Statement of Daniel S. Hamilton

Special Coordinator for Implementation of the Stability Pact for Southeastern Europe

Associate Director, Policy Planning Staff

U.S. Department of State

March 8, 2000

House Committee on International Relations

Mr. Chairman, I wish to thank you and the committee for the opportunity to testify on U.S. efforts to stabilize Southeastern Europe. I will complement the presentations by Ambassadors Pardew and Napper by focusing on our cooperation with our European partners through the Stability Pact for Southeastern Europe, which we believe is important to our efforts to bring lasting peace and prosperity to the region.

Ensuring long-term stability in Europe as a whole means doing for Southeastern Europe after the conflicts in the former Yugoslavia what we helped to do for Western Europe after World War II and for Central Europe after the Cold War: work with our allies and partners to build multiethnic democracies, uphold common standards of human rights, open borders to trade and investment, give people reason to hope for a better life, and create a spirit of common security that can make war unthinkable. And because of our earlier successes, we do not have to do this alone. The European Union, our other partners in Europe and elsewhere, the international financial institutions, other international organizations, and the private sector can and should carry the largest share of this effort.

The transformation of the region is not likely to be either quick or easy, as anyone familiar with the Balkans will testify. It will be a multi-year, multi-institutional process. It will require resources and sustained engagement. But the alternative is continued tragedy and conflict that threatens the successful investment generations of Americans and Europeans have made to the peaceful resolution of the Cold War and to a stable European continent.

This is the background to the creation of the Stability Pact for Southeastern Europe, which was adopted by Secretary Albright and her fellow Ministers last June and launched last July in Sarajevo by President Clinton and other world leaders. Initiated by the European Union with firm U.S. support, and placed under the auspices of the Organization for Security and Cooperation in Europe (OSCE), the Stability Pact aims to strengthen democracy and respect for human rights, economic development and security in Southeastern Europe and give the people of this region a real perspective for integration into the European and transatlantic mainstream.

The guiding principle behind the Stability Pact is a bargain between integration and reform: the international community will work to stabilize, transform and integrate the countries of this region into the European and transatlantic mainstream; they, in turn, will work individually and together to create the political, economic and security conditions by which this can be possible.

This bargain is already having an impact on countries in the region. For example, for close to ten years Bulgaria and Romania have been unable to agree on a second Danube bridge, creating a 500 km detour for road traffic. Through the good offices of Stability Pact Coordinator Hombach and EU Enlargement Commissioner Verheugen, the two countries have now agreed both on the location and on the funding for such a bridge. This will make a positive difference in the economies of the two countries and close a key gap in a main European transport corridor.

The Stability Pact is not designed to create new bureaucracies or to duplicate efforts. Rather, it is designed to bring synergy to the many different efforts already under way and project them toward the common goal of stabilizing and transforming the region and facilitating its integration into the European and transatlantic mainstream. Our goal is to mobilize the energies and resources of the European Union, other major donors such as Switzerland, Japan, Norway and Canada, as well as the international financial institutions, other international organizations, NGOs and the private sector to attract capital, raise living standards, reconcile ethnic and religious tensions, promote the rule of law, and motivate political will for reform in southeastern Europe. Russia is also supportive and engaged, and we seek to draw on key "lessons learned" from such successful young democracies as Poland, Hungary, the Czech Republic and Slovakia.

Taken together, such efforts have the potential to create the kinds of perspectives, cooperative working habits, and concrete successes that can transform the region, act as a magnet for the people of Serbia, and help us deal with the aftermath of Milosevic's brutality.

In the months since the Sarajevo Summit we have made a respectable start on this bargain. Stability Pact nations have agreed to an Anti-Corruption Initiative and Action Plan that commits each country in the region to specific efforts to fight corruption and provides for a international monitoring process to accompany such efforts. Similarly, Stability Pact nations have agreed to a region-wide Investment Compact and accompanying Action Plan committing each country in the region to specific steps that can create a climate conducive to private enterprise. Country Economic Teams, composed of the key economic decision-makers in each host government in the region and economic experts from the key donor countries and international financial institutions, are beginning to meet regularly to advance these commitments country by country.

In the end it will be trade and investment, and not assistance, that will do the most to catalyze economic development, reform and growth. A Business Advisory Council has been created, composed of leading business executives from U.S., west European and southeast European companies. It also includes representation from the

Transatlantic Business Dialogue (TABD). This Council will provide direct private sector advice to economic decision-makers in each country on what is needed to attract investment. Macedonia is also chairing a Working Group of countries throughout the region who have pledged to identify and eliminate barriers to trade both in the region and with the European Union, the United States and other countries.

