The
establishment of free trade area between Bulgaria and the European
Union
Part II
6. Level of utilisation of market access for Bulgarian
exports
In general terms it is considered that export growth while
accelerating the economic transformation and reducing the economic
pain will result in positive economic rates and contribute to
locking-in market reforms.
In the 1990s when the Europe Agreement with Bulgaria was
negotiated and concluded most of the intra West European industrial
trade has been liberalised by means of a net of Agreements, the
most recent of which is the European Economic Area (EEA) Agreement.
The Agreement is based on previous trade liberalisation provisions
under bilateral Agreements between the EC and EFTA (although
Switzerland did not join the EEA its trade relations with the other
countries are developing on liberalised terms under the EFTA
Agreement and the bilateral free trade agreement with the EC).
Therefore the Europe Agreement with Bulgaria (and the other
CEEC) providing for removal of border protection barriers is
expected to increase export opportunities by levelling to some
extent the conditions for marketing products originating in
Bulgaria on the markets of the EU Member States (it is worth
mentioning that duty-free access does not yet mean free trade
taking into account also the non-tariff barriers).
6.1. The effect of tariff dismantling on Bulgarian
exports
The tariff protection faced by Bulgarian industrial exports on
Community markets before the entry into force of the Interim
Agreement on a simple average basis amounted to 6.4% for all
industrial products. The break-down by sector indicates level of
tariff protection of 10.4% for footwear, 10.1% for textiles and
clothing, 9.3% for plastics, 7.3% for chemical products, 5.8% for
electrical machines and apparatus, 5.4% for iron and steel, 5.2%
for non-ferrous metals, 4.1% for non-electric machinery, etc.1).(
Significant tariff escalation exists in areas such as leather,
rubber, textiles and metals).
As far as market shares are concerned these are very modest as
compared to other Community suppliers (total exports of the six
CEEC represent a small fraction of extra - Community trade nearly
equal to Switzerland's exports alone). On the other side exports to
Community markets account for more than one third of total
Bulgarian exports (for the other CEEC EU markets account for nearly
75% of their exports in 1992-1993).
The substantial part of Bulgarian industrial exports (65-68%)
was liberalised with the entry into force of the Agreement (31
December 1993). The remaining part consisting of the so called
sensitive products (exports of textiles covering 21% of industrial
exports to the EC, of ECSC products (coal and steel) - 7% and of
some chemical products, footwear and tableware covering 5% of
Bulgarian industrial exports) has been subjected to progressive
liberalisation.
The latter group (chemical products, footwear, tableware) was
completely liberalised on 1 of January 1995 following the
acceleration of trade liberalisation under the additional to the
Europe Agreement protocols. During the coarse of the year 1994
exports of these products benefited from a suspension of customs
duties within the limits of annual Community tariff quotas or
ceilings. For quantities in excess of the annual tariff contingents
customs duties were subjected to progressive dismantling by annual
reductions of 15% with a view to be abolished by the end of the
fifth year following the entry into force of the Agreement. However
this process was accelerated by means of the Additional protocols
and thus the remaining duties were eliminated 2 years earlier.
The elimination of duties in 1995 is expected to affect
positively Bulgarian exports of these products taking into account
the high utilisation rate of the duty-free tariff contingents in
1994 (100% for most of the products). Exports from Bulgaria of some
product groups (footwear, tableware, fertilisers) exceeded the
duty-free tariff contingents nearly twice.
The speeding up of trade liberalisation affected also exports of
ECSC products (duty-free access on 1 January 1996 instead of 1
January 1997 under the initial timetable) and of textiles
(duty-free access on 1 January 1997 instead of 1 January 1999).
Meanwhile both groups are subjected to progressive reductions with
a view to arrive at complete abolition of duties on the above
indicated dates.
In general terms increased market access opportunities affected
positively Bulgarian industrial exports to the Community. The most
significant result of market access improvement is the rapid
response of the so called sensitive sectors which nearly doubled
their export volumes (at the beginning of 1995 textiles and ECSC
products accounted for almost 50% of Bulgarian exports due to a
higher rate of increase than the average for total industrial
exports).
The influence of trade liberalisation on sectors for which
Bulgaria has comparative advantages and could benefit from
improvement of market access is best illustrated by the performance
of the respective exports during 1994 as follows:
- exports of products of the chemical industry and allied
industries increased by 142% as compared to the previous
period;
- of plastics and articles thereof and of rubber and articles
thereof - by 136%;
- of raw hides/skins, leather and articles thereof - by
153%;
- of wood and articles of wood - by 145%;
- of pulp of wood or other cellulosic material - by 131%.
The most significant response to market access opportunities has
been witnessed by the exports of vehicles (works trucks), steel and
articles of base metals and machinery, mechanical appliances and
electrical equipment. These exports registered remarkable increases
of 554% for vehicles, of 227% for steel and steel products and 156%
for machinery and equipment.
As far as exports of textiles are concerned, the trend is
positive with an increase of 112% in 1994 from a level nearly
double the one registered in 1991.
