Report from the Commission to the Council on the work of the EU/Albania High Level Steering Group, in preparation for the negotiation of a Stabilisation and Association Agreement with Albania
Date: 2001-06-06
Institutions: European Commission
Subjects: Albania, EU relations, association agreement, cooperation policy

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 6.6.2001
COM(2001) 300 final

REPORT FROM THE COMMISSION TO THE COUNCIL

On the work of the EU/Albania High Level Steering Group, in preparation for the
negotiation of a Stabilisation and Association Agreement with Albania

REPORT FROM THE COMMISSION TO THE COUNCIL

On the work of the EU/Albania High Level Steering Group, in preparation for the
negotiation of a Stabilisation and Association Agreement with Albania

A.

Introduction:

1

2

3

Foreword

Summary and Conclusions

Background : Relations between the Community and Albania

Key issues in preparation for the negotiation of a Stabilisation and Association

B.
Agreement:

1.

Political Criteria:

1.1 Democracy and the Rule of Law:

1.1.1 The Parliament

1.1.2 The Executive

1.1.3. The Judicial System

1.1.4 Public Administration

1.1.5 Corruption and Organised Crime

1.2 Human Rights and the Protection of minorities:

1.2.1 Civil, social, economic and political rights

1.2.2 Minority rights and the protection of minorities

1.3 General Evaluation

2

Economic Criteria

2.1 Economic situation and Fiscal Sustainability

2.2 Price and trade liberalisation

2.3 Privatisation process

2.4 Other relevant economic developments

2.5 General Evaluation

2

3.

Ability to assume specific obligations resulting from a Stabilisation and
Association Agreement:

3.1 Political dialogue

3.2 Regional co-operation

3.3 Free Movement of Goods:

3.3.1 Trade in industrial goods

3.3.2 Trade in agricultural goods and fisheries

3.4 Movement of workers, Establishment, Services, Capital:

3.4.1 Movement of Workers

3.4.2 Establishment

3.4.3 Trade in Services

3.4.4 Current payments and movement of capital

3.5 Approximation, implementation and enforcement of legislation:

3.5.1 Competition

3.5.2 Intellectual, industrial and commercial property

3.5.3 Public procurement

3.5.4 Standardisation & Conformity Assessment

3.5.5 Consumer protection

3.5.6 Working conditions and equal opportunities

3.6

Justice and Home Affairs:

3.6.1 Reinforcement of institutions and rule of law

3.6.2 Asylum, migration, control of external borders, visa issues

3.6.3 Combating money laundering

3.6.4 Preventing and combating crime and other illegal activities. Combating

illegal trafficking and illicit drugs

3.6.5 Small arms collection and destruction

3.7 Co-operation Policies:

3.7.1 Economic, monetary and statistical co-operation

3

3.7.2 Investment promotion and protection, industrial co-operation, Small and

Medium Enterprises, Tourism

3.7.3 Agriculture and agro-industrial sector

3.7.4 Customs and Taxation:

Customs

Taxation

3.7.5 Employment, social policy, education and training, RTD:

Employment and social policy

Education, training, RTD

3.7.6 Culture,

audio-visual,

telecommunications

and

postal

services,

information society

Culture and audio-visual

Telecommunications and Postal Services, Information Society

3.7.7 Transport

3.7.8 Energy, including nuclear safety

3.7.9 Environment

3.8 Financial co-operation

3.9 General Evaluation

4

REPORT FROM THE COMMISSION TO THE COUNCIL

On the work of the EU/Albania High Level Steering Group , in preparation for the
negotiation of a Stabilisation and Association Agreement with Albania

A.

Introduction

1.

Foreword

This report has been compiled in pursuit of decisions taken at
the Zagreb Summit of
November 2000. It reviews the political and economic situation of Albania and assesses its
ability to implement the obligations of a Stabilisation and Association Agreement (SAA). It
also reviews progress made since the Commission’s 1999 Feasibility study.

5

2.

Summary and Conclusions

Summary

Albania is one of five countries in south east Europe participating in the EU’s Stabilisation
and Association process. This process is designed to help bring stability to the region by
integrating each country into European structures and by offering them the prospect of future
EU membership. The EU has been actively involved in supporting Albania’s reform efforts
since 1991 and supports the priority which successive Albanian government’s have given to
European integration. However, in 1999 the Commission presented a Feasibility Study 1
which concluded that, despite progress made, Albania was not yet in a position to take on far
reaching contractual obligations with the EU. The Council shared the Commission’s view.

Recognising that Albania needs a European perspective and that the prospect of one day
becoming a Member State of the EU can be a powerful motor for change in support of
Albania’s own process of reform and development, the Zagreb Summit decided in November
2000 to set up a EU/Albania High Level Steering group to make a new assessment of
Albania’s capacity to take on the obligations of a Stabilisation and Association Agreement
with the EU. In making the assessment and recommendations set out in this report the
Commission has taken account of political, economic and regional factors.

Albania faces many challenges. Ten years ago it was the poorest and most isolated country in
Europe. Early efforts to introduce democracy and build a market economy were severely
damaged by the lawlessness and economic collapse which followed the failure of the pyramid
schemes in 1997.

Since 1997 major efforts have been made to restore law and order, reform economic and
social life and to open Albania to the region and the EU. In political terms much has been
done to reform the electoral system to ensure that elections can be run in accordance with
OSCE standards and Parliament and political life function normally. Albania has been a
moderating influence in recent political crises in the region, calling for resolution of
differences through peaceful means. There has been a major overhaul of the legal system and
serious efforts are being made to align legislation with EU standards. Economic decline has
been reversed and in 2000 GDP grew by 7.8%, in line with growth rates reported for 1999
(+8.0%) and 1998 (+7.3%). Important progress has been made in securing government
revenue through reform of the customs and tax services, Albania’s trade regime has been
modernised and liberalised and Albania became a member of the WTO in 2000. Privatisation
of small and medium sized companies can now be considered as complete and, with some
delay, privatisation of larger companies is proceeding.

However, despite the impressive achievements of the last two years many problems remain
which will make it difficult for Albania to meet the obligations of a Stabilisation and
Association Agreement and to deliver on the commitments it would undertake. The main
difficulties lie in the functioning of the judiciary, widespread corruption, a large grey
economy and lack of capacity to implement laws.

Despite the overhaul of the legal system the functioning of the judiciary remains a major
problem. Judges are ill prepared to administer the huge volume of new laws which have been
adopted recently, there is still interference with the work of the Courts and corruption is a

1 COM 599 final (1999)

6

serious problem. This situation has an adverse effect on the way Albanians view their state
and impedes the full exercise of human and civil rights. It retards economic development and
inward investment, since the law is not uniformly applied and the enforcement of contracts is
difficult. Further concrete steps are necessary to consolidate democratic institutions and
reinforcing good governance, the rule of law and the respect for human and minority rights.
Greater efforts will be needed if Albania is to assure the EU that it will be able to honour the
legal obligations of a Stabilisation and Association Agreement.

Corruption and organised crime are still major problems. Despite impressive changes to the
laws and the establishment of a number of enforcement structures, the state has not yet
equipped itself to implement them adequately. Even taking account of Albania’s budgetary
constraints there are not enough people engaged in the fight against organised crime and
corruption. The special court for serious crimes which is to be established in Tirana has not
yet been set up and the anti corruption monitoring unit currently only has a staff of three
people.

Albania is both a source and a transit centre for trafficking in human beings. Greater
determination is needed to tackle this problem if Albania is to demonstrate that it shares the
political and human values of the EU and is able to manage its borders effectively. Illegal
migration and trade in arms are also areas of concern to the EU which require greater
attention.

Although the economy is now picking up Albania is starting from a very low base and faces
structural weaknesses. The size of the grey economy is still too important and is threatening
the viability of officially registered businesses, preventing fair competition and discouraging
investment. The recent energy crisis has underlined the need for
in and
modernisation of infrastructure. Emigration is an important phenomenon which has an
important economic effect in two ways – the brain drain is depriving Albania of people who
could contribute to its development but emigrants remittances substantially contribute to the
Albanian economy.

investment

The Albanian administration remains extremely weak. Recruitment on the basis of open
competitions has only just begun and it will take time to build a culture of public service, free
from political and financial influence. In almost every area where Albania would take on
obligations under a Stabilisation and Association Agreement there is a lack of implementing
capacity. Government departments and agencies have neither the staff nor the means to
implement the huge volume of recent legislation. In most of the areas examined by the
EU/Albania High Level Steering Group the legal situation is broadly satisfactory, taking
account of Albania’s current level of development, but there is little capacity to implement
them. Until this situation can be redressed the new laws will exist only on paper.

Conclusions

The negotiation of a Stabilisation and Association Agreement
is both a political and a
technical process. These agreements are designed to draw countries closer to the EU by
providing rights and obligations and creating mechanisms for working closer together in areas
of mutual interest. Countries need to demonstrate not only that they share the values of the
EU but also that they have sufficient capacity to make a reality of the obligations they would
agree.

Given the mixed situation described in this report the Commission has had to balance
different elements in coming to a conclusion. In favour of recommending to start negotiations

7

it has taken account of the need to recognise the substantial efforts Albania has made in the
past two years, the role it is playing as a moderating influence in ongoing conflicts in the
region and the desirability of demonstrating progress in EU/Albania relations in order to make
Albania’s European perspective more concrete. However, the Commission is also concerned
its own laws and international
by Albania’s widespread lack of capacity to implement
obligations, by the inadequacy of the judiciary and the prevalence of corruption. Successive
governments have tried to deal with these weaknesses, which are structural and the result of
Albania’s past isolation and system of government. However, it will take time, money and
sustained commitment to overcome these difficulties.

Taking all of these factors into account, the Commission considers that Albania is not
yet in the position to meet the obligations of a Stabilisation and Association Agreement.
However, if the current pace of change is sustained and if sufficient priority is given to
strengthening administrative capacity during the negotiating and transition periods,
considerable improvements can be made in the areas highlighted in this report. The
Commission believes that the perspective of opening Stabilisation and Association
Agreement negotiations is the best way of helping to maintain the momentum of recent
political and economic reform, and of encouraging Albania to continue its constructive
and moderating influence in the region. The Commission therefore considers it
appropriate to proceed with a Stabilisation and Association Agreement with Albania,
and it will in due course submit a recommendation for a Council decision to open
negotiations, which can, of course, only be concluded when all appropriate conditions
have been met.

There will be a need to provide ongoing support to Albania throughout the negotiating and
transition periods, particularly with a view to strengthening administrative capacity. The
government will need to intensify its commitment to reform in the areas mentioned in the
attached report and will need to allocate further human and financial resources to key areas.
The Commission recognises that Albania cannot afford to increase substantially the number
of civil servants but more could be done within existing constraints to target resources in key
areas. Through the new CARDS programme, which is designed to support the priorities of the
Stabilisation and Association process, the Commission will seek to provide technical and
financial help to the Albanian government in some of the areas covered in this report. It will
also urge Member States, through their bilateral aid programmes, and other donors to channel
assistance to priority areas.

8

3.

Background : Relations between the Community and Albania

Current relations between the Community and Albania are based on a non-preferential
Agreement on Trade and Economic Co-operation which entered into force on 1 December
1992. Since October 1999, the Community grants Albania, on an autonomous basis, very
generous trade concessions which allows duty free access to the Community for almost all
Albanian exports. These trade concessions were further reinforced by supplementary trade
preferences granted to Albania in September 2000. In addition, Albania has benefited, since
1991, from over
1 billion in Community financial support, notably through the PHARE
programme2.

