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Diplomacy in Action

Remarks at the Johns Hopkins SAIS Economic Forum for Southeast Europe


Remarks
Philip T. Reeker
Deputy Assistant Secretary, Bureau of European and Eurasian Affairs
Washington, DC
March 27, 2012

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As prepared

Thank you Mike Haltzel. And let me begin by also thanking the Center for Transatlantic Relations and the America-Bosnia Foundation for setting up this conference. It is both timely and relevant—and judging by the agenda, eminently practical and outcome oriented.

Historical anniversaries, whether a hundred years or twenty, and whether of statehood or wars, give us cause to reflect. From the First Balkan War of 1912 to the final break-up of the Socialist Federal Republic of Yugoslavia in 1992, to 2012, the difference between the past and today is unmistakable. It used to be that the fate of the Balkans was determined by balance-of-power politics, the rapaciousness of imperial powers, or the malevolent ambitions of ideologies like fascism, communism, and chauvinism. Today, however, the people have a voice and can use it. Through representative state institutions and as individuals, people throughout southeast Europe are now free to determine their own future as part of a Europe whole, free, and at peace; to associate themselves with and seek to join communities of states that share values of freedom, democracy, human rights, and market-oriented economies.

For all the states of the region, the pursuit of stability and prosperity has meant association with or membership in the European Union and NATO. United States’ policy has been and will continue to be to actively support the countries of the region to complete their journeys to membership in the Euro-Atlantic community of nations. The progress in that regard since the end of the Warsaw Pact and the disintegration of Yugoslavia in 1991 has been remarkable indeed. In a period of less than 2 decades, Albania, Bulgaria, Croatia, Romania, and Slovenia have joined NATO. Macedonia and Montenegro are engaged in Membership Action Plans to prepare for future membership, and we expect Bosnia and Herzegovina will soon join them with implementation of the recent political agreement on defense property. During the same period Bulgaria, Romania, and Slovenia also joined the EU; Croatia has signed and ratified the accession treaty; Macedonia, Montenegro, and Serbia have all become candidates for membership; Albania and Bosnia have Stabilization and Association Agreements with the EU; and the European Commission has commenced—today, in fact—the Feasibility Study for an SAA with Kosovo.

This progress is all the more remarkable because unlike the transitions of eastern European states from communist command economies to market democracies, the progress in south central Europe occurred despite bloody international armed conflicts and insurgencies, the last of which ended just 11 years ago. The tragic loss of life, grievous physical and psychological wounds, the massive population displacements, and physical damage caused by those conflicts was bad enough, but they also retarded by many years the political and economic transitions that the countries of the region should have been undergoing. Understandably, emergency humanitarian assistance and stabilizing the security situation had to be the top priorities in post-conflict areas, but it also meant that the economies and proto-democratic systems that emerged in the region developed more slowly than they did in eastern Europe.

What has become starkly clear in the 20 years since the break-up of Yugoslavia is the vitally important role that the rule of law plays in making both political and economic reforms work. It has long been understood that the creation and operation of independent and effective judiciaries is especially important to insuring human and civil rights in countries where group rights and single party rule were previously the norm. But the role of the rule of law in fostering economic development has only more recently come into sharper focus as physical security threats have ebbed and attention has shifted to the political and economic reforms needed to move states towards NATO and EU membership.

Attracting foreign direct investment (FDI) and the growth of small and medium enterprises were necessary to help eastern Europe pull itself out of the quicksand of command economies and into growing prosperity, but it was not sufficient. Institutional and bureaucratic reforms were needed, of course, but so too was a judicial system that would give investors confidence that risks were minimized, contracts would be honored, and that business would be conducted transparently and fairly. This all the more so since the onset of the current global financial crisis, where the supply of available capital and credit for investment in the Balkans has either diminished or its costs have risen so high that it has in effect become unaffordable to too many.

Despite the tremendous progress in the region, the psychological and practical barriers to investment posed by corruption and weak judicial systems remain significant. With the exception of Slovenia, not a single country of the former Yugoslavia or Albania has even reached the halfway point on the way to a fully democratic standard for judicial independence or the level of corruption, as measured by 2011 Freedom House’s Nations in Transit. The same is true for Transparency International’s Corruption Perception Index. All are in the bottom half on the scale of key indices for corruption, rule of law, and economic development.