The average level of increase of all industrial exports
destined to the EU markets in 1994 was 136% as compared to the
previous period. (see Tables).
While exploring the level of market access utilisation due
account should be paid to the processes taking place in Bulgaria
(restructuring of the economy with the inevitable drop in output)
and also in the Community (the functioning of the Single
market).
6.2. The effect of elimination of quantitative restrictions
and measures of equivalent effect.
Under the provisions of the Europe Agreement all residual
specific (imposed under Regulation 3420/83) and non-specific (under
Regulation 288/82) quantitative restrictions are eliminated. It is
worth mentioning that most of these restrictions have been related
to the Community regime applied towards the "State- trading
countries" (with the entry into force of the Interim Agreement
Bulgaria has been deleted from the list).
Quantitative restrictions still apply on trade in
textiles between Bulgaria and the EC. These are governed by the
provisions of the Additional protocol on quantitative arrangements
and other related issues on trade in textile products which
followed on the expiration of the Bilateral agreement on trade in
textile products between Bulgaria and the Community initialled on
11 July 1986 and applied provisionally since 1 January 1987 (a
Multifibre Arrangement - type since Bulgaria has not been a MFA
signatory).
The integration of all textiles and clothing products into
the GATT rules and disciplines (World Trade Organization Agreement
on Textiles and clothing concluded under the GATT Uruguay Round)
provided for the possibility to determine the modalities and the
period for elimination of quantitative restrictions on trade in
textiles between Bulgaria and the Community. For Bulgaria (and
the other associated countries from Central and Eastern Europe)
this period shall be equal to half the integration period as
decided in the Uruguay Round, i.e. five years starting from the
entry into force of the Agreement (as indicated above on 1 January
1998). However the safeguard provisions allow for imports not
subject to Quantitative limits to be subjected to such restrictions
when imported in such increased quantities and under such
conditions as to cause serious damage or actual threat thereof to
the Community's production of like or directly competitive
products. 2)
According to estimations about 20% of Bulgarian textile exports
to the Community fall under the restraint limitations.
In the coal and steel sector (products governed by the
Treaty establishing the European Coal and Steel Community, or the
ECSC products) 3) quantitative restrictions are abolished with the
entry into force of the Agreement. As far as measures with
equivalent effect are concerned a prior surveillance system has
been introduced after the entry into force of the Agreement on an
erga omnes basis (as a safeguard measure) seeking to prevent market
disruption (in 1994).
In March 1995 a double checking system in bilateral trade based
on export certificates issued by the Bulgarian authorities was
introduced with a view to avoid further restrictive action by the
Community under the specific safeguard provisions of the Agreement
(under Article 5 of Protocol 2 to the Agreement when exceptional
circumstances require immediate action, the importing Party may
adopt forthwith quantitative or other solutions). The list of
products subjected to this "double checking system" is annexed to
Protocol 2.
6.3. The effect of the Single market on free circulation of
goods.
Before the entry into force of the Single European Act
circulation of goods within the Community was impeded by a long
list of barriers such as: national trade restrictions protecting
individual member States' markets from external suppliers, national
registration and type approval procedures, differing technical
standards and industrial requirements, capital controls,
preferential public procurement, administrative and frontier
formalities, VAT and excise tax rate differences, differing
transport regulations, etc.
The Single market implies abolition of national restrictions
and harmonisation of trading conditions among Member States.
Although the legal provisions of Article 115 of the EEC Treaty
(which allows Member States to erect national barriers against
imports, with the approval of the Commission ) remain in force, the
Single European Act provides no scope for any internal trade
measures against imports from external sources.
In trade in textiles, while the bilateral restraint arrangements
remain in force (these are due to expire in 1998), national import
quotas within the system are abolished. The Bulgarian side (as
other restrained suppliers) has agreed to co-operate to avoid
sudden changes in traditional flows. At the same time the creation
of a unified EC market for textiles resulted in enhanced
flexibility for exporters.
In the steel sector national import restrictions do not apply
and a movement towards restoring market mechanism in this sector is
progressing (expiry of VRA and a tighter reign on subsidies).
However due to stronger import competition and a decline in
domestic demand steel deliveries are subjected to Community-wide
automatic prior surveillance.
In the area of technical barriers to trade applies the principle
of mutual recognition (in the absence of common rules). This
implies that any product qualifies for free circulation throughout
the EC whenever it conforms to regulations valid in any of the
Member States (if approved in one Member State may circulate freely
in all other). Where common technical regulations exist any EC or
third country products meeting these requirements may circulate
freely within the single market.
In the areas of health and safety applies the principle of
harmonisation of technical rules or at least specification of
essential common requirements. Thus a common framework for
acceptance of pharmaceuticals (approval criteria and procedures and
the mutual acceptance of tests) applicable as from 1995 is expected
to promote market integration and to ease conditions for external
trade.
Provision is made in the Single European Act for national
derogations from harmonised policies "on the grounds of major
needs" in areas related to national security, culture, health,
commercial and industrial property. Such measures may not imply
arbitrary discrimination or disguised trade barrier.
