`
Page 1
The Effects of the BSEC
on Regional Trade Flows
Serdar Sayan*
Agora Without Frontiers Volume 10 (4) 2005: 334-347
* Professor, Department of Economics, Bilkent University, and Department of Agricultural, Environmental
and Development Economics, Ohio State University, Columbus.
Abstract:
The purpose of this paper is to discuss accomplishments of the
BSEC in reference to conventional modes of economic integration
in light of the particular circumstances underlying the
organisation’s formation. The discussion places a pronounced
emphasis on the initial impact of the BSEC concerning regional
trade flows, particularly on the volumes of Greek and Turkish
trade with the rest of the members then proceeds to consider the
potential of the BSEC to maintain this impact. The organisation
of the paper is as follows: the following section looks at the
structure of the BSEC and areas of cooperation between member
states; Section two discusses any effects that the BSEC might
have had on trade flows among its members; and section three
provides conclusions
Key Words: Black Sea Economic Cooperation (BSEC) , trade flows, regional cooperation
Page 2
Introduction
The initiative for the Black Sea Economic Cooperation (BSEC) project, first
envisioned by Turkish Ambassador Sukru Elekdag, former Head of the mission
in Washington, DC, had its beginnings in a diplomatic campaign headed by the
late Turkish president Turgut Özal. President Özal always viewed economic
cooperation between nations as the strongest guarantee to maintaining law
and order in the world. And at the beginning of the 1990’s, the need for law
and order around the Black Sea and the Caucasus region was particularly
intense due to the disintegration of the Soviet Union and the collapse of the
Soviet bloc. President Özal envisaged that a regional economic cooperation
zone in this part of the world would be the best tool for addressing this need.
Such an initiative would not only serve to restore a peaceful co-existence while
helping to improve standards of living through increased trade and economic
cooperation in the region but would also highlight the role that Turkey then
wanted to assume as a role model for the ex-Soviet states and newly
independent republics, strengthening its status as a regional leader.
1
When the Turkish government called for a meeting in Ankara in 1990, with
the representatives of countries from this region, Armenia, Azerbaijan,
Bulgaria, Georgia, Moldova, Romania and Russia responded enthusiastically
and the Ankara meeting served as the first step towards formally establishing
the cooperative zone. With the later applications of Ukraine and then two other
Balkan states, Albania and Greece, the Black Sea Economic Cooperation (BSEC)
came into its proper existence following the signing of the Istanbul Summit
Declaration on 25 June 1992. Serbia and Montenegro joined the BSEC in 2004,
becoming the twelfth member state.
With such a composite of member countries, the BSEC was a rather unique
initiative as a regional arrangement for various reasons:
First and foremost, it was one of the first regional organisations that aimed
to develop economic cooperation between NATO member states (Greece and
Turkey) and former member countries of the Warsaw Pact, two adversaries from
the Cold War era which had just ended.
2
Secondly, there were many disputes and unsettled issues between the ex-
Soviet Republics who joined (as between Armenia and Azerbaijan), as well as
The Effects of the BSEC on Regional Trade Flows
335
1
S. Sayan - O. Zaim, “Black Sea Economic Cooperation Project,” in L. Rittenberg (ed.), The Political
Economy of Turkey in the Post-Soviet Era: Going West and Looking East, Westport, CT: Praeger Publishers.
1998, pp. 115-136.
2
The Central European Initiative (CEI) started in 1989 and the Council of the Baltic Sea States (CBSS)
formed a few months prior to the Istanbul Summit were the only other initiatives aimed at increasing
economic cooperation between centrally planned and market economies. See O. Anastasakis - V. Bojicic-
Dzelilovic, Balkan Regional Cooperation and European Integration, The Hellenic Observatory Discussion
Paper, London: The London School of Economics and Political Science, 2002.
Page 3
varying degrees of bilateral conflicts and grievances
such as those between Albania and Greece, Armenia
and Turkey, Moldova and Romania, and Greece and
Turkey.