Through U.S. assistance diplomacy and assistance programs, we can provide training, expertise and the lessons of our own experience and evolution. We can offer encouragement and incentives, but these European countries—and let’s remember, the countries of the Balkans are very much a part of Europe—their governments, but more importantly their citizens, have to embrace these realities and adapt the paradigms accordingly.

If the governments of the region are to attract the foreign direct investment they need to build their economies, create jobs, and lift more people out of poverty, they are going to have to do better on strengthening the rule of law. They must also improve the ease of doing business but also focus on improving their legislative frameworks and judicial mechanisms for enforcement of contracts. Corruption is out, transparency and accountability are in.

Former Secretary of State Colin Powell described it best when speaking at a forum on growth and opportunity in Africa some 11 years ago:

“[C]apital is a coward. It is only drawn to places where there is the clarity of law, where the society and the government rest on a body of law, where there is accountability on behalf of the government. Capital in this globalized world…will go to where it is going to be safe, where it can find a return on its investment. It will flee, it will flee from corruption, it will flee from bad policies, it will flee from those societies and nations that remain rooted in a past system of corruption and bad policies. Capital does not like conflicts; it does not like unpredictability. It flees from all of these things.

"And that's why we concentrate on the rule of law, on the elimination of corruption, on human rights, on democratic systems and processes which allow governments to reflect the will of their people.”

Former Secretary’s Powell’s remarks are as current today as they were when he made them 11 years ago—perhaps even more so. Rule of law is the sine qua non for economic development. It is also critical in legal terms to attracting investment by American firms and subsidiaries. The U.S. Foreign Corrupt Practices Act imposes civil and criminal penalties on companies, their officials, or agents who engage in or tolerate bribery or other abuses in order to conduct business.

So, as our assistance budgets for Europe and Eurasia decline, focus remains strongest in programs that help countries in southeast Europe build the rule of law and effective governance. The European Union and its member states have also come to place increased prominence on the rule of law in particular, and our rule of law assistance programs are designed to be complementary to or directly supportive of the EU’s programs and requirements in this area. Rule of law issues feature in both the European Commission’s seven points for Montenegro to begin accession negotiations with the European Union, which we hope the EU will approve to start in June, but also in the 12 points it set for Albania to qualify for candidate status.

This increased focus was evident in the reforms that Croatia had to take in order to conclude its negotiations for accession, with Chapter 23—the chapter of the EU acquis communitaire on judiciary and fundamental rights—being amongst the very last the EU concluded with Croatia. As one EU official recently told me, the days of countries being able to reform their judicial sectors after membership are over; the changes need to be made—and results achieved—in advance of membership, as was the case with Croatia. It is also evident in the European Commission’s stated intentions to open Chapter 23 first—and close it last—in eventual accession negotiations with both Montenegro and Serbia. I think it’s a fair bet that the EC will do the same for Albania, Bosnia and Herzegovina, and Macedonia once the EU approves beginning accession negotiations with each of them, and that tackling corruption and organized crime will be central requirements.

So what is Chapter 23? It defines EU policies regarding the maintaining and further developing the Union as an area of freedom, security and justice. As such, the establishment of an independent and efficient judiciary is of paramount importance. Impartiality, integrity and a high standard of adjudication by the courts are deemed to be essential for safeguarding the rule of law. This requires a firm commitment to eliminating external influences – including politics and political parties – over the judiciary, and to devoting adequate financial resources and training. Legal guarantees for fair trial procedures must be in place. Aspiring EU Member States must fight corruption effectively, as it represents a threat to the stability of democratic institutions and the rule of law. A solid legal framework and reliable institutions are required to underpin a coherent policy of prevention and deterrence of corruption. Aspiring Member States must also ensure respect for fundamental and EU citizens’ rights.

Croatia’s efforts to fulfill the obligations of Chapter 23 involved setting up—with U.S. assistance—a special law enforcement and prosecutorial task force to tackle organized crime and corruption. “USKOK,” as it is known by its Croatian acronym, has been highly successful, and has proven by its prosecution of even a former prime minister that it will follow evidence wherever it leads. The special prosecutor has obtained indictments and some guilty pleas in another case which has exposed the systemic abuse of office that defines political party patronage structures not just in Croatia, but throughout the former Yugoslavia.