In the area of Government procurement national procurement
entities are in general required to apply EC rules to all supplies
worth more than ECU 200 000. However in the "excluded sectors"
(water, energy, transport and telecommunications) the thresholds
are higher. Besides the rejection of bids with a foreign content of
over 50% from foreign countries that have not agreed equivalent
access to EC supplies is permitted. Community preferences is
required also if the price differential is 3% or less.
In the domain of indirect taxation (VAT and excise duties) since
1 January 1993 intra-Community trade ceased to be treated as
imports and exports for fiscal purposes.
The process of harmonisation of indirect taxation within the
Community consists of measures aimed to guarantee neutrality of
taxation in trade between Member States.
The goods covered by the Community excise system are mineral
oils, tobacco products and alcoholic beverages. For the purposes of
the system minimum rates for each product group have been defined.
(Member States may maintain or introduce excise duties on other
products. At present there are national excise duties on certain
tropical products)
All these measures (the implementation of which is in final
stages) should contribute to freer trade conditions for goods
produced within EC boundaries as well as for extra-Community
imports. Available information suggests that the implementation of
the Internal market programme has improved market access,
transparency and legal security in many sectors.
6.4. The effect of improvement in market access on
agricultural exports
The improvement of market access for agricultural products
affected to a much lesser extent export developments than
anticipated. The Community tariff quotas opened for Bulgaria (and
the other associated countries) have not been utilised (the average
rate of utilisation for all Europe Agreement signatories is around
50%). The successive reductions of duties and levies of 20%,40% and
60% for some products have not been sufficient to allow exports to
Community markets. For other products (animal products) other
barriers such as veterinary restrictions (consequences of the
outbreak of foot and mouth decease in Bulgaria, delay in approval
of slaughter houses, vaccination in Bulgaria against classical
swine fever, etc.) hindered exports and in some cases had a
prohibitive effect.
As far as tariff treatment is concerned the reduction of 60% of
the duties and levies took place only on 1 July 1994 and thus
exports form Bulgaria could compete on an equal footing with
agricultural exports from the Visegrad countries in the second half
of the year 1994. It is worth mentioning also that in spite of the
achieved arrangements some delay in opening of the tariff quotas by
means of Commission Regulations needed to implement these
arrangements has been witnessed. This delay did not allow economic
operators to be informed well in advance in order to apply for
quota shares.
The list of products under preferential treatment was
established on the basis of trade performance during the period
1989-1991, i.e. performance under a different market system
(particularly as far as price levels are concerned). At the same
time due to the process of restructuring agricultural output
sharply decreased and thus influenced export volumes but also
export destinations ( a shift to markets considered more profitable
and easier to compete than the Community markets).
Exports of perishable products have been adversely affected by
high transport costs due to the imposed UN sanctions against Serbia
and Montenegro. This also contributed to the shift towards markets
which could be reached without additional costs.
On the whole improvement in market access did not result in
export growth due to internal and external factors. On the contrary
agricultural exports contracted and the tariff quotas opened for
Bulgaria were not used.
Notes:
1) For details see GATT document C/RM/S/36B
2) Council Regulation EC No 3289 of 22 December amending
Regulation No 3030/93 on common rules for imports of certain
textile products from third countries.
3) The Treaty establishing the European Coal and Steel
Community has been signed on 18 April 1951 and has been concluded
for a period of fifty years from its entry into force.
7. Commercial defence instruments - legislation and
practice
The utilisation of trade concessions granted under the
Agreement is often influenced by the way each party applies
commercial defence instruments. In this domain the Community is
much more experienced than the Bulgarian side. Some sectors of
trade for which the Bulgarian side has potential advantage to
benefit from market access opportunities are under imminent threat
of being considered as causing injury to Community producers in
case of increased imports.
Further to the concerns of the associated countries that
excessive recourse to commercial defence may compromise the
concessions granted the European Summit in Essen took a decision
that information would be offered to any associated country before
the initiation of an anti-dumping or safeguard procedure in the
framework of the individual Europe Agreements. Where appropriate on
a case-by- case basis a clear preference will be given to price
undertakings rather than duties in order to conclude an
anti-dumping case.
