The Effects of the BSEC
on Regional Trade Flows
Serdar Sayan*
* Professor, Department of Economics, Bilkent University, and Department of Agricultural, Environmental and Development Economics, Ohio State University, Columbus.
Abstract: The purpose of this paper is to discuss accomplishments of the BSEC in reference to conventional modes of economic integration in light of the particular circumstances underlying the organisation’s formation. The discussion places a pronounced emphasis on the initial impact of the BSEC concerning regional trade flows, particularly on the volumes of Greek and Turkish trade with the rest of the members then proceeds to consider the potential of the BSEC to maintain this impact. The organisation of the paper is as follows: the following section looks at the structure of the BSEC and areas of cooperation between member states; Section two discusses any effects that the BSEC might have had on trade flows among its members; and section three provides conclusions
Introduction
The initiative for the Black Sea Economic Cooperation (BSEC) project, first envisioned by Turkish Ambassador Sukru Elekdag, former Head of the mission in Washington, DC, had its beginnings in a diplomatic campaign headed by the late Turkish president Turgut Özal. President Özal always viewed economic cooperation between nations as the strongest guarantee to maintaining law and order in the world. And at the beginning of the 1990’s, the need for law and order around the Black Sea and the Caucasus region was particularly intense due to the disintegration of the Soviet Union and the collapse of the Soviet bloc. President Özal envisaged that a regional economic cooperation zone in this part of the world would be the best tool for addressing this need. Such an initiative would not only serve to restore a peaceful co-existence while helping to improve standards of living through increased trade and economic cooperation in the region but would also highlight the role that Turkey then wanted to assume as a role model for the ex-Soviet states and newly independent republics, strengthening its status as a regional leader.1
When the Turkish government called for a meeting in Ankara in 1990, with the representatives of countries from this region, Armenia, Azerbaijan, Bulgaria, Georgia, Moldova, Romania and Russia responded enthusiastically and the Ankara meeting served as the first step towards formally establishing the cooperative zone. With the later applications of Ukraine and then two other Balkan states, Albania and Greece, the Black Sea Economic Cooperation (BSEC) came into its proper existence following the signing of the Istanbul Summit Declaration on 25 June 1992. Serbia and Montenegro joined the BSEC in 2004, becoming the twelfth member state.
With such a composite of member countries, the BSEC was a rather unique initiative as a regional arrangement for various reasons:
First and foremost, it was one of the first regional organisations that aimed to develop economic cooperation between NATO member states (Greece and Turkey) and former member countries of the Warsaw Pact, two adversaries from the Cold War era which had just ended.2
Secondly, there were many disputes and unsettled issues between the ex-Soviet Republics who joined (as between Armenia and Azerbaijan), as well as
1S. Sayan - O. Zaim, “Black Sea Economic Cooperation Project,” in L. Rittenberg (ed.), The Political Economy of Turkey in the Post-Soviet Era: Going West and Looking East, Westport, CT: Praeger Publishers.
1998, pp. 115-136.
2The Central European Initiative (CEI) started in 1989 and the Council of the Baltic Sea States (CBSS)
formed a few months prior to the Istanbul Summit were the only other initiatives aimed at increasing economic cooperation between centrally planned and market economies. See O. Anastasakis - V. Bojicic-Dzelilovic, Balkan Regional Cooperation and European Integration, The Hellenic Observatory Discussion Paper, London: The London School of Economics and Political Science, 2002.
varying degrees of bilateral conflicts and grievances such as those between Albania and Greece, Armenia and Turkey, Moldova and Romania, and Greece and Turkey.
Thirdly, formation of the BSEC also marked the first time that countries bordering from the Caspian to the Adriatic Sea shared membership within the same organisation. Despite possible variations in motivations underlying their participation, one common expectation was to become better integrated into Europe and the rest of the world. In this respect, the BSEC served as a new channel of communication for neighbouring states who were willing to take steps towards shaping up their regions’ future rather than being bystanders in the aftermath of profound and potentially destabilising changes. The BSEC generally can be argued to have been founded on a commonly shared a) understanding about economic cooperation as a means of avoiding conflict, b) view of regionalism as a means of integration to the global economy, and c) desire to prevent new divisions in Europe.3
Due in part to these commonly shared principles, and in part to the heterogeneity of its membership and the uncertainties facing the economies of ex-Soviet bloc countries and newly independent states, the BSEC did not start off by requiring strong commitments from its members towards any kind of economic integration.
