TABLE OF CONTENTS

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

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

1.2........ Context 3

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

2........... Political criteria. 6

2.1........ Democracy and the rule of law.. 6

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 29

4.1.1..... Free movement of goods. 29

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

4.1.3..... Free movement of capital 33

4.1.4..... Customs and taxation. 33

4.1.5..... Competition. 35

4.1.6..... Public procurement 35

4.1.7..... Intellectual property law.. 36

4.1.8..... Employment and social policies, public health policy. 37

4.1.9..... Education and research. 38

4.1.10... WTO issues. 39

4.2........ Sectoral policies. 40

4.2.1..... Industry and SMEs. 40

4.2.2..... Agriculture and fisheries. 40

4.2.3..... Environment and climate change. 42

4.2.4..... Transport policy. 44

4.2.5..... Energy. 45

4.2.6..... Information society and media. 46

4.2.7..... Financial control 47

4.2.8..... Statistics. 48

4.3........ Justice, freedom and security. 48

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

4.3.2..... Money laundering. 51

4.3.3..... Drugs. 52

4.3.4..... Police. 52

4.3.5..... Fighting organised crime and terrorism.. 53

4.3.6..... Protection of personal data. 55

1. Introduction 1.1. Preface

The Commission reports regularly to the Council and Parliament on the progress the countries of the Western Balkans region have made towards European integration, assessing their efforts to comply with the Copenhagen criteria and the conditionality of the Stabilisation and Association Process.

This progress report, which largely follows the same structure as in previous years:

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

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

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

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

This report covers the period from October 2012 to September 2013. Progress is measured on the basis of decisions taken, legislation adopted and measures implemented. As a rule, legislation or measures that are being prepared or awaiting parliamentary approval have not been taken into account. This approach ensures equal treatment across all reports and enables an objective assessment.

The report is based on information gathered and analysed by the Commission. Many sources have been used, including contributions from the government of Bosnia and Herzegovina, the EU Member States, European Parliament reports[1] and information from various international and non-governmental organisations.

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

1.2. Context

Bosnia and Herzegovina is a potential candidate for EU membership. The Stabilisation and Association Agreement between Bosnia and Herzegovina and the EU was ratified in 2011 but has not yet entered into force.

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

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

Since the decoupling of the European Union Special Representative’s mandate from the OHR, the EU has reinforced its role in the country in line with the relevant Council Conclusions. The enhanced presence of the combined EU Special Representative and the EU Delegation in Bosnia and Herzegovina have continued to be instrumental in communicating EU priorities to citizens and in implementing the objectives of the EU agenda in key areas.

1.3. Relations between the EU and Bosnia and Herzegovina

Bosnia and Herzegovina participates in the Stabilisation and Association Process.

All EU Member States have ratified the Stabilisation and Association Agreement (SAA) signed in June 2008, but the Council has refrained from taking a decision on its entering into force due to the country’s failure to implement the Sejdic-Finci ruling of the European Court of Human Rights (ECtHR).[4]

The Interim Agreement (IA) has been in force since July 2008. Regarding obligations on state aid, the State Aid Council has been established, but is not functioning properly. The country is still in breach of the IA, due to non-compliance with the European Convention on Human Rights. Bosnia and Herzegovina has refused to accept the well-established methodology for the technical adaptation of the IA/SAA in order to take into account its bilateral traditional trade with Croatia. The trade part of the SAA/IA could therefore not be adapted yet following Croatia’s accession to the EU.

Bosnia and Herzegovina has continued to engage with the EU on a Structured Dialogue on Justice, with plenary meetings held in April and July. The process was established with the aim of further consolidating the judicial system to ensure it is independent, effective, impartial and accountable, in line with the relevant EU standards and acquis.

The second meeting of the EU-Bosnia and Herzegovina High Level Dialogue on the Accession Process was held in November. The country’s authorities delivered replies to two lists of questions on public procurement and the environment under the June 2012 Roadmap on Bosnia and Herzegovina’s EU membership application.

The commitment to implement the Sejdic-Finci judgment by 30 November 2012 was not respected. Despite intensive facilitation efforts by the EU, Bosnia and Herzegovina’s political leaders have not been able to reach agreement on how to address this case regarding discrimination against citizens on the grounds of ethnicity. Furthermore, the requirement to establish an effective EU coordination mechanism has not been met. With regard to implementation of the Sejdic-Finci judgment, some positive engagement was registered during the mid-term review in February, but political leaders did not keep up the momentum and no tangible result was achieved by the end of March, as requested in a joint letter of the EU High Representative for Foreign Affairs and Security Policy and the Commissioner for Enlargement and European Neighbourhood Policy. The Commission therefore cancelled the High Level Dialogue meeting planned for April in Mostar and set up such meeting on 1 October in Brussels with a broader agenda. At this meeting the leaders of the seven main political parties, in the presence of the Chair of the Council of Ministers, the Prime Ministers of the two Entities as well as the Brčko Mayor, signed a declaration on some key principles for the solution of the Sejdic-Finci issue committing themselves to reach agreement by 10 October on Sejdic-Finci and the co-ordination mechanism on EU matters. When the High Level Dialogue resumed on 10 October, the political leaders were not able to come to full agreement but intensive consultations among the stakeholders and with the EU continue.

The EU provides guidance to the country’s authorities on reform priorities, often without response and appropriate follow-up on their side. Progress on these priorities is encouraged and monitored by the joint bodies established by the IA. The overall pace of reforms has weakened. Five sub-committee meetings and one Interim Committee meeting have been held. Due to the inability of the authorities to reach a common position on the topics to be discussed, one of the sub-committee meetings had to be cancelled, which is without precedent. This illustrates the urgent need for an effective coordination mechanism on EU matters.

An inter-parliamentary meeting between Members of the European Parliament and Members of the Bosnia and Herzegovina Parliamentary Assembly took place in October in Sarajevo and in Brussels in July. The Western Balkans Working Group of the Committee of the Regions held a meeting in Sarajevo in May. Bosnia and Herzegovina participates in the multilateral economic dialogue with the Commission and the EU Member States to prepare the country for participation in multilateral surveillance and economic policy coordination under the EU’s Economic and Monetary Union.

The EU’s presence in the country has been strengthened by reinforcing its offices in the Brčko District, Mostar and Banja Luka. It continues to facilitate political dialogue and the implementation of EU-related reforms. The EU has continued to deploy considerable resources in the country under the Common Foreign and Security Policy and the Common Security and Defence Policy. Following the closure of the EU Police Mission in June 2012, the EU remains committed to strengthening the rule of law in Bosnia and Herzegovina through other instruments, including the Instrument for Pre-accession Assistance (IPA) and the reinforced EUSR Office.

As regards Common Foreign and Security Policy (CFSP), Bosnia and Herzegovina aligned itself, when invited, with 23 out of 35 declarations by the EU High Representative on behalf of the EU and Council decisions (66% alignment).

The EUFOR Althea military operation contributes to maintaining a safe and secure environment in the country. The UN Security Council has extended EUFOR’s mandate until November 2013. The Operation was reconfigured and reduced to 600 troops in theatre, focusing on capacity building and training, while maintaining the means to contribute to the Bosnia and Herzegovina authorities’ deterrence capacity.

Visa liberalisation for citizens of Bosnia and Herzegovina travelling to the Schengen area has been in force since December 2010. In the framework of the post-visa liberalisation monitoring mechanism, the Commission regularly assesses progress made by the country in the implementation of reforms introduced under the visa roadmap. This also includes an alert mechanism to prevent abuses, coordinated by Frontex. Within this framework, the European Commission has regularly submitted its monitoring reports to the European Parliament and Council. The next report will be presented by the end of 2013. A readmission agreement between the European Union and Bosnia and Herzegovina has been in force since January 2008.

Bosnia and Herzegovina receives financial assistance under IPA. The EU Delegation to Bosnia and Herzegovina is responsible for implementing financial assistance. The country’s authorities have made no progress towards establishing the necessary structure for decentralised management of EU funds. Implementation of the 2008-2012 national IPA programmes is ongoing. The multiannual indicative planning document for the period 2011-2013 has identified the following priorities for IPA support: strengthening the rule of law; improving the capacity and efficiency of the public administration and supporting social and economic development.

The IPA national allocation for 2013 is €103.5 million. It includes the draft IPA 2013 national programme (€87 million), which is to cover projects including support for the judiciary, law enforcement, transport, education, refugees and displaced persons, and demining. In the absence of an agreement on a solution to the Sejdic-Finci issue, a procedure for reducing this programme by 54%, i.e. €47 million has been launched recently.

Disputes about the division of competences between the State and the Entities continue to impede the efficiency and effectiveness of EU financial assistance to Bosnia and Herzegovina. On 10 September 2013 the Commission had to cancel two agriculture projects worth €5 million due to the failure of the authorities in Bosnia and Herzegovina to agree on the structures to channel EU agriculture and rural development assistance (IPARD). Implementation of cross-border cooperation programmes 2007-2013 between Bosnia and Herzegovina and Croatia, Montenegro and Serbia is ongoing. The government and the Commission are currently preparing a comprehensive Country Strategy Paper for the period 2014-2020, which will provide a coherent and strategic framework for financial assistance under the new Instrument for Pre-Accession Assistance (IPA II). The IPA II programming will be launched as soon as an effective coordination mechanism on EU matters is in place.

