Report to the European Parliament by the High Representative of the International Community and EU Special Representative for BiH, February-June 2006

Summary

I took over as High Representative forBosnia and Herzegovina (BiH) on 31 January 2006.  In my first address to the citizens I made it clear that, building on the work of my predecessor, my aim during my term of office would be to help BiH intensify its transformation into a normal and peaceful country occupying its rightful place in Europe.  I also stressed that I intended to oversee a shift in the part played by my own Office and that of the international community more generally: rather than providing hands-on leadership, OHR would offer advice and support to the domestic authorities as they assumed ownership of and full responsibility for the country’s continuing progress towards both institutional sustainability and Euro-Atlantic integration.  My priorities, therefore, are to advise BiH leaders and to advocate on behalf of BiH citizens regarding those issues that they consider to be their principal priorities.  I am determined neither to substitute for the BiH Parliamentary Assembly in making laws nor to intervene if BiH politicians should occasionally fail to discharge their responsibilities.  On the other hand, if there should be any serious threat to the country’s peace and stability – or any evident obstruction of cooperation with the International Criminal Court for the Former Yugoslavia (ICTY) – I have made it plain that I will not hesitate to use my powers. 

The 23 June decision of the Peace Implementation Council to authorise OHR to prepare for its closure and likely replacement in Julz 2007 by an office of a European Union Special Representative testified to the fact that Bosnia and Herzegovina is reclaiming its full sovereignty.  Enhanced efforts on the part of the domestic authorities to take ownership of the necessary reforms and consistent stewardship on the part of the international community will, however, be required to make this happen.  The proposed changes in the nature and degree of international engagement in BiH also lend crucial importance to the impending general elections.  The politicians elected on 1 October will bear responsibility not only for ensuring effective and efficient governance in BiH, but also for maintaining the county’s progress towards Euro-Atlantic integration.

The reporting period was comprised of two very distinct parts: a period of high expectations resulting from the unprecedented agreement among the leaders of six of the country’s main political parties on 18 March to propose a package of constitutional amendments to the Presidency and Parliamentary Assembly, followed by a period of increasingly nationalistic vituperation after the narrow defeat of the reform package in parliament on 26 April.  This failure provided the context in which the parties defined their positions in an election campaign that has already generated more heat than light.  As is usual in BiH, the nationalist parties have sought to rally their respective constituencies by emphasising the threats supposedly posed to their national or entity interests by the others.  This accentuation of dangers and divisions has not only made the passage of reform legislation almost impossible, it has also envenomed political discourse.  Politicians in the Republika Srpska (RS) referred to the 21 May independence referendum in Montenegro and the Kosovo final status talks and claimed the right to a referendum on the future of the RS. On the other hand, some Bosniak politicians suggested that the RS be abolished.

Nonetheless, some progress has been made in Stabilisation and Association Agreement ( SAA ) negotiations with the European Commission (EC) during the first half of 2006.  Were it not for the preconditions set by the EC in regard to police restructuring, public broadcasting reform and full cooperation with the ICTY, it would be possible to predict a successful outcome to the SAA talks by year’s end and the opening of a bright new phase in BiH’s post-war development.  Unfortunately, failure to fulfil any one of these preconditions could yet scupper hopes of signing a SAA late this year or early next year.  Police reform experienced difficulties since May, when the RS reduced its presence to observers status.      

The pace of economic reform has likewise slowed during the reporting period and, due to increased tax receipts and the election calendar, public spending has risen markedly.  The entities and other lower-level governments have been borrowing against future revenues and making commitments that will be unaffordable in the longer term.  The Council of Ministers failed to finalise and adopt the draft law on the National Fiscal Council, while the dispute over the allocation of indirect tax receipts among the entities and Brcko District continued to rumble. 

In March I reappointed Joly Dixon to serve for a further three months as chairman of the Governing Board of the Indirect Taxation Authority (ITA).

The BiH authorities continued to engage actively in the process of Public Administration Reform ( PAR ) during the first half of 2006.  The PAR Coordinator’s Office is finalising a national strategy and action plan for the state, entities and Brcko District that will set out the steps necessary to secure quick and substantial progress in this field. 

Despite the international community’s regular reiteration of the need for full cooperation with the ICTY, the EC’s May suspension of SAA talks with Belgrade and recurrent media speculation that Serbia might finally be on the verge of arresting Ratko Mladic, no progress was made in apprehending either Ratko Mladic or Radovan Karadzic.  Their continuing liberty once again disqualified BiH from joining NATO’s Partnership for Peace.

Based on the principles of equity and legality, as well as the judicious exercise of my mandate and the need to strike a balance between protecting national stability and individual rights, I have accelerated the rehabilitation of persons whom my predecessors had removed from public office.  This process will be completed before the closure of OHR. 

The unification of the Mostar city administration slowed considerably this year.  Little if any progress has been made in finalising the systemisation of the administration, forming an urban planning institution, resolving the status of Hercegovacka Television and various cultural institutions, or forming a single public utility company.

Direct discussions between the Council of Ministers and the government of Brcko District, facilitated by the US government and with OHR and the Brcko Final Award Office taking part as well, took place in February and June.  Their aim is to put Brcko-state relations on a secure footing without recourse to the Arbitral Tribunal.  In June the PIC Steering Board urged the parties – and the Council of Ministers in particular – to engage intensively to resolve outstanding issues.

