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Central European Free Trade Agreement – Definition

Central European Free Trade Agreement (CEFTA) Definition

The Central European Free Trade Agreement (CEFTA) involves a trade agreement among non-EU nations. The member nations of CEFTA mostly belong to Southeastern Europe. It was established by members representing Hungary, Poland, and Czechoslovakia, and gradually, spread its roots in countries including Romania, Moldova, Serbia, Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Slovenia, and the United Nations Interim Administration Mission in Kosovo representing Kosovo.

A Little More on What is the Central European Trade Agreement DEFTA

A nation who is already a member of CEFTA, when joins the European Union, loses its membership with CEFTA. As per reports of July 1, 2013, the member nations of CEFTA include Albania, Bosnia and Herzegovina, Macedonia, Moldova, Montenegro, Serbia, and the UNMIK representing Kosovo.

Eligibility of being a CEFTA member:

As per the previous Poznan Declaration standards:

  • World Trade Organization membership
  • Free trade agreements with the existing CEFTA member nations
  • European Union Association Agreement offering prospective complete membership

Present criteria since Zagreb meeting held in the year 2005:

  • WTO membership or abiding by all regulations of WTO
  • Free trade agreements with existing CEFTA member nations
  • Any type of European Union Association agreement

Original agreement

The Visegrad Group nations approved the authentic CEFTA agreement. These nations included Poland, Czech and Slovak republics and Hungary, and the agreement was signed on Dec. 21, 1992 in Krakow, Poland, and it was implemented in the year 1994. In the presence of CEFTA agreement, member nations sought to organize effort so as to merge into the Western European organizations, and participate in European economic, political, security mechanisms, thereby strengthening the democratic conditions as well as free-market economics.

There were some amendments made in the CEFTA agreement on Sep. 11, 1985 in Brno, followed by Jul. 4, 2003 in Bled. Slovenia became a part of CEFTA in the year 1996, Romania in the year 1997, Croatia in the year 2003, and Macedonia later in the year 2006.

2006 agreement

Now, the members of the primary agreement had now become a part of the European Union and, hence left CEFTA. This was one of the situations that led to the extension of CEFTA so as to include the remaining Balkan regions that had finished a series of bilateral FTAs within the structure of the Stability Pact for South Eastern Europe region. The extent of CEFTA was expanded to regions including Albania, Bosnia, and Herzegovina, Moldova, Serbia, Montenegro and UNMIK on behalf of Kosovo, and this announcement was made at the South East Europe Prime Ministers Summit held in Bucharest. Discussions regarding the accession of Ukraine also took place. The exclusive agreement was released on Nov. 9, 2006 in Brussels, and was approved and implemented on Dec. 19, 2006 in the South East European Prime Ministers Summit held in Bucharest. For Albania, Kosovo, Macedonia, Moldova, and Montenegro, this agreement was implemented on Jul. 26, 2007, for Croatia on Aug. 22, for Serbia on Oct. 24, and for Bosnia and Herzegovina on Nov. 2007. This agreement had an objective to regulate a free trade zone in the location by the end of 2010.

After being independent on Feb, 17, 2008, UNMIK kept representing Kosovo in all of its CEFTA summits. In 2008, there were modifications made in Kosovo’s customs stamps that substituted UNMIK with Kosovo. Ultimately, this created trade restrictions between Kosovo and countries like Serbia and Bosnia. The Pristinian government also enforced import restrictions on goods received from Serbia. This ultimately increased tension at borders in the mid of 2011.

Relations with the European Union

Earlier, member nations had given approval for the association agreements with the European Union. So, in some way, even CEFTA has helped countries in getting ready for the complete European Union association. On May 1, 2004, countries including Poland, the Czech Republic, Hungary, Slovakia, and Slovenia became a part of the European Union, while other nations such as Bulgaria and Romania joined it on Jan. 1, 2007. Croatia became a part of the European Union on Jul 1, 2013.

For the last 6 years, Montenegro and Serbia have been a part of European Union accession conversations, whereas Albania and Macedonia tend to be official nominees for the European Union.

After the recommendations made by the European Union, the prospective members got ready for association by creating FTAs or free trade areas. EU nations have a big portion of CEFTA foreign trade.

References for Central European Free Trade Agreement (CEFTA)

http://www.businessdictionary.com/definition/centrally-planned-economy.html

https://en.wikipedia.org/wiki/Central_European_Free_Trade_Agreement

Academic Research for Central European Free Trade Agreement (CEFTA)

Do free trade agreements actually increase members’ international trade?, Baier, S. L., & Bergstrand, J. H. (2007). Journal of international Economics, 71(1), 72-95. The gravity equation has been used for cross-country statistical analysis of the global trade flows for more than 40 years. However, it has similar critiques as the cross-industry researches of the United States multilateral imports had earlier: trade policy cannot be counted as an exogenous variable. The authors discuss the endogeneity of Free Trade Agreements (FTAs), econometrically. Though control function and instrumental variable approaches are not adjustable for endogeneity, a panel approach is. It has outstanding empirical results, i.e. the impact of FTAs on trade flows quintuples. The findings are that an FTA almost doubles bilateral trade of 2 members on average after ten years.

