Serbia: Looking West, Going East

Serbia is preparing to sign a free trade agreement with the Russian-led Eurasian Economic Union (EEU) in October, hoping to gain access to a market of 180 million people. At the same time, the Western Balkan country’s accession negotiations with the world’s largest trading bloc, the European Union, have been stalled by Belgrade’s refusal to recognize Kosovo as an independent state.

Belgrade touts the trade deal with the five-member-EEU as a significant gain for Serbia that would add 180 million potential customers. However, the country already has a free trade agreement with the largest EEU members—Russia, Kazakhstan and Belarus. In fact, the new agreement would only expand to Armenia and Kyrgyzstan, with a combined total population of 9.2 million people.

The EU remains the largest economy in the world: the bloc has a GDP per capita of $36,680 and a population of 510 million (Ec.europa.eu, Countryeconomy.com, accessed May 23). In comparison, the five EEU countries have an average GDP per capita of only $10,042 (Countryeconomy.com, accessed May 23).

Serbia’s total trade with five EEU countries in 2018 amounted to $3.4 billion, of which 83.1 percent was with the Russian Federation. But the trade balance is negative for Serbia: it exports $1.1 billion worth of goods to the five EEU countries and imports $2.3 billion of goods from them (Politika.rs, April 21).

In comparison, Serbia’s trade with the EU was over eight times larger, in 2018 amounting to 25.7 billion euros ($28.6 billion)—about 62 percent of the country’s overall trade. Its trade deficit was also proportionately much smaller than that with the EEU countries (Ec.europa.eu, accessed May 23). Serbia’s next-most-important trade partners are the neighboring countries of the Central European Free Trade Agreement (CEFTA).

According to official announcements, Serbia will be able to export to the EEU over 99.5 percent of its goods without customs duties. However, cars, sugar and poultry will not be included in that list, leaving the Fiat 500L, assembled by Fiat Chrysler Automobiles Serbia, without the prospect to sell duty free on the EEU market (EurActiv, March 14, 2019). The factory has a daily output of roughly 400 cars (EurActiv, July 20, 2017).

It took three years of negotiations for Belgrade to manage to slightly expand the list of Serbian products that the Moscow-led economic bloc would accept duty free. The most problematic points in Serbia’s talks with the EEU were Vinjak brandy quotas for Armenia and cheese quotas for Belarus. Eventually, Serbian producers received a duty-free export quota of 2,000 tons of cigarettes, 87,500 liters of fruit brandy and 400 tons of semi-hard and hard cow-milk cheese. But the fruit brandy will have to wait until the EEU changes its methanol-content standard for alcoholic beverages, which differs from the EU standard followed by Serbia (Politika.rs, April 21).

Nevertheless, the additional goods in the customs-free list are expected to increase the commodity exchange between Serbia and the five countries in the EEU, according to the Serbian Ministry of Trade, Tourism and Telecommunications. Serbia also believes that this would lead to increased investments in these sectors.

One big victory Belgrade scored with Moscow was the removal of intermediaries in trade relations. Serbian companies will no longer be banned from direct export to the Russian Federation and forced to use Russian middlemen—a common practice in Russian trade that is often associated with corruption.

Reactions to the pending agreement among Serbian politicians vary, but most support European integration. The majority tends to lean toward a middle ground, saying that, “Serbia needs to build its future first of all through economic cooperation with the EU, but also with all of the other countries, including the Eurasian Union members. We need to develop economic cooperation especially with the Russian Federation, as a big market,” Miroslav Aleksic from the People’s Party told Politika Online (Politika.rs, April 21).

Nationalists like Vojislav Šešelj, a convicted war criminal who is still the leader of the Serbian Radical Party, on the other hand, want full integration with Russia—not only by becoming a full member of the EEU, the Collective Security Treaty Organization (CSTO), and the Shanghai Cooperation Organization (SCO), but also by joining the Union State of Russia and Belarus and, additionally, seeking another form of closer integration with Russia (Politika.rs, April 21).

But many have warned that Belgrade’s flirting with Moscow could backfire considering Serbia’s strategic commitment to ultimately joining the EU. The trouble is that while this flirtation with Russia lasts, it strengthens the belief that Serbia is a “Russian satellite” in the Balkans, which neither the EU nor the majority of the international community view favorably, a piece in Blic Online pointed out last month (Blic.rs, April 18)

Serbia has maintained a dual foreign and trade policy for most of the past two decades. On the one hand, there is a strong pro-Western drive and popular support for EU accession. On the other hand, Russian backing of Serbian nationalists’ stand against Kosovo’s independence has played a critical role in Belgrade’s strong relations with Moscow.

So far, Russia has invested selectively in Serbia’s energy and defense sectors, but its share in trade has been modest. The pending free trade agreement with the EEU, which Moscow has been pursuing for the last three years, however, appears to be mostly symbolic. It may slightly increase trade with Serbia to create the impression that Russia has a more significant place in trade exchange in the Balkans. But it will not make significant difference. It could give the EEU some credence in a region that seeks European integration but will not affect the dominant trade position of the EU.

One area where the agreement might achieve Moscow’s goals is in deterring Serbia from joining the EU sanctions against Russia for the annexation of Crimea and the war in eastern Ukraine. However, once the country joins the EU, all of Serbia’s bilateral free trade agreements will become invalid.