As regards participation in EU Programmes, Bosnia and Herzegovina continues to participate as a full member in the Seventh Framework Programme for research, technological development and demonstration activities (FP7) and in the COST and the EUREKA networks, the Culture 2007-2013 programme and the Europe for Citizens Programme. It has started to participate in the MEDIA 2007 programme.

2. Political criteria

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

2.1. Democracy and the rule of law

Constitution

The Dayton/Paris Peace Agreement put an end to the 1992-1995 war and brought peace to Bosnia and Herzegovina. The country’s Constitution, which is Annex 4 to the Agreement, established a complex institutional architecture that remains inefficient and is subject to different interpretations.

The complicated decision-making process has continued to have a negative impact on structural reforms and the country’s capacity to make progress towards the EU. Efforts led by the Council of Ministers to define an effective coordination mechanism between various levels of government for the transposition, implementation and enforcement of EU laws have not yielded results. Some political representatives have questioned Bosnia and Herzegovina’s capacity to function as a country and have called for an Entity-level EU agenda separate from the Bosnia and Herzegovina State.

An expert working group was set up in February with support from the US and the EU and drafted recommendations for reform of the Federation’s Constitution. The Group’s recommendations were presented to civil society and international community at a conference in May and discussed in June in the Federation House of Representatives. The recommendations also aim to address the costly and complex governance structures with certain overlapping competences between the Federation, the Cantons and the municipalities as currently entailed in the Federation Constitution. On 26 August, the Federation Government decided to form a high-level working group dealing with the constitutional reform in cooperation with the experts. No draft amendments have yet been put into the legislative procedure.

The Constitution of Bosnia and Herzegovina prevents citizens who do not declare themselves as belonging to one of the three constituent peoples (Bosniak, Serb and Croat) from standing as candidates for the Presidency or the House of Peoples of the Parliamentary Assembly. This has been declared in breach of the European Convention of Human Rights in the Sejdić-Finci judgement. In February, the EU launched a facilitation process to assist the country’s political representatives in reaching a compromise agreement to implement the Sejdic-Finci judgment and to bring the Constitution and the Election Law into compliance with the European Convention on Human Rights.

This facilitation process entailed a number of meetings with representatives of the main political parties, representatives of the country’s authorities, civil society and other stakeholders. The EU invested significant efforts and resources into this process, but representatives of political parties were not able to compromise. Due to a lack of a political agreement on addressing the implementation of the judgment, the Commission cancelled the third meeting of the High Level Dialogue originally scheduled for April. Conditions for the entry into force of the SAA and for a credible EU membership application have not been met.

On the basis of the Dayton Agreement, the Office of the High Representative (OHR) continued to maintain a presence in Bosnia and Herzegovina. The High Representative used the Bonn Powers[5] to issue three decisions that lifted earlier bans on individuals. With regard to meeting the outstanding objectives and conditions for closure of the OHR, no progress has been made in implementing a Constitutional Court decision regulating property distribution. To follow up the high-level political agreement on the principles for distributing defence and state property from March 2012, the Council of Ministers of Bosnia and Herzegovina established a working group at ministerial level to define such principles. The working group has met twice, but has failed to address the issue.

Overall, there has been no progress in ensuring compliance with the Sejdic-Finci judgment and in establishing functional and sustainable institutions. Establishing an effective coordination mechanism between various levels of government for the transposition, implementation and enforcement of EU laws needs to be addressed as a matter of priority to enable the country to speak to the EU with one voice.

Parliament

Legislative activities have continued to be hampered by political disagreements. The Parliamentary Assembly of Bosnia and Herzegovina has adopted only two new laws and 23 sets of amendments to existing legislation. It has rejected seven laws and five sets of amendments to existing laws, some of them because of the Entity veto. The Assembly has adopted amendments to the Law on Household and Population Census, delaying the census for six months to October 2013, in line with the International Monitoring Operation’s recommendation. The Joint Committee for European Integration has held regular sessions focusing on IPA programming and the implications of Croatia’s EU accession.

The leaders of the SDP and SNSD political parties signed a coalition agreement in October. This was later endorsed by HDZ BiH, HDZ 1990, SDS and SBB BiH,[6] providing a basis for a new parliamentary majority at State level. A cooperation agreement between SDP and SNSD envisaged a wide-ranging legislative agenda, including some draft laws that would entail a step backwards. Part of the package went into the legislative process. Cooperation between the Council of Ministers and the Parliamentary Assembly remains insufficient.

The Parliamentary Assembly of Bosnia and Herzegovina failed to adopt amendments to the Law on a Single Reference Number on time, due to political divergences.[7] This has prevented several thousand newborn children from obtaining health and social benefits and travel documents and has led to large demonstrations. The suspension of the work of the Assembly in June due to perceived lack of security further weakened its functioning. The amendments on the Single-Reference Number were eventually adopted by the House of Representatives but not by the House of Peoples where the Bosniak Caucus initiated a motion for the protection of the Vital National Interest. This motion has been forwarded to the Constitutional Court of Bosnia and Herzegovina.

At Entity level, the functioning of the Parliamentary Assembly in the Federation was seriously hampered by an attempted government reshuffle at Federation level leading to a severe political crisis and a temporary standstill of parliamentary activities. The lack of systematic coordination with cantonal assemblies has had a negative impact on approximation with EU-related legislation. The work of parliamentary committees has continued to be affected by a frequent lack of quorum and inadequate premises.

In Republika Srpska, the National Assembly’s EU Integration Committee has cooperated closely with the government in assessing the level of compliance of proposed legislation with the acquis. The Assembly has developed a strategic plan for administrative services covering the period 2013-2017 and started with its implementation, with the aim of improving the quality of its work and cooperation with other institutions.

There has been some improvement in parliamentary cooperation at committee level between State, Entity and Brčko District parliaments which needs to be formalised to improve country-wide planning. Three joint meetings of the State-level and Entities’ parliamentary committees for European integration have taken place without coordination of their respective legislative work in substance

Overall, the Parliamentary Assembly of Bosnia and Herzegovina has made only very limited progress in adopting EU-related legislation. Political disagreements have continued to have a negative impact on the functioning of the Assembly, which was further weakened by the suspension of its work after demonstrations in June. The functioning of the Federation’s Assembly has been seriously hampered by an attempted government reshuffle.

Government

The tripartite Presidency of Bosnia and Herzegovina has continued to meet regularly. The formulation of foreign policy has remained subject to divergent positions within the Presidency on some key issues, including on agreements with the EU.

In November, the new parliamentary majority at State level endorsed reshuffling of the Council of Ministers by appointing two new ministers and one deputy minister. The Council of Ministers adopted the 2013 State budget and the Global Fiscal Framework 2013-2015. It has met regularly, though not in June, when its work was suspended after big demonstrations in Sarajevo. It has held several thematic sessions on EU-related issues. A number of important pieces of EU-related legislation that had been drafted with substantial EU support have not been put into the legislative process due to a lack of political will. This has substantially reduced the legislative output of the parliament.

Regarding policy planning, the development strategy and the social inclusion strategy at State level and in Republika Srpska have not yet been adopted. Policy planning in Bosnia and Herzegovina continues to be hampered by the lack of up-to-date economic and social data.

The role of the Directorate for European Integration to coordinate EU matters among all levels of authorities needs to be strengthened. The Directorate’s capacity to assess compliance with the IA/SAA continues to be weak, notably because its mandate is limited to the State level and does not include amendments introduced during the legislative process. The late submission of discussion papers for the IA/SAA sub-committee meetings on a number of occasions has negatively affected the quality of dialogue on sectoral policy issues.

The Republika Srpska National Assembly accepted the resignation of the Government of Republika Srpska following a request from the Entity’s President in February. There was a government reshuffle and a new prime minister and six ministers were appointed in March. The new prime minister has expressed her commitment to the EU integration agenda.

The Government of Republika Srpska has remained engaged in approximation of draft legislation with the acquis. Its administrative capacity to monitor EU-related legislation remains satisfactory. There has been little improvement in coordination and cooperation with the State-level Council of Ministers and the Federation Government on harmonising legislation with EU standards.

In the Federation, the new parliamentary majority[8] has still not succeeded in reshuffling the Entity’s government after almost a year. This has resulted in a lengthy political stalemate and has hampered the functioning of the Federation Government and other institutions. The new parliamentary majority passed a no-confidence motion in February and adopted conclusions unilaterally restricting the activities of the government to the necessary minimum regarding international obligations.

In May, the Federation’s Constitutional Court issued an opinion finding these conclusions not in line with the Constitution. The Bosniak caucus of the House of Peoples invoked the Vital National Interest (VNI) procedure over the vote of no confidence. The result of the no- confidence vote is pending until the Constitutional Court’s VNI panel decides on the admissibility and merits of the case. The judges for the quorum of the Court’s VNI panel were appointed only in July. This situation has paralysed the functioning of the Federation. The arrest of the President of the Federation for alleged criminal offences of organised crime in connection with abuse of office and acceptance of bribes has further complicated the situation.

