# EUR-Lex - 52012DC0600 - EN

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# 52012DC0600

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2012-2013 /* COM/2012/0600 final */**

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COMMUNICATION FROM THE COMMISSION TO
THE EUROPEAN PARLIAMENT AND THE COUNCIL

Enlargement Strategy and Main Challenges
2012-2013

1.
Introduction

The enlargement policy of the EU has been
pursued for more than four decades. Successive accessions have seen the number
of members gradually increase from the original six to 27. Croatia is due to
become the 28th member on 1 July 2013. Through its enlargement
policy, the EU has, since its inception, responded to the legitimate aspiration
of the peoples of our continent to be united in a common European endeavour. It
has brought nations and cultures together, enriching and injecting the EU with
diversity and dynamism. More than three quarters of the EU Member States are
former ‘enlargement’ countries.

At a time when the EU faces major
challenges and significant global uncertainty and gains new momentum for
economic, financial and political integration, enlargement policy continues to
contribute to peace, security and prosperity on our continent. Within a
framework of strict but fair conditionality, the prospect of accession drives
political and economic reforms, transforming societies and creating new
opportunities for citizens and business. At the same time, enlargement
reinforces the Union’s political and economic strengths. By exercising
leadership through its enlargement policy, the EU can reap the benefits of a
stronger and more united continent, also demonstrating its continued capacity
as a global actor.

The most recent enlargement to include the
countries of Central and Eastern Europe not only united East and West after
decades of artificial separation. It provided mutual benefits of deeper trade
integration, a larger internal market, economies of scale and expanded
investment and job opportunities. From the start of negotiations to actual
accession, exports from the EU to the acceding countries more than tripled. It
is estimated that one third of the already high growth of the acceding
countries in the same period was due to the effect of enlargement.

Strengthening the rule of law and
democratic governance is central to the enlargement process. The lessons learnt
from previous enlargements highlight the importance of an increased focus on
these areas and further improving the quality of the process. This underpins
and further promotes stability in a region recently scarred by conflict and
supports the creation of an environment in south-east Europe conducive to
growth and attracting investment, increased regional cooperation and dealing
with common challenges such as the fight against organised crime and
corruption. It addresses issues of direct concern to citizens in both the EU
and the enlargement countries of justice, security and fundamental rights. With
the Council’s endorsement in June of the Commission’s proposed new approach to
judiciary and fundamental rights and justice, freedom and security as part of
the negotiating framework for Montenegro, the rule of law is firmly anchored at
the heart of the accession process, laying the foundation also for future negotiations.

The present difficulties in the Eurozone
have dominated the EU political agenda over the past year. Together with the
recent global financial crisis this has highlighted the interdependence of
national economies both within and beyond the EU. The challenges facing the
Eurozone underline the importance of further consolidating economic and
financial stability and fostering reforms and growth, also in the enlargement
countries. The enhanced economic, financial and political integration resulting
from this within the EU will also have to be taken into account in the
enlargement process. Strengthening the enlargement countries’ resilience to
crisis is a matter of joint interest. The enlargement process is a powerful
tool to that end. A stronger, enlarged EU will be better placed to address
these challenges. The dynamism of the Turkish economy for example, Turkey’s
geopolitical role, its contribution to energy security and its young population
represent an opportunity for both Turkey and the EU in a context of an
accession perspective.

Addressing risks of instability in the
Western Balkans is manifestly in our joint interest, given the legacy of war
and division which has plagued this region. The enlargement process supports
the advocates of reform in the region, further entrenching its post-war
democratic transition. It helps avoid the potentially far higher costs of
dealing with the consequences of instability. Strengthening stability and
democracy in south-east Europe is also an investment in deep and sustainable
democracy in the EU’s wider neighbourhood. The renewed consensus on
enlargement, agreed by the European Council, remains the basis for the EU’s
enlargement policy. This policy is based on the principles of consolidation of
commitments, fair and rigorous conditionality and good communication with the
public, combined with the EU’s capacity to integrate new members. The current
enlargement agenda covers the Western Balkans, Turkey and Iceland. The EU has
consistently proclaimed the inclusiveness of its policy towards the Western
Balkans, with successive European Councils confirming that the future of the
whole region lies within the EU. The Stabilisation and Association process
remains the common framework for the necessary preparations.

Maintaining the credibility of the
enlargement process is crucial to its success. This applies in terms of
ensuring far reaching reforms are pursued in enlargement countries so that they
meet the established criteria, in particular the Copenhagen criteria. It also
applies in terms of ensuring the support of Member states and their citizens.
It is essential to foster understanding and informed debate on the impact of
enlargement policy, particularly at a time when the EU faces major challenges.
In this context the principle of own merits is key. The pace at which each
country advances towards membership depends on its performance in meeting the
necessary conditions. Enlargement is thus by definition a gradual process,
based on solid and sustainable implementation of reforms by the countries
concerned. The new approach to negotiations in the rule of law area introduces
the need for solid track records of reform implementation to be developed
throughout the negotiations process. Reforms need to be deeply entrenched, with
the aim of irreversibility.

The imminent accession of Croatia, the
start of accession negotiations with Montenegro in June and candidate status
for Serbia in March show that the EU delivers on its commitments once the
conditions are met. These positive developments also send a strong signal of
the transformative power of enlargement and what is possible in an area riven
by war just half a generation ago. They act as an incentive and encouragement
to all the countries of the region to step up their own preparations for
eventual EU membership.

There have been a
number of positive developments in the enlargement countries over the past
year. In addition to those concerning Croatia, Montenegro and Serbia, positive
results have been achieved in the former Yugoslav Republic of Macedonia, where
the High Level Accession Dialogue has led to a sharper focus on reforms by the
authorities. Dialogue between government and opposition in Albania has allowed
the political stalemate to be largely overcome with the adoption of electoral
and parliamentary reforms. Accession negotiations with Iceland are progressing
well. Turkey has shown active support of the new positive agenda announced last
year and launched by the Commission in May 2012.

At the same time,
reforms are still pending in most countries. Human rights, good governance, the
rule of law, including the fight against corruption and organised crime,
administrative capacity, unemployment, economic reform and social inclusion
remain major challenges. There is often a need to take
more responsibility for reforms and to muster the necessary political will to
move forward. Strengthening freedom of expression and independence of the media
remains a major challenge. The accession process remains at times negatively
affected by bilateral issues.

The enlargement process
is by its very nature inclusive and necessitates wide stakeholder
participation. In the enlargement countries, broad political consensus and
support of the population for the reforms required contributes significantly to
the transformation necessary for progress on the EU path.

This Communication
assesses the current state of the European Union’s enlargement agenda. Based on
the accompanying in-depth country analyses[1], it takes stock of what these countries have achieved
preparing for membership, where they stand today, assesses their prospects for
the coming years and in this regard makes a number of recommendations. As in
previous years, a number of key challenges are given particular attention, as
is the support provided by the EU to the enlargement countries, including
through the Instrument for Pre-Accession Assistance.

2.
key challenges
2.1.
Putting the rule of law at the centre of
enlargement policy

The experience of recent enlargements and
the challenges faced by enlargement countries underline the importance of
placing the rule of law even more at the heart of enlargement policy. A new
approach to negotiations in the area of judiciary and fundamental rights and on
justice, freedom and security was proposed in last year’s strategy paper and
endorsed by the Council. This approach has now been reflected in a negotiating
framework adopted in June 2012 for negotiations with Montenegro, firmly
anchoring the rule of law at the centre of the accession process and laying the
foundations also for future negotiations.

Countries aspiring to join the Union must
demonstrate their ability to strengthen the practical realisation of the values
on which the Union is based at all stages of the accession process. They have
to establish and promote from an early stage the proper functioning of the core
institutions necessary for democratic governance and the rule of law, from the
national Parliament through Government and the judicial system, including the
courts and public prosecutor, and law enforcement agencies.

There are a number of key challenges facing
most enlargement countries in these areas:

As regards the judicial system,
countries must ensure that it is independent, impartial and accountable and
capable of ensuring fair trials. Countries must also ensure that their judicial
systems function efficiently, without excessive length of proceedings. In this
respect, judicial reform strategies are now in place in most countries.
Progress was made with strengthening the independence of State Judicial
Councils and in some cases with new procedures for judicial appointments.
However, numerous challenges remain, in particular to ensure stronger
procedures for the appointment of judges and prosecutors, to find the right
balance between judicial independence and accountability, including addressing
the issue of judicial immunity, and to reduce in many cases excessive case
backlogs. Enforcement of court decisions remains a challenge. In addition to
legislative and administrative reforms, in many cases a change in judicial
culture is needed towards an increased focus on delivering a service for
citizens.

Corruption
remains prevalent in most enlargement countries. Corruption undermines the rule
of law, impacts negatively on the business environment and national budgets and
affects citizens’ everyday life in areas such as healthcare and education. The
pervasiveness of corruption enables infiltration of organised crime groups into
the public and private sector. Countries must ensure a strong framework for the
prevention of corruption, in particular in terms of greater transparency in
public bodies and the use of public funds. Law enforcement bodies need to be
pro-active, well co-ordinated and effective so as to ensure corruption cases,
including at high level, are properly investigated, prosecuted and sanctioned.
In many enlargement countries further efforts are needed as regards the
financing of political parties and election campaigns, the management of
conflicts of interest, transparency in public procurement, access to
information and the seizure and confiscation of assets. In some cases
specialised prosecution services, have been set up and are working well. Much
work lies ahead to build up the necessary track records. Building reliable statistics
is needed to help monitor the success of anti-corruption policies.

The fight against organised crime
remains a key priority and signifies a major problem in most enlargement
countries. The cross border nature of many criminal activities requires strong
cooperation between law enforcement and judicial bodies in the region, with EU
Member States and internationally. Law enforcement bodies need to be provided
with effective legal and investigative tools to properly fight and sanction
organised crime. In particular, their capacity to conduct financial
investigations needs to be improved. Progress is being made, but in most
countries much more needs to be done to ensure proactive investigations,
effective judicial follow-up and enhanced national and international
cooperation. The Commission continues to support a regional prosecutors’
network which will be assisted by seconded experts from Member States. Further
operational cooperation with the relevant European agencies, in particular
Europol should be pursued.

Public administration reform continues to be a key priority under the political criteria in most
enlargement countries. As an essential part of democratic governance and the
rule of law, it aims at enhanced transparency, accountability and effectiveness
and greater focus on the needs of citizens and business. Adequate
administrative procedures, including with respect to human resource and public
financial management, including tax collection, and reliable and independent
statistical systems are of fundamental importance for the functioning of the
State and for implementing the reforms needed for EU integration. Countries
need to increase their efforts to improve their public administrations at all
levels on the basis of overall national strategies. Recognising the challenges
faced by the enlargement countries, the Commission will strengthen its
assessment and monitoring capability, identifying key gaps and providing help
in planning, priority setting and implementation of reforms.

Civil, political, social and economic
rights, as well as the rights of persons belonging to minorities are key issues
in most enlargement countries. These fundamental rights are broadly
guaranteed in law but issues concerning implementation persist in many cases.
In some cases legislative gaps remain, for example as regards the scope of
anti-discrimination legislation. National human rights institutions such as
Ombudspersons often require significant strengthening, as does the law
enforcement bodies’ handling of issues such as hate crimes and gender based
violence. General societal attitudes to vulnerable groups such as ethnic
minorities, people with disabilities and lesbian, gay, bisexual and transgender
persons remain a common problem.

The enlargement countries are characterised
on the whole by pluralist media landscapes. In some countries there has been
progress towards decriminalising libel. However, in a number of countries, freedom
of expression remains a serious concern, with political interference,
economic pressure, self-censorship and insufficient protection of journalists
against harassment or even violent attacks. In Turkey in particular, the legal
framework does not yet sufficiently safeguard freedom of expression, while the
high number of legal cases and investigations against journalists and undue
pressure on the media raise serious concern.

In view of the challenges persisting in
this area, the Commission plans to hold a follow-up in the first half of 2013
to the May 2011 ‘Speak Up!’ conference. This event should bring together media
and civil society stakeholders from the Western Balkans and Turkey in order to
discuss the extent to which governments are addressing key priorities to reach
European standards on freedom of expression. The Commission will continue to
work closely with the European Parliament in this area. These issues will
continue to be given prominence in the accession process.

Given the challenges faced and the
longer-term nature of the reforms, the chapters judiciary and fundamental
rights and justice, freedom and security will be tackled early in the
negotiations to allow maximum time to establish the necessary legislation,
institutions, and solid track records of implementation before the negotiations
are closed. They will be opened on the basis of action plans to be adopted by
the national authorities. The Commission will provide substantial guidance in
its screening reports to support the elaboration of these action plans by the
candidate country. An innovation is the introduction of interim benchmarks
which will be set when negotiations are opened. Only once these are met will
the Council lay down closing benchmarks.

In this way, negotiations will be conducted
in a structured framework that takes into account the time needed for reforms
to be properly implemented and for solid track records to be developed. The
process will be accompanied by safeguards and corrective measures, to allow for
example the updating of benchmarks and to ensure an overall balance in the
progress of negotiations across chapters. The new approach also foresees
greater transparency and inclusiveness in the negotiations and reform process,
with candidates encouraged to develop their reform priorities through a process
of consultation with relevant stakeholders to ensure maximum support for their
implementation. The Commission will further focus its monitoring on progress
achieved in these areas. IPA funds will continue to be targeted to support
reform implementation.

Strengthening the rule of law and public
administration is essential for enlargement countries to come closer to the EU
and eventually to fully assume the obligations of membership. Even before
accession negotiations begin, increased focus is being put on rule of law in
the spirit of the new approach. Screening of the key rule of law chapters was
initiated even before overall negotiations with Montenegro began. The other
candidate countries, the former Yugoslav Republic of Macedonia and Serbia, were
also invited to the explanatory screening sessions. The key priorities set out
as conditions for the opening of accession negotiations with Albania are
heavily focused on the rule of law. Rule of law issues are central to the
various country specific initiatives launched by the Commission in the last
year which are set out under part 3 of this Communication.

2.2.
Regional cooperation and reconciliation
in the Western Balkans

Regional cooperation and good neighbourly relations are essential elements of the
Stabilisation and Association process and, as such, are closely monitored by
the Commission at all stages of the accession process. Further progress has
been achieved in this respect in the last year. Bilateral and multilateral
contacts between leaders and politicians of the region have continued, also in
sensitive areas such as war crimes, borders, refugee return, organised crime
and police cooperation, and within regional fora such as the Energy Community,
the European Common Aviation Area, the Central European Free Trade Area (CEFTA)
and the Regional School of Public Administration. A new Secretary General of
the Regional Cooperation Council (RCC) was appointed. The Commission looks
forward to the RCC further developing its role in regional cooperation as a
platform for the promotion of issues of importance to the whole region and its
EU perspective thus further mainstreaming regional cooperation in the
countries’ political agenda. Regional cooperation should be regionally owned
and driven.

Disputes related to inter-ethnic or status
issues, notably in Bosnia and Herzegovina and Kosovo*, continue to
hinder the functioning of institutions, frustrating the reform process,
sometimes with broader regional implications. Pursuing their EU path is the
best way for the countries to address these problems. Difficult ethnic-related
issues can be successfully addressed through dialogue and compromise, as
demonstrated by the on-going implementation of the Ohrid Framework Agreement in
the former Yugoslav Republic of Macedonia. Differences over the status of
Kosovo have continued to hamper the
development of deeper relations with the EU. The issue of north Kosovo remains
a major challenge. Progress on these issues will require all actors involved to
work together in a constructive spirit.

New results were reached in the Belgrade-Pristina
dialogue with agreements in the areas of regional cooperation and
representation and integrated management of the border/boundary. The latter
agreement is yet to be implemented. Serbia’s interpretation of the agreement on
regional cooperation and representation of Kosovo was eventually clarified and
based on initial implementation is no longer hampering the inclusiveness of
regional cooperation. Implementation of other agreements reached in the areas
of freedom of movement, cadastre, civil registries, customs stamps and mutual
acceptance of diplomas was uneven and have had so far limited impact on the
ground. Further progress in this process must be achieved as a matter of
urgency.

Voices calling for reconciliation
are resonating more deeply among the population at large, laying stronger
foundations to deal with war legacy issues such as war crimes, refugees and
inter-ethnic tensions. Initiatives by NGOs and civil society such as the Youth
Initiative for Human Rights, the Truth and Reconciliation Commission (RECOM),
and the Igman Initiative play an important role in enhancing reconciliation
among the citizens of the region and should be supported. Nonetheless,
vigilance will still be required in the years to come to guard against
nationalist reflexes. Governments and political leaders in particular need to
do more to foster an environment conducive to dealing with the past. Those issues stemming from past conflicts,
together with other open bilateral issues remain key challenges to stability in
the Western Balkans and need to be urgently addressed. Resolving these issues
will remove a major impediment to the Western Balkans’ course towards the EU.

In terms of war crimes, completing
the process of rendering justice for crimes committed during the wars in the
former Yugoslavia is essential for lasting reconciliation. Cooperation with the
International Criminal Tribunal for the former Yugoslavia (ICTY) has continued.
This follows earlier decisive steps by the countries of the region providing a
good basis for the ICTY to complete its work, even if some trials may continue
past the previously indicated completion date of December 2014. With the work
of the ICTY winding down, the governments concerned still face major challenges
tackling impunity for war crimes within their own jurisdictions. With political
will, increased focus of resources, further regional cooperation, and
resolution of problems with the extradition of own nationals, the countries of
the region can ensure justice is done for the thousands of victims of the wars.
The issue of missing persons remains to be fully addressed. The Commission
fully supports the on-going investigation under EULEX auspices into the alleged
crimes, including human organ harvesting, committed in the period during and
after the conflict in Kosovo addressed in the Marty report endorsed by the
Parliamentary Assembly of the Council of Europe.

As regards refugees, a ministerial
declaration of Serbia, Croatia, Bosnia and Herzegovina and Montenegro was
signed in November 2011 in Belgrade renewing political commitment to bring to a
close the Sarajevo process. A Regional Housing Programme was agreed and
presented at an international Donors’ Conference in April 2012, at which the EU
and the international community pledged further substantial financial support. National authorities
need to ensure implementation of this programme, which aims to facilitate
sustainable return of the most vulnerable refugees to their places of origin or
local integration in the place of refuge. This would allow the final reception
centres housing refugees and internally displaced persons (IDPs) from the
region to be closed and the formal deregistration of the current 74,000
remaining refugees completed. The Commission welcomes these developments and
calls on the countries to work with vigour to resolve the remaining refugee and
IDP issues.

Issues related to minorities remain
a key challenge in the Western Balkans. Overall, sound and elaborate legal
frameworks are in place to provide for the protection of minorities. At the
same time, implementation in practice is often complicated, in particular where
there are links to recent conflicts. A general culture of acceptance of
minorities needs to be encouraged, through education, activation of broad
public debates and awareness raising. There is a need to deal proactively with
cases of hate crime and discrimination. The Roma remain particularly
disadvantaged across the region. The Commission will continue to support
measures in this regard, including under the Roma Decade. Countries should
implement the operational conclusions they have subscribed to at the Roma
seminars held by the Commission in 2011.

In the spirit of good neighbourly
relations, open bilateral issues need to be addressed by the parties
concerned as early as possible during the enlargement process, with
determination, taking into account the overall EU interests. There has been
little progress on such issues over the past year. The Commission urges parties
to make every effort towards solving outstanding disputes in line with
established principles and means, including referring issues as appropriate to
the International Court of Justice or other existing or ad hoc dispute
settlement bodies. Bilateral issues should not hold up the accession process.
The Commission stands ready to facilitate the creation of the necessary
political impetus in the search for solutions and to support related
initiatives. The border arbitration agreement between Slovenia and Croatia, the
implementation of which began in the course of 2012, paves the way for solving
this bilateral issue and is a good example of the way forward. The Commission
underlines the importance of Croatia’s declaration on promoting European values
in South-East Europe and in particular Croatia’s commitment that bilateral
issues should not obstruct the accession process of candidate countries. As
regards the former Yugoslav Republic of Macedonia, the Commission underlines
that a negotiated and mutually acceptable solution, under the auspices of the
UN, to the dispute over the name of the country remains essential. A solution
needs to be found without further delay.

2.3.
Economic and social challenges

Strengthening
economic recovery in the enlargement countries

There is a mixed picture in terms of
socio-economic developments in the enlargement countries. All enlargement
countries have largely maintained overall macro-economic stability but fiscal
risks have increased significantly in a number of them. The impact of the
economic crisis is being felt throughout the region, with the Western Balkans
falling back into recession in conditions of low levels of competitiveness,
income and investment and of high and rising unemployment.

The growth performance of the Turkish
economy can be attributed to a large extent to prudent macro-economic policies
and to reforms initiated well before the global crisis. Nevertheless, to
sustain growth and further strengthen the economy much remains to be done. The
positive momentum in the Turkish economy provides an opportunity to engage in further
structural reforms, particularly in the areas of education, infrastructure, and
labour market policy.

Following the collapse of the banking
system, the Icelandic economy contracted in total by 12%. Recovery, based on
both exports and strong domestic demand, started in 2011 and continued this
year. Stabilisation of the economy was achieved through decisive restructuring
and strengthening of the banking sector, consolidation of public finances and a
prudent policy mix, albeit under the shelter of capital controls whose removal
remains a challenge.

After slight recovery in 2010 and 2011, the
majority of economies of the Western Balkans contracted again in 2012,
following negative developments in the European Union. Croatia,
Bosnia-Herzegovina and Serbia are back in recession. Albania, Kosovo and the
former Yugoslav Republic of Macedonia are weathering the unfavourable
conditions better. They continued growing as they have been able to sustain
domestic demand and are less affected by reductions in trade. The financial
sector has remained stable in all countries, although the quality of the loan portfolio has been further
deteriorating.

The protracted depression has most visibly
aggravated already difficult social conditions. Unemployment continued rising and
is now on average 21% in the Western Balkans, but much higher in Bosnia and
Herzegovina, Serbia, the former Yugoslav Republic of Macedonia and Kosovo. The
young are particularly affected. More worrying still, favourable results in
poverty reduction from the pre-crisis period are being reversed. The emerging
middle class especially has become more vulnerable, with depleted household
financial buffers and savings. Various opinion polls suggest that people’s
dissatisfaction with the economic and social situation is growing as many can
often no longer afford basic goods and services. These trends, coupled with
weaker growth this year or even a new recession, suggest a need for a much more
pro-active policy response to alleviate deteriorating social conditions
including unemployment and poverty for instance by encouraging investment, thus
supporting job creation and by targeting better investments in the social
sector.

There is awareness of the need of priority
reforms and measures for growth and jobs. However, the political commitment to
implement these reforms is often too weak. Revenue collection, budget planning
and budget execution have not improved sufficiently over the years. Budget
transfers remain ill targeted and do not contribute to improving the social
situation. Labour markets remain largely unreformed and vocational education
systems do not contribute to reductions in skills mismatch. As a result,
workers often seek jobs abroad, which in the short term, benefits the economies
through remittances and relief in unemployment; however, in the longer run it
limits the potential for growth due to a smaller labour force and brain drain.
On the microeconomic level, many countries have implemented reforms to
facilitate company creation or have developed schemes to attract foreign
investors, but the business environment remains hampered by the weak rule of
law and the large informal sector.

The EU is committed to continue assisting
the countries with policy advice and financial assistance and works closely with
IFIs to channel favourable loans towards priority areas.

The Commission will continue associating
enlargement countries with the Europe 2020 strategy. It will examine the
possibility of more targeted use of SAA meetings to tackle the issues of
competitiveness and employment. To that aim, and in line with the Europe 2020
approach, the enlargement countries are encouraged to consider national targets
in the fields of employment, innovation, climate change, energy, education,
poverty reduction and social inclusion. In addition, from 2013 onwards, the
Commission will gradually start a dialogue with enlargement countries on
employment and social reform programmes, pursuing a comprehensive approach to
employment and social policy. The Commission will also promote improved
participation in EU programmes, so enlargement countries can work with the
Member States in the areas of flagship initiatives of the Europe 2020.

Regional policy groups and the RCC made
good progress in adapting the Europe 2020 process to the regional needs and
realities. This year, ministers responsible for trade and investment committed
to regularly benchmark policies in the areas of regional trade, private
research, entrepreneurship and employment creation. The Commission will support
these joint reform efforts and the regional monitoring approach, including with
IPA funds.

Enhanced regional economic cooperation can
contribute to moderating the effects of the crisis. Regional trade represents
on average around 17% of all trade in the region. Flows among CEFTA countries
have been less affected by the crisis and have recently been recovering faster
than trade with the EU. However, trade is dominated by food and commodities,
with higher value added goods making up only a small share of trade flows.
CEFTA has engaged in the process of liberalisation of selected services, which
can provide all parties with important benefits. Integration of energy and
transport markets is making the region more competitive and is creating the
conditions to attract investors to these areas.

The Western Balkans Investment Framework
(WBIF) was created to bring together national donors and IFIs to develop a
pipeline of projects in the countries. Under the WBIF, the Commission, bilateral
donors and IFIs are supporting € 8 billion worth of investments in
transport, energy, the environment, climate change, the social sector and
private sector / SME development. The WBIF will play an increasingly important
role to help prepare and support those investments most needed for boosting
growth and jobs.

EU
economic governance and enlargement countries

In view of the far reaching changes to the
economic governance of the EU underway, it is important to continue to inform
and further associate enlargement countries to this process, also considering
their current high level of economic integration with the EU.

The European Commission has a number of
instruments to keep enlargement countries informed about developments in EU
economic policies. These include the regular bilateral political and economic
dialogue as well as the multilateral economic dialogue between the Commission,
EU Member States and Candidate Countries in the context of pre-accession fiscal
surveillance.

The Commission will gradually adapt the
economic surveillance of enlargement countries to the enhanced economic
governance in the EU. To this end, the countries will be asked to strengthen
their medium-term economic programmes, by putting more emphasis on the
sustainability of their external position and on the main structural obstacles
to growth, in line with the Europe 2020 strategy. More emphasis will also be
given to further strengthening national fiscal frameworks, which need to comply
with quality standards. The candidate countries will be asked to take strong
political commitments to follow up on the agreed recommendations in the annual
joint ECOFIN meeting. The joint ECOFIN and the preparations leading to this
meeting as well as SAA fora will be used in addition to concentrating on
economic and fiscal surveillance, to inform the candidate countries of other
developments that are shaping EU economic governance, when appropriate.

Future explanatory screening meetings will
also be used to familiarise countries with changes in obligations under
economic and monetary union legislation, as well as the new financial
supervision architecture. The Commission will examine the possibility of
inviting to these meetings candidate countries with which negotiations have not
yet started. The Commission may also organise additional screening meetings in
the course of accession negotiations where significant new acquis has
been adopted.

3.
Maintaining the enlargement and reform momentum

The enlargement countries face many
challenges especially in fields such as the rule of law, corruption, organised
crime, the economy and social cohesion. In addition, in a context of economic
stagnation, there are risks of a lurch towards populism and resistance to
essential reforms. In the Western Balkans in particular it is crucial that the
countries remain firmly on the path of reform, leaving the legacy of the past
behind and investing in their European future. The EU shares an interest in the
successful implementation of reforms. Enlargement is a joint endeavour.
Maintaining the momentum for enlargement as well as for reforms are two sides
of the same coin.

