By Nenad Radicevic

Judging by some politicians` and experts` statements, unilateral application of the Interim Trade Agreement with the European Union (EU) will "destroy the Serbian peasant," "damage the budget for more than a quarter of a billion euros," "ruin local producers faced with the European competition," and altogether it will "cave in domestic economy." Numerous misinformations were the breaking news in the Serbian media although the Interim Trade Agreement provides for Serbia to gradually reduce customs duties for the EU products import. An event in which a state - potential membership candidate - unilaterally applies an agreement with the EU is the unique one in its several decades` long history. However, this should not be surprising since the Stabilisation and Association Agreement and the Interim Trade Agreement not being put in effect, according to experts, represents a unique breaching of the European law in the practice of the European family of peoples.

Since January 30th Serbia has been unilaterally implementing the Interim Trade Agreement and one of its most visible effects will be customs duties for the EU cars import almost more than twice less, i.e., with duty rate decreased from 20 to 12.5 percent final prices of cars will averagely be between five and eight percent lower.

In the following six years, this agreement provides for free trade of industrial and agricultural products between Serbia and EU to be established. Since 2001, the EU has been effectively implementing what the Interim Trade Agreement had provided. This because virtually all that is being produced in Serbia, except six products with quota, can be exported to the European unique market free of customs and limits.

In spite of some catastrophic forecasts on the consequences for the Serbian market liberalisation, customs decrease dynamics during the first year is slow and great number of customs for food and agricultural products, for 23 percent, will remain even after the Agreement`s sixth year application.

During the Agreement`s first year use, raw material and semi finished products customs are decreased to 70 percent of the 2008 ones, while the higher processing phase products customs are decreased from 80 to 85 percent of the last year duty rate. By the Agreement application immediately are being annulled customs for products either not being produced in Serbia or produced in negligible quantities that have until now been levied by customs duties between three and 20 percent.

This group consists of livestock for growing and breeding, oriental spices, tropical fruit, essential oils, seed-corn and some other sorts of seed products. Although this customs abolition refers to some 1,000 agricultural and food products, according to the Minister of Agriculture Sasa Dragin, during the first year the customs for strategic products will not be abolished. Other agricultural and food products` duty rates during the first year are between 80 and 85 percent of the current customs.

According to the Interim Trade Agreement with the EU, customs will be harmonised depending on the groups of products. For the first group of so-called "sensitive products" it is expected for the customs to be abolished in three years` time. For this group of products, consisting of salt, mineral fuels and oils, golf carts, snow vehicles, hats and caps, measuring, controlling, precise, medical and surgical instruments and devices, duty rate will be decreased to 70 and after that to 40 percent of the 2008 rate and finally abolished.

The second category of the so-called "very sensitive products" will have the customs gradually decreased in the course of the following four years (first to 80 percent, and then to 60, 40, and 20 percent of the current duty rate), while in the fifth year it should be totally abolished. The list of those "very sensitive products" has caoutchouc and wood and products made of them, as well as products of stone, plaster, cement, concrete, and asbestos, soap and several chemical industry products, plastics, natural and artificial fur, tools, railway and tram cars and toys.

Duties will be the longest levied on the "most sensitive products" import to Serbia and those will be paper and carton, ceramics, glass, iron, steel, copper, aluminium and these metals` products; bicycles, small horse power tractors, electrical machines and equipment, motocultivators, weapons, ammunition, furniture, and foot-wear. Domestic producers having these products in their assortment will have six years on disposal to prepare themselves for the European competition since the duty rate for those products will be gradually decreased to 85 percent of the current rate of duties, and after that to 70, 55, 40 and 20 percent, until its final abolishment.

Although the customs decrease should gradually lead to the products imported from the EU certain prices reduction, the crucial question still persists - what will be the consequences of the Agreement unilateral use to both the state and the economy?

According to the original analysis, the Interim Trade Agreement unilateral application will bring Serbia the loss of at least 150 million euros in inland revenues and value added tax. According to the Minister of Finances Diana Dragutinovic, the first estimations made when the Budget Law was being prepared, have foreseen bigger import and inland revenues and value added tax losses, therefore, also bigger. However, currently the import is slowing down. On the other hand, the Serbian Association of Employers warns that without the National Export Plan or even certain Serbian export strategy for the following five or more years, trade liberalisation in some economic sectors could lead to endangerment of domestic economy and closure of many Serbian firms and companies that would not be able to fight developed EU economy strong competition.

The Government and its Prime Minister Mirko Cvetkovic emphasise the Interim Trade Agreement application will not have negative implications on the Serbian economy and its foreign trade deficit. According to the Prime Minister, the Interim Trade Agreement with the EU application final effect will be goods and "production inputs" coming from the Union cheaper for the citizens and economy of Serbia.

The Serbian European Union Integration Office experts explain the unilateral use of the Interim Trade Agreement will be also important for the Serbian EU membership application.

Namely, in order for the European officials to give a certain country the candidacy status for the EU membership it is necessary for the country applying to prove its successful application of the Stabilisation and Association Agreement. However, the Dutch Foreign Minister is dispersing Serbian officials` great optimism and hope for Serbia to apply this year and become the candidate for the EU membership. He has namely said that it was too early for Serbia to apply since "the Stabilisation and Association Agreement application is necessary and this could be achieved only after the full cooperation with The Hague."