My office continued to urge the state and entity authorities to comply fully with Human Rights Chamber decisions, especially in the longstanding cases of Colonel Avdo Palic and those Sarajevo Serbs who have been missing since the war.

The lack of progress on education reform during the reporting period is also regrettable.  One of my top priorities for 2006 has been the establishment of an agency for standards and qualifications at state level and the adoption of several other laws in this sector, starting with a law on higher education that will enable BiH to live up to its commitments under the Bologna Process and Lisbon Convention and so improve both the university educations and future prospects of BiH graduates.

My colleagues and I have endeavoured to fulfil both the OHR Workplan and revised Mission Implementation Plan (MIP) approved by the PIC in March.  Our efforts have been hampered, however, by pre-election politicking.  The domestic authorities have proved increasingly unwilling and/or unable to engage with reforms that provide no short-term political gains.  The Workplan and MIP completion rate has thus suffered.

Political developments

 The reporting period comprised two very distinct parts: a period of high expectation and optimism resulting from the unprecedented six-party agreement on constitutional reform that, after several months of intensive talks, was finally signed on 18 March, and a subsequent period of political antagonism increasingly underscored by nationalistic rhetoric following the narrow defeat of the constitutional reform package on 26 April.  This coincided with and set the tone for the unofficial start of the general election campaign.  The first phase was characterised by cooperative engagement on the part of a united Republika Srpska (RS) political establishment and disarray among the divided parties of the Federation over the prospect of limited constitutional reforms.  The latter phase has seen increasingly radical initiatives on the part of the new RS premier, Milorad Dodik, whose pronouncements on a possible secession referendum in the RS, the revocation of previous transfers of competency to the state and the unacceptability of any police restructuring plan doing away with the RS police marked a newly aggressive assertion of RS interests.  A month-long boycott of the BiH Parliamentary Assembly by RS delegates in May and June made it impossible for parliament to function.  The issue was the Council of Ministers’ failure to establish a commission to investigate the wartime suffering and fates of Sarajevo residents of all nationalities, but the effect was to demonstrate RS unity. 

The BiH Parliamentary Assembly passed until May eight major laws until necessary for BiH to meet the requirements of the EU, NATO’s Partnership for Peace and the ICTY.  The Council of Ministers had previously adopted (in April) a EU integration strategy: its first long-term strategic document setting out the goals to be attained as BiH proceeds towards full EU membership.

However, the harmonisation of entity-level public broadcasting service (PBS) legislation with that of the state is still not complete.  This is a still-outstanding requirement of the EC’s 2003 Feasibility Study that has aroused formidable opposition among Croats in the Federation. Their invocation of a “vital national interest” case in the FBiH House of Peoples in the spring meant that the Federation PBS law was referred to the entity’s Constitutional Court , where it remained unresolved during the period under review.

However, the harmonisation of entity-level public broadcasting service (PBS) legislation with that of the state is still not complete.  This is a still-outstanding requirement of the EC’s 2003 Feasibility Study that has aroused formidable opposition among Croats in the Federation.  Their invocation of a “vital national interest” case in the FBiH House of Peoples in the spring meant that the Federation PBS was referred to the entity’s Constitutional Court , where it remained unresolved during the period under review.

After a delay of five months, the Ministry of Civil Affairs finally submitted a draft law on higher education to the Council of Ministers in April.  More delays ensued, but the CoM eventually adopted the law by majority vote on 1 June and sent it to parliament.  The opposition of Serb ministers in the CoM ensured, however, that MPs from the RS would also oppose the law.  Efforts to draft amendments that would satisfy the Serbs while not risking the support of Croats and Bosniaks have continued.  

The Parliamentary Assembly adopted amendments to the Election Law in March. Significantly, these amendments included the introduction of passive voter registration (PVR) and the shortening of the period between calling and holding elections from 170 to 150 days. The advent of the PVR system has already resulted in an increase of the number of voters on the electoral register by approximately ten per cent.  The 1 October elections were announced on 4 May.  The Central Election Commission ( CEC) certified 48 political parties and twelve independent candidates for the elections.  

The negative political climate that has prevailed since late April has had many manifestations.  One was a mid-May vote of no confidence in Prime Minister Adnan Terzić, which he narrowly survived.  As noted above, however, MPs from the RS returned to the charge over the issue of a commission to determine the wartime fates of Sarajevo ’s missing civilians.  Terzić’s refusal to establish such a commission provoked Serb deputies to walk out of the House of Representatives on 24 May, a boycott that lasted until 20 June and achieved its object.  This loss of nearly a month of parliamentary time not only held up important reform legislation, it also exemplified the increasingly fraught state of inter-ethnic and inter-entity relations.

