EUROPEAN COMMISSION Brussels, 10.11.2015 SWD(2015) 211 final COMMISSION STAFF WORKING DOCUMENT SERBIA

2015 REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS EU Enlargement Strategy {COM(2015) 611 final}

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Table of Contents 1.Introduction 1.1.Context 1.2.Summary of the report 2.Political criteria 2.1.Democracy 2.2.Public administration reform 2.3.Rule of law 2.4.Human rights and the protection of minorities 2.5.Regional issues and international obligations 3.Normalisation of relations between Serbia and Kosovo 4.Economic criteria 4.1.The existence of a functioning market economy 4.2.The capacity to cope with competitive pressure and market forces within the Union 5.Ability to assume the obligations of membership 5.1.Chapter 1: Free movement of goods 5.2.Chapter 2: Freedom of movement for workers 5.3.Chapter 3: Right of establishment and freedom to provide services 5.4.Chapter 4: Free movement of capital

5.5.Chapter 5: Public procurement 5.6.Chapter 6: Company law 5.7.Chapter 7: Intellectual property law 5.8.Chapter 8: Competition policy 5.9.Chapter 9: Financial services 5.10.Chapter 10: Information society and media 5.11.Chapter 11: Agriculture and rural development 5.12.Chapter 12: Food safety, veterinary and phytosanitary policy 5.13.Chapter 13: Fisheries 5.14.Chapter 14: Transport policy 5.15.Chapter 15: Energy 5.16.Chapter 16: Taxation 5.17.Chapter 17: Economic and monetary policy 5.18.Chapter 18: Statistics 5.19.Chapter 19: Social policy and employment 5.20.Chapter 20: Enterprise and industrial policy 5.21.Chapter 21: Trans-European networks 5.22.Chapter 22: Regional policy and coordination of structural instruments 5.23.Chapter 23- Judiciary and fundamental rights 5.24.Chapter 24: Justice, freedom and security

5.25.Chapter 25: Science and research 5.26.Chapter 26: Education and culture 5.27.Chapter 27: Environment and climate change 5.28.Chapter 28: Consumer and health protection 5.29.Chapter 29: Customs union 5.30.Chapter 30: External relations 5.31.Chapter 31: Foreign, security and defence policy 5.32.Chapter 32: Financial control 5.33.Chapter 33: Financial and budgetary provisions Annex I - Relations between the EU and Serbia Annex II – Statistical Annex

1.Introduction 1.1.Context The European Council granted Serbia the status of candidate country in 2012. Accession negotiations were launched in January 2014. The analytical examination of the EU acquis (screening process) was completed in March 2015. The Stabilisation and Association Agreement (SAA) between Serbia and the EU entered into force in September 2013. Serbia remained committed to its strategic goal of EU accession and continued to build a track record in implementing the obligations of the SAA. It is implementing an ambitious political and economic reform agenda and successfully finalised the action plans required for the opening of the rule of law negotiating chapters. Serbia played a constructive role in the region. It remained committed to the normalisation of its relations with Kosovo and came to key agreements with Kosovo within that process. It has also had a very constructive role in managing the migration crisis. 1.2.Summary of the report As regards the political criteria, stakeholders, including civil society, were increasingly involved in the accession process. Though co-operation between the authorities and the independent regulatory bodies and the Ombudsman has recently increased, it should be further improved. The use of urgent procedures in parliament should be curtailed. Constitutional reforms will be needed for alignment with EU standards in some areas. Serbia is moderately prepared in the area of public administration reform. Good progress has been achieved with the adoption of a comprehensive action plan. Serbia needs to remain committed and implement its reform targets. Strong political will remains essential to professionalise and depoliticise the administration and make recruitment and dismissal procedures more transparent, especially for senior management positions. The judicial system has reached some level of preparation. New rules for evaluating judges and prosecutors were adopted in May. Most Court Presidents have now been appointed on a permanent basis. Further steps are needed to tackle political influence. The quality and efficiency of the judiciary and access to justice are hampered by an uneven distribution of workload, a burdensome case backlog and the lack of a free legal aid system. Serbia has some level of preparation in preventing and fighting corruption, which remains widespread. The anti-corruption effort has yet to yield significant results. The institutional set-up is not yet functioning as a credible deterrent. A track record of effective investigations, prosecutions and convictions in corruption cases is required, including at high level. Serbia has some level of preparation as regards the fight against organised crime. New DNA and drug chemistry laboratories became operational. The country is actively contributing to international and regional cooperation. Serbia adopted strategies for the fight against money laundering and terrorism financing as well as a financial investigation strategy but it still lacks an overall strategic picture of the organised crime situation on its territory. A credible track record in the fight against organised crime needs to be established. The legal and institutional framework for the respect of fundamental rights is in place. Consistent implementation across the country needs to be ensured, including as regards protection of minorities. More needs to be done to ensure conditions for the full exercise of media freedom and the freedom of expression, where Serbia has achieved some level of preparation. Further sustained efforts are needed to improve the situation of Roma and of refugees and displaced persons. The authorities took steps to strengthen the protection of the rights of lesbian, gay, bisexual, transgender and intersex (LGBTI) persons, and again facilitated a pride parade in Belgrade. However, a stronger culture of respect for LGBTI persons is still needed. Serbia participated constructively in regional initiatives and worked to improve its bilateral relations in a spirit of reconciliation and good neighbourly relations. The Prime Minister's attendance at the Srebrenica genocide commemoration in July sent a positive message. Regarding the normalisation of relations with Kosovo, Serbia remained committed to the implementation of the April 2013 'First agreement of principles governing the normalisation of relations' and other agreements reached in the EU- facilitated dialogue. Key agreements were finalised in August on energy, telecoms, establishment of the Association/Community of Serb majority municipalities as well as the Mitrovica Bridge. The dialogue achieved further concrete results in the fields of justice, civil protection integration, vehicle insurance, customs collection and IBM. There were also constructive discussions to improve cooperation in tackling migratory flows from Kosovo. The steps taken gave fresh momentum to the normalisation of relations and should have a positive and concrete impact on the everyday life of citizens in both Kosovo and Serbia. As regards the economic criteria, Serbia is moderately prepared in developing a functioning market economy. Good progress has been made to address some of the policy weaknesses and the positive momentum for advancing structural reforms needs to be preserved. Serbia's economy is recovering from a recession. Thanks to significant consolidation measures and better tax collection, the budget deficit has fallen sharply. Fiscal consolidation should be sustained and underpinned by implementing reforms as planned. Inflation remains very low, allowing the central bank to reduce interest rates. Unemployment, though very high, has fallen below 20%. Progress has been made with restructuring of publicly owned companies and main utilities, but it needs to advance further. The private sector is underdeveloped and hampered by weaknesses in the rule of law and difficult access to finance. The process of economic reforms needs to continue with particular emphasis on restructuring state owned enterprises and public utilities. Serbia is moderately prepared in terms of capacity to cope with competitive pressure and market forces within the Union. The education system has remained inefficient, physical infrastructure underdeveloped and the informal sector and state aid are substantial. Serbia needs to improve the quality of the education system, gearing it towards labour market needs, stimulate private investments and speed up the implementation of public infrastructure projects. It needs to better regulate para-fiscal charges and provide a transparent framework of state support to the private sector, redirecting it towards efficient and horizontal objectives, such as support to SMEs and research and development. As regards its ability to take on the obligations of membership, Serbia has continued to align its legislation with the EU acquis across the board. Adequate financial and human resources, and sound strategic frameworks will be crucial to maintain the pace of reforms. Serbian legislation is now largely aligned in areas such as intellectual property, anti-trust and mergers, and monetary policy. Serbia set up a National Investment Committee, bringing together national authorities, donors and international financial institutions (IFIs) to coordinate Serbian investment policy in key sectors of the single project pipeline (energy, transport, environment and business-related infrastructure), which sets an example in the region. In the areas of public procurement, statistics and financial control, Serbia is moderately prepared. Serbia will need to align its foreign and security policy progressively with the European Union's Common Foreign and Security Policy in period up to accession. Mixed-migration flows increased dramatically, creating a substantial burden on the Serbian asylum and migration framework. Serbia made a substantial effort to ensure that third country nationals transiting through the country received shelter and humanitarian supplies, with EU support as well as the support of others. At the same time, Serbia should continue efforts to address the increase of unfounded asylum applications lodged by Serbian nationals in EU and Schengen countries, with a view to preserving the visa free regime.

