sveska02RelationsBetweenSerbiaAndTheEuHistoryAndProspects

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RELATIONS BETWEEN SERBIA AND THE EUROPEAN UNION

History and Prospects

FACULTY OF ECONOMICS, FINANCE AND ADMINISTRATION

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RELATIONS BETWEEN SERBIA AND THE EUROPEAN UNIONHistory and Prospects

Research team leader Prof. dr Mihailo Crnobrnja

Prof. dr Ana S. Trbovich

Research CoordinatorMiloš Erić

Research Assistants: Vanja Alinčić

Marina Đenić, Dejan Jovanović

Anja Simanić

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CONTENTS

FOREWORD .............................................................................................................................9

INTRODUCTION .................................................................................................................. 10

1. GOVERNMENTAL ORGANISATION AND INSTITUTIONAL STRUCTURE OF EU�RELATIONS ......................................................................................................... 131.1. Governmental organisation and institutional structure of EU-relations ............. 13

1.1.1. The EU Integration Office of FR Yugoslavia .......................................................... 131.1.2. The EU Integration Office of the Republic of Serbia .......................................... 141.1.3. The Serbian Government Council for European Integration ......................... 161.1.4. Intergovernmental Commission for EU Accession Coordination ................ 171.1.5. EU related organisational units within ministries .............................................. 181.1.6. The EU Negotiating team ............................................................................................... 18

1.2. The Parliament .............................................................................................................................. 191.2.1. The Parliament of Serbia - European Integration Committee ............................. 19

1.3. Changes in institutional arrangements ................................................................................ 21

2. POLITICAL RELATIONS ................................................................................................ 222.1. Official positions on EU relations ........................................................................................... 222.2 Major events marking EU-Serbia relations ......................................................................... 282.3 Negotiations, EU level agreements ......................................................................................... 332.4 Positions of EU Member States ................................................................................................. 35

3. ECONOMIC RELATIONS ................................................................................................ 393.1. Trade with the European Union .............................................................................................. 393.2. Labour migration to the EU since 1900 ............................................................................... 51

4. LEGAL ALIGNMENT ....................................................................................................... 614.1. Evaluation of the national legal system ............................................................................... 61

4.1.1. Transformation since 1990 ........................................................................................... 614.1.2. Adaptation to the EU acquis communautaire ....................................................... 624.1.3. Pre-accession help and actions ................................................................................... 63

4.2. Comparative analysis according to the EU negotiation chapters ............................. 654.2.1. Single Market....................................................................................................................... 654.2.2. Investments ......................................................................................................................... 684.2.3. Environment, consumer protection, labour legislation .................................... 70

4.3. Official positions on the future of legal adaptation......................................................... 724.3.1 Programs or “road maps” of developing the national legal system ............. 734.3.2. Feasibility analysis ............................................................................................................ 74

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4.3.3. Institutional background ............................................................................................... 74

5. EU PERSPECTIVES, EFFECTS OF CONDITIONALITY AND FORECASTS ......... 755.1. The internal effect of non-specific sanctions .................................................................... 775.2. Serbia specific conditionality ................................................................................................... 795.3. Likely accession of Serbia to the EU ...................................................................................... 82

ANNEX: THE HISTORY OF RELATIONS OF SERBIA AND THE EU ......................... 87

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FOREWORD

This research paper is a result of collaboration between the FEFA Insti-tute and the Center for Enlargement Studies of the Central European Univer-sity in Budapest, Hungary.

The CEU-ENS conducted a large comparative study called

INTEGRATION PERSPECTIVES AND SYNERGIC EFFECTS OF EUROPEAN TRANSFORMATION IN THE COUNTRIES TARGETED BY EU ENLARGEMENT

AND NEIGHBORHOOD POLICIES

Main objectives of the research project:provide a • basic overview of the political and economic transformation processes of the target countries for the period 1990-2006, assess the reform processes• triggered by the attraction of the European integration and its norms,make forecasts• for the period 2007-2010 and 2010-2015 regarding devel-opment paths of the target countries including their outlook for conver-gence and perspectives for EU membership (where applicable).

CountriesTwo newest EU Member States: Bulgaria, Romania• Southern neighbouring states of the EU: (Albania, Bosnia-Herzegovina, • Croatia, the FYR of Macedonia, Montenegro, Serbia)Eastern neighbouring states of the EU (Moldova, Russian Federation, • Ukraine, Belarus)

Basis of overview: 1990-2006

Forecasts: for 2007-2010 and 2010-2015

FEFA produced the case study of Serbia within this large project. FEFA’s re-search and �indings are presented in the following pages.

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INTRODUCTION

To better understand Serbia’s current relations with the EU, one must look very brie�ly into the genesis of the relations even before the fall of the Berlin Wall, the event that symbolised the beginning of a new era in post-socialist, EU aspiring countries. Serbia, like other countries emerging from the former Yugoslavia, had a far longer history of economic, political, even formal, contractual relations with the European Union (EU) than any other former socialist country.

The Socialist Federalist Republic of Yugoslavia (SFRY) had established diplo-matic relations with the former European Communities (EC), as early as 1967, even before the �irst EC expansion, signalling a strong interest to improve relations at a time when other countries viewed the EU as yet another “capitalist creation”. The so-called “Belgrade Protocol on Relations between SFRY and the EC”, signed in 1976, proclaimed the joint goal of improving and expanding bilateral relations between the EC and SFRY primarily, but not exclusively, in trade. As a result, the Cooperation Agreement was signed in 1980, giving SFRY preferential treatment in trade and free access to the EC for 80% of traded products.1 This led to a very rapid increase in trade over the next decade. At the time when the Berlin Wall fell, and other countries of Central and Eastern Europe knocked at the door of the European Communities, SFRY was already a well established trading partner and the EC projected by far the largest external economic in�luence, by means of trade, �inancing and investments, on Yugoslavia.

In February 1990, Yugoslavia formally submitted an application for Associate Membership to the EC Council. The Council took note of the application and prom-ised “serious consideration.” A formal response to the application never materialised. Negative internal political developments in SFR Yugoslavia, the broad span of atten-tion that the fast moving events in post-socialist countries required of the European Community, and the Maastricht Treaty that was in preparation, did not provide the conditions necessary for a rapid response to this initiative. That was the high point in the evolution of SFRY-EC relations. From that point on, things only deteriorated until Yugoslavia disintegrated as a state.

Paradoxically, at the very time when the EC underwent the greatest transfor-mation since the original Treaty of Rome, emerging in Maastricht as the European Union, the former Yugoslavia was in a process of self-destruction which would de-lay, by almost a decade, the initiation of the EU accession process for all countries emerging from SFRY with the exception of Slovenia. SFR Yugoslavia formally ceased to exist in January 1992 when the EU recognised Croatia and Slovenia. Soon there-

1Mihailo Crnobrnja, “Jugoslavija i Evropska zajednica,” Ekonomska politika, Belgrade, 1991.

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INTRODUCTION

after, the EU recognised Macedonia and Bosnia and Herzegovina. Serbia and Monte-negro then formed a new, successor state called the Federal Republic of Yugoslavia. The new state came into formal existence on 27 April 1992. This new state was very soon expelled from the international community through the imposition of probably the most rigorous and severe United Nations (UN) sanctions, which came into effect on 31 May 1992. After more than two decades of furthering relations with the EU, the rump Yugoslavia saw relations plummet to a bare minimum. This minimum con-sisted of diplomatic chargé d’affairs level of keeping some form of communication open, without any real substance to the relations.

Throughout the nineties relations between the EU and FR Yugoslavia were barely kept alive. After the signing of the Dayton Peace Accord in 1995, which ended the war in Bosnia and Herzegovina, trade sanctions were lifted and some trade re-sumed. Diplomatic relations were elevated to the ambassadorial level. But at the time when most other countries were busy negotiating accession to the EU as of�icial candidates, the countries of the former Yugoslavia, except Slovenia, but including Serbia, had no formal negotiations, nor a negotiating framework. This was to change only in 1999, when the new EU regional initiative, the Stabilisation and Association Process, was launched. Bilateral negotiations with individual countries began soon thereafter.

Notably, the events in the former Yugoslavia during the nineties led to a more profound change in the nature of relations between Serbia and the EU. There was a deterioration of attitudes and perceptions on both sides towards the other side. Political elites, governments and the population of EU countries, as well as the Eu-ropean Commission representatives, held Serbia largely (if not exclusively) respon-sible for the brutal and tragic way in which former Yugoslavia disappeared from the political map. In the eyes of the Western public the bombing of Dubrovnik in 1991, ordered by the Serbian regime, at the time in�licted more damage to the image and perception of Serbia then any resolution of the EC Council or the EC Parliament. The war in Bosnia and Herzegovina (1992-1995), and in particular the Srebrenica episode of that war, which occurred in the summer of 1995, af�irmed the prevailing image of Serbs in the Western world as “brutal ethnic cleansers.” Finally, the con�lict with NATO that occurred in 1999, and the new wave of ethnic cleansing that took place during that con�lict, left most of the EU public, and a large segment of the po-litical elite, with the impression and conviction that Serbia prefers the use of force over political and diplomatic means in solving its state and national problems.

This attitude in the EU changed somewhat after the fall of the Milosevic’s re-gime. The change was particularly noticeable in of�icial relations and in the percep-tion of Serbia among the political elite in EU countries. It was much less noticeable in the public at large. Serbia had acquired a bad name that was going to be dif�icult to change. The assassination of the Prime Minister in 2003 and the events that fol-lowed the assassination did little to assist the process of changing the image of Ser-bia in EU countries in a positive direction.

At the same time, there were, and there still are, negative perceptions of the EU and EU countries individually in Serbia as well. During the Milosevic period the negative perception was a deliberate instrument of his foreign policy. While Milosevic was popular, the perception of EU as “an enemy” was also popular. One of the main

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slogans of the democratic opposition that �inally ended Milosevic’s reign was “Serbia in Europe”. And for a period of time, during the Djindjic Government, this positive perception of the EU was very strong. However, the “overdose” of conditionality im-posed by the EU helped antagonise a growing segment of the Serbian public, gener-ating exactly the opposite effect from the one that was desired. This is particularly true of the manner in which the EU essentially stalled associate status negotiations with Serbia for almost a year, and then of�icially froze them for another year, only to restart negotiations even without getting the desired effects of conditionality. A large segment of the political elite, as well as a large segment of the public at large, felt and continue to feel a strong resentment toward these tactical moves of the EU.

The current situation is yet another instance of cooling in the perceptions of the two sides. The “Serbia as an irritant” feeling is present among many EU and member countries’ of�icials. Most of the EU countries, and certainly all of the most powerful and in�luential EU countries, are all but committed to a solution of the Ko-sovo status that is not accepted in Serbia, i.e. their preference is “controlled inde-pendence” offered by the Ahtisaari Plan. This is unacceptable to the present political elite and Government of Serbia. Hence, Serbia is once again perceived as an obstacle to reaching stability in the region.

On the other hand, the European sentiment in Serbia is on a decline, fed by the nationalist perception that the EU is involved in amputating Kosovo from Serbia. It is sure to fall even further if and when this problem is solved in a way which will have the EU supporting a solution unacceptable to Serbia.

Following the major regime change in October 2000, Serbia has had four gov-ernments. Since there is no national consensus on the European future of Serbia, the attitude of these governments toward the EU did not necessarily re�lect an unbroken continuous line of improved and enriched relations. So far, Serbia did not have an anti-EU Government but the emphasis that was placed on developing relations with the EU and moving more rapidly on the accession path by the four governments was different and generally speaking, on the decline. Today, the pro-European forces in Serbia are weaker then they were seven years ago.

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1. GOVERNMENTAL ORGANISATION AND INSTITUTIONAL STRUCTURE OF EU�RELATIONS

The administrative capacity and institutions charged with EU integration in Serbia have followed the political faith of the country. In the early stages of the pe-riod under investigation in this report, i.e. in 1990 and 1991, all matters related to the EU were dealt with through the Ministry of Foreign Affairs and the Ministry of Foreign Economic Relations of SFR Yugoslavia. As SFR Yugoslavia dissolved, and FR Yugoslavia came under a prolonged period of UN sanctions, relations with the EU became practically non-existent. During this entire time, 1992 – 2000, there were no organisations or institutions dealing with EU accession, nor was there a need for them. Things changed after October 5, 2000. During the �irst year (2001), EU rela-tions were conducted via the Ministry of Foreign Affairs and the Cabinet of the Depu-ty Prime Minister of FR Yugoslavia. The „chief negotiator“, the point man toward the European Union at the time was the Deputy Prime Minister of FR Yugoslavia. Serbia had no institutions or organisations that were formally dealing with EU matters. As far as Serbia is concerned, it makes sense to observe and report on the institutional set-up for EU Integration only in the post-Milosevic period, i.e. from 2001 until the present day.

1.1. Governmental organisa� on and ins� tu� onal structure of EU-rela� ons

1.1.1. The EU Integration Office of FR Yugoslavia

Initially, Serbia dealt with the EU and EU matters only through the FR Yu-goslavia. The �irst FR Yugoslavia’s EU Integration Of�ice was established on the 1 November, 2001 as a body of the Council of Ministers of FR Yugoslavia, but not as an independent unit. Rather, it was a part of the Ministry for International Economic Relations of FR Yugoslavia. The primary task of the Of�ice was the organisation and the coordination of the integration process of FR Yugoslavia. Due to the fact that FR Yugoslavia was a weak state, and the real power rested with the two republics, the scope of initiative of the Of�ice was very limited and it had to work in very close co-operation (and under the scrutiny) of similar respective of�ices of the two members of the State, Serbia and Montenegro. The Of�ice at the federal level basically focused on four activities:

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1. Coordination of activities related to the �irst stage of the accession process i.e. the meetings of the joint EU-FRY Consultative Task Force, which was re�lected in the annual EU report on the progress of FRY in EU related reforms;2

2. Increasing administrative capacity for EU accession, based on the Strategy of Training the State Administration;3

3. Translation of acquis communautaire into Serbian language;4. Communicating to the public the accession process and accomplishments,

again based on a Strategy that was approved and co-edited by the European Com-mission.

When the state changed its structure and its name from the Federal Republic of Yugoslavia to the State Union of Serbia and Montenegro, the Of�ice also changed its name to the EU Integration Of�ice of Serbia and Montenegro and, to an extent, also adjusted its scope of work. Namely, the change of state structure from federal to a more loose state union meant that the level of joint activities of Serbia and Mon-tenegro was further reduced and, consequently, the power of the institutions that represented the joint state was also reduced.

At the end of July 2003, the State Union of Serbia and Montenegro established a high-level Council for European integration. It was presided by the Head of State of the Union and the other members were: Prime Ministers (PM) from both Republics, deputy PMs from both republics, Minister of Foreign Affairs of the State Union, as well as ministers of international economic relations from the two member repub-lics. The Council met only a few times and did very little to accelerate the EU inte-gration process. At the time, the top of the political agenda was dominated by the up-coming separation of the two member states and signi�icantly more energy was spent on politics of disintegration then on the politics of integration, of which the integration into the EU was a key factor.

With the dissolution of the State Union both the Union’s Of�ice for EU Integra-tion and its Council for European Integration ceased to exist.

1.1.2. The EU Integration Office of the Republic of Serbia

Serbia, as one of the two federal units of FR Yugoslavia, started the institu-tional preparation for EU accession in January 2002. At that time, a Unit for Europe-an Integration was formed within the Ministry of International Economic Relations of the Serbian Government4. In May of the same year, by a governmental decree, the Unit for European Integration was elevated to become a Department for EU Integra-

2European Commission. The Stabilisation and Association Process for South-Eastern Europe - First Annual Report [COM(2002)163 �inal, - Not published in the Of�icial Journal], 3 April 2002.

3European Integration Of�ice, Strategy for the EU education of civil servants, Belgrade, 2002.4The �irst Director of the EU Unit was the coordinator of the present project, prof. Mihailo

Crnobrnja

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GOVERNMENTAL ORGANISATION AND INSTITUTIONAL

tion within the same Ministry, headed by an Assistant Minister.5 This arrangement was in place for almost two years.

The current Serbian EU Integration Of�ice (SEIO) was established on 8 March 2004.6 The Of�ice took over the tasks that were previously undertaken by the Depart-ment for European integration. The political signi�icance of the Of�ice was elevated by the fact that it no longer reported to the Minister of International Economic Rela-tions but, rather, to the Deputy Prime Minister. The creation of the Of�ice presented a clear indication of the Cabinet’s determination to speed up the preparations for integration with the EU. The following graph illustrates the SEIO’s organisational structure.

Graph 1: The organisational structure of SEIO7

The activities of SEIO are determined by the founding Statute as follows8: Strategy for association with and accession to the European Union; • Monitoring and participating in preparations and negotiations for conclu-• sion of the Stabilisation and Association Agreement with the European Union, implementation of the Stabilisation and Association Agreement with the European Union and the very European Union accession; Strategy, stimulating and screening the harmonisation of regulations of the • Republic of Serbia with the European Union regulations and standards, as well as information of European Union and the public thereupon;

5The �irst Assistant Minister for EU integration was one of the authors of this report, prof. Ana S. Trbovich

6Decree of the Government of Serbia, Of�icial Gazette 25/04.7Website of the Serbian European Integration Of�ice; http://www.seio.sr.gov.yu/code/navi-

gate.asp?Id=40 8Ibid.

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coordination of translation of the European Union priority regulations • into Serbian and coordination of translation of Serbian legislation into English language; Assistance to ministries and special organizations in the process of legal • harmonisation with the European Union regulations; Monitoring the realization of obligations of ministries and special organi-• sations in the process of European Union association and accession; Harmonisation of Serbian institutional capacities and education of em-• ployees according to the requirements of the European Union association and accession; Cooperation with specialised legal institutions;• Analysis of economic aspects of harmonisation with the European Union • regulations and standards; Participating in coordination of the programming of European Union’s • technical assistance; Promoting the EU association and accession activities and cooperation • with specialised international and domestic economic institutions.

SEIO prepares for adoption the acts of the Government designed for super-vising, directing and harmonising the activities of ministries and special organisa-tions in relation to the European Union association and accession and to the form of public information on the process of European Union accession and association. SEIO also performs other activities in the domain of European Union accession and association as delegated to it by the Government.

1.1.3. The Serbian Government Council for European Integration

This institution was established on 4 September 2002 as a Government advi-sory body. The idea, promoted by the late Prime Minister Đinđić, was to elevate the signi�icance of EU issues by creating the highest possible political body that would deal on a strategic level with EU accession. The PM was the head of the Council ex of�icio, as were 13 ministers covering portfolios of interest to EU accession.9 The Council, thus far, has not been utilised as initially envisaged. Since the death of Prime Minister Đinđić, the Council met only once, clearly re�lecting on low importance that the ruling coalitions in the subsequent two governments gave to EU integration.

The current Government’s decision of 7 June 2007 sets out the new respon-sibilities of the Council as follows:

Monitoring the implementation of Serbia’s European Union association • strategy;

9Until March 12, 2003, the Council met twice, offering powerful guidelines and endorsing a pro-active attitude to EU accession. The third meeting, scheduled for March 12, was cancelled be-cause of the assassination of the Prime Minister on that day.

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Proposing guidelines for improving Serbia’s EU accession process; • Proposing measures for achieving general national consensus on Serbia’s • EU accession process; Providing other advisory services aimed at increasing the ef�iciency of • the Government and other state institutions in Serbia’s EU accession pro-cess.

The Council is still headed by the Prime Minister, acting in the capacity of Council President. Deputy President of the Council is the Deputy Prime Minister. Council members are ministers, president of the European Integration Committee of the National Assembly, the Director of SEIO, and a select group of civil society organ-isations, including academia, non-governmental organizations, and a representative of the Serbian Orthodox Church.10

1.1.4. Intergovernmental Commission for EU Accession Coordination

This institution was established by a Serbian Government decree on October 17, 2002 as a direct consequence of a recommendation from the constitutive ses-sion of the Council for European Integration. The Council pointed out the need for the establishment of an operational body that would coordinate and streamline the activities of republican institutions and organisations in the Stabilisation and Asso-ciation Process.

The Commission has the following tasks: to propose measures for setting up and promoting cooperation between • republican bodies and organisations responsible for passing and imple-menting European integration policies;to determine the priorities and best methods for the approximation of • Serbian policies and regulations with the EU standards; to propose measures as regards legal harmonisation, institutional chang-• es and reform of policies that Republic of Serbia is responsible for, which are not only a condition but also a necessity in the European integration process;to monitor the implementation of the proposed measures.•

So far, besides the SEIO, this has been the most ef�icient institution in the entire EU organisational structure of the Serbian Government. It meets regularly, at least once a month, at a high civil servant level, including Assistant Ministers.

10At the time of writing of this report the newly-established Council has not met once and there are no indications that it will be convened any time soon.

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1.1.5. EU related organisational units within ministries

This was yet another initiative from the inaugural session of the Council in September 2002. The recommendation was to start preparing all involved minis-tries for the process of accession. The process was initiated in October 2002. Each ministry, as well as government agencies, was required to assess the volume of ac-tivities that would be required by the EU accession process in general and the ne-gotiation of the Stabilisation and Association Agreement speci�ically. Based on that analysis, completed in January 2003, the Government issued a Decree changing the organisation and systematisation of different posts within the Government.

Some ministries, such as Agriculture, Environmental Protection, Economy, established a Department for European Integration as an institutional unit. Most ministries established a division within a particular department, and some estab-lished a unit within a division. The staf�ing of these new organisational elements in the Government took the better part of 2003. Since then they have been fully op-erational, changing only as a consequence of political changes that occurred when Governments changed and when the number and responsibilities of some ministries changed.

1.1.6. The EU Negotiating team

Negotiations for conclusion of the Stabilisation and Association Agreement with the European Union were of�icially opened only on October 10, 2005 for politi-cal reasons (explained in other parts of this paper).. Having in mind that the Stabi-lisation and Association Agreement includes political, economic and trade relations between the parties and cooperation in implementing a number of concrete poli-cies, the negotiation team, like in other countries, comprised representatives of pub-lic administration bodies in charge of relevant negotiation topics. The Negotiating Team was lead by the Deputy Prime Minister and it consisted of the Head of SEIO, as-sistant ministers, state secretaries and experts from relevant ministries, altogether nine of them. At this stage, prior to negotiations on of�icial candidacy/full member-ship, the Serbian Negotiating Team had at its disposal eight expert working groups, and twelve expert sub-groups.

