Report from the Commission - The Stabilisation and Association process for South East Europe - First Annual Report [SEC(2002) 339] [SEC(2002) 340] [SEC(2002) 341] [SEC(2002) 342] [SEC(2002) 343]
Date: 2002-04-03
Institutions: European Commission
Subjects: Western Balkans, administrative reform, association agreement, cooperation policy, economic reform, economic stabilisation, peacekeeping, political reform

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 03.04.2002
COM(2002) 163 final

REPORT FROM THE COMMISSION

The Stabilisation and Association process for South East Europe

First Annual Report

[SEC(2002) 339]
[SEC(2002) 340]
[SEC(2002) 341]
[SEC(2002) 342]
[SEC(2002) 343]

REPORT FROM THE COMMISSION

The Stabilisation and Association process for South East Europe

First Annual Report

TABLE OF CONTENTS

1.

2.

3.

4.

5.

6.

Introduction.................................................................................................................. 4

The Region: the Complexity of the Jigsaw .................................................................. 5

The Stabilisation and Association Process................................................................... 6

Progress Made and Lessons Learned ........................................................................... 8

The Continued Challenge............................................................................................. 9

The Road Ahead......................................................................................................... 13

Annexes

A.

B.

C.

Summaries of individual country reports:
[SEC(2002)339],[SEC(2002)340],[SEC(2002)341],[SEC(2002)342],[SEC(2002)343]

EC assistance 1991-2001

Table on ratification of Human Rights instruments

2

Executive Summary

In 2000, following a decade of turmoil in the Balkans, European leaders decided that the route
to  stability  in  the  region  was  through  steadily  closer  association  with  the  EU  and  the  clear
prospect  of  membership.  This  policy,  known  as  the  Stabilisation  and  Association  process,
combines the development of privileged political and economic relations with the countries in
the region, supported by substantial financial assistance programme (CARDS).

The Stabilisation and Association process is already beginning to produce the desired results
The  region  is  becoming  more  stable.  Its  countries  are  engaged  in  ambitious  political  and
economic reform programmes based on EU law and practice. These achievements are set out
in detail in the attached country reports.

The  Stabilisation  and  Association  process  is  a  long  term  policy.  It  supports  sustainable
reform;  but  it  is  also  designed  to  be,  a  flexible  and  dynamic  process,  evolving  in  line  with
changes in the region, the EU and the world, and capable of coping with sudden crises. In the
coming years it will develop new ways of assisting the countries in the region in coming to
grips  with  continuing  problems  of  weakness  in  the  rule  of  law  and  democratic  institutions,
corruption, the threat of resurgence of extremist nationalism, poverty and social exclusion and
in co-operating regionally.

The Stabilisation and Association process requires continued commitment on the part of both
the  EU  and  the  countries  of  the  region  to  maintain  a  steady  course  towards  and  make  the
necessary preparations for full integration of the countries of the region into the EU.

3

1.

INTRODUCTION

The turn of the century  witnessed  a significant change in the  EU's  approach  to the Western
Balkans1.  EU  leaders  decided  that  a  policy  of  emergency  reconstruction,  containment  and
stabilisation was not, in itself, enough to bring lasting peace and stability to the Balkans: only
the real  prospect of  integration  into  European structures would  achieve that . The  European
Councils  at  Feira  and  Nice  explicitly  recognised  the  countries’  vocation  as  “potential
candidates”  and  spoke  of  “a  clear  prospect  of  accession”  once  the  relevant  conditions  had
been  met.  The  Stabilisation  and  Association  policy  has  been  designed  to  help  the  Balkan
countries transform that aspiration into reality, and to establish a strategic framework for their
relations with the EU .

The  Stabilisation  and  Association  process  combines  new  contractual  relationships
(Stabilisation  and  Association  Agreements)  and  an  assistance  programme  (CARDS),  which
help each country to progress, at its own pace, towards the requirements of EU membership.
It is a long-term commitment to the region. It entails a formidable political effort, significant
financial resources and a major direct input of personnel and expertise.

The  Stabilisation  and  Association  Agreements  are  legally  binding  international  agreements.
They  draw  heavily  on  the  Europe  Agreements  with  the  candidate  countries,  and  the
experience  of  the  enlargement  process.  They  are  ambitious,  demanding  agreements,  which
have at their core the basic principles which underpin membership of the Union. The SAAs
require respect for democratic principles, human rights and the rule of law; they foresee the
establishment of a free trade area with the EU: and they set out rights and obligations in areas
such  as  competition  and  state  aid  rules,  intellectual  property  and  establishment,  which  will
allow the economies of the region to begin to integrate with that of the EU.

The establishment of the Sap has coincided with - and contributed to - considerable progress
in  the  Balkans.  Every  country  in  the  region  is  now  a  democracy  .  All  five  countries  are
pushing ahead with political, economic and administrative reforms. But that progress has not
been  without  setbacks.  The  resurgence  of  violence  in  the  former  Yugoslav  Republic  of
Macedonia  shows  the  fragility  of  the  region,  and  how  easily  parts  of  it  can  slip  back  into
crisis. Critical weaknesses in the rule of law and democratic institutions, endemic corruption,
the  threat  of  resurgence  of  extreme  forms  of  nationalism,  as  well  as  poverty  and  social
exclusion, all pose a serious threat. These issues need to be tackled if the stabilisation process
is to become sufficiently sustainable to permit association with the EU.

The  challenge  for  the  EU  is  to  cope  with  this  political  volatility  and  institutional  fragility
while holding a steady course towards the strategic goal of integration of the countries of the
region into the EU. This means sticking firmly to  the  Stabilisation  and  Association process,
adjusting  it  as  necessary  to  cope  with  changing  demands  and  circumstances  in  the  region.
This is an enterprise which will demand many years of political and economic investment.

This  report  looks  in  more  detail  at  political  and  economic  developments  in  the  region,  the
Stabilisation  and  Association  Process,  its  strengths  and  achievements,  its  weaknesses  and
shortfalls, the challenges still faced in the region and the way in which the EU needs to take
the process forward. This paper is accompanied by five country reports [SEC(2002)339/343]

1

Albania,  Bosnia  and  Herzegovina,  Croatia,  Federal  Republic  of  Yugoslavia  (FRY)  and  the  former
Yugoslav Republic of Macedonia (fYROM)

4

                                                
which set out the Commission’s assessment of progress, or the lack of it, in the key areas of
political  and  economic  development  and  capacity  to  participate  in  the  Stabilisation  and
Association process. Taking due account of the specific conditions in each country, the same
criteria  are  applied  across  all  of  them.  The  Commission’s  assessment  is  accompanied  by
recommendations for action in the course of the next twelve months. This reporting exercise
will  be  repeated  annually.  It  is  designed  to  help  governments,  parliaments,  business  and
community leaders, the media, civil society and other interested parties – both in the EU and
in the region – to understand the requirement of the Stabilisation and Association process and
to help them focus political and financial resources on the key priorities.

2.

THE REGION: THE COMPLEXITY OF THE JIGSAW

The break up of the former Yugoslavia, accompanied by years of war and repression, has left
behind a highly fragmented region. A surface area and population of some 25 million – about
the same as Romania – is spread across five countries in a complex ethnic jigsaw. This makes
for a region of formidable complexity. War added to enormous economic and social transition
problems in most parts of the region. All of the countries have had to start developing modern
state institutions from scratch or from a very low  base. Most of the  old  political, economic,
and infrastructure networks collapsed. Albania, previously isolated from the rest of the world,
embarked on its transition from an even lower base.

The  region  is  a  complex  political  and  economic  mix.  In  the  last  few  years,  Croatia  has
managed  to  shed  its  recent  past  relatively  successfully.  Others  are  finding  it  enormously
difficult  to  make  headway  against  the  twin  obstacles  of  inter-ethnic  obstruction  and  a
shattered  political  and  economic  landscape.  In  this  environment  the  rot  of  corruption  and
organised crime has set in and is seriouslyhampering efforts to establish the rule of law.

