Croatia's EU membership: restoring a level playing field with Slovenia*

Tjaco van den Hout** 

Ever since their independence following the breakup of Yugoslavia, Croatia and Slovenia have locked horns over a wide range of disputes. The latest one to receive international media attention revolves around the question of how to settle the losses of Croatian deposits in Ljubljanska Banka (LB), a Yugoslav-era bank that abruptly pulled out of Croatia in the early nineties leaving affected depositors there hardly any opportunity to claim their cash. The Croatian government compensated many of its nationals at the time. It is seeking reimbursement from the Slovenian state-owned Nova Ljubljanska Banka, considered to be LB's successor. The amount concerned runs in the hundreds of millions of euro's.

Slovenia has proposed that the dispute be settled as part of the succession negotiations on the former Yugoslavia under the auspices of the Bank of International Settlements (BIS). Croatia, on the other hand, has maintained that the issue is a bilateral one between the bank and account holders concerned and between Slovenia and Croatia, respectively. In 2010, Croatia reluctantly agreed to the Slovenian proposal and participated in negotiations under BIS auspices. As these  negotiations have made little progress, the issue - from the outset a popular topic with the Croatian media - has become caught up in the passions of domestic politics. As a comsequence the government of Croatia eventually pulled out of the negotiations again and returned to its earlier position. Slovenia saw this volte-face as a blatant reneging on an agreement between the two and retaliated by following-through on an earlier threat to block Croatia's accession to the EU. It suspended its parliamentary ratification of the accession treaty - an act which numerous political observers at the time described as "outright blackmail".

In March 2013, with notable assistance from the European Commission the two countries finally reached a deal on how to go forward. And that was in effect by going backward and returning to the status quo ante. The "deal" provides for Croatia to suspend all legal action against Slovenia and resume its participation in the negotiations under BIS-auspices while Slovenia by way of quid pro quo would expedite its parliamentary ratification procedure. Barring the unexpected the recent ratification paves the way for Croatia's accession to the European Union on 1 July 2013, as scheduled.

In a written statement addressed to the two prime-ministers on the occasion of their signing of the MoU the President of the European Council hailed the deal describing the constructive approach towards the resolution of the "bilateral issues like the maritime sea border dispute and now the Ljubljanska Banka as a sign of maturity" adding that the way in which the two governments have handled these issues "serves as an example for the whole region" and concluding that the signing ceremony sends a clear message that "...issues that seemed intractable for years can be addressed."

Time will tell, of course, whether these negotiations will yield a mutually acceptable result or that, rather, they will stall, breakdown or otherwise fail. The choice of parties to negotiate (if indeed a choice for both it was) should be respected. In the unfortunate event that they fail all would not be lost however. Other approaches will then still be open for the two countries to settle this dispute in a definitive manner. One of these is third-party dispute resolution.

This approach was adopted by the two countries in their territorial and maritime dispute. The  dispute in question revolves around a number of disparate land border issues including several along the Dragonja River and the better-known maritime dispute regarding the Bay of Piran that, among other things, includes a claim by Slovenia for access to the high seas by way of a "corridor" through Croatian waters.

The dispute has burdened relations between the two for over twenty years. It almost derailed Croatia's application to join NATO and significantly complicated its accession to the EU. Slovenia, already an EU member state at the time, rejected certain documents that Croatia had submitted in the context of the accession procedure as being "prejudicial" to the outcome of any future bilateral negotiations or third-party settlement regarding their disputed border. The country imposed a blockade on Croatia's accession that lasted a full ten months before it was lifted in October 2008.

The case has witnessed many ups and downs. Hopes would be high for an imminent breakthrough only to be dashed again the following day. The cause was often political mischief by an opposition party or group in one of the two countries intent on electorally exploiting the dispute and the incumbent government's handling of it by appealing to nationalistic sentiments in the run-up to elections. By upping the ante an intractable dispute becomes totally insoluble - for the time being at least and until a new opportunity presents itself. This is also what happened to the mediation attempt of former U.S  Secretary of Defence William Perry in 1999.