What is very unusual, and very unlike the situation in other countries, is the fact that in the two years since the start of formal negotiations of the SAA the Team was headed by three Chief Negotiators!11 The changes occurred as a result of inter-nal political reasons. It is obvious that frequent changes of the Chief Negotiator do not help the effectiveness of the negotiating process. This is yet another indication that internal politics can, and do, stand in the way of effective and rapid accession to the European Union.

11The �irst Chief Negotiator resigned his position as Deputy Prime Minister and as Chief Ne-gotiator in May 2006, and was succeeded by the new Deputy PM until the forming of the current Government in May 2007.

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The institutional set-up of management of EU relations within the Govern-ment has, thus, changed quite a bit in the short period under observation. The �irst big change occurred in 2002 with the shifting of emphasis in dealing with EU mat-ters from the federal level to the level of Serbia. The second big change occurred when the coordination of EU matters was elevated from an institutional unit within one ministry to an institutional unit that was directly attached to the Cabinet, spe-ci�ically to the Of�ice of the Deputy Prime Minister.

The latter of the two changes deserves some additional explanation. When the �irst Government of Prime Minister Kostunica took of�ice in 2004, there was a debate whether to create an EU integration ministry, or to create an institutional unit that would be above all ministries, that would express the need for strong authority by being attached directly to the Deputy Prime Minister, thus have more leverage over other ministries. At the time of creation of the new structure of Serbian EU related institutions, the experiences of all EU candidate countries were considered, and the best practices were combined with the size and ability of Serbian administration. As a result, the choice was made not to create an EU Ministry, not to appoint an EU Minister without portfolio, but rather to create the SEIO which gets its strength and political leverage within the Government by being attached directly to the Deputy Prime Minister.

1.2 The Parliament

Initially, i.e. after October 5, 2000, there was a Federal Parliament of FR Yugo-slavia which was bicameral, consisting of the Chamber of States and of the Chamber of Citizens. The latter Chamber initiated the creation of an EU Integration Commit-tee on November 22, 2001. After the transformation of the Federation into a State Union the Parliament became unicameral but it kept the EU Integration Committee alive. With the dissolution of the State Union and the Parliament this Committee ceased to exist.

1.2.1. The Parliament of Serbia - European Integration Committee12

The European Integration Committee of the Serbian Parliament was formed in January 2004. After the fall of the previous Government, elections were called and the second Parliament in the post-Milosevic era was constituted, bringing into existence the said Committee. Since then, the Committee changed presidents and a number of members in January 2007 when the present Parliament was elected.

As in other countries, the main task of the Committee is to consider proposals of laws, other regulations and general acts from the point of view of their compli-

12Website of the National Assembly of the Republic of Serbia; http://www.parlament.sr.gov.yu/content/cir/sastav/odbori_detalji.asp?id=67.

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ance with the acquis communautaire and the Council of Europe regulations, mostly in the �ield of human rights. The Committee considers plans, programs, reports and information on the process of stabilisation and association with the European Union. It monitors the implementation of the Strategy for EU association and recommends measures and initiatives for the acceleration of the implementation of the Strategy within the framework of the National Assembly’s jurisdiction, recommends mea-sures for establishing a general, national agreement on the Strategy. The Committee also fosters international cooperation with other countries’ parliamentary commit-tees, with the aim of better understanding of the process of association and integra-tion to the European Union and sharing of experience.13

The European Integration Committee consists of 15 members of the Parlia-ment representing all parties. Experience thus far shows that the Members of the parliament from parties of the ruling coalition majority actively participate in the work of the Committee. This is one of the few parliamentary committees that rarely had problems with quorum for reaching decisions. This re�lects on the responsibil-ity of the members of the Committee and the existence of a high level of awareness on their part that the process of Serbia’s EU integration requires maximum atten-tion. However, as will be seen later, the hard and conscientious work of the European Integration Committee has often been depleted by the broader political context of the full Parliament in session.

So far, the main problems in the Committee’s work14 were less of party-politics and more of an institutional capacity nature. In facing the immense and challeng-ing task of adopting and synchronizing the laws with EU legislation, the Committee lacked competent professional staff support. Due to the lack of competent staff, the Committee has, in the past, relied on the opinion, advice and information of interna-tional missions in Belgrade in forming the Committee decisions. The representatives of the EU delegation as well as diplomats from EU countries were regularly invited to attend the Committee’s sessions.

A major step forward was the establishment of the Parliament’s Of�ice for the alignment of national legislation with the acquis. The �inancial backing from the OSCE Mission to Serbia, the Czech Government and the Senate of Italy. The Of�ice was established in 2005. Unfortunately, at the time of this writing it has only four full-time employees.

In most of the Annual Reports of the European Commission on the Stabilisa-tion and Association Process in Serbia, the legislative activity of the Parliament of Serbia was given a positive assessment, and especially that of the European Integra-tions Committee, has been favourably commended. The Committee, in cooperation with the European movement in Serbia, proposed the Resolution on EU Association and Integration, which the Parliament adopted on October 13, 2004. However, the Resolution was passed with only 132 votes out of 250 suggesting that, on such an important issue as the European future of Serbia, there is no national consensus, nor a clear, overwhelming majority. In this case, lack of consensus was attributed to the

13Rules of procedure of the National Assembly of the Republic of Serbia, Article 69 .14Evropski forum, http://www.becei.org/EF%200806/intervju.html

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fact that the Resolution linked the EU accession process to NATO accession (for more on Serbia’s position towards NATO, see below).

Thus far, the EU Integration Committee of the Serbian Parliament has been stable in its institutional set-up. Changes that occurred were the normal parliamen-tary changes that take place after elections but neither the content nor the scope of work has changed substantially.

1.3. Changes in ins� tu� onal arrangements

How to assess the relative political importance of managing EU relations within the Serbian Government? The political importance of EU relations has clearly changed over time. As a consequence, the importance of managing EU relations has changed as well. Not all of the changes were in the same direction, i.e. in the direc-tion of positive evolution. The �irst Government (2001-March 2004) opened the EU agenda in a big way. The political importance and priority given to EU related issues was very high. As a result, most of the current EU related institutions in Serbia were created at that time.

The second, short lived government of Prime Minister Zoran Živković contin-ued the effort to keep EU affairs high on the political agenda. For a while there was even an increase of political and institutional activity due to the “sympathy factor” for the late Prime Minister, both within Serbia and in Serbia-EU relations.

In the third government of Serbia, and the �irst of two with Vojislav Kostu-nica as Prime Minister, the relative political importance of managing EU relations subsided. It was a minority government supported by Milosevic’s socialists and the management of EU relations was delegated to the Deputy Prime Minister. The Prime Minister did not consider management of EU related issues a top priority. A clear in-dication of lesser importance given to the management of EU matters is the fact that the Council for EU Integration, where the Prime Minister is ex of�icio president, met only once in the three years of existence of that government. The current govern-ment has a similar problem. The Prime Minister is primarily focused on Kosovo and again he does not see suf�icient political bene�it to manage EU relations directly. He is again the President of the EU Integration Council which has not met once so far. EU relations are the responsibility of the Deputy Prime Minister.

Yet, the situation at the current time is somewhat better then in the previous government. In this Government the Democratic Party holds a majority of Ministers, even though the Prime Minister is from a different party. This allows the Democratic Party to press the EU agenda at Cabinet meetings and have a far more pro-active ap-proach then was previously possible. Also, the coalition government has a comfort-able majority in the Parliament so it does not have to rely on open or silent support of the non-European opposition.

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2. POLITICAL RELATIONS

2.1. Offi cial posi� ons on EU rela� ons

In 1990 Serbia, then a part of SFR Yugoslavia, had excellent relations with the European Community. SFRY was in the process of executing a major shift in its foreign policy. Since the Cold War had come to an end, the concept of Non-Alignment,15 a cor-ner stone of Yugoslavia’s foreign policy for more then three decades, had become less useful in securing Yugoslavia’s strategic interests. The strategic move toward the Euro-pean Union was initiated in October 1989 when Yugoslavia submitted an application for associate membership in the EC. At the time, political relations between the EC and Yugoslavia were very strong. Yugoslavia had, since 1987, a formal political dialogue with the EC that usually took place during the EC General Council of Ministers.

Political relations between the EC and Yugoslavia became even more intense during the failed attempt of the EC to intermediate in the Yugoslav crisis. While the federal government sought EC backing and support, hoping that this powerful eco-nomic and political partner will help stabilize the country, the key leaders of repub-lics, set on dissolving Yugoslavia, looked upon the EC mediation as an undesired nuisance. The federal position collapsed totally in May of 1991 when a high level EC delegation failed to convince the republican leaders of a need to reach a common, negotiated solution.

Milosevic, the key political �igure in FR Yugoslavia during the nineties, was always reserved and sceptical about the European Community, later the European Union. He never sought to consider the EC/EU as a possible strategic foreign policy option of Serbia. Thus, the of�icial position of Serbia toward the EU was cold, border-ing on negative during the break-up of Yugoslavia. When UN sanctions were imposed on Serbia in May 1992, the sum total of all relations shrunk to almost nothing.16 Dur-ing the entire period of Milosevic’s rule in Serbia political relations were minimal and an of�icial position of Serbia on the EU was negative, rather than positive.

The process of normalising the relations, renewal of political dialogue and co-operation between Republic of Serbia and EU began with the �irst visit of FR Yugosla-

15Yugoslavia was one of the founders of the Non-Aligned movement. The 1st Conference of Non-Aligned countries was held in Belgrade in 1961, as was the 9th Conference, held in 1989

16The assessment in the �irst three paragraphs based on Mihailo Crnobrnja, The Yugoslav Drama, McGill-Queen’s Press, Montreal, 2nd edition 1996.

23

POLITICAL RELATIONS

via’s new President, Vojislav Koštunica, to the European Council Summit in Biarritz in October 2000. At the Zagreb Summit of EU and West Balkans countries, held on November 24, 2000, FR Yugoslavia was formally included into the Stabilisation and Association Process that the EU had previously developed for countries of former Yugoslavia and Albania. At this summit the countries of this region were informed of�icially by the EU that they are “potential candidates for EU membership”. The rap-id re-establishment of relations was concluded in that year by the visit of European Commission’s Chairman, Romano Prodi, to Belgrade, on November 25, 2000. At that time, a Framework Agreement for the provision of Assistance and Support by the EU to the FRY was signed.17

The �irst Government of Serbia, under the leadership of the late Prime Min-ister Zoran Đinđić, declared integration into the EU as its �irst and most important foreign policy objective. The political attitude toward the EU was very positive. The EU was seen not only as a strategic foreign policy partner but also as an instrument of promotion of necessary internal reforms. Through the standards and conditions set out during the accession process, the Serbian economy and society would be modernized and brought closer to European standards and values. The vast major-ity of the complex coalition Government18 believed in, and supported such a political position. As was explained in greater detail in the �irst part, this was the period of time when Serbia created most of the institutional structure in support of its objec-tive of EU accession.

After the murder of Serbia’s Prime Minister in March 2003, it seemed that one of the strategic reform objectives that would not come into question would be Serbia’s European path. However, the energy, the zeal and the European vision of the late Prime Minister could hardly be equalled by his successor, Zoran Živković, who was in of�ice only 6 months. Even less could be expected from the following Prime Minister, Vojislav Kostunica, who, by that time, had become rather frustrated by the insistence of the EU on Serbia’s cooperation with the ICTY.19

The credit for much of what has been done during the period 2004-2006 goes to the then Deputy Prime Minister Miroljub Labus. He was the chief negotiator on behalf of Serbia in the discussions and negotiations leading to the Stabilisation and Association Agreement. He was perceived as “Mr. Europe” in Serbia by his EU coun-terparts. The Prime Minister remained in the shadows but exerted a strong in�luence on the future course of events by non-acting, rather then acting. The Prime Minister never warmed up to the idea of extraditing indicted war criminals to ICTY. He man-aged to secure the voluntary surrender of a number of generals, but refrained from using force in apprehending others, most notably General Ratko Mladić. Because of failure to cooperate with ICTY the EU froze the SAA negotiations in May 2006 which prompted the Deputy Prime Minister to tender his resignation and, in effect, create conditions for the collapse of the Government six months later.

17The full text can be found at http://www.mfa.gov.yu/Srpski/Foreinframe.htm18The Prime Minister presided over a coalition of 18 parties, not all of which necessarily

shared his vision and action plan19International Criminal Tribunal for former Yugoslavia, usually referred to as the Court in

the Hague or the Hague Tribunal.

24


The grounds for entering the new stage of Serbia’s relations with EU was provided by the “Thessalonica agenda for West Balkans”, which con�irmed the Eu-ropean prospective of West Balkan countries, as well as other documents adopted at EU Summit in Thessalonica and EU – West Balkans Summit (June 20-21, 2003). The new basis for Serbia’s cooperation with EU was now de�ined by the “European partnership for the Republic of Serbia”, as an instrument by which the European Commission de�ines key priorities, political and economic criteria and as the basis for cooperation in the �ield of EU sector policies, and monitors and estimates the progress of Republic of Serbia in the European integration process.

The Commissioner for EU enlargement, Oli Rhen, during a visit to Belgrade in January 2005, in conversations with Serbia’s highest of�icials, conveyed the message that EU wishes to intensify the process of Serbia’s integration in EU. During his sec-ond visit, in April 2005, he estimated that “signi�icant progress” was made in achiev-ing full cooperation with The Hague Tribunal, and greeted European Commission’s decision about favourable assessment of the Feasibility Study. This decision was also con�irmed by EU Council for General and Foreign Affairs on 25 April 2005.

Negotiations with a view of concluding the Stabilisation and Association Agreement between Republic of Serbia and EU were interrupted (frozen) by Euro-pean Commission’s decision of May 03, 2006 because of European Commission’s assessment regarding Serbia’s insuf�icient cooperation with The Hague Tribunal. As stated, this led to the resignation of the Deputy Prime Minister. Equally important was the effect of this measure on the Government. The of�icial position of the Gov-ernment regarding the EU did not change. However, behind the of�icial position was a growing level of resentment toward the Hague conditionality20 and a stronger de-termination on the part of the Prime Minister not to cooperate with ICTY.

Conclusions from the meeting of EU ministers of foreign affairs, held on July 17, 2006 in Brussels, include a special statement about Serbia from the EU Troika - Serbia meeting, which con�irms Serbia’s European prospective and points to the possibility that immediately after accomplishing full cooperation with The Hague Tribunal continuation of negotiations to conclude the Stabilisation and Association Agreement may follow, with a possibility of signing the agreement by the end of 2006. The technical negotiations at this stage were far advanced. The political condi-tion was the obstacle.

On the margins of that EU Council of Ministers meeting, a separate meeting between the EU Troika and the Republic of Serbia of�icials was held, at which Serbia presented an Action plan for cooperation with the Hague Tribunal. EU Troika greeted the Action plan, stating that it contains clear commitment to accomplish full coopera-tion with the International Criminal Court in The Hague. It was emphasised that the Action plan should be further developed and it was estimated that it provides good foundation for further work, and that its implementation should start immediately.

During the period of suspension of negotiations, EU made efforts so that the process of European integration in Serbia would not lag. Continuation of dialogue with Serbia, both in the form of technical talks and through the meetings with EU Troika, represented EU’s �irm orientation towards keeping Serbia on the European

20The issue of conditionality is discussed later in this paper.

25

POLITICAL RELATIONS

course. Such approach was also con�irmed by a meeting between Troika from EU Ministries of foreign affairs and Serbia, on October 16, 2006.

In the meantime, cooperation at state, regional and local level continued to grow, with direct engagement of Ministries in charge of particular �ields – such as justice, internal affairs, defence, energy, transport, agriculture and others. Numer-ous regional initiatives were launched and certain results were achieved as a result of cooperation at the level of local government.

The position of Serbia toward the EU changed yet again with the forming of the present Government in May 2007. The key partners of the current coalition have rather different views on the European future of Serbia. The Democratic Party, the strongest coalition partner, is trying hard to revive the attitude that prevailed during the time of the late Prime Minister Đinđić. It has the support of one of the smaller coalition partners, G17 Plus. The Democratic Party of Serbia, and its ideological ally “New Serbia”, are far less keen to commit themselves to EU integration as a vehicle of modernisation of Serbia. These two parties cater to the traditional, nationalistic sentiments of the population.21

Of�icially, the European Union is Republic of Serbia’s key partner in the pro-cess of international support to democratic and economic reforms in the country. Development of relations with EU is declared as Serbia’s foreign policy priority. By adopting the National Strategy for EU Accession in 2005, the government de�ined Serbia’s accession to the European Union as a top-priority and a long term strate-gic goal. The short term goal is to sign the Stabilisation and Association Agreement (SAA) with EU as soon as possible,22 given that it has been initialled in October 2007. The medium term goal for the end of 2008, or beginning of 2009, is the obtaining of candidate status.

Unof�icially, there is a very strong opposition to this course of action within the Government, headed by the Prime Minister himself. He is unhappy with the EU position on Kosovo and is even publicly asking for the postponement/suspension of the signing of SAA if the EU does not change its position. This could perhaps be described as reverse absurd conditionality.

The �irst Serbian Parliament after the fall of Milosevic (2001-2003) was not very active on issues of EU accession. It did not even have an EU Integration Com-mittee and its involvement was limited to inter-parliamentarian exchange of MPs and delegations. There was no deliberate scrutiny of domestic legislation from the perspective of the acquis. The second Parliament, elected in 2004 established the EU Integration Committee. This was described in section 1.2. Other then institutional in-clusion of EU matters, the biggest accomplishment of the second Parliament was the passing of the “Resolution on Joining the European Union.”23 This resolution passed with a very slim majority: 132 votes out of 250. The Resolution also called for the Government to develop a Strategy for Serbia’s Accession to the European Union. The

21The interesting fact is that the Prime Minister managed to form a Government with only about 12% of the vote. This is explained by the fact that he has the greatest “coalition potential.”

22At the time of this writing, the target is January 28, 2008.23The full text can be found at http://www.seio.sr.gov.yu/upload/documents/Izvestaji/re-

zolucija%20engleski.pdf.

26


strategy was accepted by the Government in July 2005.24 The Government decided not to send the Strategy for adoption to the Parliament in order to avoid a heated political debate with the opposition.

Even though the pro-European parties have had a majority in the Parliament during the last seven years, the fact is that the anti-European minority is very strong both in terms of the popular vote, and in terms of parliamentary presence. The Radi-cal Party has been the single largest party in all three Parliaments so far, usually commanding about a third of the 250 MPs. This re�lects their popular vote, which ranged between 31 and 35%. If the votes of the Socialists (Milosevic’s former party), and the wavering support of the Prime Minister’s party to the European orientation of Serbia are added to the strong opposition provided by the Radicals, it becomes clear that the pro-European block of parties is actually a minority, depending to a large extent on how the Prime Ministers party will vote.

The public opinion has been regularly monitored on EU sentiments and pref-erences since September 2002.25 On the surface, it would appear that the support for Serbia’s integration into the European Union is very strong. This is illustrated by Graph 1 which illustrates the responses to the question: “If the referendum were held tomorrow, with the question: ‘Do you support our country’s membership in Euro-pean Union?’ how would you vote?” The graph shows that over the years the positive response hovered around 70% of the population, while those opposed ranged be-tween 8 and 15%. It is signi�icant to note that the highest opposition to EU integra-tion occurred at the last poll, taken in June 2007. The pollsters attribute the increas-ingly negative attitude toward the EU to the position that the EU is taking toward the Kosovo issue.

Graph 1

This is clearly demonstrated by the answers to the question: “IF the EU rec-ognises Kosovo unilaterally, what should be our foreign policy?” The results in Graph

24The full text can be found at http://www.seio.sr.gov.yu/code/navigate.asp?Id=73.25The survey results can be found at: http://www.seio.sr.gov.yu/code/navigate.asp?Id=20.

27

POLITICAL RELATIONS

2 show that a third of the population would be in favour of terminating political and economic relations with the EU.

Graph 2

Other than Kosovo, the ICTY conditionality is also a big obstacle to a more favourable perception of the EU in Serbia. This is clear from Graph 3 which shows responses to the question on cooperation with ICTY. More than half of the popula-tion does not support the cooperation and among those who don’t support coopera-tion with ICTY three out of four would not change their mind even if EU integration depended on it.

Graph 3

Finally, a graph representing the knowledge and understanding of the Eu-ropean Union among the Serbian population should be analysed. When asked how well are they informed about the EU, almost 40% of the citizens of Serbia responded

28


that they are not informed. Only 30% responded that they are informed.26 These results are shown in Graph 4. Interpreting these results leads to a conclusion that a relatively large segment of the population wants to be a part of the EU but, at the same time, doesn’t know or understand what they would want to be a part of. Fur-thermore, Kosovo and ICTY clearly reduce the enthusiasm of Serbs toward the EU. It is impossible to assess the cumulative effect of these additional questions because there is a large overlap between the negative segments of responses. But it is clear and evident that if these issues are factored in, the seemingly high support for the idea of Serbia’s integration into the EU shrinks considerably.

Graph 4

2.2 Major events marking EU-Serbia rela� ons

The European Community signed a Cooperation Agreement with the Socialist Federal Republic of Yugoslavia in 1980. A Delegation of the European Commission was opened in Belgrade as early as 1981. The Cooperation Agreement was abrogat-ed by the EC in November 1991 when the former Yugoslavia disintegrated, but the Delegation in Belgrade remained in place and has been continuously operational. Following the disintegration of the Socialist Federal Republic of Yugoslavia and the violence that ensued in Croatia and Bosnia and Herzegovina, the EC maintained a political presence in the new self-styled Federal Republic of Yugoslavia comprising of Serbia and Montenegro, but the relations were at a low level based on the sanc-tions regime introduced by the United Nations.

With the victory of a wide coalition of Serbian democratic forces at the fed-eral elections in 2000, relations with the then Federal Republic of Yugoslavia were raised to the highest formal level, already achieved by it’s Western Balkan neigh-bours. Belgrade and Podgorica embarked on the road of European integration that should eventually offer an opportunity to become a full member of the EU.