Prime Minister Dodik’s speculative but inflammatory comments about a possible referendum on secession in Republika Srpska contributed to this deterioration.  Although immediate reactions by RS politicians to the 21 May Montenegrin vote for independence had been generally measured and mature, Dodik’s decision a week later to raise the spectre of a similar referendum in the RS, albeit in certain hypothetical circumstances, evoked wide enthusiasm in the RS and outrage in the Federation.  Calls by Bosniak politicians and commentators to abolish the RS had the predictable effect of feeding ever more demands for self-determination among Serbs.  Despite strong statements by the international community that there was no parallel between the Montenegrin or Kosovo cases and a sovereign BiH – and explicit condemnation of Dodik’s remarks – he continued to revert to the idea of a referendum throughout June.

Immediately upon taking office at the end of February, Dodik had launched an attack on the legitimacy of the Police Restructuring Directorate Steering Board that he has sustained over the reporting period.  He asserted his support for the three EU principles on state-level budgetary and legislative primacy, political non-interference and functional policing regions, but challenged both the composition and the proposals of the Steering Board.  He has not, however, put forward any scheme that would satisfy the principles while supplanting the two-level policing model being developed by the Police Directorate.  The latter body, meanwhile, had laboured over several months to maintain decision-making by consensus.  This proved impossible by May, and the RS was outvoted when the Steering Board finally opted for a model based on state and local police authorities, i.e., without a place for entity police forces.  The RS responded by unilaterally downgrading its participation in the Steering Board to that of a mere observer, regardless of previous assurances to EU heads of mission that it would do no such thing.  RS disengagement prevailed through June.

Constitutional Reform Negotiations

Intensive negotiations among the leaders of the country’s eight largest political parties, coordinated over four months by the US Embassy in Sarajevo, culminated on 18 March in an agreement by six of them on a set of draft constitutional amendments.  The Constitutional and Legal Affairs Commission of the BiH House of Representatives affirmed the constitutional grounds for these amendments on 31 March and a public consultation on them took place in parliament on 12 April.

The amendments envisaged an indirectly elected president and two vice-presidents who would rotate every 16 months in place of the popularly elected collective presidency whose chairmanship rotates every eight months; a stronger and larger Council of Ministers with a real premier at its head; an expanded House of Representatives and House of Peoples, but with restricted competencies for the latter; and a more clear-cut division of responsibilities between the state and the entities.  

Regardless of any such weaknesses, OHR – like other international agencies – lent its support to this historic effort to improve upon and effectively domesticate the Dayton constitution.  As the parliamentary procedure continued, however, it became clear that opposition to the amendments had become a defining issue for Croat deputies who had broken with the Croatian Democratic Union of BiH (HDZ) and would soon form the ‘HDZ 1990’.  They contended that the reforms did nothing to improve Croats’ standing, even going as far as to suggest that signing the reforms would lead to the complete marginalisation of the Croat people within BiH.  The Party for BiH (SBiH) also opposed the package, thereby providing a re-entry ticket into active politics for party founder Haris Silajdžić, who argued that the amendments were both superficial and legitimised Republika Srpska.

Although the package scraped through the committee stage, it failed on 26 April (by two votes) to win the required two-thirds majority in the lower house after a two-day session.  This result was due to the opposition of the SBiH and the nascent HDZ 1990, as well one independent MP and a single defector from the Party of Democratic Action (SDA). 

The discussion about constitutional reform marked a party-political realignment that split both the HDZ and the Bosniak parties.  The failure to enact them inaugurated what has turned out to be a highly polarised and vituperative election campaign.  

The April package will probably provide the basis for a renewed effort to agree and enact constitutional reforms after the elections.  If the six parties behind the deal win a two-thirds majority in the BiH House of Representatives, it is possible that the package could be rapidly passed.  I plan to take a proactive role in the continuation of this process.

Republika Srpska 

A new RS government, led by Milorad Dodik’s Alliance of Independent Social Democrats (SNSD), took office in early March.  By the end of June it had pushed a raft of legislation (54 new laws) through the RS National Assembly (RSNA), related mainly to combating organised crime, revising previous privatisation deals and reorganising the public administration.  The RSNA has functioned more efficiently and the government has been more open to NGOs, citizens’ associations, the media and the general public than its predecessor.

Several laws proposed by the government aroused controversy, however, and were blocked by invocations of ‘vital national interest’ by the Bosniak or Croat caucuses in the RSNA’s Council of Peoples.  Dodik, meanwhile, has sought to leave no room on his nationalist right and has missed no chance to demonstrate his arch-Serb credentials by challenging the international community, above all on police reform and fiscal issues.

The first significant controversy concerned the replacement of assistant ministers who occupy civil service positions.  Dodik, however, sought to make new appointments under the Law on Ministerial Appointments, which OHR opposed on the grounds that this relates to political appointees, not to civil servants.  The prime minister, however, has thus far had his way. He was forced to backtrack, however, when he appointed a special prosecutorial team to fight organised crime without consulting or acknowledging the authority of the High Judicial and Prosecutorial Council (HJPC) in such matters.  Those appointed promptly resigned when the HJPC decried the illegality of their appointments and negotiations commenced to bring the relevant RS law into line with that of the state.

As noted above, Dodik launched an attack on the legitimacy of the Police Restructuring Directorate Steering Board upon coming to office.

