Socially Owned Enterprises in Kosovo: post conflict considerations.
UNMIK was established by the UN Security Council on 10 June 1999, the day after the North Atlantic Treaty Organization (NATO) suspended air strikes in its eleven-week campaign against Yugoslav and Serbian armed forces. In Resolution 1244 (1999), the Security Council obliged and authorized UNMIK to promote, “the establishment . . . of substantial autonomy and self-government in Kosovo, perform “basic civilian administrative functions where and as long as required” and maintain “civil law and order”. The Security Council declared: “All legislative and executive authority with respect to Kosovo, including the administration of the judiciary, is vested in UNMIK and is exercised by the Special Representative of the Secretary-General.”
UNMIK promulgated a number of Regulations and Administrative Directions in order to regulate legal relationships in various fields. The Kosovo Trust Agency was set up with a specific mandate. Regulation 2002/12 as amended by Regulation 2005/48 on the Reorganization and Liquidation of Enterprises and their assets (under the administration of the KTA) entered into force on November 21, 2005. The KTA has management authority over socially-owned enterprises and the Regulation provides the mechanism through which Socially Owned enterprises can be privatized. The main emphasis of KTA activity was indeed the privatization of the Socially-Owned enterprises which existed in Kosovo in 1999.
The Special Chamber of the Supreme Court of Kosovo has its subject-matter jurisdiction laid out in UNMIK Regulation 2002/13 as amended by UNMIK Regulation 2008/4, in Section 4, inter alia granting the Chamber jurisdiction over Claims against the Agency and against Socially Owned Enterprises.
In June 2008 the OSCE Mission in Kosovo published a studied report on the activities of the Special Chamber. Occasional references to that report will be made and it will be referred to as “the OSCE report”.
It is important at this stage to understand what we are speaking about when we mention Socially Owned Enterprises (SOEs). There are various theories about how these socially owned enterprises came into being, but they were regulated by various laws applicable to them in Serbia prior to 1999. These laws are not codified and not indexed. When assets are transferred to the subsidiary of an SOE, the shares in that subsidiary are sold by tender and that constitutes the principal privatization process. The Rules governing such transfer are found in the KTA’s Rules of Tender for the Spin-Off privatization.
I will not go into detail about how the notion of private ownership of land came into being in the western world. Very briefly hunters/gatherers were nomadic, moving from place to place. In most societies of the world, as was true in classic western thought, property typically meant personal property – clothing, personal belongings, a horse. Then man moved to agriculture. Land was typically owned by society in common, or perhaps belonged to God or nature. We need to start with the definition of the notion of immovable property, private or otherwise and we need to go back quite a long way. As far back as 4000 BCE there is evidence of fences and ditches in the UK and in Germany, the notion of fencing off property that belonged to a community or to a tribe or to a family.
Then came the Romans and the Teutons, the Teutonic tribe in what we now call Germany. Here in the time of the Romans we can identify two different notions of property. The Greeks and the Romans of the Republic were essentially nations of citizens; the citizen was important and the nation was there to help the citizen. The Teutons held that property was to be enjoyed in common and there was an absence of private ownership, except to a limited extent. One must start by looking at how the meaning of the word property has changed over the course of centuries. Roman law made some effort to allot land titles to private individuals and families. For the Romans ownership (dominium) is an absolute right. Roman law made some effort to allot land titles to private individuals. Roman law concepts have remained in use down to our times, laying down rules in great detail on property rights in easements, usufruct, and lease among much else.
In the Middle Ages land titles began their long transformation from what has been termed “leasehold” to “freehold.” Against the will of the King and his Council, noblemen seized the land for themselves, marking it into defined units, fencing it off in their names only, even when they had no use for it. In central Europe noblemen built castles to defend their land, the beautiful castles we find in Germany , Austria and Italy . At the same time there are areas which are common to all and areas which are “owned” by one person, family or group. Later still came various movements dictated by necessity and by philosophical beliefs. What started as a right to use developed into a right to sell and make money and to speculate. This is a relatively recent development.
The notion of private ownership of property is today an accepted notion. So the highest concept of private possession is today found in my view in the protection that is afforded to private property and to private possessions in the various instruments and conventions of human rights and in particular for our purposes here in Kosovo, as we shall see later, of the ECHR in Article 1 Protocol 1.
