Report from the Commission on the feasibility of negotiating a Stabilisation and Association Agreement with the Republic of Croatia
Date: 2000-05-24
Institutions: European Commission
Subjects: Croatia, EU relations, association agreement (EU), cooperation policy, economic stabilisation

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 24.05.2000
COM(2000) 311 final

REPORT FROM THE COMMISSION

on the feasibility of negotiating a Stabilisation and Association Agreement with the
Republic of Croatia

REPORT FROM THE COMMISSION

on the feasibility of negotiating a Stabilisation and Association Agreement with the
Republic of Croatia

TABLE OF CONTENTS

1. GENERAL CONTEXT............................................................................................... 4

2. BILATERAL RELATIONS BETWEEN THE EUROPEAN COMMUNITY AND CROATIA
SINCE 1991 AND THE CURRENT PROSPECTS FOR A MORE ADVANCED
RELATIONSHIP ....................................................................................................... 4

3. RECENT ECONOMIC AND POLITICAL DEVELOPMENTS IN CROATIA ....................... 6

3.1.

3.2.

Democratic process and institutional reform ............................................ 6

Economic stabilisation and reform ............................................................ 7

4. PARAMETERS OF A STABILISATION AND ASSOCIATION AGREEMENT .................... 9

4.1.

4.2.

4.3.

4.3.1.

4.3.2.

4.4.

4.5.

4.6.

4.6.1.

4.6.2.

4.6.3.

4.6.4.

4.6.5.

4.6.6.

4.6.7.

4.7.

4.8.

Political dialogue......................................................................................... 9

Regional cooperation.................................................................................. 9

Trade in goods .......................................................................................... 10

Industrial................................................................................................ 11

Agriculture and Fisheries ....................................................................... 12

Services, establishment............................................................................. 12

Current Payments and Movement of Capital ......................................... 13

Approximation of legislation.................................................................... 13

Technical Standards and Certification.................................................... 13

Competition and State Aids .................................................................... 14

Public Procurement................................................................................ 14

Intellectual, Industrial and Commercial Property................................... 14

Telecommunications and the Information Society ................................... 15

Consumer Protection.............................................................................. 15

Labour law and equal opportunities for men and women........................ 15

Justice and Home Affairs ......................................................................... 16

Economic and Financial Cooperation...................................................... 16

4.8.1.

Statistics................................................................................................. 17

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4.8.2.

4.8.3.

4.8.4.

4.8.5.

4.8.6.

4.8.7.

4.8.8.

4.8.9.

Industry and SMEs ................................................................................. 17

Customs and Taxation ............................................................................ 18

Education and Training.......................................................................... 18

Culture and Audio-visual........................................................................ 19

Transport ............................................................................................... 19

Energy.................................................................................................... 20

Agriculture ............................................................................................. 20

Research and Technological Development ............................................. 20

4.8.10.

Environment........................................................................................... 21

5. CONCLUSIONS ..................................................................................................... 21

ANNEXES............................................................................................................... 23

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1.

GENERAL CONTEXT

The Commission Communication of 26.05.19991 established a new framework for closer
relations between the EU and the countries of South-Eastern Europe, to be developed through
a progressive approach adapted to the specific situation of each country. This new context
provides for a wide-ranging partnership, notably through a new category of agreements, the
Stabilisation and Association Agreements (SAA).

The opening of negotiations for a SAA depends upon compliance by the specific country with
the relevant political and economic conditions. Furthermore, it was decided that prior to
considering the opening of negotiations for such an agreement, the Commission would report
on the feasibility of this step.

The political developments in the Republic of Croatia following Parliamentary and
Presidential Elections in early 2000 have marked a new beginning in bilateral relations. In its
Communication of 02.02.20002 the Commission already commended early developments
occurring in the Croatian political situation and encouraged the new Croatian Government to
undertake additional steps in order to enable the enhancement of the relations, notably with
the preparation of a feasibility report.

Further to the firm commitments expressed by the new Croatian leadership to pursue
democratic and economic reforms, the General Affairs Council of 14-15 February 2000
invited the Commission to prepare a report on the feasibility of negotiating a Stabilisation and
Association Agreement with the Republic of Croatia.

This report presents the recent political and economic developments and assesses the state of
play in all the sectors of possible cooperation with a view to the opening of negotiations for a
SAA.

2.

BILATERAL RELATIONS BETWEEN THE EUROPEAN COMMUNITY AND CROATIA
SINCE 1991 AND THE CURRENT PROSPECTS FOR A MORE ADVANCED RELATIONSHIP

Since EC recognition of Croatia in January 1992, Croatia has started benefiting from EC
assistance. In the period 1991-95 only humanitarian aid and democratisation assistance were
provided. As far as the establishment of contractual relations was concerned, once the 1980
Cooperation Agreement and 1991 Transport Agreement with the Former Socialist Federal
Republic of Yugoslavia were terminated by a decision of the Council of Ministers in
November 1991, it was decided to commence bilateral contractual relations. These were made
conditional on Croatian observance of a ‘code of democratic conduct’ and in light of the
political situation, did not get off the ground. Nevertheless, annually renewed autonomous
preferential trade measures were agreed and have afforded continuity in trade relations.

1

2

Commission Communication 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. COM (99) 235 final,
26.05.1999
the
Communication from the Commission to the Council on the Operational Conclusions of
EU 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 COM (2000) 49 final of 02.02.2000

4

In addition, regular dialogue between the Croatian and the European Parliaments has been
facilitated since 1992 through annual Inter-Parliamentary meetings. Eight have so far taken
place.

In March 1995 the EC decided to extend the PHARE assistance programme to Croatia and to
open negotiations on a Trade and Cooperation Agreement and a Transport Agreement.
However, both the assistance and the negotiations were suspended on 7 August 1995 due to
the conduct of the military operations in former UN sectors West and North and South, which
cast a shadow on Croatia’s democratic record and respect for the rule of law. Since 1996 the
EC has been providing Croatia with limited assistance for the return of refugees and displaced
persons.

From 1996 to 1999 relations with Croatia were developed within the framework of the
“Regional Approach” to South-Eastern Europe3, further elaborated in the conclusions on
conditionality agreed in 1997. In this context,
the Commission’s periodic reports on
compliance with conditionality concluded that Croatia’s progress was insufficient to justify an
upgrading of bilateral relations. The EU was not satisfied with the Croatian performance in
democratisation and respect for democracy and the rule of law. Particularly problematic areas
were as follows: full respect for human rights including minority rights, compliance with the
obligations under the Dayton/Erdut Agreements, notably with regard to the implementation of
the Return process and full cooperation with the International Criminal Tribunal for crimes in
former Yugoslavia (ICTY), substantial
improvement of regional co-operation, and full
democratisation of the Media. Croatia continued to benefit from the EC Autonomous Trade
regime, but access to PHARE assistance and the opening of negotiations on contractual
relations remained suspended.

In May 1999 the EU policy towards the countries of South-Eastern Europe was further
developed within the "Stabilisation and Association Process". The basic set of political and
economic conditions, as well as the phased approach were maintained. It was decided to
extend extra assistance to education through the opening of the Tempus programme on higher
education and cooperation with the European Training Foundation. In addition, the first
informal political dialogue meeting at Ministerial level was held in July 1999.

