Source: EURLEX
Language: en
Format: md

*|*

# 52012SC0335

**COMMISSION STAFF WORKING DOCUMENT BOSNIA AND HERZEGOVINA 2012 PROGRESS REPORT accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2012-2013 /\* SWD/2012/0335 final \*/**

  

TABLE OF CONTENTS

1........... Introduction. 4

1.1........ Preface. 4

1.2........ Context 4

1.3........ Relations between the EU
and Bosnia and Herzegovina. 6

2........... Political criteria. 8

2.1........ Democracy and the rule of
law.. 8

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

2.3........ Regional issues and
international obligations. 21

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

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

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

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

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

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

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

4.1.3..... Free movement of capital 35

4.1.4..... Customs and taxation. 35

4.1.5..... Competition. 36

4.1.6..... Public procurement 37

4.1.7..... Intellectual property law.. 37

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

4.1.9..... Education and research. 40

4.1.10... WTO issues. 42

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

4.2.1..... Industry and SMEs. 42

4.2.2..... Agriculture and fisheries. 43

4.2.3..... Environment and climate
change. 44

4.2.4..... Transport policy. 46

4.2.5..... Energy. 47

4.2.6..... Information society and
media. 48

4.2.7..... Financial control 49

4.2.8..... Statistics. 50

4.3........ Justice, freedom and
security. 51

4.3.1..... Visa, border management,
asylum and migration. 51

4.3.2..... Money-laundering. 53

4.3.3..... Drugs. 54

4.3.4..... Police. 54

4.3.5..... Fighting organised crime and
terrorism.. 55

4.3.6..... Protection of personal data. 57

1.
Introduction
1.1.
Preface

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

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

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

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

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

This report covers the
period from October 2011 to September 2012. Progress is measured on the basis
of decisions taken, legislation adopted and measures implemented. As a general
rule, legislation or measures which are being prepared or awaiting
parliamentary approval have not been taken into account. This approach ensures
equal treatment across all reports and enables an objective assessment.

The report is based on 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 contained in this report.

1.2.
Context

Bosnia and Herzegovina
is a potential candidate for EU membership. The Stabilisation and Association
Agreement (SAA) has been ratified but has not yet entered into force.

The process of consultation between the
representatives of the main political parties, which started in December,
initially produced a shift of focus towards EU integration. A new political
momentum emerged, without external interference, reinforcing domestic ownership
of the political process. This momentum was not maintained and political disagreements
in the governing coalition emerged well ahead of the municipal elections in
October. The political consensus that had emerged was lost and progress on the
EU agenda stalled. The tensions linked to the reshuffling
of the governments at State level and in the Federation have not been
conducive to progress on the implementation of the Sejdić-Finci
ruling. A shared vision by the
political representatives on the overall direction and future of the country
and its institutional set up remains to be agreed as a matter of priority. In order for such a vision to materialise, the
political representatives of Bosnia and Herzegovina need to anchor the EU
agenda at the heart of the political process and translate political agreements
into concrete action.

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 (PIC SB) has set objectives and conditions to be met for
the closure of the Office of the High Representative[3].

Since the decoupling of
the European Union Special Representative’s (EUSR) mandate from the OHR, the EU
has reinforced its role in the country in line with the relevant Council
Conclusions[4].
The enhanced presence of the combined EUSR and the EU Delegation in Bosnia and
Herzegovina has become instrumental in communicating EU priorities to citizens
and in implementing the objectives of the EU agenda in key areas.

The High Level Dialogue on the Accession Process
(HLDAP) was launched in Brussels in June with representatives of the
authorities and political parties of Bosnia and Herzegovina. The purpose of the
HLDAP is to start a process of explaining what EU accession requires both in
political and technical terms. The need for an effective coordination mechanism
between various levels of government for the transposition, implementation and
enforcement of EU laws remains to be addressed as a matter of priority, so that
the country can speak with one voice on EU matters and make an effective use of the EU’s pre-accession
assistance. The country’s political
representatives agreed to joint conclusions and a roadmap on EU integration to
implement the conditionalities for the entry into force of the SAA and for a
credible membership application, as defined by the relevant Council
Conclusions. The first timeline of the June HLDAP Roadmap was not met: an
agreed proposal, based on political consensus, amending the Constitution to
ensure compliance with the European Convention on Human Rights (Sejdic-Finci
case) remains to be submitted to the Parliamentary Assembly. (See Chapter
2.1 – Constitution)

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

After 16 months of
political stalemate following the October 2010 general elections, the process
of establishing executive and legislative authorities was completed with the
formation of a State-level Government in February. The establishment of the new
Council of Ministers and the adoption in February of two key EU-related laws,
the Law on State Aid and the Law on the Household and Population Census,
initially brought new dynamism. In May, following the adoption of the 2012
State budget, disagreements between parties in the governing coalition emerged.
This started a process of reshuffling at the State, Federation and cantonal
levels. Due to political disputes and ongoing legal
challenges, the outcome of this reshuffle remains uncertain.

1.3.
Relations between the EU and Bosnia and
Herzegovina

Bosnia and Herzegovina
participates in the Stabilisation and Association Process. The Interim
Agreement (IA) has been in force since July 2008. Implementation of the IA
remained uneven. The country is still in breach of the IA due to non-compliance
with the European Convention on Human Rights (ECHR) and with its obligations on
State aid. The State Aid Law has been adopted but the establishment of the
State Aid Council, compliance with EU principles on public undertakings and the
comprehensive inventory of aid schemes are still pending. Some recent measures
introduced at Entity-level to protect the local market, remain to be addressed.
The Stabilisation and Association Agreement (SAA) has been ratified by
all EU Member States, but has not yet entered into force.

Within the framework of the Stabilisation and Association
Process, Bosnia and Herzegovina continued to engage constructively with the EU
on a Structured Dialogue on Justice, with plenary meetings held in November 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
HLDAP launched in June is another forum for engagement on requirements for the
EU integration process.

An
inter-parliamentary meeting between Members of the European Parliament and
Members of the Bosnia and Herzegovina Parliamentary Assembly took place in
December 2011. In May, the Western Balkans Working
Group of the Committee of Regions held a meeting in Sarajevo.

The overall pace of
reforms remained uneven. The EU provides guidance to the authorities on reform
priorities. Progress on these priorities is encouraged and monitored by the
bodies established by the IA. Six Interim Sub-Committee meetings and one
Interim Committee meeting were held. Furthermore, multilateral economic
dialogue between the Commission, EU Member States and potential candidate
countries in the context of the pre-accession fiscal surveillance took place at
an expert meeting in May 2012.

The single EU
representation — EUSR/EU Delegation — continued to facilitate political
dialogue and to apply a broad and balanced set of instruments to maximise the
incentives provided by the EU. The EU has continued to deploy considerable
resources in Bosnia and Herzegovina under the Common Foreign and Security
Policy and the Common Security and Defence Policy.

The mandate of the EU Police Mission (EUPM) focused on the
fight against organised crime and corruption. The EUPM monitored and assessed
implementation of police reform and accountability, and provided training over
the last 10 years. The mission officially closed down on 30 June 2012. The EU
remains committed to strengthening the rule of law in Bosnia and Herzegovina
through other instruments, including the reinforced EUSR Office and the
Instrument for Pre-accession Assistance (IPA).

The EUFOR Althea military operation contributed to
maintaining a safe and secure environment in the country. In 2011, the UN
Security Council extended EUFOR’s mandate until November 2012. The Operation
was reconfigured and reduced to 600 troops in theatre as of 1 September,
focusing on capacity-building and training, while also retaining the means to
contribute to the Bosnia and Herzegovina authorities’ deterrence capacity. A
reserve force outside the country will conduct regular in-country
reconnaissance and training.

Visa liberalisation for citizens of Bosnia and Herzegovina
travelling to the Schengen area has been in force since
December 2010. The Commission set up a
post-visa-liberalisation monitoring mechanism to assess whether the
implementation of reforms introduced by the country was consistent with the
visa roadmap and sustainable. This was complemented by an alert mechanism to
prevent abuses. The Commission presented its
second monitoring report to the European Parliament and the Council in December
2011 and adopted the third in August 2012. A readmission agreement
between the European Union and Bosnia and Herzegovina has been in force since
January 2008.

As regards the common
foreign and security policy (CFSP), during the reporting period Bosnia and
Herzegovina aligned itself, when invited, with 39 out of 70[5] relevant EU
declarations and Council decisions (56% alignment).

Bosnia and Herzegovina
receives financial assistance under the Instrument for Pre-accession
Assistance (IPA). The EU Delegation to Bosnia and Herzegovina is responsible
for the implementation of financial assistance in the country. The country’s
authorities have made little progress on setting up the necessary structure for
decentralised management of EU funds (DIS). The legal bases for the operating
structure, the appointment of the necessary programme officers and the adoption
of the roadmap for a decentralised implementation system have still not been
agreed.

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

The lack of agreement
between stakeholders in the country regarding the projects to be financed under
the IPA 2012 national programme[6]
delayed the completion of the programming exercise in 2012. The difficulties encountered during the programming exercise
demonstrate the need to urgently address the issue of coordination on EU
matters at every level. Strengthening coordination
mechanisms on the programming of future EU financial assistance and on other EU
matters, is an issue to be addressed as a matter of urgency.

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

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

As regards participation in EU Programmes,
Bosnia and Herzegovina participates 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 country became an associate
member of the Culture 2007-2013 programme and joined the Europe for Citizens
Programme. A single contact point is instrumental for enhanced participation by
citizens across the country in the Culture and Europe for Citizens programmes. Coordination
mechanisms in view of establishing a single contact point endorsed by all stakeholders
remain to be agreed.

2.
Political criteria

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

2.1.
Democracy and the rule of law

Constitution

The Dayton/Paris Peace Agreement (DPA) put
an end to the 1992-1995 war and brought peace to Bosnia and Herzegovina. Bosnia
and Herzegovina’s Constitution, which is Annex 4 to the Agreement, established
a complex institutional architecture, which remains inefficient and is subject
to different interpretations. The complicated decision-making process has
continued to have a negative impact on structural reforms and the country’s
capacity to make progress towards the EU. As a matter of priority, the need for an effective
coordination mechanism between various levels of government for the
transposition, implementation and enforcement of EU laws remains to be
addressed, to enable the country to speak with one voice on EU matters.

Some political
representatives are questioning Bosnia and Herzegovina’s capacity to function
as a country and are calling for an Entity-level EU agenda separate from the
Bosnia and Herzegovina state.

The Federation’s
Constitution entails costly and complex governance structures with certain
overlapping competences between the Federation, the Cantons and the
municipalities.

The Constitution of Bosnia and Herzegovina
prevents citizens who do not declare themselves as one of the three constituent
peoples (Bosniak, Serb and Croat) from standing as candidates for the
Presidency and the House of Peoples of the Parliamentary Assembly. An Interim
Joint Parliamentary Committee was set up in October 2011 and tasked with
drafting amendments to the Constitution of Bosnia and Herzegovina and the
Election Law to comply with the European Convention on Human Rights (ECHR) and
the judgment of the European Court of Human Rights (ECtHR) regarding
discrimination against citizens on the grounds of ethnicity. An internal Roadmap on EU integration aimed at meeting the
conditions for the entry into force of the Stabilisation and Association
Agreement (SAA) and for a credible membership application was agreed at the
HLDAP. The first timeline (31 August) set in the Roadmap for submission of a
joint proposal to comply with the European Court of Human Rights (ECtHR)
decision in the Sejdic-Finci case, was not met. (See Chapter 1.2 –
Context)

On the basis of the DPA, the international
community continued to maintain a presence in Bosnia and Herzegovina. The High
Representative used the Bonn Powers[7]
to issue three Decisions. The first one lifted an earlier ban by the High
Representative on an official removed in July 2005, which was preventing him
from standing as candidate for elections and holding certain executive offices.
The other two decisions repealed the High Representative’s Decision of 10 July
2007 to seize the travel documents of individuals suspected of involvement in war
crimes in and around Srebrenica.

With regard to meeting the outstanding
objectives and conditions for the closure of the Office of the High
Representative (OHR), a high-level political agreement was reached on the
principles for distributing defence and state property in March. In September,
the Constitutional Court adopted a decision regulating property distribution,
but it remains to be implemented. Following the endorsement by the Peace
Implementation Council Steering Board in May 2012, of the decision by the High
Representative to close the office in Brcko by 31 August, the Brcko Supervisor
suspended his mandate. The EU opened an office in
Brcko to facilitate Brcko’s adoption of reforms needed for advancement on the
EU path. The EU also opened an office in Mostar and reinforced the
office in Banja Luka.

Overall,
there has been little progress in compliance with the ECtHR judgement in the
Sejdic-Finci case 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 so that the country can speak with
one voice on EU matters, remains an issue to be addressed

Parliament

The
Parliamentary Assembly of Bosnia and Herzegovina has made some progress in adopting EU-related legislation. The Parliamentary Assembly adopted 2 key EU related laws[8] and 20 sets of amendments to
existing legislation and rejected 21 laws. Delays in
forming the State-level Council of Ministers and the ongoing reshuffle,
following disagreements within the governing coalition, have hampered the
ability of the Parliamentary Assembly to legislate efficiently. Cooperation
between the Council of Ministers and the Parliamentary Assembly remains insufficient.

The rules of procedure of the House of
Peoples and the House of Representatives have not yet been amended to introduce
a fast-track mechanism for EU legislation.

There has been some progress in the
functioning of the Parliamentary Assembly. A reorganisation of the Secretariat
of the Parliamentary Assembly has been adopted, setting up two new sectors in
the Secretariat[9].
A general lack of political will continued to hamper the efficiency of the
Parliamentary Assembly’s work. Temporary financing of State-level
institutions held back the strengthening of the Parliamentary Assembly’s
administrative capacity.

At Entity
level, the overall functioning of the Parliamentary Assemblies has continued to
be satisfactory, with the EU Integration Committees focusing more on
IA/SAA-related obligations. However, the political reshuffle in the Federation
hampered the functioning of its Parliamentary Assembly.

In the
Federation, the Parliamentary Assembly organised a thematic session on EU
integration. The functioning of the Parliamentary Assembly has been hampered by
a lack of systematic coordination with other legislators in the Entity and by
efforts to establish a new parliamentary majority. The work of the
parliamentary committees was affected by frequent lack of quorum and inadequate
premises.

In Republika Srpska, the EU Integration
Committee of the National Assembly cooperated with the government in assessing
the level of compliance of proposed legislation. The appointment procedure of
the Bosniak Vice-Chairman of the Council of Peoples was completed.

The two Entity Parliaments have continued
to cooperate closely with their respective governments. Three joint meetings of
the State-level and Entity Parliamentary Committees for European Integration
took place.

Overall, the
Parliamentary Assembly has made some progress in adopting EU-related
legislation. Delays in setting up the State-level Council of Ministers and
disagreements amongst the parties of the governing coalition hampered
legislative activities. Cooperation between the Entity Parliaments, the
State-level Parliamentary Assembly and the State-level Council of Ministers regarding
EU-related matters needs to improve in order to ensure coordinated and
harmonised alignment with EU legislation throughout the territory of Bosnia and
Herzegovina.

Government

The new State-level Government took office
in February. The tripartite Presidency of Bosnia and Herzegovina continued to
meet regularly. The Presidency adopted its first eight-month work plan, which
calls for the setting of strategic foreign policy priorities, one of which is
to submit an application for EU membership. The formulation
of foreign policy remained subject to different positions within the Presidency
of Bosnia and Herzegovina on some key issues.

The leaders of six political parties[10] reached a political agreement
in December on the formation of the State-level Council of Ministers, on the
2011 State-level budget and on laws related to EU integration. The delay in
adopting the 2011 State budget delayed the disbursal of funds to cover
outstanding obligations under foreign loans. The State budget for 2012 was
adopted only in May and was followed by the break-up of the governing
coalition. The temporary financing which remained in place until then did not
enable adequate financing of the State-level institutions required for the EU
accession process. This particularly affected the State Aid Council, the Agency
for the Prevention and Fight Against Corruption, and the preparation of the
household and population census. (See
Chapter 4.2.8 – Statistics)

The Chairman of the Council of Ministers of
Bosnia and Herzegovina was appointed in January and the appointments of the
other members of the Council of Ministers were concluded in February. The
Council of Ministers’ Chairman has attached high priority to activities linked
to EU integration. The Council of Ministers adopted the Action Plan for
addressing the EU integration roadmap, the Action Plan for overcoming the
implications of Croatia’s EU membership, the 2012 Economic and Fiscal
Programmes and the 2012-14 and 2013-2015 Global Fiscal Framework.

The State-level,
Federation and Cantonal authorities began to be reshuffled in June due to
diverging party interests within the governing coalition. The outcome of this
process remains uncertain due to political disputes and on-going legal
challenges.

As regards policy planning, the development
strategy and the social inclusion strategy are in place in the Federation and
in Brcko but need to be adopted at State level and in Republika Srpska.
Overall, policy planning in Bosnia and Herzegovina remains hampered by the lack
of up-to-date census data. Preparations for the census are hampered by
organisational and financial constraints. The implementation of the Law on the
Household and Population Census remains a priority.

Regarding
coordination on EU matters, the Directorate for European Integration (DEI)
strengthened its cooperation with State and Entity-level parliaments and
governments. The Directorate’s coordinating role on EU matters among all levels
of authorities requires further reinforcement. The Directorate’s capacity to
assess compliance with the IA/SAA remains weak, notably because its mandate is
limited to State level and does not include amendments introduced during the
legislative process.

The Government of Republika Srpska often
provided analysis and opinions on the level of approximation of draft
legislation with the acquis. Its administrative capacity to monitor
EU-related legislation remained satisfactory. There was little coordination and
cooperation with the State-level Council of Ministers or the Federation
Government on harmonising legislation with EU standards.

In the
Federation, the formation of Cantonal governments was completed and the 2012
budget adopted in 9 out of the 10 Cantons. The Federation government
strengthened coordination of EU-related matters across ministries by setting up
a single coordinator’s office and European integration units in all ministries.
EU coordination with Cantonal governments was established through a unit for
European integration in the Government’s General Secretariat.

The Brcko District has developed a
procedure for harmonising legislation with the acquis. The Office for
European Integration remains understaffed due to a halt on public service
recruitment.

Entity legislation is largely in line with
the European Charter for Local Self-Government. The Cantons have not harmonised
their legislation with the Federation Law on Principles on Local
Self-Government. The 2010 Constitutional Court decision on the Mostar statute
remains to be implemented. As a result, local elections will not be held in
October in Mostar City.

Overall,
little progress was made by Bosnia and Herzegovina in improving the
functionality and efficiency of all levels of government, which continued to be affected by fragmented, uncoordinated
policy-making. The delays in the formation of
the Council of Ministers and political disagreements between parties in the
governing coalition delayed progress on the EU agenda. The development
strategy and the social inclusion strategy need to be adopted at State level
and in Republika Srpska.

Public
administration

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

The Public
Administration Reform Coordinator’s Office (PARCO) revised the 2006 Action Plan
under the Public Administration Reform (PAR) Strategy, providing a framework
for reforms over the next five years. The public administration reform process
lacks the necessary political support. There has been little progress in
strengthening administrative capacity for legal harmonisation and
implementation of the acquis. The issue of financial sustainability of
public administration at all levels needs to be addressed.

With regard to
appointments to State-level bodies, the directors of the Indirect Taxation
Authority (ITA), the State Investigation and Protection Agency
(SIPA) and the State Veterinary Office have been appointed. The members
of the Central Election Commission were re-appointed. Appointments to some key
agencies are still awaited, in particular the Communications Regulatory Agency,
the State Aid Council, and the electricity transmission company TRANSCO. These
agencies still lack the necessary resources and political support to become
fully operational in line with EU requirements.

The State-level
Law on Civil Servants has been amended to allow the Civil Service Agency to
handle civil servants’ personal data and thus make use of the human resources
management information system. There has been no improvement in recruitment
procedures that would ensure the application of objective and merit-based
criteria for appointments.

Civil service
systems have been amended in different directions across the country. In the
Federation, amendments to the Law on the Civil Service were adopted, aligning
it with the FBiH Constitutional Court decisions and ensuring compliance with
the Bologna Process on recognition of diplomas. Republika Srpska amended its
Law on Civil Servants, clarifying conditions for appointments and setting
retirement age for civil servants at 65. The Brcko District has prepared a set
of amendments to the Law on Civil Servants. There has been very little
coordination between the State level, the Entities and the Brcko District when
preparing amendments to their legislation to ensure a more harmonised approach.

