Source: EURLEX
Language: en
Format: md

*|*

# 52013SC0415

**COMMISSION STAFF WORKING DOCUMENT BOSNIA AND HERZEGOVINA 2013 PROGRESS REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2013-2014 /\* SWD/2013/0415 final \*/**

  

TABLE OF CONTENTS

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

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

1.2........ Context 3

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

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

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

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

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

3........... Economic criteria. 22

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

3.2........ The capacity to cope with
competitive pressure and market forces within the Union. 27

4........... European standards. 29

4.1........ Internal market 29

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

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

4.1.3..... Free movement of capital 33

4.1.4..... Customs and taxation. 33

4.1.5..... Competition. 35

4.1.6..... Public procurement 35

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

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

4.1.9..... Education and research. 38

4.1.10... WTO issues. 39

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

4.2.1..... Industry and SMEs. 40

4.2.2..... Agriculture and fisheries. 40

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

4.2.4..... Transport policy. 44

4.2.5..... Energy. 45

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

4.2.7..... Financial control 47

4.2.8..... Statistics. 48

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

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

4.3.2..... Money laundering. 51

4.3.3..... Drugs. 52

4.3.4..... Police. 52

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

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

1.
Introduction
1.1.
Preface

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

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

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

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

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

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

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

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

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

1.2.
Context

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

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

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

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

1.3.
Relations between the EU and Bosnia and
Herzegovina

Bosnia and Herzegovina participates in the Stabilisation and
Association Process.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.
Political criteria

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

2.1.
Democracy and the rule of law

Constitution

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

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

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

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

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

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

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

Parliament

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

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

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

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

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

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

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

Government

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Public administration

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

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

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

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

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

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

Ombudsman

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

Civil
society

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

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

Judicial
system

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fight
against corruption

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

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

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

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

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

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

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

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

Fight against organised crime

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

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

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

2.2.
Human rights and the protection of minorities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Respect
for and protection of minorities, cultural rights

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

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

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

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

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

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

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

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

2.3.
Regional issues and international obligations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3.
Economic criteria

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

3.1.
The existence of a functioning market economy

Economic policy essentials

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

Macroeconomic
stability

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

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

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

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

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

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

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

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

Interplay
of market forces

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

Market
entry and exit

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

The legal
system

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

Financial
sector development

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

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

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

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

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

Existence of a functioning market economy

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

Human and
physical capital

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

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

Sector
and enterprise structure

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

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

State influence on competitiveness

No progress has
been made in reducing the state’s influence in the economy. Direct budget
subsidies to industry and agriculture increased to 1.6% of GDP in 2012, up
from 1.5% in the previous year. In the first quarter of 2013, they decreased
21.3% year on year. Despite the establishment of a state aid authority and the
appointment of a secretariat, both are not fully operational as implementing
legislation and budget remains to be adopted. Transparency of all state aid
granted in Bosnia and Herzegovina is not yet ensured as the country fails to
provide comprehensive state aid inventory consolidated at the country level.
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, in spite of some slight decline of trade
openness in 2012. Total trade (the sum of the volume of exports and imports of
goods and services) fell to 84.9% of GDP in 2012, as compared with 87% in 2011.
The EU continues to be the country’s largest trading partner. Its share in
total exports has decreased marginally to 59.8%, while the share in imports has
grown to 47.3%. The shares of the other main trading partner -the CEFTA block-
fell slightly to 28.7% of total exports and 22.2% of total imports. In 2012,
the real effective exchange rate based on the country’s 20 largest trading
partners appreciated slightly by 0.4% indicating some marginal price competitiveness
losses. The share of FDI stocks from the EU to total FDI remained broadly
unchanged and stood at 44.1% in 2012. Overall, the already high level of
trade integration with the EU increased further.

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). 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 preparation.

4.1.
Internal market
4.1.1.
Free movement of goods

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

In the field of
standardisation, the Institute for Standardisation of Bosnia and
Herzegovina (BAS) has adopted 77% of the European standards (ENs) required for
membership of the European Committee for Standardisation (CEN) and the European
Committee for Electrotechnical Standardisation (CENELEC). The BAS adopted 2 806
European standards (ENs) as national standards, bringing the total to 16 467
ENs. The Enquiry and Notification system (ENP system) and Standards Management
and Information System are established and fully operational. The technical
competence of BAS personnel on standardisation and standardisation information
systems has significantly improved. BAS performed the third annual supervisory
check on its quality management system. BAS continues to work on raising public
awareness about the importance of standardisation. No conflicting ex-Yugoslav
mandatory standards were withdrawn.

There were no
developments on conformity assessment.

In the field of
accreditation, the Institute for Accreditation of Bosnia and Herzegovina
(BATA) signed the European co-operation for Accreditation Bilateral Agreement
(EA) for testing and calibration laboratories and inspection bodies. BATA
became a full member of International Laboratory Accreditation Co-operation
(ILAC). Following the signature of an EA Bilateral Agreement, BATA joined the
ILAC Mutual Recognition Arrangement in the fields of calibration, testing, and
inspection bodies.

BATA developed
credible and internationally recognisable schemes in the area of accreditation
of medical laboratories, product certification bodies, bodies certifying
quality and environment management systems and bodies certifying persons.
However, still no request for accreditation has been submitted. BATA personnel
were trained in the above-mentioned fields. BATA accredited a total of 57
conformity assessment bodies. The Law on Accreditation still needs to be
amended to bring it in line with the acquis. The role of accreditation
in authorising conformity assessment bodies at both State and Entity levels
still needs to be ensured.

In the field of
metrology, the Institute of Metrology of Bosnia and Herzegovina (IMBiH)
became a member of the European Metrology Research Programme and associate
member of the Euro-Asian Co-operation of National Metrology Institutions
(COOMET). IMBiH representatives participated in the work of European technical
committees on metrology (EURAMET, WELMEC, BIPM, and IOML). The IMBiH also
participated in four inter-comparisons. Its laboratory capacity was increased
and its areas of measurement were extended to volume, pressure, electrical
quantities, time and frequency. The IMBiH performed the third annual
supervisory check on its quality management system. An external audit of the
quality of the Laboratory for Mass and Related Quantities related to the
technical evaluation of laboratory activities in the field of pressure was
performed.

Intensive
training for staff continued. IMBIH personnel upgraded their expertise by
participating in European development programmes and co-operating with EU
Metrology Institutes. The Institute published the first edition of the Official
Gazette of the Institute and continued to raise awareness of the importance of
metrology. A development strategy for the metrology system, the new Law on
Metrology, merging the existing legislative framework and laying the foundation
for implementation of the acquis and various by-laws, has yet to be
adopted. Co-operation and co-ordination between the IMBiH and the metrology
institutes of the Entities need further improvement.

The Market
Surveillance Agency and inspection bodies of the Entities and of the Brčko
District of Bosnia and Herzegovina has initiated, implemented and coordinated
the activities of proactive and reactive market surveillance and
projects. As part of proactive surveillance, 15 projects were carried out. In
reactive surveillance, 42 cases were fully completed. The Agency undertook 236
inspection controls, after which 9 494 unsafe products were withdrawn from
the market and 4 447 destroyed.

Businesses have
brought 1 218 products into compliance with safety requirements by order
of inspections and 15 unsafe products were recalled from consumers. The Agency
carried out 10 training sessions for inspectors of the Entities and the Brčko
District. Co-ordination and co-operation between the Agency and Inspections of
the Entities and the Brčko District continued through the regular work of the
Coordination Board.

To inform the
public about unsafe products on the market, the Agency published 74 internet
notifications with a description of the risk and instructions for consumers. It
also issued two bulletins about unsafe products found on the market and
translated and published 39 weekly RAPEX notifications about dangerous products
found on the EU market. It has participated in the work of the General Assembly
of Product Safety Enforcement Forum of Europe (PROSAFE) as a full member. In
the role of observer, it took part in joint actions of surveillance of products
for children, carried out by EU Member State market surveillance bodies.

Representatives
of the Agency attended seven Administrative Co-operation Working Group meetings
as observers. The Agency has signed a memorandum of understanding on market
surveillance and consumer protection with Hungary’s administration for consumer
protection. Full alignment of the Law on market surveillance with the acquis
remains to be achieved.

There were no
developments as regards the ‘New and Global Approach’ and the ‘Old Approach’
product legislation.

On consumer
protection, the technical capacity of the relevant State-level and Entity
institutions and their public information activities both grew. Relations
between the government and non-governmental organisations improved. The report
on the execution of the 2012 State-level annual consumer protection programme
was adopted. The 2013 State-level annual consumer protection programme as well
as a new draft State-level Consumer Protection Law aligned with the acquis
have yet to be adopted.

The Ombudsman’s
Office for Consumer Protection is fully staffed. In 2012, the Ombudsman handled
317 cases, of which 295 were resolved. The Ombudsman delivered 10 expert
opinions, provided 664 pieces of legal advice and answered 1050 requests for
information. The Ombudsman issued recommendations and guidelines in the
telecommunications sector, heating and water supply.

Overall, there has been some progress in the area of free movement of goods
and consumer protection. Further efforts are needed to adopt a legislative
framework harmonised with the horizontal acquis and to continue aligning
with the product-specific acquis. It remains essential to strengthen
institutional capacity and coordination between relevant institutions. Prioritisation
of legal alignment and related capacity-building still remains to be carried
out in accordance with market needs. Major steps need to be taken to achieve a
fully-functioning single economic area. Preparations in this field are
moderately advanced.

4.1.2.
Movement of persons, services and right of
establishment

As regards the movement of persons, Bosnia and
Herzegovina concluded an agreement on employment of its citizens in Slovenia. An agreement was also reached on the exercise of rights to
unemployment benefits between the Federation Employment Institute, the
Republika Srpska Employment Institute and the Brčko District Employment
Institute. This could be a first step towards coordination of social security
within Bosnia and Herzegovina. There are still considerable differences in
labour legislation and social security systems between different levels of governments
that remain an obstacle to the movement of workers within the country.
Alignment with the EU standards remains at a very early stage.

There were no developments on the right
of establishment and on the freedom to provide cross-border
services. Preparations for aligning with the Services Directive have not
yet started. There is no distinction between the treatment of EU operators
providing cross-border services and those providing services through being
permanently established in the country.

In the field of postal services, the
Agency for Postal Traffic issued one more licence for private courier services,
bringing the total number to 13. A postal strategy at State-level does not
exist. The new State-level Law on Postal Services aiming to achieve further
harmonisation with the acquis was not adopted. The universal service
obligation is still 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 and continues to undermine
legal certainty. Administrative capacity at the State-level Ministry of
Transport and Communications regarding postal services remains weak.

On financial services, the
Federation has amended and the Republika Srpska has adopted a new Law on the
Banking Agency to align them with the international regulatory framework on the
exchange of information and protection of confidentiality. Both Entities have
adopted implementing regulations defining content and deadlines for reporting
by banks, leasing companies and micro-credit organisations. Reporting between
the Entities is harmonised. The coordination of banking supervision between the
Entities remained satisfactory. The Entities’ banking supervisory agencies
extended temporary measures on loan repayments until the end of 2013. Stress
tests are being carried out continuously. Capitalisation of banks remains
adequate. Guidelines for establishing a list of systemically important banks
were adopted.

Basel II recommendations on banking laws
and Basel Banking Supervision Committee standards are yet to be fully
implemented in both Entities. The revised Strategy for the introduction of the
International Convergence of Capital Measurement and Capital Standards — Basel
II was adopted by both Entities in February. The Federation amended the laws on
banks and leasing in order to align it with the State-level anti-money
laundering law. Republika Srpska adopted amendments to a number of decisions to
align them with the same law and at the same time amended its Law on Banks in
the section regulating interim management.

The Law on the Protection of Consumers of
Financial Services in the Federation has been drafted, but is yet to be adopted
after completion of the public consultation procedure. Despite the existing
legal framework, the Ombudsman for financial services is not yet operational in
the Federation. Memoranda of understanding with supervisors of foreign banks
present in the country are yet to be signed. Further alignment with the acquis
is required.

