COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 26.05.1999 
COM(l999)235 final 
COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 
on the Stabilisation and Association process for countries of South-Eastern 
Europe 
Bosnia and Herzegovina, Croatia, Federal Republic of Yugoslavia, 
former Yugoslav Republic of Macedonia and Albania 

Table of Contents 
1. Political Context 1 
2. The existing EU Regional Approach 2 
3. Further development of the Regional Approach 3 
0 Stabilisation and Association Agreements 3 
0 Democratization, civil society and institution-building 5 
0 Justice and Home Affairs 5 
0 Trade 5 
0 Economic and Financial Assistance 6 
0 Political Dialogue 7 
• 4 . General Conclusions 7 
~! Country Specific Conclusions 
~~ 
;:I 
0 Bosnia and Herzegovina 9 ~~ 
1 0 Croatia 9 
j 0 The Federal Republic of Yugoslavia 9 I 
,; 
l 0 The former Yugoslav Republic of Macedonia 10 
! 0 Albania 10 
Annexes 
1 EC assistance to the countries of the region since 1991 11 
2 Developments in countries of the Regional Approach since 13 
1996, in particular regarding compliance, since October 1998, 
with Regional Approach conditionality criteria 
.4 fA.. 
1. Political context 
Countries of South-Eastern Europe have, for the last decade, enjoyed a great deal of support from the 
international community in general and the European Union in particular. Despite this, they have 
continued to suffer from inter-ethnic tensions and conflict. There has been a lack of substantial political or 
economic development. Despite major efforts to stabilise individual countries and the region as a whole, 
the progress made has been fragile. This is clear from the degree to which it has been jeopardised by the 
current conflict in Kosovo. The region is now at a turning point. A new approach to peace and stability in 
the wider region, involving both the countries of the wider region and the European Union, is urgently 
needed. At this time of tremendous upheaval and uncertainty in the region. the EU has a responsibility to 
contribute to the resolution both of the immediate instability and, in the longer term, to the general 
stabilisation and development of the region. This responsibility has been recognised, most recently, by 
the European Council on 14 April, and by the General Affairs Councils on 8 and 26 April, and 27 May 
1999. Fulfilling this responsibility will necessitate decisions on considerable amounts of further 
assistance, as well as on appropriate implementation mechanisms and legal bases. 
The European Union faces an ever greater challenge. lt needs to play an important proactive role in the 
region. lt is presently responding to this challenge through the development of its existing Regional 
Approach to the countries of South-Eastern Europe. The further development of this Regional Approach 
into a Stabilisation and Association process. which will at a later stage become part of the future EU 
Common Strategy, will be central for the EU's political visibility and will also constitute an important 
element of the Stability Pact for South-Eastern Europe which was approved by the Council on ·17 May. 
The Stability Pact will provide a framework, wider than the EU, in which all can contribute to lasting peace 
and stability, democracy and economic prosperity, in the region. it will help the process of integration into 
Euro-Atlantic structures. 
The proposals in the present Communication for the development of a Stabilisation and Association 
process will also help the development of the EU Common Strategy towards the Western Balkans. which 
will constitute the framework for EU relations with the region in the coming years and will be the ionger 
term perspective within which the prospects for proposed closer relations with the countries of the region 
should be seen. As at two other key stages in recent history- the emergence of independent states in 
Central and Eastern Europe in 1989-90and the dissolution of the former Soviet Union in 1991 -the 
European Union is confronted with geopolitical challenges requiring the development of new policies, and 
instruments, towards a group of countries. On this occasion, it must respond by offering a perspective of 
integration, based on a progressive approach adapted to the situation of the specific countries. 
The European Union has a particular interest in the region, because of its geographic proximity to Member 
States and candidate countries. This interest will be even higher following the future enlargements of the 
European Union, which will bring these countries even closer to the our borders. Stabilization of the reg1on 
would bring real benefits both to the region and to the EU. Instability is very costly for all concerned. The 
EU has spent enormous sums on repairing the results of instability -over 7bnll since 1991 (cletails at 
Annex I) without counting the cost of refugees within EU Member States or of other operations (UN, 
OSCE, NATO ... )-a bill which is continuing to rise in the present circumstances. 1t is clearly more in the 
interest of the countries of the region, and of the European Union to which they will ultimately belong, that 
even a fraction of these sums should be spent instead on their political and economic development. 
The present conflict in Kosovo has shown the potential political effects of instability on neighbouring 
states. with the risk of destabilisation of the former Yugoslav Republic of ~.llacedonia, Albania and 
Montenegro. lt has also had economic effects on countries of the region, such as Romania and Bulgaria. 
-!hose countries are already on track to EU membership, and this process will not be affected by 
d·~·'''~lopments in this region. lt reveals, once again, the inextricably regional nature of problems in th1s 
z::;ne. and reinforces the need for a regional approach to the problems. The countries of the wider region, 
both candidates and EU Member States. have a particular contribution to rnake as examples of the 
progress that can be made (e.g. in democratisation, multi-~ethnicity, reform) and in the building of practica~ 
interdependence. 
2. The existing EU Regional Approach 
The changed wider political context necessitates a development of existing policy. But, even without it, it 
would be appropriate, three years after the elaboration of the Regional Approach, to make proposals for its 
further development. Recent events, and the accelerated pace of the development of other related 
strategies, mean that the enhancement of the Regional Approach should be more ambitious. lt should 
respond to the challenges posed by the changed situation on the ground and the new political context. 
The Commission's proposals, in section 3 below, are therefore more than routine "conclusions" on. the 
developments in the Regional Approach countries, but also respond to the changed nature of the situation 
and the challenges faced. 
The Regional Approach provides a framework for the development of relations with five countries of the 
region -Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia, the former Yugoslav 
Republic of Macedonia, and Albania -with which the EC had not, in 1996, adopted directives for the 
negotiation of association agreements. These five states were, and remain. differentiated into two 
groups. The former Yugoslav Republic of Macedonia and Albania, which were not involved in the 1991-95 
war and had more advanced bilateral relations with the EC, on the one hand, and the other three countries 
which are party to the Dayton I Paris peace agreements, compliance with which is an important factor in 
regional stability as well as relations with the EU, on the other. 