Following a
decision by the Federation Constitutional Court, a framework law harmonising
the Cantonal legislation was drafted. The adoption in two Cantons of separate
laws on the civil service, which are not fully in line with the framework law,
contributed to the fragmentation of the civil service system and the
establishment of separate civil service agencies at Cantonal level.

The Ombudsman
of Bosnia and Herzegovina has issued reports to the UN and the Parliamentary
Assembly of Bosnia and Herzegovina on the status of human rights in the country
and on the implementation of the anti-discrimination law. Several of the
recommendations, e.g. regarding the judiciary, access to information and
discrimination, have not been implemented due to weak enforcement capacity and
a lack of political support. The reduction in funding had a negative impact on
the functioning of the Ombudsman.

Overall, little progress was made in the area of public administration
reform. The Action Plan under the PAR Strategy was revised, providing a
framework for reforms over the next five years. The coordinating structures at
Entity and Cantonal level remain insufficient. The cut in budgetary resources
hampered the functioning of the Ombudsman. Fragmentation and politicisation
continued to hamper the establishment of a professional, accountable,
transparent and efficient civil service based on merit and competence.

Judicial
system

Limited progress has been achieved in the
area of judicial system reform. The Structured Dialogue on Justice has had a
positive effect on the implementation of the Justice Sector Reform Strategy
(JSRS) 2009-2013. Increased political support resulted in better coordinated
planning among stakeholders and the allocation of more adequate human and
financial resources.

The High Judicial and Prosecutorial Council
of BiH (HJPC) completed a review of its own Law. Draft amendments provide for a
restructuring of the HJPC into sub-councils of judges and prosecutors, new
procedures for recruitment and judicial review of appointments, in accordance
with European standards of independence and professionalism.

A new Law on the Courts of Republika Srpska
entered into force in May, not yet harmonised with the Law on the HJPC.
Solutions regarding prerogatives of the Court of BiH and the coordination
between this and other instances throughout the country, including the
harmonisation of court practice in criminal matters, continued to be explored in
line with recommendations of the Structured Dialogue. A debate on the matter
was coordinated by the HJPC.

Some shortcomings persist in relation to independence
and impartiality. Political attacks on the State-level judiciary continued
and the independence of the judicial system is not yet ensured. Draft laws
repealing the Law on the Courts of BiH and the Law on the Prosecutor’s Office
of BiH were submitted to the Bosnia and Herzegovina Parliamentary Assembly in
February, contrary to the spirit of cooperation agreed in the Structured
Dialogue on Justice. By May, the adoption procedure for both laws had been
halted.

Independence is also affected by budgetary
fragmentation. The issue of streamlining budgetary competences is being
discussed by the Federation, the judicial professional community and the
relevant authorities. In 2011, the total financial resources allocated
to the judiciary in Bosnia and Herzegovina was € 100 million, which
represented approximately 0,79% of the country’s GDP. The management of
cases, particularly their transfer for issues of capacity and lack of human
resources in the Federation, has sometimes threatened the principle of the ‘natural
judge’.

As regards accountability, the
Office of the Disciplinary Council has performed well reducing the number of
unresolved cases and increasing the number of disciplinary actions. The
disciplinary case involving the former Chief Prosecutor of BiH was concluded in
May 2012 with a plea agreement. Vacant positions of the three judges
within the FBiH Constitutional Court have still not been filled after more than
three years.

As regards efficiency,
there has been some progress in addressing the backlog of cases. The HJPC
adopted a new ‘Rulebook on time measurements for the work of judges, judicial
associates and other employees in BiH Courts’ which is a significant improvement
on the previous one. The results of implementing the backlog reduction plan for
older cases have been positive. The majority of unresolved cases (53% of the
total) still pertain to unpaid utility bills. The HJPC has taken measures to
reduce the number of new cases.

Further
progress has been made in developing the information and communication system
across the judiciary with the expansion of the case management system (CMS) in
courts and prosecutors’ offices throughout the country. CMS is increasingly
used for statistical analysis and strategic policy by court presidents. Parties
to proceedings can access case information online, which facilitates efficiency
and transparency and prevents the loss of documentation. The Care of Court
Users Strategy is in use throughout the country. All courts and prosecutors’
offices have their own website. The Judicial Documentation Centre ensures
online availability of a considerably high number of court decisions.

Whilst a
comprehensive assessment of the infrastructure investment needs of courts and
prosecutors’ offices across the country has been completed, the physical
conditions of several courts at State and Entity levels have improved. Due to
budgetary constraints, many of the positions identified in the HJPC decisions
on regular and reserve judges have not been filled.

In consultation with the HJPC, the Tuzla
Canton is planning to reopen two municipal courts in December, in line with the
FBiH Law on the Courts. The new Law on the Courts adopted by Republika Srpska
in December 2011 included the opening of eight new basic courts, pending the
approval of the necessary financial means.

Moderate, but steady progress has been made
in processing the large backlog of unresolved war crimes cases.
Implementation of the National War Crimes Strategy accelerated with a
significant increase of the transfers of war crimes cases from the State level
to the Entities and the Brcko District, with 127 cases transferred in the first
six months of 2012. Good progress was made, with enhanced cooperation between
the courts and prosecutor’s office of Bosnia and Herzegovina, on the final
settlement of jurisdiction based on objective criteria.

The processing of war crimes cases by the
Court of Bosnia and Herzegovina has continued to be satisfactory. Following the
increasing number of war crimes cases transferred from State level to other
instances, additional human resources and facilities are needed in the Cantonal
and District courts. The lack of sufficient investigative capacity, as well as human and financial resources at all levels,
remain issues to be urgently addressed.

Diverging practices regarding the
applicability of different criminal codes between courts at different levels
continued to be an issue. With two cases, now merged, pending before the
European Court of Human Rights, the application of different criminal codes
continued to result in uneven sentencing. Increased coordination between
the competent instances throughout the judiciary of Bosnia and Herzegovina is
necessary.

The level of prosecution of war crimes
cases involving sexual violence remains low, particularly in the Entities and
the Brcko District. Efforts to investigate and prosecute these crimes and to
protect victims and witnesses need to be stepped up. A comprehensive approach
to improving the status of victims of rape and sexual violence remains
outstanding. The adoption of a State-level programme for improving the status
of victims of war crimes involving sexual violence is pending.

Witness protection and support services are
unevenly put in place, though there is some improvement connected to the
process of referral of war crimes cases from the State to other levels. The
current legal framework remains inadequate and fragmented and varies greatly
between District and Cantonal courts and prosecutors’ offices.

Overall, there was limited progress in the area
of judicial system reform. A constructive attitude to the need for a
comprehensive reform of the judiciary emerged in the Structured Dialogue on
Justice, based on domestic ownership, including in the implementation of the
Justice Sector Reform Strategy and of the National War Crimes Strategy. Further
measures were introduced to reduce the backlog of cases, particularly of
utility bill cases, but the overall backlog remains very high. Lack of
investigative capacities and appropriate resources is affecting the reduction
of the war crime cases backlog. The need to
harmonise the application of criminal laws throughout the country and the
fragmentation of organisation and budgets remain issues to be addressed.
Political attacks continued to affect the independence of the judiciary.

Anti-corruption
policy

Bosnia and
Herzegovina has made limited progress in addressing corruption, which continues
to remain widespread in the public sector and the public-private interface. The
legal framework is largely in place but sanctions need to be harmonised across
the country. Corruption continues to affect all spheres of life, economic
development and the rule of law.

The implementation
of the anticorruption strategy and action plan 2009-2014 has been delayed. The
rulebook regulating the organisation and structure of the Agency for the
prevention of corruption and coordination of the fight against corruption was
adopted in July. However, the agency is not yet fully operational.
Anti-corruption strategies are in place in the two Entities and the Brcko
District. Three bodies were set up with mandates to prevent corruption and to
develop and implement anti-corruption strategies.

The Law on Conflicts of Interest is in
place. Amendments governing public officials’ participation in company boards
were introduced. The harmonisation of conflict of interest legislation across
the country is pending. In addition, judicial review of decisions on conflicts
of interest is not equally guaranteed at all levels of authority.

Control of political party financing
remains weak. Registration of political parties has not been harmonised across
the country. Infringements of party financing rules are not effectively
prosecuted. The Central Election Commission continues to report asset
declarations, but the origin of assets cannot be checked as long as the
anti-corruption agency is not operational. The competent prosecutor rarely acts
upon false declarations, and the misuse of residence registration for the
purpose of drafting electoral lists continues to be a serious problem.

Insufficient implementation of legislation
and coordination problems between Entities continue to cause concern. Measures
are still required to implement the outstanding recommendations made in the
third evaluation report of the Group of States against Corruption (GRECO).

The level of effectiveness of
investigation, prosecution and conviction of corruption cases remained low.
Both criminal law sanctions and prosecution capacity are weak and ineffective.
Proactive investigation into abuse of authority in the public sector is at an
early stage. Very few high-level corruption cases involving public officials
are pursued. Further specialisation of prosecutors and improved coordination
with the police is needed. The level of judicial follow-up to corruption cases
remained low. Only a limited number of high-level cases led to prosecution.
Nepotism continues to hamper professional performance throughout the public
sector at all levels of authority. Access to information remains uneven.
Whistleblower protection is not in place.

Corruption in public procurement is
widespread and a matter of concern. Areas of special risk of corruption are the
issuing of permits and public services such as public health and education.

Overall,
Bosnia and Herzegovina is still at an early stage in the fight against
corruption. Corruption remains prevalent in many areas and is a serious
problem. A legal framework is in place but the political will to tackle the
issue and to improve institutional capacity remains weak. The implementation of
the strategy and action plan needs to be stepped up. Sustained efforts are
needed to establish a convincing track record of proactive investigation,
prosecution and conviction of high level corruption cases.

2.2.
Human rights and the protection of minorities

Observance
of international human rights law

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 (ECHR) 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 the decisions of the Constitutional Court of Bosnia and Herzegovina have
not been enforced, which led to cases being lodged before the European
Court of Human Rights (ECtHR). During the reporting period the ECtHR
delivered judgments on 39 applications finding that Bosnia and Herzegovina had
violated rights guaranteed by the European Convention of Human Rights. A total
of 423 new applications have been submitted to the ECtHR since September 2011,
bringing the total of pending applications to 1433.

Little progress
has been made in the promotion and enforcement of human rights. The enforcement of the outstanding decisions of the Human
Rights Chamber (HRCh) and the Human Rights Commission (HRCom), which is now the
competence of the Constitutional Court of Bosnia and Herzegovina, remains to be
addressed.[11]

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. The implementation of human
rights standards remains uneven and delays in reporting obligations have
continued. It remains essential to implement the ECtHR judgement in the
Sejdic-Finci case in order to comply with the ECHR (See Chapter 2.1 –
Democracy and the Rule of Law – Constitution).

Civil and
political rights

The death penalty is prohibited by
the Constitution of Bosnia and Herzegovina and by the Constitution of the
Federation. Although there is a moratorium, the death penalty provision in the
Constitution of Republika Srpska remains in place. A package of constitutional
changes, including this amendment, was adopted by the Republika Srpska National
Assembly in 2009 but adoption was subsequently blocked during the legislative procedure.
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.

With regard to the prevention of torture
and ill-treatment and the fight against impunity, the legal framework is in
place and is generally respected. Measures against ill-treatment by police
officers, need to be addressed[12].
The appointment of Bosnia and Herzegovina’s representative to the CPT is still
pending.

Some progress was made regarding the prison
system. The Republika Srpska amended the Law on the Execution of
Criminal Sanctions to harmonise it with the State-level law. A new draft Law on
the Execution of Criminal Sanctions remains to be adopted by the Federation.

Prison conditions have improved. The female
ward of Istocno prison was expanded. Some progress has been made to reduce
inter-prisoner violence, particularly in Zenica prison. Some cases of
ill-treatment have been reported. Procedures for investigating cases of alleged
ill-treatment have improved, particularly in Zenica and Doboj prisons. Some
progress was made regarding the use of alternative sanctions. Overcrowding
in the country’s prisons is an issue to be further addressed. The construction
of a high-security State prison has not yet started. This continues to affect
the country’s capacity to deal with high-security prisoners.

Limited progress was made in improving the
conditions of vulnerable prisoners. While a new psychiatric facility has been
built in Sokolac, it is not yet operational. Prison inspections need to be
reinforced. Bosnia and Herzegovina still lacks an effective coordination
mechanism among the 15 prison administrations in the country.

Some progress
was made in the area of access to justice in civil and administrative
trials. A web-based free legal aid providers’ network including governmental
and non-governmental organisations was set up. Additional free legal aid
agencies have been established. The system of free legal aid in Bosnia and
Herzegovina remains fragmented and unregulated in some Cantons of the
Federation. The adoption of a State-level Law on Free Legal Aid is still
pending. Free legal aid in civil cases continues to be mainly provided by
privately funded NGOs. Free legal aid for administrative cases remains problematic.

The Constitution of Bosnia and Herzegovina provides for freedom
of expression. Intimidation and threats against journalists and
editors have continued. Political pressure on
the media and the polarisation of the media along political and ethnic lines
remain of concern. Attempts to undermine the
independence of the Communication Regulatory Agency (CRA) have increased. The
current Law on Communication provides legal safeguards to ensure independence
of the CRA and of its management. However, an amendment to the Law on
Communications tasking an ad hoc Committee of the Parliament to appoint the CRA
Council was submitted in June. The appointments of the CRA Director-General and
of the Council Members are still pending. In July, the Federation Parliament
attempted to appoint a provisional steering board for the FBiH public service
broadcaster. This is not in line with the appointment procedure set out in the
Law on RTV FBiH and raises concerns about political interference with the
independence of the media.

The Press
Council has continued to work closely with judicial institutions and
journalists’ associations to improve the quality of reporting and raise
awareness among citizens of their legal rights. It has contributed to enforcing
professional standards and to improving the quality of the media by involving
citizens in providing feedback on media practices. Few efforts have been made
to improve the implementation of the Freedom of Information Act. Compliance
with recommendations by the Ombudsman of Bosnia and Herzegovina remained
limited.

Freedom of
assembly and freedom of association are broadly
respected. Cases of intimidation and violence against human rights advocates
continued.

An
institutional mechanism for
cooperation with civil society has been established in the two Entities but is
not fully operational yet. It is in place in the Brcko District but has yet to
be established at State level. A National Civil Society
Development Strategy is under preparation. A process for consulting civil
society during the legislative drafting process is in place but has not been
fully enforced. The lack of transparency in the allocation of funds for civil
society organisations remains to be addressed, particularly in the areas of
human rights and the environment.

The constitutional and legal guarantees of freedom of thought, conscience and
religion are generally respected. Cases of discrimination on religious grounds continued.
Incidents aimed at religious symbols, clerics, believers and property continued
and in particular affected those who constitute a religious minority in certain
communities. An international Meeting for Peace involving the main
inter-religious leaders took place in Sarajevo in September.

Overall, civil and political rights in Bosnia and Herzegovina are
broadly respected. Further progress has been made in improving prison
conditions but comprehensive reform of the prison system remains outstanding.
Some progress took place as regards access to justice but the legal and
institutional framework in the country remains fragmented. Intimidation and
threats against journalists and editors have continued. Political pressure on the media and the polarisation of the media
along political and ethnic lines remain of concern. Attempts to undermine the independence
of the CRA and appointments affecting public service broadcasters are of
concern. The development of civil society requires further support.
Transparency in the allocation of funds for civil society organisations needs
to be enhanced.

Economic and
social rights

Legal
provisions guarantee women’s rights and gender equality are in place.
The implementation of the Action Plan on UN Security Council Resolution 1325
regarding Women, Peace and Security continued but awareness and financial
resources for its implementation need to be strengthened. Political
participation by women remains low. The 40% quota for women within the public
administration, as stipulated by the Gender Equality Law, has not been reached.
Women continue to face unequal access to the labour market and the level of
female participation in the workforce remains low.

Limited progress was made to harmonise
Entity and Cantonal laws with the State-level Law on Gender Equality. Institutional mechanisms for ensuring gender equality continue to
face resource constrains. The availability of
statistical data on gender equality remains insufficient. Discrimination in
employment with regard to maternity rights remains widespread.

Some progress was made in combating
violence against women. In Republika Srpska, the implementation of the Strategy
Against Domestic Violence continued and police training was launched. In the
Federation the Law on Domestic Violence remains to be amended to enhance victim
protection. The implementation of the State-level strategy remains weak. Financing
of shelters for victims is not sufficient.

Some progress has been made in the area of children’s
rights. An Early Childhood Development Policy was adopted at State
level and is in place in both Entities. Some progress was made in strengthening
systems of social inclusion and protection. Child allowances vary between
Entities and Cantons and are not based on needs. A State-level Action Plan for
Children for 2010-2014 is in place but its implementation remained uneven. A universal
birth registration system has not yet been established. The percentage of
children immunised against preventable diseases remains low.

Some progress was made in promoting
alternative care but institutionalisation remains the
primary response. A revised State-level Strategy to
Combat Violence against Children remains to be adopted. Domestic violence
against children, trafficking and organised child begging remain issues to be
addressed.

Limited progress was made in the area of
juvenile justice, particularly in terms of social protection.
Implementation of the relevant national strategy, which is to be revised,
remained uneven. The enforcement of the Juvenile Justice Law in Republika
Srpska has progressed slowly. In the Federation, the adoption of the Juvenile
Justice Law is pending. A Juvenile Justice Law was adopted by the Brcko
District in November. The Brcko District and Republika Srpska laws are not
fully harmonised.

Limited
progress was made in the field of education. The Conference of Ministers of
Education in Bosnia and Herzegovina, which was established to improve
coordination among the 14 ministers of education, resumed its activities in
March but without adopting conclusions. An efficient coordination mechanism on
education between Cantonal governments in the Federation remains to be
established. Little progress was achieved in making schools more
inclusive. The number of Cantons applying the Index for Inclusion has
further increased. Only limited efforts have been made to reduce the number of
divided schools (‘2 schools under 1 roof’). In some Cantons of the Federation,
children continue to be separated along ethnic lines within schools, while
mono-ethnic schools continue to be present throughout the country. De facto
ethnic-based separation and discrimination in some public schools in the
Federation remain a serious concern. Following a complaint by civil society, a
judgement by the Mostar Court against school segregation and the issue of ‘2
schools under 1 roof’ was raised and this ruling was appealed.[13]

Little progress
was made in improving conditions for the socially vulnerable and/or people
with disabilities. The Council of Disabled Persons began its work
and set up mechanisms for implementing the Convention on the Rights of Persons
with Disabilities. In Republika Srpska, a Law on Social Protection entered into
force. In the Federation, a Law on Payment of outstanding benefits was adopted.
However, the implementation of the entities strategies remained weak.
Entitlement to rights and benefits for disabled persons is not based on needs
but on status. As a result, certain categories of persons with disabilities do
not receive adequate financial benefits. No significant steps have been taken
to harmonise the social protection systems of the Entities and Cantons.

With regard to anti-discrimination
policies, an anti-discrimination law is in place but it does not include
age and disability as categories for discrimination and allows for a broad
range of exceptions. Only limited steps have been taken to ensure its effective
implementation. This is partly due to the lack of resources of the Ombudsman of
Bosnia and Herzegovina, which has a central role in implementing the law.
Public awareness of the legal remedies provided by the law remains weak and the
number of discrimination cases brought by citizens remains low. There is still
no State-level database of discrimination cases.

Discrimination against lesbian, gay,
bisexual and transgender (LGBT) persons remains widespread. LGBT activists
continue to be subjected to threats and harassment. Hate speech and intolerance
towards LGBT persons by media and politicians remain an issue of concern.

With regard to labour
and trade unions rights, little progress was made. The fragmentation of the
legal framework for social benefits and pension rights remains to be addressed.
No significant steps have been taken to establish a State-level Economic and
Social Council. There are no criteria or legal framework for the recognition of
social partners at State level.

As regards property rights,
the vast majority of cases of property repossession requests have been
resolved. The work of the Commission for Real Property Claims of Displaced
Persons and Refugees (CRPC) on the remaining requests has not resumed since its
mandate expired in 2009. As a result there are still over 110 unresolved cases
and approximately 300 cases pending before the Court of Bosnia and Herzegovina
in which the CRPC is a respondent party in administrative dispute procedures.
There is still no reliable database on outstanding claims and property
registers.

Overall, economic
and social rights are broadly respected. Some progress has been made on
combating violence against women and in the area of early childhood development
albeit unevenly. Little progress was achieved on
making schools more inclusive. Ethnically based and divided education
systems remain an obstacle to achieving inclusiveness in education and to
sustainable returns. The implementation of the anti-discrimination law remains
to be stepped up. Discrimination against LGBT persons remains widespread. The
existing discrimination in the social protection system for persons with
disabilities is an issue to be addressed. Labour rights and social dialogue
require further strengthening.

