EU slaps Serbia over 'sugar affair'

A scandal in the sugar industry here is providing fresh evidence of corruption's deep roots in this Balkan nation.

The European Union had offered Serbia-Montenegro, a country now joined in an uneasy alliance, preferential treatment to help develop its sugar-beet industry.

But recently EU investigators concluded that Serbia was buying cheap sugar on the world market - and then repackaging it as domestic produce to sell it to the EU at a huge markup.

Last month, the EU's executive body, the European Commission, announced a three-month suspension of Serbia's sugar-sales privileges. "This is some kind of break in the trust between the European Union and Serbia, and very bad for the reputation of this country," says Dusan Pavlovic, an analyst at the G-17 Institute, an economic reform think tank in Belgrade.

If Serbia doesn't clean up its act, say analysts, its proposed eventual admission to the EU, NATO, and other trade and cooperation bodies could be jeopardized. And that would be disastrous for the impoverished, politically fragile country's stagnant economy.

While some Serbian officials have tried to present the scandal as an isolated case, the particulars suggest it is emblematic of endemic corruption in Serbia and throughout the Balkans. As elsewhere in Eastern Europe, graft here typically involves close relationships between powerful politicians and people who have amassed fortunes of dubious origin in the transition from communism to a market economy.

High-profile figures in Serbia- Montenegro have been implicated in everything from large-scale smuggling of stolen cars to providing military aid to such regimes as Liberia and Saddam Hussein's Iraq.

On a smaller level, Serbian police recently announced that they had broken up a fraud involving the reexport of imported garlic to Italy, with a potential profit of more than $1 million. The scheme was similar to the suspected sugar deals: Chinese-grown garlic was imported from Italy and repackaged for sale back to Italy at inflated EU rates.

The EU faces similar problems throughout the region, having extended preferential trade deals to numerous Balkan states.

A shipment of sugar entering Greece from Croatia was recently analyzed by EU inspectors and found to contain a mix of beet and cane sugar, even though Croatia does not produce cane.

"You would be amazed at the things people can do if it's interesting tariff-wise," says a spokesman for the European Union's anti-fraud office in Brussels, which constantly battles relabeling from all sources.

In the sugar affair, Serbia got into trouble when EU auditors discovered a discrepancy: Allowed to export only its surplus, which is roughly 50,000 tons per year, since September it has shipped nearly four times that much to EU markets. Under this scenario, "producers" were buying on the world market at $211 per metric ton or less, and then reselling it to the EU at a generously subsidized price of around $630 per metric ton. All told, perpetrators may have pocketed an extra $7 million in profits.

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