7.1. The provisions of the Europe Agreement on safeguards and
anti-dumping
The Europe Agreement and its Protocols contain several safeguard
clauses related to all trade and to specific sectors of trade as
follows:
- a general safeguard clause based on GATT Article XIX allowing
each party to take appropriate measures where any product has been
imported in such increased quantities and under such conditions as
to cause or threaten to cause serious injury to domestic producers
of like or directly competitive products in the territory of one of
the parties or serious disturbance in any sector of the economy or
difficulties which could bring about serious deterioration in the
economic situation of a region. Before taking the measures the
party concerned shall supply the Association Council with all
relevant information with a view to seeking a solution acceptable
to the two parties. In the selection of measures priority shall be
given to those which least disturb the functioning of the Agreement
(Article 31 of the Agreement which is applied in accordance with
the procedure stipulated in Article 34);
- a specific safeguard clause in agricultural trade which given
the particular sensitivity of the agricultural markets allows the
party concerned in case of imports causing serious disturbance to
its markets to take the measures it deems necessary pending the
outcome of bilateral consultations aimed at finding an appropriate
solution (Article 22 of the Agreement which may be invoked
immediately notwithstanding the provisions of Article 31 );
- a specific safeguard clause in trade with ECSC products which
given the particular sensitivity of the steel markets allows the
party concerned in case of imports of specific steel products
causing or threatening to cause serious injury to domestic
producers of like or directly competitive products or serious
disturbance to its steel markets to adopt forthwith quantitative or
other solutions strictly necessary to deal with the situation
pending the outcome of the bilateral consultations aimed at finding
an appropriate solution (Article 5 of Protocol 2 on ECSC products
which may be invoked immediately notwithstanding the provisions of
Article 31 and 34 of the Agreement).
- safeguard measures in trade in textile products not subject to
quantitative limitations may be taken in case of imports taking
place in such increased quantities and under such conditions as to
cause serious damage or actual threat thereof to the Community’s
production of like or directly competitive products. Such imports
may be made subject to quantitative limits under the conditions
laid down in the Additional Protocol on textiles.
- an exceptional safeguard clause allows only the Bulgarian side
to take measures in the form of increased customs duties in order
to safeguard infant industries or certain sectors undergoing
restructuring or facing serious difficulties particularly where
these difficulties produce important social problems. These
measures may not exceed 25% ad valorem and shall maintain an
element of preference for products originating in the
Community;
- safeguard measures on exports may be adopted in case of
serious shortage or threat thereof of a product essential to the
exporting party or re-export towards a third country against which
the exporting party maintains, for the products concerned,
quantitative export restrictions, export duties or measures having
equivalent effect and the situations referred to are likely to give
rise to major difficulties for the exporting party, that party may
take appropriate measures under the conditions described in Article
34. The measures shall be non-discriminatory and be eliminated when
conditions no longer justify their maintenance (Article 32 of the
Agreement).
If one of the parties to the Europe Agreement finds that dumping
is taking place in trade with the other party within the meaning of
Article VI of the GATT, it may take appropriate measures against
this practice in accordance with the Agreement relating to the
application of Article VI of the GATT with related internal
legislation and with the conditions and procedures laid down in
Article 34 of the Europe Agreement.
The Agreement describes the procedure to be followed in case of
trade remedy actions. Before taking the measures the party
concerned shall hold consultations with the other party with a view
to seeking a solution acceptable to the two parties. If no
satisfactory solution has been reached within 30 days of the matter
being referred the party concerned may adopt the appropriate
measures to remedy the problem not exceeding the scope of the
difficulties that have arisen. The safeguard measures shall be
notified immediately to the Association Council and shall be the
subject of periodic consultations, particularly with a view to
establishing a timetable for their abolition as soon as
circumstances permit.
In case of dumping the Agreement provides for notification of
the Association Council as soon as the investigation procedure is
initiated by the importing party. This provision has been amended
by the decision of the Essen Summit that the exporting party shall
be informed before the initiation of the anti-dumping
investigation.
Where exceptional circumstances requiring immediate action make
prior information or examination impossible the party concerned may
apply forthwith the precautionary and provisional measures strictly
necessary to deal with the situation and the Association Council
will be immediately informed.
The specific safeguard provisions of the Europe Agreement
relating to the sensitive trade sectors may serve as a basis for
concerted trade actions. Therefore in the course of the practical
application of the Agreement it may be preferable to moderate
exports with a view of pre-empting possible invocations of the
safeguard clause by the Community.
In 1994 in order to avoid the invocation of the specific
safeguard in agricultural trade the Bulgarian side (and the other
associated countries) agreed to the introduction of minimum import
prices on imports of sour cherries intended for processing. The
price levels had been determined after consultations with the
associated countries following the decision of the Community to
introduce an early warning system in case of difficulties arising
in trade with agricultural products. The duration of the measure
was one year aiming to safeguard Community producers during the
marketing year 1994-1995.
In 1995 in order to avoid triggering the specific safeguard
clause in trade with steel products the Bulgarian side agreed to
the introduction of a double-checking licensing system in trade
with steel products. Romania also agreed to introduce such a system
while Slovakia introduced a price surveillance system in its trade
in steel products with the Community.
Before the entry into force of the Interim Agreement the
Community initiated anti-dumping proceedings against imports from
Bulgaria of urea-ammonium nitrate solution (fertiliser UAN). The
proceedings against Bulgaria were undertaken under the provisions
of Community legislation for non-market economies. The matter was
referred for examination in the Joint Committee after the entry
into force of the Interim Agreement, but the Community did not
change its position and considered the case on the basis of
determinations for non-market economy arguing that the
investigation had been initiated when Bulgaria was still in the
list of state trading countries (for the purposes of determining
the normal value the Czech Republic has been considered as a
reference market economy). The case was completed with the
introduction of voluntary price undertakings from the Bulgarian
exporter jointly with the Bulgarian producer.