The primary objectives of the Regional Approach, as established in 1996, were to underpin the successful 
implementation of the Dayton I Paris and Erdut peace agreements and the creation of an area of political 
stability and economic prosperity by: 
a) promoting and sustaining democracy and the rule of law (institution-building, reform of the state 
and public administration, reconstitution of civil society) and respect for huma~~-r_1-~--~~Q9Ii!y_r_ig_~~~ 
(notably non-discrimination between citizens, and including the resettlement of refugees and 
displaced persons); and 
b) relaunching economic activity (rebuilding the economy, restoring and improving infrastructure. 
reorienting former war economies to civilian activities, and former command economies to market 
reforms). 
The Regional Approach is based, in particular, on political and economic conditionality. established by the 
General Affairs Council on 29 April 1997, compliance with which1 forms the basis for the development of 
bilateral relations with the EC in the field of trade (eligibility for autonomous trade preferences·'). financial 
and economic assistance (under the OBNOVA I Reconstruction' and PHARE4 programmes[-) and 
contractual relations6. 
5 
6 At six-monthly intervals since 1997, the Commission has prepared reports on compliance. on the basis of which the Council 
has adopted Conclusions. 
The autonomous trade preference regime, commonly referred to as the autonomous trade measures (A TMs) is found in 
Regulation 70/97 of 20.12.96 OJ L 16 of 18.1.97, last amended by Regulation 2863/98 of 30.12.98 OJ L ]58 :\1.12.98. 
Albania is not covered by this instrument as its origin is the formor EC-SFRY Coopmation Aoroomont, denounced in 19H 1 
when the SFRY ceased to exist. Wine imports from the former Yugoslav Republic of Macedonia and from Slovenia am still 
covered by the regime since bilateral Wine Agreements hav~ not yet been concluded with the EC. 
Regulation 1628/96 of ... , as last amended by Regulation U51/98 of ... 
Regulation (EEC) No. 3906/89, as amended by Regulation 3800/91 of 23.12.91 to include Albania, Regulation ·1366/95 of 
12.06.95 to include Croatia. Regulation 463/96 of 11.03.96 to include the former Yugoslav Republic of Macedonia, and 
Regulation 753/96 of 22.04.96 to include Bosnia and Herzegovina. In line with the Council Conclusions of 29 April 1997, 
PHARE assistance to Bosnia and Herzegovina is "limited to projects in direct support of the peace agreements, in 
particular the building of cross-·entity links and refugee return". Croatia has been suspended from PHARE since August 
1995 
and PHARE-funded projects such as CAFAO, CAM-A and CAM-ES 
Cooperation Agreement with Albania, in force since 1992; Cooperation Agreement with the former Yu~Joslav Ropuhlic of 
Macedonia, in force since 1998; Transport Agreement with the former Yugoslav Republic of Macedonia, in forcn since 1997. 
2 
lt was, and remains, clear that most of these objectives cannot be achieved on a purely national basis -
most of the countries of the region not only share the same aspirations for closer relations with the 
European Union, but they also face many of the same problems, and their economies are linked in various 
degrees of interdependence. The countries themselves and the European Union must therefore put more 
emphasis on cooperation, both bilateral, multilateral and regional. Assistance to them must also have a 
regional perspective, encouraging and requiring the countries concerned to work together, as well as with 
th~ir neighbours in the wider region and with the EU, to further their economic development. In particular, 
the multilateral dimension of the existing approach must be enhanced, to avoid the risks of concentrating 
solely on a policy of selective bilateralism to the detriment of a truly regional strategy. 
3. Further development of the Regional Approach 
Developments both within and outside the region mean that there is a need to react in the shor1-term to 
the changing situation in the region Such developments also require more long-term strategies aimed at 
the long-term stabilization of the countries of the Regional Approach and thus also of the wider region. 
Such a strategy would also underline that all countries in the region have the prospect of increasing 
rapprochement with the EU, in the perspective of full integration into European structures. 
In view of the need to define a new approach to the changed general circumstances. and to overcome the 
failure of the countries to adequately respond to the incentives already offered (notably as regards the 
need to cooperate on a bilateral, multilateral or regional level), the Commission proposes a new, enhanced 
approach. This would entail the development of a Stabilisation and Association process, which would in 
effect offer higher incentives than before to the countries concerned. These stronger incentives would, of 
course, require compliance with more demanding conditions, both political and economic as well as 
increased emphasis on the need for regional cooperation. 
The Commission therefore proposes the following content for the Stabilisation and Association process, 
combining both the development of existing instruments, and new initiatives a.imed at an improvement of 
the situation: 
• The development of Stabilisation and Association Agreements, a new kind of contractual relations, 
taking into account the individual situation of each country, with a perspective of EU membership 
on the basis of the Amsterdam Treaty and once the Copenhagen criteria have been met 
• The development of existing economic and trade relations with and within the region 
• The development I partial reorientation of existing economic & financial assistance 
'• Increased assistance for democratization, civil society, education and institution-building 
• The use of new opportunities for cooperation in various fields, including justice & home affairs (in 
particular following the entry into force of the Amsterdam Treaty) 
• The development of political dialogue, including at regional level 
Stabllisation and Association Agreements 
At present, there are contractual relations. in the form of Cooperation Agreements with two of the five 
countries -the former Yugoslav Republic of Macedonia and Albania. The start of negotiations for 
contractual relations with the other states (usually interpreted as meaning Cooperation Agreements in a 
first stage), under the Regional Approach, depended on compliance with both general and specific political 
and economic conditions8. 
Closer relations with the EU constitute a very important political and economic incentive for all of the 
countries. The perspective of contractual relations should be progressive in nature and should be seen as 
complementary to other stabilization efforts in the political, economic, diplomatic, humanitarian and even 
tl Wording from Art. 7 of the Common Position adopted by the Council. on the basis of Article 15 of the TEU concerning the 
launchins of the Stability Pact of the EU on South-Eastern Europe 
cf. Conclusions of the General Affairs Council of 29 April 1997 
3 
•nilitary fields, They should therefore be developed in order to fulfil their potential as an importm;t poii!:t :~ai 
and economic incentive for stabilization and democratization within the region, on an individual basis, atad 
within the framework of the Regional Api:Jroach9. 
