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    Country profile: Albania



    Note: This text provides brief description of the conditions foreign business will encounter in trade with Albania. It is based on a WTO Trade Policy Review for Albania, early May 2010. Readers wishing for deeper analysis should turn to the original Trade Policy Review available on the WTO website. (www.wto.org/english/tratop_e/tpr_e/tp329_e.htm)

    Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries' trade and related policies are examined and evaluated at regular intervals.



    SUMMARY

    Over the past decade Albania has maintained an ambitious programme of economic, legal and institutional reform. In so doing, it has continued a remarkable process of transformation from a closed, centrally-planned economy in the early 1990s to one that is liberal, market-orientated and private-sector driven today. Key forces shaping the pace and direction of change have been Albania's accession to the WTO in 2000 and, more recently, measures taken to achieve its priority objective of European Union membership. Both processes have made a major contribution to transparency, predictability and coherence in policy making.

    Albania would gain from continuing and strengthening the process of reform, which has yielded such positive results. Although certain sectors of the economy remain structurally weak, particularly energy and agriculture, positive developments in these areas have been observed recently. Given the speed and extent of legislative changes, it is essential to continue to strengthen the judicial system and appeals processes for the effective implementation of new laws. Given Albania's increasing insertion in the global economy, and in the face of an anticipated fall in remittances from Albanians abroad, decreasing revenues from privatization, and an uncertain international economic environment, Albania may need to rely more on other sources of growth such as attracting green-field investment and on developing a stronger export base.

    ECONOMIC AND BUSINESS ENVIRONMENT

    Albania's economy is characterized by a highly productive and growing services sector, a shrinking agriculture sector, and a very small manufacturing sector focused mainly on footwear and clothing production.

    Over 2002-08 Albania achieved solid economic growth, averaging 5.8% per year, driven by strong domestic demand and supported by significant foreign direct investment flows and remittances from workers abroad. Per capita GDP in nominal terms more than doubled over the period, unemployment decreased, and human development indicators suggest considerable improvements. While the global economic and financial crisis has had a negative impact on the Albanian economy, evidence suggests that the effects have not been too severe, with GDP growing at over 4% in the twelve months to September 2009.

    Albania has maintained sound macroeconomic and fiscal policies and undertaken reforms to improve the business environment. It has reduced government debt, increased tax revenue, and kept inflation low and within the targets established by the Central Bank.

    All steps to register a business have been consolidated and a National Registration Centre, which has been operational since 2007, now provides a "one stop shop" solution for business registration. Private-sector and civil-society input into policy making has been institutionalized through the Business Advisory Council. There have also been new initiatives to encourage production and export by small and medium-sized enterprises.

    Albania has undertaken a comprehensive tax reform process to streamline and modernize its taxation regime, improve collection, and reduce scope for discretionary decisions and tax evasion. As a result, the tax system is relatively flat. The VAT remains the Government's main source of revenue.

    Almost all of Albania's trade is with other economies in the region and this is reflected in the regional trade agreements (RTAs) it has signed with the European Union, CEFTA 2006 countries, Turkey, and EFTA. Under these RTAs, imports of manufactured products are mainly duty free, but liberalization of agricultural products is less ambitious. Trade opportunities within the region are facilitated by similar rules of origin requirements and provisions on regional cumulation. Although Italy has traditionally been Albania's main trading partner, Albania has increased and diversified its imports and exports, mainly to other countries in the region.

    While agriculture's importance in terms of contribution to GDP and employment have declined steadily, agriculture remains the main source of employment within the country. The sector is characterized by small and fragmented farms, and organizational and infrastructural shortcomings. Albania is a net food importer; tariff protection and government support to the sector is low, and no export subsidies are provided.

    TRADE REGIME

    Market access

    Albania has been an active participant in the WTO since its accession in 2000: It has an impressive record of making timely notifications. This is particularly evident in the area of services. Albania has never been involved in a dispute under WTO rules.

    Albania has an open trade regime underpinned by its extensive WTO commitments, and is not reliant on customs duties for government revenue. Albania's overall simple average applied tariff was 5.2% in 2009, with a highest applied rate of 15%. Its average bound tariff is 6.6%, and the highest bound rate is 20%. All tariffs are ad valorem and no tariff-rate quotas are applied. The average applied tariff on agricultural products, at 8.8%, is higher than on non-agricultural products (4.2%). Albania has taken GATS commitments in 111 of the 160 services subsectors. It is signatory to the Information Technology Agreement and has undertaken commitments on basic and value-added telecommunications services and committed to the regulatory principles in the Reference Paper.