The Commission is increasingly seeking
innovative approaches to dealing with challenges arising in the enlargement
countries and in the accession process. The criteria and conditions for
membership remain the same. However, in many areas country-specific,
tailor-made approaches to dealing with difficult situations, including
blockages in the accession process, are necessary. This applies not only to the
rule of law and public administration reform, but also as regards democratic
strengthening, good governance and economic and social issues. Such initiatives
are injecting momentum into reforms. They do not replace accession negotiations
but form a bridge to them.

Building on the 2011 Strategy paper for
Enlargement and the Council conclusions of December 2011, a positive agenda for
EU-Turkey relations was launched in May 2012, with the aim of supporting the
accession negotiation process, in line with the Negotiating Framework and the
relevant Council conclusions. The agenda covers a broad range of areas of
common interest including political reforms, foreign policy dialogue, alignment
with the EU acquis, visas, mobility and migration, trade, energy, the
fight against terrorism and participation of Turkey in EU programmes.

With the former Yugoslav Republic of
Macedonia, a High Level Accession Dialogue (HLAD) was launched in March 2012 in
Skopje. The HLAD put EU integration to the forefront of the domestic agenda, giving
it a new boost by ensuring a structured, high level discussion on the main
reform challenges and opportunities. The key issues include freedom of
expression, rule of law and ethnic relations, challenges for electoral reform,
public administration reform, strengthening of the market economy and good
neighbourly relations. The Government is making progress addressing the
ambitious reform targets included in its roadmap defining the specific measures
and time frame for their delivery.

In Albania, the Commission has worked
closely with the government and opposition to help this country overcome
political obstacles to further electoral and parliamentary reforms and to
create an environment conducive to further progress, in particular in support
of the EU agenda. This allowed for a revision of the action plan addressing the
Commission Opinion’s key priorities in a transparent and participatory process.
With the EU agenda at the forefront of Government activity, concrete results
are being achieved with the deliverables set out in the plan, including in the
area of parliamentary and electoral reform, the rule of law and human rights.

With Bosnia and Herzegovina, a High Level
Dialogue on the Accession Process (HLDAP) was launched in Brussels in June
2012. This initiative aims to help the country to move forward in the EU
accession process by explaining the requirements and the methodology of
accession negotiations and, concretely, what is expected from a country in the
EU accession process. It is meant to keep up the political momentum on the EU
agenda despite the on-going political crisis. The June meeting resulted in
joint conclusions and a Roadmap for
EU integration aimed at meeting the conditions for the entry into force of the
Stabilisation and Association Agreement (SAA) and for a credible EU membership application. This required a co-ordination mechanism
between all competent levels of authority regarding EU matters, so that the
country can speak in this respect with one voice. The Commission regrets that the results so far remain below
expectations. The Structured Dialogue on Justice launched with Bosnia and
Herzegovina in 2011 has positively impacted the implementation of the Justice
Sector Reform Strategy 2009-2013.

The European Commission and Kosovo launched
a Structured Dialogue on the Rule of Law in May 2012. This Dialogue is designed
to help Kosovo address challenges in the field of the rule of law, which is a
key concern for the Western Balkans as a whole. At this stage, the Commission
will focus on the judiciary, the fight against organised crime and corruption.

The Commission will continue to pursue
these and other initiatives with the aim of maintaining the momentum and
transformative power of the accession process, and ensuring the responsiveness
of enlargement policy.

4.
Progress in
the enlargement countries and the way forward 2012-13
4.1.
Western Balkans

Croatia

In parallel to this
Communication, the Commission has adopted a Communication on the main findings
of the comprehensive monitoring report on Croatia’s state of preparedness for
EU membership. The Commission will continue to monitor the commitments made in
the course of accession negotiations by Croatia until the date of accession,
with a Communication on a final monitoring report foreseen for spring 2013.

Montenegro

On 29 June 2012, the European Council
endorsed the decision of the Council, based on a Commission report, to open
accession negotiations with Montenegro. Negotiations were opened at the first
Inter-Governmental Conference the same day. The accession negotiations will be
conducted in line with the negotiating framework adopted by the Council which
integrates the new approach for the chapters on judiciary and fundamental
rights and justice, freedom and security, thereby reinforcing the focus on the
rule of law in the course of negotiations.

The opening of accession negotiations
reflected Montenegro’s continued progress on key reforms. Montenegro
sufficiently meets the political criteria. The legislative and institutional
framework and policies have been improved with a view to strengthening the
functioning of the parliament, the judiciary, anti-corruption policy, human
rights and protection of minorities. The on-going constitutional and public
administration reforms have further advanced. Montenegro continued to implement
its obligations under the Stabilisation and Association Agreement (SAA)
smoothly. It has continued to play a constructive role in the region and to
respect its international commitments.

Montenegro needs to invest more effort to
further develop a track record in the area of rule of law with the aim of
irreversible reform implementation, in particular with respect to organised
crime and corruption cases, including at high level. Montenegro needs to complete the process of
constitutional change in order to safeguard the independence of the judiciary.
Accountability of the judiciary remains an issue of concern. Given the small
size of the Montenegrin administration, putting in place the necessary
administrative capacity to implement the acquis will also be a
cross-cutting challenge.

In line with the new approach and following
the invitation of the European Council of December 2011, the Commission already
initiated the screening of the chapters on judiciary and fundamental rights and
on justice, freedom and security in spring 2012. Screening of the other
chapters began in September 2012 and is expected to finish in summer 2013.

The Commission will continue to support
Montenegro in implementing EU-related reforms.

The
former Yugoslav Republic of Macedonia

The former Yugoslav Republic of Macedonia
was granted candidate status in 2005. In 2009, the Commission assessed that the
country sufficiently met the political criteria and recommended the opening of
negotiations. This recommendation was reiterated by the Commission in 2010 and
2011 and now in 2012. The Commission strongly believes that moving the
accession process of this country to its next stage is necessary in order to
consolidate the pace and sustainability of reforms, in particular as regards
the rule of law, as well as to strengthen inter-ethnic relations. The region as
a whole would benefit.

The country continues to fulfil its
commitments under the Stabilisation and Association Agreement (SAA). The
Commission maintains its proposal to move to the second stage of the
association and encourages the Council to act on this without further delay, in
line with the relevant provision of the SAA.

The country continues to sufficiently meet
the political criteria. The government has put the EU agenda at the centre of
its activity. The High Level Accession Dialogue (HLAD) with the Commission
served as a catalyst for accelerating reforms and has contributed to
substantial progress in a number of key policy areas. The government has submitted
proposals to Parliament for improvement of the legislative framework for
elections, and, in the area of freedom of expression, for the decriminalisation
of defamation. The first government review of the implementation of the Ohrid
Framework Agreement provides a useful tool for strengthening inter-community
dialogue.

The reform momentum needs to be sustained
in all areas of the political criteria in particular to ensure implementation.
In particular, the rule of law, including as regards freedom of expression,
needs to be strengthened. The roundtable process of dialogue between the
government and the Association of Journalists should continue to be a useful
forum for addressing key challenges relating to the media. Tension between
communities following violent incidents in the first half of 2012 caused
concern. The government responded with maturity to this challenge and needs to
build on this to further strengthen inter-ethnic relations and reconciliation,
also in light of the debate concerning the status of victims of the 2001
conflict.

As we approach the 20th anniversary of the
entry of the former Yugoslav Republic of Macedonia into the United Nations, the
dispute over its name with Greece remains unresolved. A dialogue under the
auspices of the UN has been on-going since the 1990s and it is complemented
since 2009 by bilateral contacts, including at Prime Ministerial level.
However, these processes have so far not yielded any results. In December, the
International Court of Justice found that Greece had breached its Interim
Accord with the country by objecting to its admission to NATO at the Bucharest
Summit in 2008. Maintaining good neighbourly relations, including a negotiated
and mutually acceptable solution to the name issue, under the auspices of the
UN, remains essential. A solution needs to be found without further delay.
Actions and statements which could negatively impact on good neighbourly
relations should be avoided.

Serbia

The European
Council of March 2012 granted Serbia the status of candidate country.

The stability
and functioning of institutions was ensured in the lead up to as well as in the
aftermath of elections held at presidential, parliamentary and local level and
in Vojvodina. Despite a slowdown of legislative activity in the electoral
context, some progress was noted in the implementation of reforms in most
areas. Serbia maintained full cooperation with the International Criminal
Tribunal for the former Yugoslavia (ICTY). Serbia is implementing smoothly its
obligations under the Interim Agreement/Stabilisation and Association
Agreement. Results were achieved in the dialogue with Pristina, but
implementation of agreements reached was uneven. Two recent developments in this regard are Serbia’s signature of the
IBM technical protocol and clarification of Serbia’s interpretation of the
agreement on regional cooperation and representation of Kosovo which, based on
initial implementation, is no longer hampering the inclusiveness of regional
cooperation. Serbia’s new leadership has underlined its commitment to implement all agreements already
reached in the dialogue with Pristina as well as to begin tackling the broader
political issues. Fulfilment of this commitment is key to moving to the next
phase of Serbia’s EU integration.

Serbia
continues on its way to sufficiently fulfilling the political criteria and the
conditions of the Stabilisation and Association process. Serbia needs however
to pay particular attention to the rule of law, notably the judiciary where
recent setbacks underline the need for renewed commitment to pursue reforms,
and ensure its independence, impartiality and efficiency, also taking into
account the recent rulings of the Constitutional Court and the need to restore
the confidence of citizens following the shortcomings in the judicial
reappointment process. Also in light of recent events, special attention must
be paid to the rights of vulnerable groups and to the independence of key
institutions such as the Central bank. Serbia should also continue to constructively
engage in regional cooperation and strengthen relations with neighbouring
countries. The momentum of reforms needs to be re-invigorated and further
progress made towards a visible and sustainable improvement of relations with
Kosovo.

With a view to
recommending that negotiations for accession to the European Union should be
opened with Serbia, and in line with the Council Conclusions of 5 December
2011, the Commission will present a report as soon as it will have assessed
that Serbia has achieved the necessary degree of compliance with the membership
criteria and the conditions of the Stabilisation and Association process, and
in particular the key priority related to Kosovo, as set out in the Council
conclusions. A visible and sustainable improvement in relations between Serbia
and Kosovo is needed so that both can continue on their respective paths
towards the EU, while avoiding that either can block the other in these
efforts.

Albania

The political agreement of November 2011 between ruling
majority and opposition marked the end of a long period of political stalemate
stemming from the 2009 parliamentary elections. This agreement set out to
address electoral and parliamentary reform and to create the political climate
for joint reform efforts in other areas. As a result,
political dialogue and cooperation has improved considerably allowing for
progress in core reform areas. The Presidential elections were conducted in
line with the Constitution, but the political process surrounding the elections
was not as inclusive as expected. Despite a subsequent temporary slow-down in
reforms, the political agreement is being implemented.

Albania has made good progress towards
fulfilling the political criteria for membership of the EU, delivering a number
of reforms against the twelve key priorities of the Commission’s 2010 opinion.
Overall, Albania has continued to implement the Stabilisation and Association
Agreement smoothly and to play a constructive role in the region. Albania has
met four of the key priorities, namely those concerning the proper functioning
of parliament, the adoption of pending laws requiring a reinforced majority,
the appointment of the Ombudsman and the hearing and voting processes for key
institutions and the modification of the legislative framework for elections.

Albania is well
on its way towards meeting the two key priorities regarding public
administration reform and improving the treatment of detainees. Good
coordination of the EU integration process by government and effective cooperation
by the opposition allowed moderate progress on the key priorities covering
justice reform and the fight against corruption, by for example reforming the
immunity system of public officials and judges and adopting the law on
administrative courts. Progress was also achieved in the remaining key
priorities concerning fighting organised crime, property reform, as well as
anti-discrimination policies, notably women’s rights, including some
significant steps, notably an increase of seizures of criminal assets, the
adoption of a comprehensive strategy on property reform, and amendments to the
criminal code strengthening sanctions for domestic violence.

Albania needs to build on progress achieved
and take concrete steps to accelerate the fight against corruption and the
reform of the judiciary in order to ensure its
independence, efficiency and accountability. Reforms in
public administration and the judiciary need to be completed and the
parliamentary rules of procedure revised. Further attention is needed to implement commitments in
the area of human rights including the living conditions of the Roma community.
Continuing political dialogue on reform remains necessary in view of ensuring
the smooth functioning and further strengthening of the country’s democratic
institutions. Parliamentary elections in Summer 2013 will be an important test
of the new electoral law and of continued cross-party commitment to reform.
Maintaining the reform momentum, with particular focus on implementation of
legislation and policies in the area of rule of law, will be essential.

Bosnia
and Herzegovina

The establishment of
the executive and legislative authorities was completed with the agreement on a
State-level Government after sixteen months of political stalemate following the
October 2010 general elections. The formation of the new Council of Ministers
and the adoption of two key EU-related laws initially produced a shift of focus
towards EU integration. This momentum was not maintained, however. The
political consensus that had emerged was lost and progress on the EU agenda
stalled. A reshuffle of State, Federation and Cantonal authorities has begun
but remained blocked by political disputes and legal challenges. Bosnia and
Herzegovina has made limited progress towards meeting the political criteria.
There has been little progress in achieving more functional, coordinated and
sustainable institutional structures. Substantial efforts are needed to
reinforce the justice sector, in line with the priorities identified in the context
of the EU-Bosnia and Herzegovina structured dialogue on justice. Efforts also
need to be stepped up in the fight against corruption and organised crime and
in pursuing public administration reform.

A shared vision among
the political representatives on the overall direction and future of the
country and its institutional set-up for a qualitative step forward on the
country’s EU path remains absent.

The need for an effective coordination mechanism between
various levels of government for the transposition, implementation and
enforcement of EU laws remains to be addressed as a matter of priority so that
the country can speak with one voice on EU matters and make effective use of
the EU’s pre-accession assistance. To that effect, a High Level Dialogue on the Accession Process (HLDAP) was launched in
Brussels on 27 June.

An internal
roadmap on EU integration aimed at meeting the conditions for the entry into
force of the Stabilisation and Association Agreement (SAA) and for a credible
membership application, as defined by the relevant Council Conclusions, was
agreed but the timeline for a political agreement to amend the Constitution to
comply with the European Court of Human Rights (ECtHR) ruling on ethnic
discrimination regarding representation in the institutions of the country
(Sejdic-Finci case) by 31 August was not met. In August, three political
parties submitted to the Parliamentary Assembly separate but uncoordinated
proposals to amend the Constitution. The persistent delay in harmonising the
Constitution with the ECthHR’s Sejdic-Finci ruling remains an issue of serious
concern. To fulfil the country’s obligations under the IA/SAA, a credible
process must be put in place for addressing the ECtHR decision and the
implementation of the country’s State Aid obligations is also required.

Bosnia and
Herzegovina’s governance continues to involve an international presence with an
executive mandate. In May, the Peace Implementation Council Steering Board
endorsed the decision of the Office of the High Representative to suspend
supervision and close the office in Brcko on 31 August following the
substantial progress achieved in the implementation of the Brcko Final Award.
The Brcko office was subsequently closed on 31 August. The EU opened offices in
Brcko, Mostar and reinforced the existing office in Banja Luka.

Following the
decoupling of the European Union Special Representative (EUSR) mandate from the
Office of the High Representative, the EU has, through its enhanced presence, taken the lead in a number of areas in
assisting the authorities to implement the objectives of the EU agenda. In this
regard, the EU will continue to strengthen its support for the country’s
institutions.

Significant further
efforts are needed to meet the remaining requirements, to facilitate the
transition from a country with an international system of governance and
security towards a country with domestic institutions in full ownership of its
political and legislative process- in line with the requirements for a country
aspiring to become a member of the EU. Overarching these issues is the need for
a stable political environment with the EU agenda at the heart of the political process.
The political will to reach an agreement based on compromise is key to
realising the EU aspirations of the country and its citizens.

Kosovo

In parallel to this
Communication, the Commission has adopted a Communication on a Feasibility
Study for a Stabilisation and Association Agreement with Kosovo.

4.2.
Turkey

Turkey is a key
country for the EU, considering its dynamic economy, its strategic location and
its important regional role which contribute to the EU’s foreign policy and
energy security. Turkey is already integrated to a large extent into the EU
through the Customs Union and has become a valuable component of Europe’s
competitiveness. Conversely, the EU remains the key anchor for Turkey’s
economic and political modernisation. Both sides would benefit from further
development of these links.

The potential
of the EU-Turkey relationship can be fully tapped only within the framework of
an active and credible accession process. The accession process remains the
most suitable framework for promoting EU-related reforms, developing dialogue
on foreign and security policy issues, strengthening economic competitiveness
and increasing cooperation in the field of energy and justice and home affairs.
This process must respect the EU’s commitments and the established
conditionality.

In this
context, a positive agenda in the relations with Turkey was launched by the
Commission in May 2012 to revive the accession process after a period of
stagnation and bring fresh dynamism to the EU-Turkey relations. The positive
agenda is not an alternative to the accession negotiations but rather a way of
supporting them. It focuses efforts on areas of common interest such as
legislative alignment, enhanced energy cooperation, visa, mobility and
migration, Customs Union, foreign policy, political reform, counter terrorism
and increased participation in people-to-people programmes. Six of the eight
working groups, which have been established under the positive agenda to
support alignment with the acquis, have come together for their first
meeting. Turkey’s active support to the positive agenda and its European
perspective remains essential. It is in the interest of both the EU and Turkey
that accession negotiations regain their momentum, not least to ensure the EU
remains the benchmark for reforms in Turkey.

Moreover, the Council invited the
Commission to establish a broader dialogue and cooperation framework between
the EU and Turkey to address the full range of Justice and Home Affairs policy
fields. The Council also invited the Commission to take steps towards visa
liberalisation as a gradual and long term perspective, in parallel with the
signature of the readmission agreement between Turkey and the EU. After it was
initialled in June, it is now crucial that Turkey signs the readmission
agreement to allow for implementation of the visa liberalisation roadmap to
start.

Given Turkey’s further development as
potential energy hub and the common challenges it shares with the EU, the
Commission and Turkey also decided to enhance their cooperation on a number of
important energy issues.

The political
dialogue with the EU on foreign and security policy intensified significantly.
Developments in Turkey’s and the EU’s joint neighbourhood confirmed the
important role and valuable contribution of Turkey to the EU’s foreign policy
and energy security. Turkey continued to play a positive role supporting reform
movements in countries in North Africa and the Middle East. Cooperation on
Syria is intense. Political dialogue meetings, including at Ministerial level,
addressed foreign policy issues of common interest to the EU and Turkey, such
as North Africa, the Middle East, Western Balkans Afghanistan/Pakistan and the
Southern Caucasus.

The Turkish
economy continues growing strongly but sizeable external imbalances and
significant inflationary pressures remain the largest threats to macroeconomic
stability. The high incidence of informal employment, segmented labour markets
and the completion of the reform of trade union legislation remain a challenge.
The Commission is examining ways to address Turkey’s concerns under the Customs
Union, including on the Free Trade Agreements concluded by the EU with third
countries. At the same time it underlines the desirability to modernise the
Customs Union and the need to resolve the irritants which impede trade between
Turkey and the EU. The Commission has asked the World Bank to carry out an assessment
of the functioning of the Customs Union – with the ultimate objective to
modernise it.

The Commission will continue work to implement the positive
agenda to lend new dynamism to the accession process and enable a more
constructive relationship.

Concerns are growing regarding Turkey’s lack of substantial
progress towards fully meeting the political criteria. The situation regarding
the respect of fundamental rights on the ground continues to be the source of
serious preoccupation – despite recent improvements to various legal provisions
in this area. There are recurring infringements of the right to liberty and
security and to a fair trial, as well as of the freedom of expression, assembly
and association, through the disproportionate application of the legislation on
terrorism and organised crime. It is important that Turkey addresses all issues
regarding the independence, impartiality and efficiency of the judiciary.
Further restriction of the freedom of the media in practice and the growing
number of court cases against writers and journalists remain serious issues. As
a consequence, self-censorship is increasingly widespread. The Commission
welcomes the commitment of the Turkish government to present swiftly the fourth
judicial reform package and calls for it to address all the core issues which
are presently affecting the exercise of freedom of expression in practice.

In addition, the Kurdish issue remains a key challenge for
Turkey’s democracy and a political solution is urgently required. Overall,
Turkey still needs to devote significant further efforts to reach the highest
standards of democracy and human rights. The on-going work on a new
Constitution provides an important opportunity in this respect.

Terrorist
attacks by the PKK, which is on the EU list of terrorist organisations,
intensified significantly, in particular over the past few months. Terrorist
attacks were strongly and repeatedly condemned by the EU. The EU and Turkey
maintain an active counter-terrorism dialogue, and the fight against terrorism
is an important aspect of the positive agenda for Turkey.

Turkey has
frozen its relations with the rotating Presidency of the Council of the
EU during the second half of 2012, including by refusing to attend any meeting
chaired by the Cyprus Presidency. The Commission reiterates its serious
concerns with regard to Turkish statements and threats and calls for full
respect of the role of the Presidency of the Council, which is a fundamental
institutional feature of the EU provided for in the Treaty.

Talks under the auspices of the UN Secretary General to
find a comprehensive settlement to the Cyprus issue reached a deadlock in
spring 2012. A comprehensive settlement is in the interest of all sides since
it would enhance stability in the Southeast Mediterranean, offer new economic
opportunities to Member States and Turkey and give a strong boost to Turkey’s
EU accession negotiations. Turkey is therefore called upon to engage positively
with all parties in order to facilitate a successful completion of the process.

The EU has also stressed all the sovereign rights of EU
Member States which include entering into bilateral agreements, and exploring
and exploiting their natural resources, in accordance with the EU acquis
and international law, including the UN Convention on
the Law of the Sea. In line with the repeated Council
and Commission positions from previous years, the Commission reiterates that it
is urgent that Turkey fulfils its obligation of fully implementing the
Additional Protocol and makes progress towards normalisation of bilateral
relations with the Republic of Cyprus. It also urges the avoidance of any kind
of threat, source of friction or action that could damage good neighbourly
relations and the peaceful settlement of disputes. The EU will continue to
follow up and review progress made on these issues in accordance with the
relevant Council decisions.

Turkey needs to step up efforts to solve open bilateral
issues, including border disputes, with its neighbours. A substantial number of
formal complaints about violations of territorial waters and airspace by Turkey
were made by Greece and Cyprus.

4.3.
Iceland

Iceland’s
accession remains a matter of mutual benefit. The EU’s common interests with
Iceland are growing, including in the fields of renewable energy and climate
change and in view of the strategic importance of the EU’s Arctic policy. The
EU will be enriched by Iceland’s strong democratic credentials.

Accession
negotiations with Iceland are progressing well, with an overall good level of
alignment with the EU acquis, due to membership
of the European Economic Area (EEA) and full participation in Schengen
since 2001. More than half of the negotiating chapters have now been opened out
of which 10 have been provisionally closed. EU accession remains an issue of
lively public debate in Iceland. The Commission will continue to provide
support to communication activities in this regard and to people-to-people
contacts. The Commission is confident that the EU will be able to present a
package for the negotiations which takes Iceland’s specificities and
expectations into account, within the agreed framework for the accession
negotiations, while fully safeguarding the principles and acquis of the
Union. This will also allow, in due course, for a fully informed decision of
the Icelandic people.

Iceland
continues to meet the political criteria. It is a well-functioning democracy
with strong institutions and deeply rooted traditions of representative
democracy. The country’s judicial system is of a high standard, and Iceland ensures the continuous strengthening of its already high level of protection on fundamental rights.

Following a
deep and long recession, economic recovery has taken hold with good growth in
2011-12 and improvements of its macro-economic conditions.

Overall,
Iceland’s track record in implementing its EEA obligations remains largely
satisfactory. Some shortfalls are to be noted in areas such as financial
services, food safety and free movement of capital. Temporary restrictions to
free capital movements adopted in the aftermath of the 2008 financial crisis
remain in place. The EFTA Surveillance Authority (ESA) initiated proceedings
against Iceland at the EFTA Court in a case concerning Icesave.

5.
Supporting and
assisting the enlargement countries
5.1.
Financial assistance

The Commission supports the enlargement
countries in their preparation for accession by providing financial and
technical support through a dedicated financial instrument, the Instrument for
Pre-Accession Assistance (IPA). For the period 2007-2013, IPA funds amounted to
€ 11.6 billion. Key results have included increased capacity and reforms
in the beneficiary countries in the areas of rule of law, justice and home
affairs, public administration reform, fundamental rights and civil society
development and dialogue. These contributed inter alia to the successful
conclusion of Croatia’s EU accession negotiations and the opening of accession
negotiations with Montenegro in June 2012. Investments in economic, social and
rural development are being supported, as is regional cooperation in the
Western Balkans. Examples of
specific project support include training to police in Montenegro in the field
of organised crime and corruption, running a grant scheme supporting women’s
employment in Turkey and funding the rehabilitation of railways on European
Corridor X in Croatia, providing an interface with the Serbian railway.

For the next multi-annual financial
framework 2014-2020, the Commission has proposed a financial allocation of
€ 14.1 billion under the new IPA II instrument, a similar level of funding
in constant prices compared to the current financial framework.

The Commission
made its proposal for the new IPA II regulation in December 2011 as part of the
package of instruments for the next Multiannual Financial Framework. Improved
strategic focus of pre-accession financial assistance through the establishment
of stronger linkages with the priorities identified in the enlargement strategy
as well as multi-annual planning are among the main innovations of IPA II. The
improved strategic planning of IPA assistance will be reflected in the Common
Strategic Framework and in single country (or multi-country) strategy papers
spanning the full period of the next financial framework and covering more
coherently a limited number of policy areas that will
replace today’s ‘components’. To this end, a performance element will be
introduced and clear assistance–related targets with realistic
indicators will be set in the country and multi-country strategy papers. The
performance element will make it possible to reward countries with good
performance and will enhance the flexibility to re-allocate funds also in case
of underperformance. Moreover, under IPA II, both candidate countries and
potential candidates will have access to the same types of support, which will
be determined primarily by their needs and capacities as well as by their
record of results in using pre-accession assistance.

At the level of
operational programmes and like for other EU external instruments, co-financing
of sector strategies agreed with the beneficiary countries will be
reinforced, as opposed to financing of individual projects, thus increasing the
share of assistance funded through support at sector level (including sector
budget support for selected policy areas). More systematic multi-annual
programming will also apply to the
assistance for transition and institution-building (e.g. public administration
reform; reform of justice systems etc.), hence supporting the effective
implementation of the related sector strategies. The aim is to use EU funds to
lever large-scale reforms in a way that delivers better value for money in
preparing countries for membership than can be achieved through individual,
isolated projects.

The two main
objectives of IPA are to support the accession process and the socio-economic
development of the beneficiaries.

Strengthening
democratic institutions and the rule of law, public administration reform and
good governance will remain a key focus of future pre-accession assistance in
all beneficiary countries, as well as the fight against corruption and
organised crime, development of civil society and promoting and protecting
human rights and fundamental freedoms. As a corollary of the ‘new approach’ to
chapters 23 and 24 and given the longer-term nature of reforms pursued in these
areas and the need to build-up track-records of implementation before
accession, IPA II assistance will address the requirements of the beneficiary
countries in these domains from an early stage.

Assistance will
also be provided to support economic and social development, regional
cooperation and territorial cooperation (cross-border, trans-national and
interregional cooperation actions). Support to economic and social development
will address issues such as the development of physical capital; the
improvement of connections with the EU and regional networks; fostering
employment and developing human capital; social and economic inclusion.