€

As early as 1995, Albania requested the opening of negotiations for an Association
Agreement with the EU. An assessment undertaken by the Commission in June 1995, on
subjects such as free trade in goods and services, establishment and capital movement, led to
the conclusion that a “classical” Europe Agreement could not be envisaged. The General
Affairs Council of 29/30 January 1996 invited the Commission to submit formal proposals for
a new agreement with a view to enhancing relations with Albania. But Parliamentary
elections of May 1996 cast a shadow on Albania’s democratic record and delayed the
development of relations. This was followed by a deep state crisis in early 1997 provoked by
the collapse of the pyramid schemes.

In November 1999 the Commission presented a report on the feasibility of opening
negotiations for a Stabilisation and Association Agreement (SAA) and concluded that the pre-
conditions for such negotiations were not yet met. The report listed a number of pre-requisites
to be met before negotiations could be opened.

During the Zagreb Summit of November 2000, an EU/Albania High Level Steering Group
(HLSG) was set up, with the objective of stepping up co-operation between the EU and
Albania, and identifying and supporting the reforms to be carried out by Albania in
preparation for the negotiation of a Stabilisation and Association Agreement. The EU/Albania
High Level Steering Group was asked to assess progress, recommend the necessary reform
measures and provide advice and guidance in all areas of concern set out in the 1999
Commission Feasibility Report, and to report to the Council by mid-2001.

Three meetings of the HLSG have been held in Tirana on 9 February, 6 April and 16/17 May
2001 respectively. Discussions have covered all the areas of concern set out in the 1999
Feasibility report and have substantially contributed to the preparation of this report.

2Community financial support amounts to 1 055 million

€

for the period 1991-2000

9

Key issues in preparation for the negotiation of a Stabilisation and Association

B.
Agreement:

1

Political Criteria:

1.1 Democracy and the Rule of Law

The Albanian Constitution of 1998 guarantees democratic freedoms, notably political
pluralism, freedom of expression and religion. On the basis of the Constitution, Albania has
been undertaking a major overhaul of its institutions and legal system. Progress has been
made in the area of legal and judicial reform under the auspices of the 1999 Joint Action Plan
agreed between Albania, the Council of Europe and the European Commission. In February
2000, Albania’s first Ombudsman was appointed by Parliament. Albania abolished the use of
the death penalty in peacetime in 2000 when it ratified Protocol No. 6 of the Convention for
the Protection of Human Rights and Fundamental Freedoms. Since April 2000, several other
Council of Europe conventions have been ratified (Civil Law Convention on Corruption;
European Conventions on the suppression of terrorism, on mutual assistance in criminal
matters and on the transfer of sentenced persons) or signed (Convention on laundering,
search, seizure and confiscation of the proceeds from crime).

1.1.1 Parliament

Generally, the Parliament functions satisfactorily, helped by the return of the opposition to
normal parliamentary life since July 1999.

However, political life in Albania continues to be highly conflictive. For example, the local
elections of October 2000 were won by the ruling party but the results were heavily contested
by the opposition which claimed widespread fraud. However, the OSCE has stated that these
elections were the best implemented in the country to date and were carried out in an
acceptable manner, even if some weaknesses and irregularities were identified. These
weaknesses related mainly to: errors in the electoral lists, certain provisions of the electoral
code, the functioning of the Central Electoral Commission (CEC), the lack of efficient
procedures to cope with complaints relating to the electoral process, the definition of the
electoral zones, and lack of efficient decision-making process in Court.

General elections are due to take place in Albania on 24 June 2001. It is important for the
consolidation of democracy that the shortcomings of the local elections be corrected in time
for the general elections. The Government and the institutions responsible for organising the
electoral process (notably the Central electoral Commission) have been taking steps to
remedy these shortcomings and there is general agreement that the CEC has substantially
improved its performance. For example, a major effort is being made to enhance overall
awareness of the electoral process of both electoral officials and general public. The issue of
the electoral zones appears now settled, following the adoption by the Albanian Parliament of
the boundary changes required by the electoral code. Steps have also been undertaken to
address the technically difficult issue of ensuring the accuracy of voters lists. Through a
nation-wide, multimedia information campaign, Albanian citizens and political parties are
being urged to check the provisional voters lists. Up to 1 June a variety of ways of correcting
the lists is being provided and anyone who has been wrongly excluded from the final voter list
will be able to get a court order allowing him/her to vote up until one day before the election.

Despite the improvements made to the electoral system in recent months confrontation
between the Government coalition and the opposition has been frequent. The opposition

10

constantly challenges the impartiality of the bodies in charge of the preparation of the
elections (notably the Central Electoral Commission, which is still perceived by the
opposition as favouring the Government). The manner in which the forthcoming elections
will be run represents a major test of the maturity of democracy in Albania.

1.1.2 The Executive

The Government has made determined efforts to stabilise the country since the 1997 crisis
provoked by the collapse of the pyramid schemes, and to promote economic and social
transition. “Euro-Atlantic” integration is a major goal of Government policy, and important
efforts have been made to align legislation with EU rules and to address the weaknesses
identified in the 1999 Feasibility Report. The Government is also working to improve security
and public order, reform the public administration, improve public financial management and
tackle corruption. While its macroeconomic policies have been effective in improving public
finances, controlling inflation and attracting the support of financial institutions, continued
efforts will be needed to build an effective and competent public administration, free of
corruption and capable of implementing national and Community legislation.

In its foreign policy Albania has played a positive and constructive role on regional issues,
It actively
notably as regards Kosovo, Southern-Serbia, FYROM and Montenegro.
participates in a wide variety of regional co-operation activities.

1.1.3 The Judicial System

During the last three years, Albania has adopted a large number of laws and regulations aimed
at improving the functioning of its judicial system. Most recently, the Albanian Parliament
adopted new important pieces of legislation such as the law on the Supreme Council of
Justice, the law on the organisation of the Ministry of Justice and the law on the General
Prosecutor’s Office. However, implementation of the bulk of this legislation remains clearly
insufficient due to a number of important shortages. Basic infrastructure and services are
generally inadequate (dilapidated buildings, deficient postal and telephonic services, power
cuts). Courts do not have proper equipment or filing systems and recording of Court
proceedings is poor, which adversely affects the exercise of justice. Trials are often carried
out under inadequate conditions.

A School of Magistrates has been established but the number of trained judges remains very
limited. At an expected rate of around 25 graduates per year (judges and prosecutors together)
it will take a long time to build up a modern, well trained judiciary The Albanian authorities
should take steps to accelerate this process, and to provide appropriate training and working
conditions for administrative staff (auxiliaries, secretaries, archivists etc).

Corruption within the Albanian judiciary constitutes a serious problem. The Albanian
authorities have undertaken some steps in order to address this issue. The Criminal Code and
the Criminal and Civil procedures Code have been revised and a Code of Ethics for the
Judiciary has been adopted. From 1999 to 2001, the High Council of Justice has taken
measures against 24 judges (out of a national total of around 300) because of corruption or
improper professional behaviour. However, further efforts are needed to eradicate corruption
from an institution which plays a major role in law enforcement.

Another key issue in Albania is failure to enforce Court judgements. In 2000, out of a total of
18,976 rulings, only 11,099 were carried out. Particular difficulties have been experienced in
enforcing Court rulings against State bodies. To address this issue, the Albanian authorities

11

have undertaken a number of legislative measures, restructured the so-called “Execution
Office” and established a specific budget line to honour possible financial obligation arising
from rulings against the State. However, most of these steps are recent and results cannot be
properly assessed yet.

The Albanian penitentiary system consists of 7 prisons and a prison hospital centre. The
prison population is today 1,583, having risen over the past three years. Efforts have been
undertaken by the Albanian authorities to develop a generally acceptable legal framework for
the penitentiary system. However, Albania’s prisons remain in a very poor state and there is a
problem of overcrowding (around 200 persons). The pre-imprisonment system currently
applied where prisoners on remand are held in police stations (often under inadequate
conditions and over relatively long periods) is not acceptable and should be addressed
urgently.

1.1.4 Public Administration

The Albanian public service is currently undergoing reform. Primary and secondary
legislation relating to the “Status of Civil Servant” have been adopted during 2000. New
institutions have been set up, such as the Civil Service Commission, which includes 5
members and a technical secretariat with 28 employees, as well as a General Secretariat for
Public Administration. Other
institutions, such as the existing Department of Public
Administration, heavily involved in the reform process, have also been recently reinforced.
New recruitment procedures are now operational and pilot projects regarding the salary
system for the Albanian public administration have been tested. Steps have also been
undertaken in order to establish a training institute for public administration.

However, although these initiatives are to be welcomed, it will take time for them to show
results in terms of more efficient service, enhanced implementing capacity, etc... Today the
Albanian public administration remains weak. Financial and human resources are insufficient
and salaries too low to motivate personnel and to reduce the temptation of corruption. Weak
implementing capacity is already a problem for the implementation of EU and other donor aid
and it will be difficult for Albania to honour the obligations it would take on in a Stabilisation
and Association Agreement unless key areas of the administration are reinforced.

Albania has taken action to improve public expenditure, notably through the preparation of a
Medium Term Expenditure Framework (MTEF). However, implementing and monitoring
mechanisms need to be put in place. Treasury rules still need further development.

A new law on Public Internal Financial Control (PIFC) is in the process of adoption. This law
will provide for the establishment of a sound PIFC in Albania. Once adopted, it will require
the preparation of a complete set of implementing provisions. The development of a number
of key PIFC elements (i.e. establishment of internal audit in all spending centres, ex-ante
control, …) depend on the approval of this new PIFC law and the necessary secondary
legislation. This is, therefore, another area where initial stages are being undertaken, but
where full implementation will still need some time.

As regards external audit, the Albanian State Audit Institution (SAI) appears to be relatively
well staffed (5 audit departments and 105 auditors) and is operational. During the year 2000,
the SAI carried out 120 audits and recommended 394 disciplinary measures. It also audited
670 tenders, where it identified a considerable number of deficiencies and irregularities.
However, the follow up of the State Audit Office recommendations and findings is not yet

12

satisfactory. A considerable number of
prosecutions in cases of irregularities are not systematic.

recommendations are not

implemented, and

A State Publications Centre has been
created to publish and disseminate laws and
regulations. The proper functioning of the State Publication Centre will reinforce transparency
of legal information and contribute to the rule of law.

1.1.5 Corruption and Organised Crime

Albania has made progress in setting up structures and a framework for combating corruption
as well as a process of opening up discussion on this sensitive issue. Albania is currently
equipped with the tools for fighting its strong systemic corruption, although further efforts are
needed both to create implementation mechanisms and strengthen inter-agency co-operation
in the law enforcement area. In April 2000, a revised Anti-Corruption Plan (ACP) was
launched and an Anti-Corruption Monitoring Group has been established. This group has
been set up and is operational although it only has three staff members (scheduled to increase
to six). The Criminal Code and Criminal Procedure Code have been amended in order to
better address corruption-related issues.

tax, and state bank officials have been opened. However,

Albania has taken action against corruption: 70 customs officials have been sentenced for
collaborating with smugglers over the period 1998-2001 and 33 cases are currently pending.
During 2000, 156 people have been charged with smuggling, and criminal cases involving
judges,
implementation and
enforcement capacity remains limited, notably due to insufficient institutional capacities to
investigate and prosecute corruption cases, and to lack of witness protection. Moreover, the
Albanian authorities should introduce legislative amendments to establishing effective and
dissuasive sanctions on companies for the offence of bribery of public officials and to carry
out a more systematic control of private and state firms.

Organised crime is a major problem in Albania. Illegal
trafficking in human beings,
particularly women but also drugs, arms and other goods, is reported to be widespread. The
Government has made considerable efforts to control these problems but more could be done,
especially in introducing an effective management and control of Albania’s international
borders. Albania should concentrate resources on known border ‘hot spots’ (such as the
border with Montenegro which is notorious for trafficking in women).