The European Union has been confronted with geopolitical challenges requiring the development or nevv 
instruments governing its bilateral relations with a group of countries on two other recent occasions. Th.ey 
~vvere the emergence of independent states in Central and Eastern Europe in 1989-90 and with t~1e 
dissolution of the former Soviet Union in 1 991. On those occasions, it developed the concept of s Ji-· 
generis categories of contractual relat:ons -for the countries of Central and Eastern Europe, it develop .. d 
the "Europe Agreements" (based on Article 23810, containing a specific reference to the perspective of 
accession) and, for the countries of the former Soviet Union, the concept of "Partnership and Cooperation 
Agreements"11. 
To respond to the present, changed, circumstances in the region, as well as the Conclusions of the 
General Affairs Council of 26 April 1999 and the proposed wording of the Stability Pact, the Commission 
therefore considers it appropriate that a new Stabilisation and Association process should be 
launched~ an element of which would be a new category of agreement • Stabilisation and 
As~ociation Agreements -for which Bosnia and Herzegovina, Croatia, the Federal Republic of 
Yugoslavia, the former Yugoslav Republic of Macedonia and Albania would, in principle, be eligible. 
These Agreements would be tailor-made, differentiated to take account of the specific situation of the 
country concerned. The main objectives would be: 
• To draw the region closer to the perspective of full integration into EU structures. 
• To support the consolidation of democracy, rule of law, economic development and reform. 
adequate administrative structures, and regional cooperation, 
• To establish a formalized framework for political dialogue, both at bilateral and regional level. 
• To promote economic relations, trade, investment, enterprise policy, transport and development. and 
cooperation in the customs area, with the perspective of closer integration into the world trading 
system, including the possibility of establishing a free trade area or areas, when sufficient progress 
has been made in economic reform, 
• To provide a basis for cooperation in the field of justice and home affairs, 
• To provide a basis for economic, social, civil, educational, scientific, technological, energy, 
environmental and cultural cooperation (including a plan to safeguard the cultural heritage of these 
regions), underpinned by "association-orientated" assistance programmes which would also be 
designed to facilitate approximation of legislation in accordance with relevant EC acquis. 
These Stabilisation and Association Agreements (SAAs) would bring a new dimension to relations with 
the region, replacing the prospect of a Cooperation Agreement for those countries which had not already 
reached that stage, and, for those that already have a Cooperation Agreement, providing a new, more 
advanced relationship. 
The conditions for the start of negotiations on such Agreements would remain those set out in the 
Council Conclusions of 29 April 1997 on the opening of negotiations for contractual relations. Obviously, 
to conclude such an enhanced relationship with the EU, a country would also have to have attained 
the high level of political and economic development required to meet the increased reciprocal and mutual 
• obligations of the relevant a.cquis. In addition, taking into account the context of the Stabilisation and 
9 Wording from Para 21 of the draft Stability Pact for SouthEastern Europe, as approved by Council on 17 May 
10 No-.•,; artic!e 310 of the TEU 
based for example, In the case of Moldova, on Articles 44(2), 47(2) last sentence, 55, 57c(2), 71, 80(2), 93, 94. 133, and 
308 of the TEU 
4 
Association process, the Stability Pact and the future _EU Common Strategy, there would be increased 
emphasis on progress in developing regional cooperation. 
As regards the ilOssible start of negotiations with the individual countriesfor Stability and Association 
Agreements~ more details are provided in section 4 infra, in the conclusions on the individual countrie~. 
The Commission will report first on the feasibility of the opening of such negotiations in the case of the 
former Yugosfr~v Republic of Macedonia and then on the case of Albania. In the light of recommendations 
made by the: Commission in its reports on the feasibility of the opening of negotiations for such 
Agreements, appropriate negotiating directives might be developed. Given its positive record to date, and 
its compliance with the relevant conditions, it is likely that negotiations will first be opened with the former 
Yugos(av Republic of Macedonia. it would not yet be appropriate to consider the opening of 
negotiations with Bosnia and Herzegovina or Croatia as the reievant conditions have not yet been fulfilled. 
But the Cotnrnission could prepare technical reports on the feasibility of the opening of such negotiations 
at a later stage. The Federal Republic of Yugoslavia has the same general perspectives as the other 
states once it respects the relevant conditions. At present, it disregards the most fundamental of these. 
DemocratlzaHon, Civil Society and institution-building 
Efforts to prornote economic development, as described below, will be greatly facilitated by the stability of 
the underlying political structures, the maintenance of the rule of law, the effectiveness of public 
administration, and the viability of civil society. EU action has been, and remains. directed at these 
objectives. lt includes such elements as support for free and fair elections and good parliamentary 
practice; legislative reform and voter education; independent media; rule of law through technical 
assistance ·tor judicial , police and customs reform; civic education; anti-corruption programmes (drawing 
on experiences in the customs field in Albania and Bosnia and Herzegovina), training (including higher 
education) and development for over-stretched and under-resourced public administrations (which will in 
turn contribute to stabilization, development and the effective implementation of assistance programmes): 
and support for civil society organizations and initiatives. Particular emphasis will be given, through civil 
society organisat!ons, to the post-conflict rebuilding of consensus, to conflict-resolution and to the 
lightening of the psychological burden consequent to war. lt could be appropriate to take into account the 
regional dimension in channelling financial resources to local community-based organisations while at the 
same time pursuing common overall objectives for the development of democracy in the region. 
Justice and Home Affairs 
Initiatives in the field of justice and home affairs could be considered -not only as a part of Stabilisation 
and Association Agreements, as mentioned above, but more generally. Assistance could be provided, by 
both the Community and Member States, for institution-building increasin~ the efficiency of law 
enforcement, border controls, the fight against organised crime and corruption 1 , including by means of 
"twinning". Co-ordinated support could also be provided in the context of migration through the 
development of relevant legal instruments, particularly in the area of readmission. 