Respect
for and protection of minorities, cultural rights

The legal framework for the protection of minorities[14] is largely
in place, but implementation remains uneven. The National Minority Councils’
influence over policy-making remained limited, partly due to the lack of
political and financial support. The appointment of the members of the
State-level National Minority Council is still pending. Some progress was
achieved in the Federation with the adoption of the Law on National Minorities
and appointment of Minority Council members in one Canton with large minority
populations. The cultural rights of national minorities, including
participation in public life, need to be strengthened.

As the Constitution has not been amended to
comply with the ECtHR ruling, minorities continue to be excluded from
representation in the State-level House of Peoples and the tripartite
Presidency (See Chapter 2.1 – Constitution). No progress has been made
in implementing the European Charter for Regional or Minority Languages. Representation
of minorities in the media needs to be strengthened. Bosnia and Herzegovina has
not yet appointed representatives to the Council of Europe Advisory Committee
under the Framework Convention for Protection of National Minorities.

Limited progress was made as regards the Roma
minority, who still live in very vulnerable conditions.
Legislation on registry books harmonising civil registration in the whole
country was adopted by both Entities. Bosnia and Herzegovina is participating
in the Roma Decade of Inclusion. Four action plans under the Roma Strategy are
in place. While some progress was made with regard to housing, only limited
steps have been taken on health, employment and education. The process of
revision of the actions plans on housing, employment and health to better
reflect the needs of the Roma population, in line with the recommendations of
the Roma Inclusion Seminar of July 2011, has been launched. Implementation, in
particular proper budget allocation, remains to be thoroughly assessed.

The financial resources for the
implementation of the action plans need to be increased and coordination among
authorities at all levels strengthened. Participation by Roma representatives
in the decision-making process remains very low. Very little progress has been
made on improving the situation of Roma women and children who continue to
suffer from discrimination and domestic violence. A large number of Roma
children are not registered at birth and therefore cannot attend school and
have no health insurance. Organised child begging
remains an issue of concern. A number of Roma remain at risk of statelessness.

As regards refugees and internally
displaced persons, at the end of 2011 there were approximately 113,000
internally displaced persons in Bosnia and Herzegovina, including approximately
8,000 residing in collective centres, and 7,000 refugees. Some steps were taken
to implement the revised Strategy for the Implementation of Annex 7 to the
Dayton/Paris Peace Agreement, primarily as regards housing and the future closure
of a number of collective centres. Little effort has been made to address
access to other rights such as social protection, education and employment.
Discrimination with regard to access to employment, healthcare and pension
rights continued. Transparent procedures for allocating funds to support return
based on need have yet to be established. The country still lacks a coordinated
policy mechanism to address legislative gaps hampering sustainable return and
local integration.

With regard to
landmines from the 1992-1995 conflict, some progress was made in the
implementation of the Mine Action Strategy but some areas have still not been
cleared. As of September 2012, seven persons were killed in landmine accidents.
The Law on anti-mines actions has yet to be adopted. In order to meet the goal
of clearing the country of mines by 2019, fundraising responsibilities,
administrative and management capacity and coordination of demining measures
remain issues to be addressed.

Overall,
respect for and protection of minorities are broadly ensured. Some progress,
albeit uneven, was made on implementing the Roma action plans. The Roma
continue to be the most vulnerable minority in Bosnia and Herzegovina. As
regards refugees and internally displaced persons, some progress was made on
implementing the revised strategy for the implementation of Annex 7 to the
Dayton/Paris Peace Agreement, primarily as regards housing and collective
centres. Difficulties with access to pension rights, health care and social
protection for returnees and internally displaced persons remain a significant
obstacle for sustainable return and local integration.

2.3.
Regional issues and international obligations

The Parliamentary Assembly of the Council
of Europe (CoE) monitors the progress made by Bosnia and Herzegovina in
fulfilling the obligations and commitments relating to its membership of the
CoE. Bosnia and Herzegovina has not yet appointed the chair of its delegation
to the CoE Parliamentary Assembly. Bosnia and Herzegovina has yet to appoint
its representatives to the CoE advisory bodies. Implementation of the
requirements stemming from the CoE Conventions remains insufficient.

Implementation
of the Dayton/Paris Peace Agreement continued. In the framework of the
Special Parallel Relations Agreement between the Republika Srpska and Serbia, a
joint session took place in Belgrade in December, leading to the signing of
four agreements on internal affairs, IT, the environment and agriculture.

Cooperation
with the International Criminal Tribunal for the former Yugoslavia (ICTY) is generally satisfactory in most areas. The
re-arrest in January 2012 of Radovan Stankovic, who was tried and sentenced in
Bosnia and Herzegovina under ICTY Rule 11bis[15],
represents a significant step forward. Courts and Prosecutors offices across
the country have continued to process war crimes cases, but are still behind
the schedule set out in the war crimes strategy. Good progress has been
achieved with the increased number of war crimes cases transferred from the
State level to the Entities and the Brcko District. The provision of adequate
resources is needed to secure timely and effective completion of the cases.

Cooperation
between the Courts and the Prosecutors’ offices from Bosnia and Herzegovina,
Croatia and Serbia is ongoing. Extradition agreements with Montenegro, the
former Yugoslav Republic of Macedonia, Croatia and Serbia have been initialled
in July. The scope of these bilateral agreements does not include war crimes
cases. The Protocol on sharing information and evidence in war crimes cases
between the Prosecutors’ offices of Bosnia and Herzegovina and Serbia has yet
to be signed. This would represent a significant step forward in terms of
regional cooperation and the fight against impunity.

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

Significant
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 who were displaced
as a result of the armed conflicts in ex-Yugoslavia during the 1990s. The four
countries signed a ministerial declaration in November 2011 in Belgrade,
renewing their political commitment to bringing this chapter to a close. They
agreed on a Regional Housing Programme assisting some 27,000 households or
74,000 individuals. The programme was presented for international donor support
at the Sarajevo April 2012 donors’ conference, which resulted in some
€ 265 million being pledged. Programme implementation is at an early
stage. Good cooperation needs to continue between the four countries on all
outstanding issues in the process, including data exchange and statistics,
civil documentation and pension rights.

The unresolved fate of missing
persons from the conflicts in the 90s remains a humanitarian concern in the
Western Balkans. As of August 2012, there were still
approximately 13,250 people missing from the conflicts in the region. Of
these, some 9,550 were related to the conflict in Bosnia and Herzegovina,
approximately 1,900 to the conflict in Croatia and over 1,800 to the conflict
in Kosovo\*. In the past year approximately 1,100 remains were identified at
regional level. The State Prosecutor’s Office took over responsibility from
local prosecutors for conducting exhumations of mass graves in January 2011,
but it has not been provided with the necessary resources to perform this
additional task. Full implementation of the Law on Missing Persons needs to be
ensured, especially as regards families’ access to economic and social
benefits. The verification of the data in the database of the Central Records
on Missing Persons is ongoing. The State-level Missing Persons Institute (MPI)
was provided with adequate funds but political pressure and attempts to
undermine the MPI’s work have continued. The existence of unidentified grave
sites continues to pose a challenge for the identification of missing persons
in the country. Renewed political support for the issue of missing persons is
needed.

Regional cooperation and good
neighbourly relations form an essential part of
Bosnia and Herzegovina’s process of moving towards the European Union. Bosnia
and Herzegovina has continued its active involvement in regional initiatives,
including the South East European Cooperation Process (SEECP), the Regional
Cooperation Council (RCC), the Central European Free Trade Agreement (CEFTA),
the Energy Community Treaty and the European Common Aviation Area Agreement. Bosnia and Herzegovina took over the Presidency of the
Migration, Asylum and Refugees Regional Initiative (MARRI) in April 2012.
Bosnia and Herzegovina continues to actively support the Igman initiative on
reconciliation, which brings together NGOs from Bosnia and Herzegovina,
Croatia, Serbia and Montenegro, and the RECOM initiative.

Bilateral relations with other
enlargement countries remained stable. In February,
the second trilateral meeting between the Presidents of Bosnia and Herzegovina,
Croatia and Serbia took place in Jahorina and focused on cooperation in the
fight against organised crime and cross-border cooperation projects in
infrastructure, the environment and sport events.

Relations with Albania
remained good. Bosnia and Herzegovina ratified the Memorandum on settling
Albania’s debt related to goods exchange with the former Yugoslavia.

Relations with Croatia
have intensified. Bosnia and Herzegovina has
ratified a dual citizenship agreement with Croatia in October. A number of meetings
have taken place to address the implications for bilateral relations of Croatia’s
accession to the EU. In this context, discussions have continued with regard to
the outstanding issues on border management, with limited progress. The
agreement on free transit through the port of Ploce,
in Croatia, and the Neum corridor, in Bosnia and Herzegovina, as well as the
local border traffic agreement should be aligned with the EU acquis. Limited progress was achieved in resolving outstanding
issues, including property issues and border demarcation.

Relations with the
former Yugoslav Republic of Macedonia continued to be good. Several agreements on judicial cooperation and on cooperation in the
areas of health and of education were signed.

Relations with Montenegro remained good. Agreements
were signed and/or ratified in various fields of cooperation, including
international transport mutual protection of classified
information, legal aid and enforcement of court decisions. A dual citizenship
agreement was concluded in June. Border demarcation
remains pending.

Relations with Serbia
remained good. Agreements on veterinary cooperation,
police cooperation, tourism, employment, security and communications
were ratified. The Minister of Foreign Affairs of Bosnia and Herzegovina
visited Belgrade in March 2012. The Speaker of the Serbian
Parliament paid a visit to Bosnia and Herzegovina in December and President
Tadic visited Republika Srpska on several occasions. In September, Prime
Minister Dacic paid an official visit to Bosnia and Herzegovina. Border demarcation remains an open issue.

There are no
official relations with Kosovo, as Bosnia and Herzegovina has not
recognised Kosovo as an independent state. Steps have been taken by the Council
of Ministers to set up procedures for citizens of Kosovo to obtain visas
comparable to those issued by EU Member States which do not recognise Kosovo.
The Ministry of Foreign Affairs of Bosnia and Herzegovina is now authorised to
issue visas to the citizens from Kosovo and assess individual visa requests.

Relations with Turkey
intensified. A readmission agreement was signed. The
Protocol on the origin of goods of the bilateral Free Trade Agreement entered
into force. A number of Presidential and ministerial-level visits have taken
place. The Collegium of Bosnia and Herzegovina’s House of Representatives has
met with the President of the Turkish parliament and agreed to intensify
economic cooperation and ratify agreements on the removal of double taxation
for Turkish investment in the country.

Overall,
Bosnia and Herzegovina’s cooperation with the ICTY has continued to be largely
satisfactory and a number of important steps have been taken to process war
crimes. Significant progress was made with regard to the Sarajevo Process on
refugees and internally displaced persons. Efforts to find the missing persons
from the 1992-1995 conflict continued. The country has continued to participate
actively in regional cooperation and to maintain good neighbourly relations.
The remaining border and property issues need to be addressed and legal
obstacles to extradition with neighbouring countries removed.

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 long-lasting political stalemate
following the October 2010 general election had a negative impact on the
country’s economic and fiscal policy. The delays in adoption of the 2011 and
2012 State-level budgets and of the Global Frameworks for Fiscal Policies for
the periods 2012-2014 and 2013-2015 increased the uncertainty over the short-
and medium-term fiscal path. Despite the steps taken by the new central
government as of February 2012, the consensus between the authorities at
different government levels on the economic policy essentials has weakened. The
Stand-By Arrangement (SBA) negotiated with the International Monetary Fund
(IMF) in 2009 has, de facto, been non-functional since October 2010, when the
last programme review was completed. The country was able to withdraw only
about 1/3 of the funds before the SBA expiration. In September 2012, the IMF
Board approved a new two-year SBA aimed at supporting the country’s efforts to
counter the effects of the worsening external environment and tackle external
and domestic vulnerabilities. The budgetary support planned by the World Bank
has been delayed mainly due to the lack of tangible outcomes of legislative
reforms in the area of cash transfers. In March 2012 the authorities submitted
– after a significant delay – their sixth Economic and Fiscal Programme,
covering the period 2012-2014. In the absence of a medium-term fiscal framework
at country level, the programme remains fragmented and does not present a
coherent formulation of economic and fiscal policies. Overall, the
consensus on economic and fiscal policy essentials has weakened and hampered
progress in reforms at country level.

Macroeconomic
stability

In 2011, the economic recovery continued
with real GDP growth accelerating slightly to 1.3%, as compared to 0.7% a year
earlier. Domestic demand revived, supported by a relatively stable inflow of
remittances and slightly accelerating credit growth. Both private consumption
and private-sector investment registered positive growth rates after the
decline in 2009-2010. After being the main contributor to the expansion of the
economy in 2010, external demand weakened in the second half of 2011 and export
growth moderated significantly. At the same time, import growth accelerated –
spurred by the recovering domestic demand –, thus resulting in a negative
contribution of net exports to growth. Industrial production rose by 5.6% in
2011, up from 1.6% in the previous year, driven by export-oriented industries.
However, the indicators available for 2012 suggest that the economic recovery
stalled, negatively affected by the worsened external environment. Industrial
production fell by 6.5% year on year in the first seven months of the year,
while exports of goods dropped by 4.3%. Per capita income, measured in
purchasing power standards (PPS), decreased to 29% of the EU average in 2011
from 30% in 2010. Overall, economic recovery gained some momentum in
2011 but this positive trend was reversed in early 2012.

After a crisis-led adjustment in 2009-2010,
the current account deficit soared from 5.7% of GDP in 2010 to 8.8% in 2011.
This deterioration was mainly driven by the expansion of the trade deficit,
surging by 12.3% year on year to 27.9% of GDP. Export growth almost halved to
15.6%, while the recovery of domestic demand triggered an acceleration of the
growth of imports to 14%. Surpluses in the services and income accounts
decreased by 4.1% and 22%, respectively, thus also contributing to the higher
current account deficit. At the same time, the net current transfers – covering
almost half of the trade deficit – grew only slightly by 2.5%, thus only
partially offsetting the negative developments in the goods, services and
income balances. In the first quarter of 2012, the current account deficit
widened further by 64.6% year on year due to faster expansion of the trade gap.
Exports fell by 9.6% year on year, negatively affected by the economic downturn
in the EU, while the imports still grew, even though at a significantly reduced
rate. The current account deficit was financed mainly by external borrowing
and, to a lesser extent, by foreign direct investment (FDI). The stock of
official foreign exchange reserves decreased by 0.5% in 2011 and fell further
by 4.1% year on year in the first seven months of 2012, though still covering
around five months of imports. Bosnia and Herzegovinaʼs external public
debt increased by 5.9% to 26.1% of GDP in 2011, while external private debt
reached 33.1% of GDP. In the first half of 2012, the external public debt rose
further by 5.1% year on year. Public international creditors account for 90% of
the countryʼs external public debt. The largest creditor remains the World
Bank group. A large part of the debt is contracted on concessional terms with
the average interest rate of all debt being at only 1.6%. Overall,
external imbalances have widened again after the sharp crisis-led contraction
in 2009-2010, thus indicating that the adjustment was just temporary and not
structural.

Labour market conditions remained weak. The
average unemployment rate reached 27.6% in 2011, as compared with 27.2% a year
ago. Employment fell by 1.6% in 2011 and went further down in the first six
months of 2012. The highest decline in employment was registered in
construction, agriculture and manufacturing, whereas some employment growth was
witnessed in real estate, mining and quarrying and financial intermediation.
The number of employees in the public administration continued to rise
throughout 2011 and the first half of 2012, thus further increasing the size of
the already large public sector. The Labour Force Survey (LFS), conducted
annually in April/May following the International Labour Organisation (ILO)
methodology, showed an increase in the unemployment rate to 28% in 2012 from
27.6% a year earlier. Unemployment was particularly high among the young
population (63.1% for people aged between 15 and 24, according to the LFS). The
officially registered unemployment rate climbed up to 43.8% in June 2012,
compared with 43.1% a year before. The very high unemployment rate and the
sizeable difference between the registered and survey-based labour figures
point to the existence of a fairly large informal labour market and significant
structural rigidities, such as the high rates of social security contributions
and poorly targeted social transfers. Average monthly nominal gross wages
increased by 4.4% in 2011, but wage growth has been moderating since the
beginning of 2012. Adjusted for inflation, the average gross wage rose
marginally, by 0.7%, in 2011 before the trend turned negative, at -1.6%, in
June 2012. Overall, labour market conditions have remained weak.
Unemployment is very high and structural rigidities continue to hamper job
creation.

Average annual inflation reached 3.7% in
2011, compared to 2.1% in 2010. The highest increases were registered in
transport and food prices, reflecting international price developments. The
rising overall price level in 2011 was also driven by an increase in excise
duties on tobacco and alcohol. Inflation moderated in the first seven months of
2012, dropping to 1.4% in July, pushing the 12-month moving average inflation
rate down to 2.8%. The growth of food and transport prices slowed down, which
were the main factors behind the lower inflation. 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 since February
2011, when the minimum reserve requirement for short-term deposits was lowered
from 14% to 10%. The growth of money supply moderated in the course of 2012 and
monetary aggregate M2 increased by 4.3% year on year in July, 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.

The consolidated budget deficit reached
1.3% of GDP in 2011, compared with 2.5% in 2010. Fiscal consolidation was
achieved partly as a result of rising revenue, fuelled by the economic recovery
and increases in tax, contribution and excise rates. The share of general
government in GDP remained high, with government expenditure at approximately
45.8% of GDP and revenue at about 44.6% in 2011. Tax revenue increased by 7%
due to higher economic activity, an increase in the personal income tax as of
February 2011 in Republika Srpska and a rise in excise duties on tobacco which
counteracted the continuous reduction of duties and tariffs as set out in the
Interim Agreement on trade with the EU. Collected contributions – accounting
for over 1/3 of the overall revenues – rose by 5.9%, partly because of the
increase in contribution rates in Republika Srpska as of 2011. On the
expenditure side, purchases of goods and services plummeted by 19.5%, thus
creating some fiscal space. However, expenditures on social benefits and wages
increased by 14.9% and 5.3%, respectively, thus further increasing their
already high shares in overall expenditure. The higher wage bill was partly
caused by the income tax changes in Republika Srpska. Capital expenses surged
by 21.6%, although from a very low base following the contractions in recent
years. In the first half of 2012, the repercussions of the worsened external
environment were increasingly felt in public finances. Tax revenue fell by 0.8%
year on year reflecting the downturn in economic activity, while most
expenditure categories increased in year on year comparison. Overall,
some fiscal consolidation has taken place, but the quality of public finances
remains low.

The transparency, sustainability and
reliability of public finances in Bosnia and Herzegovina were seriously undermined
by the long delay in adoption of the State-level budget and of the Global
Frameworks for Fiscal Policies for 2012-2014 and 2013-2015. The State-level
budget for 2011 was not adopted until February 2012, while the one for 2012 was
approved in May. Temporary financing arrangements were in place throughout 2011
and the first two quarters of 2012. The Parliament of Republika Srpska endorsed
the Entity’s 2012 budget in December 2011, planning a 4% rise in total spending
(compared with the revised 2011 budget), while the 2012 budget of the
Federation – projecting 11% growth in nominal expenditure – was approved in
January 2012. Both Entity budgets were adopted in the absence of a medium-term
fiscal framework, in violation of the country’s legal framework[16] for the second consecutive
year. In March 2012, the Fiscal Council agreed an expenditure ceiling and a
fixed revenue allocation from the Single Account for the State-level
institutions for the period 2012-2014, thus creating the necessary
preconditions for drafting a comprehensive medium-term fiscal strategy. In June
2012, the authorities agreed on the fiscal framework for the period 2013-2015,
thus allowing for the timely launch of the 2013 budget preparation process. In
September 2012, both Entity budgets have been revised slightly in accordance
with the newly reached agreement with the IMF. Total planned spending of
Republika Srpska has been corrected downwards by 0.8%, while the Federation has
reduced its budget expenditure envelope by about 2%, when adjusted for
financing items and reclassification effects. The authorities have reached an
agreement on the settlement of disputed indirect tax revenue amounts through
end-2011. However, an agreement on a permanent formula for allocation of
indirect tax revenue to the State, the Entities and the Brčko District is
still pending. In Republika Srpska, the new Pension Law, adopted in December
2011, should improve the long-term sustainability of the Entityʼs public
finances, while in the Federation a special working group has been established
to tackle this issue and to define a reform strategy by the end of 2012.
Overall, the sustainability and credibility of fiscal policy in Bosnia and
Herzegovina suffered from the delayed adoption of the State-level budget and of
a medium-term fiscal strategy.

