Kosovo’s tariffs – between economic and political interests

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FOTO: RTV Kim

By Jovana Jakovljević

Za članak na srpskom klikni OVDE.

Numerous political tensions, as well as tensions in the area of trade have existed in the relations between Kosovo and Serbia for years. The latest one was triggered by the decision of the Government of Kosovo on November 6, 2018 to increase customs tariffs on imports of goods from Serbia and Bosnia and Herzegovina by 10% on the grounds of protection of the domestic market. Such a decision is contrary to CEFTA Free Trade Agreement, under which the sender of the goods has the privilege of exemption from payment of customs tariffs on those goods, but not other duties (VAT, excise duties and other).

The first result of the decision was the withdrawal of the Serbian delegation from the negotiations in Brussels on the grounds that it would not return to the negotiating table as long as the decision to impose tariffs and violation of the free trade agreement were in force. The situation became even more complicated after Kosovo’s unsuccessful application for admission to INTERPOL, when the Kosovo government blamed Serbia for its failure and raised tariffs on imports of goods from Serbia and B&H to 100%.

In addition, the Ministry of Trade and Industry of Kosovo issued an order  that the Trade Inspectorate and other competent institutions stop the potential import and sale of all products containing “Kosovo and Metohija”, “Kosovo UNMIK” or “Kosovo Resolution 1244” in their declaration. The inspection was requested to remove products that have any other mark on the label other than “Republic of Kosovo”, because this is the only way to comply with the Constitution and laws of Kosovo.

In addition to interruptions in the dialogue between Belgrade and Pristina, over the course of a year, tariffs also contributed to changes in economic parameters (indicators) of both parties. According to the latest data presented by the Minister of Trade, Tourism and Telecommunications of Serbia, Rasim Ljajić, from the introduction of tariffs until August 8, 2019, fewer goods were delivered in Kosovo worth 280,800,000 euros. For a period of 261 days, fewer goods in the amount of € 1,075,000 a day have been shipped to Kosovo, which, according to their estimates, is a huge financial loss.

Prior to the introduction of tariffs, Serbia had had the largest share of total Kosovo imports with 13.3%. From the last available report of the Kosovo Agency for Statistics for the month of September 2019, we can see a significant decrease in imports of goods of Serbian origin to Kosovo compared to the same month of the previous year. Specifically, in September 2018, imports from Serbia were made in the amount of 37,588,000 euros, while in the same month this year goods were imported in the amount of only 492,000 euros, which is a 98% decrease. On the other hand, Kosovo’s exports to Serbia remained almost unchanged. At the moment, with the amount of 2,569,000 euros for the month of September 2019, they exceed the imports from Serbia.

Although one of the results for the introduction of tariffs is that Kosovo’s exports to Serbia became larger than its imports, they are practically negligible from the point of view of the Kosovo economy as a whole, therefore, the reciprocal measure of Serbia would not have the same consequences as customs tariffs on imports from Serbia. Serbia is currently estimating what the damage of reduced exports to Kosovo could be by GDP, and the worst case scenario is that it could affect with 0.8%, which would practically mean that none of the businesses exporting goods to Kosovo would not find any alternative markets. However, from the Ministry of Trade, Tourism and Telecommunications of Serbia they have an optimistic attitude and believe that the impact of the introduced tariffs on Serbia’s GDP will be less smaller the worst estimate.

Economic analyses in Kosovo show that despite drastic declines in imports from Serbia, total imports continued to rise and so did trade deficit, which has increased in 5.4% comparing to the last year. Goods of Serbian origin have been replaced by products from other countries, mostly from Turkey, Greece, Germany, Albania, North Macedonia and Slovenia, which have significantly increased their exports to Kosovo. 

Since there was no preliminary analysis from the Kosovo side of the possible effects of the introduction of tariffs, apart from the negative impact on the Serbian economy, the tariffs also caused an increase in prices in Kosovo. Following the replacement of Serbian products with products from other countries, food prices in Kosovo in the period after the introduction of tariffs (November 2018 – March 2019) went 5.3% higher than in the same period of previous years, according to the research of GAP Institute from Pristina. Also, local manufacturers did not have a proper substitution for the particular products to which the 100% tariff increase decision became applicable. Other reasons that could have influenced the price increase were the increased costs for raw materials and increased costs for imported products from other countries.