The conduct and results of the Parliamentary and Presidential elections early this year have
marked a turning point in Croatia's political situation. A radical renewal of the relations
between the EU and Croatia has begun. The EU welcomed the first steps of the new Croatian
leadership by reinforcing the political dialogue and establishing an EU/Croatia Consultative
Task Force (CTF). The CTF is a joint technical body designed to provide Croatia with an
important source of expertise and technical assistance in all the fields of common interest with
a view to preparation for negotiations on contractual relations. The CTF has already met
twice, on 15 February 2000 and on 12 April 2000.

3

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

5

3.

RECENT ECONOMIC AND POLITICAL DEVELOPMENTS IN CROATIA

3.1.

Democratic process and institutional reform

The advent of a new political leadership has dramatically changed the political scene in
Croatia during recent months. The Croatian population by its vote has expressed its strong
demand for democratic change.

The new Government was formed smoothly by a coalition of six parties which have a large
majority and has rapidly demonstrated that
it not only shares the European values of
democracy and rule of law, but that its main priority in foreign relations is integration into the
Euro-Atlantic structures. To this end, it is firmly committed to tackling outstanding political
issues and to starting the necessary structural reforms in order to comply with EU
conditionality.

Through its challenging Programme, presented to the new Parliament on 9 February, the
Government has committed itself to undertake difficult and brave reforms addressing all the
political shortcomings, notably the full respect of human rights, including minority rights,
democratisation of the media, full compliance with the Dayton/Erdut agreements, with
specific reference to the implementation of the Return process, full co-operation with the
ICTY, improved relations with neighbours and in particular radical change of attitude towards
Bosnia and Herzegovina. The Programme also plans important economic reforms.

On all these questions fruitful cooperation has started within the framework of the EU/Croatia
Consultative Task Force. In the two meetings held so far, it has been possible to agree on joint
recommendations on all the outstanding political shortcomings and on the actions needed to
fulfil the various requirements. On this basis the Croatian Government has developed detailed
to ensure speedy implementation. "Inter-departmental
programmes of action in order
programmes" established by the Government on 2 March and 5 May respectively, have
already started implementation of these recommendations and some important progress in
major areas have been achieved.

More specifically, in the field of freedom of expression, the Croatian broadcasting media had
been repeatedly criticised. The Government is now committed to undertake the necessary
steps to transform Croatian Television into a public broadcasting service. Some progress has
already occurred since a new draft Croatian Television Act is under discussion and will be
transmitted soon to the Council of Europe for examination. The proposal is expected to be
submitted to the Parliament by the beginning of June. Work has also started on the revision of
the Telecommunication Act. Finalisation of the proposal will follow the adoption of the new
legislative framework for the Croatian Television. Furthermore, a new Director General of the
Croatian TV has been appointed and other high level staff replaced. The reform of the
monopolistic distribution of the printed press remains a complex practical and economic
question and will prove more difficult to solve. Work has been finalised on the amendment of
the criminal law to cancel the prosecution ex officio of journalists who insult the honour or
dignity of high state officials.

With regard to the protection of minorities, amendments to the "Constitutional Law on the
protection of human rights and fundamental freedoms and on the protection of the rights of
ethnic and national communities and minorities" were adopted by the Parliament on 11 May.
It was agreed that this amendments will only cover a transitional period until the adoption,
expected in six months time, of a new comprehensive constitutional framework in this field to
be prepared by a working group which will closely liase with the Council of Europe and the

6

Venice Commission for Democracy through Law. In addition, a Law on the official use of
minority languages and a Law on education in minority languages were adopted by the
Parliament on 11 May.

Another main area of concern includes full compliance with the obligations under the
Dayton/Erdut agreements. Key issues remain full cooperation with ICTY, full implementation
of the return process and improved regional cooperation.

Major steps forward can be reported with regard to cooperation with ICTY, a politically
sensitive area for Croatia. The new Government is committed to renewed cooperation with
the Hague-based Tribunal. The Government substantially reshuffled the Council
for
Cooperation with ICTY headed by the Vice Prime Minister, and started fruitful discussions
with the ICTY Chief Prosecutor. This resulted in the adoption of an important Declaration on
Cooperation with ICTY on 14 April in which Croatia acknowledged ICTY's jurisdiction on
the 1995 "Storm" and "Flash" military operations and accepted the stepping up of all war
crimes investigations.

the highest administrative and political

As far as the return process is concerned, the new Government has committed itself to make
all the necessary efforts towards proper implementation of the process, the success of which
will, of course, equally depend on the economic future of the war affected return areas. A
the implementation of the programme of return, with large
special Commission for
representation at
level and with international
involvment, was established early in March. The Government has been active in proposing, in
cooperation with UNHCR, a programme to facilitate the return of more than 16.000 refugees
in the near future. Despite some internal resistance, and after some initial problems, the
revision of the legislative framework has started successfully. The amendments to the Law on
reconstruction to eliminate the discriminatory provisions passed the first reading in the
Parliament on 27 April and is expected to be adopted soon. A proposal for the revision of the
discriminatory provisions of the Law on Areas of special State Concern was adopted by the
Government on 6 May and Parliamentary procedure is underway. The Government is also
determined to monitor the implementation of the legislation and the real progress of the
process. To this end, it is committed to issue specific measures which will facilitate a proper
implementation at the local level, where the real problems and resistance seem to lie.

3.2.

Economic stabilisation and reform

Successful stabilisation efforts in late 1993 allowed Croatia to reach an average annual GDP
growth of over 6% during 1994-1997 and a remarkable degree of price stability. In the course
of 1997, the economic situation started to deteriorate. With wage increases not fully covered
by productivity gains, exports fell by 7.4% compared to the previous year, while imports kept
booming at a rate of 14.5%. This led to a widening of the current account deficit from 5.8% of
GDP in 1996 to 11.6% in 1997 and caused a sharp increase in external debt, which rose from
23% of GDP in 1996 to 32% of GDP at the end of 1997.

A combination of solvency problems in the banking sector, the build-up of arrears, tight
monetary policy, increases in taxes and administered prices, as well as the impact of the
Kosovo crisis, contributed to the recession starting in the last quarter of 1998 and continuing
through the first three quarters of 1999. In parallel, mounting structural problems increasingly
weighed on the economy. The recession appeared to have ended towards the end of 1999,
with positive economic growth being achieved in the last quarter of the year. Yet, real GDP is
estimated to have contracted by 1% in 1999 as a whole. The economy is expected to remain

7

on a recovery path this year:
investment are expected to help sustain the upturn.

improved exports, growth of private consumption and

It was possible largely to maintain price stability in 1999. However, between June 1998 and
February 1999, speculative attacks led to a depreciation of the Croatian currency Kuna (HRK)
vis-à-vis the Euro by some 10%. The currency depreciation and increase in the prices of
petroleum products and telecommunication services led to the emergence of some inflationary
pressures towards the end of 1999.

Croatia has so far maintained budget deficits within reasonable limits. However, this hides the
underlying steady rise of consolidated general Government expenditure to a level representing
52% of GDP in 1998 (which is the highest of the countries of Central and Eastern Europe).
The preliminary outcome of the budget, revised in June 1999, shows a budget deficit
equivalent to 1.7% of GDP, which would raise to 6.0% excluding privatisation revenues. In
future, revenues from privatisation will dry up and the Government will have to counter a
rising debt service, substantial arrears and extra-budgetary state-guaranteed debt.

