[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 6.11.2007

SEC(2007) 1430

COMMISSION STAFF WORKING DOCUMENT BOSNIA AND HERZEGOVINA 2007 PROGRESS REPORT accompanying the

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2007-2008

{COM(2007) 663 final}

TABLE OF CONTENTS

1. Introduction 4

1.1. Preface 4

1.2. Context 4

1.3. Relations between the EU and Bosnia and Herzegovina 5

2. Political criteria 6

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 22

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 27

4. European standards 29

4.1. Internal market 30

4.1.1. Free movement of goods 30

4.1.2. Movement of persons, services and right of establishement 31

4.1.3. Free movement of capital 33

4.1.4. Customs and taxation 34

4.1.5. Competition 35

4.1.6. Public procurement 36

4.1.7. Intellectual property law 36

4.1.8. Employment and social policies 37

4.1.9. Education and research 38

4.1.10. WTO issues 39

4.2. Sectoral Policies 39

4.2.1. Industry and SMEs 39

4.2.2. Agriculture and fisheries 40

4.2.3. Environment 41

4.2.4. Transport policy 43

4.2.5. Energy 44

4.2.6. Information society and media 45

4.2.7. Financial control 47

4.2.8. Statistics 47

4.3. Justice, freedom and security 48

4.3.1. Visa, border, control, asylum and migration 48

4.3.2. Money laundering 50

4.3.3. Drugs 51

4.3.4. Police 52

4.3.5. Fighting organised crime and terrorism 52

4.3.6. Protection of personal data 54

STATISTICAL ANNEX 55

COMMISSION STAFF WORKING DOCUMENT

Bosnia and Herzegovina 2007 Progress Report

INTRODUCTION

Pr eface

Since March 2002, the Commission has reported regularly to the Council and the Parliament on progress made by the countries of the Western Balkan region.

This progress report largely 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, that is, to gradually approximate its legislation and policies with the acquis , in line with a Stabilisation and Association Agreement and the European Partnership priorities.

The period covered by this report is from 1 October 2006 to early October 2007. Progress is measured on the basis of decisions taken, legislation adopted and measures implemented. As a 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 permits 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 Member States, European Parliament reports[1] and information from various international and non-governmental organisations.

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

Context

Bosnia and Herzegovina is a potential candidate for EU membership. Negotiations on a Stabilisation and Association Agreement (SAA) between Bosnia and Herzegovina and the EU were officially opened in November 2005. They have not been formally concluded due to Bosnia and Herzegovina's lack of progress in implementing the necessary reforms. Bosnia and Herzegovina's complex institutional arrangements, frequent attacks to the Dayton/Paris peace agreement and nationalistic rhetoric have undermined the country's reform agenda.

In the meantime, Bosnia and Herzegovina continues to benefit from autonomous trade measures granted by the EU.

An international presence under UN auspices has been in place in Bosnia and Herzegovina since 1995. It will be terminated once the Office of the High Representative (OHR) is phased out. However, the closure of the OHR depends on the developments in Bosnia and Herzegovina and in the region. The EU has continued to deploy considerable resources in Bosnia and Herzegovina in the framework of the Common Foreign and Security Policy (CFSP) and the European Security and Defence Policy (ESDP). It has expressed its intention to reinforce its engagement in Bosnia and Herzegovina upon the closure of the OHR.

Relations between the EU and Bosnia and Herzegovina

Bosnia and Herzegovina is participating in the Stabilisation and Association Process (SAP) .

Negotiations on a Stabilisation and Association Agreement (SAA) , which is a central element of the SAP, were officially opened in November 2005. Technical negotiations were finalised in December 2006. In May 2007, the Member States endorsed the outcome of the negotiations, but reiterated that, to conclude the SAA, Bosnia and Herzegovina will need to meet the conditions set out by the EU prior to the opening of negotiations. The SAA will be initialled as soon as Bosnia and Herzegovina has made sufficient progress in addressing these requirements, notably police reform. The signature of the SAA will require evidence that the police reform is irreversibly on track, as well as full cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY). Progress in the areas of public broadcasting and public administration reform will also be required before the SAA is signed. Failure of Bosnia and Herzegovina's political leaders to achieve the necessary reforms and to conclude the SAA would seriously undermine Bosnia and Herzegovina's prospects of European integration.

The EU provides guidance to the authorities of Bosnia and Herzegovina on reform priorities through the European Partnership . Progress on these reform priorities is encouraged and monitored through Reform Process Monitoring (RPM) meetings, which remain a central channel for political, economic and technical dialogue between the EU and Bosnia and Herzegovina. Eight RPM meetings have been held since the publication of the last progress report, including Economic Dialogue meetings, which was held in May and October 2007.

The regular meeting between members of the European Parliament and parliamentarians of Bosnia and Herzegovina took place in June 2007. In September 2007, an EU/Bosnia and Herzegovina Ministerial Troika was organised to discuss key political issues.

The EU has continued to deploy considerable resources in Bosnia and Herzegovina in the framework of the Common Foreign and Security Policy and the European Security and Defence Policy. A new EU Special Representative (EUSR), who is also the High Representative, took office in July 2007. The mandate of the EUSR is to offer the EU’s advice and facilitation in the political process and to promote overall political coordination in Bosnia and Herzegovina. The EUSR mandate was strengthened in March and July 2007 and has been extended until February 2008. The EUFOR/Althea mission has downsized its troops to 2,500 while ensuring the capacity to contribute to the maintenance of a safe and secure environment. Extension of the mandate of the EU Police Mission for two more years from the beginning of 2008 is being discussed. The EU Monitoring Mission, with its headquarters in Bosnia and Herzegovina, will close by the end of 2007. The EU has expressed its intention to reinforce its engagement in Bosnia and Herzegovina upon the closure of the Office of the High Representative (OHR), which is envisaged for June 2008. However, the closure of the OHR will be subject to developments in Bosnia and Herzegovina and in the region.

In September 2007, the EU and Bosnia and Herzegovina signed agreements on visa facilitation and readmission. The new arrangements on visa facilitation are important to facilitate people-to-people contacts. They will simplify procedures for issuing visas for certain categories of citizens of Bosnia and Herzegovina, including students, scholars, businesspeople, journalists, and tourists. They will also keep the cost of visas at its current level and, in some cases, lead to visas free of charge. This will allow more interaction between citizens of the EU Member States and the citizens of Bosnia and Herzegovina.

As regards pre-accession financial assistance, the 2007-2009 Multi-Annual Indicative Planning Document (MIPD) for Bosnia and Herzegovina was adopted in June 2007. Assistance for the country under the 2007 IPA (Instrument for pre-accession assistance) programme totals € 62.1 million. The areas of main focus are strengthening rule of law and public administration structures, economic and social development and democratic stabilisation, including support to civil society. In addition, € 6.4 million has been provided from Community funds to support the budget of the Office of the High Representative until June 2008.

Remaining CARDS as well as IPA assistance is implemented by the EC Delegation in Sarajevo. The management of aid on a decentralised basis is a medium term objective for Bosnia and Herzegovina. Preparations to implement the decentralised implementation system have been slow during the reporting period. The complex institutional and political environment in the country has adversely affected a number of projects and implementation rates have recently declined somewhat, although they remain high.

Regarding financial assistance to civil society , the 2007 IPA programme will provide € 3 million for projects which will focus on strengthening local democracy and increasing the capacity of civil society to take part in political dialogue. In January 2007, the Framework Agreement for Bosnia and Herzegovina's participation in Community Programmes entered into force. No Memorandum of Understanding for participation in specific community programmes has been established so far.

POLITICAL CRITERIA

This section examines 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 respect for international obligations, such as cooperation with the UN International Criminal Tribunal for the former Yugoslavia (ICTY).

Democracy and the rule of law

Constitution

Bosnia and Herzegovina's constitution, which is contained in Annex IV to the Dayton/Paris Peace Agreement (DPA), establishes a complex institutional architecture. The DPA put an end to the war and brought peace and stability to Bosnia and Herzegovina. Progress has been made under the current constitutional structure, but it prevents swift decision-making and therefore hinders reform and the capacity to make progress towards the EU.

Since the Bosnia and Herzegovina Parliamentary Assembly rejected a package of proposed constitutional amendments in April 2006, no further attempts have been made to amend the constitution. Wide disagreement between the political parties on the scope of the future constitutional reform continues.

Nationalist rhetoric from political leaders from all the constituent peoples, challenging the Dayton/Paris Peace Agreement and therefore the constitutional order, has been common. This negative rhetoric has hindered reform in a number of fields. Following the verdict of the International Court of Justice, a number of Bosniak politicians called for unilateral constitutional changes especially in relation to the status of Srebrenica. The political leadership in Republika Srpska has continued to make statements about the possibility of a referendum on self-determination and withdrawing competences from the State level.

On the basis of the Dayton/Paris Agreement, the international community continues to maintain a significant presence in Bosnia and Herzegovina. The Office of the High Representative and the EU Special Representative have been working closely with the European Commission on issues related to European integration. However, the authorities of Bosnia and Herzegovina have not demonstrated the capacity to take further political ownership and responsibility over reform. Due to the tense political situation and the lack of reform, the High Representative has continued to play an important role in facilitating reform and governance issues. Between 1 January and 30 September 2007, the High Representative used his executive powers on 31 occasions, which included the imposition of legislation and the removal of officials.

