* This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.

TABLE OF CONTENTS

1........... Introduction. 3

1.1........ Preface. 3

1.2........ Context 3

1.3........ Relations between the EU and Kosovo. 4

1.4........ Normalisation of relations between Kosovo and Serbia. 5

2........... Political criteria. 6

2.1........ Democracy and the rule of law.. 6

2.2........ Human rights and the protection of minorities. 14

2.3........ Regional issues and international obligations. 19

3........... Economic criteria. 21

3.1........ The existence of a functioning market economy. 21

3.2........ The capacity to cope with competitive pressure and market forces within the Union. 26

4........... European standards. 27

4.1........ Internal market 27

4.1.1..... Free movement of goods. 27

4.1.2..... Movement of persons, services and right of establishment 29

4.1.3..... Free movement of capital 30

4.1.4..... Customs and taxation. 30

4.1.5..... Competition. 32

4.1.6..... Public procurement 32

4.1.7..... Intellectual property law.. 33

4.1.8..... Employment and social policies, public health policy. 34

4.1.9..... Education and research. 36

4.1.10... WTO issues. 37

4.2........ Sectoral policies. 37

4.2.1..... Industry and SMEs. 37

4.2.2..... Agriculture and fisheries. 37

4.2.3..... Environment and climate change. 39

4.2.4..... Transport policy. 40

4.2.5..... Energy. 41

4.2.6..... Information society and media. 42

4.2.7..... Financial control 44

4.2.8..... Statistics. 44

4.3........ Justice, freedom and security. 45

4.3.1..... Visa, border management, asylum and migration. 45

4.3.2..... Money-laundering. 48

4.3.3..... Drugs. 48

4.3.4..... Police. 49

4.3.5..... Fighting organised crime and terrorism.. 50

4.3.6..... Protection of personal data. 51

1. Introduction 1.1. Preface

The Commission reports regularly to the Council and Parliament on the progress the countries of the Western Balkans region are making towards European integration, assessing their efforts to comply with the Copenhagen criteria and the conditionality of the Stabilisation and Association Process.

This progress report, which largely follows the same structure as in previous years:

- briefly describes relations between Kosovo* and the European Union;

- analyses the situation in Kosovo in terms of the political criteria;

- analyses the situation in Kosovo on the basis of the economic criteria;

- reviews Kosovo’s capacity to implement European standards, i.e. to gradually approximate its legislation and policies with the acquis, in line with the Stabilisation and Association Process and the priorities set in the Feasibility study for a Stabilisation and Association Agreement between the European Union and Kosovo.[1]

This report covers the period from October 2012 to September 2013.[2] Progress is measured on the basis of decisions taken, legislation adopted and measures implemented. As a rule, legislation or measures which are under preparation or awaiting parliamentary approval have not been taken into account. This approach ensures equal treatment across all reports and enables an objective assessment.

The report is based on information gathered and analysed by the Commission. Many sources have been used, including contributions from the Kosovo authorities, the EU Member States, the EU rule of law mission (EULEX), European Parliament reports[3] and information from various international and non-governmental organisations.

The Commission draws detailed conclusions regarding Kosovo in its separate communication on enlargement,[4] based on the technical analysis contained in this report.

1.2. Context

To date, Kosovo has been recognised by 104 UN Member States, including 23 EU Member States.

During the reporting period, the UN Secretary-General has issued four reports on Kosovo. In his reports, he has expressed appreciation for the key role of the European Union and the High Representative of the Union for Foreign Affairs and Security Policy in facilitating the negotiations that resulted in the ‘First agreement of principles governing the normalisation of relations’ of 19 April. He commended the leadership in both Pristina and Belgrade for demonstrating a serious and steadfast commitment to this dialogue.

The NATO-led Kosovo Force (KFOR) has continued to help ensure security in Kosovo. During the reporting period, its presence amounted to about 5 000 personnel. The Kosovo police has progressively been taking over from KFOR the responsibility for protecting several cultural and religious sites.

1.3. Relations between the EU and Kosovo

In June, the Council authorised opening of negotiations for a Stabilisation and Association Agreement between the EU and Kosovo. The negotiations will be formally opened this month. Prior to this decision, Kosovo needed to address a number of priorities set out in a feasibility study (October 2012). It needed to continue to implement in good faith all agreements reached between Belgrade and Pristina and to engage constructively on the full range of issues, with the facilitation of the EU. It also needed to take steps on several short-term priorities in the area of the rule of law, public administration, protection of minorities and trade.

In April, the Commission and the High Representative issued a joint report on Kosovo’s progress. The report concluded that Kosovo had met all the short-term priorities outlined in the study. On this basis, the Commission submitted a proposal for a Council decision authorising the opening of negotiations on a Stabilisation and Association Agreement between the European Union and Kosovo.

Kosovo now needs to focus on making progress in the following areas identified by the feasibility study to meet its obligations under a Stabilisation and Association Agreement: the rule of law, judiciary, public administration, electoral reform and the Assembly, human and fundamental rights, protection of minorities, trade and internal market issues, and phytosanitary and veterinary issues.

Kosovo participates in the Stabilisation and Association Process and it has engaged constructively in the Stabilisation and Association Process Dialogue (SAPD). The 2013 cycle of SAPD meetings was completed by a plenary meeting and a civil society plenary meeting in July. In June, Kosovo engaged in a dialogue with the EU on public administration reform through a special group on public administration reform. A Structured Dialogue on the Rule of Law was launched in 2011 to facilitate and monitor progress in the rule of law. To date, two meetings have taken place, in May 2012 and February 2013.

The visa liberalisation dialogue has continued during the reporting period. In February, the Commission issued a first report on Kosovo’s efforts towards visa liberalisation and three meetings of senior officials have taken place.

In December, Kosovo became a member of the European Bank for Reconstruction and Development (EBRD) and an EBRD Country of Operations. In May, Kosovo hosted a donors’ conference on sustainable energy. In June, the Council of Europe Development Bank (CEB) agreed for Kosovo to join. On 7 June, the European Investment Bank (EIB) signed a Framework agreement with Kosovo. The agreement allows the bank to proceed with the financing of projects in Kosovo and to provide technical assistance. The EIB’s involvement will also facilitate the co-financing of projects with other donors and support the implementation of various instruments, such as the Western Balkans Investment Framework.

Kosovo receives financial assistance under 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. In 2013, a total of €71.4 million was allocated to Kosovo under the IPA annual programme. EU pre-accession assistance is focusing on support for the rule of law, the economy, trade and industry, and public administration reform. IPA assistance is implemented by the Commission and the EU Office. The Kosovo government and the Commission are currently preparing a comprehensive Country Strategy Paper for the period 2014-2020, which will provide a coherent and strategic framework for financial assistance under the new Instrument for Pre-Accession Assistance (IPA II).

As a follow-up to the Commission Communication ‘Kosovo — Fulfilling its European Perspective’,[5] the Council authorised the Commission to negotiate a framework agreement with Kosovo to enable it to take part in EU programmes. In April, following Kosovo’s acceptance of the text of the framework agreement, the Commission adopted a proposal to sign and conclude this agreement. The proposal is currently being discussed by the Council.

In 2012, the EU rule of law mission, EULEX, was reconfigured. EULEX’s mandate has been extended to June 2014. The mission was downsized by some 25% and currently operates with two sections: an Executive Division, which works on the mission’s executive mandate; and a Strengthening Division, which concentrates on monitoring, mentoring and advising the Kosovo authorities. Overall, during the reporting period, Kosovo has maintained good cooperation with EULEX. It has also continued to be fully supportive of the Special Investigative Task Force investigation, consistent with their previous commitment in this regard. It thereby met the pertinent short-term priorities specified in the feasibility study. Kosovo needs to continue actively supporting implementation of the mandate of the mission, including that of the Special Investigative Task Force.

1.4. Normalisation of relations between Kosovo and Serbia

Kosovo and Serbia have actively and constructively participated in an EU-facilitated dialogue, which was upgraded to a high-level political process with the facilitation of the High Representative following the 2012 elections in Serbia. Seventeen high-level meetings were attended by both Prime Ministers since October 2012. A meeting also took place between Presidents Nikolić and Jahjaga in February and they continued meeting in the context of various initiatives in June and July. Since January 2013, the meetings of the two Prime Ministers have focused on northern Kosovo and delivering structures which meet the security and justice needs of the local population in a way that ensures the functionality of a single institutional and administrative set up in Kosovo, in line with the December 2012 Council Conclusions.

These discussions resulted in a ‘First agreement on principles governing the normalisation of relations’ on 19 April, complemented in May by a comprehensive implementation plan. This landmark achievement represents a fundamental change in relations between the two sides. The ‘First Agreement’ includes the following key elements: the establishment of an Association/Community of Serb municipalities in Kosovo; the principle of a single police force in Kosovo and the integration of all police in northern Kosovo into the Kosovo police service; the principle of integration and functioning of all judicial authorities within Kosovo’s legal framework; and municipal elections to be held in the northern municipalities in 2013 facilitated by the OSCE – municipal elections were subsequently convened on 3 November 2013 and will take place throughout Kosovo. The two parties have agreed that neither side will block, or encourage others to block the other side’s progress in their respective EU paths.

