TABLE OF CONTENTS

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

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

1.2........ Context.......................................................................................................................... 3

1.3........ Relations between the EU and the former Yugoslav Republic of Macedonia..................... 4

2........... Political criteria............................................................................................................... 5

2.1........ Democracy and the rule of law........................................................................................ 5

2.2........ Human rights and the protection of minorities................................................................. 15

2.3........ Regional issues and international obligations................................................................... 22

3........... Economic criteria.......................................................................................................... 23

3.1........ The existence of a functioning market economy.............................................................. 23

3.2........ The capacity to cope with competitive pressure and market forces within the Union........ 28

4........... Ability to assume the obligations of membership............................................................. 30

4.1........ Chapter 1: Free movement of goods............................................................................. 31

4.2........ Chapter 2: Freedom of movement for workers.............................................................. 32

4.3........ Chapter 3: Right of establishment and freedom to provide services................................. 33

4.4........ Chapter 4: Free movement of capital............................................................................. 34

4.5........ Chapter 5: Public procurement...................................................................................... 35

4.6........ Chapter 6: Company law.............................................................................................. 36

4.7........ Chapter 7: Intellectual property law............................................................................... 37

4.8........ Chapter 8: Competition policy....................................................................................... 38

4.9........ Chapter 9: Financial Services........................................................................................ 39

4.10...... Chapter 10: Information society and media.................................................................... 41

4.11...... Chapter 11: Agriculture and rural development.............................................................. 42

4.12...... Chapter 12: Food safety, veterinary and phytosanitary policy......................................... 44

4.13...... Chapter 13: Fisheries.................................................................................................... 46

4.14...... Chapter 14: Transport policy........................................................................................ 47

4.15...... Chapter 15: Energy....................................................................................................... 48

4.16...... Chapter 16: Taxation.................................................................................................... 50

4.17...... Chapter 17: Economic and Monetary policy.................................................................. 51

4.18...... Chapter 18: Statistics.................................................................................................... 52

4.19...... Chapter 19: Social policy and employment.................................................................... 53

4.20...... Chapter 20: Enterprise and industrial policy................................................................... 55

4.21...... Chapter 21: Trans European Networks......................................................................... 56

4.22...... Chapter 22: Regional policy and coordination of structural instruments........................... 56

4.23...... Chapter 23: Judiciary and fundamental rights................................................................. 58

4.24...... Chapter 24: Justice, freedom and security...................................................................... 65

4.25...... Chapter 25: Science and research................................................................................. 69

4.26...... Chapter 26: Education and culture................................................................................. 70

4.27...... Chapter 27: Environment.............................................................................................. 71

4.28...... Chapter 28: Consumer and health protection................................................................. 74

4.29...... Chapter 29: Customs Union.......................................................................................... 75

4.30...... Chapter 30: External relations....................................................................................... 76

4.31...... Chapter 31: Foreign, Security and Defence Policy......................................................... 77

4.32...... Chapter 32: Financial control........................................................................................ 78

4.33...... Chapter 33: Financial and budgetary provisions............................................................. 79

Statistical Annex......................................................................................................................... 80

1. Introduction 1.1. Preface

Since March 2002, the Commission has reported regularly to the Council and the Parliament on progress made by the countries of the Western Balkans region. This report on progress made by the former Yugoslav Republic of Macedonia in preparing for EU membership largely follows the same structure as in previous years. The report:

– briefly describes the relations between the former Yugoslav Republic of Macedonia and the Union;

– analyses the situation in the former Yugoslav Republic of Macedonia in terms of the political criteria for membership;

– analyses the situation in the former Yugoslav Republic of Macedonia on the basis of the economic criteria for membership;

– reviews the former Yugoslav Republic of Macedonia's capacity to assume the obligations of membership, i.e. the acquis expressed in the Treaties, the secondary legislation, and the policies of the Union.

This report covers the period from October 2010 to September 2011. Progress is measured on the basis of decisions taken, legislation adopted and measures implemented. As a rule, legislation or measures which are 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 other sources have also been used, including contributions from the government of the former Yugoslav Republic of Macedonia, the EU Member States, European Parliament reports[1] and information from various international and non-governmental organisations.

The Commission draws detailed conclusions regarding the former Yugoslav Republic of Macedonia in its separate communication on enlargement[2], based on the technical analysis contained in this report.

1.2. Context

The European Council of December 2005 granted the status of candidate country to the former Yugoslav Republic of Macedonia. The Stabilisation and Association Agreement (SAA) between the former Yugoslav Republic of Macedonia and the EU was signed in April 2001 and entered into force in April 2004. The Council adopted the Accession Partnership for the country, including key priorities for reform, in February 2008. In October 2009, the Commission recommended to the Council to open negotiations with the country, as well as to move to the second phase of SAA Implementation. These recommendations were reiterated in 2010. The Council has not yet concluded its deliberations on the Commission's proposals.

1.3. Relations between the EU and the former Yugoslav Republic of Macedonia

The former Yugoslav Republic of Macedonia is participating in the Stabilisation and Association Process.

The country has been implementing the commitments undertaken within the Stabilisation and Association Agreement (SAA) with the EU, the key priority of the Accession Partnership, including all the commitments provided for under the first stage of implementation of Title V (Movement of workers, establishment, supply of services, capital). The Commission's 2009 proposal on transition to the second stage of the Association, pursuant to Article 5 of the SAA, has been under consideration by the Council.

The SAA structures have continued to serve as the basis for regular political and economic dialogue between the country and the EU. Since October 2010, experts from both sides have met at least once a year in seven sub-committees and a special group. Meetings of the highest joint bodies, namely the Stabilisation and Association Committee and the Stabilisation and Association Council, have been scheduled for October and December 2011 respectively. Moreover, the multilateral economic dialogue between the Commission, EU Member States and Candidate Countries in the context of the pre-accession fiscal surveillance continued, including a meeting at Ministerial level in May in Brussels. These meetings focused on the main challenges posed by the Copenhagen political and economic criteria and reviewed the progress made towards fulfilling the Accession Partnership priorities.

The EU provided guidance to the authorities on reform priorities through the Accession Partnership of February 2008. Progress on these reform priorities is encouraged and monitored through the bodies set up under the SAA. Based on the Accession Partnership and the 2010 Progress Report, the government adopted its annual revision of the national programme for the adoption of the acquis in December 2010.Visa liberalisation for citizens travelling to the Schengen area has been in force since 19 December 2009. The rules for visa-free travel have been respected by the vast majority of travellers. To ensure the continued implementation of the commitments, a post visa liberalisation monitoring mechanism was established in view of increased numbers of asylum seekers from the region. The Commission presented its first monitoring report to the European Parliament and the Council in June 2011. An agreement on readmission with the European Union has been in force since January 2008.

Financial assistance is provided through the Instrument for Pre-Accession Assistance (IPA). In 2011, management of IPA was decentralised to the country authorities. The Multi-Annual Indicative Planning Document for 2011-13 provides for a total EU contribution of € 305 million and adopts a sector-based approach. In addition, the country continues to benefit from various regional and horizontal programmes. Cross border cooperation is also used to promote capacity building and dialogue between the local and regional authorities of neighbouring countries, namely Bulgaria, Greece, Albania and Kosovo[3].

Since 2007 the Commission has committed an amount of over €288 million for projects to be implemented in the country, including 92 million in 2010. The EU financial assistance portfolio managed by the EU Delegation in Skopje amounts to € 115 million. By June 2011, 85% of this total had been contracted and more than 60% disbursed. This assistance focuses on strengthening administrative capacities with particular emphasis on the rule of law and public administration sectors, tax and customs reforms, local infrastructure improvements for socio-economic economic development, and the ability to assume the obligations of EU membership. Furthermore, support is given to the implementation of the National Strategy and an Action Plan of the Decade of Roma Inclusion and the Ohrid Framework Agreement. In the context of pre-accession, the EU has already transferred the management of four out of five components of IPA to the national authorities under the Decentralised Implementation System (DIS). Further fine tuning of the necessary management and control systems is still needed in order to ensure higher quality standards when carrying out this responsibility.

Civil society has received extensive financial support from the EU under the IPA Civil Society Facility and national programmes, as well as through the European Instrument for Democracy and Human Rights. Aid objectives include the wider involvement of civil society in decision making and an increased capacity of independent civil society organisations. The national programmes currently being implemented provide significant support to improve the development and sustainability of civil society organisations and further capacity building of the government unit for NGO cooperation. Under DIS, civil society can now start to be involved in the monitoring of the overall implementation of EU aid.

The former Yugoslav Republic of Macedonia participates in the following EU Programmes: 'Entrepreneurship and Innovation programme' (EIP) of the 'Competitiveness and Innovation Framework Programme', the 'Seventh Research Framework Programme', 'Progress', 'Culture', 'Europe for Citizens', 'Fiscalis 2013' and 'Customs 2013'.

