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UNCTAD Training course on key issues on the international economic agend a , Belgrade, 18-21 September 2006. Foreign Trade and institutional changes of countries in transition, the experience of Serbia. Prof. Danica Popović Faculty of Economics and CLDS dpopovic @one.ekof.bg.ac.yu.
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UNCTAD Training course on key issues on the international economic agenda, Belgrade, 18-21 September 2006 Foreign Trade and institutional changes of countries in transition, the experience of Serbia Prof. Danica Popović Faculty of Economics and CLDS dpopovic@one.ekof.bg.ac.yu
“Extenuating” circumstances for Serbian government • The sanction • The Hague tribunal • Kosovo • Montenegro • Since 2000 e ach republic established its own tariff structures (slashing and streamlining rates), causing some confusion in trade between the two republics. • The average tariff rate assessed on imported goods was 9 percent in Serbia and 4 percent in Montenegro. • In August 2003, the two republics agreed to an Internal Market and Trade Action Plan on harmonizing tariffs and excise taxes to create a single market. • Harmonization has been achieved on 93 percent of products, resulting in an average (outweighed) tariff rate of 7 percent. • Following the September 2004 EU decision to provide a “dual-track” for SAM accession the rates for 56 agricultural products tol be undetermined separately by each republic.
WHY DO IMORTS RISE SO MUCH? • Consumer goods - a consequence of the rise in aggregate demand and the lack of high-quality (and in some cases of any) domestic supply • TV sets rose from $1.8 to $32 MIL, • Air-conditioners from around $5 to $29.5 mil • Washing machines from around $2.2 to $15 million • Deep freezes from around $1.4 to nearly $11 million • Stoves from $0.5 to around $9 million
THE EXCHANGE RATE POLICY • Floating – depreciation • Winners: exporters and future workers • Loosers: importers, pensioners, workers with fixed earnings • In order to be effective and boost exports, depreciation must be hihger than the inflation rate
POLITICAL ECONOMY OF • EXPORT-DRIVEN • DEMAND-DRIVEN GROWTH? • WAGES • TARIFFS • FDI • CHOICE OF ANOTHER STRATEGY • Therefore, one has to apply a completely different strategy of economic growth, which will be driven by exports, instead by domestic demand, and the only precondition for such a turnaround is to bring wages in line with labor productivity.
EXPORTS – HUNGARY and Serbia • 40% of exports with 70.000 employees in 10 firms • Philips Magyarorsag • Nokia komarom • GE Hungary • Samsung Electronics • Electrolux • Siemens nemzeti • Videoton • Sony Hungaria • Sanyo Hungary • Ericson Magyarorsag
The choice of foreign trade policy • Korean • European model • If you choose FDIs protection is questoinable policy • Why should we protect the best world players • What is protection?
Export and import growth • Export growth in the first half of 2006 over the same period in 2005 stood at 18.9 percent (24 percent when calculated in the euro), • Import grew in the same period by 23.6 percent (28.9 percent when expressed in the euro). • The more rapid rise in import over export resulted in a higher foreign trade deficit in Serbia of 27.5 percent (32.8 percent when expressed in the euro).
And volume • Serbia's total foreign trade in the first half of 2006 reached USD 8,301.6 million or EUR 6,744.6 million, which was an increase of 22 percent over the same period in 2005 (a 27-percent growth when expressed in the euro). • Export was worth USD 2,508 million (EUR 2,037 million) • Import USD 5,793.5 million (EUR 4,707.5 million).
TRADE POLICIES • 1986 – subsidies for • Broomsticks • Beehives • Fireworks - arms
Trade policies and institutions • Reforms have included • the elimination of import quotas, • reduction of import licensing and prohibitions, • streamlining of customs procedures and • reduction of tariff and non-tariff barriers.
Harmonization with Montenegro • Doomed to be a failure • The Federal Government carried out a comparatively fast and fairly good initial liberalisation of foreign trade, • by abolishing the regulations on compulsory deposits for foreign trade transactions, • on compulsory sales of foreign exchange to the National Bank of Yugoslavia, • on minimal opening capital of foreign trade enterprises, • on annual registration tax on business operations etc. • The first to be abolished were quotas, licences, approvals and other restrictive measures that used to be in force. • This caused numerous protests and complaints, even after the concessions made to the Zastava Automobile Works (which worked out the decision that the duty on imported motorcars be set at 20% instead the of 10% that they would have been entitled to according to the established methodology). • Concessions were also made to SARTID Steel Works, that is protected from Russian dumping by import licences, • while export quotas on twelve products were retained in agriculture, to prevent the goods from "escaping" into exports due to depressed local prices.
Remaining obstacles • Montenegro is not an obstacle any more, but even before • (16 February 2005: General Council accepts separate applications from Serbia and Montenegro) • Monopoly of oil imports ___________ • Good thing – FTAs
Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Moldova and Romania. The agreement liberalizes at least 90 percent of mutual trade by the end of 2008. Previous FTAs signed with Hungary and the Slovak Republic were abolished with these countries’ admission to the European Union in May 2004. In addition, a free trade agreement with Russia is fully active,offering access to a market of 150 million people. Goods originating from Serbia and exported to the EU customs area are subject to preferential custom regimes. In 2000, the European Commission introduced Autonomous Trade Measures for Serbia and Montenegro. These measures permit exports to the EU without customs and quantities restrictions for almost all products originating from Serbia and Montenegro. In addition, trade with Kosovo, which is under UN administration, proceeds duty free, although goods are assessed relevant taxes. There are transitional periods built into these FTAs for sensitive sectors, meaning that the reduction of tariffs will be phased-out over an agreed period.
Trade Barriers Serbia and Montenegro, in preparation for its efforts to initiate its accession to the World Trade Organization (WTO), has already made major trade policy reforms to bring practices in full conformity with WTO requirements and eventual membership in the European Union (EU).
A handful of laws establish the legal basis for governing the trade of goods in Serbia: Law on Foreign Trade Transactions (FTT) (amended in 1999 and 2002), Law on Customs, Law on Customs Tariffs, Decision on Classification of Goods on Regimes of Exports and Imports. The FTT law, originally promulgated in the early 1990s as a federal law, is a comprehensive law addressing all aspects of foreign trade activities by or with companies and individuals in Serbia. These laws also provide the government with the authority to implement temporary measures to regulate trade. The government has phased-out quantitative restrictions although certain goods require a license from the government. New laws are being promulgated to improve the customs and trade regimes. The government is now drafting a new Foreign Trade Law was adopted later in 2005. A new Customs Law and Custom Administration Law were implemented in January 2004. These laws were drafted with the assistance of international advisors and is in compliance with WTO, World Customs Organization and EU standards.
Investment climate • Trade regulations and standards • On the web • http://danica.popovic.ekof.bg.ac.yu/UNCTAD
Further steps • WTO accession Harmonization with EU • Choosing a strategy