The fiscal stance will require major corrections to ensure a significant and sustainable
reduction of the budget deficit and to allow public debt to remain manageable in the medium
term. The budget for the year 2000, which was adopted on 23 March, is a step in the right
direction foreseeing a small reduction of expenditures in nominal terms and considerable
restructuring. In the medium term, budget consolidation will not be possible without a
significant wage cut in the public sector and substantial reforms of the extra-budgetary funds,
especially pension and health funds. The tightening of fiscal policy would allow a relaxation
of monetary policy, which is likely to stimulate growth.

Croatia has a good industrial base, a qualified and educated workforce and areas with great
potential for development such as tourism. Croatian competitiveness on the European market
could be greatly enhanced by a coherent and ambitious agenda of structural reforms, whereas
under the current circumstances, a significant number of Croatian enterprises still experience
difficulties competing in an open economy.

In 1991 Croatia started a process of transformation and privatisation of enterprises, which for
the majority of companies has now been completed. The areas in which large public
enterprises are still to be privatised are primarily electricity, oil and transport, and in particular
rail. The privatisation process has gained some momentum following the end of the Kosovo
crisis. In October 1999, a 35% stake in the Croatian Telecom Company (HT) was sold to
Deutsche Telekom for US$ 850 million. A further 21% will be publicly offered this year.
Moreover, the previous government offered majority stakes in three banks to strategic
investors and the transactions have all been completed by April. It will be essential that
privatisation efforts not only continue, but also that corporate governance be improved. The
latter suffered from a privatisation policy favouring insiders relative to strategic investors. A
Government privatisation strategy should set out the basic principles and future plans in this
area.

As regards the financial sector, Croatia has made progress in developing a modern financial
sector by rehabilitating the banking sector, establishing money and capital markets and
introducing a market-oriented legal framework. However, a financial crisis starting in 1997
has seriously affected the stability and the credibility of the banking sector. Since then, the
authorities have implemented a number of measures aimed at strengthening banking
supervision and regaining consumer confidence. The deposit insurance scheme set up in 1998
will require substantial resources from the budget to cover losses and further bankruptcies

8

could represent a serious threat to the budget equilibrium. Even though the main four banks
cover a substantial share of the market, the banking sector still has a large number of very
small and regional banks and further consolidation is needed.

Finally, a major point on the reform agenda of the new government is the downsizing of the
public sector itself. In terms of size, the state in Croatia remains very substantial, and public
authorities continue to have a pervasive role in economic activity. The new Government has
declared its determination to discontinue the practice of direct state intervention in the
economy and bailing out ailing enterprises. This positive political message must be matched
by coherent and comprehensive action. The improvement of the judicial system, especially
with respect to enforcement of bankruptcy procedures would be a first positive signal of the
authorities’ determination to move further in the transformation of Croatia into a modern
market economy.

isolation of

The new Government inherited a situation characterised by major structural problems and a
the economic system. The authorities need to establish a
substantial
comprehensive and credible reform agenda, which can attract the support of the IMF and the
World Bank. This is necessary in order to regain the confidence of the international
community, which has been eroded in the past few years. In addition, a return to a sustainable
path of economic growth and generation of employment are necessary to allow Croatia to
continue enjoying the current favourable credit ratings on the international capital markets
and to attract foreign direct investments, in particular greenfield investments.

4.

PARAMETERS OF A STABILISATION AND ASSOCIATION AGREEMENT

Taking into account the progress accomplished and the reforms still required with regard to
the political and economic aspects reported above, the perspective of a future Stabilisation
and Association agreement with the Republic of Croatia will depend on the latter's capacity to
fulfil its obligations under this new type of contractual relations.

4.1.

Political dialogue

Despite the absence of a formal framework for bilateral political dialogue between the EU and
Croatia, informal political dialogue was started in July 1999. Since the Parliamentary and
Presidential elections, official contacts have been substantially increased, notably in the form
of Ministerial visits. The EU and Croatia seem to have rapidly achieved a great deal of
convergence of positions on regional and international issues. In particular Croatia recognises
and accepts its important role in the stabilisation of the region.

The formalisation and enhancement of political dialogue between EU and Croatia within the
framework of the future SAA and the development of a supplementary regional format for
political dialogue will be a central component.

4.2.

Regional cooperation

Improvement and consolidation of regional cooperation is an important factor of stabilisation
in the region. Croatia is pursuing normalisation of political relations with the countries of the
Western Balkans and has good relations with all the other Central and Eastern European
countries, with which Croatia is actively pursuing reinforcement of commercial ties. The new
political leadership seems to have accepted their country’s natural links with its southern
neighbours and are fully engaged in cooperation towards a long-term stabilisation of the
whole region. Early official visits by the President and the Minister for Foreign Affairs to

9

Slovenia, Bosnia and Herzegovina and former Yugoslav Republic of Macedonia are
testimony to the efforts to improve relations and to find negotiated solutions to the
outstanding bilateral questions.

Substantial improvement of relations with Bosnia and Herzegovina is a crucial development
in the new Croatian foreign policy. The new Government is committed to the establishment of
relations with BiH on a proper path, fully supporting territorial integrity and independence of
BiH and contributing to the strengthening of central institutions in line with the Dayton
obligations. While taking into account the natural strong links between Croatia and the
Bosnian Croats, the new Government has begun to establish a transparent policy towards
Bosnia and Herzegovina in political, economic, financial and cultural
terms, which is
evidenced by the recently adopted budget. Cooperation has particularly improved with
Republica Srpska, notably on the issue of return of refugees (ref. Joint Statement agreed by
Minister Picula and PM Dodik on the two-way return). Progress are also expected in the
finalisation or ratification of number of bilateral agreements, including the one on "Double
the Agreement between Croatia and the
Citizenship" and on "State Border". Notably,
Federation of Bosnia and Herzegovina (FBiH) on financial assistance to FBiH and Federal
Ministry of Defense was adopted on 6 May.

Bilateral relations between Croatia and Slovenia are also progressing, although continue to be
slightly hampered by some unsolved questions, notably border issues, ownership of the Krsko
nuclear plant and debts of the Ljublianska Banka. The two countries have agreed to set up a
timetable for the solution of the pending issues.

For obvious reasons bilateral relations with the FRY have not recorded major developments,
although Croatia maintains good relations with Montenegro.

Positive steps have been taken within the framework of the Stability Pact for South-Eastern
Europe, where Croatia has played an active and cooperative role, and with a view to the
development of the Adriatic-Ionian initiative.

These developments are a good basis for fostering regional cooperation through the future
SAA.

4.3.

Trade in goods

Trade relations between Croatia and the EC are based on the Autonomous Trade Preferences
(Council Regulation (EC) No. 6/2000 of 17 December, 19994). Textile products originating in
Croatia are admitted into the Community exempt from customs duties and charges of
equivalent effect without any limits. However, textile products listed in Annexe III B of
Regulation (EC) No. 517/945 as amended by Regulation (EC) N° 7/20006 are submitted to
quantitative limits.

