Bosnia-Herzegovina Economy Briefing: BIH As a Collateral in Belgrade-Pristina Tariff War Ivica Bakota

Home , Pristina

ISSN: 2560-1601

Vol. 15, No. 2 (BH)

February 2019

Bosnia-Herzegovina economy briefing: BIH as a collateral in Belgrade-Pristina tariff war Ivica Bakota

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+36 1 5858 690 Kiadó: Kína-KKE Intézet Nonprofit Kft. [email protected] Szerkesztésért felelős személy: Chen Xin

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BIH as a collateral in Belgrade-Pristina tariff war

Overview

In November 2018, Kosovo government has introduced a new set of protectionist measures, among which the most controversial was sharp increase of tariffs (by 100%) on imported products from Serbia and Bosnia and Herzegovina. According to Kosovo`s Trade Minister Endrit Shala, a new set of protectionist measures are envisaged to strengthen domestic production, so he urged domestic producers and traders to focus on quality of domestic products and explore new markets for cooperation. As soon as the decision was made, regional media speculated about the political dimension of a new “trade war” against Serbia and BIH. Indicative to this were political messages sent by Kosovo PM Haradinaj and Deputy PM Hoxhaj, the lack of any relevant economic reason for introducing embargo-like measures against the two fellow CEFTA member states and, overall, conditioning tariff abolishment with recognition of Kosovo`s independence.

Only 20 days before, the government of Kosovo made a probe with a 10% tariff to products from Serbia and BIH, to respond on what it cited as Serbia's destructive behavior towards Kosovo. Despite condemning reactions from the Serbian government, according to some analysts, these measures didn’t find wanted attention from the EU and resulted in more drastic increase of tariffs by 100%. The Kosovo Government's decision has encountered major criticism from the EU, Serbia, Bosnia and Herzegovina and other international organizations, all arguing that Kosovo unilateral decision represents the violation of the common rules and practices set by CEFTA. For this reason, neither Serbia or Bosnia and Herzegovina sought to impose countermeasures against Kosovo`s imports nor asked to set an issue through negotiations.

In over two months since new tariffs are in place, both Belgrade and Pristina rarely touched its economic causes and implications. As such, there is a common belief that new tariffs were part of retaliatory measures for the role Serbia had in Kosovo`s failure to join Interpol in October 2018. Trade war soon turned to an episode in long-standing confrontation between Belgrade and Pristina, with Bosnia and Herzegovina as a passive participant.

Reactions from Bosnia

That Bosnia and Herzegovina was a strange bedfellow in essentially political confrontation between Kosovo and Serbia was soon recognized by Bosnian media and politicians. Due to strong opposition from Republic of Srpska, Bosnia and Herzegovina refused to recognize Kosovo and henceforth voted against Kosovo`s accession in international organizations, including Kosovo`s recent application for joining Interpol. But, even though Bosnian media is convinced that involving BIH in tariff war has purely political motivation and BIH Foreign Trade Minister Mirko Sarovic in his response explained measures as a pure tit for tat, it still remains blurred why Kosovo ‘blacklisted’ BIH products when, besides a no-vote BIH is ‘by default’ giving to Kosovo, no other particular reason surfaced during the last two months. A logical question then would be, why the same measures where not applied against, for example, Greek products if Athens is likewise known to support Belgrade in its dispute with Pristina regarding the independence and international recognition. Partial explanation for this can be found in relatively high share of imports from Greece (4.2% in 2016, third trading partner from EU-28, according to Kosovo Agency for Statistics) vis-a-vis small share of BIH-Kosovo trade.

BIH Foreign Commerce Chamber debriefed the public on consequences the new tariffs would cause to Bosnian exports to Kosovo. According to Chamber representative Vjekoslav Vukovic, even though exports to Kosovo has a small share in Bosnian total exports, there is a “catastrophic” loss BIH will incur in losing access to a growing market. Also, some Bosnian exporters (especially in dairy and food processing industry) would be particularly exposed to these measures. Some companies have informed that following the first tariff increase (10%) the export to Kosovo became expensive, while 100% measure left Bosnian exporters with only two options: either to reroute the export through neighboring Montenegro or Macedonia, or to start finding new markets.

Bilateral trade track

From 2006 when Bosnia and Herzegovina signed a trade agreement with Kosovo (back then, officially UNMIK) both countries had a gradual increase in bilateral trade. CEFTA membership gave a platform for the coordination of bilateral trade, negotiations on tariffs, provision of technical assistance and setting up regular meetings to discuss intensification of economic cooperation. BIH-Kosovo trade was relatively unimpeded throughout the years, and as CEFTA member countries, their mutual economic exchange enjoyed preferential terms. Up

2 until 2015, however, the bilateral trade growth was relatively slow, BIH wasn’t on the list of Kosovo`s top 10 trading partners and Kosovo`s share in BIH trade was insignificant. These figures started to change in 2016.

