with CEFTA. All countries have high trade deficits with the rest of the world and as a sum.
If observed collectively or on average, export to other countries of WB consists mainly of approximately 26%-30% of total export, while relative significance of collective or average import from other WB countries is much more modest (cca 15%). Average
11 Bulgaria and Romania have a greater amount of lohn actuvutuesm and Romania a greater production of components for automotive industry.

20
discreet growth rate of collective export amounted to 9.4% (cumulatively 56%), and of collective import WB 5.9% (cumulatively 33%) from 2005-2010, which is somewhat faster than the growth of total merchandise import of the same countries. If observed in absolute figures, Serbia has the highest export and has outran Croatia already in 2006, BIH holds the third position, and it is followed by Macedonia, Albania, Montenegro and Kosovo. As for the merchandise export from WB countries, the list is somewhat different. Kosovo and BIH are without match, and Serbia and Croatia have roughly half of their import. Macedonia, Montenegro and Albania are the next on the list. In further analysis, trade flows in the region for each of the observed countries.
Table 7
Export of West Balkan countries to other WB countries
In millions of euros 2005 2006 2007 2008 2009 2010p Croatian export to WB 1,406,917 1,577,534 2,010,053 2,263,659 1,604,746 1,652,888 Serbian export to WB 1,133,605 1,742,181 2,294,305 2,675,024 2,090,075 2,360,700f BIH export to WB 713,229.0 897,585.0 1,084,012.0 1,262,929.0 1,010,051.0 1,213,717 Macedonian export to WB 508,034 642,345 723,466 963,385 717,270 750,122 Montenegrin export to WB 158,513 141,114 131,590 147,432 127,946 126,500 Albanian export to WB 53,591 70,691 113,332 185,019 109,041 174,466 Kosovar export to ZB 29,308 51,743 66,782 61,527 53,433 67,095 Total 4,003,197 5,123,193 6,423,540 7,558,975 5,712,562 6,345,488 in % of total export 26.2 26.4 28.5 30.4 29.1 26,0
Table 8
Import of West Balkan countries to other WB countries
2005
2006
2007
2008
2009
2010p
Croatian import from WB
616,854
817,290
944,596
1,045,443
778,447
822,818
Serbian import from WB
587,137
842,131
1,115,415
1,228,675
924,455
1,085,100f
BIH import from WB
1,579,711
1,682,156
2,060,364
2,392,410
1,683,200
1,824,480
Macedonian import from WB
300,309
330,237
464,966
537,728
445,949
447,152
Montenegrin import from WB
368,306
502,418
696,291
883,076
648,702
671,900
Albanian import from WB
79,292
125,835
227,558
317,901
218,484
242,200
Kosovar import from WB
1,180,022
1,305,879
1,576,186
1,928,236
1,935,541
1,970,325
Total
4,711,631
5,605,946
7,085,376
8,333,469
6,634,778
7,063,975
in % of total import
13.1
13.4
14.2
14.3
15.3
15.4

21
In 2009, countries with surplus in mutual trade had decreased surplus, and those with deficit have decreased their deficit. In 2009, recovery of export of West Balkan countries was directed to the rest of the world, while recovery of import was modest and has been growing at the same rates in trade with the world and with West Balkans. Improvement of trade balance in mutual trade was noted in: Kosovo, Montenegro and BIH. Thus, we are witnessing a slow recovery of mutual trade; recovery of total trade is highly dependent on import of Italy, Germany and Slovenia.
The following charts show export and import growth rates of ex SFRY republics (Albania is excluded due to lack of data, but Slovenia is included) divided in mutual trade and trade with the rest of the world. Before the crisis, until October 2008, trade growth was faster in mutual trade in comparison with the trade with the rest of the world. Decrease of the level of trade was higher in mutual trade in comparison with trade with the rest of the world. Positive interannual export growth rates have started to appear in January 2010. In mutual trade, positive growth rate of export was reached in April. The Chart clearly shows lagging of export and import recovery in ex SFRY.
Chart 2
Total growth of merchandise export of former SFRY republics, and the growth of export to the markets of former SFRY republics.
Based on data from: www.trademap.org
Since the financial crisis has decreased possibilities for financing of a high trade deficit, a decrease of import much higher than that of export has occurred. Consequently, import recovered much slower than export in 2009 and 2010. Anyhow, a decrease of import deeper than that of export is not characteristic only for WB or ex SFRY; it happened in
Growth of merchandise export of Ex YU republics (2008-10),
Interannual rates
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
2008
Jan
08.07
08.09
08.10
08.11
08.12
09.01
09.03
09.04
09.07
09.10
09.12
10.01
2010
Jun
2010
Dec
Total
Ex Yu
Rest of the world

22
most of countries which had a trade deficit. Since 2010, positive three-month growth rates are noted in almost all countries of WB. Light three-month growth of import for WB countries has started in 2010; similar tendencies have been reported in most countries of the world.
Chart 3
Total growth of merchandise import of former SFRY republics, and the growth of import from the markets of former SFRY republics.
Based on data from: www.trademap.org
It is clear that a large potential exists for growth of bilateral trade in most WB countries. Since the region of West Balkans is heavily affected by the world economic crisis, its recovery shall mostly depend on the economic trends in the EU. There are three exit strategies, among numerous possible, which the countries of WB might apply, or which they already apply partially, in order to achieve economic recovery as quick as possible: (1) improvement of bilateral trade, (2) attraction of production-oriented investments and (3) finding bilateral financial assistance from friendly countries in case of withdrawal of banks from their markets (presently a less probable option)
Growth of merchandise import of Ex Yu republics (2008-10),
Interannual rates
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
2008
Jan
08.07
08.09
08.10
08.11
08.12
09.01
09.03
09.04
09.07
09.10
09.12
10.01
2010
Jun
2010
Dec
Total
Ex Yu
Rest of the world

23
Dynamics and importance of merchandise trade of Serbia with CEFTA and West Balkan countries
By far the most economic partner of Serbia in the EU, and then in CEFTA, to which more than nine tenths of Serbian export and approximately three thirds of domestic import is related (considering the fact that CEFTA countries, excluding Moldavia, shall probably join the EU in next 10 or 15 years, it is obvious that importance of the trade with EU shall increase additionally). Notwithstanding the thesis that sub regional arrangements may have a complementary role in the process of pan European bonding (CEFTA, Free Trade Agreements with Russia, Turkey, Belarus, joining the World Trade Organization in near future), things could be observed differently from Serbian perspective. The market of CEFTA, that is, of the WB countries is of major significance for economy of Serbia, primarily due to the fact that Serbia has a continuous surplus at it, whose continuance of growth is expected in 2011, judging by the present monthly export and import trends (in 2010, surplus shall exceed 1.3 B euros, having been somewhat below one billion of euros in 2007). Secondly, which is even more important, EU share in total export and import is between 53% and 57%; while share of the West Balkans countries in Serbia's export is about one third and in its import approximately 8%. If we compare data on the number of EU citizens (500 million) and West Balkan without Serbia (16 million), with data on relative importance for export expansion, we get data on intensity of merchandise trade. Anyhow, it was empirically proven that a strong tie exists between the countries' mutual borders and several times increased trade in comparison with the trade among the non-bordering countries. In case of Serbia, additional factors exist, such as common language, mentality habits and propensities.12
After the decrease of Serbian GDP, industry, export, import since the last three-month period of 2008, growth of main macroeconomic indicators was restarted and then speeded up in 2010, with continuance of the trend to be expected in 2011 (GDP growth rate shall probably be doubled). Finally, since the fourth three-month period of 2009, Serbia has finally started to achieve positive interannual growth rates, which gained speed in 2010. As for the import, three-month growth started in the second three-month period of 2010.
For Serbia, the WB region has significance as an export market more than four times greater then as an import market. Serbia has a trade deficit with Croatia (coverage of import by export increased from somewhat more than two fifths in 2007 up to two thirds in 2010), while it has high surpluses with other observed countries. While in trading with the countries of West Balkans, or CEFTA (Moldova can be practically excluded from the analysis due to its marginal share in Serbian trade) it has surplus, in trading with the rest of the world, Serbia has several times higher trade deficit.
12 Trade among countries should be balanced. If that is not the case, the difference is financed by loans, investments, money orders etc. Differences in most countries should not influence the differences in the value of export and import. Disperisty of production structure, relative production costs corrected for the costs of shipping and similar factors should explain trade imbalances, and export-related and industral restructuring..

