We checked how "harmonization" of unwilling members of the new commonwealth of Serbia and Montenegro looks in practice.
Scene first - VAT: Border and customs posts Dracenovac, Dobrakovo, Rance and the train station in Bijelo Polje were established between Montenegro and Serbia after the smaller state introduced the Value Added Tax (VAT) and changed its customs laws. Although the initial confusion of the customs workers added to the creation of miles long lines of trucks on the administrative border, it is clear that the border control of goods must be detailed. However, it turned out that it also takes an excessively long time.
Government's Decree about the handling of goods and travelers on the border between Serbia and Montenegro did not make it easier for either the truckers or the customs workers. Only the shipping companies are making profit, most of all Zetatrans. Because it has a bank guarantee for payment of possible customs duties, Zetatrans charges truck drivers from Serbia $60 per invoice on the goods they are shipping. That put a truck driver from Belgrade into a very unpleasant situation. He had hauled four tons of office and school supplies ordered by seven customers from Montenegro to the border. Since he had seven invoices, the driver had to pay $420 for four tons of goods. And that was not all.
Since the companies ordering goods are based in several cities in Montenegro, after each delivery the driver must report to the local customs office to have the goods that are yet to be delivered inspected and sealed. "It cost me an arm and a leg. I waited two days near Bijelo Polje, because there is no real crossing there. There is no electricity and the customs office shuts down with sunset. In Podgorica I had to pay entrance fee to the truck terminal $10, and since I was kept there for more than six hours I had to pay another $10. When I add my personal [food, lodging], unexpected costs, the goods I am delivering are immediately 30% more expensive," he explains, waiting at the Podgorica truck terminal for the owner of the bookstore who is one of the customers, to arrive and pay the VAT. The customs terminal near the Podgorica bus station is extremely chaotic and crowded. Even though the terminal has been extended by paving over the nearby park, the trucks that wait for customs and police inspections have spread out and occupied nearby sidewalks. Number plates indicate that the drivers have arrived from Kranj, Ljubljana [in Slovenia], Gostivar [in Macedonia], Zagreb, Split [in Croatia], Podujevo, Prokuplje, Smederevo, Uzice, Nis [in Serbia], Cetinje, Bar, Herceg Novi [in Montenegro]... Drivers, tired, grumble and wait for apparently missing customs officers. The buyers of the goods delivered by trucks are also there. With sheaves of papers in hands they nervously pace waiting for the officials to pay the VAT.
"This is unique," a mustachioed truck driver from Nis huffs. "Oh, no it isn't," a colleague from Split interjects, "it's just like in Albania". He passes his toiletries bag to the trucker from Nis, advising him to refresh himself in the toilet at the bus station. A driver from Kraljevo complains that "there is neither toilet nor electricity, not even a bush to hide behind". "Dear, don't ask for my name. I drive on this relation often. My company has a shop in Podgorica and I may get in trouble if they read my name in newspapers. I'm not doing great anyway," an elderly crockery salesman complains. "Well, I don't care, I'm not coming back," Miloje Ilic from Uzice jumps in. "I've got a truck load of meat and they've been sending me back and forth all over Montenegro in this heat. My whole load is gone, spoilt. I don't care, this market is miniscule, smaller than Nis," he says, wondering out loud how he's going to get rid of several tons of meat. A colleague, who drives "Hisar's" goods joins the conversation. He complains that customs officers on the Montenegrin border refuse to speed up inspections of perishable goods. "I'd go back, but how am I going to explain on the border that these are the same goods I originally brought into Montenegro and that I simply ran out of patience waiting for all the formalities to be completed".
The owner of a truck and cheese from Valjevo region does not understand why he was charged $300 "for (his) own cheese", and the driver shipping potatoes from Ponikve instructs him that "now they collect some sort of new tax in Montenegro". A driver from Novi Sad adds: "I wish I could get a coffee somewhere, but I don't dare leave my truck for a minute. This morning I left for ten minutes to buy breakfast and missed the customs officers. Who knows when they will be back". A colleague from Kranj pops out of his truck and throws a can of instant coffee. A trucker from Maribor, in transit, pops up from somewhere with a guitar. "Let's go buddies," he starts and bursts into song: "From Vardar to Triglav" [popular song, unofficial former Yugoslav anthem]. Confused looks, smiles, comments "who cares" and the truckers join the song. Officials on duty in the public income and customs administrations have unplugged their phones. It's Easter. Deputy Finances Minister Koviljka Mihailovic explains that the Government has charged the Customs with control of vehicles with the Decree and that her Ministry has nothing to do with that. The Serbian Minister of Finances consoles truckers from Serbia: "Two governments negotiated. We agreed that locally produced goods will not be taxed on the border between Montenegro and Serbia."
It will be interesting how this is supposed to work, because, if Djelic is right, then the only goods in Montenegro that will be spared the VAT will be those from Serbia. Montenegrin officials, relaxed and on vacation, failed to clarify and explain: what will happen with Montenegrin goods and imported goods if the goods from Serbia are immediately 17 percent cheaper?
