25 July 2002 Morning Edition

I - News wires/services /broadcast

AFP
· New Albanian president sworn in
· Yugoslav foreign minister heads to Bulgaria
· Milosevic headed Kosovo offensive: former Yugoslav security chief

AP
· Recreating Yugoslavia needs new European Union meditation, officials say
· Albania's new president sworn in
· Serbia's police chief rejects charges of presidential wiretapping
· Former chief of state security testifies in Slobodan Milosevic case

Reuters
· Albania president sworn in, paving way for new Prime Minister
· Depleted uranium may pose risk to children-study
· Milosevic top spy says orders came from minister

Dpa
· Former general sworn in as Albania's president
· Former secret police chief testifies in The Hague
· Macedonian policemen prepared for election unrest
· ICTY experts search Bosnian Army second corp.

BBC
· Secret police chief denies Milosevic role

The Economist Intelligence
· Eastern Europe economy: Harmonization drawbacks

M2 via Comtex
· UN: Press Statement on Yugoslav Tribunal, Democratic Republic of Congo

B92
· OSCE mission chief awarded Yugoslav Star
· Special measures adopted to tackle organized crime
· Zastava workers protest
· Party demands EXIT inquiry
· Milosevic secret police chief testifies
· Serb police chief denies wiretapping Kostunica
· Ilic announces bid for presidency
· Solana to clarify matters in Belgrade

Balkan News
· Shadow Economy Holds Back Growth in Balkans

II - Newspapers/magazines

The Financial Times
· Yugoslav government passes decree on control of Kosovo
· Kosovo: KFOR reportedly conducting thorough search of Zubin Potok area
· Comment & Analysis: Closing the transatlantic divide: The US and European Union must rebuild their relationship on trade and security issues, say Stuart Eizenstat
· Europe: Defiant Cyprus bank that helped fund two wars - Milosevic

The International Herald Tribune
· U.S. balks at UN prison- access plan

The Wall Street Journal
· Djukanovic Wavers in Support

New Albanian president sworn in

TIRANA, July 24 (AFP) - Albania's new President Alfred Moisiu was sworn in Wednesday, a month after the former defense minister was elected by parliament. The only candidate for the post, Moisiu, had been elected by 97 of 134 deputies taking part in the June 24 vote.
"I will be the president of all Albanians and respect the constitution to the letter," the 73-year-old leader said after the inauguration. Moisiu is the first Albanian president to enjoy the support of both the governing Socialists and the opposition. He pledged to help bring the impoverished Balkans country closer to EU and NATO membership and fight corruption and organized crime.

Yugoslav foreign minister heads to Bulgaria

BELGRADE, July 24 (AFP) - Yugoslav Foreign Minister Goran Svilanovic is heading to neighbouring Bulgaria on Thursday for talks with his counterpart Solomon Passi, the official Tanjug agency reported. It said the two ministers would discuss bilateral relations focusing on boosting economic ties and the overall security situation in the region, where NATO forces have been deployed near the Bulgarian border in Kosovo. The meeting will be the third between the countries' top diplomats since the ouster of former Yugoslav president Slobodan Milosevic in October 2000, who presided over the breakup of the former Yugoslavia in the 1990s. Svilanovic is also expected to meet Bulgarian President Georgy Parvanov during his two-day visit to Sofia.

Milosevic headed Kosovo offensive: former Yugoslav security chief

THE HAGUE, July 24 (AFP) - Slobodan Milosevic personally commanded Serbia's offensive in Kosovo, his former secret police chief told the UN war crimes court Wednesday in damning testimony against the former Yugoslav president.

"State policy is chartered by the president together with his associates," Rade Markovic told the international tribunal, adding that Milosevic received a daily report on events from the state security office.

The former chief of the once-notorious secret police testified he had frequent direct contact with Milosevic and was summoned to the president's office to provide detail on reports that were found particularly interesting.
Markovic was appointed to his post in late 1998, when the conflict between Belgrade's armed forces and ethnic Albanian rebels in Kosovo was escalating. He remained in power until January 2001, four months after Milosevic's fall.
Markovic ranks among the tribunal's "insiders," a group of key witnesses whose sworn testimony prosecutors hope will definitively clinch a guilty verdict for the former leader.
Milosevic faces more than 60 counts of genocide, war crimes and crimes against humanity committed during the conflicts in Croatia, Bosnia and Kosovo that tore apart the Balkans in the 1990s.
Milosevic on Tuesday denied ever having ordered Serb forces to carry out a campaign of ethnic cleansing against Kosovo's ethnic Albanians. His denial came in response to the testimony of a Serb police officer who reported Markovic saying that Milosevic had commanded such an operation. Markovic has been temporarily released from prison in Serbia in order to testify at the trial. Serbian police are investigating his involvement in the assassination of Milosevic opponents.

"I am falsely accused in Serbia. I hope justice will prevail," he told the tribunal at the beginning of his testimony.

Serbia also released Markovic from his duty not to divulge state secrets related to events in Kosovo in order to give evidence at The Hague. He has already served a one-year term for revealing state secrets. The Milosevic trial began in February and is currently focusing on the indictment for the 1998-99 Serb crackdown on ethnic Albanians in Kosovo.

Recreating Yugoslavia needs new EU mediation, officials say

By MISHA SAVIC

BELGRADE, Yugoslavia (AP) _ Serbia and Montenegro have made little progress in redefining their troubled federation, but more mediation by the European Union could jump-start the process, say senior officials of both Yugoslav republics.
Serbian Deputy Prime Minister Zarko Korac acknowledged Wednesday that both Serbia and Montenegro remain far apart on how to implement an EU-brokered plan under which the two Yugoslav republics are to become nearly independent states.
He spoke on the eve of a visit by Javier Solana, the European Union's top foreign policy official.
Without Solana's mediation, ``it would not be possible to reach an agreement,'' Korac said.
Signed in March, the deal was designed to avoid a final breakup between Serbia and Montenegro after years of growing estrangement under Slobodan Milosevic, Yugoslav president until two years ago when he was forced from office. Milosevic is now on trial at the Netherlands-based U.N. war crimes tribunal.
Implementation of the deal, which allows separate economies and currencies for the republics but one seat in the United Nations and some central administration running a common defense and foreign policy, is to start with changing the constitution.
``We are in a sort of political blockade,'' Korac said of two rival drafts _ one Serbian the other Montenegrin _ for the constitutional reform.
Montenegro's pro-independence leaders agree to only symbolic ties with much larger Serbia, while Serbian and European Union officials say any feasible union must have a common market, the same tax and customs rates and free flow of goods and capital between the republics.
In Montenegro's capital, Podgorica, the republic's pro-independence president, Milo Djukanovic, said that ``it would not be realistic to expect'' that constitutional reform would occur before a July 31.
Djukanovic stressed that ``any pressure on Montenegro to adopt something that it does not agree to ... could collapse the whole deal.''
Djukanovic acknowledged, however, that Solana's new visit ``may help us ... come up with some new solutions that would help resolve the dilemmas, to speed up the work.''
Recent polls showed that Serbians are largely indifferent about future ties with Montenegro, while the tiny republic's population of 600,000 is almost evenly split into pro-Serbia and pro-independence camps. The EU-brokered deal says the name of Yugoslavia will be scrapped and replaced by ``Serbia and Montenegro'' and that each republic can hold a referendum on full independence after three years

Albania's new president sworn in

By MERITA DHIMGJOKA

TIRANA, Albania (AP) _ Alfred Moisiu was sworn in as Albania's president Wednesday, and the former defense minister pledged to become a symbol of unity for all of his countrymen regardless of their political beliefs.
``I am a president (resulting) from a hand shake,'' Moisiu told parliament, alluding to the unprecedented agreement between Albania's two major rival parties on him as the head of state. ``I will exercise all my constitutional rights to consolidate this emancipating move.''
Moisiu was elected last month by a comfortable majority in parliament, in a rare act of political consensus between the governing Socialist Party and the opposition party of Sali Berisha, a former president.
He replaced Rexhep Meidani who took office in June 1997, after the collapse of shady investment schemes led to fresh general elections.
The mutual endorsement of Moisiu as an independent candidate by Berisha and Socialist Party leader Fatos Nano was meant to end a period of political bickering which has left lawmakers largely ineffective in implementing economic and political reforms.
In his address to the parliament, Moisiu also addressed crucial issues like the importance of fighting corruption, organized crime and illegal trafficking.
As a first task, Moisiu is expected to ask the governing party to create a new government to replace the Cabinet of Prime Minister Pandeli Majko.
Majko has declared he will resign shortly after the inauguration ceremony, following a decision by the leadership of his Socialist Party, which last week voted to appoint party leader Fatos Nano as the new prime minister.
Nano, who has already served as head of a previous government, would be the third prime minister since the Socialists took over after winning elections in June 2001. Political bickering in the party led to the resignation of former Prime Minister Ilir Meta early this year. Moisiu, a World War II veteran, was defense minister in 1991-1992 in a transition government formed after the fall of communism. He also served as deputy defense minister from 1994 to 1997. A widower, Moisiu has four children.

