TABLE OF CONTENTS

1........... Introduction.................................................................................................................... 1

1.1........ Preface........................................................................................................................... 1

1.2........ Context.......................................................................................................................... 1

1.3........ Relations between the EU and Kosovo........................................................................... 1

2........... Political criteria............................................................................................................... 1

2.1........ Democracy and the rule of law........................................................................................ 1

2.2........ Human rights and the protection of minorities................................................................... 1

2.3........ Regional issues and international obligations..................................................................... 1

3........... Economic criteria............................................................................................................ 1

3.1........ The existence of a functioning market economy................................................................ 1

3.2........ The capacity to cope with competitive pressure and market forces within the Union.......... 1

4........... European standards........................................................................................................ 1

4.1........ Internal market............................................................................................................... 1

4.1.1..... Free movement of goods................................................................................................ 1

4.1.2..... Movement of persons, services and right of establishment................................................ 1

4.1.3..... Free movement of capital................................................................................................ 1

4.1.4..... Customs and taxation...................................................................................................... 1

4.1.5..... Competition.................................................................................................................... 1

4.1.6..... Public procurement......................................................................................................... 1

4.1.7..... Intellectual property law.................................................................................................. 1

4.1.8..... Employment and social policies, public health policy........................................................ 1

4.1.9..... Education and research................................................................................................... 1

4.1.10... WTO issues................................................................................................................... 1

4.2........ Sectoral policies............................................................................................................. 1

4.2.1..... Industry and SMEs......................................................................................................... 1

4.2.2..... Agriculture and fisheries.................................................................................................. 1

4.2.3..... Environment................................................................................................................... 1

4.2.4..... Transport policy............................................................................................................. 1

4.2.5..... Energy............................................................................................................................ 1

4.2.6..... Information society and media......................................................................................... 1

4.2.7..... Financial control............................................................................................................. 1

4.2.8..... Statistics......................................................................................................................... 1

4.3........ Justice, freedom and security........................................................................................... 1

4.3.1..... Visa, border management, asylum and migration.............................................................. 1

4.3.2..... Money laundering........................................................................................................... 1

4.3.3..... Drugs............................................................................................................................. 1

4.3.4..... Police............................................................................................................................. 1

4.3.5..... Fighting organised crime and terrorism............................................................................. 1

4.3.6..... Protection of personal data............................................................................................. 1

Statistical Annex........................................................................................................................... 1

1. Introduction 1.1. Preface

Since March 2002, the Commission has reported regularly to the Council and Parliament on progress made by the countries of the Western Balkans region.

This report largely follows the same structure as in previous years. The report:

– briefly describes the relations between Kosovo[1] and the Union;

– analyses the political situation in Kosovo in terms of democracy, the rule of law, human rights, protection of minorities and regional issues;

– analyses the economic situation in Kosovo;

– reviews Kosovo's capacity to implement European standards, that is gradually to approximate its legislation and policies with the acquis, in line with the Stabilisation and Association Process, and European Partnership priorities.

This report covers the period from October 2010 to September 2011. Progress is measured on the basis of decisions taken, legislation adopted and measures implemented. As a rule, legislation or measures which are being prepared or awaiting parliamentary approval have not been taken into account. This approach ensures equal treatment across all reports and permits an objective assessment.

The report is based on information gathered and analysed by the Commission. Many other sources have been used, including contributions from the Kosovo authorities, the EU Member States, the EU Special Representative in Kosovo, the EU rule of law mission (EULEX), European Parliament reports[2] and information from various international and non-governmental organisations.

The Commission draws detailed conclusions regarding Kosovo in its separate communication on enlargement[3], based on the technical analysis contained in this report.

1.2. Context

Following the ruling of the Constitutional Court in autumn 2010, the President of Kosovo stepped down and new elections were called for December. The new assembly convened in February and elected a President. The election process was challenged from the constitutional perspective and the Constitutional Court played an important role through the way it exercised its responsibilities. As a result, a new President was elected in line with Kosovo's constitution. This period was marked by limited results on the reform agenda.

During the reporting period, Serb communities south of the River Ibër/Ibar have increased cooperation with Kosovo authorities and participation in their representative institutions. Their turnout in elections was higher and they also participated in the census. In northern Kosovo, integration has not progressed. Serbia-supported municipalities in the north did not cooperate sufficiently with UNOPS and the Commission to allow a census to proceed in this part of Kosovo. Serbs in the north supported by local political leaders also challenged the authority of EULEX.

At the end of July, the situation escalated in northern Kosovo when Kosovo decided to impose an embargo on Serbian goods in retaliation to a Serb blocking of goods since 2008 on the grounds of the non recognition of the "Customs of Kosovo" stamp. The decision on an embargo followed a failure to reach an agreement on Kosovo customs stamps within the framework of the EU facilitated dialogue between Belgrade and Pristina, which was launched following last year's UN General Assembly resolution. The unilateral deployment of Kosovo police at gates 1 and 31 in northern Kosovo led to violence, resulting in the death of a Kosovo police officer. Calm was restored with the help of KFOR, the NATO-led military presence. In September, the issue of customs stamps was resolved in the context of the Belgrade/Pristina dialogue. The implementation of the agreement resulted in widespread blockades in the north, including at the gates 1 and 31. Violent incidents also occurred. The tensions in northern Kosovo need to be defused, and free movement of people and goods re-established. All actors need to play their part in this process. In the light of the situation in northern Kosovo, Serbia interrupted its participation in the dialogue at the end of September.

The dialogue has proven to be the main way to address differences between the two parties. Agreements were also reached on civil registries, free movement of persons and cadastre records. The agreements reached need to be implemented in good faith. Kosovo's generally constructive approach in the dialogue marks progress in its commitment to the EU.

To date, Kosovo has been recognised by 81 UN Member States, including 22 EU Member States.

During the reporting period, the UN Secretary-General issued four reports on Kosovo – in October 2010 and in January, May and August 2011. He noted that Kosovo authorities had increased their efforts to establish a close engagement with the European Union and enjoyed visibility at the international level. He also pointed out that the dialogue between Belgrade and Pristina had the potential to bridge the differences between the sides and to resolve a series of long-standing issues that affect the lives of the people on the ground.

KFOR has also continued to help maintain security in other parts of Kosovo. During the reporting period, its presence was reduced to just over 6,000. In this context, the Kosovo police have taken over responsibility for protecting several cultural and religious sites. They have also taken over the task of security along the border with the former Yugoslav Republic of Macedonia and Montenegro.

Kosovo did not meet the conditions for a Stand-By Arrangement with the International Monetary Fund and consequently the Fund did not disburse its macro-financial assistance. Therefore, the Commission could not disburse another tranche of its macro-financial assistance to Kosovo. The Kosovo government needs to take urgent steps to address the budgetary deficit.

1.3. Relations between the EU and Kosovo

Kosovo is participating in the Stabilisation and Association Process (SAP). The 2011 cycle of meetings under the SAP dialogue (SAPD) was completed in July. During the reporting period, seven sectoral meetings were held on the following sectors: justice, freedom and security; agriculture; economy, statistics and financial control; internal market, competition, health and consumer protection; transport, environment, energy and regional development; innovation, human capital, social policies and information society; and trade, industry, customs and taxation. On 30 June, Kosovo hosted the second SAPD civil society dialogue meeting, followed by the plenary meeting on 1 July. Kosovo also hosted a high-level conference on the inclusion of the Roma, Ashkali and Egyptian communities in May. To promote economic dialogue, the fiscal surveillance mechanism with the European Commission continued, with meetings being held twice a year.

In December 2010, in the context of the early general election, the European Parliament deployed an official seven-member election observation delegation to Kosovo. In January 2011, a two-member European Parliament delegation observed the repeat elections in five municipalities. The Commission deployed a three-member election expert mission. The EU Special Representative's (EUSR) office organised a diplomatic election watch. In May, the fourth European Parliament–Kosovo inter-parliamentary meeting took place in Pristina.

EULEX has continued to operate across Kosovo and fulfil its mandate. The cooperation of Kosovo authorities with EULEX has been mixed. The mission has strengthened its presence and activities in northern Kosovo especially following the events of summer when Kosovo Police special units tried to deploy to gates 1 and 31. The Mitrovicë/Mitrovica court is staffed solely by EULEX judges. The situation in northern Kosovo has posed specific challenges to the mission.

The EU re-confirmed its commitment to Kosovo, including the northern part, by opening an information point in northern Mitrovicë/Mitrovica. The EU House has extended its presence and has permanent staff from EULEX, EUSR and the Commission. Mr Feith's term as EU Special Representative (EUSR) came to an end; he continues to act as International Civilian Representative. In May, a temporary EUSR was appointed. The Italian Ambassador to Kosovo is continuing to carry out his mandate as facilitator for the north. The Head of the Greek liaison office in Pristina is continuing his mandate as facilitator for the protection of religious and cultural heritage in Kosovo. Both have made major contributions in their respective areas.