Thirdly, formation of the BSEC also marked the
first time that countries bordering from the Caspian
to the Adriatic Sea shared membership within the
same organisation. Despite possible variations in
motivations underlying their participation, one
common expectation was to become better
integrated into Europe and the rest of the world. In
this respect, the BSEC served as a new channel of
communication for neighbouring states who were
willing to take steps towards shaping up their
regions’ future rather than being bystanders in the
aftermath of profound and potentially destabilising
changes. The BSEC generally can be argued to have been founded on a
commonly shared a) understanding about economic cooperation as a means of
avoiding conflict, b) view of regionalism as a means of integration to the
global economy, and c) desire to prevent new divisions in Europe.
3
Due in part to these commonly shared principles, and in part to the
heterogeneity of its membership and the uncertainties facing the economies of
ex-Soviet bloc countries and newly independent states, the BSEC did not start
off by requiring strong commitments from its members towards any kind of
economic integration.
Although it was initially envisaged that members would gradually form a
free trade zone which would possibly evolve into a stronger form of integration,
it was later agreed that the BSEC would lead to the formation of a regional
organisation for economic cooperation in a loosely defined sense. This was
natural, as all members, except Greece and Turkey, were centrally planned
economies with practically no private sector development at the time the BSEC
was formed, and with no well-established links to global markets. Nor had they
any experience in economic cooperation with other countries except for their
membership in COMECON
4
which was formed to increase self-sufficiency as a
bloc by diverting trade from the market economies.
5
Due to this unusual
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Agora Without Frontiers
The initiative for the
Black Sea Economic
Cooperation project,
first envisioned by
Turkish Ambassador
Sukru Elekdag, former
Head of the mission
in Washington, DC,
had its beginnings in
a diplomatic
campaign headed by
the late Turkish
president Turgut Özal.
3
P. Manoli, “The Role of the Black Sea Economic Cooperation (BSEC) in the Stability of the Region,”
in Shaping an Environment for Peace, Stability and Confidence in South Caucasus, Camberley: Conflict
Studies Research Centre, Defence Academy of the UK, 2002.
4
Albania became a member of COMECON in 1949 but withdrew in 1962, pursuing isolationist policies
and remaining highly closed off to international trade in the following decades.
5
N.B. Gultekin - A. Mumcu, “Black Sea Economic Cooperation,” in V. Mastny - R.C. Nation (eds),
Page 4
membership makeup, the BSEC emerged as an exceptional regional
arrangement and has largely maintained its special status.
6
Structure of the BSEC and the Nature of Cooperation
Between its Members
The Istanbul Declaration of 1992 with various articles addressing peace and
security issues reflected the security concerns of the summit participants,
making it clear that economic cooperation within the BSEC ought be viewed as
a means to contribute, first and foremost, to the maintenance of peace and
security in the region. The specific form of this cooperation was to be
determined in light of the individual circumstances of member states. It was
established during multilateral talks leading to the summit meeting that the
participants would not be expected to commit themselves to full economic
integration right away, even though consideration to such integration could be
given in due process. More specifically, cooperation would be developed
gradually by taking into account “the specific economic conditions, interests
and concerns of the countries involved, and particularly the problems of the
countries in transition to market economy” (Article 10 of the BSEC Summit
Declaration). The priorities for different areas of cooperation would be
determined during the process with “the achievement of a higher degree of
integration of the Participating States into the world economy” (Article 5)
being set as a major goal. Within this framework, the participating states
agreed (Article 14) to promote cooperation by contributing, among other
things “ to the expansion of their mutual trade in goods and services and
ensuring conditions favourable to such development by continuing their
efforts to further reduce or progressively eliminate obstacles of all kinds, in a
manner not contravening their obligations towards third parties”.