2.Political criteria 2.1.Democracy Elections Serbia has not yet addressed all of the recommendations of the OSCE’s Office for Democratic Institutions and Human Rights (OSCE/ODIHR), in particular those on ensuring that campaign financing and the electoral process are transparent. Certain local municipality elections and other local events have been marred by violence and claims of intimidation and irregularities that have not yet been properly investigated. Those responsible should be brought to justice. Parliament Parliament’s legislative activity was intensive and reflected increased involvement in the accession negotiation process. Consultation and transparency to some extent improved. However, the use of urgent procedures, including on draft legislation linked to the EU accession process, remained extensive. Oversight of the executive needs to be further enhanced. Parliament needs to increase its support for the institutional role of independent regulatory bodies and the Ombudsman's office and promote implementation of their recommendations. Parliament engaged in intensive legislative activity. Consultation processes improved, in particular through frequent use of public hearings, including on EU accession-related issues, and parliamentary sessions on specific topics held locally. Parliament is increasingly involved by the government in the accession negotiations process. Parliament also has regular meetings and consultations with other stakeholders, including the National Convent on European Integration which brings together civil society organisations involved in the accession negotiations process. Parliament has yet to adopt an annual work plan and a code of ethics. The use of urgent procedures remains extensive, including for major pieces of legislation. This limits the time allowed for scrutiny of draft legislation, and is not always strictly necessary. More democratic and open cross-party political dialogue needs to be promoted. Parliament remained engaged in its oversight activity through questions and regular debates on government reports. It did not, however, regularly hold monthly sessions or oral questions to the government. Independent regulatory bodies’ reports are discussed but parliament needs to take a more proactive approach to promoting and monitoring the implementation of their findings and recommendations. Parliamentary debates should not be used to undermine independent regulatory bodies and the Ombudsman’s role. Governance The Serbian government remained actively engaged towards its EU accession priority goal. A core negotiating team was formed in September 2015. Involvement of parliament and other stakeholders, including civil society, needs to be further strengthened and streamlined. While recent steps to increase dialogue are welcome, the Serbian government needs to cooperate fully with independent regulatory bodies and the Ombudsman's office and to respect their remit. The legal framework for local self-government still needs to be improved and further implemented. Constitutional changes are needed to address issues of importance for the accession negotiations. The Serbian government improved consistency in implementing its programme of priority reforms. It remained committed to EU integration and to the EU-facilitated dialogue with Kosovo. With political direction from the Minister for EU Integration, leadership by its Chief Negotiator, and effective support from the Serbian European Integration Office, the Serbian administration demonstrated a high level of preparedness and professionalism in the screening process. A core negotiating team was formed in September 2015. The government addressed the findings of the 2014 Progress Report by acting on the National Plan for the Adoption of the Acquis for the period 2014-2018. Further systematic involvement of parliament and civil society in the accession process is needed. Greater coordination of sectoral policies and anticipation of their financial implications remain crucial for the negotiations. Further efforts are needed to communicate more effectively the benefits of joining the EU to Serbian citizens. Public consultations need to be wider and deadlines more realistic to enable all interested parties to provide qualitative input. This is especially needed for draft legislation with major economic and social impacts. More effective monitoring of the implementation of enacted legislation and strategic documents is needed. Independent regulatory bodies and the Ombudsman play an essential role in ensuring that the executive is accountable. It is a matter of concern if members of the government act in such a way as to undermine their work. The Prime Minister's initiative to hold regular meetings with them is a welcome step. As regards local self-government, the law on Vojvodina’s resources still needs to be adopted as prescribed by the Constitution. Local administrative and management capacity is weak and significant disparities between municipalities persist. Responsibilities continue to be exercised at local level without proper analysis of the capacity and resources required. Transfers earmarked by line ministries need to be allocated in line with the law on municipal finance. Local authorities should be consulted more on new legislation that has local implications. The Constitution has yet to be revised to reflect fully the recommendations of the Venice Commission, particularly on parliament’s role in judicial appointments, the political parties’ control of parliamentary office, the independence of key institutions and the protection of fundamental rights, including data protection. A parliamentary action team was formed in April for this purpose. Civil society Some progress was made in improving cooperation between the government and civil society organisations (CSOs). However, additional measures should be taken to ensure transparent dialogue between CSOs and other state institutions. An empowered civil society is a crucial component of any democratic system and should be recognised and treated as such by the state institutions. Civil society organisations and human rights defenders play a key role in raising awareness of civil and political rights in a climate that is often hostile to criticism. Civil society continued to grow, especially at local level. Since May, the Prime Minister took the initiative to call regular meetings with representatives of leading CSOs. Cooperation between the government and civil society still needs to be improved and a mechanism ensuring transparent dialogue with CSOs is needed. The authorities included civil society organisations in the accession negotiations process. However, civil sector's participation in policy making is still to a large extent ad hoc which prevents the use of the full potential of the sector. The Office for Cooperation with Civil Society has taken a number of initiatives. The director of the office resigned in March and a successor has not yet been appointed. The 2015-2019 national strategy for an enabling environment for CSOs was drafted with wide participation by civil society. Mechanisms to ensure transparent funding of CSOs need to be put in place. Serbian laws, e.g. tax rules, do not encourage private donations to CSOs. The law on volunteering has not significantly expanded voluntary work and the law on social protection has yet to be fully implemented as regards CSOs providing social services. Civilian oversight of the security forces

Parliament has continued to perform its oversight role. The remit of the Ombudsman’s office in this field needs to be better understood and defended. Serbia’s legislative framework needs to be strengthened. The parliamentary committee for oversight of the security forces continued to review the activities and reports on the Security-Information Agency (BIA), the Military Intelligence Services and the Inspector General of the Ministry of Defence on a regular basis. The committee held a debate on the Ombudsman’s office's investigation into incidents involving military officers during the 2014 Pride parade, and on the Ombudsman's assertions that the Military Security Agency had illegally intercepted communications. The comments made on this occasion denigrating the Ombudsman, who was acting within his prerogative with regard to civilian control of the security forces, hamper effective oversight. The potential for abuse of interception of communications needs to be addressed. A law on access to state security files still needs to be adopted. A new law on the BIA, reviewing the current regulations giving the security services responsibilities for criminal proceedings and the use of special measures, has not yet been adopted. 2.2.Public administration reform Serbia is moderately prepared with the reform of its public administration. Good progress has been achieved with the adoption of a comprehensive public administration reform action plan, a law on inspection oversight, a national training strategy for local government, and the law on maximum number of public sector employees. However, Serbia now needs to ensure that the ambitious reform plans and the legal framework are implemented. Strong political will remains essential to professionalise and depoliticise the administration and make recruitment and dismissal procedures more transparent, especially for senior management positions. In the coming year, Serbia should, in particular: → streamline the roles and responsibilities of leading institutions in charge of policy making and coordination and develop a consolidated planning and monitoring system; → amend the current civil service framework to fully guarantee neutrality and continuity of the public administration and ensure merit-based recruitment, promotion and dismissal procedures by eradicating exceptions and transitional arrangements in appointments; → adopt a comprehensive multi-annual public financial management reform programme. Public service and human resources management The legal framework for the central government civil service is in place, but it does not apply to many public employees exercising key state functions. The legal separation of political and public service positions is not clearly enforced. The civil service law provides for merit-based recruitment, promotion and dismissal procedures. Several provisions, however, leave space for wide discretionary powers and are regularly used in practise. Turnover of senior civil servants is an area of particular concern. Nearly 60 % of senior civil servants are still appointed on the basis of exceptions or transitional arrangements. Also reorganisation can be used unfairly to dismiss or reassign staff. Disciplinary procedures are in line with civil service principles and an appeals mechanism is in place. A civil service law for local government employees has not yet been adopted. The Ministry of Public Administration and Local Self-Government is responsible for central coordination of human resources management. The Human Resources Management Service (HRMS), not directly accountable to the ministry, is in charge of maintaining the HRM information system. The system is not used to support human resources policy planning and monitoring. Human resources units in public administration bodies are weak and mainly compliance-oriented. The civil service remuneration system is based on standard job classifications, but in practice it does not achieve equal pay for equal work across the public administration. A performance bonus scheme allows some discretionary awards, which are not in line with a transparent and fair salary system. A centralised payroll system is needed. The civil service professional training strategy has envisaged a new system for professional development but it has not been fully implemented. The number of civil servants receiving training, through HRMS, remains low, including those at senior management posts. There are no synergies with training programmes provided for local government civil servants. The design of the performance appraisal system is appropriate but appraisal grades are inflated in practice, entitling staff to advance through salary steps in ways that the current budget cannot support. There is also no link between the performance appraisal system and training. Integrity in public service is promoted in line with the anti-corruption strategy; relevant measures to prevent corruption in public service are being implemented. Policy development and coordination The legal basis and institutions for a coherent policy-making system including European integration are in place. In practice policy coordination focuses on formal, procedural issues rather than on substance, and a clearer division of responsibilities between the General Secretariat, the Public Policy Secretariat and the new delivery units in the Prime Minister’s Office is essential. Policy planning is not systematically linked with medium-term fiscal planning. This jeopardises the sustainability of strategies and reform programmes. The hierarchy among strategies is needed to reduce the number of overlapping strategies. Inclusive and evidence-based policy and legislative development is only partially ensured. The administration has limited number of staff and capacity to develop policy and legislative proposals, including on the acquis. This is due to the fact that the administration has large implementation and inspection departments due to traditional focus on ensuring compliance. Public and inter-ministerial consultations on proposals are required but often conducted formalistically and too late in the process. Regulatory impact assessments are usually carried out, but their quality varies considerably. The introduction in March of compulsory financial impact assessments for all legislation is a positive step, but the Ministry of Finance will have to allocate necessary resources. The government publishes annual monitoring reports on key strategic documents. This enables public scrutiny of government work. However, the reports do not measure achievements against objectives. Parliamentary scrutiny is conducted by specialist legislative committees, without assessing the implementation of laws or strategies. Accountability of the administration The way the state administration is organised does not ensure effective lines of accountability. Many agencies decide on public policies and report to the Prime Minister and even to parliament rather than to the minister responsible for their area. Agencies have proliferated, making oversight difficult. Rationalisation is one of the priorities of the public administration reform (PAR) strategy, but the financial resources, capacity and political backing to carry out this process are a concern. Within institutions managerial accountability is not systematic and responsibilities are not delegated to middle management (see Chapter 32 - Financial control). The relevant internal and external oversight mechanisms are in place to enforce the citizens' right to good administration. The Ombudsman plays a key role, and the public authorities are obliged to report on implementation of his recommendations (see under Governance). The right to access public information is governed by the law on free access to information of public importance. The scope of the exemptions allowed does not meet European standards. The Commissioner for Information of Public Importance lacks resources, and this has resulted in a backlog of complaints. The law needs to be further strengthened to ensure the Commissioner’s decisions are carried out.