Dodik’s inflammatory remarks on the possibility of a secession referendum in the RS were a cause for serious concern.  These were in marked contrast to the generally measured and mature reactions of other mainstream RS leaders following the Montenegrin independence referendum.  I felt it was important to lay down a marker and to issue a statement warning that any concrete plan to organise a referendum on RS self-determination or secession would clearly call into question the stability of the state, and that I would have no option in such circumstances but to use my executive powers.

Far from retracting his remarks, in a subsequent interview Dodik heralded the advent of an “era of referenda”, insisted that a referendum was a theoretical possibility and castigated the international community for its supposedly inveterate hostility towards the RS.  On the other hand, he was careful to say that any RS referendum would be under the auspices of the European Union.  My office restated its position, following which Dodik appeared to back down to some extent.  On the eve of a reputed “state visit” by the Serbian prime minister to Banja Luka on 9 June, however, I felt obliged to caution him in writing that any discussion of a future referendum on this occasion would be impermissible.  Fortunately, there was none.

Federation of BiH

The harmonisation of the entity-level Public Broadcasting Law with that of the state – a long-deferred Feasibility Study requirement – has not yet taken place, owing to the submission of a vital national interest case to the Federation Constitutional Court by the Croat Caucus of the House of Peoples.  The court did not rule on the merits of this case during the period under review. 

A worrying attempt to reassert political control over the electricity regulator following its approval of price rises was headed off by OHR intervention.  The proposed amendment of the relevant law would have contravened a EU directive.  This instinctive response by politicians to an unpopular decision by an independent regulatory agency was a telling example of both why such regulators are necessary and how fragile they remain in BiH.

Mission Implementation Plan

OHR has pressed forward with its Workplan since the PIC Steering Board endorsed my overall approach in March.  As expected, however, the early advent of the general-election campaign and the adversarial approach to politics, as well as my insistence that the domestic authorities must take an ever-larger share of responsibility for the country’s affairs, meant that the rate of completion of both Workplan and Mission Implementation Plan (MIP) tasks slowed markedly in recent months.  This was despite my attempt on 24 May to convince members of parliament to push forward with an ambitious legislative agenda over the 100 days remaining before the elections.  The slow-down experienced will have serious knock-on effects on the OHR Workplan and the MIP.  Three MIP Core Tasks remain incomplete: Rule of Law, Reforming the Economy and Institution Building .  

Entrenching the rule of law

In recognition of the fact that BiH now possesses both the legal framework and statewide institutions required to maintain the rule of law, the OHR’s own Rule of Law Department closed at the end of 2005.  Mindful, however, that there is still work to be done in cooperation with domestic institutions and authorities to ensure that past reforms are fully implemented, OHR established an implementation unit.  

In addition to OHR/EUSR’s active engagement in the process of Police Reform, OHR/EUSR has remained engaged in issues related to organised crime, citizenship and capacity building in the field of criminal intelligence.

Organised Crime

Because of the dire effects of organised crime and corruption on both the economy and citizens’ trust in the political system, the focus of OHR’s monitoring and advisory work is now on these debilitating phenomena.  OHR/EUSR monitored and encouraged the work of the working group chaired by the Ministry of Justice that redrafted the National Plan of Action Against Organised Crime and Corruption.  The plan sets out a coordinated strategy, as well as precise and measurable goals.  Its implementation will also be closely monitored.  The implementation unit approaches rule of law issues from the law enforcement perspective, working to build up the capacity and independence of the Ministry of Security, the State Border Service and the State Investigation and Protection Agency (SIPA).

Criminal Intelligence Unit

Before closing down at the end of March, the staff of the CIU worked to train their domestic counterparts in SIPA on the effective use of specialised computer hardware and software purchased for them.   

Reforming the economy

Recent economic policy advances were confirmed during the reporting period by the decision of Moody’s Investor Service to upgrade BiH’s key debt rating from B3 to B2. Moody’s particularly highlighted the resolution of the longstanding issue of compensation for frozen foreign currency deposits, plans to deal with other internal debts and restitution, as well as the smooth introduction of value-added tax (VAT) in January. 

The overall macro-economic situation remains positive.  Economic growth has been estimated at 5 to 5.5 per cent of real GDP, being among the highest in the region.  Exports accelerated by 33 per cent in the first quarter of 2006 relative to the same period last year, and this increase presumably reflects stronger incentives for accurate reporting by exporters as a result of VAT. Growth of imports also accelerated sharply in December 2005, mainly driven by pre-emptive buying ahead of the application of VAT.  Inflation rose slightly in 2005, reflecting an increase in excise tax and higher oil prices.

This momentum needs to be maintained.  That will require enhanced fiscal coordination and a reduction in fiscal risks.  One of the key economic reforms OHR expects to see enacted before the end of 2006 is a Law on the National Fiscal Council that will ensure proper functioning of the existing but informal Fiscal Council.  Other reforms to be enacted are laws on obligations and salaries of state civil servants and other employees.  These will, respectively, rationalise the management of public finances, introduce legal certainty across the entire spectrum of commercial contracts, and put the remuneration of civil servants and parliamentarians on a realistic and financially sustainable footing.