Taking into account the situation in Bosnia and Herzegovina and in the region, in February 2007 the Peace Implementation Council (PIC) Steering Board agreed to postpone the closure of the Office of the High Representative until 30 June 2008. The PIC Steering Board agreed to review the situation in February 2008.

As a result of the failure to reform the constitution, the 2006 general elections were conducted under provisions that are in violation of the European Convention on Human Rights (ECHR). The election of Bosnia and Herzegovina's tripartite Presidency and the delegates to the Bosnia and Herzegovina House of Peoples continue to be in contravention of Protocol 12 of the ECHR. As a consequence, three cases have been brought before the European Court of Human Rights by members of the Jewish and Roma communities and by a Bosniak resident in Republika Srpska respectively.

The Entities have failed to bring their constitutions into line with the March 2006 decision of the Constitutional Court of Bosnia and Herzegovina ruling that the Entity coat of arms, flag and anthem were not in line with the State-level constitution of Bosnia and Herzegovina. Republika Srpska has agreed on new symbols, but these have been challenged in the Republika Srpska Constitutional Court. The Federation of Bosnia and Herzegovina (Federation) has formed a commission to propose new Entity symbols.

Overall, Bosnia and Herzegovina's political leaders have given limited attention to the necessary reforms and nationalist rhetoric has prevailed. Bosnia and Herzegovina has made no progress towards creating more functional and affordable State structures which support the process of European integration, e.g. through constitutional reform.

Parliament

Presidential and parliamentary elections (at State, Entity, Canton and Brčko District level) were held in October 2006. These were the first elections since the Dayton/Paris Agreement to be fully administered by the authorities of Bosnia and Herzegovina. The elections were generally run in accordance with the international standards for democratic elections.

Bosnia and Herzegovina has a bicameral State-level parliament, along with parliaments at the level of the Entities (the Federation of Bosnia and Herzegovina and Republika Srpska), Brčko District and Cantons. Following the general elections in October 2006, the new Bosnia and Herzegovina House of Representatives was inaugurated in November 2006, but the House of Peoples was not constituted until mid-March 2007. Likewise, full constitution of the Federation Parliamentary Assembly was seriously delayed by divergences between political parties and the late formation of the cantonal governments.

Bosnia and Herzegovina's Parliamentary Assembly's legislative work has been hampered by the intransigent and ethnically oriented position of the country's political leaders. The House of Representatives and the House of Peoples have met infrequently and parliamentary activities have proceeded slowly. Committee work has also been affected by inter-ethnic divergences. A Committee for European Integration was reconstituted after the 2006 elections. Despite increased resources, the committee has remained largely inactive and has minimal influence in the parliament in addressing issues relating to European integration.

The pace and quality of legislative output remained affected by slow input from the Council of Ministers, resulting in adoption of only a limited number of laws. The chairmanship of the Parliamentary Assembly continues to rotate on an eight-month basis, which hinders efficiency. Members of Parliament generally continue to vote along ethnic lines and remain highly influenced by pressure groups pursuing individual interests. This tendency has increased over the past year due to the deterioration of the political environment.

The Parliamentary Assembly is still hampered by inadequate technical and human resources and cumbersome parliamentary procedures. Cooperation with the Council of Ministers remains inadequate, and there is no coordination of legislative agendas between the State and Entity parliaments.

Overall, there has been limited progress in improving the efficiency of the Parliamentary Assembly of Bosnia and Herzegovina. Its work has been adversely affected by the tense political climate, systematic voting along ethnic lines and insufficient administrative resources.

Government

As a result of the rejection of the constitutional amendments in April 2006, the Presidency of Bosnia and Herzegovina continues to rotate on an eight-monthly basis. Its mandate includes a role in foreign policy, proposing annual budgets and representing Bosnia and Herzegovina in international organisations. The election of Bosnia and Herzegovina's tripartite Presidency continues to be in contravention of Protocol 12 of the ECHR as it does not allow citizens not belonging to the three constituent peoples to stand as candidates and determines the ethnicity of each candidate elected from the Entities.

The Presidency resulting from the October 2006 elections was inaugurated in November 2006. The Presidency has met regularly. However, its members mostly continued to show first allegiance to their Entity and their constituents, and little capacity to find common positions. They remained divided on key issues such as the verdict of the International Court of Justice in the genocide case Bosnia and Herzegovina v. Serbia and developments regarding Srebrenica. The Presidency members also repeatedly failed to present a joint stance in representing Bosnia and Herzegovina abroad.

Republika Srpska was able to form its government shortly after the elections, but considerable delays were encountered at State level and the Federation. The Bosnia and Herzegovina Council of Ministers was established in mid-February 2007. It has experienced internal tensions and deadlocks. Complicated decision-making procedures, capacity problems, lack of political will and diverging national interests in government and parliament continue to delay the adoption of legislation. The work of the Council of Ministers is also suffering from the limited powers granted to the Chairman (Prime Minister).

The Directorate for European Integration (DEI) is directly attached to the Council of Ministers. It has continued to play an important role as Bosnia and Herzegovina's focal point for EU assistance programming. It has further promoted the objective of European integration by continuing its efforts to improve coordination of State and Entity ministries. However, the DEI's work has been hampered by the politicised climate, and the Council of Ministers has not used the DEI's capacities to the full extent. DEI's human resources also need to be strengthened.

The Directorate for Economic Planning is responsible for monitoring the Medium-Term Development Strategy and is preparing to coordinate the production of a new National Development Strategy and the ensuing National Development Plan. The General Secretariat is only partly operational and is only slowly taking on a greater coordinating role. In order to strengthen the capacity of the General Secretariat in April 2007 the Council of Ministers approved a new rulebook considerably increasing its staff. The Legislative Office is functioning but a lack of professional staff, premises and office equipment prevents it from properly reviewing all the required legislation. Both in the Legislative Office and in the wider administration, there is still a substantial lack of knowledge of EU law, European integration processes and foreign languages. Awareness of the need further to develop and modernise the legislative basis and legal drafting traditions of the country is also lacking.

Final responsibility for the difficulties in government work lies with the leadership of the political parties. On a number of occasions, the Council of Ministers has been left out of negotiations on reform issues for which the government would normally be responsible. Similarly fragmented policy-making between the State and the Entities is still an issue. The Coordination Board for Economic Development and European Integration, which is designed to harmonise State and Entity agendas has only met infrequently since the new governments were formed. Coordination between the authorities is therefore minimal and depends largely on personal and party interests. Another serious handicap for policy planning in Bosnia and Herzegovina as a whole is the lack of proper statistics, including an up-to-date population census.

In the Entities, the Republika Srpska government was established in November 2006, whereas the Federation government was not formed until the end of March 2007. The Republika Srpska government has been efficient in adopting legislation, especially in the economic field, and has made progress with attracting foreign investment. It has continued its policy of strengthening its own legal framework, often without coordination with the other governments in Bosnia and Herzegovina. It remains generally opposed to the transfer of powers to State level, for example on police and economic matters, and has threatened to reverse previous transfers of powers. The Republika Srpska executive has continued with its sometimes harsh rhetoric, although its position on the situation in Srebrenica has been constructive. The Federation government has been less efficient in legislating, and its work has been affected by the difficult political climate and diverging party interests in the governing coalition. In two Cantons, governments were not formed until ten months after the elections, and then only after the High Representative had cut the financing of the four main political parties as a result of the delays.

Overall, Bosnia and Herzegovina’s State-level government structures have been unable to overcome internal conflicts – often based on ethnic or Entity allegiance – and to avoid deadlocks. As a result, there have been serious delays in reform implementation.

Public administration

Some limited progress has been made in the area of public administration reform. Bosnia and Herzegovina's administration participated in the technical part of the negotiations for a Stabilisation and Association Agreement in a professional manner. In April 2007, a new Public Administration Reform Coordinator was appointed with a four-year mandate. The Public Administration Reform Coordination Office has been allocated the budgetary resources necessary to complete its staffing, although recruitment for most of its positions is still ongoing. All the governments have adopted a joint platform for implementation of the Public Administration Reform (PAR) Strategy, which defines responsibilities at political, coordination and implementation levels. In July 2007, a Memorandum of Understanding on establishment of a Public Administration Reform Fund, financially supported by the EU, was signed. The fund, which will manage an initial allocation of € 4.5 million, is not yet operational.

Recruitment by the State Civil Service Agency has improved, although it is still far from optimal. Coordination between the State- and Entity-level Civil Service Agencies has improved, with joint involvement in several large-scale training schemes. An initiative to establish a joint Institute of Public Administration, which has received initial approval from all three Civil Service Agencies, would be a first step towards closer cooperation. Harmonisation of the three Civil Service Laws, among other things to allow transfers of civil servants between government levels, is pending.

Bosnia and Herzegovina remains affected by cumbersome administrative structures. The National Strategy for the Public Administration Reform has yet to be properly implemented. There has not yet been any systematic and coherent action driven by local ownership. The PAR Coordinator's Office continues to be dependent on foreign assistance. The Coordination board for the PAR has not yet taken up its role as a political steering force. The reforms recommended by the sectoral, functional and horizontal system reviews have not been carried out. Genuine support for the process from the various government structures is necessary for effective implementation.