Serbia's police chief rejects charges of presidential wiretapping

By KATARINA KRATOVAC

BELGRADE, Yugoslavia (AP) _ Serbia's interior minister on Wednesday told a parliamentary inquiry into an alleged political scandal that his secret service did not wiretap the Yugoslav president's office. The affair has pitted officials loyal to Yugoslav President Vojislav Kostunica against those loyal to the government of Serbia, the country's dominant republic, run by Prime Minister Zoran Djindjic.
``No one from the state security service _ or any other police department _ spied on the president,'' Interior Minister Dusan Mihajlovic told a committee investigating the affair.
Mihajlovic said the secret service, which answers to his interior ministry, was the only organization with such wiretapping resources.
``It would have been impossible without my knowledge or permission,'' Mihajlovic said. ``To believe someone would take such an idea into his head is ludicrous.''
His comments _ rejecting allegations that Kostunica's conversations were wiretapped by Serbian government employees _ echoed those of other Serbian officials who have testified before the inquiry since it started Monday.
The spying allegations surfaced after Kostunica last month fired military chief Col. Gen. Nebojsa Pavkovic, who claimed the dismissal was tied to his refusal to order the army to raid the office from where the alleged wiretapping took place.
An army statement issued Tuesday appeared to suggest some wrongdoing by the Serbian government, saying the military last year investigated ``serious indications that the president's communication systems were interfered with from a certain Belgrade building.''
But the army said it made no move after discovering the building belonged to the Serbian government.
Pavkovic and three other retired officers summoned by the inquiry earlier this week said that Kostunica's associates tried to use the military against the Serbian government.
Later, the army refused to allow six other, active officers to appear before the inquiry, but the lawmakers insisted they would be summoned as ``private citizens.''
The federal government Wednesday urged the ``affair be thoroughly investigated'' and said there were ``no legal obstacles'' for officers still on duty to answer the lawmakers.
Kostunica's party _ the Democratic Party of Serbia _ has protested the inquiry and has appealed to Yugoslavia's Constitutional Court to declare it illegal.
Djindjic's Democratic Party, meanwhile, claimed Kostunica's people were ``in panic over ... witnesses backing charges of wrongdoing'' by the president.
Zoran Zivkovic, a federal minister loyal to Djindjic, said ``overlapping and undefined spheres of authority'' between the country's military intelligence and civilian secret service permitted abuse.

Former chief of state security testifies in Slobodan Milosevic case

By ALEKSANDAR VASOVIC

THE HAGUE, Netherlands (AP)_ U.N. prosecutors called the former head of the Yugoslav security services _ one of Slobodan Milosevic's closest aids _ to the witness stand Tuesday but failed to draw a direct link with the former president in the wartime chain of command.
Rade Markovic, who was brought from a Belgrade jail to testify at Milosevic's war crimes trial, said he gave Milosevic intelligence briefings, but his orders came from the interior minister, not the president.

``When he (Milosevic) needed more information he would invite me for a briefing,'' Markovic said.

He acknowledged that state policy was determined by the president.

``Operational instructions came directly from the Interior Minister, and the guidelines for state policies were created by the head of the state and his associates,'' Markovic said.

Prosecutors presented a 1997 document that effectively put the feared security services under Milosevic's command. It said: ``The Department of Security will perform its duties under guidelines of the President of the Republic (of Serbia) and the Government until the appropriate federal law is enacted.''
Markovic argued that the document ``was never enacted'' and that it was canceled shortly afterward. He added however that he has ``no knowledge whether the paper about it's cancellation exists.''
``The document was in effect during the tenure of my predecessor, Jovica Stanisic. When I took over it was not in effect,'' he said. Stanisic was fired by Milosevic in 1998.
From the defense bench, the former president grinned nervously when Markovic nodded to him before beginning his testimony. He was to continue on Thursday.
Markovic is serving a one-year jail sentence in Belgrade for destroying secret police files after a popular uprising forced Milosevic from power in 2000.
He is awaiting trial on separate charges related to the assassination of four of Milosevic's foes. He was brought to The Hague last Friday to appear as a prosecution witness.
A devoted Milosevic supporter, he remained in office months after Milosevic's ouster. After his own arrest, he staunchly defended Milosevic, saying the former president did nothing wrong.
The prosecution is trying to establish that Milosevic was responsible for atrocities committed in Kosovo, Bosnia and Croatia during his 13 years in power and the violent breakup of former Yugoslavia.
The former Yugoslav president launched a crackdown on Kosovo's rebellious ethnic Albanians in 1998. In March 1999, NATO warplanes launched a bombing campaign to force Serb-led troops to withdraw from Kosovo.

Albania president sworn in, paving way for new PM

By Benet Koleka

TIRANA, July 24 (Reuters) - Retired army general Alfred Moisiu took office as president of Albania for a five-year term on Wednesday, also paving the way for a third prime minister in less than a year in one of Europe's poorest countries. Moisiu, an avuncular 73-year-old expected to bring a degree of military style to the presidency, took his oath of office in parliament. This was followed by a ceremony at the presidential palace, with an honour guard and salvos of cannon fire. Moisiu, who replaced Rexhep Meidani in the largely ceremonial post, pledged to work for democratic development in the politically volatile Balkan country.

``While heading the Albanian state for the next five years, my guiding principles will be (catching up with) the West and working for peace, justice and development,'' he told the 140-seat assembly.

The handover also sets the scene for a hoped for end to a power struggle within the ruling Socialist Party that has hampered crucial reforms and delayed closer ties with the European Union over the past year. Prime Minister Pandeli Majko has said he would offer the resignation of his five-month-old cabinet after Moisiu took over, probably on Thursday.
Veteran Albanian politician Fatos Nano is expected to replace Majko for a fourth term, after the party earlier this month voted to allow him to hold the prime ministerial post while retaining his role as party leader. Majko himself came to power in February after his predecessor, Ilir Meta, was also forced to quit in a battle with Nano, 50.
Parliament last month endorsed Moisiu as new head of state in a bid to avoid early elections and end months of political tension. His nomination was seen as a compromise between Nano and opposition Democratic Party head Sali Berisha. Moisiu, whose father Spiro Moisiu commanded Albanian fighters during World War Two, served as deputy defence minister both under communism in the 1970s and again in the 1990s after the downfall of communism. He is not a member of a political party but has been active in promoting Albania's efforts to join NATO. A widower and father of four, he speaks English, Italian and Russian.

Depleted uranium may pose risk to children -study

LONDON, July 24 (Reuters) - Soil contaminated with debris from depleted uranium shells could be putting children in the Balkans and the Gulf at an increased risk of developing cancer and kidney damage, New Scientist magazine said on Wednesday. Youngsters who play in areas where the shells created clouds of uranium dust when they hit their targets are most endangered, according to Italian researchers.

``The Italian team says that children living in areas of conflict that have been bombarded with DU (depleted uranium) could get a dose of radiation above the internationally recognized safety limit,'' the science weekly said.

Researchers from the University of Florence and the Tuscan Environment Protection Agency (ARPAT) calculated that children could inhale a radiation dose from contaminated soil that would exceed safety levels set by the International Commission on Radiological Protection. Swallowing contaminated soil would increase the risk further.

``In sites targeted by DU munitions, special measures have to be adopted to reduce exposures,'' said Daniele Dominici, a physicist at the University of Florence.

Depleted uranium is used to harden the tips of armour-piercing shells.
Others studies, including research from the International Atomic Energy Agency in Vienna, support the Italian findings. A report by Britain's Royal Society, an academy of leading scientists, said soldiers exposed to high levels of depleted uranium could suffer kidney damage and it could pose a risk to civilians through contaminated soil or water supplies.
It suggested topsoil in heavily contaminated areas should be removed and water quality monitored for any contamination. Concerns about the health effects of DU arose last year after peacekeepers in Bosnia and Kosovo said they had developed leukaemia after exposure to the material.