The  economic  picture:  The  economic  size  of  the  region  remains  small.  Its  total  GDP  is
estimated to be around €40 billion - again, similar to that of Romania. The combined GDP of
neighbouring  Hungary  and  Slovenia  -  with  half  the  population  of  the  Western  Balkans  -  is
nearly 70% greater. Total exports from the region in 2000 were €7.7 billion (less than three
quarters of Romania’s exports) with over half going to the EU (which also supplies over half
of  the  region’s  imports).  Trade  is  growing  steadily  if  unevenly  across  the  region  but  intra
regional trade remains disappointingly low, about 7% of total regional trade. Croatia, which
has  less  than  one  fifth  of  the  region’s  population,  accounts  for  half  of  the  region’s  total
external  trade.  Moreover,  obstacles  to  trade  within  states  in  the  region  (such  as  Bosnia  and
Herzegovina and the FRY) are as great if not greater than those between states. Nor does their
lack of an internal market help them to pursue integration with the EU. GDP per capita also
varies  considerably  across  the  region  from  €1300  in  Albania  to  €4500  in  Croatia.  Those
figures also disguise significant pockets of poverty and social deprivation.

All the countries of the region have made remarkable progress despite such an unpromising
background  and  meagre  starting  points.  Since  the  upheavals  in  1997,  Albania  has  made
headway  in  consolidating  law  and  order,  reforming  economic  and  social  life,  and  opening
itself  to  the  region  and  the  EU-  although  there  have  been  worrying  indications  of  internal
political  problems  in  early  2002.  Bosnia  and  Herzegovina  is  beginning  to  deal  with  the
legacy of a vicious civil war. Croatia has taken decisive steps towards emulating mainstream
European  democratic  institutions  and  practice.  The  former  Yugoslav  Republic  of
Macedonia too seemed headed the same way until the major crisis of last year from which it
is now beginning to emerge. The prospect of a democratic FRY, freed from the shackles of a
despotic regime was a distant hope in 1999. With the overthrow of Milosevic and his transfer

5

to face trial before the ICTY in the Hague, the country has demonstrated its determination to
make  a  break  with  its  recent  past  and  engage  solidly  in  a  process  of  political  and  socio-
economic transition.

That being said, the countries of the region still have a long road ahead before they reach EU
levels  of  democratic  stability  and  socio-economic  development.  The  task  of  integrating  the
countries of the region into European structures remains a vast and long term undertaking.

3.

THE STABILISATION AND ASSOCIATION PROCESS

Since its inception in May 19992 the aim of the Stabilisation and Association process has been
to equip the countries of the Western Balkans with the means, based on European practice and
standards, to maintain stable democratic institutions, to ensure the rule of law prevails and to
sustain open, prosperous economies. Underlying this is the desire to replicate the successful
transition  achieved  by  the  countries  of  Central  and  Eastern  Europe  before  beginning
negotiations  on  accession  to  the  EU.  The  Stabilisation  and  Association  process  is  both
bilateral  and  regional.  It  creates  strong  links  between  each  country  and  the  EU.  It  also
strongly  encourages  regional  co-operation  between  the  countries  themselves  and  with  their
neighbours in the region. The EU’s own  experience of the benefits of regional  co-operation
lead it to believe that the Western Balkans will benefit significantly from closer co-operation.
This is an integral part of preparation for integration into European structures.

In the last two and a half years the basic building blocks of the Stabilisation and Association
Process have been put in place. These are:

Contractual Links: The preparation for and negotiation of the contractual links, the
Stabilisation and Association Agreements, between the EU and the countries of the
region  is  well  advanced.  Agreements  have  been  signed  with  the  former  Yugoslav
Republic  of  Macedonia  and  Croatia.  A  negotiating  mandate  has  been  proposed  for
Albania.  For  BiH  and  the  FRY,  the  establishment  of  Consultative  Task  Forces  has
proved an effective means of helping national authorities to focus on national and EU
oriented  reforms  and  of  engaging  with  them  in  a  sustained  way  to  secure
implementation of these reforms, with a view to the negotiation of a Stabilisation and
Association Agreement.

Trade Preferences: In November 2000, following an initiative by the Commission,
the EU unilaterally  granted almost totally free access to its markets for goods from
the  Balkans.  The  aim  was  clear:  to  boost  the  general  level  of  imports  from  the
Western Balkan countries, which have so far remained very low, at less than 0,6% of
all Community imports and thereby to encourage economic growth in the region. The
trade  regime  serves  as  a  catalyst  to  the  development  of  a  network  of  free-trade
agreements  between  the  countries  of  the  Stabilisation  and  Association  process  and
beyond.  The  SAAs  require  the  countries  involved  to  move  towards  full  free  trade
with the EU - and with each other - over a set period. The EU's decision to open its
markets has already provided a much needed stimulus to exports.

2

Conclusions of the General Affairs Council of 21 June 1999, based on the Commission Communication to the Council and the
European  Parliament  on  the  Stabilisation  and  Association  process  for  countries  of  South-Eastern  Europe  [COM(99)235  of
26.5.99].

6

                                                
Financial  assistance:  The  EU  has  provided  massive  financial  assistance  to  the
region  (over  €5  billion  since  1991).  That  assistance  has  changed  over  time  as  the
needs  of  the  region  evolve.  A  new  regulation  was  adopted  in  2000  which  brings  a
more strategic approach to the provision of assistance to the countries of the region.
andreinforces  the  objectives  of  the  Stabilisation  and  Association  process.  As  each
country moves deeper into that process, assistance will focus increasingly on support
for the reforms and institution building necessary to implement the obligations in the
Stabilisation  and  Association  Agreements.  €4.65  billion  has  been  agreed  for  the
region for the 2000-2006 period.

A qualitative leap forward has been made in the programming of CARDS assistance
with  the  recent  adoption  of  Country  Strategies  and  a  Regional  Strategy  for  2002-
2006. These programmes, designed in close  consultation with the partner countries,
the  Member  States,  relevant  international  organisations  and  other  donors,  focus
CARDS  for  the  2002-2006  period  on  key  Stabilisation  and  Association  priority
areas,  ranging from  essential reconstruction, to focused  measures  designed  to  build
each  country’s  institutional  capacity  to  understand,  legislate  on  and  finally
implement core elements of the acquis and entrench the rule of law.

This  improvement  in  programming  is  being  matched  by  better  implementation.
CARDS  assistance  is,  on  the  whole  being  delivered  rapidly  and  efficiently.  The
European  Agency  for  Reconstruction  in  particular  has,  since  it  establishment  in
February  2000,  established  an  impressive  track  record  in  delivering  assistance
quickly and efficiently in its area of operations - initially Kosovo, but now including
Serbia  and  Montenegro,  as  well  as  the  former  Yugoslav  Republic  of  Macedonia.  .
Elsewhere  in  the  region  decision-making  is  being  devolved  to  Delegations  on  the
spot and their staffing levels are being increased in order to enhance aid delivery.

Within the international community, the EU continues to make the most substantial
contribution  of  human  and  financial  resources.  Assistance  to  the  region  since  1991
has been in excess of €6 billion (see annex for details).

