Order Code RS22601
Updated February 26, 2008
Serbia: Current Issues and U.S. Policy
Steven Woehrel
Specialist in European Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Serbia faces an important crossroads in its development. It is seeking to integrate
into the European Union, but its progress has been hindered by a failure to arrest four
remaining indicted war criminals. Serbia has sought closer ties to NATO, but the
government is divided on whether to seek eventual NATO membership. The United
States recognized the independence of Serbia’s Kosovo province on February 18, 2008.
Britain, France, Germany, Italy and most other EU countries have also recognized
Kosovo or are planning to do so in the near future. Serbian leaders sharply condemned
the move and have withdrawn Serbia’s ambassadors from the United States and other
countries recognizing Kosovo’s independence. The second session of the 110th
Congress may consider legislation on Serbia, including conditions on aid to Serbia. This
report provides information on Serbia’s political and economic situation, its relations
with NATO and the European Union, as well as U.S. policy toward Serbia. It will be
updated as needed.
Background
In October 2000, a coalition of democratic parties defeated Serbian strongman
Slobodan Milosevic in presidential elections, overturning a regime that had plunged the
country into bloody conflicts in the region, economic decline, and international isolation
in the 1990s. The country’s new rulers embarked on a transition toward Western
democratic and free market standards, but success has been uneven. Serbia has held
largely free and fair elections, according to international observers. A new constitution
adopted in 2006 marked an improvement over the earlier, Socialist-era one, but has some
shortcomings, especially concerning the independence of the judiciary. Serbian
governments have undertaken economic reforms and the country has experienced rapid
economic growth in recent years, but living standards remain poor for many. Organized
crime and corruption remain very serious problems.
Serbia has set integration in the European Union as its key foreign policy goal, but
its progress has been slowed by a failure to arrest remaining key indicted war criminals.
Serbia’s EU integration efforts as well as its ties with NATO have been negatively

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affected by the decision by the United States and most EU countries on February 18, 2008
to recognize the independence of Serbia’s Kosovo province.1
Current Political and Economic Situation
Elections. On January 21, 2007, Serbia held parliamentary elections, the third
since the collapse of the Milosevic regime in 2000. The ultranationalist Serbian Radical
Party, which has been hostile to U.S. and EU policy goals in the region, received 81 seats
in the 250-seat parliament. The pro-Western Democratic Party (DS) of President Boris
Tadic won 64 seats. A coalition led by the nationalist Democratic Party of Serbia (DSS)
won 47 seats. The pro-free market, pro-Western G17 Plus party won 19 seats. The
Socialist Party of Serbia, once headed by Milosevic, won 16 seats. A new pro-Western
grouping, led by the Liberal Democratic Party, won 15 seats. The eight remaining seats
went to parties representing Hungarian, Muslim, ethnic Albanian, and Roma minorities.2
On May 15, 2007, just minutes before a deadline that would have triggered new elections,
the Serbian parliament approved a new government headed by DSS leader Vojislav
Kostunica. A majority of the ministries in the government went to the Democratic Party,
while others went to the DSS and G17.
Serbia held presidential elections on January 20, 2008. Incumbent Boris Tadic of
the DS faced Tomislav Nikolic from the Radicals, as well as several candidates from
smaller parties. Nikolic won 39.99% of the vote. Tadic came in second with 35.39%.
The other candidates trailed far behind. As no candidate received a majority, a runoff
election was held between Tadic and Nikolic on February 3. Tadic won re-election by a
narrow majority of 50.6% to 47.7%. Analysts say Tadic was helped by a heavy turnout
among pro-Western voters who feared that a Nikolic victory could lead to international
isolation for Serbia. Tadic won despite the fact that a Kostunica ally ran against him in
the first round of the vote, and that Kostunica refused to endorse Tadic in the runoff.
Kostunica charged that Tadic had been insufficiently supportive of his efforts to combat
international recognition of Kosovo’s independence. The government could collapse
over the Kosovo issue, provoking new elections in which the Radicals would likely do
well.
Serbia’s Economy. Since 2001, Serbian governments have embarked on
comprehensive economic reforms. The government estimated that it would run a slight
consolidated budget surplus in 2007. The IMF has called on Serbia to restrain public
sector spending. Serbia’s finance minister vowed to slash government spending in the
2008 budget. This may be especially important as Serbia’s privatization effort is nearing
its final stages, and a key source of revenue will dry up. Over 2,000 state-owned firms
have been sold off since 2001, with about 1,000 left to go. The government hopes to
finish Serbia’s privatization process by 2010. Foreign direct investment (FDI) has been
substantial. Serbia took in $4.4 billion in net FDI in 2006, in large part due to the
proceeds from privatizations. Net FDI for January-October 2007 was $1.3 billion. In
1 Serbia was linked with Montenegro in a common state until Montenegro gained its
independence in June 2006. For more on Serbia’s development from the fall of Milosevic until
Montenegro’s independence, see CRS Report RL30371, Serbia and Montenegro: Background
and U.S. Policy, by Steven Woehrel.
2 Republic of Serbia Electoral Commission website, [http://www.rik.parlament.sr.gov.yu/].

