Source: EURLEX
Language: en
Format: md

*|*

# 52014SC0305

**COMMISSION STAFF WORKING DOCUMENT BOSNIA AND HERZEGOVINA 2014 PROGRESS REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Enlargement Strategy and Main Challenges 2014-2015 /\* SWD/2014/0305 final \*/**

  

TABLE OF CONTENTS

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

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

1.1........ Context 3

1.2........ 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. 16

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

3........... Economic criteria. 24

3.1........ The existence of a functioning market
economy. 24

3.2........ The capacity to cope with competitive
pressure and market forces within the Union. 29

4........... European standards. 31

4.1........ Internal market 31

4.1.1.      Free
movement of goods. 31

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

4.1.3.      Free
movement of capital 34

4.1.4.      Customs
and taxation. 35

4.1.5.      Competition. 35

4.1.6.      Public
procurement 36

4.1.7.      Intellectual
property law.. 36

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

4.1.9.      Education
and research. 39

4.1.10.    WTO issues. 41

4.2........ Sectoral policies. 41

4.2.1.      Industry
and SMEs. 41

4.2.2.      Agriculture
and fisheries. 42

4.2.3.      Environment
and climate change. 44

4.2.4.      Transport
policy. 46

4.2.5.      Energy. 47

4.2.6.      Information
society and media. 49

4.2.7.      Financial
control 50

4.2.8.      Statistics. 50

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

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

4.3.2.      Money
laundering. 53

4.3.3.      Drugs. 54

4.3.4.      Police. 55

4.3.5.      Fighting
organised crime and terrorism.. 55

4.3.6.      Protection
of personal data. 57

Statistical Annex. 58

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 2013 to September 2014. 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 EU Member States,
European Parliament reports[1] and
information from various international and non-governmental organisations. Due
to internal disagreements, Bosnia and Herzegovina’s government failed to
provide the official contribution of the country for this year’s report.

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.

1.1.
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 (DPA). 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 the DPA consists of a State-level
Constitutional Court. The High Judicial and Prosecutorial Council, as well as a
State Court and Prosecutor’s 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] In
particular, a resolution of the issue of state property and other levels of
government and of defence property is still outstanding. This is linked to the
implementation of the Constitutional Court’s decision regulating property
distribution. In April, the House of Representatives of Bosnia and Herzegovina
rejected a proposed law on the disposal of immovable military property, as it
did not receive support from Republika Srpska delegates.

1.2.
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
Sejdić-Finci ruling of the European Court of Human Rights.[4] Full
implementation of the Sejdić-Finci ruling is a key element for Bosnia and
Herzegovina’s membership application to be considered as credible by the EU.[5]

The
Interim Agreement (IA) has been in force since July 2008. Regarding obligations
on state aid, the State Aid Council has been established, but it is not yet
fully functioning. The country is still in breach of the IA due to the
non-implementation of the Sejdić-Finci ruling.

Bosnia
and Herzegovina has refused to accept the established methodology for the
technical adaptation of the IA/SAA and has therefore not yet adapted the trade
concessions granted under its IA/SAA with the EU to take into account its
bilateral traditional trade with Croatia. After several rounds of negotiations
that led to no result, the Commission initiated a dispute settlement against
Bosnia and Herzegovina in an extraordinary meeting of the Interim Committee
that took place in November 2013. It is crucial that Bosnia and Herzegovina
re-engage in constructive discussions with the EU and reaches an agreement on
technical adaptation as a matter of urgency. The Commission adopted a proposal
to make the prolongation of the Autonomous Trade Measures for the
Western-Balkan countries after 2015 conditional for Bosnia and Herzegovina, until
it accepts the adaptation of the IA/SAA with the EU to take into account its
bilateral traditional trade with Croatia.

The
third meeting of the EU-Bosnia and Herzegovina High Level Dialogue on the
Accession Process was held in October 2013. Despite some progress, no final
agreement on the implementation of the Sejdić-Finci ruling and establishment of
an EU coordination mechanism could be reached. The EU continued its intensive
facilitation efforts to assist the country’s political representatives to find
an agreement on the implementation of the Sejdić-Finci ruling. The Commission
held discussions on this matter with the country’s political leaders in October
in Budapest, and in December in Prague. Given the lack of agreement among the
leaders, Commissioner Füle had to end his facilitation efforts in February. The
implementation of the Sejdić-Finci ruling remains crucial in order for Bosnia
and Herzegovina to meet its international obligations. As a response to the
political situation in Bosnia and Herzegovina and demonstrations calling for
improvements in the social and economic situation in the country, in February,
the Commission announced three new initiatives: broaden the EU-Bosnia and
Herzegovina Structured Dialogue on Justice, accelerate the implementation of
projects under the Instrument for Pre-accession Assistance (IPA) and strengthen
economic governance. Civil society is closely involved in all three
initiatives.

As
regards the first initiative, the Structured Dialogue on Justice, which focuses
on the reform of the judiciary and issues related to processing war crimes, has
been broadened to additional rule of law matters. A new set of agenda items was
identified with the domestic authorities and civil society representatives:
anti-corruption, anti-discrimination, prevention of conflict of interest, and
measures to strengthen the integrity, accountability and efficiency of police
forces within the existing legal framework. The first plenary meeting of the
broadened dialogue took place in May.

The second
initiative, focusing on strengthening economic governance,
consists of assistance in preparing a National Economic Reform Programme and a
Competitiveness and Growth Programme. As an immediate response to the
socio-economic concerns of the citizens of Bosnia and Herzegovina, in May, the
EU launched a Compact for Growth initiative through a Forum on Prosperity and
Jobs. The conference and subsequent follow-up events in July identified
economic policy measures, the so-called Compact for Growth, that targets key
economic issues. These commitments are expected to be taken up by political
parties in their election platforms and reflected in the National Economic
Reform Programme and the Competitiveness and Growth programme. Bosnia
and Herzegovina continues to participate in a multilateral economic
dialogue with the Commission and EU Member States to prepare the country for
participation in multilateral surveillance and economic policy coordination
under the EU’s Economic and Monetary Union.

Regarding the
third initiative, a Joint EU-Bosnia and Herzegovina Working Group to accelerate
the implementation of projects under the IPA was established in March. The
group has made only limited progress, despite involvement at Prime Ministers’
level. Following the floods that hit the country at the end of May, after
consultation with the country’s authorities, the Commission decided to
reallocate € 42 million from projects under previous IPA national
programmes that could not be implemented due to blockages on the side of Bosnia
and Herzegovina. In July, the Commission hosted a donors’ conference for Bosnia
and Herzegovina and Serbia, co-organised with France and Slovenia. Total
pledges for Bosnia and Herzegovina amounted to € 810 million of grants and
soft loans out of which € 85 million grants from the EU budget.

The EU
Delegation to Bosnia and Herzegovina is responsible for implementing financial
assistance. The country’s authorities have made no progress towards
establishing the structure necessary for indirect management of EU funds.
Implementation of the 2008-13 national IPA programmes is ongoing. Due to the
country’s lack of progress in the EU integration process and the absence of
countrywide strategies in many sectors, the draft IPA II Country Strategy Paper
is restricted to the period 2014-17, as compared to the full period for IPA II
2014-20 and the following sectors: democracy and governance; rule of law and
fundamental rights; competitiveness and innovation, local development
strategies; education, employment and social policies. The
establishment of a coordination mechanism on EU matters and countrywide sector
strategies remain key requirements for Bosnia and Herzegovina to benefit fully
from IPA funding.

The
EU provides guidance to the country’s authorities on reform priorities.
Progress on these priorities is encouraged and monitored by the joint bodies
established by the Interim Agreement. The overall pace of reforms has remained
weak. Only three out of the six sub-committee meetings and the Interim
Committee meeting have been held since October 2013. Three sub-committee
meetings had to be cancelled due to internal disagreements on the composition
of working groups and the level of consultation on the written documentation to
be submitted.

The
enhanced presence of the combined Office of the EU Special Representative and
the EU Delegation in Bosnia and Herzegovina has continued to be instrumental in
communicating EU priorities to citizens and in implementing the objectives of
the EU agenda in key areas. An inter-parliamentary meeting between members of
the European Parliament and members of the Bosnia and Herzegovina Parliamentary
Assembly took place in Sarajevo in March. The EU has continued to deploy
considerable resources in Bosnia and Herzegovina under the Common Foreign and
Security Policy and the Common Security and Defence Policy.

As
regards the Common Foreign and Security Policy (CFSP), Bosnia and
Herzegovina aligned itself, when invited, with 23 out of 44 relevant EU
declarations and Council decisions (52 % alignment). Bosnia and
Herzegovina did not align itself with Council decisions introducing EU
restrictive measures in the context of Russia’s illegal
annexation of Crimea and events in eastern Ukraine, as there was no
consensus within the Presidency of Bosnia and Herzegovina. Bosnia and
Herzegovina was absent at the vote on the UN General Assembly Resolution on the
territorial integrity of Ukraine.

The EUFOR Althea
military operation deployed with over 900 troops in-theatre and additional
over-the-horizon reserves. EUFOR troops focused on capacity building and
training of the armed forces of Bosnia and Herzegovina, while retaining
deterrence capacity to support a safe and secure environment. The UN Security
Council has extended EUFOR’s mandate until November 2014.

Visa
liberalisation for citizens of Bosnia and Herzegovina
travelling to the Schengen area has been in force since December 2010. As part
of the monitoring mechanism in place since visa liberalisation, the Commission
has been regularly assessing the progress made by the country in implementing
reforms introduced under the visa roadmap. The monitoring mechanism also
includes an alert mechanism to prevent abuses, coordinated by Frontex. The
Commission has regularly submitted its post-visa liberalisation monitoring
reports to the European Parliament and the Council. The next report will be
presented by the end of 2014. A visa-waiver suspension mechanism
entered into force in January 2014. On this basis, EU Member States can request
the Commission, in an emergency situation and as a measure of last resort, to
examine the possibility of temporarily suspending the visa waiver for
third-country nationals. A readmission agreement between
the European Union and Bosnia and Herzegovina has been in force since 2008.

Bosnia and
Herzegovina
participates in the following EU programmes: the Seventh research
framework programme, Culture and Europe for Citizens. Bosnia
and Herzegovina has also recently concluded or is in the process of
concluding new agreements for a number of programmes, including: Horizon 2020,
Creative Europe, Customs, Fiscalis and Erasmus+.

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 (DPA) 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
DPA, established a complex institutional architecture that remains inefficient
and is subject to different interpretations.

The complicated
decision-making process, lack of shared vision and weak cooperation between the
various levels of government have delayed structural reforms and hampered the
country’s progress towards the EU. In February, the failure of the authorities
to address political reforms and citizens’ long-standing social and economic
concerns led to large demonstrations.

Despite
intensive facilitation efforts by the EU, agreement on a definition of an
effective coordination mechanism between various levels of government for
alignment with the acquis could not be reached. The continued use of
divisive rhetoric by some political representatives and questioning of Bosnia
and Herzegovina’s capacity to function as a country had a negative impact on
cooperation between the Entities and the functioning of the State.

The
Constitution of Bosnia and Herzegovina prevents citizens who do not declare
themselves as one of the three constituent peoples from standing as candidates
for the Presidency and the House of Peoples of the Parliamentary Assembly. This
has been declared in breach of the European Convention on Human Rights in the
Sejdić-Finci judgment. The EU has further intensified its facilitation efforts to
assist the country’s political representatives in finding an agreement on the
amendments of the Constitution and the election law required to ensure the
implementation of the ruling.

Facilitation
efforts carried out under the auspices of Commissioner Füle and supported by
the Council of Europe’s Venice Commission continued at the third meeting of the
EU-Bosnia
and Herzegovina High Level Dialogue on the Accession Process in October 2013.
Despite significant progress in the talks, no agreement could be reached. In
February, the Commission had to end its facilitation
efforts.

Overall,
there has been no tangible progress in establishing functional and sustainable
institutions. The efficiency and functioning of the political institutions at
all levels of government need to improve. Moreover, the compliance of the
country’s Constitution with the European Convention on Human Rights as regards
the Sejdić-Finci judgment remains to be ensured.

Elections

General
elections will take place on 12 October. The official pre-election campaign
period started on 12 September and will end on 11 October, when election
silence is to be observed until closing of the polling stations. Election
preparations have started without major problems. International observers,
notably through the OSCE’s Office for Democratic Institutions and Human Rights
(OSCE/ODIHR), and domestic observers, notably through the civic coalition ‘Pod
Lupom’, are monitoring the election process and will issue after the 12 October
their findings and recommendations.

The 2010
Constitutional Court decision on Mostar’s statute has not been implemented due
to lack of agreement between SDA and HDZ BiH[6]
parties and municipal elections in Mostar have not yet taken place. This
prevents the citizens of Mostar from exercising their democratic rights. Mostar
City Council ceased to function in 2012 and since then, the city has been
governed by the Mayor, with no City Council in place to exercise its democratic
functions and to respect power-sharing arrangements. Following legal challenges
to the results of the 2012 municipal elections in Srebrenica,[7]
amendments to the State-level law on residence to improve security and
certainty remain to be adopted.

Parliament

In June, both
Houses of the Parliamentary Assembly adopted new rules of procedure to increase
efficiency and improve legislative procedures. The new rules of procedure
introduce a fast-track mechanism for EU-related legislation. Legislative
activities have been seriously hampered by political disagreements and the
uncertainties of coalition building at State and Entity levels. Both Houses of
the Parliamentary Assembly failed to convene regularly, mainly due to walkouts
of delegates from the Republika Srpska in the House of Representatives and the
lack of a quorum in the House of Peoples in the absence of three Bosniak
delegates. The work of the House of Representatives was interrupted for about a
month. The House of Peoples resumed its work after almost three months,
following the socio-economic protests in February.

Due
to political turmoil and inter-ethnic divergences, the
legislative work of the Parliamentary Assembly and its committees was slow and
ineffective.
Only four new laws and 21 amendments, including those required for
harmonisation with the acquis, have been adopted. Legislation was often
introduced in urgent procedure, thereby limiting consultations and amendments
from members of parliament. This has led to motions for protection of Vital
National Interests and rejections of laws. The lack of
consensus and a number of reshuffles of the Council of Ministers have had a
negative effect on cooperation between the Council of Ministers and the
Parliamentary Assembly.

At
Entity level, the absence of a clear parliamentary majority
in the Federation has made the decision-making process very difficult. The
unsuccessful attempt to reshuffle the Federation Government came to an end in
December and resulted in the resignation of the Speaker of the Federation House
of Representatives. A new Speaker was appointed at the end of April. These
political turbulences further worsened cooperation between the Federation
Parliament, Government and Cantonal legislators, which also had a negative
impact on the adoption of EU-related legislation. The work of parliamentary
committees continued to be affected by a frequent lack of quorum and weak advisory
services.

In the Republika
Srpska National Assembly, the EU Integration Committee continued to cooperate
closely with the government in assessing the level of compliance of proposed
legislation with the acquis.

Cooperation
between the State and Entity parliaments and Brcko Assembly continued at staff
and committees level but lacked support from the parliamentary leadership. The
State and Entity-level parliamentary committees for European integration have
last met in June 2014 to discuss use of the IPA funds in Bosnia
and Herzegovina. The State and Entity-level parliamentary
committees for European integration have not met since September 2013.

Overall, the
Parliamentary Assembly of Bosnia and Herzegovina has made very limited progress
in adopting EU-related legislation. Disagreements
along political and ethnic lines have had a major negative effect on the
work of the assemblies at State level and in the Federation. Cooperation
between the State and Entity parliaments and the Brcko Assembly needs to be better
institutionalised to improve countrywide legislative planning.

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.

In December, the
new parliamentary majority at State level endorsed the reshuffling of the
State-level Council of Ministers by appointing a new Minister for Foreign Trade
and Economic Relations and two deputy ministers. Following street protests, the
Minister of Security was dismissed by the Parliamentary Assembly in April. His
dismissal was followed by the resignation of the Deputy Minister of Finance in
May.

The Council of
Ministers continued to convene on a regular basis, except for February, when
its work was suspended following street protests. The legislative output of the
Council fell short of expectations. The Council held one thematic session on EU
integration. It could not reach an agreement on an EU coordination mechanism.
Political tensions within the Council of Ministers concerning the division of
competencies across different levels of government prevented the provision of
material needed to conduct a number of sub-committee meetings under the Interim
Agreement.

The
Council of Ministers could not reach agreement to prepare countrywide
strategies for key sectors of economy. Crucial investment sectors such as
agriculture and rural development, energy, environment and transport have
therefore not been included in the country strategy paper 2014-20 and in IPA II
programming in 2014. Lack of agreement between the State and Entities has led
to the cancellation of rural development projects needed for future
preparations for IPARD funds and resulted in loss of substantial EU assistance
to farmers.

The
development strategy and the social inclusion strategy at State level and in
Republika Srpska have not yet been adopted. The first population and household
census since 1991 was successfully conducted in October 2013. Preliminary
results were published in November. Statistical data collected through the
census aim at contributing to better socio-economic planning.

The
role of the Directorate for European Integration to guide the EU integration
process and the transposition of the acquis at different levels of
government has been further weakened due to disagreements within the Council of
Ministers on the EU coordination mechanism. As a number of sub-committee
meetings under the Interim Agreement did not take place and preparations of the
National Plan for the Adoption of the Acquis were stalled, the
Directorate’s coordinating role has further declined. Coordination of
activities and the exchange of information between the Directorate and the
Entities and the Brcko District need to be strengthened.

The Government
of Republika Srpska remains engaged in the approximation of draft legislation
with the acquis. Its administrative capacity to monitor EU-related
legislation remained good, but there was little coordination and cooperation
with the State-level Council of Ministers and the Federation Government.

In the
Federation, the reshuffling of the government initiated in June 2012 has not
been completed. The activities of the government were hampered by the pending
no-confidence vote that was passed by simple majority in both houses of the
Federation Parliament and was blocked by the Vital National Interests of the
Bosniak Caucus. The case is still pending before the Vital National Interests
Panel of the Federation Constitutional Court. The absence of a parliamentary
majority hampers the government’s ability to address urgent socio-economic
grievances, which were explicitly expressed during the demonstrations in
February.

In January, the
Federation faced a major political and financial crisis when the Entity’s President
dismissed the Minister of Finance. The dismissal took place with immediate
effect in the absence of legal provisions providing for a signatory of budget
payment transactions, including foreign debt payments. This has also had an
impact on Bosnia and Herzegovina’s obligations towards creditors and affected
the implementation of the stand-by arrangement with the International Monetary
Fund. After the Federation Prime Minister addressed the Entity’s Constitutional
Court, the Court adopted a decision on interim measures. In April, the
Federation Parliament adopted amendments to the law on execution of the budget
of the Federation, according to which a member of the Federation Government or
an authorised civil servant of the Ministry of Finance can sign payment orders
in the absence of a Federation Finance Minister.

The
socio-economic protests in February resulted in the resignation of four
Cantonal governments. The Tuzla Canton appointed a new non-partisan expert
government in March. In the Zenica-Doboj, Sarajevo and Una Sana Cantons, the
governments resigned and are acting in a caretaker capacity.

In October 2013,
the Federation Government adopted a decision on the Office for European
Integration. The selection process for the director is ongoing. No progress was
made in implementing the agreement on cooperation on EU integration issues
between the Federation Government and the Cantons. Meetings between EU affairs
coordinators in line ministries are held only on an ad hoc basis. Legislative
offices of different governments in the Federation do not cooperate
systemically to harmonise legislation or to approximate it to the acquis.

In the Brcko
District, the Office for European Integration within its government was
institutionally reinforced, but remains understaffed. The government and the
assembly cooperated closely with the Entities on EU-related legislation. The
District Assembly’s Committee for EU integration held two meetings. At the same
time, Brcko District Government held a thematic session dedicated to the EU integration
process in July.

Entity
legislation is largely in line with the European Charter on Local
Self-Government. However, there remains 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 National
Assembly of the Republika Srpska has adopted amendments to the law on local
self-government that decreased the power of municipal councils. The Cantons
have started harmonising their legislation with Federation law on the
principles of local self-government, but progress is slow.

Overall, no
progress has been made by Bosnia and Herzegovina in improving the functionality
and efficiency of all levels of government. Governments need as a matter of
priority to focus on addressing socio-economic grievances and further assisting
those in need following the floods. Countrywide strategies for key sectors of
economy need to be adopted.

Public
administration

The overarching
public administration reform strategy of Bosnia and Herzegovina, adopted in
2006, and the revised 2011 action plan provide the strategic framework for
public administration reform till the end of 2014. The Public
Administration Reform Coordinator’s Office (PARCO) has continued to carry out
its coordination tasks effectively at technical level and in close cooperation
with its counterparts at the Entities level and in Brcko District. However, the
monitoring capacity of PARCO remains weak, due to the lack of adequate performance
indicators to measure progress in the implementation of objectives set in the
PAR strategy. The
reform process lacks the necessary political support. No formal political
discussion has as yet taken place on the future of reform beyond 2014, after
the expiry of the current strategy and action plan. The pace of public
administration reform, in particular at Cantonal level, remains slow and shows
weaknesses in various areas, including policy development, budget processes,
human resources management, transparency and vertical coordination.

There has been
no progress with regard to policy development and coordination. Adequate
planning of actual costs and sources of financing for implementation of the
current public administration reform strategy is required.

Concerning public
service and human resources management, Brcko District has made some
progress in improving its civil service legislation. However, at other levels,
there has been no improvement in recruitment procedures that would ensure the
application of objective and merit-based criteria, transparency and prompt
appointments to vacant positions. Fragmentation of the legislation regulating
the civil service at Federation and Cantonal level continues to have a negative
effect on the functionality of the civil service system. There are still
weaknesses in the capacity of the civil service for legal harmonisation and
implementation of the acquis or for commitments arising from the Interim
Agreement and the Stabilisation and Association Agreement. The country’s
administrative structures need to be strengthened substantially to be able to
respond effectively to the requirements of the EU accession process.

