Comment: Serbs, Montenegrins and Europe

The deepening political crisis in Serbia, coupled with Montenegro's half-hearted support for shared institutions, threaten to disrupt the country's bid to join the European Union.

The process has already been seriously delayed by the slow progress on creating a single market and functioning central institutions - which the EU is demanding before the State Union of Serbia and Montenegro can move forward to accession talks.

These requirements were clearly spelled out during a recent Belgrade visit by EU commissioner Christopher Patten, who stressed that the union state should have a common trade policy. He also called for the fragile institutions governing the federation to be strengthened.

However, Serbia and Montenegro is still some way off becoming a viable state. The economic systems of the two republics are still too far apart in some vital respects. Furthermore, there are still concerns about whether the federal institutions can really exert control over the functioning of a single market.

In order to fix these problems, the federal government has created a Council for European Integration, whose members include Serbia and Montenegro president Svetozar Marovic and the prime ministers of both republics. But it is far from certain whether the solutions the council produces - expected by the end of this year - will satisfy the EU.

The divergence between the economies of the two republics goes back to the late Nineties, when the Montenegrin government created a separate legal and economic system while nominally remaining part of the Yugoslav state. This independent path continued after Slobodan Milosevic was ousted in October 2000, and the relationship between Serbia and Montenegro remained unresolved.

Montenegrin aspirations for full independence were dashed in March 2002, when - under pressure from the EU - it signed up to a continued union with Serbia. Because interpretations differed as to how the new union should look, it took the two republics almost a year of negotiations to approve a constitutional charter, and the state union was formally established in February 2003.

The difference of opinion was significant because it concerned the fundamentals of how the federation should be governed. Serbia took the view that the new state union should have some kind of central authority, albeit a significantly reduced one. But the Montenegrins were against this, favouring instead mechanisms to coordinate the functions and policies of the two republics.

The EU was initially concerned just to secure a deal, and the unspoken message was that any agreement would open the way to European integration.

But now the message is different - as it stands the Serbian-Montenegrin agreement does not provide a sufficiently strong state, and the two parties need to find a broader common denominator.

To ensure it has a viable contractual partner managing the accession process, the EU is insisting that the state union authority has sufficient stable institutions and performs certain core functions. It is also demanding that a single market should operate across the entire territory.

It took a year of negotiations, under the watchful eye of the EU, before Serbian and Montenegrin parliaments approved a law setting out an action plan for harmonising the two economic systems - one of the main prerequisites for accession.

But after all that, the action plan still fails to meet all the criteria set out by the EU Commission. For example, although over 90 per cent of trade tariffs within Serbia and Montenegro have been harmonised, there are about 50 left - mostly concerning agriculture - and SAA negotiations cannot begin until this is rectified.

There are also some customs duty matters to be resolved. Agreement is lacking on whether the customs control is handled by a central body - which is what the EU wants - or coordinated between the two existing customs services.

Another area of concern is the lack of a common policy on agricultural and manufacturing subsidies. Without this, there can be no single domestic market. Nor does the action plan make provision for a joint anti-monopoly and anti-competition body at state-union level.

Finally, although there is agreement that the Serbian dinar and the euro currently used in Montenegro should circulate in parallel throughout the state union, a payments system still has to be established between the two states - and that won't happen soon.

Despite these shortcomings, in September this year the EU Commission launched a feasibility study to assess whether the joint state is ready to enter into SAA negotiations. This was done as a gesture of goodwill and political support in the wake of the Thessalonica summit held over the summer, at which the EU announced it was now prepared to accept membership applications from the western Balkans.

The standard EU terms for an association agreement include such matters as democratisation, rule of law, human rights and - in the case of Serbia and Montenegro - full cooperation with the Hague war crimes tribunal. But these are unlikely to be the deciding factors.

Senior EU officials who have visited Serbia and Montenegro in the last two months say that the main criteria for passing the feasibility study continue to be economic harmonisation and a structure - if only a skeletal one - for state-union level governance.

The EU Commission has made it clear that it is still unhappy with the action plan on both counts.

The results of the feasibility study are due in March 2004. A negative response would mean that Serbia and Montenegro have to start the process all over again.

But as that date draws closer, the rumbling political crisis in Serbia, which has left the ruling coalition unable to secure the strong parliamentary majority it needs to pass tax harmonisation legislation, makes it less and less likely that these important changes can be made in time.

The question is now whether the early general election that is now being mooted in Serbia could help unblock this legislation. And it's also up to the Montenegrins to overcome their reluctance to create stronger central institutions.

Mihajlo Crnobrnja is Special Advisor for European Affairs in the Serbian Ministry for External Economic Relations.