These  building  blocks  -  the  instruments  of  the  Stabilisation  and  Association  process
enable  the  EU  to  make  a  lasting  contribution  to  institution  building  and  sustainable
development  in  the  region.  They  permit  the  countries  of  the  region  to  draw  on  EU  practice
and  experience  to  decide  how  they  should  arrange  their  legislation  and  administration  to
facilitate the free movement of goods, services, capital and people across their own borders,
within  the  region  and  with  the  EU  to  promote  sustainable  growth.  The  aim  is  to  help  these
countries  become  viable,  functioning  states  at  the  same  time  as  they  align  their  legal  and
economic systems with those of the EU.  For example, each country needs  to adopt  an open
trade  regime.  This  requires  in  turn  a  functioning  customs  system  -  a  customs  law  and
adequately  trained  personnel  to  enforce  the  law.  To  be  able  to  trade  successfully  within  an
open  EU  market,  the  countries’  exports  need  to  meet  quality  standards,  certified  within  a
reliable standards and certification system. A system of market surveillance is needed to make
sure  that  the  products  put  on  the  market  are  what  they  purport  to  be.  In  the  banking  and
financial sector, using the EU system as a model will help to guide the countries in setting up
an  independent  central  bank  with  trained  staff  able  to  enforce  prudential  and  other  banking
regulations  in  order  to  facilitate  the  free  flow  of  capital  while  ensuring  that  their  citizens’
savings are protected.

7

The Stabilisation and Association process is a long term policy. It is about helping countries
to bring about lasting change. The process  of developing policies, adopting laws, setting  up
institutions  and  creating  functioning  administrations  requires  a  lengthy  effort.  It  requires  a
long term commitment on the part of both the countries of the region and the EU. It is not a
short term fix for crises or ad hoc events. Progress through the various stages of the process
should be determined by the pace of real change in each country. Rushing through the stages
will  not  prepare  countries  to  deal  with  the  challenges  which  lie  ahead  but  successful
completion of each stage will create the groundwork for the more demanding requirements of
the next stage. The Stabilisation and Association process contributes significantly to conflict
resolution in a structural and sustainable manner, but, it cannot itself resolve crises when they
arise. The aim is to entrench a culture of the rule of law, respect for individual rights, mature
economic  management  in  a  way  which  makes  forward  momentum  towards  the  EU
irreversible.

The Stabilisation and Association process is an accompanying policy. It does not mean that
the  EU  replaces  or  substitutes  for  national  administrations.  Rather,  it  supports  and
accompanies the countries in the region through their transition. That is the only way to break
the dependency culture that remains a feature of parts of the Balkans landscape.

4.

PROGRESS MADE AND LESSONS LEARNED

The process has acted as a catalyst for democratic change. All of the countries of the region
have  embarked  on  strengthening  democratic  process  and  institutions,  respect  for  the  rule  of
law and human rights. There are obvious weaknesses, but the commitment is there and is in
part  attributable  to  the  countries  having  been  embraced  in  the  Stabilisation  and  Association
process. The process opened the EU market to the countries of the region and has helped them
to put basic economic and commercial laws in place which should facilitate long term trade,
investment  and  growth.  In  preparing  for  and  negotiating  Stabilisation  and  Association
Agreements, the EU has engaged with each country to identify with each one what is needed
to  develop  the  legislative  and  administrative  capacity  to  upgrade  performance  towards  EU
levels.  It  is  a  process  which  is  increasingly  bringing  experts  from  the  region  in  important
fields  of  policy  into  close  contact  with  EU  counterparts  who  over  an  extended  period  will
explain best EU practice and offer ideas on how to best make progress in the integration and
alignment process. In short, the Stabilisation and Association process has helped the countries
on to a track of long term political, economic and social reform. It has provided the countries
with the tools to move forward. The process is flexible and sophisticated enough to allow all
five countries to advance at a sustainable pace towards the same goal. Each country can find
its place in the process.

There  are  two  key  lessons  that  can  be  drawn  from  experience  in  implementing  the
Stabilisation  and  Association  process,  namely  that  the  process  needs  to  be  tailored  to  the
needs  and  specific  conditions  of  the  individual  countries  and  that  the  proper  balance
needs  to  be  struck  between  stabilisation  and  association.  With  regard  to  the  former,  the
differences  between  the  countries  have  become  greater  over  time  as  political,  constitutional
and institutional forces have propelled some to move faster than others. The speed with which
each country moves through the stages of the Stabilisation and Association process must be
judged in relation to its ability to take on the obligations of a closer association with the EU.
The  process  has  proven  itself  sufficiently  flexible  to  accommodate  differing  stages  of
progress.  In  the  case  of  Bosnia  and  Herzegovina,  for  example,  a  decision  was  made  to
concentrate in the March 2000 EU Road Map on key prerequisites for reform. This road map
exercise  was  judged  to  be  the  best  method  to  enable  Bosnia  and  Herzegovina  to  make  the

8

progress  needed  to  be  able  ultimately  to  engage  in  meaningful  SAA  negotiations.  Croatia
already  enjoyed  a  degree  of  institutional  and  administrative  maturity  when  it  entered  the
Stabilisation  and  Association  process  which  enabled  it  to  make  rapid  progress.  The  former
Yugoslav  Republic  of  Macedonia  did  not  and  perhaps  moved  too  speedily  through  the
negotiations of a Stabilisation and Association  Agreement, without having  the  time  to build
the foundations necessary for its effective implementation.

The term “Stabilisation and Association process” was carefully  chosen: the  distinction  is a
useful one. Both elements describe what the EU is trying to achieve, and must run in parallel.
It  is  possible  to  make  progress  towards  the  formal  obligations  of  an  association  while  still
working  on  the  fundamentals  of  stability.  However,  one  clear  lesson  has  been  that  it  is
difficult to move very far along the association path unless there is a certain degree of stability
– especially respect for the rule of law and functioning political and judicial institutions.

The range of problems facing South East Europe is enormous. No matter how successful the
Stabilisation  and  Association  process  is  and  will  continue  to  be,  it  will  not  transform  the
region single handed. This has to be a collaborative effort – of the countries themselves and of
all  the  international  actors  in  the  region.  One  of  the  main  achievements  of  the  EU  over  the
past two years has been to get other international actors and donors to recognise and accept
the long term  goal of integration into the EU, and its implementing  policy,  the Stabilisation
and Association process as providing the centrepiece of the international effort and the motor
of  the  transition  process.  They  are  increasingly  gearing  their  efforts  to  complement  the
process.

5.

THE CONTINUED CHALLENGE

While the Stabilisation and Association Process has been successful in helping the countries
launch their wide  ranging transition  programmes,  it has  not cured the  region  of  many  of  its
pressing  political,  economic  and  social  problems.  The  region  faces  a  number  of  common
challenges  which  require  determined  action  on  the  domestic  level  and  in  the  context  of
regional co-operation in order to lay the foundations of modern, well governed states enjoying
good  neighbourly  relations.  The  Stabilisation  and  Association  process  cannot  solve  these
problems  for  the  countries.  It  can  however  make  a  substantial  contribution  to  helping  the
countries  help  themselves.  Furthermore,  the  Stabilisation  and  Association  process  can  be
bolstered  in  certain  areas  (e.g.  regional  co-operation)  where  it  has  played  a  limited  role  to
date.

The main outstanding challenges are:

(cid:1)  The challenge of building effective, democratic states

Fragile constitutional arrangements. Contested or fragile constitutional arrangements are key
features of the political landscape in three countries,  Bosnia  and  Herzegovina,  FRY and the
former Yugoslav Republic of Macedonia. In each case this is having a significant impact on
the  implementation  of  the  Stabilisation  and  Association  process.  The  EU  has  continued  to
take  a  robust  line  on  the  need  to  respect  constitutional  frameworks  and  to  discourage  any
notion that it would support changes which would lead to further fragmentation in the region.
The instruments of the Stabilisation  and  Association process,  notably  CARDS, Consultative
Task Forces and Stabilisation and Association Agreements, have been used in support of this
policy. In the case of the FRY the Consultative Task Force is key to ensuring that all parts of

9

the state follow a broadly compatible reform agenda towards an association with the EU. This
is designed to help bring a degree of stability to an otherwise potentially volatile situation.

