NTB Study Bosnia-Herzegovina (BiH)

2. Following the Dayton Peace Agreement, the central government of the State of BiH has only a set of defined legislative competencies (essentially foreign policy, monetary policy, foreign trade, customs policy, external borrowing and debt service, air traffic control, immigration, refugee and asylum policy, international communications). The implementation of the corresponding laws as well as competencies not contained in the State list fall under the authority of the two Entities, the Republic of Srpska and the Federation of Bosnia and Herzegovina. One of these shared competencies between the State (legislation) and the Entities (implementation) is the field of foreign trade relations.

3. In several domains relevant for trade (agriculture, veterinary, human health and safety, environment but also market inspection, control of prices, quality control, tourism, free zones, stimulation and protective measures of domestic production) the rules valid in each of the Entities differ. In addition to internal difficulties these differences represent a considerable impediment for the outside world because trading partners do not want to be confronted with two regimes or competing competencies between the State and the Entities when exporting to BiH.

4. The EU maintained Autonomous trade preferences after the denunciation in November 1991 of the 1980 Cooperation Agreement with SFRY. These measures comprise: (1) exemptions from customs duties and the abolition of QRs for industrial products, except for certain products (especially textile products) subject to tariff ceilings; (2) special concessions for various agricultural products, including wine. These concessions apply for a yearly basis.

5. In November 1997 BiH signed an agreement on economic co-operation with Slovenia. This is an assymetric agreement offering MFN status to BiH for all of its very low exports of industrial products to Slovenia. BiH negotiated a FTA with Croatia that is due to be signed soon.

Import/export prohibitions

There are limitations on import of old cars and trucks (cars older than 7 years and trucks older than 10 years cannot be imported).

Import/export quotas

None

Import/export tariff quotas

None

Other charges

An amount of 1% of the customs value is charged on imports for customs record keeping/import verification.

An additional import charge has to be paid on a large variety (more than 250 tariff lines) of agricultural goods and foodstuffs. The charge currently ranges from DM 0.10 to 6 DM per unit/kg, with the majority being between DM 0.10 and 2.50. The main commodity groups include live animals, meat and meat products, edible oils and fats, dairy products, agricultural products, processed foods and some spirits. In addition, there appear to exist seasonal charges for some products. The application of the specific duty is renewable by the Council of Ministers or by the High Representative on a yearly basis. While the charge is the same for all of BiH the implementation lies again with the Entities. It appears that no real economic rational is behind the choice of products subject to this surcharge. This may change when the additional charge will be incorporated into the tariff, which will then become a compound tariff (ad valorem duty plus specific duty for HS chapters1-24). This step will be taken next year in view of the accession to WTO.

In one case a businessman mentioned a county tax on imports of 0.5% for the support for sport activities.

Export ban on timber has been replaced by a stumpage tax.

Comments

According to article VIII of GATT any charge imposed on the import of goods must correspond to the cost of a service rendered.

The additional import charge changes the otherwise simple tariff structure of BiH. Whether or not it is needed, and for which product, goes beyond the limits of this study and requires a more in-depth examination of the actual and future needs of the economy and the fiscal needs of the country.

Import/export licenses

For the State level, the information received concerning the need to obtain import licenses differed. Nothing is said on the topic in the Law on Foreign Trade Policy but some of the interlocutors mentioned that licenses were needed for goods considered a danger for public health, the environment, national security or the national economy.

In the Republic of Srpska (RS), the import of certain commodities (which include coffee, spirits, tobacco, oil and oil derivatives) that are important sources of customs revenues require special permission. Such licenses are granted without undue delay.

Comments and recommendations

It would be helpful to obtain full clarity about the licensing systems at the level of the State and the RS. Not the least in the light of the planned accession to the WTO it would need to be considered whether the cases where licenses are needed and the basic parameters for achieving them should not be spelt out at the State level and thus be binding for the Entities.

