# EUR-Lex - 52011SC1206 - EN

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# 52011SC1206

**COMMISSION STAFF WORKING PAPER BOSNIA AND HERZEGOVINA 2011 PROGRESS REPORT /* SEC/2011/1206 final */**

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TABLE OF CONTENTS

1........... Introduction.................................................................................................................... 3

1.1........ Preface........................................................................................................................... 3

1.2........ Context.......................................................................................................................... 3

1.3........ Relations
between the EU and Bosnia and Herzegovina................................................... 4

2........... Political
criteria............................................................................................................... 7

2.1........ Democracy and
the rule of law........................................................................................ 7

2.2........ Human rights
and the protection of minorities................................................................. 15

2.3........ Regional
issues and international obligations................................................................... 20

3........... Economic
criteria.......................................................................................................... 23

3.1........ The existence
of a functioning market economy.............................................................. 23

3.2........ The capacity
to cope with competitive pressure and market forces within the Union........ 28

4........... European
standards...................................................................................................... 30

4.1........ Internal
market............................................................................................................. 30

4.1.1..... Free movement
of goods.............................................................................................. 30

4.1.2..... Movement of
persons, services and right of establishment.............................................. 32

4.1.3..... Free movement
of capital.............................................................................................. 35

4.1.4..... Customs and
taxation.................................................................................................... 35

4.1.5..... Competition.................................................................................................................. 36

4.1.6..... Public
procurement....................................................................................................... 37

4.1.7..... Intellectual
property law................................................................................................ 38

4.1.8..... Employment and
social policies, public health policy...................................................... 38

4.1.9..... Education and
research................................................................................................. 40

4.1.10... WTO issues................................................................................................................. 42

4.2........ Sectoral
policies........................................................................................................... 42

4.2.1..... Industry and
SMEs....................................................................................................... 42

4.2.2..... Agriculture
and fisheries................................................................................................ 43

4.2.3..... Environment................................................................................................................. 45

4.2.4..... Transport
policy........................................................................................................... 46

4.2.5..... Energy.......................................................................................................................... 48

4.2.6..... Information
society and media....................................................................................... 49

4.2.7..... Financial
control........................................................................................................... 50

4.2.8..... Statistics....................................................................................................................... 51

4.3........ Justice,
freedom and security......................................................................................... 52

4.3.1..... Visa, border management, asylum and migration............................................................ 52

4.3.2..... Money
laundering......................................................................................................... 55

4.3.3..... Drugs........................................................................................................................... 55

4.3.4..... Police........................................................................................................................... 56

4.3.5..... Fighting
organised crime and terrorism........................................................................... 57

4.3.6..... Protection of
personal data........................................................................................... 59

Statistical Annex......................................................................................................................... 60

1. 
Introduction
1.1. 
Preface

Since March 2002, the Commission has reported regularly to
the Council and Parliament on the progress made by the countries of the Western
Balkans region. This progress report broadly follows the same structure as in
previous years. The report:

– 
briefly describes relations
between Bosnia and Herzegovina and the Union;

– 
analyses the situation in
Bosnia and Herzegovina in terms of the political criteria for membership;

– 
analyses the situation in
Bosnia and Herzegovina on the basis of the economic criteria for membership;

– 
reviews Bosnia and
Herzegovina's capacity to implement European standards, i.e. to gradually
approximate its legislation and policies with the acquis, in line with
the Interim Agreement/Stabilisation and Association Agreement and the European
Partnership priorities.

This report covers the
period from October 2010 to September 2011. Progress is measured on the basis
of decisions taken, legislation adopted and measures implemented. As a general
rule, legislation or measures which are being prepared or awaiting
parliamentary approval have not been taken into account. This approach ensures
equal treatment across all reports and enables an objective assessment.

The report is based on
many sources. As usual, these include contributions from the government of
Bosnia and Herzegovina and from the EU Member States, reports by the European
Parliament[1] and
information from various international and non-governmental organisations.

The Commission has
drawn detailed conclusions regarding Bosnia and Herzegovina in its separate
communication on enlargement[2], based on the
technical analysis contained in this report.

1.2. 
Context

Bosnia and Herzegovina
is a potential candidate for EU membership.

An international
presence under UN auspices - the Office of the High Representative (OHR) - has
been in place in Bosnia and Herzegovina since 1995. The Peace Implementation
Council Steering Board has set objectives and conditions[3]
to be met for the closure of the Office of the High Representative.

The country's
Constitution was drawn up as part of the internationally agreed 1995
Dayton/Paris Peace Agreement. It establishes a complex political structure that
provides for governments at State, Entity and District levels. The State-level
comprises a tripartite rotating Presidency, a Council of Ministers (executive
branch) and a bicameral Parliamentary Assembly consisting of a House of Representatives
(lower chamber) and a House of Peoples (upper chamber). The judicial branch
established by Dayton consists of a State-level Constitutional Court, with the
State Court of Bosnia and Herzegovina and the High Judicial and Prosecutorial
Council being established later.

One year after the
general elections of 3 October 2010, the process of establishing executive and
legislative authorities remains to be completed with the establishment of a
State-level Government. The failure to reach a political agreement on the
formation of authorities has hampered Bosnia and Herzegovina's progress on much
needed reforms, in particular as regards the harmonisation of the Constitution
with the European Convention on Human Rights (ECHR)[4]
and the adoption of a State Aid Law at State-level. Moreover, the adoption of
the State-level Law on Household and Population Census remains essential for
the socio-economic development of Bosnia and Herzegovina and future EU
integration steps.

A shared vision by the
political representatives on the overall direction and future of the country
and its institutional setup is lacking. The EU accession process requires
political will and functional institutions at all levels with an effective
coordination mechanism on EU matters. The EU has reinforced its role in the
country and continued to implement the objectives of the EU agenda, in line
with the March 2011 Council Conclusions. The European Union Special
Representative (EUSR) to Bosnia and Herzegovina and Head of the EU Delegation
took up office in September as a single EU Representative.

1.3. 
Relations between the EU and
Bosnia and Herzegovina

Bosnia and Herzegovina
participates in the Stabilisation and Association Process. The Interim
Agreement (IA) has been in place since July 2008. The Stabilisation and
Association Agreement (SAA) has been ratified by all EU Member States, but has
not yet entered into force. Implementation of the Interim Agreement by Bosnia
and Herzegovina remained uneven, including as regards various measures
introduced to protect the domestic market. The country is in breach of the IA
due to non-compliance with the European Convention on Human Rights and with the
rules on State aid.

The overall pace of
reforms has been very limited. Respect for democratic principles and the right
to equal treatment without discrimination, as embodied in the ECHR, remain
essential requirements of the IA and of the SAA. The lack of a credible process
for the harmonisation of the Constitution with the European Court of Human
Rights' (ECtHR) decision[5] of December
2009 in the Sejdic-Finci case, remains an issue of serious concern.

Within the framework of the Stabilisation and Association
Process, Bosnia and Herzegovina engaged with the EU on a Structured Dialogue on
Justice in June, aiming at ensuring an independent, effective, impartial and
accountable judicial system. In reply to the request for technical information
handed during the first meeting of the structured dialogue, the authorities of
Bosnia and Herzegovina submitted a detailed report on their judicial system.

The EU provides
guidance to the authorities on reform priorities, including the European
Partnership. Progress on these reform priorities is encouraged and monitored by
the bodies established by the IA. Six Interim Sub-Committee meetings and one
Interim Committee meeting were held during the reporting period. Furthermore,
the multilateral economic dialogue between the Commission, EU Member States and
potential candidate countries in the context of the pre-accession fiscal
surveillance took place at an expert meeting in May 2011. At the end of 2010,
an agreement was reached on the supply of electricity to Brcko District and on
the launch of a comprehensive review of electricity legislation.

The EU has continued to
deploy considerable resources in Bosnia and Herzegovina under the Common
Foreign and Security Policy and the Common Security and Defence Policy. In
September, the EUSR mandate was transferred from the OHR to a single EU
representative acting under a double-hatted mandate as EUSR and Head of the EU
Delegation. The mandate includes a broad and balanced set of instruments to
maximise the incentives provided by the EU.

In March, the Foreign
Affairs Council underlined the fact that the EU Police Mission (EUPM) and EUFOR
Althea are important elements of the EU overall strategy for Bosnia and
Herzegovina. The mandate of the EUPM focuses on the fight against organised
crime and corruption. The EUPM has continued to monitor and assess
implementation of police reform and accountability, and to provide training.
The mission currently has 273 officers and its current mandate will end in
December 2011. The EUFOR/ALTHEA military operation contributed to maintaining a
safe environment in the country. Particular emphasis has been placed on providing
capacity-building and training. EUFOR forces number about 1,300 troops in
theatre. In 2010, the UN Security Council extended the mandate of EUFOR until
November 2011. Both missions will be kept under regular review, including on
the basis of the situation on the ground.

Visa liberalisation for citizens of Bosnia and Herzegovina was
granted by the European Parliament and the Council as of 15 December 2010. It
applies to holders of biometric passports travelling to the Schengen area. This
decision was based on fulfilment of the specific conditions set out in the
roadmap for visa liberalisation. The rules for visa-free travel have been
respected by the vast majority of travellers. To ensure the continued
implementation of the commitments, a post visa liberalisation monitoring
mechanism was established in view of increased numbers of asylum seekers from
the region. The Commission presented its first monitoring report to the
European Parliament and the Council in June 2011. A readmission agreement
between the European Union and Bosnia and Herzegovina has been in force since
January 2008.

As regards the common
foreign and security policy (CFSP), during the reporting period Bosnia and
Herzegovina aligned itself, when invited, with 45 out of 66 relevant EU declarations
and Council decisions (68 % alignment).

Bosnia and Herzegovina
receives financial assistance under the Instrument for Pre-accession
Assistance (IPA). The EU Delegation to Bosnia and Herzegovina is responsible
for the implementation of financial assistance in the country. Little progress
has been made by the country's authorities towards establishing the necessary
structure for decentralised management of EU funds (DIS). The legal basis for
the operating structure, appointment of the necessary programme officers and
adoption of the roadmap towards a decentralised implementation system are still
not agreed.

The implementation of
the 2007-2009 national IPA programmes is ongoing. The Multi-annual Indicative
Planning Document (MIPD) for the period 2011-2013 has identified the following
three priorities for IPA support: supporting the strengthening of the rule of
law, improving the capacity and efficiency of the public administration and
supporting social and economic development.

The lack of agreement
between stakeholders in the country regarding the projects to be financed under
the IPA 2011 national programme[6] delayed the
completion of the programming exercise in 2011. The
difficulties encountered during the programming exercise demonstrate the need
to urgently address the issue of coordination on EU matters within the
country's institutions at every level. Strengthening coordination
mechanisms on the programming of future EU financial assistance and on other EU
matters, is an issue to be addressed as a matter of urgency.

Furthermore, Bosnia and Herzegovina
benefits from the IPA multi-beneficiary programmes.

Development of civil
society in Bosnia and Herzegovina continues to be supported under the Civil
Society Facility, with the emphasis on building the capacity of government
institutions and civil society to engage in a dialogue, reinforcement of local
democracy, environment and climate change.

The implementation of
the cross-border cooperation programmes 2007-2009 between Bosnia and
Herzegovina and its neighbours Croatia, Montenegro and Serbia is ongoing.

Bosnia and Herzegovina
participates as a full member in the 7th Framework Programme for research,
technological development and demonstration activities (FP7) and in the COST
and the EUREKA networks. Bosnia and Herzegovina became an associate member of
the Culture 2007-2013 programme. Bosnia and Herzegovina is preparing for its
participation in the Lifelong Learning Programme.

2. 
Political criteria

This section examines
the progress made by Bosnia and Herzegovina towards meeting the Copenhagen
political criteria, which require stability of institutions guaranteeing
democracy, the rule of law, human rights and respect for and protection of
minorities. It also monitors regional cooperation, good neighbourly relations
with enlargement countries and Member States
and compliance with international obligations, such as cooperation with the
International Criminal Tribunal for the former Yugoslavia (ICTY).

2.1. 
Democracy and the rule of
law

Constitution

The Dayton/Paris Peace Agreement put an end to the
1992-1995 war and brought peace to Bosnia and Herzegovina. However, Bosnia and
Herzegovina's Constitution, which is Annex 4 to the Agreement, established a
complex institutional architecture, which remains inefficient and is subject to
different interpretations. The complicated decision-making process has
contributed to delay structural reforms and reduce the country's capacity to
make progress towards the EU. Few credible steps have been taken to improve the
adoption of key legislation relevant to EU integration and to harmonise
legislation between the State-level and the Entities.

The Constitution of Bosnia and Herzegovina prevents
citizens who do not identify themselves as belonging to one of the three
constituent peoples (Bosniak, Serb and Croat) from standing as candidates for
the Presidency and the House of Peoples of the Parliamentary Assembly. No
agreement has emerged to align the Constitution with the European Court of
Human Rights (ECtHR) decision[7] regarding
discrimination against citizens on the grounds of ethnicity. The lack of a
shared vision by the political representatives on the direction of the country
has hampered progress on this issue. The first inter-institutional working
group which was set up to implement the ECtHR decision failed to reach an
agreement. The establishment of a new Working Group, as recommended by the
Council of Ministers in August, is outstanding.

The Republika Srpska National Assembly (RSNA) adopted
Conclusions and a decision on holding a referendum challenging the State-level
judiciary institutions and the legitimacy of some decisions by the High
Representative. Following the EU
facilitation, in June the RSNA repealed the decision on holding a referendum
and amended the Conclusions. Within
the established framework of the Stabilisation and Association Process, Bosnia
and Herzegovina has engaged with the EU in a Structured Dialogue on Justice.

The Federation's Constitution entails
complex and costly governance structures with overlapping competences between
the Federation, the Cantons and the municipalities. Regarding the harmonisation
of legislation with the acquis, the lack of harmonisation mechanisms between the different
levels remains an issue to be addressed.

On the basis of the Dayton/Paris Peace Agreement (DPA), the
international community continued to maintain a presence in Bosnia and
Herzegovina. Regarding the Brcko Final Award, which is one of the objectives[8]
set by the Peace Implementation Council Steering Board for the closure of the
Office of the High Representative (OHR), progress was made in resolving the
electricity issue. Further efforts are needed to meet outstanding objectives
and conditions.

The High Representative used Bonn powers[9]
on several occasions, including by approving temporary financing of the 2011
budget in the Federation and suspending two decisions enacted by the Central
Election Commission concerning the legality of the constitutive session of the
Federation's House of Peoples and the election of the President and
Vice-presidents. The HR also lifted all ICTY-related sanctions, including bans
against a number of persons.

Overall,
there has been little progress on addressing the European Partnership
priorities, which require measures to achieve more functional and sustainable
institutional structures and respect for human rights and fundamental freedoms,
including by harmonising the Constitution with the ECHR.

Parliament

On 3 October 2010,
general elections were held for the Presidency and the lower chamber of the
Parliamentary Assembly of Bosnia and Herzegovina (House of Representatives).
The establishment of the State-level legislative authorities was delayed until
May for the House of Representatives and until June for the House of Peoples.
The formation of parliamentary committees, including the Joint Committee for
European Integration, was completed in June. As a result, the adoption of
EU-related legislation or appointments have been very limited. The State aid
law, which is required for compliance with the Stabilisation and Association
Agreement, was adopted by the Council of Ministers in August but adoption by
the Parliamentary Assembly is pending. The State-level Law on Household and
Population Census, which is required for the country's social and economic
development, remains to be adopted. In August, a full-time director and two
deputies at the Agency for the
Prevention and Coordination of the Fight against Corruption were appointed by
the State-level Parliamentary Assembly (see Chapter 2.1- Anti-corruption
Policy).

Regarding the
harmonisation of legislation with the acquis, many EU-related laws
remain to be adopted. The amendments to the rulebook of procedures of the
State-level House of Peoples and the House of Representatives, which are
intended to introduce a fast track mechanism for EU legislation, are
outstanding.

Further steps were
taken to improve the functioning of the Parliamentary Assembly of Bosnia and
Herzegovina. Allocation of human resources improved. A communication strategy
was adopted. A training centre for Members of Parliament and a visitor centre
were established.

At Entity level, the
overall functioning of the Parliamentary Assemblies has continued to be
satisfactory. In the Federation, an EU Integration Committee of the Parliamentary
Assembly has been established. In April, the Federation Parliament adopted a
Resolution in favour of EU Integration.

The Republika Srpska
National Assembly (RSNA) has improved
the legislative process. A revised rule of procedure aimed at streamlining
decision making was adopted, reducing the quorum needed to pass legislation
from 50 percent of the delegates present to one third. A new rulebook of
internal organisation was adopted by the RSNA, which reorganised the structure
of the parliamentary committees. The EU Integration Committee is in place.
Moreover, the Republika Srpska Constitution was amended to increase the number
of Deputy Speakers at the RSNA up to four. This allows "others" in
addition to the three Constituent People to be elected to this position.

The two Entity
Parliaments have continued cooperating with their respective governments but
the cooperation between the Council of Ministers and the State-level Parliament
requires further strengthening. In September, a joint meeting between the State
and Entity level Parliamentary speakers took place in Sarajevo. However, an
effective cooperation mechanism is lacking between the Parliament of Bosnia and
Herzegovina and the Entity Parliaments, despite the fact that a legal framework
for coordination is envisaged in the rulebooks.

Overall, the administrative resources for the
Parliamentary Assembly of Bosnia and Herzegovina, the Federation Parliament and
the Republika Srpska National Assembly have improved. However, the
lengthy process of establishing legislative and executive authorities and the
lack of a State-level Government hampered their ability to legislate. Lack of
coordination between the State and Entity parliaments and political discord
between the Entities has continued to hamper the work of the Parliamentary
Assembly.

Government

Following the
elections, the Presidency of Bosnia and Herzegovina was established in November
2010 and held a number of sessions since then. The newly elected Presidency has
held a number of regular and emergency sessions. The three Presidency members
improved efforts at joint policy formulation and implementation but foreign
policy coordination remained subject to disagreements on some issues. The chair
of the tripartite Presidency rotates every eight months. The Presidency
conducts foreign and defence policy and proposes the State budget.

One year after the
elections, there is still no agreement between political representatives on the
appointment of the State-level Council of Ministers. As a result, the Council
of Ministers has continued to function in a caretaker capacity and held several
sessions. It adopted a decision on the mechanisms and modalities for
harmonisation of the legislation of Bosnia and Herzegovina with the EU acquis.
In July, the Council of Ministers issued a recommendation on the
establishment of a new working group for the implementation of the ECtHR
decision in the Sejdic-Finci case.

The formation of
authorities at the Entity level has been a lengthy process, except for the
Republika Srpska authorities. Divergent political and ethnic interests adversely
affected the governance of the Federation. One year after the general
elections, some Cantons in the Federation remain without a Government in place.
The deadlines for establishment of
authorities as envisaged in the Constitution of Bosnia and Herzegovina were not met.

The Government of the
Federation of Bosnia and Herzegovina was formed in March based on a coalition
agreement between a number of political parties. The Federation House of Peoples
appointed the Federation President and Vice-Presidents. On 24 March, the
Central Election Commission (CEC) issued two decisions concluding that the
elections of the Federation President and Vice-Presidents were not in line with
the Election Law and that the conditions for the formation of the Federation
House of Peoples had not been met. The High Representative then issued a
decision suspending the CEC decisions. On this basis, the Federation executive
and legislative authorities have been operating. A Croat National Assembly,
comprising of municipalities and Cantons with a Croat majority, was
established, largely reinforcing the ethnic dimension of politics in those
areas. The Federation budget for 2011 was adopted following a decision by the
HR on temporary financing of the budget.

Regarding coordination
on EU matters, the Directorate for European Integration (DEI) has increased its
staffing levels but remains without the necessary authority to drive the EU
integration process forward. Its role in terms of coordination on EU-related
matters between all authorities requires further strengthening.

The government of Republika Srpska transferred
the European Integration department from the Prime Minister to the Ministry of Economic Relations and Regional Cooperation. A harmonisation
unit in charge of screening Republika
Srpska laws with the EU acquis was
established, while other units dealing with EU integration and donor
coordination were also established within the same ministry. The administrative
capacity of Republika Srpska to monitor EU-related laws improved. However,
an effective coordination mechanism remains to be established with the
State-level authorities on EU matters in order to harmonise the transposition
of the EU acquis throughout the country.

The Federation
government has established an EU Integration Unit in some ministries. However,
the Federation General Secretariat dealing with EU integration lacks the power
to monitor the implementation of the EU approximation action plan. The lack of
capacity for coordination of EU-related matters within the Federation
government and between the Entities and the State-level remains an issue of
concern.

In the Brcko District
there is a procedure in place for the harmonisation of legislation with the acquis.
However, the legislative office following this process requires strengthening
in terms of human resources and of specialised training.

As regards policy planning, the country development
strategy and the social inclusion strategy were adopted by the Federation
government and by Brcko District. However,
adoption by the state-level Council
of Ministers and by the Republika Srpska government remains pending. Overall
policy planning in Bosnia and Herzegovina as a whole remains impeded by the
lack of up-to-date census data. The adoption of the Law on the population and
household census remains an issue to be addressed as a matter of urgency.

At the Entity level,
legislation is largely in line with the European Charter for Local
Self-Government. The Governments of the Federation and of the Republika Srpska
have prepared a code of relations in order to improve coordination between the
different levels of government.

Overall, little progress was made by Bosnia and
Herzegovina in improving the functionality and efficiency of all levels of
government. One year after the general elections, a State-level Council of
Ministers remains to be appointed. The political representatives lack a shared
vision on the direction to be taken by the country. An effective coordination
mechanism between the State, the Entities and Brcko District remains to be
established as a matter of urgency regarding EU matters and the harmonisation
of EU related legislation.

Public
Administration

Limited
progress has been made in the area of public administration reform.

The Public
Administration Reform Coordinator's Office (PARCO) has sufficient human and
financial resources to perform its task of coordinating and monitoring the
implementation of the Public Administration Reform (PAR) Strategy and Action
Plan. However, the coordinating structures at Entity and Cantonal levels for
implementation of the PAR Strategy remain insufficient. The implementation of
the strategy is constrained by PARCO's weak enforcement powers. Both the PARCO
and the PAR process lack the necessary political support to bring about
reforms.

