Commentary

Time To End the War Against Yugoslavia

By Gary Dempsey and Aaron Lukas
June 11, 2001
This Sunday, June 10, marks the second anniversary of the end of NATO’s bombing campaign against Yugoslavia. Much has changed since then, most of it for the better. Last year, the people of Yugoslavia took to the streets of Belgrade to topple the regime of Slobodan Milosevic. Today, the former dictator sits in jail awaiting possible trial for corruption and murder. In his absence, political freedom has been restored, a free press is flourishing, and ethnic Albanian political prisoners have been released.

Yet not all is well. In particular, Yugoslavia’s economy remains a major source of instability, threatening both Serbia’s fledgling democratic government and the stability of the region. And despite the revolutionary changes in Belgrade, Washington’s trade policy looks much like it did two years ago.

Since the end of NATO’s air strikes, Yugoslavia’s economy has foundered. Indeed, the situation there today is dire: Unemployment hovers around 41 percent while inflation is running at nearly 40 percent annually. At the same time, trade is drying up: Exports and imports fell by 21 percent from January to February of this year alone. That poor performance is dragging down fragile neighboring economies.

Policymakers in the United States have largely ignored the Balkan economic crisis. While it’s true that many of the explicit sanctions against Yugoslavia were lifted after Milosevic was deposed, Yugoslavia’s businesses remain barred from the U.S. market. If Washington wants to help relieve economic misery and put Yugoslavia onto a self-sustaining path of economic recovery, several things must be done.

First would be to immediately assist Yugoslavia in clearing away the destroyed Danube bridges that make river traffic all but impossible. The Danube was a main trade and transport channel for countries in Southeastern Europe. Since the bombing, goods traffic on the river has dropped from 100 million to 30 million tons a year. The OECD estimates that the blocked river costs Bulgaria $1.25 million a day. Romania calculates losses of $300 million a year. Yugoslavia’s ability to transport its products to market has similarly been compromised, and it’s hard to imagine vibrant economic growth there as long as waterways are obstructed and internal roadways are severed. Washington destroyed the bridges and so has a responsibility to help cash-strapped Yugoslavia rebuild them, either through direct aid or loan guarantees.

A longer-term—but ultimately more important—task is to establish free trade with Yugoslavia. Free trade and open markets are a crucial component of America’s post-Cold War world foreign policy. Open markets play a central role in stimulating economic growth, interdependency, regional cooperation and political stability. Trade liberalization needs to be at the heart of any reform movement in the Balkans generally and Yugoslavia specifically.

Washington should grant Normal Trade Relations (NTR) status to Yugoslavia and work to have it admitted to the World Trade Organization. At present Yugoslavia is still designated as a “Column II country,” which means that its exports to the United States are subject to punitive Smoot-Hawley-era tariffs. Those tariffs average 44 percent, as opposed to less than 5 percent for NTR countries. Beyond NTR, Yugoslavia should also be admitted to the Generalized System of Preferences (GSP), which allows many exports from developing countries to enter the U.S. market duty-free. Most of Yugoslavia’ s neighbors—such as Bulgaria, Romania and Slovakia—are members of the GSP.

Washington should use the carrot of open markets to encourage the Balkan countries, especially Yugoslavia, to streamline the functioning of their tax regimes to ensure the effective refund of taxes on exports. It should also push for the inclusion of Yugoslavia in regional initiatives, like the Black Sea Economic Cooperation initiative and the Southeast European Cooperative Initiative, which aim to liberalize and harmonize the foreign trade regulations of member states in the region.

The Bush administration has repeatedly, and correctly, made the case that trade helps bring peace, stability and freedom to troubled regions of the world, including to non-democratic countries such as China. If trade will help promote positive changes in communist China, surely it will go a long way in furthering democratic Yugoslavia’s re-integration with the global community.

Gary Dempseyis a foreign policy analyst and Aaron Lukas a trade policy analyst at the Cato Institute in Washington, D.C.