The Republic of Croatia's Accession to the European Union

Analysis 1/12

Policy analysis

Policy analysis The Republic of Croatia’s Accession to the European Union

Sarajevo, March 2012

Outstanding issues between Bosnia and Herzegovina and Croatia and their implications for Bosnia and Herzegovina

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Table of Contents Introduction

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Border Issues

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Property-Rights Affairs

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The Neum Corridor

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Electrical Energy Sector

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Trade Relations

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Labour, Employment, Social Welfare and Pension Sector

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Conclusion

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With the support of: This Independent analysis has been prepared by the Foreign Policy Initiative BH (FPI BH) with the financial support of the Friedrich Ebert Stiftung. The views expressed here are those of the Foreign Policy Initiative BH and are not to be understood as in any way reflecting the views of Friedrich Ebert Stiftung.

Contact: info@vpi.ba www.vpi.ba

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The Republic of Croatia’s Accession to the European Union Outstanding issues between Bosnia and Herzegovina and Croatia and their implications for Bosnia and Herzegovina

INTRODUCTION On 30 June 2011 the European Council announced the closure of negotiations pertaining to the accession of the Republic of Croatia to the European Union following a proposal from the European Commission who also proposed that on 1st July 2013 Croatia should accede to the European Union.

Croatia will become the 28th member state of the EU on the aforementioned date provided that no unexpected problems occur in the meantime. It will thus implement its long-term fundamental political, economic and social strategic goal. At the same time, Croatia’s accession has the potential to significantly affect the overall situation in the region and to open new possibilities for the Western Balkans in the process of Euro-Atlantic integration. However, it will also offer a new insight into the negative implications of the current outstanding and unresolved problems between Croatia and the other countries in the region. Many outstanding issues in the region may cause further deterioration in the overall situation in BiH, especially in the economic and political spheres. The consequences arising from the delay in harmonising standards with those which will be applied in Croatia as an EU member state, in particular in the area of the economy, will be presented in a new light and with a new intensity. Standards in neighbouring countries will be incompatible with those newly applicable in Croatia. Those differences and lack of harmonisation will be unfavourable primarily for neighbouring countries but they will nevertheless have significant repercussions for Croatia too.

In particular, the new circumstances that will exist after Croatia’s accession have implications for Bosnia and Herzegovina (BiH). On a positive note, EU membership of Croatia (with which BiH has the longest border) represents for BiH (a country strategically committed to Europe; potential candidate for the membership in the European Union and a permanent regional partner of Croatia) a challenge and an opportunity for the swift internal reforms and resolution of outstanding issues on the long and complex path to the European Union. On the other hand, the outstanding issues between the two countries, both those with a strictly bilateral meaning and reflection and others with a wider, regional impact, could result in long-term negative consequences for political, economic and social relations, and moreover become a factor of destabilisation in the region. The failure to resolve outstanding issues between the two countries in a swift manner, based on European principles and standards, represents a challenge that could be a powerful impetus for an accelerated strengthening of the European Partnership, but it could also result in serious problems with varying potential outcomes.

In addition, the importance of a recently repeated statement should be kept in mind. This statement emphasised historical, social, cultural, economic and political links, strong foreign relations, the longest land border and the number of people with dual citizenship as characterising the relationship between BiH and Croatian. These factors make the two countries and their people permanent partners in current and future regional and global issues. However, there is a high possibility that this relationship could quickly and easily be adversely affected by the negative connotations of the outstanding problems and issues in social, economic, political and other areas if the process of their resolution fails to accelerate and is incomplete when Croatia accedes to the European Union.

Moreover, many of those outstanding issues will no longer be, either substantively or technically, just bilateral issues between BiH and Croatian, but de facto multilateral issues between EU member states and Bosnia and Herzegovina. When addressing these issues, the positive elements and traditional advantages deriving from the relationship between the two countries will be lost and subjugated to the interests of the EU and its 28 member states.

When reviewing the most important outstanding issues between BiH and Croatia, which will receive additional importance when Croatia accedes to the EU, there is an apparent difference between them in terms of historical attempts to resolve them and the duration of these attempts, as well as in terms of the reasons for the failure to address them and whose responsibility/fault this is. Of particular note is the group of outstanding issues that have not been resolved due to internal relations in Bosnia and

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Herzegovina and the fragmentary constitutional and legal order of the state including related legislative and administrative obstructions. It is no secret that the“fragmented” constitutional framework in Bosnia and Herzegovina is often used by local actors to obstruct the resolution of outstanding issues with neighbours, including Croatia, but it has also been used by other countries’governmental structures at various times due to different political interests. In relation to this it is interesting to note the phenomenon of the concluding and signing of agreements, including some important bilateral agreements (the Port of Ploce, border near Neum, border crossings), followed by a failure to ratify them in the Parliaments of the two countries accompanied by requests for their abandonment or fundamental revisions.

The aforementioned “internal” circumstances in BiH being used as a reason for failure to reach agreements with neighbours in accordance with prevailing international standards and in particular EU standards, further emphasises the necessity for changes to the institutional and constitutional order of BiH in line with European principles and standards. If there is a failure to do so BiH will constantly appear to be a disruptive factor in the European context and this therefore gives additional significance to the problem of the outstanding issues between BiH and Croatia. Therefore, in considering when and how to urgently resolve these issues, one should be aware (and act accordingly) that this task should be dealt with trilaterally by Bosnia and Herzegovina, Croatia and the EU before Croatia becomes a member of the EU and transfers the outstanding issues with BiH to the EU as a whole.

In relation to this and considering the importance for BiH of Croatia’s accession to the EU, as well as the creation of preconditions to resolve the outstanding issues and further strengthen the pro-European orientation and climate in BiH, concrete activities should be enhanced to enable the prevention of the serious negative consequences that will result from possible non-resolution or long delays in closing the outstanding issues. To this end, it is necessary to employ all available resources in order to reach mutually acceptable solutions on the basis of the following: concrete programmes with agreed deadlines, specified mechanisms, political and diplomatic contacts through communication with relevant institutions in Croatia and the engagement of all relevant state and entity institutions in BiH as well as representatives of the legislative and executive branches of government and civil society. When resolution of the outstanding issues requires financial support, Bosnia and Herzegovina has at its disposal the EU preaccession funds within components I and II of the IPA. This should certainly be kept in mind when programming pre-accession assistance for the forthcoming period. Cases in point are border inspection services and the harmonisation of legislation intended for achieving the standards and requirements necessary for the export of industrial and agricultural products to the Croatian market, i.e. part of the EU internal market.