1.2

Human Rights and the Protection of minorities

Respect of human rights is guaranteed by the Albanian Constitution. In September 2000,
Albania took the important step of abolishing the death penalty in peacetime. The Albanian
authorities have also undertaken steps to strengthen the protection of human rights
(legislation, structures), but
judges and
implementation remains weak.
prosecutors need to be better trained in the application of human rights legislation, and law
enforcement agencies need to be better informed of their obligation to respect human rights.
The process of ensuring that Albanian legislation and practice conform to the European
Convention on Human Rights is ongoing and Albania is expected to report to the Council of
Europe, as required by the Convention, by 15 June 2001.

In particular,

13

1.2.1 Civil, social, economic and political rights

In general, civil society in Albania is still underdeveloped, suffering from insufficient
financial resources, lack of advocacy skills, and an overly competitive –often divisive-
attitude towards one another. Civil society organisation outside Tirana is very weak. There is
little interface between civil society and the government, despite some, limited initiatives by
the latter to enhance dialogue. A positive step has been, however, the adoption in May 2001
of new legislation aiming at governing NGOs. There is freedom of expression in Albania but
the media needs to become more professional. The independence of radio and television
should be reinforced. The transformation of the state TV and radio into an independent public
broadcasting institution, which is currently under-way, should be completed. Generally,
public TV provides fair coverage of the views of the opposition. However, the opposition still
refuses to participate in the National Council of Radio and Television set up in 1999, as
provided for in the Albanian Law on Television and Radio. The issuing of licences is
controversial and further steps should be taken to ensure a fair and adequate allocation
process. Foreign ownership of broadcasters is not restricted in Albania and Tirana has several
TV stations owned by foreigners. None of the print media in Albania is financially viable
without outside assistance and regional newspapers are disappearing. These financial
difficulties represent a threat to media independence.

The right of assembly and demonstration is generally respected. Opposition rallies normally
take place without major incidents. However,
the opposition often claims attempts of
intimidation by the police.

The right to seek redress, a fair trial or protection against arbitrary arrest or detention exist in
law. However, they are often not applied in practice.

The right
to property is legally guaranteed but remains ill-defined leading to frequent
disputes. This situation is a serious impediment to the creation of a functioning property
market, including a land market. Until action is taken the lack of clarity over property
ownership will discourage investment and hold back the development of agriculture.

The Ombudsman’s office began its work in August 2000 and is gradually becoming fully
operational. In a country with no tradition of such an institution, the progress made over the
past year has been significant. As of 31 December 2000, the Ombudsman had received 810
complaints, out of which 601 had been completed, while 209 were under investigation. Main
complaints concern court decisions, police behaviour and lack of enforcement of court
decisions. One of the main challenges ahead lies in further promoting the role of the
Ombudsman as a proactive defender of human rights.

1.2.2 Minority rights and the protection of minorities

The rights of minorities in Albania are guaranteed by the Constitution. Albania has two
recognised national minorities (Greek and Slav-Macedonian) and three “cultural minorities”
(Montenegrin, Vlach and Roma). In September 1999, Albania ratified the Convention on the
Protection of National Minorities of the Council of Europe and in general takes a constructive
approach regarding minority issues. The most important minority group in Albania is the
Greek minority (estimated officially at around 1,5% of the total Albanian population, i.e.
around 50 000 people. Greek minority representatives claim however that this figure is
substantially higher. The 2001 Census which has just been completed did not contain
questions about ethnic origin so the Government will need to take other steps to get an
accurate picture of the size of different minority groups. A commitment has been made to do

14

this within two years). The Greek minority is organised through an association called Omonia
and is politically represented by the Human Rights Union Party, which in turn is part of the
present coalition government, and has normal access to the media like other parties or
associations. Local elections in October 2000 were however marked by some irregularities in
the voting process and some nationalistic tones, which led to tension, notably in the area of
Himara with a strong Greek minority presence.

Albanian legislation still retains the concept of “minority zones”,
inherited from the
Communist era. This legislation defines ethnic origin on the basis of geography rather than
personal declaration and limits the exercise of minority rights to minority zones. This is not
compatible with the international conventions binding Albania in the field of minority rights
and Albania should take the necessary measures to abolish this concept and bring its
legislation into line with international standards. Albania should complete its legislative
framework on minorities (the current framework is just based on constitutional principles) and
take steps to collect accurate statistical information on the minority populations living in
Albania.

The Roma population is considered as a cultural minority and enjoys certain rights linked to
this status. However, the socio-economic situation of this community remains clearly below
acceptable standards and concrete plans to support this Community need to be implemented.
The Government is working on a strategy which should be finalised and implemented as soon
as possible.

1.3

General Evaluation

Albania has made progress in revising its legal framework to bring it closer to EU political
criteria. A democratic Constitution exists and democratic institutions have been established.
Basic human and minority rights are respected, although further improvements are necessary.
There are persistent weaknesses in the judiciary, widespread corruption, interference between
the various democratic powers (legislative, executive, judiciary), all of which reduce in
practice the exercise of democratic principles. Given Albania’s limited democratic tradition
(including in the media)
these weaknesses make democratic life highly conflictive.
Developing respect for the rule of law still constitutes a major challenge for Albania and a
major emphasis should be placed on strengthening law enforcement in the coming years.

15

2

Economic Criteria

2.1

Economic situation and Fiscal Sustainability

The 1997 crisis, which led to a collapse of the Albanian economy, has been followed by three
years of significant economic growth. According to official figures, GDP grew by 7.8% in
2000 with respect to the previous year, above the initial forecast of the authorities (7%), but in
line with growth rates reported for 1999 (+8%) and 1998 (+7.3%). Construction and services
sectors, more particularly transport, mainly contributed to this increase. Despite the drought
that affected Albania as most of the Western Balkans, agricultural output, which still accounts
for more than 50% of GDP, increased by some 3.5% in 2000.

As for economic policy, positive developments were registered in the fiscal area in the year
2000. Owing to a sharp increase in tax revenues (26% increase in 2000 with respect to 1999)
essentially due to improvements in the efficiency of tax and customs administrations, the
fiscal deficit is reported to have decreased from 11.5% of GDP in 1999 to 9.5% in 2000. As a
consequence, foreign financing of the deficit, which has predominantly taken the form of
grants or concessional borrowing, decreased from 6% to 4.5% of GDP. Furthermore, the large
amounts of privatisation receipts (1.8% of GDP for the year as a whole) allowed for a sharp
reduction in domestic borrowing (3.3% of GDP). On the expenditure side, the implementation
of the 2000 budget was satisfactory, although progress is still needed to improve co-operation
between ministries. A significant
in the reform of public expenditure
management has been the adoption of the Medium Term Expenditure Framework (MTEF)
covering the period 2001-2003. Albania will need now to put in place and implement the
necessary mechanisms to monitor proper implementation of the MTEF.

improvement

Monetary policy continued to be in check and in line with the requirements of the IMF
programme. A relatively restrictive monetary policy, coupled by significant
increases in
productivity, contributed to keep inflation under control. Due to the pick-up in oil prices and
the energy crisis which emerged in the last quarter of the year, inflation in 2000 rose to 4% on
an end-of-year basis (compared to –0.1% in 1999). It however slightly decreased in the first
months of 2001. The central bank recently abandoned its direct control over credits, which,
together with the recovery of the economic activity, contributed to a significant increase in
credits granted by banks to the private sector. Low inflation and a comfortable level of foreign
exchange reserves equivalent to some 5 months of imports, contributed to the stability of the
exchange rate of the Lek . In the course of 2000, the Lek depreciated slightly against the
dollar (143 Leks/USD in December 2000, compared to 138 in December 1999), while
remaining substantially stable vis-à-vis the euro. This trend is being confirmed in the first
months of the year 2001 (145 Leks/USD as of mid-May)

On the external sector, the current account balance has improved. As customary since the
beginning of the transition, remittances from Albanians living abroad partly compensated for
the still high trade deficit. The current account deficit is expected to be limited to about
290
million in 2000, equivalent to some 7% of GDP. This represents a reduction of 1 percentage
point with respect to 1999. The significant increase in foreign direct investment recently
recorded is largely due to revenues from the privatisation process, notably those carried out in
the telecommunications sector. Reform of tax collection, which contributed to an increase in
tax revenues recalled above, also progressed significantly. Concerning customs revenues,
main measures taken included changes in key personnel in the major customs houses, better
control of goods in transit and regular revision of reference prices. As far as domestic taxes
are concerned, improved enforcement led to a significant increase in the number of registered

€

16

VAT and small business taxpayers. A better co-ordination between tax and customs
administration also contributed to a reduction in tax evasion. Good progress was also made in
the reform of public expenditure management with the adoption of the Medium Term
Expenditure Framework (MTEF). The MTEF will be revised on a regular (yearly) basis. It
identifies four key areas of expenditure: infrastructure, education, health and social protection.

Albania is also finalising its Growth and Poverty Reduction Strategy (GPRS) which, once
completed, should be a comprehensive economic development strategy for the country, with a
specific focus on sustainable growth for Albania and poverty reduction.

The positive growth performance which has characterised Albania during the past three years
could have been jeopardised by the energy crisis which erupted in the last quarter of 2000. A
deepening of the crisis was averted, thanks to warmer weather and increased rainfalls, but a
strict implementation of the action plan agreed in December between the Albanian authorities
and the donors community will be necessary to minimise the ongoing risks of a serious crisis.
A donors meeting in April 2001 led to the unfreezing of about
95 million from Western
donors. However, the performance of the electricity sector will remain a major threat for the
development of Albania in the years to come.

€

2.2

Price and trade liberalisation

Albania officially became a member of the WTO in September 2000. Provided that the
present trend continues, Albania should be able to meet its WTO commitments in due time.
Albania has no quantitative restrictions on imports nor on exports. The maximum tariff rate
has been further reduced : as from January 2001, the maximum tariff rate has been set at 15%,
which represents a significant reduction from that prevailing in 1999 (20%) and 2000 (18%).

Price liberalisation is largely complete, with the exception of public transport, rail fares,
postal tariffs, electricity and the rural water supply. Capital movements are also liberalised to
a large extent.

2.3

Privatisation process

Albania has made progress in the field of privatisation, although large-scale privatisation has
been somewhat delayed. In the context of the privatisation strategy adopted by the Parliament
in March 1998, all small and medium-sized enterprises have been sold, liquidated or leased in
accordance with the strategy (the four medium-sized enterprises, which remained to be
privatised in the framework of the privatisation strategy, were sold during the year 2000). The
privatisation of small and medium-sized enterprises can be therefore considered as completed.

Some progress has also been made in the privatisation of large-scale enterprises in strategic
sectors (telecommunications, power, mining, petroleum and water resources), notably with
the sale in June 2000 of the Albanian Mobile Communications company (AMC). In this
context, a second mobile telecommunications license was granted in February 2001,
following an international tender. Privatisation of copper and chrome mines is underway and
is expected to be completed during 2001, as well as parts of oil sector (Servcom).
Privatisation of the major Albanian bank, the “Savings Bank” has been launched and is
expected to be completed before the end of 2001. Successful privatisation of the “Savings
Bank” would constitute a major step ahead in the privatisation process which would certainly
benefit the overall financial sector in the country. First steps have also been taken in the
privatisation of the state-owned insurance company INSIG and the privatisation of the fix-line
telephony company, Albtelecom, is expected to be launched before the end of 2001.

