Economic consequences and problems for neighbouring countries arising from the implementation of United Nations sanctions against the Federal Republic of Yugoslavia (Serbia and Montenegro)

15 December 1993

Doc. 6979

1403-10/12/93-1-E

REPORT

on the economic consequences and problems for neighbouring countries

arising from the implementation of United Nations sanctions

against the Federal Republic of Yugoslavia

(Serbia and Montenegro)

(Rapporteur: Mr PIRINSKÍ,

Bulgaria, Socialist Group)

Summary:

While an impressive machinery has been established to monitor and enforce the sanctions against the Federal Republic of Yugoslavia (Serbia and Montenegro), theinternational community is less than prepared to consider the question of compensation for third countries affected. However, compliance with the embargo against Serbia and Montenegro has dealt a severe blow to the transition economies of the region. Moreover, the economic losses are not confined to the short-term. The disappearance of markets and the disruption of transportation and communication links will have far-reaching consequences also in the future.

The aim of the present report is to highlight the repercussions of the United Nations embargo on the neighbouring countries, to try to assess the special economic problems and the economic losses they have suffered and are still enduring, and to propose measures for international action with a view to alleviating the economic hardship of which they are the unwitting victims.

I. Draft resolution

1. The Assembly deplores the tragic loss of life and the flagrant violations of human rights taking place as a result of the conflict in the former Yugoslavia.

2. The Assembly recalls its Resolution 1004 (1993) on the United Nations sanctions against Serbia and Montenegro and expresses concern over the economic problems confronting, in particular, certain neighbouring countries as a result of the implementation of relevant United Nations Security Council resolutions.

3. The Assembly is aware of the economic consequences suffered by several countries as a result of the implementation of the United Nations sanctions against Serbia and Montenegro, in accordance with Security Council Resolutions 713 (1991), 757 (1992) 787 (1993) and 820 (1993). It has sought and received information as to such consequences from third countries which are either members of the Council of Europe, or whose parliaments enjoy special guest status with the Assembly.

4. In evaluating the above information the Assembly has become acutely aware of the very serious economic problems confronting these countries, as a result of the disruption of the trade links among them, and also of their commerce with other parts of the world, in particular Europe and the Middle East. It fears that these problems will seriously impair these countries' social and economic development, coming at a particularly crucial time of transition to a market economy and the strengthening of democracy.

5. Accordingly, the Assembly:

i. commends the governments of third countries seriously affected by the sanctions against Serbia and Montenegro for the efforts they are making to implement them, in spite of the considerable economic losses they have suffered;

ii. recognises the urgent need to assist them in mastering their economic, social and other difficulties resulting from these efforts;

6. The Assembly in consequence appeals to member states of the Council of Europe and to the European Union:

i. to take appropriate action within the United Nations Committee on Sanctions in order to facilitate the earliest possible approval of the proposed procedures for trans-shipments through the territory of Serbia and Montenegro under United Nations surveillance;

ii. to facilitate procedures within the United Nations administration of sanctions for approval of requests for medical supplies to Serbia and Montenegro by suppliers from neighbouring countries;

iii. to give urgent consideration to the execution of projects for improving road, railway, bridge and tunnel facilities to expand the transport infrastructure around the sanctions area in order to ensure early implementation at advantageous financing conditions;

iv. to provide special material, technical and financial assistance to third countries most affected by the United Nations sanctions against Serbia and Montenegro, designed to mitigate the damage they have suffered and continue to suffer;

v. in particular, to consider granting them improved market access and other favourable trade conditions in order to help them solve the immediate and dramatic difficulties they are facing as a result of their complying with the embargo;

vi. to continue their assistance to the affected countries in order to facilitate the successful advance of their economic reform process and to give careful consideration to the possibilities of establishing a compensation facility in order to provide additional financial assistance or possible debt-servicing relief.

7. The Assembly furthermore invites the European Union, the European Bank for Reconstruction and Development, the World Bank, the International Monetary Fund and the Council of Europe's Social Development Fund, as well as other international organisations concerned to review their programmes of assistance or loans to these countries, with a view to alleviating their economic hardship arising from compliance with the sanctions.

8. Finally, the Assembly invites the United Nations Security Council:

i. to ensure effective implementation of Article 50 of the Charter of the United Nations regarding the compensation of third countries for losses they have incurred through the sanctions;

ii. in future, wherever possible, to agree before sanctions are applied, on the principles which should guide compensation to affected third countries.

II. Draft order

The Assembly instructs its Committee on Economic Affairs and Development to monitor action for compensating neighbouring countries affected by the sanctions against the former Yugoslavia (Serbia and Montenegro), and if necessary to report back to the Assembly.

III. Explanatory memorandum

by Mr PIRINSKÍ

Contents

Page

A. Introduction 6

B. Sanctions and compensations: legal

basis and antecedents 7

C. The sanctions against the former

Republic of Yugoslavia 8

D. Consequences for neighbouring countries 10

E. Economic losses of the neighbouring countries 12

F. Possible international action 16

G. Concluding remarks 20

Appendix I: Countries affected by United Nations sanctions

against the former Yugoslav republics

(Serbia and Montenegro) 22

Appendix II: Excerpts from the United Nations Charter 23

Appendix III: Chapter IV of Resolution 47/120 adopted by the

United Nations General Assembly 24

Appendix IV: Letter addressed by the Clerk of the Parliamentary

Assembly to the permanent representatives of the

neighbouring member states and the chairmen of

the special guest delegations of the neighbouring

countries affected by the sanctions 26

A. Introduction

1. In its Resolution 1004 (1993) on the United Nations embargo against the Federal Republic of Yugoslavia (Serbia and Montenegro), the Parliamentary Assembly expressed concern over the economic problems confronting, in particular, certain countries neighbouring Serbia and Montenegro as a result of the implementation of United Nations Security Council Resolutions 757 (1992), 787 (1992) and 820 (1993).