Despite the steps taken over the reporting period, efforts are still needed to meet the European Partnership's key requirement that all State-level ministries and institutions be adequately financed, operational and properly equipped, particularly in terms of premises and staff. Consolidation of the State-level ministries and institutions has continued, but slowly. Limited budgetary resources and premises continue to delay recruitment of the necessary staff. The planned move to a new government building in late 2007 is expected to help alleviate the office space problem.

No progress has been made on regulating ownership rights to State property. As a result, the High Representative has extended the temporary prohibition of disposal of State property until 31 December 2007.

Sustained action is necessary to establish a professional civil service with recruitment and promotion based on experience and merit. There are still insufficient safeguards against political interference in public administration, where ethnic identity and party membership play a significant role. Apart from the lack of personnel, structures within the ministries need substantial improvement in terms of delegation, distribution and exercise of powers, cooperation mechanisms and strategic planning capacity. Further efforts are necessary to modernise the human resources management system comprehensively.

The Ombudsman Law, which was adopted in March 2006, provides for merging the Entity Ombudsmen Institutions with the State Ombudsman in line with international conventions. The merger was expected to occur in January 2007, but it has not yet taken place. The State Ombudsmen have not been appointed.

Local self-government reform, in line with the European Charter for Local Self-Government, is still underway. Both Entities have adopted laws on local self-governance. In November 2006, the Council of Europe's Congress of Local and Regional Authorities noted that the legislation on local self-government in Republika Srpska and the Federation is on the whole compatible with the principles of the Charter, but that the local governments have no clear constitutional guarantees, that municipalities are strongly dependent on financial transfers from higher level authorities and that corresponding local revenue bases are extremely low. Changes to the Republika Srpska budget system law and the Federation revenue collection law adopted in 2006 assign specific percentages of the single account revenue to Entity, Cantonal and municipal governments.

The complex administrative structures in Bosnia and Herzegovina and, in particular, in the Federation remain an obstacle to efficient local self-government. Bosnia and Herzegovina also needs to harmonise its local self-governance legislation throughout the country.

Lack of cooperation between local political leaders has prevented the establishment of a single administration in Mostar. In September 2006, the High Representative decided to appoint a Special Envoy for Mostar to address the outstanding problems. Subsequently, the issues of Herzegovina Radio-Television, parallelism in the urban planning sector, divided cultural institutions and ongoing delays in reforms of the Mostar administration were resolved completely or partly through the intervention of the Office of the High Representative.

The situation in the Srebrenica region remains a particular problem. Following the verdict of the International Court of Justice in Bosnia and Herzegovina's genocide case against Serbia, Bosniak politicians proposed a Special Status for Srebrenica, under direct State powers and outside Republika Srpska. This demand led to increased political tension in Srebrenica and throughout the country. As a result, the Republika Srpska government has given Srebrenica the status of a special socio-economic zone, and it has adopted an economic and social development plan for the region. In May 2007, the High Representative appointed an International Special Envoy for the Srebrenica region.

As regards the restructuring of the police, the police restructuring directorate (PRD) submitted its report to the Council of Ministers in December 2006. The PRD's report has been taken as the basis for further discussion on the police reform. However, due to the lack of political will and diverging views over the powers and administrative borders of the police, no agreement has been reached. As a result, the country's police remain fragmented ( See also section 4.3.4 on police ).

Overall, there has been some progress in the area of public administration. However, Bosnia and Herzegovina is still in an early phase of the public administration reform implementation, which needs to be accelerated. The country's complex and cumbersome structure continue to undermine efficiency. Significant further efforts towards an efficient, professional, stable, accountable and transparent civil service at all level of government are necessary.

Civilian oversight of the security forces

The Joint Parliamentary Committees for Defence and Security and the Intelligence and Security Committee have continued to perform their duties properly. In terms of defence reform, the transfer of EUFOR's residual Dayton tasks and functions to the Bosnia and Herzegovina authorities is in progress. Action has been taken as regards the disposal of the Armed Forces' surplus weapons and military equipment, but progress is slow. The transfer of defence property from the Entities to the State has not been completed and is being hampered, in particular, by Republika Srpska. In terms of intelligence reform, there has been progress on issues such as counter-terrorism, organised crime and war crimes. The Bosnia and Herzegovina Intelligence and Security Agency has provided timely intelligence on individuals on the "Srebrenica list".

As a consequence of progress in the defence reform, including the establishment of democratic control of the armed forces, NATO invited Bosnia and Herzegovina to join the Partnership for Peace and the Euro-Atlantic Partnership Council in November 2006. The Partnership for Peace Agreement was concluded in December 2006.

Judicial system

Consolidation of the judicial system continued to progress, but in a difficult environment.

The structure of the judicial system in Bosnia and Herzegovina reflects the internal structure of the country. Courts exist at State and Entity levels and also within the Entities. At State level, the system consists of a Ministry of Justice with limited powers and staff, the State Court with an international registry, and the High Judicial and Prosecutorial Council (HJPC) which substantially guides the justice reform but has only limited resources. The HJPC, as an independent and autonomous body, continues to play an important role in improving the situation of the judiciary. It has contributed to increase professionalism, resources and efficiency. Nevertheless, the HJPC position is not sufficiently secure within the constitutional framework and its role is frequently challenged.

The HJPC sharply reduced its international staff and increased its national staffing in line with its strategy of transferring power to national hands. The international members have gradually been shifting from being actively involved in daily operations to mentoring and monitoring at strategic level. Nonetheless, as the funds provided from the national budget to the HJPC and courts and prosecutor's offices have not increased, they remain dependent on international funding.

The status of the Judicial and Prosecutorial Training Centres in the Entities as the recognised key institutions for the professional education of current and future members of the judiciary was consolidated. A medium-term training strategy has been developed. However, the lack of staff in the Training Centres continues to hinder effective training.

Within the Entities, the minor offence reform was successfully completed, with the minor offence courts being merged with regular courts and with the appointment of additional judges. A new enforcement system for collection of fines was developed. Newly appointed judges and related staff were trained in implementing the new Entity Laws on Minor Offences and in using the new Registry of Fines. Further staffing was completed at Entity level with the appointment of judicial associates for first instance courts by the HJPC.

Despite the generally positive developments mentioned above, serious obstacles to the efficient operation of the judiciary persist. These include: four parallel and separate jurisdictions at State, Republika Srpska, Federation and Brčko District levels; incoherent systems of laws; directives issued by fourteen Ministers of Justice; four different bar examinations for lawyers; and a high rate of reversal of judgements in major criminal cases at the Court of Bosnia and Herzegovina. The judicial system is not exempted from political interference. In the parliamentary and executive branches of the governments, there are attempts to reverse reforms already implemented to allow greater political influence in the work of prosecutors and judges. A comprehensive justice sector development strategy is urgent.

The slow processing of cases due to backlog, poor management skills and the scarcity of modern equipment and premises creates obstacles to establishing an effective judiciary. The deployment of computer applications to improve case management was completed in six courts. However, there is not yet a systematic action plan to reduce the growing backlog of pending cases at courts. At the end of 2006 there were almost two million pending cases (although half of these concerned utility issues). Further efforts are needed to introduce alternative out-of-court resolution measures such as mediation and arbitration. The backlog of cases in the Constitutional Court also remains high (over 3,000 cases at the end of 2006). Due to the lack of a Supreme Court in Bosnia and Herzegovina, the Constitutional Court is increasingly acting as an appellate court.

Progress in the area of cooperation between police and prosecutors was limited. Harmonised rules for cooperation between police and prosecutors have not yet been established. The majority of prosecutors and police officers still have difficulties in understanding and applying the four Criminal Code Procedures which are in force. This continues to be a concern.

Further efforts are needed to harmonise the criminal law system. Bosnia and Herzegovina still lacks a single Criminal Code and Criminal Procedure Code, resulting in highly diverse case law. As a result, the same crime continued to be met with different punishments across the country. Insufficient quality of defence in criminal cases, lack of understanding of new criminal legislation and insufficient education of judges, prosecutors and law enforcement officials remain core problems in implementing judicial reform.

Little progress was made in the area of juvenile justice. Implementation of the strategy and action plan against juvenile offences adopted in July 2006 has not started. A coordination body was set up at State level to monitor its implementation. However, the lack of appropriate and well-regulated juvenile correctional facilities and alternative measures for juvenile offenders continued to seriously hinder the establishment of an efficient system to address juvenile delinquency.

Regarding the local prosecution of war crimes, the State Investigation and Protection Agency (SIPA) is investigating some 500 cases dealing with war crimes. At State level, trials are generally held within a reasonable time and in compliance with internationally recognised fair trial standards. In July 2007, investigations were opened on 93 individuals who were believed to be involved in networks supporting indicted war criminals and who were on the so-called Srebrenica List. At the same time, the Republika Srpska police suspended 35 serving policemen who were on the Srebrenica List. However, war criminals need to be prosecuted more vigorously, in particular at Entity level. Impunity continues for many perpetrators of crimes during the war. A country-wide strategy for dealing with war crimes cases is required.

Overall, preparations by Bosnia and Herzegovina to develop an effective and efficient judicial system are advancing. However, it has continued to face fragmentation and disparities across the judicial frameworks. Sustained efforts are necessary to improve efficiency and to ensure the independence of the judicial system.

