Posted by on September 26, 2019 11:32 am
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By Mihailo Gajic, Head of Research, LIBEK & TES Contributor

 

 

On October 25th, Serbia will sign a trade deal with the Eurasian Economic Union (EEU), a Russian-backed trade federation — a mostly symbolic move which has however  led to a widespread, and totally erroneous, belief that Serbia actually intends to join the EEU as a member. This misconception that Serbia is joining the EEU has been articulated in several influential media outlets, for example in Bloomberg. But nothing could be further from the truth. Even the free trade deal itself is not significant because it just confirms already existing trade agreements.

 

 

A short (long) history

 

 

Serbia and Russia have a deep history of contacts, based on their shared cultural and religious background. However, their political relations during the last two centuries have been volatile, ranging from very good to extremely bad. Their economic relations started to evolve following World War II, but took a significant hit in the 1990s due to the collapse of the Soviet Union and the wars in Yugoslavia. However in 2000, as a sign of political support, the Russian Federation signed a preferential trade deal with Serbia, which serves as a basis for their current economic relations. Since then, Russia’s share of Serbian exports have risen significantly, but they still account for less than 6% of total exports; by contrast 65% of Serbia’s total exports go to the EU, and another 17% to countries in the region that want to become EU members.

 

 

In the meantime, Russia organized an economic union with neighboring Belarus and Kazakhstan, which were later joined by Armenia and Kyrgyzstan. Since the EEU also incorporates a customs union, requiring member countries to align their trade policies, the publicized trade deal will merely cover Serbian trade with EEU member states with which Serbia does not already have separate trade deals, meaning Armenia and Kyrgyzstan. Bearing in mind that Serbian trade relations with these two countries are minuscule, the economic impact of the trade deal will be negligible at best.    

 

 

Political relations are more complicated than trade flows

 

 

At the same time, there has been a rather vocal critique from different EU and US institutions of this move. Some of it as well-intentioned: if Serbia wants to join the EU club, it needs to play by its rules – and since the EU is also a customs union, its members must adopt the EU’s common trade policy upon accession (which in this case means that Serbia will need to cancel its other trade deals). However, condemning the EEU trade deal as a bad political move, somehow tying Serbia to Russia, is making an elephant out of a mouse, especially in light of the much higher trade volume of EU countries with Russia.

 

 

It is true that being good friends with Russia (or at least, openly advertising this) at a time when relations between the West and Russia are at their lowest level since the Cold War, is not a move likely to win accolades from the US or the EU. In the political arena, Serbia is steering away from supporting the EU resolutions that condemn Russia’s foreign policy – but this is understandable bearing in mind the controversial issue of Kosovo’s independence, in which Russia still supports Serbian interests. No one should expect this to change until the Kosovo dispute is settled (on a side note, negotiations under the auspices of the US and the EU were stymied not by a lack of cooperation on Serbia’s part, but because Kosovo installed 100% tariff on imports from Serbia).

 

 

Furthermore, the US and the EU have given vocal support to the increasingly illiberal political regime in Belgrade simply in order to facilitate political stability in the region – a strategy which may have worked up to now, but which in the long term will not lead to democratization, rule of law and EU accession. Needless to say, it doesn’t help that media supported by the party in power are actively disseminating Russian propaganda.

 

 

Political pressure on Serbia needs to be credible

 

 

Economically, the proposed free trade deal will not have a significant impact on the Serbian economy, as it only gathers existing free trade deals with the EEU countries in a single document and adds Armenia and Kyrgyzstan to the list, as noted. At the same time almost all Serbia’s banks and most of its foreign direct investment come from the EU, which also accounts for the majority of imports and exports.

 

 

True, the Serbian government still tries to use the threat of closer relations with Russia as leverage in its dealing with the West, simultaneously pandering to Serbian voters with positive views of Russia. However, in order to remain credible foreign criticism of the current Serbian government should be restricted to substantive political issues like reforms during its EU accession, strengthening the rule of law, press freedom, and the fight against organized crime and corruption – and not essentially symbolic trade diplomacy. Judgments made by international media without real knowledge of the local economy and political situation can only lead to confusion.