2. Political Criteria

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

2.1. Democracy and the rule of law

Parliament

Dialogue between the political forces, which is a key priority of the accession partnership, was temporarily interrupted by a parliamentary boycott during the course of the year. This was brought to an end by early elections leading to a new parliament.

The Parliament worked until January 2011 on the basis of dialogue between political parties. Several key laws related to the EU acquis were enacted.

The Committee on EU Affairs and the National Council for EU Integration, which is chaired by the opposition, continued to hold regular sessions. They discussed, in particular, the 2010 Progress Report, the related Action Plan and the annual revision of the National Programme for the adoption of the acquis (NPAA), as well as its implementation. The Committee examined all draft laws under the National Plan for the Adoption of the Acquis.

Efforts to strengthen the institutional capacity of the parliament continued, in line with the 2009 Law on Parliament. Five further public oversight hearings were successfully held and the Government implemented their conclusions. The operational budget of the parliament was increased by 40%. This allowed thirty permanent posts to be created within the Parliament service, as well as the renovation of the building.

The amendments to the rules of procedure adopted in 2010, which aim to strengthen parliamentary cooperation, were implemented. The right of the opposition to table issues on the Parliament's agenda was confirmed in practice. All seven agenda items proposed by the opposition were discussed in plenary.

The implementation of the Law on languages has moved forward. Draft laws and other motions in the parliament are translated into Albanian. The use of Albanian in oral procedure continues in committees and in hearings, including by the chair, as well as in the plenary. The parliamentary TV channel is also interpreted into Albanian. The amendments adopted in July provide that all officials elected or appointed by the Parliament may use Albanian when addressing the parliament and its bodies.

The improved responsiveness of all members of the parliamentary Committee on inter-ethnic relations enabled three sessions to be held before the Parliament was dissolved.

However, at the end of January the main opposition party, the Social Democratic Union of Macedonia (SDSM), led a boycott of the parliament by a majority of opposition parties. SDSM stated it was protesting against undemocratic rule. This included action by the authorities, on charges of tax evasion, against a television channel known to be critical of the government. The boycott continued until the early elections in June. Convening several meetings of political party leaders, the President of the Republic made efforts to mediate a resolution, but was not successful.

The ruling Internal Macedonian Revolutionary Organisation (VMRO-DPMNE) and Democratic Union for Integration (DUI) coalition, which had a two-thirds and a 'Badinter majority'[4], were able to continue to enact laws despite the boycott. Amendments to the Constitution, the Electoral Code and the Law on Lustration were among over 200 acts enacted without the opposition.

The Parliamentary Institute, whose function is to enable all parties to have greater access to information and analysis, is still not operational and its staff have yet to be recruited. This is essential in order to allow Members of Parliament to properly fulfil their role.

Parliamentary oversight of intelligence and counter-intelligence services remains weak. In 2010, only one session of the parliamentary Committee was convened. There is insufficient cooperation between the parliamentary Committee and the Bureau for Security and Counterintelligence.

Implementation of the Law on Lobbying continues to create selective access by interest groups to policy making. Lobbying can only be undertaken at the invitation of the relevant legislative body, and is permitted for civil associations but not for foundations. So far no lobbyist has registered.

The committee of inquiry on an incident in the Parliament in July 2010 did not complete its work before the dissolution of the parliament, and the responsibilities were not clarified. No practical steps were undertaken to prevent future similar occurrences. A code of ethics for Members of Parliament has not been established.

The parliament voted for its dissolution on 14 April, 34 months into its 4-year mandate, and early parliamentary elections were called for 5 June. A cross party agreement was reached on a code of conduct for the elections. The parliamentary elections resulted in the third consecutive victory of the VMRO-DPMNE-led coalition (56 seats), followed by the SDSM-led coalition (42), DUI (15), DPA (8) and NDP (2).

The finding of the OSCE/ODIHR election observation mission was that the elections were competitive, transparent, and well-administered throughout the country. On election day, the voters were able to freely express their choice in a peaceful atmosphere from a diverse and pluralistic choice of candidates. Freedom of expression, movement and assembly was respected. The media provided extensive coverage of the campaign, enabling voters to make an informed choice. The number of women who were heads of list increased from six in 2008 to 15 in 2011. Out of 1679 candidates, 34% were women. There was a high voter turnout of 63%. The political parties largely endorsed the elections and SDSM was returned to the parliament. Few official complaints were filed with State Election Commission. The five lawsuits with the Administrative Court were all rejected.

However, gaps and ambiguities remain, especially in relation to provisions for complaints, out of country voting and use of administrative resources. ODIHR reported credible allegations of insufficient separation between state and political party, and pressure on civil servants. Political parties campaigned almost exclusively along ethnic lines, reflecting the ethnic polarisation of society. The public broadcaster, contrary to legal obligations and its public mandate, favoured the government and strongly criticised the opposition in its coverage.

Some of the ODIHR recommendations from 2009 were addressed prior to the elections. In particular, the amended Electoral Code provided that the Broadcasting Council could issue a rulebook on the conduct of broadcasters; the campaign financing rules were tightened; the counting process was improved. The Electoral Code was amended by a slim majority and only two months before the election, which is not consistent with best practice. Also, the recommendation for a thorough audit of the Voters' List has not been implemented. This contains over 1.8 million voters for a population of 2.05 million, and concerns remain that the list is inflated. Questions remain about the arrangements for out-of-country voting.

The new Parliament, still under the technical government, enacted in shortened procedure amendments to the Laws on Use of Flags of Communities, Languages, Broadcasting Council, Judicial Council, Council of Public Prosecutors and adopted an authentic interpretation of the Law on Amnesty.

Overall, there has been progress in the conduct of elections. The elections were competitive and well-administered throughout the country. The government needs to implement fully the conclusions and recommendations of the OSCE/ODIHR election observation mission. Some progress has been made on the reform of the parliament. The implementation of the law on languages and of the rulebook of procedure has moved forward, and the operational budget has been increased. However, political dialogue needs to be further strengthened in order that problems can be resolved through the institutional framework. The boycott by the opposition hampered the functioning of the parliament.

Government

The new government coalition has actively taken forward the EU reform process and given it new impetus. The early election had delayed the adoption of certain measures. A revised 2011 National Programme for the Adoption of the Acquis (NPAA) was adopted in December 2010. Nonetheless, the NPAA does not specify deadlines, staffing requirements and budgetary implications.

The coalition partners enacted the sensitive Law on the census in November 2010. Following the decision to hold early elections, the coalition agreed to postpone the census from April to October. Reaching agreement between coalition partners on the decision concerning the ethnic composition of the census enumeration teams was also postponed.

Coalition relations were challenged in January by the construction of a church-shaped museum inside the Kale Fortress in Skopje, in a historic and ethnically mixed area. Protests over the construction led to an inter-ethnic clash.

The new governing coalition was formed swiftly after the elections and was sworn in on 28 July. The Government Work programme 2011-15 maintains the same five priorities as the previous government: increasing economic growth; integration into the EU and NATO; fighting against corruption and economic crime; maintaining good interethnic relations on the basis of the Ohrid Framework Agreement; investment in education, science and a knowledge based society.

Decentralisation of government - which is a basic principle of the Ohrid Framework Agreement - continued. The action plans for implementing decentralisation were approved up to 2013. An additional five municipalities (bringing the total to 79 out of 85) entered the second and last phase of the fiscal decentralisation process, enabling a more substantial transfer of competencies and financial management to the local level. Under the Law on financing the units of local self-government, the share of VAT transferred to municipalities increased to 3.7% in 2011.

The Law on management of state-owned land was adopted and entered into force in July 2011. Capacity-building programmes are being implemented to assist municipalities in the areas of property tax administration, human resources and financial control. Financial affairs units were established in three more municipalities; 52 municipalities established internal audit units and in 46 municipalities an internal auditor is operating. More than 1000 municipal civil servants have been trained, and progress was made in implementing annual training programmes.

However, four of the six municipalities which remain in phase 1 of the decentralisation process have sizeable debts, and two lack financial management capacity. Additional efforts are needed in order to prepare them for moving to phase 2. Blocked accounts remain a problem for municipalities in both phases 1 and 2. Mechanisms to address the significant disparities in delivery of public services are limited, and rural and small municipalities are especially disadvantaged. Some municipalities remain weak in the areas of monitoring or enforcing collection of the property tax.

Progress in meeting the objectives of decentralisation needs to be accelerated through the impetus of the Ministry of Local Self Government (MoLSG). The Ministry of Finance also needs to strengthen its capacity to develop policy on local government budget issues. The inter-ministerial committee for monitoring the financing of municipalities meets infrequently. There is a lack of transparency and coordination of central funding for municipal projects, particularly for infrastructure projects.

Administrative bottlenecks continue to impede the opening of new schools. Social care services are still operated centrally by the Ministry of Labour and Social Policy and they have yet to be decentralised. Exchange of data between the land registry, the civil registry, the revenue office and the municipalities has yet to be strengthened within a unified data-base system.