At the moment it is clear that Croatia’s accession to the European Union will have a significant impact on border issues, in particular the following: inspection services, trade in industrial and agricultural products, property-rights relations, the status of the Port of Ploce, traffic corridors, citizenship and travel documents, the electric power industry and trade relations. Almost none of these issues are new in the history of relations between the two young countries. Some have been on the agenda since the establishment of two sovereign and independent states, some have been practically resolved but are back at the beginning and some issues have remained unchanged for fifteen years. Regardless of this, all these issues now appear in a completely new light in view of Croatia’s impending accession to the EU and therefore require optimal care and efficient organisation of their prompt resolution with full awareness of the fact that they can be resolved only on the basis of European standards rather than exclusively in local interests.

BORDER ISSUES The following fall under the broader context of outstanding issues in relation to the border between Croatia and Bosnia and Herzegovina since the end of the nineties to the present day: the issue of the State Border Agreement, the issue of the sea border delineation and the issue of the bridge to the Peljesac Peninsula, as well as the issue of the status of the Port of Ploce, i.e. the “Agreement on Free Transit through the Territory of Croatia to and from the Port of Ploce and through the Territory of Bosnia and Herzegovina at Neum“.

Agreement on the State Border between BiH and the Republic of Croatia: This Agreement was concluded on 30 July 1999. However, since no document relating to the border with Croatia was ratified by the Parliamentary Assembly of BiH, nor by the Croatian Parliament (except the Agreement on Free Transit to and from the Port of Ploce and through Neum, which was ratified in the Parliamentary Assembly

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of BiH but not in the Parliament of the Republic of Croatia), the entire border line with Croatia remains an open issue.

An integral part of the Agreement on the State Border concluded in 1999 is cartographic representation of the border (86 geodetic maps at scale 1:25,000) and a precise description of the border in accordance with its international recognition. The Agreement on the State Border between Bosnia and Herzegovina and the Republic of Croatia was previously subject to a comprehensive procedure of harmonisation, verification and initialling at the level of state committees and it has undergone the procedure for adoption of international agreements and treaties in the manner set forth in the laws of both countries.

Importantly, this Agreement has taken into account and fully respected the former Yugoslav document from 1959 entitled “The People’s Republic of BiH Border Description” as the official document that was concluded between the republics in accordance with procedures that existed at that time. This document defines principles and contains a precise description of the border, in particular in relation to rivers.

However, despite the existence of this harmonised and concluded Agreement, its ratification was constantly delayed and in March 2006 Croatia submitted its position regarding the border in Neum in which it disputed Bosnia’s territorial ownership of Veliki and Mali Skolj and Ponta Klek Cape in the area of the Klek Peninsula.

At the time, the Serb members of the State Committee for the BiH Border expressed their view that the border between BiH and Croatia should be drawn through the middle of the Una River from Ivanjska to the mouth of the Una River in the Sava River, placing particular emphasis on the existing border issue in Kostajnica.

Bosnia and Herzegovina agreed that the State Committees for the BiH and Croatian Border should jointly consider the issues subsequently raised regarding the request for correction of the border in the area of Neum and in the lower reaches of the Una River. Relevant experts in international law and border issues were of the opinion then, and are of the same opinion now, that a mistake was made in granting new possibilities to Croatia to deny the existing Agreement. There were neither formal nor legal grounds to question the concluded Agreement if both parties failed to agree to review it.

The issue has been pending since then but nevertheless it has generated other border related problems.

On 5 July 2010 in Zagreb a joint session of the two Committees for the BiH and Croatian Border was held and both sides “expressed their consent to continue working to ensure fulfilment of the requirements necessary for the ratification of the Border Agreement between BiH and Croatia.“ In the meantime, the idea of international arbitration on this issue was introduced and, following Premier Milanovic’s visit to Sarajevo at the end of February 2012, the Croatian media reported that an agreement on arbitration had been reached. However, BiH did not officially confirm this.

The Sea Border Delineation: The border and the border issues between Croatia and BiH are closely related to the application of the United Nations Convention on the Law of the Sea (entered into force on 16 November 1994. Signed by 152 countries as of end of 2006). Bosnia and Herzegovina believes that the sea border delineation was not completed as provided in the aforementioned Convention and specifically highlighted that Croatia had unilaterally, contrary to the UN Convention, applied the “straight baseline“ (drawn from the Island Vodnjak-Hvar to the Cape Proizd-Korcula) pursuant to the state of borders at the time of the SFRY. In this way Croatia has established its internal waters, which pursuant to the UN Convention on the Law of the Sea have the same status as land territory, having Croatia close the sea area of Bosnia and Herzegovina within its unilaterally declared sovereignty.

The current situation, which is clearly incompatible with the Convention and international law, is directly related to the implementation of the BiH Law on Border Control. This particularly applies to the provisions of the Law dealing with the issues of maritime border crossings, control, reporting, various approvals and all other issues provided by the Law. BiH is therefore of the opinion that ratification of the Agreement on the State Border should be preceded by the adoption of a bilateral agreement on the sea delineation between BiH and Croatia in the form of an annex to the Agreement and/or as an integral part of the State Border Agreement. Such an agreement can be prepared by the jointly established expert committee which would engage domestic and international institutions in the area of maritime law. Although BiH has, on several occasions, pointed out that the State Border Agreement concluded in 1999 contains all international principles on defining borders between states and therefore the request of Croatia to change the Croatian border line on the Klek and Peljesac Peninsulas cannot be consider or politicised any further, there remain three possible solutions offered to resolve the status of the border between the two states:

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Ratification of the State Border Agreement without amending the existing Agreement. After that, the two sides could, by issuing a conclusion or presidential statement, express readiness for possible correction of the border in some areas.