24
The following two tables show the geographic structure of merchandise trade of Serbia with West Balkan countries, as a sum and individually, and the most important trade partners as well: Germany, Italy and Russia, and with the three non-bordering countries from "former" neighbourhood (which are considered Balkan countries), with whom Serbia, and other countries of West Balkans have high level of trade (Greece, Slovenia and Turkey). 2005 is taken as the base year, before of CEFTA agreement signing, although the agreement became effective upon ratification in 2007 (but has been applied through bilateral agreements in several previous years).
Table 9
Merchandise export from Serbia to CEFTA countries and other big export partners
2005-10, in thousands of euros Serbia's export to individual markets 2005 2006 2007 2008 2009 2010 Serbia's merchandise export
3,598,701
5,116,840
6,437,893
7,428,800 5,961,300 7,393.400 Serbia's export + shipping to Kosovo
3,750,958
5,307,893
6,660,427
7,637,751 6,172,201 7,632.200 Croatia
157,319
199,815
241,339
295,312
199,300
231.600 BIH
597,435
596,202
760,271
909,883
724,800
822.100 Macedonia
209,500
238,000
318,100
334,000
306,400
359.800 Montenegro
/
490,622
693,658
874,840
598,600
609.200 Kosovo
152,257
191,053
222,534
208,951
210,901
238.800p Albania
17,094
26,489
58,403
52,038
50,074
99.200 Total for observed territories 1,133,605 1,742,181 2,294,305 2,675,024 2,090,075 2,360.700 in % of total export 31.5 34.0 35.6 36.0 35.1 31.9 In % of total export with Kosovo 30.2 32.8 34.4 35.0 33.9 30.9 Germany
349,335
507,044
683,929
775,728
623,800
760.200 Italy
524,328
737,168
798,303
766,968
586,100
843.900 Turkey
40,402
30,857
42,691
30,814
32,354
66.500 Greece
97,669
121,809
132,886
143,469
96,400
137.500 Slovenia
151,600
201,704
298,368
341,179
246,531
321.200 Russia
/
/
/
374,100
249,300
403.400
http://webrzs.stat.gov.rs/axd/dokumenti/saopstenja; www.trademap.org
Note: estimate for 2010 was made based on the trend in first 10 months of 2010.
What can be easily seen in the previous and the following table is a significant growth of total Serbian trade, as well as of total trade with the countries of West Balkans and with other observed countries until late 2008. Afterwards, along with the global crisis, a strong slowdown of trade flows occurs, but recovery can be observed starting from the last trimester of 2009 in the export area, and the growth of import can be observed in the middle of 2010. In the pre-crisis period, Serbia's growth of export to the WB region was faster than export to other countries; then a stronger decrease of export occurred in 2009, and the recovery in 2010 was slower than the growth of export to the rest of the world. One could make a contrary conclusion as for import dynamics. While import from WB in 2007 had a much higher growth than import from the rest of the world, its growth was

25
much slower in 2008, and it started decreasing in August of the same year. In the second half on 2009, decrease of import from WB was significantly lower than the total decrease, and in early 2010, a certain growth of absolute value of import from WB occurred.
Table 10
Merchandise import from Serbia to CEFTA countries and other big import partners
2005-10, in thousands of euros Serbia's export to individual markets 2005 2006 2007 2008 2009 2010 Serbia's merchandise export 8,400,014 10,485,662 13,535,431 16,478,100 11,504,700 12,621.900 Serbia's export + shipping to Kosovo 8,408,172 10,506,572 13,554,711 16,487,993 11,508,204 12,627.300 Croatia 207,298 266,137 387,393 376,340 304,900 323.100 BIH 234,345 273,042 377,845 438,034 318,800 421.400 Macedonia 134,837 159,560 225,455 257,817 164,600 205.800 Montenegro / 118,742 97,114 137,473 128,400 123.500 Kosovo 8,158 20,910 19,280 9,893 3,504 5.400p Albania 2,499 3,740 8,328 9,118 4,251 5.900 Total for observed territories 587,137 842,131 1,115,415 1,228,675 924,455 1,085.100 in % of total export 7.0 8.0 8.2 7.5 8.0 8,6 In % of total export with Kosovo 7.0 8.0 8.2 7.5 8.0 8,6 Germany 875,882 995,929 1,600,990 1,836,329 1,407,579 1,334.200 Italy 729,762 875,454 1,311,466 1,483,373 1,111,308 1,078,800 Turkey 169,678 203,543 288,238 296,757 210,702 244,300 Greece 126,004 158,989 204,591 195,475 165,900 172.000 Slovenia 229,071 244,968 510,807 426,187 377,199 383.500 Russia / / / 2,391,300 1,415,700 1,630.500
Note: estimate for 2010 was made based on the trend in first 10 months of 2010.
Table 11
Cumulative growth and average discreet growth rate of Serbian trade 2000-10
Cumulative growth
Growth rates
export
import
export
import
Serbia, total
4.3
3.5
15,7
13,2
CEFTA
3.4
2.7
13,0
10,5
BIH
3.4
2.1
13,2
7,7
Montenegro
3.9
3.7
14,5
14,0
Macedonia
1,7
1.3
5,2
2,6
Croatia
16,1
12.6
32,0
28,8
Albania
6,5
1,3
20,5
2,1
Kosovo
4,6
54,0
16,5
49,0
Germany
4.2
2.7
15,5
10,4
Italy
3.3
2.8
12,8
10,8

26
Turkey
3.7
2.9
13,9
11,1
Greece
1.5
1.9
4,3
6,4
Slovenia
16.8
19.5
32,6
34,6
Russia
3.4
5
13,0
17,1
It is analytically useful to separate the dynamics of total trade from the trade with observed countries in the first decade of the 21st century. By analysing data from the previous table, and data from the period 2000-05, it can be seen that Serbia had lower trade growth rates with Balkan countries then in case of total trade. If we correct the value of Serbia's trade for the estimated share of Montenegro13 and Kosovo in 2000, and if we add shipping to and delivery from Kosovo in 2010 to the total export and import of Serbia, we shall get relatively high average annual growth rates of domestic export and import in that period. Merchandise export has been growing at the average rate of 15.7% and import at the rate of 13.2%; cumulatively, growth amounted 4.3 times for export and 3.5 times for import (Serbian export to CEFTA has been growing at the average rate of 13%; Serbian import from CEFTA has been growing at the average rate of 10.5%). Relatively high share of merchandise trade with BIH and Macedonia in 2000 primarily contributed to this, at the time when we had a practically free trade with these countries, and when the country was practically isolated from the most countries.
Similar trend continued in the 2005-10 period, and once again, the main reason was relatively high saturation of the regional markets, that is, their competitive supply (this, for example, is not related to the trade potential of Serbia with Croatia and Albania, which, due to underdeveloped political relations, is still suited for stronger growth). Merchandise export growth rate of Serbia in 2005-2010 period amounted to 12.1% (slowdown in the second half of the decade), and 7.9% in case of import (cumulatively 77%, and 41%). At the same time, trade growth with the countries of West Balkans was slower (average growth rate of export 2005-10: 7.5%; of import: 7.1%; cumulatively 44% and 41%). Observation of Serbian trade per countries of CEFTA makes a similar impression; growth is mostly lower than the average trade growth. I.e. growth of export to BIH 2005-10 amounts to 32%, import 42%, to Croatia 38% and 54%, to Macedonia 59% and 27%.
Serbia has the greatest deficit with EU countries, where Germany is of special significance, with whom a continuous low coverage of imports by export exists. In case of Italy the image is somewhat different, since merchandise deficit is slowly decreasing, primarily thanks to foreign direct investments from Italy, which have triggered exports to that country. Tendencies are somewhat similar with Slovenia and Greece. With Turkey, Serbia enjoys a privileged, asymmetrical treatment in the free trade zone since September 2010, which should trigger the balanced trade tendencies.
13 Since trade with Kosovo was of a very low intensity after the end of the war, the first data about it are entered in analysis starting from 2005.
If discovered, it can be included for the previous period; it can be assumed that in 2000-2004 period the trade with Kosovo was on average somewhat above 100 million euros, with tendency to grow.

