37 countries49-one based on international taxes collected in 2000 (IMF-World Bank 2001), and another based on import duties as reported in Table 13. Except for Albania, the estimates are almost identical. The cost of a web of FTAs among the SEE-5 countries is the largest for Bosnia and Herzegovina and FYR Macedonia.

**_Table_** _13:_ **_Significance of import duties in tax revenues (average over 1996-98)_**

||Totaltax<br>revenue<br>|Sales<br>turnoveror<br>VAT<br>(inpercento|Excises<br> <br>fGDP<sup>11</sup>j|Import<br>duties|**Memorandum:**<br>Importdutiesin<br>total taxrevenue<br>(inpercent)|**Memoran**<br>revenue l<br>FTAs(inp<br>IMF-<br>WB2/|**dum:**Direct<br>ossfromSEE<br>ercentofGDP)<br>Own'/|
|---|---|---|---|---|---|---|---|
|Albania|15.0|4.7|1.2|2.7|18.0|0.5|0.2|
|Bosniaand<br>Herzegovina|42.9|11.3|5.2|5.9|13.8|1.3|1.4|
|Croatia|41.6|13.6|4.5|3.5|8.4|0.1|0.1|
|FYRMacedonia|36.1|5.4|7.2|3.7|10.2|0.6|0.5|
|-FRY(1999)|n.a.|n.a.|n.a.|n.a.|32.8|0.4|n/a|
|Kosovo (2000)|6.7|3.5|1.3|1.7|25.4|n/a|n/a|
|Memorandum:||||||||
|CEFTA|32.8|7.9|2.6|1.8|5.4|||

Average share of GDP during 1996-98, excluding Romania (1996-97) in calculations of the average for CEFTA, Bosnia and Herzegovina (1998-99), and Kosovo (2000).

2' Estimate based of the share of international taxes paid on imports from SEE countries (IMF-World Bank 2001, Table 9).

31 Estimate based on the average share of import duties as reported in this Table multiplied by the share of SEE countries (with which a country had no FTA in 2000) in total imports.

Sources: IMF, Government Finance Statistics Yearbook (Washington, various years); and IMF staff estimates.

However, the weakness of these estimates is the underlying assumption that geographic patterns of trade remain unchanged. This may be the case, albeit unlikely as MFN tariff rates on many products offer a significant margin for preferential suppliers. One may thus expect trade creation as well as trade diversion effects with different impact on customs revenues (than in the case discussed above) as well as on consumer surplus.

In order to assess the full impact of regional FTAs in terms of trade flows and welfare changes, we use a slightly modified version of a model developed in Hoekman, Ng and Olarreaga (2001).50 This is a simple partial equilibrium model of total import demand and export supply disaggregated at a 6-digit HS (harmonized system) level. Since each six-digit HS item represents only a small share of the economy, the effects of change in tariff rates on other markets can be disregarded. Import demand and export supply is assumed to be isoelastic. They are calibrated for each country using trade value, unit prices, tariffs and preference margins at the six-digit tariff line level in 2000. Due to the lack of data, Bosnia and Herzegovina and FR Yugoslavia are not included in the simulation exercise. In the case of Croatia and FYR Macedonia their bilateral _49_ In addition to SEE-5, the group includes all other Balkan countries except for Greece EU member), that is, Bulgaria, Slovenia, and Romania.

**_50_** The model, presented in Appendix 1, was used to examine the impact of the elimination of tariff peaks in highly developed Quad (EU, Canada, Japan, and the US) countries on their imports from developing countries.