2. Resolution 1004 called on the governments of Council of Europe's member states and of states the parliaments of which enjoy special guest status to "show solidarity with the states neighbouring Serbia and Montenegro by giving them financial assistance in order to help [these countries] to solve the economic problems ensuing from compliance with the embargo".

3. Similarly, the motion for a resolution presented in June 1993 by Mr Panov and others (Doc. 6832) recognised the "urgent need to assist these countries in coping with their special economic problems resulting from the actual severance of economic links among European countries and between them and the Middle East."

4. The aim of the present report is to highlight the consequences of the United Nations embargo on the neighbouring countries, to try to assess the special economic problems and the economic losses they have suffered and are still enduring, and to propose measures for international action with a view to alleviating the economic hardship of which they are the unwitting victims.

5. The report will cover the economic consequences and possible action in favour of neighbouring countries as follows: Albania, Austria, Bulgaria, Croatia, Greece, the former Yugoslav Republic of Macedonia, Hungary, Romania, Slovenia and Ukraine. From the point of view of the seriousness of the consequences and the urgency of the assistance required, it would be appropriate to give special consideration to the problems of those of the neighbouring countries that are front-line states and thus most seriously affected by the sanctions. These are: Albania, Bulgaria, Hungary, the former Yugoslav Republic of Macedonia and Romania. Besides the neighbouring countries, other countries, such as Uganda, have also given notice of economic losses due to the sanctions. These countries, however, are not covered by the present report. (For a classification of the countries affected, see Appendix.)

6. As to the possible sources of international action for alleviating the consequences of the sanctions, it is expected that such action would be undertaken by a broad range of countries, international organisations and financial institutions:

i. within the United Nations system: the states on the Security Council; the Secretary-General; the General Assembly; the Security Council committee concerning Yugoslavia; the United Nations Compensation Commission; other components of the United Nations system;

ii. the major donor countries — within the Group of Seven, the "Group of 24"; the European Union member states and institutions;

iii. the international financial institutions, both global and regional — the IMF and the World Bank; the EBRD, the EIB and others;

iv. other regional funds and facilities, such as the PHARE programme of the European Union, and the Social Development Fund of the Council of Europe.

B. Sanctions and compensations: legal basis and antecedents

7. The legal basis for economic sanctions is contained in Article 41 of the United Nations Charter. Such sanctions are envisaged as a mechanism of peaceful settlement of disputes under Chapter VII of the United Nations Charter — in cases when the United Nations Security Council has determined that a threat to peace or to international security exists. As Article 41 stipulates, in such cases the Security Council may decide on measures not involving the use of armed force, which may include complete or partial interruption of economic relations and of means of communication (See Appendix II for the texts of Articles 39 and 41 of the United Nations Charter.)

8. However, sanctions — in order to be effective, and especially in our modern, economically interdependent world — will almost inevitably affect third parties that are neither the victims nor the perpetrators of an international aggression. The most conspicuous examples after World War II were the economic embargoes ordered by the United Nations Security Council in the 1960s against the then Southern Rhodesia (present Zimbabwe) and more recently against Iraq following its 1990 invasion of Kuwait. In the Southern Rhodesia case the so-called "frontier" or neighbouring states were particularly hard hit by the severance of all economic ties with that country. Similarly, Egypt, Jordan and Turkey as neighbouring states of Iraq were especially affected by the economic embargo declared by the United Nations Security Council against Baghdad.

9. Third countries especially affected by collective measures often maintain a right to receive compensation from the international community as part of "burden sharing". During the Gulf war, financial and other economic assistance was provided by the international community both on a multilateral and a bilateral basis:

i. Egypt received significant compensation from the United States and other western and Gulf states, which at an early stage in the crisis waived almost US$ 14 000 million of Egypt's debts to them. Besides, an agreement was signed with the IMF which led to the rescheduling of US$ 10 000 million of Egypt's debt to the "Paris Club" of western creditors, and the cancellation of the remaining US$ 10 000 million over a three-year period;

ii. Turkey received part of a US$ 260 million grant by the United States destined for designated countries in the Middle East. Besides, Turkey received substantial direct military assurances for its security by means of the deployment of military bases, including Patriot air defence systems and aircraft;

iii. even Jordan, which initially in the conflict had actively sided with Iraq, still received roughly US$ 130 million in aid from the United States for "economic dislocations";

iv. all three countries received financial aid from the European Union totalling 500 million ecus in compensation for economic losses suffered due to the sanctions imposed on Iraq.

10. Furthermore, at the time of the Gulf war, a working group of the United Nations Sanctions Committee recommended not only that immediate economic assistance be provided to the countries affected, but also found that such assistance is needed if economic sanctions are to retain any global validity in the future. Indeed, Article 501 of the United Nations Charter gives states suffering special economic problems as a result of economic sanctions the right "to consult the Security Council with regard to a solution of those problems." However, even at the time of the Gulf war it had become evident that this provision was insufficient as a means of alleviating the specific problems of third countries.

11. In today's post-cold war world economic sanctions may well acquire new importance as a means of maintaining international security without having to resort to armed force. However, if this role is to be truly effective, the issue of compensating third parties, on whom the effective enforcement of sanctions depends, will have to be addressed in a new manner.

C. The sanctions against the former Republic of Yugoslavia

12. In September 1991 the Security Council of the United Nations expressed deep concern at the fighting in the former Yugoslavia, which at that time was taking place in Croatia, and determined that the situation there constituted a threat to international peace and security. As part of the efforts of the international community to stop the fighting and loss of human life, and to assist the collective efforts for bringing peace to the area so that dialogue between the warring sides could lead to a durable solution to the conflict, the Security Council decided to impose economic sanctions in three main consecutive stages:

13. The first stage (September 1991-March 1992): on 25 September 1991 the United Nations Security Council passed Resolution 713. The resolution:

a. imposed a general and complete embargo on all deliveries of weapons and military equipment to "Yugoslavia" (paragraph 6);

b. aimed mainly to ensure observance of the cease-fire agreements of 17 and 22 September between the Serbs and the Croatians. The resolution urgently appealed to and encouraged all parties to reach such a settlement through negotiation at the Conference on Yugoslavia and its mechanisms (paragraph 5), launched by the European Union and its member states with the support of the states participating in the Conference on Security and Co-operation in Europe.