The general administrative procedures law governs the right to administrative justice, but a large number of special administrative procedures hinder overall transparency. The continuing backlog in administrative courts has also damaged public confidence. As regards the right to seek compensation, there are neither clear rules for compensation in cases of wrongdoing, nor available data on implementation of court cases. Public financial management Serbia has a medium-term budgetary framework, but strategies are not consistent with it. Programme budgeting has recently been introduced, but managerial accountability is needed to make it effective. Institutional coverage, in-year monitoring and reporting are weak and the budget is less reliable over the medium term. Until now, Serbia has focused on reforming certain parts of its public finance system, without explicitly linking different areas and reform measures. A public financial management reform programme for 2015-17 is under finalisation and should address identified weaknesses, link all public finance areas together and sequence reform actions among them. Budget transparency is not sufficiently ensured in practice. The 2014 deadline for submitting the budget to parliament was not met. Service delivery to citizens and businesses The PAR strategy aims at creating a more user-oriented administration. However, so far e-government projects and one-stop-shops have only been introduced on a case-by-case basis. Public satisfaction with government services is not measured regularly. There are too many special administrative procedures, which make it difficult to improve the level of service and introduce e-services. The recently adopted law on inspection supervision aims to simplify administrative procedures, improve law enforcement, tackle the grey economy and reduce administrative burdens. The new law on administrative procedures has yet to be adopted. Strategic framework for public administration reform Serbia has a PAR strategy and an action plan for 2015-2017. It sets clear targets and indicators and a good monitoring framework for measuring progress. Its effectiveness will need to be further assessed. A separate e-government strategy has not yet been adopted. The PAR Council, chaired by the Prime Minister, ensures political support. The Ministry of Public Administration and Local Self-Government coordinates implementation, via the inter-ministerial PAR group consisting of relevant state administration bodies, civil society and local government representatives. Financial sustainability of the reforms is not yet ensured. PAR measures have been budgeted as specific projects in individual institutions in the 2015 budget. The government will need to ensure funding in the 2016 budget and in the medium-term expenditure framework. 2.3.Rule of law Functioning of the judiciary Serbia’s judicial system has some level of preparation. Some progress has been made in the last year in promoting merit-based requirements for career progression, e.g. by adopting rules for evaluating judges and prosecutors. However, judicial independence is not assured in practice. There is scope for political interference in the recruitment and appointment of judges and prosecutors. Administration of justice is slow, with a significant backlog of cases. Frequent changes of legislation and insufficient training make the legal environment challenging. In addressing the shortcomings outlined below in the coming year, Serbia should in particular: → establish and implement a fair and transparent merit-based recruitment system and career management to better guarantee the operational independence of the justice system; → adopt a new law on free legal aid and enable smooth implementation in cooperation with main stakeholders; → reduce the case backlog and harmonise case law. Strategic documents In 2013 Serbia adopted a new 5 years National Judicial Reform strategy (NJRS) and action plan. The latter will need to be revised so as to reflect the main recommendations of the functional review of the justice system conducted by the World Bank. Management bodies The High Judicial Council (HJC) and the State Prosecutorial Council (SPC) submit proposals to parliament on judicial appointments and dismissals. They are chaired by the Supreme Court President and the State Prosecutor respectively. The HJC has 11 members. The SPC has 11 members. Responsibility for court and prosecution budgets is divided between the Councils (which are responsible for the budget for judges/prosecutors and operational costs) and the Ministry of Justice, which is responsible for court/prosecution office staff including judicial/prosecution assistants, infrastructure, IT equipment and capital investments. Efficiency in financial management is hampered by this shared responsibility and accountability. Independence and impartiality

The independence of judges and prosecutors is laid down in the Constitution and framework legislation. However, the Constitution and laws allow political influence. Parliament appoints the Supreme Court President and all court presidents, the State Prosecutor and all prosecutors. The composition and method of election of the HJC and SPC need to be amended to exclude political interference. Both councils have failed to react publicly in protection of judicial independence in cases of political interference in the work of judges and prosecutors. Court rules of procedure provide for random allocation of cases, but in practice not all courts use this procedure and exceptions are relatively frequent. There is no corresponding technology for allocating files randomly in prosecution offices. There is a legal framework in place on preventing judges from being removed and on withdrawing cases from judges. However, Court presidents retain extensive powers to remove judges from cases or reassign cases. Courts are not obliged to inform the HJC of the number of court cases withdrawn from judges. Accountability Codes of ethics are in place for judges, prosecutors and lawyers, but there is little training. There is an ethical committee in the SPC, but the HJC does not have such a body. There are no integrity plans in place for the judiciary. Integrity is not a standard criterion in the selection and nomination process. Disciplinary procedures are in place for both judges and prosecutors. The HJC and SPC are responsible for launching proceedings and for decisions on disciplinary and ethical matters. Where wrongdoing has been proven, the sanctions applied in disciplinary cases so far have not been deterrent. There are few cases against prosecutors. The HJC faced obstruction in concluding one landmark disciplinary case concerning judicial independence. Judges and prosecutors must declare their assets to the Anti-Corruption Agency every year and report possible conflicts of interest. A criminal case was filed against one judge, but it was rejected. Fourteen cases were brought against judges who failed to report significant changes in property ownership on time. Professionalism and competence Appointments, evaluation and dismissals are in the hands of the HJC and SPC. Both councils have adopted criteria and guidelines on appointments and evaluation. Application of the rules for judges has been delayed. Serbia lacks a comprehensive system of periodic individual evaluation of judges and prosecutors. There is a need to set out a systematic approach to career development, including training needs. Quality of justice The Judicial Academy is an independent institution with a mandate for initial and continuous training of the judiciary. Its current annual budget is EUR 1.496 million. It has 30 staff. The High Judicial Council and State Prosecutorial Council determine the number of initial trainees each year. Continuous training is voluntary, except where it is required by law or by a council decision. Initial training so far does not guarantee the standards needed by people entering the profession. The offered continuous training is insufficient to help practitioners overcome the serious challenges posed by numerous changes in the law and the poor overall quality of the laws. Judicial and prosecution assistants so far do not receive training. In 2015, the total budget for the judicial system represented EUR 26 per inhabitant. There are 38 judges, 11 prosecutors and 116 practising lawyers per 100 000 inhabitants. There are 209 private bailiffs (enforcement agents). The judicial system is adequately resourced compared to the EU average and in relation to GDP, but resources are not always allocated efficiently. Courts are partly funded by court fees (43 %), but collection rates are low and a further decline is expected as services are transferred to public notaries and private bailiffs. Budget planning and resource allocation are rarely adjusted. Automated information exchange is rare and information and communication technology remains largely underdeveloped. Meaningful, accurate and timely statistics are missing. There is not a consistent or easily accessible body of case law. There is no case-weighting system able to address the issue of significant differences in workload. A new law on mediation has been in force since January but awareness of mediation is limited and training among professionals is required. Serbia has observer status in the European Judicial Training Network (EJTN). Efficiency The overall length of proceedings and the number of old cases recorded as a backlog remain a serious concern. A national backlog reduction programme is in place but the courts did not meet the targets set for 2014, partially owing to a four-month strike by lawyers. The court system remains clogged by bureaucracy and extra-judicial duties, such as certification of documents, and especially by 1.6 million enforcement cases, mostly related to civil claims and utility bills. In 2014, the backlog increased further in the Supreme Court with a clearance rate, i.e. ratio of solved cases to newly received cases, of 80.7 %, whereas the basic courts, administrative courts and higher courts had clearance rates of 110 %, 103.74 % and 108.47 % respectively. Human resources policy is challenged by the need to manage a relatively high number of judges and the lack of skills among support staff. Fight against corruption Serbia has some level of preparation in the fight against corruption. Some progress has been achieved in the past year, especially in implementing existing legislation and adopting a new law on whistle-blower protection. However, corruption remains widespread and strong political impetus has yet to translate into sustained results. In addressing the shortcomings outlined below in the coming year, Serbia should pay particular attention to: → establishing a track record on investigations, indictments and final convictions in high-level corruption cases, → creating a robust system to coordinate and monitor implementation of the national anti-corruption strategy and action plan, ensuring that all key institutions have adequate capacity and resources to fulfil their remits effectively; → urgently amending and implementing the economic and corruption crimes section of the Criminal Code (in particular Article 234 on abuse of position of a responsible person) with a view to providing a credible and predictable criminal law framework; → swiftly adopting a new Law on the Anti-Corruption Agency to strengthen its role as a key institution in a more effective fight against corruption. Track record There is some initial track record of investigation, prosecution and convictions in corruption cases which are not considered high level. So far there has been no final conviction for high-level corruption. Policy-makers should ensure law enforcement bodies are fully empowered to act effectively and impartially when investigating corruption allegations. Healthcare, education, construction and spatial planning, infrastructure projects and the privatisation of public enterprises are particularly vulnerable to corruption. Independent supervision and capacity for early detection of wrongdoing and conflicts of interest in the management of state-owned companies, in privatisation procedures, public-private partnerships and in relation to public procurement procedures, are underdeveloped. There should be greater accountability and transparency in the management of public enterprises. Internal control departments lack equipment, resources and competent staff. Financial investigations are not yet being launched systematically in cases of corruption and organised crime. In a few corruption cases, assets have been confiscated. As regards political influence on the police, judges and prosecutors, Ministers (and MPs/party members) continue to criticise ongoing corruption investigations and court rulings. Preventing corruption in local administration requires more attention. Repeated leaks to the media about ongoing investigations, in breach of the presumption of innocence, are an issue of serious concern. A number of high-profile cases, including where evidence of alleged wrongdoing has been presented by the media, have not been seriously investigated. The Anti-Corruption Agency monitors the funding of political activities, including the municipal election campaigns in 2014, and issued a report in November. It also files requests for misdemeanour proceedings relating to asset declarations and conflict of interest. However, there is no track record of judicial follow-up to the Anti-Corruption Agency’s work, e.g. through in-depth checks on party funding, conflicts of interest and asset declarations. As regards free access to information, an analysis of refused requests for access to information shows that they mainly concern privatisation, concessions, public-private partnerships and other related issues that have an impact on the budget.