The dialogue between two sides takes place regularly since 2001 �irst in the form of a Joint Task Force and then in the form of an Enhanced Permanent Dialogue

26Up from 12% �ive years ago, when the polling started

29

POLITICAL RELATIONS

(EPD). At the second plenary meeting of the EPD, held on November 10, 2006 in Belgrade, the European Commission delegation was led by Mr. Michael Lee, General Director for Enlargement in the European Commission (CEU). The last sector meet-ing within EPD, focusing on transport, energy and environment protection, was held on February 13, 2007, at a time when the current Parliament was elected, but the Government had not yet been formed. It was announced that a new meeting would follow immediately after the Government of Republic of Serbia were formed.

Following the dissolution of the State Union and Montenegro’s declaration of independence after a referendum in May 2006, the political dialogue continued with Serbia, as a successor state of the State Union.

As soon as the new coalition was formed, Serbian President Tadic resumed his meetings with EU of�icials. He met in Brussels with the EU Enlargement Com-missioner Olli Rehn and the President of the Council of Ministers of the European Union, German Foreign Minister Frank-Walter Steinmeier, and discussed with them the process of resolving Kosovo’s status, relations between the EU and Serbia and the establishment of a new Serbian government.27

Serbian Prime Minister Vojislav Koštunica initiated his relations with EU of-�icials by pointing that independent Kosovo would “seriously endanger” peace and stability in the region. And in an apparent reference to the Serb Republic in Bosnia, he told EU of�icials that Kosovo was “not a unique case” and that it may set a prec-edent for other breakaway provinces.28

The German diplomat and the EU representative in the negotiating troika for the status of Kosovo Wolfgang Ischinger stated that the European Union should send Serbia a signal as soon as possible, to show its readiness to offer Belgrade further support in its efforts at EU integration. The signal could be in the form of further visa liberalisation. Ischinger criticised the U.S. for announcing it would recognize the unilaterally proclaimed independence of Kosovo, and added that “all statements that create the impression that the result of the negotiations has already been deter-mined are not helpful.”29

The European Commission presented its Annual report on Serbia’s progress in implementation of European partnership on November 8, 2006. The report was favourable, �irst of all with regards to Serbia meeting the economic criteria, as well as in the achievement of European standards. Unfavourable assessment was given in connection with the full cooperation with ICTY, as well as in relation to Serbia’s “constructiveness” in negotiations about the status of Kosovo, while encouraging the Serbs in Kosovo to participate in the work of interim authorities’ institutions.

On November 13, 2006 at a regular Ministerial meeting of EU’s General and Foreign Affairs Council (GAERC), the mandate was granted to the CEU to negotiate visa bene�its and uniform Agreement on readmission with Serbia.

The next opportunity for high level contacts occurred during the long political crisis in Serbia precipitated by the election of the new Parliament and the inability

27The full text can be found at http://www.mfa.gov.yu/Bilteni/Engleski/b060307_e.html#N228The full text can be found at http://www.europeanvoice.com/archive/article.asp?id=2879429The full text can be found at http://www.mfa.gov.yu/Policy/CI/KIM/121007_4_e.html

30


to form a new Government. The EU sent the Troika to Belgrade in February to make an appeal to Serbian leaders to form a Government. The GAERC held on February 12, 2007 welcomed the EU Troika’s report and made an appeal to political leaders in Serbia to form a European oriented Government soon. The Council has contin-ued to con�irm Serbia’s prospective in EU and its readiness to work with the new Government towards this goal. Referring to the Decision dated October 3, 2005, the Council greeted European Commission’s readiness to renew negotiations on the Sta-bilisation and Association Agreement with the new Government in Belgrade, which should demonstrate clear orientation towards taking concrete and ef�icient steps for full cooperation with The Hague Tribunal. The Council statement also greeted con-siderable progress achieved in negotiations about visa bene�its and readmission and expressed an expectation that they will be concluded soon. EU said it was prepared to consider other concrete steps which would help Serbia integrate into family of European nations.

The Council statement did not help much to change the political situation on the ground. Clearly, at that point the European perspective of Serbia did not repre-sent a factor that would change the political calculus of the Serbian parties attempt-ing to form a coalition government.

Following these conclusions of the Council, Javier Solana, EU’s High Repre-sentative for common foreign and security policy, at the meeting between EU Troika and Serbia held on March 6, 2007 repeated that it was important that the Govern-ment in Serbia be formed as soon as possible and said that EU provides full support to Serbia’s foreign policy priorities – renewal of negotiations and signing of the Sta-bilisation and Association Agreement, candidacy for membership in EU, and entry to the White Schengen list.

Since 2001 Serbia has bene�ited from the EU policy advice provided through the EU-FRY Consultative Task Force (CTF), later replaced by the Enhanced Perma-nent Dialogue (EPD). The task of EPD has been to encourage and monitor reforms on the basis of the European Partnership adopted by the EU Council in June 2004 and updated in January 2006. Several sectoral groups have been set up to deepen techni-cal discussions. After the end of the State Union, the Enhanced Permanent Dialogue has continued separately both with Serbia as well as with Montenegro.

The European Commission prepares annual Progress Reports30, which moni-tor and assess the political and economic situation in the countries of the region in-cluding Serbia and the implementation of reforms and related measures. In the Fea-sibility Study prepared for Serbia. the Commission deemed Serbia and Montenegro to be suf�iciently prepared to negotiate a Stabilisation and Association Agreement (SAA) with the EU.31 On 25 April 2005, the EU Council endorsed the Feasibility Study and invited the Commission to submit the negotiating directives for the SAA. In line with the “twin-track” approach, the negotiations with the State Union and the two constituent Republics were launched in October 2005.The Commission made clear that the continuation and pace of talks would depend on the progress made by Ser-bia and Montenegro in addressing issues highlighted by the Commission and the EU

30Serbia 2006 Progress Report, COM( 2006)649 31Feasibility Report on 12 April 2005.

31

POLITICAL RELATIONS

Council, including achievement of full co-operation with the International Criminal Tribunal for the former Yugoslavia (ICTY) without delay.

Once in force, the SAA will establish a contractual relationship between Ser-bia and the EU through a comprehensive agreement between the European Commu-nities and their Member States, on one side, and the Republic of Serbia, of the other side. Similar to “Europe Agreements” with countries of the Central and Eastern Eu-rope, the SAA will provide a legal framework for the relations between the EU and Serbia for the entire period prior to the possible future accession.

In the context of the external dimension of EU policy in the area of freedom, security and justice - the negotiations for visa facilitation and readmission agree-ments with Serbia were opened in November 2006 and the Agreement with Serbia initialled on 16 May 2007.32

The Serbian EU Integration Of�ice initiated the signing of the Memorandum of Cooperation in the European Integration Process with the non-governmental or-ganisations, having in mind previous role of non-governmental organisations in the process of democratisation of the Serbian society, as well as their role in spreading European ideas and values. The aim of this Memorandum was to institutionalise cooperation with non-governmental organisations in the process of Serbia’s EU ac-cession, to promote the coordination of activities and establish cooperation in pro-viding regular and objective information to citizens regarding Serbia’s European in-tegration process.

Parliamentary elections were held in January 2007 in line with the Constitu-tional Law. International observers quali�ied them as free and fair and conducted in line with international standards. The removal of the 5% threshold for ethnic minor-ity parties resulted in an increase in ethnic minority representation in parliament. A representative of an ethnic minority party was appointed as deputy speaker. The parliament was formally constituted in February 2007. The parliament constituted 30 committees, including a Committee for European integration. A number of com-mittees are chaired by opposition parties.

However, political developments adversely affected the functioning of the Parliament. The �irst sitting after its inauguration was adjourned for almost three months due to the protracted negotiations to form a government. Dif�iculties faced by political parties in reaching an agreement on a common government platform contributed to a climate of heightened political instability which culminated in the Democratic Party of Serbia (DSS) and New Serbia (NS) forming in May a temporary alliance with the Serbian Radical Party (SRS) in order to elect the SRS acting leader speaker of the parliament.

The alliance was short-lived and the speaker resigned after a coalition agree-ment was reached between the Democratic Party (DS), DSS-NS and G17+ to form a reform-oriented government. In May 2007, the coalition government of DS, DSS-NS and G17+ was sworn in and a new speaker elected.

The legal framework for elections has not been fully revised, in particular as regards the voters’ register. The elections also exposed the need for better regulation

32Council Conclusion on Western Balkans of 18 June 2007..

32


of party �inancing. The capacity of the parliamentary committees is not suf�icient to address current demands, and the parliament continues to lack a suf�icient number of specialised staff. The current parliamentary rules of procedure also contributed to a slow-down in the legislative process. Overall, the period of political uncertain-ty in Serbia restricted the work of the parliament and little progress was achieved. The delays in fully constituting a new parliament have had an impact on the pace of adoption of legislation. The capacity of parliamentary committees remains limited.

In the months following the parliamentary elections, there was little activity from the caretaker government. A new coalition government was �inally formed in May 2007, following a long period of political uncertainty. The new government has 25 members, including one Deputy Prime Minister in charge of European Integra-tion. There are six more ministerial posts than in the previous government, follow-ing a restructuring of ministries. A new Ministry for Kosovo and Metohia was estab-lished and the Coordination Centre for Kosovo was brought under its framework.

The government set out a number of key priorities for its term in of�ice: the status of Kosovo, implementation of international obligations and cooperation with International Criminal Tribunal for former Yugoslavia (ICTY), acceleration of the Eu-ropean integration process, economic development and the �ight against corruption and crime. Discussions on the status of Kosovo have dominated the political agenda since the new government took of�ice.

Following the European Commission’s decision to resume SAA negotiations in June 2007, the Government appointed a new negotiating team, led by the Deputy Prime Minister. It also reinstated the Council for European Integration, chaired by the Prime Minister and made up of a wide range of ministries, civil society groups, religious organisations and representatives of national minorities. The government agreed to include a debate on progress in EU integration as an obligatory item on the agenda of each of its sessions. In August 2007, the Government adopted a revised Action Plan for the implementation of the European Partnership and an Action Plan for harmonisation of laws with the EU acquis. The Government and the Parliament improved their cooperation on European integration issues. However, more needs to be done to coordinate effectively among ministries and government agencies. In the area of local governance, the European Charter on local self–government was rati�ied. Serbian legislation on local government �inancing was implemented as of January 2007.

This regulates the �inancing of local governments in a more ef�icient manner and provides greater stability and predictability of �inancing. The yearly amount of transfers has been set at 1.7% of GDP. The new constitution contains provisions al-lowing municipal ownership of property. However, the legal framework necessary to transfer state property to municipalities has not yet been adopted. A number of other laws in the area of decentralisation and local government are also pending.

Overall, there was little activity during the period when the caretaker gov-ernment was in charge and few government initiatives. Since the formation of the new government, there has been some progress in re-launching the process of ap-proximation with European standards. However, policy coordination remains to be improved. The legal framework in the area of local governance has still to be further developed.

33

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2.3 Nego� a� ons, EU level agreements

Only a few weeks weeks after the fall of Milošević regime in October 2000, Serbia (then part of the Federal Republic of Yugoslavia) signed the Framework Agreement FRY-EU for the provision of Assistance and Support by the EU to the FRY. Serbia has bene�ited from Autonomous Trade Preferences, granted by the EU since the change in regime, which allowed it to become part of the Stabilisation and As-sociation Process (SAP) endorsed at the 2000 Zagreb summit of EU and Western Balkan countries..

Feasibility Study was adopted by the Commission in April 2005, which con-cluded that Serbia and Montenegro is prepared to negotiate a Stabilisation and As-sociation Agreement with the EU. In October 2005, Serbia launched the negotiations for a Stabilisation and Association Agreement, which were called off in May 2006 because the country did not ful�il its commitment to fully co-operate with the ICTY.

Following the declaration of independence by Montenegro on 5 June 2006, the Serbian Parliament, acting in accordance with Article 60 of the Constitutional Charter of Serbia and Montenegro con�irmed the continuity of Serbia as a legal suc-cessor of the State Union. On 12 June 2006, the EU and its Member States recognised Montenegro as an independent state and took note that Serbia is the successor state to the State Union. On 15 June 2006 the Government of Serbia of�icially recognised Montenegro as an independent state.

SAA negotiations with Serbia resumed on 13 June 2007, following a clear commitment by the country to achieve full cooperation with the ICTY, and concrete actions that have matched this commitment.

Negotiations advanced rapidly and the last technical round took place on 10 September 2007. Full cooperation with the ICTY is required before the SAA can be signed.

The negotiations on Visa Facilitation and Readmission Agreements with Ser-bia were started on 13 November 2006 by the European Commission, following the mandate granted by the EU Council. The draft agreements were signed on 18 Sep-tember 2007.33

The Visa Facilitation agreement makes it possible to maintain the visa han-dling fee of 35€ instead of 60€ for Serbian citizens and provides a total exemption from the visa fee for certain categories of applicants. Furthermore, for certain cate-gories of persons, e.g. businesspeople, students and journalists, the supporting doc-uments for a visa application became simpli�ied. It is also possible to issue multiple entry visas to certain categories of frequent travellers. Finally, holders of diplomatic passports are exempted from the visa obligation. EU citizens are already exempt from the visa obligation by Serbia.

The Readmission Agreement set out clear obligations and procedures for the authorities of both Serbia and the EU Member States as to when and how to readmit the people who are illegally residing on EU territory.

33The full text can be found at http://www.seio.sr.gov.yu/code/navigate.asp?Id=54.

34


The entry into force of the Visa facilitation and Readmission Agreements is foreseen for 1 January 2008.

Effective implementation of the Visa Facilitation and Readmission Agree-ments will ensure a better management of migration and will make it possible to envisage a structured dialogue along the path set out by the Thessalonica agenda towards a visa free travel regime also for Serbian citizens.

Adopted conclusions on Western Balkan and Serbia were as follows:34

Serbia

The Council welcomed the fact that the new government in Belgrade had 1. shown clear commitment and had undertaken concrete and effective ac-tion for full co-operation with the ICTY, and that this had enabled the Com-mission to resume negotiations on a Stabilisation and Association Agree-ment (SAA) with Serbia.The Council encouraged the Serbian authorities to build on this posi-2. tive dynamic, to vigorously pursue the necessary reforms to bring Serbia closer to the European Union and to continue its efforts to ensure that all remaining fugitive ICTY indictees are brought to justice. The Council re-called that the pace and conclusion of the negotiations on the SAA would in particular depend on Serbia’s progress in developing the necessary leg-islative framework and administrative capacity to implement its obliga-tions under the Agreement, and on full co-operation with ICTY. The Coun-cil and the Commission will jointly review Serbia’s performance in these areas before the decision to sign is taken by the Council.The Council reaf�irmed that Serbia’s future lies within the European Union 3. and that the Union stands ready to work with Serbia towards this goal.

Serbia /Kosovo.

The Council con�irmed its support to UN Special Envoy Martti Ahtisaari 4. and reiterated its view that his comprehensive proposal submitted by the UN Secretary General to the Security Council on March 26, 2007, provides the basis for the settlement of the Kosovo issue by a new Resolution of the United Nations Security Council. The Council expressed its support for intensi�ied efforts to ensure that the Security Council can adopt such a resolution in a timely manner, also as a basis for a future EU and interna-tional presence.The Council underlined the necessity of rapidly �inding a solution to the 5. Kosovo Status issue, which is essential as a basis for a democratic and multi-ethnic Kosovo committed to the rule of law as well as for maintain-ing and reinforcing regional stability.The Council reaf�irmed its conviction that resolving the pending status of 6. Kosovo constitutes a sui generis case that does not set any precedent.

342809th Council meeting conclusions.

35

POLITICAL RELATIONS

The Council underlined that the EU stands ready to play a signi�icant role in the7. implementation of the status settlement. Preparations for a future EU and international presence in Kosovo are being intensi�ied in coordination with other international actors.Visa facilitation and readmission agreements8. The Council welcomed the initialling of the agreements on visa facilita-9. tion and readmission with Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Montenegro and Serbia. The conclusion of such agreements will promote people-to-people contacts between the EU and the Western Balkan countries and will increase the opportunities for travelling, especially for the younger generation.Recalling the Thessalonica Agenda, the Council also acknowledged the 10. importance the people of the Western Balkans attach to the perspective of visa-free movement. In this respect, it welcomed the efforts of the Com-mission to take these issues forward in concrete terms. Furthermore, the Council underlined the desirability of promoting people-to-people con-tacts by also making available more scholarships for the students of the region.Therefore the Council looks forward to a prompt conclusion of all neces-11. sary procedures to ensure that the agreements enter into force as soon as possible.

2.4 Posi� ons of EU Member States

The new post-Milosevic era started with full and unequivocal support for the new, democratic Serbia. In the meantime, as various problems emerged (to be dis-cussed later in this segment) the support became much more nuanced both in terms of its strength and in terms of the countries offering it.

There is no question in Serbia as to the full support of all EU Member States for Serbia’s European path. What follows are statements of some of the important of�icials of EU countries. The French Foreign Minister Bernard Kouchner assured the Serbian Foreign Minister in October 2007, “France will support Serbia, now and in the future, on the road toward full EU membership.”35 Great Britain has also sup-ported Serbia’s ambition to join Euro-Atlantic structures.36 The German Foreign Minister Frank-Walter Steinmeier told his EU colleagues that the EU “cannot lose Serbia.”37 The European Union should formally recognise Serbia as an EU candidate and strengthen cooperation with Belgrade to help resolve the diplomatic deadlock

35The full text can be found at http://www.mfa.gov.yu/Policy/Minister/191007_1_e.html36The full text can be found at http://www.mfa.gov.yu/Policy/Minister/190907_2_e.htm37The full text can be found at http://www.rferl.org/featuresarticle/2006/02/fe1401e9-

ec7f-4764-b3aa- 7fc792ab7b95.html

36


over Kosovo,” stated Italy’s prime minister Romano Prodi.38. The Greek Foreign Min-ister Dora Bakoyannis said that any attempt to link Serbia’s European perspective with the developments in Kosovo would be erroneous and counter-productive.”39

The support of the leaders of EU member countries was particularly intensi-�ied during the pre-election campaign for parliamentary elections in January 2007. “We want Serbia as a full member of the EU as soon as possible,” asserted the British Prime Minister Tony Blair.40

However, from a Serbian perspective, it seems that the EU member states can be grouped into four categories when it comes to support and understanding of the position of Serbia:

Group of countries that for reasons of a history of friendship, or because 1. of their own interests, have a strong understanding for the position of Ser-bia and are willing to advocate Serbia’s case in the Council;The countries that are keen on interpreting the ICTY condition and the 2. current Kosovo issue in a very �irm and non-yielding way;Countries that have no direct interest for or against, but are concerned 3. about the unity of the EU (most notably France and Germany)Countries that consider Serbia of little economic, political or any other 4. interest and that will follow the views of the in�luential majority.

The �irst group is neither large enough not in�luential enough within the EU to sway the outstanding problems and issues in a way that would be more compatible with Serbia’s own strategic interests.

The EU General Affairs and External Relations Council (GEARC) welcomed in Brussels on 12 February 2007 the EU Troika visit to Belgrade on 7 February 2007 and called on the political leaders in Serbia to rapidly proceed with the formation of a government committed to reforms and a European future. The Council reaf�irmed Serbia’s EU perspective and expressed its readiness to work with the new Govern-ment towards that goal. Referring to the Decision of 3 October 2005, the Council welcomed the readiness of the European Commission to resume the SAA negotia-tions with the new Government in Belgrade which should demonstrate its clear de-termination to undertake concrete and effective steps along the lines of full coop-eration with the ICTY. The EU welcomed the signi�icant progress achieved in the negotiations on visa facilitation and readmission and expressed an expectation that they would be concluded shortly. The EU further expressed readiness to consider additional concrete measures in order to assist Serbia’s accelerated integration with the European family of nations.

In accordance with these conclusions adopted by the Council, the EU High Representative for Common Foreign and Security Policy, Javier Solana, reiterated at the EU Troika – Serbia meeting on 6 March 2007 the importance of the most rapid establishment of Government in Serbia and expressed EU’s full support for Ser-

38The full text can be found at http://www.javno.com/en/world/clanak.php?id=86554.39The full text can be found at http://news.xinhuanet.com/english/2007-12/23/content_7296570.htm40The full text can be found at http://www.mfa.gov.yu/Srpski/Pressframe7.htm

37

POLITICAL RELATIONS

bia’s foreign policy priorities, such as resumption of the negotiations and signing of the SAA, presenting its candidature for EU membership and inclusion in the White Schengen list.

The EU agreed on the need to conclude the SAA with Serbia. At the last En-hanced Permanent Dialogue meeting, the European Commission representative an-nounced a rede�inition of the European Partnership in respect to Serbia, scheduled for adoption by the EU Foreign Ministers’ Council for January 2008. The major politi-cal prerequisite of this remains Serbia’s cooperation with the Hague Tribunal. How-ever, there still exist certain differences with regards to the sequence of steps to be taken by Serbia towards the ICTY.

The initialling of the SAA between the European Commission and the Repub-lic of Serbia took place on 16 May 2007 in Brussels. On that occasion, the EU Com-missioner for Enlargement, Ollie Rehn, stated that, thus the possibilities were cre-ated for starting the work on the preparation of a “road map” towards full abolition of visas for the citizens of Serbia, that is, for the inclusion of Serbia in the “White Schengen List”.

The EU Commission and the delegation of the Republic of Serbia headed by Deputy Prime Minister Božidar Đelić resumed the SAA negotiations suspended a year ago and held the �irst of�icial round of negotiations on 13 June 2007 in Brussels. On that occasion, a technical round of negotiations was held to review the state of the previous negotiations and identify the outstanding issues that will determine the pace of the meetings in the period to come. The adjustments of the new SAA text were made, incorporating the modi�ications emanating from the separation of Mon-tenegro and those resulting from the negotiations held between the EU Commission and Bosnia and Herzegovina and Montenegro (mainly trade issues).

The European integration of Serbia depends very much on Europe. What is Europe’s position towards this issue is the key question. At this moment Serbia’s position is such that the majority of EU member countries, European Union of�icials, and countries in the region support Serbia on its road to Europe, subject to resolu-tion of the Kosovo issue and full cooperation with the International Criminal Tribu-nal for the Former Yugoslavia.

The proof for this is Serbia’s membership in a number of regional organiza-tions, South-East European Cooperation Process (SEECP), Stability Pact for South-Eastern Europe (SPSEE), establishment of the free trade zone in the region (CEFTA – signed on 19 December 2006 in Bucharest and came into effect in June 2007; re-gional energy market compatible with the EU internal market, Central European Ini-tiative (CEI), Southeast Cooperation Initiative (SECI) were also established.

