By Balkan Insight

The EU might be unimpressed by Serbia’s deepening trade ties with Russia, but EU-based companies are taking advantage.

By Maja Zivanovic

The European Union has reacted with dismay to Serbia’s plan to join a Russian-led economic bloc next month, saying the country should be working to harmonise its policies with Brussels, not Moscow.

But data obtained by BIRN suggest EU companies are in fact the biggest beneficiaries of Serbia’s cosy ties with the Kremlin.

Serbia signed a free trade agreement with Russia in 2000, and the plan to join Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan in the Eurasian Economic Union, EAEU, on October 25 is the latest demonstration of the strong ties between Belgrade and Moscow despite the former’s stated aim of EU accession.

The EU says Serbia will have to cancel any bilateral trade deals it has with other countries on joining the bloc, but while frustration grows in Belgrade at the slow pace of progress towards accession, subsidiaries of EU-based companies are reaping the benefits of its favourable trade terms with Russia.

According to data obtained by BIRN from the Serbian Ministry of Trade, of the 20 biggest exporters from Serbia to Russia, only five are Serbian-owned. Fourteen are subsidiaries of companies headquartered in the EU. In the top 10, only two are Serbian.

First on the list is Tigar Tyres, based in the eastern Serbian town of Pirot and fully owned since 2009 by the second biggest tyre manufacturer in the world, French Michelin.

Michelin told BIRN that Tigar exports to Russia products worth 40 million euros, or more than 10 per cent of the total value of Tigar exports. It said Serbia’s free trade agreement with Russia was a factor in the decision to buy the Pirot manufacturer.

“There are several factors that can be taken into consideration in relation to Michelin’s presence in Serbia through Tigar Tyres,” the company told BIRN in a written response.

“The Free Trade Agreement with Russia is just one of the factors, since it offers a competitive position, along with the market request for entry level tyres or the company’s growth objectives.”

EU accession a distant prospect

For years, Serbia has pursued a delicate balancing act between its long-term strategic goal of EU membership and traditionally close ties with fellow Orthodox Russia, its chief ally in frustrating the further international integration of the former Serbian province of Kosovo.

But while Serbia’s conservative-led government insists the country’s future is as part of the EU, the bloc’s own vanishing enthusiasm for enlargement has fuelled frustration in Belgrade and in other Balkan states.

On August 29, David McAllister, the German head of the European Parliament’s Foreign Affairs Committee, warned that to comply with Serbia’s obligations under its Stabilisation and Association Agreement with the EU, any agreement on joining the EAEU must contain an “exit clause” so Serbia can withdraw at the moment it joins the EU.

Serbian Foreign Minister Ivica Dacic suggested EU accession was still a long way off.

“God let us be alive when that happens,” he retorted in an address to MPs in the Serbian parliament on September 4. “I hope so. I think the Turkish negotiator died since negotiations first began.”

The next day, Slovak Foreign Minister Miroslav Lajcak, a former EU envoy in the Balkans, urged Serbia to get serious.

“If you are serious about your European orientation, then take political decisions that bring you closer to it,” he said in Helsinki. “This is not one of them.”

From tyres to tights

EU companies, however, appear less bothered than the bloc’s political leaders.

According to the National Bank of Serbia, from 2010 to 2018, 70 per cent of foreign direct investment in Serbia came from the EU – 11.3 per cent from France, 9.1 per cent from Germany, 6.3 per cent from Italy and 0.8 per cent from the Czech Republic. Russia accounted for 9.1 per cent of total FDI.

Regardless of company ownership, if at least 51 per cent of the total value of a product is produced in Serbia that product qualifies for export to Russia under the free trade pact.

Besides Michelin-owned Tigar, the list of top exporters to Russia from Serbia includes: Valy, a subsidiary of Italian hosiery manufacturer Golden Lady Company; Hemofarm, a pharmaceutical company owned by the German STADA Group; Tetra Pak Serbia, owned by Dutch-based Tetra Laval Holdings; French-owned wooden flooring maker Tarkett and Denmark-owned pump manufacturer Grundfos Serbia.

BIRN wrote to the top 10 exporters to ask about the value of their exports to Russia and the importance of the free trade pact. Only Michelin replied in full.

According to the Serbian Statistical Institute, exports from Serbia to Russia in 2018 totalled 864.9 million euros, a significant sum for Serbia but dwarfed by the value of exports sent to the EU. The Russian market accounts for six per cent of Serbian exports, compared to 65 per cent sold in the EU and 20 per cent in Serbia’s non-EU Balkan neighbourhood.

Serbia’s accession to the EAEU is unlikely to make much difference to the big exporters given Serbia already has free trade deals with Russia, Belarus and Kazakhstan, said Vladimir Medjak, vice-president of the European Movement Serbia, which advocates for Serbia’s further European integration.

“The difference after signing will be the opening of trade with Armenia and Kyrgyzstan, which is negligible at the moment,” Medjak told BIRN.

“Serbia is signing this agreement so that it does not lose the existing agreement with Russia,” he said. “This is due to the fact that in the future, all members of the EAEU will jointly pursue foreign trade policy. This means that Serbia had no choice.”

Polish apples

Serbia’s preferential trade terms with Russia have courted controversy before.

There have been cases of EU-produced goods slipping under the radar, in violation of a Russian trade embargo imposed in retaliation for EU sanctions following Moscow’s annexation of Ukraine’s Crimean peninsula in 2014.

In 2015, for example, Russia accused Serbia of re-exporting Polish apples. Last year, it restricted the import of pears and in May this year it banned meat imports from a number of companies in Serbia citing, among other reasons, the unclear origin of the animals.

Jelena Jovanovic, director of the Chamber of Commerce’s Department for International Economic Relations, said Serbia does not decide alone whether goods qualify for export to Russia. This, she said, is determined by the Free Trade Agreement signed and ratified by both countries.

“It is not only a decision of Serbian institutions,” Jovanovic told BIRN. “The Russian Control Body comes to Serbia with a team of people to oversee the complete production process.”

The only legal way for an EU company to get around the Russian embargo is to move production to Serbia, said Medjak.

“Of course, there are some businessmen,” he said, “for whom avoiding laws is not unknown. Faced with trade wars, the opportunity of a lifetime opens for such people.”

Speaking in St. Petersburg in June, Serbia’s fervently pro-Russian Innovation Minister Nenad Popovic described Serbia as “the economic bridge between the EU and Russia.”

“A large number of companies from the EU opened manufacturing plants in Serbia so they could export from our country to Russia tax free,” he said.

Popovic declined to comment for this story.