As regards
accountability and service delivery, the lack of a
harmonised and modernised legal administrative framework negatively affects the
quality of public services delivery at all administrative levels. The
development and implementation of coherent standards and common administrative
practices across the entire public administration body still need to be
addressed.

Bosnia and
Herzegovina does not yet have in place a comprehensive public financial
management reform programme that would set the basis for prioritising and
sequencing reforms necessary in different parts of the public financial
management system. However, a public expenditure and financial accountability
assessment is underway and could be used as a starting point for preparing a
reform programme.

The reform
programme could help to address existing weaknesses, such as the lack of a
medium-term budgetary framework with medium-term targets, and the lack of
long-term planning on capital investment and further development of
programme-based budgeting. Also, there is no consolidation of the budgets of
State, Entities and other public sector bodies that would provide information
as defined by EU requirements. The non-inclusion of extra-budgetary funds in
particular prevents a clear view of the entire fiscal position. The budget
process also lacks democratic legitimacy, as budgets are usually adopted in
urgent procedure. Entity budgets frequently tend to undergo rebalancing over
the year, which, given limited human resource capacity, leaves little time to
improve the reporting process. This leaves the system vulnerable to abuse for
political purposes. On a positive note, debt has been actively managed to avoid
defaults on loans and to ensure that principal and interest payments are made
on time, but there is no published debt management strategy to guide policy.
Financial reporting also needs to be reformed.

Overall, very
limited progress has been made in reforming public administration and improving
its capacity to fulfil the requirements of EU integration. The
dysfunctionalities of public administration at, and between, its different
levels remain an issue of serious concern. A new public administration reform
strategy after 2014 needs to be developed. The reforms necessary in public
financial management need to be addressed in a more comprehensive manner.

Ombudsman

Some progress
has been made in increasing public awareness about the role of the Ombudsman
Institution of Bosnia and Herzegovina. The Ombudsman Institution continues to
face financial and human resource constraints that have a negative impact on
its activities, in particular as regards the implementation of
anti-discrimination law. Political support for the work of the Ombudsman
Institution remains weak and the implementation of its recommendations
continues to be low.

Civil
society

An empowered
civil society is a crucial component of any democratic system and should be
recognised and treated as such by state institutions. Civil society has become
more active following the widespread socio-economic protests that took place
across the country in February, calling on the governments to improve the
social and economic situation in the country. Citizens’
assemblies, called plenums, were established in several cities in the
Federation. The plenums put forward a number of socio-economic demands and
addressed them to the Entity and Cantonal authorities. These demands relate in
particular to measures to tackle unemployment, corruption, privileges of
elected officials, and improvements in healthcare and social protection. The
response from the authorities has been very limited.

Cooperation with
civil society at State, Entity and Cantonal levels remains weak. Institutional
mechanisms for cooperation with civil society are still not fully operational
at Entity level and are lacking at State level. A national strategy for civil
society has not yet been adopted. Civil society organisations often face
administrative restrictions during the registration process. Transparency in
the allocation of funds for civil society organisations needs to improve.

Representatives
of civil society in Bosnia and Herzegovina have been closely involved in the
preparation of the Progress report, of the draft IPA II Country Strategy Paper
as well as in the EU’s three new initiatives (see also 1.3 -
Relations between the EU and Bosnia and Herzegovina).

Judicial
system

The Structured
Dialogue on Justice, broadened to other rule of law matters, remained a sustained
confidence-building process, delivering some positive results in the area of
regional cooperation, the processing of war crimes, professionalism and the
efficiency of the judiciary. The implementation of the Justice Sector Reform
Strategy (JSRS) 2009-2013 was completed in part, while the follow-up strategy
2014-2018 and action plan are still in the process of receiving final political
endorsement. The State-level Ministry of Justice has finalised a draft law on
the High Judicial and Prosecutorial Council (HJPC) that was reviewed by the
Council of Europe’s Venice Commission with an opinion adopted in March 2014.
The politicisation of the appointment procedures for the Council’s members and
that of the Chief Prosecutors at all levels, through involvement of executive
and legislative branches, remains problematic. The final adoption of amendments
to the law on the Courts of Republika Srpska, which harmonises the law with the
HJPC’s existing prerogatives, is still pending. The draft Law on the Courts of
Bosnia and Herzegovina, providing for the establishment of a separate
State-level Appellate Court, and the draft law on the Prosecutor’s Office of
Bosnia and Herzegovina have been finalised by the Ministry of Justice.
Following the earlier Venice Commission opinion and relevant Structured
Dialogue recommendations, this reform needs to be achieved with the largest
possible political consensus as a matter of priority. There was some progress
in enhancing the harmonisation and consistency in applying substantive criminal
law at the State-level judiciary and other instances throughout the country.

There are
persistent flaws in the independence and impartiality of the
judiciary. Political interference has continued. In particular, the
political establishment has applied pressure on issues related to processing
war crimes, including the enforcement of the European Court for Human Rights
judgment in the case of Maktouf and Damjanović vs Bosnia and Herzegovina.

Sources of
budgeting for judiciary and prosecution services in Bosnia and Herzegovina continue
to be highly fragmented, particularly in the Federation, and capacities for
planning within the 14 budgetary institutions remain weak. Streamlining
budgetary responsibilities, necessary to increase efficiency in resource
allocation and the overall independence of the sector, remains a key structural
objective. The total adopted budget for 2013 was € 110 million,
representing 0.82 % of the country’s GDP.

Due to budgetary
restrictions, 13 % of positions for regular and reserve judges, as well as
prosecutors, cannot be filled across the country. In an effort to examine the
current situation, the HJPC is undertaking a comprehensive analysis to
facilitate reaching optimal numbers.

On accountability,
the number of complaints submitted regarding judicial office holders,
particularly prosecutors, has increased at the Office of the Disciplinary
Council. The overall trend has been to reduce the number of pending cases, as
well as to shorten processing time. The number of disciplinary cases opened ex
officio due to the elapse of the statute of limitation has increased,
totalling 50 % of all disciplinary proceedings. Out of 18 disciplinary
proceedings, 17 were completed and sanctions disposed. Due to the current legal
framework, there is a lack of adequate disciplinary sanctions against
wrongdoing judicial office holders. A rulebook on conflict of interest for
members of the HJPC has been adopted.

As regards efficiency,
there has been progress on the package of measures and technical reforms
provided by the HJPC as well as other relevant stakeholders, reducing the
backlog of cases. Each court has developed a backlog reduction plan complying
with the judicial quotas adopted. In 2013, seven courts reached the target of
bringing their caseload up to date. The rise in of unpaid utility bills cases
continues to be a significant burden on the judiciary and represents 79 % of
unresolved cases (total: 1.709 million). Productivity in
courts rose by 9 % in 2013 compared to 2012, partly thanks to the
implementation of a rulebook with suggested quotas for the work of judges and
judicial associates in courts. As recommended by the Structured Dialogue on
Justice, cooperation
with Entity notary chambers was established to relieve the pressure on
first-instance courts by transferring certain court competencies to public
notaries.

The judicial
information and communication system is fully functional throughout the
country. The case management system in courts and prosecutors’ offices covers
over 3.9 million cases and now produces automated reports on judicial
performances that contribute to policy and strategic planning decisions. In
January 2014, a tool was introduced to enable all parties in proceedings to
receive information on the predicted duration of their cases in court.

Access to the
judicial web portal has improved substantially. The Judicial Documentation
Centre has also registered a significant rise in online visits. The number of
visits to this site has increased by 35 %. New electronic services such as
a web calculator for court fees and a web address book listing lawyers are
available
on this portal.

A uniform human
resources management information system for courts and prosecutors’ offices has
been established, improving efficiency in the appointment, management and
planning of such resources.

The physical
conditions in several courts in the Entities have improved, particularly
regarding witness protection measures. Several Entity prosecutors’ offices have
benefited from renovations to improve their working conditions. Technical
preconditions for more efficient processing of war and organised crime cases,
as well as application of witness protection measures, have been met in a
number of courts and prosecutor’s offices by introducing digital audio and
video. Use of these systems will have a positive impact on reducing the
costs/duration of proceedings and the quality of witness protection measures. Further
improvements to the judicial and prosecutorial infrastructure are still
required.

As regards professionalism,
training for the judiciary is provided by the Judicial and Prosecutorial
Training Centres of the two Entities. It is based on the three-year mid-term
strategy for induction and continuous training adopted by the HJPC. Each
training centre prepares an annual curriculum, which includes distance learning
modules comprising 30 % of the training modules available. Although most
judicial staff holders comply with the compulsory minimum days of training per
year, institutional reforms of the training centres are necessary to improve
both the delivery and substance of training. The HJPC successfully completed
the test phase for new procedures regulating access to judicial careers. A new
system of competitive written examinations for all candidates entering judicial
careers and the systematisation of structured interviews for all applicants, including
internal promotions, is expected to increase the objectivity and transparency
of recruitment, based on merit and qualifications.

Progress has
continued on tackling the large backlog of domestic war crimes cases.
The implementation of the national war crimes strategy continues, although at
an unsatisfactory pace, and the body in charge of its supervision requires
additional support from all authorities. The State-level judiciary continues
the referral of war crimes cases. The capacities of prosecutors’ offices
throughout the country were improved through recruiting more staff, and
material conditions were significantly improved through international
assistance. Appropriate financing of adequate staffing levels in prosecutors’
offices and courts remains an issue to be addressed urgently to ensure timely
and effective processing of the backlog. The competent authorities failed to
allocate the funds needed to complete the support infrastructure.

Discussion on
the lack of harmonisation of case-law through application of different criminal
codes was re-launched following the European Court of Human Rights judgment in
the case Maktouf and Damjanović vs Bosnia and Herzegovina. New jurisprudence in
cases of war crimes against civilians and genocide was enforced. The court’s
earlier jurisprudence on crimes against humanity was confirmed. The
institutionalisation of regular consultations among the highest judicial
institutions led to the establishment of three fully functioning panels of the
highest judicial instances in charge of ensuring harmonisation in criminal,
civil and administration-related matters. The Criminal Codes Implementation and
Assessment Team that had provided a forum for expert discussion was dissolved.

The prosecution
of war crimes cases involving sexual violence further improved, and there is genuine
commitment on the part of the authorities to delivering justice to
survivors of sexual violence. However, efforts to investigate and prosecute
these crimes need to be stepped up further, as the overall number of
indictments for sexual violence is low in comparison to the prevalence of such
crimes during the conflict. The low number of suspects and lack of evidence
hampers the progress of investigation. A comprehensive approach to improving
the status of victims of rape and sexual violence has still to be achieved. The
adoption of a State-level programme to improve the status of victims of war
crimes involving sexual violence is pending.

Steady progress
on witness protection measures is primarily due to international financial
support, particularly regarding psychosocial witness support in the Entities.
Refurbishing of some court rooms for protected witness testimony and provision
of adequate equipment has been completed in the majority of Cantonal/district
courts. Recruitment of non-judicial witness support staff in courts and
prosecutors’ offices is ongoing, but a comprehensive witness protection system
before and after proceedings is still not in place. The draft law on witness
protection programme was adopted.

Access to
justice
has moderately improved, but equality in relation to rights, criteria and
procedures is not uniformly guaranteed. Concerning free legal aid, the risk of
discrimination continues to be of serious concern as a consequence of a
fragmented and non-harmonised system. A free legal aid agency has been
established in one more Canton of the Federation, bringing the total to eight.
However, the free legal aid system is still unregulated in two Cantons and
in the Federation. The adoption of a State-level law on free legal aid is still
pending. Civil society organisations actively continue to provide free legal
aid, particularly in civil cases, but their role is not consistently recognised
or even regulated in the country. The Free Legal Aid Network has made steady
progress, with additional training, strengthened cooperation between these
organisations and governmental agencies, increased awareness and reinforced
monitoring.

Overall,
there was little progress in the area of judicial system reform. The Structured
Dialogue on Justice remains an important platform to consolidate consensus on
judicial reforms and has been further broadened to other rule of law-related
matters. The reform of the State-level judiciary remains a priority. A new
Justice Sector Reform Strategy has been prepared, but final political
endorsement is still pending. Measures to reduce the backlog of cases have
successfully started, but the backlog remains high, with a large number of
unpaid utility bills cases that need to be addressed with structural solutions
as a matter of urgency. The lack of human resources at all levels to
tackle the backlog of war crime cases has been partly addressed, but
sustainability still needs to be ensured with proper planning and relevant
funding from competent domestic authorities. There was no progress on reducing
the budgetary fragmentation of the judiciary, which also undermines
independence. The judiciary requires further reinforcement of disciplinary
tools and adequate regulations of conflict of interest. The law on the courts
of Republika Srpska requires amendments in line with the recommendations of the
Structured Dialogue on Justice.

Fight
against corruption

Political
patronage networks are widespread and influence all levels of government. The
Agency for Prevention of Corruption and Coordination of the Fight against
Corruption is operational, with adequate premises and an initial level of
staffing. Five additional advisors were recruited and started working. The
Agency received opinions of all relevant bodies to amend its rulebook on internal
organisation, to create 20 new positions, which would bring the total number of
staff to 49. The revised rulebook remains to be adopted. Activities to draft a
new anti-corruption strategy for 2015-2020 were initiated with the
establishment of a working group including representative of all relevant
institutions.

At Entity level,
Republika Srpska adopted a new strategy for the fight against corruption and an
action plan for the period 2013-17. The monitoring commission and operational
team remain to be appointed. The Team for Monitoring in the Federation
developed action plans for institutions. The Brcko District and Cantons have
not yet designated their monitoring bodies, despite their legal obligation to
do so.

Amendments to
the law on conflicts of interest at State level have been adopted. The
implementation of the law is entrusted to a commission composed mainly of
parliamentarians, while expert tasks will be performed by the office of the
anti-corruption agency. The amendments do not guarantee impartiality and
effective prevention of conflict of interest. As a result of the amendments,
the Central Election Commission is no longer competent to implement the law and
to monitor its application in the Federation and Brcko District. The
legislation on declaration of assets is fragmented. There are four laws
concerning different forms of declaration, overlapping in terms of relevant
officials and data to declare. The existing framework does not provide
efficient review mechanisms that would enable proper verification of assets.
The law on political party financing does not comply with the recommendations
issued by the Council of Europe’s Group of States against corruption (GRECO).
In line with art 20 of the United Nations’ Convention Against Corruption, country
Bosnia and Herzegovina should consider criminalising inexplicable wealth.

Changes to the
law on access to information are pending the appointment of a new Working Group
by the Council of Ministers. Amendments to the Criminal Procedure Code to
improve the legal framework for the use of special investigative measures were
withdrawn from parliamentary procedure.

As regards
protection of whistle-blowers, a State-level law was adopted, entrusting the
anti-corruption agency with the protection of persons who report on corruption.
A draft law on protection of whistle-blowers passed the public debate phase in
the Federation.

The track record
of investigation and prosecution in high profile cases remains unsatisfactory
and the overall level of effective investigations, prosecution and convictions
is low. The capacity to investigate economic, financial and public
procurement-related crimes is weak. There is a strong case for introducing
specialisation within the police and judiciary to fight corruption. The proposed
law to establish specialised departments within the Prosecutor’s Office and
Supreme Court of Federation to prosecute corruption and organised crime cases
was adopted by the Federation’s parliament. There is still no effective
criminal justice policy, and sanctions for corruption are no deterrent.

Overall,
Bosnia and Herzegovina has made little progress in advancing reforms to reduce
corruption, which continues to affect the entire public sector and remains most
acute in the areas of service delivery and access to employment. There is
little political will to move beyond rhetoric and to tackle corruption,
including effective investigations and convictions in high profile cases. While
the legal framework is largely in place, the implementation of laws is weak and
inconsistent. Some key pieces of legislation fail to comply with international
standards.

Fight
against organised crime

Efforts
by law enforcement agencies have led to a number of successful large-scale
joint operations, some also through close coordination with neighbouring
countries. Strategic coordination among police forces throughout Bosnia and
Herzegovina remains to be further developed. Effective judicial follow-up
remains an issue, and cooperation between police and prosecutors’ offices needs
to be further strengthened.

Domestic and
transnational criminal networks have continued to operate throughout the
territory of Bosnia and Herzegovina. The fight against arms trafficking
requires additional targeted efforts. Bosnia and Herzegovina also remains a
country of origin, transit and destination for the trafficking of human beings
for the purpose of labour exploitation, sexual exploitation, begging and forced
marriages. Although production of drugs remains limited, and is mostly limited
to marijuana cultivation, the territory of Bosnia and Herzegovina continues to
be used for transit and storage purposes. Organised crime remains an issue of
serious concern.

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, which also guarantees the supremacy of this Convention over
national legislation.

During the
reporting period, the European Court of Human Rights delivered 12
judgments finding that Bosnia and Herzegovina had violated the European
Convention on Human Rights. The total number of pending applications decreased
from 1662 in October 2013 to 1228 as of September 2014. The remaining cases
relate mainly to the impossibility to withdraw foreign currency savings
deposited before the dissolution of former Yugoslavia, the non-possibility of
resolving cases related to re-possession of occupancy rights, missing persons
and discrimination on the grounds of ethnicity. While some further progress in
implementing the Court’s judgments has been made, the judgment in the
Sejdić-Finci case has yet to be implemented.

As regards the promotion
and enforcement of human rights, since October some 393 judges,
prosecutors and legal associates throughout the country have taken part in
training on anti-discrimination, gender equality, domestic violence,
anti-defamation and freedom of expression.

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 the acquis.

The legal
framework on the prevention of torture and ill-treatment and the fight
against impunity is in place and is generally respected. Bosnia and Herzegovina
has appointed its representative to the Council of Europe’s Committee on the
Prevention of Torture. Effective investigation needs to be ensured and
preventive measures taken as regards ill-treatment of suspects by police
officers in some police stations and of prisoners by prison staff in some
detention facilities. Legislation on the rights of victims of torture remains
to be adopted.

Regarding the prison
system, there was some improvement in conditions for vulnerable prisoners.
After long delays, the construction of a high-security State prison started in
August. There remains a large backlog in the execution of criminal sanctions,
particularly in the Federation. A new law on the execution of criminal
sanctions needs to be adopted in the Federation to ensure harmonisation with
State-level law and with international standards. Prison inspections need to be
improved, particularly through the delivery of a harmonised training curriculum
and programmes for inspectors. An effective coordination mechanism among the
country’s 15 prison administrations is lacking.

Legal
provisions guaranteeing freedom of expression are in place. However,
political and financial pressure on the media has increased. Intimidation and
threats against journalists and editors and polarisation of the media along
political and ethnic lines intensified prior to the October general elections.
There were a number of attacks on the media by politicians, mostly from the
Republika Srpska, as well as alleged wiretapping of journalists. Cases of
intimidation of journalists by law enforcement officers were recorded during
the socio-economic protests in February. The follow-up by the authorities to
such threats has been insufficient. The violent attack on a university
professor in Mostar that occurred in June was swiftly investigated and the
perpetrators brought to justice. There were only few judicial cases
regarding defamation.

The new Council
of the Communication Regulatory Agency was elected. It completed a procedure
for overturning the decision of the previous Council to reduce advertising time
during public service broadcasters’ programmes. The new Council finalised in
March a procedure for the selection of the agency’s Director General whose
appointment is still pending. The political, institutional and financial
independence of the agency remains to be secured.

The independence
of the three public broadcasters within the country’s public broadcasting
system remains to be ensured. The two Entity broadcasters were exposed to
further political influence. The Federation Parliament failed to appoint
members to the Steering Board of the Federation of BiH Radio and Television. At
the same time, the Director General of the RTV FBiH remained in a technical
mandate.

The Steering
Board of the Republika Srpska public service broadcasters (the RTRS) was
elected in accordance with legislative amendments adopted in October 2013.
These amendments introduced a selection and appointment procedure for the
steering board without any involvement of the Communication Regulatory Agency.
This increased political control over RTRS and thus undermines editorial
independence. The amendments also opened a possibility for RTRS to be
co-financed from the Republika Srpska government budget, opening the door to
further political influence. The newly elected steering board appointed the new
acting Director General of RTRS, who previously worked at the Office of
Republika Srpska’s Prime Minister.

Entity laws on
public broadcasting services remain to be harmonised with State-level law. The
procedure for amending the statute of the public service broadcaster BHRT
failed. The adoption of the Public Broadcasting Corporation’s statute is
pending and Public Broadcasting System reform has not been completed.

All types of
broadcasting are licensed by the Communications Regulatory Agency, under the
provisions of the Communications Law of BiH.

The
transparency of media ownership is limited. It is partly assured through the
process of court registration of business entities, but the full information is
not easily accessible due to problematic legal provisions
hampering a systematic insight into the ownership structure. This is especially
problematic regarding
online media, which are often not registered as media businesses. There
have been no major initiatives to regulate ownership, privatisation and public
funding, or to create a supportive economic environment for the work of
independent and financially viable media.

Government
financing of media raises concerns. Public broadcasters that are not part of
the public broadcasting system are financed from municipal and Cantonal budgets
and remain under strong political influence. At Entity level the
Government of the Republika Srpska is funding both public and private media. Lack
of transparency and clear criteria in the distribution of subsidies are a
serious concern. In addition, the advertising practices of public companies
controlled by political parties also affect media integrity. The advertising
money in some cases follows political party affiliations and influence
editorial policies.

The BiH
Journalists’ Association has been leading civil society efforts in the country
aiming at securing freedom of expression and freedom of media, protection of
journalists and media integrity. The Press Council of Bosnia and Herzegovina
continued to intervene with print and online media outlets on behalf of
readers, with the aim of strengthening professional reporting. The
implementation of the Freedom of Access of Information Act remains uneven among
public institutions.

With regard to
freedom of assembly and association, there have been some cases of
intimidation and violence against human rights defenders. Effective
investigation and prosecution of all 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 have been reported and particularly affect
religious minorities in certain communities.