Bosnia and Herzegovina
has made no progress in strengthening the administrative capacity for
implementation of the commitments arising from the IA and the SAA. The
country's administrative structures need to be strengthened substantially in
order to be able to respond effectively to the requirements of the EU accession
process. These structures remain cumbersome and fragmented and there is an
unclear division of responsibilities across the various levels of government.

Key permanent appointments to State-level bodies, such as
to the Indirect Taxation Authority, the Communications Regulatory Agency, the
electricity transmission company TRANSCO and the State Electricity Regulatory
Commission are still pending. These agencies lack the necessary resources and
political support to become fully operational, in line with EU requirements.

No progress has been
made towards the development of a professional and de-politicised civil
service. State-level institutions have stopped using a single human resources
management information system. The strengthening of the civil service has been
hampered by the enactment of separate laws on civil service in the Federation,
some of them providing for the establishment of civil service agencies at
Cantonal level. These developments pose the risk of further fragmentation of
the civil service system across the country.

The
Ombudsman of Bosnia and Herzegovina has issued several recommendations
concerning lengthy administrative
and judiciary proceedings, criteria for recruitment and access to information.
The Ombudsman also presented special
reports on pension rights, the situation of elderly people, persons with
disabilities and the rights of children with special needs. However, most of
the recommendations have not been implemented by the relevant authorities at
State, Entity and Cantonal level, due to weak enforcement capacity and
insufficient political will. Only a limited number of cases were lodged regarding
anti-discrimination issues. Financial and staffing resources for the
functioning of the Ombudsman institution need to be further increased.

Overall, limited progress was made in the area of public
administration. The implementation of the public administration strategy has
continued, but the coordinating structures at Entity and Cantonal levels remain
insufficient. The public administration reform process lacks the necessary
political support. Continued fragmentation and politicisation of the civil service
system remain issues of concern. The establishment of a professional,
accountable, transparent and efficient civil service based on merit and
competence requires further attention.

Judicial System

Limited progress has
been made in the area of judicial reform.

The political
authorities of Bosnia and Herzegovina, as well as representatives from judicial
institutions at the various levels, have engaged in a Structured Dialogue on
Justice with the EU. This dialogue was launched in June 2011, within the framework
of the Stabilisation and Association Process, to facilitate the
revision of legislation and functioning of institutions in line with relevant
European standards and aiming at
ensuring an independent, effective, impartial and accountable judicial system. A first set of preliminary recommendations
were issued as a basis for the continuation of the dialogue. In August, replies
to the technical information questions, handed over during the inaugural
meeting of the dialogue, were submitted.

A general lack of
political will and adequate planning continued to hamper the effective
implementation of the Justice Sector Reform Strategy (JSRS) 2009-2013. The gaps
include insufficient allocation of human and financial resources, together with
a generally weak coordination amongst relevant institutions.

Independence of the judicial system is not yet ensured. Political pressure and verbal attacks on the
judiciary have intensified. In particular, the legitimacy and role of the High Judicial and Prosecutorial Council (HJPC), the Court and the Prosecutor's Office
of Bosnia and Herzegovina have been challenged by political
representatives, particularly from Republika Srpska. The attempt to undermine
the independence of the judicial system remains an issue of serious concern. The complexities of four separate judicial
systems (the State-level, Republika Srpska, the Federation and its ten Cantons,
the Brcko District) continued to pose challenges to the proper functioning of
the overall judicial system. Harmonisation of budgetary procedures and streamlining of
competences amongst the fourteen responsible authorities continues to be an
issue seriously affecting the independence of the judiciary. In 2010, the
financial resources allocated for Courts and Prosecutors' Offices represented
approximately 0.79% of GDP.

As regards to accountability,
the work of the Office of the Disciplinary Council for judges and prosecutors
improved, and the number of outstanding cases was further reduced. In June, the
Chief Prosecutor of Bosnia and Herzegovina was suspended and, in the meantime,
an interim Prosecutor appointed. In Republika Srpska, the Chief Prosecutor was
appointed following a two-year delay. The Federation Constitutional Court
remains short of three judges out of nine.

Concerning efficiency,
there has been moderate progress in addressing the backlog of cases. The HJPC
continued to support courts across the country to tackle this issue
effectively, including through the establishment of a special unit addressing
efficiency in the judiciary. The HJPC adopted a Decision regarding regular and
reserve judges which increased the number of posts. However, due to the lack of
financial resources only few of the positions created by the HJPC have been
filled. The HJPC adopted measures to reduce the backlog of cases related to
claims for unpaid utility bills and of business registry cases. In the
Federation, the backlog was reduced. However, the backlog remains high
throughout the country, with approximately 2 million cases still pending, the majority
of which are court cases related to unpaid utility bills.

Progress has continued
in the consolidation of information technology resources in courts and
Prosecutors' offices. Judicial staff in courts and Prosecutors' offices
throughout Bosnia and Herzegovina has access to the respective case management
systems. The judicial web portal is fully accessible and provides access to a
substantial amount of court decisions, in addition to legal opinions issued by
the Entities' Supreme Courts. Furthermore, digital access to court cases has
improved in most courts and is now used extensively. The Care of Court Users
Strategy, which encompasses outreach activities, is in place in most courts
throughout the country.

The condition of a
number of courts and Prosecutors' offices throughout the country has improved
due to renovations. During 2010, despite the different assessment by the HJPC,
amendments to the Law on Courts were adopted in the Federation providing for
reopening of some municipal courts that were previously closed. However,
reopening of those courts has not yet taken place. Training for the judiciary
is provided by the Judicial and Prosecutorial Training Centers (JPTCs) of the
two Entities.

Limited progress was
made in the area of juvenile justice and implementation of the relevant
national strategy remained uneven. A revised national strategy for the period
2011-2014 remains to be adopted. In Republika Srpska, a revised Juvenile
Justice Law entered into force in January 2011. In the Federation, the adoption
of the Juvenile Justice Law is outstanding. The capacities of the social
welfare services and of lower level judiciary, which have been given extensive
responsibilities for children and juveniles' protection under the new law,
require strengthening.

Moderate progress has
been made in processing the large backlog of unresolved war crimes cases. Some
progress has nevertheless been registered in the implementation of the National
War Crimes Strategy, although delays have continued in the referral of cases
from the state judiciary to the Entities and Brcko District. Implementation of
the strategy requires enhanced cooperation between the courts and Prosecutors'
offices, particularly at the State-level.

The processing of war
crime cases by the Court of Bosnia and Herzegovina has continued to be
satisfactory. However, the processing of war crime cases in the Cantonal and
District courts remains limited and uneven. The ability of the Entities and the
Brcko District to prosecute war crime cases continues to be hindered by the
lack of human resources in the various Prosecutors' offices, as well as by
limited facilities and lack of adequate witness protection and support
services. Moreover, diverging practices on the applicability of different
criminal codes between courts at different levels remains an issue to be
addressed in order to guarantee equality of citizens before the law. With a
case pending before the European Court of Human Rights, the application of
different criminal codes continued to result in uneven sentencing.

The
prosecution of war crime cases involving sexual violence remains low. Further
efforts are needed to investigate and prosecute these crimes, as well as to
enhance the protection and support for victims and witnesses. A comprehensive
approach to improving the status of victims of rape and sexual violence remains
an issue to be addressed. A State-level strategy for improving the status of
victims of war crimes involving sexual violence has yet to be adopted.

The drafting of a new
State-level law on Witness Protection Programme has started. The current legal
framework on witness protection remains fragmented and provisions for the
protection of witnesses during and after the criminal proceedings are limited
and largely inadequate. The lack of human and financial resources is an issue
to be addressed.

Overall, the development of an impartial, independent,
effective and accountable judiciary in line with European standards remains at
an early stage. The implementation of the Justice Sector Reform Strategy and of
the National War Crimes Strategy needs to be stepped up. The fragmented legal
framework across all jurisdictions places significant legislative and financial
burdens on the judiciary. The lack of streamlined budgetary responsibilities continues
to affect the independence and effectiveness of the judiciary. The frequent
political attacks on the judiciary and the backlog of cases remain causes for
serious concern.

Anti-corruption policy

Bosnia and Herzegovina has made very limited progress in
tackling corruption, which remains widespread throughout the public and private
sector. The legal framework for fighting corruption is largely in place.
However, implementation of existing legislation is insufficient and remains to
be fully aligned to ensure harmonisation of sanctions across the country.
Corruption continues to negatively impact all spheres of life, economic
development and the rule of law.

Very limited steps have been taken in the implementation of
the 2009-2014 anticorruption strategy and action plan. Awareness raising
campaigns have been launched. Awareness among institutions about the strategy
and their respective roles in its implementation remained low. The
implementation of the action plan is not monitored because the Agency for the
Prevention of Corruption and Coordination of the Fight against Corruption is
not yet operational. The Director and two deputies of the Agency were appointed
but the allocation of permanent premises and staff is outstanding.

The Law on Conflicts of Interest is in place. The Central
Election Commission (CEC) has continued to perform its duties and has monitored
asset declarations and conflicts of interest. However, the implementation of
the law remains uneven. No steps have been taken to harmonize the legislative
provisions at State and Entity level and to ensure a uniform application of the
law in the country. The CEC competence to deal with conflict of interest covers
the State-level and the Federation while Republika Srpska has its own
Commission.

The 3rd evaluation report of the Group of States
against Corruption (GRECO) highlighted a number of deficiencies in the legal
framework to fight corruption. The relevant legal provisions continue to be
dispersed in different legislative texts and at different levels across the
country. As regards political party financing, infringements of political
finance rules need to be clearly defined and sanctions need to be more
effective. Asset declarations by political parties remain voluntary. The
institutional independence of the CEC is largely ensured and it has kept an
active role but its financial and human resources need further reinforcement.
The country does not fulfil the requirements for participation in the OSCE
working group on bribery in international business transactions, which is a
precondition for accession to the OECD Anti-Bribery Convention. According to
the addendum to the 2nd evaluation report of GRECO, only 7 of
the 16 recommendations issued have been implemented or dealt with in a
satisfactory manner, while nine are still only partially implemented.

Effective
investigation, prosecution and conviction of corruption cases remained low.
Some law enforcement operations led to the arrest of a number of civil servants
suspected of various forms of corruption
including favouring smuggling and
customs fraud. However, the prosecution
of corruption focused too often on minor cases, while a number of high level corruption cases have ended in the dropping of the charges,
acquittals, or suspended sentences. A number of training events for police and
prosecutors have taken place. However, further specialisation
of prosecutors and improved coordination with the police is needed.

Overall, Bosnia and Herzegovina is still at an early
stage in the fight against corruption. Corruption remains prevalent in many
areas and is a serious problem throughout the public and private sectors. A
legal framework to tackle corruption is in place, but political will to tackle
the issue and improve institutional capacity remain weak. The implementation of
the strategy and action plan needs to be stepped up. More decisive efforts are needed in order to establish a convincing track record in investigating and
prosecuting of high level corruption
cases.

2.2. 
Human rights and the
protection of minorities

Observance of
International Human Rights Law

As regards ratification of international human rights
instruments, Bosnia and Herzegovina has ratified all major UN and
international human rights conventions. However, in a number of cases, the decisions
of the Constitutional Court of Bosnia and Herzegovina have not been enforced,
which led to cases being lodged before the European Court of Human Rights (ECtHR).
During the reporting period, the ECtHR delivered 2 judgements finding that
Bosnia and Herzegovina had violated rights guaranteed by the European
Convention on Human Rights (ECHR). A total of 507 new applications were filed
with the ECtHR since October 2010. In September 2011, 1350 allocated
applications regarding Bosnia and Herzegovina were pending before the Court.

Little progress has been made in the promotion and
enforcement of human rights. Despite the fact that the Constitutional Court
of Bosnia and Herzegovina has been confirmed as the competent body to review
the proper implementation of the outstanding decisions of the Human Rights
Chamber (HRCh) and the Human Rights Commission (HRCom), the enforcement of
pending decisions remains an issue to be addressed.[10]

Overall,
the legal and institutional framework for the observance of human rights is in
place. However, Bosnia and Herzegovina made little progress in improving the
enforcement of international human rights legislation. Credible efforts towards
the implementation of the ECtHR decision in the Sejdic-Finci case in order to
comply with the ECHR remains essential (see Chapter 2.1-Democracy and the
Rule of Law-Constitution)

Civil and political
rights

The death penalty
is prohibited by the Constitution of Bosnia and Herzegovina and by the
Constitution of the Federation. The death penalty provision in the Constitution
of Republika Srpska is not applied, but needs to be repealed.

With regard to torture
and ill-treatment and the fight against impunity, the legal
framework is in place and is generally respected. Little progress has been made
to address the ill-treatment of detainees highlighted by the Council of Europe
Committee on the Prevention of Torture (CPT). Bosnia and Herzegovina has still
not appointed a representative to the CPT. Ill-treatment and poor health
services, particularly as regards vulnerable prisoners, have continued. Despite
some progress to improve the procedures for investigating cases of alleged
ill-treatment, in particular in the Zenica and Doboj prisons, further efforts
are needed in this regard.

Little progress was
made regarding the prison system. A Law on Execution of Criminal
Sanctions was adopted in the Federation and is in place at State-level and in
Republika Srpska. Bosnia and Herzegovina's prison system is fragmented and
lacks a uniform legislative framework for implementing criminal sanctions.

There has been some
further improvement in prison conditions. In both Entities, prison
accommodation was further expanded with new or upgraded buildings. Efforts to
introduce a system of electronic bracelets for house arrests continued.
However, overcrowding remains an issue to be addressed. The situation remains
problematic, in particular in the Federation where, on average, there is a gap
of five years between a final conviction and actual imprisonment. Alternative sanctions
are still not widely applied. There have been further delays in the
construction of a high-security State prison which has not yet started. This
continues to affect the country's capacity to deal with high-security
prisoners.

Limited progress was made
in improving the conditions of vulnerable prisoners. Construction of a new
psychiatric facility in Sokolac is contributing to improving specialised
facilities for psychiatric prisoners. However, psychiatric inmates continue to
lack facilities in the prisons of both the Federation and the Republika Srpska.
Greater efforts are needed to reinforce prison inspections. There is no
effective coordination between the fifteen prison administrations in the
country.

Limited progress was
made in the area of access to justice in civil and administrative
trials. The legal framework formally guarantees equality before the law.
However, there have been some cases when the presumption of innocence and equal
treatment have not been ensured during legal proceedings. The system of free
legal aid in Bosnia and Herzegovina remains fragmented. The framework Law on
Free Legal Aid has yet to be adopted. Free legal aid in civil
cases continues to be mainly provided by privately funded NGOs.

Bosnia and
Herzegovina's Constitution provides for freedom of expression. However,
threats and violence against journalists have continued. Follow up by police
and the judiciary remains insufficient. Political pressure on all media
continued. The media continue to be highly fragmented and polarised along
political and ethnic lines. The statute of the Public Broadcaster BHRT was
amended in order to increase the control of the Steering Board over the
editorial management, thus affecting editorial independence. Political
pressures affecting the financial and political independence of the
Communication Regulatory Agency (CRA) have continued. Amendments to the Law on
Ministries and Other Bodies of Administration in Bosnia and Herzegovina remain
to be adopted in order to ensure the CRA's independence. The appointment of a
Director General and two Board Members of the CRA and of the CRA Council
remains pending.

The Press Council of
Bosnia and Herzegovina is functioning and cooperates with judiciary
institutions. It reported an increase in the number of complaints filed by
citizens regarding violations of the Press Code, indicating increased awareness
among citizens of their legal right to react to unfair or inaccurate reporting,
including hate speech. However, the lack of financial and human resources continues
to hamper the efforts of the Press Council to enforce professional standards.

Implementation of the
Freedom of Access of Information Act remains uneven among the public
institutions subject to the law. Reporting to the Ombudsman Institution as stipulated
by the law and compliance with Ombudsman's opinions and recommendations in
related cases remained weak. (See Chapter 4.2.6. – Information Society and
Media)

Freedom of assembly
and freedom of association are
enshrined in the country's Constitution and are broadly respected. However,
cases of intimidation and violence against human rights advocates and civil
society organisations continued, mostly involving activists investigating
alleged corruption. An institutional mechanism for cooperation with civil
society organisations is in place in the Brcko District but remains to
be established at State-level and in both Entities. The administrative
capacity for cooperation with NGOs and the development of Civil Society
remained weak. The consultation process with civil society during the
legislative drafting process is not fully enforced. Resources for the Civil
Society Board and funds allocated to civil society organisations dealing with
environment and human rights issues remain inadequate. The development of civil
society in Bosnia and Herzegovina requires further support and greater
transparency in the criteria used for funding allocations.

The
constitutional and legal guarantees of freedom of thought, conscience and religion are
generally respected. Cases
of discrimination on religious grounds continued. Incidents aimed at religious symbols, clerics, believers
and property affected in particular those
who constitute a religious minority in certain communities.

Overall, civil and political rights in Bosnia
and Herzegovina are broadly respected. Some progress has been made in improving
prison conditions, but a comprehensive reform of the prison system has not
started. Access to justice and equality before the law remain hampered by the
fragmented legal and institutional framework in the country. Very little
progress was made as regards freedom of expression, freedom of assembly,
association and freedom of religion. Political pressure on the media has
continued. The continuing challenges to the independence of the Communication
Regulatory Agency and of the Public
Broadcaster remain issues of concern.
Further efforts are needed in order to support the development and funding of
the civil society sector.

Economic and social
rights (see also Chapter 4.1.8 – Social policies, employment
and public health)

Legal provisions
guaranteeing women's
rights and gender equality are in place. Bosnia and Herzegovina
adopted an Action Plan on the implementation of the UN Security Council
Resolution 1325 regarding Women, Peace and Security. Political participation of
women has further increased, but remains low. Despite an increase of female
members in Parliamentary Assemblies established following the 2010 elections,
the 40% quota for women within the public administration, as stipulated in the
Gender Equality Law, has not been reached. Limited progress was made to
increase female participation in the labour market.

Harmonisation of the
Entity and Cantonal laws with the State-level Law on Gender Equality made very
slow progress. In spite of
increased funding, the administrative capacity for ensuring gender equality at
State and Entity levels remains weak. This hampers adequate monitoring and
implementation of the Gender Equality Law and the Gender Action Plan. Very
limited progress has been made as regards awareness raising campaigns and in
promoting specialised training for civil servants.

As regards domestic violence, some progress was registered in Republika Srpska with the
adoption of a new Strategy for combating domestic violence. Progress in
implementing the State-level Strategy to prevent and combat domestic violence
remains slow, in particular with regard to harmonisation of legislation and
data collection. Further specialised training for law enforcement officers and
the judiciary is needed.

Some progress has been made in the area of children's
rights. Early childhood development policies have been adopted in
both Entities. A revised State-level Action Plan for Children for 2010-2014 was
adopted. Implementation of the child protection strategy for children without
parental care in Republika Srspka has started. Monitoring of children's rights
by civil society has been strengthened. A revised Strategy to Combat Violence
against Children remains to be adopted. Disparities remain between the child
allowances of the Entities and Cantons and the allowances do not correspond to
the needs of children and families. Children continued to suffer from domestic
violence and trafficking.

Some progress has been
made in improving the general framework for education. The Council of Ministers
adopted an initial Baseline Qualifications Framework for life-long learning. (See
Chapter 4.1.9 - Education and Research) However, the Conference of
Education Ministers, which was established to improve coordination amongst the
14 ministries of education, has not met since mid 2010. Little progress was
achieved in making schools more inclusive. Some municipalities throughout the
country started applying the Index for Inclusion, which is a self-assessment
tool allowing schools to improve inclusion, with the support of the community.
In the Federation, a coordination body for Cantonal Education Ministers was
established in order to consider the issue of divided schools. However, much
more needs to be done to effectively address the number of divided schools (or
'2 schools under 1 roof'). Separation of children within schools along ethnic
lines and the existence of '2 schools under 1 roof' in three Cantons and
mono-ethnic schools continued. De facto ethnic-based separation and
discrimination in public schools remain a serious concern. Ethnically based and
divided education systems remain an obstacle to sustainable returns.

Little progress was
made in improving conditions for the socially vulnerable and people with
disabilities. In the Federation, the Strategy for people with
disabilities has been adopted. In Republika Srpska, the Strategy for
persons with disabilities is being implemented. The entitlement to rights and
benefits for disabled persons is not based on needs. As a result, certain
categories of persons with disabilities do not receive adequate financial
benefits. The lack of harmonisation between the social protection systems of
the Entities and Cantons remained. The Social Inclusion Strategy in Republika
Srpska and at State-level have yet to be adopted. The Council of Disabled
Persons has still not been established.

With regard to anti-discrimination policies, an
anti-discrimination law is in place. However, it does not include age and
disability and allows for a broad range of exceptions. Little progress was made
in harmonising other laws with the anti-discrimination law. Implementation of
the anti-discrimination law remained weak. Very few complaints about
discrimination have been registered. Awareness among citizens of the legal
remedies that are available in case of discrimination needs to be strengthened.

Discrimination against lesbian, gay, bisexual and
transgender (LGBT) people remains widespread. LGBT activists have been
subjected to threats and harassment. Hate speech and intolerance towards LGBT
persons by media and politicians remain issues of concern.

As regards labour
and trade unions rights, legislation was amended to ensure that employees
in the Federation obtain social benefits during maternity leave. However, the
overall legal framework remains to be harmonised across the country. The
fragmentation of the legislative framework for social benefits and pensions
remains an issue to be addressed. The establishment of a State-level Economic
and Social Council is still outstanding. Criteria and legal framework for the
recognition of social partners at State-level are outstanding.

With regard to property
rights, the vast majority of cases of property repossession requests
have been resolved. However, some repossession requests remain outstanding
since the mandate of the Commission for Real Property Claims of Displaced
Persons and Refugees ended. There is no database regarding outstanding claims
and funding is insufficient. Property registers are largely unreliable.

Overall, economic and social rights are broadly respected.
Bosnia and Herzegovina adopted an
Action Plan on the implementation of UN Security Council Resolution 1325.
However, more efforts are needed in order to ensure implementation of the Gender Equality Law and the Gender
Action Plan, to address domestic violence against women and children and to
make schools more inclusive. Implementation of the anti-discrimination law
remained weak. Greater efforts are needed to improve conditions for the
socially vulnerable and people with disabilities, and to strengthen labour
rights and social dialogue, as well as the role of trade unions.

