TABLE OF CONTENTS

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

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

1.2........ Context 3

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

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

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

2.2........ Human rights and the protection of minorities. 10

2.3........ Regional issues and international obligations. 11

3........... Economic criteria. 12

3.1........ The existence of a functioning market economy. 12

3.2........ The capacity to cope with competitive pressure and market forces within the Union. 17

4........... Ability to take on the obligations of membership. 19

4.1........ Chapter 1: Free movement of goods. 19

4.2........ Chapter 2: Freedom of movement for workers. 20

4.3........ Chapter 3: Right of establishment and freedom to provide services. 20

4.4........ Chapter 4: Free movement of capital 21

4.5........ Chapter 5: Public procurement 21

4.6........ Chapter 6: Company law.. 22

4.7........ Chapter 7: Intellectual property law.. 23

4.8........ Chapter 8: Competition policy. 24

4.9........ Chapter 9: Financial services. 25

4.10...... Chapter 10: Information society and media. 26

4.11...... Chapter 11: Agriculture and rural development 27

4.12...... Chapter 12: Food safety, veterinary and phytosanitary policy. 28

4.13...... Chapter 13: Fisheries. 29

4.14...... Chapter 14: Transport policy. 29

4.15...... Chapter 15: Energy. 30

4.16...... Chapter 16: Taxation. 31

4.17...... Chapter 17: Economic and monetary policy. 32

4.18...... Chapter 18: Statistics. 33

4.19...... Chapter 19: Social policy and employment 34

4.20...... Chapter 20: Enterprise and industrial policy. 35

4.21...... Chapter 21: Trans-European networks. 36

4.22...... Chapter 22: Regional policy and coordination of structural instruments. 37

4.23...... Chapter 23: Judiciary and fundamental rights. 38

4.24...... Chapter 24: Justice, freedom and security. 47

4.25...... Chapter 25: Science and research. 50

4.26...... Chapter 26: Education and culture. 51

4.27...... Chapter 27: Environment and climate change. 51

4.28...... Chapter 28: Consumer and health protection. 53

4.29...... Chapter 29: Customs union. 55

4.30...... Chapter 30: External relations. 55

4.31...... Chapter 31: Foreign, security and defence policy. 56

4.32...... Chapter 32: Financial control 57

4.33...... Chapter 33: Financial and budgetary provisions. 57

1. Introduction 1.1. Preface

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

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

– briefly describes the relations between Albania and the European Union;

– analyses the situation in Albania in terms of the political criteria for membership;

– analyses the situation in Albania on the basis of the economic criteria for membership;

– reviews Albania’s capacity to take on the obligations of membership, i.e. the acquis expressed in the Treaties, the secondary legislation, and the policies of the Union.

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

The report is based on information gathered and analysed by the Commission. Many sources have been used, including contributions from the government of Albania, the EU Member States, European Parliament reports[1] and information from various international and non-governmental organisations.

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

1.2. Context

The Stabilisation and Association Agreement between Albania and the EU entered into force in April 2009. Albania presented its application for membership of the European Union on 28 April 2009. Following a request by the Council, the Commission submitted its Opinion on Albania’s application in November 2010. In December 2010, the Council noted that the opening of accession negotiations would be considered once the Commission has assessed that the country has achieved the necessary degree of compliance with the membership criteria and, in particular, has met the key priorities set out in the Commission’s Opinion.

In view of the progress made by Albania, the Commission recommended in October 2012 that Albania be granted candidate status subject to the completion of key measures in the areas of judicial and public administration reform and revision of parliament’s rules of procedure. In December 2012 with a view to deciding whether to grant candidate status, the Council invited the Commission to report to the Council as soon as necessary progress has been achieved, also taking into account the further action taken by Albania to fight corruption and organised crime, including by proactive investigations and prosecutions of such cases. Regarding the opening of negotiations, the Council stressed that sustained implementation of reforms and fulfilment of all key priorities would be necessary.

1.3. Relations between the EU and Albania

Albania is participating in the Stabilisation and Association Process.

Overall, Albania has been implementing its obligations under the Stabilisation and Association Agreement (SAA) well. A Protocol to the SAA to take account of Croatia’s accession to the EU has been agreed between the EU and Albania. The Protocol is currently under ratification and measures for its provisional implementation have been taken until the ratification process is completed on both sides.

Regular political and economic dialogue between the EU and the country has continued through the SAA structures. The Stabilisation and Association Committee and Council met in March and April 2013 respectively. Meetings of six subcommittees and a meeting of the special group on public administration reform were held. Albania participates in the multilateral economic dialogue with the Commission and the EU Member States to prepare the country for participation in multilateral surveillance and economic policy coordination under the EU’s Economic and Monetary Union.

Visa liberalisation for citizens of Albania travelling to the Schengen area has been in force since December 2010. In the framework of the post-visa liberalisation monitoring mechanism, the Commission regularly assesses progress made by the country in the implementation of reforms introduced under the visa roadmap. This also includes an alert mechanism to prevent abuses, coordinated by Frontex. Within this framework, the European Commission has regularly submitted its monitoring reports to the European Parliament and Council. The next report will be presented by the end of 2013. A readmission agreement between the European Union and Albania has been in force since 2005.

Pre-accession financial assistance is provided under the Instrument for Pre-Accession Assistance (IPA). Albania has benefited from IPA components I — Transition Assistance and Institution Building and II — Cross-border Cooperation. In the period 2007-13, the EU allocated a total of approximately €594 million for Albania which includes approximately €81 million in 2012 and €82 million in 2013 for the national programme under IPA component I. The 2011-13 multiannual indicative planning document for IPA component I envisages a sectoral approach with the focus on justice and home affairs; public administration reform; transport; environment and climate change; social development; and agriculture and rural development. Assistance for this component is managed by the EU Delegation in Tirana.

Under IPA component II, Albania participates in the management and implementation of three programmes in the Western Balkans (with Montenegro, the former Yugoslav Republic of Macedonia and Kosovo*). It participates in one bilateral cross-border cooperation programme with an EU Member State (Greece); and three multilateral programmes (including EU Member States), i.e. the transnational programmes ‘South-East Europe’ and ‘Mediterranean’ and the Adriatic regional programme.

For the period 2014-2020, the government of Albania and the Commission are discussing needs and capacities for future assistance, under the new Instrument for Pre-Accession Assistance (IPA II).

Albania participates in the following EU programmes: the ‘Seventh research framework programme’; ‘Entrepreneurship and innovation’ under the ‘Competitiveness and innovation framework programme’; ‘Lifelong learning programme’; ‘Europe for citizens’; ‘Culture’; and ‘Customs 2013’.

2. Political criteria

This section examines the progress made by Albania towards meeting the Copenhagen political criteria, which require stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities. It also monitors regional cooperation, good neighbourly relations with enlargement countries and Member States and compliance with international obligations.

2.1. Democracy and the rule of law

Despite a tense and often polarised political climate in the run-up to the general elections in the first half of 2013, Albania continued its efforts on reforms in all areas under the key priorities. The conduct of the elections of 23 June, which resulted in a clear victory for the opposition Socialist Party-led coalition Alliance for European Albania, was positively assessed by the international election observation mission. The then incumbent Prime Minister promptly conceded defeat, paving the way for a smooth change of government.

Elections

The tense and polarised political climate ahead of the June elections at times jeopardised the work of the election administration bodies. The elections themselves were competitive and conducted in an orderly manner overall. Voter turnout was 53.6%. Voting and counting proceeded well, with the exception of some isolated incidents and procedural irregularities which did not affect the generally smooth conduct of the elections. Overall, the elections marked tangible progress with respect to previous practice, therefore meeting the key priority on the conduct of elections. Further enhancing the independence of the election administration at all levels and implementing the OSCE/ODIHR recommendations following the elections are important for continued improvement in future elections.

Parliament

During the autumn 2012 parliamentary session, a substantial number of parliamentary acts were adopted with cross-party support. At the end of May, after a prolonged period of cross-party controversy, parliament adopted key measures required for progress on EU integration, namely the Law on the Civil Service, the Law on the High Court and parliament’s rules of procedure. The new rules of procedure will contribute considerably to improving the proper functioning of the parliament, consolidating the progress made last year in addressing the relevant key priority.

In December, the former head of the High Inspectorate for Declaration and Audit of Assets was voted into office as the new General Prosecutor with the votes of the ruling majority. The opposition, while not passing judgment on the merits of the candidate, did not vote, asserting that the termination of the previous incumbent’s mandate in November had been unconstitutional. The former General Prosecutor, who was dismissed in 2012, has still not been restored to her former position as a judge.

The transparency of the legislative process was increased. Minutes of committee meetings and plenary sessions are systematically published on parliament’s website. The involvement of civil society and interest groups in the legislative process has improved. A growing number of interest groups have been asked for opinions on draft legislation. Deadlines for providing comments generally remain too short and there are no clear rules on public consultation. A more transparent and inclusive consultation process, further involving civil society and social partners, would increase public trust in legislative drafting. Draft laws have not always been published on parliament’s website, and many of them have been put on the agenda at short notice without sufficient public consultation or proper time for scrutiny by members of parliament (MPs). Outreach by MPs to their constituencies remains an area for improvement.