Although it was initially envisaged that members would gradually form a free trade zone which would possibly evolve into a stronger form of integration, it was later agreed that the BSEC would lead to the formation of a regional organisation for economic cooperation in a loosely defined sense. This was natural, as all members, except Greece and Turkey, were centrally planned economies with practically no private sector development at the time the BSEC was formed, and with no well-established links to global markets. Nor had they any experience in economic cooperation with other countries except for their membership in COMECON4 which was formed to increase self-sufficiency as a
bloc by diverting trade from the market economies.5 Due to this unusual
The initiative for the
Black Sea Economic
Cooperation project,
first envisioned by
Turkish Ambassador
Sukru Elekdag, former
Head of the mission
in Washington, DC,
had its beginnings in
a diplomatic
campaign headed by
the late Turkish
president Turgut Özal.
3P. Manoli, “The Role of the Black Sea Economic Cooperation (BSEC) in the Stability of the Region,”
in Shaping an Environment for Peace, Stability and Confidence in South Caucasus, Camberley: Conflict Studies Research Centre, Defence Academy of the UK, 2002.
4Albania became a member of COMECON in 1949 but withdrew in 1962, pursuing isolationist policies
and remaining highly closed off to international trade in the following decades.
membership makeup, the BSEC emerged as an exceptional regional arrangement and has largely maintained its special status.6
Structure of the BSEC and the Nature of Cooperation
Between its Members
The Istanbul Declaration of 1992 with various articles addressing peace and security issues reflected the security concerns of the summit participants, making it clear that economic cooperation within the BSEC ought be viewed as a means to contribute, first and foremost, to the maintenance of peace and security in the region. The specific form of this cooperation was to be determined in light of the individual circumstances of member states. It was established during multilateral talks leading to the summit meeting that the participants would not be expected to commit themselves to full economic integration right away, even though consideration to such integration could be given in due process. More specifically, cooperation would be developed gradually by taking into account “the specific economic conditions, interests and concerns of the countries involved, and particularly the problems of the countries in transition to market economy” (Article 10 of the BSEC Summit Declaration). The priorities for different areas of cooperation would be determined during the process with “the achievement of a higher degree of integration of the Participating States into the world economy” (Article 5) being set as a major goal. Within this framework, the participating states agreed (Article 14) to promote cooperation by contributing, among other things “ to the expansion of their mutual trade in goods and services and ensuring conditions favourable to such development by continuing their efforts to further reduce or progressively eliminate obstacles of all kinds, in a manner not contravening their obligations towards third parties”.7
In accordance with the cautious tone of these articles regarding commitments, the BSEC agreement did not outline a calendar of steps towards true economic integration, nor did it specify milestones of this process. The first of such milestones, the formation of a free trade zone, was brought into the agenda five years later and only in the form of a ‘declaration of intent’ signed by members in February 1997. While the actual formation of such a free trade area is not likely in the foreseeable future, the commitment of members to keeping the momentum alive has lasted and the BSEC was formally transformed into a regional economic cooperation organisation following the
Turkey between East and West: New Challenges for a Rising Regional Power, Boulder: Westview Press. 1996,
pp. 179-201.