However, the overall pace of economic reform has slowed significantly.  There are three principal reasons for this.  First, the incipient change of government in Republika Srpske resulted in a two-month interruption of efforts to take the economic reform agenda forward before Dodik took office.  Second, the early and unofficial start of the election campaign has had significant and generally negative implications for making progress this year on both economic and political reforms.  Third, the Council of Ministers and other BiH authorities have continued to show a marked inability to take tough decisions, and have sought to pass responsibility for these to the High Representative.  For example, as a result of gridlock among stakeholders, the High Representative had to extend the mandate of the international chairman of the Governing Board of the Indirect Tax Administration in March and to appoint a new chairman at the end of June.

The major economic challenge at present is the pre-election loosening of fiscal discipline, which is weakening public finances.  The entities and other lower-level authorities have already started to spend the higher-than-expected VAT revenues, in addition to borrowing against future revenues, and are apparently committing themselves to vote-winning wage rises for public-sector workers.  RS police salaries have been increased by 17 per cent; while a random check of six Federation municipalities shows average wage increases of around 10 per cent.  Furthermore, there are currently several laws in legislative procedure that would increase benefits to state and Federation officials, including parliamentarians themselves.  Their passage will only encourage other groups to press for similarly generous deals.

Prime Minister Terzic announced at the March meeting of the PIC that the Council of Ministers would use the VAT surplus to facilitate labour market reform, including a reduction of labour taxes and social contributions.  There has, however, been no follow-up thus far.   

VAT Introduction

All signs point to the successful introduction of VAT.  After the first five months, the Indirect Tax Administration had collected KM 150 million more than expected.

On the other hand, arguments over revenue allocation among the state, entities and Brcko District have consumed an alarming amount of political time and energy.  Agreement on permanent allocation coefficients for 2006 was not achieved in the reporting period.  RS demands for a larger share of last year’s receipts led to an agreement to conduct an external audit, but the parties were unable to concur on its terms of reference.  The dispute over the allocation of revenues also delayed progress on the agreement of the National Fiscal Council Law while, at the same time, underlining the need for such a law.

Several sets of amendments to the VAT law have been tabled that would exempt certain products or introduce a zero rate.  The likelihood that any such reductions would reflect electoral considerations rather than fiscal wisdom caused OHR to oppose such proposals at this stage.  My office has made it clear, however, that we would not seek to prevent parliament from amending the law.

Single Economic Space

During the reporting period Republika Srpska was reluctant to transfer the competency for banking supervision and obligations to the state.  Although the RS government twice adopted a transfer agreement on the Law on Obligations, the RSNA has not endorsed it.  

Centralising banking supervision under the Central Bank (or a state banking agency) is a EU Partnership priority.  Political stakeholders have accepted this in principle, but real progress is dependent upon the adoption of a transfer agreement.  Despite both OHR lobbying and the clear economic incentives, the RS government has thus far proved unwilling to adopt the transfer agreement.  The Federation government adopted a transfer agreement in May.  

The BiH Law on Pharmaceuticals and Medical Devices was adopted by the Council of Ministers and has entered parliament.  Apart from establishing uniform conditions for the manufacture, testing and sale of pharmaceuticals and medical devices, the law also introduces a countrywide supervision regime by establishing a single regulator, the State Pharmaceutical Agency.  It thus would represent a significant step towards creating a single pharmaceuticals market that would not only facilitate business development and investment, but also safeguard public health.  The law encountered strong opposition from the predominant domestic producer and its political supporters.

Infrastructure reform during the period focused on the completion of a legal framework for the railways, which aims to transform the BiH Public Railways Corporation into a single infrastructure management company.  Despite the fact that Є 170 million in funding is on offer, RS objections to separating operators from infrastructure providers has delayed matters.

Strengthening the capacity of BiH’s governing institutions, especially at state level

The Joint Action Plan for Staffing and Premises, which Prime Minister Terzic presented to the PIC in September 2004, continued to provide the agenda during the first half of 2006 – and with OHR still acting in support.  The focus was again on the State Property Commission, which has been tasked both with developing laws that identify each government level’s ownership rights over the various categories of public property, as well as with elaborating criteria by which state-level institutions can acquire/expropriate property necessary to the exercise of state-level functions, not least those stemming from European integration.  After extensive discussions, the legal sub-committee of the commission, comprised of state, entity and Brcko officials, prepared initial draft laws.  OHR has observed, advised and assisted the commission’s work, particularly in forging political and technical agreements on key aspects of the draft by the several layers of government.

During the reporting period the National Public Administration Reform ( PAR) Coordinator finalised the first draft of the national PAR Strategy, as well as an accompanying action plan for adoption by the state, entity and Brcko District authorities.  Six inter-governmental working groups conceived the strategy between March and May 2006.  It encompasses the six horizontal PAR areas: human resources, legislative drafting, administrative procedures, information technology, institutional communications and public finance.  On 22 June the three prime ministers and the Brcko mayor publicly endorsed the strategy.  OHR provided both political support and technical assistance throughout.  Also in June, the Civil Service Agency completed the recruitment procedure for six staff members of the National PAR Coordinator’s Office, thereby providing it with long-needed manpower.

The adoption and start of the implementation of a comprehensive PAR action plan forms part of the key short-term priorities of the European Partnership, the conditions for signing the SAA.