Second scene - Customs: Warning of the Serbian minister for Economic Relations Goran Pitic that after the enactment of the new customs law in Montenegro goods from Serbia will be treated as goods imported from abroad, turned out to be partly correct. It's not true that customs duties have to be paid for the goods coming from Serbia, but other costs, such as transportation tax and truck parking tax, combined with complicated control procedure, ultimately make the goods coming from Serbia more expensive.
Alignment of customs duties, initially projected for the end of March, and later postponed until the end of April, still hasn't happened and it's unclear whether it ever will, despite the optimistic announcement by the Montenegrin Minister of Finances Miroslav Ivanisevic that expert teams of the two governments made significant progress at the meeting held in Podgorica just before Easter. Ivanisevic admitted that he expected that it will be impossible to adjust all customs duties and announced that arbitration of the European Union would be sought. Lacking patience, Serbian National Bank governor Mladjan Dinkic announced that Serbia would request a separate procedure for the process of association and stabilization. "It is unrealistic to expect a common approach to the customs policy. The Belgrade Agreement legalized the fact that we have two totally separate economies and that is a good basis for the later peaceful separation of Serbia and Montenegro," the governor logically concluded.
Based on the statement of the Serbian Minister for Economic Links With Aborad Goran Pitic expert teams of two governments half finished their job. They managed to align 6,000 customs duties, out of 8,500. Duties acceptable for Montenegro and Serbia differ more than ten percent in the case of electricity, copper, aluminum, steel and some agricultural produce.
Pitic left to his Montenegrin colleagues a possibility to consider one more time the proposal of his government regarding how the remaining customs duties could be aligned. Otherwise, arbitration by the EU or separation would be the only possible ways out of the impasse.
If the EU accepts to arbitrate, it will take upon itself a big risk. Or, if it really cares for the commonwealth, it will subsidize Montenegrin losses.
If that happens, entrepreneurs in Montenegro will have to clean up their own house. The fairytale about the free market and liberalized imports will have to become the truth and import quotas and limits will have to be abolished. Besides, established prelevmans [import duties, other than customs duties] will have to become customs duties, and they are also not negligible.
The conclusion is that Montenegro will have to work on sales margins, which are currently between 50 and 70 percent. As the VAT rate is the same for everyone, it will not influence reduction of margins, so that the only way to reduce profit margins is to open doors to home grown competitors and competition from abroad. In small economies, such as Montenegro, three importers who share monopoly thanks to import quotas and limits find it more profitable to negotiate a single price than to fight for increased market share by reducing their prices.
Scene third - Banks: 15 days are needed to transfer funds deposited in one of Banks in or post offices in Serbia to an account in Montenegro. That much is needed to transfer money from an account in, for example, the Investment Bank in Belgrade, via Frankfurt, to the Montenegrin Bank in Podgorica. In the process, each bank charges 1 percent for its services, so that charges add up to three percent.
Although some of commercial banks in Montenegro were prepared to start financial transfers with banks in Serbia, that will not happen in the near future. Montenegro is the last country in Europe to mandate that all financial transactions are channeled through the Institute for Accounting and Payments, a government controlled institution, at the disadvantage of the citizens.
Financial experts from Montenegro and Serbia have only managed to agree that the National Bank of Serbia will be the depositor in the IMF and the World Bank and the fiscal agent in the IMF, while Montenegrin Central Bank will be the fiscal agent in the World Bank. That does not make it easier for citizens and entrepreneurs to conduct business. On the contrary, it costs them money and time.
For milk, in Serbia import duty is 15 percent, and in Montenegro five percent, plus prelevman of 10 cent per liter of milk, or 20 cent per liter of yogurt and one Euro per kilogram of butter. Therefore, if a liter of milk imported from Slovenia costs 70 Euro cents, then the overall import duties are 20 percent, 25 percent higher than in Serbia.
In Serbia import duties for potatoes are between 20 and 30 percent. If in Montenegro a kilogram of potatoes costs 50 Euro cents, and prelevman is 25 cents, then the overall import duty is 50 percent. Serbia taxes imported lettuce 20,and tomatoes 30 percent, while Montenegro charges 20 cents of prelevman for all imported vegetables and fruit.
For every kilogram of imported cold cuts, the importer must pay 90 cents, 40 cents for a kilogram of imported salami, and 30 cents for a kilogram of imported meat cans. The state charges a whole Euro for a liter of imported Komovica brandy or olive oil, 20 cents for a liter of mineral or plain water, and 30 cents for a liter of imported beer.
The European Advisory Center for Economic and Legal Matters has established that in Montenegro, despite lower average customs duties, four times lower than in Serbia, only footwear and clothing are cheaper than in Serbia, by 30 percent. Food is more expensive in Montenegro, by 13.5 percent, cigarettes and liquor by 9.1 percent, health products and toiletries by 5 percent. Montenegrins pay 50 percent more than residents of Serbia for phone charges and 18 percent more for furniture and house appliances.