6S. Sayan - O. Zaim, “Black Sea Economic Cooperation Project,”, op.cit. 7BSEC Handbook of Documents, Istanbul: BSEC, Vol. 1, 1995, p. 5.
ratification of the BSEC Charter adopted in Yalta (June 1998) by the parliaments of all member states. As of May 1, 1999, the legally binding charter replaced the political Istanbul Summit Declaration as the principal code for the Organisation of the Black Sea Economic Cooperation. Finally, with the signing of the second Istanbul Summit Declaration on November 17, 1999, by the Heads of state and government, the BSEC officially moved into the programmes and projects stage.8
Currently, cooperation within the BSEC is pursued through five different channels9:
i) Governmental Channel: The Council of Foreign Ministers is the decision making authority laying out the direction that cooperation will take in the future. A committee of senior officials acting on behalf of the ministers serve as a forum to discuss various issues and make recommendations to the Council for final approval. The Permanent International Secretariat, founded in 1994 with headquarters in Istanbul, serves as an intergovernmental body of officials from member states running day to day operations under a Secretary General appointed for a four year term. Subsidiary organs working generally in the form of working groups (WGs) are active in co-ordinating cooperation in specific sectors.10 The biannual chairmanship rotates among member states in
alphabetical order.
ii) Parliamentarian Channel: The Parliamentary Assembly (PABSEC), composed of parliamentary groups from the twelve national parliaments, provides the BSEC with legislative support in co-ordination with the permanent secretariat.
iii) Business Channel: The BSEC Business Council (BSEC BC) is the body responsible for co-ordinating the development of cooperation among private sectors of member nations, with its own secretariat located in Istanbul that is
Although it was
initially envisaged
that members would
gradually form a free
trade zone which
would possibly evolve
into a stronger form
of integration, it was
later agreed that the
BSEC would lead to
the formation of a
regional organisation
for economic
cooperation in a
loosely defined sense.
8 S.Sayan, “The Contribution of Black Sea Economic Cooperation Organisation to Regional
Development,” South East Europe Review, No. 2, 2002, pp. 25-34.
9N. Nures,“Black Sea Economic Cooperation: Vision and Opportunities,” Paper presented at the NATO
colloquium on ‘Economic Developments and Reforms in Cooperation Partner Countries, Bucharest, May 2-4, 2001.
10Some of the WGs established so far are: WG on Agriculture and Agro-Industry, WG on Banking and
Finance, WG on Energy, WG on Environmental Protection, WG on Exchange of Statistical Data and Economic Information, WG on Promotion of Technology Transfer, WG on Cooperation in Science and Technology, WG on Cooperation in Tourism, and WG on Avoidance of Double Taxation.
run by a Secretary General under the supervision of a Board of Directors. It serves as a forum allowing businessmen from member states to discuss possibilities for joint action on a wide range of business related matters, including joint ventures.
iv) Finance Channel: Founded in March 1998 with headquarters in Thessaloniki, Greece, the BSEC Trade and Development Bank (BSTDB) serves as a regional Development Bank aiming to provide financial support to various projects to be carried out by member states and to promote investment in the region. Its initial capital is composed of quotas assigned to the member states to reach SDR (Special Drawing Reserves) one billion upon fulfilment of quota purchases.11
v) Academic Channel: The International Centre for Black Sea Studies (ICBSS) located in Athens is an independent Centre affiliated with the BSEC that aims to promote scientific and technological cooperation towards the solution of different problems in the region. It serves as a forum that brings together scientists, scholars, researchers and academics to create an impetus towards development of joint projects out of diverse scientific, technological and intellectual resources of the region.
So far the BSEC has used its limited financial resources to set up its institutional structure, help its member states through the process of transforming their socio-economic structure to a market economy and improve infrastructure by initiating cooperation in these five broadly defined areas. The fields of cooperation that are more directly related to the trade potentials of member states include the standardisation of products to be traded and harmonisation of customs regulations. The BSEC also had to form a an ad hoc group of experts on visa facilitation for businessmen to assure the speeding up of customs formalities, and easing up of national visa regulations and the like so as to facilitate travel within the BSEC area by businessmen from member countries.12
The question now is whether cooperation in such areas is likely to have affected the patterns and volumes of trade within the BSEC area. This question is taken up in the next section which discusses the potential of regional cooperation through the BSEC to generate trade effects, based on limited empirical evidence available in the existing literature.
11The quotas are 16.5% for Greece, Russia and Turkey; 13.5 % for Bulgaria, Romania and Ukraine and
2% for Albania, Armenia, Azerbaijan, Georgia and Moldova. If one country decides not to use the whole quota, another member state can purchase the leftover shares. See I. Hartwig, “The Black Sea Economic Cooperation Process,” EIPAScope, No. 1, 1997, pp. 1-6.