General government debt, both domestic and
foreign, increased by 6% and stood at 39.5% of GDP at the end of 2011. External
debt accounted for 26.1% of GDP and domestic debt for 13.3%. Domestic public
debt is managed and served by the Entities. Both Republika Srpska and the
Federation started issuing short-term treasury bills and long-term government
bonds in 2011 to finance their cash-based budget deficits. For the time being,
the offers have met relatively high demand and secured relatively favourable
conditions. Overall, even though the debt-to-GDP ratio is still
relatively moderate, its upward trend needs to be monitored carefully.

The quality of the policy mix has worsened,
thus challenging macroeconomic stability. The currency board arrangement
continues to enjoy a high level of confidence and credibility, but the weakened
budget planning and lack of fiscal coordination severely threaten the
transparency, reliability and sustainability of public finances and are a
serious impediment to short- and medium-term economic planning. Overall,
financial and monetary stability have been preserved, but the worsening quality
of budgetary processes is hampering the conduct of macroeconomic policies.

Interplay
of market forces

The private sector’s share in GDP is
estimated to have remained stable at around 60% of GDP in 2011. There has been
no further progress with the privatisation agenda. In Republika Srpska, some
69% of the initial stock of State-owned capital intended for privatisation had
been sold by September 2012, unchanged from a year earlier. In the Federation,
none of the ten companies included in the 2012 privatisation plan has been
sold. About 58% of the initial stock of State-owned capital intended for
privatisation remains State-owned. Most prices are liberalised, even though a
number of regulated prices remain (e.g. for utilities). Overall, the
planned privatisation process has not advanced for the fourth consecutive year.

Market
entry and exit

In 2011, the time needed to start a
business was reduced from 55 to 40 days, on average. The time required to
obtain a construction permit was shortened significantly from 255 to 181 days.
However, companies are still required to register in both Entities before they
can do business in the whole country. In Republika Srpska, the new Law on
Crafts and Entrepreneurship simplified business registration procedures for
entrepreneurs. The Law on Courts was also amended in order explicitly to give
jurisdiction over company registration, bankruptcy proceedings and commercial
disputes to five regional commercial courts. In the Federation, the second
stage of the ʻlegislative guillotineʼ project to reduce the
administrative burden has been completed. A total of 27 legal acts were adopted
in various ministries to streamline 352 business-related administrative
procedures by December 2011. In the first half of 2012, alongside the worsened
external environment and decreased economic activity, the number of newly
registered companies dropped by around 12% year on year. Overall, some
limited improvements have been made to the business environment but significant
administrative barriers remain for private-sector development.

The legal
system

No substantial improvements can be reported
in the complex legal system in Bosnia and Herzegovina. Even though the standard
of legislation is relatively high in some areas, implementation and application
of laws in practice is often poor due to the weak enforcement capacity of key
institutions. The rule of law is weak and the judicial system often does not
function efficiently, is subject to obstruction by the parties and does not
cover commercial activities adequately. Enforcement of commercial contracts
remains a lengthy process, which involves 37 procedures and takes an average of
595 days. Overall, weak rule of law, corruption and unreliable contract
enforcement continue to impair the business environment.

Financial
sector development

The banking sector continued to dominate
the financial system of Bosnia and Herzegovina, with an 83% share in the total
assets in 2011. The share of claims on the private sector in relation to GDP
decreased marginally year on year to around 55% in July 2012. Twenty-nine banks
are operating in the country, out of which twenty-eight are privately owned and
one is majority State-owned. Two banks are under provisional administration.
Twenty-one banks are under foreign ownership, accounting for slightly below 90%
of the total banking system assets in 2011. The five largest banks accounted
for 56.3% of the total assets of the banking sector. Banking sector assets rose
marginally, by 0.1%, in 2012 (July compared with December 2011), accounting for
approximately 86% of GDP.

The financial position of domestic banks
has improved. After an aggregate net loss of some € 63.6 million in 2010,
the banking sector finished 2011 with an aggregate net profit of € 72.6
million. After the slight improvement at the end of 2011, the quality of the
loan portfolio has been deteriorating again since the beginning of 2012. The
share of non-performing loans fell slightly to 11.9% in the fourth quarter of
2011, but rose to 12.6% in the second quarter of 2012. The capital adequacy
ratio increased from 15.3% in the third quarter of 2011 to 16.8% in the second
quarter of 2012, comfortably above the legal minimum of 12%. Banking
profitability improved slightly in the first half of 2012. The return on
average equity increased from 3.4% in the third quarter of 2011 to 4.2%, while
the return on average assets grew from 0.4% to 0.5%. However, liquidity
indicators deteriorated during the same period with the ratios of liquid to
total assets falling from 27.2% to 24.8% and of liquid assets to short-term financial
liabilities from 47.5% to 43%. Twenty-six banks are participating in the
deposit guarantee scheme. Its coverage level remained unchanged at around € 18,000.
Overall, despite the relatively high non-performing loan ratio,
financial stability was safeguarded.

Annual credit growth accelerated from 3.1%
in 2010 to 5.3% at the end of 2011 and moderated slightly to 4.3% in July 2012,
with total loans accounting for about 60% of GDP. However, loans to private
enterprises have been stagnating since the beginning of 2012, while those to
the government surged rapidly by over 40% year on year. Loans to households
increased by 5% year on year up to the end of July. The recovery of deposits
continued though at lower rates. Total banking deposits reached 49.8% of GDP in
July. Households remained the main contributors to this development, increasing
their savings by 9.5%, while the corporate sector raised its deposits only
slightly by 2.7%. As a consequence of these developments, the loans-to-deposits
ratio climbed from 118.2% in October 2011 to 121.3% in July 2012. The spread
between the average loan and deposit interest rates of commercial banks
decreased further by 17 base points from 7.43 percentage points in September
2011 to 7.26 percentage points in early 2012, mainly due to lower lending
rates. This level points to still high intermediation costs. Overall,
the efficiency of financial intermediation has continued to increase slightly
and credit activities have been gaining strength but there are signs that the
government is crowding out private investments.

After a slight recovery in early 2011,
stock market indices have been on a downward trend. The main index of the
Sarajevo Stock Exchange lost 7.9% in the first eight months of 2012, while that
of the Banja Luka Stock Exchange fell by 6.3%. The cumulative turnover shrank
by 23.5% year on year in the period from January to August 2012. The combined
market capitalisation declined to about 30% of GDP from around 44% in 2011. The
insurance sector remained small, accounting for approximately 1.9% of GDP in
2011. The annual growth of premiums accelerated slightly to 3.4%, from a 2.9%
annual rise in 2010. The market was dominated by the non-life insurance
segment, which accounted for 83.6% of the total. Twenty-five companies were
operating on the market in 2011, unchanged from 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

External imbalances have increased and the
quality of public finances remains low, even though some fiscal consolidation
has taken place. The slow pace of economic restructuring, especially in the
Federation, combined with the prevailing obstacles to private-sector
development and the structure of budgetary expenditures - increasingly dominated
by current spending at the expense of growth-enhancing activities - continue to
undermine a more growth-oriented allocation of resources and any strengthening
of domestic sources of growth. Unemployment remains very high. Progress towards
creating a single economic space within the country – which is a key European
Partnership priority – has been limited. 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

Education and training policy falls within
the responsibilities of the Entities and Cantons. Information and statistics on
human capital is scattered and scarce, thus preventing effective policy-making.
Progress in the field of education has been limited. A new coordination format
for education reform has been agreed. However, the mismatch between the
qualifications needed on the labour market and the profile of graduates coming
out of the education and vocational training systems adds to other structural
weaknesses, such as high social security contributions and poorly targeted
social transfers, and remains a concern. Cooperation between the education
system and employers is still weak. Enrolment rates in higher education
decreased slightly in the 2011-2012 academic year. Participation in the labour
market is still very low, with an activity rate of 44% in 2012, remaining
unchanged in year on year comparison. 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 a
relatively low level of about 20% in 2011, broadly unchanged from a year ago.
Net FDI flows more than doubled in 2011 – albeit from a very low level –,
reaching 2.3% of GDP. The banking sector accounted for a significant part of
the net FDI inflows, while some increase was also evident in retail trade and
real estate. A number of projects are underway to upgrade road and railway
infrastructure. Maintenance and upgrading of roads continued, but progress was
slow. The Federation Parliament adopted the spatial plan for the route of
transport corridor Vc in the Entity in December 2011. Overall, 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.
Although the utility market was opened for non-household consumers, they have
little incentive to change suppliers, as regulated tariffs are still below
market prices. No progress has been made on unbundling electricity networks.
Progress towards a competitive telecommunications market has been limited. The
three incumbent operators continue to act as de facto monopolies in
their geographical areas. Their combined share of the fixed telephony market
added up to 85% for international calls and 98% for national callsin 2011. New
licences were granted for internet services and network operators. The level of
broadband internet access has increased further but still remains at relatively
low level of slightly over 11%. The Railways Regulatory Body introduced a set
of regulations, aiming at reaching compliance with the EU directives. Overall,
limited progress was achieved on liberalisation of network industries.

There were no
major shifts in the sectoral structure of the economy in 2011. Services
accounted for 68.4% of gross value added (up from 68% in 2010), industry and
construction for 26.7% (26.8%) and agriculture for 8.4% (8.6%). The
traditionally high share of public administration, education and health
increased further to 23.1%. 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 towards reducing the state’s influence in the economy. In 2011,
direct budget subsidies to industry and agriculture decreased to 1.6% of GDP
from 1.9% in 2010. However, in the first half of 2012, they increased by 28.4%
year on year. State-level legislation on State aid has been adopted, but a
State aid authority has not been established and a State aid inventory has not
been compiled. Overall, State aid remained high and the state continued
to influence the economy through state-owned monopolies.

Economic
integration with the EU

Bosnia and
Herzegovina remains an open economy. Total trade (the sum of the volume of
exports and imports of goods and services) increased further to 93.2% of GDP in
2011, as compared with 84.2% in 2010. The EU continues to be the countryʼs
largest trading partner, with shares of 58% of total exports and 46.6% of total
imports in the first eight months of 2012 (goods only). While the share of
exports to the EU has increased somewhat, the share of imports from the EU has
decreased slightly. The other main trading partners were, once again, the
countries of the CEFTA region, which account for 32.2% of exports and 25% of
imports. In 2011, the real effective exchange rate based on the country’s 20
largest trading partners appreciated marginally by 0.1%. Overall, the
level of trade integration with the EU remained high.

4.
European standards

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

4.1.
Internal market
4.1.1.
Free movement of goods

There was some progress on free movement of
goods.

A development strategy for the quality
infrastructure as a whole and a horizontal coordination mechanism are not yet
in place. A public-private dialogue on the industrial market remains to be
established.

Good progress was made in the area of standardisation.
The Institute for Standardisation of Bosnia and Herzegovina (BAS) adopted 3,395
European standards (ENs) as national standards, bringing the total to 14,005
ENs. The BAS performed the second annual check on its quality management system
and worked actively on public awareness-raising on standardisation. An action
plan was prepared with a view to becoming a full member of the European
Committee for Standardization (CEN) and of the European Committee for
Electrotechnical Standardization (CENELEC).

No progress was made on conformity assessment.
It is not being performed on either locally manufactured or imported products
before they are released onto the market. Appropriate procedures for
designating conformity assessment bodies remain to be established.

Some progress was made as regards accreditation.
The Institute for Accreditation of Bosnia and Herzegovina (BATA) accredited a
total of 51 conformity assessment bodies. The BATA became an associate member
of European co-operation for Accreditation (EA). The EA carried out a full
evaluation of the BATA covering testing and calibration laboratories and
inspection bodies. The conditions for future international recognition of
tests, calibration results and certification remain to be fulfilled and the Law
on Accreditation remains to be amended to bring it fully into line with the
acquis. A clear policy is needed on the role of accreditation in
authorising conformity assessment bodies at both State and Entity levels.

Some progress
was made in the case of metrology. Several by-laws, including a by-law
on legal units of measurements were adopted. The Institute of Metrology of
Bosnia and Herzegovina (IMBiH) signed Memoranda of Understanding with the
metrology institutes of the Netherlands, Slovenia and Serbia. Representatives
of the IMBiH participated in the work of European technical committees on
metrology (EURAMET and WELMEC). The IMBiH participated in three
inter-comparisons and one capability test and met the
international requirements by achieving positive results. The IMBiH laboratory for mass proved its competences
internationally by publishing data on calibration and measurement capabilities
in the International Bureau of Weights and Measures (BIPM) key comparison
database. A development strategy for the metrology system, a new Law on
Metrology merging the existing legislative framework and laying the foundation
for the implementation of the acquis and various by-laws remain to be
adopted. Cooperation and coordination between the IMBiH and the metrology
institutes of the Entities need to be improved.

There was some
progress on market surveillance. The Market Surveillance Agency
initiated, implemented and coordinated proactive and reactive market
surveillance activities and projects. The agency is implementing the 2012
Annual Surveillance Plan with good cooperation from the Entity inspectorates
and the Brcko District. The agency is continuing to raise awareness on product safety and consumer protection. The
market surveillance system remains largely based on mandatory standards and
pre-market control. Framework legislation is not based on the horizontal acquis
for harmonised products.

No progress was made as regards the ‘New
and Global approach’ acquis. To raise public awareness on new technical
regulations, the Ministry of Foreign Trade and Economic Relations (MOFTER)
carried out seminars and published brochures in several key areas. Line
ministries and institutions in charge of aligning legislation and implementing
directives do not have sufficient capacity to perform the alignment tasks. A
formal procedure is needed for internal consultation and notification of new
technical regulations before adopting measures that would have an impact on
trade.

There was no
progress regarding the ‘Old Approach’ acquis. The division of
responsibilities for alignment of legislation with it remains to be clarified.

There was some progress in the area of consumer
protection. The technical capacity of the relevant State-level and Entity
institutions and their public information activities increased. The MOFTER
included consumer counselling in its activities and introduced Consumer
Protection information on its webpage. A new Draft State-level Consumer Protection Law aligned with the acquis
was not adopted. Republika Srpska adopted its Consumer Protection Law. The report on implementation of the 2011 consumer protection
programme was adopted. The 2012 annual consumer protection programme remains to
be approved.

The Office of the Ombudsman for Consumer
Protection needs to be strengthened to deal with the increased number of cases.
The efficiency and output of the Office remain unchanged. In 2011 the Ombudsman
handled 242 cases, of which 218 were resolved. The Ombudsman gave 25 expert
opinions, provided 680 pieces of legal advice and answered 1,515 requests for
information. The Ombudsman completed an extensive analysis of the current
State-level Consumer Protection Law and gave his opinion on its implementation
and the degree of harmonisation with the acquis. The Ombudsman provided
opinions on the draft Law on protection of Users of Financial Services and the
draft Law on Protection of Guarantors in the Federation.

There was good,
but uneven, progress in the fields of standardisation, accreditation,
conformity assessment, metrology, market surveillance and consumer protection.
The legislative framework remains to be harmonised with the horizontal acquis
and aligned with the product-specific acquis. Strengthening the
institutional capacity and creating channels for coordination between the
relevant institutions remain essential. Prioritisation of legal alignment and
capacity-building in accordance with market remain to be done. Major steps need
to be taken to achieve a fully functioning single economic area. The State-level Consumer Protection Law has yet to be fully aligned with
the acquis. Overall,
preparations in these areas of the acquis
are moderately advanced.

4.1.2.
Movement of persons, services and right of
establishment

No progress can be reported on movement
of persons. Bosnia and Herzegovina concluded an agreement with Serbia on
temporary employment of citizens. Differences in labour legislation and social
security systems between the Entities and also between Cantons in the
Federation continue to be an obstacle for the movement of workers within the
country. Alignment with European standards remains at a very early stage.

No progress was made towards coordination
of social security systems between the Entities and between the Cantons in
the Federation.

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

Little progress can be reported in the area
of financial services. The Federation amended its own Law on the Banking
Agency to expand its regulatory/supervisory functions. The Federation introduced
an Ombudsman for Financial Services. The Entities harmonized legislation on the
Ombudsman amongst each other. Republika Srpska adopted rules of procedure for
the Ombudsman for financial services established in 2011. Republika Srpska
adopted the Law on Internal Payment System and by-laws, as well as a set of
decisions pertaining to minimum standards for financial institutions for
prevention of money laundering and financing of terrorist activities. Both
Entities are implementing regulations pertaining to credit and operational risk
in line with Basel I. The regulation on operational risk applies the basic
indicator approach of Basel II. Both Entities are implementing new charts of
accounts for financial institutions. Reporting between the Entities is
harmonized. The coordination of banking supervision between the Entities
remained satisfactory. Simulations for home-host cooperation between
supervisors in Bosnia and Herzegovina and the EU were performed to strengthen
micro- and macro-prudential supervision. The Entities’ banking supervisory
agencies extended temporary measures on loan repayments until the end of 2012.

Basel II recommendations on banking laws
and Basel Banking Supervision Committee standards remain to be fully
implemented in both Entities, and legislative processes to be synchronised.
Market risk regulations were not adopted. The amendments to the Federation Law
on the Banking Agency that hampered its independence were revoked. These had
provided for dismissal of the Agency’s management and board if the Federation
parliament would not adopt the Agency’s annual report. The Federation Laws on
Banks, Leasing Companies and Micro-credit Organisations were not aligned with
the Law on Prevention of Money-Laundering. Provisions on protection of users
of financial services were not included in the revised Federation draft Law on
Banks, Leasing Companies and Micro-credit Organisations, and remain to be
adopted as separate legislation. Memoranda of Understanding with supervisors of
foreign banks present in the country remain to be signed due to the country’s
inadequate regulations on security and confidentiality of business and banking
data. Coordination and cooperation between the Entity Ministries of Finance and
Banking Agencies remain to be improved, in particular on drafting primary
legislation. Further alignment with the acquis is required.

Little progress was made towards creating a
single economic space for insurance services. Both Entities adopted
amendments to the implementing legislation relating to the content of the audit
reports of insurance undertakings. Republika Srpska adopted amendments to the
implementing legislation relating to the reserves of
insurance undertakings, the guarantee
fund and the conditions for insurance brokerage and non-life insurance
activities. Brokerage firms from the Federation opened two branch offices in
the Republika Srpska. A protocol on cooperation and exchange of information
between the Green Card Bureau in Bosnia and Herzegovina and the Bosnia and
Herzegovina Insurance Agency was signed. The Republika Srpska Insurance Agency
is running public-awareness campaigns about the obligatory third-party motor
vehicle insurance.

The legislation remains partially
harmonised with the acquis. The Law on the Insurance Agency of Bosnia
and Herzegovina and the Entities’ legislation on insurance and insurance
supervision have yet to be fully aligned with the Solvency II Directive. Entity
legislation on obligatory third-party liability motor insurance remains to be
harmonised with the acquis and between Entities. Significant
differences between Entities’ legislation persist, in particular regarding
penalties imposed in case of serious offences. The regulatory powers of the
Insurance Agency of Bosnia and Herzegovina remain to be enforced and its
enforcement powers clarified. Development of by-laws and guidelines for
statistical and other reporting by insurance
undertakings to the Entity agencies and on data exchange between the Entity
agencies and the Insurance Agency of Bosnia and
Herzegovina is at an early stage. The Federation’s Insurance Ombudsman’s Office and State-level
capacity to arbitrate in case of litigation between the Entities’ Insurance
Agencies have yet to be established. Memoranda of Understanding with foreign
supervisory authorities remain to be signed. There were no changes in the
requirement to establish a branch office and in the method of supervising
insurance companies registered in one Entity which wish to operate in the
other.

The Entity Agencies for insurance
supervision initiated cooperation towards harmonising the rules for
establishment and operation of branch offices. Limitations in provision of the
insurance services between the Entities remain. The administrative capacity of
the insurance regulatory and supervisory institutions remains underdeveloped
despite some initial efforts to introduce risk based assessment of insolvency
and bankruptcy of insurance companies.

There was little progress in the area of capital
markets. Republika Srpska adopted the Law on amendments to the Law on the
Securities Market. Both Entities adopted implementing legislation to streamline
activities on the securities markets and reduce administrative barriers and
costs. All three regulators signed a regional cooperation declaration. Legislative
alignment in the area of securities is still slow. The Entities’ legislative
frameworks remain to be fully aligned with the acquis and harmonised
between each other. Amendments to relevant legislation remain to be adopted in
both Entities. The Brcko District has not yet adopted laws on the securities
market and takeovers of joint stock companies. The Federation Law on Takeovers
of Joint Stock Companies was not adopted. Regulatory authority and oversight
remain fragmented. Participants in the securities market with their head office
in one Entity can operate in the other only after obtaining a licence there.
There is no adequate institutional capacity for coordinating capital market
policies and legislation.

