24 and aviation security issues, which need to be addressed under both old, statist and new, liberal approach, the regulatory philosophy underlying bilateral aviation agreements has been to protect the national carrier from external competition.

Anticipating the EU accession, the roadmap for Bulgaria should include actions taken by the European Commission to implement the 1986 Single European Act’s provisions on “freedom of services.” In the case of transport, they included:

- ⇒ Deregulation of road freight in the 1990s through the removal of quotas and other barriers and allowing for cabotage, i.e., provision of transport services within the country by foreign firms;

- ⇒ Adoption by EU member-states of common licensing rules, legislation on free market access, and deregulation of rates and fares under the Third Package of Air Transport Liberalization Measures (in force since 1997) combined with the movement towards a European Common Aviation Area (EC 2004).

- ⇒ Restructuring of national railway companies through commercialization, separation of regulatory and operational functions, and opening of tracks to competing private operators;

It seems that Bulgaria should quickly follow the path of liberalization set by the EU. It should unilaterally deregulate aviation services domestically and open up internationally within the framework of the European Common Aviation Area-model. The argument in favor of this approach is that air transport provides fuel to the expansion of tourism but also to the emerging global division of labor based on production fragmentation. Although Bulgaria is not land-locked, air transportation is a key to its future trade development. Consider the example of the United States. Despite direct access to both the Atlantic and Pacific oceans, more than 40 percent of the value of goods entering and leaving US customs territory moves by air.

Airline liberalization has been a contributing factor to economic development. It is often overlooked that among the measures that created a ‘virtuous circle’ leading to the Irish economic boom were not only public expenditure cutbacks that allowed for tax reductions but also airline deregulation. The latter “... facilitated a more than doubling of tourist numbers over the following decade.” (Barry 2003, p. 909).

Considering Bulgaria’s endowments making it a potentially highly tourism intensive country, Bulgaria should follow the Irish path of airline deregulation but in the context of the EU accession process. The EU accession process offers a unique opportunity for Bulgaria to become part of the Single European Sky Initiative and open its skies at least to European carriers.

Another area deserving a close attention is management of ports and airports. Ports and airports are crucial to the transaction costs of conducting foreign trade operations. Worldwide, it is estimated that the total economic costs of transport inefficiencies are equivalent to 3 to 5 percent of the total value of trade. Both are tempting to rent seekers, as they offer huge opportunities to put a private hand in the public pocket.

The third weak area of trade facilitation relates to customs. Bulgaria’s level of efficiency of customs procedures stands at 84 percent of that achieved on average by CEEC-8 and 71 percent for the EU-15. Despite progress in aligning customs procedures with those at the EU, foreign companies continue regarding customs regulations and policies as inconsistent, cumbersome, arbitrary, and unstable. The Bulgarian public seems to share this perception holding the police, judges, and customs agency in low regard, due to the perceived extent of corruption in those areas. U.S. companies complain also about excessive documentation requirements, slow processing of shipments, and corruption.<sup>17</sup> They cite, for instance, the requirement of the

> 17 See US Trade Representative 2004 National Trade Estimate Report on Foreign Trade Barriers available on line at http://www.ustr.gov/assets/Document_Library/Reports_Publications/2004/2004_National_Trade_Estimate/2004_NTE_ Report/asset_upload_file172_4739.pdf