Institutional framework Serbia’s independent Anti-Corruption Agency has had a mandate to collect, analyse and, where necessary, to launch administrative investigations on data related to assets, conflicts of interest, political party financing and electoral campaigns, as a means of preventing corruption. However, the Agency lacks adequate financial, material and human resources to play its role effectively. The Anti-Corruption Council analyses cases of systemic corruption and provides the government with policy advice. However, the Council is under-resourced and the government does not follow up and act on its recommendations often enough. Laws on access to information are in place, but they do not ensure that the decisions of the Commissioner for Free Access to Information of Public Importance and Personal Data Protection are followed up. The Commissioner is unable to monitor outcomes. As regards law enforcement, prosecutors, judges and police do not have sufficient means to fight corruption. The prosecution service leads criminal investigations but cooperation with the police suffers from the lack of a common approach. Police and prosecutors are not proactive enough. There is no safe and secure platform for exchanging sensitive information between them, which hampers investigations. Capacity to carry out financial investigations and confiscate assets in corruption cases is limited. Legal framework The legal framework for the fight against corruption is broadly in place. The excessive recourse to the provision on abuse of office in the private sector in the Criminal Code is harmful to the business climate and legal certainty. Amendments to the Criminal Code are still under consideration to provide for a sustainable legal solution to effectively prosecute cases of criminal economic offences. There has been a significant delay in amending the Law on the Anti-Corruption Agency to enhance its role as a key institution in the fight against corruption. Serbia has ratified all major international instruments against corruption and is party to the UN Convention against Corruption, but has chosen not to criminalise illicit enrichment. It has signed and ratified the Council of Europe anti-corruption conventions. Procedures for investigating corruption cases, especially cases of high-level corruption, are often prolonged due to lack of capacity and an inadequate legal framework for financial investigations and asset recovery. Resources are inadequate and the relevant action plan has not been adopted. The law on access to information does not ensure adequate enforcement of the decisions of the Commissioner for Free Access to Information of Public Importance and Personal Data Protection. Lobbying is not regulated. Laws on conflict of interest need to be amended. Strategic framework The anti-corruption strategy and action plan for 2013-2018 is being implemented but several measures have been delayed. The inter-ministerial group to coordinate action, set up in 2014, has only met once and hence has not had the intended impact. Fight against organised crime Serbia has some level of preparation in the fight against organised crime. Some progress has been made in reorganising the Ministry of Interior and in increasing capacity for border control. However, the number of final convictions remains low. Efforts to investigate wider criminal networks and to process money laundering cases need to be stepped up. Financial investigations and the concept of intelligence-led policing remain underused. Precautionary freezing of assets is rarely applied and the level of assets confiscated is low. Independent and transparent oversight of the police is not in place. In addressing the shortcomings outlined below in the coming year, Serbia should pay particular attention to: → stepping up intelligence-led investigations with a view to developing a sustainable track record of final convictions and dismantling networks involved in organised crime, money laundering, people smuggling and trafficking in human beings; → establishing a secure platform to exchange intelligence between law enforcement agencies, devoting more attention to sharing data on cases with prosecutors and with the asset recovery directorate; → adopting a new law on the organisation of the police, and reinforcing the functions and independence of the internal control sector of the police. Track record The number of final convictions for organised crime remains low compared to the estimated value of the criminal market of the region. Very few cases have been brought for trafficking in human beings, despite Serbia being a source, transit and destination country for human trafficking. Labour exploitation of men, mainly Serbian nationals abroad, is increasing. There is a need to better identify victims, particularly asylum seekers and unaccompanied foreign minors. Serbia established good international and regional cooperation in the field of drugs, in particular with the 2014 seizure of 168 kg of marijuana jointly with the former Yugoslav Republic of Macedonia. In many cases there has been no serious effort to investigate wider criminal networks. This also applies to money laundering cases (6 indictments in 2014). Effective implementation of anti-money laundering legislation by all relevant institutions, including banks, is still needed. Criminal investigations are often narrow in scope and companies or organisations are very rarely investigated. There is no policy of systematically running serious financial investigations. The concept of financial investigation does not go beyond the seizure and confiscation of criminal assets of individuals. Serbia is not yet in a position to run complex financial investigations alongside criminal investigations. Precautionary freezing of assets is rarely applied early in the investigation. So assets often disappear, which results in a poor track record of confiscating criminal assets on final conviction. Sanctions applied by judges are not sufficiently deterrent. There are frequent leaks to the press, violating the secrecy of the investigation. Institutional and operational capacity Serbia has 33 387 police officers, or 464 per 100 000 inhabitants. In October 2014, the Ministry of Interior started reforming human resources departments to create a centralised service. There are no clear criteria for the recruitment, promotion, career path and evaluation of staff in the police, who remain vulnerable to politically motivated decisions. Serbia needs to take steps to exclude any political influence in police work. Command structures are complex, with overlapping responsibilities. The Ministry of Interior currently has three training centres, to be integrated into a new sector for human resources. The police academy is funded by the Ministry of Interior, but not part of it. Negotiations on cooperation with the European Police College (CEPOL) were concluded in April. Specialised units are in place on anti-terrorism, trafficking in human beings, synthetic drugs, cybercrime and financial investigations. All these units are in need of further staffing and specialised training. The general level of equipment varies across the ministry. Independent and transparent oversight of the police is not in place. The internal control section of the police is not independent or able to take special investigative actions without resorting to the intelligence agencies. There is a lack of resources, legal powers and overall political support from government, parliament and police leadership.

