Ever since Serbia’s Stabilisation andAssociation Agreement with the EU (‘SAA’) entered into force in September 2013, Serbian media have paidsignificant attention to the country’s obligations concerning the acquisitionof agricultural land by foreigners. The fear of one part of the public appearsto be that, due to the application of the SAA, large portions of Serbianagricultural land will be sold out to foreigners.

Here, we will take a look at what obligationsprecisely Serbia accepted under the SAA and what would happen if Serbia failedto act in accordance with these obligations.

Law on Agricultural Land: no sale ofagricultural land to foreigners (sort of)

The existing Serbian legislation is explicit: aforeign natural or legal person cannot own agricultural land in Serbia. This isexpressly stated in the Law on Agricultural Land (adopted in 2006, last amendedin 2015).

Despite such uncompromising wording, there isan important practical exception to this rule: foreign individuals or companiescan own agricultural land indirectly, through locally registered companies.This means that foreign nationals (natural and legal persons alike) can haveaccess to Serbian agricultural land even now, based on local incorporation.

What did Serbia accept in the SAA?

The regime of sale of Serbian agricultural landto EU nationals is governed by Article 63 of the SAA, which pertains not onlyto agricultural land, but to the acquisition of real estate in general:

“3. As from the entry into forceof this Agreement, Serbia shall authorise, by making full and expedient use ofits existing procedures, the acquisition of real estate in Serbia by nationalsof Member States of the European Union. Within four years from the entry intoforce of this Agreement, Serbia shall progressively adjust its legislationconcerning the acquisition of real estate in its territory by nationals of theMember States of the European Union to ensure the same treatment as compared toits own nationals.”

Based on this provision, Serbia has twoobligations, arising in different moments:

The first obligation is more general in nature,in that it only obligates Serbia to authorise the acquisition of real estate byEU nationals, without specifying the scope of such authorisation.

The second obligation is more concrete: Serbiaagreed that, by 1 September 2017, it will adjust its legislation so as toenable EU nationals to acquire real estate in Serbia under the same conditionsas Serbian nationals. This includes adjusting the legislation governing thesale of agricultural land, which, as noted, currently expressly provides thatforeign nationals cannot own such land at all.

How did the neighbors do it?

Apart from Serbia, other West Balkan countrieshave also signed stabilisation and association agreements with the EU, some ofthem already completing the EU accession process (Croatia). For this reason, itis interesting to have a glance at how some of Serbia’s neighbors negotiatedtheir respective stabilisation and association agreements related to the regimeof acquisition of agricultural land:

The obligations accepted by Serbia aresomewhere in between Montenegro’s outright giving of the national treatment toEU nationals and Croatia’s exclusion of the application of the SAA to the acquisitionof agricultural land. Actually, what Serbia negotiated is most similar to theobligations accepted by Bosnia and Herzegovina, the difference being that thedeadline available to Bosnia and Herzegovina to adjust its legislation is twoyears longer than the one at Serbia’s disposal.

What if Serbia failed to adjust its legislationwithin the deadline from the SAA?

If until 1 September 2017 Serbia would notafford EU nationals a national treatment concerning the acquisition ofagricultural land, it would be in breach of the SAA. This, however, would notmean that following this date EU nationals would be automatically authorized topurchase Serbian land – Serbia’s obligation in the SAA concerns an adjustmentof its legislation and is not a substantive rule.

So, what would the consequences of Serbia’sbreach of the SAA be?

First of all, Serbia’s failure to abide by theSAA would certainly not help its bid to join the EU and the ongoing EUaccession process.

Furthermore, the SAA itself provides for amechanism of dispute resolution in case a party to the agreement considers thatthe other party breached its obligations. There are two such mechanisms: theconsultation process within the Stabilization and Association Council (‘SAC’ – abody established under the SAA and consisting of representatives of EU andSerbia) and the dispute settlement (arbitration) procedure regulated by aspecial protocol to the SAA.

Serbia’s failure to adjust its legislation bythe prescribed deadline would be dealt with in the consultation process beforethe SAC. In order to initiate this procedure, the EU would need to notifySerbia and the SAC that the matter in dispute will be resolved. In this formalrequest, the EU could also indicate the measures which it may adopt due to theperceived breach.

On the other hand, Serbia’s failure to abide bythe more general obligation concerning the regime of acquisition of real estate(to authorise through its existing procedures the acquisition of real estate byEU nationals) would be governed by the arbitration procedure established by therelevant protocol of the SAA. This is a more formal procedure than theconsultation 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 theagreement if the other party does not comply with an essential element of theagreement. It is not clear whether the part of the SAA governing the regime ofacquisition of real estate would qualify as such an essential element.

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Even though Serbia’s failure to allow EU nationals to acquire Serbian agriculturalland on the same terms as Serbian nationals would not have an immediate impactin the Serbian legal system, such non-compliance may be the subject of variousprocedures under the SAA. Serbia now has almost a year to avoid this and adjustits legislation. In this process, it may look at examples from the EU on howthe acquisition of agricultural land can be conditioned, but still be in linewith the EU rules – which is an interesting topic in its own right.