There are doubts that certain types of goods of Serbian origin, such as cereals, are being imported into Kosovo through other countries in the region, which is further detrimental to local producers as this has the effect of increasing the import price due to increased transportation costs. This is further corroborated by the data from the Kosovo Agency of Statistics which indicate that the tariffs have an effect on raising the prices of products, that is, for example, bread and cereals in Kosovo have increased in price by 12.5%.

Impact on customs revenues

Based on the latest available customs data, regular imports of goods from Serbia in the period January – April 2019 decreased by more than 98%, as compared to the same period last year. Namely, on the basis of customs records, for the period January-April 2019, Customs collected about 1.03 million euros of customs revenues for the value of imports originating from Serbia, while in the period of the previous year about 30.32 million euros were collected. The negative effect on customs revenues from imports of goods originating from Serbia was compensated by an increase in imports from other countries, with an additional effect on customs revenues, according to the first quarterly economic newsletter of the Ministry of Finance of Kosovo  for 2019. According to the calculation presented, the net effect on customs revenues for the period January-April 2019 is approximately 7 million euros higher as a result of the implementation of the decision on the introduction of tariffs.

A special segment of customs revenue is the North Kosovo Development Fund, which was established to support socio-economic development in four municipalities in northern Kosovo. Funds for the Fund are provided from customs revenues collected at crossing 1 (Jarinje) and crossing 31 (Brnjak), from customs clearance of goods destined for northern Kosovo, as well as from customs clearance of goods of businesses registered in any of the four municipalities in northern Kosovo. By the end of 2018 more than € 15.5 million was raised for this Fund, of which approximately 11 million was allocated to municipalities in the North through the financing of certain infrastructural and development projects. However, since November 2018, when the decision to introduce tariffs on goods of Serbian origin was enforced, until today, funds from the Fund have not been allocated for the implementation of any project in any of the municipalities in northern Kosovo. In addition, neither the dynamics of fundraising for this Fund, nor the consequences to it have been known since the introduction of tariffs. 

Impact on the normalization of relations between Belgrade and Pristina

Since the introduction of tariffs and the withdrawal of Serbia from the negotiation process, the two sides have become even more distant, instead of making progress in normalizing relations. On the one hand, there is a firm position of Serbia that it will not return to the negotiating table as long as the decision of the Government of Kosovo on the introduction of 100% tariffs on goods of Serbian origin is in force, while on the other hand, the attitude of the outgoing Government of Kosovo was that there will be no abolition of tariffs until Serbia recognizes Kosovo’s independence.

Also, the international community was very clear in condemning Kosovo’s measures and warned that such tax policy was not conducive to progress in the negotiations with Belgrade and that it was a clear violation of the CEFTA agreement. During the Berlin Summit held in April this year, which dealt with the political and economic fate of non-EU Balkan states, France and Germany showed their willingness to contribute to the continuation of the Belgrade-Pristina dialogue, but for such a role it is important to recognize the commitment of both parties.

It is for this reason that one of the main challenges for political parties that will form a new government after the October 6, 2019 elections in Kosovo may be to consider whether to abolish or continue to implement the previous government’s decision to increase tariffs. In this sense, the further course of negotiations with Serbia, as well as the process of normalization of relations, which should contribute to finding a compromise solution, will largely depend to a great extent on the attitude of the new government towards the decision about the abolition of tariffs.

It is clear that one year after the interruption of the dialogue, in order to find a compromise solution, it is more realistic to expect a return to the negotiating table than further radicalization. However, given the history of developments in relations between Serbia and Kosovo, any development of events that would create a “new reality” is possible.

This article was created under the project “Development of Investigative Journalism for Journalists Reporting in Serbian Language in Kosovo” implemented by CBS and InTER. This grant is financed by the project ‘Support to the Civil Society in Kosovo’, funded by the Government of the Grand Duchy of Luxembourg and managed by the Kosovo Civil Society Foundation (KCSF). The content and recommendations made do not represent the official position of the Government of the Grand Duchy of Luxembourg and the Kosovo Foundation for Civil Society (KCSF). The article is the sole responsibility of the author and does not represent the views of CBS and InTER.

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