The parties also reached agreement on energy and telecommunications in September. Implementation of other agreements reached in the dialogue to date has continued. The agreement on representation of Kosovo was broadly implemented. Kosovo became a participant in the Regional Cooperation Council (RCC) in February. Full application of the principle of inclusive regional cooperation remains to be ensured; problems such as those encountered with the summit of the South East European Cooperation Process (SEECP) need to be avoided. As concerns IBM, joint interim crossing points have been opened at all six gates, which are up and running. December’s agreement on the protection of religious and cultural heritage sites is being implemented, but recruitment of Kosovo Serbs needs to be increased. Implementation of an agreement on liaison arrangements has started in June. The two sides also agreed to start collecting customs duties and to set up a fund for the development of northern Kosovo. Regarding free movement, the ID card travel regime is operational. The agreement on customs stamps continues to be implemented by both sides. There has also been good progress on civil registry; implementation should be completed by March 2014. Regarding cadastre, while implementation has started on the Serbian side, the legislation necessary to implement the agreement on cadastre has yet to be passed by the Kosovo side. Implementation of the agreement on acceptance of university diplomas is proceeding smoothly.

Overall, Kosovo has taken significant steps towards visible and sustainable improvement of relations with Serbia, which have already led to a number of irreversible changes on the ground.

During the reporting period, a number of security incidents occurred in northern Kosovo. On 19 September, one member of EULEX was killed in an attack on a EULEX convoy in northern Kosovo. The leadership of both Kosovo and Serbia condemned the attack in the strongest terms. On 8 March, EULEX initiated a joint operation with the Kosovo police and KFOR to stop a series of hand grenade attacks in northern Mitrovicë/Mitrovica. Further unrest was reported following the initialling of the 19 April agreement. Some in the Kosovo Serb leadership called for a referendum on the agreement and threatened to boycott its implementation. Pristina’s restraint and inclusive approach, together with the positive role played by Belgrade, have prevented escalation.

Serbian police stations operating in northern Kosovo were gradually closed between 14 June and 5 July with no sign of operational activity since then. Serbian authorities also ceased the payment of salaries to Kosovo Serb police officers already employed by the Kosovo police in the north. Since 15 July, parallel Serbian courts and prosecution offices stopped prosecuting and adjudicating criminal cases in Kosovo. The integration of Kosovo Serb police officers, judges and prosecutors previously employed by the Serbian authorities is ongoing. Municipal assemblies in the four northern municipalities were dissolved.

2. Political criteria

This section examines Kosovo’s progress 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.

2.1. Democracy and the rule of law

Parliament

Steps have been taken to improve the Assembly’s oversight of the government, alignment of legislative plans between the Assembly and the government, and openness of the Assembly to civil society. The Assembly has been undertaking activities to scrutinise the work of the government, notably as regards the results of the dialogue between Belgrade and Pristina. The Assembly has also been able to demonstrate political and institutional unity on issues of key importance.

In October 2012, the Assembly adopted a resolution on the dialogue for the normalisation of relations with Serbia. On 22 April, it approved a resolution on the ‘First agreement of principles governing normalisation of relations’. The Assembly ratified this agreement in June and adopted the law on amnesty in July.

The Assembly has increased the number of thematic parliamentary debates and interpellations of ministers. During the reporting period, the committees have undertaken further activities to monitor the implementation of laws and have produced reports, some of them based on Assembly members’ field visits.

Public consultations and hearings with civil society and independent experts to prepare new legislation are becoming a frequent feature. The Assembly has opened a position for an officer for relations with civil society and donor coordination. In April, the Assembly adopted its work programme. This programme combines the 2013 government legislative agenda, the annual work plans for parliamentary committees and an action plan for negotiations on the Stabilisation and Association Agreement.

The decision of the Assembly to debate the so-called Kiqina case (in which former members of the Kosovo Liberation Army were found guilty of murder) and an attempt to adopt a decision interfering with the judicial process was a setback for Kosovo’s efforts to build strong and independent institutions of democratic governance. This is an issue of serious concern.

Kosovo needs to finalise the electoral reform process that was launched in 2011. It needs to ensure that the legal framework for elections better reflects best practice in the EU and that implementation is in line with international standards. Oversight of the government needs to be improved, including follow-up to committee recommendations to ministries. The Assembly also needs to improve its understanding of its role in the supervision of independent institutions and regulatory authorities. In this regard, adequate mechanisms need to be set up. Unclear legal bases for reporting, weak coordination with the government in the selection of board members and failure to determine mechanisms for holding board members to account are among the key challenges that need to be addressed. This would help to ensure the timely appointment of independent and professional managers and members of the boards of these institutions.

Further efforts by the Assembly and its committees are required to ensure control of the budget, especially in areas such as health, agriculture, social assistance, culture and education. More attention needs to be paid to the reports of the Office of the Auditor General. The committee on oversight of public finances also needs to develop a mechanism to follow up the recommendations it gives to budgetary organisations.

The number of staff supporting the work of the committees has increased. The capacity of the committees to scrutinise draft laws remains limited. The Assembly’s secretariat needs to ensure better coordinated input of its different departments to the committees. Draft laws as well as amendments to legislation need better screening for compliance with the acquis. The Assembly needs to improve the existing rules of procedure, especially to clarify the legal effect and meaning of various decisions made in plenary. Decoupling the vote on amendments and the final vote on a law in plenary needs to be considered. During Assembly and committee deliberations, some shortcomings and violations of the rules of procedure were noted (for example, insufficient time between tabling a proposal and its discussion in committee and in plenary).

The financial independence of the Assembly has improved. The Assembly’s budget committee has increased its involvement in the government’s consultation on the draft budget of the Assembly. Further steps are needed to enhance the financial and administrative independence of the Assembly, notably by improving Assembly’s rules of procedure, legislation on the Assembly, including a law, and separating its IT infrastructure from the government.

Overall, the Assembly continues to gradually build its capacities and to improve its role in democratic governance. The debate on the Kiqina case was a setback in this regard. The Assembly and its institutions need to focus on priorities identified in the feasibility study, notably electoral reform, oversight and control functions, and the financial and administrative independence of the Assembly.

Government

The Kosovo government has increased its capacity to address priorities of the European integration process. Follow-up to the short-term priorities of the feasibility study clearly shows this, as does preparation for negotiations of the Stabilisation and Association Agreement. The National Council on European Integration under the President’s Office has continued to meet and pursue the objective of consensus-building on European integration.

The government adopted an ambitious legislative strategy followed by an annual work plan. The legislative agenda remains subject to frequent changes. A clear institutional setup and delineation of responsibilities have contributed to better coordination of the EU agenda and its priorities within the government. Ministries have also started to follow new requirements for inter-ministerial consultations. This is a good basis to manage the gradually increasing workload of the European integration process. The government has improved compliance with rules of procedure. The introduction of an acquis compliance table is a step forward and needs to be used systematically. A system of concept papers preceding draft laws and policy decisions was put in place; a number of papers have been prepared.

The government, in close cooperation with the Assembly, still needs to improve its capacity to verify and confirm acquis compliance of legislation. Forward planning and cost analysis of implementation of legislation remains a challenge. Strategies need to be better coordinated to avoid overlap and contradictions. The implementation of policies and legislation involving several ministries needs to be improved. The capacity to manage the EU integration agenda is unevenly spread across the government, especially in terms of quality of human resources.

The fact that members of the government still fail to attend parliamentary question sessions or relevant meetings of parliamentary committees continues to be an issue of concern. This prevents the Assembly from conducting its oversight function. Ministries also need to improve their follow-up to requests from parliamentary committees.

Local government has also improved its capacity. This includes examples of addressing returns and reintegration, transparency of information on management and budget, and reporting on municipal decision-making. There have been examples of improvements in the organisation of municipal administration. In October 2012, the Mitrovicë/Mitrovica North Administrative Office set up by the Kosovo authorities became operational. The office has 54 employees, of whom about 70% are Serbs, some of whom have faced sporadic threats and attacks on their possessions during the reporting period.

Municipalities would benefit from clearer guidance from central level and integrated planning (policy priorities coupled with budgeting). The work and decisions of municipalities need to be more transparent. The small and rural municipalities established in 2009 – 2010 need alternative institutional solutions so that they can deliver equitable access to services for their constituents. Land management needs to be addressed to ensure their economic development.

The November municipal elections will take place under the current legal framework in the absence of progress on electoral reform. On the basis of the 19 April agreement, the Association/Community of Serb majority municipalities in Kosovo is foreseen to be established following the municipal elections. This will require consistent efforts from all concerned.

Overall, the fundamental structures for governance at both central and local levels are in place. Capacity varies across different ministries. The municipal level is still weak. Data collection, financial impact assessments, policy objectives and inter-ministerial coordination need to play a greater role in the legislative process. Further efforts are needed to improve implementation of legislation, accountability and transparency of government, including at municipal level. Local authorities need more support to continue the process of decentralisation.

Public administration

Kosovo met the short-term priorities of the feasibility study in the area of public administration. It adopted secondary legislation of laws on the civil service and on salaries for civil servants. Kosovo has started implementing the strategy and the action plan on public administration. In June, through the special group on public administration, Kosovo started a dialogue with the EU on these matters. In December, the Assembly adopted an interim salary scale for selected independent oversight institutions such as the Ombudsperson, the Independent Oversight Board for the Civil Service and the Independent Media Commission.