Both Entities
adopted implementing legislation on insurance services, on the
conditions for establishment and operation of brokerage firms’ branch offices
in another Entity and on marginal solvency. The Federation also adopted a
decision on temporary funding of the protection fund and Republika Srpska
adopted a rulebook on the calculation of the minimum capital of brokerage firms
and implementing guidelines on prevention of money laundering and financing of
terrorism. A controversial draft Federation Law on compulsory traffic insurance
was introduced into parliamentary approval procedures on the proposal of the
Federation Ministry of Justice, despite serious objections provided by the
Insurance Agencies at State and Federation level on its acquis
incompliance.

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. There are still differences between the Entities’ legislation, including
the penalties imposed in case of serious offences. The Administrative Board of
the Insurance Agency of Bosnia and Herzegovina has not been re-appointed by the
Council of Ministers since June 2012. This has led to the
inability of the Administrative Board to perform its role under the law, blocking legislative progress. The regulatory and enforcement
powers of the Insurance Agency of Bosnia and Herzegovina remain to be
reinforced and clarified. The Insurance Agency
published in august the annual statistics on the insurance market in Bosnia and
Herzegovina with improved indicators on the situation in the insurance sector.
However, the statistics, reporting and data exchange between the Entity
agencies and the Insurance Agency of Bosnia and Herzegovina remain
insufficiently developed. The Federation and
State-level have not yet established arbitration capacities.

On capital markets, the Federation
amended its Law on the Securities Market to mandate prior approval by the
Securities and Exchange Commission for the increase or reduction of the equity
share of natural and legal persons within a trading agent. It also amended
several rulebooks regulating participation on the market, reporting
requirements and deadlines, and requirements for the auditing of investment
funds’ financial statements.

The Entities’ legislative frameworks are
not fully aligned with the acquis nor fully harmonised with each other.
Republika Srpska has amended its Law on takeover of joint stock companies while
the same laws are yet to be adopted by the Federation and the Brčko District.
The Brčko District has not yet adopted the new Law on the securities market.
Regulation and oversight over the securities market remain fragmented and
participants in the securities market with their head office in one Entity
still need to obtain an additional licence to operate in the other.

The Federation initiated the drafting of
new company law that would enable simplification of the business
registration process. The Republika Srpska company law has been amended in
order to decrease the initial capital for establishing a limited liability
company to at least BAM 1 and to create legal precondition for transforming of
the tax debt into the share of the company’s ownership. Republika Srpska
adopted a new Law on business registration to streamline and simplify the
registration procedure and to prepare the environment for the introduction of a
one-stop-shop system for business registration. The new Law will be applied as
of 1st December 2013.

The legislation on corporate accounting and
auditing is broadly aligned with the acquis and almost fully
harmonised between the Entities. The Entities apply International Financial
Reporting Standards (IFRS) to all companies, irrespective of their size. In
Republika Srpska, IFRS may be used by small and medium-sized companies if they
so provide in their accounting policies. Companies with public responsibility
and those listed at the stock exchange are obliged to fully apply IFRS.

The Federation Ministry of Finance adopted
a rulebook on licensing of auditors and auditing companies that conditions the
issuance of licences by payment of a fee for membership in the Chamber of
Auditors, ensuring adequate funding of the Chamber’s operations. The Federation
Chamber of Auditors recruited a full-time quality assurance supervisor and the
Management Board of the Chamber appointed members of the Committee for Audit
Standards and Ethics. The rulebooks on supervision and methodology of quality
are under preparation but remain to be adopted. 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 Federation Government has not yet appointed members to the
independent Federation’s Public Oversight Board.

Overall, the country made very limited progress on the movement of persons,
services and right of establishment. Some progress was made on company law,
accounting and auditing. There was limited progress in aligning financial
services legislation. No progress has been made in establishing a legal
framework for providing universal postal services across the country.
Preparations are still at an early stage.

4.1.3.
Free movement of capital

On
free movement of capital, Bosnia and Herzegovina continues to apply
relatively liberal rules on inward capital flows. 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, there is a lack of coordination throughout the country for designing
and implementing legal reforms. Capital markets are not fully functional. Creation
of a single economic space would be the key to attracting more foreign
investment. Overall, foreign direct investment inflows increased in 2012 and
reached 3.8% of the country’s GDP, though still lower than before the global
crisis. Investment increased mainly in non-financial sectors, most notably in
the manufacturing of base metals and wholesale trade. Restrictions on foreign
direct investment continue to apply in the media, where a 49% limit has been
imposed on foreign capital.

Within the central bank,
Bosnia and Herzegovina has a modern payment system for giro clearing and
real-time gross settlement operations. In 2012, the value of transactions in
these two categories increased by 6.4% compared to 2011. Within the commercial
banking system, intra-bank transactions made up 66% of the total number and 52%
of the value of transactions.

Overall, there was no progress regarding free movement of capital.
Preparations in the area of free movement of capital remain moderately
advanced, and there needs to be further alignment with the acquis,
ensuring countrywide harmonisation and creating a single economic space.

4.1.4.
Customs and taxation

The customs tariff was updated in line with the 2013 version
of the EU Combined Nomenclature. In line with the Interim Agreement, Bosnia and
Herzegovina reduced all customs duties to 0% for all industrial products. Rules
of origin continue to be used in accordance with the Interim Agreement. Bosnia
and Herzegovina signed the Regional Convention on Pan-Euro-Med preferential
rules of origin but still needs to ratify it. Intellectual property rights
(IPR) enforcement laws were adopted. Operational capacity on customs IPR
enforcement should be improved. The draft Customs policy law has to be adopted
and its implementing regulation needs to be finalised and adopted.

The Indirect
Taxation Authority (ITA) has implemented simplified customs procedures to speed
up the clearance procedure on entry and exit of goods. The ITA introduced local
clearance at import and the status of authorised consignor and authorised
consignee in the customs transit procedure, accelerating customs clearance
procedures and reducing expenses linked to the import and export of goods. ITA
is drafting secondary legislation for the implementation of Authorised Economic
Operator (AEO) status to further improve relations between customs and trade.
This will enable the country’s economic operators to be recognised as reliable
partners in the global supply chain.

The operational
capacity of customs to apply simplified procedures and security measures needs
to be improved with a focus on audit principles, risk analyses and by
introducing the concept of AEO. A unit for risk analysis has yet to become
operational. The lack of a fully-developed risk analysis results in frequent
and poorly targeted and therefore inefficient customs controls. The capacity of
the customs laboratory needs to be strengthened.

Bosnia and
Herzegovina made limited progress in preparing for accession to the Common
Transit Convention. The implementation of a new customs declaration processing
system has not yet started, although a decision for the relevant system
(Asycuda) has been made. A module for cross-checking financial data of
taxpayers was added to the VAT system and improved targeted audits. The eVAT
module for electronic submission of return sheets was developed, but has not
yet been implemented, pending secondary legislation. Also, business processes
should be designed for all types of tax.

In the area of
indirect taxation, the Law on value added tax (VAT) and Law on Excise
and legislation on free zones have yet to be aligned with the acquis. In
the area of direct taxation, the Federation Tax Administration Law has been
amended to change the sequence of tax collection, whereby the basic debt is
paid first and then the compulsory collection charge, penalties and interest
rate. Regarding the income of persons from dependent activities, the Federation
Income Tax Law has been amended to exceptionally define as tax residents of the
Federation residents of Republika Srpska and of the Brčko District, if their
employer is a resident of the Federation. Amendments to the Federation Law on a
Unified System for Registration, Control and Collection of Contributions have
abolished the obligation to submit an annual registration of contributions
data.

Republika
Srpska has adopted a new Contributions Law, which provides for redistribution
of contribution rates, whereas the cumulative contributions rate has remained
unchanged. The new Republika Srpska Law on Games of Chance was adopted to
improve the monitoring system, prevent money laundering and financing of
terrorist activities. Republika Srpska has also adopted a law that provides for
special methods to settle tax debts of companies that suffered from the
economic and financial crisis, such as by postponing the payments due up to one
year. The rulebook on the enforcement of the Profit Tax Law has been amended to
align it with amendments to the Republika Srpska Profit Tax Law. The Brčko
District Profit Tax Law has been amended to align it with relevant Entity
legislation and to regulate additional benefits for legal persons in transition
from a cash to an accrual basis, when assessing the tax base and incentives for
investment and export. Fiscal cash registries are still to be introduced in the
Brčko District.

The exchange of
tax information between the Entities has improved. Rules and procedures on
direct taxation should be further harmonised. The enforcement of legislation at
all levels remains a priority. There is at present no cross-checking of data
between tax institutions, nor joint audits.

Regarding ITA’s
operational and administrative capacity, its Governing Board adopted a new
rulebook on the authority’s internal organisation. The rulebook needs to be
amended to address the re-design of jobs. In the tax administration,
operational jobs should be replaced by enforcement, audit and service jobs.

Overall, progress was made in the area of customs and taxation. There were
positive developments implementing simplified procedures, modernising IT
systems and enhancing the legislative framework for the collection of direct
taxes. Substantial efforts are required to align legislation with the acquis
to ensure proper implementation of the Interim Agreement, to re-design jobs and
to provide services for businesses and taxpayers. Preparations in this area are
at an early stage.

4.1.5.
Competition

Regarding the area of anti-trust and mergers, Competition Law
has yet 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 eight antitrust decisions and 16 merger decisions and issued 25
expert opinions. Eight mergers were prohibited, the other eight were authorised
unconditionally. The CC imposed fines totalling about €1.8 million on companies
that infringed competition rules. The Court of Bosnia and Herzegovina rendered
six rulings initiated by the parties, confirming the final decision of the CC.
The CC’s staff requires further training to improve the authority’s investigative
capacity.

Amendments were
adopted regarding the Entities’ Laws on Public Undertakings enabling the
application of the EU’s competition principles to public undertakings and
undertakings to which special and exclusive rights were granted.

The State
Aid Council was established and held its first sessions. The Chairman of
the Council resigned in April since the Council and its Secretariat were not
operational due to a lack of financial resources. The financing of the
authority at the State-level and by the Entities has been secured in the
meantime. The appointment of a new chairman is required to avoid blocking of
operations by the Council. Rules of procedures and a rulebook on the internal organisation
of the Secretariat were adopted. The Secretariat is still not fully
operational. A by-law on the procedures and the sample forms for the submission
of notifications and for the monitoring of state aid was adopted. A by-law
establishing the criteria for granting state aid which is not fully in compliance
with the acquis is in the process of being adopted. The inventory of aid
schemes instituted before the establishment of the State Aid Council has been
completed. The aid schemes have not yet been aligned with the Union’s
competition rules. Transparency of all state aid granted in the country has not
yet been ensured.

Overall, some progress was made in the area of competition. Further efforts
have to be made to improve the current anti-trust legislation and to improve
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 for effective control of all state aid
granted in the country. Preparations in this area remain at an early stage.

4.1.6.
Public procurement

Legislative alignment in the public procurement area has not
advanced and remains to be addressed, particularly as regards alignment with EU
Directives 2004/17 and 2004/18.

The regulation
of the concessions system is still fragmented due to different legislation at
the State, Entity, Cantonal and District levels. This contributed to legal
uncertainty, high transaction costs and fragmented national economic space. The
Public Procurement Agency (PPA) recruited two new employees and the Procurement
Review Body (PRB) is awaiting new appointments or renewals of its members’
mandates. While administrative capacity remained low, given the highest number
of cases in the region, the rate of resolved appeals was satisfactory. The
online publication of PRB decisions has not resumed. The PPA has been active in
organising training and upgrading its IT system.

Overall, preparations in the area of public procurement are at an early
stage. The quality, integrity and transparency of internal operations of PPA
and PRB need to improve substantially across the country.

4.1.7.
Intellectual property law

The functioning of the Institute for Intellectual Property improved
further. Training and awareness-raising efforts on the importance of
intellectual property rights continued.

