Lecturer: Prof. Mirjana Radović (University of Belgrade)
Hours of lectures: 6

The free movement of capital and payments constitutes one of the four fundamental freedoms regulated by the Treaty on the Functioning of the European Union. Therefore, it constutes an important pillar on which the European Internal Market is based on. For that reason, candidate countries (i.e. SEE countries) need to integrate this concept in their national legislation in order to fulfill the requirements for accession to the European Union. Their obligations in this respect are defined in the Stabilisation and Association Agreements (SAAs).

Under SAAs the Parties are required to authorise in freely convertible currency, in accordance with the provisions of Article VIII of the Articles of Agreement of the International Monetary Fund, any payments and transfers on the current account of balance of payments between the Community and a candidate country. The cited provisions of the Articles of the Agreement of the IMF regulate the following: a) avoidance of restrictictions on current payments, b) avoidance of discriminatory currency practices, c) convertibility of foreign-held balances, d) furnishing of information, e) consultation between members regarding existing international agreements, as well as the f) obligation to collaborate regarding policies on reserve assets.

In addition to that, when it comes to transactions on the capital and financial account of balance of payments, the SAAs require the Parties to ensure the free movement of capital relating to direct investments made in companies formed in accordance with the laws of the host country and investments made in accordance with the freedom of establishment, as well as the liquidation or repatriation of these investments and of any profit stemming there from. Moreover, the Parties are obliged to ensure the free movement of capital with regard to credits related to commercial transactions or to the provision of services in which a resident of one of the Parties is participating, and to financial loans and credits, with maturity longer than a year. Finally, the SAAs explicitely require the Parties to ensure the free movement of capital relating to portfolio investment and financial loans and credits with maturity shorter than a year.

Further purpose of SAA provisions concerning the freedom of capital movement is to liberalise the acquision of real estate in the SEE countries by nationals of Member States of the European Union. Hence, each candidate country is required to authorise, by making full and expedient use of its existing procedures, the acquisition of real estate on its territory by nationals of the EU Member States. SEE countries are expected to progressively adjust their national legislation concerning the acquisition of real estate within four years from the entry into force of the SAA. The final goal is to achieve the same treatment of nationals of the EU Member States as compared to nationals of the SEE country where the respective real estate is situated.

The SAAs prohibit the introduction of any new restrictions on the movement of capital and current payments between residents of the Community and a candidate country as well as the introduction of additional restrictions within the existing arrangements. However, in exceptional cases where movements of capital between the Community and a particular SEE country cause, or threaten to cause, serious difficulties for the operation of their exchange rate policy or monetary policy, the Parties may take safeguard measures with regard to movements of capital between the Community and Serbia for a period not exceeding six months if such measures are strictly necessary.

Since all of the SEE countries, which are in the process of accession to the EU, are at the same time members of CEFTA, they have to abide by the rules of the Agreement on Amendment of and Accession to the Central European Free Trade Agreement. Some of these rules directly concern payments between CEFTA members (i.e. Parties to the Agreement). Hence, Parties are required to abolish any restrictions on payments in freely convertible currencies relating to trade in goods between the Parties and the transfer of such payments to the territory of the State, Party to this Agreement, where the creditor resides. Additionally, any exchange or administrative restrictions on the grant, repayment or acceptance of short and medium term credits to trade in goods in which a resident participates is prohibited. However, as an exception to these general rules, the Parties reserve the right to apply exchange restrictions on the grant or acceptance of short and medium term credits related to trade in goods to the extent permitted according to their status under the IMF, provided that these restrictions are applied in a non-discriminatory manner as regards the origin of the products and that they are not applied only to specific products or kind of products. Still, it is important that such restrictions remain of limited duration and become eliminated when conditions no longer justify their maintenance.