Significant additional efforts are needed at central and local levels in order to strengthen the administrative capacity of certain municipalities, particularly in the areas of financial control, strategic planning, human resources management and economic development. The State Audit Office reported numerous shortcomings by the MoLSG in applying financial control standards and procurement rules, as well as poor follow-up of previous recommendations.

Overall, the government coalition has overcome difficulties and strengthened its internal cooperation. The new government has given fresh impetus to the EU reform process. The decentralisation process needs a stronger impetus. In particular, the financial framework for local service delivery needs to be more transparent and equitable.

Public administration

There was progress as regards the framework for public administration, which is a key priority of the Accession Partnership. The political responsibility for public administration (PA) reforms remained with the High Committee on Public Administration, led by the Prime Minister. A new recomposed Committee was appointed in August. The Special Group on Public Administration Reform meets regularly with the EU. The government adopted a new PA reform strategy for the period 2010-2015, as well as a financial assessment and an action plan for its implementation.

The managerial and operational responsibility for the overall PA was transferred to the Ministry of Information Society and Administration (MISA). The Civil Servants Agency was transformed into an Administrative Agency (AA), while maintaining oversight responsibilities. Overall, the new institutional set-up provides a good starting point for driving the PA reforms forward. The budgetary, spatial, and administrative capacity of the MISA is not sufficient, particularly as regards administrative inspection.

The Law on public servants entered into force in April 2011, and was further amended and harmonised with the Law on civil servants. MISA adopted most of the relevant implementing legislation on both the civil and public service. The Law on civil servants was amended to introduce new elements in selection and promotion rules. However, these amendments fall short of providing strategic solutions to all the existing challenges. The legal framework in the area of civil servants and public employees remains fragmented, allowing certain institutions to be regulated differently, including in the area of salary-related provisions. Major shortcomings remain, in particular regarding the rules on recruitment, appraisal and promotion; appointment of senior managers; and termination of employment. Further improvements to the key laws are necessary in order to ensure that the principles of transparent, apolitical, merit-based recruitments and promotions are embedded in the legal framework.

The Law on general administrative procedures was amended to increase accountability by streamlining administrative and appeal procedures, including the procedures for the setting-up and functioning of second-instance appeal commissions. A State second instance Commission for decision-making in administrative procedures and labour relations procedures was established. In general, however, the amendments to the Law have not rectified all its shortcomings. The law does not define the right to an administrative appeal as a principle with clearly defined exceptions. The principle of 'silence is consent' is subject to a complex appeal procedure which undermines the application of the principle in practice. To bring about a systemic change, a new, contemporary and well-structured law would be necessary.

The registry of public servants foreseen by the Law on public servants to bring together all data on staff-related needs, requirements and procedures into one database, is not operational. The AA started handling complaints by public servants as a second instance body. While the administrative capacity of the human resources units in some ministries was increased, a number of these units at local and central level, on the other hand, remain understaffed. There is still insufficient capacity to perform proper staff appraisals.

Although the government took steps to address the excessive use of temporary staff, a number of questions remain open. A large quantity of temporary positions were converted into permanent positions in the reporting period, while many posts remain temporary; however despite requests no official figures on the existing or transferred positions have been made available by the authorities. A lack of consistency in applying requirements regarding education or experience was observed in a number of cases; some requirements appeared to be tailor-made for particular candidates. Similarly, hiring of new temporary staff in many instances did not comply with the procedures laid down by law. The accumulation of such examples raises serious concerns that the principle of merit-based and apolitical recruitment has not been satisfactorily followed.

The payroll system in the PA remained fragmented, affecting the unity and mobility of the civil and public service. The practice of paying ad hoc allowances to public servants for assuming certain types of tasks pertaining to their job duties continued to lack transparency and proper justification.

About 1,600 civil servants from the non-majority communities have been assigned to the civil service since February 2011 to comply with the principle of equitable representation. However, the trend of recruiting employees from these communities on a quantitative basis without regard to the real needs of the institutions continued. The practice shows an insufficient level of co-ordination on equitable representation between MISA and the Secretariat for implementation of the Ohrid Framework Agreement. The recruitment procedure remains vulnerable to undue political influence.

MISA took practical steps to improve the services offered to citizens. A 'one-stop-shop' system for electronic exchange of documents among key institutions was established. A new 'scoreboard' grading system for use by citizens was introduced in selected institutions. The government adopted the Code of conduct for cooperation with the civil society organisations. The knowledge and use of the citizens' charter among the public remains rather tenuous.

Regarding financial management, managerial accountability has yet to be linked to public internal financial control. The reports of the State Audit Office continue to highlight a number of shortcomings with regard to the application of internal financial control standards, procurement rules and human resources policy. The quality of strategic planning within central and local institutions is insufficient, and is still confined to budgetary planning. The General Secretariat of the government does not perform an effective administrative governance role. Regulatory impact assessment is not applied systematically.

A High Administrative Court was established to consider appeals (see also the section on 'judicial system').

The public bodies carried out the recommendations of the Ombudsman in 80% of cases. The second instance government commissions and Ministry of Interior remained the least responsive bodies, followed by the Ministry of Finance and local self-government units.

The Constitutional Court increased the number of annulments of new legislation by 5% to nearly 30% of laws. This raises concerns about the quality of legislative drafting by the central and local administration.

The number of complaints received by the National Commission for Protecting Access to Information rose by two thirds in 2010. More than half of the complaints were successful. However, the work of the Commission was hindered by budget cuts and lack of co-operation by some state administration bodies. Information related to public expenditure continued to be only partially available to the public.

There was some progress on police reform with the entry into force of the Act on Systematisation. It provides the basis for strengthening the efficiency of police; however additional human resources are needed in order to implement it. After conducting a performance evaluation process, a merit-based career and appraisal system was introduced. At the same time, a large number of positions were filled without publishing vacancies, which raised doubts about a transparent and merit-based process.

Overall, progress was made in the area of public administration reform in terms of policy co-ordination and legislative developments. A Ministry responsible for public administration reform was created and the Law on General Administrative Procedure was amended. An e-government interoperability system was launched among several institutions. Progress in implementing the reforms was limited. Significant additional efforts are needed in order to guarantee transparency, professionalism and independence of the public administration in practice. Further improvements of the current legal framework are necessary, in particular as regards the Law on general administrative procedures.

Judicial system (See also chapter 23 - Judiciary and fundamental rights)

Further amendments were made to the legal framework, which was a key priority of the accession partnership.

The Minister of Justice's voting rights on the Judicial Council were removed in line with European Standards and his ex officio participation on the Council of Public Prosecutors was abolished.

A judicial reform package was enacted consisting of a new Criminal Procedure Code and amendments to the Law on courts, the Law on the Judicial Council, the Law on administrative disputes, the Law on the court budget and the Law on the court service, and amendments to the Law on Litigation entered into force.

The purpose of the new Criminal Procedure Code is to improve the efficiency of criminal procedures by strengthening the role of the public prosecutor, establishing a judicial police, streamlining the investigation phase and introducing new investigative techniques. It aims to considerably improve the capacity to tackle complex organised crime and corruption cases. Training of law enforcement agents, prosecutors and judges on implementing the new provisions has begun, although there are concerns that the organisational and institutional arrangements for such a major reform as not sufficiently advanced. The new framework will apply as from November 2012.

Amendments to the Law on Litigation entered into force in September 2011, introducing electronic service of documents, audio recordings of hearings, tighter procedural deadlines, the use of a preparatory hearing and an obligation on courts to inform the parties of the possibility of mediation. The changes aim at improving the civil procedure in order to shorten the duration of court proceedings, as well as promoting alternative dispute resolution.

The Law on Administrative Disputes was amended in order to establish a High Administrative Court with jurisdiction to decide on appeals against decisions of the Administrative Court, which itself hears appeals against decisions of misdemeanour commissions in the administrative bodies, government second instance commissions and acts of local self-government bodies. The court became operational in July 2011. 15 judges have been appointed, the court service staff has been recruited and adequate premises and equipment were secured.

The amendments to the Law on the court budget introduced an increase in state budget allocations from 0.4% to 0.8% of GDP, to be phased in by 2015. There is also a provision protecting the court budget in the event of a rebalancing of the national budget and a requirement that at least 2.5% must be spent on vocational training for the judiciary and judicial staff. However, in practice, inadequate funding of the courts is hampering further progress.

The amendments to the Act on Courts and the Act on the Judicial Council refined or introduced measures to ensure the competence of judges, including minimum educational and professional requirements, psychological and ethics testing and annual evaluation criteria. The complaints mechanisms available to parties to court proceedings, both under the competence of the Supreme Court (in the case of unreasonable length of proceedings) and the Judicial Council (in the case of judicial misconduct) were refined. Measures aimed at improving transparency and public confidence were introduced. However, the entry into effect of new minimal requirements of judicial experience for Appeal Court and Supreme Court judges was delayed until mid-2013 and new grounds for dismissal of judges linked to poor efficiency or performance may have a negative impact on independent decision-making.