No progress can
be reported in the field of postal services. The Agency for Postal
Traffic issued two more licences for private courier services, increasing the
total to 12. A postal strategy at State and Federation level does not exist.
The State-level Law on Postal Services remains to be further harmonised with
the acquis. The Republika Srpska law is partially aligned both with the
State-level law and the acquis. The universal service obligation is set
above the minimum requirement laid down in the postal acquis. The
situation is the same with the scope of the reserved area, which is broad in
comparison with the postal acquis. The lack of harmonisation between the
Entities and the State-level regarding the scope of universal services and
reserved services raises serious transparency issues. The administrative
capacity at the State-level Ministry of Transport and Communications regarding
postal services remains weak. The deadline for harmonising the tariff policies
of public postal operators expired, but their tariffs had still not been harmonised.

Little progress was made on the right of
establishment. The registration costs for foreign nationals were mostly
harmonised throughout the country, and the procedure was simplified. Internal
harmonisation of legislation is pending. A single economic space allowing
registration of foreigners to do business throughout the country has not been
established and this continues to impede business activity. The time taken to
handle requests for registration remains lengthy, in particular in the Federation.
The reciprocity principle is not fully applied to natural persons acquiring
ownership. The country made no progress towards aligning with the acquis
on the recognition of EU professional qualifications. Republika Srpska
introduced differentiation in its legislation between recognition of
professional and academic qualifications. Recognition procedures are
inconsistent across the country in terms of forms, costs and duration.

Some, but
uneven, progress was made in the area of company law. The Federation adopted
by-laws to shorten the business registration procedure. Republika Srpska
amended its Company Law to extend the deadlines for businesses to harmonise
their economic activity in line with the law on classification of business
activities. Republika Srpska amended its Law on Courts to give jurisdiction
over company registration, bankruptcy proceedings and commercial disputes to
five regional commercial courts. It adopted the Law on Craftsmen and
Entrepreneurial Activities to simplify business registration procedures for
entrepreneurs. The
Entities’ Laws on Business Companies remain partially harmonised with the acquis
and with each other.

The legislation
on corporate accounting and auditing is broadly aligned with the acquis
and almost fully harmonised between the Entities. The Federation adopted
the Law on the Financial Information Agency to establish and maintain registers
of company financial statements and of bank accounts, along with implementing
legislation on the consolidation of financial statements in line with the
Seventh Company Law Directive. The Entities apply International Financial
Reporting Standards (IFRS) to all companies, irrespective of their size. In
Republika Srpska IFRS for Small and Medium Enterprises may be used by small and
medium-sized companies if they provide justification in their accounting
policies. Companies with public responsibility and those listed at the Stock
Exchange, are obliged to apply the full IFRS. The statute of the Federation
Chamber of Auditors that will undertake quality assurance reviews of audits was
adopted and the Chamber came into operation. The rulebook on quality assurance
was not adopted. The Assembly of the Chamber did not adopt the work plan and
financing plan for 2012 and did not appoint members to the quality assurance
review committee. A full-time quality assurance supervisor remains to be
recruited. In Republika Srpska, the Association of Certified Auditors and
Accountants continued to implement quality assurance reviews. The Ministry of
Finance performs the independent oversight of audits.

Further alignment with the acquis is
needed on cross-border mergers for Republika Srpska and on take-over bids for
both Entities. There is no system for sharing data between different company
registers. The systems for quality control and independent oversight of
auditors have yet to become fully operational. The Federation did not appoint
members to the independent Public Oversight Board that remains to be set up in
the Federation.

The country made little progress on
movement of persons, services and right of establishment. Some progress was made on company law, corporate accounting and
auditing. Alignment of financial services legislation is not completed.
Enforcement and supervision mechanisms need substantial strengthening. A legal
framework for providing universal postal services across the country remains to
be established. Overall, preparations are still at a very early stage.

4.1.3.
Free movement of capital

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

Bosnia and Herzegovina continues to apply
relatively liberal rules on inward capital flows. Residents may hold accounts
abroad only for specific purposes and the amounts that may be transferred are
restricted. The legal framework is not harmonised. In both Entities the
legislation limits the amount that non-residents may transfer without
bureaucratic burdens.

Regarding foreign investment, coordination
throughout the country for designing and implementing legal reforms in this
area is lacking. Capital markets are not fully functional. Creation of a single
economic space would be the key to attracting more foreign investment. Foreign
banks own 89.4% of the banking sector assets. Overall, foreign direct
investment inflows increased in 2011 and reached 2.4% of the country’s GDP
albeit still much lower than before the global crisis. Restrictions on foreign
direct investment continue to apply in the media, where a 49% limit has been
imposed on foreign capital. Privatisation of State enterprises remains at a
standstill. Work on improving the overall business climate was inconsistent,
and no meaningful progress was made on structural reforms to ensure private
sector-led growth and job creation.

Within the Central Bank, Bosnia and
Herzegovina has a modern payment system for giro clearing and real-time
gross settlement operations. In 2011 the value of transactions in these two
categories increased by 13%. Within the commercial banking system, intra-bank
transactions made up 65% of the total number and 55% of the value of
transactions.

There was no progress regarding free
movement of capital. Further alignment with the acquis, ensuring
country-wide harmonisation and creating a single economic space, is needed. Overall,
preparations in the area of free movement of capital remain moderately
advanced.

4.1.4.
Customs and taxation

Limited progress was made in the field of customs.
The customs tariff was updated in line with the 2012 version of the EU Combined
Nomenclature. The International
Convention on the Harmonized System for Names and Codes for Goods was ratified. Rules of origin continue to be used in accordance with the Interim
Agreement. The fee for processing customs declarations was abolished. Electronic
prior declaration of data from the TIR carnet was introduced. Implementing
legislation for customs enforcement of intellectual property rights was
adopted. The customs law and legislation on free zones remain to be aligned
with the EU Customs Code. The lack of a fully developed risk analysis results
in frequent and poorly targeted customs controls. Progress on the use of
simplified procedures and trade facilitation remains limited. Further efforts
are required in this area, including development of the concept of ‘authorised
economic operator’.

Little progress
can be reported on taxation. Republika Srpska amended the Law on Profit
Tax. Some changes concerning the excise on tobacco products were adopted.
Further alignment with the VAT acquis and the EU excise legislation is
necessary.

Amendments to
the Law on Income Tax, the Federation rulebook on application and the Law on
Taxation Procedures enhanced control and collection. The exchange of
information between Entities improved. The personal income tax systems are not
fully harmonised between the Entities. Different procedures persist, leading to
a complex tax environment, which makes the country less attractive for foreign
investors. Rules and procedures on direct taxation remain to be harmonised. A
permanent formula for allocation of indirect tax revenue between the State, the
Entities and the Brcko District remains to be agreed. Regarding business
taxation, some measures continue to be incompatible with the EU Code of Conduct
(e.g. legislation on free zones). The Entities introduced fiscal cash
registers, but the Brcko District did not.

As regards administrative cooperation and
mutual assistance the country ratified new agreements on avoidance of double
taxation with Albania, Algeria, the Czech Republic, Ireland, Jordan, Kuwait,
Malaysia, Qatar and Spain.

Some progress was made regarding administrative
and operational capacity. The Director-General of the Indirect Tax
Authority (ITA) was appointed with a four-year mandate. The overall business
strategy of the ITA for 2012 to 2016 was adopted. Customs, IT and law enforcement
strategies in line with the overall business strategy were agreed. The ITA has
to prepare the implementation plan for the strategies and to provide the
resources needed for implementation. ITA established a unit for IPR enforcement
in customs as well as a unit for analysis and strategic planning.

The IT system
was upgraded to support the taxation work. No legal amendments were initiated
to enable the ITA to share data with the Agency for Statistics of Bosnia and
Herzegovina. This hampers production of reliable statistics. Further efforts
are required in the areas of tax refunds, tax investigation, exchange of
information and training. Data and information sharing, including a website
with businesses and taxpayers, should be improved. The functions performed by
customs laboratories remain limited. Bosnia and Herzegovina should invest
further in IT interconnectivity and interoperability with EU IT systems. It is
not yet sufficiently prepared for accession to the Common Transit Convention
(CTC) or the Convention on Simplification in Trade in Goods. By expressing its
intention to join the CTC and by planning the IT application concerned (NCTS),
Bosnia and Herzegovina would achieve a milestone in IT interconnectivity with
EU IT systems.

There was little progress in the areas of customs and taxation. Positive developments include
the appointment of permanent management and the adoption of the overall
business strategy of the ITA. Proper implementation of the business strategy
and organisational changes remain to be ensured. Substantial efforts are
required to align legislation fully with the acquis, to ensure effective
implementation of the Interim Agreement, to upgrade the administrative and
operational capacity, to improve IT and to provide better services to businesses
and taxpayers. Overall, preparations are at an early stage.

4.1.5.
Competition

Some progress was made on anti-trust.
The Competition Law remains to be fully aligned with the acquis. The
Competition Council’s (CC) activities focused on mergers and abuses of dominant
market positions. The CC adopted 7 anti-trust decisions and 8 merger decisions.
The CC imposed fines totalling about 201,500 KM on companies that infringed
competition rules. No mergers were prohibited, no authorised mergers subject to
remedies and no mergers authorised unconditionally. The CC’s staff require
further training to increase the authority’s investigative capacity.

Bosnia and Herzegovina did not fulfil its
commitment, under the Interim Agreement, to apply the EU’s competition principles
by 1 July 2011 to public undertakings and undertakings to which special and
exclusive rights were granted.

Some progress was made in the field of State
aid. The State Aid Law was adopted. Implementing legislation remains to be
adopted. Despite some initial steps taken, an operationally independent State
Aid authority, the State Aid Council and its Secretariat has to be established.
Transparency of all State aid granted in Bosnia and Herzegovina is not yet
ensured. Bosnia and Herzegovina did not fulfil its commitment, under the
Interim Agreement, to establish a comprehensive inventory of aid schemes
instituted before establishment of the State aid authority and to align such
aid schemes with EU competition rules by 1 July 2012.

Some progress was made in the area of
competition. Further efforts have to be made to improve the current anti-trust
legislation and to increase the administrative capacity of the Competition
Council. To comply with the Interim Agreement, the country must fully implement
State aid legislation and set up the institutional framework necessary for
effective control of all State aid granted in Bosnia and Herzegovina. The
country’s commitment, under the Interim Agreement, with
regard to public undertakings remains to be fulfilled. Overall,
preparations in that area remain at an early stage.

4.1.6.
Public procurement

There was no
progress in the area of public procurement.

The legislation
remains to be aligned with the acquis. The Federation law on concessions
has yet to be adopted. Implementation of the strategy for development of the
public procurement system for 2010-2015 is delayed. Public procurement notices
are published electronically and the reporting system created by the Public
Procurement Agency (PPA) is in use. Paper publication in the Official Journal
is continuing, but the costs for contracting authorities decreased. Bosnia and
Herzegovina did not take measures to ensure competitive and transparent
procedures or the independent reviews required by the acquis in the area
of public-private partnerships and services and works concessions. Some lower
levels of the administration introduced their own regulations, resulting in
further fragmentation of the system and legal uncertainty for the bidders. The
existence of several legal concession systems across the territory of Bosnia
and Herzegovina places a severe obstacle in the way of concession projects
covering more than one territory within the country. The administrative set-up
for managing concessions lacks clarity and formal channels for cooperation.
This results in high administrative costs and low efficiency of the system as a
whole.

The PPA and the
Public Procurement Review Body (PRB) maintained their staffing. The PRB has so
far been able to handle the high number of complaints with its staff of 17.
Some provisions of the rulebook on internal organisation of the PRB are not
being implemented (e.g. rotation of the Chairmanship). The composition of the
PRB was not renewed. The internet publication of PRB decisions required by law did
not resume. Monitoring of public procurement procedures, the capacity of
contracting authorities to conduct the procedures and provision of assistance
and training to contracting authorities and economic operators all require
close attention.

There was no progress in this area. It will
require further political will to align the country’s legislation, including the concessions system, with the acquis.
The work of the PRB needs to be more transparent, internal operations to be
improved and the capacity of contracting authorities across the country
strengthened. Overall, preparations in this area are at the initial stages.

4.1.7.
Intellectual property law

Progress was made on intellectual
property rights. To follow up the laws adopted in the field of intellectual
property rights, implementing regulations were enacted. The Intellectual
Property Rights Councils continued to implement their work programmes, mainly
related to dissemination of information and training. The functioning of the
Institute for Intellectual Property improved further. It continued to raise
awareness of the importance of intellectual property rights.

Some progress was made in the area of industrial
property rights. The Vienna Agreement establishing an International
Classification of the Figurative Elements of Marks and the Patent Law Treaty
entered into force. The International Convention for the Protection of New
Varieties of Plants (UPOV Convention) remains to be implemented. During the
reporting period the Institute received 40 patent applications and processed
125, including some from previous years. The Institute received 414 trademark
applications and processed 2,061, including many from previous years. The
Institute received 11 industrial design applications and issued 16 decisions granting
industrial designs. No application for protection of geographical indications
was received. The Board of Appeal of the Institute received 17 new appeals and
completed 11 proceedings.

Some progress
can be reported on enforcement. Decisions were adopted on the
implementation of customs measures to protect the rights of holders of
trademarks, industrial designs, copyright and related rights, patents and names
of geographical origin. The ITA seized counterfeit goods valued at
€ 20,000. In 12 out of 18 cases the goods were destroyed, while six lawsuits
were filed. The State Investigation and Protection Agency and Entity
Inspectorates intensified their work on intellectual property rights. High
levels of counterfeiting and piracy persist across the country. A reliable
system for collecting, analysing and exchanging data between the various
institutions involved is lacking. An enforcement strategy involving all
stakeholders is not in place. Coordination between enforcement bodies at
various levels needs to be improved.

Some progress
was made on intellectual, industrial and commercial
property rights. Enforcement and coordination between all stakeholders remain
to be improved. Overall, preparations are well advanced.

4.1.8.
Employment and social policies, public health
policy

There was little progress regarding employment policy. Republika Srpska adopted
the 2012 Action Plan for Employment. The Federation
adopted the Employment Service 2012 Work Programme. The Brcko District has not adopted an employment strategy. Neither the
Entities nor Brcko District fulfilled the obligation to adopt the operational
plans to implement the State-level Employment Strategy 2010-2014.

The labour market situation did not
improve. According to data from the labour force
survey, the activity rate decreased slightly in 2011, as did the employment
rate. Female participation in the labour market (at 41.2%) and the employment
rate (28.7%) remain low. Hardly any jobs were created. The already very high
unemployment continued to increase. According to administrative data, in June
2012 the unemployment rate was 43.8%, an increase of 0.7 percentage points
compared with a year earlier. Both Entities are implementing programmes to help
young graduates enter the labour market, but without much success as the
unemployment rate for young people remained at nearly 58% in 2011. The youth
employment gap poses a considerable challenge to development of the country.
Long-term unemployment remains alarmingly high, covering 80.8% of all
registered unemployed in 2011. Informal employment remains a big challenge.

Labour market challenges remain
considerable. A more integrated approach to employment,
encompassing all relevant sectoral policies would be needed to address
the country’s considerable labour market challenges. Entity governments still
lack the capacity to implement appropriate active labour market measures. The
large number of labour and employment institutions at State, Entity and Canton
levels and the lack of coordination between them remain a cause for concern. Considerable
efforts remain to be made to develop reliable labour market data, a
prerequisite for developing labour market policy (See Chapter 3.1 –
Macroeconomic stability).

Little progress can be reported on building
the capacity of public employment services for job counselling and employment
mediation. The current legal framework and lack of training prevent them from
becoming more efficient in providing job counselling to job-seekers. Health
insurance for a large number of unemployed is managed by the public employment
services, thus preventing them from devoting more time to job counselling.

There was no progress on social policies.
Existing labour laws in the Entities remain to
be aligned with the acquis. A State-level labour law does not exist.

No progress can be reported regarding health
and safety at work. Labour inspectorates remain understaffed and unable to
monitor compliance with health and safety at work legislation. Reliable data on
accidents at work are not available. This is a particular problem in the
Federation, where records are held at Canton level. The Federation still
operates under the Law on Health and Safety at Work inherited from
ex-Yugoslavia.

Little progress can be reported in the social
dialogue. The Brcko District established an Economic and Social Council.
The State-level Law on Social Partners’
Representativeness has yet to be adopted. No agreement was reached on the
membership criteria for a State-level Economic and Social Council. The social
dialogue remains hampered by the complex system of government and the
fragmentation of legislation.

No progress can be reported in the area of social
inclusion, including anti-discrimination. No steps were taken to remedy the
shortcomings of the Anti-discrimination Law, notably the absence of age- and
disability-related provisions and the broad range of exceptions. Implementation
of disability policies and strategies remains weak. The UN Convention on the
rights of persons with disabilities is not being implemented (See Chapter
2.2 - Human rights and the protection of minorities). The social inclusion
strategy remains to be adopted in Republika Srpska and at State-level.
Vulnerable groups (children, Roma and returnees) are not adequately protected
neither at Entity nor at State-level nor in Brcko
District.

No progress was made in the area of social
protection. The pension systems in both Entities are overburdened with ‘privileged
pensions’ and pension funds are facing financial difficulties. Republika Srpska
lowered other pension allowances to make the system financially viable. The
Federation initiated pension system reforms, but full implementation is
pending. Neither pension nor health systems are coordinated between Entities
and Cantons, which creates an obstacle to the free movement of persons.

Some progress
can be reported in public health policy. Measures were taken to improve
capacity for planning and decision-making, to establish a uniform system for
reporting on public health in order to fulfil international obligations, and to
develop an electronic database providing indicators of public health used for
ECHI, EUROSTAT and WHO reporting. A system for collecting health data at Entity
and State-level was introduced. A reporting mechanism on communicable diseases
was agreed between all relevant stakeholders. A first national health report
for Bosnia and Herzegovina was published.

The Entities made no progress on implementing their healthcare
strategies. The EU roadmap is not being implemented. There was no progress on
harmonising reforms between Entities and the system remains fragmented. No
steps were taken to address the problems caused by the non-transferability of
health funds.

In the field of
tobacco control, the Federation and Republika Srpska adopted a rulebook
on labelling of packaging of tobacco products aiming at aligning with the acquis. Republika Srpska adopted the Law on Tobacco regulating conditions
for production and processing of tobacco and its products, conditions for
manufacturing of tobacco products and their classification, labelling of
maximal quantity of tar, nicotine and carbon-monoxide in cigarettes, and all
aspects of registration and record of tobacco products.

In the field of
substances of human origin, the Federation adopted three rulebooks on quality
assurance and safety of blood and blood components. In the field of
organs and tissues the Federation also adopted two
rulebooks.

In the field of
communicable diseases, a strategy on the response to HIV/AIDS in Bosnia and
Herzegovina for 2011–2016 was adopted, complete with an implementation plan.
The financial plan for its implementation remains outstanding. Administrative
capacity to respond effectively to public health threats is being built up.
Preparations for an early warning system are ongoing at all administrative
levels. A national coordinator to cooperate with the European Centre for
Disease Prevention and Control was appointed. Republika Srpska adopted a
rulebook on infectious diseases. Coverage of children with immunization
remained low especially among Roma children.

In the field of
cancer, the Federation adopted a strategy for prevention, treatment and
control of malignant neoplasm for 2012 to 2020. The Federation adopted the Law
on Registers in Healthcare to improve data collection, analysis and use.

Republika
Srpska adopted a policy to improve nutrition of children under the age of five.
The Federation adopted a decision on free basic health insurance for children
under 18 and is drafting a policy on nutrition of young children. Funding was provided to patients suffering from rare diseases.

There was
little progress in the area of mental health. A regional activity to
build up the capacity of health professionals and users of mental health
services is ongoing. No progress was made towards de-institutionalising mental
health services and establishing high-quality community-based mental health
services focusing on recovery. Further action remains to be taken to promote
inclusion and empowerment of people with mental health problems. The Federation adopted a policy and strategic document for mental
health protection.

There was little progress on employment and
social policies. On labour law, health and
safety at work and anti-discrimination, legislative alignment remains
insufficient. Strategies for employment, social inclusion and social protection
are insufficiently developed and implementation deficient. Legislative
approximation remains to be intensified and policies enhanced. There was some
progress on public health policy. Overall, preparations remain at a very early
stage.

4.1.9.
Education and research

Little progress
can be reported in the field of education.

