Communication from the Commission - Opinion on Croatia's Application for Membership of the European Union
Date: 2004-04-20
Institutions: European Commission
Subjects: Croatia, accession criteria, accession to the European Union

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.4.2004 
COM(2004) 257 final 

COMMUNICATION FROM THE COMMISSION 

Opinion on Croatia's Application for Membership of the European Union 

EN 

   EN 

 
 
 
TABLE OF CONTENTS 

A. INTRODUCTION................................................................................................................. 4 

a) Preface.................................................................................................................................... 4 

b) Relations between the EU and Croatia .................................................................................. 6 

B. CRITERIA FOR MEMBERSHIP ....................................................................................... 11 

1. 

Political Criteria ......................................................................................................... 11 

1.1. 

Democracy and the Rule of Law................................................................................ 11 

1.1.1.  The Parliament ........................................................................................................... 12 

1.1.2.  The Executive............................................................................................................. 13 

1.1.3.  The Judiciary.............................................................................................................. 16 

1.1.4.  Anti-corruption measures........................................................................................... 19 

1.2. 

Human Rights and the Protection of Minorities ........................................................ 20 

1.2.1.  Civil and Political Rights ........................................................................................... 21 

1.2.2.  Economic, Social and Cultural Rights ....................................................................... 24 

1.2.3.  Minority rights, protection of minorities and refugees .............................................. 24 

1.3. 

Other obligations defined by EU Council conclusions of 29 April 1997 .................. 29 

1.3.1.  Cooperation with the International Criminal Tribunal for the former Yugoslavia 

(ICTY)........................................................................................................................ 30 

1.3.2.  Regional Co-operation ............................................................................................... 32 

1.4. 

General Evaluation..................................................................................................... 37 

2. 

2.1. 

2.2. 

2.3. 

3. 

Economic Criteria ...................................................................................................... 38 

Economic developments ............................................................................................ 38 

Assessment in terms of the Copenhagen criteria ....................................................... 43 

General evaluation ..................................................................................................... 54 

Ability to assume the obligations of membership...................................................... 54 

Chapter 1: Free movement of goods ........................................................................................ 55 

Chapter 2: Free movement of persons ..................................................................................... 58 

Chapter 3: Freedom to provide services.................................................................................. 60 

Chapter 4: Free movement of capital ...................................................................................... 63 

Chapter 5: Company law ......................................................................................................... 65 

Chapter 6: Competition policy................................................................................................. 67 

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Chapter 7: Agriculture ............................................................................................................. 69 

Chapter 8: Fisheries................................................................................................................. 74 

Chapter 9: Transport ............................................................................................................... 76 

Chapter 10: Taxation ............................................................................................................... 78 

Chapter 11: Economic and Monetary Union........................................................................... 81 

Chapter 12: Statistics ............................................................................................................... 83 

Chapter 13: Social policy and employment ............................................................................. 84 

Chapter 14: Energy .................................................................................................................. 88 

Chapter 15: Industrial policy................................................................................................... 90 

Chapter 16: Small and medium-sized enterprises.................................................................... 93 

Chapter 17: Science and research ........................................................................................... 94 

Chapter 18: Education and training ........................................................................................ 95 

Chapter 19: Telecommunications and information technologies ............................................ 96 

Chapter 20: Culture and audio-visual policy .......................................................................... 97 

Chapter 21: Regional policy and coordination of structural instruments ............................... 98 

Chapter 22: Environment....................................................................................................... 100 

Chapter 23: Consumer and health protection........................................................................ 104 

Chapter 24: Co-operation in the field of justice and home affairs ........................................ 105 

Chapter 25: Customs union.................................................................................................... 110 

Chapter 26: External relations .............................................................................................. 112 

Chapter 27: Common foreign and security policy ................................................................. 114 

Chapter 28: Financial control ............................................................................................... 115 

Chapter 29: Financial and budgetary provisions .................................................................. 116 

C. 

SUMMARY AND CONCLUSIONS ...................................................................... 118 

1. Political Criteria ................................................................................................................. 119 

2. Economic Criteria .............................................................................................................. 119 

3. Capacity to take on the other obligations of membership.................................................. 120 

Annexes 

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A. INTRODUCTION 

a) Preface 

Application for Membership 

Croatia presented its application for Membership of the European Union on 21 February 2003 
and the Council of Ministers decided on 14 April 2003 to implement the procedure laid down 
in  Art.  49  of  the  Treaty  on  the  European  Union,  which  states:  "Any  European  State  which 
respects the principles set out in Article 6(1) may apply to become a member of the Union. It 
shall address its application to the Council, which shall act unanimously after consulting the 
Commission and after receiving the assent of the European Parliament, which shall act by an 
absolute majority of its component members." 

Art.  6.1  states  "The  Union  is  founded  on  the  principles  of  liberty,  democracy,  respect  for 
human rights and fundamental freedoms, and the rule of law, principles which are common to 
the Member States." 

That is the legal framework within which the Commission submits the present Opinion. 

Context of the Opinion 

The Croatian application for membership is part of an historic process, in which the Western 
Balkan countries are overcoming the political crisis of their region and orienting themselves 
to join the area of peace, stability and prosperity created by the Union. In the “Thessaloniki 
Agenda  for  the  Western  Balkans”  adopted  by  the  European  Council  of  June  2003,  the  EU 
stressed “that the pace of further movement of the Western Balkans countries towards the EU 
lies  in  their  own  hands  and  will  depend  on  each  country’s  performance  in  implementing 
reforms,  thus  respecting  the  criteria  set  by  the  Copenhagen  European  Council  of  1993  and 
the Stabilisation and Association Process conditionality” 

The European Council in Copenhagen in June 1993 concluded that: 

“The associated countries in Central and Eastern Europe that so desire shall become members 
of the Union. Accession will take place as soon as a country is able to assume the obligations 
of membership by satisfying the economic and political conditions. 

Membership requires: 

– 

– 

– 

that  the  candidate  country  has  achieved  stability  of  institutions  guaranteeing 
democracy,  the  rule  of  law,  human  rights  and  respect  for  and  protection  of 
minorities; 

the existence of a functioning market economy, as well as the capacity to cope with 
competitive pressure and market forces within the Union; 

the ability to take on the obligations of membership, including adherence to the aims 
of political, economic and monetary union. 

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The Union’s capacity to absorb new members, while maintaining the momentum of European 
integration, is also an important consideration in the general interest of both the Union and the 
candidate countries”. 

This  declaration  spelled  out  the  political  and  economic  criteria  for  examining  the  accession 
requests of the applicant countries.  

The  European  Council  in  Madrid  in  December  1995  referred  to  the  need,  “to  create  the 
conditions  for  the  gradual,  harmonious  integration  of  the  application  countries,  particularly 
through:  the  development  of  the  market  economy,  the  adjustment  of  their  administrative 
structure, the creation of a stable economic and monetary environment”. 

The Stabilisation and Association Process conditionalities were defined by the Council on 29 
April 1997 and included co-operation with the International Criminal Tribunal for the Former 
Yugoslavia (ICTY) and Regional co-operation. These conditions are a fundamental element 
of  the  Stabilisation  and  Association  process  and  are  integrated  into  the  Stabilisation  and 
Association Agreement signed with Croatia. 

In  its  Opinion,  therefore,  the  Commission  analyses  the  Croatian  application  on  the  basis  of 
Croatia’s  capacity  to  take  on  the  obligations  of  meeting  the  criteria  set  by  the  Copenhagen 
European Council of 1993 criteria and the conditions set for the Stabilisation and Association 
process, notably the conditions defined by the Council in its Conclusions of 29 April 1997  

The Contents of the Opinion 

The  structure  of  the  Opinion  takes  account  of  the  conclusions  of  the  European  Council  in 
Copenhagen. It: 

(cid:13)  describes  the  relations  up  to  now  between  Croatia  and  the  Union,  particularly  in  the 

framework of the existing agreement; 

(cid:13)  analyses  the  situation  in  respect  of  the  political  conditions  mentioned  by  the  European 
Council  (democracy,  rule  of  law,  human  rights,  protection  of  minorities)  including  the 
fulfilment of the Stabilisation and Association Process conditionalities; 

(cid:13)  assesses Croatia’s situation and prospects in respect of the economic conditions mentioned 
by the European Council (market economy, capacity to cope with competitive pressure); 
(cid:13)  addresses the question of Croatia’s capacity to adopt the obligations of membership, that is 
the  acquis  of  the  Union  as  expressed  in  the  Treaty,  the  secondary  legislation,  and  the 
policies of the Union; 

(cid:13)  makes  finally  a  general  evaluation  of  Croatia’s  situation  and  prospects  in  respect  of  the 
conditions  for  membership  of  the  Union,  and  a  recommendation  concerning  accession 
negotiations. 

In assessing Croatia in respect of the economic criteria and its capacity to assume the acquis, 
the  Commission  has  included  a  prospective  assessment;  it  has  attempted  to  evaluate  the 
progress  which  could  reasonably  be  expected  on  the  part  of  Croatia  in  the  coming  years, 
before accession, taking account of the fact that the acquis itself will continue to develop. For 
this purpose, and without prejudging the actual date of accession, the Opinion is based on a 
medium-term time horizon of approximately five years. 

During the preparation of the Opinion, the Commission has obtained a wealth of information 
on  Croatia’s  situation  from  the  Croatian  authorities,  and  has  utilised  many  other  sources  of 
information,  including  the  member  states,  international  organisations  (Council  of  Europe, 
OSCE, UNHCR, ICTY, Stability Pact, IMF, World Bank, EBRD, EIB etc.) and NGOs. 

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b) Relations between the EU and Croatia 

Amid  increasing  tension  within  the  Socialist  Federal  Republic  of  Yugoslavia,  Croatia 
declared independence on 25 June 1991. This was suspended for three months and confirmed 
on 8 October 1991 (by Parliament’s decision on the abrogation of the state-legal ties with the 
former  SFRY).  An  armed  conflict,  resulting  in  the  displacement  of  ethnic  groups, 
subsequently broke out and parts of the country were occupied by the local Serb rebels and 
Yugoslav People’s Army (JNA). The EU recognised Croatia as a sovereign State in January 
1992 and in May 1992 the country was admitted to the United Nations. In May and August 
1995, Operations "Flash" and "Storm" enabled Croatian forces to take control of all occupied 
territories with the exception of Croatian Danube Region (Eastern Slavonia) which remained 
under  UN  protection.  Croatia  became  party  to  the  Dayton/Paris  Peace  Agreement  of 
December  1995  which  recognises  the  international  borders  of  Bosnia  and  Herzegovina  and 
confirms the right of all refugees to return to their homes. The Erdut Agreement of November 
1995  provided  for  the  peaceful  reintegration  of  Eastern  Slavonia  into  Croatia  which  was 
completed  in  January  1998.  However,  during  this  period  progress  in  areas  such  as 
democratisation, respect of human rights, including minority rights, and the rule of law was 
insufficient to justify an upgrading of relations with the EU 

The parliamentary elections in January 2000 and the election of Stjepan Mesic as President of 
the  Republic  in  February  2000  marked  a  turning  point  in  relations  between  the  EU  and 
Croatia.  The  new  Croatian  leadership  immediately  showed  determination  to  entrench 
democratic  values  and  principles  and  made  rapid  and  significant  progress  on  the  main 
political outstanding questions, notably the respect of human rights, including minority rights, 
democratisation  of  the  media,  full  compliance  with  the  Dayton/Erdut  Agreements, 
cooperation with ICTY and improved relations with neighbouring countries  

This commitment was reflected in a rapid development of relations with the European Union. 
In  May  2000,  the  Commission  adopted  a  “Feasibility  Report”1  proposing  the  opening  of 
negotiations for a “Stabilisation and Association Agreement (SAA)”. Since November 2000 
Croatia  benefits  from  the  autonomous  trade  measures  granted  unilaterally  by  the  European 
Union  to  the  countries  of  the  Stabilisation  and  Association  Process.  The  Stabilisation  and 
Association  Agreement  was  signed  in  October  2001  and  an  Interim  Agreement  (IA)  is  in 
force since March 2002. 

A  resolution  adopted  in  December  2002  by  all  political  parties  in  the  Croatian  parliament 
defined Croatia’s accession to the EU as a strategic national goal and asked the Government 
to  submit  an  application  for  EU  membership.  This  application  was  submitted  by  the 
Government  in  February  2003.  The  cross-party  consensus  on  the  political  goal  of  EU 
membership  was  also  maintained  after  the  change  of  Government  following  the  November 
2003 parliamentary elections. Membership of the European Union and NATO, relations with 
neighbours, developing economic diplomacy, and changing Croatia's international image are 
the five priorities of the foreign policy announced by the new Government. 

1 

COM (2000) 311 of 24 May 2000 

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Contractual Relations 

The  Stabilisation  and  Association  Agreement  (SAA)  between  the  European  Union  and 
Croatia  was  initialled  on  14  May  2001  and  signed  on  29  October  2001.  The  ratification 
process of the Stabilisation and Association Agreement has not yet been completed. Once it 
enters into force, the SAA will be the legal framework for relations with the European Union 
for  the  entire  period  prior  to  a  future  accession  of  Croatia.  It  will  provide  a  framework  for 
political  dialogue  and  enhanced  regional  co-operation,  promotes  the  expansion  of  trade  and 
economic relations between the parties and establishes a basis for Community technical and 
financial  assistance.  The  institutional  framework  of  the  SAA  will  provide  a  mechanism  for 
implementation,  management  and  monitoring  all  areas  of  relations.  Subcommittees  will 
examine  questions  at  technical  level.  The  Stabilisation  and  Association  Committee  will 
provide for discussions at senior officials level and is aimed at finding solutions to problems 
arising  under  the  SAA.  The  Stabilisation  and  Association  Council  will  examine  the  overall 
status  of  and  perspective  for  relations  and  provides  the  opportunity  to  review  Croatia’s 
progress in the Stabilisation and Association Process. 

Pending the entry into force of the SAA, an Interim Agreement has been applied provisionally 
from 1 January 2002 and entered into force on 1 March 2002. The Interim Agreement applies 
the  provisions  of  the  SAA  related  to  trade  in  goods  as  well  as  those  on  competition,  and 
intellectual,  industrial  and  commercial  property  rights.  The  Agreement  establishes  a  Free 
Trade Area between the parties in agreement with relevant WTO provisions. It puts the EU’s 
far-reaching  autonomous  trade  measures,  in  force  since  November  2000,  on  a  contractual 
basis (with the exception of the “entry price system” for certain fruit and vegetables, which 
was  removed  under  the  autonomous  trade  measures).  These  measures  grant  Croatia  free 
access  to  the  EU-market  for  virtually  all  products,  with  preferential  tariff  quotas  for  wine, 
baby  beef  and  certain  fishery  products.  The  Interim  Agreement  is  asymmetric  in  favour  of 
Croatia, which is to gradually liberalise its import trade from the EU over a transition period 
ending on 1st January 2007. By that date, Croatia will have eliminated all tariffs on imports of 
industrial goods  and on several agricultural and fishery products , whilst maintaining duties 
and tariff quotas for certain more sensitive agricultural and fisheries products. 

Two meetings of the Interim Committee were held in April 2002 and April 2003. A system of 
five subcommittees has started to work, which serve as useful fora for technical discussions of 
all  issues  linked  to  the  implementation  of  the  Agreement  and  to  the  legal  approximation 
process.  In  general,  Croatia  has  properly  implemented  the  Interim  Agreement  and  it  has 
contributed  to  the  smooth  functioning  of  the  various  joint  institutions.  However,  during  the 
first two years of application, there have been certain problems in implementation in the field 
of agricultural trade. 

An  additional  protocol  to  the  Interim  Agreement  /  SAA  regarding  trade  in  wine  and  spirits 
and  reciprocal  recognition,  protection  and  control  of  wine  names  and  of  designations  for 
spirits and aromatised drinks is in force since March 2002. 

An  Agreement  on  trade  in  textile  products  between  the  European  Community  and  the 
Republic of Croatia has been applied since January 2001. 

Negotiations  on  a  protocol  adapting  the  Stabilisation  and  Association  Agreement  and  the 
Interim Agreement to take into account the upcoming accession of ten new Member States to 

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the Union have been concluded. While the Interim Agreement will apply to the enlarged EU 
as  from  1st  May  2004,  the  protocol  is  necessary  to  allow  the  ten  new  Member  States  to 
become formally party to the SAA. Technical adaptations are also necessary in various areas, 
including  to  adapt  the trade  preferences  in  the  SAA/IA  for  agricultural  products,  both  basic 
and  processed,  as  well  as  fishery  products,  with  a  view  to  avoid  disrupting  traditional  trade 
between  Croatia  and  the  enlarged  Union.  It  is  recalled  that  the  Free  Trade  Agreements 
between the new Member States and  Croatia will be terminated on 1st May 2004, when the 
new Member States apply the Common Commercial Policy. 

The Ministry for European Integration coordinates the implementation of the SAA in a highly 
efficient and professional way. The Government has set up European Integration coordinators 
in all state administration bodies as well as a number of inter-ministerial working groups for 
the harmonisation of legislation. 

In  October  2001  Croatia  adopted  an  Implementation  Plan  for  the  SAA  for  planning  and 
monitoring  legislative  and  non-legislative  measures  linked  to  obligations  under  the  SAA. 
Croatia  produces  regular  reports  on  the  execution  of  this  plan.  In  December  2002  Croatia 
adopted the first “National Programme for the Integration of the Republic of Croatia into the 
EU”.  This  strategic  document  set  out  Croatia’s  ambitions  and  tasks  regarding  political  and 
economic  criteria,  the  harmonisation  of  the  Croatian  legal  framework  with  the  acquis,  the 
enhancing of administrative capacity and an information strategy for the Croatian public. The 
programme  foresaw  the  adoption  of  83  laws  and  pieces  of  secondary  legislation  in  order  to 
advance  the  harmonisation of the Croatian legal framework in 13 chapters of the acquis. In 
general,  these  measures  were  adopted  within  the  envisaged  timeframe.  A  second  National 
Programme was adopted in January 2004 comprising all chapters of the acquis. 

intensively 

Croatia  has  worked 
the  acquis 
towards  aligning 
communautaire and numerous important legislative texts have been adopted by Parliament, in 
particular during 2003. However, in general, the establishment of the necessary administrative 
structures and more generally the strengthening of administrative and judicial capacities have 
not  developed  at  the  same  pace,  thereby  putting  at  risk  the  effective  implementation  and 
enforcement of the new legislation. Croatia needs to give particular priority to administrative 
and judicial capacity building and fully integrate this dimension into its National Programmes. 

legislation  with 

its 

Trade Relations 

The EU is Croatia's main trading partner. Between 1998 and 2002 trade between the EU and 
Croatia increased substantially. EU imports from Croatia increased by 38%, from €1.8 billion 
in  1998  to  €2.5  billion  in  2002.  EU  exports  to  Croatia  grew  by  47%  over  the  same  period, 
from  €4.4  billion  to  €6.5  billion.  The  respective  evolution  of  imports  and  exports  led  to  a 
worsening of Croatia's trade deficit with the EU, which leapt by more than 50%, from €2.6 
billion in 1998 to €4 billion in 2002. Furthermore, Croatia has a trade deficit of approximately 
€  1  billion  with  the  countries  acceding  to  the  EU  in  May  2004.  While  Croatian  exports 
represent  about  23%  of  GDP,  approximately  54%  of  its  external  trade  was  with  the  EU  in 
2002. This figure rises to nearly 70% when considering trade with the countries acceding to 
the EU in May 2004. Croatia’s share of EU’s external trade stood at 0.45% in 2002. 

In  2002  Croatia’s  exports  to  the  EU  consisted  mainly  of  textiles  (22%  of  the  total)  and 
machinery and electrical equipment (18% of the total). The EU’s exports to Croatia consisted 

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mainly  of  machinery  and  electrical  equipment  (25%  of  the  total),  vehicles,  aircraft,  vessels 
and associate transport equipment (17% of the total) and chemicals (10% of the total). 

Croatia  is  a  member  of  the  World  Trade  Organisation  and  the  Central  Europe  Free  Trade 
Agreement. It is active in the Trade Working Group under the Stability Pact for South East 
Europe.  In  this  context,  Croatia  has  negotiated  a  network  of  bilateral  free  trade  agreements 
with all its neighbouring countries. 

Community Assistance 

Overall,  between  1991  and  2003  Croatia  received  €550  million  of  EU  assistance.  Between 
1991  and  2000,  this  assistance  was  focused  on  emergency  support  through  the  European 
Commission’s  Humanitarian  Aid  Office  (ECHO)  and  the  Obnova  programme.  The  EU 
consolidated  its  assistance  in  2000  under  the  Community  Programme  for  Assistance, 
Reconstruction, Development and Stabilisation (CARDS), at the same time as launching the 
Stabilisation  and  Association  process  (SAp).  In  2001,  €60  million  was  allocated  to  Croatia 
under the CARDS programme.  

In accordance with the CARDS regulation, a Country Strategy Paper, defining the main areas 
for  co-operation  for  the  period  2002-2006,  was  adopted  in  December  2001.  The  associated 
multi-annual  indicative  programme  (MIP)  sets  out  in  more  detail  priorities  for  the  period 
2002-2004.  In  the  framework  of  the  CARDS  National  Programmes,  the  total  financial 
allocation for the period 2001 and 2004 amounts to €257 million for the following five main 
priorities:  democratic  stabilisation,  economic  and  social  development,  justice  and  home 
affairs, administrative capacity building, and environment and natural resources. 

Croatia  is  directly  involved  in  CARDS  programming,  including  discussions  on  current 
strategies  and  agreement  on  the  MIP.  These  discussions  involve  not  only  the  National  Aid 
Coordinator,  but  also  the  relevant  Ministries,  potential  beneficiaries,  international  financial 
institutions and the non-governmental sector. 

Croatia is also a beneficiary of the CARDS Regional Programme, the European Initiative for 
Democracy and Human Rights, Life Third Countries, the Youth Programme - Third Countries 
Co-operation, Regional Co-operation in Mine Action in South East Europe and a number of 
other specialized programs. 

Implementation of CARDS assistance has been slow but there are signs of improvement due 
to increased absorption capacity in the Croatian administration. Since January 2002, the EC 
Delegation in Zagreb is responsible for the management of assistance and implementation has 
speeded up considerably. In order to use pre-accession funds effectively, Croatia will need to 
develop the necessary administrative capacity.  

Several  twinning  projects  (Border  Police,  Customs,  Statistical  Agency,  and  Asylum)  are 
ongoing  and  more  are  planned  in  the  sectors  of  integrated  border  management  (IBM), 
agriculture, and the judiciary.  

The Croatian administration needs to continue its efforts to meet agreed project conditionality 
(e.g.  policy  decisions,  establishment  and  strengthening  of  institutions,  allocation  of  human 
and financial resources) but some progress can be noted.  

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A  Commission-EU  Member  State  co-ordination  mechanism  on  assistance  has  been  in  place 
since 2001, to maximise the impact of CARDS and member states’ bilateral aid.  

Effective  co-operation  also  exists  with  other  donors.  Since  1993,  the  World  Bank  has 
supported  21  projects  totalling  US$1.064  million  and  provided  a  number  of  grants  to  the 
amount  of  US$20  million.  Lending  is  focused  on  investment  in  infrastructure,  health, 
agriculture  and  forestry,  enterprise  and  financial  sector  reform,  capital  market  development, 
as  well  as  judicial  and  pension  system  reform.  Since  1994,  the  European  Bank  for 
Reconstruction  and  Development  (EBRD)  has  made  investments  totalling  €1.325  million, 
including  over  €300  million  in  2002.  The  focus  of  investment  is  the  corporate  sector 
(pharmaceutical,  food,  cement,  and  communications),  financial  sector  and  municipal 
infrastructure.  In  2002,  the  European  Investment  Bank  (EIB)  has  provided  loans  to  the 
amount  of  €130  million  for  regional  development  (transport  and  communications 
infrastructure), economic and social cohesion, and environmental protection. 

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B. CRITERIA FOR MEMBERSHIP 

1. 

POLITICAL CRITERIA 

The European Council in Copenhagen in 1993 decided on a number of “political” criteria for 
accession  to  be  met  by  applicant  countries.  A  country  must  have  achieved  “stability  of 
institutions  guaranteeing  democracy,  the  rule  of  law,  human  rights  and  respect  for  and 
protection  of  minorities”.  In  the  case  of  the  Western  Balkans  the  conditions  defined  by  the 
Stabilisation and Association Process are also a fundamental element of the EU policy, which 
will be assessed in this Opinion.  

In the meantime, through the entry into force of the Treaty of Amsterdam in May 1999, the 
political  criteria  defined  at  Copenhagen  have  been  essentially  enshrined  as  a  constitutional 
principle  in  the  Treaty  on  European  Union.  Article  6(1)  of  the  consolidated  Treaty  on 
European Union reads: "The Union is founded on the principles of liberty, democracy, respect 
for human rights and fundamental freedoms and the rule of law." Accordingly, Article 49 of 
the consolidated Treaty stipulates that "Any European State which respects the principles set 
out  in  Article  6(1)  may  apply  to  become  a  member  of  the  Union."  These  principles  were 
emphasised in the Charter of Fundamental Rights of the European Union, that was proclaimed 
at the Nice European Council in December 2000. 

In  carrying  out  the  assessment  required  in  this  connection,  the  European  Commission  has 
drawn on a number of sources of information: answers given by the Croatian authorities to the 
questionnaire  sent  to  them  by  Commission  in  July  2003,  bilateral  follow-up  meetings, 
discussion  with  Member  States’  embassies,  assessments  by  international  organisations 
(including  Council  of  Europe,  OSCE,  UNHCR,  Stability  Pact),  reports  produced  by 
international and local non-governmental organisations, minority representatives, etc. 

The following assessment includes a systematic examination of the main ways in which the 
public  authorities  are  organised  and  operate,  and  the  steps  they  have  taken  to  protect 
fundamental  rights.  It  does  not  confine  itself  to  a  formal  description  but  seeks  to  assess  the 
extent to which democracy and the rule of law actually operate. This assessment relates to the 
situation by the end of February 2004. It does not examine in detail any changes which have 
taken  place  in  the  past  or  which  may  come  about  in  the  future,  though  it  generally  takes 
account of any stated intention to reform a particular sector. 

1.1. 

Democracy and the Rule of Law 

Parliamentary democracy in Croatia was established following the spring 1990 elections. The 
new Constitution was adopted in December 1990, on the eve of the outbreak of the war in the 
former  Yugoslavia.  Croatia  gained  independence  in  1991;  since  then  a  number  of 
constitutional  changes  have  taken  place.  The  constitutional  changes  in  2000  and  2001  were 
introduced in order to abolish the Upper House of the Parliament and strengthen the role of 
Parliament  and  Government  vis-à-vis  the  President  of  the  Republic.  The  3  January  2000 
elections  resulted  in  the  end  of  the  11  years  rule  of  the  Croatian  Democratic  Union  (HDZ), 
President  Tudjman’s  party.  During  the  period  2000-2003,  Croatia,  under  a  coalition  of 
(initially)  6  parties,  made  significant  achievements  in  areas  related  to  the  rule  of  law  and 
democracy. The Constitutional system was respected and institutions functioned normally.  

The President of the Republic is elected by direct universal suffrage for a renewable five-year 
term  of  office.  He  calls  elections  for  the  Parliament,  calls  referenda,  gives  the  mandate  to 

11 

 
 
  
 
form the Government to the person who enjoys the confidence of the majority of the members 
of Parliament, and performs other duties specified by the Constitution. In co-operation with 
the  Government,  the  President  also  takes  part  in  the  formulation  and  implementation  of 
foreign policy. The President is the Supreme Commander of the armed forces, appoints and 
relieves  military  commanders  of  duty.  Under  precisely  defined  circumstances,  the  President 
may dissolve the Parliament if the Government does not pass a vote of confidence, or if the 
State Budget is not adopted within 120 days from the date it was proposed. The President is 
responsible for possible violations of the Constitution that he may commit while performing 
his  presidential  duties.  The  procedure  for  determination  of  his  responsibility  is  initiated  on 
proposal  by  a  two-thirds  majority  of  all  members  of  parliament.  The  Constitutional  Court 
rules on such question with a two-thirds majority of its judges.  

The current President of the Republic is Mr. Stjepan Mesić, elected in February 2000 in two 
rounds; the next elections are to be held by February 2005. 

The Constitution was adopted on 22 December 1990 after the first multi-party parliamentary 
elections held in the spring of 1990. It was amended in 1997, 2000 and 2001 by a two-thirds 
majority  vote  of  all  the  members  of  the  parliament  as  foreseen  by  the  Constitution.  It 
established  Croatia  as  a  parliamentary  democracy.  However,  the  operation  of  institutions  in 
Croatia  encountered  a  number  of  difficulties  in  the  first  decade  after  independence.  The 
revision  of  the  Constitution  in  November  2000  moved  Croatia  from  a  semi-presidential 
system  to  a  full  parliamentary  system.  This  has  resulted  in  a  positive  reshaping  of  the 
relationship  and  the  balance  of  power  between  the  President,  the  Parliament  and  the 
Government.  

1.1.1.  The Parliament 

Role and Structure 

The Parliament (Sabor), is made up of a single chamber, the House of Representatives. This 
has, according to the Constitution, a minimum of 100 and a maximum of 160 representatives 
elected  for  a  four-year  term.  The  electoral  law  provides  for  proportional  representation 
through party lists in 10 electoral constituencies. Eight seats in the Parliament are reserved for 
minorities who form the 11th constituency. The Serb minority has three guaranteed seats, the 
Italian  and  Hungarian  one  each,  the  Slovaks  and  Czechs  are  entitled  to  one  representative, 
while  other  minorities  are  divided  into  two  groups  of  which  each  is  entitled  to  one 
representative. The Croatian Diaspora, which constitutes the 12th electoral unit, is also entitled 
to Parliamentary representation. The number of elected Diaspora representatives depends on 
the  so  called  “non-fixed”  quota,  i.e.  the  number  of  members  elected  from  Diaspora 
constituency  is  calculated  by  dividing  the  total  number  of  votes  cast  abroad  by  the  average 
number of votes necessary to secure a mandate in Croatia's ten constituencies. 

The Parliament can be dissolved by itself or by decision of the President of the Republic if the 
Government loses a confidence vote in Parliament or if the State budget is not adopted within 
120 days of its proposal by the Government. 

Member  of  parliaments  enjoy  parliamentary  immunities.  The  Opposition’s  role  and 
involvement  in  the  working  of  the  country’s  institutions  is  recognised.  The  parliamentary 
minority  is  entitled  to  propose  its  candidate  for  the  position  of  the  vice-president  of  the 
Parliament.  Opposition  representatives  in  Parliament  are  also  members  of  25  parliamentary 
committees: 12 are chaired by HDZ and 13 by the other parties. 

12 

 
 
  
 
Croatia has a multiparty system. 94 political parties are registered. There are no obstacles to 
the  establishment  of  parties,  they  receive  state  funding  in  proportion  to  the  number  of  seats 
they obtained at the previous elections. 

The  Parliament  exercises  legislative  power  and  shares  the  right  of  legislative  initiative  with 
the  Government.  Usually  all  laws  undergo  a  lengthy  parliamentary  procedure  of  three 
consecutive  readings.  However,  the  Constitution  allows  for  an  urgent  procedure  of  two 
readings. Many laws have recently been adopted through the urgent procedure. 

One  fifth  of  the  parliamentary  representatives  can  initiate  the  procedure  for  a  vote  of 
confidence in the Government. 

The  Parliament  can  call  for  referenda  on  proposals  for  amendments  to  the  Constitution,  on 
any legislative proposal or on any issue considered of importance. 

Functioning of the Parliament 

The last parliamentary elections were held on 23 November 2003. The Croatian Democratic 
Union (HDZ), the party of former President Tuđjman, won 66 out of 152 seats, including 4 
seats of the Diaspora. The new HDZ Government received the support of the Croatian Social 
Liberal  Party  (HSLS)  and  the  Democratic  Centre  (DC)  coalition,  the  Croatian  Pensioners 
Party (HSU), and the minority representatives.  

The  new  Parliament  held  its  constitutive  session  on  22  December  2003  and  the  new 
Government  of  Prime  Minister  Ivo  Sanader  received  a  vote  of  confidence  on  23  December 
2003 (88 MPs voted in favour, 29 MPs against and 14 abstained) 

The  Croatian  Democratic  Union  (HDZ),  which  had  been  in  the  opposition  in  the  previous 
legislature  (2000-2003)  has  showed  a  strong  determination  to  transform  itself  into  a 
democratic party with a pro-European vocation. However some statements made in the recent 
past, when HDZ was in opposition, are still a matter of concern for the Commission. It still 
need to be demonstrated whether all elected members have really distanced themselves from 
radical nationalism.  

Since Croatia became an independent State, parliamentary elections were held in 1992, 1995, 
2000 and 2003. There has been an obvious improvement in the electoral process during the 
last  two  general  elections  which  were  assessed  as  generally  free  and  fair.  Both  the  last  two 
elections have resulted in the formation of coalition governments. 

Parliament functions satisfactorily, its powers are respected and the opposition fulfils its role. 
Parliament  sometimes  suffers  from  the  lack  of  a  quorum,  which  can  unduly  prolong  the 
legislative process. 

1.1.2.  The Executive 

Role and Structure 

The  decision  on  the  appointment  of  the  Prime  Minister  is  taken  by  the  President  of  the 
Republic, and co-signed by the President of the Parliament, after the Parliament has given a 
vote  of  confidence  on  the  Government.  Ministers  are  also  approved  by  Parliament,  upon  a 
proposal  by  the  Prime  Minister.  The  Government  is  answerable  to  Parliament.  The  Prime 
Minister  and  the  members  of  the  Government  are  jointly  responsible  for  Government 
decisions, while each minister is responsible for his/her area. 

13 

 
 
  
 
At  the  request  of  the  Parliament,  the  Government  is  obliged  to  inform  the  Parliament  of  its 
policy,  the  execution  of  acts  and  other  regulations  and  matters  within  its  authority.  The 
institute of interpellation, provided for by the Constitution, governs the accountability of the 
Government to the Parliament and the matter of confidence in the Prime Minister, individual 
members  of  the  Government  or  the  Government  as  a  whole.  In  the  period  between  1990  – 
2004 there have been 9 interpellations. 

On  the  basis  of  the  Constitution,  the  Government  has  autonomous  regulatory  powers  that 
enable  it  to  issue  decrees  for  the  implementation  of  the  laws.  It  can  be  authorized  by 
parliament to regulate certain issues by decrees apart from those regarding human rights and 
freedoms, minority rights, electoral system and organisation and functioning of the local and 
regional self-government. However, these decrees can last no longer than a year. In addition, 
the  Government  is  authorised  to  pass  decrees  with  the  force  of  law  regarding  the  existing 
economic  policy  that  is  under  the  original  Parliamentary  scope  of  authority  when  the 
Parliament is not in session or during the period in which the Parliament is dissolved due to 
elections.  However,  these  decrees  must  be  submitted  for  parliamentary  approval  as  soon  as 
the Parliament convenes. 

The Government is responsible for the work of all bodies of the State Administration which 
includes  ministries,  State  Administration  organisations  and  offices  of  public  administration. 
Ministries  and  State  Administration  organisations  are  central  bodies  of 
the  State 
Administration,  but  offices  of  the  state  administration  are  also  established  in  the  local 
(regional)  self-government  units.  In  addition,  for  certain  tasks,  branch-offices  can  be 
established at county, municipal or city level.  

The structure and tasks of the state administration have been revised and defined by the Law 
on  the  Organisation  and  Scope  of  the  Ministries  and  State  Administrative  Organisations 
adopted  on  22  December,  which  establishes  14  ministries  and  5  state  administration 
organisations. A Central State Office for Administration was also created in December 2003, 
which is not yet fully operational. The Law on Civil Servants and Public Employees governs 
the  terms  of  employment.  The  Law  on  Government  regulates  the  work  and  authority  of  the 
Government  while  the  Law  on  Obligations  and  Rights  of  State  Officials  regulates  state 
officials’ rights and duties.  

The  Constitution  establishes  the  structure  of  local  administration.  Units  of  local  self-
government  are  “municipalities”  and  “cities”.  Units  of  regional  self-government  are 
“counties”.  426  Municipalities,  121  Towns  and  20  Counties  (including  the  town  of  Zagreb, 
which  has  the  status  of  a  County)  have  been  established  by  law.  Local  government 
responsibilities  are  defined  by  Local  Government  Act  of  2001  and  include  responsibilities 
such  as  water  supply  and  sewerage,  primary  health  care,  pre-school  and  primary  education, 
etc.  Local  financing  is  regulated  by  the  Act  on  Financing  Local  Government.  It  is  based 
mainly on tax sharing and various non-tax revenues. Local self-government collects revenue 
from  own  revenue  sources  (revenue  from  its  own  assets,  county  and  municipal  taxes,  fines, 
charges  and  fees),  shared  taxes  (income  tax,  profit  tax,  tax  on  real  estate  transactions, 
gambling tax) and grants.  

The army and the police are under civilian control. There is an on-going reform of the army, 
which  will  lead  to  a  significant  reduction  in  the  number  of  military  personnel.  The  army  is 
under the control of Parliament and the executive. The law provides for the civil control of the 
Secret Services by the Council for Supervision of Secret Services, whose members have been 
appointed recently.  

14 

 
 
  
 
The police service is also being restructured. In April 2003 the Ministry of Interior announced 
a  Reform  strategy  plan  which  is  still  ongoing.  Croatia  has  clearly  decided  to  move  from  a 
wartime  system  to  a  system  compatible  with  EU  standards.  Sustained  efforts  to  implement 
such a significant change are still required, however.  

The  general  level  of  security  in  Croatia  remains  satisfactory.  There  have  been  only  a  few 
ethnically related incidents.  

Functioning of the Executive 

The Law on Civil Servants and Public Employees of 2001 provides a legal basis for the status 
of civil servants and other public employees. The Law does not make any distinction between 
state officials (political appointees) and civil servants, thereby leaving unresolved issues such 
as  status,  role  and  obligations  of  political  personnel  in  the  civil  service,  tenure  of  political 
appointees within the civil service, modalities/procedures for the conversion of the status of 
political appointees to that of civil servants. 

The  current  number  of  rulebooks  (i.e.  internal  documents  for  each  Ministry  defining  job 
descriptions, number of staff, etc.) and inconsistencies between them, create the conditions for 
a multitude of civil service management standards. The Law suffers from further deficiencies, 
especially  with  regard  to  a  system  of  promotions,  mobility,  separation  from  service  and 
disciplinary measures. The rules governing recruitment and selection of candidates could also 
be  improved.  It  is  an  accepted  view  that  salaries  of  civil  servants  are  too  low  to  attract 
adequate  numbers  of  young  and  educated  professionals  to  work  in  the  state  administration, 
especially as that they have to have the same or higher education than those working in other 
sectors. 

Actions  and  decisions  of  civil  servants,  when  deciding  on  individual  citizens’  rights  and 
obligations, are based on the Law on General Administrative Procedure. Every administrative 
decision can be appealed to a second-degree administrative body. If appeals are not upheld, 
there is then recourse to the Administrative Court. However, as established by the decision of 
the Constitutional  Court2, regarding civil rights and obligations,  the  Administrative  Court  is 
not a court of full jurisdiction in the terms of the European Court of Human Rights case law, 
because [see Paragraph 1.1.3. on Judiciary]. 

In addition, recourse can be had to the Ombudsman, elected by the Parliament for a term of 8 
years.  This  length  of  term  helps  strengthen  the  independence  of  the  post  from  political 
pressure.  In  the  last  few  years  many  cases  have  been  brought  to  his  attention.  In  2002  he 
received  1,558  complaints.  In  104  of  these  cases  he  sent  a  recommendation  to  the 
administration  concerned  and  only  72  complainants  succeeded  in  his/her  complaint.  The 
Ombudsman investigates citizens' complaints of bureaucratic abuse both by state authorities 
and  by  individual  public  servants.  In  addition  to  investigating  individual  cases,  the 
Ombudsman studies other matters relevant to the protection of constitutional and legal rights 
brought to his knowledge from other sources (such as mass media), reporting on irregularities 
in the work of state administration bodies and agencies. The Ombudsman reports annually to 
the parliament.  

The  Standing  Orders  of  the  Government  of  the  Republic  of  Croatia  from  2000  provide  the 
legal framework for policy formulation and cover also inter-ministerial consultations. There is 

2 Decision of Constitutional Court No. U-I-745/1999, of 8 November 2000, Official Gazette 112/00 

15 

 
 
  
 
                                                 
no single body responsible for providing a coordinated overview of policy to decision-makers. 
Since  there  are  multiple  structures,  the  policy  planning  and  coordination  tends  to  be  rather 
politicised and fragmented. 

The Ministry for European Integration is responsible for coordination with regard to European 
Integration matters. All the ministries have a network of European coordinators, and specific 
European Integration units have been established within some ministries. 

There  is  no  central  training  institution  for  civil  servants,  or  a  Government  training 
programme.  The  reorganisation  of  the  Ministry  of  Justice,  Administration  and  Local-Self 
Government,  of  November  2003  provided  for  the  creation  of  the  Training  Centre  for  Civil 
Servants under the Ministry of Justice. Following the adoption of the Law on the Organisation 
and Scope of the Ministries and State Administrative Organisations of 22 December 2003, a 
Decree was adopted by the Government on 22 January 2004 on the Internal Structure of the 
Central  State  Office  for  Administration.  The  Decree  foresees  11  organisational  units, 
including the Centre for training and education of state employees Currently the Ministry for 
European Integration organises EU training for civil servants. 

The  development  of  local  government  is  still  under  way.  Decentralisation  foreseen  in  the 
Government  programme  2000-04  has  been  slower  than  originally  foreseen  and  should  be 
speeded up. Since July 2001, the reform of local government was implemented at county level 
and  in  32  cities.  The  following  areas  were  transferred  from  the  state  to  the  county  budgets: 
elementary  and  secondary  education,  social  care  centres  and  homes,  hospital  investment 
maintenance,  and  to  the  city  budgets:  elementary  education.  Since  the  beginning  of  2002, 
hospital maintenance, the foundation and financing of social care centres and homes for the 
elderly and disadvantaged persons have been transferred to counties. The transfer of personnel 
and salaries in education was never enforced. The financial situation, albeit regulated by the 
Act on Financing Local Government of local government, should be better clarified. 

1.1.3.  The Judiciary 

Role and Structure 

The  Croatian  judicial  system  is  organised  hierarchically  in  three  instances.  122  municipal 
courts, 114 misdemeanour courts, 12 commercial courts and 21 county courts act as courts of 
first instance. The county courts also decide on appeals against decisions by municipal courts. 
Croatia  guarantees  the  right  of  appeal  (county  courts,  High  Misdemeanour  Court,  High 
Commercial Court, Supreme Court). The Supreme Court is the highest court in Croatia.  

The  President  of  the  Supreme  Court  and  the  State  Attorney  are  elected  by  Parliament  and 
appointed by the President of the Republic. 

the  Constitutional  Court  ruled 

The  Administrative  Court  should  ensure  judicial  protection  against  final  administrative 
decisions.  However, 
the 
Administrative Court is not a court of full jurisdiction in accordance with Article 6 (right to 
fair hearing) of the European Convention of Human Rights, in particular because of its limited 
ability  to  establish  independently  the  facts  of  a  case  and  to  hold  oral  and  contradictory 
hearings. 

in  November  2000, 

that 

he  Constitutional  Court  decides  on  conflicts  of  interest  among  the  three  branches  of 
government and is authorised to assess the conformity of laws with the Constitution and the 
conformity  of  by-laws  with  the  Constitution  and  laws.  It  is  also  empowered  to  decide  upon 

16 

 
 
  
 
constitutional petitions submitted by individuals who consider that their constitutional rights 
have  been  violated  by  the  final  acts  of  state  authorities  or  bodies  of  local  or  regional  self-
government.  The  Constitutional  Court  is  facing  a  constant  increase  in  the  number  of 
individual  petitions  submitted.  It  is  also  the  competent  appellate  authority  to  conduct 
proceedings  regarding  decisions  on  the  dismissal  or  disciplinary  responsibility  of  judges. 
According to the Croatian system the Constitutional Court is not considered to be part of the 
judiciary. 

The  independence  of  the  Croatian  judiciary  is  guaranteed  by  the  Constitution  and  by  the 
Courts Act. Judges are confirmed in their posts and appointed to a permanent position after 
serving a five-year probation period. Their permanent status is guaranteed by the Constitution. 
Judges are appointed by the State Judicial Council on the basis of opinions received from the 
judicial councils which are formed in each court. The Ministry of Justice examines whether 
the  candidates  comply  with  the  formal  requirements,  while  the  relevant  parliamentary 
committee  and  the  president  of  the  relevant  court  can  also  express  their  opinion.  State 
attorneys  (prosecutors)  are  appointed  by  the  State  Attorney  Council  following  a  similar 
procedure. Both Councils are autonomous and independent bodies. As regards the selection of 
candidate  judges,  no  competitions  are  organised.  To  become  a  judge,  a  lawyer  has  to  fulfil 
two  eligibility  criteria:  first,  to  pass  the  bar  exam  and  second,  to  have  a  certain  number  of 
years of work experience, depending on the category of court he is applying for. According to 
the  Courts  Act,  judges  may  not  be  members  of  political  parties  or  carry  out  other  activities 
that may influence their autonomy, impartiality or independence. 

Judges enjoy immunity in accordance with the Constitution and the Courts Act. In order to lift 
the  immunity  of  a  judge  and  to  give  approval  for  the  institution  of  criminal  proceedings 
against  him,  a  proposal  has  to  be  submitted  to  the  State  Judicial  Council  by  the  competent 
State  Attorney  Office.  The  State  Judicial  Council  decides  on  accountability  of  judges  for 
misconduct  or  breaches  of  rules  of  profession  in  disciplinary  proceedings.  However,  the 
evaluation  of  the  performance  of  judges  by  the  State  Judicial  Council  remains  largely 
theoretical.  Apart  from  one  case  pending  for  corruption  allegations,  there  have  only  been  a 
few decisions of the State Judicial Council in disciplinary proceedings against judges. There 
is no Code of Ethics binding for all judicial officials. However, the Association of Croatian 
Judges (a local NGO) has adopted an ethical code for its members.  

The tasks of court counsellors and clerks are described in the Rules of Procedure on Internal 
Organisation  of  the  Judicial  Body.  Judges  have  many  tasks  which  could  be  carried  out  by 
clerical  staff.  In  order  to  relieve  judges  from  administrative  tasks,  legislative  changes  were 
adopted by Parliament in January 2004. 

The  judicial  system  is  still  recovering  from  a  period  of  high  staff  turn-over  and  shortages. 
Vacancies  are  gradually  being  filled  with  young  judges,  attorneys  and  clerical  staff  but  a 
further  overall  increase  in  the  number  of  staff  is  planned  in  principle.  However,  Croatia 
already has a high number of judges in relation to the number of citizens as compared to EU 
and  acceding  countries.  There  were  1868  judges,  513  State  attorneys,  378  court  counsellors 
and 6023 court clerks (2.8 for every magistrate) in late 2003.  

The budget for the judiciary in 2003 (including prosecutors and the prison system) amounted 
to €231 million, compared to €192 million in 2002. This amount included €10.2 million for 
investment  in  buildings  and  office  equipment,  up  from  €5.5  million  in  2002.  A  further 
increase of the budget for the judiciary by approximately 10% has been approved for 2004. 

17 

 
 
  
 
Infrastructure and equipment for the judiciary remains a serious problem. Computerisation 
of commercial courts, the cadastre and land books has only just started, and large investments 
are  needed.  While  3300  computers  have  been  delivered  in  recent  years,  2500  more  are 
planned  to  be  delivered  in  2004-2005.  Courts  do  not  yet  have  access  to  data  bases  of  law 
enforcement  agencies.  Automation  of  the  court  management  system  should  be  finalised  by 
2008.  There  are  no  computerised  networks  yet  that  would  link  different  courts.  Court 
buildings are mostly old and worn-out and need to be refurbished and/or reconstructed. 

The Centre for Professional Training of Judges and other Judicial Officials was created 
in 1999 but became partly operational only in 2003. Although formally it is an autonomous 
service  within  the  Ministry  of  Justice  and  foresees  continuous  training  for  judges  and 
prosecutors,  in  practice  the  Centre  has  not  yet  built  up  sufficient  capacity  to  cope  with  its 
tasks. It has only 4 staff including the Director and no permanent budget. At present, trainers 
are  not  selected  through  a  competition  and  not  evaluated  on  their  performance.  The  Centre 
urgently needs to elaborate a training strategy, establish a team of trainers and start providing 
long-term  training  as  well  as  training  events  in  the  regions.  While  the Centre  has  organised 
seminars on an ad hoc basis (mainly funded by international donors), e.g. on European Court 
of Human Rights procedures, case law and other topics, training in EU law has not yet started. 
The Centre should also establish institutionalised co-operation with the Supreme Court, which 
is  supposed  to  supervise  the  training  of  judges  according  to  the  Courts  Act.  An  additional 
problem is the fact that courts lack budgetary resources for training. Plans to strengthen the 
Centre or to establish a Judicial Academy should be pursued with vigour. 

Functioning of the Judiciary 

In the second half of the 1990s, Croatia’s judicial system lacked independence and efficiency, 
and  had  staff  shortages.  While  considerable  improvements  have  been  made  and  the 
independence of the judiciary has been established, major challenges remain to be addressed. 
The main problems are the widespread inefficiency of the judicial system and the amount of 
time  needed  to  hand  down  and  enforce  judgments  as  well  as  weaknesses  related  to  the 
selection  and  training  of  judges.  Moreover,  too  many  issues  are  brought  before  courts  that 
could in principle be decided by other means. All these factors combine to cause a very large 
backlog of cases. An additional problem is that the courts and parts of the state administration 
do  not  always  respect  or  execute  in  a  timely  way  the  decisions  of  higher  courts.  Citizens’ 
rights are therefore not yet fully protected by the judiciary in accordance with the provisions 
of the Constitution. 

There is a backlog of about 1.38 million cases, indicating serious constraints in the judiciary’s 
ability  to  handle  the  work  load.  In  order  to  shorten  court  procedures  and  alleviate  the  work 
load  in  courts  a  number  of  measures  have  been  announced  recently:  while  the  Codes  of 
Criminal  and  Civil  Procedure  have  been  amended  to  simplify  and  speed  up  procedures,  it 
remains  to  be  seen  what  the  real  impact  will  be.  Further  steps  are  needed  in  this  area.  In 
criminal  cases,  the  main  investigative  authority  should  move  from  the  courts  to  the  State 
Attorney’s  Office.  Non-disputed  inheritance  cases  should  be  processed  by  public  notaries 
rather  than  courts.  First  steps  in  this  direction  have  been  taken  with  the  adoption  of  the 
Inheritance Act. The Act on Amendments to the Court Registers Act seeks to simplify, speed 
up  and  reduce  the  cost  of  the  procedure  for  registration  in  the  Court  Register.  Finally,  the 
Mediation  Act  foresees  in  alternative  dispute  resolution,  but  Croatian  citizens  are  not  yet 
familiar with the institute of mediation, so tangible results cannot be expected soon. 

The  structural  reform  of  the  Croatian  judicial  system  started  with  the  adoption  by  the 
government  in  November  2002  of  a  strategic  document  on  the  “Reform  of  the  Judicial 

18 

 
 
  
 
System”  and  an  Operational  Plan  adopted  in  July  2003.  The  strategy  identified  a  set  of 
measures  addressing  a  number  of  structural  weaknesses.  It  included  proposals  for  the 
establishment  of  a  professional  training  system,  alleviation  of  the  work  load  in  courts  and 
simplification  of  court  proceedings.  It  foresaw  the  adoption  of  new  laws,  purchase  of 
equipment  and  filling  of  judicial  vacancies,  although  the  time  frame  was  rather  unrealistic. 
The  reform  proposed  in  2002  did  not  address  the  issue  of  changes  to  the  Courts  Act  that 
would  enable  mobility  of  judges,  provide  for  obligatory  training  and  link  professional 
achievement to promotion.  

