Author: Dragan Gajin, Senior Associate
Ever since Serbia's Stabilisation and Association Agreement with the EU ('SAA') entered into force in September 2013, Serbian media have paid significant attention to the country's obligations concerning the acquisition of agricultural land by foreigners. The fear of one part of the public appears to be that, due to the application of the SAA, large portions of Serbian agricultural land will be sold out to foreigners.
Here, we will take a look at what obligations precisely Serbia accepted under the SAA and what would happen if Serbia failed to act in accordance with these obligations.
Law on Agricultural Land: No Sale of Agricultural Land to Foreigners (sort of)
The existing Serbian legislation is explicit: a foreign natural or legal person cannot own agricultural land in Serbia. This is expressly stated in the Law on Agricultural Land (adopted in 2006, last amended in 2015).
Despite such uncompromising wording, there is an important practical exception to this rule: foreign individuals or companies can own agricultural land indirectly, through locally registered companies. This means that foreign nationals (natural and legal persons alike) can have access to Serbian agricultural land even now, based on local incorporation.
What Did Serbia Accept in the SAA?
The regime of sale of Serbian agricultural land to EU nationals is governed by Article 63 of the SAA, which pertains not only to agricultural land, but to the acquisition of real estate in general:
"3. As from the entry into force of this Agreement, Serbia shall authorise, by making full and expedient use of its existing procedures, the acquisition of real estate in Serbia by nationals of Member States of the European Union. Within four years from the entry into force of this Agreement, Serbia shall progressively adjust its legislation concerning the acquisition of real estate in its territory by nationals of the Member States of the European Union to ensure the same treatment as compared to its own nationals."
Based on this provision, Serbia has two obligations, arising in different moments:
Moment in time
Serbia to authorise, by making full and expedient use of its existing procedures, the acquisition of real estate in Serbia by EU nationals
From the entry into force of the SAA (i.e. from 1 September 2013)
Serbia to progressively adjust its legislation concerning the acquisition of real estate on its territory by EU nationals to ensure the same treatment as compared to its own nationals
Within four years from the entry into force of the SAA (i.e. until 1 September 2017)
The first obligation is more general in nature, in that it only obligates Serbia to authorise the acquisition of real estate by EU nationals, without specifying the scope of such authorisation.
The second obligation is more concrete: Serbia agreed that, by 1 September 2017, it will adjust its legislation so as to enable EU nationals to acquire real estate in Serbia under the same conditions as Serbian nationals. This includes adjusting the legislation governing the sale of agricultural land, which, as noted, currently expressly provides that foreign nationals cannot own such land at all.
How Did the Neighbours Do it?
Apart from Serbia, other West Balkan countries have also signed stabilisation and association agreements with the EU, some of them already completing the EU accession process (Croatia). For this reason, it is interesting to have a glance at how some of Serbia's neighbors negotiated their respective stabilisation and association agreements related to the regime of acquisition of agricultural land:
Obligations applicable to agricultural land
Bosnia and Herzegovina
To authorise, by making full and expedient use of its existing procedures, the acquisition of real estate in the country by EU nationals
From the entry into force of the country’s SAA
To progressively adjust its legislation concerning the acquisition of real estate on its territory by EU nationals to ensure the same treatment as compared to its own nationals
Within six years from the entry into force of the country’s SAA
By way of a special annex, the application of the country’s SAA to the regime of the acquisition of agricultural land by EU nationals was expressly excluded
Not expressly regulated in the country’s SAA
To grant national treatment to EU nationals acquiring real estate on its territory
From the entry into force of the country’s SAA
The obligations accepted by Serbia are somewhere in between Montenegro's outright giving of the national treatment to EU nationals and Croatia's exclusion of the application of the SAA to the acquisition of agricultural land. Actually, what Serbia negotiated is most similar to the obligations accepted by Bosnia and Herzegovina, the difference being that the deadline available to Bosnia and Herzegovina to adjust its legislation is two years longer than the one at Serbia's disposal.
What if Serbia Failed to Adjust its Legislation within the Deadline from the SAA?
If until 1 September 2017 Serbia would not afford EU nationals a national treatment concerning the acquisition of agricultural land, it would be in breach of the SAA. This, however, would not mean that following this date EU nationals would be automatically authorized to purchase Serbian land – Serbia's obligation in the SAA concerns an adjustment of its legislation and is not a substantive rule.
So, what would the consequences of Serbia's breach of the SAA be?
First of all, Serbia's failure to abide by the SAA would certainly not help its bid to join the EU and the ongoing EU accession process.
Furthermore, the SAA itself provides for a mechanism of dispute resolution in case a party to the agreement considers that the other party breached its obligations. There are two such mechanisms: the consultation process within the Stabilization and Association Council ('SAC' – a body established under the SAA and consisting of representatives of EU and Serbia) and the dispute settlement (arbitration) procedure regulated by a special protocol to the SAA.
Serbia's failure to adjust its legislation by the prescribed deadline would be dealt with in the consultation process before the SAC. In order to initiate this procedure, the EU would need to notify Serbia and the SAC that the matter in dispute will be resolved. In this formal request, the EU could also indicate the measures which it may adopt due to the perceived breach.
On the other hand, Serbia's failure to abide by the more general obligation concerning the regime of acquisition of real estate (to authorise through its existing procedures the acquisition of real estate by EU nationals) would be governed by the arbitration procedure established by the relevant protocol of the SAA. This is a more formal procedure than the consultation process within the SAC. At the end of such arbitration procedure, the arbitration panel issues a ruling on the dispute.
Finally, each party to the SAA may suspend the agreement if the other party does not comply with an essential element of the agreement. It is not clear whether the part of the SAA governing the regime of acquisition of real estate would qualify as such an essential element.
Even though Serbia's failure to allow EU nationals to acquire Serbian agricultural land on the same terms as Serbian nationals would not have an immediate impact in the Serbian legal system, such non-compliance may be the subject of various procedures under the SAA. Serbia now has almost a year to avoid this and adjust its legislation. In this process, it may look at examples from the EU on how the acquisition of agricultural land can be conditioned, but still be in line with the EU rules – which is an interesting topic in its own right.