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Influence Of The Wto On Bulgaria

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The influence of the WTO on Bulgaria

An essay by Jochen Raab

International Business 3

Matrikelnr. 803185

With reference to the WTO's trade policies, explain how they have helped or hindered the development of international trade in Bulgaria.

Bulgaria is located at the Black Sea, neighboring Romania, Yugoslavia, Macedonia, Greece and Turkey. Its capital is Sofia. Bulgaria's industries consisted mainly of agriculture until 1947. After World War II, under a communist regime, all existing industry was nationalized, with heavy industry set to first priority. After 1992 privatization and market reforms began, creating many jobs in especially the service sector. The GDP in 2000 was US$ 11 995 Mill, divided into service 57.7%, industry 27.8% and agriculture 14.5%. The majority of the exported goods are delivered to the republics of the former USSR and other eastern European states. The significant Western Europe trade partners are Italy, Greece and Germany. Bulgaria's main export goods are machines, metal, chemical products, leather goods and textiles, food and luxury articles. Its balance of trade is negative.1

In December 1996, Bulgaria joined the WTO and started implementing their economic reforms. Since then, Bulgaria and its economy progressed due to those reforms, capable to meet the challenges of the globalizing markets. Not only has it achieved a macro economically stable environment and economic growth, but it also progressed on meeting the demands of NATO and the European Union. Bulgaria's policies are based on three important factors: financial stability, solid economic growth and structural reforms. By following these policies, Bulgaria had the possibility to undergo fundamental changes, ensuring higher efficiency and labor productivity, resulting in higher living standards and lower unemployment.2

A key element of this stabilization was the introduction of Bulgaria's currency board arrangement (CBA) in April 1997, giving the Central Bank the task to foster the stability of the national currency. Its peg currency was the deutsche mark until 1999, converting to the euro at its introduction. The direct connection to the euro was inter alia due to the political aim of joining the EU and facilitating the integration into the Economic and Monetary Union.

The Central Bank is obliged to buy and sell foreign and domestic currency at this fixed exchange rate. It cannot lend to the State or any state agencies, unless it purchases special drawing rights from the IMF. Because of that, the Bulgarian National Bank reallocated the major part of IMF money received. The CBA also forbids the BNB to lend to commercial banks, unless the financial system is endangered. The introduction of the CBA was an important factor in lowering interest rates and inflation, stabilizing the economy and simplifying predictability of the economic environment.

Practically, this meant a reduction of inflation to single digit rates, 7.4% in 2001 and 5.8% in 2002, and a balance in government budget, growing for at least 2.5% a year since 1998. Sustaining this policy, Bulgaria was recognized by the European Commission as a functioning market economy, if it keeps up this reform program.3

Bulgaria's trade policies have always played a key role in its economy, with imports and exports accounting for more than 80% of its GDP. Moving away from state-trade and protectionism was necessary to be competitive on the world market, and to integrate in the economy. Although Bulgaria faced problems losing traditional markets, embargoes, the Kosovo conflict and worlds market stagnation, it managed a stable growth in exports. The policies are strongly influenced by the WTO and the aim of becoming an EU member. Bulgaria applies all multilateral trade agreements, annexed to the Marrakesh Agreement from the date of accession without recourse to any transitional period. Bulgaria was a Party to the International Dairy Agreement and the International Bovine Meat Agreement. Bulgaria became a Party to the Agreement on Trade in Civil Aircraft at the time of accession to the WTO, and subsequently - from 1 January 2002, to the Information Technology Agreement.

Eliminating anti-export policies was another step to an effective competition, which was achieved mostly by eliminating export taxes and implementing a liberal import policy. Bulgaria removed its customs clearance fee and an import surcharge for balance of payment purposes, in spite of negative trade balance. Bulgaria simplified licensing for foreign trade as well as conditions of access to the Bulgarian market. All customs duties and charges on imports comply with the GATT 1994 and with the provisions of the WTO agreements, lowering the duties on all products to zero since the WTO Agreement in January 2002. The competition policy is based on the principles of transparency, independence of judgment, fairness to the parties, administrative efficiency and equal treatment of all economic operators. Government no longer influences the prices except on a few sectors, encouraging competition and free contracting of prices. Although services are the most important sector in the Bulgarian economy, Bulgaria is nevertheless providing easy market access for foreign service suppliers. Not only has Bulgaria ensured economical changes since the accession to the WTO, but also changes in intellectual property rights and the protection yonder have been made.

Likewise, Bulgaria underwent many changes due to regional trade agreements, to support transformation to a free market economy for all surrounding countries, and to strengthen the economic stability. According to the EAA (European Accounting Association), which Bulgaria joined in 1995, trades between Bulgaria and the EU were liberalized, resulting in abolition of tariffs and custom duties. In addition to that, free trade agreements exist with the EFTA and CEFTA, as well as regional agreements with Turkey, Macedonia, Israel, Lithuania, Latvia and Estonia. 4

Taking a closer look at import policies, Bulgaria's average import tariff is 11.6 percent in 2004, the level for industrial goods amounts to 8.7 percent. The highest tariffs are on agricultural goods, the average being at 23.9 percent, and the highest going up to 75 percent. Those tariffs of course do not apply to members of the EU and EFTA since the agreement in 2002. For other



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