The current development of bilateral diplomacy between Serbia on the one, and Romania, on the other hand, serves predominantly the purposes of regional har-monisation that will eventually lead to NATO and EU accession, and this process also serves to resolve not that infrequent problems and dissonances in the recent history

38


of bilateral relations, especially between Bulgaria and the former FRY, which par-ticularly occurred during the NATO bombing of FRY in the Spring of 1999.41

Bulgaria and Serbia are going through the best phase in their bilateral rela-tions and there are conditions for these relations to develop further. The relations between the two countries are on a good track and in constant progress.42

Hungary is uncompromisingly committed to supporting Serbia’s prospective EU membership, backed by the fact that it has launched a process that puts Serbia on track to receive a visa waiver, which is also of vital importance for ethnic Hungarians in Voivodina.43

The issue of dual citizenship for ethnic Hungarians certainly was an impor-tant topic in mid-2007, both in Serbia and Hungary. The proposal of dual citizenship emanates from the concept of personal autonomy of the Hungarians in Voivodina, without any change in the state borders. After numerous initiatives by local Hungar-ian political leaders, as well as their colleagues from Romania and Ukraine, and un-successful dual citizenship referendum in Hungary, introduction of this privilege for Hungarians from Voivodina was also supported by the President of Hungary Laslo Shoiom. Judging that Serbia would not become a member of the European Union in the near future Shoiom said, ”dual citizenship of the Voivodina Hungarians falls into signi�icant state affairs.”

In any case, in the Republic of Serbia dual citizenship has already been func-tioning with some countries and it is universal. Therefore, Serbia certainly will not be an obstacle for the Hungarians to achieve their potential right to dual citizenship in the future, or say the Montenegrins who live here. Certainly, this would be subject to the condition that such right is �irst acknowledged by their mother countries.

In the previous few years there have been several initiatives for holding such referendum and the fact that this time the initiative for the parliamentary refer-endum was submitted by (for some nationalistic) World Federation of Hungarian makes one think..

Collective granting of dual citizenship is contradictory to EU norms, and it remains to be seen what conditions, acts and laws will be adopted in Hungary. In ad-dition, it remains unclear in what way it will be determined who is and who is not a Hungarian in the Diaspora.44

41The full text can be found at http://www.scindeks.nbs.bg.ac.yu/clanak.php?issn=0025-8555&je=en&prv=1&zad=2&id=0025-85550302223F

42The full text can be found at http://www.neurope.eu/articles/81044.php43The full text can be found at http://www.mfa.gov.hu/kum/en/bal/actualities/ministers_

speeches/071204_kulugyi_bizottsag.htm44The full text can be found at http://www.dnevnik.co.yu/modules.php?name=News&�ile=

article&sid=26823

39

3. ECONOMIC RELATIONS

3.1. Trade with the European Union

In 2000, after a long period of isolation, Serbia renewed its economic relations with the EU, signing the agreement which granted Serbia exceptional trade measures. Along with the Stabilisation and Association Process, technical and �inancial assis-tance, trade has been one of main instruments that allow the EU to stabilise and pro-gressively bring Serbia in line with its own economic and legal systems. Trade policy plays an essential role, by building bridges between Serbia, the region and the EU

European Union’s Stabilisation and Accession Process has allowed Serbia ex-ceptional trade measures, enabling export of most products originating from Serbia without customs, duties, quantitative limits and other fees. The only exceptions are the following: wine, certain �ish products and suger are subject to preferential tariff quotas; for “baby beef” only the speci�ic import duty was eliminated and ad valorem duties of 20% continue to apply. In addition, the EU abolished customs duties and quantitative limitations for Serbian textile products and it guarantees to maintain the same policies in the future (based on the EU Autonomous Trade Measures).45 These trade preferences, which were originally adopted in 2000 for a period until the end of 2005, have contributed to an increase in the Serbian exports to the EU, thus meeting their objective so far. In 2005, these autonomous trade concessions were extended until the year 2010. During the period of exceptional trade measures Serbia is obliged to maintain (or decrease) the level of import protection from the beginning of this pro-cess towards the EU. Since January 2006 these measures have been applied separately for Serbia and for Montenegro, now two separate countries.

Problems which occurred in implementing these measures relate to long and complicated administrative procedures, technical cooperation for export of sensitive goods (food and agriculture products), and the fact that the EU market has a very high level of non-tariff protection (quality standards, consumer protection, health protection). For a country in transition, like Serbia, it has been very dif�icult to cope with all of these regulations. Therefore, in January 2004 EU had warned its import-ers, advising them to pay special attention to all goods coming from Serbia. This measure had a very bad in�luence on trade cooperation. However, it is not surprising that EU took this measures having in mind that Serbian companies were suspected of cheating in exporting sugar. Fortunately after two years and signi�icant improve-

45http://ec.europa.eu/trade/issues/bilateral/regions/balkans/index_en.htm

40


ment in customs service, the EU commission stopped that warning about Serbian export goods in December 2006.

It is important to point out that EU represents Serbia’s most signi�icant for-eign trade partner, with a share of more than 50% both in exports and imports. To-tal trade between Serbia and EU countries (EU – 25) was EUR 7.76 billion in 2006. This represents an increase of 25.7% from 2005. In 2006, Serbian export to EU has increased by 38% (total value EUR 2.7 billion) since 2005. This means that 52.5% of all Serbian exports goes to EU. On the other hand, the imports from EU has also increased by 20% (total value EUR 5.08 billion) since 2005. Almost half (48.5%) of Serbian imports comes from the EU. Export to EU (27) was EUR 1.74 billion from January to June 2007. This represents an increase of 32.8% from the last year. In the same period, import from EU was EUR 3.4 billion and this is an increase of 30.4%. Trade de�icit was EUR 1.7 billion. Serbia exported 58.1 % of its export to EU and im-ported 55.4 % of total goods imported from the EU in the �irst half of 2007.

Table 3.1.1: Serbia’s annual export to EU countries46 in RSD million (Kosovo not included)

country/year 2000 2001 2002 2003 2004 2005 2006

Austria 1672 8347 10215 12993 16945 17050 15152Belgium 521 3020 3847 4473 6733 7416 7474Bulgaria 4891 9930 6768 7461 12902 13705 27747CyprusCzech Republic 1178 5662 7622 8229 12451 13069 14312Denmark 194 1535 1983 2380EstoniaFinland 89 516France 1219 8030 10654 15518 20362 19430 22968Germany 7475 36333 48576 58712 84680 73298 83354Greece 1274 6918 8323 8912 11684 10552 13357Hungary 1811 11614 18835 15010 18198 17959 20392Ireland 3158 3085 4199Italy 5544 27415 36169 42001 60928 60978 73319LatviaLithuaniaLuxembourgMaltaNetherlands 932 5143 6705 7154 9841 9294 9235Poland 479 2571 3961 6695 10361 10674 14906PortugalRomania 2224 11075 8771 7718 11790 18417 29192

46http://webrzs.statserb.sr.gov.yu/axd/god.htm

41

ECONOMIC RELATIONS

country/year 2000 2001 2002 2003 2004 2005 2006

Slovakia 539 2425 5061 5390 8902 9282 9588Slovenia 315 7234 12397 13961 19407 19204 20563Spain 418 2659 3616 4551 7111 7566 7896Sweden 1113 4931 9812 9334 12887 8640 11067United Kingdom 738 4313 8641 7042 9337 8649 9378Exchange rate47 613.211 68,381 78,5823 85,8 78,5

At EU’s initiative, the countries of the region (including Romania and Bulgaria, with Moldova having joined unilaterally) signed in 2001 a “Memorandum of Under-standing on Trade facilitation and liberalisation”, under the auspices of the Stability Pact for South Eastern Europe. The Central European Free Trade Agreement (CEF-TA) is a trade agreement between countries in Central and South-Eastern Europe that has replaced bilateral agreements between the countries in the region: Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia, Moldova, Montenegro, Serbia and the United Nations Interim Administration Mission in Kosovo. It has been in force since 26 July 2007 and provides companies that operate in Serbia an opportunity to reach a 30 million people market free of customs and boundaries. Also, the Agree-ment stipulates accumulation of products origin, meaning that products exported from Serbia are considered of Serbian origin if integrated materials are originating from any other CEFTA country, European Community, Iceland, Norway, Switzerland (including Liechtenstein) or Turkey, provided that such products have undergone suf�icient processing (where the value added there is greater than the value of the materials used) in Serbia. 4747

The EU strongly supports Serbian membership in the WTO. It is expected that Serbia will became a member of WTO by the end of 2008 provided that Serbia’s Na-tional Assembly adopts several key laws.

Table 3.1.2: Serbia’s annual import from EU countries48 in RSD million (Kosovo not included)

country/year 2000 2001 2002 2003 2004 2005 2006

Austria 602 2208 4105 5076 5530 7934 12320Belgium 141 1979 1496 1612 2976 4343 5731Bulgaria 372 1915 1085 3094 3577 6263 10289Cyprus 1677 1007 1183 4962 2338Czech Republic 280 1116 1093 1310 2838 4351 6114Denmark 28 221 299 322 414EstoniaFinland 12 53

47http://www.nbs.yu/internet/cirilica/scripts/ondate.html48http://webrzs.statserb.sr.gov.yu/axd/god.htm

42


country/year 2000 2001 2002 2003 2004 2005 2006

France 830 2807 3842 6583 7881 10783 15726Germany 2657 14992 15560 16646 20632 28920 42449Greece 1042 3817 5319 3501 7030 8109 10257Hungary 809 3902 4710 4363 7069 8748 12531IrelandItaly 3251 19164 19966 20102 26354 43595 61789LatviaLithuaniaLuxembourgMaltaNetherlands 374 2304 2567 3521 2973 5094 7012Poland 112 407 504 770 1685 2841 5019PortugalRomania 344 2054 3412 4119 7272 8561 11624Slovakia 122 613 2150 1520 1161 2569 2948Slovenia 284 2689 5175 5368 9086 12627 16817Spain 150 912 1434 1087 2387 3970 4335Sweden 145 886 594 847 1349 1409United Kingdom 1096 2540 2770 3068 4766 5608 7806Exchange rate49 613.211 68,381 78,5823 85,8 78,5

4949Table 3.1.3: EU trade with Serbia in EUR million50

Year ImportsYearly

%change

Share of total EU imports

ExportsYearly

%change

Share of total EU exports

BalanceImports

+ Exports

2002 1.528 0,16 3.875 0,43 2.348 5.403 2003 1.471 –3,7 0,16 3.931 1,4 0,45 2.460 5.403 2004 1.744 18,5 0,17 4.944 25,7 0,51 3.200 6.687 2005 2.109 20,9 0,18 4.816 –2,6 0,45 2.708 6.925 2006 2.985 41,6 0,22 6.009 24,8 0,52 3.023 8.994 2007 3.996 33,9 0,28 7.778 29,4 0,63 3.782 11.774 6.009 –22,7 6.009 6.009 3m 2006 664 0,20 1.252 0,46 589 1.916 3m 2007 888 33,9 0,26 1.621 29,4 0,55 733 2.509

Average annual growth

18,2 11,6 13,6

49http://www.nbs.yu/internet/cirilica/scripts/ondate.html50http://trade.ec.europa.eu/doclib/html/111565.htm

43

ECONOMIC RELATIONS

Table 3.1.4: EU imports from Serbia in EUR million51

SITC Rev.3 Product Groups

2002 % 2004 % 2006 % Share of total EU imports

TOTAL 1.528 100,0 1.744 100,0 2.985 100,0 0,22 Primary Products 722 47,2 744 42,7 1.209 40,5 0,24

of which:

Agricultural prod. 440 28,8 396 22,7 560 18,8 0,61

Energy 24 1,6 10 0,6 22 0,7 0,01 Manuf. Products 788 51,6 980 56,2 1.743 58,4 0,21

of which:

Machinery 88 5,7 103 5,9 196 6,6 0,06

Transport equip. 96 6,3 52 3,0 64 2,1 0,07

of which:

Automotive prod. 16 1,1 20 1,1 20 0,7 0,04

Chemicals 69 4,5 148 8,5 210 7,0 0,19

Textiles and cloth. 161 10,5 162 9,3 246 8,2 0,30

Table 3.1.5 EU imports from Serbia in EUR million52 (2006)


Mil euros Share of total EU imports

%

TOTAL 2.985 0,22 100,0

Agricultural products 560 0,61 18,8

Energy 22 0,01 0,7

Non-agricultural raw materials 23 0,00 0,8

Office/telecom. Equipment 21 0,01 0,7

Power/non-electrical mach. 130 0,17 4,3

Transport equipment 64 0,07 2,1

Chemicals 210 0,19 7,0

Textiles and clothing 246 0,30 8,2

Iron and steel 510 1,72 17,1

51http://trade.ec.europa.eu/doclib/html/111565.htm52http://trade.ec.europa.eu/doclib/html/111565.htm

44


Table 3.1.6: EU exports from Serbia in EUR million53


2002 % 2004 % 2006 % Share of total EU exports

TOTAL 3.875 100,0 4.944 100,0 6.009 100,0 0,52 Primary Products 543 14,0 582 11,8 821 13,7 0,54

of which:

Agricultural prod. 419 10,8 392 7,9 392 6,5 0,56

Energy 49 1,3 96 1,9 256 4,3 0,53 Manuf. Products 3.241 83,6 4.275 86,5 5.071 84,4 0,52

of which:

Machinery 1.045 27,0 1.440 29,1 1.547 25,7 0,46

Transport equip. 367 9,5 581 11,8 718 11,9 0,41

of which:

Automotive prod. 302 7,8 508 10,3 637 10,6 0,54

Chemicals 558 14,4 707 14,3 905 15,1 0,49

Textiles and cloth. 259 6,7 273 5,5 362 6,0 0,99

Table 3.1.7: EU exports from Serbia in EUR million54 (2006)


Mio euros Share of total EU exports

%

TOTAL 6.009 0,52 100,0

Agricultural products 392 0,56 6,5

Energy 256 0,53 4,3

Non-agricultural raw materials 30 0,36 0,5

Office/telecom. Equipment 392 0,43 6,5

Power/non-electrical mach. 882 0,47 14,7

Transport equipment 718 0,41 11,9

Chemicals 905 0,49 15,1

Textiles and clothing 362 0,99 6,0

Iron and steel 173 0,51 2,9

53http://trade.ec.europa.eu/doclib/html/111565.htm.54http://trade.ec.europa.eu/doclib/html/111565.htm.

45

ECONOMIC RELATIONS

Table 3.1.8: EU import from Serbia by product5555

EU Imports from55 …

Harmonized System

Sections:World

Serbia

Mil euros %Share of total EU imports

TOTAL 1.350.494 2.985 100,0 0,22

TDC XV 97.086 1.183 39,6 1,22

TDC II 28.871 329 11,0 1,14

TDC VII 34.183 270 9,0 0,79

TDC XI 80.995 246 8,2 0,30

TDC XVI 313.570 214 7,2 0,07

TDC IV 26.964 172 5,8 0,64

TDC XII 15.342 114 3,8 0,74

TDC VI 97.394 113 3,8 0,12

TDC IX 12.561 75 2,5 0,60

TDC XVII 96.186 58 1,9 0,06

TDC XX 31.886 55 1,8 0,17

TDC V 356.563 43 1,5 0,01

TDC X 14.282 34 1,1 0,24

TDC XIII 9.200 14 0,5 0,15

TDC VIII 11.327 11 0,4 0,09

TDC XVIII 50.510 11 0,4 0,02

TDC I 18.919 10 0,3 0,05

TDC XIV 32.599 9 0,3 0,03

TDC III 5.023 4 0,1 0,08

TDC XIX 703 3 0,1 0,44

TDC XXI 3.042 0,0 0,02

55http://trade.ec.europa.eu/doclib/html/111565.htm

46


Table 3.1.9: EU export to Serbia by product5656

EU Exports to56

Harmonized System

Sections:World

Serbia

Mio euros %Share of total EU exports

TOTAL 1.166.109 6.009 100,0 0,52

TDC XVI 352.704 1.575 26,2 0,45

TDC XVII 167.956 738 12,3 0,44

TDC VI 165.195 687 11,4 0,42

TDC XV 84.563 531 8,8 0,63

TDC VII 46.435 426 7,1 0,92

TDC XI 38.332 365 6,1 0,95

TDC V 52.702 286 4,8 0,54

TDC X 26.806 257 4,3 0,96

TDC IV 39.019 228 3,8 0,59

TDC XVIII 56.063 172 2,9 0,31

TDC XX 19.966 131 2,2 0,66

TDC IX 9.123 129 2,1 1,41

TDC XIII 16.758 122 2,0 0,73

TDC XII 6.327 84 1,4 1,33

TDC II 11.948 80 1,3 0,67

TDC VIII 10.137 64 1,1 0,63

TDC I 12.509 59 1,0 0,47

TDC III 2.604 10 0,2 0,37

TDC XIV 29.173 4 0,1 0,01

TDC XIX 1.612 2 0,0 0,15

TDC XXI 4.721 1 0,0 0,02


47

ECONOMIC RELATIONS

Table 3.1.10: EU trade balance with Serbia5757

EU Balance with57 …

Harmonized System

Sections:World Serbia Montenegro

TOTAL –184.385 3.023 TDC XVI 39.134 1.361 TDC XVII 71.770 680 TDC VI 67.802 573 TDC V –303.862 243 TDC X 12.525 223 TDC XVIII 5.553 162 TDC VII 12.252 156 TDC XI –42.663 119 TDC XIII 7.558 108 TDC XX –11.920 76 TDC IV 12.054 56 TDC VIII –1.191 54 TDC IX –3.438 54 TDC I –6.410 49 TDC III –2.419 6 TDC XXI 1.679 TDC XIX 909 –1 TDC XIV –3.426 –5 TDC XII –9.015 –29 TDC II –16.923 –249 TDC XV –12.523 –652


48


Appendix: Labels of TDC sections

TDC I Live animals; animal products

TDC II Vegetable products

TDC III Animal or vegetable fats and oils and their cleavage products

TDC IV Prepared foodstuffs; beverages, spirits and vinegar; tobacco ...

TDC V Mineral Products

TDC VI Products of the chemical or allied industries

TDC VIIPlastics and articles thereof; rubber and articles thereof of animal gut (other than silkworm gut)

TDC VIIIRaw hides and skins, leather, fur skins and articles thereof; saddler materials; basket ware and wickerwork

TDC IX Wood and articles of wood; wood charcoal; cork and articles of

TDC X Pulp of wood or of other fibrous cellulose material; paper or paperboard

TDC XI Textiles and textile articles

TDC XII Footwear, headgear, umbrellas, sun umbrellas, walking-sticks

TDC XIII Articles of stone, plaster, cement, asbestos, mica or similar

TDC XIV Natural or cultured pearls, precious or semi-precious stones…

TDC XV Base metals and articles of base metal

TDC XVI Machinery and mechanical appliances; electrical equipment; parts

TDC XVII Vehicles, aircraft, vessels and associated transport equipment

TDC XVIII Optical, photo, cinema, measuring, checking, precision instrument…

TDC XIX Arms and ammunition; parts and accessories thereof

TDC XX Miscellaneous manufactured articles

TDC XXI Works of art, collectors’ pieces and antiques excl. chapter 99 other products

Foreign Direct Investment (FDI) from the EU

It should be noted that Serbia, as a part of SFR Yugoslavia, was a recipient of FDI at the very beginning of the period under observation. According to a law passed as early as 1967 foreign companies could invest in SFRY/Serbia through joint ven-ture. In the year 1990 there were 189 joint ventures in SFRY, 56 of which were in Serbia. The cumulative value of foreign invested capital was 1.872 billion dollars and the value of investments in Serbia was 776 million dollars.58

After the break-up of SFR Yugoslavia, and because of the sanctions and isola-tion of Serbia, foreign investors stayed away from the Serbian economy. The only sig-ni�icant exception occurred in 1997 when Italian and Greek investors participated

58Jugoslovenski pregled, vol 31, # 4, p. 44-45

49

ECONOMIC RELATIONS

in the purchase of the Serbian telephone company. They bought 40% shares in the company for a total value of 1.2 billion German marks.

From the beginning of real transition in 2001, Serbia has set its way towards EU, making it its most important economic partner and investor. Lack of capability to af�irm domestic savings, indicates that Serbia must do everything that is in its capac-ity to ensure satisfactory in�low of �inances from abroad and to direct greatest portion of such in�lows into investments. Progress that Serbia made during these seven years could be well described by the words of its Minister of economy and regional develop-ment Mr. Mladjan Dinkic: “For seven years we have dedicated our efforts to improving the business environment and enhancing the investment climate in Serbia. The mac-roeconomic conditions are stable followed by strong growth in both GDP and foreign investments. We have recognised the need for an appropriate set of laws and ef�icient and stimulating tax environment in order to support existing businesses, but also to attract new ones. Since 2000 a number of laws have been adopted making Serbia a leader in business reforms as reported by the World Bank’s Doing Business 2006.”59

Table 3.2.1. shows the top investments in Serbia made by EU countries from 2002 to 2006. We can see that major investments were primarily focused on bank-ing, energy and food and beverage sector.

Table 3.2.1: Top FDI made in Serbia by EU from 2002 to 200660

Country of Origin

Company IndustryInvestment

Type

Investment Value (EUR

million)Austria Mobilkom Telecommunications Greenfield 570Romania Cuprom Mining Privatization 533Italy Banca Intesa Banking Acquisition 508Germany Stada Pharmaceuticals Acquisition 475Belgium InBev Food and beverages Acquisition 462Greece NBG Banking Privatization 425USA/Hungary Biotech Energy Energy Greenfield 380Slovenia Mercator Retailing Greenfield 240Hungary OTP Bank Banking Privatization 166Greece Alpha Bank Banking Privatization 152Germany Metro Cash & Carry Wholesale Greenfield 150Austria OMV Energy Greenfield 150France Lafarge Construction Privatization 126Italy San Paolo IMI Banking Acquisition 122Slovenia CIMOS Automotive Privatization 100Slovenia Droga Kolinska Food and beverages Acquisition 100Denmark Carlsberg Food and beverages Acquisition 100

59Speech at the presentation of the Foreign Investors Council White Book, May 16, 2007 60http://www.siepa.sr.gov.yu/site/en/home/1/investing_in_serbia/strong_fdi_�igures/lead-

ing_investors/

50


It is also important to point out that the biggest Green�ield investment by an EU country was made by Mobilkom, Austria. In December 2006, Mobilkom Austria signed in Belgrade a licence agreement paying EUR 320 million for a 10-year licence. By entering the mobile operator market in Serbia, until that time dominated by two companies, Vip mobile brings strong competition into mobile telecommunications, which ensures more attractive prices and better product and service quality. It is a member of Mobilkom Austria group, which caters to more than 10 million users in seven countries of the region. Since the Feasibility study had shown the remarkable potential of the Serbian mobile market, Mobilkom Austria group decided to invest an additional EUR 250 million over the next few years, most of it in improving the network quality. The funds will be invested in up-to-date equipment and employee training in order to offer superior mobile communications to the users in Serbia, equal to the services already provided to other customers in the region.