With regard to
the copyright and neighbouring rights, the Institute received a total of
five applications for a licence for collective management of copyright and
related rights and processed five of them. It revoked the authorisations that
had been granted to four collective management societies after the entry into
force of the new copyright law. For the time being, the system of collective
management works well enough but there is room for improvement. A total of 32
copyright works and related rights entered the Institute’s records and
certificates of deposit and registration were issued.

Regarding industrial
property rights, the Nairobi Treaty on the Protection of the Olympic Symbol
has been ratified, as well as the Lisbon Agreement for the Protection of
Appellations of Origin and their International Registration and the Madrid
Agreement for the Repression of False or Deceptive Indications of Source on
Goods. The International Convention for the Protection of New Varieties of
Plants (UPOV Convention) has yet to be ratified. The Institute for Intellectual
Property received 60 (national) and 263 (extension) patent applications and
processed 245, including some from previous years. The Institute has started
issuing patent specifications at the request of the patent holder, as well as
supplementary protection certificates for medicinal products intended for
humans or animals or for plant protection products. As for trademarks, the
Institute received 730 applications and processed 1 057, including many
from previous years. The Institute received 26 industrial design applications
and issued 23 decisions granting industrial designs. There were no applications
for protection of geographical indications. The Board of Appeal of the
Institute received 23 new applications and completed five appeal proceedings.
IT equipment was improved.

Concerning enforcement,
the holders of intellectual property rights filed 39 requests for customs
measures on the basis of protected trademarks. Decisions were issued on 35
requests whereby customs measures were approved in accordance with the
provisions of the Trademark Law, and four requests were rejected. A total of 17
decisions were issued on temporary confiscation and seizure of goods. Training
continues to be conducted for the Indirect Taxation Authority (ITA) staff. A
database of rights holders and trademarks designed for customs protection
measures has been published on the ITA intranet. ITA seized counterfeit goods
valued at about €14 000. In two out of eight cases, the goods were
destroyed, while in six cases, a lawsuit was filed and is awaiting a court
verdict. The State Investigation and Protection Agency (SIPA) and Entity
Inspectorates intensified their work in the field on intellectual property
rights. SIPA seized counterfeit goods valued at about €180 000. It
submitted 24 reports on criminal activities to the relevant Prosecutor’s
Office. The Republika Srpska and the Federation Inspectorates conducted a media
campaign to raise awareness about the importance of intellectual property
rights protection and informed business entities about new legislation and
inspection activities.

Republika
Srpska market inspectors conducted 95 inspections on the protection of
intellectual property. Irregularities were detected in 21 cases and the
business entities were issued with 15 decisions to remedy irregularities. Goods
were seized in one case and four banning measures were imposed. Three minor
offence warrants were issued, worth a total of €5 000, and two minor
offence reports were filed. The Federation market inspectors conducted 593
inspections related to the protection of copyrights and related rights
(software licences). Irregularities were detected in 180 cases. In all, 24
offence warrants were issued, worth a total of €22 250. A reliable system
for collecting, analysing and exchanging data among the various institutions
involved is still lacking. An enforcement strategy is still not in place and
enforcement as well as coordination among enforcement bodies at various levels need
to be improved.

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

4.1.8.
Employment and social policies, public health
policy

Regarding employment policy, neither the
Federation nor the Brčko District adopted operational plans to implement Bosnia
and Herzegovina’s Employment Strategy 2010-2014. The Republika Srpska
government adopted an operational plan for 2013. Employment stagnated through
2012. Participation in the labour market continued to decline (53.9% in 2012)
as did the employment rate (down to 38.5% in 2012). Unemployment
rose slightly further to 28.6% in 2012. About 80% of those unemployed are
long-term unemployed. Youth unemployment remains at alarming levels (at 63.1%
in 2012).

The three Institutes for Employment in
Bosnia and Herzegovina (RS, FBiH and BD) signed an agreement on the right of
monetary compensation for unemployed persons. The agreement regulates between
them the conditions and harmonised procedures for obtaining rights on monetary
compensations.

Labour market challenges remain
considerable and are becoming more serious. The Entity governments lack the
capacity to implement active labour market measures. The labour offices at
municipal level remain overloaded with the administration of health insurance
for the unemployed. This prevents them from performing other tasks to support
job seekers (e.g. job counselling). The lack of coordination among labour
institutions in the country remains a concern.

Concerning social policies, there was no significant development regarding labour law and health
and safety at work. Labour inspectorates remain understaffed and unable to
perform their tasks.

in the field of social dialogue, the Government and Assembly of the Brčko District signed a
co-operation agreement with the Association of Employers, the Chamber of
Commerce and the Trade Union, with the aim of improving the business and
employment environment in the District. Social dialogues at Entity level ran
smoothly. The Economic and Social Council has not been established at
State-level because of the unresolved issue of representation of one of the
social partners.

On social
inclusion and protection, vulnerable groups (children, Roma and returnees)
are not adequately protected, whether at State or Entity level, or in the Brčko
District. Republika Srpska adopted a revised legislative framework to improve
the overall social protection system. The Brčko District is preparing a revised
legislative framework. The Federation is revising legislation with the aim of
introducing a minimum level for social benefits. Social inclusion strategies
remain to be adopted in Republika Srpska and at State-level.

Social
protection remains largely inefficient, despite a relatively high level of
public expenditure. Pension systems are facing financial difficulties, as they
are coping with privileged pensions. In May, the Federation adopted a Law on
the reform of privileged pensions, allowing reform to start.

Regarding public
health policy, the reform of the payment system in secondary healthcare was
further developed. Republika Srpska started implementing a new payment system
based on the model of Diagnostic Related Groups, improving the efficiency and
quality of secondary healthcare. The Federation is preparing for the
implementation of the new payment system. However, activities to improve
transferability of health funds have yet to be undertaken. There was some
progress in developing a reporting system on National Health Accounts in line
with WHO and EUROSTAT requirements. There were no steps to reduce fragmentation
of the entire health system and to harmonise reforms. The implementation of
Entity health strategies is slow. Regarding eHealth, a system for electronic
health records and electronic prescriptions for medicines was established in
Republika Srpska.

In the field
of tobacco control, a report on the global tobacco epidemic in 2013 was
submitted to the WHO. The results of the Global Youth
Tobacco Survey will inform policy makers on tobacco consumption among young
people in the country.

In the field
of communicable diseases, the Council of Ministers adopted the 2011-2016
Action Plan for implementation of an HIV and AIDS Response Strategy in Bosnia
and Herzegovina. There were some developments in setting up an early warning
system. A surveillance and control system for tuberculosis (TB) was introduced
at State, Entity and Cantonal/regional level. A more efficient system of
management for TB, including monitoring and evaluation, was introduced, as well
as monitoring of medicines. An Action Plan for Preservation of the Status of a
Country without Poliomyelitis 2012-2015 was adopted by the Council of Ministers
of Bosnia and Herzegovina. A State-level Commission for Verification and
Control of Measles and Rubella was established.

Regarding
blood, tissues, cells and organs, a set of
implementing legislation regulating the fields of organ transplantation, tissue
banks and stem cells was adopted at Entity-level. Initiatives to propose
legislation at State-level continue to be blocked undermining efforts to put in
place a much-needed legislative framework to regulate transplantation
activities.

In the field
of mental health, Bosnia and Herzegovina established a network of
community services, and is now making efforts to develop staff competencies.

In the field
of drug abuse prevention, the Federation adopted a Plan of Action
against drug abuse 2012-2013. In the field of nutrition, a policy to
improve the nutrition of children under five was adopted in Republika Srpska. In the field of cancer screenings, further steps are needed
to improve reporting on cancer and implementation of EU cancer screening
guidelines. As for rare diseases, in Republika
Srpska, access to financing for treatment of rare diseases was approved.

Overall,
there was very little progress on employment and social
policies. The same applies to social protection. Little progress was made in
public health regarding implementation of the new payment system and the
development of the reporting system on National Health Accounts. In several
areas, public health legislation and action plans still need to be implemented,
and further efforts need to be made on social inclusion and protection and on
employment policy. Legislative approximation still needs to be strengthened.

4.1.9.
Education and research

The Conference of
Ministers of Education, foreseen to be held every second month, met
twice since March 2012. Coordination of ministers in the Federation was not
effective, since there are two coordination bodies acting in parallel, with the
Federation Coordination of Ministers of Education only coordinating ministries
in six Cantons. There was de facto coordination among the ministers of
the Cantons implementing curricula in the Croat language. An inter-sectoral
commission for the preparation of the Action Plan for the implementation of the
Baseline Qualifications Framework in Bosnia and Herzegovina was established
with a mandate for only one year.

In Republika Srpska, two higher education
institutions were accredited, and another six are awaiting accreditation. In
the Federation, the Tuzla Canton amended its Higher Education Law to prepare
for accreditation.

The Centre for Information
and Recognition of Higher Education Qualifications issued new guidelines on criteria
for validation and recognition of international higher education
qualifications. There are still different practices across the country.
Following the adoption of the Bosnia and Herzegovina Framework Law on Higher
Education, all Cantons have completed the process of harmonisation. No progress
was made regarding harmonisation of legislation for pre-school education and
vocational education and training. The legislation for Vocational Education and
Training has yet to be adopted by four Cantons and harmonisation of pre-school
education legislation has yet to be adopted by three Cantons.

The Federation government
adopted two strategic documents, ‘Strategic Directions for the Development of
Higher Education’ and ‘Measures for Prevention of Corruption in Higher
Education’. Implementation has not yet started.

The proportion of children
attending early childhood education has continued to increase and reached 13%
in 2012, while the participation of Roma children stood at 2%. As for primary
and secondary education, 69% of Roma children were attending primary school and
23% were attending secondary school.

There has been some progress in the area of
culture. In July 2013 Bosnia and Herzegovina signed a memorandum of understanding
establishing its full participation, as from the budget year 2013, in the MEDIA
2007 Programme. Very little progress was made in the area of research and
innovation. Participation in the Union research programme has slightly
improved but too little actions were taken to strengthen the capacity on
research and innovation at national level. In particular the level of
investment in research continues to stagnate at a very low level of GDP.

With respect to participation in the
framework programme (FP7), efforts to promote co-operation under FP7 were
stepped up with support from the Austrian Development Agency. This resulted in
a higher number of submissions and selected projects but overall the success
rate (about 13%) is still very low. The administrative capacity is very weak
and there is a serious lack of coordination between the different Entities
involved in research and other stakeholders and Ministries (economy, social
development and education). Staffing at all levels of the institutions of
Bosnia and Herzegovina as well as the public bodies is very weak. Participation
in COST and EUREKA was good. Preparations for participation in the next EU
research and innovation programme Horizon 2020 started.

With respect to integration into the
European Research Area, very few actions were taken. The increase in the level
of investment in research was minimal and partial. In addition, reliable
statistics to establish expenditure on research from both the public and
private sectors are still missing. The research infrastructure is very weak.
Some actions on mobility of researchers to address the diaspora were taken.
With respect to the Innovation Union, some work on good practices and
instruments for innovation started.

Overall,
alignment with the European standards in education is at an early stage. The
development of education in the Federation is hampered by the fact that there
has been little coordination at ministerial level. With
respect to research and innovation some actions in line with EU policy were
taken but too little in particular in view of co-operation under Horizon 2020.

4.1.10.
WTO issues

Bosnia and Herzegovina has made major progress in the negotiations
for its accession to the World Trade Organisation (WTO), so that the process
could possibly be completed by the WTO Ministerial Conference in December 2013.
The multilateral negotiations have almost been completed. The updated
Legislative Action Plan was submitted to the Working Party Members in July.
Bosnia and Herzegovina is seeking to complete the remaining bilateral market
access negotiations with Panama, Brazil, Ecuador and Ukraine on the basis of
final offers submitted in August 2013

4.2.
Sectoral policies
4.2.1.
Industry and SMEs

There has been no progress on industrial policy. The State-level
coordination, a country-wide strategy and statistics remain to be established
for the harmonised implementation of the policy measures by the Entities.

