Balkans: Still many obstacles to regional economic cooperation

Regional economic cooperation has turned into the headline of EU-Balkans relations in the last months. But what’s the situation today in the Balkans? An interview with Nenad Đurđević, advisor to the President of the Serbian Chamber of Commerce and Industry and Head of the Regional Council for Strategic and Policy Initiatives

How do you assess the level of regional economic cooperation in the Western Balkans? 

The economic cooperation in the Western Balkans is characterized by a mix of progress and intensified cooperation on one side and ongoing challenges mainly caused by the political rivalries and mistrust that stemmed from the still unresolved issues from the conflicts in ’90 on the other. 

Several initiatives drive economic collaboration in the region, including the Central European Free Trade Agreement (CEFTA) for the six Western Balkan economies and Moldova, the Berlin Process with its Common Regional Market Action Plan, and the Open Balkans Initiative for three Western Balkan countries – Albania, North Macedonia and Serbia. However, CEFTA, initially designed to facilitate EU accession, has faced obstacles in adapting to evolving regional dynamics, resulting in a lack of agreements in the past three years. Meanwhile, aligning domestic legislation with EU standards is crucial and a prerequisite for countries’ progress in their EU accession journey. Yet, this process is complicated by the need to harmonize procedures and legislation internally, as outlined by the Common Regional Market within the Berlin Process. 

Moreover, the economic interdependence between the Western Balkans and EU is significant, with the EU being the region's primary economic partner, in trade and investments, followed by CEFTA members. This highlights the critical role of regional integration in fostering economic stability and growth. Furthermore, cooperation is essential not only for economic prosperity but also for political and historical reasons. Strengthening cooperation could significantly enhance the economic and political stability of the region, which is fundamental for future EU membership.

Which are the main obstacles undermining the region's growth and synergies?

Among the main obstacles we can define the regional market’s fragmentation, lack of coordination and cooperation among the countries in adopting and implementing trade and economic policies conducive to implementation of the four freedoms – freedom of movement of people, goods, services and capital – based on the EU legislation. The second obstacle is the level of political relations, namely the countries’ level of trust and confidence is not as advanced as expected from countries that seek EU membership. Further, underdeveloped infrastructure and not satisfactory level of domestic investment compounded with the lack of skilled workforce and depopulation trends are significantly posing a challenge to economic growth and development.  

When we refer to the political issues, they are mainly two: the most outstanding is the dialogue and normalization of relations between Serbia and Kosovo, followed by the relations within Bosnia-Herzegovina and between Bosnia-Herzegovina and other Western Balkan countries. 

In the past years, we faced also a stalemate in EU enlargement towards the Western Balkans, causing other initiatives like the Open Balkan to be established, motivating the EU to launch a New Growth Plan for the Western Balkans, opening the possibility for the Balkan countries to participate to the EU single market in the certain sectors. 

In the frame of the Berlin Process, the Chambers of Commerce of the region moved forward their cooperation… 

The Berlin Process initiated in 2014 brought about a new energy to regional cooperation. Besides political issues related mainly to the necessity and importance of reconciliation, working on creation of good neighborly relations, good governance and support for EU integration, it emphasized deepening economic cooperation as a backbone of regional prosperity and development, strengthening the role of Germany as a supporter of it. At a time when EU enlargement was put on a second track, the process created auspices for intensified and deeper economic cooperation, and the Chambers of Commerce in the Western Balkans used the opportunity to enhance and extend their role and advocate for the creation of a single market within the region.

The Berlin Process was launched a year after signing the first agreement on normalization of relations between Kosovo and Serbia 2013 that gave a positive energy to the cooperation between the two chambers, paving the way for solving numerous issues which contributed to increased level of trade exchange and strengthening mutual business ties. However, this process was caught within the negative regional dynamics characterized by the distrust and political rivalries between regional political leaders. In such a geopolitical dynamic, the way the process has been conceived promised little or no success in fulfilling promises and the commitments taken by the regional governments with the blessing of the EU.  

The Berlin Process served as a push for the creation of a Common Regional Market in the Balkans. How do you see this development?

The push for the creation of a Common Regional Market (CRM) in the Balkans is undoubtedly ambitious. However, the success of this endeavor hinges on the details of the institutional framework and procedures governing its implementation.

While the Regional Cooperation Council is tasked with coordinating the CRM Action Plan's implementation, the responsibility for actually implementing the commitments lies solely with the governments. Unfortunately, the achievements thus far have been limited, with only the abolition of roaming charges being realized, largely due to the efforts of telecom operators or the private sector.

After a decade of the Berlin Process, the results are limited despite the huge political “capital” that stood behind it – first and foremost of the German administration, but also of other participating states and the EU as such. We will see if the new momentum created by launching of the New Growth Plan will provide a new opportunity and a new political approach, bearing in mind strong willingness expressed by the EU to integrate these countries. 

Besides RCC, CEFTA is trusted with a significant role in the frame of the Common Regional Market, but does it have the adequate capacities to bring forward this mission?

We already spoke about the political challenges that are causing the region to leg behind and CEFTA is not an exception. Back in 2006, CEFTA was established as a temporary structure contributing to EU membership, and over time it evolved into a permanent arrangement, with a de facto expanding mandate and without any structural update. The contradiction lies for instance in the case of Kosovo where UNMIK act as a signatory and need to be present in every meeting. So, we are witnessing the situation where in the past three years CEFTA has not succeeded in passing any decision at the ministerial level. The free trade agreement that is so important for our economies and business in facing practical blockade for political reasons. 

Moreover, the structure and decision making within CEFTA is the following: For instance, if we focus on the area of trade facilitation, which is the most important part of the agreement, there are four levels of decision-making within CEFTA, and unanimity voting is required for each step up to the ministerial level. The existing framework makes it impossible to be functional and to adequately face the challenges of establishment of the CRM and the New Growth Plan that is about to start. A reconfigured institutional arrangement should renew regional cooperation, with institutions capable of meeting the expectations of both citizens and businesses. This includes aligning with the EU Single Market, seen as the initial step towards full EU membership for the Western Balkans. 

How can the existing system be arranged? Any proposal on the table?

With a group of international and experts from the region we conducted a study analyzing legal and economic relations EU has with countries and a group of countries that develop close legal and institutional link with it. Based on a study we proposed ways to “unlock” the current stalemate in the regional cooperation and in the cooperation with the EU by achieving a synchronization of the EU accession process with regional integration in a coordinated effort, by formalizing a regional agreement that would endorse the automatic extension of EU rules within the Common Regional Market. In practical terms that means that when a country aligns with the EU regulations in a specific area and receives EU validation for successful implementation, it gets automatic recognition of its alignment also in all Western Balkans without a necessity to receive additional recognition through regional process. In this way, a sector that achieved such a level of alignment with EU regulations will automatically benefit both from the CRM and EU Single Market access. This approach would break the current deadlock and enable countries in the region to progress based on their own efforts and merit.

In this framework, CEFTA’s role would be to provide expertise to the parties to make the transformation process happen, with each country being flexible to decide its priority areas to negotiate first with EU. For Albania or Montenegro, the priority for alignment may be in the service sector for instance and not necessarily in industry or food processing like it is for Bosnia and Herzegovina or for Serbia.

In institutional terms, we advocate for the creation of a High-level Political Committee composed of heads of government or senior governmental ministers to coordinate the efforts. Additionally, a Technical Implementation Body would be responsible for implementing political decisions. The involvement of the EU at both the highest political level and within technical bodies is crucial to ensure alignment with EU regulations and the acquis.