Establishing state-level civilian command and control over the armed forces, reforming the security sector and paving the way for integration in the Euro-Atlantic framework

As I outlined in my last report, BiH made great strides towards reforming its defence sector in 2005.  As a result, the country now has just one defence minister, one chief of staff, one chain of command and one army.  In line with the Law on Defence, the Presidency signed in early July a decision determining the size, structure and locations of the BiH Armed Forces as proposed by the minister of defence.

The technically challenging and complex process by which the state is assuming all defence-related tasks has continued.  The implementation of the transition phase is being led, planned and managed by the defence minister, assisted by NATO.  A Transition Implementation Expert Team has been set up to assist the minister.  At the highest managerial level, the minister chairs the Defence Reform Coordination Group, in which his own deputies and senior military commanders participate.  This group assists the minister in coordinating the activity of BiH defence institutions with the international community.  Although NATO takes the lead among the latter, OHR remains closely involved in the process.

The remaining challenges are now to ensure that the agreed reform is implemented in the manner intended and within the relatively ambitious deadlines set in the Law on Defence.  The formation of the new BiH Armed Forces should be complete by the end of 2007.

I will continue to monitor closely any attempts to prolong and/or to establish ethnic parallelism within the defence system.  Trust takes time to build; and some countervailing influences still exist both inside and outside the defence establishment.

Intelligence reform continued during the first half of 2006.  OHR’s responsibility for overseeing the digitising, processing and storing of war-crimes archives in the Intelligence and Security Agency (OSA) remained on track.  The Norwegian government continued to fund the project.  Discussions also continued on how best to provide secure access by SIPA to the OSA-maintained database.

A few technical amendments to the Law on OSA were adopted by the Council of Ministers, reviewed by the Parliamentary Assembly’s Constitutional and Legal Affairs Committee and finally passed by both houses of parliament.  Having received positive assessments from the Presidency and Parliamentary Assembly, the Council of Ministers unanimously reappointed OSA’s senior leaders to full four-year terms.

Given the sensitive nature of intelligence reform, I will continue to monitor and advise OSA, the Intelligence-Security Committee of the Parliamentary Assembly and the Intelligence-Security Advisory Service in the prime minister’s office.  In fact, I consider this to be of critical importance over what is likely to be an eventful and possibly bumpy twelve months leading up to the closure of OHR.

BiH in the region

During the reporting period, regional issues had a significant impact on BiH.  The start of Kosovo status talks in February and the independence referendum in Montenegro encouraged politicians and commentators in Serbia and the RS to draw false parallels between the future of Kosovo and/or Montenegro and Republika Srpska.  As noted above, Montenegrins’ vote to dissolve the State Union with Serbia led RS Prime Minister Dodik to speculate about the circumstances in which RS voters might one day opt for national self-determination.  The readiness of Federation-based politicians, above all Party for BiH presidency candidate Haris Silajdzic, to respond with demands for the abolition of the RS created a vicious circle of rhetorical radicalism.   

A purported “state visit” by Serbian Prime Minister Vojislav Kostunica to Banja Luka on 9 June passed off without any talk in public about a referendum in the RS, but with much public discussion of the need to update the agreement on parallel relations between Belgrade and Banja Luka .  This likewise served to incite Bosniak protests over any deal that aimed to bypass state-level institutions.  Given both the context in which this need to revise the existing agreement was floated and Kostunica’s oft-repeated view that the RS constitutes an integral part of the Serbian nation, each side acquired yet more arguments to fling at the other.

BiH’s relationship with Serbia has also been complicated by the genocide case lodged against the former Federal Republic of Yugoslavia by the then Republic of BiH at the International Court of Justice in 1993, hearings on which finally commenced in late February.  Bosnian Serb politicians, including the BiH foreign minister, and the Serb member of the Presidency have argued that the case is both illegitimate and poses yet another threat to the existence of the RS.  From Belgrade ’s perspective, the main concern, aside from being branded a genocidal state, is the risk of being saddled with the payment of enormous reparations.

The EC’s suspension in May of its talks on a Stabilisation and Association Agreement with Belgrade because of the Serbian government’s failure to arrest ICTY indictee Ratko Mladic affects BiH as all but two of The Hague ’s indictees still at large are indicted for war crimes committed in BiH (Hadzic and Djordjevic).

It should be noted that BiH continues to have minor but unresolved border issues with both of its neighbours.  More troublesome difficulties stem from the fact that many BiH citizens also have Croatian or Serbian nationality, and the constitutional bans in those countries on extraditing their citizens mean that the regional battle against organised crime and the pursuit of putative war criminals not indicted by the ICTY are impeded.  Fortunately, Montenegro and BiH have no territorial disputes or other unresolved issues.

BiH and the European rapprochement process

EC Feasibility Study

In March 2006, the Council of Ministers adopted an action plan to address the European Partnership priorities. In April it adopted a EU Integration Strategy: its first long-term strategic document setting out the steps and benchmarks it foresees in order to fulfil the EU membership criteria.   

On the basis of the findings of the European Commission's 2005 Progress Report on Bosnia and Herzegovina 's preparations for further integration with the European Union, the EU adopted in January 2006 a revised European Partnership with BiH.

