25 Customs Agency to submit invoices even for equipment transfers from corporate offices in other countries to Bulgaria as excessive and counterproductive.

There have been, however, some indications of progress in customs efficiency. Customs clearance time has been significantly reduced in pilot sites under the Trade Facilitation in South Europe (TFSE) project. Between June 2004 and the average for 2002 it fell 34 percent and was the shortest among selected SEE-economies (Table 11). Moreover, the scope of random inspection of shipments has been significantly expanded. While in December 2001 all shipments were examined by customs, in June 2004 only 2.3 percent were inspected.

**Table 11** _: Reduction of Clearance Time at selected Borders Crossing Points and Inland Clearance Terminals (in minutes and percent) in 2001, 2002 and June 2004 (in minutes and percent)_

||Pilot site|2001|2002|Jun-04|Reduction, June 04<br>over 2002|Final target|
|---|---|---|---|---|---|---|
|Albania|Tirana|270|102|73|28%|60|
|Bulgaria|Plovdiv|222|90|59|34%|40|
|Croatia|Jankomir|318|180|148|18%|40|
|Romania|Constanta|258|180|113|37%|120|

Source: TFSE Indicator Workbook (June 2004).

As for other areas not covered by four indicators of trade facilitation, two observations on transport and technical standards can be made. First, the road transport has been fully privatized and both forwarding and transport services are available on competitive basis. The improvements in customs and port efficiency would further cut in the cost of these services.

Second, the EU Regular Report commends Bulgaria for having had made “good progress” in aligning standards with the EU, although the process of fully aligning them to European standards has not been completed as yet. There are still Bulgarian quality standards not conforming to generally accepted international standards, albeit these have been on the decline.

# _C. Concluding observation_

Both domestic and international dimension of the cost of doing business point, on the one hand, to a very significant improvement and, on the other hand, to continued weaknesses. Bulgaria ranks high in terms of overall ease of doing business. It is above Croatia, Slovenia and Romania. There are three areas where Bulgaria lags behind most of CEEC-11—starting a business, contract enforcement, and protection of investors’ rights. The latter is easy to address through appropriate legislative change. Considering, however, the limited confidence of firms in the effectiveness of the rule of law and the quality of judicial services, the contract enforcement strikes one as a barrier to business activity. This has negative implications for entry of de novo firms and for domestic firms’ ability to take advantage of international outsourcing.

The ability to participate in international outsourcing is further hampered by Bulgaria’s low level of performance in terms of efficiency of trade facilitation relative to CEEC-8 and Romania in port efficiency. Bulgaria’s exceeds benchmarks only in the quality of regulations. The quality of regulations is important. But as long as the capacity to enforce them is weak, it has rather limited impact on external transaction cost.

# **2.4. Conclusions**

Bulgaria has made large strides in implementing second generation, structural reforms considerably improving the quality of governance. Three different indexes—Corruption Perception Index (CPI), World Bank-based aggregate index of governance quality, and EBRD-based index of progress in second-generation reforms—all point to a very significant progress achieved over the last three-four years. But the values of these indices still remain below the average for CEEC-8 indicating the magnitude of challenge faced by Bulgaria in improving regulatory regimes and their enforcement in order to minimize the potential for rent seeking and enhance efficiency.