Posted by on February 26, 2020 10:45 am
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By Mihailo Gajic, TES Contributor



The leaders of Serbia, North Macedonia and Albania recently declared their willingness to ensure closer economic cooperation in the region through the ’’Little Schengen’’ mechanism, which will increase connectivity in the Western Balkan region.


A short history


The region, historically plagued with political instability and ethnic strife, is now at least officially oriented towards the EU: Serbia and Montenegro have started the accession negotiation process, while North Macedonia and Albania are still awaiting the green light from the EU, and Kosovo and Bosnia remain potential candidate countries. Some political processes have decreased tensions in the region, including the negotiations between Serbia and Kosovo, and the solution to the name dispute between (now North) Macedonia and Greece. Montenegro and N. Macedonia have also recently joined NATO. But nothing is ever certain in the Balkans, with tensions between Kosovo and Serbia rising due to the dialogue pause after Kosovo declared 100% tariffs on imports from Serbia and Bosnia, and political instability in Bosnia and Herzegovina due to which this country had to wait for 15 months after its elections to form a new government.


Little Schengen


The processes of regional economic and political cooperation have been supported by the EU, and Germany in particular, with the aim of decreasing tensions through increased interdependence and connectivity. The Western Balkan economic space is carved up between small economies which have erected relatively high barriers to their small markets; this particular environment is not appealing to FDIs and their global supply chains, which can help explain the low trade openess of the region, as these regulatory barriers restrain economic growth by limiting competition and stiffling innovation.


Some moves deepening economic cooperation in the region would be a step in positive direction, eliminating at least some of these hurdles. Some of the existing regional cooperation arrangements are not working, such as the CEFTA (Central Europe Free Trade Agreement) with its malfunctioning trade dispute mechanism, which enabled high Kosovo tariffs on the Serbian and Bosnian goods, stifling trade between these countries. In fact, complicated border procedures leads to 23 million hours which freight vehicules need to spend waiting at border crossings, with the estimating costs to businesses at all sides standing at approximately 8 billion USD per annum. So the Little Schengen would therefore be a good thing for the whole region.


Much A Do About Nothing?


But there are two problems which severely impact the influence of the Little Schengen. The first is that nobody really knows what it entails – does it involve a single economic space (akin to the EU), or just eliminating the most important hurdles that are currently visible? The official statements so far have been vague, mostly concerning the transport hurdles and eliminating the need to carry a passport for travel (currently, there is a visa-free regime in the whole region, apart from Bosnia and Herzegovina asking visas for Kosovo passport holders, so this measure sounds better than it actually is).


The second one is the geographical scope: the Little Schengen initiative currently involves Serbia, North Macedonia and Albania, while Montenegro, Kosovo and Bosnia and Herzegovina have not joined in yet. However, Albania and North Macedonia do not account for the bulk of the Serbian regional trade and travel, which will therefore remain outside the scope of the initiative. The opinion is that these countries would later on decide to join the initiative once they see the tangible benefits it provided for the countries already implementing them – but this may not happen, since the EU single market has a more appealing allure for the whole region than any regional initiative.  


Additionally, regarding the free movement of people, these countries do not form a single linguistic bloc. No matter how we call it (Serbia, Croatian, Bosnia, Montenegrin or SBH), the speakers of these languages can quite easily understand each other: there are bigger differences between US and UK English than between these languages. This however does not apply to Macedonian (a Slavic language, more similar to Bulgarian and hardly intelligible with the SBH) or Albanian for that matter. At the same time the level of wages is similar in the countries at hand, so it is very hard to believe that eliminating barriers in people movement would increase economic migration by galvanizing people to move in search of professional opportunities within the scope of the region – while emigration to more developed EU countries, most notably Germany and Austria, will continue unabated.


All in all, the Little Schengen initiative is not bad per se, but its actual positive impact should not be overstated. Instead of focusing on the regional integration in exchange for the EU accession, more efforts should be made in meeting the EU criteria and moving closer to joining this club. This would mean importing and implementing EU rules and regulations, and improvements in the rule of law, which would by itself help spur economic development in these countries. In the meantime, eliminating obstacles that are in the way of the free movement of goods, services and people is not a bad idea, but in order to have a more meaningful impact it should involve all the countries in the region. Anyway, at least we are now witnessing some good news from the Balkans for a change.  



Mihailo Gajic is an economic researcher with Libek, a Serbia-based think tank.