Trade 
The existing system of autonomous trade preferences for the countries which emerged from former 
Yugoslavia (for which only Bosnia and Herzegovina and Croatia are presently eligible) will remair, 
important until contractual relations are established with Bosnia and Herzegovina, Croatia and the Federal 
Republic of Yugoslavia. In future, the Commission intends to split the existing system of autonomous trade 
preferences into separate trade preferences for Bosnia and Herzegovina and Croatia in order to ensure a 
12 within the framework of a Community Customs Assistance Mission, in the light of the achievements of CAFAO in Bosnia and 
Herzegovina and CAM·A in Albania 
5 
~;3~1::oar.:-'nt and f';qu;tab!e share of these preferences 13 between these countries, and to prepo,~'7. t= • :::"~ · 
futur,~::: m::gotiations for an agreement. In accordance with the Council Conclusions of 9 Noverr:.)er 
and !n anticipation of a ''·Stabilisation and Association Agreemenr, the Commission will present, 
formal proposal for the upgrading of the bilaterai trade regime withAibania towards a · 1 
n:•gime s\milc.1r to what is afforded to other countries of the region4
. 
The upgrading of relations by means of a Stabilisation and Association Agreement will have t:ade 
implications as regards the reciprocal obligations which would be involved. Trade relations with these: 
countries will be strengthened by their accession to the WTO. 
Economic and Financial Assistance 
Economic and political development should go hand in hand. Within the countries of the region. sound 
macro-economies will need strong and democratically based institutions; and balanced prosperity will in 
turn reinforce their political systems. The removal of economic barriers between the countries of the 
region will enable closer political relationships to take root. The Commission, in close cooperation with 
international financial institutions (IFis), will continue to monitor macro-economic developments and 
deepen its macro-economic dialogue with these countries. Financial assistance will be focussed on 
helping to build strong, stable market-based economies that are well integrated with their neighbours and 
with the European and global economies. In view of the needs of transition and reconstruction and of 
increasing infrastructure linkages, considerable investment will be needed. Attention must therefore be 
given to creating the right climate for private investment f~ows, in order to fill the gap between public sector 
capacity and funding. 
In 1999, financial assistance from the Community budget to the countries of the Regional Approach will be 
almost 700mu (see Annex 1). A considerable amount of further assistance wiil no doubt be required, to 
underpin the EU contribution to the implementation of the Stability Pact and the EU Common Strategy. as 
well as for the impact of the Kosovo crisis and the eventual cost of reconstruction. The Budgetary 
Authority will be required, in due course, to take the necessary decisions, on the basis of proposals from 
the Commission. The EU cannot commit itself to the implementation of ambitious programmes without. 
however, also having the necessary mechanisms and means in place to enable the flexible, well co­
ordinated, and efficient use of all Community assistance instruments in a manner adapted to the 
~~ircumstances. The Commission will propose a legal base for the implementation of assistance to the 
region as a whole, taking into account the articulation with the PHARE programme, and is examining the 
question of appropriate implementation mechanisms I structures, including for the channelling of aid from 
other donors. Legal bases could be created I modified to facilitate the implementation of all Community 
financial assistance programmes for reconstruction (including of environmental damage) and regional co­
operation (the crossborder I regional use of some of which is presently not feasible due to the fact that not 
all potential partners are eligible for the underlying PH ARE programme). , 
The EU is itself a model for overcoming conflict and promoting reconciliation through close co-operation to 
achieve common goals, while respecting national sovereignty and territorial integrity. States aspiring to 
closer relations with the EU should behave in a similar manner, and EC financial assistance and the 
development of bilateral relations should be targeted on the regional economy and the need to promote 
interdependence, as has not always been the case. The provision of EC and bilateral assistance (with 
the exception of assistance for humanitarian purposes, democratisation and human rights) to the region 
• and to individual countries should take into account the readiness of the countries to co-operate with each 
other e.g. by the possible establishment of mutual trade preferences or free trade areac; and customs 
13 This wi!l not apply for arrangements for wine which would still be global in nature. applying to Bosnia and Herzegovina, 
Croatia and the former Yugoslav RepuhHc of Macedonia. FRY would. obviously, only receive its "share" of the general 
preferences once it met the eligibility criteria for the trade preferences. 
1
" For which a WTO-waiver will be reauHsted 
6 
unions 15. Co-operation between states should also, increasingly, be a prerequisite for the establishment 
of closer links with the EU, and for assistance. A percentage of assistance under multi-beneficiary 
programmes could be reserved for multi-country or cross-border political or economic co-operation 
initiatives (with other countries of the region, with neighbouring candidate countries and with EU Member 
States). The focus could be on the development of exchanges, the creation of common projects and 
institutions, and the building and further development of regional strengths. 
On a macroeconomic level, the Commission, in co-operation with the International Financial Institutions. 
(IFis), will continue to monitor closely macro-economic developments. As well as grant-based assistance, 
the Commission, as in the past, will consider, on an exceptional basis, balance of payments support for 
those countries of the region (and adjacent countries) which are eligible for such support. Bilateral 
assistance could also include debt relief, or cancellation, especially for the countries that have been 
particularly hard-hit by recent costly and destabilising developments. The Commission and the World 
Bank have created a coordination mechanism to ensure that the regional dimension of Kosovo 
reconstruction is fully taken into account, and will coordi_nate donor mobilisation, economic analysis. 
conditions of support and implementation on the spot. 
Political dialogue 
As indicated above, the Stabilisation and Association Agreements will include the development of political 
dialogue on a multilateral/ regional level. Attention must also be paid to this issue, in the framework of the 
Stabilisation and Association process, for those countries that are not yet eligible for such Agreements. 
This should be in addition to bilateral political dialogue. Such dialogue should be developed at various 
levels (from official to ministerial) and in various formats (Presidency I Commission or the new Troika). and 
should whenever possible be held in a regional I sub-regional format, thereby also providing opportunities 
for the countries to meet to discuss issues of common and regional interest. Political Declarations. as in 
June 1998 for Bosnia and Herzegovina, could also be envisaged, as well as the creation of mechanisms 
for technical discussions, as in the EU I BiH Consultative Task Force. 