27
It is indicative that total trade in the first decade of the 21st century, and trade with EU, grew faster that export and especially import from West Balkan countries. This can, naturally, be explained by a higher trade potential with EU countries, which have a much wider merchandise supply and demand (the problem is complementarity of West Balkan economies). Export to Germany grew faster than total, and import grew slower. Trade with Italy grew slower than total trade, as was the case with Turkey and Greece (in case of import, this can be explained by penetration of China into Serbian market, which decreased the share of most other countries). Rapid growth of import is characteristic for trade with Russia (growth of fuel import due to price increase, and effects of free trade zone). A strong growth of trade was achieved with Slovenia (there truly great potentials due to former relations within SFRY, but due to arrival of a retail company which significantly increased the trade, and primarily, export to Serbia).
In 2010, Kosovo, BIH and Montenegro have the highest growth rates of export to the region, which is good since they also generate the highest deficit in the trade with other WB countries. As a sum, a recovery of mutual merchandise trade occurs among WB countries; regardless of the fact the export growth is much lower than the growth of export to larger markets. It is indicative that before the break of SFRY, its federal units had value of marketing to other republics more than two times higher than to abroad. Thus, the effects of sanctions upon Serbian economy were of intensity lower than that of breakup of production-trade relations with other republics. Presently, export without ex "YU" republics is double the level of the export value to ex SFRY republics, which indicates four times weaker relative position of trade with ex SFRY states. When trade liberalization in 2001 came to Serbia, it had exceptionally strong economic ties with Macedonia and BIH (Republic of Srpska), and totally severed ties with Croatia. It was indeed logical to have the fastest growth of trade with Croatia (as well as with Albania, with whom we also started from a low starting point), while, as a consequence, a drop in share of the two previously mentioned countries has occurred in the total foreign trade. In 2010, Croatia represented 3% of Serbian export, BIH 11.3%, Montenegro 8.6%, Macedonia 4.9%, UNMIK-Kosovo cca 4%, Albania 1.4%. In 2010, Croatia represented 2.4% of Serbian import, BIH 3.4%, Montenegro 1%, Macedonia 1.6%, while shares of Kosovo and Albania were marginal. Collective share of export to WB in Serbia's total export was decreased in previous five years and especially due to crisis outbreak, which indicates a drop of demand in these countries which also affects export of our companies (on the import part it had practically a stagnating share in 2006-2010 period, namely and primarily, of iron and aluminium ore). For Serbia, BIH and Montenegro are of primary importance for export dynamics, in case of WB countries, while no "dominant" partner exists on the import side.

28
Analysis of the trade structure of Serbia with CEFTA countries and political problems in trade with UNMIK-Kosovo
Since it has the highest population and a central position, it is possible that Serbia, if it attracts FDI into its industrial sector, is to achieve high benefits from integration. In the total exchange with the observed countries, Serbia has a surplus (which is to amount to more than 1.3 billion euros in 2010). Surplus is, for the main part, a result of export of agricultural products (cereals and their products, and various kinds of drinks). Surplus is primarily a result of higher export of agricultural products to those countries. Share of agricultural products in Serbia's export to markets of CEFTA members is approximately 30%, while their share in import amounts to 24%. Therefore, Serbia has surplus only at CEFTA market, excluding surpluses with smaller economic partners. As opposed to other markets where it participates with a relative small number of products, such as iron, steel, raspberries, corn, tires, here we have a wide range of products, and at the exact instances where we are not qualified to join the EU market due to certain high standards, here our companies survive. Serbia is a most competitive country in WB after Croatia.
The structure of merchandise trade of Serbia with these countries did not change, for the most part, in previous years. Serbia's trade with WB countries mostly resembles the trade among the developing countries and is far from the trade models among more developed countries in transition. Serbia's export to WB countries is primarily composed of final food products, but also agricultural raw materials, electricity, non-ferrous metals, and chemical and textile products. As for imports, oil and derivatives, natural gas, paper, cardboard and cellulose products, vegetables and fruit, iron and steel represent their greatest share.
CEFTA countries are therefore very important market for out country, especially Bosnia and Herzegovina, Montenegro and Macedonia, with whom the most part of the trade is done, and which are "responsible" for the achieved surplus (marginal trade exists with Albania and Moldavia, while a constant surplus is achieved with the territory of Kosovo- UNMIK).
Trade structure of Serbia with BIH in 201014 per merchandise departments shows that most important products we export to this market are: cereals and cereal products 9.1%, drinks 7.8%, steel plates 7%, live animals 3.5%, various metal products 3.9%, various final products 3.9%. Heavy vehicles and electric machines and devices held an important position. As for import, most common are: stone coal and coke 25.4%, cork and wood 6.9%, oil and oil derivatives 9.4%, electricity 7.2%, steel plates 11%. In the previous 2009, paper, cardboard and cellulose products had a large share as well, a 5.2%. In general, it is clear that primary and secondary products (raw materials) are dominant bot in export and import.
Most important merchandise departments in Serbian export to Albania in 2010 were: mineral ores and scrap metal 39.4%, electricity 19.2%, cereals and products 8.2%, sugar
14 Prema podacima Uprave carina Srbije za prvih deset meseci 2010.

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4.7%. On the side of relatively low import from Albania, the most common merchandise department in 2010 were: iron and steel 33.8%, furniture 10.1%, footwear 10.7%, raw hides (and non-processed furs) 8.9%, vegetables and fruits 8.4%.
With Montenegro, most of the export consists of food products (meat and dairy products, cereals, drinks), electricity 7.8% as well as bituminous substances 9.4%. On the side of several times smaller import from Montenegro, the following are important: bituminous substances 55.9%, drinks 5.5%, medicinal products 6.1%, and basic metals 16.5% (steel plates and aluminium profiles)
Most important merchandise departments in 2010, in Serbian exports to Macedonia were:
Cereals and products 7.9%, sugar 6.3%, mineral ores and scrap metal 7.3%, electricity 5.4%, iron and steel 6.5%. The import part was dominated by: vegetables and fruits 20.1%, iron and steel 27.5%, drinks 6.6%, medicinal products 6.3%.
Most important merchandise departments in Serbian export to Croatia in 2010 were: paper, cardboard and cellulose products 8.1%, vegetables and fruits 4.2%, iron and steel 5.8%, coloured metals 4.3%. Export of heavy vehicles and general purpose industrial machines was of significance in the previous year. On the export side in Croatia, most common merchandise departments in 2010 were: non-metallic mineral products 10.1%, various food products 4.8%, oil and oil derivatives 5%, gas, natural and industrial 7.8%, plastic substances in primary forms 5.8%, fertilizers 3.9%, paper, cardboard and cellulose products 6.3%, electric machines, appliances and devices 4.7% (twice as much in 2009), various final products 4%. When observed as a sum, it can be seen that primary and secondary resource products (raw materials) are dominant, on both trade flows. This is the case with trade among all WB countries. Naturally, there are exceptions such as export of heavy vehicles, furniture, various industrial machines, while in case of chemical products; those with a high resource component are predominant.
In case of shipping to UNMIK-Kosovo in 2010, the most important merchandise departments were: cereals and products 8.9%, various food products 4.4%, non-metallic mineral products 9.5%, oil and oil derivatives 11%, electrical energy 4.9% (twice as much in 2009), electric machines, appliances and devices 5.3%, heavy vehicles 4.6%. As for the modest supply from Kosovo, most common merchandise departments in 2010 were: electricity as much as 68%, vegetables and fruits 13.5% as well as non-ferrous metals (led and zinc) 9.4%. In the previous year-2009, import products of significance were also drinks 12.1% and iron and steel 12.1%. In general, trade with Kosovo is based on import of led, zinc, trade in electricity, while food products and products such ceramics and bricks are very important for export. Export to Kosovo also represents about 4% of the total export of Serbia, but with marginal import, as in case of import by Serbia and Albania.
Merchandise turnover is pretty much the only form of economic cooperation between Serbia and Kosovo. Not all merchandise turnover is recorded, there are also non- registered products and trade at the "grey market" (cigarettes, petrol, medicinal products, food, cement and other products which are highly valued in small quantities). Besides,