After a string of missed opportunities over many years a deep sigh of relief must therefore have gone up from all sides when on 4 November 2009, the prime ministers of Croatia and Slovenia, Jadranka Kosor and Borut Pahur, in the presence of Sweden's prime-minister Fredrik Reinfeldt,   holding the rotating presidency of the European Union at the time, signed an agreement in Stockholm to resolve the dispute through arbitration.

The agreement has a number of salient features. Article 3(1) provides that the arbitral tribunal "shall determine (a) the course of the maritime and land boundary between the Republic of Slovenia and the Republic of Croatia; (b) Slovenia’s junction to the High Sea; (c) the regime for the use of the relevant maritime areas.” While article 4 provides that "the arbitral tribunal shall apply (a) the rules and principles of international law for the determinations referred to in Article 3(1)(a); (b) international law, equity and the principle of good neighborly relations in order to achieve a fair and just result by taking into account all relevant circumstances for the determinations referred to in Article 3(1)(b) and (c).”

The critical date is specified as 25 June 1991, meaning that no evidence with regard to the situation after that date (such as display of governmental authority) can be entertained. In addition the agreement specifies that none of the material presented by either state in their accession negotiations with the EU, such as documents, reports or maps, can be used in support of their claims.

The arbitral tribunal constituted for this case is chaired by Judge Gilbert Guillaume (France), former President of the International Court of Justice. The other members are Professor Vaughan Lowe (United Kingdom), Judge Bruno Simma (Germany), Dr. Jernej Sekolec (Slovenia), and Professor Budislav Vukas (Croatia). The Permanent Court of Arbitration at The Hague acts as registry in the arbitration by agreement of the parties.

One of the questions currently capturing the imagination of those following the case is how the arbitral tribunal will apply article 15 of the UN Convention on the Law of the Sea (UNCLOS) since the two countries put a different emphasis on it. The article reads: 'Where the coasts of two States are opposite or adjacent to each other, neither of the two States is entitled, failing agreement between them to the contrary, to extend its territorial sea beyond the median line every point of which is equidistant from the nearest points on the baselines from which the breadth of the territorial seas of each of the two States is measured. The above provision does not apply, however, where it is necessary by reason of historic title or other special circumstances to delimit the territorial seas of the two States in a way which is at variance therewith.'

Croatia favors the first sentence of the article while Slovenia emphasizes the relevance of the second. With Slovenia's short coastline and given the concave nature of the northeast corner of the Adriatic, Slovenia would only generate a relatively small maritime space beyond the Bay of Piran if equidistance were strictly applied in determining its maritime boundaries. Hence its request for a corridor of maritime jurisdiction that would extend beyond the 12 nautical mile territorial sea, allowing it access to areas of less restricted navigation.

It will be interesting to see how the arbitral tribunal will apply the principles of "equity" and "good neighborliness", in addition to international law, in its efforts to "achieve a fair and just result" as it has been asked to do with regard to Slovenia’s junction to the high seas and the regime for the use of the relevant maritime areas. This part of the decision in particular - based on "ex aequo et bono" - istherefor awaitedwith great anticipation.

In February 2013, Croatia and Slovenia submitted their first written pleadings in the arbitration. The significance of the submissions "in accordance with the procedural calendar set at the [arbitral tribunal's] first procedural meeting" was not lost on those who have been following this longstanding dispute along with the numerous well-intentioned but failed attempts at resolving it. The pleadings include multiple volumes of maps, documentary evidence, and legal authorities. A second round of written pleadings is to be filed on 11 November 2013, and a hearing before the arbitral tribunal is expected in mid-2014.

Whatever the eventual outcome of this case (not expected before 2015), the arbitration stands out as an example of third-party dispute resolution worthy of consideration by other States searching for a way out of deadlock as they, too, confront intractable and seemingly insoluble disputes with their neighbors.

 ___________________

* This article consolidates two earlier ones on the subject matter and were posted earlier this year.

** former ambassador of the Netherlands to Thailand, Burma, Cambodia and Laos (2008-2011), former secretary-general of the Permanent Court of Arbitration at The Hague (1999-2008). Mr van den Hout lectures in public international law and international affairs and global studies.