Financial
support will require enlargement countries to adopt comprehensive and
sustainable policies and strategies in priority sectors such as justice and
home affairs, public administration, private sector development, transport,
energy, environment and climate change, social development, agriculture and
rural development. An expected outcome of this process is to secure stronger
local ownership and broad consensus on these strategies, improving IPA
beneficiary countries’ capacity to plan, implement and monitor their
implementation and to integrate this into their broader preparations for EU
membership.

5.2.
Benefits of closer integration before
accession

Considerable benefits are available today
to citizens of enlargement countries, even before actual accession. Through participation in EU
programmes, civil society and other initiatives, visa-free travel, and trade
through the Stabilisation and Association Agreements, citizens are being
brought closer to the EU.

Participation in EU programmes is available
to most candidate countries and potential candidates, with a proposal to extend
this possibility also to Kosovo made by the Commission in the course of 2012.
Such participation familiarises these countries with EU policies and working
methods and allows for progressive integration into EU networks. For example,
increasing numbers of students are taking up the opportunity to participate in
Erasmus or the Erasmus Mundus programmes and scientists and researchers from
the region are working together with EU counterparts through the 7th
research framework.

Visa-free travel to the EU is one of the
most visible benefits of closer EU integration for citizens of the enlargement
countries. Iceland is already part of the Schengen area. In the Western
Balkans, Croatian citizens have already enjoyed visa-free travel to the whole
EU for some time. Citizens of the former Yugoslav Republic of Macedonia,
Montenegro and Serbia were granted visa-free travel to the Schengen Area in
December 2009 and the same status was granted one year later to the citizens of
Albania and Bosnia and Herzegovina.

These recent decisions were based on these
countries fulfilling a number of requirements set out in the context of
Commission-led visa liberalisation dialogues. The dialogues acted as a strong
incentive for reforms towards reaching EU-standards in the justice and home
affairs area, and in terms of strengthening the rule of law and combating
transnational organised crime, corruption and illegal migration. In light of
subsequent developments pointing to some abuse of the visa-free regime and
asylum system, the Commission set up, as of January 2011, a post-visa
liberalisation monitoring mechanism, which has led to strengthened controls on
the ground. The number of unfounded asylum applications remains high in some EU
Member States, which will require continued, targeted measures by each country
in the region. More generally, new proposals to allow for temporary suspension
of existing visa-free regimes with a third country in case of a sudden influx
of persons have been adopted.

In January 2012 the Commission launched a
visa liberalisation dialogue with Kosovo.

The EU and Turkey have intensified their
cooperation on visa and migration issues. An EU-Turkey Readmission Agreement
was initialled. Its swift signature and effective implementation are of crucial
importance, also in view of further steps towards visa liberalisation as a
gradual and long term perspective.

The EU continues to provide extensive
support to civil society organisations (CSOs) in enlargement countries
principally through the Civil Society Facility (CSF). This helps CSOs to
strengthen their capacities and professionalism, encourages networking at all
levels – EU, national regional - allowing them to engage in an effective dialogue
with public and private actors and to monitor developments in areas such as the
rule of law and respect for fundamental rights.

Civil society activities are essential for
a mature democracy, the respect for human rights and the rule of law. A vibrant
civil society contributes to enhancing political accountability, deepening
understanding and inclusiveness of and support for accession related reforms
and supporting reconciliation in societies divided by conflict. Montenegro has
taken step to associate CSOs in the preparation of accession negotiations. In
most enlargement countries, civil society has continued to develop. In some
cases, a culture of acceptance of CSOs needs to be better nurtured, and a more
enabling environment and the conditions for improved policy dialogue put in
place. Issues surrounding funding remain, including in terms of government
support and sustainability. While IPA support is addressing these issues under
the CSF, changes foreseen under the Financial Regulation will allow the
Commission to cooperate with larger CSOs in the region to provide smaller
grants to local grass-roots organisations, thus allowing improved democratic
control and issues of more direct concern for citizens to be addressed.

5.3.
Information and communication

Enlargement policy and in particular the
accession of new Member States needs public understanding and support in order
to be successful and sustainable. This is challenging in an environment where,
notably in the context of the on-going financial and sovereign debt crisis, the
role of public bodies, including the European Union, is increasingly
questioned. The Commission believes that to respond to these challenges the
enlargement process needs to be more transparent, coherent and credible for
citizens and key stakeholders both in the Member States and in enlargement
countries. As in other policy areas, the public expects to see tangible
evidence of the effectiveness of EU enlargement and its transformational power
for those countries concerned as well as the added value for the EU as a whole.

Even more so than in the past, all EU
institutions will therefore have to provide information about the enlargement
process, the countries involved and its implications for the EU, contributing
to an informed public debate on enlargement. Unfounded myths or fears about the
enlargement process need to be dispelled, while legitimate concerns of citizens
will have to be answered.

Member States and enlargement countries
have the main role in the information and communication efforts towards their
citizens, with government messages for their national debates needing to
complement communication from the EU institutions. Member States need to inform
and explain to their national audiences the decisions they collectively take in
EU bodies on enlargement issues. Political leaders in enlargement countries
need to explain how the decisions they take on reforms are related not only to
the accession process but are inherently valuable for the better functioning of
the State. This can help to gain back support in countries where the gap has
widened between government policy and citizens’ views on EU enlargement. It can
also build the broad public support for reform which is required to enable
enlargement countries to meet the strict but fair conditions for EU membership.

6.
Conclusions
and recommendations

Based on the above analysis, the Commission
puts forward the following conclusions and recommendations:

I

1.
Through its enlargement policy, the EU has,
since its inception, responded to the legitimate aspiration of the peoples of
our continent to be united in a common European endeavour. From an original six, the EU is due to
welcome Croatia as its 28th member on 1 July 2013.

2.
At a time when the EU faces major challenges
and significant global uncertainty and gains new momentum for economic,
financial and political integration, enlargement policy continues to contribute
to peace, security and prosperity on our continent. The imminent
accession of Croatia, the start of accession negotiations with Montenegro and
candidate status for Serbia send a strong signal of the transformative power
of enlargement and what is possible in an area riven by war just half a
generation ago. Enlargement to southeast Europe helps avoid the far higher
costs of dealing with the consequences of instability. It is an investment in
sustainable democracy and demonstrates the EU’s continued capacity as a global
actor.

3.
The challenges facing the Eurozone together
with the recent global financial crisis have highlighted the interdependence of
national economies both within and beyond the EU. They underline the importance
of further consolidating economic and financial stability and fostering
reforms and growth, also in the enlargement countries. The enlargement process
is a powerful tool to that end.

4.
Within a framework of strict but fair conditionality
where the principle of own merits is key, the prospect of accession drives
political and economic reforms, transforming societies, consolidating the rule
of law and creating new opportunities for citizens and business. At a time of
economic stagnation, it mitigates the risk of resistance to essential reforms.

5.
The credibility of the enlargement process is crucial to its success. Maintaining
the momentum for enlargement as well as for reforms are two sides of the same
coin. The renewed consensus on enlargement, agreed by the European Council,
remains the basis for the EU’s enlargement policy. Enlargement is by definition
a gradual process, based on solid and sustainable implementation of reforms by
the countries concerned. Enlargement policy has been adjusted based on the
lessons learned from successive accessions to ensure the smooth integration of
new Member States and to better address the needs of countries in transformation,
particularly in the rule of law area.

6.
Strengthening the rule of law and democratic governance is central to the enlargement process. With the Council’s
endorsement of the Commission’s proposed new approach to negotiations on
judiciary and fundamental rights and on justice, freedom and security, the rule
of law, including common challenges such as the fight against organised crime
and corruption, is firmly anchored at the heart of enlargement policy.
Accession negotiations on these chapters will be opened early in the process
and closed at the end to allow maximum time for solid track records to be
developed with the aim of irreversibility of reforms. The Commission will
continue to prioritise rule of law issues also well before accession
negotiations begin, including through structured dialogues and sector support
under IPA II.

7.
In a number of countries, freedom of
expression remains a serious concern. In view of the challenges that
persist in this area, the Commission will continue to prioritise this issue in
the accession process. The Commission plans to hold a follow-up in the first
half of 2013 to the May 2011 ‘Speak Up!’ conference. This event should bring
together media and civil society stakeholders from the Western Balkans and
Turkey. The results and follow-up of this conference will be taken into account
in the Commission’s monitoring and reporting. The Commission will continue to
work closely with the European Parliament in this area.

8.
In many areas country-specific approaches to
dealing with difficult situations, including blockages in the accession
process, are necessary. The Commission has launched inter alia a positive
agenda with Turkey and a number of high level and structural dialogues
in the Western Balkans. Such initiatives are already injecting momentum into
reforms. They do not replace accession negotiations but form a bridge to them.
The Commission is committed to this form of engagement and will continue to
focus on key areas such as the rule of law, democratic governance and economic
reforms.

9.
Regional cooperation and good neighbourly relations are essential elements of the
Stabilisation and Association process. Issues stemming from past conflicts,
including war crimes, refugee return, the treatment of minorities and ensuring
equal rights for all citizens remain key challenges to stability in the Western
Balkans and need to be urgently addressed. Progress in regional fora and the
inclusiveness of regional cooperation needs to be enhanced. Disputes related to
inter-ethnic or status issues can be successfully addressed through dialogue
and compromise.

10.
In the spirit of good neighbourly
relations, bilateral issues need to be addressed by the parties concerned
as early as possible during the enlargement process, with determination, taking
into account the interests of the EU as a whole. Bilateral issues should not
hold up the accession process. The Commission urges parties to make every
effort towards solving outstanding disputes in line with established principles
and means, including referring issues as appropriate to the International Court
of Justice or other existing or ad hoc dispute settlement bodies. The context
of accession negotiations can generate stronger political impetus for the
resolution of disputes. The Commission stands ready to facilitate the search
for solutions.

11.
Strengthening economic recovery in the enlargement countries is paramount. Unemployment continued
to rise and the majority of
economies of the Western Balkans are contracting again. The Turkish economy
continued to grow, albeit at a lower level than before. Recovery started in
Iceland in 2011 and continued this year. The EU is committed to continue
assisting the countries with policy advice and financial assistance. The
Western Balkans Investment Framework will be used to help prepare and support,
in close cooperation with the international financial institutions, those
investments most needed for boosting growth and jobs. The Commission will also
continue associating enlargement countries with the Europe 2020 strategy.

12.
In view of the far reaching changes to the economic
governance of the EU underway, the Commission will continue to inform and
further associate enlargement countries to this process. It will gradually
adapt in this respect the existing economic surveillance of enlargement
countries and examine the possibility of more targeted use of SAA meetings to
tackle the issues of competitiveness and employment.

13.
In December 2011, the Commission made its
proposal for the new IPA II regulation for the period of the multi-annual
financial framework 2014-2020. IPA II aims to ensure a closer link with the
priorities of the enlargement strategy, including strengthening democratic
institutions and the rule of law and more focus on socio-economic development.
It will provide for reinforced support to sector
strategies, with increased flexibility and simplified
procedures.

14.
Considerable benefits are available today to
citizens of enlargement countries with trade through the SAAs, visa-free
travel and participation in Community programmes. In January 2012
the Commission launched a visa liberalisation dialogue with Kosovo. An
EU-Turkey Readmission Agreement has been initialled. Its swift signature and
effective implementation is now required, also in view of further steps towards
visa liberalisation. At the same time, countries should reinforce measures to
tackle abuse of visa-free travel.

15.
Enlargement policy needs public
understanding and support in order to be successful and sustainable. Member
States and enlargement countries have the main role in the information and
communication efforts towards their citizens. It is essential to foster
understanding and informed debate on the impact of enlargement policy,
particularly at a time when the EU is facing major challenges. The Commission
for its part will continue to provide information about the enlargement
process, contributing to an informed public debate on enlargement.

16.
The enlargement process is by its very
nature inclusive and necessitates wide stakeholder participation. In the
enlargement countries, broad political consensus and support of the population
for the reforms required contributes significantly to the transformation
necessary for progress on the EU path. Also, the Commission will continue to provide support through the Civil
Society Facility, with a greater focus on smaller grants to local
grass-roots civil society organisations.

II

17.
Croatia: In parallel to this Communication, the Commission has adopted a
Communication on the main findings of the comprehensive monitoring report on
Croatia’s state of preparedness for EU membership. The Commission concludes
that Croatia has continued to make progress in adopting and implementing EU
legislation and is now completing its alignment with the acquis. The
Commission has nonetheless highlighted areas where further efforts are still
necessary and a limited number of issues where increased efforts are required
in the coming months. This concerns in particular the areas of competition
policy, judiciary and fundamental rights – especially judicial efficiency - and
justice, freedom and security. It is essential that Croatia sharpens its
focus to ensure that its preparations are completed on time and that this can
be reflected in the Communication on a final monitoring report on Croatia’s
accession preparations to be presented by the Commission in spring 2013.

18.
Montenegro: The political criteria continue to be sufficiently met. The opening
of accession negotiations in June 2012 reflected its continued progress on key
reforms. The screening process has begun and is expected to finish in summer
2013. The accession negotiations integrate the new approach for the chapters on
judiciary and fundamental rights and justice, freedom and security, thereby
reinforcing the focus on the rule of law. During the negotiations Montenegro
will need to further develop a track record in this area with the aim of irreversible reform implementation, in particular with respect to the fight against organised crime
and corruption, including at high-level.

19.
The
former Yugoslav Republic of Macedonia: The
political criteria continue to be sufficiently met. The government has put the
EU agenda at the centre of its activity. The High Level Accession Dialogue with
the Commission served as a catalyst for accelerating reforms and has
contributed to substantial progress in a number of key policy areas. The reform momentum needs to be sustained in
all areas in particular to ensure implementation. Focus on the rule of law,
including as regards freedom of expression, and on inter-ethnic relations and
reconciliation needs to be maintained.

The Commission recommends for a fourth time
that accession negotiations be opened with the former Yugoslav Republic of
Macedonia. The Commission believes that moving the accession process of this
country to its next stage is necessary in order to consolidate the pace and
sustainability of reforms, mitigating the risk of any reversal in this process,
as well as to strengthen inter-ethnic relations. It will also bolster the
credibility of the EU and act as an encouragement to reform efforts elsewhere
in the region.

The Commission underlines that maintaining good
neighbourly relations, including a negotiated and mutually acceptable solution
to the name issue, under the auspices of the UN, remains essential.

A decision of the European Council to open
accession negotiations would contribute to creating the conditions conducive to
finding such a solution. In this respect, the Commission is ready to present
without delay a proposal for a negotiating framework, which also takes into
account the need to solve the name issue at an early stage of accession
negotiations. In this regard, account will be taken of previous frameworks and
notably the principles of the new approach endorsed by the Council in December
2011. The above approach requires intense political engagement from all sides
in advance of the European Council.

20.
Serbia:
The European Council of March 2012 granted Serbia the status of candidate
country. Serbia continues on its way to sufficiently fulfilling the political
criteria and the conditions of the Stabilisation and Association process.
Serbia needs however to pay particular attention to the rule of law, notably
the judiciary where recent setbacks underline the need for renewed commitment
to pursue reforms, and ensure its independence, impartiality and efficiency,
also taking into account the recent rulings of the Constitutional Court. Also
in light of recent events, special attention must be paid to the rights of
vulnerable groups and to the independence of key institutions such as the
Central Bank. Serbia should also continue to constructively engage in regional
cooperation and strengthen relations with neighbouring countries. The momentum
of reforms needs to be re-invigorated and further progress made towards a
visible and sustainable improvement of relations with Kosovo. Two recent
developments in this regard are Serbia’s signature of the IBM technical
protocol and clarification of Serbia’s interpretation of the agreement on
regional cooperation and representation of Kosovo, which, based on initial
implementation, is no longer hampering the inclusiveness of regional
cooperation.

In line with the Council Conclusions of 5
December 2011 as endorsed by the European Council of 9 December 2011 on the conditions
for opening accession negotiations with Serbia, the Commission will present a
report as soon as it will have assessed that Serbia has achieved the necessary
degree of compliance with the membership criteria, in particular the key
priority of taking steps towards a visible and sustainable improvement of
relations with Kosovo. The Commission calls on Serbia to implement in good
faith all agreements reached to date and to engage constructively on the full
range of issues with the facilitation of the EU.

A visible and sustainable improvement in
relations between Serbia and Kosovo is needed so that both can continue on
their respective paths towards the EU, while avoiding that either can block the
other in these efforts. This process should gradually result in the full
normalisation of relations between Serbia and Kosovo with the prospect of both
able to fully exercise their rights and fulfil their responsibilities within
the EU. Addressing the problems in northern Kosovo, while respecting the
territorial integrity of Kosovo and the particular needs of the local
population, will be an essential element of this process.

The Commission underlines that the steps
leading to the normalisation of relations between Belgrade and Pristina should
also be addressed in the context of the framework for the conduct of future
accession negotiations with Serbia.

The Commission underlines the importance of
this comprehensive approach being pursued with determination by the parties
with the full support of the EU.

21.
Albania: Improved dialogue between government
and opposition, especially after the November 2011 agreement, has allowed
Albania to make good progress towards fulfilling the political criteria for
membership of the EU. Albania has delivered on a number of substantial reforms
against the 12 key priorities which were identified by the Commission in its
2010 Opinion and have to be met in view of opening accession negotiations with
the European Union. Albania has met four of the key priorities, namely those
concerning the proper functioning of parliament, the adoption of pending laws
requiring reinforced majority, the appointment of the ombudsman and the hearing
and voting processes for key institutions and the modification of the
legislative framework for elections. Albania is well on its way towards meeting
the two key priorities regarding public administration reform and improving the
treatment of detainees. Progress against the remaining key priorities included
some significant steps, notably the adoption of the law on administrative
courts, lifting of immunities for high-level public officials and judges,
increase of seizures of criminal assets, the adoption of a comprehensive
strategy on property reform, and amendments to the criminal code strengthening
sanctions for domestic violence.

In view of this progress, the Commission
recommends that the Council should grant Albania the status of a candidate
country subject to completion of key measures in the areas of judicial and
public administration reform and revision of the parliamentary rules of
procedure. The Commission will report to the Council as soon as the necessary
progress has been achieved. In its report, the Commission will also take into
account the commitment demonstrated by Albania to fight corruption and organised
crime, including by pro-active investigations and prosecutions of such cases.

In order for the Commission to recommend the
opening of accession negotiations, it would need in particular to see sustained
implementation of commitments already undertaken and completion of the
remaining key priorities which have not been met in full. A particular focus is
required on: conducting elections in line with European and international
standards; strengthening the independence, efficiency and accountability of
judicial institutions; determined efforts in the fight against corruption and
organised crime, including pro-active investigations and prosecution; effective
measures to reinforce the protection of human rights and anti-discrimination
policies; and, implementation of property rights. The successful conduct of
Parliamentary elections in 2013 will be a crucial test of cross-party
commitment to the new electoral reform and a pre-condition for any
recommendation to open negotiations. Sustainable political dialogue and
continued efforts in all the areas covered by the key priorities will remain
essential to implement reform and secure Albania’s EU future.

22.
Bosnia and Herzegovina: Limited progress has been made towards meeting the political
criteria and achieving more functional, coordinated and sustainable
institutional structures. Within the framework of the Stabilisation and
Association Process, Bosnia and Herzegovina continued to engage constructively
with the EU on a Structured Dialogue on Justice.

The High level Dialogue on the Accession
Process launched in June is the key forum for engagement on requirements for
the EU integration process. In this respect, the
Commission regrets that the results so far remain below expectations. A shared vision among the political representatives on the overall
direction and future of the country and its institutional set-up remains
absent. Meeting the conditions for the entry into force
of the SAA and for a credible EU membership application
remains a matter of priority, as does the establishment of an effective
coordination mechanism between various levels of government so that the country
can speak with one voice on EU matters. The Commission will continue to engage
with the authorities of the country. However, the country’s leaders need to
demonstrate the political will to reach consensus and to realise with concrete
actions the EU aspirations of the country and its citizens.

Following the decoupling of the European Union
Special Representative (EUSR) mandate from the Office of the High
Representative, the EU has, through
its enhanced presence, taken the lead in a number of areas to assist the
authorities to implement the objectives of the EU agenda. In this regard, the
EU will continue to strengthen its support for the country’s institutions.

23.
Kosovo: In parallel to this Communication, the Commission has adopted a
Communication on a Feasibility Study for a Stabilisation and Association
Agreement with Kosovo. This study confirms that an SAA can be concluded between
the EU and Kosovo in a situation where EU Member States maintain different
views on status. The Commission will propose negotiating directives for an SAA
once Kosovo has made progress in meeting a number of short term priorities. It
is essential that Kosovo continues implementing in good faith all agreements
reached between Belgrade and Pristina to date and that it engages
constructively on the full range of issues with the facilitation of the EU.

A visible and sustainable improvement in
relations between Kosovo and Serbia is needed so that both can continue on
their respective paths towards the EU, while avoiding that either can block the
other in these efforts. Addressing the problems in northern Kosovo, while
respecting the particular needs of the local population, will be an essential
element of this process.

24.
Turkey:
Turkey is a key country for the EU, considering its
dynamic economy, its strategic location and its important regional role. The
Commission underlines the importance of the on-going cooperation and dialogue
on foreign policy issues of common interest to the EU and Turkey, such as North
Africa, and the Middle East.

The potential of the EU-Turkey relationship can
be fully tapped only within the framework of an active and credible accession
process which respects the EU’s commitments and the established conditionality.
It is in the interest of both the EU and Turkey that accession negotiations
regain their momentum, not least to ensure the EU remains the benchmark for
reforms in Turkey. The Commission therefore believes it is important that, in
line with established procedures and relevant Council conclusions, work resumes
on negotiating chapters interrupted over a number of years due to the lack of
consensus amongst Member States.

To revive the accession process and bring fresh
dynamism to EU-Turkey relations, the Commission will continue to implement the
positive agenda in the relations with Turkey launched in May 2012 and which is
already delivering its first results. Turkey’s active support to the positive
agenda and its European perspective remains essential.

Concerns are growing regarding Turkey’s lack of
substantial progress towards fully meeting the political criteria. The
situation regarding the respect for fundamental rights on the ground, including
freedom of expression, continues to be a source of serious preoccupation –
despite recent legislative improvements. It is important that Turkey addresses
all issues regarding the independence, impartiality and efficiency of the
judiciary. The Commission welcomes the commitment of the Turkish government to
present swiftly the fourth judicial reform package and calls for it to address
all the core issues which are presently affecting the exercise of freedom of
expression in practice.

Turkey has frozen its relations with the
rotating Presidency of the Council of the EU during the second half of
2012. The Commission reiterates its serious concerns with regard to Turkish
statements and threats and calls for full respect of the role of the Presidency
of the Council.

The EU has also stressed all the sovereign
rights of EU Member States which include entering into bilateral agreements,
and exploring and exploiting their natural resources, in accordance with the EU
acquis and international law, including the UN Convention on the Law of
the Sea. In line with the repeated Council and Commission positions from
previous years, the Commission reiterates that it is urgent that Turkey fulfils
its obligation of fully implementing the Additional Protocol and makes progress
towards normalisation of bilateral relations with the Republic of Cyprus. This
could provide new momentum to the accession process. In the absence of progress
in these areas, the Commission recommends that the EU maintains its measures
from 2006. It also urges the avoidance of any kind of threat, source of
friction or action that could damage good neighbourly relations and the
peaceful settlement of disputes.

Turkey is encouraged to increase in concrete
terms its commitment and contribution to the talks under the good offices of
the UN Secretary General to find a comprehensive settlement to the Cyprus
issue.

25.
As regards the Cyprus issue, the
negotiations on a comprehensive settlement between the leaders of the Greek
Cypriot and Turkish Cypriot communities under the auspices of the United
Nations have reached a standstill. It is necessary to re-launch the
negotiations with the aim of reaching a swift conclusion of the talks, building
on the progress achieved to date. This will require creating a positive climate
that will facilitate the completion of the process and preparing the public for
the necessary compromises. The Commission stands ready to continue providing
strong political support and technical advice on issues within EU competence.

26.
Iceland: The EU’s common interests with Iceland are growing, including in
the fields of renewable energy and climate change and in view of the strategic
importance of the EU’s Arctic policy. Accession negotiations with Iceland are
progressing well. EU accession remains an issue of lively public debate in
Iceland. The Commission is confident that the EU will be able to present a
package for the negotiations which takes Iceland’s specificities into account
and safeguards the principles and acquis of the EU, allowing also, in due
course, for a fully informed decision of the Icelandic people.

ANNEX

Conclusions
on Montenegro, the former Yugoslav Republic of Macedonia, Serbia, Albania,
Bosnia and Herzegovina, Turkey and Iceland

Montenegro

Montenegro sufficiently meets the political
criteria for membership of the EU. The legislative and institutional framework and
policies have been improved with a view to strengthening the functioning of the
parliament, the judiciary, anti-corruption policy, human rights and protection
of minorities. The on-going constitutional and public administration reforms
have further advanced. The track record on law enforcement has developed
further. Efforts need to be pursued in the
area of rule of law, in particular to finalise the on-going constitutional reform
aimed at strengthening judicial independence and to further develop the track
record of implementation, notably in the fight against corruption and organised
crime. Montenegro has continued to play a constructive role in the
region, to respect its international commitments and the conditions of the
Stabilisation and Association Process.

As regards democracy and rule of law,
Montenegro achieved progress in
strengthening the legislative and oversight role of the parliament,
including on rule of law matters. Implementation of recently adopted
legislation on elections has started, and the administrative and expert
capacity of the parliament has been reinforced. Transparency has improved and stand-alone committees on European integration and on anti-corruption
have been provided for. Efforts undertaken to enhance the parliament’s
legislative and oversight capacity need to be pursued.

The government policy-making has
further improved. The structures for the accession negotiations are gradually
being set up and include representatives of the civil society. The
administrative capacity for the coordination of European integration, including
financial assistance, needs to be further strengthened to meet the requirements
of the accession negotiations. The overall capacity of ministries to produce
high-quality legislation and impact assessments needs to be enhanced. As
regards local government, further efforts are needed to implement recent
legislation and to establish a transparent, efficient and accountable administration.

Montenegro has
taken further steps to address the challenges of public administration
reform. The legislative framework and the implementation of the recent
legislation need to be improved, in a financially sustainable manner and with
adequate verification mechanisms. The capacity of the Ombudsman has been
reinforced but needs to be further enhanced.

Some progress has been made with regard to
the judicial system. Implementation of recently adopted legislation has
started. Progress has been made with regard to the publication of court rulings
and the case backlog. The process of constitutional reform to
stengthen the independence of the judiciary in line with European standards
remains uncompleted. Further efforts are needed to
ensure merit based appointments and career development, as well as to
strengthen accountability and integrity safeguards within the judiciary.

Some progress has been made in the area of anti-corruption.
Implementation of recently-adopted legislation in the key areas of political
party financing, prevention of conflict of interest and public procurement has
started. The capacity
of the supervisory institutions, in particular the State Election Commission,
the State Audit Institution and the Commission for the Prevention of Conflict
of Interest, needs to be enhanced. Montenegro has further developed its track
record of investigations, prosecutions and convictions in corruption cases.,
but their number remains low and there are still no seizure or confiscation of
assets ordered for corruption offences. Corruption remains widespread and
continues to be a serious cause for concern, hindering law enforcement
investigations of organised crime.

