UNCTAD Training course on key issues on the international economic agenda, Belgrade, 1821 September

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UNCTAD Training course on key issues on the
international economic agenda, Belgrade, 18-21
September 2006

• Foreign Trade and institutional changes of
  countries in transition, the experience of Serbia

Prof. Danica Popovic Faculty of Economics and
CLDS dpopovic_at_one.ekof.bg.ac.yu
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Topic One Where are we today?
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Champions from below...
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Mind the gap ...
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Trade and industrial output
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Debt crisis knocking on our door?
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WHAT DO WE EXPORT
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WHAT THE SANCTIONS DID TO US
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Extenuating circumstances for Serbian government

• The sanction
• The Hague tribunal
• Kosovo
• Montenegro
• Since 2000 e ach republic established its own
  tariff structures (slashing and streamlining
  rates), causing some confusion in trade between
  the two republics.
• The average tariff rate assessed on imported
  goods was 9 percent in Serbia and 4 percent in
  Montenegro.
• In August 2003, the two republics agreed to an
  Internal Market and Trade Action Plan on
  harmonizing tariffs and excise taxes to create a
  single market.
• Harmonization has been achieved on 93 percent of
  products, resulting in an average (outweighed)
  tariff rate of 7 percent.
• Following the September 2004 EU decision to
  provide a dual-track for SAM accession the
  rates for 56 agricultural products tol be
  undetermined separately by each republic.

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IMPORT STRUCTURE
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WHY DO IMORTS RISE SO MUCH?

• Consumer goods - a consequence of the rise in
  aggregate demand and the lack of high-quality
  (and in some cases of any) domestic supply
• TV sets rose from 1.8 to 32 MIL,
• Air-conditioners from around 5 to 29.5 mil
• Washing machines from around 2.2 to 15 million
• Deep freezes from around 1.4 to nearly 11
  million
• Stoves from 0.5 to around 9 million

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THE EXCHANGE RATE POLICY

• Floating depreciation
• Winners exporters and future workers
• Loosers importers, pensioners, workers with
  fixed earnings
• In order to be effective and boost exports,
  depreciation must be hihger than the inflation
  rate

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The Real Exchange Rate
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POLITICAL ECONOMY OF

• EXPORT-DRIVEN
• DEMAND-DRIVEN GROWTH?
• WAGES
• TARIFFS
• FDI
• CHOICE OF ANOTHER STRATEGY
• Therefore, one has to apply a completely
  different strategy of economic growth, which will
  be driven by exports, instead by domestic demand,
  and the only precondition for such a turnaround
  is to bring wages in line with labor
  productivity.

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WAGES AND INDUSTRIAL OUTPUT
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ELSWHERE, WAGES GROW SLOWER THAN GDP
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EXPORTS HUNGARY and Serbia

• 40 of exports with 70.000 employees in 10 firms
• Philips Magyarorsag
• Nokia komarom
• GE Hungary
• Samsung Electronics
• Electrolux
• Siemens nemzeti
• Videoton
• Sony Hungaria
• Sanyo Hungary
• Ericson Magyarorsag

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Trade by destination and origin

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The choice of foreign trade policy

• Korean
• European model
• If you choose FDIs protection is questoinable
  policy
• Why should we protect the best world players
• What is protection?

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Trade by countries
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Export and import growth

• Export growth in the first half of 2006 over the
  same period in 2005 stood at 18.9 percent (24
  percent when calculated in the euro),
• Import grew in the same period by 23.6 percent
  (28.9 percent when expressed in the euro).
• The more rapid rise in import over export
  resulted in a higher foreign trade deficit in
  Serbia of 27.5 percent (32.8 percent when
  expressed in the euro).

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And volume

• Serbia's total foreign trade in the first half of
  2006 reached USD 8,301.6 million or EUR 6,744.6
  million, which was an increase of 22 percent over
  the same period in 2005 (a 27-percent growth when
  expressed in the euro).
• Export was worth USD 2,508 million (EUR 2,037
  million)
• Import USD 5,793.5 million (EUR 4,707.5 million).

