Serbia’s FTA with the Eurasian Union: A Window of Opportunity

02.03.2017

A scenario of a bridge between the EU and the Eurasian Economic Union formed by Serbia allows for it to become a window for Russia into the West and for the EU to intensify and strengthen its ties in the East. This allows Serbia to effectively intermediate the rising interaction between the Eurasian Economic Union and the EU, which in turn should redound to longer term growth prospects for Serbia and the broader Balkan neighborhood.

In 2016 the Eurasian Economic Union formally launched negotiations with Serbia on the creation of an FTA, which is to replace the FTAs that currently exist between Serbia and the three largest economies of the Eurasian Economic Union, namely Russia, Kazakhstan and Belarus. The conditions for concluding such a deal appear to be gradually improving as the Eurasian Union is gaining experience in building such alliances in Asia (the FTA with Vietnam entered into force in 2016) and the support to forging ties with Russia (according to polls) is gaining ground in Serbia in the past several years. 

For Serbia the formation of an FTA with the Eurasia Economic Union would serve to expand the market potential for exports in the Eurasian region to include markets such as Armenia and Kyrgyzstan, while also strengthening Serbia’s position in markets such as Russia, Kazakhstan and Belarus. In view of the rising activism of the Eurasian Economic Union in Asia, Serbia could also establish a stronger presence in the fast-growing markets of ASEAN and other Asian countries. Another important potential dividend of greater activism in dealing with EAEU economies is the possibility for Serbia to expand its investment cooperation to new development institutions such as the Eurasian Development Bank (EDB).

For the EAEU economies Serbia could serve as an outlet into Europe as well as into the Balkan region. The formation of an FTA with Serbia would pave the way for other potential alliances in the region, including possibly with Macedonia, which together with Serbia was among the few European economies that refused to introduce sanctions against Russia. Most importantly, the formation of trade alliances by the Eurasian Union in Europe will strengthen its position vis-à-vis the EU in calling for a full-fledged cooperation on issues ranging from coordination of FTA deals to forging mutual economic ties on the basis of a comprehensive partnership.   

Of all of the three FTAs between Serbia and the economies of the Eurasian Union, the most successful case is that of Belarus, which staged a nearly 5-fold increase in the Serbia-Belarus trade turnover since the launching of the FTA. The two countries are also actively cooperating in the investment sphere, which attests to the possibility of Serbia successfully taking advantage of building stronger ties with Eurasian economies. Serbia’s cooperation with Russia and Kazakhstan is still to a significant degree predicated on imports of oil and gas, though in recent periods some improvements in Serbia’s exports of goods and services to Russia are starting to be observed. In particular, last year registered a rise in number of Russian tourists arriving to Serbia, with notable gains also posted in exports of agricultural goods against the backdrop of restrictions on imports of agricultural goods from Western countries.  

One of the key issues in building an alliance with Serbia for the EAEU will be coordination of this process with other trade deals forged by Serbia, in particular the trade agreement between Serbia and the EU. While there may be several modalities of how the Eurasian and the European alliances could be pursued by Serbia, the optimal scenario from the point of view of longer term economic growth prospects resides in a compatible system of FTAs maintained by Serbia with the EU and the EAEU, which would allow Serbia to act as a bridge between the two trading blocks.

A scenario of a bridge between the EU and the Eurasian Economic Union formed by Serbia allows for it to become a window for Russia into the West and for the EU to intensify and strengthen its ties in the East. This allows Serbia to effectively intermediate the rising interaction between the Eurasian Economic Union and the EU, which in turn should redound to longer term growth prospects for Serbia and the broader Balkan neighborhood. Whether such a first-best scenario proves to be feasible remains to be seen as the real world too frequently proves to be the domain of the so-called “second-best”.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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