Parliament’s oversight role continued to be limited. In particular, it has not properly followed up with the executive all the findings of the reports of independent institutions such as the Ombudsman and the State Audit Office. Parliament’s interaction with the various independent institutions needs to be further strengthened.

The Parliamentary Committee on European Integration has closely monitored the revised action plan addressing the key priorities of the Commission’s Opinion. It also exercised its oversight role through hearings with the Minister of European Integration, the Minister of Foreign Affairs and the Minister of the Interior. European integration remained a focus of parliament’s work.

The new Prime Minister has committed to involving the opposition closely in the process of European integration. Consolidating the political dialogue between the ruling majority and the opposition is needed to further strengthen parliament’s democratic functioning.

Overall, the functioning of parliament improved. Transparency of the legislative process and involvement of civil society and interest groups increased. Albania needs to focus its efforts on a more inclusive consultation process and on strengthening parliament’s oversight role. It is important that cooperation between the government and the opposition functions well to provide a solid basis for further reforms.

Government

The government continued to reiterate its commitment to EU integration. The implementation of the revised action plan to address the Opinion’s key priorities continued, albeit at a slow pace. The adoption of important strategic documents such as the national strategy for development and integration for 2014-20 and the updated national plan for implementation of the Stabilisation and Association Agreement was postponed.

The Ministry of European Integration (MEI) has consolidated its role as key coordinator for EU affairs; e.g. line ministries have been tasked with institutional responsibilities for alignment with and implementation of the EU acquis. To manage the challenges of upcoming EU-related reforms, the ministry’s institutional capacity needs to be strengthened. The functioning of the 35 interinstitutional working groups has not improved and they largely remain ad hoc fora.

Cooperation between the MEI and line ministries needs to be further improved, and the ministry’s coordinating role systematically respected.

A government reshuffle took place in April, after the Socialist Movement for Integration (SMI), the Democratic Party’s junior coalition partner, withdrew from the ruling coalition and formed an electoral coalition (‘Alliance for European Integration‘) with the Socialist Party (SP). Following the general elections, a new coalition government led by the SP and with the participation of the SMI was appointed within the first week of the new legislature in early September. The transition to the incoming government was smooth. European integration is a key priority of the new government’s programme.

Regarding local self-government, territorial administrative reform and decentralisation have only marginally evolved. The Law on Urban Planning was adopted in April with the aim of clarifying planning instruments, competences and relevant procedures. Implementation of the Law on Territorial Planning is slow. Local government units, especially those with low budgets and few human resources, have difficulties in implementing relevant legislation and development programmes.

Local government revenues have fallen by 21%. Local government’s human resources management and financial control remain weak. The lack of strategically oriented and transparency-based central funding remains a challenge, as does the high percentage of temporary contracts in local government administration. The Council of Ministers’ decision on the structure and organisation of public bodies has not been implemented at local level. The highly politicised debate on the composition of some regional and municipal authorities has hindered their effectiveness and limited the role of local authorities’ associations in strengthening coordination between local and central government. Local authorities need to develop an inclusive strategic dialogue with civil society.

Overall, the government continued its EU integration and political reform efforts, in the run-up to the elections, in the post-election period and after the new government took office. The implementation of the revised action plan to address the Opinion’s key priorities continued, albeit at a slow pace. The new government will need to focus immediately on strengthening strategic planning and budgeting and on improving coordination at central level and/with local level. Regarding EU-related reforms, monitoring of implementation, follow-up, and corrective action need to be intensified.

Regarding local government, local democracy and fiscal decentralisation need to be promoted. Even greater efforts are needed to enforce effectiveness, transparency, inclusiveness and strategic planning, fighting politicisation and corruption. Closer coordination between central and local government is needed, including strengthening the role of local government associations.

Public administration

Public administration reform is another key priority of the Opinion. The adoption in May of the Civil Service Law, one of the measures required for obtaining candidate status, was a major step towards de-politicising public administration. The law, entering into force in October, is essential for building a professional, effective and merit-based public administration. It aims to create a consistent legal framework comprising state administration, independent institutions and local government units. It provides a clear classification of civil servants, formally establishes a top-level management civil servants corps and provides the basis for a transparent recruitment and promotion system. The law abrogates existing legislation without providing the necessary transitory provisions until its implementing legislation enters into force; the government approved in September 2013 technical amendments to avoid this legal vacuum. Timely adoption of the secondary legislation compliant with the principles of the law and proper implementation is essential. The Law on General Administrative Procedures is still pending.

Implementation of the Law on Administrative Courts was delayed pending the entry into force of the Law on the High Court, one of the three laws needed to obtain candidate status. The implementation of the Law on the Organisation and Functioning of the Public Administration needs to be enforced. Implementation of the Law on Inspections progressed with the adoption, in February, of provisions aimed at reducing the length and cost of inspections. Further secondary legislation on the organisation, structure, and code of ethics of the staff of the General Inspectorate has been adopted. The number of inspectorates was reduced from 36 to 11.

The Council of Ministers’ decision on the structure and organisation of public institutions has been implemented at central level. With a view to meeting the 2.5% target set in 2010, the proportion of temporary contracts in state bodies was further reduced to currently 4.8%. The Department of Public Administration is unable to fully enforce its decisions or to effectively coordinate with other institutions, partly because of budgetary constraints. The Human Resources Management Information System is not fully operational; its second pilot phase has faced considerable delays.

The Training Institute for Public Administration carried out its annual training plan despite financial constraints. A decision to set up a school of public administration was adopted in February. Further efforts are needed for the school to work properly, including providing the necessary funding.

The rate of implementation of Civil Service Commission decisions remains low. Under the new Civil Service Law, the Commission will be replaced by a Civil Service Commissioner, who will keep its monitoring tasks. The new institution needs to function properly and to demonstrate its independence.

The Supreme State Audit Institution improved its performance by adopting a new manual on auditing and performing more audit assignments. It submitted an annual report on its work to parliament in March. It conducted 177 audits and reported economic damage caused by improper functioning of state institutions of €97.3 million from €50 million in 2011. It submitted 40 requests for criminal investigations (involving 125 employees) to the prosecution office, twice as many as during the three previous years together, highlighting in particular the abuse of public property by high ranking public administrators. More than two thirds of recommendations by the Institution were implemented. Amendments to the State Audit Institution Law are pending and sustainable performance auditing has yet to be introduced.

Weak analytical capacity and high staff turnover in line ministries, together with insufficient transparency and consultation with relevant stakeholders, continue to hamper the legislative drafting process. Regulatory impact assessment and the implementation and monitoring of adopted legislation need to be improved.

Overall, progress has been made in public administration reform and a major step taken on this key priority with the adoption of the Civil Service Law. It now needs urgent implementation to enforce merit-based practice. Enforcement of existing legislation and administrative acts needs to be stepped up. The Department of Public Administration needs to be strengthened. Independent institutions need to be enhanced and their recommendations acted upon. Further efforts are needed to depoliticise the public administration, ensure continuity, fight corruption, strengthen meritocracy in appointments, promotions and dismissals, and increase its efficiency and financial sustainability.

Ombudsman

The Ombudsman has taken a number of very positive initiatives. He has actively promoted human rights, in particular those of the most vulnerable groups, and cooperated intensively with civil society. He submitted an annual report to parliament on the situation of specific vulnerable groups in society and made recommendations to tackle their exclusion. The follow-up to recommendations by the Ombudsman improved. For instance, the majority of recommendations on ill-treatment in detention centres— an issue covered by the key priorities —was addressed by prisons and by the State Police. The Ombudsman’s special reports to parliament were not included in parliament’s agenda, so they cannot be published and are not officially acknowledged. The Ombudsman was not properly informed and consulted by the government on draft legislation and reforms. The budget allocated to the Ombudsman’s office remains insufficient and the institution needs further financial and political support from both parliament and the government to continue to carry out its duties.

Civil society

Civil society organisations remain fragmented and overly dependent on funding by foreign donors. The tax framework for civil society organisations still includes provisions that undermine their financial viability, particularly on VAT reimbursement. The Law on Non-Profit Organisations has been amended to require such organisations to report all their financial sources to the tax administration in order to prevent money laundering and the financing of terrorism.

Cooperation between state institutions and civil society remains weak, particularly at municipal level. One of the key challenges for the Albanian authorities is to make consultation of civil society more systematic, transparent and timely. This applies to policy development, draft legislation and implementation. The capacity of these organisations to participate in public decision-making needs to be strengthened, particularly in rural areas. Local government lacks adequate capacity to ensure proper cooperation and funding of civil society. Further substantial efforts are required to develop community-based services.

The Agency for Support to Civil Society completed its fourth call for proposals in April and awarded grants.

