Bosnia & Croatia: a negative-sum game

bosniaWhen Croatia joins the EU on the first of July, Bosnia-Herzegovina will lose its heretofore closest trading partner as its exports are excluded from the single market. This offers further challenges to an administration already mired in difficulty.

Croatia is Bosnia’s largest trading partner, taking both 17.22% of its exports and supplying 17.06% of its imports. This slight trade surplus is spearheaded by trade in foodstuffs – eggs, meat, dairy products – which is an area where a number of regulations will come into effect in Croatia once it joins the single market. The EU does not mind how the conformity of Bosnian exports to EU standards is enforced, only that they do conform if they are to be sold in member-states. Thus the debate between representatives of the Bosniaks, Serbs and Croats simply limits the propensity of the nation as a whole to preserve this crucial trading relationship after July 1st.

Since 2009, Bosnia has been under pressure from the international community – by the European Court of Human Rights, whose convention was there ratified in 2002 – to reform the system in which governmental positions can only be held on racial prerequisites, to balance the influence of the nation’s three large ethnic groups: the Muslim Bosniaks, Croatians and Bosnian Serbs. Stalled development in this area has stymied the EU accession process, which is supposedly a key electoral pledge, and is the backdrop for the present dispute which will block market access to their neighbour.

Disagreement and its Consequences

The Serbs want two separate bodies, one in each of the main administrative regions (pictured) whilst the Bosniaks want a central one. Either way the remit would be the same, and perhaps a central body would streamline the process, but would conflict with the perennial concern of the Croatian minority, which is the smaller of the three, that their concerns would be marginalised by any ‘free-for-all’. Yet what one has here is a negative-sum game, whereby inaction is costing all Bosnians – no matter their ethnic group. Inability to reach a compromise further undermines the process of EU Accession and, in the short-term, will slash GDP as Bosnian exports are excluded from Croatia.

The European Commission is not concerned with the form of the regulator, which would be focused on food-safety, so long as they have a central representative to communicate with – which perhaps favours the Bosniak proposal. Yet either way, concern with solely the Croatian market is myopic. Though the current government is concentrating on goals achievable by the next election in 2014, an EU certified regulator would not simply advance Stabilisation and Association (an agreement on which should come into force later this year) but would give Bosnian food exports access to each of the EU’s national markets simultaneously – vastly expanding its ability to export. Any such boon to the economy would be welcome given that Bosnia experienced an estimated 0% growth in 2012 and may have real unemployment of up to 44.6%, despite official government statistics of 25.2%. Given that Germany, Slovenia and Austria, all EU member-states, form the rest of Bosnia’s principal five export partners – save for Serbia – it already has a sizeable foothold for expanding its trade with Europe and thus ameliorating its economic circumstances back home.

Spillovers

One downplayed consequence is that Croatians will themselves lose out in the mid-term. Whilst relatively prosperous in the Balkans, Croatians have a purchasing power parity at just 60% of the EU average (Croatia: 18,192$ GDP PPP per capita, EU: 31,609$) and thus adjusting to prices within the single market may prove painful to households, particularly if many basic foodstuffs experience price inflation as cheaper Bosnian imports are excluded; German eggs tend to be more expensive. The Bosnian agricultural sector is also proportionally larger, and it does not seem likely that Croatia will quickly switch to self-producing these products on any grand scale.

Inefficiency in the Bosnian administration is damaging the country’s prospects for the future, both in immediately escaping its economic rut and in long-term normalisation with the further developed regions of Europe. The spillovers of such indecisiveness affect Croatia and impede relations with international institutions, damaging Bosnia’s standing in the international community. Yet perhaps worst of all they rob the Bosnian people of any great improvements in their prospects ; indecision amongst the three ethnic groups undermines efficacy in the management of public services. The inability to agree on a regulator is indicative of far deeper flaws in Bosnia’s system of governance which need be redressed if the nation does not wish to be left behind.

Matthew James

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