7.2. The EC legislation and practice
In the context of the common commercial policy measures to
protect trade such as those to be taken in case of dumping or
subsidies shall be based on uniform principles. Further to this
provision of the Treaty establishing the European Economic
Community in its relations with third countries the Community
applies common rules for protection against dumped or subsidised
imports from countries which are not members of the European
Community.
The common Community rules have recently been amended in the
light of the multilateral trade negotiations concluded in 1994 in
order to ensure an adequate implementation of the Agreement on
Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994 ("the Anti-Dumping Agreement") and the Agreement on
Subsidies and Countervailing Measures ("the Subsidies Agreement").
Pursuant to the international obligation of the Community the
Council adopted Regulation 3283/94 on protection against dumped
imports from countries not members of the European Community and
Regulation 3284/94 on protection against subsidised imports from
countries not members of the European Community. Both Regulations
entered into force on 1 January 1995.
In the light of the new Agreement on Safeguard after the
completion of the GATT Uruguay Round and the Community’s
obligations deriving from it the Council adopted Regulation 3285/94
on the common rules for imports in force from 1 January 1995.
Whereas the Agreement on Safeguard also covers ECSC products the
common rules for imports especially as regards safeguard measures
apply also to those products.
Safeguard measures in trade in textiles are applied in
accordance with the provisions of Regulation 3289/94 on common
rules for imports of certain textile products from third
countries.
In order to ensure the exercise of the Community’s rights under
international trade rules, in particular those established under
the auspices of the WTO the Council adopted Regulation 3286/94
laying down Community procedures in the field of common commercial
policy (on actions taken under the New Commercial Policy
Instrument). The mechanism under the Regulation aims to provide
procedural means to react to obstacles to trade adopted or
maintained by third countries which cause injury or otherwise
adverse trade effects, provided that a right of action exists, in
respect of such obstacles, under applicable international trade
rules. The exercise of Community’s rights under international trade
rules aims at: responding to obstacles to trade that have an effect
on the market of the Community with a view to removing the injury
resulting therefrom; and responding to obstacles to trade that have
an effect on the markets of a third country, with a view to
removing the adverse trade effects resulting therefrom. These
procedures shall be applied in particular to the initiation and
subsequent conduct and termination of international dispute
settlement procedures in the area of common commercial policy.
The recently adopted Regulations are aimed at conformity with
the international rules and disciplines of GATT 1994 (previously
applied community legislation has been repealed).
The recorded actions of trade defence undertaken by the
Community in its trade relations with third countries indicate that
safeguard actions are relatively rare (in particular in the
industrial sector) while anti-dumping procedures are of relatively
frequent use.
7.3. The Bulgarian legislation on trade remedy
actions
The Bulgarian side adopted in September 1993 Regulation 181 on
protection against dumped or subsidised imports. The provisions of
the Regulation follow the provisions of the Anti-Dumping Code of
the GATT (1979) and of the GATT Code on Subsidies and
Countervailing duties (1979). The provisions of the Regulation are
based on the casual link between dumped or subsidised imports and
the material injury or threat thereof sustained by domestic
producers. No amendments have been introduced since then in
particular to reflect the conclusion of the GATT Uruguay Round.
Safeguard measures are adopted in compliance with the provisions
of Regulation 180 in force as of 15 September 1993 on
implementation of safeguard measures on imports into the Republic
of Bulgaria. Under the legal provisions of the Regulation measures
against market disruption may be taken if the product in question
is imported into Bulgaria in such increased quantities and under
such conditions as to cause or threaten to cause serious injury to
the Bulgarian producers of like or directly competitive products.
The duration of the safeguard measures shall be one year.
The Bulgarian practice in the area of trade remedy actions
indicates a clear preference to safeguard measures. During the
period following the adoption of the two Regulations no
anti-dumping action has been initiated while several safeguard
measures against imports of products taking place in such increased
quantities and under such conditions as to cause injury to domestic
producers of like or directly competitive products have been
introduced (steel pipes and tubes, electrical bulbs, motor tyres,
matches, steel balls).
The reason for not resorting to anti-dumping actions is on one
side the lack of competent expertise and on the other side lack of
financing to hold the necessary investigations. In this area
additional efforts are needed not only for adopting and
implementing the legislation but also for creating an experienced
team dealing with the application of this legislation in compliance
with the international obligations of Bulgaria. In general the
currently applied legislation on trade-remedy actions is still in
its early stages.
The national legislation on commercial defence has to be
consistent with the relevant GATT rules (the Agreement on the
Implementation of Article VI of the GATT 1994; the Agreement on
Subsidies and Countervailing Measures; the Agreement on
Safeguards). Therefore in this area the respective legislation has
to be further developed.
As far as protective actions in bilateral relationship are
concerned the application of measures (against dumped or subsidised
imports) may be prohibited after the adoption of Community
competition rules. Having achieved that a political decision will
be needed to adapt the provisions of the Europe Agreement in order
to ban anti-dumping and anti-subsidy measures between the two
parties.