12 S.Sayan, “The Contribution of Black Sea Economic Cooperation Organisation to Regional
Regional Trade Flows and the BSEC
According to the standard theory of international trade, the driving force behind regional arrangements ranging from free trade zones and customs unions to stronger forms of integration is welfare gains that are expected to follow from a reduction or elimination of barriers to trade in the region. Parties subject to the regional arrangement would enjoy higher welfare levels as long as welfare-improving trade creation (TC) effects exceed welfare-reducing trade diversion (TD) effects. TC effects are created by partial or complete replacement of domestic production in a certain sector of a member country by imports from another member which produces that sector’s output more efficiently, i.e. at a lower cost. Since the member with the relative cost advantage (or comparative advantage) would now supply goods to consumers in the partner country at lower prices, consumer welfare improves due to trade creation. TD effects, on the other hand, result when the elimination of barriers upon imports from partners artificially reduces the cost of those imports below the cost of imports from more efficient third parties. Naturally, such a trade policy-induced switch from more efficient third party producers to less efficient partners would decrease the importing member’s welfare below what it would have been in the absence of preferential treatment of partner countries. However, useful this criterion may be in deciding whether the existence of a particular regional arrangement brings about net welfare gains, it is based on a theoretical framework developed to analyse issues related to trade among countries that are integrated through a set of well-defined rules and regulations concerning commercial policies of members. Hence, the special status of the BSEC as a regional cooperation organisation with no intervention in the commercial policies of member countries would seriously limit the usefulness of this criterion. However, in light of the fact that the BSEC also aims to reduce or eliminate barriers to trade (or ‘obstacles’, to use the wording in Article 14 of the Summit Declaration) the framework suggested by conventional trade theory may offer insights into the welfare effects of the BSEC and its impact on regional trade flows. Viewed as such, the whole BSEC initiative may be regarded as a call for cooperative measures towards relaxing structural constraints that prevented larger volumes of trade between members prior to the establishment of the BSEC–especially between transition economies joining the BSEC and Greece and Turkey.13So far the BSEC has
used its limited
financial resources to
set up its institutional
structure, help its
member states through
the process of
transforming their
socio-economic
structure to a market
economy and improve
infrastructure by
initiating cooperation
in these five broadly
defined areas.
Given the commitments of Greece and Turkey to the EU at the time of the formation of the BSEC, there was actually little leeway for the BSEC to independently set the levels of conventional barriers without contravening these commitments.14 Therefore, the BSEC could not possibly have had a
significant effect on regional trade flows except through its contribution to the removal of structural ‘obstacles’. In other words, the potential of the BSEC to generate any trade creation effects, or to reverse the diverted trade going on between ex-COMECON partners joining the BSEC would have depended on its ability to deal with the structural obstacles that existed prior to its formation.
Some of these structural obstacles had to do with the lack or inefficiency of channels for trade, naturally suppressing all bilateral trade flows between current members (with the possible exception of trade between Greece and Turkey). Transportation costs in Eastern Europe, for example, were higher than the average for the rest of the world reflecting this inefficiency of channels for regional trade.15 The inadequacy of transportation and communications
infrastructure was common to many areas of ex-socialist member states when the BSEC was established. Under the circumstances, increasing the volume of trade would take more than a reduction or elimination of tariff and non-tariff barriers through a trade liberalisation agreement. Even in the complete absence of such protective measures, the meagre state of infrastructure for transportation and the lack of modern communications networks would have acted as structural barriers, restricting larger volumes of bilateral trade between members. 16
Much more important than such structural obstacles were those related to ideological differences that once existed between member states of different alliances during the Cold War era. These obstacles were particularly significant, as they had created marked differences in the trade and exchange rate regimes. Along with the artificially created complementary interdependence between the economies of ex-socialist states, these structural obstacles had given way to mainly two different patterns of pre-BSEC trade between current members: i) the sizable but largely diverted trade among former Soviet bloc countries,17
and ii) the relatively insignificant volumes of trade between these countries
Economic Cooperation Generate Trade Creation and Trade Diversion Effects without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC”, Discussion Paper No. 98-10, Department of Economics, Ankara: Bilkent University, 1998.