Kosovo continues to benefit from the Instrument for Pre-accession Assistance (IPA), the Instrument for Stability (IfS) and other sources of funding. Kosovo is participating in the IPA multi-beneficiary programmes. The multiannual indicative planning document for 2011-2013 was adopted on 27 June. During 2011, a total of € 68.7 million granted in the IPA annual programme for 2011 was allocated in close coordination with the Ministry for European Integration and government institutions. The EU pre-accession assistance is focusing on support for the rule of law, the economy, trade and industry, and for public administration reform.

2. Political criteria

This section examines the progress made by Kosovo towards meeting the Copenhagen political criteria, which require stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities. It also monitors regional cooperation, good neighbourly relations with enlargement countries and Member States and compliance with international obligations, such as cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY).

2.1. Democracy and the rule of law

Parliament

In October 2010, one of the parties withdrew from the coalition government and the acting President of Kosovo called early general elections for 12 December. Following a no-confidence vote, the assembly dissolved on 2 November. The Central Election Commission organised early general elections in less than 40 days.

Based on the rulings by the competent bodies, the Central Election Commission organised repeat elections: on 9 January in the municipalities of Skenderaj/Srbica, Gllogoc/Glogovac and Deçan/Dečane and at two additional polling centres, one in the municipality of Malishevë/Mališevo, the other in Lipjan/Lipljan, and on 23 January in the municipality of Mitrovicë/Mitrovica. Over 40% of the votes cast had to be recounted. The repeat elections, recounts and delayed publication of results damaged the credibility of the process and the legitimacy of the results.

On 7 February, the Central Election Commission announced the certified Kosovo-wide election results. The turnout was just above 45%. Participation in the six Serb majority municipalities increased. In the three northern municipalities, the turnout was negligible.

There were serious shortcomings in the electoral process. Challenges remain in terms of compliance with international standards and simplicity of the current system and past impunity with regard to electoral fraud. A total of 502 persons have been indicted for fraud related to the general elections at municipal prosecution offices in Kosovo. By the end of June, only 18 verdicts had been rendered. With the exception of one case, the Kosovo prosecutors filed appeals against all verdicts, due to the mild rulings. Kosovo needs to deal more decisively with cases of electoral fraud. Kosovo needs to address the shortcomings and to ensure political will at all levels to conduct fair elections at every stage of the process.

The assembly convened again on 21 February. On 21 and 22 February, the Speaker of the assembly, the President of Kosovo and the government were elected. Subsequently, the election of the President was challenged by a group of members of the assembly before the Constitutional Court. On 28 March, the Constitutional Court ruled that the presidential election of 22 February had been "unconstitutional". Following an agreement between the coalition parties (the Democratic Party of Kosovo – PDK and the New Kosovo Alliance – AKR) and the main opposition party (the Democratic League of Kosovo – LDK), a new President – Ms Atifete Jahjaga – was elected on 7 April in accordance with the constitution. The tri-partite agreement also established that constitutional and electoral reforms, including direct election of the President of Kosovo, needed to occur within specified timeframes.

In its fourth mandate, the assembly re-elected the former speaker again for the new legislature. The Presidency was reduced from nine to six members. Five members of the assembly were elected as Deputy Presidents, three from the largest groups and two from the non-Albanian communities. In an attempt to streamline their work, the assembly reduced the number of assembly committees from 16 to 13. Cooperation between the European Integration Committee and the Ministry of European Integration has improved. The Committee needs to be strengthened, in particular its administrative capacity, and to ensure overall coordination and monitoring of the European integration action plan, and to effectively scrutinise legislation for compliance with European standards.

After the dissolution of the assembly on 2 November 2010, all pending draft laws were sent back to the office of the Prime Minister. Since the beginning of its fourth mandate, the Assembly adopted a budget and a number of reform laws. It also adopted two resolutions, the first in March on the Belgrade/Pristina dialogue and the second in April on European integration. The European integration action plan was adopted in April.

The assembly's strategic programme for 2012-2014 is under revision. The assembly has not yet adopted its new rules of procedure in line with the new mandate. Oversight of the executive branch by the assembly needs to be strengthened. Government representatives do not attend plenary sessions on a regular basis. Requests by the assembly for written reports from the government are not sufficiently met. Public hearings remain sporadic and civil society is not effectively involved in any assembly debate. There is no institutionalised platform that would allow a regular dialogue between the assembly and civil society organisations. There are concerns as regards the adherence to the assembly's rules of procedure. The adoption of the law on the Special Chamber of Supreme Court without a review by the Committee on legislation and judicial matters, as required by the rules, is an example.

The assembly's monitoring and research capacity still remains weak. The legislative procedure needs to be strengthened in order to ensure cross-sectoral expertise. The office for legal affairs, standardisation and harmonisation is understaffed, thus undermining effective, in-depth scrutiny of legislation. The assembly's capability to scrutinise compliance with EU norms effectively needs to be enhanced.

The assembly still lacks a legal department that would provide legal advice to the administration leadership, the president and the presidency only and would represent the assembly in courts. The capability of the assembly administration to provide legal advice and formal opinions to the assembly on constitutional issues also remains very weak.

Concerns remain about management of human resources by the assembly secretariat. A new regulation outlining the organisation and responsibilities of the assembly administration was adopted in October 2010 and is being implemented. The regulation is not fully aligned with the legislation in force, such as the law on civil servants and the law on salaries of civil servants. A merit-based recruitment procedure needs to be applied in order to avoid political interference. The assembly needs to introduce stronger mechanisms to oversee budget expenditure during the course of the financial year. The staff training budget remains largely unspent. In February 2011, the Constitutional Court ruled that the law on rights and responsibilities of members of the assembly was not in line with the law on pensions. Therefore, the pension age for members needs to be raised from 55 to 65.

Overall, the assembly followed the decisions of the Constitutional Court on the re-election of the President. There were serious shortcomings in the process of general elections. Kosovo needs to take urgent steps to address these by simplifying the system, making it more transparent, and investigating and prosecuting cases of electoral fraud. Limited progress has been achieved on strengthening oversight of the government by the assembly, on improving scrutiny of proposed legislation in line with European integration priorities or on the government and assembly working together on a shared reform programme. There are concerns as regards adherence of the assembly to its rules of procedure.

Government

On 22 February, the assembly voted on a new coalition government formed by members of the PDK, AKR and minority parties. The current Government has six Deputy Prime Ministers and 19 ministers, of whom three are also Deputy Prime Ministers. The Deputy Ministers include three Serbs and eight from other communities.

The new government adopted its legislative strategy in March, followed by its annual work plan in April. The government rules of procedure were revised. In March, the government adopted a regulation establishing and strengthening the role of the European integration departments within the ministries. Now, they also perform strategic policy and external assistance coordination functions. The Ministry of European Integration holds regular weekly meetings with these departments, thus ensuring a better flow of information and coordination between these key stakeholders. The inter-ministerial council on European integration matters met twice during the reporting period. The overall inter-institutional architecture governing the European integration process needs to be further strengthened and to be synchronised and managed more effectively. The European integration working groups do not meet regularly.

The Ministry of European Integration, and in particular civil servants dealing with European integration matters, significantly enhanced the management of the second cycle of the Stabilisation and Association Process dialogue. This ensured continuity of the overall process even under difficult institutional circumstances. In March, the Ministry adopted an action plan outlining ten key European integration priorities of general nature for the Kosovo government. More focused identification of specific goals and measurable results would guide the government's efforts better. Furthermore, the Ministry mobilised the government and assembly to deliver on key priorities. The government also adopted a revised European Partnership Action Plan in March. The structure of the document was improved and the list of activities streamlined. Further efforts are needed in order for the document to become a monitoring tool and strategic guidance for the government, by identifying more clearly what can realistically be achieved during the 12 months covered by the plan.

In October 2010, the law on local self-government was amended. The strategic plan on capacity-building in municipalities was completed in March 2011 and training has been provided. The Ministry of Local Government adopted a regulation on assessment of the legality of municipal acts. An instruction on the responsibilities of municipalities in the process of European integration was also issued. An indicator-based system for assessing the performance of municipalities was developed which is now operating in every municipality except three in the north. The Ministry has made some progress on supervising local authorities. Budgetary constraints and the lack of access to land remain major obstacles to the economic development of municipalities. Contradictory interpretations of legislation on local self-government continue to create obstacles in cooperation between central and local levels of administration. The situation needs to be resolved, including by forwarding the matters to the competent courts.

The efforts on decentralisation have continued. The government needs to find solutions for the long-term sustainability of the newly created Serb-majority municipalities. Their administrative capacity also needs to be further strengthened. As a result of opposition from the Serbia-supported structures in northern Kosovo, decentralisation could not progress in this region.

Overall, mixed progress can be reported in this area. The government strengthened the European integration departments in individual ministries and the Ministry of European Integration has continued to build up its coordinating role. Further efforts are needed to improve implementation, in the line ministries, of the reform agenda, based on actions identified in the Stabilisation and Association Process dialogue. Significant progress has been achieved on decentralisation. Municipalities continue to face challenges in terms of capacity and resources. The integration of municipalities and Serb communities in northern Kosovo is a particular challenge.

