Serbia: Halfway between Brussels and Moscow

Since the signing of the Brussels Agreement in 2013, Serbia’s EU accession negotiations have made very little progress. Far from being an irrational actor, Belgrade has always embraced a utilitarian approach for the benefit of the country. This means that Serbia may be willing to comply with EU requirements on condition that compliance will be beneficial. Taking into consideration that Belgrade is apparently in no hurry to solve some fundamental issues - such as the Kosovo question - it follows that Serbia does not consider full EU membership really important. Such an attitude is justified by the fact that Serbia is already enjoying the economic privileges of the Stabilization and Association Agreement, without bearing the binding burden of full membership and enduring the long and arduous road to get there. Moreover, Belgrade is currently exploiting a unique position between Brussels and Moscow, which grants it access to the European market and the Eurasian Economic Union at the same time. Hence, fulfilling the criteria for EU membership will, in all likelihood, lead to Serbia losing this advantageous customs regime. In light of the above, Serbian elite may consider the political and economic costs of EU membership simply too high.

Europeanization of Serbia: A troubled path

The First Agreement of Principles Governing the Normalization of Relations - the so-called Brussels Agreement - represents a milestone in the Europeanization [1] process of Serbia. The document states the commitment to gradually solve the dispute with Priština with the establishment of a “community of Serb majority municipalities in Kosovo” [2], with a view to normalizing relations with the secessionist country and, in the long term, joining the European Union (EU). The progress in the negotiations was linked to the Stabilization and Association Agreement (SAA) [3] for Kosovo and the beginning of the accession talks for Serbia [4]. However, despite the opening of negotiations for European membership on 21 January 2014, the implementation phase has overall been slow.

Reports by the European Commission on the efforts of Belgrade in fulfilling the so-called acquis communautaire [5] reveal substantial problems. According to the reports [6] [7] [8] [9], Serbia has made very little progress in its adoption and implementation of the acquis. At first glance, Serbia’s lack of interest in fulfilling its EU obligations may seem a contradiction, as the EU appears to be a major economic partner of Serbia and therefore one would expect Belgrade to be very keen on joining the EU.

Indeed, among all the international actors, the EU is overwhelmingly the largest supplier of development aid to Serbia, with more than USD 4.5 million transferred – in both Member State donations and European funds – just in the 2010-2015 period alone [10]. In addition to that, during the 2012-2016 period, the EU was Serbia’s major trading partner in terms of imports and exports. Moreover, since 2005, Serbia’s exports to the EU have consistently been in the range of  58% to 68% of all exports, while imports from the EU range between 55% to 59% of the total. Last but not least, the EU also represents the single largest investor in the Serbian economy, accounting for 60% to 80% of all foreign direct investment (FDI) in Serbia since 2010.

As an EU candidate, additional funds were pumped into the Serbian economy. As a result, the net inflows of foreign direct investments in Serbia skyrocketed – with some slowdown due to the political instability of the country and the financial crisis of 2008. The most recent data from The World Bank [11] shows that FDI reached 4.2 billion dollars the year before the outbreak of COVID-19. From this point of view, Serbia is the leader in the region, attracting more investors than any other neighboring country, Slovenia and Croatia included. Unlike its neighbors, Serbia has preferential access to both the European market and the Eurasian Economic Union (EAEU), which sets it apart from the others in the region.

Russia: A traditional partner

The fact that the EU is the largest investor in Serbian economy is indisputable. However, in order to fully understand the Serbian point of view, one should also take a look at a traditional partner like Russia. Even though Serbian exports with Russia barely constituted 6% of overall trade in 2016, there was a notable growth in exports during the 2005-2016 period, which show an impressive increase of 352% in value [10]. In 2020, Russia was Serbia’s 6^th largest trading partner – accounting for 4.7% of total exports – behind Germany, Italy, Bosnia & Herzegovina, Romania, and Hungary. In terms of imports, Moscow is Belgrade’s 4th largest trading partner, accounting for 6% of total imports [12].

In 2014, 81% of Serbian crude petroleum and 78% of LPG came from Russia [10]. In 2020, natural gas imports from the Russian Federation amounted to 1,384 million cubic meters, which represents 64% of the total import [13]. Local production of natural gas could meet only 10.7% of the demand.