Respect for and
protection of minorities, cultural rights

The legal framework for
the protection of minorities[11] is largely in place. Little progress has been
made in implementing the laws on national minorities. The National Minority
Councils' influence over policy making remains limited, in part due to the lack
of political and financial support. The cultural rights of national minorities,
including their participation in public life, need to be strengthened.

Because national
minorities do not belong to the three constituent peoples, they have continued
to be excluded from representation in the State-level House of Peoples and the
tripartite Presidency (see Chapter 2.1– Constitution). No progress has
been made in implementing the European Charter
for Regional or Minority Languages. Representation of
minorities in the media continued to be weak. The nomination of the members
from Bosnia and Herzegovina to the Council of Europe Advisory Committee under
the Framework Convention for Protection of National Minorities remains
outstanding.

Some progress was
achieved as regards the Roma minority. Four action plans under the Roma
Strategy are in place. Progress was made in the implementation of the
Roma action plans on housing and employment. However, there is only little
progress to report in implementing the action plan on health. Efforts to ensure
effective implementation of the action plan on the educational needs of Roma
and other minorities need to be stepped up, and adequate financial resources
for implementation need to be ensured. Sustainability in implementing all four
action plans should be further addressed. Coordination among authorities at
State and Entity level and with lower levels needs to be reinforced in order to
ensure that the Roma Action Plans are implemented in a transparent and
efficient manner. Bosnia and Herzegovina is participating in the Roma Decade of
Inclusion. However, there is still no established mechanism for monitoring the
implementation of the action plans and the allocation of funds at all levels.
Limited steps have been taken by Cantons and municipalities to adopt, analyse
and revise by-laws and introduce provisions to protect the Roma in the areas of
employment, health, housing and education.

The State-level social inclusion strategy for 2008-13,
which targets the Roma population as a priority group, has not yet been
adopted. Greater efforts are needed on birth registration and on the provision
of free legal aid for civil registration. Measures need to be taken to address
the situation of the Roma, mainly women, who are at risk of statelessness.
Participation of Roma representatives in the decision-making process remains
very low. The situation of
Roma women and children is particularly difficult. Many Roma children
are not registered at birth and therefore cannot enrol in school, have no
health insurance and are subject to trafficking and exploitation. The Roma
continue to be the most vulnerable minority.

As regards refugees
and internally displaced persons, at the end of 2010, 113,365 internally
displaced persons, including 7,492 in collective centres, and 7,000 refugees
were living in Bosnia and Herzegovina. Some steps have been taken to implement
the revised Strategy for implementation of Annex 7 to the Dayton/Paris Peace
Agreement, particularly regarding funding for vulnerable groups living in
collective centres. Some progress was made in the allocation of the budget for
sustainability measures under the revised Strategy. However, procedures for
allocating return assistance are not fully in place. Discrimination in access
to employment, health care, pension rights and the slow pace of demining,
remain barriers to the sustainable return and local integration of internally
displaced persons.

With regard to
landmines from the 1992-1995 conflict, some progress was made in the
implementation of the Mine Action Strategy, but some areas have still not been
cleared. As of August 2011, 3 persons were killed and 4 injured in 6 landmine
accidents. The Law on anti-mine actions has yet to be adopted. In order to meet
the goal of clearing the country of mines by 2019, the law needs to adequately address
fundraising responsibilities, administrative and management capacity and
coordination of demining measures.

Overall, the framework for the protection of minority
rights is in place and minority rights are broadly respected. Despite good
progress in implementing the action plans on housing and employment, Roma
continue to face very difficult living conditions and discrimination. More
efforts are required in order to implement the action plans on health and
education and as regards registration of births. Access to pension rights,
health care and social protection for refugees needs to improve. Limited steps
have been taken to implement the revised strategy for implementation of Annex 7
to the Dayton/Paris Peace Agreement. Difficulties with economic reintegration,
access to health care, social protection, pensions and employment of minority
returnees remain major obstacles to sustainable return and local integration.

2.3. 
Regional issues and
international obligations

Implementation of the Dayton/Paris
Peace Agreement continued but political representatives in Republika
Srpska frequently challenged the territorial integrity of the country. (See
Chapter 2.1 – Constitution).

Cooperation with the International Criminal Tribunal for
the former Yugoslavia (ICTY) has continued to be satisfactory. At the
operational level, cooperation between the ICTY and the State-level and Entity
authorities was adequate, and access to witnesses and archives remained good.
The local prosecution of war crimes cases has continued. All the cases
transferred by the ICTY to the Special War Crimes Chamber of the State Court
under the 11-bis rule[12] have now
been completed. During the reporting period the State Court and Prosecutor's
Office have continued to perform their duties well. A significant number of war
crimes cases and indictments have been launched by the prosecutors' offices in
Bosnia and Herzegovina. Some progress has been made in implementing the
National War Crimes Strategy. (See Chapter 2.1-Judicial System)

Cooperation between the courts and the Prosecutors' offices
from Bosnia and Herzegovina, Croatia and Serbia is ongoing. Implementation of
their bilateral agreements on the mutual execution of sentences in criminal
matters and enforcement of court rulings is underway. Efforts to prosecute war
crimes cases continued to be hampered by legal obstacles to extradition in the
Criminal Procedure Code, but some practical steps have been taken to overcome
them. The first cases have been pursued under an agreement with Croatia whereby
persons sentenced for war crimes in Croatia who fled to Bosnia and Herzegovina
can serve their sentences there.

Bosnia and Herzegovina has aligned with the Council Decision advancing universal support for the International Criminal Court and promoting the
widest possible participation[13]. However, it still
maintains the 2003 bilateral immunity agreement with the United States granting
exemptions from the jurisdiction of the International Criminal Court.
This does not comply with the EU Common Positions on the integrity of the Rome
Statute or the related EU guiding principles on bilateral immunity agreements.
Bosnia and Herzegovina needs to align with the EU position.

The Parliamentary Assembly of the Council of Europe
(CoE) monitors the progress made by Bosnia and Herzegovina in
fulfilling the obligations and commitments relating to its membership of the
CoE. Bosnia and Herzegovina has appointed members to the CoE Parliamentary
Assembly, but not to the advisory bodies. The implementation of the requirements
stemming from the CoE Conventions remains insufficient.

Significant progress was made with regard to the Sarajevo
Declaration Process, launched through the Sarajevo Declaration of 31
January 2005. Bosnia and Herzegovina, Croatia, Montenegro and Serbia cooperate
within this process to find solutions for refugees who were displaced as a
result of the armed conflicts in ex-Yugoslavia between 1991 and 1995. Countries
have continued to progress on a number of outstanding issues such as data
exchange, civil documentation, public information, pensions and trust fund
mechanisms, in the framework of the established regional working groups.
Following the meetings of June and September 2011, Bosnia and Herzegovina,
Croatia, Montenegro and Serbia agreed on a number of issues, including on the
text of a joint declaration to be signed at a ministerial conference in
November 2011 in Belgrade. A regional multi-year programme aimed at addressing
the needs of the most vulnerable refugees, has also been agreed, together with a
donors' conference to be held in the first half of 2012 in Sarajevo.

As regards missing
persons, as of September 2011, there were still approximately 14,000 people
missing from the conflicts in the region. Of these, some 10,000 were related to
the conflict in Bosnia and Herzegovina, 2,000 to the conflict in Croatia and
over 1,800 to the conflict in Kosovo. In January 2011, the State Prosecutor's
Office took over responsibility from local prosecutors for conducting
exhumations of mass graves. Limited progress was made in the implementation of
the Law on Missing Persons. The International Commission on missing persons
(ICMP) and the State-level Missing Persons Institute (MPI) launched the
database of the Central Records on Missing Persons (CEN). Adequate funds were
allocated by the Council of Ministers to support the work of the MPI. However,
political pressures and attempts to undermine the work of the MPI have
continued. The existence of secondary mass grave sites continues to pose a
challenge for the identification of missing persons in Bosnia and Herzegovina.

Regional cooperation
and good neighbourly relations
form an essential part of Bosnia and Herzegovina's process of moving towards
the European Union. Bosnia and Herzegovina continued to be an active participant
in regional initiatives, including the South East European Cooperation Process
(SEECP), the Regional Cooperation Council (RCC), the Central European Free
Trade Agreement (CEFTA), the Energy Community Treaty, the European Common
Aviation Area Agreement and the EU Strategy for the Danube region. In March,
within the framework of the SEECP, Bosnia and Herzegovina endorsed the Regional
Strategic Document and Action Plan on Justice and Home Affairs 2011-2013. Many
regional activities organised by the RCC Secretariat, which is based in
Sarajevo, have been carried out. Bosnia and Herzegovina adopted a decision to
recognise the Kosovo customs stamps, which is important for CEFTA
implementation. Bosnia and Herzegovina continues to actively support the Igman
initiative on reconciliation, which brings together NGOs from Bosnia and
Herzegovina, Croatia, Serbia and Montenegro and the RECOM initiative.

Bilateral relations with other enlargement countries remained
stable. As a follow up to bilateral agreements on police cooperation between
Bosnia and Herzegovina and countries in the region, a decision was adopted to
establish a network of police officers of Bosnia and Herzegovina in the
countries in the region, EUROPOL and certain EU countries. In April, the Presidents
of Bosnia and Herzegovina, Turkey and Serbia met in Belgrade. This format was
repeated in other meetings at different ministerial levels.

Relations with Albania
have remained good. The implementation of existing bilateral agreements and
protocols has continued to proceed smoothly.

Relations with Croatia
have intensified. The Presidency of Bosnia and Herzegovina visited Croatia on
several occasions during the reporting period. Croatia has expressed its
support for the European integration of Bosnia and Herzegovina. Limited
progress was achieved in resolving outstanding issues, including on the use of
the port of Ploce, border demarcation, property issues, dual citizenship and
refugee return. The inter-state Commission for Borders continued to meet but failed
to agree on the outstanding border demarcation issues. The countries signed two
agreements linked to the Sava river. A readmission agreement with shortened
procedure and a police cooperation agreement on fighting trans-border crime,
which provides for the exchange of information on investigations and the
appointment of police liaison officers, were signed. The first meeting of a
joint working group was held in April in Sarajevo to discuss the revision of
the Local Border Traffic Agreement and the Agreement on free transit through
the port of Ploce and Neum in Bosnia and Herzegovina. The President of Croatia
attended the July commemorations in Srebrenica.

Relations with the
former Yugoslav Republic of Macedonia continued to be good. Negotiations
started on agreements on cooperation in the field of health and medical
sciences, mutual enforcement of court decisions in criminal matters and in
legal aid in civil and criminal matters.

Relations with Montenegro
have continued to improve. Three agreements were signed in the area of border
crossings for local transport, border crossings for international transport and
defence. Agreements on cooperation in the field of tourism and exchange of data
with regard to social insurance entered into force. The delimitation of the
border remains pending.

Relations with Serbia have improved further. An
agreement in the field of education, culture and sport entered into force. Five
agreements were signed in the field of tourism, protection from natural and
other disasters, veterinarian cooperation, police cooperation and exchange of
data with regard to social insurance. An agreement on the temporary employment
of Bosnia and Herzegovina citizens in Serbia was signed. In July, President
Tadic paid an official visit to Sarajevo and met with Presidency members.
However, the border demarcation remains an open issue.

In the framework of the Special Parallel Relations
Agreement between the Republika Srpska and Serbia, the Republika Srpska
Ministry of Economic Affairs and Regional Cooperation and the Ministry of
Foreign Affairs of Serbia signed Memoranda of Understanding in several areas of
cooperation. The government of Republika Srpska and the government of Serbia
held a joint government session in Banja Luka.

There are no official relations
with Kosovo[14],
as Bosnia and Herzegovina has not recognised Kosovo as an independent state.
The country does not recognise Kosovo passports and no steps have been taken to
set up procedures for citizens of Kosovo to obtain visas comparable to those
issued by the EU Member States that have not recognised Kosovo.

Relations with Turkey intensified. A cooperation
agreement in the field of health entered into force. Negotiations to amend the
bilateral Free Trade Agreement began. The text of a first readmission agreement
was initialled. In October 2010 and in September 2011, the Turkish Foreign
Minister visited Bosnia and Herzegovina to encourage bilateral economic
co-operation and foreign direct investment.

Overall, Bosnia and Herzegovina's cooperation with the
ICTY has continued to be satisfactory and a number of significant steps have
been taken to process war crimes and to find the missing persons from the
1992-1995 conflict. The country has continued to participate actively in
regional cooperation and to maintain good neighbourly relations. More decisive
efforts are needed in order to settle the remaining border and property issues
and to remove legal obstacles to extradition with neighbouring countries.

3. 
Economic criteria

In examining the
economic developments in Bosnia and Herzegovina, the Commission's approach was
guided by the conclusions of the European Council in Copenhagen in June 1993,
which stated that membership of the Union requires the existence of a
functioning market economy and the capacity to cope with competitive pressure
and market forces within the Union.

3.1. 
The existence of a
functioning market economy

Economic policy
essentials

Difficulties with
forming governments at State and Federation levels after the general elections
in October 2010 and the failure of the Fiscal Council to adopt the Global
Framework for Fiscal Policies for 2011-13 had a bearing on economic and fiscal
policy. In a situation of increased uncertainty over the short- and medium-term
path of fiscal policy, the authorities submitted their fifth Economic and
Fiscal Programme for 2011-13 in January 2011. The programme is thus fragmented
and does not reflect a coherent formulation of economic and fiscal policies. It
is not fully integrated into budgetary procedures and its objectives are not
adequately quantified or backed by concrete policy measures. The performance
under the International Monetary Fund (IMF) Stand-By Arrangement remained
broadly satisfactory until October 2010 when the IMF Board approved the second
and third reviews. However, due to the difficulty of forming a government at
State-level, further programme discussions were delayed. The first World Bank
Development Loan was disbursed in October 2010. Overall, the consensus
on economic and fiscal policy essentials has weakened.

Macroeconomic
stability

After the recession in
2009 with a drop in real GDP of 2.9%, the country moderately recovered in 2010.
It recorded a positive real growth rate of 0.7%, driven by external demand.
Domestic demand picked up, supported by a relatively stable inflow of
remittances. Industrial production increased slightly in 2010 led by
export-oriented industries, but unemployment remained very high. Per capita
income, measured in purchasing power standards (PPS), fell to 30% of the EU-27
average in 2010 from 31% in 2009. As a result of fiscal adjustment measures
implemented under the IMF programme and increased revenues, the budgetary
situation eased. Due to improvements in the trade and current account deficits
and the comfortable level of foreign reserves, the external financing needs
decreased in 2010. The indicators available for 2011 suggest that the economic
recovery is gaining strength as industrial production increased by 8.1%
year-on-year in the first seven months of the year. Overall, the economy
is slowly gaining steam after the 2009 recession, but the recovery is fragile.

The current account
deficit fell further from 6.2% of GDP in 2009 to 5.6% in 2010. The trade
deficit fell by 4.8%, shrinking from 27.8% of GDP in 2009 to 25.9% in 2010,
which contributed to the improvement of the current account. Exports rose by
27.7% nominally, and imports by 10.2%. Surpluses in the services and income
accounts decreased by 8.6% and 23.2%, respectively, while that of the current
transfer account increased by 3.1%, supported by the relatively stable flow of
remittances. The current account deficit was financed mainly by new loans from
abroad. However, the trend of an improving trade balance was reversed in the
second half of 2010 when the nominal increase of imports exceeded that of
exports. This deterioration continued in the first half of 2011 when the trade
gap increased by 18.3% year-on-year. Imports and exports increased both by
18.3%, mining and manufacturing being the main sectors recording export growth.
Bosnia and Herzegovina's external public debt increased by 20.2% in 2010, from
21.8% of GDP in 2009 to 25.7% in 2010, mainly due to the disbursements made in
the context of the IMF and World Bank programmes. In the first half of 2011, the
external public debt decreased slightly by 1.5%. Public international creditors
account for 89% of the country's external public debt. The largest creditor
remains the World Bank group. Official foreign exchange reserves decreased by
5.7% in the first half of 2011 from end-2010, though still covering around five
months of imports. Overall, external imbalances have slowly started to
rise after the sharp contraction experienced in 2009 and the first half of
2010, although the current account deficit is still much lower than before the
crisis.

The average
unemployment rate in 2010 stood at a very high 27.2%. Registered unemployment
reached 43.1% in June 2011, while according to the Labour Force Survey (LFS)
following the International Labour Organisation (ILO) methodology conducted
annually in April/May, unemployment increased to 27.6 % in 2011 from 27.2% in
2010. It was particularly high among the young population (57.9% for people
aged between 15 and 24, according to the LFS). In the first half of 2011 the
highest year-on-year growth in employment was registered in education, real
estate and health, while employment fell in agriculture, mining and
manufacturing industries, as well as in trade and construction. Despite the
already large size of the public sector in Bosnia and Herzegovina, the number
of employees in the public administration increased further, by 2.1%
year-on-year in the first six months of 2011. Average monthly nominal gross
wages increased by 1.8% in 2010 and remained relatively stable in the first
seven months of 2011. Structural rigidities such as the high rates of social
contributions, poorly targeted social transfers and low labour mobility, are
continuing to hamper job creation and the propensity to work. Overall,
labour market conditions remained poor and were not supported by the weak
growth dynamics.

Annual inflation
reached 2.1% in 2010, up from -0.4% in 2009. The inflationary trend was mainly
driven by the rise in food and transport prices towards the end of the year.
Inflation continued to rise in the first seven months of 2011, reaching 3.9% in
July, pushing the 12-month moving average inflation rate up to 3.1%. The
monetary policy of the Central Bank continued to be conducted under a currency
board arrangement, with the euro as the anchor currency, enjoying a high level
of confidence and credibility. Monetary policy settings remained unchanged
throughout 2010. As of February 2011 the minimum reserve requirement for
short-term deposits was lowered from 14% to 10%. Nevertheless, the banking
system's reserves with the Central Bank remain significantly above the minimum
required level. The M2 monetary aggregate increased by 6% year-on-year in July.
Overall, monetary and financial stability have been preserved while
inflation is picking up.

The fiscal performance
in 2010 benefitted from the recovering economic activity, which resulted in
increasing revenues, and from the adjustment measures implemented under the IMF
programme. The consolidated budget deficit fell to 2.5% of GDP, which is well
below the 2009 outcome of 4.5%. However, the share of general government in GDP
remains high, with 2010 revenues at 44.4% of GDP. Adjustment measures on the
expenditure side included cuts in wages and benefits in the public sector,
which resulted in only a marginal 0.5% rise of the consolidated wage bill in
nominal terms. Consolidated revenues increased by 5% in 2010. 44% of the
revenues originated from indirect taxes which increased by 6.7%, driven by the
recovering economic activity, the development of imports and import prices and
the increase of excise duties on tobacco and oil derivatives which counteracted
the continuous reduction of duties and tariffs as set out in the Interim
Agreement on trade, in force since mid-2008. Expenses increased by 1.6%
year-on-year in 2010. Current spending dominates the budget with wages
accounting for 29.2% of overall expenditure and subsidies and transfers (mainly
social benefits) for 39.2%. The balance of the collected social contributions
against the paid out social benefits returned on the positive side due to the
simultaneous rise of the contributions and drop of the benefits. The flat
income tax rate in Republika Srpska was raised from 8% to 10% as of 2011 and
the non-taxable income threshold was abolished. Following amendments to the Law
on Social Contributions in Republika Srpska, the overall social contribution
rate increased from 30.6% to 33% of the gross salary as of January 2011. Excise
duties on tobacco were raised as of 2011.

Budget planning for
2011 and beyond, as well as the sustainability and credibility of fiscal policy
in Bosnia and Herzegovina, were seriously hampered by the non-adoption of the
Global Framework for Fiscal Policies for the periods 2011-2013 and 2012-2014.
The Parliament of Republika Srpska adopted the Entity's 2011 budget in December
2010. It planned the same nominal expenditure as the budget for 2010. In the
Federation, a temporary budget was in place in the first quarter. The
Federation 2011 budget was adopted in March and showed a total amount of
expenditure planned 9% lower than in 2010, with high uncertainties surrounding
its financing. At the State-level, temporary budgets were in place during the
first three quarters of 2011. The 2011 State-level budget was adopted by the
Presidency in April, showing an increase in volume by 2% compared to 2010.
However, it remains to be adopted by the Parliament. All budgets were
established in the absence of a medium-term budgetary strategy. The Federation
revised in July its 2011 budget to allow for some increase of specific social
benefits, partly compensated by cuts in investment and the wage bill. Republika
Srpska is planning to rebalance its 2011 budget in October. In May 2011, the
distribution coefficients for the allocation of indirect revenues from the
Single Account of the Indirect Taxation Authority were corrected for the first
time since 2008. The share for the Federation was lowered slightly from 64.39%
to 63.98% in the benefit of Republika Srpska's share which went up slightly
from 32.06% to 32.47%. The share for Brcko District remained at 3.55%. The
shares are based on final consumption data. Overall, the reliability and
predictability of fiscal policy in Bosnia and Herzegovina suffered from the
failure to agree on Global Fiscal Frameworks which is a serious obstacle for
medium-term budgetary planning and sustainability.

General government
debt, both domestic and foreign, stood at 38.8% of GDP in 2010, up from 34.5%
in 2009. External debt accounts for 25.7% of GDP and domestic debt for 13.1%.
Domestic public debt is managed and served by the Entities (49.5% Federation,
49% Republika Srpska, 1.5% Brcko District). Verification of claims related to
old foreign currency savings has advanced. Both Republika Srpska and the
Federation continued issuing bonds in 2010 and 2011 to service the debt. In
addition, Republika Srpska issued for the first time short-term T-bills in May
and June 2011 serving as temporary financing to Republika Srpska cash-based
budget deficit. The offers were met by high demand and achieved relatively
favourable conditions. Overall, even though the debt-to-GDP ratio is
still relatively moderate, its upward trend needs to be monitored carefully.

