The business environment

CEFTA

The CEFTA 2006 Agreement was signed on December 19, 2006, by Albania, Bosnia and Herzegovina, Bulgaria, the Republic of Croatia, North Macedonia, Moldova, Montenegro, Romania, the Republic of Serbia and UNMIK/Kosovo. Romania and Bulgaria became members of the European Union on January 1, 2007, and withdrew from CEFTA. Montenegro began full implementation of the Agreement on July 26, 2007, following its ratification by Parliament.

The primary objectives of the Agreement establishing the Central European Free Trade Area (CEFTA) are to harmonize the development of economic relations among the signatory countries through the development of trade, accelerate the development of commercial activities, improve living standards and employment opportunities, increase productivity, and achieve financial stability.

The Agreement addresses: technical barriers to trade, as well as new areas, which are not covered by earlier bilateral free trade agreements, such as trade in services, investment, public procurement, protection of intellectual property rights, and arbitration in case of disputes.

The most significant novelties of the CEFTA Agreement compared to earlier bilateral agreements, which are of particular interest to the business sector, include:

• the possibility of applying diagonal cumulation of origin of goods;
• the introduction of gradual liberalization of trade in services;
• the obligation to equalize investment conditions by applying WTO rules and ensuring equal treatment of domestic and regional investors;
• the gradual opening of public procurement markets and equal treatment of domestic and regional suppliers;
• the provision of intellectual property rights protection in line with international standards;
• the improvement of mechanisms for resolving disputes arising during the implementation of the Agreement;
• the obligation to adhere to WTO rules, regardless of whether a country is a member of this organization or not.

Since CEFTA 2006 came into force, Montenegro, Bosnia and Herzegovina, Serbia, Croatia, and Albania have applied a duty-free regime for all industrial products originating from signatory countries. On the other hand, the Republic of North Macedonia, the Republic of Moldova, and UNMIK/Kosovo gradually reduced and eliminated import duties on products which were not liberalized at the time when the Agreement entered into force, during a transitional period until December 31, 2008. After this date, trade in industrial products has been fully liberalized, meaning customs duties are no longer applied to industrial products originating from CEFTA Parties.

Since signing CEFTA 2006, Montenegro has had free trade in agricultural products with Serbia, Bosnia and Herzegovina, North Macedonia, and UNMIK/Kosovo. However, trade with Albania, Croatia, and Moldova was subject to a certain level of protection. Customs duties were applied to a number of products during import or export to Albania and Croatia, while preferential rates within quotas for certain products were agreed with Albania, Croatia, and Moldova.

An Additional Protocol on further liberalization was signed in Brussels on February 11, 2011. Instruments of ratification were first submitted to the Depositary by the Republic of Albania, the Republic of Croatia, and North Macedonia, so the Additional Protocol entered into force for these countries on November 13, 2011. For Serbia, the Additional Protocol came into force on December 15, 2011, and for Montenegro on January 6, 2012. Since then, Montenegro began implementing the agreed liberalization with Albania and continued implementation of the agreed liberalization with Croatia. The agreed liberalization with Moldova has been applied since January 13, 2012, upon the entry into force of the Additional Protocol in Moldova.

www.ceftatradeportal.com

THE EUROPEAN UNION

The EU is a unique supranational economic, political, customs, monetary, and also defence and security integration of European states. It emerged as a result of a cooperation and integration process, which began in the 1950s of the 20^th century.

The European Union (EU) is neither a federal state like the United States of America, nor an intergovernmental organization like the United Nations, but constitutes a sui generis entity.

The pooling of sovereignty means, in practice, that member states transfer some of their decision-making powers to common institutions, which have been established so that the decisions on specific matters of shared interest could be made democratically at the European level.

The EU operates on the principles of legality, autonomy, supremacy, subsidiarity, proportionality, and solidarity. It has a developed institutional structure composed of shared institutions established by founding treaties: Council of the European Union, European Commission, European Parliament, Court of Justice of the European Communities and European Court of Auditors.

In addition to these key institutions, the EU has established numerous bodies, both executive and legislative, as well as agencies and services. Notably important among these are the European Council, European Economic and Social Committee, Committee of the Regions, European Ombudsman, European Central Bank, and European Data Protection Supervisor. The Lisbon Treaty foresees the European Council and the European Central Bank to have a status of institutions.

A Brief History of the EU

1950 – On May 9, the French Minister of Foreign Affairs, Robert Schuman, delivered a key speech inspired by the French economist Jean Monnet, proposing a new organization to prevent future conflicts among European nations after the Second World War. Since then, May 9 has been celebrated as Europe Day.