Anti-corruption policy

During the reporting period, Bosnia and Herzegovina ratified the UN Convention on Fighting Corruption (Mérida Convention), although ratification of the Additional Protocol to the Criminal Law Convention is still pending. There was some progress on enforcing the law on conflict of interest, with the Central Election Commission sanctioning a number of elected officials and preventing them from running for office. A National Anti-Corruption Strategy and action plan was adopted in 2006, but the implementation has not been satisfactory, due in part to a lack of resources.

The second evaluation report adopted by the Council of Europe Group of States against Corruption (GRECO) in December 2006 underlined the need to enforce the legal framework and to improve coordination and training of the agencies involved in fighting corruption and seizure of the instruments and proceeds of crime. Limited action has been taken in this regard. No action has been taken to improve anti-corruption legislation. The Criminal Codes of the State, Entities and Brčko District establish a general obligation to report suspicions of criminal offences - including corruption - but no legal measures are in place to ensure confidentiality and to protect civil servants reporting such cases. Amending the laws on elections and on the financing of political parties is necessary to prevent corrupt practices, and the law on conflict of interest needs to be further clarified. Prevention and enforcement need to be strengthened. No independent anti-corruption agency has been established. Convictions for corruption remain limited.

Overall, Bosnia and Herzegovina has made limited progress in dealing with corruption. Corruption is widespread and remains a serious problem. Strategies and action plans are in place, but they are not properly implemented. More vigorous investigation and prosecution is necessary.

Human rights and the protection of minorities

Observance of international human rights law

As regards ratification of human rights instruments , Bosnia and Herzegovina has ratified all the major UN and international human rights conventions, including the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR). Substantial delays in fulfilling the reporting obligations have continued. The Constitution includes most of the principles of these human rights conventions and guarantees that they supersede national legislation. Although the conventions are directly applicable, implementation needs to improve.

In a number of cases the decisions of the Human Rights Commission of the Bosnia and Herzegovina Constitutional Court were not properly implemented. This had led to a number of cases being lodged before the European Court of Human Rights. In January 2007 the European Court of Human Rights issued its first judgement against Bosnia and Herzegovina. At the end of 2006, a total of 286 applications from Bosnia and Herzegovina were registered at the Court.

With regard to promotion and enforcement of human rights, progress has been made in addressing the judicial backlog of cases at the Human Rights Commission of the Bosnia and Herzegovina Constitutional Court. Since January 2004, the Commission has been responsible for reviewing cases of human rights violations. In December 2006, amendments to the General Framework Agreement for Peace in Bosnia and Herzegovina were made allowing pending cases to be transferred directly to the Constitutional Court. Despite this progress, a significant number of cases still remain to be tackled. Implementation of the decisions of the Human Rights Commission remains insufficient due, in particular, to the reluctance of the Entity governments to compensate victims. There has been no progress in addressing the question of the citizens and residents of Bosnia and Herzegovina currently held in Guantánamo Bay. This case has now been referred to the European Court of Human Rights.

Overall, Bosnia and Herzegovina has made limited progress in improving the observance of international human rights law. It has achieved results in addressing the backlog of human rights-related cases, but there is room for improvement as regards the implementation of rulings. Implementation of international human rights conventions also needs to improve.

Civil and political rights

As regards prevention of torture and ill-treatment and the fight against impunity , State and Entity Constitutions prohibit torture and ill-treatment. Bosnia and Herzegovina is party to the Convention for the Prevention of Torture. However, it has failed to appoint members to the relevant committee. Recent assessments of the situation in prisons and in police detention have shown that more needs to be done. Cases of abuse of prisoners and detainees by the police or prison guards have occurred. There remains a need to improve the investigation of cases of alleged misconduct.

The death penalty is prohibited by the Constitution of Bosnia and Herzegovina and by the Constitution of the Federation of Bosnia and Herzegovina. Article 11 of the Republika Srpska Constitution still allows the death penalty for capital crimes, which is incompatible with ECHR Protocol 6. However, Republika Srpska does not apply the death penalty in practice.

Access to justice in civil and criminal trials remains a matter of concern and equality before the law is not always guaranteed. In criminal trials, judges often do not fully inform defendants of their right to counsel at public expense. As a result, defendants do not request legal aid. Legal aid in civil cases is primarily provided on an ad hoc basis by privately funded NGOs. Further efforts are needed to increase the budget of the defence counsel and to establish a nationwide legal aid scheme for criminal and civil trials.

The right to a fair trial is formally incorporated into the four criminal procedure codes of Bosnia and Herzegovina. However, in lower level courts judges have tended to neglect the presumption of innocence.

The prison system remains divided and management of penitentiary institutions is split between the State and the Entities. There is no unified practice of criminal sanctions. This division needs to be addressed in order to create a coherent prison system which ensures that human rights standards are applied in the same way throughout the country. At State level, there is no prison facility, but only limited detention capacity annexed to the State Court for custody purposes. There are plans to construct a high-security prison facility. No specific detention facilities exist for female inmates.

Prison facilities and supervision need to improve to address the problems of overcrowding, poor living conditions, inadequate medical treatment and physical abuse by prison guards. The criminal legislation provides the possibility of alternative penalties in the form of community work. This alternative was officially introduced in 2003, but a lack of acceptance has prevented its use. The Entity legislation on prisons has not been adjusted to the amendments of the Criminal Procedure Code and the State Law on the Execution of Criminal Sentences.

All the constitutions provide for freedom of expression . This has generally been respected by the authorities. The media remain ethnically divided. The effectiveness of the self-regulation instruments set out in the Press Code is limited. The Republika Srpska authorities refused to cooperate with the State-wide broadcaster for a period.

The Communications Regulatory Agency monitors audiovisual media, including how they deal with ethnicity, gender and minority issues. The public broadcasting law in the Federation has not been formally adopted. The adoption of this legislation is necessary to complete the legal framework for public broadcasting reform, which is a key priority of the European Partnership and one of the conditions for the signature of the Stabilisation and Association Agreement.

The constitutional framework of Bosnia and Herzegovina includes the right to freedom of assembly and association, which is respected by the authorities.

Some progress has been made as regards civil society organisations . The Council of Ministers signed an agreement on cooperation with the non-government sector and appointed a senior programming officer. Civil society organisations continue to register mainly at Entity level, because the registration process at State level is perceived as more bureaucratic. Few NGOs are therefore active country-wide. The Ministry of Justice is increasingly addressing this issue and providing more information on how NGOs can register at State level. The 2007 Republika Srpska Law on Income Tax exempts social assistance and humanitarian aid from taxation.

The Bosnia and Herzegovina Constitution provides for freedom of religion, and a State Law on Freedom of Confession and Legal Status of Churches and Religious Communities is in place. However, religious intolerance is still present in the country. Leaders of the religious communities have continued to intervene in political issues.

Overall, Bosnia and Herzegovina has made little additional progress as regards civil and political rights. Some steps have been taken to support civil society development, but the sector remains weak overall. There is room for improvement as regards the prevention of ill-treatment and the fight against impunity, as well as access to justice and equality before the law. The poor functioning of the prison system has led to a number of escapes from prison, including of war criminals. The long-awaited Federation legislation on public broadcasting is still pending.

Economic and social rights

Provisions on gender equality and women's rights are included in the law. However, the situation of women in Bosnia and Herzegovina has not improved. Trafficking in women and domestic violence remain issues of concern. Access to employment remains difficult and women’s participation in the labour market continues to be low compared with men. Many women are not covered by health insurance. Provisions to guarantee women equal pay are in place but they are not applied. There have been no specific measures to address this situation and to facilitate women's employment. Women continue to be under-represented in politics and official authorities. There are no female ministers in the State government and out of the 57 parliamentarians in the Bosnia and Herzegovina Parliamentary Assembly only seven are women.

Although the legal framework is in place, children's rights are not fully secured. Problems remain in the field of health, social protection, education and domestic violence against children. Children's attendance of early childhood education programmes is low. Children with disabilities and Roma children continue to lack sufficient medical care and adequate educational opportunities.

With regard to socially vulnerable and/or persons with disabilities , discrimination against people with disabilities is prohibited by the legislation of both Entities. However, the fragmented legal and financial framework does not provide for the same social protection for all citizens throughout the country. Numerous groups of the population are excluded from social protection and assistance benefits. The privileged treatment of war veterans continued to have negative effects on other socially vulnerable people and people with disabilities. Socially vulnerable people and people with disabilities often lack access to health protection and the labour market, as a general framework for equal treatment in employment and occupation has not been established. Accessibility legislation is not being implemented and effective policies need to be put in place. The inadequacies in the social welfare systems adversely affect conditions of the handicapped, including the mentally ill. The latter remain particularly vulnerable to social exclusion. Adjusted budgetary allocations and the establishment of a Council for Disabled Persons are necessary in order to improve the situation of disabled and socially vulnerable persons.

In the field of labour rights and trade unions , no changes occurred over the reporting period. Ratification of the Revised European Social Charter is still pending. There has been no progress on the State-level registration of the trade union Confederation (KSBiH). Ethnic discrimination in employment is widespread.

The complex system of government and the fragmentation of legislation further hamper social dialogue. No steps have been taken to harmonise the legislative frameworks. Despite some initiatives by the Ministry of Civil Affairs, a country-wide Economic and Social Council has not been established. The lack of clarity regarding trade-unions recognition has blocked further progress in establishing collective bargaining and moving towards voluntary collective bargaining. The size of the informal economy, the complex form of government and fragmented legislation continue to hinder the development of workers’ and employers' associations.