Regarding SME
policies, there is no official definition of SMEs at the State-level; the two
entities use their own SME criteria based on Entity laws. Bosnia and
Herzegovina has not yet introduced regulatory impact analysis (RIA). Republika
Srpska introduced a draft of a new SME Law which aims to harmonise SME
definitions with the acquis. It incorporates the Small Business Act
principles and clarifies competencies by improving its coordination with local
development agencies.

Bosnia and
Herzegovina has made little progress in implementing the Small Business Act
(SBA). The formally established
SME consultative committee, bringing together all the key actors in SME policy,
is still not yet fully operational. The SME Council for Development and
Promotion of Entrepreneurship continued to be inactive. Some reforms have been
initiated towards introduction of a countrywide unified business register and
one-stop shops to simplify doing business in both Entities. However, the
business registration and start-up process remains cumbersome and costly. No
steps to remedy this have been recorded since 2009. The issue of double
registration has not been solved. New enterprises are still required to
register with the local court and with the municipality and to take care of all
notification procedures themselves, although there are simplified procedures
for craft registration.

The policy
framework for business support services remains underdeveloped. The State-level
SME strategy mentions business support services, but no policy has been
implemented. Regional and local agencies receive financial support from a range
of donors and the local public sector, but the overall choice and quality of
SME support services is still limited.

Republika
Srpska continued with the adoption of by-laws for tourism and the catering
industry. Similar legislative harmonisation has yet to follow in the
Federation. The Federation strategy on tourism development for 2008-2018 has
not yet been adopted.

Overall, there was little progress in the area of industrial and SME
policies. A comprehensive countrywide industrial policy and SME strategy have
still to be adopted. The regulatory environment remains complex and the
regulatory burden on SMEs heavy. Enterprises continue to face obstacles and
administrative barriers to conducting business across Entities. Policy actions
have been fragmented and uncoordinated. Attempts to move towards greater
coordination have not yet succeeded in bringing about any significant results.

4.2.2.
Agriculture and fisheries

Regarding agriculture and rural development policy,
a countrywide rural development strategy and State-level Laws on Wine and on
Organic production have not yet been adopted. Implementation of the State-level
strategic plan and the harmonisation programme for agriculture, food and rural
development remains pending. Harmonisation of Republika Srpska’s rural
development strategy and action plan and the Federation’s harmonisation
programme for agriculture, food and rural development with the State-level
framework still remains to be done. The Federation’s Strategy for agriculture
and rural development is pending. Channels for coordination at State-level and
at the Entity levels remain insufficient. The coordination of rural development
policy and actions, including support measures, remain insufficient.

Regarding
preparations for the Instrument for Pre-Accession Assistance for Rural
Development, an agreement on the institutional structures for decentralised
management still has to be reached. Additional sectoral analyses for two more
sectors, forestry and aquaculture, are expected to be completed in 2014. More
staff has been recruited to the Office for Harmonisation and Coordination of
Payment Systems, but the office still does not have the capacity to carry out
its tasks properly. Building up the Entities’ capacities remained uneven.
Republika Srpska increased its staffing and continued to build up its
capacities, especially at its Paying Agency. The administrative capacities of
the Federation’s ministry for agriculture and Brčko District’s agriculture
department remain insufficient. Inter-sectoral coordination and the
participation of the non-governmental sector remain weak.

The Entities’
budgets for agriculture and rural development remain insufficient. Subsidies to
farmers remain mainly product-based and alignment with the acquis
remains weak. Efforts to improve productivity and competitiveness remained
hampered by the lack of an efficient administration and effective rural credit
schemes.

The adoption of
Bosnia and Herzegovina’s agricultural information strategy and the Law on the
Agricultural Census remain pending. Agricultural statistics and the
agricultural information system remain to be improved, including harmonisation
of existing systems. Harmonisation of land registration systems has yet to be
improved and land management requires strengthening.

As regards food
safety, implementing legislation on nutrition labelling, infant formulae
and novel food was adopted.

As regards the
placing on the market of food and feed, Bosnia and Herzegovina adopted new
legal provisions on hygiene rules for food and feed establishments and
microbiological criteria for foodstuffs. Residue monitoring plans for honey,
dairy, poultry and eggs were positively evaluated by the European Commission,
thus allowing export of honey from Bosnia and Herzegovina into the European
Union.

Clarification
of the chain of command and removal of overlaps within the official food and
feed control system remain a key priority. Legislation at State-level is
neither adopted nor implemented at Entity level. The capacity to implement
official controls is weak. Systems to ensure an exchange of information on
official controls among relevant authorities and central authorities are not adequate.
A strategy on laboratory capacity to cover analysis of samples in line with
official controls on food and feed chains still needs to be drawn up. As a
temporary measure, a political agreement was signed between the Ministry of
Foreign Trade and Economic Relations, the Ministry of Agriculture Forestry and
Water Management of Republika Srpska and the Ministry of Agriculture, Water
Management and Forestry of the Federation ‘on the establishment of a chain
of command meeting EU requirements for exports of milk and milk products from
Bosnia and Herzegovina to the EU‘, which is a key EU import requirement.
The full implementation of this Protocol is still pending. Training was started
in EU hygiene rules for staff of relevant authorities and food business operators.
Checks and registration of milk farms were stepped up to ensure compliance with
EU requirements. Implementing legislation was adopted to allow the State
Veterinary Office to check and approve establishments for export to the EU, but
implementation has not started. The regulatory framework for the control of
import of food of non-animal origin requires upgrading.

In the veterinary
sector, implementing legislation was adopted on movement of pets and
control of animal diseases, including bovine spongiform encephalopathy and
zoonoses (salmonella). Vaccinations against brucellosis and rabies are
conducted regularly. The existing legal framework for animal health requires
upgrading. Deficiencies in the existing animal identification and movement
control system do not allow proper implementation of animal health measures or
their planning. The national system for the management of animal by-products
needs to be upgraded to comply with EU requirements. More efforts are needed in
the veterinary sector to implement measures to meet EU import requirements.

In the phytosanitary
sector, efforts continued to implement legislation harmonised with the acquis
in an integrated manner throughout the country. The issuing of phytosanitary
certificates in line with the International Standard for Phytosanitary Measures
(ISPM) Number 12 started on 1st July 2013. Registration of
phytosanitary operators started on 1st September. The network of
laboratories dedicated to phytosanitary diagnostic tests requires optimisation
in line with realistic analyses and inspection needs. A new Law on Plant
Protection Products in line with the acquis has not yet been adopted.
Training of agricultural producers in the use of plant protection products and
application of maximum residue limits commenced. A national plan for monitoring
of residues was finalised. Efforts are needed to expand the application of
principles of integrated pest management.

Regarding genetically
modified organisms (GMOs), several pieces of implementing legislation on authorisation,
traceability and labelling were adopted.

Regarding fisheries,
Republika Srpska and the Federation adopted legislation on freshwater fisheries
that is partially aligned with the acquis. Bosnia and Herzegovina needs
to step up efforts to implement the acquis for this area to facilitate
an increase in exports of fish and fishery products to the EU.

Overall, there was little progress in the fields of agriculture and rural
development, food safety, veterinary, phytosanitary policy and fisheries. A
countrywide rural development strategy has not yet been adopted. State-level
capacity for coordination and harmonisation needs strengthening. Agricultural
statistics and the information system still need to be improved. Improving the
productivity and competitiveness is being hampered by the lack of an efficient
administration and effective rural credit schemes. Implementation of the food
safety and veterinary acquis remained uneven and official control
capacity needs to be upgraded. Preparations in these areas of the acquis
are at an early stage.

4.2.3.
Environment and climate change

In the field of environment, steps were taken in the area of horizontal
legislation. A first State of the Environment report for Bosnia and
Herzegovina was published. Republika Srpska adopted implementing legislation
advancing its alignment with Strategic Environmental Assessment (SEA) and
Public Participation Directives. The implementation of the SEA and
Environmental Impact Assessment (EIA) Directives in both Entities need to be improved,
especially on public consultation procedures.

As regards air
quality, Republika Srpska adopted implementing legislation on air quality
monitoring, zones and agglomerations and air quality values. The implementation
of the relevant acquis is at an early stage. Air quality planning and
monitoring systems need upgrading. A country-wide air monitoring network has
not yet been established.

On waste
management, planning for solid waste management infrastructure intensified
with the completion of studies for selection of locations for future regional
sanitary landfills and municipal waste management plans for selected regions.
However, there is no countrywide strategic planning of investment in this
sector. The Federation adopted implementing legislation on management of waste
electrical and electronic equipment (WEEE). Republika Srpska and the Federation
adopted implementing legislation on packaging and packaging waste. There are
limited economic instruments in place to promote recycling and prevention of waste
generation. New investments in the area of waste should focus more on waste
separation and recycling. Capacity to manage industrial and hazardous waste is
weak.

Regarding water
management, no efforts were made to ensure a consistent and harmonised approach
to water management at State-level, including implementation of the water laws,
monitoring and river-basin management plans. The Federation adopted
implementing legislation on determining ecologically acceptable flow for
surface water bodies. Steps were taken towards developing relevant strategies
in the Entities and of river basin management plans for the rivers Neretva,
Trebisnjica and Sava. Access to drinking water, untreated discharges of
wastewater and flood management remain challenges.

As regards nature
protection, the Federation adopted the Law on Nature Protection, thereby
advancing alignment with the Birds and Habitats Directives. Republika Srpska
adopted legislation that strengthens the protection of several sites.
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.

In the field of
industrial pollution control, Bosnia and Herzegovina ratified the
Convention on Transboundary Effects of Industrial Accidents. In the field of chemicals,
Republika Srpska adopted implementing legislation advancing the alignment with
the EU Regulation on classification, labelling and packaging of substances and
mixtures (CLP) and implementing legislation on biocides.

Regarding climate
change, the country does not yet have a comprehensive countrywide climate
policy or strategy. Substantial efforts are required to fully integrate climate
change into sectoral policies and strategies. The country regularly associated
itself with EU positions in the international context. While having previously
associated itself with the Copenhagen Accord, the country has not yet put
forward a mitigation commitment by 2020. The country should consider making
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. It is
also invited to start reflecting on its climate and energy framework for 2030 in
line with the EU Green Paper A 2030 framework for climate and energy
policies.

The country is
at a very early stage in aligning with EU climate acquis. Alignment with
the acquis in the field of ozone layer protection and fluorinated gases
has progressed, but not at countrywide level. The country identified 28
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. The country participated
regularly in work on the climate under the Regional Environmental Network for
Accession (RENA). A successful EU-Bosnia and Herzegovina climate event was
organised in February. Significant efforts are needed
to raise awareness at all levels and to promote cooperation between all
relevant stakeholders.

Administrative
capacity in the environment and climate sectors
remains weak. A mechanism for comprehensive alignment with EU legislation
across the country is lacking, as is countrywide strategic planning. Monitoring
and reporting on the state of the environment at country level is not done in a
coherent and consistent way. Integration of environmental and climate concerns
in other sectors remains weak. The administrative structure on climate change
needs to be considerably strengthened. Capacity building is required to address
significant capacity, cooperation and coordination needs.

Overall, there was limited progress on the environment and climate fields.
The establishment of a harmonised legal framework for environmental protection,
adequate administrative capacity and a functioning environmental monitoring
system remain the priorities. Improvements have still to be made to horizontal
and vertical communication and information exchange on environment and climate
change issues among all authorities. Public consultations with civil society
and other stakeholders need to be further strengthened. 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 on the
environment and climate change fields remain at an early stage.

4.2.4.
Transport policy

In the transport sector, a State-level Transport Policy remains to
be adopted, and key strategic and policy documents for all transport
sub-sectors have yet to be developed. Legislation pertaining to rail, road,
maritime and inland waterways transport modes has not yet been aligned with the
acquis. Upgrading of transport infrastructure needs to be intensified
and should be in line with the agreed comprehensive network of the South-east
Europe Transport Observatory Network (SEETO).