Public administration

There has been limited progress with public administration reform. The revised public administration strategy for the period 2010-2013 which was adopted by the government in September 2010 has not yet been implemented. An inter-ministerial working group responsible for drafting an action plan implementing the public administration reform strategy was established in November 2010. The action plan has not yet been finalised, thus significantly delaying implementation of the reforms envisaged. The overall process is hampered by lack of financial resources and insufficient political support. In its first meeting since September 2010, the inter-ministerial committee on public administration reform adopted four strategic development plans in July.

In the field of civil service reform, some important regulations and administrative instructions were adopted, such as the regulation on working hours and on job descriptions, and in particular the regulations on the appointment of senior civil servants and on the civil register of civil servants. A regulation delimiting the administrative responsibilities of the Office of the Prime Minister and ministries was adopted as part of the measures to implement the law on state administration. Some additional staff were recruited to the civil service department, but the institutional framework in the public administration continues to suffer from the reported lack of adequate resources. The legal framework necessary for the implementation of the civil service primary legislation is still not complete. Implementation of the laws on state administration and on administrative procedures has been limited.

The Kosovo Institute of Public Administration has provided a series of training sessions, in particular for public procurement officers. The administrative and financial capacity and the coordinating function of the Institute remain weak. This affects its capability to provide a more rational strategic approach to capacity-building for civil servants.

The law on access to public documents was adopted in October 2010 and is in the initial stages of implementation. Most requests come from the media, but no statistics are being kept. The Independent Oversight Board is directly accountable to the assembly. It deals with complaints from civil servants and monitors implementation of the civil service legislation. The Board has organised outreach activities in municipalities on the civil service laws adopted in 2010. Its effectiveness is limited since most of its decisions are not executed by the relevant public institutions. Furthermore, some of its responsibilities overlap with those of the Ministry of Public Administration.

The Ombudsperson of Kosovo remains a weak institution, due to the lack of political support to ensure its proper functioning and financial independence. The recommendations made by the Ombudsperson require the support of the Office of the Prime Minister in order to ensure that they are implemented. Recruitment of the deputies of the Ombudsperson has still not been completed. In June 2011, the Ombudsperson presented a special report to the Kosovo Assembly. The report identifies insufficient human and financial resources as well as the lack of adequate work premises in Pristina and other municipalities as key challenges. The assembly and government need to address this situation urgently.

During 2010, the Ombudsperson received a total of 1,233 visits from individuals who were seeking advice and help. By 1 September 2011, the Ombudsperson institution received about 1,000 complaints. The Ombudsperson needs to improve communication with the public on the results of his work.

External audit also needs to be further developed, since it serves as a driver for improving the public administration and ensuring accountability. In addition to the internal audit offices in the ministries, there is the Office of the Auditor General, which responds directly to the Assembly and whose mandate and duties are defined by the Constitution and by a law. By September 2011, the Office had 124 positions, which all were filled. With regard to e-government, lack of coordination has led to the situation that different branches of the administration are not connected and that only limited e-government services are provided to citizens.

Overall, there has been limited progress on public administration reform. Some laws and regulations have been adopted. Efforts to implement the strategies and legislation adopted need to be stepped up. Furthermore, the skills of the civil service need to be significantly improved. Kosovo needs to build a professional public administration free of political interference. This is a key European Partnership priority and needs to be a high political priority. Strengthening the capacity of institutions in charge of public administration on the one hand and of independent institutions on the other, notably the Ombudsperson, is of the utmost importance.

Civilian oversight of the security forces

There has been limited progress in civilian oversight of the security forces. Kosovo still needs to implement the legislation on classification of information and security clearance. Scrutiny of the security service and of the Kosovo Security Force by the relevant committees in the assembly needs to be improved. Furthermore, the main political parties in Kosovo continue to operate their own security networks.

Judicial system

Kosovo has made progress in the judicial sector. The Constitutional Court has issued a number of key decisions, which made a significant impact. Institutions ensured that these judgments were followed. In September, the Constitutional Court ruled on the issue of functional immunity of the deputies of the assembly, the president and the members of government. Besides confirming that none are immune for actions taken and decisions made outside the scope of their responsibility, the decision also sets out in which cases and circumstances arrests or detention may or may not occur.

Kosovo authorities have continued implementing the adopted judicial reform legislation, notably the laws on the Judicial and Prosecutorial Councils, on courts and on prosecution. The annual budget for the judiciary is about € 17 million for 2011. In 2010 it was about € 14 million, which is estimated at 0.34% of 2010 GDP. Kosovo adopted a law on civil aspects of international child abductions in October 2010 and the law on witness protection in July. The law on criminal liability of legal persons for criminal offences, the law on international legal cooperation in criminal matters, extradition and transfer of sentenced persons, and the law on the Special Chamber of the Supreme Court were all adopted at the end of August. Implementation of the law on the Special Chamber of the Supreme Court presents considerable challenges in view of the shortage of qualified local judges. The law also limits the role of EULEX in the Chamber, which is an issue of concern, given the fact that the mission's strong involvement decreases potential for controversies over Chamber's decisions.

With the aim of implementing the law on mediation, the mediation committee certified 74 mediators, out of which 50 have been submitted to the Ministry of Justice in order to obtain the license. They received training and pilot mediation centres were opened in Gjilan/Gnjilane and Pejë/Peć with donor support. Implementation of the notary law has started. Further efforts are needed to establish fully functional notary system.

The department responsible for international legal cooperation within the Ministry of Justice has continued to exercise its duties in a professional and efficient manner. Its capacity has been strengthened. In 2011, bilateral agreements on legal cooperation in criminal matters, extradition and transfer of sentenced persons were signed with the former Yugoslav Republic of Macedonia and Turkey. Other bilateral agreements are being negotiated. Beyond this legal framework, international legal cooperation based on reciprocity is taking place with many other countries. The Kosovo Ministry of Justice acts on requests for mutual legal assistance received from non-recognising countries, either directly or via UNMIK or EULEX. UNMIK remains the formal point of contact with Interpol and the ICTY. Direct mutual legal assistance between Serbia and Kosovo is non-functional. On 12 August, a technical arrangement on mutual legal assistance was signed between the Ministry of Justice and EULEX, under which EULEX assumes the role of an intermediate between the Ministry of Justice and states, which did not recognise Kosovo, and will facilitate the processing of requests for mutual legal assistance from those countries.

Salaries for judges and prosecutors have been increased, as provided for in the relevant laws, further strengthening the independence of judges. The Kosovo Judicial Council has started to address shortcomings within the judiciary. The Council adopted an action plan for the implementation of the law on courts. It adopted a strategy to reduce the backlog of cases in October 2010 and started implementing it on 1 January 2011. By the end of July, the backlog (which was set by the strategy at 161,273 on reference date 31 December 2008) was reduced by around 26% to a total of around 119,000 cases. The total number of pending cases was 211,588 cases (of which 111,704 backlog cases in the regular courts - 76,030 of those are execution cases for non-payment of utilities), whereas the minor offences courts have 99,031 pending cases (7,284 of which are backlog cases). A specialised enforcement unit was set up for civil enforcement cases, with offices in five courts. Around 30 enforcement clerks were hired.

The Director of the Council's secretariat was appointed and has taken major steps to improve the functioning of the secretariat. The Council assumed full responsibility for recruiting, vetting and selecting candidates for judicial positions and established an office for judicial and prosecutorial assessment and vetting for supporting the selection process. The office needs to play an important role in ensuring accountability of judiciary. Of a total of 399 judges foreseen for Kosovo courts, 244 positions were filled and the Council published vacancy notices for another 112 posts open. The distribution of the remaining 43 positions will be done based on the new law on courts, which restructures the court system in Kosovo. The number of applications for reappointment from members of minorities has continued to be lower than needed to fill all the posts. As part of the reappointment process, three judges (out of a total of seven) were appointed to the Special Chamber of the Supreme Court and one judge was appointed to the appeal panel of the Special Chamber. On 11 August, four Kosovo Albanians and one Kosovo Serb were appointed by the Kosovo President as Supreme Court judges. This brings the total number of judges at the Supreme Court to 16.

The Council has also organised training for court officials on implementation of the manual on court management and on case management information system. It also appointed the disciplinary panel in February, but still needs to appoint the other committees indicated in the law on the Judicial Council. Some disciplinary proceedings against judges or prosecutors were reported, but none of them resulted in dismissal. The Judicial Council has not yet reached its full composition. The Council adopted rules for the election of members by their peers to fill the positions vacated by the prosecutors who are now members of the Kosovo Prosecutorial Council and organised the election process. Two judges from the first instance level were elected. The Assembly still needs to appoint three members of the Council, including two judges from minority communities.

The law on the Kosovo Prosecutorial Council entered into force on 1 January. All nine members of the Prosecutorial Council were appointed and the Council has started working. It took over certain responsibilities from the Ministry of Justice and the Kosovo Judicial Council and its two key bodies are now in operation: the disciplinary committee and the panel for recruiting new prosecutors to fill the 45 vacancies. Some administrative and organisational regulations were approved by the Council and the recruitment process is ongoing. The Council assigned special prosecutors to deal with organised crime, economic crime, corruption and trafficking of human beings in all district courts and municipal courts. It is important that cooperation between prosecutors and the police continues to improve, notably in the fight against organised crime, for which the Council needs to develop its prosecutorial policy and strategy in line with the law.