Legal provisions
guaranteeing women’s rights and gender equality are in place. A new
Action Plan for the Implementation of the UN Security Council Resolution 1325
for the period 2014-2016 was adopted in July. Cooperation between the State
Agency and Entity Centres for Gender Equality has been good. Gender focal
points were appointed in the State-level ministries of defence and security. A
Gender Equality Committee was established in the Brcko District Assembly. Women’s
political participation across the country remains low. Participation of women
in the workforce is low and there is still maternity-related discrimination in
employment.

Concerning
domestic violence, coordination between the State and Entity levels has been
improved. There is still discord in legislative and policy frameworks between
various levels of governance, particularly in the Federation. A
study on the prevalence of violence against women in Bosnia and Herzegovina
carried out by the Gender Equality Agency, the Entity Gender Centres and the
Institutes for Statistics, concludes that almost half of the women
surveyed have experienced at least one form of violence from the age of 15.
There is no data collection mechanism for monitoring domestic violence. A
strategy for the implementation of the Council of Europe’s Convention on
preventing and combating violence against women and domestic violence has still
to be adopted.

As regards children’s
rights, the first session of the Council for Children was held in December
and since then the Council has been meeting regularly. The law on a single
reference number, important to ensure access to health and social benefits and
travel documents for newborn children, was adopted in November. The adoption of
the first report on the guidelines for the identification of socially excluded
children has brought some improvements in data collection. The
Parliament of the Federation adopted a strategy for 2013-17 to improve early
childhood development. Services for young children, including home visits to
reach marginalised families, started to expand through health centres, reaching
10 % of municipalities across the country. Some progress
was made in reducing the number of children in institutions, mainly in Tuzla
Canton. The number of children with disabilities in institutions remains high.
Use of foster care needs to be further promoted. Domestic violence against
children continues to be widespread. The percentage of children immunised
against preventable diseases has increased slightly, but is still low.

The continued
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. In October 2013, the
Travnik Municipal Court rejected on procedural grounds a lawsuit filed by a
non-governmental organisation that claimed that the existence of ‘two schools
under one roof’ was discriminatory. De facto ethnic-based separation and
discrimination in some public schools in the Federation remain of concern.

The start of the
2013-14 school year was marked by school boycotts in several locations in the
Republika Srpska. In two schools, Bosniak parents boycotted education over the
failure of the authorities to meet their demands regarding inter alia
the introduction of the Bosniak national curriculum, and the lack of Bosniak teachers
and school support staff. Some parents and their children publicly protested in
Sarajevo. The situation is not legally resolved and some pupils missed the
first semester of the official school year. Some parents have filed lawsuits
against the school authorities and the Republika Srpska Ministry of Education
referring to the anti-discrimination law and unequal treatment when exercising
the right to education. The ministry submitted requests to initiate minor
offence proceedings against parents whose children did not attend school during
the year 2013-14.

A law on
juvenile justice was adopted in the Federation. Orasje juvenile institution
became operational. The lack of separate units for juveniles in prisons and
police stations across the country still raises concerns. There has been steady
progress on enforcement of the Brcko District and Republika Srpska’s juvenile
justice laws’ requirements, with adequate training for judicial and
non-judicial actors and designations of suitably qualified prosecutors. Several
technical obligations remain insufficiently implemented, with almost no
establishment of specialised departments for juveniles in prosecutors’ offices
and courts, and no recruitment of expert advisers such as psychologists. The
lack of capacity to implement alternative measures for juveniles has not been
addressed. The pace of legal proceedings involving juvenile suspects remains
insufficient throughout the country, while such proceedings have decreased in
number. The legal framework in place is still not harmonised. A national
strategy on youth in conflict with the law needs to be adopted.

As regards the socially
vulnerable and/or persons with disabilities, entitlement to rights
and benefits for the disabled is based on status and not on needs. As a result,
some categories of persons with disabilities do not receive adequate benefits.
Implementation of the social protection legislative framework needs to be
stepped up.

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 has not been addressed. Other legislation, such as labour law
and laws on higher education, need to be harmonised with the
anti-discrimination law. The application of the law by judges remains very
limited and its interpretation is uneven across the country. Awareness about
the anti-discrimination law remains low among the general public but also by
law enforcement agencies and legal professionals. The technical capacity of the
Ombudsman to contribute to effective implementation of the anti-discrimination
law needs to be strengthened (see also 2.1. Democracy and the rule of law —
Ombudsman). An anti-discrimination strategy at State level has yet to be
adopted. There is no comprehensive collection of data on discrimination.

Concerning
rights of lesbian, gay, bisexual, transgender and intersex (LGBTI) persons,
the anti-discrimination law does not include a clear definition of gender
identity and sexual orientation and refers to sexual expression and/or
orientation as grounds of discrimination. Sexual orientation and gender
identity are not included as grounds for hate crime in the criminal law of the
Federation. In the Sarajevo Canton, 19 police officers have been trained on
LGBTI rights.

Discrimination
against LGBTI people remains widespread. Hate speech, hate crimes and violent
attacks against LGBTI people and human rights defenders have increased along
with the higher visibility of the LGBTI community. The number of complaints on
discrimination and violence officially registered with the police and the
Ombudsman remains low. Awareness on LGBTI rights remains very low among the
judiciary, law enforcement agencies and the general public. Participants in the
LGBTI film festival Merlinka in Sarajevo in February were attacked and two were
injured. Police did not intervene promptly to ensure protection. Hate speech
and hate crime remain an issue of concern.

With regard to
labour and trade union rights, the legal framework for social
benefits and pension rights remains fragmented. The labour laws are still not
harmonised between the Entities and within the Federation. A State-level
Economic and Social Council has yet to be established. Provisions for the
recognition of social partners at State level have not yet been established (see
also 4.1.8 Employment and social policies, public health policy).

As regards property
rights, little additional progress has been made to resolve
outstanding cases. There are a total of 183 cases before the State Court in
which the Commission for Real Property Claims of Displaced Persons and Refugees
is the respondent party in administrative dispute procedures. From thi number
129 cases have been archived, 19 cases are pending to be resolved by a judge
and 35 which are still in the preparatory phase. Although the new members of
the Commission were appointed, the Commission has not yet started to function.
A database on outstanding claims and property registers has not been
established.

Overall, the
legal and institutional framework for the observance of human rights is in
place and the main elements of international human rights laws have been
incorporated into the legal system. The implementation of the judgment in the
Sejdić-Finci case remains essential (See 2.1 — Constitution). The death
penalty provision in the Constitution of Republika Srpska needs to be deleted.
Rising political and financial pressure on the media and intimidation and
threats against journalists and editors are of serious concern. Media ownership
issues need to be addressed. 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 and to ensure children’s right to education throughout
the country. The anti-discrimination law needs to be amended to include
additional categories on the grounds of which there should not be
discrimination. Effective prevention and investigation of cases of hate speech,
violence and discrimination against in particular LGBTI persons need to be
ensured.

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 National Minorities’ Councils are
operational, but their advisory role remains weak. Implementation of the
European Charter for Regional and Minority Languages remains weak. As the
Sejdić-Finci ruling has not yet been implemented, minorities continue to be
excluded from representation in the House of Peoples and the Presidency of
Bosnia and Herzegovina (see 2.1 — Constitution). Cultural rights need to
be strengthened, including those affecting the participation of national
minorities in public life.

Bosnia and
Herzegovina holds the chairmanship of the Roma Decade in the second
semester of 2014. There are two action plans under the Roma strategy — an
action plan on educational needs of Roma and an action plan on employment,
housing and healthcare 2013-16. The latter has been revised to reflect
recommendations from the Roma Inclusion Seminar held in July 2011. The defined
objectives are now more realistic, with deadlines and clearer division of
responsibility among stakeholders.

Very good
progress was made in addressing the housing needs of Roma through building new
housing units and upgrading existing Roma settlements. The percentage of Roma
children vaccinated against preventable diseases remains very low. The
mortality rate under one year of age is three times higher for Roma children
than for the overall population.

There has been a
rise in the enrolment of Roma children in pre-school education in the Sarajevo
and Zenica-Doboj Cantons. Countrywide, the enrolment rate of Roma children in
pre-school education is only 1.5 %, compared to 13 % for the overall
population. Only two out of three Roma children attend primary school and only
about 23 % attend secondary school. In 2012-13, no funding was allocated
at State level to support the implementation of the action plan on educational
needs. Budgets allocated at Entity level are not sufficient. State-level
guidelines on improving the situation of Roma children and social inclusion
were adopted in October 2013. Poverty, change of residence and lack of support
from families continue to be barriers to access to education for Roma children.

As regards
access to civil registration, the overall number of persons at risk of
statelessness, the vast majority of whom are Roma, decreased from an estimated
4 500 in January 2012 to an estimated 792 in April 2014. There have been
some improvements with regard to discrimination against Roma. Over 50 primary
schools in the Federation in the Tuzla Canton and in Republika Srpska
integrated an inclusive approach through school development plans based on an
index for inclusiveness methodology to promote respect for diversity and
tolerance. However, discrimination against the Roma minority remains
widespread. Discrimination cases against the Roma population have been reported
in the context of the heavy floods in May.

With regard to refugees
and internally displaced persons (IDPs), there are still 84 500
IDPs and 6 853 refugees in Bosnia and Herzegovina. In
March, the Parliament of the Federation adopted a law allowing returnees from
the Republika Srpska to access pension benefits and healthcare in the
Federation. Access to social rights for returnees remains an issue of concern.
Transparent and non-discriminatory criteria for allocating return assistance
have yet to be established, despite the fact that the State Commission for
Refugees and Displaced Persons became operational in 2012 and has met
regularly. The Revised Strategy for the Implementation of Annex VII of the
Dayton/Paris Peace Agreement still lacks coordinated implementation and
appropriate allocation of resources. There are problems related to the lack of
infrastructure. In particular, electricity and comprehensive de-mining
activities continue to limit access to basic services for returnees, displaced
persons and refugees. Over 8 600 persons are still living in difficult
conditions in collective centres. As regards landmines from the 1992-95
conflict, implementation of the mine action strategy has been slow. Potentially
mined areas currently cover 2.4 % of the country’s surface. Since
September 2013, six people have been killed and nine injured in landmine
accidents. The adoption of the law on anti-mines actions still needs to be
adopted. There is still no comprehensive approach to address the remaining
challenges of clearing the country of mines by 2019.

Overall,
some progress has been achieved in improving housing conditions for Roma and as
regards civil registration. Roma remain the most vulnerable minority in Bosnia
and Herzegovina. The implementation of Roma action plans needs to be stepped up
and allocation of sufficient budgets ensured. As regards refugees and
internally displaced persons, effective implementation of the revised strategy
needs to be ensured, in particular its socio-economic aspects.

2.3.
Regional issues and international obligations

Bosnia and
Herzegovina has appointed representatives to a number of Council of Europe
advisory bodies where it was not represented. The country has yet to select and
appoint the chairperson of its delegation to the Council of Europe’s
Parliamentary Assembly. Implementation of requirements stemming from the
Council of Europe Conventions remains uneven.

Implementation
of the Dayton/Paris Peace Agreement continued. In May, Serbian Prime
Minister Vucic reiterated his support for the Agreement and for the sovereignty
and territorial integrity of Bosnia and Herzegovina during his visit to
Sarajevo. Under the Agreement on Special Parallel Relations between Serbia and
Republika Srpska, joint sessions of the governments were held in October and
December, with emphasis on joint efforts to fight organised crime and
corruption and on economic cooperation.

Cooperation with
the International Criminal Tribunal for the former Yugoslavia (ICTY)
continues to be satisfactory in most areas. Serious, consistent efforts
are, however, still required to complete the handling of all category II war
crimes cases,[8]
which were transferred from the Tribunal to Bosnia and Herzegovina. For
developments related to the processing of domestic war crimes cases, see
above — Judicial system.

There have been
significant steps to improve regional cooperation and the fight against
impunity. Regional cooperation between courts and prosecutors’ offices in
Bosnia and Herzegovina, Serbia and Croatia continued within the existing legal
framework. Bilateral extradition agreements (excluding war crimes) with Serbia
and the former Yugoslav Republic of Macedonia have entered into force. Further
agreements with the former Yugoslav Republic of Macedonia on legal assistance
in civil and criminal matters and on mutual execution of court decisions in criminal
matters have been ratified in March. The Bosnia and Herzegovina Prosecutor’s
Office and Montenegro Supreme State Prosecutor’s Office have signed a protocol
on cooperation in prosecution of perpetrators of war crimes, crimes against
humanity and genocide.

Bosnia
and Herzegovina still maintains a 2003 bilateral immunity agreement with the
United States, granting exemptions for US citizens from the jurisdiction of the
International Criminal Court. In doing so, it is not complying with the
EU Common Positions on the integrity of the Rome Statute or with the related EU
guiding principles on bilateral immunity agreements. Bosnia and Herzegovina
needs to align with the EU position.

Bosnia and
Herzegovina, along with Croatia, Montenegro and Serbia, have continued to
cooperate closely in the framework of the Sarajevo Declaration Process,
which aims to find sustainable solutions for people who became refugees and
displaced persons as a result of the armed conflicts in ex-Yugoslavia during
the 1990s. In March, the UN High Commissioner for Refugees (UNHCR) recommended
that UN member states terminate refugee status for refugees originating from
Croatia, at the latest by the end of 2017.

Implementation
of the regional housing programme, expected to provide sustainable
housing solutions for some 14 000 people in Bosnia and
Herzegovina,
has started.
Two housing projects, targeting about 900 beneficiaries, have been approved.
Two Entity and one second-instance commissions for the selection of
beneficiaries have been appointed and started working in October 2013. However,
lengthy, complex procedures to select beneficiaries and lack of capacity within
the lead institution continue to cause delays in the implementation of the
programme in Bosnia and Herzegovina. The selection of returnees, in particular,
is advancing at a very show pace due to the high number of applications and
their so far inefficient processing. Good overall cooperation between the
partner countries on the process and its housing programme needs to continue.

The unresolved
fate of missing persons from the conflicts in the 1990s remains a
humanitarian concern in the Western Balkans. As of August, a total of 11 155
persons were still missing according to the International Committee of the Red
Cross (ICRC). Of these, 7 282 cases relate to the conflict in Bosnia and
Herzegovina, 2 163 to the conflict in Croatia and 1 710 to the
conflict in Kosovo\*. Ascertaining
the fate of missing persons remains vital for reconciliation and stability in
the region. Greater political commitment and renewed efforts are needed.

Serbia, Bosnia
and Herzegovina, Croatia and Montenegro signed in August a Declaration on the
role of the state in addressing the issue of persons missing as a consequence
of armed conflict and human rights. A review of non-identified bodies stored in
11 mortuaries has started. Over 260 cases from the Mostar and Nevesinje morgues
have been re-examined, resulting in 30 new identifications. In all, 684 remains
were exhumed over the reporting period, resulting in 576 new identifications.

The Missing
Persons Institute continues to be subject to political pressure. No progress
was made on implementing the provisions of the law on missing persons regarding
the establishment of a fund to provide financial support to families of missing
persons. Lack of local forensic capacity is hampering the process of
identifying missing persons, especially in the Federation.

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 to actively participate in
regional initiatives, including the South-East European Cooperation Process,
the Regional Cooperation Council and the Energy Community Treaty. Bosnia and
Herzegovina successfully concluded its one-year term as Chair of the Central
European Free Trade Agreement at the end of 2013. Bosnia and Herzegovina
continues to actively support the Coalition for Reconciliation Commission
(RECOM) and Igman initiatives on regional reconciliation.

In December,
Bosnia and Herzegovina, Montenegro and Serbia signed a protocol to establish a
joint centre for police cooperation in Trebinje (Bosnia and Herzegovina), which
opened officially in March. On 29 September 2014, Bosnia and Herzegovina, the former
Yugoslav Republic of Macedonia, Montenegro and Serbia signed an agreement on
reducing the prices of roaming services on public mobile communications
networks.

Bosnia
and Herzegovina has further developed its bilateral relations with other
enlargement countries and neighbouring EU Member States.

A
treaty on cooperation with Albania in the veterinary field was ratified
in March. A
bilateral agreement on mutual protection of classified information was
signed in May.

An
Agreement on double taxation with the former Yugoslav Republic of Macedonia was
ratified in March, and amendments to a number of other agreements were
ratified.

A protocol on cooperation in the
area of forensic examinations and expertise with Montenegro was
signed in December. The protocol on cooperation in the prosecution of
perpetrators of war crimes, mentioned above, was signed in April. A bilateral
border agreement was initialled in May.

Relations
with Serbia remained good. The new Serbian Prime Minister Vučić made his
first official foreign visit to Sarajevo and focused on improving economic and
trade cooperation and resolving remaining bilateral issues. There were several
other high-level reciprocal visits. The Serbian leadership took a constructive
approach during the socio-economic protests in Bosnia and Herzegovina, calling
for restraint and moderation by the political representatives of the Republika
Srpska. An agreement on readmission of persons whose entry or stay is illegal
and its implementing protocol were ratified 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 only by invitation from foreign diplomatic missions and international
organisations accredited in Bosnia and Herzegovina, or for humanitarian reasons.
An amendment to normalise visa procedure for all citizens of Kosovo is pending.
In January, Kosovo introduced visas for citizens of Bosnia and Herzegovina.

An
agreement on cooperation in the defence industry and on military training was
ratified with Turkey in December. The Turkish Foreign Minister visited
Bosnia and Herzegovina in February and the Chairman of the Presidency of Bosnia
and Herzegovina Izetbegovic paid an official visit to Turkey in May.

Relations with Croatia
remained good. A number of Croatian officials,
including the President, government members and parliament representatives
visited Bosnia and Herzegovina. Regarding the transit of goods through the Neum
corridor, in October 2013 the Indirect Taxation Authority of Bosnia and
Herzegovina introduced systematic customs controls of shipments of goods by way
of tracking shipments and copying transport documents, on top of controls
carried out by Croatia, on behalf of the EU, at the EU’s external border. These
controls are an impediment to the smooth flow of mainly domestic Croatian
goods. Both parties are working towards a practical solution on a bilateral
basis. No additional progress has been made in resolving outstanding bilateral
issues, including property issues and border demarcation.

Overall,
Bosnia and Herzegovina has continued to participate actively in regional
cooperation and to maintain good neighbourly relations. Remaining border and
property issues with neighbouring countries need to be addressed.

3.
Economic criteria

In examining 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 European Union requires the existence of a
functioning market economy and the capacity to cope with competitive pressures
and market forces within the Union.

Monitoring of
the economic criteria needs to be seen in the context of the increased role of
economic governance in the enlargement process, as welcomed by the General
Affairs Council of 17 December 2013. To this end, Bosnia and Herzegovina
engaged in high-level policy dialogue with the Commission, the Member States
and the European Central Bank, based on its Economic and Fiscal Programme.

Economic
structural reforms were put at the centre of the Compact for Growth initiative
launched by the EU in May 2014, which identified key economic policy issues.

3.1.
The existence of a functioning market economy

Macroeconomic
stability was broadly maintained but the export-led recovery remains fragile.
Despite a shrinking current account deficit, external imbalances remain large,
reflecting limited output- and export diversification and a generally low
degree of competitiveness. A significant state presence in the economy as well
as considerable weaknesses in the business environment continue to negatively
affect private sector development. No progress has been made towards creating a
single economic space within the country. Some measures to improve public
finances sustainability have been adopted in both Entities but the quality of
public finances remains low and fiscal discipline and expenditure control have
to be strengthened. The stalled privatisation process and the unfavourable
composition of public expenditures continue to significantly undermine the
growth potential of the economy. Unemployment remains persistently high.

Economic
policy

Consensus between the authorities at
different government levels led to an agreement on a medium-term countrywide
fiscal strategy -the Global Frameworks on Fiscal Balance and Policies for
2014-2016 and 2015-2017- were adopted, albeit with some delay. Consensus was
also reached regarding some adjustments in excises along with several reform
steps aimed to improve fiscal sustainability. However, significant efforts are
still needed to develop further the medium-term fiscal strategy in order to
strengthen its role as a fiscal coordination tool. In January 2014, the
authorities submitted their Economic and Fiscal Programme (EFP) for 2014-2016.
It foresees a gradual economic recovery based on strengthening of domestic
demand, but at the same time remains silent on pressing structural reforms, in
particular beyond 2014, and faces non-negligible implementation risks. A
nine-month extension of the Stand-By Arrangement (SBA) with the IMF, totalling
€ 153.6 million was granted in January 2014. Following a temporary
stalemate in early 2014, the combined sixth and seventh review of the SBA was
completed in June 2014. To meet the country’s urgent balance of payments needs
caused by the severe flooding in May 2014, the programme was at the same time
augmented by about € 95.7 million. Budgetary support from the World Bank,
which had already been delayed and temporarily suspended, is expected to be
disbursed by the end of 2014. The country needs to step up its efforts on
fiscal consolidation and improving public spending composition and targeting,
address the high burden of non-performing loans in the banking sector, improve
the business environment, and reduce labour market rigidities, in line with
targeted policy guidance as outlined by the European Commission in the
framework of the EFP dialogue in June 2014. Overall, despite some slight
improvement, the consensus on economic and fiscal policy essentials remained weak
and significant efforts are needed to pursue reforms already envisaged.

Macroeconomic
stability

The economy recovered
somewhat in 2013 but this recovery is fragile. Output growth reached 2.5 %
in 2013 and accelerated to 2.7 % in the first quarter of 2014, compared to
a drop by 1.2 % in 2012. Per capita GDP in purchasing power
standards remained at 29 % of the EU-28 average in 2013. Net exports were
the main drivers of economic growth, a result of declining imports coupled with
buoyant export activity. Despite a modest growth of real wages and broadly
unchanged remittances, domestic demand in 2013 was held back by a stagnating
private consumption on the back of a slowing credit growth and persistently
high unemployment. At the same time, investment activity posted a meagre growth
thanks to foreign-financed public investments, while private investments were
stagnant. Signs of fragility are becoming evident in 2014. Partly due to base
effects export growth came to a halt in the first five months in 2014 but
showed signs of modest recovery afterwards, while imports reversed their
negative trend. Heavy floods in the spring severely damaged transport- and
energy infrastructure as well as production and are expected to result in a
drag on short-term GDP growth. Overall, the economy is slowly emerging
from recession but economic growth remains fragile and the short-term outlook
has deteriorated due to the spring floods.