1951 – The Treaty of Paris establishes the European Coal and Steel Community (ECSC). The six founding countries were Belgium, France, Germany, Italy, Luxembourg, and the Netherlands.

1957 – The European Economic Community (EEC) and the European Atomic Energy Community (Euratom) were established by the Treaties of Rome.

1973 – First enlargement brought nine member states to the Community and developed common policies: Denmark, Ireland, and the United Kingdom become new members.

1979 – First direct elections to the European Parliament.

1981 – Second enlargement: Greece joins the European Community.

1985 – The Schengen Agreement is signed, aiming to eliminate border checks among EU member states.

1986 – Third enlargement: Spain and Portugal join the European Community, which now has twelve member states. The Single European Act, which provides the legal foundations for the establishment of a single internal market, is signed in Luxembourg and the Hague.

1990 – Following the fall of the Berlin Wall, East and West Germany are reunified.

1992 – The Treaty on European Union is signed in Maastricht, establishing the European Union (EU) and laying the foundation for a common foreign and security policy, closer cooperation in justice and home affairs, and the creation of an economic and monetary union including a single currency.

1995 – Fourth enlargement: Austria, Finland, and Sweden join the EU.

1997 – The Amsterdam Treaty is signed as an amendment to the Treaty on European Union, the treaties establishing the European Communities, and other relevant acts. It lays down new principles and commitments in the areas of common foreign and security policy, citizenship and individual rights, as well as increased powers of the European Parliament.

2000 – The Treaty of Nice reforms the decision-making system in the European Union in order to prepare the Union for future enlargements. The Presidents of the European Parliament, the European Council, and the European Commission solemnly proclaim the Charter of Fundamental Rights of the European Union.

2002 – The euro banknotes and coins are introduced and this currency is accepted in 12 countries. Fifth enlargement: Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Malta, Hungary, Poland, Slovakia, and Slovenia join the EU. The European Constitution is signed in Rome.

2005 – Voters in France and the Netherlands reject the Constitution on Referendum.

2007 – Romania and Bulgaria join the EU, expanding it into 27 member states, thus concluding the fifth enlargement. Slovenia adopts the euro as the 13^th country. The Lisbon Treaty is signed as a reform treaty introducing novelties such as the position of the President of the European Union, a strengthened role for the Foreign Minister, which is changed into the “High Representative of the Union for Foreign Affairs and Security Policy”, reduced number of Commissioners, and full legal personality (which previously applied only to the European Community), enabling the Union to sign international agreements.

2008 – The Eurozone expands to Malta and Cyprus. The ratification process of the Lisbon Treaty began.

2009 – The Eurozone expanded to Slovakia.

2013 – The Eurozone expanded to Croatia.

To learn more about the history of the European Union, visit: http://europa.eu/abc/history/index_en.htm

Montenegro in the EU Integration Process

2006 – Referendum on independence of Montenegro

2007 – Stabilisation and Association Agreement signed

2008 – Application for EU membership

2009 – Submitted responses to the European Commission questionnaire

2010 – Obtained candidate status

2011 – Accession process officially began

2012 – Accession negotiations started

europa.eu

WORLD TRADE ORGANIZATION (WTO)

The World Trade Organization (WTO) is an international organization providing the institutional and legal framework for the multilateral trading system in the areas of customs, trade in goods, services, and trade aspects of intellectual property rights.

It began operating on January 1, 1995, with the entry into force of the Agreement signed in Marrakesh. It is the successor to the General Agreement on Tariffs and Trade (GATT), which was created after World War II and is one of the youngest international organizations. Over 47 years, until 1994, and through four rounds of negotiations, GATT created a strong and prosperous multilateral trading system, which in 1995 grew into the World Trade Organization (WTO).

The WTO’s rules and agreements were developed as a result of the Uruguay Round of negotiations (1986–1994), which also defined rules related to trade in services, certain aspects of intellectual property rights, dispute settlement, and trade policy review. All together it forms a collection of 60 general agreements and “list of commitments” undertaken by each member country in specific areas, such as tariff rates and market openness for services.

Each country is guaranteed that its exporters will be treated according to clearly defined rules in the markets of other countries. Likewise, each country commits to allowing access and operations of other member countries on its own market under clearly defined conditions.