Let us now come to Kosovo. The history of Kosovo cannot be divided, for our purposes, from the history of the old Yugoslavia . The principles of ownership in old Yugoslavia are based on the old Roman law categories. Ownership of land depends on the type of property, natural or juridical, public or private. Properties are regulated according to their nature, civil or commercial, movable or immovable. Ownership is divided as the Romans divided it, the jus utendi, the right to use, the jus fruendi, the right to enjoy its benefits and the jus disponendi, the right to alienate, to transfer. As far as public property was concerned, in the old Yugoslavia, the system functioned in a simple way. Typically a parcel of land that was in the possession of a Municipality was considered to be every citizen’s indivisible property.
As I have mentioned elsewhere, under Tito the situation did not change, as it did in other countries under communist regimes at the time. Property was not considered as belonging to the State. But a new concept was introduced. It was the concept of “social property” which was introduced in the early 1950s. Why was it introduced? Tito refused to let Yugoslavia become a satellite of the Soviet Union after World War 11 and the Yugoslav Communist party was excluded from the Communist group, the Kominform.
But the economy of the country was stagnant and things were not good economically. Tito’s advisors started elaborating the notion of social property, a collective form of ownership which is not state-property.
The main feature of socially-owned property is that it is owned by the broader social community, by all the citizens, and it never ceases to be owned by the broader social community. This concept of social community started by being a unique group comprising every citizen of the former Yugoslavia. .
Some authors say that this system is not far removed from the principle of family ownership found in the kanun, the old legal system established under the Ottoman empire which still exists in some mountainous parts of Kosovo and Serbia.
A social property is every citizen’s indivisible property, it belongs to the broad social community. Therefore what is important is not ownership but use, it is the user of social property that enjoys its benefits, almost as an owner.
If we look at the philosophy behind it we can see that it is a rejection of the Soviet theory and a return to the Marxist orthodox theory of “factories to the workers”. Not the state, but the citizens.
How can we distinguish social property from private ownership? It is different because it does not have the right to full alienation. I can sell you my rights of use subject to certain conditions.
Once the notion of social property was introduced, it was necessary to take privately owned property and convert it to social property. How was social property created? To create social property, land and buildings had to be taken in some way from the private ownership. Five different legal institutions were created to take away property from private ownership. Expropriation, colonization and confiscation were the main three.
• Land was expropriated against payment of a compensation. Frequently the compensation was not paid. You have a decision by a Municipality to expropriate land for public purposes, but the Municipality had no funds.
• Land was confiscated from people who were declared enemies of the people by a criminal procedure.
• Under colonization rules, land in excess of 20 hectares was forfeited to the state.
The right to inherit property was also restricted so that more private property was to be taken from the private inheritor and passed into social-ownership. Typically the land taken over from private property was given to the Municipalities which in turn gave it over to cooperatives and to socially owned enterprises. Through these means a large amount of land became socially-owned. There was massive expropriation during the Civil war.
Let us now look at the way in which this social property was regulated by law. Various instruments regulate socially-owned property. The fundamental principle is the notion of the right to use, not the right to own.
The Serbian Law on Registration of Real Properties in Social Ownership in 1971 states in Article 1
“ Real property in social ownership shall be registered in the public registry which registers the right to use such property…”
An important instrument is the Law on the transfer of immovable property promulgated in 1981. The first provision:
“ The transfer of farmland, building land, forests and forest regions, buildings , apartments, business premises, undivided parts of immovable property and other immovable property shall be governed by this law.”
Is there anything left?
“ In terms of this law, the transfer of immovable property shall mean:
1. the transfer of socially-owned immovable property from one socially-owned legal entity to another, the purchase of immovable property to be included into socially-owned property from citizens, citizen associations and other citizen legal entities, the alienation of immovable property from socially owned property the exchange of socially owned immovable property and the disposal of socially owned immovable property on other grounds and
2. the transfer of property title among citizens, citizen associations and other citizen legal entities and the acquiring of property title in relation to socially owned immovable property.”
The law then says that a transfer or exchange of socially-owned property can only be carried out with specific formalities.
Socially-owned property can only be transferred in writing, the signatures of the parties have to be authenticated by the Court. You will ask, and what if I had private property coming from the past, before this idea of social property came into effect. The law gives you the answer in Section 3.
