Events

Trade as a U.S. Development Tool: Notes from Southeast Europe

February 12, 2009 // 9:00am10:30am

In 1989, Eastern Europe experienced a watershed moment in its history. With the fall of communism, crumbling regimes and new nations declaring their independence, countries were undergoing the difficult transition from state-controlled, centralized economies to free market systems. With the dissolution of many of the old structures that previously kept order in the region, the United States, the EU, and others were looking for a way to stabilize the region that went beyond sending in troops and simply establishing an international presence in the area.

Ioannis Tsorbatzoglou, Coordinator for the Southeast European Cooperative Initiative PRO Committees (SECIPRO), discussed the tumultuous conditions that existed prior to the establishment of SECI in 1996. Noting that with change comes instability, Tsorbatzoglou highlighted regional and ethnic conflicts that had erupted with the collapse of Yugoslavia as well as the high rates of inflation and rising unemployment. True change, said Tsorbatzoglou, did not come to the region until 1996.

In SECI, Ambassador Richard Schifter, then Assistant Secretary of State, developed what Tsorbatzoglou touted as an unconventional approach to addressing the region's problems. Believing that economic progress was the key to political stability, Schifter envisioned a regional organization that would not be a top down initiative imposed by outsiders, but instead appear to be wholly implemented by local member states, working with each other in the rebuilding effort.

Knowing that a huge infusion of funds from donor countries was unlikely, Schifter emphasized the importance of encouraging private enterprise to help stimulate the economy. Banding together and providing access to a larger regional market, rather than smaller national markets, would help increase the appeal for potential investors.

With this concept in mind, several states were invited to participate, most of whom readily accepted. The United Nations Economic Commission for Europe (UNECE) lent validity to the project through its UN affiliation and was asked to provide technical assistance. The US and EU, both of whom had interests in the region's stability, negotiated and signed a Memorandum of Understanding formalizing a common agreement regarding how SECI would function and their respective roles in the initiative.

Tsorbatzoglou went on to describe the structure of SECI and how it set the framework for its success. An "Agenda Committee" was created to discuss mutual economic concerns. Although the US and EU sat on the committee as supporting states, only regional states were given voting rights. According to Tsorbatzoglou, if only diplomats or politicians participated, it would be unlikely that issues would be realistically presented and dealt with. This is why a Business Advisory Council (BAC) , made up primarily of local businessmen, was also established as a reality check mechanism, the caveat being that most members should not be mere executives, but rather owners of companies operating on the ground, who would be open to investments that were not paying off. Their financial strength would also carry weight with their respective governments and could help push the process forward. Tsorbatzoglou characterized this structure as a veiled-public-private partnership that had spectacular results.

Perhaps going against the grain of conventional development initiatives, Tsorbatzoglou stressed that aid should not start with anything that is potentially conflictual, moralistic or difficult to quantify. Everyone, however, wants a better life, which ultimately comes down to "money" generated by trade, which necessitates efficient transportation. This practical reality, he said, is where assistance should start. Transport facilitation became one of the principle projects for SECI which, through Ambassador Shifter's efforts, was combined with US assistance under the World Bank Trade and Transport Facilitation program in the Southeast Europe (TTFSE).

At the time, it had become more difficult than ever to move goods in Southeast Europe—even when compared to communist times. With increased nationalism came an emphasis on each country's control of its borders and enforcement of its own unique regulations, with multiple ministries and their agencies staking their claim at each crossing. Wait time could exceed 30 hours, greatly hindering regional trade. It was determined that SECI could have a significant impact, with minimal investment, by focusing on small, logical changes as opposed to large infrastructure projects. Tsorbatzoglou asserted that this unconventional approach is at the heart of SECI's success. Streamlining the process and getting agreement from the various actors, however, was not an easy task.

It was the US presence, its expression of interest, rather than a flood of money, that enticed the state agencies to work together, said Tsorbatzoglou. To build trust, the US encouraged representation of small businesses and freight forward associations on SECIPRO (an umbrella organization with chapters in each country for the newly created public private partnerships charged with transport facilitation) committees.

Tsorbatzoglou praised Schifter, explaining that his influence was critical in convincing the US government to allow execution of the World Bank's Terms of Reference to be carried out by local groups, "escaping USAID pressures." It was a risky proposition for the World Bank, which would have been more comfortable going through traditional channels.