The Council of the European Union has judged that the conclusion of the SAA depends in particular on BiH's progress in developing its legislative framework and administrative capacity, the implementation of police reform in compliance with the Agreement on Police Restructuring of October 2005, the adoption and implementation of all necessary Public Broadcasting legislation, and full co-operation with the ICTY. While the negotiations on the SAA proceeded well, there was less progress in addressing the key European Partnership priorities, particularly in the areas of Public Broadcasting Service reform and Police Reform.

Police Reform

As a result of the October 2005Agreement on Restructuring of Police Structures adopted by the RS National Assembly, the Federation Parliament, the BiH Parliamentary Assembly and the Council of Ministers, the Directorate for Police Restructuring Implementation was established and commenced work.  The primary task of the Directorate is to propose a phased implementation plan for police reform, including proposals of police regions, which conform to the three European Commission principles on police reform, i.e. 

• All legislative and budgetary competencies for all police matters must be vested at state level;
• There must be no political interference in operational policing; and
• Where operational command is exercised at the local level, such policing areas must be determined by technical policing criteria. 

The Directorate’s Steering Board met thirteen times between its inaugural session in late January and the end of June 2006.  In February the Steering Board resolved most administrative and internal organisation issues, including the completion of the Directorate’s Executive Board membership, adoption of a Directorate Rule Book, Strategic Guidelines for the Work of the Executive and the Directorate’s Plan of Activities, which Brussels had requested in order to monitor progress.

The Directorate soon fell behind schedule, however, most importantly by missing the deadline for deciding on a future model of policing and its internal organisation.  Political interference from and denials of the Directorate’s legitimacy by the RS government were mostly to blame.  The root of the problem lies in the RS government’s reluctance to accept the EC principles and refusal to contemplate the loss of its own entity police force. Further, the RS PM Milorad Dodik in particular continued to emphasise that the RS would never back down from their stance in the future.

Despite continuing political obstruction from the RS, in early May the Directorate Steering Board broke the deadlock and abandoned its effort to make all decisions by consensus when it adopted an Opinion on the basic elements of the future police structure, which should be based on two levels – state and local – in place of the current three-level model.  The Steering Board adopted this Opinionby majority vote.

Given both past delays and the enormous technical task still facing the Directorate, it seemed highly unlikely by the end of June that the plan would be complete by the 30 September deadline. 

EUFOR / Operation Althea

The European Union Military Mission (EUFOR) has continued to conduct operations to ensure compliance with the General Framework Agreement for Peace and to maintain a safe and secure environment.  EUFOR troops conducted a number of operations, including presence patrolling, observation activities, weapons’ collections and specific operations targeted at the support networks of war crimes indictees and associated criminal elements.  EUFOR maintains around 6,000 troops from 22 EU member states and twelve other countries. The force remains deployed in three regional multi-national task forces based in Banja Luka , Mostar and Tuzla , in addition to 44 liaison and observation teams ( LOT houses) throughout the country.

EUFOR has continued its active engagement in the EUSR-chaired Crime Strategy Group bodies tasked with overseeing the coordination and coherence of the EU’s Security and Defence Policy in support of the domestic authorities’ fight against organised crime.  New EUFOR and EUPM operational guidelines mean that EUFOR now plays a less active role in conducting operations targeting organised crime, but is instead backing local law enforcement agencies on request when endorsed by the EUPM.

In recognition of the successful restructuring of the BiH Armed Forces, EUFOR is aiming to transfer its inspection functions and activities to the BiH Ministry of Defence and other relevant ministries.  As BiH moves towards normality and EU integration, EUFOR has likewise shifted from deterrence towards providing reassurance.  The EUFOR presence is, however, still deemed essential to the maintenance of overall stability.  A potential change in force posture over the coming year would need to take into account not only developments in BiH, but also in the region as a whole.  Any decision regarding EUFOR will be taken in close consultation with me as HR and EUSR.

EUPM

The first five months of 2006 saw the EUPM in transition, with the development of a refocused mandate, a reduction of mission strength and the establishment of new structures.  A number of key transitional tasks thus needed to be carried out in the period:

• Establishment of the Organised Crime Policy and Coordination Department responsible for the overall synchronisation of EUPM’s activities in support of the fight against organised crime.
• Establishment of the Criminal Justice Interface Unit (CJIU) tasked to address deficiencies in cooperation between police and prosecutors.  The CJIU focuses on enhancing both general and case-specific cooperation in order to facilitate effective investigations and prosecutions and to contribute to strengthening the integrity of BiH’s criminal justice system.
• Establishment of Inspection Teams based in Sarajevo and Banja Luka that are to be the main EUPM instruments for ensuring local accountability and dealing with issues such as police integrity, corruption and political interference.
• EUPM/EUFOR Common Operational Guidelines.  During this phase the negotiation, preparation and agreement of these guidelines took place, which formalise the working relationships of EUPM, EUFOR and the domestic police in the fight against organised crime.  They ensure that EUPM assumes the leading role in the policing aspects of European Security and Defence Policy efforts and came into effect on 1 June.

Staffing

On 30 June EUPM numbered 419 staff: 175 seconded police officers, 29 international civilians and 215 national staff.  The mission has started to take proper account of UNSCR 1325 on Women, Peace and Security in all its activities.  The gender ratio remains unsatisfactory among seconded mission personnel, with twelve female international police officers and seven international female civilians.  On the other hand, the 127 female members of national staff place the mission well above the gender-balance target in this area.