The operational capacity of prosecutors and the police is weakened by the lack of a secure platform for storing and exchanging information. Getting the various law enforcement agencies such as the police and the tax and customs administrations to work together on operations is hampered by the lack of smooth data exchange. An operational agreement with Europol is in place but the ministry has not yet appointed a liaison officer to The Hague. International cooperation is well established. The witness protection unit in the ministry lacks adequate staff, equipment and premises. The level of cooperation between the Serbian Witness Protection Unit and prosecutors needs to be improved. As regards crime statistics, a DNA database and profiling capacity are in place. A comprehensive, multidisciplinary and victim-oriented approach to human trafficking is needed. Capacity for anti-money laundering action is weak. Delays at the financial investigation stage increase the risk that assets will be taken out of the country. The courts and the Directorate for the Management of Seized Assets in the Ministry of Justice are under-equipped to carry out their remit to seize and confiscate property. The secure database of the Serbian police does not allow cases to be classified as international or domestic. It does not provide information from asset recovery activities. There is no standard measure on criminal statistics. Legal framework The law on the confiscation of criminal assets needs to be aligned with EU rules, notably as regards third party confiscation, extended confiscation and precautionary freezing of assets. Alignment is still required as regards the Swedish Initiative and the Prüm Decision, eliminating violence at sports events, protecting public figures and prosecuting motor vehicle crime with trans-border implications. Criminal legislation on issues such as trafficking in human beings, online child pornography and cybercrime needs to be aligned with EU rules. A number of shortcomings in the investigation phase need to be addressed, notably as regards the timeframe and arrangements for using special investigative measures. The police’s dependence on the security and intelligence agencies to carry out certain special investigative measures in criminal investigations remains a matter of serious concern. The investigative powers of the border police and customs remain limited. Strategic framework Serbia has national strategies on anti-money laundering, financial investigation and terrorism financing. Serbia still needs to establish a strategic picture of the organised crime situation inspired by the EU SOCTA methodology (serious and organised crime threat assessment). Serbia needs to adopt strategies on cybercrime and trafficking of human beings. Fight against terrorism Serbia amended its Criminal Code to criminalise the organisation of and participation in war or armed conflict in a foreign country. A coordination group for the fight against terrorism and the prevention of radicalisation and extremism has been set up. Serbia is also actively involved in international and regional police and judicial cooperation. The phenomenon of foreign terrorist fighters needs a tailor-made approach by the intelligence and law enforcement community and a coherent judicial policy on offenders. For developments in these areas, see Chapter 24 — Justice, freedom and security 2.4.Human rights and the protection of minorities Overall situation The legislation and institutions needed to uphold international human rights law are in place. Legislation to protect minorities and cultural rights is also broadly in place. However, sustained efforts are needed to ensure effective and consistent implementation across the country. Shortcomings particularly affect the following areas: • Conditions for the full exercise of freedom of expression are still not in place. Full implementation of the new media laws needs to be ensured. • Promotion and protection of the rights of the most vulnerable and discriminated groups, including the LGBTI persons, persons with disabilities, and persons with HIV/AIDS has yet to be fully ensured. Hate-motivated offences need to be properly investigated, prosecuted and sanctioned. • Efforts to improve the difficult living conditions of Roma and to combat discrimination need to be strengthened. Government coordination and leadership of Roma integration policy needs to be further improved. A detailed analysis of freedom of expression follows below. For a detailed analysis of developments on other human rights and the protection of minorities, see Chapter 23 — Judiciary and fundamental rights. For developments in trade union rights, anti-discrimination and equal opportunities, see also Chapter 19 — Social policy and employment. Freedom of expression Serbia has achieved some level of preparation concerning the right to freedom of expression. No progress has been made overall in the last year. A legislative package aimed at improving the situation in the media and clarifying the legal framework, particularly in relation to state financing and control of the media, is in place. However, conditions for the full exercise of freedom of expression are not in place. The new media laws need to be implemented. It has yet to be seen whether media privatisation will increase transparency of ownership and funding. Threats and violence against journalists remain of concern. Criminal charges and final convictions are rare. The overall environment is not conducive to the full exercise of freedom of expression. In addressing the shortcomings outlined here, in the coming year Serbia should in particular: → create an enabling environment in which freedom of expression can be exercised without hindrance; threats, physical assaults and cases of incitements to violence against journalists and bloggers should be reacted to and publicly condemned; → complete the process of privatising state- and municipally owned media; → strengthen the independence of the Regulatory Body for Electronic Media so as to better support editorial independence in the media; → ensure adequate funding to public broadcasting service and ensure editorial independence.

Intimidation of journalists Threats and violence against journalists remain of concern. Some criminal charges have been filed but final convictions are still rare. Prolonged police protection of several journalists, with no tangible action taken to remove the reasons for these security measures, in practice seriously hampered the exercise of their profession. The commission tasked to look into unresolved cases of murdered journalists from 1999 and 2001 has made further progress in its work leading to arrests. Legislative environment The 2014 media laws are a step towards clarifying the legal framework, particularly in relation to state financing and control of the media. Defamation has not been a criminal offence since December 2012. As regards the access to information that state bodies provide for the media, the Commissioner for Access to Information of Public Interest has reported several cases in which state bodies resorted to paying fines rather than disclosing the information requested. Implementation of legislation/institutions As regards the implementation of the three new media laws, the privatisation of state and municipally-owned media has started in line with the Law on Public Information and Media, albeit with some delays. The Regulatory Body for Electronic Media has further stepped up monitoring of content but its independence needs to be strengthened, in order to actively and properly perform its role. The Press Council has been more active in disclosing and analysing breaches of professional journalistic standards and the Journalistic Code. There has been no progress in investigating a series of cases of actions against websites that occurred in 2014. Efforts to identify and prosecute those suspected of violating internet freedoms are needed. Public service broadcasters The two public service broadcasters, Radio Television of Serbia (RTS) and Radio Television of Vojvodina (RTV), are financed from direct budget subsidies until 2016. They are also entitled to commercial funding and advertisement time which is lower than that for commercial broadcasters. The funds are insufficient, which has an impact on programme quality and diversity. Public broadcasting services in minority languages need to be ensured. Economic factors Opaque ownership, unregulated financing, covert and open political and economic influence on the media and money channelled to favoured media from various state sources continue to be features of the media environment. There have been cases reported of the rescheduling of tax debts for certain media outlets. The most common informal pressure on editorial policy is through advertising. Funding of media from state sources at all levels continues to be a problem. It is not yet clear what the effects will be of introducing project-based financing of content of public interest following privatisation and whether this method will be used by all other state actors which fund media. Professional organisation/professional conditions There are three main professional associations in Serbia. Journalists have little job security and low salaries and are thus prone to pressure and influence from economic and political quarters. There have been a number of cases in which journalists and editors have claimed that their firing or relocation resulted from expressing an opinion. Such circumstances encourage self-censorship. Journalists’ job security should be enhanced and press associations need to strengthen their role in trade union and employment matters. 2.5.Regional issues and international obligations There are no outstanding issues concerning Serbia’s respect for the Dayton/Paris Peace Agreement. Serbia continues to support the sovereignty and territorial integrity of Bosnia and Herzegovina, while preserving special relations with Republika Srpska, as envisaged by the Dayton Agreement. Serbia also supports Bosnia and Herzegovina’s path to joining the EU. Serbia has continued to cooperate fully with the ICTY. Serbia maintained its initiative to the ICTY for Serbian convicts to be allowed to serve sentences in Serbia. In the area of domestic processing of war crimes, cooperation between the special prosecutors of Serbia and Bosnia and Herzegovina continued on an upward course. The first joint investigative team worked successfully in December, leading to the indictment of five suspected perpetrators of war crimes. Cooperation and exchange of information with Croatia and EULEX continued but needs to be stepped up. It is important that these regional cooperation efforts continue to be strengthened. Some progress has been made on investigating high-profile cases. In March, eight former members of the Special (police) Brigade in the Ministry of Interior of the Republika Srpska suspected of committing war crimes against civilians in Srebrenica were arrested. Despite consistent efforts by the war crimes jurisdictions, the number of investigations against high-level officers has remained low, and courts have continued to pass lenient sentences. To maintain the quality of trials, measures should be put in place to preserve the extensive judicial experience acquired in processing these complex cases. Only a few victims of war crimes have access to effective compensation under the current legal framework. No concrete steps have been taken to address the serious weaknesses in the witness protection system. Political pressure undermining the work of the War Crimes Prosecution Office is an issue of concern. Serbia needs to adopt and implement an overarching national strategy for domestic handling of war crimes, backed by adequate resources. A dedicated prosecution strategy is also needed. Serbia’s policy on the International Criminal Court is in line with the EU’s guiding principles and EU common positions on the integrity of the Rome Statute. Serbia does not have any bilateral immunity agreements. Serbia, Bosnia and Herzegovina, Croatia and Montenegro have continued to closely cooperate under the Sarajevo Declaration Process, which aims to find sustainable solutions for some 74.000 persons who became refugees and displaced persons as a result of the armed conflicts in the former Yugoslavia during the 1990s. All countries need to further step up efforts to deliver on the implementation of the agreed housing solutions. In Serbia from the 4,153 housing solutions approved thus far worth EUR 71.5 million, the first 123 were delivered. The issue of refugees’ pensions between Croatia and Serbia is still unresolved. The unresolved fate of missing persons from the conflicts in the 1990s remains a humanitarian concern in the Western Balkans. As of April, a total of 10 814 persons were still missing, according to the figures of the International Committee of the Red Cross (ICRC). Of these, 7 019 cases are related to the conflict in Bosnia and Herzegovina, 2 125 to the conflict in Croatia and 1 670 to the conflict in Kosovo. The lack of information on new gravesites and difficulties in identifying exhumed human remains continue to be the key obstacles to solving the remaining cases. With regard to the Kosovo conflict, exhumation works in Rudnica-Raska resulted in identification of 52 victims. By end October, the Serbian authorities had handed over to EULEX all human remains recovered at this location. In line with the commitments made in the ICRC-chaired Working Group on Missing Persons, the Serbian authorities organised assessments of two locations suspected as potential gravesites related to the Kosovo conflict and provided the first set of documents requested from its archives in March. Limited progress was made on providing new information on missing persons in relation to the conflict in Croatia. In March, the relevant authorities of Serbia and Croatia met informally and agreed to go ahead with a joint update of the official list of missing persons. Ascertaining the fate of missing persons remains vital to reconciliation and stability in the region. Sustained political commitment and renewed efforts are needed.