30
economy of Kosovo has a highly liberalized trade. VAT amounts to 15% for all goods, except for imported pharmaceutical products and merchandise for humanitarian needs. Not VAT is paid for merchandise from Serbia, but an UNMIK-tax. Merchandise from Serbia has a so-called registration paper, which is stamped at the administrative border, thus releasing the merchandise from VAT, in order to avoid double taxation. UNMIC has de-facto introduced customs duties in September 1999. Turnover of merchandise with Serbia and CEFTA countries is free. If merchandise is to be imported to Kosovo from third countries, which was cleared through customs in Serbia, a 10% customs duty is to be paid (and if it was only in transit through Serbia, appropriate customs duties are to be paid).
A problem appeared when Veterinary and Food Agency of Kosovo issued a memo in July 2008 to tradesmen from Kosovo, and they to their suppliers, Serbian manufacturers and suppliers of merchandise, whose subject is "correct" manner of declaration of packaged groceries which are sold on the territory of Kosovo. Namely, it is strictly requested that, aside from the usual data, declarations must state the full importer's address (Kosovo) and that this information is strictly to be printed on the packaging. Due to this request, delivery of milk and dairy products, turnover of medicinal products of domestic origin was stopped; edible oils to the market of Kosovo became more difficult. Afterwards, in December 2008, the government of Kosovo ceased to mark the documents which are necessary for the turnover of merchandise between Kosovo and other parts of Serbia, with marks UNMIK CUSTOMS and started to use the mark KOSOVO CUSTOMS, which could not be accepted by the Serbian side due to political reasons and it considers such act to be a breach of CEFTA agreement.
(Political) problems in implementation of CEFTA agreement During the previous years, numerous problems in implementation of CEFTA agreement have appeared. Until the beginning of 2010, Serbia kept the monopoly on the import of oil derivatives (except euro diesel), and Croatia tried to protect domestic tobacco industry by means of discriminatory policies. BIH breached boundaries of the agreement by limiting import of dairy and other food products from Serbia and Croatia During 2010, Serbia was chairing CEFTA, and in that period numerous initiatives for additional liberalization in the domain of public procurements, services, for increased protection of intellectual property... Also, Serbia is relatively liberal, since it had, except for iron and steel, small number of quantitative limitations, as opposed to some other WB countries, which protected a greater number of products. Due to a relatively liberal approach to trade, Serbia outran Croatia since 2006, as for the value of total trade within CEFTA, and it became the biggest exporter within this free trade zone in the same year.
There are more than one hundred different types of non-customs barriers (complicated border-crossing procedures; extensive administrative work and mutual non-compliance of customs activities and inspection departments; insufficient number of internationally recognized accreditation and certification bodies, as well as authorized laboratories and

31
institutions; non-recognition of quality assurance certificates15; complicated visa regime; corruption and smuggling. It is necessary to improve the infrastructure of quality up to a level at which Serbian certificates, and certificates for products of other WB countries, would be recognized in all countries of the EU and CEFTA. In this area, a certain progress has been achieved in 2009 and 2010 by passing certain laws which regulate it. 16 There is a lack of institutionalized accreditation bodies, which is the reason why consistent implementation of CEFTA agreement is not possible.
In any case, it is necessary for Serbia to reach the level of full European and international recognition of the quality and accreditation infrastructure, as the principal and the only approved mechanism. Only then shall sufficient conditions exist to obtain certificates for domestic market which would be valid in the inner EU market and are designed for the CEFTA region market. Notwithstanding the difficulties (at start), excluding 2009, the year of crisis, scale of trade in the region is continuously increasing.
Until late 2010, CEFTA members invested approximately 0.7 billion euros in Serbia, and Serbia invested in these members more than 1.1 billion euros. Serbia has more significant FDI in BIH (over 0.9 billion euros, net), while FDI of Montenegro in Serbia are almost 0.3 billion euros. In Montenegro, Serbia has invested more than 280 million euros, and Montenegrin investments in Serbia practically do not exist. Serbian investments in Macedonia amount to 30 million euros, and Macedonian investments in Serbia only about 0.6 million euros. Until now, Serbian companies invested only approximately 3 million euros in Albania.
With the amount of 0.5 billion euros, Croatia is, among CEFTA members, the biggest investor in Serbia (Croatian FDI in Serbia represent more than 19% of total Croatian FDI, positioning Serbia on the second place in Croatian foreign investments, and Croatia holds the 6th place as the foreign investor in Serbia). 17 On the contrary, Serbian investments in Croatia amount only to 45 millions of euros. "Swisslion-Takovo" is the only Serbian company which succeeded to buy a Croatian company (in 2008, the factory "Eurofood market" from Sisak was bought for 20 million euros). The companies "Galeb grupa" and "Delta" did not succeed in their attempts, regardless of the most favourable bids at the tender. Apart from that, Serbian companies come across numerous obstacles in their attempts to market their merchandise at the Croatian market. Opinion of the only investor from Serbia at the market of our western neighbour, and of some other domestic businessmen is that without the support of politics, domicile states cannot become free of
15 Agreements were still not made regardin mutual acceptance of these documents among countries in the Region, so this kind of control is performed by each country for itself.
16 It is necessary to issue a line of sublegal acts, which suitable EU directives of the "new" and the "old" approach are to be included in, as well as to sign appropriate agreements with individual countries.
17 Biggest Croatian investments in Serbia: „Agrokor grupa“ bought „Frikom“ in 2003 at a tender for 10.2 million euros, with planned investment and social programme of 33 million euros; „Agrokor“ bought 67% of shares of oil industry "Dijamant" with value amounting to 30 million euros; „Pevec“ opened a retail sale centre in December 2008 in Belgrade, in which 40 million euros were invested; „Atlantik grupa“ bought for 382 million euros the Slovenian company "Droga Kolinska". Part of "Droga Kolinska" are also the Belgrade based companies "Grand prom", "Soko Stark" and "Palanacki kiseljak".