4

5

6

Council Regulation (EC) No 6/2000 of 17 December 1999 concerning the arrangements applicable to
imports into the Community of products originating in the Republics of Bosnia and Herzegovina and
Croatia and to imports of wine originating in the Former Yugoslav Republic of Macedonia and the
Republic of Slovenia. Official Journal L 002 , 05/01/2000 p. 1
Council Regulation (EC) No 517/94 of 7 March 1994 on common rules for imports of textile products
from certain third countries not covered by bilateral agreements, protocols or other arrangements, or by
other specific Community import rules. Official Journal L 067 , 10/03/1994 p. 1
Council Regulation (EC) No 7/2000 of 21 December 1999 amending Council Regulation (EC) No
517/94 on common rules for imports of textile products from certain third countries not covered by

10

€

€

In terms of trade value, EU exports to Croatia for the years 1998 and 1999 have amounted to
4,0 billion respectively. During the same period Croatian exports to the
4,4 billion ECU and
EU are estimated at 1,8 billion ECU and
1,9 billion respectively. The Croatian exports are
much higher than those of the other Western Balkan countries but strikingly inferior to those
of other neighbouring countries including Bulgaria, Romania and most notably Slovenia. In
terms of percentages EU exports to Croatia represent – for the same period – around 0.6% of
the total EU exports to the rest of the World while Croatian exports to the EU represent 0.25%
of the total EU imports from the rest of the World. In both years the EU has enjoyed a clear
trade surplus with Croatia amounting to 2,59 billion ECU and

2.07 billion respectively.

€

The EU represents 48.8% of the country’s exports and 56.6% of its imports (1999). In view of
the recent political changes and the progress achieved so far, an asymmetrical further opening
of the markets of the EU and Croatia in favour of the latter, with the objective of establishing
a Free Trade Area at the end of a transitional period (in the negotiating directives for an SAA
with the former Yugoslav Republic of Macedonia it has been proposed that this transitional
period should be of 10 years), could be envisaged. All bilateral trade as well as all sectors,
including industrial and agricultural goods, should be covered by this arrangement,
in
accordance with GATT Article XXIV. The country should also gradually be included in the
pan-European diagonal cumulation of rules of origin, which would allow further trade
expansion.

An early accession to the WTO remains an important political goal. It is viewed as an integral
part of the economic reforms Croatia is undertaking to open up and modernise its economy.
The EC is strongly supporting the finalisation of the negotiations and hopes that Croatia could
become a member of the WTO in the very near future.

Since applying for membership in the WTO six and a half years ago, negotiations have been
concluded in all sectors with the exception of the audiovisual. During these negotiations,
Croatia has agreed to the implementation of all WTO Agreements upon accession and has
undertaken to reduce the duties charged on imported goods to a level close to that applied by
many OECD countries. In addition, through accession to the WTO Croatia liberalise its
service market.

Furthermore, Croatia is an active supporter of an enhanced regional co-operation through,
inter alia, the conclusion of Free Trade Agreements. Currently Croatia is bound by FTAs with
FYROM and Slovenia, negotiations have reached an advanced stage with Hungary and
Croatia intends soon to open negotiations with the other CEFTA countries, the Baltic States,
Israel, Turkey and the EFTA countries.

Taking into account the present situation, Croatia should be able to negotiate the commercial
provisions of a future SAA provided that further liberalisation of its trade regime is properly
implemented enabling it to meet its future obligations.

4.3.1.

Industrial

from the
Industrial products represent
Autonomous Trade Preferences with the EC, which gives to Croatian industrial products
largely free access to the EU market. The main exports are chemicals, textile products and

the major part of Croatia’s trade and benefit

bilateral agreements, protocols or other arrangements, or by other specific Community import rules
Official Journal L 002 , 05/01/2000 p. 0051

11

shipbuilding. Main imports include machinery and electrical equipment, mechanical
appliances and chemicals (see relevant annex).

4.3.2.

Agriculture and Fisheries

Agriculture contributes about 9% to the Croatian GDP and employs about 13% of the
population. The sector is still rather protected, with low competitiveness and high prices.
Imports from the EU represent less than 50% of the total agricultural imports, while exports to
the EU represent about 10% of the total of agricultural exports. The trade balance on
agricultural trade is largely positive for the EU.

Currently trade with the EC is regulated by Council Regulation (EC) n° 6/2000 which
provides for unilateral concessions on agricultural products, mostly in sectors such as wine,
tobacco, fruit and vegetables originating in Croatia. Most of these preferences represent duty
free access, with or without quantitative limits. No fishery concessions are granted in the
current trade regime, although fisheries products benefit from the GSP regime.

Taking into account the volume of trade in agricultural products, the particular sensitivity of
the markets, the common agricultural policy of the Community and the role of agriculture in
the country’s economy, with a view to a Stabilisation and Association Agreement further
trade liberalisation should be envisaged. The establishment of a future Free Trade Area should
involve, from the start, a gradual liberalisation of agricultural trade. This would be based on a
realistic assessment of production and trade potential, as well as expansion capacity with an
initial asymmetry in favour of Croatia, as stated in the conclusions of the European Council of
Lisbon on the Western Balkans. The longer term perspective will require a substantial move
towards liberalisation on the part of Croatia. It should be noted however, that within the
framework of the negotiations on accession to WTO, Croatia has already accepted the
commitment to reduce custom protection by about 30%, to make significant reductions in
some tariffs and to abstain from the use of export subsidies. A wine and spirits agreement
would take the form of an additional Protocol to the Stabilisation & Association Agreement,
as this negotiation is linked to a specific mandate given by the Council on 29 April 1996

4.4.

Services, establishment

Croatia has recently undertaken services liberalisation within the context of its WTO
accession negotiations and in view of its approximation to EC legislation. However, major
efforts need still to be made to enhance the privatisation process and work on institution
building. In the financial sector, privatisation of major state owned banking and insurance
companies is underway.

Croatia has abandoned regulatory requirements for foreign investments. Access of foreign
companies to the Croatian market has been liberalised by according national treatment to
foreign investors. Under Croatian Company Law there are no regulatory differences between
domestic and foreign investors in the exercise of their business activities. The new Banking
Law (1998) allows the establishment of foreign banking entities on reciprocity grounds
although branches of foreign companies are not yet permitted. However, some practical
problems linked to the proper implementation of the existing legislation still exist.

In the company and accountancy law areas, approximation to EC acquis has already started
and a number of appropriate institutions are already operational. Accountancy regulations
have started to be harmonised with the International Accountancy Standards and the relevant

12

EC Directives. However, substantial progress needs still to be made. In certain areas, such as
data protection, no legislative framework exists yet.

Croatia should be encouraged to further develop its financial market and the privatisation
process of the banking system. It should also enhance the soundness of its financial system as
well as its administrative capacity to ensure effective supervisory tasks in the financial sector
(banking, insurance and investment services).

These developments have prepared the ground for the start of cooperation in these important
sectors within the framework of a future SAA. No major problems are envisaged in the
negotiations and, if Croatia continues harmonisation of its legislation and practice, it should
be able to meet its future obligations.

4.5.