In the area of anti-discrimination policies , the State and Entity Constitutions guarantee equal treatment of all people. Bosnia and Herzegovina has not adopted a comprehensive anti-discrimination law, even though anti-discrimination legislation exists in several areas. Implementation is however deficient. Discrimination on the basis of sexual orientation is common.

Progress has continued on securing property rights . The mandate of the Commission for Property Claims of Displaced Persons and Refugees has been extended until the end of 2007 to address residual property repossession cases. Land administration reform continued, leading to improved legal security of land property rights and a stronger real estate market. A Land Administration Coordination and Advisory Board has been created in the Ministry of Justice at State level. This body is made up of representatives from the Entity Geodetic Administrations, the Entity Ministries of Justice and international donors.

Overall, very limited progress has been made as regards economic and social rights. Legal provisions to prevent discrimination and to protect the rights of women, children and socially vulnerable people do exist, but implementation is overall poor. No developments have taken place regarding labour rights and trade unions. A country-wide economic and social council has not been established. A positive note is that the process of repossession of property by displaced persons has been successfully completed.

Minority rights, cultural rights and protection of minorities

As regards minority and cultural rights and the protection of minorities , there are 17 officially recognised minorities in Bosnia and Herzegovina. The three constituent peoples – Bosniaks, Croats and Serbs – do not constitute minorities. Bosnia and Herzegovina is party to the Council of Europe Framework Convention for National Minorities, but ratification of the European Charter for Regional or Minority Languages is still pending. The second report on the Framework Convention was due in 2006 but has not yet been submitted. Many of the provisions of the Law on National Minorities have not been applied. Similarly, amendments to the Election Law aimed at improving the political representation of minorities have not been implemented. Amendments need to be made before May 2008 in order to allow national minorities to run for the 2008 local elections. No progress has been made in reforming the Bosnia and Herzegovina Constitution, and minorities therefore continue to be excluded from the House of Peoples and the tripartite Presidency. This problem was also underlined by the March 2007 concluding observations of the UN Committee on the Elimination of Racial Discrimination.

Bosnia and Herzegovina’s legislation provides free broadcasting time for minorities, but limited capacity prevents them from making full use of the time provided. Greater emphasis on capacity-building is necessary in order to allow minorities to exercise their rights to media representation. The Council of National Minorities, which will perform an advisory function to the Parliamentary Assembly, is not yet operational. The National Minority Council has been established in the Republika Srpska, but not yet in the Federation.

Many refugees and internally displaced persons (IDPs) do still not benefit from basic pension and health provisions. The security situation for returnees has generally improved, although isolated incidents of violence have occurred.

From January to December 2006 around 5,600 returns were registered in Bosnia and Herzegovina, of which 4,600 were minority returns. The number of returnees continues to decline, but the process of return has not yet been completed. Around 120,000 people are officially registered as refugees and displaced persons wishing to return. The Return Fund is financing the reconstruction of housing in 30 municipalities and is supporting a project aiming to close collective centres for refugees and displaced persons. Further measures are needed to improve conditions for sustainable returns, in particular regarding access to employment, health care, pensions and education. Regular and up-to-date information on the numbers and flows of refugees, IDPs and returnees is central to addressing the issue appropriately.

The process of de-mining in Bosnia and Herzegovina, important to facilitate the return process, is continuing. The De-mining Plan for 2007 has been adopted and is being implemented by the De-mining Commission in Bosnia and Herzegovina.

As regards missing persons, approximately 13,000 people who went missing during the war have not been found or identified. In 2006, new mass graves were discovered and about 2,500 human remains were exhumed. In June 2007, the Council of Ministers appointed the Steering Board of the Institute for Missing Persons. This should allow the Institute to become operational.

The review of citizenship granted during and after the war was in progress over the reporting period. The State Commission for the Review of Decisions on Naturalisation of Foreign Nationals in Bosnia and Herzegovina has proposed to revoke the citizenship of over 600 persons. The State Commission is continuing its work.

The Law on the Protection of Ethnic Minorities continues to be poorly applied, in particular as regards the Roma population. Roma continue to be the most vulnerable minority. Discrimination against this community persists, with problems in access to housing, social services (health), education and employment. Some action has nonetheless been taken regarding the implementation of the 2005 "Strategy for Addressing Roma Problems". Some efforts have been made to improve the education of Roma in schools and universities. In some municipalities, Roma children have been given school material, textbooks and financial assistance for hot meals and school transport. The implementation of the action plan on educational needs of Roma and other minorities led to an increase in the so far very low enrolment rate at all educational levels. However, only around 30 % of the Roma children complete primary education. Greater efforts are needed to fully implement the Roma Strategy and the necessary action plans. Bosnia and Herzegovina has not yet subscribed to the Decade of Roma Inclusion 2005-2015.

Overall, Bosnia and Herzegovina's progress in the area of minority rights, cultural rights and protection of minorities has been limited. Education has seen some progress through the adoption of legislation, but the enforcement of provisions regarding minorities is weak. Minorities remain excluded from access to certain political posts. Concrete action is necessary to improve the socio-economic integration of returnees and to support the Roma population which continues to face very difficult living conditions and discrimination. Efforts to address the issue of missing persons need to increase.

Regional issues and international obligations

Implementation of the Dayton/Paris Peace Agreement has continued, but nationalist rhetoric by political leaders from all constituent peoples challenging the agreement and the constitutional order has been frequent. For further details see section 2.1 Constitution above.

Bosnia and Herzegovina has honoured most of its Council of Europe (CoE) post-accession commitments. However, only limited progress has been registered in the outstanding commitments that Bosnia and Herzegovina undertook on joining the CoE. Bosnia and Herzegovina remains under CoE monitoring.

Bosnia and Herzegovina's cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) has progressed and is now at a generally satisfactory level. The signature of the Stabilisation and Association Agreement (SAA) will require full cooperation with ICTY.

Cooperation by the State and the Federation with ICTY has remained good, while cooperation by Republika Srpska has improved. In line with its action plan, Republika Srpska intensified its efforts to arrest indicted war criminals. In May 2007, the Republika Srpska police facilitated the arrest of one war criminal indicted by ICTY. Coordination between the State and Entity levels in targeting the fugitives' support network is improving. Transfers of information and evidence to facilitate prosecution in Bosnia and Herzegovina continued. As regards the freezing of assets of ICTY fugitives, legislation is in place. Some preliminary steps were taken in relation to one indicted war criminal, even though the process is still at the very beginning.

The State Court of Bosnia and Herzegovina has performed well as regards the indictees transferred from the ICTY to be judged locally. It has received a total of six cases under rule 11 bis[3] of the ICTY Rules of Procedure and Evidence involving ten indictees. The State Court has completed the trials in two of these cases. The workload of the State Court has increased from 170 active cases in October 2006 to 205 active cases in May 2007. The escape of a sentenced war criminal was a negative development. It highlighted deficiencies in the legislation and the lack of a State-level high-security prison. Witness protection in sensitive war crimes cases remains a problem.

As regards the International Criminal Court (ICC), Bosnia and Herzegovina still maintains a bilateral immunity agreement with the United States of June 2003 granting exemptions from ICC jurisdiction which does not comply with the EU Common Positions on the integrity of the Rome Statute as well as related EU guiding principles on bilateral immunity agreements. It needs to align with the EU position.

No decisive progress has been achieved on implementing the Sarajevo Declaration, which aimed at finalising the refugee return process by the end of 2006. The process remains blocked by the lack of political consensus between the signatories. Further efforts are urgently needed, particularly from Croatia, to resolve the outstanding issues, namely how to deal with compensation claims from those who lost occupancy and tenancy rights (OTRs) in Croatia and recognition of pensions and other rights for years spent working in Serb-controlled areas of Croatia during the war.

Overall, Bosnia and Herzegovina has continued to implement the Dayton/Paris peace agreement, although the agreement has frequently been challenged by key political leaders. Progress in cooperating with ICTY has been made, and full cooperation now needs to be achieved. Regarding the implementation of the Council of Europe post-accession requirements, progress has been more limited.

Regional cooperation and good neighbourly relations form an essential part of the process of Bosnia and Herzegovina moving towards the European Union.

Bosnia and Herzegovina continues to be an active participant in regional cooperation initiatives such as the South-East European Cooperation Process (SEECP), the Central European Initiative, the Adriatic-Ionian Initiative and the Danube Cooperation Process. In its capacity as the presidency-in-office of the Adriatic-Ionian Initiative, Bosnia and Herzegovina hosted meetings of the High Officials Committee and regional events on economy and tourism, protection of cultural heritage, environment and cooperation in fight against organised crime. Bosnia and Herzegovina held also the presidency of the Migration, Asylum and Refugees Regional Initiative (MARRI). The Stability Pact is in the process of transition to a more regionally owned cooperation framework and Bosnia and Herzegovina hosts the Secretariat of the new Regional Cooperation Council.

Following a difficult internal debate, in September 2007 Bosnia and Herzegovina ratified the enlarged and amended Central European Free Trade Agreement (CEFTA). Bosnia and Herzegovina is party to the Energy Community Treaty, which came into force in July 2006. Bosnia and Herzegovina is lagging behind with meeting its obligations under the Treaty, especially in relation to gas sector. This is mainly due to the positions taken by Republika Srpska.