7
In accordance with the cautious tone of these articles regarding
commitments, the BSEC agreement did not outline a calendar of steps towards
true economic integration, nor did it specify milestones of this process. The
first of such milestones, the formation of a free trade zone, was brought into
the agenda five years later and only in the form of a ‘declaration of intent’
signed by members in February 1997. While the actual formation of such a free
trade area is not likely in the foreseeable future, the commitment of members
to keeping the momentum alive has lasted and the BSEC was formally
transformed into a regional economic cooperation organisation following the
The Effects of the BSEC on Regional Trade Flows
337
Turkey between East and West: New Challenges for a Rising Regional Power, Boulder: Westview Press. 1996,
pp. 179-201.
6
S. Sayan - O. Zaim, “Black Sea Economic Cooperation Project,”, op.cit.
7
BSEC Handbook of Documents, Istanbul: BSEC, Vol. 1, 1995, p. 5.
Page 5
ratification of the BSEC Charter adopted in Yalta
(June 1998) by the parliaments of all member states.
As of May 1, 1999, the legally binding charter
replaced the political Istanbul Summit Declaration as
the principal code for the Organisation of the Black
Sea Economic Cooperation. Finally, with the signing
of the second Istanbul Summit Declaration on
November 17, 1999, by the Heads of state and
government, the BSEC officially moved into the
programmes and projects stage.
8
Currently, cooperation within the BSEC is pursued
through five different channels
9
:
i) Governmental Channel: The Council of Foreign
Ministers is the decision making authority laying out
the direction that cooperation will take in the future.
A committee of senior officials acting on behalf of
the ministers serve as a forum to discuss various
issues and make recommendations to the Council for
final approval. The Permanent International Secretariat, founded in 1994 with
headquarters in Istanbul, serves as an intergovernmental body of officials from
member states running day to day operations under a Secretary General
appointed for a four year term. Subsidiary organs working generally in the form
of working groups (WGs) are active in co-ordinating cooperation in specific
sectors.
10
The biannual chairmanship rotates among member states in
alphabetical order.
ii) Parliamentarian Channel: The Parliamentary Assembly (PABSEC),
composed of parliamentary groups from the twelve national parliaments,
provides the BSEC with legislative support in co-ordination with the permanent
secretariat.
iii) Business Channel: The BSEC Business Council (BSEC BC) is the body
responsible for co-ordinating the development of cooperation among private
sectors of member nations, with its own secretariat located in Istanbul that is
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Agora Without Frontiers
Although it was
initially envisaged
that members would
gradually form a free
trade zone which
would possibly evolve
into a stronger form
of integration, it was
later agreed that the
BSEC would lead to
the formation of a
regional organisation
for economic
cooperation in a
loosely defined sense.
8
S.Sayan, “The Contribution of Black Sea Economic Cooperation Organisation to Regional
Development,” South East Europe Review, No. 2, 2002, pp. 25-34.
9
N. Nures,“Black Sea Economic Cooperation: Vision and Opportunities,” Paper presented at the NATO
colloquium on ‘Economic Developments and Reforms in Cooperation Partner Countries, Bucharest, May 2-
4, 2001.
10
Some of the WGs established so far are: WG on Agriculture and Agro-Industry, WG on Banking and
Finance, WG on Energy, WG on Environmental Protection, WG on Exchange of Statistical Data and
Economic Information, WG on Promotion of Technology Transfer, WG on Cooperation in Science and
Technology, WG on Cooperation in Tourism, and WG on Avoidance of Double Taxation.
Page 6
run by a Secretary General under the supervision of a Board of Directors. It
serves as a forum allowing businessmen from member states to discuss
possibilities for joint action on a wide range of business related matters,
including joint ventures.
iv) Finance Channel: Founded in March 1998 with headquarters in
Thessaloniki, Greece, the BSEC Trade and Development Bank (BSTDB) serves as
a regional Development Bank aiming to provide financial support to various
projects to be carried out by member states and to promote investment in the
region. Its initial capital is composed of quotas assigned to the member states
to reach SDR (Special Drawing Reserves) one billion upon fulfilment of quota
purchases.
