Croatia on the Verge of Joining the European Union: Outlook after the release of the latest EU monitoring report

Dominik Tolksdorf

Heinrich Boll Foundation

On March 26th, the European Commission released its last monitoring report on Croatia, which concludes that the country is ready to join the EU in July 2013. This will, in all likelihood, convince the remaining EU member states to ratify Croatia’s EU accession treaty. What are the outstanding issues in Croatia’s EU accession and what are the implications of Croatia’s EU membership for the country itself and its neighboring states?

Ratification of the accession treaty on hold in some member states
Croatia’s ten year long accession process has been a rocky road. The accession negotiations were opened in October 2005 and completed in June 2011. Following the close of negotiations, Croatia’s accession treaty, which was signed in December 2011, had to be ratified by all EU member states. While this was done by most national parliaments, Germany, Slovenia and Denmark have still not made a decision on this issue. Of these three states, the German parliament’s postponement of the ratification truly came as a surprise, for the German government has often been considered one of the strongest supporters of Croatia’s EU membership. However, a change in the German perspective on the issue became apparent following the release of the European Commission’s progress report on Croatia in October 2013.

The report assessed that Croatia needed to further increase its efforts to strengthen the rule of law, to improve its public administration and the justice system, and to more effectively fight corruption and organized crime. Concerning the economic criteria, the Commission requested the “vigorous implementation of urgently needed structural reforms” [1] that would enable Croatia to cope with competitive pressures and market forces within the Union. Accordingly, the Commission called upon the government in Zagreb to consider actions in the areas of competition policy, judiciary and fundamental rights, and set ten obligations that should be met before EU entry. Among others, the obligations include the further privatization and the restructuring of the Croatian shipbuilding industry, the adoption of regulations in order to increase the efficiency of the judiciary, and the completion of border crossing facilities. Croatia was also requested to further increase the capacities of the agencies that are in charge of allocating EU funds.

In response to the progress report, the speaker of the German Bundestag and member of the governing Christian Democratic Union, Norbert Lammert, declared that Croatia was obviously not yet ready for EU membership. Lammert therefore warned that the European Commission’s assessment of the outstanding problems would be taken serious and demanded concrete results in Croatia in meeting the EU requirements. This view was shared by other German politicians, including the chairman of the Bundestag’s European Affairs Committee, Gunther Krichbaum. The German Bundestag responded by delaying the ratification of the accession treaty and implicitly made it dependent on the results of the last monitoring report which was released on March 26th.

Additionally, Slovenia has shown some reluctance to give its neighboring state the “green light” for EU membership. In 2008, it blocked the accession negotiations between Croatia and the EU  for almost a year due to a border dispute on the Gulf of Piran. Another outstanding issue between Croatia and Slovenia has been the financial compensation for Croatian depositors who lost their savings in the defunct Ljubljanska Banka during the 1990’s. However, on 7 March 2013—just in time for the release of the Commission’s report—both governments announced that they have reached an agreement on the Yugoslav succession issue, which will be resolved through internationally-brokered talks by the Bank for International Settlements. The agreement led the Slovenian government to start with the parliamentary procedure to ratify Croatia’s accession treaty. Thus, one of the European Commission’s requests to Croatia—to address remaining open bilateral issues with its neighbors—can be regarded as completed.

Growing enlargement fatigue in the EU member states
The strictness of some member states with regard to Croatia’s EU accession is related to a growing “enlargement fatigue” in the EU. Norbert Lammert expressed this sentiment when he explicitly referred to the experience of the EU with Bulgaria and Romania, whose membership in the Union has been considered by many observers as premature. When both countries joined the Union, the EU invoked the so-called “Cooperation and Verification Mechanism” to address shortcomings in the fields of judicial reform, as well as the fight against corruption and organized crime. Since 2007, the European Commission regularly issues reports on progress in these fields. However, the EU will probably not invoke such a mechanism for Croatia since many EU officials consider Croatia—at least compared to Romania and Bulgaria—as relatively well prepared for EU membership. In fact, Croatia might, in this respect, benefit from the fact that its EU accession process was based on a much stricter procedure and monitoring by the EU than was the case for the previous newcomers.

In fact, as early as January 2013, a European Commission official reported to the European Parliament that the Commission expected Croatia to have met seven out of the ten obligations by March 2013, with the remaining three obligations being completed by July 2013.[2] The recently released report summarizes that “Croatia is generally meeting the commitments and requirements arising from the accession negotiations, in all chapters.” [3] It will also  complete the ten obligations and has shown the will to fulfil all outstanding commitments related to EU membership prior to the accession. It is likely that these results will convince the German politicians to finally initiate the ratification procedure.[4] Croatia is therefore preparing to join the EU in July 2013. Accordingly, Croatia’s twelve members of the European Parliament will be elected in April 2013. What implications does the EU membership have on Croatia, its neighboring states and the Union itself?