Mission Objectives

The mission has four principal objectives:

• Support to the Police Restructuring process.  As foreseen by its operational plan, EUPM has worked to promote the restructuring process, with the commissioner serving as the only international member of the Police Restructuring Directorate’s Steering Board under the guidance of the EUSR.  Despite the RS government’s efforts to discredit the Steering Board and its representative’s subsequent adoption of ‘observer’ status, the Steering Board has maintained its technical work, albeit at a slower pace than envisaged.
• Support in the fight against organised crime.  The Common Operational Guidelines represent a significant step forward in assisting the development of the local police.  EUPM has also continued to help build the capacity of the State Investigation and Protection Agency (SIPA) and the State Border Service (SBS), which are key agencies in combating organised crime.  Through its case management system, EUPM actively monitors and assists the domestic police in investigating individual crimes.
• Enhance accountability.  Led by two dedicated inspection teams and supported by other mission resources as required, EUPM carried out seventeen inspections up to the end of June, as well as smaller, local-level inspections.  EUPM has aimed to encourage the local police to identify irregularities and to act upon them.  It has then overseen the work of prosecutors as cases are passed to them, ensuring they are dealt with appropriately and lead to a conclusive result.  For this reason the majority of cases remain ongoing.
• Horizontal Tasks.  EUPM remains active in other areas, including the completion of projects initiated during its previous mandate, developing the capacity of law enforcement agencies and working with the local police in planning public awareness campaigns.

EU Special Representative (EUSR)

In line with my dual mandate as European Union Special Representative in Bosnia and Herzegovina (Council Joint Action 2006/49/CFSP), I continued to promote the priorities listed in the European Partnership document of 2006, as well as the implementation of the GFAP.  I also worked on behalf of constitutional reform, which remains essential to both rationalise and strengthen the country’s governance and, by extension, to equip BiH for EU integration.  In my EUSR role I also continued to provide political oversight of the European Union Police Mission.  COMEUFOR, the EUPM commissioner and I agreed revised the terms of reference for the EU Crime Strategy Group during the reporting period.

Bosnia and Herzegovina has made enormous progress in implementing the Dayton Peace Accords (GFAP) over the past decade.  BiH is now on the road to Euro-Atlantic integration and has moved beyond peace implementation with one notable exception: complete cooperation with the ICTY.  The overwhelming majority of the reforms set out in the OHR MIP since its introduction in 2003 have been delivered.

As the situation on the ground has evolved, so too has the international community’s approach. The country has reached the stage where it must take full responsibility for its own governance and destiny – particularly in meeting the requirements of Euro-Atlantic integration.  This is the ardent desire of both BiH citizens and the country’s foreign friends.  Anticipating this watershed, the PIC Steering Board acknowledged at its meeting in Vienna on 15 March that OHR would also need to change.  As the communiqué noted: Understanding that the EU is prepared to build on its current engagement in BiH, the Steering Board expressed its view that the time for transition from the OHR to a EUSR Office is approaching.  The precise moment is yet to be determined.  The Steering Board underlined that its decision on the actual transition will be made upon a recommendation of the High Representative and based on the situation then prevailing in BiH and the region.  It encouraged the High Representative to cooperate closely with the EU in preparing the transition to a EUSR Office.

In approving the OHR twelve-month Workplan, the March PIC also noted that OHR’s closure might take place during the first or second quarter of 2007.

On 15 May EU Foreign Ministers expressed the European Union’s readiness in principle to reinforce its engagement in BiH in the context of the envisaged closure of the OHR, provided progress was sufficient and without prejudice to the PIC Steering Board’s decision in this regard.  The Council invited the High Representative/Secretary-General, with the Commission and in close consultation with the EU Presidency, to begin consultations to that end with the PIC Steering Board, the BiH authorities, other stakeholders and myself – and then to present a joint assessment to the Council.

A EU delegation consulted the BiH Presidency and Prime Minister on 22 June regarding the reinforced engagement of the EU.  Meeting in Sarajevo at the same time, the PIC Steering Board decided on 23 June that OHR should immediately begin preparations to close on 30 June 2007, taking into account the situation in BiH and the region.  The Steering Board agreed that it will then seek endorsement of such closure by the UN Security Council.  Preparations for the transition from OHR to the EUSR Office will intensify in the meantime.

At its meeting on 22-23 June the PIC Steering Board also considered international community coordination in BiH following the closure of OHR.  Political directors expressed their willingness to work with the EUSR thereafter and to support granting him a coordinating role among international agencies and PIC Steering Board members.  They recommended the establishment of a new coordination body to bring together the members of the PIC Steering Board and the Board of Principals.  Finally, and without prejudice to established chains of command, political directors noted that members of this forum would play an integral part in the policy-making process by sharing information and providing their respective inputs and advice.

While OHR’s transition and the promotion of domestic ownership will mean a transfer of responsibility to BiH institutions, the international community will both need and want to remain actively engaged in assisting the BiH authorities to take on both the challenges and opportunities of full sovereignty.