Judicial system

The 2011-13 judicial reform strategy, a key priority of the Opinion, is being implemented. The Law on the High Court, one of the key measures in this area, and amendments to the Criminal Code, the Civil Code and the Code of Civil Procedure were adopted. The Law on Judicial Administration was adopted to provide a legal framework for the work of courts and court staff; the independence of court chancellors is an issue of concern. The Law on the National Judicial Conference and the Law on the Profession of Lawyer have started to be implemented. The memorandum of understanding on inspections between the Ministry of Justice and the High Council of Justice, which seeks to reduce the risk of overlapping responsibilities, continued to be implemented. Constitutional amendments and legislation essential to ensuring the independence, transparency and efficiency of the judiciary have yet to be adopted or finalised. The appointment procedure of members of the High Court needs to be changed. Efficient court organisation, clear and effective budget allocation, streamlined, expeditious and transparent court proceedings, and a system of appointment of judges based on a sound evaluation of candidates’ performance need to be secured. Lifting judges’ immunity as part of the fight against corruption has not yet led to any specific cases under the new constitutional provisions.

For a detailed analysis of the developments in the judicial system, see Chapter 23 — Judiciary and fundamental rights.

Anti-corruption Policy

There were improvements in the fight against corruption, a key priority of the Opinion. All recommendations of the third GRECO evaluation round were completed in a satisfactory manner. This concerned notably political party financing. Initial track records cover a variety of sectors and levels, including high-level corruption, and show an increase in convictions. Some measures taken in key sectors testify to increased awareness of corruption, an improved overall set-up and a more streamlined cooperation between law enforcement bodies. Provision of public services online and awareness-raising measures in various sectors have created conditions for more transparency and accountability of public administration. Corruption remains a particularly serious problem and is prevalent in many areas, including law enforcement institutions. There are still serious gaps, e.g. in monitoring local government corruption. An assessment needs to be undertaken, also regarding the role and operation of the relevant institutions and their coordination, to further strengthen the overall anti-corruption set-up. An anti-corruption coordinator with a strong mandate should be appointed to do this. There is also a need to improve cooperation with independent control bodies such as the State Audit Institution. Following the constitutional amendments limiting the immunity of judges and high officials measures are needed to clarify investigative procedures. The short-term challenge is to step up proactive investigations based on systematic risk assessment, as a prerequisite to building up a track record of effective prosecution at all levels, particularly in those areas where there is a strong public perception of corruption.

For a detailed analysis of the developments in the area of anti-corruption policy, see Chapter 23 — Judiciary and fundamental rights.

Fight against organised crime

Progress was made in the fight against organised crime, a key priority of the Opinion. A new strategy and action plan on organised crime were adopted. International police cooperation has been strengthened. The numbers of asset investigations, seizures and cases sent to courts have increased. Risk analysis and the use of criminal intelligence have been enhanced, partly through international cooperation. Seizures of drugs have increased. The operational set-up for witness protection has been considerably enhanced. Moneyval recommendations regarding the fight against money laundering have been adequately addressed. Criminal Code amendments addressed the issue of internal trafficking in human beings, and criminalised the use of victims’ services. Cooperation between prosecution officials, police and the judiciary on trafficking has been stepped up. A police unit to fight cybercrime has been set up. Joint training was held for police officers and prosecution officials on issues including asset seizures and cybercrime. Organised crime remains a serious concern and further significant efforts will be needed to improve Albania’s track record. Amendments to the Criminal Procedure Code are pending. The number of confiscations of criminal assets and convictions for money laundering remains low. Proactive investigations into wealth acquired through criminal activity abroad but reinvested in Albania need to be substantially stepped up. Albania remains a source country for trafficking in adults and minors, including forced begging by children. The issue requires better coordination between law enforcement agencies and social services. Cultivation and trafficking of cannabis remains a serious threat.

For a detailed analysis of the developments in the fight against organised crime, see Chapter 24 — Justice, freedom and security.

2.2. Human rights and the protection of minorities

Albania has taken some concrete steps to reinforce protection of human rights, and to effectively implement anti-discrimination policies — both areas are among the key priorities. It presents a mixed picture regarding human rights and the protection of minorities. Freedom of assembly and association, and freedom of thought, conscience and religion has generally been respected.

Regarding freedom of expression, progress has been made. The Law on Audiovisual Media was adopted in March, substantially improving the legislative framework for audiovisual media in Albania. The law fails, though, to provide a selection procedure for the governing bodies of the regulator and the public broadcaster that guarantees their independence. Further steps are needed to fully decriminalise defamation. Interference in the media by political and economic interests needs to be limited.

In the area of anti-discrimination policies, some legislation is in place — e.g. regarding the rights of lesbian, gay, bisexual, transgender and intersex (LGBTI) persons — and some is lacking, e.g. regarding the Roma community. The Albanian authorities need both to apply the existing legislation and to draft new legislation in the area of anti-discrimination. A number of concrete steps have been taken. An LGBTI action plan has been put in place, and the Criminal Code has been amended to take aggravating circumstances into account for offences relating to gender, race, ethnicity, gender identity, sexual orientation, political beliefs, religion, health status, genetic predisposition or disability.

In line with the national action plan on the Roma Decade, Albania needs to swiftly improve the living conditions of the Roma; coordination between central and local government is essential in this context. Another key area to focus on immediately is access to education and the inclusion of Roma children in the educational system — from pre-school level to higher education.

Public awareness of the Law on Protection from Discrimination and of the complaint mechanism remains low. The implementation of the law needs to be enhanced; victims of discrimination need to be encouraged to file complaints in order to establish solid case law. The roles of the offices of the Ombudsman and of the Anti-Discrimination Commissioner need to be clarified to render them more effective.

The legal framework for economic and social rights has been improved, but implementation is slow, particularly regarding people with disabilities and children at risk of abuse. Major and systematic efforts are needed to address persisting problems in the area of property rights. Property restitution, compensation and illegal construction are issues that need to be tackled. Albania needs to adopt and communicate a credible plan for the enforcement of European Court of Human Rights judgments on property rights. Labour and trade union rights have generally been respected.

For a detailed analysis of the developments in the area of human rights and the protection of minorities, see Chapter 23 — Judiciary and fundamental rights. For developments in the areas of trade union rights, anti-discrimination and equal opportunities, see also Chapter 19 — Social policy and employment.

2.3. Regional issues and international obligations

Albania still maintains a 2003 bilateral immunity agreement with the United States, granting exemptions from the jurisdiction of the International Criminal Court. This does not comply with the EU Common Position on the integrity of the Rome Statute or with the related EU guiding principles on bilateral immunity agreements. The country needs to align with the EU position.

Regional cooperation and good neighbourly relations continue to be a major plank of Albania’s regional policy. Albania continued to play an active part in regional initiatives, including the South-East European Cooperation Process, the Regional Cooperation Council, the Central European Initiative, the Adriatic and Ionian Initiative (AII), the Migration, Asylum and Refugees Regional Initiative, the Energy Community Treaty and the European Common Aviation Area Agreement. In 2012 Albania held the rotating presidency of the Central European Free Trade Agreement (CEFTA) and co-chaired activities in the framework of the South-East Europe Investment Committee. Since June Albania holds the one-year chairmanship of the AII.

Albania has continued overall to act as a constructive partner in the region, further developing bilateral relations with other enlargement countries and neighbouring EU Member States. A short-lived rise in nationalist rhetoric in late 2012 and early 2013 triggered concerns among neighbours and other partners but subsided thereafter. Albania, Bosnia and Herzegovina, Montenegro and Croatia signed a memorandum of understanding on support and cooperation on both the Trans-Adriatic Pipeline and Ionian-Adriatic Pipeline projects. A bilateral convention on regional cooperation under Article 13 of the SAA has not yet been concluded with neither Montenegro nor Serbia.

A Protocol on cooperation between the Ministries of Justice of Albania and Bosnia and Herzegovina was signed, enabling better exchange of information relating to legal issues and enforcement of legal reforms.

A bilateral agreement with the former Yugoslav Republic of Macedonia on mutual recognition of driving licences was signed and a new joint border crossing point was opened.

Agreements were signed in various fields with Montenegro, including mutual protection of classified information, education and electronic exchange of customs data. In December, parliament ratified an agreement between Albania and Montenegro on developing the cross-border railway.

The foreign minister of Serbia visited Tirana in October 2012 for the first such visit in eight years. Bilateral relations were strained at times, with each side blaming the other for declarations or actions which raised tensions.

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

Albania continues to have good relations with Turkey.

In February, Albania, Italy and Greece signed an inter-governmental agreement confirming their support for the Trans-Adriatic Pipeline project.

Overall, Albania continued to play a constructive role in contributing to the stability of the region. Albania continued to implement the Stabilisation and Association Process conditions in this regard.

3. Economic criteria

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

3.1. The existence of a functioning market economy

Economic policy essentials

The main political parties agree on the key essentials of a market economy, despite a tense political environment. Macroeconomic stability was broadly preserved, but vulnerabilities remain. The budget deficit exceeded the target in 2012. This led to the statutory debt ceiling of 60% of GDP enshrined in the budget law being breached and abolished. The privatisation process suffered certain setbacks. Albania submitted its seventh Economic and Fiscal Programme, for 2013-15, in January. The programme’s medium-term macroeconomic scenario is optimistic. Its coverage of risks to the macroeconomic and budgetary outlook is insufficient, and the approach to addressing structural obstacles to growth lacks a clear strategy and targeted policy measures. Overall, the consensus on the main fundamentals of a market-oriented economy has been maintained.