The Federation Government has strengthened horizontal coordination of EU-related matters and introduced monthly meetings between EU coordinators in the line ministries. It has appointed a temporary coordinator for EU integration issues, who has limited administrative resources. The government proposed a draft memorandum of understanding on cooperation on EU integration issues to the Cantons to enhance mutual co-operation in the EU integration process. The text was signed by eight Cantons out of ten.

The Decree on the government’s General Secretariat has been adopted; however, the adoption of the new rulebook on the internal organisation of the General Secretariat defining the competencies of the EU integration unit is pending. The legislative offices of the different governments in the Federation have not been cooperating systemically in harmonising legislation or approximating it to the acquis.

In the Brčko District, the Office for European Integration remains understaffed. The newly elected government and assembly have consulted the Entities closely on EU-related legislation. The District adopted the 2013 budget in time, but the opposition challenged the adoption procedure and the case is pending in Court

Entity legislation is largely in line with the European Charter on Local Self-Government. There is a lack of clarity in the apportionment of powers between the Entities, Cantons and municipalities, with a relatively low level of financial autonomy at municipal level. The Government of Republika Srpska has proposed amendments to the law on local self-government that decrease the power of the municipal councils which have not yet been adopted by the National Assembly. The Cantons have started harmonising their legislation with Federation law on principles of local self-government, but progress is slow.

The municipal elections of October 2012 were found to be in line with international standards overall. The Congress of Local and Regional Authorities of the Council of Europe identified a number of issues concerning the voter registration system that should be addressed. Elections were not held in Mostar City due to the non-implementation of the 2010 Constitutional Court decision on Mostar’s statute. OHR efforts to facilitate a comprehensive solution for Mostar City have not brought results.

The formation of the city council in Sarajevo and the election of a new mayor were delayed until the end of March. The results of municipal elections in Srebrenica were resolved only after legal challenges in the courts, following a campaign asking voters to register their residence in Srebrenica even if they were not actually living there. Amendments to the law on residence updating the legal framework were adopted by the House of Representatives, but not the House of Peoples where the Bosniak caucus initiated a motion or the protection of Vital National Interest which is pending with the Constitutional Court of Bosnia and Herzegovina.

Overall, Bosnia and Herzegovina has made no progress in improving the functionality and efficiency of all levels of government. The failure to reshuffle the government in the Federation has negatively affected its functionality and contributed to fragmentation of policy-making at all levels. The lack of an EU coordination mechanism between the State, the Entities and Brčko District for the transposition, implementation and enforcement of EU laws prevents the country to speak with one voice and puts the EU’s financial assistance (IPA) at risk. The principles of local self-government need to be implemented.

Public administration

The Public Administration Reform Coordinator’s Office has continued to coordinate the work on implementing the revised 2006 action plan under the public administration reform strategy. The issue of financial sustainability of public administration at all levels needs to be addressed.

Administrative capacity for legal harmonisation or implementation of the acquis remains weak. The complex division of competencies among administrative structures across various levels of government continues to have a negative impact on the provision of efficient services and the functional division of roles in the EU integration process.

There is little communication between the State, the Entities and Brčko District when preparing amendments to their respective legislation to ensure a harmonised and EU-compatible approach. This means that sector reform continues to be fragmented. There have been attempts to politicise the managerial staff of the civil service at State level. Draft amendments to the Law on Civil Servants and Public Employees in the civil service institutions of Federation are in parliamentary procedure. A new Law on Employees in the Bodies of Local Administrations, which intended to bring some harmonisation of the Cantonal legislation, was rejected in the Federation Parliament.

Regarding appointments to State-level bodies, members of the State Aid Council have been appointed, but due to a lack of budget, the Council is only partially operational and its chairman has resigned. Appointments to some other key agencies are pending. This is the case for the Communications Regulatory Agency, the electricity transmission company TRANSCO and the Administrative Board of the Insurance Agency.

Bosnia and Herzegovina has three supreme audit institutions at State and Entity levels. They each have about the same number of staff and cooperate through a Coordination Board with which the audit institution of the Brčko District of Bosnia and Herzegovina is also associated. The board has ceased to meet regularly. In recent years, the institutions have been developing sustainable performance auditing functions with the support of bilateral assistance. The four institutions need to resume their coordination through the Board to carry out actions set out in the Strategic Development Plan, to improve consistency and to ensure development of the audit system and standards in the country. Measures need to be taken at all level of government to ensure an appropriate follow-up to audit reports.

Overall, very limited progress has been made in reforming public administration. The process lacks the necessary political support. The issue of financial sustainability of public administration at all levels needs to be addressed. Continued fragmentation and politicisation of the civil service system remain an issue of concern. The development of a professional, accountable, transparent and efficient civil service based on merit and competence requires further attention at all levels of government. The supreme audit institutions should resume cooperation.

Ombudsman

The Human Rights Ombudsman of Bosnia and Herzegovina, composed of three members, has jurisdiction over the whole country following the merger in 2010 of three separate institutions. It has a wide remit for which the human and financial resources are insufficient. The UN has accredited the institution as a National Human Rights Institution with ‘A’ status. The Ombudsman has presented an initiative for amendments to the Law on the Ombudsman to the Parliamentary Assembly. The amendments aim to ensure adequate financing and the independence of the institution. Implementation of recommendations by the Ombudsman remains low in the absence of countrywide, cross-partisan political support.

Civil society

Cooperation with civil society at local level has improved. At the State, Entity and Cantonal levels, cooperation remains weak. Institutional mechanisms for cooperation with civil society are not fully operational at Entity level and are lacking at State level. Transparency in the allocation of funds for civil society organisations needs to improve.

Civil society is becoming increasingly assertive in expressing dissatisfaction with political developments, such as delays in adopting the law on a Single Reference Number (See section on Parliament).

Judicial system

The EU-Bosnia and Herzegovina Structured Dialogue on Justice has delivered concrete results with an increasing number of recommendations being either fully implemented or on the right track. Implementation of the Justice Sector Reform Strategy 2009-2013 remains limited. Overall, political support for the follow-up strategy 2014-2018 and action plan has increased.

Some political parties proposed to increase the role of the executive and legislative branches in appointments of prosecutors, while limiting the role of the High Judicial and Prosecutorial Council (HJPC). This proposal for the politicisation of appointments gives rise to concerns. A draft Law on the Courts of Bosnia and Herzegovina has been prepared and submitted for public consultation by the State-level Ministry of Justice. The text provides for the establishment of a State-level Appellate Court, separated from the court of first instance, in line with the recommendations of the European Commission and the Council of Europe’s Venice Commission. Consistency in the application of substantive criminal law at State-level judiciary and other instances throughout the country needs to be improved. Amendments to the Law on Courts of Republika Srpska, ensuring consistency with the prerogatives of the HJPC, based on clarifications in the framework of the Structured Dialogue on Justice, are still pending the final parliamentary adoption.

Shortcomings remain in relation to independence and impartiality. Political attacks on the judiciary have continued during the reporting period. Financial restrictions and excessive fragmentation of budgetary responsibilities also continue to undermine independence. The process of streamlining budgetary competences initiated via the Justice Sector Reform Strategy, particularly relevant for the Federation, has not yet produced results. HJPC recommendations have only been partially followed in the process of opening additional courts in the country. The sustainability of this process needs to be ensured.

As regards accountability, the number of complaints filed against those holding judicial offices has gone up. Between September 2012 and March 2013, the Office of the Disciplinary Council received 669 complaints and resolved 655. The number of disciplinary procedures initiated by the Office has gone up, but its ability to prosecute cases effectively and apply appropriate sanctions remained limited. The average time needed to resolve a complaint during the reporting period has decreased. It took 240 days during the reporting period, an improvement of 22%, against 306 days on average to close complaints between September 2011 and March 2012. Positions for three judges within the Federation Constitutional Court remain vacant.

As regards efficiency, measures introduced by the HJPC and relevant stakeholders have progressively reduced the backlog of cases. Each court has developed a plan to reduce backlogs in line with the judicial quotas adopted. The growing number of cases regarding unpaid utility bills continues to place a significant burden on the judiciary. This now accounts for almost 80% of the backlog throughout the country, 1.8 out of 2.3 million cases.

The judicial information and communication system is fully functional. The case management system in courts and prosecutors’ offices includes over 3.4 million registered cases, and now produces automated reports on judicial performances, which contribute to policy and strategic planning decisions. Access to the judicial web portal has substantially increased, as well as access to case information by parties to proceedings or their lawyers. The Judicial Documentation Centre has also registered a significant rise in online visits.

A uniform human resources (HR) management information system for courts and prosecutor offices has been established, enabling greater efficiency in the appointment, management and planning of HR resources. HJPC decisions approving the appointment of regular and reserve judges has not yet been duly followed up by the government due to budgetary restraints. The government however approved 13 additional prosecutors for war crimes in the Prosecutor’s Office of Bosnia and Herzegovina. The physical conditions in several court buildings at both State and Entity level have improved, but there is a need for further improvements in infrastructure.

The Judicial and Prosecutorial Training Centres of the two Entities provide training for the judiciary. In an effort to improve and increase capacity building, both centres are introducing distance learning.