14. Two months later — on 15 December 1991 — the Security Council passed Resolution 724, by which it established a committee of the Security Council on the sanctions under Resolution 713, to monitor compliance with the arms embargo and to recommend appropriate measures so that it was effectively applied.

15. The second stage (May 1992-April 1993): on 30 May 1992 Resolution 757 was passed. The resolution:

a. introduced a broad range of trade and economic sanctions against the Federal Republic of Yugoslavia (Serbia and Montenegro), spelled out in detail in the resolution's points 4 to 9, which may be summarised as follows:

—an import prohibition against commodities and products originating in the Federal Republic of Yugoslavia (Serbia and Montenegro);—

—a prohibition on the "sale and supply" to any person or body in the Federal Republic of Yugoslavia (Serbia and Montenegro) or for the purpose of any business carried on in or from the Federal Republic of Yugoslavia (Serbia and Montenegro);—

—a requirement that all states deny take-off, landing and overflight to aircraft destined for or taking off from the territory of the Federal Republic of Yugoslavia (Serbia and Montenegro);b.

b. in paragraph 6 the resolution stated that the prohibitions did not apply to the trans-shipment through the Federal Republic of Yugoslavia (Serbia and Montenegro) of commodities and products originating outside it, and that the Committee on Sanctions of the Security Council would approve guidelines for effecting such trans-shipments;

c. the immediate purpose of the new sanctions was to ensure the implementation of a new cease-fire agreement of 12 April 1992 to stop the fighting in Bosnia-Herzegovina, and to prevent continuation of the persistent cease-fire violations in Croatia;

d. the resolution, having established "that in the very complex context of events ... all parties bear some responsibility for the situation", again expressed support for the efforts through the Conference on Yugoslavia to reach a negotiated political solution in the area.

A partial ban on trans-shipments was introduced half a year later under Resolution 787 of 16 November 1992.

16. The third stage (since April 1993): the United Nations Security Council adopted on 17 April 1993 Resolution 820. The resolution:

a. imposed tough new sanctions against the Federal Republic of Yugoslavia (Serbia and Montenegro), extensively spelled out in paragraphs 12 to 30, which may be summarised as follows:

—a complete prohibition on unauthorised trans-shipment of goods through the Federal Republic of Yugoslavia (Serbia and Montenegro);—

— sp ecial authorisation and monitoring of trans-shipments on the Danube;—

— fr eezing of funds belonging to authorities or undertakings in the Federal Republic of Yugoslavia (Serbia and Montenegro), held by states, persons or entities implementing the resolutions of the United Nations;—

—a ban on passage of freight vehicles and rolling stock into or out of the Federal Republic of Yugoslavia (Serbia and Montenegro) except at a strictly limited number of road and rail border crossing points to be approved by the Committee on Sanctions;b.

b. the immediate objective of the new tightening of the sanctions was to ensure adoption of the Vance-Owen peace plan for Bosnia-Herzegovina, by making the Bosnian Serbs accept its provisions, the other two sides to the conflict having agreed to support the plan. Paragraph 31 of Resolution 820 expresses the readiness of the Security Council to review and gradually lift all the measures contained in its resolution, if there is verified evidence that the Bosnian Serb party is co-operating in good faith in effective implementation of the plan.

D. Consequences and problems for neighbouring countries

17. Compliance with the embargo against Serbia and Montenegro has had serious consequences for the neighbouring countries, and especially for the front-line states. In connection with the sanctions, requests for consultations under Article 50 and for compensation of economic losses have been deposited at the United Nations by Bulgaria, Hungary, Romania, Slovakia and Ukraine.

18. Consideration of the consequences and problems for the countries affected should have as its point of departure an awareness of the general conditions prevailing in most of them, including virtually all of the front-line states on the eve of sanctions in 1991-92. The economies were experiencing a severe transitional recession of much greater depth and severity than initially anticipated. The recession had been brought about both by the sudden loss of vitally important markets in the former USSR, as well as by the abrupt collapse of internal demand as a result of "shock therapy" policies undertaken in most of the countries to deal with excess purchasing power, or "monetary overhang".

19. Of course, the underlying causes of the deep economic crises in these countries are rooted in the low efficiency and serious misallocation of resources inherited from the past, making fundamental structural adjustment all the more urgent. The imposition of sanctions at that particular moment of the transition process inevitably made the task of adjustment incomparably more difficult. It should also be remembered that a number of these countries had already suffered major losses as a result of United Nations sanctions against Iraq and also against Libya, for which no compensation was forthcoming.

20. Thus, the overall scope of consequences and problems for the neighbouring countries may be summarised as follows:

i. a general disruption of initial supply-side responses to stabilisation policies and efforts at economic revival — due to the disruption or severance of transportation links to remaining external markets (which had acquired new importance following the dissolution of COMECON) and the resulting drastic decreases in export revenue, resource availability, output and employment;

ii. lasting losses of external market shares owing to disruptions to market access by exporters to markets in central and western Europe and in the Middle East due to the sanctions;

iii. severe disturbances caused to the newly established domestic markets and market structures in most of the countries concerned — as a result of the particular difficulties that emerging private companies have been experiencing due to the sanctions. To this should be added the strong boost to black market practices and profiteering in conditions of constricted supplies etc.;

iv. substantial additional costs incurred as a result of the requirements to ensure the strict observance of sanctions — such as the maintenance of additional customs and police personnel and facilities; damages due to vessels being detained for inspection and verification of ownership or cargo destinations (which could run into millions of US dollars);

v. social and economic problems caused by expectations of significant inflows of refugees;

vi. as a result, the degree of confidence on the part of the international investment community in these countries as attractive opportunities has suffered perceptibly. Investor interest has waned while waiting for more stable and predictable conditions;

vii. the cumulative effect of these consequences and problems is such as to lead inevitably to an erosion of the overall national security of the countries affected. It must be remembered that the region in which the sanctions are being applied is one of the major points of acute international tension today, and that almost every country there is facing the overriding need to redefine its national security precepts and seek new guarantees.