In January 2004, the Parliament provided new impetus for the continuation of judicial reform 
by adopting a package of amendments to the Courts Act. Aimed at reducing the backlog, the 
amendments envisaged the redistribution of cases from overburdened courts to courts having 
the same jurisdiction but a smaller case-load, to widen the competences of court counsellors 
in order to carry out certain procedural actions and thus to relieve judges, and to extend the 
possibility of transfer of judges, with their consent, from one court to another. In addition, the 
amendments  provided  for  a  detailed  description  of  the  obligations  of  judges  and  a  better 
evaluation  system.  The  Government  has  also  adopted  proposals  to  entrust  execution 
procedures  to  enforcement  officers  vested  with  public  powers.  However,  this  measure 
requires amendments to the Enforcement Act, which have yet to be adopted by Parliament. In 
addition,  full  use  should  be  made  of  changes  to  the  Civil  Procedure  Code,  in  force  since 
December  2003,  which  introduced  time-limits  and  other  measures  to  prevent  abuse  of 
procedural  possibilities.  The  implementation  of  all  these  measures  will  require  substantial 
efforts on the part of the Croatian authorities. 

The  enforcement  of  judgements  in  the  criminal  area  is  under  the  authority  of  execution 
judges and is regulated separately from the enforcement of other types of judgments referring 
to different, especially financial, claims. The biggest part of the backlog of cases within the 
Croatian  judiciary  is  connected  with  registration  cases  and  the  enforcement  of  civil 
judgments,  especially  those  imposing  financial  obligations  on  debtors  or  requiring  certain 
types of action from them. Plans to reform the Enforcement Act should therefore be pursued 
with vigour. 

1.1.4.  Anti-corruption measures 

Croatia has ratified the Criminal and the Civil Law Conventions of the Council of Europe and 
has  adapted  national  legislation  accordingly.  Corruption  is  defined  as  a  criminal  offence. 
Croatia acceded to the Group of States against Corruption (GRECO) in December 2000. The 
GRECO Plenary  meeting  addressed  sixteen Recommendations to the Croatian authorities in 
May  2002.  These  recommendations  deal  with  both  legislative  and  administrative  measures. 
Croatia is due to submit a report on its implementation of the Recommendations to GRECO in 
the near future. 

Croatia is not a Member of the OECD but participates in the working group of non-members 
and takes an active part in the Anti-Corruption Network (ACN). Preparations for accession to 
the  OECD  Convention  on  Combating  Bribery  of  Foreign  Public  Officials  in  International 
Business Transactions are underway. 

International reports and surveys indicate that corruption in Croatia continues to be a problem 
and  affects  various  aspects  of  society.  Despite  significant  efforts  during  the  past  years  to 
intensify the fight against corruption, further action needs to be taken. 

19 

 
 
  
 
At  the  national  level  Croatia  has  adopted  and  implemented  various  anti-corruption  related 
laws. Furthermore a comprehensive plan of actions and measures as well as a national anti-
corruption  programme  exist.  However,  so  far  no  follow-up  on  the  implementation  of  the 
national programme has been produced, even though many of the deadlines in the programme 
had been set for 2001. National legislation has been partly aligned with the provisions of the 
1995 Convention on the Protection of the Communities’ Financial Interests and its protocols, 
although further improvements are necessary. Various legal acts, in particular the Act on the 
Prevention of Conflicts of Interest in Performing Public Duties, contain provisions to prevent 
conflicts of interest between the private and public sectors. 

With the establishment of the Office for the Suppression of Corruption and Organised Crime 
(USKOK)  there  is  a  specialised  body  to  investigate  and  prosecute  corruption.  The  Office 
operates  as  a  special  unit  within  the  State  Attorney’s  Office.  Close  co-operation  is  foreseen 
with the Office for the Prevention of Money Laundering. However, USKOK is not yet fully 
operational  and  its  administrative  and  operational  capacity  needs  to  be  considerably 
improved.  Training  is  provided  at  different  levels  and  via  different  organisations  and 
programmes. 

There  are  various  sources  of  statistics  on  corruption.  The  State  Attorney  issues  an  annual 
report  with  statistics  on  corruption  cases  which  is  debated  in  the  Croatian  Parliament. 
Furthermore the Ministry of Interior keeps separate statistics on corruption offences and the 
Croatian Bureau of Statistics collects relevant data from state administration bodies including 
the State Attorney’s Office and USKOK. 

Various measures are being taken to upgrade staff capacities, improve working conditions and 
provide adequate facilities and IT equipment for the courts, the State Attorney’s offices and 
USKOK. However, significant further improvement will be required. In addition, more action 
should be taken to raise public awareness of corruption as a serious criminal offence. 

1.2. 

Human Rights and the Protection of Minorities 

Croatia  has  put  in  place  a  number  of  legislative  provisions  to  guarantee  the  respect  human 
rights  and  the  rights  of  minorities.  The  Constitution  deals  with  fundamental  freedoms  and 
rights. These rights can also be underpinned by certain International conventions, foremost of 
which is the European Convention for the Protection of Human Rights and its main additional 
protocols. Taken as a whole, this constitutes - pursuant to Article 6 of the Treaty on European 
Union  -  part  of  the  acquis  any  state  wishing  to  join  the  European  Union  must  first  have 
ratified these texts.  

Croatia  has  been  a  member  of  the  Council  of  Europe  since  1996,  ratified  the  European 
Convention for the Protection of Human Rights and the additional protocols 1997. Individuals 
may  take  their  case  to  the  European  Court  if  they  consider  that  their  rights  under  this 
Convention have been violated. 

Among  the  other  international  conventions  protecting  human  rights  and  minorities,  Croatia 
has ratified the European Convention on the Prevention of Torture, the European Charter for 
Regional  and  Minority  Languages  but  has  to  sign  the  1996  European  Social  Charter.  It  has 
ratified the existing key UN conventions in the field of human rights with their Protocols. 

In  accordance  with  Article  140  of  the  Constitution,  international  Treaties  are  part  of  the 
internal legal order of the Republic of Croatia and apply over ordinary national legislation. 

20 

 
 
  
 
1.2.1.  Civil and Political Rights 

Access to justice is guaranteed by the Constitution. Legal aid is available in criminal cases. In 
civil cases, only the Bar Association provides free legal aid. Foreigners cannot receive legal 
aid in civil cases. There is no free legal aid for individuals without citizenship (such as many 
of the Roma community). The Bar Association set its own fees for legal services. There is no 
legal  aid  in  civil  cases  organised  by  the  state  or  state  control  over  the  eligibility  criteria  for 
legal aid offered by the Attorney Bar Association. The Law on Court Fees exempts returnees 
and  internal  displaced  persons  (IDPs)  from  the  obligation  to  pay  court  fees.  The  Law  on 
Asylum,  however,  does  not  specify  how  legal  assistance  will  be  provided  to  asylum 
seekers.The  death  penalty  has  been  abolished  and  Croatia  has  signed  Protocol  13  to  the 
Convention  for  the  Protection  of  Human  Rights  and  Fundamental  Freedoms  concerning  the 
abolition  of  the  death  penalty  in  all  circumstances;  this  entered  into  force  on  1  July  2003. 
Torture,  inhuman  and  degrading  treatments  are  forbidden  by  the  Constitution.  Forced  or 
obligatory labour is not permitted either.  

In  October  2002,  Croatia  adopted  a  National  Plan  for  the  Suppression  of  Trafficking  in 
Human Beings in line with international standards. Currently, under the 1997 Criminal Code, 
trafficking  in  human  beings  is  only  criminalised  under  Article  175  which  penalises  slavery 
with no specific reference to trafficking.3 

The  Croatian  Constitution  prohibits  all  forms  of  discrimination  including  discrimination  on 
the basis of race. The Criminal Code prescribes criminal responsibility for those who violate 
the equality of citizens on the basis of race; it provides for criminal liability for those who, on 
the  basis  of  difference  in  race,  sex,  colour  of  skin,  nationality  or  ethnic  origin  violate  basic 
human  rights  and  freedoms.  There  is  no  specific  criminal  provision  forbidding  acts  of 
xenophobia. 

Arbitrary arrest is forbidden by the Constitution. Nobody can be arrested or put into custody 
without a written judicial order. Any arrested person has the right to appeal to the court which 
decides on the legality of the deprivation of liberty and must be immediately informed of the 
reasons for the arrest. In addition, the Constitution provides for compensation to be paid to a 
person unjustly arrested. The length of the pre-trial detention is defined precisely in the law 
with guarantees for the person deprived of his/her liberty that it is on line with international 
standards.  

The  right  to  vote  is  guaranteed  and  defined  by  the  Constitution,  for  all  citizens  who  have 
reached the age of 18 years. This provision also applies to citizens who are abroad at the time 
of the elections.  

Freedom of association and assembly are  guaranteed by the Constitution. The  relevant law, 
which  entered  into  force  on  1  January  2002,  has  been  implemented  without  reported 
problems. The number of registered Civil Society Organisations in Croatia is rapidly growing 
and  increasingly  diversifying.  Whilst  in  1999,  only  15,375  NGOs  were  registered,  the  total 
number had increased to 23,740 by August 2003. In addition 70 foundations, 6 funds and 120 
international  NGOs  are  also  registered.  Throughout  the  years,  the  role  of  NGOs  has  been 

3  The  July  2003  amendments  to  the  Criminal  Code  amended  Article  175  bringing  it  into  line  with  the 
International  Convention  that  specifically  refers  to  trafficking  in  human  beings.  However  for  formal 
procedural  reasons,  the  Constitutional  Court  annulled,  on  27 November  2003,  the  amendments  to  the 
Criminal Code adopted by Parliament on 9 July that were due to enter into force on 1 December 2003. 
The Constitutional Court decided that the amendments had been adopted without the qualified quorum 

21 

 
 
  
 
                                                 
extremely  important  in  advancing  human  rights  particularly  in  areas  such  as  refugee  issues 
and election monitoring.  

Freedom  of  expression  is  guaranteed  by  the  Constitution.  Before  2000,  overt  pressure, 
harassment, economic extortion and arbitrary prosecutions were practised. The situation has 
improved  considerably  since  2000.  The  media  is  now  to  a  large  extent  deregulated  and 
generally  subject  to  free  market  rules.  There  are  particular  concerns,  however,  that 
possibilities remain for political influence at local level.  

The print media is characterized by a wide variety of daily newspapers. There are five daily 
national  papers  plus  daily  papers  with  local/regional  markets.  There  are  three  political 
weeklies.  Newspapers,  apart  from  two  national  daily  newspapers,  have  been  privatised,  and 
journalists no longer encounter major obstacles in the exercise of their profession. There is a 
large  degree  of  political  diversity.  Nevertheless  further  measures  should  be  taken  to  ensure 
transparency  in  media  ownership.  The  dominant  position  in  the  distribution  sector  by  one 
group  of  publishers  could  result  in  unfair  treatment  of  competitors  (namely  some  of  the 
biggest publishers control more than 50% of the biggest distribution network in Croatia). 

In  the  audio-visual  field,  there  are  more  than  130  radio  stations  and  foreign  broadcasters 
airing their programmes. The state TV broadcaster (HTT) has lost its monopoly position. The 
privatization  of the  third  national  TV  channel to a Croatian RTL consortium could promote 
the  development  of  the  private  broadcasting  sector and  introduce  competition  and pluralism 
within  the  television  market.  In  addition  to  the  three  TV  channels  that  cover  the  whole 
country, there are several regional TV networks. There are no restrictions regarding access to 
foreign news sources. Foreign TV channels are available on satellite and on cable TV.  

The  legal  and  administrative  framework  currently  in  force  in  Croatia  was  adopted  with  the 
intention  of  harmonizing  Croatian  legislation  with  European  standards.  However,  there  are 
concerns about the remaining possibilities of political influence on regulatory bodies that have 
been created.  

There are four important laws in the field of Media: (i) the Law on Croatian Radio-Television 
(HRT) of March 2003, regulates the functioning of the State broadcaster, HRT, and provides 
for programme principles and obligations. The procedure for the appointment of the members 
of  the  HRT  Council  does  not  provide  the  necessary  transparency,  nor  does  it  secure  the 
political  independence  and  plurality  of  views  required  of  broadcasting  regulators.  The 
members  of  the  Council  were  selected4,  after  a  long  delay,  more  on  the  basis  of  political 
preference than relevant experience. Civil society representatives should play a larger role in 
the  appointment  and  nomination  of  Council  members;.  (ii)  The  Law  on  Electronic  Media, 
adopted  in  July  2003,  governs  electronic  radio  and  TV  broadcasts,  as  well  as  electronic 
publications. It also outlines the procedure for the allocation of licences for public and private 
radio and TV broadcasters. A Council for Electronic Media (a supervisory regulatory body) 
will  grant  and  cancel  licences  for  frequency  allocations,  exercise  supervision  and  hear 
complaints.  The  procedure  for  the  appointment  of  the  members  of  the  Council  does  not 
provide  the  necessary  transparency,  nor  does  it  secure  the  political  independence,  and  the 
plurality  of  views,  proper  funding  and  staffing  required  for  broadcasting  regulators,  The 
adopted Law is not fully in line with the European Convention on Trans-frontier Television 

4 On 17 October 2003 Parliament agreed on the selection the members of the Council. Six members have been 
nominated  by  the  previous  ruling  coalition  and  five  by  the  opposition.  The  Council  consists  of  11 
members from different civil society groups. 

22 

 
 
  
 
                                                 
and  the  Television  Without  Frontiers  Directive  (see  also  Chapter  20–Culture  and  Audio-
visual). (iii) Law on Telecommunications, adopted in July 2003, aims at opening the way for 
liberalisation  in  the  field  of  telecommunication  services  by  creating  conditions  for  new 
operators  in  the  fixed  and  mobile  telecommunication  services.  The  law  establishes  a 
Telecommunications  Agency  as  an  independent  regulator,  which  deals  with  frequency 
allocation and other technical issues. However the relations between the Telecommunication 
Agency  and  the  Council  for  Electronic  Media  are  not  clearly  defined  and  might  lead  to 
deadlocks in the work of the two bodies. The law is largely in line with international standards 
but its aspects related to broadcasting need urgent reform. (iv) The Law on Media, (formerly 
called “Law on Public Information”) adopted in October 2003, regulates the basic principles 
for the work of non-electronic (i.e. mainly printed) media, such as the freedom of expression, 
the right of the public to information, protection of privacy and media ownership. However, in 
January  2004  the  Constitutional  Court  repealed  the  Law  for  procedural  reasons  (it  was  not 
adopted  by  absolute  majority  despite  the  fact  that  it  was  dealing  with  fundamental  human 
rights).  According  to  the  Constitutional  Court  decision,  the  Media  Law  can  apply 
provisionally  until  30  April  2004.  Croatia  should  ensure  that  revised  Media  Law  takes  full 
account of Article 10 of the European Convention on Human Rights (ECHR) as well as other 
relevant Recommendations adopted by the Committee of Ministers of the Council of Europe.  

The  Law  on  Changes  to  the  Criminal  Code  adopted  in  July  2003,  which  included  the 
criminalization of libel by journalists, was annulled by the Constitutional Court in November 
2003  because  it  was  not  adopted  by  an  absolute  majority.  It  is  now  important  that,  in  the 
revised  law,  the  legislation  concerning  libel  reflects  European  Standards  (as  defined  in  the 
jurisprudence of the European Court of Human Rights). 

In  conclusion,  changes  are  required  to  bring  the  above  mentioned  laws  into  line  with 
European standards, in accordance with the recommendations formulated in February 2004 by 
the joint expert mission of the Council of Europe, the European Commission and OSCE. 

The right of ownership is recognised by the Constitution. However foreigners are still subject 
to  certain  limitations  defined  by  law,  notably  as  regards  ownership  of  agricultural  land, 
forests,  protected  parts  of  nature  (national  parks,  natural  reserve  etc.).  Foreign  natural  and 
legal persons may become owners of real estate in Croatia under condition of reciprocity and 
upon approval by the Ministry of Foreign Affairs. Also in the case of inheritance, foreigners 
must meet the condition of reciprocity. 

The  process  of  restitution  of  dispossessed  property  during  the  Yugoslav  communist  regime 
has  been  regulated  by  a  Law  that  entered  into  force  in  January  1997.  The  process  is 
proceeding  very  slowly;  after  7  years  of  implementation  only  in  34%  of  cases  (more  than 
51.000 cases were submitted) has a legally valid decision been made and only 21% of claims 
have  been  positively  decided.  The  Law  provides  for  the  possibility  that  only  the  first  line 
descendants may request compensation under the condition that they satisfy certain eligibility 
requirements. The Government is unable to predict a timeframe within which the procedure 
shall be completed. 

The  respect  of  privacy  is  guaranteed.  The  Constitution  guarantees  inviolability  of  homes, 
freedom and privacy of correspondence. Only a court may order the search of a home or other 
premises by means of a motivated warrant. 

According  to  available  information  there  are  no  registered  stateless  persons  in  Croatia  as  a 
result of the dissolution of the SFRY.  

23 

 
 
  
 
1.2.2.  Economic, Social and Cultural Rights 

In 1999 Croatia ratified the 1961 European Social Charter and the Additional 1999 Protocol, 
both of which entered into force in March 2003. In February 2003, Croatia also ratified the 
1991  Protocol  amending  the  European  Social  Charter.  Croatia  has  not  yet  signed  the  1996 
European Social Charter. 

The  Croatian  Constitution  provides  for  economic, social  and  cultural  rights.  Entrepreneurial 
and market freedoms are guaranteed and the State is committed to ensuring all entrepreneurs 
have  an  equal  legal  status.  Furthermore,  the  right  to  work  with  full  access  to  all  jobs  and 
duties  for  everyone  under  the  same  conditions  including  the  right  of  employees  and  of 
members  of  their  families  to  social  security  and  social  insurance  are  recognised.  There  is  a 
range of different welfare benefits included in the Constitution. The Constitution provides for 
the  universal  right  to  health  care  and  special  care  for  the  weak,  helpless  and  disabled,  with 
emphasis  on  social  integration  programmes.  However,  budgetary  constraints  limit  the  scope 
of those rights. Families enjoy special protection. Motherhood and childhood are protected by 
the State.  

Croatia, as a successor state of Yugoslavia, implements the UN Convention on the Rights of 
the Child. Croatia should present the second initial report on progress on implementation of 
the  Convention  in  May  2004.  In  summer  2003,  Croatia  introduced  the  institution  of  the 
Children’s’ Ombudsman. 

There  are  no  obstacles  to  establishing  trade  unions.  The  right  to  strike  is  guaranteed  with 
some  restrictions  for  the  armed  forces,  the  police,  the  public  administration  and  the  public 
services (e.g. health personnel).  

There is a right to free primary education and free access to secondary and higher education 
with freedom to establish private schools and educational institutions.  

Religious freedom is guaranteed. While the church is separated from the State, an agreement 
between Croatia and the Holy See establishes a favourable framework regarding the work and 
activity  of  the  Catholic  Church  within  society.  Religious  teaching  is  not  obligatory  but  is 
performed within the state educational system. Croatia has signed similar agreements with the 
major faiths in Croatia (e.g., Catholic, Orthodox, and Muslim) apart from Judaism. The return 
of Jewish property is the main obstacle to concluding such an agreement. 

Homosexual  relations  are  recognised  by  the  Law.  The  Law  on  Equality  of  Sexes  prohibits 
discrimination on the basis of sexual orientation. 

1.2.3.  Minority rights, protection of minorities and refugees 

Minorities 

According to the 2001 census, 7.5% of the Croatian population are members of 16 national 
minorities. The most numerous are the Serbs with 4.5% of the total population, followed by 
Bosniacs  (0.47%),  Italians  (0.44%),  Hungarians  (0.37%),  Albanians  (0.34%),  and  Slovenes 
(0.3%). According to the latest official statistics, the corresponding proportion of Roma was 
0.21% but the actual figure is probably significantly higher. 

Croatia  has  ratified  all  the  Council  of  Europe  conventions  which  it  has  signed,  such  as  the 
European  Convention  on  Human  Rights  and  Fundamental  Freedoms,  the  Framework 
Convention for the Protection of National Minorities, the European Charter for Regional and 

24 

 
 
  
 
Minority  Languages,  as  well  as  the  UN  Convention  on  Civil  and  Political  Rights. 
Furthermore, Croatia has concluded bilateral agreements on protection of national minorities 
with Hungary and Italy. A bilateral agreement with Serbia and Montenegro is in preparation. 

The  Constitutional  Law  on  the  Rights  of  National  Minorities  (CLNM),  adopted  on  13 
December  2002,  sets  the  domestic  legal  framework  for  minority  rights  in  Croatia.  National 
minorities  are  guaranteed  the  right  of  having  up  to  eight  representatives  in  Parliament.  At 
local  level,  minorities  have  the  right  to  have  representatives  in  elected  bodies  as  well  as 
judicial and administrative bodies of municipalities and cities. The CLNM also provides for 
minority representation in judicial and administrative bodies at state and local level.  

In  addition,  an  advisory  Council  of  National  Minorities  at  national  level  and  local  advisory 
bodies  to  city/municipality  councils  were  established.  The  government  should  work  closely 
with the Council of National Minorities in implementing the CLNM. 

Furthermore, a special legal framework is in place regarding the rights of the Serb minority in 
the Danube region; this was established by the Erdut Agreement and the Government Letter 
of  Intent  of  1997.  While  most  of  the  rights  guaranteed  under  the  Erdut  Agreement  are 
transposed  into  the  CLNM,  some  specific  rights  arise  from  the  Letter  of  Intent,  such  as 
proportional representation in the police force and the judiciary and rights to minority schools. 

Members  of  national  minorities  in  Croatia  exercise  their  right  to  use  their  mother  tongue 
officially on an equal basis on the territory of cities/municipalities and counties, if their share 
of  population  is  at  least  one  third  or  if  so  provided  by  international  agreements.  Also,  they 
have  the  right  to  education  in  their  language  from  pre-school  onwards  (up  to  secondary 
education) in accordance with the Constitution, the Constitutional Law on the Rights  of the 
National  Minorities  (2002),  the  Law  on  the  Use  of  the  Language  and  Script  of  National 
Minorities  (2000)  and  the  Law  on  Education  in  the  Language  and  Script  of  National 
Minorities (2000).  

An educational institution with tuition in a language and script of a national minority can be a 
public institution, funded by the State Budget, or a private school established by any legal or 
natural person under the same conditions that apply to the establishment of any educational 
institution.  The  principles  of  equality  and  non-discrimination,  protection  of  the  national 
identity,  social  integration,  freedom  to  establish  educational  institutions,  educational 
programmes  and  curriculum  and  the  provision  of  adequate  teacher  training  appear  to  be 
incorporated  in  the  Croatian  legislation.  These  principles  are  consistent  with  the  basic 
principles  contained  in  the  Council  of  Europe  Framework  Convention  for  Protection  of 
National Minorities and the European Charter for Regional or Minority Languages. 

Ombudsman could play an important role for protection of minority rights but faces serious 
budgetary  constraints.  There  is  a  Government  Office  for  National  Minorities.  In  the  2003 
State  budget,  HRK  20  million  (€ 2.6  million)  are  allocated  for  minorities  to  be  distributed 
through that Office.  

Eight representatives of national minorities were elected at the parliamentary elections on 23 
November 2003, which is an increase compared to the 2000 elections where 5 representatives 
were elected by national minorities.  

According  to  the  last  Census  331,383  Croatian  citizens  who  are  members  of  16  national 
minorities  have  the  right  to  elect  471  Minority  Councils  with  6662  councillors  and  143 
representatives  on  local  (municipality)  and  regional  (county)  level.  Elections  for  local 

25 

 
 
  
 
advisory  Councils  of  Minorities  were  held  on  18  May  2003.  However,  due  to  the  short 
preparation period, low support from the Government and the low organisation at the level of 
minority  organisations,  only  less  than  half  of  the  Councils  to  which  minorities  are  entitled 
under the Constitutional Law on National Minorities have been elected. Additional elections 
for  members  of  the  Councils  of  National  Minorities  were  held  on  15  February  2004  in  15 
counties, 64 towns, and 132 municipalities. The turnout was around 8% of the total minority 
population.  There  are  still  misunderstandings  and  a  lack  of  awareness  with  regard  to  the 
formal  establishment  of  the  local  Councils,  not  only  among  the  local  authorities  but  also 
among the minority groups themselves.  

According to the Constitutional Law on National Minorities, by-elections have had to be held 
in  those  counties/municipalities  where  not  enough  minority  representatives  could  be 
nominated  through  party  lists.  These  by-elections  were  only  held  on  15  February  2004 
whereas, according to the CLNM, they should have been held by 23 March 2003. It should be 
noted that under the Law on Local Elections of 2001 these elections should have been held 
already by September 2002.  

With  regard  to  minority  representation  in  state  administrative  and  judicial  bodies,  as 
envisaged by the CLNM, minorities are still underrepresented. The Government, referring to 
practical difficulties, the constrains of the State budget and, in the case of the judiciary, to the 
independence of courts in selecting judges, has not developed a programme to remedy under-
representation  in  the  long  term.  Although  a  significant  number  of  positions  in  the  State 
administration  and  the  judiciary  have  been  advertised,  it  is  not  known  whether  members  of 
national  minorities  are  among  the  new  employees.  Also,  certain  legislation  has  still  to  be 
brought in line with the CLNM, such as the Law on State Administration, the Law on Courts, 
the  Law  on  the  State  Judicial  Council  and  the  Law  on  the  State  Prosecutor’s  Office. 
Appropriate measures to address and remedy this situation, need consequently, to be taken. 

With regard to the media, minorities and issues of their concern have been increasingly, albeit 
not  yet  adequately,  covered  over  recent  years,  both  in  electronic  media  and  in  the  press. 
Although  hate  speech  is  constantly  decreasing,  national  minorities  are  perceived  and 
presented  as  separate  entities  and  not  as  an  integral  part  of  the  society.  Provisions  of  the 
CLNM  that  public  radio  and  TV  stations  at  national  and  local level  have  to  produce  and/or 
broadcast programmes for minorities in their languages have still to be implemented.  

With regard to Court proceedings on discrimination against minorities, there are no indication 
of  any  verdicts  in  which  discrimination  against  minorities  or  criminal  guilt  for  spreading 
racial hatred has been established. 

The  Serb  minority  is  in  a  distinct  situation.  First,  although  it  is  still  the  minority  with  the 
largest number of citizens, its share of population has decreased dramatically from 13% (1991 
census)  to  4.5%  (2001  census)  of  the  population.  Secondly,  relations  between  the  Croatian 
State  and  the  Serb  minority  are  burdened  by  the  legacy  of  the  recent  war,  i.e.  return  of 
refugees  and  restitution  of  their  property  [see  paragraph  on  “refugees”  below].  With  the 
independence  of  Croatia  their  status  changed  from  that  of  a  constitutive  nation  in  former 
Yugoslavia  to  a  national  minority.  In  December  2003  the  new  Government  signed  an 
agreement with the representatives of Serb minorities, and offered them several positions in 
the  administration.  It  is  to  be  noted,  however,  that  the  existing  institutions  of  the  Serb 
minority (political parties, schools, cultural organisations) can work without any obstacles. In 
the Danube region, most of the provisions of the Erdut Agreement and the Government Letter 
of Intent have been implemented, with the important exception of proportional representation 

26 

 
 
  
 
of Serbs in the judiciary. The State, still needs to make additional efforts to integrate the Serb 
community into Croatian society at all levels. 

The  Roma  minority  deserves  special  attention.  The  Roma  population  officially  accounts  for 
0.21  %  of  the  population  (9,463  persons,  according  to  the  2001  census).  However,  their 
estimated number is significantly higher (30,000 to 40,000) as Roma often declare themselves 
as  members  of  the  majority  group  or  do  not  register.  Most  Roma  are  not  integrated  into 
Croatian  society  and  suffer  discrimination  in  all  fields  of  public  life  such  as  access  to 
employment, health and political representation.  

In view of the acute social exclusion in which most of the Roma population lives in Croatia, 
on  16  October  2003,  the  Government  adopted,  encouraged  by  the  Council  of  Europe  and 
OSCE, a National Programme for the Roma. The Programme envisages a series of measures 
to ensure the social inclusion of the Roma, preserving their tradition and culture. It addresses 
issues  such  as  status,  political  representation  at  local  level,  employment,  children’s  rights, 
education, health care, social welfare, housing and environmental protection. It remains to be 
seen,  however,  whether  the  funds  allocated  to  this  initiative  in  the  2004  State  Budget  are 
adequate to implement the Programme. 

There is a very high number of cases pending in the ECHR against Croatia. This appears to 
reflect  (i)  procedural  problems  in  the  Croatian  judiciary  including  the  extent  to  which  the 
Constitutional Court is able to act as an effective domestic remedy on human rights issues and 
(ii)  substantive  human  rights  concerns,  regarding  some  legislation,  particularly  laws 
governing property issues related to the war. 

Refugees 

Croatia  has  ratified  the  1951  Geneva  Convention  on  Refugees.  A  number  of  refugees  from 
BiH  have  been  given  refugee  status  under  the  Croatian  Law  on  the  Status  of  Displaced 
Persons  and  Refugees.  The  definition  of  refugees  under  that  Law  differs  significantly  from 
that  of  the  Geneva  Convention.  While  the  Law  on  the  Movement  and  Stay  of  Foreigners 
prescribes  procedures  for  granting  asylum,  there  has  been  no  positive  decision  granting 
asylum. On 1 July 2004, the new Asylum Law should enter into force.  

In the period 1991-1997, the total number of refugees and Internal Displaced Persons (IDPs) 
from without and within Croatia, was approximately 950,000.  

As a result of the recent war, approximately 550,000 Croats5 became displaced (IDPs). The 
number  of  Croatian  Serb  refugees,  resulting  mainly  from  the  1995  operations  Flash  and 
Storm, through which Croatia took over control of all occupied areas, was 370,000 (330,000 
in Serbia and Montenegro and 40,000 in BiH). In addition, 32,000 Serbs were registered as 
IDPs at the end of 1997 in the UNTAES region (Eastern Slavonia). In addition to the 950,000 
refugees  and  IDPs  there  were  also  the  Bosnian  Croats  who  either  established  themselves 
eventually in Croatia (approximately 130,000) or transited through Croatia to another country. 

By  the  end  of  2003,  the  number  of  Croatian  Serb  refugees  was  approximately  209,000 
(189,500 in Serbia and Montenegro and 19,500 in BiH). The number of IDPs of Serb ethnic 
affiliation was 1,700. By the end of the same period 108.000 Croatian Serb refugees returned 
to Croatia. 

5 The terms Croat and Serb indicate ethnic affiliation whereas Croatian indicates citizenship of the Republic of 

Croatia. 

27 

 
 
  
 
                                                 
Mainly as a result of the long displacement and obstacles to their return, a large number of the 
current Serb refugees appear to have opted for local integration in the country in which they 
reside. The census conducted in the second half of 2000 by the Governments of the then FRY 
and BiH in cooperation with UNHCR indicated that the maximum potential for return of the 
remaining refugees was around 30%, i.e. approximately a little more than 83,000 individuals 
(76,500  from  SaM  and  6,500  from  BiH).  A  survey  carried  our  for  the  OSCE  Mission  to 
Croatia in the second half of 2003 has yielded a potential for return of 15% of the refugees 
currently  in  SaM  and  BiH,  which  corresponds  into  a  number  of  approximately  30,000 
individuals.  

The  main  issues  refugees  face  upon  return  are  housing,  mines,  economic  re-integration, 
potential  harassment  based  on  “war  crimes”  allegations  and  the  inhospitable  atmosphere 
within the receiving local communities. In addition there are administrative problems such as 
non  recognition  of  pension  rights  based  on  working  years  in  the  formerly  Serb  controlled 
areas. In terms of economic re-integration, the Government has put in place measures for the 
economic  development  of  the  areas  of  return  but  with  no  specific  measures  intended  for 
returnees. The necessary budgetary resources have been made available and the process of de-
mining is planned to be completed by 2010. 

During  the  war  and  afterwards,  many  houses  and/or  apartments  were  either  destroyed  or 
occupied.  Thus,  the  housing  problem  can  be  divided  into  three  parts  which  are:  (i) 
reconstruction;  (ii)  repossession  of  property  and  (iii)  provision  of  housing  care  for  former 
tenancy right holders. 

Reconstruction: to date, the Government has reconstructed approximately 130,000 out of the 
200,000  destroyed  houses  and  apartments.  Seven  percent  (7%)  of  this  programme  has  been 
funded  by  the  International  Community.  There  appear  to  be  no  major  delays  in  the 
implementation  of  the  reconstruction  programme  of  the  estimated  16,000  remaining  houses 
and  it  is  expected  to  be  completed  by  the  end  of  2005.  This  would  facilitate  the  return  of 
approximately  48,000  individuals.  With  the  amendments  of  2000  to  the  Law  on 
Reconstruction,  the  last  discriminatory  legal  provisions  were  removed.  The  deadline  for 
request  for  reconstruction  was  the  end  of  2001.  In  March  2004,  in  accordance  with  the 
agreement  signed  with  Serb  representatives  the  Government  re-opened  the  deadline  for 
submission of new requests for reconstruction from 1 April to 30 September 2004. This will 
probably mean that reconstruction programme will have to continue until 2006. 

Repossession  of  property:  The  repossession  of  residential  property  awarded  to  temporary 
users  under  the  Law  on  Temporary  Take  Over  and  Administration  of  Specified  Property  is 
regulated by the 2002 Amendments to the Law on Areas of Special State Concern. The Law 
on  Ownership  and  Other  Proprietary  Rights  governs  the  repossession  of  other  types  of 
property, for example, business properties and agricultural land, which could also have been 
assigned to temporary users through the Law on Temporary Take Over and Administration of 
Specified  Property.  Funds  have  been  provided  by  the  Government  to  provide  alternative 
accommodation.  By  the  end  of  2003,  out  of  the  total  number  of  approximately  20,000 
applications  for  houses  to  be  repossessed6,  just  under  16,000  have  been  repossessed  (out  of 
which 4,000 remained empty since there is no knowledge of owners’ whereabouts). However, 
the pace of property repossession is very slow. The main reasons are (i) the self imposed task 
to provide alternative accommodation to occupants as pre-condition for repossession (which 

6  This  concerns  repossession  of  houses  that  were  awarded  for  occupation  under  the  Law  on  Temporary  Take 

Over and Administration of Specified Property of 1995. 

28 

 
 
  
 
                                                 
means that the owners’ rights are not fully acknowledged); (ii) the lack of urgency at lower 
level  in  the  state  administration,  to  provide  alternative  accommodation  to  the  occupants  in 
time7; and (iii) the failure of courts to order evictions and the non-enforcement of decisions 
for the eviction of illegal occupants. Originally, the Government planned to finalise property 
restitution by the end of 2002. This deadline was then postponed to the end of 2003. However, 
the  new  deadline  has  not  been  met.  By  end  of  2003,  3,500  houses  were  still  occupied  for 
which around 2,200 requests for repossession have been made. The Government’s agreement 
with  the  Serb  representatives  stipulates  that  this  process  should  be  completed  by  the  end  of 
2004. 

Housing  for  former  tenancy  right  holders:  Until  recently,  refugees  who  lived  in  socially 
owned  houses  with  occupancy/tenancy  rights  had  no  access  to  housing  if  they  decided  to 
return to Croatia. This lack of remedy discriminately affected the refugees from urban areas. 
In July 2002,  the  amendments  to the Law on the Areas of Special State Concern8 opened a 
possibility for remedies for former holders of tenancy rights, for the first time, in these areas. 
On 12 June 2003, the Government also adopted a Decision to also provide housing care for 
those  former  tenancy  right  holders  outside  the Areas  of  Special  State  Concern  who  wish  to 
return9. This Decision foresees that publicly financed housing would be made available to the 
applicants.  The  deadline  to  submit  a  request is  the  end  of  2004.  The  deadline  for  providing 
housing  care  is  31  December  2006.  The  programme  does  not  address  the  issue  whether  the 
termination of occupancy/tenancy rights were legally justified and there are a large number of 
domestic court proceedings ongoing and at least one case has been declared admissible to the 
ECHR (“Blecic v. Croatia”). 

As the Implementation Plan of the Government decision was signed after considerable delay 
only on 29 October, there are no concrete results yet. To date no decision in favour to former 
tenancy right holders has been taken. The Government expects to meet all requests by the end 
of 2006. In the 2004 State budget, approved on 4th March 2004, budget is allocated for the 
construction of approximately 1,500/1,600 apartments to cover the first requests. It is hard to 
assess the impact of these measures on return. 

In  conclusion  the  Croatian  Government  has  put  in  place  provisions  to  provide  housing 
solutions  to  refugees  and  IDPs  who  wish  to  return.  However,  the  implementation  of  these 
provisions,  with  the  exception  of  the  reconstruction  programme,  has  to  be  accelerated  and 
improved.  The  return  of  some  other  types  of  property  than  housing  has  still  not  been 
addressed  in  the  same  legal  way  as  the  repossession  of  housing.  Also,  additional  efforts 
should be made as regards the sustainability of returns. This concerns the improvement of the 
economic situation and the general atmosphere in the areas of return. 

1.3. 

Other obligations defined by EU Council conclusions of 29 April 1997 

The government has committed itself to comply with its obligations under the Dayton/Paris 

7 Restitution of property to the owner is envisaged only after alternative housing is provided for the temporary 
occupant. This means that the interest of temporary occupants are given precedence over the legal rights 
of owners. 

8  See  Map  attached.  The  Areas  of  Special  State  Concern,  defined  by  a  Law  of  1996  (subsequently  amended) 
were designated for the purpose of eliminating the consequences of the war, ensuring the faster return 
of  IDPs  and  refugees,  encouraging  demographic  and  economic  revival  and  achieving  a  balanced 
development of all regions in Croatia.  

9 The amendments to the Law on the Areas of Special State Concern, adopted in July 2000 and July 2002, deal 

with this issue for cases inside these areas.  

29 

 
 
  
 
                                                 
Agreements.  It  respects  the  sovereignty  and  territorial  integrity  of  Bosnia  and  Herzegovina. 
Under  the  Erdut  Agreement,  signed  in  November  1995,  Croatia  accepted  a  number  of 
obligations  in  order  to  achieve  the  peaceful  re-integration  of  the  area  of  Croatian  Danube 
Region (Eastern Slavonia, Baranja and Western Sirmium) under the sovereign control of the 
Croatian  Government  as  of  January  1998  (when  UNTAES,  the  UN  Transitional  Authority, 
withdrew from the territory). This Agreement, and its Letter of Intent of January 1997 to the 
UNSC, continues to be legally binding obligations. Some provisions have been incorporated 
in  the  Constitutional  law  on  National  Minorities,  not  yet  fully  implemented.  In  particular 
Croatia  maintains  its  commitment  to  implementing  all  obligations  related  to  the  return  of 
refugees and internally displaced persons (IDPs).  

1.3.1.  Cooperation  with  the  International  Criminal  Tribunal  for  the  former  Yugoslavia 

(ICTY) 

Croatia’s  cooperation  with  the  International  Criminal  Tribunal  for  the  former  Yugoslavia 
(ICTY) has improved significantly in the past few months. In April 1996 Croatia adopted the 
Constitutional  Law  on  the  Co-operation  with  ICTY  and  established  the  “Office  of  the 
Government  for  co-operation  with  the  International  Court  of  Justice  and  International 
Criminal  Courts”.  So  far  ICTY  indicted  a  total  of  5  Croatian  citizens  from  the  Republic  of 
Croatia for criminal offences committed in the Republic of Croatia and 27 Croats from Bosnia 
and Herzegovina for criminal offences committed in the territory of that state.  

None  of  the  three  Croatian  citizens  indicted  in  2001  and  2002,  has  been  transferred  by  the 
Government  to  ICTY  for  different  reasons.  Mr.  Rahim  Ademi  (indicted  on  8  June  2001) 
voluntarily  surrendered  to  the  Tribunal  in  July  2001;  Gen.  Janko  Bobetko  (indicted  on  17 
September 2002) died in April 2003, after the Government challenged ICTY on some parts of 
the indictment which, in the Government’s opinion put into question the political justification 
and  legitimacy  of  a  particular  action  of  the  Croatian  Army;  and  General  Ante  Gotovina 
indicted  on  8  June  2001  related  to  alleged  war  crimes  that  occurred  during  and  after 
“Operation Storm” in 1995, based on individual and command responsibility) is still at large. 
On  1st  March  2004  Croatia  received  sealed  indictments  against  former  Army  Generals 
Cermak and Markac who voluntarily surrendered to the ICTY on 11 March 2004.  

Of  the  27  Croat  indictees  from  Bosnia  and  Herzegovina,  four  were  arrested  in  Croatia  and 
transferred to ICTY. Eighteen voluntarily surrendered to ICTY. Among these, in early April 
2004,  the  ICTY  unsealed  an  indictment  dated  4  March  against  six  Croats  who  served  as 
political and military officials in the so-called “Herceg-Bosna”, a war-time entity established 
by ethnic Croats in Bosnia and Herzegovina. All six suspects, who have Croatian citizenship 
and permanently resided in Croatia, voluntarily surrendered to the ICTY on 5 April, appeared 
before  the  Tribunal  on  6  April  and  entered  pleas  of  not  guilty  to  all  26  counts  in  the 
indictment.  The  others  Croat  indictees  from  Bosnia  and  Herzegovina  have  been  arrested  by 
SFOR or authorities in other countries. 

Croatia  has  recently  taken  steps  to  provide  access  to  internal  documentation,  and  allows 
interviews  with  potential  witnesses  to  the  satisfaction  of  ICTY.  In  October  2003  Croatia 
adopted the Law on Witness Protection to ensure permanent protection to witness in criminal 
proceedings10. 

10  The  Law  prescribes  four  types  of  protection:  corporal  and  technical  protection,  transfer  of  the  person, 

measures for hiding the identity and ownership, change of identity. 

30 

 
 
  
 
                                                 
In August 2003 the UN Security Council called upon Croatia to intensify its co-operation with 
ICTY and in particular to surrender indicted fugitive General Ante Gotovina to the Tribunal. 
Croatia delayed execution of the arrest order in the case of General Bobetko before his death.  

Croatia  accepts  the  notion  of  command  responsibility  as  defined  by  the  ICTY  Statute  (Art. 
7.3) and the Rome Statute of the ICC (Art. 28). The current Criminal Code does not explicitly 
penalize  command  responsibility.  The  Law  on  amendments  to  the  Criminal  Code  (of  July 
2003), which introduced into the national legislation the basic type of command responsibility 
from the Rome Statute, was abolished by the Constitutional Court in November 2003, because 
the Law was not adopted with the necessary majority of votes. However, the Supreme Court 
has  suggested  in  at  least  one  decision  that  commanders  can  be  held  responsible  under  the 
currently  applicable  Criminal  Code  for  the  failure  to  prevent  war  crimes  about  which  they 
knew or should have known. 

In conclusion co-operation with ICTY has improved significantly in the past months. In April 
2004  the  Prosecutor  stated  that  Croatia  is  now  co-operating  fully  with  ICTY.  However 
Croatia needs to take all necessary steps to ensure that the remaining indictee is located and 
transferred to ICTY.  

The authorities appear determined to improve conditions for prosecution of war criminals in 
domestic  courts.  In  the  period  from  1991  to  2003,  criminal  proceedings  for  about  3,100 
persons were instituted out of which more than 1,300 persons were indicted and 548 persons 
were sentenced by final verdict (the majority “in absentia”).  

A  special  office  for  war  crimes  does  not  exist.  Special  Investigative  departments  in  the  4 
County  Courts  in  Split,  Zagreb,  Rijeka  and  Osijek  for  the  prosecution  of war  crimes  have 
been established by the Law on the Implementation of the Rome Statute of the International 
Crime  Court  (ICC),  adopted  on  17  October  2003.  However,  these  Departments  do  not 
function – and the responsibility for their establishment falls on the Presidents of the County 
Courts who have not yet taken any action. It is still unclear how the jurisdiction (territorial, 
material)  will  be  defined  and  by  whom,  how  judges  would  be  trained  and  if  there  is  the 
possibility  for  the four  departments  to  cooperate  amongst  themselves  should  they  have  to 
exchange documents/evidence. 

judicial  proceedings  compared 

Statistical  data  suggest  that  a  single  standard  of  criminal  responsibility  is  not  yet  applied 
equally to all those who face war crime charges before Croatian courts. Defendants of Serb 
ethnicity  are  disadvantaged  at various  stages  of 
to 
Croats. Thus,  Serbs  were  more  likely  to  be  convicted  than  Croats  in  2003,  although  the 
differential decreased from 2002. While the number of Serbs prosecuted in 2003 increased as 
compared to that in 2002, the number of Croats decreased substantially. The Supreme Court 
reversed a considerable number of convictions of Serbs on appeal, ordering new trials on the 
basis of errors by the trial court. In addition, local prosecutors and courts continued to conduct 
in absentia proceedings (27 out of 32 Serbs convicted of war crimes in 2003 were convicted 
in absentia). Such proceedings are used almost exclusively against Serbs, and many of these 
are  collective  indictments.  This  practice  is  problematic  because  it  is  not  consistent  with  the 
principle of individual guilt. Continuation of this practice also creates an additional burden on 
the  courts  as  defendants  convicted  in  absentia  regularly  make  use  of  their  right  for  re-
trial. Some improvements have been achieved in recent years, but further reform is necessary 
in order to reach the even-handed administration of criminal justice in war crime cases.  

Significant  delays  continue  in  judicial  proceedings,  both  at  trial  courts  and  at  the  Supreme 
Court. Moreover, a number of cases have shown severe shortcomings in the administration of 

31 

 
 
  
 
justice,  e.g. the “Lora  Prison”  case  in  Split as  well  as  several  cases  in the  district courts in 
Gospic  and  Zadar.  The  Gospic  Country  Court  found  a  Serb  returnee  guilty  not  only of  war 
crimes,  but  also  of  a  500-year  history  of  Serb  crimes  against  Croatia  ("Karan  case",  later 
reversed by the Supreme Court). On the other hand, the State Prosecutor has started a number 
of investigations against Croats suspected of war crimes against Serb civilians over the past 
year;  the  experience has  so  far been  mixed. The  Gospic  trial  in  Rijeka  ("Norac  case")  is  a 
good example of a properly processed criminal trial.  

In  principle,  Croatia  is  prepared  to  co-operate  closely  with  ICTY  on  domestic  war  crimes 
trials, including by accepting as legally relevant all the evidence and other supporting material 
from ICTY. Evidence obtained by ICTY will be admissible without review in domestic trials. 

Croatia supported the EU Common positions on the International Crime Court (ICC) and 
as  a  result  decided  not  to  sign  a  bilateral  agreement  on  non-extradition  to  the  International 
Criminal Court with the United States.  

1.3.2.  Regional Co-operation 

Croatia  is  an  active  member  of  several  regional  and  sub-regional  initiatives,  such  as  the 
Stability  Pact,  the  Adriatic–Ionian  initiative,  the  "Quadrilaterale"  (between  Italy,  Slovenia, 
Hungary  and  Croatia),  the  Central  European  Initiative  (CEI),  South-East  Cooperation 
Initiative (SECI), the Alps-Adriatic initiative, the Danube Commission. Croatia is an observer 
in  the  South-East  European  Cooperation  Process  (SEECP).  Croatia’s  membership  of  such 
initiatives may be considered proactive, despite clear reluctance by Croatia to be considered a 
country of the Western Balkan region. 

In  December  2002,  Croatia  signed  the  Sava  River  Basin  Framework  Agreement  with 
Slovenia,  BiH  and  Serbia  and  Montenegro.  In  February  2003  Croatia  signed  the 
Memorandum of Understanding on Regional Electricity Market in South East Europe (REM) 
and in December 2003 its addendum (see also chapter 14 – Energy) 

First  negotiations  on  the  distribution  of  SFRY  assets  started  in  1992  and  the  succession 
Agreement was signed on 29 June 2001 by the five successor states (Slovenia, Croatia, BiH, 
Serbia  and  Montenegro  and  the  Former  Yugoslav  Republic  of  Macedonia).  The  Agreement 
has been ratified by all successor states. Croatia has been the last one and Parliament ratified 
in  March  2004.  The  purpose  of  the  Agreement  is  to  identify  and  determine  equitable 
distribution  of  rights,  obligations,  assets  and  liabilities  of  the  former  SFRY  amongst  its 
successor  states.  It  sets  out  only  the  basic  principles  and  procedures  for  interpretation  and 
implementation of the Agreement.  

In  1996  Croatia  established  diplomatic  relations  with  Serbia  and  Montenegro  (SaM)  but 
relations remain difficult. After 2000, with change of regimes in both countries, economic co-
operation  started  to  develop.  Bilateral  trade  is  still  very  low  but  is  increasing.  At  their  first 
official  meeting  in  November  2001  in  New  York,  the  two  Foreign  Ministers  agreed  on 
priorities  for  the  further  normalisation  of  relations.  Since  then,  relations  between  the  two 
countries  have  improved  considerably  and  regular  contacts  on  working  level  have  been 
established. Croatian President Mesic’s visit to Belgrade in September 2003, and particularly 
the  apologies  expressed  by  the  two  Presidents  for  pain  and  suffering  that  the  two  peoples 
caused each other in the past, are further important steps towards normalisation of relations. 

However there are still important open questions to be resolved: the border demarcation at the 
Danube  river  and  at  Prevlaka,  succession  related  issues,  the  problem  of  missing  persons, 

32 

 
 
  
 
Croatia’s claim for compensation for war damage, return of refugees and restitution of their 
property, in particular property restitution to business entities and the ratification of the FTA 
by SaM. After long negotiations, a Free Trade Agreement was signed on 23 December 2002 
in Zagreb. The Croatian Parliament ratified the Agreement on 7 May 2003. But SaM has still 
not ratified this Agreement. 

An  Inter-State  Border  Commission  for  Identification  and  Demarcation  of  the  Land  and 
Delimitation on the Sea was established in December 2001 to deal with border demarcation at 
the  Danube  river  (347  kilometres).  In  view  of  the  political  and  technical  complexity  of  the 
negotiations  (clarification  of  ownership,  possible  compensation  of  owners,  etc.),  the  Inter-
State Border Commission has made only modest progress so far11. It is now working on the 
establishment of a small border regime in order to grant owners access to their property on the 
disputed territory until a permanent solution is found.  

In December 2002, Foreign Ministers signed a Protocol on a Temporary Regime for Prevlaka. 
After  the  mandate  of  the  UN  Mission  of  Observers  (UNMOP)  ended  on  15  December12 
Croatia  took  over  full  jurisdiction  over  Prevlaka.  The  Temporary  Regime  provides  for  the 
establishment of a demilitarised zone into the sea along the Bay of Kotor between the capes of 
Konfin  and  Ostro.  The  zone  is  controlled  by  joint  Croatia-SaM  police  patrol  boats.  The 
Protocol provides for the possibility of establishing additional crossing points. It also foresees 
the establishment of a small border regime for local population. Without prejudice to the final 
border demarcation, a temporary border line at sea has been agreed upon. This line is not in 
the  middle  of  the  Bay  of  Kotor  but  leaves  the  greater  part  to  SaM.  Such  an  asymmetric 
solution  was  agreed  to  in  earlier  negotiations  in  1998  and  submitted  to  the  UN  Security 
Council at that time. Implementation of the Regime seems to be satisfactory. The small border 
regime is in place and no incidents in the demilitarised zone are reported. However, there are 
at the moment no negotiations on the final demarcation of the sea border.  

The  issue  of  minorities  is  one  of  the  most  sensitive  political  questions  in  normalisation  of 
relations. Both countries have adopted Constitutional Laws on Minorities. The Laws regulate 
rights and issues of concern for all minorities in the respective country. However, a bilateral 
agreement on minorities is yet to be signed.  

In  May  2003  Serbia  and  Montenegro  abolished  visas  for  citizens  from  the  EU  and 
neighbouring  countries,  including  Croatia.  In  June  2003  Croatia  abolished  temporarily  the 
visa  regime  for  SaM  citizens  for  the  period  of  10  June  to  31  December  2003.  This  was 
subsequently  extended  to  the  period  of  31  January  and  then  30  June  2004.  The  Croatian 
Government outlined three political conditions for the permanent abolition of the visa regime: 
(i) return of registers of births, marriages and deaths of Croatian citizens which were taken to 

11  At  its  last  meeting  on  25  July  2003  the  two  sides  agreed  on  the  demarcation  of  two  “zero  points”,  one  at 
Bajakovo and one at the Croatian/BiH/Serbian triangle, Racinovci, near Brcko. Currently, the relevant 
SCG authorities examine the Croatian claims that are based on the land cadastre. 