The Office of the Auditor General has continued to focus on promoting sound financial management in public administration and accountability across government. This includes building up a sustainable performance auditing function. Regional and international cooperation of the office has increased. The Kosovo Institute for Public Administration has continued to provide training for civil servants.

The implementation of the strategy and action plan on public administration reform continues to be a major challenge for Kosovo. It requires further human and budgetary resources. The planning of activities needs to be adjusted to reflect the available resources. The implementation of the law on salaries of civil servants has been put on hold pending the finalisation of job classification. The performance appraisal for civil servants needs to start. New legislation is needed to regulate salaries for high officials and to reform the salary system in important sectors such as education and health.

Kosovo authorities need to ensure appropriate follow-up to the recommendations of the Independent Oversight Board for the Civil Service. Currently, this is not the case for a significant number of the recommendations. The share and the distribution of civil servants belonging to minorities across ministries need to be in line with the legislation. Kosovo also needs to review the organisation of public administration at the municipal level, notably delegated competences and the appointment of directors.

Overall, Kosovo enacted secondary legislation of laws on the civil service and on salaries of civil servants. Public administration reform continues to be characterised generally by a lack of professionalism and motivation on the part of staff. There is also political interference in the civil service. Kosovo needs to focus on priorities set out in the feasibility study, notably implementing legislation, as well as the strategy and action plan.

Ombudsman

Kosovo met the short-term priorities of the feasibility study in relation to the Ombudsperson. The number of staff and budget of the Ombudsperson institution have been increased. The government allocated new premises to the institution. It now has the necessary resources to perform its duties. The government respected the Ombudsperson’s independence by not modifying the office’s budget when submitting the overall budget to the parliament. The budgetary independence of the Ombudsperson needs to be made sustainable. During 2012, the Ombudsperson received 20% more petitions from the public than the previous year. Kosovo authorities need to improve their implementation of the Ombudsperson’s recommendations.

Civilian oversight of the security forces

The parliamentary Committee on Internal Affairs, Security and Supervision of the Kosovo Security Force has scrutinised a greater number of laws than in the previous reporting period. Oversight of the Kosovo Intelligence Agency has also improved and the relevant parliamentary committee has met more frequently. Only members of parliament with clearance issued by an office under the direct responsibility of the intelligence agency may take an effective role in the committee. Further efforts are needed to ensure adequate civilian oversight of the security forces. The Assembly needs to improve its professionalism and expertise on security matters. In July, the North Atlantic Council declared that the Kosovo Security Force had reached full operational capacity.

Civil society

The task forces on European integration and the National Council on European integration have continued to involve representatives of local civil society. The government’s strategy and action plan on cooperation with civil society for 2013-2017 was prepared with the involvement of civil society representatives. It was adopted in July. Cooperation between civil society organisations and the institutions of Kosovo continues to be ad hoc. Even when public consultations on draft legislation take place, follow-up is often unsatisfactory. There is limited public funding for e.g. social services delivered by civil society on behalf of the authorities. The central and local authorities need to improve cooperation with civil society, notably as regards defining and executing public policies.

Judicial system

In January, a new court system was introduced and a new criminal code and criminal procedure code entered into force. The Supreme Court issued a formal opinion to rectify ambiguities concerning the retroactive application of transitional provisions regarding the admission of pre-trial evidence in cases that started before the new procedure code entered into force. Focus now needs to be on implementation of the legislation. Implementing legislation on the certification system for translators and interpreters needs to be adopted. In general, a review of the new court and prosecutorial system is needed to assess progress.

A law on the state advocacy office was adopted. The Kosovo Judicial Institute has continued to provide legal education training focusing on capacity building. In July, an entry exam for judges and prosecutors was successfully organised. Kosovo concluded bilateral agreements on mutual legal assistance with Albania and Italy. The Ministry of Justice acts on requests for mutual legal assistance received from non-recognising countries, either directly or via EULEX. The United Nations Interim Administration Mission in Kosovo (UNMIK) remains the formal point of contact with Interpol. Kosovo needs to enhance its capacities and experience to be an effective partner in the context of mutual legal assistance.

As regards independence and impartiality, cases of political interference in the judiciary were reported. This includes points made by the government and the Assembly on rulings regarding war crimes (Kleçka and Drenica group). This was also noted by the Supreme and Constitutional Courts. There was also an attempt by the Assembly to investigate a case that had been through all the steps of the judicial procedure (Kiqina case). In reviewing a criminal case (involving a municipal president) in January, the Constitutional Court, by taking up the case and referring it back to the Supreme Court for review, wrongfully suggested that it could take upon itself to act as an (additional) court of last instance.

In 2012, 0.47% of GDP was spent on the budget for the judiciary. Both Judicial and Prosecutorial Councils adopted codes of ethics. The Judicial and Prosecutorial Councils have strengthened the necessary procedures and signed memoranda of understanding with the police to ensure appropriate security and protection measures for judges, prosecutors and other judicial staff. Kosovo still needs to do more to mitigate the risks of indirect forms of intimidation or influence on staff in the judiciary and on witnesses.

Two members of the Judicial Council still need to be appointed. To guarantee judicial independence, a substantial majority of the Judicial Council’s members need to be elected by their peers. Kosovo needs to make the necessary changes to allow for this. The Constitutional Court has nine judges including three international judges. Not all positions on the Constitutional Court have been filled, which may pose a challenge to constitute the quorum of seven judges. The Judicial Council has filled 334 out of a total of 404 positions and 125 of the 146 prosecutor positions are filled. Both Judicial and Prosecutorial Councils continue to face challenges in filling vacancies reserved for persons belonging to minorities. The Judicial and Prosecutorial Councils need to ensure that persons nominated for the position of judge or prosecutor have the necessary professional experience and meet the conditions set. Passing the initial legal education programme needs to remain part of the eligibility criteria for a candidate to qualify as a judge or a prosecutor.

As regards accountability, the Judicial Council adopted implementing legislation on the organisation and activities of the Council, and on the appointment and evaluation of judges. A panel for the evaluation of the performance of judges has conducted the first evaluations in view of the confirmation of judges’ initial mandates. Disciplinary sanctions were imposed in 14 cases by the Judicial Council (in 2013) and in 11 cases by the Prosecutorial Council (2012 and 2013). None of them resulted in dismissal. The code of conduct for judges needs to be strengthened. The disciplinary regulations in both Councils need to be adjusted to ensure that the disciplinary procedures and policies on the fight against corruption in the judiciary lead to concrete results.

As regards efficiency, the Judicial Council has established the new court structure. It swiftly appointed new presidents of the court of appeal and basic courts. The Judicial and Prosecutorial Councils adopted regulations on the internal organisation and operation of the courts and prosecutor’s offices, thus finalising the framework for the implementation of the court reform. Delays in the transfer of cases have been kept to a minimum. The workload of the courts is under review. Court administration as well as case allocation in prosecution offices and courts needs to be improved. The current lack of available courtrooms is expected to improve in the future as a result of ongoing renovations.

The new prosecutorial system required setting up a new appellate prosecution office and a switch to a system of seven basic prosecution offices in addition to the special prosecution. The Prosecutorial Council and the State Prosecutor generally transferred case files within a reasonable time. However, some cases, including election fraud cases, were not transferred until March. There has only been limited progress with regard to cases involving fraud during the general elections of 2010. All 232 indictments have been filed, but as of September 2013, a substantial number remain to be adjudicated.

The implementation of the two-year strategy to reduce the backlog of cases accumulated until December 2008 resulted in a backlog reduction of about 65%, leaving about 63 500 cases unresolved. In addition, Kosovo needs to address the backlog of cases that has built up over more recent years. At the end of 2012, the total number of cases pending before the Kosovo basic courts was over 218 740. This increased to over 235 000 cases in 2013, partly due to court reform, which led to the inclusion of minor offences cases in the statistics. In the current case registration system, it is possible that the same case is counted several times. Case allocation and management systems still need to be fully implemented. There is a large number (over 100 000) of decisions that still need to be executed. As part of the strategy to fight corruption and organised crime, a new law on enforcement procedures introduced a private bailiff system with the aim to reduce the execution backlog. Kosovo has to ensure an adequate oversight of these private actors.

At the Mitrovicë/Mitrovica basic court only criminal trials have been held by EULEX during the reporting period.

The work of the special prosecution has slowed down; the limited number of local prosecutors are unable to take on new cases, due to the existing workload. Seven out of fifteen positions for local prosecutors need to be filled. Kosovo needs to increase efforts to recruit them, since its work and jurisdiction are vital for the handling of important, high-level and sensitive cases. At the moment, there is a lack of capacity and commitment to investigate crimes that fall under the jurisdiction of the special prosecution.

To ensure better access to justice, legal aid offices have been established in 11 municipalities. Kosovo also has a mobile legal aid clinic. Kosovo authorities need to pay particular attention to access to justice for victims of human trafficking, women and children. A total of 99 mediators are licenced and six mediation centres operate across Kosovo. During 2012 and 2013, more than 300 cases have been referred to the mediation centres. Almost half of the cases have been successfully completed during the mediation process.

Overall, Kosovo needs to address priorities of the feasibility study. Political interference in the work of the judiciary remains a serious concern. The Judicial and Prosecutorial Councils need to respond decisively to attacks against individuals and the judicial institutions. Other branches of government need to do the same. Security needs of judicial personnel, witnesses and plaintiffs need to be addressed. Kosovo needs to ensure the efficient implementation of legislation. It needs to pay particular attention to the harmonisation of primary and implementing legislation. The jurisdiction of the special prosecution needs to be maintained and local capacity strengthened. The backlog of cases requires continued efforts. Improved data processing and case management would help in this regard.