The countries of the region have also all agreed to control and destroy illicit stocks of small arms and light weapons. Together with other Europeans, we will provide expertise to the countries of the region to help them implement their commitment. Together, the countries of the region have underscored their commitment to implement WMD conventions and have called on the Federal Republic of Yugoslavia to accede to the Chemical Weapons Convention. Together, the countries of the region have agreed to align their arms export procedures to international standards and to track such exports through a common end-user certificate.

Cooperative efforts are under way under the Stability Pact to promote free and independent media. Historians and education experts throughout the region have agreed to joint efforts to examine the teaching of history, including through joint textbook commissions and examination of texts with a view to eliminating bias and prejudice.

Our efforts through the Stability Pact also send a straightforward message to the Serbian people. There is a better future. A democratic Serbia can be part of it, but the Milosevic regime continues to prevent Serbia from taking its rightful place among the European family of nations. We and our EU partners have intensified our cooperation with the Yugoslav opposition. Representatives of Montenegro and the Serbian opposition participate in Stability Pact efforts as special guests of Stability Pact Coordinator Bodo Hombach. Contacts with Serb opposition mayors have been intensified through the so-called "Szeged process" launched by Hungary under the Stability Pact.

Through the Southeast European Cooperative Initiative (SECI) the countries of the region are working with us and other European partners on a long-term plan to upgrade customs facilities, improve border access and fight cross-border crime and corruption. SECI’s efforts have laid the practical foundation for broader Stability Pact cooperation in these and other areas. In a recently signed Memorandum of Understanding with the World Bank, the countries of the region have made a commitment to concrete steps to combat corruption, create more favorable conditions for commerce as part of a $68 million World Bank loan package to improve customs and border facilities. The SECI initiated regional Anti-Crime Center in Bucharest will serve as a locus for active cooperation among regional law enforcement officials against organized crime and corruption. It should be open for business on June 1. Romania is hosting a Regional Anti-corruption conference in Bucharest at the end of this month that builds on the Global Anti-Corruption Initiative launched by Vice President Gore last year.

Through SECI, the countries of the region have also come together to propose joint projects to the Stability Pact in transport infrastructure, energy, and the environment. The international financial institutions have been reviewing these projects.

President Clinton and Secretary Albright have been very clear about our expectation that our European partners, the international financial institutions, and the private sector provide the lion's share of the financial resources required for recovery in the region, and that the European Union accelerate its efforts to associate and incorporate Europe's young democracies into the Union.

Our EU partners have been taking some important steps in this regard. We congratulate the EU on its decision in December to invite Romania and Bulgaria to join Hungary and Slovenia, among others, in accession negotiations; its offer to include Turkey as a membership candidate; and its announcement that as of 2003 it would be able to take in further new members. For the non-accession candidates in the western Balkans the EU is also developing a new type of contractual relationship, termed

"Stabilization and Association Agreements," which provide for a closer association with the Union and a perspective of eventual integration. We encourage the EU to accelerate these efforts.

We also applaud the European Commission's intention to devote 11.5 billion Euros to the region over the next seven years. Individual EU member state contributions should raise that figure substantially. Non-EU members such as Switzerland, Norway, Canada and Japan are also preparing new financial commitments as part of the Stability Pact effort. The key will be timely disbursements of such pledges.

Moreover, the World Bank, the European Investment Bank (EIB), and the European Bank for Reconstruction and Development (EBRD) have each outlined new regional strategies fully supportive of the Stability Pact. EBRD representatives have specific examples of private investment flowing to the region because of the Stability Pact. They are extending the range of their products available to the private sector. The EBRD projects a 15-20% growth in annual commitments to the region in 2000 and 2001 by the EBRD and the International Finance Corporation, which would raise their total annual commitments to the region to $650 million. The World Bank and the EIB are also preparing new financial commitments to the countries of the region.

The countries of the region are getting ready to deliver on their commitments to reform by concrete implementation in such key areas as fighting corruption, improving the investment climate, reducing trade barriers, strengthening democracy and respect for human rights, and protecting a free and independent media. And our partners in the international community must be prepared to turn pledges into on-the-ground realities to help make a visible and real improvement in people's lives.