Being the main investor in Serbia (see Table 3.2.2.), EU gives a great signal and encourages other potential investor to set up their businesses in Serbia. For example, at the time when Raiffeisen bank from Austria came to Serbia, the market was still quite shallow and very risky. However this bank managed to generate pro�it showing the potential of this market. Very soon other banks decided to engage. It is important to point out that investing and taking part in reforms of banking sector has had great impact on transition process of Serbia. Opening their branches and taking over domestic banks resulted in the enlargement of product portfolio and in deeper �inancial market. Today banking sector is the most developed part of Serbian �inancial market.

On the other hand one of the biggest FDIs made so far in Serbia has been in banking sector as well. One of the largest Italian banks in terms of assets, Banca Inte-sa, bought a 75 per cent stake in Belgrade-based Delta Banka on 14 February 2005. The purchase price of EUR 278 million was among the largest sums to have been garnered from the privatisation of Serbian companies to date. Also the Organisation for Economic Cooperation and Development (OECD), which awards foreign inves-tors in the countries of South East Europe each year, assessed the bank’s acquisition to be the largest investment in the banking sector from the �inancial point of view, as well as the largest foreign investment in Serbia in 2005.

The strong growth in FDI hasn’t resulted in decrease of Serbia’s trade de�icit. The reason for this is that investments have been made in sectors which are not primarily export oriented. On the other hand those export oriented companies have to import raw materials thus decreasing the positive effect they might have on trade balance. Perhaps the solution for this problem is that domestic companies should create supply of these materials and by that way even boost productivity.

It had been expected that FDI would have strong impact on unemployment rate in Serbia. However, in spite of the relatively high volume of investment the un-employment rate is still very high – it is above 20%. The reason for this lies in the fact that Serbia is still in the phase of transition when new job creation barely man-ages to cover the job losses which are occurring due to enterprise restructuring and closure of non-pro�itable companies. Calculations suggest that if investment in�low continues to be above three billion euros per year, and the growth rate of GDP is

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ECONOMIC RELATIONS

maintained at the level of around 7% per annum, the unemployment rate could de-crease by 50% over the next �ive years61.

Table 3.2.2: Serbia: Foreign Direct Investments in Cash – Net, by Year and Country (in USD thousand)62

Country 2000 2001 2002 2003 2004 2005 2006 TOTAL

1 Germany 6.152 9.788 82.801 75.708 51.985 187.320 905.824 1.319.578

2 Greece 334 1.280 12.496 62.268 52.968 249.536 923.698 1.302.580

3 Austria 183 1.421 33.876 93.747 146.104 201.189 520.356 996.876

4 Netherlands 0 102 2.248 598.963 102.008 92.113 -214.119 581.315

5 Slovenia 33 11.254 9.561 29.036 15.706 183.563 201.241 450.394

6 France 0 81 87.489 7.858 24.022 62.347 159.085 340.882

7 Great Britain 0 1.225 6.618 20.631 79.620 63.330 135.915 307.339

8 Hungary 0 275 1.167 4.224 16.567 24.677 244.045 290.955

9 Luxembourg 0 128 3.619 4.108 2.387 108.885 8.843 127.970

10 Croatia 0 1.096 5.243 34.446 10.806 40.484 25.240 117.315

11 Italy 2.006 594 7.553 21.325 10.149 18.316 52.752 112.695

12 Bulgaria 0 0 133 129 9.910 655 54.270 65.097

13 Slovakia 3 10 10 18.342 0 25.447 19.325 63.137

14 Latvia 0 0 5 15.330 17.082 6.441 10.527 49.385

15 Belgium 0 0 344 1.925 2.523 12.407 6.464 23.663

16 Cyprus 762 2.045 41.717 31.581 16.310 71.551 -387.154 -223.188

TOTAL EU 9.473 29.299 294.880 1.019.621 558.147 1.348.261 2.666.312 5.925.993

Others 1.779 6.089 31.574 51.789 238.256 92.445 1.620.067 2.041.999

TOTAL 11.252 35.388 326.454 1.071.410 796.403 1.440.706 4.286.379 7.967.992

3.2. Labour migra� on to the EU since 1900

Infrastructure

For its position on the geographic borderline between East and West, Serbia is very often referred to as a gateway of Europe. Also two very important pan–Eu-ropean corridors, Corridor VII: River Danube, and Corridor X: highway and railroad, pass through Serbia, providing excellent logistic connections with Western Europe and the Middle East. It is important to point out that Serbian geostrategic position relative to the EU is very important. It connects from north to south Hungary and

61Vlada Republike Srbije, Nacionalna strategija privrednog razvoja Srbije 2006-2012, Bel-grade, 2006, 32.

62http://www.siepa.sr.gov.yu/site/en/home/1/investing_in_serbia/strong_fdi_�igures/fdi_by_countries/

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Greece, two EU countries, and from west to east it connects (together with Croa-tia) Italy, Austria and Slovenia with Romania and Bulgaria, the new members of EU. Thus, Serbia offers a great transport potential and has an extraordinary potential to become the logistic hub of South-eastern Europe. However much of its transport infrastructure is in a very bad shape due to long period of economic crises, political instability and NATO bombing. Since 2000 much time, money and energy has been invested into reconstruction.

The road network of the Republic of Serbia is 40.845 km (25.380 miles) long, out of which 415.7 km (257 miles) of highways with toll collection, 246.5 km (153 miles) of semi-highways with toll collection, 5.525 km (3.433 miles) of arterial roads, 11.540 km (7.171 miles) of regional roads, and 23.780 km (14.776 miles) of local roads 63. Serbian roads are a part of Pan European Corridors X and VII, offering an access to all European destinations. The rehabilitation of the Gazela Bridge and approach roads, which is the main bridge in the City of Belgrade and forms an integral part of Trans Eu-ropean Corridor X, and construction of the remaining sections of the Belgrade bypass, is in progress. This project is partly �inanced by the EBRD and EIB.

Liberalisation process of air traf�ic began with singing the agreement on free sky with EU. Its implementation has begun since 01.01.2007. This means that EU carriers may �ly non-stop to the US from airports in the so-called European Common Aviation Area (comprising EU neighbours such as Serbia)64.

A highly cost effective way of transport can be pursued on three Serbian rivers giving a total of 959 km of safe navigable routes. 588 km of the International River Danube, represents the most reliable navigable route that can be used for transpor-tation throughout the year. In addition, arti�icial canals Rhine-Main-Danube, an in-ternational canal that allows barge traf�ic between the North Sea and the Black Sea, and Danube-Tisa-Danube create a network of routes providing access to all Danube basin countries. However, remains of bridges destroyed during the NATO bombing still represent an obstacle to free transport and it is thus, very important to remove them completely. In 2002 Serbia received a EUR 41 million donation from EU for the reconstruction of the Sloboda Bridge in Novi Sad. The bridge carried the bulk of the road traf�ic crossing the Danube at Novi Sad and was destroyed by NATO interven-tion in 1999. An additional EUR 10.5 million were invested in rehabilitation of the Sloboda Bridge access tunnel.

In the past two years Serbia secured a stable and regular energy supply for citizens and the economy with all forms of energy products and the country reached the highest level of energy safety in 15 years. By singing the Athens Memorandum Serbia, along with other states agreed to develop a regional energy market in pow-er and gas from 2005. This agreement is better known as The South-East Europe Regional Energy Market (SEEREM) and it became part of the EU’s wider internal energy market on 25 October 2005 by the creation of the common European Energy Community in the framework of Stability Pact for South Eastern Europe65.

63http://www.siepa.sr.gov.yu/site/en/home/1/investing_in_serbia/modern_infrastructure/transport/

64http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/27765http://www.seerecon.org/infrastructure/sectors/energy/

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ECONOMIC RELATIONS

Regarding inter-regional trade, the Memorandum states that the energy mar-ket in SEE will be integrated into the European Union’s internal energy market. The 2003 revision of the Athens Memorandum also includes provisions relating to gas market development, and proposes the establishment of a SEEREM. For countries in SEE where the use of gas is currently less than 10%, a gas expansion plan to raise the use of gas above this threshold before 2010 must be adopted and implemented.

To Serbia becoming a part of SEEMAR is important because it improves the balance between energy supply and demand, crucial to boost and sustain economic development. This requires a strong commitment by Serbia, as a part of SEE, towards market oriented reforms in order to: improve overall energy conservation and ef�i-ciency, reduce an excessively high energy intensity of production compared to inter-national standards, strengthen national institutional capacities and adapt legisla-tion and regulation to EU norms and practices. It also means that Serbia should be prepared to draw fully on the substantial gains which can result from energy trading among other SEE countries and with its neighbours. This implies that the current fragmentation of energy supply is to overcome through cooperation among the vari-ous entities concerned and through physical connection/reconnection of the net-work. A regional approach to energy supply, therefore, offers signi�icant advantages both in terms of improved utilization of existing supply and production capacities as well as optimizing future investments. Major steps have already been taken over the last couple of years towards achieving these objectives in both the electricity and natural gas sectors. We can say now that when it comes to electricity Serbia is already a part of EU. However much progress still has to be made concerning gas.

The common objective of the Energy Community Treaty parties is to stim-ulate and underpin the secure supply of energy, especially electricity and natural gas, to their citizens, and to secure economic growth and investment in South East Europe by improving the availability, ef�iciency and reliability of network energy sources at reasonable cost. The parties seek to achieve this objective through pro-moting greater regional integration, the creation of a compatible regional energy market, competition and increased trade within the SEE region and between it and the European Union internal energy market. The ultimate aim is to have a single regulatory space for electricity and natural gas trade that stretches from Ankara to Lisbon, from Athens to Oslo.

Ministry of energy and mining rounded up the legal and legislative framework on the operation of energy entities in Serbia: Law on energy was adopted, as well as the Strategy of Energy Development to 2015. The adoption of the Law on energy should speed up the process of integration of Serbia’s energy system into the Euro-pean energy network. Thus, Serbia has become a part of the third largest market in the world, the Pan-European community. The adoption of this law set up a clear legal framework for reorganisation of the Serbian Electric Power Industry (EPS) and the Oil Industry of Serbia (NIS), but it was also made clear that Serbia wants to prevent the national energy companies from being sold.

The Strategy of Energy Development to 2015 contains strategic planning of energy development harmonised with overall growth in economic activity. As for infrastructural projects, priorities are the completion of an underground storage in Banatski Dvor, construction of a gas pipeline Nis-Dimitrovgrad, and the completion

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of thermoelectric power plant Kolubara B. One of the main objectives for Serbian gov-ernment is to prepare electricity sector for participation at the liberalised regional electricity market, as well as to strengthen and consolidate EMS as an independent transmission, system and market operator. In order to achieve this mobilisation of private sector capital into the energy sector has to be provided.

Since 2000 Serbia has received EUR 446.3 million from different EU funds and institutions such as EIB, EBRD, EAR for reconstruction and modernisation of its en-ergy. Last year total volume of received investments was EUR 24.5 million. In 2006, the most important project was the construction of a high voltage 400 kV electricity transmission line between Nis (Serbia) and Skopje (the Former Yugoslav Republic of Macedonia). It was worth EUR 21.5 million. This project has been identi�ied as an urgent priority both for the creation of the Regional Market in South East Europe, and for the stability and security of the electricity system of South East Europe.

EU has very strict rules about environmental protection and standards. Un-fortunately Serbia hasn’t still done much concerning this issue. Serbia should devel-op strategic approach to waste management, water pollution and establish quality control system of water supply. In these areas some progress has already been made. Fond for protection of environment has been established by the ministry of �inance, and it should be �inanced from tax income. Adjusting to European standards and strengthening institution is area represents a large �inancial burden. Because of that long term �inancial plans should be made. However some progress has been made. These are recent achievements:

The Cadastre of Polluters has been initiated with data entry on 20 large • industries and training was provided to industries and administrators in national environmental monitoring.Staff of the Directorate for Environmental Protection and related institu-• tions was trained in the implementation of EU environmental directives and instruments, notably Integrated Pollution Prevention and Control, Strategic Environmental Assessment, and the Eco Management and Audit Scheme.A twinning initiative at the Ministry of Agriculture’s Water Management • Directorate has started. This aim is to boost the capacity of the water di-rectorate to safeguard and improve water quality, and bring laws in line with the EU Water Framework Directive.The Hydro-meteorological Institute of Serbia and Institute for Public • Health of Belgrade received laboratory equipment for water and waste-water quality Monitoring

It is important to point out that Serbia has already received EUR 47.4 million from different EU institutions since 2000. This money has mainly been invested in66:

monitoring air pollution and improving municipal environmental infra-• structure for wastewater treatment and solid waste disposal (EUR 13 mil-lion)

66http://www.ear.europa.eu/publications/main/documents/AnnualReportJan-Dec2006.pdf

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ECONOMIC RELATIONS

implementation of the guiding principles of the Water Framework Direc-• tive throughout Serbia and in treatment and sewerage, and protection of watercourses (EUR 9.5 million)construction of a facility for the safe physical chemical treatment and �inal • disposal of hazardous industrial waste (EUR 14 million)preparation of a National Environmental Strategy followed by a National • Environmental Action Plan, as well as the preparation and implementa-tion of Local Environmental Plans in selected municipalities (EUR 10.4 million)

EU pre-accession funds

Almost immediately after the political changes that occurred in Serbia, the international community organized a big donors conference for supporting the changes in Yugoslavia. The conference was co-organized by the European Union and the World bank and was held in Brussels in June 2001. At the conference, donors pledged a total of 1.8 billion dollars over two years. The European Union and bilat-eral donations of EU countries covered 75% of that amount67

The EU as provided support to Serbia under a variety of �inancial instruments, including CARDS assistance, macro-�inancial support and humanitarian aid. In re-cent years, the emphasis has shifted away from reconstruction and is now more con-centrated on institution-building, economic development and reform in line with the European Partnership recommendations. Between 2001 and 2006, the main source of assistance for Serbia was the CARDS programme which was replaced by the In-strument for Pre-Accession Assistance (IPA) in 2007.

EU assistance under the CARDS instrument amounts to some € 311.8 million and involved over 100 projects.

In 2000 substantial assistance was given for electricity imports, to the munic-ipal heating systems, medicines were locally bought and distributed and subsidised vegetable oil and sugar were provided to consumers. In 2001 the EU assistance was more concentrated on medium and long-term investment in key sectors like energy, health, agriculture, and enterprise development68.

CARDS National Programmes, in line with the Multi Indicative Programme for 2002-2004, supported the progress of Serbia in the area of economic develop-ment, promoting good governance and the strengthening of rule of law. In that pe-riod the EU supported rehabilitation of infrastructure; the small and medium-sized enterprise sector; encouraged an independent media and civil society; supported return and reintegration, as well as durable solutions for refugees and for internally displaced people; supported the reform of public �inance, justice, local government, health, environmental protection and home affairs.69

CARDS National Programmes, in line with the Multi Indicative Programme for 2005-2006, focused on key challenges such as developing long-term solutions

67The Ministry of External Relations, Izvestaj o donatorskoj konferenciji, Belgrade, july 200168ISDACON- http://www.evropa.sr.gov.yu/Europa/Management/ISDACON/reports69http://www.seio.sr.gov.yu

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to help the most vulnerable groups, creating a competitive economy that will attract domestic and foreign investors and establishing competition and consumer protec-tion bodies. There was a continued focus on Public Administration Reform - from the judiciary and the media to local government and the health system - all in an effort to improve capacities of national authorities and to assist the country’s integration into the EU.

Serbia has also bene�ited from the regional CARDS programmes that support actions of common interest for the Western Balkan region. During the 2002-2004 period, Serbia was actively involved in regional actions such as the promotion of integrated border management; modern customs and taxation procedures, demo-cratic stabilisation; building the capacities of state institutions; asylum, migration and visa with a project that resulted in recommendations on building up strategies and administrative capacity at national levels, reinforcing regional infrastructure and environmental protection. In the period 2005-2006 the EU supported regional priorities in areas of institution building, justice and home affairs, cross border co-operation, private sector development and infrastructure development.

Under CARDS cross border support activities, Serbia developed strong insti-tutional capacities via participation in these programs, contributing to the recovery of border regions, regional reconciliation and stability.

In addition to CARDS assistance, Serbia is also a priority country for the Eu-ropean Initiative for Democracy and Human Rights and bene�its from the LIFE envi-ronmental programme, as well as from the 6th Framework Programme for Research and Development. In May 2007, Serbia was admitted to the EC Seventh Research Framework Programme. The related memorandum of understanding was signed in June 2007.

From early 2001 until end-2006, the European Bank for Reconstruction and Development approved loans worth a total of EUR 920.4 million to the Republic of Serbia. So far, most has been invested in the �inancial sector – 24% and least in the telecommunications sector – around 1%70.

In the Transition Report 2006: Finance in Transition EBRD stated that the Re-public of Serbia had achieved signi�icant economic growth and progress in the area of privatisation of small-sized enterprises and that competition had improved71. Part of that success Serbia owes to the assistance provided by EBRD.

EBRD continued providing �inancial support to the Republic of Serbia, ap-proving a total of EUR 290 million for 2007. These funds are intended for �inanc-ing the development of small and medium-sized enterprises, acquisition of equity capital in commercial banks (Komercijalna banka and Cacanska banka), purchase of railway cars for the needs of the Serbian railways, construction of the bridge on the Sava River, etc. A total of around EUR 130 million was disbursed during 200672.

70http://www.nbs.yu/export/internet/english/90/index.html - Annual Report 2006.-pdf71www.ebrd.com/pubs/econo/6813.htm72http://www.nbs.yu/export/internet/english/90/index.html - Annual Report 2006.-pdf

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ECONOMIC RELATIONS

Table 3.5.1: Overview of EU development activity by sector73 – values are in million of Euros

SECTOR/YEAR 2000 2001 2002 2003 2004 2005 2006TOTAL

BY SECTOR

Energy 22.03 100.43 92.56 73.18 5.84 25.5 24 343.54

Health 7.58 28.47 31.77 7.3 5.01 8.5 90 178.63

Civil society 0.2 0.7 3.29 1.69 0.8 2 9.5 18.18

Mineral resources and mining

1.43 16.88 5.83 0 0 0 0 24.14

Welfare 11.5 27.98 28.89 18.53 4.02 12.5 0 103.42

General budget support 0 234 103.5 57.58 13.85 0 0 408.93

Agriculture, forestry and fishery 0 34.92 8.39 7.36 0.15 8 0 58.82

Economic and development policy

0 1.5 5.33 1.17 0 0 0 8

Education 0 14.28 2.84 4.54 2.23 33.5 0 57.39

Private sector 0 5.12 16.46 9.59 13.56 0 0 44.73

Banking and financial services

0 0.33 0 0 0 0 0 0.33

Local 0 4.95 4.76 11.78 1.62 0 0 23.11

Public administration 0 2.5 5.56 5.78 1.59 28.7 39 83.13

Transport and storage 0 0 29.41 87.88 86.98 47.5 167 418.77

Legal and judicial development 0 0 1.5 1.5 1.1 2.5 5.5 12.1

Public sector financial management

0 0 0.7 1.53 5.99 5 0 13.22

Construction 0 0 4.28 12.84 0 5 1 23.12

Environment protection 0 0 0.21 0.29 0 0 0 0.5

Home affairs 0 0 0 8.48 0.37 11.3 11.5 31.65

Water supply and sanitation 0 0 0 2.88 5.57 9.5 0 17.95

Culture and recreation 0 0 0 2.27 0.73 2.5 2 7.5

Environment 0 0 0 3.77 0 0 13 16.77

Economic relations 0 0 0 0.91 0.92 0 15 16.83

Labour and employment

0 0 0 0 0.84 0 8 8.84

Privatisation, business and services 0 0 0 0 0 11.5 0 11.5

TOTAL BY YEAR 42.74 472.06 345.28 320.85 151.17 213.5 385.5 1931.1

Source: Date are based on statistic from ISDACON74

73Donors- European Commission, EBRD, EIB, ECHO,EU MFA. It includes all investment types74http://www.evropa.sr.gov.yu

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In the period from early 2001 until end-2006, the European Investment Bank (EIB) approved a loan worth around EUR 809 million to the Republic of Serbia. Of this amount, EUR 365 million was disbursed. In 2006, the EIB approved a total of around EUR 140 million to the Republic of Serbia for infrastructural reconstruction and private banking sector development projects.75

For the purpose of �inancing of small and medium-sized enterprises and small and medium-scale infrastructural projects of local governments in the Republic of Serbia, the EIB approved EUR 65 million through Apex Global Loan and Apex Global Loan II.

Apex Global Loan of EUR 20 million was drawn in full through HVB banka Srbija i Crna Gora a.d., Belgrade, and Komercijalna banka a.d., Belgrade, in the form of 27 loans, which led to the creation of 551 new jobs.

Disbursement of Apex Global Loan II of EUR 45 million continued in 2006. A total of EUR 16.8 million was approved to �inal bene�iciaries, and by end-2006, EUR 13.87 million was disbursed through 26 loans. As local government bodies and public utility companies were very interested in �inancing projects by drawing funds from this credit line, the share of such projects in 2006 came to around 50%.

Participation of intermediary banks in �inancing each individual project from their own sources of funds was abolished in 2006. The plan of the European Invest-ment Bank is to include Privredna banka a.d., Belgrade, and Cacanska banka a.d., Cacak, in the implementation of this credit line.

The Instrument for Pre-accession Assistance (IPA) replaced CARDS in 2007 and will cover the period 2007 – 2013. The main objective of IPA is to help Serbia to face the challenges of European Integration. Serbia will receive around 1 billion euros through this channel until 2012.

Success areas under CARDS such as education provision (labour productiv-ity), business related infrastructure provision, local development partnerships, SME support, and employment promotion should attract more IPA support. Pub-lic administration reform support for 2007/8 should tackle key areas particularly national �inancial planning, interministerial policy coordination and central/local government relations.