12  In  1992  Croatian  President  Tudjman  and  Yugoslav  President  Cosic  reached  an  agreement  to  withdraw 
Yugoslav army (JNA) from Prevlaka peninsula and the Bay of Kotor, and a UN Mission of Observers 
(UNMOP) was established on 1 February 1996 to demilitarise this area. On 11 October 2002, the UN 
Security Council decided on a last extension of UNMOP until 15 December 2002, considering Prevlaka 
no longer a security issue. 

33 

 
 
  
 
                                                 
Belgrade in 1995;13 (ii) replacement of SaM military at the Danube border by police; (iii) full 
cooperation regarding the search for missing persons.14 

In  July  1999  Croatia  filed  a  lawsuit  against  the  then  FRY  with  the  International  Court  of 
Justice charging FRY for genocide and demanding, amongst others, unspecified compensation 
for war damages.15 

At the beginning of the war, Croatia passed several decrees regulating the issue of property 
owned  by  the  former  SFRY  and  its  Republics.  In  general,  this  legislation  prohibited  the 
former  Federal  State  and  its  Republics,  the  Yugoslav  Army  as  well  as  legal  entities 
established  outside  Croatia  to  make  use  of  their  immovable  property  on  the  territory  of 
Croatia. As a consequence, this property was included in the privatisation process under the 
Law  on  Transformation  of  Socially  Owned  Firms  and  the  Law  on  Privatisation.  Many 
Croatian legal entities that had branch offices in other former Yugoslav Republics have been 
deprived  of  the  free  use  of  their  property,  particularly  in  Serbia  and  Montenegro.  Since  the 
SFRY  succession  agreement  has  not  yet  been  ratified,  legal  entities  are  forced  to  undertake 
individual  legal  actions  through  the  judicial/administrative  system  or  to  enter  into  direct 
negotiations  with  current  possessors  of  their  property.  So  far,  only  a  few  of  them  have 
regained ownership of their property.  

Relations with Bosnia and Herzegovina (BiH) improved after a new Croatian Government 
came  to  power  in  January  2000.  Since  then,  the  countries  have  developed  good  diplomatic 
relations. Aiming at the strengthening of BiH central state institutions, Croatia has renounced 
to previous policy of "special parallel relationship" with the Federation of BiH (i.e. the BiH 
entity  of  Muslims  and  Croats).  Instead,  it  has  established  political  co-operation  exclusively 
with the central State authorities in Sarajevo. An agreement on return was signed in December 
2001  in  order  to  facilitate  and  accelerate  the  return  of  refugees.  Two  other  important 
agreements were signed in June 2002, on fighting terrorism and organised crime and on joint 
border crossings.  

Trade  with  Bosnia  and  Herzegovina  had  been  completely  liberalised  according  to  the 
Economic  Cooperation  Agreement  signed  on  24  March  1995,  and  the  Protocol  on  Rules  of 
Origin signed on 26 February 1996, and a FTA is in force since 1 January 2001.  

Notwithstanding these positive developments, there has been only a slight progress in bilateral 
relations, to a large extent due to BiH internal factors. Pending issues are the agreement on the 
port of Ploce, dual citizenship and restitution of property. 

Agreement on the Port of Ploce is still outstanding. The Agreement, signed in 1998, allows 
BiH free transit across Croatian territory to the Port of Ploce and also free transit for Croatia 
through BiH territory at Neum, approx. 60 km north of Dubrovnik. The main problem in this 
Agreement  is  its  Article  9  stipulating  that a  committee  of  seven  members  would  administer 
the  Port  of  Ploce:  Croatia  and  BiH  would  each  appoint  three  representatives  and  the 

13 On 14 August 2003, the Serbian Government decided to return 420 registers. 
14 Cooperation has improved considerably over the last two years. Nevertheless, Croatia is still looking for 1 275 

missing persons, whereas SaM is officially looking for 520. 

15  Croatia  requested  the  Court  to  adjudge  and  declare  that  FRY  has  breached  its  legal  obligations  to  Croatia 
under the 1948 UN Convention on the Prevention and Punishment of the Crime of Genocide and that 
FRY has to i) make possible the processing of persons suspected of committing the crime of genocide, 
ii) provide data on missing persons, iii) return the alienated cultural property and iv) pay compensation 
for damages caused by the mentioned violation of international law. 

34 

 
 
  
 
                                                 
International  Court  on  Maritime  Law  one;  the  latter  would  have  the  right  to  make  final 
decisions, in case of disagreement between the two countries. In Croatia’s view this represents 
a kind of “international protectorate” over its national territory16. BiH, having already ratified 
the  Agreement,  has  basically  accepted  it,  but  wants  the  Agreement  to  be  ratified  by  the 
Croatian  Parliament  as  it  is  and  modify  it  later  through  an  amendment.  Croatia,  however, 
refuses  ratification  before  amendments  to  Article  9  are  made.  After  long  and  arduous 
negotiations,  the  Croatian  Government  and  the  BiH  Council  of  Ministers  adopted  a  special 
Protocol in July 2003, defining the future procedure. However, the signature of the Protocol 
scheduled  for  August  2003,  did  not  materialise.  The  BiH  Presidency,  in  charge  of  foreign 
policy,  had  –  unexpectedly  -  not  adopted  the  Protocol  as  the  Bosniac  member  of  the 
Presidency has put forward new requests.  

The Croatian Government and the BiH Council of Ministers have been negotiating a bilateral 
agreement on dual citizenship. The basic provisions are that citizens with dual citizenship will 
have  to  complete  military  service  only  in  one  country  and  pay  taxes  and  vote  only  in  the 
country of residence. This would have a significant political impact because Bosnian Croats 
with  residence  in  BiH  would  no  longer  be  eligible  to  the  vote  in  Croatia.  Despite  progress 
made, the Agreement is not yet ready to be signed. Neither Croatia nor BiH have yet signed a 
bilateral agreement regulating the restitution of property of private persons and legal entities 
situated in the territory in one of the two countries.  

Relations  with  the  former  Yugoslav  Republic  of  Macedonia  are  generally  good  and  there 
are  no  open  issues.  The  countries  have  signed  24  bilateral  agreements.  Negotiations  for  a 
bilateral  convention  on  regional  co-operation  under  Article  12  of  the  SAA  started 
immediately  after  the  signature  by  Croatia  of  the  Agreement,  but  no  progress  was  achieved 
during the last year. A FTA between the two countries has existed since 1997. A Readmission 
Agreement has been in force since 2001. 

Relations with Slovenia have been good since the two countries become independent because 
Croatia and Slovenia considered themselves as strategic partners in the process of secession 
from  former  Yugoslavia.  In  1997,  a  Free  Trade  Agreement  (FTA)  between  Slovenia  and 
Croatia was signed, which took effect on 1 October 2001. It had already been provisionally 
applied since January 1998. In May 2002 Slovenia and Croatia signed an additional protocol 
to the FTA on trade in agricultural products. This  FTA  will cease to  apply  on 1 May when 
Slovenia joins the EU. 

However, these good relations have suffered strains as a result of differences over a number 
of  issues.  For  instance  over  border  demarcation,  the  joint  Krsko  Nuclear  Power  Plant, 
Ljubljanska  Banka,  and,  recently,  over  Croatia’s  declaration  of  a  Fishing  and  Ecological 
Protection Zone in the Adriatic.  

The  border  dispute  over  the  Piran  Bay  particularly  strained  Croatian-Slovene  relations  in 
summer 2002 and an agreement over the demarcation of the maritime border, a pending issue 
since  both  countries  gained  independence,  has  not  been  reached  yet.  The  border  agreement 
negotiated  between  Croatian  and  Slovene  Prime  Ministers  in  July  2001,  ceding  to  Slovenia 
80%  of  the  bay  and  a  corridor  to  the  open  sea,  was  initialled  but  not  signed,  as  Croatia 

16 The Agreement was concluded in 1998 under different political circumstances. It was made along with another 
one, the Agreement on Special Relations with FBiH, the Bosniac-Croatian entity of BiH. As the new 
Croatian Government in 2000 decided to abandon any plan of confederation with this entity (which was 
an option under the Dayton Agreement), Croatia found itself in a position where it would not have full 
sovereignty over its own territory. 

35 

 
 
  
 
                                                 
regarded  it  as  one  component  only  of  a  global  agreement  (including  Krsko  Nuclear  Power 
Plant and Ljubljanska banka issues) never concluded. Negotiations on the border agreement 
have come to a standstill. On 10 September 2002 the Croatian and Slovene Prime Ministers 
reached  an  agreement  on  a  temporary  regime  regarding  fishing  in  the  Bay  of  Piran.  This 
Interim Agreement entered into force on 23 September 2002 and has been regularly extended 
since.17 However, this Agreement will in no way prejudge the future border between the two 
countries. So far it has been implemented without major problems.  

As  consequence  of  this  outstanding  border  issue,  Croatia’s  unilateral  decision  of  October 
2003  to  expand  its  jurisdiction  in  the  Adriatic  through  an  ecological  and  fishing  zone  has 
provoked  considerable  tensions  with  neighbouring  countries..  In  October  2003  the  Council 
“called  on  Croatia  to  urgently  pursue  a  constructive  dialogue  with  its  neighbours  meant  to 
meet the concerns of all the parties involved” on this matter. During the first months of 2004 
some trilateral meetings have been held (among Italy, Croatia and Slovenia), in order to find a 
common solution before the entry into force of the “Zone” (2nd October 2004), but no political 
agreement has been achieved yet.  

After  ten  years  of  difficult  negotiations,  an  agreement  on  Krsko  Nuclear  Power  plant  was 
eventually signed in December 2001, and entered into force on 1 July 2002. According to it, 
the plant would be owned, run and used on an equal basis. Also, it regulates all outstanding 
financial  matters  between  Croatian  Electricity  Company  (HEP)  and  the  Slovene  Electric 
Company  ELES  arising  from  issues  from  1998  until  30  June  2002.  According  to  HEP, 
implementation  of  the  Agreement  goes  smoothly.  However,  the  issue  of  the  nuclear  waste 
disposal  is  still  not  regulated.  In  addition,  Croatia  has  requested  from  the  Slovenian  side 
compensation of US$ 56 million to HEP for undelivered electricity after 1 July 2002, i.e. the 
date when the Agreement should have entered into force and to date the two countries have 
failed to agree on the amount of compensation to HEP. 

During  the  former  SFRY,  branch  offices  of  Ljubljanska  Banka  in  Croatia  collected  foreign 
exchange  deposits  of  a  total  amount  of  around  €  422  million.18With  the  dissolution  of 
Yugoslavia, the Ljubljanska Banka branch offices withheld these savings deposits of Croatian 
citizens.  To  compensate  Croatian  citizens,  the  Government  offered  depositors  in  1991  to 
transfer  their  deposits  from  Ljubljanska  Banka  to  Croatian  commercial  banks.19Deposits 
worth  around  €  279  million  were  transferred  to  Croatian  commercial  banks  as  part  of  the 
public debt. The remaining part of around € 150 million of deposits was not transferred20 and 
still  represents  a  claim  of  individuals  towards  Ljubljanska  Banka.  Other  former  SFRY 
Republics  also  have  similar  problems  with  that  Bank.  Agreement  is  not  yet  reached  on  a 
solution to this problem which affects the region. 

Croatia and Albania have good political relations and high level political dialogue is ongoing. 
The FTA between both countries entered into force in Spring 2003, although some difficulties 

17 If adopted as final, it would legally constitute part of the Limited Border Traffic and Co-operation Agreement 

(SOPS) of 1997 and would, thus, have to be ratified by Parliament. 

18 Stock as of 31 December 1991. 
19  The  citizen’s  foreign  exchange  deposits  with  Ljubljanska  Banka  were  transformed  into  public  debt  of  the 
Republic  of  Croatia.  Government  issued  bonds  to  commercial  banks  repayable  in  20  semi-annual 
instalments with interest rate of 5%. Apart from receiving the instalments, the citizens had the option to 
request the bonds from the banks in order to buy state owned flats or stocks and shares of state owned 
enterprises. 

20  At  that  time  a  number  of  depositors  hoped  to  gain  better  terms  (than  those  offered  by  the  Croatian 
Government)  through  direct  negotiations  with  Ljubljanska  banka,  i.e.  the  terms  that  were  offered  to 
Slovenian citizens. 

36 

 
 
  
 
                                                 
in  implementation  have  been  experienced  at  customs  points  due  to  poor  knowledge  of  the 
agreement’s  detailed  provisions.  23  bilateral  agreements  have  been  signed  including  in  the 
areas of health, customs cooperation and readmission. The visa policy between both countries 
has  been  facilitated  (for  business  contacts)  and  in  June  2003  Albania  abolished  visa  for 
Croatian citizens. A FTA applies since June 2003. 

Bilateral relations with Italy are intensive and of particular importance for Croatia since Italy 
is  its  largest  trade  partner  and  an  important  investor.  However  the  basically  good  relations 
with  Italy  are  hampered  by  some  important  issues.  In  the  first  place  there  is  the  “Esuli” 
question.  Between  1943  and  1947  it  is  estimated  that  90%  of  the  Italian  population  left 
Yugoslavia,  leaving  behind  property,  which  was  then  nationalised  by  the  Yugoslav  state. 
Compensation for Esuli property is partially regulated by the Osimo Agreement of 1975 and 
the  Rome  Agreement  of  1981,  concluded  between  SFRY  and  Italy.21The  restitution  of 
nationalised Esuli property is made possible after the Croatian Parliament adopted a new Law 
on  Denationalisation  in  July  2002  granting  the  right  to  restitution  and  compensation  also  to 
foreign  citizens  if  it  is  stipulated  by  bilateral  agreements.  Croatia  and  Italy  agreed  to  start 
bilateral negotiations in October 2002.  

The unilateral declaration adopted by the Croatian Parliament in October 2003 to extend an 
exclusive  “Ecological  and  Fishing  Protection  Zone”  in  the  Adriatic  was  an  initiative  not  in 
line  with  the  European  principle  of  regional  co-operation  and,  as  such,  has  created  some 
tension in bilateral relations. The lack of co-operation from Croatia preventing incidents in the 
Adriatic Sea is also an open issue. A further issue of special significance in bilateral relations 
is  the  protection  of  rights  of  the  Italian  minority  in  Croatia.  Certain  progress  has  been 
recorded, but constant monitoring is still required. 

1.4. 

General Evaluation 

Croatia  has  stable  democratic  institutions  which  function  properly  respecting  the  limits  of 
their competences and co-operating with each other. The 2000 and 2003 elections were free 
and fair. The opposition plays a normal part in the operation of the institutions.  

There are no major problems over assuring the rule of law and respect for fundamental rights. 
However, Croatia needs to take measures to ensure that the rights of minorities, in particular 
of the Serb minority, are fully respected. Croatia should speed up the implementation of the 
constitutional Law on National Minorities and accelerate efforts to facilitate the return of Serb 
refugees  from  Serbia  and  Bosnia  and  Herzegovina.  Croatia  needs  to  make  substantial 
improvements in the functioning of the judicial system. The effectiveness of the fight against 
corruption needs further strengthening. 

Croatia’s cooperation with the International Criminal Tribunal for the Former Yugoslavia has 
improved significantly in the past months. In April 2004, the Prosecutor stated that Croatia is 
now  cooperating  fully  with  ICTY.  Croatia  needs  to  maintain  full  cooperation  and  take  all 
necessary steps to ensure that the remaining indictee is located and transferred to ICTY in The 
Hague.  Croatia  remains  committed  to  regional  co-operation;  sustained  efforts  are  needed  in 
this  area.  In  particular  to  resolve  border  issues  with  neighbouring  countries  in  line  with 
international  standards  for  dispute  settlement,  and  issues  arising  from  the  unilateral 
declaration of the protected “Ecological and Fishing Zone” in the Adriatic. 

21 These Agreements regulate mutual claims for compensation of war damage by former Yugoslavia and Italy. 
Under the Osimo agreement Yugoslavia was not directly obliged to pay compensation to Italian citizens 
but to the Italian State, which, in turn, would compensate its citizens, i.e. the Esuli. 

37 

 
 
  
 
                                                 
2. 

ECONOMIC CRITERIA 

In  1993,  the  European  Council  in  Copenhagen  defined  the  following  economic  criteria  for 
accession to the EU: 

• 
• 

the existence of a functioning market economy; 
the capacity to cope with competitive pressure and market forces within the Union. 

These  criteria  are  linked.  Firstly,  a  functioning  market  economy  will  be  better  able  to  cope 
with  competitive  pressure.  Secondly,  in  the  context  of  membership  of  the  Union,  the 
functioning  market  is  the  internal  market.  Without  integration  into  the  internal  market,  EU 
membership would lose its economic meaning, both for Croatia and for its partners. 

A  candidate  country  must  commit  itself  permanently  to  the  economic  obligations  of 
membership. This irreversible commitment is needed to provide the certainty that every part 
of the enlarged EU market will continue to operate by common rules. The capacity to take on 
the acquis has several dimensions. On the one hand, Croatia needs to be capable of taking on 
the  economic  obligations  of  membership,  in  such  a  way  that  the  single  market  functions 
smoothly  and  fairly.  On  the  other  hand,  Croatia’s  capacity  to  cope  with  the  competitive 
pressures  of  the  internal  market  requires  that  the  underlying  economic  environment  be 
favourable, and that the Croatian economy has flexibility and a sufficient level of human and 
physical capital, especially infrastructure. In their absence, competitive pressures are likely to 
be considered too intense by some groups of society, and there might be a call for protective 
measures, which, if implemented, would undermine the single market. 

If Croatia can reach a broad based consensus on the nature of the changes to economic policy 
required  by  EU  membership  as  well  as  a  sustained  record  of  implementation  of  economic 
reforms,  it  will  be  easier  for  the  country  to  maintain  its  commitment  to  the  economic 
obligations of membership. 

2.1. 

Economic developments 

Croatia  is  a  small  economy  with  a  population  of  4.4  million  and  a  gross  domestic  product 
(GDP)  at  current  prices  of  HRK  176.4  billion  or  €23.8  billion  in  2002.  The  country's 
population  corresponds  to  about  1.2%  of  that  of  the  European  Union,  while  its  economy  is 
only about 0.26% in GDP terms. The GDP per capita is in the order of HRK 40,000 or €5,400 
(measured  by  the  average  exchange  rate  2002).  The  GDP  per  capita  in  power  purchasing 
parity  (PPP)  terms  for  1999  was  USD  8,267  or  35.9%  of  the  EU  average22.  No  reliable 
regional GDP data are available. First calculations suggest a pronounced variation among the 
existing  21  counties  with  the  City  of  Zagreb  being  far  above  the  average  both  in  absolute 
terms and per head. 

Macroeconomic Background 

As  a  constituent  Republic  of  the  Socialist  Federal  Republic  of  Yugoslavia  (SFRY),  Croatia 
adopted  a  socialist  system  with  self-management  and  social  ownership.  This  allowed  free 
pricing  mechanisms  for  most  consumer  goods  and  some  degree  of  competition.  As  a 

22 The Croatian Bureau of Statistics calculates the GDP in PPP terms in co-operation with the OECD every three 
years  (last  for  1999).  GDP  per  capita  data  in  PPP  terms  are  neither  available  from  the  Croatian 
authorities  nor  from  the  IMF  on  a  continuous  basis.  The  Vienna  Institute  for  International  Economic 
Studies (WIIW) estimates the per capita GDP in PPP to have been €9,210 in 2002.  

38 

 
 
  
 
                                                 
consequence the private sector became relatively developed and the share of services in GDP 
high  compared  with  other  Central  and  Eastern  European  countries.  The  rapid  growth 
experienced during 1950-1980 relied on high investment ratios of 30% or more, supported by 
heavy external borrowing. Already before independence, a high share of Croatian exports was 
directed  to  Western  markets  even  though  exports  to  the  countries  of  the  Council  of  Mutual 
Economic Assistance accounted for about 25% of total exports (in 1990). Despite persistent 
trade deficits, the pre-independence balance of payments recorded current account surpluses 
equivalent to 7-8% of GDP, due to continuous surpluses in the service account coming mainly 
from  tourism.  During  the  1980s  the  international  debt  crisis  and  reduced  capital  inflows 
caused investment to fall and growth to stall. Between 1987 and 1990 GDP fell by about 11%. 
Ensuing  losses  in  the  enterprise  sector  were  accommodated  by  the  banking  system  and 
eventually  monetised  by  the  authorities,  resulting  in  increasing  inflation  and  eventually 
hyperinflation.  

Immediately  after  declaring  independence  in  1991  from  the  former  SFRY,  Croatia  had  to 
cope  with  war,  which  effectively  ended  only  in  1995.  War  inflicted  direct  damage, 
particularly  on  infrastructure  and  housing.  It  also  caused  indirect  economic  damage  by 
interrupting the trade flows with the former members of the SFRY as well as the main traffic 
links between parts of the country. As a consequence, tourism, Croatia's main export industry, 
was seriously affected (revenues dropped to 10% of pre-war levels). 

In parallel, Croatia faced the problems resulting from the change in economic system and the 
loss  of  some  traditional  markets  in  Eastern  Europe.  This  combination  of  war  impact, 
independence and economic transition led to serious imbalances: recession, external and fiscal 
imbalances, high inflation, and increasing unemployment only softened by a conflict-induced 
reduction in labour force. A thriving stabilisation effort started in late 1993, delivering price 
stability  and  an  average  annual  GDP  growth  of  over  6%  during  1994-1997.  Transition  to  a 
market  economy  was  initiated  early  after  independence  and  the  World  Bank  and  the  IMF 
considered Croatia in the mid-90s as one of the most successful countries in transition. 

However,  the  economic  situation  started  to  deteriorate  again  in  the  course  of  1997.  In  an 
attempt  to  calm  down  signs  of  overheating,  to  restrict  credit  expansion  and  to  stabilise  the 
exchange  rate,  monetary  policy  was  tightened  between  late  1997  and  1999.  Diversion  of 
liquidity to purchase foreign exchange for speculative purposes and insufficient restructuring 
that  harmed  enterprise  competitiveness  led  to  a  rapid  build-up  in  payment  arrears  in  the 
economy, both between enterprises and between the state and enterprises. A combination of 
tight monetary policy, a drop in domestic demand and deteriorating loan portfolios of banks 
evolved into a banking crisis in 1998/99. The combination of mounting structural problems, 
increases  in  taxes  and  administered  prices  as  well  as  the  impact  of  the  Kosovo  crisis 
contributed to the recession starting in the last quarter of 1998 and continuing until the third 
quarter of 1999, after which the first signs of recovery were noted. Real GDP contracted by 
0.9% in 1999 but grew at an increasing pace in the following years: the average growth rate 
during 2000-2002 was 4%. 

The  process  of  transition  from  a  planned  to  a  market  economy  in  Croatia  had  major 
implications  for  the  labour  market.  The  dominant  characteristics  of  the  early  phase  of  the 
transition process in this area were an accelerated shift in the sectoral employment structure, 
decreasing  levels  of  employment,  and  increasing  unemployment.  The  unemployment  rate 
(ILO  standard)  rose  from  10%  in  1996  to  up  to  17.0%  in  the  first  half  of  2001  and  then 
declined  again  to  14.4%  in  the  second  half  of  2002.  Unemployment  rates  vary  significantly 
between  counties, ranging  from 13% to 40%, with particularly high rates in border  regions. 
Long-term  unemployment  accounted  for  some  53%  of  total  unemployment  in  2002.  Youth 

39 

 
 
  
 
unemployment rates (age 15-24) were particularly high, standing at 34.4%. The absolute and 
relative  importance  of  different  sectors  and  industries  has  gradually  shifted  towards  that  of 
developed  market  economies.  However,  overall  job  creation  in  the  productive  areas  of  the 
economy  failed  to  attain  sufficient  levels  to  absorb  the  labour  released  from  uncompetitive 
firms  that  were  forced  to  adapt  to  the  new  market  circumstances.  The  external  accounts 
position  was  fragile  and  showed  initially  great  volatility.  Even  though  tourism  receipts  and 
thus the service balance recovered after the war and again after the Kosovo crisis of 1999, the 
current account has been negative since 1995. 

Foreign Direct Investment (FDI) in Croatia remained low until 1995 due to the consequences 
of  the  war  and  the  preference  given  to  manager  and  employee  buy-outs  in  the  privatisation 
process.  Subsequently,  FDI  picked  up  substantially,  in  particular  from  1998  onwards. 
According to the national authorities, cumulative FDI inflows from 1993-2002 totalled some 
€7.45 billion or €1,656 per capita. Roughly 75% of the investments originated in the EU and 
15%  in  the  US.  Almost  two  thirds  of  the  investments  were  related  to  privatisation  projects, 
mainly in the banking, telecommunications and pharmaceutical sector. 

In  the  immediate  post-independence  period,  the  fiscal  deficit  of  the  consolidated  central 
government  climbed  to  5.1%  of  GDP  in  1991.  The  fiscal  situation  subsequently  stabilised 
with  significantly  lower  deficits  and  even  surpluses  in  some  years  until  1999,  when  it 
deteriorated  rapidly  as  a  result  of  the  economic  crisis.  However,  the  budget  presentation 
clearly underestimated the true impact of fiscal policies, due to the fact that it was drawn up 
on a purely cash basis that did not reflect the creation of extra-budgetary funds, wide use of 
arrears and other methods of non-cash payment by the government. Recent estimates on the 
accruals-based  past  general  government  stance,  which  incorporate  these  extra-budgetary 
funds as well as agencies and local governments, show an upsurge of the deficit to a peak of 
8.2% of GDP in 1999 and a subsequent gradual decline. 

The Croatian National Bank (Hrvatska narodna banka - HNB) was established in December 
1990. The Law on the Croatian National Bank stipulates the operational independence of the 
institution from the government. The HNB formulates and administers the exchange rate and 
monetary policy. In the absence of effective money markets and  interest-sensitive monetary 
instruments, the main monetary instrument has been to stabilise the kuna against the anchor 
currency (Deutsche mark and subsequently the euro). It de-facto targets more the kuna-euro 
exchange rate than money supply. Even though open market operations theoretically exist, the 
HNB usually controls money supply through the use of indirect instruments, such as reserve 
requirements,  and  refinancing  credits.  The  HNB  has  been  successful  in  achieving  price 
stability at single digits since 1995. 

The Croatian dinar was introduced on 23 December 1991 as a transitional, interim currency of 
the independent Croatian State and became the sole legal tender in Croatia on 1 January 1992. 
In May 1994, the Croatian kuna (HRK) replaced the Croatian dinar. As a legacy of the past 
hyperinflation,  the  Croatian  economy  is  currently  still  characterised  by  a  large  degree  of 
currency  substitution  or  de-facto  euroisation.  The  current  Croatian  exchange  arrangement  is 
classified  as  managed  floating  with  no  pre-announced  path  for  the  exchange  rate  of  the 
Croatian kuna. In May 1995 when Croatia accepted the obligations of Article VIII of the IMF 
Statute, the kuna became fully convertible for current account purposes. 

Merchandise trade with the EU has always been relatively significant and developed further 
until  1995,  when  the  EU  share  of  Croatian  trade  reached  some  60%  for  both  exports  and 
imports. During the Kosovo conflict the EU share of Croatian exports fell to below 50% but 
recovered to approximately 55% in 2000, a share maintained since then. This figure rises to 

40 

 
 
  
 
nearly 70% when considering also the trade with the countries acceding to the EU in 2004. 
The  most  important  trading  partners  are  Italy,  Germany  and  Austria.  After  a  sharp  fall  by 
1995,  the  share  of  trade  with  the  other  countries  of  the  former  SFRY  has  been  increasing 
again,  Slovenia  and  Bosnia  and  Herzegovina  being  the  most  important  partners.  The 
importance  of  CEFTA  countries,  excluding  Slovenia,  in  Croatia's  trade  has  been  subdued. 
Trade with Russia and the rest of the former Soviet Union has been falling in the early stages 
after independence and has not recovered since; only imports from Russia (mainly oil) have 
increased.  This  perspective  however  neglects  tourism  which  represents  by  far  the  most 
important  economic  sector  for  generating  export  revenues  (see  also  Part  3,  Chapter  15  – 
Industrial Policy). 

Similar  to  other  transition  countries,  Croatia's  exports  are  characterised  by  a  high  share  of 
labour- and capital-intensive industries and a low share of technology-driven industries. The 
most  important  export  group  is  machinery  and  transport  equipment  reflecting  shipbuilding, 
which gained weight over time and accounted for almost 30% of total exports in 2001. The 
same  sector  also  plays  a  major  role  on  the  import  side  due  to  the  high  degree  of  imported 
inputs for shipbuilding. Other important sectors are manufactured goods including textiles and 
chemicals,  albeit  with  a  declining  share.  Agriculture  plays  a  minor  role  in  the  export 
composition. 

Structural Change 

Croatia  began  the  transition  process  from  a  favourable  starting  point.  It  was  the  second 
wealthiest  of  the  Yugoslav  republics  with  some  good  infrastructure,  a  developed  tourism 
industry and established links with the West.  It had industrialised before becoming socialist 
and  it  never  adopted  communist-style  command  planning.  Entry  into  the  market  was  not 
exclusively dictated by the state, and market prices prevailed in many areas. The existence of 
private enterprises in the ex-SFRY has been possible since 1988. 

Since  independence,  Croatia  has  experienced  a  process  of  de-industrialisation  albeit  less 
severe  than  in  other  Eastern  European  countries.  This  process  has  slowed  down  after  1996. 
The  importance  of  manufacturing,  which  accounts  for  some  71%  of  industry  (including 
construction), has declined in terms of both share of GDP (21.6% in 2001) and employment 
(21.3%  in  2001).  Already  high  from  the  outset,  the  services  sector,  notably  tourism,  has 
further grown from about 50% of GDP at the time of independence to roughly 60%. The share 
of agriculture in GDP declined slowly in the second half of the 1990s but still stands above 
9%,  reflecting  the  slow  restructuring  in  this  sector  and  absorption  of  self-employment  of 
people who lost their jobs in the manufacturing sector. 

The system of public finances has long been a matter of concern, showing signs of increasing 
government  interventions,  a  lack  of  transparency  as  well  as  poor  reliability  and  delayed 
availability of fiscal data. A number of factors contributed to this unfavourable development: 
the lack of integration of sub-central government bodies, the creation of extra-budgetary funds 
and the accompanying lack of transparency (in granting and recording of state subsidies and 
government  guarantees),  poor  control  of  the  funds’  expenditure,  underdeveloped  medium-
term  planning,  insufficient  rules  and  procedures  of  budget  management  as  well  as  low 
accountability.  Even  though  there  is  further  room  for  improvement,  a  number  of  activities 
have  been  initiated  in  the  past  years:  a  single  treasury  account,  including  the  development 
towards  an  accruals-based  accounting  method,  and  a  new  system  of  accounts  have  been 
introduced,  extra-budgetary  funds  were  integrated  in  the  budget,  reporting  and  monitoring 
requirements have been expanded and a new organic budget law was adopted in mid-2003. 

41 

 
 
  
 
Before 2000, the system of socially-owned enterprises and worker management meant that the 
distinction  between  owners,  managers  and  workers  was  not  clear:  in  most  enterprises 
managers  were  appointed  by  the  employees.  In  larger  enterprises,  the  authorities  nominated 
them.  This  led  to  wage  escalation,  over-employment  and  under-investment.  Loss-making 
enterprises  survived  not  so  much  because  of  government  subsidies  but  because  they 
accumulated  arrears  to  other  enterprises,  and  they  had  easy  access  to  bank  loans  -  which  in 
turn undermined the health of the banking sector. 

Privatisation in Croatia was based on two key laws: the Transformation Act of 1991, which 
covered  a  total  of  3,000  socially-owned  companies  (with  the  exception  of  10  large 
infrastructure and utility companies designated as public enterprises) and the Privatisation Act 
of  1993,  amended  in  1996.  Since  1996,  public  enterprises  are  privatised  on  the  basis  of 
separate laws. Early privatisation policies often took the form of insider buyouts (management 
and employees), which did not facilitate the modernisation of corporate governance. After the 
exhaustion  of  insider  priority  rights,  the  second  stage  of  privatisation  (from  1993  onwards) 
shifted  to  public  auctions  and  tenders,  which were  particularly  successful  after  allowing  the 
acquisition  of  shares  against  frozen  foreign  currency  deposits23.  Voucher  privatisation 
effectively started in 1998 but produced only short-term results until the economic crisis. The 
privatisation of public enterprises and other “strategic” assets (e.g. banks) not covered by the 
transformation  and  privatisation  laws  only  started  at  the  end  of  the  decade  under  growing 
fiscal pressure.  

Administrative price setting had not been a feature of the SFRY economic system. All direct 
price  controls  were  removed  after  independence  with  some  exceptions  (wood,  transport, 
postal services). Prices for energy and telecommunication are regulated by responsible bodies. 
Administrative  prices  also  exist  for  public  services  on  the  local  level.  This  situation  still 
prevailed in 2003. 

Until  the  late  1990s,  the  Croatian  banking  system  was  dominated  by  state-owned  banks 
operating in an insufficient regulatory framework with weak supervision and vulnerability to 
political  interference.  The  deterioration  of  the  economic  situation  from  1997  onwards  also 
exposed serious solvency problems in the banking sector, which resulted in a banking crisis in 
1998/1999.  Since  then,  the  banking  sector  has  been  restructured  and  has  consolidated. 
Supervision  and  capital  requirements  have  been  strengthened.  Most  of  the  sector  has  been 
privatised and is controlled by foreign banking groups. However, the process of rehabilitating 
and stabilising the sector was achieved at high costs: since 1991, EUR 5.6 billion was spent 
by the state on measures to rehabilitate the banking system, equivalent to 33% of the average 
GDP. 

Fuelled by the armed conflict until 1995, there was evidence of the existence of a significant 
shadow economy in Croatia. However, a number of factors including the introduction of VAT 
in  1998,  improvements  statistical  registration  and  the  entry  of  foreign  firms  notably  in  the 
retail  sector  have  contributed  to  a  decline  in  the  past  few  years.  A  study  of  the  Croatian 
Institute of Public Finance of 2001 estimated the share of the grey economy at around 25% of 

23 

Frozen foreign exchange deposits (FFED) originate from the right of former Yugoslav citizens to hold 
foreign  currency  accounts  in  domestic  banks,  which  had  to  redeposit  this  foreign  currency  with  the 
National  Bank  of Yugoslavia  (NBY). After  the break-up of  the SFRY,  the NBY  retained  these funds 
and the Croatian government decided to accept these assets as public debt. It issued bonds in 1991 to 
Croatian banks in exchange for their claims against the NBY and introduced a freeze on the deposits but 
allowed its use by citizens in the context of privatisation projects. 

42 

 
 
  
 
                                                 
GDP  on  average  for  the  period  1990-1995  and  at  around  10%  for  the  period  1996  –  2000, 
based on the national accounts non-compliance method. 

2.2. 

Assessment in terms of the Copenhagen criteria 

The Existence of a Functioning Market Economy 

The  existence  of  a  functioning  market  economy  requires  that  prices,  as  well  as  trade,  are 
liberalised  and  that  an  enforceable  legal  system,  including  property  rights,  is  in  place. 
Macroeconomic stability and consensus about economic policy enhance the performance of a 
market  economy.  A  well-developed  financial  sector  and  the  absence  of  any  significant 
barriers to market entry and exit improve the efficiency of the economy. 

There is an increasing political consensus on the essentials of economic policy. Until 2000, 
Croatia  followed  a  rather  gradual  approach  to  structural  reforms  and  tried  to  establish 
consensus  between  the  social  partners.  This  helped  to  preserve  social  stability  but  it  also 
delayed necessary reforms. When coming into office in early 2000, the Croatian government 
adopted a medium-term strategy and subsequently refined its developmental priorities. Over 
the  past  years  the  focus  for  policy  has  shifted  from  general  macroeconomic  stabilisation  to 
fiscal consolidation and structural adjustment. The aim has been to boost competitiveness and 
to create employment through a dynamic implementation of structural reforms. The economic 
and  financial  policies  have  been  supported  inter  alia  by  two  precautionary  Stand-by 
Arrangements with the IMF and a Structural Adjustment Loan (SAL) from the World Bank. 
Discussions with the IMF are underway on a new programme following the expiration of the 
second  Stand-by  Arrangement.  The  Economic  and Social  Council  has  been  established  as  a 
consultative  body  consisting  of  representatives  of  the  government,  the  employers  and  trade 
unions,  which  however  did  not  always  achieve  an  agreement  on  the  discussed  areas.  In  a 
resolution  on  the  accession  of  Croatia  to  the  European  Union  supported  by  all  represented 
parliamentary  groups,  the  Croatian  Parliament  stated  in  December  2002  that  Croatia's 
accession  to  the  European  Union  is  a  strategic  national  goal,  which  is  according  to  polls 
shared by the vast majority of the population. In accordance with this goal, the objectives of 
economic policy have been laid down in the first "National Programme for the Integration of 
the  Republic  of  Croatia  into  the  European  Union"  adopted  by  the  Croatian  Government  in 
December  2002.  There  also  seems  to  be  an  increasing  awareness  of  and  commitment  to 
improving  the  co-ordination  between  policy  departments  to  achieve  these  objectives.  Co-
ordination  bodies  exist  or  have  recently  been  set  up  on  economic  issues  within  the 
government,  between  the  Ministry  of  Finance  and  the  Croatian  National  Bank  and  between 
the  main  providers  of  statistical  information.  Despite  the  existing  formal  framework  for  co-
ordination, further improvement in its actual implementation seems necessary. 

GDP  growth  recovered  to  relatively  high  rates  after  the  recession  in  1999.  Since  1996, 
Croatia  achieved  an  average  growth  rate  of  3.7%  despite  the  recession  in  1999  when  the 
economy  contracted  by  0.9%.  Over  this  period  domestic  demand,  in  particular  private 
consumption,  which  was  partly  credit-driven,  was  the  main  driving  force  of  growth,  with 
government consumption playing a minor role after 2000. The contribution of investment to 
growth (mainly through government initiated road and housing construction investment) has 
picked  up  again  after  2000,  when  government  investment  turned  positive,  and  is  currently 
growing  at  a  higher  pace  than  private  consumption.  After  three  years  of  de-stocking,  2002 
showed an increase of stocks. Even though the current account has been negative since 1996, 
the  contribution  of  net  external  demand  to  growth  was  positive  in  the  period  1998-2000. 
Given the reasonably high investment share (24.8% of GDP in 2002), declining government 
deficits  and  domestic-driven  growth,  Croatia  should  demonstrate  a  fairly  good  resilience  to 

43 

 
 
  
 
external shocks. However, the continuous growth of the external debt, the rather large current 
account deficits as well as the dependence of the current account on tourism and the limited 
room for manoeuvre in fiscal policy represent vulnerabilities. 

Since  1996,  the  trade  balance  and  the  current  account  show  rather  high  deficits.  The 
merchandise  trade  deficit  declined  in  the  period  of  economic  slowdown  but  widened  again 
with  the  economic  recovery  after  1999.  On  average,  the  merchandise  trade  deficit  reached 
20.2%  of  GDP  over  the  period  1996  to  2002,  and  23.55%  in  2002.  This  reflected  strong 
domestic  demand,  based  on  private  consumption  and  government  funded  construction 
programmes, and, more recently, the economic slowdown in the main trading partner, the EU. 
The growth of imports outpaced exports throughout the period with the exception of the years 
1998/1999.  Tourism,  which  recovered  in  particular  after  the  Kosovo  crisis,  is  the  most 
important export product and thus plays an important role as an external revenue source for 
Croatia,  although  it  also  creates  import  demand.  Compared  with  the  merchandise  trade 
balance, the deficit of the balance of goods and services is therefore considerably lower (8.7% 
of  GDP  in  2001  and  almost  12%  in  2002).  The  current  account  balance  averaged  6.3%  of 
GDP over the period 1996 to 2002, and 7.1% in 2002, but shows an erratic development over 
the years. Available data suggest that the past features - widening merchandise trade deficit 
and  further  improved  tourism  income  -  continued  in  2003  even  though  the  current  account 
deficit  is  expected  to  be  below  the  average  of  the  period  1996-2002.  However,  frequent 
revisions in the past underline the need to improve the reliability of balance of payments data. 

The  current  account  deficits  have  been  financed  by  foreign  borrowing  and  foreign  direct 
investment.  After  having  signed  debt  restructuring  agreements  with  the  Paris  and  London 
Clubs  by  1996,  Croatia  gained  access  to  the  international  markets  and  borrowed  at 
increasingly favourable terms (mostly in the form of euro bonds) thanks to its improved credit 
rating.  As  a  consequence,  the  external  debt  stock  increased  from  26.7%  of  GDP  in  1996  to 
68.5%  of  GDP  in  2002,  increasingly  nurtured  by  private  borrowing  abroad  (the  external 
public debt represents roughly 32% of GDP of which approximately one third originates from 
external debts incurred by the SFRY). Under the IMF programme, administrative steps have 
been  taken  by  the  HNB  to  curtail  the  strong  growth  of  the  external  debt,  which  however  is 
estimated to have increased further to some 72% of GDP by the end of 2003. FDI increased 
from 1995 and in particular from 1998 onwards, driven to a large extent by privatisation. Net 
FDI  inflows  reached  €1.15  billion  in  2000  and  €1.57  billion  in  2001,  but  declined  to  €384 
million in 2002. On average FDI corresponded to 5% of GDP in 1996 to 2002; for 1999-2001 
FDI inflows more than covered the current account deficits. 

Unemployment remains high but there are signs of a gradual easing of the situation. Rising 
unemployment was a constant phenomenon in Croatia since the beginning of the 1980s and 
until 2001 employment did not increase despite economic growth. There are several reasons 
for  the  still  high  unemployment:  the  entry  of  persons  from  liquidated  companies  and 
companies  in  bankruptcy  not  fully  compensated  by  new  job  opportunities,  wage  growth  on 
average slightly above productivity growth, a rather high burden of social contributions and a 
high labour market rigidity (reflected in high procedural and monetary costs associated with 
individual  dismissals,  restrictions  on  temporary  employment,  high  costs  of  collective 
dismissals).  However,  the  trends  of  declining  activity  and  employment  rates  as  well  as 
increasing unemployment seem to have reversed in 2002. The strong economic growth, some 
systematic  changes  and  data  consolidation  resulted  in  a  continued  fall  of  the  official 
unemployment rate since 2002 until September 2003 when unemployment started to slightly 
increase. In November 2003, the official rate stood at 18.9%, 2.7 percentage points lower than 
in November 2002. Official data are likely to overestimate the unemployment since they do 
not take into account employment in the grey economy. The unemployment rate according to 

44 

 
 
  
 
ILO methodology declined to 14.1% in the first half of 2003 (average rate in 2002: 14.8%). 
Employment as a share of the population of working age constantly  fell  from  some  50%  in 
1996 to 41.8% in 2001 before it slightly recovered to 43.3% in 2002. Furthermore, from 2001 
the government has begun to implement several programmes to facilitate employment in line 
with the National Employment Action Plan, the guiding document for an active labour market 
policy.  Finally,  amendments  to  the  labour  law  (including  more  limited  rules  on  severance 
pay), were adopted in mid-2003 aiming at increasing flexibility in the labour markets. 

Croatia has been successful in maintaining low inflation rates. The exchange rate of the kuna 
against the euro is the main nominal anchor of price stability and the main indirect objective 
of  monetary  policy.  This  is  explained  by  the  high  degree  of  currency  substitution,  the  high 
trade  integration  with  the  EU  and  the  pronounced  and  increasing  role  of  the  euro  in  the 
currency  structure  of  external  trade.  This  policy  has  succeeded  in  achieving  single-digit 
inflation rates since 1995. Between 1996 and 2002, the average retail price inflation, currently 
the  main  indicator  in  the  absence  of  a  Consumer  Price  Index  (CPI),  was  4.3%  (annual 
average), and  2.2% in 2002.24 Inflation rates  have  remained subdued during the first eleven 
months of 2003 averaging 1.5% compared to the same period in 2002. The effectiveness of 
orthodox instruments of monetary policy has however been limited. The past structural excess 
liquidity coupled with a weak payments system and liquidity management practices of banks 
have  hampered  the  development  of  money  markets  and  interest-sensitive  monetary 
instruments.  Against  this  background,  the  HNB  decided  in  early  2003  on  a  set  of 
administrative  measures  so  as  to  curb  the  externally  funded  domestic  credit  growth,  which 
threatened to worsen the external position as well as the stability of the banking sector. These 
measures  expired  at  the  end  of  2003.  Although  the  administrative  measures  have  slowed 
down credit growth, the external debt further increased during 2003 due to direct borrowing 
abroad and leasing operations. In response to further monetary tightening by the HNB, money 
market  interest  rates  rose  in  the  fourth  quarter  of  2003,  which  –if  continued-  might  have 
implications for the public debt service. 

The exchange rate of the kuna against the euro has remained in a rather narrow band. Since 
1994, the HNB implements an exchange rate policy classified as "managed floating", i.e. the 
HNB  aims  to  soften  exchange  rate  movements  of  the  kuna  against  the  euro,  which  usually 
follow a seasonal pattern of appreciation during the summer tourism season and subsequent 
depreciation. This policy has resulted in a rather stable nominal exchange rate, which de-facto 
fluctuated within a band of +/- 6% around the average exchange rate in the period since 1994. 
In  recent  years,  the  kuna  exchange  rate  vis-à-vis  the  US-dollar  has  been  following  the 
movements of the euro towards the US-dollar impacting on external indicators expressed in 
this  currency.  However,  nominal  and  real  effective  exchange  rate  indicators  showed  a 
depreciation trend in the period 1996 up to 2000 and appreciation tendencies thereafter. 

The  budget  deficits  have  been  curtailed  from  high  levels  but  progress  has  stalled  in  2003. 
According to IMF data, the general government deficit widened significantly to 8.2% of GDP 
in  1999,  partly  financed  by  an  increase  in  arrears  of  government  agencies  to  public  and 
private enterprises of 0.8% of GDP (totalling 5.9% of GDP). It then declined to 6.5% in 2000 
and 6.8% in 2001 with the settlements of arrears contributing negatively to financing. In line 
with the adjustment policy under the IMF monitored Stand-by Arrangement, the deficit was 
further reduced to 4.8% of GDP in 2002. The deficit was originally estimated to be reduced to 
4.6% in 2003, on the basis of a reduction of the high public wage bill through a wage freeze 

24  Core  inflation,  which  excludes  agricultural  products  prices  and  administrative  prices  from  the  retail  price 

index, averaged 3.4% in the same period. Producer price inflation was even lower at 2.6%. 

45 

 
 
  
 
                                                 
and  through  a  reduction  of  public  employment  and  of  benefits  and  allowances.  However, 
public spending considerably exceeded planned expenditure in the last quarter of 2003, also 
due  to  last  minute  public  sector  wage  increases,  and  the  deficit  in  2003  exceeded  5%  as  a 
result.  The  transparency  and  structure  of  public  expenditure  has  substantially  changed  over 
time and its share in GDP is being gradually lowered (50.0% in 2002). Extra-budgetary funds, 
notably for pensions and the health sector, have been gradually integrated into the budget. As 
part  of  a  general  decentralisation  move,  public  functions  and  revenue  proceeds  have  been 
transferred  to  local  government  levels  (between  2000  and  2002  the  share  of  revenues  of 
municipal,  town  and  county  budgets  increased  from  5.7%  of  GDP  to  7.1%).  There  have, 
however, been problems in providing appropriate administrative capacity. Croatia was able to 
access  the  international  markets  to  fund  its  reconstruction  process  in  the  post-war  era.  In 
combination  with  high  privatisation  proceeds  and  the  favourable  revenue  development  this 
weakened  budget  constraints  and  led  to  rather  high  general  government  budget  deficits, 
caused in part by a high public sector pay bill, and the accumulation of public debt. In 1999, 
the economic and financial crisis significantly worsened public finances. In the period from 
1996  to  2002,  total  revenues  as  a  share  of  GDP  peaked  in  1999  at  48.4%  and  declined  to 
below  45.2%  of  GDP  in  2002  including  the  reduction  of  the  tax  burden  in  2000  and  2002. 
Total expenditure peaked at 56.6% of GDP in 1999 after which it fell to about 49.5% in 2003. 
As  a  consequence,  the  general  government  debt  increased  rapidly  from  31.6%  of  GDP  in 
1997 to 51.6% of GDP in 2001. This ratio has since then been maintained. The primary deficit 
deteriorated to peak at 6.5% of GDP in 1999 after which the negative trend was reversed and 
the primary deficit was reduced to 2.7% in 2002. So as to ensure long-term sustainability of 
public  finances,  the  social  security  system  is  undergoing  amendments.  A  modern  pension 
reform  introducing  a  three-pillar  system  is  being  implemented  since  2002.  The  eligibility 
criteria  for  unemployment  benefits  have  also  been  strengthened.  However,  the  health  sector 
reform  is  still  at  an  early  stage  and  experience  with  the  introduction  of  supplementary 
insurance schemes was mixed. The new budget law adopted in 2003 will improve the budget 
management and require the establishment of a medium-term fiscal framework. Together with 
the  introduction  of  the  Single  Treasury  Account  and  of  the  new  system  of  accounts,  this 
should contribute to improving the quality, scope and regularity of fiscal statistics, which have 
been weak so far. 

The  policy  mix  has  improved  since  2000  when  fiscal  policy  became  oriented  towards 
macroeconomic stability. In the late 1990s, monetary policy had to bear the main burden of 
ensuring  macroeconomic  stability  as  fiscal  policy  became  increasingly  expansionary.  After 
2000,  fiscal  policy  gradually  contributed  to  a  stable  macro-economic  environment  with 
expenditure being cut, including the reduction of the public wage bill and the restructuring of 
expenditure  towards  capital  expenditure,  although  this  process  stalled  in  2003.  In  general, 
fiscal policy allowed the easing of monetary policy without jeopardising price stability during 
this period. Albeit declining, the general government sector accounted for far more than half 
of the domestic saving-investment gap in 2002. However, since the government continues to 
rely  on  external  financing  to  a  significant  extent,  the  conversion  of  funds  for  domestic  use 
needs to be closely co-ordinated so as not to jeopardise monetary policy. 

Price liberalisation is advanced but administered prices continue to play a role. In 2003, the 
share of administered prices in the retail price index amounted to 23% but increased over the 
past  three  years  by  4.8  percentage  points.  This  reflects  the  increased  weight  of  these  prices 
(mainly public utilities, telephone, energy and electricity), which are annually adjusted but not 
an  increase  in  the  number  of  administrative  prices.  The  prices  of  goods  and  services  are 
liberalised  with 
the  exception  of  some  economic  activities  for  which  prices  are 
administratively  controlled  on  a  national  or  local  level,  notably  for  certain  agricultural 

46 

 
 
  
 
products  and  for  public  transport,  basic  community  and  postal  services.  The  price  control 
system  in  the  areas  of  energy  and  telecommunications  is  currently  being  replaced  by 
regulatory  bodies  in  line  with  the  on-going  liberalisation  of  the  sectors;  most  of  these 
regulatory bodies are however not yet operational (see Part 3, Chapters 14 - Energy and 19 – 
Telecommunications). 

Although withdrawing, the state is still predominant in several sectors of the economy. In the 
period  1993-1999,  the  private  sector  share  in  GDP  doubled  from  30%  to  60%  but  has 
stagnated  at  this  comparatively  low  level.  In  2001,  71.3%  of  total  tangible  assets  were  in 
public  ownership,  which  represents  even  an  increase  by  6.1  percentage  points  compared  to 
1999.  Apart  from  usual  public  areas  like  education,  health,  postal  and  community  services, 
other economic sectors with a high public ownership of tangible assets are agriculture, public 
utilities, transport and real estate; even in the manufacturing industry (through shipbuilding) 
the  public  share  accounts  for  a  third  of  total  tangible  assets.  As  a  result  of  the  motorway 
construction programme, public ownership in construction stood at 90%. On the other hand, 
tangible  assets  of  financial  intermediation  (99.9%),  reflecting  the  almost  completed 
privatisation  of  the  banking  sector,  and  trade  (93.1%)  were  almost  entirely  in  private 
ownership  already  in  2001.  Privatisation  is  well  advanced  in  telecommunications,  although 
market opening has proceeded slowly. The monopoly of the fixed line service formally ended 
at  the  end  of  2003.  There  are  two  mobile  network  operators,  but  a  third  license  should  be 
considered  in  order  to  enhance  competition.  However,  the  private  sector  showed  more 
dynamics than public enterprises in terms of revenue growth as well as the profitability in the 
period 1996-2001. Revenue growth of private enterprises exceeded nominal GDP growth and 
their share of total enterprise revenues rose from 58.4% to 67.8%. 