Regarding trans-European
transport networks, Bosnia and Herzegovina is participating in SEETO and
contributing to the implementation of the memorandum of understanding on the
development of the South-East Europe Core Regional Transport Network.

Building of new
stretches of motorway within the Pan-European Corridor Vc advanced, although
the pace of planning and construction of the southern stretch of the highway
remains hampered by political disagreements. Works on the signalling overhaul
of the Ploče-Bradina railway section of Corridor Vc are ongoing. Within the
SEETO network, works are under way on the signalling overhaul on the sections
Banja Luka-Kostajnica and Doboj-Šamać. Works on the signalling overhaul,
reconstruction of the track overhaul and electrification of the railway line
are ongoing on the section Doboj-Petrovo-Tuzla, which also belongs to the SEETO
network.

As regards road
transport, efforts towards acquis alignment could be noted. The
legislation on the transport of dangerous goods has not been harmonised within
the country and the acquis has not yet been transposed in the whole
country. Road safety is a major concern and Bosnia and Herzegovina needs to
improve the rate of fatalities in road accidents, among the highest in Europe.

Regarding rail
transport, the two Entities’ vertically-integrated railway companies linger
in a critical financial situation. In both companies the separation of
operational functions from infrastructure management, as provided for by
Package I of the EU Railway Directives, has not yet occurred. Railways of
Republika Srpska have not yet adopted their network statements. The opening of
the rail market is at an early stage. The safety authority has prepared
different instructions, such as on interoperability and the Entity in charge of
maintenance and transport of dangerous goods by rail, published in the Official
Gazette. The railway institutions fall short of staff. Rehabilitation works on
rail tracks continued. However, the bottleneck at Ivan Tunnel and Bradina ramp,
which prevents the transit of Ro-La trains and 40ft containers from the port of
Ploče, is hampering the development of combined transport.

As regards inland
waterways, some preparatory activities have been undertaken. Demining and
rehabilitation of the River Sava waterway has not yet been addressed and
introduction of a river information system has been delayed. Relevant inland
navigation regulations should be issued and aligned with the acquis.

Concerning air
transport, implementation of the first phase of the European Common
Aviation Area has progressed. Although the Rulebook on Internal Organisation
and Systematisation of Workplaces in the State Air Navigation Services Agency
(BH ANSA) was adopted, the Council of Ministers of Bosnia and Herzegovina still
needs to approve additional documents, necessary for the finalisation and
functioning of BH ANSA and for starting Bosnia and Herzegovina Air Traffic
Management Operations. Following Standardisation Inspections on safety by the
European Aviation Safety Agency (EASA), the Directorate for Civil Aviation has
drawn up a Corrective Action Plan for addressing its findings. The plan was
approved by EASA. The Directorate for Civil Aviation shall address the findings
identified in particular in the flight operations area. Bosnia and Herzegovina
ratified the Agreement on the establishment of functional airspace blocks of
Central Europe (FAB CE). The legislation on access to the ground handling
market at airports was approximated.

Regarding maritime
transport, Bosnia and Herzegovina is not a party to any of the most
important International Maritime Organisation (IMO) conventions such as 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), and the
International Convention on Standards of Training, Certification and Watch
keeping for Seafarers (STCW).

Overall, little progress has been made in the area of transport. As the
State-level transport policy has not yet been adopted by the Parliamentary
Assembly, work on a transport strategy and action plan has not yet started.
Preparations in the transport sector are at an early stage.

4.2.5.
Energy

Bosnia and Herzegovina has not yet developed a countrywide energy
strategy. There were no significant efforts to harmonise the Entities’
strategic planning, particularly with regard to the security of supply
of oil, gas and electricity, nor on a common approach to investment priorities.

Regarding the internal
energy market, existing laws at all levels are not fully aligned with the acquis
nor do they allow for the development of a competitive countrywide wholesale
market. Tender procedures and transparency have still to be addressed in a
comprehensive way.

The State-level
electricity transmission company (TRANSCO/Elektroprijenos) remains largely
incapable of performing its legal obligations for maintenance, development,
planning and investment in the transmission infrastructure. Several attempts to
organise a TRANSCO shareholders’ meeting to adopt the measures necessary to
ensure the proper functioning of TRANSCO failed. The company continues to
operate without having adopted long-term development, investment and financial
plans, resulting in no significant investments in the reinforcement or
development of the transmission system. The problematic viability of TRANSO and
the fragmentation of the electricity market put at risk the implementation of
obligations stemming from the Energy Community Treaty.

The review and
the alignment of the electricity legislation with the acquis focusing on
Third Package provisions has been initiated at State, Entity and Brčko District
level, with a view to enabling the country to fulfil its obligations under the
Energy Community Treaty. The State Electricity Regulatory Commission approved
the necessary annual revenue for the Bosnia and Herzegovina Independent System
Operator and determined a new tariff rate. Full independence of the regulatory
commissions remains to be ensured.

As regards the
development of the necessary gas sector legislation, the alignment with the acquis
at all levels is still pending. There is no State-level Gas Law, the amendments
to the Gas Law that Republika Srpska adopted in January are not complete and
the draft Gas Law of the Federation is not adequate. The Entities have set up
separate gas operators and continue to operate under different rules for market
participants, unbundling, third party access and market opening. There are no
regulatory authorities in charge of the gas sector at State-level and in the
Federation.

As regards the renewable
energy sector, both Entities have adopted respective laws on the
exploitation of renewable energy sources and on efficient co-generation. The
State-level law on renewable energy sources needs to be adopted in line with
the obligations under the Energy Community Treaty. The complexity of the
administrative structure and division of jurisdiction within the sector hampers
the comprehensive countrywide promotion and development of the renewable energy
sector. There is no countrywide renewable energy action plan for the
implementation of the obligatory renewable energy target which the country has
to achieve by 2020 (40% of final energy consumption). Nonetheless, due to
favourable incentives provided at Entity level, growth in the development of
facilities powered by renewable energy sources is increasing.

Regarding energy
efficiency, Republika Srpska has adopted the relevant law, whereas the government
of the Federation has resubmitted the draft law to the parliament for adoption.
A National Energy Efficiency Plan (NEEAP) and a reliable roadmap for the
transposition of the acquis in line with the obligations under the
Energy Community Treaty still need to be adopted. Both will be essential for an
adequate transposition and implementation of the relevant energy efficiency
obligations. Various initiatives on promoting energy efficiency and numerous
pilot projects, particularly in the public buildings sector, have been launched
and implemented throughout the country.

Regarding nuclear
safety and radiation protection, the State Regulatory Agency for Radiation
and Nuclear safety proclaimed a number of regulations in line with the acquis
and sector requirements. A national emergency plan and a strategy for
radioactive waste management have not yet been adopted.

Overall, little progress was made in the energy sector. The country is
increasingly falling behind in meeting its obligations under the Energy
Community Treaty. The lack of cooperation and coordination between the Entities
is hindering overall progress in the energy sector and is a deterrent to
investment in a sector with strong investment potential. Unequivocal commitment
is necessary to ensure crucial improvements, particularly as regards the area
of security of supply, the effective functioning of the electricity
transmission company, integrated energy markets and full independence of
regulatory bodies.

4.2.6.
Information society and media

Regarding electronic communications and information and
communication technologies (ICT), the Electronic Communications Law is
largely based on the 1998 EU regulatory framework. A decision to introduce the
general authorisation system has yet to be taken. The Communication and
Regulatory Authorities (CRA) continued to implement competitive safeguards to
prevent operators misusing market power. Mobile number portability has been
introduced. A rulebook on tariff rebalances for 2013-­2015 was adopted. The CRA
is implementing the last phase of the rebalancing of tariffs for voice
telephony services.

The three incumbent operators are all
subject to significant market power 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. The incumbents’ share of the fixed broadband market fell in
the face of competition from cable and wireless network operators. The overall
fixed broadband penetration rate increased modestly, reaching 11.9% per
population according to the latest available data. CRA introduced legislative
and regulatory measures enabling mobile virtual network operators to emerge in
the market. However, implementation is pending and market barriers for new
operators have not been removed. No steps have been taken to introduce the
single European emergency number 112.

Regarding information
society services, a State-level Law on the Agency for the Development of
the Information Society has not yet been adopted. Following the adoption of
amendments to the Law on Identity Cards, Bosnia and Herzegovina has started to
issue new cards including electronic identity elements in view of future
e-services. There was no progress on the development of State-level legislation
on electronic documents.

There was no
alignment with the e-commerce Directive nor with the implementing legislation
related to conditional access services. The State-level e-commerce law has not
yet entered into force. The implementing legislation for the State-level
e-signature law of 2006 has not yet been adopted. Administrative
capacity in the State-level Ministry of Transport and Communications remains
insufficient.

As regards audiovisual
policy, the Decision on determining the body responsible for cooperation
with the independent regulatory bodies in the field of audiovisual media
services and the body responsible for drawing up the list of important events
was adopted by the Council of Ministers in March 2013. Through adoption of this
Decision, Bosnia and Herzegovina has aligned its legal framework with the
Audiovisual Media Services Directive (AVMSD) and signed the memorandum of understanding
with the European Commission for participation in the Media 2007 Programme.

The CRA Council
adopted amendments to the Code on commercial communications to regulate product
placement in audio-visual media services. It also drafted guidelines for implementation
of the Code.

An updated
action plan on digitalisation is yet to be adopted by the Council of Ministers.
The decision on the use of spectrum freed up by the switchover has yet to be
made. A tender for acquiring digital equipment for the three public service
broadcasters failed for the second time. This delayed the digital switchover
initially planned for the end of 2014. A new tender for acquiring the
digitalisation equipment has been launched. Radio and Television Republika
Srpska (RTRS) attempted broadcasting in the DVB-T format in March 2013 without
a valid CRA licence.

The Statute of
the public service broadcaster Bosnia and Herzegovina Radio and Television
(BHRT) remains unchanged. The Law on RTV FBiH remains not harmonised with the
State-level law regulating the procedure for the selection of the members of
the Steering board of the public broadcaster. Efforts were made to finalise the
reform of the public service broadcasting system of Bosnia and Herzegovina and
establish the Corporation. Reform of the public broadcasting sector has been
further delayed.

The lack of
merit-based appointments and continued challenges to the CRA’s independence
remain a serious concern (see 2.2 - Human rights and
protection of minorities). Legislative alignment in
the fields of electronic communications and information society and media has
yet to be addressed.

Overall, preparations are at an early stage. Substantial efforts are needed
to develop electronic communications and the information society.

4.2.7.
Financial control

Regarding public
internal financial control (PIFC), the State has amended the Law on
Financing of the Institutions of Bosnia and Herzegovina to introduce provisions
requiring each budget user to sign an annual statement of responsibility. New
budget management information systems have been implemented in the State and
two Entities. The Central Harmonisation Units (CHUs) in the Ministries of
Finance of the State and the Entities have prepared implementing legislation
such as manuals, guidelines and charters for internal auditors. The
Coordination Board of the CHUs has not yet met to perform its function as a
single platform for the coordination of legislation and methodology. Progress
in implementation of PIFC would significantly benefit from an active Coordination
Board. Staffing of the Federation CHU remains a concern. There has been a
slight increase in the number of internal auditors in the State and in
Republika Srpska, but staffing levels are generally below the optimal level.

Regarding external audit, the
independence of the State-level State Audit Institution (SAI) from the
executive was strengthened after the Bosnia and Herzegovina Parliamentary
Assembly adopted amendments to the Law on Ministries and Other Bodies of
Administration of Bosnia and Herzegovina. No further measures have been taken
to ensure the financial independence of the SAIs from the governments, or to
anchor them constitutionally

Overall,
there has been little progress in the area of financial control. Substantial
efforts are needed to finalise the legal framework, resume coordination between
CHUs via the Coordination Board and build capacity on implementation of PIFC.
The independence of the SAIs has yet to be addressed. Preparations are at an
early stage.