Although there is
evidence of an ongoing trend of economic recovery, the incomplete reform
process acts as an impediment to laying the foundations for solid and more
domestic-driven growth in Bosnia and Herzegovina. The growing trade gap and
increasing current account deficit suggest that external imbalances are again
taking shape. The productive capacity and competitiveness of the economy remain
weak, as domestic sources of growth are not adequately exploited and national
savings remain low. The currency board arrangement enjoys a high level of
confidence and credibility, while the failure to agree on a Global Framework
for Fiscal Policies for 2011-2013 and 2012-2014 severely threatens the
transparency, reliability and sustainability of public finances and is a
serious impediment for short- and medium-term budgetary and general economic
planning. Overall, the worsening quality of budgetary processes is
putting a strain on the viability of macroeconomic policies, even though
financial and monetary stability has been preserved.

Interplay of market
forces

The private sector's
share in GDP is estimated to have remained stable at around 60% of GDP in 2010.
In Republika Srpska there has been no further progress in the privatisation
agenda. Following a government decision not to initiate their privatisation,
strategic companies such as the power utility, Banja Luka airport and the
postal company remain public. Around 69% of the initial stock of State-owned
capital intended for privatisation had been sold by September 2011, unchanged
from a year earlier. In the Federation, only one out of nine companies included
in the revised privatisation plan has been partly privatised by stock exchange
transactions with the achieved price being less than half of the company's
estimated value. Attempts to privatise the remaining eight companies were
unsuccessful, in some cases in spite of repeated offerings. None of the
companies considered "strategic" such as the power utility and a
tobacco factory were subject to privatisation. The planned restructuring and
liquidation of socially-owned enterprises has made slow progress. Most prices
are liberalised, even though a number of administered prices remain (e.g. for
utilities, including electricity and gas). Overall, the planned
privatisation process did not advance for the third consecutive year.

Market entry and exit

Following the economic
crisis, the number of newly registered companies dropped by around 50% in 2010.
Property registration procedures were significantly shortened during 2010 in
some courts, for example from 84 to 33 days in the Sarajevo Court. The time
needed to start a business was reduced from 60 to 55 days, on average, over
2010. Court registration timelines and costs are harmonised between the
Entities, including the notary fees. However, the process for obtaining all the
necessary documents and permits remains lengthy and companies must still
register in both Entities if they want to do business in the whole country.
Under the second stage of the "legislative guillotine" project in the
Federation, seven bylaws have been adopted in various ministries to streamline
109 business-related administrative procedures, and some administrative
improvements have also been implemented at Canton and municipal levels. Labour
tax procedures have been streamlined. Overall, some improvements can be
reported, particularly in registration procedures.

The legal system

The legal system in
Bosnia and Herzegovina remains complex. Even though the standard of legislation
is relatively high in some areas, implementation and application of laws in
practice is often poor due to the weak enforcement capacity of key
institutions. The average time to resolve a dispute before court in order to
enforce a contract remains high at 595 days. The rule of law is weak and the
judicial system often does not function efficiently, is subject to obstruction
by the parties and does not cover commercial activities adequately. Overall,
weak rule of law, corruption and unreliable contract enforcement continue to
hamper the business environment.

Financial sector
development

The financial sector is
dominated by banks that are engaged mainly in traditional credit and savings
activities. The share of claims on the private sector in relation to GDP
decreased to around 55% in early 2011, from 58% a year earlier. Twenty-nine
banks are operating in the country, one less than in the previous year as one
bank in the Federation is undergoing a liquidation procedure. Two banks are
under provisional administration. Twenty-one banks are under foreign ownership,
seven under domestic private ownership and one is majority State-owned. Despite
losing some 2.4% of their share, the five largest still account for more than
half of the total assets of the banking sector. Banks with foreign ownership
accounted for approximately 90% of the total banking system assets in 2010.
Banking sector assets remained relatively stable between the third quarter of
2010 and the second quarter of 2011. The capital adequacy ratio decreased
slightly from 15.6% in the third quarter of 2010 to 15.5% in the second quarter
of 2011, comfortably above the legal minimum of 12%, which itself is
significantly higher than the 8% required in the Basel II Accord.

After an aggregate net
profit of some € 12.6 million in 2009, the banking sector finished 2010
with an aggregate net loss of € 63.6 million. The quality of the loan
portfolio continued to deteriorate. The share of non-performing loans to total
loans reached 11.8% in the second quarter of 2011, the highest level since
2001, up from 9.2% in the third quarter of 2010, while the volume of loans
increased. Nevertheless, banking profitability indicators showed a remarkable
upward trend in the second quarter of 2011. The return on average equity increased
from -3.5% in the third quarter of 2010 to 3.5%, while the return on average
assets rose from -0.4% to 0.4%. Liquidity indicators deteriorated slightly
during the same period with the rates of liquid to total assets falling from
29.3% to 26.2% and of liquid assets to short-term financial liabilities from
50.3% to 46.2%. Twenty-five banks are participating in the deposit guarantee
scheme. Its coverage level remained unchanged at around € 18,000. In March
2011, Republika Srpska amended the Law on the Banking Agency, establishing a
banking system ombudsman and widening the Agency's responsibilities for
supervision and protection against money laundering and financing of terrorism.
The amendment also assigns the Agency customer protection functions. Overall,
despite the increasing non-performing loan ratio, financial stability was
safeguarded.

Annual credit growth
continued its upward trend and reached 6.7% in July 2011, though from a low
base. Loans to households grew slightly by 2.8%, while those to private
enterprises increased by 7.7%. The recovery of deposits has lost pace in an
annual comparison, growing by 2.2% in July. Households remained the main
contributors to this development, increasing their savings by 10.7%, while the
corporate sector reduced its deposits by 6.6%. As a consequence of these
developments, the loans-to-deposits ratio climbed from 113.5% in October 2010
to 120% in July 2011. The spread between average loan and deposit interest
rates of commercial banks decreased by 18 base points in the fourth quarter of
2010 compared to the previous quarter, reaching 7.87 percentage points, mainly
due to reduced lending rates. This level points to still high intermediation
costs. Overall, after the sharp correction experienced during the
financial and economic crisis, credit activities are gaining strength again.

In the first half of
2011, local stock markets regained some previously lost ground, recording an
upswing of 4% and 7.2% for the main indices of the Sarajevo and the Banja Luka
stock exchanges, respectively. Their combined market capitalisation recovered
somewhat to around 47% of GDP in the first seven months of 2011, up from 44% in
mid-2010. The cumulative turnover almost doubled year-on-year in January-July
2011, mainly influenced by two T-bills issues of Republika Srpska (May-June
2011). The insurance sector remained small and relatively weak, accounting for
1.9% of GDP in 2010, representing marginal increase. The annual growth of
premiums picked up slightly to 2.9%, as compared to 1.4% annual rise in 2009.
The market was dominated by the non-life insurance segment, which accounted for
84.2% of the total. The number of companies active on the market decreased to
25 at the end of 2010, after the Federation's Insurance Supervisory Agency revoked
the licence of Hercegovina Osiguranje. Overall, financial intermediation
by the non-banking sector remained shallow.

3.2. 
The capacity to cope with
competitive pressure and market forces within the Union

Existence of a
functioning market economy

External imbalances
have been increasing and fiscal imbalances remain high, even though adjustment
measures made under the international support programmes contributed to some
fiscal consolidation. The failure to adopt the Global Framework for Fiscal
Policies for 2011-2013 and the delays in forming governments at State and
Federation levels weakened not only the soundness, transparency, sustainability
and reliability of public finances and of economic policies, but also the
planning and decision-making of economic agents. The sluggish progress in the
reform of the social benefits system, the still slow pace of economic
restructuring, especially in the Federation, prevailing obstacles to private
sector development and the composition of budgetary expenditures, increasingly
dominated by current spending, at the expense of growth-enhancing activities,
continue to undermine a more growth-oriented allocation of resources and a
strengthening of domestic sources of growth. Unemployment remains very high.
Progress towards creating a single economic space within the country has been
limited. Overall, the functioning of market mechanisms remained hampered
by distortions, the excessive role of the State and lack of competition, not
allowing efficient allocation of resources.

Human and physical
capital

Progress in the field
of education and training has been limited. The Council of Ministers adopted
the concept of the Qualifications Framework (Baseline Qualifications Framework)
in Bosnia and Herzegovina. However, the mismatch between the qualification
needs of the labour market and the profile and number of graduates coming out
of the vocational and educational training system adds to other structural
weaknesses, such as low labour mobility, and remains a concern. Cooperation
between the education sector and employers is still weak and information on
human capital endowment remains scarce. Overall, the proper functioning
of the labour market continues to be hampered by structural rigidities and the
weak performance of the education and training system.

Activities to improve
the railway infrastructure in pan-European corridor Vc progressed during 2010.
The Railways Regulatory Body introduced a set of regulations in compliance with
the EU railway directives. Maintenance and upgrading of roads continued, but
progress was slow, as some of the construction planned did not take place due
to financial difficulties on the part of some of the contractors. Both
Republika Srpska and the Federation governments terminated contracts with
Slovenian companies at end-2010 after several months of inactivity on important
highway projects. Net foreign direct investment (FDI) flows dropped further by
more than 70% in 2010, falling to a mere 0.4% of GDP. Outflows were recorded in
financial intermediation and wholesale trade, while the manufacturing sector
was the main source of inflows. FDI outflows were nevertheless reversed in the
third quarter of 2010 and there are indications that net FDI was slowly
recovering in the first half of 2011. Overall, in an admittedly
difficult market environment, domestic and foreign investors became more
hesitant. Infrastructure improved slightly, but continues to require repairs
and modernisation.

Sector and
enterprise structure

Electricity and gas
utilities continue to be public stock companies. Market liberalisation remains
insufficient as most utility providers still do not apply market prices.
Although the market was opened for non-household consumers, they have little
incentive to change suppliers, as regulated tariffs remain below market prices.
Progress towards a competitive telecommunications market has been limited. The
incumbent operators continue to act as de facto monopolies in their
fixed-line market segments and as oligopolies in the mobile segment. The
incumbent operators published their reference unbundling offers, however, and
four contracts were signed with alternative operators over the last two years.
New licences were granted for Internet services and network operators. The
level of broadband Internet access has increased. Overall, little
progress was achieved on the liberalisation of network industries.

Due to the impact of the economic crisis, the sector structure of the economy continued
to experience a shift towards an increase in services in 2010, and industrial
production improved slightly. Services accounted for 67.7% of gross value
added, industry and construction for 27% and agriculture for 8.6%. The
traditionally high share of public administration, education and health
declined slightly to 22.8%. The
large informal sector, which is fuelled by weaknesses in tax and expenditure
policies and in law enforcement, including the fight against corruption, is an
important challenge. Overall, there have been no major changes in the
structure of the economy. The
informal sector remains an important challenge.

State influence on
competitiveness

Direct budget subsidies to industry and agriculture
remained at 1.7% of GDP in 2010. Indirect subsidies continue to be sizeable. In
Republika Srpska, for example, the government approved a loan to Banja Luka
airport in March 2011. Bosnia and Herzegovina has not established a State aid
authority as required by Article 36 of the Interim Agreement, an obligation due
for more than a year. Overall, State influence over competitiveness
remains high.

Economic integration
with the EU

Bosnia and Herzegovina remains an open economy. Total trade
(the sum of the volume of exports and imports) increased to 85.5% of GDP in
2010, after a drop to 75.3% in 2009. The EU continues to be the country's
largest trading partner, with shares of 56.5% of total exports and 45.6% of
total imports in the first seven months of 2011 (goods only). While the share
of exports to the EU has increased slightly, the share of imports has decreased
slightly. The other main trading partners remain the countries of the CEFTA
region, accounting for 33.2% of exports and 24.9% of imports. In 2010, the real
effective exchange rate based on the country's 20 largest trading partners
appreciated by 1%. Overall, the level of trade integration with the EU
remained high.

4. 
European standards

This section examines
Bosnia and Herzegovina's capacity gradually to approximate its legislation and
policies with the acquis in the areas of the internal market, sectoral
policies and justice, freedom and security, in line with the Interim Agreement
(IA) / Stabilisation and Association Agreement (SAA) and the European
Partnership priorities. It also analyses Bosnia and Herzegovina's
administrative capacity. In each sector, the Commission's assessment covers
progress achieved during the reporting period, and summarises the country's
overall level of preparations.

4.1. 
Internal market
4.1.1. 
Free movement of goods

There was some progress
in the area of free movement of goods. However, a development strategy for the
quality infrastructure as a whole and a horizontal coordination mechanism are
not in place. A public-private dialogue on the market needs remains to be
established.

Some progress can be
reported in the field of standardisation. The Institute for Standardisation
of Bosnia and Herzegovina (BAS) adopted 2,695 European standards (ENs) as
national standards, bringing the total to 12,306 ENs. Altogether, there are 49
technical committees. The BAS performed the first annual check of its quality
management system. However, a comprehensive strategy and an action plan for
becoming a full member of the European Committee for
Standardisation (CEN) and the European Committee for
Electrotechnical Standardisation (CENELEC) remain pending.

There was little progress
on conformity assessment. A decision on recognition of foreign
conformity assessment documents was adopted. The system for type approval of
motor vehicles was put in place. However, the Law on technical requirements for
products and conformity assessment remains to be revised to comply with the acquis.
Conformity assessment is not being performed on either locally manufactured or
imported products before they are released onto the market. Appropriate
procedures for designation of conformity assessment bodies remain to be
established.

Some progress was made
as regards accreditation. The Institute for Accreditation of Bosnia and
Herzegovina so far accredited a total of 40 conformity assessment bodies. The
Institute's scope of work was extended to product certification and four new
technical committees were established. However, the Law on accreditation is not
fully in line with the horizontal acquis. The conditions for future
international recognition of tests, calibration results and certification
remain to be fulfilled. The role of accreditation in authorising conformity
assessment bodies at both State and Entity levels needs further consideration
and a clear policy.

There was some progress in the area of metrology.
The State-level Institute of Metrology (IMBiH) proceeded with establishing and
equipping national laboratories to realise and maintain measurement standards
for mass, temperature, length, electric current and time and frequency, as well
as hardness, humidity, heat measurements, density and viscosity, velocity of
air and gas flow and systems for measuring volume and flow of liquids other
than water. Bosnia and Herzegovina became an associate member of the General
Conference on Weights and Measures and the IMBiH became a signatory of the
Mutual Recognition Agreement of the International Committee for Weights and
Measures. The IMBiH hosted the fifth General Assembly of the European
Association of National Metrology Institutes (EURAMET). However, a development
strategy for the metrology system and the new draft Law on metrology, merging
the existing legislative framework and creating the basis for the
implementation of the acquis, remain to be adopted. The IMBiH needs
further human resources to fulfil its tasks even though it increased its staff.
Cooperation and coordination between the IMBiH and the metrology institutes of
the Entities that would help to create harmonised competence criteria for
laboratories dealing with verification remained weak.

Some progress was made on market surveillance. The
market surveillance strategy for non-food consumer products in Bosnia and
Herzegovina for 2011-2015 was adopted. The Market Surveillance Agency increased
its staff. It coordinated proactive and reactive market surveillance
activities. The Agency regularly publishes RAPEX (Rapid Alert System for Non-Food Products) notifications on its website. It participates in the PROSAFE (Product Safety Enforcement Forum of Europe)
General Assembly as a full
member. However, the market surveillance system remains largely
based on mandatory standards and pre-market control. Framework legislation is
not based on the horizontal acquis for harmonised products. The
framework for non-harmonised products requires further improvement, as does
coordination between the relevant authorities. Further efforts need to be made
regarding institutional capacity to ensure efficient market surveillance.

Little progress was
made as regards the 'New and Global Approach' acquis. The Directives on
non-automatic weighing instruments and pressure equipment were transposed.
However, line ministries and institutions in charge of transposing and
implementing directives do not have sufficient capacity to perform these tasks.
A proper mechanism is needed for internal consultation before adopting new technical
regulations that would have an impact on trade.

Little progress was
made as regards the 'Old Approach' acquis. The State-level Agency for
Medicines and Medical Devices adopted a policy on medicines and medical devices
and a rulebook on the examinations for pharmaceutical inspectors. The
Federation adopted bylaws implementing the Law on pharmaceutical activity.
Generally, the national system for authorisation, distribution and use of
veterinary medicinal products offers guarantees equivalent to EU rules.
However, further efforts remain to be undertaken regarding the labelling of
such products, resulting residue problems and the streamlining of the
institutional responsibilities. The capacity of the Agency for Medicines and
Medical Devices remains to be strengthened. The division of responsibilities
for transposing the 'old approach' acquis remains to be further
clarified.

There was progress in the area of consumer protection.
The 2011 State-level annual
consumer protection programme as well as the report on the execution of the
2010 State-level annual consumer protection programme was adopted. The
technical capacity of the relevant State-level and Entity institutions and
their information activities to the public increased. Relations between the
government and non governmental organisations improved. The Ombudsman's Office for Consumer Protection
was sufficiently strengthened to fulfil the duties laid down by the Consumer
Protection Law. The efficiency and output of the Office increased. In 2010 the
Ombudsman handled 317 cases, of which 295 were resolved. The Ombudsman
delivered 35 expert opinions, provided 880 items of legal advice and answered
1,515 requests for information. The Ombudsman issued recommendations and guidelines in the Telecommunications sector,
a special report in the sector of consumer
credits after the adoption of guidelines, as well as recommendations to consumers in the area of ​​food safety.

Overall, preparations
in the fields of standardisation, accreditation, conformity assessment, metrology,
market surveillance and consumer protection are moderately advanced. Further
efforts are needed to adopt a legislative framework harmonised with the
horizontal acquis and to continue transposing the product-specific acquis.
Strengthening the institutional capacity and creating structures for
coordination between the relevant institutions are essential. Prioritisation of
legal alignment and related capacity-building remains to be done in accordance
with market needs. Major steps need to be taken to achieve a fully functioning
single economic area.

4.1.2. 
Movement of persons,
services and right of establishment

No progress can be
reported on movement of persons. Different labour legislations and
social security systems between the Entities and also between Cantons continue
to be an obstacle to the movement of workers within the country. Alignment with
European standards remains at an early stage.

Little progress was
made in the area of coordination of social security systems between the
Entities and between the Cantons. An agreement amending the social insurance
agreement between Bosnia and Herzegovina and the Republic of Slovenia was
signed. However, an agreement between Bosnia and Herzegovina and the Republic
of Slovenia regarding the employment of citizens of Bosnia and Herzegovina in
the Republic of Slovenia, a step towards coordinated systems, remains to be
ratified.

As regards freedom
to provide services, no progress was achieved in the preparations for
transposing the Services Directive.

Some progress can be
reported in the area of financial services. Republika Srpska amended the
Law on the Banking Agency to expand the regulatory/supervisory functions of the
Agency and established an Ombudsman for financial services. Both Entities
adopted implementing legislation governing credit, operational and market risks
and new charts of accounts for financial institutions. The Entities' banking
supervisory agencies extended the temporary measures on loan repayments for
another year.Recommendations on
banking laws and regulations issued by the Basel Banking Supervision Committee (Basel II) remain to be implemented in both
Entities. Coordination of banking supervision improved. Joint supervision teams
conducted inspections of branches. The Financial Coordination Unit was
established within the Ministry of Finance and the Treasury of Bosnia and
Herzegovina and staff was appointed to it (See Section 3.1 - The existence
of a functioning market economy).

However, the
legislation on the Banking Ombudsman is not harmonised. The Federation did not
adopt amendments to the Law on the Banking Agency, the Law on banks and the Law
on micro-credit organisations to align them with the Law on prevention of money
laundering. As Republika Srpska is implementing the new chart of accounts but
the Federation is not, reporting is not harmonised between the Entities.
Further improvements are required in coordination and cooperation between the
Entity Ministries of Finance and Banking Agencies. Memoranda of understanding
with supervisors of foreign banks present in the country remain to be signed.
Further alignment with the acquis is required.

Little progress was
made towards creating a single economic space for insurance services.
Republika Srpska adopted implementing legislation regarding intermediation in
insurance and insurance companies. The number of requests for mediation
increased in Republika Srpska. On-site inspections proceeded smoothly. Out of
fourteen insurance companies registered in the Federation, nine have branch
offices in Republika Srpska. Five out of the eleven insurance companies from
Republika Srpska have branch offices in the Federation.

However, the
legislation remains partially harmonised with the acquis. Parts of the
Solvency II Directive and the motor insurance acquis remain to be
transposed. The legal gap between the Entities is widening because legislative
amendments are at different stages. The Law on the Insurance Agency of Bosnia
and Herzegovina remains to be amended to reinforce the Agency's regulatory
powers. The Federation's Insurance Ombudsman's Office remains to be
established. State-level capacity to conduct arbitration in case of litigation
between the Entities' Insurance Agencies remains to be established. There is no
effective mechanism for enforcement of decisions of the State-level Insurance
Agency. Memoranda of understanding with foreign supervisory authorities remain
to be signed. The licence of one company in the Federation was revoked. An
insurance company registered in one Entity can operate in the other only if it
establishes a branch there. The branch office reports to the supervisory
authority of the host Entity, which is not in line with EU requirements. The
insurance supervisor from the home Entity has no powers to perform inspections
on the branches.

There was some progress
in the area of capital markets. The legislative framework in the
Entities is partly in line with the acquis and to some extent harmonised
between the Entities. A State-level working group was established to review
existing legislation on market transparency, market abuse and prospectuses and
to identify areas that require further alignment with the acquis.
Republika Srpska further streamlined procedures and conditions for securities
issues with the Company Law and specified conditions for emission of bonds
issued by the Republika Srpska government. The Republika Srpska Securities
Commission signed the International
Organization of Securities Commissions
(IOSCO) Multilateral Memorandum of
Understanding.

However, amendments to relevant legislation remain to be
adopted in both Entities. Brcko District did not adopt a Law on the securities
market. Regulatory authority and oversight remain fragmented. Participants in
the securities market with their head office in one Entity can operate in the
other Entity only after obtaining a license there.

Uneven progress can be reported in the field of postal
services. The Agency for Postal Traffic adopted general conditions for the
provision of postal services. However, a postal strategy at State and
Federation levels does not exist. The State-level Law on postal services
remains to be revised to ensure further harmonisation with the acquis.
The administrative capacity at the State-level Ministry of Transport and
Communications regarding postal services remained weak. The Federation Law on
postal traffic was not adopted. Entity postal legislation remains to be
harmonised to ensure legal clarity for potential market entrants who at the
moment often need to comply with different sets of rules. The universal service
obligation is set above the minimum requirement of the postal acquis
and, in Republika Srpska, also above the threshold set in the current
State-level law. The situation is the same as regards the scope of the reserved
area, which is broad in comparison to the postal acquis.