Progress has been made in the area of the fight
against organised crime. The track record has continued to develop, but
needs to advance further. Tackling organised crime through all means of the
legal system present particular challenges for the country. Regional and
international cooperation was reinforced through the signature of agreements and
joint operations. Still, the results achieved, including the administrative
capacities and interagency cooperation in the field of organised crime have to
be pro-actively consolidated, particularly in the field of financial
investigations, while the legal framework needs to be completed. A national
criminal intelligence system still remains to be established. Its lack hampers
the effectiveness of the law enforcement bodies, which has to be enhanced.
Prosecutor’s leading role in investigations still needs to be strengthened.
Increased efforts are required in the fight against money laundering and
trafficking in human beings, including to identify and reintegrate victims.

Montenegro
continued to improve the existing legal and institutional framework for the
protection of human rights and protection of minorities. The
authorities, including at the highest level, showed a more positive attitude
towards human rights. The completion of the relevant legislative and
institutional framework need to continue, and the administrative and financial
capacities in this field need to be strengthened, including those of the state
prosecutor and of the Ombudsman.

Good progress was made in improving the
legal and administrative framework for civil and political rights in Montenegro, and enforcing them. The Ombudsman’s power to act against ill-treatment needs to
be enhanced, and living conditions in prisons require improvement. Efforts to
investigate and prosecute old cases of violence against journalists need to be
stepped up.

Montenegro has made
progress on social and economic rights, by consolidating the relevant
legal and institutional framework. The more positive attitude of the
authorities has contributed to the promotion of these rights, but additional
financial allocations, and skilled human resources, need to be deployed to
enforce them. The handling of violations of social and economic rights needs to
improve.

Montenegro made
progress in the protection of minorities and cultural rights. The
adoption of the Strategy to improve the situation of the Roma, Ashkali and
Egyptian population and the relevant Action Plan are positive developments to
this end, but the inclusion of the Roma, Ashkali and Egyptians needs to be
improved, in particular through the implementation of the relevant policy
documents, as they still face discrimination. Progress in granting legal status
to displaced persons has continued, but there are still gaps in access to
economic and social rights for these people.

Regarding regional issues and
international obligations, Montenegro continues to satisfy the
Stabilisation and Association Process conditionality on cooperation with the
ICTY and regional cooperation. Certain bilateral issues with neighbouring
countries are still unsolved, especially in the area of border demarcation.

Significant
progress has been made as regards the Sarajevo Declaration Process. Bosnia and Herzegovina, Croatia, Montenegro and Serbia continued to cooperate on finding sustainable
solutions for the refugees who were displaced as a result of the armed
conflicts in the 1990s. The four countries signed a ministerial declaration and
agreed on a Regional Housing Programme assisting some 27,000 households or
74,000 individuals. At an international donors’ conference held in Sarajevo in April 2012 some € 265 million was pledged in support of the programme.
Good cooperation needs to continue on all outstanding issues in the process.

As regards the International Criminal
Court, the bilateral immunity agreement with the United States does not comply
with the EU common positions and guiding principles. Montenegro needs to align
with the EU position.

After a moderate recovery in 2011, the economy
of Montenegro decelerated in the first half of 2012. Domestic demand remains
subdued due to weak credit growth and still large private sector debt overhang.
In the absence of standard monetary policy tools[2]
the economic policy has continued to be oriented
towards reinforcing economic and financial stability through the pursuit of
fiscal consolidation and structural reforms. However, contingent
liabilities from state guarantees have become a significant risk for the
stability of public finances. Unemployment remains
high while shortcomings concerning the rule of law, human resources and
infrastructure persist.

As regards the economic criteria,
Montenegro has made some further progress towards a functioning market economy.
However, the unfinished restructuring of the metal industry, widespread
liquidity problems and weak labour market conditions still impede an efficient
allocation of resources. The country should be able to cope with competitive
pressures and market forces within the Union over the medium term, provided
that it continues to address current weaknesses through appropriate
macroeconomic policies and structural reforms.

Macroeconomic
stability has been broadly maintained. The banking sector is still recovering,
with deposits gradually flowing back into the system. Further improvements have
been made in market entry procedures and bankruptcy recovery. The efficiency of
civil enforcement of claims has improved. Liberalisation of telecom and energy
industries has facilitated the opening of their respective markets and their
regulators have become more assertive. Participation in EU research programmes
has been more active. Montenegro remains highly integrated in the EU and CEFTA
markets.

However, large external imbalances persist. Labour market
performance remains weak with very high unemployment rates. Inflationary pressures have been
increasing. The deleveraging of the financial sector continues, causing
liquidity problems and the subsequent accumulation of tax and other payment
arrears in the economy. The stability of public
finances has been furthermore challenged by pressures arising from contingent
liabilities and unpaid contributions. The public debt continued to
increase. The difficult economic situation of the aluminium producer needs to
be addressed. While the country needs to attract
further investments to develop its infrastructures, weaknesses in the rule of
law and a large informal sector continue to hamper the business environment.

Montenegro has made
some progress in improving its ability to take on the obligations of
membership. Good progress has been made in the areas of public procurement,
transport policy, statistics and science and research. Progress has been
limited in other areas such as free movement of workers, free movement of
capital, company law, food safety, veterinary and phytosanitary policy,
taxation, enterprise and industrial policy, environment and climate change, and
financial and budgetary provisions. Montenegro’s limited administrative
capacity represents a challenge in a number of areas and needs to be
strengthened in view of the accession negotiations and to ensure effective
implementation of the acquis. Overall, Montenegro continued to smoothly implement the obligations under the Stabilisation and
Association Agreement (SAA). Some gaps remain as regards State aids, where
further efforts towards alignment are needed.

Montenegro has made
some progress in the area of free movement of goods. Additional efforts,
better coordination and stronger ownership are needed to further align with the
acquis. Overall, preparations in the area of free movement of goods are
relatively advanced.

Little progress has been made in the field
of freedom of movement for workers, where alignment with the acquis
is still at an early stage. Some progress can be reported on the right of
establishment and freedom to provide services. Montenegro made good
progress towards aligning the new law on postal services with the acquis.
On the right of establishment, legislative reforms need to be implemented.
Considerable efforts are still needed regarding the alignment of legislation
with the Services Directive, on mutual recognition of professional
qualifications and as regards inter-institutional cooperation. Preparations
in this area are moderately advanced.

Little progress can be reported on free
movement of capital although preparations are on track. Full alignment with
the acquis, as regards payment systems and strengthening administrative
capacity, mainly in the area of fight against money laundering, will need to be
further pursued. As regards combating money laundering and financing of
terrorism, preparations are at a relatively early stage. Major efforts are
required to enforce legislation, enhance inter-agency coordination and
establish a track record on fight against money laundering and financial crime.
Overall, preparations in this area are on track.

Good progress has been achieved in the area
of public procurement. Implementation of the new legislation remains a
concern. The legislative framework for concessions remains to be aligned with
the acquis. The role, powers and competences of the future inspection
services need to be clarified and sufficient staff provided. Little progress
can be reported in the field of company law. New amendments to the Law
on accounting and auditing, establishing an independent public oversight body
for auditors and a related quality control system, are yet to be adopted. Some
progress can be reported on intellectual property. Further efforts are
needed to align with the acquis in this area and to implement it
effectively. Overall, preparations in each of these areas are moderately
advanced.

Some progress has been made in the area of competition
policy. Further efforts are needed to align Montenegro’s legislation with
the acquis and to ensure operational independence of the competition
authority. Special attention needs to be given to enforcement of State aid
rules, particularly in the areas of State aid to the sensitive sectors.
Overall, preparations in the field of competition policy are moderately
advanced.

There has been some progress in the field
of financial services. Progress has been made in adopting legislation on
public disclosure of information and data by banks, on calculation of large
exposures and on UCITS. Substantial efforts are needed to align with and
implement the existing acquis in the areas covered by this chapter.
Overall, the level of alignment remains moderately advanced.

There has been some progress in the field
of information society and media. However, independence of the
regulatory bodies has been undermined by amendments to the legislation. Overall,
preparations are moderately advanced.

Progress has been made in the area of agriculture
and rural development. Efforts are needed to develop an appropriate legal
framework to meet the objectives of the national action plan towards
accreditation for the management of rural development funds. There has been
limited progress in the area of food safety, veterinary and
phytosanitary policy. Efforts are needed in all fields, in particular with
regard to further alignment with the acquis, the reinforcement of
control capacity in the veterinary field, and the assessment of hygiene
standards in food and feed establishments. Some progress has been made in the
field of fisheries. Efforts are needed with regard to alignment of
legislation with the fisheries acquis and implementation of EU
standards, in particular in the areas of resource management, inspection and
control, market policy, structural and State aid policy. Alignment with the acquis
in each of these areas remains at an early stage.

There has been good progress in the area of
transport, in particular as regards road, rail and maritime transport,
but there is a need to ensure effective implementation of the acquis.
Further progress remains to be made in the rail transport sector concerning
inter-operability, setting up an accident investigation body, as well as the
independence of the rail regulator. Overall, preparations in this area are
advanced. Some progress can be reported in the area of energy.
Additional implementing legislation for the internal energy market remains to
be adopted. Montenegro still needs to adopt the necessary acts concerning oil
stocks reserves, as well as the 10 year work programmes on development of
renewable energy sources (RES). Alignment with the acquis is at an early
stage in this area.

Little progress
was made in the area of taxation, with developments consisting primarily
in the establishment of new departments within the tax administration. Further
efforts are needed to develop an overall business and IT strategy. Overall, in
the area of taxation, Montenegro’s alignment with the acquis is at an
early stage.

There was some progress in the area of economic
and monetary policy. Substantial efforts still have to be made to complete
alignment with the acquis, in particular regarding the Central Bank
independence, monetary financing and privileged access of public-sector to
financial institutions. The capacity for economic policy formulation and
coordination needs to be further strengthened. Montenegro’s present use of the
euro, decided by the Montenegrin authorities in exceptional circumstances, is
fully distinct from euro-area membership. Overall, the level of alignment in
the area of economic and monetary policy is moderately advanced at this stage.
Good progress can be reported in the area of statistics. Nonetheless, Montenegro still has to make serious and sustained efforts to align with the acquis
as regards agricultural, business and macroeconomic statistics. Preparations in
this area are moderately advanced.

Some progress
has been made in the area of social policy and
employment.
Further efforts are needed in the area of health and safety at work. The capacity of the Public Employment
Service needs to be strengthened, along with activation approaches in order to
address low activity and employment rates and the mismatch between the skills
available and needs. Measures and policies for poverty reduction and for Roma
inclusion need to be strengthened. The situation of public finance continues to
adversely affect reforms in the social area. Increased efforts are needed to implement the planned reforms in the area
of pensions. Overall, Montenegro has started to address its priorities in this
area.

Little progress has been made in the area
of enterprise and industrial policy. Various strategies and institutions
exist. Further efforts are needed to ensure the development and the
implementation of this policy.

Some progress has been achieved in the area
of Trans-European Networks. As regards transport networks
infrastructure, significant work remains to be done on improving road and rail
links. Gas interconnections with neighbouring countries need to be developed
and the national transmission systems upgraded. Overall, preparations in this
area are still at an early stage. Some progress has been made in the area of regional
policy and coordination of structural instruments, in particular
with regard to the institutional framework and programming. Montenegro needs to strengthen administrative capacity in the established IPA structures and
adequately prepare them for the future. Overall, preparations in this area have
started.

Montenegro has made
some progress in the area of the judiciary and fundamental rights. Implementation
of recently adopted legislation has started. Progress has been made with regard
to the publication of court rulings and the case backlog. The
constitutional reform aimed at strengthening judicial independence has not been
completed yet. A single, country­wide recruitment system and a system to monitor
the length of trials need to be set up, the court network rationalised and the
reliability of judicial statistics improved. Further efforts are needed to
ensure merit based appointments and career development, as well as to
strengthen accountability and integrity safeguards within the judiciary. Montenegro has strengthened its anti-corruption legal framework and further developed its
track record of investigations, prosecutions and convictions in corruption
cases, but greater efforts are needed in this respect. Corruption remains
widespread and continues to be a serious cause for concern, allowing also for the infiltration of organized crime groups into
the public and private sectors. The number of final
convictions remains low and there are still no corruption cases in which
seizure or confiscation of assets were ordered.

The existing legal and institutional
framework for the protection of fundamental rights has been further
strengthened. The decriminalisation of defamation contributed to improving the
media environment in the country. The process of granting legal status to the
displaced persons has further advanced. Social inclusion of Roma, Askhali and
Egyptians has to continue, in particular through the implementation of the
relevant policy documents. Shortcomings persist in the protection of human
rights by judicial and law enforcement authorities. Efforts to investigate and
prosecute old cases of violence against journalists need to be stepped up.
Further sustained efforts will be needed to align with the EU acquis and
international standards in this field. Overall, preparations in this area are
moderately advanced.

Montenegro has made
some progress in the area of justice, freedom and security. Alignment
with the acquis in the field of migration, asylum and visa has started.
The construction of the centre for foreigners and the one for asylum seekers is
being finalised. Implementation of the integrated border management strategy
and action plan is on track. In the area of police cooperation and the fight
against organised crime, the country has continued to extend its international
and regional network, and to reinforce its legal framework and administrative
capacities. Joint investigative operations with other countries of the region,
as well as with EU Member States, Interpol and Europol, resulted in an increase
of the number of indictments, arrests and convictions in the field of organised
crime. The policy and legal frameworks in this area have improved. Further
sustained efforts will be needed to align with the acquis in this
chapter, especially in the fields of asylum, visa, external borders and
Schengen, the fight against organised crime, and to develop a solid track
record of investigations, convictions and drugs seizures. The capacity to
implement the legal framework in judicial cooperation in civil and criminal
matters has to be reinforced. Increased efforts are required in the fight
against money laundering and in addressing trafficking in human beings. The
country is moderately advanced in this area.

Good progress has been made in the
alignment with the acquis in the area of science and research.
Further efforts are necessary to strengthen research and innovation capacity at
national level and facilitate integration into the European Research Area. The
level of investment in research needs to be further increased in particular
from the private sector and by stimulating public and private investment in
scientific research activities. Overall, preparations are on track in this
area. Some progress has been made in the area of education and culture.
Higher education reform and modernisation of the vocational education and
training system need to be further addressed. Implementation of educational
reforms remains a challenge. Overall, preparations are moderately advanced in
this area.

Montenegro has made
little progress in the area of environment and climate change. There are
first signs of improvement with the adoption of legislation on waste
management, air quality and chemicals and with regard to the administrative capacity
and efforts undertaken towards alignment with the climate acquis.
Further attention is needed in the areas of water quality and waste management.
The effective implementation of the Environmental Impact Assessment and
Strategic Environmental Assessment acquis needs be ensured. Considerable
efforts are required to align with and implement environment and climate acquis,
as well as to strengthen administrative capacity and inter-institutional
cooperation. Environment and climate change considerations need to be more
systemically taken into account in other policy fields and planning documents.
The lack of political priority and adequate financing as well as limited
awareness of environmental and climate requirements are hampering progress in
this field. Preparations in this area are still at an early stage.

Some progress has been made in the fields
of consumer and health protection. Legal alignment needs to continue in
the area of consumer protection. Preparations in these areas are moderately on
track. Some progress has been achieved in customs legislation. A new law
on customs tariff further aligns the national legislation with the Common
Customs Tariff. In the areas of administrative and operational capacity, the
implementation of existing procedures and working methods needs to be stepped
up. Preparations for possible accession to the Convention on a Common Transit
Procedure need to be enhanced. Overall, preparations in the field of customs
union are moderately advanced.

Some progress has been made in the area of external
relations. Montenegro has become member of the WTO. Some progress has also been made in the field of foreign,
security and defence policy. Montenegro has aligned itself with all EU
declarations and Council Decisions and has continued to actively contribute to
regional stability. Preparations in these areas are moderately advanced.

Montenegro has made
uneven progress in the field of financial control. While the legal
framework for public internal financial control (PIFC) is in place, practical
implementation is lagging behind, particularly at local level. Montenegro needs to strengthen managerial accountability arrangements in the context of the
public administration reform. Financial independence of the State Audit
Institution should be guaranteed in practice. Preparations in the area of
financial control are at an early stage. Limited progress has been made as
regards financial and budgetary provisions. In due course, a
coordinating body needs to be set up to steer pre-accession preparations in the
own resources field. The administrative framework for the application of the
own resources rules needs to be established. Overall preparations are at an
early stage in this area.

The
former Yugoslav Republic of Macedonia

The former Yugoslav Republic of Macedonia
continues to sufficiently meet the political criteria. The country
continues to fulfil its commitments under the Stabilisation and Association
Agreement. The government has put the EU agenda at the centre of its activity.
The High Level Accession Dialogue (HLAD) with the Commission served as a
catalyst for accelerating reforms and has contributed to substantial progress
in a number of key policy areas. The government has adopted proposals for
improvement of the legislative framework for elections and, in the area of
freedom of expression, for the decriminalisation of defamation. The first
government review of the implementation of the Ohrid Framework Agreement
provides a tool for strengthening inter-community dialogue. The reform momentum
needs to be sustained in all areas of the political criteria in particular to
ensure implementation. The Parliament is considering the related legislation.
Focus on the rule of law, including as regards freedom of expression and on
inter-ethnic relations and reconciliation needs to be maintained. An inclusive
approach with civil society needs to be taken forward.

The Ohrid Framework Agreement (OFA)
continues to be an essential element for democracy and the rule of law
in the country. The government has launched a review of the
implementation of OFA since 2001, with the aim of building a consensus on the
results achieved and the challenges ahead. Tension between communities
following violent incidents in the first half of 2012 caused concern. The
government has responded with maturity to this challenge and needs to build on
this to further strengthen inter-ethnic relations and reconciliation, including
on the status of victims of the 2001 conflict. There has been some further
progress on wider implementation of the Law on Languages.

The functioning of the parliament
has improved and political dialogue has been maintained, in particular as
regards EU integration. The implementation of the Rulebook of Procedure has
gone forward, including with respect to key demands of the Opposition. The
Parliament is considering the related government proposals for improving the
electoral framework. On-going efforts will be necessary to fully address the
recommendations of OSCE/ODIHR.

Cooperation within the government coalition
has continued and has been successful in putting the accession process at the
centre of the political agenda. The government has effectively coordinated the
implementation of the HLAD on the basis of its own Roadmap. In the field of
local government, progress on decentralization needs to be accelerated, in
particular as regards the financial framework.

As regards public administration,
there was some progress. Services to citizens were improved and e-government is
being gradually introduced. Consultations on major reforms to the framework for
administration are on-going. Additional efforts are needed in order to
guarantee transparency, professionalism and independence of the public
administration. In particular, respect for the principles of merit-based recruitments
and promotions needs to be ensured.

As regards the judiciary,
legislative and institutional safeguards are in place, but further efforts are
needed to guarantee independence and impartiality in practice. Progress has
been made, notably in reducing the backlog of cases. Further efforts are needed
to create clear and transparent grounds for proportionate dismissal procedures
and to improve significantly the implementation of merit-based judicial
appointment and career development. The Academy for Judges and Prosecutors
should be further supported in its key role in the development of a
professional and highly-skilled judiciary and prosecution service.

In the area of anti-corruption policy,
the legislative framework is in place and capacity has been strengthened
slightly, but greater efforts are needed as regards implementation of existing
laws. Steps have been taken to improve verification capacities and enforcement
powers of the authorities. However, there has been little visible progress in
terms of end-results. A track record of handling high-level corruption cases
has yet to be established. A more proactive and coordinated approach by
supervisory bodies and enforcement agencies is needed. Collection and analysis
of statistical data should be improved to focus efforts where they are most
needed. Corruption remains prevalent in many areas and continues to be a
serious problem.

There was some progress as regards the fight
against organised crime, in particular through the issuance of over 100
international arrest warrants and good cooperation through Interpol and with
Europol. The Law on Interception of Communications was amended, strengthening
the efficiency and transparency of this special investigative measure. Further
efforts are needed to strengthen the capacities of the law enforcement agencies
and to enhance inter-agency cooperation and information exchange. The country
is advanced in the field of police cooperation and fighting organised crime.

The legal and institutional framework for human
rights and the protection of minorities is broadly in place. Civil
and political rights are broadly respected and some further progress was
made. The roundtable dialogue with journalists has proved an important forum to
address key challenges in the area of the media. The government adopted
proposals to decriminalize defamation through the adoption of a civil Law on
Liability for Insult and Defamation. The Criminal Code needs to be revised in
line with this approach. The Broadcasting Council has begun to enforce legal
provisions against concentration of ownership and conflict of interest with the
political sphere. The Broadcasting Council needs to demonstrate it is following
a non-discriminatory and transparent approach. There remain widespread concerns
about lack of pluralism and self-censorship. Continued efforts are necessary to
address related challenges such as the transparency of government advertising
and the labour rights of journalists.

Some progress can be reported in the
strengthening of social and economic rights. The Economic and Social
Council has met regularly. The Commission for Protection against Discrimination
is engaged in processing complaints although its resources are limited. The Law
on anti-discrimination needs to be fully aligned with the acquis,
notably as regards discrimination on grounds of sexual orientation. There is a
need for better protection of rights of women, including from vulnerable
groups, as well as further efforts to increase their participation in the
labour market and in political life. Social integration of people with
disabilities still remains weak.

Overall, some progress was achieved in the
area of cultural rights and minorities. A review of the Ohrid Framework
Agreement has been launched which includes recommendations for addressing the
on-going challenges. The review and concrete ethnic cooperation need to be
followed up. Fostering trust between ethnic communities will be of key
importance. Concerning the Roma, several activities were taken, notably to
address the issue of persons without documents and to integrate Roma refugees.
Implementation of existing strategies and inter-institutional cooperation needs
to be significantly strengthened.

Regarding regional issues and
international obligations, the country continued to cooperate fully
with the International Criminal Tribunal for the former Yugoslavia (ICTY).
There are no remaining cases or appeals pending in The Hague. Of the four cases
that the ICTY transferred back to the national authorities in 2008, one was dismissed
in 2011 by the domestic court system and three were dismissed in 2012, in line
with the request of the Public Prosecution and on the basis of the Amnesty Law.

As regards the International Criminal
Court, the bilateral immunity agreement with the United States does not comply
with the EU common positions and guiding principles. The country needs to align
with the EU position.

The country continued
to participate actively in regional cooperation initiatives, including the
South-East European Cooperation Process (SEECP), the Regional Cooperation
Council (RCC), and the Central European Free Trade Agreement (CEFTA). It took over the Chairmanship-in-Office of the SEECP in June 2012. The
seat of the Secretariat of South-Eastern European Health Network (SEEHN) was
established in Skopje. The country continued to contribute to the EU ALTHEA
mission in Bosnia and Herzegovina.

The former Yugoslav Republic of Macedonia
has maintained an overall constructive role as regards bilateral relations with
neighbouring Member States and other enlargement countries. Relations with
partners in the Western Balkans were further developed. Relations with Greece remained affected by the name issue. The International Court of Justice adopted a
judgment concerning the Interim Agreement with Greece. The country has kept
engaged in talks under the auspices of the UN and in direct contacts with
Greece. The talks under the UN auspices for a negotiated and mutually
acceptable solution should be pursued with increased vigour, as should direct
bilateral meetings and contacts. Actions and statements which could negatively
impact on good neighbourly relations should be avoided.

The economy of the country continued growing at a decelerated pace in 2011, but
declined in the first half of 2012. Growth was based on resilient domestic
demand, while external demand has been declining. Structural reforms have
continued, but overall at a slow and gradual pace. There has been some further
progress in simplifying business registration, accelerating judiciary
procedures and deepening financial intermediation. However, little has been
achieved in addressing the very high unemployment, which is mostly structural
and affects mostly the young and poorly educated.

As regards the economic
criteria, the former Yugoslav Republic of Macedonia continues to be well
advanced. In some areas, it has made further progress towards becoming a
functioning market economy. The country should be able to cope with competitive
pressures and market forces within the Union in the medium term, provided that
it vigorously implements its reform programme in order to reduce significant
structural weaknesses.

The country has
maintained a broad consensus on the essentials of economic policies. Monetary
policy, based on the de facto peg to the euro, contributed to macro-economic
stability. Fiscal policy kept spending largely in line with revenue growth.
Privatisation is mainly completed. Price and trade liberalisation has been
largely accomplished. Some further progress has been achieved in facilitating
market entry and in simplifying the regulatory framework. The judiciary
procedures accelerated with the average duration of bankruptcy procedures
further reduced. Property registration is practically accomplished. The
financial sector so far weathered the financial market turbulences rather well
and maintained its trend towards increased intermediation and market deepening.
Gradual progress in the education sector has continued. Increased FDI helped to
diversify the country’s export structure.

However, the quality of fiscal governance has deteriorated
further; medium-term planning and public expenditure management has worsened,
and the transparency and reliability of public sector accounts declined.
Furthermore, the short-term orientation on spending with low growth enhancing
effects has continued. Public sector debt has increased
significantly. Unemployment remained very high. The
functioning of the labour market is impeded by structural weaknesses. The level
of education and qualification of the human capital is low. Similarly, the
physical capital needs modernisation and deepening. Despite gradual
improvements, the functioning of the market economy continues to be impeded by
institutional and judiciary weaknesses. Some regulatory and supervisory
agencies still lack the necessary resources and leverage to fulfil their
functions effectively. The capacity and efficiency of public administration in
providing services to businesses requires improvement. The informal sector
remains an important challenge.

The former Yugoslav Republic of Macedonia
has made further progress in improving its ability to take on the
obligations of membership, in particular in the areas of free movement of
goods, competition, food safety and veterinary policy and Trans-European
networks. Further efforts are needed in other areas such as the environment,
social policy and employment and regional policy and coordination of structural
instruments. Overall, the country has achieved a good level of alignment
with the acquis at this stage of the accession process. It has also
continued to implement smoothly its obligations under the Stabilisation and
Association Agreement (SAA) and the Commission has proposed to pass to the
second stage of the Association.

Good progress was achieved in the area of free
movement of goods, especially in the area of standardisation and metrology.
Preparations in the area of free movement of goods are advanced. Some progress
has been made in the area of freedom of movement for workers. Some progress
can be reported in the area of the right of establishment and freedom
to provide services, particularly as regards postal services. However,
further efforts are needed as regards the implementation of the services
directive and mutual recognition of professional qualifications. Overall, the
country is moderately advanced in this area. There was some progress in the
area of free movement of capital. Further liberalization of capital
movements and payments is subject to the transition to the second stage of the
SAA, which is under consideration by the Council. Preparations
in this area are on track.

Some progress was made in the area of public
procurement, where the level of alignment is advanced with the exception of
remedies and defence procurement. The administrative capacity in the field of
remedies and concessions remains weak. Good progress was made in the area of company
law, in particular in the field of audit. Chartered auditors’
qualifications obtained abroad have yet to be recognised. Overall, preparations
in this area are moderately advanced. Some progress was made in the area of intellectual
property, where the legislative framework and the administrative capacity
were further improved. However, more efforts are needed in the field of
implementation and enforcement. Overall, alignment in this field is moderately
advanced.

Good progress
was made in the area of competition policy with improvement of the
enforcement record. Preparations in this area are advanced. The resource
endowment of the competition authority needs to be further strengthened.
Concerning financial services, progress was made in the areas of
banking, insurance and securities markets and investment services. Alignment
with key acquis in the area of financial market infrastructure remains
to be achieved. Overall, alignment with the acquis in this area is
moderately advanced.

Progress can be reported in the field of information
society and media. Alignment with the acquis continued and key
competitive safeguards have started to be enforced. In the area of audiovisual
policy, the activities of the Broadcasting Council increased, but a
non-discriminatory approach needs to be ensured. Preparations in this area are
moderately advanced.

