Free Trade Plan Alarms Croats

Economists hail Europe's call for a Balkan free trade zone, but many Croats see in the proposal the ghost of Yugoslavia.

Author: Drago Hedl
Source: BIRN Serbia

The European Union's enlargement commissioner Ollie Rehn and European Commission chairman Jose Manuel Barosso plan to visit Croatia on February 15 and 16 to increase pressure on Zagreb to join a free trade zone in the western Balkans.

The EC wants an accord on the zone, comprising Croatia, Serbia and Montenegro, Bosnia and Hercegovina, Macedonia and Albania, signed by the middle of this year so the project can come into effect in 2007.

The plan is unpopular among Croatians, most of whom see their destiny in Central Europe, not the Balkans. But the prime minister, Ivo Sanader, is likely to come to terms with the idea in some form, in return for EU support for Croatia's membership bid.

Croatians dislike the free trade zone idea principally because they see it as an attempt to resurrect the old Yugoslav state, from which Croatia split amid much bloodshed in 1991.

The fact that the geographical composition of the zone is almost identical to that of the former Yugoslavia (minus Slovenia, plus Albania) has fuelled fears that what lies beneath the idea is a political agenda aimed at resurrecting that state, which was formed in the aftermath of the First World War.

The EU's Ministerial Council endorsed the scheme at a meeting on February 2. However, the EU will reach a final decision at a meeting on the western Balkans in Salzburg, Austria, on March 10 and 11.

If Croatia accepts the idea, the government risks a public backlash. A public opinion poll in the daily Vecernji List, Croatia's highest circulating newspaper, showed 45.3 per cent of respondents thought the initiative was "pushing Croatia into some kind of a new Yugoslavia" while only 22.2 per cent approved. More than 30 per cent had no opinion.

While Sanader has downplayed talk of a new Yugoslavia, he has tried to take the wind out of the proposals by suggesting an expansion of the existing Central European Free Trade Association, CEFTA.

Croatia already belongs to CEFTA and Sanader has proposed that this organisation should now admit Bosnia and Hercegovina, Serbia and Montenegro, Macedonia, Albania and even Moldova.

The prime minister hopes his proposal will counter opposition claims that he unreservedly accepts everything Brussels puts forward.

"Sanader has made a tactical move by proposing the expansion of CEFTA as an alternative to forming a free trade zone in the western Balkans," one of his senior aides told Balkan Insight.

"But he is aware he must accept the idea [of a free trade zone] so he is trying to sell it in a different, more acceptable, package," the source added.

Ante Djapic, head of the hard-line right-wing Croatian Party of Rights, HSP, said Croatia had already done enough in the field of regional cooperation by agreeing to link energy sources and harmonise police activities.

"Creating a free trade zone in the western Balkans would be the next step towards a monetary and customs union and there is no need to say what that means in practice," said Djapic, whose party is the third biggest in the country.

Not all opposition party leaders oppose the scheme. Ivica Racan, a former prime minister and leader of the Social Democrats, dismissed fears of a "new Yugoslavia" gobbling up Croatia as groundless, saying such talk played on the anxieties of the poorly informed.

Racan said a free trade deal with the former Yugoslav republics would be advantageous to the most economically advanced member of the group.

"Croatia will find it difficult to sell its products in more developed countries, so an economic treaty with neighbouring countries is in our best interest," Racan said.

Speaking for the EC, Rehn avoided all discussion of Yugoslavia, saying the goal was to create a single market big enough to entice greater foreign investment. "It would strengthen the region's position," he told Croatian television news on February 1.

Milan Gavrilovic, an economic analyst, agreed with Racan that regional free trade did not mean the return from the grave of the now long-buried Yugoslav state.

Nor did it necessarily imply the creation of a customs union or even a free flow of labour.

"Essentially, it's the same as CEFTA," he said. "But. it will be easier to sell Croats the expansion of CEFTA rather than the idea of Croatia becoming part of a free trade zone in the western Balkans," he added.

The population of the proposed zone is around 24 million, while overall trade between the western Balkan states in 2004 stood at 2.5 billion United States dollars, a rise of 50 per cent on the year before.

Croatia's trade with Serbia and Montenegro jumped most dramatically. The turnover of goods between the two countries stood at 267.4 million dollars in 2003 and 434.8 million dollars in 2004.

Experts underscore that as the most advanced economy in the region, Croatia would benefit from a free trade agreement.

Croatia's gross national product per capita is 6,220 euro - more than three times the regional average of 2,000 euro. In impoverished Bosnia it is merely 1,730 euro.

More significantly for trading purposes, Croatia has a surplus in the turnover of goods with few other European countries apart from its neighbours, Serbia and Montenegro, and Bosnia and Herzegovina.

Vladimir Gligorov, an economist, recalled that most countries in the region had already signed a number of bilateral trade agreements. He said a joint agreement would inevitably have to replace the various bilateral treaties, and a free trade zone would speed the entire region's progress towards EU integration.

"Croatia is expected to take a leading role in this process," he said.

"Unlike some of the politicians, economists see the advantages of a free trade zone in the western Balkans," agreed Zeljko Lovrincevic, of the Zagreb Economic Institute.

"Croatia would benefit from joining such an association as technologically superior countries always do from such course of action," he added.

Lovrincevic pointed out that the western Balkans is a key market for some of Croatia's most successful food product exporters, such as Podravka, Kras and Agrokor. The government should consider the European Commission's initiative more seriously, he concluded.

Drago Hedl is a regular Balkan Insight contributor. Balkan Insight is BIRN's internet publication.