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Unlocking Opportunities: Serbia’s Free Trade Accord with China

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On October 17th, in Beijing, with the presence of the presidents Aleksandar Vučić and Xi Jinping, the Free Trade Agreement (FTA) between the Republic of Serbia and the People’s Republic of China was signed. This marks the first FTA between China and a Central and Eastern European country and the 22nd FTA signed by China. At this moment, Serbia is China’s 29th trading partner in terms of exchange value, while China is Serbia’s second most important partner, following Germany (or the EU, more broadly considered).

Through this agreement, Serbia and China aim to establish new institutional arrangements for bilateral economic cooperation and trade, creating a more favorable, transparent, and stable business environment. It is believed that this will enhance competitiveness in global markets and create conditions for further promotion of economic, trade, and investment relations.

Moreover, the scope of high-quality cooperation is expanding within the Belt and Road Initiative, deepening the comprehensive mutual strategic partnership. The agreement represents a significant milestone not only for Serbia and China but also for the broader Balkan region. The Free Trade Agreement will enable Serbian producers to have better access to the Chinese market, providing a competitive advantage, starting from mid-2024 when all necessary administrative procedures for implementation are planned to be completed.

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Technically, similar to other free trade agreements, the reduction or elimination of tariffs on goods originating from the other signatory party is implemented based on Rules of Origin and implementation procedures. The agreement applies only to goods considered to originate from the signatory country if they are:

Wholly obtained or produced in that country;

Produced exclusively from materials with origin; or

Produced from non-originating materials, provided that the goods meet the regional value content requirements of not less than two-fifths (except for goods listed in Annex 2 of the Agreement, which defines specific rules for products).

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To confirm the origin status for obtaining the free trade regime under this agreement, the customs authority of the importing country requires proof of origin in the form of: (a) a Certificate or Declaration of Origin, prepared by an authorized exporter. The Certificate of Origin will be issued by an authorized body of the exporting country. Customs authorities are responsible for verifying the authenticity of the certificate and declaration of origin, as well as the accuracy of the information provided in these documents. The effective implementation of this requirement is only possible through continuous collaboration between the customs services in verifying the authenticity of proof of origin, the accuracy of the information in it, the origin status of the relevant products, and the fulfillment of all other requirements.

For each product, the basic tariff rate, to which a gradual reduction applies, is the most-favored-nation tariff rate that has been in effect since the beginning of 2022. It is essential to highlight that rights and obligations related to state enterprises, subsidies, countervailing, anti-dumping, and global safeguard measures are regulated according to the General Agreement on Tariffs and Trade (GATT) from 1994 and the Agreement of the World Trade Organization (WTO).

It is positive that both sides have recognized the importance of protecting intellectual property rights and promoting and facilitating cross-border investment and technology flows as a means to achieve economic growth and development. Additionally, this Agreement opens the door to negotiations aimed at achieving gradual liberalization and the opening of markets for trade in services.

Considering the economic strength of the Chinese economy, the asymmetry in market size, competitiveness, and the limitations that Serbia faces on the supply side, the following provides a summary scope of the signed Free Trade Agreement (FTA) from Serbia’s import perspective. The goal of our negotiating side was to enable cheaper imports of inputs for the development of the industry and the import of consumer goods without domestic substitutes in the short and medium term. Furthermore, the aim was to secure exemptions from liberalization for those products where potentially higher imports from China could jeopardize domestic production.

In total, when we consider the value of the merchandise imports for which customs protection will be retained even after the expiration of the transition period (these are strategically important products classified in category E, constituting around 7.5% of the total imports in 2022), the portion of imports that will be liberalized upon the entry into force of the Free Trade Agreement (FTA) but for which the current protection rate is already less than or equal to 1% (this falls under category A0, with a subcategory ≤ 1%, accounting for about 34.8%), and the portion of imports not covered by the agreement (approximately 12.6% of the value of imports in 2022), we can say that the goal has been achieved. More than half of the total imports (about 55%) are exempted or minimally affected by this agreement.

If we narrow the scope of the analysis to the effects of the agreement on the first 120 products (which constitute two-fifths of the total imports), based on the value of Serbian imports in 2022, category A0 would include 61 products (with their imports valued at around 10.5 billion euros). Out of these, only 19 products are protected by the existing tariff at a rate higher than 1%. Their import value in 2022 was 1.4 billion euros, accounting for 13.7% of the mentioned A0 quota.

Within this, products currently subject to a tariff rate of five percent or more include the following (and their liberalization will have the most significant impact): telecommunication equipment for communication networks and others; nitrogen fertilizer (with a urea content of more than 45% nitrogen by mass) and mixtures of ammonium nitrate with calcium carbonate or other inorganic non-fertilizing materials with a nitrogen content not exceeding 28% by mass; agricultural tractors (with engine power between 75 and 130 kW); flat-rolled iron or non-alloy steel products, with a width of 600 mm or more, hot-rolled, not plated or coated, with a thickness between 3 and 4.75 mm. Bananas (fresh or dried) are also included in this subgroup. However, as China is not their producer, the impact of liberalization in terms of their cost reduction in our market is minimal. In any case, from the listed products, it is clear that the intention was to provide cheaper inputs for production (whether they are tools, equipment, or raw materials) on the import side in the short term.

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