17

2.4

Other relevant economic developments

Financial sector reform has progressed somewhat less than expected, especially due to delays
in the privatisation of
the two remaining state-owned banks. Whereas the National
Commercial Bank was sold to a Turkish Bank in 2000, some delay has been registered in the
privatisation of the Savings Bank, the largest bank in the country, which is now due to be
completed before the end of 2001 (see above). The Government and the Bank of Albania are
continuing to improve the legal, regulatory and supervisory framework of the banking sector.
Banking supervision has made some progress, although further efforts are necessary. The
Central Bank continues to work towards the establishment of internationally accepted
accounting standards for banks and to further
improve prudential rules and reserve
requirements.

FDI investment in Albania remains limited mainly due to a relatively insecure investment
environment, poor infrastructure, heavy administrative procedures, corruption in the public
administration and judiciary, relatively high taxes. However, for the year 2000, FDI in
102 million, twice the 1999 figure, notably due to successful
Albania is estimated at
privatisation operations. Albanian FDI forecasts for 2001 are set at
122 million, counting
also on a strong contribution from the privatisation process.

€

€

According to the Albanian Law on Foreign Investments, all foreigners (either physical or
juridical persons) have the right to engage in different economic activities in Albania without
needing permission or authorisation. They have the right to transfer all funds in currency and
any item related to their investment out of Albania. The law also grants foreign investors legal
protection on disputes between them and Albanian parties. However, this legislation is also
affected with the current limitations in Albania for proper implementation and enforcement of
legislation.

The Albanian authorities plan to undertake further actions to further attract investment : taxes
are being reduced and certain schemes are being implemented in favour of export-oriented
firms (although compatibility of these schemes with EC competition rules will need to be
examined). A New Investment Promotion Agency, which will act as a “one stop shop”, is
planned. The Albanian authorities claim that there is no discrimination between companies in
terms of taxes. Enhancing the efficiency of public administration and judiciary, reducing
corruption and fraud (including the share of grey economy) and improving the country’s
infrastructures would positively contribute to the increase FDI in Albania.

2.5

General Evaluation

Overall, considerable progress has been achieved by Albania as regards most of the
economic-related pre-requisites established in the 1999 Feasibility Report. Albania has
continued to develop sound macroeconomic policies in accordance with IMF requirements,
has made progress regarding the completion of the privatisation process, has strengthened tax
collection through improved tax administration and customs services, has improved public
finance planning and broadly integrated public investment expenditures into the general state
budget. Progress regarding the establishment of a functioning real estate market (including the
agricultural land market), and the restructuring of some crucial public utilities and promotion
of their sound financial management on a cost recovery basis, has been however limited.

Despite significant progress in economic stabilisation and structural reforms, the country’s
economy is still facing structural weaknesses. Although GDP reached its pre-transition level
€
1,340). The informal
already in 1998, GDP per capita is still one of the lowest in Europe (

18

sector, whose activity is partly taken into account in the calculation of GDP figures, remains
too large and is threatening the viability of officially registered businesses. The state budget
continues to depend to a very large extent on foreign financing, whose part in the financing
sources is even expected to increase in the coming years. The financial sector remains weak
and does not fulfil its role of financial intermediation and contributor to the development of
the private sector. FDI is not sufficient for boosting the economy.

The major challenge facing Albania in the coming years consists of achieving a process of
self-sustained economic development, from which the poorest layers of the society would also
benefit. Although it is expected that foreign assistance will continue to flow into the country,
mainly to finance projects, thereby providing important source of economic growth and
improving infrastructure, there is an urgent need for reforms to tackle important and difficult
issues. Strengthening of public order, further progress in tax reform, public expenditure
management
the
remaining state-owned bank, restructuring and privatisation of strategic sectors enterprises,
(including the electricity company KESH) and land reform are the areas where reforms are
mostly needed.

reform, continued financial sector

including privatisation of

reform,

Implementation of these reforms should contribute in the medium-term to ensuring fiscal
sustainability, to creating an environment conducive to economic growth led by a performing
private sector, and more generally to maintaining a stable macroeconomic environment.

19

3. Ability to take on the obligations resulting from a Stabilisation and Association
Agreement (SAA):

In this section of the report the main elements of a future SAA are presented (in italics) and
Albania’s capacity to take on these obligations is assessed. The general weaknesses described
elsewhere in this report (in the judiciary, the weak level of administrative capacity, lack of
human and financial resources) have an impact on Albania’s ability to implement obligations
in all of the policy areas described in this chapter. This chapter concentrate on sector or policy
specific issues and does not repeat the more general points.

3.1

Political dialogue

The political dialogue chapter of an SAA would aim to increase convergence between EU and
Albanian foreign policies.

The EU and Albania have already largely synchronised their positions regarding international
and regional questions. Good examples have been the positions taken by the Albanian
authorities on highly sensitive issues as those relating to Kosovo, FYROM, Southern Serbia
and Montenegro.

Albania has demonstrated its capacity to participate in the on-going political dialogue under
the current Co-operation and Trade Agreement. Reinforced political dialogue should not
present particular difficulties for Albania and would help the parties to co-ordinate their
efforts to meet the challenging objective of ensuring regional stability.

3.2

Regional co-operation

Under the SAA Albania would commit itself to actively promote regional co-operation. It
would also be required, within two years of signature, to conclude Regional Conventions,
including free trade agreements, with all other SAA signatories.

Albania has continued its policy aiming at improving relations with all its neighbours and
participates actively in the Stability Pact for South Eastern Europe. This policy constitutes an
important contribution to regional stability. Dialogue with FRY has resumed through the re-
establishment of diplomatic relations, although practical co-operation with FRY is still
limited. Albania has stepped up its contacts with the authorities of the Republic of
Montenegro with a view to improving cultural and economic relations, as well as enhancing
co-operation in the fields of Justice and Home Affairs. Dialogue with FYROM and with the
Albanian minority in FYROM has had a moderating influence in the current difficult climate.
Co-operation with neighbouring EU countries has also increased.

Albania has established bilateral Agreements on Economic Co-operation and Trade with
Bulgaria, Croatia, FYROM, Greece, Italy, Romania, Slovenia and Turkey. It has also
concluded agreements for the reciprocal promotion and protection of investments with these
countries. With FYROM negotiations are underway on a Free Trade Agreement (FTA) and
discussions are entering the final stage. Albania anticipates progressive liberalisation with
FYROM, due mainly to the existing differences between the Albanian and FYROM tariffs,
the still fragile Albanian fiscal position and the existence of sensitive, competing products
(i.e. tariff dismantling for sensitive products will only start three years after the conclusion of
the FTA, and is expected to be completed eight years after signature).

20

Italy and Greece have become not only the main trade partners for Albania but also important
sources of bilateral financial support for Albania. The EU is the source for most Albanian
imports (77% from EU in 2000) and the destination of almost all Albanian exports (94% to
EU in 2000). The current trade balance is clearly in favour of the EU. Trade with Albania’s
Northern and Eastern neighbours has remained at traditional low levels.

Albania has shown its political commitment to contribute to regional peace and stability, and
to the development of good neighbourly relations. Albania should not have problems in
initiatives designed to foster regional co-operation. However,
participating in political
Albania could face some difficulties when it comes to implementing some of the requirements
which might derive from the a strengthened regional co-operation, as for example, rapid
reduction of customs duties in the framework of FTAs or adequate implementation of
customs procedures (i.e. some difficulties with the control of certificates of origin have been
indicated by the Albanian authorities). Further work will need to be done to strengthen the
fiscal system to provide public revenue to make up for the loss of customs duties which will
result from the conclusion of FTAs with other SAA signatories.

3.3

Free Movement of Goods:

Ensuring free movement of goods is one of the main objectives of any association agreement
established by the Community. In the framework of a future SAA, Albania would need to
gradually establish a free trade area with the Community, within a transitional period to be
determined during the negotiations. This free trade area should be in conformity with Article
XXIV of the GATT 1994 and other relevant WTO provisions. Albania would need to abolish
all quantitative restrictions or measures having an equivalent effect (if any) and progressively
dismantle its tariffs in trade with the EU. Albania would also need to use the Combined
Nomenclature for the classification of goods in trade and to determine the basic duties to
which the successive reductions of duties would be applied.

Albania would not be able, in principle, to introduce new duties, restrictions or measures with
equivalent effect in trade between the Community and Albania. Those already applied (if any)
could neither be increased nor made more restrictive for EU products from the start of SAA
negotiations. Albania will also be required to abolish any domestic tax measure or practice
which would discriminate directly or indirectly against EU products. Moreover,
trade
arrangements of Albania with third parties should be established in such a way that they do
not result in discrimination against the EU.

Albania has made considerable progress during recent years to introduce a liberal and open
it became a member of the WTO and is therefore
trade system. In September 2000,
committed to trade liberalisation. Albanian exports are normally free of restrictions (except
for skins and hides and scrap metals, where an export ban still exists). Restrictions are also
applied to wood and wood products with the aim of preserving the forests. Albania has still
excise duties above the Community for certain products. On the other hand, tariff duties on
imports are being progressively reduced. The highest rate of customs duty is now 15%
(having been reduced from 20% in 1999, 18% in 2000). Albania has also abolished
quantitative restriction or measures having an equivalent effect. Albania has an important
trade deficit with the EU, which represents 94% of its exports and 77% of its imports (2000
figures).

Albania has adopted a new Customs Code, substantially in line with that of the EC.
Improvement in the customs areas has been a constant since 1998 and constitutes a real
success story. Despite progressive reduction of customs duties, customs revenues have

21

increased due to a strengthened and more efficient customs administration. However, much
remains to be done to achieve EU standards, notably in terms of equipment (infrastructure,
laboratories), human resources (training) and IT technology. Furthermore, even if fiscal
sustainability in Albania has improved, due notably to increased tax collection (at present, the
most important component of the total customs revenue is VAT, whose share has increased
steadily from 36% in 1996 to 58% in 2000. VAT represented 31.6% of the total budget
revenues in 2000), the share of customs duties in the total Albanian revenue will remain
important, particularly at the beginning of the transition period.

Albania should be able to implement some of the basic requirements of an SAA in terms of
free movement goods (i.e. apparently, there are no quantitative restrictions, the Combined
Nomenclature is already used, customs duties are being reduced progressively), but
substantial efforts will still be necessary during the transition period. In particular, customs
procedures will need to be progressively improved through better border control, staff will
need further training and EU compatible information systems need to be developed. Albania
will need to assess the impact of tariff dismantling on different economic sectors, particularly
agriculture which represents over 50% of GDP. In view of the existence of sensitive sectors
and the share of customs duties in total budget revenue (11 % in 2000), Albanian tariff
dismantling should be progressive, perhaps with limited reductions at the beginning of the
transitional period and with an acceleration towards the end. The EU may need to consider
accepting a greater range of special treatment for a bigger number of sensitive sectors than for
FYROM and Croatia.

3.3.1 Trade in industrial goods

Industrial products represent the bulk of EC/Albania bilateral trade. Albanian industrial
products have duty free access to the Community. Due to this favourable trade regime,
Albania has the possibility to progressively increase its exports of both “traditional” products
such as footwear and textiles and of new manufactured products. However, to date, Albania
has not been able to take real advantage of the trade benefits granted by the EU because of
differences in quality or inability to meet EU norms and standards. Whenever possible
increased resources should be allocated to areas such as quality standards in order to improve
export capacity.

3.3.2 Trade in agricultural goods and fisheries

Agriculture is a very important sector of the Albanian economy (over 50% GDP). This sector
(including fisheries) has considerable growth potential, both in terms of production and trade.
In practice, however, Albanian exports remain limited, due to production and quality
problems. This explains why agricultural products represent only around 10% of total
Albanian exports to the EU, while they represent over 30% of imports from the EU.