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January 2008, the Russian oil monopoly Gazprom reached an agreement with Serbia to
buy NIS, the Serbian national oil company. Gazprom’s effort may have been helped by
Moscow’s opposition to Kosovo’s independence. The deal includes a plan to route a
branch of Gazprom’s proposed South Stream natural gas pipeline through Serbia.
Serbia has experienced rapid economic growth in recent years. Gross Domestic
Product rose by 8% in the first half of 2007, on a year-on-year basis. Real wages are
rising rapidly, 22.1% from January-October 2007, on a year-on-year basis. The increase
has been in part due to raises given to government workers and those working in state-
owned companies. Consumer price inflation has been increasing, reaching 8.8% in
September 2007, on a year-on-year basis. Unemployment is dropping, but remains very
high, at over 20% of the workforce. Poverty also remains a problem. The World Bank
has estimated that over 10% of the population of Serbia is impoverished, and another third
is close to poverty.3
Relations with the European Union and NATO
Since the defeat of the Milosevic regime in 2000, Serbia’s main foreign policy goal
has been integration into Euro-Atlantic institutions. Serbia is particularly interested in
joining the European Union. As a first step, the European Union has offered Serbia a
Stabilization and Association Agreement (SAA). The agreement would provide a
framework for enhanced cooperation between the EU and Serbia in a variety of fields,
including help in harmonizing local laws with EU standards, with the perspective of EU
membership. However, EU officials made clear to Serbian leaders that a closer
relationship with the EU, including an SAA, requires Serbian cooperation with the
International Criminal Tribunal for the former Yugoslavia (ICTY).4 The political
situation in Serbia may continue to stymie cooperation with the ICTY. The Radicals and
the Socialists are opposed to any cooperation with the Tribunal, and, while nominally
supportive, the enthusiasm of Kostunica and the DSS is open to doubt.

However, the Kosovo issue is proving to be an even greater impediment to closer
Serbian relations with the EU. On November 7, 2007, the EU Commission initialed an
SAA with Serbia. The majority of EU countries wanted to sign the SAA with Serbia
before the second round of Serbia’s presidential election on February 3, 2008, in hopes
of helping Tadic win reelection. However, the Dutch government blocked the move,
insisting that Mladic must be delivered to the ICTY first. As a compromise, on January
28, the EU instead offered Serbia a special agreement that would deal with such issues
as political dialogue, visa liberalization, free trade, and education cooperation. The
accord was intended to be signed on February 7, but Prime Minister Kostunica rejected
the agreement, saying that it was a “deception” aimed at getting Serbia to tacitly accept
Kosovo’s independence. Kostunica’s action increased tensions within the governing
coalition, as the DS is strongly in favor of the accord.
On February 18, 2008, Britain, France, Italy, Germany, and many other European
Union countries recognized Kosovo’s independence or announced plans to do so. EU
3 Economist Intelligence Unit Country Report: Serbia, January 2008.
4 For more information, see CRS Report RS22097, Balkan Cooperation on War Crimes Issues,
by Julie Kim.