Proceed with ratification but pre-define disputable parts of the border. Attempt to find a solution regarding disputable parts of the Agreement and if that is not possible, reach an agreement to send the disputable part to international arbitration.

Express readiness to establish the border between the two states through international arbitration and make all disputable areas of the border subject to arbitration.

It is important to note that there is significant support for BiH from those who believe that any arbitration is superfluous because the two sides reached an agreement about all relevant issues before the Agreement was signed in 1999. It is also important that the Agreement is based on all relevant international principles; the excuse offered seven years later by Croatia as a pretext for reneging on the Agreement (“Croatia was not sufficiently prepared in the negotiation stage to sign the Agreement“) is legally irrelevant; and by accepting arbitration Bosnia and Herzegovina questions its own arguments used as the basis for concluding the Agreement.

BiH, however, strongly believes that any arbitration would favour strong and reasonable arguments: the existence of the previously concluded agreements and the description of the borders of BiH and Croatia from the time of Yugoslavia, the existence of the non-ratified agreement concluded between Franjo Tudman and Alija Izetbegovic in 1999 that was based on facts and maps independently and professionally established by the Croatian Hydrographical Institute from Split, favouring Bosnia and Herzegovina, and all other relevant and verified facts regarding this issue covering the period of the past 60 years or more.

Bridge to Peljesac: In the context of the currently non-harmonised sea border delineation between the two countries there is a dispute regarding construction of a bridge from Komarna to Peljesac by which Croatia intends to “connect its territory” and overcome territorial interruption in Neum. At the 11th session of the Interstate Council for Cooperation between BiH and the Republic of Croatia held on 3 March 2007 the Presidency of BiH presented its official standpoint against construction of this bridge until the outstanding issues in relation to identification of the sea border between the two countries were resolved. This standpoint was subsequently officially repeated several times to the Croatian authorities. Despite this, on 24 October 2007 the then Premier of Croatia Ivo Sanader laid the corner stone for the bridge in Brijest on Peljesac, thus initiating the construction. At the time, Croatia disregarded all allegations or arguments from BiH suggesting that the bridge would not be constructed in Croatian territorial waters and pointing out that Croatia did not need any consent to continue construction of the bridge. The bridge, according to the Croatian authorities, is not an alternative to the Adriatic-Ionian motorway, part of which will go through Neum to Dubrovnik. The Croatian Ministry of Foreign Affairs and European Integration claims that the construction of the bridge represents a sovereign right of Croatia, that it cannot be linked to any other pending issue between the two countries and that“the Ministry fails to see any grounds or reasons for turning the bridge construction issue into a political one.“ Meetings, exchange of letters and discussions in relation to this issue continue. Croatia continued constructing the bridge until work stopped in 2011 due to the country’s internal difficulties; however the overall issue at the state level was not clarified, nor the approach changed: The bridge construction issue was not placed into the context of the sea border delineation and other border related issues which de facto means that the issue of the border between the EU and BiH in this area remains unresolved.

The Port of Ploce: The “Agreement on Free Transit through the Territory of Croatia to and from the Port of Ploce and through the Territory of Bosnia and Herzegovina at Neum“, was concluded on 22 November 1998 in Zagreb. Soon after this it was ratified in the Parliamentary Assembly of BiH but not in the Parliament of the Republic of Croatia.

At present, and ever since HDZ (Croatian Democratic Union) came to power in Croatia following the 2003 elections, this Agreement is inapplicable in practice in its present form and it has no legal effect because it was not ratified by Croatia. For many years Croatia has refused to ratify it in the present text. In essence, the Agreement which was concluded and ratified in BiH foresees joint management of the port which is, after the breakup of Yugoslavia, located in Croatian sovereign territory but which can fulfil its purpose only in connection with the hinterland in BiH. A significant part of the port’s capacities, terminals and warehouse construction was financed by BiH. The railway connection with the hinterland and beyond through BiH connects the port with central Europe and enables the fulfilment of its purpose.

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As a result of this, it was envisaged that the port would be managed by a body (committee) composed of 3 representatives from BiH, 3 representatives from the Republic of Croatia with the seventh member coming from the International Tribunal for the Law of the Sea based in Hamburg. The seventh member would be the arbiter in cases of disputes. However, realistically it would be hard to imagine any disputes occurring at the interstate level in this“joint”port given the specific character of its activities. This solution took into account all the complex elements of the history, character, territory, investments and other specifics of the Port of Ploce and its hinterland.

Before the 2003 elections, the process of ratification of this Agreement in the Parliament of the Republic of Croatia was suddenly and publicly hampered by “national and patriotic” interests with the argument that “a Croatian port will be handed over to foreigners resulting in Croatia losing sovereignty on its own territory”. In times after the war with “patriotic” feelings running high, the political leadership of the country delayed ratification offering various solutions which, for similar reasons, were not accepted by BiH. Bosnia and Herzegovina insisted on ratification of the Agreement by the Parliament of the Republic of Croatia with an identical text to the one adopted by the Parliamentary Assembly of BiH, leaving the potential for certain amendments to be discussed after that, primarily the abolition of the aforementioned“seventh member”whose existence was allegedly“threatening Croatia’s sovereignty”. For this purpose, a joint mechanism was prepared to enable ratification of the Agreement with an identical text to the one ratified in Sarajevo at the last pre-election session of the Parliament when Ivica Racan was the Premier and to enable both sides to adopt, immediately afterwards, an annex with jointly agreed amendments. This was the maximum that could be objectively achieved regarding the port. Such an agreement accepted that the port was on Croatian territory but respected all proprietary rights and investments of BiH. Even at that time there were warnings that ratification of this Agreement or any other form of the Agreement from 1998 would not happen if HDZ won the elections.