External
imbalances narrowed substantially in 2013 on the back of stagnating private
consumption and imports coupled with a solid export performance, but started to
widen again in the first half of 2014. The current account deficit nearly
halved to 5.5 % of GDP in 2013 from well above 9 % of GDP in the
previous two years, mainly linked to a strong improvement of the trade deficit
to 30.5 % of GDP from 33.6 % of GDP in 2012. At the same time, the
contribution of current transfers, although slightly declining from last year, amounted to some 10 %
of GDP. The trend for a narrowing trade deficit reversed in the first seven
months of 2014 when merchandise exports expanded at a slower pace (1 % in
annual terms), while imports of goods picked up by some 6 %. The current
account deficit increased to 6.1 % of GDP in the four quarters to March
2014. Net foreign direct investment (FDI) inflows, which accounted for only
one-third of the current account deficit financing, continued their declining
trend and amounted to a meagre 1.9 % of GDP in 2013 even narrowing further
in the first quarter of 2014. Net foreign exchange reserves steadily increased
in the course of 2013 and the first half of 2014 and covered more than five
months’ worth of imports, boosted partly by financial assistance under the IMF
Stand-By Arrangement. Overall, the external imbalances have narrowed but
remain a source of vulnerability, especially in view of the potential adverse
impact of the volatile environment on FDI inflows.

Labour
market conditions improved somewhat during 2013 despite continuous adverse
developments in some sectors (e.g. construction). Notwithstanding a slight rise
of employment in the manufacturing sector, the public sector still accounts for
the largest share in the workforce (27 %) in 2013. The unemployment rate
(ILO methodology) dropped by half a percentage point to 27.5 % of the
workforce in 2013 and remained unchanged in 2014. At the same time, the already
low employment and activity rates of the population aged 15 years and older
also slightly declined further to 31.6 % and 43.6 %, respectively.
The structural nature of unemployment is reflected by the high share of
long-term unemployment accounting for around four fifths of total job-seekers,
while youth unemployment remains close to 60 %. A significant difference
between the registered and survey-based labour figures points towards the
existence of a fairly large informal labour market. Overall, labour
market conditions have remained difficult and structural rigidities continued
to hamper job creation, including for youth, calling for urgent measures to
reduce disincentives to hiring, enhance flexibility of the labour market, and
increase participation rates.

Inflationary
pressures abated in the course of 2013 bringing consumer price inflation from 2 %
in 2012 down to -0.2 % in 2013. The deflationary trend started in August
2013 and continued in the first half of 2014. Consumer prices declined by 1.4 %
in the period January-July 2014. Monetary policy of the central bank continued
to be conducted under a currency board arrangement—with the euro as anchor
currency—enjoying a high level of confidence and credibility. Overall,
the currency board has continued to function well, but feeble domestic demand
and persistent deflation are growing causes for concern.

Despite
some fiscal consolidation measures in 2013 such as the freeze of public sector
wages and restrictive employment policy in both Entities and the central
government, as well as additional measures including the one-off cut of
salaries in Republika Srpska, the general government deficit remained broadly
unchanged at 2.2 % of GDP. In particular, public expenditures in 2013
declined by 1 percentage point to 45.6 % of GDP and are heavily biased
towards current expenditures. The public wage bill still accounts for a large
share of expenditures although marginally decreasing to 12.5 % of GDP,
while expenditures on social benefits remained unchanged at some 17 % of
GDP. At the same time, capital expenditures increased slightly to 6.8 % of
GDP. Expenditure consolidation was coupled with some underperformance of
revenues dropping to 43.4 % of GDP in 2013 partly due to the decline of
net indirect taxes, in particular because of high VAT refunds. In the first
half of 2014, the fiscal situation deteriorated again as a result of the spring
floods and the temporary stalemate of the Stand-By Arrangement with the IMF
against the backdrop of elevated debt servicing needs in 2014, thus prompting a
rebalancing of the Entities’ budgets. In particular, the emergency financing
needs to tackle the consequences of the spring floods are likely to double the
target of the consolidated fiscal deficit for 2014 to close to 3 % of GDP.
Overall, the fiscal situation improved slightly in 2013 but worsened
again in early 2014 amid a persistently low quality of public finances. Further
efforts are needed to address the composition of public spending.

The management of public finances appears to have
strengthened in 2013-2014 with the adoption in due time of the State and Entity
budgets, although the Global Frameworks for Fiscal Policies 2014-2016 and 2015-2017
were adopted with some delay. To improve the long-term sustainability of the
Entity’s public finances, in September 2013 the Federation government endorsed
a strategy for a contributory pension system reform. A new Law on Budgets in
the Federation entered in force in January 2014 aiming to enhance the
coordination with lower levels of government i.e. Cantons and municipalities.
However, the quality of fiscal reporting remains low, undermining public
scrutiny, proper analysis and policy design. Overall, important steps
towards improving the sustainability of fiscal policy have been taken, but
significant further efforts are required, notably with a view to strengthening
expenditure controls and fiscal discipline.

General
government debt (domestic and external), although still below the statutory
ceilings of the Entities, has been steadily increasing in recent years to reach
46.2 % of GDP in 2013 according to national data. This was mainly due to
an increase of external borrowing reaching 28.2 % of GDP at end-2013,
however, with an average favourable interest rate of 1.44 %. At the same
time, both Entities issued short-term treasury bills and long-term government
bonds in 2013 securing relatively favourable conditions due to high demand. The
issuance of government securities intensified in the first half of 2014 linked
to the temporary stalemate of the programme with the IMF and elevated
refinancing needs estimated to increase to 4.5 % of GDP in 2014. In
addition, the spring flooding is putting further pressure on public finances. Overall,
despite a still moderate level, the upward trend of public debt and the
elevated servicing needs are a source of macro-financial vulnerability.

Interplay of market forces

The
share of the private sector continues to account for about 60 % of GDP
while the government’s influence over economic activity has remained
significant as reflected in the share of GDP of public expenditures and the
off-budget expenditures for state-owned firms. Despite the adoption of privatisation
strategies in 2013 and 2014, the privatisation process in the Federation
continued to suffer setbacks. The unsuccessful attempts to sell 11 companies in
2013, mostly with minority stakes of the state, left the initial stock of
state-owned capital for privatisation unchanged at some two-thirds. In
Republika Srpska, about 2/3 of the enterprises intended for privatisation had
been sold prior to the crisis, while other companies previously offered for
sale were forced to declare bankruptcy. Most prices are liberalised and a
number of regulated prices remain (e.g. utilities). Overall, the
long-stalled privatisation process needs to be re-started again.

Market entry and exit

In
spite of some recent improvement, the business registration and start-up
process remains cumbersome and costly. The lack of harmonisation of
registration procedures across Entities still requires entrepreneurs to
register in both Entities before they can do business in the whole country. The
implementation of the ambitious business environment reform in Republika Srpska
continued in 2013 and early 2014 with the establishment of one-stop-shops for
business registration as of December 2013, the reduction of the number of
required procedures (from 11 to 5) and of business start-up costs (from € 500-750
to € 200). In the Federation, the adoption of amendments to the Law on
Business Registration as well as the Law on Companies and Inspections also
aimed to simplify and shorten business registration. Despite the acceleration
in economic activity in 2013, the number of newly registered companies
decreased significantly by 14.1 % from a year earlier. Slow contract
enforcement, limited access to financing and political instability remained key
disruptive factors for doing business in the country. No progress was made in
easing market exit or bankruptcy procedures. Overall, the simplification
of business registration has continued, albeit slowly, but significant
administrative barriers for private-sector development still remain.

The legal system

No
substantial improvements can be reported as regards the business legal system
in Bosnia and Herzegovina, which remains complex and challenging. The
implementation of laws is often poor due to weak institutional enforcement
capacity. The judicial system still frequently does not function efficiently
and in particular struggles to cope with commercial dispute settlements. The
enforcement of commercial contracts remains a lengthy process, which involves
37 procedures and still takes an average of 595 days. A weak rule of law and
unreliable contract enforcement procedures continue to hamper the business
environment. Overall, lengthy contract enforcement procedures and
weaknesses in the rule of law continue to be detrimental to the business
environment.

Financial sector development

The
banking sector continued to dominate the financial system in 2013, accounting
for 84.6 % of all financial system assets and some 84 % of GDP. The
number of banks operating in the country at end-2013 decreased to twenty-seven
following revocation of one bank licence in June 2013. The banking sector
remains highly concentrated and is dominated by foreign capital holding
slightly below 90 % of total banking assets. There are only two majority
state-owned banks while the rest are privately-owned.

The
banking system remained well capitalised and liquid in 2013 and in the first
quarter of 2014. The capital adequacy ratio decreased slightly to 17.3 %
in the second quarter of 2014 compared to 17.8 % as of end-2013. In 2013
the maximum coverage level within the deposit guarantee scheme was increased to
€ 25000 from previously € 18000, with twenty-six banks participating.
The liquidity of the system improved and the ratio of liquid assets to total
assets as of end December 2013 rose slightly to 26.4 %. However, financial
stability pressures have somewhat increased. Banking sector profitability
ratios continued their downward trend and turned temporarily negative as of end
2013. Moreover, banks’ exposure to credit risk has increased as the ratio of
non-performing loans (NPLs) rose to 15.5 % of total loans in the second
quarter of 2014 compared to 14.3 % a year earlier, with a further increase
likely to result from the spring flooding. So far, the deterioration has been
mitigated by an increase in loan loss provisioning.

Although
credit growth remained positive, it decreased substantially to 2.8 % in
2013, mainly on the back of a deceleration of corporate lending. However, there
were signs of recovery of corporate lending in the first half of 2014. At the same
time, retail lending increased substantially throughout the period and rose on
annual basis by 6.5 % in June 2014. The magnitude of potential crowding
out of private investment by the public sector is likely to be limited given
the relatively low share of the government sector in total credits. The
importance of deposits as a source of bank financing continued to increase with
deposit growth accelerating to 7.8 % in June 2014 after a growth of 6.9 %
in 2013. The trend of stronger deposit growth in the corporate sector started
in mid-2013 and continued through the first half of 2014, swelling by 12.7 %
on average, while households increased their savings by 8.8 %. However, on
the back of the acceleration in credit growth, the loans-to-deposits ratio slightly
rose to 116 % in June 2014. Overall, the banking system remains well
capitalised and liquid. However, the increasing share of non-performing loans
is a cause for concern.

The
capital market in Bosnia and Herzegovina remains small and the turnover concentrates
on a few privatised companies and government financing instruments. The
combined stock market capitalisation increased marginally to 34 % of GDP
largely due to government bonds and bills that account for around 75 % of
total market capitalisation. In 2013, twenty-five companies were operating in
the insurance sector in the country. 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

Human
and physical capital

Information and
statistics on human capital remain scattered. The overall progress in the area
of education continues to be very limited, despite the increase of gross
enrolment rates for higher education. The educational reform agreed in 2012
remains ineffective, though some progress has been made in the area of
accreditation of higher education institutions. The significant number of
unemployed with university degrees possibly reflects inefficiencies in the
higher education system. Unemployment among youth (age group 15-24) stands at
close to 60 % and is the worst among all age groups. However, necessary
reforms of the labour legislation to decrease labour market rigidities are
still pending, while labour market programmes in place do not effectively
address long-term and youth unemployment. Overall, significant efforts
are needed to improve the quality and efficiency of the education system and
support a proper functioning of the labour market.

The unfavourable
business environment coupled with low shares of public capital expenditures in
recent years put a drag on the improvement of physical infrastructure. The
floods in May 2014 have impaired large parts of the country’s infrastructure
and the reconstruction needs completely overstrains the thin public capital
budget. However, the investment-to-GDP ratio in 2013, which remained broadly
unchanged at the relatively modest level of 17.8 % of GDP, is likely to
increase in view of international aid-supported reconstructions following the
floods. Due to the stalled privatisation process and unsupportive business
environment, net FDI flows in 2013 continued their downward trend reaching 1.9 %
of GDP, targeting the energy sector and infrastructure projects. Investments in
the energy sector were directed mainly towards hydro and coal-burned power
plants, while investments in infrastructure were mainly driven by construction
works on the highway of Pan-European Corridor Vc but with slow progress. In
total, inward FDI stock reached € 5.9 bn or 44 % of GDP by end-2013. Overall,
there is a need to rebuild fiscal space for growth-enhancing public investments
and to enhance the business environment to attract private investment, in
particular FDI, both of which are crucial for improving the underdeveloped infrastructure
which was furthermore damaged by the floods.

Sector
and enterprise structure

Limited progress
has been achieved in unbundling electricity networks as well as towards a
competitive telecommunications market. The three incumbent operators continue
to act in their geographical areas as de facto monopolies over fixed
voice telephony. The number of new registrations in the internet services and
network operators market continued its upward trend in 2013. The penetration
rate of internet users reached 65.4 % at the end of 2013, while the rate
of broadband internet access increased marginally to a still relatively low
level of 13.5 %. Overall, limited progress was achieved on the
liberalisation of network industries.

According to the
Statistical Business Register from end-June 2014 only 56.7 % of
enterprises are active. The majority (75.1 %) are micro-enterprises with
less than 10 employees operating mainly in the wholesale and retail sale
sector. The economy continues to be dominated by the services sector, which
accounted for around 62 % of gross value added (GVA) in 2013, followed by
industry (20 %) and agriculture (8.1 %). The contribution of the
construction sector to GVA contracted further to 4.6 %, while the
traditionally high share of public administration, education and health
protection remained broadly unchanged at 18.8 %. The informal sector
fuelled by poor law enforcement and the inadequate fight against corruption
represents a major obstacle for industry development and imposes significant
risks and costs on the overall economy. Overall, there have been no major
changes in the structure of the economy and the need
to address the informal sector remains.

State
influence on competitiveness

No major
progress has been made in reducing the state’s influence on the economy. In
addition, hardly any measures to decrease para-fiscal charges have been
implemented, thus putting an additional brake on private sector development.
Direct budget subsidies to industry and agriculture at consolidated level decreased
to around 1 % of GDP in 2013 partly due to consolidation efforts during
the year. Similarly to previous years, the Entity governments provided loan
guarantees worth 6.3 % of GDP to several companies in the infrastructure
sectors. The State aid authority remains to become fully operational and its
financing issue is yet to be resolved. Bosnia and Herzegovina still needs to
improve the consolidated state aid inventory reporting and address the issue of
transparency of all directly granted state aid. Overall, state aid
remains significant and the state-owned monopolies are an enduring drain on
public resources.

Economic
integration with the EU

The
openness of the economy measured as the sum of total imports and exports of
goods and services marginally fell to 80 % of GDP in 2013 as compared to
81 % in 2012, mainly on account of shrinking imports even though exports
slightly increased to 30 % of GDP. The overall coverage of import by
export increased to 58.7 % up from 54.5 % in 2012. The EU remains
Bosnia and Herzegovina’s main trading partner, increasing its weight further
with Croatia’s EU accession as of 1 July 2013. Accordingly, the share of
exports to the EU increased to 73.5 %, while imports from the EU came
slightly down to 60 % of total imports. The most important EU trade
partners are Germany and Croatia, although the pending adoption of quality
standards required by the accession of Croatia to the EU puts downward pressure
on the share of both Croatian imports and exports. CEFTA countries remained the
second single most important trading partner and accounted for some 16 %
of merchandise exports and 11 % of imports of goods. Overall, the
already high level of trade integration with the EU remained broadly unchanged.

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

In
the area of standardisation, the Institute for Standardisation of Bosnia
and Herzegovina (the BAS), adopted 81.4 % 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 1862 European standards (ENs) as national standards, bringing the total
to 16 705 ENs. Two new technical committees, BAS/TC 55 (Social
Responsibility) and BAS/TC 58 (Eurocodes) were established, bringing the total
to 51. The BAS actively works on raising public awareness about the importance
of standardisation and improving the technical competence of BAS personnel. No
conflicting ex-Yugoslav mandatory standards were withdrawn.

On conformity
assessment, Republika Srpska is developing its own legislation separately.
The Federation and the Brčko District of Bosnia and Herzegovina continue to
implement the BiH conformity assessment law.

As
regards accreditation, the Institute for Accreditation of Bosnia and
Herzegovina (the BATA) accredited a total of 62 conformity assessment bodies.
BATA’s representatives regularly took part in the work of European and
international accreditation organisations and its personnel upgraded their
expertise with specialised training. 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, representatives from the Institute of Metrology
of Bosnia and Herzegovina (IMBiH) participated in the work of technical
committees on metrology (EURAMET, WELMEC, BIPM, IOML, COOMET and GULFMET). The
IMBiH also participated in 28 inter-comparisons. The Laboratory for Precious
Metals (the national reference laboratory responsible for quality control of
articles made of precious metals) has been accredited according to standard BAS
EN ISO/IEC 17025:2006 for testing laboratories. IMBiH declared a national
standard in the field of mass, which serves as the basis for determining the
value of all other standard units of measure for mass. The IMBiH carried out a
fourth annual supervisory check on its quality management system. IMBiH
personnel improved their expertise by participating in European development
programmes and cooperating with EU Metrology Institutes. A development strategy
for the metrology system, the new law on metrology which merges the existing
legislative framework and lays the foundation for implementation of the acquis
have yet to be adopted. Cooperation and coordination between the IMBiH and the
metrology institutes of the Entities need further improvement.

In
the area of market surveillance, the Market Surveillance Agency and the
inspection bodies of the Entities and of Brčko District have initiated,
implemented and coordinated proactive and reactive market surveillance
activities. In all, 15 projects were implemented as part of the proactive
surveillance and 33 cases were initiated on reactive surveillance. As a result
of 233 inspection controls, 4612 unsafe products were withdrawn from the market
and 2 935 unsafe products were destroyed.

Businesses
have harmonised 208 636 pieces of products with safety requirements by
order of inspections. The agency has given eight training courses for
inspectors of the Entities and the Brčko District. Coordination and cooperation
between the agency and inspections in the Entities and Brčko District continues
to develop through the regular work of the coordination board. The agency
published 48 notifications with descriptions of risk and instructions for
consumers and 49 weekly RAPEX notifications about dangerous products found on
the EU market. It has published brochures in several key areas to inform the
public about unsafe products on the market. The agency also adopted a
communication strategy for the period 2014-16.

The
market surveillance system remains largely based on mandatory standards and
pre-market control. Full alignment of the law on market surveillance with the acquis
remains to be achieved and cooperation between the agency and inspections
of the Entities and Brčko District needs to be improved.

Although
the ‘New and Global Approach’ product legislation is regulated at State level,
Republika Srpska is adopting its own legislation (separately from State,
Federation and Brčko District). The division of responsibilities for alignment
with ‘Old Approach’ acquis remains to be clarified.

The report on
the execution of the 2013 State-level annual consumer protection
programme and the 2014 State-level annual consumer protection
programme have yet to be adopted.

The Ombudsman’s
Office for Consumer Protection continues to be fully staffed. In 2013, the
Ombudsman resolved 255 cases. The Ombudsman delivered 10 expert opinions,
provided 588 pieces of legal advice and answered 950 requests for information.
The Ombudsman issued recommendations and guidelines in the communal
electricity, heating and water supply sectors.

Overall,
there has been limited progress on free movement of goods in the areas of
standardisation, accreditation and metrology and on consumer protection. Legal
alignment and related capacity building remain a priority, as is coordination
between the relevant institutions and repealing conflicting legislation. Major
steps still need to be taken to achieve a fully functioning single economic
area.

4.1.2.
Movement of persons, services and right of
establishment

The movement
of persons and the mobility of the labour force within the
country remain a concern. The Agreement between the Council of
Ministers of Bosnia and Herzegovina and the Government of the Republic of
Slovenia on Employment of Citizens and the Protocol on the Implementation of
the Agreement resulted in the issuing of 661 work permits and 624 vacancy
notices published for 1 456 jobs in 2013. The decision on determination of
the annual quota of work permits for foreigners in Bosnia and Herzegovina for
2014 sets an annual quota of 1 949 work permits, of which 950 relate to
the Federation of Bosnia and Herzegovina, 800 to Republika Srpska and 199 to
Brčko District. Of these annual quotas, 679 work permits concern new jobs for
foreigners in Bosnia and Herzegovina. (see also 4.1.8 — Employment and
social policies, public health policy)

As
regards the freedom to provide services, preparations for aligning with
the Services Directive have not yet started. Implementation of the acquis
on recognition of qualifications is sought, but is undermined by the
lack of harmonisation between the Entities and State level.

In
the field of postal services, a total of 16 postal service providers
have been licensed by the Bosnia and Herzegovina Agency for Postal Traffic.
Three of these are public and 13 are private. There is no State-level strategy
for postal services and the State-level law on postal services aiming to
achieve further harmonisation with the acquis and to ensure consistency
of the regulatory framework among the Entities has yet to be adopted.
The lack of harmonisation between the Entities and the State level regarding
the scope of universal and reserved services continues to undermine legal
certainty. Administrative capacities at State level remain weak.

On financial
services, both Entities are in the process of drafting a new law on banks.
Both Entities’ banking agencies passed numerous decisions related to
minimum standards for banks’ capital management, fees for members of
supervisory and steering boards, reporting standards and conditions for
conducting payment transactions abroad. Banking agencies are carrying out
stress tests on a regular basis, as a result of which five out of 27 banks were
identified as currently undercapitalised. The process of recapitalisation is
underway. Due to a massive loss at one commercial bank, in 2013 the banking
sector ended up with a negative financial result of BAM 380 million.

The
law on the protection of consumers of financial services in the Federation was
adopted by parliament in March 2014. Despite the existing legal framework, the
Ombudsman for financial services is not yet operational in the Federation.

In the field of insurance
services, the Insurance Agency has strengthened its coordinating role in
the preparation of draft legislation by the Entities, which also introduced a
system for the exchange of draft by-laws related to protection funds.