Continuing the goal of reforming border procedures, a Greek-Turkish-Bulgarian partnership was created to produce a teaching curriculum, based on UN international standards, which would train and certify professionals in all target countries. The result was so successful that it has been translated into over 10 languages, said Tsorbatzoglou.

The initial decision to base the project on a Greek-Turkish-Bulgarian partnership was viewed as risky. Using development money to get antagonistic groups to work together created the potential for the act of cooperation between the partners to become more important than the ultimate goal of encouraging larger regional cooperation and development in the Balkans. However, contrary to expectations and with clearly identifiable benefits for all, the partnership was a success and soon the World Bank embraced the effort.

Local SECIPRO committees then took up the cause, investing their own resources into the reform's publicity and success. In Albania, TV ads gave phone numbers for those experiencing problems at the border, showing government ministry workers responding—something previously unheard of in the country. In Bosnia, barriers were broken down as a Serb and a Bosnian Muslim requested joint trainings, which were done successfully. Local chambers used their networks to promote the initiative and from 2001-2004 more than 7,000 professionals were certified in the region.

Another innovative factor, explained Tsorbatzoglou, was that trainings were not conducted in the capitals, but in periphery towns, giving access to people who would otherwise not have participated. This type of execution also forced the local chambers, previously uninvolved, to build their own capacities.

The overall World Bank TTFSE project, which combined the private sector training offered through SECI, the border agencies assistance through the World Bank and SECI STAT teams (technical assistance teams composed of US Customs experts), along with limited infrastructure work, produced substantial results. By 2005, there was a 65% reduction in border crossing waits and a 46% increase in trade volume for the region as well as an 81% increase in revenue by the relevant border agencies.

With such an exceptional outcome, one might ask if this a fluke? Tsorbatzoglou, however, is convinced that there are lessons to draw from the experience. Clearly, US commitment and political presence is essential to encouraging parties to work together. If US interest seems to wane, projects falter or even fail and this is not linked to financial assistance but to simple political declarations at the local, regional and international level. Presence is the biggest US asset.

Countries involved must feel they have ownership of the project and that outside "experts" are not driving the process—being paid exorbitant amounts of money to come in and rebuke locals for their practices, offering seminars and training through the use of interpreters with an almost colonial attitude. Everything must be approached from an economic, rather than a moral basis, he said, and recipient countries should contribute something themselves, either in services or monetary terms. Giving parties an incentive to participate by showing clear economic benefits, rather than focusing on ephemeral notions such as prosperity in the future or love for fellow countrymen, is the best strategy, stressed Tsorbatzoglou.

He went on to explain that, especially in a period of serious political and social unrest, it is best to deal only with the technical side of things—"flying under the radar" and avoiding unnecessary controversy. Look for ways to create efficiencies without fundamentally changing what is happening. If there are 12 agencies collecting information at the border, can a single administrative document be adopted? Can information be collected from just one window instead of 12 different, so that traffic can pass through more smoothly? The same amount of money would be collected, but the process would be streamlined, which is what SECI set out to accomplish. Visible short-term improvement sets the stage for greater advances and allows people to believe that change is possible.

Perhaps of greatest importance is choosing the right people on the ground, who have leverage and a solid understanding of the environment. The right experts and administrators, compensated appropriately, will help to build a sustainable system that is not in need of constant retooling.

Tsorbatzoglou concluded by stating that while he believes that SECI was a success, some things could have been done better. He believed that, although Ambassador Schifter avoided USAID channels in order to have greater leverage in creating the type of program he thought necessary, making a greater effort to bring them back on board and getting their buy-in would have been beneficial.

Tsorbatzoglou also recommended stronger involvement from the EU, which had agreement at top levels (through the MOU signed with the US), but not necessarily from people on the ground, who were not always included or did not engage. Finally, although working in the field of transport and trade without UNECE input would be illogical, since it is the body that sets international standards, its structure does not allow for an easy project partnership. With almost no ability to push concepts through to implementation, it is not the absence of expertise or the lack of qualified individuals that constrains it, but rather the nature of its decision making process and the total absence of performance oriented controls.

On the whole, Tsorbatzoglou believes that SECI's unique approach has been immensely successful in promoting trade and development in the region in a way that other strategies could not have. There are several elements of execution that are undoubtedly worth replicating in other regions.

 
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