In 2010, the Judicial Council appointed 43 first instance judges and 27 higher instance judges. The principle of equitable representation was observed, as was gender balance. In the same period, the Council of Public Prosecutors appointed 23 public prosecutors.

The Parliament dismissed the former President of the Constitutional Court in April after the Supreme Court, on appeal, confirmed the finding of the Lustration committee that he had cooperated with secret services of the former Socialist Federal Republic of Yugoslavia.

The Academy for Training of Judges and Prosecutors (ATJP) continued to make a vital contribution to the professionalism and competence of the judiciary. The third generation of candidates successfully completed their initial training at the end of 2010, and the fourth generation began theirs. The ATJP also continued to provide ongoing in-service training. However, the ATJP's human resources and premises need to be reinforced in light of the high number of training activities it carries out each year.

Greater efforts are needed in order to ensure merit-based recruitment, drawing on qualified graduates from the ATJP rather than from other sources. 22 of the candidate judges and prosecutors who graduated in the last 3 years have not yet been recruited. Moreover, the current threshold for recruitment of non-graduates to first instance judicial posts (50%) was considerably exceeded and the transitional period, after which all newly appointed first instance judges must be ATJP graduates, was extended to January 2013.

Overall, further amendments were made to the legal framework as regards independence, efficiency and transparency of justice. In November a judicial reform package was adopted and in July, the Minister of Justice's voting rights on the Judicial Council were removed. However, considerable efforts are now needed in order to strengthen the quality of justice, in particular through continuous training and merit-based recruitment procedures, and to safeguard the independence of judges in the context of evaluation and dismissal procedures. Further organisational and institutional coordination is also needed to ensure the smooth implementation of the new legal framework and structures introduced by the Criminal Procedure Code.

Anti-corruption policy (See also Chapter 23 – Judiciary and fundamental rights)

Further amendments to the legal framework, which are a key priority of the accession partnership, were made.

Legislative amendments were adopted with a view to implementing GRECO's third round recommendations concerning incrimination and transparency of party funding. The amended Criminal Code refines the scope of incrimination for bribery and trading in influence and introduces criminal liability for failure to report funds used to finance electoral campaigns. The amended Electoral Code introduced a requirement to submit financial reports for all election campaigns to the relevant authorities. The new Criminal Procedure Code, which becomes applicable in November 2012, strengthens the role of the public prosecutor in the pre-trial procedure and introduces a number of special investigative measures. However, the Law on financing of political parties still remains to be amended.

In 2010, the Sector for Internal Control and Professional standards within the Ministry of Interior brought criminal charges against 29 police officers for criminal offences, including 16 cases of alleged abuse of an official position. Five police officers from one border crossing point were charged as part of a single operation. On the whole the number of instances of corruption among the border police has been decreasing as a result of anti-corruption programmes, anticorruption training, CCTV monitoring and salary increases. The Customs Administration should be prioritized as a high corruption risk in the development and implementation of future anti-corruption programmes.

The case of high level corruption concerning the former Director of the Public Revenue Office was completed when the conviction was confirmed by the Supreme Court. The four other high-level corruption cases in which the defendants (including a former prime minister, a former minister of defence and a former governor of the National Bank) had previously been sentenced to imprisonment, were quashed on appeal and returned to the first instance courts for retrial, due to insufficient examination of the facts. The capacity of the judiciary to deal with sensitive high level corruption cases remains weak.

The lack of systematic content checks on asset declarations and conflict of interest statements hampers the effectiveness of the reporting obligation in deterring corruptive practices in the public administration. The SCPC, in cooperation with a number of other institutions, has introduced a methodology for carrying out verifications of asset declarations; the process needs to be taken forward. Legislative changes are still necessary before systematic content checks can be carried out on conflict of interest statements. Conflicts of interest are not sanctioned in practice.

The legal framework and the measures taken as regards the financing of political parties are deficient. The governing coalition parties spent more on election financing in 2011 than their declared income. Questions have also been raised about the legality of SDSM's campaign financing. However the institutional structure for addressing campaign financing and the sanctioning system remain unclear.

Transparency of public expenditure remains unsatisfactory. The SCPC recommended pressing criminal charges for the misuse of public funds, but none of the cases forwarded in 2009 and 2010 to the Public Prosecutor's Office have been resolved. Existing legislation on public access to information has yet to be amended in order to ensure full transparency. The internal control mechanisms in public administration remain critically weak. Legal and institutional protection of whistle blowers continues to be problematic and insufficient, discouraging reporting of suspicious cases.

The competent bodies tasked with combating corruption continue to lack a pro-active approach and failed to dispel widespread allegations of corruption in key areas of concern, such as public procurement and financing of political parties. A convincing track record has yet to be established for prosecutions and convictions. The new Criminal Code provisions on extended confiscation, illicit enrichment and criminal liability of legal persons have yet to be implemented.

The State Commission for the Prevention of Corruption (SCPC), the Anti-corruption Unit within the Organised Crime Department of the Ministry of Interior and the Basic Public Prosecutor's Office for the Fight against Organised Crime and Corruption all remain understaffed and underfinanced. The specialisation of law enforcement agents and the judiciary at local level, particularly in the area of petty corruption, remains insufficient.

The Law on prevention of corruption was amended to confer professional status on the SCPC; however, public confidence in its independence remains fragile. Questions have been raised about the criteria used by parliament in the selection of the seven new members of the SCPC in April. The SCPC itself concluded in its 2010 annual report that the significant cut in its budget and mandate called into question the political will to combat corruption effectively.

Cooperation between the Ministry of Justice, SCPC and law enforcement agencies needs to be strengthened. Meaningful analysis of the level and type of corruption in various areas has yet to be carried out. Collection and processing of relevant data for measuring the extent and nature of corruption, as well as the effectiveness of anti-corruption measures, remain deficient. Corruption remains a serious concern.

Overall, further amendments were made to the legal framework for anti-corruption policy, which is a key priority of the accession partnership. GRECO recommendations were addressed and the legal framework is well advanced. Limited progress was made in implementation. A track record in handling high level corruption cases has yet to be established. The verification of declarations of assets and conflicts of interest needs to be systematised and institutionalised. Transparency of public expenditure and of the funding of political parties remains insufficient. More pro-active inter-institutional cooperation is necessary. Corruption remains prevalent in many areas and continues to be a serious problem.

2.2. Human rights and the protection of minorities (see also Chapter 23 – Judiciary and fundamental rights)

Observance of international human rights law

No progress was made as regards the ratification of international human rights instruments. The European Charter for regional or minority languages has still not been ratified.

During the reporting period, the European Court of Human Rights (ECtHR) delivered 8 judgements finding that the former Yugoslav Republic of Macedonia had violated rights guaranteed by the European Convention on Human Rights (ECHR). A total of 374 new applications allocated to a decision body have been made to the ECtHR since October 2010. In September 2011, 1,111 allocated applications regarding the former Yugoslav Republic of Macedonia were pending before the ECtHR.

Limited progress can be reported in the promotion and enforcement of human rights. The implementation of legal framework was uneven, while the institutional set up was expanded with the recent establishment of the Commission for protection against discrimination. The three new units within the Ombudsman Office remain understaffed, with three employees in each.

In November 2010 the country concluded its chairmanship of the Council of Europe Committee of Ministers. The country's programme focused on the three priorities of strengthening human rights protection, fostering integration while respecting diversity, and promoting youth participation.

Civil and political rights

As regards the prevention of torture and ill-treatment and the fight against impunity, legislative provisions in this area are yet to be translated into a consistent and comprehensive practice. Systemic deficiencies remain with regard to combating impunity within the law enforcement agencies. Allegations continued of ill-treatment by the special 'Alpha' mobile police unit, which now operates only in Skopje. A member of the unit was charged with the murder of a young man during a post-election rally in the centre of Skopje on 6 June. This has increased calls for the Alpha unit to be disbanded.

The effectiveness of prosecutors and judges in taking appropriate action when there are indications of ill-treatment by the police remains a concern. The complaints system remains weak and the data-collection system is poor. The number of allegations regarding ill-treatment or the use of means of restraint towards persons detained in police custody remains high. In 2010, 238 complaints were filed with the Ombudsman with regard to police behaviour, 23% of which related to ill-treatment. There are still a significant number of police stations with substandard cells.

Knowledge of international and European standards among police officers is low and safeguards against ill-treatment in police stations are not adequately enforced. Decisions by the ECtHR requiring an independent mechanism for oversight of the police, in the light of ill treatment of the Roma population, have still not been implemented. Ill-treatment of the Roma remains a concern.

In the field of prison system reform, the government adopted an annual programme for the construction, refurbishment and maintenance of prisons for 2011. Parts of the prisons where degrading and inhumane conditions had been reported, including the semi-open wing of Idrizovo prison, were renovated.