``Some 270 tonnes of DU have been spread over battlefields in the Gulf and the Balkans during the last decade, the vast majority by U.S. forces,'' the magazine added.

Milosevic top spy says orders came from minister

By Julijana Mojsilovic

THE HAGUE, July 24 (Reuters) - Slobodan Milosevic's secret police chief during the Kosovo conflict said on Wednesday his orders came exclusively from the interior minister, while he briefed Milosevic when required. During a short appearance at Milosevic's trial, Rade Markovic told the U.N. war crimes tribunal that Serbia's secret service (DB) was not under Milosevic's direct control while he headed it from November 1998 through 2000.
Prosecutors accuse Milosevic of overseeing a Serbian ethnic cleansing campaign in Kosovo, where the majority are ethnic Albanians, in 1999. They hope witnesses like Markovic who held top positions during Milosevic's rule will be able to prove his chain of command responsibility through his broad powers and direct control of army and police in Kosovo.
But asked who appointed him as secret service chief, Markovic -- who nodded to a smiling Milosevic upon entering the courtroom -- said tersely: ``Interior Minister Vlajko Stojiljkovic.'' He said Milosevic's role in his appointment was that ``the president probably knew and approved it.'' Stojiljkovic committed suicide in Belgrade in April, just hours after the federal parliament passed a law on cooperation with the tribunal, including extraditing suspects. He was one of four of Milosevic's closest aides indicted together with him for atrocities Serb forces committed in Kosovo in 1999.

``Slobodan Milosevic was receiving reports on a daily basis (on the DB work) and when he was particularly interested I was invited to further explain,'' said Markovic, 56.

He said a document shown in the courtroom and saying Milosevic put the DB under his and Serbian government control in 1997, was not valid after he became secret service boss in 1998.
``It was valid during (my predecessor) Jovica Stanisic's time,'' Markovic said. Stanisic reportedly handed back the document sought by the tribunal to state archives in June, and the Yugoslav government declassified it.
Belgrade authorities transferred Markovic to The Hague last week from a local jail where he was held pending the outcome of a domestic trial in which he is accused of involvement in the murder of four political opponents of Milosevic. Markovic, who denies the charges, was arrested in February 2001. His testimony continues on Thursday. Earlier in the day, Milosevic challenged the testimony of Bosko Radojkovic, a Serb police technician who helped unload bodies from a refrigerator truck in 1999. Prosecutors say they were the victims of ethnic cleansing. Milosevic also challenged evidence from a Kosovo Albanian who witnessed the killing of his parents the same year. Milosevic is charged with genocide and crimes against humanity in Kosovo, Bosnia and Croatia during the break-up of Yugoslavia in the 1990s. The 60-year-old former Communist apparatchik says he does not recognise the court and has refused to plead to the charges, prompting judges to enter not guilty pleas on his behalf.

Former general sworn in as Albania's president

Tirana (dpa) - Former army general Alfred Moisiu was sworn in Wednesday as Albania's new president and called for a strengthening in the country's democratic institutions.
The president had held high-ranking positions in the Defence Ministry under the communist regime of Enver Hoxha and, in the 1990s after the end of communist rule, also held posts there. Moisiu, a member of Sali Berisha's Democratic Party, became president with help from the European Union, which put pressure on the ruling Socialists and opposition parties to agree on the former general for the position. The union and European Parliament warned that a new political crisis in Albania could endanger negotations on an association pack with the European Union. Moisiu is the successor of Rexhep Meidani, who had served five years.

Former secret police chief testifies in The Hague

The Hague (dpa) - The former chief of the Serbian secret police (RDB), Radomir Markovic, confirmed Wednesday that Serbia's state security service had been carrying out orders for the Yugoslavian Republic under former president Slobodan Milosevic.
Markovic, head of the Serbian secret police from October 1998 until January 2001, testified as a prosecution witness in the trial against Milosevic at the United Nations International Criminal Tribunal for the Former Yugoslavia. When he took up his office as secret police chief he was instructed that he had to report directly to the Serbian Interior Minister, then Vlajko Stojilikovic, Markovic said in his testimony. However, Milosevic summoned him for meetings or asked him to report to him whenever he wanted to hear details about individual operations, Markovic testified. The former police chief had been transferred to The Hague tribunal from a prison in Belgrade, where is charged with conspiracy to commit the murder of four opposition officials in October 1999, in an attack directed at Serbian opposition politician Vuk Draskovic. In The Hague, Markovic denied any involvement in the attack against Draskovic.
Previous to Markovic's testimony, the Yugoslav government had lifted Markovic's obligation to secrecy in regard to the events of the Kosovo conflict. Markovic's questioning was due to continue on Thursday. He is also due to be cross-examined by Milosevic before the trial is recessed for a summer break on Friday.

Macedonian policemen prepared for election unrest

Skopje (dpa) - Some 4,200 policemen in Macedonia are to receive special training to prevent possible outbreaks of violence during the forthcoming elections, the office of the Organization for Security and Cooperation in Europe (OSCE) in Skopje said on Wednesday.
Some 80 per cent of the Macedonian police force, who will be working during and prior to the September 15 parliamentary elections, will undertake the one-day training by OSCE experts, starting on August 5. The OSCE earlier announced that 850 short term observers would be deployed throughout the country to monitor the election process, including the campaign, election administration, media, polling, vote counting and the tabulation of results. The election is widely seen as a crucial element of the peace process in Macedonia after last year's armed Albanian insurgency.

ICTY experts search Bosnian Army Second Corp

Sarajevo (dpa) - Experts of the Hague-based International Criminal Tribunal for the former Yugoslavia (ICTY) searched the headquarters of the Second Corp of Bosnian Moslem-Croat Federation Army on Wednesday, Bosnian Radio reported quoting ICTY officials.
During the search in the northern city of Tuzla, the ICTY team seized documents and files of ``significant importance for certain war crime trials before the Tribunal,'' the broadcast said. ICTY officials, however, did not go into details of the documentation. The NATO-led Stabilization Force (SFOR) in Bosnia-Herzegovina confirmed that it provided security assistance to the ICTY team during the search. Both the ICTY and SFOR said Bosnian military authorities have fully cooperated with investigators.

Secret police chief denies Milosevic role

BBC

Rade Markovic (right) was a loyal ally of Mr Milosevic Slobodan Milosevic's secret police chief during the Kosovo conflict has said his orders came exclusively from the interior minister, not from the former president. Rade Markovic, who was brought from a Belgrade jail to testify at Mr Milosevic's war crimes trial in The Hague, said he gave the former leader intelligence briefings, but his orders came from the interior minister.
Prosecutors accuse Mr Milosevic of overseeing a Serbian ethnic cleansing campaign in Kosovo, where the majority of the population are ethnic Albanians, in 1999. He faces a total of 66 charges of war crimes in Kosovo, Bosnia and Croatia. Mr Markovic said that state policy was determined by the president. "Operational instructions came directly from the interior minister, and the guidelines for state policies were created by the head of the state and his associates," he said at the trial. Asked who appointed him as secret service chief, Mr Markovic said: "Interior Minister Vlajko Stojiljkovic." He said Mr Milosevic's role in his appointment was that "the president probably knew and approved it".

Milosevic denial
Mr Markovic was appointed to his post towards the end of 1998, when the conflict between Belgrade's armed forces and ethnic Albanian rebels in Kosovo was escalating. He remained in power until January 2001, a few months after Mr Milosevic's fall. Mr Markovic is serving a one-year jail sentence in Belgrade for destroying secret police files after a popular uprising forced Mr Milosevic from power in 2000. He is also being investigated over his involvement in the assassination of Milosevic opponents. On Tuesday, Mr Milosevic denied ever having ordered Serb forces to carry out a campaign of ethnic cleansing against Kosovo's ethnic Albanians. His denial came in response to the testimony of a Serb police officer who reported Mr Markovic saying Mr Milosevic had commanded such an operation.