Fight against corruption

The anti-corruption legislative framework is largely in place. Amendments to the law on political party financing were adopted addressing earlier shortcomings (e.g. regulating donations from legal entities providing goods and services to government bodies). The revised Criminal Code introduced criminal offences for conflict of interest, and for false declarations of assets by public officials, or their failure to report assets. In February, the Assembly adopted a new anti-corruption strategy and action plan (2013-2017), a short-term priority of the 2012 feasibility study. For the first time, a corruption risk assessment covering priority sectors has been attached to the strategy.

During the reporting period, the special anti-corruption department of the Kosovo police has launched six investigations in cooperation with EULEX. They covered criminal acts such as abuse of official duty, giving and receiving bribes, and fraud. The Anti-Corruption Agency has continued to coordinate implementation of the strategy, of the laws on declaration of assets by public officials and on prevention of conflict of interest. The Agency has sufficient capacity to perform its current tasks. Cooperation between the Agency and the prosecution has improved. The prosecution now provides systematic feedback to the Agency on the follow-up of cases. The Prosecutorial Council also set up a network of prosecutors coordinating corruption in six basic prosecution offices and in the Pristina office. There has been an increase in criminal cases against persons in high-level positions both at municipal and central levels. Continued efforts are necessary to ensure the accountability of high-ranking officials and politicians.

In 2012, less than 1% of public officials failed to make a declaration of assets. Pertinent cases have been sent to the prosecution. When it comes to verification, the agency first does a preliminary systematic search for missing information or errors. Subsequently, on roughly 20% of the submissions, substantive controls are undertaken, with a focus on those categories of officials with a high-degree of responsibility or exposed to sensitive positions (such as public procurement), or on cases that appear suspicious. First steps have been taken to improve reporting on the fight against corruption. In November, the Prosecutorial Council adopted a strategy on inter-institutional cooperation in the fight against organised crime and corruption.

The main issue of concern remains the implementation of the legal and policy frameworks. Cooperation among the agencies involved continues to be weak. False declarations and conflicts of interest are still treated as administrative offences, whereas the Criminal Code provides for a criminal offence. This discrepancy needs to be addressed as a matter of priority. The number of cases followed up by the prosecution remains below 10%. Only very few cases result in a filed indictment. To improve implementation, other authorities (tax administration, financial investigation unit and prosecution) need to provide the necessary information to the Anti-Corruption Agency.

The new anti-corruption strategy is not underpinned by a budget or an estimation of necessary resources. It lacks binding mechanisms for the institutions to comply with their responsibilities. Implementation of the strategy and action plan requires more ownership by all involved actors, continuous support at the highest political level and commitment from all involved. The risk assessment of vulnerable areas needs to be revised regularly.

On prevention of conflict of interest, the agency noted that more than 800 public officials have more than two jobs (some up to five). The agency recommended that officials are not allowed to hold at the same time more than one job involving a certain degree of (financial) responsibility. There has been no follow-up on this advice. Moreover, there are still cases in which persons do not stop their active involvement in a private business, or they do not provide the Agency with the required declaration to this end when taking up a public post.

The institutional setup to deal with corruption remains complex. The system is fragmented, with unclear roles and responsibilities. There is no common system of statistics. The National Anti-Corruption Council was set up with the aim to ensure responsibility and accountability of involved institutions in the fight against corruption. However, the council does not meet regularly. Additionally, its meetings are in public and the number of participants has increased. This raises concerns with regard to its effectiveness and authority.

The anti-corruption taskforce within the special prosecution, composed of local and international prosecutors, Kosovo police investigators and anti-corruption experts, lacks two out of five local prosecutors. This considerably slows down investigations, even if two prosecutors have been allocated to the taskforce on a temporary basis. Furthermore, taskforce members from the police lack office space and essential equipment. Forensic financial accounting expertise is missing. In addition to the taskforce, local prosecution offices are also responsible for the fight against corruption. Their results have been limited.

Overall, Kosovo met the short-term priorities of the feasibility study. It adopted a new anti-corruption strategy and Kosovo has maintained commitment to the fight against corruption. To meet its obligations under the Stabilisation and Association Agreement, Kosovo needs to implement the legislative and policy frameworks, and provide concrete evidence of results in the fight against corruption. Effective prevention of corruption at all levels of society needs to be given higher priority.

Fight against organised crime

During the reporting period, Kosovo met the short-term priorities of the feasibility study. Its political leaders and law enforcement and judicial authorities maintained their commitment to deliver results in the fight against organised crime. They have continued to work in partnership with EULEX on practical operational matters on a daily basis. Kosovo adopted new strategies and action plans against organised crime, narcotics and terrorism. It also has a strategy and an action plan against trafficking in human beings. The Assembly also approved a law on the confiscation of assets and revised the law on the prevention of money laundering and financing of terrorism. The Compact on joint rule of law objectives was signed in November by Kosovo, the EUSR and EULEX.

As set out in the feasibility study, to meet its obligations under the Stabilisation and Association Agreement, Kosovo needs to focus on implementing the policy and legislative frameworks. It needs to provide concrete evidence of results in fighting organised crime, especially on prevention of and fighting against trafficking in human beings, drugs (and their precursors), and weapons trafficking. The reliability of statistics needs to improve.

For a detailed analysis of the developments in the fight against organised crime, see 4.3 — Justice, Freedom and Security.

2.2. Human rights and the protection of minorities

Kosovo’s constitution lists international human rights instruments which are directly applicable in Kosovo and form an integral part of Kosovo’s legal framework. As Kosovo is neither a party to any of the international human rights instruments, nor a member of the Council of Europe, its reporting remains ad hoc.

As regards promotion and enforcement of human rights, the relevant Assembly committee has been increasingly holding the government accountable. This relates in particular to the unsatisfactory implementation of recommendations issued by the Ombudsperson. The key challenge for Kosovo is to improve implementation of the existing legal framework and enforcement of decisions remedying human rights infringements. The complex and overlapping institutional setup for reporting on these rights, as well as their promotion and protection, needs to be simplified and streamlined, both at central and local levels.

Kosovo has continued to address the prevention of torture and ill-treatment in prisons, including the fight against impunity. The correctional services received two complaints of torture and ill-treatment in 2012. After investigation both cases were dismissed. In 2013, no complaints have been received. A steering committee composed of the Ombudsperson, the Kosovo Rehabilitation Centre for Torture Victims and the Council for the Defence of Human Rights is monitoring the situation in this regard in detention centres. The members of the steering committee need to further enhance their experience and resources to carry out balanced and accurate inspections.

The prison system, in particular the Dubravë/Dubrava Correctional Centre, continues to face significant challenges. Medical treatment is insufficient. Important concerns relate to corruption, nepotism, smuggling and discrimination in the prison system. Some prisoners enjoy ‘extended privileges’ and abuse the system. This increases the risk that they may be able to carry on in criminal activities from the prisons, including intimidating witnesses. Kosovo also needs to develop adequate categorisation of prisoners. The internal complaints mechanism needs to be made more efficient and effective.

On freedom of expression, the Assembly modified the two articles of the Criminal Code on criminal liability of the media and protection of journalists’ sources, as set out in the feasibility study. Kosovo authorities (the President, the Office of Prime Minister and Minister for European Affairs) promptly condemned and demanded an investigation into attacks on the offices of the magazine Kosovo 2.0, which had published a special issue focusing on sex topics, including sexual orientation and gender identity issues. An EULEX prosecutor and a prosecutor from the Pristina basic prosecution office filed an indictment against three Kosovo citizens for their involvement in the attack on Kosovo 2.0.

Legislation covering freedom of expression is fragmented (14 laws in total) and ineffective. The laws establish a total of ten institutions responsible for this area. Implementing legislation is necessary to define the exact scope and activities of these institutions. Currently, there is overlap. Kosovo does not have a comprehensive law on the media, leaving key areas regarding operation of the media unregulated. This includes issues such as the autonomy of journalists and editors, protection of professional standards in journalism, the right to conscientious objection for journalists, and the right of reply and correction for citizens.

Threats against journalists and editors have continued to be reported and journalists continue to face political pressure and intimidation. The Association of Professional Journalists of Kosovo was active in condemning attacks against media and journalists throughout 2012. However, following the appointment of a new board in April, several board members left, citing close ties between the chairwoman and business and political representatives. Professional standards in both broadcast and print journalism need to be improved, with a particular focus on online media.

The independence of the Independent Media Commission has been hindered by a lack of resources, and political interference in the appointments of the commission and its board of appeals. One member of the commission and two members of the board of appeals were appointed despite their ineligibility. One member of the commission is still to be nominated. Much of the commission’s work was paralysed by its council’s unlawful decision to dismiss the CEO. This decision was reversed by the court.

Kosovo public broadcaster’s (RTK) long-term financial sustainability is still uncertain. The current funding model is based exclusively on the state budget, which undermines RTK’s editorial independence. The RTK’s board should have eleven members – public personalities who have demonstrated political impartiality. Three members have yet to be appointed, as a consequence of politicisation of their appointment by the Assembly. (See 4.2.6 — Information Society and Media)

Freedom of assembly and association continues to be exercised in Kosovo. During the reporting period, there have been several public protests and gatherings against the government and assembly decisions. Public and opposition movements are free to express their discontent with government policies.