The Conference
of Bosnia and Herzegovina Education Ministers started their bi-monthly meetings
and confirmed a new format for coordinating education reforms, albeit along
ethnic lines. The State-level strategy for entrepreneurial learning in
education for 2012-2015 was adopted, along with the implementation plan.
Implementation of the baseline qualifications framework has not started. The
Federation made some progress on harmonising Cantonal laws on vocational
education and higher education with the framework laws[17].

There was a
slight increase in the number of children attending pre-school education.

Republika
Srpska adopted amendments to the Law on Pre-school Upbringing and Education,
requiring at least a secondary school diploma for staff working with children
with special needs. No progress was made on harmonising Cantonal Pre-school
education laws with the framework legislation. Republika Srpska adopted the Draft Law on Amendments to the Law on Higher Education. There is no State–level law on recognition of higher education
qualifications. The Conference of Ministers of Education adopted guidelines on
recognition of higher education qualifications, that address the problem of different
practices in different parts of the country, but the Guidelines are not legally
binding. Due to the lack of harmonised legislation, different practices
continue to be used throughout the country for recognition of diplomas and
qualifications in higher education. The process of accreditation of higher
education institutions has begun. There was no progress on statistical
reporting in education.

Despite its previous expression of
interest, Bosnia and Herzegovina decided not to participate in the Lifelong
learning programme.

There was some progress in the area of culture.
An action plan to implement Bosnia and Herzegovina’s cultural policy strategy
for 2011-2014 was adopted and endorsed by Entity and Cantonal ministries. The ‘Methodology
for statistical monitoring of indicators in the area of culture’ was published by the Agency for
Statistics. Bosnia and Herzegovina continued to participate in the EU’s Culture
programme. An expression of interest in participating in the EU’s Media
programme was submitted. The legal and financial situation of seven cultural
institutions of the country was not solved. Some operated without appropriate
budgetary allocations for several years and were forced to close some
activities to the public.

Some progress was made on research and
innovation policy. The country actively promoted cooperation on research
and innovation with the EU, resulting in a slight increase in the number of
submissions under the Seventh EU research Framework Programme (FP7). The
overall success rate is nevertheless low. Further steps were taken to
facilitate integration into the European Research Area (ERA) and to contribute
to the Innovation Union, but the research and innovation capacity building at
national level needs to be strengthened and coordination remains to be
improved.

With respect to
FP7, the administrative capacity improved by increasing the number of National
Contact Points, organising training sessions and promoting events on FP7.
Cooperation with COST and EUREKA was strengthened.

Regarding the
integration into the ERA, the overall level of investment in research remained
low. Due to the lack of reliable statistics, it is not possible to monitor
progress made or to establish investments made by public or private sector.
Some progress was made on human capital building and a register was set up to
monitor the number of researchers. Republika Srpska adopted the Law on Scientific Research Activities and Technology Development for
2012-2016, and relevant by-laws. The Republika Srpska strategy on science and technological development for 2012-2016 was
adopted. Republika Srpska
established an electronic database on researchers and research organisations
and agreed to build a unified science library
information and bibliographic system based on COBISS, the cooperative online
bibliographic system and services. The Federation
supported projects of technology modernisation, research and education
institutions. The Federation Law on the Science and Research and Development
System and Policy was not adopted[18].The EURAXESS network was established and functions well.
Communication and coordination between the different
science ministries and Entities is insufficient.

There was
little progress in the areas of education and culture.
Strategies and framework laws and the baseline qualifications framework need to
be fully implemented. Sub-national higher education and vocational training
legislation remains to be harmonised with the relevant framework legislation.
The country is participating in the Culture programme. Preparations
for future integration into the ERA and the Innovation Union continued, but
national research and innovation capacity remain to be strengthened and
investment in R&D to be increased. Adoption of the legislative framework
for science and research has yet to be completed. Overall, preparations are
moderately advanced.

4.1.10. WTO issues

Progress was made in the negotiations for
accession to the World Trade Organisation (WTO). The WTO working party met for
the ninth time. Bosnia and Herzegovina proceeded with its bilateral
negotiations on market access for goods and services. Bilateral negotiations
were concluded with China, Japan, Switzerland, Norway, Canada, Honduras and El
Salvador. Negotiations with Korea, Ecuador, Brazil, India and the Dominican
Republic are in the final stage. There are outstanding issues in the
negotiations with the United States and Ukraine.

4.2.
Sectoral policies
4.2.1.
Industry and SMEs

There was
little progress on industrial policy. The Entities continued
implementing their industrial policy action plans without State-level
coordination. A country-wide development strategy including industrial policy
elements remains to be adopted. The absence of harmonised statistics prevents
creation of an effective strategic framework for industrial policy planning.

Little progress
can be reported on SME policies. Republika Srpska adopted an SME
strategy for 2012-2015. The SME Council for Development and Promotion of
Entrepreneurship did not meet since three initial meetings in 2011. The new State-level
SME strategy was not adopted. The revised Federation Law on SME Promotion and
Entrepreneurship, providing for establishment of the SME Agency, remains to be
adopted. The Draft State-level Law on Entrepreneurship and SME Promotion was
withdrawn from the parliamentary procedure, as were the draft amendments to the
Law on the Foreign Investment Promotion Agency (FIPA). Bosnia and Herzegovina
continued to participate in the implementation of the Small Business Act (SBA).
Insufficient coordination at State-level delayed the completion of the 2011 SBA
self-assessment according to which the country made incremental progress on
company registration and access to finance. A Regulatory Impact Analysis (RIA)
has not yet been introduced in Bosnia and Herzegovina. The Republika Srpska
Strategy on Regulatory Reform and Introduction of RIA 2011-2015 was adopted. No
progress was made towards introducing harmonised financial support
measures.Pilot structural business statistics were published for the first time
for the country as a whole, revealing a high proportion of inactive SMEs in
business registers. To ensure higher quality records and simplify access to
data, Republika Srpska adopted legislation on a single register of business
entities’ accounts. Bosnia and
Herzegovina did not establish a single SME registration system to simplify
doing business in both Entities.

The network of
business incubators is well developed, comprising five incubators in Republika
Srpska and eight in the Federation. Other forms of start-up support are weak.

Some progress
was made in the case of tourism. Republika Srpska adopted the Law on Amendments
to the Law on Catering Services and several by-laws in the
field of tourism and catering industry. Similar
legislation has yet to be adopted in the Federation. The Federation did not
adopt the strategy on tourism development for 2008-2018.

There was
little progress in the area of industrial and SME policies. The country lacks a comprehensive industrial policy and an updated
framework for SME policy. Coordination between the Entities remains the key
issue for promoting enterprise development. Overall, preparations in the fields
of industrial policy and SMEs remain at an early stage.

4.2.2.
Agriculture and fisheries

There was
little progress on alignment with European standards in the area of
agriculture and rural development policy.

Bosnia and Herzegovina has not yet adopted
a country-wide rural development strategy and the State-level Law on Wine. The
State-level strategic plan and the harmonisation programme for agriculture,
food and rural development are not being implemented. Republika Srpska’s rural
development strategy and action plan and the Federation’s harmonisation
programme for agriculture, food and rural development remain to be harmonised
with the State-level framework. Administrative capacity and channels for
coordination at State and Entity levels remain weak. The coordination of rural
development policy and actions, including support measures, are insufficient.

Little progress was made with the
preparations for the Instrument for Pre-Accession Assistance for Rural
Development (IPARD). A sectoral analysis was prepared for five sectors. No
agreement was reached on the institutional structures for decentralised
management. The Office for Payment Harmonisation was established but the number
of staff is insufficient to carry out its tasks. Inter-sectoral coordination
and participation by the non-governmental sector remain weak.

The Entities’ budgets for agriculture and
rural development remain low. Subsidies to farmers are mainly product-based and
not aligned with the acquis. The lack of an efficient administration and
effective rural credit schemes hampers the efforts to increase the productivity
and competitiveness of the sector.

Bosnia and Herzegovina did not adopt the
agricultural information strategy or the Law on the Agricultural Census.
Agricultural statistics and the agricultural information system have yet to be
improved, including harmonisation of the existing systems. Land registration
systems are not harmonised and land management requires strengthening.

Little progress was made regarding food
safety. Bosnia and Herzegovina adopted implementing legislation on residues of
pesticides and radioactive contamination and product-specific standards.
Responsibilities for food safety remain fragmented at State and Entity level.
Preparations started regarding the assessment and upgrading of food
establishments. A laboratory capacity strategy to cover analysis of samples in
line with the official controls on food and feed chains still needs to be drawn
up. The capacity to implement official controls is weak.

There was very little progress in the
veterinary sector. Some legislation on animal diseases and import conditions
was adopted. Legislation remains to be aligned with the acquis on
hygiene and food supervision. Closer coordination
between the State and Entities in aligning with the acquis in these
fields remains essential. The powers of the State Veterinary Office are
not sufficient for it to act as the central competent authority. Legislation at
State-level is neither adopted nor implemented at Entity level. The
overlaps between the veterinary and food safety legislation remained. The
financing of sampling for official controls is not adequate. National
laboratories have not yet been further improved so as to obtain accreditation
and establish effective quality control systems. Inspectors and food business
operators require further training about specific EU requirements on hygiene. This lack of progress has a negative impact on trade in
agricultural products, in particular with the EU.

Progress was made in the phytosanitary
sector. Phytosanitary checks at all border crossings improved thanks to the
introduction of uniform lists of plants, plant products and other objects which
must be subject to a plant health inspection. The Federation appointed
phytosanitary inspectors and training of inspectors commenced. The programme
for monitoring potato diseases is being implemented. The legislation remains to
be harmonised with the acquis and the capacity to implement the acquis
to be strengthened. Reference laboratories for monitoring residues remain to be
designated.

There was progress in the area of genetically
modified organisms (GMOs). Implementing legislation was adopted on
registers, risk assessment and conditions for placing GMO products on the
market. Training of laboratory and inspection staff on control methods
commenced. Entity legislation remains to be harmonised with the State-level legislation.

Little progress was made on fisheries.
There is no State-level legislation which is aligned with the acquis.
Responsibilities for the fisheries sector remain fragmented despite the
potential for a considerable increase in exports of fish and fishery products
to the EU.

There was little progress in the
fields of agriculture and rural development, food safety, veterinary and
phytosanitary policy and fisheries. A comprehensive State-level agricultural
and rural development strategy remains to be implemented throughout the whole
country, the State-level capacity for coordination and harmonisation
strengthened, the implementation mechanisms reinforced and legislation further
aligned with the acquis. Implementation of the food safety acquis
and the official control capacity needs to be stepped up and the upgrading of
establishments accelerated. Overall, preparations in these areas of the acquis
remain at an early stage.

4.2.3.
Environment and climate change

There was little progress in the field of
the environment.

There was
little progress on horizontal legislation. Republika
Srpska advanced the alignment with the Strategic Environmental Assessment (SEA)
Directive by adopting the new Law on Environmental Protection. A Framework Law
on the Environment remains to be adopted and efforts are required to implement
the Environmental Impact Assessment (EIA) Directive in a harmonised manner at
State and Entity levels. Implementation of the Espoo Convention on EIA in a
Transboundary Context has not started. Public participation in environmental
decision-making and public access to environmental information remain weak.

Some progress can be reported on air
quality. Republika Srpska adopted the new Law on Air Protection. The
Federation adopted several rulebooks on air quality monitoring methods,
definition of types of pollutants, air quality standards, etc. Air quality
planning and monitoring systems remains inadequate. A country-wide air
monitoring network has not yet been established.

There was
little progress on waste management. The Federation adopted a waste
management plan to implement its Environmental Protection Strategy for
2008-2018. Coordination between the Entities and the Brcko District on
implementing a packaging waste management system remains a concern. Investment
in waste management remains insufficient. Progress in construction and
operation of regional sanitary landfills was limited. No practical steps were
taken to establish systems for recycling and recovery of other waste streams.
Capacity to manage industrial and hazardous waste is limited.

There was
little progress on water quality. The Federation adopted a water
management strategy and a rulebook on the conditions
for wastewater discharges into natural recipients and public sewer systems,
thus advancing the alignment with the Urban Waste Water Treatment Directive.
Bosnia and Herzegovina aligned its legislation with the Drinking Water
Directive, but implementation is slow. No efforts were made to ensure a
consistent and harmonised approach to water management at State-level and between the Entities and the Brcko District, including implementation
of the water laws, monitoring and river-basin planning. Inadequate
administrative capacity and lack of ready-made projects are causing
considerable delays in sectoral investments. Access to drinking water,
untreated discharges of wastewater and flood management remain key challenges.

There was
little progress on nature protection. The Federation adopted
implementing legislation on Natura 2000, thus advancing the alignment with the
Birds and Habitats Directives. Implementation of the Convention on
International Trade in Endangered Species of Wild Fauna and Flora (CITES) did
not start. Implementation of the nature protection acquis remained at an
early stage.

There was little progress on industrial
pollution control and risk management. Bosnia and Herzegovina prepared an
initial list of installations in accordance with the Industrial Emissions
Directive. An emissions register of these installations was published on the
web. The permit process remains fragmented due to complex administrative
procedures with weak public participation in the decision-making process.
Environmental investments by industry remain insufficient. The administrative
capacity for inspection activities remains weak.

There was little progress in the field of chemicals.
Republika Srpska adopted a strategy on chemical safety and implementing
legislation on chemicals and biocides. The Federation did not start aligning
its legislation with the acquis. Bosnia and Herzegovina acceded to the
Rotterdam Convention on the Prior Informed Consent Procedure for Certain
Hazardous Chemicals and Pesticides. There was little progress on noise.
The Federation adopted a Law on Protection against Noise.

Regarding climate
change, no progress was made on general policy development. The country has
no national climate strategy. Climate considerations are increasingly
integrated into the energy policy. Substantial efforts are required to fully
integrate climate change into sectoral policies and strategies. The country
associated itself with the EU positions in the international context. While
having previously associated itself with the Copenhagen Accord, the country did
not yet put forward a mitigation commitment by 2020. The
country should consider taking mitigation commitments consistent with those of
the EU and its Member States for the purpose of the post-2020 climate agreement
to be reached by 2015.

Little progress was
made on aligning with EU climate policies and legislation. The country is at a very early stage in adopting the climate acquis.
The country took initial steps to identify stationary installations for the
future implementation of an emissions trading system. Significant efforts are
required to strengthen the country’s monitoring, reporting and verification
capacities. Cooperation and coordination remain weak. The lack of
administrative and financial capacity is delaying preparation, legislative
alignment and implementation of a climate policy in line with the acquis. The
country participated regularly in the climate work under the Regional
Environmental Network for Accession (RENA). There is still a significant need
for awareness-raising at all levels and for the promotion of cooperation of all
stakeholders.

Administrative
capacity in the environment sector remains weak. An
Environmental Protection Agency with country-wide functions for monitoring and
reporting on the state of environment remains to be established. The
administrative capacity within the relevant environmental institutions is
limited due to the fragmentation of competencies both vertically and
horizontally. Integration of environmental concerns in other sectors remains
weak. There was some progress regarding the administrative capacity to address
climate change. The Executive Board of the Designated National Authority (DNA)
to implement the Kyoto Protocol’s Clean Development Mechanism had its first
constitutional assembly and adopted its rules of procedure. The necessary
structures for the DNA’s work were established at Entity and District
Brčko level. The administrative structure on climate change should be
considerably strengthened. Capacity building is required to address the
significant capacity, cooperation and coordination needs. There was little
progress in the environment and climate areas. The establishment of a
harmonised legal framework for environmental protection, adequate institutional
capacity and a functioning environmental monitoring system remain the
priorities. Improvements remain to be made to horizontal and vertical
communication and information exchange on environmental and climate change
issues between all authorities and the general public. Regarding climate
change, substantial efforts are required for awareness-raising, setting a more strategic approach for the country, aligning with and implementing the acquis and continuing to build
up administrative capacity including inter-institutional cooperation and
coordination. Preparations in the field of the environment and climate change
remain at an early stage.

4.2.4.
Transport policy

In the case of the trans-European transport networks, some
progress was made. Bosnia and Herzegovina is actively implementing the Memorandum of Understanding on the
Development of the South-East Europe Comprehensive Regional Transport Network
by the South-East Europe Transport Observatory (SEETO). Attention has to be
paid to the implementation of the priorities agreed for the SEETO comprehensive
network. Work continued on the signalling overhaul on the SEETO railway
network, specifically on the Ploce-Bradina section of corridor Vc and the Banja
Luka-Kostajnica rail section.

Little progress can be reported regarding road transport. The legislative
framework for road safety and the transport of dangerous goods remains unclear.
By-laws were adopted on the procedures for issuing memory cards and for drivers’
qualifications to perform international road transport.

Little progress can be reported in rail
transport. The Instruction on safety and interoperability of the railway system
was adopted. The Federation adopted the Law on Amendments to the Law on
Federation Railways. Both railway companies remain in a critical financial
situation and need restructuring. Full separation of the infrastructure manager
from the railway undertaking remains to be addressed, as does legislative
alignment with the acquis on public service obligations. An independent
accident investigation body does not exist. The railways of Republika Srpska
have not yet published their network statement.

No progress was made on maritime transport.
Although Bosnia and Herzegovina is a member of the International Maritime
Organisation (IMO), it is not a signatory to any of the most important IMO
conventions like the International Convention for the Safety of Life at Sea (SOLAS),
including the International Ship and Port Facility Security Code, the
International Convention for the Prevention of Pollution from Ships (MARPOL) or
the International Convention on Standards of Training, Certification and
Watchkeeping for Seafarers (STCW).

Little progress can be reported in the case
of inland waterways. Demining and rehabilitation of the River Sava waterway has
yet to start. The river information system remains to be introduced. No
progress was made on combined transport.

Little progress
was made on air transport. The Aviation Law was amended to align it with
the acquis. Several rules and by-laws in the area of civil aviation were
adopted. Efforts remain to be made to speed up the implementation of the first
phase of the European Common Aviation Area (ECAA) Agreement.

Little progress was made in the area of
transport. Legislation remains to be aligned with the acquis on all
modes of transport, especially rail, road and maritime transport. A Transport
Strategy and Action Plan have yet to be prepared. The upgrading of transport
infrastructure needs to be intensified. Overall, preparations are at an early
stage.

4.2.5.
Energy

There was
uneven progress with oil stocks and security of supply. The Energy
Community obligations on the security of gas and electricity supplies
remain to be implemented. The Federation Law on Oil has yet to be adopted. No
official figures are available on the country’s level of oil stocks. A
country-wide energy strategy addressing the security of supply of oil, gas and electricity
remains to be adopted. The Entities have their own strategic planning without
harmonised criteria or a common approach to investment priorities.

Little progress was made with the internal
energy market. The Federation drafted a new Electricity Law, which remains
to be adopted. Existing laws at all levels neither fully comply with the acquis
nor allow effective development of a competitive wholesale market. Tendering
procedures and transparency issues remain to be addressed.

The situation of the State-level
transmission company (TRANSCO/Elektroprijenos) improved marginally. Although no
business or investment plans were approved and the company’s management
continues to operate in an acting capacity, the Entity Prime Ministers agreed
to replace the management and the board, to apply capital share rules in
staffing and investment and to establish a working party with a view to
devolution of 110 kV assets to utilities at Entity level and to improve
the relationship with the ISO. The Entity Prime Ministers’ agreement remains to
be implemented. The viability of TRANSCO as a country-wide enterprise and the
fragmentation of the electricity market are causes for concern and would pose
an obstacle to full implementation of the Energy Community Treaty. A comprehensive
review of the electricity legislation applicable at the various levels of
government was launched to make Bosnia and Herzegovina compliant with the acquis
and to enable the country to fulfil the requirements of the Energy Community
Treaty. The de facto independence of the regulatory commissions is not
ensured. The regulators in both Entities and in the district of Brcko have
adopted secondary legislation addressing some of the legislative gaps. Both
Republika Srpska and the Federation revised tariffs, but they remain below
market prices.

No progress can be reported in the gas
sector. There is still no legislative alignment. Entities have established
different rules on market participants, unbundling, third-party access or
market opening, which are not in line with the acquis.

The country has not begun to make
preparations for alignment with the EU’s ‘third internal energy market package’.

There was
little progress on renewable energy. The Entities introduced incentives
(feed-in tariffs) for renewable energy sources which differ and thus
potentially create internal inefficiencies. There is no State-level strategy
for promoting renewable energy. Bosnia and Herzegovina has not yet prepared a
National Renewable Energy Action Plan (NREAP), which will provide a roadmap for
achieving the binding target set for the share of renewable energy in the
country’s final energy consumption in 2020 within the framework of the Energy
Community, and to take measures to promote the use of biofuels in transport. The complexity of the organisational structure
and decision-making system hinders effective promotion of renewable energy. Significant
efforts are required to create a regulatory environment that would foster
greater use of renewable energy sources in all sectors, including by
streamlining administrative procedures for authorisation and licensing.

