TRADE POLICY: New EU Trade Rules Could Hinder Croatian Food Industry Exports

Attended by Deputy Prime Minister and Foreign Minister Vesna Pusic (HNS), the Croatian Food Industry Council met last week to discuss the consequences to the industry after Croatia’s EU membership (scheduled 1 July) and exit from the Central European Free Trade Agreement (CEFTA).  The council was established by Agriculture Minister Tihomir Jakovina (SDP) in December 2012, which includes representatives of the Chamber of Commerce (HGK), Croatian Employers Association (HUP), Zagreb Economic Institute, Zagreb Food and Biotechnology Faculty, and Croatian FMCG companies.  The meeting was meant to inform the Croatian food industry of the progress between Croatia and the European Commission, regarding discussions for a transition period for favourable trade status with CEFTA countries – Serbia, BH, Montenegro, Macedonia, Albania, Moldova, and Kosovo.  The media covering the meeting report that Croatian businessmen were extremely upset at the lack of information provided by the government, reporting that Pusic informed the group that detailed information of trade conditions was forthcoming only weeks before EU membership.

Croatia’s exit from CEFTA will significantly reduce the competitiveness of some 750 Croatian companies, with CEFTA countries making up 20% of Croatia’s export, exporting approximately €500 million in food stuffs.  It is estimated that the cost for Croatian exports to Macedonia will double and triple in Serbia and Bosnia-Herzegovina (BH).  According to HUP estimates, exporters will lose €46 million, with up to 3,000 potential layoffs.

The council and the Croatian government are making public efforts to portray proactive negotiations to minimise the negative economic impact of exiting from CEFTA with meetings with the European Commission as an intermediary between individual CEFTA states.  However, little progress has been made and, if Slovenia is any example after their exit from CEFTA in 2004, few, if any, concessions will be agreed.

It is unrealistic that CEFTA agrees with the EU favourable status, which would somehow offer Croatian companies transitional periods. Croatia already benefited from transitional trade period through the Stabilisation and Accession Agreement (SAA). Basically, it is not in the business interest of any CEFTA country to agree to favourable terms, since this is an opportunity for their food industry companies to become more competitive and increase their market share (e.g. Serbia FMCG companies to expand market share in BH).  Also, it is an opportunity to attract FDI from Croatia, by offering Croatian companies to transfer their production facilities into their countries.  Croatian companies, such as Agrokor, Kras, and Atlantic Trade, have already prepared for this inevitability (e.g. Kras factory in Prijedor, BH).  This option is widely and publicly supported by BH officials, including Minister of Trade and Economics, Mirko Sarovic, and the canton, federal and entity chambers of commerce in BH.

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