36 While lower MFN applied tariff rates would not shift the overall geographic pattern of Bulgarian imports toward MFN suppliers, they would facilitate trade and increase competitive pressures on Bulgaria’s preferential suppliers. Since Bulgaria is on the accession path to the EU, MFN tariff rates on industrial products should be harmonized with those in the EU CET. This would amount to a ‘shadow’ customs union with the EU. This will be turned into a customs union arrangement once Bulgaria accedes to the EU. The cost of such a move is negligible, if any. This is clearly a win-win case.

How does the EU CET on industrial products compare with Bulgaria’s MFN tariff schedule? Bulgaria’s tariff schedule affords overall significantly higher levels of tariff protection to both agricultural and industrial producers. Simple averages for both agricultural and industrial products are more than twice as high as in the EU (Table 17). Although an overall lower dispersion characterizes Bulgaria’s tariff schedule for both agricultural and industrial products, the coefficient of variation is lower for Bulgaria’s MFN tariff schedule. Second, Bulgaria has 809 six-digit HS tariff lines within which there are rates exceeding the international peak of 15 percent, as compared to the EU’s 23 tariff lines.

**Table 17:** _Overview of Bulgaria’s and European Union’s MFN Applied Tariff Schedules in 2003_

|**Bulgaria**|Simple<br>Average|Coefficient<br>of variation|Minimum<br>Rate|Maximum<br>Rate|Number of<br>International Peaks|Number<br>of Lines|Imports Value<br>(million of US$)|
|---|---|---|---|---|---|---|---|
|Industrialproducts|9.0|0.75|0|26.8|809|4,126|8,592|
|**EU-15**||||||||
|Industrialproducts|3.7|0.93|0|22.0|23|4,464|750,172|

Note: International peaks are defined as tariff rates exceeding 15 percent _ad valorem_ . The format of the UNCTAD TRAINS file identifies maximum and minimum tariff rates within six-digit lines that represent averages for HS nine-digit original tariff schedules. Source: derived from the EU”s and Bulgaria's Applied Tariff Rates by HS 6-digit products in 2003 (average for 6-digit tariff line in % from UNCTAD TRAINS) Bulgaria’s tariffs are not only higher but also offer protection to different products than in the EU (Annex Table 4). Yet, although at the six-digit HS level there are some differences reflecting dissimilar ‘protectionist’ preferences, they are not extreme. Both Bulgaria’s and the EU’s MFN applied tariff schedules offer larger tariff protection to unskilled labor intensive products. Paradoxically, Bulgarian successful exports to EU markets—clothing and footwear—are also highly protected domestically. So are they in the EU, albeit levels of tariff protection are lower. For instance, clothing is protected in both, but tariff rates on clothing imports in Bulgaria (24 percent) are twice as high as in the EU (12 percent).<sup>32</sup> On the other hand, there is one unequivocal difference. Bulgaria provides high tariff protection to low processed industrial goods such as glass and glassware, paper products, fertilizers, modified starches, carpets and other textile floor coverings, whereas the EU protects relatively more such products as trucks, bicycles, road tractors and video cameras.

In all, however, the two schedules for industrial products are not dissimilar. The value of correlation coefficient for maximum tariff rates in six-digit HS aggregates is 69 percent and for simple average rates (average also for six-digit HS lines) it raises to 72 percent. Bulgarian MFN applied tariff rates on industrial products are lower for only 42 six-digit HS items out of 4,124 items and the same for 857 items (simple average for each aggregated group from a nine-digit original breakdown) or 939 items (maximum for each group). Furthermore, for 2,277 HS 6-digit items, or 55 percent of all industrial lines, the difference between respective tariff rates does not exceed five percent and for 85 percent is smaller than 10 percent (Table 18).

The amounts of imports subject to MFN tariff rates exceeding those in the EU also do not strike one as huge. Consider the following: First, 27 percent of Bulgaria’s imports in 2003 fell into tariff lines that would be subject to the same MFN tariff rates; Second, almost 40 percent of imports of industrial products

> 32 Until the termination of the WTO Agreement on Textiles and Clothing as of January 1, 2005, quotas gave an extra protection to EU producers of these products.