Weakness in applying the rule of law. Western Balkan countries have experienced difficulty
in developing a culture where respect for the law governs all aspects of political and economic
life. The new states had to develop new institutions or adapt decrepit ones – the majority of
which are inevitably weak –- and eradicate the pervasive culture of organised crime which has
underpinned much political activity. Without an understanding at all levels of society of what
the rule of law means in everyday life, progress towards EU models and standards will stall.
Corruption  is  a  severe  problem  throughout  the  region  and  a  basic  feature  of  the  political
landscape. Its sheer scale and links with organised crime undermine basic public confidence
in  political  and  constitutional  order  in  a  region  where  these  are  already  fragile  for  other
reasons.  It  also  deters  foreign  investment.  Efforts  are  being  made  to  address  this  in  some
countries;  but  these  efforts  have  not  yet  generated  the  momentum  needed  to  persuade
politicians that this is a serious obstacle to moving closer to the EU.

Weakness  in  administrative  capacity.  Despite  considerable  variation  between  the  countries,
administrative  capacity  in  the  region  remains  generally  weak.  In  general  the  public
administration is neither well trained nor equipped. There is insufficient understanding of the
role  of  government  in  democratic,  market  economies.  Lack  of  staff  and  operating  budgets
mean  that,  even  where  new  laws  have  been  adopted,  implementation  remains  very  weak.
Implementing the necessary reforms, including of the  civil service and of local  government,
and strengthening human resources throughout the public sector are slow and difficult tasks.
But they are crucial if the countries are to develop the regulatory frameworks and structures
they need.

Questionable standards of political behaviour. The countries of the region are relatively new
democracies. Their democratic institutions are still proving themselves. This process is made
all  the  more  difficult  by  a  region-wide  tendency  to  see  serious  confrontation,  brinkmanship
and  crisis  as  norms  of  political  life.  Pushing  institutions  to  their  constitutional  limits  and
beyond and failure to see the impact of such  activities on the national interest are  common.
The  current  situation  in  Albania  exemplifies  this.  This  behaviour  is  neither  sustainable  nor
healthy . Inevitably judgements by the EU and others on the stability of each country and its
democratic  institutions  will  take  considerable  account  of  the  way  in  which  politics  is
conducted there.

Extreme forms of nationalism. One of the more recent success stories has been the extent to
which  destabilising  forms  of  extreme  nationalism  have  been  marginalised  in  the  current
governments  of  each  country.  The  arrival  of  moderate  governments  provided  the  necessary
confidence to move forward the process of drawing each country closer to the EU. Over time
the attractions of extreme nationalism should diminish as its political outlook is shown to be
increasingly out of touch with the demands of modernisation and reform and integration with
the EU. However, the risk of a nationalist comeback in some countries cannot be ruled out in
forthcoming elections in the region.

Weak  civil  society  and  media.  An  active  civil  society  –  especially  of  non-government
organisations  -  and  a  genuinely  independent  media  are  crucial  in  making  government  and
civil service both transparent and accountable to the citizen. However, none of the countries
of  the  region  can  yet  claim  to  have  the  level  of  vibrant  and  critical  media  and  civil  society
they  need  for  the  future.  Continued  improvements  are  needed  on  access  to  information,
legislation that facilitates NGO activities and safeguards for the free press.

10

(cid:1)  The challenge of tackling poverty and social deprivation

The  majority  of  macro  economic  indicators  in  the  region  are  now  moving  in  the  right
direction. But none of the economies could be described as healthy or entirely stable. All of
them face, to differing degrees, a destabilising combination of a substantial grey economy, an
insufficiently broad tax base,  a poor  legal  and  administrative environment for  foreign  direct
investment, slow progress on structural reforms and privatisation, rising unemployment and in
some  cases  excessively  high  military  expenditure.  Poverty  and  social  deprivation  erode  the
cohesiveness  of  the  population.  One  of  the  most  dispiriting  problems  in  many  parts  of  the
region  is  the  brain  drain  of  young  educated  people  and  the  persistence  of  an  educational
culture still based on inter-ethnic divisions rather than reconciliation.

(cid:1)  The challenge of enhancing regional co-operation

The  Stabilisation  and  Association  process  has  consistently  underlined  the  importance  of
regional co-operation. The heads of state/government of the five countries of the region and
of  the  EU  agreed  at  the  24  November  2000  Zagreb  Summit  that:  “Rapprochement  with  the
European Union will go hand in hand with this process of developing regional co-operation".
The Stabilisation and Association agreements provide the model for the extent and type of co-
operation the EU expects to be replicated between the five countries of the region.They  also
require each signatory to conclude a bilateral convention on regional co-operation with other
signatories to support the creation of links between the Stabilisation and Association process
partners.

The  EU  is  built  on  a  foundation  of  regional  co-operation.  The  experience  of  its  founding
Member  States  and  later  adherents  is  that  political  understanding,  economic  and  social
prosperity  depend  on  close  co-operation  with  neighbouring  countries  across  the  broadest
possible  range  of  activities.  The  EU  demonstrates  how  peoples  can  overcome  hatred  an
division and join together in a common cause. Integration with the EU is only possible if
future  members  can  demonstrate  that  they  are  willing  and  able  to  interact  with  their
neighbours as EU Member States do. The five countries face a number of common threats
and developmental problems which they can only sensibly deal with by working together with
each other, the EU and other neighbouring countries. This requires a big effort on the part of
the countries  of  the  region to demonstrate the  maturity  that  would  be  demanded  of  them  as
future candidate countries. The EU has no interest in reinforcing or recreating a single Balkan
space  for  its  own  sake;  but  rather  an  interest  in  sharing  its  own  experience  of  regional  co-
operation  and  integration  between  strong  but  mutually  dependent  nation  states.  The  fears
which are sometimes expressed; for example in Croatia, that regional co-operation will hold
back  its integration in Europe  are  groundless: co-operation with its  neighbours  will act  as  a
stimulus  for further development  and  help the  country to develop  the  working  methods  and
practices which are integral to EU membership.

The  establishment  of  diplomatic  relations  and  agreement  on  legal  SFRY  state  succession
issues show that a  degree of normalisation  has been  achieved in bilateral  political  relations.
From this good start a network of relationships based on trust and confidence should develop.
This will enable the region to reduce the risks of internal and external threats to stability and
to  ensure  that  difficult  bilateral  or  wider  issues  such  as  border  management,  energy  supply
dependence,  access  to  water  resources  and  the  sea  and  refugee  returns  are  all  dealt  with
responsibly. A high degree of trust between the leaders of the region will be needed before the
international  community  can  tackle  an  issue  like  the  future  status  of  Kosovo.  Similarly
deepening  the  reconciliation  between  Zagreb  and  Belgrade  is  an  essential  element  in  the
stability of the region.

11

Regional  co-operation  is  essential  to  tackling  organised  crime.  The  web  of  organised  crime
feeds nationalism and extremism in the countries of the region and exports its illicit products
to  the  EU.  Two  thirds  of  the  heroin  seized  in  the  EU  comes  via  the  Balkans.  With  the
emergence of 5000km of new, and frequently barely managed, international borders between
the states of region, it is not a rational use of resources that each country in the region tackles
organised  crime  on  its  own.  It  is  essential  that  they  work  together  through  INTERPOL  and
Europol, through a functioning regional judicial network and through co-operation on asylum,
visas and readmission.

Regional co-operation is the only answer to the issue of refugees and displaced persons, over
1 million of whom remain in the region. In addition to humanitarian and social concerns for
these  people,  a  country’s  willingness  to  achieve  genuine  and  sustainable  reintegration  of
minority returnees is an indicator of its political and democratic maturity.

