Introduction
Trough past decades Republic of Serbia and People’s Republic of China had good political and economic relations. Type and quality of those relations led to the establishment of strategic partnership in August 2009 (during the visit of the then President of Serbia Boris Tadić to China), which, also in August 2013 and then in June 2016, through a joint statement the Serbian and Chinese presidents, Tomislav Nikolić and Xi Jinping, expanded into a “comprehensive strategic partnership”.
The importance of establishing a strategic partnership between Serbia and China had positive effects on the optimization of Serbia’s foreign policy position in the international arena relations and strengthening its rating within the “16 + 1” mechanism, which is established for the purpose of strengthening cooperation between China and the Central and Eastern countries of Europe, and the implementation of the goals of China’s development initiative – the Belt and Road Initiative. With its decision to further improve its relations with China, after the conclusion of the Strategic Partnership, by joining the 16+1 cooperation platform, i.e. countries of Central and Eastern Europe, and then the Belt and Road Initiative, Serbia opened a new perspective of economic strengthening.
Chinese-Serbian strategic partnership supported by traditional friendship of the two countries contributed the conclusion of a series of agreements on the implementation of joint projects in the field of energy, traffic, agriculture, telecommunications, finance, scientific and cultural exchange.
During the Third Belt and Road Imitative Forum, on October 17, 2023, the Agreement on Free Trade between the Government of the Republic of Serbia and the Government of the People’s Republic of China was signed in Beijing. The agreement was signed by the Minister of Internal and Foreign Trade in the Government of the Republic of Serbia, Tomislav Momirović, and the Minister of Trade in the Government of the Republic of China, Wang Wentao, in the presence of the President of the Republic of Serbia, Aleksandar Vučić, and the President of the Republic of China, Xi Jinping. This act will enable the export of 8,930 Serbian products to China under easier conditions, while 10,412 Chinese products will have easier access to the Serbian market.
Free Trade Agreement (FTA) between the Republic of Serbia and the People’s Republic of China
Although expected to start earlier, formal negotiations on Free Trade Agreement between the Republic of Serbia and the People’s Republic of China began in April 2023. Delay was caused by an overall international situation impacted, firstly, by pandemic and later by the Russian Ukrainian conflict and all side effects that it caused.
After April start, negotiations further proceeded through two official rounds held in June and September 2023, as well as numerous and intensive online rounds for each individual area covered by the agreement (general provisions, trade in goods, rules of origin, customs procedures and trade facilitation, intellectual property protection, investment and services, institutional provisions, competition, dispute resolution and final provisions).
Prior to the signing of the Free Trade Agreement, Serbia and China also signed a joint statement for better placement of food in foreign trade exchange of products. According to the data of the Republic Office of Statistics, during the previous year Serbia mainly exported meat (about 13 million euros), beverages (1.6 million euros) and tobacco (about 660 thousand euros) to China, while the share of other categories of products was negligible. Knowing that, recently signed FTA offers new perspective.
In the part related to trade in goods, the agreement stipulates that the parties will establish a free trade zone, with the aim of encouraging prosperity and sustainable development. Each party will reduce or eliminate its customs duties on goods originating from the other party in accordance with the Lists of customs concessions (Tables in Annex 1 of the Agreement). Trade in goods refers to all goods covered by national customs tariffs (prescribed with 10412 tariff codes in the RS, i.e. with 8930 tariff codes in the Republic of China. The national customs tariffs of the RS and the Republic of China are harmonized at the six-digit level (HS2022), with further divisions up to level of ten digits in the RS, or up to the level of eight digits in the People’s Republic of China.
Based on the document “Modality and procedures for customs concessions in the negotiations on the Free Trade Agreement between the Republic of Serbia and the People’s Republic of China”, the following categories for the liberalization of goods are foreseen on both sides:
A0 – cancellation of customs and other duties (special duties and seasonal customs rates) from the date of the agreement’s entry into force;
A5 – abolition of customs and other duties in five equal one-year phases from the date of the agreement’s entry into force, whereby customs and other duties for goods of this category will be abolished on January 1st of the fifth year;
A10 – abolition of customs and other duties in ten equal one-year stages from the date of the agreement’s entry into force, whereby customs and other duties for goods of this category will be abolished on January 1st of the tenth year;
A15 – abolition of customs and other duties in fifteen equal one-year phases from the date of the agreement’s entry into force, whereby customs and other duties for goods of this category will be abolished on January 1st of the fifteenth year;
E – customs and other duties continue to be applied even after the entry into force of this agreement (retained customs protection).