Eastern Europe economy: Harmonization drawbacks

THE ECONOMIST INTELLIGENCE UNIT

It is not clear whether the EU accession framework, based on the acquis communautaire (body of law), is appropriate for those countries left out of the first round of EU enlargement. It may impede their efforts to catch up with the first wave of entrants.
The imminent first round of eastward EU enlargement will almost certainly be a "big bang" expansion to ten candidates. This will include in addition to Malta and Cyprus eight east European countries--all the east European accession candidates, save the two Balkan aspirants, Bulgaria and Romania.
The other former communist Balkans - Albania, Bosnia and Hercegovina, Croatia, Macedonia and Yugoslavia (soon to be renamed Serbia and Montenegro) - have been dubbed the "western Balkans" by the EU. Their relations with Brussels are governed by so-called Stabilisation and Association Agreements (SAAs) - concluded with Croatia and Macedonia, and still to be negotiated with the rest.
Unlike the Association or Europe Agreements that the candidate countries have, countries with SAAs are promised only the "prospect of EU membership".
Except for this important difference, the content of the SAAs differs very little, if at all, from the standard Association agreements. Both are ultimately designed - with similar sets of conditionalities, instruments and policies - to help the east European countries align their economic, political and social standards with those of the EU.
Different status, common problems
There is a big difference in the formal relationship between the EU and candidate and non-candidate countries. Bulgaria and Romania are engaged in accession negotiations; they have been included in provisions of the Treaty of Nice, and they have been promised membership, at some point. There are, however, important similarities in the de facto relationship between the EU and each of the Balkan countries, irrespective of candidate status.
These stem from two sets of factors. First the EU's attention and energies are more than likely to be fully absorbed with dealing with a very problematic and difficult first round of enlargement, which suggests that the next round will be seriously delayed. Brussels will furthermore find it politically easier to ignore Bulgaria and Romania if, as is now expected, both are given the compensation of NATO membership this year.
In these circumstances the difference between the EU candidate and non- candidate countries will tend to blur. There has even been speculation that the most advanced state in the western Balkans, Croatia, might leapfrog Bulgaria and Romania in the EU membership queue. Fearing such a scenario, the Bulgarian foreign minister with bitter humour recently remarked that the Copenhagen summit this December, which is expected to formally adopt the big bang strategy, will be like "ten weddings and two funerals".
Second, the SAA countries may not be negotiating chapters of the acquis, but they are nevertheless subject to similar conditionalities and are expected to strive towards the same policy goals, linked with the broad Copenhagen criteria for EU membership, as the accession candidates. The western Balkans in this respect share a similar relationship with the EU as Bulgaria and Romania.

An inappropriate model?
The problem for most east European countries, candidate and non-candidate countries alike, is that some of the EU structural reforms and institutions, as contained in the acquis, may not necessarily be appropriate and may even be growth-inhibiting. The further a country is from membership, and the lower its level of development, the greater the problem.
If a country is very near to membership, any costs to the economy of adopting inappropriate policies and of incurring expenditures in preparation for accession might be deemed a price worth paying, given that the benefits of membership will probably outweigh the costs.
But in the Balkans, including in Bulgaria and Romania, membership might be so far off that this is not a price worth paying. These countries might instead be better off concentrating on growth and devoting scarce administrative and human resources towards reforms for basic development, rather than pursuing costly harmonisation measures.
Growth-inhibiting harmonisation
The acquis and associated policies evolved in relation primarily to the existing EU-15. They were not designed for countries undergoing transition or those in which developmental tasks are paramount.
Many EU accession-related reform requirements - such as establishing normal, functioning markets, improving the rule of law, enhancing competition and modernising the banking sector - are undoubtedly good for countries, irrespective of their specific circumstances, and conducive to growth, irrespective of EU membership.
However, there are several obvious areas, and some not so obvious, where adopting EU harmonisation policies could be inimical to development or counter-productive in terms of growth. There are at least six such cases:
* The pursuit of nominal, macroeconomic convergence;

* Capital account liberalisation;

* EU labour market legislation;

* EU social and environmental regulations;

* Competition policy;

* Reforms of the legal system, including adoption of the acquis itself.
Nominal and real convergence
Macroeconomic stabilisation is a necessary precondition for sustainable long-term growth; sustained growth has been shown empirically to be incompatible with high inflation. However, the empirical evidence, although not uniform, suggests that the cut-off rate, above which inflation starts to impact negatively on growth, is fairly high - at about 8%.
In some of the Balkan countries - in part because of EU and multilaterals' conditionality - inflation has already been driven to levels that are arguably too low to be consistent with potential growth. This has in part been achieved through the use of what may be inappropriate exchange rate regimes (including "hard peg" regimes such as currency boards, and even unilateral adoption of the euro). Certainly in Albania, Bosnia, Bulgaria, Croatia and Macedonia, inflation is very low, and in some cases lower than in central Europe, and Serbia has started to bring it down fairly quickly. Only in Romania is high inflation still a problem.
Nominal, macroeconomic convergence is especially important in the context of monetary union. The Maastricht criteria, focusing on inflation, fiscal balances, public debt, interest rates and exchange rate stability, are the specific indicators related to the convergence process towards EMU. Although fulfilling the Maastricht criteria is not an explicit condition for EU membership, a certain degree of nominal convergence is implied in being designated a "functioning market economy", which is a Copenhagen criterion for readiness to join the EU.
It is possible for the goals of nominal and real convergence to be contradictory in the short to medium term. This is especially so in the case of inflation.
Less developed, rapidly-growing economies will, for structural reasons, tend to have higher inflation than richer, slower-growing economies. This has nothing to do with monetary/fiscal policy. Strong catch-up productivity growth in the tradeables sector pushes up wages in both the tradeables, and through domestic competition, in the non-tradeables sectors. This in turn pushes up non-tradeables prices and thus the general price level - the so-called Balassa-Samuelson effect.
Empirical evidence on the size of the effect varies, but it seems to account for at least 1-2 per cent inflation per year, and possibly more. Strict adherence to the unadjusted Maastricht criteria could lead to overly tight policies, inhibiting growth. The EU, however, is reluctant to acknowledge the trade-off or the significance of the Balassa-Samuelson effect. Its official policy is to insist that nominal and real convergence are consistent and complementary.
Capital account liberalisation
Dismantling capital account controls on the balance of payments, including on short-term capital, is a condition of EU entry. Most of the EU candidate countries have already done so. And there is or will be pressure on SAA countries that have not done so already to follow suit--probably sooner rather than later.
However, capital account liberalisation leaves these countries especially vulnerable to global financial conditions and speculative short-term capital flows. By contrast, as pointed out in the latest UN Economic Commission for Europe Survey of European economies, the present EU members retained controls for a long period and used them quite actively, until quite late in the run-up to monetary union.
Furthermore, most of the empirical literature fails to establish a positive relationship between capital account liberalisation and growth, especially for those countries that have weak domestic institutions and financial systems - as is the case in the Balkans.
EU labour market policy
The applicant countries are expected to adopt EU labour market legislation, which most of the front-runners have done, although enforcement is lax. The EU has stated repeatedly that it wants to see evidence of better implementation and enforcement of EU law. East European labour markets are on average more flexible than their west European counterparts.
The main problem in the region is that insufficient growth is not generating sufficient employment. Anything that goes in the direction of EU-style social market policies could have adverse consequences and be antithetical to growth. For example, a World Bank study of Bulgaria's labour market concluded that "compliance with EU working conditions requires resources and administrative capacity that are not yet available." It warns that "the cost of complying with EU working conditions may well exceed their short to medium run benefits".
EU social and environmental regulation
Meeting EU environmental, health and safety standards entails great costs for these countries. Implementing and enforcing the plethora of EU health and safety standards is both costly and time-consuming. Their fiscal positions come under pressure, even if much of the required spending is deferred.
It is clear that the Balkan countries will not be able to fund the necessary programmes to meet EU environmental standards. It was estimated that to do so would require annual spending equal to more than 6% of Bulgaria's GDP and more than 3% of Romania's over a full 20-year period. Although the EU is unlikely to insist on the impossible, pressure even towards part-fulfillment may engender costs that are not made up by EU aid inflows.
In few other cases has the potential conflict between strict environmental regulation and developmental goals presented itself as dramatically as in Bulgaria. The EU wants four out of six reactors in Bulgaria's Kozlodui nuclear complex shut down on environmental and safety grounds.
Although the complex is based on Russian technology, Bulgaria refutes all comparisons with Chernobyl and claims that safety improvements in recent years mean that the complex now actually exceeds average world safety standards. Kozlodui supplies 50% of Bulgaria' power, electricity sales are a major export item, and there is much resentment in Bulgaria concerning EU pressure over the issue.
Competition policy
EU policy demands a level playing field in terms of competition policy - with equal treatment of foreigners and locals alike. In other words, the EU wants an end to special incentives for foreign investors, which has led to tension between the EU and the candidate countries.
It is questionable whether the requirement makes sense for the Balkans. Incentives to foreign investors do distort local markets and discriminate against local investors. But if foreign direct investment does have the positive effects claimed for it - in terms of modernising the economy, introducing know-how and increasing local technological capabilities - special incentives for foreign investors would be in the national interest and should not be easily dispensed with.
Legal reform
Adoption of the highly complex body of law that is the acquis, which runs to 31 chapters and 80,000 pages, is a formidable challenge, especially for less developed countries. The advantage of this process is that the adoption of the acquis becomes a catalyst for legal reform. It can also be a useful justification for the adoption of often unpopular legislation.
However, there are disadvantages too. In practical terms, harmonisation can lead to disjunction between the legal system that is adopted and the country's capacity to implement it. The acquis is huge and these countries have limited resources and weak institutions. The Balkans countries in particular would probably be better off with a "light" legal system that is both easily understood and implemented - instead of being burdened with the highly complex and unwieldy acquis.
Unanswered questions
There are broader problems with the sort of wide-ranging conditionalities entailed in the EU-aspirant country relationship. Harmonisation of domestic law and policies with those of the EU means that domestic politics and debate is invariably bypassed. Harmonisation also becomes an elite-driven process, which weakens the domestic democratic process.
Conditionality assumes that there is a well-tested, clear model of reforms (related to and based on the acquis) that has universal, or at least all- European applicability. This refers to the type of reforms, their sequencing and intensity. It is also assumed that these simultaneously meet transition goals, developmental tasks, and make a country fit to join the EU.
The question of whether the EU's wide-ranging conditionalities undermine rather than enhance indigenous institutional capabilities is sometimes acknowledged. Some observers have also argued that the prospect of, and drive towards, EU accession has resulted in east European countries adopting institutions that are not typical of nations at their stage of development. However, these issues are yet to be widely discussed or to have a practical impact, especially on the relations between Brussels and the east European states.