Bosnia and Herzegovina rejected the agreed path of ratification and thus the establishment of the port on an equal basis just before the session of Parliament. The then influential political structures in BiH were confident that this was“not enough“ and that the concession involving elimination of the“seventh member” of the port’s management should not be made. Ivica Racan’s coalition had lost elections and a new government with Ivo Sanader as its leader initially delayed any ratification and used the first meeting of the inter-sectoral group in Zagreb in March 2006 to present BiH with its new standpoint which not only failed to unblock negotiations regarding the aforementioned Agreement but represented de iure and de facto an entirely new proposal in the political, formalistic and legal sense. The Croatian standpoint was to offer BiH the status of the so called“most privileged nation”in using the Croatian port of Ploce. Legally and practically, this meant that BiH would be granted certain privileges in terms of the type and quality of the port’s services with guarantees provided by the Government of the Republic of Croatia, including privileges in relation to prices of services in the name of and on behalf of the Port of Ploce.

Bosnia and Herzegovina rejected this proposal and there followed different and non-complementary proposals and ideas, and different contacts at political and diplomatic level. Croatia then came up with a new “justification” regarding the “new circumstances” which were “caused by the needs of harmonisation with European legislation“; this was followed by new promises, however the overall situation remained identical to the state of affairs that existed when both states declared independence.

In fact, after the ratification failure in 2003, the issue of the status of the Port of Ploce, which will become a European Port on 1 July 2013, was never formally placed on the agenda. This issue, which was once directly and reasonably related to the corridor through the territory of Bosnia and Herzegovina in Neum, has not to date been, either politically, legally or in any other way, completed and placed into the context of bilateral and regional relations. There was a lack of expertise and diplomatic and operational support in the final resolution of this problem which was, immediately after the war, rightly declared a priority in mapping future relations between the two countries, with the assistance of the international community, including the United States of America.

The Port of Ploce will inevitably have to meet all technical and organisational requirements of EU standards regardless of the partners involved in its work or its ownership. In this context, the position of “clients”from BiH who will use the port will depend solely on the ability and capacity of the port to adhere to those standards. Everything beyond that is pretence. Obviously, there is a primary obligation upon BiH to precisely identify and clarify those issues relating to its participation in the functioning of the port that can be settled through bilateral relations and to introduce this new system as a legacy before Croatia’s accession to the EU. In relation to this, the fate of the corridor from Bosnia and Herzegovina to and from Ploce with a corridor through Neum represents a joint incentive to resolve these issues as soon as possible in one “package”.

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Nevertheless, Bosnia and Herzegovina has missed a realistic and tangible opportunity to resolve this issue while respecting the common interests of both parties in this case, regardless of the fact that the problem formalistically lies in the unwillingness of Croatia to ratify the original text of the Agreement. A lack of ability to implement the possible rather than insisting on a formal law without a realistic possibility of its implementation has once again proven to be a major obstacle in relations between BiH and Croatia.

Unfortunately this is not the only example of negotiations between the two countries where results depend on negotiating skills and willpower rather than a somewhat naive belief in“principles”.

Border Inspection Services: In the course of accession negotiations with the EU, within Chapter 12 (Food Safety, Veterinary and Phytosanitary Policy) and Chapter 24 (Justice, Freedom and Security), Croatia decided that a total of eight border crossings with neighbouring countries should provide border inspection services (Bajakovo, Stara Gradiska, Karasovici, Metkovic, the Ports of Ploce and Rijeka, Zagreb Airport and Zagreb Post Office).

Border inspection services are important for BiH’s export of goods of animal and vegetable origin to the EU which are subject to inspection and control as well as for the export from BiH to third countries through the territory of EU member states.

In accordance with the agreed list of border crossings, as of 1 July 2013 BiH will be able to continue exporting all its products to Croatia and the EU subject to inspection control, at Stara Gradiska - Gradiska and Bijaca – Metkovic border crossings. These border crossings must be fully equipped in accordance with strict standards and must also be operational six months in advance of Croatia’s accession to the EU, i.e. on 1 January 2013.

Croatia justified its position regarding the selection of border crossings on the basis that there were “a small number of shipments of goods that are subject to inspection and insufficient frequency at other border crossings.” Another significant reason is the costly construction and equipping of such border crossings. In this case, it is true that the two selected border crossings with Bosnia and Herzegovina are by far the worst equipped, but it is also true that BiH has border crossings which are fully equipped for inspections. In addition they are financed by the EU, such as the Izacic border crossing. Preparations for the construction of Bijaca - Metkovic II border crossing are ongoing and it is expected that the work will be completed six months in advance of Croatia’s accession to the EU. The issue of border inspection services at the future external EU border with Bosnia and Herzegovina is a complex one and there are many factors which the two sides should take into account when determining the number of these services. This was highlighted in the Briefing Paper on these matters which was drafted recently by the Directorate for European Integration of the BiH Ministry of Foreign Affairs. These include the issue of prices, number of shipments, traffic connections, the location, border length, production potential, further harmonisation of BiH legislation with the EU (which would open the possibility to expand the list of products that had EU export approval), and the fact that a number of shipments to and from the Western Balkan countries transit through Bosnia and Herzegovina.

Considering all this and other indicators of the quantity of goods that is now transported via the existing border crossings, the competent authorities and institutions in BiH find it unacceptable that there will be only the two aforementioned border crossings between Bosnia and Croatia with inspection services.

Such a decision would, if it remains in effect, represent a huge setback for the economy of Bosnia and Herzegovina and continue to have a negative impact on the development of foreign trade and competitiveness of BiH producers in the EU market. Oil and sugar exporters from the Brcko District of BiH, whose export accounts for 55% of the total exports of goods from BiH into the EU, represent an obvious example of this situation. At the same time, it is evident that the aforementioned selection of border crossings completely ignores the issue of goods from Serbia and Montenegro, which, due to the geographical location of their business, producers often transport through BiH. This represents an additional burden on traffic flow, in particular in the direction of Gradiska, the only nominated border crossing in the north of the country. In addition, it is evident that the Croatian proposal excludes all railway border crossings, although railway freight provides the highest level of security and control of transportation. In 2010, for example, 16 percent of the export of products of vegetable and animal origin was transported to EU markets via rail.