Freedom of thought, conscience and religion continues to be exercised in Kosovo. The Orthodox seminary functions well in its historical premises in Prizren. Kosovo has been ready to support the reconstruction of Serbian Orthodox Church sites. Contacts between religious leaders of the Kosovo Albanian Catholic Church, Islamic leaders and Serbian Orthodox leaders have been more regular and relations have been improving. A Catholic cathedral is being constructed in the centre of Pristina. Kosovo police has been taking over responsibility for the protection of historical and religious sites from KFOR. To date, only Visoki Dečani Monastery remains under KFOR protection. The protection of the Peć Patriarchate was transferred from KFOR to Kosovo police in August.

A number of religious heritage sites have been subject to petty theft and vandalism, including Serbian Orthodox churches and Orthodox and Muslim cemeteries. In February, the widespread desecration of Serbian Orthodox cemeteries revealed the vulnerability of sites of value to the Serbian community in Kosovo during times of political strain. The mechanisms for reporting and following up such activities need to be improved.

As regards women’s rights and gender equality, the government adopted implementing legislation for the law on protection against domestic violence. The Judicial Institute has provided training on these issues for judges, prosecutors, victims’ advocates and social workers. The Agency for Gender Equality prepared an action plan on the implementation of the relevant UN resolution. The aim is to strengthen the position of women in decision-making processes and in security structures, and to provide redress to survivors of conflict-related sexual violence by means of improved access to justice and rehabilitation and integration. Legislation recognising survivors of conflict-related sexual violence as civilian victims of war has not yet been adopted by the Assembly. Government funding of shelters for victims of domestic violence and trafficking is not sustainable. The law on gender equality needs to be amended. Women’s representation both in the public and the private sectors remains low, especially in senior positions. The introduction of paid maternity leave of up to nine months has had a negative impact on the employment of women in some cases, especially in the private sector. (See 4.1.8 - Employment and social policies, public health policy)

Regarding children’s rights, the government approved a new Kosovo youth strategy and action plan 2013-2017. The Ministry of Culture, Youth and Sports has set up 34 local youth action councils including some in municipalities established in 2009-2010. Reporting on the implementation of the strategy and action plan on children’s rights 2009-2013 has improved. Juvenile departments are now established in all courts and prosecutorial offices. The Ministry of Justice has also trained 15 mediators on child offender and victim mediation. A review of child protection legislation needs to be conducted to identify gaps. With regard to child protection, the system remains fragmented, both at central and local levels. The focus needs to be on improving implementation of legislation and on decreasing dependence on international donor support.

As regards the socially vulnerable and persons with disabilities, Kosovo has improved its legislative framework. In August, the government adopted the strategy for the rights of people with disabilities (2013-2023) and an action plan (2013-2015). The Ministry of Education, Science and Technology adopted several administrative instructions to improve access to education for persons with disabilities. The newly-adopted law for blind persons entered into force in January. Since February, the Assembly has televised its sessions with sign language interpretation for the deaf. Public buildings in Kosovo remain largely inaccessible to persons with disabilities. Access to public spaces for persons with disabilities is inadequate. The National Disability Council of Kosovo needs to improve its functioning with the support of the Office on Good Governance. Kosovo authorities also need to improve their engagement with organisations of disabled persons when preparing policy documents and legislation. They also need to improve implementation of commitments made in respect of non-discrimination and inclusion of people with disabilities.

The law on anti-discrimination is under revision along with the overall institutional setup. Implementation of anti-discrimination policies is weak.

In May, the Office on Good Governance held a roundtable on lesbian, gay, bisexual, transgender and intersex (LGBTI) issues. This community faces major challenges in Kosovo. It continues to face discrimination, threats and violence. A religious movement, voicing hate against the LGBTI community through conventional and social media, was registered as a political party.

In the area of labour and trade union rights, the amended law on strikes entered into force. The Socio-Economic Council and working groups of the Ministry of Trade and Industry have discussed employment conditions. The labour inspectorate conducted over 7 000 inspections in the public and private sectors. It issued over 1 800 written warnings and over 150 punitive measures. Trade unions lack the capacity to participate effectively in decision-making, legislative drafting and policy dialogue with the government. (See 4.1.8 - Employment and social policies, public health policy)

As regards property rights, the Assembly adopted a law on allocation for use and exchange of real estate of the municipality and laws on the treatment of constructions without permission and on spatial planning. Out of a total of over 42 500 claims recorded by the Kosovo Property Agency, over 39 000 have been adjudicated by the Kosovo Property Claims Commission. United Nations High Commissioner for Refugees offices in Serbia operate as the liaison office for the Kosovo Property Agency. The number of Kosovo Property Claims Commission decisions and cases dismissed by the Executive Secretariat stands at about 38 480 of which about 35 500 were served to claimants and about 2 000 to respondents. The number of Commission decisions implemented during the reporting period stands at nearly 20 400.

Serious shortcomings persist in the notification of displaced persons regarding the expropriation of their real estate. Implementation of eviction orders and property administration across Kosovo remains a challenge. The outstanding number of evictions stands at about 820 of which about 350 in northern Kosovo. The funding of the Property Agency remains uncertain and unsustainable. Many unresolved property compensation claims are before the courts. Second-instance courts often send property cases back to the first-instance courts for re-trial. Inter-ethnic property disputes are unduly prolonged. There is no compensation scheme for socially-owned apartments. The lack of a strategy to regularise informal settlements remains a concern. The Office of the Property Rights Coordinator in the Office of the Prime Minister has neither staff nor funding.

Overall, Kosovo legislation is broadly in line with international standards, although some important laws require improvement. Kosovo needs to focus on implementation. The structures dealing with the protection, promotion, enforcement of and reporting on rights need to be streamlined, both at central and local levels. Political and economic interference with the media, threats to journalists and the long-term sustainability of the public broadcaster’s financing remain issues that need to be addressed urgently. The mechanisms and the overall consciousness and willingness to address anti-discrimination issues have to be further strengthened. Violent incidents against the LGBTI community need to be investigated and prosecuted. There also needs to be more focus on investigating offences against religious sites. Enforcement and protection of property rights is a key challenge and one of the priorities of the feasibility study. In particular, Kosovo’s judiciary needs to improve its efforts to resolve cases rapidly. Kosovo authorities need to do more to reach out to displaced persons regarding expropriation of their real estate.

Respect for and protection of minorities, cultural rights

Following the end of supervised independence in September 2012, Kosovo’s legal framework continues to guarantee minority representation. It upholds the rights of persons belonging to minorities, and protects vital interests and cultural rights, including those of the Serbian Orthodox Church. The Serb-majority municipalities in the south of Kosovo have been gradually strengthening their capacity. They also participate in bodies such as the Association of Kosovo Municipalities. The Office for Community Affairs increased its assistance to socially vulnerable families and infrastructure projects.

A new Language Commissioner was appointed in December. The office recruited new staff, launched its website, developed an on-line complaints form and conducted outreach activities. Language policy measures proposed by the Commissioner to the Office of the Prime Minister are still to be adopted. The slow response of law enforcement authorities, in particular the judiciary, to cases involving persons belonging to minorities increases their mistrust vis-à-vis Kosovo institutions. Kosovo needs to increase the proportional representation of minorities in the police and judiciary.

Following the adoption of the law on the public broadcaster, a Serbian-language TV channel (RTK2) was licensed. It started limited broadcasts in June and from August has been fully operational. At the moment, the channel is only available through cable operators. Access to education for minority communities remains limited. Language barriers and the lack of relevant school materials are major obstacles to the integration of returnees and readmitted children into the education system. There has been no progress on Serbian-language instruction within the Kosovo curriculum. Serbian is still not available as a second official language outside areas predominantly inhabited by Serbs. Students from the Serbian community and a majority of Roma and Gorani students are enrolled in schools administered by Serbia.

A mid-term review of the action plan of the strategy for the integration of Roma, Ashkali and Egyptian communities (2009-2015) was completed in July. Three actions were identified for improvement: proper budget allocation, better cooperation between central and municipal authorities, and better cooperation between the government and civil society organisations. The Minister for European Integration formally took up the post of the chair of the inter-ministerial steering committee. The Office on Good Governance remains responsible for these issues at working level. The Osterode camp was officially closed in December.

Implementation of the strategy and action plan remains weak and inconsistent. Non-majority communities continue to face major challenges. Children suffering from lead contamination require further care. The closure of the Leposaviq/Leposavić camp still needs to be completed. Education, social service and civil registration of the Roma, Ashkali and Egyptian communities need to further improve. Municipalities have committed themselves to funding six pre-school learning centres for children from these communities. Other commitments for improving the education (e.g. support mediators helping these children to integrate into school life), are still to be implemented. The Romani language is being offered in some pilot classes in Prizren. However, the teacher concerned is working pro bono and there are no government–issued textbooks.

Regarding refugees and internally displaced persons, most of the Municipal Community Safety Councils and the Local Public Safety Councils have been set up to address the security concerns of all communities. The functioning of these councils needs to be improved.

The number of voluntary returns decreased from over 1 140 in 2011 to 970 in 2012. In 2012, a total of 220 families received housing assistance from the Ministry of Community and Return and from the international donor community. The Ministry established a working group to draft a new strategy for Communities and Return since the current strategy expires in 2013.

