How long will the “iron friendship” last?
Thewesternbalkans
During the Third Belt and Road Initiative 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 main goals of Belgrade of concluding the agreement are to enable preferential access to the Chinese market and reduce the existing foreign trade deficit. Belgrade is also hoping to attract foreign food production companies to Serbia in exchange for access to the Chinese market.
The large difference in the economic scales of the two countries puts in the first place the question of the small quantities of goods that Serbia is able to offer to the insatiable Chinese market.
The main Chinese interest is obtaining raw materials from copper mining and smelting complex “Serbia Zijin Bor Copper” and steel manufacturing conglomerate “HBIS Srbija” in Smederevo without taxes and custom duties. Copper ore, concentrates and refined copper products make up 90% of Serbian exports to China, which have grown strongly from 799 million euros in 2021 to 1.1 billion euros in 2022. The rest of the export is mostly related to raw materials. Serbian export of food products is worth only 11.7 million US dollars.
In 2022, Chinese import to Serbia is 4.5 times larger than Serbian imports to China. The production Serbia already imports from China will become much cheaper than it is now. Critics of the agreement predict price dumping of Chinese products and a decrease in revenues in the Serbian treasury, when the agreement enters into force, probably in May or June 2024.
The FTA 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. Only 60% of these goods will be fully exempt from customs duties. Customs tariffs on the rest of the goods on the list will be eliminated in the next five to 15 years. This means that Serbia does not expect EU membership during this period.
The specific features of Serbian-Chinese trade impose the asymmetric nature of the agreement, which is beneficial for 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 Europe only Switzerland and Iceland have a similar agreement with China). China’s breakthrough shows the political motivation behind the agreement. It gives Serbia also a chance, but it may have too weak economic results. To turn trade with China from a one-way street to a two-way street, Belgrade needs safeguards. They are envisaged in the agreement, but the next five years will show whether they will be working in practice.
The political nature of the agreement is also indicated by the negative official reaction of the EU after signing the agreement, which emphasizes that the FTA will be automatically invalid in case of joining Serbia to the EU. By signing the agreement, Serbia is trying to sit on two chairs and bring China’s free trade closer to the EU market – will this force the EU to act?
