EN

Brussels, 14.10.2009

COM(2009) 533 final

COMMUNICATION FROM THE COMMISSION TO

THE EUROPEAN PARLIAMENT AND THE COUNCIL

Enlargement Strategy and Main Challenges 2009-2010

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COMMUNICATION FROM THE COMMISSION TO

THE EUROPEAN PARLIAMENT AND THE COUNCIL

Enlargement Strategy and Main Challenges 2009-2010

1. Introduction

The fifth enlargement of the EU has helped to consolidate democracy and the rule of law in Europe. It has enhanced economic opportunities and increased the weight of the EU in tackling global challenges such as climate change, competitiveness and the regulation and supervision of financial markets. Over the last five years, the enlarged EU has demonstrated its capacity to work together to address the important challenges it faces. Enlargement is one of the most effective foreign policy instruments of the EU.

The European Union’s current enlargement process takes place against the background of a deep and widespread recession. The crisis has affected both the EU and the enlargement countries. Over the same period, the EU has received three new applications for membership by Montenegro (December 2008), Albania (April 2009) and Iceland (July 2009). These applications further demonstrate the EU’s power of attraction and its role in promoting stability, security and prosperity.

Progress with reforms in the enlargement countries has allowed them to move through successive stages in the accession process. Accession negotiations with Croatia are nearing the final phase. Accession negotiations with Turkey have reached a more demanding stage requiring a new impetus for reform. The former Yugoslav Republic of Macedonia has made significant progress in meeting key challenges. The Commission is preparing an opinion on the application for membership from Montenegro. It is also preparing an opinion on the application of Iceland. It stands ready to prepare an opinion on the application from Albania, once invited to do so by Council. For all the Western Balkans countries concerned, further progress could result in the countries being granted candidate status when they have demonstrated their readiness.

The countries of the Western Balkans and Turkey have still, to different degrees, substantial work ahead in meeting the established criteria and conditions. The pace of reform is often slow. The international economic crisis adds to the strains. In several cases, bilateral questions unduly affect the accession process.

In the light of these challenges, the renewed consensus on enlargement, as agreed by the December 2006 European Council, continues to provide the way forward. This policy is based on the principles of consolidation of commitments, fair and rigorous conditionality and good communication with the public, combined with the EU’s capacity to integrate new members. The EU has improved the quality of the enlargement process. In particular, greater focus is now given at an early stage to the rule of law and good governance.

The accession process provides strong encouragement for political and economic reform. It is in the EU’s strategic interest to keep up the momentum of this process, on the basis of agreed principles and conditions.

The EU’s enlargement policy allows for a carefully managed process where candidates and potential candidates approach the EU in line with the pace of their political and economic reforms as well as their capacity to assume the obligations of membership in accordance with the Copenhagen criteria. In the Western Balkans, regional cooperation remains key and constitutes a central element of the Stabilisation and Association Process.

The Treaty of Lisbon reforms the enlarged Union’s institutions to enable it to adapt its policies to a fast-moving world. In particular in relation to enlargement, the Treaty will ensure an institutional framework that should allow a smooth adaptation of the Union’s institutions once a new Member State joins the EU, and will amend the accession procedure, whereby the European Parliament and national parliaments will be notified of applications for membership.

The establishment of a visa-free regime for the former Yugoslav Republic of Macedonia, Montenegro and Serbia at the beginning of 2010, based on the Commission's proposal, will demonstrate that reforms bring tangible benefits for citizens. The Commission will table similar proposals for Albania and Bosnia and Herzegovina by mid-2010, provided these countries meet the conditions set.

As regards the Cyprus issue, the leaders of the Greek Cypriot and Turkish Cypriot communities are entering a decisive phase of negotiations on a comprehensive settlement under the auspices of the United Nations. The Commission supports their efforts and provides technical advice on issues within EU competence.

The present communication sets out the progress made and the key challenges faced by the countries engaged in the enlargement process. It outlines the Commission’s approach to guiding and supporting their efforts in the coming year. In addition, in an accompanying document, the Commission sets out a path for Kosovo [1], to further progress towards integration with the EU, in line with the European perspective of the region.

2. Key challenges

The following section addresses key issues that currently affect the enlargement process. The EU, through its enlargement policy, can help tackle these challenges but the prime responsibility remains with the countries concerned.

Economic crisis

The global recession has affected, to different degrees, the economies of the Western Balkans and Turkey. The EU is assisting the enlargement countries to alleviate the impact of the crisis and pave the way for sound recovery, in coordination with the International Financial Institutions (IFIs).

Economic activity in the Western Balkans and Turkey has contracted sharply since the second half of 2008, following reduced demand for their exports, less foreign direct investment and lower cross-border lending. Fiscal positions deteriorated in all economies. Unemployment, already high in several countries, started to rise further. The economic downturn in the Western Balkans and Turkey in 2009 is of the same magnitude as the EU average, but less severe than in the EU Member States that were most affected. However, in all countries the macroeconomic situation remains fragile.

The Western Balkan countries have limited scope for a strong domestic macroeconomic policy response to the crisis. There are significant constraints on monetary and fiscal policy measures because of previous pro-cyclical fiscal stances, foreign currency denominated credits and mortgages and large external imbalances. In these circumstances, the response to the crisis has by and large been appropriate in most countries of the region despite in some cases an initial lack of acknowledgement of the severity of the challenge. The perspective of EU accession has helped to retain confidence in the economies in the Western Balkan region and provided an anchor for economic policies in the recent turbulent period. At the same time some enlargement countries were able to reap the benefits of structural reforms introduced over recent years, which helped to attenuate the crisis. Improved financial regulation, for example in Croatia and Turkey, contributed to banking sector stability and resilience. Serbia and Bosnia and Herzegovina obtained IMF support, as in both countries external imbalances widened and public finances were particularly affected, due to previous expansionary policies.

The unfolding of the crisis in the enlargement countries, particularly its impact on the real economy, including on the employment and social situation, is continuing. Recovery will take time, as economic activity in the main trading partners is projected to pick up only slowly. Capital inflows to stimulate domestic demand are likely to remain subdued. Short-term measures have been taken to mitigate the social impact of the crisis for the most vulnerable parts of society. In the medium term, ensuring a sound fiscal policy is of great importance, with emphasis on more efficient and effective public spending and on investment. Employment policies and social protection measures are needed to address structural unemployment and protect vulnerable groups.

The response to the crisis needs to take into account the need for sustainable development and the challenge posed by climate change and give priority to measures leading to a safe and sustainable low-carbon economy. EU related reforms contribute to enhanced competitiveness and openness and to a legal framework conducive to trade and investment. Measures to consolidate the rule of law, including the fight against corruption, are essential for improving the business climate.

Regarding the EU's support, pre-accession assistance has been programmed to support the banking sector, infrastructure projects, SMEs and job creation, including in rural areas. € 200 million in grants from the Instrument for Pre-accession Assistance (IPA) have been allocated for this purpose, which will leverage investments for at least € 1 billion, co-financed by IFI loans. The Commission has proposed that the co-financing requirement for beneficiary countries in IPA assistance be reduced. The Commission provided direct budget support through IPA to Serbia to mitigate the effects of the financial and economic crisis. In addition, the Commission proposed to the Council to approve a macro-financial assistance in the form of a € 200 million loan to Serbia. These possibilities are open to the other countries, if needed. In both cases the financial assistance is conditional, including upon an agreement with the IMF on sound macroeconomic policies. The Commission works closely with the IFIs, which have committed themselves to increase their lending to the Western Balkans and Turkey to more than € 5 billion in 2009.

Rule of law

The Western Balkans and Turkey continue to face major challenges related to the rule of law, in particular the fight against corruption and organised crime. These issues are key for a functioning democracy and economy and largely condition the EU accession process. They also affect, sometimes in a disproportionate way, public perceptions of enlargement in the EU. Substantial efforts are being made in the enlargement countries to address the problems. The Commission will continue to use the full potential of the enlargement process to support this work and monitor closely the results.

Corruption is prevalent in many areas and affects the every-day life of citizens and the business environment. Areas which require particular attention include public procurement and privatisation, the judiciary, the financing of political parties and transparency in public administration and government. An independent and impartial judiciary and prosecutors specialised in the fight against corruption and related crimes are essential, as are a depoliticised and professional police and administration. Well drafted legislation and effective implementation are needed in areas such as public procurement, intellectual property rights, financial control, audit, and the fight against fraud.

Additional efforts are needed to fight against organised crime which remains a problem throughout the region. Law enforcement agencies will have to become more effective and to work together in order to overcome international criminal organisations.

In line with the renewed consensus on enlargement and taking into account experience from the fifth enlargement, the rule of law is a key priority which needs to be addressed by the countries concerned at an early stage of the accession process. With EU assistance, some progress has been made in putting into place effective legislation and structures to fight corruption and organised crime but rigorous implementation and enforcement of laws are necessary to achieve tangible results. Some € 80 million of IPA assistance in 2009 have been allocated for strengthening the judiciary and law enforcement. The Commission has conducted peer assessment missions with Member State experts on the judiciary, the fight against corruption and organised crime in candidate countries and will intensify such missions. The use of benchmarks in the accession negotiations and the visa liberalisation dialogue has provided incentives for reform.