11
v) Academic Channel: The International Centre for Black Sea Studies (ICBSS)
located in Athens is an independent Centre affiliated with the BSEC that aims
to promote scientific and technological cooperation towards the solution of
different problems in the region. It serves as a forum that brings together
scientists, scholars, researchers and academics to create an impetus towards
development of joint projects out of diverse scientific, technological and
intellectual resources of the region.
So far the BSEC has used its limited financial resources to set up its
institutional structure, help its member states through the process of
transforming their socio-economic structure to a market economy and improve
infrastructure by initiating cooperation in these five broadly defined areas. The
fields of cooperation that are more directly related to the trade potentials of
member states include the standardisation of products to be traded and
harmonisation of customs regulations. The BSEC also had to form a an ad hoc
group of experts on visa facilitation for businessmen to assure the speeding up
of customs formalities, and easing up of national visa regulations and the like
so as to facilitate travel within the BSEC area by businessmen from member
countries.
12
The question now is whether cooperation in such areas is likely to have
affected the patterns and volumes of trade within the BSEC area. This question
is taken up in the next section which discusses the potential of regional
cooperation through the BSEC to generate trade effects, based on limited
empirical evidence available in the existing literature.
The Effects of the BSEC on Regional Trade Flows
339
11
The quotas are 16.5% for Greece, Russia and Turkey; 13.5 % for Bulgaria, Romania and Ukraine and
2% for Albania, Armenia, Azerbaijan, Georgia and Moldova. If one country decides not to use the whole
quota, another member state can purchase the leftover shares. See I. Hartwig, “The Black Sea Economic
Cooperation Process,” EIPAScope, No. 1, 1997, pp. 1-6.
12
S.Sayan, “The Contribution of Black Sea Economic Cooperation Organisation to Regional
Development,”, op.cit.
Page 7
Regional Trade Flows and the BSEC
According to the standard theory of international
trade, the driving force behind regional arrangements
ranging from free trade zones and customs unions to
stronger forms of integration is welfare gains that are
expected to follow from a reduction or elimination of
barriers to trade in the region. Parties subject to the
regional arrangement would enjoy higher welfare
levels as long as welfare-improving trade creation
(TC) effects exceed welfare-reducing trade diversion
(TD) effects. TC effects are created by partial or
complete replacement of domestic production in a
certain sector of a member country by imports from
another member which produces that sector’s output
more efficiently, i.e. at a lower cost. Since the
member with the relative cost advantage (or
comparative advantage) would now supply goods to
consumers in the partner country at lower prices, consumer welfare improves
due to trade creation. TD effects, on the other hand, result when the elimination
of barriers upon imports from partners artificially reduces the cost of those
imports below the cost of imports from more efficient third parties. Naturally,
such a trade policy-induced switch from more efficient third party producers to
less efficient partners would decrease the importing member’s welfare below
what it would have been in the absence of preferential treatment of partner
countries. However, useful this criterion may be in deciding whether the
existence of a particular regional arrangement brings about net welfare gains, it
is based on a theoretical framework developed to analyse issues related to trade
among countries that are integrated through a set of well-defined rules and
regulations concerning commercial policies of members. Hence, the special
status of the BSEC as a regional cooperation organisation with no intervention
in the commercial policies of member countries would seriously limit the
usefulness of this criterion. However, in light of the fact that the BSEC also aims
to reduce or eliminate barriers to trade (or ‘obstacles’, to use the wording in
Article 14 of the Summit Declaration) the framework suggested by conventional
trade theory may offer insights into the welfare effects of the BSEC and its
impact on regional trade flows. Viewed as such, the whole BSEC initiative may
be regarded as a call for cooperative measures towards relaxing structural
constraints that prevented larger volumes of trade between members prior to
the establishment of the BSEC–especially between transition economies joining
the BSEC and Greece and Turkey.