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officials say they expect at least 17 of the 27 EU member states to recognize Kosovo
soon. However, some EU countries, including Greece, Cyprus, Slovakia, Romania, and
Spain have declined to recognize Kosovo’s independence. These countries are either
traditional allies of Serbia, or have minority populations for whom they fear Kosovo
independence could set an unfortunate precedent, or both. Serbia has vowed to recall its
ambassadors from any country recognizing Kosovo. Serbia’s relations with the EU will
likely suffer for some time to come as a result of the Kosovo issue.
NATO. The Serbian government has favored close ties with NATO. In December
2006, Serbia joined NATO’s Partnership for Peace (PFP) program. PFP is aimed at
helping countries come closer to NATO standards and at promoting their cooperation with
NATO. PFP membership is a prerequisite if a country wishes to join NATO in the future.
Serbia’s participation in the program had been delayed by the country’s failure to deliver
Ratko Mladic to the Tribunal, but NATO members decided to invite Serbia anyway at the
November 2006 NATO summit, perhaps in hopes of helping democratic parties in
Serbia’s January 2007 parliamentary election.
Parties in the government have differing views on whether Serbia should seek NATO
membership. President Boris Tadic and his Democratic Party and are in favor of joining
NATO. The Democratic Party controls the foreign and defense ministries in the Serbian
government, and supports defense reforms. However, Serbia still must make further
progress in reforming its military, as well as its intelligence and security agencies, to be
a viable candidate for future NATO membership. On the other hand, rising tensions over
Kosovo have led DSS leaders to sharply criticize NATO, perhaps in part in hopes of
currying favor with Moscow, its main ally on the issue. The DSS favors participation in
PFP, but not NATO membership for Serbia. Due in part to memories of NATO’s 1999
bombing of Serbia, public opinion polls have shown that less than one-third of the
Serbian public favor NATO membership. The recognition of Kosovo’s independence by
the United States and other leading NATO countries may cause an even greater number
of Serbs to turn against NATO membership and close NATO ties for their country,
particularly if casualties result from confrontations between NATO-led peacekeepers and
Serbs in Kosovo.
Some observers have raised the possibility that Serbia could turn away from Euro-
Atlantic integration and form closer ties with Russia, including perhaps the stationing of
Russian troops in Serbia. They point to the purchase of the Serbian oil company NIS by
the Russian government-controlled Gazprom as perhaps a move in this direction. The
opposition Radical Party and Socialist Party have come out in favor of an alliance with
Russia. The government continues to support European integration, although the DS
appears much more determined in this respect than the DSS, which has stressed the
importance of Moscow’s support on the Kosovo issue.
U.S. Policy
Serbia has played a key role in U.S. policy toward the Balkans since the collapse of
the former Yugoslavia in 1991. U.S. officials came to see the Milosevic regime as a key
factor behind the wars in the region in the 1990s, and pushed successfully for U.N.
economic sanctions against Serbia. On the other hand, the United States drew Milosevic
into the negotiations that ended the war in Bosnia in 1995. The United States bombed
Serbia in 1999 to force Belgrade to relinquish control of Kosovo, where Serbian forces had

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committed atrocities while attempting to suppress a revolt by ethnic Albanian guerrillas.
U.S. officials hailed the success of Serbian democrats in defeating the Milosevic regime
in elections in 2000 and early 2001. The United States has seen a democratic and
prosperous Serbia, at peace with its neighbors and integrated into Euro-Atlantic
institutions, as an important part of its key policy goal of a Europe “whole, free and at
peace.”
The United States provides significant aid to Serbia. For FY2008, the Administration
requested $51.3 million in aid in SEED funding for political and economic reforms, $1.65
million in NADR non-proliferation, antiterrorism, and demining funds, and $0.3 million
in IMET military training funds assistance. For FY2009, the Administration is requesting
$46.27 million in SEED funding, $1.5 million in FMF military assistance funds, and $1
million in IMET aid. U.S. SEED aid is aimed at strengthening democratic institutions and
civil society, including by supporting the development of effective local governments. It
also is being used to help Serbia strengthen its free market economy by providing advice
on fiscal reform, fighting financial crime, and promoting a better investment climate.
Other U.S. aid is targeted at strengthening Serbia’s export and border controls, including
against the spread of weapons of mass destruction. The signing of a Status of Forces
Agreement with Serbia in September 2006 permits greater bilateral military cooperation
between the two countries, including increased U.S. security assistance for Serbia as well
as joint military exercises and other military-to-military contacts.
In 2003, the Administration certified that Serbia and Montenegro was eligible for
Normal Trade Relations (NTR) with the United States. The country’s NTR status had been
suspended in 1992, in response to its role in the war in Bosnia, according to the terms of
P.L. 102-420 (106 Stat. 2149). Administration officials said the move was made in
response to the improved situation in Serbia, especially in defense reform and cutting links
between the Serbian and Bosnian Serb armed forces. In June 2005, the Administration
announced that it had granted duty-free treatment to some products from Serbia and
Montenegro under the Generalized System of Preferences (GSP).
However, there remain difficult issues in U.S.-Serbian relations. One is Serbia’s
failure to fully cooperate with the ICTY. Since FY2001, Congress has conditioned part
of U.S. aid to Serbia after a certain date of the year on a presidential certification that
Serbia has met several conditions, the most important being that it is cooperating with the
ICTY. The certification process typically affects only a modest portion of the amount
allocated for any given year, due to the fact that the deadline for compliance is set for a
date in the spring of the fiscal year, and that humanitarian and democratization aid are
exempted. Four ICTY indictees, all of them Serbs, remain at large, the most important of
whom are Mladic and former Bosnian Serb leader Radovan Karadzic.5
The most serious cloud over U.S.-Serbian relations is the problem of Kosovo. The
United States recognized Kosovo’s independence on February 18, 2008. Serbia
condemned the move and withdrew Belgrade’s ambassador to the United States. The
deterioration of U.S.-Serbian relations may last for some time, as Serbian leaders see the
United States as the leading force in pushing for international recognition of Kosovo’s
5 For more information see CRS Report RS21686, Conditions on U.S. Aid to Serbia, by Steven
Woehrel.