Support should also be directed to building project pipelines for IPA funding in 2008 and 2009 but well linked with plans for future national investment programmes and IFI priorities. Acquis support actions should complement the policy priority to address the sources of unemployment and improve good governance in areas such as public procurement, judicial reform, competition, trade and metrology.

Focus areas for �inancial assistance under IPA include political requirements covering, inter alia, democratic institutions, public administration reform, rule of law, reform of the judiciary, �ight against corruption, human rights and protection of minorities. Other focus areas are socio-economic requirements and European Stan-dards, as well as cross-border co-operation.76

75Izvestaj o medjunarodnoj pomoci Srbiji-pdf76Multi-annual indicative Planning Document (MIPD) 2007- 2009 for Serbia-pdf

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ECONOMIC RELATIONS

In 2007, the �irst year of the new Instrument for Pre-accession Assistance (IPA), the national assistance programme for Serbia amounted to €164.8 million. In addition to this, assistance in the areas of nuclear safety, customs, education and cross-border co-operation brings the total assistance budget allocated to Serbia for 2007 to €189.7 million. The overall �inancial scope of the 2007-2009 MIPD amounts to EUR 572.4 million.

The assistance under Component I, Transition Assistance and Institution Building, may be provided in the form of twinning/twinning light support, technical assistance, project

preparation facility, procurement of equipment, works, investments and grant schemes. Under certain conditions assistance in form of budgetary support could be provided. A �inancial contribution will be provided for the participation in the Com-munity programmes.

The indicative weighting that should be given to the different sectors is77:Political Requirements- 20–35%1. Socio-economic Requirements- 45–60%2. European Approximation of Sectoral Policies- 20–30%3.

Through its Component II, IPA will support Cross Border Cooperation by proposing joint programmes at the borders with Hungary, Romania, Bulgaria, Cro-atia, FYROM, Montenegro, Bosnia and Herzegovina and participation in joint pro-grammes under ERDF (European Regional Development Fund) transnational/inter-regional programmes wherever relevant. Serbia has already participated actively in EC-�inanced cross border cooperation with positive results.

Cross border co–operation is crucially important for stability, cooperation and economic development in Serbia’s border regions. The aim of EC assistance will be to develop local capacity in relation to cross border co–operation in all of Serbia’s border regions while also targeting speci�ic local development projects. Develop-ment of cross-border cooperation is dependent on general capacity building activi-ties of the authorities responsible for regional policy. Therefore, institution building activities under IPA components I and II have as an objective to generate additional-ity, complementarity, and catalytic effect between components, and to ensure that the successful cross-border skills base that has been built aup at the national level is further developed.

In principle, priorities remain similar to the currently existing ones:Cross-border infrastructure. Flood prevention. Caters management.• Economic co-operation (especially, creation of strong logistical links, sup-• ply chains and clusters alongside the border) tourism, agriculture and ru-ral development.Address common challenges in the �ield of environment, public health, • prevention and �ight against organised crime, etc.

77Multi-annual indicative Planning Document (MIPD) 2007- 2009 for Serbia-pdf

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Ensure ef�icient and secure borders. Promote legal and administrative co-• operation.Promote local “people to people” type actions, more emphasis should be • put on stronger co-operation between public entities, NGOs in the �ields such as education and cultural co-operation, development of democracy and tolerance, con�lict prevention etc.Cooperation among cultural institutions including Museums, Theatres, • etc.Develop the reference framework for CBC activities and developing plan-• ning documents;Fostering reciprocal trust at local level;• Supporting initiatives in the area of education, research and employment • generation

The following indicative amounts of IPA funds are earmarked for CBC with MSs78:

CBC programmes IPA funds2007 IPA funds 2008 IPA funds 2009

Serbia – Hungary 1.334 2.279 2.486Serbia – Romania 1.580 2.698 2.943Serbia – Bulgaria 1.265 2.160 2.356Adriatic 0.319 0.546 0.595(million €, current prices)

78Multi-annual indicative Planning Document (MIPD) 2007- 2009 for Serbia-pdf

61

4. LEGAL ALIGNMENT

4.1. Evalua� on of the na� onal legal system

The Serbian national legal system is far from being approximated to the EU acquis. Yet, for almost seven years, every piece of legislation is drafted with the ac-quis in mind, and since 2003 the Statement on approximation, a document which determines the level of approximation with EU laws as well as establishes deadlines for full approximation, must accompany every draft law to the Serbian Parliament79. Although political issues have rami�ications on the EU accession process, the legisla-tive has been one of Europe’s fastest in terms of approximation.

Serbia has entered transition as a post-con�lict nation in which the rule of law had diminished. Simultaneously with the adoption of the acquis, Serbia needs to invest a tremendous effort in capacity building, education and extensive economic reforms, but moreover in strengthening the institutions and at the same time de-creasing state’s involvement in the economy.

4.1.1. Transformation since 1990

The Republic of Serbia (i.e. FR Yugoslavia, then Serbia and Montenegro) in-herited, following the dissolution of the Socialist Federative Republic of Yugoslavia (SFRY), all federal legislation, which have been converted into “new” federal level, and �inally entered legal system as Serbian laws. It means that Serbia shares legal history with other countries which have formed the Yugoslav federation, including EU member state Slovenia, as well as the candidate country Croatia.

Yugoslavia has never been a typical “Eastern bloc” country – though not dom-inant, private property and entrepreneurship played a signi�icant role in the coun-try’s economy. A number of characteristics of market economy were in place, where-as economic cooperation with EEC countries and other western nations has been far more intensive and productive, comparing to the one with the communist East80. As

79The EU Integration Of�ice of the Republic of Serbia, “Statement on Approximation”, http://www.seio.sr.gov.yu/code/navigate.asp?Id=77

80Gergana Noutcheva, “EU Conditionality, State Sovereignty and the Compliance Patterns of the Balkan States” (paper presented at the 3rd Pan-European Conference on EU Politics European Consortium for Political Research, Bilgi University, Istanbul, 21-23 September 2006)

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a result, Yugoslav legal system, particularly parts which addressed economy, have been fairly close to European standards of the time. Perhaps the most signi�icant piece of legislation in the �ield of contract law, The Law on Contracts81,82, has been moderately amended and is in force in EU member state Slovenia.

However, it is quite challenging to compare Slovene and Serbian legislative, as the former ended its approximation with the EU acquis, even though the two le-gal systems were nearly indistinguishable only 16 years ago. The fact remains that Serbian legislature could not care less for the level of approximation of draft laws with the acquis. As a consequence, the outcome of harmonisation during the �irst ten years of transition in Eastern Europe could not only be considered as poor, but one might say that they are negative – Serbia drifted farther from the European Union during the 1990s.

Regardless of not so frequent attempts to approximate Serbian legislature with the acquis, reality did not allow for those regulations to actually be implement-ed. Ministry of Interior, a range of inspection services, such as tax or commerce in-spections, but also courts functioned inadequately – they were sluggish, prone to corruption and such situation discouraged everyone from taking their grievances to the state institutions. A number of standards of market economy and partly democratised society that have been in place since the �inal years of the SFRY, in-stead of being improved, were derogated during the years of con�lict in the Balkans and were applicable only in theory. Therefore, (positive) transition of Serbia starts in October 2000.

The main characteristic of this period is exceptionally intensive legislative activity which has been interrupted more than once for purely political reasons – disagreements in the ruling coalition and vote of no-con�idence in the government, virtually suspended legislative for periods of several months. Similar, but shorter episode of suspended activity followed the assassination of Prime Minister Djindjić. Also, it took few months after the reformist government took of�ice in January 2001 until it started drafting laws, as the executive was involved in consolidation of power, following the fall of the Milošević regime.

4.1.2. Adaptation to the EU acquis communautaire

Serbian Government adopted the �irst Action Plan for the Approximation of Domestic Laws with the Acquis Communautaire at its session of 31 July 2003. Since the entry into force of the Decision of European Union’s Council of Ministers on Eu-ropean Partnership of 14 June 200483, the progress of Serbia’s European integration

81“Zakon o obligacionim odnosima”, Of�icial Gazette of the SFRY No. 29/78, 39/85, 45/89, De-cision of the Constitutional Court of Yugoslavia No. 57/89, Of�icial Gazette of the FRY No. 31/98 and Constitutional Charter of the State Union of Serbia and Montenegro

82“Obligacijski zakonik (uradno prečiščeno besedilo)“, Of�icial Gazette of the Republic of Slov-enia, No. 97/2007

83The EU Integration Of�ice of the Republic of Serbia, “Action Plan for the Approximation of Draft Laws with the EU Regulations”, http://www.seio.sr.gov.yu/code/navigate.asp?Id=76

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process had been estimated primarily on the basis of ful�ilment of obligations con-tained in this document. The Action Plan, which has been updated on a yearly basis, acted as a primary tool for enforcing the priorities in the process of harmonization with the EU regulations, as well as for ful�illing the obligations which have been as-sumed with the initialling of the Stabilization and Association Agreement84.

The European Integration Of�ice acts as initiator of the Action Plan drafting, but it also informs the government quarterly on the plan’s implementation.

Rules of procedure of the Serbian government also state that, prior to pre-senting new draft legislation to the government, the ministry responsible for the draft needs to obtain a report from the EU Integration Of�ice on the approximation of a given draft with the EU acquis, as well as to submit their own Statement on the Approximation85.

The Statement on the Approximation of Draft Laws, Other Regulations and General Legal Acts with the Acquis Communautaire was introduced in the legislative procedure in 2003. It is a written statement of a public institution or organisation responsible for drafting a law or proposing a bill, other regulation or general legal act, which evaluates the level of its approximation with the acquis communautaire.

The Statement accompanies every draft law. The head of the public institution or organization that proposed the regulation approves the Statement by signing it.

The Statement determines the relevant legal act of the EU, either of the pri-mary or secondary source, evaluates the level of approximation of the domestic legal act (levels being “approximated”, “partly approximated” and “not approximated”), gives the reasons for its partial approximation as well as the deadline for making its full approximation.

The introduction of the Approximation Statement does not imply obligatory approximation with the EU legislation; there is a possibility of postponing the ap-proximation in case there are no technical and economic conditions. A draft law, other regulation or general legal act that is not accompanied by the Statement is returned to the public institution or organization that proposed it.

4.1.3. Pre-accession help and actions

Although municipalities with local governments formed by pro-democracy parties during the Milošević regime received the EU assistance, it was generally con-sisted of heating fuel and other types of emergency (humanitarian) assistance in-tended for citizens of those municipalities, and had almost nothing to do with future

84The EU Integration Of�ice of the Republic of Serbia, “Latest News: Initialling of Stabilisation and Association Agreement between Serbia and the EU”, http://www.seio.sr.gov.yu/code/navigate.asp?Id=106#697

85The EU Integration Of�ice of the Republic of Serbia, “Statement on Approximation”, http://www.seio.sr.gov.yu/code/navigate.asp?Id=77

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prospective EU membership for Serbia86. Having that in mind, EU assistance which addresses the approximation of national legislature to the EU acquis began only af-ter October 2000. Serbia, however, had and still has a unique opportunity to learn from experiences of Slovenia and Croatia which, as we have already stated, share their legal history with Serbia.

Since 2000, Serbia became eligible for number of EU assistance programmes. Out of those, two have offered a signi�icant help in the �ield of legislative harmonisa-tion and the administration capacity building.

First would be CARDS, Community Assistance for Reconstruction, Develop-ment and Stabilisation87. The EU has invested 4.6 billion EUR over the last six years in order to support the participation of Western Balkans countries in the Stabilisa-tion and Association process88. Out of four CARDS areas of interest, one is of particu-lar signi�icance for legal harmonisation – “institutional and legislative development, including harmonisation with European Union norms and approaches, to underpin democracy and the rule of law, human rights, civil society and the media, and the operation of a free market economy”

Second EU assistance programme is The Technical Assistance Information Exchange Of�ice (TAIEX) that was created within the Directorate General Enlarge-ment. It provides short-term technical assistance to the Western Balkan countries on speci�ic subjects connected with the adoption of the acquis89. It also provides assistance in building the necessary administrative infrastructure. Serbia started us-ing TAIEX services in May 2004, when a two-day seminar in Belgrade on how to use the TAIEX assistance was held90.

The representatives of Serbian administration have attended over 50 semi-nars organised by this programme, which includes not only seminars or workshops, but also experts which can be sent to a bene�iciary country or study visits provid-ing opportunities for of�icials of bene�iciary countries to have a �irst-hand experi-ence on how to deal with implementation and informant of acquis. The seminars encompassed broad range of issues, such as customs, VAT, public procurement, en-ergy, environmental protection, agrarian policy in the EU, rural development, veteri-nary control, phyto-sanitary control, internal market, �ight against organised crime, transport, etc91.

86The Delegation of the European Commission to the Republic of Serbia, “Assistance to the Republic of Serbia”, http://www.europa.org.yu/code/navigate.php?Id=195

87Adopted with the Council Regulation (EC) No 2666/200088The Delegation of the European Commission to the Republic of Serbia, “CARDS”, http://

www.europa.org.yu/code/navigate.php?Id=9789The Delegation of the European Commission to the Republic of Serbia, “TAIEX”, http://

www.europa.org.yu/code/navigate.php?Id=10290The EU Integration Of�ice of the Republic of Serbia, “TAIEX”, http://www.seio.sr.gov.yu/

code/navigate.asp?Id=8591European Commission – DG Enlargement, “2005: TAIEX fully operational in the Western

Balkans”, The Delegation of the European Commission to the Republic of Serbia, http://www.europa.org.yu/upload/documents/documents/FrontB.pdf

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4.2. Compara� ve analysis according to the EU nego� a� on chapters

Serbia has not commenced the negotiations on EU accession, nor has it re-ceived the candidate status, which could happen at the end of 2008 at best92. Thus, the screening process has not yet begun, but progress is expected in line with that of former Yugoslav countries which are now candidates – Croatia and FYR Macedonia.

Environmental legislation is furthest from EU acquis, while Serbia has already joined European programmes in �ield of Science and Research, as well as in Educa-tion and Culture. The legislation on intellectual property and its enforcement have been well received. Some negotiation chapters are not expected to be an issue due to the fact that Serbia is landlocked, such as large portion of the Fisheries acquis.

Serbia averagely adopts 30 new or amended laws annually, which are in line with the acquis, frequently spanning several directives and/or resolutions93.

4.2.1. Single Market

Free Movement of Goods

Under the new government, the Ministry of Economy and Regional Develop-ment is responsible for the area of free movement of goods.

Preparations for approximation have commenced with the entry into force, in early 2006, of framework legislation for instance the Law on Standardisation94, the Law on Accreditation95, the Law on Metrology96 and the Law on Technical Require-ments for Products and Conformity Assessment of Products97. Further progress came later in 2006 with a package of decrees for the implementation of these laws, that is the decree on the establishment of the accreditation and standardisation bodies, a decree on conformity assessments and on the designation of bodies for conformity assessment and certi�ication as well as a decree on adoption of technical regulations. All bodies in the �ield of quality infrastructure have become Serbian bodies and all relevant legislation, including laws on standardisation accreditation, metrology, and technical requirements for products and conformity assessment, has continued to be fully applicable following the dissolution of the State Union with Montenegro.

In November 2006, a state accreditation body was established as an indepen-dent non-pro�it organisation, while August 2007 saw the government establishing the Institute for standardisation of the Republic of Serbia. In May 2007, the Director-

92Serbian Government – Deputy Prime Minister Activities, “Serbia may get candidate status by December 15, 2008”, Serbian Government, http://www.srbija.sr.gov.yu/vesti/vest.php?id=40978

93National Assembly of the Republic of Serbia, “Spisak donetih zakona”, http://www.parla-ment.sr.gov.yu/content/lat/akta/zakoni.asp

94Of�icial Gazette of Serbia and Montenegro, No. 44/200595ibid.96ibid.97ibid.

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ate for measures and precious metals within the Ministry of Economy and Regional Development was established. A National Council for quality infrastructure has not yet been established and an action plan to strengthen this �ield has not yet been adopted. The administrative capacity of the Ministry of Economy and Regional De-velopment, in this regard, remains weak98.

In the �ield of standardisation, a new SRPS designation has been introduced for Serbian standards, replacing the old Yugoslav JUS numbering. The Institute for standardisation is a Partner Standardization Body in the European Committee for Standardization and an af�iliate member of the European Committee for Electro-technical Standardisation. Serbia still needs to establish priorities for the transposi-tion of European standards and to intensify its efforts to adopt and to implement these standards.

The area of accreditation has been strengthened following recommendations from a peer review conducted for the state accreditation body in early 2007. For that reason, a new policy of measurement traceability has been adopted and institutional changes have been introduced. However, no designation procedure has yet been es-tablished by the government in accordance with the Law on Technical Requirements for Products and Conformity Assessment.

A lot is to be desired in the area of metrology, especially in the area of legal metrology, while virtually no approximation has been made in the area of market surveillance, where the need to establish an appropriate market surveillance struc-ture based on adequate product legislation remains, as required by Community leg-islation and to phase out contradictory pre-market controls99.

Movement of Persons, Services and the Right of Establishment

In the area of free movement of persons, there is still no approximation, only individual bilateral agreements, principally with neighbouring countries, i.e. the so-cial security agreement with Hungary of 2006 or similar agreement with Montene-gro of 2007, which also includes a range of provisions relating to students, which especially bene�its many Montenegrin students in Serbia.

In the area of free movement of services, Serbia has made huge progress since 2000, mostly due to measures by the National Bank of Serbia. The central bank, in an effort to enforce solvency requirements and the introduction of new minimum capital requirements, effectively bankrupted four largest state-owned banks100 and opened the way for foreign investment, but also established public trust in the new banking system, following hyperin�lation of the 1990s. Similar action in 2006, fol-lowing the transfer of supervisory responsibility over the insurance sector to the National Bank of Serbia, decreased the number of insurance companies from 36 to 19. New Banking law101, aligning current practices towards Basel Core Principles,

98Commission of the European Communities, Serbia 2007 Progress Report, (Brussels: Com-mission of the European Communities, 2007), 26.

99ibid, 27.100Further reading – http://www.imf.org/External/NP/LOI/2002/yug/01/index.htm101Of�icial Gazette of the Republic of Serbia, No, 107/05

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has been adopted and is completely in force since January 2007. Question still re-mains over independence of the capital market supervisory authority.

Serbia implements relatively liberal regime concerning the right of establish-ment. The Serbian Business Registry102, which started operating in early 2005, took over the registration process of new companies from the commercial courts. It pro-vides a rapid and simple registration process which last up to �ive days. However, various licences needed before or after registration, often issued by the municipal authorities, take up additional time. The Registry handles around 1.000 new regis-trants per month.

Accounting and Auditing Law103 entered into force in June 2006. The Law mandates all legal entities and entrepreneurs to prepare their �inancial statements in accordance with International Accounting Standards. There are dilemmas about the proportionality of this requirement, primarily in regard to small and medium enterprises, as well as about the capacity of the authorities and of the domestic ac-counting and auditing professionals to apply them in practice.

Customs and Taxation

In the �ield of customs, Serbia has reached a fairly advanced level of harmoni-sation. Customs Tariff Law104, which was adopted in 2007, enables the government to fully harmonise the customs tariff nomenclature with the EU Combined Nomencla-ture and the Harmonised System classi�ication. Apart from that, amendments have been passed on Customs Law, and several implementation laws have been adopted, all in line with the all but the newest acquis. Signi�icant progress has been recorded in �ighting corruption in the customs service, which has resulted in increased cus-toms revenues over the last few years. Also, Serbia has adopted a new law on free trade zones offering tax breaks and simpli�ied procedures, while enabling foreign owned companies to establish and manage free trade zones in Serbia.

Taxation has seen the introduction of the value-added tax in 2005105, at regu-lar rate of 18% and reduced rate of 8% for limited range of products, including basic food products, as well as IT-related merchandise. Registration threshold is about 50.000 EUR.

The corporate income tax rate is 10%. As for personal income tax, there are two different taxes, �irst, taxation at source of 14% of the gross wage and then an-other annual income tax at progressive rate of 10%-15%. The law adopted in July 2006106 also provides for tax incentives to stimulate job creation. Alignment with European standards in the �ield of direct taxation is at an early stage. A review of Serbian legislation has just started with a view to checking the level of compliance with the Code of Conduct on business taxation.

102Agencija za privredne registre, http://www.apr.sr.gov.yu103Of�icial Gazette of the Republic of Serbia, No, 46/06104Of�icial Gazette of the Republic of Serbia, No, 61/07105Of�icial Gazette of the Republic of Serbia, No. 84/04106Of�icial Gazette of the Republic of Serbia, No. 62/06

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A new Excise Law107 was adopted, which removes discriminatory elements of the taxation of tobacco products and cigarettes from January 2008. It also establish-es a speci�ic and ad valorem duty on cigarettes, thus bringing the structure broadly into line with the acquis. Though this regulation needed to be harmonised with the EU law, it was the pressure from CEFTA which resulted in fairly quick change in ex-cise legislation.

Public Procurement

The Public Procurement Law108 has still not been amended, thus legal gaps persist. In addition, Public Procurement Of�ice has not been able to fully ful�il its mandate under the current legislative framework, as political will and adequate funding are lacking in expectation of a new legislation. The of�ice has prepared a strategy for the development of the public procurement system, but its recommen-dations have not been implemented. Limitations in the administration’s internal au-dit system, widespread corruption and the absence of a functioning supreme audit institution represent additional obstacles to the implementation of an effective non-discriminatory public procurement system in Serbia. To some extent, the institu-tional void has been compensated by the professionalism of employees of the public procurement institutions. Still, public procurement system remains frail and needs to be further strengthened, both in legislative and administrative terms.

Competition and State Aid

The Commission for Protection of Competition is an independent competi-tion protection body that has been formed subsequent to the adoption of the Law on Protection of Competition in September 2005109. It still deals mainly with the approval of mergers and clari�ication of the law itself – only 15 percent of the cases were related to the abuse of monopoly or dominant positions, while 2 percent were investigations of agreements between undertakings110. Administrative capacity and the in�luence of the Commission are still far from European standards.

Serbia has not yet established an independent state aid authority in order to introduce a system of control of all state aid measures and prepare the harmonisa-tion of existing state aid measures with the SAA – it is most probably a consequence of heavy state-sponsored subsidising of public enterprises, which have not been pro�itable for decades, but are a huge social issue.

