Kosovo – A Country in the Making. The Case of Trade Policy

12 August, 2015

Written by:
  • Daniel Linotte
Kosovo – A Country in the Making. The Case of Trade Policy

Kosovo is not just a country in transition, it is also a new country, which means that state bodies had to be created, most often from scratch, new laws had to be adopted and enforced, and new policies had to be engineered and implemented – all in a newly established democratic environment, with competing political parties and evolving views about the future of the country. Such drastic changes require time and resources; there might also be “trials and errors” and subsequent adjustments. In that context, trade policy is of prime importance, because it helps Kosovo establish new relations with other countries -- neighboring ones (with CEFTA), EU members and the rest-of-the-world -- and as a result become an active actor in the global economy.


The Ministry of Trade and Industry

MTI began its activities in 2002. Considering trade policy as such, the Trade Department (TD/MTI) plays a major role; it currently employs nine officers who are responsible for trade policy, trade negotiations, the use of trade defense instruments, etc. Most of the TD/MTI staff studied abroad or in foreign-based institutions like the American University in Kosovo, and were recruited during the past 5 years. Capacities were reinforced with on-the-job-training and technical assistance provided by the European Union and the United States. In addition, the so-called Trade Policy Working Group (TPWG) was created to gather public institutions, businesses, civil society and donors and address inter alia issues related to trade negotiations.

It should be noted that the building up of institutional memory and the limiting of staff turnover rates can be seen as important challenges for the proper functioning of state bodies, especially in fast-changing transition economies where the private sector competes with public administration in hiring qualified personnel.

Relations with other Institutions

Access to information is essential for the carrying out of trade policy. Statistical data on imports and exports enables institutions to assess trade conditions, perform analyses, discern trends and provide policy advice. For that purpose, intranet information exchanges had to be developed between MTI, Kosovo Customs and the Kosovo Agency for Statistics. MTI works also very closely with the Food and Veterinary Agency on sanitary and phytosanitary issues, which is important for both exports (to access foreign markets) and imports (to protect consumers).

Interface with Business Associations

Following independence, Kosovo companies had to organize themselves to be able to express their views and defend their interests. Business associations were created and are represented in the sub-groups of the TPWG. Here lie many challenges – in particular, the private sector must be made aware of the full implications of trade agreements in terms of obligations and rights, and the need to comply with international rules when, for instance, processing complaints against imports perceived as threats.


First Steps and Actual Legal Basis

Just after separating from Serbia, the very first Kosovo trade policy regime was based on UNMIK negative perception regarding the former Yugoslav one, seen as a source of significant distortions. As a result, a uniform 10% ad valorem duty rate was adopted. Such a choice was strongly commended for its liberal stance, simplicity and seeming neutrality (in fact, it can be shown that in terms of “effective rates of protection”, a uniform nominal rate is far from neutral, however). Very quickly, exceptions were introduced for some agricultural and medical products. The actual Law on External Trade (No. 04/L-048) was adopted in 2011. It is complemented by a series of laws addressing trade-related issues.

CEFTA Negotiations

Kosovo became a member of CEFTA in 2006. Trade in goods has been liberalized, and negotiations to liberalize trade in services are presently taking place. The first rounds concentrated on professional services – these are rather sensitive services, because they relate to the movement of natural persons and the mutual recognition of diplomas. The ongoing negotiations are supported by an EU Trade Policy Project, which permitted the development of a trade in services (TIS) database that provides key information on trade flows, companies, legislation, partners’ rules and so-called offensive and defensive positions – a very unique tool indeed. Non-tariff barriers (NTBs) are also the focus of discussions within CEFTA; they are related to sanitary and phytosanitary measures, technical standards, and complex border-crossing formalities and procedures.

In that context, it is worth mentioning the use of NTBs by Serbia against Kosovo – they may not always correspond to “objective factors”.

Trade Aspects of the Stabilization and Association Agreement

The main focus of trade negotiations between the EU and Kosovo was on goods. With the support of the EU trade project, TD/MTI first completed an impact assessment study, based on EU guidelines, to evaluate the impact of liberalization on trade flows, production and employment, tax collection, and the environment. Sensitive products that may require (temporary) protection were also identified. Thus, impacts assessments are comprehensive exercises and allow EU partners to take decisions relying on key information and relevant analysis. Furthermore, the preparation of the negotiations with the EU mobilized private stakeholders to take into consideration their interests, which means that the EU is not imposing its own views – on the contrary, dialogs and negotiations are favoured.

Following the successful conclusion of the SAA negotiation process in July 2014, EU Council and European Parliament approval, and the signing of the agreement, the liberalization of trade between the two parties should start in 2016.

In Conclusion: Positive Steps and Addressing Future Challenges

Considering trade policy, Kosovo has accomplished significant progress since the beginning of the transition process, 15 years ago. Thus, trade-related institutions are in place and work effectively, often with adequate human resources. However, future challenges should not be underestimated. They relate inter alia to the effective implementation of the SAA, the forthcoming outcomes of on-going trade negotiations within the CEFTA framework, the promotion and diversification of exports, and the need to replace import duties with new sources of revenue for the state – in other words, external assistance is definitely needed, from the EU and others.

Written by:
  • Daniel Linotte Daniel Linotte holds a PhD in economics from Oxford University. He worked as adviser with international organizations and governments, and held teaching positions at Boston University, the Catholic University Leuven and the European Institute of Public Administration (Maastricht). Since 2008, he is a Senior Member of St. Antony’s College (Oxford). He is presently leading an EU project in the Balkans. He is the author of “The Eurasian Economic Union – Implications for Governance, Democracy and Human Rights”, The Central Asia Caucasus Analyst, publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with Johns Hopkins University's Nitze School of Advanced International Studies, Washington DC., and the Institute for Security and Development Policy, Stockholm.
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