Western Balkan countries have become increasingly integrated into European Union supply chains over the past two decades, driven by trade liberalisation and growing foreign investment from the bloc, but rising non-tariff barriers and new EU regulations are threatening to slow further progress, according to a new paper by Brussels-based think tank Bruegel.

The study argues that while tariffs on industrial goods have largely been eliminated through Stabilisation and Association Agreements (SAAs), firms in the region still face high trade costs linked to border delays, regulatory divergence and compliance with increasingly complex EU standards.

“Non-tariff barriers with the EU remain high, creating increasing economic costs for both local and foreign firms in the region,” said the paper, authored by Bruegel research analyst Madalena Barata da Rocha, research fellow Niclas Poitiers and affiliate fellow Nina Vujanović. 

“Long waiting times at borders and increasing numbers of EU regulations add to the difficulties caused by the current insufficient regulatory alignment with the single market,” it added, according to Bruegel.

Enlargement revitalised 

The findings come as the EU seeks to revive enlargement momentum following Russia’s 2022 invasion of Ukraine and as Brussels places greater strategic emphasis on integrating neighbouring economies into European industrial supply chains.

The paper, titled "Challenges to the integration of the Western Balkans into European Union supply chains", examines the position of Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia within the EU’s economic orbit.

“The Western Balkan countries have been increasingly integrated into EU supply chains, also because of their geographic location as close neighbours of EU member states,” the paper said.

According to the study, the EU remains the dominant trade and investment partner for the region, accounting for more than 60% of Western Balkan exports. Germany is the single largest export market, receiving nearly one-fifth of regional exports.

The paper said the integration of the region into European supply chains has been “substantial and is underpinned by growing EU foreign direct investment (FDI) in the region, particularly from Germany, targeting manufacturing”.

Foreign investment patterns have shifted significantly over the past decade. Earlier waves of investment were concentrated in banking, telecommunications and real estate, but manufacturing has become increasingly important, particularly in Serbia and North Macedonia.

According to the paper, “manufactured goods accounted for roughly two-thirds (69%) of Western Balkan exports to the EU, with machinery and transport equipment alone comprising nearly one-third (32.1%).”

EU firms have been attracted partly by lower labour costs in the region, which remain substantially below EU averages and lower than in eastern EU member states such as Bulgaria, Romania and Croatia. Yet businesses operating in the Western Balkans increasingly complain that the practical costs of accessing EU markets remain high despite formal trade liberalisation.

“These costs stem from a range of non-tariff barriers, regulatory requirements and border-related frictions, which have become more pronounced over time,” the paper said.

The study identified sanitary and phytosanitary controls, technical regulations, customs procedures and transport bottlenecks as some of the biggest obstacles to deeper economic integration.

It also warned that new EU regulatory frameworks – including the Carbon Border Adjustment Mechanism (CBAM), the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) – could impose further burdens on exporters from the region.

German companies operating in the Western Balkans are already reporting growing concern about trade-related barriers. According to the paper, almost one-third of German firms surveyed in North Macedonia in late 2025 viewed trade barriers as a major business risk.

Balkan crossroads

Transport infrastructure and border delays remain another major source of friction. “The position of the Balkans as a crossroads between the EU and the eastern Mediterranean, and between southern Europe (Greece) and central-eastern Europe, makes road transport in the region important well beyond the Western Balkan–EU trade nexus,” the paper said.

The study highlighted heavy congestion along transport routes running through Serbia and North Macedonia, particularly at Serbia’s border crossings with Hungary and Croatia, which it identified as major bottlenecks for freight entering the EU.

The paper said criticised the EU policy framework for reducing such barriers. “The current framework for alleviating non-tariff barriers is incomplete,” the authors wrote.

While the European Commission’s New Growth Plan for the Western Balkans recognises the importance of integrating the region into European value chains, the study said it does not provide a clear mechanism for systematically reducing non-tariff barriers before full EU accession.

The paper said existing instruments, including SAAs and the New Growth Plan, amounted to “an incomplete and ambiguous framework for reducing non-tariff barriers prior to full membership”.

The six Western Balkan economies are also moving towards EU membership at different speeds, complicating the process of economic integration.

Albania and Montenegro are currently regarded as frontrunners in accession negotiations, while Bosnia, Kosovo and Serbia continue to face political and governance-related obstacles.

Regulatory alignment 

The paper noted that levels of regulatory alignment with EU rules vary considerably across the region. “Alignment is not necessarily tied to actual candidate status,” the study said, noting that Kosovo in some areas is more closely aligned with EU regulations than Bosnia and Herzegovina despite not formally being an EU candidate country.

Serbia was described as both economically central to the region and politically challenging for Brussels. “It is the largest Western Balkan economy with central infrastructure in the region, handling the majority of third (and EU)-country goods moving through the region,” the paper said.

At the same time, the study warned that “Serbia has exhibited democratic backsliding that puts it among the laggards in the Western Balkan enlargement countries”.

The authors argued that Belgrade needed to prioritise reforms and rebuild trust with the EU if it wanted to deepen its role in European supply chains. “As trade becomes more geopolitical, Serbia should focus on fundamental reforms and trust-building with the EU, including in the context of trade and EU investment,” the paper said.

The study also pointed to the growing role of Chinese investment in Serbia, particularly in automotive and industrial supply chains, as EU investment has relatively declined.

The paper warned that future EU enlargement could unintentionally create new barriers within the Western Balkans themselves. “As the only two Western Balkan economies with sea access, the accession of Albania and Montenegro would leave Bosnia & Herzegovina, Kosovo, North Macedonia, and Serbia effectively EU-landlocked,” the authors wrote. This, the paper said, would make the removal of non-tariff barriers even more urgent.

For smaller exporters and manufacturers, especially micro, small and medium-sized enterprises (MSMEs), adapting to new EU environmental and sustainability rules could become particularly difficult without additional support.

“But even then, MSMEs will struggle to comply with the rules, risking longer-term exclusion from EU supply chains,” the paper warned.

The authors called for greater EU financial and technical support to help Western Balkan firms adapt to new standards, alongside increased investment in transport infrastructure and border modernisation.

They also urged wider implementation of the region’s “Green Lanes” initiative, which is designed to accelerate customs clearance through electronic data exchange between border authorities.

“Green Lanes has established a legal and technical framework for one-way electronic exchange of customs data on EU-bound consignments, allowing border authorities to complete risk analysis and clearance before goods reach the border,” the paper said.

However, implementation so far has been limited, with the paper arguing that priority should be given to easing congestion at Serbia’s crossings with Hungary and Croatia.

The authors concluded that the Western Balkans now faced a pivotal moment in their relationship with the EU.

“The Western Balkans is at the crossroads,” the paper said. “The renewed political momentum for EU enlargement and progress made in some candidate countries create the conditions for further integration into European supply chains. But this requires the momentum to be maintained, the EU to remain credible in its willingness to enlarge and Western Balkan countries to build trust and show that they are serious about the necessary reforms.”