32
the political barrier of entrance to the Croatian market. Recent appeal (November 2010) of Josipovic is a grain of optimism.18 Even the EC 2009 Report emphasized the progress of Serbia and its openness for Croatian investments, with a remark that Serbian investments in Croatia are very limited. The Problem the Serbian companies face is that it is very difficult for them to obtain licenses for transit through Croatia. Having said that, EU entrance from Croatia is very important for Serbian companies, simply because they expect removal of all administrative barriers.
Nevertheless, Serbia's deficit in trade with Croatia decreased after 2007 and such trend is expected to continue and that it shall change to Serbia's surplus in few years. In future, initiatives of companies for joint entrance to third markets would be of highest significance.
Analysis of the trade of Croatia, BIH, Macedonia, Kosovo and Albania with CEFTA
The structure of trade of WB countries is mainly based on the products from early processing stage (raw materials, semi fabricates) and to a lesser degree final products with low added value. The trade mainly consists of food products (vegetables, fruit, confectionery, cereals), agricultural raw materials, electricity, gas, oil derivatives, paper, cardboard and cellulose products, basic metals (steel plates, aluminium profiles, copper cathodes), chemical and textile products. Significant improvement of mutual trade in near future is not realistic, and the last decade in which we noted stagnation of the trade structure within CEFTA shows it.
Bosnia and Herzegovina is the most important importer of products from other countries of the trade agreement CEFTA and it has a high deficit in trade with Croatia and Serbia (although for the most part, these deficits are related to cantons with Croatian majority, and with Republic of Srpska and Brcko district, referred to in scientific literature as "ethnic trade"). In its trade with CEFTA, Bosnia and Herzegovina have the same sum value of export and import as in the trade with Germany, Italy or Slovenia. Considering the high trade deficit, economic crisis affected Bosnia and Herzegovina to decrease the trade deficit with CEFTA countries by even higher decrease of exports in 2009. In 2010, Bosnia and Herzegovina achieves growth of exports to CEFTA countries which is much faster than the growth of imports, thus continuing to decrease the imbalance in trade.
18 Until now, Croatia did not react to the proposal for creation of a new work group which would be engaged in this matter. Anyhow, Serbia has alarmed all competent institutions in CEFTA (the main problem are numerous standards and obstacles). Nevertheless, incidence of Serbian products in Croatia is growing.

33
Chart 4
Share of BIH export and import to CEFTA countries and other large trade partners 2009
http://www.bhas.ba/Arhiva/2010/sao/ETS_2010M10_001_01-bh.pdf
As BIH had to start almost from level zero, after the devastating war in the first half of '90 decade, its growth of principal macroeconomic aggregates was naturally high. That is why it is not strange that in the period from 2000 to 2010, it had an average annual merchandise export growth amounting to 33.3% (increase by almost 18 times!). At the same time, import strongly increased, annually 25.4% on average, that is, as much as 9.6 times. In the 2005-2010 period, growth rates are significantly lower, but still at a high level. Average export growth amounted to 13.4% (cumulatively, an 88% growth), while import grew at a slow rate (3.8%) and was cumulatively increased for 20.6%. In that period, export to CEFTA countries amounted to70% cumulatively (11.2% per annum on average), and merchandise import amounted to 15.4% (2.9% per annum on average).
Table 12
Geographic distribution of merchandise trade of BIH, 2005-10.
In thousands of euros BIH export markets 2005 2006 2007 2008 2009 2010p World 1,917,861 2,728,641 3,028,987 3,412,599 2,817,392 3,597,810 Croatia 393,080 510,010 556,176 588,067 480,892 527,539 Serbia 234,000 360,221 415,909 515,580 374,838 468,548 Montenegro 64,080 / 79,446 117,560 116,822 157,476 Macedonia 17,990 21,675 24,842 33,499 31,280 34,470 Albania 4,099 5,680 7,639 8,222 6,219 25,684 total CEFTA 713,229 897,585 1,084,012 1,262,929 1,010,051 1,213,717 in % of total export 37.2 32.9 35.8 37.0 35.9 33.7 Import to BIH 2005 2006 2007 2008 2009 2010p World 5,663,910 6,017,448 7,091,082 8,284,037 6,290,796 6,831,804
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Croatia
Serbia
Montenegro
Macedonia
Albania
Germany
Italy
Turkey
Greece
Slovenia
Export
Import

34
Croatia 955,607 1,028,684 1,249,576 1,413,132 944,161 1,013,085 Serbia 530,000 589,840 722,116 880,597 652,744 715,407 Montenegro / / 14,466 20,130 19,753 24,691 Macedonia 46,731 59,401 70,678 76,768 65,696 68,323 Albania 1340 4232 3527 1783 847 2,973 total CEFTA 1,579,711 1,682,156 2,060,364 2,392,410 1,683,200 1,834,457 in % of total export 27.9 28.0 29.1 28.9 26.8 26.8
www.trademap.org; http://www.bhas.ba
Region of CEFTA countries (ex SFRY, excluding Slovenia and Albania) is relatively most important for Montenegro, with 40% of total export and 45% of total import in 2010. Due to surplus and export of services, Montenegro has a high deficit in merchandise trade. Serbia is the most important partner, and BIH, Croatia and Slovenia are also of high significance.
Chart 5
Most important foreign trade partners of Montenegro in 2009 (in % of total export and import)
http://www.monstat.org/userfiles/file/spoljna%20trgovina
From 2005 to 2010, due to strong economic crisis, Montenegro had an average annual decrease of merchandise export of 3.1% (14.4% cumulatively). At the same time, import still increased for 10.1% (62% cumulatively), which was related with the strong inflow of capital into the country until mid-2008. Export to CEFTA countries was decreased at the same period for 20% cumulatively (-4.4% per annum on average), and merchandise export increased for 82.4% (12.8% per annum on average).
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Croatia
Serbia
BIH
Germany
Italy
Greece
Slovenia
Import
Export

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Table 13
Merchandise export and import of CG to CEFTA countries and other big
Export partners, 2005-10.
In thousands of euros
2005
2006
2007
2008
2009
2010p
Total export
369,000
441,000
455,000
416,000
276,982
316,036
CEFTA
158,513
141,114
131,590
147,432
127,946
126,500
in % of total export
40.5
34.0
35.2
38.9
46.2
40.0
Albania
2,440
4,145
6,429
5,666
6,085
7357
BIH
16,987
18,410
16,473
19,841
17,816
16,115
Macedonia
655
1,190
747
878
1,364
1,023
Croatia
5,904
7,488
5,815
4,911
9,124
4,200
Serbia
132,527
109,881
98,270
101,454
77,295
79,500
UMNIK Kosovo
0
0
3,856
14,681
16,262
17,890
Total import
1,043,000
1,457,000
2,073,000
2,530,000
1,654,044
1,687,125
CEFTA
368,306
502,418
696,291
883,076
648,702
671,900
in % of total import
36.7
35.2
54.5
55.6
44.5
45.2
Albania
2,007
3,957
10,701
17,947
8,802
8,362
BIH
26,140
42,823
76,960
114,558
91,123
136,685
Macedonia
12,156
16,704
22,949
29,279
20,439
23,484
Croatia
36,521
64,013
83,984
109,826
80,916
78,489
Serbia
291,403
374,816
500,699
609,149
446,088
423,784
UMNIK Kosovo
/
/
961
2,175
1,219
1,158
http://www.monstat.org/userfiles/file/spoljna%20trgovina
Croatia is the second biggest exporter in CEFTA region after Serbia, and the third biggest importer (after BIH and Serbia). Decrease of BIH import affected the decrease of Croatia's surplus in 2009. Croatia has surplus in trade with all CEFTA countries except with Macedonia. For Croatia, CEFTA is three and a half times more significant for import (almost 19% of total export in 2010) than it is for import.