Regional  co-operation  is  a  necessary  accompaniment  to  market  opening.  Countries  in  the
region have already committed to provide market access to one another. In the Memorandum
of  Understanding  signed  in  June  2001  under  the  auspices  of  the  Stability  Pact,  all  five
countries  (plus  Romania  and  Bulgaria)  agreed  to  sign  before  the  end  of  2002  WTO
compatible free trade agreements with each other. A number of these bilateral agreements are
already  in  place.  Achieving  this  ambitious  target  would  send  a  very  strong  signal  on  the
region’s determination to work together.

The  countries’  strategic  interest  in  reconnecting  regional  transport  corridors  and  energy
networks  between  themselves  and  to  the  rest  of  Europe  is  obvious.  The  wider  economic
development  of  the  region  and  future  integration  with  the  EU  and  wider  Trans  European
Networks depends on it. It means also supporting regional programmes such as the Regional
Electricity  Market  (REM)  for  the  South  East  of  Europe  or  the  Transport  Infrastructure
Regional  Study  (TIRS).  Together  with  the  partner  countries  and  with  help  from  the
international  financial  institutions  (notably  the  EIB,  EBRD  and  World  Bank),  the
Commission  has  developed  long  term  strategies  for  transport  and  energy  in  the  region  in
2001.  These  strategies  have  been  endorsed  in  the  framework  of  the  Stability  Pact  and  are
complemented  by  an  EBRD  strategy  in  the  water  sector.  As  the  implementation  of  these
strategies gains pace, there will be an ever greater need for the five countries to work together
for the wider regional interest when decisions are taken on specific cross-border international
projects and networks.

Although  it  is  not  something  which  can  be  pursued  at  the  regional  level  alone,  similar
strategic considerations apply to telecommunications and the  Information Society.  Action is
needed  in  each  country  to  establish  the  right  conditions  to  attract  private  investment.  Real
competition  and  better  provision  of  these  services  in  less  favoured  regions  would  be  an
important  motor  for  economic  development  across  the  whole  region.  The  scientific  and
technical co-operation between the countries of the region and the EC can also help contribute
to socio-economic development in the region.

The  Stability  Pact  has  an  important  role  to  play  with  the  EU  in  helping  the  region  take
forward  these  ambitions  and,  though  its  activities,  in  complementing  and  reinforcing  the
Stabilisation and Association process. The work of the Pact is increasingly targeted on issues
where  its  networks  and  experience  can  deliver  measurable  results.  The  Commission  will
contribute to the achievement of the priority objectives set out by the Special Co-ordinator at
the General Affairs Council of 11 March, where these contribute directly to the EU's strategy
under the Stablilisation and Association process.

12

6.

THE ROAD AHEAD

The  policy  of  Stabilisation  and  Association  offers  an  advanced  and  privileged  relationship
with  the  EU,  the  final  destination  of  which  is  clear.  The  process  is  designed  to  evolve  and
accommodate  the  needs  and  aspirations  of  all  five  countries,  including  in  the  context  of  an
enlarged  European  Union.  But  to  succeed  in  the  long  run,  the  SAP  requires  continued
commitment and new impetus on the part of the countries of the region and the EU.

Commitment

The  countries of  the  region need  to  make long term  sustained efforts and  considerable
investment in order to put  the fundamental  parts  of the EU  model  in  place. They need
progressively  to  enlarge  their  understanding  of  the  obligations  of  the  process  and  what
implementation of the EU system really  means.  A  particular  and  determined  effort  is  called
for to entrench the rule of law as a sine qua non for stability and progress with reform. Given
the enormity of the problem of organised crime, it is essential that appropriate steps be taken
to strengthen police capacities and empower the judiciary. Work on establishing appropriate
legal bases for tackling corruption needs to be accelerated.

The EU needs to maintain its commitment to the Stabilisation and Association Process as
the  only  rigorous,  long  term  and  sustainable  policy  approach  to  the  region.  It  needs  to
modulate  the  process  for  each  country,  allowing  progress  at  a  pace  commensurate  with  the
country’s  capacity  to  meet  obligations.  The  EU  needs  to  continue  the  monitoring  of  the
process and the countries’ progress in it and will continue to do this through its Consultative
Task Forces and this annual reporting exercise.

The  EU  has  to  ensure  that  the  financial  resources  the  Community  has  available  for  the
implementation of the Stabilisation and Association process (€4.65 billion under CARDS) are
fully  and  effectively  used  by  the  end  of  the  current  financial  perspective.  Those  resources
need to be complemented by and carefully co-ordinated with the efforts of Member States and
other international partners.

The  EU  needs  to  do  more  to  ensure  the  Stabilisation  and  Association  process  is  better
understood, particularly in the region, but equally in the EU and by international partners. Too
often,  it  is  still  perceived  as  a  bureaucratic  exercise,  removed  from  the  actual  needs  of  the
people.  A  concerted  effort  still  needs  to  be  made,  by  the  Commission,  Member  States  and
partner governments alike, to explain the process and communicate its achievements more
effectively.

New Impetus

The  SAAs  formalise  existing  political  dialogue  arrangements  which  the  EU  has  for  each
country. But the EU needs develop further its mechanisms for enhanced political dialogue and
regional co-operation with Sap participants. The Commission therefore proposes to establish a
new political forum, - the Zagreb process - building on the success of the November 2000
Zagreb  Summit,  to  bring  together  the  political  leaders  of  the  region  and  their  EU
counterparts at ministerial level on a regular basis to discuss key issues of common concern.
The aim will be to deepen their understanding of the association process and contribute to the
objective  of  more  advanced  regional  co-operation,  as  required  by  the  Stabilisation  and
Association  agreements.  Such  meetings  would  also  give  a  clear  public  signal  of  the  special
and inclusive nature of the privileged relationship between Sap participants and the EU.

13

There are certain aspects of the intensive preparations common to the pre-accession process
of the candidate countries which could usefully be replicated. For example, - a particular
emphasis needs to be put on institution-building, so that countries develop policies, laws and
practices  which  will  command  the  confidence  of  their  EU  counterparts.  This  will  require
expertise from Member State administrations, as is being provided to the current candidate
countries, a requirement which will grow over time. Experience in the pre-accession context
in border control and management  can  also  be  usefully  transferred to the  participants in the
Stabilisation and Association process.

The  EU  is  going  through  one  of  the  most  challenging  periods  of  its  development  as  it
prepared for the biggest enlargement  in its history.  It will  take  time  to  absorb  new Member
States  and  to  develop  new  ways  of  working  in  an  enlarged  Union.  The  Western  Balkan
countries  are  facing  an  equally  daunting  challenge  of  political  and  economic  reform,
involving extensive nation and institution building efforts. This process will also take time to
bear  fruit.  In  meeting  this  challenge,  and  with  the  assistance  of  the  EU  through  the
Stabilisation  and  Association  process  ,the  countries  of  the  region  are  gradually  equipping
themselves  to  become  credible  candidates  for  membership.  The  hard  work  of  changing  the
legal  and  regulatory  framework,  developing  functioning  and  democratically  accountable
public  administrations  and  moving  towards  market  economies  is  a  pre-requisite  for  future
membership.  Just  as  in  the  current  enlargement,  these  are  the  areas  in  which  the  EU  will
assess  the  readiness  of  future  candidates  and  their  ability  to  take  on  the  obligation  of
membership.  Therefore,  it  is  the  pace  and  extent  of  change  inside  each  country  which  will
determine  their  prospects  for  future  membership  and  not  the  date  of  any  application  for
membership.

The  success  of  the  Stabilisation  and  Association  process  as  a  policy  will  be  gauged  by  the
extent  to  which  the  countries  progressively  shed  their  dependency  on  external  sources  of
military,  administrative  and  financial  support.  The  broader  international  community
should  continually  review  its  presence  and  activity  in  the  region  with  a  view  to
disengaging in certain areas when the countries are sufficiently prepared to take on the
obligations  of  nationhood  themselves.  The  engagement  of  the  EU  and  the  countries  of  the
region in the Stabilisation and Association process should facilitate this.