4. General Conclusions 
The EU, on the basis of its experience to date of the Regional Approach, is ready for a long-term and 
substantial commitment to the stabilisation of the region. This stabilisation effort will, in the first place, 
focus on the five countries, while also having a broader regional approach covering the wider region. The 
Regional Approach, its scope, instruments and conditionality, remain basically valid. In the light of the 
forthcoming EU Common Strategy towards the region, as well as the proposal for a Stability Pact for 
South-Eastern Europe, and most particularly the changed circumstances in the region, it should, however, 
be substantially developed. For this reason, the Commission has proposed the creation of a Stabilisation 
and Association process, the main feature of which will be the offer to the five countries -in return for 
compliance with the relevant conditions -of a new kind of contractual relations: Stabilisation and 
Association Agreements. Other elementswould include increased and reoriented assistance, increased 
support for democratisation, development of trade and political dialogue, and cooperation in new fields. 
While developing policies towards the region, and particularly in relation to the post-conflict situation in 
Kosovo, the articulation of the relationship between these policies towards the region -the existing 
Regional Approach and future Common Strategy, as well as the proposed Stability Pact -and those of • 
other actors (UN, Council of Europe, OSCE, WEU and NATO, relevant international financial institutions) 
needs to be considered carefully. 
If this strategy is to be successful, the peoples and governments of the region must also participate and 
make determined efforts e.g. the pursuit of WTO accession, the possible development of free trade areas 
between themselves and within the region, and with increased regional cooperation on a bilateral and a 
15 While avoiding the creation of RS I FRY and FBiH I Croatia structures to the detriment of Bi.H as a whole 
7 
" mu>t:ir);,err:;;~ 18ve!. as 'Ne !I as respect foi the ::ondit;onallty set out in U1e existing Reglonal Approach. The 
Regi'Jtna: and indeed any set of poncies adopted by the 1Jr tne internat~onal cornrnunity ;n 
general, can only do so rnuch. The future of the region lies in the hands of its peo~ies and governments. 
Country Specific Conclusions 
The Commission will continue to prepare regular reports on compliance by the countries concerned with 
the conditionality of the Stabilisation and Association process, the next report on which will be in 
November 1999. As regards the totality of bilateral relations with the countries of the Stabilisation and 
Association process, the Commission would, at present, draw the following operational concJusions16 in 
respect of the individual countries: · 
Bosnla and Herzegovlna 
Negotiations on a Stabilisation and Association Agreement with Bosnia and Herzegovina will be 
opened when it has met the relevant conditions. At the appropriate time, the Commission will prepare 
a technical report on the feasibility of the opening of negotiations for such an agreement. In the 
context of bilateral relations with BiH, and the future opening of negotiations. political and economic 
dialogue might be intensified. The Consultative Task Force could also play an important role. 
Opportunities to enhance co-operation in specific areas should be considered, and communication 
and dialogue should be promoted, including at a regional level. 
Bosnia and Herzegovina should continue, at this time, to benefit from the autonomous trade 
preferences extended by the European Community and will continue to benefit from PHARE 
assistance related to reconstruction and institution-building needs, as well as in support of the peace 
agreements, although it will only benefit from full "traditional" PHARE once the relevant conditions 
have been met by the authorities, at State and Entity level. lt is hoped that sufficient progress might 
be made by the end of the next reporting period, in November 1999. 
Croatla 
Negotiations with Croatia on a Stabilisation and Association Agreement will be opened when it 
has met the relevant conditions. At the appropriate time, the Commission will prepare a technical 
report on the feasibility of the opening of negotiations for such an agreement. In the context of 
bilateral relations, and the future opening of negotiations, communication and exchanges of views 
might be intensified, including in a more structured framework e.g. political dialogue and a technical 
consultative task force. 
Croatia should continue, at this time, to benefit from the autonomous trade preferences extended 
by the European Community. In order to lift the suspension ofPHARE, further progress towards 
democracy will be necessary, inter alia, in the fields of media reform, electoral reform, and refugee 
return, in accordance with the 29 April 1997 conditions. lt is hoped that progress on these might be 
made by the end of the next reporting period, in November 1999. The EC has, nonetheless. already 
given assistance in other fields (humanitarian, support for democratisation including independent 
media, and refugee-return related reconstruction) and will continue to do so. Additional assistance 
will be targeted on areas relevant to the development of democracy, economic regeneration of 
refugee return areas and education (including e.g. Tempus and European Training Foundation). 
Federal Republic of Yugoslavia 
In the light of the continuing conflict in Kosovo and the obvious non-fulfilment of relevant conditions. it 
is not appropriate to discuss the eligibility of the FRY for the autonornous trO'de preferences or 
PHARE, or the opening of negotiations for a Stabilisatlon and AssociaUon Agreement. The FRY 
will be eligible for such instruments once the relevant conditions are fulfilled. In the interim, the FRY 
16 Based on the general assessment of developments in each of the countries (contained in Annex 2 of the present 
Communic~tion) as well as the more detailed factual report on compliance, since October 1998, with Regional Approach 
condltionality (contained in the Commission Staff Working Psper on that subject: SEC(99)714 of 17.5.99) 
9 
will continue to receive humanitarian and democratisation assistance and to benefit from OBNOVA I 
Reconstruction assistance (which is, in the main, geographically limited to Kosovo and Montenegro -
assistance to Serbia is limited to support for the independent media), with particular emphasis on the 
return of refugees J internally dispiaced persons. 
As a result of the continuing conflict in Kosovo, existing measures against the FRY I Serbia are to be 
strengthened in line with the Council Conclusions of 26 April 1999, which also decided on an oil 
embargo. These include an arms embargo; a visa ban {already extended to cover those responsible 
for the suppression of independent media) a supply ban on equipment which could be used for 
terrorism or police repression; a moratorium on export credit; a freeze on Serbian I FRY Government 
funds held abroad; a prohibition on new investment; a flight-ban on FRY-registered airlines.The main 
forms of bilateral relations with the European Community apply to the state (FRY) as a whole. A.s 
these instruments cannot therefore be used for the benefit ofMontenegro, continuing assistance to 
that republic will be by means of other Community instruments. Budgetary assistance for costs 
related to internally displaced persons from Kosovo is being provided. 
