Serbia-China Free Trade Agreement. Kopilović: “Excellent prospects for chemical and agricultural products”

August 2, 2024
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23/07/2024
Source: Serbian Monitor
Author: Biagio Carrano

On the 1st of July entered into force The Free Trade Agreement (FTA) between the People’s Republic of China and the Republic of Serbia, a result of the long diplomatic work which raised doubts on the part of various interlocutors inside the European Union. The advantages that lie ahead for Serbian companies, even those with foreign capital, are however impressive: just while in the EU of 27 there is an ongoing process of loosening the production chains based in China, slowing down trade exchange, if not repositioning the plants production from China to other countries that are closer (nearshoring) or considered more sensitive to the Western geopolitical interests (friendshoring), the FTA simplifies commercial transactions between the two countries and allows Chinese companies to strengthen their presence in the Balkans while at the same time allows Serbian companies to access a market practically endless for their dimensions, in an atmosphere of international tensions where competitors or parent companies are forced to reduce their activity in or with China.

We had the opportunity to talk about the possibilities and implications that the implementation of the Free Trade Agreement is about to bring with the lawyer Ivana Kopilović, co-owner of the Kopilović & Kopilović Law Firm and a point of reference in Serbia and the Balkans for Chinese entrepreneurs and large State-owned enterprises as well as for the important Italian companies thanks to her studies in Bologna and in Beijing as well.

What are the fields of application of the Free Trade Agreement between the People’s Republic of China and the Republic of Serbia?

It can be said with great expertise that no field of application is exempt from this Agreement. The only question is when. In particular, the agreement is formulated in such a way to facilitate, as far as possible, trade between the signatory parties, in compliance with the rules of the World Trade Organization and other relevant international laws. However, the parties have taken measures to protect their strategic industries from competition. This choice affected the Serbian counterpart more sharply, which is a junior partner, but the agreement itself follows the principle of sovereign equality and parity in negotiations. However, it is worth noting that since the entry into force of the agreement, Serbia’s main exports to China have been completely liberalized, which opens up a large field for Serbian economic entities. Furthermore, it should be noted that more than 90% of current Serbian imports to China have been fully liberalized.

What are the fundamental requirements that one Serbian company must satisfy in order to export to China without customs duties?

According to the current Serbian law, which also includes foreign contracts, no special conditions are set for participants. This means that there is no special registration procedure or anything similar for a Serbian company to receive the benefits of the FTA. All restrictions are placed with emphasis on the origin of the goods and the type of goods traded.

 How is the origin of the goods defined? What are the parameters to be respected?

The definition of the origin of goods is in line with the practices of the World Trade Organization. Depending on the type of goods traded, the processing requirements may vary. For goods with a very low level of processing, such as raw or chilled meat, fresh fruit, minerals, building rock or sand, the requirement is likely to be that they are entirely produced and packaged in the exporting country. For goods requiring more processing, these may require that a certain percentage of the value originates from the exporter or that the processing is of such intensity that it constitutes adequate added value in itself. 

What are the tariff categories identified by the Free Trade Agreement and how will they be applied?

The categories established in the FTA classify all goods within one of five import regimes. Goods classified as E remain in the regular customs regime and are not subject to liberalization in any way. These are usually the products of critical industries on both sides. The remaining categories are A0, A5, A10 and A15. The letter A means that the goods in question are subject to liberalization.

The number after the letter indicates the number of years before full liberalization. If, for example, the basic customs rate of a product is 10% of the declared value and it belongs to category A5, during the first year of application of the FTA, the basic customs rate will be 8%, decreasing by 2% each year until reaching 0% in the 5th year of application of the FTA.

What are the most common legal and procedural problems and how can they be avoided?

This is difficult to say, as trading volume dictates the rules. The Free Trade Agreement was signed to support the industries that are currently the most active in the trade volume between Serbia and China. The problems we foresee could be due to the classification of the goods or whether the degree of workmanship corresponds to the requirements of the agreement.

Furthermore, given Serbia’s strategic goal of joining the EU, things could change. For example, in the case of Serbia’s accession to the EU, the FTA will have to be renegotiated or suspended. However, we should keep in mind that these questions are more adequate for a customs agent, so any importer or exporter is advised to hire a competent customs agent.

What will change for those who import into Serbia from China and for companies that use Chinese components to make products that they then export to the European Union countries?

This question is related to the previous one. It depends on the product itself whether Serbian components are incorporated into the final product and how much percentage of them, i.e. how much processing of the product contributes to the final value.

In your experience, which sectors of the Serbian economy do you think will benefit the most from the Free Trade Agreement?

Initially, sectors that already benefit from China-Serbia trade will benefit even more. However, in the medium and long term, we expect Serbian exports to grow the most in the agricultural and chemical sectors.

Founded in 1999 by the lawyer Srecko Kopilović (in the picture), the Belgrade law firm of the same name is today jointly led with his daughter Ivana and is particularly focused in the areas of corporate law (including mergers and acquisitions), international commercial law, work and immigration, Serbian and international taxation, intellectual property as well as international litigation.

Kopilović & Kopilović has represented and advised numerous companies and investors from China and other countries. Over the years it has become the go-to law firm for large Chinese state-owned enterprises in sectors such as manufacturing, transport and logistics, agriculture, infrastructure, renewable energy, aviation and banking, providing legal analysis on the topics such as those relating to investment projects.

An important area of ​​expertise is legal assistance to construction and engineering companies in their projects in Serbia, involving the construction of residential buildings, other real estate buildings, pipelines, power plants, railways, highways and much more.

Energy is another sector of deep legal experience, particularly in the field of power plant construction, hydroelectric plant construction, energy production, intellectual property protection and the defense of geological and mineral exploration.