4.2.2. Investments

For years, progress in the area of investments and free movement of capital remains somewhat limited.

107Of�icial Gazette of the Republic of Serbia, No. 61/07108Of�icial Gazette of the Republic of Serbia, No. 39/02, 55/04109Of�icial Gazette of the Republic of Serbia, No. 79/05110Commission of the European Communities, Serbia 2007 Progress Report, (Brussels: Com-

mission of the European Communities, 2007), 29.

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LEGAL ALIGNMENT

The Law on Foreign Exchange Operations111 of July 2006 has replaced the federal legislation, previously adopted in 2002. It stipulates further liberalisation of operations with foreign countries – the term of payment for the exported goods or services has been extended from 90 to 180 days, as well as the term of import of the goods or services that have been paid in advance. Furthermore, this legislation fore-sees the possibility for all residents, natural persons included, to perform payments in order to invest abroad in ownership and other �irst-class debtor long-term secu-rities issued in OECD countries. The law also prescribes residents abroad and non-residents in Serbia may freely compensate for acquired ownership of a real estate in line with the law regulating property relations. Following the entry into force of the Law on Foreign Exchange Operations, a number of by-laws have been adopted and further liberalization in the �ield of capital transactions has also been achieved112. European Commission’s Progress Report on Serbia states that “efforts are needed to pave the way for establishing national treatment in the purchase of real estate, free movement of short-term credits and portfolio investments”.

A new draft Law on Foreign Investments was adopted by the government in the autumn of 2006113 with the aim to replace the existing federal Foreign Invest-ment Law114. Due to parliament’s dissolution and a round of new elections in the meantime, the draft law was not acted upon by the parliament, and has not returned to parliamentary debate since. A novelty is article 18 on environmental protection – the article simply reiterates the old principle that a foreign investor is required to comply with Serbian environmental laws. Also, the notion of a one-stop-shop could be an improvement over the existing situation, once more with some limitations – a question remains why would this kind of facility handle only foreign investment and not domestic investment as well? If one-stop-shops were to be established at the municipal level, the implementation could be carried out in different ways, involving different procedures by various municipalities.

Investment funds are regulated by Law on Investment Funds of May 2006115. It widens the scope of securities which, although indirectly, Serbian residents may invest in. Article 29 enumerates where the locally registered investment fund may invest the capital of its shareholders and it includes securities issued by interna-tional �inancial institutions, but also all other securities which are issued by the EU or OECD member states or other resident legal entities, as well as the neighbouring countries, provided these are listed at the �inancial markets in given countries. Di-rect deposits can only be made into banks in EU or OECD member states. This law is approximated with number of EU directives116.

111Of�icial Gazette of the Republic of Serbia, No. 62/06112Commission of the European Communities, Serbia 2007 Progress Report, (Brussels: Com-

mission of the European Communities, 2007)113Mihailo Crnobrnja, ed. et al., White Book 2007: Proposals for Improvement of the Investment

Climate in Serbia, (Belgrade: Foreign Investors Council, 2007), 30-33.114Of�icial Gazette of the Federal Republic of Yugoslavia, No. 3/2002115Of�icial Gazette of the Republic of Serbia, No. 46/06116Such as 85/661/EEC, 2001/108/EC.

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The new constitution recognises private ownership of construction land and by adopting amendments to the Law on Landplaning and Construction117, Serbia has taken �irst steps to comply with the Stabilisation and Association Agreement (SAA) provisions on the purchase of real estate. Prior to these modi�ications, construction land could only be leased for a period of up to 99 years. However, overwhelming majority of needed implementation laws in this area have not been adopted yet or addressed by the legislative. An important, both political and legal issue remains, with still unde�ined, but yet inevitable de-nationalisation. This might have signi�i-cant repercussions on the ownership of construction land, but also on already built lots. Upcoming restitution is considered to be one of major reasons why investors prefer to build on land which was, prior to World War II, owned by the state, or buy directly from private owner.

The judicial system continues to experience slow and inef�icient court pro-ceedings, poor case management and very limited administrative capacity. These circumstances discourage economic operators from taking cases to court and un-dermine effective enforcement of creditor and property rights, including intellectual property.

4.2.3. Environment, consumer protection, labour legislation

Environment

As regards environment legislation, little or no progress has been made in adopting legislation in line with the SAA, while administrative capacity remains the major issue, which is a contrast to other negotiation chapters.

Certainly, the landmark of 2007 in environmental legislation is the rati�ica-tion of the Kyoto Protocol in September 2007118. However, there has been no prog-ress in the area of air quality, albeit frequent incidents of hazardous air-pollution in industrial city of Pančevo119, located only 20km from the capital Belgrade. Low prices of water and the fact that there is little water metering prohibit upgrade of waste water treatment infrastructure throughout the country, while some progress has been made in the �ield of water supply infrastructures.

Huge legislative gap still persists in the area of control of major-accident haz-ards involving dangerous substances or radioactive substances, and monitoring, classifying, labelling and packing such substances as well. Strategic plans on waste management are still under consideration by the executive, while there has been some progress regarding hazardous waste management120.

117Of�icial Gazette of the Republic of Serbia, No. 34/06118Of�icial Gazette of the Republic of Serbia, No. 88/07119Nevena Popovska and Jasmina Sopova, “The Pollution of the Balkans”, UNESCO – The Cou-

rier (2000), http://www.unesco.org/courier/2000_05/uk/planet2.htm120Commission of the European Communities, Serbia 2007 Progress Report, (Brussels: Com-

mission of the European Communities, 2007), 33-34.

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LEGAL ALIGNMENT

Serbia’s Law on Environmental Protection121 came into force in December 2004. The law allowed local authorities to independently determine and apply the amount of an environmental tax, which resulted in companies depending on nego-tiations with municipal authorities. Government followed up by making a signi�icant effort to regulate more precisely the calculation method and payment of the pollu-tion and environmental protection tax. Air protection has not been legally de�ined yet; decrees from 1991 and 1997 are still being applied, however, a series of legal proposals (laws on waste and air) are being prepared for regulating this sector in accordance with the EU acquis.

The area of environment and environmental protection in Serbia is de facto governed by two separate ministries – newly established Ministry of Environment and Ministry of Agriculture, Forests and Waters. They both lack the administrative capacity needed to conclude the reform process, although some processes, such as fee collection, have been improved over last year. The ministries also need to en-hance their coordination. The Environmental Protection Agency continued to carry out a number of tasks in the areas of data collection in cooperation with the Euro-pean Environment Agency.

Overall budget for environment protection is still very low (about 0.4% of GDP). Bodies in charge of enforcement of environmental legislation remain weak.

Consumer protection

Following a series of negative reports by the EU experts, such as one from 2005 which described consumer protection in Serbia as unsatisfactory on account of the high prices and low quality of products and false discounts, Serbia adopted new Law on Consumer Protection122, which replaced only three-year-old federal legisla-tion.

Still, results remain scarce. EU technical experts stated that the present Law on consumer protection should be amended and supplemented either with a package of amendments, or a completely new law should be passed123. Serbia is also in need of urgent passage of a law on out-of-court settlements, on consumer credits and on unfair contractual services. Finally, recommendations include a call for improved co-operation between the ministries of trade, �inance, state administration and justice. The European Agency for Reconstruction is active in the �ield of consumer protec-tion, aiming to advance the consumer rights and to enhance the implementation of the law. The project also envisages the training of members of the Consumer Protec-tion Council and of the market inspection, whose job is to implement the law.

Consumer protection is also plagued by a number of state and private mo-nopolies in public services and retail sectors, but also by absence of strong and in-dependent consumer alliance. In addition, the legislation on consumer protection in the �ield of electronic commerce is virtually non-existent.

121Of�icial Gazette of the Republic of Serbia, No. 135/04122Of�icial Gazette of the Republic of Serbia, No. 79/05123Daily Survey, “EU to Finance Consumer Protection Project in Serbia“, Ministry of Foreign

Affairs of the Republic of Serbia, http://www.mfa.gov.yu/Bilteni/Engleski/b160306_e.html#N3

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Labour legislation

State of affairs concerning the labour legislation is somewhat unusual. Even though Serbian Labour Law124 of 2005 is in line with the EU acquis (particularly in the �ields of information of workers and non-discrimination), neither employers, employees nor the state are entirely satis�ied by it. Employers take up the issues of law’s rigidity in terms of contract termination and further aspects of the law they �ind being overprotective of the workers, who, on the other hand, do not protest against the law as much as they protest against employment policies as a whole. The state is also unhappy with persistently high unemployment rates (which, curious-ly, coincide with relatively high in�lation rates) and National Employment Strategy 2005-2010 has yielded limited results.

Signi�icant number of legal initiatives has been set in place to combat unem-ployment, including an amendment of the Law on Personal Income Tax125, which introduces a number of incentives to incite job creation among the youth, older un-employed and disabled persons, has been adopted. Also, credits are available for start-up SMEs, as well as �inancial support and counselling services for future entre-preneurs. However, Serbia still lacks legislation and policies on gender equality and reconciling work and private life, particularly for women.

The Law on Labour Safety and Health126 of 2005 is also in line with the acquis and the appropriate International Labour Organization conventions. Under this Law, the Labour Safety and Health Agency has also been established in late 2005, while hundreds of inspectors completed their training in 2006 and 2007.

“Concealed” costs of running a private business still make it prohibitively expensive for small enterprises to conduct business. Nevertheless, the foremost concern remains heavy involvement of the state sector in the production of private goods, as well as sheer number of employees in state-run public enterprises. Juxta-posing this fact to in�lexible labour market regulation and lacking efforts in mod-ernisation and development of managerial and institutional capacities means high unemployment rates will be just as dif�icult to combat in the future.

4.3. Offi cial posi� ons on the future of legal adapta� on

Serbia has adopted two documents concerning EU integration, which are regu-larly reaf�irmed by the statements of high state of�icials, especially the President, the Deputy Prime Minister for European Integration and the Minister of Foreign Affairs. The documents are Resolution on the EU Association, adopted by the parliament in 2004, and the Serbian National Strategy for the Accession of Serbia and Montenegro to the EU, which now relates only to Serbia.

124Of�icial Gazette of the Republic of Serbia, Nos. 24/05, 61/05125Of�icial Gazette of the Republic of Serbia, No. 62/06126Of�icial Gazette of the Republic of Serbia, No. 101/05

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LEGAL ALIGNMENT

The Resolution on the EU Association contains guidelines for the functioning of legal and executive authorities in Serbia with a view to meeting the Copenhagen criteria. The Resolution, inter alia, states that there is a full agreement about joining the European Union, as the highest and undisputed political authority and imposes the obligation of the parliament to give priority to the process of legal harmonisa-tion with the acquis communautaire and the need to introduce special procedures in order to develop the ef�iciency of this process. It also stressed the need to create the Serbian National Strategy for the Association of Serbia and Montenegro to the EU, which should establish the current situation in Serbia in the areas relevant for the accession to the EU, analyse conditions for association set by the EU and provide a schedule of the necessary actions.

Following the requirements laid out in the Resolution, the Serbian National Strategy for the Accession of Serbia and Montenegro to the EU became the of�icial document and the key source of Serbia – EU relations, as well as the source of inter-nal reforms and adjustments conditioned by the EU accession process. It represents a synthesis of operational directives for the government, ministries and other public institutions involved in the EU integration process, a basis for the development and implementation of the integration programmes by sectors and activities and a basis for coordination of sectoral priorities in the European integration process.

4.3.1 Programs or “road maps” of developing the national legal system

The Action plan for harmonisation of legislation, prepared by the European Integration Of�ice of the Serbian government, is created annually. It consists of a ta-ble with laws which are to be adopted, the explanation of the need for their drafting, the list of ministries competent for their adoption, time frame in which the govern-ment shall establish the law proposals, as well as the persons directly responsible for drafting of particular laws. Such action plans have been made since 2004 and they have not always been successful – sometimes, a mere quarter of planned legis-lation is adopted.

However, in early 2008 a plan for approximation of the Serbian legislature is expected to become part of a single operative document, which will encompass all activities related to the integration process with the EU127. The working title of the document is “National programme for adoption of the EU acquis” – all the countries which joined the EU in 2004 and 2007, as well as current candidate countries, has been obliged to prepare and adopt such document.

It will be the �irst time, following the initialling of the SAA, that Serbia will be bound by international contracts to adopt legislation in line with the acquis and moreover, in a speci�ied timeframe.

127http://www.seio.sr.gov.yu/code/navigate.asp?Id=140

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4.3.2. Feasibility analysis

Serbia undoubtedly has the institutional capacity to fairly quickly harmonise its legislature with the EU acquis, but the question of political will to do so still re-mains. It seems that the state is unwilling to give up any of the public enterprises, unless it is absolutely forced to do so, or is lurked into privatisation by a huge cash incentive. State-run monopolies are not only feeding the budget from their pro�its, but are also a way of postponing social turmoil, which will inevitably follow any re-structuring of public sector.

Yet, it will take a consensus (or at least, consensus of mainstream political parties) amongst political actors in Serbia in order to draw near with the other Western Balkans candidate countries in terms of legal approximation. EU member-ship and political relations with the EU need to be stopped exploited as internal political issues. Still, a signi�icant shift in the distribution of political power in Serbia is needed for that to happen. If status quo remains, Serbia will not optimally use the administrative capacity at its disposal in order to harmonise its legislation with the EU acquis.

4.3.3. Institutional background

The most ef�icient institution by far is the European Integration Of�ice of the Serbian government. Their action plans are in place for years to come, however, their authority over other government ministries remains in question. The of�ice was founded as such, and not as a ministry, in order to coordinate the efforts of all ministries and the government as a whole – but the state hierarchy and bureaucracy puts it under other ministries as the of�ice director is not a voting member of the government.

Serbian government, once again, demonstrated its will to speed up the Eu-ropean integration process by placing the Deputy Prime Minister in charge of Eu-ropean integration, which effectively makes the Deputy PM a “super minister”, who not only coordinates efforts in cooperation with the EU Integration Of�ice, but also issues instruction to ministries concerning new draft laws etc.

Finally, the Parliament has already demonstrated that it has the capacity to follow up on draft legislation coming from the government, but it has time and again succumbed to bitter political debates, instead of constructive legislative process. In-evitable conclusion is that the speed of harmonisation will depend on the parliament, i.e. the ruling party/coalition’s capability to foster the discussion on EU integration and successfully promote draft legislation which is in line with the EU acquis.

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5. EU PERSPECTIVES, EFFECTS OF CONDITIONALITY AND FORECASTS

For the purpose of a more nuanced analysis, particularly regarding Serbia, it is useful to distinguish between two types of conditionality: the general, applicable to all aspiring countries, Serbia included, and the speci�ic, applied principally to Ser-bia at distinct instances in time.

The general conditionality, which could be de�ined as a policy based on “re-inforcement by reward,”128 is contained in the well known Copenhagen criteria.129 As far as Serbia is concerned, it has endeavoured to meet these criteria over the last seven years. On balance, the annual reports of the EU Commission have been positive, re�lecting many changes in Serbia that have been introduced to meet the set conditions. This aspect of conditionality has never been a political issue either between Serbia and the EU, or within Serbia. It is the other kind of conditionality, the Serbia speci�ic variety that has led to undesired effects.

Serbia, then a part of SFR Yugoslavia, felt the �irst effects of EC speci�ic condi-tionality as early as the summer of 1990. The Prime Minister of SFRY, Ante Markovic, a recognized reformist, paid an of�icial visit to the European Commission at the peak of his Reform programme. His request for �inancial assistance for his reforms was polite-ly but �irmly rejected until two conditions are met. First, the Federal Government must convince the Republic of Slovenia to participate in new federal elections. Second, the Federal Government must convince the Serbian Government to respect human and political rights of Albanians in Kosovo. Since the Federal Government could not meet either of the conditions, the �inancial assistance never came through.130

128Frank Schimmelfenning and Ulrich Sedelmeier, “Governance by Conditionality: E.U. rule transfer to the candidate countries of Central and Eastern Europe,” Journal of European Public Policy 11, no. 4 (2004): 669-687: 671.

129“Membership requires that the candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities, the existence of a functioning market economy as well as the capacity to cope with competitive pres-sure and market forces within the Union. Membership presupposes the candidate’s ability to take on the obligations of membership including adherence to the aims of political, economic and mon-etary union.” European Council in Copenhagen, 21-22 June 1993: Conclusions of the Presidency, SN 180/1/93, 12. Note: The Madrid E.U. Summit held in December 1995 further emphasised the need for adequate administrative capacity, deemed crucial in effective implementation of E.U. standards and legislation, collectively termed acquis communautaire.

130Mihailo Crnobrnja, The Yugoslav Drama, McGill-Queen’s Press, Montreal, 2nd edition, 1996, p.191.

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The tacit admission that this �irst use of conditionality toward SFRY/Serbia was ill conceived came only ten months later when the President of the Europe-an Commission and the President of the European Council paid a visit to Belgrade. They offered the requested �inancial assistance with only one condition this time: the leaders of the quarrelling republics should meet and work out a peaceful solu-tion for the Yugoslav crisis. By that time, this offer and this condition were too late to make a difference.

As the Yugoslav con�lict escalated, EC-Serbian relations focused on the resolu-tion of the con�lict rather than Serbia’s integration into European institutions. The European conditionality policy was part of a wider, principally US-led policy that became re�lected in economic sanctions and later military intervention by NATO. Serbia’s European integration resumed only in October 2000, following the change of regime in Belgrade.

As explained above, Serbia was asked to apply the Copenhagen criteria and other conditions set out for all new European Union members. In addition, an explic-it condition of regional cooperation was added for the region, which was of�icially called “the Western Balkans.” In of�icial E.U. jargon, “enhanced regional co-operation is recognised as a qualifying indicator of the Western Balkan countries’ readiness to integrate into the European Union.”131 Regional integration is perceived as a precur-sor to wider European integration.

At the Thessalonica Summit in June 2003, the E.U. pronounced “its unequivo-cal support to the European perspective of the Western Balkan countries” and en-riched the SAP with an array of new instruments, including the drafting of a joint framework for accession titled “European Partnership.” By reassuring the citizens of Western Balkans of their European prospect, the E.U. bolstered the region’s demo-cratic forces. Arguably even more important was to remind the regional leaders of their obligations en route to united Europe. As postulated by the erstwhile Commis-sioner for External Relations, Christopher Patten:

“Thessalonica will send two important messages to the Western Balkans: The prospect of membership of the E.U. is real, and we will not regard the map of the Union as complete until you have joined us. We in the European Commission will do all we can to help you succeed. But membership must be earned. It will take the sheer hard work and applied political will of those in power in the region. How far you proceed along the road towards European Integration, and how fast, will be up to you.”132

The E.U. launched its conditionality policy toward the former Yugoslav coun-tries (with the exception of Slovenia) in October 1995 and elaborated concrete policy instruments in April 1997, in essence conditioning its political and �inancial assistance with the partner country’s progress in areas of democracy, rule of law, higher human rights and minority rights standards, transition to a market economy and greater interregional cooperation.133 The conditionality policy is an integral part

131Of�icial Internet Presentation of the European Union , http://www.eu.int/comm/enlarge-ment/intro/sap.htm

132Cited on of�icial E.U. presentation, http://www.eu.int/comm/enlargement/see/milestone.htm.133General Affairs Council, Conclusions on the application of conditionality with a view to

developing a coherent E.U. strategy for its relations with the countries in the region, 29 April 1997, Bulletin of the EU, No 4-1997.

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EU PERSPECTIVES, EFFECTS OF CONDITIONALITY AND FORECASTS

of the European Partnership signed with each potential candidate and a critical ele-ment of the 2005 Enlargement Strategy Paper.134

Notably, the 2005 Enlargement Strategy Paper also added a new enlargement condition: “the EU’s absorption capacity.” As expounded in this document: “Enlarge-ment is about sharing a project based on common principles, policies and institu-tions. The Union has to ensure it can maintain its capacity to act and decide accord-ing to a fair balance within its institutions; respect budgetary limits; and implement common policies that function well and achieve their objectives.”135

5.1. The internal effect of non-specific sanctions

Serbia has, to some extent, implemented provisions of the SAA which is not yet in force, meaning that the potential for faster integration clearly exists, especially in economic area, where Serbia is considered to be one of the fastest and most suc-cessful transition countries.

The government is encountering dif�iculty with social regulations, particu-larly in the �ield of social dialogue and labour issues. However, these issues are not yet in the focus of the EU and it seems that additional time is given to Serbia to com-mence the enormous process of restructuring of public enterprises, which employ hundreds of thousands of people; this is still a massive political problem, as many are expected to be �ired in the process.

Internal political regulations are in line with the EU conditions – the rule of law is improving; democracy and fair elections are starting to be taken for granted, media are more or less available to all political parties, NGOs and other stakehold-ers, while corruption remains an issue. Seven years after the fall of virtually dictato-rial regime, Serbia has come a long way. However, external political situation is grim. Three major issues which hold the key to further advancement of Serbia to a politi-cally and socially mature and modern society – the Kosovo issue, and the ICTY issue and, when the time comes, relations with NATO – are still far from being settled. Ko-sovo and the ICTY still remain the front-page news on a daily basis, and other tasks, including EU standards and legal approximation, are rendered secondary issues.

Disengagement trend is unfortunate and potentially as costly for the EU as it is for all the Western Balkans countries, including Serbia. Leaving a blank spot amidst the expanded Union, even for a limited amount of time, coupled with the de-terioration of the political situation in Serbia would inevitably back�ire. The failure to decide on the Western Balkans’ place in the future architecture of Europe leaves a vacuum that is likely to pose paramount challenges – the spread of organised crime, increased migration, illegal traf�icking etc. Yet, while criminal networks are the more unsavoury face of interdependence between the EU and the Balkans, there is clearly much more to the relationship. The region is already highly integrated into the EU in

1342005 Enlargement Strategy Paper, 3.135Ibid.

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economic terms (e.g. trade �lows, labour migration, monetary arrangements etc). Its political marginalisation thus seems all the more senseless.136

Restrictive visa regime with the EU, in contrast to the one that the EU has with number of Latin American and Far East nations, but also neighbouring Croatia, also creates animosity towards the EU, while the Union offers no concrete dates on liberalisation of the visa regime upon ful�ilment of the terms set out by the Schengen acquis. When combined with the always sensitive ICTY issue, it does not help create a sense of being part of a European political, cultural or social integration; it rather makes EU membership a national interest out of a single reason – higher standard of living. Visa facilitation agreement, when concluded in 2007, was not received as positively as it would have been in 2001 – nowadays, Serbian public expects nothing less than visa-free travel to the EU.