14Greece was already a full member and Turkey was negotiating a Customs Union agreement with the
EU when the BSEC was first formed
15M. Maurel - G. Cheikbossian, “The New Geography of Eastern European Trade,” Kyklos, Vol. 51, No.1,
1998, pp. 45-71.
16S. Sayan, “Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects
without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC”, op.cit.
and Greece and Turkey, despite their advantageous geographical locations in relation to each other.
The initial lack of private capital accumulation and the complete absence of private trading companies and commercial banks lowered trade levels which the market economies of Greece and Turkey had with others ex-Soviet bloc countries, below their potential.18 The barriers could not be
easily removed by signing an agreement for the purposes of welfare gains through increased trade. Part of the bilateral trade that happened to take place between current members (Turkey and Romania, or Greece and Bulgaria) before the BSEC existed was trade between NATO and Warsaw Pact members which faced serious difficulties posed by regulations restricting inter-bloc trade in certain sectors; differences in property rights and trade regimes (forcing Greek and Turkish exporters to deal with inefficient trading companies and banks run by the state), and severe hard currency shortages faced by the once centrally planned members. 19
The lack of common product standards also contributed to difficulties in many sectors, often limiting trade to raw materials and primary commodities. The peculiarity of the nature of structural obstacles created special roles for the BSEC. The absence of a private sector and the associated lack of private capital accumulation in ex-communist member states, for example, would act as a major hindrance to economic cooperation. Thus, the BSEC assumed the task of helping the structural transformation of these members by contributing to the creation of a market economy led by the private sector which, among other things, included the creation of the BSEC Business Council to promote interaction between private sector organisations in member countries.20
Despite its limited resources and the exceptional nature of problems it faced at the beginning, the BSEC managed to create an impetus leading to increased trade. While very few in number, empirical studies evaluating the
Viewed as such, the
whole BSEC initiative
may be regarded as a
call for cooperative
measures towards
relaxing structural
constraints that
prevented larger
volumes of trade
between members
prior to the
establishment of the
BSEC–especially
between transition
economies joining the
BSEC and Greece and
Turkey.
18M. Maurel - G. Cheikbossian, “The New Geography of Eastern European Trade,”, op.cit.
19Even shortly after the emergence of the BSEC, the lack of banking regulations for the financing of
international trade in some of the ex-communist member states of the BSEC proved to be a major obstacle causing many Turkish exporters to ignore orders from these countries. See S. Sayan - O. Zaim, “Black Sea Economic Cooperation Project,”, op.cit.
20It is interesting to note that some members did not have private sector organisations to join the
BSEC BC activities and had to be represented by officials from state committees of foreign economic relations (Azerbaijan and Georgia) or ministries (Moldova and the Russian Federation).