Progress has been made on adjudicating cases pending after the March 2004 riots. The criminal procedures were finalised at first instance; the majority of the civil cases are considered inadmissible.

The judicial system remains weak and efficiency needs to be enhanced. Implementation of the manual on court management is at an early stage. Data and case management is still weak. There are still reports of threats and intimidation against judges, especially in sensitive cases such as on property rights. This is a serious concern as regards impartiality of judiciary. Appropriate security and protection measures therefore need to be taken to provide judges and court staff with a secure working environment and effective safeguards against threats or intimidation. Political interference in the work of the judiciary is still a concern.

Rule of law continues to be a cause for concern in northern Kosovo. The Mitrovicë/Mitrovica court still consists solely of EULEX judges and prosecutors and is operating with limited capacity. This limits access to justice and undermines rule of law. Forty-two criminal cases have been adjudicated, but civil cases are not being processed. Civil cases have been pending for more than three years since the normal activities of the court were halted in March 2008, raising concerns about the right to a trial within reasonable time. Currently, no municipal or minor offence courts are functioning in northern Kosovo, apart from the Mitrovicë/Mitrovica court staffed by EULEX.

There are serious concerns about transparency when it comes to implementing the law on pardons. The acting President (partially) pardoned 103 prisoners in February 2011 (compared to 62 in February 2010). Many of them were serving sentences for serious crimes.

Overall, Kosovo has made progress in this area. The Constitutional Court has made a number of key judgments. The Judicial Council has started addressing key priorities and the Prosecutorial Council has started operating. The successful completion of the reappointment process has increased self-confidence among the local judiciary. The judicial system is still weak. Interference in the workings of justice persists, endangering its independence and impartiality. Improvements are needed in the efficiency of court proceedings and enforcement of decisions.

Anti-corruption policy

Kosovo has made some progress on tackling corruption. The implementation of the anti-corruption strategy is monitored by an Anti-Corruption Agency. The Agency is also the responsible authority to monitor the implementation of the law on preventing conflicts of interest in exercising public functions, which was amended in August. The law on declaration, origin and control of property of senior public officials and on declaration, origin and control of gifts of all public officials, the law on protection of informants (whistleblowers) and the law on public procurement were also adopted at the end of August. An anti-corruption coordinator was appointed within the Office of the State Prosecutor and one prosecutor per district prosecution office was assigned to corruption cases. Steps have been taken to strengthen the Kosovo anti-corruption task force and to ensure that seconded police officers and appointed experts will be able to contribute effectively. Similar steps have been taken to improve cooperation between prosecutors. A mixed panel of local and EULEX judges has convicted senior officials and politicians. The indictment against officials of the customs department was dismissed on legal grounds by a pre-trial EULEX judge of the Pristina court. The prosecution has appealed against this decision.

The increase in the salaries of judges and the completion of the reappointment process were positive steps to prevent corruption in judiciary. The 2011 campaign on the declaration of assets led to an increase in the number of declarations by officials. 96% (1830) of officials made declarations, which were published online. Cases have been initiated against 84 persons who did not disclose their assets. The Anti-corruption Agency has stepped up its awareness-raising activities, by means of campaigns and targeted training. The Agency has sufficient capacity to perform its tasks. Law enforcement agencies have strengthened their disciplinary structures.

There have been some convictions on corruption-related cases. Since January 2009, a total of thirty verdicts have been issued by mixed panels of EULEX judges and Kosovo judges, thirty defendants were found guilty, nine were acquitted. On other corruption cases, 216 cases are inherited from previous years and 92 were reported in the period October 2010 – July 2011. 75 cases have been resolved at first level instance (40 of which with a condemnatory judgement) in this period.

Kosovo continues to face significant challenges in fighting corruption. The adopted legislation now needs to be fully implemented. The capacity to investigate this type of crime, and the level of expertise, remains limited. Law enforcement and judicial authorities need to be more pro-active in this area. Cooperation between the Anti-Corruption Agency, the police and the prosecution needs to be further improved. Declarations of assets by public officials continue to show discrepancies between the assets declared and actual revenue. Most political parties did not fully comply with their reporting obligations to the office for political party registration. Furthermore, necessary amendments to the law on financing of political parties have not yet been adopted. Breaches of procurement rules continue to be an issue of concern in the context of corruption. Citizens regularly encounter corruption in police, customs and court services. Major efforts are needed to fight the widespread corruption in education and health care.

Overall, some progress has been achieved in the fight against corruption, notably by starting to tackle some of the corruption cases and improving the legislative framework. Structures in place to deal with corruption have also improved. The legislative framework is still not complete. There is a need to tackle this challenge more proactively, in particular by law enforcement and judiciary. This needs to done within their own ranks as well. Corruption remains prevalent in many areas and continues to be a very serious concern. It also affects access by citizens to public services.

2.2. Human rights and the protection of minorities

Observance of international human rights law

Kosovo is a member of neither the UN nor the Council of Europe. Consequently, it is not in a position to ratify the relevant international human rights instruments. Kosovo is not subject to the frameworks set up by these international bodies for regular reporting and cooperation on human rights (including the European Court of Human Rights). Kosovo's Constitution contains strong provisions to secure international standards on human rights. Alongside a catalogue of rights, the Constitution makes the operative provisions of numerous international human rights instruments binding within the legal order of Kosovo. Kosovo is aiming to engage with European and international monitoring bodies beyond the ongoing informal communication.

During the reporting period, the government submitted a report to the Committee on the Rights of the Child. This cooperation with ad hoc arrangements for reporting to the UN Treaty bodies is a positive step. It made it possible for Kosovo to provide a report on implementation of the Convention for the Elimination of all Forms of Discrimination against Women.

Promotion and enforcement of human rights remain a major challenge. Training has been organised to build up the capacity of the human rights units. The enforceability of legal and administrative remedies for human rights infringements needs to be improved at all levels. The range of institutions and bodies dealing with human rights at central and municipal levels is too dispersed and at times overlapping. Communication and coordination between the different institutions and bodies dealing with human rights at central and local levels and with the Ombudsperson are weak. These bodies need to be streamlined and their mandate clarified in order to make better use of their limited expertise and resources.

Overall, this area remains a major challenge. The institutional set-up promoting and enforcing human rights needs to be simplified. Appropriate resources need to be allocated. Efforts to enhance monitoring and reporting mechanisms need to be stepped up and to focus on improving the enforcement of existing legislation and policies. Ensuring full respect for human rights is a key European Partnership priority.

Civil and political rights

The government needs to continue its efforts to address torture and ill-treatment, including the fight against impunity. The number of reported cases involving police and prison staff has decreased. EULEX is monitoring and following allegations of possible ill-treatment at Dubravë/Dubrava prison and working closely with the Kosovo Correctional Service intervention team.

Overall, further efforts are needed to prevent torture, ill-treatment and impunity.

Kosovo has achieved some progress as regards the prison system. Living conditions in Kosovo's detention facilities have improved. The first steps have been taken to establish a sustainable mechanism for monitoring local detention in order to coordinate the efforts of the various local organisations and institutions monitoring detention. A cooperation agreement between the Ombudsperson, the Kosovo Rehabilitation Centre for Torture Victims and the Council of Defence of Human Rights and Freedoms aimed at setting up such a mechanism entered into force in May. The Kosovo Correctional Service has introduced a methadone treatment programme, which has improved the situation of drug addicts among the prison population.

Some outstanding issues need to be addressed. Only a small number of the approximately thirty sublegal acts to implement the law on execution of penal sanctions have entered into force. Due to the lack of space in pre-trial detention centres and the increase in the number of detainees (from 369 in August 2010 to 545 in June 2011), the Kosovo Correctional Service transferred some detainees to Dubravë/Dubrava prison, where they are housed in a separate block from sentenced prisoners. The Correctional Service continues to face difficulties securing funds for refurbishment. Construction of the high-security prison needs to be finalised as soon as possible. Cooperation with the Mitrovicë/Mitrovica detention centre and the headquarters has improved and is now satisfactory. This facility is not suitable for long-term prisoners.

Currently, the Correctional Service has no electronic information system that can record and provide reliable date on the prison population. This makes it impossible to plan effective social reintegration programmes. Corruption within the prison system needs to be addressed.

Overall, some progress can be reported in relation to correctional services. Kosovo is continuing to address its objectives in this area.

In the case of access to justice, there has been limited progress. Mechanisms for assisting victims of trafficking and domestic violence exist. Legal aid offices have also been opened. Court liaison offices are in operation across the regions, but their funding and resources need to be fully ensured. Major challenges such as the backlog of cases persist. The Mitrovicë/Mitrovica court continues to function with limited capacity under EULEX. Access to justice for victims of trafficking, both children and women, needs to be improved. Further efforts are needed to ensure legal aid in Kosovo, including adopting the appropriate law.

Overall, Kosovo has made limited progress in this area. A number of obstacles still limit access to justice. Kosovo is at an early stage of ensuring such an access.