Privatisation  has  progressed  but  encounters  frequent  legal  and  political  problems.  After 
taking  office  in  2000,  the  new  government  consolidated  state  holdings  under  the  Croatian 
Privatisation Fund (HFP) but there are still assets with the Bank Rehabilitation Agency  and 
the  pension  and  health  funds.  In  the  period  January  2000  to  December  2002,  the  state 
portfolio  was  reduced  from  1,860  to  1,056  companies,  mainly  through  the  sale  of  minority 
shares, but was at roughly the same level as of August 2003. The number of companies in the 
portfolio constantly changes due to the cancellation of past share acquisition agreements. In 
mid 2003, there were still 170 companies with a majority state share in the portfolio whereas 
the state held less than 25% of shares in 822 companies. There is still a high state ownership 
of  tourist  entities;  part  of  which  were  tendered  but  have  not found  much  interest  due  to  the 
high investment needs and the degree of indebtedness. In mid-2003, the government adopted 
a proposal to redesign the competencies of the HFP for completing the privatisation, but this 
proposal is still in parliamentary procedure and has effectively discouraged the preparation of 
new  privatisation  projects.  Given  the  important  role  of  the  line  ministries  in  initiating  and 
approving  privatisation  projects,  it  remains  questionable  if  the  new  system  will  accelerate 
procedures.  The  privatisation  of  agricultural  conglomerates  was  initiated  in  late  2002  and 
encounters significant problems due to the generally poor status of the land registry and the 
cadastre, which impede the establishment of effective land and housing markets. As of 2001 
(the latest data available), some 87% of tangible assets of agricultural land and housing were 
still  in  public  ownership.  More  generally,  large,  often  formerly  public  or  socially-owned, 
firms still play an important role in Croatia’s economy. A number of enterprises continue to 
have  exclusive  or  special  rights  in  certain  aspects  even  though  steps  are  being  taken  to 
liberalise  sectors  such  as  telecommunications,  electricity  and  oil.  Public  enterprises  are 
privatised  according  to  special  laws.  A  majority  stake  of  51%  in  the  telecommunications 
company was sold to a foreign investor but the government postponed the envisaged offer of 
further stakes. A first step in the privatisation of the power supply sector was taken by selling 

47 

 
 
  
 
a  25%  share  of  the  oil  company  INA  in  summer  2003.  The  privatisation  of  the  distribution 
network  of  the  electricity  company  has  been  delayed.  Two  tenders  to  privatise  the  biggest 
insurance  company  were  cancelled  and  the  government  decided  to  retain  a  majority 
shareholding. 

Even though the authorities have started several initiatives, there remain barriers to market 
entry  and  exit.  In  the  period  1999  to  2001,  the  overall  number  of  enterprises  in  the 
manufacturing  and  services  sectors  declined  by  almost  3%  reflecting  some  consolidation  as 
well  as  the  impact  of  the  economic  slow-down  in  1998/1999.  Both  the  number  of  newly 
created  enterprises  as  well  as  the  net  increase  in  the  total  number  of  enterprises  recovered 
after 2000. However, enterprises are still confronted with relatively high costs, a substantial 
burden of administrative regulations, difficulties in access to finance, in particular long-term 
maturity,  and  domestic  markets  dominated  by  a  few  business  groups  with  a  low  level  of 
competition. Another factor was the rigidity of the labour law, which however has been partly 
addressed by the amendments adopted in 2003. Despite some time limits for particular steps, 
overall procedures to set up a business are lengthy and vary between regions: according to the 
Global  Competitiveness  Report  2002-2003  by  the  World  Economic  Forum,  it  takes  an 
average of 51 days to start up a firm in Croatia, which is considerably longer than in many 
developed  economies.  A  one-stop  shop  does  not  yet  exist.  The  Croatian  authorities  have 
started  a  comprehensive  initiative  to  implement  the  findings  of  the  FIAS25  study  on 
administrative barriers to foreign investment (January 2001). In particular, an action plan was 
adopted in February 2002 listing detailed measures of short and long-term nature; however its 
implementation  record  is  mixed.  The  laws  and  procedures  regulating  bankruptcy  were 
introduced  in  1997  and  the  Bankruptcy  Act  was  amended  in  July  2003.  As  is  the  case  for 
court  procedures  in  general,  bankruptcy  procedures  have  been  lengthy  and  suffer  from  the 
weaknesses of the judicial sector. This is illustrated by the privatisation process. Among the 
companies  that  had  undergone  transformation  and  privatisation  since  1991,  728  have  been 
sent into bankruptcy, but bankruptcy proceedings have been completed only in 177 cases. The 
amendments  to  the  Bankruptcy  Act  create  the  legal  base  to  simplify  proceedings  and  to 
accelerate  procedures,  inter  alia  by  introducing  timeframes,  which  however  need  to  be 
implemented. 

The legal framework is being harmonised with the acquis communautaire at a high speed, but 
the  effectiveness  of  the  judicial  system  is  still  unsatisfactory.  Already  in  autumn  2001,  the 
authorities adopted  an implementation plan for the Stabilisation and  Association Agreement 
so as to harmonise Croatian law with the acquis. In summer 2003, a number of important laws 
in  the  economic  area  were  adopted  including  bankruptcy,  company,  foreign  exchange  and 
labour law. The challenge will be to ensure effective implementation and enforcement of this 
legislation  inter  alia  through  improving  the  capacity  of  the  public  administration.  However, 
the  courts  system  does  not  function  well  and  does  not  effectively  enforce  creditor  and 
property rights. Procedures are slow and there continues to be a substantial backlog of cases. 
Legal  interpretation  within  the  courts  system  varies,  the  administrative  and  professional 
capacity is low and there is a lack of support staff and of a professional training system. The 
cadastre  and  land  registry  are  in  a  poor  state,  which  also  reflects  the  often  outdated  and 
insufficient technical equipment of courts. The authorities are aware of the problems and are 
implementing  a  number  of  projects  together  with  international  donors  to  improve  and 
modernise  the  capacity  and  efficiency  of  the  courts.  The  situation  is  however  unlikely  to 
improve substantially in the short term. (See also Part 1, Political Criteria.). 

25 Foreign Investment Advisory Service, which is a joint service of the International Finance Corporation (IFC) 

and the World Bank. 

48 

 
 
  
 
                                                 
The  financial  sector  is  sufficiently  developed  to  channel  savings  towards  productive 
investment but credit expansion to corporate customers suffers from the weak judicial sector. 
The privatisation of the Croatian banking sector is almost complete with only two commercial 
banks  accounting  for  4%  of  total  banking  assets  still  in  majority  state  ownership.  Foreign 
banks  control  more  than  90%  of  total  banking  assets.  From  the  beginning  of  2004,  the 
Croatian  banking  sector  comprises  42  banks  essentially  dominated  by  6  banking  groups,  as 
well as 4 housing savings banks and 1 savings bank. The two leading banking groups account 
for  roughly  49%  of  total  assets.  In  addition,  115  savings  and  loans  cooperatives  were  in 
operation in 2002, but they represented only a small part of total assets. The entry of foreign 
banks has resulted in a widened range of products and services provided by Croatian banks as 
well  as  intensified  competition.  This  is  reflected  in  the  spread  between  average  credit  and 
deposit  interest  rates  having  fallen  from  10.1%  in  1998  to  6.5%  in  2001.  A  change  in 
methodology  as  of  1  January  2002  (the  government  sector  and  financial  institutions  are  no 
longer included in the interest rate statistics) resulted in a one-off rise in the spread between 
average interest rates, most notably for activities not indexed to foreign currency, which stood 
at  9.6%  at  the  end  of  2002.  Private  banks  have  been  allowed  to  operate  payments  systems, 
formerly carried out exclusively by the Central Payments Institution (ZAP) inherited from the 
former  Yugoslavia.  Currently,  11  banks  perform  payment  system  functions  and  account  for 
about 60% of daily transactions. Ample liquidity, streamlined loan approval procedures and 
reduced interest rates have made access to credit easier. Total  domestic loans (both in kuna 
and foreign currency) as a percentage of GDP increased from 27.9% in 1996 to relatively high 
55.2% at the end of 2002. The share of private sector credit slightly declined in the past years 
but  accounted  for  some  88%  of  total  lending,  representing  some  48.9%  of  GDP.  Credits  to 
enterprises recovered in the past two years after the recession-induced decline in demand in 
1999: total loans corresponded to 26.6% of GDP at the end of 2002, thus reaching again the 
level  of  1998.  The  difficulties  of  using  immovables  as  collateral,  as  well  as  the  long 
bankruptcy proceedings, undermine a sufficient protection of creditor and property rights and 
affect  lending.  In  combination  with  the  perceived  higher  profitability  of  household  lending 
and the lack of access of households to direct foreign borrowing, this has resulted in a weaker 
credit  growth  to  enterprises  than  to  households,  which  however  often  include  crafts  and 
micro-enterprises.  Foreign  ownership  facilitated  the  high  credit  growth  through  the 
availability  of  funds  from  the  parent  companies  but  the  growth  raised  concerns  about  the 
impact on the quality of banks’ credit portfolios and contributed to the rise of external debt. 
Even  though  medium-  and  long-term  maturity  loans  are  increasingly  available  (10-15  years 
for legal entities and 25-30 years for mortgage loans), 40.9% of the total loans to the private 
sector are shorter than one year and the average maturity of bank loans has hardly changed 
since 1999 (2.7 years as of 31 March 2003 compared to 2.5 years at the end of 1999). 

The non-banking financial sector is less developed. In terms of assets, the non-banking sector 
accounts for some 12% of total assets of the financial sector pointing to the still limited size of 
financial services other than banking. The insurance sector is small but highly concentrated, 
and  a  broad  range  of  products  is  available.  In  2002,  24  insurance  institutions  operated  in 
Croatia of which 13 were domestic (achieving a gross written premium of 3.2% of GDP). The 
largest insurer had a 46% market share while 5 other companies had a share of 5-10% each. 
Even though two stock exchanges exist (in Zagreb and in Varazdin), the capital markets are 
neither  deep  nor  liquid  and  the  acquisition  of  Croatian  companies  by  foreign  investors  has 
further reduced the number of listed companies. Total market capitalisation of both exchanges 
totalled  some  30%  of  GDP  at  the  end  of  2002.  The  listing  requirements  for  enterprises 
introduced in 2003 are unlikely to result in higher trading. The establishment of pension funds 
has had a sizeable impact on the turnover and trading volume, in particular of bonds. As of 

49 

 
 
  
 
September  2003,  the  5  compulsory  and  4  voluntary  pension  funds  in  Croatia  were  showing 
strong growth of assets. (See also Part 3, Chapter 3 – Freedom to provide services.). 

The stability of the banking sector has improved but the high euroisation remains a potential 
vulnerability.  The  HNB  is  the  institution  in  charge  of  issuing  bank  operating  licences  and 
supervising bank operations. Following the 1998 crisis, the banking sector has been stabilised 
and continues to consolidate. The professional management of a crisis in 2002 contributed to 
growing  confidence  in  the  banking  system,  which  is  also  reflected  by  the  growth  in  bank 
deposits, in particular the deposit of foreign exchange cash into bank accounts in the context 
of the physical changeover to the euro in the euro area. Already in 1997, a deposit insurance 
system  was  introduced.  According  to  indicators  from  the  HNB  on  non-performing  loans, 
capital  adequacy  and  primary  liquidity  ratio  of  banking  institutions,  the  profitability  and 
soundness have improved. In 2003, the HNB took a number of measures, which managed to 
slow down credit growth. It remains to be seen whether the recent growth of lending activity, 
in particular to private households, will have an impact on the credit quality. Foreign currency 
indexation  remains  an  important  feature,  which  increases  the  vulnerability  of  the  banking 
system:  foreign  currency  deposits  including  those  denominated  in  and  indexed  to  foreign 
currencies correspond to 88.5% of total deposits, albeit at a modestly declining trend. 78% of 
bank loans are denominated in or indexed to foreign exchange whose borrowers receive kuna-
denominated  income  and/or  do  not  have  access  to  hedging  instruments.  Even  70%  of  the 
domestic Government bonds in kuna is indexed to the euro exchange rate. 

The Capacity to Cope with Competitive Pressure and Market Forces 

The ability to fulfil this criterion depends on the existence of a market economy and a stable 
macroeconomic  framework,  allowing  economic  agents  to  make  decisions  in  a  climate  of 
predictability.  It  also  requires  a  sufficient  amount  of  human  and  physical  assets.  State 
enterprises need to be restructured and enterprises need to invest to improve their efficiency. 
Furthermore, the more access enterprises have to outside finance and the more successful they 
are  at  restructuring  and  innovating,  the  greater  will  be  their  capacity  to  adapt.  Overall,  the 
more an economy is integrated with the Union before accession, the better will it be able to 
take on the obligations of membership. 

Croatia  has  achieved  a  sufficient  degree  of  macroeconomic  stability  to  allow  economic 
operators  to  make  decisions  in  a  climate  of  stability  and  predictability.  Following  the 
economic crisis in 1998/1999, Croatia has established a solid track record of macroeconomic 
stability.  Enhanced  economic  stability  and  structural  reforms  undertaken  so  far  permit  the 
working  of  market  mechanisms,  although  government  interventions  continue  to  take  place. 
This  creates  the  basic  conditions  for  coping  with  competitive  pressures.  The  remaining 
challenges are to continue the fiscal consolidation and privatisation, to widen and deepen the 
development of the financial sector and to improve the business environment, notably through 
enhancing the performance of the judicial sector. 

The  labour  force  is  rather  well  educated  but  labour  force  participation  is  low.  Despite  its 
improved  macroeconomic  productivity,  Croatia  suffers  from  a  large  share  of  economically 
inactive population (the activity rate was at 50.9% in 2002) and demographic challenges (as 
of  June  2003,  the  ratio  of  pension  fund  contributors  to  beneficiaries  stood  at  1.4).  The 
productivity  level  of  Croatia  in  terms  of  income  per  capita  is  at  21%  of  that  of  the  EU  in 
nominal  terms  and  at  35.9%  in  PPP  terms.  Productivity  developments  vary  between  sectors 
and  branches  but  available  data  suggest  a  better  performance  of  the  service  sector  than  of 
industry and agriculture. In general, the shift of enrolment to secondary and higher secondary 
education suggests that the education level of the working age population has increased over 

50 

 
 
  
 
the  years  since  1996.  However,  the  share  of  persons  with  a  university  degree  fluctuated 
between 10.7% and 13.4%. This perspective leaves aside the need to modernise the quality of 
education  and  curricula  (see  Part  3,  Chapter  18  –  Education).  According  to  government 
records,  roughly  1,050  students  are  enrolled  in  universities  abroad.  Compared  to  the  EU 
average, Croatia shows a higher share of population (aged 25-64) with secondary education 
and  lower  shares  for  both  elementary  school and  higher-than-secondary  education.  In  2002, 
the Employment Promotion Programme was adopted. It aims at reducing unemployment and 
at fostering employment of specific target groups e.g. through support for university-leavers 
and former military staff. (See also Part 3, Chapter 13 – Social policy and employment.). 

intermediation  and 

the  pharmaceutical 

telecommunications,  financial 

Croatia  is  investing  in  improving  its  infrastructure  and  has  achieved  relatively  sound  and 
stable investment rates. In the period 1996 to 2002, the investment-to-GDP ratio reached on 
average roughly 23%, with a peak of 24.8% in 2002, of which more than 70% were private 
investments. Nominally, FDI has been an important contributor to investment and growth in 
this period: FDI inflows corresponded to an average 5% of GDP. However, almost two thirds 
of FDI were related to privatisation projects as reflected by the main sectors benefiting from 
FDI: 
industry. 
Greenfield  investment  accounted  only  for  16.4%  of  the  total.  The  main  domestic  sectors  of 
investment were manufacturing, trade, transport and construction, reflecting large government 
investment in roads and reconstruction. Even though capacity seems to satisfy current needs 
except  during  the  main  tourist  season,  the  quality  of  transport  infrastructure  is  perceived  as 
unsatisfactory  by  entrepreneurs.  In  the  period  1996-2002,  investment  in  roads,  in  particular 
for the construction of new motorways, reached a high level. At the same time investment in 
railway  infrastructure  remained  modest,  but  is  planned  to  pick  up  in  the  framework  of  a  4-
year programme. Telecommunications improved significantly: the fixed line network is fully 
digitalised and there are two operators for mobile telephony resulting in a mobile penetration 
of  56%  as  of  June  2003.  The  implementation  of  regulatory  reforms  and  the  introduction  of 
competition  are  however  still  lagging  behind  in  some  infrastructure  sectors  including  in 
telecommunication.  Gross  domestic  R&D  expenditure  amounted  to  an  annual  average  of 
0.96% of GDP over the period 1997-2001, rising through the period, which is relatively high 
but still below the EU average (2.21% in 2000). This also applies to R&D per capita and the 
business sector share of R&D. 

Over the period 1996-2001, the share of manufacturing and agriculture decreased somewhat 
while the traditionally strong service sector gained further strength. Manufacturing declined 
modestly  from  22.3%  of  GDP  (constant  prices)  to  21.5%.  Within  manufacturing,  activities 
with low value added tend to dominate the industrial structure, partly as a consequence of the 
past privatisation policies. Similarly, agriculture contracted over time from above 10% but is 
still  high  at  9.1%  of  GDP  (constant  prices).  This  sector  is  dominated  by  small,  dispersed 
individual  farms  and  big  conglomerates,  which  are  in  the  process  of  being  privatised. 
Productivity  and  efficiency  are  low  and  there  is  significant  need  for  adjustment.  This  could 
lead to a fall in agricultural employment, which is still important. The trade sector increased 
considerably  since  its  low  in  1998  but  is  still  below  the  levels  of  1996/1997.  Trends  in 
employment followed the same pattern. 

After a slow start, enterprise restructuring has made some progress. Following the adoption 
by the government of a programme to speed up restructuring and privatisation in early 2001, 
there  has  been  some  progress 
in  restructuring.  The  former  Croatian  Post  and 
Telecommunications  was  separated  in  two  joint-stock  companies  in  1999  of  which  the 
Croatian  Telecom  has  been  partly  privatised.  By  mid-2003,  30  companies  had  been 
restructured  and  20  companies  were  undergoing  restructuring.  The  restructuring  of  the 
railways  is  starting.  Even  though  there  is  no  global  plan  of  company  restructuring,  the 

51 

 
 
  
 
government  adopted  programmes  for  restructuring  shipbuilding  and  the  agro-industrial 
conglomerates,  which  have  benefited  from  high  subsidies  and  government  interventions. 
Moreover, a restructuring plan for the steel sector is in preparation. Arrears have been reduced 
to a large extent and were estimated to be below 0.2% of GDP in mid-2003, which is however 
unlikely to capture the entire public sector (e.g. the health sector). (See Part 3, Chapter 15 – 
Industrial Policy.). 

The share of small firms in GDP and employment increased even though their total number 
declined.  Small  and  medium-sized  enterprises  (including  crafts,  co-operatives  and  micro 
enterprises) account for 99.6% of all enterprises and 65.7% of employment by enterprises (as 
of June 2003). In the period from 1996 to 2000 the number of small companies declined by 
8.9%  although  their  employment  increased  in  absolute  terms  (by  6.8%)  and  also  as  a 
percentage  of  total  employment  (by  3.2  percentage-points).  The  opposite  was  the  case  both 
for medium-sized and large enterprises. The SME share in GDP is estimated at roughly 55%. 
SMEs  tend  to  suffer  more  from  barriers  to  market  entry  and  weaknesses  in  the  business 
environment.  Prominent  among  these  are  difficulties  in  getting  access  to  finance  due  to 
problems  providing  collateral  and  the  lack  of  SME  credit  assessment  skills  in  the  banks, 
competition from subsidised state-owned enterprises, lack of entrepreneurial knowledge and 
weaknesses in the institutional infrastructure, notably in the judicial sector and in the public 
administration.  The  authorities  have  been  making  efforts  to  improve  the  situation,  and  the 
increasing  numbers  of  newly  created  enterprises  seem  to  signal  some  improvement.  A 
separate  ministry  was  created  after  2000,  which  implemented  a  number  of  initiatives  to 
improve the situation of SMEs but has been reintegrated into the Ministry of Economy after 
the elections in November 2003. The government also adopted a Development Programme for 
Small  Entrepreneurship  2003-2006  and  signed  the  European  Charter  for  Small  Enterprises, 
which  sets  out  principles  for  improving  the  business  environment  for  SMEs.  Co-ordination 
between different government levels in terms of SME policy and the communication between 
the authorities and the business community could still be intensified. (See Part 3, Chapter 16 
– SMEs.). 

The level of state aid and support to specific sectors is still considerable while transparency 
remains  low.  There  was  a  track  record  of  increasing  open  and  hidden  government 
interventions before 2000. In the last three years, efforts have been made to prioritise the field 
of state aid control legally and materially. A "Plan of Action regarding the Subventions in the 
Economy"  was  prepared  in  2001  and  its  implementation  monitored  through  the  SAL-
programme with the World Bank, resulting in a gradual decrease of state support in terms of 
GDP. Criteria for granting state guarantees are being introduced and the net outflow declined 
in  the  past  years  but  guaranteed  amounts  more  than  doubled  in  2002  compared  to  2000. 
According to the authorities, in the period 2000-2002 the average state support was 3.5% of 
GDP  and  showed  a  declining  trend  but  this  refers  only  to  direct  subsidies  from  the  central 
budget. More comprehensive academic estimates that include other forms of state aid suggest 
higher levels. The legal and institutional framework in the field of State aid only dates from 
2003. Croatia will not only have to reduce the overall level of state aid but also the level for 
particular  sectors  (like  agriculture,  transport,  shipbuilding,  tourism  and,  more  recently, 
railway) in favour of horizontal support. (See Part 3, Chapter 6 – Competition.). 

Croatia  has  substantially  liberalised  its  trade  over  the  past  years.  Successive  trade 
liberalisation measures since 1993 brought about considerable improvements but progress in 
actual trade integration with other countries was limited by Croatia's political isolation until 
early 2000. Since then, Croatia has made rapid progress: it joined the WTO (November 2000) 
and  concluded  a  number  of  bilateral  free  trade  agreements  (FTAs)  including  with  the  EU, 
neighbouring countries and EFTA. As of 1 March 2003, Croatia's membership in CEFTA has 

52 

 
 
  
 
been effective. As a result of these agreements, the weighted average tariff rate for industrial 
products  applied  to  most-favoured  nations  stood  at  3.5%  at  the  beginning  of  2003.  Being  a 
small open economy, Croatia’s total trade-to-GDP ratio (goods and services) was at 103.7% 
in 2002. (See Part 3, Chapter 26 – External relations.). 

Croatia's  economy  is  already  highly  integrated  with  the  Union.  The  EU  is  by  far  Croatia's 
most important trading partner, with average  export  and  import  shares  of  52.6%  and  56.2% 
respectively  for  the  period  1999-2002.  This  share  will  increase  in  the  order  of  13  and  15 
percentage  points  respectively  through  the  accession  of  ten  new  EU  Member  States  as  of  1 
May  2004.  In  2002,  Croatian  exports  to  the  EU  amounted  to  €2.74  billion  while  imports 
reached  €6.32  billion.  The  merchandise  trade  balance  shows  a  high  and  increasing  deficit: 
whereas  exports  grew  by  a  modest  7%  in  2002  compared  to  1996,  imports  grew  by  26% 
resulting  in  a  51%  surge  of  the  merchandise  trade  deficit and  a  deterioration  of  the  import-
export  coverage  from  57%  to  48%.  As  a  consequence,  Croatia’s  share  of  total  EU  imports 
declined  (from  0.4%  in  1993  to  0.2%  in  2002)  while  Croatia’s  share  of  total  EU  exports 
remained stable (at 0.7%). A number of factors contributed to this development. The structure 
of Croatian merchandise exports developed relatively unfavourably between 1995 and 2000, 
partly  as  a  result  of  the  continued  domination  of  former  and  current  public  enterprises  (in 
particular  shipbuilding  with  large  import  components).  The  share  of  labour-intensive 
industries  including  textiles,  footwear,  wood  and  shipbuilding  grew,  partly  due  to  the 
importance of outward processing trade, whose value added tends to be lower and which are 
more vulnerable to price competition. Furthermore, the improved market access for Croatian 
enterprises through the network of FTAs will need more time to bear fruit. Trade integration 
with the EU is also hampered by the fact that Croatia is not yet integrated in the pan-European 
system of diagonal cumulation of rules of origin. Given the relatively high labour costs, the 
Croatian  economy  will  require  further  restructuring  towards  export  specialisation  in  more 
technology-driven industries in order to compete successfully on the single market, as well as 
improvements in the business environment. A Trade and Investment Promotion Agency was 
founded at the end of 2002 in order to support export activities in particular of SMEs but it 
has  not  yet  become  operational.  As  regards  Croatia’s  competitiveness  in  services,  tourism 
revenues  increased  by  almost  90%  in  the  period  1996-2002  and  the  sector  already  accounts 
for  17%  of  GDP.  Tourism  is  likely  to  grow  further  provided  that  privatisation  of  facilities 
takes place leading to more investment. 

Labour  productivity  has  significantly  improved  but  is  lagging  behind  the  EU  average. 
According to Croatian data, the increase of real GDP of 39% in the period 1993-2001 and the 
decrease  of  employment  of  8%  produced  a  growth  in  labour  productivity  (real  GDP  per 
employed  person)  of  50%,  or  5.2%  on  an  annual  average.  The  growth  of  productivity  was 
considerably faster in the services sector than in industry and agriculture. Almost none of the 
industrial sectors show an increase in employment when comparing the year 2002 with 1997; 
in  fact,  most  show  a  significant  decline.  In  2001,  labour  productivity  of  Croatia  stood  at 
approximately  25%  of  the  EU  average  in  current  exchange  rates  and  at  almost  40%  when 
expressed in PPP terms. The productivity of industry is slightly higher than total productivity 
(respectively 27% and 44% of the EU level). The average unit labour cost is high and close to 
the  EU  average  (97%),  thus  ruling  out  a  competitive  advantage  in  labour  costs.  However, 
none of the external competitiveness indicators provides evidence of a relative deterioration 
of  Croatia's  position  since  1995  compared  to  its  main  trading  partners  and  other  transition 
countries. Assessments on competitiveness and the fragility of external balances suggest that 
structural reforms in the enterprise sector are needed to enhance Croatia’s competitiveness. 

53 

 
 
  
 
2.3. 

General evaluation 

Croatia  can  be  regarded  as  a  functioning  market  economy.  It  should  be  able  to  cope  with 
competitive pressure and market forces within the Union in the medium term, provided that it 
continues implementing its reform programme to remove remaining weaknesses. 

In  Croatia,  there  is  an  increasing  political  consensus  on  the  essentials  of  economic  policies. 
The  Croatian  economy  has  achieved  a  considerable  degree  of  macroeconomic  stability  with 
low inflation. Enhanced economic stability and structural reforms undertaken so far permit the 
working  of  market  mechanisms.  This  holds  in  particular  for  the  liberalisation  of  prices  and 
trade  as  well  as  for  privatisation,  albeit  to  a  lesser  extent.  Croatia  is  characterised  by  a 
relatively  well  educated  labour  force  and  good  road  transport  and  telecommunication 
infrastructure.  The  country  has  a  well  developed  banking  sector  and  a  competitive  tourism 
industry. Croatia’s economy is already well integrated with that of the EU. 

However, the working of market mechanisms still needs some improvement. In particular, the 
performance  of  the  judicial  sector  needs  to  be  enhanced  and  high  administrative  burdens  as 
well  as  incomplete  systems  of  cadastre  and  land  registry  need  to  be  addressed.  Enterprise 
restructuring  and  privatisation  has  been  slower  than  expected  and  some  large  state  and 
formerly socially-owned enterprises still play an important role in the economy. In particular 
the shipbuilding and agriculture sectors need to be modernised. The necessary reforms of the 
fiscal and social security systems as well as the public administration are not yet completed 
and fiscal consolidation needs to be vigorously pursued. Full integration in the single market 
and the adoption of the acquis would, at this stage, cause difficulties for a number of sectors 
in  withstanding  the  competition  within  the  single  market.  Addressing  the  identified 
weaknesses should contribute to higher investment and growth, thereby enhancing Croatia’s 
competitiveness. 

3. 

ABILITY TO ASSUME THE OBLIGATIONS OF MEMBERSHIP 

The European Council in Copenhagen in June 1993 included among the criteria for accession 
“the  ability  to  take  on  the  obligations  of  membership,  including  adherence  to  the  aims  of 
political, economic and monetary union”. 

In applying for membership on the basis of the treaty, Croatia has accepted without reserve 
the basic aims of the Union, including its policies and instruments. This part of the Opinion 
examines Croatia’s capacity to assume the obligations of membership – that is, the legal and 
institutional framework, known as the acquis, by means of which the Union puts into effect its 
objectives. 

With the development of the Union, the acquis has become progressively more onerous, and 
present a greater challenge for future accessions than was the case in the past. The ability of 
Croatia to implement the acquis will be central to its capacity to function successfully within 
the Union. 

In this regard, alignment with the acquis is a necessary but not sufficient condition to meet the 
obligations  of  EU  membership.  Croatia  must  also  take  all  necessary  measures  create  the 
necessary  implementing  structures,  to  bring  its  administrative  and  judicial  capacities  to  the 
required level and to ensure effective enforcement. An analysis and assessment of Croatia’s 
administrative  and  judicial  capacities  is  therefore  incorporated  into  each  of  the  chapters 
analysed below. 

54 

 
 
  
 
This  section  follows  the  structure  of  the  29  negotiating  chapters  into  which  the  acquis  has 
been  divided for the purpose of the  previous accession  negotiations.  Each chapter  examines 
the  current  and  prospective  situation  of  Croatia.  The  starting  point  of  the  description  and 
analysis in each chapter is a brief summary of the acquis, with a mention of the provisions of 
the Stabilisation and Association Agreement or Interim Agreement, where they are relevant. 
Finally,  for  each  chapter  there  is  a  brief  assessment  of  Croatia’s  ability  to  assume  the 
obligations  of  membership  on  a  medium-term  horizon.  For  the  purpose  of  this  Opinion  and 
without prejudging any future date of accession, the medium-term horizon in the prospective 
assessment has been defined as a period of five years. 

Chapter 1: Free movement of goods 

The principle of the free movement of goods implies that products must be traded freely from 
one  part  of  the  Union  to  another.  In  a  number  of  sectors  this  general  principle  is 
complemented  by  a  harmonised  regulatory  framework,  following  the  “old  approach” 
(imposing  precise  product  specifications)  or  the  “new  approach”  (imposing  general  product 
requirements).  The  transposition  of  harmonised  European  product  legislation  represents  the 
largest part of the acquis under this chapter. In addition, sufficient administrative capacity to 
apply  horizontal  and  procedural  measures  in  areas  such  as  standardisation,  certification  and 
market  surveillance  is  essential.  This  chapter  also  covers  detailed  EU  rules  on  public 
procurement, requiring specialised implementing bodies. 

The  Stabilisation  and  Association  Agreement  /  Interim  Agreement  contains  a  number  of 
obligations  in  the  field  of  the  free  movement  of  goods,  such  as  the  establishment  of  a  free 
trade area. It also provides for the gradual alignment to Community technical regulations and 
standards as well as metrology, accreditation and conformity assessment procedures and the 
gradual opening of public procurement markets. 

In the area of horizontal and procedural measures, in October 2003 Croatia adopted new 
legislation on standardisation and legal metrology. Gradual harmonisation with the principles 
of  the  New  and  Global  Approach  has  also  been  sought  by  adopting  new  laws  on  technical 
requirements  for  products  and  conformity  assessment,  general  product  safety  and 
accreditation in September 2003. These new acts will allow for the separation of the relevant 
functions of the State Office for Intellectual Property, Standardisation and Metrology, which 
is  currently  responsible  for  standardisation,  conformity  assessment,  accreditation  and 
metrology. The Office is also involved in defining the specifications of technical regulations 
and in authorising institutions to carry out market surveillance activities. In January 2004 the 
State  Office  for  Standardisation  and  Metrology  was  merged  with  the  State  Institute  for 
Intellectual Property to become the State Office for Intellectual Property, Standardisation and 
Metrology. 

A  national  strategy  for  harmonising  Croatian  technical  legislation  with  that  of  the  EC  was 
adopted  in  January  2003.  This  document  defines  the  relevant  responsibilities  for  the 
transposition and implementation of new approach and old approach directives. 

The  State  Office  for  Intellectual  Property,  Standardisation  and  Metrology,  in  its  capacity  as 
national  standards  institute,  has  set  up  about  166  technical  committees  covering  420 
CEN/CENELEC/ETSI  sectors.  The  committees  have  3100  experts  representing  both  private 
and  public  institutions.  The  process  of  adopting  European/international  standards  started  in 
1996  and  so  far  there  are  7,519  new  Croatian  standards,  including  4,877  adopted  European 
standards. The Croatian standardisation body has been the national representative organisation 
in ETSI since 1994 and has been an affiliate member of CEN and CENELEC since 1995. 

55 

 
 
  
 
The Croatian National Accreditation  Service operates under the State  Office for Intellectual 
Property, Standardisation and Metrology. It has accredited 22 bodies and 47 more are in the 
process  of  accreditation.  The  new  Accreditation  Act  foresees  the  establishment  of  an 
independent  accreditation  body  by  January  2005.  The  present  Accreditation  Service  is  an 
associate member of the European Co-operation for Accreditation (EA). 

There  are  presently  about  25  private  bodies  providing  conformity  assessment  services  in 
Croatia  in  the  fields  of  testing,  certification  and  inspection  of  industrial  products.  The 
intention  is  to  have  all  the  conformity  assessment  bodies  in  the  regulated  field  accredited 
according to international and European requirements. Under present regulations test reports 
by competent foreign laboratories are recognised in Croatia. 

Even before the adoption of the new Metrology Act, the system of legal metrology in Croatia 
corresponded to the system in force in the EU and was based on the old approach. The present 
metrology  system  is  decentralised  and  comprises  laboratories  and  holders  of  national 
measurement  standards.  The  State  Office  for  Intellectual  Property,  Standardisation  and 
Metrology is the co-ordinating institution. 

Croatia has a system ensuring that products being marketed meet standard requirements. The 
system  derives  from  the  State  Inspectorate  Act  of  1999,  which  provides  for  pre-market 
authorisation  for  55  groups  of  products  for  which  state  inspectors  issue  quality  certificates. 
The market surveillance structure required under the new approach still needs to be developed 
in  accordance  with  the  new  Act  on  Technical  Requirements  for  Products  and  Conformity 
Assessment. Co-ordination between the State Inspectorate and the Customs Administration as 
regards  product  conformity  and  safety  checks  at  external  borders  is  defined  in  the  State 
Inspectorate Act. 

In areas covered by new approach directives, Croatia has not yet transposed the vast majority 
of sector specific legislation. At this stage it has only adopted legislation aiming at alignment 
in the fields of legal metrology (non-automatic weighting equipment) and pre-packaging and 
equipment  used  in  potentially  explosive  atmospheres  (ATEX).  A  new  Construction  Act  has 
entered into force in January 2004. Full alignment with the acquis on construction products is 
foreseen  before  the  end  of  2004.  The  same  applies  for  legislation  on  machinery,  electrical 
equipment (low voltage and electromagnetic compatibility), medical devices, gas appliances, 
pressure vessels, pressure equipment, lifts, personal protective equipment, recreational craft, 
toys,  radio-  and  telecommunications  terminal  equipment,  which  Croatia  is  also  planning  to 
transpose by December 2004. 

In  sectors  covered  by  old  approach  directives,  Croatian  legislation  is  only  partially  aligned 
with the acquis on motor vehicles. At this stage it remains unclear which EC type-approval 
certificates are accepted without rectification. Legislation on chemicals is very fragmented in 
Croatia and certain parts of the acquis are not covered. Despite the fact that Croatia is seeking 
to clarify the distinction between substances and preparations in a new Chemical Act, major 
discrepancies  between  Croatian  and  EC  legislation  remain.  Alignment  with  the  acquis  on 
textiles  and  on  footwear  has  to  be  continued  further.  As  regards  textiles,  the  Croatian 
Consumer Protection Act defines mandatory labelling requirements that go beyond the scope 
of the directive on textile names and may therefore establish barriers to the free movement of 
goods. The legal framework for marketing human drugs is established through the new Act on 
Drugs and Medicinal Products and a set of Ordinances which need to be harmonised with the 
acquis. The current technical regulation on crystal glass is largely harmonised with the acquis. 
At present there is no law in Croatia on the classification of wood. 

56 

 
 
  
 
As regards food  safety and foodstuffs legislation (see also  Chapter 7  - Agriculture), Croatia 
has only recently started preliminary alignment with the acquis by adopting a new Food Act 
in  July  2003.  While  undertaking  to  incorporate  the  general  principles  and  requirements  laid 
down  in  the  corresponding  EC  Regulation  in  the  new  Act,  the  directives  on  labelling, 
presentation and advertising and on the official control of foodstuffs have only partially been 
transposed.  Croatia  has  also  adopted  legislation  on  additives,  contaminants,  hygiene  and 
contacts leading to only partial alignment with the acquis. 

In  the  field  of  food  safety  the  Food  Act  provides  a  framework  for  establishing  a  new  Food 
Agency. Once operational, the Agency will be given the task of analysing risks in relation to 
food  products,  deliver  opinions  on  necessary  legislation  aiming  to  achieve  EU  alignment  to 
both Ministries of Health and Agriculture and co-ordinating inspection activities between the 
two  ministries  in  charge  of  food  safety.  It  will  be  involved  in  training  activities  for  various 
inspection  bodies  and  the  development  of  guides  on  good  hygiene  practice  and  on  Hazard 
Analysis  and  Critical  Control  Points  (HACCP).  The  Food  Act  also  envisages  the 
establishment of a central rapid alert system at the Food Agency. The Croatian system of pre-
market approval for foodstuffs is not in line with the acquis. 

On other sectoral legislation, Croatia's legal framework was amended in September 2003 to 
harmonise it with the directive on the return of cultural objects unlawfully removed from the 
territory of EU Member States. Croatia has also acceded to a number of relevant international 
conventions in this field. As regards civil firearms, a new Weapons Act has been drafted. As 
currently  drafted,  the  new  law  would  only  lead  to  partial  harmonisation  with  EC  rules, 
requiring  further  amendments  to  achieve  full  alignment.  The  draft  will  also  introduce  a 
firearms pass which could in time evolve into the European firearms pass provided for in the 
relevant directive. 

In  the  non-harmonised  area  Croatia  needs  to  make  sure  that  its  legislation,  including 
distinctly as well as indistinctly applicable measures, is compatible with Articles 28 - 30 EC 
Treaty and related jurisprudence of the European Court of Justice (with special emphasis on 
the principle of mutual recognition). Examples of existing measures that may be incompatible 
with  Community  law  include  import  licences  (still  required  for  some  products),  advertising 
campaigns  carried  out  by  the  Chamber  of  Economy,  mandatory  storage  facilities  and 
compulsory country of origin labelling under the Consumer Protection Act. 

Croatia's  legal  framework  broadly  follows  the  EU  rules  on  public  procurement.  However, 
several  important  shortcomings  will  have  to  be  addressed,  including  the  application  of 
excessively  broad  exemptions  still  provided  for  under  the  Public  Procurement  Act  and  the 
scope  of  use  of  negotiated  procedures.  As  to  the  remedies  system,  a  number  of  issues  will 
have  to  be  addressed  to  comply  with  the  acquis.  In  particular,  tenderers  prevented  from 
responding to a call for tender due to irregularities in the procedure, should be given a chance 
to challenge the tender. Moreover, some implementing measures remain to be adopted. 

As  regards  administrative  structures,  the  Public  Procurement  Office  (PPO)  was,  after  a 
considerable  delay,  formally  established  in  November  2003.  The  PPO  is  responsible  for  a 
number  of  key  tasks  relating  to  the  implementation  of  the  Public  Procurement  Act.  In  July 
2003  Croatia  adopted  a  new  Act  on  the  State  Commission  for  the  Supervision  of  Public 
Procurement Procedures. This Commission will deal with complaints and review procedures. 
Its five board members were appointed by Parliament in October 2003. Both the PPO and the 
State Commission now need to become fully operational and establish credible enforcement 
records. 

57 

 
 
  
 
Conclusion 

Although in  2003 Croatia has taken first steps to harmonise its national legislation  with  the 
principle of the free movement of goods, key elements of the acquis are not in place yet. 

In particular horizontal and procedural measures and sector legislation need to be further 
harmonised with EU legislation. Croatia has yet to complete the necessary separation between 
the regulatory, accreditation, standardisation and product certification functions, the latter two 
of which should be mainly left to the private sector. Significant efforts towards transposition 
of  old  approach  and  new  approach  directives  will  be  necessary.  Although  initial  steps  have 
been  taken  to  align  with  the  acquis,  Croatian  foodstuffs  legislation  will  have  to  be  revised. 
Existing  implementing  structures  must  be  improved  and  new  implementing  structures  will 
also  have  to  be  established,  in  particular  as  regards  market  surveillance  under  the  new  and 
global approach and for certain aspects of food safety. 

Provided Croatia gives early attention to the screening of its legislation, it should be able to 
comply with the fundamental principles of the free movement of goods that are governing the 
non-harmonised area. 

In  order  to  achieve  an  effective  public  procurement  regime,  Croatia  will  need  to  continue 
work in order to bring its legislative framework in line with the acquis and to complete the 
necessary implementing legislation. Despite recent progress, Croatia's capacity to implement 
the public procurement acquis still needs to be strengthened significantly. 

Overall, in the field of free movement of goods, Croatia will have to make considerable and 
sustained  efforts  to  align  its  legislation  with  the  acquis  and  to  effectively  implement  and 
enforce it in the medium term. 

Chapter 2: Free movement of persons 

The acquis under this chapter provides for non-discriminatory treatment of workers who are 
legally employed in a country other than their country of origin. This includes the possibility 
of cumulating or transferring social security rights, which requires administrative co-operation 
between  Member  States.  In  order  to  facilitate  the  practice  of  certain  professions,  the  acquis 
also includes specific rules concerning mutual recognition of qualifications and diplomas; for 
certain  professions  a  harmonised  training  curriculum  must  be  followed  to  be  able  have  the 
qualification  automatically  recognised  in  a  EU  Member  State.  Furthermore,  this  area  also 
covers the residence and voting rights of EU citizens in any Member State. 

In the area of mutual recognition of professional qualifications, Croatia’s system is based 
on  mandatory  membership  of  the  professional  associations  (chambers)  as  a  way  to  regulate 
professions  for  the  purpose  of  controlling  activities  and  protecting  the  professional  title. 
Members of professional chambers are affiliated to the social security system under the same 
terms as other citizens. 

Existing Croatian legislation appears to provide exclusively for academic recognition. A new 
Act, which will come into force during 2004, provides for a procedure similar to those of the 
general system directives, however limited to higher education. Moreover, it does not cover 
the  specific  directives  based  on  co-ordination  of  training  and  automatic  recognition. 
Furthermore, the procedures foreseen in Croatia’s legislation do not meet all the requirements 
of the acquis, e.g. in relation to deadlines, motivation and the right of appeal. 

58 

 
 
  
 
As  regards  training  requirements,  the  Croatian  system  differs  substantially  from  the  EU 
system,  namely  in  the  health  care  sector.  In  a  number  of  medical  professions  (including 
general  practitioners  and  nurses),  Croatian  requirements  do  not  correspond  to  the  minimum 
requirements laid down in the acquis. In these cases the relevant titles would not be subject to 
automatic recognition in the EU. 

In  the  area  of  citizens’  rights,  concerning  access  to  higher  education,  there  are  specific 
requirements  for  foreign  citizens  in  order  to  enrol  if  they  have  not  been  granted  permanent 
residence in Croatia. Furthermore, the tuition fee for foreign students is different than that for 
Croatian students. 

Croatia's legislation would have to  be modified to be in line with the acquis. In accordance 
with the principle of non-discrimination on grounds of nationality laid down in Article 12 of 
the Treaty, Croatia should take measures to ensure that EU nationals have the right to enrol in 
its higher education institutions under the same conditions as nationals, without needing to be 
permanent residents in Croatia and without having to pay different tuition fees. 

Regarding residence rights, in order to obtain a residence permit for longer than three months, 
EU citizens not exercising an economic activity need to apply for extended residence. Under 
certain conditions, they can also apply for permanent residence. 

Croatia will need to amend its legislation in order to ensure compatibility with the acquis on 
free movement of persons, notably on the formality and conditions for entry and stay of EU 
citizens in Croatia. 

With regard to voting rights, the Croatian Constitution currently restricts the right to vote to 
the Croatian citizens. Croatia will have to allow citizens of the Union residing in Croatia, who 
are not Croatian nationals, to vote and to stand as a candidate in municipal elections and in 
elections  to  the  European  Parliament.  Furthermore,  Croatia  will  have  to  enact  legislation  in 
order  to  transpose  the  relevant  acquis  on  voting  rights  both  in  municipal  and  European 
parliamentary  elections.  The  acquis  in  this  area  does  not  concern  national  parliamentary  or 
presidential elections. 

Concerning free movement of workers, the Act on Foreigners, in force since January 2004, 
stipulates  that  foreigners  need  a  work  permit.  This  can  be  given  upon  request  from  the 
employer  within  the  scope  of  a  work  permit  quota  fixed  annually  by  the  Croatian 
Government. This quota should not include the work  permits  issued  to foreign workers  and 
members  of  their  families,  whose  status  is  regulated  by  the  Stabilisation  and  Association 
Agreement. 

Knowledge of the Croatian language is a compulsory requirement to practise in the healthcare 
and  pharmaceutical  sector  and  as  a  notary.  Under  the  acquis,  mandatory  requirements  for 
language  proficiency  can  only  be  applied  in  very  exceptional  circumstances,  on  a  case-by-
case  basis.  Care  must  be  taken  over  legislative  requirements  on  language  proficiency,  to 
ensure justified public interest, non-discrimination and proportionality. 

In order to be in line with EU law on free movement of workers a series of amendments to 
Croatia's legislation would need to be undertaken. This includes, inter alia, that EU citizens 
would  not  need  a  work  permit,  and  in  relation  to  access  to  employment,  may  not  be 
discriminated against on the basis of nationality, even if they are not yet residing in Croatia. 
In relation to access to the public sector only posts which are directly related to the specific 
activities of the public service, namely those involving the exercise of public authority and the 

59 

 
 
  
 
responsibility for safeguarding the general interest of the State, may be reserved to Croatian 
nationals.  EU  citizens  must  have  the  right  to  bring  their  family  members;  the  spouse  and 
children must be allowed to work without a work permit. A further series of modifications to 
the Croatian law would be necessary in order to ensure the freedom of movement of workers. 

Furthermore,  Croatia  will  have  to  adopt  measures  in  line  with  the  acquis,  in  particular  on 
supplementary  pension  rights,  in  order  to  cover  all  supplementary  pension  schemes, 
compulsory or voluntary, linked to the employment activity of a person as employed or self-
employed, even if, at present, such schemes do not seem to exist in Croatia. 

Concerning  co-ordination  of  social  security  schemes,  the  Croatian  social  security  system 
includes  all  traditional  branches  of  social  security  which  come  within  the  scope  of 
Community  co-ordination  rules.  Benefits  and  other  characteristics  of  the  Croatian  system 
resemble those of several EU Member States. However, Croatia has a relatively high number 
of  special  benefits  for  war  victims.  The  Croatian  social  security  system  is  based  on  the 
principle  of  compulsory  insurance  in  the  country  of  work  and  contains  clear  definitions  of 
employed  and  self-employed  persons.  The  compulsory  insurance  scheme  does  not 
discriminate  against  non-Croatians.  However,  in  order  to  have  access  to  social  security 
coverage, foreigners are required to have a work or business permit. Croatia has concluded a 
number  of  bilateral  social  security  agreements  with  third  countries,  including  many  EU 
Member States. Under these agreements, Croatia already applies the principle of aggregation 
of insurance periods and export of benefits in relation to 23 countries. Community provisions 
in  the  field  of  the  co-ordination  of  social  security  systems  do  not  harmonise,  but  only  co-
ordinate Member States' social security systems. As these Regulations are directly applicable 
in any EU Member State, there is no need for Croatia to change its social security legislation. 
Only technical modifications will be necessary, in order to take account of the particularities 
of Croatia's social security system. 

The Croatian Health Insurance Fund, the Croatian Pension Insurance Fund and the Croatian 
Employment  Bureau  would  be  the  administrative  structures  responsible  for  applying  the 
Community  provisions  in  this  field.  The  application  of  the  co-ordination  Regulations  will 
have some financial implications for Croatia, in particular in the pension and healthcare area. 

Conclusion 

In  overall  terms,  in  the  field  of  free  movement  persons,  Croatia  will  have  to  make 
considerable  and  sustained  efforts  to  align  its  legislation  with  the  acquis  and  to  effectively 
implement and enforce it in the medium term. In particular, these efforts should be directed to 
ensure  full  alignment  with  the  acquis  and  adequate  administrative  capacity  in  the  area  of 
mutual  recognition  of  professional  qualifications.  Due  attention  should  also  be  paid  to  the 
requirements arising from the acquis in the field of citizens’ rights (in particular on residence 
and  voting  rights  and  on  non-discrimination  in  access  to  higher  education)  and  of  free 
movement of workers (namely on non-discrimination for EU migrant workers). 

Chapter 3: Freedom to provide services 

Under  this  chapter,  Member  States  must  ensure  that  the  right  of  establishment  and  the 
freedom to provide services anywhere in the EU is not hampered by national legislation. In 
some sectors, the acquis prescribes harmonised rules which must be respected if the internal 
market  is  to  function;  this  concerns  mainly  the  financial  sector  (banking,  insurance, 
investment  services  and  securities  markets)  but  also  some  specific  professions  (craftsmen, 

60 

 
 
  
 
traders,  farmers,  commercial  agents).  Harmonised  rules  concerning  personal  data  protection 
and certain information society services must also be respected. 

The  Stabilisation  and  Association  Agreement  provides  for  the  gradual  liberalisation  of  the 
supply of services between the EU and Croatia. 

As  regards  the  right  of  establishment,  the  Croatian  regulatory  framework  needs  to  be 
adapted so as to ensure that remaining barriers for natural and legal persons from the EU are 
abolished.  For  example,  Croatian  securities  legislation  requires  any  company  established  in 
Croatia that has more than 100 shareholders and a share capital greater than 30 million HRK 
(€4m) to be listed on a stock exchange. This requirement constitutes a barrier to establishment 
by EU operators. 

As  regards  the  directly  applicable  provisions  of  the  EC  Treaty  concerning  the  freedom  to 
provide  services,  Croatia  will  need  to  remove  barriers  to  the  provision  of  cross-border 
services by EU companies. Croatian law does not distinguish between operators established in 
an EU Member State providing services on the territory of Croatia on a temporary basis and 
those  providing  services through a permanent establishment. EU service providers currently 
cannot  pursue  a  business  activity  in  Croatia  without  establishing  a  branch  or  a  subsidiary 
there.  Moreover,  Croatia’s  legislation  contains  a  number  of  requirements  which  may 
constitute  barriers  to  the  provision  of  services  on  an  occasional  or  temporary  basis,  e.g.  the 
need to provide certified translations of documents, the need to obtain a licence to exercise a 
craft, and the need for both a “manager” and an “authorised representative”. 

As regards financial services, there has been a gradual consolidation of the Croatian banking 
sector and a steady increase in the number of subsidiaries of EU credit institutions. The main 
piece of legislation governing the banking sector is the Banking Act, which provides a good 
basis  for  harmonisation  but  does  not  cover  all  aspects  of  the  relevant  EU  acquis.  The  Act 
stipulates  that  after  Croatia’s  accession  to  the  EU,  banks  that  are  authorised  to  provide 
banking and other financial services in an EU Member State may also provide these services, 
through  a  branch  or  directly,  in  Croatia.  Other  legislation  establishes  accounting  rules  for 
credit institutions and Croatia operates a deposit guarantee scheme. New rules on the capital 
adequacy of banks and investment companies entered into force in January 2004. There is no 
specific legislation on conglomerates, e-money institutions (only banks are entitled to issue e-
money) and winding-up of credit institutions. Apart from this, divergences between Croatian 
law and the acquis for the banking sector appear to be mainly of a technical nature, covering 
issues such as co-operation between supervisory authorities, exchange of information between 
Croatian  competent  authorities,  minimum  capital  requirements  and  the  adaptation  or  the 
introduction of some legal definitions in Croatia’s national law. 