13
340
Agora Without Frontiers
So far the BSEC has
used its limited
financial resources to
set up its institutional
structure, help its
member states through
the process of
transforming their
socio-economic
structure to a market
economy and improve
infrastructure by
initiating cooperation
in these five broadly
defined areas.
13
S. Sayan - O. Zaim, “Black Sea Economic Cooperation Project,”, op.cit., S. Sayan, “Could Regional
Page 8
Given the commitments of Greece and Turkey to the EU at the time of the
formation of the BSEC, there was actually little leeway for the BSEC to
independently set the levels of conventional barriers without contravening
these commitments.
14
Therefore, the BSEC could not possibly have had a
significant effect on regional trade flows except through its contribution to the
removal of structural ‘obstacles’. In other words, the potential of the BSEC to
generate any trade creation effects, or to reverse the diverted trade going on
between ex-COMECON partners joining the BSEC would have depended on its
ability to deal with the structural obstacles that existed prior to its formation.
Some of these structural obstacles had to do with the lack or inefficiency of
channels for trade, naturally suppressing all bilateral trade flows between
current members (with the possible exception of trade between Greece and
Turkey). Transportation costs in Eastern Europe, for example, were higher than
the average for the rest of the world reflecting this inefficiency of channels for
regional trade.
15
The inadequacy of transportation and communications
infrastructure was common to many areas of ex-socialist member states when
the BSEC was established. Under the circumstances, increasing the volume of
trade would take more than a reduction or elimination of tariff and non-tariff
barriers through a trade liberalisation agreement. Even in the complete
absence of such protective measures, the meagre state of infrastructure for
transportation and the lack of modern communications networks would have
acted as structural barriers, restricting larger volumes of bilateral trade
between members.
16
Much more important than such structural obstacles were those related to
ideological differences that once existed between member states of different
alliances during the Cold War era. These obstacles were particularly significant,
as they had created marked differences in the trade and exchange rate regimes.
Along with the artificially created complementary interdependence between
the economies of ex-socialist states, these structural obstacles had given way
to mainly two different patterns of pre-BSEC trade between current members:
i) the sizable but largely diverted trade among former Soviet bloc countries,
17
and ii) the relatively insignificant volumes of trade between these countries
The Effects of the BSEC on Regional Trade Flows
341
Economic Cooperation Generate Trade Creation and Trade Diversion Effects without Altering Trade Policies
of Members? Preliminary Results from a Gravity Application to BSEC”, Discussion Paper No. 98-10,
Department of Economics, Ankara: Bilkent University, 1998.
14
Greece was already a full member and Turkey was negotiating a Customs Union agreement with the
EU when the BSEC was first formed
15
M. Maurel - G. Cheikbossian, “The New Geography of Eastern European Trade,” Kyklos, Vol. 51, No.1,
1998, pp. 45-71.
16
S. Sayan, “Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects
without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC”, op.cit.
17
N.B. Gultekin - A. Mumcu, “Black Sea Economic Cooperation,”, op.cit.
Page 9
and Greece and Turkey, despite their advantageous
geographical locations in relation to each other.
The initial lack of private capital accumulation
and the complete absence of private trading
companies and commercial banks lowered trade
levels which the market economies of Greece and
Turkey had with others ex-Soviet bloc countries,
below their potential.
18
The barriers could not be
easily removed by signing an agreement for the
purposes of welfare gains through increased trade.
Part of the bilateral trade that happened to take
place between current members (Turkey and
Romania, or Greece and Bulgaria) before the BSEC
existed was trade between NATO and Warsaw Pact
members which faced serious difficulties posed by
regulations restricting inter-bloc trade in certain
sectors; differences in property rights and trade
regimes (forcing Greek and Turkish exporters to deal
with inefficient trading companies and banks run by
the state), and severe hard currency shortages faced
by the once centrally planned members.