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TRADE POLICIES

• 1986 subsidies for
• Broomsticks
• Beehives
• Fireworks - arms

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Trade policies and institutions

• Reforms have included
• the elimination of import quotas,
• reduction of import licensing and prohibitions,
• streamlining of customs procedures and
• reduction of tariff and non-tariff barriers.

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TRADE POLICIES
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FIRST LIBERAIZATION FRY
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The rationale
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Harmonization with Montenegro

• Doomed to be a failure
• The Federal Government carried out a
  comparatively fast and fairly good initial
  liberalisation of foreign trade,
• by abolishing the regulations on compulsory
  deposits for foreign trade transactions,
• on compulsory sales of foreign exchange to the
  National Bank of Yugoslavia,
• on minimal opening capital of foreign trade
  enterprises,
• on annual registration tax on business operations
  etc.
• The first to be abolished were quotas, licences,
  approvals and other restrictive measures that
  used to be in force.
• This caused numerous protests and complaints,
  even after the concessions made to the Zastava
  Automobile Works (which worked out the decision
  that the duty on imported motorcars be set at 20
  instead the of 10 that they would have been
  entitled to according to the established
  methodology).
• Concessions were also made to SARTID Steel Works,
  that is protected from Russian dumping by import
  licences,
• while export quotas on twelve products were
  retained in agriculture, to prevent the goods
  from "escaping" into exports due to depressed
  local prices.

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Remaining obstacles

• Montenegro is not an obstacle any more, but even
  before
• (16 February 2005 General Council accepts
  separate applications from Serbia and Montenegro)
• Monopoly of oil imports
• ___________
• Good thing FTAs

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Albania, Bosnia and Herzegovina, Bulgaria,
Croatia, Macedonia, Moldova and Romania. The
agreement liberalizes at least 90 percent of
mutual trade by the end of 2008. Previous FTAs
signed with Hungary and the Slovak Republic were
abolished with these countries admission to the
European Union in May 2004. In addition, a free
trade agreement with Russia is fully
active,offering access to a market of 150 million
people. Goods originating from Serbia and
exported to the EU customs area are subject to
preferential custom regimes. In 2000, the
European Commission introduced Autonomous Trade
Measures for Serbia and Montenegro. These
measures permit exports to the EU without customs
and quantities restrictions for almost all
products originating from Serbia and Montenegro.
In addition, trade with Kosovo, which is under
UN administration, proceeds duty free, although
goods are assessed relevant taxes. There are
transitional periods built into these FTAs for
sensitive sectors, meaning that the reduction of
tariffs will be phased-out over an agreed period.
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Greenfield FDIs can help...
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Trade Barriers Serbia and Montenegro, in
preparation for its efforts to initiate its
accession to the World Trade Organization (WTO),
has already made major trade policy reforms to
bring practices in full conformity with WTO
requirements and eventual membership in the
European Union (EU).
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A handful of laws establish the legal basis for
governing the trade of goods in Serbia Law on
Foreign Trade Transactions (FTT) (amended in 1999
and 2002), Law on Customs, Law on Customs
Tariffs, Decision on Classification of Goods on
Regimes of Exports and Imports. The FTT law,
originally promulgated in the early 1990s as a
federal law, is a comprehensive law addressing
all aspects of foreign trade activities by or
with companies and individuals in Serbia. These
laws also provide the government with the
authority to implement temporary measures to
regulate trade. The government has phased-out
quantitative restrictions although certain goods
require a license from the government. New laws
are being promulgated to improve the customs and
trade regimes. The government is now drafting a
new Foreign Trade Law was adopted later in 2005.
A new Customs Law and Custom Administration Law
were implemented in January 2004. These laws were
drafted with the assistance of international
advisors and is in compliance with WTO, World
Customs Organization and EU standards.
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• Investment climate
• Trade regulations and standards
• On the web
• http//danica.popovic.ekof.bg.ac.yu/UNCTAD

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Further steps

• WTO accession Harmonization with EU
• Choosing a strategy