The National Bank is the competent authority for granting operating licences and supervising 
credit institutions. Its powers are set out in the Croatian National Bank Act and the Banking 
Act. The Banking Supervision Department  of the Croatian National Bank conducts banking 
supervision and employs 75 staff. There is a programme of continuous professional training. 
The  National  Bank’s  supervisory  powers  appear  to  be  broadly  in  line  with  international 
standards according to the IMF’s assessment carried out in mid-2002. 

Savings  and  loans  co-operatives  are  licensed  and  supervised  by  the  Division  for  Financial 
Institutions  Supervision  of  the  Ministry  of  Finance  pursuant  to  the  Savings  and  Loans  Co-
operatives Act. Should these co-operatives be covered by the definition of credit institutions 
provided by the banking directives, this may raise a problem in relation to the independence 
and competences of the supervisor. 

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The  insurance  market  in  Croatia  is  highly  concentrated.  It  is  dominated  by  non-life 
insurance with about 80% of gross written premium; the largest class by far is Motor Third 
Party Liability (around 1/3 of premium income). The share of foreign controlled companies in 
the domestic insurance market does not exceed 25%, although their share of life insurance is 
above 50%. The main legislation governing the insurance system is the Insurance Act and the 
Act on Mediation and Representation in Insurance. The Insurance Act is partially harmonised 
with  the  EU  directives  regulating  life  insurance,  non-life  insurance  and  vehicle  insurance. 
However,  a  significant  amount  of  further  work  will  be  necessary  to  achieve  full  alignment 
with the acquis. 

As  regards  administrative  structures,  the  basic  supervisory  function  is  in  place  but,  as 
highlighted  by  the  IMF  in  mid-2002,  the  organisation  and  resources  available  to  the 
supervisory authority need to be strengthened in order to allow it to effectively discharge its 
functions.  The  Directorate  for  Supervision  of  Insurance  Companies  and  the  Croatian 
Insurance  Bureau  have  been  established  on  the  basis  of  the  Insurance  Act.  The  Directorate, 
which currently employs approximately 15 staff (although no actuaries are employed), carries 
out  supervision  in  order  to  protect  the  interests  of  policyholders.  It  issues  approvals  for 
operation and approves the business acts and the appointment of management boards. It also 
prescribes the standards for the financial operation of the companies and establishes the types 
of  insurance  and  risk  groups.  The  functioning  of  the  Directorate  has  so  far  not  been 
satisfactory  and  a  reorganisation  is  envisaged.  The  Croatian  Insurance  Bureau  represents 
insurance  companies  in  international  institutions,  protects  traffic  casualties  and  deals  with 
damage in foreign states. The bureau also manages the guarantee fund for payment of certain 
damages in the field of mandatory insurance. The Bureau appears to function in a satisfactory 
manner. 

The  securities  markets  in  Croatia  are  still  underdeveloped.  Although  two  stock  exchanges 
exist, the capital markets are neither deep nor liquid and the stock-market capitalisation was 
equivalent  to  about  30%  of  GDP  at  the  end  of  2002.  Croatia’s  legislative  framework 
regulating securities markets and collective investment undertakings provides a basis for the 
necessary alignment with the acquis. The main legal acts are the Securities Market Act and 
the  Investment  Funds  Act.  However,  an  investment  compensation  scheme  has  not  yet  been 
created. 

As  regards  administrative  structures,  the  Croatian  Securities  Commission  (CROSEC)  was 
established in 1996 and became operational towards the end of 2002, with the nomination of 
all its members and the adoption of its Statute by the Croatian government. CROSEC has 27 
employees. In August 2002, the IMF found that there was a need to strengthen the powers of 
the CROSEC and to clarify its procedures. Although some progress has been made since then, 
additional efforts should be made to strengthen its supervisory capacity. 

As regards supervision of financial conglomerates, co-operation among Croatian supervisory 
authorities has not been formalised yet. However, a Programme for Supervision of Financial 
Institutions  and  the  Financial  Market  on  a  Consolidated  Basis  has  been  adopted  by  the 
Parliament.  On  this  basis,  the  creation  of  a  co-ordinating  board  with  representatives  of  the 
sectoral supervisory institutions is planned. 

An  Act  on  Personal  Data  Protection  and  the  free  movement  of  such  data  was  adopted  in 
2003 and seems to be broadly in line with the main provisions of the acquis. The legislation 
includes  “adequate  level  of  protection”  requirements  for  transfers  of  personal  data  to  third 
countries, but does not provide for the derogations foreseen in the directive on personal data 

62 

 
 
  
 
protection. The creation of a Personal Data Protection Agency, whose head is to be appointed 
by Parliament, is foreseen but it has not yet been established. 

Regarding information society services, Croatia has adopted the Electronic Commerce Act, 
which  partially  transposes  the  acquis.  Croatia  will  have  to  ensure  adequate  means  of 
supervision in this area and appoint a contact point to co-operate with authorities in other EU 
Member States. It should also take steps to prohibit the production, manufacturing, sale and 
distribution  of  pirate  smart  cards  and  other  devices  circumventing  the  encryption  of 
conditional access services, as well as to ensure adequate sanctions. 

Conclusion 

In general, barriers to establishment or provision of cross-border services by natural or legal 
persons from the EU need to be abolished. 

Croatia  has  made  considerable  efforts  towards  approximation  of  its  legal  and  supervisory 
framework  with  EU  standards  in  the  field  of  financial  services.  In  this  regard,  the  banking 
sector  appears  quite  advanced,  although  further  improvements  are  necessary.  The  legal  and 
supervisory  framework  for  the  insurance  market  and  for  investment  services  and  securities 
markets needs further development and alignment with the acquis. 

Overall,  Croatia  will  have  to  make  considerable  further  efforts  to  strengthen  the  legal  and 
supervisory framework, including for financial services, in order to align its legislation with 
the acquis and to effectively implement and enforce it in this area in the medium term. 

Chapter 4: Free movement of capital 

Member  States  must  remove  all  restrictions  in  national  law  on  the  movement  of  capital 
between themselves, but also with third countries (with some exceptions) and adopt EU rules 
to  guarantee  the  proper  functioning  of  cross-border  payments  and  transfers  of  all  forms  of 
capital.  The  acquis  also  includes  harmonised  rules  on  payment  systems.  The  money 
laundering directives establish money laundering as a criminal offence. They require financial 
institutions  to  identify  and  know  their  customers,  to  keep  appropriate  records  and  to  report 
any  suspicions  of  money  laundering.  The  directives  also  embrace  the  activities  of  auditors, 
external  accountants,  notaries  and  lawyers,  casinos,  real  estate  agents  and  certain  dealers  in 
high-value items for large cash transactions. Adequate enforcement capacity is required. 

The Stabilisation and Association Agreement sets out a timetable for capital liberalisation in 
the  years  following  its  ratification.  It  also  provides  for  progressive  liberalisation  of  the  real 
estate market. 

With regards to capital movements and payments, Croatia became an IMF member in 1992 
and introduced full current account convertibility in 1995. Over the period 1998-2001, foreign 
direct  investment  amounted  to  more  than  €5  billion,  of  which  55%  came  from  the  EU.  In 
recent years, Croatian residents have also begun to invest abroad. Approximately 90% of the 
banking system (in terms of assets) is in foreign ownership. 

The Foreign Exchange Act, in force since June 2003, aligns definitions with the acquis and 
provides  the  framework  for  progressive  capital  liberalisation.  Direct  investment  by  non-
residents  in  Croatia  is  unrestricted,  unless  otherwise  provided  by  special  laws.  Such  sector 
specific  laws  reflect  either  a  public  interest  (e.g.  narcotics,  pluralism  of  the  media),  the 
exercise  of  public  authority  (e.g.  public  notaries),  or  sectors  currently  governed  by  bilateral 

63 

 
 
  
 
agreements  (e.g.  transport  and  fishing)  and  need  to  be  brought  in  line  before  accession. 
Inward investment by non-residents and foreign citizens in real estate is subject to restrictions 
and is also hampered by the serious weakness of Croatia’s land registration system. 

Alignment  with  the  acquis  will  also  be  required  in  the  areas  of  investment  rules  for 
institutional investors (e.g. pension funds and savings and loan cooperatives), special rights of 
the government in privatised enterprises (telecoms, oil and electricity companies), as well as 
specific requirements regulating external exposure of the financial system and the elimination 
of remaining restrictions on short-term capital movements. 

As regards payment systems, the Croatian legal framework concerning cross-border transfers 
is  based  on  the  Foreign  Exchange  Act  and  needs  to  be  brought  further  into  line  with  the 
acquis. For example, financial institutions should have an obligation to inform their customers 
about  the  conditions  for  cross-border  credit  transfers  and  a  special  compensation  should  be 
introduced  in  case  of  failure  to  execute  a  transfer.  In  addition,  the  redress  scheme  foreseen 
(arbitration  and  conciliation  before  the  Permanent  Arbitration  Court  and  the  Conciliation 
Centre at the Croatian Chamber of Commerce) appears to be an excessively heavy procedure. 

Croatia has built up an anti-money laundering framework in recent years. It participates in 
the work of the Council of Europe’s Select Committee of Experts on the evaluation of anti-
money  laundering  measures  (Moneyval),  which  acts  as  the  regional  Financial  Action  Task 
Force (FATF)-styled body. In July 2003, Moneyval adopted the second evaluation report on 
Croatia. Alignment with the recommendations of the report will be of critical importance. 

The  Penal  Code  criminalises  money  laundering,  following  an  all  crimes  approach  and 
including  gross  negligence,  corporate  criminal  liability  and  self  laundering.  However,  the 
money  laundering  offence  is  based  on  actual  knowledge  that  the  money  or  property  was 
acquired by a crime. The Law on the Prevention of Money Laundering of 1997 has recently 
been  revised  and  the  amendments  entered  into  force  in  January  2004.  The  Law  includes 
obligations  to  identify  customers,  to  report  suspicions  of  money  laundering  and  cash 
transactions above a threshold to the Office for the Prevention of Money Laundering (OPML, 
the Croatian financial intelligence unit within the Ministry of Finance), and to keep records. 
The list of entities subject to anti-money laundering measures is comprehensive. 

The legislation needs to be further aligned with the second EU Money Laundering Directive. 
For example, the obligation to identify/verify customers has certain shortcomings such as the 
position  of  non-permanent  business  relations  and  one-off  transactions,  the  identification  of 
persons  operating  on  behalf  of  legal  persons  as  well  as  the  exemption  on  withdrawals  from 
savings  accounts.  Moreover,  supervisors  also  need  to  be  obliged  to  report  suspicions  of 
money  laundering.  The  OPML  may  request  additional  information  further  to  suspicious 
transaction reports,  but it is unclear why reporting institutions are allowed to object to such 
requests. Penalties are of an administrative nature and appear to be rather low. 

Numbered  accounts  and  bearer  pass  books  are  allowed  for  residents,  but  customer 
identification is required. The new Securities Law no longer allows bearer shares. 

As regards administrative capacity, the effectiveness of the system, including the resources of 
the OPML, needs to be strengthened. Feedback is only provided to banks. Internal procedures, 
training  of  employees  and  awareness  of  money  laundering  among  reporting  institutions, 
supervisors and law enforcement agencies need to be improved, including by creating a legal 
basis  where  appropriate.  Moreover,  supervision  of  compliance  with  anti-money  laundering 
legislation  in  the  banking  and  non-banking  sectors  and  guidance  to  these  sectors  should  be 

64 

 
 
  
 
strengthened in terms of adequacy of the mandates, powers, means, co-operation with other 
bodies and actual compliance with the legislation. In view of the deficiencies of the system, 
results in terms of convictions and confiscations have so far been limited. (See also Chapter 
24 – Co-operation in the field of Justice and Home Affairs). 

Conclusion 

Overall, Croatia will have to make further efforts to align its legislation with the acquis and to 
effectively implement and enforce it in the area of capital movements, payments and payment 
systems  in  the  medium  term.  Croatia  needs  to complete the establishment  of its  anti-money 
laundering  system.  If  sufficient  resources  are  provided  to  implement  the  law  and  if  known 
weaknesses  in  the  system  are  addressed,  it  should  be  possible  to  develop  an  effective  anti-
money laundering system in the medium term. 

Chapter 5: Company law 

Under  this  chapter,  Member  States  must  adopt  and  apply  harmonized  rules  required  for  the 
proper  operation  of  companies  in  the  internal  market.  They  concern  five  legislative  fields: 
company  law  in  the  strict  sense,  accounting  law,  intellectual  property  rights,  industrial 
property  rights,  and  the  recognition  and  enforcement  of  judgments  in  civil  and  commercial 
matters as well as of contractual obligations. 

The Stabilisation and Association Agreement / Interim Agreement on trade and trade-related 
matters contain the obligation for Croatia to guarantee no later than three years after the entry 
into force of the Interim Agreement (i.e. by March 2005) a level of protection of intellectual, 
industrial and commercial property rights similar to that existing in the Community, including 
effective  means  of  enforcing  such  rights.  This  obligation  covers  inter  alia  copyright, 
including the copyright in computer programmes, and neighbouring rights, the rights related 
to  databases,  patents  (including  Supplementary  Protection  Certificates),  industrial  designs, 
trademarks  and  service  marks,  topographies  of  integrated  circuits,  geographical  indications, 
including appellations of origins, as well as protection against unfair competition as referred 
to  in  Article  10a  of  the  Paris  Convention  for  the  Protection  of  Industrial  Property  an  the 
protection of undisclosed information on know-how. 

Croatia’s legal framework in the field of company law was established with the Companies 
Act of 1993 and has recently undergone extensive amendments, which entered into force in 
January  2004.  Minimum  capital  requirements  are  laid  down  by  law  and  there  are  safeguard 
clauses for the protection of authorized capital. Various obligations exist for the protection of 
creditors  and  the  right  of  information  is  one  of  the  fundamental  shareholders’  rights; 
companies  are  required  to  publicize  information  about  major  decisions  affecting  them.  In 
general this legal framework provides a good basis for further alignment to the company law 
acquis. An act regulating the procedures for the takeover of public limited liability companies 
is in place since 2002. 

Concerning  administrative  structures,  information  on  companies  is  held  in  the  Commercial 
Court Registers. Financial statements are kept separately in the Financial Agency registers. It 
is not clear to what extent these two registers are linked. Commercial courts publish company 
information  in  the  Official  Gazette  and  in  one  daily  newspaper.  The  registers  are  publicly 
accessible and consultation fees are limited to covering costs. The time required to register a 
company varies from one Commercial Court to another and is reported to range from a few 
days  up  to  three  weeks  (additional  delays  for  business  start-ups  are  associated  with 

65 

 
 
  
 
registration at customs, tax and statistics administrations, which may take up to four months; 
See also Chapter 16 – Small and Medium-sized Enterprises). 

The accounting field is regulated by the Accounting Act of 1992. The Croatian Accounting 
Standards  Board  is  the  standard  setting  body.  The  law  provides  for  sanctions  for  non-
compliance with financial reporting requirements. A new Accounting Act is in parliamentary 
procedure and will establish a Financial Reporting Council with rule-making powers. Croatia 
has already taken steps for the transition to International Accounting Standards (IAS) based 
accounting.  However,  further  attention  should  be  given  to  proper  compliance  with  IAS  and 
their enforcement. 

On auditing, an Audit Act exists and stipulates that the Ministry of Finance issues licenses to 
audit  companies.  The  Croatian  Government  has  adopted  a  plan  to  comply  with  all  acquis 
requirements in this field. 

In  the  field  of  intellectual  and  industrial  property  rights,  Croatia  is  a  party  to  the  WTO 
TRIPs Agreement and to the main international conventions in this area, including the WIPO 
Copyright  Treaty  (WCT)  and  the  WIPO  Performances  and  Phonograms  Treaty  (WPPT). 
Croatian  legislation  provides  for  a  specific  border  regime  in  relation  to  intellectual  and 
industrial property rights. However, effective enforcement, including the fight against piracy 
and counterfeiting, remains a key challenge for Croatia. Particular attention should be given to 
providing  law  enforcement  with  sufficient  resources  and  expertise  and  to  improving  the 
effectiveness  of  the  judiciary.  As  regards  administrative  structures,  the  former  State 
Intellectual  Property  Office  (SIPO)  had  a  staff  of  88  employees  and  seems  to  be  seriously 
understaffed  in  some  sectors  which  need  rapid  strengthening.  In  January  2004  SIPO  was 
merged with the former State Institute for Standardisation and Metrology to become the State 
Office for Intellectual Property, Standardisation and Metrology. 

The  Croatian  legal  framework  on  intellectual  property  rights  underwent  comprehensive 
reform in 2003 with the adoption of the new Act on Copyright and Related Rights. This law 
constitutes a comprehensive legal text covering the scope of protection, including rights and 
exceptions,  provisions  on  the  protection  of  technological  measures,  copyright  contract  law, 
collecting  societies  as  well  as  enforcement  of  rights  and  the  artist’s  resale  right.  It  brings 
Croatian legislation in the field of copyright and related rights largely in line with the acquis 
but  some  amendments  will  be  necessary  to  achieve  full  alignment.  The  necessary  legal 
instruments to fight piracy and counterfeiting are in place but due attention must be paid to 
proper enforcement. Concerning administrative structures, SIPO’s copyright department had 
only one staff member in mid-2003 and needs to be reinforced. 

Also with regard to industrial property rights, the Croatian legal framework was subject to a 
comprehensive review in 2003 with the adoption of a new Patent Act, a new Act on Industrial 
Design,  a  new  Trademark  Act,  a  new  Act  on  Geographical  Indications  and  Designations  of 
Origin  of  Products  and  Services  and  a  new  Act  on  the  Protection  of  Topographies  of 
Semiconductor  Products.  In  addition,  the  European  Patent  Organisation  and  Croatia  have 
recently signed an extension agreement concerning applications for European patents. Further 
to this agreement European patents can be extended to Croatia provided that, at the time of 
filing, an extension is duly requested. While Croatian legislation appears to be broadly in line 
with the acquis, additional amendments will be necessary to reach full compliance. As regards 
administrative  structures,  the  staffing  of  the  technical  experts  section  of  the  patent 
Department of SIPO should be strengthened and a training program should be established as a 
matter  of  priority.  There  is  an  important  and  growing  backlog  in  the  processing  of  patent 
applications due to complex and lengthy procedures, which should be simplified. 

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Conclusion 

Concerning  company  law  and  accounting,  Croatia  has  made  efforts  towards  approximation 
which need to be pursued. The full transparency of company registers should be ensured and 
the  sometimes  lengthy  registration  procedures  reduced.  In  addition,  enforcement  of 
accounting and audit standards would need to be strengthened. 

In  the  field  of  intellectual  and  industrial  property  rights,  Croatia  has  taken  important 
legislative  measures  during  2003.  Further  work  will  be  necessary  to  reach  compliance  with 
the acquis. Croatia must also pay due attention to  respecting the deadline  set in  the Interim 
Agreement.  Furthermore,  implementation  procedures  and  the  relevant  administrative 
structures  need  to  be  strengthened  in  order  to  ensure  effective  enforcement  of  legislation. 
Particular  attention  must  also  be  devoted  to  the  fight  against  piracy  and  counterfeiting,  in 
particular via adequately resourced law enforcement bodies and an effective judiciary. 

Croatia has taken several important steps towards aligning its legislative framework with the 
acquis but legislative alignment needs to continue and administrative capacities in the field of 
intellectual  and  industrial  property  rights  need  to  be  strengthened.  Overall,  in  the  field  of 
company law, Croatia will have to make further efforts to align its legislation with the acquis 
and to effectively implement and enforce it in the medium term. 

Chapter 6: Competition policy 

The competition acquis covers both anti-trust and State aid control policies. It includes rules 
and  procedures  to  fight  anti-competitive  behaviour  by  companies  (restrictive  agreements 
between  undertakings  and  abuse  of  dominant  position),  and  to  prevent  governments  from 
granting  state  aid  which  distorts  competition  in  the  Internal  Market.  Generally,  the 
competition rules are directly applicable in the whole Union, and Member States must fully 
cooperate with the Commission on the enforcement of theses rules. 

The Stabilisation and Association Agreement / Interim Agreement on trade and trade-related 
matters  provides  for  a  competition  regime  to  be  applied  in  trade  relations  between  the 
Community  and  Croatia  based  on  the  criteria  of  Articles  81  and  82  of  the  EC  Treaty 
(agreements  between  undertakings,  abuses  of  dominant  position),  Article  86  (public 
undertakings and undertakings with special or exclusive rights) and of Article 87 (State aid). 
It  also  provides  that  an  operationally  independent  public  body  must  be  entrusted  with  the 
powers necessary for the full application of this competition regime. Furthermore, the Interim 
Agreement stipulates specific State aid disciplines for the steel sector, including the obligation 
for Croatia to present a restructuring and conversion programme for its steel industry to the 
Commission. 

In the antitrust sector, the legislative framework in Croatia is provided by the Competition 
Act adopted in June 2003 and in force since October 2003. It replaced a previous law from 
1995  and  contains  the  main  principles  of  the  Community  anti  trust  rules.  In  particular,  the 
legislation  encompasses  the  prohibition  of  restrictive  agreements,  as  well  as  the  abuse  of 
dominant  position.  However,  certain  aspects  of  the  Croatian  Competition  Act,  such  as  the 
procedure for the automatic nullity of restrictive agreements, still need further amendment to 
become  fully  in  line  with  the  acquis.  Also  the  conditions  for  granting  exemptions  from  the 
prohibition  of  restrictive  agreements  need  to  be  fully  brought  in  line  with  the  cumulative 
conditions  of  Article  81  EC  Treaty.  Furthermore,  the  Croatian  General  Administrative 
Procedure  Law  potentially  interferes  with  the  Croatian  Competition  Act.  In  order  to  ensure 

67 

 
 
  
 
the full independence of the Agency for the Protection of Market Competition, the possibility 
to  issue  an  extraordinary  annulment  decision  on  the  basis  of  the  Croatian  General 
Administrative  Act  against  the  decision  of  the  Agency  for  the  Protection  of  Market 
Competition needs to be excluded. 

As  regards  administrative  capacity,  the  Agency  for  Protection  of  Market  Competition 
(APMC)  is  in  charge  of  implementing  the  Croatian  competition  law.  The  Agency  was 
established  in  1995.  According  to  the  Competition  Act,  the  Agency  acts  as  an  independent 
entity  autonomously  performing  its  activities.  In  September  and  October  2003  the  president 
and the other four members of the Committee for Market Competition, the management and 
decision-making  body  of  the  Agency,  were  appointed.  The  Agency  currently  employs  28 
people, including the five members of the Committee. It still remains to be seen to what level 
the administrative capacity of the APMC is already developed in reality. 

Given  the  recent  entry  into  force  of  the  legal  framework,  there  is  not  yet  sufficient 
information on the enforcement record of the Agency. In the near future, the most important 
challenge for the Agency is to ensure  the effective application  and  enforcement of the anti-
trust  rules  in  relation  to  undertakings  so  that  they  become  sufficiently  accustomed  to  a 
competition environment similar to that of the Community well before full membership. This 
also  requires  a  well-functioning  judicial  system  that  can  effectively  deal  with  appeal 
procedures  against  decisions  of  the  Agency  and  render  decisions  in  conformity  with  the 
Community acquis. Moreover, public administration and the relevant economic operators will 
need to have a sufficient understanding of competition law and policy. 

In the field of State aid, prior to 2003 no comprehensive legal framework existed in Croatia. 
In 2003 Croatia took important steps for creating such a framework by adopting the State Aid 
Act and the Regulation on State Aid, which respectively entered into force in April and July 
2003. However, it remains to be seen whether, in practice, this framework provides sufficient 
powers for the controlling authority to ensure a full and proper control of all new and existing 
aid schemes in line with the Community acquis.  

In  order  to  fully  comply  with  the  EU  acquis  in  the  State  aid  field,  the  Agency  for  the 
Protection of Market Competition, as State aid controlling body, must be entitled to authorize 
general  aid  schemes  and  not  only  to  give  an  opinion.  Certain  additional  amendments  to  the 
Croatian State aid law will be necessary. Amongst those, one urgent amendment is related to 
Article  4  (3)  d)  of  the  Croatian  State  Aid  Act  according  to  which  State  aid  to  facilitate  the 
development  of  certain  economic  activities  or  of  certain  economic  areas  may  be  considered 
compatible.  This  provision  should  be  applied  only  in  very  specific  (rather  exceptional) 
circumstances. More generally, the awareness of aid schemes going beyond direct budgetary 
support, particularly as fiscal aid is concerned, appears to be low in Croatia. In this context the 
compatibility  of  the  Act  on  Areas  of  Special  State  Concern,  the  Free  Zones  Act  and  the 
Investment Promotion Act with the acquis remains to be determined. 

Concerning administrative capacity, in addition to the competence for anti-trust, the Agency 
for  the  Protection  of  Market  Competition  has  also  been  made  responsible  for  the 
implementation of the State Aid Act and for the drafting of the necessary by-laws. It will need 
the necessary additional administrative resources to this effect. Procedural rules have to be in 
place  to  enable  the  national  state  aid  monitoring  authority  to  receive  notifications  of  all 
proposed  aid  projects  from  the  aid  granting  bodies  and  to  obtain  from  them  all  necessary 
information as well as to express its opinion prior to the grant of the proposed aid (standstill 
clause). 

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The challenge for the Agency will be to establish rapidly a credible enforcement record as the 
authority  controlling  State  aid.  At  this  stage  the  legal  framework  and  the  administrative 
structure are too recent to draw conclusions on this. Reliable data on the use of state aid in the 
Croatian  economy  is  very  limited  and  transparency  is  low.  No  reliable  state  aid  inventory 
exists at present. Under Article 35 of the Interim Agreement Croatia is obliged to provide the 
Commission with a comprehensive State Aid inventory as well as with a regular annual report 
on state aid. The State aid inventory is crucial and the Agency for the Protection of Market 
Competition  must  ensure  early  on  that  all  relevant  measures  are  covered  and  that  these 
measures have been assessed so as to establish their compatibility under Article 87 of the EC 
Treaty. 

As  regards  public  undertakings  and  undertakings  with  special  or  exclusive  rights 
entrusted  with  the  operation  of  public  services,  the  Croatian  Competition  Act  is  fully 
applicable to them, in accordance with Article 86 of the EC Treaty. 

As regards undertakings entrusted with the operation of services of general economic interest, 
the Croatian Competition Act has taken over the wording of Article 86 (2) of the EC Treaty 
except for the proportionality test. That allows too broad a scope of action for undertakings 
operating  services  of  general  interest.  Therefore,  in  the  absence  of  any  limitation  there  is  a 
risk that such undertakings may fully back out of the scope of the Competition Act. 

Finally, with regard to the liberalisation of specific sectors, it remains to be seen how sector 
specific legislation will impact on the effective application of the general competition rules in 
the sectors covered (telecommunications, banking, energy, petroleum and petroleum products, 
gas). The liberalisation of specific sectors of the economy is dealt with in the relevant sector 
specific chapters. 

Conclusion 

In the field of anti-trust, the basic legislative framework is now in place. The approximation 
process  with  the  acquis  must  continue  and  the  Agency  for  the  Protection  of  Market 
Competition needs to be strengthened. In parallel, the Agency will have to build up a credible 
enforcement record. 

Regarding  State-aid,  important  steps  towards  creating  the  necessary  legal  framework  have 
been taken in 2003 but it needs to be completed. Croatia will have to increase transparency 
and awareness of State-aid rules and to ensure an effective control of State aids, in particular 
by  giving  the  Agency  all  the  necessary  powers.  Developing  the  appropriate  administrative 
capacity of the Agency for the Protection of Market Competition will be crucial. 

Overall,  in  the  field  of  competition,  Croatia  will  have  to  make  considerable  and  sustained 
efforts to align its legislation with the acquis and to effectively implement and enforce it in 
the medium term. 

Chapter 7: Agriculture 

The agricultural chapter covers a large number of binding rules, many of which are directly 
applicable.  The  proper  application  of  these  rules  and  their  effective  enforcement  by  an 
efficient public  administration  are  essential for  the  functioning  of  the  Common  Agricultural 
Policy. This includes the setting up of management systems such as a Paying Agency and the 
Integrated  Administration  and  Control  System,  and  also  the  capacity  to  implement  rural 

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development  actions.  EU  membership  requires  integration  into  the  common  market 
organisations  for  a  range  of  agricultural  products,  including  arable  crops,  sugar,  animal 
products  and  specialised  crops.  Finally,  this  chapter  covers  detailed  rules  in  the  veterinary 
field,  which  are  essential  for  safeguarding  animal  health  and  food  safety  in  the  internal 
market,  as  well  as  in  the  phytosanitary  field,  including  issues  such  as  quality  of  seed,  plant 
protection material and harmful organisms. 

The Stabilisation and Association Agreement / Interim Agreement regulate preferential trade 
of agricultural products. 

Croatia  is  in  the  process  of  creating  the  necessary  conditions  for  its  agriculture  to  face  EU 
competitiveness  and  develop  adequate  working  and  living  conditions  in  rural  areas.  Croatia 
has  experienced  the  different  phases  of  agricultural  adjustment  faced  by  other  countries  of 
Central and Eastern Europe. After a dramatic initial decline of agricultural production in the 
first half of the 1990s, agricultural production stabilised mainly in the area of crop production. 
Wheat  and  maize  cover  57%  of  the  arable  area  in  Croatia.  Similarly  to  other  transition 
economies, Croatia has also experienced a rapid and ongoing decline of livestock production 
in general and in particular of cattle production. This has been caused by weak and shrinking 
markets,  low  competitiveness  of  the  farms  and  the  processing  sector  and  little  access  to 
capital.  Despite  a  declining  trend,  the  economic  importance  of  agriculture  is  still  relatively 
high,  as  its  gross  value  contributes  around  10%  to  total  GDP.  Croatia’s  agriculture  is 
dominated by family farms. The average size of farms is 2.8 ha, while about 84.5% of crop 
area and 94.3% of cows are kept in private farms. About 47.5% of rural households farm less 
than  1  ha  and  about  39.4%  farm  1  to  5  ha  of  agricultural  area.  Subsistence  and  semi-
subsistence agriculture are very important features for Croatia’s agriculture and for the rural 
economies.  Efforts  of  increasing  the  competitiveness  of  the  agri-food  sector  in  Croatia, 
therefore,  depend  predominantly  on  the  revival  of  rural  economies  rather  than  on  market-
oriented agricultural policies. 

The  changing  structure  of  agricultural  production  is  reflected  in  the  agricultural  trade. 
Overall agri-food exports were €487 million in 2002, which represents a 31% increase from 
1995. Over the same period total agri-food imports increased by 37%, reaching €963 million 
in  2002.  Nevertheless,  the  share  of  agriculture  in  total  trade  has  decreased  throughout  the 
period  1995-2002,  from  10.5%  to  9.4%  concerning  exports  and  from  12.3%  to  8.5% 
concerning  imports.  Croatia  continues  to  be  a  net  importer  of  agricultural  products.  Trade 
with the EU-25 in 2002 amounted to €213 million for exports and €725 million for imports. 
The  trade  balance  with  EU-25  follows  the  general  trend  of  growing  deficit,  amounting  to  a 
negative  balance  of  512  million  in  2002.  The  main  agricultural  and  agro-food  products 
exported  by  Croatia  were  tobacco  and  tobacco  products,  miscellaneous  food  preparations, 
sugar  and  sugar  confectionery  and  cereals.  The  main  agricultural  and  agro-food  products 
imported  by  Croatia  were  miscellaneous  food  preparations,  beverages,  fruits  and  nuts,  live 
animals  and  dairy  products.  Croatia  became  a  member  of  the  WTO  in  2000  and  has 
committed itself to a phased reduction of barriers to agricultural trade over the period to 2005. 
Free trade agreements exist with most European countries. 

The main legislative framework in this area comprises the Agriculture Act, the Agricultural 
Land Act, the Act on the Ecological Production  of Agricultural and Food Products, and the 
Act  on  State  Aid  in  Agriculture,  Forestry  and  Fisheries.  Several  Government  Ordinances 
regulate  specific  sectors.  The  Government  operates  within  the  framework  of  a  National 
Programme for Agriculture and Rural Areas and of an Agriculture and Fisheries Development 
Strategy adopted by the Parliament. 

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Concerning  horizontal 
issues,  preparations  for  a  Paying  Agency  and  Integrated 
Administration and Control System (IACS) are at a very early stage, though Croatia aims to 
develop  them  on  the  basis  of  existing  structures,  that  is  the  Directorate  for  Market  and 
Structural Aids within the Ministry of Agriculture and of a farm register linked to a central 
computerised  database.  Since  the  acquis  on  Paying  Agency  and  IACS,  which  are  central 
elements  for  payment  of  Common  Agricultural Policy funds  to farmers, is  very demanding, 
planning  and  preparation  will  require  extensive  investment  and  institution-building  well  in 
advance  of  accession.  Croatia’s  trade  mechanisms  are  limited  to  the  management  of  import 
quotas  and  import/export  licenses,  whilst  no  export  subsidies  are  in  place.  Apart  from  the 
basic provisions of the Food Act, no specific measures in line with EU legislation are in force 
concerning  organic  farming  and  quality  policy.  Croatia  will  also  need  a  Farm  Accountancy 
Data  Network  (FADN)  in  line  with  the  acquis,  since  agricultural  bookkeeping  systems 
presently  are  considered  only  as  one  of  the  measures  for  the  general  development  of  rural 
areas. 

With regard to State aids other than market-related subsidies and rural development measures, 
Croatia  has  set  up  other  systems  to  grant  aids  to  farmers,  namely:  an  exemption  from  the 
excise  duty  on  Eurodiesel  for  producers  of  cereals,  oil  crops,  sugar  beet  and  tobacco;  the 
application of 0% VAT rate for all types of bread and milk; a financial aid for insurance of 
crops  against  damages;  and  a  compensatory  aid  for  mitigating  damages  caused  by  natural 
disasters.  Croatia  grants  subsidies  for  production  of  lavender  and  medicinal  herbs  and  for 
establishing new lavender plantations. Croatia will need to bring all its State aids measures in 
line with the Treaty provisions and the guidelines adopted in this area. 

Arable  crops.  Concerning  arable  crops  production,  Croatia  grants  production  subsidies  for 
cereal crops (wheat, rye, triticale and fodder cereals), oilseeds (sunflower, soybeans and rape 
seed)  but  not  for  protein  crops.  Subsidies  are  different  for  bread-making  quality  and  fodder 
cereals.  Management  and  control  of  this  scheme  diverges  from  the  EU  system.  The 
procedures  inherited  from  the  former  subsidies  management  system  are  currently  being 
harmonised  and  preparations  are  being  made  for  alignment  with  IACS  (Integrated 
Administration and Control System). Also, the agricultural inspection body is currently being 
restructured. The Croatian intervention system needs to introduce minimum quality standards 
for  internal  quality  requirements  (such  as  protein  content,  Zeleny,  Hagberg).  Croatia  should 
also  adapt  administration  of  the  import  and  export  regime  in  this  sector,  in  particular 
introducing  import/export  licenses  and  export  refunds.  With  regard  to  sugar,  Croatia  grants 
area-based subsidies for the production of sugar beet, above a minimum threshold, which are 
not  compatible  with  the  acquis,  and  applies  custom  duties  and  preferential  quotas.  No 
mechanism  is  in  place,  which  would  correspond  to  the  key  management  instruments  of  the 
sugar  common  market  organisation  (production  control  measures, 
inter-professional 
agreements, intervention price system and communication system). Continued attention must 
be  paid  to  proper  control  of  the  proof  of  origin  for  exported  sugar.  Basic  national 
administrative  structures  are  in  place,  which  might  serve  as  a  basis  for  setting  up  the 
necessary  instruments,  but  these  would  need  to  be  significantly  strengthened  to  manage  the 
common market organisation for sugar. 

Animal products. In the milk and dairy sector Croatia grants an aid per litre of milk above a 
minimum threshold, based on a 3.7% fat content level. The subsidy is higher for less favoured 
areas.  Similarly  to  the  EU  system,  Croatia  has  production  subsidies,  target  price  for  milk, 
duties  and  preferential  tariff  quotas.  However,  no  intervention  system  and  no  quota 
management  measures  are  currently  in  place  or  planned.  Croatia’s  milk  production  is 
equivalent  to  only  80%  of  its  annual  consumption  of  milk  and  dairy  products,  and  the 
difference is covered by imports. Concerning beef and veal, Croatia has specific schemes for 

71 

 
 
  
 
cattle fattening, cattle rearing and dairy cows. Trade measures are also applied. In order to be 
fully  compliant  with  the  acquis  in  this  area,  Croatia  should  start  preparations  for  an  animal 
identification  system,  beef  carcass  classification  and  a  proper  price  reporting  system. 
Production  subsidies  above  a  minimum  threshold  are  also  granted  to  raise sheep  and  goats. 
The subsidy is higher for less favoured areas. Unlike in the EU system, male animals are also 
eligible for payment. No intervention and private storage measures are applied. Croatia should 
establish  adequate  carcass  classification  and  develop  a  price  reporting  system  based  on 
carcass weight. In the pig meat sector, per head subsidies are granted for fattening and raising 
pigs above a minimum threshold, which is not in line with the EU legislation. Customs duties 
and preferential quotas are applied. The EUROP carcass classification method seems to be in 
place, but not yet linked to a functional price reporting system. Adequate arrangements would 
also  be  required  to  manage  the  EU  schemes  for  private  storage  and  export  refunds. 
Concerning  eggs  and  poultry,  Croatia  grants  production  subsidies  above  a  minimum 
threshold, besides applying customs duties and preferential quotas. Marketing standards and 
price reporting in line with EU provisions are not yet applied and should be developed in view 
of accession. The Croatian Livestock Centre is responsible for a number of functions in the 
animal products sector. 

Specialised crops. In the area of fruit and vegetables, Croatia applies a yearly hectare-based 
production subsidy and one-time payments for planting new orchards. These measures are not 
in  line  with  the  acquis.  No  subsidies  are  granted  for  processing  fruit  and  vegetables. 
Development  of  producer  organisations  is  at  a  very  early  stage  and  should  be  further 
encouraged.  Particular  attention  should  be  paid  to  aligning  Croatian  marketing  standards  to 
the EU standards and setting up a quality inspection body. An adequate market information 
system should also be put in place. In the wine sector, Croatia grants per-hectare subsidies for 
grape  production  and  planting  of  new  vineyards,  and  one-time  subsidies  for  grapevine 
planting material. These measures are not in line with the acquis. No restrictions are in place 
on  planting  grapevines  in  Croatia  and  no  distillation  measures  are  applied.  No  intervention 
measures are applied in the area of wine production. Subsidies for olive oil are in place for the 
production of olives, the planting of olive groves, for planting material and for the production 
of virgin olive oil. Only the subsidy for the production of olives would be compatible with the 
EU  provisions.  Croatia  should  develop  a  computer-based  Geographical  Information  System 
(GIS)  in  line  with  the  acquis.  Furthermore,  Croatia  will  need  to  align  its  legislation  on 
marketing standards and on the technical characteristics of olive oil and the relevant methods 
of analysis. Concerning fibres, Croatia applies customs duties for flax and hemp. It does not 
appear  to  comply  with  other  provisions  of  the  acquis  in  this  area,  in  particular  the  specific 
conditions applying for imports of hemp into the EU. For the bananas sector, Croatia operates 
a  tariff-only  system  with  a  current  ‘most  favoured  nation’  tariff  of  10%.  The  tariff-only 
system is in line with the system applicable in the EU from 2006, but Croatia will also need to 
adopt the EU quality standards. Production subsidies are given to tobacco growers. A system 
of guaranteed price is also in place, unlike in the EU. For seeds Croatia grants a subsidy based 
partly on production and partly on area. The latter is not in line with the current acquis. The 
scope of the seed varieties eligible for aid is also wider than in the EU. A production aid is 
also granted for hops, coupled with subsidies for establishing new plantations and for certified 
plant materials. Croatia aims at increasing production in this area, whereas the EU is trying to 
adapt production to market demand. 

Concerning rural development, within the Agriculture and Fisheries Development Strategy 
the Rural Development Model includes three main programmes: for rural areas development, 
for conservation of indigenous and protected breeds, and for agricultural products marketing 
preparations.  These  documents  show  Croatia’s  commitment  to  rural  development  both  at 

72 

 
 
  
 
national and  regional level, with policy  objectives similar  to  those  of the EU. The activities 
currently  carried  out  indicate  that  a  capacity  to  develop  and  implement  rural  development 
policy already exists, together with financial allocations from the national budget. A national 
definition of less favoured areas is already in force. These preparations will provide a good 
starting  point  for  the  future  development  of  rural  development  programmes  in  line  with  the 
acquis.  However,  thorough  preparations  will  be  required  to  adopt  EU-compatible  delivery 
mechanisms, in particular paying agencies. Co-operation between all services involved should 
also be strengthened. 

In the veterinary and phytosanitary sectors, Croatia has in general functioning veterinary 
and phytosanitary services under the responsibility of the Ministry of Agriculture. 

In the veterinary field, the main legislative provisions are the Veterinary Medicine Act, the 
Act on Veterinary Medication and Veterinary-Medical Products and the Animal Welfare Act. 
Several Government Ordinances regulate specific issues in this area. Croatia already applies 
some  principals  of  the  EU  legislation.  A  number  of  basic  directives  have  been  partially 
transposed,  but  remain  to  be  brought  fully  in  compliance  with  the  acquis.  Although  efforts 
have  been  noted  in  the  handling  of  transmissible  spongiform  encephalopathies  (TSE)  and 
animal by-products, Croatia has to prove its capacities to strictly align its legislation with the 
acquis (in particular compliance of TSE-related import restrictions with the acquis and culling 
policy in case of outbreaks) and implement and control its enforcement. Croatia’s far-reaching 
TSE-related  import  restrictions  affecting  all  but  three  Member  States  are  not  based  on 
scientific  justifications  and  thus  constitute  a  violation  of  the  Interim  Agreement.  Croatia 
should  therefore  bring  its  import  regime  for  live  animals  and  meat  products  in  line  with  its 
international sanitary and phytosanitary (SPS) obligations and with the EU acquis. 

A system for identification and registration of animals is currently being set-up and should be 
brought  into  compliance  with  EU  norms.  Basic  animal  disease  and  animal  health  control 
systems exist but need to further aligned to the EU legislative and institutional requirements. 
The  basic  principles  of  the  EU  legislation  on  animal  welfare  are  introduced  in  the  national 
legislation. Croatia will have to put efforts in the field of common measures, since important 
elements of the acquis are not yet transposed. Residue monitoring capacities will need to be 
upgraded. 

With  regard  to  public  health  in  agro-food  establishments,  only  a  few  sites  satisfy  EU 
structural and hygiene requirements and are currently listed for exporting to the EU. A large 
number  of  establishments  will  need  important  investments  to  upgrade  their  facilities  and 
should  be  supported  in  this  task.  The  legislation  and  provisions  with  regard  to  animal 
nutrition need to be fully revised. The Croatian authorities need to make significant efforts to 
bring the management of the national regime of veterinary checks, the regime of veterinary 
checks  of  imports  from  third  countries,  and  import  rules  into  line  with  EU  requirements,  in 
particular concerning training of inspectors and adequate laboratory equipment. 

In the phytosanitary sector, legislation has been partially brought in line with the acquis. The 
main  legislative  provisions  are  the  Plant  Protection  Act  and  three  Ordinances:  on 
phytosanitary  inspection  of  plant  and  control  of  plant  protection  on  products  in  the  national 
cross-boundary transportation; on mandatory plant health check of crops and facilities, seeds 
and planting material;  and on terms and  conditions of  entry of agricultural and horticultural 
seeds and agricultural propagating material into national catalogues of varieties. In the field of 
harmful organisms, Croatia has to introduce the concept of protected zones in its legislation, 
without  having  the  obligation  to  establish  protected  zones  within  its  own  territory,  and  to 
continue  work  on  the  EU  control  directives.  The  issue  of  plant  protection  products  needs 

73 

 
 
  
 
further attention and the reform of the related administration should comply with the acquis. 
Residue  monitoring  capacities  need  to  be  further  developed.  Important  EU  directives  in  the 
field of seeds and propagating material will need to be transposed. As regards plant varieties, 
Croatia has started to transpose the aspects related to marketing and protection. 

Croatia has to ensure that the international veterinary and phytosanitary agreements that are 
currently in force are brought into compliance with the acquis. 

In the field of food safety, a Food Act was adopted in 2003, partially implementing the acquis 
in  this  area.  The  Act  provides  for  the  future  establishment  of  a  Food  Agency,  which,  once 
established, should manage risk assessment, co-ordination of inspection activities between the 
Ministries involved, and should manage the central rapid alert system (see Chapter 1 – Free 
movement of goods). 

Conclusion 

In  the  field  of  agriculture,  Croatia  will  have  to  make  considerable  and  sustained  efforts  to 
align its legislation with the acquis and to effectively implement and enforce it in the medium 
term. 

Several measures currently in force in the Croatian agricultural policy are not in line with the 
acquis and should be gradually phased out. Croatia will need to start timely preparations to set 
up the basic instruments for managing the Common Agricultural Policy, in particular an EU-
compliant  paying  agency  and  an  IACS  system.  Due  attention  should  be  paid  to  strengthen 
administrative  capacity  to  manage  common  market  organisations  and  rural  development 
activities. 

Croatia has made an effort to align with the EU standards in the veterinary and phytosanitary 
sectors.  The  Croatian  authorities  must  make  significant  efforts  to  reorganise  their 
administrative structure and management so as to enable EU compatible control system to be 
put  in  place,  particularly  regarding  the  system  of  import  controls.  However,  important  gaps 
remain and significant efforts are required from Croatia to consolidate the recent reforms and 
modernisation  of  the  legal  framework  and  to  further  adapt  its  administration.  Croatia  also 
needs  to  identify  legal  and  institutional  priorities  to  be  addressed  in  future  to  cope  with  the 
developments in the veterinary and phytosanitary sectors. Special attention should be paid to 
training inspectors and staff in the administrations, to modernise laboratories and to support 
efforts to bring the food processing sector in line with EU public health requirements. 

Chapter 8: Fisheries 

The  acquis  on  fisheries  consists  of  regulations,  which  do  not  require  transposition  into 
national  legislation.  However,  it  requires  the  introduction  of  measures  to  prepare  the 
administration  and  the  operators  for  participation  in  the  Common  Fisheries  Policy  (in  the 
areas  of  market  policy,  resource  and  fleet  management,  inspection  and  control,  structural 
actions and state aid). In some cases, existing fisheries agreements or conventions with third 
countries or international organisations need to be adapted. 

The Stabilisation and Association Agreement / Interim Agreement regulate preferential trade 
of fisheries products. 

Concerning resource and fleet management, in Croatia there are around 3,150 vessels and 
boats (832 trawlers, 332 purse seines and 1,999 multi-purpose vessels). The basic legislation 

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in  this  area  consists  of  the  Marine  Fisheries  Act  and  the  Freshwater  Fisheries  Act. 
Commercial fishing requires possession of the relevant license, which, for small-scale fishing, 
can  be  issued  only  to  Croatian  citizens.  Fishing  tools  and  gears  are  regulated  through  an 
Ordinance  on  Commercial  Marine  Fisheries.  There  is  no  quota  system,  except  for  large 
pelagic  species.  Specific  provisions  are  laid  down  for  tuna  fishing.  Croatia  has  a  fleet 
development programme directed to increase catch and consumption of small pelagic species 
that  are  shared  stocks  with  the  other  countries  around  the  Adriatic  Sea.  This  programme 
foresees,  in  the  period  2004-2009,  the  construction  of  30  new  vessels  (90-120  Gross  Tons) 
against withdrawing of an unspecified amount of old fleet capacity. However, this programme 
is  in  contrast  with  scientific  advice  agreed  by  the  General  Fisheries  Commission  for  the 
Mediterranean  (GFCM).  Vessels  smaller  than  29  kW  are  authorised  to  trawl  fishing  for 
picarel in coastal areas within 1 nautical mile from the coastline. 

The  most  important  fishing  activities  concern  small  blue  pelagic  species  (pilchard  and 
anchovy)  through  purse  seine  nets  and  drift  nets;  to  large  pelagic  fish  (tuna)  through  purse 
seine nets; and to shrimps, hake and mullet through trawling nets. Beach seine, trammel-net 
and gillnet fisheries are widespread. 

The  Ministry  of  Agriculture  administers  the  fisheries  sector  through  a  central  department 
(mainly in charge of legislation and co-ordination) and seven field offices (mainly in charge 
of  license  issuing  and  data  collection).  Furthermore,  an  independent  State  Inspectorate  is  in 
charge of control of commercial activities in all areas, including fisheries, although there is no 
unit  with  specific  responsibility  for  fisheries  inspection.  Therefore  a  limited  number  of 
inspectors perform, among other tasks, fisheries inspection activities. The currently available 
equipment is inadequate and there is no vessel monitoring system. The Maritime Police, under 
the  Ministry  of  the  Interior,  is  responsible  for  inspections  at  sea.  Although  co-operation 
between  the  two  services  exists,  co-ordination  of  activities  does  not  seem  to  be  sufficiently 
developed.  Overall,  the  inspection  system  currently  in  place  raises  serious  doubts  on  its 
effectiveness  in  terms  of  staff,  equipment  and  co-ordination  of  the  various  administrative 
services involved. 

The  Croatian  fleet  register  is  kept  manually  by  each  port  authority.  Each  vessel  is  also 
registered  in  the  computerised  database  of  the  register  of  licenses  for  commercial  fishing. 
Croatia  is  preparing  to  introduce  an  operational  electronic  fishing  vessel  register  in 
conformity with the acquis. 

Croatia  should  clarify  the  licensing  of  its  small  scale  fisheries  fishing  for  commercial 
purposes. It should also demonstrate its ability to correctly measure and control capacity and 
fishing effort of their fleet. There are three types of fishing licenses: commercial, small scale 
and sport and recreational fishing license. An applicant for commercial fishing license must 
be registered in the Small Enterprises Register. A license is also needed for fish rearing. 

In Croatia the structural actions will be managed by the Ministry of Agriculture. 

With  regard  to  State  aid  to  the  fisheries  sector,  Croatia  has  a  wide  range  of  schemes  to 
support  fishing,  rearing  and  processing  of  fish,  namely  for  rearing  autochthonous  species. 
Schemes vary from market and price policy measures to structural policy measures and aids 
for aquaculture and freshwater fishing. Some of these measures will need to be brought into 
compliance with the acquis. 

Concerning  international  fisheries  agreements,  Croatia  is  a  member  of  the  International 
Commission  for  Conservation  of  Atlantic  Tuna  (ICCAT)  and  of  EUROFISH.  It  is  also  a 

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member of the General Fisheries Council for the Mediterranean (GFCM) and has ratified the 
autonomous  budget  for  this  organisation.  The  only  bilateral  agreement  in  force  is  a 
transitional cross-border regime agreement with Slovenia. 

On 3 October 2003 the Parliament unilaterally declared a protected ecological and fishing 
zone  in  Adriatic  Sea.  The  expanded  jurisdiction  will  come  into  force  one  year  after  its 
proclamation.  It  seems  to  include  the  interdiction  of  undertaking  any  type  of  scientific 
investigation  by  foreign  vessels  in  the  zone,  unless  authorised  by  Croatian  authorities.  It  is 
regrettable  that  Croatia  decided  to  declare  a  protected  ecological  and  fishing  zone  in  the 
Adriatic  Sea  without  appropriate  dialogue  and  co-ordination  with  the  other  countries 
concerned. 

Conclusion 

The  Croatian  fisheries  sector  is  undergoing  significant  development.  The  catches  of  small 
pelagic species and the number of fishing vessels are being increased. Progress has been made 
in  establishing  a  computerised  fishing  vessel  register.  However,  such  developments  neither 
correspond to a precautionary strategy nor are linked to specific scientific findings. 

