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
Date: 1999-05-26
Institutions: European Commission
Subjects: EU aid, Western Balkans, aid policy, association agreement, development policy

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. 

2. 

3. 

Political Context 

The existing EU Regional Approach 

Further development of the Regional Approach 

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Stabilisation and Association Agreements 

Democratization, civil society and institution-building 

Justice and Home Affairs 

Trade 

Economic and Financial Assistance 

Political Dialogue 

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4 . 

General Conclusions 

Country Specific Conclusions 

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Bosnia and Herzegovina 
Croatia 
The Federal Republic of Yugoslavia 
The former Yugoslav Republic of Macedonia 
Albania 

Annexes 

1 

2 

EC assistance to the countries of the region since 1991 

Developments  in  countries  of  the  Regional  Approach  since 
1996,  in  particular  regarding  compliance,  since  October  1998, 
with Regional Approach conditionality criteria 

1 

2 

3 

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5 

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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 
lt has also had  economic effects on  countries of the  region,  such as  Romania and  Bulgaria. 
Montenegro. 
-!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) 

b) 

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 

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

. 

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. 

5 

6 

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 
'• 
•  The  use  of new opportunities  for cooperation  in  various  fields,  including  justice  &  home  affairs  (in 

Increased assistance for democratization, civil society,  education and  institution-building 

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 

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 

tl 

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 
In  addition,  taking  into  account  the  context  of the  Stabilisation  and 

•  obligations  of the  relevant  a.cquis. 

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 
it  would  not  yet  be  appropriate  to  consider  the  opening  of 
Yugos(av  Republic  of  Macedonia. 
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. 
and  !n  anticipation of a ''·Stabilisation and Association Agreemenr, the  Commission will  present, 

In  accordance with  the  Council  Conclusions  of 9  Noverr:.)er 

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 region 4

. 

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 
The  provision  of EC  and  bilateral  assistance  (with 
interdependence,  as  has  not always  been  the  case. 
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. 
For which a WTO-waiver will be reauHsted 

" 

1

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 
1Jr  tne  internat~onal cornrnunity  ;n 
Regi'Jtna: 
general,  can  only do so rnuch.  The future of the  region  lies in  the  hands of its  peo~ies and  governments. 

and  indeed  any  set  of  poncies  adopted  by  the 

" 

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  concJusions 16  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 
In  the 
a  technical  report  on  the  feasibility  of the  opening  of negotiations  for  such  an  agreement. 
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. 
to  enhance  co-operation  in  specific  areas  should  be  considered,  and  communication 
Opportunities 
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 
In  order  to  lift  the  suspension  ofPHARE,  further  progress  towards 
by  the  European  Community. 
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 
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. 

the  Field  of  Transport  will  continue 

the  Agreement  in 

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 
.A  formai  proposal  for  a  bilateral  trade  regime.  In  accordance  with  General 
agriculture)  established. 
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 
is  being  provided.  Balance  oJ  payment  support  adopted  recently  will  be 
related  expenses 
impiemented  without  delay,  and  macro-economic  developments  will  be  monitored  closely  by  the 
Commission and  the IFis. 

10 

r---·--·------
! 
l 

L-
I 

i 

Annex 1 

Overall EC Assistance to Kosovo's neighbouring countries 1991-99  (Mio €)u> 
(Commitments) 
CROATIA 

ALBANIA(2) 

BOSNIA (3) 

FYROM 

FRY 

MULTI-
COUNTRY 

TYPE OF EC ASSISTANCE 
, PHARE + OBNOV A 
>~~HUMANIT~""l AID 

(ECHO) 

FOOD SECURITY 

(DGVIll) 

~ALANCE OF PAYMEI\7 

r  SUPPORT (DG 11) 
I Em 
~·~HER ACTIONS (4) 
I 
fl'OTAL EC ASSISTANCE 

1...-~-·~-y~ 
I 

t--Member States assistance 
1 (1990-97) 

616.4 

41.2 

16.5 

20.0 

46.0 

122.8 

862.9 

712.8 

754.5 

1032.1 

-

60.0 

-

49.6 

290.8 

41.7 

262.8 

-

-

-

-

-

-

221.2 

9.3 

17.5 

236.7 

45.7 

-

40.0 

-

2.0 

2067.8 

349.7 

322.0 

324.4 

507.9 

1165.9 

712.4 

178.2 

9.8 

236.1 

-
-
-

12.3 

258.2 

-

TOTAL 

1708.6 

1908.7 

16.5 

120.0 

46.0 

385.1 

4184.9 

3277.2 

! 

~RAND TOTAL 
h:-BRD 

...,_,_, 

1575.7 

2575.7 

1515.6 

1034.4 

68.0 

70.0 

511.0 

502.5 

143.0 

258.2 

7462.1 

792.0 

; 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 

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 
iHUMANITARIAN AID 
(ECHO) 
FOOD SECLTRITY 
(DGVDI) 
BALANCE·OFPAYMENT 
SUPPORT (DG IT) 

118,5 

146,0 

15,0 

23,5 

68,7 

2,8 

56,4 

5,0 

7,6 

182,0 

7,0 

5,7 

20,0 

60,0 

IEIB 

I 

n.a. 

I 

n.a. 

I 

-

I 

-

I 

-

I 

OTHER ACTIONS 

10,0 

1,4 

0,5 

0,5 

I 

-

2,0 

374,5 

258,0 

5,7 

80,0 

0,0 

14,4 

TOTAL EC ASSISTANCE 

151,2 

272,4 

21,4 

31,6 

69,2 

186,8 

732,6 

(I) Indicative allocanons. 
n.a =  not available 

12 

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. 

lt is  in  a  triple  transition  process: 
Bosnia and Herzegovina is  a special  case  in  the  Balkans. 
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, 
Interesting  progress  also  occurred  in  the  media  and  further  improvement  is 
improved. 
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. 

it  has  shown  its  openness  to  enhanced  cooperation  wiih  Ult 

lntegra 1:ion  in  European  and  Euro-At!antic  structures  is  a 
There  were  some  achievements  with  regard  to  the  acceptance  of 

'C'lfo,~tia  ~as  dernonstrated  its  readiness.  to  make  some  efforts  with  a  view  to 
s+?bi!!zation  and  nor::11a!ization. 
k.rernancnai  Community. 
Croatlan  politics. 
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.: 
The  development  of  the  Croatian  economy  proceeded  well  until  1998  when  the 
system. 
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 
In  fact,  progress  since  October  1998  in  compliance  with  the  different  sets  of 
months. 
conditions 
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 
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. 

implementation  of  international  commitments 

is  still  selective.  Real 

relations  with 

Within the Federal  Republic of Yugoslavia,  the picture is  mixed, with  contrasting developments 
There  has  been  no  progress  in  democratisation  or  reform  in 
in  Serbia  and  Montenegro. 
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 
In  general,  there  has been  a contradiction  in  FRY I  Serbia  between  the 
neighbouring states. 
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 
trappings  of  dem9cracy  are  now 
accompanied  by  unspeakable  atrocities,  even 
disregarded.  Kosovo is  now comp!etely  lawless.  Economic reforms  have  been  sporadic,  witr1 

the 

( 

14 

In 

the 

failure 

to  privatise. 

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 
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 
The  country's  cooperation  with  the  international  community  in 
FRY  have  been  signed). 
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