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Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 6,963 5,249 4,800 104
GNI per capita
 US $ 1,540 1,270 1,240 123
Ranking is given out of 208 nations - (data from the World Bank)

Books on Bosnia & Herzegovina

Update No: 124 - (28/09/07)

Most Bosnians want to join the European Union and put their fratricidal past behind them. But there are difficulties in the way, any number of them.

Bosnia has no collective nationalism to speak of. Its people split three ways, and the Serbs are especially recalcitrant to Bosnian national aspirations. 

This is what is bedeviling a vital set of negotiations under way over police reform. The Bosnian Serbs do not want to surrender the autonomy of their own police in a common pool, because deep down they still harbour ambitions to go independent, as Montenegro did last year. Actually, as we shall see, there is another, less noble, motive at work. 

The EU insists on police reform
The EU's foreign policy chief has told leaders of Bosnia that failure to agree on crucial police reforms will mean a long delay for Bosnia`s integration into the EU.

Javier Solana's latest warning came four days before the deadline for reaching a deal on the police, if Bosnia and Herzegovina is to conclude its talks with the EU on a Stabilisation and Association Agreement in the near future. The deadline was October 1st. "Bosnian politicians are gambling with the future of their own country", Solana said in an interview with the Bosnian daily, Dnevni Avaz, published on September 26th.

The EU's High Representative for the Common Foreign and Security Policy added that Brussels would not change its requirements, and that Bosnia's further progress depended only on its politicians and their readiness to fulfil the EU's criteria. "The political situation in Bosnia has been deteriorating and the EU is very concerned about it", Solana said.

In a last-minute attempt to facilitate a breakthrough, the top international official in Bosnia, Miroslav Lajcak, on the same day addressed the assembly of one of Bosnia's two entities, the Bosnian Serbs' Republika Srpska, RS, to stress that Bosnian leaders should accept police reform.
However, no agreement was reached at the fourth round of negotiations on police reform held on September 26th. The RS Minister of Internal Affairs, Stanislav Cadjo, said that the participants agreed to resume negotiations on September 28th. The Bosnian negotiators clearly believe in going right down to the wire.

But there are Bosnian doves
Bosnia's international peace envoy/viceroy, Miroslav Lajcak, told Bosnian Serb lawmakers to end their isolationist ways on September 26th. He was intervening in the police reform negotiations.
He told the parliament that it should stop acting as a state within a state. He reminded them that their republic was a constituent republic of a larger entity, Bosnia and Herzegovina.

The real issue 
These pious homilies fail to address the real issue, which is that the Serb Republic is the most corrupt part of the Bosnian Confederation, itself rated joint 84th for corruption by Transparency International in its latest Corruption Perception Index in September. This is to be among the Africans, whom it is in no way racist to point out are tribal in social character, a fertile ground for corruption, because it presupposes trust.

Bosnian Serbs are tribal in affiliation themselves. There is a nexus between the police force, largely corrupt, and the business community, which operates in a shadow economy, hardly paying taxes. The scale of corruption is gargantuan. It was aggravated by an immense inflow of Western aid and loans since 1995. The scope for malfeasance was colossal in their distribution.
The Bosnian Serb police were and are up to their eyeballs in this affair. They were bribed to look the other way by fellow Bosnian Serbs, whom they were as often as not on friendly relations anyway. In such a small community everybody knows everybody else. It is this nice, cosy network that is under threat in police reform.

Of course the EU knows this, but cannot out of politeness mention it in negotiation, except in veiled form. 

Perhaps the only way to correct the situation is to bribe them collectively to reform themselves. A financial inducement to pool the police forces might just do the trick. It is called immunisation.

Reneging on CEFTA
Yet another economic issue is perhaps partly related to the same problem. Corruption takes many forms in the Balkans.

Bosnia is coming under renewed pressure from the EU after its parliament ignored Sarajevo's obligations under CEFTA - the Central European Free Trade Agreement - and imposed unilateral customs duties. Exemptions on these are an obvious breeding ground of corruption.

The move, an EU official warned, could result in the loss of huge benefits and lead Bosnia to economic isolation. "That would have a devastating effect on the country's exports while it would remain heavily dependent on imports," the EU spokesman in Bosnia, Frane Maroevic, told Balkan Insight. 

The EU warning came only a few days after Bosnia began to go back on its commitments to CEFTA. After months of public debates, political deliberations and delays, Bosnia's House of Representatives on September 6th finally ratified Bosnia's membership in this regional free trade agreement. 

Yet only one day later, in an apparent attempt to appease and protect local farmers, it passed a new law that would keep in place 40 per cent of the full customs duty on meat, milk and dairy products imported from Croatia and Serbia.

Neither the ratification of CEFTA nor the re-imposition of some customs duties will come into force until endorsed by the Bosnian parliament's second chamber, the House of the Peoples.
On December 19, 2006, Albania, Bosnia, Croatia, Kosovo, Macedonia, Moldova, Montenegro and Serbia signed CEFTA, which was intended to replace the existing 32 bilateral free-trade agreements. The main goal of this agreement was to allow the western Balkans better access to EU markets, and attract much-need Western investments. 

Yet the agreement drew criticism, especially from farmers who feared for their livelihoods while trying to compete with heavily-subsidized EU producers.

Since December 2006 CEFTA has been ratified by all its signatories, except for Bosnia and Serbia. While Serbia is expected to ratify the agreement any day now, its fate in Bosnia remains uncertain. 

Bosnia has a history of reneging on trade agreements as a result of its being caught between the interests of domestic producers on the one hand and regional or international commitments on the other.
After enjoying beneficial status for three years, Bosnia turned its back on its commitments arising from bilateral free-trade agreements with Croatia and Serbia - signed, respectively, in 2000 and 2002 - when they were due to establish fully duty-free trade.

Bosnian opponents of CEFTA - usually gathered around the biggest local food-producers - argue that the country's agriculture and food industries are not yet ready to compete with their neighbours. Their key argument is that Croatia and Serbia annually subsidize domestic producers with hundreds of millions of euros, around 10 times more than Bosnia. 

Bosnian government officials say there are better ways to protect the local economy. "We have to strive towards European integrations, the EU market, and that we can do only by opening up our own market and strengthening competition," said Slobodan Puhalac, Bosnian Minister of Foreign Trade and Economic Relations, in his statement to Nezavisne Novine daily, after Bosnia's House of Representatives passed the new trade law. 

"This does not mean we should fail to take care of domestic production, but that is not to be done in this way," Puhalac said. He stressed that Bosnian producers should be supported through measures that would encourage the local economy, and not by violating international treaties.

The new law envisages subsidizing 470 products rather than the original 92, and the Bosnian foreign trade ministry has warned that such a measure would be lacking legal foundations. 
EU officials add that while CEFTA does have procedures and mechanisms to prevent destabilization of local markets, Bosnia and Herzegovina, BiH, has introduced legislation without even properly analyzing and verifying the treaty's potentially negative effects. "The EU will not punish BiH but other CEFTA countries are entitled to take action if Bosnia-Herzegovina fails to implement the international treaty. Should BiH impose customs duties unilaterally, its CEFTA partners are entitled to do the same," Maroevic told Balkan Insight. 

In addition to risking direct economic consequences, such unilateral decisions could damage Bosnia's regional reputation and its relations with its neighbours. Following the latest decision of the Bosnian House of Representatives, Croatia has already demanded an official explanation of Sarajevo's attitude towards CEFTA.

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