The country has yet to develop an effective national strategy for the prison system. Overcrowding and poor health-care remain causes for concern. Most of the prisons remain underfunded, understaffed and unable to cover their basic maintenance expenses. However the conditions of some prisons, in particular the Idrizovo closed ward, remain below the required standard. Conditions in the Tetovo Educational-Correctional Institution for rehabilitating minors continue to raise serious concerns. An effective independent inspection mechanism is needed in order to safeguard against human rights violations in prisons.

There has been no response to the European Parliament's recommendation of 2007 on follow-up to the Khaled El-Masri case of alleged extra-judicial detention.

The first year of implementation of the Law on legal aid has helped to improve access to justice. Two types of legal aid are provided: initial counselling provided by the local units of the Ministry of Justice and registered civil society organisations (CSO), and legal aid in judicial and in administrative procedures. However, only two CSOs were able to register as providers of legal aid. Also, no legal aid was provided for asylum seekers.

The overall constitutional and legal framework for the protection of freedom of expression is generally in place, but attention needs to be paid to ensuring that its implementation is consistent, transparent and in line with the case law of the European Court of Human Rights.

As regards the media, the first independent trade union of journalists and media employees has been established with the aim of improving working conditions. The collection rate of the monthly broadcasting fee has been increased to strengthen the financial viability of the public service broadcaster. Nonetheless, additional efforts are needed to ensure its sustainable funding as well as that of the Broadcasting Council. The public service broadcaster is currently failing to play its statutory role.

Media ownership remains opaque, highly concentrated and with strong political links. The government is one of the biggest advertisers in the country and there are concerns that funds are directed to television channels which are supportive of the government. Certain television channels are major donors to political parties. The investigation, on charges of tax evasion, and subsequent closure of a television channel A1TV and newspapers which are critical of the government has raised concerns about the proportionality and selectivity of the procedure. The diversity of the media landscape has been weakened. Printing of the newspapers Vreme, Shpic and Koha e Re stopped in early July. Editors and journalists are faced with increasing undue political pressure and intimidation.

Defamation has not been decriminalised and the penalties specified by law include unlimited fines or imprisonment (although in practice no journalists were sentenced to imprisonment). Individual journalists are held personally liable for reporting content and therefore are exposed to potentially very high fines. In this context, intimidation of journalists and increasing self-censorship remains a cause for concern.

Amendments to the Law on the Broadcasting Council have increased the number of appointees from bodies controlled by the government. The amendments were adopted without consulting the Broadcasting Council or any public debate. The amendments raise concerns about weakening of the independence of the body and increasing bureaucratisation. There is currently no Press Council for the print media.

In September the government launched a round table process with journalists and the media in order to establish a dialogue on issues of concern and find solutions.

With regard to freedom of assembly and association, the overall situation is satisfactory. The government's strategy and action plan for cooperation with civil society organisations continues to be implemented. The Code of Good Practices for Participation of Civil Society Organisations in Policy Making Processes was adopted in July 2011. Involvement of civil society in the policy development process and in legislative drafting is making modest progress. A consistent approach encouraging all-inclusive public participation in decision making, including appropriate institutional mechanisms, needs to be further developed.

The system for the allocation of state financing to civil society organisations needs further improvement, in particular as regards public benefit organisations. Civil society organisations remain heavily dependent on foreign funding and the lack of sufficient financial resources remains a serious constraint.

Officials of political parties and Members of Parliament and some media launched public attacks on critically oriented CSOs, with allegations of politicisation of CSOs and money laundering. The Executive Director of the Open Society Institute was found guilty by the Lustration Committee of collaboration with the former Yugoslav State Security Service. Two members of the committee have been boycotting its work in protest at this decision.

As regards freedom of thought, conscience and religion, 28 religious entities were registered under the Law on the legal status of churches, religious communities and religious groups, while 6 were rejected, including the application from the Bektashi community from Tetovo on the grounds of using the same name as the already registered Bektashi community from Kičevo.

Overall, whilst civil and political rights are broadly respected, further progress was limited. Parts of the prisons were renovated. The financial viability of the public broadcaster is beginning to be addressed. However, weaknesses with regard to combating impunity within the law enforcement agencies remain. The country has yet to develop an effective national strategy for the prison system. Editors and journalists have faced increasing undue political pressure and intimidation. In this context, journalists and editorial policies are easily influenced, resulting in widespread self-censorship.

Economic and social rights (see also Chapter 19 – Social policy and employment)

As regards women's rights and gender equality, implementation of the national strategy against domestic violence has continued. Awareness of domestic violence among the population improved and some initiatives have been undertaken to respond better to the needs of victims. The capacity of the national coordination body for the national strategy to combat domestic violence was strengthened. Some progress was made to address women's health needs. The equal opportunity issue is not a political priority of the government. Discriminatory customs, traditions and stereotypes are widespread and undermine women's basic rights. Participation of women in political life at local level remains low. Roma women and girls still suffer from both racial and gender discrimination. Some very limited actions targeting Roma women have been implemented and a more pro-active approach is needed to implement the existing national action plans.

Some progress was made in the area of children's rights. The National Strategy on Prevention of Juvenile Delinquency was adopted by the recently established National Council for Prevention of Juvenile Delinquency. Adequate financial and administrative resources and close inter-institutional cooperation are needed to properly implement the amended Law on Juvenile Justice. The number of specialized staff to deal with juvenile victims and children in conflict with the law is insufficient, and further training is much needed. Police detention and educational-correctional centers fail to meet standards on administration of juvenile justice, in particular on the employment of psychologists and social workers in courts. The Ombudsman reported violations of basic human rights of juveniles in detention, including limited or no access to medical service, no access to education and enforcement of solitary confinement.

The percentage of children living under the poverty line rose further to nearly 37%. Institutional support for the prevention of abuse and protection of children's rights is not adequate. Care and response services for the victims are very limited and suffer from a lack of sufficient professional skills. The number of reported cases of sexual abuse and paedophilia remained approximately the same, but reported cases are considered to be only a small proportion of the total problem. For the first time, the Ombudsman investigated the trafficking of children inside and outside the country. Street children, almost exclusively Roma, remain a phenomenon often linked to begging. Strategies need to be developed and implemented to further engage them in the educational system. There is a pressing need to employ specialised staff as psychologists and educational specialists dealing with children with disabilities.

Concerning socially vulnerable persons and/or persons with disabilities, efforts have been made towards deinstitutionalisation, such as including civil society in the provision of mental health care services and opening further communal housing units. However, material conditions and inhumane and degrading treatment in psychiatric institutions, notably Demir Kapija, Demir Hisar and Negorci, remain a concern. The implementation of the national strategy on equality of rights of people with disabilities 2010-2018 has not progressed. Overall, social integration of people with disabilities remains limited.

Some progress can be reported in the area of anti-discrimination policies. The Commission for protection against discrimination has become operational and has started to act on the complaints submitted. The majority of the complaints were on political and ethnic grounds. However, the law on anti-discrimination remains to be fully aligned with the acquis. Discrimination on grounds of sexual orientation is still omitted. Also, the capacities of the Commission need to be strengthened. The Lesbian, Gay, Bisexual and Transgender (LGBT) community continue to be subjected to discrimination and stigmatisation. University and high school text books treat homosexuality as a disease. There is a major need to raise awareness not only of the new provisions contained in the enacted law, but also with reference to the principles of respect and tolerance of diversity.

As regards labour and trade unions rights, there are 39 trade unions listed in the register of the Ministry of Labour and Social Policy and 7 employers' associations. The criteria for representative participation of social partners in the bipartite and tripartite social dialogue provisioned in the labour law were implemented. The signing of collective agreements in the public sector by the trade unions was initiated. However, the capacity of social partners has not improved, as trade unions still do not have stable finances and management capacity. Participation by social partners in the policy development process continues to be weak. Bipartite and tripartite social dialogue has not improved.

As regards property rights, the process of returning property confiscated during the period of the Socialist Federal Republic of Yugoslavia continues to extend substantially beyond the legal deadlines. The Constitutional Court annulled the retroactive effect of the amendments to the Law on denationalisation. Return of property was substituted by reimbursement in bonds. The Constitutional court also annulled the provisions of the Law on denationalisation that excluded its applicability to religious communities. The enforcement of restitution claims for which a final decision has been taken remains unsatisfactory. The backlog of property dispute proceedings continued to cause delays.

Overall, social and economic rights are broadly in place, and some further progress was made. Awareness of domestic violence among the population improved. New criteria for representative participation of the social partners were implemented. The National Council for Prevention of Juvenile Delinquency and the Commission for protection against discrimination have become operational. The law on anti-discrimination remains to be fully aligned with the acquis, notably as regards discrimination on grounds of sexual orientation. The capacity of the anti-discrimination Commission needs to be strengthened.

Respect for and protection of minorities, cultural rights

As regards minorities, the 10th anniversary of the Ohrid Framework Agreement (OFA) provided an important opportunity for enhanced dialogue between the communities in the country. The President of the Republic and the Prime Minister both participated in events marking this milestone. An institutional framework has been developed to protect the rights of minorities and to support inter-ethnic dialogue.