21. Of the greatest urgency among these problems has been the one of transportation and communications — in view of the fact that the territories of Serbia and Montenegro lie across the principal land and Danube river routes through Europe and into the Middle East. The ban on transit passage through these territories has caused a number of severe logistical problems:

i. trade flows have been severed, with all the ensuing consequences for fulfilment of contracts, the preservation of goods in good condition etc. Shipments have had to be rerouted, which has proven extremely complicated due to the underdeveloped infrastructure in the area and the difficult terrain;

ii. this in turn has created severe bottlenecks at critical border crossings along the Danube and into the areas of central Europe and the Mediterranean. The re-routing has affected shipment of perishable goods and has significantly increased transportation costs and affected competitiveness;

iii. unfortunately, the customs and border authorities in some of the countries adjacent to the sanctions enforcement area have chosen to introduce punitive increases in border taxes. In other cases it has become virtually standard practice to extort illegal payment for the possibility to cross congested checkpoints;

iv. furthermore, the transport companies in the neighbouring countries have seen their businesses decline drastically, and this at a moment when they had been experiencing the full impact of the deep recession in the area and were struggling to restructure and streamline operations. This has been all the more serious since in many of these countries international road, rail and river transport had grown into a major source of employment and foreign currency income.

22. What is at issue in the last analysis is the very viability of the new democratic principles, structures and institutions that most of the countries in question adopted with such popular enthusiasm and hope in the 1989-90 period. Public opinion in many of them has increasingly come to view the economic and also the broader consequences of the sanctions — which they have been enduring without any material compensation for the losses suffered — as a wholly unjustified "surcharge" for membership in the international community, rather than as a warranted contribution in line with international obligations. Obviously, such a setting provides multiple opportunities for swaying official policies and voter preferences away from the determined pursuit of pluralist institution-building and market-based development.

23. Finally, a word must be said regarding the special suffering on the part of the peoples of Serbia and Montenegro. As has been evidenced through reports before the Parliamentary Assembly of the Council of Europe and through numerous other sources, the full force of hardship flowing from the sanctions is being borne by innocent civilians in these countries, with little or no say as to the policies and practices of the governing bodies in the Federal Republic of Yugoslavia (Serbia and Montenegro).

E. Economic losses of the neighbouring countries

24. As a result of the special problems outlined above, the neighbouring countries, and in particular the front-line states, suffered considerable economic losses. In order to gain first-hand information on the amounts of these losses, your Rapporteur proposed and the Committee on Economic Affairs and Development so decided, that the Clerk of the Assembly address a letter to the various neighbouring countries, asking them to provide the necessary data. Acting in line with this request, the Clerk has addressed letters to the permanent representatives of the neighbouring member states and the chairmen of the special guest delegations of the neighbouring countries affected by the sanctions.2

25. The efforts to arrive at an accurate evaluation of the losses arising from the embargo has caused considerable debate. The press has mostly been quoting gross, overall figures of losses, which have actually tended to distract from the credibility of the claims by the countries seeking compensation.

Part of the problem are the different methods of arriving at estimates. These are of two main types:

i. one approach is to examine trade and payments between the neighbouring countries and the country being sanctioned, and to isolate the changes in values after the introduction of sanctions, as compared to the levels before their imposition. This method tends to overlook both the impact on trade and exchanges with other than with the sanctioned country (and this aspect is of particular relevance in the case of the present report) as well as the other indirect losses — in output, employment, tax revenue, etc. Still, this is the method adhered to in general by the international financial institutions;

ii. a second method, which tries to give a more comprehensive estimate, is based on systematised reports at the enterprise level which are prepared and summarised according to a methodology worked out by the international claims community and in particular by the Geneva-based United Nations Compensation Commission. (This body in June 1992 approved Provisional Rules for Claims Procedures, setting the terms for submitting compensation claims to the Commission.) In the case of the Yugoslav crisis, the UNDP has assisted in providing consultancy support to a number of the front-line states in developing a methodology to assess their economic losses from the embargo on the basis of enterprise reports, in line with the claims procedures mentioned above.

26. Albania: the former Yugoslavia was traditionally one of Albania's principal trading partners. Enforcement of sanctions has not only cut off one of Albania's key export markets, but has also destroyed or disrupted essential imports for the Albanian economy. This has caused severe hardship within Albania, in the form of a precipitous decline in production, increased unemployment, and inflation. Moreover, international transportation routes have of necessity been altered, raising the cost of imports from non-Yugoslav suppliers and undermining the country's competitive position in traditional export markets outside the region.

27. In 1992, the Government of Albania embarked on a radical economic programme aiming at stabilising the economy and bringing about deep structural reform. While the initial results of this programme are favourable, the capacity of the economy to respond to the new market-oriented incentives has been hampered by the sanctions and the instability created by the war in Bosnia. Thus, Albania's economic depression has been worse, and the pace of economic recovery slower, as a consequence of international factors beyond its control:

—th e total loss of exports to Yugoslavia can be estimated at $ 47 million per year;—

—th e total export losses to non-Yugoslav markets resulting from the embargo can be estimated at $ 10,2 million/year;—

—th e total loss from higher import costs can be estimated at $ 3,4 million/year;—

—th e total losses to domestic production associated with the disruption of import supplies from Yugoslavia is $ 20 million/year;—

—hi gher costs incurred in 1992 as a result of the need to use alternative transportation routes represented $ 1,7 million in 1992.Th

The net total losses to the Albanian economy can therefore be estimated at $ 82,6 million.

