Institute for War and Peace Reporting | Giving Voice, Driving Change

EU Focus: Unifying Bosnia's Markets

The country needs to unite its fragmented economic markets if it’s serious about eventually joining the EU
By Renata Radic

Those familiar with the capital of the Federation will know that one of its best and tastiest products is Sarajevsko pivo – but you’d be disappointed if you tried to order it in Pale, the Bosnian Serbs’ wartime capital, just a few kilometres away in Republika Srpska.

That’s not due to a Bosnian Serb reluctance to buy products from their former foes, but because the entities created by the Dayton agreement have separate rules and regulations concerning commerce and trade making it hard for businessmen to buy and sell goods across the country.

This means that in Republika Srpska most of the products on sale are from Serbia and Montenegro, while in southern parts of the Federation the majority of the goods are Croatian.

Businessmen in the Bosnian entities say its not in their economic interest to trade with each other because they have to pay punitive taxes and go through a complicated and time-consuming administrative procedures, which ultimately increases the price of goods.

They say it’s far more profitable for them to import products from neighbouring countries, as Bosnia has signed free trade agreements with them.

But it has become increasingly clear to local politicians and businessmen that things will have to change for two reasons. Firstly, Bosnia has to transform itself into a single economic market to meet a key condition for EU membership. Secondly, the free trade agreements have so far benefited neighbouring countries not Bosnia itself. This is because Bosnian companies have difficulty exporting their goods, as they are unable to get hold of certificates confirming they meet the required standards.

Recognising that Bosnia’s fragmented market poses problems, the European Commission is working on legislation and other practical assistance that would bolster the country’s EU prospects.

The former aims to eliminate internal trade barriers and bureaucracy while the latter includes helping companies obtain the documentation they need for exporting goods, establishing a legal framework regulating competition within the country and consumer protection advice.

The state parliament, meanwhile, has already adopted several laws regulating the free movement of goods inside the country and there are plans to centralise the entity-controlled banking services and introduce a standard rate of VAT across the country, harmonising the different taxes on goods.

Notwithstanding all these measures, it’s hard to say when Bosnia could hope to see a united economic market with local produce taking precedence over imports – not least because key players in the process cite differing dates for its establishment.

World Bank representative Tarik Sehovic says laws could be harmonised in as little as five months, but it would take much longer for them to be implemented.

Zlatko Hurtic, developmental strategy advisor with Bosnia’s Council of Ministers, says more time would be needed because the financial market is also fragmented, with two stock exchanges and regulatory bodies and separate insurance sectors.

Donald Hays, Principal Deputy to the High Representative, believes economic union is a matter of 12 to 14 months away because, he claims, people are starting to realise that it is important for domestic companies to prosper, regardless of what entity they are based in.

The fact that the authorities in Bosnia want to see the country admitted to the World Trade Organisation, and the EU suggests that the proposals for expediting a single economic market are likely to be acted upon – the only question is when.

Renata Radic is a regular IWPR contributor based in Sarajevo.

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