35

# **Tariffs on Imports from SEE Countries**

Trade among some SEE countries was subject to several FTAs-albeit with unclear product coverage-even prior to the signing of the MOU. How significant are then tariff rates faced by SEE exporters in SEE markets? While the general MIFN conditions can be easily derived from the analysis of tariff structures (Section 5.1), they do not tell much about the scope for trade diversion implicit in the composition of their mutual trade. Some more detailed insights can be derived from examining the average MFN tariff rates that the 25 major exports (6-digit HS items) from each SEE-5 country would face in other SEE-5 countries. The rationale behind this exercise is that these are their most competitive products in which each SEE-5 has comparative advantage. The results that we obtain below suggest that, while the potential for FTAs to lead to trade diversion was high in the recent past, tariff cuts already implemented in Albania and FR Yugoslavia have significantly reduced it, and further expected MFN tariff reductions by the WTO-acceding countries will reduce it further.

Available data do not allow to carry out this calculation beyond 2000, nor to include Bosnia and Herzegovina in a calculation based on 2000 data. This limitation is important, because since 2000 both Albania and FR Yugoslavia have reduced their import tariffs. Noting this limitation, and the fact that it results in overstating the potential for trade diversion, we present in Table 12 the average MNF tariff rate that would be faced by the top 25 exports by SEE-5 countries in their respective markets.

**_Table_** _12:_ **_Average MFN tariff rate (that would be) faced by top_** _25_ **_exports in respective_** _SEE-5_ **_markets (in percent) '_**

|_25mainexportsof_**_2:_**|Albania|Croatia|FYR<br>Macedonia|FR<br>Yugoslavia|
|---|---|---|---|---|
|Albania(averageMFNrate, 8%)|----|5|10|8|
|<br>Croatia|19|----|16|9|
|(average MFNrate,11%)|||||
|<br>BosniaandHerzegovina (averageMFNrate,6%)|11|6|11|7|
|<br>FYRMacedonia(averageMFNrate,15%)|25|16|----|13'|
|<br>FR Yugoslavia(average MFN rate,14%)|24|11|21<br>|----<br>|
|Percentoftotalexportsof25mainexports:|70|39|49|37|

_Source:_ calculated with data from the 2000 Tariff Schedules, UNCOMTRADE and Federal Statistical Office Yugoslavia. See also Table 11 for data on average tariff rates.

_'/_ According 2000 MEN tariff schedules.

2/ Export data for Albania, Croatia, and FYR Macedonia from 1998; export data for FR Yugoslavia from 2000; export data for Bosnia and Herzegovina not available: 25 Main exports at 6-digit-level of the HS Code.

/ FTA in effect.

As can be seen from data in Table 12 above, in 2000 the tariff rates facing SEE-5 most competitive products in SEE-5 markets were quite high, albeit there is some variation. In the cases where there is a bilateral FTA (marked with asterisk), MFEN tariff rates simply show the margin of preference rate at which the main exports were entering each other's market. Albania's main exports faced the highest MFN rates in markets of four SEE-5 countries examined here. The average rates on its top 25 products, accounting for 70 percent of its total exports, ranged from 11 percent in Bosnia and Herzegovina to 25 percent in FYR Macedonia. Hence, zeroing these tariff rates would have led to preferential margins in double digit levels, suggesting a significant potential for trade diversion. Note also that that these tariffs were significantly larger