BiH is currently proposing that, at the time of Croatian accession to the EU, in addition to the Gradiska and Metkovic crossings, the crossing between Izacic – Licko Petrovo Selo should also open. It is also suggested that work on upgrading the other, previously proposed, crossings should be rapidly undertaken. This primarily concerns the Orasje - Zupanja and Samac – Slavonski Samac crossings,

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because these are points of connection at the Corridor VC and it makes no sense that there is no BIP (Border Inspection Post) at these points, if only initially for meat, meat products and livestock. Once these crossings are upgraded, it will be necessary to upgrade the Gorica - Vinjani Donji and Donji Svilaj – Svilaj crossings. In addition, according to the analysis of the Foreign Trade Chamber of BiH, with Croatian accession to the EU the Izacic, Gradiska and Orasje crossings will become crucial, while the bordercrossing Doljani - Metkovic meets the current need and will be vital after the planned construction of the motorway on this route. Similarly, the Samac crossing is necessary from the point of view of the developmental needs of the region.

Any alternative solution to this issue will not meet the current requirements and will significantly delay the flow of goods, not only between BiH and Croatia, but also the transit of goods through the region and towards EU markets. The situation with the Izacic crossing is particularly absurd. The crossing was built and equipped using EU funds as a joint crossing of BiH and Croatia. Using EU funds meant that its construction was preceded by a complete analysis of its potential usefulness and feasibility, but now Croatia has decided not to use this crossing for the goods for which it was intended.

PROPERTY-RIGHTS AFFAIRS Negotiations on the regulation of property-rights affairs between Bosnia and Herzegovina and Croatia, which would regulate relations in this area, were conducted with a different intensity before and after independence of the two countries and have ultimately been unsuccessfully at various levels since 1996.

On several occasions an agreement was almost signed only to be blocked literally at the last minute, usually because of dissent on the part of the Government of the Republika Srpska (RS), since the agreement did not take into account their opinion which they have been expressing since the outset but that Croatia has refused to accept.

In the meantime, the Croatian side uses the absence of this Agreement as justification for not returning considerable Bosnian property in Croatia and for not complying with and implementing “Annex G” of the Agreement on Succession Issues (signed in Vienna in 2001 and ratified by Bosnia and Herzegovina the same year, as well as by all other signatory countries that emerged after the disintegration of former Yugoslavia). This Agreement, inter alia, binds the successor states to protect private property and acquired rights of citizens and legal entities of the former Yugoslavia in their territories without discrimination, i.e. regardless of nationality, citizenship, residence or domicile, wherever those rights had been acquired before 31 December 1990. Similarly, all contracts on transfer of movable and immovable property executed under duress after 31 December 1990 shall be deemed null and void.

The implementation of “Annex G” from a legal standpoint, therefore, is unconditional. In contrast, the Croatian Government adopted a Decree of RH (NN3691) in July 1991, which “prohibits the disposal, sale, exchange, donation, transfer, use, lease and temporary use of property in Croatian territory which is owned, in possession, use or management of the organs and institutions of the Federation, the republics and provinces of Kosovo and Vojvodina.” Although the interstate agreements ratified by Croatia are “stronger” than the domestic legal act, Croatia obstructed “Annex G” of the agreement recalling its own 1991 Decree.

The subject of the Agreement on property-rights affairs between BiH and Croatia is the grounds, principles and instruments for resolving property issues between the two countries as contracting parties and for resolving financial claims and obligations of natural and legal contracting parties in accordance with the provisions of the said “Annex G “.

The passage of time and the failure to address this issue, especially non-compliance with “Annex G”, and the unilateral interpretation of Croatia according to which the implementation of Annex G is conditioned by the signing of the Agreement on property-rights relations is resulting in ever more complex and difficult resolution of issues on the ground. Facilities that are subject to return, the value of receivables and property and the very character of property change with time. Moreover, property disappears due to different reasons or becomes otherwise unusable, thus complicating the whole process. Therefore, the rights stemming from it become increasingly difficult to exercise or even compensate. No matter what, this situation objectively has an impact on political, economic and other relations between the two countries and burdens them needlessly.

Typical examples of such a situation are: disputing the ownership rights of“Sipad”over property in the port of Sibenik, disputing the ownership rights of KCUS Sarajevo over the Children’s Hospital in Cavtat,

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THE REPUBLIC OF CROATIA’S ACCESSION TO THE EUROPEAN UNION - OUTSTANDING ISSUES BETWEEN BOSNIA AND HERZEGOVINA AND CROATIA AND THEIR IMPLICATIONS FOR BOSNIA AND HERZEGOVINA

unregulated relations in JANAF, the hydro electric power plants on Trebisnjica and Busko blato, not recognising the ownership of many resorts on the Adriatic coast and the issue of protection of the property of“Agrokomerc”in Croatia. Once the competent municipal courts had issued direct orders to the land registry offices to execute, ex officio, the prohibition on land registration in Croatia, these obstructions were given a legal character. In most cases, the authorities responsible for this type of work recalled the aforementioned Decree on the Prohibition of Free Disposal of Real Estate in the Territory of Republic of Croatia.

At the same time, it is obvious that Croatia has“used”the internal deadlocked situation in BiH and its inability to achieve the necessary agreement at the state level to conclude the Agreement on Property-rights Relations between the two countries. Namely, for the purpose of concluding the Agreement on regulation of propertyrights relations, the Council of Ministers BiH confirmed the composition of the delegation of Bosnia and Herzegovina on 14 September 2009 to continue the previous repeatedly failed negotiations. After several meetings, opinions were harmonised and the text of the Agreement was agreed upon and forwarded to the entities and Brcko District governments for approval. The RS government refused to approve the proposed text and requested changes to the proposed Agreement, primarily for two reasons. The first was that the Agreement “does not provide a sufficient legal basis for the effective exercise of guaranteed rights to restitution of apartments with tenancy rights in Croatia and, in general, for solving the property rights of refugees and/or displaced persons from Croatia.” Secondly, in the opinion of the Government of the RS, the Agreement does not contain provisions which expressly recognise the right of RS to be registered as the owner of real estate property which is located on Croatian territory and which used to be the property of legal entities registered in the RS. This is real estate which is in the process of privatisation posted in the liabilities subaccounts (offices, holiday resorts, building plots).