No progress was made on
the right of establishment. Internal harmonisation of legislation is
pending. A single economic space regarding registration of foreigners to
conduct business throughout the entire country does not exist, which continues
to hamper business activity. The reciprocity principle is not fully applied for
natural persons acquiring ownership. Bosnia and Herzegovina made no progress
towards recognition of EU professional qualifications.

Limited progress was made in the area of company law.
The Entities' Laws on business companies are partly in line with the acquis
and to some extent harmonised with each other. The legislation on corporate
accounting and auditing is broadly in line with the acquis and
almost fully harmonised between the Entities. Coordination between the Entities
in their legislative work improved. Some business registration procedures were
harmonised. The Federation established a Chamber of Auditors to undertake
quality assurance reviews of audits; its 2011 work and financing plans were
adopted and members to its quality assurance review committee appointed.

In Republika Srpska, the Federation of Certified Auditors
and Accountants conducts quality assurance reviews and the Ministry of Finance
performs the independent oversight of audits in line with the adopted annual
work programme. The Entities apply International Financial Reporting Standards
(IFRS) to all companies irrespective of their size. Since January, in Republika
Srpska IFRS for small and medium-sized enterprises may be used on a voluntary
basis by commercial companies with public responsibility which are still
required to apply IFRS.

However, further
alignment with the EU acquis is needed on cross-border mergers for
Republika Srpska and on take-over bids for Republika Srpska and the Federation.
A Law on takeovers of joint stock companies remains to be adopted in Brcko
District. There is no system for sharing data between different institutions
keeping registers containing company-related information and data. The systems
for quality control and independent oversight of auditors remain to become
fully operational. An independent Public Oversight Board remains to be set up
in the Federation.

Overall, preparations in the area of movement of
persons, services and right of establishment remain at an early stage. Some
progress was made on simplifying the business environment and ensuring a
harmonised framework across the country in the area of company law, corporate
accounting and auditing. Alignment of the legislative framework for financial
services remains to be completed. Enforcement and supervision mechanisms need
strengthening. Further steps remain to be taken to establish the legal
framework for providing universal postal services across the whole country.

4.1.3. 
Free movement of capital

No progress can be
reported in the free movement of capital.

Republika Srpska
adopted amendments to the
Law on foreign investments aligning its legislative framework with the
State-level law, further liberalizing investments in the field of military
industry, shortening deadlines and reducing administrative procedures, thereby simplifying
the procedure of foreign investment registration. Bosnia and Herzegovina continues to
apply relatively liberal rules on inward capital flows. However, restrictions
remain on outward transfers by residents. Residents may hold accounts abroad
only for specific purposes and the amounts that may be transferred are
restricted. The legal framework is not harmonised. In both Entities the
legislation limits the amount that non-residents may freely transfer. When it
comes to attracting foreign investment, throughout the country, coordination
for designing and implementing legal reform in this area is lacking. Capital
markets in Bosnia and Herzegovina are not fully functional.

Foreign investment in
the banking sector reached 85%. Overall, foreign direct investment further
decreased in 2010. Restrictions on foreign direct investment continue to apply
in the media sector, where a 49% limit on foreign capital exists. Privatisation
of State enterprises came to a standstill.

Within the Central
Bank, Bosnia and Herzegovina has a modern payment system for giro
clearing and real-time gross settlement operations. In 2010 giro clearing and
real-time gross settlement operations accounted for 31% of the number of
transactions and 36% of the value of internal traffic in the country. Within
the commercial bank system they made up 69% of the number of transactions and
64% of the value of transactions between clients with accounts in the same
bank.

Overall, preparations in the area of free movement of
capital remain moderately advanced. Further measures are required to align the
legal framework with the acquis and to ensure country-wide harmonisation
and the creation of single economic space.

4.1.4. 
Customs and taxation

Good, but uneven
progress was made in the customs field. The customs tariff was fully
harmonised with the 2011 EU Combined Nomenclature. Rules of origin are used in
accordance with the Interim Agreement. Operational instructions on use of the
ATA carnet (international customs document) were prepared and the Indirect
Taxation Authority (ITA) staff trained. Operational instructions for vehicles
subject to the approval procedure were issued and implementation started.
However, the Customs Law needs to be in line with the EU Customs Code and the
legislation on free zones and intellectual property rights with the acquis.
The number of traders applying for simplified procedures
remained relatively small. Further efforts are needed to facilitate trade.
Customs controls are too frequent and not targeted well due to the lack of a
fully developed risk analysis system. Enforcement of intellectual property
rights (IPR) remains weak.

Little progress can be
reported in the case of taxation. An agreement on avoidance of double
taxation related to income and property tax with Austria was ratified.
Republika Srpska introduced the system of fiscal cash registers. However, the
Federation postponed implementation of this system and Brcko District did not
introduce it. Although a tax rate of 10% is being applied in all Entities, the
personal income tax systems are not harmonised between the Entities. Different
procedures persist, leading to a complex tax environment, which makes the
country less attractive for foreign investors. Rules and procedures on direct
taxation remain to be harmonised. A permanent formula for allocation of
indirect tax revenue between the State, the Entities and Brcko District remains
to be agreed. Further alignment with the VAT acquis and the EU excise
legislation is needed. In the area of business taxation, some measures do not
comply with the EU Code of Conduct (e.g. legislation on free zones).

As regards administrative
and operational capacity, little progress was made. The ITA prepared a
Business Change Management Plan. However, its organisational structure needs to
be further strengthened, including appointment of a permanent top management
and establishment of a strategy unit. The ITA is operating without a business
strategy and associated IT, human resources and comprehensive training
strategies. Its IT systems, in
particular regarding customs, remained weak. The role of the Internal Audit Unit needs to be enhanced.
Advanced training on intelligence techniques for tax staff, risk analysis, IPR
enforcement, customs laboratories and internal audit remains to be delivered.
Cooperation and coordination within the ITA and with other authorities remains
weak. The ITA is not sharing sufficient data with the Agency for Statistics of
Bosnia and Herzegovina, which hampers the production of reliable statistics (See
Section 4.2.8 – Statistics). The functions performed by customs
laboratories remain limited.

Overall, preparations in the area of customs and
taxation are limited. Positive developments include the use of the ATA carnet,
introduction of a customs-related approval procedure and the improved knowledge
and use of rules of origin. Substantial efforts are required to align
legislation more closely with the acquis and ensure effective
implementation of legislation and the Interim Agreement. Strategies remain
outstanding. The Law on customs enforcement of IPR remains to be agreed. The
free zones arrangements remain to be aligned with the acquis. The use of
an intelligence system for the tax authorities remains to be enhanced. The ITA's
administrative capacity needs strengthening and a permanent director remains to
be appointed. Closer cooperation is essential, particularly between the ITA and
the Agency for Statistics of Bosnia and Herzegovina. IT systems are
not fully in line with EU requirements.

4.1.5. 
Competition

Some progress was
recorded in the area of antitrust. The Competition Law is mostly in line
with the EU acquis, but needs further alignment. The Competition Council's
(CC) activities focussed on mergers and abuses of dominant market positions.
The CC adopted five antitrust decisions and thirteen merger decisions. The CC
imposed fines totalling approximately € 40,000 on companies that had infringed the
competition rules. Seven mergers were prohibited, five authorised subject to
remedies and six were authorised unconditionally. However, the CC's
administrative capacity with a total of 26 staff appears insufficient to carry
out the tasks assigned to it. CC staff needs further training to increase the
authority's investigative capacity.

Republika Srpska adopted the Law on amendments to the Law on
public enterprises. However, Bosnia
and Herzegovina did not fulfil its commitment under the Interim Agreement, to
apply, by 1 July 2011, Community principles to public undertakings and
undertakings to which special and exclusive rights were granted.

Little progress was
made in the field of State aid. The Council of Ministers adopted a draft
State Aid Law. However, it remains to be adopted by the Parliament. A
State-level operationally independent authority for the control of State aid,
in line with the Interim Agreement, remains to be established. Transparency of
all State aid granted in Bosnia and Herzegovina is not ensured.

Overall, preparations in the area of competition remain
at an early stage. Bosnia and Herzegovina needs to intensify its efforts to
adopt State aid legislation in line with the acquis to comply with the
Interim Agreement and to set up the institutional framework necessary
for effective control of State aid. The country's commitment under the Interim
Agreement with regard to public undertakings remains to be fulfilled.

4.1.6. 
Public procurement

No
progress was made in the area of public procurement. Guidelines on
electronic public procurement were adopted and the technical preparations for
electronic publication of tender notices on the Public Procurement Agency (PPA)
website were completed. The PPA and the Public Procurement Review Body (PRB)
retained their staffing levels. However, implementation of the strategy for
development of the public procurement system for 2010-2015 is delayed. The 2004
and 2007 public procurement acquis remains to be transposed. Provisions
concerning public-private partnerships and services and works concessions at
all levels guarantee neither competitive and transparent procedures nor an
independent review of the procedure in line with the acquis. The
legislation and the system of awarding concessions remain fragmented. The
administrative set-up for regulating and managing concessions is very complex.
Issues such as overlapping powers, high administrative costs and lack of formal
cooperation between the levels of authority require attention.

Neither
the PPA nor the PRB are sufficiently proactive in disseminating information on
the public procurement system and providing contracting authorities and
economic operators with practical assistance. Cooperation between the PPA and
the PRB is not functioning efficiently. The PRB is not implementing all its
rules of procedure, which resulted in a prolonged conflict within the PRB. In
several instances the PRB issued contradictory rulings in similar situations.
Although between December 2010 and March 2011, the PRB implemented the legal
requirement to publish its decisions, this stopped since. Monitoring of public
procurement procedures across the country requires further strengthening, along
with the capacity of contracting authorities to apply the law. The professional
ability of procurement officers to implement public procurement procedures
properly is unsatisfactory. The cost of publishing contract notices in the
Official Gazette remains disproportionately high for contracting authorities.

Overall,
preparations in the field of public procurement remain at an early stage. A new
Public Procurement Law fully incorporating the acquis remains to be
adopted. Coordination and cooperation mechanisms between the relevant
institutions require significant improvement, as do the operations of the PRB.

4.1.7. 
Intellectual property law

Progress was made in intellectual property rights.
State-level laws governing industrial property and copyright and related rights
entered into force and implementing regulations were adopted. Three Councils
were established as advisory and coordination bodies of the Institute for
Intellectual Property and began to implement their work programmes. Training of
these Council members was initiated. Further measures were taken to improve the
functioning of the Institute for Intellectual Property and to disseminate
information about intellectual property. The institute expanded its premises and increased its staff from 48 to
50. However, another 22 posts remain to be filled.

Some progress can be
reported in the area of industrial property rights. The Institute for
Intellectual Property received 49 patent applications and processed 270,
including some from previous years. When it comes to trademarks, the Institute
received 716 applications and processed 1.345, including ones from previous
years. The Institute received 22 industrial design applications and issued 10
decisions granting industrial designs. One application for protection of
geographical indications was received and a decision regarding registration
issued. The Board of Appeal of the Institute received 12 new applications and
completed 27 appeal proceedings out of a total of 90 applications.

The Indirect Taxation Authority referred two files to the
Prosecutor's Office and seized counterfeit goods. The Bosnia and Herzegovina Court
ruled for the first time on a case of copyright violation. However, high levels
of counterfeiting and piracy persist in the country. A reliable system for
collecting, analysing and exchanging data among the various institutions
involved is lacking. Enforcement remains to be improved; an enforcement
strategy involving all relevant stakeholders does not exist. Coordination
between enforcement bodies at various levels is lacking.

Overall,
preparations in the area of intellectual, industrial and commercial property
rights are well advanced. Further efforts are required to improve enforcement
and coordination between all stakeholders.

4.1.8. 
Employment and social
policies, public health policy

There was little
progress on employment policy. Republika
Srpska adopted its Employment
Strategy for 2011-2015. The Entities finalised plans for implementing the
Bosnia and Herzegovina Employment Strategy and action plans to implement
strategic documents. However, no employment strategies exist in Brcko District.
A new Law on mediation in employment and entitlements during unemployment
remains to be adopted in the Federation.

There was no
improvement regarding the labour market situation. The high
unemployment level further increased and hardly any jobs were created. According to administrative data, in June the
unemployment rate was 43.1%, an increase of 0.6 percentage points compared to a
year earlier. A cooperation agreement between the State-level Labour and
Employment Agency and the State-level Agency for Statistics was signed to
improve cooperation in the field of labour market statistics. All
Entities are implementing programmes for young graduates to facilitate their
entry into the labour market. The Federation committed itself to financing and
implementing the Social Safety Nets and Employment Support Project from 2010 to
2014. The Federation adopted a new plan on inspection of the informal labour market for all
Cantons. A more
integrated approach to employment, encompassing all relevant sectoral policies
would be needed to address the country's considerable labour market
challenges. Entity governments continue to lack the capacity to implement
appropriate active labour market measures. The large number of labour and
employment institutions at State, Entity and Canton levels and the lack of
coordination between them remains a cause for concern. Considerable efforts
remain to be made to develop reliable labour market data, a prerequisite for
developing labour market policy (See Section 3.1 – Macroeconomic stability).

Modest steps were taken
to improve the functioning of employment services. The rulebook on internal
organisation of the State-level Labour and Employment Agency was adopted. Based on the Republika Srpska Law on mediation in employment and rights of
unemployed persons, the Republika
Srpska Employment Bureau was established as a public institution. This is a
first step towards the reform of the employment service. Several rulebooks were
adopted on mediation in employment and active job-seeking. However, unified standards and methods for data
collection are lacking. Employment services are focusing on activities related
to unemployment benefits rather than on mediation and services for job-seekers.
There was no improvement in coordination between the education and labour
market sectors to develop an education and training system that will meet the
needs of the labour market.

There was no progress
in social policies. Existing labour laws in the Entities
remain to be aligned with the acquis.

No progress can be reported
regarding health and safety at work. In the Federation no Law on health
and safety at work is in place. Labour inspectorates remained understaffed and
unable to monitor compliance with health and safety at work standards. Reliable
data on accidents at work are not available. This is a particular problem in
the Federation, where records are held at Canton level.

No progress can be
reported in the social dialogue. The Federation adopted legislation establishing
the Agency for Peaceful Resolution
of Collective Labour Disputes. However, the State-level Law on social partners'
representativeness remains to be adopted. No agreement was reached on the
membership criteria for a State-level Economic and Social Council. The legal
framework is not in place and the rules for recognition and registration of
social partners need to be clarified. Social dialogue remains hampered by the
complex system of government and the fragmentation of legislation.

Little progress can be reported in the area of social
inclusion, including anti-discrimination. Both Entities and the
Brcko District adopted programmes to promote employment and self-employment of
Roma. Brcko District adopted a
decision establishing a Social Inclusion Council to provide assistance to
socially excluded persons. However, the
social inclusion strategies of Republika Srpska and at State-level remain to be
adopted. Implementation of the Republika Srpska Law on professional
rehabilitation, training and employment remains low considering the number of employed
persons with disabilities. No steps were taken to remedy the shortcomings of
the Anti-Discrimination Law, notably the absence of age- and disability-related
provisions and the broad scope of the exceptions. Implementation of the law
needs to improve. Implementation of the UN Convention on the rights of persons
with disabilities was weak (See Political criteria 2.2 - Human Rights and
the Protection of Minorities).

Little progress was made in the area of social
protection. Republika Srpska adopted a pension reform strategy. However,
Republika Srpska's new Pension System Law remains to be adopted. There was no
progress towards pension system reform in the Federation. The pension system
remained fragmented. Implementation of framework legislation to reform social
protection systems towards a needs-based approach did not advance. The legal
framework does not provide the most vulnerable categories with adequate
assistance (See Political criteria 2.2 - Human Rights and the Protection of
Minorities). The discrepancies in social assistance, services and
entitlements across the country add to the widespread inequity. No steps were
taken to end the disparities between Entity social protection systems and
between Cantonal systems within the Federation.

Good but uneven progress
can be reported in public health policy. The Council of Ministers
adopted a revised roadmap for EU integration for the health sector. The
Federation adopted a strategy on sexual and reproductive health. The Federation
and Republika Srpska adopted legislation implementing the laws on healthcare
and organ transplantation. The Federation adopted amendments to the Law on
health insurance harmonised with the provisions of the Law on the unified
system and registration control and collection of contributions. It amended the
Law on limited use of tobacco products in line with provisions of Framework
Convention of the WHO on Tobacco Control. It adopted amendments to the Law on
the improvement of quality, safety and accreditation in health care. The
Federation adopted bylaws implementing the Law on blood and blood components.
Republika Srpska adopted a rulebook on infectious diseases. The conference of
health ministers met regularly. The institutional capacity to produce reliable
statistical data on health improved and a common set of reporting indicators
harmonised with European standards was developed.

However, the Entities
made no progress with implementing their healthcare reform strategies.
Harmonisation and coordination of reform activities between Entities need to be
improved. The revised EU roadmap is not facilitating the alignment process. It
outlines a list of obligations without specifying the action, deadlines and
responsibility for implementation. The institutional and legislative framework
remains fragmented. No steps were taken to address the problems of inadequate
coverage of health insurance and non-transferability of health funds.
Implementation of international health regulations is slow. There was no
progress regarding mechanisms for reporting and exchanging information on
communicable diseases. An action plan for meeting core capacity requirements in
the event of outbreaks of diseases remains to be adopted.

Progress can be
reported in the area of mental health. The Federation amended the Law on
protection of persons with mental disorders improving the protection of human
rights and dignity of persons with mental disorders as well as the legal
protection of legally incapacitated adults. The Regional Health Development
Centre for Mental Health in South-Eastern Europe in Sarajevo became operational. However,
further actions remain to be taken
towards promoting inclusion of people with mental health problems and their
empowerment. Community based mental health services of high quality that are
focused on recovery need further support.

Overall, preparations in the areas of employment,
social policy and public health are at an early stage. Further efforts need to
be made on anti-discrimination and social protection. Legislative approximation
remains to be intensified and social inclusion strategies to be adopted.

4.1.9. 
Education and research

Little progress can be reported in the field of education.

The Council of Ministers adopted the concept of the
Qualifications Framework (Baseline Qualifications Framework), which defines
qualifications levels based on learning outcomes for all qualifications in
Bosnia and Herzegovina and establishes the basis for further work. Eight out of
ten Cantons harmonised their laws on pre-school education with the framework legislation.
Sarajevo Canton introduced mandatory pre-school education.

However, pre-school attendance across the whole country
remained very low. Ethnic-based separation in public schools remains an issue
of serious concern (See Political criteria 2.2 - Human Rights and the
Protection of Minorities).

No progress can be reported in the Federation on
harmonisation of the laws on vocational education and training with the
Framework Law as eight Cantons did not pass new legislation. State-level
strategies and framework laws remain to be implemented. There are no Framework
laws on recognition of qualifications in line with the Lisbon Recognition
Convention and adult education. There are no harmonised procedures in place to
recognise qualifications obtained abroad. Implementation of the higher
education qualifications framework remained at a pilot level. Two Cantons did
not harmonise their laws with the Framework Law on higher education.

The State-level Agency for Development of Higher Education
drafted guidelines and standards to accredit higher education institutions and
trained experts. Republika Srpska established the Agency for Accreditation in
Higher Education in line with the Framework Law on higher education. However,
the accreditation process did not start as mandated by the Framework Law on
Higher Education. Despite a staff increase, the State-level Agency for
Pre-school, Primary and Secondary Education is not fully operational. The
State-level Centre for Information and Recognition of Documents in the Field of
Higher Education is not operational. The Republika Srpska Institute for Adult
Education is not fully operational. There is no similar structure in the
Federation.

There was some progress
in the area of culture. Bosnia and Herzegovina started to participate in
the Culture Programme. Focal points were established at State and Entity
levels. Mapping of the cultural sector and development of statistical
indicators in line with EUROSTAT methodology were completed with the support
from the UN Millennium Development
Goals Culture for Development
Programme. Communication with relevant international agencies intensified. In
cooperation with UNESCO and UN MDG the capacity of the State Commission for
cooperation with UNESCO within the Ministry of Civil Affairs was strengthened.
Republika Srpska established a cultural council as an advisory body to the
Ministry of Education and Culture
to follow up the implementation of the Republika Srpska Development
Strategy for culture. However, the
Bosnia and Herzegovina action plan for culture remains to be adopted.

Some progress was made
in the area of research and innovation policy. Participation in the
Seventh EU Research Framework Programme (FP7) slightly increased. Cooperation
with COST and EUREKA started. The Ministry of Civil Affairs provided financial
assistance for Entities preparing projects for FP7, COST and EUREKA. However,
the administrative and research capacity to fully take advantage of association
to FP7 and the means to actively stimulate the scientific community remained
weak. Participation and success rate in Marie Curie actions is weak as well as
the involvement of the private sector.

Some efforts were made to integrate into the European
Research Area (ERA) and contribute to the Innovation Union (IU). The country
joined the EURAXESS network aiming at mobility of researchers; the bridgehead
organisation coordinating the national
EURAXESS network was established at
the University Banja Luka. The funding slightly increased mainly for
researchers, modernization of infrastructure and equipment and publications
notably by joining the COBISS library-information system. Republika Srpska and
other Entities increased investment in research and development. However,
overall, investment in research remained low, in particular by the private
sector. As Entities and Cantons fund their policies through their budgets, it
is difficult to streamline research policies and avoid fragmentation, one of
the key ERA objectives. Accurate statistics on science and technology are
missing.

Overall,
alignment with European standards in the areas of education and culture is at
an early stage. Strategies and framework laws need to be implemented and the
Baseline Qualifications Framework to be further developed and implemented.
State-level agencies for education and quality assurance structures need to be
made operational. The country's participation in the Culture Programme
contributes to the implementation of the EU acquis. In the area of
research and innovation, preparations for future integration into the ERA and
the Innovation Union started but serious efforts remain to be made and close
monitoring is required.

4.1.10. WTO issues

Progress was made in
the negotiations for accession to the World Trade Organisation (WTO). The WTO
working party met for the eighth time. Bosnia and Herzegovina proceeded with
its bilateral negotiations on market access for goods and services (bilateral
agreements in the area of services were concluded with Canada, Norway and
Switzerland) and with multilateral negotiations on domestic support for
agriculture and export subsidies.