After considerable delays Bosnia and Herzegovina ratified the European Common Aviation Area (ECAA) in September 2007.

On the whole, bilateral relations with other enlargement countries have continued to be good, although little progress has been made on outstanding issues.

Relations with Serbia were affected by the judgement on Bosnia and Herzegovina's lawsuit against Serbia and Montenegro for genocide. In February 2007, the International Court of Justice (ICJ) found that acts of genocide had been committed in Srebrenica. The ICJ judges concluded that " Serbia has not committed genocide through its organs or persons whose acts engage its responsibility under customary international law, in violation of its obligations under the Convention on the Prevention and Punishment of the Crime of Genocide ." They also found that " Serbia has not conspired to commit genocide, nor incited the commission of genocide" and acquitted Serbia on charges that it was " complicit in genocide ." However, the Court ruled that Serbia did not use its influence to prevent the genocide of Bosnian Muslims in Srebrenica in July 1995. It also found that its leaders failed to comply with international obligations to punish those who carried out that massacre. The verdict was followed by an exchange of diplomatic notes between the two countries.

There were few other developments affecting bilateral relations between Bosnia and Herzegovina and Serbia. Serbia opened a Consulate in Banja Luka in May 2007. Issues relating to the State border, property relations and trade remain unresolved. The Inter-State Council between Bosnia and Herzegovina and Serbia did not meet in 2007.

Republika Srpska has continued to intensify contacts and cooperation with Serbia on the basis of the Special Parallel Relations Agreement signed in September 2006.

With regard to Kosovo (under UNSCR 1244), the official stance of Bosnia and Herzegovina underlines the importance of a negotiated settlement.

Relations with Croatia remained stable and bilateral contacts have been increasing. Agreements on dual citizenship and on joint supervision of the State border have been signed. However, other border and trade-related issues have not been settled. There has been no concrete progress in addressing the agreement on the port of Ploče, transit through Neum and the agreement on settling property issues. Ratification of the 2005 Agreement on Demarcation of the Land and River Borders is on hold, and the border dispute involving two islands – Veliki Skoj and Mali Skoj – remains unsolved, as does the issue of the Una river border. Croatia's plan to build a bridge through the Peljesac peninsula has not been endorsed by the Bosnia and Herzegovina authorities.

Relations with Montenegro have intensified. Montenegro has opened an embassy in Sarajevo. Bosnia and Herzegovina has opened an embassy in Podgorica.

Good relations were maintained with the former Yugoslav Republic of Macedonia, with reciprocal high level visits.

Diplomatic contacts with Albania have been limited but relations remain good.

Bosnia and Herzegovina has concluded a Free Trade Agreement with Turkey .

Bilateral relations with EU Member States remain good. The EU is Bosnia and Herzegovina’s main trading partner. Trade takes place in particular with Austria, Germany, Slovenia and Italy.

Overall, Bosnia and Herzegovina has continued to participate actively in regional cooperation. It must ensure the proper implementation of signed agreements, including CEFTA. While good neighbourly relations have prevailed, there has been little progress in addressing the outstanding issues, notably as regards trade and border-related issues.

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.

The existence of a functioning market economy

Economic policy essentials

The government submitted its first Economic and Fiscal Programme for 2006-2008 in December 2006, providing a basis for analysing prospective developments in economic and structural reform over the programme period. The programme noted the shortcomings stemming from the fact that the developments in 2006, along with the lines of policy of the incoming governments after the October 2006 elections, had not been fully captured.

Consensus has not yet been reached on the fundamentals of economic policies, reflecting the diverging views between the State level and the entities on the essentials of economic reform and coordination. The lack of consensus on implementation of reforms was manifest, in particular, in the Federation of Bosnia and Herzegovina, where the privatisation and restructuring of publicly owned enterprises has slowed down, partly as a result of the protracted process of government formation after the 2006 elections. In general, necessary reforms in areas such as labour markets, fiscal sustainability and restructuring or financial supervision have not been carried out, either at Entity or at State level. In addition, there is limited consensus on the degree of any transfer of competences to State institutions and, where it has occurred, it has often been accompanied by an increase in spending. In the area of fiscal coordination, negotiations about formalising and improving the activity of the National Fiscal Council continued, but with no tangible results. In general, a lack of coherence and consensus on economic policies prevented the acceleration of reforms at State, Entity and other government levels.

Macroeconomic stability

In 2006, real GDP growth was 6.2%, up from 4.3% in 2005, driven by domestic demand and a notable rise in net exports. Economic activity grew strongly in sectors such as wholesale and retail trade, real estate, construction, financial intermediation and manufacturing, reflecting a favourable external environment and more accurate reporting of real export values after the introduction of value-added tax (VAT). In 2006, industrial output expanded by 7.5% in the Federation and by 19.1% in the Republika Srpska, led by above-average increases in production of chemicals, metals, furniture and machinery and equipment in the former and of rubber and plastic products, metals and wood and furniture products in the latter. In the first eight months of 2007, the year-on-year increase in the volume of industrial production was 11.9% in the Federation, exceeding the modest 0.4% growth in the RS. Overall, economic growth accelerated in 2006 on the back of a more dynamic catching-up process in the RS and has remained strong in 2007, this time driven by the Federation. The shift towards higher value-added activities has been sluggish in both entities. The quality of statistical information remains rather weak.

The current account deficit almost halved to around 11% of GDP from 2005 to 2006, primarily due to a reduction of the trade deficit by around 11 percentage points of GDP. The introduction of VAT in January 2006 led to more accurate reporting of export values and a frontloading of imports in the second half of 2005. As a result, in 2006 imports were almost flat in nominal terms, while exports grew by around 29%, also helped by favourable export price developments. The favourable trend did not continue into 2007, when imports rose by about 24% year on year in the first six months, widening the trade deficit by 29%.

In 2006, the substantial trade deficit of around 35% of GDP was financed to a large extent by worker remittances in the forms of private current transfers and employee incomes which totalled around 18% of GDP on a net basis. Net FDI inflows covered only about one third of the current account deficit. In the first half of 2007, the privatisation of Telekom Srpske and a pick-up in greenfield investments boosted net FDI inflows to above 8% of the projected GDP. Due to strong capital inflows, the official foreign exchange reserves had increased by 25%, year on year, at the end of August 2007. External public debt further declined to around 21% of GDP at the end of 2006, while total external debt is estimated at around 51% of GDP. In conclusion, despite a temporary improvement in 2006, external imbalances widened again in 2007, but with increased coverage by net FDI inflows.

Employment in the formal sector increased by 1.7% year on year in June 2007. The officially registered unemployment rate increased slightly to 44.2% over the same period. The labour force survey showed a marginal increase in the employment rate to 31.2% in April 2007 from 29.7% a year earlier. While the employment rate increased to around 35% in the Republika Srpska, it remained almost flat in the Federation at about 29%. At the same time, the unemployment rate declined modestly to 29% from 31.1% over the same period and stood at around 25% in the Republika Srpska and 31% in the Federation. The still very high unemployment rate and the sizeable differences between the levels and dynamics of registered and survey-based labour data point to the existence of a fairly large and growing informal labour market and of serious structural rigidities. The reform of personal income taxation in the Republika Srpska helped to reduce the fairly high labour tax wedge. The Federation government took steps to replicate the reform and harmonise direct taxation in the two entities.

Overall, unemployment is very high and job creation is hampered by significant structural rigidities, in particular high taxation of labour, distorted wage-setting mechanisms and low labour mobility. Relatively high and poorly targeted social transfers reduce the incentive actively to seek a job.

The monetary policy of the Central Bank of Bosnia and Herzegovina (CBBH) is conducted under a currency board arrangement with the euro as the anchor currency. The CBBH kept reserve requirements unchanged in 2006 and the first half of 2007. Annual credit growth slowed from 27.3% in 2005 to 23.4% in 2006. It bounced back to around 28.6% at the end of August 2007. The annual growth of broad money accelerated from 18.2% at the end of 2005 to 24.6% at the end of August 2007. Nonetheless, its coverage by foreign exchange reserves was ample at around 87.5% at the end of August 2007. A higher rate of inflation was recorded in 2006 on the back of the introduction of VAT and changes in administered prices. This receded significantly in 2007. The 2006 end-year consumer price index inflation stood at 6.1%. It declined to 0.9% by the end of August 2007. In conclusion, the currency board arrangement continues to underpin macroeconomic stability, despite the relatively rapid growth of domestic credit.

The replacement of sales tax by VAT in 2006 contributed to increasing consolidated government revenue to around 45% of GDP in 2006, greatly influencing the fiscal stance in 2006 and 2007. The increase in revenue by close to 4% of GDP from 2005 to 2006 resulted in increased spending at all levels of government, totalling more then 3% of GDP, and a rise in the budget surplus to 2.9% of GDP. The budget of State institutions increased by about 1.4% of GDP, due to transfers of powers from the Entities, of which 1.2% of GDP was spent on a higher wage bill. The transfer of functions to State level was not accompanied by an equivalent reduction in spending by the Entities, which also increased their expenditure as a share of GDP. Public spending increased by around 1.6% of the Entity's GDP in the Federation and by 2.9% in the Republika Srpska.