Stakeholders are discussing diverging practices on the applicability of different criminal codes between courts at different levels with a view to guaranteeing the equality of citizens before the law, particularly following the ECtHR ruling in the case Maktouf and Damjanović vs. Bosnia and Herzegovina. The ECtHR recognised that, given the type of offences and the seriousness of the crimes, there has been a real possibility that the retroactive application of the 2003 Criminal Code operated to the applicants’ disadvantage. The judgement underscores the importance of harmonization of Court practice between various judicial instances, in line with the Structured Dialogue recommendations, as well as the relevant Venice Commission findings, including discussions leading to a Joint panel of the highest judicial instances. Furthermore, the application of different criminal codes in war crimes cases continues to result in uneven sentencing.

The large backlog of war crimes cases has been reduced. The implementation of the National War Crimes Strategy has reached a turning point, with Entities and the Brčko District judiciary progressively processing cases referred from the State level. Adequate staffing, financial resources and facilities, particularly in capacities for witness care, support and protection, still need to be addressed to ensure timely and effective processing of cases transferred. Witness protection remains the weak link in securing reliable evidence. There have been efforts to refurbish courtrooms for protected witness testimony, but comprehensive protection before and after proceedings is not in place. The draft State-level Law on Witness Protection Programme was approved by the Council of Ministers of Bosnia and Herzegovina and sent to parliamentary procedure.

The prosecution of war crimes cases involving sexual violence has improved both at the State and Entity level, but efforts to investigate and prosecute these crimes need to be stepped up further. The preparedness of relevant staff and the availability of adequate infrastructure at courts throughout the country remain uneven and need to be urgently addressed. A comprehensive approach to improving the status of victims of rape and sexual violence is still to be achieved. The adoption of a State-level programme for improving the status of victims of war crimes involving sexual violence is pending.

Concerning access to justice in civil and administrative trials, wide access to the web-based free legal aid providers’ network has been provided. Free legal aid agencies have been set up in three more Cantons of the Federation, bringing the total to seven. The system of free legal aid remains fragmented and unregulated in three Cantons. The adoption of a State-level Law on Free Legal Aid remains pending. Free legal aid in civil cases continues to be provided, mainly by privately-funded NGOs. Free legal aid in administrative cases remains insufficient.

Overall, there has been limited progress in reform of the judicial system reform. The Structured Dialogue on Justice has led to a number of concrete positive outcomes. However, some political initiatives to reform judicial institutions outside this framework, such as a proposal for the politicisation of appointments, have caused concern. There has been an agreement to revise the Justice Sector Reform Strategy to strengthen its implementation.

Measures to reduce the backlog of cases are now being implemented with success, but the backlog still remains very high. The positive trend in solving the backlog of war crime cases is hampered by the lack of human and financial resources at all levels. Harmonisation of different criminal law jurisprudence and reduction of budgetary fragmentation are still at an early stage. Independence and accountability of the judiciary remain vulnerable due to political parties attempting to exercise influence. The fragmentation of the legal and institutional framework in the area of access to justice needs to be addressed.

Fight against corruption

Complex connections between political actors, business and the media are putting democratic institutions and procedures at risk and making the detection of corrupt practices more difficult.

The implementation of the State-level anti-corruption strategy and action plan 2009-2014 has been significantly delayed. The Entities and the Brčko District, as well as three Cantons, are implementing strategies and action plans at their levels.

Amendments to the Law on the Agency for prevention of corruption and coordination of the fight against corruption, regulating the status and competences of the parliamentary commission monitoring the agency were adopted and entered into force. The agency has secured its premises and a minimum staffing level: 13 people support the activities of the Director and the two deputies. Effectiveness of the agency depends on more adequate staffing, particularly in policy posts, at the department for Coordination and the department for Prevention. At Entity level, inter-ministerial boards are monitoring the implementation of anti-corruption strategies and plans. The Brčko District’s government decided to entrust the Mayor’s Office with an anti-corruption coordination function.

Amendments to the Law on Conflict of Interests at the State level and in Republika Srpska entered the legislative procedure. These are designed to place responsibility for the management of conflicts of interest and asset declaration to a commission that includes parliamentarians. These amendments do not guarantee impartiality and effective prevention of conflicts of interest.

A new law on financing political parties has been adopted. Few of the recommendations of the Group of States against Corruption are reflected in the new law, which does not remedy the fragmented structure of the legislation on financing of political parties. It raises the threshold for donations and fails to address the lack of clear, proportionate sanctions. There have been attempts to change the Law on access to information, limiting the scope and purpose of the law. Amendments to the Criminal Procedure Code to improve the legal framework for the use of special investigative measures in the investigation of corruption are pending adoption. There are no adequate provisions to protect whistle blowers in relevant legislations.

Some high profile cases involving public officials are being investigated and prosecuted. Yet the overall level of effective investigation, prosecution and conviction of corruption cases remains low. Joint investigation teams and mechanisms to detect corruption have still to be developed. There is 48% increase of corruption reports filed with the prosecutors’ offices throughout Bosnia and Herzegovina, 3 174 reports were filed in 2012 compared to 2142 from the previous year. The number of indictments confirmed is still modest and final verdicts issued remain low. Despite availability of compiled statistical data, there is no analysis of corruption cases. Capacity to investigate economic, financial, public procurement and fraud-related crimes is weak. There is still no effective criminal justice policy to fight against corruption.

Political patronage networks and extensive political parties’ control of their members are affecting the integrity of parliamentarians at all levels, throughout the country.

Overall, Bosnia and Herzegovina is at an early stage in the fight against corruption. The implementation of the State-level anti-corruption strategy and action plan needs to be stepped up. Key pieces of legislation regarding the financing of political parties, conflicts of interest and access to information have been amended in ways that undermine previous achievements. Corruption remains widespread, with an insufficient track record of investigation and prosecution in high-profile cases that have a negative impact on society and the economy.

Fight against organised crime

Bosnia and Herzegovina has made limited progress in the fight against organised crime and terrorism. Cooperation among law enforcement agencies continues, but a more systematic exchange of information intelligence remains to be consolidated, and coordination mechanisms need to be set up. A number of successful large-scale joint police operations have taken place, some of them in coordination with the authorities from neighbouring countries. However, at domestic level, cooperation between police and prosecutors’ offices requires structural improvements to guarantee more effective judicial follow-up.

The fight against organised crime that is operating within the territory of Bosnia and Herzegovina as well as on transnational networks remains a crucial challenge. Bosnia and Herzegovina is a source of arms and ammunitions for criminal groups operating locally, in the Western Balkans region and in the EU. Illicit drugs trafficking, with Bosnia and Herzegovina acting mostly as a transit country, and trafficking in human beings are also significant problems. The domestic authorities’ preparedness to deal with money laundering and economic crimes is still in its early stages, and requires more effort.

For a detailed analysis of developments in the fight against organised crime, see 4.3 — Justice, Freedom and Security.

2.2. Human rights and the protection of minorities

As regards international human rights instruments, Bosnia and Herzegovina has ratified all major UN and international human rights conventions. The principles of the European Convention on Human Rights are entrenched in the Constitution of Bosnia and Herzegovina, which also guarantees the supremacy of this Convention over national legislation.

In a number of cases, decisions of the Constitutional Court of Bosnia and Herzegovina have not been enforced, which has led to cases being lodged before the European Court of Human Rights. During the reporting period, the Court delivered judgments on 24 applications finding that Bosnia and Herzegovina had violated rights guaranteed by the Convention. These cases relate inter alia to non-payment for war damage and non-possibility to withdraw foreign-currency savings deposited before the dissolution of former Yugoslavia. A total of 822 new applications have been submitted to the Court since September 2012, bringing the total number of applications pending to 1662. The country has made some progress in implementing the Court’s judgments, but the judgment in the Sejdic-Finci case has yet to be addressed.

As regards the promotion and enforcement of human rights, there have been a number of activities to promote respect for human rights, such as training courses for judges, prosecutors, prison officers and police officers.

The death penalty is prohibited by the Constitution of Bosnia and Herzegovina and by the Constitution of the Federation. Although there is a moratorium, the death penalty provision in the Constitution of Republika Srpska remains in place. The relevant Article 11(2) of the Constitution of Republika Srpska has to be repealed in line with key principles of the EU human rights policy.

The legal framework on the prevention of torture and ill-treatment and the fight against impunity is in place and is generally respected. Ill-treatment of suspects by police officers, particularly in the Central Police Station in Banja Luka, mainly for the purpose of trying to extort a confession has persisted. Cases of ill-treatment of remand and sentenced prisoners by prison staff occurred in some detention facilities. This is of serious concern.

As regards the prison system, a new draft law on execution of criminal sanctions has been adopted in the Federation to ensure harmonisation with State-level law and with international standards. The country has made good efforts to reduce the overcrowding of prisons by investing in infrastructure and promoting alternative sanctions. Delays in the construction of a high-security State prison have persisted, affecting the country’s capacity to deal with high-security prisoners. The backlog in execution criminal sanctions remains a matter of concern, particularly in the Federation, where there is a lack of prison capacity. The last steps required to render the Sokolac psychiatric hospital fully operational are under way. Prison inspections need to be reinforced. Bosnia and Herzegovina still lacks an effective coordination mechanism among its 15 prison administrations.