Macroeconomic stability

According to preliminary data, economic growth slowed to 1.6% in 2012 from 3.1% a year earlier. Financial constraints, low confidence among consumers and investors and the presence of spare production capacity held back private consumption and investment spending. Total gross fixed capital formation decreased by around 5% in 2012 compared with the previous year. Migrant workers’ remittances increased slightly, by some 1.6% in 2012, but dropped by 33% on an annual basis in the first six months of 2013. Private consumption remained at low levels. Net exports were the main contributor to economic growth, with foreign sales holding up while imports declined. After falling in four consecutive quarters, economic sentiment indicators started to climb in late 2012 and early 2013, but real GDP only grew by 1.7% in the first quarter of 2013 in annual terms, reflecting still sluggish domestic spending. Foreign demand continued to contribute positively to growth. Per capita GDP in purchasing power standards was estimated at 30% of the EU-27 average in 2012, unchanged from 2011. Overall, while growth remained positive, Albania experienced a slowdown in 2012 due to weak private domestic spending, which also extended to the first quarter of 2013.

External imbalances improved, as exports proved resilient while weak domestic demand depressed imports. The current account deficit narrowed to 10.5% of GDP in 2012 from 13% a year earlier on the back of a contracting (but still large) trade deficit. Imports fell by 5.2% compared with the previous year. Exports grew by a marginal 0.9%, as an 8.5% increase in merchandise exports was largely offset by a fall in services export. The effect of the improved trade performance outweighed negative changes in the income and current transfer balances. The trend towards a narrowing trade deficit continued in the first seven months of 2013 when merchandise exports, driven by a buoyant energy sector, expanded by 18.4% in annual terms, while imports of goods declined by 5%. The current account deficit stood at 10.1% of GDP in the four quarters to June.

Net foreign direct investment (FDI) inflows remained at the same level in 2012 as in 2011 and financed some 70% of the current account deficit, up from 60% in 2011. Total capital account inflows fell by 11.3% on an annual basis in 2012, but the overall balance of payments was positive and the stock of international reserves increased by 4.2%, covering about 4.5 months of imports. In the first half of 2013, FDI inflows increased by 12.3% in annual terms. Overall, the current account deficit has been narrowing but remains a source of vulnerability, especially in view of the potential adverse impact of the volatile external environment on inflows of FDI and migrant workers’ remittances.

Labour market conditions improved somewhat during 2012, but the registered unemployment rate remained high at 13% on average, down slightly from 13.4% in 2011. Employment grew by 2.8% both due to more private-sector, non-agricultural jobs and a higher estimated number of employees in the agricultural sector. In the first half of 2013, unemployment remained stable at 12.8%. Long-term unemployment accounts for around two thirds of total jobseekers, reflecting its structural nature. Labour market statistics continue to be weak and are distorted by a large informal sector. Overall, there was a slight improvement in the labour market but the informal sector remains large and unemployment is persistently high.

Macroeconomic stability continued to be enhanced by a sound monetary policy, which was successful in keeping inflation low and anchoring inflation expectations. The average inflation rate decelerated from 3.5% in 2011 to 2% in 2012, which corresponds to the lower end of the Bank of Albania’s (BoA) target range of 2-4%. Low inflation reflected the negative output gap, well-anchored inflation expectations and the absence of supply-side shocks. Driven mostly by fluctuating food prices, annual inflation decelerated from 2.5% in the first quarter of 2013 to 2.2% in the second quarter. In the absence of inflationary pressures and in an effort to stimulate growth, the BoA undertook several cuts in the key interest rate, bringing it to a historic low of first 3.75% in January and subsequently to 3.5% in July. The rate cut was swiftly reflected in interbank rates, the primary market for government security and also in deposit rates. However, the pass-through to lending rates remains limited due to increased risk premia amid a growing share of non-performing loans.

The degree of euroisation of the financial system has slightly decreased but remains high. Foreign, mostly euro-denominated loans stood at 61% of total credit outstanding in July, down from 64% a year earlier, while the share of foreign currency-denominated deposits in the total deposit stock fell from 49% to 47% in the same period. Such high euroisation inhibits monetary policy’s effectiveness and could expose banks to currency mismatches or indirect credit risks; it is therefore a potential source of instability in the financial system.

Albania maintains a floating foreign exchange regime, unchanged since 1992. The Albanian lek continued to remain stable in 2012, marking a slight appreciation by 0.9% against the euro. In the second quarter of 2013, the Albanian currency depreciated slightly against the euro by around 1% year-on-year. Overall, monetary policy remained sound, inflation decelerated and exchange rate stability was broadly preserved.

The government deficit reached 3.4% of GDP in 2012, exceeding the 3% target in the initial budget but remaining slightly lower than the 2011 deficit of 3.5%. Disappointing revenue performance meant that new budgetary targets had to be set by the November Normative Act. Overall, revenues underperformed by some 7% in 2012 compared with the initial budget, as the largest items, VAT and excise tax revenues, fell significantly short of the initial targets, reflecting sluggish domestic demand. Revenue slippages were only partly offset on the expenditure side, where the largest cuts affected capital spending, down by some 12% compared to the initial target and by the same order of magnitude compared with 2011. In the wake of weak revenue collection, the total-revenue-to-GDP ratio fell to 24.5% from 25.1% in 2011, while the total-expenditure-to-GDP ratio fell to 28.0% in 2012 from 28.6% a year earlier. Public capital expenditure accounted for just 4.6% of GDP compared to 5.4% in 2011.

The fiscal stance in 2013 is more expansionary. The 2013 budget envisaged a deficit of 3.5% of GDP, based on an optimistic assumed economic growth of 3.1%. The fiscal deficit (without the receipt from the privatisation of three hydro-power plants) in the first seven months was almost 130% higher than in the same period of the previous year, reaching some 98% of its full year target. In the period January to July, revenue from indirect taxes declined significantly, reflecting still fragile domestic demand, lower imports and the effect of recent VAT exemptions. Expenditure was 10.4% higher than in the same period the year before, mainly due to the rapid increase in capital expenditure. Overall, budgetary planning continues to be weak, reflecting optimistic revenue projections and leading to the need for rebalancing.

Public debt increased from 59.4% of GDP in 2011 to 62.9% by the end of 2012, exceeding the statutory ceiling of 60%, which was abolished in December. Some three fifths of the public debt is domestic but it continues to show a short-term bias (around half of it has a maturity of one year or less) which requires frequent re-financing. Households’ share of purchases of public debt securities continued to increase, but the bulk of the domestic debt is still held by banks, which could pose a challenge if they decide to reduce their government debt holdings and also exposes banks to sovereign risk. Although the weighted average yield on domestic debt has been gradually decreasing, at such a high level, public debt remains a source of macro-financial vulnerability. The estimated large amount of public sector arrears continue to represent additional government liabilities, leading to financial difficulties along the credit chain and contributing to the high level of non-performing loans. Overall, the relatively high and increasing government debt and its short-term bias are a cause for concern, as they represent a source of macro-financial vulnerability, especially following the abolition of the statutory debt ceiling. The accumulation of public arrears reflects serious weaknesses in public finance management.

In the area of tax administration, there were improvements in the electronic tax payment and tax filing system, but the effects on tax collection remain to be seen. Measures have also been adopted to exempt imports of machinery, equipment and raw materials used for certain investments from VAT, and to introduce a non-taxable income limit for personal income tax. Delays in the VAT refund procedure continue to put an additional burden on businesses (see also Chapter 16 - Taxation).

Overall, macroeconomic stability has been maintained. Low inflation and anchored inflation expectations created room for monetary policy easing, but the pass-through to the economy remains limited. The fiscal stance in 2013 is expansionary, contributing to a further increase in the relatively high level of public debt, which remains a source of macro-financial vulnerability. Fiscal planning and predictability remain a concern, especially following the abolition of the debt anchor. Unemployment remains high. External imbalances have narrowed but are still high, reflecting persisting structural weaknesses.

Interplay of market forces

The private sector remains dominant and continues to account for about 80% of GDP. The privatisation process suffered setbacks with the unsuccessful sale of Albpetrol, a state-owned oil company, and of the remaining public stake in Albtelecom, a partly privatised telecommunication firm. No progress was made on the privatisation of INSIG, the state insurance company. The previously privatised power distributor CEZ Shpërndarje returned into state hands after the energy regulator revoked its distribution licence and appointed an administrator, on the grounds that the Czech-owned company had failed to meet contractual obligations. The dispute will be settled by international arbitration.

There has been some progress as regards attracting greenfield investment in the energy sector with 11 new agreements signed in 2012 to construct and operate hydropower plants (HPPs). The output of privately-owned small HPPs surged by 76% year-on-year in 2012, raising their share of total electricity generation to 5.6% in 2012, from 3.4% a year earlier. In February the privatisation of three small HPPs was completed, for a total of €109.5 million. Overall, state involvement in the economy remains limited and is mainly concentrated in water supply, transport and energy.

Market entry and exit

Business registration and licensing continued to perform well through the established network of one-stop shops. Some improvement was made to the business registration system by making the notarisation of incorporation documents optional. In 2012 the number of new businesses registered grew by 8% year-on-year; they make up 12% of all active enterprises.