Implications of Croatia’s EU membership: Benefits vs. disadvantages
As pointed out by many observers, the economic and social transformation in Croatia in the past ten years has been impressive.[5] These changes are likely to continue in the coming years. While there are several benefits related to EU membership, there are also significant “burdens” that Croatia has to accept. The most symbolic benefit of EU membership is the simple fact that by joining the “European club,” Croatia will sit at the table where EU decisions are made. Croatia will thus change from a country for which the Union sets conditions and benchmarks to a fully-fledged member state. EU membership also brings tangible financial benefits: In the period 2013 to 2020, it is expected that Croatia can receive between ten and thirteen billion euros in EU grants, such as EU funding for infrastructure, agriculture, rural development, and environmental protection. For example, if Croatia  fulfills the application criteria, it can gain 655 million euros from different EU funds in 2013 alone.[6] A third advantage of EU membership is access to the Union’s single market and thus to over 500 million EU customers. It is expected that Croatia can particularly benefit from increasing exports in the field of transport equipment, machinery, textiles, chemicals, and fuel.

As a participant of the single market, the Croatian authorities have to adhere to stricter standards for food safety, environmental and consumer protection. As a result, among the most important “burdens” related to the EU accession is the fact that Croatia has to conform to the competition rules of the single market. The introduction of the EU’s economic system is especially controversial when it comes to the restructuring and privatization of Croatia’s shipbuilding industry. The fact that the Croatian government is no longer allowed to give state aid to this important industry is a sensitive issue in Croatia, as it is expected that this will lead to several thousand lay-offs. Another controversial policy field is the liberalization of the real estate market, which will enable EU citizens to have equal treatment when buying real estate in Croatia (with a transitional period for farmlands). Since the country will also have to open its energy market to European competition, increasing energy prices are expected in Croatia. Value added taxes will increase on various items, including tobacco and alcohol, although there are some transitional excise rates. Finally, EU membership is an administrative challenge: In July 2013, a set of new laws will enter into force that Croatian judges have yet to apply in their courts. It therefore remains to be seen how well prepared the administration is in applying EU legislation and in adapting to the changes in the legal system.

Because of these accession challenges, EU membership is far from being uncontroversial in Croatia. The lack of enthusiasm on the issue could be seen in the referendum on Croatia’s membership in January 2012, with a low voter turnout of 43% and only 66% of votes cast in support of it. Many Croats believe that the EU’s free trade and competition policy will harm the Croatian economy, which is seen by many as simply too weak for the EU’s capitalist world. While some critics fear that Croatia will gradually lose control over its natural resources, particularly the Adriatic coast, others fear too much “cultural” assimilation in the EU. As a small country of only 4.4 million inhabitants, many Croats also fear being dominated by the big EU member states.

The regional dimension: Implications for the neighboring states
Croatia’s successful accession process demonstrates that the EU’s strategy for the Western Balkans, the Stabilisation and Association Process, can be effective if there is sufficient political will in the candidate country. There has also been a significant change in the political culture of Croatia over the past fourteen years —due to EU conditionality—  as well as important changes in Croatia’s relations with its neighbor states. Unlike in the era of former Croat President Franjo Tuđman, who died in 1999, the government in Zagreb indisputably respects the sovereignty and territorial integrity of Bosnia and Herzegovina, and has also gradually improved its relations with Serbia.

Croatia’s entry into the EU will not only have significant impact on the Croatian population, but also on the economy of its non-EU neighboring states. This is especially true for Bosnia and Herzegovina, for which Croatia is the most important trading partner (particularly with regard to industrial products and foodstuffs). Following its EU accession, Croatia will no longer be part of the Central European Free Trade Agreement (CEFTA), which so far has allowed Bosnia and Herzegovina to export its products to Croatia on a duty-free basis. The fact that Bosnian imports will have to meet EU standards will have an effect on Bosnia and Herzegovina’s agricultural sector. On the other hand, Croatian companies will have to pay additional tariffs when they export to the CEFTA members. It remains to be seen what kind of effects this will have on the trade relations in the region and the economic structures in the non-EU neighborhood.

The good news is the Croatian government has announced that it will attempt to strengthen the EU membership perspective of its neighbors. If Croatia can thus contribute to the peaceful resolution of outstanding conflicts in the Western Balkans and assist its neighbors on their path towards European integration, this will likely become the most significant added value that the Adriatic country can bring to the EU and the region.

Dominik Tolksdorf is a former DAAD/AGI Fellow and is currently a TAPIR Fellow at the Center for Transatlantic Relations, Johns Hopkins University