Brcko's Effect on the RS Budget

AIM Banja Luka, December 16, 2001

Republika Srpska officials accused the District of Brcko of "harming the development of Bosnia and Herzegovina" (Premier Mladen Ivanic), and of "having caused over DM50 million in damage to Republika Srpska" (RS Finance Minister Milenko Vracar).

The small war of words began a month ago, and continued with public exchanges and press releases although it is not quite clear what the problem actually is and whether it truly exists. The strange thing is that the allegations aimed at the District of Brcko originated in the offices of Transparency International for Bosnia and Herzegovina, headed by Boris Divjak, who is also a member of an anti-corruption team formed by the RS president. In mid-November Divjak accused the District of Brcko of importing as much oil as both Bosnian entities, and stressed that the oil goes elsewhere afterwards. "In this way Brcko is not only harming Bosnia's development, but is costing taxpayers twice as much as it should, because they are financing the district's budget through the entity's budget", Divjak told the Banjaluka-based Nezavisne Novine.

A day after the RS commerce ministry issued an almost identical press release. Some media analysts saw in this "coincidence" proof that Divjak was in the service of "certain lobbies in RS" which are using him to attack international community officials. They quoted as additional proof a recent Transparency International survey on corruption in international organizations operating in Bosnia and Herzegovina, which Divjak gave very strong publicity, but which ended in vague and uncorroborated conclusions.

The supervisor's office responded to Divjak's charges fiercely, but the story about the entity budget being undermined continued to pick up momentum. RS Premier Mladen Ivanic claimed that Brcko was being imposed as a third entity, with its own laws. "We firmly believe that Brcko can enforce only harmonized laws, or can choose laws from either of the two entities, whichever it considers more favorable" ,said Ivanic. His ministers backed him. Finance Minister Milenko Vracar said that since April last year customs duty charged on goods imported through Brcko had been deposited on the district's account regardless of where the goods ended up, and that income belonging either to Republika Srpska or the Muslim-Croat Federation was retained by Brcko.

The Office of the High Representative (OHR) in Brcko denied such claims by RS officials. The OHR did not deny that as of recently the transfers of goods over the border crossing in that town went up significantly, and that oil accounts for most of it. "It is completely legal for importers to import oil and other goods through Brcko and sell them across Bosnia. This is what the concept of an unified economic region is all about", said a press release issued by the OHR in Brcko.

What the office failed to mention, and what explains the increased import of goods via Brcko is the fact that this border crossing is the closest for the Muslim-Croat Federation to Hungary and Yugoslavia, and has the least number of passengers crossing there. Importers claim that goods pass through customs fastest there and that it is the least crowded of all.

Responding to claims that import revenues belonging to the entities are ending up in the district's treasury, the OHR says that Bosnia and Herzegovina is a unified territory in regard to customs duty and that every importer is free to use any border crossing he pleases. "About one-half of all trucks that enter Brcko opt to pay customs duty in Republika Srpska. In such cases, RS retains both the customs fees and the excise tax", says the OHR and recalls that the RS Customs Administration, in February 2000, made a transitional agreement with the District of Brcko, and this August signed a contract, agreeing that all customs fees charged in Brcko should remain in Brcko. This method of levying taxes is stipulated by the Customs Policy Act and the Statute of the District of Brcko.

The OHR further says that Brcko was in no way depriving RS of any money, and that the Brcko administration never asked for any financial assistance from the entities, although it is entitled to such aid. "It is, in fact, quite the opposite; the district is financially supporting the entities", said the press release and added that the district is paying at least DM12 million annually to the two entities' pension insurance funds, relieving the health care funds of the obligation to provide health care services to over 80,000 district residents. Furthermore, the district is paying salaries and all state dues for 70 officials, is paying RS 7 percent of all customs fees charged in Brcko for operational expenses, and is affected by RS institutions' lateness in paying their dues to the district. The OHR quoted as an example the sum of DM10 million owed to it by the Banjaluka Kristal Bank.

The OHR did not miss the opportunity to respond to Premier Ivanic's objection that the district "is creating its own laws." "According to the Final Decision (the arbitration decision on Brcko), the district has the right and obligation to pass its own laws or to adjust entity laws. In cases when the entities cannot reach accord on certain laws, the district has to act on its own", said the OHR press release.

After their initial criticism, RS officials then came forth with the facts. First they said that enormous quantities of heating oil were being imported via Brcko, which is then smuggled to various destinations in Republika Srpska, and then added that the district was lowering heating oil prices and offering delayed payment of customs duty, which they believe is an illegal privilege detrimental to RS interests. The OHR did not deny these facts, but clearly explained that oil prices in RS went up compared to prices in Brcko after RS enforced dual taxation of goods subject to excise tax and a monopoly on oil distribution. As far as delayed payment is concerned, it is allowed by the Bosnian Customs Policy Act, is used throughout Europe and RS can also use it.

The OHR went on to say that as far as the import of heating oil was concerned, in the period from Jan. 1 to Nov. 30, 2001, 39,051,576 liters were imported, and a total of 119,308,721 liters were imported via border crossings in the Muslim-Croat Federation. "As long as an importer abides by the law, he is free to import as much as he pleases through whatever border crossing is most convenient for him. Custom duty and excise tax are the same at all border crossings. In line with the concept of a unified economic territory, he should be allowed to sell his goods wherever he has customers", said the OHR, recalling that the problem of heating oil import and its consequent sale as fuel for vehicles is due to inefficient internal control, existing in Bosnia and Herzegovina since 1996.

It appears that the charges against the district were the result of poor effects of a RS cabinet decision to introduce permits for the import of heating oil. A number of private importers of oil derivatives, after the recent RS cabinet decision asked that the OHR intervene, claiming that the RS cabinet introduced a monopoly on the heating oil import for companies controlled by the ruling RS parties. Obviously, a certain number of importers who were denied permits sought legal loopholes allowing them to import oil derivatives via the District of Brcko.

The dispute shows that Bosnia's complex economic and fiscal policies need to be harmonized, and decisions made more cautiously. Instead of an endless exchange of allegations, it would be better for the entities to finally adjust their customs regulations and taxing mechanisms and also reconcile themselves to the fact that a unified economic territory means that importers have the freedom to choose the border crossing through which to import their goods and to pay the necessary fees wherever they want.

Branko Peric

(AIM)