Kosovo, Macedonia in Tax Dispute

Tuesday, 2 August, 2005

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Slagjana Vasovic

Macedonian exporters say they will be hard hit if Kosovo succeeds in its attempt to hike customs tariffs on more than a dozen of the country’s products.

The protectorate, Macedonia’s second-biggest trading partner after Germany, is pushing for a tax of 10 per cent on around 15 of the country’s main exports, lasting until at least 2010.

Macedonian goods are currently subject to tariffs of just one per cent under a free trade agreement signed in 1996 between Skopje and Belgrade.

But that agreement expired in 2004 and Kosovo’s United Nations administration, UNMIK, is now insisting the tax is increased.

A team including Macedonia’s economy minister Fatmir Besimi is travelling to Pristina next week in an attempt to hammer out an agreement with the Kosovars. Macedonian prime minister Vlado Buckovski and his Kosovar counterpart Bajram Kosumi are also involved, meeting in Skopje on June 13 to discuss trade agreements.

Economy ministry spokesman Xhelal Neziri told IWPR that Macedonia is pushing for an eight per cent duty, which would gradually decrease by 2007. Last year, it exported goods worth 182 million US dollars into Kosovo.

Talks began in May, with Macedonia only agreeing to negotiate when Kosovo threatened to unilaterally impose customs tariffs of 25 per cent if Skopje – which was pushing for a free trade regime - resisted discussing a new trade deal.

The proposed tax hike covers around 15 of Macedonia’s main exports, including onions, cabbage, peppers and possibly eggs and tomatoes, if Kosovo gets its way. Apart from the agricultural products, Kosovo is also proposing a tax on oil from the Okta refinery, which represents 36 per cent of overall exports to Kosovo.

Low transport costs and previously favourable customs rates have made Kosovo highly attractive for Macedonian business people like Viktor Petrov, manager of a Gevgelija company that exports products made with fruits and vegetables. He told Balkans Crisis Report, BCR, that a new tax regime would badly dent his profits.

“Our 200,000 euro revenues from the export of our products will fall by 60,000 euro annually,” said Petrov.

Macedonia’s chamber of commerce, which has a representative on the negotiating team working out the new tax regime, worries that higher export duties will make the country’s products less competitive in the Kosovo market.

“The customs duties will increase the price of the products. That will decrease the export and Macedonian companies will face the need to decrease production,” reads a statement from the chamber.

Economy professor Vanco Uzunov agrees that higher taxes will have a negative impact on the Macedonian economy, “The customs tariffs are not justified either theoretically or in practice because they impose a barrier for free flow of products. It would be better if this is avoided.”

He believes Kosovo’s demand for more taxes is not an attempt to protect its own products but a way to fill a hole in its finances. “It has nothing to do with the production,” said Uzunov. “Part of the profit of our companies will now go into Kosovo’s budget.”

Mihail Petkovski, economy professor at Skopje University, shares the same view.

“Kosovo has problems with income. The imposing of customs is an attempt to heal financially,” he said.

However, Biljal Kasimi, head of the Macedonian negotiating team, insists that the list of products affected by the new customs tariff is small and that the country’s products will continue to be competitive in the Kosovo market.

Others agree that Kosovo, with its proximity to Macedonia, is too attractive to be abandoned by exporters despite the tax increase.

Vanco Mitev, president of an association of farmers in the Strumica region, told BCR, “Kosovo for us is a good market, because they are not picky. Unlike the western markets, which impose strict rules, the Kosovo market accepts second-rate goods. We will continue to be competitive but our profit will fall.”

Slagjana Vasovic Bozinovska is a freelance journalist in Skopje.