As regards freedom of expression, limited progress can be reported. The transparency of media ownership is guaranteed by a law and the law is properly enforced. The Independent Media Commission delivered the media monitoring of the election campaign for the first time. The ministerial human rights units have received training on the law on access to public documents. Enforcement of this law requires that the roles and responsibilities of the ministries involved be clarified.

Five media professionals and one mayor were indicted for alleged threats and defamatory comments towards an independent investigative journalist. Journalists continue to face political pressure and intimidation, which is threatening the still fragile investigative journalism. The amendment to the Criminal Code putting an end to defamation as a criminal offence still needs to be adopted. The professional standards in journalism need to be enhanced.

Efforts to draft new laws on the Independent Media Commission and the public broadcaster RTK have contributed to increased awareness on European standards. The editorial independence of the public broadcaster RTK is not guaranteed. RTK also lacks sustainable financing. The current budget-only funding has severely undermined the RTK's independence. Other media depend heavily on financing from the public sector and publicly-owned companies. The assembly still needs to appoint its members to the Independent Media Commission. Legislation guarantees sufficient time for minority programmes on the RTK, but this is not observed in practice.

Overall, Kosovo continues to face considerable challenges in this area, including political interference.

Freedom of assembly and association continues to be exercised in Kosovo. Various demonstrations took place in Kosovo. The newly-amended law on freedom of association in NGOs ensures that their right to association is not hindered. With regard to the development of civil society organisations, little progress can be reported. The President of Kosovo has invited several representatives of civil society to advise her. The institutions need to find ways to ensure more structured cooperation with civil society. Public understanding of the role of civil society remains low. It is a concern that civil society is subject to undue political pressure and intimidation if its activities do not correspond to the views of authorities.

Overall, there has been a mixed progress on efforts to fully guarantee freedom of assembly and association. The environment in which NGOs operate needs to be improved. The government, the assembly and municipalities need to cooperate more effectively with civil society.

In relation to freedom of thought, conscience and religion, there has been some progress. Kosovo police has continued taking over responsibility from KFOR for guarding historical and religious sites, including Serbian Orthodox ones. Only three sites remain under KFOR protection. Kosovo furthered its renovation activities of Serbian Orthodox sites in cooperation with relevant participants from the Serbian Orthodox Church and from the Serbian authorities. The Orthodox seminary restarted its activities in its historical premises in Prizren. Kosovo has launched consultations on the amendments to the law on freedom of religion notably to put an end to the current requirement for all religious communities to register as NGOs. Demonstrations on religious ground took place peacefully in Pristina. Religious leaders have participated jointly in some religious events. The construction of the catholic cathedral in the centre of Pristina is ongoing. Students took action to clean the Jewish cemetery in Pristina. However, a number of religious heritage sites have been vandalised, including Serbian Orthodox churches and Orthodox and Muslim cemeteries. The mechanisms for reporting and following up such activities need to be improved.

Overall, there has been a mixed progress on freedom of thought, conscience and religion, the transfer of responsibility for protecting religious and cultural sites to the police has continued smoothly. Tolerance towards religions remains fragile. Lack of respect towards symbolic sites and believers, irrespective of religion, persists.

Economic and social rights (see also Chapter 4.1.8 – Social policies, employment and public health)

In the areas of women's rights and gender equality, some progress can be reported. The position of women in politics has improved with the election of Ms Atifete Jahjaga as the Kosovo President and the appointment of three women as Deputy Prime Ministers, including the negotiator in the Belgrade/Pristina dialogue and the Minister for European Integration. The labour law extended the right to maternity leave. In implementing this law, attention needs to be paid to the vulnerability of women in the labour market. Implementation of the law for the protection against domestic violence has continued. To this end, the Agency for Gender Equality and the Kosovo Judicial Institute have provided training to legal staff on the protection from domestic violence. A public debate on this issue was held in Gjilan/Gnjilane. Leaflets were also published. The Ministry for the Kosovo Security Force established a human rights unit, which also deals with gender equality and hired three officers. At municipal level, trainings have been provided and capacity enhanced.

Domestic and gender-based violence continues to be a challenge in Kosovo. The relevant legislation needs to be implemented and monitored. Services for victims of domestic violence and trafficking are partially funded by the government but remain heavily dependent on donor funding. The long-term reintegration of victims, including their economic stability and access to justice, needs to be provided. Positive measures need to be enforced to empower women as victims of trafficking and domestic violence. High drop-out rates amongst girls and the under-representation of women on the labour market, including in the public sector, require concrete action by authorities. The Agency for Gender Equality has continued facilitating, promoting and monitoring implementation of the Gender Equality Programme (2008-2013).

Overall, some progress can be reported in women's rights. The relevant institutions need to be strengthened and the budget increased in order for the legislation to be implemented fully.

Protection of children's rights has improved with the implementation of the juvenile justice code and its monitoring process. In March, the annual report on children's rights was published. The Council for Child Protection and Justice for Children was established. It needs to focus on implementing the strategy and action plan for children's rights for 2009-2013. Kosovo opened learning centres in a handful of municipalities to fight against drop-out among the Roma, Ashkali and Egyptians. These efforts need to continue.

The social assistance scheme is being revised based on necessary consultations and taking account of budgetary constraints. Child protection remains weak and the child poverty rate is over 48%. Children are at greater risk of poverty than the general population, in particular among the Roma, Ashkali and Egyptian communities. Poor maternal care and child nutrition and healthcare are additional challenges reflected in the high level of child mortality. Forced begging by children continues to be widespread. Kosovo needs to strengthen its child protection system.

Overall, child protection remains weak. Mechanisms and processes need to be developed to enforce children's rights. Child protection needs to benefit from a functional multi-sectoral approach.

Limited progress has been achieved on socially vulnerable persons and/or persons with disabilities. Training sessions in this area enhanced the administrative capacity and need to continue. The Council for Persons with Disabilities was established to coordinate enforcement of legislation. The first report on the implementation of the action plan for people with disabilities (2009-2011) was published. This plan and the law on vocational training and employment for people with disabilities need to be better enforced, and their implementation monitored. Adequate actions at municipal level are also required.

Overall, more efforts are needed to improve the daily life of socially vulnerable groups and persons with disabilities.

The government has continued to carry out a few awareness-raising campaigns on the anti-discrimination law. The low level of confidence in the courts is discouraging for the victims of discrimination. More efforts are needed to combat all forms of discrimination, which is a major issue of concern. Enforcing the relevant legislation, in particular the anti-discrimination law, remains imperative. Monitoring the implementation of legislation in this area is still insufficient.

The Constitution prohibits discrimination on the basis of sexual orientation. The anti-discrimination law also provides a high degree of protection for the lesbian, gay, bisexual and transgender (LGBT) community. Practical enforcement of the legislation remains a challenge. There is still a lack of awareness on LGBT issues, which are not discussed openly. There is limited knowledge and understanding on the part of law enforcement officers about the rights of this community. Socially-accepted lack of tolerance towards individuals identifying themselves as having a different sexual orientation requires more political commitment. The members of the LGBT community face threats or the risk of violence.

Overall, more efforts are needed to raise general awareness about anti-discrimination measures and to implement the existing legislation.

In the area of labour and trade union rights, some progress has been achieved. The law on labour was adopted in November 2010. This improves working conditions notably in terms of work-contracts. It also introduces paid maternity-leave up to 9 months. The Socio-Economic Council became operational and the law on the Socio-Economic Council was adopted regulating its organisation, mandate, and actions. Labour inspectorates were reorganised, but they lack the necessary capacity to monitor labour conditions throughout Kosovo. The law on trade-unions was adopted clarifying the employees' rights to establish and participate in trade unions. There are concerns as to the alignment of the law on strikes with the European Charter for Fundamental Rights and international standards.

Overall, labour and trade union rights are largely guaranteed. The implementation of the existing legislation will be crucial to make changes tangible.

As regards property rights, there has been a mixed progress. A range of laws were adopted improving the legal framework (law on cadastre, amendments to the law on the establishment of the immovable property rights register, the law on taxes on immovable property, the law on allocation for use and exchange of immovable property of municipalities, and the law amending the law on expropriation). The municipality of Pristina adopted a regulation to initiate the process for legalisation of illegal constructions. The local judge of the Supreme Court panel for appeals against contested Property Agency decisions was appointed, making the panel operational. The government appointed its property rights' coordinator to improve enforcement of law in this area. The Kosovo Cadastral Agency has launched a project to register apartments in the major cities of Kosovo. All municipal land registry offices are now connected to the central Kosovo Cadastral Agency and records are available both centrally and in the municipal offices. Out of the 41,222 claims recorded by the Kosovo Property Agency, 30,649 have been adjudicated by the Kosovo Property Claims Commission. 18,365 adjudicated claims which were overturned due to incorrect physical notification during the period 2006 to 2009 have been re-notified. UNHCR offices in Serbia operate as the liaison office for the Kosovo Property Agency.