4.2. 
Sectoral policies
4.2.1. 
Industry and SMEs

Little progress was
made in the area of industry and SMEs.

There was little
progress in industrial policy. The Entities implemented industrial
policies based on action plans. Republika Srpska introduced measures to
stimulate exports and maintain employment levels in sectors affected by the
economic crisis. However, the country development strategy including industrial
policy elements remains to be adopted. The absence of harmonised statistics
does not allow for the creation of an effective strategic framework for
industrial policy planning.

Little progress can be
reported on SMEs. With the appointment of its members, the council for
development and promotion of entrepreneurship became operational as an advisory
body to the Council of Ministers. The Republika Srpska SME council came into
operation. The Department for Entrepreneurship within the Ministry of Foreign
Trade and Economic Relations (MoFTER) was reinforced. Both Entities provided assistance to SMEs in the
form of financial support measures.
Bosnia and Herzegovina participated in the implementation of the Small Business
Act.

However, implementation of the State-level SME strategy
was weak. The State-level Law and a revised Federation Law on
promotion of SMEs and entrepreneurship remain to be adopted. Amendments to the
Law on the Foreign Investment Promotion Agency (FIPA) providing for the
establishment of an SME support unit within the FIPA remain to be adopted by
the Parliament. The nomination of the Brcko District council for development
and entrepreneurship promotion is outstanding. Preparations for setting up a
State-level business register for the production of business statistics are at
an early stage. Despite some progress made by the Federation on creating an information system, a single SME registration system for the whole
country to simplify conducting business in both Entities remains to be
established.

The export promotion
strategy, harmonised with the development strategy and the social inclusion
strategy, remains to be finalised. No funding was allocated for export support
programmes implemented by the Export Promotion Agency. The Department for
Export Promotion within the MoFTER lacks resources.

Some progress was made
in the area of tourism. Republika Srpska adopted the Strategy of Tourism Development 2010-2020
and adopted new legislation on tourism and sojourn tax.

Overall, Bosnia and Herzegovina's preparation in the
fields of industrial policy and SMEs remained at an early stage. The country
lacks a comprehensive industrial policy. A sound framework for SME policy is
being developed. Coordination between the Entities is essential to promote
economic development.

4.2.2. 
Agriculture and fisheries

Little progress was made on alignment with European
standards in the field of agriculture and rural development policy.

Legislation implementing the Framework Law on agriculture,
food and rural development was adopted. The Federation approved the extension of the Mid-term Agriculure
Development Strategy (2006-2010) for two years. However, a country-wide rural development strategy and the
Law on wine remain to be adopted. Implementation of the State-level strategic
plan and the harmonisation programme for agriculture, food and rural
development is pending. The Republika Srpska rural development strategy and
action plan and the Federation harmonisation programme for agriculture, food
and rural development remain to be harmonised with the State-level framework.
An overall lack of implementing legislation is impeding coordination of
harmonised strategies and legislation in this area.

The Entities' Ministries of Agriculture hired new staff.
However, administrative capacity and coordination structures at State-level
remain to be strengthened. There was no staff increase within the Agriculture,
Food, Forestry and Rural Development Sector of the Ministry of Foreign Trade
and Economic Relations, which is responsible for coordinating agricultural
policymaking. Coordination of rural
development policy remained weak. No progress was made in preparations for the
Instrument for Pre-Accession Assistance for Rural Development (IPARD). An
agreement on the institutional structures for decentralised management is
outstanding. Although the Director of the Office for Payment Harmonisation was
nominated, the Office is not yet operational. Inter-sectoral coordination and
participation by the non-governmental sector remained weak.

The amended Law on financial support to agriculture and
rural development of the Federation defines the types of incentives between
Cantons and the Federation. However, due to the absence of
a rural development strategy, product subsidies feature more prominently in the financial support structure than
rural development measures. There is no clear policy for providing subsidies,
which are product-based and not aligned with the EU agricultural policy type of
measures. The budget for
agriculture and rural development in the Entities remained low. The lack of an
efficient administration and effective rural credit schemes impedes the
competitiveness of farmers and the agri-processing industry throughout the
country.

Pilot research on farm structures took place. However, the
Agricultural Information Strategy and the Law on the agricultural census remain
to be adopted. Agricultural statistics and the agricultural information system
remain to be improved. Land registration systems are not harmonised and land
management requires strengthening. The lack of reliable statistics hampers
the development of agricultural policy.

There was little
progress in the field of food safety. Implementing legislation on
certain food products, materials coming into contact with food, ionizing
radiation and quick-frozen foodstuffs was adopted. However, the State-level
legislation was transposed with differing provisions at Entity and Brcko
District levels. The national food laboratory plan remains to be drawn up.
Reference laboratories have yet to be designated. Responsibilities in the field
of food safety remained fragmented. There was no progress in upgrading
agri-food establishments. The capacity to implement official controls,
including laboratory capacity, remains weak.

Some progress can be
reported in the field of veterinary sector. Implementing legislation on
infectious diseases, control measures for animal diseases, trichinella,
residues of veterinary medicinal products and prohibited substances was
adopted. A Decision on by-products of animal origin was adopted. The national
residue control plan was significantly improved. Vaccination campaigns against
brucellosis and classical swine fever were conducted. However, the State-level
Veterinary Law remains to be amended to align it with the acquis and to
harmonise legislation at Entity level. The financing for implementing the
national residue control plan is not sustainable. National laboratories need
further improvements to gain accreditation and to establish quality control
systems for an effective residue control system. Coordination between the
authorising bodies to ensure controls on the distribution and use of veterinary
medicinal products on farms is limited.

There was some progress
in the phytosanitary sector. Implementing legislation on the
establishment of a phytosanitary register and plant passports, measures for
control of harmful organisms in plants, plant products and regulated facilities
and phytopharmaceuticals was adopted. The programme for monitoring the
quarantine arrangements for potatoes is being implemented. However, legislation
and inspection activities are not performed uniformly across the Entities, Brcko District
and border inspection points. Human resources at all levels are not adequate to
implement the legal provisions. The Entities use different pieces of
legislation on the approval and registration of plant protection products,
which are not harmonised with EU rules. Reference laboratories for monitoring
residues were not designated.

There was little progress in the area of genetically
modified organisms (GMO). Activities to improve the system for controlling
the use of GMOs started.

Little progress was
made on fisheries. State-level legislation transposing the acquis
remains to be drafted. In terms of quantity and value, imports of fish and
fishery products from the EU decreased. Exports of these products to the EU
increased. However, responsibilities for the fisheries sector remained
fragmented.

Overall, preparations in the fields of agriculture and
rural development, food safety, veterinary and phytosanitary policy and
fisheries remain at an early stage. No comprehensive strategy exists for
aligning with the acquis on agriculture and rural development.
State-level capacity for policymaking and coordination is weak. Development of
a functioning system to implement the food safety acquis remains a
priority to increase trade in agricultural products. Official control capacity
for the food safety, veterinary and phytosanitary fields and GMOs needs
strengthening.

4.2.3. 
Environment

Progress in the field
of environment remained limited.

There was little progress in horizontal legislation.
The parties to the Aarhus Convention approved Bosnia and Herzegovina's first
national report on implementation of the Convention. The Federation published
state of the environment reports. However, no such reports exist at
State-level, in Republika Srpska or in Brcko District.
Further efforts are required to transpose and implement the acquis
through horizontal legislation. A Framework Law on Environment remains to be
adopted. Transposition of the Strategic Environmental Assessment Directive is
at an early stage. The Environmental
Impact Assessment Directive remains
to be fully implemented. Bosnia and Herzegovina did not start implementing the
Espoo Convention on Environmental Impact Assessment in a Transboundary Context.
The poor quality of environmental data and the lack of dissemination of data to
the public and policymakers remain causes for concern. The active involvement
of civil society in the law drafting process needs to be improved.

Little progress can be reported on air quality.
Republika Srpska adopted an air protection strategy. The Federation adopted its
Integrated Environmental Protection Strategy which includes the air protection
strategy. However, the air quality monitoring systems in the Entities need
further development.

There was little progress on waste management.
Implementing legislation on management of animal by-products was adopted. The
Federation adopted a decree on packaging and packaging waste. In Republika
Srpska, a decree on the management of packing and packaging waste came into
force. However, the waste management infrastructure remains to be further
developed. Organisations for the recovery of packaging waste to implement the
extended producer responsibility do not exist in the Entities. The lack of
coordination on implementing packaging waste management systems remains a
concern. Investment in waste management is insufficient. No practical steps
were taken to establish systems for recycling and recovery of other waste
streams. Capacity to manage industrial and hazardous waste is limited.

There was little progress in transposing the acquis
on water quality. However, most of the legislation is not in place.
Implementation of water laws, monitoring and river-basin planning is not
harmonised between the Entities. Inadequate administrative capacity and lack of
ready-made projects caused considerable delays in sectoral investment. Access
to drinking water, untreated discharges of wastewater and flood management
remain key challenges.

There was some progress on nature protection. Bosnia
and Herzegovina adopted the National Biodiversity Strategy and an action plan
(2008 - 2015). Republika Srpska adopted a Law on national parks and a nature
protection strategy. However, key obligations under the Convention on
International Trade in Endangered Species of Wild Fauna and Flora were not
implemented. Alignment with the Habitats and Birds Directives remains at an
early stage.

There was limited
progress in the fields of industrial pollution control and
risk management. Bosnia and Herzegovina ratified the
Convention on the Transboundary Effects of Industrial Accidents. However, the
permit process is fragmented due to complex administrative procedures and structures. Due to
scarce information public participation in decision-making is low. The administrative capacity for inspection
activities needs to be significantly strengthened.

There was some progress
in the field of chemicals. Republika Srpska adopted implementing
legislation regarding biocidal products and the import and export of certain
hazardous chemicals and products. There was no progress in the field of noise.

Regarding climate change, there was no progress on
general policy developments despite nominating a focal point for the Working
Group on Climate Change. However, significant
awareness-raising is required at all levels. Climate change is not integrated into sectoral policies
and strategies and there is no comprehensive strategy for climate change.

No progress was made on aligning with EU climate policies
and legislation. The country needs to take practical steps to gradually take a greenhouse gas (GHG) reduction/limitation
target to be able to implement the acquis, especially the EU emission
trading scheme, and to join the EU effort-sharing.

Little progress was
made at the international level. Bosnia and Herzegovina ratified
the Beijing Amendment to the Montreal Protocol of the Vienna Convention on the
Protection of the Ozone Layer. The country associated itself with the decision taken at the 22nd
meeting of the Parties to the Montreal Protocol on the global transition away
from HCFCs and CFCs. However, further steps remain to be taken to align with EU
legislation on ozone-depleting substances and fluorinated gases. Although
associated with the Copenhagen Accord, the country has no plans to formulate
pledges for reducing its GHG emissions. The first National Communication
under the United Nations Framework Convention on Climate Change (UNFCCC) was
submitted, covering only the greenhouse gas inventory. The country did not
participate in the climate work under the Regional Environmental Network for
Accession (RENA). Convergence with the EU Monitoring Mechanism Decision remains
to be strengthened.

Administrative capacity in the environment sector remained weak. A State-level
Environmental Protection Agency remains to be established. Administrative
capacity within the Ministry of Foreign Trade and Economic Relations on
environmental and climate change issues is limited. Environmental institutions
do not have the capacity to implement and enforce legislation at Entity, Canton and local levels. Integration of environmental concerns in other
sectors remains weak. There was no progress on the administrative capacity to
address climate change, with no staff and resources allocated to climate work.
The national authority designated to implement the Kyoto Protocol's Clean
Development Mechanism is not yet in operation.

Overall, preparations in the field of environment
remain at an early stage.
Establishment of a harmonised legal framework for environmental protection, the
State Environmental Protection Agency and a functioning environmental
monitoring system remain the priorities. Improvements remain to be made to
horizontal and vertical communication and exchanges of information on
environmental and climate change issues between all authorities. Regarding climate change, considerable efforts
are required on awareness-raising, aligning with and implementing the acquis,
as well as strengthening administrative capacity.

4.2.4. 
Transport policy

Progress can be
reported on trans-European transport networks. Bosnia and Herzegovina is
implementing and monitoring the multi-annual plan for 2011-2015 of the
South-East Europe Transport Observatory. It is actively participating in
implementing the Memorandum of Understanding on the development of the
South-East Europe Core Regional Transport Network.

Work continued on
additional sections of pan-European corridor V-c. The overhaul of the track and
signalling on the Ploce-Bradina section is completed. A pre-feasibility study
on the railway link to Montenegro was completed.

Good progress can be
reported in the case of road transport. Republika Srpska adopted the Law on road traffic safety. Implementing
legislation necessary for introducing the digital tachograph system was
adopted; the equipment is in place and the system operational. Bosnia and
Herzegovina started issuing ATA carnets (See Section 4.1.4 - Customs and
taxation). Maintenance and upgrading of roads continued. However, the Law
on transport of dangerous goods remains to be adopted.

Some progress can be
reported in the area of rail transport. The Bosnia and Herzegovina
Railways Regulatory Body issued licences under its responsibility and prepared ­acquis-compliant
railway regulations. The condition of the rolling stock improved. The railways
of the Federation published their network statement. However, the railways of
Republika Srpska did not. Although the Entity-level railway companies were
transformed into vertically-integrated railway companies, both are in a
critical financial situation and infrastructure management remains to be fully
separated from railway undertaking. The acquis on public service
obligations (PSO) remains to be transposed and a PSO award authority to be set
up.

No progress was made on
maritime transport. Bosnia and Herzegovina is not a party to major International Maritime Organisation
conventions such as the International Convention for the Safety of Life at Sea
(SOLAS), including the International Ship and Port Facility Security Code, or
the International Convention for the Prevention of Pollution from Ships
(MARPOL).

Good, but uneven
progress can be reported in the area of inland waterways. Demining and
rehabilitation of the River Sava waterway started. The Presidency of
Bosnia and Herzegovina adopted an agreement between the Government of the
Republic of Serbia and the Council of Ministers of Bosnia and Herzegovina on
navigation by inland waterway, a precondition for reestablishment of the River
Sava route. However, the river information system remains to be introduced. No
progress was made in the area of combined transport.

Good progress was made on air transport. Bosnia and
Herzegovina is implementing the first phase of the European Common Aviation
Area (ECAA) Agreement. Transposition of the Single European Sky I legislation
was almost completed. The Director of the air navigation services-provider was
appointed. However, to ensure full compliance with the transposed acquis,
the Aviation Law remains to be adjusted.

Overall, Bosnia and Herzegovina is on track in the
areas of trans-European transport
networks, road, rail and air
transport as well as inland
waterways, but is lagging behind on maritime transport. Further efforts need to be made towards aligning
legislation with the acquis. Transport infrastructure strategies remain
to be prepared and upgrading of transport infrastructure to be intensified.

4.2.5. 
Energy

There was uneven progress regarding oil stocks and
security of supply. The Energy Community acquis on security of gas
and electricity supply has not been implemented. The Federation Law on oil
remains to be adopted. No official figures are available on the country's level
of oil stocks. A State-level energy development strategy remains to be adopted.
This would also address the security of supply of oil, gas and electricity. The
Entities have their own strategic planning without harmonised criteria or a
common approach to investment priorities.

No progress was made
regarding the internal energy market. The principle of a competitive and
transparent electricity market, as required by the Energy Community Treaty, is
included in the law of Brcko District. The State Electricity Regulatory
Commission became the electricity regulatory authority for Brcko-District. A
comprehensive review of the electricity legislation applicable at the various
levels of government was launched with a view to making the legislation
compliant with the acquis and enabling the country to fulfil the
requirements of the Energy Community Treaty (See Section 1.3 - Relations
between the EU and Bosnia and Herzegovina).

However, the Federation's
new Electricity Law was not adopted. Existing laws do not fully comply with the
acquis nor allow for an effective development of a competitive wholesale
market. Tendering procedures and transparency issues remain to be addressed.
The situation of the State-level transmission company (TRANSCO) did not
improve. No business or investment plans were approved. The company's management
operates in an acting capacity only. Only technical operations and minor
maintenance tasks are being carried out. There was no improvement in
communication with the independent system operator or its level of
transparency. Cross-border capacity is allocated on an ad hoc basis
rather than by open competition. The viability of TRANSCO as a country-wide
enterprise and the fragmentation of the electricity market are causes for
concern and pose an obstacle to full implementation of the Energy Community
Treaty. The 2009 amendments to the legislative framework for electricity are
not in compliance with the acquis. The independence of the
regulatory commissions is not ensured. Republika Srpska and the Federation
revised tariffs, but they remain below market prices.

No progress can be
reported in the gas sector. There is no State-level Gas Law. Entities'
provisions establish different rules for market participants, unbundling,
third-party access or market opening, and are not fully in line with the EU acquis.

There was no progress as regards energy efficiency.
The development of a State-level energy efficiency action plan to meet
obligations under the Energy Community Treaty was further delayed.

There was little progress on renewable energy. The
Entities introduced incentives (feed-in tariffs) for producers of energy that
use renewable sources. However, they are not harmonised. A strategic approach
to promote renewable energy is pending. The
complexity of the organisational structure and decision-making system hinders
effective promotion of renewable energy at State-level. More efforts are
needed to create a regulatory environment that would foster increased use of
renewable energy sources in all sectors. Bosnia and Herzegovina needs to make further efforts to improve the share of
renewable energy in the country's energy consumption and to promote the use of
biofuels in transport.

No significant progress
can be reported in the area of nuclear safety and radiation protection.
The State Regulatory Agency for Radiation and Nuclear Safety is without a
Director. A national emergency plan and a strategy for radioactive waste
management are yet to be developed, which remains a critical safety issue in
Bosnia and Herzegovina. Compliance of the regulations in force with the EU acquis
still needs to be verified.

Administrative capacity
for energy issues within the Ministry of Foreign Trade and Economic Relations
remained weak.

Overall,
preparations in the field of energy are at an early stage. Further efforts are
needed for the country to meet requirements under the Energy Community Treaty,
improve security of supply and establish a functioning transmission company and
an integrated energy market. The lack of cooperation and coordination between
the Entities hampers the development of a fully functioning energy market and
compromises improvements in security of supply. Bosnia and Herzegovina lacks a
fully functioning transmission company and is still at the early stages of
implementing the acquis on the internal gas and electricity markets.
Development of a comprehensive energy strategy, including promotion of energy
efficiency and renewable energy sources, remains essential. Further efforts are
needed on oil stocks. Transposition of the nuclear safety and radiation
protection acquis remains limited.

4.2.6. 
Information society and
media

Good, but uneven
progress can be reported in the areas of electronic communications and
information technologies. The Electronic Communications Law is largely
based on the 1998 EU regulatory framework and partly on the 2002 framework. The
continued discussions between the Entities and the State on their respective
powers are delaying further alignment of legislation with the EU regulatory
framework and weakening the position of the Communications Regulatory Agency
(CRA).

The
CRA issued a set of instructions aiming to lower barriers to market entry. The
market share of the three incumbent fixed-line operators decreased to 85% for
inbound/outbound international traffic and to 98% for national traffic. They continued
to operate as de facto monopolies in their geographical areas. In terms
of total service revenue, the market share of the three incumbent operators is
about 90%.

The
competitive situation regarding provision of fixed broadband services improved
slightly, thanks to the presence of cable and fixed wireless access (FWA)
networks. The CRA allowed mobile operators to use the GSM spectrum for the
provision of 3rd generation
mobile telecommunications (3G)/Universal Mobile Telecommunications System (UMTS)
services. However, potential price squeezes remained as regards mobile virtual
network operators (MVNOs). The framework envisaged for MVNOs remains to be put
into practice.

Local
loop unbundling is at an early stage. One additional 'local loop unbundling'
contract was signed, taking the total number of contracts between incumbents
and alternative operators to four. Implementation of competitive safeguards
progressed at a very slow pace. Six operators offer carrier selection services
and one pre-select services. Carrier pre-selection is available, but fixed
number portability is not. New licences were granted for Internet services and
network operators. The CRA amended the assigned blocks of numbers for telephone
services.

The
CRA can collect and analyse market data from operators. The draft analysis of
the market concerning wholesale voice call termination on mobile networks ('relevant
market 7') was prepared and includes suggested Significant Market Power (SMP)
obligations. Three mobile operators published their reference interconnection
offers. Initial steps were taken to rebalance tariffs, a key component for
creating a competitive market.

The level of broadband
Internet access increased, as cable broadband and FWA offered a strong
competitive alternative to Digital Subscriber Line (xDSL) services. However,
the broadband market remained underdeveloped.

The institutional and financial
independence and adequate human resources of the CRA remained a serious
concern. The administrative capacity in the State-level Ministry of Transport
and Communication is particularly weak (See Political criteria - Human
Rights and the Protection of Minorities).

On
information society services, no progress can be reported. The State-level Law
on the Agency for the Development of Information Society remains to be adopted.
The e-commerce Directive and implementing
legislation on conditional access services remain to be transposed. Implementation
of the e-signature Law was slow.

Some progress can be
reported on audiovisual policy and media. The CRA started transposing
the Audiovisual Media Services Directive (AVMSD). The draft code on audiovisual
and radio programmes and the draft code on audiovisual commercial
communications partially implement the AVMSD. Bosnia and Herzegovina ratified
the European Convention for the protection of the Audiovisual Heritage. The CRA
issued a decision on use of multiplex A (MUX A) for digital terrestrial
broadcasting. A Committee established by the Ministry of Transport and
Communication published a tender for broadcasting and transmitting equipment
for public broadcasting services. The CRA is developing entry criteria for the
existing TV stations to the commercial MUX and documents for licensing MUX
operators. The members of the expert committee of the forum on digital
television were appointed and developed an action plan for the transfer from
analogue to digital terrestrial broadcasting. The digital switchover is planned
to be finalised by end 2011.

However, the remaining
provisions of the AVMSD remain to be incorporated by additional legal
instruments. Entity laws on public broadcasting services are not in line with
the State-level law. Although members of the expert secretariat of the forum on
digital television were appointed, it is not operating. The statute of the
Public Broadcaster BHRT was amended (See Political criteria 2.2 - Human
Rights and the protection of minorities). The statutes of the public
broadcasting corporation (PBS) remain to be adopted. PBS was not registered.
The reform of the public broadcasting sector was further delayed.

