SERBIA AND THE CENTRAL EUROPEAN FREE TRADE AGREEMENT -

UNCLAS SECTION 01 OF 02 BELGRADE 001100 SIPDIS USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH E.O. 12958: N/A TAGS: ECON EINV ETRD EFIN SR SUBJECT: SERBIA AND THE CENTRAL EUROPEAN FREE TRADE AGREEMENT - MODERATE SUCCESS SUMMARY -------------- ¶1. One year after Serbia ratified the Central European Free Trade Agreement (CEFTA) Serbian trade with its regional partners is expanding, but Serbian integration into a regional market is still far from a reality. CEFTA's founders envisaged the elimination of all trade barriers and the formation of a common framework that would give investors access to a market of 30 million people. The CEFTA countries combined are Serbia's second largest regional trade partner after the EU. In 2007, Serbia recorded a $1.33 billion trade surplus with CEFTA. Although trade has been lucrative for Serbia, Serbian exporters continue to encounter tariff and non-tariff barriers. Implementation of CEFTA remains a testing ground for Serbia and its aspirations for EU and WTO accession. END SUMMARY. CENTRAL EUROPEAN FREE TRADE AGREEMENT -------------- ¶2. Serbia signed the updated Central European Free Trade Agreement (CEFTA) in December of 2006, replacing 32 bilateral free trade agreements. CEFTA signatories currently include Albania, Bosnia and Herzegovina, Croatia, Macedonia, Moldova, Montenegro, Serbia and UNMIK/Kosovo. Serbia ratified CEFTA on October 24, 2007. With a market of 30 million people CEFTA aims by 2011 to eliminate non-tariff barriers, liberalize the services industry, grant equal treatment to domestic and regional investors, open the public procurement market, protect IPR rights, improve dispute resolution mechanisms, and apply WTO-compliant rules. SERBIA-CEFTA TRADE UP 46%, $1.33 BILLION TRADE SURPLUS -------------- -------------- ¶3. Collectively, CEFTA countries are Serbia's second largest regional foreign trade partner behind the EU. Serbian trade with CEFTA countries, including Kosovo, increased by 46% from $2.9 billion in 2006 to $4.4 billion in 2007. Similar trends continued in the first half of 2008 with exports up 47% and imports up 41%. Trade with CEFTA countries in 2007 accounted for 16% of Serbia's total trade. CEFTA countries accounted for 32% of Serbia's exports and 8% of Serbia's imports. In the last four years, exports to CEFTA countries grew from 29% to 32% of Serbia's total exports and imports from 5.6% to 8.2%. Industrial products account for 72% of total Serbian trade with CEFTA, while agricultural products account for 24%. Serbia recorded a $1.33 billion trade surplus with CEFTA countries in 2007, with $2.85 billion in exports and $1.52 billion of imports. In the first half of 2008, the surplus reached $919 million, with exports at $1.85 billion and imports at $927 million. CEFTA FACES NON-TARIFF BARRIERS -------------- ¶4. In a meeting with us on September 19, Dejan Jovovic and Zorica Radovanovic from the Serbian Chamber of Commerce said Serbian businesses encountered many non-tariff barriers (NTB) in trading with CEFTA countries. Frequently reported barriers included customs procedures, non-recognition of certificates of quality, additional verification of documentation, and regulations not in accordance with international standards. Overall, the Chamber of Commerce said CEFTA was good for Serbia, but that foreign investors were more attracted to Serbia because of its free trade agreement with Russia than with CEFTA countries. ¶5. In a meeting on September 16, Assistant Minister of Economy Bojana Todorovic gave us anecdotal examples of NTBs. Todorovic said that Montenegro had imposed a ban on egg imports from Serbia after a poultry health scare. Todorovic stressed that CEFTA was an opportunity to build stronger relations between countries which had recently been in conflict. ¶6. On October 2, Mirjana Karadzic, export manager for the dairy firm Imlek told us that CEFTA did not bring Imlek any benefits that were not already outlined in previous bilateral agreements. Many CEFTA countries protected their agriculture sector with high tariffs. Eliminating high agricultural tariffs was last on the list of CEFTA implementation so Imlek was focusing on securing an EU export license. COMMENT -------------- ¶7. After one year, Serbia has benefited modestly from CEFTA. This positive trend could increase as more tariff and non-tariff barriers are lifted under the agreement. With the looming global economic downturn, Serbia's trade relations with its CEFTA neighbors may offer some cushion from the loss of trade growth with more developed markets. At the minimum, CEFTA is a good training ground where BELGRADE 00001100 002 OF 002 Serbia can work on legislation and trade practices in preparation for WTO and EU accession. End Comment. MUNTER