Regional cooperation and good neighbourly relations form an essential part of Serbia’s process of moving towards the EU. Serbia has shown a constructive commitment to good neighbourly relations. Serbia has also continued to participate actively in regional initiatives such as the South-East Europe Cooperation Process, the Brdo process, the Regional Cooperation Council and the Central European Free Trade Agreement. Serbia hosted a ‘16+1’ summit of the states of Central and Eastern Europe (SEE) and China in December, and a Black Sea Economic Cooperation Parliamentary Assembly in March. It continued to actively support the Coalition for Reconciliation Commission (RECOM) and Igman initiatives on regional reconciliation. A fresh impetus has been given to regional cooperation through the 'Berlin process' and the Western Balkan six initiative notably regarding the EU’s connectivity agenda. Serbia hosted a meeting of the foreign affairs and economic ministers in October and constructively participated in the follow-up meeting in Pristina in March. In April, the Western Balkan Six countries reached an agreement on the core transport network and in June 2015 on extending three Trans-European Transport Networks core corridors to the Western Balkans. They also identified the priority projects to be implemented by 2020. The countries agreed to implement before the next summit in Paris a number of 'soft' measures such as aligning and simplifying border crossing procedures, road safety and maintenance schemes. As regards bilateral relations with other enlargement countries and neighbouring EU Member States, Serbia has concluded a bilateral convention on regional cooperation with Montenegro under Article 15 of the Stabilisation and Association Agreement, but not yet with Albania or the former Yugoslav Republic of Macedonia. The demarcation of borders with Bosnia and Herzegovina, Montenegro and Croatia remains pending. Relations with Albania improved overall. In October, an incident during a football match played by both national teams in Belgrade strained bilateral relations. In January a demarche was issued in connection with a flag of ‘Greater Albania’ displayed at the residence of the Albanian Prime Minister. However the subsequent visit to Serbia by Albania's Prime Minister in November was the first of its kind in 68 years. In March, the Speaker of the Serbian Parliament paid the first such visit to Tirana in decades. The Serbian Prime Minister's visit to Tirana in May was the first ever. Belgrade hosted the first meeting of the bilateral Joint Commission for Economic Cooperation. Serbian and Albanian Prime Ministers also prepared joint infrastructure projects within the Western Balkans Six initiative. The Serbian and Albanian Ministers of Foreign Affairs took part in a first trilateral meeting with their Italian counterpart in Rome. Relations with Bosnia and Herzegovina remained good. The chair of Bosnia and Herzegovina’s Presidency visited Belgrade and the Serbian Prime Minister visited Sarajevo in May. Serbian authorities condemned the terrorist attacks in Zvornik in April. The Serbian Prime Minister's attendance at the commemoration of Srebrenica genocide in July sent a positive message. In the wake of the attack against him on that occasion, he invited the members of Bosnia and Herzegovina Presidency, who travelled to Belgrade in July. Relations with the former Yugoslav Republic of Macedonia were further upgraded. The President of the former Yugoslav Republic of Macedonia visited Belgrade in October. A joint session of the two governments took place in February in Skopje at which several cooperation agreements were signed in the field of economy, culture, the environment, tourism, education, science and technology, together with an agreement on a border-crossing point. The Serbian authorities condemned the attacks in Kumanovo in May. Relations with Montenegro remained good. The Speaker of the Serbian Parliament visited Podgorica in October. The Prime Ministers met at the ‘16+1’ SEE-China summit in Belgrade in December. The Serbian Minister of Foreign Affairs visited Montenegro in February in his capacity as the OSCE Chairperson-in-Office. There were no developments on issues related to citizenship rights in the two countries. Relations with Turkey remained stable. There were sporadic tensions in November after the murder of a Serbian sports fan in Istanbul. The Serbian and Turkish Prime Ministers met at the World Economic Forum in Davos in January. The Speaker of the Serbian Parliament visited Ankara in April. A Protocol on inter-parliamentary cooperation was signed on that occasion. Relations with Bulgaria, Romania and Hungary improved further overall. The Bulgarian President visited Serbia in March. The Bulgarian, Romanian and Serbian Prime Ministers met in April in Craiova to discuss energy and transport infrastructure cooperation and agreed to give these meetings a permanent format as the ‘Craiova Group’. Three new border-crossing points between Serbia and Romania were opened in November. The two Prime Ministers met on several occasions. A trilateral China-Hungary-Serbia memorandum on cooperation on the construction of the Belgrade-Budapest railway was signed at the ‘16+1’ SEE-China summit. The two Prime Ministers met again in Subotica in February to discuss energy issues. The two countries developed constructive cooperation on addressing the peak of irregular migrants from Kosovo passing through Serbia early in 2015. A joint session of Serbia and Hungary governments took place in July in Budapest, resulting in the signature of several agreements on education, infrastructure and European integration. There were ups and downs in relations with Croatia. The Serbian Prime Minister attended the inauguration of the new Croatian President in February and the Serbian Foreign Minister visited Zagreb in March. The inter-state commission for the return of cultural heritage to Croatia decided in March on the return of over 500 cultural assets. In June, a Croatian citizen sentenced for war crimes in Serbia was transferred to serve the remainder of his sentence in Croatia. The provisional release of ICTY detainee Vojislav Šešelj and his subsequent public statements prompted sharp reactions in Zagreb. Serbia declared 5th August, commemorating the "operation Storm" in Croatia, a day of mourning and protested for hate speech and display of fascist symbols during Croatian commemorations. The decision of Vukovar's local authorities to remove bilingual signboards prompted acute reactions in Belgrade. Tensions following temporary restrictions of border crossings in September have been overcome. 3.Normalisation of relations between Serbia and Kosovo Serbia and Kosovo have remained engaged in the implementation of the agreements reached in the dialogue, in particular the April 2013 ‘First agreement of principles governing the normalisation of relations’. Work under the EU-facilitated dialogue has continued at technical level throughout the reporting period. The high-level dialogue resumed in February 2015, and four meetings attended by Prime Ministers Vučić and Mustafa were held in April, June and August. Key agreements were finalised on 25 August 2015. General principles/main elements on the establishment of the Association /Community of Serb majority municipalities in Kosovo through the adoption of its Statute were agreed. The text defines the legal framework of the Association/Community, its objectives, organisational structure, relations with central authorities, legal capacity, budget and financial support. It also provides the modalities/next steps for its establishment. In the field of Energy, two new Serbian energy companies (one dealing with import, export and transit; the other with supply and distribution services) were established in Kosovo. These companies are proceeding with their internal organisation before being able to apply for licenses. An action plan detailing the implementation steps of the Telecoms arrangement was also approved. Serbia and Kosovo agreed to ask the European Union to revitalise the Mitrovica bridge and its surroundings so that it can be reopened to all traffic by summer/not later than June 2016. In line with the same timetable, it was also agreed that the North Mitrovica municipality will revitalise its main street (King Peter Street) by turning it into a pedestrian zone. Progress has been made in other important areas. Following an agreement in February 2015, the dismantling of the Serbian structures on justice is well-advanced. Serbia facilitated applications of Kosovo Serb judges and prosecutors in the Kosovo judiciary. The proper handling of cases in the Mitrovica Basic Court, where Serbian official statements have at times interfered with the proceedings, requires a dispassionate environment. Integration of Kosovo Serb police and civil protection personnel is nearing completion. An agreement on vehicle insurance of June 2015, providing for the recognition in each other's jurisdiction of Serbia and Kosovo's respective vehicle insurance is being implemented. On customs, agreements were reached on the import of controlled goods into Kosovo, including for medicines. In the context of the liaison arrangements, and following an agreement reached in November 2014, all official visits are directly arranged by Liaison Officers. Progress was also reached in the field of cadastre: a new archives building was opened in Belgrade, where the scanning of documents pertaining to Kosovo is to be completed by June 2016. Following the Serbian Constitutional Court's rulings adjudicating that the form in which some dialogue agreements have been transposed was unconstitutional, Serbia has adjusted its regulatory framework related to these agreements, with the exception of freedom of movement. The Constitutional Court's rulings on the energy and telecoms agreements are still pending. Serbia needs to find legal solutions for the implementation of agreements that are sustainable and can withstand legal challenges. Implementation of other agreements has continued, albeit at a slower pace. On IBM, further to the six interim facilities, two additional permanent crossing points, were agreed, for which Serbia has initiated the expropriation process on its territory. However, illegal crossing roads/ by-passes, in particular in the north of Kosovo, continue to be regularly used to smuggle substantial amounts of goods. Additional measures need to be taken by Serbia to stop illegal crossings. The processing of cases in the framework of the 2013 general modalities for Mutual Legal Assistance has been suspended between October 2014 and August 2015 by the Serbian authorities. The handling of over 600 pending cases has resumed in September 2015. On regional cooperation, Kosovo became a permanent participant in RACVIAC (the Centre for Security Cooperation) and joined MARRI (Migration, Asylum, Refugees Regional Initiative). However, Serbia needs to remain committed to the continued implementation of the agreement on representation and participation of Kosovo in regional forums. Serbia and Kosovo also participated in constructive discussions to improve cooperation in tackling migratory flows from Kosovo early this year. Overall, Serbia and Kosovo have remained engaged in the dialogue and committed to the implementation of the April 2013 First agreement of principles governing the normalisation of relations and other agreements reached in the dialogue. The steps taken gave fresh momentum in the normalisation of relations and should have a positive and concrete impact on the everyday life of citizens in both Kosovo and Serbia. Further progress in this area remains essential for advancing the European future of both Serbia and Kosovo. 4.Economic criteria Key economic figures 2013 2014 Gross domestic product per capita (% of EU28 in PPS) 37 36 GDP growth (%) 2.6 -1.8 Unemployment rate (female; male) (%) 22.1 (23.8; 20.8) 18.9 (19.6; 18.3) Economic activity rate for persons aged 20–64: proportion of the population aged 20–64 that is economically active (female; male) (%) 66.0 (56.8; 75.3) 66.2 (57.5; 75.1) Current account balance (% of GDP) -6.1 -6 Foreign direct investment (FDI) (% of GDP) 3.9 3.8