The current Secretariat for the Implementation of the Ohrid Framework Agreement (SIOFA) strategic plan embraces a more comprehensive understanding of different policy aspects deriving from OFA, such as integrated education, use of languages, decentralisation and cooperation with civil society. The SIOFA budget for 2011 was significantly increased.

However, SIOFA faced problems in recruiting sufficiently qualified senior staff. Limited funds were allocated to increase its capacities and efficiency. SIOFA strategic planning capacities and internal control standards remained low.

Some progress was made in the implementation of the Law on the use of Languages spoken by at least 20% of the citizens. In parliament, implementation of the Law on Languages made headway, with the recruitment of more skilled translators and interpreters.

However, no clear mechanism for the overall monitoring and assessment of the implementation of the Law on languages has been established to date. Some institutions continue to face a shortage of qualified and experienced interpreters. Optional teaching of the languages of smaller ethnic communities is not equally available because of the limited availability of textbooks and the shortage of qualified teachers.

Efforts were made to promote and implement the Strategy on Integrated Education, in close cooperation with the OSCE. An inter-ministerial coordination working group was established. There are close consultations with the international donor community on the implementation and concrete planned activities of the strategy in order to guarantee efficiency and avoid duplication. However, the Ministry of Education and Science lacks the human and financial capacities necessary to support the implementation of the strategy. Despite government efforts to promote the principles of integrated education, the practice of separating pupils along ethnic lines or language shifts continued in a number of schools. Cases of inter-ethnic violence in secondary schools persisted.

Inter-ethnic relations were strained by certain incidents. The urban plan 'Skopje 2014' created inter-ethnic sensitivities. Members of non-majority communities complained about the neglect of their respective historical and cultural monuments. In February the construction of a museum in the shape of a church inside the Kale fortress in Skopje led to a violent confrontation between members of the two main ethnic communities. The direct involvement of politicians of one of the parties of the government coalition in the events caused concern.

Committees for relations among communities were established in the 20 municipalities where they are required by law, as well as in 14 other municipalities on a voluntary basis. A small number of them improved their capacities and visibility among their community. However, the majority of them continue to face lack of resources, unclear competencies and insufficient representation of ethnic communities living in the municipality.

The administrative capacities and visibility of the agency for protecting the rights of minorities which represent less than 20% of the population have increased slightly. However, due to an unclear mandate and significant reduction of the budget in 2011, the Agency is unable to accomplish most of its tasks defined by the law.

The overall number of civil servants from the non-majority ethnic communities reached 30%, which is broadly in line with the demographic structure. Efforts were made to increase the representation of the smaller communities in the civil service, notably the Roma and the Turkish community. In 2010 there was a 46% increase of members of Roma and a 12% increase in the Turkish community. However, more efforts are needed in order to improve the quality of the recruitment process. A large number of newly recruited civil servants received salaries, even though they were not assigned any tasks or responsibilities. Representation of the non-majority communities at senior level remains very low.

Some progress can be reported in the area of Roma inclusion. In July, the country took over the one-year Presidency of the Decade of Roma Inclusion. It also held a seminar with the European Commission which adopted new recommendations for action and agreed to meet regularly to monitor progress. Efforts were made to implement the action plan for education by carrying out projects in the area of education and in the social sphere. Enrolment rates of Roma children in secondary and university education steadily increased. Changes were made in the law on social protection in order to address the over-representation of Roma in special schools for children with learning disabilities. The Roma health mediator programme was initiated in 8 municipalities.

Some active labour market measures targeting Roma continued to be implemented. Despite budgetary restrictions the financial support for Roma programmes was maintained at the 2009 and 2010 levels.

However, no measures were taken to systematically address the issue of personal documents, which represents a major obstacle to accessing social, housing and health benefits. Also, Roma children continue to be over represented in classes for children with special educational needs. A recent report concluded that about half the children were Roma whereas they make up only 2.6% of the population. This is not inline with ECtHR judgements which reaffirm the right of Roma children to non-discriminatory schooling. The pace of implementation of the Roma Strategy and the action plans in the framework of the 2005-2015 Decade of Roma Inclusion, which had reached its halfway point, continued to slow down. There are no clear evaluation and monitoring mechanisms in place. State funds allocated to the implementation of the Action Plans remain insufficient to meet the needs. There was no improvement in the administrative capacities of the office of the Roma minister without portfolio and of the unit for implementation of the Roma Strategy. No significant steps were taken to produce official data on Roma.

High unemployment rates persist, especially among Roma women and youth, and lead to precarious housing and living conditions, poor health as well as low school attendance, low income and high mortality rates among Roma.

Allegations of police brutality and excessive use of force towards the Roma continued. Many Roma are reluctant to lodge complaints, especially when ill treatment by police is involved.

In June 2011, there were 1,554 refugees and internally displaced persons (IDPs) in the country, the majority of whom continue to be Roma from Kosovo; of these only 24 were recognised refugees and a long term solution for the remainder needs to be found. The government provides some financial assistance to Roma refugees from Kosovo. Positive decisions have been adopted by the Administrative Court in judicial review and appeal procedures. These decisions continued to be handed down on procedural and not on substantive grounds. However, the mechanism for determining refugee status still faces shortcomings. Roma refugees from Kosovo continue to encounter particularly difficult conditions.

The number of registered IDPs decreased from 621 in 2009 to 611 in 2010. The majority of the complaints lodged by IDPs against the State for damage caused by the 2001 conflict are still pending in court.

Overall, some progress was achieved as regards the respect for and protection of minorities and cultural rights. The Ohrid Framework Agreement continues to be an essential element for democracy and rule of law. In parliament, implementation of the Law on Languages moved forward. Representation of the Roma and Turkish community in the civil service increased. The integration of the Roma in the education system improved, with increased enrolment in secondary and university education. Continued dialogue amongst all the communities is necessary in order to foster trust, especially in the areas of education, culture and language. Roma continue to face very difficult living conditions and discrimination and additional efforts are necessary.

2.3. Regional issues and international obligations

The former Yugoslav Republic of Macedonia continues to cooperate fully with the International Criminal Tribunal for the former Yugoslavia (ICTY). There are no remaining cases or appeals pending in The Hague. The four cases that the ICTY transferred back to the national authorities in 2008 reached the domestic court system. In July the Parliament adopted an Authentic Interpretation of the Amnesty Law which stated that the amnesty should cover the suspects of all cases that will not be processed by the ICTY. Consequently, in September, one of the cases was dismissed by the Criminal Court in Skopje at the request of the Public Prosecution. It was also stated in the hearing that injured persons in the case could demand compensation through a separate lawsuit. The status of the other case files remains to be determined. Ethnic Albanian political parties assert that all the cases are covered by the 2002 Amnesty Law.

The former Yugoslav Republic of Macedonia has aligned with the Council Decision advancing universal support for the International Criminal Court and promoting the widest possible participation in it[5]. However, it still maintains the 2003 bilateral immunity agreement with the United States granting exemptions for US citizens from the jurisdiction of the International Criminal Court. This does not comply with the EU Common Positions on the integrity of the Rome Statute or the related EU guiding principles on bilateral immunity agreements. The country needs to align with the EU position.

Regional cooperation and good neighbourly relations form an essential part of the country's process of moving towards the European Union. The country remained fully engaged in regional initiatives, including the South East European Cooperation Process (SEECP), the Regional Cooperation Council (RCC), the Central European Free Trade Agreement (CEFTA), the Energy Community Treaty and the European Common Aviation Area Agreement. The country signed the additional protocol for further liberalisation of agriculture under the CEFTA agreement. The country continued to contribute to the EU ALTHEA mission in Bosnia and Herzegovina. In March, within the framework of the SEECP, the former Yugoslav Republic of Macedonia endorsed the Regional Strategic Document and Action Plan on Justice and Home Affairs 2011-2013. The country supports the RECOM initiative on reconciliation.

The former Yugoslav Republic of Macedonia continues to play a constructive role as regards bilateral relations with neighbouring Member States and other enlargement countries. Relations with Albania remained good and an agreement for full liberalisation of bilateral and transit transportation between the two countries was signed. Relations with Bosnia and Herzegovina continued to be good and negotiations started on agreements on cooperation in the field of health and medical sciences, mutual enforcement of court decisions in criminal matters and on legal aid in civil and criminal matters. Relations with Croatia remained good. As regards Montenegro, agreements were signed for economic and social cooperation, and for cooperation in the fields of education, science and technology, and on extradition of citizens involved in organised crime, corruption and money laundering. Furthermore, a bilateral investment protection agreement and an agreement for coordination of social security systems were concluded.

Relations with Serbia remained good. A bilateral readmission agreement was signed. Furthermore, a protocol for joint border patrols was signed and a joint contact centre for the police and border patrol was established. The country provided humanitarian assistance to Serbia after the Kraljevo earthquake. Serbia continued to maintain its policy of non-recognition of the border demarcation agreement between the former Yugoslav Republic of Macedonia and Kosovo. Unresolved issues remain concerning relations between the Orthodox churches.

