With the support of the European Commission

1

FREE TRADE AGREEMENTSREPUBLIC OF CROATIA

Goran Marijanović

Ekonomski fakultet ,Osijek

With the support of the European Commission

With the support of the European Commission 2

• Economic profile of the Republic of Croatia • AREA • 87,661 square kilometers

56,594 square kilometers of land31,067 square kilometers of territorial seaCoast: 1,778 kmIslands: 1,185 (66 inhabited)Capital city: Zagreb (779,000 inhabitants)

With the support of the European Commission 3

POPULATION

2001 .000

TOTAL 4.437,460

WOMEN 52,00%

MEN 48,00%

With the support of the European Commission 4

ECONOMIC INDICATORS

2004

GDP, billion USD 34,3*

GDP, per capita. USD 7.730**

Population, millions (census) 4,4

Industrial production, % 3,7

Inflation rate% 2,1

Unemployment rate % 18,2***

With the support of the European Commission 5

ECONOMIC INDICATORS

2004

Export, millions USD 8.022,5

Import, millions USD 16.583,2

Balance of payments account, millions USD

-366,7

Government budget balance (% of GDP) -2,2**

Average monthly gross salary, USD 991,6***

Exchange rate HRK/USD 6,0355

With the support of the European Commission 6

ECONOMIC INDICATORS

2004Exchange rate HRK/EUR 7,4952Discount rate of Croatian National Bank (HNB), %, end of peroid

4,5

Foreign exchange reserves of HNB, millions USD, end of period

8.759

Number of companies 61.643Number of banks 39No. of employees in corporate bodies 1.085.159***

With the support of the European Commission 7

ECONOMICS INDICATORS

*estimate of Central Bureau of Statistics (DZS)**estimate of Ministry of Finance (MF)***provisional data

Sources: HNB, DZS, MF, FINA (Central Finance Agency)

With the support of the European Commission 8

TRADE IN GOODS 2004.

000 USD %

EXPORT TOTAL 8,022.452 100,0

EUROPEAN COUNTRIES 7,077.547 88,2

EU countries 5,177.755 64,5

CEFTA countries 97.620 1,2

OTHERS 944.905 11,8

With the support of the European Commission 9

TRADE IN GOODS 2004.

000 USD %

IMPORT TOTAL 16,583.152 100,0

EUROPEAN COUNTRIES 13,947.511 84,1

EU countries 11,526.212 69,5

CEFTA countries 240.714 1,5

OTHERS 2,635.641 15,9 Source: Central Bureau of Statistics (DZS)Data processing: Croatian Chamber of Economy

With the support of the European Commission 10

MAJOR TRADE PARTNERS 2004.

EXPORT 000 USD % Italy 1,831.237 22,8 Bosnia and Herzegowina 1,154,065 14,4 Germany 895.134 11,2 Austria 756.570 9,4 Slovenia 601.010 7,5

Serbia and Montenegro 294.065 3,7 Total presented export 5,535.491 69,0Total exports of Croatia 8,022.452 100,0

With the support of the European Commission 11

MAJOR TRADE PARTNERS 2004.

IMPORT 000 USD %

Italy 2,842.145 17,1 Germany 2,567.629 15,5 Russia 1,205.258 7,3 Slovenia 1,179.496 7,1 Austria 731.752 6,8 France 731.752 4,4 Total presented import 9,651.394 58,2Total imports 16,583.152 100,0

With the support of the European Commission 12

LEGAL FRAMEWORK FOR FOREIGN TRADE

• Completely harmonized with the WTO’s regulations

• Trade Law have contributed to trade liberalization• Import and export of goods are free

With the support of the European Commission 13

LEGAL FRAMEWORK FOR FOREIGN TRADE

• Exceptions are: - quotas or protective tariffs, in accordance with WTO regulations - antidumping duty- to prevent harmful damping - EUR 1- certificate of origin - certificates of sanitary, veterinary,

phytopathological correctness (for food, animals, medicines etc.)

With the support of the European Commission 14

FREE TRADE AGREEMENTS

Agreements of free trade between two or more countries are signed with the aim of:

- removing customs and non-customs trade barriers - to boost the trade beetween the contract parties - to increase direct investment - to achieve better transparency in trade policies

With the support of the European Commission 15

PROGRAM OF CROATIAN GOVERNMENT 2000.-2004.

Points: - enter new markets with Croatian products - export is the driving force behind economic

growth - create the conditions within two years in which

more than 80% of total foreign trade will be carried out under free trade principles

With the support of the European Commission 16

PROGRAM OF CROATIAN GOVERNMENT 2000.-2004.

