Author: Jan Muś

Analyst in the Balkan Department at the Institute of Central Europe in Lublin, Poland

Bosnian troubles with CEFTA

MUS Bosnian troubles with CEFTA jamnik

Signing and implementation of the Central European Free Trade Agreement (cefta) by Bosnia and Herzegovina (BiH) has been marked by few setbacks, notably in area of agricultural products. Over 10 years later CEFTA still cause controversies.

BiH joined CEFTA in 2007. Three largest trade partners within CEFTA have been Croatia (until 2011), Montenegro and Serbia. Old Yugoslav trade routes, industrial clusters, markets, personal connections, experience and language proved to be decisive. Bosnia and Herzegovina trade with CEFTA partners look ambiguous. On the one hand there is a constant and visible increase in Serbian exports on the BiH market. On the other hand, however, trade with Macedonia is relatively balanced and in the case of Albania and Kosovo BiH notes a surplus.

After Croatia joined EU Serbia became the most important partner of BiH. In 2016, it has imported 12 per cent of BiH’s goods. As such it is the most important partner of BiH together with Germany and one percentage point from Italy or Slovenia. 10 years earlier, in 2007, it was 10 per cent, and Germany — 12 per cent, Croatia — 18 per cent. In 2012, the percentage was 10, 11 and 15 respectively. In 2016, over half of BiH’s exports to Serbia were minerals and metals. Additional 25 per cent were food and agriculture products, wood and animal products, stone and glass, and paper goods.

On the imports side, Serbia (7.7 per cent of Bosnian imports) place itself on the 5th position (behind Germany, Italy, Austria, and Slovenia). Most important Serbian goods are food products (21 per cent), vegetables (12 per cent), as well as metals (almost 10 per cent), machines (7.7 per cent), chemical (8.7 per cent) and mineral products (7.7 per cent). The same products dominated Serbian exports to Bosnia earlier, although the shares of particular categories were different.

The role and position of Croatia in BiH’s trade is clear. After Croatia joined the EU, the share of CEFTA/EU in goods exchange shifted significantly towards the latter. Despite the fact the CEFTA has been always perceived as a vestibule to the EU dining room, BiH’s decision makers were often skeptical about costs and benefits of the agreement. Especially with regard to the agricultural sector.

“We have joined CEFTA after accepting our request for the introduction of a mechanism that allows us to protect domestic agricultural production. The CEFTA countries accepted our arguments and our rights to impose certain customs duties on agricultural products from neighboring countries, if we prove that their imports are endangering our production. These temporary barriers will be in force until agreement is reached on how to solve the problem, which leads to the endangerment of our production,” explained BiH’s Prime Minister Adnan Terzic during signing the CEFTA.

Bosnian leaders feared that imports will increase, rather than exports, and that some local companies will face difficulties. In 2006, Serbia exported to BiH food products, vegetable and other agricultural products worth of USD258m, while imported similar goods for the value of USD46m. Trade between BiH and Croatia had the respective numbers of USD310.9m and USD63.6m. In general, imports of agricultural products amounted to USD1.4bn, while BiH exported only for USD26m. Increasing imports from subsidized companies in the region would further undermine agricultural sector in Bosnia and Herzegovina.

“BiH trade deficit in relation to these two countries, when it comes to these products, is constantly increasing. Over the past few years, this deficit has reached several billions of the EUR. We know that the proposed measures would not completely protect domestic production, but it would be the beginning of such a process,” said Jerko Ivanković Lijanović, MP and member of the Parliamentarian Commission for Trade and Customs.

Subsequently, by ratification of CEFTA in September 2007, the BiH’s parliament introduced 40 per cent customs duties on meat, milk and the relevant products originating from Serbia and Croatia.

A year later Duljko Hasić, from the Foreign Trade Chamber of BiH, complained while presenting the results of the first official analysis of the implementation of the CEFTA Agreement that ‘CEFTA has not brought positive effects to our country, and its effects are modest comparing with other countries in the region,”. For Mr. Hasić the effects of the implementation of the CEFTA Agreement for are negligible. “In relation to the CEFTA countries, the volume of our trade has remained almost the same. Although exports grew, simultaneously an increase in imports was recorded,” Mr. Hasić said.

Speaking of investments, Mr. Hasić added that the situation was even worse. The only developments in investments were from Croatia and Serbia towards BiH, and between Serbia and Croatia in both directions.

Not everybody shared skepticism towards CEFTA. Slobodan Puhalac, Minister of Foreign Trade and Economic Relations, criticized high custom tariffs adopted by the parliament. In an interview for Nezavisne Novine Puhalac he emphasized “I’ve said many times and will say that closing is not a good solution. CEFTA is preparation to enter the single market of the European Union. We must strive towards European integration, towards entering the EU market, and this can only be achieved by opening up our market and strengthening competition. Of course, this does not mean that we should not take into account domestic production, but this is not done in this way. The authorities in BiH, each in its domain and within its competences, should adopt measures that will encourage the development of domestic production. That’s the solution. It is not a solution to adopt laws amending international agreements.”

Jan Muś is a lecturer at the Vistula University.

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