The regulatory
and enforcement powers of the Insurance Agency still remain to be reinforced
and clarified. The draft law on insurance was adopted by the Federation House
of Representatives in March 2014

Both Entities
prepared draft laws in the field of third party motor vehicle insurance. In
December 2013, Republika Srpska adopted three by-laws in the field of insurance
against civil liability in respect of the use of motor vehicles.

The Entities
adopted regulations that set conditions for the operation of insurance
companies and brokerage firms to improve client protection. The Federation
adopted a rulebook on conditions for investments by insurance companies and
decisions on voting and temporary funding of the protection fund. Republika
Srpska adopted a decision on conditions for the use of assets for the coverage
of technical reserves by insurance companies. The Federation introduced
amendments to the legislation on insurance companies and on intermediaries into
parliamentary procedure to harmonise legislation between the Entities.

Operations of
insurance companies across Entities improved. Overall, the insurance market
remained steady while the premiums for life insurance continued to rise, which
indicates a diversification of portfolios in favour of life insurance, notably
in Republika Srpska.

On capital
markets, the Federation prepared a draft Law on takeovers of joint stock
companies to align it with the Directive on Takeover Bids, while Republika
Srpska drafted a law on amendments to the Law on investment funds to align it
with the Undertakings for the collective investment in transferable securities —
Investment Funds (UCITS) Directive.

In
the area of company law, the Federation
amended the law on companies so as to allow the establishment of subsidiaries
of both domestic and foreign companies. A new law on companies has also been
drafted and submitted to the parliamentary procedure but has not yet been
adopted. Legislation on corporate accounting and auditing is
broadly aligned with the acquis (but not yet fully in line with latest
EU legislative developments) and almost fully harmonised between the Entities.
In November 2013, the Federation Chamber of Auditors was established as an
expert organisation for audit companies and auditors. The Committee for Public
Control, supervising the Chamber of Auditors, was also set up.

Overall,
there was very limited progress regarding movement of persons, services and
right of establishment. A State-level strategy for postal services and a
State-level law on postal services still remain to be adopted. Preparations
have been initiated to strengthen countrywide coordination in harmonising
legislation on insurance and insurance supervision. Some measures have been
taken towards standardising conditions for operations of insurance companies.
Harmonisation with the acquis and alignment with the Solvency II
Directive throughout the country have yet to be addressed.

4.1.3.
Free movement of capital

As regards movement
of capital, Bosnia and Herzegovina remains relatively liberal in terms of
inward capital flows. The legal framework has yet to be aligned with the acquis.
There are legal limitations in both Entities on the amount that non-residents
may transfer without bureaucratic burdens. As for foreign investment, the lack
of coordination for designing and implementing regulatory reforms at country
level remains. Capital markets continue to suffer from challenging economic
conditions and operate at relatively low levels. The securities market is the
main driving force of growth since both Entities secure an increasing share of
funds through local capital markets. The creation of a single economic space
would make the country considerably more attractive to foreign investors.
Restrictions on foreign direct investment (FDI) continue to apply in the media
sector, where a 49 % limit on foreign-owned capital remains in place.

Bosnia
and Herzegovina has a modern payment system within its central bank for
giro account clearing and real-time gross settlement operations, which runs
smoothly. In 2013, the value of transactions in these two categories fell by 6 %
compared to 2012, although the number of transactions was slightly higher.

Regarding the fight
against money laundering, the Law on Prevention of Money Laundering and
Counter Terrorism Financing has been adopted in 2014, but amendments to the
Criminal Code that regulate money laundering and terrorism financing crimes
still need to be adopted to make it compliant with international standards. The
relevant strategic framework and action plan expired in 2013; no activities
were undertaken to define new ones.

The country
remains subject to Moneyval Compliance Enhancing Procedures. Moneyval issued in
September a public statement, calling on states and territories evaluated by
Moneyval and other countries to advise their financial institutions to pay
special attention by applying enhanced due diligence measures to transactions
with persons and financial institutions from or in Bosnia and Herzegovina, in
order to address the money laundering and financing of terrorism risks.

The number of
reports on transactions and suspicious transactions increased. In 2013, the
Financial Intelligence Department (FID) within the State Investigation and
Protection Agency received 350 000 reports on transactions (300 000
in 2012), and there have been 193 reports on suspicious transactions (148 in
2012). Most of the reports are submitted by the banking sector. Notaries,
lawyers, accountants and other professions are only obliged to report on
suspicious transactions. FID temporarily suspended transactions in four cases,
worth a total of around € 1.5 million (see also 4.3.2
— Money laundering)

Overall,
there has been no progress in the area of free movement of capital.
Preparations in the area of free movement of capital remain moderately
advanced. There needs to be further alignment with the acquis to ensure
countrywide harmonisation and the creation of a single economic space.

4.1.4.
Customs and taxation

A new customs
policy law and its implementing regulation were adopted by the Council of
Ministers of Bosnia and Herzegovina in July 2013. Their adoption is a first
step towards further improvements in this area, such as introduction of
Authorised Economic Operator status, implementation of the New Computerised
Transit System (NCTS), and further improvements to simplified customs
procedures.

Certain
simplified customs procedures, e.g. local clearance, became operational and are
being used by a number of economic operators to speed up clearance on imports
and exports.

Bosnia and
Herzegovina ratified the regional Convention on Pan-Euro-Med Preferential Rules
of Origin in May. It is an observer to the Common Transit Convention and has
started preparations for a new computerised transit system.

The customs
tariff was updated in line with the 2014 version of the EU Combined
Nomenclature.

The Indirect
Taxation Authority (ITA) of Bosnia and Herzegovina has begun the implementation
of ‘Asycuda World’, a new customs declaration processing system that is
expected to improve, simplify and speed up customs clearance.

With regard to taxation,
the value added tax (VAT) Book of Rules was amended to allow VAT refunds to
taxable persons who are not established in Bosnia and Herzegovina. A new IT
application to support this process is in place. ITA, assisted by its ‘twinning’
adviser, is developing a web-based IT application/portal for the submission of
VAT returns.

Regarding
excises, the government has adopted a small brewery tax scheme that differs
from that in the acquis and discriminates against beer imports. The
government has also raised taxes on cigarettes. The amendments to the Law on
Excise Duties introducing increased rates on fine cut tobacco have been adopted
and entered into force as of 1 August.

The law on
indirect taxation procedure was amended to enable the ITA to share data with
the Agency for Statistics of Bosnia and Herzegovina and to publish a list of
its biggest tax debtors.

A special team
was established to intensify the fight against tax evasion. The team will work
with the Special Department for organised crime, economic crime and corruption
of the Prosecutor’s office of Bosnia and Herzegovina, to detect and prosecute
tax crimes.

The Federation
and the Republika Srpska governments have drafted new laws that should
approximate their respective corporate income tax systems.

ITA’s
operational and administrative capacity is improving more slowly than planned
because some key departments, such as Risk Management and Internal Audit, are
still not fully staffed. On the other hand, a new training unit became
operational, a training strategy is in place and in-house training of customs
and tax officials is improving.

Overall,
there were positive developments in the customs legislation and in the
operational capacity of the Indirect Tax Administration.

4.1.5.
Competition

In the area of anti-trust
and mergers, the competition law remains to be fully aligned with the acquis.
The Competition Council focused on cases of mergers and abuses of dominant
market positions. The council issued 23 anti-trust decisions, 20 merger
decisions and 24 expert opinions. It imposed fines totalling about € 580 000
on companies that infringed competition rules. The council’s administrative
capacity, with a total of 26 staff, appears insufficient to carry out the tasks
assigned proactively, especially as the number of cases it hears is going up
steadily. The council’s staff requires further training to increase the
authority’s investigative capacity.

As
regards state aid, the State Aid Council was established and the Head of
Secretariat was appointed. The Council has eight members and it has held 15
sessions until now, mostly on technical and organisational issues. The Council
of Ministers of Bosnia and Herzegovina adopted the Annual Report on State Aid
for the years 2011 and 2012. The regulation on the criteria for state aid
compatibility verification is in the process of being adopted at all levels (it
was adopted at Entity level but is still pending adoption in Brčko District and
at State level), while the regulation on procedures, state aid applications and
notification forms was adopted at State and Entity level. Both the regulation
on the criteria for State aid compatibility verification and the regulation on
procedures, state aid application and notification form will need to be amended
in order to ensure the full compliance of Bosnia and Herzegovina’s State aid
legislation with the EU acquis. Financing the operation of the Council
and Secretariat is challenging, as Republika Srpska did not contribute its
entire share. The Secretariat is not yet fully operational. The inventory of
aid schemes carried out before the establishment of the State Aid Council has
been completed. The schemes have not yet been aligned with the EU’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

In the area of
the public procurement, a new law aiming to transpose EU Directives 2004/17 and
2004/18 was adopted on 28 April 2014 and will come into force on 1 December
2014 Earlier amendments to the law also provide for the establishment of branch
offices of the Procurement Review Body in Banja Luka and Mostar, which have not
yet been established,. The new members of the Procurement Review Body (PRB) in
Sarajevo were appointed in June 2014. Preparations for resuming the online
publication of PRB decisions have been stepped up.

Bosnia
and Herzegovina did not take measures to ensure competitive and transparent
procedures or the independent reviews required by the acquis in the area
of public-private partnerships. The same applies to services and works
concessions. The regulation of the concessions system is still fragmented and
its administrative set-up has no formal channels for cooperation. This
maintains legal uncertainty and high administrative costs, and fragments the
envisaged single economic space.

Overall,
there has been some progress in the area of public procurement, albeit slow.
Implementation of the new Public Procurement Law, including through adoption of
by-laws, is necessary and the legislation on concessions still need to be
aligned with the acquis. The work of the competent institutions needs to
be more transparent, internal operations need to be improved, and the capacity
of contracting authorities across the country strengthened.

4.1.7.
Intellectual property law

There
were further improvements in the functioning of the Institute for Intellectual
Property. Intensive training for staff continued. The Institute published two
editions of its Official Gazette and continued to raise awareness on the
importance of intellectual property rights. The IT system improved.

With
regard to the copyright and neighbouring rights, 28 copyright works and
related rights entered the Institute’s records and certificates of deposit and
registration were issued.

In
the area of industrial property rights, the International Convention for
the Protection of New Varieties of Plants (the UPOV Convention) and the
European Patent Convention have yet to be ratified. The Institute for
Intellectual Property received 36 (national) and 160 (extension) patent
applications and processed 212, including some from previous years. Regarding trademarks,
the Institute received 472 applications and processed 547, including some from
previous years. The Institute received 14 industrial design applications and
issued 21 decisions granting industrial designs. Four applications for
protection of geographical indications were received. The Board of Appeal of
the Institute received seven new applications and completed nine appeal
proceedings.

Regarding
enforcement, the holders of intellectual property rights filed 41
requests for customs measures based on protected trademarks. Decisions were
issued in relation to 39 requests whereby customs measures were approved in
accordance with the provisions of the trademark law, and two requests were
suspended. A total of 17 decisions were issued on temporary retention of goods.
Training for the Indirect Taxation Authority staff continued. The State
Investigation and Protection Agency (SIPA) and Entity Inspectorates intensified
their work in the field on intellectual property rights. From March 2013 to
January 2014, SIPA seized counterfeit goods valued at about € 125 000.
It submitted 26 reports on criminal activities to the relevant Prosecutors’
Office.

Entities’
market inspectors continue to conduct inspections on the protection of
intellectual property according to their annual plan. The market inspectors of
Republika Srpska conducted 79 inspections on the protection of intellectual
property, of which 67 were regular inspections and 12 extraordinary controls.
Irregularities were detected in 30 cases and the business entities were issued
with 21 decisions to remedy these. Goods were seized in one case and four
banning measures were imposed. Five minor offence warrants were issued, worth a
total of € 6 000, and three minor offence reports were filed. The
Federation market inspectors conducted 31 inspections related to the protection
of copyrights and related rights (software licences and music broadcasting in
restaurants and cafes). Six offence warrants were issued, worth a total of € 6 000.
Workshops were held on intellectual property rights enforcement for about 100
persons from market inspectorates, courts, customs and police.

However,
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, needs to be improved.

Overall,
although preparations in the area of copyright and neighbouring rights, and
industrial property rights have advanced, further efforts are required, in
particular to improve enforcement and coordination.

4.1.8.
Employment and social policies, public health
policy

Both
Entity governments and the Brčko District adopted annual employment
action plans. The Federation’s employment strategy expired in 2013 and has been
replaced by a strategy on mediation in employment.
Labour market participation further decreased from already low levels,
especially regarding the female labour force, and stood at
43.6 % in 2013. The employment rate also declined to 31.6 % in 2013. Job
creation remained modest. Unemployment
dropped slightly to 27.5 % in 2013. About 80 % of those are long-term
unemployed. Youth unemployment remains at alarming levels (at close to 60 %
in 2013).
More than 40 % of the unemployed are not active job-seekers. Labour
market challenges remain considerable. The Entity governments and public
employment services lack both administrative and financial capacity to
implement active labour market measures. Passive labour
market measures prevail over active labour market measures.

As regards social
policies, there is still no possibility to develop a labour law or
health and safety legislation at State level. Labour laws and health and
safety legislation at the level of Entities, Brčko District, and Cantons
are not harmonised and not aligned with the EU acquis. Employees’ social
contributions remain non-harmonised and their percentages differ between
Entities and the Brčko District, as well as among Cantons in the Federation.
Labour inspectorates remained understaffed and are unable to perform their
tasks properly. In the field of social dialogue, the State Economic and
Social Council have not been established, due to the lack of a legal framework
for the recognition of social partners at the State level. There are Economic
and Social Councils at Entity level, as well as in some Cantons in the
Federation. The Councils at Entity level perform their work satisfactorily.

Social
protection
in Bosnia and Herzegovina remains fragmented. This also has a negative impact on
the internal
mobility of the labour force, due to fragmented labour legislation and social
security systems. The Agreement on exercise of rights to unemployment benefits
between the Federation Employment Institute, the Republika Srpska Employment
Institute and the Brčko District Employment Institute remains to be fully
implemented. Social protection is predominantly determined based on status as
opposed to need, and there are still inequalities in the provision of rights in
different areas. This means that social protection systems remain largely
inefficient, despite a relatively high level of public expenditure compared to
neighbouring countries. Pension systems have been facing financial difficulties,
as they were coping with privileged pensions for persons based on status
(mostly war veterans). As a consequence, permanent social assistance benefits
continued to be below the poverty line as determined by the World Bank.

Serious
financial limitations at all levels of government also hinder the application
of social protection rights currently prescribed by already limited social
protection laws. In some Cantons in the Federation and some municipalities of
Republika Srpska, due to financial constraints, some rights are not paid, or
not paid in full.

Policies for social inclusion are not harmonised across Entities
and neither are provisions for citizens. Regarding anti-discrimination,
vulnerable groups including children, Roma, returnees and internally displaced
persons, disabled persons, etc. are not adequately protected, whether at State,
Entity, Brčko District or Cantonal levels.

Regarding public
health policy, a reporting system on National Health Accounts in line with
World Health Organisation and Eurostat requirements was introduced and a first
Report on National Health Accounts for BiH, for 2009-2011 was drafted,
providing information on public and private expenditure in healthcare in
comparison with EU countries. Challenges persist, with an inadequate system for
early detection of children with developmental delays and inadequate
intervention to manage their care, low levels of immunisation (68 %
overall and 4 % for Roma) as well as a weak immunisation surveillance
system, and equity gaps in under-five and infant mortality and malnutrition.
The implementation of Entity health strategies is slow. In some parts of the
Federation, a system for electronic health records has been introduced. The
Federation’s government adopted a strategy for rare diseases.

In the field of communicable
diseases, the
Technical Report of Implementation of International Health Regulations (IHR) in
Bosnia and Herzegovina was adopted by the Ministers of Health. Ministers
of Health also adopted implementing procedures for a national Early Warning
System (case definitions, critical values, standard operating procedures) for
Bosnia and Herzegovina. Standard operating procedures define a system for
managing outbreak epidemiology. A WHO EURO self-assessment survey on
antimicrobial resistance was conducted. A programme for tuberculosis control
was adopted in the Republika Srpska and the Federation. International Health
Regulations core capacities on the dynamics of infectious diseases in Bosnia
and Herzegovina were developed. Both Entities developed action plans for
improving their immunisation programmes.

In the field of blood,
tissues, cells and organs 14 rulebooks were adopted to implement the law on
transplantation of organs and tissues and cells for the purpose of
medical treatment in the Federation.

On pharmaceuticals,
in November 2013, the Council of Ministers of Bosnia and Herzegovina
established a multi-sectoral working group tasked with developing an
operational plan for accession of Bosnia and Herzegovina to the Council of Europe’s
Medicrime Convention, which aims to fight counterfeit medicines. In 2013,
Republika Srpska approved amendments on the law on pharmacy practice. In
addition, the Ministry of Health and Social Welfare of Republika Srpska adopted
a pharmaceuticals programme 2013-20, as well as amendments on the rule book on
prescribing and dispensing medicines.

In the area of mental
health, the
Federation adopted an implementing rule on healthcare standards applying to
compulsory health insurance in centres for mental health, in community centres
for physical rehabilitation, preventive healthcare for young people in schools
and universities, and specific healthcare for athletes.

In the area of nutrition,
Entity Ministries of Health and Education, along with Public Health Institutes
developed Guidance for Infant and Young Child Feeding and launched an
initiative called ‘Nutrition Friendly Kindergartens’ to promote adequate
dietary intake and prevent non-communicable diseases among pre-school children.
The strategy for control of diabetes 2014-24 was adopted in the Federation.

Overall,
there was very limited progress in the area of employment and social policies.
Unemployment is largely structural and has continued to rise. A large share of
the working age population is inactive. Policies, capacities and financial
resources are lacking to support their activation. The social protection system
in Bosnia and Herzegovina remains fragmented and there are no signs of
harmonising existing labour and health and safety at work laws and on aligning
them with the EU acquis or with international human rights standards.
There was little progress in public health. The public
health workforce needs more staff and more expertise, especially at primary
health care level in the regions, to ensure adequate epidemiological
surveillance.

4.1.9.
Education and research

As
regards education, Bosnia and Herzegovina signed an agreement with the
EU in June 2014 establishing its partial participation in Erasmus+. The
country actively participates in the Western Balkans Platform on Education and
Training.

The Conference
of Ministers of Education, to be held every other month, met only once in the
reporting period. In the Federation there are still two coordination bodies
acting in parallel, with the Federation Coordination of Ministers of Education
coordinating ministries in only six Cantons. The inter-sectoral commission for
the preparation of the action plan for the implementation of the Baseline
Qualifications Framework submitted the document to the Council of Ministers.
The mandate of the Commission expired in February.

The ‘two schools
under one roof’ phenomenon still exists in 34 schools in the Federation but
otherwise there are mono-ethnic schools in the whole country. This year’s
protests of returnee parents and children from Konjevic Polje (Bratunac) and
Vrbanjci (Kotor Varos) highlighted alleged discriminatory practices in schools
in the Republika Srpska, whereby children are not schooled in their mother
tongue (Bosnian), despite guarantees in the federal Constitution.

There are still
three Cantons (Central-Bosnia, West-Herzegovina and Herzegovina-Neretva) that
have not aligned their legislation on pre-school education with the framework
law. The legislation for vocational education and training has yet to be
adopted by four Cantons.

In all, 69 %
of Roma children were attending primary school and 22.6 % were attending
secondary school (versus 91.8 % of non-Roma). Bosnia and Herzegovina has
not participated in the last round of PISA testing and is encouraged to do so
in the future.

Principles and
standards on higher education were adopted by the Council of Ministers. Five
accredited higher education institutions have been registered at federal level.
In the Cantons, documents and procedures for accreditation have not been
harmonised.

The agencies for
statistics in Bosnia and Herzegovina have started to report on statistics in
education according to the requirements set by OECD/ILO and Eurostat, using the
ISCED 2011 classification.

While there are
plans to modernise and reform teacher education in each Entity, a common
approach and the development of national standards would be to the benefit of
all. Work on developing a National Qualifications Framework has not progressed.

The
Youth in Action programme involved an increased number of young people from
Bosnia and Herzegovina in international youth activities.

In
the field of culture, the agreement between the EU and Bosnia and
Herzegovina on participating in the Creative Europe programme was signed in
June 2014.

In the absence
of political agreement on the recognition of the status and the budgetary
financing of the seven national institutions of culture, the government of the
Federation adopted a decision on temporary financing of five institutions of
culture. While the Federation government also secured additional funds for the
financing of, some national institutions, the National Museum of Bosnia and
Herzegovina remained closed.

In the area of
research and innovation, Bosnia and Herzegovina has adopted the framework
law on science and the strategy for science development aimed
at stimulating research and innovation. There was no
increase in the level of participation to the EU framework
programme for research (FP7). The overall success rate is
12.3 % compared to the EU average of 21.6 %. The agreement
associating Bosnia and Herzegovina to the new EU research and innovation
programme Horizon 2020 (covering 2014-2020) was signed in July 2014, allowing
for retro-active participation of Entities from the country as
from 1 January 2014. The first
necessary administrative measures for participation have been put in place
(nomination of national contact points and representatives in the programme
committees).

As to the integration into the
European Research Area, no new actions were implemented and the level of
investment in research, a key EU target, is still very low (less than
0.20 % of GDP). Bosnia and Herzegovina did nominate a representative in
the European Research Area Committee. With respect to the Innovation Union, the
Framework
Law on Science and the Strategy for Science Development aims at stimulating
cooperation between private and public sector but no concrete actions have yet
been adopted. Bosnia and Herzegovina has been active in cooperating at
regional level and co-signed the Western Balkan Regional R&D
Strategy for Innovation adopted in October 2013.