Current Payments and Movement of Capital

Croatia has already liberalised current payments according to Article VIII of the IMF
Agreement and in respect of a future Stabilisation and Association Agreement, would not
have any problems with a commitment of free current payments.

Croatia is still applying many restrictions concerning the movement of capital. As regards
inward movements, it has already abolished its exchange controls in the field of direct
investments (including the repatriation of profits and capital
invested) and, with small
exceptions, portfolio investments. However, it still maintains restrictions on acquisition of
real estate by foreigners, including foreign companies. There are also restrictions which relate
both to the establishment of companies and to the operations of companies already established
in Croatia. For example, difficulties are experienced in obtaining permits to acquire real estate
necessary for business and in engaging key personnel from abroad. An obligation to abolish
those restrictions in the context of a future Stability and Association Agreement would assist
Croatia in shaping a legal and institutional framework appropriate for carrying out business.

4.6.

Approximation of legislation

Since 1999 Croatia has been working to harmonise its legislation to the Community
legislative framework. In September 1999, the Croatian Government adopted an "Action Plan
for European Integration" which is the first attempt to provide an overall picture of the
Croatian legislative situation particularly in relation to the requirements of EU integration. In
addition, Croatia has had an Office for European Integration since 1998, which within the
new Government has been transformed into a Ministry.

4.6.1.

Technical Standards and Certification

Croatia has already started its process of alignment of technical standards and certification,
through the adoption of a legal basis for the establishment of technical regulations, standards
and conformity assessment procedures. The State Bureau for Standardisation and Metrology
is an affiliated member of the CEN, CENELEC and ETSI. However, the legal framework is
not fully consistent with the European system and the process of approximation is apparently
at its beginning and needs to be accelerated. This process suffers as well from an insufficient
involvement of economic operators in the area of certification.

No cooperation or technical assistance has been offered by the EC in this field.

Thus, Croatia should elaborate a strategy for further harmonisation, focusing on legislative
framework, increased institutional capacity and the status and involvement of the economic

13

operators in this area, which should delineate responsibilities for the issue of “essential
independence between regulation, standardisation,
requirements” and foresees functional
accreditation and certification. Substantial efforts are still required with a view to the SAA,
which should contain provisions for cooperation in this sector , including the implementation
of the TBT Agreement and the participation in international standardisation organisations.

4.6.2. Competition and State Aids

Croatia has adopted a law on Protection of Market Competition inspired by the European
legislation. Work has now started on further harmonisation of the legislative framework. An
independent competition authority, the Agency for the Protection of Market Competition,
directly responsible to the Croatian Parliament and competent for control of agreements,
declaration of abuse of monopolistic and dominant position, control of concentration has been
established since. Further efforts will be needed to improve enforcement of this legislation
and its full application by all economic operators.

As regards the policy of State aids, there is no regulatory legislation and a strong intervention
by the Ministry of Economy for the rehabilitation and restructuring of some companies has
still to be reported. However, after the emergency of the war period the Croatian Government
is now willing to reform their state aids system and gradually align it to the European acquis.
First progress are expected during the course of this year towards implementation of a system
of horizontal measures applicable to all sectors and companies.

No assistance has been provided in this sector so far. The future SAA should provide for
cooperation in these sectors. To this end Croatia needs to continue its efforts with the
implementation of the competition policy and make substantial progress in terms of State
aids.

4.6.3.

Public Procurement

The basic rules and procedures for procurement of goods, services and works are regulated by
law. This legislation applies to all public administration entities including local authorities
and legal entities using budget guarantees and public resources. The relevant
law only
partially implements EC legislation in this area, therefore further approximation is needed.
Existing national preference clauses will eventually need to be abolished. The Department for
procurement and informatisation of the Ministry of Finance is the competent authority for the
supervision and monitoring of procurement procedures. Croatia is an observer to the WTO
Government Procurement Agreement (GPA).

Croatia will need further efforts of harmonisation with a view to meeting its obligations under
a future SAA.

4.6.4.

Intellectual, Industrial and Commercial Property

Croatia has recently adopted (1999) a whole set of legislative measures in this area which are
said to be in compliance with WTO/TRIPS provisions, and to a varying extent with the
corresponding EC Directives and the European Patent Convention. In 2000 the Intellectual
Property Office, created in 1991, will elaborate a comparative study identifying the necessary
amendments for full compliance with the EC acquis.

Croatia has made major efforts in this area and should be encouraged to continue to make
further progress to ensure a level of protection of intellectual and industrial property rights
similar to that existing in the EC, including effective means of enforcing such rights. Croatia

14

should also be encouraged to join international conventions in the IPRs area to which it is not
yet party.

4.6.5.

Telecommunications and the Information Society

the fixed line telephone
With regard to the electronic communications infrastructures,
network in Croatia has been almost fully digitalised and telepenetration has reached the level
of 34 lines per 100 inhabitants, which is high compared to other countries of the Region.
Measures need to be taken to increase investments in the mobile and Internet services thereby
increasing penetration. Some first
important measures towards compatibility with the
European acquis were introduced in June 1999 through the new Telecommunications Law.
Further amendments to this law are now under way within the framework of democratisation
of the Media. Full liberalisation of the sector is planned for 1 January 2003. The future SAA
should support the continuation of this harmonisation process.

As far as the Information Society is concerned, Croatia lags behind in its use of Information
Society services as shown for example by the penetration of personal computers. Croatia
should therefore be encouraged to adopt specific targets consistent with available resources in
order to make progress in this area.

No major problems are envisaged in the future negotiations for a SAA and the obligations it
will contain.

4.6.6. Consumer Protection

The existing legislative framework for consumer protection is rather fragmented. Consumer
rights in different fields are only indirectly stipulated in several acts and the legal provision is
inadequate for EC standards. A Consumer Protection Act aimed to start harmonisation with
the EC acquis is under preparation and is expected to enter into force in the course of 2000.

Cooperation in this field through the future SAA will be important to support Croatia’s efforts
to align its standards of consumer protection with those of the Community. Effective
consumer protection is necessary in order to ensure that the market economy functions
properly, and this protection will depend upon the development of an administrative
infrastructure in order to ensure market surveillance and law enforcement in this field. So far
in Croatia there is no specific body designed to ensure consumer protection.

Croatia will be encouraged to make the necessary efforts to rapidly develop a policy of active
consumer protection, to harmonise its legislation with that in force in the EC and to ensure
effective legal protection for consumers in order to improve the safety and quality of
consumer goods and the economic situation of the consumer.

4.6.7.

Labour law and equal opportunities for men and women

The Croatian Government
is committed to ensuring conditions for the elaboration of a
National Employment Programme. Unemployment has reached a record level of 21.6%,
unequally distributed throughout the country with the lowest rate of 9% in Zagreb to the
highest rate of over 37% in Vukovar-Sirmium County (eastern Croatia) and different
indicators do not announce a reduction in the near future. Negotiations on the amendment of
the Labour Law have started.

According to information received by the Croatian administration, equal opportunities for
men and women is recognised by the Croatian Constitution and Croatia is participating to

15

some of the basic international legal instruments for the elimination of discrimination against
women. In addition, to ensure the implementation of the Platform for Action issued by the
World Conference on Women of 1995, Croatia has established a comprehensive "National
Policy for the promotion of the Status of Women". For the systematic monitoring and
promotion of the gender equality the Government of Croatia established in 1996 a
"Governmental Commission for gender equality issues" under the Presidency of the Deputy
Prime Minister. Efforts are made to put in place an active policy to promote participation of
women in the public and political life. Civil society is fully involved.