28. Bulgaria: the available data indicate that among the neighbouring countries of the former Yugoslavia, Bulgaria is the most affected by the sanctions, and the nations which implements them most stringently. The latest data on the losses sustained by Bulgaria are:

—to tal amount for 1992 — 942,6 million US dollars;—

—fo r the period from 1 January 1993 to 30 April 1993 — 810 million US dollars;—

—fo r the period after 1 May 1993, when United Nations Security Council Resolution 820 (1993) on stricter sanctions came into effect — 259,2 million US dollars per month.29

29. Some estimates prepared by the Bulgarian Government put the losses that the country's economy will suffer by the end of 1993 at $ 1,5 thousand million — a substantial sum when considering Bulgaria's modest wealth. This figure excludes indirect losses and foregone benefits, as well as losses suffered by the private sector.

30. In addition to these huge losses, Bulgaria found itself isolated from Europe commercially and from the transport point of view. United Nations Security Council Resolution 820 (1993) virtually suspended the trans-shipment of goods via Serbia and Montenegro, and brought about the near-complete isolation of the country from its traditional markets in central and western Europe. The virtual blockage of the Serb section of the Danube brought to a halt the commercial navigation on the river.

31. The trans-shipment of goods via Romania, across the Danube bridge and the ferry line "Vidin — Kalafat" is extremely hampered, suffering from heavy congestion. The resulting delays are ruinous for Bulgaria's fresh food exports. To mitigate the effects of higher costs and restricted market access, Bulgaria proposed a United Nations-controlled transport corridor via Serbia to be used by sealed trucks. This proposal was, however, rejected by the United States in early July 1993 as incompatible with Resolution 820.

32. Croatia: direct economic damages in the Republic of Croatia due to the embargo imposed on Serbia and Montenegro by the United Nations Security Council resolutions are estimated at US$ 700 million, while the long-term damages due to the loss of markets are inestimable. Economic damages for the Republic of Croatia are in major part a consequence of the fact that it is impossible to use transit routes across Serbia, as well as of the higher transportation costs towards the south European countries and the countries of the Near and Far East. Use of bypassing routes creates additional costs, which put the trade with those parts of the world into question. Due to the fact that it is impossible to use rail and highway routes across Serbia to Black Sea ports, steel and oil industries in particular are experiencing problems. Prior to the introduction of the sanctions these were using railway and the Danube river for transportation of raw materials.

33. However, the above-mentioned, additional damages which are being suffered by the Republic of Croatia due to the United Nations Security Council's embargo are negligible in comparison with the losses in human lives caused by the Serbian aggression (the estimates are 6 500 dead, 23 200 wounded and 13 800 missing persons), and material damages estimated at US$ 23 thousand million. The situation is aggravated by the fact that since the beginning of the aggression the Republic of Croatia has taken care of more than one million displaced people, and is currently taking care of 250 000 expelled persons from the occupied territories of the Republic of Croatia and 270 000 refugees, mainly from the Republic of Bosnia-Herzegovina.

34. Former Yugoslav Republic of Macedonia: with United Nations Security Council Resolutions 757 and 787, the economy and non-economic activities of the former Yugoslav Republic of Macedonia have suffered significant direct and indirect damages. It is considered that in 1992 these damages were about US$ 1,3 thousand million. The damages resulting from this were alleviated by the efforts of the economy to find alternative solutions (new markets, substitution products etc.), but they still amounted to US$ 1,1 thousand million.

35. The United Nations Security Council Resolution 820 against the Federal Republic of Yugoslavia (Serbia and Montenegro) has aggravated the problems even further. This is especially reflected in the further decrease of the social product, the diminution in imports and exports, the obstacles in the way of the already small amount of investment, the increase in unemployment, and an tangible decline in living standards exacerbating social tensions. On the basis of this, it is estimated that the damages to the Republic of Macedonia for 1993 will amount to approximately US$ 1,784 million, comprised as follows:

— total damages; US$ 1 784

—lo st revenue due to reduced production and marketingof

of products from industry and mining; 902 0

—in creased transportation costs due to necessary detours; 20 7 0—

—lo st revenue due to unfulfilled transportation services;22 2 0—

—lo st revenue due to unrealised trade;58 0—

—lo st revenue due to unrealised tourism; 35 0—

—lo st revenue due to unrealised production and marketingof

of agricultural products; 182 0

—in creased costs due to added social protection, pensions, me

medicines supply, compulsory leave, stoppage of production etc.; 113 0

—in direct damages65 036.

36. Hungary: it is estimated that Hungary has lost approximately $1 thousand million in economic activity owing to the embargo, comprised as follows:

—36 %: lost revenue due to unrealised trade, resulting primarily from the restrictions imposed on commercial navigation on the Danube;—

—20 %: supplementary transport costs;—

—12 %: lost revenues due to unfulfilled transportation services;—

—9% : lost revenues due to unmet contractual obligations at enterprise level.37

37. Romania: it is estimated that Romania has lost approximately $3 thousand million in economic activity owing to the embargo,contributing to an overall reduction in output of 50% in 1992.

38. At the committee's meeting on 22 November 1993 in Paris the Slovakian member forwarded the following information on the economic losses of Slovakia: The claimed losses in 1992 and 1993 amounted to US$ 288 million, mainly caused by contracts cancelled with companies in Serbia and Montenegro (38%) and by the cessation or delayed implementation of transport contracts (20%) in particular through the Danube.

F. Possible international action

39. Proceeding now to the examination of possible lines of action by the international community to alleviate the losses and special problems caused by the embargo, your Rapporteur would like to draw attention to a certain asymmetry between the imposition of sanctions and the furthering of compensation:

i. on the one hand sanctions are introduced as a matter of urgency, their observance is monitored closely, and any breaches are registered, harshly condemned and punished;

ii. on the other, compensations come up for consideration only some time later, and as a rule they are non-mandatory; the losses and any action to alleviate them are subject to far less stringent monitoring.