8. The consequences of the GATT Uruguay Round and the latest
enlargement
The free trade area between Bulgaria and the Community shall be
established in conformity with the provisions of the GATT. With
this regard the Agreement provides for an examination to take
account of the consequences of the multilateral trade negotiations
under the auspices of General Agreement on Tariffs and Trade.
As far as enlargement is concerned the Agreement provides for
consultations in between the parties in the Association Council in
the event of a third country acceding to the Community so as to
ensure that account can be taken of the mutual interests of the
Community and Bulgaria stated in the Agreement. Upon accession the
new Member State while accepting acquis communautaire will become a
party to the Europe Agreement and will apply the Europe Agreement
as of the date of accession.
Further to the discussions between the associated countries and
the European Union on the strategy to be followed with a view to
preparing these countries for accession (following the decision of
the European Summit in Copenhagen June 1993 that future
relationship with the countries from Central and Eastern Europe
shall be geared to the objective of membership) the European Summit
meeting in Essen (December 1994) decided that the Association
Agreements will be adapted in the light of enlargement of the Union
at the beginning of 1995 in order not to disrupt traditional trade
flows and of the conclusion of the Uruguay Round, and to further
develop trade.
Further to this conclusion negotiations were opened on trade in
textiles and trade in agricultural and processed agricultural
products. These negotiations are to be considered in the framework
of the pre-accession strategy as further building upon the Europe
Agreement.
8.1. The impact of the GATT Uruguay Round
The commitments on market access while contributing to further
liberalisation of international trade will influence the free trade
area between Bulgaria and the European Communities by diminishing
(and in some cases eliminating) the margin of preference vis-И-vis
third trading partners. Such tariff reductions taking place on an
erga omnes basis will be automatically applied for the purposes of
the establishment of the free trade area (Article 8 of the
Agreement). Those products of Bulgarian origin for which the
Community has granted duty free access under its international
commitments will face increased competition on Community markets.
Therefore the GATT Uruguay Round results will affect exports of
industrial products with the Community to the extent of offering
equal market access opportunities to all Community suppliers for
the products under duty free treatment on an erga omnes basis
(erosion of the preferences granted).
In trade in agricultural products the commitments on market
access (Agreement on Agriculture under the WTO Multilateral Trade
Agreements) provide for converting all non-tariff border protection
measures into tariff measures (tarification of non-tariff measures)
and granting tariff reductions in the course of the successive five
years.
As a result of the substantial modification of the system of
border protection Bulgarian agricultural exports to the Community
will be affected as follows:
- the tarification (conversion of variable levies into specific
duties) will result in greater transparency of the border
protection system; the effect of tarification on the margin of
preference in some cases is neutral (the margin is maintained
vis-И-vis third countries);
- however for some products the tarification will result in
lesser market access opportunities on the Community markets as the
levels of the specific duties are higher than the levels of the
variable levies applied during the last years (pig meat, poultry
meat and eggs);
- for products subject to border protection in the form of
tariffs (meat of game, fatty liver of geese or ducks, fresh, dried
or provisionally preserved fruit and vegetables, prepared or
preserved fruit and vegetables, fruit and vegetable juices,
tobacco) the GATT commitments of the Community will result in
diminishing or eliminating the margin of preference; in some cases
the erga omnes levels allow to maintain the margin in relative or
even in absolute terms); in other cases (for example fatty livers
of geese which are traditionally exported to the Community markets)
the margin of preference could not be re-established;
- the system of reference prices applied on imports of some
fresh fruit and vegetables which has been considered as having more
restrictive effect than the applied duty rates has been replaced by
the system of entry prices; the tarification resulted in such a
high level of the specific duty which would apply in addition to
the ad valorem duty that it would have been impossible to export;
(the Europe Agreement provides for reductions of the tariff element
of border protection; there are no provisions on non-tariff
protection such as the reference prices; simply the Bulgarian
exporters had to comply with the reference prices; in case of
non-observance of these prices countervailing duties were
introduced); therefore Bulgarian exporters observing the new system
of entry prices will benefit from the ad valorem reductions (in
case of import prices falling below 92% of the announced entry
price levels the full amount of the specific duty which is the
tariff equivalent of the reference prices, would have to be
paid);
- as a result of the tarification the voluntary export restraint
imposed on Bulgarian exports of sheep and goat live animals and
meat thereof has been converted into a country specific tariff
quota; the additional restrictions on observing sensitive periods
and regions were eliminated in parallel to the expiry of the
restraint Agreement.
The bilateral negotiations to formally adapt the Europe
Agreement to take account of the results of the GATT Uruguay Round
in agricultural trade are well under way. The Community is
considering further tariff reductions to the amount of 80% besides
the technical adaptation due to modification of border protection.
No compensation of the erosion of preferences has been envisaged.