Legal provisions guaranteeing freedom of expression are in place. Political and financial pressure on the media has increased. A recent decision by the Communication Regulatory Agency (CRA) to limit advertising time of public broadcasters could endanger their financing. Intimidation and threats against journalists and editors and polarisation of the media along political and ethnic lines remain an issue of concern. The political, institutional and financial independence of the Communication Regulatory Agency remains to be secured. The Agency’s managing structures still have only a technical mandate, which hampers decision-making. The legal provisions regulating the appointment of the Agency’s Council have been amended. An ad hoc Committee for selecting members of the Agency’s Council launched a selection process. (See 4.2.6 — Information society and media).The independence of the three public broadcasters within the country’s Public Broadcasting System needs to be ensured. The Federation Parliament has continued attempts to appoint a provisional steering board for the Entity’s public service broadcaster, interfering with the independence of the media. In Republika Srpska, legislative amendments were adopted in October 2013, changing the procedure for the selection of the steering board members of the public broadcaster RTRS and introducing a possibility for its co-financing from the RS government budget. This risks undermining the public broadcaster's financial and editorial independence. The statute of the public broadcaster BHRT has not been amended. Its steering board has been appointed, but has yet to deliver results by reforming and strengthening the broadcaster. Public broadcasters that are not a part of the system are financed from municipal and cantonal budgets and remain under political influence.

The Entity laws on public broadcasting services remain to be harmonised with State-level law. The adoption of the Public Broadcasting Corporation’s statute is pending. Only limited efforts have been made to finalise the reform of the system and to establish the corporation, which continues to prevent progress in digitalisation throughout the country (See 4.2.6 — Information society and media).

The Press Council has continued its cooperation with judicial institutions and journalists’ associations to improve the quality of reporting and to raise the public’s awareness of legal rights. The implementation of the Freedom of Access of Information Act remains uneven among the public institutions.

With regard to freedom of assembly and freedom of association, there have been some cases of intimidation and violence against human rights advocates. Effective investigation and prosecution of such cases needs to be ensured.

The constitutional and legal guarantees of freedom of thought, conscience and religion are generally respected. Cases of discrimination on religious grounds continue to be reported. Incidents targeting religious symbols, clerics, believers and property continue to be reported and particularly affect religious minorities in certain communities.

Legal provisions guaranteeing women’s rights and gender equality are in place. There has been an improvement in Republika Srpska, but women’s political participation across the country remains low. The resources of the institutional mechanisms for ensuring gender equality and the availability of statistical data remain insufficient. Implementation of the Action Plan on the UN Security Council Resolution 1325 on Women, Peace and Security has continued, but awareness and financial resources for its implementation need to be improved. There is still a low level of participation of women in the workforce. There is still discrimination in employment with regard to maternity rights.

On 27 July, Bosnia and Herzegovina has ratified the Council of Europe Convention on preventing and combatting violence against women and domestic violence. A law on protection against family violence has been adopted in Republika Srpska, as has a strategy for preventing and combating family violence 2013-2017 in the Federation, but their harmonisation has not been ensured. There has been more financing of shelters for victims of domestic violence, but it still remains insufficient.

As regards children’s rights, a revised State-level strategy to combat violence against children has been adopted. Additional legislation has been adopted in the field of early childhood development, but implementation needs to be improved. Use of foster care for children has slightly increased, but institutionalisation remains the primary response. Child allowances are not based on needs, and continue to vary between the Entities and Cantons. The percentage of children immunised against preventable diseases remains low. Domestic violence against children, trafficking and organised child begging remain issues to be addressed. Bosnia and Herzegovina ratified on 20 October 2012 the Convention of 23 November 2007 on the International Recovery of Child Support and Other Forms of Family Maintenance, which has entered into force on 1 February 2013.

Delays in adopting amendments to the Law on a Single Reference Number, in line with the relevant ruling of the Constitutional Court of Bosnia and Herzegovina, have prevented many newborn children from gaining access to health and social benefits and travel documents for several weeks. The Council of Ministers of Bosnia and Herzegovina adopted a temporary decision on this matter in June, expiring on 6 December. Adoption of the amendments by the parliament remains outstanding. (See 2.1 - Parliament)

The continuing existence of divided schools (‘two schools under one roof’) in some Cantons of the Federation and mono-ethnic schools across the country do not foster the development of an inclusive multi-cultural society. De facto ethnic-based separation and discrimination in some public schools in the Federation remain a serious concern. In June, the Cantonal Court reversed the first instance decision of the Municipal Court in Mostar[9] against school segregation for purely procedural reasons. It decided that the plaintiff submitted its legal action untimely and reasoned that it did not have active legitimacy to file a suit.

In a similar case in October 2012, the Travnik Municipal Court rejected the active legitimacy of the plaintiff. These judgments do not solve the substance of the underlying issue which still needs to be addressed politically. The Conference of Ministers of Education in Bosnia and Herzegovina, established to improve coordination among the 14 ministries of education, convened only twice. There is no efficient coordination mechanism on education between the Cantonal governments in the Federation. The establishment of the Coordination Body of Ministers of Education of the Croat majority Cantons has brought even deeper fragmentation and division of education policy and decision-making along ethnic lines.

Laws on juvenile justice have been adopted in the Brčko District but not yet in the Federation. The revised State-level strategy has not yet been adopted. Enforcement of the juvenile justice law in Republika Srpska remains weak.

As regards the socially vulnerable and/or people with disabilities, some limited steps have been taken to harmonise the social protection systems of the Cantons, introducing a social minimum for financial benefits. Entitlement to rights and benefits for the disabled is still based on status, not on needs. As a result, some categories of persons with disabilities do not receive adequate benefits. The implementation of the social protection legislative framework remains weak in both Entities.

An anti-discrimination law is in place, but the exclusion of age and disability as categories on the grounds of which there should not be discrimination and the broad range of exceptions have not been addressed. A State-level database of discrimination cases has been set up, but overall, implementation of the law remains weak. This is largely due to low public awareness of legal remedies, and the limited capacities of relevant institutions to implement the law. This includes the Ombudsman of Bosnia and Herzegovina.

There is no comprehensive mechanism for collecting data on hate crimes. Identification, investigation and reporting by the police and cooperation between the police and prosecutors remain insufficient.

Concerning rights of lesbian, gay, bisexual, transgender and intersex (LGBTI) persons, the Blood Transfusion Institute of the Federation has amended its blood donation regulations and deleted discriminatory provisions. The law enforcement body in the Sarajevo Canton has shown willingness to appoint a direct contact in every police station for LGBTI persons. Discrimination against LGBTI persons remains widespread. LGBTI activists continue to be subject to threats and harassment. The adoption of amendments to the Federation criminal law including for the first time hate crime, amongst others on the grounds of sexual orientation and gender identity, failed due to the lack of support in the Federation House of Peoples. Hate speech and intolerance remain an issue of concern.

With regard to labour and trade union rights, the fragmentation of the legal framework for social benefits and pension rights continues to be of concern. A State-level Economic and Social Council has not been set up. The criteria or legal framework for the recognition of social partners at State level has not yet been established (see 4.1.8 - Employment and social policies, public health policy).

As regards property rights, the vast majority of property repossession requests have been resolved. The new members of the Commission for Real Property Claims of Displaced Persons and Refugees were appointed in December, but the Commission has not yet resumed its work. There are still over 110 unresolved cases and approximately 300 cases pending before the Court of Bosnia and Herzegovina in which the Commission is a respondent party in administrative dispute procedures. A database on outstanding claims and property registers has still to be set up.

Overall, the legal and institutional framework for the observance of human rights is in place and the main elements of international human rights laws have been incorporated into the legal system. Fragmentation across the country remains an issue, notably regarding economic and social rights. The implementation of human rights instruments needs to improve. Implementation of the judgment in the Sejdic-Finci case remains essential (See 2.1 –Constitution). Prison conditions have improved, but a comprehensive reform of the prison system is still needed. Appropriate action needs to be taken to prevent ill-treatment of suspects by police officers. Increased political and financial pressure on the media and intimidation and threats against journalists and editors remain of concern. There needs to be more effort to make schools more inclusive and to address the continuing existence of ‘two schools under one roof’ in the Federation. Implementation of the anti-discrimination law needs to be stepped up, and the institutions responsible need sufficient capacity to implement it. Effective investigation of cases of hate speech and violence against LGBTI persons needs to be ensured. Discrimination against persons with disabilities in the social protection system remains of concern.

Respect for and protection of minorities, cultural rights

The legal framework for the protection of minorities is largely in place, but implementation needs to improve. The influence of the State-level and Entity National Minority Councils over policy-making remains weak. After local elections in 2012, there are now fewer members belonging to national minorities in municipal councils than after the 2008 elections. Cultural rights need to be strengthened, including those relevant to the participation of national minorities in public life.

As the constitutional amendments to comply with the European Court of Human Rights ruling in the Sejdic-Finci case are still pending, minorities continue to be excluded from representation in the House of Peoples and the Presidency of Bosnia and Herzegovina (see 2.1 — Constitution). Implementation of the European Charter for Regional or Minority Languages is weak. Representation of minorities in the media remains limited.

