Perspectives | Politics

Can Kosovo afford the unintended consequences of the 100 percent tax?

By - 29.01.2019

Clear breach of international agreement could trigger impacts that cannot be undone.

“Without reflection, we go blindly on our way, creating more unintended consequences, and failing to achieve anything useful.” – Margaret J. Wheatley.

A friend once noted that those of us who study political science tend to misunderstand one thing about day-to-day political life. We tend to see further into the future than those whose political decisions we are analyzing, and interpret their actions without understanding their full points of view, which may well be limited in scope and foresight.

I started analyzing the 100 percent tax on Serbian products (Bosnian products also, but we’ll focus on Serbia here) with that basic idea in mind, wanting to see the exact impacts of this kind of policy-making for a state such as Kosovo.

I don’t want to go through the history of the tax as it has been much discussed, and there is already plenty of information available online. Instead, I’ll focus on a specific impact of these taxes on Kosovo and what this shows about us as a state.

In order to clearly understand this, it’s first important to get our heads around the way in which international agreements are made and enforced. And, sadly for those who have implemented this policy — to what has appeared to be a broadly positive reception at home, if not abroad — the devil is in the detail.

A breach of CEFTA

In this case, we are talking about the details contained in the Central European Free Trade Agreement (or CEFTA, as it is widely known). CEFTA is a free trade agreement between south eastern European countries and it is one of the pillars of post-war transitional development for this whole region.

As with all trade agreements, CEFTA is based on a treaty; this particular treaty was signed in 2006 (extending a treaty signed in 1992) and today includes seven members, which are named in its preamble: Republic of Albania; Bosnia and Herzegovina; Republic of Macedonia; Republic of Moldova; Montenegro; Republic of Serbia; and — the importance of this will become clear shortly — the United Nations Interim Administration in Kosovo on behalf of Kosovo in accordance with United Nations Security Council Resolution 1244.

It’s a standard free trade agreement, a dime in a dozen so to say, and as such its content is not an issue for this article — except for the last part, where one of the members is represented by a party other than itself. This is the basis of a problem that could cause immense consequences for that one member.

The position as of now is that Kosovo’s government has applied trade barriers toward Serbia and Bosnia in retaliation for negative political positions taken by these two states toward Kosovo. I don’t need to go into the political back and forth on why this tax was introduced because the prime minister, Ramush Haradinaj, has given a lengthy explanation that you can read here.

That answers a question nobody asked but is of utmost importance: Kosovo did breach the CEFTA Agreement.

And this explanation is significant, because he bases the tax on apparent breaches of CEFTA’s Article 18. In his own words (originally in Albanian): “This decision was taken in accordance with Article 18 of the Central European Free Trade Agreement.”

Article 18 (sub-section two) of the CEFTA Agreement does indeed show that the Agreement still allows each signed up state to take measures “for the protection of its essential security interests or for the implementation of international obligations or domestic policies:” The prime minister uses this exact terminology in his explanation.

But the problem is that he has missed out the next part of the Article in question, which clearly states that this only applies in one of three circumstances.

Firstly, relating to “the traffic in arms, ammunition and implements of war, provided that such measures do not impair the conditions of competition in respect of products not intended for specifically military purposes, and to such traffic in other goods, materials and services as is carried on directly or indirectly for the purpose of supplying a military establishment.” It is clear that the tax cannot be made for the purposes of political retaliation on nonmilitary items.

Secondly, “relating to the non-proliferation of biological and chemical weapons, nuclear weapons or other nuclear explosive devices.” This clearly doesn’t apply and cannot be used as a justification for an action such as this.

Thirdly, “taken in time of war or other serious international tension constituting threat of war.” Since Kosovo’s government has not tried to justify that there is a genuine threat of war — something that would have huge international implications and fallout — it can be safely assumed this isn’t the case and that this circumstance therefore does not apply either.

The reasoning that Kosovo’s government gives for the tax is therefore null and void from the get go.

So, that answers a question nobody asked but that is of utmost importance: Kosovo did breach the CEFTA Agreement, as its government’s own explanation of the tax is not valid and cannot be the basis of such actions — it’s as simple as that.

Unintended consequences

This fact alone creates a huge issue for Kosovo as, on this occasion, Serbia has the law on its side — and its leaders know it.

Serbian Prime Minister Ana Brnabić has stated that as this is a breach of the CEFTA Agreement at its core, the solution to the problem is to be found within the Agreement itself.

And it’s here that we start to see what severe unintended consequences a breach of CEFTA can have for Kosovo.

The problem resolution mechanism in the CEFTA agreement can be found within articles 41- 43 of the Agreement and it has three basic steps:

Firstly, direct consultation between parties should be attempted; secondly, consultation through a joint committee meeting, potentially with a third party mediator if both parties agree, should be requested. Serbia requested consultations through the joint committee on November 28, thereby triggering a defined 90-day time frame for a solution to be found in this way.

If a resolution cannot be found within this time frame, the third and final resort of a damaged party (as set out in Article 43 and expanded in Annex 9) is arbitration. Brnabić has already directly stated that she will push the dispute resolution mechanism to its full extent.