Croatia should not have major problems in negotiating suitable provisions in the field of
working conditions, social security and equal opportunities to be integrated in a future SAA.

4.7.

Justice and Home Affairs

First bilateral contacts have recently started with the Croatian Ministries of Justice and of
Interior to address the areas of the machinery of justice, police, asylum, external borders,
migration, organised crime, corruption and drugs.In the area of judiciary, Croatia faces
several general problems linked to qualification/training of judges, lack of expertise/staff as
regards legislative drafting and lack of qualified human resources in the police force. Croatia
has not adopted yet a specific law on asylum and continue to have border disputes. In
addition, confiscation of the proceeds of organised crime is not possible, a comprehensive
legal definition of corruption does not exist and no legal provisions on precursors have been
adopted. Croatia is a transit country for illegal migrants.

Croatia has started to address many of these issues. Cooperation with the EC in these areas
has just started with a first project in the field of judiciary and will be increased. The SAA
should provide a useful legal framework for enhanced cooperation in the area of justice and
home affairs, although Croatia still needs to make major efforts in order to be able to fulfil the
obligations of a future SAA.

4.8.

Economic and Financial Cooperation

Since 1991 total assistance from the EC to Croatia has amounted to
349M. During the first
period (1991-1995) Croatia received only humanitarian and democratisation assistance. The
total amount of humanitarian aid up to March 2000 when ECHO finally withdrew from
Croatia, was
3M went to
293,80M. With regard to support for democratisation around
national Croatian projects, while Croatia also participated in some regional projects. An
additional sum of

3,5M was given to support to independent media.

€

€

€

€

€

47M in assistance under the Obnova programme for the
Since 1996 Croatia has received
reconstruction of
former Yugoslavia. This assistance has been mainly focussed on
reconstruction and sustainable return of refugees and displaced people. In 1998 and 1999
special assistance went to de-mining activities (
1,5 M). In addition, the Academic year
2000-2001 will see Croatia benefiting from the Tempus programme.
The 2000 programme, whilst continuing to support the Return process, will also provide
technical assistance and support to SMEs.

€

The Commission has just adopted a proposal to resume the activities of the European
Investment Bank in Croatia. The proposal is currently under examination by the Council.

The adoption of a new legal basis for assistance to the countries of South-Eastern Europe
which will replace the previous financial instruments, will mean that the lifting of the

16

suspension of Phare for Croatia is no longer required. Croatia will be a beneficiary of the new
assistance programme which the Commission has adopted on 10 May 2000 and proposed to
the Council. Under this new programme the assistance to Croatia will need to be substantially
refocused to provide support to the comprehensive cooperation provided for within the future
SAA.

4.8.1.

Statistics

The Statistical System of Croatia has pursued the approximation to the European Statistical
System (ESS) and the Central Bureau for Statistics of Croatia (CBS) has observed some of
the discussions on improvement of the statistical methodology, although since 1995 this has
taken place outside a structured cooperation framework. It is able to conduct statistical
surveys and process the results in line with some of EC requirements and will have the
capacity to apply EC standards if the relevant knowledge is transferred.

A Statistical Act was adopted in 1997 and already contains some basic rules on data
protection and confidentiality that need reinforcement. National accounts are compiled
following the European System of Accounts (ESA 95), although some improvements are still
needed.

The priority areas to develop in Croatia are the statistical infrastructure, by setting up
statistical registers (business register, civil register, farm register and territorial units register),
and the adoption of European classifications and nomenclatures (Combined Nomenclature).
The index of consumer prices should be harmonised according to EC standards. A plan for the
future abolishment of the Payments bureau (ZOP) must take into account the transfer of
statistical competencies. The last population census was conducted in 1991 and EU and UN
recommendations suggest that a new census should be conducted next year, since important
changes in the ethnic distribution and the influx of an unknown number of refugees and
internally displaced persons have taken place in the meantime.

Cooperation in this field should be strengthened in the framework of a future Stabilisation and
Association Agreement.

4.8.2.

Industry and SMEs

Despite the efforts already made by the Croatian authorities, private sector development is
still facing tough challenges in Croatia. The Croatian Government has adopted in 1999 long-
term measures and activities aimed at encouraging the activities of private operators,
especially small businesses which are of great importance for economic restructuring and job
creation.

Some positive results have been achieved with regards to SMEs, but there are still a number
further
of obstacles, which represent a burden to enterprise’s businesses and their
development, notably widespread illiquidity, difficulties with the financial institutions, lack of
adequate institutional support for enterprises, lack of managerial skills. Croatia needs to make
further progress with the implementation of private sector development policy. The Croatian
government
is preparing a new strategy to boost business development, by improving
entrepreneurship promotion, as well as through further financial support, by offering technical
assistance and training, supporting economic infrastructure and technological development
and adapting the legislation to the specific needs of business.

17

the main concern for

the Croatian government

Regarding industries, one of
is the
rehabilitation process of the shipbuilding sector and the issue of privatisation for shipyards.
Technological obsolescence, high fixed costs etc., resulted in negative financial impacts. Due
to the importance of this sector in the Croatian economy, the government plans to strengthen
the competitiveness of the industry through measures including restructuring, modernisation
and privatisation, stable resources for financing as well as subsidies. Of crucial importance is
also the tourism sector, of which substantial restructuring is envisaged as an important
measure of revitalisation of the Croatian economy.

Bilateral co-operation in these areas has been rather limited. Enhanced cooperation in these
sectors of particular importance for the Croatian economy will be crucial and should be
pursued within a future SAA.

4.8.3. Customs and Taxation

Croatia has made a first major step towards harmonisation with the EC customs law with the
adoption of a new Customs code, entered into force in January 2000. The Government is now
working to the finalisation of a new Customs Tariff Act. The EC has cooperated with Croatia
in the customs sector in the framework of the EC Customs Assistance Mission (CAM-ES),
assisting the OSCE mission in 1998 and 1999 in the Croatian Danube Region of Eastern
Slavonia, Baranja and Western Sirmium.

In the field of taxation some rapprochement to the EC requirements can be reported. In
particular, the introduction VAT since 1 January 1998 is the main topic. Within the general
framework of the structural economic reforms the Croatian Government
is planning a
substantial fiscal reform, under IMF guidance.

Croatia has the capacity to sustain enhanced cooperation in these fields which should be
provided through a future SAA.

4.8.4.

Education and Training

Croatia currently allocates 4.2 % of its GDP to education and training. The structure of the
education system is a legacy of both the Austro-Hungarian empire and the Socialist system of
the Former Federal Republic of Yugoslavia. The school system remains centralised and very
academic, though with high academic standards.

The Higher Education Act of 1996 which determines the organisation of higher education
institutions led to a separation of university studies from shorter professional studies at the
newly established polytechnics and at professional higher education institutions. Vocational
schools are highly specialised. Quality assessment and assurance are the task of the National
Council for Higher Education, an independent body directly appointed by the Parliament.

