on talks between the representatives of the Government of the Republic of Montenegro and the Government of the Republic of Serbia between June 24 and July 8 in Budva and Belgrade for the purpose of determining activities for further implementing the Belgrade Agreement and harmonizing their economic systems with the EU economic system.
 

                                                   Podgorica, July 8, 2002
 

I.  INTRODUCTION

 
In line with the talks held between the representatives of the Government of the Republic of Montenegro and the Government of the Republic of Serbia in
Budva on June 24 and 25, 2002, and based on the Belgrade Agreement the responsibilities of the Republic of Montenegro and the Republic of Serbia are
determined in order to harmonize their economic systems with EU economic system and overcome existing differences. On July 1, 7 and 8, 2002 the
representatives of the Government of the Republic of Montenegro led by the Minister of Finance and Economy Miroslav Ivanisevic  met with the
representatives of the Government of the Republic of Serbia led by the Minister of Finance and Economy Bozidar Djelic. Federal Deputy Prime Minister
Miroljub Labus participated at the meeting on July 7 and 8 as well as the representatives of the Federal Government. The list of the participants is provided in
the enclosure (Annex 1) to this Information.

Experts met in six task forces: free circulation of goods, capital, services and people, organization of work and financing future institutions of the State Union.

The results of the task forces were collected at the meeting and harmonized into a text Activities Plan for providing free functioning of common market of the
State Union, including free circulation of goods (Annex 2), capital, services and people. The procedure for resolving disputable issues (Annex 3) in customs
and other border procedures was harmonized.

The governments of the Republic of Montenegro and Serbia, with the participation of the representatives of the federal government, elaborated the models for
accomplishing goals determined in the Belgrade Agreement (free functioning of a common market and harmonization of economic systems), which shall 
contribute to the Constitutional Commission writing Constitutional Charter.

II. HARMONIZATION ACTIVITIES PLAN

Based on the level of reforms that has been reached in the member states, and for the purpose of regulating mutual economic relations, we have come up with
the harmonization activities plan, defining the measures for harmonization and schedule for implementation thereof. Also, institutions are identified (existing ones
and those that are to be set up), and these institutions shall implement the proposed measures.

II. 1. In the sector FREE CIRCULATION OF GOODS a harmonized  text (Annex 2) with the contents as follows is signed:

1. Customs territory - we shall immediately regulate the existing administrative customs border which will be lifted in three year time.

Competent authorities for implementation of these measures are as follows: Serb Customs Authority, Montenegro Customs Authority, ministries of interior of
respected member states.

2. Customs procedure shall be regulated in the Customs Cooperation Agreement, which will regulate submission of all the documents for crossing the
administrative customs border. We shall immediately proceed with the development of this Agreement. Uniform standards for the customs procedure shall be
introduced during the first year, while we are planning to have harmonized (integrated) customs procedure during the third.

Competent authorities: Serb Customs Authority, Montenegro Customs Authority, the ministries of interior, health and agriculture of the member states, the
State Union Ministry of Internal Economic Relations, Permanent Commission for Border Offices (members are officers of member states on parity basis),
Court of the State Union.

3. Customs rates - We shall proceed with the development of the study for effective  level of protection in both member states (determining common effective
target level of protection and  tariffs for quantity restrictions and levies). In line with the study we shall agree on the percentage to lower the rates in Serbia, i.e.
to raise them in Montenegro, each year. By the end of the third year the same customs rates shall apply in both member states, in line with the WTO standards
and for the purpose of joining EU.

Competent authorities: the ministries of finance of the member states, Task Force for Customs Harmonization (the representatives of the member states and the
State Union, with technical assistance of EU).

4. International treaties - Through a common branch association, Serbia Chamber of Commerce and Montenegro Chamber of Commerce shall continue
their international membership in TIR , ATA and Containers Convention. In the third year, we shall have just one authority with all powers as a guarantor. An
agreement shall be produced between two customs offices to have a common representation in the World Customs Organization.

Competent authorities: Serbia Chamber of Commerce and Montenegro Chamber of Commerce, Serb Customs Authority, Montenegro Customs Authority.