Members have been appointed to the advisory Roma Board to the State-level Council of Ministers. There are four action plans under the Roma Strategy. Those on health, employment and housing have been revised in line with the recommendations of the Roma Inclusion Seminar of July 2011 but they have not yet been adopted.[ There has been some progress with regard to implementation of an action plan on housing, partly because additional financial resources have been allocated. On health, employment and education, progress has been very limited. The Roma minority continue to live in very vulnerable conditions.

Coordination among authorities at all levels remains insufficient. Participation by Roma representatives in the decision-making process continues to be very low. Roma women and children continue to be subject to discrimination and domestic violence. The low registration rate of Roma children at birth means they have no health insurance and no possibility of attending school, which remain causes for concern. Dropout rates from primary and secondary schools are high, especially among Roma girls. A number of Roma remain at risk of statelessness.

As regards refugees and internally displaced persons (IDPs), there are still 103 449 IDPs, of whom approximately 8 580 live in collective centres, and 6 927 refugees. Efforts to implement the revised Strategy under Annex 7 to the Dayton Agreement mainly focused on the reconstruction of housing units. Recommendations on creating conditions for sustainable return remain largely unaddressed.

The State Commission for Refugees and Displaced Persons has become operational, but its effective functioning is undermined by the lack of financial resources. The country still lacks a coordinated consultation and policy formulation mechanism to address legislative gaps, which hampers sustainable return and local integration. Access to employment, healthcare and pension rights remains an issue of concern.

With regard to landmines from the 1992-1995 conflict, the implementation of the Mine Action Strategy is behind schedule. Only half the demining targets set for the last three years have been met. Since September 2012, five persons have been killed in landmine accidents. The law on anti-mines actions still needs to be adopted. To meet the goal of clearing the country of mines by 2019, fundraising responsibilities, administrative and management capacity and coordination of demining measures need to be addressed.

Overall, the implementation of the Roma action plan on housing has brought some results, but in health, employment and education, progress has been very limited. The Roma continue to be the most vulnerable minority in the country. Actions at legislative and institutional level need to be taken to address the low registration rate of Roma children at birth. Improving access to employment, healthcare and pension rights of refugees and internally displaced persons is essential for sustainable return and local integration.

2.3. Regional issues and international obligations

The Parliamentary Assembly of the Council of Europe continues to monitor Bosnia and Herzegovina’s progress in fulfilling its obligations and commitments as a member. The country has appointed its judge to the European Court for Human Rights. It has yet to appoint the Chair of its Delegation to the Parliamentary Assembly and representatives to a number of advisory bodies. Implementation of the requirements stemming from the Council of Europe’s Conventions remains uneven.

Implementation of the Dayton/Paris Peace Agreement continued. Under the Agreement on Special Parallel Relations, a joint session of the Governments of Republika Srpska and Serbia and a session of the Cooperation Council have been held.

Cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) is assessed as satisfactory in most areas. Efforts are still necessary to guarantee successful handling of all Category II war crimes cases[10] that the Tribunal transferred to Bosnia and Herzegovina. Access to the Tribunal’s databases and collection of information and evidence by prosecutors throughout the country has been unevenly used.

The 2003 bilateral immunity agreement between Bosnia and Herzegovina and the United States, granting exemptions from the jurisdiction of the International Criminal Court, is still in force. This agreement does not comply with the EU Common Positions on the integrity of the Rome Statute or related EU guiding principles on bilateral immunity agreements. Bosnia and Herzegovina needs to align itself with the EU position.

Progress has been made as regards the Sarajevo Declaration Process, which brings together Bosnia and Herzegovina, Croatia, Montenegro and Serbia and aims at finding sustainable solutions for the refugees and displaced persons as a result of the armed conflicts in ex-Yugoslavia during the 1990s. The implementation of the Regional Housing Programme, which aims at providing housing solutions for the most vulnerable refugees and displaced persons in the four countries and is extensively supported with EU financial assistance, has started with the approval of the first round projects by the international donors in April. Joint regional information campaigns on the programme have been carried out throughout the region. However, the implementing capacities of the partner countries need to be further improved and a series of documents and procedures need to be finalised in order for the approved country projects to start. Efficient project implementation units and rigorous beneficiary selection procedures as well as beneficiary data cross checking remain to be established. The good cooperation overall between the partner countries on the process and the housing programme needs to continue.

The unresolved fate of missing persons from the conflicts in the 1990s is still an issue of humanitarian concern in the Western Balkans. As of July 2013, a total of 11 859 persons were still missing as a result of the conflicts in the region, according to International Committee of the Red Cross (ICRC) figures. Of these, 7 886 cases relate to the conflict in Bosnia and Herzegovina, 2 246 to the conflict in Croatia and 1 727 to the conflict in Kosovo.

Since the State Prosecutor’s Office took over responsibility from local prosecutors for conducting exhumations of mass graves, efficiency in the excavation process has improved significantly, and there has been a decrease in the backlog of cases. In all, 283 exhumations took place over the reporting period, resulting in a recovery of 179 cases. Approximately 3 270 sets of unidentified remains are being stored in identification facilities throughout Bosnia and Herzegovina and need to be inspected by the Prosecutor’s Office.

Adequate funds have been allocated to support the work of the Missing Persons Institute, but political pressure and attempts to undermine the Institute’s work have persisted. Implementation of the Law on Missing Persons remains insufficient. Access to economic and social benefits and the creation of a financial support fund for families of missing persons need to be addressed.

Regional cooperation and good neighbourly relations form an essential part of Bosnia and Herzegovina’s process of moving towards the EU. The country has continued its active involvement in regional initiatives, including the South East European Cooperation Process, the Regional Cooperation Council, the Central European Free Trade Agreement (CEFTA), the Energy Community Treaty and the European Common Aviation Area Agreement. In January, Bosnia and Herzegovina took over the Presidency of CEFTA. Bosnia and Herzegovina continues to actively support the Igman initiative on reconciliation and the RECOM initiative.

Bosnia and Herzegovina has further developed its bilateral relations with other enlargement countries and neighbouring EU Member States. In April, the Chairman of the Council of Ministers of Bosnia and Herzegovina and the Prime Ministers of Croatia, Montenegro and Serbia confirmed commitment to enhanced cooperation at their meeting in Mostar. In May, the Presidents of Bosnia and Herzegovina, Serbia and Turkey, met in Ankara and adopted a Declaration committing them to mutual support on the road to EU membership. The Ministers of Economy and Trade of the three countries signed a Declaration on economic and trade cooperation. Bosnia and Herzegovina, Albania, Montenegro and Croatia signed a memorandum of understanding for support and cooperation in both the Trans Adriatic Pipeline and Ionian Adriatic Pipeline projects.

A Protocol on cooperation between the Ministries of Justice of Bosnia and Herzegovina and Albania has been signed, enabling better exchange of information related to legal issues and enforcement of legal reforms.

An Agreement amending the existing Treaty on extradition with the former Yugoslav Republic of Macedonia was signed. Agreements on double taxation and on cooperation in the field of health and medical sciences were also signed. A Treaty on extradition with Montenegro was ratified in March. Border demarcation remains pending. Negotiations to finalise a border agreement have continued.

Relations with Serbia have improved. In April, the Serbian President publicly asked for forgiveness for crimes that had been committed by any individual in the name of Serbia and the Serbian people, including in Srebrenica. A key development was the signing of a Protocol on cooperation in prosecution of perpetrators of war crimes, crimes against humanity and genocide. An Agreement on extradition has been signed. An agreement on readmission with shortened procedure and several implementing protocols were signed between Bosnia and Herzegovina and Serbia, replacing the existing one. There were many high level reciprocal visits, a Joint Commission for Economic Cooperation was inaugurated and a memorandum of understanding for cooperation in the EU integration process was signed in December. Border demarcation remains to be addressed.

There are no official relations with Kosovo*, as Bosnia and Herzegovina has not recognised Kosovo as an independent state. The Ministry of Foreign Affairs of Bosnia and Herzegovina is issuing individual short-term visas to citizens of Kosovo. Agreements on cooperation in the defence industry and on military training have been signed with Turkey.

Relations with Croatia have intensified. An important development has been the signature of the Protocol on cooperation in the prosecution of perpetrators of war crimes, crimes against humanity and genocide. A Treaty with the Republic of Croatia on extradition and an Agreement on cooperation in the field of defence has been ratified. Several meetings at ministerial and technical level have taken place to address the implications of Croatia’s accession (See also chapter 1.3. Relations between the EU and Bosnia and Herzegovina).

Bilateral agreements on local border traffic and border crossing points have been concluded, bringing previous agreements into line with the acquis. A joint interpretative note has been signed on transit through the Neum corridor and the use of the Croat Port of Ploce for the export of agricultural goods of animal origin from Bosnia and Herzegovina, for which the EU granted related derogations. Limited progress has been made in resolving outstanding bilateral issues, including property issues and border demarcation.

Overall, there has been very good progress in the field of judicial cooperation with the other countries of the region. Bosnia and Herzegovina has continued to participate actively in regional cooperation and to maintain good neighbourly relations. As regards cooperation with the International Criminal Tribunal for the former Yugoslavia, handling of Category II cases needs more efforts. Good cooperation between partner countries in the framework of the Sarajevo Process on refugees and internally displaced persons needs to continue. Political support for the work of the Missing Persons Institute needs to be ensured and the implementation of the Law on Missing Persons stepped up. Remaining border and property issues with neighbouring countries and legal obstacles to extradition with regard to war crimes need to be addressed.

