Free Trade Zone in Southeast Europe?
Harmonization of tax and customs legislation
PART ONE
1.General overview of the European Union tax and customs legislation
2.Southeast Europe and integration in the European Union
PART TWO
1.The establishment of a free trade zone in Southeast Europe
2.The role of the Stability Pact in trade liberalization and facilitation
PART ONE
Survey on the level of harmonization of
the relevant tax and customs legislation of the countries in Southeast Europe
The research will outline the level of
harmonization of tax and customs legislation as per the requirements of the European Union
in most of the countries in Southeast Europe (SEE). From
the countries in the region only Slovenia, Bulgaria and Romania have declared their firm
intentions for joining the European Union and
have initiated the accession process. However,
in view of the consequences of the Kosovo crisis, a strategic approach shall be taken to
lead the countries on the road of stability and future prosperity. A number of strategic plans state that Albania,
Bosnia and Herzegovina, Croatia, Macedonia and Yugoslavia (Serbia and Montenegro) should
join the European Union as well even at a later stage.
Thus mainly for the purposes of the second part of the research, the tax and
customs legislation of these countries from this aspect will be analyzed as well.
1.General overview of the
European Union tax and customs legislation
In this section the basic elements and
principles of the European Union legislation will be summarized.
1.1.Analysis of the European Union
Legislation on Direct Taxes
n Exchange of information directive;
n Parent-Subsidiary directive and the
proposal for amendments;
n Merger Directive and the proposal for
amendments.
1.2.Analysis of the European Union
Legislation on Indirect Taxes
n VAT directives, recommendations and
proposals;
n Excise duty directives, recommendations
and proposals;
n Customs duty aspects of the
harmonization process and the EC Customs Code.
n Top
2.Southeast Europe and integration in the European Union
The research
will give details with regard to the actual stage of harmonization in each country in
relation to the European Union accession process. The
countries will be divided in three main groups: countries that have been invited to start
negotiations with the EU for accession, countries that have initiated the EU accession
process and countries which have not declared yet their European Union accession
ambitions. Summaries of the relevant reports
of the European Commission on the progress of each applicant country and other relevant
institutions ( i.e. - World Bank, IMF, OECD,
etc.) will be given in outline. Comparisons
will be made with the relevant processes taking place in Central and Eastern Europe.
2.1.General
Overview of the Position of each country
The analysis
in this section will include but will not be limited to the following points with regard
to the position of each country:
n who will join the European Union and
what is the current position of each analyzed country;
n which
countries can be considered “favorites” in the EU accession process;
n how will membership in the European
Union be achieved and what are the general
criteria that have to be fulfilled in order that negotiations to start or be finalized;
n what further tax and customs changes
are necessary in each country’s legislation;
n summary of the Customs and Taxation
Pre-Accession Strategy of DG XXI and other relevant documents of any of the directorates
of the European Commission;
n summaries of the European
Commission’s reports on the process towards accession of the applicant countries from
the region.
2.2.The rate of
harmonization of the tax and customs legislation of the countries from SEE
This section
will give details on the relevant status of the tax and customs legislation in effect on
the territories of these countries. The
research will use the method of comparative analysis in order to rank the countries
according to the level of completion of the harmonization process. The countries will be ranked according to three
separate levels of analysis:
n harmonization in the field of direct
taxes;
n harmonization in the field of indirect
taxes;
n harmonization of customs duty
legislation.
The first part of the research will
make relevant conclusions on the level of the harmonization process in each country, using
the method of comparative tax analysis and widely accepted international tax principles.
PART TWO
Free Trade Zone in Southeast Europe
1.The establishment of a free trade zone in Southeast Europe
The countries in the region are small
and relatively “isolated” from an economic point of view. On the other
hand stabilization in general in Southeast Europe is possible only if a more advanced
level of economical development and integration is achieved. Thus the “isolation” of the countries can be
considered the main barrier towards stabilization. A
regional customs union of the countries in the region and relevant harmonization of VAT
and Excise Duties can be the considered an appropriate scenario especially for the
economies of the Balkan countries. In this
way the requirements of the European Union in the field of taxation and customs reform can
turn out to be a common starting point in the direction of economic integration of the
region and future accession of the Balkan (SEE) countries in the European Union. On the other hand the week institutions and
governance constraint economic development and adversely affect investor’s perception of
the region.
The data
analyzed in the first part of the research will serve as a base for the discussion of the
possibilities of the establishment of a free trade zone in Southeast Europe. Focus will be given on the level of harmonization
in the field of indirect taxes and customs duty regimes.
The levels of corporate tax rates, available tax incentives will be given in
outline and discussed as well.
2.The role of the Stability Pact in trade liberalization and facilitation
One of the
main goals of the Stability pact is the creation of “vibrant” market economies in
Southeast Europe based on sound macro policies. In
order to fulfill this objective the markets must become open to foreign direct investment
and the trade is to be based on effective and transparent customs and
commercial/regulatory regimes. The research
will identify the main scenarios open to the Stability Pact for achieving the ambitious
objective of trade liberalization and facilitation.
Recent
publications of leading scholars state that agreements between small, closed developing
countries are unlikely to have a positive impact on growth.
Another key finding is that only countries located to large developed economies can
benefit from such location. The following
issues will be analyzed in more details in view of the objectives of the Stability Pact:
n prospects
for changes in tax and customs systems, infrastructure, institutions and social aspects of
the reforms;
n the
role of trade agreements and double tax treaties;
n the
role of tax incentives in fostering economic cooperation in the region, between the
countries in the region and the rest of Europe and the world;
n bureaucracy
and corruption - how can we fight them;
n social
and economic integration of minorities;
n the
advantages and disadvantages of the free trade areas;
n the
example of an operating free trade zone in the region - i.e. Bulgaria and Macedonia.
The following
risks for the failure or the delay of such a strategic project will be ascertained and
discussed based on available statistical, economic and political data at the moment of the
research:
n analysis of the differences in the
economies of the SEE countries that exist currently and discussion of the possibilities
for economical integration as well as analysis of the option of implementing of a single
currency (euro) in the region;
n analysis of the political risks - are
the countries in the region prepared for surrendering partly their national sovereignty in
view of such a project;
n analysis of the possibilities for
funding and assistance from the European Union and/or through the Stability Pact that can
be decisive for the project;
n discussion on whether the processes of
integration of the economies of the countries on the Balkans should be achieved prior to
the process of European Union integration
or be considered a parallel process.
Conclusions on the possibilities for
the fulfillment of such a project on a Southeast Europe scale should be made as a result
of the research. Recommendations on the role
of the Stability Pact will be presented and made available to the public by way of series
of articles in support of the idea for establishment of a common free zone in Southeast
Europe. Some of the future basic political
and economic steps based on which Bulgaria will try to become a stabilization factor of
prime value on the Balkans will be identified.
The first part of the research will be
finalized by 30 June 2001 while the second part will be closed by the end of year 2001. The results of the research will serve as a
valuable resource material for initiating politically oriented discussions in Bulgaria for
the promotion of a project of such a political and economic value for the countries in
Southeast Europe.