UN: Press statement on Yugoslav Tribunal, Democratic Republic of Congo

(M2 PRESSWIRE via COMTEX) -- Following is yesterday's press statement on the International Criminal Tribunal for the Former Yugoslavia and the Democratic Republic of the Congo by Jeremy Greenstock (United Kingdom), President of the Security Council:
Private Meeting on Yugoslav Tribunal
We had as our visitors at this morning's private meeting the President of the International Criminal Tribunal for the Former Yugoslavia, Judge Claude Jorda, and the Prosecutor for the Tribunal, Carla del Ponte. They came to make a report to us on their proposal for the future work of the Yugoslav Tribunal, in terms of the number of cases they expect to hear over the next few years up to the current limit of the Tribunal's life in 2008. They are making proposals for the division of cases -- the Tribunal proper in The Hague and special courts to be set up within the court system of Bosnia and Herzegovina for the intermediate level of indictees that come to the Tribunal's notice. The proposal from the President of the Court is to make that division for the efficient working of the Tribunal's business, by sharing it with the Bosnia system.
Council members took note of that report and about to adopt a presidential statement [see Press Release SC/7461] to approve the general strategy that has been presented to the Council by the President of the Tribunal. The Council will then consider in greater detail the propositions for the working of this new system and will take a decision at a later date on the full details of what is being proposed. So it is a two-stage process. We are about to approve the general strategy of this division of roles. Later, there will be a decision on the detailed workings of the double Court, the two-tier, eventually three tier, court because the lowest level of cases are really meant to go to the bottom of the system. That will be explained to you as we move along.
Democratic Republic of Congo and Other Business
In other business of the Council this morning, we cleared a draft presidential statement on the Democratic Republic of the Congo, which the French delegation has been negotiating. That is now cleared and is about to be taken into the formal meeting [see Press Release SC/7462]. I ought to make one specific point about that presidential statement. It is a reaction to the briefing we had last week on the events in Kisangani and on the exchange we had with the High Commissioner for Human Rights, Mary Robinson, and the report of her Special
Rapporteur. We note in this presidential statement the ongoing work on the wider questions on the Democratic Republic of the Congo and particularly the discussions between the governments concerned with the Lusaka process, notably the Governments of Rwanda and the Democratic Republic of the Congo, brokered by the South African Government. This statement makes no comment on the breaking news of progress being made in those discussions. We are waiting for a briefing from the Secretariat tomorrow or the next day on that subject, and we will then come back with a press statement or a presidential statement to encourage a good result from those continuing discussions. So please don't take this morning's presidential statement as either a statement on those South African discussions or as an ignoring of them. We will come back to that question. We also went through the procedure in informals for the handling of the application by Switzerland for joining the Organization. This will be processed through the Security Council tomorrow morning

OSCE mission chief awarded Yugoslav Star

BELGRADE, (B92) - Stefan Sannino was presented today with the Yugoslav Star of 1st Order for his work as head of the OSCE mission in Yugoslavia. Presenting the honour, Yugoslav President Vojislav Kostunica wished Ambassador Sannino success in his new post in the European Commission, said a statement from the office of the president. (FoNet)

Special measures adopted to tackle organised crime

BELGRADE, (B92) - The upper house of the Yugoslav parliament today adopted a Bill sanctioning special measures in the fight against organised crime. A statement from the federal government said the legislation would "prevent further threat to public and state security and the lives and property of citizens." Deputy speaker Zarko Korac said the Bill was an attempt to "create a legal framework that will intensify the fight against crime."

Zastava workers protest

KRAGUJEVAC, (B92) - Some 1,000 workers at the Zastava factory in Kragujevac protested today demanding the company be restructured and the director resign.
"As of today, Djordje Nestorovic is for us no longer the factory's director," union leader Jugoslav Ristic told the workers. The union demanded the government implement an agreement reached last year to restructure the car manufacturer.

Party demands EXIT inquiry

NOVI SAD, (B92) - The Novi Sad branch of the Democratic Party of Serbia has said it will ask the provincial parliament to probe the financial accounts of the EXIT music festival held in the town each year. A party statement said taxpayers had a right to know how the money was spent. "In case of positive financial results, we want to know where the profit ended up, and in case of a financial loss, which is more likely, we want those responsible to be named and to be told who will cover the costs." "For that money, the best nursery home in the Balkans could have been built in Novi Sad," said the party, which has split from the rest of Serbia's governing coalition.

Milosevic secret police chief testifies

THE HAGUE, (B92) - The former head of Serbia's state security service testified today at the trial of Slobodan Milosevic but prosecutors failed to draw a direct link with the ex-president in the chain of command for operations in Kosovo. Rade Markovic, who nodded to a smiling Milosevic as he entered the courtroom, said he gave Milosevic intelligence briefings, but his order came from the interior minister, not the president. "When he (Milosevic) needed more information he would invite me for a briefing," the witness told the UN tribunal in The Hague. He acknowledged that state policy was determined by the president: "Operational instructions came directly from the Interior Minister, and the guidelines for state policies were created by the head of the state and his associates."
Markovic was appointed state security chief in late 1998 and remained in the post until January 2001, four months after Milosevic's fall. Prosecutors presented a document from 1997 that effectively placed the notorious secret services under Milosevic's command. But Markovic argued the order "was never enacted" and that it was annulled shortly afterward.
"The document was in effect during the tenure of my predecessor, Jovica Stanisic. When I took over it was not in effect," he said. Markovic has been temporarily released from prison in Serbia where he awaits the result of his trial on four counts of murder. "I am falsely accused in Serbia. I hope justice will prevail," he said at the beginning of his testimony. (AP)