A registry of certified bankruptcy administrators was set up and 23 bankruptcy administrators were licensed until April. However, the time taken and procedures for market exit remain slow. In 2012 the number of requests for voluntary business closures went up by 14% from a year earlier. Overall, Albania has made incremental improvements to its well-functioning procedures for starting a business. Market exit procedures remain slow.

Legal system

In the area of property rights implementing legislation on registration of immovable property has been adopted. However, first registration of properties is yet to be completed. Further efforts are also needed in the area of property restitution and compensation and in the legalisation of buildings that did not have permission. Amendments to the Civil Procedure Code were adopted in April to allow easier recovery of collateral. Cases of collateral recovery rose significantly in 2012, along with the number of private bailiff offices. However, the full impact of the new legal measures has yet to be assessed. Overall, there has been some progress in the legal system but proper implementation needs to be ensured. Uncertainties over property ownership, delays in court procedures and weaknesses in the rule of law continue to be detrimental to the business environment.

Financial sector development

The banking sector continued to dominate the financial system, accounting for 93.6% of all financial system assets and 87.9% of GDP — 3 percentage points higher than in 2011. It is dominated by foreign capital and remains highly concentrated, with the five largest banks holding about 68% of the total credit portfolio and 74% of total deposits. Total credit to the economy amounted to around 41% of GDP, suggesting that there is significant scope for deeper financial intermediation. Credit growth fell to 7.4% in 2012 from 11.7% in 2011, and has recently fallen faster, with annual credit growth at 1.6% in the first quarter of 2013 and just 0.7% in the second quarter.

Weak lending, affecting both households and investors, reflects tighter credit standards applied by banks amid a high and rising share of non-performing loans and subdued credit demand due to economic uncertainties. In an effort to reinvigorate lending, the BoA adopted specific regulatory changes in March aiming at releasing financial resources for banks and channelling them towards lending to the private sector, but so far credit growth has not picked up.

In general, the Albanian banking system remained well capitalised and liquid. The net results of the banking system in 2012 amounted to €26.71 million, reflecting a significant increase compared with the previous year. The capital adequacy ratio increased to 16.7% in May from 15.6% at the end of 2011, with each individual bank remaining above the 12% regulatory minimum. The ratio of liquidity assets to short-term liabilities as of the end of December 2012 increased to 36.7%, comfortably exceeding the minimum regulatory requirement of 25%. Deposits were the main source of financing and parent-bank credit lines were significantly lower than at the end of 2011, strengthening the banking system’s resilience to foreign shocks. However, banks’ exposure to credit risk has increased, as the ratio of non-performing loans rose further to 24.4% in the second quarter of 2013 compared to 21.2% a year earlier. This has led to a surge in loan loss provisioning, up by 24.3% in June on an annual basis.

Total assets of the non-banking financial sector stood at 2.8% of GDP. The insurance market, in which foreign capital has a 50% stake, increased its gross written premium revenues by some 9% in 2012 but its share of GDP remains low. The securities market focused on government bonds and saw two new investment funds start up. The voluntary pension market grew by 83% in 2012 from a very low base and is still in the very early stages of development.

The BoA continued to strengthen the regulatory and supervisory framework. It adopted regulations on the core management principles of banks and foreign bank branches; on the licensing of non-banking financial institutions; on risk-management of non-banking financial institutions; and on e-payment instruments.

Overall, the banking system remains well capitalised and liquid. However, non-performing loans remain a cause for concern, while the sharp deceleration of credit growth is detrimental to the economy.

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

Existence of a functioning market economy

Macroeconomic stability was maintained. The economic slowdown resulted in a shrinking current account deficit, but external imbalances are still large, reflecting a narrow production base. Low inflation reflects the lack of inflationary pressures and well anchored inflation expectations. Fiscal policy remains constrained by the relatively large and growing public debt, much of which is short-term and thus reinforces vulnerability. Fiscal planning continues to be weak and its predictability has deteriorated following the abolition of the debt anchor.

Structural bottlenecks are an obstacle to growth. Despite some progress, weaknesses in property rights and law enforcement continue to be detrimental to the business environment. The labour market is characterised by persistently high unemployment. The privatisation process is advanced but not yet complete. The diversification and competitiveness of the economy are still low. Overall, although some progress was made on establishing a functioning market economy, Albania needs to consolidate its public finances and reduce the relatively high level of public debt, further bolster governance, enhance labour market performance, provide protection for property rights and strengthen the rule of law and the fight against corruption.

Human and physical capital

Public expenditure on education is estimated to have accounted for around 3.2% of GDP in 2012 and is expected to be unchanged in the 2013 budget. New learning standards and syllabuses were introduced in secondary education. Public spending on research and development remained at low levels, at 0.03% of GDP in 2012 and 2013. The number of science laboratories increased in 2012. The level of collaboration between industry and universities remains weak.

Public capital expenditure bore the burden of the budget rebalancing and shrank by 12.8% in 2012, accounting for just 4.6% of GDP compared to 5.4% in 2011. It is projected to make up 5% of GDP in 2013. The authorities identified education, healthcare, infrastructure, and agriculture as priority areas, but spending plans project a decline in public investment in these sectors in 2013. Road infrastructure remains the main beneficiary of public investment. According to estimates, total investment spending in the economy declined by around 5% in 2012 and decreased as a share of GDP from about 32% in 2011 to 29.3%.

Albania remains highly dependent on hydroelectric resources to ensure security of power supply. No progress was made in increasing interconnection capacity with other countries. Preparations for the construction of the interconnection with Kosovo were re-launched in January. Albania was able to export electricity at the beginning of 2013 due to favourable weather conditions but continues to be a net importer of electricity. The number of concessions signed in the energy sector increased, while several irregularities in concession procedures were identified by the Supreme State Audit Institution.

Overall, there is significant scope for redirecting investment into growth-enhancing areas such as telecommunications and human capital, and for better-focused policies promoting innovation initiatives and cooperation between the education sector and industry.

Sectoral and enterprise structure

The Albanian economy continues to be dominated by the services sector, which accounted for around 60% of gross value added (GVA) in 2012, followed by agriculture, providing around a fifth of GVA, and industry (11%), comprising both extractive industries and manufacturing. Manufacturing relies to a large extent on the low value-added textile, garment and leather industries. Following a deep contraction by about 13% in 2012, the construction sector’s share of GVA fell to below 9%. Agriculture continues to provide a very large proportion of jobs (around 50%), suggesting that there is still significant scope for productivity gains from sectoral shifts in employment.

The sectoral composition of merchandise exports remained highly concentrated in 2012, with 84% of total exports accounted for by minerals, fuels and electricity (36%), textiles and footwear (29%) and construction materials and metals (19%). The minerals, fuels and electricity sector increased foreign sales by some 31% compared with 2011.

Small and medium-sized enterprises (SMEs) play a very important role in the economy, providing 71% of official employment, although weaknesses in their operational environment persist. In the non-agricultural sector, SMEs account for 47% of exports and 68% of value added.

Significant weaknesses continued to prevail in the electricity sector in terms of a lack of financial viability, high levels of losses in the electricity network and distribution, low bill collection rates and tariffs below cost-recovery level. Dependence on hydropower continues to pose a substantial risk to the country’s electricity supply.

The sizeable informal sector remains a substantial problem and is detrimental to the business environment. The number of fiscal devices (cash registers) installed by businesses increased, but the system for monitoring their use in practice needs to be strengthened. The number of suspected corruption cases referred to the prosecutor’s office by customs and tax investigation units increased. Overall, the structure of the economy remained unchanged. Albania’s production base lacks diversification in terms of both sectors and export markets, leaving the economy vulnerable to industry-specific shocks. Malfunctioning persists in the electricity sector. The size of the informal sector remains a challenge.

State influence on competitiveness

The ratio of state aid to GDP increased to 1.6% in 2012 from 1.3% the year before, with less distortive horizontal (i.e. non sector-specific) aid continuing to account for the bulk of state aid granted. Similarly to the previous year, the government provided a loan guarantee to the state-owned power generation company KESH to help it survive financial difficulties in late 2012 and early 2013. The unresolved problems of the electricity sector are an enduring drain on public resources.

Economic integration with the EU

Albania’s openness to trade decreased somewhat in 2012, as the sum of total imports and exports accounted for 87% of GDP in 2012 as compared with 92% in 2011, mainly on account of declining imports following the economic slowdown. The EU remains Albania’s main trading partner. Exports of goods to the EU increased by 13.4% compared with 2011 and accounted for some 75% of total merchandise exports, while imports of goods from the EU fell by 5.1% and made up 62% of total imports. From January to July, the trend towards a narrowing trade deficit with the EU continued as exports of goods to the EU surged by 18.8% over the previous year, while in the same period merchandise imports from the EU declined slightly. Italy remains the single most important trading partner, drawing more than half of Albanian merchandise exports and providing a third of its imports. The EU also remains the main source of inward investment in Albania, although its share of total FDI stock has declined in the last four years. The pace of the increase in trade with CEFTA countries slowed, from some 27% in 2011 to around 3% in 2012, reflecting the overall deceleration of economic activity in the region. CEFTA countries accounted for some 13% of Albanian merchandise exports and 8% of its imports.