40. It is your Rapporteur's conviction that this discrepancy is in the first place detrimental to the effectiveness of the sanctions themselves, because the countries and especially the companies affected inevitably are faced with the need to devise alternative ways to overcome the consequences. In addition, this circumstance considerably delays any assistance to the economies of the countries bearing the brunt of the sanctions. This divergence is one of the serious issues which must be addressed in the course of present efforts to develop an effective system of preventive diplomacy in today's interdependent world.

41. It is encouraging to note that precisely in connection with the experience with sanctions against Serbia and Montenegro, the international community has started to address this problem anew. In connection with the United Nations Secretary General's initiative on "An Agenda for Peace", the General Assembly in September 1993 unanimously adopted a resolution in support of this initiative. Its Section IV deals with the special economic problems arising from the implementation of sanctions. (See Appendix III for the text of the Section cited.) After recalling that member states had already initiated consultations with the United Nations on their special problems resulting from sanctions against Iraq and the Federal Republic of Yugoslavia (Serbia and Montenegro), the resolution further invites the various United Nations components and member states:

i. to examine ways of implementing Article 50 of the United Nations Charter so that solutions to these problems are found;

ii. to consider measures, involving among other the international financial institutions, such as improving preliminary consultations, establishing voluntary funds, credit lines, export and investment assistance and technical assistance;

iii. to monitor the implementation of Article 50 of the Charter.

42. Several members of our committee expressed the point of view that considering the structure of the United Nations decision-making process, it is difficult to agree on compensation to most seriously affected third countries before deciding on sanctions, or before their extent has been ascertained. Still, the majority of the members supported the view that in future, wherever possible, there should be an agreement before sanctions are applied on the principles which should guide compensation to affected third countries.

43. Turning to the actual measures which could be taken, it might be useful to examine them in two broad categories:

i. urgent measures, aimed at alleviating the immediate economic constraints and losses suffered by the neighbouring countries, and

ii. trade and economic measures to help overcome the special economic problems and economic consequences in general.

Urgent measures

44. The ban on trans-shipment of goods has created the most severe immediate problems. A proposal has been addressed to the United Nations Committee on Sanctions for procedures to permit the transit passage of transports by rail, land and the Danube, which ensure full observance of the sanctions. These draft procedures have received technical approval by the Brussels headquarters of SAMCOMM and have been submitted for final clearance by the Committee on Sanctions in New York.

45. A final and speedy decision on this matter would immediately help overcome one of the most painful and loss-making consequences of the sanctions for the front-line countries. It would therefore be appropriate to make an urgent appeal on behalf of the Parliamentary Assembly of the Council of Europe to this effect.

46. Another measure that could have an immediate beneficial effect would be to speed up the procedures for approving permission for humanitarian deliveries to Serbia and Montenegro — permitted under the relevant United Nations resolutions — by suppliers from the neighbouring countries. At present the formalities related to such permission often take months to be completed, with only a fraction of the applications actually approved. In the past several months there has been a perceptible improvement in the situation, but there is still considerable room for raising efficiency further and for increasing the percentage of permits granted. In this regard also, an appeal by the Assembly would be most important.

47. Again having to do with the transportation barrier, several front-line countries have been developing projects for new bridges, highways and railways in west-east and north-south directions, aimed at developing alternative routes around the embargo territories. Potential donor countries and institutions have indicated willingness to consider the possibilities of granting advantageous financing of such projects on a priority basis.

48. It is therefore desirable that the practical work on co-ordinating efforts and arriving at concrete decisions as regards projects singled out for realisation can be speeded up as much as possible. Here too, the Assembly, in line not least with its role in the area of European transportation, could voice its support in favour of immediate action.

49. As an immediate consequence of the trans-shipment ban, exporters from the south-eastern frontier states have run into extreme difficulties in trying to maintain deliveries to traditional customers in Central and West European markets. The same type of problem has confronted suppliers from the central part of Europe to Middle Eastern markets.

50. The European Union — as well as individual west European countries outside the Community that maintain quantitative restrictions on certain "sensitive" products — could, in order to help offset the damage, consider redistributing unutilised shares of such quotas in favour of exporters from affected countries on a temporary basis.

51. Another possibility that could have immediate effect consists in so-called voluntary abstention from safeguard measures by developed countries against imports from affected neighbouring countries. This possibility concerns cases where trade legislation in developed markets might warrant safeguard action in the event of alleged or actual market disruption. It is suggested that when the exports in question originate in one of the countries neighbouring the Federal Republic of Yugoslavia (Serbia and Montenegro), the country claiming injury should refrain from actual imposition of safeguards pending consultations and possible amicable resolution of the conflict.

Compensatory measures

52. Together with the urgent assistance, the international community should examine and where possible undertake measures to alleviate the longer term economic consequences and special problems of the neighbouring countries.

53. The United Nations organs should facilitate the identification and implementation of such measures. To this end:

i. it would be most important for the General Assembly to speed up passage of a resolution on economic assistance to states affected by the implementation of the sanctions;

ii. such a resolution should appeal on an urgent basis to all states to provide immediate technical, financial and material assistance to the affected states;

iii. a procedure could be introduced for monitoring action taken to alleviate the problems of such states and for reports by the Secretary-General to the Security Council thereon;

iv. a decision could be taken requesting the competent organs and specialised agencies of the United Nations system to utilise in their operations, to the maximum possible extent, the goods and services available in the affected states;

v. and, last but not least, the United Nations system should closely examine and develop new mechanisms for consultations under Article 50 of the Charter and in particular for generating compensatory action for losses due to sanctions.

54. Of crucial importance is action for redeeming hampered market access and for facilitating such access in the framework of multilateral (as well as bilateral) agreements. To this end, for example, the European Communities could examine the possibilities:

i. to facilitate the utilisation of opportunities for access to Communities markets under the association agreements with those neighbouring countries that have concluded such agreements;

ii. to examine sympathetically existing import regimes to see whether a temporary change could help affected states get over the difficult transitional period they are experiencing;

iii. to speed up ratification of those association agreements which have still not been so ratified.