It might have seemed at �irst that a number of social issues, which have arisen as a consequence of economic criteria, could pose a signi�icant threat not only to po-litical parties in the government, but also to EU integration process as a whole. Yet, the reality turned out to be quite the opposite – people who lost their underpaid jobs in many cases turned out to bene�it from their dismissal, either through social pro-gramme or possibility of new employment and/or training. Privatisation has caused similar effects.

Serbian political elite has not taken any risks with “internalising” the ICTY issue by taking any signi�icant number of suspected war criminals to the national courts – apart from a couple of high-pro�ile cases which have been subject to inves-tigation and indictment by the special prosecutor for war crimes, “regular” criminal courts have not addressed this issue at all.

The real trouble with Serbia is that there is no consensus either from the elite or the general public that this kind of reform has to be sustained, which is easily seen in daily demoting of EU-related issues to a mere political squabble or in numerous votes for conservative and/or nationalist political parties. Furthermore, the issue of Kosovo’s future status has allowed the non-reformist parties to openly advocate for a closer alliance with Russia rather than for the acceleration of the EU accession process. Russia is gaining an increasing importance in the region as a major political power and key source of energy. In fact Russia appears to be exploiting its political role in Kosovo in order to secure an even stronger energy dependence from Serbia as seen in the negotiated bilateral energy deal in late 2007.

This is also linked to security considerations since Serbia continues to be wary of NATO and unenthused about NATO membership. In fact, even if the Kosovo issue is resolved in a way that is acceptable to Serbia the next potential stumbling block on the path to EU membership, besides ICTY, would be NATO membership. While this is not a formal condition, Serbia is likely to be pressured to join NATO in order to accede to the EU and this will be met with strong resistance from Serbia’s citizens. Serbia’s special relationship with Russia may motivate the United States to get more actively involved and insist on Serbia’s NATO membership, which would further complicate matters. An increasingly polarised Serbian internal politics is

136http://www.imo.hr/europa/conf/eupolicy/12E_anastasakis-en.pdf

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certainly a challenge for the European Union, especially since EU is aware that its actions could play a critical role in Serbia’s �inal choice.

5.2. Serbia specific conditionality

The international powers have set speci�ic and in some cases erroneous con-ditions for the integration of Serbia into the European Union. Three will be dealt with in this study:

1. Chronologically, the �irst one was the Milosevic-extradition-tied-to-�inan-cial-aid and the Donor’s Conference situation. In 2001, the �inancial incentives of-fered by the US and the Europeans, by way of �inancial aid and then later the Donors’ Conference held in Brussels, were key catalysts that led to the decisions to �irst ar-rest and subsequently extradite Slobodan Milosevic to ICTY. Seemingly, a great suc-cess for conditionality. However, soon after and largely because of this extradition, the Democratic Party of Serbia (Kostunica) stepped out of the Government of Prime Minister Đinđić, thus weakening the pro-European group of parties and helping con-tribute to the subsequent slow-down in economic and social reforms.

2. The second instance of EU conditionality relates to the maintenance of a state comprising Serbia and Montenegro. The EU, for reasons yet insuf�iciently ex-plained, insisted that Serbia and Montenegro had a European future only if they stayed together. That particular conditionality has failed to preclude Montenegro’s separation from Serbia in 2006. Keeping Serbia and Montenegro in a single country, as they could only expect EU membership as a single entity, and the ensuing insis-tence on creating a customs union within Serbia and Montenegro, brought about two undesired and negative effects. On the one hand, the negotiations on the SAA were stalled by almost a year, because the EU insisted on seeing the emergence of state union institutions that the EU could communicate with. They never material-ized. Then, suddenly, a change of mind within the EU and talks were resumed by the “twin tracks” deal, which separated SAA negotiations with Serbia and Montenegro, and was effectively terminated following the positive outcome of the referendum on independence in Montenegro in 2006.

Instead of encouraging Serbia and Montenegro to create a common market, or at least a customs union, the EU pressure to synchronize trade regimes may well have helped exacerbate the already strained relations between the leadership of the two republics. In addition, Montenegrin politicians who agitated for independence, such as erstwhile Montenegrin Foreign Minister Miodrag Vlahovic further argued that Montenegro did not wish to remain a “hostage” of Serbia’s reluctance to cooper-ate with the Hague-based war crimes tribunal,137 overlooking the frequently voiced suspicion that one of the most wanted ICTY fugitives may be hiding in Montenegro, not Serbia. When the EU abruptly changed its policy, allowing for a “double-track approach” that catered to two trade regimes that co-existed in the state union of Ser-

137RFE/RL Balkan Report 9, No. 6, 11 February 2005.

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bia and Montenegro, it was too late to stop the unleashed referendum process that ultimately resulted in another state partition.

But the two big questions related to this speci�ic conditionality remain: 1. Why did the EU spend so much political energy and its credibility on creating and then keeping the state union alive for three years, only to let it disintegrate with only a statement of regret?; 2. Why was the progress on SAA talks conditioned on creating a customs union, and then suddenly resumed even though this condition was not met?

3. But by far the most pressing and most persistent conditionality was, and remains the requirement for full cooperation with ICTY.138 The purpose of this con-ditionality is clear and beyond dispute. This condition, other then protecting in-ternational law, was intended to help Serbia and other former Yugoslav countries overcome the legacy of their recent violent past.139 Though the end objective is non-disputable, the way in which this conditionality has been applied leaves something to be desired.

The insistence on the ICTY conditionality has led to yet another undesired effect. It diminished the importance of other issues, frequently ignoring them alto-gether. In the course of seven years of political transition in Serbia, rarely has this cooperation been judged as suf�icient or satisfactory – the �irst high pro�ile indictee from Serbia which was transferred to the Hague, Slobodan Milošević, in June 2001 and the voluntary surrender of 14 indictees were the only two exceptions.

EU conditionality has interpreted narrowly the Copenhagen political crite-ria in the SAP, focusing exclusively on full cooperation with the ICTY while ignor-ing domestic mechanisms of transitional justice.140 Insistence on ICTY conditionality springs from the conviction that the Tribunal is key factor in rebuilding the rule of law in the wake of armed con�lict in the Western Balkans, by ending impunity for international crimes and facilitating reconciliation across the region.141

By excluding a range of local processes which should deal with acknowledge-ment of mass atrocities committed in the course of Yugoslav wars from its SAP con-ditionality, the EU has missed an important opportunity to encourage governments and the public in the region to move from ethnic ideologies and denial of responsi-bility towards reconciliation and rebuilding the rule of law. As countries move closer to the Union, and its in�luence in the negotiations increases, learning from this expe-rience could be crucial to maximising the impact of EU conditionality as a positive factor in the region’s transition.

The initial success in conditioning the behaviour of Serbia was in contrast to the fall and winter of 2003, where the US and EU failed to provide the Chief Prosecutor

138True, this is not only a Serbia speci�ic conditionality. It applies to Croatia and Bosnia & Hercegovina as well

139For a critical view of ICTY, see Alfred P. Rubin, Dayton, Bosnia, and the limits of law,” The National Interest, no. 46 (Winter 1996): 41(6). Accessed 25 December 2005. Available from Expanded Academic ASAP.

140Iavor Rangelov, “EU Accession Conditionality and Transitional Justice in the Former Yugo-slavia” (paper presented at the European Foreign Policy Conference 2006, London June 31 – July 1 2006)

141Report from the Commission on the SAP in South East Europe, COM (2004) 202/2 of 30 March 2004

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Carla Del Ponte with a similar quantity and quality of incentives. 2005, on the other hand, bears resemblance to 2001, where the EU’s link between a positive feasibility study (green light to open negotiations on associate EU status for Serbia) and ICTY cooperation was followed by an intense and expeditious effort toward compliance, leading to the “voluntary surrender” of 14 indictees by the end of April 2005.142

Serbia’s pull-back to non-compliance in the fall of 2003 can be explained in rational choice terms: the domestic political costs of compliance outweighed the in-ternational incentives. Yet, although conditionality works when incentives are high, one should stress that this policy has not yielded the intended results. When the E.U. conditioned a positive answer to Serbia’s feasibility study on preparedness for SAA negotiations with further compliance with ICTY, the Serbian government encour-aged voluntary surrender of indictees, but also hailed these individuals as national heroes.143 A Canadian scholar Nikolas Rajkovic thus urges caution: “if the fundamen-tal purpose of political conditionality is the socialization of target states in ‘demo-cratic values,’ then more attention has to be paid to how the means impact upon the ends.”144 Seven years after the change of regime, the extreme nationalist parties such as the Radical party are still strong in Serbia because the citizens do not see many palpable bene�its of European integration while enduring the social costs of transi-tion, chie�ly re�lected in high unemployment. One could therefore argue that the EU should have used at least as many carrots as sticks in its policy toward Serbia.

The EU took the same course as it had with Croatia – the closer a country gets to opening accession negotiations, the greater the pressure becomes to transfer indicted war criminals to The Hague, facing ever more serious consequences for fail-ure to comply. This kind of approach produced results all across the region – Serbia intensi�ied efforts for compliance with the ICTY conditionality and by June 2005, Belgrade had transferred to The Hague or persuaded to surrender most of its in-dictees at large, including generals Lukić and Pavković it had previously insisted on prosecuting in Serbian courts. However, former Bosnian Serb war commander Ratko Mladić still eludes Serbian authorities, making his arrest the primary EU condition for further progress in stabilisation and association process (SAP).

This state of affairs creates unusual outcome – cooperation with the ICTY is very high on country’s political agenda, and is frequently a subject of bitter political and public debate. The results are improving as the pressure from the EU is rising, but nevertheless, valuable time is being lost in the process. However, as ICTY takes the centre stage in the EU conditionality, other signi�icant issues are being ignored by the public (but also political actors!) in terms that those particular conditions are being accepted and internalized almost automatically. That is why signi�icant advancement can be seen in �ields of legal adaptation, i.e. copyright issues, labour legislation, foreign investments and real-estate development, etc.

142“EU to recommend talks on closer ties with Serbia,” Reuters, April 12, 2005 <www.balkan-peace.org/hed/archive/apr05/hed6983.shtml > (April 12, 2005).

143Each of the indicted war criminals was escorted to the Hague by a Cabinet Member!144Nikolas Milan Rajkovic, “Conditionality and the Public Sphere: A Synthetic Explanation of

Hague Conditionality and (Non)Compliance in Serbia,” Master Thesis, Central European University, 2 June 2005, 1-72: 66.

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The arrest and transfer of Ratko Mladić to the Hague ought to terminate the EU conditionality on cooperation with the ICTY, as the arrest of Ante Gotovina did for Croatia, as he is the last high-pro�ile indictee that is believed to be hiding in Serbia. Inevitable conclusion is that policy of pressure and suspension of SAA negotiations at different stages (and possibly the delay of accession negotiations, which are to fol-low) yielded results. It would also be safe to assume that other issues will be much easier to handle internally, except for Kosovo, which is still not part of EU condition-ality and is probably to remain outside of scope of SAA and accession negotiations.

The trouble with ICTY in Serbia is that it is perceived as an instrument of col-lective punishment of Serbs since their numbers at ICTY proceedings is signi�icant-ly larger than the total number of Croats, Bosnian Muslims and Kosovo Albanians. Beyond this ethnic calculus, ICTY is also seen as an attempt to distort the histori-cal record of the last decade and to put all the blame on the Serbian side. Instead of facilitating the political transition and the process of rebuilding the rule of law through dealing with the past, ICTY trials have been utilized by nationalist forces for the purpose of further victimization and radicalisation of Serbian politics145.

While the general electorate does not seem to perceive the EU conditional-ity beyond the ICTY (or it still seems to abstract and distant for an average voter), political actors do not seem to engage in any kind of substantial debate over other conditions set by the EU in the course of SAP. This might be either a consequence of more or less pro-EU orientation of all ruling coalitions since 2001 and �irm belief that internalizing such issues can only bene�it the country, but could also be a result of Croatian experience – given that this country shares much of Serbia’s political and legal issues, and also EU’s desire to treat all potential candidates equally, a sig-ni�icant number of issues has already been debated on and discussed by the EU, and further demands for negotiation from Serbia could be futile.

5.3. Likely accession of Serbia to the EU

For Serbia, EU accession is likely to occur between 2013 and 2015, provided that the condition of cooperation with ICTY is met and that the resolution of Ko-sovo’s future status is not encompassed by the conditionality policy. This is the time period that other CEE countries required to reform and align with the acquis com-munautaire. While Serbia has taken advantage of a delayed start to learn many of their lessons and achieve progress in numerous reform areas (particularly in market transformation), unresolved political issues stemming from the Yugoslav crisis have impeded Serbia from shortening the accession period.

EU conditionality, if perceived as a means of reaching a higher standard of living, is likely to play a positive role in promoting social, political and economic de-velopment in Serbia in the next ten years. Nonetheless, it should be noted that Serbia has already reached an awareness that it needs to become more competitive and

145Iavor Rangelov, “International Law and Local Ideology in Serbia”, 16 Peace Review 331, 331-334 .

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that the economic sphere must be based on market rather then planned economy. Therefore conditionality plays a minor role in the economic sphere. The importance of conditionality here is re�lected in creating a more moderate political scene and ensuring application of an advanced human and minority rights regime in practice.

Serbia is not likely to change its behaviour regarding the adherence to EU-norms once it has acceded into the EU, in part because the EU system has a myriad of checks and balances, but also because Serbia realises that it is in its interests to adhere to these norms and be recognized as a country that is politically stable with a predictable, consistent economic policy. Observance of the EU’s democratic crite-ria (human rights, rights of political opposition, freedom of the press, etc) is likely to continue with similar intensity after accession, since accession standards have been set especially high for the Western Balkans as a post-con�lict European region. Serbia is already a signatory to the most important human rights conventions and relatively progressive in minority rights practice; paradoxically, partly as a result of a relatively liberal minority rights regime of the former Yugoslavia. The only remain-ing hurdle for Serbia at present is the reportedly insuf�icient cooperation with the International Criminal Tribunal for the Former Yugoslavia, which must be overcome for accession to proceed. As stressed earlier, a new obstacle to membership in the future may also be created if EU insists on Serbia’s adhesion to NATO. Politically, Ko-sovo issue remains the most dividing issue and one where EU’s actions could lead to greater cooperation or, on the contrary, create increasing animosity and enhance the role of Russia, stalling Serbia’s EU accession.

On the other hand, Serbia’s adherence to economic criteria (Maastricht criteria, security of foreign investments, implementation of single market acts, etc.) has shown great progress and would further strengthen after accession into the EU as a result of increased con�idence of Serbian market actors and development of regulatory institu-tions that foster fair competition. Many of these institutions are in embryonic stage in Serbia today, including important areas such as competition and consumer protection. Since 2000, Serbia has shown excellent results in macroeconomic policy, regularly commended in EBRD Transition Reports. Serbia is close to stable single digit in�lation and its economic growth has averaged over 7% in the last four years. In 2006, foreign direct investment surpassed 4 billion USD or 13.7% of GDP.

Serbian Economic Growth and In�lation Rate

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Serbian Current Account and Trade De�icits

The key problem of Serbia today is high public expenditure, resulting partly from slow restructuring of public enterprises and high social costs of transition. This issue may continue to hurt Serbia’s application of Maastricht criteria and delay its entrance to the Euro zone even following EU accession. Another problem area are the high current account and trade de�icits, re�lecting lack of Serbia’s competitiveness that may not improve at a suf�iciently high pace by the time of accession to create a sound market that can endure stringent convergence criteria. It may also adversely affect the country’s public debt, which is one of principal Euro zone indicators.146 Although Paris Club debt restructuring helped to reduce Serbia’s external indebt-

146The convergence (or Maastricht) criteria de�ined in Article 121(1) of the Treaty establish-ing the European Community and in the Protocol on Convergence Criteria cited in Article 121 of the Treaty relate to the achievement of: a) A low in�lation rate; b) Sound public �inances; c) Low interest rates; d) Stable exchange rates.

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edness (under 60% of GDP in 2007), external imbalances remain a medium-term threat. Steady economic growth, supported by increasing FDI in�low is required to offset this threat. For this to occur, Serbia’s business climate should be additionally improved (for instance in issuing permits and licenses) and skills set further devel-oped to enhance country’s competitiveness. As stressed above, public expenditure should decrease, with investments focusing on infrastructure. In December 2006 the government submitted to the European Commission its �irst economic and �iscal programme (EFP), covering 2007-2008. The European Commission evaluated the document as „a generally coherent macroeconomic and �iscal framework together with an ambitious agenda for structural reforms [which], if implemented in full, ... will contribute to sustainable growth and real convergence.”147 Serbia’s development should be matched with increased EU �inancial assistance and the current Serbian government has requested that the EU reconsiders its 2007-13 budget since Ser-bia’s absorptive capacity is signi�icantly higher than that of the 2004 EU entrants, such as the Czech Republic, who are not able to ef�iciently spend all of the allotted assistance. Part of this assistance should be devoted to a more comprehensive pub-

147Commission of the European Communities, Serbia 2007 Progress Report accompanying the Communication from the Commission to the European Parliament and the Council Enlargement Strat-egy and Main Challenges 2007-2008

{COM(2007) 663 �inal}, Brussels, 6 November 2007, SEC(2007) 1435.

Convergence Expectations

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lic administration reform to enable better compliance with complex EU legislation, especially with regards to implementation.

Experience of 2004 and 2007 EU entrants has shown that the gap between the adoption and practical application of acquis communautaire causes delays in align-ment with the convergence criteria, which is why the bar is likely to be set higher for Serbia prior to accession in terms of implementation of the acquis. For Serbia a likely later entry to the EU (longer accession period) would then also imply superior regulatory practice and economic results and therefore a greater facility to reach the Maastricht criteria.

In conclusion, Serbia’s accession to the EU, while exhibiting extraordinary progress in the economic sphere after a delayed start, continues to be marred by politics of the past, requiring special attention by the European Union, especially when having in mind the increasing importance of security considerations. The sen-sitivity of the Kosovo issue is such that Serbia’s democratic forces could be bolstered – or weakened – by EU actions, requiring more sophistication from European policy-makers, coupled with enhanced �inancial assistance and full visa liberalisation. Ser-bia’s successful reform also necessitates stronger leadership on the part of Serbian democrats, which includes a more robust suppression of corruption that is currently assisting the non-reformist forces’ rise in popularity.

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ANNEX: THE HISTORY OF RELATIONS OF SERBIA AND THE EU

A. Relations until the year 2000.

4 July 1990. EC Ministers include Yugoslavia in the reconstruction aid program for Central and Eastern Europe - PHARE

18 December 1990 The ninth (and the last) meeting of the Council for Cooperation of EEC and SFRY at the ministerial level was held

24 June 1991 Third �inancial protocol and the Agreement between EEC and SFRY regarding transport were signed (but never took effect).

8 November 1991 EC ministers decided to introduce “restrictive mea-sures” towards SFRY, which were later transformed into negative measures exclusively applied to Serbia and Montenegro

16 December 1991 EC Declaration on “the recognition of the new states in Eastern Europe and former Soviet Union” and Yugoslavia.

15 January 1992 EU Member States recognise the independence of Slovenia and Croatia.

31 May 1992 EEC introduced sanctions to FRY under the Resolution of the UN Security Council.

27 October 1995 Council adopted conclusions on the EU actions in for-mer Yugoslavia.

4 December 1995 ЕU regulation on the suspension of sanctions towards FRY was adopted (in force as of 22.11.1995).

9 April 1996 EU Declaration on the ‘recognition’ of FRY by the EU Member States.

25 July 1996 Council adopted the regulation on the assistance pro-gramme for the reconstruction of countries on the ter-ritory of former Yugoslavia

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9 December 1996 ЕU sanctions towards FRY were abolished

1997 A new, regional approach is envisaged. EU Council sets political and economic conditions for the development of bilateral relations.

1999 The EU proposes a new Process of Stabilization and Association (PSA) for �ive countries of Southeast Europe, including Serbia (at the time within FR Yugoslavia).

1999 First year of the new CARDS program specially created for PSA countries. Serbia joins at the end of 2000.

June 2000 European Council declares that all countries PSP are potential candidates for membership.

October 2000 Fall of Milosevic’s regime.

November 2000 Signing of a “General Agreement between FRY and the EU for help and support for FRY”. Serbia enjoys autono-mous trade preferences, approved by the EU.

July 2001 Beginning of the work of the Joint EU-FRY Consultative Task Force

March 2002 Signing of the EU sponsored “Belgrade treaty on the reconstruction of the Federal Republic of Serbian and Montenegro into the State Union of Serbia and Montenegro”

February 2003 The coming into effect of the Constitution charter of the new state

June 2003 The Summit of Thessalonica. EU membership perspec-tive for these countries of Western Balkans are con-�irmed.

July 2003 The Consultative Task Force is replaced by “Enhanced Permanent Dialogue” – The new format of EU with Serbia and Montenegro for pre-accession negotiations.

June 2004 The EU Council takes the decision on European part-nership for Serbia and Montenegro, revised in January 2006.

April 2005 The Commission presents the Feasibility study, con-cluding that Serbia and Montenegro are ready to start negotiations of the Stabilization and Association Agreement.

October 2005 Negotiations on the SAA begin.

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ANNEX: THE HISTORY OF RELATIONS OF SERBIA AND THE EU

3 May 2006 Negotiations suspended by EU due to Serbia’s non-com-pliance with the Copenhagen criteria. Speci�ically, the is-sue was the honouring of international obligations, i.e. the obligation to cooperate with the Hague Tribunal.

June 2006 Montenegro announces independence and separa-tion from the state union on June 5th 2006. The Serbian Parliament con�irms the continuity of Serbia as the le-gal successor of the dissolved State Union.

June 2006 EU and its member states con�irm Montenegro as an autonomous state recognising Serbia as the legal suc-cessor of the State Union.

13 June 2007 After the election of the new Parliament in Serbia and the forming of the Government in May, the SAA negotia-tions are resumed.

7 November 2007 The Stabilization and Association Agreement is initialled by the EU Commission and the Serbian Government. The signing of the SAA is expected to take place in January 2008.

sveska02RelationsBetweenSerbiaAndTheEuHistoryAndProspects

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