4.2.8.
Statistics

As regards statistical
infrastructure, the cooperation between the Agency of Statistics of Bosnia
and Herzegovina (BHAS) and the Entity institutes for statistics has improved,
in particular as regards the preparations for the population and housing
census. The Indirect Taxation Authority does not provide sufficient data to the
BHAS. The proposed amendments to the law that would enable data sharing are
pending adoption in the parliament.

The Strategy 2020 for the development of
statistics in Bosnia and Herzegovina has been agreed by the Statistical
institutes but not yet formally adopted. A document regulating the
implementation of European Statistics Code of Practice in Bosnia and
Herzegovina statistics has been adopted.

As regards classifications and registers,
the Statistical Business Register (SBR) remains incomplete, as data from
relevant administrative sources are still missing. A five-year development plan
for the SBR was agreed. Bosnia and Herzegovina did not provide GDP per capita
figures harmonised at NUTS level 2 to the EU on 1 July 2013, an obligation
under the Interim Agreement. A working group established to draft a
classification of territorial units for statistics in the country has agreed on
NUTS level 1 and NUTS level 2 proposals. The work with level 3 will continue
after the population and housing census.

Regarding sectoral statistics, the
three statistical offices continued to prepare for the population and housing
census to be held from 1-15 October 2013. As regards macroeconomic statistics,
national accounts need further development. Bosnia and Herzegovina joined the
IMF’s General Data Dissemination System (GDDS). Final results of the household
budget survey 2011 were published in February 2013. Some progress was made on
business statistics, especially in construction, retail trade and tourism.

Overall, there was some progress in the area of statistics, in particular
regarding the preparations for the population and housing census as well as in
business statistics. Sectoral statistics such as national accounts, business
and agricultural statistics need to be improved. Cooperation, coordination and
decision-making processes need to be further improved in the national
statistical system.

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

As regards visa policy, in 2012, 150 visas were
issued at the border, a decrease of almost 40% (248 in 2011). In the first half
of 2013, 49 visas were issued at the border, a decrease of 38.88% compared with
the same period of 2012.

Implementation of the visa-free regime with
the EU continued smoothly overall. Although the majority of travellers to the
Schengen areas are bona fide, a number have abused the visa-free regime
by lodging manifestly unfounded asylum applications. As in the previous reporting
periods, seasonal peaks of asylum seekers continued to be registered. This
confirms that targeted measures have to be further pursued and be intensified,
among others: public campaigns, investigations on facilitators, long-term
policies to improve social and economic inclusion of the most vulnerable groups
of the population most likely to migrate, including Roma. Further efforts in
these areas need to continue systematically and be properly funded. The
Commission will submit its regular report to the European Parliament and
Council by the end of 2013.

Regarding border management, most
legislation related to integrated border management (IBM), including the Law on
Border Control, is mainly based on the acquis. The Law on Border Control
has been revised, but remains to be adopted. The revised IBM strategy and
action plan are being implemented. A mechanism for monitoring the
implementation of the IBM strategy is in place. A new set of protocols for
enhancing implementation of the agreement on interagency cooperation has been
prepared. A rulebook on internal procedures for the Joint Risk Analysis Centre
(JRAC) has been adopted by the signatory parties. Improved facilities and
working conditions have been provided for the JRAC.

Infrastructure
at border crossing points (BCPs) improved, especially as regards surveillance
and equipment. ITA transferred its responsibility for management of video
control at the BCPs to the Border Police. Two new ITA regional centres were
constructed in Mostar and Tuzla. 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. CSBC is being upgraded to include vehicle registration plate
readers. A department for management and maintenance of the BCPs has been
established within the ITA.

A border crossing point has been set up at
Bijaca. The construction of the new BCP at Gradiska is ongoing. The operation
of this BCP depends on the construction of a new bridge at Gradiska, which has
to be jointly finalised by Bosnia and Herzegovina and Croatia. Bosnia and
Herzegovina has allocated the necessary funding. Joint locations BCPs
Neum I and Neum II have been set up on the Croatian side.

Bosnia and Herzegovina has closed its part
of the 44 identified spots for possible illegal crossings of the border with
Montenegro. The closure of unauthorised border crossing points on the border
with Serbia remains still pending. Frequent joint border patrols with
neighbouring countries resulted in increased detection of illegal migrants and
smuggled goods. Nevertheless, more efforts are needed.

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

Regarding
asylum, amendments to the Law on Movement and Stay of Aliens and Asylum
have been adopted, further aligning the law with the EU and international
standards. However, the provision on the maximum period of detention at the
Immigration Centre remains to be harmonised with the acquis. A new
migration and asylum strategy and action plan for 2012-2015 were adopted. The
asylum sector in the Ministry of Security is almost fully staffed and relevant
training has been provided. The temporary asylum centre in Kiseljak is
operational. It currently hosts 13 asylum seekers and can accommodate up to 30.
A permanent asylum centre in Trnovo has been constructed. The centre will have
a capacity of 154 beds.

The
number of asylum applications in 2012 remains at the level of the previous
reporting period: 40 asylum applications involving 53 persons were submitted,
compared with 41 involving 46 persons in 2011. Syria was the biggest single
source of asylum seekers. The Council of Ministers adopted a decision granting
one year of temporary residence for people from Syria, based on humanitarian
grounds.

In
2012, Bosnia and Herzegovina’s Ministry of Security rejected eight asylum
applications out of 22 filed. In the first eight months of 2013, 39 new asylum
applications involving 61 persons were submitted. All asylum-seekers from
Kosovo, whose temporary protection status expired in 2007, received
first-instance decisions from the asylum sector. In 2012, two persons were
still involved in appeal Court proceedings. No irregular migrants were
registered for the Assisted Voluntary Return Programme via IOM during 2012, due
to lack of financial resources.

Regarding
the field of migration, a centre for temporary detention of irregular
immigrants is in operation, employing 53 staff and with capacity for 120
immigrants. In 2012, a total of 453 foreign nationals were accommodated in the
centre. In addition, 67 persons were put under surveillance in their place of
residence. In all, 452 foreign nationals were returned to their countries of
origin (160 voluntarily, 292 returned through readmission agreements, 14
forcefully repatriated). During the first six months of 2013, 141 third-country
nationals were accommodated, of whom 31 were repatriated.

Implementation
of readmission between the EU and Bosnia and Herzegovina continued to be
satisfactory. Most cases of readmission are carried out under the agreement
with Croatia (328 in 2012 compared to 236 in 2011). Of these, 75 were foreign
nationals and 161 citizens of Bosnia and Herzegovina. In accordance with
readmission agreements with the EU and Switzerland, Bosnia and Herzegovina
accepted readmission of 319 of its citizens in 2012, compared to 132 in 2011.
In the first half of 2013, 164 citizens were readmitted, an increase around 67%
compared to the same period of 2012.

Bosnia and Herzegovina has signed a new
readmission agreement with Serbia, introducing a shortened procedure.
Implementation of the strategy for the reintegration of returnees remains a
challenge. Difficulties with economic reintegration, access to healthcare,
social protection, pensions and the employment of minority returnees are
obstacles to sustainable return and local integration (see 2.2 — Human
Rights and the Protection of Minorities).

There were a higher number of interceptions
of attempts to cross the border unlawfully. In 2012, a total of 389 people were
intercepted trying to enter or leave the country illegally, compared to 324 in
2011. In the first half of 2013, 130 people were intercepted, an increase of
16% compared to the same period in 2012. The Service for Foreigners’ Affairs
(SFA) makes full use of the Migration Information System (MIS) databases, now
accessible to other relevant agencies. In 2012, the SFA issued 8383 permits for
temporary stays, a 15% increase in comparison with 2011 (7 661). In 2012,
401 permits for permanent stays were issued, a 30% increase compared to 2011
(308). The SFA issued 569 expulsion decisions in 2012, an 82% increase compared
to 2011 (309). In the first half of 2013, the SFA issued 3.576 permits for
temporary stays and 339 for permanent stays. 158 expulsion decisions were
taken.

A
coordination body for monitoring the implementation of the new asylum and migration
strategy and action plan was set up. The fifth country migration profile was
published. The improved MIS is used for statistical reporting for the migration
profile. A working group consisting of representatives from the State and
Entity levels was established to set up a mechanism for collecting migration
data in line with EUROSTAT regulations. However, comprehensive oversight over
migration flows needs to be introduced.

Overall, Bosnia and Herzegovina has continued to
make progress in the areas of visa policy, border management, asylum and
migration. The adoption of amendments to the Law on Movement and Stay of Aliens
and Asylum has further aligned the legal framework with the acquis. The
infrastructure, surveillance and equipment at border crossing points have
further improved. A permanent asylum centre in Trnovo has been constructed.
Overall, the migration, asylum and international protection system in Bosnia
and Herzegovina is functioning and is adequate for current inflows.

4.3.2.
Money laundering

Regarding 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 2009-2013. There are
still no effective measures to prevent money laundering and financing of
terrorist activities.

The country
remains subject to Moneyval Compliance Enhancing Procedures and is more than a
year behind schedule in implementing the action plan agreed between the Council
of Ministers and Moneyval. Amendments to the Law on Money Laundering and the
Financing of Terrorism and to the Criminal codes, which address a significant
number of the Moneyval recommendations, have been prepared but remain to be
adopted.

In 2012, The
Financial Intelligence Department (FID) within the State Investigation and
Protection Agency (SIPA) received 50% more transaction reports than the
previous year, while the number of transactions reported as suspicious
decreased by half. About two thirds of these reports are from the banking sector,
and one third from other legal entities. Post offices, leasing companies,
notaries and lawyers have been put under supervision while a range of other
legal entities, such as audit offices remain to be included in reporting
obligations and mechanisms. There has been a modest increase of reports filed
at prosecutors’ offices throughout Bosnia and Herzegovina on cases involving
money laundering, 59 cases were reported in 2012 involving 187 individuals
compared to 34 reports involving 181 individuals for the previous year. Yet the
number of confirmed indictments and final verdicts remains extremely low.

There are now
more exchanges of information through the EGMONT group, but response time is
delayed by lack of knowledge of foreign languages. The investigation section is
cooperating with Interpol, SELEC and other Financial Investigation Units in the
region.

Bosnia and
Herzegovina has no effective system in place to address the confiscation of
assets. The prevailing model is confiscation of illegally acquired property
under the provisions of the CPC. The Council of Ministers has adopted a draft
law on confiscation of assets, establishing a new state agency for managing
illegally obtained proceeds of crime, confiscated on the basis of Court of
Bosnia and Herzegovina rulings. However, the draft law, still pending adoption
in the parliament, does not propose the establishment of an Asset Recovery
Office. In Republika Srpska, the Assets Recovery Office has continued to
operate. However, implementation of the law is hampered by the lack of
comprehensive, qualitative provisions and its harmonisation with other relevant
administrative and civil laws as well as procedures, such as land, property and
stock registries. An expert forum on confiscation of assets was launched in
March, with the aim of setting minimum standards and criteria for establishing
an effective asset recovery system throughout the country.

Overall, Bosnia and Herzegovina has made little progress in this area.
Legislation and the implementation of the strategy and action plan require
further improvement. A coordinated approach to establish mechanisms for the
effective identification, seizure, management and confiscation of criminally
gained assets in a harmonised manner across the various jurisdictions requires
substantial effort.

4.3.3.
Drugs

As far as the fight against drugs is concerned, trafficking
is a major part of organised crime. Narcotics cultivation is limited to
small-scale marijuana production. There are indications that organised crime
groups have established a drugs market in Bosnia and Herzegovina.

The
implementation of the national drugs strategy and action plan (2009-2012)
remains insufficient. The strategy was not updated. After a period of 18
months, the members of the Bosnia and Herzegovina Commission for Suppression of
Abuse of Narcotic Drugs were appointed by the Council of Ministers. A draft Law
on Prevention and Suppression of the Abuse of Narcotic Drugs, establishing an
Office for Drugs, is in preparation.