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Table 14
Merchandise trade of Croatia with WB countries and the world, 2005-10.
Thousands of euros Export from Croatia 2005 2006 2007 2008 2009 2010p World 7,044,027 8,260,448 9,017,165 9,599,212 7,510,067 8,809,309 total CEFTA 1,406,917 1,577,534 2,010,053 2,263,659 1,604,746 1,652,888 in % of total export 20.0 19.1 22.3 23.6 21.4 18,8 Croatia's import 2005 2006 2007 2008 2009 2010p World 14,903,270 17,116,782 18,843,392 20,883,720 15,203,053 14,792,571 total CEFTA 616,854 817,290 944,596 1,045,443 778,447 822,818 in % of total import 4.1 4.8 5.0 5.0 5.1 5,6
www.trademap.org
Since Croatia was already an open country as for the trade in 2000, it could not have strong growth rates such as Serbia or BIH. In the first decade of the 21st century, merchandise export annually increased in euros 6.2% (cumulatively 83%), while import increased for 5.7% on average, and cumulatively for 75%. If one observes the 2005-2010 period, growth rates are more modest, average export growth amounted to 4.6% (cumulatively, growth amounts to one fourth), and import in 2010 was almost equal to the import of 2005. Export to CEFTA countries in the same period amounted cumulatively 17% (3.3% per annum on average), and merchandise import 33.4% (5.9% per annum on average).
Chart 6
Geographic structure of export of Croatia in 2009
www.trademap.org

37
Albania is the least (excluding the minor participation of Moldova) included in CEFTA trade, but importance of those countries for its export is also two times greater (14% in 2009) in comparison with its import (namely, Italy and Greece are the most trade partners of Albania; on the export end, Kosovo becomes more and more important partner). In the 2005-2010 period, merchandise export had an average annual growth in euros 18.8% (2.4 times growth increase), and an import of 11.5% on average, or cumulatively 172%. Export to CEFTA countries cumulatively increased for 104% in 2005-2009 period, and import from countries of CEFTA agreement increased for 175% in the same period.
Table 15
Trade of Albania with CEFTA and with other big trade partners, 2005-09
In thousands of euros 2005 2006 2007 2008 2009 Total export of Albania 528,536 630,963 786,208 920,878 780,074 Export to CEFTA 53,591 70,691 113,332 185,019 109,041 in % of total export 10.1 11.2 14.4 20.1 14.0 Export to Germany 17,582 19,922 19,201 24,671 26,603 Export to Italy 382,854 458,170 535,191 569,420 489,931 Export to Turkey 9,094 7,996 17,735 17,704 4,314 Export to Greece 55,326 60,596 65,468 81,021 57,603 Export to Kosovo 18,075 23,107 35,262 59,633 58,438 Total import of Albania 2,099,221 2,433,810 3,064,661 3,568,517 3,261,286 Import from CEFTA 79,292 125,835 227,558 317,901 218,484 in % of total import 3.8 5.2 7.4 8.9 6.7 Import to Germany 114,119 137,832 168,087 216,787 210,758 Import to Italy 615,566 683,376 830,809 945,234 850,883 Import to Turkey 157,333 185,437 222,323 212,905 209,749 Import to Greece 345,260 382,637 446,813 522,043 505,581 Import to Kosovo 5,240 12,643 20,081 21,106 26,133
www.trademap.org
Macedonia entered transition in the first half of the '90s decade, which means that it was a relatively open country in 2000, so the high growth rates, as opposed to Serbia and BIH, were not realistic. In the first decade of the 21st century, merchandise export grew annually on average in euros 5.2% (cumulatively 66%), and import grew for 5.9%, or 77% cumulatively. In 2010, growth rates are more modest, average export growth amounted to 7.7% (cumulatively 49%). Export to CEFTA countries in the same period amounted cumulatively 48% (8.1% per annum on average), and merchandise import 49% (8.3% per annum on average).

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Table 16
Merchandise trade of Macedonia with the world and CEFTA countries
In thousands of euros
2005 2006 2007 2008 2009 2010p
Total export from
Macedonia 1,639,058 1,911,058 2,448,487 2,714,435 1,929,923 2373805
CEFTA 508,034 642,345 723,466 963,385 717,270 750122
in % of total export 31.0 33.6 29.5 35.5 37.2 31.6
Total import from
Macedonia 2,591,960 2,995,261 3,813,679 4,681,581 3,616,095 3854757
CEFTA 300,309 330,237 464,966 537,728 445,949 447152
in % of total import 11.6 11.0 12.2 11.5 12.3 11.6
www.trademap.org
Relative importance of CEFTA countries is about three times higher for export than for
import. High trade surplus in 2009 (272 million euros) can be fully explained by the
surplus with Kosovo (275 million euros). Surplus in merchandise trade of Macedonia
with the countries of West Balkans was slightly increased in 2010.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
izvoz 5.7 9.1 3.2 0.9 3.1 15.1 16.7 8.1 1.5 0.7 10.8
uvoz 2.3 8.1 0.9 0.4 0.5 0.5 10.3 7.2 5.0 10.6 8.7
HRV SRB BiH CG ALB KOS NEM ITA TUR RUS GRČ
Chart 7
Structure of merchandise trade of Macedonia in 2009
(Main partners and all countries of West Balkans)
www.trademap.org
UNMIK Kosovo makes one third of its total foreign trade with CEFTA countries. This
indicates that Kosovo has equally low level of coverage of import by export with CEFTA
as with the rest of the world. Incidentally, Kosovo is one of the rare territories with
import growth in 2009; also, Kosovo had a strong growth of export at the same time.
Macedonia is the biggest exporter to Kosovo, but Germany also has a strong growth of
export to Kosovo, and it is very probable that it is to become the biggest exporter to this

39
territory in 2011. Although Serbia has a slight growth of export to this territory, percentages show that it has a decreasing importance in supplying of Kosovo.
In the second half of the first decade of the 21st century, merchandise export of Kosovo grew annually on average in euros for as much as 41.7% (5.7 times higher), but the fact is it started from a very low position and that its amount per capita is modest, that is, far lower than in case of almost all European countries. Import had an average growth of 10.8%, and cumulative growth of 67%. Merchandise export to CEFTA countries cumulatively amounted in the same period to 129% (18% per annum on average), and merchandise import amounted to 63.6% (10.3% per annum on average).
Table 17
Merchandise export and import of Kosovo to CEFTA countries and other big export partners, 2005-10.
In thousands of euros Export of UNMIK-Kosovo 2005 2006 2007 2008 2009 2010p World 48,939 110,774 165,112 198,463 165,328 279,339 Croatia 928 1,123 1,837 793 2,151 2,654 Serbia 8,158 20,910 19,280 9,893 3,504 2,894 BIH 3,411 5,126 5,287 5,919 1,206 2,719 Macedonia 10,828 9,734 17,384 20,046 17,355 24,441 Montenegro 743 2,207 2,913 3,770 3,084 2,974 Albania 5,240 12,643 20,081 21,106 26,133 31,414 total CEFTA 29,308 51,743 66,782 61,527 53,433 67,095 in % of total import 59.9 46.7 40.4 31 32.3 24 Germany 3,222 3,878 15,165 5,122 7,512 10,034 Italy 5,608 10,102 8,177 46,012 7,512 87,447 Turkey 1,037 1,668 2,018 3,108 6,511 9,957 Greece 5,445 3,918 7,826 10,836 240 67 Slovenia 1,231 4,515 4,290 6,304 2,857 6,063 Import to UNMIK-Kosovo 2005 2006 2007 2008 2009 2010p World 1,180,022 1,305,879 1,576,186 1,928,236 1,935,541 1,970,325 Croatia 24,975 28,074 38,982 49,985 58,544 53,760 Serbia 152,257 191,053 222,534 208,951 210,901 224,325 BIH 18,450 18,465 29,838 38,747 59,739 79,889 Macedonia 220,148 257,754 237,895 346,536 291,837 286,661 Montenegro 6,411 17,800 15,063 13,789 13,059 9,727 Albania 18,075 23,107 35,262 59,633 58,438 66,038 total CEFTA 440,316 536,253 579,574 717,641 692,518 720,399 in % of total export 37.3 41.1 36.8 37.2 35.8 36.6 Germany 129,892 123,540 155,411 196,594 239,328 267,483 Italy 50,411 56,132 57,654 74,322 86,818 81,794 Turkey 85,438 97,076 101,855 128,463 141,134 139,618 Greece 47,572 37,616 63,902 81,403 78,958 107,016 Slovenia 54,998 56,001 62,420 66,762 90,549 67,473
www.trademap.org and Statistical office of Kosovo