There is a clear need for a partial decentralisation of the education system, the development of
a broader market-oriented curriculum for VET schools, and skills training for teachers and
school management.

With regard to university management and curriculum development, management capacities
in administration, finance and international relations need to be further developed, as well as
the capacity of Croatian higher education institutions to co-operate closely with enterprises in
technology transfer and human resources development. While the standard of education in the
natural and technical sciences is quite high, continued reform efforts are aimed at curriculum

18

development and staff training, particularly in the social and political sciences and the
humanities.

Following the General Affairs Council of 21-22 June 1999, inviting the Commission to take
all necessary measures in order to open Tempus and the activities of the European Training
Foundation (ETF) to Croatia, cooperation in this field had been resumed.
A number of activities in support of vocational education and training have been implemented
by the European Training Foundation in the framework of Working Table II of the Stability
Pact.

Furthermore, Croatia is in the process of being re-included in the TEMPUS Programme for
higher education in 2000. Priorities for the TEMPUS programme include the reform of
the strengthening of international
university administration and financial management,
relations offices,
institution-building for public
administration reform and civic society development, as well as curriculum development in
the social and political sciences, European Law, European Studies and teacher training.

the promotion of technology transfer,

A National TEMPUS Office will be formally established in the Ministry of Science and
Technology at the end of 2000 to prepare for the next selection round. Due to their regional
importance, Croatian higher education institutions are expected to make a positive
contribution in particular to multi-country co-operation under TEMPUS.

Croatia also actively participates in the Stability Pact Task Force on Education and Youth
(Graz Process) established under Working Table I.

Cooperation in this field should be improved within the future SAA. No major problems are
envisaged.

4.8.5. Culture and Audio-visual

Co-operation has been developed with Croatia in the audio-visual sector during the
negotiations for its accession process to the WTO. In this context, Croatia's commitments will
preserve its ability to adopt and implement Community standards.

4.8.6.

Transport

Croatia is an important transit country for road, rail and combined Community traffic, which
has an effect on the functioning of the internal market. In February 1995, negotiating
directives were adopted for a Transport Agreement with the EC but discussions were frozen
following the suspension of political relations and overall cooperation. Since then, no
cooperation has existed in this sector.

Complete liberalisation of transit traffic across Croatia and the Community as a whole, while
guaranteeing non-discriminatory treatment for Croatian lorries with reference to the ecopoints
system applicable to Community lorries when transiting Austria should be ensured. Particular
consideration should also be given to the full
implementation of infrastructure projects
associated with transit traffic, which have been identified as being of common interest. In
addition, a substantial part of the acquis relating to road transport charges and technical and
social legislation should form part of the priorities in the process of legal harmonisation.
Regarding inland navigation and air transport, appropriate conditions for establishment and
services should be guaranteed.

19

Finally, with regard to maritime transport, the application of the principle of restricted access,
on a commercial basis, to international maritime market and traffic, should be considered.

A future SAA should include provision to start substantial cooperation in this field. With
appropriate assistance Croatia could be able to meet its future obligations in this sector.

4.8.7.

Energy

Croatia has not participated so far in Community activities aiming at promoting regional
energy co-operation in South-Eastern Europe. This has resulted in a shortfall
in the
effectiveness of these activities, given the importance of Croatia in the regional electricity and
gas networks.

The country has the potential to assume a crucial role in this field, particularly as regards the
development of regional energy interconnections (whether of physical infrastructures or of
markets) in the oil, gas and power sectors. Specific provisions in a SAA should help the
country to develop this role.

Support should also be provided to assist
in restructuring its energy sector (currently
dominated by vertically-integrated, state-owned monopolies) in order to prepare Croatia’s
integration into common European practices in the energy sector.

4.8.8.

Agriculture

Agriculture has an important place in Croatia. Family farms prevail, with a high level of
fragmentation of the land and 70% of farm households owning less than 3 ha. Formerly
socially owned "agrokombinats" are now in various stages of restructuring, privatisation or
restitution. Transition to a market economy, combined with extensive war damages, have had
a strong impact on the sector. Delay in the necessary reforms and inappropriate financial
support have further contributed to the rather negative developments. The Croatian
agricultural sector therefore still needs substantial structural reform. The Government
is
committed to the necessary modifications of the legislative framework and to adjustment and
harmonisation with European standards so as to afford international competition and cope
with competitive pressure.

No form of specific bilateral cooperation has been developed in this sector and the future
SAA should start intensive cooperation for which substantial reform will still be necessary.

4.8.9.

Research and Technological Development

€

Croatia is making efforts in the field of RDT which is expected to remain a priority in
Government policy. In 2000
72M (540.5 million Croatian Kuna) are allocated to RTD
within the budget, representing 1.12% of total Government budget. About 20% of the RTD
budget is allocated to funding postgraduate students attached to RTD programmes. Most
research is conducted within the universities and the scientific or industrial institutes is at least
partially financed by the Government. Efforts have been made to promote innovation and
for several
technology transfer; Government sponsored initiatives include the support
Technology and Innovation Centres at Split, Rijeka and Zagreb which also involve public
companies,
local authorities and the universities. Croatia has maintained a functioning
research infrastructure which includes skill and experience, particularly within the areas of
information systems, biotechnology, pharmaceuticals,
food processing and energy
technologies. Lack of investment has largely prevented the exploitation of the existing

20

institutional and legal framework for the full benefit of the economy. However, there are now
reasonable prospects for a significant upturn.

Responsibility for RTD is held by the Ministry of Science and Technology (MST). Two
advisory bodies are responsible for evaluation of programmes and institutions: the National
Science Council evaluates scientific projects financed by the Government through the MST;
the National Council for Higher Education evaluates curricula adequacy and quality of the
higher education institutions. The two National Councils also collaborate, mainly through the
Parliamentary Committee for Science, in the preparation of laws and regulations concerning
RTD.

Most regular cooperation with the EU was stopped in 1995. However, Croatia participates in
4 on-going Eureka projects. Croatia is also a member of Cost, and participates in 26 actions.

Cooperation in this field should be pursued within the future SAA. No major obstacles should
be encountered, taking into account the present situation.

4.8.10. Environment

Cooperation in the environmental field was interrupted by the suspension of technical
cooperation in 1995. As a result, knowledge of the state of the environment and the
institutional framework for ensuring environmental protection has been adversely affected.
Steps will need to be taken to re-establish a comprehensive knowledge of the situation as a
starting point for harmonisation efforts.

Croatia should be eligible for assistance under the LIFE-Third Countries instrument that
specifically targets environmental capacity building. Environmental actions could also be
funded out of national assistance programmes.

Croatia is active in the development of the Regional Environmental Reconstruction Plan
supported by the Commission in the framework of the Stability Pact for South Eastern Europe
and cooperation could be further developed through this mechanism. Consideration may also
be given to Croatia participating in the activities of the European Environment Agency.

Given the prominence of environmental issues in the country, full cooperation and assistance
in this field should be pursued through a future SAA.

5.

CONCLUSIONS

In the light of these considerations the Commission concludes that:

The new Government is committed to full democratisation and long-term stabilisation of the
country and has already started serious work in finding appropriate solutions to earlier
political shortcomings. These developments foster compliance with EU conditionality for
enhanced relations within the framework of the Stabilisation and Association process.
Substantial progress can be reported in politically sensitive areas of concern such as refugee
and displaced people return, full cooperation with ICTY, improved regional cooperation and
democratisation of the media. Political stability will be needed to continue this important
reform process.