Overall,
there was little progress on education and significant
efforts are needed to improve the system. The complex
structure makes coordination difficult and good governance almost impossible. Further
strengthening of the newly established State-level institutions remains a
challenge to be addressed. The policy-dialogue amongst the Ministries of
Education and the Department for Education in the Brčko district needs to be
improved to reduce the fragmentation of the education system. The
existence of mono-ethnic schools and a divided education system are still
problems. Further efforts are needed to support VET policy. Other key issues
include entrepreneurial learning, improving adult training, as well as the
effective implementation of the Qualifications Framework. All Cantons should
regulate the accreditation procedure for higher education institutions. There
was little progress regarding culture; however, Bosnia and Herzegovina
continues to participate in the MEDIA strand (as well as the Culture strand) of
the Creative Europe programme. There has been limited progress in the area of
research and innovation, but signature of the association agreement on Horizon
2020 was an important step.

4.1.10.
WTO issues

Progress
was made in negotiations for accession to the World Trade Organisation.

Bilateral market
access negotiations are underway, based on revised offers in goods and
services. Multilateral work is proceeding, as the rulebook on monitoring the
use of genetically modified organisms (GMOs) and amendments of the Federation
law on internal trade still remain to be adopted. Bilateral negotiations have
been completed with the US, Ecuador and Panama, while they are still ongoing
with Brazil and Ukraine. Final, revised offers have been submitted to Brazil.
Bosnia and Herzegovina has offered to start the procedure for the conclusion of
a Free Trade Agreement with Ukraine.

4.2.
Sectoral policies
4.2.1.
Industry and SMEs

Preparations
in the area of industrial policy are still at an early stage for
harmonised implementation of the policy measures by the Entities. The
Federation adopted amendments to the action plan for industrial policy
development in January 2014 and introduced new strategies for competitive
sectors.

In the field of SME
policy, in January the Council of Ministers mandated the Ministry of
Foreign Trade and Economic Relations to prepare a State level SME strategy for
the period 2014-2020. The strategy will provide for countrywide harmonisation
of definitions, coordination and SME development priorities in accordance with
the Small Business Act and EU recommendations. Negotiations between Bosnia and
Herzegovina and the European Commission on a draft agreement for the country’s
participation in the EU Competitiveness of Enterprise and Small and
Medium-sized Enterprises programme started in June 2014.

Regarding
business environment, there was progress on reforms in the area of business
registration. After the adoption of a set of laws in Republika Srpska, a
one-stop-shop system for business registration has been implemented since
December 2013. It provides for the streamlining of procedures and enables
businesses to register within three days, at a cost of one BAM. The Federation
adopted legislation on business entities and amendments to the law on
registration of business entities in June 2014. The issue of double
registration countrywide has not been resolved.

Support to
business infrastructure has improved across the country. The Federation
provided € 767 000 to local administrations for establishment of
entrepreneurial zones. To consolidate policy planning with Cantons, the
Federation continues to implement an integrated information system, which has
now been extended to incorporate data on female and youth entrepreneurship and
on crafts. Republika Srpska has adopted new criteria for entrepreneurial
support to stimulate innovations, new technologies and quality standards. Brčko
District is implementing a system of interest rate subsidies through guarantee
funds for SMEs.

Some efforts
have been made at local level to improve the business environment through
business certification of municipalities across Entities as part of a
non-governmental regional initiative (‘Business Friendly Certification in South-East
Europe’) which started in December 2011.

Little progress
has been achieved in the field of tourism. The Government of Republika
Srpska in July 2014 adopted amendments to the law on consumer protection to
approximate with the acquis on timeshare and long-term holiday products.

Overall,
there has been little progress in the area of industrial and SMEs policies and
there is still no countrywide strategy. The Entities accelerated their
activities to tackle the issues of competitiveness in strategic sectors and
initiated improvements in the business environment through business
registration reforms. However, countrywide coordination and implementation
remains to be addressed. Policy actions for business support remain patchy and
entrepreneurs still face considerable obstacles to conduct business across the
Entities’ borders.

4.2.2.
Agriculture and fisheries

In the area of agriculture
and rural development policy Bosnia and Herzegovina still needs to adopt
State-level laws on wine and on organic production as well as a countrywide
rural development strategy.

The design of a
State-level strategic plan for rural development and implementation of the
harmonisation programme for agriculture, food and rural development did not
advance. Progress in implementing the Entities’ strategies and action plans
remain uneven. The administrative capacities and coordination structures within
the sector policy, including support measures, remain to be strengthened.
Building up capacities at State, Entities and Brčko District levels remains
uneven, and the number of staff has yet to be increased.

Regarding
preparations for the Instrument for Pre-accession Assistance for Rural
Development, an agreement on institutional structures for decentralised
management of IPA funds related to this policy area is still pending. Following
a lack of political agreement on such structures, relevant IPA projects had to
be cancelled. Inter-sectoral coordination and the participation of the
non-governmental sector remain weak. The sectoral analyses on the forestry and
aquaculture sectors have been extended to January 2015, so completion is
expected during 2015.

Improvements
in productivity and competitiveness remain hampered by the lack of an efficient
administration and effective rural credit schemes. The adoption of Bosnia and
Herzegovina’s agricultural information strategy is still pending. Preparations
for an agricultural census are at an early stage. Improvements in agricultural
statistics and the agricultural information system remain insufficient. There
is still no harmonisation of land registration systems country wide, and land
management remains to be strengthened. The lack of consolidated statistics
hampers the development of agricultural policy.

As regards food
safety, there has been little progress. The chain of command and the
official food and feed control system do not yet match European standards to
allow for exports of goods of animal origin to the EU market.

In January 2014,
the Commission’s audit service (the Food and Veterinary Office) carried out a
mission to assess Bosnia and Herzegovina’s production and processing of dairy
products and found that the country is not yet ready to export to the EU.
Capacities to implement official controls and ensure an efficient exchange of
information within the control chain need further improvements.

The Protocol ‘on
the establishment of a chain of command meeting the requirements for export
of milk and dairy products originating from Bosnia and Herzegovina to the EU’
(Milk Protocol), signed by the competent authorities of Bosnia and Herzegovina
in 2013, still remains to be fully implemented. The Milk Protocol is a
provisional solution, pending the adoption of the new Bosnia and Herzegovina
laws regulating this area, i.e. the veterinary law, the law on food safety and
the law on agriculture and rural development. The action plan on the
establishment of a horizontal official control framework for the feed and food
chain in accordance with Regulation (EC) 882/2004 has not yet been fully implemented.

A central
database for the official control system has not yet been established. A
strategy on laboratory capacity to cover analysis of samples in line with
official controls on food and feed chains remains to be drawn up.

The Hygiene
Package remains to be fully implemented in a harmonised manner countrywide. The
same applies for both Entities for those involved in the production of food of
animal origin, irrespective of the size of the operators. Training in legal and
EU standards requirements, in the field of food hygiene, were conducted for
staff of relevant authorities and inspectorates, but more needs to be done.
There also needs to be more training for food business operators to ensure they
comply with relevant EU quality control standards. Checks and registration of
milk farms remain to be improved to ensure compliance with EU requirements. The
regulatory framework for the control of imports of food of non-animal origin
remains to be upgraded.

In
the veterinary sector, Bosnia and Herzegovina continued with the
adoption of implementing legislation governing control, prevention and
eradication of certain communicable animal diseases. The implementation of
animal control measures for communicable and parasitic animal diseases
continued, including bovine brucellosis and bovine tuberculosis controls. The
implementation of vaccinations against brucellosis and rabies continued,
including monitoring and coordination activities. The new Animal Disease
Notification and Outbreak Information Management System is now operational. The
system is used to monitor and eradicate animal disease outbreaks and is in line
with EU and national legal requirements. Strengthening of capacities of
laboratories continued. The legal framework for animal health needs further upgrading.
Deficiencies in the existing animal identification and movement control systems
need to be remedied to allow efficient planning and implementation of animal
health measures. There was a rise in the number of accredited laboratories, as
well as in the number of accredited laboratory methods for diagnostics of
animal diseases, microbiological analyses and control of residues of veterinary
medicines. Bosnia and Herzegovina continued to implement a residue monitoring
plan.

The
national system for the management of animal by-products is in need of further
improvements to comply with EU requirements. More work is required in the
veterinary sector to implement measures to meet EU import requirements.

In
the phytosanitary sector, Bosnia and Herzegovina continued harmonising
relevant legislation with the acquis.

The amendments
of the law on protection of new plant varieties in Bosnia and Herzegovina were
adopted. Implementation of the programme of special surveillance and quarantine
of harmful organisms on potatoes continued throughout the country. Rulebooks
were adopted on the phytosanitary register and plant passports, on the list of
harmful organisms, the list of plants, plant products, and regulated objects. A
general operating action plan in case of emergency occurrences of organisms
harmful to plants and plant products was endorsed. Registration of producers,
processors, importers and distributors of plants, plant products and regulated
objects has begun in phyto registries in the country, and a single phyto
registry is to be managed by the Plant Health Protection Administration of
Bosnia and Herzegovina.

A Food and
Veterinary Office mission to evaluate plant health controls applied in the
potato sector was conducted in April. Official controls and the situation as
regards the main harmful organisms affecting potatoes were assessed as
generally positive. The legal framework, work of diagnostic laboratories, and
control at border inspection points are generally harmonised with the EU acquis.
Certain insufficiencies have yet to be remedied to enable the export of ware
potatoes to the EU.

Administrative
capacity needs further strengthening and training needs to continue for
agricultural producers in the use of plant protection products and the
application of maximum residue limits, among others. The phytosanitary sector
needs to continue with efforts to expand the application of principles of
integrated pest management.

Regarding genetically
modified organisms (GMOs), Bosnia and Herzegovina continued with the adoption
of implementing legal acts on monitoring the impact of GMOs and products
that contain or originate from GMOs, sampling, traceability and market access
of GMO-related products.

Regarding
fisheries, harmonisation of relevant laws that regulate this area needs
to be further stepped up. Implementation of legislation is uneven throughout
the country. More efforts are needed to implement the acquis in this
sector to facilitate more 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 and the designation of the central
competent authority remain pending. State level capacity for coordination and
harmonisation throughout the country needs to be strengthened. The country’s
capacity for official controls and the chain of command need to be upgraded.
Preparations in these areas of the acquis
need to be stepped up.

4.2.3.
Environment and climate
change

In the field of environment,
there were no significant developments concerning horizontal legislation.
The State of the Environment Report for Bosnia and Herzegovina is pending
adoption by the Council of Ministers. Steps were taken towards preparing the
Implementation Plan for the Convention on Environmental Impact Assessment (EIA)
and the Protocol on Strategic Environmental Assessment. Alignment with
Strategic Environmental Assessment and Public Participation Directives still
needs to be improved in both Entities.

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

On waste
management, there have been no efforts to implement solid waste management
plans prepared with EU support for selected regions. Countrywide strategic planning
of investments in this sector has yet to be completed. The Federation adopted
implementing legislation on the management of plastic bags. Republika
Srpska has adopted a new Law on Waste management. Republika
Srpska and the Federation have started implementing a packaging and packaging
waste management system. Economic instruments to promote recycling and
prevention of waste generation remain limited. There have been no new
investments to improve waste sorting and recycling. Capacity to manage industrial
and hazardous waste remains to be strengthened.

Regarding water
quality, the country still lacks a consistent and harmonised approach to
water management at State level. This includes implementing water laws,
monitoring and river-basin management plans. The water policy at State level
remains to be adopted, while alignment with and implementation of the acquis
significantly slowed down. Some steps were taken in drawing up river-basin
management plans for the rivers Neretva-Trebisnjica and Sava. The country’s
capacities to implement water-related EU Directives remain insufficient. Access
to drinking water, untreated discharges of wastewater and flood management
remain to be addressed.

As
regards nature protection, Republika Srpska adopted a law on nature protection
advancing towards alignment with the Birds and the Habitats Directives. The
country took steps to identify an initial list of 95 potential NATURA 2000
ecological areas that account for approximately 20 % of its territory.
Regulations implementing the nature conservation acquis have been
drafted in consultation with the responsible ministries of both Entities and
the Brčko District, but remains to be adopted.

A law on chemicals
is in parliamentary procedure in the Federation. Republika Srpska continued to
adopt implementing legislation advancing alignment with the EU acquis on
classification, labelling and packaging of substances and mixtures. The
European Chemicals Agency carried out a successful first mission to Bosnia and
Herzegovina in 2013. Significant efforts are needed in the areas of
industrial
pollution control and noise.

In the area of civil
protection,
given the impact of disasters in the country, disaster risk reduction and
disaster management need to be treated as a matter of priority, particularly in
the light of the recent severe floods. In July, Bosnia and Herzegovina
expressed its interest in becoming a member of the EU Civil Protection
Mechanism. A memorandum of understanding on cooperation between the relevant
civil protection bodies of the Entities was signed.

Regarding
climate change, the country adopted a strategy for adaptation to climate
change adaptation and low emissions development strategy. Efforts should be
made to streamline this strategy into sectoral policies and strategies. Bosnia
and Herzegovina regularly associated itself with EU positions in the
international context. A second National Communication was submitted to the
United Nations Framework Convention on Climate Change and the biennial update
report on greenhouse gasses is under preparation. The country has not yet put
forward a mitigation commitment by 2020 in the context of the Copenhagen Accord
and the low-emission development strategy adopted does not include any
mitigation commitment. The country needs to put forward by the first quarter of
2015 its intended nationally determined contribution to the 2015 Climate
Agreement, consistent with those of the EU and its Member States. The country
needs to develop a comprehensive countrywide climate policy and strategy in
line with the expected EU 2030 policy framework on climate and energy.

The
country is at a very early stage in aligning with the EU climate acquis.
At State level, the adoption and implementation of management plans to phase
out ozone-depleting substances is advancing. The country’s capacities for
monitoring, reporting and verification in this area remain weak and should be
considerably strengthened. Significant efforts are still needed to raise
awareness at all levels of society, and to promote cooperation between all
relevant stakeholders. The country participated regularly in the Environment
and Climate Regional Accession Network (ECRAN) project.

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 yet carried out in a coherent and consistent manner.
Integration of environmental and climate concerns in other sectors remains to
be addressed at Entity and State level. There has been some progress in the
reorganisation of the Republika Srpska Hydro-Meteorological Institute, to deal
with the greenhouse gas inventory. The administrative structure and the interinstitutional
cooperation and coordination mechanism on climate change needs to be
considerably strengthened to address the need to step up climate
action in a sustainable manner, beyond the current project-by-project basis.
Capacity building is required to address significant capacity, cooperation and
coordination needs. Public consultations with civil society need to be
strengthened.

Overall, there
was little progress in the fields of environment and climate change. The
priorities remain the establishment of a harmonised legal framework for
environmental protection and climate action, adequate administrative capacity
and functioning monitoring systems. Improvements have to be made to horizontal
and vertical interinstitutional coordination on environment and climate change
issues among all authorities. Strategic planning and implementation of the
environment and climate acquis are necessary. The country needs to put
forward by the first quarter of 2015 its intended contribution to the 2015
Climate Agreement. Preparations in the fields of environment and climate change
are still at an early stage.

4.2.4.
Transport policy

In the transport
sector, a State-level transport policy remains to be adopted. The key strategic
documents for transport in general and all transport sub-sectors also need to
be drafted and adopted. Following the acceleration of support under IPA funds,
a working group to advance on these issues, consisting of both government
officials and parliamentarians, was established. Legislation pertaining to rail,
road, maritime, inland waterway transport and intermodal transport has not yet
been aligned with the acquis. The general transport infrastructure in
Bosnia and Herzegovina is in great need of upgrades in line with the agreed
comprehensive network of the South-east Europe Transport Observatory Network
(SEETO).

Regarding
trans-European transport networks the general transport infrastructure
in Bosnia and Herzegovina is in great need of upgrades in line with the indicative
extension of the TEN-T to the Western Balkans region. Bosnia and
Herzegovina
need to focus on the development and prioritisation of projects on the routes
defined in the comprehensive network of the South-east Europe
Transport Observatory Network (SEETO). Active cooperation in SEETO should be
reinforced.

As regards road
transport, Bosnia and Herzegovina has one of the highest road fatality
rates in Europe, and road safety remains a major concern. A road safety
strategy and action plan remains to be adopted. There has been little progress in
further alignment with the road transport acquis, which is at an early
stage.

No progress has
been achieved regarding rail transport. The two Entities’ vertically
integrated railway companies are in critical financial situations. 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 been implemented in full. The opening of the rail market is at an early
stage. The safety authority has prepared instructions, such as on
interoperability, on maintenance and on the transport of dangerous goods by
rail, and has published these in the Official Gazette. The railway institutions
lack competent staff, despite the high level of overemployment in railway companies.
Rehabilitation works on rail tracks continued

As regards inland
waterways, some preparatory activities have been undertaken. Demining and
rehabilitation of the River Sava waterway was shelved before it could start,
due to Republika Srpska’s cancellation of a loan agreement with the World Bank.
Introduction of a river information system has been further delayed. Relevant
inland navigation regulations should be issued and aligned with the acquis. Planned
activities regarding rehabilitation and development of transport and navigation
on the Sava river waterway, as well as those related to the port of Brčko, have
been terminated, following the cancellation of a loan agreement with the World
Bank.

Regarding intermodal
transport the country needs to recognise the development of a balanced
intermodal environmentally-friendly and competitive transport and mobility
system as a priority. Special attention should be given to better understand
and to better evaluate the potential role of sea modes in inter-modality,
hinterland connection of ports, developing missing links and further catalyst
actions for de-carbonising the economy. 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.

Concerning air
transport, there has been little progress towards further
transposition of the European Common Aviation Agreement (ECAA) requirements
that mainly concern the economic and social regulations area. A number of
pieces of ECAA legislation remain to be transposed in respect of consumer and
social protection. Further work to ensure conformity with ECAA requirements
also has to be carried out in other areas before Bosnia Herzegovina can achieve
Phase 1 completion in respect of economic regulations and aviation safety.

On 1
January 2014, following years of delays, the BH Air Navigations Systems Agency
(BHANSA) took over all responsibilities and staff formerly under the
Entity-based civil aviation authorities. However, BHANSA is currently under its
certification procedure and should not initiate the provision of air navigation
services until completion of the procedure. Since June 2013, a multilateral transition
team (Bosnia and Herzegovina, Serbia and Croatia) has been negotiating the
technicalities and modalities for the transfer of control of airspace in
accordance with the agreed subdivision of the Functional Airspace Bloc for
Central Europe. These negotiations have not yet been concluded. This continues
to pose challenges to putting air traffic management equipment in function and
as regards the takeover of flight control operations by Bosnia and Herzegovina
operators.

The
selection of the management board of BHANSA has been pending since June 2010.
While the work programmes and financial plans for 2012, 2013 and 2014 have
still not been passed by the BiH Council of Ministers, on 7 November,
EUROCONTROL agreed on both documents for 2014, thereby making Bosnia and
Herzegovina internationally obliged to adhere to them.

Regarding
maritime transport, Bosnia and Herzegovina is not a party to any of the
most important International Maritime Organisation conventions such as the Convention
on Facilitation of International Maritime Traffic, the
International Convention for the Safety of Life at Sea, including the
International Ship and Port Facility Security Code, the International
Convention for the Prevention of Pollution from Ships, and the International
Convention on Standards of Training, Certification and Watch keeping for
Seafarers.

Overall,
little progress has been made in the area of transport. A State-level
legislation on transport as well as a transport strategy and its action plan
still remain to be adopted. Coordination and administrative capacities need to
be improved in order to ensure the preparation and finalisation of the
necessary technical documentation.

4.2.5.
Energy

Bosnia and
Herzegovina has not invested any significant effort to develop a countrywide
energy strategy. The Entities’ strategic plans are not harmonised, addressing
priorities relevant only for the respective territory, without a coordinated
approach to security of supply of oil, gas and a comprehensive strategy
for future investments. There is no legislation at national level dealing with
emergency stock holdings and no such stocks are currently held in the country. Bosnia
and Herzegovina has contributed to the energy security stress test carried out
by the European Commission in the framework of the European Energy Security
Strategy.

The existing
legislative framework relevant to the internal energy market at all
levels needs to be brought into full compliance with the acquis, as it
hampers development of a countrywide wholesale and retail market. The country’s
authorities need to address complicated tender procedures and insufficient
transparency.

Progress has
been made in ensuring the future viability of the State-level electricity
transmission company (TRANSCO). TRANSCO shareholders appointed new management
structures, approved audited financial plans, adopted a three-year investment
plan and agreed on the list of priority facilities to be included in the
Long-Term Transmission Network Development Plan. Measurable progress in terms
of development and reinforcement of the transmission system and strengthening
of the state company is still lacking, apart from some maintenance work. At a
TRANSCO shareholders meeting in July 2014 it was decided to distribute a
further part of the net income between the two Entities, which constitutes a
breach of the agreement reached in Brussels in January 2014 not to distribute
more than 100 million BAM before a 10 year transmission network development
plan has been adopted by the Shareholders’ General Assembly and approved by
Regulatory Authority (SERC). The law establishing the company for transmission
of electricity in Bosnia and Herzegovina has been amended, allowing
shareholders to receive profit and accumulated profit. The adopted changes and
amendments do not include sufficient safeguards to prevent shareholders from
gaining access to TRANSCO’s revenues in future.

Existing
relevant electricity laws at State level and the level of the Entities are not
compliant with the EU acquis and insufficient action is taken to remedy
the situation. The draft electricity legislative framework at State, Entity and
Brčko District level was drafted and aligned with the acquis,
specifically with the Third EU Energy Package, to enable the country to meet
its obligations as a contracting party of the Energy Community Treaty.
Regrettably, the draft primary and secondary legislative acts remain to be
reviewed and adopted. The electricity market in Bosnia and Herzegovina is
significantly underdeveloped, with no genuine platform to determine market
prices. The electricity sectors in the Entities are inadequately regulated.

Bosnia and
Herzegovina has not made any progress in fulfilling requirements needed to
develop gas sector legislation that is aligned with the acquis at all
levels. At the Ministerial Council of the Energy Community, Bosnia and
Herzegovina’s failures in this area were condemned as a ‘serious and persistent
breach’ of its commitments as a signatory of the Energy Community Treaty.
Should Bosnia and Herzegovina fail to address this in the next 12 months, the
Energy Community will apply sanctions. Republika Srpska law on gas also
requires additional changes to be in line with the acquis. The draft gas
law of the Federation is still pending adoption. The proposed draft Intergovernmental
Agreement with the Russian Federation on South Stream is not in compliance with
the Energy Community acquis and should not be concluded unless this is
remedied.