40
Gravitational model and reference studies
of the effects of free trade zones
Gravitational model, which measures the difference between potential and actual trade, shows that Serbia has a possibility to increase the trade with Croatia and Albania, while the trade with Bosnia and Herzegovina, Macedonia and Montenegro are significantly above the potential. It is clear that trade with countries from former Yugoslavia cannot be nearly as high as within their once common state, but due to cultural similarities, old economic ties and recognition of trademarks by consumer, the trade shall be easier. The greatest barriers for trade are numerous non-customs barriers. Apart from them, many "sensitive" industrial products have not been covered by the CEFTA agreement (customs duties are decreased in phases for such products), neither are agriculture or services (efforts are made to change this).
One should mention numerous studies, which indicate that due to relatively small industrial base and high import limitations (before integration) the effects of integration of undeveloped countries are negative. These effects are most commonly empirically determined, since due to influence of economic geography (economy of scale) industrial production tends to concentrate in the biggest or the most developed country in integration, with negative consequences for other countries in integration. This may be the main reason why most of regional economic integrations among undeveloped countries failed, and lasted for a relatively short time. According to Venables19, experiences from the large number of free trade agreements among the developing countries, shows certain examples in which integration promotes divergence, that is, turning of trade (such as East-Africa joint market20). Examples closer to present time include concentration of industry, trade and services around Guatemala City and San Salvador in the Central American joint market, and Abigan and Dakar in the Economic Community of West Africa.21
Regional economic integration of the countries with low income shall, according to Venables, most probably lead to divergence in the development of included countries, for at least two reasons: (1) usually a country which is a signatory of a free trade agreement, and which have comparative advantages which are the furthest from the world average, is under the greatest pressure to redirect trade flows. Therefore, if a group of countries with low income form a free trade zone, a tendency of member countries with the lowest income to have a real loss of income due to redirection of trade shall exist; (2)
19 Venables A.J. “Regional Integration Agreements: a force for convergence of divergence” (1999) World Bank WP 2260, str. 3.
20 Probably the best documented example of the industry process concentration in the old East-African joint market. Uganda and Tansania have determined that Kenya gets all of the benefits from the joint eastern- African market, which produced more than 70% of industrial products and exported a growing number of industrial products, in comparison with its two relatively less developed partners. Joint market collapsed in 1997 since it failed to satisfy poorer member countries through receipt of the expected share in benefits.
21 Guatemala and El Salvador now have more than 80% of industry added value in CACM, in comparison with 68% in 1980. In the Economic Community of West Africa, combined share of the Ivory Coast and Senegal in the added value of the industry increased from 55% in 1972 to 71% in 1997.

41
(2) Agglomeration forces tend to lead to spatial clusterisation of activities. The tendency of these forces to lead to high concentrations of economic activity shall be more distinctive in free trade zones formed by poor countries, in comparison with integrations of developed countries. This will represent an additional strength of divergence at levels of development present in free trade zones of the developing countries, with the relatively richer countries profit at the expense of the poorer ones. This process of divergence in development should be temporary and it usually occurs due to influence of agglomeration economies. Upstream and downstream ties are sufficiently strong, and companies in poorer countries decide to base their business close to one another, in a single country.
One should consider the fact that numerous empirical analyses which show that free trade zones among small economies lead to redirection and decrease of trade (negative experience of MERCOSUR, the free trade zone of Atlantic countries of South America is indicative). Apart from that, increase of trade might lead to increase inequality among the countries of the region, since richer countries would find themselves in a more favourable position. Findings which are indicative of experiences of recent free trade zone in the regions of Central Europe and Baltic should also be mentioned, as they assisted the growth of regional trade, but had a very limited effect on the decrease of their dependence of the EU, that is, on mitigation of the centre-periphery relations in trade.
Regional economic integration is a particularly good solution for small and middle sized countries (such as Serbia), which are highly dependent on international trade. Short-term, and to a lesser extent mid-term costs can be higher than benefits, but benefits arrive as smaller "meals". Long-term benefits from economic integration are higher than costs. Total effects of integration are more important than measurable economic indicators and they can be construed as expansion of possibilities and development potentials.
One should not expect CEFTA to provide a strong stimulus for economies of West Balkans, especially not in comparison to connecting with the EU which is of crucial importance for all these states, but in the mid-term and in the long-term the benefits (lower prices, economy of scale, commercial supply of higher quality, savings due to short spatial distance) shall be higher than costs. Countries in the region have technologically obsolete industries, they are mutual competitors for exports to the EU and they practically do not have much to offer to each other. Companies with supply of moderate quality shall get the most benefits from non-customs space, by being able to reach new consumers more easily, while the companies which survived due to difficult appearance of surrounding competitors at the domestic market shall be the main losers.
Namely, regional economic integration is a particularly good solution for small and middle sized countries (such as Serbia), which are highly dependent on international trade. Short-term, and to a lesser extent mid-term costs can be higher than benefits, but benefits arrive as smaller "meals". Long-term benefits from economic integration are higher than costs. Total effects of integration are more important than measurable economic indicators and they can be construed as expansion of possibilities and development potentials. As for the EU, the future of integration swings strength shall be dependent on the increase of efficiency and international competitiveness of European economy, convergence in productivity and income among countries, political unity of

42
countries, and harmonization of opposed interests.22 EU, although without army, it has numerous instruments of soft power: trade concessions, assistance in development, and preferential indebtedness with EIB. The primary goal of economic politics of EU is to get the best conditions in favour of their manufacturers and consumers, by getting access to markets of third countries, while occasionally protecting its own market (creators of EU policies would never admit to be protectionists, though). The goal of development policy is to aid the poor countries, particularly to those which have historical ties with the EU member states, in their economic growth, but not at risk of exposure of European politically sensitive sectors to a greater level of competition.23
Prospects of foreign trade in the West Balkans region:
possible quantitative and qualitative changes
Considering the relatively low level of Serbia's foreign trade with some of the surrounding countries and the expected continuance of growth of total domestic foreign trade (which was striking in 2010; 22% in euros), it is realistic that in 2011 and in the years to follow, growth trend shall continue with the countries in the region (IMF- October 2010- projects growth of export and import of countries in the region in 2011 amounting to 9-10%, since Serbia was much more successful in 2010 than the average export growth of the countries in the region, in 2011 one could expect a growth rate of total merchandise export in euros amounting to 11-16%). This will be, among other things, conditioned by an increased inflow of foreign capital (that is, by arrival of transnational companies, most of which have plans for expansion of export in the surrounding areas near). Considering the projections from MAT and FREN studies, which indicate that export should have two-figure growth rates in the second decade of the 21st century, while growth of exports to CEFTA market should be approximately two percentage points lower on average, it is realistic to assume that there will be a light decrease of trade participation of WB region countries. This is not unexpected, since a certain saturation of markets exists, particularly those at which Serbia achieves the highest export rate. Import growth rate of WB countries could also be a somewhat lower than the growth rate of sum of imports in the following decade.
One should not expect CEFTA to provide a strong stimulus for economies of West Balkans, especially not in comparison to connecting with the EU which is of crucial importance for all these states, but in the mid-term and in the long-term the benefits (lower prices, economy of scale, commercial supply of higher quality, savings due to short spatial distance) shall be higher than costs. Countries in the region have technologically obsolete industries, they are mutual competitors for exports to the EU and they practically do not have much to offer to each other. Companies with supply of moderate quality shall get the most benefits from non-customs space, by being able to reach new consumers more easily, while the companies which survived due to difficult
22 Antevski M, 2008, Regional economic integration in Europe, Belgrade.
23 Dinan D, 2009, The ever nearing Union, - Introduction to European integration, Official Gazette, Belgrade, page 490.