The WTO system applies the “most favoured nation” treatment, under which each member treats all other members equally, as if they were its most-favoured trading partners. Certain exceptions to this principle are allowed under strictly defined conditions. Countries may conclude free trade agreements which provide preferential treatment to the signatories and do not apply to goods originating outside the group of signatory countries. A country may also impose barriers on products from countries considered to be trading unfairly. In a limited number of cases, unequal treatment is also permitted in the services sector.

The fundamental principles of the WTO are as follows:

• The “national treatment” principle, which is based on equal treatment for foreign and domestic goods or services, service providers, and foreign and domestic holders of intellectual property rights;
• The principle of transparency in the trade policies of WTO members;
• The principle of reducing trade barriers;
• The principle of promoting fair competition;
• The principle of preventing arbitrary trade barriers;
• The principle of development and economic reform.

Today, the WTO has 159 member countries and covers over 97% of global trade. Membership in the WTO is one of the key steps for a country’s integration into modern international economic relations, and at the same time, an important element in supporting the process of internal economic reforms.

The main benefits of WTO membership include:

• Maintaining peace,
• Resolving disputes in a constructive and peaceful manner,
• A system based on rules rather than power,
• Lower cost of living,
• Greater choice and better quality of goods and services,
• Foreign trade increases income,
• Trade stimulates economic growth and job creation,
• Core principles make the system more economically efficient and reduce costs,
• The system protects governments from narrow interests,
• Combating corruption.

At the 8^th Ministerial Conference of the World Trade Organization, held on December 15–17, 2011, the Protocol on the Accession of Montenegro to the WTO was signed. The Law on Ratification of the Protocol was adopted by the Montenegrin Parliament, and 30 days later, on April 29, 2012, Montenegro officially became the 154^th full member of the WTO.

Among other, Montenegro committed to privatizing state-owned enterprises and publishing annual reports on privatization. It also committed to applying price control measures in accordance with WTO rules.

Montenegro’s WTO membership represents a commitment to further liberalization of the national trade regime and to ensuring a transparent and predictable environment for both domestic and foreign companies.

Montenegrin producers have already been exposed to global competition, so WTO membership will not significantly increase that “exposure”. Given that more than 80% of Montenegro’s total foreign trade is conducted with European Union member states and CEFTA signatories, with which it already has liberal trade and with applied WTO rules, changes can be expected primarily in trade with the USA, Japan, China, Turkey, Canada, and other countries. Before WTO membership, trade with these countries had been conducted under MFN treatment (except with Turkey).

WTO membership fulfils an important condition for stimulating investment, which is expected to bring necessary capital, knowledge, and technology, expand and strengthen distribution channels, facilitate the adoption and application of internationally accepted standards and safety requirements, and help establish a business-friendly environment (rule of law, efficient procedures, transparency, predictability, and stability), as well as to open foreign markets for goods and services.

In the section related to market access for goods, in accordance with the commitments undertaken, Montenegro’s customs tariff was aligned with the List of Negotiated Concessions and came into effect on May 1, 2012.

The list of concessions for goods was defined according to the following principles:

• The starting point for defining binding rates was the current customs duties;
• Proposed binding rates for sensitive and less sensitive products were higher than the existing rates;
• Since the negotiations for WTO membership coincided with the implementation of the Stabilization and Association Agreement (SAA), one of the criteria for defining binding rates was the current EU customs tariff and concessions already granted by the EU;
• An indicator was also foreign trade. Considering that the largest volume of Montenegro’s foreign trade is with the European Union and CEFTA 2006 parties, with which a high level of market liberalization has already been achieved, a number of binding rates were reduced compared to the currently applied rates;
• A phased adjustment was defined for a certain number of tariffs (4 to 10 years).

The List of Concessions in the area of goods is a binding document defining the customs duties above which the country will not increase its tariff protection in the future. The average rate to be applied by Montenegro will not exceed 5.1%. A phased adjustment was defined for a number of tariff items. This transition period ranges from 4 to 10 years.

Out of 2,445 items related to agriculture, rates were reduced by 150 items in the first year, and for 1,000 items a reduction in rates was defined with a transitional period of 4 to 10 years. Customs duties for tariff positions related to sensitive products, for which a combined rate (ad valorem + specific duty) was prescribed, are limited to a maximum of 50%. This had not been the case before, except in very sporadic cases of fruit and vegetable imports.

Out of 150 items, which make up only 6% of the tariff items related to agriculture and food production (the first 24 chapters of the customs tariff), 4 items (2 related to horse meat and 2 related to ethyl alcohol) were reduced from 30% to 10%, 4 items, mostly related to juice concentrates, were reduced from 20% to 5%. Nine items were reduced to 10%, 3 items to 8%, and all other items were reduced below 5% in the first year.