As regards the renewable
energy sector, Bosnia and Herzegovina’s national target for the share of
energy from renewable sources in gross final consumption of energy in 2020 is
40 %. On the basis of laws adopted on exploitation of renewable energy
sources and on efficient co-generation, both Entities proceeded with
development and adoption of relevant by-laws. There is still no comprehensive
countrywide promotion and development of the renewable energy sector. Bosnia
and Herzegovina continues to operate without a national renewable energy action
plan, as required by the Energy Community Treaty. There are no competences laid
down in the relevant legislative framework. Energy Laws to enforce such a plan
once adopted by the State authorities, and the public responsibilities for
ensuring that the plan is devised in such a way that the national renewable
energy target is reflected in the laws are unclear. The improved legislative
framework at Entity level, along with incentives introduced, has
resulted in ongoing promotion of renewable energy sources. In the Federation
designated quotas regarding electricity generating facilities powered by
renewable energy sources are nearly filled, which may lead to stagnation of the
sector. A smaller number of electricity generating facilities powered by
renewable energy sources has been developed in Republika Srpska, which may
enable more development of these facilities on the territory of this Entity.

Regarding energy
efficiency in Bosnia and Herzegovina, there are significant delays
in meeting the commitment to transpose and implement the 2006 energy end-use
efficiency and energy services Directive. Republika Srpska is developing
relevant by-laws, whereas the law on energy efficiency of Federation of Bosnia
and Herzegovina still remains to be adopted by parliament. Bosnia and
Herzegovina has not developed its national energy efficiency plan nor does it
have a consistent roadmap for transposition of the acquis under the
Energy Community Treaty. Various forms of support to initiatives for promotion
of energy efficiency in the form of pilot projects are widely available
throughout the country.

As regards nuclear
safety and radiation protection, the law on liability for nuclear damage
has been adopted, as well as the regulation on safety of nuclear material and
radioactive sources. A strategy for radioactive waste management has been
adopted, whereas a national emergency plan remains to be adopted.

Overall,
limited progress has been made in the energy sector. The complexity of the
administrative structure, divisions of jurisdictions within the sector, along
with the lack of political will are likely to result in the country’s failure
to meet its commitments under the Energy Community Treaty. Cooperation and
coordination between the Entities to solve the stalemate in the operation of
TRANSCO led to some progress, but genuine commitment geared toward reinforcing
and developing the country’s electricity transmission system is needed. Similar
commitment is required in other areas of the energy sector, particularly with
regard to alignment of electricity legislation with the Third EU Energy
Package, and development of legislation at State level for renewable energy
sources and energy efficiency. As a matter of urgency, Bosnia and Herzegovina
should address the serious and persistent breaches in its gas legislation identified
by the Energy Community.

4.2.6.
Information society and media

With regard to electronic
communications and information and communications technologies, no
further developments can be reported on legislative alignment. No updated
action plan on digital switchover has been adopted by the Council of Ministers.
A decision on the use of the digital dividend is yet to be made.

Regarding information
society services, a State-level Law on the Agency for the Development of
the Information Society has yet to be adopted. State-level legislation on
electronic documents has been adopted. There was no
alignment with the E-Commerce Directive or with the implementing legislation
related to conditional access services. The State-level e-commerce law as well
as the State-level e-signature law remain unimplemented due to the lack of a
supervisory body for accreditation. Administrative capacity in the Ministry of
Transport and Communications remains insufficient.

As regards audiovisual
policy,
the
digitalisation of the Public Broadcasting System (PBS) is jeopardised due
to the non-existence of the PBS Corporation which would need to assist the
digitalisation of the entire system of public broadcasting in Bosnia and
Herzegovina. The
reform of the PBS in Bosnia and Herzegovina has not yet been finalised and
adoption of the Statute of the Public Broadcasting Corporation is still
pending. The financial stability and sustainability of the entire PBS has been
seriously affected in the reporting period, as the RTV tax collection rate has been
dropping steadily. The current lack of legal certainty has a negative impact on
the RTV tax collection which has been so far attached to the bill for fixed
phone lines and collected via dominant telecom operators.

Piracy is prohibited under the
law on communications of Bosnia and Herzegovina and is dealt with by the
Communication Regulatory Agency.

As for the
digital switchover, a tender for acquiring digital equipment for the three
public service broadcasters was completed. The first phase of the digitalisation
process related to securing the equipment and digital linking of the five
technical centres in a system of digital links and transmitters for the digital
coverage of Sarajevo, Banja Luka and Mostar has started. The second phase of
the digitalisation process is scheduled to start by September 2014.

New appointments
of members of the Council of the Communication Regulatory Agency, responsible
for both electronic communications and audiovisual media, were approved in
November 2013, but are considered to have political affiliations. The
institutional framework does not ensure adequate financial and operational
independence of the regulator, which undermines certainty for the sector and
raises concerns over its efficiency.

Overall,
progress in the field of information society and media is
limited. Considerable efforts are needed to develop electronic communication
and the information society. The Statute of the PBS Corporation should
be adopted and an effective model of RTV tax collection should be decided to
secure a stable, legally viable source of PBS public funding. The process of
digitalisation is seriously hampered by politisation resulting in
non-implementation of the Law on PBS of Bosnia and Herzegovina. The responsible
authorities need to significantly increase their efforts.

4.2.7.
Financial control

In the area of public
internal financial control (PIFC), the Central Harmonisation Units (CHUs)
in the Ministries of Finance of the State and the Entities have prepared
implementing legislation such as the framework financial management and control
manuals, and internal control standards. They have also agreed a
recommendations paper on an internal audit certification scheme. Staffing
of the Federation CHU has been strengthened. Brčko District administration has
embarked on developing its own PIFC policy paper to improve strategic planning,
financial responsibility and fiscal accountability at local level. Pilot audits
and training on internal audit risk assessment and training for newly-appointed
auditors have been undertaken.

The coordination
board of the CHUs has not reconvened to coordinate the development of
legislation and methodologies. As a result, the State, the Federation and
Republika Srpska have developed different approaches to internal control. At
State level, the accountability of budget user heads is covered through
relevant articles in the Bosnia and Herzegovina Law on Financing. In the
Federation, it is covered through implementing legislation and in Republika
Srpska through a draft law. The Federation law on financial management and
control remains to be adopted.

In the area of external
audit,
the coordination board of the supreme audit institutions (SAIs) has not
convened. The functional capacity of the four SAIs is satisfactory, but their
financial independence remains an issue.

Overall,
there has been little progress in the area of financial control. Significant
further efforts are needed to implement PIFC at all levels. Progress in
implementation of PIFC and International Organisation of Supreme Audit
Institutions (INTOSAI) standards would significantly benefit from active
Coordination Boards. Preparations are at an early stage and have yet to be
started in the area of the protection of the EU’s financial interests.

4.2.8.
Statistics

As regards statistical
infrastructure, cooperation between the Agency of Statistics of Bosnia and
Herzegovina (the BHAS) and the Entity institutes for statistics has improved
during the field enumeration of the population and housing census. The Indirect
Taxation Authority (ITA) has started to provide data to the BHAS, but the data
exchange between ITA and the statistical offices and the content necessary to
produce statistics and update the statistical business register still needs to
be defined. The strategy 2020 for the development of statistics in Bosnia and
Herzegovina has been adopted by BHAS and the Entity institutes for statistics.
A metadata strategy and dissemination strategy have been adopted. The mandates
of the director and deputies of the BHAS have expired and recruitment is
pending.

As regards classifications
and registers, the statistical business register (SBR) requires further
improvement, as data from relevant administrative sources is still missing. A
five-year development plan for the register was agreed. BHAS continued to
produce business statistics and national accounts according to NACE rev.2 on a
regular basis. Bosnia and Herzegovina is in breach of the Interim Agreement, as
GDP per capita figures harmonised at NUTS level 2 were not provided to the EU
on 1 July 2013, an obligation under the 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. Further progress on this
issue is pending final results of the population and housing census.

Regarding sectoral
statistics, BHAS and the Entity institutions for statistics conducted the
population and housing census from 1-15 October 2013. Census field enumeration
has been assessed by the International Monitoring Operation as successful. The
data processing phase started in January 2014 and remains to be completed and
results published. As regards macroeconomic statistics, national accounts need
further development. Some progress was made on business statistics, in
particular with regard to structural business statistics and some indicators in
short-term business statistics.

Relevant
legislation for an agricultural census remains to be agreed and adopted.

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

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

As
regards visa policy, in 2013, 93 visas were issued at the border, a
decrease of almost 38 % (150 in 2012). In the first half of 2014, 24 visas
were issued at the border, a decrease of 51 % compared with the same
period of 2013.

Implementation
of the visa-free regime with the EU continued smoothly overall. Although most
travellers to the Schengen area are bona fide, a persistent number of
Bosnia and Herzegovina nationals have continued to abuse the visa-free regime
by lodging manifestly unfounded asylum applications. As in previous reporting
periods, seasonal peaks of asylum-seekers were registered by some EU Member
States and Schengen associated countries. The number of asylum applicants from
Bosnia and Herzegovina grew by 22 % between 2012 and 2013. The extremely
low recognition rate confirms the unfounded nature of these claims. Short and
long-term measures to counter this negative phenomenon continue to be relevant:
authorities in Bosnia and Herzegovina must take immediate action in the
framework of the Post-Visa Liberalisation Monitoring Mechanism to address
asylum abuses through continued public campaigns, intensified investigations on
facilitators, and implementation of adequate policies to improve social and
economic inclusion of the most vulnerable groups of the population most likely
to migrate, including Roma. Efforts in these areas need to continue
systematically and through proper allocation of resources. In September 2014,
the German Parliament adopted amendments to the national asylum legislation for
the inclusion of Bosnia and Herzegovina in the safe country of origin list.

Regarding border
management, most legislation related to integrated border management (IBM),
including the law on border control, is mainly based on the acquis.
Amendments to the law were adopted by the Parliament in June 2014. Revision of
the IBM strategy and action plan is underway. It will entail revision of the
institutional set-up for monitoring strategy implementation. The Joint Risk
Analysis Centre adopted a manual for risk analysis methodology.

Amendments to
the rulebook on the internal organisation of border police were adopted. It
provided for an increase in the number of police officers, which is relevant
for changes in the border regime with Croatia after its accession to the EU.

A joint centre
for police cooperation between Bosnia and Herzegovina, Montenegro and Serbia
was established in Trebinje, Bosnia and Herzegovina. The establishment of the
centre is expected to improve regional capacities to counter cross border
crimes and illegal migration. The cooperation arrangement provides for future
inclusion of other countries.

Infrastructural
and technical upgrade at border posts continued. The new border crossing points
Neum I, Neum II and Bijaca are now connected to the border police information
system. A joint contact centre with Croatia was established at the
international border crossing Bijacá/Nova Sela.

The upgraded
integrated system of control of state border crossings (CSBC) provided for
better results in detection of invalid documents. More than 40 million entries
and exits at the Bosnia and Herzegovina border were registered in the CSBC
system. Around 40 % of those were citizens of Bosnia and Herzegovina,
while 60 % were foreigners. Based on new agreements on border crossing
points and local border traffic between Bosnia and Herzegovina and Croatia, a
mechanism for issuance of local border traffic permits is in place and is
operational. From the accession of Croatia to the EU to 31 December 2013, the
authorities of Bosnia and Herzegovina issued 415 of such permits.

The closure of
unauthorised border crossing points on the border with Serbia remains pending.
Frequent joint border patrols with neighbouring countries continued resulting
in increased seizures of smuggled goods, while detection of illegal migrants
decreased from 389 in 2012 to 228 in 2013.

Practical
cooperation with Frontex in the joint risk analysis is consolidated and largely
conducted in the context of the Western Balkans Risk Analysis Network (WB-RAN).
Bosnia and Herzegovina authorities regularly provide both agreed statistical
and qualitative information.

As regards
asylum, most of the relevant legislation is based mainly on the acquis.
The migration and asylum strategy and action plan for 2012-15 is being
implemented with the financial assistance of international donors. A
coordination body for monitoring the implementation of the new asylum and
migration strategy is functioning well. The asylum sector in the Ministry of
Security is almost fully staffed. The permanent asylum centre in Trnovo, with
154 beds, became operational in September 2014. Until then the temporary asylum
centre in Kiseljak was operational.

The number of
asylum applications in 2013 rose: 73 asylum applications involving 100 people
were submitted, compared with 40 involving 53 people in 2012. Syria was the
biggest single source of asylum-seekers. The Council of Ministers extended a
decision granting one year of temporary residence for people from Syria, based
on humanitarian grounds. In 2013, the Ministry of Security rejected 16 asylum
applications. Since the beginning of 2014, 22 new asylum applications involving
22 persons were submitted. All asylum-seekers from Kosovo, whose temporary
protection status expired in 2007, received first-instance decisions from the
asylum sector. In 2013, court proceedings for two persons were completed.

With regard to migration,
a centre for temporary detention of irregular immigrants is in operation,
employing 53 staff and with capacity for 120 immigrants. In 2013, a total of
236 foreign nationals were accommodated, a decrease of 48 % in comparison
to 2012, when 453 foreigners were accommodated in the centre. In addition, 38
persons were put under surveillance in their place of residence. In all, 277
foreign nationals were returned to their country of origin (159 voluntarily,
117 returned through readmission agreements and one forcefully repatriated). No
irregular migrants were registered for the assisted voluntary return programme
via IOM during 2013, due to lack of financial resources. The provision on the
maximum period of detention at the Immigration Centre still needs to be brought
in line with the relevant acquis.

Implementation
of readmission between the EU and Bosnia and Herzegovina continued to be
satisfactory. Most readmission cases are carried out under the agreement with
Croatia (196 in 2013, compared to 236 in 2012). Of these, 75 were foreign
nationals and 119 citizens of Bosnia and Herzegovina. In accordance with
readmission agreements with the EU and Switzerland, Bosnia and Herzegovina
accepted readmission of 397 of its citizens in 2013, compared to 319 in 2012.
In the first half of 2014, 35 citizens were readmitted, an increase of 34.65 %
compared to the same period of 2013.

The sixth country
migration profile was published. 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).

The number of
interceptions of attempts to cross the border unlawfully decreased. In 2013, a
total of 228 people were intercepted trying to enter or leave the country
illegally, compared to 389 in 2012. In the first half of 2014, 87 people were
intercepted, a decrease of around 33 % compared to the same period in
2013.

The Service for
Foreigners’ Affairs (SFA) makes full use of Migration Information System (MIS)
databases, also accessible to other relevant agencies. In 2013, the SFA issued
9953 permits for temporary stays, a 13 % increase in comparison with 2012
(8383). In 2013, 713 permits for permanent stays were issued, a 78 %
increase compared to 2012 (401). The SFA issued 279 expulsion decisions in
2013, a 50 % decrease compared to 2012 (562). In the first half of 2014,
the SFA issued 2.105 permits for temporary stays and 346 for permanent stays.
155 expulsion decisions were taken.

Overall,
Bosnia and Herzegovina has continued to make progress in the areas of visa
policy, border management, asylum and migration. The provision in the Law on
movement and stay of aliens and asylum- on the maximum period of detention at
the Immigration Centre remains to be harmonised with the acquis. The
infrastructure, surveillance and equipment at border crossing points have
improved but require further efforts. A permanent asylum centre in Trnovo is
now functional. 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

There has been a
modest increase in the number of reports filed at prosecutors’ offices
throughout Bosnia and Herzegovina on cases involving money laundering.
In all, 108 cases were reported in 2013 compared to 59 in 2012. The number of
confirmed indictments and final verdicts remains low. Most international
cooperation is carried out through the EGMONT group. Cooperation is especially
good with financial intelligence units from the region. The investigation
section also cooperates with INTERPOL.

Bosnia and
Herzegovina still has no effective system in place to confiscate and manage
criminal assets. The prevailing model is confiscation of illegally acquired
property under the provisions of the Criminal Code and Criminal Procedure Code.

Agreement has
been reached on a joint set of minimum standards, which should be incorporated
in legislation within all four legal systems in Bosnia and Herzegovina. The
standards reflect all major EU and other international requirements regulating
the field of confiscation of proceeds of crime translated in the context of the
criminal justice multi-level system.

In April 2014
Bosnia and Herzegovina Ministry of Justice appointed a new working group to
draft the new law on confiscation of assets, in line with a set of joint
minimum standards. In Republika Srpska, the Ministry of Justice has appointed a
working group to draft changes and amendments to the existing legislation. A
new law on confiscation of illegally gained assets through criminal offence was
adopted by the Parliament of the Federation, incorporating a set of joint
minimum standard. The law though awaits a ruling on constitutionality by the
Federation Constitutional Court. At the level of Brčko District, a working
group was established to draft the new law on confiscation of assets, in line
with a set of joint minimum standards.

The total amount
of assets seized in 2013 was around € 4.3 million in 126 cases before the
various judicial institutions throughout Bosnia and Herzegovina. In 2014, final
court decisions were rendered in Republika Srpska for the permanent
confiscation around € 10 million that were previously seized by the Entity
Asset Recovery Office applying the Republika Srpska law on asset seizure.

Overall,
Bosnia and Herzegovina has made some progress in the area of fight against
money laundering, but a lot remains to be done. The draft Law on prevention of
money laundering and counter terrorism financing has been adopted, but
amendments to the criminal code that regulate money laundering and financing of
terrorism still need to be adopted to be compliant with international
standards. A number of activities to improve systems of asset seizure are being
undertaken (see also 4.1.3 — Free movement of capital).

4.3.3.
Drugs

With
regard to the fight against drugs, the territory of Bosnia and
Herzegovina continues to be used for transit and storage purposes. Production
of drugs remains small, and mostly limited to marijuana cultivation. There are
indications that domestic demand for drugs increased slightly in 2013,
especially for synthetic drugs.

The national
drugs strategy and action plan (2009-12) has expired. The implementation of
such a strategic framework remained inadequate. The Commission for Suppression
of Abuse of Narcotic Drugs, though appointed by the Council of Ministers, is
not functioning. A draft Law on Prevention and Suppression of the Abuse of
Narcotic Drugs, establishing a focal point for drugs issues at Bosnia and
Herzegovina level remains to be adopted. The Commission for Drugs Destruction
was reappointed.

The number of
crimes related to drugs abuse increased. The number of criminal reports on
trafficking and possession of drugs in 2013 decreased to 1 480, compared
to 1 629 in 2012. The number of confirmed indictments decreased from 1 184
in 2012 to 1 039 in 2013 and number of convictions decreased from 1072 to
1 050. Predominant crimes are possession and enabling use of narcotics.
Drugs confiscated are mostly cannabis, heroin or synthetic drugs. As a result
of successful operations by law enforcement agencies, 31000 litres of chemical
precursors were confiscated and destroyed. A large quantity of drugs seized by
order of different courts throughout Bosnia and Herzegovina is still awaiting
destruction. Coordination of operational activities remains on a 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.

With regard to
international cooperation, Bosnia and Herzegovina reports regularly to
International Narcotics Control Board. Cooperation with the European Monitoring
Centre for Drugs and Drugs Addiction is ongoing. The provisional National
Correspondent for EMCDDA works in the Ministry of Security. Bosnia and
Herzegovina is preparing its second annual report on the situation of drugs in the
country.

Overall,
Bosnia and Herzegovina made some progress on the fight against drug trafficking
and demand reduction policies. The capabilities of individual law enforcement
agencies to identify and disrupt drug trafficking operations have improved.
However, a new strategic framework remains to be defined, as well as further
measures to consolidate institutional capacity for policy coordination and
implementation.

4.3.4.
Police

The
institutional framework for police matters has continued to consolidate
functions and capacities. However, conflicting interpretations of the 2008
police reform laws prevent the development of an effective institutional
setting at State level, which is also hampered at other levels of policing due
to flaws in the structure of law enforcement agencies. Lack of
institutionalised coordination and cooperation between State and
Entity/Cantonal police bodies hampered the effective delivery of police
services. The lack of efficient policing was again proven in February 2014,
when police forces faced serious difficulties in handling violent street
protests that resulted in several millions euros worth of physical damage and
hundreds of people injured.

Staffing
of the Directorate for Coordination of Police Bodies is at 70 %. A new
director and two deputies of the Directorate were appointed, as well as the
director and deputy of the border police and the deputy director of SIPA. The
laboratories of the Agency for Forensic and Expert Examination are being
equipped, but its human resource capacity has remained at 50 %. The Police
Support Agency formalised its cooperation with other State-level police
agencies and begun performing its core mandate regarding procurement. The
Agency for Education and Advanced Training has reached 70 % of staffing.
It has begun the second stage of construction of its training facilities. The
State Investigation and Protection Agency remained at 73 % of its target
staffing level. The System for Electronic Data Exchange of Police and Prosecutor
registries is operational, although some technical aspects in the system
require revision, including the fact that the Directorate for Police
Coordination has still not been granted access to databases.

Amendments to
the Bosnia and Herzegovina law on police officials were adopted by the Council
of Ministers and remain to be adopted by parliament. Amendments to the
Republika Srpska law on police officials and the law on internal affairs were
adopted. The Federation and Cantons have launched initiatives to align their
respective laws on police officials. Provisions governing personal data
protection remain below EU standards in all police bodies. The law on internal
affairs in the Federation was adopted in July 2014. The law reiterates the
principles of operational and financial independence of police was designed to
serve as a model for Cantons when changing their respective laws on internal
affairs.

The Management
Board of Europol authorised the beginning of negotiations on operational
agreement with Bosnia and Herzegovina. The Council of Ministers of Bosnia and
Herzegovina adopted a temporary decision on cooperation with Europol but has
not yet adopted a decision on the negotiating team.

Bosnia and
Herzegovina has established a mechanism for the cooperation with CEPOL through
a memorandum of understanding signed by the relevant ministers at State and
Entities levels in June.