Though there is no precise data regarding Russia’s development aid efforts in Serbia, there is no doubt that the overall amount of loans and grants channeled from Moscow to Belgrade is crushingly lower than the European funds that have been funneled into Serbia since the beginning of the century – even though only 30% of Serbian citizens believe that the EU is the largest donor of development aid to Serbia [14]. Russia may be only marginally involved in supporting Serbia through economic aid, but the same does not hold true for FDI. Indeed, despite a significant decline in recent years, Russia has always been one of the leading powers in the investment sector in Serbia. In 2010, with a remarkable amount of 216 million euros, it was the largest investor in the country. In 2020, despite the recession and Western sanctions, Russia was the second largest investor in Serbia after the EU (if we consider the EU as a single investor) [15].

Materialistic approach

It is worth stressing that Serbia is not involved in profitable trade agreements only with the EU, whether within or outside the SAA framework. It can boast other rewarding customs regimes. The free trade agreement signed with Moscow in 2000, for instance, facilitates the import and export of goods to and from Russia. Of course, as is clear from the data, there is no question that the European market is still far more profitable than the Russian one. It is, however, important to underline that Serbia takes advantage of both the favorable economic concessions with Europe and its special relationship with Russia. By fulfilling all the criteria for EU membership, Serbia will, in all likelihood, lose the benefits it acquires through the customs regime with Russia, which raises the question as to why it should fulfil EU requirements when it is already exploiting most of the economic benefits from the EU without being a member state.

While the EU and a candidate country can agree on when the accession process starts, neither side can know when it will end. It depends on both the EU’s political willingness to resume its enlargement policy and the candidate country’s commitment to the implementation of the required reforms. The European Commission closely supervises the process and makes periodic suggestions and comments, but methods and timing remain a prerogative of the candidate country.

It seems that Serbia wants to run with the hare and hunt with the hounds as it is in no hurry to fulfil its obligations towards the EU, which allows Serbia to enjoy as long as possible this rare international conjuncture. This is justified by the tardiness in the negotiation process with the EU and the signing of a free trade agreement with the Russian-led Eurasian Economic Union in October 2019, which came into effect on 10 July 2021.

Naturally, such a peculiar midway position between the Asiatic and European markets has attracted significant interests from notable enterprises and further investments. Among the most substantial investments in Serbia by multinational brands include US Steel, Philip Morris, Microsoft, Lukoil, Gazprom, Coca-Cola, Siemens, Carlsberg and FIAT. Similarly, it is reasonable to assume that other international firms are investing in Serbia to overcome the deadlock on exports to Russia, while continuing to exploit the privileged access to the EU market. Indeed, concerning the ongoing Ukrainian crisis, Serbia has refused to condemn the unlawful actions of Russia and has abstained from implementing economic sanctions on Moscow. This stance is surely supported by its traditional pro-Russian attitude, but mostly by the political and economic bonds between the two Orthodox countries.

Needless to say, Serbia is the only candidate country that refuses to align with the EU's foreign policy on this issue. It will be interesting to see if Belgrade will be able to maintain this ambivalent position despite growing pressures. The European Parliament has already stated that it “strongly regrets Serbia's non-alignment with EU sanctions against Russia, which damages its EU accession process” [16]. The day after this statement, in the emergency session of the UN's general assembly, Belgrade voted for the first time to condemn Russia's military operation in Ukraine. It is clear that its equidistant political stance is under pressure more than ever.

The free trade agreement with the EAEU enabled production enterprises in Serbia to gain access to Russia, Armenia, Kazakhstan, Belarus and Kyrgyzstan too. Therefore, the scope of the EAEU free trade area is enough to convince several European brands, wanting to expand their businesses, that Serbia is the right horse to bet on – regardless of whether the EAEU trade agreement is compatible with the SAA. As long as the EU does not take a clear and coherent stand against this two-faced attitude, Belgrade will continue to pursue this dual policy. However, if Serbia were to be obliged to choose between one bloc and another, in all likelihood it will opt for the EU, regardless of the flaunted “brotherhood” with the Russians.

Serbia is in no rush to become part of the EU bloc. Belgrade is already enjoying the economic privileges of the SAA, without having to undergo the binding burden of full membership that entails adherence to strict EU policies. Above all, this would mean the end of its special and profitable position between the EU and the EAEU. Thus, in the eyes of the local political elite, EU membership is not really a priority. The best economic option for President Aleksandar Vučić – who has been ruling the country together with the Serbian Progressive Party since 2012 – is to exploit this unique position between Brussels and Moscow, which gives Serbia access to the both the European market and the EAEU at the same time.