Serb police chief denies wiretapping Kostunica

BELGRADE, (B92) - Addressing a parliamentary inquiry committee today, Serbia's interior minister has denied allegations the state security service wiretapped Yugoslav President Vojislav Kostunica. Dusan Mihajlovic insisted Serbian state security had not conducted any surveillance operations against any federal bodies or aides to the Yugoslav president. He said he had first heard of the claim "as a rumour."
The inquiry committee began work on Monday at the request of Serbia's governing coalition. It is charged with investigating allegations that the Yugoslav president's office ordered the army storm the Serbian government's communications bureau, claiming it was eavesdropping on Kostunica. Had the alleged plan gone ahead in June last year, the army would have come face-to-face with the Serbian police, said Mihajlovic. "The police would have intervened and there would have been tragic consequences, since we're obliged to protect all republic institutions." Yugoslav interior minister Zoran Zivkovic said that according to the logbook at the Federation Palace, on the night in question former army chief Nebojsa Pavkovic visited Kostunica's office twice. Aco Tomic, the head of military security and a close ally of the president, visited top presidential aide Liljana Nedeljkovic, said Zivkovic. Pavkovic first voiced the claims last month, just hours after Kostunica sacked him. The committee said it would send a second request for Tomic to attend the hearing.
General Branko Krga, Pavkovic's successor as chief of staff, yesterday objected to serving officers being made to testify. But the Yugoslav government has said there are no constitutional or legal reasons why they should not. Telekom official Zoran Bacanovic told the committee his company did not have the means to secretly tap phone calls, as Kostunica has alleged. (B92/Beta)

Ilic announces bid for presidency

BELGRADE, (B92) - Velimir Ilic, the outspoken mayor of Cacak, has officially announced he is to run for Serbian president. "This country needs serious projects, serious programs, serious people who will carry them out and people who have created something in their life. That is why I decided to run for president," he told a press conference in Belgrade today.
Ilic heads the New Serbia party, a member of Serbia's governing coalition, DOS.
He faces a tough race for president against deputy Yugoslav PM Miroljub Labus and, possibly, Yugoslav President Vojislav Kostunica. (Beta)

Solana to clarify matters in Belgrade

PODGORICA, (B92) - EU foreign policy chief Javier Solana will iron out any misunderstandings concerning the drafting of a constitution for the future state of Serbia and Montenegro during his visit to Belgrade tomorrow, Solana's spokeswoman said today.
Brussels is monitoring the work of the constitutional commission and expects it to finish drafting the charter soon, Christina Galjak told Podgorica daily Glas Crnogoraca. The spokeswoman dismissed claims the commission would come up with two versions as mere "speculation."
Solana is due in Belgrade tomorrow afternoon, where he will meet the presidents of Yugoslavia and Montenegro, Vojislav Kostunica and Milo Djukanovic, and Serbian Prime Minister Zoran Djindjic.

Shadow Economy Holds Back Growth in Balkans

Balkan News

A survey released by the Harvard Institute for International Development in September 2000 found the shadow economy plays a significantly larger role in the Balkans than in other regions of Europe. The shadow economy, also known as the "black market", "underground" or "informal sector", consists of all economic activities that remain outside official statistics.
According to the Harvard survey, the shadow economy accounted for 69 per cent of GDP in the Balkans during 1997, compared to 28 per cent for transition countries in Central Europe, and 40 per cent for the Baltic states. The survey is based on average values for Bulgaria, Macedonia, and Romania. Separate figures for Croatia estimate its shadow economy at 35 per cent of GDP.
The shadow economy picks up during periods of economic and political uncertainty and diminishes in years of relative stability, the Harvard analysts concluded. When companies operate in the informal sector, tax collection becomes distorted and the overall competitiveness of the economy is reduced, as shadow activities tend to avoid public and bank services. The survey also found that distribution of financial aid from international donors is often inefficient in countries with a large shadow economy. Press reports have suggested that goods supplied to peacekeepers in Bosnia and Herzegovina (BiH) often end up on the black market.
The most serious problem is in Macedonia, where the shadow economy has grown constantly since 1990, reaching 131 per cent of GDP. However, the survey did not include Yugoslavia and BiH, where the situation is likely to be similar. Underground activities frequently dominate the news in both countries, seen as a junction for smuggling drugs, people and excise goods into other parts of Europe.
Bulgaria and Romania appear less distorted by the shadow economy. The Harvard survey estimated the informal sector at 19 per cent of GDP in 1997. In Bulgaria the ratio was 56 per cent during the hyperinflation period in 1997. However, new surveys by the central bank in Bulgaria as well as a joint assessment by Harvard analysts and local institutions reveal a 30-40 per cent decline in 1998 and 1999 following economic and political stabilisation.
Though classified by the survey as part of Central Europe, Croatia's share of the grey market remains comparatively high. According to the country's state employment agency, the informal labour market is the key factor keeping the unemployment rate at around 24 per cent -- one of the highest rates in Southeast Europe. Informal employment avoids payroll taxes and creates structural deficits in the Croatian social insurance system.
Various surveys have attributed the strength of the shadow economy to a weak institutional framework and to structural factors that motivate businesses to remain in the informal sector. All countries in the region have aging populations and high unemployment rates. The high dependency ratio of pensioners to employees results in governments setting high rates for obligatory social contributions, creating strong incentives for evading taxes and social insurance.

Yugoslav government passes decree on control of Kosovo border

Financial Times

Belgrade, 24 July: The Yugoslav government passed on Wednesday [24 July], at the proposal of the coordinating team for southern Serbia, a decree on control of crossings at the Kosovo-Metohija administrative boundary line, the Federal Information Secretariat said.
The goal of this measure is to prevent the increasingly frequent and uncontrolled movement of vehicles, people and goods from the territory of Kosovo-Metohija towards the Ground Safety Zone, and above all the illegal trafficking of livestock, excise goods, tobacco and food, and possibly also of drugs, weapons, ammunition, etc, the statement says.
The reduced number of Kfor [Kosovo Force] troops along the administrative boundary line has had a negative effect on the security situation in the area, as many roads have been left unsupervised making it easy for smugglers to engage in their illegal activities, the statement says.

Kosovo: Kfor reportedly conducting thorough search of Zubin Potok area

Financial times

Zubin Potok,: Members of Kfor [NATO-led Kosovo Force] have been searching houses in villages of Velji Breg and Gazivide near Zubin Potok, FoNet's reporter has said. Kfor soldiers came into villages in tanks and armoured vehicles, while a helicopter is surveying this area. Checkpoints have been set up on the Zubin Potok-Novi Pazar road where a search of all vehicles leaving Zubin Potok is being carried out.

COMMENT & ANALYSIS: Closing the transatlantic divide: The US and European Union must rebuild their relationship on trade and security issues, say Stuart Eizenstat

By STUART EIZENSTAT and HUGO PAEMEN

Financial Times

Anumber of political andeconomic factors havecombined to bring the European-American relationship to its worst state in decades. Only a new dialogue and some big common goals will turn around the increasingly sour mood on both sides of the Atlantic.
There have always been differences at the margin on economic, trade and political issues. But these are more profound than in the past.
From the European Union perspective there is angst over what they consider a series of political slights: from the Kyoto protocol to the International Criminal Court, and protectionist trade measures - steel and the US farm bill - by the Bush administration.
The US has a different perspective. It believes the EU is severely under-investing in defence and that its ability to act as security partners with the US inside Nato is diminishing as a result. In addition, the US harbours deep misgivings about EU behaviour on trade-related issues and, more recently, merger policy.
We think the private sector on both sides of the Atlantic can play a role, particularly on the sticky economic issues. It is time to get back to basics and to develop a new relationship geared to the 21st century. Both sides need to recognise how mutually dependent they are for their own prosperity. We have the largest trade and investment relationship in the world, some Dollars 4,300bn. The integration of the transatlantic marketplace is substantial, with cross-foreign direct investment in each other's markets at Dollars 1,500bn, a staggering increase of 233 per cent in the past 10 years. The simultaneous fall in the US and European equity markets underscores these mutual interests. It is too important an economic relationship to be taken for granted.
We suggest the following short-term steps to help smooth the troubled economic waters. Both sides should declare a one-year ceasefire on new trade cases against the other in the World Trade Organisation. Greater efforts should be made to resolve trade differences through bilateral dialogue, rather than piling on new complaints on an already burdened WTO agenda. On non-trade areas such as the environment, food safety and privacy, more targeted consultations with greater input from scientific, business and civil societies on both sides would be helpful.
We believe that the EU and US need a big economic goal upon which to focus their mutual energies. Leaders should set a target with clear benchmarks and a work programme to achieve a barrier-free transatlantic economic partnership by the end of this decade. This would include the tariff-free flow of all goods; an unimpeded flow of services, mutual recognition of each other's products so that they can be tested in one market and approved in the other; and the removal of barriers to trade and investment in financial services, telecommunications, transport services, intellectual property, government procurement, and standards and certification. This would be implemented in accordance with the provisions of the WTO.
We can no longer isolate economic and political issues. Rather, we can improve the poisonous climate by working on both simultaneously. Indeed, one of the bones of contention in the relationship is that the US has traditionally seen the EU as an economic powerhouse and a political and military pygmy. But this fails to understand profound changes in the EU. True, its political profile remains far less developed than its trade and economic clout. But the EU has come a long way. It is now creating a rapid reaction force, which will give it the capacity to project military strength. The EU and its member states are the largest suppliers of humanitarian and development assistance in the world. The EU is taking on increasing peacekeeping responsibilities in Kosovo and Afghanistan, and will hopefully do so soon in Macedonia. Increasingly the EU is speaking cohesively in the foreign policy realm with one voice, that of Javier Solana, the EU's foreign policy chief.
What is needed is a high-level dialogue, which recognises the relative strengths that the EU and US bring to the security table. But it must be a genuine dialogue. Europe is tired of cleaning up after US unilateral operations. This division of responsibilities would be to agree early in a crisis that the US would do the heavy lifting in the military area (with as much help as the EU is willing to provide), while the EU does the peacekeeping and nation building (with as much assistance as the US can provide, but where there is less interest by the Bush administration).
We hope the lesson from the war on terrorism will be a mutual recognition that just as we need greater co-operation in the economic field, we need a real partnership in the security area to meet the challenges ahead.
The writers are co-chairmen of the European American Business Council, an organisation dedicated to resolving transatlantic problems. Stuart Eizenstat was US ambassador to the EU from 1993 to 1996. Hugo Paemen served as head of the European Commission delegation to the US from 1995 to 1999

