SKOPJE – “By moving production to the Western Balkan countries, the EU can hit two birds with one stone: first, less dependency on the critical rivals on the world political and economic stage; and second, increasing incentives to democratize and strengthen the Western Balkans, thus enabling regional integrity in Europe”, it is the conclusion drawn by the authors Zoran Nechev and Marie Jelenka Kirchner in the publication „Time to move to the Western Balkans: How diversification of global supply chains can benefit EU resilience”.
A policy paper published by the Institute for Democracy “Societas Civilis” – Skopje, explains the depth and fragility of the European market dependence on China and offers an opportunity to re-think global supply chains given the fact that mentioned dependency stands in the way of a strategically autonomous and resilient European Union.
The authors pointed out that the Western Balkans represents an ideal opportunity for the EU to prove that it is committed to egalitarian global structures and an economy that does not thrive on the exploitation of labour force and resources overseas. As they exlplain “a relocation of a portion of production to the Western Balkans makes sense for many reasons – beyond strategic or moral considerations”.
The Western Balkan countries are physically close to the EU and that allows for easier inspection to guarantee compliance with European norms and standards, the authors explain.
In addition to this, the proximity also decreases the distance for shipments of final products or parts and shorter distances for products to travel will help the EU to also meet its climate targets.
Liberal intraregional trade regime enables smooth supply chains within the region. Besides all that, turning to the Western Balkans would, in their opinion, also provide the influence of the European Union in the region that was threatened in the previous period.
As they conclude “by incentivizing, the localization of companies in the Western Balkans, perhaps through ambitious subsidies, the EU has the unique opportunity to connect two areas of policy – economic independence and EU enlargement – which are crucial to its de facto influence in global affairs“.
Imbalance in China-EU relations and the need for change
Nechev, a senior researcher and head of the Centre for European Integrations within IDSCS and a member of the Balkans in Europe Policy Advosory Group (BiEPAG), and Kirchner, associate researcher of the Centre for European Integrations within IDSCS, point out that, when China was accepted as a member of the World Trade Organisation in 2001, because of the low labour costs, high production capacities and the fact that it represented a massive consumer base, companies from all around the world were triggered not only to offshore major parts of their production to China but also to switch to Chinese suppliers for second or third tier production.
This applies to EU companies too, although, in terms of values, the EU and China represent completely different actors, over the years the EU economic interests have prevailed. The authors explain that the two markets became intertwined at such a level, leading to EU dependence on China.
Eventually, China became the biggest source of EU imports, and the level of dependency reflected in an EU trade deficit making the EU vulnerable vis-à-vis the powerful partner and competitor. With the outbreak of the COVID-19 crisis, the problems of this kind of relationship came to light.
“The COVID-19 crisis has revealed a variety of political and economic flaws of the current global, and European system”, note the authors “but the game is not lost”.
Some changes should be made and the EU must begin to rely more on strategic thinking, as China has done, authors explain. The way out, as they explained, is for the EU to stick to its ambitions while different political and economic instruments must be combined.
Political instruments for institutional change
As authors believe, one of the causes of the imbalance between the EU and China is the not-harmonized EU foreign policy.
The heterogeneity of EU member states interests is, while tempting in theory, a major hindrance in practice and that harms the EU to play a more significant role on a global stage and present a value-based actor.
They explain that the phrase “united in diversity” is often impractical when it comes to decision making in foreign policy and that the EU needs some serious restructuring in the institutional design and a transfer of competencies from the national level to the EU.
But “while the goal of institutional restructuring, and especially a change towards Qualified Majority Voting in foreign policy, is not completely out of reach, it seems nonetheless idealistic to hope for rapid development in this area”, they add.
Reorganization, diversification and localization of supply chains – Western Balkan countries as a solution
To avoid problems such as market disruption which globalized supply chains, single-sourcing strategies, and dependence on sourcing from specific, remote geographical regions such as China caused, authors, propose few steps that should be made in the future by the EU and its companies.
Scenario planning instead of reactive risk management approach companies and EU often have is vital but “localization, hence re-orientation of supply chains into proximity of the EU, and a diversification of suppliers are first and important steps towards economic independence and consequently political strength and resilience”, authors explain.
They say that it is easier “if supply chains do not go all around the globe, but if instead production sites are located in closer proximity of EU political influence.”
Since the reorganization to diversify sources of supply in closer geographic proximity chains is costly, as a first step companies should rely more on multi-sourcing because it ensures that the production will not stop if the flow from one supplier is disrupted.
But, for a successful multi-sourcing approach having alternative suppliers is not the only requirement that must be fulfilled.
“If they are all based in the same region, the vulnerability remains”, explain the authors and that is why they must be located at different geographical regions – this is when localization enters the scene.
It entails reorienting supply chains towards suppliers in specific countries and regions which is in closer proximity to the final customer.
Localization reduces the complexity of the supply chains, it minimizes lead times, decreases or eliminates tariff costs and reduces the risks for cross-border delays.
Having all this in mind, authors recommend the Western Balkans as a key European region of opportunity. In the Western Balkans, the EU has the unique chance to invest in the infrastructure and technology of tomorrow, almost from scratch”, say the authors and conclude that “investment in the Western Balkans is, therefore, an investment in the shared, value-oriented future of Europe as a whole.”