How can the EU encourage intra-regional trade in the Western Balkans?
Western Balkan countries’ path to EU integration has differed from that of eastern EU countries. The EU has consistently required regional cooperation from Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia as a prerequisite to EU entry.
In 2020 the Common Regional Market (CRM) was introduced, building on the 2017 Regional Economic Area initiative. This aimed to reduce barriers to trade, capital and labour flows and prepare the countries to join the EU Single Market. The CRM initiative was reinforced by the European Commission’s EU Growth Plan for the Western Balkans. Studies predict that the CRM could add 10% to the region’s GDP.
Our working paper investigates regional economic cooperation, analysing intra-regional economic ties, especially relating to trade. We find that bilateral trading relationships, shaped by historical factors, dominate. This is despite the existing multilateral trade agreement that abolished tariffs on goods across all six states. Poor infrastructure and double cross-border checks create long waiting times at the border and constitute major regional trade obstacles.
Other obstacles include differences in regulatory frameworks, sanitary and phytosanitary measures. Small markets and low-tech production limit the potential for growth through the CRM and trade in services is less liberalised between Western Balkan countries than between the region and the EU.
Policymakers should work on eliminating cross-border barriers to trade and aligning regulation, while liberalising trade in services. The growth plan for the Western Balkans allocates €6 billion in grants and loans in exchange for socio-economic and fundamental reform. At least €3 billion will be channelled through the Western Balkans Investment Framework, meaning it could go to cross-border rail and road infrastructure. Nonetheless, given the region’s infrastructural challenges, further funding for infrastructure will be needed.
The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy.
Authors
Nina Vujanović
Bruegel Affiliate Fellow
Related content
Macron and Merz need to tackle the veto to really unlock EU enlargement
A Franco-German plan to ease EU candidates into the single market should be accompanied by a reduction in the veto rights of current members
Challenges to the integration of the Western Balkans into European Union supply chains
Western Balkan EU integration has deepened, yet rising non-tariff barriers and new EU rules keep trade costs high despite zero tariffs
Montenegro’s power connection to the EU
How do Montenegro and the Western Balkans manage electricity, CBAM and the green transition?
The Western Balkan energy sector: between Russia, the European Union and the green transition
This paper analyses energy transitions in the Western Balkans, away from dependence on Russia and towards the EU electricity market