Some progress was achieved in the field of agriculture
and rural development, where preparations remain moderately advanced. There
have been further advances in setting up the Integrated Administration and
Control System. Alignment with the acquis requires continuing efforts.
Administrative capacity remains a concern throughout the sector.

There was good
progress in the area of food safety and veterinary policy, in particular
with respect to the strengthening of institutions, and implementation of animal
disease eradication programmes. Little progress was observed in the phytosanitary
area, where administrative capacity and co-ordination among competent
authorities has not improved. Preparations, overall, in the area of food
safety, veterinary and phytosanitary policy remain moderately advanced.

Little progress
can be reported in the area of transport policy. Some progress on road
transport acquis alignment can be reported, but not in road safety which
remains a concern. The railway legislation needs further alignment with the acquis.
A legal amendment to close the railway market for competition until EU
accession reversed already achieved alignment with acquis. The Accident
Investigation Committee for rail needs to become operational in order to act as
an independent body. Some progress was made in the energy sector, in
particular in the enacting of implementing legislation deriving from the 2011
Energy Law. Some progress in renewable energy was also made. Full
liberalisation of the electricity and natural gas market is yet to be achieved.
Preparations in these areas are moderately advanced.

Progress has been limited in the field of taxation.
Efforts are still required to harmonise the national legislation with the acquis,
to reinforce the fight against tax fraud and tax evasion and to address IT and
staffing capacity. Overall, preparations in the area of taxation are moderately
advanced.

Preparations in the field of economic
and monetary policy are advanced and little further progress was made.
Preparations in the field are advanced. In the field of
statistics, progress was achieved as regards harmonisation of
sectoral statistics and in transmission of data. Overall, preparations in the
field of statistics are moderately advanced.

Little progress
was made in the area of social policy and employment. Unemployment and
poverty rates are high, while women labour market participation remains low.
Some progress has been achieved in the field of social dialogue but the role of
social partners needs to be further strengthened. The UN Convention on the
Rights of Persons with Disabilities and the Optional Protocol to the Convention
were ratified. Progress in inclusion of Roma, people with disabilities and
other socially excluded people is slow. A mechanism for prevention and
protection against discrimination is in place but not fully operational. The
overall administrative capacity needs to be significantly strengthened.
Overall, preparations in this area are not very advanced.

Some progress
can be reported in the field of enterprise and industrial policy.
Various strategies and measures were adopted, showing strong commitment to
improving the business environment. However, implementation remains scattered
across a number of uncoordinated and poorly funded bodies. The measures are yet
to be made fully effective.

In the area of Trans-European networks
progress was made. The development of the transport, energy and
telecommunications networks is continuing and the country is actively
participating in the South East Europe Transport Observatory and the Energy
Community. A contract was awarded and work begun on construction related to
Corridor X, partly financed by IPA Component III. Preparations in this area are
moderately advanced.

Limited progress can be reported in the
area of regional policy and coordination of structural instruments.
Management of IPA programmes needs to be improved in order to ensure full and
timely absorption of EU funds. Additional efforts are needed to address
deficiencies in management and control systems. In particular, staffing and
qualifications within the operating structures and the Central Financing and
Contracting Department of the Ministry of Finance need to be substantially
strengthened. Preparations in this area are moderately advanced.

Some progress has been made in the field of
the judiciary and fundamental rights, notably in reducing the backlogs
of court cases. Further improvements are needed as regards merit-based judicial
appointments, precise and predictable dismissal grounds and correct use of
statistical tools. In the area of anti-corruption policy, the legislative
framework is in place and capacity has been strengthened slightly but greater
efforts are needed to develop a track record of investigations, prosecutions
and convictions. As regards fundamental rights, some progress was made in the
area of freedom of expression, notably towards the decriminalization of
defamation. The relevant institutions need to become more effective in
promoting and safeguarding fundamental rights in practice. The Ohrid Framework
Agreement remains an essential element for democracy and rule of law in the
country. Preparations in the field of the judiciary and fundamental rights are
moderately advanced.

Progress has
been made in the area of justice, freedom and security, notably on
external borders and customs cooperation, as well as on interception of
communications. Further efforts are needed to improve the efficiency of the
asylum procedure, ensure rigorously merit-based recruitment to the police, step
up the fight against organised crime and improve seizure of drugs. Overall,
preparations in this area are advanced.

Little progress can be reported in the area
of science and research. The general participation rate in
EU framework programmes continued to be good. Preparations for the national
programme for science, research and development activity and for the strategy
on innovation have advanced, but the documents remain to be adopted. In this
area, the country partially meets its targets.

There was some progress in the areas of education,
training, youth and culture. The country continued to improve its
performance in relation to the Education and Training 2020 common benchmarks.
Preparatory measures for the Lifelong Learning and Youth in Action programmes
restarted. Investments are yet to be equitably applied to all parts of the
country and the multi-cultural society. In the area of education and culture
the country is moderately advanced.

Limited
progress was made in the environment and climate change chapter.
Further progress was made in transposing the acquis into national
legislation, in particular in the waste management, air quality and chemicals
sectors. Significant efforts are needed in order to implement the national
legislation, especially in the areas of water management, industrial pollution
control, nature protection and climate change. Overall, preparations in the
field of environment are moderately advanced while in the field of climate
change remain at an early stage.

There has been
some progress in the area of consumer and health protection,
particularly with regard to legal and institutional framework. Further progress
remains hampered by the limited financial resources and weak operational
structures, particularly in the field of consumer protection. Overall,
preparations in this area are moderately advanced.

There was
progress in the area of customs union, in particular on administrative
and operational capacity. Inter-agency cooperation, the fight against
corruption in the customs administration, and the capacity to tackle cross-border
crime continued to improve. Preparations in the area of customs union are well
on track.

Some progress
was made in the area of external relations, notably as regards the
common commercial policy. However, the country’s institutional capacity is
still not sufficient for it to participate fully in EU commercial, development
and humanitarian policies. Preparations in the area of external relations are
moderately advanced.

Continued
progress has been made in the area of foreign, security and defence policy.
The country has maintained its high level of alignment with EU declarations and
Council decisions and has continued its participation in civil and military and
crisis management operations. Preparations in the area of foreign, security and
defence policy are well advanced.

Concerning financial control, there
was some progress, notably in regards to external audit and protection of the
euro against counterfeiting. However, the country remains at an early stage of
the practical implementation of public internal financial control. Overall,
preparations in this chapter are at an early stage. There was no particular
progress concerning financial and budgetary provisions. The institutions
in place to fulfil the administrative framework for the correct calculation,
forecasting, collection, payment, monitoring and reporting of the own resources
framework will need to be strengthened. Preparations in this area are at an
early stage.

Serbia

Serbia is well
on its way to sufficiently fulfilling the political criteria and the
conditions of the Stabilisation and Association Process. The stability and functioning of institutions was ensured
in the lead up to as well as in the aftermath of elections held at
presidential, parliamentary and municipal level, and in Vojvodina. Despite a
slowdown of legislative activity in the electoral context, some progress was
noted in the implementation of reforms in most areas. Serbia maintained its
full cooperation with the International Criminal Tribunal for the former
Yugoslavia (ICTY). Results were achieved in the dialogue with Pristina, but the
implementation of agreements was uneven. Serbia’s interpretation of the
agreement on regional cooperation and representation of Kosovo was eventually
clarified and, subject to continued implementation, no longer hampers the
inclusiveness of regional cooperation. Serbia’s new leadership has underlined
its commitment to implement all agreements already reached in the dialogue with
Pristina as well as to begin tackling the broader political issues. Fulfilment
of this commitment is key to moving to the next phase of Serbia’s EU
integration.

Democracy and the
rule of law have been
further consolidated. The elections were qualified as ‘competitive, held in a
conducive environment and professionally organised’ by international
observation bodies. Electoral operations in Kosovo for the parliamentary and
presidential elections were facilitated by the OSCE and took place in an
orderly manner. In line with UNSCR 1244/99, local elections were not held in
Kosovo, contrary to past practice. The 2011 legislation on parliamentary
mandates and the financing of political parties was implemented. A certain lack
of transparency in the proceedings of the State Electoral Commission and in the
administration of the new single voters’ registry was however noted. The
government needs to follow up the recommendations of the OSCE/ODIHR election
observation mission.

Legislative activity of parliament has been reduced
due to the election cycle, but other parliamentary activities continued
normally. Further reforms are still
needed to ensure that the constitutional provisions, notably on the judiciary,
are fully in line with European standards. The government preserved its
stability and completed a full term in office. A new coalition government was
formed in July 2012. The new government maintained the country’s strong
strategic orientation towards EU integration. Both the new president and the
new government have pledged to pursue the EU agenda of reforms and to closely
cooperate together to achieve corresponding progress. The government needs to
improve consultation of stakeholders in policy formulation and develop its
monitoring of the implementation of new legislation.

Public administration reform is proceeding at a slow pace and is hampered by
insufficient political commitment. The legislative framework needs to be
completed and fully aligned with international standards. Implementation of the
existing laws and public administration reform strategy needs to be improved.
Merit-based recruitment and promotion systems should be developed and
implemented. The follow-up of the recommendations of independent regulatory
bodies needs to be stepped up.

There was little progress in the area of civilian
oversight of security forces. A specific parliamentary committee was set up
but parliamentary oversight remained overall limited. Following a ruling by the
  Constitutional Court, the legal framework for monitoring of communications by
security and intelligence services needs to be clarified.

Regarding the judiciary,
little progress was made, mostly in enforcing new legislation aimed at
improving the efficiency of the judicial system. The review of reappointments
of judges and prosecutors did not correct the existing shortcomings and was
overturned by the Constitutional Court who ordered the reinstatement of all
judges and prosecutors that had appealed their non-reappointment. Cases
returned by the Constitutional Court will need to be processed diligently and
in accordance with the Constitutional Court’s decisions. A system of
professional evaluation, effective disciplinary rules and stronger integrity
safeguards remains to be established. In order to restore the confidence of the
citizens, the authorities will need to consider additional measures to
strengthen the independence, impartiality, competence, accountability and
efficiency of the judiciary, in particular: transparent criteria for
appointments of judges and prosecutors; initial and in-service training under
the Judicial Academy’s responsibility, together with appraisal of serving
judges and prosecutors, including of the newly appointed ones in 2009;
integrity safeguards; court rationalisation. To meet these challenges, a new
strategy on judicial reform is needed, together with an action plan to
implement the strategy, based on a functional review of the judiciary.

Implementation of legal
framework of the fight against corruption has continued. The
Anti-Corruption Agency’s operations increased, mostly in relation to the
financing of political parties. However, corruption remains prevalent in many
areas and continues to be a serious problem. A new Anti-Corruption Strategy and
Action Plan are still awaited. The implementation of the legal framework and
the efficiency of anti-corruption institutions need to be significantly
improved. Further efforts are needed to adopt a more proactive approach to
investigating and prosecuting corruption and the judiciary needs to gradually
build up a solid track record of convictions, including high-level cases,
particularly in cases of misuse of public funds. Stronger political direction
and more effective inter-agency coordination are needed to significantly
improve performance in combating corruption.

In the fight against organised crime, the legal
framework is generally adequate and continued to be implemented. Improved
inter-agency coordination and regional and international cooperation has led to concrete results against organised crime
groups. Organised crime remains a serious concern in Serbia, in particular regarding money laundering and drug smuggling. The track record of
investigations and convictions needs to be built up further.

Human rights continue to be generally well respected and
further progress has been made in the areas of human rights and the protection of minorities. The
legislative and institutional framework for the observance of human rights
is in place. Further efforts in the implementation of the international
instruments are required.

There has been some progress on civil and political
rights. Freedom of
assembly and association are constitutionally guaranteed and in general
respected, but the Pride parade was again banned in October 2012. The
governmental Office for Co-operation with Civil Society has been very active.
The legal framework for freedom of expression is in place but violence and
threats against journalists remain of concern. The implementation of the media
strategy needs to be speeded up. Freedom of thought, conscience and religion is
in general respected but the registration process for religious communities
continues to lack transparency and consistency. The National Mechanism for
Prevention of Torture commenced its work but needs further strengthening.
Although one new facility was opened, overcrowding in the prison system remains
a serious concern. On access to justice, an effective system of free legal aid
still needs to be developed.

The legal framework for the protection of social and
economic rights is in place. Further measures to fight all forms of
discrimination are needed as well as efficient mechanisms to improve the
protection of women and children against any form of violence. The most
discriminated groups are the Roma, persons with disabilities and sexual
minorities. A proactive approach towards the better inclusion of the LGBT
population and a greater understanding across society is needed. The social
dialogue needs to be improved and a solution brought to the issue of social
partners’ representativeness criteria. Regarding property rights, implementation
of the 2011 law on restitution has started.

The legal framework providing for the protection
of minorities is in place and generally respected. Some positive steps were
taken to improve the situation of minorities, including the Roma. Regular
financial reporting by the national minority councils has been introduced.
Additional efforts are needed to ensure an effective implementation of the
minority legislation throughout Serbia and address identified shortcomings. Serbia needs to do more to support the socio-economic development in the areas of Sandzak
and Presevo, Bujanovac and Medvedja. The Roma, as well as refugee and IDP
population continue to face a difficult situation.

Regarding regional issues and international
obligations, Serbia continued to cooperate fully with the International
Criminal Tribunal for the former Yugoslavia. Serbia continued to provide smooth
and swift access to documents and witnesses, in support of the ongoing or
planned ICTY trials. Domestic processing of war crimes continued and regional
cooperation and exchange of information intensified. However, Serbia needs to
further intensify its investigations into the networks of aid to the former
ICTY fugitives in order to achieve visible results.

Serbia’s policy regarding the International Criminal Court
continues to be in line with the EU’s guiding principles and the EU Common
Positions on the integrity of the Rome Statute. Serbia does not have any
bilateral immunity agreement.

Significant
progress has been made as regards the Sarajevo Declaration Process. Bosnia and Herzegovina, Croatia, Montenegro and Serbia continued to cooperate on finding sustainable
solutions for the refugees who were displaced as a result of the armed
conflicts in the 1990s. The four countries signed a ministerial declaration and
agreed on a Regional Housing Programme assisting some 27,000 households or
74,000 individuals. At an international donors’ conference held in Sarajevo in April 2012 some € 265 million was pledged in support of the programme.
Good cooperation needs to continue on all outstanding issues in the process.

Serbia still needs to achieve further progress towards
a visible and sustainable improvement of relations with Kosovo, the key
priority set out in the Commission Opinion on Serbia’s membership application.
New results were achieved in the dialogue with Pristina, with agreements on
regional cooperation and representation of Kosovo and on integrated management
of the border/boundary. Serbia’s interpretation of the agreement on regional
cooperation and the representation of Kosovo was eventually clarified soon
after the formation of a new government and, subject to continued
implementation, no longer hampers the inclusiveness of regional cooperation.
Serbia also eventually signed the IBM technical protocol in September 2012
which has yet to be implemented. Implementation of other agreements reached in
the areas of freedom of movement, cadastre, civil registries, customs stamps
and mutual acceptance of diplomas has overall moved forward. Following the
elections and a new leadership in Serbia taking up office, Serbia needs to
continue to engage constructively in the next phase of the dialogue in order to
achieve further progress towards a visible and sustainable improvement of
relations with Kosovo.

Serbia maintained a
good level of relations with its neighbours and active involvement in regional
cooperation, notably with its chairmanships of the South East Europe
Cooperation Process (SEECP), the Migration, Asylum, Refugees Regional
Initiative (MARRI), the Adriatic-Ionian Initiative (AII) and the Black Sea
Economic Cooperation (BSEC). It continues to play an active part also in the
Regional Cooperation Council (RCC) and the Central European Free Trade
Agreement (CEFTA).

The economy of Serbia continued
to grow in 2011 by 1.6% but recovery weakened significantly in the second half
of the year before turning into contraction in the first half of 2012.
Unemployment soared at 25%. The budget deficit reached 5% in 2011 and was even
higher in the first semester of 2012. Serbia entered into a precautionary
Stand-By Arrangement with the International Monetary Fund in September 2011 but
the completion of the first review has been postponed because the 2012 budget
deviated from the agreed fiscal programme. Economic reforms have mostly stalled
in the pre-election period. The independence of the central bank has been
seriously challenged by the adoption of amendments to the Law on the National
Bank of Serbia in August. The IMF conducted a fact-finding mission in September
2012 but talks have not restarted yet on a stand-by agreement.

As regards the economic criteria,
there was no further progress in the reporting period towards establishing a
functioning market economy. Serbia needs to make significant efforts in restructuring
its economy so as to cope in the medium-term with the competitive pressures and
market forces within the Union.

The consensus on the market economy
fundamentals has been broadly preserved but needs to be reinvigorated. Short‑term external financing risks are dampened by the still
ample foreign exchange reserves and the favourable external debt structure,
with a strong prevalence of long‑term debt. Trade integration with the EU
remained high. The banking sector is well‑capitalised
and liquid. The central bank stepped up its supervision of the banking sector.
Some steps have been taken in speeding‑up and facilitating market entry. Some limited steps have also been taken in
order to improve the business environment notably in the areas of company law and
SME policy.

However, high budget deficits have
constrained the effectiveness of the macroeconomic policy mix and the main
burden of adjustment fell on the monetary policy which continues to be
restricted by the high degree of euroisation of the economy. Labour market
conditions deteriorated sharply with rising unemployment. Sustainable
employment creation represents a major challenge. Lax fiscal policy and
increasing government debt are rapidly limiting fiscal space to cushion further
shocks. There is a need of urgent and decisive consolidation measures, backed
by systemic reforms of the public sector, in order to restore public finance
sustainability. Delays in structural reforms are also constraining the scope
for growth‑enhancing policy responses. Special attention is needed to
further improve the business environment. The development of a dynamic private
sector has not made progress and state interference in the economy remains very
high. Privatisation and restructuring of publicly-owned companies advanced very
slowly and, in some cases, earlier privatisations have even been reversed.
Legal predictability remains weak and unclear property rights continue to
hamper economic activities. The informal sector remains an important challenge.

Regarding Serbia’s ability to take on
the obligations of membership, Serbia continued aligning its
legislation to the requirements of the EU legislation, albeit at a slower pace
as activities of both government and parliament were reduced during the
election year. Good progress has been registered in company law, intellectual
property rights, statistics and customs union. Further efforts are needed in
particular in the areas of judiciary and fundamental rights, justice, freedom
and security, agriculture and rural development, environment and climate change
as well as in financial control. The Interim Agreement (IA) of the
Stabilisation and Association Agreement (SAA) has continued to be smoothly
implemented without any outstanding issues. Serbia continues to build a
positive track record in relation to the obligations under the SAA/IA.

Some progress
was made in the area of free movement of goods, where
preparations are moderately advanced. EU standards continue to be implemented
and the Serbian accreditation body became a full member of the European
cooperation for Accreditation. Market surveillance remains highly fragmented
and inspection controls continue to impose an unnecessarily high administrative
burden on business. Implementation of the legislation, administrative capacity
and coordination among institutions need to be enhanced. There has been some
progress in the area of freedom of movement of workers, where
preparations are moderately advanced. Coordination of social security systems
needs to be improved and preparations for participation in the European
Employment Services network stepped up.

There was little progress in the area of right
of establishment and freedom to provide services,
while there was some progress in the area of free movement of capital,
including in the fight against money laundering. Further efforts are needed to
align the legislation for short term capital operations, real estate and
payment systems with the acquis, and to step up the fight against money
laundering. Overall, alignment in these areas is moderately advanced.

In the field of
public procurement, some progress was made notably in the area of public
private partnerships. Serbia needs to keep up steady efforts to implement its
legislative framework on public procurement, and in particular to avoid
irregularities in the use of the negotiated procedure. Effective coordination
between the main stakeholders, including audit and judicial institutions, needs
to be ensured. The enforcement record and administrative capacities of the
Budgetary Inspection of the Ministry of Finance in charge of supervision of
public procurement needs to be substantially strengthened. Alignment in this
area is moderately advanced.

Good progress was made in the area of company
law, where alignment is well advanced, with the entry into force of
a new law in February 2012 and the adoption of several amendments to this law.
For corporate accounting and auditing, efforts should be stepped up as concerns
independent public oversight, quality assurance and investigations. Serbia made good progress in aligning with the EU intellectual
property rights acquis and with the implementation of its
Intellectual Property Rights (IPR) strategy 2011-2015. A formal coordination
and cooperation mechanism between the institutions in charge of IPR protection
still needs to be established. Alignment
in this area is advanced.

Some progress
was made in the area of competition policy, where alignment is
moderately advanced. The competition authority strengthened its capacity and
the State aid authority developed its enforcement record, but the ex-ante
notifications of State aid measures need to be improved. In both the anti-trust
and mergers as well as State aid fields, additional advocacy measures are
needed. Serbia made some progress in the area of financial
services, where steps were taken towards implementation of the Basel II
requirements. Serbian legislation must be further aligned with the acquis
and effectively implemented in the medium term. Alignment in this area is moderately advanced.

There was little progress in the area of information
society and media, where alignment is moderately advanced. The
general authorisation regime for telecom providers came into force in full and
some key competitive safeguards were introduced. The switchover from analogue
to digital broadcasting has begun. The telecoms regulators’ financial
independence has yet to be improved and Serbia’s legislative framework has yet
to be aligned with the acquis.

There has been progress in the field of agriculture
and rural development including with regard to agricultural statistics.
Structures and resources for the implementation of rural development under
IPARD have advanced well, but additional capacity building is still essential.
Overall, in this area alignment remains at an early stage. Some progress was
made in the area of food safety, veterinary and phytosanitary policy,
where preparations are moderately advanced. Further strengthening of the
administrative capacity of the institutions involved in controlling food chain
safety, in particular of the veterinary, phytosanitary and national reference
laboratories is needed. Efforts are needed regarding the upgrading of food and
feed establishments, the management of animal by-products and genetically
modified organisms. Some progress can be reported on fisheries. The collection of market data needs to be improved and a
national catch certification scheme for imports and exports of fishery products
needs to be established. Preparations in this area are moderately advanced.

Some progress
can be reported in the area of transport policy, particularly in road,
inland waterways and air transport. Laws on Railways and Railway Safety and
Interoperability need to be adopted. Attention needs to
be paid to fair market access; further efforts need to be made in separation of
infrastructure manager and railway operator, as well as a properly defined
regulator. Further strengthening of the capacity is
needed, in particular for enforcement and inspection. Overall, Serbia’s
alignment in this area is moderately advanced.

Little progress can be reported in the area
of energy. Further efforts are needed to achieve real market opening,
unbundling and cost reflective tariffs. Framework legislation on rational use
of energy as well as legislation on commodity reserves remain to be adopted.
The role and independence of the energy agency and of the nuclear regulator
need to be strengthened. As a matter of urgency, Serbia needs to address the
issue of the inclusion of Kosovo in the regional electricity transit mechanism,
as referred to in the Reasoned Opinion of the Energy Community. Overall,
preparations in this area are moderately advanced.

Some progress can be noted in the area of taxation
with the implementation of the corporate Serbian Tax Administration strategy.
Modernisation needs to continue. Tackling the grey economy remains a challenge. Substantial efforts
are required to improve the IT system, the communication with taxpayers and to
further align the legislation on excise duties. Overall, preparations in this
area are moderately advanced. No progress can be reported in the area of economic
and monetary policy, where alignment is moderately advanced. Recent amendments to the law on the central bank jeopardise its
independence and thus constitute a significant step back in the alignment to
the acquis. The capacity for economic policy
formulation and coordination needs to be further improved. Good progress can be reported in the area of statistics,
where Serbia is moderately advanced. The population and housing census
was carried out according to plans. The capacity of the Statistical Office will
have to be reinforced over the next years in order to allow for the
comprehensive implementation of the statistical acquis.

Some progress can be reported in the area
of social policy and employment especially in the fields of employment
policy, health and safety at work and social inclusion. However, employment
policies in general are affected by adverse economic developments and limited
budget allocations and need to be enhanced. Increased
efforts are also needed to restructure and reform social protection and regain
sustainability. Overall, Serbia has started to address its priorities in this area.

Progress was made in the area of enterprise
and industrial policy, where preparations are on track. Serbia implements the Small Business Act in an appropriate manner.

Serbia has made some progress in the area
of trans-European networks, where preparations are moderately advanced.
It is continuing to develop its transport and energy networks and to
participate actively in the work of the South East Europe Transport Observatory
and the Energy Community. Major challenges remain in terms of financing the new
interconnections of energy and transport networks. Progress was noted in the
area of regional policy and coordination of structural instruments,
where preparations are advancing. Serbia has completed the preparatory
stages for the decentralised management of IPA for four Components. Adequate
implementation capacity needs to be further ensured. Programming needs to be
improved, especially in terms of preparing a solid project pipeline based on
relevant strategies.

There has been little progress regarding the judiciary
and fundamental rights. The review of reappointments of judges and
prosecutors did not correct the existing shortcomings and was overturned by the
Constitutional Court who ordered the reinstatement of all judges and
prosecutors that had appealed their non-reappointment. A new strategy for judicial
reform is needed based on a functional review. Implementation of the legal
framework to fight corruption has continued. However, a new Anti-Corruption
Strategy and Action Plan are still pending. Stronger political direction, more
effective inter-agency coordination and a proactive approach in investigating
and prosecuting corruption are needed. Regarding fundamental rights, the
legislation is in place and broadly respected. Freedom of expression is in
general guaranteed but the implementation of the media strategy needs to be
speeded up. Discrimination based on ethnicity, gender, and sexual orientation
remains widespread and further measures to fight all forms of discrimination
are needed. A proactive approach towards the better inclusion of the LGBT population
and a greater understanding across society is needed. Some positive steps were
taken to improve the situation of minorities, including the Roma, but
additional efforts are needed to achieve consistent implementation of the
legislation across Serbia. Overall, Serbia has started to address its
priorities in this area.

Serbia made some progress in the area of justice,
freedom and security. Serbia is actively involved in international police
and judicial cooperation and law enforcement agencies generally have sufficient
capacity to carry out standard investigations. Additional efforts are needed to
increase capacities to carry out complex investigations and to strengthen
coordination between law enforcement agencies and the judiciary. A track record
of proactive investigations and final convictions in organised crime cases
needs to be built up. Overall, preparations in this area are moderately
advanced.

Little progress was registered in the area
of science and research. Both public and private investments in research
remain low and Serbia generally needs to reinforce its national research capacity. Overall, preparations
in this area are well on track. Little progress can be reported in the area of education
and culture, where alignment is moderately advanced. There was
progress in making the education system more socially inclusive, as well as in
introducing quality assurance standards in elementary education. Better
implementation of higher education reforms remains a challenge and reforms in
the vocational education and training sector still need to be speeded up.
Financial management and financial control still need strengthening with a view
of Serbia’s participation in the future Education, Youth and Sport programme.

Some progress
has been achieved in the area of environment in
which alignment with the acquis and the
ratification of international environmental conventions continued. Significant
further efforts are needed in order to implement the national legislation,
especially in the areas of water management, industrial pollution control and
risk management, nature protection and air quality. The strengthening of the
administrative capacity should remain a priority. Little progress was achieved
in the field of climate change. Considerable efforts are required
on awareness-raising on opportunities and challenges of climate action, setting
a more strategic approach for the country, aligning with and implementing EU
climate acquis, as well as strengthening administrative capacity and
inter-institutional cooperation. Overall, Serbia has started to address its
priorities in these areas.