We plan to advance both of these aspects at a Regional Conference, co-hosted by the European Commission and the World Bank, which is scheduled to be held in Brussels on March 29 and 30. The Regional Conference should advance a number of specific goals. First, the countries of the region will report on reforms they have undertaken since Sarajevo and outline their reform plans over the coming year. Second, the Conference should launch a "Quick Start" package of priority projects promoting economic infrastructure development, internal and external security, and democracy and human rights. It should also outline a next tier of "First Priority" projects -- initiatives we deem viable and for which we will identify funding during the course of this year. For the more ambitious "Medium Term" projects being advanced, such as work on the major European Transport Corridors, the Conference should outline a transparent process for further preparatory work. Let me underscore once again our expectation that these projects must be funded primarily by other donors, the international financial institutions and the private sector.

Mr. Chairman, it is appropriate that the EU and the international financial institutions contribute the lion's share to this overall effort. But the U.S. must do its part. We have expanded the work of the Overseas Private Investment Corporation (OPIC) with $350 million in credit lines and investment funds that can attract new business to the region. We are working with the multilateral financial institutions to mobilize other private and public financing to promote business investment in Southeastern Europe.

New trade legislation that we have proposed to Congress, entitled the Southeast Europe Trade Preferences Act, will give regional businesses greater duty-free access to the U.S. market for five years and encourage our EU partners to further open their market to southeastern Europe. Commerce Secretary Daley took our approach to stimulating U.S. trade and investment directly to the region when he headed a delegation of more than 100 U.S. companies to host the October 31-November 2 Conference on Commercial Opportunities and Partnerships in Sofia, Bulgaria. That conference accomplished three goals: it provided U.S. companies with the most current information about business opportunities in the region, identified economic reforms needed in Southeast Europe and ways to improve the region's business environment, and arranged more than 250 matchmaking meetings between 76 American and 62 regional companies.

Our broader commitment to the region also includes separate NATO/EAPC initiatives agreed to at the Washington NATO Summit, and our continuing cooperation through the Southeast Europe Defense Ministers (SEDM) process, both of which are strengthening regional security cooperation.

We are actively encouraging countries in the region to take the steps necessary to integrate into the global economic system, including the WTO. We view the disciplines imposed by the WTO accession process and the various WTO agreements as important factors contributing to the stabilization and eventual growth of the economies of the region. The United States and Hungary are hosting a regional conference on southeastern Europe and the WTO in Budapest on April 5 and 6. This conference will provide current and prospective WTO members an opportunity to exchange views on how to benefit fully from WTO membership and to discuss current WTO issues in the context of economic reform.

Mr. Chairman, we've made a good start on the Stability Pact. But much remains to be done in the months ahead to give life to the initial promise. We fully expect our EU colleagues to translate their commitments into concrete projects that can make a difference in people's lives. And we fully expect our partners in the region to deliver on their commitments to key reforms. Fortunately, we are starting from a strong base of democratic leadership. Hungary has joined NATO and together with Slovenia is well along in accession negotiations with the EU. Bulgaria and Romania have also initiated EU accession negotiations and together with Macedonia, Albania, and the people of Montenegro have demonstrated that they want their societies to grow, prosper, and live in peace. Croatia's vote for democratic change provides further reason for hope.

Our European partners, in turn, rely on the continuing commitment of the United States. There are no easy, gimmicky solutions. Resources, energy, and sustained engagement will be required to prevent this region from becoming hostage to the ghosts of its own history and setting it on track to be a fully integrated part of our transatlantic community.

Mr. Chairman, successful crisis prevention is successful cost prevention. The Stability Pact is a large-scale experiment in mobilizing the energies and commitments of the international community and the countries of southeastern Europe to transform a war-torn region into a stable, peaceful, democratic and increasingly prosperous part of the European and transatlantic mainstream. A year ago, this policy consensus was unimaginable. A year from now, the opportunity could be lost -- unless we and our partners make good on the Stability Pact bargain. The investments we make now promise to be far cheaper than the alternative of continued instability and war. We hope to be able to count on the Committee’s support for our efforts.

Thank you Mr. Chairman.

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Cleared by: S/SA: JF Dobbins OK

EUR: J Swigert OK

EUR/EEA: L Napper OK

EUR/SCE: T Countryman OK

EUR/KI: JK Menzies OK

EUR/BI: D Dlouhy OK

EUR/NCE: JB Rabens OK

EUR/SP: DS Hamilton OK

S/RPP: AC Richard OK

H: JJ Hamilton OK

S/P: JC O'Brien OK

INL/PC: BM Darby OK

P: GR Doty OK

OMB: R Kyle OK

NSC: MSapiro OK