It remains to be seen how the EU will respond to Serbia’s plans to sign a free trade agreement with the Russia-led Eurasian Economic Union, given the current geopolitical context and the Kremlin’s differences with the West over Ukraine.

Vladimir Putin, Russia's president, center, along with his Serbian counterpart, Tomislav Nikolic, 2nd right, watch the Serbian air force display during a military parade in Belgrade, October 16, 2014. Photo: AP

The idea of developing free trade zones between the Eurasian Economic Union (EEU) and other countries has provided a topic of debate for both Russian and international experts. The Russian International Affairs Council (RIAC) has recently contributed to the discussion with the publication of an analytical report (in Russian) about the perspectives of a free trade zone agreement between Serbia and the EEU, an initiative that has been put forward by Belgrade and approved by the EEU in 2016.

The analysis weighs the pros and cons of a Eurasian vector in Serbian economic and foreign policy. On Feb. 14, the Eurasian Development Bank's Chief Economist Yaroslav Lissovolik presented the report.

Balancing between the West and the East

Serbia, like many Eurasian countries, has to deal with a geographic obstacle that has an impact on its economic growth: the lack of access to the sea. As numerous experts, including Lissovolik, argue, this challenge can be dealt with by integrating with other states. While Serbia has already set the wheels in motion towards integrating with the European Union and is fairly advanced in this process, it has also expressed an interest in developing a free trade zone with the EEU, in addition to its bilateral agreements with Russia, Belarus and Kazakhstan.

As Serbian Foreign Minister Ivica Dačić mentioned last November, an agreement with the EEU would be a “certain unification of all these [bilateral] agreements.” Therefore, Belgrade is not trading one integration process for another, but rather is pursuing a multi-vectored foreign policy and balancing between the West and the East. President Tomislav Nikolić stated that the Serbian government does not see an inconsistency between the accession process to the EU and support for other integration processes, such as the EEU. Thus, this initiative is part of Serbia’s efforts to conduct a diverse foreign policy.

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Despite the existing bilateral agreements, trade between Serbia and Russia has not been developed to its full potential. Belgrade seeks to export more products to the Russian market, and trends in Serbian public opinion seem to be supporting greater economic interactions with Russia. The report states that over the past years, the proportion of the Serbian population that believes that their country has an interest in exporting to Russia and receiving investment from Russia has increased.

There is also political will to develop closer trade ties with Belarus and Kazakhstan, and to combine all of these efforts into the proposed free trade zone agreement with the EEU. Within this framework, Serbia particularly seeks to export meat, cheese, sugar, tobacco products, and “Fiat” cars from the factory located in Kragujevac, the fourth largest city of Serbia.

The positives of such a free trade zone would include new markets for Serbian products in Eurasia and the diversification of Serbia’s trade. For the EEU, it might be a step towards a more developed interaction with the Western Balkans and a more active dialogue with Europe in general. The authors of the report argue that there is a possibility that Serbia could act as a "bridge" between the European and Eurasian integration processes - if it develops a proper strategy for managing both.

Weighing the pros and cons

However, as in any trade agreement, there are many potential risks, and for Serbia this means that it must take into consideration the most fragile sectors of its economy, mainly agriculture. Belgrade also needs to pay greater attention to the quality of its products and services, which remains a challenge to overcome in order to be successful on the Eurasian market. Furthermore, as Lissovolik pointed out, the dialogue needs to be shifted towards investment flows and services, as currently the focus is on goods.

It would also be beneficial to consider greater interaction within the IT sphere and in scientific research. If this initiative is to be supported actively by both sides, then Belgrade and the EEU must make an effort to address the gaps that currently exist in Serbia’s bilateral agreements with Russia, Belarus and Kazakhstan. If Serbia wants to go ahead with this initiative, it must have a strategy in order to enter the EEU, and potentially some Asian markets.

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There are many ways in which this project could develop in the next few years, which leaves experts debating and guessing, especially given the EEU’s limited experience in concluding agreements with third parties. The authors of the report predict a rather optimistic scenario for the next few years, where Serbia would act as a “bridge” between Europe and Asia, and where the EEU could finally prove its ability to conduct a dialogue on the international arena.

Yet, one cannot ignore the geopolitical contradictions and implications of this type of scenario. Would the benefits of this agreement outweigh the costs? In terms of the economic aspect, the EU and the European Free Trade Association (EFTA) remain Serbia’s main trading partners, and expanding to Armenia’s and Kyrgyzstan’s markets is unlikely to change much. Even Russia’s role in the Serbian economy in terms of both exports and imports is not very important compared to the EU’s, and is mostly focused on energy resources. In the short-term, Serbia’s future economic interests lie in Europe.

On the political side, the accession process to the EU remains a priority in Serbian domestic and foreign policy. Serbian political elites have clearly expressed their preference for the European vector and their commitment to the accession process. There is also considerable public support for this direction particularly from the younger generations.

It is still unclear what the EU’s reaction would be to Belgrade’s EEU plans, which in the current geopolitical context could be seen as further rapprochement with Russia, especially given the fact that Serbia refused to implement sanctions on Russia. Furthermore, in Europe, the EEU is currently perceived as the Kremlin’s political project, and this may imply that the free trade zone agreement will not be regarded favorably in Brussels.

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It would also be the first case of a candidate country concluding a free trade agreement with the EEU, and experts are still debating the EU’s possible response. The agreement is unlikely to succeed if Belgrade faces considerable, explicit or implicit, constraints from the EU.  Within the context of Brexit and other European crises, some might find it rational for Belgrade to pursue multiple vectors of economic integration, especially in the Eurasian/Asian direction.

However, at the moment, both Brussels and Belgrade remain committed to the negotiation. It is not yet clear whether Serbia will be able to convince the EU that this agreement with the EEU is not “anti-European”. It will be Belgrade’s responsibility to prove that that managing both integration processes is not a zero-sum game.