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Increased Service Exports Will Help Fuel Growth in South East European Countries

August 22, 2011

Movement of foreign workers/professionals and recognition of skills and diplomas among remaining obstacles to trade in services

WASHINGTON, August 22, 2011 – Trade in services could boost growth for the Central European Free Trade Agreement (CEFTA)[1] countries if they cut barriers and restrictions, according to the World Bank study “Barriers to Trade in Services in the CEFTA Region”. The study points to various policy barriers still constraining the expansion of trade in services, hindering the ability of countries in South East Europe to reap the benefits of the larger regional market for services.

Services account for the largest share of the economy in all CEFTA countries, and the share is increasing. On average, they account for more than two-thirds of gross value added in the region. Globally, trade in services has been growing at 15 percent a year since 1980, bringing global services trade to an average of 12 percent of GDP for low-, middle-, and high-income countries.

“As elsewhere, trade in services has been gaining in importance in South Eastern Europe – or the CEFTA region – but the structure of trade in services varies across the region,” says Borko Handjiski, World Bank economist in the Europe and Central Asia region and co-author of the study. “CEFTA countries have made significant progress in opening their services markets. However, some restrictions remain in all countries.”

Handjiski pointed out that, “While the barriers differ across countries, there are some common impediments in some services sectors.  In construction, there are limitations on cross-border supply and on recognition of foreign licenses. In land transport, heavy regulations, market protectionism, and the state-owned monopolies (in rail transport) limit the possibility for trade. Most restricted is the legal sector, where service provision, apart from advisory legal services, is limited to country nationals. In contrast, information technology (IT) services are lightly regulated and trade in this sector depends largely on other factors, such as technological advancement and protection of intellectual property (IP) rights.”

According to the report, overall, the CEFTA region is a large net exporter of services, with total service exports of EUR 16.1 billion – almost double service imports (EUR 8.7 billion) – for 2007–09. Nevertheless, once tourism receipts and outflows are excluded, services exports (EUR 6.2 billion) were only slightly higher than imports (EUR 5.9 billion). Bosnia and Herzegovina is the only CEFTA country with significant net exports due primarily to the export of construction services. Croatia’s exports are slightly higher than imports; Kosovo and Serbia have balanced trade; and the rest are, by a small margin, net importers.

The study finds that travel is the major source of inflows for countries on the Adriatic coast, followed by transport and communications services. The region received 9.6 billion Euros in tourism receipts in 2009, two-thirds went to Croatia, but Albania and Montenegro also benefited from the sector. The trade in transport services amounted to EUR 2.2 billion in recent years, while communication services brought the region about EUR 850 million.

“CEFTA countries that have more open trade in services can serve as examples of how to liberalize to others that have tighter restrictions,” says Lazar Sestovic, World Bank economist in the Europe and Central Asia region and co-author of the study. “As all these countries aspire to join the EU, adopting similar principles of integration regarding, for example, the right of establishment and cross-border provision, seems to be a natural path to follow.”

Sestovic added that, “In any case, if the CEFTA countries decide to enhance trade and integration of their service sectors, the next step would be to review in detail domestic regulation of the sectors of interest. Then, regulations that are more trade-restrictive than necessary should be removed.”

[1] Members of the Central European Free Trade Agreement (CEFTA) are: Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia, Kosovo, Moldova, Montenegro, and Serbia.

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