To be more descriptive or to make it easier: More than 60 percent of customs duties will be completely abolished when the agreement enters into force, and under these conditions, apples, peaches, plums, watermelons, cereals, meat products, water, beer, jams, as well as industrial products will leave Serbia for China, likewise iron and steel, boilers for central heating, fuel pumps, hydraulic turbines, white goods, seats, wood, pharmaceutical and cosmetic products, cleaning agents, plastic products, mineral fertilizers, textiles and others.
For more than 16 percent of the products on the list, customs tariffs will be gradually abolished and will be abolished in five years, and in that category are wine, potatoes, onions, tomatoes, cucumbers, mushrooms, grapes and other goods.
Almost 10 percent of the products of both sides in 10 years will be exported completely without customs duties, about four percent in 15 years.
For slightly less than 10 percent of them, customs duties will continue to apply even after the implementation of the agreement.
The free trade agreement includes the establishment of the Joint Committee on Free Trade of Serbia and China, which will monitor and evaluate the implementation of the agreement, monitor the possibility of additional removal of trade barriers and other restrictive measures, and monitor the further development of the agreement.
The Agreement shall enter into force on the first day of the third month following the month of receipt of notification by which the Parties notify each other, through diplomatic channels, that their internal legal procedures necessary for the entry into force of this Agreement have been fulfilled.
The afore mentioned conditions requires the adoption of the Regulation on harmonization of the nomenclature of the Customs Tariff for the year 2024, during the year 2024, which will transparently display the preferential rates of customs for the import of goods originating from the People’s Republic of China.
The Free Trade Agreement with Serbia is the first of this kind that China has concluded with one of the countries of Central or Eastern Europe. In other words, it means that Serbia is now China’s 29th global free trade partner. Both sides agreed that through the FTA, China and Serbia will achieve high-standard mutual opening up, build a new institutional arrangement for bilateral economic and trade cooperation, create a more preferential, convenient, transparent and stable business environment for companies from the two countries, while injecting new impetus into the efforts to advance high-quality Belt and Road Initiative cooperation and deepen the China-Serbia comprehensive strategic partnership. With the FTA now inked, the two sides will carry out their respective domestic procedures to promote its early implementation, Chinese ministry stated.
Comments on the Free Trade Agreement
One of Serbian well-known professors of the Faculty of Economics, Ljubodrag Savić believes that no country in the Balkans has the chance that Serbia got, but raises “the question of the capacity to satisfy the appetites of China because Chinese market is huge, and in that sense, the first problem for Serbia is quantity, because you cannot appear on that market with a small amount of goods”. It will be very difficult if producers, processors, traders, the Chamber of Commerce and relevant ministries do not realize that they must unite and make a good effort to make impact into that market.
Economist Mihailo Gajić, program director of the economic research unit of the Libek organization stated that, in principle, all free trade agreements are good. The reason is, among other things, that they also reduce the burden on imports. “We are not only producers, but also consumers – the price of all products, mainly consumer products, imported from China will be lower,” says Gajić. When it comes to exporters – they will benefit from China reducing customs rates and tariffs. In that respect, the data of the Republic Institute of Statistics showing that Serbia’s exports to China increased by more than a third – from 799 million euros in 2021 to 1.1 billion euros in 2022 is expected to be much better after the FTA entry into force.
Besides expected to increase Serbian export to China, the Free Trade Agreement also is expected to integrate local businesses into China’s global supply chains. But, on this issue one has to be cautious. The basis for attracting foreign direct investment is that it is cheaper to make a product in domestic country, in this case in Serba, and export it to China. European manufacturers, when exporting to China, rarely make the product directly in Europe, but have production closer to China. In global supply chains, the product is manufactured either in China or in neighboring countries due to high transportation costs. Speaking from the point of consumers, the FTA with China is good for them because of the variety of the offer. But, from the other hand, there will certainly be those who are affected by the fact that goods from China will be cheaper than domestic competition. Related to this, certain balance should be found.