A cost-benefit analysis

From a political point of view, one can understand why Serbia is reluctant to comply with EU requirements: the cost of compliance is higher than the benefits [17]. EU membership would mean the loss of a free trade deal with the EAEU, and since the signing of the EAEU agreement caused no concrete backlash from the EU, the only motivation for compliance would a strong, domestic political willingness, as was the case with Central and Eastern European countries. However, this is not the case for Serbia, and this leads us to consider a second aspect: the political costs.

According to the latest surveys commissioned by the Serbian Ministry of European Integration, Serbia is at the very bottom of the list of countries in South Eastern Europe that are in favor of EU membership: less than half of the respondents considered EU membership as a positive step [18], with the Eurobarometer demonstrating that 60% of the respondents did not have trust in European institutions [19] [20]. The skepticism of Serbians toward the EU makes it more difficult and “costly” to undertake the necessary reforms and meet the required standards, both because of the local political elite’s fear of losing voters and its unwillingness to change the status quo.

This last consideration is recurrent in all post-socialist countries that embark on a democratization process. The reason is simple: generally speaking, the political elites that replaced the nomenklatura inherited a very strong and centralized state, with a harsh hold on the media and an inadequate separation of powers. Since the fall of the communist regimes, the apparatus (meaning the bureaucracy that controlled the political and economic system, the media and the army) has sometimes been exploited as a consensus-making machine by rampant politicians. In such a case, the political cost for compliance is much higher for the local elites, as it means loss of control over the system that ensures political consensus among the electorate.

Apart from that, local governments in the Balkans are also looking for new patrons other than the EU, which possibly do not have highly demanding conditions such as the EU’s requirement of compliance with the acquis communautaire. A particularly arrogant stance of European institutions is to think that countries of South Eastern Europe have no choice but to accept integration into Euro-Atlantic institutions. Actually, this is not the case, and a growing number of players are showing their interest in the region. Russia is a traditional partner of Serbia, not only because of the abovementioned “slavic brotherhood”, but also for key political reasons.

Moscow is determined to keep a steady stronghold in the region with an anti-NATO purpose. This strategic intention has resulted in joint military exercises outside the NATO umbrella. In 2013, Serbia acquired observer status in the Parliamentary Assembly of the Collective Security Treaty Organization (CSTO) – an intergovernmental military alliance in Europe and Asia – and has since hastened its cooperation with Russia [10]. At the end of 2016, Serbia, Russia and Belarus launched the second “Slavic Brotherhood” drill, a series of anti-terrorist operations with the participation of over 700 soldiers. It was no coincidence that a third one took place in June 2017, along the Polish borders, exactly a day after Montenegro’s accession to NATO. The latest drill with Russia, a joint military air defense exercise called "Slavic Shield", was carried out in Serbia in October 2021. Serbia is also part of NATO’s Partnership for Peace program, and has actually participated in more joint exercises with the Atlantic organization than it has with Russia. However, in its typical ambiguous fashion, Belgrade keeps a foot in both camps.

Conclusions

To sum up, both the political and economic costs of Europeanization in Serbia are slowing down compliance with EU requirements. Serbia is currently benefitting from both the European single market and the customs regime with Russia, and is reluctant to renounce its special relationship with Russia as it would mean the end of those special tariffs. Belgrade feels reasonably confident in playing both sides between Brussels and Moscow in order to maximize its profits, following a pure market logic and resorting to values and ideals only with an instrumental intent. Had Brussels given Serbia an ultimatum to choose between being a member state or not, Serbia would have chosen the much more profitable EU. But this has not indeed been the case till now.

The rapid polarization of international relations following the Russian-Ukraine crisis may represent a diplomatic earthquake that could jeopardize Serbia’s fragile balance between the East and West. It is reasonable to assume that, this time, the EU will not allow Belgrade to take its sweet time on the issue, and instead pressure Serbia to fulfil its obligations. Whatever stance Belgrade decides to take, its traditionally ambivalent foreign policy will eventually come to an end. If there is a real and renewed EU engagement with Serbia, it is probable that, despite the skepticism of Serbian citizens, there will be some real progress toward EU membership – away from the Russian Federation. The economic benefits that come from the EU are simply too great to be ignored, especially when compared to those of Russia. But at the same time, with the political elections set for April 3rd and 83% of the Serbian electorate regarding Russia as an ally, it is probable that President Vučić will do everything he can to postpone such a breakthrough decision until after the elections [21].

What is certain is that, with no external input, it is in Belgrade’s interests to preserve the status quo: halfway between Brussels and Moscow.

References

[1] “Europeanization” means the domestic impact of the EU in fostering convergence towards a European model.