The formal conclusion of an Agreement (in the form of an additional
protocol) is conditional on applying the principles of Community
preference and reciprocity ( conclusions of the Cannes European
Council, June 1995). The requirement is that Bulgaria (and the
other associated countries) will continue to apply on imports from
the Community the duty rates in force on the date of entry into
force of the Agreement (Article 26 of the Europe Agreement), i.e.
will observe the provision on standstill for all agricultural
products for which the GATT commitments allow an increase of tariff
rates. In this case the argument of the Community is that the
Europe Agreement commitments are prevailing to international
commitments. However it is worth mentioning that maintaining the
tariff rates prior to Uruguay Round in relations with the Community
will result in additional concessions for products subjected to
tariff increases. With this respect further improvement in market
access (as initially suggested by the European Commission) will
balance the concessions granted (in the form of introducing
flexibility provisions for tariff quotas allowing for better
utilisation and progressive increase of these quotas with a view to
arrive at unlimited concessions thus aiming at progressive
integration of agricultural trade into the free trade area). The
prospect of integrating the agricultural trade into the free trade
area with the Community will ease the pressure on Bulgaria from the
other GATT contracting parties to lower its m.f.n. rates. At the
same time GATT tariff bindings of Bulgaria comparable to those of
the Community will help future alignment of tariffs upon accession
of Bulgaria to the European Union (there will be no need to
compensate other GATT contracting parties, therefore the GATT
tariff increases are in the interest of the Community).
The market expansion of Community exports to the markets of the
associated countries in parallel with the low level of utilisation
of tariff quotas opened for these countries resulted in substantial
trade deficits (only Hungary registered a surplus in its
agricultural trade with the Community in 1993). While addressing
trade imbalances account should be taken also of the system of
export refunding applied by the Community on exports destined to
the associated countries with a view to avoid market disruption
while these markets are undergoing restructuring.
The progress achieved so far (four rounds of bilateral
discussions) indicate that a more flexible approach will be needed
in order to arrive at a substantial improvement of the agricultural
trade part of the Europe Agreement.
On the basis of the GATT Agreement on the Application of
Sanitary and Phitosanitory Measures an agreement between Bulgaria
and the European Union in the area of veterinary and phytosanitory
measures could contribute to facilitating trade in agricultural
products (some of the associated countries e.g. Poland, Romania
have started negotiations of such an agreement).
In the area of movement of goods and pending the formal
adaptation of the Europe Agreement interim and autonomous measures
will be taken to avoid disruption of trade flows following
implementation of the results of the Uruguay Round on 1 July 1995
on the part of the Community (the Bulgarian side has not completed
yet its WTO accession negotiations and therefore continues to apply
its current tariff rates thus observing the standstill
requirement).
8.2. The impact of the enlargement
The accession of the free former EFTA States (Austria, Finland
and Sweden) to the European Union affected export rather than
import trade flows between Bulgaria and these countries. With the
exception of Finland with which Bulgaria had already established
free trade in industrial products under the bilateral Agreement on
Reciprocal Removal of Obstacles to Trade (signed 26 April 1974) the
tariff treatment for industrial products on imports coming from
these countries has been identical to the treatment granted to the
European Union. This has been achieved during the negotiations on
Bulgaria-EFTA Free Trade Agreement on the basis of the principle of
parallelism between the Europe and the EFTA Agreement. In trade
with agricultural products Bulgaria has concluded bilateral
arrangements with each one of the EFTA States. In this sector of
trade Bulgarian exports have lost their margin of preference
vis-И-vis Community economic operators enjoying the opportunities
of the Internal market after the accession of the three new member
States (for industrial products the free trade area has already
been established under bilateral Agreements). Besides for some main
agricultural products Bulgarian exports have received unlimited
duty-free access (e.g. exports of wine to the Scandinavian markets,
of some fresh fruit and vegetables to the Austrian market)
On the export side the situation is as follows:
- in trade in textiles Bulgarian access to the markets of the
three countries has not been subjected to quantitative restriction;
upon their accession to the Union quantitative limitations are
applied; negotiations were held with a view to adapt Community wide
quotas to take account of the enlargement; nevertheless the
introduction of quantitative limitations has a restrictive trade
effect;
- the market access opportunities for textiles on the Finnish
market have been additionally diminished as a result of the
re-establishment of duties insofar as these Bulgarian exports
enjoyed duty-free access prior to Finland’s accession; exports of
textiles to Austria and Sweden were partially affected by the
re-introduction of duties (under the Agreement with EFTA a part of
textile products has been immediately liberalised with the entry
into force of the Agreement);
- in trade with ECSC products the precautionary safeguard
measures undertaken in bilateral trade with the Community (the
double checking licensing system) are applied also on Bulgarian
exports to these markets;
- all contingent protection measures (e.g. anti-dumping on
exports of fertilisers, voluntary restraint in sheep and goat meat
sector) apply also to the market territories of the new Member
States;
- in trade in agricultural products the import protection of the
three new member States has been based to a large extent on non-
tariff barriers (e.g. extensive licensing system with more
restrictive trade effect than tariffs); in some cases it has been
considered that their import regimes for agricultural products are
much more protective than the regime of the Community; with this
respect their accession to the European Union will affect adversely
mainly the price based elements of market access opportunities for
Bulgarian products.