The 2007 budget execution at different levels of government shows continuing increases in public-sector wages, social transfers and welfare spending. In particular, the Law on demobilised soldiers adopted in the Federation added to aggregate social spending. Despite good revenue collection in the first half of 2007, the temporary nature of some of the high VAT revenue recorded in 2006 raises concerns that the large spending commitments in 2007 could result in a deterioration of the fiscal position. Overall, the relative consolidation of public finances in 2006 was accompanied by a slippage of expenditure which weakened the quality of the fiscal adjustment and added to the fiscal risks.

The external public debt of Bosnia and Herzegovina is on a downward trend, from around 26% of GDP at the end of 2005 to 21% at the end of 2006. However, domestic public debt is expected to raise the fiscal burden significantly in the years ahead, due to a large stock of unsettled domestic claims. The two entities further implemented the Law on the settlement of liabilities from frozen foreign currency deposits, which is expected to increase the domestic public debt significantly, in particular in the Federation. Other domestic liabilities relate to the claims for war damages. Finally, the bill on restitution, which has been sent to parliament but not yet adopted, could undermine fiscal sustainability if it fails to align financial compensation with the budget’s long-term ability to pay. The Republika Srpska adopted a Debt Law which limits government borrowing by introducing sub-ceilings on the level of debt service relative to current revenue from the preceding year. A similar law is awaiting adoption in the Federation. In conclusion, both entities have made some progress on settling domestic claims, but the final outcome still represents a significant fiscal risk.

The improved macroeconomic policy mix from 2006, reflected in a higher surplus of the public-sector savings/investment balance and a substantial reduction of the current account deficit, was based on one-off factors that would not be repeated in 2007. The most important one was the introduction of VAT which, despite its overall positive impact, also allowed a weakening of the quality of fiscal adjustment by creating room for a large increase in public current spending. At the same time, the reform of direct taxation in the RS as of January 2007 simplified the tax system and reduced the fiscal burden, which could alleviate the distortions of the labour market in particular. In general, one-off factors helped to improve the macroeconomic policy mix in 2006, but the quality of public spending deteriorated.

Interplay of market forces

In 2006 and 2007, the Republika Srpska made further progress on privatisation and, after the sale of Telekom Srpske, around 63% of the initial stock of State-owned capital for privatisation has been sold. In addition, privatisation of the Republika Srpska oil businesses – Oil Refinery Brod, Oil Refinery Modrica and Petrol a.d. Banjaluka – is almost complete. The setting-up of the Investment-Development Bank of Republika Srpska for the purpose of managing the remaining State ownership, completing privatisation and investing privatisation proceeds via various funds, is intended to improve allocation of public resources, but at the same time threatens to crowd out private-sector activities, in particular in the banking sector. Similarly, adoption of the development programme of Republika Srpska – which plans to invest a large share of the funds in industrial activities, corporate restructuring and housing construction – could run counter to the initial objective of divesting State ownership.

In 2006 the private sector’s country-wide share in GDP remained around the 55% level recorded in 2005. The main reason for this was the slowdown of the privatisation process, which affected the Federation most. In 2006, the various privatisation agencies in the Federation (Entity and cantonal) sold stakes in 14 companies, with the total capital privatised worth € 86 million and investment commitments of around € 87 million. This equals only about 2% of the total State-owned capital slated for privatisation in 1999, bringing the cumulative percentage of capital privatised so far in the Federation to around 41%, of which only about one quarter was privatised by direct tendering. Cash proceeds from these privatisations in 2006 totalled some € 12 million. In 2007, the Federation Privatisation Agency plans to privatise another 3% of the initial stock of State-owned capital, either by direct tendering or by stock-exchange sales, and to restructure a further 3% of that stock prior to privatisation. However, the process came to a standstill, as tenders for some strategic companies (e.g. Energoinvest and Hidrogradnja) were cancelled and privatisation of Aluminij d.d. Mostar was delayed, diminishing the prospects for faster privatisation in 2007. What is more, the situation in late August was that the privatisation process, except for the ongoing sales, had been put on hold by the Federation cabinet until a general privatisation policy is formulated.

Free market entry and exit

Implementation of a single business registration system started in a limited number of courts in June 2007. It should shorten the procedure for court registration to five days and reduce the number of documents required. Survey data suggest that up to June 2007 no particular progress was made on the procedures for starting a business, obtaining licences or closing a business. However, some progress was made on reducing the number of inspections faced by companies in both the Federation and the Republika Srpska. Furthermore, the RS authorities are close to completing a regulatory impact analysis aimed at reducing red tape, known as the "guillotine process". Bankruptcy procedures have been improved and the number of cases initiated and closed by the courts has gradually increased. Less progress has been achieved on applying bankruptcy procedures to the high number of insolvent publicly owned companies, as suggested by the large and increasing amount of state aid and public-sector subsidies. Major obstacles to business entry persist in areas such as obtaining licences, registering property, enforcing contracts and paying taxes. Overall, company registration and licensing procedures have improved marginally, but significant administrative inefficiencies are continuing to hamper market entry and exit and making it difficult to do business.

The legal system

The judicial system continues to suffer from slow court proceedings, poor case management and a large and growing backlog of unresolved cases. Political interference in the system has occasionally occurred. Overall, these circumstances impair the business environment by undermining effective enforcement of creditor and property rights.

Development of the financial sector

Banks hold a dominant position in the financial sector and their assets grew to around 82% of GDP in 2006, up from 76% in 2005. There were 32 banks operating at the end of 2006 (compared with 55 in 2000), with foreign capital controlling about 83% of the total bank capital. Privatisation of banks was completed in 2006 in the Republika Srpska. In the Federation three banks remain in public hands, all under provisional administration. The five largest banks held around 59% of the total assets of the banking system at the end of 2006, similar to 2005. This, along with the narrowing of interest spreads, shows that bank consolidation is not hindering market competition.

Non-bank financial sectors recorded sustained growth in 2006. The leasing market grew by around 30% to 2.4% of GDP at the end of the year. The insurance sector is fragmented and obstacles remain for the operation of insurance companies of one Entity in the other one. The sector's assets are estimated at about 3.2% of GDP. Loans in the micro-credit sector totalled 2.5% of GDP. New harmonised Entity-level laws were adopted on micro-credit institutions along with amendments to the laws on banking supervision agencies in order to bring the micro-credit sector under the scope of banking supervision agencies. In 2006, the market capitalisation of the Sarajevo Stock Exchange increased by 76% and ended on almost 95% of GDP in the Federation, while the Banja Luka Stock Exchange increased its capitalisation by 175% to more than 121% of GDP in the Republika Srpska. Overall, at the end of 2006 stock market capitalisation of both exchanges in Bosnia and Herzegovina stood at 108% of the country's total GDP. In conclusion, the financial sector is developing rapidly .

Financial stability indicators point to a strengthening of the banking system in 2006. The ratio of non-performing loans to total loans decreased to 4% at the end of the year. Although marginally lower than a year earlier, the capital adequacy ratio was relatively high on 17.7% at the end of 2006. Over the same period, average return on equity increased by 2.3 percentage points to 8.5%, suggesting improving profitability. A single credit registry was established for legal entities in 2006 and extended to physical entities in early 2007. However, banking supervision is conducted by two separate Entity agencies under the weak coordination of the CBBH and thus remains fragmented. The rapidly growing leasing operations have not yet been included in any supervision framework, although in the Republika Srpska newly adopted legislation brought leasing operations within the scope of banking supervision. Overall, supervision of the financial sector has not been adequately strengthened.

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

Existence of a functioning market economy

Macroeconomic stability has improved. Economic operators are able to take decisions in a climate of relative stability and predictability, despite risks related to a deterioration of fiscal and external balances. The slowdown of structural reforms, in particular in the Federation, together with the lack of consensus on economic policies and the continuing strong influence of the public sector in the economy, still hinder efficient allocation of resources by market mechanisms.

Human and physical capital

The Higher Education Law has been adopted. A package of other education laws, including one on vocational training, is still awaiting adoption. Efforts have been made to improve the quality of vocational training and to establish a closer link with the needs of the labour market. Despite some improvement, enrolment rates for secondary and higher education and graduation rates remain relatively low. According to the labour force survey, participation in the labour market is still very poor, as indicated by an activity rate of around 44% and an unemployment rate which declined marginally to 29% in April 2007. The authorities are taking a number of active labour market measures to alleviate the current situation, but without much success. Improved performance on the labour market depends heavily on reducing labour market rigidities and increasing labour mobility. Overall, the reform of the education system has been progressing only slowly and the low education outcomes do not justify the relatively large number of initiatives and public spending in this area. The weak performance of the labour market requires strong structural adjustments.

In 2006, as in the previous year, FDI went predominantly to the financial sector, but the manufacturing sector also attracted about a quarter of the inflows. Investment totalled around 21% of GDP in 2005. FDI inflows into Bosnia and Herzegovina increased moderately, from 5.5% of GDP in 2005 to 5.8% in 2006, bringing the total stock of FDI per capita to a relatively low € 780. However, so far in 2007 FDI inflows have risen sharply, taking the FDI stock per capita to over€1,000 euros. Upgrading of the telecommunications and transport infrastructure has continued, particularly of local road construction. Development of the R&D sector is hindered by obsolete research infrastructure, weak performance of higher education and a massive brain drain of scientists. To conclude, the upgrading of physical capital is progressing, but in a low gear.