initial performance of the BSEC have consistently found evidence confirming this impetus. Due to the lack of available data, gravity based models extended with dummy variables capturing the effects of BSEC membership have been the only tool available in estimating the effects of the BSEC on regional trade flows. Inspired by the Newtonian laws of gravity, the model is based on the idea that trade flows between two countries must be directly related to their economic ‘masses’ as represented by their GDPs, and inversely related to the distance between them.21 The rationale behind the argument is that the
potential of a country to export products to others depends on its own size as measured by its GDP, whereas the foreign demand for these products largely depends on the GDP of the importing country. For any pairs of countries with given GDPs then, the bilateral trade potential will also be affected by the geographical distance between the countries since longer distances will increase the transportation costs in terms of both freight charges and transportation time. So, the simplest form of the model extended by a dummy variable meant to capture any additional effect the BSEC membership might have created can be represented by the following equation:
Tij,t= ÙYi,tÁYj,tÚDISTi,j‰BSECj‚ (1)
where Tij,t: Exports or imports of BSEC member i to country j in year t (in millions of US dollars);
Yi,t: Gross Domestic Product of BSEC member i in year t ; Yj,t: Gross Domestic Product of country j in year t ;
DISTij: The distance between the capital of country i and that of country j (in hundreds of miles);
BSECj: Binary dummy variable distinguishing BSEC partners from other countries with the Greek characters representing parameters to be estimated. Taking the natural logarithm (ln) of both sides to linearize, (1) gets translated into the following estimable form:
lnTij,t= lnÙ+Á.1nYi,t+Ú.lnYj,t+‰.lnDISTi,j+‚.lnBSECj+ui,t (2)
21The Newtonian Law of Universal Gravitation states that two particles with masses m1 and m2, and
separated by a distance ‘r’ are attracted to each other by a force, F, acting along the line joining the particles, and the degree of attraction between the two is directly proportional to the product of their masses and inversely proportional to the square of the distance between them, i.e., The law expressed as an equation:
F=G where:
ñ F = gravitational force between two objects ñ m1 = mass of first object
ñ m2 = mass of second object ñ r = distance between the objects
ñ G = universal constant of gravitation having the same value for all pairs of particles
m1m2 r2
after the addition of a stochastic disturbance term, ui,t. The value of the natural logarithm of the binary dummy variable distinguishing the BSEC partners from other countries is allowed to be 1 for BSEC members and 0 for others. All studies that have used different samples to estimate equation (2) or its variants so far have reported a positive estimate that is statistically significant for ‚ invariably establishing that the BSEC partnership contributed to increased trade volumes between member states.22
Furthermore, Sayan used estimation results from extended gravity equations have been used to calculate the initial impact of the BSEC on the bilateral trade of Greece and Turkey with other members in the form of gross export and import creation following the establishment of the BSEC.23
Based on the difference between actual trade volumes observed in the first two years of BSEC and projected volumes which would have been observed in the absence of the BSEC, gross trade creation results are reported in Tables 1 (exports) and 2 (imports).
ñ Actual imports minus the projected value of exports that would have been observed in the absence of BSEC (calculated using the estimated value of the dummy variable for BSEC membership based on pooled data for seventeen countries over the 1992-1994 period).
The results in Tables 1 and 2 reveal that the BSEC formation has contributed to increased trade volumes for both Greece and Turkey, generating a small
The BSEC assumed the
task of helping the
structural
transformation of
these members by
contributing to the
creation of a market
economy led by the
private sector which,
among other things,
included the creation
of the BSEC Business
Council to promote
interaction between
private sector
organisations in
member countries.
22Togan used cross section data only, leaving out variations across time. See S. Togan, Black Sea Economic Co-operation, Economic Co-operation Organisation, Turkic Republics and Turkey: Possibilities for Regional Economic Integration, Paper presented at the conference on European Union, Turkey and
Eurasia: New Trends in EU-Turkey Relations, Istanbul, September 22-23, 1994. Sayan and Sayan and Zaim experimented with other dummy variables such as the one capturing the effects of common history as COMECON members, and one that distinguishes members with and without common borders. See S. Sayan, Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects
without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC, op.cit., and S. Sayan - O. Zaim, “The Black Sea Economic Cooperation Project”, op.cit., Cebi introduced
similarity indices for exports of Greece and Turkey to other members member countries. See P. Cebi,
An Analysis of Trade Flows within the BSEC Region through an Export Similarity Extended Gravity Model,
Unpublished manuscript, Ankara: Bilkent University, 1998.
23See S. Sayan, Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC,op.cit.
Estimates of Gross Export Creation: 1993-1994 (Millions of Current USD)
Table 1
Destination Countries for Exports Estimates of GEC*
Greece Turkey 1993 Albania 24.0 6.9 Azerbaijan 0.0 12.5 Bulgaria 57.7 15.8 Georgia 0.3 6.3 Greece - 21.6 Moldova 0.5 0.0 Romania 17.0 27.7 Russian Federation 35.3 92.2 Turkey 28.2 - Ukraine 6.0 7.2 TOTALS 169.0 190.2 1994 Albania 37.8 10.8 Azerbaijan 0.0 24.1 Bulgaria 73.3 24.4 Georgia 0.7 12.3 Greece - 30.9 Moldova 0.7 0.6 Romania 16.3 32.0 Russian Federation 43.1 149.9 Turkey 19.2 - Ukraine 14.4 13.9 TOTALS 205.5 298.9
* Actual exports minus the projected value of exports that would have been observed in the absence of BSEC (calculated using the estimated value of the dummy variable for BSEC membership based on pooled data for 17 countries over the 1992-1994 period).