The Commission has continued its support for regional judicial, police and prosecutor cooperation in the fight against organised crime and corruption. The Western Balkan countries need to enhance judicial cooperation within the region to ensure an efficient functioning of their justice systems. In this regard, addressing the problem of impunity for war crimes and other serious crimes is of particular importance. To this end, the countries should review the existing restrictions in their legal frameworks for extraditions of own nationals and transfer of proceedings.

The Commission will continue to support partner countries in the fight against corruption and organised crime. However, effective and sustainable results can only be achieved with the necessary political will and real commitment by the authorities in the countries concerned. The Commission will rigorously monitor the progress achieved on the ground, focusing on results.

In most enlargement countries, freedom of expression remains an issue of concern. In general, while the main elements of the legal framework for protecting freedom of expression and the media are in place, undue political pressure on media and the rising number of threats and physical attacks against journalists as well as some remaining legal obstacles give rise to serious concern. These issues need to be addressed as a matter of urgency.

Bilateral questions

Bilateral questions, including border issues, are increasingly affecting the enlargement process. Bilateral issues should be resolved by the parties concerned and should not hold up the accession process.

During the reporting period, the border issue between Slovenia and Croatia held back the accession negotiations with Croatia.

The negotiating frameworks with Croatia and Turkey, agreed by all Member States, stipulate that the EU expects candidate countries to resolve any border disputes in conformity with the principle of peaceful settlement of disputes in accordance with the United Nations Charter, including if necessary jurisdiction of the International Court of Justice. Finding mutually acceptable solutions, and concluding agreements, on outstanding issues with neighbouring countries is also part of the Stabilisation and Association Process.

The Commission expects all parties concerned to make every effort towards solving outstanding bilateral issues with their neighbours along these lines. Where appropriate, the Commission is ready to facilitate the search for solutions, at the request of the parties concerned. The agreement in principle between Croatia and Montenegro to settle border demarcation at Prevlaka through the International Court of Justice is encouraging.

All parties involved in such bilateral disputes have the responsibility to find solutions in a spirit of good neighbourliness and bearing in mind the overall EU interests. This will reinforce the effectiveness of the renewed consensus on enlargement which confirms that the pace of a country's progress towards the EU is determined by the pace of its reforms.

Regional cooperation

In recent years regional cooperation in South-East Europe has made important progress and the region has assumed increased ownership of the process. However, regional cooperation is not working as well as it should. Bilateral disputes and disagreements relating to Kosovo unduly affect regional cooperation. The efficiency of regional structures and initiatives also needs to be improved.

Disagreements relating to the participation of Kosovo in regional meetings, initiatives and agreements are becoming an obstacle to regional cooperation. The normal functioning of important structures such as the Central European Free Trade Agreement (CEFTA), the Regional Cooperation Council (RCC) or the Regional School for Public Administration (ReSPA) could be jeopardised, if present practices do not change. The Commission strongly encourages all parties concerned to seek practical and pragmatic solutions in order to ensure the inclusiveness of regional cooperation, without prejudice to the differing positions on the status issue. The track record in pursuing regional cooperation is assessed as part of the Stabilisation and Association Process conditionality in all stages of the enlargement process.

The RCC has been functioning for more than a year as the regionally-owned successor of the Stability Pact operating under the political umbrella of the South-East European Cooperation Process (SEECP). The RCC now needs to enhance its efforts to deliver concrete results. The RCC has a strategic role in developing regional cooperation and in identifying and addressing needs in regional activities and structures. It also has a role to play in the programming of Community assistance related to regional cooperation. The Commission supports the work of the RCC and finances a third of the Secretariat’s budget for the period 2008-2010. The Commission has engaged in a dialogue with the RCC Secretariat on the organisation’s priorities, improvement of its functioning and further development. It is also exploring the arrangements for future assistance and how this could best be used to improve the RCC’s efficiency.

Regional trade is particularly important in the Western Balkans' economic development and for reconciliation. It can also contribute to addressing the impact of the economic crisis. The role of the regional free trade area established through CEFTA is key. Further important steps in trade liberalisation, notably in agricultural trade, have been successfully negotiated in CEFTA but are not in force yet, while work is under way on removing technical barriers to trade. Provisions on diagonal cumulation between the EU and some Western Balkan countries have taken effect, enhancing regional trade integration. However, there is a risk of paralysis of CEFTA due to disagreements over the Kosovo status issue, which is already preventing the adoption of the protocol on agricultural trade liberalisation. Protectionist pressures as a result of the international crisis are on the increase leading to the adoption of certain measures in breach of contractual obligations. This trend should be opposed and such breaches need to be removed.

Regional cooperation has made progress in the areas of energy and transport. The Energy Community is promoting energy sector reform and improving security of supply in the region, while integrating the region into the Community energy market. Negotiations to establish a Transport Community between the EU and the Western Balkans are continuing and should be concluded by the end of this year. The European Common Aviation Area Agreement (ECAA) contributes to the growth of air traffic between the EU and the Western Balkans and gradually integrates them into the EU’s internal air transport market. Regional cooperation in the fields of environment and justice and home affairs is being intensified.

The Regional School of Public Administration (ReSPA) has increased its training activities. Ratification of the International Agreement that establishes its legal personality needs to be pursued as a matter of priority in order to make the school fully operational.

The Commission, in the context of the Ljubljana process, supports the rehabilitation of cultural heritage as an important means for reconciliation also contributing to the development of local economy. At the forthcoming ministerial conference in Ljubljana in November 2009 the Commission will promote further rehabilitation activities.

The Commission will prepare an EU strategy for the Danube region by the end of 2010, following the European Council conclusions of June 2009. The enlargement countries as well as organisations concerned will be closely involved in this exercise. Regarding the Black Sea region Turkey is committed to cooperation in the region and is part of the Black Sea Synergy framework. The Commission supports Turkey's participation in the Black Sea basin co-operation programme under the European Neighbourhood and Partnership Instrument (ENPI).

The Commission will continue its support for regional cooperation activities and structures in the Western Balkans, including through greater involvement of the region in the planning and programming of the multi-beneficiary programme of IPA.

3. Pre-accession instruments: addressing the key priorities

Achieving visa-free travel

The process of visa liberalisation for the Western Balkan countries, in line with the Thessaloniki Agenda commitment, has entered its decisive phase. Visa facilitation agreements have been implemented with all countries concerned since January 2008, in parallel with readmission agreements. The roadmaps adopted in 2008 for each country in the context of the visa liberalisation dialogue proved to be successful drivers for accelerating reforms in the relevant areas, notably document security, border and migration management, and the fight against corruption and organised crime.

Taking account of progress achieved by each country in meeting the relevant benchmarks for visa liberalisation, the Commission proposed in July 2009 that a visa-free regime be established for the former Yugoslav Republic of Macedonia, Montenegro and Serbia. Establishing a visa-free regime by the beginning of 2010 will be an important contribution to people-to-people contacts demonstrating to the citizens of the countries concerned that reforms linked to the European perspective provide tangible benefits. The Commission will table proposals for Albania and Bosnia and Herzegovina, by mid-2010, provided these countries meet the conditions set. The study on Kosovo to be adopted together with this Communication proposes that visa facilitation should continue to be promoted and a process should be launched for Kosovo, aiming at eventual visa liberalisation when the necessary reforms will have been undertaken and the conditions met.

Ensuring the quality of pre-accession preparations

Continued efforts have been made as part of the renewed consensus on enlargement to improve the quality of the process. The rigorous benchmarks laid down as conditions for opening and closing negotiating chapters have proved to be a powerful instrument to ensure compliance with existing contractual commitments and to steer difficult economic, legal and administrative reforms in the negotiating countries, thereby contributing to their early preparations for accession. A study on the financial impact of the accession of Croatia to the EU is under preparation. Future opinions on applications for membership will include estimates of the impact of accession of the applicant on key EU policy areas. Intensive political dialogue is being conducted with the countries to monitor progress, with the Partnerships as main reference documents. Economic dialogue was further intensified in the context of the crisis.

On their side, enlargement countries need to ensure that new legislation is thoroughly prepared, following the necessary consultations with stakeholders, and is properly implemented. An independent, merit-based, transparent and accountable civil service is necessary in order to facilitate the effective implementation of the acquis.

Bringing citizens and administrations closer to the EU

Increased participation of civil society organisations strengthens the quality of democracy and contributes to reconciliation. Their involvement in the reforms undertaken in the enlargement countries contributes to the quality of the accession process, as well as to sustaining public support for accession. The Commission, through the implementation of the civil society facility under IPA, financed the setting up of technical support offices in each beneficiary and an increasing number of short-term visits to EU institutions as well as the participation of some 800 people in workshops in the Western Balkans and Turkey. The Commission will continue to support civil society partnerships giving priority to sectors such as culture, minorities and business associations.