Hub-and-Spoke or else? Free trade agreements in the’enlarged’European Union, De Santis, R., De Benedictis, L., & Vicarelli, C. (2005). This article estimates the impact of eastwards enlargement process of EU (European Union) on its trade patterns. Particularly, the authors investigate the effect of free trade agreements (FTAs) of EU with CEECs on central-periphery & intra-periphery trade relations. They make an analysis of the bilateral trade flows in EU-23 and CEECs. They present a gravity equation with the help of a dynamic panel data model of GMM. The results show that gravity and persistence effects count. The findings suggest moving these countries to a free trade region in order to prevent hub & spike impacts as illustrated by BAFTA & CEFTA.

After COMECON: A free trade area in Central Europe?, Bakos, G. (1993). Europe-Asia Studies, 45(6), 1025-1044. In Central Europe (CE), new regional groupings formed after the Comecon Collapse that showed a trend of more integration in this region. Before and after the Second World War, small countries in CE integrated with some bigger power outside their regionals failed to develop mutual cooperation despite their wish. Today, there are systematic changes in the Eastern regions and Comecon Collapse raises the questions, like, whether these countries will form mutual COCFation or swing to one side again. This paper provides an economic and historical background of the CEFTA (Central European Free Trade Area) problems.

Economic determinants of free trade agreements, Baier, S. L., & Bergstrand, J. H. (2004). Journal of international Economics, 64(1), 29-63. This paper analyses the economic determinants of the FTAs formation and FTAs likelihood between countries pairs with the help of a qualitative choice approach. This was the first systematic economic model, a basis of the world trade equilibrium approach with 2 factors of production, intercontinental & intercontinental transportation costs and 2 product markets of monopolistic competition among different countries on different continents. The empirical results based on the economic features show correct predictions, i.e. 85 percent of the 286 FTAs among 1431 countries pairs in 1996 and 97 percent of the rest of 1145 pairs without FTAs.

The gravity model specification for modeling international trade flows and free trade agreement effects: a 10-year review of empirical studies, Kepaptsoglou, K., Karlaftis, M. G., & Tsamboulas, D. (2010). The open economics journal, 3(1). For the last forty years, the gravity approach has extensively been used in global trade research due to its significant explanatory power and empirical robustness. Since the 1960s, the researchers have introduced gravity models and used for estimating implications of trade policy and specifically in recent years, to analyse the impacts of FTAs on international trade. This paper is an overview of the recent statistical literature on these models and throws light on the best practices. The authors make a review of FTAs impacts on international trade as shown by related gravity model-based research over the last decade.

Regional trade agreements and the WTO1, Crawford, J. A., & Laird, S. (2001). The North American Journal of Economics and Finance, 12(2), 193-211. The fast development in the number of RTAs (Regional Trade Agreements) has caused the MTA (Multilateral Trading System) weakening. This document is an overview of the spread of these agreements and how much threatening they are for the system. The WTO (World Health Organization) plays a vital role in the smooth trading of its member countries overcoming the demerits of RTAs.

Endogeneous price and trade policy developments in Central European agricultrue, Swinnen, J. (1996). European Review of Agricultural Economics, 23(2), 133-160. The theory of endogenous policy elaborates the development in trade and agricultural policies in CE (Central Europe). It has had 3 phases since 1989. After the first liberalization, ad-hoc interventions came forth to safeguard producers and consumers from real income negative impacts of economic reforms. Gradually, they were integrated into a policy package. After 1992, agricultural protection of CE increased but there exist great differences in commodities and countries consistent with the predictions of political economy. Factors of national political economy may lead to a further increase in agricultural protection. International agreements can play a vital role in restricting agricultural protectionism of CE.

Trade integration of Central and Eastern European countries: Lessons from a gravity model, Bussière, M., Fidrmuc, J., & Schnatz, B. (2005).  This research examines the fast trade integration of CEECs (Central & Eastern European countries) in the last 10 years with the Euro area. The authors use an improved gravity model as a benchmark assessed for a big sample of bilateral trade flows in sixty-one countries since 1980. A careful analysis of the fixed impacts of the model is critical to interpreting the results appropriately, just extracting the regression predicted values causing distorted results as it cannot appropriately account for the process of transition. So, the authors present a 2-stage ‘out of sample’ model. Still, there is a scope of trade integration in Some Eastern European and Baltic countries.

The political economy of EC regionalism, Sapir, A. (1998). European Economic Review, 42(3-5), 717-732. Many beholders notice the latest regional trade agreements proliferation mainly centred in/on Europe. This study makes an analysis of the consequences and causes of EU regionalism. First, it examines the development and significance of the phenomenon. The findings are that though the European Countries manage preferential trade virtually with all countries, preferential trade comprises not more than twenty-five percent of overall EC trade. This research explores the reasons for EC regionalism stressing on the determinants of the supply by the European Countries and the demand by the 3rd countries. Finally, it evaluates future options.

Regional co‐operation in Southeast Europe, Uvalic, M. (2001). Southeast European and Black Sea Studies, 1(1), 55-75. Regional cooperation in SEE (Southeast Europe) is very important today in the consequences of the Kosovo Conflict. Several initiatives were taken to improve SEE cooperation in 1990, but it has still not depicted any significant results. On the other hand, the lack of this cooperation has seriously intervened in the stability and peace in the EE. This article considers the economic effects of regional cooperation in SEE countries, including Bosnia Herzegovina, Croatia, Albania, FRY (Federal Republic of Yugoslavia), Bulgaria, FYROM (Federal Republic of Macedonia, Romania) and Slovenia is considered occasionally. Lastly, the author concludes with the discussion on the major reason for economic ties encouragement among the SEE countries.

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