Albania benefits from generous EU trade concessions for most of its agricultural products, on
an autonomous basis. In line with what has been suggested for industrial products, Albania
should, during the transition period, dismantle its customs duties progressively in order to
preserve a certain level of revenue collection and to allow for the development of its
agricultural sector.

22

3.4

Movement of workers, Establishment, Services, Capital:

3.4.1 Free movement of workers

An SAA would require both the EU and Albania to ensure non-discrimination as regards
working conditions, remuneration and dismissal against workers who are legally established
in their respective territories. The legally resident spouse and children of a worker legally
employed in the EU or Albania would have access to the labour market during the period of
the worker's authorised stay. Furthermore, the EU would be required to apply some of the
rules on co-ordination of social security systems to Albanian nationals legally employed in
the EU and to members of their family legally residing with them. For certain rules Albania
would also have to grant similar treatment to EU nationals legally employed in Albania and
their family members residing with them.

Albania will need to take steps to ensure that the principle of non-discrimination of EU
workers legally working in Albania is respected. Similar measures will be taken by the
Community.

3.4.2 Establishment

Under an SAA Albania would be required to grant EU companies the right of establishment
in Albania. This right would be reciprocal. EU companies established in Albania should be
granted either national treatment or MFN treatment, whichever is more favourable. During
the transition period the issue of extending these rights to EU or Albanian nationals wishing
to establish themselves as independents would be examined. Notwithstanding the provisions
governing on the free movement of workers under the agreement, special establishment
provisions could be introduced for “key personnel”.

At present Albania has a rather liberal approach as regards establishment and EU companies
are allowed to establish themselves. However, procedures are still cumbersome and the
Albanian legal framework remains uncertain. This discourages the establishment of EU firms
and foreign direct investment. Moreover, there are still restrictions on the purchase of land by
foreigners. Although open discrimination is not observed, action might be necessary to ensure
a level playing field. The extension of national or MFN treatment to EU or Albanian nationals
wishing to establish themselves as independents will probably require in-depth discussions,
because of the strong migratory tendency observed in Albania. It should only take place at the
end of the transitional period

3.4.3 Trade in Services

A future agreement would provide for the progressive and reciprocal liberalisation of trade in
services, consistent with the relevant WTO rules, in particular Article V of GATS. Companies
not established in the territory of the other party would gradually acquire the right to provide
services, in accordance with the GATS provisions and taking account, in particular, of
progress in approximation of
this
liberalisation would be monitored under the agreement, notably as regards financial services.

laws in the various fields. The implementation of

Albania has made considerable efforts during its WTO accession negotiations to open its
economy to foreign companies and investments. Liberalisation has also been extended to
services. However, major restrictions remain in the financial sector, although progressive
opening, including in the field of insurance is planned. Liberalisation of telecommunications
is foreseen to be completed by 2003. Liberalisation of transport services will probably need

23

more time, taking into account the poor general conditions of the sector in Albania and the
requirements of EC legislation in this area.

3.4.4 Current payments and movement of capital

In the framework of a SAA, Albania will need to commit itself to progressive liberalisation of
both inward and outward movement of capital, in particular for direct investments. Protection
of investors as regards liquidation and repatriation of investments and profits will also need
to be covered.

Following the collapse of the pyramid schemes in 1997, the Albanian authorities have taken
measures to restore the financial infrastructure. The National Commercial Bank has already
been privatised and the process for the privatisation of the Savings Bank, the biggest bank in
the country, has started. Legislation to liberalise the movement of capital is being introduced
progressively. The Bank of Albania has improved its monetary policy instruments and aims to
abandon minimum interest rates and the credit framework, while establishing better rules for
banking control. Therefore, the basis for progressive liberalisation of current payments and
movement of capital has been established.

Albanian legislation already provides for protection of investments and the possibility of
repatriation. Repatriation of profits is also foreseen.

3.5

Approximation, implementation and enforcement of legislation

A future SAA would include provisions on the gradual approximation of the existing and
future legislation of Albania to that of the Community. Albania should start ensuring that, in
so far as is possible at its present level of development, its laws are compatible with the
acquis, notably in key areas of Internal Market legislation. Albania will have to agree binding
deadlines for harmonisation in areas such as competition,
industrial and
commercial property, public procurement, standards and certification, financial services,
land transport, company law, accounting, consumer protection, data protection, health and
safety at work and equal opportunities.

intellectual,

Since 1992, Albania has been working to progressively align its legislation to that of the
Community. However, implementation and enforcement remain poor, mainly due to the
insufficiencies of the Albanian public institutions, administration and judiciary. A future SAA
with Albania would need to put emphasis not only on the progressive alignment of Albanian
legislation to that of the EC, but also on ensuring implementation and enforcement.

3.5.1 Competition

In particular,

fair competition.

In an SAA, Albania would undertake to refrain from any measures which could adversely
i) all agreements between
affect
undertakings and concerted practices which prevent, restrict or distort competition; ii) abuse
by one or more undertakings of a dominant position in Albania, iii) any public aid which
distorts or threatens to distort competition by favouring certain undertakings or certain
products. Albania should commit itself to ensure transparency in the area of public aid, inter
alia, by reporting annually to the EC on the total amount and the distribution of the aid given
and by providing, upon request, information on possible aid schemes.

it should prohibit

The development of competition policy in Albania remains at its initial stage, despite the
existence of basic legislation since 1995. Implementation is extremely weak, due in particular
to the clearly insufficient resources devoted to this area. Although the law provides for the

24

establishment of an independent Competition Office it does not exist and competition issues
are dealt by the Department for Economic Competition within the Albanian Ministry of
Economic Co-operation and Trade. This department is poorly staffed (3 experts), with two
specialist on competitions issues and one in charge of consumer protection issues. As a result,
enforcement of the law is extremely limited.

The concept,
type of operations and other usual procedures (notification, monitoring,
reporting) in the State Aids area are not familiar in Albania. A serious effort will be necessary
in this field if Albania is to be able to take on and implement obligations under an SAA.

The “de facto” situation in Albania, where the grey economy remains very important, does
not allow fair competition between companies belonging to the formal and the “informal”
economy. This has a serious detrimental effect on companies willing to invest and legally
operate in Albanian. Albania will need to make considerable efforts in this area in order to be
able to properly implement the provisions of a future SAA.

3.5.2 Intellectual, industrial and commercial property

Before the end of the transitional period, Albania would need to take all measures necessary
to ensure effective and adequate protection and enforcement of intellectual, industrial and
commercial property rights, including protection against counterfeiting and pirating, so as to
guarantee a level of protection similar to that existing in the Community. It would also need
to accede to a number of multilateral conventions to which EU Member States are party or
which are applied in the Community de facto.

In the framework of the existing co-operation agreement, Albania has already committed
itself to take measures to guarantee protection of the intellectual, industrial and commercial
property rights to a level similar to that existing in the Community and to adhere to the
relevant international conventions. Progress has certainly been made, notably as regards the
basic legislative framework. Albania, member of the World Intellectual Property Organisation
(WIPO) since 1992, has already signed a considerable number of international conventions in
the field of copyright (Berne Convention, Rome Convention, Geneva Convention, TRIPs), as
well as the Paris Convention for the Protection of Industrial Property and the Madrid
Agreement for the International Registration of Trademarks. In the framework of its accession
to WTO, Albania has undertaken to fully implement TRIPs.

There is on-going co-operation with the European Patents Office and the European Patent
Convention is expected to be ratified shortly. With a staff of 10 people distributed in 3
departments, the Albanian Patent Office has registered to date 18,502 trade and services
marks. The number of applications is increasing every year.

Implementation of legislation remains however more problematic. Administrative capacity
needs to be enhanced, in particular through the strengthening of those institutions involved,
directly or indirectly, in the protection of intellectual, commercial or industrial property rights
(Albanian Patent Office, relevant departments at the Ministry, Youth and Sports in charge of
copyrights, independent copyrights companies, customs, judiciary). The degree of awareness
in Albania on IPR issues is still insufficient and has to be increased. As regards enforcement,
the judiciary needs to be substantially reinforced to deal with these cases, notably through the
provision of a sufficient number of duly trained judges.

25

3.5.3 Public procurement

In an SAA, Albania will be required to ensure that Community companies can bid for public
contracts on the same basis as Albanian companies. Albania will need to progressively align
its public procurement legislation to that of the Community. It will also need to strengthen the
relevant institutions and judiciary in order that public procurement procedures will be
properly implemented.

The basic legislative framework for Public Procurement in Albania entered into force in 1996.
This framework is based mainly on the American Law UNICITRAL, and compatibility with
EU requirements is not always ensured. A revised Public Procurement Law is under
preparation. This law should take into account the need for further alignment towards EU
standards and address some of the deficiencies identified in the current legal framework.
According to the current legislation, the Public Procurement Agency (PPA) should be the
central element of the public procurement system in Albania. However, this agency remains
poorly staffed (9 people, of whom only 4 are procurement specialists) and insufficiently
trained.

Implementation and enforcement of public procurement provisions remain problematic. A
considerable number of mistakes and irregularities have been identified by the Albanian State
Audit Institution in this area (see item B,1.1.4 on Public Administration). There are too many
derogations to the principle of open tender (for the period October 2000-March 2001, there
were 624 “national” open tenders and 12 “international” tenders, while restricted tenders
amounted to 715 and requests for quotations to 640. No data on direct contracts have been
made available). Moreover, it is not clear when and on which basis a “national open tender”
becomes an “international open tender”. The number of complaints is high (106 were to be
addressed by the Public Procurement Agency in April 2001) and they are not being addressed
in time, mainly due to lack of resources.

There is a pressing need in Albania to strengthen the Public Procurement Agency, to promote
a “public procurement culture”, to improve public procurement-related legislation and to
further clarify Albanian procurement rules. Albania will need to address this issue rapidly in
order to implement the obligations that would normally derive from a future SAA in terms of
alignment of legislation and to ensure fair access of EU firms to public procurement markets
in Albania.

3.5.4 Standardisation & Conformity Assessment

In order to comply with an SAA, Albania would need to gradually achieve conformity of its
legislation with Community technical regulations and European standardisation, metrology,
accreditation and conformity assessment procedures. In particular, it would be required to i)
promote the use of Community technical regulations and conformity assessment procedures,
ii) conclude, when appropriate, European Conformity Assessment Protocols, iii) to foster the
development of quality infrastructure:
standardisation, metrology, accreditation and
conformity assessment; and iv) to promote Albania’s participation in the work of specialised
organisations (CEN, CENELEC, ETSI, EA, WELMEC, EUROMET etc).

Since 1992, Albania has made good progress regarding the adoption of EC standards. The
in supporting alignment. The basic
PHARE PRAQ III programme has proven useful
legislation in the field of standards and certification appears to be in place. The accreditation
functions
in the process of being separated from the General Directorate for
Standardisation, in charge of standards. In 1999, 2% of Albanian standards were in line with

is

26

EN (European Norm). Today the figure is 18%. The objective announced by the authorities of
reaching a level of 56% by the end of 2002 is ambitious but does not seem realistic.
According to the Albanian authorities, the adoption of standards regarding the New Approach
directives constitutes a priority. However, in the absence of a functioning market surveillance
system (see below) and adequate product liability legislation, the New Approach directives
could not be effectively implemented.

As regards certification activities, there are 35 accredited laboratories in Albania, of which 10
belong to the private sector. A draft National Quality Programme has been prepared and there
are plans to establish an Albanian Society for Quality and National Quality Award. A
National Directorate for Metrology and Calibration has been established, but the Albanian
metrology system needs strengthening.

Despite the existing legal basis, there is considerable room for improvement in this area. In
practice, certification procedures continue to be marginal due to lack of interest on the part of
economic operators.