Customs valuation

The Law on Customs Policy of 1998, prepared with the assistance of the EU, stipulates that the customs value of imported good is the transaction value. If doubts arise concerning the accuracy of the declared price, reference prices exist in some cases but more often attempts are made to piece together the real price, inter alia by soliciting support from customs authorities of other/neighbouring countries. While this works in some cases, in others the request is refused by pointing to the lack of a corresponding agreement between the two States. Not least as a result of these experiences a model agreement aimed at facilitating customs clearances, improving cooperation between customs authorities and providing administrative assistance to implement the customs legislation has been drawn up and proposed to several countries in the region. An agreement with Croatia has already been concluded while others are in various stages of preparation.

Recommendation

The BiH government is encouraged to continue the negotiations on such agreements with the countries of the region and may make the model text available to the regional partners in order to arrive at a coordinated approach for such agreements in the entire region. Complementary efforts undertaken in the context of SECI and the World Bank (TTFSE) should be taken into consideration.

Rules of origin

The Law on Customs Policy sets out the rules of origin for non-preferential trade, which appear to be in line with international practice. The Law further stipulates in Article 22 that “Customs regulations may provide that a document must be produced as proof of the origin of goods”. Certificates of origin are now only issued by customs.

For preferential rules, the Law refers to the corresponding agreements, which normally contain a section setting out the rules applicable in the case at hand.

Functioning of customs

It is recalled that legislation on customs policy is a prerogative of the State while the implementation falls on the Entities. Customs revenues are thus revenues of the Entities. In 1998, the State adopted the Customs Tariff Law and the Law on Customs Policy, both based on EU legislation. Effective border control, which falls under the responsibility of the Customs Administration of the two Entities, remains a serious problem, however. Only 35 out of 400 border crossings are official customs border crossing points. A BiH border police has just been established, but they are only entitled to act at the official border crossing points and 10 km inside from there. As a result illegal trade is quite easy. It has also been reported that bribery is still a problem although a system of internal audits has helped to push back this practice.

Comments

The EU has since 1996 provided technical assistance in this sector through the Customs and Fiscal Assistance Office (CAFAO) by contributing to legislation, training, computerization and customs enforcement activities. With its assistance strong efforts have been made in order to establish a unified customs territory, to draft identical Entity-level implementing legislation and regulations, and to develop a customs system based on modern European standards. It is expected that the World Bank Trade and Transport Facilitation in Southeast Europe Project, which is under preparation for BiH, will continue and complement this pattern.

Recommendation

See above the recommendation under customs valuation.

Registration requirement

Business registration seems to be a long and bureaucratic process although the assessments of the various interlocutors differed. Due to the constitutional structure of BiH an import/export company must register with the Ministry of Foreign Trade and Economic Relations at the State level and with the Court of the Entity where it is located and with the customs administration and the statistic administration of the Entity where the imports are cleared (not necessarily at the place where the good crosses the border).

Unspecified references were made that registration in the case of foreign investments and joint ventures is more complicated but that the revised law on foreign direct investment would remedy that situation.

As part of the revision of the law on foreign direct investment that is currently under way it is also envisaged to provide for the possibility that the same documents can be used for registration at the State and Entities level. The objective is to accomplish registration in maximum 15 days.

Comments and recommendations

The need for multiple registration is tied to the constitutional structure of BiH and thus beyond an easy solution in the context of this study. Within these parameters, however, all efforts should be undertaken to harmonise and simplify the procedure and documentary requirements.

TBT/SPS measure

Six new laws on Standardisation, Accreditation, Metrology, Measuring Units and establishing the Institute for Accreditation of BiH and the Institute for Standardisation, Metrology and Intellectual Property of BiH established according to EU standards have very recently (end of November/beginning of December 2000) been adopted at the State level. The new law on standardisation causes, inter alia, a separation between (voluntary) standards and (mandatory) technical regulations, thus departing from the old system of compulsory standards. In order for this distinction to become reality a lot of detailed and technical work will be required, the objective of which is to adapt the country’s approach to technical regulations to the EU system and replacing the old Yugoslav standards with modern ones based on international or regional models. Pending the introduction of new standards and technical regulations but at the latest until the end of 2003, the existing product requirements based on Yugoslav standards continue to be the valid law of the country.

