What opportunities does the Free Trade Agreement with EFTA offer Kosovo, and what has the region’s experience been like?

The Free Trade Agreement that Kosovo recently signed with the members of the European Free Trade Association (EFTA) is not new to the region. North Macedonia has had such an agreement since 2000, while Serbia and Albania signed theirs in 2009. Over time, it has become evident that these three countries engage in the most significant trade with Switzerland, their geographically closest EFTA partner. The same trend is expected for Kosovo, given the steady increase in trade between Kosovo and Switzerland, as well as the large Kosovar diaspora residing there.

Written by: Dusica Radeka Djordjevic

The agreement was signed in Davos, Switzerland, on the sidelines of the World Economic Forum on January 22. Officials in Pristina expect it to provide opportunities for Kosovar companies to increase exports to a market of approximately 15 million people, with hopes of attracting foreign investment as well.

EFTA consists of Iceland, Liechtenstein, Norway, and Switzerland. According to data from the organization's website, total trade between Kosovo and EFTA member states amounted to €175 million in 2023. Of this, €76 million represented imports from Kosovo, while €99 million accounted for exports from EFTA countries to Kosovo.

In 2023, Kosovo's top exports to the EFTA market included furniture (such as mattresses, lamps, and illuminated signs), plastic products, iron and steel items, wood products, aluminum, and aluminum-based goods. Meanwhile, Kosovo imported vehicles, pharmaceutical products, and tobacco from EFTA member states.

The President of the Kosovo Business Alliance, Agim Shahini, told Kosovo Online that the agreement will benefit traders, manufacturers, and consumers alike. The goal of the deal is to facilitate duty-free movement of goods and capital between Kosovo and EFTA countries, similar to the existing trade framework within CEFTA.

He, however, points out that every agreement Kosovo signs with international institutions should not only be signed but also genuinely supported, and he recalls that CEFTA was in a critical state last year due to Kosovo.

“Kosovo’s producers now have the right to export their goods to the EFTA market, just as they do in CEFTA, and this represents a significant advantage. Likewise, we can import goods from these four countries without customs duties. Switzerland is a country with which we already cooperate extensively and where our diaspora is large, and this agreement will most likely benefit our diaspora and businesses in Kosovo the most,” said Shahini.

According to economic analyst Abil Baush from Skopje, Kosovo’s Free Trade Agreement with EFTA will benefit Kosovo-based export-oriented companies because export barriers will be eased, while imports from EFTA member states will mean access to high-quality products and an incentive for Kosovo to produce quality goods that will be competitive in its domestic market.

Baush notes that every country would like to be part of that market and that Kosovo will probably cooperate the most with Switzerland.

Serbia, he says, has good cooperation with Switzerland, which is reflected in the placement of industrial, agricultural, and other products that meet that market's standards, while, on the other hand, it imports high-quality products.

The Free Trade Agreement with EFTA has also been well-utilized by Albania in the construction and tourism sectors by attracting tourists from these countries and beginning to build high-quality hotels in the country.

“Serbia and Albania have managed to take full advantage of this, while we, unfortunately, as Macedonia, have lagged slightly behind these Western Balkan countries. It remains for Macedonia to also capitalize on the benefits of these agreements,” Baush told Kosovo Online.

Regarding North Macedonia, he says there is an issue with leveraging competitive opportunities.

“For example, if Serbia knows how to produce and sell agricultural products like those on the Swiss market, that is not being done here, or our agriculture is not modernized enough to be competitive in these markets,” Baush assessed.

The Assistant Director of the Sector for Strategic Analyses, Services, and Internationalization at the Serbian Chamber of Commerce, Bojan Stanic, says that Serbia’s economic ties with EFTA members are significant and are developing thanks to the Free Trade Agreement, as well as Serbia’s growing capacity as an export-oriented economy. He notes that significant investments come to Serbia from EFTA members, primarily from Switzerland and, to a lesser extent, Norway. Last year, he adds, foreign direct investments from EFTA members amounted to nearly 200 million euros.

“Serbia cooperates the most with Switzerland among EFTA members, as it is by far the strongest economy in the group. On the other hand, it is not just about duty-free trade in goods between EFTA and Serbia, but also about a significant increase in service exchanges. For Serbia, it is particularly important that we have a very high surplus in service trade, primarily thanks to information technologies. For example, in 2023, we had a surplus of about half a billion euros in service exchange with EFTA, and in the first 11 months of 2024, that surplus was around 300 million. As for goods, we have a deficit, but our exports to the EFTA market have significantly increased,” Stanic told Kosovo Online.

He points out that EFTA is also significant because it, along with the European Union, forms the so-called European Economic Area, or a single market.

“If EU membership is not realistic in the foreseeable future, an alternative could be joining the European Economic Area, which would grant access to a single market of nearly 500 million people,” Stanic says.

When comparing EFTA and the EU, he adds that EFTA’s growth rates are slightly higher on average than those of the European Union, indicating greater resilience to crises affecting Europe. He notes that the EFTA market has a population size similar to that of the Western Balkans but with significantly higher purchasing power and a highly developed economy, industry, and competitive production.

Serbia exports tobacco products, certain metal constructions, corn, frozen fruit, etc., to the EFTA market, while it imports luxury goods, pharmaceutical products, and information technology equipment.

Bardhi Sejdarashi, an economic expert and host of the show "Dollar Square" on ABC News in Tirana, says that free trade agreements, like the one with EFTA, which Albania has had since 2009, prepare each country’s economy to be open, to adhere to free trade standards, and to have the opportunity to increase domestic production for export.

He says that the agreement with EFTA has helped Albanian entrepreneurs trade more freely with members of this organization.

“The fact is that after signing these agreements, trade exchange indicators between these countries have grown at a good pace, although they are still not at the level they should be,” Sejdarashi emphasizes.