The sustainability of the returns process continues to be undermined by real and perceived security threats (both in Albanian majority and Serb majority communities). It is further exacerbated by ongoing incidents affecting returnees and their property, as well as religious and cultural heritage sites. Limited access to property, blocked or delayed property restitution proceedings, limited access to public services, and a lack of economic opportunities also continue to be major obstacles to sustainable return and reintegration. The obstacles to return and integration of the Roma, Ashkali and Egyptian communities are of particular concern.

As regards cultural rights, the Implementation and Monitoring Council, established in February, continues to facilitate cooperation between Kosovo authorities and the Serbian Orthodox Church. The council has been meeting on a monthly basis and has been addressing concerns of the Church. The main challenge for the council is to ensure its decisions translate into concrete results on the ground. At the initiative of the Office of the Prime Minister, the Kosovo police established a special unit to protect Serbian religious and cultural heritage sites in Kosovo. It covers four regions and employs 203 Kosovo police officers. The share of Kosovo Serb police officers in the special unit needs to increase.

Implementation of the law on the historic centre of Prizren has progressed. By contrast, there has been no progress in the implementation of the law on Velika Hoča/Hoçë e Madhe. Continued guidance from the central level is needed to ensure that the laws are fully implemented. Cooperation between the relevant ministries and between central and local levels is slowly improving. It needs to be intensified and managed in a more structured way to secure sustainable progress. In general, implementation of the legislative framework governing protection of cultural heritage remains weak. Kosovo authorities need to address frequent breaches of the legislation negatively affecting the sites. They also need to demonstrate a stronger commitment to cultural heritage spatial planning. Business interests frequently prevail over interests of the cultural heritage.

Overall, Kosovo needs to focus on the implementation of the priorities of the feasibility study. Implementing legislation on protection of minorities and cultural rights remains an important challenge. Inter-institutional coordination, including between central and local self-government institutions, needs to improve. Security incidents and crimes targeting persons belonging to minorities and their property need to be investigated and prosecuted thoroughly and promptly. Spatial planning needs to take into account the requirements of historic and cultural heritage sites. Robust action needs to be taken to stop illegal construction and to correct illegal construction which has already taken place.

Resources and efforts need to be more focused to make progress in implementing the strategy and action plan for the Roma, Ashkali and Egyptian communities. Kosovo needs to close the Leposaviq/Leposavić camp. The focus needs to be on education, social service and civil registration of these communities. Kosovo currently relies heavily on support from the international community in this area.

2.3. Regional issues and international obligations

Regarding relations with Serbia, see section 1.4. - Normalisation of relations between Kosovo and Serbia.

Kosovo has continued cooperating with the international community, including the International Criminal Tribunal for the former Yugoslavia (ICTY), in investigating and prosecuting war crimes. Former Prime Minister Ramush Haradinaj was acquitted by the Tribunal in November.

The EULEX police war crimes investigation unit and Kosovo police war crimes investigation unit conducted a joint investigation in the villages of Babin Most and Vushtrri/Vučitrn. The investigation resulted in the arrest of two suspects in the Babin Most case and in a search of their residences. The Kosovo police special unit and the Kosovo police forensic unit provided operational support. Kosovo continues to face challenges in investigating war crimes with its own judicial and law enforcement authorities. EULEX, including the Special Investigative Task Force, has continued exercising its exclusive executive mandate in this area.

An inter-ministerial working group dealing with the past and reconciliation was established in March. It is to address past human rights violations and violations of international humanitarian law in Kosovo. The creation of the working group is a positive step, but its practical impact has yet to materialise.

The unresolved fate of missing persons from the conflicts in the 1990s is still an issue of humanitarian concern in the Western Balkans. As of July 2013, a total of 11 859 persons were still missing as a result of the conflicts in the region, according to International Committee of the Red Cross (ICRC) figures. Of these, 7 886 cases relate to the conflict in Bosnia and Herzegovina, 2 246 to the conflict in Croatia and 1 727 to the conflict in Kosovo The lack of information on new gravesites, due to a lack of political will, and difficulties in identifying human remains already exhumed continue to be key obstacles to solving the remaining cases of missing persons.

The working group on missing persons chaired by the ICRC has remained the framework within which the Kosovo authorities have pursued their commitments. The governmental commission on missing persons has assumed its responsibilities in facilitating the assessment and exhumation of potential new gravesites and for coordinating the actions of other stakeholders. However, it lacks high level political support. It needs to be proactive and build capacity to channel and step up the search for new information on the fate and whereabouts of missing persons. The pace of solving cases of missing persons is slow, with only 44 cases solved over a period of twelve months.

The EULEX/Department of Forensic Medicine expert review of unidentified human remains stored at the Pristina morgue were completed. The results were made public in a report in 2012. 45 persons have been identified. The report also concluded that not all the remains were a result of the conflict. Policy makers need to decide on the next steps. The Department of Forensic Medicine does not have the capacity to meet the standards required for sustainable and adequate recovery, analysis and identification of human remains. The Ministry of Justice and the Prime Minister’s Office need to do more to invest in the recruitment and development of experts needed for a sustainable forensic practice. Special effort is needed to increase trust from non-Albanian communities in the department’s work.

Implementation of the law on missing persons (adopted in 2011) needs to be accelerated. The resources needed to set up a central register have not yet been allocated. The adoption of implementing legislation on the central register is still pending. Increased and improved coordination and cooperation between the governmental commission and the Department of Forensic Medicine is required.

The absence of a formal agreement between Kosovo and the former Yugoslav Republic of Macedonia remains an obstacle to clarifying allegations related to unidentified human remains in the former Yugoslav Republic of Macedonia.

Overall, the review of unidentified human remains stored in the Pristina morgue was completed. There is a lack of political will, expertise and resources to address the issue of missing persons. Kosovo is at the early stages of investigating war crimes without international support.

Regional cooperation and good neighbourly relations are an essential element of Kosovo’s European integration process. On 28 February 2013, the Regional Cooperation Council (RCC) decided to amend its statute to allow Kosovo to become a participant in its own right. The formula for Kosovo’s participation in the RCC is a good basis for Kosovo to increase and extend its participation in other regional fora.

Kosovo participates in the South East Europe Transport Observatory (SEETO) forum, the Energy Community Treaty, the South East Europe (SEE) Centre for Entrepreneurial Learning, the Regional Rural Development Standing Working Group in the SEE, the Regional Environmental Network for Accession, and the Network of Associations of Local Authorities of the SEE.

Regarding bilateral relations with other enlargement countries, Kosovo has continued to have very good relations with Albania with which it signed agreements on the exchange and protection of classified information, on judicial assistance in penal cases, on extradition, on transferring sentenced persons, and on cooperation on taxation and fighting tax evasion.

Bosnia and Herzegovina has not recognised Kosovo. Short-stay visas for citizens of Kosovo are issued only on invitation from foreign diplomatic missions and international organisations accredited in Bosnia and Herzegovina, or for humanitarian reasons.

The wide-ranging contractual framework for cooperation with the former Yugoslav Republic of Macedonia continued to develop with the signing of agreements on mutual recognition of pensions, on advancement and intensification of cultural cooperation, and on the opening of a new border crossing. Joint monitoring patrols along the border need to address the challenge of illegal trafficking of goods and illegal migration. A trade dispute took place in September 2013. The manner in which the situation at the border escalated over a number of days before being resolved bilaterally, outside of CEFTA procedures, is a matter of concern.

Concerning Montenegro, negotiations are under way to conclude agreements on extradition, mutual enforcement of judicial decisions in criminal matters, and legal assistance in criminal matters. A joint commission on border demarcation has started work.

Kosovo has maintained very good relations with Turkey, with which it finalised negotiations on a free trade agreement.

Overall, the agreements reached in the context of the Belgrade/Pristina dialogue have boosted regional cooperation. Demarcation of the border with Montenegro has yet to be completed.

3. Economic criteria

In examining economic developments in Kosovo, the Commission’s approach was 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

Kosovo has further developed its relations with international financial institutions. It has continued to successfully implement the 20-month €105 million Stand-By Arrangement (SBA), negotiated with the International Monetary Fund (IMF) in April 2012. In December 2012, Kosovo became a member of the European Bank for Reconstruction and Development. In June 2013, Kosovo signed a Framework Agreement with the European Investment Bank (EIB), which allows the EIB to finance projects in Kosovo. The Fiscal Surveillance Mechanism with the European Commission has continued with meetings held twice a year. Kosovo has also launched preparations for an Economic and Fiscal Programme, which is the standard economic surveillance procedure for potential candidates. In early May, the government of Kosovo adopted its medium-term expenditure framework, covering the years 2014-2016. Overall, the determination to pursue market-oriented economic policies has been maintained and reforms accelerated in certain areas.

Macroeconomic stability

Kosovo’s economy has been less shielded from the adverse effects of the economic crisis in Europe than in past years, with signs of an economic slowdown. The general economic situation remains challenging with very high unemployment. GDP growth came down from 4.4% in 2011 to 2.5% in 2012 and is likely to have remained subdued in the first half of 2013 as well. More prudent fiscal policy and rapidly decelerating credit growth have curbed domestic demand, supressing the investment activity in particular. Remittances, a major driver of private consumption, started recovering only in the second half of 2012. The weak economic prospects in a number of countries with significant Kosovo diaspora increase uncertainty. Economic statistics, national accounts in particular, remained extremely weak, hampering a comprehensive assessment of the economic situation. GDP per capita[6] has reached €2 721 in 2012, equal to 11% of the EU-27 average, almost unchanged over its level in 2011. Overall, Kosovo’s economic growth has weakened and remains fragile.