Former Yugoslav Republic of Macedonia 
Due to the positive record achieved so far, as well as the country's compliance with the relevant 
conditions, and in accordance with the Conclusions of the General Affairs Council on 8 and 26 April 
1999, the Commission will present a report on the feasibility of the opening of negotiations for a 
Stabilisation and Associati9n Agreement with this country. Taking into account discussions in the 
Council, the Commission could make recommendations for negotiating directives. In the interim, the 
Cooperation Agreement and the Agreement in the Field of Transport will continue to be 
implemented, and relations will intensify in that framework and in the framework of the Political 
Dialogue, with modification of the terms of reference of the working party on customs and taxation to 
cover statistical n1atteis, as a follow up to the March 1999 Cooperation Council. 
The country will continue to benefit from Community assistance, notably in the framework ofPHARE. 
The eligibility of the former Yugoslav Republic of Macedonia for additional PHARE multi-beneficiary 
programmes will be determined on a case-by-case basis, taking into account their consistence with 
and value-added to the National Programme. Budgetary assistance for refugee-related expenses will 
also be provided. 
Albania 
In accordance with the Conclusions of the General Affairs Council on 26 April 1999, the Commission 
is prepared to report in due course on the feasibility of the opening of negotiations for aStablllsatlon 
and Association Agreement with Albania. Taking into account discussions in the Council, , the 
Commission could make recoil'lmendations for negotiating directives. In the interim, contractuai 
relations with the Community, based on the 1992 Cooperation Agreement and the connected 
Dec!aration on Politicai Dialogue, will be continued, and new working parties (on infrastructure and 
agriculture) established. .A formai proposal for a bilateral trade regime. In accordance with General 
Affairs Council conclusions of 9 November 1998, will be presented shortly, with a view to upgrading 
the bEateral trade regJme towards regional standards. 
PHARE and other Community assistance will be continued with a view to achieving further progress 
in stabilisation, recovery, economic reform and democratisation in this country as well as to enhancing 
~ regional co-operation. The EU will continue, in particular, to support the re-establishment of a viable 
Albanian police in co-operation with the strengthened WEU Mission and, to enhance its Customs 
Assistance Mission, on the basis of the amended Customs Code. Budgetary assistance for refugee­
related expenses is being provided. Balance oJ payment support adopted recently will be 
impiemented without delay, and macro-economic developments will be monitored closely by the 
Commission and the IFis. 
10 
Annex 1 
r---·--·------Overall EC Assistance to Kosovo's neighbouring countries 1991-99 (Mio €)u> ! l L-(Commitments) 
I ALBANIA(2) BOSNIA (3) CROATIA FRY FYROM MULTI-
COUNTRY 
i 
TYPE OF EC ASSISTANCE 
, PHARE + OBNOV A 616.4 754.5 49.6 41.7 236.7 9.8 
>~~HUMANIT~""l AID 
(ECHO) 41.2 1032.1 290.8 262.8 45.7 236.1 
FOOD SECURITY 
(DGVIll) 16.5 - - -- -
~ALANCE OF PAYMEI\7 
r SUPPORT (DG 11) 20.0 60.0 - - 40.0 -
I Em 46.0 - - - - -
~·~HER ACTIONS (4) 122.8 221.2 9.3 17.5 2.0 12.3 
I 
fl'OTAL EC ASSISTANCE 862.9 2067.8 349.7 322.0 324.4 258.2 
1...-~-·~-y~ 
I 
t--Member States assistance 712.8 507.9 1165.9 712.4 178.2 -
1 (1990-97) 
~RAND TOTAL 1575.7 2575.7 1515.6 1034.4 502.5 258.2 
! 
h:-BRD 68.0 70.0 511.0 143.0 ...,_,_, 
; As ofend-April1999, except for EIB and EBRD figures which include assistance from 1991 to 1998, and Member States' assistance which covers 1990-1997 
1 Grant macro-financial assistances to Albania decided in 1992 and 1994 are included in Phare financing. 
J Out of the 60 Meuros of balance of payment support, the 15 Meuros grant programmed for 1999 will be financed by Obnova. 
The total amount under Phar~bnova line has thus been reduced by J 5 to avoid double-counting. 
{ 4) Other actions mainly include food aid to Albania provided by FEOGA ( J 2(} \1euros) ~d demining and other actions in Bosnia (200 Meuros) 
n.a. ==not available 
11 
~ TOTAL 
1708.6 
1908.7 
16.5 
120.0 
46.0 
385.1 
4184.9 
3277.2 
7462.1 
792.0 
Overall EC Assistance to Kosovo's neighbouring countries in 1999 '(Mio €)<•>; __, 
(Commitments) 
ALBANIA BOSNIA CROATIA FRY FYROM IMULTI-COUNTRY TOTAL 
!TYPE OF EC ASSISTANCE 
PHARE + OBNOVA 118,5 146,0 15,0 23,5 68,7 2,8 374,5 
iHUMANITARIAN AID 
(ECHO) 7,0 56,4 5,0 7,6 182,0 258,0 
FOOD SECLTRITY 
(DGVDI) 5,7 5,7 
BALANCE·OFPAYMENT 
SUPPORT (DG IT) 20,0 60,0 80,0 
IEIB I n.a. I n.a. I -I -I -I -I 0,0 
OTHER ACTIONS 
TOTAL EC ASSISTANCE 
(I) Indicative allocanons. 
n.a = not available 151,2 10,0 1,4 
272,4 21,4 
12 0,5 0,5 2,0 14,4 
31,6 69,2 186,8 732,6 
Annex 2 
Developments in the countries of the Regional Approach since 1996, 
in particular regarding compliance, since October 1998, with Regional Approach 
conditionality criteria 
The degree of political progress in each country, as described in the following paragraphs, has 
been influenced by its willingness to put the development of relations with the EU but· also with 
its neighbours in the region above_ national(ist) interests. As is evident, certain countries, in 
certain fields, have not yet demonstrated a commitment to the European future to which they 
lay claim. This commitment demands respect for democratic principles and the ideal of 
cooperation between states. Progress, particularly in respect of the objectives of the Regional 
Approach has been patchy, depending on the willingness of the countries concerned to make 
the necessary efforts. For example, the level of democratization has increased in all but 
Serbia, although respect for minority rights differs depending on the national context. 