Relations with Kosovo intensified further. An agreement for customs cooperation envisaging the setting-up of a joint customs checkpoint in line with European standards, an agreement for avoidance of double taxation, and three agreements on criminal law matters were signed. Joint monitoring patrols along the border have been launched.

The close political and economic cooperation with Turkey was maintained.

Relations with Greece remained close, particularly in the economic sphere, but they continued to be adversely affected by the unresolved name issue. The country remains engaged in talks, under the auspices of the UN, as well as through direct meetings of the prime ministers, in order to resolve it. The government erected a statue in the centre of Skopje which was seen by Greece as a provocation because of its resemblance to Alexander the Great. Actions and statements which could adversely affect good neighbourly relations should be avoided. The hearings started on the legal proceedings initiated by the country against Greece before the International Court of Justice in The Hague regarding the bilateral interim accord of 1995. Maintaining good neighbourly relations, including a negotiated and mutually acceptable solution to the name issue, under the auspices of the UN, remains essential.

Relations with Bulgaria have remained good. The law ratifying the agreement on economic cooperation between the two countries was enacted. A joint police and customs cooperation centre was established and a protocol for joint border patrols was signed. In September the countries also signed a memorandum of cooperation on European and Euro-Atlantic integration. Ethnicity-based issues continue to be an area of concern.

Overall, the former Yugoslav Republic of Macedonia is a constructive partner in the region. Bilateral relations with neighbouring and other enlargement countries continued to improve. The name issue continues to affect relations with Greece.

3. Economic criteria

In examining economic developments in the former Yugoslav Republic of Macedonia, 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

A broad consensus regarding the fundamental features of the country's economic policy setup has been maintained. A number of programmes describe the medium-term policy framework. In January 2011, the authorities submitted their fifth Pre-accession Economic Programme, which presented a feasible, albeit sometimes optimistic macroeconomic and fiscal framework and displayed improved drafting capacities. The authorities adopted a public investment programme for 2011-13, a fiscal strategy for 2011-2013 and a public debt strategy for 2011-13. In late 2010, the government agreed with the IMF on a pre-cautionary credit line. This was aimed at strengthening international markets confidence. Communication with the business community has improved and a number of economic and financial committees have been established to improve the economic dialogue. Cooperation with the World Bank and other IFIs continued. Structural reforms were further pursued in a number of areas. Overall, a broad political consensus on the fundamentals of economic policy has been maintained.

Macroeconomic stability

Real GDP rose by 1.8% in 2010, compared to a decrease of 0.9% the previous year. In 2011, output continued growing by 5.2% in the first half of the year. The main sources for growth shifted from net exports in the first half of 2010 and the first quarter of 2011. In the second quarter of 2011, private consumption was the main driver for growth, increasing by 8.4% year-on-year, while equipment investment declined by 7.5%. As a result of the drop in investment, import growth slowed down in the second quarter, from 36.5% in the first quarter to 4.5% in the second. Export growth also decelerated, from 34.8% in the first quarter to 8.9% in the second. The strong growth in the half quarter of 2011 reflects a weak base in the previous year. The performance of industrial production and retail trade points to a marked year-on-year acceleration in the first half of 2011. Industrial production recovered in the first seven months of 2011, rising by 8.6% compared to the same period the year before. However, the overall level of industrial production is still lower than before the crisis. Average per capita GDP remained largely stable in 2010, at 35% of the EU-27. Overall, economic activity started to regain strength and depth since autumn 2010. However, government spending for construction played an important part in the strong rise of gross fixed capital formation.

The current account deficit widened, reflecting increased domestic economic activity. After a decline from -6.7% of GDP in 2009 to -2.8% in 2010, the mid-2011 current account deficit rose to some 3.5% of the estimated GDP of 2011. Higher imports were the main reason for the increase in the trade deficit. However, the rise in the current account deficit was accompanied by an even bigger increase in capital inflows, accounting in June 2011 to some 4.5% of the estimated annual GDP. The two main sources were capital inflows related to the partial use of the IMF pre-cautionary facility, amounting to some 3% of the estimated GDP and FDI inflows, which in the first quarter of 2011 were significantly higher than a year before. However, in the second quarter, FDI inflows were less buoyant, bringing the FDI inflows during the first half of 2011 to 2% of the estimated GDP for 2011.

Gross external debt was about 60% of GDP in the first quarter of 2011, compared to 56% of GDP a year before. The main source for the increase was public debt, which contributed 2.6 percentage points of GDP to the increase. Private bank lending pushed up the external debt ratio by 1.4 percent points. Foreign reserves rose to €2.0 billion (29% of GDP) in August, reflecting a marked increase in FDI inflows, but also the partial drawing of the country's pre-cautionary credit line with the IMF. As a result, the reserve coverage of prospective imports recovered to close to three and a half months, although the strong increase in imports limited the improvement. Overall, external accounts registered a marked increase in the current account deficit, although this was more than offset by higher capital inflows, in particular FDI, but also by loans from the IMF and other international financial institutions.

Unemployment was very high during 2010, at 32% on average. In 2011, the labour market situation improved slightly, as unemployment fell to 31.4% in the first quarter of 2011. Employment increased by 5.5% year-on-year in the first quarter of 2011, (i.e. by 34,000 persons), compared to a decline of 0.4% in the previous year. The main sectors where there were employment gains were agriculture, but also manufacturing. However, new employment in agriculture is largely due to new registrations of subsistence farmers. The number of unemployed persons fell by 4.8% in the first quarter of 2011, i.e. a drop of 15,000. There is a positive trend in youth unemployment (age bracket 15-24 years), falling from 57.1% in the first quarter of 2010 to 52.5% in the first quarter of 2011. Youth unemployment as a share in total unemployment dropped from 20.1% in 2010Q1 to 17.7% in 2011Q1. A key factor for this decline was a big reduction in youth unemployment among women. Furthermore, easier access to higher education courses helped reduce unemployment rates. Even though the existence of a substantial informal sector means that actual unemployment may be overstated, the very high unemployment remains an important issue, in particular among young people and the less educated. Overall, the situation in the labour market has improved slightly, but unemployment continues to be very high, particularly among the young and less well educated.

Monetary policy cautiously supported the gradual recovery, while the exchange rate policy remained oriented towards maintaining price stability and the de facto peg to the euro. The Central Bank has continued to lower its key policy rates, such as the rate on 28-day Central Bank bills from 4.5% to 4.0%. Overall, the exchange rate policy and monetary policy have remained sound.

Inflation accelerated in the last quarter of 2010, reaching 3.0% at the end of the year, while the annual average in 2010 was 1.6%, as compared to -0.8 % in 2009. The main factors driving the strong increase towards end-2010 were higher prices for energy, base metals and food. During the first three months of 2011, consumer price inflation continued to accelerate, driven by prices for food and transport services. However since then, inflation has been slowing down, declining to 3.6% in August. This brought average inflation to 4.2 for the first eight months of the year. Core inflation, which excludes the impact of energy and food prices on the overall price level, was close to zero in 2010, but increased to around 1.3% in the first five months of 2011.

The overall fiscal policy stance has been oriented towards achieving the deficit targets. In order to reach the 2.5% deficit target for 2010, the authorities responded to lower than anticipated revenues by reducing spending on goods and services and strongly limiting the planned increase in capital spending. Consequently, the 2010 deficit target of 2.5% of GDP was reached, although revenues were 7.8% lower than envisaged. The deficit target for 2011 is 2.5%. In the first seven months of 2011, revenues as a share in GDP were on a similar level as a year before, while spending was slightly higher. This brought the accumulated central government deficit in July to about 2% of the year's estimated GDP, compared to a deficit of 1¼% of GDP the year before. However, a part of this increase reflects front-loaded spending, mainly in construction, related to early elections in June. The authorities have a solid track record of meeting prudent fiscal target. However, the quality of public spending suffers from still weak planning capacities and short-term oriented spending decisions, which delay the accumulation of productive investment. Higher deficits, but also increased public spending financed by debt, contributed to an increase in the public debt ratio, from 31.9% in December 2009 to 35.7% in December 2010.

Fiscal decentralisation has continued. By mid-2011, 79 out of 85 municipalities have advanced to the second stage of decentralisation. Furthermore, additional measures have been taken to strengthen the fiscal viability of indebted municipalities. The efficiency of the public administration still suffers from insufficient staffing, lengthy procedures, a high degree of political interference leading to high turnover of qualified staff. Overall, fiscal policy was oriented towards achieving its fiscal target, despite lower than expected revenue performance. The spending profile maintained its focus on transfers, although lowering its current spending for goods and transfers. Capital spending was raised slightly, however the growth and employment stimulating effect of this investment was reduced by the high import content of the spending.