19
The lack of common product standards also contributed to difficulties in
many sectors, often limiting trade to raw materials and primary commodities.
The peculiarity of the nature of structural obstacles created special roles for
the BSEC. The absence of a private sector and the associated lack of private
capital accumulation in ex-communist member states, for example, would act
as a major hindrance to economic cooperation. Thus, the BSEC assumed the
task of helping the structural transformation of these members by contributing
to the creation of a market economy led by the private sector which, among
other things, included the creation of the BSEC Business Council to promote
interaction between private sector organisations in member countries.
20
Despite its limited resources and the exceptional nature of problems it
faced at the beginning, the BSEC managed to create an impetus leading to
increased trade. While very few in number, empirical studies evaluating the
342
Agora Without Frontiers
Viewed as such, the
whole BSEC initiative
may be regarded as a
call for cooperative
measures towards
relaxing structural
constraints that
prevented larger
volumes of trade
between members
prior to the
establishment of the
BSEC–especially
between transition
economies joining the
BSEC and Greece and
Turkey.
18
M. Maurel - G. Cheikbossian, “The New Geography of Eastern European Trade,”, op.cit.
19
Even shortly after the emergence of the BSEC, the lack of banking regulations for the financing of
international trade in some of the ex-communist member states of the BSEC proved to be a major obstacle
causing many Turkish exporters to ignore orders from these countries. See S. Sayan - O. Zaim, “Black Sea
Economic Cooperation Project,”, op.cit.
20
It is interesting to note that some members did not have private sector organisations to join the
BSEC BC activities and had to be represented by officials from state committees of foreign economic
relations (Azerbaijan and Georgia) or ministries (Moldova and the Russian Federation).
Page 10
initial performance of the BSEC have consistently found evidence confirming
this impetus. Due to the lack of available data, gravity based models extended
with dummy variables capturing the effects of BSEC membership have been the
only tool available in estimating the effects of the BSEC on regional trade
flows. Inspired by the Newtonian laws of gravity, the model is based on the
idea that trade flows between two countries must be directly related to their
economic ‘masses’ as represented by their GDPs, and inversely related to the
distance between them.
21
The rationale behind the argument is that the
potential of a country to export products to others depends on its own size as
measured by its GDP, whereas the foreign demand for these products largely
depends on the GDP of the importing country. For any pairs of countries with
given GDPs then, the bilateral trade potential will also be affected by the
geographical distance between the countries since longer distances will
increase the transportation costs in terms of both freight charges and
transportation time. So, the simplest form of the model extended by a dummy
variable meant to capture any additional effect the BSEC membership might
have created can be represented by the following equation:
T
ij,t
= ÙY
i,t
Á
Y
j,t
Ú
DIST
i,j
‰
BSEC
j
‚
(1)
where Tij,t: Exports or imports of BSEC member i to country j in year t (in
millions of US dollars);
Yi,t: Gross Domestic Product of BSEC member i in year t ;
Yj,t: Gross Domestic Product of country j in year t ;
DISTij: The distance between the capital of country i and that of country j
(in hundreds of miles);
BSECj: Binary dummy variable distinguishing BSEC partners from other
countries with the Greek characters representing parameters to be estimated.
Taking the natural logarithm (ln) of both sides to linearize, (1) gets translated
into the following estimable form:
lnT
ij,t
= lnÙ+Á.1nY
i,t
+Ú.lnY
j,t
+‰.lnDIST
i,j
+‚.lnBSEC
j
+u
i,t
(2)
The Effects of the BSEC on Regional Trade Flows
343
21
The Newtonian Law of Universal Gravitation states that two particles with masses m1 and m2, and
separated by a distance ‘r’ are attracted to each other by a force, F, acting along the line joining the
particles, and the degree of attraction between the two is directly proportional to the product of their
masses and inversely proportional to the square of the distance between them, i.e., The law expressed as
an equation:
F=G
where:
ñ F = gravitational force between two objects
ñ m
1
= mass of first object
ñ m
2
= mass of second object
ñ r
= distance between the objects
ñ G = universal constant of gravitation having the same value for all pairs of particles
m
1
m
2
r
2
Page 11
after the addition of a stochastic disturbance term,
ui,t. The value of the natural logarithm of the binary
dummy variable distinguishing the BSEC partners
from other countries is allowed to be 1 for BSEC
members and 0 for others. All studies that have used
different samples to estimate equation (2) or its
variants so far have reported a positive estimate that
is statistically significant for ‚ invariably
establishing that the BSEC partnership contributed
to increased trade volumes between member states.