There was
little progress on energy efficiency. Although legislation is being
drafted, a State-level energy efficiency action plan and a credible roadmap for
transposition of the relevant EU legislation on energy efficiency to meet
obligations under the Energy Community Treaty are missing.

Little progress can be reported in the area
of nuclear safety and radiation protection. The new Director of the
State Regulatory Agency for Radiation and Nuclear Safety was appointed, but a
national emergency plan and a strategy for radioactive waste management have
not been developed.

Little progress
was made in the field of energy. The country needs to meet its legal
obligations under the Energy Community Treaty, improve its security of supply,
ensure effective functioning of the electricity transmission company and
establish an integrated energy market. The lack of cooperation and coordination
between the Entities and with the State-level is hampering development of a
fully functioning energy market and compromises improvements in the energy
sector as a whole. Bosnia and Herzegovina is at the early stage of implementing
the acquis on the internal gas and electricity markets and of aligning
its legislation with the acquis on nuclear safety and radiation
protection. Development of a comprehensive energy strategy, including promotion
of energy efficiency and renewable energy sources, remains essential. Overall,
preparations in the field of energy remain at an early stage.

4.2.6.
Information society and media

No progress can be reported towards
legislative alignment with the acquis
on electronic communications and information technologies. The
Electronic Communications Law is largely based on the 1998 EU regulatory
framework. No decision was taken to introduce the general authorisation system.
No progress was made on introducing the single European emergency number 112.

Legislative alignment is delayed due to the
continuing discussions between the Entities and the State on their respective
powers, thus weakening the position of the Communications Regulatory Agency
(CRA). The institutional and financial independence of the CRA and its lack of
adequate human resources remain serious concerns. The Council of Ministers has
not appointed the head and new Council members of the CRA. (See Political
criteria)

The CRA continued to make progress with
implementing the competitive safeguards to prevent misuse of
market power by operators. Fixed number portability was introduced,
while mobile number portability is pending. The CRA is implementing the last
phase of the rebalancing of tariffs for voice telephony services. The rulebook
on tariff rebalance for 2013-2015 is pending.

The three incumbent operators are all
subject to significant market power (SMP) obligations, while the CRA allowed
them to provide services outside their original concession areas. They continue
to operate in their geographical areas as de facto monopolies over fixed
voice telephony. Their market share was around 85% for international calls and
98% for national calls in early 2012. The incumbents’ share of the fixed
broadband market fell to 64%, in the face of competition from cable and
wireless network operators. The overall fixed broadband penetration rate
increased modestly, to 11.2% at the end of 2011. The three mobile network
operators, each affiliated with one incumbent, provide near-national coverage.
Technology-neutral spectrum assignments allow them to deploy 3G mobile
services. Legislative measures would enable mobile virtual network operators to
emerge.

No progress can be reported towards
alignment with the acquis in the field of information society
services. The State-level Law on the Agency for the Development of the
Information Society is yet to be adopted. There is no State-level legislation
on electronic documents, e-government and cyber crime. Legislation remains to
be aligned with the e-commerce Directive and implementing legislation on
conditional access services. The State-level e-commerce law did not enter into
force yet. The implementation of the State-level e-signature law of 2006
is pending. The administrative capacity in the
State-level Ministry of Transport and Communications remained weak.

Some progress can be reported on audiovisual
policy and the media. The new set of rules adopted by the CRA largely
harmonized the regulation with the Audiovisual Media Services Directive
(AVMSD). The draft codes on audiovisual and radio programmes and on commercial
audiovisual communications partially implement the Audiovisual Media Services
Directive (AVMSD). The remaining provisions of two Articles of the AVMSD remain
to be incorporated. Entity laws on public broadcasting services are not in line
with the State-level law. The CRA issued a decision on use of multiplex A (MUX
A) for digital terrestrial broadcasting. The CRA began developing entry
criteria for existing TV stations to the commercial MUX and documents for
licensing MUX operators. A working group supervising this procedure ceased to
exist.

There was no further progress towards the
switch from analogue to digital terrestrial broadcasting. The digital
switchover, initially planned for the end of 2011, was postponed to the end of
2014. This raises potential concerns about timely implementation of the
process. No decision was taken on how to use the valuable spectrum freed up by
the switchover.

Members of the expert secretariat of the
forum on digital television were appointed, but the secretariat is not
operational. The statute of the public broadcaster BHRT remained unchanged (See
Chapter 2.2 - Human rights and the protection of minorities). The statutes
of the public broadcasting corporation (PBS) remain to be adopted. Two new
members of the supervisory board of the BHRT have not yet been appointed. The
reform of the public broadcasting sector was further delayed.

Little progress was
made on the information society and media. Harmonisation of the legal framework
for public broadcasting remains incomplete. The lack of
coordination and of adequate human resources, and in particular the continued
challenges to the CRA’s functional and financial independence, remain a serious
concern. Legislative alignment in the fields of electronic communications, the
information society and media did not advance. Overall, preparations are at an
early stage.

4.2.7.
Financial control

There was some progress in the area of public internal financial
control (PIFC). Policy papers and action plans of the State and Entities
are being implemented, albeit with delays. Amendments to the Law on Internal
Audit and the Law on Financing were adopted. The Central Harmonisation Units’
(CHUs) coordination board, providing a single platform for coordination of
legislation and methodology, ceased to perform its role. Consequently,
legislation took different directions. The Federation is in overall terms
lagging behind the State and Republika Srpska. Internal audit units are not
fully operational, although the capacity of internal auditors throughout the
country increased somewhat.

There was little
progress on external audit. The functional capacity of the four supreme
audit institutions (SAIs) improved with performance audits conducted by all
levels. Yet, their financial independence remains in danger. No efforts were
made to secure the independence of the State-level SAI from the executive or to
embed it in the Constitution.

With regard to the
protection of the EU’s financial interests and protection of the euro
against counterfeiting, Bosnia and Herzegovina is at an early stage of
preparation.

There was little progress in the area of
financial control. Substantial efforts are required to adopt and implement PIFC
legislation, resume coordination between CHUs and build capacity on FMC and
internal audit. The independence of the SAIs remains to be addressed. Overall,
preparations are at an early stage.

4.2.8.
Statistics

Some progress can be reported in the area
of statistics. Amendments to the Law on Statistics taking into account some
recommendations of the adapted global assessment of 2011 were not adopted.

Little progress was made on statistical
infrastructure. The cooperation between the Agency of Statistics of Bosnia
and Herzegovina (BHAS) and the Entity institutes for statistics slightly
improved. Their cooperation and the coordination of activities remain to be
considerably enhanced. There was continuous incorrect
implementation of the State-level Law on Statistics and of the agreement on
cooperation and coordination. The Indirect Taxation Authority does not provide
the BHAS with the data required from administrative sources, leading to
low-quality business, macroeconomic and external trade statistics. The Law on
Indirect Taxation remains to be amended to allow the BHAS to use all available
administrative data for statistical purposes.

There was little progress regarding classifications
and registers. The Statistical Business Register is operational but
incomplete due to lack of the administrative data required for it to function
fully. An inter-agency working group was established to draft a classification of territorial
units for statistics in the country. The discussion is continuing, also in the
light of the country’s
obligation, under the Interim Agreement, to submit per capita GDP figures to
the EU at NUTS 2 level by 1 July 2013.

Progress was made on sectoral statistics.
The Law on the Census of Households and Housing in Bosnia and Herzegovina for
2013 was adopted. The census fieldwork is scheduled from 1 to 15 April 2013.
The Central Census Bureau came into operation. Numerous planning, communication
and coordination activities for the census remain to be carried out. The budget
for the census in 2013 was adopted. The agriculture census is planned
after the population census. In general, agricultural statistics require substantial
upgrading.

Little progress can be reported on macroeconomic
statistics. The annual GDP estimates for 2011 were published. Quarterly
national accounts cannot be developed until the relevant short-term indicators
are produced and the requisite cooperation between all involved is in place. Fieldwork
for the household budget survey was completed and results are expected to be
available at the end of October 2012. The labour force survey was implemented
in 2012 and preliminary data were published.

There was some progress in the field
of statistics. Sectoral statistics such as national accounts, business and
agricultural statistics remain to be improved. The population and household
census is expected to be conducted during 2013. Cooperation between the BHAS
and the Entity statistical institutes and also between the BHAS and the
relevant State-level agencies slightly improved. The communication between the
Entities, the coordination and the decision-making process in the national
statistical system, need to be improved considerably. A great deal remains to
be done to develop fully reliable statistics at the various levels of
government. Overall, preparations are moderately advanced.

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

Progress was made in the field of visa
policy. Positive and negative lists remain fully harmonised with the EU
visa list. In 2011, 248 visas were issued at the border, a decrease of 24%
compared with the same period last year, when 327 were issued.

Following the lifting of visa requirements
in December 2010 for citizens of Bosnia and Herzegovina holding biometric
passports, a post-visa liberalisation monitoring mechanism was established. Most visa-free travellers are bona fide travellers, but a
number abused the visa-free arrangement by submitting manifestly unfounded
asylum applications to Schengen countries. Experts from EU Member States
visited the country to assess the sustainability of progress on the reforms
called for in the visa liberalisation roadmap. An electronic data exchange
system for police and prosecutors was set up. All law enforcement agencies are
establishing electronic registers. The rulebook on the internal organisation of
the Agency for Prevention of Corruption and Coordination of the Fight against
Corruption was adopted. The European Commission presented its third monitoring
report to the European Parliament and the Council.

Progress was
made on border management. Most legislation related to integrated border
management (IBM), including the Law on Border Control, is mainly based on the acquis.
The revised IBM strategy and action plan are being implemented. The IBM Commission adopted a set of protocols to enhance
implementation of the agreement on interagency cooperation and a manual for the
work at border crossings. The rulebook on the internal procedures of the Joint Risk Analysis Centre
(JRAC) was revised. Risk domains were developed as a basis for the annual joint
risk analysis report adopted by the IBM Commission. A link was established
between the JRAC and the databases of the agencies involved. An amended draft rulebook on the internal organisation of the border
police, legally introducing the JRAC, is not yet adopted.

Infrastructure
at border crossing points further improved, in particular surveillance and
equipment. Out of 55 international border crossing points, 29 are covered by
video surveillance. All international border crossings are equipped with
biometric passport readers and connected to the integrated system of control of
state border crossings (CSBC) and organisational units of the border police.
The CSBC was upgraded with a new application enabling access from border
crossings to relevant databases. Progress was made in the management of border
crossing points (BCPs). A new Rulebook on Internal Organization and
Systematization was adopted by the Indirect Taxation Authority (ITA) Steering
Board to enable efficient management and maintenance of BCPs. In addition,
budgetary allocations were approved by the Council of Ministers to upgrade IBM
infrastructures for a three years period.

Establishment
of two inspection posts at the border with Croatia (Bijaca and Gradiska) is
underway. An upgrade of the Neum I and Neum II BCPs to a joint location on the
Croatian side is underway. A joint border crossing between Gradina and
Jasenovac was established on the Bosnia and Herzegovina side. Frequent joint
border patrols with neighbouring countries resulted in increased detection of
illegal migrants and smuggled goods. Identified spots for possible illegal
crossings of the border with Montenegro and Serbia remain to be closed.
Conclusion of revised bilateral agreements on border crossings in the light of
Croatia’s accession to the EU is pending.

Implementation
of the working arrangement with Frontex is advancing. Bosnia and Herzegovina
participates in the Western Balkans risk analysis network.

There was some progress in the area of asylum.
Bosnia and Herzegovina is implementing the Law on the Movement and Stay of
Aliens and Asylum, as well as an asylum and migration action plan. The asylum
section in the Ministry of Security is almost fully staffed and adequately
trained. The asylum module of the migration information system (MIS) is
being fully utilised. The Ministry for Human Rights and Refugees is connected
to the MIS and application of the system is being expanded. Work on a permanent
asylum centre in Trnovo is progressing. A new migration and asylum
strategy and the related action plan were adopted.

The number of asylum applications increased
to 41 (46 persons) in 2011 in comparison with 38 applications (64 persons) in
2010. All asylum-seekers from Kosovo, whose temporary protection status expired
in 2007, received first-instance decisions from the asylum sector. In 2011,
only eight families were still involved in appeal court proceedings. Rejected
asylum-seekers were resettled or voluntarily repatriated. 173 irregular
migrants were enrolled for the assisted voluntary return (AVR) programme during
2011 and none during the first six months of 2012.

Good progress was achieved on migration.
The centre for temporary detention of irregular immigrants is in operation. In
2011, a total of 218 foreign nationals were accommodated there. 254 foreign
nationals were relocated outside Bosnia and Herzegovina. 47 of them returned
voluntarily to their home countries, 87 returned under the AVR programme, 81
under readmission agreements and the other five were forcefully repatriated.
During the first six months of 2012, 192 third-country nationals were accommodated,
of whom 87 returned under readmission agreements (with Serbia and Montenegro)
and four were forcefully repatriated.

Implementation of the readmission agreement
between the European Union and Bosnia and Herzegovina continued smoothly. In
2011, 329 persons were readmitted, an increase of 11.53% from the previous
year. In the first half of 2012, 139 citizens were readmitted, a
decrease/increase of 70% compared with the same period in 2011.

Bosnia and Herzegovina continued its
efforts to conclude readmission agreements with non-EU countries. The
readmission agreements with Turkey and Moldova were signed. The strategy for
the reintegration of returnees remains to be implemented. Difficulties with
economic reintegration, access to healthcare, social protection, pensions and
employment of minority returnees are the main obstacles to sustainable return
and local integration (See Chapter 2.2 - Human rights and the protection of
minorities).

Interceptions of people attempting
unlawfully to cross the border in 2011 remained at the level of the previous
year. 324 people were intercepted trying to enter or leave the country
illegally. In the first half of 2012, 112 people were intercepted, a decrease
of 29.5% compared with the same period in 2011.

The Service for Foreigners’ Affairs (SFA)
has adequate administrative capacity and continued to enhance cooperation with
other law enforcement agencies. The SFA makes full use of the MIS and granted
access to its databases to relevant agencies at all levels. In 2011, the SFA
issued 7,661 permits for temporary stays, a decrease of 6% in comparison with
2010. In 2011, 308 permits for permanent stays were issued, a decrease of 2%
compared with 2010. The SFA issued 309 expulsion decisions in 2011, a decrease
of 25% from 2010. In the first half of 2012, the SFA issued 4199 permits for
temporary stays and 205 for permanent stays. In addition, 149 expulsion
decisions were taken. Further capacity-building is required.

The coordination body for implementing the
asylum and migration strategy and action plan improved inter-agency cooperation
and published its 2011 annual report. The fourth country migration profile was
published. It includes statistics from the improved MIS. A working group with
representatives from State and Entity levels is working on aligning collection
of migration data with Eurostat regulations. Bosnia and Herzegovina’s
legislation on legal migration encompasses the right to family reunification,
long-term residence and conditions for admission of third-country nationals for
study purposes.

Bosnia and Herzegovina made progress in the
areas of visa policy, border management, asylum and migration. The country
continued to address its priorities in the field of visa policy and to advance
on border management. Efforts to improve border crossing infrastructure,
management and maintenance are needed. The country’s asylum and international
protection system is adequate for the current inflows. Additional human and
financial resources need to be allocated to increase the efficiency of the
system. Bosnia and Herzegovina’s capacity in the area of migration is adequate.
Monitoring of migration flows and inter-agency cooperation continued to
improve. Overall, preparations in this area are moderately advanced.

4.3.2.
Money-laundering

Some progress
was made in the fight against money-laundering.

Bosnia and
Herzegovina is implementing the strategy and action plan for the prevention of
money-laundering and financing of terrorist activities. In 2011, the Financial
Intelligence Department (FID) within the State Protection and Investigation
Agency received 220,000 reports of suspicious and cash transactions. 153
suspicious transactions required further investigations. In 2011, 13 criminal
offences involved money-laundering. The electronic reporting system is
functioning. Transaction reports come mostly from the banking sector. Notaries,
lawyers, audit offices and accountants filed no reports to the FID.

The FID has
access to the Central Bank database of bank accounts of companies and to the
IDDEEA (Agency for identification documents, registers and data exchange)
database. It does not have access to crime report databases to cross-check
data. The Law on Prevention of Money-Laundering and Financing of Terrorist
Activities provides for two-way communication between persons covered by the
relevant obligations and the FID. Feedback to persons covered by the
obligations is provided in a non-systematic manner. The FID has Memoranda of
Understanding with 12 foreign FIDs and exchanges information with all other
members of the EGMONT Group.

Training sessions including the FID, the
Criminal Investigation Department, prosecutors and financial regulatory
agencies were organised on reporting obligations and financial investigations.
Additional operational capabilities and budgetary independence are necessary in
the FID, as recommended in the MONEYVAL report. Attempts to relocate it as an
independent body failed. The FID requires additional human resources. Technical
capabilities to conduct both analyses and investigations are limited.

The criminal
law provisions on confiscation of assets are largely harmonised with the
Council of Europe Convention on Laundering, Search, Seizure and Confiscation of
the Proceeds from Crime and on the Financing of Terrorism. While the value of
assets confiscated in criminal proceedings is increasing, the number of cases
is decreasing.

Steps were
taken to set up a structure for management of confiscated properties. The
relevant Republika Srpska agency came into operation. The Federation government
adopted a draft Law on the Confiscation of Illegally Obtained Property,
providing for the establishment of an agency. The draft Law is still pending
adoption in the Parliament. The Republika Srpska Agency for Banking Supervision
and the Federation Agency adopted decisions on minimum reporting standards. The
Federation draft Laws on Banks, Leasing companies and Micro-credit
organisations, harmonised with the Law on Prevention of Money-laundering and
Financing of Terrorist Activities are in the parliamentary procedure. The
Republika Srpska Law on the Agency for Banking Supervision is already
harmonised. Cooperation between the Central Bank and the two Entity Agencies
for Banking Supervision was improved under a Memorandum of Understanding.

Bosnia and
Herzegovina made some progress in the fight against money-laundering.
Additional institutional and legislative measures are required to prepare the
country to fight money-laundering effectively. Mechanisms for confiscation of
assets did not yet come into operation throughout the country. Overall,
preparations in this area are moderately advanced.

4.3.3.
Drugs

Little progress was made in the fight
against drugs. International drug trafficking routes to Europe pass
either through Bosnia and Herzegovina or along its borders. Drug trafficking is
a major part of organised crime. Narcotics cultivation is limited to
small-scale marijuana production. Drug consumption is on the rise, but remains
relatively low compared with other European countries.

Implementation of the national drugs
strategy (for 2009-2012) and action plan remains slow. A rulebook on
safekeeping and destruction of seized narcotic drugs was adopted. Amendments to
the Law on Prevention and Suppression of the Abuse of Narcotic Drugs, providing
for the establishment of an Office for Drugs, failed to be adopted. The
Federation adopted an action plan on the fight against drugs for 2012-2013. The
Republika Srpska strategy for monitoring drugs and preventing drug abuse and
the related action plan are being implemented by an interinstitutional
commission.

In cooperation
with the European Monitoring Centre for Drugs and Drug Addiction, Bosnia and
Herzegovina prepared a national action plan on the drug information system, an
information map on drug-related data sources and the 2010 annual report on the
drug situation in the country.

Seizures of
heroin, cocaine and skunk at the border increased. The number of related
reports of criminal acts increased, whereas the number of cases processed
decreased slightly. Coordination between the different law enforcement agencies
is arranged case by case. Effective judicial follow-up and a deterrent criminal
policy are missing.

Bosnia and
Herzegovina made little progress in the fight against drug trafficking. Pending
the establishment of an Office for Drugs, its institutional capacity to
coordinate the policy framework and implement it systematically remains weak.
Law enforcement activities to tackle drug trafficking continued but did not
achieve a major breakthrough. Overall, preparations in this area are moderately
advanced.

4.3.4.
Police

Some progress
was achieved on police matters. Implementation of the police reforms is
continuing.

The capacity of
the Directorate for Coordination of Police Bodies increased. Definitive premises
for the Directorate remain to be secured. The Directorate acts as the national
contact point for operational activities under the Police Cooperation
Convention. In this capacity, it carried out joint exercises with the State
Protection and Investigation Agency (SIPA), the Border Police, the Republika
Srpska Ministry of the Interior, the Federal Police Administration and the
Police Administration of the Brcko District on cross-border surveillance,
urgent pursuit and undercover investigations. A Memorandum of Understanding on
cooperation in VIP protection was agreed upon by all law enforcement agencies.
No agreement was reached on a memorandum on reporting.