5. In the sector of veterinary, sanitary and fit sanitary control it was agreed to set up one instance internal supervision , affiliated to the State Union
Ministry of Internal Economic Relations. In the case of dispute in this sector, the issues shall be resolved by Permanent Commission for Border Offices. In the
first year we shall harmonize the standards and procedures. Competent authorities: inspectorates of the member states, the ministries of agriculture, health and
finance of the member states,  the State Union Ministry of Internal Economic Relations, Permanent Commission for Border Offices.

6. In foreign trade regime it is planned to develop a study on actual protection in both member states. In the first and second year we shall lift quantity
restrictions in Montenegro and Serbia in proportion to raising of customs duties. During the first year in Montenegro we shall lift the obligation to apply for
carrying out foreign trade activities. In the third year we shall harmonize foreign trade regimes in line with WTO rules. Competent authorities: The State Union
Ministry for Economic Relations with Aboard, the ministries of the member states for foreign and domestic trade, agriculture and economy.

7. Free Trade Agreement - since the implementation of the agreements concluded by the FRY on the free trade zones  on the territory of Montenegro is
questioned, Montenegrin Government shall analyze agreements which were signed (with Macedonia, Russia, Bosnia and Herzegovina and Hungary) and
produce harmonization plan. In the forthcoming negotiations regarding free trade zones, the Government of Montenegro shall take an active part, with full
respect of the list of sensitive products. 

Competent authorities: The State Union Ministry for Economic Relations with Abroad, the ministries of the member states in charge of foreign and interior
trade, agriculture, economy and finance.

8. In order to become member of the WTO it was agreed to develop negotiation strategy, to determine target level of protection and update the list of the
members of the Commission in charge of gaining membership to WTO. Also, it is stressed that it was necessary to set such a Commission in Montenegro.In
the first and second year the negotiations shall focus on joining the WTO, and in the third year we are expecting conclusion of negotiations and gaining
membership in WTO.

Competent authorities: The State Union Ministry for Economic Relations with Abroad, the Commission of the State Union and commissions of the member
states for gaining membership to the WTO.

9. In the process of harmonizing with EU we are planning to develop a study on the customs and foreign trade regimes. In the first year it is planned to adopt
a new nomenclature of goods in line with EU harmonized system. In the second year we shall study the implementation of new customs system (specific
customs duties in the area of protection of agricultural products), and in the third year introducing specific customs duties. Competent authorities: The State
Union Ministry for Economic Relations with Abroad, the ministries of the member states in charge of foreign and internal trade, finances and agriculture, Serb
Customs Authority and Montenegro Customs Authority.

10. Removing obstacles for internal trade - we shall immediately identify  obstacles. In the first year we shall develop the Obstacles Removal Plan
(administrative, technical, controlling prices etc.), and in the second year we shall implement the adopted plan. In the third year we are planning to have market
without internal obstacles.

Competent authorities: The State Union Ministry of Internal Economic Relations, the ministries of the member states for internal policy, finance, energy and
internal affairs.

11. Tax System - Regarding the Agreement on Avoiding Double Taxation, it was agreed to study existing agreements and to have them implemented in the
first year already. Negotiations shall be planned for future agreements. Also, identifying problems is envisaged  in the field of information system and during the
first year introducing elements of a common information system (using the same identification number by the member states). We shall go on implementing the
Memorandum on Cooperation of Tax Authorities and the Coordination Body shall be set up.

Competent authorities: The State Union Ministry for Economic Relations with Abroad, the tax authorities and the ministries of finance of the member states.

12. Tax  and rates - in the excise sector, existing differences shall be identified immediately regarding products that excise apply to and the level of excise
rates, as well as the plan for harmonizing them. During the first year we shall have harmonized both the system and tax on cigarettes. For VAT we shall
immediately produce a study covering differences in existing laws, during first year technical solutions shall be found for interim period with Montenegro
applying and Serbia preparing to apply VAT, and in the second year we shall  a setting for the implementation of VAT in both member states created, defining
minimum tax rate.

During the third year we are planning to have the member states tax systems harmonized with EU standards.

Competent authorities: the ministries of finance and tax authorities of the member states.