The Commission
for Drugs Destruction, in cooperation with the Ministry of Security, SIPA and
the Ministry of Interior of the Federation, destroyed over one tonne of
marijuana, skunk, heroin, ecstasy and amphetamine, confiscated in relation to
proceedings before the Court of Bosnia and Herzegovina. A large quantity of
drugs seized by order of other courts is awaiting destruction.

Bosnia and
Herzegovina further improved international cooperation and reported regularly
to the International Narcotics Control Board. Cooperation with the European
Monitoring Centre for Drugs and Drug Addiction (EMCDDA) continues; the
Department for Drugs within the Ministry of Security acts as a focal point. The
National Correspondent to the EMCDDA, appointed in the Department for Drugs
within the Ministry of Security for the previous project, has not been replaced
since November 2012. End of 2011, Bosnia and Herzegovina delivered its first
annual report on the situation of the drug phenomenon in the country, following
EMCDDA guidelines.

The number of
crimes related to drugs abuse increased. Predominant crimes are possession and
enabling use of narcotics. Drugs confiscated are usually cannabis, heroin or
synthetic drugs. Coordination of operational activities remains on case-by-case
basis. Several police operations were conducted, resulting in the arrest of
perpetrators and the confiscation of drugs. State-level agencies, the
Federation Police Administration and Cantons are using a database of
perpetrators. Republika Srpska is not connected to this database.

Overall, Bosnia and Herzegovina remains at an early stage in the fight
against drug trafficking, as well as in taking effective action to reduce
demand for drugs. There is still no agreement on the institutional capacity for
policy coordination and implementation. The capabilities of individual law
enforcement agencies to identify and disrupt drug trafficking operations are
improving, but cooperation remains limited. Bosnia and Herzegovina is on the
main Balkans drug trafficking routes. Continued and sustained efforts are
needed by the customs administration to detect and seize narcotics at the
borders. Overall, preparations in this area are moderately advanced.

4.3.4.
Police

With regard to police
matters, agencies and boards established under the police reform laws are
consolidating their functions. Conflicting interpretations of the provisions of
the 2008 laws prevent the development of a consistent and effective
institutional framework.

The staffing level at the Directorate for
coordination of police bodies has now reached 70%. The Directorate has
temporary premises and physically integrated the VIP facilities protection
sector and the Interpol and Europol section. The number of messages exchanged
through Interpol channels has consistently risen. The level of implementation
of the road map signed between Europol and the Ministry of Security is low.
Access to the Europol application Siena has been implemented. There is no
agreement on the Implementation of the Europol National Contact Point among law
enforcement agencies.

An inter-agency monitoring team supervising
the implementation of the electronic data exchange system for police and
prosecutors registries has been established. Some technical aspects in the
system still need to be addressed, including the fact that the Directorate
still has no access to the system databases. A Europol data protection audit
has been completed.

A protocol on cross-border surveillance under the Police Convention on Cooperation in South-East Europe was
signed with Montenegro. A protocol on hot pursuit between Bosnia and
Herzegovina, Montenegro and Serbia is under preparation. The Agency for
Forensic and Expert Examination is now at 50% staffing and has completed
construction of its laboratories, which are now being equipped. Regular expert
examinations have started, though prosecutors have not fully used the potential
of the laboratories.

The Police
Support Agency is now co-located with the Directorate for coordination of
police bodies and completed the rulebook on standardisation of police
equipment. A new Director for the Police Support Agency was appointed by the
Bosnia and Herzegovina Council of Ministers. Other agencies have not entrusted
the Police Support Agency with procurement procedures. The Agency for Education
and Advanced Training has reached 70% of its staffing. It has trained new
cadets and delivered specialist programmes. It has begun the second stage of
construction of its training facilities. The State Investigation and Protection
Agency remained at 73% of their foreseen staffing level. Amendments to the Laws
on Police Officials are pending adoption at State-level. The Federation,
Cantons and the Brčko District have launched initiatives to align their
respective laws. Amendments concern technical and operational matters such as
the use of arms and police powers and enhancing personal data protection. A
draft Law on Internal Affairs in the Federation is pending adoption in the parliament.
The draft law reiterates the principles of operational and financial
independence of police. Once adopted, the design of the law shall serve as a
model law for cantons when changing their respective laws on internal affairs.

Overall,
some progress was made in the area of policing. The police reform bodies are
all operational. Unclear and overlapping competences are, however, preventing
the effective use of resources. Coordination and cooperation among agencies
remains mainly informal.

4.3.5.
Fighting organised crime and terrorism

On fighting organised crime, Bosnia and Herzegovina remains a
source of arms and ammunitions for criminal groups operating in the EU and the
Western Balkans region. Organised crime activities are mainly linked to illicit
drugs trafficking, arms trafficking, economic crime, trafficking in human
beings and money laundering.

Bosnia and
Herzegovina has formed a working group to prepare a new strategy to fight
organised crime and an Organised Crime Threat Assessment (OCTA). The WG agreed
to use the Europol SOCTA methodology for making of OCTA with involvement of
police agencies intelligence analysts trained on Europol SOCTA methodology. A
number of successful large-scale joint police operations took place. The number
of suspected cases of organised crime reported to prosecutors’ offices
increased by over 200%. Overall, the number of suspects was close to the total
for the previous year. Nevertheless, organised crime remains a serious concern
in Bosnia and Herzegovina.

Prosecutors and judges specialised in
organised crime cases are unevenly spread, particularly at Entity level. Better
instructions were introduced on professional cooperation between prosecutors
and law enforcement agencies. However, the implementation of the system of
prosecutor-led investigations remains an issue. Weaknesses in the systematic
gathering, analysis and use of intelligence by law enforcement agencies hampers
strategic targeting of organised crime groups and activities. There is no
systematic exchange of intelligence among the law enforcement agencies for
joint operational planning.

The absence of legal provisions for covert
identities limits the use of undercover agents and informants. Amendments to
the State Criminal Procedure Code for more effective deployment of Special
Investigative Measures have been prepared, but remain to be adopted.

A new draft Law
on the Witness Protection programme was adopted by the Council of Ministers and
is in the parliamentary procedure.

Small arms and
light weapons as well as explosives and remnants of war are subject of
trafficking at the local and the international level. Entity level regulations
on arms still have to be harmonised mutually, in accordance with international
standards. Many illegal weapons and much ammunition are in civilian possession.
A new Strategy on control of small arms and light weapons, covering the period
from 2013 to 2016, was adopted by the Bosnia and Herzegovina Council of
Ministers. A Framework Law on Amnesty at the Federation level is in
preparation.

Data exchange
between police agencies and prosecutors’ offices on registered arms and weapons
is covered under the Agreement on electronic data exchange. There is no system
of exchange of intelligence on arms and weapons.

In the area of judicial cooperation in
criminal matters, preparations for concluding a cooperation agreement with
Eurojust are at an early stage, but have progressed. The assessment of the data
protection legislation has been completed. Changes to the Law on Protection of
Classified Information, bringing the law into line with the relevant EU
standards and providing for implementation of bilateral security agreements,
remain to be adopted.

With regard to
combating trafficking in human beings (THB), a new strategy and action plan
for 2013-2015 have been adopted. The implementation of projects in the action plan
is financed mainly by donors. Provisions on THB victims to align them with
international standards were taken into account in amendments to the Law on
Movement and Stay of Aliens and Asylum. Provisions on THB in the criminal codes
at the Republika Srpska and the Brčko District level mutually harmonised and in
line with ratified international standards were adopted. Similar amendments to
the criminal code at the State and Federation level are in parliamentary
procedure. National legislation, especially in relation to penalties, remains
to be aligned with EU acquis, notably Directive 2011/36/EU. 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’. Regional
monitoring teams continue to meet regularly and improve their capacity through
training. Centres for Mental Health are included in the regional monitoring
teams, along with centres for social welfare and NGOs involved in providing
protection to victims. The guidelines which prescribe the procedures for the
involvement of the Centres for Mental health have been developed. Further
strengthening of cooperation between the four Regional Monitoring Teams and the
State-level Strike Force is needed to ensure that investigations are properly
coordinated and assistance provided to the victims.

There was a
rise in the number of THB victims identified. A comprehensive,
multi-disciplinary and victim-oriented approach to trafficking still needs to
be developed and identification of victims needs to be improved. The majority
of trafficking was for the purpose of sexual exploitation and begging/forced
marriages. Bosnia and Herzegovina continues to be a country of origin, transit
and destination for the trafficking of women.

The rulebook
for protection of foreign victims of trafficking was amended, aligning the
Bosnia and Herzegovina system further with the EU and international standards.
The Department for Combating THB within the national coordinator’s office and
the database on THB victims are not fully operational. Bosnia and Herzegovina
remain to further align its THB system with the set of recommendations included
in the last report by the Group of Experts on Action against THB (GRETA).

Bosnia and
Herzegovina has neither a strategy nor institutions in place to address the
issue of cybercrime and cyber security threats. An action plan to set up
a Bosnia and Herzegovina Computer Emergency Response/Readiness Team (CERT) is
pending adoption by the Council of Ministers. Activities to establish CERT were
undertaken. Crime reports prepared by law enforcement agencies in Bosnia and
Herzegovina do not refer to cybercrimes. They do not provide exact data on the
number of cases, investigations or suspects. Digital forensics and other
technical means of combating cybercrime at national and international level are
limited and insufficient. The Directorate for Coordination of Police Bodies is
designated as a 24/7 contact point in the light of the Cybercrime Convention
(Budapest Convention) but the required capacity is lacking.

Concerning the fight
against terrorism, Bosnia and Herzegovina continues to implement its
strategy for preventing and fighting against terrorism 2010-2014. Key strategic
measures have been developed, though the overall operational capacity needs to
be reinforced. The Joint Task Force to fight terrorism is functioning and its
capacity is being developed. The operational part of the task force is awaiting
regulation of its financing and confirmation of the formal status of its
members. Security and intelligence data are exchanged between the agencies
represented in the Joint Task Force. Activities were undertaken to assess the
significance of current trends and the potential action required to address the
issue of violent extremism and radicalism that can lead to terrorism. Republika
Srpska and the Brčko District amended their criminal codes to introduce the
notion of hate crimes as a criminal offence. The criminal code of the Federation
does not include such provisions.

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 countries, individuals or groups linked to terrorist
activities.

Overall, the country made limited progress in the fight against organised
crime and terrorism. Specific efforts in the fight against THB remain at an
early stage. Cooperation among law enforcement agencies continues, but a more
systematic exchange of information intelligence remains to be consolidated.
Coordination mechanisms need to be established. Cooperation between law
enforcement agencies and prosecutors’ offices still needs to be improved to
guarantee more effective judicial follow up to police operations.

4.3.6.
Protection of personal data

Regarding personal
data protection, the Director of the Personal Data Protection Agency was
reappointed and a deputy Director was appointed by the parliament. The agency
has 24 employees out of a planned total of 45 as in the rulebook, which is
sufficient with the current workload. The agency established regular
cooperation with the country’s agencies for the civil service and provided
training for their employees on personal data protection.

The agency
regularly issues orders to ensure efficient implementation of the Law on
Protection of Personal Data. It carried out 99 monitoring inspections and
provided 181 expert opinions. It dealt with 71 complaints. The Agency has also
issued 10 penalties, and has carried out 25 ex officio procedures.

There is no
systematic screening of legislation for compliance with personal data
protection provisions. Implementing legislation in the law enforcement sector
is in preparation. The Law on Personal Data Protection does not apply to the
Bosnia and Herzegovina Intelligence Agency.

Overall, preparations for personal data protection are advancing, although
they are still at an early stage.