3.5.5 Consumer protection

the market economy functions
Effective consumer protection is needed to ensure that
properly, and this protection will depend on the development of an administrative
infrastructure in order to ensure market surveillance and law enforcement in this field. In
order to meet its obligations under an SAA, Albania would need i) to develop active consumer
protection policies, in accordance with Community law, ii) to harmonise its legislation on
consumer protection and iii) to establish effective legal protection for consumers in order to
improve the quality of consumer goods and maintain appropriate safety standards.

Since 1997, Albania has a law on Consumer Protection, which establishes the legal
framework for consumers’ associations. A service in charge of the protection of consumers
has been set up within one of the Albanian Ministries. However, implementation of this law is
weak and consumer protection in Albania is insufficient. Active participation of civil society
(NGOs, consumers’ associations) in the consumer protection process is limited, and existing
institutions are not in a position to ensure adequate protection. A market surveillance system,
which is central to ensuring respect of the quality of consumer goods and the respect of safety
standards, still needs to be developed.

3.5.6 Working conditions and equal opportunities

Under an SAA Albania would need to progressively harmonise its legislation concerning
working conditions, notably on health and safety at work, and equal opportunities

Basic norms on working conditions exist in Albania, but remain far from the EC standards in
this area and, above all, are not widely applied. As regards equal opportunities, Albania
ratified the Convention on the Elimination of All Forms of Discrimination Against Women in
1994, but has not yet reported on its implementation. The most relevant
institutional
mechanism for the promotion of equal opportunities is the Albanian Committee on Women
and Family, but
limitations to
implement its activities. Government support is limited.

it faces organisational difficulties and severe financial

In the field of working conditions and equal opportunities, Albania will need to develop
legislation and, above-all, good practices aiming at ensuring gradual compliance with the EC

27

acquis, including with regard to the role of the social partners. Co-operation in the framework
of an SAA could contribute to this development.

3.6

Justice and Home Affairs:

Progress has been made in Albania in the fields indicated in the 1999 Feasibility Report : the
basic legal framework for the Albanian police in accordance with the civil service law is in
place, but it needs to be further developed and, above all, implemented. The functioning of
the police forces has improved, and it is widely recognised that Albania is no longer in the
crisis situation of 1997/1998. However, training, long term strategic planning and equipment
still needs to be improved. As regards arms collection and destruction, some limited progress
has been achieved, but much remains to be done, notably in certain areas of the country.

3.6.1 Reinforcement of institutions and rule of law

In the field of Justice and Home Affairs, Albania would need to reinforce institutions at all
levels, but in particular those involved in the areas of law enforcement and administration of
justice. In this context, consolidating the rule of law, strengthening the independence of the
judiciary, improving its efficiency and ensuring adequate training of judges appear to be the
main priorities.

legislative

Albania is no longer in the crisis situation that prevailed in 1997 and 1998, notably with
regard to security and public order. Progress has certainly been made, although further efforts
remain necessary. In the field of Police, clear divisions of responsibility between the General
Directorate of the Police and the Ministry of Public Order have been established, and the
framework has been further developed and looks now rather
overall
comprehensive. However, certain important elements such as the legal
infrastructure to
implement the law on the organisation and functioning of the judicial police need still to be
completed. A Strategy for the Reform of the Police, which will guide developments in the
medium term, has been adopted. This strategy foresees a reduction in the size of the police
forces with the purpose of both making them more efficient and allocating more resources for
the improvement of working conditions and salaries. Emphasis will be put on selection,
qualifications and training of police. Albania has approved a plan aiming at educating the
police force in the field of human rights, which is to be welcome as some complaints of
inappropriate police behaviour have been raised in recent months. All these steps have been
undertaken in co-operation with the EU/international support mechanisms in Albania.

The structural changes for the implementation of the State Police Law appear to be on-going.
Main actions concern the reinforcement of the civil control of the police, efforts to limit
political influence, and the establishment of special structures to address security issues, in
particular organised crime. Training activities continue, but more emphasis should be put on
« training the trainers », specialised training and training of high-ranked police officials.
Efforts to improve police behaviour and image, and to combat corruption within the police
ranks are on-going, but should be enhanced. Initial steps are being undertaken to improve co-
ordination between law enforcement bodies (police, intelligence services, judiciary), but more
efforts will be necessary.

3.6.2 Asylum, migration, control of external borders, visa issues

Albania would need to set up a framework for co-operation, including at a regional level, in
the fields of asylum (legislation, issues of procedures), migration (legal/illegal), control of

28

external borders and visas. A central element of co-operation in the area of preventing and
controlling illegal immigration would be the inclusion of provisions on readmission.

The Albanian legislative framework in the fields of asylum and migration is rather
comprehensive and meets internationally recognised standards. However, as in other areas,
the relevant provisions of these laws remain unimplemented. A decision of the Council of
Ministers of August 2000 establishes the creation of reception centres for detained foreigners,
but no further details as to the nature of these centres or their function have been provided.
The development of the asylum and migration structures needed to properly address asylum
and migration issues has been slow although some preparatory steps can now be observed.
Teams are being established, in co-operation with UNHCR, to develop a concept. As a
temporary measure, prior to the establishment of a fully developed asylum system, an
administrative order was issued by the Albanian Ministry of Public Order in February 2001
that interviews be systematically carried out to establish whether intercepted persons are
economic migrants,
trafficked persons. However,
implementation of this order has, to date, been limited (only 17 persons interviewed between
15 February and 26 April).

refugees in need of protection or

Albania has concluded readmission agreements with Italy and Switzerland. A bilateral
readmission agreement, not covering third country nationals, was signed with Belgium in
April 2001. Readmission operates also with Greece, although not
through a formal
Readmission Agreement, but just on the basis of a readmission clause included in a police co-
operation agreement between Albania and Greece. Overall,
the current and planned
readmission agreements provide adequate guarantees for asylum seekers and refugees, in
conformity with the provisions of the 1951 Geneva Convention. However, there are concerns
about the Albanian financial capacity to properly implement these agreements.

Border management and control still needs substantial improvement, particularly in the
northern part of the country. In addition to continued efforts to improve border-crossing
points, action is necessary to develop strategies to control the Albanian maritime and green
borders. Risk analysis and intelligence remain insufficient, which favours illegal trafficking
and smuggling. An integrated border management strategy, taking into account the need to
better co-ordinate the activities of the various law enforcement bodies operating at the borders
and to find the right balance between efficient controls and border crossing facilitation, should
be prepared.

The current Albanian visa regime determines the countries for which visa is not required upon
arrival in Albania, and those for which visa is necessary. Amongst the countries for which a
visa is required, a further differentiation is made between countries for which the visa can be
obtained on arrival in Albania (land borders, sea ports, airports) and those for which the visa
can only be obtained at Albanian consular offices abroad. Technical means for proper
implementation of a visa system similar to those operating in the Community are needed.
Albania has 33 consular offices abroad issuing entry visas. Notification of visas issued is
made by the Consular Office to the Ministry of Foreign Affairs, which in turn informs the
border authorities. However, there is no computerised network so this will need to be
progressively developed.

3.6.3 Combating money laundering

Albania would need to establish a framework for co-operation aimed at preventing the use of
its financial systems for laundering of proceeds from criminal activities. Co-operation in this
area would include administrative and technical assistance aimed at establishing appropriate

29

standards to counter money laundering which are equivalent
to those adopted by the
Community and other international bodies in this field, in particular the Financial Action
Task Force (FATF).

Albania has signed the European Convention on Laundering, Search, Seizure and
Confiscation of proceeds of Crime and has recently established basic legislation on the
prevention of Money Laundering (entry into force, 6 December 2000). Secondary legislation
to fully implement this law is now under preparation and a co-ordination structure within the
Ministry of Finance is being established. The financial police, when fully operational, will be
in charge of implementing money laundering-related legislation.

Although it is not possible in Albania to open anonymous accounts, and control of significant
or suspicious financial movements is foreseen by Albanian legislation, Albania is not yet in
the position to combat money laundering efficiently. Structures will need to be consolidated
and co-ordination between the various law enforcement bodies, the financial sector and the
judiciary, substantially enhanced. It is relevant in this context that, to date, no sentence has
been established in Albania on money laundering-related charges.

3.6.4 Preventing and combating crime and other illegal activities. Combating illegal

trafficking and illicit drugs

Albania should develop a framework for co-operation aimed at fighting and preventing
criminal and illegal activities, notably organised crime. Albania should devote particular
attention to issues such as trafficking in human beings, illegal economic activities (i.a.
corruption and illegal transactions involving goods such as industrial waste, radioactive
material, and counterfeit products), illicit arms trafficking and terrorism. Albania should also
need to take the necessary steps to be able to cope with the health and social consequences of
forms of drug abuse, preventing the diversion of chemical precursors and
different
introducing and/or reinforcing structures for combating illicit drugs' trafficking

Albania has made some progress in preventing and combating organised crime, but efforts
need to be enhanced in the future. It has signed a considerable number of international
conventions, has revised the Penal Code and has established new legislation aiming at
fighting organised crime and its main activities. From the organisational point of view, new
structures have been created (i.e special units for the smuggling of weapons, drugs and against
human beings trafficking, and a specialised unit including police, prosecutors, judges with the
specific mandate to fight against organised crime), but their capacity to operate remains
questionable at this stage due to their recent creation and to a systematic lack of sufficient
human and technical resources.

Efforts in the field of controlling trafficking of human beings have been made, including
specific raids against traffickers, but more needs to be done to address this critical issue.
There is a pressing need for the Albanian authorities to deliver politically on commitments
made within the framework of the Stability Pact Anti-Trafficking Task Force and to enforce
and implement existing legislation on trafficking in human beings. Emphasis should be placed
increasing efforts to
on making a clear differentiation between victims and traffickers,
prosecute traffickers and organised crime, re-directing resources to assist victims, securing
protection for victims and potential witnesses, taking radical measures against members of the
police involved in trafficking, and strengthening border management (border-crossing points
and blue/green borders), notably in the well known “hot” areas. International co-operation
should also be enhanced.

30

As regards illicit drugs, Albania is primarily a transit country. It
is considered that a
substantial share of the heroine reaching Europe travels through Albania. According to
Albanian statistics, 547 cases of drugs trafficking were discovered in the year 2000, 641
persons charged, and a considerable quantity of drugs intercepted. However, much remains to
be done, notably through the strengthening of border controls, including the blue and green
borders, better co-ordination between law enforcement bodies and enhanced international co-
operation along the lines of the current Italo-Albanian co-operation against drugs.

3.6.5

Small arms collection and destruction

The process of collection and destruction of small arms is ongoing, but progress is slow.
Weapons collection was stepped up during 2000 (up to 20.000 small weapons collected) in
combination with the adoption of a law on illegal weapons in September 2000. However, the
authorities have had a limited intervention in the most difficult areas such as Fier, Berat,
Korça, Shkoder and Kukes.

Action in the fields of co-operation between police and local representatives and public
awareness have been recently undertaken. First results are reported positive, but it seems soon
to be able to properly assess the success of these initiatives.

If collection is slow, destruction of weapons is unclear. Some weapons have been certainly
destroyed with the support of the international Community (around 100 000 of the 600 000
estimated), but the systematic destruction of collected weapons is not carried out. Some of the
collected arms are kept by the police/army. On the other hand, the Albanian authorities
declare that no major weapons trafficking/selling has been observed in the country.

Ammunition in bad condition represents a problem in Albania. There have been feasibility
studies carried out with the support of the international community but no concrete actions
have been undertaken to date to properly address this issue.

