55876 MAY 2010 ABOUT THE AUTHOR Getting Everybody to the Table: LAZAR RISTIC The Negotiation Process for the Regional Trade Facilitation joined FIAS (Investment Climate Advisory Service) in Project in the Western Balkans 2007, working on regulatory simplification in the Western Balkans, and most recently on "The problem of our time is not how to keep nations peacefully apart, but developing a regional trade how to bring them actively together," wrote David Mitrany in 1943.1 With facilitation program in the Western Balkans. Prior to that in mind, think about developing the concept for a regional trade joining FIAS, he worked for five years in public administra- facilitation project to introduce leaner and greener transit routes and tion reform. simplified import and export procedures within Europe's southeastern gateways to Asia. Now, imagine representatives from the postconflict APPROVING MANAGER Sanda Liepina, Regional Western Balkan region--Albania, Bosnia and Herzegovina, Croatia, Kosovo, Business Line Leader, FIAS, Europe and Central Asia. the former Yugoslav Republic of Macedonia, Montenegro, and Serbia--all sitting around a table and agreeing on common goals for a regional trade facilitation project. Well, that is what we achieved during the negotiation process for such a project in the postconflict region of the Western Balkans--a region that is moving ever closer to European Union (EU) integration but remains far away from full internal regional integration. This SmartLesson describes the challenges we faced and the lessons we learned during the process of developing IFC's regional trade facilitation project. Background of Yugoslavia fueled bitter rivalries and hostilities that prohibited economic The countries of the Western Balkan region cooperation, but with the advent of the EU are seeking to increase levels of private accession process, trade facilitation has investment to help stimulate and sustain their become an important factor for improving the economic growth. Within the context of EU competitiveness of the region relative to accession and the new Central European Free investment and promoting the flow of goods Trade Area (CEFTA), leaner supply chains that and services. minimize waiting times and trade transaction costs will help improve the competitiveness of The governments of the Western Balkans the region for investment, as well as facilitate understand the importance of trade, as the flow of goods and services.2 reflected by their trade facilitation efforts, including a number of regional initiatives that Many Western Balkan countries are diligently are currently in progress or have concluded. working to achieve EU accession, and their Most Western Balkan countries are members proximity to the EU has helped foster growing of the World Trade Organization, the World ties between the countries. However, Customs Organization, and the Transports antiquated border procedures requiring Internationaux Routiers, and continuing duplicated efforts impede the Western Balkan government activity demonstrates their countries from fully integrating with the commitment to regulatory reform. Western global economy in general, and the EU in Balkan governments recognize that they must particular. The conflicts following the breakup make trade easier and cheaper if they are ever 1 Mitrany, David, 1966: A Working Peace System, page 28, to fully integrate with the EU and reap the full Quadrangle Books, Chicago 2 "Regional Cooperation in the western Balkans: A policy economic benefits of trade. To date, these priority for the European Union," 2005, European Commission, government efforts have been commendable, Brussels, was a valuable resource for this SmartLesson. IFC SMARTLESSONS -- MAY 2010 1 but the region has a long way to go to realize its trade potential. Enhanced regional cooperation is one of the major objectives for the Western Balkans--as outlined in the Thessaloniki agenda and endorsed at the EU­ Western Balkans Summit in June 2003--to strengthen the stabilization and association process. The Western Balkan countries committed them- selves to continuing to develop regional cooperation and to promote a series of specific objectives regarding regional free trade; creating regional markets for electricity and gas; developing transport, energy, and telecommunication infrastructures; the environment; technlogy research and development; and cross-border and parliamentary cooperation and collaboration in a number of other areas. Figure1: Corridors and Routes of the Western Balkans Regional cooperation is arguably the most important trade issue the region faces, due to its implications for intra- and inter- country office trade facilitation experts from the Investment regional trade, the accession of Western Balkan countries Climate Advisory Services of the World Bank Group. At to the EU, and ultimately the progressive development of country level, the project will respond to local priorities that the region. Individual country-level reforms appear will also lead to closer economic integration with the EU. promising when examined in isolation, but trade relies on The project will actively partner with relevant organizations-- multiple stakeholders, which can contradict the hard work such as the European Commission, CEFTA Secretariat, of individual countries. The individual achievements of Regional Cooperation Council, and other prominent these countries certainly deserve recognition, but the groups--and coordinate with their ongoing programs countries