Implementation of the peace agreements has been patchy, particularly insofar as refugee 
return and cooperation with the ICTY is concerned. Some progress has been made in 
bilateral relations, but not in regional cooperation per se. 
Bosnia and Herzegovina is a special case in the Balkans. lt is in a triple transition process: 
from the status of federate republic of the Socialist Federative Republic of Yugoslavia to the 
status of independent republic; from a socialist economy to a market economy; fro~ a civil war 
between three ethnic groups to a peace within a "single Republic made up of two Entities ... At 
the end of the war, Bosnia-Herzegovina (BiH) had lost 23o/o of its pre-war population; GDP and 
per capita income had dropped by three quarters, industrial production by more than 90°/o and 
more than 1.2 million of its inhabitants had fled abroad, around 750,000 to EU countries. 
Since 1996, reforms have been slow due to the special political structure of the country and 
the nationalist political formations which dominated the political scene until the last elections. 
The September 1998 elections indicated a first partial drift from the main nationalist parties. 
The implementation of Dayton can be considered a success as far as its military dimension is 
concerned. On the civil side, much progress has been made (handing over of some war 
criminals to the Hague Tribunal, adoption of common symbols, establishment of common 
institutions, economic reconstruction). Nevertheless, the return of minority refugees, the 
functioning of the common institutions and judicial reform are not completely satisfactory. On 
the other hand, in the period 1996-1998, real growth of the economy has been of the order of 
an average 40o/o per year at State level, although the political obstruction to the peace process 
by the RS led this entity to two years of economic stagnation, until the appointment of PM 
Dodik (beginning 1998). The rapid improvement was from a very low base, and income levels 
and the provision of social services are among the lowest in Europe. The main problem of 
Bosnia-Herzegovina has been the lack of consolidated statehood. This is due to the attitude 
of BiH leaders, who still do not fully rely on cooperation within the common institutions, but 
also to the complexity of the institutional framework. In early 1999, there were signs of 
improvement in certain policy areas, especially privatization, investment legislation, customs 
legislation and the financial sector. Some important steps forward continue to be made in 
market economy reform although more efforts for proper implementation are still needed. The 
main risk remains poverty and social disruption, especially in the RS. Concerning 
democratization and respect for human rights, there has been some progress in certain fields, 
but recent political developments in the RS and in Kosovo have hampered, for the time being, 
further qualitative general improvement. Progress is still needed in cooperation between the 
different ethnic groups, although some positive developments occurred, particularly in the field 
of party politics. Co-operation from some local authorities in the RS has, very recently, 
improved. Interesting progress also occurred in the media and further improvement is 
expected in forthcoming months. Regional cooperation continues at varying levels, but the 
13 
( inf!uence of Zagreb and Belgrade remains quite strong. The implementation ()f 
t Parts ;;greements is progressing slowly, for different reasons. 
'C'lfo,~tia ~as dernonstrated its readiness. to make some efforts with a view to 
s+?bi!!zation and nor::11a!ization. it has shown its openness to enhanced cooperation wiih Ult 
k.rernancnai Community. lntegra1:ion in European and Euro-At!antic structures is a 
Croatlan politics. There were some achievements with regard to the acceptance of 
r8:e·lant international and national lega: frameworks for the respect of the ru!e of law. Progrss·: 
has occurred in civil society, with an interestirlg evolution of popular opinion from naticma;1stic 
considerations, upon which Croatian political life was founded, to a more mature pluralish.: 
system. The development of the Croatian economy proceeded well until 1998 when the 
consequences of the failure to introduce structural reforms began to shovv. Significant 
improvements have occurred in regional cooperation as well as in the formal integration of 
Eastern Slavonia. The delicate issue of the return of refugees has required strong international 
pressure, and serious difficulties remain in the implementation of Croatia's commitments. 
Nevertheless, the large gap remaining between formal commitments and their implementation 
prevents Croatia from reaching the required standards of democratization. Despite the 
declared intentions of the Government, the overall scenario seems to have stalled in recent 
months. In fact, progress since October 1998 in compliance with the different sets of 
conditions is still selective. Real implementation of international commitments is still 
unsuccessful, despite continuing international insistence. Democratization and respect for 
human rights remain the main areas of concern, notably with reference to reform of the 
electoral law and democratization of media, where no progress can be reported. Further 
substantial progress is also expected as far as respect for m1norities and their right~ is 
concerned. Cooperation with neighbouring countries has continued in a rather satisfactory way 
and Croatia has proved willing to resolve the outstanding questions by diplomatic means. 
Problems remain, however, as regard relations with the Federation of Bosnia and 
Herzegovina. Despite rather good results in the past and a satisfactory legal framework, 
concern is rising regarding the increasingly worsening economic situation. As far as 
compliance with Dayton and Erdut obligations is concerned, positive steps have occurred in 
refugee return, although the process is still rather slow. Normalization of war-damaged areas 
continues although further effective efforts are still required, notably in the implementation of 
the Programme for the Reestablishment of Trust. 