Participation in Community programmes and agencies has proved useful in bringing institutions and citizens of partner countries closer to the EU. The Commission has increased its support for Community agencies to prepare enlargement countries for their participation. Following the introduction of enhanced possibilities for Community co-financing, potential candidate countries joined new programmes. The Commission will continue to support partner countries in building the necessary capacities and resources to ensure successful participation in Community programmes and agencies.

In line with the focus on basic governance issues, the Commission will continue to pay close attention to the existence of a professional and functioning public administration. It will further encourage the exchange of best practices and the sharing of expertise between countries in the field of public administration reform. To this end it will make use of all available instruments, including Twinning, TAIEX and SIGMA [2], and enhance contacts with other international organisations and national, regional and European training institutes for public administration.

Supporting the enlargement countries through financial assistance

In 2009, assistance continued to be provided to the Western Balkans and to Turkey through the Instrument for Pre-accession Assistance. € 1.5 billion will be committed in 2009. Particular emphasis is given to state building, good governance, the rule of law, and civil society development. IPA has continued to support cross-border cooperation and sustainable development in border areas, contributing to reconciliation and good neighbourly relations, and to EU accession preparations. The Commission will continue to focus its assistance to support pre-accession preparations based on the partnership priorities.

Candidate countries have made progress on the decentralised management of funds. The decentralisation process is well under way with Croatia and Turkey and both countries need to focus their work to fulfil all conditions attached to it. In the former Yugoslav Republic of Macedonia, the decentralisation of the IPA regional development and human resources components has been achieved, but more work needs to be done before further decentralisation can take place. The Commission continues to provide the necessary support to candidate countries to help them comply with the requirements for the decentralised management of EU funds, targeting also regional, human resources and rural development.

In other enlargement countries Commission delegations, which are now all at full strength following the closure of the European Agency for Reconstruction, are responsible for implementing EU assistance and working with the beneficiaries to ensure that EC assistance is used efficiently and effectively. Decentralised assistance remains a medium-term objective, particularly in order to prepare for future management of cohesion policy instruments.

The Commission is supporting the development of sector strategies by the beneficiary countries, in order to facilitate a more strategic, programme-based approach to the delivery of assistance and help improve aid effectiveness.

As provided for in the IPA Regulation, the Commission has strengthened the process of donor coordination involving EU Member States, IFIs and other donors. This entails the setting and coordination of priorities and the regular monitoring of implementation on the spot.

The Commission, partner IFI partners and Member States are finalising the terms for establishing a Western Balkans Investment Framework (WBIF). This is a major step which will facilitate support to investments in infrastructure, SMEs and energy efficiency. It aims to pool resources from the Commission, the partner IFIs, the Member States and other donors and to link these grant resources with loans from international financial institutions for financing priority projects in the sectors covered. To this effect, the Commission has set aside more than € 100 million in grants making it the largest contributor. Overall the WBIF should generate loans totalling more than € 1 billion over the next years.

Working together on climate change

The EU will strengthen its regular dialogue on climate change with candidate and potential candidate countries, in particular through the future Regional Environmental Network for Accession (RENA). The Commission expects all enlargement countries to support the EU's objective of reaching an ambitious and comprehensive agreement at the Copenhagen Conference on climate change at the end of 2009. Over the last years, the Commission has provided € 120 million of grants to IFI facilities which will generate investments of about € 600 million into energy efficiency projects, thereby helping the Western Balkans and Turkey to reduce greenhouse gas emissions. The Commission will continue to support initiatives relating to climate change in the enlargement countries.

Communicating enlargement

Better communication with the public is a key principle of the renewed consensus on enlargement. For the EU’s enlargement process to succeed, it is essential to listen to citizens and address their concerns and questions. EU public opinion on future enlargement is influenced by perceptions of past enlargements. The Commission presented a study on the economic achievements and challenges of the fifth EU enlargement on the occasion of its fifth anniversary which assessed that enlargement contributed to growth and made the EU a stronger player in the world economy. The Commission is promoting an informed public debate on its impact and has organised a series of events to mark the anniversary of the fifth enlargement which coincided with the 20th anniversary of the fall of the iron curtain. It has launched a dedicated website and has co-produced audio-visual material.

Ensuring public support remains a crucial goal for the EU’s enlargement policy and the Commission will continue to implement an active communication policy in this regard. In particular, it will support and supplement efforts by Member States, which have a key responsibility in this regard, as well as partner countries and it will target communication activities at opinion formers, in particular civil society organisations and journalists, as well as at youth. Particular efforts will be undertaken to foster awareness in the EU about the cultures and ways of life of the enlargement partners.

4. Progress in the enlargement countries and agenda for 2009-2010

4.1. Steering the candidate countries and potential candidates towards the EU

The Western Balkans have moved closer to EU membership over the past year, as the region made progress, albeit unevenly, in reforms and in meeting established criteria and conditions. Substantial progress was made towards visa liberalisation, leading to the Commission's proposal of July 2009 to lift the visa obligation for the former Yugoslav Republic of Macedonia, Montenegro and Serbia. The network of Stabilisation and Association Agreements has been extended further. Two membership applications have been received from the region.

For all the Western Balkans countries concerned, further progress could result in the countries being granted candidate status when they have demonstrated their readiness. A satisfactory track record in implementing obligations under the SAA, including trade-related provisions, is an essential element for each country's progress towards EU membership.

The following section summarises progress and sets out the agenda for 2009-2010 for the enlargement countries.

Croatia

Croatia continued to make progress on key political reforms. Croatia continues to meet the political criteria and made progress in most areas, including intensified efforts in the field of rule of law. The Accession Partnership priorities have been largely addressed.

In its communication Enlargement Strategy and Main Challenges 2008-2009 [3] the Commission presented an indicative road map for reaching the final stage of accession negotiations. The roadmap has galvanised efforts in Croatia to meet the benchmarks for opening and closing chapters according to the indicative timetable of the roadmap. Delays in Croatia in certain areas meant that some chapters have not progressed in line with the roadmap. Nonetheless, preparations have advanced substantially across the board so that technical negotiations are now nearing their final phase.

Croatia was strongly affected by the economic crisis but its impact has been mitigated by a resilient banking sector and strong foreign reserves. Enhanced structural reforms and the adoption of a credible medium-term fiscal strategy would be essential to improve its competitiveness.

The border issue between Slovenia and Croatia held back the accession negotiations, such that a substantial number of chapters could not be opened or closed until October 2009, although technically finalised earlier. The Commission has provided its facilitation services to settle this dispute, which should remain a bilateral issue. Intensive efforts by the Commission, supported by the Trio of Presidencies, have been made over six months, which paved the way for a political agreement between the two parties reached in September 2009. The Commission welcomes the recent progress that led to a substantial number of chapters being opened or provisionally closed at the accession conference in October. Bilateral issues should not hold back the accession negotiations.

Croatia will need to step up reform efforts in the area of judiciary and fundamental rights, in particular as regards the independence and efficiency of the judiciary, the fight against corruption and organised crime, minority rights, including refugee return, and war crimes trials. Public administration reform requires particular attention. Croatia also needs to ensure that all necessary steps are taken by the Croatian government to settle the issue of access for ICTY to important documents. The Commission is preparing a financial package for the accession of Croatia. Croatia needs to enhance efforts to establish required instruments for the management and control of Community financial instruments. The Commission recommends that the Council set up the ad-hoc technical working group for the drafting of the Accession Treaty, on the basis of texts prepared by the Commission. If Croatia meets all outstanding benchmarks in time, the accession negotiations, including on any transitional arrangements, could be concluded next year.

The former Yugoslav Republic of Macedonia

Since the adoption of the Commission's opinion [4] and achieving candidate status in 2005 the former Yugoslav Republic of Macedonia has consolidated the functioning of its democracy and ensured the stability of institutions guaranteeing the rule of law and respect of fundamental rights. This work needs to be continued.

The country has substantially addressed the key priorities of the accession partnership [5]. The conduct of the presidential and local elections of March and April 2009 was in line with most international standards. The functioning of parliament has improved, in particular through the introduction of parliamentary rules of procedure and a new Law on Parliament. The Law on Police has been implemented, notably through the appointment of regional and local police commanders, and police reform has been further pursued through the adoption of the Law on Internal Affairs. The legislative part of the judicial reform strategy has been completed, the new courts and judicial bodies are operational and overall efficiency has been improved. Good progress has been made in the fight against corruption, through prosecution of high-level cases, strengthening of the legal framework notably through the adoption of the amended Law on Financing Political Parties and enhancing the capacity of anti-corruption institutions. The Law on the Civil Service has been amended to strengthen the authority of the civil-service agency and is an additional step towards a merit-based career system. In the field of employment active labour market measures have been stepped up and the business environment was improved, including by strengthening regulatory agencies.