55. Of equal importance is the provision of material, technical and financial assistance for developing and constructing infrastructure projects to expand the network of land routes, railways, bridges and tunnels in the north-south and west-east directions in the area affected by the sanctions.

56. It is also appropriate that the Group of 24 donor countries give special attention to the specific problems of the neighbouring countries due to the sanctions. The G-24 have been examining the ways and means of increasing the efficiency of financial assistance being extended to the various economies in transition. As regards the affected countries from the sanctions, the G-24 could consider measures along the following lines:

i. developing a procedure for monitoring and objectively assessing the economic losses being sustained by the neighbouring countries;

ii. adjusting the various programmes of assistance to these countries accordingly;

iii. to examine in particular the possibilities for providing access for such countries to their facilities for grant aid and official development assistance.

57. It is generally shared that the international financial institutions have a particular role to play in the development and implementation of measures to compensate losses from the sanctions. The IMF and the World Bank have been approached by the Secretary-General of the United Nations with a request for examination of such measures and for the possible implementation. As a result of the work undertaken within these institutions it would seem that it is possible to contemplate action in the following areas:

i. to take into consideration the special problems and economic losses due to the sanctions when preparing and concluding agreements for stabilisation and restructuring of the economies of the respective countries;

ii. to provide additional access to resources available under the various arrangements and facilities provided by the Fund and the Bank;

iii. to look into the feasibility of evolving a special facility for sanctions relief which could inter alia assist affected countries in servicing their external debts.

58. It would also seem appropriate that the regional development financial institutions, the EBRD, the EIB, as well as activities within the PHARE programme and the Social Development Fund of the Council of Europe consider similar lines of action. The possible action identified should be co-ordinated with other multilateral and bilateral activity within the modalities of the Group of 24 mechanisms for providing assistance to economies in transition.

59. At its meeting on 22 November 1993 in Paris, the Committee on Economic Affairs and Development decided to ask the Parliamentary Assembly for a mandate in order to monitor international action for compensating neighbouring countries affected by the sanctions.

G. Concluding remarks

60. Your Rapporteur wishes to stress the urgency of the matter. The embargo against Serbia and Montenegro has dealt a severe blow to the transition economies of the region, compounding that caused by the loss of the former Soviet market. Moreover, the economic losses are not confined to the short-term. The disappearance of markets and the disruption of transportation and communication links will have far-reaching consequences also in the future.

61. While an impressive machinery has been established to monitor and enforce the sanctions, the international community is less than prepared to consider the question of compensation for the countries affected. However, the imposition of sanctions is not a "no-cost" measure, neither to directly or indirectly affected countries, nor to the world economy. In addition, there is a risk of erosion of the authority of the United Nations, and of international trust, if sanctions are circumvented.

62. Your Rapporteur is convinced, however, that it will be necessary to review and strengthen the United Nations mechanism for compensation, and to seek new ways of implementing Article 50 of the United Nations Charter. Feasible solutions are needed to deal with this problem. Still, a whole range of international compensatory measures are already available for consideration, such as:

i. improved or temporarily privileged market access and trade conditions for the most affected countries;

ii. international assistance to reorient transport routes away from embargoed areas;

iii. official development assistance, grant aid;

iv. assistance through international lending institutions (funds for rapid disbursement, access to financial resources on more favourable terms);

v. the economic impact of the embargo could also be taken into account in future work of the EBRD or the European Union's PHARE programme.

APPENDIX I

Countries affected by United Nations sanctions against the former Yugoslav Republics (Serbia and Montenegro)

Members Special Claim Economies

Council of guest before in transition

Europe United Nations

I. Neighbouring

countries

A. States mainly

affected

Albania X X

Bulgaria X X X

FYR Macedonia X X

Hungary X X

Romania X X X

B. Other NCs

Austria X

Croatia X X

Greece X

Slovakia X X X

Slovenia X X

Ukraine X X X

II. Other

countries

Uganda X

APPENDIX II

Excerpts from the United Nations Charter

CHAPTER VII

Action with respect to threats to the peace, breaches of the peace,

and actions of aggression

.....

Article 39

The Security Council shall determine the existence of any threat to the peace, breach of the peace, or act of aggression and shall make recommendations, or decide what measures shall be taken in accordance with Articles 41 and 42, to maintain or restore international peace and security.

.....

Article 41

The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.

.....

Article 50

If preventive or enforcement measures against any state are taken by the Security Council, any other state, whether a member of the United Nations or not, which finds itself confronted with special economic problems arising from the carrying out of those measures shall have the right to consult the Security Council with regard to a solution of those problems.

APPENDIX III

Chapter IV of Resolution 47/120 adopted by the

United Nations General Assembly

Special economic problems arising from the implementation

of preventive or enforcement measures

Recalling Article 50 of the Charter of the United Nations, which entitles states that find themselves confronted with special economic problems arising from the carrying out of preventive or enforcement measures taken by the Security Council against any other state, to consult the Council with regard to a solution to those problems;

Recalling also the recommendation of the Secretary-General in his report entitled "An Agenda for Peace" that the Security Council devise a set of measures involving the financial institutions and other components of the United Nations system that can be put in place to insulate states from such difficulties and his view that such measures would be a matter of equity and a means of encouraging states to co-operate with decisions of the Council;

Recalling further the statement made on 30 December 1992 by the President of the Security Council,3 in which the Council expressed its determination to consider this matter further and invited the Secretary-General to consult with the heads of international financial institutions, other components of the United Nations system and member states of the United Nations, and to report to the Council as early as possible;

Recalling its Resolution 47/120A entitled "An Agenda for Peace: preventive diplomacy and related matters", in which it decided to continue early in 1993 its examination of other recommendations contained in the report of the Secretary-General entitled "An Agenda for Peace", including implementation of the provisions of Article 50 of the Charter, in conformity with the Charter and taking into account the relevant developments and practices in the competent organs of the United Nations;