According to figures given by the BIH Foreign Commerce Chamber (FCC), in 2017 the trade volume between Bosnia and Herzegovina and Kosovo increased to 87.5 million EUR, contributing to total Bosnian exports by 1.2%. The main imports from BIH were raw minerals (coal, iron), basic manufactures, including metal and wooden products, textiles and dairy, food, meat and fish products totaling around 78.8 million EUR. Kosovo, on the other hand, run a big trade deficit and its exports to BIH were mostly consisted of iron and steel products, alcoholic and non-alcoholic beverages totaling only 8.8 million EUR. BIH exported nine times more than it imported from Kosovo. This trade deficit might be alarming for a less import-dependent country as Kosovo, however, comparative data show even higher trade deficit with Serbia and EU-28 countries.

After November 2018, bilateral trade dropped to 2.3 million EUR, with BIH exports still being twice as high as the imports from Kosovo. Bosnian Exporters Association (UIO) explain that metal processed products are mostly on stock and the first consequences of new measures will be seen within couple of months, but export of food and dairy products almost completely stopped. The idea that inclusion of BIH in the tariff war might not be instigated completely by political reasons, but is also shadowed by unfair protectionism could be traced in Kosovo`s failed attempt to put additional taxes (in total 18%) to Bosnian dairy products in the beginning of 2018. However, this is only a speculation incited by some media.

Bosnian approach to the issue

Officially, the Kosovo government announced that the decision was made in accordance with Article 18 of the CEFTA Agreement, which states that CEFTA members may take any action necessary to "protect the security interests or internal policies", including tariffs on certain products if there is an evidence that their import jeopardizes domestic production. However, in this case, the country has to conduct on official investigation on vulnerability of particular sectors or products against imported goods and services. Bosnian FCC is convinced that Kosovo didn’t make any investigation and could not produce any evidence on Bosnian export jeopardizing particular domestic producers.

CEFTA has no body to mediate trade disputes. Moreover, as a trade organization that is now left with only WB-6 countries and Moldova it is now, according to opinion shared by some economists, losing its leverage in coordinating trade between its members. What was left for Bosnia and Herzegovina is to criticize the decision as unfair, unilateral and violating CEFTA agreement, and ask the European Commission to exert pressure on Kosovo government to renounce the tariffs. Brussels indeed requested several times Kosovo to withdraw immediately current measures, but due to high political stakes and internal disagreements within Kosovo`s leadership, Kosovo didn’t make any conciliatory move. Only after Washington issued a statement on ongoing tariff war the issue started to slowly move from a deadlock.

By mid-January 2019, trade ministry delegations of BIH and Kosovo held a meeting to discuss a solution for the current bilateral problem. Bosnian delegation asked to immediately suspend the tariffs for six months, during which both sides will seek to address the main problems. Kosovo, however, didn’t accept this. Kosovo government spokesman confirmed that the meeting was rather formal exchange of opinions and that Kosovo remains at its previous positions.

Further actions

First of all, imposing countermeasures to Kosovo`s exports to BIH, for time being, would not be considered. Not as much as Serbia, but Bosnia and Herzegovina also has political stakes in abiding by CEFTA Agreement and proving to be reliable partner in maintaining its framework. What is more important, volume of Kosovo`s export to Bosnia and Herzegovina is insignificant and probably would not cause any effects on Kosovo`s side.

Further negotiations with Kosovo are possible, but a breakthrough will mostly depend on Kosovo`s side, in a sense that the current arguments for a tariff war be refocused solely on Belgrade-Pristina relation, where Pristina could play out the political pressure by offering concession to Sarajevo while remaining bellicose against Belgrade. The fact that Sarajevo has chosen to stay out of political controversy surrounding the trade war can be helpful to this end.

Unlike Serbia, exposure of Bosnian companies to changes on Kosovo market is not as significant. Lack of any reliable data on number of companies having business with Kosovo, is making difficult to say what would be real effects of new measures. However, it also indicates that this number is “under the radar” and thus BIH probably would not face any internal pressures to be forced to more actively urge Kosovo government to change current tariffs.

In most likely scenario, Bosnia and Herzegovina will continue to ignore political dimension of the issue and seek from the European Union to defend CEFTA Agreement from unilateral violations. For the moment, given the current trade relations with Pristina, there is not much else it can do.