There has been some progress in the area of
consumer and health protection, where preparations are moderately advanced.
Efforts need to focus on implementing the existing legislative framework and
further aligning with the acquis. Institutional coordination between the
relevant actors and administrative capacity in both areas of consumer
protection and public health need to be strengthened.

Serbia made good progress in the area of the Customs Union, with
the adoption of new laws and sustained efforts to improve the administrative
capacity, in particular in the audit and post-clearance sector. Serbia also
needs to ensure the proper application of the EU acquis at the administrative
border/boundary line with Kosovo. Customs related security legislation needs to
be implemented and the Customs Declaration Processing System renewed or
upgraded. Overall, preparations in the area or the customs union are well on
track.

Some progress has
been made in the field of external relations, where preparations
are moderately advanced. Accession to the WTO is pending the finalisation of
bilateral negotiations. In the area of foreign, security and defence policy,
  Serbia significantly improved its alignment with EU CFSP declarations and
showed continued commitment to participate in EU civil and military crisis
management operations. Preparations
in this area are well on track.

Some progress
was made in the area of financial control, particularly as regards
external audit. Substantial efforts are needed to develop public sector
financial management and control based on the underlying concept of managerial
accountability. There has been no progress in the area
of financial and budgetary provisions. The necessary administrative
infrastructure, including coordination and organisational and procedural links
between various institutions involved in the own resources system will need to
be developed in due time. Overall, preparations in these areas are at an early
stage.

Albania

The political
agreement of November 2011 between ruling majority and opposition marked the
end of the political stalemate stemming from the 2009 parliamentary elections.
This agreement set out to address electoral and parliamentary reform and to
create the political climate for joint reform efforts in other areas. As a
result, political dialogue and cooperation has improved considerably allowing
for progress in core reform areas including electoral reform. The presidential
elections were conducted in line with the Constitution, but the political
process surrounding them did not build on the positive cross-party dialogue
launched in November. Despite some confrontational rhetoric between the
government and the opposition, the political agreement continued to be
implemented. Overall, Albania has made good progress towards fulfilling the political
criteria for membership of the EU and delivering a number of reforms
against the key priorities of the Commission’s 2010 Opinion[3]. Good progress was achieved in
key political reform areas such as the proper functioning of parliament, the
adoption of pending laws requiring a reinforced majority, the appointment of
the Ombudsman and the hearing and voting process in Parliament for high court
appointments, as well as the modification of the legislative framework for
elections, leading to the fulfilment of the four key priorities concerned.
Albania is well on its way towards meeting the two key
priorities regarding public administration reform and improving the treatment
of detainees.

As regards the
other six key priorities, there was moderate progress regarding the reform of
the judiciary and the fight against corruption, with for
example reform of the immunity system of public officials and judges and
adoption of the law on administrative courts, and
uneven progress on anti-discrimination policies including the protection of
minorities and improving the living conditions of the Roma community. Progress concerning the fight against organised crime, as well as on
property reform and women’s rights, included some significant steps, notably an
increase of seizures of criminal assets, the adoption of a comprehensive
strategy on property reform, and amendments to the criminal code strengthening
sanctions for domestic violence.

In all the
areas covered by the key priorities not fully met significant additional
efforts will be needed to ensure sustainable implementation of commitments
already undertaken and further tangible results, notably in the context of
implementation. In order to keep the current reform momentum and consolidate
its achievements to date, Albania would need in particular to focus on
consensually adopting the revised rules of procedure for parliament and the
amendments to the Laws on the High Court and on Civil Service. Ensuring sustainability of the political
dialogue is essential for the functioning of democratic institutions and for
Albania’s EU path. As regards democracy and rule of law, improved
political dialogue in parliament and a more constructive atmosphere during
committee and plenary meetings allowed for good progress in a number of areas,
despite some short periods of confrontational political rhetoric and temporary
slowdown of reforms.

The functioning
of parliament and political dialogue has considerably improved as a
result of the November 2011 political agreement. This allowed significant
progress to be made through adoption of all pending laws requiring reinforced
majority, the appointment of an Ombudsman by consensus, the conduct of a
hearing and voting process for the presidential nomination of a judge to the
High Court, and adoption of amendments to the electoral code (covering four key
priorities of the Opinion). It is now essential that revised parliamentary
rules of procedure are adopted. On 11 June 2012, a new president was elected in
the fourth round of the election with the votes of the ruling majority only.
Although in line with the Constitution, the presidential election did not meet
all expectations for inclusiveness and put a strain on the consolidation of
political dialogue and cooperation. This contributed to a temporary slowdown in
reform efforts in core areas requiring political consensus, which was overcome
shortly thereafter.

There has been some progress with regard to
the work of government. This includes good progress on coordinating the
EU integration process through the revision of the action plan to address the
Opinion’s key priorities, which was conducted in a transparent and
participatory manner. Good cooperation between the opposition chair of the
Parliamentary Committee on European Integration and the Minister of European
Integration on the country’s EU reform challenges continued, including joint
participation at the May 2012 EU-Albania SA Council. Legislative drafting
capacity and the planning process for aligning legislation with the acquis
need to be further improved, notably through the effective implementation of
the Council of Ministers decision on the NPISAA[4]. As
regards local government, the decentralisation of state responsibilities has
not been matched by appropriate transfers in administrative and financial
resources from central to local level. The existence of two separate local
government associations is not conducive to improving the institutional
relations between central and local government in view of a successful and
transparent decentralisation process.

There has been progress in public
administration reform, a key priority of the Opinion, mainly through the
adoption of the Laws on Administrative Courts and on the Organisation and
Functioning of Public Administration as well as through the appointment of the
Ombudsman. It is now essential to adopt the amendments to the Civil Service
Law. Implementation of adopted legislation and administrative acts needs to be
strengthened. The legislative and institutional framework for the public
administration is still marked by deficiencies that need to be addressed with a
view to strengthening professionalism, de-politicisation, meritocracy, transparency
and accountability.

As regards the judiciary, moderate
progress has been made in completing judicial reform, which is a key priority
of the Opinion. The judicial reform strategy and the relevant action plan of
March 2012 started to be implemented. The Law on Administrative Courts and the
Law on the National Judicial Conference have been adopted. The new private
bailiff system is operational. However, important legislation to strengthen the
accountability, the independence and the efficiency of the judiciary still
awaits finalisation, adoption and implementation. In this respect, it is now
essential that amendments to the Law on the High Court are adopted. Court
organisation, transparency and case backlogs, as well as the status of the
judicial administration, continue to raise concern for the efficiency of the
judiciary, as does budget allocation. The proceedings to shed light on the
events of the 21 January 2011 need to be completed through a credible judicial
process. Good progress is reported in the fight against corruption in the
judiciary, through the limitation of the immunity of judges. Albania needs to
further accelerate the implementation of the judicial reform strategy in order
to ensure the independence, efficiency and accountability of its judicial
institutions.

Moderate
progress was made in the field of anti-corruption policy, which is a key
priority of the Opinion, notably through the limitation of constitutional
immunity of high-level public officials and judges. Some efforts were made to
improve inter-institutional cooperation, exchange of information and the
prosecution of generally low and medium-level cases. However, the absence of a proactive approach and lack of resources
and equipment continue to obstruct effective investigations. There is no
adequate track record of investigations, prosecution and convictions at all
levels. Corruption is prevalent in many areas and continues to be a
particularly serious problem.

There has been some progress as regards the fight
against organised crime, which is a key priority of
the Opinion. Progress is to be noted in particular
with regard to the increase of seizures of criminal assets, on inter-institutional cooperation in investigation of financial crime,
on money laundering, and in the fight against trafficking in human
beings. Cooperation with EU member states is advancing well, and a secure
communication link has been set up to facilitate exchange of information with
Europol. Threat assessment and proactive investigations should be promoted in order
to further develop a track record of investigations, prosecutions and
convictions at all levels. Organised
crime remains a major challenge in Albania.

There has been moderate progress in the
field of human rights and the protection of minorities.

There has been progress towards meeting the
key priority that calls for improving the treatment of detainees, strengthening
the judicial follow-up of cases of ill-treatment and application of the
Ombudsman’s recommendations. Measures have been taken to improve conditions of
detention and strengthen cooperation with the Ombudsman. Some cases of
ill-treatment are still reported and police do not systematically follow proper
procedures for arrest and custody. Living standards in prisons still vary.
There are plans for establishing a special medical institution for mentally ill
detainees, but the need for additional specialised care and improving treatment
remains. Delays in court proceedings and the as yet insufficient resources of
the Probation Service continue to lead to over-use of pre-trial detention.

Progress towards meeting the key priority
that calls for reinforcing the protection of human rights, notably for women,
children and Roma and effective implementation of anti-discrimination policies
has been uneven. Amendments to the Criminal Code on domestic violence are a
positive step. Implementation of policies for child protection needs to be
strengthened. There is a need to adopt legislative measures for persons with
disabilities and to review legislation in view of addressing potentially
discriminatory provisions against LGBT persons. The Commissioner for Protection
from Discrimination has worked on raising awareness but additional efforts are
needed to establish a track record of cases brought to final completion. There
is still discrimination against certain vulnerable groups, such as LGBT persons
and Roma. Inter-ethnic relations remain good but no measures have been taken to
address weaknesses in the overall legislative and institutional framework in
the field of minorities. Implementation of policy tools for Roma inclusion and
access of this community to social protection and services are still
insufficient, leading to marginalisation. Policies in the field of human rights
are largely supported by civil society and donors. It is important for Albania to prioritise policies in these areas in order to ensure sustainability.

Some progress was achieved in the area of property
rights, notably through the adoption of a new law on the registration of
immovable property and of a cross-cutting strategy and action plan for reform
in the field of property rights, a key priority of the Opinion. Efficient
coordination and monitoring is necessary to ensure the implementation of the
strategy and consistency between legislation in force and future initiatives.
Consultations with stakeholders need to continue in this respect. The first
registration of properties has not yet been completed. Compensation and
restitution claims by former owners are met at a very slow rate.

Regarding regional
issues and international obligations, Albania continued to play a constructive role in contributing to the stability of the region
by consolidating positive relations with neighbours and regional partners. The
country has cooperated fully with EULEX and in May
2012, Parliament adopted a special law allowing EULEX investigators to carry
out inquiries on Albanian territory. In the framework of its MARRI (the
Migration, Asylum, Refugees regional Initiative) presidency, an agreement
entered into force between Albania, Montenegro and the former Yugoslav Republic
  of Macedonia to ease border crossing procedures between the countries.
Nationals of these countries are now able to travel between them with biometric
identity cards for a period of up to three months.

As regards the International Criminal
Court, the bilateral immunity agreement with the United States does not comply
with the EU common positions and guiding principles. Albania needs to align
with the EU position.

Albania continued
to participate actively in regional cooperation initiatives, including the
South-East European Cooperation Process (SEECP), the Regional Cooperation
Council (RCC), and the Central European Free Trade Agreement (CEFTA). The
country holds the chairmanship of CEFTA and of the Council of Europe Council of
Ministers.

Albania maintained macroeconomic stability.
GDP growth, driven mainly by domestic demand, decelerated but remained positive
at 3.1% in 2011. Economic activity has been stagnant in the first quarter of
2012 amid weather related power disruptions. Underperforming
revenue and higher expenditure led to a rise in the government deficit and
consequently higher public debt. Structural reforms lost steam in part due to
the fragile domestic political dialogue. Monetary policy remained sound and
kept inflation within the target range. Weak enforceability of contracts and the rule of law, inadequate
levels of infrastructure and human capital, as well as the informal economy
continue to hamper economic development.

As regards the economic
criteria, Albania made some further progress towards becoming a functioning
market economy. Albania should
be able to cope with competitive pressures and market forces within the Union
in the medium term, provided that it accelerates and deepens structural
reforms, including by reinforcing the legal system and strengthening physical
and human capital.

Broad agreement on the key essentials of a
market economy was maintained despite the often polarised political context.
The Albanian economy continued to grow, albeit at a slower pace and despite the
persistent unfavourable economic conditions in its main trading partners. Monetary policy has successfully helped to keep inflation stable and
anchor inflationary expectations. Labour market performance
slightly improved. State involvement in the economy and the level of subsidies
have remained limited. The banking sector is well-capitalised and liquid. Some
progress was made to further facilitate market entry.

However, the
fiscal deficit increased in 2011, leading to a further rise in the relatively
high public debt which continues to show a short-term bias. The persistently
high current account deficit is a source of
vulnerability. Unemployment continues to be
persistently high. Implementation of bankruptcy procedures is incomplete.
Weaknesses in the rule of law hinder the enforceability of contracts while
pending issues in the area of property rights hamper investment and business
environment in general. The informal sector and weak tax collection remain a
challenge. The high and increasing level of
non-performing loans in the banking system is an issue of concern. Investment in human capital and infrastructure remain inadequate.
The lack of diversification of the production base in terms of sectors and
export markets leaves the economy vulnerable to external shocks.

Albania has made moderate progress in
improving its ability to take on the obligations of membership, in
particular in the areas of competition, taxation, statistics, justice, freedom and
security, education and culture and customs union. Progress has been limited in
other areas such as freedom of movement for workers, public procurement,
intellectual property law, food safety, fisheries, energy, and environment and
climate change. Overall, Albania has generally continued to implement smoothly
its obligations under the Stabilisation and Association Agreement (SAA). Still,
there is a need to ensure the timely implementation of commitments, in
particular as regards intellectual and industrial property rights. Furthermore,
sustained efforts are needed to strengthen administrative capacity for the
implementation and enforcement of legislation.

In the area of free
movement of goods, there has been progress as regards standardisation. Work needs to
continue on legislative approximation with the acquis. An adequate
market surveillance inspectorate is not yet in place. Preparations
in this area are moderately advanced.

There has been little progress in the area
of freedom of movement for workers. Some preparations have been made for
future participation in EURES and coordination of social security systems.
Further efforts are required to align the legislation on access to the labour
market with the acquis. Overall, preparations in
this area are not very advanced. There has been some
progress in the area of establishment and freedom to provide services,
particularly as regards the mutual recognition of professional qualifications.
Preparations for alignment with the Services Directive remain at an early
stage. The Albanian postal legislation is not yet in line with the acquis.
Preparations in this field are moderately advanced. There has been progress in
the area of free movement of capital as regards legislative measures
through the adoption of amendments to the Criminal Code and the Law on Banks.
Further efforts are needed regarding the approximation of the Law on Payment
Systems with the acquis. Preparations regarding free movement of capital
are moderately advanced.

There has been little progress in
approximating the legislative framework on public procurement and
concessions to the acquis. The division of responsibilities among all
public procurement institutions remains poorly defined and their administrative
capacity and independence remain insufficient. Preparations in this field are
moderately advanced. There has been some progress in the area of company law,
where preparations are moderately advanced. Albania approved the Corporate
Governance Code, further aligning its legislation with the acquis.
Further legislative approximation is needed on reporting and documentation
requirements in case of mergers and divisions and in corporate accounting and
auditing. Progress has been limited in the field of intellectual
property law, where preparations are not very advanced. Substantial shortcomings
remain as regards effective enforcement of intellectual and industrial property
rights which impinge on Albania’s commitments under the SAA. Some progress can
be reported in the area of competition. Legislative alignment with the acquis
on antitrust and merger control advanced and the regional State aid map was
adopted. The administrative capacity and the operational independence of the
State aid and competition authorities need to be adequately safeguarded. Preparations
in the field of competition are on track.

There has been some progress in the field
of financial services, where preparations are
moderately advanced. The banking legislation was
further approximated to the acquis and the investment market was further
developed. Additional efforts are needed in the areas of insurance and
occupational pensions, financial market infrastructure and the securities
market and investment services. Administrative capacity in the banking and
non-banking sector remains insufficient. There was little progress in the field
of information society and media, where preparations are not very
advanced. While a number of pro-competitive regulatory measures were taken in
the electronic communications, concerns remain about the overall reform and
liberalisation of the sector, legal uncertainties and, the capacity and
independence of the telecoms regulator. Adoption of the Law on Audio-visual
Media Services has been further delayed. In spite of some progress as regards
the independence of media, concerns remain particularly regarding the
independence of the regulator. Effective implementation of the digital
switchover strategy needs to be ensured.

Progress was
uneven in alignment with the acquis in the area of agriculture and
rural development, in particular with regard to the setting up of rural
development institutions. Efforts are needed regarding capacity building in
rural development, the setting up of a land cadastre and the development of
strategies in the fields of agriculture and land use. Overall,
  Albania has started to address its priorities in this area. Progress has been limited in the areas of food safety, veterinary and
phytosanitary policy. Efforts are needed to improve the definition
of competence, responsibilities and communication
regarding risk management, the registration of movements of animals, the
control of animal diseases, and the upgrading of food and feed establishments. Preparations in these areas remain at an early stage. There has been limited progress in the area of fisheries,
where preparations are not very advanced. There is still a need for increased
resources and technical capacities for monitoring, control and surveillance of
the competent services, including the Inter-institutional Maritime Operational
Centre. The division of tasks with regard to reporting and communication among
directorates at the Ministry of Environment, Forests and Water Administration
is not sufficiently defined.

There has been
little progress on transport policy, mainly concerning cabotage in the
maritime sector. Further efforts are required on alignment with the acquis
and to implement legislation effectively. Administrative and technical capacity
remains weak across the different modes of transport, particularly in the case
of aviation and road safety. Rail infrastructure maintenance is a concern and
needs more resources. There has been little progress in the energy
sector. Lack of diversification hinders security of electricity supply. Energy
market reforms require further efforts to ensure the viability of the sector.
The administrative capacity and independence of the Energy Regulatory Entity
require further strengthening. Overall, preparations in the field of transport
and in the field of energy are not very advanced.

There was some progress in aligning
legislation on indirect taxation with the acquis as well as in
strengthening the capacity of the Tax Administration for investigation and
internal audit. Further efforts are required in the fields of direct taxation,
tax collection, VAT refund and IT. Preparations in this
area are moderately advanced. Albania has made no progress in legislative alignment with the acquis
in the field of economic and monetary policy; preparations in this field
are not yet sufficient. Little progress has been made in the preparation of the
economic policy document. There are insufficient capacities for policy
formulation. Some progress has been made in the area of statistics. INSTAT conducted a population and housing census
in October 2011. Sectoral statistics require substantial improvement and
sufficient resources need to be secured for the forthcoming agricultural
census. The independence and administrative capacity of INSTAT has to be
secured. Overall, preparations in the field of statistics are moderately
advanced.

There has been little progress in the field
of social policy and employment where preparations are not very
advanced. The labour market continues to be shaped by high informality, low
participation of women, and relatively high youth unemployment. Social
inclusion of persons with disabilities and the Roma minority remain
insufficient. Sustainability of funding needs to be addressed to ensure
successful implementation of social assistance and protection reforms.
Implementation of policies in this area continues to be a challenge. There was some progress in the area of enterprise
and industrial policy, where preparations are moderately advanced. Some
measures were taken to facilitate access to financing for SMEs and to improve
the regulatory framework for doing business. Market exit procedures remain
slow.

There was some progress in the area of Trans-European
networks. Rail transport remains underdeveloped and substantial investment
is needed to maintain and upgrade overall transport infrastructure. Concerning energy networks, further efforts are required to
complete electricity interconnection lines with neighbouring countries and to start developing a strategy for the introduction of natural
gas. Overall, preparations are not very advanced. There was some progress in the area of regional policy and
coordination of structural instruments, where preparations are still at an
early stage. Considerable efforts are needed to establish the necessary
institutional and administrative capacity at central and local levels and to
develop a pipeline of mature and quality projects.

There has been some progress in
implementing policies on the judiciary and fundamental rights, notably
through efforts to address the relevant key priorities set out in the
Commission Opinion. Yet, significant gaps in the legislative framework remain,
in particular as regards judicial reform. Consistent implementation of
legislative and policy tools remains a challenge in all areas under this
chapter. Albania’s alignment with European standards and the acquis in
the field of the judiciary and fundamental rights is not very advanced.

There was some progress in the area of justice,
freedom and security, particularly in border management, international
cooperation and the fight against organised crime. Efforts need to be stepped
up in the coordination between law enforcement institutions and in building a
solid track record of investigations, prosecutions and convictions. Overall,
preparations in this field are advancing.

There was little progress in in the area of
science and research, where preparations are not very advanced. Further
efforts are required at national level to strengthen the research and
innovation capacity and increase the country’s competitiveness. The level of investment in research remains very
low and the human capital-building requires strengthening.

Good progress can be reported in the fields
of education and culture in aligning with European standards,
particularly in the area of higher education and in the development of
vocational and educational training (VET). Further efforts are required to
improve transparency in private higher education institutions. In 2012, Albania started to participate in the Culture programme. Overall, preparations in this area are
moderately advanced.

While there has been some progress in
alignment with the acquis in the field of environment, there was
very little progress in the field of climate change. Further efforts
are urgently needed to align, implement and enforce legislation. Public awareness and consultation on legislative initiatives or
public investments remain weak. There is a need for greater political commitment and coordinated
action in these sectors. Substantial investment is needed while current
resources allocated remain limited. Environment needs to be better integrated
into other policy areas, such as transport and energy. Concerning climate change, substantial efforts are required on
awareness-raising, setting a more strategic approach for the country, aligning
with and implementing the acquis, as well as strengthening
administrative capacities and inter-institutional cooperation. Preparations in the area of the environment are still at an early
stage, whereas preparations in the area of climate change remain at a very
early stage.

There has been some progress in the areas
of consumer and health protection. Implementation and enforcement of
legislation remain very weak. The market surveillance
system is not yet in place. Low awareness in the health protection system, both
amongst professionals and the public, is hampering transparency and
enforcement. The health sector remains under-financed. Preparations
in these areas are not very advanced. There was
progress in legislative approximation in the field of customs union,
where preparations are moderately advanced. Shortcomings remain in the overall administrative and operational
capacity, including the compatibility of IT systems with EU requirements.
Further efforts are required on customs valuation and trade facilitation.

Progress was moderate in the area of external
relations. Albania has continued its good cooperation within the WTO and
CEFTA. The administrative capacities of the institutions involved in trade
policy remain to be improved. In the field of foreign, security and defence
policy the country continued to align with the EU common security and
defence policy positions and has shown continued political commitment regarding
its participation in civil and military and crisis management operations. The
online registry of weapons and ammunition under the management of the State
Police has yet to be finalised. Overall, preparations in
this field remain on track.

There was little progress in the area of financial
control where preparations are still not very advanced. Shortcomings remain
as regards implementation of the PIFC legal framework and the principle of
managerial accountability. External audits need to be improved in line with the
INTOSAI standards.

In the field of financial and budgetary
provisions there has been no particular progress. Sound coordination
structures and implementing rules will need to be established in due course for
the administration of the own resources system. Overall, preparations in
this area are at an early stage.

Bosnia
and Herzegovina

The establishment of
the executive and legislative authorities was completed with the agreement on a
State-level Government after sixteen months of political stalemate following
the October 2010 general elections. The formation of the new Council of
Ministers and the adoption of two key EU-related laws initially produced a
shift of focus towards EU integration. This momentum was not maintained,
however. The political consensus that had emerged was lost and progress on the
EU agenda stalled. A reshuffle of State, Federation and Cantonal authorities
has begun but remained blocked by political disputes and legal challenges. A
shared vision among the political representatives on the overall direction and
future of the country and its institutional set-up for a qualitative step
forward on the country’s EU path remains absent.

Following the
decoupling of the European Union Special Representative’s (EUSR) mandate from
the Office of the High Representative, the enhanced presence of the Head of EU
Delegation /EUSR in Bosnia and Herzegovina has taken the lead in a number of
areas in assisting the authorities to implement the objectives of the EU agenda
in key areas.

Overall, Bosnia and
Herzegovina has made limited progress in addressing the political criteria.
A High Level Dialogue on the Accession Process (HLDAP) was launched in Brussels
in June with representatives of the authorities and of the political parties of
Bosnia and Herzegovina to explain EU accession requirements. The participants
agreed to an internal roadmap on EU integration to enable the entry into force
of the SAA and to submit a credible membership application, as defined by the
relevant Council Conclusions. The first timeline set in the June Roadmap for
submission of an agreed proposal to comply with the European Court of Human
Rights judgement in the Sejdic-Finci case, was not met. The need for an
effective coordination mechanism between various levels of government for the
transposition, implementation and enforcement of EU laws remains to be
addressed as a matter of priority so as to enable the country to speak with one
voice on EU issues and make an effective use of the EU’s pre-accession
assistance.

In the areas of democracy
and the rule of law, after the general elections of October 2010, a
State-level Government was established in February. The State-level and
Federation authorities began to be reshuffled in June, but the outcome of this
process remains uncertain due to political disputes and on-going legal
challenges. Strengthening the functionality and coordination mechanisms of the
institutions remains an issue to be addressed as a matter of priority. The
harmonisation of the Constitution with the European Convention on Human
Rights (ECHR) remains outstanding. A proposal, based on political consensus,
amending the Constitution to ensure compliance with the European Convention on
Human Rights (Sejdic-Finci case) remains to be submitted to the Parliamentary
Assembly.

The Parliamentary Assembly has made
some progress in adopting EU-related legislation, in particular by adopting the State Aid Law and the Law on Household and Population Census. The establishment of the State Aid Council, compliance with EU
principles on public undertakings and a comprehensive State aid inventory
remain to be addressed as a matter of priority to comply with IA/SAA
obligations. Delays in establishing the State-level Government and with the
on-going reshuffle of governments at all levels hampered the effectiveness of
legislative activities. Cooperation between the Entity Parliaments, the
State-level Parliamentary Assembly and the State-level Council of Ministers regarding
EU-related matters, needs to improve.

Little progress was made in improving the
functionality and efficiency of all levels of the government, which continued to be affected by fragmented, uncoordinated
policy-making. The 2012 State-level budget was adopted in May and this was
followed by the break-up of the governing coalition. Formulation of foreign
policy remained subject to different positions within the Presidency of Bosnia
and Herzegovina on some issues.

Little progress has
been made in the area of public administration reform. The action plan
under the public administration reform strategy was revised, providing a
framework for reform over the next five years. Coordination between the various
administrations at all levels remains weak and the public administration reform
process lacks the necessary political support. The issue of financial
sustainability of public administration at all levels needs to be addressed. A
State-level Ombudsman is in place but the reduction of funding for its
activities impacted negatively on its effectiveness.
Fragmentation and politicisation continued to hamper the establishment of a
professional, accountable, transparent and efficient civil service based on
merit and competence.

Limited progress has been achieved in the area of judicial
system reform. A constructive attitude towards the need for a comprehensive
reform emerged within the framework of the Structured Dialogue on Justice,
based on domestic ownership, including in the implementation of the Justice
Sector Reform Strategy and of the National War Crimes Strategy. Further
measures were introduced to reduce the backlog of cases, particularly of
utility bills cases, but the overall backlog, including of war crime cases,
remains very high. The harmonised application of criminal laws throughout the
country as well as the fragmented organisation and budgets of the judiciary
remain issues to be addressed.

Bosnia and Herzegovina has made limited progress in tackling corruption, which
remains a serious problem and is prevalent in many areas throughout the public
and private sector. A legal framework is in place but the political will
to tackle the issue and to improve institutional capacity remains weak. The
implementation of the strategy and action plan needs to be stepped up. The
rulebook for the Anti-Corruption Agency was adopted but it is not fully
operational. The judicial follow-up of corruption cases remained slow and only
a limited number of high-level cases led to prosecution. Insufficient
implementation of legislation and problems of coordination between Entities
remain issues of concern. Bosnia and Herzegovina needs stronger political
commitment and more determined action against corruption. There was little
progress in the fight against organised crime. Bosnia and Herzegovina remains a source country for arms and ammunition for criminal groups
in the EU. Organised crime activities are further linked to the transit of
drugs on international trafficking routes.