Stressing the importance of economic and other measures not involving the use of armed forces in maintaining international peace and security, in accordance with Article 41 of the Charter;

Recalling Article 49 of the Charter, which requires the members of the United Nations to join in affording mutual assistance in carrying out the measures decided upon by the Security Council;

Noting that the implementation of Article 50 of the Charter has been addressed recently in several forums, including the General Assembly and its subsidiary organs and the Security Council;

Recognising that, in the conditions of economic interdependence that exist today, the implementation of preventive or enforcement measures under Chapter VII of the Charter against any state continues to create special economic problems for certain other states;

Recalling that member states have engaged previously in consultations with bodies established by the Security Council regarding special economic problems confronted by them as a result of the implementation of preventive or enforcement measures against Iraq and the Federal Republic of Yugoslavia (Serbia and Montenegro);

Concerned that certain states continue to be confronted with adverse economic problems owing to the implementation of preventive and enforcement measures under Chapter VII of the Charter;

Recognising the need for appropriate means to find solutions to these problems as soon as possible,

1. Decides to continue its examination of ways to implement Article 50 of the Charter of the United Nations, with a view to finding solutions to the special economic problems of other member states when preventive or enforcement measures are decided upon by the Security Council against a state;

2. Invites the Security Council to consider what could be done within the United Nations system and involving international financial institutions with regard to solutions to the special economic problems of states arising from the carrying out of the measures imposed by the Council and to consider, inter alia, the following measures:

a. Strengthening of the consultative process for studying, reporting on and suggesting solutions to the special economic problems, with a view to minimising such economic problems through consultations with states adversely affected or, as appropriate, with states likely to be adversely affected as a result of their implementing the preventive or enforcement measures, as well as with the Secretary-General, the principal organs, programmes and agencies of the United Nations, and international financial institutions;

b. Other measures, in consultation with member states and, as appropriate, with international financial institutions, such as voluntary funds to provide assistance to states experiencing special economic problems arising from carrying out the measures imposed by the Security Council, additional credit lines, assistance for the promotion of exports of the affected countries, assistance for technical co-operation projects in such countries and/or assistance for the promotion of investment in the affected countries;

3. Also invites the committees of the Security Council and other bodies entrusted with the task of monitoring the implementation of preventive and enforcement measures to take into account, in discharging their mandates, the need to avoid unnecessary adverse consequences for other member states, without prejudice to the effectiveness of such measures;

4. Requests the Secretary-General to report annually to the General Assembly on the implementation of Article 50 of the Charter.

APPENDIX IV

Letter addressed by the Clerk of the Parliamentary Assembly

to the permanent representatives of the neighbouring member states

and the chairmen of the special guest delegations of the neighbouring countries affected by the sanctions

Strasbourg, 8 September 1993

Dear Ambassador,

In its Resolution 1004 (1993) on the United Nations embargo against Serbia and Montenegro, the Parliamentary Assembly expressed concern over the economic problems confronting, in particular, certain countries neighbouring Serbia and Montenegro as a result of the implementation of United Nations Security Council Resolutions 757 (1992), 787 (1992) and 820 (1993). The motion for a resolution presented by Mr Panov and others (Doc. 6832) recognised the urgent need to assist these countries in coping with their special economic problems arising from the implementation of the United Nations sanctions against Serbia and Montenegro.

At its meeting in Paris on 2 September 1993, the Committee on Economic Affairs and Development held an exchange of views on this question on the basis of a report outline prepared by the Rapporteur, Mr Pirinskí (Bulgaria). Please find a copy of this document appended. Following the discussion the committee expressed the wish to obtain detailed information on the economic consequences of the sanctions in the countries neighbouring Serbia and Montenegro with a view to preparing a report in the fullest knowledge possible.

Accordingly, I would be most grateful if your permanent representation could supply the Rapporteur, through the committee's secretariat (Mr Kjell Torbiörn or Mr Geza Mezei) with a short memorandum (in English or French), setting out the economic losses your country has suffered as a result of the implementation of the embargo. The Rapporteur would be most grateful if the document could reach the Secretariat before 15 October.

Should further information be required, Mr Torbiörn or Mr Mezei would be glad to help (direct lines 88 41 21 20 and 88 41 20 87).

Yours sincerely,

Heiner Klebes

Reporting committee: Committee on Economic Affairs and Development.

Budgetary implications for the Assembly: none.

Reference to committee: Doc. 6832 and Reference No. 1867 of 5 June 1993.

Draft resolution unanimously adopted by the committee on 22 November 1993.

Members of the committee: Mr Holtz (Chairman), Dame Peggy Fenner, Mr Lotz (Vice-Chairmen), MM. Becker, Gudmundur Bjarnason, Bloetzer, Bonnici, Borderas, Brach, Brunhart, Mrs Burbiené, MM. Colombo, Davis, Demiralp, Mrs Durrieu, MM. Efraimoglou, Fabra (Alternate: Mrs Guirado), Figel, Flückiger, Goerens, Gregory, Hellström, Kempinaire, Kiliç, Kittelmann, Kolar, Albrecht Konecny, Koritzinsky, Le Grand, Lewandowski (Alternate: Wielowieyski), Mändmets, Mesoraca (Alternate: Covi), Novak, Paire, Pinto, Pirinskí, Rehn (Alternate: Toivonen), Rodrigues, Rokofyllos, Mrs Saint Cyr, Mr Schwimmer, Mrs von Teichman, MM. Thoft, Toplak, Townend (Alternate: Lord Kirkhill), Valleix, Mrs Verspaget, Mr Wintgens, N. ... (Alternate: Dees).

N.B. The names of those members present at the meeting are printed in italics.

Secretaries to the committee: MM. Torbiörn and Mezei.

1 ¹See Appendix II.

2 ¹See Appendix IV.

3 ¹S/25036.