The List of Specific Commitments for services is based on the current Montenegrin legislation. Negotiations on specific commitments in trade in services involved negotiations on market access restrictions for foreign service providers as well as negotiations on limitations regarding national treatment. These negotiations were bilateral and covered 12 sectors and 154 subsectors of services.

Of the six possible forms of market access restrictions defined in Article XVI of the General Agreement on Trade in Services (GATS), Montenegro applies only three: restrictions on the number of service providers, restrictions on the permitted types of legal entities, and restrictions on the share of foreign capital.

As a full WTO member, Montenegro is obliged to submit reports to other members on all legislative changes related to trade, submit annual reports on privatization, and reports on export subsidies in industry and agriculture. Membership in the WTO provides an opportunity for Montenegro to actively participate in the work of all WTO bodies.

www.wto.org

EFTA

The EFTA States signed a Free Trade Agreement with Montenegro on 14 November 2011. The Agreement, following the submission of instruments of ratification, entered into force on 1 September 2012 for Montenegro, Liechtenstein and Switzerland, 1 October 2012 for Iceland and 1 November 2012 for Norway.

In the section regarding industrial products, complete market liberalization is envisaged for both parties, except for a small number of products from Chapter 35 — protein substances, modified starches, adhesives, and enzymes as well as Chapter 38 — various chemical industry products (Annex and Agreement, in accordance with Article 7, products being exempted).

Annex II, in accordance with Article 7, covers processed agricultural products (PAPs). EFTA countries have, for almost all products in this Annex, the same treatment that Montenegro agreed upon with the EU, but only after the expiration of the transitional period. Reduction of customs duties started from the date the Agreement entered into force, then on January 1, 2013, and January 1, 2014. The agreement implies full liberalization of the Montenegrin market as of January 1, 2015.

On the other hand, EFTA has provided Montenegrin products with the same treatment it agreed with the EU, but without a transitional period, which represents a high degree of liberalization already in the first year of the Agreement’s implementation.

The only limitation and the reason why it cannot be said that a fully liberal market access has been agreed upon for EFTA in the PAPs segment relates to the method of calculating the customs rate. Namely, for some products, the rate depends on the product’s composition, i.e., the treatment of raw materials under the Agreement in the parts of the customs rates that make up the product.

Moreover, EFTA countries apply a treatment for products originating from Montenegro that is no less favourable than the one granted to the EU, and as EFTA and the EU periodically further liberalize their markets, the same will apply to Montenegro.

Annex III, in accordance with Article 7, fish and other seafood — upon the entry into force of the Agreement, EFTA countries liberalized their markets for fish and other seafood, which is not the case for Montenegro’s market. Namely, upon the Agreement’s entry into force, Montenegro reduced its rates to zero for a small number of products, and only for those fish species, which are not produced or caught in our country. For the majority of fish species, the market will be liberalized no earlier than after 5 years.

Liberalization does not apply to trout and canned sardines, anchovies, and sprats, where rates will be reduced by 50% even after the transitional period of 5 years. After the transitional period, EFTA countries will have more favourable treatment compared to the agreement with the EU, but Montenegro also granted a more favourable treatment from EFTA compared to what was agreed with the EU.

It was agreed that fish market liberalization will be carried out gradually, as follows:

1. Custom duties for products originating in category A will be eliminated in five equal annual phases, starting from July 1, 2012, and ending on January 1, 2016.
2. Custom duties for products originating in category B will be eliminated in seven equal annual phases, starting from July 1, 2012, and ending on January 1, 2018.
3. Custom duties for products originating in category C will be reduced to 50% of the MFN rate in five equal annual phases, starting from July 1, 2012, and ending on January 1, 2016.

Note: For products not listed in the specified tariff lists, the rate will be 0% as of the Agreement’s entry into force.

Each EFTA country has concluded a bilateral agricultural trade agreement with Montenegro. These agreements form part of the instruments for establishing a free trade zone. They cover trade in agricultural products classified under chapters 1 to 24 of the HS system, which are not included in Annex II (Processed Agricultural Products) or Annex III (Fish and Other Seafood), but cover Annex I of the basic Agreement (Excluded Products).

EFTA has granted asymmetric concessions in favour of Montenegro, and the bilateral agreements have been signed with Iceland, Norway, and Switzerland. Regarding the Agreement with Switzerland, it also applies to Liechtenstein as long as the Customs Union Agreement dated March 29, 1923, between Switzerland and the Principality of Liechtenstein remains in force.

