FREE TRADE AGREEMENTS - FTAs

FTA are based on four basic rules of WTO as follows:

1. National Treatment Rule

While the MFN (see below) rule prohibits countries from discriminating among goods originating in different countries, the national treatment rule prohibits them from discriminating between imported products and domestically produced like goods, both in the matter of the levy of internal taxes and in the application of internal regulations. Thus, it is not alowed to a country, after a product has entered its market on payment of customs duties, to levy an internal tax (e.g. sales tax or value aded tax) at rates higher than those payable on a product of national or domestic origin.

2. Most Favoured Nation (MFN) Treatment

This rule lays down the principle of non-discrimination. The rule requires that tariffs and other regulations should be applied to imported or exported goods without discrimination among countries. Thus it is not allowed to a country to levy custome duties on imports from one country at a higher rate than it applies to imports from other countries. There are, however, some exceptions to the rule. Trade among members of regional trading arrangements, which is subject to preferential or duty-fre rates, is one such exception. Another, is provided from the Generalised System of Preferences (granted Albania from the EU). Under this system, developed countries apply preferential or duty-free rates to imports from developing countries, but apply MFN rates to imports from other countries.

3. Protection to domestic industry through tariffs

Even though GATT aims at the progressive liberalisation of trade, itrecognises than its member countries may have to protect domestic production against foreign competition. However, it requires countries to provide such protection through tariffs. The use of quantitative restrictions is prohibited, except in a limited number of situatiojns.

4. Binding of Tariffs

Countries are urged to reduce and, where possible, eliminate protection to domestic production by reducing tariffs and removing other barriers to trade in multilateral trade negotiations. The tariffs so reduced are bound against further increases by being listed in each country's national schedule. The schedules are an integral part of the GATT legal system.

FTA aim at the following:

•  Better addressing of market needs, especially for goods and services which are domestically mising;

•  Influencing price decrease;

•  Promoting competition;

•  Promoting domestic technological progress, hence promoting competition;

•  Fighting smuggle related activities;

•  Reciprocical influence among different markets under different conditions of tariff treatments;

•  Promoting and attracting foreign investments;

•  Promoting exports.

Hitherto, Albania is in the following phase on FTA agreements with each single neighbouring economy:

FTAs in Balkans are a time delayed response of what happened with the Treaty of Rome in 1957, which then led to today's EU. FTAs with neighbouring countries aim at establishing a regional market of 65 million consumers. This enlarged market brings about challenges and opportunities. Again, the principal opportunity is that domestic firms have now the opportunity to enlarge their markets regionally. This way, consumers also have a wider choice spectrum.

Also, FTA are deemed to really protect domestic businesses because , because they:

•  Provide for fair rules of the game;

•  Provide for increased competition;

•  Provide for complying with all necessary trade technical provisions and with also sanitary and phytosanitary measures ;

•  Promote the production of agriculture raw materials domestically, which means more jobs and further development of the sector;

•  Provide for better fulfillment of consumer needs.

On the other hand, since FTA suggest elimination of tariffs (on products which are subject of such agreements), the increased competition implies the direct addressing of a few problems which are currently faced today in Albania's domestic environment. F.ex.. that part of the informal economy which were based on escaping customs duties will lose such a privilege after FTA come into effect. Such increased competitive pressures will make businesses strive to decrease costs and increase productivity. This will be the only way to efficiently face competition not only locally but also regionally. The expansion of domestic businesses in the region will be translated into higher employement rates; higher profits (increased real income and further wealth accumulation which will be the basis of further investments); and increased tax revenue (i.e. increased potential for investing into ambitious infrastructure, community and social projects). Facing the FTA reality is the only way of insuring national prosperity in long term.

As far as disadvantages are concerned, the main challenge of FTA posed to the national economy is increased competition (which at worst leads to bankruptcy of firms which cannot surive such competition). Nonetheless, despite of such short term challenges and costs, in the long term FTA make possible the re-allocation of resources into more effective uses. If a firm is not able to face competition it should not shield itself behind protectionist measures enforced from the government because there are a string of negative effects as follows:

•  There is no allocation of investment into the best possible projects;

•  Consumers are penalised through lower quality of products and services;

•  It is a constraint on economic growth which needs wider market opportunities.

Parties will also apply their own rules on veterinary sector, sanitary and phytosanitary measures in order to have a full compliance the WTO's Agreement on Sanitary and Phytosanitary Measures.