The number of valid Property Claims Commission decisions stands at 17,076, of which 11,712 were delivered to successful claimants. Of 4,526 requests received, 3,133 were implemented, 1,069 by repossession, and 1,268 were placed under the administration of the Property Agency. Implementation of eviction orders and property administration in the northern part of Mitrovicë/Mitrovica remains a challenge. The funding of the Property Agency remains unsustainable. Approximately 21,000 property compensation claims remain unresolved before the courts. Second-instance courts often send property cases back to the first-instance court for a re-trial. This is due to irregularities either in the judgment or in the proceedings, and leads to a repeat of trials. Inter-ethnic property disputes are unduly prolonged before the local courts. There is no compensation scheme for socially-owned apartments. The law on sales of apartments where occupancy rights exist has still not been adopted. The lack of a strategy to regularise informal settlements remains a concern. While the expropriation procedures are applied satisfactorily and property owners compensated, proper consultation and notification of the displaced owners by the authorities are not adequately carried out. This leads to additional backlog of cases in the courts.

Overall, the weak implementation of the property-related legislation is the major obstacle to protecting and enforcing property rights.

Respect for and protection of minorities, cultural rights

There has been some progress in the respect for and protection of minorities. Decentralisation and support for the newly-founded Serb-majority municipalities are positive developments. This process needs greater attention and political will to solve outstanding issues, such as land management. The work of the Communities Consultative Council has continued. Its members have contributed to the review of government activities and policies affecting communities, especially via its working groups on education and on issues concerning the Roma, Ashkali and Egyptian communities. During the reporting period, a Kosovo Croat was appointed to the Council, thus making the forum more representative. The Council is increasingly consulted by executive bodies. The number of incidents affecting the minority population has increased as a consequence of events that triggered tensions between Kosovo and Serbia.

Limited progress can be reported on access to education for minority communities. The newly adopted laws on pre-university education and higher education contain provisions as to the representation of non-Albanian communities in educational councils and authorities regulating and supervising the education system. The new law on higher education incorporates all higher education providers including the Serbian-speaking university. Finalising the new framework curricula was the pre-condition for drafting the curricula in Serbian and other languages of communities. It is now in place and the drafting of the subject curricula needs to begin. Registration of Roma pupils has slightly increased. The Roma language curriculum was published as an elective course in three languages (Albanian, Roma and Serbian).

Many school textbooks are still not available in the mother-tongue of the Turkish, Bosniak and Roma communities. Moreover, there is still no Serbian curriculum made available by Kosovo, nor is Serbian available as the second official language in any of the public schools outside of the areas predominantly inhabited by Serbs. In many cases, access to secondary mother-tongue education for the Turkish and Bosniak communities is hindered by the lack of curricula translated into their own language or the low quality of textbook translations. Training for teachers teaching in the languages of communities needs to be enhanced, in particular regarding new curricula.

The teaching staff of Serbia-supported schools has started to sign contracts with Kosovo municipal education directorates. Gorani teachers have not signed any contracts with the municipality of Dragash/Dragaš and have therefore been prevented from using the Kosovo-administered school premises.

There has been little progress on the use of languages. The legal framework generally meets international standards on linguistic rights. The Language Commission has started receiving complaints. Newly-established municipalities have adopted regulations on the use of official languages. The implementation of the law on the use of official languages remains inadequate. The lack of sufficient human and financial resources jeopardises access to multilingual public services and also effective participation in public life. The impact of the Language Commission is very limited due to the lack of human resources and the complicated institutional structures dealing with fundamental rights.

International support has improved the position of minority media, especially in Serbian. The Serbian television producers have launched the "TV Mreža" network linking four Serbian-language television stations around Kosovo and covering 80% of the Kosovo Serb population. The Kosovo Media Association radio network in Serbian broadcasts throughout Kosovo.

The public broadcaster (RTK) has allotted times below the legal provisions for programmes in the Serbian, Roma, Bosnian, Gorani and Turkish languages. The plan to establish a second public channel to broadcast in Serbian or any non-Albanian languages has not been finalised. The Fund for the Support of Media of Minority, Multi-ethnic and Other Special Groups has not been operational since collection of the public broadcasting fee for the RTK was suspended by a court decision in October 2009. As a result, the 5% of the total fee collected earmarked for the fund is not available.

Overall, limited progress has been achieved regarding access to education for minority communities. The main challenge remains the lack of curricula and textbooks in minority languages. Teachers also need more training where such new curricula exist. Kosovo authorities need to step up their efforts in this area, notably to allocate adequate resources to educate minority communities. Little progress can be reported on the use of languages. Implementation of the legal framework is inadequate. Multilingual public services are not in place. The position of minority media, especially in Serbian, has improved.

Regarding the Roma, Ashkali and Egyptian (RAE) communities, mixed progress has been achieved. In October 2010, the lead-contaminated camp at Çesmin Lug/Česmin Lug was closed and all the accommodation was demolished. Its residents along with other families from Osterode were resettled in Roma Mahalla in south Mitrovicë/Mitrovica where municipal authorities allocated land for their housing. The government has promoted the civil registration of these communities, including by offering such registration free of charge. A report on the implementation of the Strategy for the Integration of Roma, Ashkali and Egyptian communities was published. Kosovo participated in the Roma Decade steering committee as an observer, allowing it to engage with key players on regional Roma issues.

Osterode camp has not yet been closed because public land for its remaining residents (nine families) has not been allocated. Kosovo still lacks a comprehensive plan to regulate informal RAE settlements. The lack of civil status registration is a further serious obstacle to access to services. Reintegration of repatriated Roma, Ashkali and Egyptians is a concern. The authorities need to increase their commitment to address urgent issues affecting the lives of the Roma, Ashkali and Egyptian communities notably their access to education, healthcare, housing and social protection.

Overall, there has been some progress on integrating minority communities. Kosovo has achieved good results by closing the lead-contaminated camp of Çesmin Lug/Česmin Lug and increasing civil registration of the Roma, Ashkali and Egyptian communities. These efforts need to continue to foster their socio-economic integration.

In the area of refugees and internally displaced persons (IDPs), little progress can be reported. From January to December 2010, a total of 2,261 members of minorities returned voluntarily to Kosovo, which marks the highest return rate in the last six years. The voluntary return process was affected by the difficult political and economical environment in the first semester of 2011. The budget dedicated to voluntary return was considerably reduced by the government. Municipalities face difficulties to provide social housing for returnees without property.

The government needs to step up its efforts to take the lead in addressing the issue of IDPs. The municipalities alone are still not able to respond to the immediate and long-term needs of IDPs and returnees, due to a lack of funds allocated for that purpose. There is an inconsistency between municipal return strategies and the action plan prepared by the Ministry for Communities and Returns.

IDPs continue to face a number of risks, particularly lack of personal identity and property documentation, deplorable living conditions and lack of access to basic socio-economic rights. Moreover, the non-recognition of administrative documents between Kosovo and Serbian institutions further affects access to services and property restitution for IDPs. Attacks on returnees are rare. If they happen, they are not always subject to proper follow-up by the police and the judiciary.

A clear strategy to tackle the caseload of IDPs is needed. In terms of the return process, the main challenges are the continued and heightened socio-economic problems, education and property ownership issues, lack of funding, inter-ethnic tensions in some of the areas and lack of commitment on the part of the institutions.

Overall, the return process remains a challenge for Kosovo. Limited access to property, delayed property restitution proceedings and the scarcity of economic opportunities continue to be the main obstacles to sustainable returns. Many displaced persons are still living in difficult conditions. Pristina and Belgrade need to cooperate to tackle this issue.

Regarding the enforcement of cultural rights, limited progress can be noted. The Director of the Department of Cultural Heritage in the Ministry of Culture was appointed. The secretariat of the Council for Cultural Heritage became operational. Cooperation between the relevant ministries and between central and local levels is slowly improving, but needs to be intensified and managed in a more structured way to secure sustainable progress. The Kosovo Police instructed all regional police stations to tighten patrols at cultural and religious heritage sites. The laws on Prizren and on Hoçë e Madhe/Velika Hoča have not been adopted.

Implementation of the legislative framework governing protection of cultural heritage remains weak. The comprehensive list of cultural heritage sites qualifying for protection, as provided for by the law on cultural heritage, has still not been adopted. As a result, many historically protected items remain vulnerable. This results in breaches of the law. A stronger commitment for cultural heritage spatial planning is needed.

Overall, there has been limited progress on cultural rights. Kosovo has improved coordination and brought new structures into operation. Implementation of the legislative framework remains weak.

2.3. Regional issues and international obligations

Cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) has continued.

As regards missing persons, as of September 2011, there were still approximately 14,000 people missing from the conflicts in the region. Of these, some 10,000 were related to the conflict in Bosnia and Herzegovina, 2,000 to the conflict in Croatia and over 1,800 to the conflict in Kosovo.

Kosovo adopted a law on missing persons. It is the first legal framework that guarantees recognition of the right-to-know and right-to-reparation to the families of the missing, as well as the legal status of the missing persons. The Working Group on Missing Persons, a bilateral forum that brings together the Belgrade and Pristina delegations for dialogue and exchanges of information on missing persons in Kosovo, has remained the framework within which the Pristina authorities have pursued their commitments. Excavation and de-mining work has continued at the Zhilivoda/Žilivode and Kosharë/Košare sites, where human remains of ethnic Serbs are allegedly buried. Most of the work is being carried out by the Kosovo Security Force with the involvement of the Government Commission on Missing Persons, an inter-ministerial body. Experts from the EULEX Department on Forensic Medicine, in cooperation with the Kosovo Security Force, conducted site assessments at Lake Livoq/Livoc and near the village of Zhilivoda/Žilivode. The operation at Lake Livoq/Livoc found no remains of missing persons. Kosovo authorities need to provide new information from their own sources on the alleged gravesites.