The number of
messages exchanged via the Interpol network is rising. A roadmap setting out
the conditions for the country to conclude an operational agreement with
Europol was signed and accession to the Europol application ‘Siena’ is planned.

The
institutional development of the Agency for Forensic and Expert Examination,
the Agency for Education and Advanced Training and the Agency for Police
Support is undermined by general budgetary constraints and lack of political
agreement on their future.

The public complaints board received 71
complaints, mostly related to incorrect and non-professional behaviour of
police officers. A small number of cases included suspected links to corruption
and organised crime. Four cases were proven to be justified. The board for
complaints by police officers received 127 complaints in 2011, mainly linked to
ranking and legal status. Few were confirmed and followed by measures.

The SIPA reached a staffing level of 73%.
The Law on Police Officials was amended to regulate the deployment of officers
from other police bodies to the SIPA, the Border Police and the Directorate for
Coordination of Police Bodies. A document management system was installed.
Temporary financing in 2011 prevented the allocation of funds for capital
investments and new recruitments.

The Federation Police Administration
amended its rulebook on internal organisation to strengthen the sectors for
combating crime and organised crime. A new draft Federation Law on Internal
Affairs was adopted by the Federation government, introducing more extensive
political and administrative oversight over the work of the police and
appointment and dismissal of the Police Director. Several Cantons are drafting
new Laws on Internal Affairs aligned to the changes expected at the Federation
level.

Republika Srpska adopted a new Law on
Internal Affairs. The Law was harmonised with the Republika Srpska Law on
Police Officers and with the national legislation on protection of personal
data. The law did not change the overall structure, management principles or
the legal status and budget of the Republika Srpska police. A unit specifically
assigned the task of fighting organised crime and corruption was established.

Bosnia and Herzegovina made some progress
in the field of police. Institutional development of police reform agencies and
the Directorate is slowly advancing. The capabilities of individual law
enforcement agencies are improving, but systematic cooperation remains to be
improved. Overall, preparations in this area are advanced.

4.3.5.
Fighting organised crime and terrorism

There was
little progress in fighting organised crime. Bosnia and Herzegovina
remains a source of arms and ammunition for criminal groups in the EU.
Organised crime activities are also linked to the transit of drugs on
international trafficking routes.

A working group was established to
coordinate and follow up implementation of the strategy to fight organised
crime (for 2009-2012). A number of successful joint police operations took
place, also at large scale. In 2011 84 reports against 931 persons were handed
over to the Prosecutor’s Office. The trend over the past years shows that less
and less indictments are confirmed. In 2011, less than 10% of the indictments
were confirmed. Although the number of reports decreased, the investigations
involved a higher number of suspects. A statistical map for a unified method
for collecting statistics was prepared. A draft Law on the Witness Protection
Programme is in the adoption procedure. An action
plan for prevention and suppression of criminal offences relating to motor
vehicles for 2012-2015 was adopted.

Protocols under the Police Convention on
Cooperation in South-East Europe were signed with Croatia, the former Yugoslav
Republic of Macedonia, Montenegro and Serbia.

The SIPA organised citizens’ forums to
enable civil society and cooperation partners to contribute to the fight
against organised crime. The agency operates a crime hotline.

Due to the lack
of prison capacity, Bosnia and Herzegovina is not a party to the Council of
Europe Convention on the International Validity of Criminal Judgments or to the
additional protocol to the Council of Europe Convention on the Transfer of
Sentenced Persons.

Proactive investigations of organised crime
groups are carried out throughout the territory of Bosnia and Herzegovina,
although unevenly. Amendments to the instruction on police-prosecutor
cooperation were proposed, particularly on cooperation when using special
investigative means. Joint training and information gathering on specific cases
of police-prosecutor cooperation are organised regularly. Difficulties remain with
proper implementation of the system of prosecutor-led investigations.

The whole range of special investigative
measures is used. The system for legal interception of telecommunications is
fully operational. Deployment of special investigative measures is limited by
the short maximum duration of interceptions, highly restricted use of
interpreters for interceptions, lack of modern technology and limited powers to
use cover identities and vehicle registrations.

The amendment to the Law on Protection of Classified
Information, to bring the law into line with the relevant EU standards and
provide for implementation of the bilateral security agreement, remains to be
adopted.

Coordination meetings for exchanging
intelligence are organised at different levels but with uneven attendance,
regularity and quality. Lack of data and persisting mistrust between law
enforcement agencies prevent further systematic exchanges of intelligence. An
electronic data exchange system for police and prosecutors was set up. All law
enforcement agencies established electronic registers.

Limited progress was made on combating trafficking
in human beings (THB). Relevant provisions in the State-level criminal code
are in line with international standards. Implementation of the national action
plan for 2008-2012 continued, financed mainly by donors. Thus, sustainability
remains an issue. A new action plan is being prepared.

The national coordinator’s office continued
an educational campaign targeting social workers, secondary school teachers,
work inspectors and prosecutors. The State-level government secured funds for
three ‘safe houses’.

The number of THB victims identified
increased. The majority of trafficking was for the purpose of sexual
exploitation and begging. Bosnia and Herzegovina continues to be a country of
origin, transit and destination for trafficking of women. Provisions on THB in
the Entity and Brcko District criminal codes are not yet harmonised with the
State-level criminal code or with ratified international instruments. The
Department for Combating THB within the national coordinator’s office and the
database on THB victims are not fully operational.

Some progress was made in the fight
against terrorism. The Joint Task Force to fight terrorism was
re-activated and its technical capacity developed. Security and intelligence
data available 24/7 are exchanged between the agencies represented in the Joint
Task Force. As part of the civil-army cooperation plan in case of a terrorist
attack, training in line with NATO and EU standards was organised.

There were some efforts to implement the
strategy for preventing and fighting against terrorism for 2010-2014. All law
enforcement agencies and the Intelligence
Security Agency of Bosnia and Herzegovina (OSA) adopted action plans. A Counter Terrorism Task
Force and an operation Group to suppress radicals and extremists potentially
capable of conducting terrorist activities were set up. While Republika Srpska
and the Brcko District amended their criminal codes to introduce a criminal
offence to suppress crimes linked to hate and extremism, the Federation needs
to amend and harmonise its criminal code.

Bosnia and Herzegovina continued to
implement the restrictive measures established by UN Security Council
Resolutions. The Ministry of Security adopted a number of decisions regarding
Liberia, Iraq, Somalia, members of Al-Qaida, Osama Bin Laden, Taliban and other
individuals or groups linked to terrorist activities.

Bosnia and Herzegovina made some progress
in the fight against organised crime and terrorism. The lack of systematic
exchanges of proper intelligence and of effective and sustainable coordination
and cooperation mechanisms between law enforcement agencies is preventing
further progress in the fight against organised crime. Capacity to fight
trafficking of human beings remains to be strengthened. Proactive
identification of victims and an effective national referral mechanism are
crucial. Further strengthening of criminal prosecution is needed. Proactive and
preventive action and also intelligence-sharing remain uncoordinated. Overall,
preparations are moderately advanced.

4.3.6.
Protection of personal data

There was some
progress on personal data protection.

Following the
latest changes to the Law on Protection of Personal Data, the Director of the
Personal Data Protection Agency and his deputy are appointed by parliament. All
decisions of the agency are final and can be challenged only before the court
of Bosnia and Herzegovina.

The agency
increased its staffing. Given the increase in its workload, the 2012 budget has
allocated further resources.

The agency
started to issue orders to ensure efficient implementation of the Law on
Protection of Personal Data. It carried out 17 monitoring inspections and
provided 117 expert opinions, three of which were on draft laws and others to
legal and private entities. It dealt with 35 complaints and integrated 19 new
controllers in the main registry. The Agency has also
started with execution of sanctions, issued one penalty, and has carried out 35
ex officio procedures.

Amendments to
the Law on IDs, Travel Documents and Personal Identity Numbers were adopted to
regulate use of copies of such documents.

The agency
regularly receives requests to give its opinion on draft regulations, but no
systematic screening takes place in the legislative process to make sure that
new regulations comply with the Law on Personal Data Protection.

The Law on
Personal Data Protection does not apply to the Bosnia and Herzegovina
Intelligence Agency.

There was some
progress on personal data protection. Overall, preparations for personal data
protection are advancing, although still at an early stage.

Statistical Annex

STATISTICAL DATA || || || || || || || ||

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

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

Basic data || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Population (thousand) || || 3 790s || 3 843 || 3 842 || 3 843 || 3 843 || 3 840e

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

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

National accounts || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Gross domestic product (GDP) (million national currency) || 1) || 12 641 || 21 836 || 24 759 || 24 051 || 24 584 || 25 474

GDP (million euro) || || 6 463 || 11 165 || 12 659 || 12 297 || 12 570 || 13 024

GDP (euro per capita) || || 1 705s || 2 906 || 3 295 || 3 200 || 3 271 || 3 392e

GDP (in Purchasing Power Standards (PPS) per capita) || || : || 6 360 || 7 318 || 7 259 || 7 274 || :

GDP per capita in PPS (EU-27 = 100) || || : || 29 || 32 || 31 || 30 || :

Real GDP growth rate (growth rate of GDP volume, national currency, % change on previous year) || || 2.4 || 6.1 || 5.6 || -2.9 || 0.7 || 1.3

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

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

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

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

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

Agriculture and fisheries || 2) || 10.8 || 9.8 || 8.9 || 8.6 || 8.3 || 8.1

Industry || 2) || 19.8 || 20.4 || 21.0 || 20.2 || 20.8 || 21.0

Construction || 2) || 6.2 || 5.9 || 6.4 || 6.2 || 5.1 || 4.8

Services || 2) || 63.2 || 63.9 || 63.7 || 65.1 || 65.8 || 66.1

Final consumption expenditure, as a share of GDP (%) || || : || 113.6 || 114.3 || 114.3 || 113.3 || :

Gross fixed capital formation, as a share of GDP (%) || || : || 28.1 || 30.6 || 24.7 || 21.7 || :

Changes in inventories, as a share of GDP (%) || || : || 1.5 || 1.6 || -0.5 || 0.3 || :

Exports of goods and services, relative to GDP (%) || || 28.2 || 37.2 || 36.8 || 32.2 || 37.4 || :

Imports of goods and services, relative to GDP (%) || || 75.5 || 68.6 || 69.6 || 55.2 || 59.1 || :

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

Industry || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Industrial production volume index (2005=100) || || 72.8e || 119.9e || 128.7e || 130.6e || 135.4e || 144.1e

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

Inflation rate || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Annual average inflation rate (CPI, % change on previous year) || 3) || 3.1 || 1.5 || 7.4 || -0.4 || 2.1 || 3.7

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

Balance of payments || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Balance of payments: current account total (million euro) || || -833 || -1 191 || -1 771 || -778 || -719 || -1 142

Balance of payments current account: trade balance (million euro) || || -3 308 || -4 142 || -4 823 || -3 410 || -3 232 || -3 629

Balance of payments current account: net services (million euro) || || 255 || 639 || 664 || 563 || 567 || 544

Balance of payments current account: net income (million euro) || || 595 || 336 || 457 || 416 || 210 || 164

Balance of payments current account: net current transfers (million euro) || || 1 626 || 1 976 || 1 930 || 1 653 || 1 736 || 1 779

of which government transfers (million euro) || || 450 || 193 || 186 || 166 || 168 || 153

Net foreign direct investment (FDI) (million euro) || || 133 || 1 540 || 695 || 185 || 205 || 327

Foreign direct investment (FDI) abroad (million euro) || || 0 || -20 || -11 || -4 || -32 || -14

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

Foreign direct investment (FDI) in the reporting economy (million euro) || || 133 || 1 520 || 684 || 181 || 174 || 313

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || 333 || 321 || 91 || : || :

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

Public finance || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

General government deficit/surplus, relative to GDP (%) || || : || 1.2 || -2.2 || -4.4 || -2.5 || -1.3

General government debt relative to GDP (%) || || 35.0 || 18.1 || 17.1 || 21.8 || 25.6 || 26.1

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

Financial indicators || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

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

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

Money supply: M1 (banknotes, coins, overnight deposits, million euro) || 4) || 1 377b || 2 931 || 2 910 || 2 836 || 3 017 || 3 163

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || 4) || 2 387b || 6 112 || 6 360 || 6 498 || 6 968 || 7 372

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

Total credit by monetary financial institutions to residents (consolidated) (million euro) || 4) || 1 707 || 6 060 || 7 419 || 7 184 || 7 436 || 7 828

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

Lending interest rate (one year), per annum (%) || 5) || : || 7.2 || 7.0 || 7.9 || 7.9 || 7.4

Deposit interest rate (one year), per annum (%) || 6) || : || 0.4 || 0.4 || 0.3 || 0.2 || 0.1

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

Effective exchange rate index (2005=100) || || : || : || : || : || : || :

Value of reserve assets (including gold) (million euro) || 7) || 1 385 || 3 425 || 3 219 || 3 176b || 3 302 || 3 284

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

External trade || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Value of imports: all goods, all partners (million euro) || || : || 7 106.1 || 8 330.2 || 6 317.1 || 6 961.9 || 7 938.4

Value of exports: all goods, all partners (million euro) || || : || 3 035.3 || 3 431.6 || 2 828.1 || 3 627.9 || 4 203.9

Trade balance: all goods, all partners (million euro) || || : || -4 070.8 || -4 898.6 || -3 489.0 || -3 334.0 || -3 734.5

Terms of trade (export price index / import price index) || 8) || : || : || : || : || : || 99.0p

Share of exports to EU-27 countries in value of total exports (%) || || : || 57.3 || 55.0 || 54.0 || 54.4 || 55.6

Share of imports from EU-27 countries in value of total imports (%) || || : || 47.8 || 48.0 || 49.1 || 45.9 || 45.4

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

Demography || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || 1.9 || -0.3 || 0.0 || -0.1 || -0.4 || -1.0p

Infant mortality rate: deaths of children under one year of age per 1000 live births || || 7.6 || 6.8 || 6.9 || 6.5 || 6.4 || 5.4p

Life expectancy at birth: male (years) || || 71.3 || 72.1e || 72.4e || 72.4e || 72.4e || 72.4e

Life expectancy at birth: female (years) || || 76.7 || 77.5e || 77.7e || 77.7e || 77.7e || 77.7e

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

Labour market || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Economic activity rate (20-64): share of population aged 20-64 that is economically active (%) || || : || : || : || : || : || :

\* Employment rate (20-64): share of population aged 20-64 in employment (%) || || : || : || : || : || : || :

Employment rate male (20-64) (%) || || : || : || : || : || : || :

Employment rate female (20-64) (%) || || : || : || : || : || : || :

Employment rate of older workers (55-64): share of population aged 55-64 in employment (%) || || : || 31.9 || 34.4 || 34.0 || 33.3 || 33 6

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

Agriculture || 9) || : || 19.8 || 20.6 || 21.2 || 19.7 || 19.6

Industry || 9) || : || 23.0 || 21.7 || 21.2 || 21.9 || 20.9

Construction || 9) || : || 9.6 || 10.8 || 10.3 || 9.1 || 8.0

Services || 9) || : || 47.5 || 47.0 || 47.3 || 49.3 || 51.5

Unemployment rate: share of labour force that is unemployed (%) || 10) || 40.0 || 29.0 || 23.4 || 24.1 || 27.2 || 28 0

Share of male labour force that is unemployed (%) || || : || 26.7 || 21.4 || 23.1 || 25.6 || 26 5

Share of female labour force that is unemployed (%) || || : || 32.9 || 26.8 || 25.6 || 29.9 || 30 5

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) || || : || 58.4 || 47.5 || 48.7 || 57.5 || 57 9

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

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

Social cohesion || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Average nominal monthly wages and salaries (national currency) || 11) || 408.0 || 645.0 || 752.0 || 790.0 || 798.0 || 816.0

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

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

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

Standard of living || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Number of passenger cars per 1000 population || || : || 171.8 || 178.8 || 180.6 || 188.6 || 191.4e

Number of subscriptions to cellular mobile telephone services per 1000 population || || 92.6s || 637.6 || 769.9 || 830.7 || 784.3 || 825.8e

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

Infrastructure || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

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

Length of motorways (km) || || : || 28 || 28 || 35 || 35 || :

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

Innovation and research || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

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

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

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

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

Environment || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

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

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

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

Road share of inland freight transport (% of tonne-km) || || 51.0 || 62.0 || 60.0 || 63.0 || 62.0 || 64.0

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

Energy || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

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

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

Primary production of hard coal and lignite (thousand TOE) || 12) || : || : || : || 3 629bp || 3 476p || :

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

Net imports of all energy products (thousand TOE) || || : || : || : || : || : || :

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

Electricity generation (thousand GWh) || || : || 13.0 || 14.8 || 15.7 || 17.1 || :

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

Agriculture || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

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

Total utilised agricultural area (thousand hectare) || 13) || : || 1 670 || 1 679 || 1 656 || 1 649 || 1 684

Livestock: cattle (thousand heads, end of period) || || : || 468 || 459 || 458 || 462 || 455

Livestock: pigs (thousand heads, end of period) || || : || 535 || 502 || 529 || 590 || 577

Livestock: sheep and goats (thousand heads, end of period) || || : || 1 104 || 1 101 || 1 125 || 1 109 || 1 086

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || || : || 724 || 737 || 734 || 693 || 689

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 14) || 1 139 || 1 001 || 1 329 || 1 343 || 1 104 || 1 119

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

Crop production: vegetables (thousand tonnes, harvested production) || 15) || 190 || 254 || 282 || 280 || 286 || 287

: = not available

- = not applicable

p = provisional

e = estimated value

b = break in series

\* = Europe 2020 indicator

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

Footnotes:

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

2)            2001
- 2009, data according to NACE Rev 1.1.

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

4)            Data
series for period January 2006 – September 2011 updated based on new
methodology.

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

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

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

8)            Based
on export and import unit value indices for 2011.

9)            2005
- 2011, data according to Nace Rev. 1.1.

10)          2001,
data from the Bureau for Employment.

11)          2011,
Currency: BAM (Convertible Mark); including data from Brcko District; net
salary.

12)          2009
- 2010, primary production of lignite and brown coal included.

13)          2007
- 2011, the utilised agricultural area consists of arable land, kitchen garden,
permanent crops and permanent grassland as cadastral data (not as UAA).

14)          2009,
including triticale and buckwheat.

15)          Including
lettuce and melons after 2009.

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

[2]               Enlargement Strategy and Main Challenges 2012-2013, COM(2012)
600.

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

[4]               Council Conclusions of March,
October and December 2011 and of June 2012.

[5]               The data refers to declarations issued by the High
Representative for CFSP and Vice-President of the European Commission on behalf
of the EU, as well as to Council Decisions on restrictive measures, between
September 2011 and August 2012. Figures do not include alignment taking place
in multilateral contexts.

[6]               The
IPA national allocation for 2012 is € 102.7 million. It includes the IPA
2012 national programme (€ 84.8 million) which will cover projects in a
variety of areas, including support for the judiciary, transport, law
enforcement, public administration reform, education, refugees and displaced
persons, and demining.

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

[8]               The State Aid Law and the Law
on the Household and Population Census.

[9]               The Finance and Budget Sector and the Sector for
other Parliamentary bodies– to provide administrative assistance to the Council
of National Minorities, the Independent Board, the Citizens Complaints Board
and the Independent Committee, and the Parliamentary Military Commissioner.

[10]             The SDP, SDA, SNSD, SDS, HDZ BiH and HDZ 1990.

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

[12]             Ill treatment of suspects by police officers some
police stations are also reported by the Council of Europe Committee on the
Prevention of Torture (CPT)-Report to the Government of Bosnia and Herzegovina-
26 April 2012.

[13]             The Mostar Court judgement ruled in May that two
schools in Herzegovina-Neretva Canton breached the Anti-discrimination Law by
dividing children based on their ethnicity. The ruling obliges the defendants
to take specific measures and actions to end discrimination by 1 September 2012.

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

[15]             Cases transferred by the ICTY for local prosecution.

\*               This designation is without prejudice to positions on
status, and is in line with UNSCR 1244/99 and the ICJ Opinion on the Kosovo
declaration of independence.

[16]             According to the Law on Fiscal Council in Bosnia and
Herzegovina, the Entities should implement provisional budgets until a Global
Framework on Fiscal Policies is finally agreed and adopted by the Fiscal
Council.

[17]             Four of the ten Cantons adopted
legislation on vocational education and nine on higher education.

[18]             Only three out of the ten Cantons have a legal
framework that regulates science and research.

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