CEFTA countries expect a difficult transition from Croatia's EU accession

07/03/2012

The costs of Croatian exports to Macedonia are expected to double, and will triple for Serbia and Bosnia and Herzegovina when the country joins the EU.

By Klaudija Lutovska for Southeast European Times in Skopje -- 07/03/12

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Croatian Tobacco Factory will pay a higher tax rate on cigarettes due to the country's changing market conditions. [Petar Kos/SETimes]

Upon joining the EU and leaving the Central Europe Free Trade Agreement (CEFTA) -- the Central and Southeast European common market of non-EU countries preparing for EU membership -- Croatia's products will become more expensive in the region, while the local, traditionally known brands may be easily overcome by a free market competition of cheaper brands.

Croatian products are unknown in Europe, and will not immediately be competitive when the country joins the EU market. The Union's duty free tax on exports and imports of goods will also apply to Croatian exports.

Croatian companies fear losing that competitive edge and the government is separately negotiating with each agreement member on how to keep the existing benefits of Croatian exports to CEFTA.

"After leaving CEFTA and joining the EU market, the Croatian Tobacco Factory's Adris Group will pay a higher tax rate on cigarettes produced in Croatia -- in Serbia from 15% to 57%, in Bosnia and Herzegovina (BiH) from 0% to 15%, in Macedonia from 27% to 42 %, and in Kosovo from 0% to 10%," Christina Miljevac, spokesperson for the Adris Group, told SETimes.

Croatia will, however, benefit from the accession in that 500 million consumers will open to Croatian businessmen within the EU market, while CEFTA currently has some 27 million consumers.

"The truth is that Croatia will export goods according to EU regulations from July 1st 2013. But, we expect corrections to Article 7 in the CEFTA Stabilisation and Association Agreement, which implies mitigation of prescribed conditions and a reduction of high rates," Dennis Cajo, the head of the State for Trade Policy at the Croatian business site Poslovni.hr, told SETimes.

Debt is still aggravating the economic stability of Croatia, both at the micro- and macro-economic level, as all the country's banks are being sold to foreign banks, and the country's monetary stability is sensitive to external influences.

A further aggravation is that after Croatia joins the EU, it will still not join the Eurozone for a while, but will continue with its national currency, the Kuna. The country's entry to the Eurozone cannot be expected before 2016 or 2017, a former member of the Croatian National Bank, Damir Novotny, told Poslovni.hr.

For full Eurozone entry, two basic Maastricht criteria must be implemented -- the fiscal deficit should not exceed 3% of GDP and the public debt must not exceed 60% of GDP.

If the government fails to resolve the deficit and meet the required criteria, Croatia will enter the so-called Model RM-2, a two year preparation period for the introduction of the euro, said Novotny.

Once within the EU market, Croatia will apply European market prices to its products, and CEFTA products will have to win export on Croatian markets due to price competitiveness.

For example, cigarette tax EU regulations in Croatia should reach 90 euros per 1,000 pieces, while the current tax is 60 euros in Croatia, 16 euros in Macedonia, 23 euros in Montenegro and Kosovo, and 25 euros in Serbia.

"It is a chance for Macedonian companies to increase market share in the domestic market and increase investment in the transfer of Croatian companies in Macedonia. It happened with Slovenian companies when Slovenia became an EU member," Spasijka Jovanova, Skopje editor of the daily Capital told SETimes.

The Macedonian Ministry of Economy said that except wine, beef, sugar and fish, the country will export a certain quota to Croatia in 2013, and other agricultural products will be duty-free under the EU Stabilisation and Association agreement.

"This is a chance [to increase] the export of Serbian products to BiH -- [which is] the largest goods sales market currently held by Croatian companies," Milivoje Miletic, the director of the Bureau for Regional Co-operation at the Serbian Chamber of Commerce, told SETimes.

Jago Lasic, vice-president of the BiH Federation Economics Chamber, keeps close ties with Nadan Vidosevic, the president of the Croatian Chamber of Commerce, to maintain a balanced market between the two countries.

"BiH market consumers recognise and require Croatian products, which annually amount to 350m euros in goods, mostly in food, with a guaranteed quality from local laboratories and a certification, but not endorsed by the EU," said Lasic.

Croatian construction firms in Montenegro are not worried about the coming new trade terms, but expect commodity prices to rise.

Split-based Cemeх is one of the largest cement producers in the region. It does not expect adverse effects from the country's release from CEFTA, but says it must maintain market position.

"We expect cement prices to rise, not only because we will enter the EU, but due to the rising cost of production," Velimir Vilovic, Cemex director of sales and logistics, told SETimes.

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Of all the regional countries, Croatia has the lowest trade with Montenegro, where last year it exported about 50 million goods and imported seven million.

According to the Chamber of Commerce, current exports to CEFTA countries comprise 20% of total Croatian exports. Last year, Croatia exported products worth 1.66 billion euros, twice as much as was imported from CEFTA to Croatia.

From the EU, Croatia imported 9 billion euros in goods, and exported 5.4 billion euros in 2011.

SETimes correspondents Bedrana Kaletovic in Sarajevo, Biljana Pekusic in Belgrade and Drazen Remikovic in Zagreb contributed to this report.

This content was commissioned for SETimes.com.
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