EUROPE: Defiant Cyprus bank that helped fund two wars MILOSEVIC

CONNECTION SCALE OF ISLAND'S UN SANCTIONS-BUSTING RAISES CONCERNS OVER COMMITMENT TO FIGHT MONEY LAUN:

By KERIN HOPE and STEFAN WAGSTYL

Financial Times

The gleaming steel-and-glass headquarters of Popular (Laiki) Bank of Cyprus makes a striking contrast with the discreet office blocks occupied by most Greek Cypriot companies. But even more suggestive of the group's ambitions is a metal sculpture in the courtyard pointing aggressively towards the sky.
When the international community shunned Yugoslavia as a pariah state for much of the 1990s, Cyprus seized its chance to do business with Belgrade, and Popular Bank became former Yugoslav President Slobodan Milosevic's main financial link with the outside world.
According to a report by Morten Torkildsen, an investigator at the United Nations war crimes prosecutor's office, Popular Bank, the island's second largest bank, allowed a group of Yugoslav-controlled front companies to operate in defiance of UN sanctions.
These companies supplied Mr Milosevic's government with fuel, raw materials, spare parts and weapons to pursue wars in Bosnia in 1992-1996 and in Kosovo in 1998-1999.
Mladjan Dinkic, the Yugoslav central bank governor, said during a visit to Cyprus last year that as much as Dollars 4bn (Euros 3.9bn, Pounds 2.5bn) in foreign currency might have been transferred to Cyprus between 1992 and 1994. The funds were mainly deposited in Popular Bank and its Greek subsidiary, European Popular Bank, he said.
A Financial Times investigation has revealed that instead of taking measures against Yugoslav sanctions-busting, leading members of Cyprus's close-knit elite facilitated the transactions. They included Afxentios Afxentiou, governor of the central bank; Kikis Lazarides, chairman of Popular Bank; and Tassos Papadopoulos, a prominent lawyer and leader since 2000 of the Democratic party, the island's second-biggest political party.
The scale of the island's involvement with Belgrade has revived concerns about Cyprus's commitment to implementing international anti-money-laundering practices at a time when the island's bid to join the European Union in 2004 is under negotiation.
Yet the Greek Cypriot bankers and politicians who were involved sound embarrassed rather than repentant. Mr Lazarides told the FT: "We did nothing illegal. After all, banks are in the business of making money."
Cyprus's willingness to help Mr Milosevic get around UN sanctions stems from a long tradition of close ties between Cyprus and Yugoslavia. Greek Cypriots overwhelmingly backed Mr Milosevic during the Yugoslav succession wars.
Cyprus's business links with Yugoslavia were well established before the federation collapsed. After 1989 Serbian businessmen opened offshore trading companies and took advantage of the island's favourable tax treaties with former communist states. But after UN sanctions were imposed in July 1992, the number of Yugoslav-controlled offshore companies on Cyprus soared from fewer than 1,000 to more than 7,000.
Officials at the Cyprus central bank registered Yugoslav front companies as offshore trading businesses. They were financed with cash flown from Belgrade to Cyprus and deposited in special accounts, mainly at Popular Bank. The accounts were managed by officials at the Nicosia-based offshore branch of Beogradska Banka, a state-owned bank run by Borka Vukic, one of Mr Milosevic's closest associates.
Cyprus initially had few measures in place to counter money-laundering. But the relationship with Mr Milosevic continued after an anti-money laundering law was approved in 1996. And cash continued to be transferred after Cyprus started EU accession talks in 1998.
Mr Torkildsen's report details many transfers made after the UN re-imposed an arms embargo on Belgrade in March 1998 because of the worsening conflict in Kosovo.
Dragomir Stojkovic, a courier with the National Bank of Yugoslavia, flew to Cyprus on a private aircraft almost every week between March 1998 and March 1999. The cash he accompanied was stuffed into reinforced paper sacks used for packaging cement and handed over to Popular Bank officials at Larnaca airport.
Mr Stojkovic declared a total of DM453m to customs officials at Larnaca airport, filling out the forms required under banking regulations on cash imports. The entire amount was deposited in a D-Mark account at Popular Bank belonging to Browncourt Enterprises, one of the Cyprus-based front companies.
The central bank gave special approval for the money brought by Mr Stojkovic to enter Cyprus, because the amounts exceeded the Dollars 100,000 ceiling then permitted for a single cash transfer. Browncourt Enterprises and another seven front companies were registered as Cyprus-based offshore companies by the law office headed by Mr Papadopoulos, legal adviser both to Popular Bank and Beogradska Banka.
Mr Afxentiou retired earlier this year and was not available for an interview. But Andreas Philippou, the long-serving head of supervision at the central bank, said in an FT interview that senior officials at the bank were aware the front companies were set up as a means of avoiding UN sanctions.
He said: "Through these companies, the Yugoslav state was able to survive and feed its people in spite of the sanctions."
Popular Bank played an important role in a drive by the Cyprus government to reduce dependence on tourism, its main source of revenue, by boosting the offshore banking industry. The bank, which is listed on the small Nicosia stock exchange, also expanded outside Cyprus, to Greece and London. Its biggest single shareholder is HSBC, the UK-based financial group, with a 22 per cent stake.
In an interview with the FT in his marble and wood-panelled office, Mr Lazarides said: "We always acted in accordance with central bank regulations. Because the amounts of cash arriving from Yugoslavia were quite large, we always checked with the central bank to get their permission on a case-by-case before we accepted them."
Asked whether Popular Bank had acted prudently in maintaining a banking relationship with the Yugoslav government during sanctions, he said: "Our books were checked on by international institutions, for example by the US Treasury and by HSBC, our biggest shareholder. They found nothing wrong."
HSBC said: "We went and talked to a few senior people and got assurances."
But it added: "We are a minority shareholder and don't have any management control or responsibility for Popular."
Mrs Vukic, a veteran banker who headed Beogradska's offshore branch between 1990 and 1996, set up the front companies at Popular with the help of Mr Papadopoulos's law firm.
In the case of two companies, Antexol and Browncourt, Mrs Vukic and Mr Papadopoulos's firm are accused of colluding to violate Cyprus central bank regulations on setting up offshore businesses by failing to provide documents required to prove beneficial ownership.
In both cases the named beneficial owners had never heard of the companies in question, were astonished to be contacted by UN investigators, and have threatened legal actions of their own.
During the Kosovo war, President Glafcos Clerides' government made an effort to distance itself from Belgrade amid belated concern that Cyprus's links with Mr Milosevic could damage its prospects for EU accession. The central bank withdrew Beogradska Banka's offshore banking licence in June 2000 because of insolvency -a decision contested on procedural grounds by Mr Papadopoulos's law office.
Mr Afxentiou and Mr Lazarides last year promised full co-operation with the UN tribunal in tracing the Milosevic funds. Officials from the supervision department of the central bank of Cyprus spent several weeks at Popular Bank collecting documents for possible use at the UN war crimes tribunal.
The government has also promised full co-operation with the UN tribunal. But it has stopped short of ordering an investigation into whether the central bank and the commercial banks violated international rules against money-laundering in the case of the Milosevic funds.
Michalis Papapetrou, the government spokesman said: "In the past two years, we have tightened up on regulations to combat illegal financial dealings, and the international organisations have approved the measures we've taken. We've done whatever was required."