14

ANNEX A

Summaries of individual country reports

ALBANIA

Stabilisation and Association Report

EXECUTIVE SUMMARY
 [SEC(2002) 339]

Albania started its reform seriously adrift from the level of development in Western Europe.
Early efforts to introduce democracy and build a market economy were severely undermined
by the socio-economic crisis and generalised unrest which followed the financial collapse of
1997.  The  lack  of  a  democratic  culture,  the  absence  of  dialogue  between  different  political
tendencies  and  a  limited  understanding  of  the  concept  of  national  interest  amongst  political
leaders  have  often  prevented  the  development  and  implementation  of  sound  policies  to
address the many issues that Albania faces. The tense situation in the region has also had an
adverse  effect  on the  country’s stability. All this  meant  that  the  situation  in  early  1998  was
little better than that prevailing in the early years of the reform.

Since 1998  Albania’s reform efforts have been more productive : the adoption of  a  modern
Constitution and legislative framework, an overall improvement in macro-economic stability
and  fiscal  sustainability,  effective  implementation  of  the  privatisation  process,  substantial
strengthening of the customs and tax administrations, and  improvement in terms of  security
and public order. Moreover, Albania has been constructive in response to the recent political
crisis in the former Yugoslav Republic of Macedonia and Presevo. All this relative progress
has brought Albania to the threshold of negotiating a Stabilisation and Association Agreement
(SAA) with the EU.

However,  the  starting  point  against  which  all  these  achievements  have  been  measured  is
extremely  low  and  much  more  remains  to  be  done  to  ensure  further  progress  of  Albania
within  the  Stabilisation  and  Association  process  (SAp).  The  conclusion  of  an  SAA  itself  is
conditional  on  a  sustained  reform  effort  by  Albania  and  on  the  strengthening  of  its
administrative capacity in order to ensure the proper implementation of such an agreement.

Albania is still beset by a confrontational political culture, where individual interests prevail
over  general  ones  with  the  frequent  result  being  political  instability  and  poor  governance.
Elections are not yet up to international standards. The judiciary remains a major problem, as
it  is  still  ill-prepared  to  enforce  legislation,  legal  reasoning  is  often  weak  and  corruption  is
pervasive.  Overall  implementation  of  the  legal  framework  is  poor  and  legal  security  is
insufficient  to  attract  inward  investments  on  a  scale  to  contribute  to  sound  and  sustainable
economic  development.  Public  administration  is  weak  and  still  subject  to  political  and
financial  influence.  In  almost  every  area  where  Albania  would  take  on  obligations  under  a
future SAA, there is a considerable lack of implementing capacity. Despite recent economic
progress, the overall socio-economic conditions in Albania remain poor with almost one fifth
of the population living on less than 1.2 €/day. The grey economy is still too large, prevents
competition  and  discourages  investment.  The  current  energy  crisis  threatens  prospects  of
continued economic growth. Widespread corruption and organised crime, particularly illegal
trafficking of  all  types, remain very serious problems and undermine  respect  for  the  rule  of
law and the foundations of the state itself.

15

In  order  to  make  further  progress  in  the  Stabilisation  and  Association  process,  Albania
urgently needs to guarantee a stable political environment, with fully functioning democratic
institutions.  The  new  Government  should  quickly  re-focus  on  badly  needed  reforms  and
accelerate their implementation.

16

BBOOSSNNIIAA  AANNDD  HHEERRZZEEGGOOVVIINNAA

Stabilisation and Association Report

EXECUTIVE SUMMARY
[SEC(2002) 340]

Bosnia  and  Herzegovina  (BiH)  faces  a  multiplicity  of  inter-related  challenges.  Some  of  the
most  pressing  as  defined  in  the  General  Framework  Agreement  on  Peace  (GFAP  -  Dayton
Agreement) have been tackled with international assistance: military hostilities have stopped,
refugees have returned in significant numbers to their homes, the institutions foreseen in the
constitution have begun to function. This, however, is only  a start. BiH must now  look  to a
future as a self-sustaining European state by prioritising a targeted programme of reform that
will enable it to take its place in the wider European order.

In  terms  of  political  reform,  BiH  must  become  a  self-sustaining  state  based  on  the  rule  of
law.  This  is  a  pre-condition  for  further  progress.  To  achieve  sustainability  there  must  be  a
recognition among all sections of the BiH population that their future lies with each other and
within BiH. All sides have an interest in building a state that can manage without international
assistance and control. All BiH communities must therefore overcome the polarisation which
has often made compromise so difficult and must build constructively on the foundations laid
at Dayton. In some cases, the goal of sustainability and integration into European structures
may mean that  Entity  powers  may  have to  be  ceded  to  the  State.  Republika  Sprska  (RS)  in
particular must consider that a strong state is compatible with a strong Entity, indeed that the
former is a prerequisite of the latter. National and Entity sustainability can only be built on the
basis of full BiH "ownership" of the reform process.

In  terms  of  economic  policy  too  sustainability  is  the  watchword.  Among  the  myriad
challenges, two stand out in the short to medium term. First, since the war BiH has profited
from  massive,  but  abnormal  and  now  declining,  injections  of  foreign  assistance.  BiH  must
increasingly  substitute  this  assistance  with  endogenous  growth.  Given  limited  domestic
resources, it is therefore essential that BiH create the conditions to attract FDI -and this will
only be possible if there is the systemic and institutional stability and sustainability mentioned
above. A particularly important building block for economic sustainability is the development
of  a  functioning  BiH  internal  market.  Secondly,  BiH  must  bring  its  public  finances  into
equilibrium. Without state resources to match state responsibilities, the sustainability of even
those reforms that have been introduced will remain in doubt.

Finally,  if  it  is  to  reach  its  declared  goal  of  integration  into  European  structures  BiH  must
progress  decisively  within  the  Stabilisation  and  Association  Process  (SAP)  over  the  next
twelve  months.  Delays  in  Road  Map  completion  reflect  the  complexities  of  BiH's  internal
order, but, unfortunatelypossibly, also a willingnesswillingness by some to hide behind those
complexities. Regrettably, this has meant lost time and BiH falling behind its neighbours. The
Road Map must be completed quickly in 2002. It is important that the Road Map and the SAP
agenda are not additional requirements to political and economic reform. Rather, they identify
the most urgent priorities and give orientation and direction by putting reform and the goal of
sustainability in the context of integration into EU structures.

17

Since  1995  BiH  has  made  progress.  That  progress  must  be  built  on  in  order  to  achieve  the
self-sustaining stability. This is essential, - for only with self-sustaining states (not Entities or
local authorities) can the EU conduct negotiations or sustain contractual bilateral relations.

18

CROATIA

Stabilisation and Association Report

EXECUTIVE SUMMARY
[SEC(2002) 341]

The political environment in Croatia changed radically with the advent of the new leadership
early in 2000. The new Government has shown determination in its efforts to establish a fully
fledged democracy and to develop a culture of respect for the rule of law. This and the steps
taken  so  far  have  ended  Croatia’s  political  and  economic  isolation,  leading  to  a  rapid
improvement of bilateral relations between Croatia and the European Union.

The Government now faces two main challenges: to consolidate democracy to underpin long-
term political and social stability; and to implement a comprehensive programme of structural
reforms  to  achieve  political  and  economic  transition.  Success  will  require  the  commitment
and active participation of all parts of the public administration. Civil society, too, will need
to play a more effective role.

