European Commission approves Kosovo’s SAA

By bne IntelliNews May 4, 2015

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The European Commission adopted the proposal for a Stabilisation and Association Agreement (SAA) with Kosovo on April 30. The agreement, which is expected to come into effect in 2016, is an important step on Kosovo’s path to eventual EU membership.

Once it enters force, the agreement will be the first contractual relation between the EU and Kosovo. It links integration with the EU - including by establishing a free trade area - and the prospect of future EU membership to economic, political and administrative reforms. The specific progress that needs to be made is decided on a country by country basis.

"Today's adoption by the European Commission marks an important step in the relations between the European Union and Kosovo. It is now up to the EU Council and European Parliament to agree before it can be signed and enter into force in early 2016,” the head of the EU office in Kosovo and EU special representative, Samuel Zbogar, said in an April 30 statement

“Such a robust agreement will cement Kosovo's position in the mainstream of the EU's policy for the Western Balkans,” Zbogar added.

The European Council decided in June 2013 to authorise the opening of negotiations on the SAA after the EC confirmed Kosovo had met all short-term priorities identified in a 2012 feasibility study in the areas of rule of law, public administration, protection of minorities and trade. Negotiations on Kosovo’s SAA started in October 2013 and the agreement was initialled in May 2014.

Prime Minister Isa Mustafa said in an April 30 statement that he welcomed the EC’s adoption of the proposal for Kosovo’s SAA.

“This decision today is the first and important step towards signing the SAA, such as a contractual mechanism between the Kosovo and EU,” Mustafa’s statement said.

“The government of Kosovo commits to be a serious partner in this common journey, based on European values, and will perform with dedication and responsibility all the duties and obligations, with the aim of meeting and implementing all the criteria required for this major vision for our country.”

The SAA provides a framework for political dialogue and covers co-operation in sectors, such as justice, trade, education, employment, energy, environment and other policy areas.

The latest EU enlargement report published in October 2014 notes that the initialling of the SAA in July was “a milestone on Kosovo’s European integration path”, and commended progress made in the normalisation of relations with Serbia.

However, it added that Kosovo “faces numerous challenges”, citing in particular the rule of law including judicial independence, and limited results in the fight against organised crime and corruption. Both political and economic reforms stalled in the second half of 2014, during the six-month wait for a new government to be formed after the June general election.

Kosovo also has poverty and unemployment levels that are among the highest in Europe. The March 2015 Public Pulse Poll, co-funded by USAID and the UNDP, and published on April 29 found low levels of confidence in both the economy and the government. Only 3.7% of respondents said they were satisfied with the country’s economic direction, and 79% considered the largest problems that Kosovo faces today to be related to socio-economic conditions. The top three problems cited by respondents were unemployment, poverty and corruption.

A 2014 report from the Pristina-based independent public policy organisation the Group for Legal and Political Studies (GLPS) on “The Trade Impact of the Kosovo-EU Stabilization and Association Agreement” forecasts that Kosovo will benefit from signing the agreement in “many different aspects”. These will include the opening up of EU markets to Kosovo, greater regional cooperation and new grant and funding opportunities.

While signing the SAA is likely to require progress in these areas, it is not clear what the consequences for Kosovo will be - at least in the short term - from market opening. The impact on other countries in the region has been mixed, the GLPS report says. For example, Albania’s trade with the EU increased much faster than Macedonia’s following the signing of the two countries’ SAAs.

“Opening up markets on a preferential basis can be beneficial for countries whose economic conditions are stable, as shown by the welfare gains of some of the Western Balkan countries,” says the report. “On the other hand, the market liberalisation might lead to welfare losses, as well as damages for both producers and consumers if the economic conditions of the partner country are unsatisfactory.”

Impact assessments carried out by the Kosovan ministry of trade and industry and cited by the report indicate that an increase in both imports and exports is expected. “This implies that Kosovo‘s trade deficit will likely deepen further if economic conditions and competitiveness do not improve,” the report warns.

Kosovo’s primary trading partner is the EU, which accounted for 41.4% of total imports and 29.1% of exports in March. Despite a small year-on-year decrease in Kosovo’s overall trade deficit in the first quarter of 2015, the net trade deficit totalled €423.2mn during the three-month period, according to bne IntelliNews calculations based on data from the Kosovo Agency of Statistics.

However, the EC’s approval of the SAA is an important signal that Kosovo is making progress towards the still far off goal of EU membership. It lags behind other countries in the Western Balkans. Croatia and Slovenia are EU member states and most other countries already have EU candidate status.

Bosnia and Herzegovina, which also lagged behind the other countries in the region, achieved a breakthrough on March 16 when EU foreign ministers agreed to unfreeze the country’s SAA which had been signed back in 2008. This followed an initiative launched by the German and British foreign ministers in 2014 to revive the agreement, in return for which Sarajevo pledged to make socio-economic and administrative reforms. 

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