In 2012, the current account deficit (including official transfers) shrank to 7.7% of GDP, down from 13.8% of GDP in 2011. Higher current transfers and lower imports of goods and services helped reduce external imbalances. On the other hand, the performance of exports of goods deteriorated (down by 1.0% of GDP), as external demand and prices for metals and metal products, Kosovo’s main exports, declined. As a result, trade imbalances remained significant, with a trade deficit of 35.1% of GDP, reflecting an underdeveloped and narrow domestic production base.

The surplus on the capital and financial account (excluding changes in reserve assets) stood at 13.2% of GDP in 2012. Net foreign direct investments declined to their lowest level since 2005 to 4.3% of GDP. The structure of investments remained broadly unchanged, with about half of all incoming foreign direct investment (FDI) going to the real estate and construction sectors, 12% to financial services, and only 13% channelled to manufacturing. The deficit in portfolio investments widened to 3.8% of GDP, but strong inflows of other investments, mostly currency and deposits, boosted reserve assets, which increased by 5.4% of GDP. Net errors and omissions remained very high (4.8% of GDP), close to their level in previous years. Overall, external imbalances have declined, although they are still very high, especially in merchandise trade. Net inflows from foreign direct investment fell markedly and continued to be channelled mainly in non-tradable sectors.

Unemployment is very high at 35.1%, according to Labour Force Survey (January to June 2012), which, due to methodological changes, does not allow for comparisons with previous years. The unemployment registry was digitalised and launched in early 2012. The number of people officially registered as unemployed decreased by about 22%. However, the sharp reduction mainly reflects changes in the registration system, rather than an improvement in the labour market situation. Most of the unemployed are unskilled (60%) and the number of unemployed with a university education has steadily increased. Structure of the labour market signals a mismatch between the skills needed on the labour market and those provided by the education system. Formal employment in the private sector increased slightly according to data on the number of contributors to the Kosovo Pension and Savings Trust Fund. The available statistics 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 patchy. Unemployment has remained very high, with significant structural weaknesses and skill gaps in the labour market. There are few job opportunities, especially for new young entrants.

The annual average rate of inflation was 2.5% in 2012. After having been elevated for several months in the second half of 2012, year-on-year inflation fell to 1.2% in August 2013. This moderation was mainly driven by the base effect and lower food and energy prices. Energy goods had a deflationary impact for the first time in last three years. Services inflation also came down markedly. Core inflation (non-food, non-energy) has been stable, close to 1%, gravitating around its long-term average. Overall, inflation has declined and continued to be driven mainly by food and energy prices.

Kosovo is using the euro as its legal tender. Consequently, the Central Bank of Kosovo (CBK) has only limited policy instruments. The growth in broad money supply has declined markedly and stood at 4.6% year-on-year by the end of July 2013, as compared to 9% a year ago. However, the monetisation of the economy, measured by the ratio of average broad money to GDP, increased from 40.7% in 2011 to 43% in 2012. The framework for providing emergency liquidity assistance became operational and the authorities funded a special reserve fund with €46 million. Overall, the monetary framework has continued to function relatively well.

The 2012 budget deficit turned out close to target at 2.6% of GDP. Total revenue grew by only 1.8% and decreased to 26.9% of GDP from 27.3% in 2011. As economic activity cooled down, border taxes and non-tax revenue underperformed, while savings in spending on goods and services at central level and in non-highway capital expenditure compensated for lower revenues both at central and municipal level. Nevertheless, total expenditure increased by 5.3% for the year or by 0.7 percentage points, to 29.6% of GDP. Current expenditure reached 18.1% of GDP, up from 17.4% in 2011, driven by increases in all major categories. Capital expenditure and net lending decreased slightly by 0.2 percentage points, to 11.2% of GDP and more than 40% of these were spent on a single project, the highway to Albania. Government deposits available at the central bank increased from €160 million (3.4% of GDP) in 2011 to €216 million (4.4% of GDP) at the end of 2012. In 2012, the authorities started issuing domestic treasury bills with 3- and 6-month maturity, extended to one year maturity in April 2013. Supported by excess bank liquidity and stringent budgetary execution, yields have steadily declined and fluctuated around 0.5% and 1.5% for 3-month and 6-month bills respectively, in the third quarter of 2013. Total government debt increased by €156 million, but remained low at 8.3% of GDP by end-2012, of which close to a fifth was domestic debt. Budget transparency improved further and the Ministry of Finance started publishing quarterly information on government debt level and structure on its website.

In December 2012, the Assembly adopted the 2013 budget, envisaging a €181 million (3.5% of GDP) consolidated deficit. The budget contains fiscal adjustment measures, mostly in raising additional non-tax revenue from lignite royalties and one-off sale of telecoms licences. To guard against unforeseen fiscal risks, the budget also includes a contingency reserve of €20 million in unallocated spending commitments. An allocation of about 0.5% of GDP is envisaged for launching another big, multiannual road transportation project, a highway linking Pristina with Skopje. The 2013 budget performance was broadly on track by the end of July. The consolidated deficit was €6.6 million, which is significantly lower than the corresponding period last year. Revenue growth was boosted by the base effects and domestic tax revenues. By the end of July, year-on-year increase in total expenditure was 1.3%. Even though the current expenditures, subsidies and transfers increased significantly (by 1.6% of GDP), reduced non-highway capital spending kept the total expenditure at a modest level.

In April, the winning bidder for the privatisation of 75% of the state-owned telecom PTK was selected. However, the privatisation process has experienced delays, with the ultimate completion remaining uncertain. On the other hand, a number of initiatives with potentially significant impact on budget sustainability are being prepared in healthcare, municipal finance, and benefits to war veterans and political prisoners. In that regard, PTK is a key deal expected to bring €277 million to the budget.

In July, with amendments to the law on public finance management and accountability, the parliament introduced a legally-binding fiscal rule to be implemented as of 2014. The rule envisages a 2% of GDP ceiling on the general government deficit. Overall, budget performance remained broadly on track, in a challenging economic and social environment, but further efforts are needed to limit budget exposure to a number of new expenditure initiatives.

In 2012, growth and domestic demand weakened, as some of the major factors that had previously supported it, fiscal expansion, strong remittances and buoyant credit growth, were curtailed or decelerated. In the framework of an IMF-supported programme, significant steps have been taken to rein in government spending and improve financial stability. However, significant domestic and external imbalances persist. Structural weaknesses and skills gaps in the labour market remain significant and there are few job opportunities, especially for young entrants, aggravating an already difficult social situation. Overall, Kosovo managed to broadly maintain macroeconomic and fiscal stability, despite evident signs of weakening economic growth. Fiscal policy remained prudent and the macroeconomic policy mix has improved. Further significant efforts are needed to improve the structural characteristics of the economy.

Interplay of market forces

Out of 61 state-owned enterprises, 44 are managed by municipalities. Among those centrally managed, six enterprises had operating profits in 2012. This includes the Kosovo Energy Corporation and the Post and Telecommunications of Kosovo (PTK), which also paid €45 million in dividends to the budget. A few companies in the transport, water and waste sectors have continued to suffer losses. They have remained a significant drain on the budget, although to a lesser extent than in previous years. The Privatisation of the Kosovo Electricity Distribution and Supply Company (KEDS) was successfully completed when Turkish consortium Calik-Limak took over the company in May 2013. The privatisation of 75% of shares of the state-owned telecom PTK, initially envisaged to be concluded by July, is delayed. The Privatisation Agency of Kosovo (PAK) has continued privatising mainly small businesses. Total proceeds from the beginning of the privatisation process reached €574.4 million, with 2012 proceeds contributing €16.7 million. Limited progress has been made in liquidating enterprises from PAK’s portfolio. In 2012, only two liquidation proceedings were closed and 179 firms remain in the process of liquidation. Proceeds from asset sales of enterprises in liquidation reached €62.7 million, of which €11.3 million were collected in 2012. Overall, the privatisation of state-owned enterprises has progressed, although unevenly, while the privatisation and liquidation of enterprises from PAK’s portfolio lagged behind.

Market entry and exit

During 2012, 2 261 new businesses were registered, a rise of over 20% compared to the previous year. On the other hand, 334 businesses closed, or 16.7% more than in 2011. Businesses consider the lack of access to finance, power cuts, unfair competition (among local enterprises) and corruption as the main obstacles to doing business. Overall, weak administration, unreliable electricity supply and deficient rule of law have continued to hinder private sector development even though some progress has been made with regard to market entry.

Legal system

The legal system has continued to suffer from poor accessibility and efficiency, delays and a backlog of unresolved cases. Weak enforceability of contracts has 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. It has contributed to the rise in non-performing loans. There has been some progress regarding the property rights infrastructure, although the accuracy of data could be further improved. While expropriation procedures are applied in a broadly satisfactory manner and property owners are mostly compensated, the authorities do not carry out proper consultation and notification of displaced owners. Registered transactions and mortgages have continued to rise, indicating increasing use of property as collateral and acceptance by banks of cadastral records data for loan purposes. In 2012, the overall value of mortgages increased by 49%, reaching €1.3 billion. Some land registry books remain in Serbia. An agreement on cadastral records was reached within the framework of the Belgrade-Pristina dialogue. Appropriate legislation still needs to be passed to implement the agreement. Overall, there has been an increasing use of property as collateral. The existing legal framework is underdeveloped and its implementation has remained poor. Difficult, lengthy and costly legal enforcement and prevalent corruption has continued to hamper the business environment.