There  has  been  a  sea  change  in  the  approach  of  the  current  Government  in  the  areas  of
democratisation,  respect  for  human  rights  including  minority  rights  and  compliance  with
obligations under the Peace agreements. Considerable progress has been made. However, the
most far-reaching potential threat to the achievement of economic, political and social reform
is the continuing weaknesses of the judiciary and the resulting problems in law enforcement.
Nationalistic  pressures  continue  to  have  some  impact  on  the  pace  of  reform.  This  is
particularly  true  for  the  return  process,  and  de  facto  integration  of  the  Serb  minority.  They
have also been a factor in the handling of co-operation with ICTY. In addition, nationalistic
pressures  affect  the attitude of the  Government to increased regional  co-operation.  While  at
the  bilateral,  practical,  level  there  have  been  important  steps  forward  there  is  a  persistent
tendency  to  over-politicise  and  over-estimate  the  impact  of  and  intentions  behind  regional
initiatives. Croatia needs finally to overcome regional and historical frictions and take a more
open approach to addressing outstanding political questions with its neighbours.

Macroeconomic indicators show that the state of the economy is improving. The Government
has begun the process of economic and structural reform. This is proceeding at a slower pace
than  expected,  but  tangible  results  are  expected  within  the  medium-term  and  already  in  the
course of 2002. High unemployment remains a main concern.

The signature of the Stabilisation and Association Agreement (SAA) was an indicator of the
steadily improving relationship between Croatia and the European Union. The credibility of
Croatia’s aspirations to become a candidate for EU membership depends in the first instance
on how successfully it implements the SAA, which offers a clear route to bringing the country
closer to European standards. The Agreement has had an immediate and concrete impact on
the  domestic  reform  programme.  For  instance,  the  Government  is  making  serious  efforts  to
establish  the  necessary  legislative  framework.  However,  the  implementation  of  adopted
legislation remains a major challenge and the administration needs to look at its own capacity
to implement the reforms and address the deficits it finds. Although the Government appears
to  appreciate  this,  it  continues  to  focus  too  much  on  the  headline  political  objectives  of
Croatia’s European policy rather than on the enormous effort that moving closer to European
standards requires.

19

Federal Republic of Yugoslavia

Stabilisation and Association Report

EXECUTIVE SUMMARY

[SEC(2002) 343]

During 2001, a full-fledged strong commitment to reform, and some real progress, has been
evident in the Federal Republic of Yugoslavia (Republic of Serbia, Kosovo and the Republic
of Montenegro). The "classical" problems of a country in transition are of course compounded
by  unsolved  issues  of  constitutional  status,  and,  until  recently,  the  less  cooperative  attitude
shown by one constituent Republic, which undermines the functioning of the state. It is vital
that  these  do  not  interfere  with  reform  efforts  -  reforms  which  are  in  any  event  required
throughout the  country - and  is  not  permitted  to  cause  instability  beyond  the  borders  of  the
FRY.

In terms of political reform, the overall impression is positive. In the relatively short period
since the new Governments took office, Belgrade has shown clear political determination to
undertake  the  necessary  reforms.  Respect  for  fundamental  principles  has  improved,  though
better  coordination  and  implementation  is  required.  FRY  has  continued  its  efforts  to  build
bilateral  and  multilateral  relationships  throughout  the  region  and  beyond.  FRY  respect  for
international  obligations  (ICTY)  requires  urgent  improvement  if  it  is  not  to  become  an
obstacle to integration into European structures. There has been progress too in Kosovo, with
continuing international efforts to build democracy and the rule of law, and political change in
the form of the development of a Constitutional Framework and the successful elections to the
new provisional  institutions of self-government. The  transfer of  competencies to the  elected
representatives  would  have  been  possible  more  quickly  had  they  shown  more  leadership.
More  progress  might  have  been  expected  in  Montenegro,  after  three  years  of  democratic
government.  It  is  important,  throughout  the  FRY,  that  momentum  for  difficult  political
reforms  does  not  falter  in  the  face  of  the  challenges  ahead,  and  that  potential  brakes  on
progress - such as corruption - are tackled urgently.

Substantial progress has been made on the economic front, with the ending of the isolation of
the  FRY,  the  holding  of  a  successful  Donors'  Conference  and  the  delivery  of  substantial
quantities  of  assistance,  the  resolution  of  most  of  the  country's  external  debts  and  the  rapid
move  from  post-conflict  reconstruction  to  transition.  There  is  clear  international  consensus
that Belgrade has already laid the correct bases of economic reform and development in the
first  year  of  transition.  At  macro-economic  level,  the  correct  financial  and  fiscal  steps  have
been taken. The economic development of Kosovo, though from a low base, continues with
donor  support  and  guidance.  More  progress  in  implementation  of  economic  reforms  should
have  been  evident  in  Montenegro,  in  its  third  year  of  transition.  The  implementation  of
economic reforms slowed down in the beginning of 2001, but after the April elections further
progress was made in some sectors although budget financing remains difficult.

As  the  pace  of  transition  picks  up  in  2002,  there  should  be  deepening  structural  reforms
throughout  the  FRY  -  moving  from  the  adoption  to  the  implementation  stage  of  reforms,
bringing all parts of the FRY to the same level so as to permit the state to move forward. The
authorities  will  also  face  the  challenge  of  maintaining  public  support  for  the  difficult  and
necessary reforms ahead. For the mutual benefit of all parts of the FRY, and with a view to

20

FRY drawing closer to the EU, priority must also be given - particularly but not only in the
economic  field  -  to  the  recreation  and  efficient  functioning  of  the  single  economic  space
within the state and the implementation of EU-compatible reforms throughout the state.

21

Former Yugoslav Republic of Macedonia

Stabilisation and Association Report

EXECUTIVE SUMMARY

[SEC(2002) 342]

In  2001  the  former  Yugoslav  Republic  of  Macedonia  faced  the  most  serious  political  and
security  crisis  in  its  history.  This  has  had  a  major  impact  on  the  economy,  democratic
institutions  and  the  administration’s  ability  to  take  forward  the  process  of  reform.  With  a
significant  political  and  economic  investment  by  the  EU  and  the  rest  of  the  International
Community,  the  country  has  shown  determination  in  overcoming  the  crisis  but  needs  to
maintain its efforts to ensure stability. The crisis revealed severe weaknesses in the country’s
democratic institutions and underlined the need for a major effort to underpin the stability of
its  institutions,  thus  guaranteeing  democracy,  the  rule  of  law,  human  rights  and  respect  for
and  protection  of  minorities.  The  changes  to  the  Constitution  in  November  2001  and  the
adoption of the Law on Local Self-Government in January 2002 were a very positive step in
this  direction.  The  full  implementation  of  the  Framework  Agreement  of  August  2001  is
essential to build the necessary country-wide political consensus and stability needed for the
reform effort ahead.

The  economic  situation  deteriorated  during  2001,  largely  as  a  result  of  the  security  crisis.
Macro-economic  stability  was  not  maintained  and  most  indicators  moved  in  the  wrong
direction. Implementation of its structural reform programme is a top priority and will require
a  significant  political  and  administrative  effort.  Privatisation  of  the  state-owned  enterprises
and  sale  or  liquidation  of  large  loss  making  enterprises  wereunfortunately  delayed.
Transparency of the privatisation process has not been ensured. Despite improvements in the
regulatory framework of the bank supervision, the health of banking system remains fragile.
The  reforms  are  urgently  needed  if  the  country  is  to  be  able  to  cope  with  the  competitive
pressures  and  market  forces  which  will  flow  from  the  full  implementation  of  the  Interim
Agreement.

With regard to the structure  and functioning of  the  administration the adoption  of the legal
framework  for  the  decentralisation  of  public  administration  was  an  important  step  forward
which  should  also  contribute  to  the  wider  stability  of  the  country.  In  general,  however,  the
public administration has some way to go before it can adequately fulfil all the tasks required
of it in a functioning democracy based on the rule of law. The weakness of the judiciary and
the  consequent  difficulties  for  law  enforcement  remain.  Corruption  is  a  serious  cause  for
concern and it is crucial that the government tackles this energetically through an action plan
of specific measures.

