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International Trading System: Prospects for Emerging Markets Санкт-Петербург/ St. Petersburg 1 2 марта 2007 1 2 March 2007 программа

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GDP and CPI dynamics 1992-2001
Table 3 GDP, Exports and Imports level before and after WTO accession
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Trade liberalization in action. Bulgarian foreign trade prior to political and economic reform of 1990-1991 had the highest CMEA (Council of Mutual Economic Assistance) share in comparison to other member countries. Also, Bulgaria (along with Czechoslovakia) was the last to reduce CMEA-export in 1989, while others started as early as in 1986. Another peculiarity was that Bulgaria exported mostly to the ex-Soviet Union while others traded more significant volumes with one another.


In the first years after both CMEA and state monopoly on foreign trade were abolished, it was difficult to impose clear market rules. Facing the challenge of deregulation and abandoning the socialist planning system, the Bulgarian government took too long to find a form of regulation that would stimulate competition. As a result, rather than being able to thrive in a genuine market economy, Bulgarian enterprises have been exposed to the chaos of a hazardous post-communist market (Sheytanov, 1996).

These difficulties plagued the economy even after joining the WTO as Bulgaria joined with developed country status. That effectively meant that structural reforms had to be conducted in a framework of fully liberalized markets and exposure to strong international competition. This was partly because prior negotiations had been conducted on the basis of much higher economic indicators than Bulgaria was in fact enjoying at the date of joining. In 1996, these economic indicators were lower than those of many developing countries that succeeded in obtaining concessions and special treatment from the WTO. For example industrial production volume indices in Bulgaria in 1998 were 87 (the basis for 1995=100), and by end of 2001: 81,8. In all other countries - Czech Republic, Hungary, Poland, Romania and Slovenia, this figure was over 100 and was steadily increasing from 1998 until 2001 (Messerlin, 1996).

Liberalization of Bulgaria's trading regime was by far the deepest and most comprehensive at the regional level, in particular with the EU. For example, Bulgaria's trade liberalization is confirmed by the fall in the average applied MFN tariff rate for all products from 17,2% in 1996, on accession to WTO to 11,6% in 2003.

However the tariff policies and their consequences for trade volumes in general and particularly for imports depend very much on the fact to what extent is the national customs an efficient, non corrupted and reliable institution. The Customs Act, 1998 and its implementing regulations provide the main framework for Bulgaria's customs administration. Bulgaria is actively working to strengthen the capacity of its Customs Agency, with substantial external expertise and assistance. The aim is to facilitate trade through reductions in document processing time, enhance customs revenue, and reduce problems of corruption and smuggling. The problem that inefficient customs has much greater impact on national economy than the perceived and expected impact of WTO membership is very often neglected in existing literature. It>
Still one should not be relying on strongly linking trade liberalization with the deterioration of Bulgarian economic indicators. Trade liberalization did not occur in isolation from other reforms, both economic and political. During the period 1990–1997, there was no political consensus in the country as to the economic policy priorities needed at both macro and micro levels. This resulted in a stop-and-go transformation towards a market economy, which caused the GDP to shrink by 40% in real terms, while consumer prices rose almost 20 times relative to 1990. Inflation averaged annual 233% year during 1990–1997, and turned into hyperinflation from late 1996 to early 1997, at the height of a major banking and exchange rate crisis (IMF, 2004). Tables 2 and 3 illustrate the dynamics of GDP, export and import volumes between 1992 and 2001. Appendix 1 gives a more detailed picture on the exports and imports. It is worth noting that the WTO membership that started one month before the beginning of 1997 does not appear as a clear turning point.

Table 2

GDP and CPI dynamics 1992-2001

1995 US$ millions
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001

GDP
12,702

12,514
12,741
13,106
11,874
11,209
11,657
11,925
12,569
13,072

GDP/Cap*
1,487

1,477
1,511
1,560
1,421
1,349
1,412
1,453
1,547
1,652

CPI**
18.2

31.5
61.7
100.0
221.6
2,567.0
3,046.4
3,124.8
3,447.1
3,700.8

* GDP/Cap =GDP per capita (constant 1995 US$) / ** CPI =Consumer price index (1995 = 100)

Source: (WDI, 2006)


Table 3

GDP, Exports and Imports level before and after WTO accession
1992
1997
2001

GDP
12,701,960
11,208,990
13,072,220

Exports
2,291,892
5,055,977
5,333,602

Growth (in %)



121%
5%

% of GDP
18.0%
45.1%
40.8%

Imports
4,575,512
5,000,384
5,353,519

Growth (in %)



9%
7%

% of GDP
36.0%
44.6%
41.0%

Source: (WDI, 2006)

Tariff policies. Since the beginning of the transition process, Bulgaria's overall trade policy objective was geared to the gradual liberalization of its trade regime and the main trade liberalization efforts have been implemented through a network of regional and bilateral Free Trade Agreements (FTAs). After the accession to the WTO, trade liberalization has been much faster for industrial products than for agricultural goods. The simple average tariff on agricultural products is 47,6% while on non-agricultural items it is 22,7%. When the Most Favored Nation (MFN) tariff rates were applied the simple average tariff presented less than 12% in 2003 against 17,2% in 1996. The applied simple average MFN rates were 21,7% for agricultural products and 8,6% for industrial products (Tussie & Aggio, 2004). Applied duties range from 0 to a maximum of 40% for industrial products and 80% for agricultural products.

Since 1999, zero duty had been introduced on a voluntary basis for almost the entire range of goods covered by the Information Technology Agreement (ITA), and, since the formal adoption by Bulgaria of this Agreement, as from 1 January 2002 zero duty applies to all products covered by the Agreement. On the basis of the International Standard Industrial Classification (ISIC), the Bulgarian tariff structure shows tariff escalation; the first and semi-processed stages of manufacturing attract average rates of 7,8% and 8,8% respectively and fully processed products attract an average tariff of 13,4% (Ognivtsev, 2005). Tariff escalation appears to be relatively marked in the food, beverages and tobacco, textile and leather, wood and furniture, and chemicals sectors.

Bulgaria also provides more favorable market access to 118 developing and least developed countries under the Generalized System of Preferences /GSP/. It applies preferential duties on a large number of goods originating from developing countries, at the rate of 70% of the MFN duty rate, and for imported goods originating from least developed countries it applies zero duty. For the Bulgarian economy, trade with developing countries either diminished (mostly exports), or increased at rates much below the average (mostly on the import side) (Kaminski et. al., 1996). Consequently, the share of developing countries in the total trade remained broadly unchanged. The export to the developing countries rose only marginally in current dollar terms (and probably fell in real terms).