EXENCIONES TRIBUTARIAS ENTENDIDAS COMO AHORRO FISCAL

The main characteristic of Croatia's trade policy since the early 1990s was liberalization, in spite of the war and the related risky environment. The liberalisation of trade in Croatia to date is a reflection of its membership in the WTO and the conclusion of free trade agreements (bilateral ones and with EFTA), and the intention to join the EU.

The institutional links between Croatia and the European Community were regulated up to 1992 by the same instruments that were regulated the links between the SFRY and the Community. Pursuant to the Cooperation Agreement, Croatia had preferential access to the 148_{Doing Business 2008 Croatia: A Project Benchmarking the Regulatory Cost of Doing Business in 178} Economies, (World Bank Group, 2007), 72,

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market of the European Community, and also a preferential position vis-à-vis other states in the region.

An internationally compatible market framework was established in 1995, with the enactment of the Company Law and the Law on Trade, for the most part adjusted in accordance with the principles of the GATT and resulting in the substantial liberalization of foreign trade. This law granted free entry into the foreign trade activity, introduced the same treatment of foreign companies and traders as for domestic ones, and the same legal status for foreign investors as domestic ones. The transfer and repatriation of capital was also granted.

Accession to the World Trade Organization was among the main priorities of the government in the second half of the 1990s. Croatia introduced a revised Customs Tariff in 1994, aligned with the relevant international conventions.149 Some financial incentives and subsidies were provided to the agriculture in accordance with the Law on Financial Incentives and Subsidies in Agriculture and Fisheries (and its amendments). The government intended to maintain guaranteed prices for a small group of agricultural products, while the system of variable levies was abolished.150 By the implementation of the new tariff regime in 1996 and the signature of agreements with neighbouring countries, the liberalisation of the trade policy continued. While foreigners were able to freely repatriate deposits, certain restrictions remained for Croatian citizens on foreign exchange deposits.151

Since joining the WTO in 2000, the Croatian efforts have been focused on the EU, and the Croatian trade policy is given shape within the context of the restrictions that are laid down by the membership in the WTO and in regional trade agreements, and by Croatia’s expressed intention to join the EU.152 By joining the WTO, Croatia bound itself to gradually reduce its customs duties on industrial and agricultural products to the level that is applied in the OECD countries, by the year 2005. The export and quantitative restrictions and the measures that have a similar effect have been abolished.

149 _{Croatia implemented the amendments to the International Convention on the Harmonized Commodity}

Description and the Recommendation of the World Customs Organization Regarding Ozone Layer Depleters and the Draft Recommendation on Drugs.

150 _{Report of the Working Party on the accession of Croatia to the World Trade Organization,}

http://www.wto.org/.

151 _{European Commission, Regional Approach to the countries of South-Eastern Europe:Compliance with the}

conditions in the Council Conclusions of 29 April 1997Bosnia and Herzegovina, Croatia, Federal Republic of Yugoslavia, former Yugoslav Republic of Macedonia and Albania, SEC (1998) 586. (Brussels, 1998).

http://ec.europa.eu/enlargement/pdf/enlargement_process/accession_process/how_does_a_country_join_the_eu/ sap/980330_sec_586_en.pdf.

152 _{Ana-Maria Boromisa and Mia Miki , “The European Union as determinant of Croatian trade policy,“ in}

Croatian accession to the European Union: Economic and Legal Challenges, ed. Katarina Ott (Zagreb: Institute for Public Finances : Friedrich Ebert Stiftung, 2003), 139-157., http://www.ijf.hr/eng/EU/boromisa-mikic.pdf.

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By 2002, the use of administered prices in Croatia was limited to agricultural products, energy and transport. This level of price liberalisation, according to the criteria of the European Commission, was considered advanced, and it was comparable with most advanced applicant countries at the time. 153 Since then, the European Commission has not changed its estimate regarding price liberalisation. However, the rating of price controls that indicates the index of economic freedom deteriorated in 2004 (from 4.0 to 3.0).

Trade with the EU in the period 2002-05 was regulated by the Interim Agreement that enabled the application of the commercial provisions of the SAA until the process of ratification was completed. The Interim Agreement contractually regulated trade preferences somewhat more favourably than those that were applied to Croatia after the collapse of the SFRY, including also an agreement on trade in textile products between the Commission and Croatia, which has been in place since 1 January 2001, providing for the elimination of the quantitative restrictions on Croatian textile and clothing exports.

According to the Interim Agreement, Croatian industrial products, all processed agricultural products, apart from wine, baby-beef and beef products, have duty-free access to the EU market without any quantitative restrictions. Croatia bound itself to liberalise access to its market gradually, over a period of six years. Since 1 January 2002, about 77% of the trade in industrial products has been liberalised; trade in textile and steel products has been gradually liberalised by 1 January 2006, as was trade in all other industrial products by 1 January 2007.

With respect to agricultural products, 75% of the trade was liberalised by 1 January 2006, 41% by the abolition of customs duties and 34% by preferential treatment covering traditional trade. Following the expiry of the transitional period, trade in processed agricultural and fish products are totally liberalised154_.

The establishment of regional cooperation became a standard provision of the agreements between the EU and third countries. This form of cooperation was achieved by the applicants by the creation of CEFTA. Croatia's membership in CEFTA became effective in 2003. Following the EU enlargement in 2004, CEFTA became a free trade zone between Croatia, Bulgaria and Romania. In 2007, when Bulgaria and Romania joined EU, CEFTA lost its members.

153 _{European Commission. The Stabilisation and Association process for South East Europe - First Annual}

Report [SEC(2002) 339] [SEC(2002) 340] [SEC(2002) 341] [SEC(2002) 342] [SEC(2002) 343]. (Brussels, 2002), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2002:0163:FIN:EN:PDF.

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In the framework of the Stability Pact for South Eastern Europe, trade liberalisation and facilitation among South East European countries was initiated in 2001. Croatia has committed to joining the regional free trade zones in the Western Balkans based on the Stabilisation and Association Agreement. The liberalisation of trade in SEE has been seen as a tool to increase the volume of regional and international trade, to improve the capacity of the region to attract foreign direct investment, and to enhance the integration of the region into the European structures and the global economy.

The principles of the trade liberalisation in SEE were the conclusion of a network of bilateral free trade agreements by 2002 and liberalising at least 90% of the trade among the parties, within a transitional period of six years. Aligning the existing bilateral free trade agreements with these principles was the basis for their multilaterisation, as well as for the future liberalisation of services and the harmonisation of legislation, inter alia, in the fields of customs, phytosanitary, standards and conformity assessment, competition and intellectual property.

The explanation for the disappointing export performance does not seem to lie in a loss of price or cost competitiveness, but rather in the lack of reform in the labour and enterprise sector and the remaining administrative barriers to foreign investors. The export structure has been largely unchanged and thus reflects the continued domination of the former and the current public enterprises (in particular shipbuilding with large import components). Croatian trade is also restricted, since it is not yet integrated in the pan- European system of diagonal cumulation. Furthermore, regarding the exports to the EU, the Croatian companies are often not able to apply the EC standards.155