Serbia takes over the chairmanship of CEFTA, can this initiative be revived?

Although envisioned to ensure smooth trade and economic cooperation in the region, the Central European Free Trade Agreement (CEFTA) has been practically blocked for years due to political disagreements, primarily between Belgrade and Pristina, and unilateral decisions by the Kosovo Government culminating in June with the ban on the entry of goods from Serbia to Kosovo. As of January 1, Serbia takes over the chairmanship of the CEFTA Secretariat, responsible for coordinating economic cooperation among the signatories of the agreement, Kosovo Online interlocutors, economic experts from Belgrade and Pristina, who believe that this initiative, which has been at an impasse, can be 'revived', but they also emphasize that political decisions are needed for that.

They point out that the CEFTA initiative, whose members include Serbia, Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Kosovo, is significant for the entire region. Its goal is to eliminate barriers and facilitate trade and business. However, since decisions are made unanimously and there is practically no mechanism for punishing members who violate the agreement, Pristina's ban on the distribution of Serbian products in Kosovo remains in effect.

The fact that Serbia will chair CEFTA in the coming period, according to our interlocutors, is unlikely to significantly influence a change in the situation unless the rules of the initiative are changed. However, they believe there is room for this organization to be reorganized.

Nenad Djurdjevic, an advisor to the President of the Chamber of Commerce of Serbia, shares this view. He points out to Kosovo Online that in the last three years, practically no agreements and decisions have been made at the political level within CEFTA, and despite Serbia taking over the chairmanship of this initiative on January 1, it will be difficult to unblock its functioning, given the current situation in relations between Belgrade and Pristina.

"In the previous period, decisions within CEFTA were only harmonized at technical levels; no political decisions were made. Considering the current political situation, especially at the level of Belgrade and Pristina, I do not expect that to change", Djurdjevic says for Kosovo Online.

He also emphasizes that chairing CEFTA is a formal matter, with members chairing each year in alphabetical order, and decisions are made unanimously. Moreover, there is practically no system of sanctions for members violating the agreement.

"What needs to be emphasized is that CEFTA is a very significant market for the economy and business of Serbia. CEFTA is Serbia's second partner in terms of exports and imports of goods after the European Union. So, we have a surplus in exports with all countries or parties in CEFTA. This speaks to the great importance of that market for our economy. Therefore, Serbia's chairmanship of CEFTA is also significant, and I hope that Serbia will find a way to improve relations or at least to unblock the current situation", he notes.

He recalls the situation in 2019 when Serbia, starting the Open Balkan process, showed goodwill at a time when the tariffs of the Kosovo Government on Serbian goods were in effect, adopting a certain number of measures at the political level.

"So, this is significant for Serbia, and I hope that this year some way will be found to unblock it. It should be noted that practically all meetings, or all ministerial-level meetings, should be organized in Belgrade, given that Serbia, as the chair, will have a leading role in setting the agenda and conducting the process, which will be a challenge in itself, given the relations between Serbia and Kosovo", our interlocutor emphasizes.

He points out that currently, measures are in place that the Government in Pristina introduced regarding finished products from Serbia. He recalls that the blockade imposed in June was initially complete, but they relaxed it when they realized that it was harming both their companies and the economy because many imported items from Serbia are practically semi-finished products that need further processing, or raw materials used for further production.

Djurdjevic also points out that CEFTA, as envisaged, operates by making all decisions unanimously, and there is no mechanism to regulate and resolve disputes that have proven to exist.

"So, this mechanism and the agreement made in 2006-2007 are ripe for change, for reorganization, and the Serbian Chamber of Commerce has been putting it on the agenda for a long time. We even presented some ideas on how to use this new growth plan for the Western Balkans to reconfigure regional economic cooperation and even reorganize that process within CEFTA. Based on what has happened so far, and again, following political relations, it is difficult to expect any significant gain in 2024. But perhaps there will be a political agreement between Belgrade and Pristina that will help unblock political-level decisions within CEFTA. However, considering the current situation and the decision-making process, it is quite difficult to imagine", our interlocutor concludes.

Serbia needs to be cautious and chair CEFTA as a serious state, says Agim Shahini, President of the Business Alliance of Kosovo, emphasizing that any member violating agreements within this organization and taking unilateral measures against others must be punished.

Commenting on Serbia assuming the presidency of CEFTA on January 1, which has been blocked due to political disagreements and unilateral moves such as the decision of the Government in Pristina to block the import of Serbian goods to Kosovo, Shahini stated that he believed CEFTA was the best regional organization that existed concerning the free movement of goods, capital, and people.

"However, sometimes it loses its purpose because one country takes unilateral measures that block another country, and so on. I think that regardless of the situation we are in, Serbia needs to be cautious, and to preside over CEFTA as a serious state and as a state that already knows how to cooperate with various organizations, and in this direction, international organizations, such as CEFTA", Shahini said.