As a result of Program preferential trade arrangements have been made on the basis of free trade agreement with:

- EU - CEFTA - EFTA - other European countries

With the support of the European Commission 17

SIGNED FREE TRADE AGREEMENTS

Country Starting Date Note

Macedonia 9. 6. 1997. -Bosnia and Herzegowina 1. 1. 2001 -European Union(25 countries)

1. 1. 2002. (for the new 10 EU member states

from 1. 5. 2004.)

Changes related to EU enlargement are defined

by Protocol 7. of SAA

EFTA Switzerland Liechtenstein Norway

Island

1. 1. 2002. 1. 1. 2002. 1. 4. 2002. 1. 8. 2002.

-

With the support of the European Commission 18

SIGNED FREE TRADE AGREEMENTS

Country Starting Date Note

Turkey 1. 7. 2003. -

Serbia and Montenegro 1. 7. 2004. -

Albania 1. 6. 2003 -

CEFTABulgariaRomania

1. 3. 2003. -

Moldova 1. 10. 2004. -

With the support of the European Commission 19

SIGNED FREE TRADE AGREEMENTS

Number of countries with which Croatia has signed and is applying free trade agreements: 37

With the support of the European Commission 20

Free trade agreements with countries of West Balkans

Albania• STATUS: Signed on 27 September 2002 in Zagreb

IN FORCE: since 1 April 2003

MAIN CHARACTERISTICS:• MILDLY ASSYMETRICAL • CERTIFICATE OF ORIGIN

Form EUR 1 – issued by customs offices according to regulations on the origin of goods defined in the Protocol of the Agreement.

With the support of the European Commission 21

Free trade agreements with countries of West Balkans

Albania• industrial products (HS 25 – 97)*• For products from Annex II of the Agreement, phasing out of customs

duties over several years for the EXPORT of all products of Croatian origin into Albania:

Year 2003. 2004. 2005. 2006. 2007. 1.1.2008.

Reduction of MFN duties

to 80% to 65% to 50% to 35% to 20% abolished

With the support of the European Commission 22

Free trade agreements with countries of West Balkans

Albania For products from Annex III of the Agreement, phasing out of customs

duties over several years for the IMPORT of all products of Albanian origin into Croatia:

Year 2003. 2004. 2005. 2006. 2007. 1.1.2008.

Reduction of MFN duties

to 70% to 55% to 40% to 30% to 15% abolished

With the support of the European Commission 23

Free trade agreements with countries of West Balkans

Albania• Agricultural and food products (HS 1 – 24)• For products from ANNEX A of the Protocol 1. of the Agreement

0% of customs duties for EXPORT of products of Croatian origin into Albania.

• For products from ANNEX B of the Protocol 1. of the Agreement 0% of customs duties for IMPORT of products of Albanian origin

into Croatia.

With the support of the European Commission 24

Free trade agreements with countries of West Balkans

TRADE IN GOODS CROATIA – ALBANIA - 000 USD

Year EXPORT IMPORT TOTAL

2002 17.470 265 17,735

2003 27.486 672 28,158

2004 27.322 726 28,048

Indeks 2002./2004. 156,39 273,96 158,15

Source: Central Bureau of Statistics,ZagrebData processing: Croatian Chamber of Economy, SMO

With the support of the European Commission 25

Free trade agreements with countries of West Balkans

Bosnia and Herzegowina• STATUS: Signed on 19 December 2000 in Zagreb

Ratified: since 1 January 2001 – temporarily implementedPublished: Official Gazzette – International agreements (Narodne novine No. 9/01)

• In force: 1 February 2005 (NN-MU No. 2/2005)

MAIN CHARACTERISTICS:• ASSYMETRICAL • CERTIFICATE OF ORIGIN

Form EUR 1 – issued by customs offices according to regulations on the origin of goods defined in the Protocol of the Agreement.