Croatia will have to make further efforts to align its legislation with the acquis in this area and 
to effectively implement and enforce it in the medium term. In particular, these efforts should 
be  directed  to  put  in  place  adequate  structures  to  manage  market  instruments,  Community 
funds  and  to  ensure  appropriate  controls,  also  including  a  satellite  monitoring  system.  A 
solution to the declaration of a protected ecological and fishing zone needs to be found within 
the framework of the conclusions of the Venice Conference on the Sustainable Development 
of Fisheries in the Mediterranean. 

Chapter 9: Transport 

EU  transport  legislation  aims  at  improving  the  functioning  of  the  Internal  Market  by 
promoting  efficient  and  environment-  and  user-friendly  transport  services.  The  transport 
acquis covers the sectors of road transport, railways, aviation, maritime transport and inland 
waterways. It covers technical and safety standards, social standards, and market liberalisation 
in the context of the European Single Transport Market. 

The  Stabilisation  and  Association  Agreement  contains  provisions  concerning  land  transport, 
relating inter alia to infrastructure development, the promotion of rail and combined transport 
as  well  as  to  easier  market  access,  facilitation  of  transit  and  technical,  environmental  and 
social standards in the field of land transport. 

Croatia invests a significant percentage of its GDP in transport infrastructure. In general, 
Croatia  has  sufficient  transport  capacity  in  all  modes  of  transport.  However,  much  of  the 
infrastructure is only in fair or poor condition. The core transport network has already been 
defined  with  the  Commission  in  the  framework  of  establishing  a  strategic  approach  to 
developing a core infrastructure transport network in the region. 

In the area of road transport, rules are already applied that are close to the acquis. Access to 
the road goods and passenger transport market is regulated and admission to the professional 
rules  are  applied,  both  for  national  and  international  operators.  However  these  would  still 
need to be further aligned with the acquis. In the area of the social acquis, Croatia is moving 
towards a Community approach on driving times and rest periods; Croatia requires the use of 

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a tachograph; it applies the terms of the European Agreement concerning the Work of Crews 
of Vehicles Engaged in International Road Transport (AETR) also  to the national transport. 
Also in the field of technical acquis, Croatia is moving towards a Community approach, by 
applying e.g. the terms of the European Agreement concerning the International Carriage of 
Dangerous Goods by Road (ADR), and by having national legislation close to but not fully 
compatible  with  the  acquis  on  roadworthiness  inspection,  driver  licensing,  weights  and 
dimensions and speed limitation devices. As regards the fiscal acquis, Croatia would have to 
align the level of both annual vehicle taxes and user charges with the acquis. In addition, the 
issue of discriminatory nature of charges (additional charges for foreign registered vehicles) 
would need to be resolved. 

As  far  as  administrative  capacity  is  concerned,  responsibilities  in  the  road  transport  sector 
have recently been concentrated in the Ministry of Maritime Affairs, Tourism, Transport and 
Development. It will be essential to ensure effective co-operation between this Ministry and 
the Ministry of Interior (responsible for the police), as well as a sufficient level of checks in 
order to enforce EU standards in the field of social legislation and technical requirements. 

In the rail sector, the acquis concerning the separation of accounts between the infrastructure 
management  and  the  railway  operations  has  been  adopted.  The  incumbent  (still  integrated) 
operator  (Hrvatske  Željeznice)  conducts  its  management  autonomously,  but,  being  entirely 
State-owned, under the supervision of a 'supervisory board' appointed by the government. The 
financial position of this company, which is currently being restructured, remains precarious. 
The  recent  EU  rail  legislation  (first  railway  package)  has  been  incorporated  into  Croatia’s 
legislation in this area, which will be implemented as of 2005, including non-discriminatory 
access  to  the  national  network.  However,  most  secondary  legislation  (i.a.  concerning  the 
independence  of  the  allocation  of  capacity)  remains  to  be  adopted.  Croatia  would  also  still 
need to align its legislation with the acquis on interoperability. 

Administrative capacity in this area will need to be further strengthened, also in light of the 
implementation of the new railway acquis. 

The inland waterway transport sector in Croatia is relatively small, with only a limited part 
of the Croatian fleet being able to operate on the main Community waterways. The ownership 
of  infrastructure  and  ports  is  separate  from  fleet  ownership.  Social  rules  are  already  being 
aligned  with  the  acquis,  whereby  Croatian  legislation  on  access  to  the  profession  includes 
numerous  additional  and  special  requirements.  Further  alignment  would  have  to  take  place. 
As  regards  the  technical  requirements  for  ships,  Croatia  already  applies  UN  ECE  rules 
equivalent to the acquis. The same applies to the transport of dangerous goods. 

The administrative capacity in the inland waterway sector seems to be adequately ensured at 
ministerial level and by the Croatian Shipping register. 

In  the  aviation  sector,  a  significant  part  of  the  acquis  remains  to  be  transposed,  such  as 
provisions  on  ground  handling,  slot  allocation,  computer  reservation  systems  and  fares. 
Although  Croatia  is  a  member  of  the  International  Civil  Aviation  Organisation  (ICAO)  and 
the  European  Civil  Aviation  Conference  (ECAC),  it  is  not  yet  a  full  member  of  the  Joint 
Aviation  Authorities  (JAA),  which  implies  that  Croatia  will  still  need  to  pursue  further 
alignment with safety rules. Also the alignment with state aid and competition rules will be an 
area  requiring  further  attention.  In  addition,  a  comprehensive  aviation  agreement  providing 
reciprocal aviation market access should be negotiated with the EU. 

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The administrative capacity needs to be strengthened and the roles and responsibilities of the 
different organisations (Civil Aviation Authority, Department for the Investigation of Aircraft 
Accidents,  Ministry  of  Maritime  Affairs,  Tourism,  Transport  and  Development)  need  to  be 
further clarified. 

In the field of maritime transport, most of the legislation governing the technical standards 
of  this  sector  is  compliant  with  the  respective  standards  of  the  International  Maritime 
Organisation  (IMO)  and  the  International  Labour  Organisation  (ILO),  of  which  Croatia  is  a 
member, in particular with regard to safety and seafarers’ training and social standards. This 
would suggest that Croatia should not meet major difficulties in aligning its legislation with 
the acquis in the safety and social area in the medium term. Nevertheless, further alignment 
with  the  acquis  would  be  required  as  regards  vessel  registration  conditions,  public  service 
obligations  and  contracts,  and  certain  elements  of  social  legislation  (e.g.  hours  of  work  on 
board national ships, maritime education, training and certification of seafarers). According to 
statistics for 2002 under the Paris Memorandum of Understanding on Port State Control, the 
percentage  of  Croatian  flag  vessels  detained  following  Port  State  control  was  8.9%.  This 
compares with an average for EU-flagged vessels of 3.5% in 2002. The Croatian flag is on the 
grey list of the Paris Memorandum of Understanding. 

The administrative capacity would need to be strengthened in order to ensure that Croatia will 
be  able  to  meet  the  acquis  requirements  in  the  areas  of  Port  State  Control  and  Flag  State 
implementation.  In  addition,  unrestricted  access  to  maritime  cabotage  services  should  be 
ensured. 

Conclusion 

Croatia will have to make further efforts to align its legislation with the acquis in this area and 
to effectively implement and enforce it in the medium term. In particular, these efforts should 
be  directed  to  continue  alignment  in  the  aviation  sector.  In  order  to  ensure  effective 
implementation  of  the  acquis,  Croatia’s  administrative  structures  would  need  to  be  further 
strengthened. 

Chapter 10: Taxation 

The  acquis  on  taxation  covers  extensively  the  area  of  indirect  taxation,  as  concerns  VAT 
(value-added  tax)  and  excise  duties.  It  lays  down  definitions  and  principles  of  VAT,  while 
excise  duties  on  mineral  oils,  tobacco  products  and  alcoholic  beverages  are  subject  to  EU 
directives as concerns the structures of the duties, the levels of minimum rates and the holding 
and  movement  of  excisable  goods.  As  concerns  direct  taxation,  the  acquis  covers  some 
aspects  of  corporate  taxes  and  aims  mainly  at  removing  obstacles  to  cross-border  activities 
between  enterprises.  Finally,  the  Community  legislation  in  the  area  of  administrative  co-
operation and mutual assistance provides tools to avoid intra-Community tax evasion and tax 
avoidance for both direct and indirect taxation. 

In the area of indirect taxation, Croatia has a value-added tax (VAT) system in place, which 
was first introduced in 1995 and further amended several times. The current VAT system is 
based on EU VAT legislation and thus represents a good starting point. In parallel with VAT, 
a  limited  system  of  taxes  on  sales  of  goods  and  services  still  exists,  although  the  sales  tax 
accounted for only 0.16% of general government revenue in 2002 while VAT accounted for 
31.3%. The definitions of taxable scope, taxable persons, VAT liability and the provisions on 
the place of supply are similar to what is provided for in EU legislation. Foreign entrepreneurs 

78 

 
 
  
 
who  are  not  residents  may  register  in  Croatia  for  VAT  purposes.  A  taxable  person  is  not 
obliged to register for VAT when his annual turnover does not exceed HRK 85,000 (approx. 
€11,500), which is above the threshold provided for in the acquis. 

Currently Croatia applies a standard VAT rate of 22% and no reduced rates are applied, which 
is in compliance with the acquis. However, a zero rate is applied to a range of specified goods 
and services: bread, milk, books, scientific journals and educational supports, pharmaceuticals 
and  medical  equipment  to  alleviate  or  treat  disability,  cinemas  and  tourist  services  if 
purchased from abroad. The application of a zero rate is not compatible with the acquis. There 
is no discrimination against imported goods, as the rate applicable is the same as that applied 
to similar domestic products. The exemptions from VAT without the right to claim an input 
credit on the supply of certain goods and services are quite similar to what is provided for in 
the acquis, but further alignment is necessary. 

In accordance with the acquis, supplies of goods to and within free zones and free and bonded 
warehouses are exempted. However, the territorial application of the VAT Act excludes the 
free zones established in Croatia, something which is not in line with the EU acquis (see also 
Chapter 25 – Customs union). 

While taxable persons are entitled to deduct VAT incurred on their purchases of goods and 
services  for  business  purposes,  the  Croatian  VAT  Act  does  not  allow  refunds  to  non-
established  traders,  with  very  limited  exceptions.  The  latter  provision  is  contrary  to 
Community legislation. Furthermore, the VAT Act does not contain any of the special VAT 
schemes provided for in the acquis; the only special scheme concerns second-hand cars. 

As  regards  administrative  capacity,  the  Tax  Administration,  an  administrative  organisation 
within  the  Ministry  of  Finance,  is  competent  for  direct  taxes  and  VAT  (except  for  VAT  on 
imports,  collected  by  the  Customs  Administration).  It  consists  of  Headquarters,  20  regional 
offices and 121 branch offices. The tax administration’s competences and powers as well as 
taxpayers’ rights and obligations are clearly defined. 

According  to  available  data,  the  size  of  the  grey  economy  was  significant  in  the  1990s,  but 
seems to have decreased. The efficiency of tax collection by the due date (85%) is far lower 
than the average in the EU (93%). The control strategy for VAT and direct taxes, determined 
by  provisions  of  the  General  Tax  Act,  needs  to  be  further  developed  and  strengthened.  An 
annual  Inspection  Action  Plan  is  established  for  the  controls,  where  selection  is  based  on  a 
number  of  different  criteria.  A  substantial  increase  in  the  number  of  tax  inspectors  seems 
necessary  and  is  foreseen.  At  the  local  and  operational  level,  employees  of  the  Tax 
Administration are responsible for all taxes connected with the allocated taxpayers, although 
inspectors do specialise according to the size and/or the activity of the taxpayers. 

There  is  the  possibility  both  to  appeal  against  decisions  of  the  Tax  Administration  and  to 
bring taxpayers to court for tax fraud, but – at least for the latter – the procedures are slow and 
result  in  inefficiencies.  The  main  tax  evasion  problems  concern  VAT.  The  independent 
Department  for  Tax  Crimes  Investigation  at  the  central  office  and  its  regional  offices  in 
Zagreb,  Rijeka,  Split  and  Osijek  are  not  yet  well-organised  and  do  not  have  a  sufficient 
number  of  fraud  specialists  at  their  disposal.  Moreover,  cooperation  between  the  tax 
administration, the police, the prosecutor’s office, investigating judges and courts of first and 
second instance is far from optimal and leads to very long delays. 

As concerns excise duties, all products that are part of the EU harmonised excise system (i.e. 
alcohol  and  alcoholic  beverages,  tobacco  products  and  mineral  oils)  are  subject  to  excise 

79 

 
 
  
 
duties.  Excise  duties  accounted  for  9%  of  total  general  government  revenue  in  2002 
(including a number of additional excisable products under Croatian law). The adoption of a 
uniform act governing excise duties is planned and should bring the legislation closer to the 
acquis, also by introducing a duty-suspension system for domestic movements based on the 
EU acquis and allowing more efficient control procedures. 

Extensive adjustments will need to be made to the tax base, structures and definitions of most 
EU  harmonised  excisable  goods.  Concerning  alcohol  and  alcoholic  beverages,  Croatia 
appears  to  allow  an  exemption  for  home-made  production  for  own  consumption  of  all 
categories  of  alcoholic  beverages  except  beer.  The  EU  acquis  does  not  provide  for  such  an 
exemption  in  the  case  of  intermediate  products  and  spirits.  Contrary  to  the  acquis,  Croatia 
also  exempts  from  duty  small  breweries  producing  less  than  1500  litres  per  year.  As  for 
tobacco  products,  exemptions  from  duty  will  need  to  include  denatured  manufactured 
tobacco. Concerning mineral oils, all kinds of heating oils are exempt from excise duties. The 
scope of the exemptions is not in line with the acquis. 

As regards the level of excise duties, the rates applied to the above mentioned categories are 
in  some  instances  below  the  EU  minimum  levels.  This  concerns  in  particular  cigarettes  and 
hand rolling tobacco, whilst a comparison with the EU minimum rates for alcoholic products, 
particularly  beer,  is  not  yet  possible  because  of  the  different  structure  of  the  duties. 
Concerning mineral oils, the rates of excise duties do not differentiate with regard to the use 
of the mineral oil. Liquid petroleum gas intended for any purpose – as well as other mineral 
oils  –  is  taxed  at  a  significantly  lower  level  than  the  minimum  rates  provided  for  by  the 
acquis. The level of rates applied to domestic and imported similar products is the same. The 
Croatian duty-suspension scheme will need to be brought in line with the requirements of the 
acquis.  In  particular,  the  present  excise  duty  suspension  arrangements  are  not  available  to 
imported excisable products and this will need to be rectified. 

The  Customs  Administration  has  been  responsible  for  excise  duties  since  January  2002. 
However,  the  excise  duty  service  does  not  yet  exist  as  a  real  functioning  body  within  the 
Administration,  since  it  employs  only  2  persons.  At  the  operative  level,  only  10  customs 
offices  deal  specifically  with  excise  duties.  Hiring  of  new  staff  and  systematic  training  of 
employees  for  both  collection  and  control  of  excise  duties  is  thus  necessary  and  planned. 
Furthermore, it appears that Croatia is facing important problems linked with the smuggling 
of tobacco products – and to a lesser extent, of alcohol – through its borders. 

As concerns direct taxation, some provisions concerning the taxation of interests, royalties, 
dividends and fees paid by Croatian corporations to non-residents need further alignment with 
the Interest and Royalties Directive and with the Parent/Subsidiary Directive. Furthermore it 
should  be  recalled  that  the  Savings  Directive  requires  the  introduction  of  a  cross-border 
exchange  of  information  among  Member  States  concerning  the  payment  of  interest  to  EU 
resident individuals. 

The transposition of the Merger Directive should enable the removal of tax obstacles to cross-
border business reorganisations. With reference to the European Court of Justice, it has to be 
recalled that  although direct taxation  falls within the  competence  of the Member States, the 
latter  must  nevertheless  exercise  that  competence  consistent  with  Community  law  and 
therefore avoid any open or hidden discrimination by reason of nationality. 

At the moment Croatia applies five preferential schemes for profit and income tax. It should 
be recalled that Croatia will have to comply with the principles of the Code of Conduct for 

80 

 
 
  
 
business  taxation,  and  notably  not  to  introduce  new  tax  measures  and  to  roll  back  existing 
legislation which may be contrary to the principles of the Code of Conduct. 

The  collection  of  direct  taxes  is  the  responsibility  of  the  Tax  Administration  (see  above, 
administrative capacity in the area of VAT). 

As concerns administrative co-operation and mutual assistance, Croatia’s experience is so 
far very limited for both VAT and excise duties. Actions in this area will need to be taken, 
concerning  in  particular  the  development  of  IT  systems  for  the  exchange  of  information.  In 
this respect, the VAT Information Exchange System (VIES), the application for VAT on e-
services, the System for Exchange of Excise Data (SEED) and the computerised system for 
the intra-Community movement and monitoring of excisable goods (EMCS) will need to be 
set up and fully operational by the date of accession. 

Conclusion 

Further amendments to the VAT system will be necessary to bring it in line with the acquis. 
Attention  must  be  paid  to  the  existing  regime  for  free  zones,  which  are  not  presently 
considered as part of Croatian territory for VAT purposes, to ensure that their regime is fully 
aligned with the acquis and that they are properly controlled. VAT zero rates and the sales tax 
will  have  to  be  abolished.  Even  though  an  excise  duty  system  exists,  alignment  with  the 
acquis  will  require  considerable  efforts  in  all  areas  and  product  categories.  In  the  area  of 
direct  taxation  further  efforts  will  be  necessary  in  order  to  achieve  full  alignment  with  the 
acquis, including the case law of the European Court of Justice. 

The  capacity  of  the  Tax  Administration  requires  important  further  strengthening,  especially 
regarding  collection  and  control  functions.  The  administrative  capacity  of  the  Customs 
Administration covering excise duties is insufficient and important efforts will be needed, in 
particular  to  introduce  a  more  adequate  organisational  structure  and  service,  with  sufficient 
and trained staff. To increase the effectiveness of the fight against tax fraud, the complicated 
nature  of  the  procedures  to  prosecute  fraud,  combined  with  the  weakness  of  the  Croatian 
judiciary, needs to be addressed. 

Overall, Croatia will have to make considerable and sustained efforts to align its legislation 
with  the  acquis  and  to  effectively  implement  and  enforce  it  in  the  area  of  taxation  in  the 
medium term. Particular attention should be devoted to IT interconnectivity if Croatia wants 
to be in a position to meet its obligations in this specific field by accession. 

Chapter 11: Economic and Monetary Union 

EU legislation on Economic and Monetary Union (EMU) contains specific rules requiring the 
independence  of  central  banks  in  Member  States,  prohibiting  direct  financing  of  the  public 
sector by the central banks and prohibiting privileged access of the public sector to financial 
institutions. Moreover, all Member States are bound to lay down specific measures necessary 
for the protection of the euro against counterfeiting. These rules must have been implemented 
by the date of accession. Upon accession, new Member States will be expected to co-ordinate 
their economic policies and will be subject to the provisions of the Stability and Growth Pact 
and  of  the  Statute  of  the  European  System  of  Central  Banks.  They  are  also  committed  to 
complying with the criteria laid down in the Treaty in order to be able to adopt the euro. Until 
their  adoption  of  the  euro,  they  will  participate  in  Economic  and  Monetary  Union  as  a 

81 

 
 
  
 
Member  State  with  derogation  and  shall  treat  their  exchange  rates  as  a  matter  of  common 
concern. 

In Croatia, central bank independence appears to be largely in place. Indeed, the Act on the 
Croatian  National  Bank  of  2001  seems  to  be  almost  compliant  with  EU  legislation.  It 
stipulates  that  the  Bank  (Hrvatska  narodna  banka  -  HNB)  shall  neither  seek  nor  take 
instructions  from  other  authorities.  The  Bank  is  financially  independent  and  is  the  only 
institution  responsible  for  monetary  and  foreign  exchange  policies  in  Croatia.  The  primary 
objective of the Bank is the achievement and maintenance of price stability. 

However,  some  provisions  of  the  HNB  Act  need  to  be  further  improved.  In  terms  of 
institutional  independence,  the  provisions  on  central  bank  independence  should  be  further 
aligned  with  the  acquis.  In  particular,  the  reporting  obligations  for  the  HNB  on  monetary 
policy should only be ex-post, in order to prevent any possibility of external influence. In the 
area  of  personal  independence,  the  provisions  concerning  grounds  for  dismissal  of  Council 
members should reflect the ESCB Statute more closely. 

As regards the prohibition of direct financing of the public sector by the central bank, the 
law  explicitly  prohibits  extending  credit  directly  to  the  Republic  of  Croatia.  However,  the 
possible  coverage  of  a  shortfall  between  income  and  expenditures  of  the  HNB  by  debt 
securities of the Republic of Croatia could involve a form of monetary financing to the extent 
that the HNB is obliged to acquire them. 

Regarding the prohibition of privileged access, the Insurance Act and the Act on Mandatory 
and  Voluntary  Pension  Funds  contain  floors  or  thresholds  with  respect  to  public  Croatian 
securities.  This  is  tantamount  to  creating  privileged  access  for  the  Republic  of  Croatia 
compared to other states and institutions. In addition, the Savings and Loan Co-operatives Act 
allows investing available funds in the securities of the Republic of Croatia only. These acts 
will need to be adapted. 

Croatia  has  established  procedures  for  the  protection  of  the  euro  against  counterfeiting. 
Suspect euro specimens are sent to the Criminal Forensic Centre for technical analysis, which 
then  sends  its  findings  to  the  HNB  and  the  Crime  Investigation  Department  of  the  Police. 
Although  the  capacity  for  technical  analysis  exists,  the  establishment  of  a  full-fledged 
National  Central  Office  on  counterfeiting  should  be  considered.  Agreements  foresee  the 
transmission of related information to Europol and Interpol. While credit institutions have an 
obligation  to  withdraw  suspect  banknotes  from  circulation  and  to  hand  them  over  to  the 
competent  authorities,  no  sanctions  are  specified  if  this  obligation  is  not  respected.  The 
legislation will need to be changed in this regard. 

Conclusion 

Croatia should be able to fulfil the requirements of the acquis in the field of Economic and 
Monetary  Union  in  the  medium  term.  However,  some  aspects  of  the  legislation  on  central 
bank  independence,  monetary  financing,  privileged  access  of  the  public  sector  to  financial 
institutions  and  protection  of  the  euro  need  to  be  further  aligned.  Croatia’s  preparation  for 
participation in the third stage of EMU as a Member State with a derogation should not pose 
major problems prior to accession. 

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Chapter 12: Statistics 

The  acquis  in  the  field  of  statistics  requires  the  adoption  of  basic  principles  such  as 
impartiality,  reliability,  transparency,  confidentiality  of  individual  data  and  dissemination  of 
official  statistics.  It  also  covers  methodology,  classifications  and  procedures  for  data 
collection  in  various  areas  such  as  statistical  infrastructure,  macro-economic  and  price 
statistics,  business  statistics,  transport  statistics,  external  trade  statistics,  demographic  and 
social statistics, agricultural statistics, environment statistics, science and technology statistics 
and  regional  statistics.  The  focal  point  of  the  statistical  system  of  a  country  is  the  National 
Statistical  Institute,  which  acts  as  the  reference  point  for  the  methodology,  production  and 
dissemination of statistical information. 

As regards statistical infrastructure in Croatia, the legal framework was modernised when a 
new  Official  Statistics  Act  entered  into  force  in  June  2003.  The  principles  of  reliability, 
professional independence, statistical confidentiality and individual data used for exclusively 
statistical purposes are enshrined in this law which is fully compliant with EU principles. 

The  Central  Bureau  of  Statistics  (CBS)  plays  the  leading  role  within  the statistical  system. 
The Director General of the CBS and his Deputy are appointed by the Government. Forming 
an important component of the statistical system in Croatia are the 21 regional offices which 
carry out certain tasks for the CBS but administratively are not part of it. As foreseen in the 
law,  a  Statistical  Council  was  created  in  October  2003  and  is  supposed  to  significantly 
improve  relationships  between  producers  and  users  of  statistics  as  well  as  involve  more 
closely  the  academic  community.  Co-ordination  with  other  producers  of  official  statistics 
remains problematic and can be seen as the main weakness of the Croatian statistical system. 
The recent creation of 15 statistical advisory committees, covering all main statistical subject 
areas, should improve the situation. These committees should assist the CBS in strengthening 
its co-ordinating role and in promoting the use of common and harmonised methodologies. As 
a consequence of the Official Statistics Act, a strategic management cycle concept has been 
recently  adopted  and  Croatia  is  working  on  long-,  medium-  and  short-term  strategic 
documents for Croatian Official Statistics. The CBS employs 396 persons as regular staff, of 
whom 42% have a university degree. Fluctuation is higher in the CBS than in other parts of 
the administration. There is no specific training programme organised by the CBS in official 
statistics, and there are no rulebooks which would translate the fundamental principles or the 
statistical law into rules of behaviour for staff. 

As regards classifications, national classifications of economic activities and of products by 
activities appear to be in line with EU requirements. A new proposal for a “statistical region 
nomenclature” (NUTS – Nomenclature des unités territoriales statistiques) in Croatia needs 
to be submitted to the Commission in order to agree on a NUTS breakdown. 

The production of regional statistics in accordance with the future agreed NUTS needs to be 
strengthened  in  particular  in  view  of  calculating,  at  NUTS  II  Level,  GDP  per  capita  on  the 
basis of gross value added figures. 

Concerning demographic and social statistics, the latest population census was carried out 
in  2001  and  the  next  one  should  take  place  in  2011.  In  the  meantime  external  migration 
statistics needs to be improved in order to be able to produce more reliable current population 
statistics on an annual basis with the census as the starting point. A Labour Force Survey has 
been conducted every six months since 1996 on a sample of 8500 households and meets ILO 
and Eurostat standards. 

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With regard to macro-economic statistics, significant improvements still need to be made to 
achieve  a  sufficient  quality  and  comparability  of  national  accounts  based  on  the  ESA  95 
methodology. Administrative capacity within the CBS needs to be reinforced. A Harmonised 
Consumer Price Index is not yet available. 

As  regards  business  statistics,  the  existing  business  register  does  not  yet  meet  statistical 
needs. An economic census should be carried out in order to build a homogeneous basis for a 
statistical register. 

In  the  field  of  transport  statistics,  administrative  capacity  within  the  CBS  needs  to  be 
reinforced  in  order  to  overcome  the  lack  of  information  in  the  air  and  maritime  transport, 
passenger and goods transport and road accident statistics. 

In the field of external trade statistics the quality of statistics is already quite good and the 
production  system  largely  harmonised  with  the  acquis.  Further  improvements  should 
concentrate  on  greater  methodological  harmonisation  with  EU  standards,  data  quality  and 
developing tools for mirror statistics with other SAP and EU countries. 

Further progress on upgrading Croatian agricultural statistics will be built on the results of 
the agricultural census which took place in June 2003. Efforts should focus on establishing a 
farm register and on improving the IT situation in the sector. 

Environment statistics and science and technology statistics need to be developed further as 
new acquis in these two statistical areas has recently been reinforced. 

Conclusion 

In  order  to  ensure  further  improvements  and  developments  of  statistics,  Croatia  needs  to 
reinforce human resources in key-areas such as for example macro-economic statistics. Also 
training  of  staff  has  to  be  developed  considerably.  In  this  context,  the  reorganisation  of 
regional  offices  remains  a  pending  issue  that  needs  to  be  solved.  Efforts  are  also  needed  to 
upgrade the IT infrastructure. 

Furthermore, in order to achieve full compliance with the acquis, close cooperation between 
the CBS and other producers of statistical data in the Croatian administration will be required. 
The role of CBS as focal point for the Statistical System of Croatia needs to be enhanced. 

Overall,  the  statistical  system  of  Croatia  has  made  remarkable  and  rapid  progress  towards 
compliance with international and EU standards. If it continues its efforts, Croatia should not 
have major difficulties to align its legislation with the acquis and to effectively implement and 
enforce it in the medium term. 

Chapter 13: Social policy and employment 

The acquis in the social field includes minimum standards in areas such as labour law, equal 
treatment  of  women  and  men  in  employment  and  social  security,  and  health  and  safety  at 
work.  Specific  binding  rules  have  also  been  developed  in  public  health  (on  tobacco  control 
and surveillance and control of communicable diseases) and recently also with respect to non-
discrimination on grounds of racial or ethnic origin, religion or belief, disability, age or sexual 
orientation. The European Social Fund (ESF) is the main financial tool through which the EU 
supports  the  implementation  of  its  Employment  Strategy  and  contributes  to  social  inclusion 
efforts  (implementation  rules  are  covered  under  Chapter  21,  which  deals  with  all  structural 

84 

 
 
  
 
instruments). The Member States participate in social dialogue at European level and in EU 
policy processes in the areas of employment policy, social inclusion and social protection. 

As regards labour  law,  the  national legislation of  Croatia seems to cover most of the basic 
principles  laid  down  by  the  EU  labour  law  directives  in  areas  such  as  working  time, 
information  and  consultation  of  employees,  and  information  for  workers  on  individual 
employment conditions. In the event of insolvency of their employer, workers are guaranteed 
a certain level of compensation, paid by the Development and Employment Fund. However, a 
number of adjustments to the national legislation will still be necessary in the field of labour 
law in order to fully transpose and implement the acquis. In addition, Croatia does not appear 
to have legislation similar to the directives on European Works Councils and the posting of 
workers. 

In the area of equal treatment for women and men, the Constitution prohibits all forms of 
discrimination and Croatia has ratified a number of international conventions. Croatia is also 
bound  by Article  8 of the European Social Charter and Article 1  of  its Additional Protocol. 
The principal laws which prohibit discrimination on grounds of sex in relation to employment 
are the Labour Code and the Gender Equality Act. In general it appears that Croatia has the 
necessary basic legislation in place to a considerable extent. Legal adjustments are necessary, 
however,  e.g.  in  connection  with  the  removal  of  over-protection  of  women.  The  different 
pension ages for men and women in the police, military and the civil service may have to be 
adapted  and  the  third  (voluntary)  pillar  of  the  pension  scheme  may  have  to  be  examined  in 
this light. 

A number of institutional structures have been created specifically to promote, implement and 
monitor equal treatment for women and men (i.a. the Committee on Gender Equality of the 
Parliament, the Commission on Gender Equality Issues and the Office for Gender Equality of 
the  Government,  the  Ombudsman  for  Gender  Equality).  In  addition,  a  number  of  other 
structures work in the area of human rights generally, including equality, for example the Co-
ordination  Committee  on  Social  Affairs  and  Human  Rights  and  the  Government  Office  for 
Human Rights. 

A  basic  legal  framework  for  health  and  safety  at  work  is  provided  by  the  Occupational 
Health and Safety Act, which also covers the self-employed, as well as by a number of other 
legal texts that are only partially aligned with EU legislation. Further efforts will be needed to 
transpose  the  EU  directives  on  health  and  safety  in  areas  such  as  asbestos,  noise,  chemical 
agents, carcinogens and work equipment. 

The Labour Inspection is in charge of health protection and safety of workers in most areas of 
the  economy.  While  the  basic  structure  is  in  place,  the  number  of  inspectors  is  low  (78 
inspectors  in  relation  to  more  than  1.2  million  workers).  The  administrative  capacity  of  the 
Labour  Inspection  therefore  needs  to  be  strengthened  in  terms  of  staff  and  also  equipment. 
Moreover,  its  ability  to  enforce  effective  and  dissuasive  sanctions  is  limited  because  of  the 
deficiencies in the judicial system. Courts often take decisions after long delays and tend to 
impose low punishments. 

Social dialogue is quite developed in Croatia, both between the State and the social partners 
and  between  the  State  and  other  economic  and  social  actors  within  a  multipartite  process. 
Bipartite  dialogue  is  also  developing.  There  are  six  trade  union  organisations,  one  of  which 
(Association of Autonomous Trade Unions - SSSH) has an observer status with the European 
Trade  Union  Conference  (ETUC).  There  are  two  employers’  organisations,  one  of  which 
(Croatian Employers Association - HUP) has an observer status with the Union of Industrial 

85 

 
 
  
 
and Employers’ Confederations in Europe (UNICE). Tripartite consultations take place within 
the  Economic  and  Social  Council  and  in  three  different  committees  of  the  Croatian 
Parliament. The Government also consults the social partners through the management boards 
of  certain  funds  and  institutions,  such  as  the  Croatian  Pension  Fund,  the  Croatian  Health 
Insurance Fund, the Media Council and the Employment Service. 

Autonomous social dialogue seems to develop at company, local, branch and national levels. 
142 social partner organisations have been created so far, although only a limited number of 
branches are covered. Collective agreements seem to be concluded mainly at company level 
and are recorded by the Ministry of Economy, Labour and Entrepreneurship. The coverage of 
collective agreements is about 60%. Efforts towards the creation of an autonomous bi-partite 
dialogue, especially at branch level, should be strengthened. 

Croatia is currently reforming its health system. The reorganisation of the Health Insurance 
Fund in 2003 as a key financial source of the reform is an essential part of the process. The 
orientation of measures taken to improve the health status of the Croatian population would 
seem to be appropriate (emphasis on health promotion, prevention of ill health, access for all). 
However, it would seem that additional financial, material and human resources are needed to 
bring  the  health  care  reform  to  a  successful  conclusion  and  to  improve  the  health  of  the 
population. 

A system of control of communicable diseases is established by the Act on the Protection of 
the  Population  from  Infectious  Diseases  and  other  legislation.  A  legal  basis  for  the 
development  of  plans  for  eradicating  communicable  diseases  exists  and  an  immunisation 
programme  developed  according  to  WHO  recommendations  and  guidelines  is  in  place.  The 
list of the diseases covered by State control should be modified and the EU case definitions 
implemented into the reporting system to allow the comparability of data. There is capacity 
for  continuous  monitoring,  and  there  is  co-operation  between  the  health  care  system  and 
veterinary  services.  Communicable  diseases  do  not  seem  to  present  a  serious  problem  in 
Croatia.  The  data  in  this  respect  are  satisfactory,  and  morbidity  trends  are  favourable. 
However, additional efforts are required in order to prepare the system for cooperation with 
EU structures, such as development of a nosocomial diseases control system, development of 
a system for anti-microbiological resistance surveillance or development of an action plan for 
an outbreak on the national level. 

Several pieces of legislation cover the area of blood quality. They would seem to be broadly 
in line with the Blood Directive. There may be a shortage of material resources to fulfil the 
requirements in this area. Croatia would also need to draft and implement new legislation in 
order to  align  itself with the recently  adopted directive concerning the quality and safety of 
tissues and cells. 

The Croatian Act on Restriction of Tobacco Product Use of 1999 is broadly in line with the 
provisions of the Tobacco Products Directive. However, it does not meet all the requirements 
of  the  acquis  in  particular  with  regard  to  warning  labels,  carbon  monoxide  yields  and 
misleading  descriptors.  The  maximum  nicotine  and  tar  yields  are  also  higher  than  provided 
for by the Directive. The Act includes a ban on advertising that is stricter than that provided 
for  in  the  Advertising  Directive.  The  Act  also  includes  provisions  on  smoke-free 
environments,  sets  an  age  limit  for  tobacco  purchasers  and  foresees  smoking  prevention 
measures. 

Regarding  employment  policy,  the  unemployment  rate  stood  at  14.1%  in  the  first  half  of 
2003  (ILO  methodology),  although  it  has  been  decreasing  over  the  past  two  years.  Activity 

86 

 
 
  
 
rates  remain  low  and  are  a  source  of  concern.  Employment  policy  consists  mainly  of  a 
number  of  active  labour  market  measures  (e.g.  for  young  persons  without  work  experience 
and for new university graduates), which are implemented by the employment services. Social 
and regional partners are involved in the process. While a lack of funds tends to restrict the 
scope  of  these  measures,  employment  offices  have  undergone  considerable  reform  and  thus 
appear to have a basis for effective implementation. No measures seem to exist on behalf of 
long-term  unemployed.  Links  between  employment  offices  and  vocational  education  and 
training schools should be strengthened to remedy the current mismatch of skills on the labour 
market. 

Croatia  intends  to  draft  a  first  National  Action  Plan  for  Employment  (NAPE)  based  on  the 
revised  European  Employment  Guidelines.  The  first  NAPE  should  help  develop  a  more 
strategic  approach  to  employment.  In  this  context,  Croatia  needs  to  develop  capacity  for 
analysis, implementation and assessment of employment policies. 

As regards preparations for the European Social Fund, the implementation of active labour 
market measures is a useful first step. Croatia will have to adapt its structures and legislation 
in  order  to  create  adequate  administrative  capacity  for  the  management,  implementation, 
monitoring, audit and control of Social Fund-type measures at both the national and regional 
levels. 

Compared  to  the  size  of  its  economy,  Croatia  has  a  relatively  generous  system  of  social 
protection. Reforms have been carried out over the past few years, including the introduction 
of a three pillar pension system. 

An  area  where  further  progress  is  needed  is  the  introduction  of  internationally  comparable 
qualitative and quantitative indicators of social exclusion and poverty, as well as methods for 
their  calculation.  A  specific  analysis  of  social  exclusion  and  poverty  in  Croatian  society  is 
needed as a basis for future programmes for vulnerable groups such as pensioners, long-term 
unemployed, disabled persons, refugees and Roma, particularly in war-affected regions. 

Croatia  appears  to  have  made  some  progress  in  tackling  discrimination,  although  specific 
legislation  has  not  been  adopted.  National  measures  to  implement  the  anti-discrimination 
provisions  need  to  be  taken.  Recent  amendments  to  the  Labour  Code  address  a  number  of 
points covered by the directives (definitions of direct and indirect discrimination, harassment, 
burden  of  proof).  There  do  not  appear  to  be  any  anti-discrimination  provisions  outside  the 
employment  field  other  than  the  Constitution,  the  Criminal  Code  and  international  human 
rights  instruments  ratified  by  Croatia.  With  regard  to  the  equality  body  required  by  the 
directives, Croatia currently has a Human Rights Ombudsman who could be designated as the 
equality  body.  (For  the  rights  of  minorities,  refugees  and  Roma,  see  Part  1,  Political 
Criteria.) 

Conclusion 

Croatia has started alignment with the acquis in areas such as labour law, health and safety at 
work,  public  health,  equal  treatment  for  women  and  men  and  anti-discrimination,  but 
substantial  progress  remains  to  be  made.  The  regulatory  and,  in  particular,  administrative 
framework  for  the  protection  of  health  and  safety  at  work  needs  to  be  strengthened.  Active 
labour market measures need to be further developed in order to remedy the current mismatch 
of  skills  on  the  labour  market.  A  more  strategic  approach  to  employment  needs  to  be 
developed  and  matched  by  appropriate  capacity  building  for  analysis,  implementation  and 
assessment. The strengthening of the public employment services should be supported by the 

87 

 
 
  
 
continuation of modernisation initiatives. A specific analysis of social exclusion and poverty 
in  Croatian  society  is  needed.  In  addition,  social  dialogue  needs  to  be  strengthened  and 
preparations for the implementation of the ESF should be envisaged. 

Overall, Croatia will have to make considerable and sustained efforts to align its legislation 
with  the  acquis  and  to  effectively  implement  and  enforce  it  in  the  area  of  social  policy  and 
employment in the medium term. Croatia also needs to prepare itself for participation in the 
co-operation  processes  developed  at  European  level  in  the  fields  of  employment,  social 
inclusion and pensions. 

Chapter 14: Energy 

EU energy policy objectives include the improvement of competitiveness, security of energy 
supplies  and  the  protection  of  the  environment.  The  energy  acquis  consists  of  rules  and 
policies,  notably  regarding  competition  and  state  aids  (including  in  the  coal  sector),  the 
internal energy market (for example, opening up of the electricity and gas markets, promotion 
of  renewable  energy  sources,  crisis  management  and  oil  stock  security  obligations),  energy 
efficiency and nuclear energy. 

Croatia  has  some  domestic  energy  sources  (oil,  gas,  solid  fuels,  hydro)  but  depends 
increasingly  on  external  supplies,  notably  for  oil.  It  is  an  important  transit  country  for 
electricity,  gas  and  oil.  Croatia  has  relatively  small  recoverable  coal  reserves  which  are 
estimated  at  39  million  tonnes,  but  there  has  been  no  solid  fuels  production  in  the  country 
since  1997.  Hard  coal,  used  for  electricity  production  and  the  steel  industry,  is  imported  in 
minor  volumes,  totalling  less  than  100,000  tonnes  per  year.  Croatia  is  a  member  of  the 
Western  European  electricity  networks  (Union  for  the  Co-ordination  of  Transmission  of 
Electricity - UCTE). The country's Energy Sector Development Strategy, covering the period 
2002-2012,  appears  to  be  generally  in  line  with  EU  energy  objectives.  The  main  energy 
companies are state owned (Hrvatska Elektroprivreda - HEP - holding company for electricity 
activities, Plinacro for gas transport and Jadranske naftovod for oil transport). Privatisation in 
the  sector  has  started  with  25%  of  the  shares  of  the  oil  and  gas  company  INA.  Further 
privatisation is envisaged. The 40 gas distribution companies are generally owned by the local 
authorities.  The  electricity  company  HEP  owns  50%  of  the  shares  of  Krško  Nuclear  Power 
Plant, located in Slovenia. 

With respect to security of supply, and in particular oil stocks, key legislation is in place and 
includes,  inter  alia,  the  Energy  Act,  the  Act  on  Oil  and  Oil  Products  Market,  the  Strategic 
Economic  Contingency  Stocks  Act  and  the  Ordinance  on  Compulsory  Oil  and  Oil  Products 
Stocks  Reserves.  This  framework  provides  notably  for  the  progressive  building-up  of 
compulsory oil stocks (from currently 10 % of the previous year's net imports up to 25 % of 
the  previous  year’s  net  imports  in  2006).  Stocks  are  generally  held  by  companies.  Croatia 
needs to take further steps towards the acquis requirement to hold 90 days of emergency oil 
stocks.  The  main  administrative  bodies  in  this  acquis  area  are  the  Ministry  of  the  Economy 
and  the  State  Inspector’s  Office.  Croatia  is  envisaging  the  establishment  of  a  separate  oil 
stocks agency. Further strengthening of the administrative capacity appears necessary. 

In the field of competitiveness and the internal energy market Croatia adopted five key acts 
in July 2001: the Energy Act, the Electricity Market Act, the Gas Market Act, the Act on Oil 
and Oil Products Market and the Act on Regulating Energy-Related Activities. 

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The electricity market has been opened up for customers consuming more than 40 GWh per 
annum.  Access  to  networks  is  ensured  through  regulated  third  party  access.  Within  the 
electricity  company  HEP  an  independent  transmission  and  market  operator  has  been 
established. 

The  gas  market  has  been  opened  up  for  large  customers  with  an  annual  consumption 
exceeding  100  million  m³  and  for  all  producers  of  electricity  and  heat/electricity  from  gas. 
Access to networks is ensured through negotiated third party access. 

In both the electricity and gas companies the accounts of the various activities are unbundled. 
Legislation includes the possibility to prescribe public service obligations and monitoring of 
security of supply. 

Croatia has taken key steps towards its gradual participation in the internal energy market and 
towards  alignment  with  the  Electricity  and  Gas  Directives.  Croatia  plans  to  fully  open  its 
electricity  and  gas  markets  by  2007,  broadly  in  line  with  the  EU  requirements.  Legislation 
needs  to  be  further  refined,  while  key  secondary  legislation  remains  to  be  adopted.  The 
possibility  to  restrict  imports  and  exports  of  energy  products  should  be  eliminated.  Croatia 
should  also  eliminate  price  distortions.  Gas  prices  appear  to  reflect  costs,  but  distortions 
remain in the area of electricity and district heating. 

The  Croatian  Energy  Regulatory  Council  is  a  formally  independent  body  which  issues 
licences  for  energy  related  activities,  supervises  tariffs  and  performs  some  other  regulatory 
activities.  The  five  Council  members  are  appointed  by  the  Parliament,  while  its  costs  are 
covered  by  the  state  budget.  There  should  be  no  mandatory  link  from  the  regulator  to  the 
HEP-dominated Energy Institute. Overall, increased powers, training and staff are needed in 
the regulator and in the Ministry, and their respective roles defined so that no specific review 
of  a  regulatory  decision  may  be  addressed  to  the  Ministry.  Reform  will  also  need  to  be 
undertaken in the dominant power generator, HEP. 

Croatia applies, on the basis of the Mining Act, a system of non-discriminatory licensing for 
the  prospecting,  exploration  and  production  of  hydrocarbons,  but  conformity  with  the 
Hydrocarbons Licensing Directive needs to be ensured. 

The Regional Energy Market in South East Europe (REM), covering electricity and gas, has 
put  in  place  a  phased  transition  programme  attuned  to  the  specific  characteristics  of  the 
region. The aim is the reintegration of the state and sub-state energy markets with an eventual 
movement  to  adhesion  to  the  EU  Internal  Energy  Market.  In  this  context,  Croatia  is 
encouraged  to  rebuild  its  interconnection  infrastructure  to  its  south  and  to  manage  the 
increased trade that will result. 

Croatia  runs,  since  1997,  energy  efficiency  and  renewable  energy  programmes.  They  are 
based,  since  2002,  on  the  Energy  Sector  Development  Strategy.  The  annual  programme 
budget in 2002 and 2003 amounts to 2.8 million HRK (€380,000), while additional financial 
means  are  devoted  to  legal  and  institutional  work  in  this  area.  The  legislative  framework 
comprises the Energy Act and the Act on the Environmental Protection and Energy Efficiency 
Fund. Implementing legislation, aiming at alignment with the acquis, is under preparation and 
is planned to be in force by 2004. 

More  remains  to  be  done  to  improve  energy  efficiency  and  to  promote  renewable  energy 
sources. Also legislation needs to be further developed and institutional capacity needs to be 
strengthened. 

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In the area of nuclear energy and nuclear safety, Croatia does not have nuclear installations 
or nuclear fuel cycle facilities. However, the national electricity company (HEP) is co-owner 
of  the  Krško  Nuclear  Power  Plant  (NPP)  situated  in  Slovenia.  The  Krško  NPP  Agreement 
between  Croatia  and  Slovenia,  regulating  the  status  and  other  legal  relationship  connected 
with investments, exploitation and decommissioning of the plant, entered into force in March 
2003.  Croatia  has  at  present  no  plans  to  build  a  nuclear  power  plant.  With  respect  to 
radioactive waste management, two storage facilities exist for used radiation sources and low 
level waste produced in various applications of radiation sources. 

The  Act  on  Nuclear  Safety,  adopted  in  October  2003,  provides  the  legal  framework  in  the 
nuclear sector in accordance with international standards, especially the recommendations of 
the  IAEA.  Croatia  is  party  to  a  number  of  Bilateral  Agreements,  International  Conventions 
and it is a member of the IAEA. 

There  is  currently  no  independent  nuclear  safety  regulatory  authority.  The  Ministry  of 
Economy has full responsibility concerning nuclear safety, the licensing of nuclear facilities, 
including  fuel  and  waste  treatment  facilities,  and  implementation  of  nuclear  safeguards. 
However, the new Act on Nuclear Safety provides for the establishment of a State Institute for 
Nuclear  Safety,  which  will  take  over  responsibility  for  activities  relating  to  nuclear  safety 
from  the  Ministry  of  Economy.  According  to  the  new  Act,  this  nuclear  safety  regulatory 
authority  shall  begin  its  work  no  longer  than  1  January  2005.  The  Hazardous  Waste 
Management  Agency  is  responsible  for  the  management  of  the  disposal  and  storage  of 
hazardous waste, including radioactive waste. The Ministry of Interior is responsible for the 
adoption  and  control  of  protective  and  security  measures  in  connection  with  the  risk  of 
handling of nuclear material and illicit trafficking. In addition, this Ministry makes decisions 
on special protective measures with regard to the carriage of radioactive material. 

In  the  area  of  nuclear  safeguards,  Croatia  has  signed  and  ratified  a  Comprehensive 
Safeguard  Agreement  and  an  Additional  Protocol  to  this  agreement  with  the  International 
Atomic  Energy  Agency  (IAEA).  Upon  accession,  the  Euratom  Treaty  would  be  directly 
applicable  and  Croatia’s  nuclear  operators  would  have  to  report  all  safeguards  related 
information to the Commission, which would in turn report to the IAEA. 

Conclusion 

Croatia will have to make further efforts to align its legislation with the acquis in this area and 
to effectively implement and enforce it, including Euratom provisions, in the medium term. In 
particular,  these  efforts  should  be  directed  to  legislation  and  administrative  capacity  in  the 
area  of  oil  stocks,  the  internal  energy  market,  energy  efficiency  and  renewable  energy  and 
nuclear energy. The actual constitution of 90-days oil stocks should also be ensured. 

Chapter 15: Industrial policy 

EU  industrial  policy  seeks  to  enhance  industrial  competitiveness  and  rates  of  employment, 
whilst  operating  in  markets  open  to  international  competition.  Its  aim  is  to  speed  up 
adjustment  to  structural  change,  encouraging  an  environment  favourable  to  initiative  and  to 
the  development  of  undertakings  throughout  the  Community.  EU  industrial  policy  mainly 
consists of policy principles and horizontal and sectoral industrial policy communications. An 
important element of any industrial policy is the control of State aid and the compatibility of 
support schemes with EU rules (see also Chapter 6 – Competition). 

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Croatian industry accounts for 25.3% of GDP in 2002. The manufacturing sector consists of 
about 8,500 enterprises, most of which are privately owned. Employment in industry is at a 
level  of  approximately  300,000  persons.  Small  firms  account  for  more  than  90%  of  all 
industrial firms, but medium-sized and large firms provide for 84% of industrial employment. 
The most important sectors are food, chemicals, textile and clothing, and shipbuilding. 

The  agri-food  industry  is  one  of  the  most  important  and  dynamic  sectors  of  Croatian 
industry.  It  represents  20.5  %  of  total  industrial  production  and  17.7  %  of  total  industry 
employment.  The  number  of  companies  in  this  sector  has  increased  by  21  %  between  1999 
and  2002.  Production  has  increased  by  approximately  14  %  in  2001  compared  to  1998. 
Investments  from  EU  Member  States  are  concentrated  on  the  manufacture  of  soft  drinks, 
mineral waters and beers. 

The chemical industry is in an important industrial sector in Croatia with a share of around 
11 % in total industrial production and 8 % of total industry employment. The sector consists 
mainly of privately owned SMEs, with two thirds of the companies in the rubber and plastic 
sector. The relatively high Foreign Direct Investment (FDI) in the sector in the years 1999 and 
2000  is  an  indicator  of  competitive  upgrading.  The  trade  balance  in  the  sector  is  largely 
negative with the EU as the main trade partner. 

The  textiles  and  clothing  sectors  provide  a  relatively  large  contribution  to  the  Croatian 
economy with 5.6 % of total industrial production and a share of 17 % of employment. The 
industrial  structure  is  characterised  by  private  ownership  and  predominance  of  small  scale 
enterprises.  EU  imports  have  been  growing.  Further  structural  adjustments  are  needed  to 
increase competitiveness in this sector. 

The production of Croatia’s shipbuilding industry amounts to one percent of world output. 
The sector represents 4.4 % of industrial production and 4.9 % of industry employment. The 
sector has not undergone privatisation to any significant effect with five out of the six mayor 
yards  still  government-owned.  Significant  amounts  of  State  aid  are  currently  granted  to  the 
sector and a restructuring policy to enhance the competitiveness of the sector would need to 
be implemented in accordance with competition and State aid rules. 

The Croatian heavy industry sector (raw materials) is small with less than 3 % of industrial 
production  and  employment.  Cement  accounts  for  roughly  half  of  that  production,  with 
employment  more  equally  spread  over  various  sub  sectors.  The  Croatian  steel  industry 
produces  reinforcing  bars  for  building  construction,  mainly  for  domestic  consumption,  and 
seamless pipes, which are mainly exported. The sector represents only about one percent of 
total  industry  production  and  employment.  One  of  the  two  Croatian  steel  plants  has  been 
privatised. A restructuring and conversion programme for the steel sector will form the basis 
for Croatia's efforts to fulfil its obligation under Protocol 2 of the Interim Agreement on Trade 
and Trade-related Matters with regards to State aid. 

Pharmaceuticals represent 4 % of industrial production and 1.7 % of industrial employment, 
both  declining  the  last  three  years.  The  sector  is  characterised  by  the  dominance  of  one 
company, representing 70 % of employment in this sector. FDI has been declining; the lead 
Croatian company has on the contrary made acquisitions in foreign markets. 