understand that they must work together to truly aimed at increasing impact and minimizing duplication. develop. None of the Western Balkan countries could ever Sustainability will be provided through the transfer of hope to accomplish alone what is possible through regional expertise to local counterparts in specific areas, as well as cooperation. The countries are small and so must pool their through interaction with the Regional Cooperation Council resources to effectively marshal their market power among or sector-specific organizations. (See Box on next page.) the larger world economies. Lessons Learned "Extended regional cooperation in south-eastern Europe is 1) Build regional consensus through a participatory essential, regardless of the different stages of integration of the process with stakeholders. various countries, and is an important criterion for the European course of the western Balkan countries. The stability, prosperity Building consensus among the beneficiary countries and security of the region are of significant interest to the EU. The around the project's objectives was a priority during the EU will continue to foster all endeavours to promote regional co- development stage, ensuring that all stakeholders identify operation." common project goals. In particular, we targeted --Olli Rehn, European Commissioner for Enlargement stakeholders on the country level--technical, operational, and political--and we built important partnerships on the regional level with institutions such as the CEFTA The IFC project's objective is to increase the competitiveness Secretariat. From the very beginning, we understood the of the countries of the region by reducing regulatory and importance of involving all beneficiary countries and administrative constraints related to trade logistics, as well building on regional knowledge and experiences in the as by harmonizing cross-border clearance systems and elaboration of shared project objectives and the services. To support an efficient trade regime in the region, development of a strong sense of ownership at the regional the project will provide advisory assistance aimed at and country levels, which will include the WBG's expertise, creating leaner supply chains that minimize trade available regional knowledge, and development of a transaction costs and increase the competitiveness of the strong sense of regional control. countries' trade with global markets. 3 SITA Airport Management is a suite of core applications that streamlines operations, reduces congestion, improves the flow of passengers and baggage through the Project implementation is planned for the second half of airport, and speeds up turnaround times for aircraft, helping airports improve their 2010 and will include a team comprising headquarters and bottom line 2 IFC SMARTLESSONS -- MAY 2010 by the project will require collective and multilateral action Box: Specific Project Activities by some or all beneficiary countries to achieve goals that cannot be attained by individual countries acting in · Developing a comprehensive regional approach to isolation. trade logistics--This project component will assist the governments of the individual countries in preparing a 2) Understand the clients' interconnections. comprehensive approach for increasing trade within the Western Balkans and between these countries and those of The geography and politics of the Western Balkans largely the EU and Asia. This project component will also examine dictate current cooperation in the region, especially since the potential for processing intermediate goods produced cooperation in the area of trade facilitation is largely within the region or imported. For the former, multicountry regulated at a bilateral level among neighboring countries. supply networks would have to be developed to support the We built on existing bilateral cooperation and identified development of large-scale processing facilities. mutual synergies and logical groupings for the purpose of introducing leaner transit routes and simplified import and · Clearance of transit cargo on the Danube--The clearance export procedures. of transit cargo on inland waterways should minimize delays to the movement of cargo. This implies performing inspections For example, it makes sense to involve all three of the aboard moving vessels. This project component would identify countries (Croatia, FYR Macedonia, and Serbia) along Pan- current practices and promote collaboration between customs European Transport Corridor "X" in mutual trade facilitation officials in Croatia and Serbia in order to develop a common reforms related to that corridor. Without the participation procedure. This aspect will draw on expert knowledge from the of all three countries, certain bottlenecks could not be Yangtze and Plate rivers, as well as those considered for the tackled. Accordingly, the project plans to work with all Mekong River. three countries, addressing both mutual and country- specific issues, such as standardizing and simplifying · Introduction of SITA3 at major airports--The EU has procedures and reducing administrative burdens and the adopted the SITA system to monitor the movement of aircraft costs of compliance for economic operators along the as part of ongoing efforts to regulate environmental impact. A corridor. plan will be developed to introduce this system at major airports in the Western Balkans, along with a longer-term Another example is the port of Durres in Albania. A joint program to introduce