• LIBERALIZATION 0% of customs duties on IMPORT of all products of Bosnia-Herzegowina origin into Croatia Reduction of customs duties over several years for EXPORT of all goods of Croatian origin

into Bosnia and Herzegowina

With the support of the European Commission 26

Free trade agreements with countries of West Balkans

Trade in goods between Croatia and Bosnia and Herzegowina - mil. USD

Export into B.-H. Import from B.-H. Total

2003 892,4 231,2 1.123,6

2004 1.154,1 348,7 1.502,8

index 129,3 150,8 133,7

With the support of the European Commission 27

Free trade agreements with countries of West Balkans

• CEFTA countries: Croatia, Bulgaria, Romania • STATUS: Signed on 6 December 2002 in Zagreb

IN FORCE: since 1 March 2003 (temporary implementation)Official Gazzette – International Agreements No. 4/03

• MAIN CHARACTERISTICS:• SYMETRICAL • CERTIFICATE OF ORIGIN

Form EUR 1 – issued by customs offices according to regulations on the origin of goods defined in the Protocol of the Agreement

• No import tax refund – drawback (Article 15 of Protocol 7a.)• Partial pan-European compound duty and intra-CEFTA compound duty

(Article 4 of Protocol 7a.) • LIBERALIZATION • industrial products (HS 25 – 97)• 0% customs duty for all industrial products in both directions

With the support of the European Commission 28

Free trade agreements with countries of West Balkans

Trade in goods Croatia - Bulgaria - 000 USD

Year EXPORT IMPORT TOTAL

2002. 11.763 15.381 27,144

2003. 23.443 42.247 65,690

2004. 28.221 50.552 78,773

With the support of the European Commission 29

Free trade agreements with countries of West Balkans

Macedonia• STATUS: Signed on 9 May 1997 in Skopje

IN FORCE: since 9 June 1997, - amendments on 1 July 2002.Official Gazzette – International Agreements No. 16/97

MAIN CHARACTERISTICS:• SYMETRICAL • CERTIFICATE OF ORIGIN

Form EUR 1 – issued by customs offices according to regulations on the origin of goods defined in the Protocol of the Agreement

• No import tax refund – drawback (Article 15 of Protocol 2.) • LIBERALIZATION • Industrial products (HS 25 – 97)• 0% customs duty for all industrial products in both directions

With the support of the European Commission 30

Free trade agreements with countries of West Balkans

Trade between Croatia and Macedonia

mil USD EXPORT IMPORT Total

2003. 70,5 74,5 145,0

2004. 74,1 116,7 190,8 index 105,2 156,7 131,6

With the support of the European Commission 31

Free trade agreements with countries of West Balkans

Serbia and Montenegro• STATUS: Free Trade Agreement between Croatia and Yugoslavia signed on 23 December

2002. Agreement between Croatia and Serbia and Montenegro on amendments of the above FTA signed on 14 January 2004.Published: Official Gazzette-International Agreements No. 4/2004Came into force: 1 July 2004 (NN-MU 5/2004)

• • MAIN CHARACTERISTICS• SYMETRICAL • CERTIFICATE OF ORIGIN

Form EUR 1 – issued by customs offices according to regulations on the origin of goods defined in the Protocol of the Agreement

• LIBERALIZATION • • Industrial products (HS 25 – 97)• Gradual reduction of customs duties over several years for industrial products in both

directions (except for import of products listed in Annex I and Annex II of Protocol 1. of the Agreement within quantity restrictions (QUOTAS)

With the support of the European Commission 32

Free trade agreements with countries of West Balkans

Trade between Croatia and Serbia and Montenegro - mil. USD

Export Import Total2003. 190,7 76,7 267,4

2004. 294,1 140,7 434,8

index 154,1 183,4 162,5

With the support of the European Commission 33

Free trade agreements with countries of West Balkans

Overview of trade in goods between Croatia and countries of western Balkans (2004) mil. USD

Albania Bosnia&H Bulgaria Macedonia Serbia&M Total Total Croatia

Export 27,32 1.154,10 28,22 74,10 294,10 1.577,84 8.022,45

Import 0,726 348,7 50,55 116,7 140,7 657,38 16.583,15

With the support of the European Commission 34

CONCLUSION

Problems of Croatian economy: - high external debt - balance of payments deficit

With the support of the European Commission 35

CONCLUSION

- Bilateral Free Trade Agreements with the countries in the region have increased trade, but the possibilities are far from exhausted

- Croatian trade with other countries in the region is for the most part insufficient or disproportional

- These countries account for 19,7% of exports, but only 3,96% of Croatian imports

With the support of the European Commission 36

CONCLUSION

Trade in goods with old EU members has remained at the level of about 60% for the past ten years, which is lower than in 1990.

With the support of the European Commission 37

CONCLUSION

Solution to these problems lie in:• increase of production• increase of export• promoting trade integrations and competitiveness by: - continuation and acceleration of reforms - strengthening the rule of law - decreasing the role of state in economic operations