The country fulfils the commitments under the Stabilisation and Association Agreement. On this basis, the Commission in October made a proposal on the transition to the second stage of the Association, pursuant to article 5 of the SAA.

The country was affected by the economic crisis but the slow-down of growth was mitigated by a stable banking sector and sustained private consumption. Sound fiscal policy and addressing structural unemployment would improve the competitiveness of the economy.

The name issue with Greece remains unresolved. The country is engaged in talks under the auspices of the UN on resolving it. Actions and statements which could negatively affect good neighbourly relations should be avoided. Maintaining good neighbourly relations, including a negotiated and mutually accepted solution to the name issue, under the auspices of the UN, are essential.

Montenegro

Political reforms have continued in Montenegro and the parliamentary elections of March 2009 met almost all international standards but remaining shortcomings need to be addressed. Some progress was achieved regarding judiciary reform. The implementation of the Interim Agreement is progressing smoothly on the whole.

Montenegro was affected by the economic crisis but its impact was mitigated by a good tourist season and anti-crisis measures. The continuation of structural reforms is key for further improving competitiveness.

Montenegro applied for EU membership in December 2008 and in April 2009 the Council invited the Commission to submit its opinion. Work on the preparation of the opinion is ongoing. Montenegro will need to demonstrate concrete results regarding consolidation of the rule of law, particularly on judicial reform and the fight against corruption. Administrative and enforcement capacity require further strengthening.

Albania

Albania has made progress on key political reforms. The parliamentary elections of June 2009 met most international standards but further efforts are needed to address the shortcomings identified. The implementation of the Stabilisation and Association Agreement, which entered into force this year, is progressing smoothly on the whole.

Albania has been so far affected by the economic crisis only to a limited extent. Continuing with structural reforms and upgrading the infrastructure is key for the country's competitiveness.

Albania applied for EU membership in April 2009. In July 2009, the Council stated that it would return to Albania's application for membership once the Albanian election procedure had been completed. The Commission stands ready to start preparations on its opinion once invited by Council. Albania needs to make progress, in particular regarding the rule of law and notably the fight against corruption, as well as the proper functioning of state institutions, especially the independence of the judiciary. Administrative and enforcement capacity require further strengthening.

Bosnia and Herzegovina

In Bosnia and Herzegovina the implementation of the Interim Agreement has been satisfactory, overall. However, the country’s progress in addressing key reforms has remained very limited. The domestic political climate has deteriorated, and challenges to the proper functioning of institutions as well as inflammatory rhetoric have continued. The requirements for a smooth transition from the Office of the High Representative (OHR) towards a reinforced EU presence in the country have not been fully met. In this context, the EU has agreed to arrangements for strengthening the office and the mandate of the EU Special Representative (EUSR) and is considering a 'personal union/double-hatting arrangement' of the EUSR and the Head of the Commission Delegation, in accordance with the Treaties and respecting the institutional balance.

Bosnia and Herzegovina urgently needs to speed up key reforms. A shared vision on the overall direction of the country by its leadership and the political will to meet European integration requirements are necessary if progress is to be made. Bosnia and Herzegovina also needs to meet the conditions which have been set for the closure of the OHR. The European Union would not be able to consider an application for membership by Bosnia and Herzegovina until the OHR has been closed.

Bosnia and Herzegovina will need to reform its constitutional framework to permit its institutions to function effectively before the Commission can recommend the granting of candidate country status. In particular the country will need to be in a position to adopt, implement and enforce the laws and rules of the EU. The Commission calls upon Bosnia and Herzegovina to proceed with the necessary constitutional amendments without further delay. The Commission stands ready to support the efforts of Bosnia and Herzegovina in achieving the evolution of its constitution and the implementation of other key reforms, which would allow the country to advance in its accession process.

Bosnia and Herzegovina was strongly affected by the economic crisis and turned to the IMF for financial assistance. The country needs to resume structural reforms in the economy and ensure sound public finances.

Serbia

Serbia has demonstrated its commitment to bringing the country closer to the EU by building a track record in implementing the provisions of the Interim Agreement with the EU and by undertaking key political reforms in line with European standards. Serbia has also made efforts to implement an ambitious programme for European integration. Serbia has the administrative capacity to make substantial progress towards the EU. This needs to be used to press ahead with the reform agenda, leading to tangible results in priority areas such as strengthening the rule of law.

Serbia was strongly affected by the economic crisis and turned to the IMF and the EU for financial assistance. The country needs to accelerate economic reforms and ensure sustainability in the public finances.

Cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) has further improved but Ratko Mladić and Goran Hadžić who have been indicted remain at large. In light of sustained cooperation with the ICTY and the renewed commitment of Serbia to the European integration process, the Commission considers that the Interim Agreement should now be implemented by the EU. Serbia needs to demonstrate a more constructive attitude towards Kosovo’s participation in regional trade and cooperation. Cooperation with the EULEX rule of law mission has begun but these efforts need to be further strengthened, especially with respect to the operation of EULEX in the north of Kosovo.

Kosovo

In Kosovo stability has been maintained but remains fragile. Following the reconfiguration of the international presence, the EU’s rule of law mission EULEX has been deployed throughout Kosovo and is fully operational. The authorities have facilitated the deployment of EULEX in Kosovo. Recent incidents that resulted in damage to EULEX property give rise to concerns. Kosovo needs to ensure continuing support for EULEX's work. Kosovo has joined the IMF and the World Bank. Kosovo adopted some key legislation. However, major challenges remain, including the rule of law, the fight against corruption and organised crime, the strengthening of administrative capacity, the protection of the Serb and other minorities, and enhancing dialogue and reconciliation between the communities. The EU encourages Kosovo Serbs to participate in Kosovo’s institutions and in the municipal elections in November. Kosovo needs to take a constructive approach towards regional cooperation, including its participation in regional trade.

Following the 2008 Donor Conference, Kosovo benefits from significantly increased financial assistance. Through IPA almost €500 million has been earmarked for Kosovo for the years 2007-2011. Kosovo was moderately affected by the economic crisis. It is essential that Kosovo’s authorities deliver on their commitments as regards fiscal discipline, public expenditure management and economic and social policy reform.

The EU supports the economic and political development of Kosovo through a clear European perspective, in line with the European perspective of the region. Improving living conditions is crucial for the well-being of Kosovo’s population and stability in the wider region. Against this background, and in line with the 2008 Enlargement Strategy and the Council conclusions of December 2008, the Commission, in parallel with the present Strategy Paper, has approved a Communication entitled "Kosovo [6]* – Fulfilling its European Perspective". This study identifies the Community instruments the EU can mobilise to promote Kosovo’s political and socio-economic development. In particular, it proposes a structured approach to bring Kosovo's citizens closer to the EU, including through a visa dialogue with the perspective of eventual visa liberalisation. The Commission furthermore proposes to extend the autonomous trade measures and, once Kosovo meets the relevant requirements, will propose negotiating directives for a trade agreement in due time.

Turkey

Turkey has continued to express its commitment to the EU accession process. Free and fair local elections have been held. Positive steps have been taken in the areas of the judiciary, with the adoption of the judiciary reform strategy and action plan, civil-military relations and cultural rights. In particular, parliament amended legislation to allow civilian courts to try military personnel in peace time. The government has opened a wide-ranging public debate with a view to addressing the Kurdish issue, and the public television started operating a channel which broadcasts entirely in the Kurdish language.

Regarding the accession negotiations, additional chapters have been opened. Turkey adopted a National Programme for the Adoption of the Acquis. The appointment of a full-time Chief Negotiator should help streamline the efforts of the government in the context of EU-related reforms. This is especially important as the accession negotiations reach a more demanding phase requiring Turkey to step up its efforts in meeting benchmarks to allow for further progress in the opening of chapters.

Turkey was strongly affected by the economic crisis but its impact was mitigated by a resilient banking sector and anti-crisis measures. The continuation of structural reforms combined with a prudent fiscal policy is essential to further enhance its competitiveness.

The investigation of the alleged criminal network Ergenekon has led to serious criminal charges, involving military officers and nationalist circles. This case is an opportunity for Turkey to strengthen confidence in the proper functioning of its democratic institutions and the rule of law. It is important that proceedings in this context fully respect the due process of law, in particular the rights of defendants.

The pace of reforms now needs to be significantly stepped up. Concerns remain in a number of areas, including freedom of expression, freedom of the press, freedom of religion, trade union rights, civilian oversight of the military and women's rights and gender equality. Much more needs to be done regarding impunity for those involved in torture and ill-treatment. The government initiative on the Kurdish issue should lead to concrete measures guaranteeing the Turkish citizens, irrespective of their origin, full rights and freedoms and significantly improve the situation in the South-east. Better dialogue among political parties will be beneficial to the reform process, including the work on Constitutional reform.