The positive trend in net exports was supported by recent changes in the real effective exchange rate (REER), showing a moderate depreciation of the lek both in the last quarter of 2012 (by 0.91%) and the first quarter of 2013 (by 0.55%). Overall, the EU remained Albania’s leading trade and investment partner. The pace of trade integration with CEFTA countries slowed.

4. Ability to take on the obligations of membership

This section examines Albania’s ability to take on the obligations of membership — that is, the acquis as expressed in the Treaties, the secondary legislation and the policies of the Union. It also analyses Albania’s administrative capacity to implement the acquis. The analysis is structured according to the list of 33 acquis chapters. In each sector, the Commission’s assessment covers progress achieved during the reporting period, and summarises the country’s overall level of preparations.

4.1. Chapter 1: Free movement of goods

In the area of horizontal measures, Albania has a good level of preparation.

In the area of standardisation, adoption of European standards (EN) continued and Albania adopted 1158 more ENs, mostly by the ‘cover page’ method, without translation.

In March, the General Directorate for Standardisation (GDS) became a full member of the European Telecommunications Standards Institute (ETSI). A technical committee covering analogue and digital telecommunication systems was set up, but ETSI standards have not yet been adopted. The database of the GDS was improved with regard to registration and updating published standards. There is no national strategy on standardisation yet.

In the area of conformity assessment, technical regulations on essential requirements and conformity assessment of medical devices were adopted.

A new organisational structure for the General Directorate for Accreditation (GDA) was adopted in October 2012. The number of accredited conformity assessment bodies increased to 24. Laboratories conducting tests of air, water and noise and laboratories testing electric meters were accredited. The laboratory testing fuel dispensers in the legal metrology field applied for accreditation. The GDA adopted a new policy document on traceability, with guidelines for implementation, to meet the preconditions for full membership of European Co-operation for Accreditation (EA). Albania is not yet a full member of EA. The draft Law on Accreditation of Conformity Assessment Bodies, aiming to bring the legislation into line with the acquis, still awaits adoption.

The General Directorate for Metrology (GDM) adopted a communication strategy on metrology in September 2012. The GDM moved to new premises and its laboratories acquired new equipment for pressure, humidity and volume. The GDM’s calibration and measurement capabilities were accepted for mass measurements in the Key Comparison Database of the International Bureau of Weights and Measures. Albania aligned its legislation with the Non-Automatic Weighing Instruments Directive. Alignment with the Measuring Instruments Directive is still outstanding and approximation of the Law on Metrology to the acquis is at an early stage.

Implementing legislation for the law on inspectorates, including the market surveillance inspectorate, was adopted. Standard operating procedures for market surveillance were drafted to implement the law on general safety of non-food products. The market surveillance inspectorate is not yet operational.

As regards ‘Old Approach’ product legislation, in the area of chemical fertilisers legislation was adopted on production requirements, labelling, packaging, procedures for entering the market and criteria for setting up the reference laboratory for analysis.

In the area of ‘New and Global Approach’ product legislation, technical regulations on energy labelling for household appliances and on toy safety were adopted to approximate the legislation to the acquis. Regulations were adopted with regard to enforcement of legislation in the field of medicaments for human use.

In the area of procedural measures, legislation on the return of cultural objects still awaits adoption. There were no developments on firearms.

Conclusion

There has been some progress in the area of free movement of goods, particularly in standardisation. Effective market surveillance needs to be introduced and further efforts are required overall to bring Albania’s legislation into line with the acquis. Overall, preparations are moderately advanced.

4.2. Chapter 2: Freedom of movement for workers

As regards access to the labour market, amendments to the Law on Foreigners, aiming at facilitating EU citizens’ access to the Albanian labour market and guaranteeing equal treatment, were adopted in March.

The creation of an e-portal including databases of job-seekers and employers registered in the 12 regional and the 24 local employment offices is a progress with a view to future participation in the EURES (European Employment Services) network.

As regards coordination of social security systems, negotiations on bilateral agreements with Hungary, the Czech Republic, the former Yugoslav Republic of Macedonia and Romania have continued. Negotiations with Luxembourg have started.

Conclusion

There has been some progress in the area of freedom of movement for workers, notably in improving EU citizens’ access to the Albanian labour market. Overall, preparations in the area of freedom of movement for workers are at an early stage.

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

In the area of the right of establishment, steps were taken with regard to preparations for simplifying procedures and shortening the process for obtaining building permits.

As regards the freedom to provide cross-border services, an inter-ministerial working group was set up and a roadmap for aligning legislation on cross-border services with the Services Directive was adopted in April. As regards the Services Directive, human resources of relevant institutions need to be strengthened.

In the field of postal services, the postal strategy was adopted in July. Liberalisation of postal services advanced with the reduction of the reserved postal area from 100gr to 50gr in August. The finalisation of the draft Postal Law, determining tariffs and weights, as well as the new organisational structure of the Electronic Postal Communications Authority are still pending.

In the field of mutual recognition of professional qualifications, implementing legislation was adopted to allow exemptions from state examinations for the regulated professions for people who have successfully passed the state exam in one of the EU Member States, the EFTA countries, the United States of America or a number of other countries. Further efforts are needed to fully align the legislation in the field of regulated professions with the acquis.

Conclusion

There has been some progress in the area of the right of establishment and freedom to provide services, particularly in postal services. Further efforts are required to align the legislation in this field with the relevant acquis. Overall, preparations are moderately advanced.

4.4. Chapter 4: Free movement of capital

In the area of capital movements and payments, restrictions on the acquisition of real estate by foreigners have not been removed.

The Law on Payment Systems was adopted in April with the aim of liberalising the market and providing stability and efficiency. Some amendments to the Civil Code and the Civil Procedure Code were also adopted to make repossession easier. The Law on Securing Charges was amended in April. The volume and the value of transactions processed through the Albanian Inter-Banking Payment System increased by 2.4% and 65% respectively in 2012 with the same trend in the first quarter of 2013. As regards the Albanian Electronic Clearing House, the volume of payments fell by 7%, while the value of transactions increased by 5% in 2012 and the first half of 2013. The main user of the clearing house remains the Ministry of Finance.

As regards the fight against money laundering, implementing legislation was adopted for the Law on Prevention of Money Laundering and Terrorism Financing, which had been amended earlier in 2012. Instructions on methods and procedures for reporting, including reporting by non-financial professionals, were adopted. The General Directorate for the Prevention of Money Laundering increased its capacity by employing three additional experts, reaching a total number of 28 employees. It continued to provide training for its staff and other institutions such as banks, currency exchanges, notaries, construction companies, accounting experts, lawyers and car dealers. The number of inspections carried out as of the end of 2012 was 347 of which 18% were on-site inspections, mainly of currency exchanges and construction sites. Twenty-two administrative measures were imposed but only 30% of fines were collected, as the remaining decisions were appealed against in court. A similar trend continued in the first half of 2013 with 139 inspections and 13 administrative measures of which 38% of fines were collected. There were 556 reports of suspicious transactions in 2012, 44% more than in 2011. Leasing companies and lawyers submitted reports of suspicious transactions for the first time. Some 36% of cases reported were passed on either to the prosecutor’s office or to the police. Most of the reports came from banks or money transfer and exchange offices. The number of reports from the Immovable Property Registration Office and the General Tax Department increased significantly.

Conclusion

Some progress was made in the area of free movement of capital, with the adoption of the law on payment systems and further legislative and reporting measures taken to combat money laundering. Overall, preparations are moderately advanced.

4.5. Chapter 5: Public procurement

As concerns general principles, there have been improvements in the public procurement review system and legislation in the field of concessions has been adopted.

In the field of the award of public contracts, the Public Procurement Law was amended in December with the aim of further aligning it with the acquis. It includes provisions on the coordination of procedures for awarding public works, supply and services contracts and now covers the utilities sector. Implementing legislation adopted in the first half of 2013 covered public procurement procedures, definitions of small purchases and anomalous bids, and the procedures to be followed by contracting authorities. Fines and administrative penalties for infringements have also been redefined with the aim of giving the members of tender commissions more responsibility. The number of unpublished, negotiated procedures increased slightly during 2012, accounting for 26.4% of all procedures and 14% of the total value of tenders. This trend continued during the first half of 2013. This increase was partly due to delays in releasing procurement funds to the contracting authorities, combined with tight deadlines and weak planning.

The adoption of the new Law on Concessions and Public Private Partnerships in April, followed by implementing legislation and a concessions strategy in June, was important. Concessions for hydropower plants were excluded from the law for a transitional period of four years.

The Public Procurement Agency took further measures to ensure transparency of public procurement procedures. E-procurement continued to work well. The e-procurement implementing legislation was amended to extend its scope to contracts above €72 and to limit scope for interpretation by the contracting authorities. The number of disciplinary measures taken by the agency against contracting authorities increased from 27 to 55 and the number of reprimands from 3 to 15 in 2012, as compared with 2011, while the number of fines fell from 40 to 29. In the first half of 2013, 26 disciplinary measures and eight fines were imposed. Half of these cases were enforced by the agency after relevant reports by the Supreme State Audit Institution. The agency started to conduct more comprehensive monitoring of procurement procedures. Public procurement and concessions are still one of the main sectors in which the audit institution has found financial violations. The audit institution reported in March 2013 that violations by both central and local authorities regarding public procurement for the period 2008-2011 caused damage to the state of €3.1 million. The agency has continued to provide awareness-raising and training on the amended Public Procurement Law. The agency’s staff increased from 20 to 23 and two new experts cover concessions. The capacity of the agency and contracting authorities needs to be strengthened to ensure that recent legislation is implemented effectively.