13. Authorities in charge of supervising circulation of goods (Institute for Standardization, Institute for Intellectual Property and Institute for
Measurement and Precious Metals) - now in this area it is necessary to study how existing authorities are operating, prepare the proposal for reforms as a
precondition for having it at one instance. It is agreed to set up a new Institute for Statistics of the member states. Competent authorities: the ministries of
finance of the member states,  the State Union Ministry of Internal Economic Relations.

II.2 In the area of FREE CIRCULATION OF CAPITAL it is agreed that we shall apply, since there are different regulations in the two republics and
before harmonizing them, existing rules of the member states. During the process of harmonizing with EU, we shall examine the possibility of securing a domicile
status for economic entities at the territory of the State Union with one registered office license, as well as harmonizing defining of conditions and collecting
claims in bankruptcy procedure. By analyzing the level of harmonization we shall determine the mechanism for cooperation among the institutions set up in line
with Anti-money Laundering Law.

II.3 In the sector of FREE CIRCULATION OF SERVICES it was agreed as follows:

Based on the monetary and banking systems the following was agreed:

1. Monetary system. There are two separate monetary systems, two central banks and two different currencies as legal payment instruments. These solutions
shall be kept.

2. Banking system. There are two separate banking systems regulated with separate laws which are in principle harmonized with the principles of the Basel
Committee and appropriate  EU directives. Both systems have as the final goal complete harmonization with international banking standards (Principles of
Basel Committee, EU directives including IAS and ISA).

2.1. Licensing . Each central bank shall issue  licenses for commercial banks to operate, banking entities and other financial institutions in its territory. 

2.2. Bank Supervision. National Bank of Serbia and Central Bank of Montenegro shall set up cooperation in supervision and secure  exchange of
information on the status of the parent bank. The cooperation between the National Bank of Serbia and Central Bank of Montenegro in this field shall be
regulated with a separate agreement based on the principles of the Basel Committee.

3. Payment System. We shall analyze technical conditions for having payment system functioning between natural and legal persons in both currencies for
current transactions between Serbia and Montenegro, and in line with Article 8 of the IMF Charter. The Central Bank of Montenegro and the National Bank
of Serbia shall enable exchange operations (exchange of dinar in Montenegro). The Central Bank of Montenegro agrees that interested banks, based on
agreement with the National Bank of Serbia, shall carry out these jobs.

4. Relations with International Financial Organizations. In order to have representatives of Serbia and Montenegro in International financial organizations
and coordinate relations with IMF, we shall set up Financial Council whose members shall be governors of central banks and the ministries of finance of the
member states. The National Bank of Serbia shall continue to keep  its function of the fiscal agent and depositor in international financial organizations in the
name of Serbia and Montenegro until this issue is resolved by the Financial Council in agreement with international financial organizations. The same principle
refers to the withdrawing of Montenegro funds from IMF. We shall set up a representation model in international financial organizations (IMF, the World
Bank, EBRD). A representative in any international financial organization shall equally represent interests of both member states.

5. The issue of introducing the banks from Montenegro into SWIFT system. National Bank of Serbia shall support the banks from Montenegro having
license of the Central Bank of Montenegro to introduce into SWIFT.

II.4 In the area of FREE CIRCULATION OF PEOPLE  it is agreed as follows:

In the sector of labor, employment, education and veteran-disability protection, in the system of the member states a high level of harmonization is achieved and
according to the conclusion of the Task Force there are no important differences.

In the area of pension and disability insurance the differences in the member states are identified, such as conditions for exercising the right to pension,
increasing and equating old age limit as a condition for exercising the right to receive pension, basis for introducing the second and third column of the pension
insurance, adjusting pensions etc.

It is agreed that the system in the area of labor, employment, health, education pension and disability insurance as well as veteran-disability protection shall be
completely regulated at the level of the member states. We shall also enable circulation of the insurances beneficiaries (pension-disability insurance, health
insurance and unemployment insurance)  from one system to another by applying the principles of reciprocity and  the funds welfare insurance contracts.

Every member state shall have its representative for signing international treaties in the area of social insurance, international conventions in the area of labor and
its representative in the International Organization of Labor.

III. ORGANIZATION AND PROCEDURE OF ACTIVITIES OF THE MINISTRIES OF THE STATE UNION OF SERBIA AND
MONTENEGRO

All existing federal authorities and organizations shall cease to function at the moment of setting up of new authorities in line with the Constitutional Charter.