As in the past, the overall macroeconomic policy mix was largely sound, Monetary conditions were still relatively favourable to growth, while taking into account the country's policy of a de facto peg to the euro. Public spending was largely kept in line with revenues. The structure of spending was broadly maintained, focussing on transfers, with a small increase in capital investment and a further reduction in current spending for goods and services. However, some of the capital investment could have been spent in a more growth supportive manner. Overall, the general policy mix continued to be sound, remaining stability oriented while trying to support the recovery. However, the quality of public finances has not improved significantly and the issue of high unemployment, in particular among the young, remains a major policy challenge.

Interplay of market forces

Privatisation is largely completed and the economy is mainly driven by market forces. The share of state activities has remained largely unchanged, however, largely as a result of a fall in private activities, the share of the private sector declined, from 87% of total value added in 2008 to 86% in 2009. In terms of employment, the share of private sector employment dropped from 77.8% in 2009 to 77.2% in 2010. The share of administered and regulated prices in the CPI basket was down from 14.4% in 2009 to 13.1% in 2010, partly due to changes in the CPI basket. Most of those administered and regulated prices are cost recovering. The asset value of fully or partly state-controlled companies has remained at around 13.5% of GDP. The majority of this capital - nearly 80% - is concentrated in five companies, mainly public utilities such as the production and transmission of electricity, where the state is majority owner and telecommunication, where the state is a minority owner in the highly profitable incumbent telecom company. Overall, as a result of the crisis, the role of the state has increased, while state ownership has remained concentrated mainly on telecommunication, energy and public utilities.

Market entry and exit

The government has continued taking steps to facilitate market entry and exit. The second phase of the 'one-stop-shop' has been completed, improving in particular the possibilities for the electronic registration of mortgages, bankruptcy proceedings, documentation delivery etc. The costs of registration have been reduced further. The implementation of the third phase of the so-called 'business guillotine' aimed at simplifying regulation has continued. Contact with the business community was strengthened. The process of closing down unviable companies has continued. In the second half of 2010, the number of bankruptcy procedures was about one quarter higher than a year before. However, during 2011, the number of new bankruptcies has declined again towards pre-crisis levels. As a result of the rapid increase in the number of bankruptcy procedures, the backlog of pending bankruptcy procedures has increased in the second half of 2010, from 338 cases at the end of 2009 to 358 cases at the end of 2010. There is still room for a further shortening of bankruptcy procedures. Overall, some further progress has been achieved in reducing barriers to market entry and exit.

Legal system

The legal system for a functioning market economy is largely in place. Steps have been taken to increase the efficiency of courts, to improve the transparency of court decisions, to accelerate legal procedures and to improve enforcement of contracts, for example by transferring jurisdiction on payment orders to notaries. The registration of real estate ownership rights is practically completed. The number of pending court cases has been reduced from 6014 cases end-2009 to 5492 cases end-2010. Furthermore, the duration of court procedures has been reduced, with the percentage of cases solved within three months rising from 25% in 2009 to 36% in 2010, while the percentage of cases lasting more than one year has declined, from 17% in 2009 to 13% in 2010. Contract enforcement is still difficult, hampering the business environment, in particular for small-and-medium-sized enterprises. The introduction of electronic procurement has increased the transparency of public spending. However, despite strengthened legal and financial independence of regulatory and supervisory bodies, the administrative capacities and the enforcement record of some of those institutions, such as the railway regulatory agency, the energy and the telecom regulators, the agencies regulating and supervising the fully funded pension funds and the securities and exchange commission still need to be strengthened. Overall, the functioning of the legal system has improved, which should have a positive impact on the business and investment climate. However, weaknesses in the rule of law, particularly in the judiciary, which is characterised by slow procedures, insufficient resources and unreliable enforcement of contracts, and the prevalence of corruption, continue to adversely affect the business environment.

Financial sector development

The financial sector's significance and its intermediation function has increased, reflecting additional capital from foreign investors but also increased deposits and lending. In the banking sector, total assets as a share of GDP were up from 67% mid of 2010 to 69% of the estimated GDP by mid 2011. Credits as a share of GDP increased from to 43.5% in October 2010 to some 45% of the estimated GDP end of August 2011, while the level of deposits rose from 48% end of October 2010 to around 50% of the projected GDP in August 2011. Deposits continue to be the sector's main source of liquidity. The coverage of loans by deposits is still above 100%. The sector continues to be predominantly owned by foreign companies with 14 out of 17 banks dominated by foreign owners. The share of foreign ownership has increased from 68.6% end of 2009 to 78% mid of 2011. The share of state ownership in the sector remains low, at 7% of the sector's assets. The main state asset is the majority share in the country's only development bank and a limited number of remaining minority shares. Market concentration remains high, but has decreased slightly during the past year. The assets of the five biggest banks as a share of total assets declined only marginally, from 77.4% end of 2009 to 77.2% end of 2010. However, the three biggest banks lost some market shares to medium-sized banks. The efficiency of the banking sector has remained largely unchanged. Profitability of the sector as a whole remains low, with slightly negative returns-on-assets and equity in the first quarter, and slight profits in the second quarter (0.2% return-on-assets, and 2.1% return-on-equity). However, larger banks performed better than smaller ones. Credit growth accelerated since autumn last year, reaching some 8% in August. Private-sector weighted interest rates declined following their peak in the last quarter of 2009. Rates for denar loans declined from 9.2% in September 2010 to 8.9% in July 2011, while the rates for denar deposits declined from 6.8% to 5.8%. As a result of the faster decline of deposit rates, spreads widened from 2.4 percentage points in September 2010 to 3.1 percentage points in July 2011. Financial stability has been maintained, with sound liquidity, solvency and capital adequacy ratios. The share of non-performing-loans has started to decline again, from a peak of 10.6% in September 2010 to 9.3% by end-June 2011

Banking regulation and supervision is largely in line with international standards. However, the proper functioning of regulatory and supervisory agencies, such as the Agency for the supervision of fully funded pension insurance (MAPAS) or the security exchange commission (SEC), is still hampered either by still insufficient financial independence and/or by insufficient human and IT resources. Furthermore, sometimes institutional competences are not sufficiently defined. As a result, the leverage of those institutions has not yet reached an adequate level. Transparency of the credit market has improved through the establishment of a private credit bureau, providing credit history reports.

The relevance of other financial market intermediaries is limited, with assets accounting for some 10% of the financial sector's assets or some 8% of GDP. Insurance institutions account for some 4% of the sector's assets, while leasing companies and pension funds account for about 3% each. The value of the capital market accounts for some 30% of GDP

Overall, the financial sector continued its gradual process of deepening and widening. However, the level of financial intermediation and competition in the market are still low, impeding more dynamic growth in the private sector, particularly for SMEs. Furthermore, some regulatory and supervisory agencies have not yet reached a sufficient level of independence, resource endowment and leverage.

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

Existence of a functioning market economy

Overall, macroeconomic stability has been maintained despite the continued global economic turbulence. Market entry and exit procedures have been improved and the rule of law has been strengthened. However, structural imbalances on the labour market are still very pronounced and the business environment is still suffering from slow judiciary, and a number of weak and not fully independent regulatory and supervisory institutions.

Human and physical capital endowment

The level of human capital endowment is still low. The authorities continued to improve both the physical infrastructure for education and the regulatory framework in order to improve the performance of the educational system. The number of teachers was increased by 4.4% in 2010, in particular in primary and lower-secondary schools. Enrolment rates have been improved. Budgetary allocations for education were marginally increased, from 3.7% of GDP in the 2010 budget to 3.8% in the budget for 2011. As in the past, spending has been focused on renovation and construction of school buildings and the purchase of IT equipment. Despite continued efforts, the overall level of education and training of the labour force is still relatively low and the mismatch of skills is still substantial. There remains significant room for improving the efficiency of public spending on education and for raising the quality of education. Overall, measures to improve the level of qualification have continued. However, the still low level of education calls for further sustained efforts in order to improve the country's human capital endowment.

The country's capital endowment continues to be relatively low and its quality is hampered by previous decades of underinvestment. The low level of education and the weak capital endowment contribute to a low general level of productivity. Some further progress has been made on improving transport infrastructure. Gross fixed capital formation showed a marked acceleration in the second half of 2010 and in particular in the first quarter of 2011. However, overall investment levels in 2010 and early 2011 were still lower than a year before. The stock of foreign investment stands at 51% of GDP. Foreign direct investment inflows increased markedly in the fourth quarter of 2010 and the first quarter of 2011, but were less buoyant in the second quarter. Overall, the interest of foreign investors in the country has improved. In some cases, persistently slow legal procedures, such as those involving work permits for foreign employees, or fragmentation of responsibilities between central and local governments continue to be an impediment to FDI. Spending on strengthening the knowledge-based economy has remained low. The accumulation of the public capital stock is impeded by weak implementation capacities, but also the use of funds for less productive purposes, such as the beautification of the capital. Overall, the country's capital stock continued to be low. Infrastructure improved, but it continues to require repair and modernisation.

Sectoral and enterprise structure

There were no major changes in the area