The  electrical  and  mechanical  engineering  sectors  (including  radio,  television  and 
communication  equipment)  are  already  closely  integrated  with  the  EU  industry.  The  sector 
represents  5.3  %  of  industrial  production  and  5.5  %  of  industry  employment.  Croatia  is 
specialised  in  metal  articles  and  electrical  equipment  with  a  relatively  high  capacity 

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utilisation.  The  EU  is  the  main  origin  of  Croatian  imports  and  the  main  destination  of 
Croatian exports in these sectors. 

The  structure  of  the  construction  and  construction  products  industry  is  similar  to  EU 
Member  States  and  represents  about  4  %  of  GDP.  It  is  very  labour  intensive  representing 
about  one  third  of  total  industrial  employment.  The  majority  of  the  companies  are  SMEs. 
After a boom in post-war reconstruction, FDI has decreased. 

The  information  and  communication  technologies  (ICT)  industry  is  relatively  small  in 
Croatia  with  3  %  of  industrial  production  and  2  %  of  employment.  The  trade  balance  is 
overwhelmingly  negative  with  EU  imports  and  exports  originating  mainly  from  Austria, 
Germany and Italy, which indicates that intra-industry trade constitutes a large share of ICT 
trade.  Only  the  telecommunications  equipment  industry  receives  any  noteworthy  foreign 
capital. 

Tourism,  Croatia’s  main  export  industry,  is  growing  substantially  again.  After  a  major 
decline in the early 1990s due to the outbreak of hostilities in the region, the tourism sector 
picked up after 1996 and currently accounts for 17 % of GDP. The number of overnight stays 
reached 45 million in 2002 and the number of foreign visitors increased to almost 7 million. 
Hotel accommodation capacity is still approximately 25 % lower than in 1991, but there is an 
important potential for further development provided that progress is made in the privatisation 
of  tourist  assets  and  that  investments  increase.  In  2002,  more  than  55  %  of  foreign  tourists 
came from EU Member States. 

Croatia  has  not  yet  adopted  a  comprehensive  industrial  strategy,  independent  from  its 
general  economic  policy.  The  framework  conditions  for  industry  are  implemented  through 
other governmental policies such as the Work Programme of the Government of the Republic 
of Croatia (2000-2004) and the Principles of the Development of the Republic of Croatia in 
the 21st Century. The Croatian authorities should adopt and implement a coherent strategy to 
improve  industrial  competitiveness  in  the  framework  of  a  better  general  business 
environment.  This  strategy  should  take  into  account  specific  needs  and  characteristics  of 
individual sectors. 

Foreign  investment  in  the  manufacturing  sector  represents  13  %  of  total  FDI.  A  Trade  and 
Investment  Promotion  Agency  has  recently  been  created,  but  is  not  yet  fully  operational. 
Further  measures  should  be  adopted  to  stimulate  domestic  and  foreign  investment,  in 
particular through simplification of legal and administrative procedures. 

As regards privatisation and restructuring, a programme for the state privatisation portfolio 
was  adopted  in  February  2001.  High  debts,  low  profitability  and  excess  labour,  as  well  as 
limited government commitment, contributed to a slower than expected privatisation process. 
Progress in restructuring the manufacturing sector remains unbalanced. The biggest need for 
further restructuring and modernisation exists in textiles, steel and shipbuilding. 

The central body responsible for the formulation and co-ordination of industrial policy is the 
Ministry of Economy, Labour and Entrepreneurship, which would need to strengthen its role 
of co-ordinator. Business associations are consulted by the government, but further efforts are 
needed  to  institutionalise  business  advocacy  and  public-private  dialogue  in  Croatia. 
Privatisation  is  under  the  chairmanship  of  the  State  Privatisation  Fund  unless  stipulate 
otherwise in specific laws. 

Conclusion 

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Croatia will rapidly need to improve conditions for domestic and foreign investments and to 
complete the privatisation and restructuring process. If it continues its efforts, Croatia should 
be able to meet EU-requirements in the field of industrial policy in the medium term. 

Chapter 16: Small and medium-sized enterprises 

EU SME policy aims to improve the formulation and co-ordination of enterprise policy across 
the internal market with a view to supporting the development of SMEs. In doing so, it seeks 
to  improve  the  overall  business  environment  in  which  SMEs  operate.  SME  policy  consists 
largely  of  consultation  fora  and  Community  programmes,  as  well  as  of  communications, 
recommendations and exchanges of best practices. 

Croatia  endorsed  the  European  Charter  for  Small  Enterprises  at  the  Thessaloniki  summit  in 
June 2003. SMEs constitute the large majority of the Croatian enterprise sector, representing 
99.6 % of the total number of companies (EU average: 98 %) and 65.7 % of employment (EU 
average:  66  %).  Croatian  policy  distinguishes  crafts  and  co-operatives  as  distinct  enterprise 
entities.  The  framework  policy  is  laid  down  in  several  acts,  which  offer  specific  legal 
frameworks and definitions for SMEs. 

The  Development  Programme 
the 
government’s SME strategy, inter alia setting out to further increase the importance of SMEs 
in the national economy. Between 2000 and 2003, Croatia had a specific Ministry for SMEs, 
whose  functions  have  been  reintegrated  into  the  Ministry  of  Economy,  Labour  and 
Entrepreneurship at the beginning of 2004. 

for  Small  Entrepreneurship  2003-2006  defines 

There is no regulatory impact assessment to evaluate the effect of legislation on the business 
environment, although the introduction of such a procedure is in preparation. The quality of 
legislation  and  rules  affecting  business  as  well  as  the  efficiency  of  the  administration  and 
judiciary in Croatia will need further improvement to provide a favourable business climate. 

Concerning  interest  representation  and  advocacy,  membership  of  chambers  is  mandatory. 
The  Chambers  are  organised  along  types  of  companies  and  the  general  Chamber  of 
Commerce. An original feature of SME representation in Croatia is that both the Chambers 
for companies and the Chamber for crafts and trades are represented in the working bodies of 
the Croatian parliament and have a direct say in the drafting stages of new legislation. 

The time necessary for registration of a company has decreased over the last years but work 
on simplifying procedures should continue. An e-signature law was passed in January 2002, 
but  virtually  no  e-business  currently  takes  place  and  on-line  company  registration  is  not 
possible. 

The  Ministry  of  Economy,  Labour  and  Entrepreneurship  operates  a  Loan  Programme  to 
support exports by SMEs. The Croatian Chamber of Commerce has a Centre for Quality and 
operates  the  Euro  Info  Correspondence  Centre.  There  is  no  tax  exemption  for  small 
companies  in  national  taxation.  Certain  tax  relieves  serve  the  purpose  of  rehabilitation  of 
specific geographical areas or specific categories of people. 

Access to finance for SMEs has improved with banks offering relatively low interest rates but 
the  requirement  for  collateral  can  still  be  a  hindrance  to  bank  lending.  The  Croatian  Small 
Business  Agency  (HAMAG)  operates  as  a  de  facto  public  guarantee  fund  and  has  issued 
3,400 guarantees since 1995 for a value of €87 million. 

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The Croatian Innovation Technology Development Programme (HITRA) is an attempt to set 
up  instruments  and  institutions  to  support  technology  transfer  to  SMEs  with  various 
financial and non-financial stimuli. 

Education and training for entrepreneurship is not recognised as a separate and distinct topic 
in  the  secondary  education  curriculum  but  some  donor-supported  extracurricular  activity 
exist.  The  choice  of  such  courses  at  university  level  is  limited.  A  range  of  measures  and 
manuals  promoting  entrepreneurial  activity,  sponsored  by  government,  chambers  of 
commerce  and  business  advisory  services  exists.  Surveys  on  entrepreneurs’  skill  needs  are 
carried out by the Ministry of Economy and the Croatian Chambers. 

Conclusion 

Croatia  should  further  adjust  its  legislation  and  rules  affecting  business,  improve  the 
administrative and judicial environment and continue implementation of the European Charter 
for  Small  Enterprises.  Alignment  with  the  new  Commission  recommendation  on  the  SME 
definition  should  be  carried  out.  Overall,  Croatia  should  be  able  to  participate  fully  in  EU 
SME Policy. 

Chapter 17: Science and research 

Due  to  its  specificity,  the  acquis  in  the  field  of  science  and  research  does  not  require  any 
transposition  in  the  national  legal  order.  Implementation  capacity  does  not  relate  to  the 
application  and  enforcement  of  legal  provisions  but  rather  to  the  existence  of  the  necessary 
conditions  for  effective  participation  in  the  Framework  Programmes.  In  order  to  ensure  the 
successful implementation of the acquis in this domain, notably the successful association to 
the  Framework  Programmes,  Croatia  will  need  to  create  the  necessary  implementing 
capacities in the field of research and technological development including an increase of the 
personnel related to Framework Programmes’ activities. 

Croatia  participates  in  the  6th  Framework  Programmes  of  the  European  Communities  for 
research and technological development as a third country. 

In Croatia, science and research is under the authority of the Ministry of Science, Education 
and  Sport.  Advisory  bodies  for  issues  of  science  and  higher  education  are  the  National 
Science  Council  and  the  National  Council  for  Higher  Education.  Basic  legislation  in  this 
sector  is  the  Act  on  Scientific  Activity  and  Higher  Education  adopted  in  July  2003.  The 
technology  policy  is  formulated  in  the  Croatian  Programme  for  Innovative  Technological 
Development. 

The Government Expenditure on Research and Development (GERD) was 1.09% of GDP in 
2001  (EU:  1.99%  of  GDP).  Estimated  business  expenditure  equals  between  32-45%  of  the 
amount allocated for RTD from the state budget. The Croatian research system consists of 5 
universities,  26  public  institutes,  11  research  centres  in  the  industry  sector,  18  schools  of 
professional  higher  education,  8  polytechnics,  1  military  research  centre  and  50  others 
scientific research legal entities. 

Full  participation  in  the  Framework  Programmes  should  be  the  first  step  towards  the 
implementation of the acquis in the field of research and requires the development of research 
policy,  infrastructure  and  the  appropriate  institutional  set-up.  It  also  depends  on  budgetary 
availability for the payment of the association fee. 

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The prospects for integrating science and technology in Croatia into the European Research 
Area are defined by the Strategy for Development of Science in the Republic of Croatia in the 
21st  Century  and  the  Act  on  Scientific  Activity  and  Higher  Education.  These  documents 
foresee radical changes in order to create an efficient and stimulating system of science and 
technology based on the EU model. Integration into the European Research Area is supported 
through the CARDS and TEMPUS programmes. 

Conclusion 

Greater  efforts  will  be  needed  to  make  Croatian  research  and  technological  development 
efficient  and  competitive  at  the  European  level.  Successful  participation  in  the  Framework 
Programmes  will require thorough  preparation.  Nevertheless,  Croatia  is  well  placed  to  meet 
EU requirements in this field in the medium term. 

Chapter 18: Education and training 

Education,  training  and  youth  is  primarily  the  competence  of  the  Member  States.  The  EC 
Treaty provides that the Community will contribute to the development of quality education 
and  implement  a  vocational  training  policy  that  supports  and  supplements  the  action  of 
Member  States.  The  acquis  consists  of  a  directive  on  education  of  the  children  of  migrant 
workers,  and  of  action  programmes  and  recommendations.  Member  States  need  to  have  the 
necessary  implementing  capacity  in  place  to  effectively  participate  in  the  Community 
programmes related to this chapter (Leonardo da Vinci, Socrates and Youth). 

A new Scientific Activity and Higher Education Act entered into force in 2003, providing a 
framework  for  the  reform  of  universities,  study  programmes  and  the  implementation  of  the 
principles of the Bologna Declaration which Croatia signed in 2001. The Tempus programme 
has contributed considerably to higher education reform and created the basis for cooperation 
with higher education institutions in the EU. 

Croatia’s  educational  priorities  have  been  gradually  refocused  to  cope  with  the  needs  of  a 
free  market  economy  and  to  improve  the  quality  of  the  education  and  training  system.  One 
area  that  requires  particular  attention  is  the  teaching  of  foreign  languages  in  primary  and 
secondary schools. 

Few  children  of  EU  nationals  are  enrolled  in  Croatian  schools  at  present.  By  the  time  of 
accession, appropriate measures for children of migrant workers will need to be adopted to 
meet the specific requirements of the acquis. 

A  serious  challenge  is  posed  by  Croatia’s  system  of  vocational  education  and  training 
(VET)  at  secondary  level.  A  VET  strategy  has  been  commissioned  and  a  process  of  reform 
has started, including the establishment of a national VET Council. However, current reform 
efforts  seem  insufficient  to  overcome  problems  such  as  the  lack  of  qualified  teachers, 
outdated  curricula,  low  investment  levels,  the  lack  of  a  system  of  nationally  agreed 
occupational  and  qualification  standards,  and  insufficient  links  with  the  private  sector. 
Improvements in this area will be an essential component of the fight against unemployment. 

A  structured  youth  policy  has  been  developed  and  resulted  in  the  adoption  of  a  National 
Action  Plan  for  Young  People  in  2003.  Becoming  an  EU  Member  State  would  imply  that 
Croatia agrees with the Common Objectives for Participation by and Information for Young 
People as decided by the Council in November 2003. Croatia already benefits from the third 

95 

 
 
  
 
country  strand  of  the  Youth  programme  and  Croatian  organisations  are  active  in  youth 
exchanges, European Voluntary Service and support measures. 

Conclusion 

Croatia  should  not  encounter  major  problems  in  this  field  in  the  medium  term.  However, 
considerable  efforts  will  be  necessary  to  create  a  modern  vocational  education  and  training 
system in line with EU employment and social policies. 

Chapter 19: Telecommunications and information technologies 

The acquis in the field of telecommunications is aimed at the elimination of obstacles to the 
effective operation of the single market in telecommunications services and networks, and the 
achievement  of  universally  available  modern  services.  A  new  regulatory  framework  on 
electronic  communications  was  adopted  by  the  EU  in  2002.  As  regards  postal  services,  the 
objective  is  to  implement  the  single  market  by  opening  up  the  sector  to  competition  in  a 
gradual and controlled way, within a regulatory framework which assures a universal service. 

The  Stabilisation  and  Association  Agreement  provides  for  cooperation  in  the  area  of 
electronic  communications  infrastructures,  including  classical  telecommunications  networks 
and  relevant  electronic  audio-visual  transport  networks,  and  associated  services,  with  the 
objective of ultimate alignment with the acquis by Croatia as from the entry into force of the 
Agreement. 

The legal framework for telecommunication services in Croatia is regulated primarily by the 
Law  on  Telecommunications  which  entered  into  force  in  August  2003.  Croatia  committed 
itself  in  the  WTO/GATS  to  abolish  the  key  telecommunications  monopoly  by  01  January 
2003,  a  date  fixed  by  the  2000  Croatian  telecommunications  law  for  the  abolition  of  the 
incumbent operators fixed monopoly line. However, administrative arrangements created by 
the  2000  law  did  not  function  well  and,  in  August  2003,  it  was  replaced  by  a  new  Law  on 
Telecommunications designed to improve the transposition of the 1998 acquis including some 
parts of the 2002 acquis. Amendments will still be necessary to bring the rather burdensome 
authorisation  scheme  into  line  with  the  acquis  and  to  ensure  that  the  universal  services 
provisions  are  fully  compliant  including  in  respect  of  technological  neutrality,  affordability 
and  compensation  provisions.  Croatia  still  needs to  adopt  vital  secondary  legislation  so  that 
liberalisation of the market can proceed. 

In  the  basic  telecommunications  infrastructure,  in  mobile  penetration  and  in  the  supply  of 
ISDN and DSL services, Croatia is at a level comparable to other countries where the market 
has been open since 2001. 

According  to  the  2003  Law  on  Telecommunications,  the  existing  Telecommunications 
Council  and  Institute  are  to  be  replaced  by  a new  Agency  for  Telecommunications.  For  the 
transposition  and  implementation  of  the  acquis,  the  Agency  will  have  to  be  a  fully 
independent regulatory authority that has the powers and resources to implement a policy of 
liberalisation.  There  should  be  effective  procedures  for  enforcing  decisions  of  the  regulator 
and  also  an  effective  appeals  procedure.  In  particular,  the  procedures  should  not  create 
opportunities  for  using  the  appeals  regime  to  delay  implementation  of  the  regulator’s 
decisions.  Co-ordination  will  be  needed  between  the  new  regulatory  authority  and  other 
relevant  institutions,  such  as  the  responsible  Ministry,  the  Agency  for  the  Protection  of 
the 
Market  Competition 

the  Consumer  Protection  Council.  Moreover, 

and 

96 

 
 
  
 
Telecommunications Services Users Council remains to be created and structured properly, in 
in  resolving  disputes  between  providers  and  users  of  public 
to  participate 
order 
telecommunications services. 

The practical results in terms of market entry since January 2003 have so far been very slight. 
This  has  not,  however,  been  simply  the  result  of  defective  laws  and  ineffective  institutions. 
There have been several clear opportunities to secure important entries to the market, such as 
a third mobile operator and a second fixed network operator, but these opportunities were not 
taken.  This  throws  some  doubt  as  to  the  level  of  political  commitment  to  the  policy  of 
liberalisation. The main beneficiaries of these delays have been the two companies present on 
the Croatian national market. 

Market opening has therefore been frustrated by a lack of commitment at the political level 
which, in conjunction with poorly designed regulatory institutions, led to delays in important 
liberalising measures. However, the rebalancing of the incumbent’s prices in preparation for 
competition  is  well  advanced  and  the  company’s  indicators  show  a  monopoly  in  need  of 
competitive  stimulus.  In  addition  to  its  de  facto  fixed  network  monopoly,  the  incumbent’s 
group  has  53%  of  the  mobile  market  and  75%  of  the  Internet  service  providers’  market. 
Croatia should adopt urgent measures to liberalise its market and to ensure that the incumbent 
operator is brought under effective regulatory control. 

The Croatian legal framework for postal services is based on the new Postal Act, adopted in 
2003.  It  approximates  Croatia’s  legislation  to  the  acquis  to  some  extent.  Nevertheless, 
significant  divergences  remain,  notably  in  relation  to  the  scope  of  the  universal  service,  the 
limits  of  the  reserved  area,  authorisation  and  notification  procedures  and  quality  of  service. 
Hrvatska pošta will be the exclusive universal service provider under the new Postal Act. 

As regards administrative structures, the Postal Act foresees the establishment of the Council 
for Postal Services, which will act as the national regulatory authority. The Council's powers, 
as  set  out  in  the  new  Postal  Act,  are  broadly  in  line  with  those  foreseen  in  the  acquis. 
However,  the  Council  need  to  be  adequately  staffed  and  resourced  to  ensure  an  effective 
regulatory  regime.  In  addition,  the  operational  independence  of  the  Council  needs  to  be 
ensured. 

Conclusion 

Croatia will only be able to secure full and effective implementation of the acquis in the field 
of  telecommunications  if  there  is  significant  political  support  for  a  policy  of  liberalisation. 
The regulatory authority should be properly empowered and resourced and its independence 
from day to day political concerns should be ensured. Attention should also be paid to provide 
adequate  resources  to  the  national  regulatory  authority  in  the  field  of  postal  services  and  to 
ensure its operational independence. 

Overall, Croatia will have to make considerable and sustained efforts to align its legislation 
with the acquis and to effectively implement and enforce it in the medium term in the fields of 
Telecommunications and Postal Services. 

Chapter 20: Culture and audio-visual policy 

This  chapter  requires  legislative  alignment  with  the  Television  without  Frontiers  Directive 
and  capacity  to  participate  in  the  community  programmes  Culture  2000,  Media  Plus  and 

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Media Training. The Television without Frontiers Directive creates the conditions for the free 
movement  of  television  broadcasts  within  the  EU.  It  includes  basic  common  requirements 
concerning  jurisdiction,  advertising,  major  events,  the  promotion  of  European  works,  the 
protection of minors and public order, and the right of reply. 

Croatia’s  cultural  policy  seems  to  be  compatible  with  Community  objectives  as  defined  in 
the EC Treaty and to rely on instruments and institutional capacities to promote culture and 
co-operation. 

In  the  audiovisual  area,  a  new  legislative  framework  was  created  in  2003  (see  also  Part  1, 
Political Criteria). The Electronic Media Act regulates the activity of both private and public 
broadcasters,  while  the  Croatian  Radio  and  Television  (HRT)  Act  covers  the  status  and 
activity  of  the  public  service  broadcaster.  Other  relevant  legislation  includes  the  Media  Act 
and the Telecommunications Act. Croatia is a party to the Council of Europe Convention on 
Transfrontier Television. 

The adoption of the new media legislation in 2003 represents an important step forward. The 
Electronic Media Act is to a large extent aligned with international and European standards 
and Croatia has made an effort to transpose the provisions of the Television without Frontiers 
Directive.  However,  some  discrepancies  remain  in  the  fields  of  definitions,  jurisdiction, 
advertising,  the  promotion  of  European  works,  the  protection  of  minors,  major  events,  the 
right  of  reply  and  judicial  review.  The  Electronic  Media  Act  and  the  Croatian  Radio  and 
Television Act will need to be adapted accordingly. 

The main regulatory authority should be the Council for Electronic Media, which is foreseen 
in  the  Electronic  Media  Act  but  whose  members  have  not  yet  been  appointed.  The  Council 
will  have  seven  members  appointed  by  Parliament  for  5  years  on  a  proposal  of  the 
Government. It will be competent for both public and private broadcasters and its powers will 
include the granting of concessions, monitoring of broadcasters with respect to adherence to 
the law, and presenting reports to the Parliament. The Council should operate independently, 
but  it  remains  to  be  seen  whether  the  political  independence  and  plurality  of  views  of  its 
members can  be  secured in practice. Similar concerns have been  voiced regarding  the HRT 
Programme  Council,  whose  members  were  appointed  by  Parliament  after  a  long  delay  in 
October 2003. 

Conclusion 

Provided  that  the  remaining  legislative  adaptations  are  made  and  that  the  legislative 
framework  created  in  2003  is  implemented  in  an  effective,  predictable  and  transparent 
manner, Croatia should be able to meet EU requirements in this field in the medium term. 

Chapter 21: Regional policy and coordination of structural instruments 

The  acquis  under  this  chapter  consists  mostly  of  framework  and  implementing  regulations, 
which do not require transposition into national legislation. They define the rules for drawing 
up,  approving  and  implementing  Structural  Funds  programmes  and  Cohesion  Fund  actions. 
These programmes are negotiated and agreed with the Commission, but implementation is the 
responsibility of the Member States. It should be noted that the Structural Funds regulations 
will  be  revised  by  the  end  of  2006  at  the  latest.  It  is  essential  that  Member  States  respect 
Community  legislation  in  general,  for  example  in  the  areas  of  public  procurement, 
competition  and  environment,  when  selecting  and  implementing  projects,  and  have  the 

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necessary  institutional  structures  in  place  to  ensure  implementation  in  a  sound  and  cost 
effective manner from the point of view of both management and financial control. 

Upon accession, Croatia will need to have the administrative capacity in place to participate 
in  EU  structural  policy.  It  will  in  particular  have  to  design  and  implement  regional 
development plans; clearly identify the responsibilities of ministries and other administrative 
bodies involved in the management of Community funds; ensure close co-operation between 
the  Commission,  the  competent  national  and  regional  authorities,  economic  and  social 
partners as well as private enterprises involved in the financing of programmes and projects; 
ensure co-financing of programmes and projects; develop the required financial mechanisms; 
ensure proper monitoring, control and evaluation of programmes and projects; and present a 
convergence  programme  in  order  to  qualify  for  Cohesion  Fund  support.  Work  on  capacity 
building  for  regional  development  has  begun  only  recently  and  relies  heavily  on  CARDS 
projects that started in late 2003. 

Croatia has a two-tier territorial organisation with 20 counties at the regional level and, at 
the local level, 123 self-governing cities (urban areas) and 425 self-governing municipalities 
(rural  areas).  At  present,  no  administrative  and  territorial  regions  correspond  to  NUTS  II 
level. However, work on the creation of regions and units that correspond to NUTS II and III 
levels is underway. No precise data are available on GDP per capita harmonised on NUTS II 
(or III) level, although regional disparities are generally very large. 

Regarding the legislative framework, national regional policies are covered by several pieces 
of  legislation  (Islands  Act,  Act  on  Areas  of  Special  State  Concern,  Act  on  Hilly  and 
Mountainous  Areas,  Act  on  the  Reconstruction  of  Vukovar  and  Act  on  the  Regional 
Development  Fund).  Specific  systems  for  decision-making,  implementation  and  monitoring 
are defined by each act. The main mechanisms used to attain the objectives of the legislation 
are tax relief, although financial support for projects is also provided. 

There is no specific law on regional policy. This is not necessary in order to participate in EU 
structural policy, but existing laws should be brought in line with obligations contained in the 
structural funds regulations. Croatia intends to prepare a National Development Plan (NDP) 
between 2005 and 2007. The NDP will be based partly on earlier planning documents, such as 
the  Development  Strategy  of  the  Republic  of  Croatia,  the  National  Strategy  for  Regional 
Development, sector strategies and regional development programmes. Work on most of these 
documents is underway. 

Successful  preparation  for  participation  in  the  Structural  Funds  and  the  Cohesion  Fund  is 
closely  connected  with  alignment  with  EU  rules  on  public  procurement,  State  aid  and 
environment  (see  Chapters  1  –  Free  movement  of  goods,  6  -  Competition  and  22  - 
Environment). In particular, preference clauses discriminating against Community companies 
are  not  allowed,  thorough  State  aid  reviews  must  be  carried  out,  and  environmental  impact 
assessments need to be performed systematically before projects are implemented. 

The  new  Budget  Act,  which  entered  into  force  in  July  2003,  has  introduced  multi-annual 
budget  programming.  However,  there  are  no  legal  provisions  allowing  budget  transfers 
between programmes. 

Croatia implements several active labour market measures comparable with those funded by 
the European Social Fund, but considerable attention will need to be given to human resource 
development in national and regional development plans. 

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With regard to the institutional framework for the implementation of regional development 
policy, the Ministry of Public Works, Reconstruction and Construction was appointed as a co-
ordinating  body  in  March  2003.  The  relevant  part  of  this  Ministry  was  absorbed  by  the 
Ministry  of  Maritime  Affairs,  Tourism,  Transport  and  Development  in  early  2004.  It  is 
responsible  for  preparing  legislation  and  decisions,  managing  and  monitoring  island  and 
regional economic and social programmes and projects and carrying out evaluation. In most 
cases, implementation of development programmes is the responsibility of various bodies at 
the  regional  and  local  level,  while  monitoring  is  largely  carried  out  by  the  responsible 
ministries. A formal, Government approved inter-ministerial co-ordination mechanism needs 
to be established. 

There  is  no  clearly  defined  structure  for  implementing  the  partnership  principle. 
Coordination between the central and local levels is currently informal and ad hoc. A single 
partnership  structure  should  be  established  for  each  form  of  assistance,  covering  the 
preparation, financing, monitoring and evaluation of the assistance.  

There  are  no  proper  national  systems  and  mechanisms  to  ensure  the  monitoring  and 
evaluation  of  the  quality  and  impact  of  development  programmes.  A  standardised 
methodology and common cross-sectoral procedures need to be introduced. 

With  regard  to  financial  management  and  control,  the  Central  Financing  and  Contracting 
Unit of the Ministry of Finance began to implement the first decentralised projects in 2003, 
but its structure and procedures need to be further refined in order to meet EU requirements. 
In  the  future,  Croatia  should  improve  its  financial  management  and  control  systems  in  line 
with structural funds requirements. 

Progress  is  also  needed  on  the  availability  of  relevant  and  reliable  regional  statistics.  In 
particular,  Croatia  should  strengthen  its  capacity  to  prepare  adequate  statistical  data 
(GNP/capita/PPS,  unemployment  rates)  at  NUTS  II  and  III  levels  for  the  determination  of 
eligible areas and for programming and monitoring purposes. 

Conclusion 

Croatia’s regional policy mechanisms are at an early stage. Considerable and sustained efforts 
to  define  strategies,  create  administrative  structures  and  implement  programmes  will  be 
necessary to allow Croatia, in the medium term, to apply Community rules and channel the 
funds from the EU structural instruments. 

Chapter 22: Environment 

Community  environment  policy  aims  to  promote  sustainable  development  and  protect  the 
environment for present and future generations. It is based on the integration of environmental 
protection  into  other  Community  policies,  preventive  action,  the  polluter  pays  principle, 
fighting  environmental  damage  at  source  and  shared  responsibility.  The  acquis  comprises 
over  200  legal  acts  covering  horizontal  legislation,  water  and  air  pollution,  management  of 
waste  and  chemicals,  biotechnology,  nature  protection,  industrial  pollution  and  risk 
management, noise and radiation protection. 

Ensuring  compliance  with  the  acquis  requires  significant  investment,  but  also  brings 
significant  benefits  for  public  health  and  reduces  costly  damage  to  forests,  buildings, 

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landscapes and fisheries. A strong and well-equipped administration at national, regional and 
local level is imperative for the application and enforcement of the environment acquis. 

The 1994 Environmental Protection Act as amended in 1999 provides the legal framework 
for  environmental  protection.  It  needs  to  be  further  aligned  with  the  acquis.  The 
environmental sector was included in the National Programme for Integration into the EU in 
2004  for  the  first  time.  Given  the  amount  of  environmental  legislation  in  the  acquis, 
significant extra priority needs to be given if approximation of legislation is to be timely. 

Regarding  administrative  capacity,  the  Ministry  of  Environmental  Protection  and  Physical 
Planning  was  established  in  2000  as  a  central  body  of  State  administration.  Under  the  new 
Government’s recent re-organisation it has become the Ministry of Environmental Protection, 
Physical Planning and Construction. Staffing levels for environmental protection are low with 
a significant percentage of staff working on physical planning and construction. A number of 
other bodies are also responsible for aspects of environmental protection and in 2002 two new 
institutions  (the  Environment  Agency  and  the  State  Institute  for  Nature  Protection)  were 
created but these are not yet fully operational. The environmental administration will need to 
be  strengthened  to  implement  the  acquis,  as  well  as  to  ensure  necessary  planning  and 
preparation  of  financing  strategies.  Particular  efforts  will  be  needed  to  ensure  that  regional 
and  local  administrations  have  the  necessary  resources  to  effectively  implement  their 
responsibilities. 

An  Inspection  Directorate  has  been  created  within  the  Ministry  of  Environment;  it  is 
organised into regional inspection departments and almost half of the 461 staff of the Ministry 
were  assigned  to  this  directorate  in  late  2003.  Inspection  duties  are  also  given  to  other 
government departments with environmental responsibilities. However, only 32 inspectors are 
available  to  cover  sectors  other  than  water  quality,  physical  planning  and  noise,  which  is 
clearly insufficient. The number of prosecutions for breaches of environmental law indicates 
that enforcement levels are low. This can be attributed to various factors, such as the lack of 
human  and  financial  resources  attached  to  this  activity,  the  weaknesses  in  Croatia’s  legal 
system and judiciary, and deficiencies in the legislation that prevent efficient enforcement. 

Public  awareness  of  environmental  issues  is  starting  to  grow  but  public  participation  in 
environmental  decision-making  and  public  access  to  environmental  information  remains 
weak. 

On  a  regional  level,  Croatia  is  participating  in  and  currently  holds  co-chairmanship  of  the 
Regional  Environmental  Reconstruction  Programme  (REReP).  Croatia  also  participates  in 
activities of the European Environment Agency financed through CARDS and in the LIFE-
third countries programme. 

Investment in environmental infrastructure in Croatia is low. Significant investments need to 
be secured to ensure implementation of the environmental acquis. Recent work on prioritising 
environmental projects should prove useful in this regard. 

Integration of environmental aspects into other policies is one of the basic principles of the 
National  Environmental  Strategy,  which  was  adopted  by  the  Parliament  in  2002,  and  its 
implementing  document,  the  National  Environmental  Action  Plan.  The  environmental 
strategy is one component of Croatia’s overall development strategy and many other sectors 
(tourism, transport, energy etc.) incorporate environmental protection into their basic goals. It 
remains to be seen, however, how these strategies will translate into practical measures. On a 
practical level, indications are that the environment is still not given due consideration when 

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development takes place in other sectors. A national strategy for sustainable development has 
not yet been developed. 

Regarding  horizontal  legislation,  Croatia  is  a  party  to  the  United  Nations  Framework 
Convention  on  Climate  Change  and  has  signed  but  not  yet  ratified  the  Kyoto  Protocol. 
Various  legal  provisions  exist  to  ensure  access  for  the  public  to  environmental  information, 
although the Environmental Protection Act is not yet fully in line with the Aarhus Convention 
that  Croatia  has  signed.  Regulations  on  Environmental  Impact  Assessment  (EIA)  contain 
provisions on public participation but in practice this right is not widely used. Whilst Croatia 
has an ordinance on EIA dating from 1984, revisions are needed to bring it into line with the 
acquis.  Together  with  the  implementation  of  the  acquis  on  Strategic  Environmental 
Assessment  (SEA),  this  will  need  to  be  pursued  as  a  priority.  Croatia  will  need  to  ensure 
provisions  for  public  participation  in  environmental  decision  making  across  a  range  of 
different areas, including permit procedures and the drawing up of plans in waste, air quality 
and water pollution by nitrates. This is likely to pose a major challenge. 

Air pollution levels have fallen since 1990 due to the decline in heavy industry. Limit values 
and  monitoring  systems  are  being  developed  to  align  with  the  acquis.  The  National 
Environmental Action Plan outlines measures for improving air quality and the inclusion of 
deadlines  offers  the  possibility  to  monitor  progress.  Air  quality  plans  and  programmes  as 
required by the acquis need to be prepared. 

Waste management is the single biggest problem in the environment sector in Croatia. Not 
only does the legislative framework need to be aligned with EU requirements and standards, 
but  existing  Croatian  regulations  are  not  yet  being  implemented.  A  waste  management  plan 
needs to be adopted. Recovery, recycling and disposal facilities are in scarce supply and fall 
considerably  short  of  EU  standards.  Return  and  collection  systems  need  to  be  established. 
Most  waste  is  disposed  of  in  landfills  and  unauthorised  sites  outnumber  official  sites  by  at 
least eight to one, while even many official sites do not operate in line with the Waste Law. 
There are no hazardous waste disposal sites. This sector poses a major challenge for Croatia 
and will require major efforts to align with the acquis. 

The  existing  water  quality  legislation  provides  a  good  basis  for  alignment  with  the  acquis 
although at local level by-laws are often missing. Necessary inventories, action programmes 
and designation of vulnerable and sensitive areas need to be ensured. Croatia is party to the 
International  Convention  for  the  Protection  of  the  Danube  River  Basin  and  is  drawing  up  a 
River Basin Management Plan. The sewage system serves  40% of the population  with only 
12%  of  waste  water  being  treated  (less  than  5%  receives  secondary  treatment).  In  order  to 
align  with  the  acquis  Croatia  will  have  to  make  significant  investments  in  waste  water 
collection and treatment as well as in drinking water supply. 

Nature  protection  legislation  has  been  updated  through  a  new  Nature  Protection  Act. 
Currently 10% of the land area is protected, although there are proposals to increase this to a 
figure  nearer  the  EU  average  (15-20%)  in  the  future.  With  43%  of  the  territory  of  Croatia 
being forested and given the high level of biodiversity, the definition of the network of Natura 
2000  sites  will  represent  a  major  challenge.  Whilst  the  legislative  framework  for  nature 
protection  exists,  implementation  measures,  and  particularly  the  management  of  protected 
areas, need to be strengthened. In this context, the recent shift of the competence for nature 
protection  from  the  Ministry  of  Environment  to  the  Ministry  of  Culture  appears  to  deviate 
from  common  practice  in  EU  Member  States.  The  protection  of  endangered  species  outside 
protected  areas  is  not  currently  ensured.  The  Convention  on  International  Trade  in 

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Endangered Species of Wild Fauna and Flora (CITES) entered into force in 2000. Croatia has 
cooperated with the Visegrád countries in building national ecological networks. 

Regarding  industrial  pollution  and  risk  management  there  is  no  system  of  integrated 
pollution prevention and control (IPPC). Although air pollution levels in general have fallen 
in recent times, Croatia would currently be unable to meet the EU emission limits required for 
large  combustion  plants  and  needs  to  elaborate  measures  to  comply  with  national  emission 
ceilings.  Whilst  a  legal  obligation  exists  for  operators  of  industrial  sites  to  establish 
contingency  plans,  it  is  unclear  to  what  extent  they  have  been  put  into  effect.  Croatia  has 
ratified the UNECE Industrial Accidents Convention. 

For chemicals and genetically modified organisms (GMOs) it remains to be seen whether 
the new system restricting GMO use is compatible with the acquis on the free movement of 
goods.  Legislation  concerning  chemical  substances  is  incomplete,  there  is  no  register  of 
chemicals on the market and identification of “new” chemicals is not a current requirement. 
Major  efforts  will  therefore  be  needed  to  align  with  the  acquis  in  the  chemicals  sector. 
Legislation concerning biotechnology is not yet in place. 

The  issue  of  noise  is  dealt  with  in  the  National  Environmental  Strategy  and  National 
Environmental  Action  Plan  and  legislation  has  been  developed  to  align  with  the  acquis. 
However the deadlines for specific actions under the Action Plan have been postponed for up 
to four years. 

Regarding  nuclear  safety  and  radiation  protection,  Croatia  has  established  a  legal 
framework for different aspects concerning the basic safety standards, medical exposure and 
emergency preparedness. However, the transposition of the directives laying down the basic 
safety  standards  and  on  health  protection  in  relation  to  medical  exposure  remains  to  be 
completed and further developed. The acquis concerning the operational protection of outside 
workers,  on  informing  the  public  in  case  of  radiological  emergency,  and  on  the  control  of 
shipments  of  radioactive  waste  still  has  to  be  transposed.  The  Ministry  of  Economy  is 
responsible  for  nuclear  safety,  the  licensing  of  nuclear  facilities  including  fuel  and  waste 
treatment  facilities,  and  implementation  of  nuclear  safeguards.  Currently,  Croatia  operates 
two  storage  facilities  for  used  radiation  sources  and  low  level  waste.  The  Act  on  Nuclear 
Safety,  adopted  in  October  2003,  provides  for  the  establishment  of  a  State  Institute  for 
Nuclear  Safety.  Due  to  the  lack  of  administrative  capacity,  the  direct  implementation  of 
Articles 33 to 37 of the Euratom Treaty and of the arrangements for emergency preparedness 
would pose significant problems. Croatia therefore  needs to establish appropriate regulatory 
bodies,  competent  radiation  protection  authorities  and  special  independent  advisory 
committees. 

Conclusion 

The  basic  elements  of  a  legislative  framework  are  in  place  to  enable  Croatia  to  pursue 
alignment  with  the  acquis,  although  a  significant  increase  in  the  priority  given  to 
environmental protection is necessary. This will require enhanced planning and preparation of 
financing  strategies.  At  present,  the  various  strategies  give  prominence  to  environmental 
protection, but they need to translate into practical measures and environmental aspects need 
to be taken into account in other sectors. There are serious weaknesses in implementation and 
enforcement that need to be addressed before the acquis can be effectively applied. 

Overall, Croatia will have to make considerable and sustained efforts to align its legislation 
with the acquis and to effectively implement and enforce it in the field of environment in the 

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medium  term.  However,  effective  compliance  with  a  number  of  pieces  of  Community 
legislation  requiring  a  sustained  high  level  of  investment  and  considerable  administrative 
effort (e.g. waste management, waste water treatment and drinking water) could be achieved 
only in the long term and will require a significant increase in environmental investment. 

Chapter 23: Consumer and health protection 

The acquis covers protection of the economic interests of consumers (concerning misleading 
and comparative advertising, price indication, consumer credit, unfair contract terms, distance 
and doorstep selling, package travel, timeshare, injunctions for the protection of consumers’ 
interests, certain aspects of the sale of consumer goods and associated guarantees and distance 
marketing of consumer financial services) as well as the general safety of goods (liability for 
defective products, dangerous imitations and general product safety). EU Member States need 
to  effectively  enforce  the  acquis  through  appropriate  judicial  and  out-of-court  dispute 
resolution mechanisms as well as administrative systems, including market surveillance and a 
role for consumer organisations. 

Croatia has set up a basic legal framework for consumer protection, in particular through the 
Consumer Protection Act. The main structures to administer consumer protection are also in 
place. A biannual National Consumer Protection Programme defines priority tasks for Croatia 
in this area. The Ministry of Economy is the competent authority in this field and a Consumer 
Protection Council has been established. Market surveillance is largely delegated to the State 
Inspectorate. 

With regards to safety related measures, alignment to the principles of the EU Directive on 
general product safety was sought by adopting the General Product Safety Act in September 
2003, which will be complemented by an Ordinance on Mutual Provision of Information.The 
Croatian  legal  framework  on  liability  for  defective  products  includes  also  the  principle  of 
objective  liability,  definition  of  damage,  exemption  from  liability  and  burden  of  proof.  It  is 
based  on  the  Croatian  Obligations  Act.  This  currently  diverges  from  the  acquis  in  several 
respects and will need to be amended. 

Concerning non-safety related measures, a Consumer Protection Act, adopted in 2003, aims 
at  transposing  EU  directives  on  misleading  and  comparative  advertising,  on  contracts 
negotiated  away  from  business  premises,  on  consumer  credit,  on  unfair  terms  in  consumer 
contracts,  on  timesharing,  on  distance  contracts  and  on  the  indication  of  the  prices  of 
products. The Tourist Trade Act and Obligations Act are partially in line with EU directive on 
package travel, package holidays and package tours and will need to be amended. Croatia’s 
legislation  does  not  cover  EU  directives  on  injunctions  for  the  protection  of  consumers’ 
interests, on certain aspects of the sale of consumer goods and associated guarantees and on 
the  distance  marketing  of  consumer  financial  services.  Further  alignment  with  the  acquis  is 
therefore needed on these issues. 

In the area of market surveillance, the current system, based on pre-market approval, is far 
from EU requirements. The State Inspectorate is responsible for enforcing market surveillance 
legislation,  in  co-operation  with  other  public  institutions.  Basic  provisions  are  in  force  on 
methodology  for  risk-assessment,  product  danger  notification  and  co-operation  with 
producers  and  distributors.  Specific  market  surveillance  activities  are  carried  out  for  certain 
product categories. However, for a number of other products, market surveillance is missing 
due  to  lack  of  standards,  insufficient  funding  for  testing  or  lack  of  legal  competence  of  the 
State Inspectorate. Only an exchange of information at Government level takes place between 

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Croatia  and  other  countries.  Croatia  would  benefit  from  becoming  a  member  of  the 
Transitional System for Rapid Exchange of Information on Dangerous Product (TRAPEX). 

Two  main  consumer  organisations  exist  in  Croatia,  but  their  activities  are  largely 
concentrated  in  the  area  of  Zagreb.  Another  smaller  consumer  association  exists  in  Osijek. 
From 2004, their public funding will be increased. According to the Consumer Protection Act, 
consumer  associations  may  join  the  Union  of  Consumer  Protection  Associations,  a  legal 
entity, which is entitled, inter alia, to provide opinions on draft pieces of legislation relevant 
to  consumers  and  to  represent  consumer  interests  in  parliamentary  discussions.  Consumer 
organisations  need  to  be  supported  to  enhance  their  role  in  building  up  and  implementing 
Croatian consumer policy. The Government should continue its work for the development of 
an independent, representative and effective consumer movement in Croatia. 

No  specific  legislation  is  directed  to  facilitate  consumers’  access  to  justice.  The  Civil  Code 
rules apply. A specific system for alternative resolution of consumer disputes, in line with the 
relevant Commission  recommendations,  has not  been developed yet. Consumer  associations 
are  entitled  to  initiate  proceedings  before  the  competent  court  against  unlawful  business 
practice and misleading advertising, but the weakness of Croatia’s judicial system constitutes 
an obstacle to effective enforcement. 

With  regard  to  consumer  information  and  education,  Croatia  does  not  have  any  such 
programmes  in  place,  although  it  plans  to  develop  one  in  the  coming  years.  Actions  in  this 
field should be significantly strengthened. 

Conclusion 

Croatia will have to make further efforts to align its legislation with the acquis in this area and 
to effectively implement and enforce it in the medium term. In particular, these efforts should 
be directed to product liability and non-safety related measures and to put in place a market 
surveillance  system,  which  would  comply  with  EU  requirements.  Reinforcing  consumer 
organisations and promoting the development of an independent and representative consumer 
movement also requires particular attention, together with the promotion of information and 
education activities to consumers. 

Chapter 24: Co-operation in the field of justice and home affairs 

EU  policies  in  the  area  of  justice  and  home  affairs  aim  to  maintain  and  further  develop  the 
Union  as  an  area  of  freedom,  security  and  justice.  On  issues  such  as  border  control,  visas, 
migration,  asylum,  drug  trafficking  and  money  laundering,  combating  organised  crime,  the 
fight  against  terrorism,  fraud  and  corruption,  police  and  judicial  co-operation,  customs  co-
operation, data protection and the mutual recognition of court judgements, as well as human 
rights legal instruments, Member States need to be equipped to ensure they achieve adequate 
and  acceptable  standards  of  implementation.  Administrative  capacity  must  be  up  to  these 
standards  by  the  date  of  accession.  Furthermore,  an  independent,  reliable,  and  efficient 
judiciary and police organisation are also of paramount importance. The most developed part 
of  this  chapter  concerns  the  Schengen  acquis,  which  entails  the  lifting  of  internal  border 
controls in the EU. However, substantial parts of this acquis do not apply upon accession of a 
new Member State, but only later, after a separate Council Decision. 

The Stabilisation and Association Agreement foresees intensive cooperation between Croatia 
and  the  EU  on  issues  such  as  visa,  border  control,  asylum,  readmission  of  illegal  migrants, 

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money  laundering,  organised  and  drug-related  crime,  and  the  improvement  of  the 
effectiveness of Croatia’s judiciary. 

In  the  field  of  data  protection,  a  new  Act  on  the  Protection  of  Personal  Data  has  been  in 
force in Croatia since June 2003. The Act regulates the protection of personal data on natural 
persons, as well as the supervision of collection, processing and use of personal data. Croatia 
has signed but not yet ratified the 1981 Council of Europe Convention for the Protection of 
Individuals  with  regard  to  Automatic  Processing  of  Personal  Data.  Alignment  with  the 
Council  of  Europe  recommendation  on  the  use  of  police  data  is  under  development.  The 
establishment of an Agency for the Protection of Personal Data is foreseen (see also Chapter 
3 – Freedom to provide services). 

Significant developments have taken place in Croatia in the field of visa policy. Conformity 
with EU visa obligations and EU visa-free travel is at a relatively advanced stage. A new Law 
on Foreigners replaced the previous Act on the Movement and Stay of Foreigners in January 
2004. Particular attention needs to be paid to its implementing measures. 

An  IT  system  is  gradually  being  established  to  link  Croatia’s  diplomatic  missions  to  the 
national  visa  register  (IKOS)  at  the  Ministry  of  Interior.  The  development  of  this  system 
needs to be continued and training of staff made a priority. 

Although  Croatia  is  undertaking  efforts  to  modernise  and  transform  its  system  of  border 
management, major challenges still lie ahead. The legislative framework is not yet complete, 
particularly  regarding  the  creation  of  an  integrated  border  management  strategy.  The  new 
State Border Protection Act entered into force in November 2003 but further development of 
implementing  measures  will  be  needed.  Croatia  also  needs  to  implement  the  commitments 
undertaken in this area in the framework of the EU-Western Balkans Forum as defined at the 
JHA ministerial meeting of November 2003. 

The Border Directorate of the Ministry of Interior started to function as a separate unit of the 
Police  only  in  July  2002,  while  the  border  police  are  still  operating  as  part  of  the  general 
police at the regional level. As a consequence of the on-going reorganisation, it is not clear 
how  many  officers  devote  their  working  time  primarily  to  border  management.  However, 
their  numbers  are  not  yet  sufficient,  particularly  considering  that  parts  of  Croatia’s  land 
border  may  become  part  of  the  EU’s  external  border  in  future.  Recruitment  and  training  of 
staff,  improvement  of  working  methods  (risk  analysis  capabilities  in  particular)  and 
modernisation of equipment are urgent matters. In this context, specialised training for border 
officers at the Police Academy should be strengthened. In addition, co-operation between the 
various authorities involved in border management needs to be further improved. 

The  available  technical  equipment  and  infrastructure  are  not  yet  adequate  for  effective 
surveillance  of  the  green  border  (3,332  km)  or  the  blue  border,  and  substantial  investments 
need to be made. The border police use the central information system of the police, which 
does not, however, meet the needs of border management and will have to be adapted. 

The legal basis for co-operation with neighbouring countries is in place and emphasis should 
now be put on adequate implementation. In particular, there is ample scope for unauthorised 
border  crossing  along  the  border  with  Bosnia  and  Herzegovina,  where  a  large  number  of 
cross-border  roads  and  paths  remain  almost  uncontrolled.  These  crossings  will  need  to  be 
properly controlled to prevent illegal border crossings. 

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Regarding migration, legislation on residence permits, family reunification and related issues 
is  in  place.  A  new  Act  on  Foreigners  replaced  earlier  legislation  and  is  being  applied  as  of 
January  2004.  In  the  first  six  months  of  2003  there  were  34,279  foreigners  with  permanent 
residence  in  Croatia,  10,038  with  extended  temporary  residence,  and  1197  with  business 
visas.  A  large  proportion  of  these  were  from  neighbouring  countries.  No  specific  measures 
exist  for  the  integration  of  third  country  nationals,  but  they  enjoy  the  same  basic  rights  as 
Croatian citizens. 

Croatia  is  still  mainly  considered  a  transit  country  for  illegal  migrants  en  route  to  the 
Schengen  area,  rather  than  a  country  of  destination.  In  the first  nine  months  of  2003,  2,915 
persons,  mainly  from  neighbouring  countries,  were  apprehended  while  trying  to  cross  the 
border  illegally.  Compared  with  previous  years  the  trend  has  been  declining,  which  can  be 
attributed to the general stabilisation of the region. Readmission agreements have been signed 
with 24 countries. 

The  right  to  asylum  is  guaranteed  by  the  Constitution.  However,  currently  there  is  no 
provision  for  accelerated  procedures,  and  the  concept  of  ‘safe  country  of  origin’  is  not 
applied. A new Asylum Act was adopted in July 2003 and is supposed to enter into force from 
July  2004.  The  act  should  strengthen  the  appeal  system  and  introduce  provisions  covering 
temporary  protection,  ‘safe  third  country’,  ‘manifestly  unfounded  claims’,  reception 
conditions and the integration of refugees. The new act should also be harmonised with the 
1951  Convention  and  the  1967  Protocol  on  the  Status  of  Refugees  and  the  relevant 
recommendations  and  Resolutions  of  the  Council  of  Europe.  A  documentation  centre  for 
information on the country of origin has not yet been established. 

Fingerprints of asylum seekers and illegal migrants are recorded but no electronic database is 
in  place.  With  a  view  to  possible  future  participation  in  Eurodac,  the  system  of  taking 
fingerprints  needs  to  be  revised  and  modernised.  Further  adjustment  of  legislation  will  be 
required  in  order  to  comply  fully  with  the  criteria  and  mechanisms  for  determining  the 
responsible Member State (Dublin II). 

214  persons  submitted  asylum  applications  in  Croatia  between  2000  and  summer  2003.  So 
far, all decisions on asylum applications in Croatia have been negative. Current arrangements 
for a temporary reception centre are unsatisfactory. An Asylum Reception Centre needs to be 
established, but there has been no clear decision on its location or on the allocation of funding 
for staffing, running costs and maintenance. In addition, interagency co-ordination structures 
need  to  be  strengthened  and  co-operation  with  international  organisations  such  as  UNHCR 
should be improved. 

In the field of police co-operation, a new Police Act entered into force in January 2001. On 
this  basis  the  police  have  been  demilitarised  and  reforms  are  on-going.  The  new  legislation 
provides for clear tasks and responsibilities, but the principle of crime prevention needs to be 
further  elaborated.  Equipment  and  infrastructure  need  to  be  improved  and  an  integrated 
computer-based criminal intelligence system has to be established. 