22
Furthermore, Sayan used estimation results from
extended gravity equations have been used to
calculate the initial impact of the BSEC on the
bilateral trade of Greece and Turkey with other
members in the form of gross export and import
creation following the establishment of the BSEC.
23
Based on the difference between actual trade
volumes observed in the first two years of BSEC and
projected volumes which would have been observed
in the absence of the BSEC, gross trade creation
results are reported in Tables 1 (exports) and 2 (imports).
ñ Actual imports minus the projected value of exports that would have been
observed in the absence of BSEC (calculated using the estimated value of
the dummy variable for BSEC membership based on pooled data for
seventeen countries over the 1992-1994 period).
The results in Tables 1 and 2 reveal that the BSEC formation has contributed
to increased trade volumes for both Greece and Turkey, generating a small
344
Agora Without Frontiers
The BSEC assumed the
task of helping the
structural
transformation of
these members by
contributing to the
creation of a market
economy led by the
private sector which,
among other things,
included the creation
of the BSEC Business
Council to promote
interaction between
private sector
organisations in
member countries.
22
Togan used cross section data only, leaving out variations across time. See S. Togan, Black Sea
Economic Co-operation, Economic Co-operation Organisation, Turkic Republics and Turkey: Possibilities for
Regional Economic Integration, Paper presented at the conference on European Union, Turkey and
Eurasia: New Trends in EU-Turkey Relations, Istanbul, September 22-23, 1994. Sayan and Sayan and
Zaim experimented with other dummy variables such as the one capturing the effects of common
history as COMECON members, and one that distinguishes members with and without common borders.
See S. Sayan, Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects
without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC,
op.cit., and S. Sayan - O. Zaim, “The Black Sea Economic Cooperation Project”, op.cit., Cebi introduced
similarity indices for exports of Greece and Turkey to other members member countries. See P. Cebi,
An Analysis of Trade Flows within the BSEC Region through an Export Similarity Extended Gravity Model,
Unpublished manuscript, Ankara: Bilkent University, 1998.
23
See S. Sayan, Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion
Effects without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to
BSEC,op.cit.
Page 12
The Effects of the BSEC on Regional Trade Flows
345
Estimates of Gross Export Creation: 1993-1994
(Millions of Current USD)
Table 1
Destination Countries for Exports
Estimates of GEC*
Greece
Turkey
1993
Albania
24.0
6.9
Azerbaijan
0.0
12.5
Bulgaria
57.7
15.8
Georgia
0.3
6.3
Greece
-
21.6
Moldova
0.5
0.0
Romania
17.0
27.7
Russian Federation
35.3
92.2
Turkey
28.2
-
Ukraine
6.0
7.2
TOTALS
169.0
190.2
1994
Albania
37.8
10.8
Azerbaijan
0.0
24.1
Bulgaria
73.3
24.4
Georgia
0.7
12.3
Greece
-
30.9
Moldova
0.7
0.6
Romania
16.3
32.0
Russian Federation
43.1
149.9
Turkey
19.2
-
Ukraine
14.4
13.9
TOTALS
205.5
298.9
* Actual exports minus the projected value of exports that would have been observed in the absence
of BSEC (calculated using the estimated value of the dummy variable for BSEC membership based on
pooled data for 17 countries over the 1992-1994 period).
trade surplus for Greece and a small but non-trivial deficit for Turkey even in the first
two years. This is a considerable success, especially considering how poorly linked
transition countries within the BSEC were to the global markets during the initial
phases of their membership. Yet, whether it signals the continuation of a trend in
expanding trade between members is another question left to be contemplated in the
concluding section.