Because of these objections, which could not be accepted at the State Commission level, the whole process was suspended. Croatia insisted, from the beginning, on the fact that tenancy rights according to Croatian law are not property rights and as such are not subject to this Agreement. Equally, the internal opinion of the members of the Croatian negotiating team during the negotiations on this subject was that the RS as an entity could not put forward their demands as a negotiator in international relations and other issues separately from the State Commission and from the opinions agreed at the state level. It is obvious that it is going to be difficult to solve this problem in the complex situation currently present in BiH because of internal relations and the“constitutional order”. It is also clear that the Croatian negotiators are counting on this fact, because, ultimately, it serves as an excuse for their refusal to implement“Annex G“.

THE NEUM CORRIDOR Free transit through Croatian territory to and from the Port of Ploce and through the territory of Bosnia and Herzegovina in Neum is very important because even after Croatian accession to the EU these corridors will be used mainly by businesses from BiH. In addition, these routes, especially the one through Neum, are gaining importance through the commitment of both countries to the Adriatic-Ionian corridor that passes through seven countries, beginning with Italy (Trieste) through Slovenia, Croatia, Bosnia and Herzegovina, Montenegro, Albania and Greece (Kalmata). Anticipating this fact the European Commission gave its recommendation during a meeting of the Interim Subcommittee for Transportation, Environment, Energy, and Regional Development to establish and intensify the bilateral dialogue with Croatia on finding solutions to disputed issues relating to transit through the Neum corridor.

A joint statement by the Ministers of Transport of BiH, Croatia, Montenegro and Albania was signed in Ljubljana in 2004, while in 2009 the Council of Ministers of BiH tasked the Ministry of Communications and Transport to carry out a study and to draft project documentation to explore the best routes for the Adriatic-Ionian Motorway from the border with Croatia to the border with Montenegro. According to the Stabilisation and Association Agreement with the EU, BiH has committed to the development of a core regional network of South East Europe (MoU SEETO) including the Adriatic-Ionian Motorway which is going to be a part of the TEN-T network in the future. Bosnia and Herzegovina and Montenegro have defined their points of contact of the Adriatic-Ionian Motorway. Additionally, an initiative for defining the points of contact between BiH and Croatia has been sent to the Croatian authorities.

At the beginning of the last decade, under the government of Ivica Racan, the notion of “bridging” the territory of Bosnia and Herzegovina in the Neum region with a part of the Adriatic-Ionian Motorway passing above Neum, from the Neretva valley through Popovo Polje to the contact point with Montenegro above Dubrovnik was undisputed. This corridor through the territory of BiH, with exits to

THE REPUBLIC OF CROATIA’S ACCESSION TO THE EUROPEAN UNION - OUTSTANDING ISSUES BETWEEN BOSNIA AND HERZEGOVINA AND CROATIA AND THEIR IMPLICATIONS FOR BOSNIA AND HERZEGOVINA

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Neum, was logical and the most cost-effective, both from the point of the width of the Croatian coastal belt stretching from Ploce to Dubrovnik, and from the point of construction, pricing, and configuration of the terrain and the possibility of developing commercial zones along the motorway.

Subsequently, the Croatian Government, mostly for political reasons, put this solution on the backburner, opting for a corridor through Croatian territory along the coastline, including the version involving the bridge to the Peljesac Peninsula, despite assurances to the public that the bridge “has nothing to do with the Adriatic-Ionian corridor”. Minister Kalmeta of the Ivo Sanader administration stated that“the bridge will have two lanes, with a possibility of the construction of four lanes”which further confirms the previous conclusion.

The earlier version of the motorway stretching from Ploče to Dubrovnik across the territory of BiH is suddenly brought forward once again. This is the result of suspended construction of the bridge and renewed interest in the issue of the Adriatic-Ionic Motorway (continuing the motorway that has already reached Ploče).

Particularly, having in mind the Croatian accession to the EU, the corridor is already informally called the “Shengen Road”within the political circles in Croatia.

The failure to resolve the issue of transit through BiH will significantly complicate and slow down the entire transport network around Neum with the accession of Croatia to EU, not only for goods “from Croatia to Croatia”, but for goods “from Bosnia and Herzegovina to Bosnia and Herzegovina” and to Croatia, as well as for all other goods that are in transit on the way to Croatia. A particular problem for Croatia in each version that does not include the “Schengen road” would be likely delays for tourists at border crossings through Neum.

ELECTRICAL ENERGY SECTOR There is an unresolved issue between Bosnia and Herzegovina and Croatia of the distribution of electricity produced at hydroelectric power plants located on common rivers. Of particular significance is the problem of the use of larger amounts of water than agreed by the Croatian Electric Power Corporation (HEP) to the detriment of the hydro electric power plant on Trebisnjica (HET), which has considerably damaged the BiH economy in the past 16 years.

The subject of the dispute is the division of electrical energy. From 1968 to 11 January 1994 the ratio was 22% to 78% in favour of HET Trebisnjica, and on 11 January 1994 Croatia changed the ratio to 37.73% to 62.27% in their favour. Negotiations on this subject, initiated on several occasions, have not yielded any results. After unsuccessful attempts to find a solution involving the competent ministries of the two countries, BiH proposed starting an initiative for international arbitration with the expert help of the International Chamber of Commerce in Paris. The Croatian side informed BiH in writing that it did not accept resolving the dispute through arbitration because all possibilities for negotiation had not been exhausted.

Following the Croatian decision BiH failed to take adequate steps to definitively and fully protect its interests based on a previously implemented existing joint agreement. Croatia used the lack of will and organisation on the part of BiH to adopt a unilateral decision, thus placing BiH in the position of subordinate partner. Failure to solve this issue before Croatian accession to the EU will make finding a solution more complex and difficult with less chance of success.

As in many other cases, this problem was followed by other issues regarding the distribution of electric energy. For example there are plans to build new facilities that could directly or indirectly affect the territory of the two neighbouring countries such as the construction of the hydroelectric power plant Gornji Horizonti. This could have disastrous consequences for the animal and plant world in the unexplored underground karst areas and watercourses, and could even lead to the drying out of the rivers Buna and Bregava amongst others. Another example is the second phase of the construction of hydroelectric plant Ombla HPP Dubrovnik in the Croatian territory with an underground reservoir that is largely in the territory of BiH. In such situations both BiH and Croatia should strictly comply with all environmental standards and the Convention on Environmental Impact Assessment in a Cross Border Context, which has not been the case in the past.