Recognizing the absolute necessity of learning from the Croatian example, Montenegro has assembled its own Special Investigative Team—again with U.S. assistance—that is addressing that country’s organized crime and corruption problem, resulting in arrests in high-profile corruption and drug cases. In Kosovo, President Jahjaga, herself a former police professional, is establishing a state-level anti-corruption commission that she will personally chair.

Elsewhere in the region, judicial, law enforcement, and prosecutorial independence are under stress. We are concerned when we see officials at the highest levels of the executive branch launch unseemly and inappropriate personal and political attacks and “investigations” against prosecutors. In Bosnia and Herzegovina, a decade-long effort to ensure the police’s operational independence from politics not only remains stalled in Republika Srpska, but is surprisingly now under assault in the Federation. Republika Srpska’s leadership continues to challenge not just the specific competencies of Bosnia’s state-level judiciary and prosecutor’s office, but their very existence as well. This despite the Constitutional Court having twice ruled that the Dayton constitution provides a clear basis and responsibility for these institutions, and strong statements of support for these institutions by the EU in the context of its “structured dialogue,” which is designed to help align Bosnia’s judicial institutions with EU integration requirements. In other countries, government efforts to remove or discipline judges -- as well as media outlets -- who are perceived to act against the interest of the ruling party have raised concerns among some NATO allies and are featured in the European Commission’s most recent progress reports. Needless to say, this is not the kind of activity that attracts foreign direct investment.

So it is clear that having an effective and independent judiciary is critical to the rule of law, which is in turn an absolute requirement for successfully concluding accession negotiations to become a member of the European Union. But as I stated earlier, the rule of law is also essential for attracting significant foreign direct investment as well as creating the conditions for economic growth generally. The rule of law is not just about fighting crime and corruption, however; far from it. The rule of law also extends to civil matters, especially to contract law and commercial codes—what is known in much of the Balkans as a Law on Obligations—as well as to administrative law and the regulation of the insurance industry, financial markets, and banking. These are just as essential to attracting investment as they are to preventing and fighting corruption and countering terrorist financing.

This broader definition of the rule of law is reflected in requirements and conditions that the EU sets for aspirant countries and which the United States supports. Take for example the European Partnership document between the EU and Bosnia and Herzegovina (BiH) approved in February 2008. Among many other requirements, BiH agreed to adopt a single state-wide Law on Obligations; a single, state-wide banking supervision agency; and a single, state-wide insurance agency. All of these are intended to promote the free movement of goods, services, and people by creating a single economic space in BiH, which reduce costs for businesses, raise profitability, attract investment, and create jobs. It is a pity that these manifestly obvious steps have not been taken. The opportunity costs of not having done so are now being amplified by the increasing tightening of credit in BiH and the rest of the region.

Even Croatia—whose success we like to highlight as proof of the transformative power of reforms driven by the EU accession process—still has some way to go to transform its economy -- indeed, the same can be said of many longer-standing members of the EU. The new government in Zagreb has already bravely enacted a budget that seeks to cut debt and foster economic growth, but as it knows, it must also go beyond these fiscal measures to make structural and psychological reforms to a system where the state is seen as the main guarantor and source of national wealth and individual well-being. It can also make rapid improvements in the business environment by affecting changes to administrative law issues, such as deadlines for permit decisions, conducting on-line procurement auctions, and establishing a formal, legally-binding ruling procedure for tax and customs decisions. The same applies to all the rest of the former Yugoslavia as well.

In conclusion, let me affirm that the United States has an enduring interest in ensuring that all the countries of the western Balkans fulfill their destinies—and their stated goals—by becoming members of the European Union and the broader Euro-Atlantic community. We want to help build on the tremendous progress that the region has enjoyed over the very difficult past 20 years—a short period in the course of human events. As a new generation emerges, we will continue to encourage and help them achieve regional peace and stability and transform their economies to become competitive in promoting the prosperity of all their citizens. We will do this in specific and tangible ways by continuing to help each country develop the rule of law in its broadest possible sense, and in so doing help turn that “coward” capital into a resolute friend of southeast Europe.

Thank you.



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