[2] Republic of Kosovo Constitutional Court. (2013). First Agreement of Principles Governing the Normalization of Relations. https://bit.ly/3JKEI47.

[3] The Stabilization and Association Agreement is a bilateral deal between the EU and a candidate country, which serves as a basis for accession process. The candidate country is thereby involved in a progressive partnership with the EU, which includes trade relations, financial assistance, regional cooperation, with the goal of stabilizing the region and establishing a free-trade area.

[4] Bieber, F. (2015). The Serbia-Kosovo Agreements: An EU Success Story?” Review of Central and East European Law, 40 (3-4), pp. 285-319. https://doi.org/10.1163/15730352-04003008.

[5]  The acquis communautaire constitutes the body of European Union law. The term is most often used in connection with preparations by candidate countries to join the Union. They must adopt, implement and enforce all the acquis to be allowed to join the EU.

[6] European Commission. (2018). Serbia 2018 report. Strasbourg: European Commission. https://ec.europa.eu/neighbourhood-enlargement/system/files/2019-05/20180417-serbia-report.pdf.

[7] European Commission. (2019). Serbia 2019 report. Strasbourg: European Commission. https://ec.europa.eu/neighbourhood-enlargement/system/files/2019-05/20190529-serbia-report.pdf.

[8] European Commission. (2020). Serbia 2020 report. Strasbourg: European Commission. https://ec.europa.eu/neighbourhood-enlargement/system/files/2020-10/serbia_report_2020.pdf.

[9] European Commission. (2021). Serbia 2021 report. Strasbourg: European Commission. https://ec.europa.eu/neighbourhood-enlargement/system/files/2021-10/Serbia-Report-2021.pdf.

[10] Sidlo, K., & Hartwell, C. (2018). Serbia’s Cooperation with China, the European Union, Russia and the United States of America. European Parliament, pp. 1-56. DOI: 10.2861/234510.

[11] The World Bank. (2020). Foreign Direct Investment, Net Inflows (BoP Current US$) – Serbia, accessed March 24, 2022, https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=RS.

[12] Statistical Office of the Republic of Serbia. (2021). Statistical Pocketbook of the Republic of Serbia. p. 57. https://publikacije.stat.gov.rs/G2021/PdfE/G202117014.pdf.

[13] Energy Agency of the Republic of Serbia. (2021). 2020 Energy Agency Annual Report. p. 76. https://www.aers.rs/Files/Izvestaji/Godisnji/Eng/AERS%20Annual%20Report%202020.pdf.

[14] A Medium Gallup poll conducted in October 2015 showed that 24% of Serbs believed Russia was the largest donor. Another poll conducted between November and December 2015 by the International Republican Institute revealed that the actual percentage was higher, an impressive 36% [10]. According to a public opinion poll by the Institute for European Affairs [21], 30.5% of Serbian citizens believe that the EU is the largest donor to Serbia, followed by China (29%) and Russia (13.6%).

[15] United Nations Conference On Trade and Development. (2021). World Investment Report 2021. Investing in Sustainable Recovery. United Nations. https://unctad.org/system/files/official-document/wir2021_en.pdf.

[16] European Parliament. (2022). European Parliament Resolution on the Russian Aggression Against Ukraine. p.7. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52022IP0052&from=EN.

[17] Schimmelfennig, F., & Sedelmeier, U. (2019). The Europeanization of Eastern Europe: The External Incentives Model Revisited. Journal of European Public Policy, 27 (6), pp. 1-28. https://doi.org/10.1080/13501763.2019.1617333.

[18] Serbian Ministry of European Integration. (2021). Public Opinion Survey. Attitude of Serbian Citizens Toward the European Union. p. 3. https://www.mei.gov.rs/upload/documents/nacionalna_dokumenta/istrazivanja_javnog_mnjenja/avgust_21_sajt.pdf.

[19] Regional Cooperation Council. (2019). Balkan Barometer 2019. Public Opinion Analytical Report. p. 37. https://www.rcc.int/seeds/files/RCC_BalkanBarometer_PublicOpinion_2019.pdf.

[20] European Union. (2020). Fact Sheet: Republic of Serbia. Standard Eurobarometer 93. https://europa.eu/eurobarometer/api/deliverable/download/file?deliverableId=73627.

[21] Institute for European Affairs. (2021). Attitudes of Serbian Citizens toward Russia. Public Opinion Survey. p. 17-20. https://iea.rs/wp-content/uploads/2021/07/Stav-gradjana-Srbije-RUSIJA-2021.pdf.