These bilateral agreements contain lists of exceptions for which concessions have been granted, while MFN rates apply to products which are not listed. Montenegro, when granting concessions, ensured that they are generally not higher than those granted by the EU.

Norway has granted Montenegro concessions by reducing rates for the export of tomatoes, cucumbers, mushrooms, olives, peppers, asparagus, cut but still fresh potatoes, and raspberries. Moreover, Montenegrin producers can export mandarins, grapes, watermelons, peaches, nectarines, blueberries, kiwi, olive oil, wine, and water to the Norwegian market duty-free.

Montenegro granted concessions to Norway by reducing customs duties on sheep, goat, and poultry meat, certain types of cheese with geographic origin, live plants, flowers, and trees. Also, the market was liberalized for mushrooms, soybean oil not intended for human consumption, mineral and sparkling water without added sugar or other sweetening agents, vodka, some fruit brandies, as well as dog and cat food.

Iceland liberalized its market for natural honey, onion and garlic, asparagus, chanterelle mushrooms, spinach, olives, blanched and frozen vegetables (peas, beans, and sweet corn), all types of fruit, flour, semolina, malt, starch, olive oil, canned fruit and vegetables, jams, juices, mineral and sparkling water without added sugar or other sweeteners, wine, animal feed, tobacco, and cigarettes.

Montenegro granted concessions to Iceland by reducing the applicable rates for sheep and goat meat, and certain types of cheese with geographic origin. Furthermore, the market was liberalized for dried lamb meat as well as mineral and sparkling water without added sugar or other sweetening agents.

Switzerland (which also negotiated on behalf of Liechtenstein) granted Montenegro more favourable concessions than to other countries with which it signed agreements, specifically for tomatoes, cucumbers, grapes, peaches and nectarines, and mushrooms, reflected in the approval of duty-free quotas.

Montenegro was granted duty-free quota concessions for a significant number of products, including: honey, vegetables (potatoes, tomatoes, onions, cauliflower, broccoli, peas, beans, cabbage, peppers, cucumbers, raspberries, mushrooms, etc.), fruits (mandarins, grapes, watermelons, nectarines, peaches, raspberries, blueberries, kiwi, dates, pineapple, avocado, apricots, cherries, sour cherries, apples, pears, etc.), peanuts, olive oil, fats and oils not intended for human consumption, some processed meat products, fruit and vegetable products, biscuits, water (mineral and sparkling, with or without added sweeteners), sparkling and sweet wines, beer, tobacco, flowers (cut and flower buds), and other live plants etc.

For a smaller number of the aforementioned products, customs rates have not been fully liberalized, but have been reduced compared to MFN rates depending on the export period.

Montenegro received a zero tariff rate for champagne and sweet wines.

Montenegro granted Switzerland concessions in the form of reduced customs rates for the following products: lamb meat, beef, smoked and dried products, milk, cream, yogurt, butter, certain types of cheeses produced in Switzerland, processed meats, natural honey, processed fruit (strawberries, blackberries, raspberries), vegetables (blanched and dried), fruit juices, mineral and sparkling water without added sugar or other sweetening agents, potatoes, apples, pears, tomatoes, mushrooms, and others. In addition to these, the market was liberalized for pork meat, whey, nuts, tropical fruits, water (mineral and sparkling, with or without added sweeteners), and fermented beverages (cider, pear brandy, etc.)

Rules of origin are regulated by the Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin of Goods (“Official Gazette of Montenegro – International Treaties” no. 7/2012 as of June 8, 2012). These are modern rules of origin which came into force in Montenegro on September 1, 2012.

The Convention stipulates provisions on the rules of origin in trade between contracting parties, which have concluded free trade agreements.

The contracting parties to this Convention are:

• The European Union;
• EFTA countries (Iceland, Liechtenstein, Norway, and Switzerland);
• The Kingdom of Denmark on behalf of the Faroe Islands;
• The signatory countries of the “Barcelona Process” (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestinian Authority of the West Bank and Gaza Strip, Syria, Tunisia, and Turkey); and
• Countries participating in the Stabilisation and Association Process with the European Union (Montenegro, Albania, Bosnia and Herzegovina, Croatia, Macedonia, Serbia, and Kosovo).

One of the goals of concluding the Convention, among others, is the need for the cumulation of origin to be based on a unified legal instrument in the form of a regional convention on preferential rules of origin, which individual free trade agreements concluded between countries in the zone can refer to.

www.efta.int