Adoption is unlikely, but discussions are a positive sign and suggest FDI flows will continue into Serbia even if the agreement isn’t implemented
Negotiations over this plan represent a small, incremental step toward the ultimate goal of normalized relations between Kosovo and Serbia and are therefore unlikely to change the business climate in Serbia.
Serbia is one of six West Balkan countries that will receive a portion of EUR 30 billion in the form of grants, preferential loans, and guarantees as part of a plan announced in 2020. These funds will support areas such as transport, clean energy, and digitalization. Importantly, EU commitments to these investments are dependent on reforms relating to the rule of law and corruption. Critically, the normalization of relations with Kosovo are also viewed as key for attracting ongoing private investments into Serbia.
Overview
- Recent flare-ups over license plates have led to protests on either side of the border, raising worries that another conflict could be brewing between Serbia and Kosovo.
- At the end of February, the EU announced that an agreement had been reached to normalize relations based on an 11-point plan. It would include the recognition of passports, diplomas, and license plates. Although Serbia wouldn’t be required to acknowledge Kosovo’s statehood, it would not block its membership in international organizations.
- However, the agreement has yet to be signed, with further negotiations over its implantation scheduled for March 18. Moreover, once it is signed, further negotiations would be required for the ongoing normalization of relations.
- Both Kosovo and Serbia have indicated that they will fall short of meeting the obligations of the plan, which makes its adoption unlikely. That said, discussions are a positive sign and suggest FDI flows will continue into Serbia even if the agreement isn’t implemented.
Our View
Discussions between Serbia and Kosovo are, as always, a welcome event. Following the breakup of Yugoslavia, Serbia attempted to reimpose control over the autonomous province, resulting in war and the deaths of around 13,000 people. In 2008, Kosovo declared independence; however, Serbia has never recognized this decision, resulting in an ongoing row between the two territories. Importantly, Serbia’s stance on Kosovo has been a significant block on its EU ambitions and has encouraged the country to maintain close ties with Russia, which has supported its refusal to recognize Kosovo’s statehood.
The most recent EU-mediated talks were initiated after a flare-up over Kosovo’s insistence that ethnic Serbs in Kosovo use Kosovar license plates. Although negotiations over the 11-point plan have reduced tensions, this agreement is unlikely to be a significant game changer.
These dynamics therefore present a massive hurdle to the official adoption of the 11-point plan. At first glance, it appears relatively reasonable. Both countries would recognize each other’s official documents, but Serbia wouldn’t be required to acknowledge Serbia’s statehood. However, Serbia has stated it will not, as required by the plan, permit Kosovo to join the EU. Serbia has also taken issue with Kosovo’s failure to establish an association of Serb-majority municipalities required under a previous agreement. Kosovo states this is incompatible with its constitution and therefore cannot be implemented.
Given these positions, FrontierView does not expect Serbia and Kosovo to sign the agreement when they next meet on March 18. Ongoing negotiations are likely, without a substantial shift in relations between the two countries emerging anytime soon. With the license plate dispute solved, risk of conflict in the near term is low if the parties fail to implement the plan.
The country’s willingness to engage in negotiations with Kosovo will ensure EU funds continue to flow, but the prospect of EU membership is still far off. This is not only due to Serbia’s relations with Kosovo but also its relationship with Russia. Specifically, Serbia has so far resisted pressure to align its foreign policy with the EU’s policy. However, its minister of economy has urged the government to change its position and adopt the required sanctions against Russia. MNCs should continue to monitor Serbia’s stance on sanctions, as any cooling of relations with Russia and tilt toward the EU would support Serbia’s case for EU membership.
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