Overall, preparations in the fields of the information
society and media are advancing slowly. Implementation of the legal framework
for public broadcasting is necessary for reforms in this sector. Continued challenges
to the CRA's functional independence and lack of adequate human resources
remain a serious concern.

4.2.7. 
Financial control

Bosnia and Herzegovina
made some progress in the area of financial control.

Further efforts were made to introduce public
internal financial control (PIFC). Central Harmonisation Units (CHUs) exist
at both State and Entity levels. Staffing levels at the State-level and
Republika Srpska CHUs were strengthened. The coordination board of all CHUs
provides a single platform for PIFC. However, the drafting of legislation
implementing public internal audit and legislation on financial management and
control advanced slowly. The Federation's CHU requires additional staff to
implement PIFC. The number of skilled internal auditors available throughout
the country remains small.

As
regards external audit, the four Supreme Audit Institutions (SAIs)
(State, Entities and Brcko District) continued to improve audit methods and
external audit quality. Republika Srpska introduced obligatory consideration of
negative audit reports in the Parliamentary Assembly's new rules of procedure.
However, there was no progress on
ensuring the independence of the State-level SAI from
the executive.

Overall, Bosnia and Herzegovina's preparations in the
area of financial control are progressing, albeit slowly. The lack of skilled
staff is an impediment to further development of PIFC. Financial management and
control systems need to be further developed. The issue of independence of the
State-level SAI remains to be addressed.

4.2.8. 
Statistics

Limited progress can be
reported in the area of statistics.

Little progress was
made on statistical infrastructure. The constructive cooperation between
the State-level Agency for Statistics (BHAS) and the State Electricity Regulatory
Commission resulted in an increased data coverage transmitted to Eurostat.
However, despite some progress, the cooperation between the BHAS and the Entity
institutes for statistics remained unsatisfactory. Neither the State-level
Statistics Law nor the agreement on cooperation and coordination in the area of
statistics are being implemented correctly. The Indirect Taxation Authority
does not provide the BHAS with the data required from administrative sources.
This leads to low-quality business, macroeconomic and external trade
statistics. The Law on indirect taxation remains to be amended to allow the
BHAS to use all available administrative data for statistical purposes.

Some progress was made
regarding classifications and registers. Approximation to the NACE Rev.
2 statistical classification of economic activities was finalised and the
classification is being applied. Application of the classification of products
by activity (CPA 2008) and the nomenclature of industrial products (PRODCOM)
started. The statistical business register is in operation. However, it is
incomplete due to limited access to relevant administrative data sources.

Some progress was made
in sector statistics. Dissemination of statistical data improved via the
new BHAS website, incorporating industrial production and consumer price
indices. In foreign trade statistics monthly releases are processed and
published according to NACE Rev 2. Technical preparations for the population
and household census and the pilot census advanced. However, the law on the population and household
census was not adopted and further work
cannot continue. Due to the absence of a Census Law, no pilot
census took place and implementation of the census is delayed.

Limited progress can be
reported in the area of macroeconomic statistics. The annual GDP estimates for
2010 were published. However, the Republika Srpska Institute for Statistics is
not fully implementing the multi-annual masterplan for developing national
accounts. Quarterly national accounts cannot be developed until the relevant
short-term indicators are produced and the requisite cooperation between all
parties involved is in place.

Field work for the
household budget survey started. Preparations
were completed. The labour force
survey was implemented in 2011 and preliminary data were published.
Preparations for the agricultural census continued (See Section 4.2.2 –
Agriculture and fisheries). A pilot agricultural census was conducted.

Overall, preparations in the field of statistics are
moderately advanced. Sector statistics such as national accounts, business and
agricultural statistics remain to be improved. The population and household
census will not be conducted during 2011 as originally planned. The Census Law
remains to be urgently adopted to avoid further delays. Technical preparations
for the population and household census advanced, but are on hold as there is
no legal basis to implement the census. Closer cooperation between the BHAS and
the Entity Statistical Institutes and also between the BHAS and the relevant
State-level agencies remains essential. Implementation of the BHAS development
plan will be a key factor in this.

4.3. 
Justice, freedom and
security
4.3.1. 
Visa, border management, asylum
and migration

Progress was made in
the field of visa policy and in the visa liberalisation dialogue.
Positive and negative lists remained fully harmonised with the EU visa list. In
the first half of 2011, 133 visas were issued at the border, a decrease of
8.27% compared with the same period of 2010.

Visa liberalisation for citizens of Bosnia and Herzegovina was
granted as of 15 December 2010. It applies to holders of biometric passports
travelling to the Schengen area. This decision was based on substantial
progress in the area of justice, freedom and security and fulfilment of the
specific conditions set out in the roadmap for visa liberalisation. The rules
for visa-free travel were respected by the vast majority of travellers. To
ensure the continued implementation of the commitments, a post-visa liberalisation
monitoring mechanism was established in view of the increased numbers of asylum
seekers from the region. The Commission presented its first monitoring report
to the European Parliament and the Council in June 2011.

Overall, Bosnia and Herzegovina continues to address
its priorities in the field of visa policy.

Progress was made in border
management. Most of the legislation related to the integrated border
management (IBM) is mainly based on the relevant acquis. Legislation
implementing the Law on border control was adopted. The IBM Commission
established a joint working body, made up of members of the institutions
involved in the IBM, with the task of implementing an agreement on mutual
cooperation.

The revised IBM
strategy and action plan were adopted. The IBM Commission approved an analysis of movements of
people and goods across the border crossing points. The aim of the analysis is
to be one of the indicators for determining the priority border crossing
points. A manual for the work at
border crossings is pending adoption by the institutions involved in the IBM. A
link between the Joint Risk Analysis Centre and the databases of the agencies
involved is being established.

Infrastructure at
existing border crossing points further improved, in particular surveillance
and equipment. Establishment of two new inspection posts at the border with
Croatia was agreed upon between the two countries. Out of 55 border crossing
points for international traffic, 29 are covered by video surveillance. 49 are
equipped with biometric passport readers and connected to the integrated system
of control of State border crossings (CSBC) and all organisational units of the
border police. An advanced new application for the integrated system of CSBC is
being developed and the application is being tested.

The number of joint
patrols with neighbouring countries increased, resulting in a decrease in
illegal border crossings. Illegal crossings of the border with Montenegro were
identified. The manual for joint border patrols between Bosnia and Herzegovina
and Serbia is being implemented. However, the agreement on border demarcation
with Montenegro remains to be finalised.

Bosnia and Herzegovina
and the Republic of Croatia started the process of revising bilateral
agreements related to border crossing points between the two countries.
Implementation of the working arrangement with Frontex is well on track and
Bosnia and Herzegovina is participating in the Western Balkans risk analysis
network.

There was limited
progress on management and maintenance of Border Crossing Points (BCPs).
Amendments to the internal rulebook of the Indirect Taxation Authority (ITA),
which are necessary to increase the number of posts for management and
maintenance of BCPs, remain to be adopted by the ITA governing board.

Overall, Bosnia and Herzegovina's preparations in the
area of border management advanced. Efforts need to focus on improving border
crossing management and maintenance.

There was some progress
in the area of asylum. Bosnia and Herzegovina is implementing the 2008
Law on movements and stays of aliens and asylum and the asylum and migration
action plan. The asylum sector in the Ministry of Security is almost fully
staffed and relevant training was provided. The asylum module of the migration
information system (MIS) is being fully utilised. The Ministry for Human Rights
and Refugees was connected to the MIS and application of the system is being
expanded. The temporary asylum centre in Rakovica has 13 staff and houses 27
asylum-seekers. Work on a permanent asylum centre in Trnovo continued to
progress. However, a new migration and asylum strategy and the related action
plan remain to be finalised.

The number of asylum
applications in 2010 decreased to 31 (38 people) in comparison with 32
applications (71 people) in 2009. In 2010, the State-level Ministry of Security
rejected 152 asylum applications. In the first eight months of 2011 24 new
asylum-seekers were registered.

All asylum-seekers from
Kosovo, whose temporary protection status expired in 2007, received
first-instance decisions from the asylum sector. In 2011, only eight families
were still involved in appeal Court proceedings. Rejected asylum-seekers were
resettled or voluntarily repatriated. 409 irregular migrants were registered
for the Assisted Voluntary Return Programme during 2010 and 107 during the
first six months of 2011.

Overall, the asylum and international protection system
in Bosnia and Herzegovina is well on track. Additional human and financial
resources need to be allocated to guarantee the full efficiency of the system.

Good progress was
achieved on migration. The centre for temporary detention of irregular immigrants is in
operation. It is financed and managed by the State-level Ministry of Security
and the Service for Foreigners' Affairs (SFA). The centre employs 53
professional staff and has 120 beds. In 2010, a total of 312 foreign nationals
were accommodated. 493 foreign nationals were relocated outside Bosnia and
Herzegovina. 474 of them returned voluntarily to their home countries, the
other 19 were forcefully repatriated. During the first six months of 2011, 88
third-country nationals were accommodated, of whom 70 were repatriated. 41 of
these were repatriated through Assisted Voluntary Return programme while 29
returned to other countries.

Implementation of the
readmission between the European Union and Bosnia and Herzegovina was smooth. Bosnia
and Herzegovina continues to readmit a large number of individuals under the
agreement with Croatia. The number of persons readmitted decreased from 311 in
2009 to 295 during 2010. Of these, 119 were foreign nationals and 176 citizens
of Bosnia and Herzegovina. In accordance with readmission agreements with the
EU and Switzerland, Bosnia and Herzegovina accepted 189 of its citizens in
2010, in comparison with 173 in 2009. In the first half of 2011, 65 citizens
were readmitted, a decrease of 22.6% compared to the same period of 2010.

Bosnia and Herzegovina
continued its efforts to conclude readmission agreements with non-EU countries.
Bilateral negotiations with North
African countries are continuing, while a text of the agreement with Turkey was
finalised. However, no new readmission agreement was signed yet. The strategy
for the reintegration of returnees remains to be implemented. Difficulties with
economic reintegration, access to healthcare, social protection, pensions and
employment of minority returnees are the main obstacles to sustainable return
and local integration (See Political criteria 2.2 - Human Rights and the
Protection of Minorities).

There was a decrease in
the number of interceptions of attempts to unlawfully cross the border. In
2010, a total of 322 people were intercepted trying to illegally enter or leave
the country, compared with 381 in 2009. In the first half of 2011, 159 people were intercepted, an
increase of 11.2 % compared to the same period of 2010.

The SFA improved its
administrative capacity and stepped up its cooperation with other law
enforcement agencies. The SFA makes full use of the Migration Information
System (MIS) and granted access to its databases to relevant agencies at all
levels. In 2010, the SFA issued 8,131 permits for temporary stays, an increase
of 8% in comparison with 2009 (7,512). In 2010, 315 permits for permanent stays
were also issued, a decrease of 12% compared with 359 during 2009. The SFA
issued 410 expulsion decisions in 2010, a decrease of 13 % from 474 in 2009. In
the first half of 2011, the SFA
issued 3,744 permits for temporary stays and 167 for permanent stays. In
addition, 149 expulsion decisions were taken. However, further
capacity-building is required.

The coordination body
for implementing the asylum and migration strategy and action plan improved
inter-agency cooperation and published its 2010 annual report. The unit for
monitoring migration flows was established within the State-level Ministry of
Security. The third migration profile of Bosnia and Herzegovina was published.
The MIS is used for statistical reporting for the migration profile.

A working group
consisting of representatives from the State and Entity levels was established
to set up a mechanism for collecting migration data in line with EUROSTAT
regulations. However, the oversight over migration flows remains to be
established. Bosnia and Herzegovina
legislation on legal migration encompasses the discipline of right to family
reunification, long-term residence and conditions of admission of third-country
nationals for the purposes of studies.

Overall, the country's preparations in the area of
migration are advanced. Monitoring of migration flows and inter-agency
cooperation further improved.

4.3.2. 
Money laundering

Very little progress was made in the fight against money
laundering. Implementation of the strategy and action plan for the prevention
of money laundering and financing of terrorist activities in Bosnia and
Herzegovina remains limited.

The existing provisions within the legal framework on
confiscation are not fully used and seizures of criminally gained assets across
the country remain low. Structures for management and maintenance of seized
assets are missing. Amendments to the Law on prevention of money laundering and
financing of terrorist activities, addressing shortcomings identified by the
MONEYVAL Mutual Evaluation Report and including measures to transform the
Financial Intelligence Department (FID) within the State Investigation and
Protection Agency into an administrative agency remain to be adopted by the
Parliament.

The FID operated in isolation from other law enforcement
agencies and its investigative capacity remained weak. Its current staffing
level still stands at approximately 66%. Operationally, the FID lacks strategic
guidance and systematic financial intelligence support. The method of recording
reports of suspicions within the FID is weak. It does not provide the
statistical information necessary for risk assessment and decision-making.
During 2010, only two out of 215 reports on money laundering were transmitted
to the prosecutors' office. No reports were made on financing of terrorist activities.

Most of the transaction reports are from the banking
sector. No significant changes were made to the reporting structure,
methodology and analysis applied. A report and recommendations for the
remainder of the persons liable to be directed to use the electronic reporting
process for all suspicious transaction reports are pending. The
number of reports on transactions above the threshold decreased.

Overall,
Bosnia and Herzegovina is at an early stage in implementing its policy on
preventing and fighting financial crime. Its objectives in the area of
combating money laundering require substantial efforts. Implementation of the
relevant strategy and action plan remains weak. The unresolved issue of the
institutional position of the FID continues to weaken the performance of Bosnia
and Herzegovina in these areas.

4.3.3. 
Drugs

Little progress was made in the fight against drugs. Bosnia
and Herzegovina remains a transit country for international trafficking of
narcotics. Organised crime groups linked with drug trafficking continued to
operate through its territory. Local drug consumption remained relatively low
compared with other European countries.

Law enforcement agencies improved cooperation with
countries in the region, resulting in a better and quicker flow of information.
Bosnia and Herzegovina further improved international cooperation and reported
regularly to the International Narcotics Control Board. However, reporting to
the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) in line with
the required standards remains a problem.

The database on perpetrators of drug-related offences
improved with the aid of new equipment. State-level law enforcement agencies
and the Federal police administration are using it and Cantons were also
connected. Republika Srpska is not connected to the database. A drug-user
database integrating existing registries at rehabilitation centres is
established in Republika Srpska.

The level of implementation of the strategy and action plan
for the prevention and suppression of drug abuse remained very low. A mechanism
for coordinating implementation is missing, since the State-level Office for
Drugs provided for in the strategy and action plan remains to be established.
Amendments to the Law on prevention and suppression of the abuse of narcotic
drugs, which establish the State-level Office for Drugs and improve control
over precursors remain to be adopted by the Parliament.

Coordination between the different enforcement agencies
remained on a case-by-case basis. Effective judicial follow-up and a deterrent
policy on crime are missing. The rulebook on safekeeping and destruction of
seized narcotic drugs, agreed between the Entities, Brcko District and
State-level law enforcement agencies, was not adopted because of financial
constraints. Large amounts of illicit substances confiscated since the Law on
prevention and suppression of abuse of narcotic drugs was adopted are still
awaiting destruction.

Overall,
Bosnia and Herzegovina remains at an early stage in the fight against drug
trafficking, as well as in taking effective action on reducing drug demand.
Without the establishment of the Drug Office, the institutional capacity to
coordinate and systematically implement the policy framework remains weak. The
performance of law enforcement agencies in the fight against drug trafficking
is still uneven across the country.

4.3.4. 
Police

Some progress was made in police matters. Implementation of
the police reform laws is slowly advancing. Police reform agencies and boards
started to be operational. During the reporting period, the Directorate for
coordination of police bodies (DPC) was regularly reinforced. Amendments to the
State-level Law on police officials were adopted, including extension of the
transitional provisions for recruitment of active police officers to
State-level police bodies. This allows the DPC to recruit high-ranking police
officers from other police agencies. The DPC incorporated the Office for
Cooperation with Interpol and took over the Department for protection of people
and buildings, which was previously under the State Protection and
Investigation Agency (SIPA). Republika Srpska adopted amendments to its Law on
police officials, which includes changes to recruitment, promotions and
transfer of police personnel to other institutions. However, these changes
represent a step back from harmonised provisions in the laws on police
officials.

The Law on DNA regulating the duration of DNA storage in
the database and the centralisation of database profiles remains to be adopted
by the Parliament. Federation and Cantonal authorities continued to work on
updating the legislation on internal affairs to increase the operational and
budgetary independence of police commissioners from their Ministries of the
Interior.

The Agency for Forensic Examination was equipped with
additional specialised expertise. Its new Deputy Director was appointed. The
Agency for Education and Advanced Training of Personnel completed 95% of the
recruitment planned. The Agency for Police Support set up a joint human
resources database for the SIPA, the border police and the DPC. A working group
consisting of representatives of State-level law enforcement agencies, the DPC
and the Ministry of Security was set up to address issues linked to procurement
and standardisation of equipment. The Public Complaints Board, the Board for
Complaints of Police Officials and the Independent Board are operational. The
SIPA slightly increased its staff and all heads of unit were recruited.
However, the Law on restructuring the SIPA remains to be adopted.

Special investigative measures are used and the system for
interception of telecommunications, including regional listening stations, is
fully functional. Preparations for establishment of a data exchange system between
police and prosecutors continued.

A road map for an operational agreement was submitted to
Europol for assessment. The communication link with Europol is not yet
operational.

Operational cooperation between law enforcement agencies
continued on a case-by-case basis. At strategic level, regular informal
meetings between Directors of police agencies continued to take place, in the
presence of the Chief Prosecutor and representatives from the State-level
Ministry of Security. However, exchange of intelligence information between law
enforcement agencies remained weak.

Out of 200 cases received by the Public Complaints Board,
none resulted in disciplinary sanctions.

Overall,
Bosnia and Herzegovina made some progress in the field of police, albeit
uneven. Institutions created by the police reform laws were established at a
slow pace. The lack of institutionalised cooperation between all law
enforcement agencies and the limited strategic guidance remain challenges to
achieve more efficient policing.

4.3.5. 
Fighting organised crime and
terrorism

There was little progress in fighting organised crime.
Organised crime networks continue to operate throughout Bosnia and Herzegovina
and have a negative impact on political structures and the economy. A number of
large-scale operations were nevertheless successfully conducted, thanks to the
cooperation amongst different law enforcement agencies. Implementation of the
strategy for the fight against organised crime continued. However, lack of
adequate resources limits its effectiveness.

There was a slight increase in special investigative
measures. Legal and institutional obstacles to more systematic use started to
be addressed.

The Council of Ministers adopted a decision allowing the
establishment of a network of police liaison officers in neighbouring
countries, with Europol and in some EU countries. The aim of this network is to
improve international cooperation and exchanges of information on fighting
transnational organised crime.

Several legislative measures remain to be adopted. Bosnia
and Herzegovina is not a party to the Council of Europe Convention on the
international validity of criminal judgments or the additional protocol to the
Council of Europe Convention on the transfer of sentenced persons. Its
legislation is not harmonised with the Council of Europe Convention on
cybercrime. The implementation of the laws on witness protection remains
insufficient. The legal framework on confiscation of assets is not fully
implemented and seizures of criminally gained assets remain uneven across the
country. Efficient structures for management and maintenance of seized assets
are missing (See Section 4.3.2. ─ Money laundering).

Cooperation between police and prosecutors remains weak.
Specialisation of prosecutors and judges on organised crime cases is uneven and
needs further strengthening, particularly in the Entities. The Memorandum of
Understanding on the establishment of an international law enforcement
coordination unit signed between the Directorate for coordination of police
bodies (DPC), the State Protection and Investigation Agency (SIPA), the border
police, the Republika Srpska Ministry of Interior, the Federation Police Administration, the Brcko District
police and the Indirect Taxation Authority (ITA) remains to be implemented.

Overall,
Bosnia and Herzegovina is at an early stage of addressing the fight against
organised crime. Effective, sustainable and institutionalised mechanisms for
cooperation between different law enforcement agencies are missing. Strategic
coordination and priority-setting in tackling organised crime continue to be
sporadic.

Some progress can be reported on combating trafficking
in human beings (THB). Implementation of the relevant action plan
continued. The State-level Criminal Code regulating THB is fully in line with
international standards.

The national coordinator's office continued an educational
campaign targeting social workers, teachers, NGOs and high-risk populations
(e.g. in asylum and immigration centres). The State-level government secured
funds for three 'safe houses'. A database of perpetrators is maintained by the
SIPA.

The number of THB victims identified decreased, as did the
number of related investigations. This is, though, in line with the regional
trend. The majority of trafficking was done for the purpose of labour. To
tackle the problem of trafficking for the purpose of child begging, Bosnia and
Herzegovina organised State-wide inter-agency actions against child exploiters.

However, Bosnia and
Herzegovina continues to be a country of origin, transit and destination for
trafficking in women and girls. Provisions on THB in the Entity and Brcko District Criminal Codes are neither fully
harmonised with the State-level Criminal Code nor with international
instruments ratified. The Department for combating THB within the national
coordinator's office and the database on THB victims are not fully operational.
Deficiencies in identification of victims of trafficking remain a serious
concern. There is no proactive approach to identify victims. The issue of
unrecorded THB victims remains to be tackled. Implementation of the national
action plan on combating THB is financed mainly by donors and, thus, is not
sustainable.

Overall, Bosnia and Herzegovina remains at an early stage in the
fight against trafficking of human beings. Further work needs to be done to
tighten coordination and form effective partnerships, both between all competent authorities across all policy areas and with NGOs dealing with
human trafficking within the country and the region. Proactive identification of victims and
an effective and well-functioning national referral mechanism are crucial. Further strengthening of
criminal prosecution is needed.

Some progress was made in the fight against terrorism.
A rulebook was prepared on implementation of restrictive measures established
by the UN Security Council Resolutions regarding persons and entities
associated with Osama Bin Laden, the Al-Qaida network and the Taliban. This
allows for implementation of the Law on restrictive measures regarding
terrorism and financing of terrorism. The Joint Task Force to fight terrorism
made up of representatives of the Prosecutor's Office and eight police agencies
was re-established. An operational working group within this task force was set
up. The legislation on terrorism was reviewed. However, an amendment to the Law
on protection of classified information, which ensures that the law is in line
with the relevant EU standards and provides for implementation of the bilateral
security agreement, remains to be adopted.