There is no doubt that the FTA draw great attention, but not all comments were positive. Among those who paid (negative) attention was the European Union (EU), which immediately reacted to this key event. Serbia will have to withdraw from all bilateral agreements with third parties on the day of admission to the European Union, the EU spokesman Peter Stano said. Namely, in the context of negotiations on the EU accession, Serbia undertook to withdraw from all its bilateral agreements on free trade on the day of its accession to the European Union. Stano explained that Serbia can conclude trade agreements with other countries or organizations before joining the EU, provided that they do not contradict the provisions of the Association and Stabilization Agreement. He added that Serbia’s withdrawal from trade agreements with third parties is not “a new condition, but a general rule that applies to all candidate countries that want to join the EU”.
This situation clearly illustrates the complex dynamics between Serbia, China and the EU. Accession to the European Union is a significant step for Serbia, and it requires a series of obligations and compliance with the legal and economic framework of the EU. Accordingly, Serbia will have to revise its trade agreements with third parties in order to comply with EU rules and norms.
This issue poses a challenge for Serbia, because it has to decide how to harmonize its relations with China, which is one of its important economic partners, with its European integration. It also emphasizes the seriousness of the EU accession process and the obligations it brings with it.
In light of these events, Serbia is facing challenges and decisions that will shape its path to EU membership. This situation will continue to attract attention and will be monitored both by the international community and the citizens of Serbia and EU members.
Conclusion
In spite of excellent relations between two countries, due to the territorial and population disparity, the trade exchange with China so far has been asymmetric. Last year, Serbia imported goods from China for 4.98 billion dollars, and exported for 1.17 billion dollars. However, exports to China are growing at an incredible rate. Serbia’s exports to the most populous country in the world (if India has not yet overtaken it) in 2013 amounted to only nine million dollars, and in 2018 it increased tenfold to a still modest 92 million dollars. In the next five years, Serbian exports increased twelvefold to the aforementioned 1.17 billion dollars. The explanation lies in eastern Serbia, that is, in the privatization of RTB Bor and investments in copper mines. Namely, last year copper ores and concentrates were exported to China for 913.5 million dollars, and refined copper products for almost 133 million dollars. In other words, 90 percent of our exports to China went from Bor. The rest of the export is mostly related to more raw materials. The export of wood was about 38 million dollars, and among the 10 most important export products, only one is food, frozen boneless beef whose export compared to the previous year increased by almost 2.5 times to 11.7 million dollars.
Exports to China did grow in the previous decade at an incredible speed, but in absolute terms, imports from that country grew immeasurably more. From imports of 1.5 billion dollars in 2013, Serbia reached two billion in 2018, and then there is a jump to almost five billion dollars in 2022.
The most important imported products last year were boilers with tubes for 154 million dollars, smartphones for 147.6 million dollars, then hardware for about 97 million dollars, air conditioners for 70.1 million dollars and a number of other products from almost all fields.
In that sense, after six months of negotiations on October 17th signed Free Trade Agreement represents a step forward. The agreement has 93 articles, six chapters, and eight working groups worked on this joint project. It includes 10,412 products from Serbia and 8,930 Chinese products. The Serbian authorities expect that next year, when the agreement enters into force (by May-June), country’s export will exceed two billion dollars. Serbian officials state that the goal of concluding the agreement is to enable preferential access to the Chinese market for Serbian products, which, in addition to balancing the trade, i.e. reducing the existing foreign trade deficit, is expected to expand investment and production capacities in Serbia, increase competitiveness, and strengthen overall economic activity.
In the long term, a huge Chinese market opens up particularly for Serbian agricultural products. As Professor of Belgrade University Faculty of Economics, Ljubodrag Savić, said, such agreements are not made for today, but for the next 10-20 years. It is a great opportunity for Serbian exporters. Republic of Serbia should benefit of the fact having a trade agreement with the EU and with China, two large markets where has preferential status.
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