Source: Eurostat In line with the conclusions of the European Council in Copenhagen in June 1993, EU accession requires the existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union. The monitoring of these economic criteria should be seen in the context of the increased importance of economic governance in the enlargement process; in 2015 the enlargement countries were invited to prepare Economic Reform Programmes (ERPs), which set out a medium-term macro-fiscal policy framework together with key structural reforms aimed at supporting the framework and boosting competitiveness. The ERPs were the basis for country-specific recommendations jointly adopted by the EU and the Western Balkans and Turkey in the Economic and Financial Dialogue meeting on 12 May 2015. 4.1.The existence of a functioning market economy Serbia is moderately prepared in developing a functioning market economy. Good progress was made to address some of the policy weaknesses, in particular with regard to the budget deficit, labour market and the business environment. However, fiscal imbalances are still high and major sectors of the economy are in need of reform. Credit activity is weak, also constrained by very high level of nonperforming loans. The private sector is underdeveloped and hampered by weaknesses with the rule of law. In line with the ERP recommendations and in order to support longterm growth, in the coming year Serbia should pay particular attention to: → sustaining efforts to reduce the budget deficit and the high public debt level; → advancing private sector development through the restructuring and privatisation of stateowned enterprises (SOEs) and addressing the challenges of stagnating credit growth and non-performing loans (NPLs); → implementing public administration reform. Economic policy essentials The government’s determination to pursue economic reforms has strengthened. Serbia submitted its Economic Reform Programme, covering the period 2015-2017, in March 2015. The objectives of the programme are to achieve macroeconomic stability, to remove obstacles to growth and to improve competitiveness. To this end, the authorities have already undertaken significant measures to reduce the budget deficit. They have also outlined an ambitious reform agenda aimed at restructuring state-owned enterprises, streamlining and improving the performance of public administration, improving the business environment, and strengthening financial stability. Serbia needs to follow up on its commitments and take further steps to implement the ERP recommendations, which are set out below. Since February, the government reform agenda has been supported by a new arrangement with the International Monetary Fund. Macroeconomic stability Serbia’s economy is recovering from a third recession in five years, but GDP remains around its pre-crisis level. Economic growth averaged 1.0 % over 2008-2013, while it was negative in 2014. The economy has become less dependent on consumer spending and more open as exports have increased by close to 50 % since 2009. The shift to new sources of growth is incomplete as investments remain weak despite some signs of picking up in 2015. Slow economic development has led to stagnating average income per capita (PPS), which stands at 36% of the EU average. External imbalances have been reduced by growing exports and subdued imports. The current account deficit fell below 5.0 % of GDP in the first half of 2015, down from doubledigit levels in the beginning of the decade. Most of the deficit was covered by net foreign direct investment, which stabilised at close to 4 % of GDP, still below the needs of the economy. External debt has increased since mid-2014 to around 80 % of GDP but, in view of shrinking external imbalances, debt sustainability does not raise immediate concerns. The official foreign exchange reserves stand at a comfortable level, covering about seven months of imports of goods and services — an important buffer in view of external risks. Unemployment remains very high despite signs of improving labour market conditions. Unemployment fell below 20 % and both employment and activity rates have increased. Although some of the new jobs were in the public sector or in informal employment, large gains were observed in registered private employment, especially for women. Most of these jobs, however, went into less paid, low productivity sectors. Average real wages fell as a result of public sector wage cuts. However, private sector wages have recently increased. Prices have been broadly stable, allowing the central bank to reduce interest rates. Inflation has been below the central bank tolerance band (4 % ±1.5 percentage points) for more than a year. Low inflation is the result of low international prices of primary commodities, weak domestic demand, exchange rate stability and delays in administrative price adjustments. The low inflationary environment and a rapidly falling budget deficit in 2015 allowed the central bank to cut its key interest rate in successive steps, from 8.0 % in February to 5.0 % in September 2015 and to gradually cut the foreign currency reserve requirement ratio by six percentage points by February 2016. The budget deficit fell sharply in the first half of 2015, but fiscal consolidation still needs to be sustained and underpinned by implementing structural reforms. The 2015 budget targets a deficit of 5.8 % of GDP and is based on a large decrease in current expenditure. Considerable savings have already been made from the cuts in pensions and public sector salaries implemented last year. Additional savings are expected from a number of other measures ranging from public administration reform, to lower subsidies and reforming public enterprises.

ERP recommendation 1: ‘Strengthen fiscal consolidation by using any excess revenue and current expenditure savings to further reduce budget deficits in 2015 and the following years. Underpin the medium-term consolidation path by implementing the planned structural reforms.’ ERP recommendation 3: ‘Further strengthen public finance management, notably by improving the budgetary process and the capacity of the tax administration. Compile and start submitting to Eurostat excessive deficit procedure notification tables before the end of 2015.’ Revenue collection continued to improve in 2015, in particular due to some excise duties and nontax revenue (e.g. telecom licences and SOEs dividends). In addition, expenditure restraint and under execution of capital spending have led to a betterthanexpected budgetary performance. By the end of August the cumulative deficit stood at only 1.1 % of the annual GDP — a third of its level in the previous year and far below the target. In view of Serbia’s high indebtedness and the extensive structural reform agenda, and in line with ERP recommendations, consolidation efforts need to be sustained. This requires Serbia to tackle the biggest sources of fiscal risk by further strengthening tax administration and public finance management, implementing public administration reform and restructuring stateowned enterprises in line with adopted plans. The recently improved fiscal performance followed years of increasing fiscal imbalances and missed budget deficit targets. The budget deficit averaged 5.7 % of GDP over 20092014, regularly overshooting planned deficits. It went up to 6.7 % of GDP in 2014, reflecting mainly higher spending on interest payments, activated government guarantees and expenditure related to bail outs of failed state-owned banks and loss-making SOEs. Revenue was lower than planned and budget execution was marked by significant under execution of capital expenditure, pointing to a general problem of weak preparation of public investment projects. Government debt rose above 70 % of GDP. Interplay of market forces Some steps have been taken to start restructuring large stateowned enterprises. Payment discipline between SOEs has been improved and could be further strengthened following recent legislative amendments. However, SOEs restructuring continued to face delays and big utility companies remain a significant source of market distortions and fiscal risk. Therefore, it is important that Serbia advances the restructuring of these companies in accordance with ERP recommendations. ERP recommendation 2: ‘Advance the restructuring and privatisation of state-owned enterprises, prioritising the biggest companies. Introduce better corporate governance and advance, as planned, the organisational and financial restructuring of large, loss-making utilities. […]’ In December, the government adopted guidelines for restructuring Srbijagas, the stateowned gas company. In line with these, in early July it adopted a decision to unbundle the operation of gas transmission networks and distribution activities. The financial restructuring of the company is still awaited and the resolution of its biggest debtors needs to advance further. A corporate restructuring plan for Elektroprivreda Srbije, the state-owned power utility, was adopted in November and — as a first step — the company was reorganised to increase its efficiency. A financial restructuring plan, which contains measures to reduce costs and improve revenues, including a 4.5 % increase in the regulated electricity tariff, was adopted in June. In January 2015, the government announced full liberalisation of the electricity and gas market, allowing users to switch to a distributor other than the state-owned utility company. However, only 5 % of all users have done so, as households and small buyers still have the right to guaranteed usage at regulated prices. In July, Railways Serbia was unbundled into passenger, freight and infrastructure, including by creating a holding company. Corporate and financial restructuring plans have been prepared and are planned to be adopted by the government in September. Privatisation attempts have been revived recently, although results so far are marginal. The sustainable operation and future privatisation of the steel mill in Smederevo is a key challenge. In June, the government took steps to start the privatisation of the majority stateowned Telekom Srbija. In January, it adopted an action plan to resolve 188 companies through a bankruptcy procedure. In addition, about 200 enterprises are expected to be fully or partially privatised, either by equity or asset sales, or through strategic partnership. The protection of companies in restructuring from forcible collection of debts and bankruptcy expired in June. However, it was extended for 37 of them until October, while for another 17 firms, deemed of strategic importance and employing some 22.000 people, protection was extended until end of May 2016. As the end of the restructuring process is expected to result in redundancies, the government has put in place an adequately funded social programme. In view of the time and capacity needed to process such a large number of privatisations, the government should prioritise the restructuring of the biggest and most problematic cases. Market entry and exit Procedures for construction permits have been improved but further efforts are needed to ensure proper implementation. As in previous years, in 2014 the number of newly established companies (8 209) was more than three times the number of companies closed (2 601). Still, market entry has continued to be burdened by lengthy and costly procedures to obtain various permits. One major improvement was the introduction of a new integrated procedure for issuing construction permits (‘onestop shops’); its implementation has in most cases significantly shortened the time required to obtain permits. The establishment of an electronic permitting system is envisaged to be set up by 2016. The issue of converting usage rights into ownership rights of construction land, which had hindered potential investments, was solved but further efforts are needed to ensure proper implementation. Legal system