Overall, some
progress was made in the area of policing. Lack of coordination and cooperation
and lack of appropriate training and equipment are preventing the effective
delivery of police services, as evidenced during the social unrest in February.
Coordination and cooperation among agencies remains mainly informal. There are
indications of undue political influence along ethnic lines. The legislative
framework on governing policing remains to be improved to achieve higher level
of professionalism, transparency and accountability throughout the country.

4.3.5.
Fighting organised crime and terrorism

In the fight
against organised crime, a number of successful large-scale joint police
operations have taken place, some of them through close coordination with
neighbouring countries. However, cooperation between police and prosecutors’
offices within Bosnia and Herzegovina requires structural improvements to
guarantee more effective judicial follow-up. A new strategy on combating
organised crime for the period 2014-2016 and the first Organised Crime Threat
Assessment (OCTA) for Bosnia and Herzegovina were adopted. The OCTA was
prepared using the Europol methodology and was jointly developed by all law
enforcement agencies throughout Bosnia and Herzegovina. The action plan related
to the strategy remains to be developed.

Entity level
regulations on arms still have to be harmonised with international standards.
Many illegal weapons and ammunition are in civilian possession. A new
coordination board for the oversight of the implementation of strategy on
control of small arms and light weapons, covering the period from 2013 to 2016,
was established by a Council of Ministers decision. A Framework Law on amnesty
at the Federation level was adopted. Fighting organised crime and corruption is
fundamental to countering criminal infiltration of the political, legal and
economic systems.

In the area of
judicial cooperation in criminal matters, there has been progress in
preparations for concluding a cooperation agreement with Eurojust. In May 2014,
a Eurojust delegation carried out a fact-finding mission to Bosnia and
Herzegovina, aimed at identifying common goal for enhanced cooperation in
criminal matters and possibly concluding a cooperation agreement in the future.
Changes to the law on the protection of classified information, bringing it
into line with the relevant EU standards and providing for implementation of
bilateral security agreements, remain to be adopted.

On combating trafficking
in human beings, the implementation of the strategy and action plan for
2013-15 is ongoing. Implementation of projects in the action plan is financed
mainly by donors. Provisions on trafficking in human beings in the criminal
codes at State and Federation level are in parliamentary procedure. National
legislation, especially in relation to penalties, remains to be aligned with
the EU acquis, notably Directive 2011/36/EU. Regional monitoring teams
continue to meet regularly and improve their capacity through training. A
training manual for social workers dealing with trafficking has 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 victims. Further training on
addressing THB issues should be carried out for representatives from relevant
law enforcement agencies, including the border police in particular.

In 2013 there
was a decrease in the number of trafficking victims identified, with 16 victims
acknowledged, compared to an average of 30 in previous years. However, in the
first six months of 2014, 29 victims of trafficking were identified. A
comprehensive, multidisciplinary and victim-oriented approach to trafficking
still needs to be developed and identification of victims needs to be improved.
Trafficking detected was for the purpose of labour exploitation, sexual
exploitation, begging and forced marriages. Bosnia and Herzegovina continues to
be a country of origin, transit and destination for trafficking. Bosnia and
Herzegovina lacks a comprehensive system to identify the overall trends and
challenges in addressing trafficking in human beings.

The Department
for Combating Trafficking in Human Beings within the national coordinator’s
office and the database on victims are not fully operational. A European
resource centre for the prevention of trafficking and other forms of
exploitation was opened in Sarajevo. Bosnia and Herzegovina has yet to further
align its anti-trafficking system with the set of recommendations included in
the latest report by the group of experts on action against trafficking
(GRETA).

Bosnia and
Herzegovina still lacks a comprehensive overall strategic approach 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. Crime reports prepared
by law enforcement agencies do not refer to cybercrimes. Digital forensics and
other technical means of combating cybercrime at national and international
level are limited and insufficient. Republika Srpska has established a system
to combat cybercrime and demonstrated readiness to investigate computer crimes
and to respond to cyber security threats and risks.

Concerning the fight
against terrorism, Bosnia and Herzegovina continued to implement its
strategy for preventing and fighting terrorism 2010-14. A working group for
preparation of the national counter-terrorism strategy 2014-2017 remains to be
established.

The joint
counter-terrorism task force is functioning and its capacity has been further
strengthened. The operational part of the task force is still awaiting
regulation of its financing and confirmation of the formal status of its
members. The authorities of Bosnia and Herzegovina need to step up their
overall capacities to prevent radicalisation, including through the development
of adequate measures to address the phenomenon of foreign fighters. In this
regard, amendments to the criminal code that introduced sanctions on citizens
joining paramilitary and para-police forces abroad were adopted and represent a
positive step.

Overall,
Bosnia and Herzegovina has made some progress in the fight against organised
crime and terrorism. The new organised crime strategy and a threat assessment
are in place. Counter terrorism efforts have been strengthened by introducing
sanctions against ‘foreign fighters’ in the criminal code. Efforts to
strengthen the system for assets confiscation are ongoing. Bosnia and
Herzegovina needs a comprehensive system to identify overall trends and the
challenges of trafficking of human beings.

4.3.6.
Protection of personal data

Regarding
personal data protection, the independence of the agency was strengthened by
amending the law on salaries and providing the agency with the same rights as
other independent regulatory agencies in November 2013.

The
budget and staffing level of the agency remained the same, while the number of
complaints that were addressed by the agency and of inspections increased. In
2013, the agency carried out 111 monitoring inspections and dealt with 107
complaints. It carried out 34 ex officio procedures and issued seven
penalties.

The
agency continued training activities throughout the public sector to increase
personal data protection capacities within the public administration and the
police.

A
road map for the implementation of measures to improve personal data protection
in police agencies has been developed. There is as yet no implementing
legislation in the law enforcement sector in compliance with personal data
protection.

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

Statistical
Annex

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

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

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

|| Basic data || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Population (thousand) || 1) || 3 790e || 3 843e || 3 843e || 3 840e || 3 836e || 3 832e ||

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

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

|| National accounts || || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Gross domestic product (GDP) (million national currency) || 2) || 12 678 || 24 307 || 24 879 || 25 772 || 25 734 || 26 297 ||

|| Gross domestic product (GDP) (million euro) || || 6 482 || 12 428 || 12 720 || 13 177 || 13 158 || 13 446 ||

|| GDP (euro per capita) || || 1 707 || 3 234 || 3 310 || 3 432 || 3 430 || 3 509 ||

|| GDP (in Purchasing Power Standards (PPS) per capita) || 3) || : || 6 900e || 7 000e || 7 300e || 7 500 || 7 600 ||

|| GDP (in Purchasing Power Standards (PPS) per capita), relative to the EU average (EU-28 = 100) || 3) || : || 29 || 28 || 29 || 29 || 29 ||

|| Real GDP growth rate: change on previous year of GDP volume (%) || || 2.4 || -2.7 || 0.8 || 1.0 || -1.2 || 2.5 ||

|| Employment growth (national accounts data), relative to the previous year (%) || || : || : || : || : || : || : ||

|| Labour productivity growth: growth in GDP (constant prices) per person employed, relative to the previous year (%) || || : || 8.0 || : || : || : || : ||

|| Unit labour cost growth, relative to the previous year (%) || || : || : || : || : || : || : ||

|| \*\*3 year change (T/T-3) in the nominal unit labour cost growth index (2005 = 100) || || : || : || : || : || : || : ||

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

|| Gross value added by main sectors || || || || || || || ||

|| Agriculture, forestry and fisheries (%) || || : || 8.4 || 8.2 || 8.1 || 7.7 || 8.2 ||

|| Industry (%) || || : || 20.8 || 21.5 || 21.5 || 21.1 || 21.7 ||

|| Construction (%) || || : || 6.2 || 5.2 || 4.9 || 4.9 || 4.5 ||

|| Services (%) || || : || 64.6 || 65.1 || 65.6 || 66.8 || 65.6 ||

|| Final consumption expenditure, as a share of GDP (%) || 4) || : || 104.2s || 105.6s || 105.1s || 104.8s || 102.8 ||

|| Gross fixed capital formation, as a share of GDP (%) || 4) || : || 18.6s || 16.6s || 17.9s || 17.5s || 16.8 ||

|| Changes in inventories, as a share of GDP (%) || 4) || : || -0.1s || -1.0s || 0.2s || 0.5s || 0.2 ||

|| Exports of goods and services, relative to GDP (%) || 4) || : || 23.3s || 28.0s || 29.9s || 29.1s || 30.0 ||

|| Imports of goods and services, relative to GDP (%) || 4) || : || 46.1s || 49.1s || 53.2s || 52.0s || 49.8 ||

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

|| Industry || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Industrial production volume index (2010 = 100) || || : || 95.8 || 100.0 || 102.4 || 98.4 || 103.4 ||

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

|| Inflation rate and house prices || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Consumer price index (CPI), change relative to the previous year (%) || 5) || 3.1 || -0.4b || 2.1 || 3.7 || 2.0 || -0.2s ||

|| \*\*Annual change in the deflated house price index (2010 = 100) || || : || : || : || : || : || : ||

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

|| Balance of payments || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Balance of payments: current account total (million euro) || 6) || -833 || -812 || -781 || -1 284 || -1 218 || -734 ||

|| Balance of payments current account: trade balance (million euro) || 6) || -3 308 || -3 981 || -3 901 || -4 267 || -4 318 || -3 989 ||

|| Balance of payments current account: net services (million euro) || 6) || 255 || 973 || 1 104 || 1 082 || 1 118 || 1 153 ||

|| Balance of payments current account: net income (million euro) || 6) || 595 || 488 || 211 || 110 || 119 || 262 ||

|| Balance of payments current account: net current transfers (million euro) || 6) || 1 626 || 1 708 || 1 805 || 1 792 || 1 862 || 1 840 ||

|| of which government transfers (million euro) || 6) || 450 || 80 || 76 || 45 || 55 || 64 ||

|| \*\*3 year backward moving average of the current account balance relative to GDP (%) || 6) || : || -10.0 || -8.9 || -7.5 || -8.4 || -8.2 ||

|| \*\*Five year change in share of world exports of goods and services (%) || || : || : || : || : || : || : ||

|| Net inward foreign direct investment (FDI) (million euro) || 6) || 133.0 || 176.0 || 272.2 || 342.3 || 273.2 || 259.3 ||

|| Foreign direct investment (FDI) abroad (million euro) || 6) || 0.0 || -68.5 || 58.8 || -4.0 || -0.3 || -14.9 ||

|| of which FDI of the reporting economy in the EU-28 countries (million euro) || || : || : || : || : || : || : ||

|| Foreign direct investment (FDI) in the reporting economy (million euro) || 6) || 133.0 || 107.5 || 331.0 || 338.3 || 272.9 || 244.4 ||

|| of which FDI of the EU-28 countries in the reporting economy (million euro) || || : || 154.4 || 147.7 || 195.4 || 174.1 || : ||

|| \*\*Net international investment position, relative to GDP (%) || 6) || : || -56.0 || -57.4 || -58.9 || -61.4 || : ||

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

|| Public finance || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

|| General government gross debt relative to GDP (%) || 7) || : || : || : || : || : || : ||

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

|| Financial indicators || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| 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) || 8) || 1 377 || 2 836b || 3 017 || 3 163 || 3 141 || 3 423 ||

|| Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || 8) || 2 387 || 6 498 || 6 968 || 7 372 || 7 624 || 8 229 ||

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

|| Total credit by monetary financial institutions to residents (consolidated) (million euro) || 8) || 1 707 || 7 184 || 7 436 || 7 828 || 8 151 || 8 391 ||

|| \*\*Annual change in financial sector liabilities (%) || || 24.8 || -2.6b || -0.1 || 1.3 || 1.3 || 4.6 ||

|| \*\*Private credit flow, consolidated, relative to GDP (%) || 9) || 2.5 || -2.0 || 1.7 || 2.3 || 1.6 || 1.5p ||

|| \*\*Private debt, consolidated, relative to GDP (%) || 9) || 25.9 || 56.1 || 56.5 || 56.8 || 58.5 || 59.1p ||

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

|| Lending interest rate (one year), per annum (%) || 10) || : || 7.93 || 7.89 || 7.43 || 6.87 || 6.99 ||

|| Deposit interest rate (one year), per annum (%) || 11) || : || 0.28 || 0.19 || 0.12 || 0.08 || 0.13 ||

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

|| Trade-weighted effective exchange rate index (2005 = 100) || 12) || : || 102.7 || 101.9 || 101.9 || 101.2 || 99.7 ||

|| \*\*3 year change (T/T-3) in the trade-weighted effective exchange rate index, 42 countries (2005 = 100) || || : || : || : || : || : || : ||

|| Value of reserve assets (including gold) (million euro) || 13) || 1 385 || 3 176b || 3 302 || 3 284 || 3 328 || 3 614 ||

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

|| External trade in goods || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Value of imports: all goods, all partners (million euro) || || : || 5 996 || 6 957 || 7 939 || 7 798 || 7 752 ||

|| Value of exports: all goods, all partners (million euro) || || : || 2 835 || 3 623 || 4 203 || 4 018 || 4 282 ||

|| Trade balance: all goods, all partners (million euro) || || : || -3 162 || -3 334 || -3 736 || -3 781 || -3 469 ||

|| Terms of trade (export price index / import price index \* 100) (number) || 14) || : || : || 100 || 99p || 97p || 98p ||

|| Share of exports to EU-28 countries in value of total exports (%) || || : || 71.0 || 69.5 || 70.3 || 72.7 || 73.5 ||

|| Share of imports from EU-28 countries in value of total imports (%) || || : || 64.1 || 61.0 || 59.7 || 61.4 || 60.0 ||

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

|| Demography || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Crude rate of natural change of population (natural growth rate): number of births minus deaths (per thousand inhabitants) || || 1.9 || -0.1 || -0.4 || -0.8 || -0.9 || -1.3p ||

|| Infant mortality rate deaths of children under one year of age (per thousand live births) || || 7.6 || 6.5 || 6.4 || 5.8 || 5.4 || 5.2p ||

|| Life expectancy at birth: male (years) || || 71.3 || 72.4e || 72.4e || 73.7e || 73.7e || 73.7e ||

|| Life expectancy at birth: female (years) || || 76.7 || 77.7e || 77.7e || 78.8e || 78.8e || 78.8e ||

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

|| Labour market || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Economic activity rate for persons aged 20–64: proportion of the population aged 20–64 that is economically active (%) || || : || : || : || : || : || : ||

|| \*Employment rate for persons aged 20–64: proportion of the population aged 20–64 that are in employment (%) || || : || : || : || : || : || : ||

|| Male employment rate for persons aged 20–64 (%) || || : || : || : || : || : || : ||

|| Female employment rate for persons aged 20–64 (%) || || : || : || : || : || : || : ||

|| Employment rate for persons aged 55–64: proportion of the population aged 55–64 that are in employment (%) || || : || 34.0p || 33.3p || 33.6p || 27.2b || 27.7 ||

|| Employment by main sectors || || || || || || || ||

|| Agriculture, forestry and fisheries (%) || || : || : || : || : || 20.5 || 18.9 ||

|| Industry (%) || || : || : || : || : || 21.5 || 22.2 ||

|| Construction (%) || || : || : || : || : || 8.9 || 7.7 ||

|| Services (%) || || : || : || : || : || 49.0 || 51.3 ||

|| Unemployment rate: proportion of the labour force that is unemployed (%) || 15) || 40.0 || 24.1b || 27.2 || 27.6 || 28.0 || 27.5 ||

|| Male unemployment rate (%) || || : || 23.1 || 25.6 || 26.5 || 26.4 || 26.5 ||

|| Female unemployment rate (%) || || : || 25.6 || 29.9 || 30.5 || 30.7 || 29.0 ||

|| Youth unemployment rate: proportion of the labour force aged 15–24 that is unemployed (%) || || : || 48.7 || 57.5 || 57.9 || 63.1 || 59.1 ||

|| Long-term unemployment rate: proportion of the labour force that has been unemployed for 12 months or more (%) || || : || 20.0 || 22.3 || 22.3 || 23.0 || 22.8 ||

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

|| Social cohesion || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Average nominal monthly wages and salaries (national currency) || 16) || 408 || 790 || 798 || 816 || 826 || 827 ||

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

|| \*Early leavers from education and training: proportion of the population aged 18–24 with at most lower secondary education who are not in further education or training (%) || || : || : || 7.9 || 8.0 || 7.9 || 6.7 ||

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

|| Standard of living || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Number of passenger cars relative to population size (number per thousand population) || 17) || : || 180.6e || 188.6e || 191.4e || 159.6e || 177.5e ||

|| Number of mobile phone subscriptions relative to population size (number per thousand population) || || 92.6e || 830.7e || 784.3e || 825.8e || 873.2e || 910.4e ||

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

|| Infrastructure || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Density of railway network (lines in operation per thousand km²) || || : || 19.9 || 20.1 || 20.0 || 20.1 || : ||

|| Length of motorways (kilometres) || || : || 35 || 35 || 35 || 48 || : ||

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

|| Innovation and research || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Public expenditure on education relative to GDP (%) || || : || : || : || : || : || : ||

|| \*Gross domestic expenditure on R&D relative to GDP (%) || || : || : || : || : || 0.27 || : ||

|| Percentage of households who have internet access at home (%) || || : || : || : || 29.8 || : || : ||

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

|| Environment || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| \*Index of greenhouse gas emissions, CO2 equivalent (1990 = 100) || 18) || 16 || : || : || : || : || : ||

|| Energy intensity of the economy (kg of oil equivalent per 1 000 euro GDP at 2000 constant prices) || || : || : || : || : || : || : ||

|| Electricity generated from renewable sources relative to gross electricity consumption (%) || || : || : || : || : || : || : ||

|| Road share of inland freight transport (based on tonne-km) (%) || || 51 || 63 || 62 || 64 || 66 || 68 ||

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

|| Energy || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

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

|| Primary production of hard coal and lignite (thousand TOE) || || : || 3 629p || 3 476 || 4 086 || 3 933b || : ||

|| 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) || || : || 15.7 || 17.1 || 15.3 || 14.1 || : ||

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

|| Agriculture || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

|| Utilised agricultural area (thousand hectares) || 19) || : || 1 656 || 1 649 || 1 675 || 1 680 || 1 670 ||

|| Livestock numbers: live bovine animals (thousand heads, end of period) || || : || 458 || 462 || 455 || 446 || 447 ||

|| Livestock numbers: live swine (thousand heads, end of period) || 20) || : || 529 || 590 || 577 || 539 || 530 ||

|| Livestock numbers: live sheep and live goats (thousand heads, end of period) || || : || 1 125 || 1 110 || 1 086 || 1 070 || 1 089 ||

|| Production and utilisation of milk on the farm (total whole milk) (thousand tonnes) || || : || 734 || 693 || 688 || 674 || 688 ||

|| Harvested crop production: cereals (including rice) (thousand tonnes) || 21) || 1 139 || 1 392 || 1 104 || 1 119 || 906 || 1 224 ||

|| Harvested crop production: sugar beet (thousand tonnes) || || : || 0 || 0 || 0 || 0 || 0 ||

|| Harvested crop production: vegetables (thousand tonnes) || 22) || 190 || 295 || 286 || 287 || 265 || 319 ||

: = not available

b = break in series

e = estimated value

p = provisional

s = Eurostat estimate

\* = Europe 2020 indicator

\*\* = Macroeconomic Imbalance Procedure (MIP) indicator

Footnotes:

1) Mid-year population. ||

2) Production approach. ||

3) Source: Eurostat. ||

4) GDP calculated by the expenditure approach is higher than GDP calculated by the production approach. ||

5) 2001: retail price index. ||

6) Based on IMF balance of payments manual, sixth edition. ||

7) Only external debt of General government sector is available. The data have been suppressed here because they are not comparable with other countries. ||

8) Since 2006: based on IMF monetary and financial statistics manual, 2000. ||

9) Data for MFIs. 2013: based on the Central Bank of Bosnia and Herzegovina’s estimates for GDP (production approach) for 2013; preliminary until the official GDP statistics are published by the BH Agency of Statistics. ||

10) Short-term lending rates in national currency to non-financial corporations (weighted average). ||

11) Demand deposit rates in national currency of households (weighted average). ||

12) Real effective exchange rate. ||

13) 2001: excluding gold. ||

14) Based on Paasche export and import unit value indices in BAM (2010 = 100). ||

15) 2001: not calculated using the ILO methodology; taken from the Bureau for Employment; excluding data from Brčko District. ||

16) Net salary. 2001: excluding data from Brčko District. ||

17) 2009: excluding data from Brčko District. ||

18) Source: UNDP - IPCC Indirect GHG sources and Initial UNFCCC BiH Communication, 2009. Unit is CO2 eq. in million tons. Agency for Statistics was not involved in compiling this report. ||

19) The utilised agricultural area consists of arable land, kitchen garden, permanent crops and permanent grassland as cadastral data (not as UAA). ||

20) 2010–11: related to the Government Decision (all levels in BiH) about repurchase of all quantities of pig meat on the market by large industrial processors. ||

21) 2009: including triticale and buckwheat. ||

22) 2001: including dried pulses. 2009: including lettuce and strawberries. ||

[1]               Until 1
July 2014, the rapporteur for Bosnia and Herzegovina was Ms Doris Pack.
The current rapporteur is Mr Cristian Dan Preda.

[2]               Enlargement
Strategy and Main Challenges 2014-2015, COM(2014) 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 (Bosniak, Serb and
Croat).

[5]               See
General Affairs Council conclusions of December 2013.

[6]               SDA
(Party of Democratic Action), HDZ BiH (Croat Democratic Union of Bosnia and
Herzegovina).

[7]               The
elections were preceded by a campaign asking voters to register their residence
in Srebrenica, even if they were not actually living there.

[8]               Cases
for which evidence was collected during the investigations by the Tribunal’s
Office of the Prosecutor and was subsequently transferred to the national
prosecutor’s office of countries of former Yugoslavia for further investigation
and possible prosecution.

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

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