In all these cases it is the duty of BiH to warn of the consequences resulting from non-compliance with conventions that are part of the fundamental standards which are the basis of the European Union, a member of which Croatia will soon become. It is expected that BiH will soon meet all the conditions for obtaining candidate status and thus will take on its own share of responsibility for joint commitments in complying with those standards.

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THE REPUBLIC OF CROATIA’S ACCESSION TO THE EUROPEAN UNION - OUTSTANDING ISSUES BETWEEN BOSNIA AND HERZEGOVINA AND CROATIA AND THEIR IMPLICATIONS FOR BOSNIA AND HERZEGOVINA

TRADE RELATIONS With the accession of Croatia to the EU, this country will leave the Central European Free Trade Agreement (CEFTA), signed in 2006, which regulates current trade relations between Croatia and BiH. Thus the benefits that BiH and other member countries of CEFTA have in the context of foreign trade exchange with Croatia will cease. The Croatian market will become part of the internal EU market, which directly requires changing the regime in BiH foreign trade relations with Croatia. So far little has been done in Bosnia and Herzegovina in anticipation of this situation and this will put the entire economy, particularly trade, in an extremely inferior position with respect to Croatia and EU markets because of the restrictions brought about by new standards that will represent an obstruction to trade.

In this likely scenario, the Stabilisation and Association Agreement between BiH and the EU becomes the key framework for the possible liberalisation of trade with Croatia, in accordance with the defined conditions and dynamics provided for in the accompanying annexes and protocols. This becomes especially important considering that Croatia, along with Serbia, is the most important foreign trade partner of BiH. Imports from Croatia to Bosnia in 2010 amounted to EUR 1.05 billion. At the same time exports from Bosnia to Croatia amounted to EUR 547.40 million which means that the export-import ratio was 52.00%. It is interesting to note that ten years ago the export-import ratio was nearly 7 to 1 in favour of Croatia whereas the results from 2010 show that this imbalance has been reduced to 2 to 1. BiH exports to Croatia amounted to 16.00% of total exports from BiH to foreign markets. The growth of imports from Croatia to Bosnia in 2010 (10.99%) is lower than the growth of exports from BiH to Croatia (13.40%).

All these indicators, however, are put into question by Croatian accession to the EU because at present BiH would only be able to export fish and raw animal skin to the EU as it is only with regard to these products that the requirements for export are met. These requirements are not met for a number of other products such as technical products, agricultural products including seeds and planting material and for livestock. According to current analysis producers of milk and dairy produce, eggs, and fresh meat will be affected the most. BiH does not have the capacity to certify compliance with veterinary and plant health and safety standards, primarily for food. At the same time BiH has insufficient laboratories or certification bodies whose certificates are recognised in Croatia. Most of these problems also apply to the transit of goods to certain third countries and EU countries. Obviously, in this situation, the solution lies solely in the hands of local authorities and institutions.

Ultimately, BiH simply has to meet all the EU requirements in terms of trade with EU countries and the third countries through which exports will be transported on route to EU countries. It is evident which of these measures and standards are the most urgent and which can be achieved. The most important among them are the standards from the series ISO 9000 (quality management system), ISO 14000 (environmental protection), ISO 22000, HACCP (food health and safety), OHSAS (Occupational Health Management System and safety at work) and ISO 27001 (the system of information protection and security).

This huge task cannot be completed in the foreseeable future if the pace and manner of organisation remains the same as in the past. All of this was known from the moment Croatia started its negotiations about EU accession and now it can be seen how little has been done in this area which is, frankly, not enough. The public is unaware of this as their attention has been persistently diverted by the exhausting politicisation of everything that stands in the way of resolving these issues.

The task that is now before the institutions and authorities in BiH must be dealt with by an extraordinary engagement with the issues, good organisation, clearly defined goals with fixed timelines and direct tasking. Failure to make this work will constitute an irreparable loss in the process of economic and political harmonisation of the country on its way to the EU.

LABOUR, EMPLOYMENT, SOCIAL WELFARE AND PENSION SECTOR On two occasions, firstly at the end of 2006 and then in 2008, Bosnia and Herzegovina officially proposed, in the form of letters of intent from the Ministry of Civil Affairs, the conclusion of an agreement on temporary employment of BiH workers in Croatia. Croatia did not respond to either of these initiatives.

The purpose of these proposals was to regulate relations in the area of labour and employment, to

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encourage the mobility of the work force and increase employment of BiH workers, to achieve control of the labour market and reduce “black labour” and create a safer environment and working conditions for BiH workers temporarily working in Croatia.

By joining the EU, Croatia enters the single labour market of EU countries and workers from Bosnia and Herzegovina will be treated as workers from countries outside the EU. Since it is obvious that there is a mutual interest for BiH and Croatia in this regard, (the latter needing workers from BiH for the many advantages they have for their market), the competent authorities and institutions must make an additional effort to put this issue on the table and to strive to solve it in the period remaining before Croatian accession to the EU. Another long-standing unresolved issue is that of legal and labour relations and the social status of workers from Bosnia and Herzegovina who worked in Croatia from 1991-1995 and were then laid off through one-sided decisions of Croatian employers. According to the records kept in BiH, there are 13,636 such persons in BiH. It is the opinion of Croatia that “this matter should be dealt with individually before the competent courts.” Some ten cases initiated in this manner showed that such litigation would be very difficult to complete and even in cases with positive verdicts, the decisions could not be enforced due to bankruptcy or restructuring of the former company. In light of all this and because of the potentially large number of possible litigants, BiH proposed that the issue should be resolved through an agreement between the two governments. The whole process of “negotiations” stopped in 2006 and remains unresolved to this day.

CONCLUSION: Croatian accession to the EU will have a very positive impact, not only on Croatia but also on other countries in the region and especially its neighbours – Bosnia and Herzegovina in particular- for a number of obvious reasons. The accession will, at the same time, fundamentally alter relations in the region and in some sectors, (especially the economic and trade sectors), and will have a dramatic impact on the situation in BiH. Both the positive and (in particular) the negative implications accompanying this immense change in the region could change the social, economic and political situation in BiH, especially in the short term, altering the present state of affairs by abandoning some existing practices and starting many new, different ones.

