Iana Dreyer in Brussels -

In a sign that Brussels officials in charge of foreign policy, enlargement and trade don’t always talk to each other, the EU is planning to suspend trade preferences to Bosnia-Herzegovina. This move could undermine recent efforts to revive the long-stalled EU accession process for the fractious multi-ethnic country that emerged out of the ashes of the 1990s wars in the Western Balkans.

The initiative, championed by the European Commission’s directorate for trade, was endorsed by Members of the European Parliament (MEPs)’s trade committee just the day after EU foreign policy chief Federica Mogherini’s visit to Sarajevo on February 23. Mogherini came to support the Bosnian parliament’s adoption of a series of reforms aimed at helping the divided country prepare the ground for EU accession talks.

Dramatic floods last year cost the country 2% of its national income. Pervasive corruption, latent ethnic tensions, wide-scale poverty and unemployment levels at 25% of the working population was the breeding ground for violent popular protests in 2014.

Changes to the EU’s trade preferences for Bosnia would mainly involve products such as meat, dairy, and certain fruit and vegetables. To avoid these preferences being suspended, Sarajevo would need to accept a change to the treaty that binds it to the EU, the so-called Interim Agreement of 2008.

The text certainly needs adapting. Croatia’s accession to the EU mid-2013 meant that it had to leave CEFTA, the regional agreement that facilitates trade in the Balkans. Croatia is Bosnia’s neighbour and biggest trading partner, absorbing 40% of Bosnian exports to CEFTA and providing 60% of its imports from the bloc before 2013.

Taking Croatia’s side

But Croatia’s EU accession means it no longer enjoys duty free access to Bosnia’s market, which Zagreb is not happy about. But although it still enjoys extended quotas to Croatia via the EU’s preferences, Bosnia is now shut out of the food market because it now needs to comply with EU’s costly sanitary standards. Its underdeveloped agricultural sector is not prepared for this. Croatian farmers now benefit from the EU generous agricultural subsidies while Bosnian farmers don’t.

The EU wants Bosnia to adopt its view on how to change the Interim Agreement, arguing its proposed amendment is purely technical. In return for Bosnia extending its own import quotas on goods from the entire EU at a level that corresponds to its imports from Croatia prior to EU accession, the EU would increase its own quota to Bosnian imports according to the same method. 

All other Western Balkans countries have already accepted similar changes to their bilateral deals with Brussels after Croatian’s EU absorption in 2013. There is no reason why Bosnia should be treated differently, so say the EU trade authorities. 

Sarajevo disagrees and wants the Interim Agreement to be renegotiated. It says Bosnia risks being flooded with EU agricultural imports that could destabilise its largely rural economy. “Opening our market to the 28 EU member states and destroying our agricultural sector production would affect the livelihood of more than 30.000 people,” says Igor Davidovic, Bosnia’s ambassador to the EU.

Bodo Weber, an analyst at the Democratization Policy Council (DPC), a think-tank in Berlin that specialises in the Balkans, thinks the EU’s position is mostly about taking sides with Croatia. Under the proposed arrangement, Croatia would continue to enjoy access to Bosnia’s market, but at an even more advantageous competitive position than before 2013.

In Weber’s view, the EU has not been consistent in applying its so-called ‘conditionality’ to Bosnia – a carrot-and-stick method the EU generally employs with candidate countries, offering them market access, money and EU membership prospects in return for reforms.

Instead, Brussels has accepted that Bosnia’s elites undermine the fragile central state born in the years following the 1995 Dayton Agreement, which brought peace by partitioning the country into two ethnic-based entities, and postpone crucial reforms to the police, justice system, administration and economy. This has bred a system of ethnic patronage along Bosnian Croat, Bosniak Muslim and Bosnian Serb lines, says Weber.

The role of Mirolad Dodik, president of Republika Srpska, stands out. Dodik harbours separatist ambitions, has sought political and financial support from Russia, which doesn’t want Bosnia to join the EU and is increasingly vocal about it. Despite the Bosnian elite’s reluctance to accede to EU reform requests, about €600mn worth of EU funds have kept flowing to Bosnia over the last six years.

The latest EU move to revive the Bosnia’s accession talks is no break with the past. Brussels, says Weber, has accepted the need to tone down the key human rights condition that led to the latest breakdown of accession talks. That demand was that Sarajevo apply a 2009 European Court of Human Right ruling demanding reforms to its constitution, which bars members of Bosnia’s Roma and Jewish communities from political life.

Yet in the trade preference case, Weber’s views converge with Sarajevo’s. The European Commission’s argument that its proposed change is purely technical does not bear scrutiny: “whereas legal changes are needed, it is absolutely not prescribed how you make these arrangements,” says Weber.

If Brussels follows through with its threat, Weber says “it would be the only case in which it beats [Sarajevo] down. This is the usual ‘standard procedure’ thinking of the EU, but they really don’t understand the context. The EU has never followed through on conditionality with Bosnia, and now they are really tough on an issue that is not really relevant to the EU’s accession policy.”

There is still room for adjustment and negotiation, as preferences would only be suspended starting early 2016. “I cannot imagine the EU Commission suspending the agreement, because this would really hurt their EU’s Bosnia initiative,” says Weber.

A lot will ultimately depend on whether Bosnia will be able to form a new government, which it has failed to do since elections were held last October – and on whether EU officials finally start talking to each other.