The unidentified human remains stored at the Pristina morgue continue to be a cause for concern. The lack of a formal agreement between Kosovo and the former Yugoslav Republic of Macedonia is an obstacle to clarifying allegations related to unidentified human remains in the former Yugoslav Republic of Macedonia.

EULEX has continued investigating war crimes cases. It has conducted a number of operations, including arrests and convictions in war crimes cases involving senior political figures. In the 'Geci trial', a mixed panel of the Mitrovicë/Mitrovica district court sentenced four former KLA commanders and members to imprisonment for terms between seven and fifteen years for (amongst others) war crimes against the civilian population. In the Kleçkë/Klečka case, the indictment was confirmed, charging the ten defendants with various counts of war crimes against the civilian population and prisoners of war in 1999. In this case, a former minister who is also a senior political figure of the ruling party was arrested by EULEX. A resolution adopted by the Parliamentary Assembly of the Council of Europe on inhuman treatment of people and illicit trafficking in human organs in Kosovo raised serious allegations related to the conflict of 1999. EULEX has established a special Brussels-based task force with a liaison office in Pristina to investigate these allegations. The authorities are cooperating with EULEX in this investigation. Kosovo still lacks its own capacities and political commitment to investigate war crimes cases with its own judicial and law enforcement authorities.

Overall, there has been mixed progress in this area. The missing persons file requires greater political commitment, supported by financial and technical resources provided by the government to ensure adequate engagement. Unless adequately addressed, the issue will continue to fuel resentment, hinder reconciliation and adversely affect the overall political climate in Kosovo. The authorities are cooperating with EULEX in the investigation of allegations raised in the resolution adopted by the Parliamentary Assembly of the Council of Europe.

Kosovo's Constitution stipulates Kosovo's external representation. But some parties insist on Kosovo's participation with UNMIK presence for regional initiatives signed by UNMIK. This causes challenges to regional participation. Kosovo did not participate in the Regional Cooperation Council (RCC) Board meetings between June 2010 and May 2011. It did, however, participate, as part of the UNMIK/Kosovo delegation, at the RCC Annual Meeting in Montenegro in June 2011 and at the Board meeting of September 2011. A new coordinator of the RCC office was appointed in May. Even though there is a streamlined procedure for holders of Kosovo passports to obtain visas to attend RCC activities in Bosnia and Herzegovina, the visa procedure remains cumbersome and time-consuming for other regional events held there.

On 1 January, Kosovo, with UNMIK, took over as chair of the Central European Free Trade Agreement (CEFTA). During the reporting period, it organised four meetings under its Presidency, including a meeting on deputy ministerial level. Within the Belgrade/Pristina dialogue an agreement has been found on the customs stamps. Goods have started flowing in both directions in September.

Kosovo has continued to participate in the Energy Community Treaty, the European Common Aviation Area Agreement and the South-East Europe Transport Observatory. It is formally represented in these three regional cooperation fora by UNMIK. The Kosovo institutions attend most regional and international meetings for which UNMIK facilitation is required, thereby enabling Kosovo to remain included in regional/international fora.

Kosovo has continued to participate as an observer in the Investment Compact for South-East Europe, which is designed to improve the investment climate and encourage private-sector development in the region through the implementation of reforms enhancing domestic and foreign investment. Kosovo has also continued to be fully involved in implementation projects, such as the EU-funded Regional Competitiveness Initiative. Kosovo supports the RECOM initiative on reconciliation.

The demarcation process with Montenegro has not progressed, notwithstanding the existence of a commission specifically responsible for this process.

Overall, an agreement remains to be found on a sustainable solution for participation by both Kosovo and Serbia in regional fora. This is essential for inclusive and functioning regional cooperation. Demarcation of the border with Montenegro needs to be finalised.

3. Economic criteria

In examining economic developments in Kosovo, the Commission's approach is guided by the conclusions of the European Council in Copenhagen in June 1993, which stated that membership of the Union requires the existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union.

3.1. The existence of a functioning market economy

Economic policy essentials

As a consequence of the political instability and early elections, the 2011 budget was not passed by the Assembly until the end of March. In April the government adopted its medium-term expenditure framework (MTEF), covering the years 2012-2014. The SDR 92.7 million (€ 109 million) Stand-By Arrangement (SBA), negotiated with the IMF in mid-2010, went off track, notably due to a significant wage increase in the government sector. A non-disbursing IMF Staff Monitored Programme (SMP), running until the end of 2011, was agreed upon in June. The SMP, which entails conditionality, is an important test and attempt to regain credibility in economic and fiscal policy. Overall, the determination to pursue market-oriented economic policies has been maintained, but measures were adopted that introduced severe distorsions in the economy. Designing and implementing a coherent and credible economic strategy, linking policy priorities, structural reforms and public expenditure, remain a major challenge.

Macroeconomic stability

The economic situation is challenging. The large increases in the budget deficit over the last two years have not managed to spur economic growth significantly. The 2010 national accounts data are still not available, but external and fiscal imbalances increased, driven by another year of public-sector expansion. Private consumption growth is likely to have remained subdued due to the almost unchanged remittances, low job creation and accelerating inflation. The contribution of government's final consumption to real GDP growth, although supported by nominally increasing public expenditure, has been constrained by a continuous winding-down of the donors consumption. Government investment remained buoyant, but there are uncertainties surrounding private investment developments, as bank lending and foreign capital inflows have been channelled mainly into non-investment activities in the services sector. Exports of goods and services performed impressively, increasing by 36%. Starting from a very low base, they increased their share in GDP to about a fifth. Imports of goods and services also increased in double-digits, althought at a lower rate, widening the negative contribution of net exports to growth by about 1 percentage point. Economic statistics remained weak, hampering a comprehensive assessment of the economic situation. GDP per capita[4] is estimated to have risen at € 2,385 in 2010, equal to 9.7% of the EU-27 average (9.6% in 2009). Overall, Kosovo's economic growth remained weak and fragile.

In 2010, led by a doubling of base metals exports, total exports of goods increased nominally by more than 70%. In 2011 they continued performing strongly, although their growth went down significantly to 19% by the end of July. Exports' share of GDP rose to 7.4%, up from the very low 4.5% in 2009, driven by strong foreign demand and high commodity prices. This positive trend masks an underlying weakness, as base metals increased their share in total exports to almost two-thirds, revealing a lack of diversification and the predominance of low value added goods in the exports' structure. Imports of goods rose by 11% in 2010 and accelerated their growth to 14% by the end of July 2011. Their share in GDP climbed to 49%, up from 47.3% in 2009. The imports structure shifted towards intermediate and consumption goods at the expense of capital goods.

The coverage ratio, i.e. exports of goods as a percentage of imports (12-month moving average), has increased and stood at 14.1% in July 2011. The net exports of goods displayed a better performance than in 2009, but the deficit in goods and services worsened from 39.2% of GDP in 2009 to 40.5% in 2010. The surplus in services dropped substantially due to a significant increase in imports of construction services starting in the second quarter of 2010. In the first seven months of 2011, the trade deficit widened to € 1,122 million compared with € 992 million in the corresponding period of the previous year, as gains on the exports side were more than offset by increased imports of goods.

In 2010, the current account deficit (including official transfers) widened to 16.0% of GDP, up from 15.4% in 2009. This increase was driven mainly by the deteriorating services account. At the same time, the surplus on the income account improved to 3.1% of GDP as investment income outflows declined by about 40% over the previous year. Current transfers remained significant at 21.6% of GDP. Net workers' remittances, a major source of financing domestic demand, increased by about 6% but their share of GDP remained almost unchanged at 10.2%. The surplus on the capital and financial account (12.3% of GDP) fell short of the size of the current account deficit. Net foreign direct investments increased to 7.5% of GDP, about a third of which went into real estate and construction and another 22% into financial services. There was a spike of about 50% in FDI inflows in manufacturing, associated with the completion of privatisation deals rather than new green-field investments. Over 2010, currency and deposits held abroad were converted into portfolio investments abroad (equity and debt securities). This was accompanied by an increase in the central bank reserve assets. Net errors and omissions of 3.7% of GDP are high in comparison with the 1.5% in 2009 and pose a problem when it comes to proper analysis of economic developments. Overall, external imbalances are high, especially in trade in goods, and production-enhancing foreign investment inflows have remained limited.

Unemployment was very high at 45.4%, according to the latest official data from the Labour Force Survey 2009. No data are available on the unemployment rate in 2010 because the Labour Force Survey was cancelled due to financial constraints. In 2010, the number of registered unemployed went down by about 1%, mostly in the unskilled segment. Nevertheless, by the end of June 2011 unskilled unemployed still accounted for 60% of total registered job-seekers. Unemployed with university education, although a relatively small number, have steadily increased and approached 4,000, signalling problems in the functioning of and the links between the labour market and the education system. Data from the Kosovo Pension and Savings Trust Fund indicate that in 2010 the number of contributors increased by 2.3% or 5,213 people, almost equally divided between the government and non-government sectors. The statistics available do not provide a true picture of the labour market, particularly given the significant informal employment. Overall, information about the labour market is scarce and doubts about its accuracy persist. Unemployment remained very high and the economy did not create enough jobs to reduce pressures on the labour market and offer job opportunities, especially to young new entrants.