The signature of the Stabilisation and Association Agreement (SAA) in April 2001 and the
coming  into  force  on  1  June  2001  of  the  Interim  Agreement  was  an  important  step  in  the
former  Yugoslav  Republic  of  Macedonia’s  efforts  to  move  closer  to  the  EU.  But  careful,
thorough  implementation  of  these  obligations  will  be  the  only  real  indicator  of  progress.
However,  the  political  crisis  has  slowed  down  the  process  of  institutional  and  legislative
change which is necessary if the former Yugoslav Republic of Macedonia is to come close to
European structures. It is important that every effort is made in 2002 to refocus attention on
the implementation of the Interim Agreement.

22

ANNEX B

1991-2001 EC assistance to the Western Balkans
Commitments in millions of euro

Country

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

TOTAL

ALBANIA
Phare/Cards
Democracy  &  Human
Rights
Specific actions
Humanitarian aid
FEOGA
Food security
Macroec. assistance [1]

Total =
&

BOSNIA 
HERZEGOVINA
Phare/Obnova/Cards
Democracy  &  Human
Rights
Specific actions
Humanitarian aid
Macroec. assistance [1]

Total =

10,00

75,00

40,00

49,00

53,00
1,00

53,00
0,60

70,40
0,40

42,50
0,80

99,90
0,17

35,45
0,52

37,50 565,75
3,89

0,40

4,13
120,00

70,00
368,13

495,26

495,47

0,21

1,15

1,65

16,30

11,00

15,00

20,00

10,80

1,92
3,40

2,60
97,07

5,50

70,15

75,25

97,90

54,30 205,24

41,29

4,52
6,60 141,30
120,00
16,30
105,00
44,50 956,76

0,65 229,77 211,16 190,50 118,36 100,85 105,23 956,73
14,31
0,70

4,80

1,80

0,80

4,80

0,79

0,62

70,00

39,90
65,40
145,03 142,45 105,00

225,16
0,75 1.035,74
60,00
216,38 442,42 360,86 295,25 233,95 115,83 131,78 2.291,93

30,90
58,90
25,00

3,96
0,40
10,00

15,00
87,95

25,00

23

CROATIA
Obnova/Cards
Democracy  &  Human
Rights
Specific actions
Humanitarian aid

Total =

FRY - Serbia / Montenegro

Obnova/Cards
Democracy  &  Human
Rights [2]
Specific actions
Humanitarian aid
Macroec. assistance [1]

Total =

FRY – Kosovo
Obnova/Cards
Democracy  &  Human
Rights
Specific actions
Humanitarian aid
Food security
Macroec. assistance [1]

Total =

204,77
204,86

170,25

170,62

0,09

0,31

11,71
0,70

10,26
2,20

15,59
0,60

11,50
0,21

18,34
0,97

60,00 127,80
5,18

0,50

38,43
38,74

21,15
33,56

14,50
26,96

1,00
6,95
24,14

0,42
6,50
18,63

0,31

19,62

0,98

2,71
292,30
61,48 427,99

0,37

1,18
1,90

0
0,70

4
0,80

10,38
2,50

26,90 208,95 230,00 481,97
12,90

2,05

4,95

11,20

1,76
93,70

1,76
55,40 463,96
59,64
20,00 260,00 280,00
24,08 124,41 288,59 550,35 1.240,59

13,16 127,00 439,90 320,00 900,06
0,38
0,38

6,00
28,84

111,70
20,90

6,00
13,92 154,46
20,90
50,00
35,00
13,16 259,60 510,12 348,92 1.131,8
0

15,00

36,87

23,40

13,50

39,95

24,47

18,13

24

FYROM
Phare/Obnova/Cards [3]
Democracy  &  Human
Rights
Humanitarian aid
Rapid Reaction Mechanism
Macroec. assistance [1]

Total =

Regional
Phare/Obnova/Cards
Democracy  &  Human
Rights
Specific actions
Humanitarian aid

Total =
GRAND TOTAL =

65,00

36,52

101,52

81,44

17,10
98,54
1.439,15

25,28

25,00

33,21
0,50

25,28
0,20

68,70
0,10

21,20
0,52

56,20 319,87
2,67

1,35

9,15

39,81

5,35

25,00
58,71

15

40,48 108,61

20,00
47,07

96,23
5,40
12,80
12,80
10,00
70,00
85,75 501,57

34,43

25,00

0,61

0,15

1,45
5,30

8,40
0,90

2,20
6,40

18,75
7,36

20,00 133,00
23,64

3,68

2,71
95,50
24,68 254,84
420,26 600,85 569,30 477,70 998,35 1.052,41 1.247,46 6.805,48

2,71
1,08
29,90

20,00
20,61

17,00
26,30

39,32
47,91

1,00

6,75

0,15

[1] Macroeconomic assistance refers to disbursement and includes grants and loans.
[2] The figure in 2001 refers to the FRY as a whole.
[3] Including Cards Emergency Package of €13.7 million) in 2001.

25

ANNEX C

Human Rights Conventions ratified by Albania, Bosnia and Herzegovina,
Croatia, FRY and fYROM

31 January 2002

Albania

Bosnia and
Herzegovina

Croatia

FRY

FYROM

O

O

O

O

O

O

O

O

R

R

R

R

R

R

R

R

O

R

S: 9.11.95
R: 10.4.97

S: 14.6.96
R: 10.4.97
S: 14.6.96
R: 10.4.97
S: 14.6.96
R: 10.4.97
S: 14.6.96
R: 10.4.97
S: 14.6.96
R: 6.6.97

S: 5.5.98
R: —
O

S: 25.7.96
R: 10.4.97
Succession:
18.1.94

Accession:
12.12.94

Succession:
26.1.95
Succession:
18.1.94

Succession:
12.12.94
Succession:
18.1.94

Succession:
18.1.94

S: 3.4.00

Succession:
2.12.93

Adherence to the following
conventions and protocols
ECHR 
Convention
on Human Rights)
Protocol 1 (right of property)

(European

O

Protocol 4 (freedom  movement
et al.)
Protocol 6 (death penalty)

R: 02.10.96

R: 21.09.00

Protocol 7 (ne bis in idem)

R: 01.01.97

European Convention for the
Prevention of Torture

R: 02.10.96

European Social Charter

R: 12.01.96

and

(International

(International

Revised European Social
Charter
Framework Convention for
National Minorities
ICCPR 
Covenant
on Civil and Political Rights)
Optional Protocol to the ICCPR
(right of individual
communication)
Second Optional Protocol to
ICCPR (death penalty)
ICESCR 
Covenant
on  Economic,  Social 
Cultural
rights)
CAT (Convention against
Torture)
CERD (Convention on the
Elimination of All Forms of
Racial Discrimination)
CEDAW (Convention on the
Elimination of All Forms of
Discrimination 
Women)
Optional  Protocol 
CEDAW
CRC 
Rights
of the Child)
R = ratified
S = Signed
O = neither ratified or signed

(Convention  on 

against

the

the

to 

R: 20.10.96

O

R: 5.11.97

O

O

O

O

O

O

O

R: 5.11.97

R: 5.11.97

R: 5.11.97

R: 5.11.97

R: 11.10.97

S: 8.3.99

O

non

(BiH 
R 
member of CoE)
R (succession)

R: 11.10.97

R: 8.10.91

R

R

R: 12.1.96

R: 12.1.96

R: 21.09.98

R: 28.09.99

O

O

R: 21.09.00

O

R (succession)

R: 8.10.91

R: 02.10.96

R (succession)

R: 8.10.91

O

O

O

O

R (succession)

R: 8.10.91

R (succession)

R: 8.10.91

S

R: 8.10.91

R (succession)

R: 8.10.91

26