21 environment. Benefits of services liberalization are not limited to services sectors themselves: they impact all other economic activities. Considering that services contribute on average around 10-20 percent to the production cost of a product and account for all trading costs (transport, trade finance, insurance, communications, distribution services), savings from stronger competition from foreign providers indeed can be substantial (Hodge 2002). So do gains in competitiveness in international markets of both services and goods.

Before evaluating the quality of business environment, as it shapes external interaction, several caveats are in order. First, Bulgaria has only recently implemented a number of measures in the context of accession into the EU, which has both provided an impetus and facilitated the design of policy reforms spanning across many services sectors. These as a rule included measures related to market opening, unbundling, third party access, public service obligations and regulation. Given their recent gradual implementation and complexity, their impact is yet to be statistically captured. In consequence, available data may significantly understate current performance.

Second, their impact will be positive, as convergence to the _acquis_ makes markets contestable for foreign providers of services and harmonized with EU-wide regulatory provisions represents huge progress over the _status quo_ . Both are crucial for accession, since the EU is already a common market striving to move towards free trade in services and investment. Both increase contestability, improve the quality of services provided and reduce their cost.

Third, their impact will not only be positive but also economy-wide, as convergence to the _acquis communautaire_ , i.e., specific directives that must be implemented by a member state, stretches across a large number of service sectors including such important backbone service industries as financial services, transport, telecommunications, and energy. The convergence involves the strict application of competition rules and State aid disciplines leading to greater transparency and competition.

In order to assess the quality of environment supporting trade in goods, as a point of departure, we use indicators of trade facilitation as developed in Wilson, Mann and Otsuki (2004). They identify four indicators of capacity to facilitate trade. These are port efficiency, customs environment, regulatory environment, and Information Technology infrastructure. Port efficiency measures the quality of infrastructure of maritime ports and airports. Customs environment measures direct customs costs as well as administrative transparency of customs and border crossings. Regulatory environment measures the country’s approach to regulations and their quality. IT infrastructure measures the extent to which an economy has the necessary domestic infrastructure (such as telecommunications, financial intermediaries, and logistics firms) and is using networked information to improve efficiency and to transform activities to enhance economic activity.<sup>14</sup> The values for these variables are drawn from, among others, _Global Competitiveness Report 2003/2004_ .

We take the average efficiency level of the EU-15 to benchmark Bulgaria’s performance in comparative perspective. Except for the quality of regulations or regulatory approach Bulgaria exhibits a low level of performance in all areas of trade facilitation, relative to the EU-15 countries (Figure 7). Development levels in port efficiency, custom regimes, regulatory policy, and IT infrastructure are approximately 54 percent, 71 percent, 84 percent, and 68 percent of the EU-15 level, respectively. The new EU-8 member countries on average exhibit a much higher level of development than Bulgaria using these four indicators. But Bulgaria outperforms Romania in all areas except in port efficiency. The weakest areas of trade facilitation in Bulgaria relative to the levels of efficiency achieved on average by both CEEC-8 and the EU15 are management of ports, IT infrastructure and customs. They are respectively 26 percentage points and 16 percentage points for the latter two below the average for CEEC-8.

> 14 WMO’s indicators rely on three sources—Global Competitiveness Report, World Competitiveness Yearbook, and a dataset compiled in Kaufmann, Kraay and Zoido-Lobaton (1999).  Each indicator is constructed as a simple average of two inputs as described in the appendix.<sup>14</sup>