3.7

Co-operation Policies:

A future SAA would imply the establishment of close co-operation in a wide range of policy
areas, in order to provide EU policy guidance and assistance to promote the economic and
social development of Albania. This process would not be limited to bilateral EU/Albania co-
operation but could also take place within a regional framework, i.e. special attention would
be devoted to measures that can foster co-operation between Albania and its neighbours, thus
contributing to regional stability.

3.7.1 Economic, monetary and statistical co-operation

Albania should take steps to facilitate reform and economic integration into European
structures by improving the formulation and application of market economy policies. It
should improve its capacity to provide information on macroeconomic performance and
forecasts, to formulate economic policy and to develop the instruments necessary for its
application. It should also take appropriate account in its policy development of the EU’s
economic and monetary union. Albania should develop an efficient and sustainable statistical
system, capable of providing timely, reliable, objective and accurate data needed to plan and
monitor the process of transition and reform.

Progress has been made by Albania in formulating economic policies. The Growth and
Poverty Reduction Strategy and the Medium Term Expenditure Framework 2001-2003
demonstrate that Albanian skills in this area are improving. Accuracy of some economic

31

indicators remains insufficient. This is mainly due to the importance of the grey economy in
the country and the need for further improvement of Albanian statistics. Although the
Albanian Statistical Office (INSTAT) already participates in EUROSTAT activities aiming at
the harmonisation of European statistics, it still needs further improvement in order to meet
EC standards. In particular it should i) adopt an appropriate legal framework, ii) improve
methods for calculating macro-economic aggregates, iii) put in place an appropriate company
register and iv) complete the population census. INSTAT should also develop training
methods and continue to improve its equipment.

Co-operation in this area should mainly aim at the establishment in Albania of a more
efficient statistical service, based on an appropriate institutional framework, using European
standards and classifications and able to provide the public and private sectors with accurate
socio-economic data. Methods of dealing with the considerable grey economy should also be
developed.

3.7.2 Investment promotion and protection,

industrial co-operation, Small and

Medium Enterprises (SMEs), tourism

Albania should aim at creating a favourable climate for private investment, both domestic
and foreign, in order to promote economic and industrial revitalisation. In particular, it
should aim at establishing a legal framework conducive to investment, the implementation of
suitable arrangements for the transfer of capital and the promotion of
investment
opportunities. In the fields of industrial co-operation, SMEs and tourism, Albania should
develop policies aimed at promoting the modernisation and restructuring of industry, the
reinforcement of the SME sector and the development of tourism.

Investment in Albania remains limited. Investment protection is provided for in Albanian
legislation, but its implementation cannot be guaranteed. In order to attract further investment,
the Albanian authorities should act simultaneously on three fronts : i) implementation of
concrete actions to improve the business environment, including security and protection
aspects, ii) development of an active investment promotion strategy, and iii) a strategic and
gradual improvement of infrastructures.

The secondary sector is weak in Albania. Industrial co-operation could make an important
the restructuring of strategic enterprises and the
contribution to the completion of
development of the national industrial base.

Almost all enterprises in Albania can be considered as SMEs. Only 0,2% employ more than
100 employees. Given the weight of SMEs in the Albanian economy, co-operation in this area
would be important, notably through the strengthening of
the necessary institutional
environment, the creation of a predictable legal and fiscal framework, the improvement of the
credit systems for SMEs and support for SMEs in the most depressed areas of the country.

Tourism has the potential to be an important sector for the medium-long term economic
development of Albania. Co-operation in this area could help in the development of policy.

3.7.3 Agriculture and agro-industrial sector

Albania should aim at modernising and restructuring agriculture and the agro-industrial
sector. In particular, co-operation could include i) development of private farms and
distribution channels, methods of storage and marketing,
ii) modernisation of rural
infrastructure (transport, water supply, telecommunications), iii) improvement of productivity

32

and quality using appropriate methods and products; iv) training and monitoring in the use of
anti-pollution methods in connection with inputs, v) development and modernisation of
processing firms and their marketing methods, promotion of
industrial co-operation in
agriculture and the exchange of know-how, and vi) development of co-operation on animal
and plant health in the form of assistance for training and the organisation of controls with a
view to gradual harmonisation with Community standards.

Agriculture remains the most important economic sector in Albania, contributing a little over
50% of the total Albanian GDP. More than 50% of the population live in the countryside,
with agriculture providing a major source of employment. Although some improvements can
be noted, they have not been sufficient to alter the agricultural reality in Albania: - production
systems remain primitive, yields are low, many farms are too small to be viable, physical
infrastructure is poor and private sector activity has not yet been able to fill the vacuum left
by the previous state processing and marketing agencies. In order to improve farm revenues,
increase agricultural exports and ensure the sustainable use of natural resources, Albania
should finalise the land reform process (including speeding up land registration), increase
agricultural production through the introduction of new technologies, improve phytosanitary
and veterinary services, enhance quality control and food safety regulations,
increase
marketing capacity and rehabilitate and improve irrigation systems.

Co-operation and assistance in this area has already been substantial, notably as regards the
development of the land register and the production of maps of all Albanian districts, support
for the improvement of veterinary services and the promotion of fisheries. Further co-
operation remains necessary in order to help Albania address the issues mentioned above and
to gradually approximate Albanian structures and legislation to that of the EC.

3.7.4 Customs and Taxation

Customs

In the field of customs, Albania would need to undertake steps to achieve further alignment
with the acquis and to ensure the implementation of the liberalisation measures which would
from an SAA. In particular, Albania would need to develop efficient customs
result
management,
cross-border
infrastructure, develop the interconnection between the transit systems of the Community and
Albania, ensure proper revenue collection, simplify inspections and formalities in respect of
the carriage of goods, and introduce modern customs information systems.

investigation methods,

including

adequate

establish

EC support in this area has proven effective. Customs legislation in conformity with EC
standards has been approved and the new Customs Code, in force since May 1999,
is
currently being implemented in Albania. A customs enforcement division which includes
anti-smuggling, intelligence and investigation units has been set up and has begun to produce
tangible results. Thanks to a more efficient operation of the Albanian customs services, total
€
customs duty collection has increased, (from
99 million in 2000),
despite the progressive reduction of customs tariffs. The human resource structures and
recruitment process have been successfully upgraded and should be considered as a possible
reference for the overall strengthening of the Albanian Public Administration. Performance
appraisal and an emphasis on combating corruption,
together with the provision of
appropriate financial incentives have been important factors. Customs control and the fight
against smuggling have improved, but more needs to be done. Steps in improving IT have
been undertaken, although the process is far from being completed. Training activities are
being implemented. Customs co-operation with third countries (in particular neighbouring

84 million in 1999 to

€

33

countries) exists and Albania is seeking accession to more international conventions in the
field of customs (Nairobi, Kyoto). Two Customs laboratories are operational and a third one
is under construction.

Progress in the field of customs can be considered as a success story, but continued progress
will be necessary in order for Albania to meet EC standards in this field. In particular,
legislative alignment needs to be completed, border procedures have to be improved,
infrastructures need to be further developed, computerisation must continue.

Taxation

Co-operation between the EU and Albania in this field should contribute to the completion of
the reform of the Albanian fiscal system and the restructuring of its tax administration in
order to ensure effectiveness of tax collection. The fight against fiscal fraud in Albania should
remain a priority.

Progress has also been achieved in the taxation field, although there is still considerable room
for further improvement. Tax collection has increased (approx. 26% increase in 2000 as
compared with 1999). At the end of 2000 tax revenues amounted to 15.3% of the Albanian
GDP. In 2001, this share is expected to be 15.6%. VAT represented 31.6% of the total budget
revenues in 2000 and is expected to reach 32.4% in 2001. Efforts have also been made to
strengthen the administrative capacity of the Albanian tax administration, notably as regards
training and computerisation (8 big local offices, including Tirana, have been computerised)
but more needs to be done.

Despite some recent positive signs (i.e. increase in the number of registered activities, 42 000
taxpayers registered in 2000), Albania needs to sustain its efforts to combat the country’s
enormous grey economy, which constitutes a serious threat to its sustainable development.
Moreover,
tax evasion remains very high. Control of registered businesses should be
strengthened as tax fraud practices are still generalised. The intention of the Albanian
authorities to tax agricultural activities (agriculture represents over 50% of the Albanian
GDP) is welcome, as this would contribute to fiscal sustainability. A number of international
treaties on avoiding double taxation and the prevention of fiscal evasion have been signed
with third countries.

Despite recent progress, the overall tax administration (including local tax offices) should be
upgraded. Better training of tax inspectors and further development of IT systems remain
important. Progress in this area is crucial as it would contribute to consolidating the fiscal
situation of the country, which in turn would help Albania to meet a number of contractual
obligations under a future SAA.

3.7.5 Employment, social policy, education and training, Research Technology and

Development (RTD)

Employment and Social policy

Co-operation in this area should aim at supporting Albania in the reform of its employment
policy,
focusing notably on upgrading job-finding and career advice, promoting local
development and providing back-up measures such as a functioning social dialogue at all
levels and labour law to assist industrial restructuring. Regarding social security, Albania
would need to adapt its social security systems to the evolving economic situation and the new
social requirements.

34

€

With a population estimated at 3.0-3.4 million (a new census has been recently carried out
1,340, Albania is one of
and results will be made available shortly) and a per capita GDP of
the poorest countries in Europe. One fifth of the population is living on less than
1.2/day.
Poverty in the north and rural areas is widespread, with 90% of the population living below
the poverty line. Unemployment levels are high, both in urban and rural areas, but official
unemployment figures (close to 20%) significantly underestimate the reality. They only cover
people who register in a labour office and, because of tight restrictions on employment
benefits,
the motivation to register is low. The restriction on benefits is reflected in
government expenditure on unemployment, which has constantly decreased over the last 10
years. Social assistance to families in need has slightly increased, but has clearly fallen in real
terms. Overall, the decline in social transfers has been marked since 1995, indicating that the
social well being of the poor has deteriorated.

€

The Albanian Government is finalising a Growth and Poverty Reduction Strategy (GPRS),
aiming at consolidating economic growth and at addressing the issue of poverty. Taking into
account the present situation, it will take some time for Albania to significantly redress the
situation and improve the overall socio-economic situation. Co-operation in the framework of
an SAA could provide expertise in order to help Albania to develop appropriate social
security systems and employment policies.

Education and training, RTD

In the fields of education, training and RTD, co-operation could aim to help Albania raise the
level of general education, higher education, vocational training and to promote youth co-
operation. It could also encourage the development of an environment conductive to research
in Albania, notably through joint RTD ventures and the transfer of technology and know-how.

Albania entered the transition process with high literacy rates, but the overall quality of
education was low and the situation has since deteriorated. Expenditure on education as a
share of GDP have decreased. Salaries and motivation of
teachers are both low.
Infrastructures and teaching facilities are poor and the drop-out rate of pupils is increasing.
Vocational and teacher training have also deteriorated. RTD activities in Albania are very
limited, mainly due to the lack of adequate research infrastructures and insufficient financial
resources.

The Albanian higher education system faces considerable challenges. These include the
restructuring of degrees and study programmes, strengthening of the strategic management
capacities of Albanian higher education institutions, as well as reforms in governance,
management and finance.

Albania participates in the activities of the European Training Foundation and in the Fifth
Framework Programme for RTD. It also benefits from EC support though the TEMPUS
programme for higher education reform. A future SAA could seek to deepen co-operation in
these areas.

