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The Government of the Republic of Serbia

In the service of citizens

Serbia has grounds to sue DynCorp

Belgrade, 10 November 2006

Serbian Minister of International Economic Relations Milan Parivodic said today that Serbia has real grounds for suing DynCorp for having pulled out unjustifiably from a project of construction of a cargo centre within the Nikola Tesla airport.

Milan Parivodic at today's press conference

Parivodic explained at a press conference that negotiations with DynCorp lasted too long, but the government expected that they would be completed successfully. However, a few weeks ago, this company sent a notification that it was no longer interested in taking part in the project.

According to information from the Serbian government, there had been a change of leadership in DynCorp, which is why the company decided to pull out of the negotiations. This has caused great damage to Serbia due to the engagement of a large number of staff, wasted time and money, and the need to locate another partner for this project.

Parivodic said that the Serbian government wants to initial and sign the CEFTA multilateral agreement because it believes that free trade in the region is in the interest of the Serbian economy.

He stated that Serbia, as the central country, wants to make trade conditions in the region more liberal and the CEFTA agreement is an important instrument for achieving that goal. However, it cannot initial that document if it is requested to reduce protection for its tobacco industry.

Parivodic said that the Serbian economy has been strengthened significantly with the presence of several large multinational companies dealing with tobacco production, such as Philip Morris, British American Tobacco and Japan Tobacco, which made great financial investments, agreed not to lay off workers and modernised the entire Serbian tobacco industry.

According to Parivodic, in exchange for that the Serbian government committed itself to protecting the Serbian market within reasonable bounds until these companies make a return on investments, because without such protection, these companies would be discriminated against in relation to all others that import cigarettes to Serbia that did not have the burden of such large investments.

The Minister explained that that is why Serbia has differential excise taxes which are higher for importers than for domestic producers, although the main principle on which CEFTA and the World Trade Organisation (WTO) are based is that such taxes must not exist.

Parivodic said that Serbia is ready to abolish differential excise taxes, which it will do at the first upcoming parliament session, both on cigarettes and some other products.

Taking into account that according to the agreement, Serbia is required to reasonably protect the interests of its market until December 31, 2009, it proposed to CEFTA to convert the existing differential excise taxes into a higher customs duty.

That means that Serbian customs duty, which at this moment stands at 15% for import of cigarettes, will be increased, but the overall tariffs which an importer of cigarettes to Serbia has to pay will remain the same. In this way, CEFTA and WTO rules will be respected, and the Serbian tobacco industry will be protected.

Parivodic said the Serbia proposal was supported by the European Commission and the Stability Pact, but not by some CEFTA members, that is, Croatia and Macedonia.

He outlined that Croatia has a twice as high fiscal burden on the import of cigarettes in relation to Serbia, so it charges €168 in taxes for €100, while Serbia charges only €78.

Speaking about cigarette trade with Croatia, the Minister said that the export of Serbian products to Croatia is 0, and of Croatian to Serbia €9 million, with the gap growing wider.

He explained that the situation is such because Croatia has a mechanism according to which all products that are not made by Rovinj tobacco industry or other Croatian brands are automatically taxed with the highest excises.

Taking this into account, the conclusion is that Croatia wants to additionally liberalise the Serbian market, but to keep its own completely closed, Parivodic said.

He said that Serbia's position is that it has to be fair to those who invested in the Serbian economy, but to neighbouring partners as well. In line with that, Croatia's refusal of the Serbian proposal is an act of unfair attitude.