trade surplus for Greece and a small but non-trivial deficit for Turkey even in the first two years. This is a considerable success, especially considering how poorly linked transition countries within the BSEC were to the global markets during the initial phases of their membership. Yet, whether it signals the continuation of a trend in expanding trade between members is another question left to be contemplated in the concluding section.
Conclusions
The BSEC has worked since its establishment to facilitate the natural (as opposed to diverted) growth of trade between its member countries by contributing to the overall development of its members through a somewhat loose form of regional cooperation. Within this framework, it aims to deal with structural constraints preventing larger volumes of trade between members by offering assistance in quickening the pace of transition by its ex-socialist members rather than requiring its members to reduce or eliminate any conventional (tariff or non-tariff) barriers. Even today, more than seven years after the signing of its Charter officially marking the beginning of the programmes and projects stage, the BSEC continues to stop short of requiring strong commitments from its members, and maintains its unautocratic approach to regional economic cooperation.
In this respect, it was unlikely that the BSEC keep momentum with its contributions to the expansion of trade between members during the past decade, as transition countries within the BSEC have experienced significant progress in their movement to the market economy, becoming increasingly linked to the global economy with the accession of Bulgaria and Romania to the EU. However, despite the various obstacles, all transition members have experienced substantial growth in the meantime and thanks to the degree of transformation achieved are facing a much more diversified set of partners for trade. Even though bilateral trade between almost all pairs of members has continued to grow, this expansion is less and less attributable to common BSEC membership. Still, it can be argued that the BSEC has played a disproportionately significant role to its meagre resources in aiding the transformation of transition member economies, especially during times of economic hardship.
The incentives behind the desire of most nations to join regional initiatives are markedly different from the protectionist motives that dominated the past. The fundamental motivation now is not to provide easy access to member country exporters through preferential treatment, but rather to facilitate the movement of goods, services and factors of production so as to enhance efficiency and promote competition within the bloc as a whole. Such regional arrangements are likely to facilitate trade between member states as well as with third parties. A common set of product standards or banking practices, for
Even today, more
than seven years after
the signing of its
Charter officially
marking the
beginning of the
programmes and
projects stage, the
BSEC continues to
stop short of
requiring strong
commitments from its
members, and
maintains its
unautocratic approach
to regional economic
cooperation.
Estimates of Gross Import Creation: 1993-1994 (Millions of Current USD)
Table 2
Source Countries for Imports Estimates of GIC*
Greece Turkey 1993 Albania 2.5 0.3 Azerbaijan 0.0 5.2 Bulgaria 31.6 37.5 Georgia 0.0 3.4 Greece - 18.6 Moldova 0.0 4.5 Romania 10.5 46.3 Russian Federation 81.3 237.6 Turkey 22.1 - Ukraine 5.4 72.8 TOTALS 153.4 426.2 1994 Albania 2.2 0.2 Azerbaijan 0.0 1.4 Bulgaria 47.5 30.1 Georgia 0.0 4.0 Greece - 16.2 Moldova 0.8 3.2 Romania 21.7 35.3 Russian Federation 81.9 161.0 Turkey 26.0 - Ukraine 22.6 82.4 TOTALS 202.7 333.8
* Actual exports minus the projected value of exports that would have been observed in the absence of BSEC (calculated using the estimated value of the dummy variable for BSEC membership based on pooled data for 17 countries over the 1992-1994 period).
example, would make selling within the bloc easier for member and non-member producers alike, serving to bring about global integration. In other words, regional initiatives that target increased cooperation and improved market access rather than higher protection and preferential treatment would help member countries become better connected with the global economy. The BSEC seems to have played a not-so-trivial role in this respect and should continue to push the region in that direction.