U.S. balks at UN prison-access plan

By Barbara Crossette (The New York Times)

The International Herald Tribune

UNITED NATIONS, New York: Continuing its review of international agreements that could potentially be used to constrain the United States, the Bush administration is balking at a plan that could lead to demands for access to American prisons under the 1989 convention against torture. The United States delegate to the Economic and Social Council called Wednesday for a vote to set aside the plan, intended to monitor and tighten enforcement of the convention on torture, and to create instead a committee in the General Assembly to write a new version. The vote was expected Wednesday night. The plan, contained in a protocol, or side agreement, to the international convention - which also covers "other cruel, inhuman and degrading treatment or punishment" - seeks to establish a system of regular inspections of prisons and detention centers worldwide to check for abuses.
Some diplomats say that the United States is sensitive about this issue because of potential demands for access to the detention camp at Guantanamo Bay, Cuba, where suspected Al Qaeda members and other prisoners seized in Afghanistan are being held, as well as access to others being held prisoner in the United States as "enemy combatants."
More than 500 prisoners are being held at Guantanamo, according to U.S. military officials.
An American official here said that there was no question of the United States withdrawing its support for the convention, which he called "an important human rights instrument."
The United States, which signed the convention during the Clinton administration, is the largest contributor to a fund set up subsequently by the United Nations to aid the victims of torture.
The official said that the concern in Washington was that the current draft of the plan, couched in what is called an "optional protocol," would be unconstitutional in the United States.
He predicted that many other countries would also object to its demands and refuse to cooperate.
In the past, efforts by UN monitors to visit American prisons have met with mixed results, with some states or localities refusing entry to foreign inspectors. American officials have told UN human rights committees and monitors that the federal government cannot force states to open their prisons.
Human rights organizations say that the target of the new plan for prison visits is not the United States.
But American military officials say that, under the Geneva Conventions governing the rules of war, there are a range of permissible actions, including psychological pressures and physical discomfort - very hot or cold rooms, for example.
Denying food or water is not allowed, American military officials say.
Amnesty International reports that more than 100 countries employ torture or other unacceptable methods to acquire information from prisoners or detainees.
Any new protocol or amendment to the torture convention must be approved by a majority in the General Assembly, which has 190 member nations. Twenty nations must then ratify it for it to go into force.

Djukanovic Wavers in Support

For EU-Brokered Federation

By ALEXANDRA POOLOS

THE WALL STREET JOURNAL

Suddenly, the state union of Serbia and Montenegro doesn't look so good anymore.
It never looked that great to Montenegrin President Milo Djukanovic, who was cajoled by the European Union four months ago into agreeing to a refashioning, and renaming, of the two-member Federal Republic of Yugoslavia. Now that the EU is getting down to the nitty-gritty of how it would like the revised federation to work, Mr. Djukanovic is having sec
For Mr. Djukanovic, the problem is that the EU has told the Serbs and Montenegrins writing the new federation's constitution that if getting in the queue for EU membership is a goal, they must also produce separate documents -- Brussels calls them "action plans" -- spelling out exactly how the two republics would create a single economic market.
Mr. Djukanovic, who campaigned four years ago on an independence platform, said Brussels is redefining the terms of the agreement he signed. "Nobody has the right to demand new concessions from Montenegro," Mr. Djukanovic said earlier this month, characterizing himself as the "last line of defense" for Montenegrin interests.
In Belgrade, Yugoslav President Vojislav Kostunica is on board with the EU. "We are now given a chance to solidify and unify the economic space" of the new state, he said last week.
But some Serbs want what they call a "Lesser Serbia" to strike out on its own. Led by Serbian Justice Minister Vladan Batic, they are circulating a petition asking the Serbian parliament to schedule a referendum. So far, 300,000 signatures have been gathered; petitioners will present them to parliament on Friday.
"It's beginning to look as if [the agreement] is not absolutely assured," says Liz Barrett, a Balkans analyst in Budapest. "The whole thing has gotten extremely messy."
Right now, in the Federal Republic of Yugoslavia, much larger Serbia is in control of most shared institutions, including the federal parliament and the army. Montenegro has a separate economy and uses the euro as its currency.
In the EU-brokered union, the two republics would have almost equal power, sharing a president, parliament and army. According to the agreement signed in March, the federation would make foreign policy and run the military. Each republic would still run its own economic affairs, though there would be a free flow of goods and capital across borders.
In a recent visit to Belgrade, EU External Affairs Commissioner Chris Patten made it clear what Brussels thinks that means: a single Serbia-Montenegro market. EU representatives have given Belgrade and Podgorica a list of specific assignments. Among other things, they must lift the import tariffs they impose on each others' products, levy the same tariffs for goods coming in from other countries, place the same taxes on cigarettes and establish one trade policy. (While he was in town, Mr. Patten announced that the EU would dole out 30% more in financial aid to Serbia and Montenegro next year, a total of €255 million ($256.9 million), but he didn't link the money to the demands.)
The EU doesn't want tiny Montenegro to become independent, something Brussels fears could have a domino effect, encouraging Kosovo to demand the same from Serbia and giving Albanians in Macedonia more ammunition in their aim for a separate state. The EU reasons that insisting on economic integration is the best way to prevent any more Balkanization of the two remnants of war-torn Yugoslavia, which once encompassed Bosnia-Herzegovina, Slovenia, Croatia, Macedonia, Montenegro and Serbia.
Nicholas Whyte, the Balkans program director with the International Crisis Group, a Brussels-based think tank, said the EU is acting like an imperial power. "Neither Belgrade nor Podgorica feels the need to rush towards reintegrating their economies," he said. But the EU "is trying to make independence unthinkable."
Montenegrin negotiators say their worry is that Mr. Patten's demands will lead to other demands that will ultimately make Serbia and Montenegro not a federation, but a country similar to the old Yugoslavia, with power centered in Belgrade.
"We understand that Serbia and Montenegro are to have one international personality, and that it is a precondition [for EU membership] to harmonize trade and customs," said Slavicia Milacic, the head of the Montenegrin mission to Brussels. "But it is important to be flexible."
The stakes are highest for Mr. Djukanovic. He campaigned on the promise of independence for Montenegro, a mountainous republic of about 700,000 on the Adriatic Sea that shares borders with Bosnia, Croatia, Albania and Serbia. After reluctantly signing the agreement for the new federation, the president tried to spin the deal at home as a first step toward independence. Under the agreement and the constitution now being drafted, either republic could hold a vote on independence after three years.
Most Montenegrins didn't buy it. Immediately after the deal was announced, the pro-independence Liberal Alliance withdrew its support for Montenegro's governing coalition in parliament, triggering the resignation of Prime Minister Filip Vujanovic. Parliament dissolved and elections were set for October. Montenegrin opposition groups associated with former Yugoslav President Slobodan Milosevic have gained support, and Mr. Djukanovic's political future is uncertain.
When Mr. Milosevic was in power in Belgrade, Mr. Djukanovic was viewed by the West as a counterweight in the region. He made the EU happy by lifting press freedoms and instituting some economic reforms. But after elections in Serbia brought reformists to power and Mr. Milosevic was arrested in June 2001, "Brussels didn't need [Mr. Djukanovic] anymore," said Ms. Barrett, the analyst. "Djukanovic ignored the signs."
The EU claims it is unaware that anyone in Podgorica is unhappy, despite the fact that Mr. Djukanovic hasn't kept his complaints to himself. There's a "good atmosphere around the ongoing negotiations," said Emma Udwin, a spokeswoman for Mr. Patten's office.
EU officials might be wise to pay Mr. Djukanovic more attention. The 2.1-meter-tall former basketball player has said that he might withdraw his support for the new federation. He has also said it should represent the "final break with the Yugoslav illusion" and not just redefine old state ties.
When Montenegro's new parliament convenes sometime in November, one of its first tasks will be to vote on Serbia and Montenegro's constitution. If Mr. Djukanovic's party holds enough seats in parliament and he withdraws his support, the necessary two-thirds majority could walk away with him.
ond thoughts. Some in Serbia aren't thrilled either.