In the field of remedies, the amended Public Procurement Law abolished the office of public procurement advocate, leaving the Public Procurement Commission to deal with reviewing and handling complaints from economic operators. This has helped to clarify institutional responsibilities and is expected to streamline procedures. The commission’s administrative capacity was increased from 18 to 20 employees. The commission received 270 complaints and took 214 decisions. Its professional independence needs to be guaranteed.

Conclusion

There has been good progress in further aligning legislation on public procurement, concessions and public private partnerships with the acquis. Review mechanisms have also been streamlined. Further work is needed to improve the professionalism of contracting authorities and to reduce financial violations in the sector. Overall, preparations in the field of public procurement are moderately advanced.

4.6. Chapter 6: Company law

In the area of company law, the Law on Cross-border Mergers of Companies, aiming at alignment with the acquis, was adopted in November. The National Registration Centre has applied the law in connection with registering privately held companies. Preparations for bringing Albanian legislation into line with the acquis as regards reporting and documentation requirements in the case of mergers and divisions are on track.

There was some progress as regards the establishment of technical infrastructure for electronic signature. In January, the National Agency for the Information Society was accredited by the National Authority for Electronic Certification to provide the public administration with certificates enabling it to process electronic documents as from September. The first application, to be used by the General Directorate of Customs, is being set up. Licensing of a second private e-certification service provider is ongoing. The number of businesses that have been given e-certification increased to about 500. The implementation of e-signature by the state authorities has yet to be verified.

In the area of corporate accounting, preparations for aligning legislation on accounting and national accounting standards with the acquis have started. The National Accounting Council increased efforts to strengthen its capacity by training its staff and working on a series of internal guidelines. The membership of the Council’s board was revised in May.

In the field of auditing, the Public Oversight Body continued its monitoring activities and was involved in a direct review of the quality of auditing of public interest entities. The roadmap for the reform of accounting and auditing for the period 2013-2015 was approved in August. The independence of the Public Oversight Body and its funding remain to be addressed as part of the reform.

Conclusion

Some progress was made in the field of company law through the adoption of legislation in the area of cross-border mergers. Some progress was made in the areas of corporate accounting and auditing, but legislation remains to be aligned with the acquis. The Public Oversight Body needs to be strengthened. Overall, preparations are moderately advanced.

4.7. Chapter 7: Intellectual property law

In the area of copyright and neighbouring rights, the new law on copyright has not been adopted yet. Some amendments to the current Copyright Law were adopted, including an increase in the level of administrative fines for infringement of copyright, and a definition of the legal status of collective management agencies.

In the field of industrial property rights, the Law on Industrial Property was amended in February to provide for a Market Surveillance Inspectorate, which has not yet been set up. Further amendments to the law are pending. In April, Albania adopted the Law on Adherence to the London Agreement for the Implementation of Article 65 of the Convention on European Patents. Albanian legislation is not yet in line with the acquis on protecting topographies of integrated circuits.

As regards enforcement, the rate of collection of fines for copyright infringements remains very low. Royalties have reportedly not been paid to several right holders. The Interinstitutional Monitoring Group set up to implement the national strategy on intellectual and industrial property rights has met only once. In March, the General Directorate for Customs adopted its sectorial intellectual property rights strategy. It approved more requests for action to protect trademarks against counterfeiting, piracy and other infringements of intellectual property rights in 2012 than in 2011, and the number was higher again in 2013. However, fake products are still present in the market (See Chapter 29 — Customs union). Businesses complain of weak enforcement of legislation on intellectual property rights. The Copyright Office recommended that the licences of two collective management agencies be suspended for failing to comply with their obligations. The government has not yet taken a decision. There were some improvements in administrative capacity, mainly through staff training for the Copyright Office and the General Directorate for Patents and Trademarks. Alleged management problems at the Copyright Office led to key members of staff resigning or being replaced. The General Directorate for Patents and Trademarks drafted a manual on intellectual property infringement cases and upgraded its IT system. Awareness-raising events and training sessions with right holders, judges, tax and customs officials, academics, the police and prosecution officials were held. There is still a low level of understanding and awareness on copyright and related rights provisions and especially on collective management systems, including among judges.

Conclusion

There was little progress in the field of intellectual property law. Some steps were taken to further align the legislation on industrial property rights with the acquis. The Law on Copyright has to be adopted. Efforts are needed to effectively enforce intellectual and industrial property rights and to set up the Market Surveillance Inspectorate. Serious shortcomings in the payment of royalties to right holders need to be overcome. Albania has not yet met its commitments under the SAA. Overall, preparations are not very advanced.

4.8. Chapter 8: Competition policy

In the field of anti-trust and mergers, the Albanian Competition Authority adopted five by-laws, aligning with the acquis. In September 2012, the authority reduced the filing fees by almost half for small businesses with an annual turnover of between €1.4 million and €7.1 million.

The authority adopted six decisions on prohibited agreements and two on abuse of dominant position, and authorised 14 mergers and acquisitions. It received 19 complaints, five more than the same period last year, due to enforcement activity and advocacy.

The authority concluded investigations in the field of compulsory third-party motor insurance and fined eight companies for fixing market prices. After conducting investigations, the authority concluded that competition in maritime transport at Vlora port, in sugar and rice imports and vegetable oil trade had not been restricted. It also started in-depth investigations into potential abuse of a dominant position in oils, cement, mobile telephony and Tirana road transport services.

The authority increased the number of fines from one in 2011 to seven in 2012 and the number of decisions issued from 43 in 2011 to 48 in 2012. As regards appeals cases, the authority won 15 out of 26 appeal cases brought before the First Instance Court and 11 of the 18 which went to the Appeal Court in 2012. In the first half of 2013, the authority won two and lost one case before the First Instance Court. Many court decisions are pending, which has resulted in considerable delays in the collection of 73% of the fines imposed. Further efforts are needed to increase the judiciary’s knowledge of competition law.

The new structure of the authority still needs to be approved by parliament. Its administrative capacity was increased by employing two additional experts, bringing the number of employees to 36 including 24 experts. Its officials have received training in various fields of competition law. Further efforts are needed to increase officials’ knowledge of econometric analysis and use of ICT.

As regards state aid, €15.34 million were granted in state aid in 2012, 30% more than in 2011. In September 2012 the State Aid Commission authorised a ‘de minimis’ aid scheme for a three-year period to create an innovation fund. The commission examined the normative act of December 2011 on loan guarantee to the state-owned power company KESH and concluded in September 2012 that the measure did not constitute state aid. The number of notifications by the government remains very low, and there have been no notifications by regional or local authorities. The 2012 State Aid Report was adopted in July. The State Aid Sector in the Ministry of Economy still lacks the necessary administrative capacity to enforce state aid rules.

Some progress was made on completing secondary legislation for state aid control to bring it into line with the acquis. No progress was made in confirming the operational independence of the State Aid Commission and the Sector.

Conclusion

Limited progress has been made in the area of competition. The Competition Authority improved its overall performance and increased its administrative capacity. The independence and administrative capacity of the State Aid Commission and Sector need to be enforced. Overall, preparations for the revision of state aid legislation are at an early stage.

4.9. Chapter 9: Financial services

In the area of banks and financial conglomerates, in November the Bank of Albania (BoA) adopted a regulation on the management principles of banks and branches of foreign banks and criteria for approving their administrators. New regulations were adopted in January on electronic payment instruments and in July on capital adequacy, on credit risk administration an on liquidity risk administration. In March, the BoA adopted a new strategy for 2013-15 which included developing banking supervision in accordance with Basel I, II and III principles and EU Directives. The BoA’s Supervisory Department employed three additional experts increasing its capacity. Four posts out of 50 remain vacant.

As regards the non-banking area, in December the Albanian Financial Supervisory Authority (AFSA) adopted implementing regulations on inspection procedures at financial non-banking institutions, and on licensing and the conduct of their activities, and on the organisation and functioning of a multilateral trading facility. The non-banking institutions remain 21. The AFSA’s administrative capacity increased slightly with the recruitment of two more staff reaching a total of 52. Its operational and financial independence needs to be guaranteed.

In the area of insurance and occupational pensions, the Albanian Competition Authority issued a regulation in March on the implementation of the Law on Competition Protection, promoting individual price-setting with regard to insurance premiums. Amendments to the Law on Compulsory Insurance in the Transport Sector were adopted in July, while the Law on Insurance and Reinsurance Activity is still pending. The insurance market remains small. Non-life insurance continued to dominate the insurance market and the ratio of claims to premiums has decreased to 34.6% in the first half of 2013, compared to 37% in the same period of 2012. The majority of the claims were on motor insurance. The AFSA licensed several agents in the non-life insurance market. Regulations on the technical provisions of compulsory insurance in the transport sector, on calculating the net asset value of voluntary pension funds and on time limits for disclosing information were adopted in September 2012. The AFSA also took further steps to prohibit the free use of insurance company assets. The compulsory motor insurance database centre is fully operational. An e-fine system is available.