The annual average inflation was 3.5% in 2010. Monthly inflation rates accelerated sharply from mid-2010 on and in the first quarter of 2011. By March 2011 inflation peaked at double-digit levels of 10.8% (year-on-year), before it slowly decelerated to the still high 5.3% by the end of August. Food prices were the main contributor to inflation with 3.5 percentage points, followed by energy-related items with 0.9. Core inflation (non-food and non-energy) reached a high of 1.6% in May, after it had usually remained below 1%, spurred, inter alia, by the government promise to increase government-sector wages substantially. About 90% of all goods in the consumer basket exhibited increasing prices, indicating broad-based inflationary pressures. The inflation level and structure have hit the poor disproportionally and put under strain consumption patterns dependent on remittances. Overall, inflation has been volatile and risen to high levels.

Kosovo is using the euro as legal tender. Consequently, the Central Bank of Kosovo (CBK) has only limited policy instruments. The growth in broad money (IMF definition[5]) stood at 18.7% by the end of July 2011. Its dynamics throughout the period was influenced by the reduction in public non-financial corporations' deposits due to the withdrawal by the government of dividends from the publicly-owned telecommunications company. The monetisation of the economy, measured by the ratio of average broad money to GDP, increased slightly, from 39.8% in 2009 to 40.4% in 2010. Stricter bank supervision led to reclassification of some loans and an increase in non-performing loans, which reached 5.9% of total loans by mid-2011. The central bank has put the biggest micro-finance institution under direct administration. This case has highlighted weaknesses in the legislation, in particular on the licensing of micro-finance institutions. Overall, the monetary framework continued to function relatively well, although there is room for improvement, in particular in regulation and supervision of the financial sector.

The budget deficit increased from 0.7% of GDP in 2009 to 2.7% in 2010, driven by surging expenditures and lower dividend receipts. The underlying deficit was much higher – 5.5% of GDP – if one-off receipts, particularly a € 85 million dividend and a € 30 million budget grant, are taken into account. In addition, there has been a significant increase in unpaid invoices, which stood at 0.7% of GDP at the end of 2010. Total revenue (excluding dividends and grants) increased by about 1 percentage point to 25.3% of GDP. Total primary expenditure increased by about 0.7 percentage points to 30.7% of GDP. Two thirds of the underlying revenue continued to be collected as border taxes on consumption, while direct tax revenue decreased in not only relative but also absolute terms. Current expenditure reached 18.1% of GDP, up from 17.7% in 2009, underpinned by a strong increase in spending on wages and salaries. Social transfers went up by 0.3 percentage points to 4.8% of GDP. Total subsidies, capital transfers and net lending to publicly owned enterprises went down by 1.3 percentage points to 3.2% of GDP, due to a reduction in spending on the Kosovo Energy Corporation. Capital expenditure increased from 9.9% to 10.7% of GDP, although all categories of capital expenditure, other than those related to construction of the highway linking Pristina and Tirana, had been cut significantly by 2.2% of GDP. The government deposits available at the central bank dropped from € 342 million (8.7% of GDP) in 2009 to € 244 million (5.9%) at the end of 2010. Government debt to the World Bank and the IMF stood at 6.2% of GDP.

Due to the early dissolution of parliament, the 2011 budget was delayed and was not adopted by the new Assembly until March. It envisages a 17% increase in revenue (excluding dividends and grants) over 2010, 17.2% higher total primary expenditure, and a budget deficit of € 227 million (4.7% of GDP). The budget foresees that the deficit would be financed by direct grants, privatisation receipts from the sale of Post and Telecommunications of Kosovo (PTK) and borrowing from international financial institutions, most of which are unlikely to materialise in 2011. In the first eight months of 2011, budgetary execution has been marked by strong tax revenue performance (17% annual growth) driven mostly by equally strong imports of goods. In the first quarter, expenditure lagged behind, especially at municipal level, but by end of August total expenditure accelerated and increased by more than 24%. The budget turned into a deficit of € 16.6 million mainly because of particularly strong increases in spending on wages and salaries (25%) and capital outlays (61%). The Ministry of Finance took steps to improve the transparency of budget execution and started uploading preliminary monthly information about budget revenue and expenditure onto its website. However, budgetary transparency could be further improved. Overall, the financing of the 2011 budget is facing significant risks.

In 2010, in an attempt to rationalise and bring predictability to economic policy, Kosovo entered a Stand-By Arrangement with the IMF. The agreement allowed sufficient room and time for adjustment of the significant fiscal imbalances. Nevertheless, after a series of ad hoc measures, the programme derailed. In addition to the Labour Law adopted in the last session of the previous Assembly, a number of initiatives with a potentially significant negative impact on the level and quality of government expenditure were taken without prior analysis of their economic and budgetary impact.

The government decision to increase government employees' wages substantially (by 30 to 50%), later incorporated in the 2011 budget despite the objections raised by the European Commission and the IMF, was highly detrimental to fiscal sustainability and the quality of spending. In mid-July 2011, the government entered into a new agreement with the IMF – a non‑disbursing Staff Monitored Programme (SMP) due to run until the end of 2011. Under the programme, the government committed to consolidation measures totalling € 35 million and to set aside a reserve of € 60 million as unallocated expenditure for 2011, the release of which is linked to announcement of the winner of the PTK privatisation bid. This reserve is crucial for preserving a minimum level of government bank balances by the end of 2011. However, keeping it is likely to imply cuts in non-highway capital spending, which is one of the most growth-enhancing categories of expenditure. The implementation of the SMP is an important test and an attempt to restore credibility to economic and fiscal policy. Overall, fiscal planning and the quality of public finances deteriorated further and policy predictability, consistency and transparency remain serious challenges.

Economic development continued to be marked by fragile growth and significant domestic and external imbalances, aggravated by poor fiscal policy. In particular, the high inflation and dysfunctional labour market pose major challenges for economic and social cohesion and the significant economic uncertainty remained an obstacle to job creation and private-sector development. In 2011, in an attempt to remedy some of the major policy weaknesses, the government presented an economic vision and action plan for economic reform. This is commendable for the leading role given to the private sector in sustainable economic development. However, the plan lacks prioritisation and sequencing of proposed measures. It relies on an optimistic macroeconomic scenario. Careful assessments and proper fiscal impact analyses of most of its measures are still due. In addition, the plan's medium-term budget deficit target of 2% of GDP is inconsistent with the 0.5% deficit envisaged in the MTEF. Overall, the proper functioning of the macroeconomic policy mix is increasingly threatened by the unpredictable fiscal policy and unsustainable growth in government expenditure.

Interplay of market forces

About 90% of the publicly-owned enterprises (POEs) had operating profits in 2010, but a few big energy and mining companies continued to suffer large losses and have been a significant drain on the budget. The Privatisation Agency of Kosovo continued the privatisation of socially owned enterprises (SOEs). Mainly small businesses were privatised, with the exception of a big cement factory (which will secure employment for the 500 workers for three years). Limited progress was made with liquidating SOEs: only one in 2010. The privatisation of publicly owned enterprises had temporarily stalled because of the early dissolution of parliament. The process of privatising PTK resumed in the spring. In June 2011 two companies, out of the five which had declared interest, qualified for the next stage. In September, the government gave two additional weeks for expression of interest to the companies which had not qualified in June. This extension potentially undermines the credibility of the privatisation process. The privatisation of KEK Distribution and Supply (KEDS) also proceeded, with four companies pre-qualifying to participate in it. The transaction for development of the New Kosovo Power Plant (NKPP) continued to suffer delays, partly related to the future energy market model and the long-term power purchase agreement between the NKPP and KEDS, which still needs to be finalised in detail. Overall, there has been some progress with the privatisation process, especially concerning publicly owned enterprises.

Market entry and exit

The business register now includes 105,000 companies. Data from the Tax Administration of Kosovo (TAK) show that around half of them are actually inactive. In order to be deregistered after becoming inactive, companies have to present the business register with a statement from TAK that all outstanding tax obligations have been fulfilled. So far, online registration of companies is possible only at the 'one stop shops' or municipal business centres that have been established in 22 municipalities. Businesses continued to suffer from power cuts and most firms identified corruption and red tape as major impediments to doing business. As part of its economic development action plan, the government announced its goal of improving the business environment substantially. To this end, it plans a number of measures, including a comprehensive reform to remove 50% of licence and permit requirements in the medium term. Overall, weak administration, unreliable electricity supply and deficient rule of law continued to hinder market entry and exit.

Legal system

The legal system continued to suffer from poor accessibility and efficiency. Weak enforceability of contracts remained one of the main concerns of companies and investors in Kosovo. It is also one of the factors explaining the relatively high interest rates charged by commercial banks to the private sector. The Kosovo court system, in cooperati