Turkey has expressed support for the ongoing negotiations under UN auspices between the leaders of the Greek Cypriot and Turkish Cypriot communities to reach a comprehensive settlement of the Cyprus problem. However, there has been no progress towards normalisation of bilateral relations with the Republic of Cyprus. Turkey has not fully implemented the Additional Protocol to the Association Agreement and has not removed all obstacles to the free movement of goods, including restrictions on direct transport links with Cyprus. It is urgent that Turkey fulfils its obligation of full non-discriminatory implementation of the Additional Protocol and makes progress towards normalisation of bilateral relations with the Republic of Cyprus. The EU will continue to follow up and review progress made on issues covered by the Declaration of 21 September 2005, in accordance with the Council Conclusions of 11 December 2006.

A considerable number of formal complaints were made by Greece about continued violations of its airspace by Turkey, including flights over Greek islands.

Good neighbourly relations remain key.

Turkey plays a key role in regional security and the promotion of dialogue between civilisations. Turkey has taken initiatives to contribute to stabilisation in the Southern Caucasus, the Middle East and other regions. It participates in a number of EU peace-keeping missions. Significant diplomatic efforts to normalise relations with Armenia were made, resulting in the historic signature of protocols for the normalisation of relations in October 2009. It is important that these protocols are swiftly ratified by both countries.

In July 2009 Turkey signed the Intergovernmental Agreement on the Nabucco gas pipeline. This project is an important strategic step towards closer energy cooperation between the EU, Turkey and other States in the region as well as towards the diversification of energy sources. The timely completion of the Southern Gas corridor, through notably the swift implementation of the Nabucco Intergovernmental Agreement, remains one of the EU's highest energy security priorities.

The EU accession process provides a strong incentive for Turkey to pursue reforms, strengthen democracy and human rights and further modernise the country. The pace of reforms in Turkey continues to be the key consideration in taking forward this process.

4.2. Iceland

Iceland applied for EU membership on 16 July 2009 and on 27 July the Council invited the Commission to prepare its opinion. Iceland’s application will be assessed according to the principles set out in the Treaty, the criteria defined by the Copenhagen European Council in 1993 as well as the December 2006 European Council conclusions on the renewed consensus for enlargement, which provide for rigorous and fair conditionality, based on the own merits principle.

Iceland is a well-established democracy. It has been severely affected by the global economic and financial crisis. It is largely integrated into the internal market through its participation in the European Economic Area. It is also a member of the Schengen Area. Iceland is an important partner for the EU in the framework of the Northern dimension and in view of the developing Arctic policy. The Commission will take account of these elements in its opinion. Iceland’s track record in implementing its obligations under the EEA Agreement will be an essential element of the Commission’s assessment. The Commission is preparing an amendment to the IPA-Regulation to include Iceland as a beneficiary country

5. Conclusions and recommendations

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

1. The accession process gives strong encouragement to political and economic reform in the enlargement countries and reinforces peace and stability in Europe. It is in the EU’s interest to keep up the momentum of the enlargement process, on the basis of the principles and conditions agreed and the renewed consensus on enlargement.

2. The enlargement countries have not escaped the effects of the global economic recession. The EU is helping them to alleviate the impact of the crisis and prepare for sound recovery. The implementation of EU-related reforms underpins this.

3. The rule of law, in particular the fight against corruption and organised crime, but also strengthening administrative capacities, remains a major challenge which the enlargement countries need to address. The Commission will continue to use all instruments of the enlargement process in order to support them in this endeavour. Problems affecting the freedom of expression and the media need to be tackled as a matter of urgency.

4. Bilateral issues should not hold up the accession process. Bilateral disputes need to be resolved by the parties concerned, who have the responsibility to find solutions in a spirit of good neighbourliness and bearing in mind the overall EU interests.

5. Regional cooperation in South-East Europe has improved, with countries in the region assuming increased ownership of the process. However, the efficiency of regional structures and initiatives needs to be improved. Disagreements over Kosovo [7] should not obstruct regional cooperation.

6. The establishment of a visa-free regime for the former Yugoslav Republic of Macedonia, Montenegro and Serbia at the beginning of 2010, based on the Commission's proposal, will demonstrate that reforms bring tangible benefits for citizens. The Commission will table proposals for Albania and Bosnia and Herzegovina by mid-2010, provided these countries meet the conditions set in the roadmaps. Free movement of persons and exchanges, in particular young citizens and students, are essential for helping Kosovo to build viable economic structures. Against this background visa facilitation should continue to be promoted and a process should be launched for Kosovo, aiming at eventual visa liberalisation when the necessary reforms will have been undertaken and the conditions met.

7. Croatia has made good progress in meeting the benchmarks set in the accession negotiations. This progress was noted by the Accession Conference in October 2009, following the political agreement of September 2009 between Slovenia and Croatia on the handling of the border issue. This was a significant step forward giving new impetus to the accession negotiations. Croatia needs to pursue reform efforts, in particular on the judiciary and public administration, the fight against corruption and organised crime, minority rights, including refugee return, war crimes trials. Croatia needs to settle the issue of access to documents for ICTY. If Croatia meets all outstanding conditions, the accession negotiations could be concluded next year.

8. The former Yugoslav Republic of Macedonia has substantially addressed the key priorities of the accession partnership. On this basis, and in view of the overall progress of reforms, the Commission considers that the country sufficiently fulfils the political criteria set by the Copenhagen European Council in 1993 and the Stabilisation and Association Process. The country has moved closer towards becoming a functioning market economy and has made progress in a number of areas linked to its ability to take on the obligations of membership.

In the light of the above considerations and taking into account the European Council conclusions of December 2005 and December 2006, the Commission recommends that negotiations for accession to the European Union should be opened with the former Yugoslav Republic of Macedonia.

Maintaining good neighbourly relations, including a negotiated and mutually accepted solution to the name issue, under the auspices of the UN, remains essential.

9. Montenegro applied for EU membership in December 2008 and in April 2009 the Council invited the Commission to submit its Opinion. Parliamentary elections met almost all international standards but some shortcomings remain to be addressed. Strengthening administrative capacity and consolidating the rule of law remain major challenges for Montenegro.

10. Albania applied for EU membership in April 2009 and the Commission stands ready to prepare its Opinion, once invited to do so by the Council. Parliamentary elections met most international standards but shortcomings remain to be addressed in future elections. Strengthening the rule of law and ensuring the proper functioning of state institutions remain major challenges.

11. Bosnia and Herzegovina urgently needs to speed up key reforms. A shared vision of the overall direction of the country by its leadership, and the political will to meet European integration requirements, are necessary if progress is to be made. Bosnia and Herzegovina also needs to meet the conditions which have been set for the closure of the OHR. The European Union would not be able to consider an application for membership by Bosnia and Herzegovina until the OHR has been closed. Bosnia and Herzegovina will need to reform its constitutional framework to permit its institutions to function effectively before the Commission could recommend the granting of candidate country status. In particular the country will need to be in a position to adopt, implement and enforce the laws and rules of the EU.

12. Serbia has demonstrated its commitment to EU integration by building up a track record in implementing the provisions of the Interim Agreement with the EU and by undertaking key political reforms in line with European standards. Given Serbia's sustained cooperation with the ICTY and its renewed commitment to the European integration process, the Commission considers that the Interim Agreement should now be implemented by the EU. Strengthening the rule of law and accelerating economic reforms remain important. Serbia needs to demonstrate a more constructive attitude towards Kosovo’s participation in regional trade and cooperation. Cooperation with the EULEX rule of law mission has begun but further efforts are needed, especially with respect to the operation of EULEX in the north of Kosovo.

13. Stability has been maintained in Kosovo but remains fragile. The EU’s rule of law mission EULEX has been deployed throughout Kosovo and is fully operational. Kosovo faces major challenges, including the rule of law, the fight against corruption and organised crime, the strengthening of administrative capacity, the protection of Serb and other minorities, and enhancing dialogue and reconciliation between the communities. Kosovo needs to take a constructive approach towards regional cooperation and to ensure continuing support for EULEX's work. The Commission is proposing ways to mobilise Community instruments to further Kosovo’s political and socio-economic development, notably in the areas of visas and trade, and to progress, in line with the European perspective of the region, towards integration with the EU in the context of the Stabilisation and Association Process. On trade, the Commission proposes to extend the autonomous trade measures and, once Kosovo meets the relevant requirements, will propose negotiating directives for a trade agreement in due time.

14. Turkey needs to build on the renewed political reform efforts which have begun. The accession negotiations have reached a more demanding stage requiring Turkey to step up its efforts in meeting relevant conditions. The EU accession process provides a strong incentive for Turkey to strengthen democracy and human rights, further modernise the country and bring the country closer to the EU. Turkey plays a key role in regional security, energy supply and the promotion of dialogue between civilisations. Significant diplomatic efforts to normalise relations with Armenia were made, resulting in the historic signature of protocols for the normalisation of relations in October 2009. Turkey needs to ensure full, non-discriminatory implementation of the Additional Protocol to the Association Agreement and to make progress towards the normalisation of relations with the Republic of Cyprus. The EU will continue to follow up and review progress made on the issues covered by the Declaration of 21 September 2005, in accordance with the Council Conclusions of 11 December 2006. Good neighbourly relations remain key.