The crucial fact in this context is that there is no solution for the elimination of the negative impact of Croatian accession to the EU for Bosnia and Herzegovina, especially in the long run, other than the prompt and concrete improvement of all the standards necessary for the functioning of BiH and harmonisation with EU standards that will be implemented in Croatia from 1 July 2013.

This process must be carried out in BiH without any reservations in an efficient, fast and comprehensive manner. Even if solutions are reached in some areas of bilateral relations which will temporarily bridge the incompatibility of standards between the two countries, the fact is that the EU as a whole is now becoming the partner of Bosnia and Herzegovina, as opposed to just one neighbouring country with which problems can be resolved bilaterally. By the accession of Croatia to the EU, the unresolved and open bilateral issues between the two countries become in a way outstanding issues between BiH and the EU. Some of them are particularly important to the EU such as the unresolved border issues between the two countries both on land and at sea. With this, the EU will have a part of its external borders undefined and the problem unresolved and thus a speedy solution will be sought as it is now clearly and primarily a multilateral issue of particular interest to all EU countries. The situation is similar with the issue of Ploce port, transit through Neum and border crossings for import and export of goods to and from the two countries but also to and from the EU market. The negotiating position of BiH in this case will be more difficult and complicated than at the time when these issues were negotiated exclusively as bilateral issues between the two countries.

The engagement of the European Union in addressing these issues will, as always, primarily be motivated by self-interest. In these processes the EU will, no doubt, be “more favourably inclined” towards Croatia than towards Bosnia and Herzegovina. The relevant institutions and bodies in BiH must be aware of this fact and make concerted efforts to use all available funds in order to resolve as many bilateral issues as possible before 1 July 2013. Any delays on this path resulting in severe consequences will primarily affect the citizens of BiH. In this context, it must be clear to BiH that the internal ‘disputes’ and the use of the unfinished internal

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THE REPUBLIC OF CROATIA’S ACCESSION TO THE EUROPEAN UNION - OUTSTANDING ISSUES BETWEEN BOSNIA AND HERZEGOVINA AND CROATIA AND THEIR IMPLICATIONS FOR BOSNIA AND HERZEGOVINA

constitutional order as leverage for settling differences may have adverse consequences for the whole of Bosnia and Herzegovina. It is for these reasons that the issues that are being blocked in BiH must be unblocked, even by applying the well-known and attainable principle of negotiation: undisputable issues should be resolved and the resolution of issues that cannot be resolved at present should be left for a more favourable moment. A typical example of this is the blocking of issues ranging from property-rights affairs, succession and the benefits arising from the implementation of Annex G because of the tenancy rights of Croatian refugees in the RS. Concessions are hard to make but in this context BiH has to consider what its citizens stand to gain or lose in each case.

Similarly, everybody in BiH has to make the “ultimate” effort to ensure the resolution of as many unresolved issues as possible and, in particular, to start as quickly as possible with enabling of institutions, professions, infrastructure and everything else which is needed to create the conditions for accession to the EU. This must go hand in hand with acceptance of EU standards in production, transport, trade and control. Without this, BiH will remain in an inferior position lagging behind other countries, not least neighbouring countries which are rapidly complying with EU standards.

Croatia holds a special place in this process. A certain feeling of “superiority and elitism” towards those neighbours who lag behind Croatia is obvious in a part of the public and amongst some authorities of this country. This was in a way to be expected, even logical. This phenomenon is not new within the EU but it is very important to overcome, through joint efforts and in particular by raising awareness on the subject, the view that Croatia “escaped from the Balkans” and its neighbouring countries and that they are no longer of any interest to it. Many of the ongoing, abovementioned unresolved issues with BiH cannot just be “swept under the carpet” by joining the EU as it will be only there that these issues, albeit in different circumstances, will emerge as a serious problem. Again, this is about border crossings and trade where the decline in trade and loss of markets will also affect Croatia. Any potential destabilisation of BiH because of new economic, social and political difficulties cannot but impact on Croatia, a country that shares about 1000 km of land border with BiH. Problems in BiH and its lagging behind Croatia will affect Croatia in specific and perhaps even unpredictable ways. This is why Croatia, as a member of EU, must show particular interest in resolving all outstanding issues with BiH as soon as possible to mutual advantage and to additionally help its neighbours on their way to the EU. Both Croatia and BiH are members of a number of regional initiatives, such as CEI, AAI, the Union for the Mediterranean, RCC, SEECP, SECI, RACVIAC, MARRI, the Neum Initiative and the Danube Initiative. There are also strong links between the respective civil societies and nongovernmental organisations. The goal of all these initiatives is to bring the countries in the region closer to the EU and enhance cooperation between EU member states and non-member States. Positive results in such forms of cooperation are clearly evident and there is no reason not to use them in this case.

Obviously, there are positive efforts and results in resolving problems between the two countries in certain important areas, if only after several years of preparation and negotiation. One example is the very important Decision of the Presidency BiH on the ratification of the Agreement on Dual Citizenship between BiH and Croatia, adopted in October 2011. This agreement was ratified by the Parliament of BiH much earlier. This Decision of the Presidency of BiH was blocked a few years back by a former member of the Presidency, Haris Silajdzic, who refused to give his consent. With this the Presidency essentially established the basis for the regulation of the important issue of the status of citizens who have BiH and Croatian citizenships, especially in the light of the fact that Croatian citizens will also become the EU citizens, in addition to many other aspects of this issue.

Although Croatian accession to the EU is a significant act, it also brings a range of different challenges to BiH. Success in addressing these challenges in the region can take the entire process in a positive direction, but failure can result in new doubts and negative trends in already difficult and complex times.

This is why everyone should shoulder their share of the responsibilities and obligations so that the negative aspects of this act - unresolved issues and incompatibility in the organisation and functioning of the countries – are bridged so that they will not endanger the strategic and ultimate goal, which is the fastest possible accession of everyone in the region to the European Union as the natural family of states and nations in Europe.