Trade integration and Croatian accession to the European Union

This paper assesses the trade criteria for EU membership and the extent to which Croatia fulfills those criteria. The relationship between trade criteria and the economic ability to pursue EU accession is discussed and a gravity model of Croatian trade is constructed in order to measure the level of trade diversification achieved in an objective manner. Significant trade biases towards the former Yugoslav republics are found as well as an emerging bias in imports from Central and Eastern European countries (CEEC). Moreover, the process of trade liberalization that was promoted recently did in general not significantly contribute to trade diversification towards countries with which preferential trade agreements had recently been concluded, rather reinforced existing biases, although there are some differences between export and import flows. In order to mitigate the consequences of delays in the integration processes, reduce long-term costs of trade restructuring and encourage the trade integration with the EU necessary for successful accession, Croatia should seek to eliminate the remaining institutional barriers to trade with the EU. Also, the continuation and faster implementation of structural reforms are necessary preconditions for an increase of openness in trade.