    Customs procedures have been streamlined: a centralized electronic system has reduced customs clearance times, the transaction value is used increasingly to determine customs value, and the use of minimum values or reference prices is prohibited. However, exceptions to the use of the transaction value remain, partly reflecting concerns about under-invoicing.

    Albania applies few non-tariff measures. There are no prohibited imports, except for products considered to be hazardous to public health, and import licensing is used mainly for SPS purposes, security, protection of the environment, and for compliance with obligations under international conventions. The Albanian SPS and TBT regimes essentially follow those of the EU. New legislation on anti-dumping and countervailing measures as well as safeguards was introduced in 2007. However, no actions under these laws have been taken by Albania to date.

    No export taxes are applied and licences must be obtained for only a handful of mostly sensitive products. Albania has in place some special customs regimes that contain specific provisions or treatment for exports or re-exports of goods processed in Albania.

    Key legislative developments

    Over the review period, Albania has enacted a number of laws over that should help to sustain an efficiently functioning market economy as well as self-impose constraints on government spending. Together with legislative and regulatory reforms in other areas, these have been largely driven by Albania's desire to become more closely integrated into the European Union. In 2006, Albania signed the Stabilization and Association Agreement (SAA) with the EU which, in addition to commitments to liberalise trade between the European Union and Albania, also contains provisions on the gradual alignment of Albania's current and future laws with the acquis communautaire. Albania submitted its application for EU membership on 28 April 2009, and the authorities have indicated that they hope negotiations may be completed by 2014. In this reform effort, Albania has received considerable support from external donors, particularly the EU.

    The adoption of a law on competition protection in 2003, and the creation of the Competition Authority of Albania represent important steps towards enhancing competition, particularly given the reform efforts undertaken and the smallness of Albania's market, which could potentially lead to concentration in some sectors of the economy.

    Albania adopted new legislation on Government Procurement in 2006, which provides for open tendering on a competitive basis. There are no domestic preferences or set-asides for domestic suppliers. In an effort to increase transparency, since the beginning of 2009 all procurement procedures and transactions, with a few exceptions, must be done electronically. This has enhanced competition and reduced procurement costs. Albania is currently an observer to the GPA, but accession negotiations have been inactive for several years.

    Under the 2006 Law On State Aid, Albania has introduced strong disciplines for the provision of incentives (excluding agriculture and fisheries), which have been streamlined in recent years and are generally applied on a national-treatment basis. Aid linked directly to the quantity of goods exported is prohibited, as is current expenditure linked to export activities, and aid contingent upon the use of domestic over imported goods. Special provisions apply for small and medium-size enterprises. Albania also maintains a programme of economic zones (industrial parks) that offers tax benefits; nine zones have been established or are under development

    Most of Albania's intellectual property laws were modified during its process of accession to the WTO. More recently, new industrial property and copyright legislation has been passed, to conform to EU directives. Also, measures to step up enforcement have been devised and are being implemented. Albania is currently drafting a National Strategy on Intellectual Property (NSIPR) for 2010-15, aimed at making Albanian IPR protection fully compliant with EU standards.

    INVESTMENT REGIME


    As a result of the reforms undertaken. Albania is open to foreign investment, which is permitted on the same terms as for domestic investors, with an exception relating to land ownership. Foreign participation in air and maritime cabotage is also restricted by law; however, there is little activity in practice.

    Foreign investments are not subject to conditions prior to authorization. The right to private property is protected by the Constitution, and Albania is obliged by law to uphold international arbitration awards related to foreign-investment-related disputes. Foreign direct investment totalled €675 million in 2008; 19% was linked to privatization of state-owned enterprises.

    The privatization process in Albania started in 1991 with land, small businesses, and small and medium-sized state-owned enterprises. A strategy to privatize major companies of significant importance to the economy was put in place in 1998. The approach for sectors considered strategic was first to deregulate them and unbundle activities, so as to prevent the emergence of market dominance, then engage in rationalizing the sector, and finally privatize.

    By the end of 2009, the vast majority of state enterprises had been privatized. Privatization proceeds for the period 1992-2009 were around US$800 million. As at January 2010, the State had a share of 50% or more in 50 companies and statutory bodies; the most important is the oil company Abpetrol. Albania does not maintain any state trading enterprises within the meaning of Article XVII of the GATT 1994.

    As part of its reform process, Albania has used privatization and encouraged investment to address some of the major weaknesses in its economy. For example, with respect to transport infrastructure, the Government awarded a concession to a private consortium to build and manage Albania's international airport; and there are considerable investments both ongoing and planned to develop Albania's road and port infrastructure. There are also a significant number of players and foreign investment in the key backbone services of banking and telecommunications. Steps are also being taken to increase the reliability of Albania's energy supply through investments in new and alternative energy sources as well the privatization of the distribution arm of the state-owned electricity company.




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