Montenegro works to best leverage new WTO membership

19/05/2012

After seven years of negotiations, Montenegro has become part of a global association that should help jumpstart the economy. But it's going to take some doing.

By Nedjeljko Rudovic for Southeast European Times in Podgorica -- 19/05/12

Wine is a key export for Montenegro, but analysts say WTO membership should open the door to many more products and sectors. [Reuters]

The small Mediterranean country, independent since 2006, was formally admitted to the World Trade Organisation (WTO) late last month, becoming part of club with clout. It boasts over 150 members, accounting for 97% of global trade.

Membership means that Montenegrin companies have access to the markets of every other country in the WTO, under the same terms as all other organisation members. In addition, it sends a powerfully positive signal to foreign investors looking for a stable and predictable economic system.

"Being a member of the global trading system means great potential benefit for all companies that are able to participate in international trade, in terms of a competitive market," Ljiljana Filipović, vice president of the Chamber of Commerce of Montenegro, told SETimes.

"It is also a new strong impetus for the EU accession process and the growth of regional trade. WTO membership is a guarantee of safety, predictability, new jobs … It will provide consumers with greater choice and lower prices," she added.

On the other hand, Montenegro will have to reduce some tariffs and abolish others, which raises a key question: are Montenegrin companies capable of competing with powerful foreign companies that offer lower prices for the same or similar products? Experts warn that the Montenegrin economy must raise quality standards to survive in a free, global market.

Dragan Lajovic, an economics professor at the University of Podgorica, believes that the biggest advantage of joining the WTO is reducing the cost of exports, which is how small countries become more competitive: "We should expect an increase in exports and economic growth of Montenegro," he told SETimes.

"WTO members cannot protect domestic industry from cheaper goods produced in foreign countries. However, it is very important that the members raise the competitiveness of domestic enterprises, realise the potential to transfer knowledge, skills and know-how, and encourage continuous workforce training, competitiveness and stability," Lajović added.

Experiences within the region suggest joining the WTO did not threaten domestic production. Slovenia joined first, followed in 2000 by Albania and Croatia. Macedonia was next in 2003. Serbia and Bosnia and Herzegovina (BiH) are in the final stages of negotiations.

According to various analyses, trade predominantly takes place between countries in the region that are approximately at the same level of economic development. In Croatia, Macedonia, Albania, for example, there is the fear that domestic markets would be flooded with better quality and cheaper goods from the EU and the most powerful members of the WTO.

Since 2006, the countries of Southeast Europe formally became part of the single market CEFTA, which works -- but not perfectly -- due to a number of barriers that members have used to protect domestic production. By joining the WTO, all barriers must be eliminated.

"Further liberalisation means the need to strengthen the competitive power of domestic companies to face the pressure of competition, with the simultaneous need for strengthening marketing approaches, to make their products more successful in finding domestic and foreign consumers," Filipovic said.

Last year, Montenegro exported products to a total of 68 countries, but overwhelmingly, the exports were concentrated in ten countries. Its biggest trade partners are Serbia, Hungary and Croatia. Montenegro imported from 176 countries, but again, overwhelmingly, imports came from ten countries. Serbia is again the main partner.

Montenegro's huge trade deficit stems from the fact that exports cover only about 25% of imports. The country mostly exports aluminum and wine, and imports fuel and food. A significant portion of domestic revenue comes from tourism, given unique geography that allows easy access to both the sea and mountains.

Experts emphasise that Montenegro needs to change the structure of its economy and strengthen manufacturing to be able to export, the prime advantage of joining the WTO. Economy ministry spokesperson Draženka Bećirović says the service sector may be one driver of economic development, given that this sector now accounts for over 2/3 of global GDP.

"The development of the service sector is important not only from the standpoint of international trade, but also as an indicator of economic development. The effectiveness of the individual service sector [illustrates] the efficiency of other sectors of the economy," Bećirović told SETimes.

She adds that WTO membership indicates that Montenegro is not only a destination with clearly defined trading rules, but an attractive place for investors seeking cheaper access to other markets in the region.

"Expectations are that the membership ... will send a positive signal to foreign investors who can come into a country that respects internationally accepted trade rules. In accordance with that, Montenegro will [likely] improve economic co-operation, not only with neighbouring countries but also with other WTO members," Bećirović predicted.

This content was commissioned for SETimes.com.