First encouraging steps in the economic sector have also been taken, although the Croatian
economy continues to face problems. The Government is committed to tackling the structural

21

problems and is working on urgent adoption of a comprehensive economic reform
programme.

As far as technical issues are concerned Croatia has started progressive harmonisation with
European standards and has the capacity to ultimately fulfil the obligations of a future
Stabilisation and Association Agreement. However, major efforts of further rapprochement
with the EC acquis will be needed. Efforts should focus initially on full implementation of
necessary reforms in trade-related sectors of the internal market.

On the basis of this report and in particular taking into account the considerable progress
noted under the new Croatian leadership, the Commission considers that the conditions for the
opening of negotiations for a Stabilisation and Association Agreement with the Republic of
Croatia are met. Therefore, the Commission recommends to the Council to authorise the
opening of the negotiations and will shortly present a proposal for negotiating directives for a
Stabilisation and Association Agreement with the Republic of Croatia.

22

ANNEX

BASIC DATA

Official name

Republic of Croatia (Republike Hrvatska); Capital: Zagreb

Area

Total: 56.538 km² Land: 56.410 sq km Water: 128 sq km

Three regions: Mediterranean, Mountainous and Pannonian.

BiH (932 km), Hungary (329 km), FRY (266 km), Slovenia (501 km)

Neighboring
countries
(border in km)

4, 671.584 (last census 1991) Estimated growth 0.13%

Population

Age structure:

0-14 years: 17% (male 411.022; female: 389.354)

15-64 years: 68% (male 1.591.716; female: 1.592.485)

65 years and over: 15% (male 262.471; female: 424.536)

Density

79.4 per km2

Ethnic profile

Croat 78%, Serb 12.2%, Muslim 1%; Hungarian 0.5%, Italian 0.4%, Czech
0.3%, Albanians 0.3% (last census 1991)

Religions

Catholic 76.5%, Orthodox 11.1%, Slavic Muslim 1.2%, Protestant 0.4%, Others
10.8%

Language

Croatian

Life expectancy

Male: 68.59 years Female: 75.95 years (1991 census)

Currency

Croatian Kuna: 1

€

= 7.7 HRK

Inflation

4.2% (1999)

GDP, current prices

GDP per capita

€
1) 1998 19.391,85;

(M
€
1) 1998 4.151,02;
(

1999 18.932,34

1999 4.052,66

1 period average of exchange rate of National Bank of Croatia

23

Real growth rate
GDP

Average monthly
net wages

1998 2.5 % 1999 –0.3%

3.179 kuna (February 2000)

Unemployment

21,7 % (March 2000)

€
) 1998 5.962.5; 1999 6.448,7

(M

Public

(HRK million) 1998 13. 697,5;

1999 13. 943,98

(M

Public

(M

€
) 1998 1.919,3;
€
) 1998 2.958,4;

1999 1.839,67

1999 3.675,29

External

(M

€
) 1998 8.547,2;

1999 9.161,9

account

(M

€
) 1998 - 1.381,6

1999 - 1.378

Budget

Internal
Debt

External
debt

Total
Debt

Current
balance

Trade with EU

Imports: 1997 59.5%; 1998 58.9%; XI99 57.3%

Exports: 1997 49.7%; 1998 47.0%; XI99 48.9%

Main
partners (1999)

trading

Exports: Italy, Germany, BiH, Slovenia, Austria

Imports: Germany, Italy, Slovenia

Trade balance

€

(

billion) - 3.696 (1998); - 3.500 (1999, 6.5% of total trade)

24

Table 1 : Overall developments 1992 – 1999

EU 15 TRADE WITH CROATIA

€

Billion
(Billion ECU until 1998)

exp/imp Annual rate of change

Share of Croatia
In extra EU trade

EU exp.

EU imp.

Balance

1992
1993
1994
1995 (EU 12)
1995 (EU 15)
1996
1997
1998
1999

0,9
2,1
2,9
3,2
3,7
3,9
4,8
4,4
4,0

0,8
1,6
1,8
1,7
1,9
1,7
1,8
1,8
1,9

0,07
0,41
1,11
1,49
1,85
2,15
3,01
2,59
2,07

%

109
125
161
186
198
224
269
242
208

EU exp.
%
-
135
42
11
28
4
23
-8
-17

EU imp.
%
-
105
10
-4
5
-8
2
3
7

exp.
%
0,2
0,42
0,54
0,54
0,65
0,62
0,66
0,60
0,52

Table 2 :

Most important EU 15 exports in 1999 and corresponding values in 1998

Sector by section of Common
Customs Tariff

1. Machinery & electrical (XVI)
2. Transport equipment (XVII)
3. Textiles (XI)
4. Chemical products (VI)
5. Agriculture, incl. Processed
(I-IV)
6. Base metals & articles (XV)
7. Plastic products (VII)
SUBTOTAL
ALL SECTORS

€

Million

904
543
457
427
321

316
190
3158
3972

1999
Share of
total
%
23
14
11
11
8

8
5
80
100

Change
over
1998%
-15
-16
-5
2
-12

-2
-9
-10
-17

Mio ECU

1064
650
483
418
364

322
208
3508
4786

Table 3 :

Most important EU 15 imports in 1999 and corresponding values in 1998*7

Sector by section of Common
Customs Tariff

1. Textiles (XI)
2. Machinery & electrical (XVI)
3. Wood (IX)
4. Plastic products (VII)
5.Foot/head wear, umbrellas. (XII)
6. Base metals & articles (XV)
7. Mineral products (V)
SUBTOTAL
ALL SECTORS

€

Million

494
251
179
148
145
128
109
1453
1906

1999
Share of
total
%
26
13
9
8
8
7
6
76
100

Change
over
1998%
-3
4
6
-10
-7
3
121
3
7

Mio ECU

509
240
169
164
156
123
49
1411
1777

1998
Share of
total
%
22
14
10
9
8

7
4
73
100

1998
Share of
total
%
29
14
10
9
9
7
3
79
100

imp.
%
0,16
0,34
0,34
0,30
0,35
0,30
0,26
0,26
0,25

Change
over
1997%
-11
-6
3
-3
-14

-6
-5
-7
4

Change
over
1997%
6
27
11
-3
-8
4
-32
5
-8

*7 In 1998 Chemical prods. were in 7th place, Mineral prods. In 10th place.

25

1991 – 1999 EC ASSISTANCE TO CROATIA

Allocations in Millions of euro

1991

1992

1993

1994

1995

1996

1997

1998

1999

TOTAL

Obnova

7,02

8,59

15,00

15,00

45,61

Humanitarian aid (ECHO) 204,77

38,43

21,15

14,50

6,95

8,00 293,80

& Human

0,70

2,20

0,60

n.a.

3,50

0,09

0,31

0,72

1,67

0,59

0

3,39

Media

Democracy
Rights

Demining

Customs (DG TAXUD)

1,00

0,50

1,50

1,00

1,00

Total = 204,86

38,74

29,59

26,96

24,14

24,50 348,79

26