Negotiations on the formal adaptation of the Europe Agreement
are under way. In trade in textiles these negotiations are
completed and the enlarged Community wide quantitative limitations
are de facto applied. In trade in agricultural products the formal
adaptation due to enlargement will be accomplished in parallel to
the adjustment to take account of the Uruguay Round. Meanwhile
autonomous and temporary measures deemed necessary to bridge the
gap between the date of accession and the formal adaptation are
being implemented. The first series of these measures (tariff
quotas opened under the bilateral arrangements on agriculture) has
already been introduced. The second series (based on trade
performance) is still under consideration. The substantial part of
Bulgarian exports to the markets of the new Member States is
falling under the second series which is expected to be applied
retroactively as of 1 January 1995 for a period of one year (till
the end of 1995). The Bulgarian side has also opened tariff quotas
according to the provisions of bilateral agreements with Austria,
Finland and Sweden. As far as trade performance is concerned the
Bulgarian side confirmed its readiness to implement autonomous
measures as of the date Community implementation takes place.
On the whole the adaptation due to enlargement is negotiated on
the basis of the Europe Agreement without counting debits and
credits in relation to trade regimes prior to and after the
accession of the new Member States. Compensations for Bulgaria (and
for the other associated countries) are not envisaged.
9. Conclusions
9.1. The significance of the Europe Agreement
- with the entry into force of the Europe Agreement the progress
of political and economic reforms in Bulgaria has been
recognised;
- while approving the Agreement the Council of Ministers of the
European Union decided to grant Bulgaria the treatment of market
economy in the area of commercial defence; moreover all residual
restrictions applied under Community trade regimes for state
trading countries were abolished with the entry into force of the
Agreement;
- further to the decisions of the European Council meeting in
Copenhagen the ultimate goal of Bulgaria to join the European Union
has become a shared objective; with this regard the establishment
of the free trade area between Bulgaria and the European Union will
substantially contribute to the achievement of the objective of
membership;
- the Europe Agreement is the main instrument for accomplishing
this objective as in the area of free movement of goods the
provisions of the Agreement follow the text of the Treaty
establishing the EEC for the purposes of the establishment of the
Customs Union between Member States;
- upon completion of the process of progressive trade
liberalisation will be possible to meet the requirement of
prohibition as between Member States of all customs duties and
quantitative restrictions and charges of equivalent effect;
- however it has to be emphasised that the provisions of the EEC
Treaty cover all trade, while the free trade area between Bulgaria
and the European Union covers substantially all trade excluding
trade in agricultural and processed agricultural products;
9.2. The implementation of the Agreement and its impact on the
Bulgarian economy
- while exploring the effects of the Agreement and taking into
account the increasing share of trade with the European Union in
total Bulgarian trade it is anticipated that trade liberalisation
will contribute to the overall liberalisation of Bulgarian economy
and will provide for revitalisation and economic growth;
- under the provisions of the Europe Agreement Bulgaria will
gradually open up its market to imports from the Community during a
period lasting a maximum of ten years which is considered as a
reasonable length of time to allow Bulgarian industries to adapt to
increased competition while diminishing the adjustment costs;
- at the same it is considered that increased competition will
assist the process of restructuring the domestic production away
from a highly protective market, towards activities where the
country has an actual or potential comparative advantage;
- taking into account the agreed upon timetable for phasing out
tariffs for the bulk of Bulgarian imports from the Community the
process of duty dismantling has not started yet; Bulgaria will
grant free trade to the Community in the year 2002;
- on the export side in line with the agreed upon principle of
asymmetry the substantial part of Bulgarian exports to the
Community was liberalised with the entry into force of the
Agreement; for the remaining part including products of the
so-called sensitive sectors of trade Bulgaria will be granted
liberalised access to Community markets in 1998;
- on the whole it may be considered that increased market access
opportunities affected positively Bulgarian exports to the
Community; trade liberalisation according to available data has
been of great significance for the exports of the so-called
sensitive sectors (a notable exception is the agricultural sector)
which rapidly responded to market access opportunities;
- it has become evident that the utilisation of the concessions
granted is greatly influenced by the way the Community applies its
trade defence instruments; in some cases it turned out that in
order to avoid the invocation of its specific safeguard clauses it
is preferable to restrict or modify exports.
9.3. Further building upon the Europe Agreement
- a re-assessment of the trade package may be undertaken in the
light of inter alia the results of the GATT Uruguay Round;
- in the short run a balanced assessment of the trade provisions
is needed to take account of the marked expansion of Community
agricultural exports;
- in the medium run the prospect of integrating the agricultural
sector into the free trade area may be considered; this will allow
for gradual adaptation of price levels and thus reduce the cost of
accession to the Common agricultural policy of the EU;
- with a view to approximate policies, but also to facilitate
trade an agreement in the area of veterinary and phytosanitory
measures should be negotiated.
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