15. As regards the Cyprus issue, the leaders of the Greek Cypriot and Turkish Cypriot communities are entering a decisive phase of negotiations on a comprehensive settlement under the auspices of the United Nations. The Commission supports their efforts and provides technical advice on issues within EU competence. It calls on both leaders to strengthen their efforts to bring the settlement talks to a successful end as soon as possible and on Turkey to contribute in concrete terms to such a comprehensive settlement of the Cyprus issue.

16. Iceland has applied for EU membership and the Commission is preparing the opinion requested by Council. Iceland’s application will be assessed according to the principles set out in the Treaty and the criteria defined by the Copenhagen European Council in 1993, as well as the December 2006 European Council conclusions on the renewed consensus for enlargement. Iceland is closely integrated with the EU in several areas, through its membership of the European Economic Area and Schengen.

17. Public support for enlargement is crucial. It is important for the authorities in the member states, partner countries and EU institutions to foster public understanding of the EU's enlargement policy.

ANNEX

Conclusions on Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Serbia, Kosovo [8], Turkey

Albania

The Stabilisation and Association Agreement (SAA) entered into force in April and implementation is progressing smoothly on the whole. Albania has continued to make progress in addressing the political criteria in line with the European Partnership. The parliamentary elections in June were assessed by the OSCE/ODIHR as meeting most international standards but further efforts are needed to address recommendations in future elections. Tangible progress took place on voter registration and in the legal framework but shortcomings on vote counting procedures were noted. Electoral reform was completed and a new Electoral Code adopted in time for the elections. Improved voters' lists were compiled on the basis of the new civil registry, thus meeting to a large extent this key European Partnership priority. The distribution of ID cards, to enable citizens without passports to vote, was largely completed. However, the culture of dialogue between the main political parties deteriorated during the electoral period. The political dialogue, a key European Partnership priority, needs to get back on track.

There was some progress on strengthening democracy and the rule of law. The main OSCE/ODIHR recommendations from previous elections were largely addressed as part of the overall electoral reform. Parliament adopted a number of important laws to approximate the EU acquis. However, the culture of dialogue took backstage to party-political agendas and key reforms were delayed. Albania has made some progress in strengthening its government structures to coordinate European integration. Nevertheless, further strengthening of capacity and strategic planning remains necessary. In the area of public administration, appointments in breach of the civil service law continued, mainly through the use of temporary contracts. The lack of transparency and accountability in appointments remain a key European Partnership priority to be addressed. Significant efforts are needed to establish an independent, efficient and merit-based civil service, free of political interference. Full enforcement of the civil service law, strengthening of institutional capacity at the Department of Public Administration and implementation of the strategy for public administration reform will be key to progress.

Little progress took place in reforming the judicial system. The private bailiff system was established. However, a comprehensive reform strategy for the judiciary remains to be adopted. The lustration law was adopted without full consultation and consensus by a simple majority vote in parliament. The implementation of the lustration law was then suspended by the Constitutional Court. The legal framework for judicial reform has not been completed. The adoption of major legislative acts on the functioning of the High Court of Justice and the administrative courts is pending. The problem of backlogs continues and court infrastructure remains inadequate. Attempts by the executive to limit the independence of the judiciary remain a serious concern. The postponement on procedural grounds of high-level cases, such as the Gërdec trial, raised questions about the impartiality of the judiciary. Overall, the judiciary continued to function poorly and much remains to be done to meet this key European Partnership priority by ensuring its independence, transparency and efficiency.

The government has continued its efforts to prevent and fight corruption. The implementation of the anti-corruption strategy and action plan started, which is a key European Partnership priority. Legislation was introduced requiring the use of on-line electronic procedures for public procurement. Efforts have been made to increase transparency in some sectors such as education. These are positive developments. However, corruption remains prevalent in many areas and is a particularly serious problem. More political will, including as regards high-level cases, is needed to uproot the culture of impunity which continues to prevail. Overall, the institutional arrangements and inter-agency coordination in the fight against corruption require further strengthening. Much work is still needed on all aspects of the issue, including judicial accountability and transparency of political party funding.

Some progress has continued regarding human rights and the protection of minorities, where the legal framework is broadly in place. However, further efforts are needed to improve the enforcement of existing legislation in a number of fields.

As regards civil and political rights, action was taken to address cases of ill treatment in pre-trial detention. New prisons and pre-trial detention centres for juveniles and mental health patients have been built. The probation system is operational. However, poor detention standards, exacerbated by overcrowding remain a serious concern, particularly in older prisons. Further efforts are required to protect human rights and implement the recommendations of the People's Advocate. Regarding access to justice, access to legal aid for vulnerable groups and some minorities remains a concern.

The legal framework to protect the freedom of expression is in place. However, pressure against some media operators took place including their eviction from premises owned by the government. The legal framework on media policy remains to be completed and existing legislation needs to be implemented. Significant efforts are needed to complete the legal framework, improve the transparency of media ownership and to strengthen the independence of the public broadcasting regulator. The respect of the freedom of assembly and religion remains satisfactory. The government stepped up its efforts to provide support for civil society. Efforts have been made to involve civil society in the drafting of key legislation. However, the participation of civil society organisations in policy-making requires further strengthening.

Progress has been limited in the area of economic and social rights. There has been some progress on strengthening women's rights. The Electoral Code includes a 30% gender quota which was enforced by most political parties in the June elections. A National Council on gender equality was established. However, existing legislation to protect women against all forms of violence is not fully implemented. Domestic violence remains an issue of serious concern. There has been continued progress on children's rights. The application of alternative sentencing for juveniles has increased. However, more efforts are needed to address child labour and school drop-out rates, particularly for Roma children. Support mechanisms for socially vulnerable and persons with disabilities remain limited. Better co-ordination of government agencies is needed. Further efforts are needed to strengthen labour and trade union rights. Lack of progress in amending labour legislation continues to hamper the development of social dialogue. Moreover, the anti-discrimination law remains to be adopted.

There has been little progress on consolidating property rights, a key European Partnership priority. Land valuation maps, which are needed to compensate former owners, have been completed for the whole country. However, much more effort is needed on all aspects of this issue. Unresolved property issues continue to undermine the development of a functional land market, to keep foreign investment below potential and to provide opportunities for corruption. The adoption of a comprehensive strategy addressing legal and institutional issues will be key in this area.

Progress has continued regarding the protection of minorities. Efforts have been made to recruit persons belonging to minorities in the police. However, the implementation of the Council of Europe Framework Convention needs to be stepped up. There continues to be no accurate data on minorities. The next population census, while respecting international standards on data protection, will be key to address this issue. The legal framework on minority protection needs to be further developed and clarified to enable all minorities to fully enjoy their cultural rights. Some steps have been taken to improve the situation of the Roma, but the implementation of the Roma Strategy is slow. The Roma minority continues to face very difficult living conditions and discrimination.

Regarding regional issues and international obligations, Albania has continued to play a constructive role in maintaining regional stability and fostering good relations with other Western Balkan and neighbouring EU countries. The country participated actively in regional cooperation, including the South East European Cooperation Process (SEECP), the Regional Cooperation Council (RCC) and the Central European Free Trade Agreement (CEFTA). Bilateral relations with other enlargement countries and neighbouring EU Member States continued to be positive. As regards the International Criminal Court, the bilateral immunity agreement with the United States does not comply with the relevant EU Common Positions and guiding principles. Albania needs to align with the EU position.

The economy of Albania maintained macroeconomic stability against the background of the international financial and economic crisis. Throughout 2008 economic growth continued to accelerate, but it slowed down in 2009 as a consequence of reduced exports, remittances and credit growth. Monetary policy remained sound and price stability was maintained. However, an expansionary fiscal policy, while including much needed public works on the road network, resulted in a high budget deficit. Shortcomings in the rule of law, poor level of infrastructure and the informal economy remain challenges to economic development and the business environment.

As regards the economic criteria, Albania has made good progress towards establishing a functioning market economy. In order to enable it to cope over the medium term with competitive pressure and market forces within the Union, Albania needs to reform and strengthen its legal system and address weaknesses in infrastructure and human capital.

The government reacted to the international crisis using the full range of monetary and fiscal instruments, as well as regulatory measures. Strong capital inflows, partly driven by the accelerated privatisation process, were more than sufficient to finance the current account deficit. The continued implementation of tax administration reform broadened the tax base, increased overall tax compliance, and helped reduce the informal sector. More efficient tax collection contributed to a surplus in the primary budget balance and improved the policy-mix in 2008. The level of state ownership in the economy was further reduced, notably in the energy and telecommunication sectors. Market entry was further facilitated and market participants benefited from improved property and credit registries. In a difficult international environment, the banking sector remained well-capitalised and liquid. Large scale public works improved the road network.