Statistical Annex

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

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

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

Basic data || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Population (thousand) || || 3 790e || 3 842e || 3 843e || 3 843e || 3 840e || 3 836p

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

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

National accounts || || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Gross domestic product (GDP) (million national currency) || 1) || 12 678 || 24 898 || 24 202 || 24 773 || 25 666 || 25 654

GDP (million euro) || || 6 482 || 12 730 || 12 374 || 12 666 || 13 123 || 13 117

GDP (euro per capita) || 2) || 1 707 || 3 313 || 3 220 || 3 296 || 3 417 || 3 419

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

GDP per capita in PPS (EU-27 = 100) || || : || 32 || 31 || 30 || 30 || 28

Real GDP growth rate (growth rate of GDP volume, national currency,% change on previous year) || || 2.4 || 5.6 || -2.8 || 0.7 || 1.0 || -1.1

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

Labour productivity growth: GDP growth per person employed (% change on previous year) || || : || 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 || 3) || 10.8 || 8.9 || 8.6 || 8.3 || 8.1 || 7.4

Industry || 3) || 19.8 || 21.0 || 20.2 || 20.8 || 21.0 || 20.8

Construction || 3) || 6.2 || 6.4 || 6.2 || 5.1 || 4.8 || 4.7

Services || 3) || 63.3 || 63.7 || 65.1 || 65.8 || 66.1 || 67.1

Final consumption expenditure, as a share of GDP (%) || 4) || : || 103.0 || 102.0 || 103.6 || 103.5 || :

Gross fixed capital formation, as a share of GDP (%) || 4) || : || 25.2 || 20.4 || 18.1 || 19.2 || :

Changes in inventories, as a share of GDP (%) || 4) || : || 2.8 || 0n || -1.0 || 0.2 || :

Exports of goods and services, relative to GDP (%) || 4) || 28.1 || 24.5 || 22.8 || 27.4 || 29.5 || :

Imports of goods and services, relative to GDP (%) || 4) || 75.2 || 55.4 || 45.1 || 48.1 || 52.5 || :

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

Industry || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Industrial production volume index (2010=100) || || : || 102.5 || 95.8 || 100.0 || 103.5 || 98.9

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

Inflation rate || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Annual average inflation rate (CPI,% change on previous year) || || 3.1 || 7.4 || -0.4 || 2.1 || 3.7 || 2:0

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

Balance of payments || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Balance of payments: current account total (million euro) || 5) || -833 || -1 795 || -813 || -695 || -1 242 || -1 253

Balance of payments current account: trade balance (million euro) || 5) || -3 308 || -5 453 || -3 981 || -3 901 || -4 267 || -4 318

Balance of payments current account: net services (million euro) || 5) || 255 || 1 219 || 972 || 1 103 || 1 071 || 1 057

Balance of payments current account: net income (million euro) || 5) || 595 || 482 || 488 || 298 || 163 || 176

Balance of payments current account: net current transfers (million euro) || 5) || 1 626 || 1 957 || 1 708 || 1 805 || 1 791 || 1 832

of which government transfers (million euro) || 5) || 450 || 111 || 80 || 76 || 44 || 29

Net foreign direct investment (FDI) (million euro) || 5) || 133 || 673 || 176 || 272 || 342 || 273

Foreign direct investment (FDI) abroad (million euro) || 5) || 0 || -27 || 68 || -59 || 4 || 0

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

Foreign direct investment (FDI) in the reporting economy (million euro) || 5) || 133 || 699 || 107 || 331 || 338 || 273

of which FDI of EU-27 countries in the reporting economy (million euro) || 6) || :z || 321 || 90 || 135 || 181 || 114

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

Public finance || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

General government deficit/surplus, relative to GDP (%) || || : || -2.2 || -4.4 || -2.5 || -1.3 || -2.0

General government debt relative to GDP (%) || || 34.9 || 17.1 || 21.6 || 25.4 || 26.0 || 27.7

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

Financial indicators || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

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) || 7) || 1 377b || 2 910 || 2 836 || 3 017 || 3 163 || 3 141

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || 7) || 2 387b || 6 360 || 6 498 || 6 968 || 7 372 || 7 624

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

Total credit by monetary financial institutions to residents (consolidated) (million euro) || 7) || 1 707 || 7 419 || 7 184 || 7 436 || 7 828 || 8 153

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

Lending interest rate (one year), per annum (%) || 8) || : || 7.0 || 7.9 || 7.9 || 7.4 || 6.9

Deposit interest rate (one year), per annum (%) || 9) || : || 0.4 || 0.3 || 0.2 || 0.1 || 0n

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) || 10) || 1 385 || 3 219 || 3 176b || 3 302 || 3 284 || 3 328

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

External trade || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Value of imports: all goods, all partners (million euro) || || : || 8 330 || 6 317 || 6961,9 || 7 938 || 7 799

Value of exports: all goods, all partners (million euro) || || : || 3 432 || 2 828 || 3627.9 || 4 204 || 4 018

Trade balance: all goods, all partners (million euro) || || : || -4 899 || -3 489 || -3334 || -3 735 || -3 781

Terms of trade (export price index / import price index) || 11) || : || : || : || 100.0 || 99.0p || 96.6p

Share of exports to EU-27 countries in value of total exports (%) || || : || 55.0 || 54.0 || 54.5 || 55.6 || 57.8

Share of imports from EU-27 countries in value of total imports (%) || || : || 48.0 || 49.1 || 45.9 || 45.4 || 46.9

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

Demography || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || 1.9 || 0.0 || -0.1 || -0.4 || -0.8 || -0.9p

Infant mortality rate: deaths of children under one year of age per 1000 live births || || 7.6 || 6.9 || 6.5 || 6.4 || 5.8 || 5.0p

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

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

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

Labour market || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

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 (%) || || : || 34.4 || 34.0 || 33.3 || 33.6 || 35.0

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

Agriculture || 12) || : || 20.6 || 21.2 || 19.7 || 19.6 || 20.5

Industry || 13) || : || 21.7 || 21.2 || 21.9 || 20.9 || 30.3

Construction || 14) || : || 10.8 || 10.3 || 9.1 || 8.0 || :

Services || 12) || : || 47.0 || 47.3 || 49.3 || 51.5 || 49.0

Unemployment rate: share of labour force that is unemployed (%) || 15) || 40.0 || 23.4 || 24.1 || 27.2 || 28.0 || 28.6

Share of male labour force that is unemployed (%) || || : || 21.4 || 23.1 || 25.6 || 26.5 || 26.4

Share of female labour force that is unemployed (%) || || : || 26.8 || 25.6 || 29.9 || 30.5 || 30.7

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) || || : || 47.5 || 48.7 || 57.5 || 57.9 || 63.1

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || : || 20.2 || 20.0 || 22.3 || 22.3 || 22.9

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

Social cohesion || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Average nominal monthly wages and salaries (national currency) || 16) || 408.0 || 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 || 2008 || 2009 || 2010 || 2011 || 2012

Number of passenger cars per 1000 population || || : || 178.8e || 180.6e || 188.6e || 191.4e || 159.6e

Number of subscriptions to cellular mobile telephone services per 1000 population || || 92.6e || 769.9e || 830.7e || 784.3e || 825.8e || 873.2e

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

Infrastructure || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

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

Length of motorways (km) || || : || 28 || 35 || 35 || : || 37

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

Innovation and research || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

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 (%) || || : || : || : || : || : || :

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

Environment || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

\* Greenhouse gas emissions, CO2 equivalent (tons, 1990=100) || 17) || 16.0 || : || : || : || : || :

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 || 60.0 || 63.0 || 62.0 || 64.0 || 66.7

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

Energy || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

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

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

Primary production of hard coal and lignite (thousand TOE) || 18) || : || : || 3 629bp || 3 476 || 4 086 || :

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) || || : || 14.8 || 15.7 || 17.1 || 15.3 || :

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

Agriculture || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

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

Total utilised agricultural area (thousand hectare) || 19) || : || 1 679 || 1 656 || 1 649 || 1 675 || 1 680

Livestock: cattle (thousand heads, end of period) || || : || 459 || 458 || 462 || 455 || 446

Livestock: pigs (thousand heads, end of period) || 20) || : || 502 || 529 || 590 || 577 || 539

Livestock: sheep and goats (thousand heads, end of period) || || : || 1 101 || 1 125 || 1 109 || 1 086 || 1 070

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || || : || 737 || 734 || 693 || 689 || 674

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 21) || 1 139 || 1 329 || 1 343 || 1 104 || 1 119 || 906

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

Crop production: vegetables (thousand tonnes, harvested production) || 22) || 190 || 282 || 280 || 286 || 287 || 265

: =
not available

:z
= not applicable

b =
break in series

e =
estimated value

n =
not significant value

p =
provisional

\* =
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) Population estimated in 1.000 (2012=3836; 2011=3.840; 2010=3.843; 2009=3.843; 2008=3.342)

3) 2001, 2008 - 2011, data according to NACE Rev 1.1. ; 2012, data according to NACE Rev 2.

4) 2008 - 2011, GDP by expenditure is higher than GDP by production (2011=27.240; 2010=26.409; 2009=26.378; 2008=26.782, in thousand BAM)

5) 2001, data based on old methodology (BPM5);  2008 - 2012, data based on new methodology (BPM6).

6) 2008 - 2011, data based on new methodology (BPM6).

7) 2008 - 2010, data based on new methodology.

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

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

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

11) Based on Paasche export and import unit value indices for 2011 and 2012, base year 2010 , in BAM .

12) 2008 - 2011, data according to Nace Rev. 1.1. ; 2012, data according to Nace Rev. 2.

13) 2008 - 2011, data according to Nace Rev. 1.1.;  2012, including Sections F (construction), data according to Nace Rev. 2.

14) 2008 - 2011, data according to Nace Rev. 1.1.

15) 2001, data from the Bureau for Employment.

16) 2011, currency: BAM (Convertible Mark); including data from Brcko District; net salary.

17) 2001, source: UNDP - IPCC Indirect GHG sources and Initial UNFCCC BiH Communication, 2009. Unit is CO2 eq. in million tons. Agency for Statistics was not taking part in comprising this report and is solely referencing UNDP - IPCC and UNFCCC BiH Report made in 2009.

18) 2009 - 2011, primary production of lignite and brown coal included.

19) 2008 - 2012, the utilised agricultural area consists of arable land, kitchen garden, permanent crops and permanent grassland as cadastral data (not as UAA).

20) Data from 2010 and 2011 are related to the Government Decision about repurchace all quantities of pork meat on the market by large industrial processors.

21) 2009, including triticale and buckwheat;  2012, bad weather conditions have caused a decline in production

22) Including lettuce and melons after 2009; 2012, in according with EU reg. 543/2009, data excluding dried pulses, bad weather conditions have caused a decline in production

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

[2]               Enlargement Strategy and
Main Challenges 2013-2014, COM(2013) 700.

[3]              See details on
the OHR website (www.ohr.int) under ‘5+2
Agenda’.

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

[5]               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’.

[6]               SDP (Social Democratic
Party), SNSD (Alliance of Independent Social Democrats), HDZ BiH (Croat
Democratic Union for Bosnia and Herzegovina), HDZ 1990 (Croat Democratic Union
1990), SDS (Serb Democratic Party) and SBB BiH (Union for a Better Future of
Bosnia and Herzegovina).

[7]               The Constitutional Court of
Bosnia and Herzegovina ruled in May 2011 that the Law on Single Reference
Number was not in compliance with the Constitution due to the use of inaccurate
names of some municipalities which were not in line with the Law on Territorial
Organisation of Republika Srpska. The Court ordered the Parliamentary Assembly
to harmonise the law with the Constitution. The former law expired in February
2013.

[8]               HDZ BiH (Croat Democratic
Union for Bosnia and Herzegovina), HDZ 1990 (Croat Democratic Union 1990), SDP (Social Democratic Party) and SBB BiH (Union for a Better Future of
Bosnia and Herzegovina).

[9]               The Mostar Municipal Court
ruled in May 2012 that two schools in the Herzegovina-Neretva Canton breached
the anti-discrimination law by dividing children based on their ethnicity. The
first-instance ruling obliged the defendants to take specific measures and
actions to end discrimination.

[10]             Cases for which evidence was collected during the investigations by
the Tribunal’s Office of Prosecutor, later transferred for further
investigation and possible prosecution to the prosecutor’s offices in the
countries of former Yugoslavia.

\*               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.

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