The chances of reviving this initiative are significant, Shahini is convinced, but he also points out that it depends a lot on good relations between the members.

"Everything within the states that are in CEFTA is always spoiled by politics, and CEFTA is an economic organization. Politics should be separated from the economy, and the economy should develop without any problems", he emphasizes.

Misunderstandings between members should be resolved within the CEFTA council, according to Shahini, and if they take measures against each other, they should be sanctioned.

"I think that if there is any mutual misunderstanding, it should be resolved within the CEFTA council, but by no means should one country take measures against another. If that happens, each country should be punished", Shahini concluded.

Regardless of certain blockades that have existed in the last two years, CEFTA still functions, according to Predrag Bjelic, a Professor of International Trade at the Faculty of Economics in Belgrade. He points out that it is significant that Serbia will assume the presidency of CEFTA from January 1 and notes that work is being done on new protocols to prevent trade barriers and resolve disputes.

Serbia is expected to take some initiatives, create an agenda, and make some progress. CEFTA is very important for Serbia. After the European Union, CEFTA is, first, our closest regional integration, and secondly, we export a lot of goods to those markets. In relation to the European Union, Serbia is in a special position because we have a large surplus, meaning we are the most competitive economy among all the countries or contracting parties of CEFTA. And what is important, CEFTA still functions", Bjelic says for Kosovo Online.

He points out that there have been certain blockades since two years ago, especially since June when the Kosovo Government banned the entry of Serbian goods into Kosovo.

"According to data, there has been a decline in our exports, and the decision to ban is illegitimate and not in line with CEFTA rules. The main problem is that there was no mechanism for signatories to protect themselves from such so-called illegitimate behavior by other members. However, CEFTA still functions. All the privileges that exist in trade with all signatories, both in goods and services, still exist, and that is still the basic framework in which trade is conducted in the region", Professor Bjelic says.

He emphasizes that work is now underway on an additional protocol, which is supposed to introduce a mechanism for resolving trade disputes between CEFTA members, based on the principles of the World Trade Organization.

"Until now, there was a limited mechanism, where, for example, a problem is raised when someone is violating the agreement, but then all contracting parties must agree that a violation has occurred. Of course, the one who violates it will not agree. So, in this way, it was not possible to resolve trade disputes. Now, another mechanism should be introduced, according to the rules of the World Trade Organization, where the damaged country initiates the dispute, and then panels are organized where experts in international trade discuss it. And, in fact, they will provide expert opinions on whether a violation of the rules is occurring or not", Bjelic says.

He adds that negotiations on this additional protocol for resolving trade disputes in CEFTA are currently being finalized, and he points out that if this is achieved, it would be significant progress in the further functioning of this initiative. This would help remove the barriers set by the Kosovo Government, but it would also be a kind of preventive measure to avoid introducing any similar barriers in the future.

"Because this is not the only barrier; this is extreme, considering that it involves imposing a trade blockade that completely prevents the flow of goods. This is very harmful to international trade, and the WTO always qualifies such measures. But there were also other measures, non-tariff ones, that other partners introduced towards Serbia, and Serbia towards other partners. Some barriers were designed, and some are the result of harmonization with the European Union. For example, Montenegro and Serbia, which have gone furthest in integration, by applying the rules of the European Union, are actually creating obstacles to trade with CEFTA. And that was one of the problems", Bjelic notes.

Now, he points out, work is being done on that harmonization, and there is a new offer from the European Union that for those elements where full cooperation is achieved in CEFTA, the signatories of this initiative would be included in the common EU market. However, he adds, this will only apply to those segments where full cooperation within CEFTA has already been achieved, and this is now an incentive for additional growth and development of this initiative.

Bjelic also emphasizes that CEFTA and the Open Balkan are not competitive initiatives.

"Open Balkan has not gone much further, and many elements it has adopted are either already negotiated in CEFTA or are a part of the plan for a common regional market. In the Open Balkan, we still do not have a clear vision; there is no one rounded document, but it is a set of documents that are signed, many of which are not yet applied. Open Balkan has gone further in one segment, and that is facilitating trade at border crossings, but the question is how much all of this works in practice. I think it was more of an attempt since CEFTA was blocked, for the three member countries of the Open Balkan, Serbia, Albania, and North Macedonia, to collaborate much better", Bjelic emphasizes.

He continues that at that moment, North Macedonia and Albania did not have a clear European perspective, and an initiative like the Open Balkan meant something to them.

"Besides CEFTA, there is also the Berlin Process, which is an EU initiative, introducing and requiring an upgrade of CEFTA and the creation of a common market. There may be existing conflicts. For example, in the harmonization of sanitary and phytosanitary measures, the application of European principles is not clearly indicated in the Open Balkan, and then it can be in conflict with the rules of CEFTA and the common market in the Western Balkans", Bjelic explains.