3. Economic criteria

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

3.1. The existence of a functioning market economy

Economic policy essentials

The consensus between the authorities at different government levels on the economic policy essentials has somewhat strengthened following the agreement on a medium-term countrywide fiscal framework. The performance under the International Monetary Fund (IMF) Stand-By Arrangement remained broadly satisfactory until June 2013 when the IMF Board approved the third review. The scope of the budgetary support operation planned by the World Bank has been narrowed due to the slow implementation and lack of tangible outcomes of legislated reforms in the area of cash transfers. A loan totalling €100 million under the EU macro-financial assistance instrument has been disbursed in two equal tranches in February and September, respectively, after a delay of one year and following a satisfactory compliance with the attached economic policy conditions. In January 2013, the authorities submitted their seventh Economic and Fiscal Programme, covering the period 2013-2015, which foresees gradual economic recovery and simultaneous fiscal consolidation. Its macroeconomic scenario appears optimistic, while the fiscal and structural reform strategies remain fragmented and do not present a coherent nation-wide formulation of economic and fiscal policies. Overall, despite some slight improvement, the consensus on economic and fiscal policy essentials remains weak.

Macroeconomic stability

In 2012, the economy contracted by an estimated 1.1%, following a mild recovery in the previous two years. The deterioration was due to negative developments in both domestic and external demand. Private consumption fell in 2012 due to falling real wages and employment and decelerating growth of retail lending. At the same time, the worsened external environment resulted in falling exports, which combined with stagnating imports led to a negative contribution of net exports to growth. Industrial production fell by 5.3% in 2012, compared with 5.9% expansion in the previous year. A mild economic recovery started in early 2013. Industrial output growth in the first seven months of 2013 averaged 6.8% year-on-year and merchandise exports rebounded markedly by close to 8.5%, reflecting stronger economic activity, but also base effects. Per capita income, measured in purchasing power standards (PPS), decreased in year on year comparison at 28% of the EU-27 average in 2012 from 30% in 2011. Overall, following a slight contraction in 2012, the economy started to recover in early-2013.

After a significant deterioration in 2011, the current account deficit grew only marginally by 0.9% year on year, reaching 9.5% of GDP in 2012. The trade deficit increased by 1.2% and reached 32.7% of GDP, as exports fell by 1.9%, while imports stagnated. The surplus in services fell slightly for a second consecutive year, thus contributing once again to a higher current account deficit. At the same time, the surpluses in the net current transfers and income accounts increased by 2.3% and 8.1%, respectively, thus partially offsetting the negative developments in the goods and services balances. In the first half of 2013, rather favourable trade developments supported a further narrowing of the current account balance.

The current account deficit in 2012 was financed mainly by external borrowing and, to a lesser extent, by foreign direct investment (FDI). As a share of GDP, net FDI increased to 3.5% in 2012, but remained well below pre-crisis levels. In the first six months of 2013 net FDI almost tripled compared to the same period a year before. Following a significant decline in the first half of 2012, the net foreign exchange reserves recovered in the second half of the year, positively influenced also by the drawing of two tranches under the Stand-By Arrangement with the International Monetary Fund. The stock of official foreign exchange reserves increased slightly by 0.6% in 2012 and rose further by 6.6% year on year in the first seven months of 2013, covering around six months of imports. Bosnia and Herzegovina’s external public debt increased by 7.4% to 27.5% of GDP in 2012, while external private debt fell slightly over the year and reached 32.2% of GDP. In the first half of 2013, the external public debt rose further by 5.8% year on year. The World Bank group remains the largest creditor, while public international creditors account for over 90% of the country’s external public debt. A large part of the debt is contracted on concessional terms with the average interest rate of all debt being at only 1.44%. Overall, despite some improvements in 2012 and the first half of 2013, external imbalances still remain elevated. The financing of the deficit increasingly relied on foreign loans, leading to an increase in public gross external debt.

Unemployment remains very high and reached 28.6% in 2012 from 28% a year earlier. Total employment levels stagnated through 2012 and marginally decreased (- 0.6%) year on year in the first half of 2013. Some employment gains in services and in the public sector could not compensate for continued labour shedding in large parts of the private sector, in particular in construction, mining and agriculture. The number of employees in the public administration continued to rise throughout 2012 and the first half of 2013, thus further increasing the size of the already large public sector. . Unemployment was particularly high among the young population (63.1% for people aged between 15 and 24). The very high unemployment rate and the sizeable difference between the registered and survey-based labour figures suggest the existence of a fairly large informal labour market and significant structural rigidities, such as high rates of social security contributions, high labour taxes, and poorly targeted right-based benefits. Adjusted for inflation, the average gross wage fell by 0.5% in 2012 and dropped further by 1.7% in the first half of 2013. Overall, labour market conditions have remained difficult and structural rigidities have continued to hamper job creation.

Inflation pressure eased in 2012 and early-2013. Average annual consumer inflation moderated to 2.1% in 2012, as compared with 3.7% in 2011. The main factors behind the lower inflation were the decelerating food and transport prices, reflecting international price developments. The disinflationary trend continued in 2013, with annual inflation reaching 0.5% in July, mainly driven by price moderation in food, housing and transport. Price decreases were recorded in clothing and footwear and health, while on the other hand, the new hike of excises on tobacco, effective from the beginning of 2013, resulted in an 8.2% rise in tobacco prices. The monetary policy of the central bank continued to be conducted under a currency board arrangement -with the euro as the anchor currency- enjoying a high level of confidence and credibility. Monetary policy settings have remained unchanged. The growth of money supply moderated in the course of 2012 and monetary aggregate M2 increased by 3.4% at end of the year, as compared with a 5.8% rise in 2011. Overall, the currency board has continued to function well and monetary and financial stability have been preserved while inflation has moderated.

Following several consecutive years of fiscal consolidation, fiscal imbalances have grown again in 2012 and 2013, in parallel with the worsened external environment and the downturn in economic activity. The consolidated budget deficit increased to 2.1% of GDP -as compared with 1.3% in 2011-, due to higher expenditure growth (2.4%) which outstripped the rise of total revenue (0.9%). The share of general government in GDP remained relatively high, with government expenditure at approximately 45% of GDP and revenue at about 44% of GDP. Social security contributions – accounting for over 1/3 of the overall revenues – stagnated in year on year comparison. In the meantime, all main expenditure categories increased during the year indicating some loosening of the fiscal policy. Purchases of goods and services grew by 3.2%, while expenditures on social benefits increased by 1.5% and on wages declined by 0.4%, thus marginally decreasing their very high shares in overall expenditure. The composition of public spending remained highly unfavourable as current expenditure represented a very high 95% of total expenditures, while capital spending remained extremely low despite a 22% nominal increase over the previous year. Fiscal imbalances widened in the first quarter of 2013 mainly on the back of lower than budgeted revenues from indirect taxes, largely due to unexpectedly high VAT refunds. Lower revenues were partly compensated for by lower current spending (e.g. on wages) and by delays in the implementation of some public investment projects. The rebound of economic activity was felt in the public finances in the second quarter of 2013. On the other hand, the highway and road funds of both entities increased capital spending. The general government balance in the first six months of 2013 turned positive and amounted to 0.4% of annual GDP. Overall, the fiscal situation worsened in 2012 but improved slightly in the first half of 2013, amid a persistently low quality of public finances. The composition of public spending remains a concern. Public finance management has been somewhat strengthened and important long-delayed reforms have been initiated. The adoption of the Global Frameworks for Fiscal Policies 2013-2015 and 2014-2016 and despite a certain delay of the approval of the latter -after the lack of a medium-term fiscal programme at country level for a couple of years- improved fiscal coordination. The State and the Entities adopted their 2013 budgets before the expiration of the previous budget year. This was a welcome improvement compared with previous practices of late budget laws endorsement and temporary fiscal arrangements, which weakened the reliability of public finances and the planning and decision-making of economic agents. Some steps have been taken towards strengthening the sustainability of public finances in the Federation of Bosnia and Herzegovina. The Entity government has adopted in June 2013 a new organic budget law, introducing fiscal rules and providing for the establishment of a fiscal coordination body. The Federation Parliament endorsed in April 2013 a new law on privileged pensions providing for a comprehensive system that is financially sustainable and socially fair. Aiming to improve the long-term sustainability of the Entity’s public finances, the Federation government has endorsed in September 2013 a strategy for contributory pension system reform. However, the quality of fiscal reporting remains low, thus impeding proper analysis and policy design. Overall, the sustainability and credibility of fiscal policy in Bosnia and Herzegovina have been somewhat strengthened but significant further efforts are still needed.