We may be put in a position of watching our perceived statehood being shaken to its core by a process that is (potentially) completely out of our hands.

So, what would this look like if Serbia were to pursue this option? Let’s say the 90 days have passed (and we are inching closer to it by the day) and Serbia initiates arbitration. What would happen?

Article 43 states that a tribunal with the power of the final and binding word must be established; the tribunal would be governed by both this treaty and international law and would comprise of three members.

Two members are to be chosen directly by the parties in dispute (one by each party), and these two members would then select the final member. Once the third member is confirmed by the two parties in dispute, he or she becomes the president of the tribunal. Within a defined time frame of six months, these three arbiters then designate the winning party and chose the reward suitable if the breach is confirmed.

If this was all there was to it, this opinion piece would not exist at all. But if you’ve read carefully up until this moment, you may have spotted a problem that (potentially) changes everything.

The problem is that the arbiters are chosen by the “parties” to the agreement, and Kosovo (as of now) is not a direct party to the agreement — rather, UNMIK is, on behalf of Kosovo. Which means that when the 90 days pass and Serbia issues notification of the start of the arbitration process, it will notify UNMIK of its intentions, and expect it — not Kosovo — to choose the second arbiter.

This is the prerogative that UNMIK has in international law, a fact also confirmed in the 2012 agreement that Kosovo and Serbia have on Kosovo’s participation in the international community.

Article 6 of that agreement states: “… nothing in these conclusions will be interpreted as prejudicial to UNMIK’s legal rights. A representative of the United Nations Mission in Kosovo (UNMIK) will be invited to meetings organised within the framework of arrangements for which it is a signatory. It is for UNMIK to decide whether to attend any particular meeting.”

Bluntly spoken, the first arbiter would be chosen by Serbia and the second arbiter could be chosen by UNMIK if they chose to do so. This may sound wrong to most people reading in Kosovo, but international law is clear as day here — a “party” to an agreement is stated clearly in its preamble and that is the simple truth in this case.

To continue the process as stated in Article 43 (and Annex 9), the Serbian and UNMIK arbiters could continue the process as stated above and finalize the decision — if they chose to — (potentially) without any consultation with Kosovo’s authorities at all.

And as head of UNMIK Zahir Tanin has clearly stated that UNMIK is concerned about the impact of the tax (it is against it), we would have a curious case where a party (Kosovo) imposes a problem to an international agreement and it is potentially arbitrated without any participation of that party whatsoever.

What is even weirder, it could be resolved by two other actors (Serbia and UNMIK), which are both definitively against the wishes of the party in question. This is completely unheard of in international relations, but it is a sad reflection of the position Kosovo has in relation to other states and organizations.

It demonstrates the completely unintended consequence that such a decision can have on us all here in Kosovo. We may be put in a position of watching our perceived statehood being shaken to its core by a process that is (potentially) completely out of our hands.

Picking up the pieces

In a process where it may not participate at all, Kosovo would only be liable to pay the damages.

The damages decided upon by an arbitration process would more than likely cover the cost of Serbia’s losses and be set at whatever they could prove as having lost during the time that the tariff has been active. They would not be negotiable, and arbitration rulings are final — that is how they work.

Brnabić has been quoted as saying that Serbia loses 42 million euros per month as a result of the tariff, which could mean a loss of more than 500 million euros per year. This is an absurd amount of money for Balkan countries — especially for a small one such as Kosovo, which could well find itself footing the bill (and remember, we’re only talking about Serbia here, not including Bosnia’s losses).

To put it into perspective, Kosovo’s (as yet still unapproved) budget for the 2019 fiscal year is around 2.3 billion euros. So, a 500 million euro fine, if paid directly (in reality it would be stretched out in fines paid over a longer period), would cost Kosovo more than 21 percent of this year’s budget.

We have to start paying more attention to details, and not rely on emotions when making political decisions.

If the compensation amount were to be only a fraction of the total cost mentioned above — let’s say Serbia is not telling the complete truth about the extent of its total losses — that is still hundreds of million euros of our money that is going to Serbia. Hundreds of millions of euros worth of potential investment in our own country on things such as education, our health system, infrastructure, local development, and all the other things that we need here the most.

As for a potential solution, the only one I can perceive to avoid this whole ordeal is to not allow the arbitration activation process to be reached — and that would mean removing the tariffs before the end of the 90-day period provided for consultations.

If this whole saga shows us anything, it should be that we have to start paying more attention to details, and not rely on emotions when making political decisions, let alone those with potentially significant ramifications. We cannot complain about others hampering our progress if we continue to be our own worst enemy.

Feature image: Besnik Bajrami / K2.0.

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  • 19 Mar 2019 - 20:12 dard:

    ooooof we need an paternal autocrat as our leader also the tax is the best thing that has happend in kosovo it bossted the privat sector and showed serbia who we really are

  • 30 Jan 2019 - 10:49 Frans:

    Well written. Thanks

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