However, the expansionary fiscal policy during the election period resulted in high budget deficit in 2008 and the forecasted deficit for 2009 remains high. Additional efforts in consolidating public finances are necessary. Bankruptcy procedures are still not being used. Weak administrative capacity undermines the authority and acceptance of the legal system. Informal methods of contract enforcement, by-passing the legal system, continue to be widespread. Unresolved property issues continue to undermine the development of a functional land market and keep investments below potential. The informal sector remains an important challenge. Unemployment remains high. The education system is in need of major reform. Transport infrastructure remains poor and security of electricity supply is still not fully ensured due to the lack of diversification of generation and poor interconnection capacity.

Albania has made progress in aligning its legislation, policies and capacity with European standards. Progress has been made in most areas, albeit unevenly. Progress continued in areas such as free movement of goods, energy and SME policy. In other areas, such as intellectual property rights, audiovisual policy, agriculture and veterinary/phytosanitary control, progress has been limited. Overall, further efforts are needed to improve administrative capacity and to enhance effective implementation of legislation.

There has been progress in some internal market fields. As regards free movement of goods, good progress continued in adopting European standards and in the areas of accreditation and metrology. However, enforcement capacity needs to be strengthened. The legislative framework on movement of capital improved with the revision of the regulation on foreign exchange activity. The regulatory framework on consumer protection improved with the establishment of consultative and decision-making bodies.

Progress continued on customs' computerisation and infrastructure but further approximation to European standards and strengthening of administrative capacity are required. Custom officials do not have civil servants status. There has been continued progress in taxation. The performance of the tax administration improved and computerisation of tax offices is nearing completion. However, overall tax collection is still low. The taxation on imports of used cars and printed materials in not in line with the Stabilisation and Association Agreement commitments.

Progress continued in the area of competition in both anti-trust and state aid areas. The legislative framework is largely in line with the acquis, but further efforts are needed to implement it.

Some progress can be reported as regards public procurement. Electronic procedures have been extended to most public contracts. However, further legislative approximation is still pending on concessions, utilities and review procedures. The capacity of the Public Procurement Agency improved, but requires further strengthening. There was some progress as regards intellectual and industrial property rights. The number of infringement cases brought to court increased. However, considerable further efforts are still required. Enforcement remains poor, and the capacities of the Patent and Copyright offices as well as the experience and qualifications of the judiciary remain weak.

There has been little progress on social policies and employment. The budget for social protection increased and the strategy for occupational health and safety was approved. However, occupational health and safety standards remain poor and the capacity of the labour inspectorate is still weak. Legislative approximation to the EU standards continued in some public health fields. However, administrative capacity remains weak. There has been some progress on European standards in the fields of education and research policy.

Progress can be reported on some sectoral policies. Regarding industry and SMEs, good progress has been made in implementing the European Charter for Small Enterprises. There was some progress on agriculture, as regards the legislative and institutional framework, but structural weaknesses remain. Laboratory capacity improved in the area of food safety, veterinary and phytosanitary policy but compliance with EU standards remains poor and hampers Albania's capacity to export. Progress continued in the area of fisheries regarding horizontal legislation, inspection and international cooperation. However, catch and landing controls remain weak.

Regarding environment, there have been some improvements on waste management and nature protection. However, policy-making capacities and implementation and enforcement require further strengthening. On transport, the legislative framework improved in the air and maritime sectors. However, substantial improvements are needed overall.

There was progress in the energy sector. The distribution arm of the electricity company was privatised. Measures to improve electricity generation and interconnection capacities are in progress. However, the energy sector remains weak. Security of electricity supply is still uncertain. Efforts need to continue to reduce losses and to increase bill collection.

Limited progress can be reported regarding information society and media. Market liberalisation continued in the area of electronic communications but is still held back by lack of instruments to safeguard competition. Administrative capacity remains weak particularly within the Council of the regulatory agency. There was limited progress on audiovisual policy. Further efforts are required to implement the action plan on media reform. Regarding financial control, there has been moderate progress, but the legal framework and implementation capacity need to be further strengthened. Progress has continued in the field of statistics.

In the field of justice, freedom and security, progress has taken place in most areas, albeit unevenly. In the framework of the visa liberalisation dialogue, steps have been taken to fulfil the benchmarks set in the visa liberalisation roadmap and key reforms have been introduced in the area of justice, freedom and security. Progress in the area of visa policy has continued. Steps were taken towards fulfilling the benchmarks set in the road-map for visa liberalisation. The Law on foreigners entered into force and implementing legislation was adopted. A reliable civil registry and address system became operational and ID cards were distributed. The pace of delivery of biometric passports has been stepped up. However, further efforts are required for alignment with European standards. Implementation of the readmission agreement between the European Community and Albania continued.

Some progress was made in the area of border management. Implementation of the integrated border management strategy has continued. However, further efforts are required to effectively implement inter-agency coordination and to provide adequate training, human resources and equipment at border posts. The Law on State Border Control remains to be effectively implemented. Cross-border cooperation needs to be enhanced. Good progress can be reported with regard to asylum. The Law on Asylum was revised. However, a range of implementing measures still needs to be adopted to complete the legal framework. Progress continued in the area of migration. Implementation of the National migration strategy is ongoing. Further efforts are needed to combat illegal migration.

Moderate progress has been made in preventing money laundering. The legal framework and the administrative capacity have improved. However, investigation resources and enforcement capacity to confiscate assets need to be strengthened. Cooperation between the police and the judiciary remains poor. Limited progress can be reported in the fight against drugs. Results in this area remain insufficient and in particular inter-agency cooperation needs strengthening. Drug trafficking remains a serious concern.

Some progress continued on policing, with the implementation of the new police law. Some improvements were made as regards staffing. However, further efforts are needed to increase investigative capacity, enhance cooperation with the prosecution and to improve human resources management. Police management, staffing, training, and internal control structures need to be further strengthened. More efforts are needed to develop reliable crime statistics.

Limited progress continued to be made in the fight against organised crime, which remains an issue of serious concern. Measures were taken to improve witness protection but remain insufficient. Co-operation with Interpol has improved, allowing a number of international arrest warrants to be executed. However, efforts to combat organised crime are undermined by corruption, poor witness protection and insufficient use of criminal intelligence. Difficulties in cooperation between police and prosecutors continued to reduce the effectiveness of investigations.

Some progress can be reported in the area of combating trafficking in human beings. The on-line database on victims became operational. The administrative capacity of the anti-trafficking coordinator and National Referral Mechanism has improved. However, additional resources and better inter-agency coordination are needed for the implementation of the anti-trafficking strategy, particularly in terms of victim protection. Albania remains a country of origin for trafficking in human beings. Internal trafficking of women and children is on the increase.

Progress has continued on the protection of personal data. The legal framework is in place and an independent data supervisory authority has been appointed. However, adequate resources including training, need to be ensured for the office of the Commissioner for Data Protection to work effectively. Further efforts are needed to ensure proper implementation of existing legislation and to strengthen administrative capacity.

Bosnia and Herzegovina

Bosnia and Herzegovina has made very limited progress in addressing political criteria. The domestic political climate has deteriorated, and challenges to the proper functioning of the institutions and inflammatory rhetoric have continued. Reform implementation has been slow, due to a lack of consensus and political will, and to the complex institutional framework. A shared vision by the political leaders on the direction of the country and on key EU-related reforms remains essential for further progress towards the European Union. Meeting the objectives and conditions which have been set for the closure of the Office of the High Representative (OHR) [9] is essential. The European Union would not be able to consider an application for EU membership until the OHR has been closed. The reform of Bosnia and Herzegovina's constitutional framework to permit its institutions to function effectively is necessary before the Commission can recommend the granting of candidate status. To this effect, the country's political leaders have engaged in a joint EU/US-led initiative, started on 8/9 October in Sarajevo. This now needs to be converted into concrete results that will unblock Bosnia and Herzegovina's progress towards the EU through constitutional changes and a renewed domestic consensus.

Regarding democracy and the rule of law, there has been little progress towards creating more functional and efficient state structures and towards constitutional reform, which is a key priority of the European Partnership. The constitution of Bosnia and Herzegovina was amended for the first time to regulate the status of the Brčko District, which constituted a major development and step forward. However, the High Representative has recently needed to use its executive powers to ensure progress towards the end of the District's international supervision.

Bosnia and Herzegovina's system of governance continues to involve an international presence. The country has made some progress towards meeting the requirements for the closure of the OHR and the transition to a reinforced EU presence. However, the process has been hindered by insufficient political commitment. Urgent action is now needed to address the outstanding objectives, namely the apportionment of property between the state and the other levels of government, the defence property issue, and on ensuring a stable and constructive political environment in the country.

The functioning of the state-level executive and legislative bodies has been deficient. The Parliament of Bosnia and Herzegovina is still hampered by inadequate technical and human resources, and cooperation with the Council of Ministers and with the Parliaments of the entities has remained poor. The number of European integration-related laws adopted by the Parliament has been low. The government institutions, at all levels, continued to be affected by internal political tensions and fragmented and uncoordinated policy-making. The authorities have often proven unable to quickly appoint high-level officials. The work of the Directorate for European Integration has been hindered by the overall political climate and the absence of a director for most of the reporting period. Preparatory steps towards a census in 2011 have been carried out, but a state-level census law, which is crucial to the process, has not been adopted.