thes system at midsize airports. This initiative by the primary port users (Albania, Kosovo, and project component will be conducted in collaboration with FYR Macedonia) is proposed, with the aim of introducing a civil aviation authorities and operators of major airports. harmonized inspection control with a reciprocal recognition of reports. This activity can occur only at the regional level, · Building capacity and information technology systems-- and would be the ideal way to reduce bottlenecks at that The project will work closely with beneficiary countries, level. Inspections will take place only once, and the reports providing advisory assistance to further develop capacities will be recognized by other states. Implementation of this and information technology (IT) systems with the aim of initiative will be through a working group made up of standardizing and simplifying procedures, as well as reducing relevant regulatory bodies from the three states. administrative burdens and compliance costs for economic operators. The expected result is a reduction in the number of 3) Build on existing momentum. documents required, coupled with reductions in time and costs to economic operators required for import and export. Regional cooperation in the Western Balkans is largely driven by the European Integration process. Therefore, it was important for us to use this existing momentum and involve By continually participating at various regional trade facilitation roundtables and inviting relevant stakeholders to IFC's investment climate regional events, we were able to build a regional consensus through a participation and consultation process in which stakeholders were directly involved in the project's development. We actively participated in the European Commission's Sectoral Working Group in the process of formulating the Multi- annual Indicative Planning Document 2011­13. We also participated as speakers at the roundtable of CEFTA WEEK organized in Podgorica, Montenegro. The approach to building regional consensus among project stakeholders from the very beginning was more time- consuming than a regular project development procedure, lasting more than 12 months, but we believe that it was Trade Logistics pillar at the Regional Conference, "Growth & time well spent. Decisions based on regional consensus will Competitiveness--Weathering the Crisis and Looking Ahead," produce better and more lasting trade facilitation reforms Albania, November 2009. in the Western Balkans, since various objectives proposed IFC SMARTLESSONS -- MAY 2010 3 the EU as a partner in the project. We structured potential clients and through active the project and its activities to use the existing participation in events and meetings. path that the countries have to follow as part of their EU integration route. To increase visibility and understanding of the potential clients' needs, we focused on We partnered with existing structures set up in face-to-face communication, since it offered the region to assist with EU integration. In us great visibility as well as personal partnership with the CEFTA Secretariat, for interaction with potential clients. Our efforts example, we set mutually beneficial project- were directed toward reaching the right related goals to provide adequate advisory people. assistance aimed at expanding regional trade in goods, liberalizing services, creating a Face-to-face meetings gave us a chance to favorable investment climate, and eliminating convey the message of what IFC is and what trade barriers between the CEFTA parties. it stands for. These meetings also provided a way for us to gain a better understanding of We also developed a partnership with the the potential clients and their problems and Regional Cooperation Council, which seeks to needs in relation to trade facilitation. We sustain focused regional cooperation in were able to develop a friendly and more Southeast Europe through a regionally owned personal relationship with potential clients. and led framework that also supports European and Euro-Atlantic integration. Support and Conclusion outreach to the private sector were coordinated with the support of chambers of commerce in Meticulous planning, coordination, and the beneficiary countries. The chambers have continual consultation with beneficiary proved extremely beneficial in spreading the countries and donors increase the chances of word among the private sector and providing positively concluding the project negotiation feedback related to their view of priorities for a stage, even for large regional cooperation regional trade facilitation project. projects in a postconflict region. After a year of negotiations with the European Commission 4) Increase visibility through face-to-face and beneficiary countries, the project has communication with potential clients and been included as a priority in the European donors. Commission's Multi-beneficiary Programming 2011­13 document, and the European One of the crucial factors for the development Commission is considering co-financing IFC's of the project was to address issues that regional trade facilitation project in the solve real problems, which could be Western Balkans with $2 million through its accomplished only in collaboration with instruments for pre-accession assistance. DISCLAIMER IFC SmartLessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of The World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the program at smartlessons@ifc.org. 4 IFC SMARTLESSONS -- MAY 2010