Page 13
Conclusions
The BSEC has worked since its establishment to
facilitate the natural (as opposed to diverted) growth
of trade between its member countries by
contributing to the overall development of its
members through a somewhat loose form of regional
cooperation. Within this framework, it aims to deal
with structural constraints preventing larger volumes
of trade between members by offering assistance in
quickening the pace of transition by its ex-socialist
members rather than requiring its members to reduce
or eliminate any conventional (tariff or non-tariff)
barriers. Even today, more than seven years after the
signing of its Charter officially marking the
beginning of the programmes and projects stage, the
BSEC continues to stop short of requiring strong
commitments from its members, and maintains its
unautocratic approach to regional economic
cooperation.
In this respect, it was unlikely that the BSEC keep
momentum with its contributions to the expansion of trade between members
during the past decade, as transition countries within the BSEC have
experienced significant progress in their movement to the market economy,
becoming increasingly linked to the global economy with the accession of
Bulgaria and Romania to the EU. However, despite the various obstacles, all
transition members have experienced substantial growth in the meantime and
thanks to the degree of transformation achieved are facing a much more
diversified set of partners for trade. Even though bilateral trade between
almost all pairs of members has continued to grow, this expansion is less and
less attributable to common BSEC membership. Still, it can be argued that the
BSEC has played a disproportionately significant role to its meagre resources in
aiding the transformation of transition member economies, especially during
times of economic hardship.
The incentives behind the desire of most nations to join regional initiatives
are markedly different from the protectionist motives that dominated the past.
The fundamental motivation now is not to provide easy access to member
country exporters through preferential treatment, but rather to facilitate the
movement of goods, services and factors of production so as to enhance
efficiency and promote competition within the bloc as a whole. Such regional
arrangements are likely to facilitate trade between member states as well as
with third parties. A common set of product standards or banking practices, for
346
Agora Without Frontiers
Even today, more
than seven years after
the signing of its
Charter officially
marking the
beginning of the
programmes and
projects stage, the
BSEC continues to
stop short of
requiring strong
commitments from its
members, and
maintains its
unautocratic approach
to regional economic
cooperation.
Page 14
The Effects of the BSEC on Regional Trade Flows
347
Estimates of Gross Import Creation: 1993-1994
(Millions of Current USD)
Table 2
Source Countries for Imports
Estimates of GIC*
Greece
Turkey
1993
Albania
2.5
0.3
Azerbaijan
0.0
5.2
Bulgaria
31.6
37.5
Georgia
0.0
3.4
Greece
-
18.6
Moldova
0.0
4.5
Romania
10.5
46.3
Russian Federation
81.3
237.6
Turkey
22.1
-
Ukraine
5.4
72.8
TOTALS
153.4
426.2
1994
Albania
2.2
0.2
Azerbaijan
0.0
1.4
Bulgaria
47.5
30.1
Georgia
0.0
4.0
Greece
-
16.2
Moldova
0.8
3.2
Romania
21.7
35.3
Russian Federation
81.9
161.0
Turkey
26.0
-
Ukraine
22.6
82.4
TOTALS
202.7
333.8
* Actual exports minus the projected value of exports that would have been observed in the absence
of BSEC (calculated using the estimated value of the dummy variable for BSEC membership based on
pooled data for 17 countries over the 1992-1994 period).
example, would make selling within the bloc easier for member and non-member
producers alike, serving to bring about global integration. In other words, regional
initiatives that target increased cooperation and improved market access rather than
higher protection and preferential treatment would help member countries become
better connected with the global economy. The BSEC seems to have played a not-so-
trivial role in this respect and should continue to push the region in that direction.