3.7.6 Culture, audio-visual, telecommunications and postal services, information

society

Culture and audio-visual

An SAA could promote cultural co-operation, notably with EU Member States and with
increasing mutual understanding
neighbouring countries, with the overall objective of

35

between individuals, communities and peoples. In the field of audio-visual, Albania should
take all steps necessary to promote the European audio-visual industry and encourage co-
production in the fields of cinema and television. It would also need to gradually align its
policies and legislation with those of the EC, including as regards matters relating to cross-
border broadcasting and the acquisition of intellectual property rights for programmes and
broadcasts by satellite or cable.

Albania will need to strengthen regulatory bodies in the field of audio-visual and, above-all,
to take the necessary steps to adhere to the Council of Europe Convention on trans-frontier
television and to gradually align its legislation to the EC acquis in this area, notably to the
“Television without Frontiers” directive. Co-operation between the EU and Albania could
focus on this area.

Telecommunications and Postal Services, Information Society

i)

in particular,

the development of

Co-operation under an SAA could be used to expand and strengthen co-operation in
telecommunications and postal services and gradual alignment with the acquis. This would
involve,
legal and regulatory aspects of
telecommunications and postal services, ii) the progressive liberalisation of the sector, iii) the
for the modernisation of Albania’s
promotion of an investor friendly environment
telecommunications network and its integration into European and world networks,
iv)
institutional reforms suitable for a liberalised environment and v) the promotion of European
standards and regulatory approaches. Albania should also aim at
the progressive
development of the information society, including co-operation in the area of electronic
communications infrastructures

Albania has the least developed telecommunications network in Europe with only 3.65 fixed
lines per 100 inhabitants and less then 1 mobile subscriber per 100 inhabitants. The low
GDP/capita explains this only in part and the main reason lies in a lack of investment over
many years.

Recent developments in government policy have been positive. Albania has joined the WTO
and committed to liberalise the sector by 1.1.2003. The government has also introduced
competition into the mobile sector and is committed to privatising the incumbent fixed line
operator as a first step to introducing competition. The much needed expansion and
modernisation of the networks, and the introduction of new services would be encouraged by
the establishment of a fair and transparent regulatory framework effectively applied and
through the establishment of an attractive business environment.

Postal services also show considerable room for improvement.

Co-operation between the Community and Albania in this area could focus on gradual
alignment of the Albanian legislation to the acquis, including support for the establishment of
the necessary independent regulatory bodies for telecommunications and postal services.

3.7.7 Transport

In the field of transport, co-operation could contribute to the restructuring and modernisation
of the Albanian transport system and improving related infrastructures, improving the free
movement of passengers and goods, achieving standards comparable to those prevailing in
the Community, aligning Albanian transport legislation to that of the EC, and allowing
progressive mutual access to the EU and Albania transport markets and facilities.

36

Despite some limited progress, transport
infrastructures in Albania remain poor. Major
investment efforts will be needed in order to improve Albanian infrastructures to levels
similar to that of the EU (i.e roads, railway, ports (Durres, Vlora) and Tirana international
airport). Albania will need to develop a long term investment plan in order to properly address
it will need to mobilise
transport
considerable financial resources to this area and will not be able to rely on donor funding to
take a major share of the costs.

infrastructure development.

In the years to come,

Works undertaken to date in the field of transport infrastructure have suffered considerable
delays, notably due to difficulties with the expropriation of properties necessary for the
development of roads, lack of an adequate long-term transport strategy and a lack of urban
planning. Co-ordination between the various actors involved in the implementation of
transport infrastructure projects has also been occasionally deficient.

Albanian legislation in the field of transport will need to be reviewed in order to ensure
progressive alignment to EC legislation.

The gradual alignment of the Albanian transport
the establishment of EC
compatible transport policies and statistics, as well as the improvement of Albanian
infrastructures interconnected to neighbouring countries in all transport modes could be
included in co-operation between EU and Albania in this sector.

legislation,

3.7.8 Energy, including nuclear safety

Co-operation between Albania and the Community in the field of energy would need to take
into account the principles of the market economy and the European Energy Charter Treaty.
Albanian energy policy should be developed with a view to gradual integration with EC
policies and networks. Co-operation could focus in particular on formulation and planning of
energy policy, modernisation of infrastructure, improvement and diversification of supply,
development of energy resources and renewable energy, and promotion of energy saving and
energy efficiency. As appropriate, co-operation in the field of nuclear safety could also focus
laws and regulations, on radiation protection including
on upgrading the relevant
environmental radiation monitoring, and on radioactive waste,
including uranium mine
waste, management.

The energy sector in Albania remains weak. There is an increasing gap between supply and
demand (over the last 10 years, there has been a 70% increase in demand). Strategic planning
and diversification policies have been lacking and, despite the existence of a two-year plan for
the restructuring of the electricity sector prompted by the serious difficulties of last winter, an
overall long term energy strategy has not yet been approved.

Albania has become a net importer of electricity, which is seriously affecting its trade
balance. The Albanian electricity sector needs to complete a profound restructuring, which
has only been recently initiated with the support of the Italian company ENEL. Electricity
supply is too dependent on rainfalls (most of the electricity produced in the country is of
hydroelectric origin). Practically all the thermo-power plants have stopped activity and no
new energy production plant has been constructed since 1986. The energy interconnection
lines with neighbouring countries are unable to cope with current demand for electricity
imports and distribution and technical losses are still enormous.

The oil sector needs also to be restructured in order to cope with increased demand, notably as
regards the rehabilitation of the Ballsh refinery. The promotion of LPG as an alternative to

37

electricity for winter heating through fiscal and other measures should continue. The
construction of storage capacities in Albania would help by making LPG prices more
competitive. Albania is the only European country not connected to a natural gas network so
the feasibility of such an option should also be explored.

Albania has already taken steps to align its energy sector to future EU requirements : an
energy regulatory authority has been established and appears to be operational, with direct
intervention in areas such as energy tariffs. The need for separation of energy generation,
transmission and distribution is well known and plans for its implementation are being
developed, and the privatisation small electricity producers is due to start shortly.

Restructuring of the energy sector should remain a priority for the Albanian authorities. Lack
of progress would imply further deterioration of the system and would have very serious
consequences
the
for
implementation of a future SAA.

the economic sustainability of

the country and,

thus, affect

3.7.9 Environment

In the framework of an SAA, Albania could strengthen its co-operation with the EU in the
vital task of combating deterioration of the environment, in particular as regards water
quality, air pollution, monitoring of pollution levels, promotion of energy efficiency and safety
at industrial plants, classification and safe handling of chemicals, urban planning, waste
management and protection of forest, flora and fauna.

Albania has established basic legislative framework on environmental protection and adopted
a National Environment Action Plan (NEAP), which is currently under revision (a revised
NEAP is expected by autumn 2001). Under the NEAP, a number of sectoral strategies have
been developed (water, waste, bio-diversity, forest protection). A revised NEAP should
develop targets aimed at gradual alignment with Community acquise. The main institution in
charge of environmental policy is the National Environmental Agency, which co-ordinates
with the relevant institutions involved in the legislative/implementation/enforcement process.
The Agency has a staff of 70 people and is active but its powers to enforce legislation and
ensure implementation remain weak. Albania lacks the capacity to monitor and effectively act
on environmental data, which is essential for sound decision-making. Monitoring and
inspections systems should be streamlined and penalties for environmental breaches should be
increased. Furthermore, the scope of the law on environmental protection should also be
extended to state companies (at present, state companies are not covered by this law and
therefore are not liable).

Albania is currently drafting a new law on Environmental Impact Assessment (EIA) which
should comply with EC legislation. Existing EIA provisions are not always respected, and the
present procedures do not allow for effective intervention by the National Environment
Agency. Albanian attempts to establish an Ecofund have not been successful to date, but the
Albanian authorities plan to implement eco-taxes (on CO2, waste generation,…) which could
support the establishment of financial facilities for environmental purposes. Around 20 NGOs
influence in the development and
are active in the environmental
implementation of environmental policies has been and still is very limited.

field, but

their

Environmental issues have never been very high on the Albanian political agenda, partly due
to the poor state of the environmental civil society in Albania. There is a lack of an
environment-friendly culture in the country which contributes to a rapid environmental
deterioration, notably in urban areas. Most solid waste is dumped in rivers. Water pollution in

38

urban areas is generalised, due to the lack of waste-water treatment plants and Albania’s
larger lagoons have major problems of pollution. Dangerous pesticides still need to be
removed. Forest cover has dramatically decreased over the last 10 years, and the lack of urban
planning and control of enterprises often provokes additional environmental problems. There
is also a serious problem of unstable ammunition in military sites.

Albania has been co-operating with neighbouring countries in the framework of the Regional
Environment Reconstruction Programme. It has signed Memoranda of Understanding on
various environment-related issues with FYROM and Montenegro. A Memorandum of
Understanding with Greece is also being prepared.

Albania needs to urgently increase its efforts to develop and implement a suitable
environmental policy, in order to control growing environmental problems. The progressive
integration of environmental considerations into other Albanian policies should become a
priority.

3.8

Financial co-operation

An SAA with Albania would foresee the continuation of EU financial support in order to help
Albania to achieve the objectives of the Agreement. Financial co-operation could support
democratic, economic and institutional reforms in Albania, in line with the Stabilisation and
Association process. It could be able to focus on different areas of approximation of
legislation and co-operation policies covered by the SAA. Macro-financial assistance could
also be possible in specific and duly justified cases. Albania should develop the capacity to
properly co-ordinate the resources available from the EU and other donors in order to ensure
its optimal use.

€

€

€
€

Since 1991, Albania has benefited from a total Community assistance of
1 055 million.
318 millions were provided as emergency and food aid (
198
From 1991 to 1993, a total of
120 million through FEOGA). From 1994 to 1996, PHARE
million through PHARE and
190 million in grants to support the Albanian economic reform. After the crisis in
provided
1997, EC support concentrated on fewer priorities and focused on the re-establishment of the
rule of law (police, customs, justice, public administration,) and support for the development
of basic infrastructures (transport, water supply, Local Community Development). In 1999,
the PHARE programme provided specific budgetary support to alleviate the cost for hosting
97 million were allocated for humanitarian aid through ECHO.
refugees from Kosovo, and
37.5 million) will focus on Stabilisation and Association
The 2001 CARDS programme (
priorities such as: JHA issues, local community development and institution building.

€

€

€

To date the results of EU assistance have been mixed. Albania has not devoted sufficient
resources to support implementation and this has contributed to implementation delays,
although this has not been the only factor. Albania will need to seriously address this issue
and make major efforts to ensure more effective use of donor funding. Current co-ordination
capacities are weak and too dependent on external support. Priority setting is being addressed
but has still
the follow-up and
implementation of projects should be substantially strengthened. In future Albania should
integrate EU assistance fully into its EU integration strategy and work with the Commission
to tailor support under the CARDS programme to its SAA priorities.

improvement. The bodies in charge of

room for

Taking into account the current situation, a future SAA should usefully include appropriate
conditionality on the timely and adequate use of EC financial resources.

39

3.9

General Evaluation

Implementation of a future SAA will be a challenge for Albania. The underlying
administrative structures are fundamentally weak and are threatened by corruption. The main
reason for this lies in the weaknesses observed in a number of state institutions (despite the
progress observed since 1999) and limited infrastructure and equipment. Weak public
administration and judiciary, and inadequate technical and human resources risk adversely
affecting Albania’s ability to implement and enforce any agreement, particularly a relatively
sophisticated agreement like the SAA. Throughout the negotiating and transition periods it
will be necessary for Albania to make sustained efforts to strengthen its implementing
capacity. Continued efforts will also be necessary to ensure that key areas of the Agreement
industrial and
such as free movement of goods, establishment, competition,
commercial property rights, public procurement and Justice and Home Affairs-related issues
are properly implemented. Through the CARDS programme the EU can help Albania in this
task.

intellectual,

40