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independence. Nevertheless, the United States has continued to express support for close
ties with Serbia, despite the differences the two countries have on Kosovo.6 Differences
over Kosovo may also lead to the reduction or cessation of Serbian cooperation with the
ICTY.
On the evening of February 21, 2008, Serbian rioters broke into the US Embassy in
Belgrade and set part of it on fire. The riot, in which other Western embassies were
targeted and shops were looted, took place after a peaceful government-sponsored rally
against Kosovo’s independence. The embassy was empty at the time. Observers at the
scene noted that Serbian police were nowhere where to be found when the incident began,
despite the fact that the embassy had already been boarded up as a result of less serious
incidents earlier in the week. Riot police arrived about a half-hour later and battled the
rioters, dispersing them at the cost of injuries on both sides. One suspected rioter was later
found dead in the embassy.
U.S. officials expressed outrage at the attack and warned Serbian leaders that the
United States would hold them personally responsible for any further violence against U.S.
facilities. Non-essential personnel and families of U.S. diplomats have been evacuated
from Serbia in response to the incident. President Tadic condemned the attack and vowed
to investigate why the police had allowed the incident to occur. Although Prime Minister
Kostunica also criticized the violence in general terms, observers note that the DSS
controls the Serbian police. Slobodan Samardzic, Serbia’s minister for Kosovo and a
former Kostunica aide, blamed the United States for the violence, saying that it was the
result of the U.S. recognition of Kosovo.
Congressional Role
The 110th Congress has considered legislation on Serbia. On January 17, 2007, the
Senate passed S.Res. 31 by unanimous consent. It expressed support for democratic forces
in Serbia and strong U.S.-Serbian relations. It called on the United States to assist Serbian
efforts to join the EU and NATO. Division J of the Consolidated Appropriations Act of
2008 (P.L. 110-161) includes FY2008 foreign aid appropriations. Section 699D permits
U.S. aid to Serbia after May 31, 2008 if Serbia meets certain conditions, most importantly,
cooperation with the ICTY. Legislation on Kosovo was introduced in the first session of
the 110th Congress. Representative Tom Lantos introduced H.Res. 36 on January 5, 2007,
which calls on the United States to express its support for Kosovo’s independence. On
March 29, 2007, Senator Lieberman introduced S.Res. 135, which calls for U.S.
recognition of Kosovo’s independence, with or without a U.N. Security Council
resolution. An identical House resolution, H.Res. 309, was introduced on April 17. On
May 24, 2007, Representative Bean introduced H.Res. 445, which expresses the sense of
the House that the United States should reject an imposed solution on Kosovo’s status and
not take any unilateral steps to recognize Kosovo’s independence. The second session of
the 110th Congress may also consider legislation on Kosovo, as well as on conditions on
aid to Serbia.
6 For a text of the U.S. announcement on recognition of Kosovo’s independence, see the State
Department website, [http://www.state.gov/secretary/rm/2008/02/100973.htm]. For more on
Kosovo, see CRS Report RL31053, Kosovo and U.S. Policy, by Julie Kim and Steven Woehrel,
and CRS Report RS21721, Kosovo’s Future Status and U.S. Policy, by Steven Woehrel.

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