“The transfer of immovable property in relation to which there is property title is free unless otherwise provided by law”
They had to solve the problem of buildings built by private individuals on socially-owned land. So the law says that the transfer of a building implies the transfer of the underlying land . Then the law continues;
“ By the transfer of property title to a building situated on socially-owned land the new owner shall be entitled, as long as the building exists, to use the land on which such building is situated and the land required for its regular use.”
Similarly “ By the alienation of a building from socially-owned property, the holder of property title shall be entitled to use the land…”
s I said before there are limits to how much one can inherit. A person inheriting land beyond what is stipulated by law is obliged to sell the extra portion within three years or convert it into “living space” in other words to habitable apartments, otherwise “ such immovable property shall become socially-owned and the owner shall be entitled to compensation according to expropriation regulations. He must also report to the municipal authority within 30 days of the inheritance becoming valid that he has inherited such property and he must choose which part of the property he is retaining, otherwise it will be the municipality which decides for him.
Farmland and building land, forests or forest regions cannot be alienated from socially-owned property, unless otherwise provided for by law. It can only be transferred between socially-owned legal entities. Organizations of associated labour can only transfer from socially-owned property not more than three hectares of farmland, provided the money is used to purchase other farmland within one year.
There is also a protection for the transfer of the use of other socially-owned immovable property. If the agreed price is in obvious disproportion to the market value of such property the contract may be cancelled.
These are only examples and the law goes into great detail to show that socially –owned legal entities are restricted in the way in which they can transfer assets.
So socially-owned land can only be subject to the right to use and not to ownership. In fact in the Assembly of Kosovo law of 2002 (2002/5) regarding the registration of rights over immovable property the registration about socially-owned property only refers to the right to use.
So that is the legal regime relating to socially-owned property. What is the position today? In 1999 Security Council Resolution 1244 established the UNMIK provisional administration. Of Kosovo, whereby UNMIK took over the administration of the province. UNMIK has taken a positive role in administration. To give just one example UNMIK Reg 2000/27 set up the administrative Department of Agriculture, forestry and rural development with full responsibility to manage these resources. Among the functions of this Department we find that the Department shall be responsible to formulate and implement a land use policy aimed at protecting agricultural land, including the criteria for re-allotting public land and modifying land use without confiscation.
The Regulations made it clear that laws which did not comply with human rights accepted standards were not to be applicable in Kosovo and in 1999 two laws which related to immovable property were repealed. One of them was the way in which certain farm land was to be allocated to citizens.
During the Civil war massive nationalization took place, mostly not in line with the applicable laws. There are a large number of cases pending before the Courts where there is an allegation that private property was illegally taken from an owner and there is a request for restitution. Countries which previously formed part of the former Yugoslavia have put laws in place to enable restitution of property to take place. If the property was illegally expropriated, there is a mechanism for restitution. Kosovo does not have such a law. This is a problem which needs to be addressed.
Over 500 business enterprises in Kosovo have been identified as potentially being Socially Owned Enterprises (“SOEs”). These Business Enterprises operate in all sectors of the economy including:
• Commercial real estate
• Mining and mineral processing
• Agriculture and food processing
• Construction and building materials
• Metal processing
• Wineries and vineyards
• Retail and wholesale trade
These strange animals are in line, conceptually, with the notion of socially-owned property. There are no private shareholders or owners as we understand the concept in Western countries. Socially owned enterprises are vehicles of social property. But they are different from social property like land. The user is identified, either as an individual or as a group. They have the right to possess, to keep the revenues and to dispose under certain conditions.(the old three Roman rights) utendi, fruendi, disponendi.
Socially-Owned enterprises were created by the Law on Enterprises and the Law on Associated Labour of Yugoslavia. Since the NATO intervention first UNMIK, then in 2002, the Kosovo Trust Agency has the authority to administer all socially-owned enterprises that were registered in Kosovo as at the 31 st December 1988 or any subsequent date. The Agency has the mandate to privatize such enterprises in terms of a specific procedure. It can also liquidate such enterprises and reorganize them prior to privatizing them. In fact it has commenced a reorganization in arguably the largest umbrella of SOEs , the Trepca mining complex.
The law on Enterprises dedicates 173 articles to deal with socially-owned companies and 4 articles for private companies. It states that the business of a socially-owned Company is managed by the workers. The workers have a strong sense of ownership of the socially-owned enterprises. In cases which we deal with in the chamber the employees of an enterprise will speak of their long years of service with pride and they cannot understand a particular Regulation passed by UNMIK which gives the entitlement to specific benefits to employees who have worked for a relatively short time at the enterprise.