The level of implementation of the strategy for preventing
and combating terrorism remains to be enhanced.

Overall,
Bosnia and Herzegovina remains at an early stage in the fight against
terrorism. Practical efforts are needed in the fight against financing of
terrorism.

4.3.6. 
Protection of personal data

There was some progress in the field of personal data
protection. Amendments to the Law on protection of personal data to further
harmonise the law with the relevant acquis were adopted by the House of
Representatives. Essential elements of this legislation include the recognition
of internal data protection officials, the regulation of data from the former
Yugoslavia and further steps towards implementing the legal requirement concerning
the independence of the Data Protection Commissioner. The country ratified the
Council of Europe Convention for the Protection of Individuals with regard to
Automatic Processing of Personal Data. The Personal Data Protection Agency
raised its staffing level to a third of its targeted strength and is
increasingly capable of addressing its priorities.

However, legislation and implementing legislation in
various sectors remain to be brought in line with EU data protection
requirements. The Council of Ministers rules for participation of the Personal
Data Protection Agency in relevant legislative processes are not satisfactory.
The principle of dedicated use and sub-legal regulations for data protection in
the police remain to be fully implemented. The Law on personal data protection
does not apply to the Bosnia and Herzegovina Intelligence Agency.

Overall, preparations
for protection of personal data remain at an early stage. The independence of
the Personal Data Protection Agency remains to be ensured.

Statistical Annex

STATISTICAL DATA (as of 30.09.2011) || || || || || || || || || || || ||

Bosnia and Herzegovina || || || || || || || || || || ||

|| || || || || || || || || || || ||

Basic data || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Population (thousand) || || 3 753s || 3 790s || 3 813s || 3 830s || 3 837s || 3 843s || 3 843 || 3 844 || 3 844 || 3 844p || 3 844p

Total area of the country (km2) || || 51 209 || 51 209 || 51 209 || 51 209 || 51 209 || 51 209 || 51 209 || 51 209 || 51 209 || 51 209 || 51 209

|| || || || || || || || || || || ||

National accounts || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Gross domestic product (GDP) (million national currency) || 11) || 11 789 || 12 641 || 13 946 || 14 689 || 15 946 || 17 157 || 19 272 || 21 778 || 24 717 || 24 004e || 24 486

GDP (million euro) || || 6 028 || 6 463 || 7 131 || 7 510 || 8 153 || 8 772 || 9 854 || 11 135 || 12 638 || 12 273e || 12 519

GDP (euro per capita) || || 1 594 || 1 702 || 1 863 || 1 960 || 2 122 || 2 283 || 2 564 || 2 898 || 3 289 || 3 194e || 3 258

GDP (in Purchasing Power Standards (PPS) per capita) || || : || : || : || : || : || 5 500 || 6 300e || 7 100 || 7 600 || 7 300 || 7 400

GDP per capita in PPS (EU-27 = 100) || || : || : || : || : || : || 25 || 27 || 28 || 30 || 31 || 30

Real GDP growth rate (growth rate of GDP volume, national currency, % change on previous year) || || : || 2.4 || 5.1 || 3.9 || 6.3 || 3.9 || 6.0 || 6.2 || 5.7 || -2.9e || 0.7

Employment growth (national accounts, % change on previous year) || || : || : || : || : || : || : || : || : || : || : || :

Labour productivity growth: GDP growth per person employed (% change on previous year) || || : || : || : || : || : || : || -1.4 || 7.9 || 7.5 || 8.0 || :

Real unit labour cost growth (national accounts, % change on previous year) || || : || : || : || : || : || : || : || : || : || : || :

Labour productivity per person employed (GDP in PPS per person employed, EU-27 = 100) || || : || : || : || : || : || : || : || : || : || : || :

Gross value added by main sectors (%) || || || || || || || || || || || ||

Agriculture and fisheries || 1) || 10.9 || 10.8 || 10.5 || 9.5 || 10.3 || 10.1 || 10.3 || 9.8 || 8.9 || 8.6e || 8.6

Industry || 1) || 20.1 || 19.8 || 18.8 || 20.0 || 20.3 || 20.4 || 20.1 || 20.4 || 21.0 || 20.2e || 21.6

Construction || 1) || 6.9 || 6.2 || 5.6 || 5.3 || 5.0 || 5.2 || 5.3 || 5.9 || 6.4 || 6.2e || 5.4

Services || 1) || 62.1 || 63.2 || 65.1 || 65.2 || 64.3 || 64.2 || 64.4 || 63.9 || 63.7 || 65.1e || 67.5

Final consumption expenditure, as a share of GDP (%) || || : || : || : || : || 112.4 || 112.4 || 106.1 || 101.8 || 100.5 || 99.2e || :

Gross fixed capital formation, as a share of GDP (%) || || : || : || : || : || 23.8 || 26.3 || 21.4 || 25.2 || 26.9 || 21.4e || :

Changes in inventories, as a share of GDP (%) || || : || : || : || : || 2.9 || 0.1 || -0.9 || 1.3 || 1.4 || -0.4e || :

Exports of goods and services, relative to GDP (%) || || : || : || : || : || 27.8 || 30.6 || 33.2 || 33.3 || 32.3 || 27.5e || :

Imports of goods and services, relative to GDP (%) || || : || : || : || : || 66.8 || 69.3 || 59.8 || 61.6 || 61.0 || 47.6e || :

|| || || || || || || || || || || ||

Industry || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Industrial production volume index (2005=100) || || 69.1 || 72.8e || 77.7e || 81.6e || 91.8e || 100.0e || 112.5e || 119.9e || 128.7e || 130.6e || 135.4e

|| || || || || || || || || || || ||

Inflation rate || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Annual average inflation rate (CPI, % change on previous year) || 2) || 4.8 || 3.1 || 0.4 || 0.6 || 0.4 || 3.8 || 6.1b || 1.5 || 7.4 || -0.4 || 2.1

|| || || || || || || || || || || ||

Balance of payments || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Balance of payments: current account total (million euro) || || -429 || -833 || -1 253 || -1 439 || -1 319 || -1 500 || -783 || -1 191 || -1 771 || -768 || -766

Balance of payments current account: trade balance (million euro) || || -3 000 || -3 308 || -3 524 || -3 671 || -3 678 || -3 962 || -3 406 || -4 142 || -4 823 || -3 410 || -3 248

Balance of payments current account: net services (million euro) || || 203 || 255 || 232 || 297 || 347 || 446 || 534 || 639 || 664 || 572 || 525

Balance of payments current account: net income (million euro) || || 641 || 595 || 540 || 473 || 408 || 377 || 312 || 336 || 457 || 416 || 251

Balance of payments current account: net current transfers (million euro) || || 1 727 || 1 626 || 1 500 || 1 462 || 1 604 || 1 639 || 1 775 || 1 976 || 1 930 || 1 653 || 1 705

of which government transfers (million euro) || || 338 || 450 || 347 || 298 || 261 || 251 || 237 || 193 || 186 || 167 || 138

Net foreign direct investment (FDI) (million euro) || || 159 || 133 || 282 || 338 || 566 || 493 || 608 || 1 499 || 673 || 176 || 142

Foreign direct investment (FDI) abroad (million euro) || || 0 || 0 || 0 || 0 || -1 || -0,4 || -3 || -21 || -11 || -4 || -32

of which FDI of the reporting economy in EU-27 countries (million euro) || || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0

Foreign direct investment (FDI) in the reporting economy (million euro) || || 159 || 133 || 282 || 338 || 567 || 493 || 611 || 1 520 || 684 || 180 || 174

of which FDI of EU-27 countries in the reporting economy (million euro) || || 0 || 0 || 0 || 0 || 340 || 410 || 448 || 531 || 348 || 43 || 0

|| || || || || || || || || || || ||

Public finance || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

General government deficit/surplus, relative to GDP (%) || || : || : || : || 0.7 || 1.6 || 2.4 || 2.9 || 1.2 || -2.2 || -4.5 || -2.5

General government debt relative to GDP (%) || || 34.7 || 35.2 || 31.0 || 27.7 || 25.3 || 25.3 || 21.1 || 18.2 || 17.2 || 21.8 || 25.7

|| || || || || || || || || || || ||

Financial indicators || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Gross foreign debt of the whole economy, relative to GDP (%) || || : || : || : || : || : || : || : || : || : || : || :

Gross foreign debt of the whole economy, relative to total exports (%) || || : || : || : || : || : || : || : || : || : || : || :

Money supply: M1 (banknotes, coins, overnight deposits, million euro) || || 717 || 1 377b || 1 538 || 1 592 || 1 808 || 2 098 || 2 593 || 3 149 || 3 066 || 3 011 || 3 221

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || || 1 262 || 2 387b || 2 593 || 2 810 || 3 493 || 4 129 || 5 129 || 6 244 || 6 464 || 6 601 || 7 066

Money supply: M3 (M2 plus marketable instruments, million euro) || || : || : || : || : || : || : || : || : || : || : || :

Total credit by monetary financial institutions to residents (consolidated) (million euro) || || 1 543 || 1 707 || 2 189 || 2 619 || 3 031 || 3 858 || 4 759 || 6 110 || 7 442 || 7 210 || 7 455

Interest rates: day-to-day money rate, per annum (%) || || : || : || : || : || : || : || : || : || : || : || :

Lending interest rate (one year), per annum (%) || 3) || : || : || 12.6 || 10.9 || 10.3 || 9.6 || 8.0 || 7.2 || 7.0 || 7.9 || 7.9

Deposit interest rate (one year), per annum (%) || 4) || : || : || 1.5 || 1.2 || 1.1 || 0.7 || 0.5 || 0.4 || 0.4 || 0.3 || 0.2

euro exchange rates: average of period - 1 euro = ... national currency || || 1.956 || 1.956 || 1.956 || 1.956 || 1.956 || 1.956 || 1.956 || 1.956 || 1.956 || 1.956 || 1.956

Effective exchange rate index (2000=100) || || : || : || : || : || : || : || : || : || : || : || :

Value of reserve assets (including gold) (million euro) || 5) || 525 || 1 385 || 1 270 || 1 428 || 1 779 || 2 160 || 2 787 || 3 425 || 3 219 || 3 176b || 3 302

|| || || || || || || || || || || ||

External trade || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Value of imports: all goods, all partners (million euro) || || : || : || : || : || : || 5 716.7 || 5 823.0 || 7 106.1 || 8 330.2 || 6 317.1 || 6 961.9

Value of exports: all goods, all partners (million euro) || || : || : || : || : || : || 1 934.3 || 2 640.5 || 3 035.3 || 3 431.6 || 2 828.1 || 3 627.9

Trade balance: all goods, all partners (million euro) || || : || : || : || : || : || -3 782.4 || -3 182.5 || -4 070.8 || -4 898.6 || -3 489.0 || -3 334.0

Terms of trade (export price index / import price index) || || : || : || : || : || : || : || : || : || : || : || :

Share of exports to EU-27 countries in value of total exports (%) || || : || : || : || : || : || 53.3 || 57.6 || 57.3 || 55.0 || 54.0 || 54.4

Share of imports from EU-27 countries in value of total imports (%) || || : || : || : || : || : || 50.7 || 47.8 || 47.8 || 48.0 || 49.1 || 45.9

|| || || || || || || || || || || ||

Demography || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || 2.4 || 1.9 || 1.5 || 0.9 || 0.6 || 0.1 || 0.2 || -0.3 || 0.0 || -0.1 || -0.2p

Infant mortality rate: deaths of children under one year of age per 1000 live births || || 9.7 || 7.6 || 9.2 || 7.7 || 7.4 || 6.7 || 7.5 || 6.8 || 6.9 || 6.5 || 5.9p

Life expectancy at birth: male (years) || || : || : || : || : || : || : || : || : || : || : || :

Life expectancy at birth: female (years) || || : || : || : || : || : || : || : || : || : || : || :

|| || || || || || || || || || || ||

Labour market || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Economic activity rate (15-64): share of population aged 15-64 that is economically active (%) || || : || : || : || : || : || : || 51.3 || 52.2 || 53.5 || 53.2 || 54.0

Employment rate (15-64): share of population aged 15-64 in employment (%)* || || : || : || : || : || : || : || 35.0 || 36.8 || 40.7 || 40.1 || 39.0

Employment rate male (15-64) (%) || || : || : || : || : || : || : || 46.1 || 48.7 || 52.9 || 51.2 || 49.6

Employment rate female (15-64) (%) || || : || : || : || : || : || : || 24.0 || 25.0 || 28.7 || 29.3 || 28.6

Employment rate of older workers (55-64): share of population aged 55-64 in employment (%) || || : || : || : || : || : || : || 30.6 || 31.9 || 34.4 || 34.0 || 26.8

Employment by main sectors (%) || || || || || || || || || || || ||

Agriculture || 6) || : || : || : || : || : || : || 20.5 || 19.8 || 20.6 || 21.2 || 19.7

Industry || 6) || : || : || : || : || : || : || 22 || 22.9 || 21.7 || 21.2 || 21.9

Construction || 6) || : || : || : || : || : || : || 8.8 || 9.6 || 10.8 || 10.3 || 9.1

Services || 6) || : || : || : || : || : || : || 48.4 || 47.3 || 46.7 || 47.1 || 49.1

Unemployment rate: share of labour force that is unemployed (%) || 7) || 39.7 || 40.0 || 41.1 || 41.6 || 41.8 || 43.9 || 31.1b || 29.0 || 23.4 || 24.1 || 27.2

Share of male labour force that is unemployed (%) || || : || : || : || : || : || : || 28.9 || 26.7 || 21.4 || 23.1 || 25.6

Share of female labour force that is unemployed (%) || || : || : || : || : || : || : || 34.9 || 32.9 || 26.8 || 25.6 || 29.9

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) || || : || : || : || : || : || : || 62.3 || 58.4 || 47.5 || 48.7 || 57.5

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || : || : || : || : || : || : || 26.7 || 25.0 || 20.2 || 20.0 || 22.3

|| || || || || || || || || || || ||

Social cohesion || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Average nominal monthly wages and salaries (national currency) || || 372.0 || 408.0 || 446.0 || 484.0 || 505.0 || 538.0 || 575.0 || 645.0 || 752.0 || 790.0 || 798.0

Index of real wages and salaries (index of nominal wages and salaries divided by the CPI/HICP) (2000=100) || || : || : || : || : || : || : || : || : || : || : || :

Early school leavers - Share of population aged 18-24 with at most lower secondary education and not in further education or training (%)* || || : || : || : || : || : || : || : || : || : || : || :

|| || || || || || || || || || || ||

Standard of living || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Number of passenger cars per 1000 population || || : || : || : || : || : || : || 162.6 || 171.7 || 178.7 || 180.5 || 188.6

Number of subscriptions to cellular mobile telephone services per 1000 population || || 49.6 || 92.6 || 176.2 || 271.8 || 366.7 || 414.6 || 491.3 || 637.4 || 769.5 || 830.4 || 784.1

|| || || || || || || || || || || ||

Infrastructure || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Density of railway network (lines in operation, per 1000 km2) || || : || : || 19.7 || 18.2 || 20.3 || 20.1 || 20.1 || 19.9 || 19.9 || 19.9 || :

Length of motorways (thousand km) || || : || : || : || : || : || : || : || : || : || : || :

|| || || || || || || || || || || ||

Innovation and research || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Spending on human resources (public expenditure on education in % of GDP) || || : || : || : || : || : || : || : || : || : || : || :

Gross domestic expenditure on R&D in % of GDP* || || : || : || : || : || : || : || : || : || : || : || :

Percentage of households who have Internet access at home (%) || || : || : || : || : || 6.6 || : || : || 10.9 || : || : || :

|| || || || || || || || || || || ||

Environment || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Greenhouse gas emissions, CO2 equivalent (tons, 1990=100)* || || : || : || : || : || : || : || : || : || : || : || :

Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP) || || : || : || : || : || : || : || : || : || : || : || :

Electricity generated from renewable sources in % of gross electricity consumption || || : || : || : || : || : || : || : || : || : || : || :

Road share of inland freight transport (% of tonne-km) || || : || 51.0 || 52.0 || 53.0 || 53.0 || 43.0 || 54.0 || 62.0 || 60.0 || 63.0 || 62.0

|| || || || || || || || || || || ||

Energy || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Primary production of all energy products (thousand TOE) || || : || : || : || : || : || : || : || : || : || : || :

Primary production of crude oil (thousand TOE) || || : || : || : || : || : || : || : || : || : || : || :

Primary production of hard coal and lignite (thousand TOE) || 8) || : || : || : || 214 || 211 || 230 || : || : || : || 3 629bp || :

Primary production of natural gas (thousand TOE) || || : || : || : || : || : || : || : || : || : || : || :

Net imports of all energy products (thousand TOE) || || : || : || : || 369 || 478 || 627 || 681 || : || : || : || :

Gross inland energy consumption (thousand TOE) || || : || : || : || : || : || : || : || : || : || : || :

Electricity generation (thousand GWh) || || : || : || : || : || : || : || : || 13.0 || 14.8 || 15.7 || :

|| || || || || || || || || || || ||

Agriculture || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Agricultural production volume index of goods and services (producer prices, previous year=100) || || : || : || : || : || : || : || : || : || : || : || :

Total utilised agricultural area (thousand hectare) || || : || : || 1 697 || 1 722 || 1 722 || 1 712 || 1 722 || 1 670 || 1 679 || 1 656 || 1 649

Livestock: cattle (thousand heads, end of period) || || : || : || : || : || 453 || 460 || 515 || 468 || 459 || 458 || 462

Livestock: pigs (thousand heads, end of period) || || : || : || : || : || 596 || 654 || 712 || 535 || 502 || 529 || 590

Livestock: sheep and goats (thousand heads, end of period) || || : || : || : || : || 965 || 976 || 1 081 || 1 104 || 1 101 || 1 125 || 1 109

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || || : || : || : || : || 583 || 629 || 662 || 724 || 737 || 734 || 693

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 9) || 930 || 1 139 || 1 309 || 793 || 1 439 || 1 350 || 1 341 || 1 001 || 1 375 || 1 391 || 1 105

Crop production: sugar beet (thousand tonnes, harvested production) || || : || : || : || : || : || : || : || : || : || : || :

Crop production: vegetables (thousand tonnes, harvested production) || 10) || 176 || 190 || 247 || 204 || 276 || 257 || 297 || 254 || 282 || 280 || 286

: =
not available

p =
provisional

e =
estimated value

s =
Eurostat estimate

b =
break in series

- =
Europe 2020 indicator

The balance of payments
sign conventions are used for FDI. For FDI abroad a minus sign means investment
abroad by the reporting economy exceeded its disinvestment in the period, while
an entry without sign means disinvestment exceeded investment. For FDI in the
reporting economy an entry without sign means that investment into the
reporting economy exceeded disinvestment, while a minus sign indicates that
disinvestment exceeded investment.

Footnotes:

1)             Data according to NACE
Rev 1.1.

2)             Until 2005 the growth
rate of retail prices is presented, from 2006 onwards growth rate of the
consumer price index (CPI).

3)             Short-term lending
rates in national currency to private enterprises and cooperatives (weighted
average).

4)             Demand deposit rates
in national currency to households (weighted average).

5)             Since 2009 gold has
been included in reserve assets.

6)             Data according to NACE
rev 2.

7)             2000–2005, data from
the Bureau for Employment.               .

8)             2009, primary
production of lignite and brown coal included.

9)             Data refer to
harvested year (for example -harvested production for 2010: autumn 2009 and
spring 2010), not calendar year; [2009-2010, including triticale and buckwheat.

10)           Data refer to harvested
year (for example -harvested production for 2010: autumn 2009 and spring 2010),
not calendar year; including lettuce and melons after 2009.

11)           In 2011, the
calculation method for GDP was improved and figures were revised.

[1]               The rapporteur for Bosnia and Herzegovina is Ms Doris
Pack.

[2]               Enlargement Strategy and Main Challenges 2011-2012 -
COM(2011) 666.

[3]               These cover five objectives: 1) Acceptable and
sustainable resolution of the issue of apportionment of property between State
and other levels of government; 2) Acceptable and sustainable resolution of
defence property; 3) Completion of the Brcko final award; 4) Fiscal sustainability
(promoted by an agreement on a permanent ITA coefficient methodology and
establishment of a National Fiscal Council); and 5) Entrenchment of the rule of
law (demonstrated by adoption of a National War Crimes Strategy, of a Law on
aliens and asylum and of a National Justice Sector Reform Strategy), as well as
two specific conditions: 1) signing of the SAA and 2) a stable political
situation.

[4]               The Sejdic-Finci vs. Bosnia and Herzegovina case,
December 2009, regarding ethnic discrimination for representation in the
institutions of the country for persons not belonging to one of the three
Constituent Peoples.

[5]               See footnote 4

[6]               The IPA national allocation for 2011 is € 102.6
million. It includes the IPA 2011 national programme (€ 96.3 million)
which will cover projects in a variety of areas, including to support the
judiciary, law enforcement, public administration reform, education, social
inclusion, refugee returns, cultural heritage and demining. Other sectors
include support for local economic development, water sector, waste management
and energy efficiency.

[7]               See footnote 4

[8]               See footnote 3

[9]               The Peace Implementation Council Conference in Bonn
in December 1997 decided to "give to the High Representative the power to
remove from office public officials not complying with the Dayton Peace
Agreement, and to impose laws which he considers necessary if Bosnia and
Herzegovina's legislative bodies fail to do so".

[10]             The Human Rights Chamber was established by Annex 6 to
the Dayton/Paris Peace Agreement, as a judicial body dealing with complaints on
human rights violations in relation to the ECHR. The mandate of the HRCh
expired in 2003, without having resolved all the cases it received (15,191). In
order to resolve the outstanding cases, the HRCom was created within the
Constitutional Court of Bosnia and Herzegovina. HRCom's mandate expired in
2006. The Constitutional Court of Bosnia and Herzegovina became the competent
body to review implementation of these cases in 2010.

[11]             According to the Law on the protection of rights of
persons belonging to national minorities, there are 17 national minorities in
Bosnia and Herzegovina. The three constituent peoples – Bosniaks, Croats and
Serbs – do not constitute national minorities.

[12]             Cases transferred by the ICTY for local prosecution

[13]             Council Decision 2011/168/CFSP of 29 March 2011.

[14]             Under UNSCR 1244/1999