43
appearance of surrounding competitors at the domestic market shall be the main losers. Anyhow, unification due to EU competition has little sense, considering that all WB countries are to join the EU in relatively near future, as well as their mutual competition in exports to the EU market.
During 2010, Serbia was chairing CEFTA. Most of its activity was related to liberalization of services, creation of equal investment conditions, opening of public procurement markets, and to better protection of intellectual property rights. In 2009, while Montenegro was chairing, Serbia achieved progress in bilateral negotiations on full liberalization of trade in agricultural products (since 2011, as much as 72% of products shall be exempted from customs duties, while products to be imported on grounds of agreed quotations shall have considerably lower customs duty rates).
Officials of WB countries are aware that faster joining with the EU demands regional economic cooperation and market reforms. Long, complicated and non-transparent procedures at border-crossings, expensive and large-scale testing and controls and lack of accredited laboratories for control of merchandise which cross the border are the biggest non-customs barriers which slow the economic cooperation in the region down. There still are numerous obstacles for implementation of regional economic integration, creation of powerful regional retail companies, regional trade balance, and big investors' influence.
In 2011, further liberalization of trade by agricultural and food products in the region should come into force. Non-customs barriers, especially those related to technical barriers and phytosanitary measures are to be withdrawn in 2011. It is expected that measures shall be adopted in near future, which would make some of the barriers, primarily mutual non-recognition of quality assurance certificates (sanitary, phytosanitary, veterinary) of agricultural manufacturers, void. Agreements in principle were made regarding coordinated utilization of pre-joining funds from the IPA programme, especially components III, IV and V, which provide possibilities for dynamisation of economic growth and cooperation. Zdravkovic (2006, 2010) shows that countries of Southeast Europe (CEFTA with Bulgaria and Romania) are falling behind Central European countries (EU members since 2004) for about a decade, in the process of adaptation of their production-export structures to the needs of the EU markets, measured by the export similarity index and by the index of the trade complementarity.24 Those countries are dominantly oriented to trade with the EU (mostly with Germany and Italy) and they have a high degree of similarity of export offers, so they have nothing to offer to each other. Results of calculation of export similarity index confirm the thesis about absence of products which could be offered by countries one to another. The lowest degree of similarity exists in case of Macedonia with BIH, and Serbia with Albania. Main reason is the excessive
24 Osnovni ekonomski razlozi za CEFTA sporazum su očekivanje koristi od ekonomije obima usled opsluživanja uvećanog zajedničkog tržišta. Ipak, mnoštvo je radova koji ukazuju na relativno ograničene mogućnosti za postizanje pozitivnih ekonomskih efekata integrisanja usled niskog stepena razvijenosti, mereno per capita dohotkom.

44
specialization of Macedonia and Albania in import of labour-intensive products on one end, and specialization f BIH and Serbia in import of resource-oriented products on the other. Serbia has the highest degree of export similarity with Bulgaria, while it has rather similar export structures with other four countries, excluding Albania.
Main goals of recently promoted25, export-oriented growth of Serbia until 2020 (2008 was taken as the base year) are: to achieve average annual growth rate of merchandise and service export for 13.5%, reaching the share of 65% in the export of merchandise and services in GDP (which implies growth of export of merchandise and services from 8.5 billion euros in 2009 to 34.2 billion euros at constant exchange rate in 2020); to increase the share of tradable sectors in GDP by means of export growth; to reduce the foreign trade deficit from 15.5% in 2009 to 12% in 2020; to increase the share of tradable merchandise in the structure of export, with higher share of newly added value. To reach the share of 65% of exports of merchandise and services in GDP, from the present percentage lower than 30%, a thorough change in macroeconomic policy is necessary. An important prerequisite for such change is evasion of strong and real appreciation of dinar. Main principles for achievement of the export-oriented economy goals are: continuance of EU integrations and intensification of economic cooperation within the CEFTA region.
Since Serbia has very diversified supply of products in small quantities, transport costs have a limiting effect on exports to distant markets. In trade with CEFTA countries – Serbia achieves surplus (due to good position at the market of Bosnia and Herzegovina, Montenegro, Macedonia and UNMIK-Kosovo), while the level of coverage of imports by exports decreases as geographical distance from Serbia increases.
Until 2020, one should not expect more significant changes of export destinations. Truly, share of EU and CIS ought to increase, and to decrease in CEFTA countries. Growth of export share in EU shall be a result of intraindustrial trade growth, and in CIS it shall be a result of utilisation of favourable trade approach to markets of the countries. Decrease of share of CEFTA countries, with expected high growth of export value, shall be a result of relative saturation of markets by the existing level of trade. The absolute growth of export value shall be a result of intensification of merchandise trade between countries where it is below potential level (Serbia-Croatia, Federation of Bosnia and Herzegovina – Serbia, Republic of Srpska – Croatia... ), and as a result of renewal of cooperation at the production level.
During the second decade of the 21st century, due to joint exposure to external risks, Serbia should, with WB countries, develop as close economic cooperation as possible, renewing old and forming new production-processing ties. Arrival of, for example, German, Slovenian or Italian manufacturers in Serbia, in order to retain their market positions in the EU by means of price competitiveness, and to win third markets, is an example of positive events in the direction of normalization of economic relations and creation of new foreign trade potentials. Development of economic cooperation with
25 „‟Post-crisis model of economic growth and development of Serbia 2011-2020‟‟. A group of authors gathered around the "MAT" magazine, Institute of Economic Sciences, Belgrade; „Quarterly monitor“; FREN, Faculty of Economics, Belgrade.

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UNMIK-Kosovo is necessary in order for companies from Serbia to retain market positions which they are already holding at this territory. Bad political relations influenced Macedonia and Germany to become bigger exporters than Serbia, and Serbian share in total import of UNMIK-Kosovo to decrease from 22% in 2002 to half of its amount in 2010.
Estimates contained in the "Post-crisis model of economic growth and development of Serbia 2010 - 2020‟‟ study indicate possible growth rates of export to countries which presently form the CEFTA agreement, in the next decade. Namely, at an annual merchandise export growth rate of 10.6% in the 2008-2020 period, merchandise export to CEFTA would grow somewhat slower, 8.6% (to the EU 11.1%, somewhat faster), decreasing the CEFTA share from one third in 2008 to 27% in the year 2020. 26
26http://www.fren.org.rs/attachments/074_003%20Restrukturiranje%20i%20Izvozna%20Orijentacija%20Privrede.pdf

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Sources:
Antevski M, 2008, Regional economic integration in Europe, Belgrade.
Dinan D, 2009, The ever nearing Union, - Introduction to European integrations, Official Gazette, Belgrade, page 490.
IMF, World economic outlook statistical database
’’Post-crisis model of economic growth and development of Serbia 2011-2020’’; A group of authors gathered around the „Macroeconomic trends and analyses" magazine, Institute of Economic sciences in Belgrade and „The Quarterly Monitor of Economic Trends and Policies“; Fund for Development of Economic Sciences at the Faculty of Economics, University of Belgrade.
Customs administration of Serbia; data base excerpt;
Venables A.J. “Regional Integration Agreements: a force for convergence of divergence” (1999) World Bank WP 2260, page. 3.
Zdravkovic M, 2006, Degree of similarity and complementarity of export supply of Serbia with countries of South East Europe, countries of Central Europe and import demand of the EU
http://www.ekonomija.org/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=502&cntnt01origid=83&cntnt01returnid=54
Zivojinovic D, ’’In search for patron –A Study of Serbian-American ties 1878-1920’’ Albatros, Beograd, 2010.
http://webrzs.stat.gov.rs/axd/index.php (RZS)
www.trademap.org
http://www.fren.org.rs/attachments/074_003%20Restrukturiranje%20i%20Izvozna%20Orijentacija%20Privrede.pdf
http://www.wto.org/english/news_e/news10_e/stts_01dec10_e.htm

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