SOEs and socially-owned property interact in two ways. You either had an SOE created to develop socially-owned land or you created an SOE and then expropriated land to give to that SOE. The same law has the following interesting definitions”
SOEs can be established by other SOEs, self-management interest groups, local communities and other social legal entities, and the social political community- if performing certain economic activity is an indispensable condition of life and the work of the citizens and work of companies and other organizations and communities in certain fields or if it is indispensable for the work of bodies of that social-political community.”
Here we do not have the self-interest of the shareholders of a Company as we know it in other countries. The aim is economic but it has to satisfy social conditions as well. In fact it was common for the workers of an enterprise to be given the use of apartments built by the enterprise, hence they thought of themselves as having a social function.
“A socially-owned Company can raise funds from citizens”
“Citizens can invest items, money and material rights into an SOE.
“ For the funds that an SOE raised from the citizens the citizens shall be entitled to a return of the value of those funds and compensation for the use in the form of interest rate or other advantages, in accordance with the contract.
“ Citizens shall share the joint risk and are entitled to the return of the value of those funds and remuneration for their use dependent upon the results of the business transactions of the SOE.
The decision on the manner and conditions of raising, that is investing the funds of the citizens shall be adopted by the workers’ council. “
These provisions give you an idea as to the legal regulation of these enterprises. To come to the factual situation. A large number of these enterprises could not function through the ten years of turmoil between 1990 and 1999. Around 1992 special laws, laws which we call interim measure laws were promulgated by Belgrade to apply to specific SOEs or to sectors. These laws applied to Kosovo. Typically the management was changed to reflect a strong Serbian presence in the work force. The managers became Serbian, Albanian employees were dismissed for the flimsiest reasons.
Some socially owned enterprises were transformed into the so-called joint stock companies, where a number of shares were bought by the new Serbian employees and the rest of the shares were taken up by Serbian banks, or by Serbian entities like the Belgrade pensioners association.
Work was scare during the period. A lot of SOE s closed down. Some Soes which has warehouses or factories, rented the factory space to individuals and the workers were given a small part of the rent.
When UNMIK and then the KTA took over the situation of most SOEs was disastrous. What is the effect of the legal regulation of Kosovo since 1999 on the notion of property? Since 1999 no socially-owned enterprises can be registered in Kosovo. UNMIK Regulation 1999/24 sets out the law which is applicable in Kosovo as from the 10 th June 1999. Very briefly
1.1 The law applicable in Kosovo shall be:
(a) (a) The regulations promulgated by the Special Representative of the Secretary-General and subsidiary instruments issued thereunder; and
(b) The law in force in Kosovo on 22 March 1989.
In case of a conflict, the regulations and subsidiary instruments issued thereunder shall take precedence.
1.2 If a court of competent jurisdiction or a body or person required to implement a provision of the law determines that a subject matter or situation is not covered by the laws set out in section 1.1 of the present regulation but is covered by another law in force in Kosovo after 22 March 1989 which is not discriminatory and which complies with section 1.3 of the present regulation, the court, body or person shall, as an exception, apply that law.
1.3 In exercising their functions, all persons undertaking public duties or holding public office in Kosovo shall observe internationally recognized human rights standards, as reflected in particular in:
(a) The Universal Declaration on Human Rights of 10 December 1948;
(b) The European Convention for the Protection of Human Rights and Fundamental Freedoms of 4 November 1950 and the Protocols thereto;
(c) The International Covenant on Civil and Political Rights of 16 December 1966 and the Protocols thereto; ……………
Clearly therefore the principles of these international instruments take precedence over other laws applicable in Kosovo and the protection of the human rights instruments is supreme.The ECHR protects the right to peaceful enjoyment of possessions .
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
When it comes to the privatization of Socially-Owned Enterprises, the law specifically obliges the Kosovo Trust Agency and the Special Chamber to observe these principles. This is not the time and the place to discuss some issues that have arisen from the interpretation of these provisions. The Special Chamber has faced problems, for instance, when the KTA privatizes an enterprise whose assets may include some private property. But in my considered view, the position of Kosovo in this regard has been placed on par with other countries which apply the European Convention directly.
Today the notion of social ownership, in property and in enterprises has therefore no further place. A new privatization law has been promulgated by the Kosovo Government. It creates a successor agency for the KTA, known as the Privatization Agency for Kosovo.
More about that in another article.