Sector and enterprise structure

Legal frameworks that would allow financial restructuring and debt write-offs for State-owned enterprises were put in place in both entities in 2006. In addition, the privatisation legislation was amended in the Federation to allow, inter alia , the splitting-up of State-owned enterprises into viable components that would be subsequently sold, although so far it has had no tangible impact on the volume of privatisation. The new legislation on financial restructuring in the Republika Srpska has produced some positive results, facilitating the sale of the oil-refining companies.

In the Federation, the rescheduling and writing-off of state-owned companies’ accumulated budget arrears allowed outside the restructuring/privatisation process can have damaging effects on corporate governance in the long run. In addition, the plans to restructure the energy sector by including profitable and non-profitable units in joint entities diminish the long-term viability of the sector. Overall, the restructuring of state-owned enterprises is progressing fairly slowly and is hindered by the vested interests of enterprise managers, trade unions and decision-makers.

The liberalisation of network industries has continued, with mixed results. Some progress has been made with the preparations for opening up the electricity market, but less in the gas sector. Unbundling of distribution and generation in the energy sector is proceeding slowly. Some progress has been made with liberalisation of the telecommunications sector, in particular in the form of privatisation of Telecom Srpske. Structural separation of the railway companies has yet to be completed in the two entities and these companies are still loss-making. To conclude, only limited progress has been achieved on liberalisation of the network industries.

The gradual shift in the sectoral structure of the economy towards services – retail and wholesale trade, financial intermediation and real estate – is continuing. At the same time, the structure of exports and industrial production reveals a shift towards higher value-added goods. This trend is more marked in the Federation and, overall, is proceeding at a slow pace.

The small and medium-sized enterprises (SME) sector is growing, but has to cope with a difficult business environment. Access to longer-term financing and the lack of collateral remain problematic. Progress has been achieved at Entity level, but there is no consensus on establishing a support framework for SMEs at State level, which would help the country to comply with the European Charter for Small and Medium-Sized Enterprises. The Federation adopted a law to promote the development of SMEs. The Republika Srpska National Assembly approved a strategy for the development of SMEs for 2006-2010. To sum up, some progress has been made at Entity level on setting up structures to support SMEs, although uncoordinated in terms of a country-wide strategy.

State influence on competitiveness

Some progress has been made on enhancing transparency on State aid by compiling a preliminary state aid inventory for 2004-2006. The majority of Bosnia and Herzegovina's support programmes would not qualify as state aid schemes, given that they usually last less than a year or are even adopted on an ad hoc basis. The amounts granted are large and increasing and varied, on average, from 1.7% to 4.5% of GDP over the period, depending on the estimation method. A large proportion of the support goes to sectors such as public transport and utilities, agriculture and mining. State intervention in the productive sector remains significant. The Competition Council increased its activity on carrying out investigations and issuing decisions. Sustained efforts are now necessary to achieve more effective anti-trust control.

Economic integration with the EU

Bosnia and Herzegovina is an open economy with total trade equivalent to around 103% of GDP in 2006. This share went down slightly from about 108% of GDP in 2005, mainly due to the frontloading of imports prior to the introduction of VAT. In 2006, the EU continued to be the most important trading partner with shares of around 69.4% of Bosnia and Herzegovina's total exports and of 60.2% of its total imports. FDI inflows from the EU declined temporarily in the first half of 2007, following the large sale of Telecom Srpske to a non-EU company. Overall, integration of trade and investment with the EU remains strong.

The consumer price indexed-based real effective exchange rate calculated in relation to 20 trading partners appreciated by around 4.2%, year on year, by the end of June 2007. In the first six months of 2007 it appreciated moderately (by around 2.1%) compared with the 2003 level. In 2006, the unit labour cost-based real exchange rate against the euro appreciated by around 2%, despite an increase in labour productivity of about 4%. Consequently, price competitiveness was largely preserved.

The per capita income of Bosnia and Herzegovina, measured in purchasing power standards (PPS), was around 29% of the EU-27 average in 2006, slightly up on 2005.

EUROPEAN STANDARDS

This section examines Bosnia and Herzegovina’s capacity gradually to approximate its legislation and policies to the acquis related to the internal market, sectoral policies and justice, freedom and security, in line with a Stabilisation and Association Agreement and the European Partnership priorities. It also analyses Bosnia and Herzegovina’s administrative capacity

Internal market

Free movement of goods

As regards horizontal measures, progress has been made on dismantling Bosnia and Herzegovina's Institute for Standards, Metrology and Intellectual Property and establishing three separate Institutes – one for Standardisation, one for Metrology and one for Intellectual Property – from the beginning of 2007.

Some progress has been made as regards standardisation . The Institute for Standardisation has been established and the director has been appointed. The Institute is carrying out standardisation activities based on the principle of voluntary standardisation and is adopting as national standards the standards of the European standardisation organisations CEN (European Committee for Standardisation), CENELEC (European Committee for Electro-technical Standardisation) and ETSI (European Telecommunications Standards Institute). So far 7641 European standards (ENs) have been adopted as Bosnia and Herzegovina's standards, a large majority of them by the declaration method. The Institute is an associate member of CENELEC and a partner standardisation body of the CEN. Lack of human resources is undermining the capacity of the Institute for Standardisation to perform its tasks effectively.

As regards accreditation , the Institute for Accreditation is working in accordance with the requirements of the EN 45000 and ISO/IEC 17000 series of standards and with the recommendations and guidelines issued by European cooperation for Accreditation, the International Accreditation Forum and International Laboratory Accreditation Cooperation. The Institute has so far accredited 30 conformity assessment bodies. It has 11 permanently employed specialists and around 40 outside experts (assessors and technical experts). Bosnia and Herzegovina needs to establish the conditions for future international recognition of its test and calibration results and certificates. It also needs to prepare the Institute for Accreditation to sign the multilateral agreement with European cooperation for Accreditation.

Little progress has been made as regards metrology . The legislation on metrology is not harmonised with the EU requirements, which call for separation between legal, scientific and industrial metrology and harmonisation of the State-level and Entity-level legislation. Bosnia and Herzegovina needs to develop a metrology system in line with the EU Member States' best practices and to develop metrology services of internationally recognised quality within the framework of national metrology infrastructure. In addition, it needs to start to prepare the Bosnia and Herzegovina Institute for Metrology for future full membership of EUROMET (European Collaboration in Measurement Standards), EURACHEM (European Federation of National Associations for Analytical Chemistry), WELMEC (European Cooperation in Legal Metrology), OIML (International Organisation of Legal Metrology) and the Meter Convention.

No significant progress has been made on conformity assessment activities. Conformity assessment is not performed on locally manufactured or imported products before they are released onto the market.

Little progress has been made with market surveillance . Bosnia and Herzegovina has established the Agency for Market Surveillance which, along with the inspectorates of the Entities and the customs offices, will form the market surveillance system. The Agency is not yet fully operational. The market surveillance system is still largely based on mandatory standards and pre-market control, which involves certification of products before they are put on the market. Further development of a market surveillance system based on appropriate new and old approach product legislation is needed. The country needs to develop the capacity of its market surveillance system in order to guarantee the safety and compliance of technical products in accordance with EU market surveillance good practice.

Limited progress has been made with technical regulations transposing the old and new approach directives into national legislation. The Council of Ministers adopted a Decision on an Action Plan for Implementation of the Programme on the Transposition of Technical Regulations that defines the division of powers between the institutions responsible for transposition and implementation of technical regulations. No technical regulations transposing the Community acquis have yet been adopted and no internal consultation and notification mechanisms have been established.

The country lacks many important line ministries at State level and specific areas of technical regulations must be formally assigned to the existing State Ministries in accordance with their general areas of competence. Consequently, the majority of technical regulations are not covered by any government body. The new approach directives covered by the Ministry of Foreign Trade and Economic Relations are an exception. Partly due to the aforementioned deficiencies of the institutional framework, there is no systematic knowledge of specific regulations in force. Most areas of the harmonised EU acquis are hardly regulated or have not been implemented at all or else they are regulated at Entity level, often based on diverging provisions, thus creating obstacles to operation of the internal market even within the country. In addition, there is neither an enquiry point with a reliable database on the product legislation in force (mainly laws inherited from the former Yugoslavia) nor applicable conformity assessment systems and infrastructure needed by local manufacturers and potential exporters to Bosnia and Herzegovina.

The Law on Pharmaceuticals and Medical Devices has not yet been adopted. Consequently, no national agency for medicinal products has been established. This continues to undermine the establishment of a real internal market within Bosnia and Herzegovina in this sector.

Some progress has been made in the area of consumer protection. The Office of the Ombudsman for Consumer Protection provided for by the Consumer Protection Law has been established. The Section for Consumer Protection, Market Surveillance and Competition at the Ministry of Foreign Trade and Economic Relations has also been set up. Nonetheless, the rights that the legislation confers on consumers are not sufficiently protected in practice. The activities of the State-wide Consumers’ Association have remained limited due to lack of resources.

Overall, Bosnia and Herzegovina's preparations in the fields of standardisation, accreditation, conformity assessment, metrology, market surveillance and consumer protection remain at an early stage.

Movement of persons, services and right of establishement

No progress has been made regarding movement of persons . The labour legislation remains fragmented and labour mobility limited. There is no uniform social security system and social benefits differ between Entities end even between cantons. This situation undermines the prospects for a coordinated social security mechanism with the EU. Ensuring the portability of pension and health benefits between individual social sec