Financial sector development

In 2012, Kosovo’s financial sector expanded by 8.5% with assets worth €3.8 billion. The banking sector remained predominant and accounted for 74% of all financial sector assets, followed by pension funds (19.5%). The total number of banks operating in Kosovo rose to nine in 2012, as a new bank entered the market. The number of pension funds (2) and insurance companies (13) has remained unchanged. Concentration of the banking system remains high, with 70% of assets managed by the three largest banks. Almost 90% of the assets in the sector are held by banks under foreign ownership. Profits in the banking sector reached €19.2 million in 2012, a significant (46.7%) decrease compared to 2011. The proportion of non-performing loans rose to 7.6% of total loans on June, from 5.8% at the end of 2011. This is due to the deterioration in credit quality in the trade, real estate and construction sectors. Nonetheless, non-performing loans remain adequately provisioned and banks continue to hold considerable excess liquidity.

More stringent regulatory requirements as regards capital, which took effect in the autumn 2012, have put some of the banks’ soundness indicators under pressure. Some banks fell below the regulatory minimum of 12% and had to be recapitalised. However, the average capital adequacy ratio stood at 16% at the end of July 2013. Amendments to the deposit insurance law, adopted in December, envisage an increase of the threshold for insured deposits from the current €2 000 to €5 000 by 2018. The capital of the Deposit Insurance Fund has been strengthened and a resolution was adopted to increase its reserve fund to 8-9% of all insured deposits over a period of 14 years.

In April 2013, the Constitutional Court issued a ruling that declared a number of articles of the 2012 law on banks, microfinance institutions and non-bank financial institutions incompatible with the Constitution. The articles in question refer to the possibility for NGO microfinance institutions to become joint stock companies. Overall, there have been important steps to strengthen financial stability and supervision, although there is significant scope for further improvements. Non-performing loans increased and banks’ capital adequacy and profitability indicators worsened, although the system as whole has remained rather stable.

Credit activity decelerated strongly, from double-digit growth levels to around 4% by the end of 2012. However, the share of total loans and lease financing in GDP increased marginally to 36.3%. Since the beginning of 2013, commercial banks have extended €87 million in new loans, 4% less than in the corresponding period the previous year. The decline has been particularly pronounced in new investment loans for non-financial corporations, which have dropped by 29%, while consumer and mortgage loans increased strongly, by 45% and 17%, respectively.

A survey conducted by the central bank showed that banks applied stricter criteria for loans, mostly due to a negative perception of the overall economic situation. Loans to the trade sector continued to dominate the loan portfolio, accounting for 36% of it by the end of June 2013. Lending continued to be domestically financed; the loans-to-deposits ratio fell to 77.5%, limiting the risks of crisis spill-over through cross-border financing.

In 2012, deposits increased by 8.3%, amounting to €2.3 billion or 46.4% of GDP by the end of the year. By the end of July, growth in deposits decelerated and remained at 4.6%. The already good liquidity position of the banking system has improved further and commercial banks increased their holdings at the central bank to about €300 million. The average interest rate spread between loans and deposits declined slightly, but remained at a high 9.85% in 2012. In early 2013, banks’ interest income growth turned negative for the first time ever, while interest expenditure and provisions have continued growing, reducing banks’ profitability. Overall, the deposit base has continued to increase at a robust rate, while lending activity has decelerated and lending conditions have remained tight.

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

Existence of a functioning market economy

Macroeconomic stability has been largely preserved, against the backdrop of the economic crisis in Europe and persistently high domestic and external imbalances. In a difficult environment, some steps have been taken to strengthen the financial system’s framework, improve the business environment and limit budget expenditure. At the same time, significant further efforts are needed to develop a competitive private sector and to anchor fiscal sustainability. Overall, the weak rule of law, a large informal economy and an underdeveloped policy framework have continued to hamper the economy.

Human and physical capital

Some progress has been made in the education sector, especially as regards the systems and procedures for implementing a sector-wide approach to education. In line with the vocational professional education framework, new vocational training centres have been opened, curricula have been reviewed and a standardised certificate of accreditation has been developed for several vocational occupations. Education has remained one of the largest government programmes, accounting for about 4% of GDP. However, the resources allocated to it still remain relatively low. The modernisation of the public employment service has continued and the Employment Management Information System is operational, maintaining a database of jobseekers. Overall, there has been some progress in the education sector. However, it is still affected by the lack of adequate facilities, maintenance and quality assurance. It is characterised by poor results which do not sufficiently meet the requirements of the labour market. Significant investment in human capital is necessary to support Kosovo’s socio-economic development.

Total investment is estimated to have declined in 2012. Nevertheless, it stood at a relatively high level of around 31% of GDP. Government investments (predominantly in road infrastructure) have slightly increased and remained high at 11% of GDP, while there appears to have been a slump in private investment. There has been little involvement of the private sector in key areas such as water and wastewater, road and railway services. The construction of the highway (R7) towards Tirana has continued and is scheduled for completion in 2013. Work on a new highway to Skopje is due to start towards the end of 2013, with an allocation of €28 million (0.5% of GDP), provided the revenue of the sale of PTK is available. In the area of energy infrastructure, The Calik Limak consortium took over the Kosovo Electricity Distribution and Supply Company (KEDS) in May 2013 and has committed €300 million to modernise and operate the distribution network. Little has been done to improve energy efficiency. Information about the level and structure of private investment has remained scarce. Overall, besides road infrastructure, there were marginal improvements in physical capital. Government capital spending remained focused mostly on highway construction, at the expense of other sectors’ needs.

Sectoral and enterprise structure

Kosovo’s enterprise sector remains dominated by small and micro-enterprises. Retail trade continues to be the dominant sector, with a share of 31.3% of all new enterprises, marking a small decline in the overall share in comparison to past years. There is a large informal sector fuelled by weaknesses in tax and expenditure policies and in law enforcement, including the fight against corruption and organised crime. It reduces the tax base and the efficiency of economic policies. Access to finance and its cost have remained a challenge. In 2013, the government joined an EU-financed project which supports export-oriented micro enterprises and SMEs. The project’s objective is to improve their technology and increase production capacity. Overall, the retail trade sector became slightly less dominant in the overall enterprise structure, largely because of the growth in newly-registered enterprises in agriculture. The large informal sector continues to pose a major challenge.

State influence on competitiveness

Budget subsidies and capital transfers to publicly-owned enterprises (POEs) declined slightly, to about 1.1% of GDP in 2012. Subsidies were granted to POEs in energy, railways, district heating, water and waste, and the Trepča Mines. The government has continued with the grant scheme consisting of coupled payments to cereal and livestock farmers and matching grants for the dairy, fruit and vegetables sectors at farm level. In 2013, the government extended the coupled payment to other sectors (e.g. maize, sunflower and horticulture) and extended matching grants to forestry, irrigation schemes, aromatic plants and support to less favoured areas. Within the energy sector, the energy regulator (ERO) approved an increase in electricity prices of 8.9% in 2012 and refused further increases in 2013. Overall, state interference in the economy has declined, but remains high. The institutional framework to monitor and approve state aid has still not been established.

Economic integration with the EU

The openness of the economy, measured by the value of imports and exports of goods and services in relation to GDP, has remained stable around 71.2%. The share of exports to EU Member States decreased in comparison to 2011. It accounted for almost 39.6% of total exports of goods (43% in 2011). The share of exports to Central European Free Trade Agreement (CEFTA) countries increased significantly to approximately 37.8% of total exports (26% in 2011), especially on account of increased exports to Albania and Montenegro. EU and CEFTA countries have remained the main origin of Kosovo’s imports, with shares of about 39% and 34% respectively. With about one third of overall investments, EU countries remain the biggest investors in Kosovo. Overall, economic integration with the EU remains significant.

4. European standards

This section examines Kosovo’s capacity to gradually approximate its legislation and policies with the acquis in the areas of the internal market, sectoral policies and justice, freedom and security, in the context of the Stabilisation and Association Process. It also analyses Kosovo’s administrative capacity. In each sector, the Commission’s assessment covers progress achieved during the reporting period, and summarises Kosovo’s overall level of preparation.

4.1. Internal market 4.1.1. Free movement of goods

In February, the Ministry of Trade and Industry adopted an overall strategy on free movement of goods, which prioritises the adoption of regulations in this area. Implementing legislation on the Professional Council of Standardisation was adopted. A database system for standards was put in place. Memoranda of understanding were signed with the standardisation agencies of Albania, the former Yugoslav Republic of Macedonia and Turkey. During the reporting period, nearly 1 200 European standards (ENs) were adopted as Kosovo standards. Most of these standards, however, have not been translated into Kosovo’s official languages.

As regards conformity assessment, fourteen regulations were adopted on technical requirements (nine covered by new approach directives, five under the old approach directives). Two regulations were adopted on products that pose a risk to consumers (notification and rapid exchange of information). One inspection body for oil pro