Respect for human
rights and protection of minorities is broadly ensured. Bosnia and Herzegovina has ratified all major international human rights conventions but
implementation remains uneven.

Civil and political
rights are broadly respected.
Some progress has been made in improving prison conditions. The new psychiatric facility in Sokolac is not operational yet. A comprehensive reform of the prison system remains
outstanding. Adoption of the Framework law on free legal aid is still pending. Some
progress has been made as regards access to justice but the legal and
institutional framework in the country remains fragmented. The State and the Entity Constitutions provide for freedom
of expression, freedom of assembly and freedom of thought, conscience and
religion. The Press Council has continued to work closely with judicial
institutions and journalist associations to improve the quality of reporting
and awareness-raising among citizens of their legal rights. Cases of intimidation and threats against journalists and
editors continued. Political pressure on media and the polarisation of
media along political and ethnic lines remain of concern. Attempts to undermine the independence of the Communication Regulatory
Agency (CRA) and of the public service broadcasters have increased. The
appointments of the Director-General and the Board Members of the CRA are still
pending. Regarding civil society, mechanisms for
cooperation at all levels and transparency in funding allocations remain to be
improved. An international Meeting for Peace involving the main
inter-religious leaders took place in Sarajevo in September.

Economic and social
rights are broadly respected.
Some progress has been made to combat violence against women and in the area of early childhood development. The implementation of women’s and children’s rights
remains uneven. Little progress was achieved to make schools more
inclusive. De facto ethnic-based separation
and discrimination in some public schools remain a cause of concern. Ethnically
based and divided education systems remain an obstacle to sustainable returns.
A State-level anti-discrimination law is in place but little progress has been
made to ensure its effective implementation. Discrimination against
lesbian, gay, bisexual and transgender persons remains widespread. The system of social benefits remains based on status
instead of needs, which has an adverse impact on the situation of vulnerable
groups, including persons with disabilities. Social dialogue and the exercise
of labour rights continued to be hampered by the lack of recognition of
State-level social partners and a fragmented legislative framework.

Respect for and protection of minorities[5] and cultural rights are broadly ensured. The
National Minority Councils’ influence over policy making remained limited,
partly due to the lack of political and financial support. Some progress was made in implementing the Roma action plan
on housing. Efforts need to be stepped up to ensure effective implementation of
the action plans on health, employment and education and to improve resources
and sustainability with regard to the implementation of all four action plans.
A number of Roma children are not registered at birth and therefore cannot
enrol in school and have no health insurance. The
Roma minority continues to face very difficult living conditions and
discrimination. As regards refugees and internally displaced persons,
some progress was made in the area of housing for the implementation of the
revised strategy on Annex 7 to the Dayton/Paris Peace Agreement (DPA).
Discrimination with regard to access to employment, healthcare and pension
rights continues to hamper the sustainability of
return and of local integration. Transparent procedures for allocating
funds to support return based on need are not fully in place yet.

Regarding regional
issues and international obligations, implementation of the DPA has
continued. Cooperation with the International Criminal Tribunal for the former Yugoslavia is generally satisfactory in most areas.

Cooperation between the
courts and prosecutors from Bosnia and Herzegovina, Croatia and Serbia continued. Implementation of bilateral agreements on the mutual recognition and
enforcement of court rulings in criminal matters is on-going. The prosecution
of war crimes cases continued to be hampered by legal obstacles to extradition
in the Criminal Procedural Code. The finalisation of the Protocol on sharing
information and evidence in war crimes cases between the Prosecutor’s Office of
Bosnia and Herzegovina and
the War Crimes Prosecutor’s Office of Serbia remains outstanding.

As regards the
International Criminal Court, the bilateral immunity agreement with the United States does not comply with the EU common positions and guiding principles. The
country needs to align with the EU position.

Significant
progress has been made as regards the Sarajevo Declaration Process. Bosnia and
Herzegovina, Croatia, Montenegro and Serbia continued to cooperate on finding sustainable
solutions for the refugees who were displaced as a result of the armed
conflicts in the 1990s. The four countries signed a ministerial declaration and
agreed on a Regional Housing Programme assisting some 27,000 households or
74,000 individuals. At an international donors’ conference held in Sarajevo in
April some € 265 million was pledged in support of the programme. Good
cooperation needs to continue on all outstanding issues in the process.

Bosnia and Herzegovina continued to participate actively in regional cooperation
initiatives, including the South-East European Cooperation Process (SEECP), the
Regional Cooperation Council (RCC), and the Central European Free Trade
Agreement (CEFTA). Bosnia and Herzegovina’s relations with its neighbours have
developed further but border and property issues remain to be fully resolved. A
number of meetings have taken place to address the implications for bilateral
relations of Croatia’s EU accession in July 2013. In this context, discussions
have continued with regard to the outstanding issues on border management, with
limited progress. The agreement on free transit through the port of Ploce, in
Croatia, and the Neum corridor, in Bosnia and Herzegovina, as well as the local
border traffic agreement should be aligned with the EU acquis. In view of
Croatia’s accession, border, trade and transit-related issues remain to be
addressed as a matter of urgency.

The economy of Bosnia and
Herzegovina grew by 1.3% in 2011, supported by reviving domestic demand and – to
a lesser extent – still growing external demand. The recovery process was
reversed in early 2012 as a consequence of the worsened economic environment.
Unemployment remained at very high levels. Some fiscal consolidation took place
as a result of increased revenues and some expenditure cuts. However, the
quality of public finances remained low and the fiscal sustainability was
severely hampered by the protracted adoption of the State-level budget and of a
medium-term fiscal strategy. The weakened consensus on economic and fiscal
policy essentials had a negative impact on reforms at the country level. A new two-year IMF Stand-By Arrangement has
been agreed to support the country’s efforts to counter the effects of the
worsening external environment and tackle external and domestic
vulnerabilities.

As regards the economic criteria,
Bosnia and Herzegovina has made little further progress towards a functioning
market economy. Considerable further reform efforts need to be pursued with
determination to enable the country to cope over the long-term with competitive
pressure and market forces within the Union.

Financial and monetary stability was
preserved, while inflation moderated. The currency board arrangement continued
to enjoy a high degree of credibility. Credit growth continued – although
marginally decelerating –, thus allowing for domestic demand recovery. Trade
activities have increased further and the level of trade integration with the
EU and countries in the region remained high. Some limited improvements in the business environment can be
reported, in particular regarding accelerated business registration.

However, the delays in the adoption of the
2011 and 2012 State-level budgets and the Global Frameworks for Fiscal Policies
2012-2014 and 2013-2015 severely hampered the sustainability and credibility of
fiscal policy in Bosnia and Herzegovina. The quality of public finances
remained low with high shares of current expenditures to GDP. The repercussions
of the worsened external environment are increasingly affecting public finances
since 2012, with both the government borrowing and the debt rapidly increasing.
This borrowing is to a certain extent crowding out private investors. External
imbalances, in particular the foreign trade gap and the current account
deficit, have been rising. Privatisation, restructuring of public enterprises
and the liberalisation of network industries did not advance. The productive
capacity and the competitiveness of the economy remained weak as domestic
sources of growth were not adequately exploited. Labour market conditions
remained poor and structural rigidities such as the high rates of social
contributions and poorly targeted social transfers continued to hamper job
creation. Unemployment continued to be very high and the participation rate is
very low. The business environment is affected by administrative inefficiencies
and the weak rule of law. The informal sector remains an important challenge.

Bosnia and Herzegovina
made limited progress in aligning its legislation and policies with European
standards. Some progress was noted in the areas of free movement of
goods, competition, intellectual property, research and a number of justice,
freedom and security-related matters. Particular efforts remain necessary on
free movement of persons and services, capital, customs and taxation, public
procurement, employment and social policies, education, culture, industry and
SMEs, agriculture and fisheries, food safety, veterinary and phytosanitary
sectors, environment and climate change, transport, energy, information society
and media, financial control
and statistics. On the whole, the
implementation of the Interim Agreement (IA) remained uneven. The
country remains in breach of the IA due to non-compliance with the ECHR and the
insufficient implementation of the obligations on State aid. The State Aid Law
was adopted but the establishment of the State Aid Council, compliance with EU
principles on public undertakings and the inventory of aid schemes remain
outstanding. The implementation of the Law on Population Census needs to be
stepped up.

Bosnia and Herzegovina
made some progress in internal market areas. Regarding free
movement of goods, some progress was made in standardisation,
accreditation, market surveillance and consumer protection. Substantial efforts
remain necessary to align the legal framework to EU legislation, improve
administrative capacity and achieve a single economic space. A public-private
dialogue on the industrial market remains to be established.

In the area of movement of persons, services
and right of establishment little progress was made. Both Entities are
implementing new charts of accounts for financial institutions which are
harmonised between them and the inter-entity banking supervision remained satisfactory. Further
simplification of company registration and alignment of the legislative
framework for postal services will be essential.

There was no progress
in the area of free movement of capital. Further alignment with
the acquis as well as country-wide harmonisation of legislation is
needed. Little progress can be reported on customs and taxation. Shortcomings remain as regards alignment of legislation and overall
administrative and operational capacity.
Further efforts are required to provide better services
to taxpayers, to ensure trade facilitation and to ensure effective implementation and enforcement of legislation, including on intellectual
property.

Bosnia and Herzegovina made some progress with the adoption of the State-level State Aid Law and enforcement of competition rules. There was no
progress in the area of public procurement, particularly regarding full
alignment of the Public Procurement legislation. Progress continued in the area
of intellectual property rights.

There was little progress
on employment and social policies. Legislative
approximation remains to be intensified and strategic documents to be adopted
and implemented. The Social Inclusion Strategy at State-level remains to be
adopted. Framework laws and
strategies are in place in the field of education but implementation is
pending. Some progress was made on culture. Progress in the field of research
and preparations for the Innovation Union continued. Negotiations to join the World
Trade Organisation further advanced.

Bosnia and Herzegovina made little progress towards meeting European
standards on a number of sectoral policies. Regarding industry
and small and medium sized enterprises (SMEs), a country development
strategy including industrial policy elements and the new SME strategy remain
to be adopted. There was little progress in the areas of agriculture and
rural development, food safety, veterinary and phytosanitary policy, and
fisheries. A clear division of competences, closer coordination between
the State and Entities in aligning with the acquis in these fields and
the upgrading of establishments remain essential. The lack of progress has a negative impact on trade in
agricultural products, in particular with the EU.

Bosnia and Herzegovina’s preparations in the field of the environment
remained at an early stage. A harmonised legal framework for environmental
protection and adequate institutional capacities remain to be established. The administrative
capacity is weak and the horizontal and vertical communication between the
different authorities requires strengthening. Regarding climate change,
the adoption of a national climate strategy, the alignment with the acquis
and awareness-raising remain issues to be addressed.

Bosnia and Herzegovina made little progress in the transport
sector, but there were some positive developments regarding the
trans-European transport networks and air transport. The Law on Transport of
Dangerous Goods remains to be fully aligned with the EU aquis. The
upgrading of transport infrastructure remains an issue to be addressed.
Preparations in the field of energy remain at an early stage. As party
to the Energy Community Treaty, Bosnia and Herzegovina needs to implement the
relevant EU energy legislation. To guarantee the security of electricity
supply, a country-wide functioning national transmission company needs to be in
place and a comprehensive energy strategy adopted.

There was little
progress on information society and media. Harmonisation of the legal
framework for public broadcasting remains incomplete. The continuing challenges
to the independence of the Communications Regulatory Authority and of the
public service broadcasters, political pressure on the media and the slow pace
of implementation of the public broadcasting reform remain causes for serious
concern.

Little progress can be
reported in the area of financial control. Legislation remains to be
adopted and implemented and the coordination board of the Central Harmonisation
Units needs to reassume its role. Internal audit capacities as well as the
independence of the external audit institutions need to be strengthened. Some
progress was made in the area of statistics. Sectoral statistics such as
national accounts, business and agricultural statistics need to be improved.
Cooperation between the country’s statistical institutions at State and
Entity-level and other relevant State-level agencies needs to be intensified,
also in view of the implementation of the Law on Population and Household
Census.

Some progress has been
achieved in the different areas related to justice, freedom and security.
In the area of visa policy, priorities continued to be addressed. The
visa facilitation agreement between the EU and Bosnia and Herzegovina and the
readmission agreement have continued to be implemented smoothly. Visa-free
travel to the Schengen area entered into force in December 2010 for citizens of
  Bosnia and Herzegovina holding biometric passports. In the framework of the
Post-Visa Liberalisation Monitoring Mechanism, Bosnia and Herzegovina adopted
targeted measures to improve the management of the migratory outflow. The
implementation of some reforms adopted as a part of the visa liberalisation
roadmap remains outstanding. In particular, the establishment of a functioning
system for electronic data exchange amongst law enforcement agencies and
prosecutor’s offices throughout Bosnia and Herzegovina and the establishment of
a fully functional anti-corruption agency, with adequate staff and financial
resources, need to be addressed as a matter of urgency.

The country’s
preparations in the fields of border management, asylum and migration
have advanced. The asylum and international protection system, the monitoring
of migration flows and inter-agency cooperation continued to improve. Infrastructure
at some border crossing points requires further upgrades. The issue of
unauthorised Border Crossing Points with both Montenegro and Serbia remains to be addressed. Some progress has been made in the fight against money
laundering. The implementation of the strategy and action plan for the
prevention of money laundering remains limited. There has been little progress
in the fight against drugs. The absence of effective judicial follow up
hampers the fight against drug trafficking, which remains a serious problem.

Efforts by Bosnia and Herzegovina to increase capacity and effectiveness of the police
continued. The fragmentation of Bosnia and Herzegovina’s police forces
continues to undermine efficiency, cooperation and information exchange. The fight
against organised crime remains insufficient due to the lack of effective
coordination between law enforcement agencies. Organised crime remains a
serious concern that affects the rule of law and the business environment.
Efforts to fight trafficking in human beings need to be intensified and
identification of victims improved. Bosnia and Herzegovina made some progress
in fighting terrorism. The Joint Task Force to fight terrorism was
re-established but the implementation of the strategy for preventing and combating
terrorism remains weak.

Preparations for the protection
of personal data have continued, but law enforcement and the independence
of the supervisory agency need to be strengthened. Well-functioning personal
data protection is crucial in order for Bosnia and Herzegovina to conclude
agreements with Europol and Eurojust.

Turkey

The positive agenda was
launched in May to support and to complement the accession negotiations, through enhanced cooperation in a number of
areas of joint interest: political reforms, alignment with the acquis,
dialogue on foreign policy, visa, mobility and migration, trade, energy,
counter terrorism and participation in Community programs. Six of eight working
groups, which have been established to encourage alignment with the acquis,
had their first meeting.

Work on a new
constitution started via a relatively democratic and participatory process.
However, concerns are growing regarding Turkey’s lack of substantial progress
towards fully meeting the political criteria. The situation regarding the
respect for fundamental rights continues to be the source of serious
preoccupation. This stems, in particular, from the wide application of the
legal framework on terrorism and organised crime, which leads to recurring
infringements of the right to liberty and security, of the right to a fair
trial and of the freedom of expression, assembly and association. While debates
continue on topics perceived as sensitive, such as the Armenian issue or the
role of the military, restrictions on freedom of the media in practice and
numerous court cases against writers and journalists remain serious issues. As
a consequence, self-censorship is widespread.

Regarding
democracy and the rule of law, positive steps
have been taken in terms of participative work on a new Constitution, but
overall there was a recurrent lack
of consultation in the legislative process. Offering a chance to strengthen
confidence in the proper functioning of Turkey’s democratic institutions and
the rule of law, investigations into alleged coup plans have been overshadowed
by real concerns about their wide scope and the shortcomings in judicial
proceedings. The Kurdish issue remains a key challenge for Turkey’s democracy;
the 2009 democratic opening, aimed at addressing amongst others the Kurdish
issue, was not followed through. Local government in
the South-East suffered from the detention of numerous local politicians. There was a significant increase in PKK terrorist
attacks

Regarding public
administration reform, progress has been made in legislative reform. The
establishment of an Ombudsman institution is an
important step in safeguarding the rights of citizens and ensuring
accountability of the public administration.
Increased political support is needed for public administration reform and
there was no progress on administrative decentralisation.

The civilian
oversight of the security forces was further consolidated. The
introduction of parliamentary oversight of the defence budget was a positive
development, but remained limited in scope. The General Staff generally
refrained from exerting direct or indirect pressure on political issues.
Several symbolic steps have been taken toward further democratisation of
civil-military relations. Further reforms, particularly of the military justice
system and civilian oversight of the Gendarmerie are needed.

Some progress has been
made in the area of the judiciary following the adoption of the third
judicial reform package, which introduces a number of improvements into the
Turkish criminal justice system, including the easing of restrictions on the
media to report on criminal investigations and the deletion of the provision
allowing the prosecutor to ban publications. A number of detainees were
released from remand detention following the entry into force of the legal
changes. However, legal reforms failed to address core shortcomings which are
the main reasons for continuing condemnations of Turkey by the European Court
of Human Rights. The incidence and length of pre-trial detention continue to be
a serious concern. Further steps are needed on the independence, impartiality
and efficiency of the judiciary, including the criminal justice system and the
large backlog of pending serious criminal cases. Further steps are also needed
to increase the participation rate of women in the judiciary. The judicial
reform strategy needs to be revised with the participation of all stakeholders,
including the Turkish legal community and civil society.

Limited progress was made on fighting corruption,
with some developments on incriminations and transparency in the financing of
political parties. Transparency of political financing needs to be increased.
The broad scope of immunities remains a shortcoming in this area. A track
record of investigations, indictments or convictions related to corruption
cases remains to be established. There are concerns about impartiality in the
processing of anti-corruption cases. The implementation of the National
Anti-Corruption Strategy requires greater political engagement.

Uneven progress has been achieved in the fight against organised crime. While Turkey is a party to the main international conventions, the
lack of a data protection law continues to limit police cooperation at
international level and hinders the conclusion of an operational cooperation
agreement with Europol. The assignment of a police liaison officer to Europol
would contribute to improving bilateral cooperation. No significant progress
was noted in the area of addressing trafficking in human beings.

Concerning human rights and the protection of
minorities, significant efforts are needed in most areas, in particular
freedom of expression, freedom of association and assembly and freedom of
religion.

Although some progress was made regarding the observance
of international human rights law, important reforms to strengthen human
rights structures remain outstanding and the number of criminal proceedings
launched against human rights defenders is a matter of concern.

The downward trend in torture and ill-treatment in
places of detention continued. However, excessive use of force continues to be
a matter of concern, and there has been little progress on tackling impunity.
There is a significant backlog of judicial proceedings, with priority given to
counter-allegations lodged by the security forces.

As regards prisons,
the continued increase in the prison population is leading to serious
overcrowding, with a significant impact on sanitation and other physical
conditions. Detention conditions, in particular for juveniles, continue to be a
serious concern. An overhaul of the complaints system in prisons is overdue.
Medical services for inmates, as well as the conditions for the detention of
juveniles, are matters requiring special efforts.

Limited progress has been made on access to justice. The scope and quality of
legal aid is inadequate. There is no effective monitoring mechanism that would
remedy long-standing problems.

With regard to freedom of expression, following the adoption of the third judicial reform package a number of journalists were released pending trial, restrictions on
the media to report on criminal investigations were eased and the seizure of
written work before publication was prohibited. However, the increase in violations of freedom of expression
raises serious concerns, and freedom of the media continued to be further
restricted in practice. The legal framework, especially as regards organised
crime and terrorism, and its interpretation by the courts, leads to abuses.
Combined with a high concentration of the media in
industrial conglomerates with interests going far beyond the free circulation
of information and ideas, this has
led to widespread self-censorship. Frequent website bans are a cause for
serious concern and there is a need to revise the law on internet.

As regards freedom of assembly and association,
while 1 May demonstrations
and activities such as the ‘Armenian Genocide Commemoration Day’ took place in
a peaceful atmosphere, cases of
violence and disproportionate use of force by the security forces occurred
during demonstrations that had not received prior authorization. This concerned
especially, but not only, demonstrations in relation to the Kurdish issue. The
constitutional right to freedom of assembly and association is at times
interpreted in an overly-restrictive manner. The law on demonstrations and
meetings needs to be revised, allegations regarding the use of excessive force
by the security forces need to be investigated and prosecuted where
appropriate. Fundraising rules remain restrictive and discretionary. There was
no development regarding legislation on political parties.

There
was limited progress on freedom of thought, conscience and religion.
Some progress on conscientious objection in terms of application of the case
law of the European Court of Human Rights (ECtHR) was registered. Dialogue with
the non-Muslim religious communities continued. However, persons professing
faith in minority religions or indeed no faith were subject to threats from
extremists. A legal framework in line with the ECHR has yet to be established,
so that all non-Muslim religious communities and the Alevi community can
function without undue constraints.

In legal terms, there
has been progress regarding the respect for women’s rights and gender
equality. The government established an action plan to address
issues raised in the European Parliament report ‘A 2020 perspective for women
in Turkey’. The Law on the Protection of Family and Prevention of Violence
against Women aims at protecting family members and those in relationships
outside marriage from violence. The procedures foreseen in cases of urgency are
generally positive, as was the inclusive consultation exercise undertaken by
the authorities with civil society. Also, substantial efforts are needed to
turn this new law, together with the already existing legislation into
political, social and economic reality. Legislation needs to be implemented
consistently across the country. There is need for more involvement and
participation of women in employment, policy making and politics. A law on caesarean sections was adopted with insufficient
preparation and consultation with civil society. The debate that preceded this
law and a similar debate on abortion were characterized by a polarizing stance.
The issue of early and forced
marriages remains a serious concern.

With respect to children’s
rights, efforts are needed in all areas, including education, combatting
child labour, health, administrative capacity and coordination. In general, more
preventive and rehabilitative measures need to be taken for juveniles.
Detention of children does not take place in appropriate conditions and
additional juvenile courts need to be established in line with the legislation
in force.

As regards socially vulnerable persons and/or persons
with disabilities further measures are still required in order to increase
the participation of those persons in social and economic life.

Further efforts are
required in the fight against discrimination. Comprehensive anti-discrimination
legislation is lacking and substantial efforts by the government are still
needed to effectively protect vulnerable population, including women, children,
lesbian, gay, bisexual and transgender individuals from societal abuse,
discrimination and violence.

There was limited progress in the areas of labour and
trade unions rights. The legislation on civil servants’ trade unions rights
has been amended but is still not in line with the EU and ILO standards.
Collective actions by trade unions suffer numerous restrictions.

As regards property rights, there has been progress with the adoption of legislation
amending the 2008 Law on foundations. Implementation continues. However, the
existing legislation still does not cover fused foundations, i.e. foundations
whose management has been taken over by the Directorate General for
Foundations, or properties confiscated from Alevi foundations. The on-going
cases, some of which were initiated by the government, against the Mor Gabriel
Syriac Orthodox monastery raise concerns. Turkey needs to ensure full respect
of the property rights of all
non-Muslim religious communities and others.

Turkey’s approach to minorities remains restrictive,
although for the first time representatives of minority groups, not limited to
those minorities officially recognised by Turkey, were invited to parliament to
express their views on a new Constitution. Full respect for and protection of
language, culture and fundamental rights in accordance with European standards
has yet to be achieved. Turkey needs to take a comprehensive approach and make
further efforts to enhance tolerance, security and promote inclusiveness
vis-à-vis minorities. Existing legislation needs to be revised, comprehensive
legislation to combat discrimination needs to be introduced and protection
mechanisms or specific bodies to combat racism, xenophobia, anti-Semitism and
intolerance need to be established. Relevant Covenants and Conventions should
be applied.

Turkey made progress on cultural rights, and
fewer restrictions on the use of Kurdish in prisons during visits and exchanges
of letters were reported. However, legislation still restricts the use of
languages other than Turkish, including the Constitution and the Political
Parties Law. Also,
the judiciary took a number of restrictive decisions on the use of languages
other than Turkish, including the use of Kurdish in court cases concerning
Kurdish politicians and human rights defenders.

There has been some
progress, but a systematic approach is needed to tackle the problems of Roma.
A comprehensive strategy needs to be established and the issue needs to be
reflected and mainstreamed in main policy documents. There is lack of
quantitative data on the situation of Roma, which prevents informed policy
making.

As regards the East
and Southeast, there was a
considerable debate on the Kurdish issue but no progress towards a solution.
Terrorist attacks intensified as did military operations. All terrorist attacks
were condemned by the EU. The detention of elected politicians and human rights
defenders raises concerns. In incidents such as the Uludere killings of
civilians, calls on the authorities for effective and swift investigation and a
transparent public inquiry have not been met. The truth about extra-judicial
killings and torture in the south-east in the 1980s and 1990s has yet to be
established in line with the due process of law. The statute of limitations
deadline will soon bring an end to judicial investigations on past crimes,
without result. Landmines and the village guard system are still causes for
concern.

The process of compensating internally displaced persons
(IDP) has continued but the effectiveness of the system has yet to be
assessed. As regards refugees and asylum-seekers, some improvements can
be reported in detention conditions in the removal centres. However, there is
still no national strategy to better address IDPs needs or a comprehensive
legal framework for refugees and asylum seekers. Further improvements are
needed in detention and deportation practices.

With regard to regional issues and international
obligations, Turkey reiterated its support for the negotiations between
the leaders of the two communities under the good offices of the UN
Secretary-General to find a comprehensive settlement to the Cyprus problem.
Despite repeated calls by the Council and the Commission, Turkey has still not
complied with its obligation of
full non-discriminatory implementation of the Additional Protocol to the
Association Agreement and has not removed all obstacles to the free movement of
goods, as outlined in the declaration of the European Community and its Member
States of 21 September 2005 and in the Council conclusions, including the
December 2006 and December 2010 conclusions. There is no progress towards
normalisation of bilateral relations with the Republic of Cyprus. Moreover, Turkey decided to freeze its relations with the Cyprus EU Presidency during the second half
of 2012, including abstaining from meetings chaired by the Cyprus EU Presidency.
The European Council expressed its serious concerns with regard to Turkish
statements and threats and called for full respect of the role of the
Presidency of the Council, which is a fundamental institutional feature of the
EU provided for in the Treaty. Turkey continued to issue statements objecting
to drilling operations carried out by the Republic of Cyprus and expressing
threats of retaliation against oil companies that would participate in the
Cypriot explorations. The EU stressed the sovereign rights of all EU Member
States, which include, inter alia, entering into bilateral agreements, and to
explore and exploit their natural resources, in accordance with the EU acquis
and international law, including the UN Convention on the Law of the Sea.

After the last
round of exploratory talks in July 2011, discussions are on-going between
Greece and Turkey to set a date for the next round. A
substantial number of formal complaints were made by Greece and Cyprus about
continued violations of their territorial waters and airspace, including
flights over Greek islands.

As regards regional cooperation,
Turkey remains involved in regional initiatives, including the South-East
European Cooperation Process (SEECP) and the Regional Cooperation Council
(RCC). Turkey supports the European integration of all countries in the region
and has intensified contacts with the Western Balkans, expressing a firm
commitment to promoting peace and stability. Relations with the neighbouring EU
Member State Bulgaria remained positive.