III.1 Organization

1. The State Union of Serbia and Montenegro, in line with the starting elements for reorganizing relations between Serbia and Montenegro, shall have five
ministries (foreign affairs, defense, economic relations with aboard, internal economic relations and protection of human and minority rights).

2.The ministries of the State Union shall harmonize and coordinate work of the authorities of the state administration of the member states, represent the State
Union in international institutions within their authorities, offices and guidelines of the Council of Ministers and carry out managerial and other jobs in line with
the Constitutional Charter and rules of the State Union.

Harmonizing and coordinating is done through communication of a ministry of the State Union and authorities of the state administration of the member state
through the government of the member state.

3. Organization, authority and work of the ministries of the State Union are regulated by the regulation of the State Union in line with the Constitutional Charter.

4. The ministries of the State Union are seated in Belgrade, i.e. Podgorica. The seat of the ministry of the State Union shall be regulated by the rule on setting
up ministries.

5. If the laws of the member states are not harmonized or powers of authorities of the member states this shall be regulated by the State Union legislation.

III.2 Ministries of the State Union

1. The Ministry of Foreign Affairs

This Ministry shall be in charge of foreign affairs of the State Union, international treaties, international cooperation and protecting interests of the State Union
abroad.

2. Ministry of Defense

This Ministry shall be in charge of the defense of the State Union.

3. State Union Ministry for Economic Relations with Aboard

The Ministry, in line with the office granted by the member states shall be in charge at the level of the State Union of the process of association and stabilization
with EU, shall represent the State Union in economic and other non-political international organizations and associations and coordinate negotiations with
international financial institutions and economic organizations. 

4.The State Union Ministry of Internal Economic Relations 

The Ministry shall coordinate and harmonize economic systems of the member states, in order to have common market functioning, including free circulation of
people, goods, services and capital.

5. Ministry for Protection of Human and Minority Rights.

The Ministry shall coordinate the activities of the authorities of the member states state administration in order to implement international conventions on
protection of human and minority rights.

III.3.The Procedures of work of the ministries of the State Union

1. The ministries of the State Union act on administrative matters in line with the procedure determined by the laws of the member states, by territorial principle
if not otherwise determined by the laws of the State Union.

2. Rights, obligations and responsibilities of the elected, appointed and persons employed in the State Union ministries are regulated by the member states, by
territorial principle, and the State Union regulations. The State Union regulations mainly refer to election, appointment and their wages.

3. Engagement of the member states in the State Union ministries shall be regulated by a separate agreement of the member state governments.

IV FINANCING AND PROPERTY OF THE STATE UNION OF SERBIA AND MONTENEGRO

IV.1. Financing

Activities of the State Union of Serbia and Montenegro (hereinafter: the State Union) shall be financed by fees allocated from the member states budget based
on participation in gross national product, at the proposal of the member state governments.

Expenditures of the State Union are approved by the member states parliaments. Execution and auditing of expenditures of the State Union is carried out  by
the member states according to territorial principle. If expenditures territorially differ from participation in gross national product , the difference is transferred
between member states in line with the Agreement to be signed between the member states treasuries.

Internal auditing is done by budget inspections of the ministries of finance of the member states, and external auditing by top auditing institutions of the member
states. As to the amount of transfer, the member state shall have the right to audit transferred funds.

Expenditures of the State Union shall be presented by GFS classification and part of the budget of the member states. The State Union shall be financed only
from the budget of the member states.

The funds directly gained by the authorities of the State Union shall be the revenues of the budget of the member states. These funds shall be allocated between
member states based on the structure of their participation in financing the State Union.

IV.2 Property and debts

The State Union does not have its own property  and can not get loans. The existing movable and immovable property of the FRY shall be divided by
territorial principle which is adopted as part of Succession Agreement Between the States from Disintegration of SFRY.

The property abroad (diplomatic and consular offices) shall not be divided and shall remain as a common property of the member states. The authorities and
institutions of the State Union shall be offered the property of the member states without compensation.

The issue of split of assets (e.g.foreign currency reserves) and debts shall be resolved at the latest by the end of 2002 in the agreement of the member states.

Bojan Sarkic