As regards financial market infrastructure, the Law on Payment Systems was adopted in April and a regulation on licensing and supervision of operators in the national card payment scheme was adopted in June.

In the area of securities markets and investment services, the AFSA took measures to strengthen supervision and management of securities market and collective investment undertakings. The number of licensed operators in the securities market rose to 10. In the area of investment services, the AFSA issued a decision on setting up a compensation fund for insurance companies in 2013. A new investment fund, representing a new investment alternative in foreign currency, was licensed. The AFSA approved the respective prospectus filed for issuing bonds offered through a private placement.

Conclusion

There has been some progress in financial services, in the field of banking. Additional efforts are needed to align legislation with the acquis in the areas of insurance and occupational pensions, financial market infrastructure and securities market and investment services. Supervisory capacity needs to be strengthened. Overall, preparations are moderately advanced.

4.10. Chapter 10: Information society and media

Alignment with the acquis in the area of electronic communications and information and communications technologies (ICT) has progressed; amendments to the Law on Electronic Communications were adopted in October 2012. Competition has been enhanced by reducing the fees paid by companies to operate in the market. The Agency for Electronic and Postal Communications (AKEP) completed the third round of tariff reductions for mobile networks. Further progress has been made with implementing competitive safeguards: fixed number portability was introduced in September 2012 and the incumbent published its wholesale broadband access reference offer in early 2013. A third UMTS/3G licence was granted at the end of 2012.

The draft law on rights of way remains to be adopted. The emergency number 112 has not been implemented due to a lack of funds for setting up an integrated model for the 112 number and public safety answering points. AKEP’s administrative capacity and resources remain weak.

Mobile usage remains high with subscription penetration at 119% in July, while mobile broadband is at an early stage of development. Penetration of fixed telephone and broadband are among the lowest in the region. The fixed broadband penetration per population reached 7.6% according to the latest available data.

In the field of information society services, the GovNet network infrastructure has been extended and ‘public key’ infrastructure, providing trusted communication between government systems and users, has been set up. Amendments were made to the law on electronic commerce to further align it with the E-Commerce Directive. Alignment with the acquis on conditional access has progressed, with the adoption of the audiovisual media service law in March 2013. A national plan on broadband was adopted in May. The National Agency for the Information Society has improved its technical capacity by building a public data centre and setting up a new e-government portal and an interoperability platform to help provide e-government services for citizens and business. Electronic identity management for businesses has not yet been standardised but is different for each e-service (e.g. procurement, tax), hampering the development of e-services.

In the field of audiovisual policy, a law on Audiovisual Media Services, aimed at the alignment of the media legal framework with the acquis, was adopted in March 2013. The appointment procedure of the members of the media regulatory authority - Audiovisual Media Authority (AMA), provided for by the law, does not fully guarantee their independence. Implementation of the digital switchover strategy has halted, due to a court case of broadcasting operators. Efforts should be put into the timely implementation of the digital switchover strategy due to be completed in June 2015. Further efforts are required to free illegally used frequencies. AMA still lacks sufficient capacity and concerns remain over its independence. The public service broadcaster’s editorial independence and fee collection system have not improved.

Conclusion

There has been some progress in the field of the information society and media, particularly in aligning legislation on audiovisual media services and electronic communications with the acquis and enhancing competition in the electronic communications market. Legal uncertainty on the rights-of-way regime continues. The independence of the media and of its regulatory authority still gives rise to concern, and the digital switchover has been further delayed, putting at stake the timely implementation of the process. Overall, preparations are moderately advanced.

4.11. Chapter 11: Agriculture and rural development

As regards horizontal issues, the government allocated about €6.8 million in 2013 for direct support and national investment schemes in agriculture and agro-processing. Agricultural production in 2012 increased slightly, mostly due to improved production in fruit trees and olives. Part of the growth is linked to the government direct support schemes that have encouraged the planting of new trees. While exports increased, the trade balance has improved marginally. There has been good progress with agricultural statistics. Since the beginning of 2013 the National Statistics Institute (INSTAT) has been responsible for agricultural statistics. The Census of Agricultural Holdings was conducted in October 2012. According to preliminary results, the total number of agricultural holdings is 324 013, compared to 350 654 in 2010. The share of holdings keeping livestock fell from 84% in 2010 to 71% in 2012. The work on setting up a functional land cadastre continues to progress very slowly. Under the Law on agricultural cooperation companies, new cooperatives have been registered for the production of oil, cereals and vegetables. The work on creating a functioning electronic agricultural information system (farm register, animal register, etc.) must intensify in order to create a basis for sound financial management of national and EU assistance.

In the area of the common market organisation, a new law on olive oil was approved by parliament. It aims to align with the acquis on marketing standards.

The adoption of the 2014-20 strategy for agriculture and rural development is pending. Preparations to manage and control rural development funds under the rural development component of the Instrument for Pre-accession Assistance (IPARD) have continued. The first call for proposals under an IPARD-like scheme took place from December to February, followed by a second call launched in April. The expected results of the project will need to be closely monitored.

An assessment of the preparedness of IPARD operating structures (paying agency and managing authority in the Ministry of Agriculture and other bodies involved, such as the National Authorising Officer (NAO) and the national fund at the Ministry of Finance) to manage funds of IPA component V was carried out in March. The main weaknesses identified include the lack of progress made by the NAO and the national fund in managing pre-accession assistance in agriculture, the lack of appropriate office space and equipment, including checking tools, in the paying agency and the lack of a clear policy to retain trained staff both at the managing authority and the agency. Efforts are needed to further train staff on the appropriate procedures and in order to build up the administrative capacity of all structures involved in the accreditation process.

In the field of quality policy, amendments to the Law on industrial property referring to geographical indications have still to be adopted.

As regards organic farming, subsidies through direct schemes and training on organic production have been provided. The adoption of a law on organic farming is pending.

Conclusion

There has been limited progress in the area of agriculture and rural development. The agricultural statistics have been improved. While the administrative structure to implement IPARD schemes has been established at the Ministry of Agriculture, all involved elements of the management and control system need to be substantially strengthened in order to carry out their respective functions, in particular the NAO and the national fund. Overall, preparations in this area are not very advanced.

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

In the area of general food safety, risk assessment capacity has still not been established although a first step has been made with a decision by the Ministry of Agriculture to set up a dedicated Scientific Committee. The regulatory framework relating to the Scientific Committee needs to be completed with clear rules and internal procedures that govern the activities of this body, including relations with the National Food Authority, risk communication, risk assessment methodology, and the allocation of an adequate budget. The quality of inspections of food facilities has gradually improved. However, the organisational and administrative framework of the inspection system lacks appropriate procedures and inspection plans, including for import controls.

As regards veterinary policy, progress has been made with the identification and registration of sheep and goats. Official veterinarians at regional level were assigned the role of data managers. The ear tagging and data entry into the animal database are close to completion. Two mass vaccinations against brucellosis in sheep and goats have been carried out in conformity with required standards, including the use of certified vaccines, fully controlled vaccine cold chain, enhanced awareness campaign and monitoring of the process. Vaccination against classical swine fever has started. Most of the data on vaccination of animals have been recorded in the animal information system.

Field epidemiology officers were provided with job descriptions and operational manuals. Nevertheless, due to intra- and inter-institutional fragmentation of the veterinary service, a clear definition of competencies, responsibilities, procedures and communication is lacking. Staff levels at the central veterinary office remain inadequate. The role of the Chief Veterinary Officer is only technical. Although a good animal information system exists, no steps were taken with regard to animal waste management or improving of physical infrastructure in animal markets.

In the area of placing on the market of food, feed and animal by-products, the pace of progress is slow, with the exception of the updating and validation of the food establishments database (AKUnet) that now records 17 800 units. There has been no progress in ensuring food traceability due to the lack of enforcement of rules, timely reporting and updating of information on animal movements. Resources for monitoring contaminants, hormones, veterinary medicines, pesticide residues, etc. are insufficient. It is necessary to ensure that national residue monitoring plans are carried out in accordance with procedures. Introduction of new procedures and standards in order to align with the acquis has to be accompanied with intensive awareness and information campaigns for food business operators.

As regards food safety rules there is a need for progressive compliance with EU requirements as regards bacteriological criteria for raw milk.

There have been few significant developments in the area of phytosanitary policy. Inspection tasks have been assigned to the National Food Authority. The Plant Protection Section of the Ministry of Agriculture will be responsible for drafting legislation, with regional staff having an advisory function.

Conclusion

There was little progress in the area of food safety, veterinary and phytosanitary policy. The capacity of the inspection system needs to be increased and systematic inspection plans have to be introduced. Risk assessment capacity remains to be established and the regulatory framework relating to the Scientific Committee needs to be completed. Overall, preparations remain at an early stage.

4.13. Chapter 13: Fisheries

Amendments to the Fisheries Law were adopted in December, providing that fishing boats of more than 12 metres must install a mobile transceiver unit, as required by Council Regulation 1224/2009/EC. Implementing legislation on the rules for the collection and use of data in the fisheries sector and support for scientific advice on national fisheries strategy, as well as on management measures for the sustainable explo