General government debt, albeit still at a relatively moderate level, kept on growing. After rising for a fourth consecutive year already, it exceeded 44% of GDP at end-2012 as compared with 40.9% of GDP a year ago. This was entirely due to external public debt, expanding by 7.4% to a total of 27.9% of GDP, while domestic debt fell slightly in the course of 2012. Both Republika Srpska and the Federation continued issuing short-term treasury bills and long-term government bonds to finance budget deficits and debt repayment obligations. In most occasions, the offers have met relatively high demand and secured relatively favourable conditions. Public debt servicing soared over twofold in recent years and reached over 3% of GDP in 2012. Overall, even though the debt-to-GDP ratio is still relatively moderate, its upward trend needs to be monitored carefully.

Overall, financial and monetary stability have been preserved as the low inflation environment was maintained and the currency board arrangement continued to enjoy a high level of confidence and credibility. However, rising fiscal deficit, substantial external imbalances as well as very high unemployment continue challenging the overall macroeconomic stability.

Interplay of market forces

The private sector’s share in GDP is estimated to have remained broadly unchanged at around 60% of GDP in 2012. There has been no further progress with the privatisation agenda for a fifth consecutive year. In Republika Srpska, about 2/3 of the enterprises intended for privatisation have been sold already prior to the crisis, while some of the companies that were previously offered for sale and were not privatised were forced to declare bankruptcy. In the Federation, slightly over 40% of the initial stock of state-owned capital intended for privatisation had been sold by May 2013, unchanged from a year earlier. Most prices are liberalised, even though a number of regulated prices remain (e.g. for utilities). Overall, the privatisation process which has stalled during the crisis period has not advanced in 2013.

Market entry and exit

Companies are still required to register in both Entities before they can do business in the whole country. In Republika Srpska an ambitious reform -embracing amendments to 20 legal acts in the entity- introducing a one-stop-shop business registration system has been launched targeting significant reduction of registration time (from 23 to 3 days), number of required procedures (from 11 to 5) and business start-up costs (from €500-750 to €200). In the Federation, a new Law on Companies -enabling simplification and improvement of the business registration process in terms of reduction of time and streamlined processes and lowering the level of establishing capital- has been adopted in September 2013. In the first half of 2013, alongside the improved external environment and increased economic activity, the number of newly registered companies increased by 3.7% year-on-year. Slow contract enforcement, limited access to financing, and political instability are considered to be among the most problematic factors for doing business in the country. No progress has been made in the field of market exit. Overall, business registration system has been somewhat simplified but significant administrative barriers remain for private-sector development.

The legal system

No substantial improvements can be reported as regards the legal system in Bosnia and Herzegovina, which remains complex and challenging. The standard of legislation is relatively high in some areas; nevertheless the practical implementation of laws is often poor due to the weak enforcement capacity of key institutions. The judicial system often does not function efficiently and does not cover commercial activities adequately. Enforcement of commercial contracts remains a lengthy process, which involves 37 procedures and takes an average of 595 days, unchanged from the previous year. Overall, a weak rule of law, corruption, and unreliable contract enforcement continue to hamper the business environment.

Financial sector development

The financial system of Bosnia and Herzegovina remained dominated by the banking sector holding about 84% of total assets in 2012. The share of claims on the private sector in relation to GDP decreased marginally year on year to about 56% in July 2013. Twenty-eight banks are operating in the country in 2013, compared with twenty-nine a year ago, as one bank’s license was revoked in early-2013. There is one majority State-owned bank, while the rest are privately owned. Nineteen banks are under foreign ownership, accounting for slightly below 90% of the total banking system assets in 2012. Banking sector assets rose by 2.8% (July 2013 compared with July 2012), accounting for approximately 88% of GDP.

The financial position of domestic banks has improved. The total net revenues of the banking sector surged to €91.8 million in 2012. However, banking profitability remained broadly unchanged in the first half of 2013 with the return on average equity and the return on average assets staying at 4.2% and 0.5%, respectively as of end-June 2013. The quality of the loan portfolio deteriorated further reaching alarmingly high levels. The share of non-performing loans soared by 1.6 percentage points year on year to 14.3% in the second quarter of 2013. The capital adequacy ratio increased to 17.7% in the second quarter of 2013 up from 16.7% a year earlier, comfortably above the legal minimum of 12%. Liquidity indicators deteriorated during the same period with the ratios of liquid to total assets falling from 24.8% to 24.1% and of liquid assets to short-term financial liabilities from 43.5% to 42.2%. Twenty-six banks are participating in the deposit guarantee scheme. Its coverage level remained unchanged at around €18 000. Overall, despite the elevated and further rising non-performing loan ratio, financial stability was safeguarded.

The financial sector has not been very supportive to growth in 2012 and early-2013. Annual total credit growth moderated from 5.6% in 2011 to 4.9% at the end of 2012 and went further down to 2.5% year on year in July 2013, with total loans accounting for about 63% of GDP. Corporate lending has been stagnating throughout 2012 but there were signs of recovery in early-2013 as it grew by 2% year on year in July 2013. Retail lending has been moderating throughout the whole period and posted only a marginal growth of 1.8% in July 2013. Private sector credit may have been negatively affected by the high financing needs of the government, even if the magnitude of the potential crowding out is likely to be rather limited, given the relatively low share of government sector in total credits. The recovery of deposits continued though at further moderating rates. Total banking deposits reached 53.1% of GDP in July 2013. Households remained the main contributors to this development, increasing their savings by 8.3% year on year. The total loans-to-deposits ratio slightly moderated to 118.4% in July 2013. Overall, the financial sector has not been very supportive to growth, partially due to some crowding out.

The downward correction on the two stock markets in Bosnia and Herzegovina continued. The combined turnover of the bourses soared over twofold year-on-year, mainly influenced by the placed T-bills issues of both entity governments. The combined market capitalisation inched up to approximately 33% of GDP from around 30% a year ago. The insurance sector remained small, accounting for approximately 2.1% of GDP in 2012. The annual growth of premiums accelerated slightly to 3.5% in 2012 from a 3.4% annual rise in 2011. The market was dominated by the non-life insurance segment, which accounted for 84.9% of the total. Twenty-six companies were operating on the market in 2012, up from twenty-five in the previous year. Overall, financial intermediation by the non-banking sector remained shallow.

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

Existence of a functioning market economy

The quality of public finances remains low, even though public finance management has been somewhat strengthened and some steps have been taken to improve public finances sustainability, in particular in the Federation. Unemployment remains very high. The stalled privatisation process, along with the prevailing obstacles to private-sector development and the unfavourable composition of budgetary expenditures continue to undermine a more growth-oriented allocation of resources. No progress has been made towards creating a single economic space within the country. Overall, the functioning of market mechanisms remains hampered by the large government sector, characterised by low spending efficiency and sizeable interference in the economy.

Human and physical capital

Information and statistics on human capital remains scattered and scarce, thus preventing effective policy-making. Although enrolment rates in higher education increased slightly in the 2012-2013 academic year, progress in the field of education has been very limited. The new coordination format for education reform, which had been agreed in 2012, is not effective as the Conference of the education ministers in Bosnia and Herzegovina, foreseen to be held every second month, met twice since March 2012. No progress has been made with regard to one of the major bottlenecks of the education system, namely the mismatch between the qualifications needed on the labour market and the profile of graduates coming out of the education and vocational training systems. Participation in the labour market is still very low, with an activity rate of 43.6% in 2013, as compared with 44% in the previous year. Overall, the proper functioning of the labour market continues to be hampered by structural rigidities and the weak performance of the education and training system.

The investment-to-GDP ratio remained at relatively low level of about 20.3% in 2012, slightly increasing in year on year comparison. Net FDI flows surged by 70.6% – albeit from a very low level –, reaching 3.5% of GDP. The structure of FDI inflows improved slightly with rising green-field investments in tradables (manufacturing industry, in particular) at the expense of the financial sector. Some progress, however slow, can be reported in the improvement of the road and rail infrastructure on the Pan-European corridor Vc. A number of projects of rehabilitation of road and railway infrastructure are being implemented. Maintenance and upgrading of roads continued, but progress was slow. Overall, despite the difficult external environment the country seems to have gained some attractiveness towards foreign investors. Infrastructure improved slightly, but still requires repairs and modernisation.

Sector and enterprise structure

Market liberalisation remains insufficient in many sectors as most utility providers still do not apply market prices. No progress has been made on unbundling electricity networks. There was some slight progress towards a competitive telecommunications market. New licences were granted for internet services and network operators. The level of broadband internet access has increased marginally remaining at relatively low level of 11.2%. Overall, limited progress was achieved on liberalisation of network industries.

There were no major shifts in the sectoral structure of the economy in 2012. Services accounted for 71.2% of gross value added (up from 68.4% in 2011), industry for 20.1% (21.8%) and agriculture for 7.7% (8.4%). The share of construction fell for a fourth consecutive year reaching 4.9%. The traditionally high share of public administration, education and health increased slightly to 23.3%. The large informal sector which is fuelled by weaknesses in tax and expenditure policies and in law enforcement, including the fight against corruption, remains an important challenge. Overall, there have been no major changes in the structure of the economy. The informal sector is an important challenge.

State influence on competitiveness

No progress has been made in reducing the state’s influence in the economy. Direct budget subsidies to industry and agriculture increased to 1.6% of GDP in 2012, up from 1.5% in the previous year. In the first quarter of 2013, they decreased 21.3% year on year. Despite the establishment of a state aid authority and the appointment of a secretariat, both are not fully operational as implementing legislation and bud