The implementation of the various laws also creates a complex maze of State and Entity responsibilities. For instance, products falling under the law on legal metrology have to be type-approved by the national metrology institute while checking of individual imports in line with the type approval is done by the Entities. No testing is required for electrical appliances; at the borders, a check of the documents accompanying the products is considered sufficient. On the other hand, electrical appliances for use in hazardous environment (mining, oil refining, etc.) are not only type-approved but each product has to be tested. Relevant rules for the latter category were adopted at the State level but they don’t seem to be recognized by the RS. Likewise, imports of pharmaceutical and chemical products have to comply with the relevant State legislation but this is checked by the Entities. Laboratories in the Entities exist but they have to comply to different regulations and practices. The new State law on Accreditation will eventually ensure a common minimal standard among the laboratories and testing institutions but only after a State conformity assessment law has been drafted which requires that products subject to technical regulations can only be tested by an approved testing or verification body.

Human, animal and plant health is under the competence of the Entities, which issue their own laws. Different veterinary and sanitary conditions and criteria are applied for import of goods of animal origin. Not the least at the pressure of the EU, plans are discussed to create a common office that would be entitled to provide veterinary and plant health certificates valid for the entire State

Comments and recommendations

SPS and TBT measures are clearly fields where different competencies between the State and the Entities as well as the removal of an outdated approach based on compulsory standards create a combination that is a serious obstacle to a quick integration of BiH into the modern international trading system. Modernizing and harmonizing of legislation, implementing measures and technical infrastructure are essential and outside assistance and insistence probably inevitable in order to bring about the necessary changes in the foreseeable future. Contacts and cooperation with neighbouring countries which are often confronted with similar problems would also be useful.

Other problems

• Although BiH ratified the TIR Convention the TIR carnet system cannot operate in the country because the necessary administrative instructions are not in place and the customs staff is not trained. Furthermore, there is no functioning international insurance coverage system in BiH. This is a problem for the domestic transport industry because international shipments have to be made by foreign companies. Attempts have been undertaken to set the necessary steps in motion but no concrete result has come of them. The issue has also been introduced in the Working Group on Trade Facilitation and Liberalisation of the Stability Pact.

Comments

Both in the light of the importance of imports and exports for BiH and for its function as a transit country a functioning TIR carnet system is important. With international assistance, contacts are under way with the responsible international organisations to remove the remaining obstacles. At the same time the customs administrations of the Entities should prepare all the necessary administrative instructions for the implementation of the TIR Convention provisions and train their customs staff accordingly. Assistance could be provided in this regard to BiH by relevant international bodies.

• The banking system is weak.

Comments

This issue, which falls outside the terms of reference of this study, is merely mentioned for completeness’ sake and because it was mentioned on several occasions during our visit to Sarajevo in particular by the EU and the OHR.

Problems with neighbouring countries

• Difficulties were reported concerning exports of cigarettes and tobacco to Croatia and generally in trade with Slovenia with whom BiH has a large trade deficit.

Main references

Bosnia-Herzegovina; Selected Issues and Statistical Appendix , IMF Staff Country Report, July 10, 2000.

Trade Development Institute of Ireland Limited, Study on Trade Policy in Southeast Europe , September 1999

INFORMEST and Centro Studi Nord Est, Problems, Perceptions and Perspectives of Foreign Direct Investments in the SECI countries transition economies. The point of view of Italian entrepreneurs , 1999.

EastWest Institute, Task Force on Economic Strategy for South Eastern Europe , Final Report, June 2000.

Information received during our visit to BiH from 27 to 30 November 2000.