The economy
of Turkey continued growing strongly, thus reaping the rewards of the stability
and growth oriented policies implemented in most of the previous decade. Since
mid-2011, the pace of growth has been falling gradually in line with the
slowdown in domestic demand, accompanied by an improvement in the trade and
current account balances. However, the still sizeable external imbalances and
significant inflationary pressures continue to pose a threat to macroeconomic
stability.

As regards
the economic criteria, Turkey is a functioning
market economy. It should be able to cope with competitive pressure and market
forces within the Union in the medium term, provided that it accelerates the
implementation of its comprehensive structural reform programme.

In 2011, the Turkish economy grew by 8.5%,
only slightly down from 9.2% in 2010. Growth was largely driven by domestic
demand, in particular stemming from the private sector. A major growth
deceleration was observed in the first half of 2012, to 3.1% year-on-year. The
slowdown in domestic demand is accompanied by an improvement in the trade and
current account deficits, albeit from very high levels (10% of GDP in 2011).
The robust economic expansion also allowed strong
employment growth and a drop in unemployment from about 11% in mid-2011 to less
than 9% a year later. Monetary policy has become more
instrumental and has been successful in curbing the growth of credit,
and reducing the current account deficit.
The budget performed better than expected in 2011, and public debt fell to
about 39% of GDP by mid-2012. Reforms and increased spending on education have
generated some positive impact on educational attainment and schooling rates.
Trade and economic integration with the EU remained high.

At the same time, the soft landing scenario
is challenged by bouts of financial uncertainty and the global risk sentiment
and more may need to be done to better coordinate the policy mix. The current account deficit is still sizeable. Inflation
has been falling, but remains high. These imbalances signal competitiveness
problems and a lack of domestic savings, and call for further structural
reforms. No efforts were made to increase fiscal transparency and better
anchor fiscal policy, which would also contribute to enhance Turkey’s
credibility in the markets. Market exit remains costly
and long and bankruptcy proceedings are still relatively cumbersome. To improve
business competitiveness, the law on State Aid should
be fully implemented. While there were some improvements in the country’s human
capital, improvements on physical capital have been modest.

Turkey continued to improve its ability
to take on the obligations of membership. Progress was made in most areas,
in particular on company law, statistics, science and research and Customs
Union acquis. Efforts need to continue towards further alignment in most
fields. The administrative capacity to cope with the acquis
in terms of effectiveness and efficiency needs to be strengthened. Enforcement
capacity also needs to be strengthened in certain areas. Efforts on the
alignment were monitored by the bodies set up under the Association Agreement
and by the working groups established in the context of the positive agenda.

Some progress was made in the area of free
movement of goods. Turkey introduced the mutual recognition principle into
its legal order for the non-harmonised area. Turkey has become a full member of
CEN and CENELEC. However, technical barriers to trade continue to exist and
prevent free movement of goods in some areas in violation of Turkey’s
obligations under the Customs Union. The alignment in this area is advanced.
There has been little progress in the area of freedom of movement for
workers. Turkey increased its capacity with a view to future participation
in the EURES and coordination of social security systems. Preparations in this
area have been launched. Very little progress can be reported on the right
of establishment and freedom to provide services and further efforts are
needed in this area. Overall, alignment is at an early stage. There has been
limited progress on free movement of capital. Restrictions on capital
movements remain in place in a number of sectors. Enforcement capacity against
money laundering and financing of terrorism needs to be improved. Further
efforts are needed as regards alignment with the acquis and the relevant
FATF recommendations. Preparations in this area remain at an early stage.

Limited progress can be reported in the
area of public procurement. The institutions are in place and
administrative capacity has improved. The draft alignment strategy, comprising
a time-bound action plan, needs to be adopted. Turkey needs to repeal
derogations that are not in line with the acquis and align further its
legislation, particularly on utilities, concessions and public-private
partnerships. The organisation of the remedies system remains to be reviewed.
Preparations in this area are moderately advanced. Good progress was made on company
law. The legal and institutional framework improved with the establishment
of the Turkish Accounting and Auditing Standards Authority. However, the
capacity of the commercial judiciary and business organisations need
strengthening in order to deal with the new Turkish Commercial Code. Overall,
Turkey is advanced in this area. Some progress can be reported in the area of intellectual
property law. Updated laws in line with the acquis need to be
adopted. Increasing the capacity of the judiciary and of the customs
administration towards more effective IPR enforcement is crucial. Combating counterfeit goods also needs to be improved. Closer
coordination and cooperation among IPR stakeholders and public bodies is
essential, as much as general awareness campaigns on the risks of IPR
infringements. Turkey only partly addresses the
priorities in this area.

Limited progress can be reported on competition
policy. Turkey enforced antitrust and merger rules effectively. However,
recent legal developments raise concerns as to the Competition Authority’s
ability to continue carrying out its operations independently. No progress has
been made in the area of State aid, while a number of existing State aid
practices conflict with Customs Union rules. The State Aid Law remains
ineffective in the absence of implementing legislation. Alignment is advanced
in the area of mergers. In the field of State aid, the country is not yet
sufficiently prepared.

There has been
some progress in the area of financial services. Basel II standards have
become obligatory for the banking sector. More efforts are needed, particularly
in the areas of securities markets and investment services, and in the
insurance sector. Preparations in this area are well on track. Progress can be
reported in the area of information society and media. However,
alignment with the EU framework on electronic communications remains limited,
in particular on authorisation and market access. Continued efforts are
required for further alignment of legislation on information society services.
The provisions of internet content that might potentially limit the freedom of
expression and a too broad interpretation of certain legal provisions,
especially as regards sanctions against broadcasters, raise concerns. Preparations in this area are moderately advanced.

Limited
progress has been made on alignment in the area of agriculture and rural
development. The capacities relating to agricultural statistics and farm
accountancy data network have increased. Implementation of the pre-accession
rural development programme has improved but intensive efforts are required to
ensure adequate absorption of the funds. The de facto import ban on live
cattle, beef meat and derivative products has not been fully lifted and there
remain no strategies in place for the reorientation of agricultural support,
nor for agricultural statistics. Preparations in this area are not very
advanced. Some progress has been made in the field of food safety,
veterinary and phytosanitary policy. Further efforts are required to
advance towards full alignment with the acquis. Significant efforts are
needed on upgrading the agri-food establishments to EU standards, control of
animal movements, animal health, especially fight against foot and mouth
disease, and on animal by-products. Preparations in this area are at an early
stage. Some progress can be reported on fisheries, in particular on
administrative capacity, resource and fleet management, inspection and control,
and international agreements. However, additional efforts are needed on
legislative alignment, structural action, market policy and State aid.
Alignment in this area is not very advanced.

There is some
progress in alignment of the transport sector, which is, overall,
moderately advanced. Turkey needs to align to the recent EU legislative
packages in maritime and rail transport. Further efforts are needed in the
areas of human resources and technical capacity to apply the acquis,
especially in the areas of dangerous goods and emergency response preparedness
in maritime transport. The lack of communication between air traffic control
centres in Turkey and the Republic of Cyprus is seriously compromising air
safety.

Some progress
can be reported in the energy sector, especially as regards renewable energy
and energy efficiency. Further efforts are needed in the areas of natural gas,
nuclear safety and radiation protection, including responsible management of
spent fuel and radioactive waste. Competition remains limited in the gas
sector. The functioning of the cost-based pricing mechanism in the electricity
market needs to be improved whereas it remains to be established in the gas
markets. The independence and institutional capacity of the regulatory
authority need strengthening. Overall, Turkey is at a moderately advanced stage
of alignment.

On taxation,
limited progress has been made on legislative alignment. There have been
positive steps towards eliminating discriminatory practices in the taxation of
tobacco and on administrative cooperation and operational capacity. However,
discrepancies with the acquis continue to exist. Further efforts are
needed regarding excise duties on spirits to comply with the Action Plan in
reducing the differentials between imported and domestic products. Gradual
elimination of discriminatory practices is key to further progress. No progress
can be reported on direct taxation. Overall, alignment in this area is
moderately advanced.

There has been
some progress on economic and monetary policy. The Central Bank actively
employed different instruments to ensure price and financial stability, albeit
with mixed results. Alignment with the acquis remains incomplete,
particularly regarding the full independence of the Central Bank and the
prohibition of privileged access of the public sector to financial
institutions. The capacity for economic policy formulation and coordination is
adequate. Overall, Turkey’s level of preparedness is advanced.

Good progress
has been made in the area of statistics, particularly in classifications
and registers, in population statistics and in other sectoral statistics.
Further progress is needed, especially in national accounts, business
statistics and in agriculture statistics. There is a good overall level of
alignment with the acquis.

Some progress, but uneven, has been
achieved in the field of social policy and employment, in particular by
improving administrative capacity, extending social security coverage and
adopting new legislation on health and safety at work, and trade union
legislation for public servants. However, trade union rights for workers and
public servants still fall short of meeting the EU and ILO standards. Further
efforts are needed to put in place a clear policy framework on poverty
reduction, reduce labour market segmentation, combat undeclared work and
increase employment rates of women and people with disabilities. Overall, legal alignment is moderately
advanced.

Turkey has made
progress in the area of enterprise and industrial policy principles and
instruments and in the adoption of sectoral strategies. Turkey has a sufficient level of alignment in this area.

Turkey has made some progress in the area
of Trans-European networks, where alignment is advanced. Some
progress can be reported on transport and electricity energy networks.
Continued efforts are needed for gas interconnections and the implementation of
the Southern Gas Corridor.

Some progress was made in the field of regional
policy and coordination of structural instruments. The institutional
framework for implementing of IPA regional development and human resources
development components has been strengthened and the Operating Structures for
the Regional Competitiveness, Environment and Human Resources Development
operational programmes have obtained accreditation for the tendering,
contracting and financial management functions. However, there is still a need
for further strengthening of the administrative capacity of the IPA
institutions. Preparations in this area are not very advanced.

Some progress has been made in the area of
the judiciary following the adoption of the
third judicial reform package, which introduces a number of improvements into
the Turkish criminal justice system. However, further efforts are needed with
regard to the independence, impartiality and efficiency of the judiciary,
including the criminal justice system and the large backlog of serious criminal
cases. The participation rate of women in the judiciary needs to be improved. Limited
progress was made on anti-corruption, with some developments on incriminations
and transparency in the financing of political parties. The implementation of
the National Anti-Corruption Strategy requires greater political engagement.
The situation regarding the respect for fundamental rights continues to
be the source of serious preoccupation, notably stemming from the wide
application of the legal framework on terrorism and organised crime, which
leads to recurring infringements of the right to liberty and security, of the
right to a fair trial and of the freedom of expression, assembly and
association.

Limited progress can be reported in the
area of justice, freedom and security. Turkey is successfully providing
humanitarian assistance to the Syrian refugees; however, its asylum system is
far from the EU standards. Turkey needs to increase its capacity to prevent
irregular migration. After having been initialled in June the swift conclusion
and the effective implementation of the EU-Turkey Readmission Agreement as well
as the full implementation of the existing readmission obligations are of
crucial importance. Adoption of the Law on Foreigners and International
Protection as well as reforms in border management also continue to be a
priority. Only limited progress could be reported in aligning the visa legislation.
The lack of adequate data protection legislation prevents progress. Reforms are
needed in the area of fight against terrorism and organised crime. Overall,
alignment is at an early stage in this area.

Good progress
has been made in the field of science and research. Turkey took steps to further reinforce its capacity and its integration into the European
Research Area. Turkey’s participation and success rate in the EU Research
Framework Programme (FP7) have increased but further efforts are needed to
strengthen the quality of submissions and improve the quality of researchers.
Overall, Turkey is well prepared in this area.

Some progress
was made in the area of education and culture. Popular interest in EU
Programmes continued to grow. Turkey extended its compulsory education from 8
to 12 years. There has been little progress in the area of culture, and no
progress on legislative alignment. Overall, Turkey is moderately advanced in
this area.

Uneven progress was made towards further alignment in the
area of environment and climate change. Turkey has made good
progress on water, there was some progress in waste management and industrial
pollution and limited progress on air quality and nature protection. There was
hardly any progress on horizontal environment legislation and no progress on
nature protection and chemicals. Special attention is to be paid to the
sustainability of existing protected areas and potential Natura 2000 sites.
Regarding climate change, a more ambitious and coordinated climate policy still
needs to be established and implemented, both domestically and internationally.
No further progress was made on administrative capacity. The environmental
agenda of the Ministry of Environment and Urbanization needs strengthening, as
well as coordination and cooperation between relevant authorities at all
levels. Preparations in this area are at an early stage.

Some progress
can be reported on consumer and health protection. Key legislation
related to consumer protection is still to be adopted and the consumer movement
remains weak. Turkey has established new administrative structures in the area
of public health. Their functioning needs to be monitored closely. Overall,
preparations in this area are on track.

Good progress
was made in the field of customs union. The EU-Turkey Customs Union has
enabled Turkey to reach a high level of alignment with the acquis in
this area. Further alignment is needed on duty relief, free zones,
surveillance, tariff quotas and IPR. Preparations in the area of customs IT
systems need to continue. Additional efforts are required to improve risk-based
controls and simplified procedures to facilitate legitimate trade while
ensuring security and safety. Some progress was made on external relations.
Further alignment is required in areas such as the general system of
preferences and control of dual- use goods. Intensive use of safeguard measures
is a cause of concern. Overall, the level of alignment in this area remains
high.

The political dialogue with the EU on foreign and
security policy intensified significantly, also given Turkey’s influential
regional role in supporting security, economic transition and democratic
reform, including with regard to recent developments in Northern Africa. Turkey
strongly and repeatedly condemned the Syrian regime’s violence against
civilians, maintained an open border policy with Syria and is providing
humanitarian assistance to nearly 100,000 fleeing Syrians. During the reporting
period, Turkish alignment with CFSP declarations continued to be low when
compared to earlier periods. No progress was made in the normalisation of
relations with Armenia. Diplomatic relations with Israel remained downgraded.
Overall, preparations in the area of foreign, security and defence policy are
moderately advanced.

Some progress
can be reported in the area of financial control, in particular as
concerns the protection of the euro. Additional efforts are still required,
especially as regards the scope of the forthcoming revision of the policy paper
on public internal financial control, reinforcement of internal audit function
in the public administration and reinforcement of the Turkish Anti-Fraud
Coordination Service. Recent amendments to the Law on the Court of Accounts
jeopardise previous developments in the area of external audit. Overall,
preparations in this area are moderately advanced.

There has been no particular progress in
the area of financial and budgetary provisions, where preparations are
at an early stage. Sound coordination structures, administrative capacity and
implementing rules will need to be established in due course.

Iceland

Iceland continues to
meet the political criteria. Iceland is a well-functioning democracy
with strong institutions and deeply rooted traditions of representative democracy.
The country’s judicial system is of a high standard, and Iceland ensures the continuous strengthening of its
already high level of protection on fundamental rights.

The constitutional
council’s proposals on the reform of the Constitution are currently being
reviewed by the parliament. Following the conclusions of the Special
Investigation Committee (SIC), a number of measures were taken with a view to
increasing the efficiency of the public administration. Presidential elections were held in June 2012, with the incumbent President reelected for
a fifth term in office.

The Office of the Special Prosecutor
continued working efficiently on cases relating to the 2008 banking crisis. In
April 2012, the Court of Impeachment found the former
Prime Minister at the time of the financial crisis guilty of one of four
charges against him, namely that he had failed to hold dedicated Cabinet
meetings ahead of the crisis. No sentence was passed.

Progress can be
reported in further strengthening the anti-corruption framework. As regards
conflicts of interest, a code of conduct for central government staff was
established in spring 2012. Codes of conduct for civil servants in general and
for political advisors still need to be established.

Iceland continued to safeguard fundamental rights,
including economic and social rights. The UN Convention on the Rights of
Persons with Disabilities, the Council of Europe Convention on preventing and
combating violence against women and domestic violence and the Council of Europe
Framework Convention for the Protection of National Minorities still need to be
ratified.

Following a long and severe recession, the
Icelandic economy started to recover in 2011 and grew by 2.6% in 2011,
and expanded at a similar rate in the first half of 2012. The authorities
proceeded with domestic debt restructuring, financial sector stabilisation and
fiscal consolidation. A second post-crisis international bond of US$ 1
billion was sold to foreign investors in May 2012 at a rate of 6%. Iceland regained
investment grade by all three major rating agencies. Yet, weak financial and
non-financial sectors’ balance sheets still imply considerable risks to
economic and financial stability. The removal of capital restrictions remains a
key policy challenge.

As regards the economic criteria,
Iceland can be considered a functioning market economy. However, financial
sector weaknesses and capital movement restrictions still impede an efficient
allocation of resources. Iceland should be able to cope with competitive
pressures and market forces within the Union over the medium term, provided
that it continues to address current structural weaknesses through appropriate
macroeconomic policies and structural reforms.

The policy mix with a strong focus on
exchange rate stabilisation, fiscal consolidation, and domestic debt
restructuring has been supportive in re-establishing a higher degree of
macroeconomic stability. Monetary policy has been tightened in reaction to
rising inflation and exchange rate stability has been broadly preserved. Fiscal
consolidation continued with additional revenue and spending measures in the
2011 and 2012 budgets. Measures were taken to reduce general government
refinancing risks and to strengthen local government finances. A trade surplus
and a roughly balanced underlying current account were maintained. A fall in
the unemployment rate and recent growth of employment suggest that labour
market conditions have improved somewhat. The country enjoys good basic
infrastructure, abundant natural resources, and a flexible labour market with
high participation rates.

However, macro-financial vulnerabilities
remain significant. Annual inflation stayed above the target and inflation
expectations are high. Preserving exchange rate stability remains challenging.
Fiscal risks persist. Public and private debt levels remain high even after
debt restructuring and private. Households and businesses are still faced with
significant problems. Banks’ asset quality is subject to large uncertainties
and defaults continue to be widespread. Unemployment is still around 7%, which
is close to unprecedented levels for the country. It particularly affects youth
and includes a high share of long-term unemployed. Macroeconomic stabilisation
occurs in a situation of temporary protection through capital account
restrictions, which will have to be lifted. Growth, investment and development
are hampered by high barriers to market entry in certain sectors. The
industrial structure remains little diversified.

Iceland’s ability to
take on the obligations of membership continued to be assessed also
taking into account Iceland’s participation in the European Economic Area
(EEA). The overall level of preparedness to meet acquis requirements
remains good, in particular due to Iceland’s participation in the European
Economic Area.

The Icesave dispute remains unresolved,
despite progress having been made. In December 2011 the EFTA Surveillance
Authority (ESA) filed a case against Iceland with the EFTA Court, seeking a
declaration that Iceland failed to comply with the Directive on deposit
guarantee schemes and with Article 4 of the EEA Agreement regarding
non-discrimination. Iceland rejected these claims and contended that they
should be dismissed. A number of EU and EFTA member states sent written
observations to the Court. The European Commission has
intervened before the EFTA Court in support of the EFTA Surveillance Authority.
Meanwhile, the first two partial payments from the
commercial winding-up of Landsbanki Íslands hf to priority creditors
were made in December 2011 and May 2012.

The accession
negotiations have progressed further. During the reporting period, 14 chapters
were opened, of which eight were provisionally closed. More than half of all
negotiating chapters (i.e. 18) have now been opened, of which 10 have been
provisionally closed.

Overall, preparations
to take on the obligations of membership continued, in areas partly covered by
the EEA as well as in chapters not covered by the EEA. Iceland remains largely
in line with and applies a substantial part of the acquis in fields
covered by the EEA, such as free movement of goods, freedom of movement of
workers, the right of establishment and freedom to provide services, public
procurement, company law, intellectual property law, competition, and
information society and media.

The progress report
confirms a number of challenges in the following areas: financial services;
agriculture and rural development; environment; fisheries; free movement of
capital; food safety; veterinary and phytosanitary policy; taxation; and
customs.

From the point of view
of administrative capacity, continued attention should be paid to ensuring that
human and financial resources are available for the necessary preparations
associated with the process of EU accession.

Iceland continues to be highly aligned with the acquis
on free movement of goods. Further efforts are necessary as regards
horizontal measures and product legislation under the ‘Old and New Approach’ as
well as administrative capacity, including in the area
of market surveillance.

Iceland maintains a high level of alignment with the acquis
in the area of free movement of workers. Good progress
can be reported on coordination of social security systems. Iceland will need to extend the social security coordination rules
also to legally resident third-country nationals and continue preparations for
setting up an electronic data exchange system.

Legislation on the right
of establishment and freedom to provide services is highly aligned with the
acquis. Alignment with the Third Postal Directive has yet to be achieved
and existing restrictions in the fisheries sector need to be lifted.

Iceland applies parts of the acquis on free
movement of capital. Exceptions remain, notably in
connection with Iceland’s investment restrictions and extensive capital
controls.

In the field of public
procurement Iceland is well advanced. The level of alignment and
implementation in this area remains satisfactory, with the exception of the
Remedies and Defence Procurement Directives.

Iceland has
already reached a high level of alignment and applies a substantial part of the
acquis in the field of company law. Full alignment with the acquis
on company law and with accounting and auditing standards still needs to be achieved.

Iceland maintains a high level of alignment with the acquis on intellectual property law and has the administrative capacity necessary
to implement it. Full alignment with the Enforcement Directive has yet
to be achieved.

Regarding competition
policy Iceland has reached a high level of alignment with the acquis.
Iceland’s State aid measures taken in response to the financial crisis have
been in line the relevant acquis.

Alignment in the area of financial services is good.
Despite progress being made, work needs to continue to align with the new acquis
as well as to ensure
effective enforcement and adequate supervision. The Icesave dispute remains
unresolved. The ESA case against Iceland is pending before the EFTA court.

Iceland has already
reached a high level of alignment and applies a substantial part of the acquis
in the field of information society and media. Several gaps in
transposition in the field of audiovisual policy and information society
services need to be addressed.

Preparations have
commenced in the area of agriculture and rural development, where
Iceland’s policy is overall not in line with the acquis. A strategy and
planning schedule of measures to be taken to ensure compliance with the EU
agriculture and rural develoment requirements has been adopted. The appropriate
administrative structures to implement all aspects of the common agricultural
policy needs to be set up.

Iceland’s legislation
and administrative framework is partially in line with the acquis on food safety, veterinary and phytosanitary policy. Some progress was made
in the areas of general food safety, and food safety rules. Gaps in legislation in the areas of animal and
plant health, genetically modified organisms, novel foods and animal products
that are not intended for human consumption need to be addressed.

Iceland continues to apply a fisheries
management system which has similar objectives to those pursued in the EU, but
some rules differ substantially. The
existing restrictions in the fisheries sector on freedom of establishment,
services and capital movements are not in line with the acquis.

Iceland
already has a good level of alignment in the transport field. Progress can be reported as regards road safety rules. Transposition
of the relevant EU legislation on air and road transport needs to be completed.

Legislation on energy continues to be partly in
line. Further efforts are needed to align with acquis on oil stocks,
energy efficiency and the internal energy market as well as strengthen the
independence and administrative capacity of the regulatory authority.

In the field of taxation,
Iceland remains partially aligned with the acquis and continues to have a good level of administrative
capacity. Further efforts for achieving IT interconnectivity and interoperability
with EU IT systems for taxation are needed.

On economic and
monetary policy, Iceland has a good level of alignment with the acquis.
Existing gaps with the acquis on monetary policy remain to be addressed,
including the strengthening of the independence of the Central Bank and the
prohibition of monetary financing of the public sector.

Iceland partially applies the acquis on statistics. A large part of the
register-based population and housing census was carried out. The allocation of sufficient resources to the
Statistical Office needs to be further addressed.

Iceland
continued to apply and implement a substantial part of the acquis on social
policy and employment. Preparations for
participation in the European Social Fund have commenced and a comprehensive
employment strategy is being drafted. Legal alignment remains to be completed
in the areas of anti-discrimination and equal opportunities.

Iceland’s state of
preparation in the area of enterprise and industrial policy remains at a
high level. Access to SME finance is still affected by the financial crisis.

Iceland maintains a good level of alignment with the EU
standards on Trans-European networks.

A comprehensive
action plan and related timetable has been adopted on how to meet the EU
requirements in the area of regional policy and coordination of
structural instruments. Iceland needs to identify the future Managing
Authority and prepare the strategy and programming documents required by
Cohesion Policy.

Iceland continues to have high standards in
the area of judiciary and fundamental rights and its anti-corruption
policy framework was further reinforced. Iceland also continues to strengthen
its high level of protection on fundamental rights. Legislation on citizen’s
rights and data protection is not yet in line with the acquis.

Iceland continues
to apply the Schengen Agreement and is well advanced in aligning with the acquis
in the area of justice, freedom and security. Further
efforts are still needed to align with the acquis in areas
including migration, asylum and judicial cooperation.

Iceland continued to
participate actively in the EU Framework Programme in the field of science
and research. Preparations for EU accession and
integration into the European Research Area are well advanced.

Iceland has
achieved a high level of alignment in the field of education and culture
and continued to participate in several EU programmes on education and culture.

The legislative and administrative framework on environment
and climate change remains to a large extent in line with the acquis
and has been further strengthened. Full compliance with the acquis on
nature protection, water quality and climate change has not been achieved. Iceland needs to ratify the Espoo and Rotterdam Conventions.

Iceland has already
achieved a high level of alignment and applies a substantial part of the acquis
on consumer and health protection. Further progress can be reported in
the field of public health.
Additional efforts are necessary to close remaining gaps in aligning with the acquis
on consumer protection.

Iceland applies to
a large extent the acquis in the area of customs union. Preparations for effective implementation of the EU
legislation upon accession have been initiated. The gaps regarding aligning with the EU Customs Union acquis
have yet to be closed, including in the areas of customs tariff, general
customs rules, rules of origin, procedures with economic impact, security rules
and abolition of customs fees. Preparations to develop interconnectivity with
the EU-related IT systems need to continue.

As regards external relations, Iceland is highly aligned with the acquis.
Progress can be reported as Iceland and the EU have agreed to hold regular
trade policy consultations.

Iceland
maintains a high level of alignment in the area of foreign, security and
defence policy. Iceland’s emphasis on Arctic policy underlines its
commitment to play an active role in regional organisations in Northern Europe.

Iceland’s financial control
system is partly in line with international standards and EU best practices. Work needs to continue on preparing the Public
Internal Financial Control policy paper, as well as on establishing internal
audit, ensuring compliance with INTOSAI standards in
the area of external audit and the
protection of the EU’s financial interests.

Iceland continues to have a good level of alignment with
the underlying policy areas linked to financial and budgetary provisions.
Administrative preparations need to be enhanced to set up the own resources
system. A coordination structure still needs to be formally established.

[1]               Summaries and conclusions of the country reports are
included as an annex to the present Communication.

-               This designation is without
prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ
Opinion on the Kosovo Declaration of Independence.

[2]               Montenegro
unilaterally uses the euro as the sole legal tender.

[3]               The key priorities concern the following areas: the
proper functioning of parliament; adopting reinforced majority laws;
appointment procedures and appointments for key institutions; electoral reform;
the conduct of elections; public administration reform; rule of law and
judicial reform; fighting corruption; fighting organised crime; addressing
property issues; reinforcing human rights and implementing anti-discrimination
policies; improving the treatment of detainees and applying recommendations of
the Ombudsman. For the full text of the key priorities, see COM(2010) 680.

[4]               National Plan for the Implementation of the Stabilisation
and Association Agreement

[5]               According to the Law on the protection of rights of
persons belonging to national minorities, there are 17 national minorities in Bosnia and Herzegovina. The three constituent peoples – Bosniaks, Croats and Serbs – do not
constitute national minorities.