ERP recommendation 5: ‘Improve the business environment and tackle the grey economy, notably by better regulating para-fiscal charges, business inspections, and leasing of labour. Take steps to further simplify the regulatory environment by re-launching the ‘regulatory guillotine’.’ Legal predictability and enforcement have remained weak and significant efforts are needed to further improve the business environment. Many laws, important for structural reforms and socioeconomic development, are still adopted through emergency procedures, without proper consultation and public debate. Moreover, the implementation of laws remains problematic as there are long delays in the adoption of by-laws. The judicial system has been slow to enforce property rights. The backlog in the courts is still substantial and companies often avoid using the courts as a solution to their problems. Enforcement of legislation on property restitution, which is expected to improve legal clarity over real estate ownership, is making progress; 42 % of all claims submitted have now been resolved. The informal economy remains a major obstacle to fair competition and business development. To tackle the grey economy, the government adopted an action plan and set up a coordination body. A new law on inspection oversight, introducing a risk assessment system and better coordination between different administrative bodies, was adopted in April. Implementation of the new legislation and rules still needs to be tested. Further efforts are needed to better control para-fiscal charges and to regulate labour leasing, and to further simplify the regulatory environment in accordance with ERP recommendations. ERP recommendation 4: ‘Advance with the rebalancing of macroeconomic policies with fiscal consolidation as a pre-condition for a more accommodative monetary policy stance, with a view to fostering a pick-up in the pace of credit extension. In this context, increased efforts to address the high burden of non-performing loans on banks’ balance sheets, involving all key stakeholders including the central bank as necessary, also appear warranted.’ Financial sector development The banking system is still facing a number of challenges, including weak credit activity and a high level of nonperforming loans (NPLs). The financial sector continued to be dominated by commercial banks, mostly foreignowned, holding more than 90 % of all assets, followed by insurance companies with 5.2 %. In June, the central bank enhanced its monitoring of majority Greekowned banks and limited their transactions with parent banking groups. Euroisation continued to be widespread, with about three quarters of deposits and of loans to households and businesses denominated in or linked to foreign currencies. Financial intermediation was revived only temporarily due to a boost from a government subsidised programme. Still, credit growth remained weak and credit to the private companies continued shrinking, marking an absolute fiveyear low in April. Commercial banks have channelled their resources into lending to the government, albeit at a slower pace, and in building up their net foreign assets. Mirroring the difficult economic environment and constraining lending activity, NPLs remained very high at 22.8 % in June. However, the banking system as a whole remained adequately capitalised and liquid. With the help of international financial institutions, the government adopted a comprehensive strategy and an action plan for NPL resolution in line with ERP recommendations. In August, the central bank also adopted an action plan for implementing this strategy. Special bank diagnostic studies, to be completed in October, should also provide additional information on the quality of bank assets and support the implementation of the NPL strategy. Governance weaknesses prompted the strengthening of the supervisory and improvement of the bank recovery and resolution frameworks. 4.2.The capacity to cope with competitive pressure and market forces within the Union Serbia is moderately prepared in terms of capacity to cope with competitive pressure and market forces within the Union. Some progress was made particularly with regard to further opening up the labour market and providing support for the development of small and mediumsized enterprises (SMEs). However, the education system has remained inefficient, physical infrastructure underdeveloped and the informal sector and state aid have remained substantial. In line with the ERP recommendations and in order to support long term growth, in the coming year Serbia should pay particular attention to: → improving the quality of the education system and gearing it towards labour market needs; → stimulating private investments and speeding up the implementation of public infrastructure projects; → providing a transparent framework of state support to the private sector, with a focus on SMEs. ERP recommendation 6: ‘Adopt a comprehensive and well-targeted set of active labour market policies, with a focus on youth and the long term unemployed, as well as dedicated skills upgrade programmes. The finalisation of the national qualifications framework should be the first step in a progressive reform of the education system, aimed at improving the outcomes of the system, thereby enhancing the human capital productivity.’ Human and physical capital The needs of the economy and a worsening demographic situation demand further reforms of human capital policies in accordance with ERP recommendations. Although Serbia’s public spending on education is comparable to that of EU countries, its quality has remained low, manifested in below-average OECD Programme for International Student Assessment (PISA) test scores and a high number of unskilled workers. Despite recent improvements, the labour market is still characterised by high unemployment, skills mismatches, a high share of informal employment, and high migration rates (especially of highly-skilled workers). The efficiency of the education system needs to be improved by rationalising the school network and gearing vocational education more to labour market needs. Additional emphasis should be placed on teacher training and curriculum reforms at basic levels of education. This is the means by which the basic and transversal skills and student competences can be improved, better preparing them for the job market or further education. Serbia has maintained a relatively high proportion of public investment in research and innovation. However, there is little private investment and little cooperation between public and private researchers. Active labour market policies have been in decline until recently. They need to focus on youth and the long-term unemployed and provide stimulation to employers to reduce the informal forms of employment, in line with ERP recommendations. ERP recommendation 7: ‘Stimulate private investment, for example by establishing public schemes to support lending to SMEs and research activities in companies. To increase public investment, improve preparation and speed up the implementation of public projects. Step up the works on corridors VII and X in line with the regional core network. Improve energy production and transmission, most notably by better governance of energy firms, regulation of the network and the construction of gas inter-connectors.’ Physical infrastructure is severely affected by years of underinvestment and concerted efforts are needed to boost private and public investment. Investment has still not recovered to precrisis levels and remained at about a quarter below its peak. Public investment, in particular, has been subdued. The poor state of infrastructure undermines competitiveness and deters foreign investors, hampering regional and EU trade integration. There is a clear need to increase public investment, improve preparation and speed up the implementation of public projects, in particular those included in Serbia-EU’s ‘single project pipeline.’ The ongoing fiscal consolidation and the reform of governance of public projects should create the conditions for increasing infrastructure investment and stepping up work on regional transport corridors in accordance with ERP recommendations. In addition, to diversify energy supplies Serbia should go ahead with the construction of gas interconnectors as planned. Private investment should be further stimulated by establishing public schemes to support lending to SMEs and research activities in companies, in line with ERP recommendations.

Sectoral and enterprise structure The structure of the economy remained broadly unchanged and reducing the large informal sector remains a major challenge. With a share of 50.9 % of GDP, services continued to play a major role in the economy. In 2014, agriculture slightly increased its share to 8.1 % of GDP, whereas industry’s share fell by 1.7 percentage points to 20.7 % of GDP due to the floods which severely affected the energy and mining sectors. Employment was roughly unchanged across sectors, with agriculture remaining the biggest sector, employing almost a fifth of the labour force. The large informal sector represents a major obstacle for economic development, fuelled by weak rule of law, and imposes significant risks and costs to the overall economy. SMEs account for over 70 % of employment, but contribute only 53 % of the total gross value added. They remain disadvantaged compared to large companies and stateowned companies that receive state aid. SMEs are the most affected by the poor access to finance in Serbia, Limited progress has been made as regards the development of SMEoriented financial instruments. State influence on competitiveness ERP recommendation 2: ‘[…] Review the efficiency of all forms of state aid and take steps to reduce it. Proceed to revisit public sector employment in a sustainable manner by implementing the Action plan on public administration reform.’ State support for loss-making SOEs remained significant and needs to be addressed in line with ERP recommendations. In 2014, spending on these measures combined has reached the highest level since 2000. The increase over the last three years was in large part due to the delayed process of resolution of SOEs. However, signalling a change in policy, the 2015 budget law does not envisage new issuance of state guarantees for liquidity support and limits new projectbased guarantees. More predictable instruments of state support to the private sector need to be developed to benefit both foreign and domestic investors. State support should also be redirected towards efficient and horizontal objectives, such as support to SMEs and research and development. Economic integration with the EU Serbia improved its external competitiveness and increased further its trade integration with the EU. A weaker dinar and a relative decrease of labour costs have boosted external competitiveness. The EU increased its trade with Serbia and remained by far the country’s main trading partner, accounting for 69 % of total exports and 61 % of total imports of goods. Exports to Central European Free Trade Agreement (CEFTA) countries represent 20 % of all exports and have the potential to be boosted by the planned trade liberalisation in the services sector. The EU also remains the main source of FDI with a share of almost threequarters. Through the network of various free trade agreements, Serbia enjoys good market access but needs to facilitate trade by measures removing non-tariff barriers, especially for companies operating in global value chains. 5.Ability to assume the obligations of membership 5.1.Chapter 1: Free movement of goods The free movement of goods ensures that many products can be traded freely across the EU based on common rules and procedures. Where products are governed by national rules the principle of the free movement of goods prevents these creating unjustified barriers to trade. Serbia is moderately prepared for the free movement of goods. Some progress was made, notably with the adoption of European standards. In the coming year, Serbia should in particular: → ensure better implementation of technical requirements and standards. On the general principles, Serbia is drafting a methodology to ensure alignment with Articles 34-36 of the Treaty on the Functioning of the European Union (TFEU). On horizontal measures, the quality infrastructure strategy for the period 2015-2020 was not yet adopted. The administrative capacity of the Ministry of Economy, in charge of coordination, has decreased and needs to be strengthened. On standardisation, the Institute for Standardisation of Serbia (ISS) has adopted approximately 96 % of all European standards and harmonisation documents. It has met the technical criteria for full membership of the European Committee for Standardisation (CEN) and the European Committee for Electrotechnical Standardisation (CENELEC). The ISS currently has 187 active technical committees and 62 full-time employees. Amendments to the Law on Standardisation were adopted in May, aiming to further align national legislation with the acquis. A total of 37 conformity assessment bodies have been designated under the relevant EU directives. In April 2015 Serbia repealed the