Some progress has been made in the area of public administration, but continued efforts are needed. The public administration reform strategy, which is a key European Partnership priority, is being implemented, albeit slowly. The fund established to support the public administration reform is operational and a number of projects are being implemented. Nonetheless, coordination between the various administrations within the country needs to be further improved. Sustained efforts remain necessary to prevent political interference, to limit the role played by ethnic identity and political affiliation in appointments, and to establish a professional, impartial, accountable, transparent and efficient civil service based on merit and competence. The state-level Ombudsmen have been appointed, but they are not yet fully operational due to the reluctance of the entities to phase out the existing entity-level offices.

Bosnia and Herzegovina has made limited progress in improving the judicial system. New legislation has been adopted and some action has been taken to reduce the backlog of cases. Progress has been made in equipping courts with adequate information technology. However, implementation of the National Strategy for Development of the Justice Sector and the War Crimes Strategy has been poor and needs to be accelerated. The complexity of the legal framework, the fragmentation of the judicial system and the absence of a single budget continue to be major obstacles to reform in this area. Political interference remains frequent. The absence of a Supreme Court with countrywide jurisdiction is a serious handicap. Problems persist with the prosecution of organised crime. Bosnia and Herzegovina's political authorities have failed to address the request of the judicial authorities for the extension of the mandates of international judges and prosecutors. Prosecution of war crimes by the state court has continued to be satisfactory overall, but it needs to improve in the entities and cantons. The independence, accountability and efficiency of the judicial system need to be further enhanced. The authorities of Republika Srpska have increasingly questioned the legality, jurisdiction and competences of the state-level police and judicial agencies to operate in their territory. This is a serious cause for concern.

Bosnia and Herzegovina has achieved little progress in the fight against corruption, which remains prevalent in many areas and a serious problem. A new strategy and action plan for the period 2009-2014 has been adopted, but the implementation of the 2006-2009 strategic framework was poor. Little progress has been made in meeting the recommendations formulated by the Group of States against Corruption (GRECO). Prosecution remains deficient, with a very limited number of convictions. Bosnia and Herzegovina needs strengthened commitment and determined action against corruption.

There has been limited progress regarding human rights and protection of minorities. Bosnia and Herzegovina has ratified the major international human rights conventions, but sustained efforts are necessary to ensure better implementation. Enforcement of domestic rulings, including those of the Constitutional Court of Bosnia and Herzegovina, needs to improve. Incompatibilities between Bosnia and Herzegovina's constitutional framework and the European Convention for Human Rights need to be addressed urgently, prior to the 2010 elections and the entry into force of the Stabilisation and Association Agreement (SAA).

Civil and political rights are broadly respected. Some progress has been made in relation to unifying practice of criminal sanctions between the state and the entities. A state level law on legal aid in criminal proceedings has been adopted. However, access to justice in civil and criminal trials needs to be improved, and equality before the law needs to be ensured. Ill-treatment of detainees continues to be a matter of concern. The planned construction of a state-level prison is experiencing serious delays.

The state and the entity constitutions provide for the freedom of expression and media, the freedom of assembly and association and the freedom of religion. However, better implementation of the existing legislation is required. Alleged cases of harassment of journalists have increased. Ethnic orientation of media is increasing. The implementation of the public broadcasting reform, which is a key European Partnership priority, is being delayed by insufficient harmonisation and slow implementation of the legal framework, in particular in the Federation. The executive needs to make further efforts to enhance dialogue with the civil society sector and to support its development. The authorities need to ensure that allocation of funding to non-governmental organisations is conducted in an objective and transparent manner.

There has been limited progress in the area of economic and social rights. Bosnia and Herzegovina's legal framework includes provisions to protect economic and social rights, but implementation remains poor overall. A comprehensive state-level antidiscrimination law has been adopted but its scope is rather limited. Sustained efforts are still needed regarding the protection of women against all forms of violence. As regards children, problems in the fields of health, social protection, education and domestic violence remain. Inadequacies in social welfare systems adversely affect the conditions of vulnerable groups, including the mentally ill. The ratification of the revised European Social Charter was a positive development, but implementation needs to improve. The complex system of government and the fragmentation of legislation continue to hamper social dialogue across the country.

There has been some limited progress in the area of cultural rights and minority rights. The network of National Minorities Councils has been completed through the establishment of the Federation's Council, even though it is not yet fully operational. The strategy and action plans to support the Roma minority are slowly being implemented. Nonetheless, further steps need to be taken to improve the implementation of the Law on national minorities, and the state-level Constitution needs to be changed to allow access of minorities to all political functions. Separation of children within schools along ethnic lines remains an issue. Despite an increase of financial resources for the implementation of the Roma strategy, this minority continues to face very difficult living conditions and discrimination. The lack of civil registration continues to hinder their access to basic social and economic rights.

Concerning refugees and internally displaced persons, the security situation remained stable, but little additional progress has been achieved in improving the socioeconomic integration of those who have returned. A country-wide strategy aimed at supporting the return process and ensuring proper implementation of Annex VII of the Dayton/Paris Peace Agreement needs still to be adopted.

As regards regional issues and international obligations, implementation of the Dayton/Paris Peace Agreement has continued. Cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) has remained satisfactory. However, statements by Republika Srpska's political leadership challenging the veracity of war-time massacres involving civilian population are particularly worrying.

Bosnia and Herzegovina, together with its neighbours, should address the regional impunity gap, including by taking steps towards extradition agreements covering war crimes cases.

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

Bosnia and Herzegovina has continued to participate actively in regional cooperation initiatives, including the South East European Cooperation Process (SEECP), the Regional Cooperation Council (RCC) and the Central European Free Trade Agreement (CEFTA).

Bosnia and Herzegovina's relations with its neighbours have remained stable, but there has been little action to promote reconciliation and to resolve outstanding matters, which is a key priority of the European Partnership. In particular, trade and border-related issues with neighbouring countries remain open.

The economy of Bosnia and Herzegovina slowed down significantly in the fourth quarter of 2008 when the global crisis began to impact on the real economy. This trend continued in 2009, pushing the country into a recession. Unemployment remained at very high levels. The quality of public finances further deteriorated, characterised mainly by a dramatic increase in current expenditure. The country called for an IMF programme and a three-year stand-by arrangement was negotiated. Despite some progress in state-wide coordination of economic policy, the commitment to structural reforms remained uneven across the country.

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

Financial and monetary stability was preserved, as the central bank reacted appropriately to repercussions from the international financial crisis. The currency board arrangement continued to enjoy a very high degree of credibility. In line with international price developments, inflation rates have come down significantly. External imbalances have decreased, mainly driven by a rapidly adjusting trade balance. While the expansion of financial intermediation has slowed down, the banking sector has so far weathered well the impact of the global crisis. Some limited improvements in the business environment can be recorded, especially in the areas of construction permits, transfer of property, business registration, and market exit.

However, the quality and sustainability of public finances have further deteriorated. Current expenditures, especially on wages and social benefits, increased dramatically in 2008, and the share of general government in GDP remained high. Restructuring of public enterprises, the liberalisation of network industries and the privatisation have not proceeded further. The weak productive capacity and structural rigidities – high social contribution rates, distorted wage-setting mechanisms, high and poorly targeted social transfers and low labour mobility – continue to hamper job creation and the functioning of the labour market. Unemployment continues to be very high and the informal sector remains an important challenge. The business environment is still affected by administrative inefficiencies. Lower FDI and public investment slowed down the upgrading of infrastructures

Bosnia and Herzegovina has made limited progress in aligning its legislation and policies with European standards. Some progress has been made in areas such as transport, customs, taxation, education and culture, and a number of justice, freedom and security-related matters. Particular efforts remain necessary as regards movement of goods, persons and services, social and employment policies, state aids, energy and environment.

On the whole, the implementation of the Interim Agreement (IA) has been satisfactory. Nonetheless, preparations for meeting requirements under the IA and the Stabilisation and Association Agreement (SAA) – a key priority of the European partnership, need to be accelerated. Bosnia and Herzegovina's administrative capacity has to be further strengthened in order to achieve a strong track record of SAA implementation. The country also needs to make further efforts to achieve a fully functional single economic space within its territory, as required by the European Partnership.

Bosnia and Herzegovina has made some progress in addressing European Partnership priorities in areas of the internal market. As regards free movement of goods, limited progress has been made in the fields of standardisation, accreditation, metrology and market surveillance. Continued efforts remain necessary in order to approximate the legal framework to EU legislation in this area and to develop the necessary administrative capacity.

Limited progress has been made as regards services, the right of establishment and company law. Entity legislation on leasing has been harmonised, but a single state-level supervisory agency for banking remains to be established. Legislative initiatives by the entities in this area remain insufficiently coordinated.

There have been some developments in the area of free movement of capital. Legislation on foreign currency operations has been adopted in Republi