Within the Federal Republic of Yugoslavia, the picture is mixed, with contrasting developments 
in Serbia and Montenegro. There has been no progress in democratisation or reform in 
Serbia I Federal Republic of Yugoslavia (FRY). The suppression of the rights of the 
population since 1989 in Kosovo has finally erupted into open conflict which has had effects in 
neighbouring states. In general, there has been a contradiction in FRY I Serbia between the 
theoretical respect for democratic principles, as enshrined in the Constitution, laws, and 
obligations arising from signature of various international treaties and conventions, and the 
practical implementation of these principles. Even before the recent declaration of a State of 
War, there was a clear and continuing lack of respect for democratic principles, particularly for 
media and academic freedoms, as well as administrative and judicial proceedings. While the 
Constitution and laws of the FRY and Serbia provide for extensive human and minority rights, 
different minority groupings -the Kosovar Albanians, the Groat and Hungarian minorities, and 
the Sandzak Muslims -have experienced varying degrees of difficulty in the respect for and 
implementation of these laws, the most glaring example of which has been recent events in 
Kosovo. Inter alia, the Gonzale:z. recommendations remain unimplemented, and with the 
declaration of a State of War in March 1999 and the acceleration of massive deportations 
accompanied by unspeakable atrocities, even the trappings of dem9cracy are now 
disregarded. Kosovo is now comp!etely lawless. Economic reforms have been sporadic, witr1 
14 
reduction of wartime hyperinflation being progressively undone by looser monetary and fiscai 
policies in advance of the 1997 elections and subsequent pressure on scarce financial 
resources due to growing external and fiscal deficits, accelerating inflation in late 1998 and a 
continuing failure to privatise. In the last year, policy on Kosovo has had serious 
consequences for the economy, both in terms of the cost of the war and, now, NATO airstrikes 
on the military-industrial base and. physical infrastructure. Prior to the escalation of the Kosovo 
crisis which has led to a deterioration in relations with neighbours and the breaking off of 
diplomatic relations with certain other states, FRY had made some progress in regional co­
operation, most notably as regards the normalisation of its relations with Croatia, but the issue 
of SFRY succession, and the division of SFRY debts and assets remains unresolved, with 
implications for FRY participation in international organisations and fora. In contrast. 
developments in Montenegro have been more positive. The replacement, after free and fair 
elections, of the pro-Milosevic regime of Bulatovic by a coalition led by President Djukanovic 
has resulted in a positive impulsion towards reform and democratisation, supported by the 
European Union. This has led to a marked exacerbation of difficulties in relations. in almost 
all fields and at all levels, between Belgrade and Podgorica, but has continued despite 
increasing pressure and threats from the federal level, and the presence of considerable 
numbers of refugees and displaced persons. Economic reform is taking place, though slowly. 
notably regarding privatisation. Montenegro was given a specific exemption, in January, from 
the existing ban on flights to the EC by FRY -registered carriers. 
During the last three years, the former Yugoslav Republic of Macedonia has been a 
stabilizing factor in the region. The former Yugoslav Republic of Macedonia has confirmed its 
political maturity and its commitment to democratic principles, with a smooth and peaceful 
political transition taking place, after free and fair elections. Since the new Government 
arrived, some substantial measures have been taken to reinforce the respect for and 
protection of minorities, in particular the Albanian minority, the symbol of which was the 
release of the Tetovo and Gostivar Mayors. But even before that, political parties representing 
the interests of the Albanian minority have always been in the Government. The country has 
proven its commitment to regional cooperation. Its determination to have good relations and 
to resolve pending issues with neighbours resulted recently in the signing of the Joint 
Declaration with Bulgaria that solved the language issue between the two countries. Beyond 
political relations, the country has also developed important economic and trade relations with 
the countries of the region (Agreements with Slovenia, Croatia, Bosnia and Herzegovina and 
FRY have been signed). The country's cooperation with the international community in 
seeking a peaceful solution to the Kosovo crisis was enhanced, with its acceptance of the 
deployment of NATO troops as well as refugees from Kosovo. Human rights and rule of law 
are protected by a comprehensive set of legal protections, even if more attention may be paid 
to freedom of expression. Between 1996 and 1999, the economic reforms and the 
stabilization policy pursued by the Governments in line with IMF recommendations enabled 
the country to achieve macroeconomic stability, though since the end of 1998 the IMF 
programme has been off-track because the second tranche of the three-year loan under the 
Enhanced Structural Adjustment Facility (ESAF) was linked to the privatisation of twelve large 
industrial conglomerates, on which no agreement has yet been reached. The inflation and 
budgetary situations have been kept under control. Unemployment, however, has remained 
high since 1996. Market economy reform is ongoing, with the reform of the legal and 
regulatory framework, the privatization process and the reform of the banking sector still 
deserving particular attention. The former Yugoslav Republic of Macedonia, therefore, has 
not only respected the principles of the EU's regional approach, but has played an exemplary 
role throughout the three last years that was instrumental in achieving the objectives of this EU 
policy. 
15 
The 1996 crisis in Albania, provoked by the breakdown of the pyramid schemes in late 1996 
and previous irregularities during parliamentary elections in May 1996 was contained by a 
coordinated international response.A government of national reconciliation was established, 
followed by general elections in June/July 1997 and the temporary deployment of a 
international protection force. A new government under PM Nano (July 1997 to October 1998) 
was able to achieve notable macro-economic stabilization and the first steps were taken in the 
winding up of the pyramid schemes and in public administration reform. Albania continued 
however to suffer from a lack of public order and widespread crime and corruption as a result 
of this and from the continuous boycott of Parliament by the Democratic Party. While freedom 
of expression and other basic rights were ensured, Albania remained confronted with 
structural problems which pre-date the crisis (poor infrastructure; weak state institutions). The 
fragility of the country was highlighted on several occasions, inter alia by the renewed riots in 
September 1998. The new government of PM Majko (since October 1998) shows a more 
serious commitment to face the structural problems of the country but is obviously confronted 
with the prevailing traditions in the Albanian society. The adoption of a-constitution in 
November 1998 was a milestone for democracy and the rule of law. But tangible results in law 
enforcement presuppose an effective strengthening of both the security forces and the 
judiciary. Talks outside Parliament with the Democratic Party have somewhat reduced political 
confrontation but normality seems still not within reach. Macro-economic stabilization has been 
confirmed but remains vulnerable in the light of the refugee problem and the continuing lack of 
public order while structural economic reforms (privatization, financial sector) still need to be 
tackled. All Albanian governments have pursued a moderate policy of self-restraint with 
respect to the situation of ethnic Albanians in neighbouring countries. The traditional low level 
of regional cooperation did not change with the exception of an increased economic and 
technical cooperation with the former Yugoslav Republic of Macedonia. 
16