The  State  Attorney  has  authority  over  the  criminal  police.  All  investigative  activities  and 
other  measures  limiting  citizens’  rights  have  to  be  agreed  with  the  judicial  authorities.  The 
limited investigative powers of other services such as the customs and tax authorities require 
these services to have close co-operation with the police. This co-operation needs to be further 
developed and strengthened. 

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Croatia  has  police  cooperation  agreements  in  place  with  other  countries  from  the  region  (in 
particular,  Bosnia  and  Herzegovina,  Serbia  and  Montenegro,  Hungary,  Slovenia  and  Italy). 
Cooperation and exchange of information has been improving in recent years. In order to be 
able  to  conclude  the  envisaged  co-operation  agreement  with  Europol,  a satisfactory  level  of 
protection of personal data will be necessary. 

As  regards  organised  crime,  Croatia  is  an  important  transit  country  on  the  Balkan  route  to 
Western Europe for trafficking in human beings as well as for smuggling of arms, drugs and 
stolen  cars.  Croatia  has  signed  and  ratified  the  2000  UN  Convention  on  Transnational 
Organised Crime and the related Protocols on trafficking in human beings and the smuggling 
of migrants. The Protocol against the Illicit Manufacturing of and Trafficking in Firearms still 
remains  to  be  signed.  Croatia  has  also  ratified  the  2001  Council  of  Europe  Convention  on 
Cybercrime.  Croatia  needs  to  implement  the  commitments  undertaken  in  this  area  in  the 
framework  of  the EU-Western Balkans Forum as defined at the JHA ministerial meeting of 
November 2003. Furthermore various amendments to the Criminal Code are still required in 
order to reach full alignment with EU, Council of Europe and OSCE requirements. 

At national level the Office for the Prevention of Corruption and Organised Crime (USKOK) 
is  the  main  body  for  tackling  the  forms  of  crime  mentioned  above,  including  terrorism. 
However, both the administrative and operational capacities of the Office are still limited and 
not all the necessary staff have been recruited. Co-ordination with other agencies needs to be 
improved. 

Finally, a more strategic approach to the fight against organised crime should be developed. 
Action is also required in order to combat illicit manufacturing and trafficking in firearms. 

A  basic  legal  framework  for  combating  terrorism  is  in  place.  Croatia  has  ratified  various 
international  instruments  on  the  fight  against  terrorism,  such  as  the  1977  European 
Convention  on  the  Suppression  of  Terrorism.  The  2003  Protocol  amending  the  Convention 
has  been  signed.  However,  the  UN  Convention  for  the  Suppression  of  the  Financing  of 
Terrorism (1999) still remains to be signed. 

Concerning  the  fight  against  fraud  and  corruption,  Croatia  has  signed  and  ratified  the 
Council  of  Europe’s  Criminal  and  Civil  Law  Conventions  on  Corruption.  Its  national 
legislation  has  been  partly  aligned  with  the  provisions  of  the  1995  Convention  on  the 
Protection  of  the  Communities’  Financial  Interests  and  its  protocols.  Further  improvements 
are  needed  regarding  the  definition  of  fraud  (both  expenditure  and  revenue),  active  and 
passive corruption, criminal liability of heads of businesses and liability of legal persons. At 
the  enforcement  level,  more  attention  should  be  given  to  the  effective  prosecution  of 
corruption  cases.  Action  plans  to  prevent  and  combat  corruption  in  the  relevant  law 
enforcement agencies (border police, police, customs, judiciary) need to be developed. 

As  regards  protection  of  the  euro  against  counterfeiting,  Croatia  is  a  member  of  the  1929 
International  Convention  on  the  Suppression  of  Counterfeiting.  Its  provisions  have  been 
incorporated  into  Croatian  law,  primarily  the  Criminal  Code,  which  covers  the  offence  of 
counterfeiting of foreign currencies including the euro and seems to be generally in line with 
the acquis. (See also Chapter 11 – EMU.) 

Croatia  is  a  transit  country  for  drug  trafficking  (mainly  heroin)  on  the  Balkan  route.  Drug 
consumption  within  the  country  as  well  as  detected  and  reported  drug  law  offences  are 
increasing. Croatia is a signatory to the main UN drug conventions. The Criminal Procedure 
Act, the Criminal Code and the Act on Combating Drug Abuse comprise the primary national 

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legislative  framework  for  tackling  the  supply  of  drugs.  The  National  Programme  on 
Combating Drug Abuse for 2003 provides the basis for tackling the drugs problem in detail 
and  defines  the  state  bodies  with  responsibility  to  adopt  specific  programmes  in  order  to 
define concrete actions in each particular field. 

More emphasis should be put on improving co-operation and co-ordination among the various 
law  enforcement  agencies  involved  in  the  fight  against  drugs.  Furthermore  the  law 
enforcement  services  often  lack  the  relevant  technical  equipment.  The  majority  of  drug 
addicts  are  not  included  in  any  drug  treatment  programme.  A  national  information  network 
should be created and the Office for Combating Drugs Abuse should be prepared for its future 
role  as  National  Focal  Point  and  for  potential  co-operation  with  the  European  Monitoring 
Centre for Drugs and Drug Addiction (EMCDDA). 

Croatia has been making efforts to fight money laundering. A basic legal framework in this 
area has been adopted and developed during the past years. Croatia has ratified the European 
Convention  on  Money  Laundering,  Search,  Seizure  and  Confiscation  of  the  Proceeds  of 
Crime  and  has  begun  to  incorporate  international  conventions  and  EU  standards  into  its 
national legislation. 

The  Office  for  the  Prevention  of  Money  Laundering,  established  within  the  Ministry  of 
Finance  in  compliance  with  the  Money  Laundering  Prevention  Act,  functions  as  an 
autonomous  and  independent  financial  intelligence  unit  (FIU).  It  gathers  and  analyses 
information  on  suspicious  movements  of  money  and  reports  this  to  the  police  and  the 
prosecutor.  However,  enforcement  in  this  area  remains  weak.  Only  one  money  laundering 
case  has  so  far  led  to  a  conviction.  Thus,  the  FIU  needs  to  be  further  strengthened  and 
cooperation  with  the  police,  the  State  Attorney’s  office  and  the  judiciary  needs  to  become 
more effective. (See also Chapter 4 – Free movement of capital). 

Efficient  customs  co-operation  requires  an  adequate  level  of  infrastructure  and  equipment, 
including  computerisation  and  investigation  resources,  and  the  establishment  of  an  efficient 
customs organisation with a sufficient number of qualified and motivated staff showing a high 
degree of integrity. 

There  is  room  for  improvement  in  the  co-operation  between  the  police,  customs,  and  other 
border agencies. No Memorandum of Understanding (MoU) has been concluded yet between 
them.  It  would  be  useful  for  Croatia  to  put  in  place  a  programme  of  MoUs  with  business 
organisations  and  between  customs  and  the  police  to  combat  in  particular  drug  trafficking. 
Consideration should also be given to legislative changes in accordance with the relevant EU 
conventions (Naples II and Information Technology), to the creation of a special investigation 
service  within  the  customs  administration  and  to  the  establishment  of  a  customs  training 
system. 

Regarding judicial cooperation in civil and criminal matters, recognition and enforcement 
of  foreign  judicial  decisions  is  incorporated  in  the  Conflict  of  Laws  Act,  and  the  general 
system for civil and commercial matters is similar to that laid down in EU legislation. Rules 
on applicable law, procedures relating to payment orders, decisions on personal status matters, 
and international insolvency proceedings are also broadly in line with Community legislation 
and principles. Bilateral conventions are in place with a number of neighbouring countries. 

Several key conventions have been or are in the process of being ratified, including the 1972 
European  Convention  on  the  Transfer  of  Proceedings  in  Criminal  Matters,  the  1959 
Convention on Mutual Legal Assistance in Criminal Matters, the 1957 European Convention 

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on  Extradition  and  the  1980  Hague  Convention  on  the  Civil  Aspects  of  International  Child 
Abduction.  Croatia  is  not  a  party  to  the  1965  Hague  Convention  on  the  Service  Abroad  of 
Judicial and Extra-Judicial Documents in Civil and Commercial Matters and current methods 
differ  significantly  from  those  set  out  by  the  EU.  Furthermore  it  is  not  a  party  to  the  1970 
Hague  Convention  on  the  Taking  of  Evidence  Abroad  in  Civil  and  Commercial  Matters. 
Legislation  providing  for  the  compensation  of  victims  of  terrorist  acts  and  public 
demonstrations should be extended to include victims of all crime. Improvements should be 
made  to  the  training  of  judges  in  areas  such  as  international  co-operation  and  new 
investigation techniques. 

Conclusion 

Croatia has made efforts to align its legislation with the acquis in the field of justice and home 
affairs  and  has  started  to  make  progress  with  the  implementation  of  reforms  in  institutions 
such as the police, the border police and the financial intelligence unit. However, considerable 
work  remains  to  be  done  to  bring  the  legislation  further  in  line  with  the  acquis  and  to 
transform  the  law  enforcement  agencies  into  effective  institutions  capable  of  addressing  the 
tasks  they  face.  Furthermore,  considerable  investments  will  be  necessary  in  equipment  and 
infrastructure  as  well  as  in  strengthening  of  administrative  capacity.  The  geographical 
position of Croatia at a crossroads of migratory flows poses a particular challenge. 

Overall, Croatia will have to make considerable and sustained efforts to align its legislation 
with  the  acquis  and  to  effectively  implement  and  enforce  it  in  the  area  of  justice  and  home 
affairs in the medium term. 

Chapter 25: Customs union 

The Customs union acquis consists almost exclusively of legislation which is directly binding 
on  the  Member  States  and  does  not  require  transposition  into  national  law.  It  includes  the 
Community’s Customs Code and its implementing provisions; the Combined Nomenclature, 
Common  Customs  Tariff  and  provisions  on  tariff  classification,  customs  duty  relief,  duty 
suspensions and certain tariff quotas; and other provisions such as those on customs control of 
counterfeit  and  pirated  goods,  drugs  precursors  and  cultural  goods  and  on  mutual 
administrative  assistance  in  customs  matters  as  well  as  Community  agreements  in  the  areas 
concerned,  including  transit.  Member  States  must  ensure  that  the  necessary  enforcement 
capacities, including links to the relevant EC computerised customs systems, are in place. 

The Stabilisation and Association Agreement / Interim Agreement on trade and trade-related 
matters cover the establishment of a free trade area with the Community and the immediate or 
progressive removal of  customs duties on a very wide  range  of products. They also contain 
rules  of  origin  which  have  to  be  respected  in  order  to  benefit  from  the  trade  preferences 
provided. 

The  Customs  Act  of  Croatia  and  its  implementing  provisions  are  modelled  on  the 
Community  customs  code  and  implementing  provisions.  They  include  customs  procedures 
and  provisions  such  as  Binding  Tariff  Information,  Binding  Origin  Information,  customs 
valuation, rules of origin, customs procedures with economic impact and free zones. There are 
14 free zones in Croatia. They will require adaptations to come into line with the acquis (see 
also  Chapters  6  and  10  -  Competition  and  Taxation).  Simplified  procedures  including  the 
authorisation  of  operators  based  on  appropriate  audit  systems  would  need  to  be  developed 
further. 

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Croatia regularly updates its customs legislation to take into account the amendments to the 
EC  customs  code  and  implementing  provisions.  However,  amendments  made  to  the  EC 
customs  code  in  2000  have  not  yet  been  transposed;  these  cover  inter  alia  provisions  on 
customs  procedures  with  economic  impact,  free  zones  and  free  warehouses,  the  use  of 
electronic declaration, and incurrence of a customs debt. Major efforts will be needed to adapt 
the Croatian transit procedure to the new computerised transit system (NCTS) requirements. 
Provisions on customs control of counterfeit and pirated goods, allowing customs to intervene 
both upon request and ex officio are already applicable. Customs control systems for import 
and  export  of  cultural  goods  and  precursors  are  already  in  force.  Some  of  the  customs 
clearance fees currently applied under the Administrative Fees Act, the Administrative Fees 
Tariff  and  the  Customs  Tariff  Act  appear  to  be  contrary  to  the  acquis  and  will  have  to  be 
removed. 

Croatia  applies  preferential  rules  of  origin  in  the  framework  of  its  existing  Free  Trade 
Agreements, including the Stabilisation and Association Agreement / Interim Agreement on 
trade  and  trade-related  matters  with  the  Community.  Specific  problems  have  occurred 
recently  in  relation  to  certificates  of  preferential  origin  for  sugar  which  led  the  European 
Commission to issue a formal notice to importers of this product. This case exposed important 
weaknesses in the Croatian systems of management and control of certificates of preferential 
origin.  Subsequently,  the  Croatian  administration  identified  improvements  for  introduction 
into  this  aspect  of  customs  control.  It  will  be  important  to  ensure  that  Croatia  has  fully 
implemented the measures necessary to prevent a recurrence of this kind of problem. In this 
respect, effective control of rules of origin in Croatia will be essential. 

As  from  2002,  the  Croatian  Customs  Tariff  is  based  on  the  Combined  Nomenclature,  as 
required  by  the  provisions  of  the  Interim  Agreement.  An  electronic  version  of  the  Tariff  is 
also available to the public via Internet. It will constitute a good basis for the setting up of an 
integrated  tariff  compatible  with  the  Integrated  Tariff  of  the  Community  (TARIC).  Croatia 
does not operate tariff ceilings. Croatia does not apply a General System of Preferences. 

With the support of the technical assistance provided by the Community, Croatia is building 
up the administrative and operational capacity of its customs service. A Customs Service 
Act  is  in  place,  governing  the  Croatian  Customs  Administration.  The  legal  conditions  and 
organisational  structure  of  the  Croatian  Customs  Service  will  have  to  be  reviewed  to  make 
them  fully  compatible  with  EU  requirements  and  standards.  In  particular,  the  Customs 
administration should be granted more flexibility to allocate budgetary and human resources. 

A training system should be developed to cover the whole range of customs issues, including 
those which are accession related, and should be available to all staff. Croatia would need on 
accession to dismantle customs controls at the borders with EU member states. The resources 
needed  for  the  reinforcement  of  the  border  posts  along  its  frontiers  with  non-EU  member 
states should be taken into account in its strategic planning. The internal audit function should 
be  improved.  Internal  communication  will  have  to  be  enhanced  to  guarantee  a  uniform 
implementation of the customs legislation throughout the country. Relations with end users, 
especially  in  terms  of  communication,  still  need  further  improvement.  The  customs  service 
has an Internet web page solely in the Croatian language. 

A Code of Ethics for the customs service is still lacking and will need to be developed and 
implemented. Efforts to establish customs controls on the basis of risk assessment to speed up 
customs procedures are being made. A new risk analysis department in charge of building a 
uniform  risk  analysis  system  is  being  set  up.  The  department  needs  to  become  fully 
operational.  Croatia  already  applies  post-clearance  controls  but  these  will  have  to  be 

111 

 
 
  
 
reviewed.  The  three  existing  Customs  laboratories  will  have  to  be  upgraded  to  make  them 
compatible with EU requirements. 

The use of information technology (IT) within Croatian Customs seems to be widespread via 
a  stable  network.  Additionally,  a  trader  connection  to  the  Customs  Declaration  Processing 
System  (CDPS)  is  operational.  The  IT  applications  in  Croatia  for  transit,  tariff,  inward 
processing,  (binding)  tariff  information  and  import  quotas  appear  to  be  operational. 
Compatibility with the EC customs computerised systems will have to be ensured in order to 
guarantee interconnectivity in the event of accession. 

Conclusion 

Croatia has started to make efforts to prepare to fulfil the responsibilities of an EU customs 
administration and to assume the responsibilities necessary for the protection and control of 
the EU's external borders. Croatia will have to make further efforts to align its legislation with 
the  acquis  and  to  effectively  implement  and  enforce  it  in  the  medium  term.  Especially  its 
administrative  capacity  needs  to  be  assessed.  Particular  attention  needs  to  be  given  to  the 
modernisation and strengthening of the customs administration by providing, amongst others, 
sufficient budgetary, IT and human resources, as well as further training. 

Chapter 26: External relations 

The  acquis  in  this  field  consists  mainly  of  directly  binding  EU  legislation  which  does  not 
require  transposition  into  national  law.  This  EU  legislation  results  from  the  Community's 
multilateral and bilateral commercial commitments, as well as from a number of autonomous 
preferential  trade  measures.  In  the  area  of  humanitarian  aid  and  development  policy,  an 
applicant country will need to comply with EU legislation and international commitments in 
this  field  and  ensure  the  capacity  to  participate  in  the  EU’s  development  and  humanitarian 
policies. 

The Stabilisation and Association Agreement / Interim Agreement on trade and trade-related 
matters include provisions in several areas requiring the parties to act in accordance with the 
principles of the WTO or of other relevant international obligations. 

Croatia has been a member of the World Trade Organisation since 30 November 2000. It 
undertook  ambitious  commitments  upon  accession,  which  it  is  gradually  implementing. 
Croatia  has  not  yet  started  negotiations  to  accede  to  the  WTO  Government  Procurement 
Agreement. Upon accession to the EU, Croatia would have to apply all the obligations of the 
multilateral  and  plurilateral  WTO  agreements  to  which  the  Community  is  a  party.  In 
particular,  Croatia  would  have  to  apply  the  Community's  Common  Customs  Tariff  and  the 
external provisions of the Common Agricultural Policy. The agreed transitional period for the 
implementation by Croatia of its WTO schedule of concessions and commitments on goods 
ends  by  2007.  By  then,  Croatia  will  feature  simple  average  duties  on  industrial  goods  of 
approximately 5.3 % and on agricultural goods of 15.5%. The equivalent current levels for the 
EU stand at 3.6% on industrial goods, 12.4% on fishery products and 16.2% on agricultural 
goods. 

Upon  accession  to  the  EU,  Croatia  would  be  bound  by  the  Community's  common 
commercial policy and the Community's various preferential trade agreements. It would also 
become party to the European Economic Area. Furthermore, Croatia would have to apply the 
autonomous preferential trade regime that the Community grants to certain third countries, for 

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example the Generalised System of Preferences. Conversely, Croatia would have to terminate 
all  its  preferential  trade  agreements  with  third  countries  and  bring  all  other  agreements, 
including  non-preferential  trade  agreements,  into  conformity  with  the  obligations  of  EU 
membership. Currently, in addition to the Stabilisation and Association Agreement / Interim 
Agreement  with  the  Community,  Croatia  has  free  trade  agreements  in  force  with  Albania, 
Bosnia-Herzegovina, 
the  Former  Yugoslav  Republic  of  Macedonia,  Switzerland, 
Liechtenstein,  Norway,  Iceland  and  Turkey.  Croatia  had  concluded  Free  trade  Agreements 
with  six  of  the  ten  acceding  countries  (Slovenia,  Hungary,  Poland,  Czech  Republic,  Slovak 
Republic  and  Lithuania)  which  will  lapse  upon accession  of  these  countries  to  the  EU  on  1 
May 2004. Croatia is a member of CEFTA and after the 2004 EU enlargement will maintain 
its  preferential  CEFTA  arrangements  with  Bulgaria  and  Romania.  Finally,  a  free  trade 
agreement signed with Serbia and Montenegro has yet to enter into force. 

In the area of services, Croatia's commitments under GATS are not entirely in line with those 
of  the  Community.  Croatia  should  ensure  that,  upon  its  accession,  its  multilateral 
commitments under GATS are as consistent as possible with those of the Community. To this 
end,  Croatia  should  closely  co-operate  and  co-ordinate  with  the  European  Commission, 
mainly with regard to the Doha Development Agenda negotiations. 

Croatia  is  in  the  process  of  adopting  implementing  legislation  in  the  field  of  trade  defence 
instruments. Upon accession, it would have to repeal any national legislation and measures 
in this field, as Community legislation will become directly applicable on its territory. 

Croatia is currently running both export credit insurance and financing programmes. On 
accession, Croatia should ensure that its short-term export credit insurance system is in line 
with  Community  competition  rules.  As  far  as  medium  and  long-term  export  credits  are 
concerned, rules will have to be further aligned so as to be in full conformity with Community 
legislation and international obligations. 

Arms exports are currently controlled. In addition, Croatia is drafting national legislation to 
subject dual use items to export control. Upon accession, Croatia would have to abide fully by 
relevant EU legislation in this field. 

With  regard  to  administrative  capacity,  participation  in  the  EU  trade  decision-making 
mechanisms and implementation and enforcement of the acquis will require strengthening of 
the Trade Policy and Foreign Economic Relations Division of the Ministry of Economy. 

Croatia has concluded bilateral investment treaties with 50 countries. Before its accession to 
the EU, Croatia would have to ensure that the content of these agreements is fully compatible 
with its EU membership obligations and the EU acquis. To this aim, it should ensure that the 
necessary  procedures  to  either  modify  or  denounce  the  agreements,  where  applicable,  are 
taken early enough to ensure that conformity with EU obligations is in place by the date of 
accession. In doing so, Croatia should consider the long period of initial duration of certain 
agreements, which can run in some cases for 20 years. 

As  regards  development  policy  and  humanitarian  aid  initiatives,  Croatia  has  no  legal 
framework  on  development  co-operation.  Apart  from  a  set  of  fragmented  projects  shared 
among  different  Ministries,  the  only  such  assistance  appears  to  consist  of  targeted 
humanitarian  aid  projects  on  the  occasion  of  humanitarian  catastrophes.  The  humanitarian 
assistance  from  the  state  commodity  reserve  amounted  to  HRK  5.1  million  (€671,000)  in 
2000 and to HRK 433,000 (€58,000) in 2001. 

113 

 
 
  
 
Croatia  does  not  have  a  specific  structure  within  a  Ministry  or  an  Agency  in  charge  of 
development  policy  and  no  overall  co-ordination  concerning  development-related  activities 
appears to take place among the various ministries. 

At this stage, Croatia would not be in a position to play its part in supporting the objectives 
and instruments, or to participate in the further development as well as the implementation, of 
the EU’s development policy. 

Conclusion 

With regard to external relations, Croatia should be able to meet Community requirements in 
this field in the medium term, provided the institutional capacity to effectively implement and 
enforce the acquis is strengthened. In order to smooth its preparations for membership Croatia 
should  ensure  that  its  actions  and  commitments  within  international  organisations  and 
agreements  respect  both  the  Stabilisation  and  Association  Agreement  as  well  as  future 
obligations resulting from the acquis. 

Chapter 27: Common foreign and security policy 

The acquis related to the common foreign and security policy (CFSP) is based on legal acts 
under  the  second  and,  indirectly  the  first,  pillar  including  legally  binding  international 
agreements.  It  is  also  based  on  political  declarations  and  agreements  to  conduct  political 
dialogue in the framework of CFSP, to align with EU statements, and to apply sanctions and 
restrictive measures here required. 

Pending the entry into force of the Stabilisation and Association Agreement, present rules for 
the regular political dialogue between the European Community and its Member States and 
the  Republic  of  Croatia  are  set  out  in  the  joint  declaration  of  29  October  2001.  Political 
dialogue  meetings  at  ministerial  level  were  held  regularly  and  proceeded  smoothly.  During 
these meetings Croatia has shown a keen interest to continue active participation in political 
dialogue with the EU. 

Over  the  last  two  years,  Croatia  has  unilaterally  declared  its  association  with  several  CFSP 
common  positions  and  declarations  of  the  Union  concerning  inter  alia  the  fight  against 
terrorism. In the meantime, under the Thessaloniki Agenda for the Western Balkans, the EU 
regularly  invites  Croatia  to  align  itself  to  certain  EU  demarches,  declarations  and  common 
positions  on  CFSP.  Croatia  has  supported  the  establishment  of  the  International  Criminal 
Court, and ratified the Rome Statute in 2001. It has not signed a bilateral agreement with the 
USA concerning the non-surrender of certain persons to the ICC. 

In  May  2002,  Croatia  subscribed  to  the  EU  Code  of  Conduct  on  Arms  Exports.  Croatia  is 
party  to  most  of  the  existing  international  regimes  for  the  non-proliferation  of  weapons  of 
mass destruction. It has not yet joined the Wassenaar Arrangement, the Australia Group, and 
the Missile Technology Control Regime but has indicated its intention to do so. Croatia takes 
part  in  the  preparatory  work  for  the  International  Code  of  Conduct  against  Ballistic  Missile 
Proliferation. However, Croatia needs to strengthen the relevant law enforcement agencies in 
charge  of  the  internal  controls  necessary  for  the  full  implementation  of  international  non-
proliferation regimes and relevant EU standards, including those pertaining to the control of 
trade both in small and light weapons and dual use goods. 

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Concerning relations with neighbouring countries, some territorial disputes remain unresolved 
(see  chapter  on  Political  Criteria  –  Bilateral  Relations).  Croatia  is  a  member  of  the  United 
Nations,  the  OSCE,  and  the  Council  of  Europe  and  a  member  or  observer  in  many  other 
international  organisations  and  agreements  and  an  active  participant  in  several  regional  and 
sub-regional initiatives (see chapter on Political Criteria – Multilateral Relations). However, 
it  has  not  yet  acceded  to  all  relevant  UN  conventions,  e.g.  in  the  field  of  the  fight  against 
terrorism. 

Croatia  has  begun  to  take  part  in  international  peace-keeping  efforts  (ISAF)  and  has 
dispatched military observers to certain UN missions. It is in the process of designating forces 
for further peace-keeping operations and is preparing the necessary restructuring measures. It 
has declared its willingness to support, participate in, and contribute to European Security and 
Defence  Policy  (ESDP)  civilian  and  military  crisis  management  operations.  However,  the 
necessary resources still need to be allocated. 

With  regard  to  administrative  capacity,  Croatia  has  a  rather  new  diplomatic  staff  which, 
despite  limited  resources,  maintains  an  extended  network  of  diplomatic  missions.  It  has  55 
diplomatic  representations,  22  consular  representations  and  one  embassy  bureau  abroad  and 
employs  some  1,000  staff.  In  order  to  be  able  to  work  with  EU  CFSP  structures,  Croatia 
would  need  to  establish  the  necessary  functions  and  mechanisms  within  the  Ministry  for 
Foreign Affairs. Concerning the implementation of sanctions and restrictive measures, it will 
also need to adjust its administrative capacity to EU standards. While overall administrative 
capacity will also certainly need to be increased, in due course Croatia should be able to cope 
with the demands stemming from the Common Foreign and Security Policy. 

Conclusion 

Croatia  has  declared  that,  as  a  Member  State,  it  will  support  actively  and  unreservedly  the 
CFSP so defined, in a spirit of loyalty and mutual solidarity. 

The assessment of Croatian foreign and security policy to date leads to the expectation that, 
provided  it  takes  the  necessary  legal  and  administrative  measures  and  makes  necessary 
adjustments, Croatia should be able to fulfil its obligations within CFSP in the medium-term. 

Chapter 28: Financial control 

The  acquis  under  this  chapter  consists  mostly  of  general,  internationally  agreed  and  EU 
compliant  principles  of  public  internal  financial  control  that  need  to  be  transposed  into  the 
control  and  audit  systems  of  the  entire  public  sector.  In  particular,  the  acquis  requires  the 
existence  of  effective  and  transparent  financial  management  and  control  systems  as  well  as 
functionally  independent  internal  audit  systems;  an  independent  external  audit  of  the  public 
internal  financial  control  systems  in  the  public  sector  (Supreme  Audit  Institution);  an 
appropriate financial control mechanism for EU funds; and the administrative capacity to give 
effective and equivalent protection to EC financial interests. 

As  regards  public  internal  financial  control  (PIFC),  Croatia  has  not  yet  set  up  a 
comprehensive  control  structure  based  on  managerial  accountability  and  functionally 
independent internal audit. The primary  legislation defining the concept of Internal Audit is 
the Budget Act. Ex-ante control is performed through the implementation regulations of the 
State Treasury System (Single Treasury Account). The current situation is characterised by a 
certain compartmentalisation of responsibilities, weaknesses in communication and reporting, 

115 

 
 
  
 
lack  of  obligatory  ex-ante  financial  control  inside  income  and  spending  centres  and  by  the 
lack of harmonised legislation relating to control and audit competencies. The Directorate for 
Internal Audit and Control within the Ministry of Finance is responsible for the development 
and the harmonisation of PIFC concepts. The establishment of functionally independent and 
operational internal audit units will be the major administrative challenge in this field. 

External audit is performed by the State Audit Office (SAO) on the basis of the 1993 State 
Audit  Act.  Audits  cover  all  public  expenditure  from  the  state budget,  state  funds  as  well  as 
from the budgets of local and regional self-government units. The State Audit Act should, but 
does not yet, foresee the external audit of EU-funds. SAO audits comprise financial audits as 
well  as  systems-based  and  performance  audits.  The  SAO  is  an  autonomous  body;  however, 
since  its  budget  is  an  integrated  part  of  the  state  budget,  efforts  are  needed  to  increase  its 
budgetary  independence.  The  administrative  capacity  of  the  SAO,  in  particular  in  terms  of 
human resources should also be strengthened. 

As  regards  control  over  EU  funds,  efficient  mechanisms  for  monitoring,  controlling  and 
auditing  EU-funds  will  need  to  be  developed.  A  system  to  deal  with  securities,  debts  and 
recoveries has not yet been set up. 

Croatia is also in an early stage of legislative and administrative preparations with regard to 
the protection of the EC’s financial interests. The existing procedures and the division of 
competencies between the different bodies involved mainly cover criminal-law procedures for 
the  treatment  of  cases  of  (suspected)  fraud,  and  to  a  lesser  extent  other  irregularities.  No 
specific  institution  or  body  exists  for  the  investigation  and/or  treatment  of  irregularities  but 
several existing bodies have responsibilities in this respect. There will be a need to establish 
and  implement  properly  effective  procedures  for  the  detection,  treatment,  as  well  as  for  the 
financial and administrative/judicial follow-up of irregularities, and to establish the necessary 
coordination methods to this end. 

Conclusion 

Croatia needs to develop general policies and a coherent legislative framework in this field. 
Administrative  capacities,  including  functionally  independent  internal  audit  units  in  State 
institutions,  have  to  be  established  or  reinforced  and  relevant  staff  trained.  The  State  Audit 
Office  has  the  legal  and  organisational  basis  to  develop  further  into  an  appropriate  external 
audit  body  but  needs  to  be  strengthened.  In  the  area  of  control  over  EU  funds,  efficient 
mechanism for monitoring, controlling and auditing of EU funds will need to be developed. In 
addition,  Croatia’s  administrative  capacity  to  give  effective  and  equivalent  protection  to  the 
EC’s financial interests will need to be ensured. 

Provided  Croatia  makes  further  efforts  to  reorganise  and  strengthen  its  public  internal 
financial  control,  external  audit  and  anti-fraud  capacities,  it  should  be  able  to  meet  EU 
requirements in this field in the medium term. 

Chapter 29: Financial and budgetary provisions 

The acquis in this field covers the rules concerning the financial resources necessary for the 
funding of the EU budget (‘own resources’). These own resources are made up mainly from 
contributions  from  Member  States  based  on  traditional  own  resources  from  customs  and 
agricultural  duties  and  sugar  levies;  a  resource  based  on  VAT;  and  a  resource  based  on  the 
level of gross national income (GNI). Member States must ensure the creation of appropriate 

116 

 
 
  
 
administrative  capacity  to  adequately  co-ordinate  and  ensure  the  correct  calculation, 
collection, payment and control of own resources and reporting to the EU for implementation 
of  the  own  resources  rules.  The  acquis  in  this  area  is  directly  binding  and  does  not  require 
transposition into national law. 

Based on the Customs Act, Croatia adopts each year a Customs Tariff Regulation, which is 
implemented by the Customs Administration. The Administration levies customs duties, VAT 
upon import and special import duties. Outstanding and recovered debts are kept in separate 
records.  The  Ministry  of  Finance  has  the  overall  responsibility  for  financial  and  budgetary 
issues. 

National Accounts and GNP/GNI figures are produced using definitions and accounting rules 
of  the  European  System  of  Integrated  Economic  Accounts  95  (ESA  95).  National  Accounts 
are not fully adjusted to take into account the non-observed economy. 

Conclusion 

There are no significant divergences between the Croatian and the EU system concerning the 
basic principles and institutions in the underlying policy areas linked to the application of the 
own resources system. If it continues its efforts to align with the relevant acquis chapters, in 
particular customs, taxation, statistics and financial control, Croatia should not have particular 
difficulties in meeting the requirements of the own resources system in the medium term. 

117 

 
 
  
 
C. 

SUMMARY AND CONCLUSIONS 

Croatia  submitted  its  application  for  membership  of  the  European  Union  on  21  February 
2003. 

In  accordance  with  the  provisions  of  Article  49  of  the  Treaty,  the  Commission  has,  at  the 
request of the Council, prepared an Opinion on Croatia’s request for membership. 

Croatia  is  preparing  for  membership  on  the  basis  of  the  Stabilisation  and  Association 
Agreement signed on 29 October 2001 and the Interim Agreement which entered into force in 
March 2002. 

In  preparing  its  Opinion,  the  Commission  has  taken  into  account  the  “Thessaloniki  Agenda 
for the Western Balkans” adopted by the European Council of June 2003, where the EU stated 
“that the pace of further movement of the Western Balkans countries towards the EU lies in 
their  own  hands  and  will  depend  on  each  country’s  performance  in  implementing  reforms, 
thus  respecting  the  criteria  set  by  the  Copenhagen  European  Council  of  1993  and  the 
Stabilisation and Association Process conditionality” 

The  Copenhagen  European  Council  of  June  1993  stated  that  those  candidate  countries  of 
Central  and  Eastern  Europe  who  wish  to  do  so  shall  become  members  of  the  Union  if  they 
meet the following conditions: 

– 

– 

– 

stability  of  institutions  guaranteeing  democracy,  the  rule  of  law,  human  rights  and 
respect for and protection of minorities; 

the  existence  of  a  functioning  market  economy,  as  well  as  the  ability  to  cope  with 
competitive pressures and market forces within the Union; 

the ability to take on the obligations of membership, including adherence to the aims 
of political, economic and monetary union. 

In assessing progress in these areas, the Commission has taken into account the  capacity of 
Croatia’s administrative and legal systems to apply and enforce the acquis in practice. 

The  Commission  has  also  taken  into  account  the  Stabilisation  and  Association  Process 
conditionalities  which  were  defined  by  the  Council  on  29  April  1997.  These  include  co-
operation  with  the  International  Criminal  Tribunal  for  the  Former  Yugoslavia  (ICTY), 
regional co-operation and other related issues.  

The method followed in preparing this Opinion is the same as used in previous Opinions. The 
Commission  has  analysed  both  the  present  situation  and  the  medium  term  prospects.  In 
drawing up its recommendation on the opening of the accession negotiations, the Commission 
has paid particular attention to Croatia’s existing capacity to fulfil the political criteria. 

118 

 
 
  
 
1. POLITICAL CRITERIA 

Croatia  has  stable  democratic  institutions  which  function  properly  respecting  the  limits  of 
their competences and co-operating with each other. The 2000 and 2003 elections were free 
and fair. The opposition plays a normal part in the operation of the institutions.  

There are no major problems over assuring the rule of law and respect for fundamental rights. 
However, Croatia needs to take measures to ensure that the rights of minorities, in particular 
of the Serb minority, are fully respected. Croatia should speed up the implementation of the 
constitutional Law on National Minorities and accelerate efforts to facilitate the return of Serb 
refugees  from  Serbia  and  Bosnia  and  Herzegovina.  Croatia  needs  to  make  substantial 
improvements in the functioning of the judicial system. The effectiveness of the fight against 
corruption needs further strengthening. 

Croatia’s cooperation with the International Criminal Tribunal for the Former Yugoslavia has 
improved significantly in the past months. In April 2004, the Prosecutor stated that Croatia is 
now  cooperating  fully  with  ICTY.  Croatia  needs  to  maintain  full  cooperation  and  take  all 
necessary steps to ensure that the remaining indictee is located and transferred to ICTY in The 
Hague.  Croatia  remains  committed  to  regional  co-operation;  sustained  efforts  are  needed  in 
this  area.  In  particular  to  resolve  border  issues  with  neighbouring  countries  in  line  with 
international  standards  for  dispute  settlement,  and  issues  arising  from  the  unilateral 
declaration of the protected “Ecological and Fishing Zone” in the Adriatic. 

2. ECONOMIC CRITERIA 

Croatia  can  be  regarded  as  a  functioning  market  economy.  It  should  be  able  to  cope  with 
competitive pressure and market forces within the Union in the medium term, provided that it 
continues implementing its reform programme to remove remaining weaknesses. 

In  Croatia,  there  is  an  increasing  political  consensus  on  the  essentials  of  economic  policies. 
The  Croatian  economy  has  achieved  a  considerable  degree  of  macroeconomic  stability with 
low inflation. Enhanced economic stability and structural reforms undertaken so far permit the 
working  of  market  mechanisms.  This  holds  in  particular  for  the  liberalisation  of  prices  and 
trade  as  well  as  for  privatisation,  albeit  to  a  lesser  extent.  Croatia  is  characterised  by  a 
relatively  well  educated  labour  force  and  good  road  transport  and  telecommunication 
infrastructure.  The  country  has  a  well  developed  banking  sector  and  a  competitive  tourism 
industry. Croatia’s economy is already well integrated with that of the EU. 

However, the working of market mechanisms still needs some improvement. In particular, the 
performance  of  the  judicial  sector  needs  to  be  enhanced  and  high  administrative  burdens  as 
well  as  incomplete  systems  of  cadastre  and  land  registry  need  to  be  addressed.  Enterprise 
restructuring  and  privatisation  has  been  slower  than  expected  and  some  large  state  and 
formerly socially-owned enterprises still play an important role in the economy. In particular 
the shipbuilding and agriculture sectors need to be modernised. The necessary reforms of the 
fiscal and social security systems as well as the public administration are not yet completed 
and fiscal consolidation needs to be vigorously pursued. Full integration in the single market 
and the adoption of the acquis would, at this stage, cause difficulties for a number of sectors 
in  withstanding  the  competition  within  the  single  market.  Addressing  the  identified 
weaknesses should contribute to higher investment and growth, thereby enhancing Croatia’s 
competitiveness. 

119 

 
 
  
 
3. CAPACITY TO TAKE ON THE OTHER OBLIGATIONS OF MEMBERSHIP 

Croatia’s ability to take on the other obligations of membership has been evaluated according 
to the following indicators: 

–  The obligations set out in the Stabilisation and Association Agreement, particularly those 
already  in  force  under  the  Interim  Agreement  which  relate  to  areas  such  as  the  free 
movement of goods, competition and intellectual and industrial property rights; 

–  Progress in adoption, implementation and enforcement of the acquis. 

The ratification process of the Stabilisation and Association Agreement with Croatia has not 
been completed. Croatia has made progress in applying the Interim Agreement although due 
attention needs to be paid to the respect of the deadlines set out therein. Croatia has also taken 
important  steps  towards  complying  with  future  obligations  of  the  Stabilisation  and 
Association Agreement (SAA).  

Croatia  has  made  significant  efforts  to  align  its  legislation  with  the  acquis,  particularly  in 
areas  related  to  Internal  Market  and  trade.  These  efforts  need  to  be  continued  vigorously. 
Administrative  capacity  is  uneven  and  enforcement  of  legislation  needs  to  be  improved. 
Croatia  needs  to  continue  legislative  alignment  while  at  the  same  time  strengthening 
administrative and judicial structures that are necessary for the effective implementation and 
enforcement of the acquis. 

If it continues its efforts, Croatia should not have major difficulties in applying the acquis in 
the medium term in the following fields: Economic and Monetary Union; Statistics; Industrial 
policy;  Small  and  medium-sized  enterprises;  Science  and  research;  Education  and  training; 
Culture  and  audio-visual  policy;  External  relations;  Common  foreign  and  security  policy; 
Financial and budgetary provisions. 

Croatia  will  have  to  make  further  efforts  to  align  its  legislation  with  the  acquis  and  to 
effectively  implement  and  enforce  it  in  the  medium  term  in  the  following  fields:  Free 
movement  of  capital;  Company  law;  Fisheries;  Transport;  Energy;  Consumer  and  health 
protection; Customs union; Financial control. 

Croatia will have to make considerable and sustained efforts to align its legislation with the 
acquis and to effectively implement and enforce it in the medium term in the following fields: 
Free  movement  of  goods;  Free  movement  of  persons;  Freedom  to  provide  services; 
Competition; Agriculture; Taxation; Social policy and employment; Telecommunications and 
information technologies; Regional policy; Justice and home affairs. 

For the environment, very significant efforts will be needed, including substantial investment 
and  strengthening  of  administrative  capacity  for  the  enforcement  of  legislation.  Full 
compliance  with  the  acquis  could  be  achieved  only  in  the  long  term  and  would  necessitate 
increased levels of investment. 

CONCLUSION 

(cid:13)  Croatia  is  a  functioning  democracy,  with  stable  institutions  guaranteeing  the  rule  of  law. 
There  are  no  major  problems  regarding  the  respect  of  fundamental rights. In  April 2004, 
the ICTY Prosecutor stated that Croatia is now cooperating fully with ICTY. Croatia needs 
to  maintain  full  cooperation  and  take  all  necessary  steps  to  ensure  that  the  remaining 
indictee is located and transferred to ICTY. Croatia needs to make additional efforts in the 

120 

 
 
  
 
field  of  minority  rights,  refugee  returns,  judiciary  reform,  regional  co-operation  and  the 
fight  against  corruption.  On  this  basis,  the  Commission  confirms  that  Croatia  meets  the 
political criteria set by the Copenhagen European Council in 1993 and the Stabilisation and 
Association Process conditionalities established by the Council in 1997. 

(cid:13)  Croatia can be regarded as a functioning market economy. It should be able to cope with 
competitive  pressure  and  market  forces  within  the  Union  in  the  medium  term,  provided 
that it continues implementing its reform programme to remove remaining weaknesses. 

(cid:13)  Croatia will be in a position to take on the other obligations of membership in the medium 
term,  provided  that  considerable  efforts  are  made  to  align  its  legislation  with  the  acquis 
and ensure its implementation and enforcement. However full compliance with the acquis 
in the field of environment could be achieved only in the long term and would necessitate 
increased levels of investment. 

In  the  light  of  these  considerations,  the  Commission  recommends  that  negotiations  for 
accession to the European Union should be opened with Croatia. 

To  assist  Croatia  in  the  preparation  of  accession  negotiations,  a  comprehensive  screening 
exercise would need to be undertaken. Furthermore, the Commission recommends that the EU 
develops a pre-accession strategy for Croatia and is preparing the necessary proposals to this 
effect.  

This Opinion is accompanied by a draft European Partnership for Croatia which identifies the 
priorities  which  it  needs  to  address  in  preparing  for  accession.  The  Commission  will  report 
regularly  to  the  Council  on  the  progress  made  by  Croatia  on  its  preparation  for  EU 
membership.  

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ANNEX I - STATISTICS 

If not explicitly stated otherwise, data contained in this annex are collected from the Central 
Bureau for Statistics (CBS) of Croatia. 

The  data  presented  below  have  been  compiled  as  far  as  possible  using  EU  definitions  and 
standards, which in some limited cases differ from national practices. This may occasionally 
give rise to differences between the data presented here and those presented in other chapters 
of the Opinion, which are generally based on the reply of Croatia to the questionnaires sent in 
July 2003. 

The methodological notes explain the contents and particularities of statistical data presented 
in this Annex. Data correspond to the information available as of January 2004. 

BASIC DATA 

Population (as of 30th June)

4501.0

4554.0

4381.0

4437,0

4443.2

in km2

Total area

56542

56542

56542

56542

56542

1998

1999

2000
in 1000

2001

2002

2001 population data are based on the census conducted on 31 March 2001. 

DEMOGRAPHY 

Natural growth rate 
Net migration rate (including corrections)

Infant mortality rate 
Life expectancy :
                          Males:
                          Females:

Age Structure
   - people aged under 15 
   - people aged between 15 and 64 
   - people aged 65 or over
International migration
   - Immigration, total 
   - Emigration, total 

2002

-2.4
1.9

7.0

71.2
78.3

16,7
67,2
16,1

20,4
11,8

1998

1999

2000
per 1000 of population

2001

-1.2
9.8

8.2

...
...

19,9
67,8
12,3

51,8
7,6

-1.5
4.1

-1.5
5.3

per 1000 live-births

7.7

...
...

7.4

at birth

...
...

-1.9
3.8

7.7

71.1
78.1

as % of Total Population

19,8
67,9
12,4

32,9
14,3

19,8
67,7
12,5

in 1000s

29,4
6,0

17,0
66,9
15,6

24,4
7,5

122 

 
 
  
 
 
 
 
NATIONAL ACCOUNTS 

Gross domestic product at current prices

Gross domestic product at current prices

1998

137.6

19281.4

Gross domestic product per capita at current prices

4,283.8

Gross domestic product at constant prices (nat. curren
Employment growth
Labour productivity growth

Gross domestic product per capita at current prices

Structure of production
   - Agriculture A;B)
   - Industry (excluding construction) (C,D,E)
   - Construction
   - Services (G-Q)

Structure of expenditure
   - Final consumption expenditure
             - household and NPISH
             - general government
   - Gross fixed capital formation
   - Stock variation
   - Exports of goods and services
   - Imports of goods and services

2.5
0.1
11.02

7,575

9.4
25.0
6.7
59.0

85.5
60.1
25.4
23.3
0.7
39.6
49.2

1999

2000
1000 Mio Kuna

2001

2002

141.6

152.5
Mio ECU/euro
19976.3

162.9

176.4

21811.5

23820.0

18543.5

ECU/euro 

4071.9

4501.7

4915.3
% change over the previous year
3.8
0.5
8.01
in Purchasing Power Standards
8,618

2.9
-1.7
9.62

-0.9
-1.5
4.42

7,509

8,085

% of Gross Value Added  b)

9.8
24.6
5.3
60.4

9.0
24.7
4.6
61.9

9.1
24.3
4.9
61.8

as % of Gross Domestic Product
83.6
60.0
23.6
22.9
1.6
49.1
54.7

85.4
58.9
26.5
23.3
-0.3
40.9
49.3

84.9
60.1
24.8
21.8
-1.6
47.1
52.3

5367.9

5.2
0.8
5.67

9,266

8.2
23.4
5.3
63.2

82.1
60.1
22.0
24.8
2,1
45.9
54.9

For 2002, the data correspond to the sum of quarterly accounts. 

The last official data for GDP by PPP is 8267 $ for the year 1999. The calculation was made by the OECD and 
published  in  their  publication "Purchasing  Power  Parities  and  Real Expenditure",  1999  benchmark  year.  The 
next  official  data  for  Croatia  will  be  for  the  year  2002.  PPPs  for  non  EU  Countries  are  only  available  every 
three years and intermediate years have to be estimated, usually by the international organizations. In this case, 
the missing data has been estimated by the CBS. 

Stock variation for 2002 is a preliminary estimation. The final figure will be available when the calculation of 
the GDP for 2002 will be completed. 

GDP (%  change over the previous year)

6

5

4

3

2

1

0

-1

-2

1998

1999

2000

2001

2002

123 

 
 
  
 
 
 
INFLATION RATE 

Retail price index

1998

5.7

1999

2000
% change over the previous year
4.9

2001

4.2

6.2

2002

2.2

Retail price index (% change over the previous year)

7

6

5

4

3

2

1

0

1998

1999

2000

2001

2002

BALANCE OF PAYMENTS 

   -Current account
   -Trade balance 
      Exports of goods
      Imports of goods
   -Net services
   -Net income 
   -Net current transfers 
      -of which : government transfers
   - FDI (net) inflows

1998

1999

2000
Mio ECU/euro
-510
-3495
4965
-8461
2461
-435
959
24
1147

-1313
-3112
4139
-7251
1538
-333
594
-123
1337

2001

2002

-810
-4596
5314
-9910
3255
-547
1079
64
1566

-1778
-5570
5283
-10852
3204
-570
1157
39
384

-1,295
-3,636
4,082
-7,718
1,861
-150
630
-8
750

Due  to  limitations  of  data  source,  the  CNB  compiles  Croatian  BOP  in  USD  and  Croatian  Kuna.  The  figures 
provided in this table result from the conversion of Kuna denominated BOP into euro. 

124 

 
 
  
 
 
 
 
PUBLIC FINANCE 

General government deficit/surplus
General government debt

Public expenditures
Health
Social protection
Education

1998

-0.92
28.50

:

5,7
14,5
3,8

1999

2000
in % of Gross Domestic Product
-5.49
46.24

-6.58
37.50

-6.96
42.80

2001

as % of Gross Domestic Product
5,0
19,3
4,2

5,7
16,5
4,2

5,5
16,4
4,5

2002

-2.96
51.20

4,8
21,2
4,3

The  data  on  general  government  deficit/surplus  includes  consolidated  general  government,  the  GFS  1986 
methodology is used, with the only exception of the data on privatization revenues, which is excluded from the 
revenue and reclassified to the financing of balance. 

The  data  on  general  government  debt  for  the  year  2002  includes  the  data  for  the  central  government,  local 
governments, Croatian bank for reconstruction and development, and guarantees. The data for earlier years is 
not  fully  comparable  with  the  data  for  2002  because  of  methodological  differences.  The  reconstruction  of  the 
data for those years is currently under way. 

The data on public expenditure in 2002 is a preliminary estimation; the final figure will be available when final 
annual GDP for 2002 is finished. 

General goverment debt (%  of GDP)

60

50

40

30

20

10

0

1998

1999

2000

2001

2002

FINANCIAL INDICATORS 

125 

 
 
  
 
 
 
 
Gross foreign debt of the whole economy

Gross foreign debt of the whole economy
Monetary aggregates
   - M1
   - M2
   - M3
    -M4
Total credit
Average short-term interest rates
   - Day-to-day money rate    
   - Lending rate
   - Deposit rate 
ECU/EUR exchange rates  
   - Average of period
   - End of period

   - Effective exchange rate index
Reserve assets
   -Reserve assets (including gold)
   -Reserve assets (excluding gold)

1998

44.8

113.3

1.8

7.8
9.1

10.9
16.1
4.1

7.1
7.3

1999

2000
in % of Gross Domestic Product
57.0

2001

50.1

60.0

2002

68.6

as % of exports

122.9
 1000 Mio ECU /euro

127.5

117.5

145.7

1.8

2.4

3.2

4.1

7.4
8.6

9.6
9.5
% per annum
3.0
10.5
3.4

10.1
13.5
4.3

(Kuna per euro/ECU))

7.6
7.7

7.6
7.6

1995=100

14.4
11.9

2.3
9.5
2.8

7.5
7.4

15.6
15.1

1.7
10.9
1.6

7.4
7.4

111.9

122.6

126.0

123.0

118.6

Mio  ECU/euro

2,400
2,400

3,013
3,013

3,783
3,783

5,334
5,334

5,651
5,651

126 

 
 
  
 
 
EXTERNAL TRADE 

Trade balance
Exports
Imports 

Terms of trade

Exports with EU-15  
Imports with EU-15  

1998

1999

2000
Mio ECU/euro
-3775
4822
8597

-3256
3999
7255

 previous year=100

100.3

107.1
as % of total
54.4
55.4

48.9
56.6

2001

2002

-5031
5214
10245

98.9

54.1
57.1

-6139
5188
11327

99.5

52.9
55.8

-3,269
3,920
7,189

101.2

47.7
59.3

The values of exports, imports and balance of trade for the years 1998 and 1999 have been calculated on the 
basis of the exchange rates of the Croatian National Bank, situation as on the last day of the year. The exchange 
rate  for  the  year  1998  was 1  EUR  equals 7.3291  Kuna  and  for  the  year 1999  it  was  1  EUR  equals  7.679009 
Kuna.  For  the  period  2000  –  2002,  the  values  have  been  re-calculated  in  EUR  according  to  current  daily 
exchange rates of the Croatian National Bank (middle rate) valid on the day customs duties are levied. 

Terms of trade have been calculated on the basis of the exports and imports values expressed in USD. 

Trade balance (Mio ECU/euro)

0

-1000

-2000

-3000

-4000

-5000

-6000

-7000

1998

1999

2000

2001

2002

127 

 
 
  
 
 
 
 
LABOUR MARKET 

Economic activity rate (15 - 64)
Employment rate (15-64), total
Employment rate (15-64), male
Employment rate (15-64), female

Average employment by NACE branches 
   - Agriculture and forestry
   - Industry (excluding construction)
   - Construction 
   - Services 

Unemployment rate, total
Unemployment rate, males
Unemployment rate, females
Unemployment rate of persons < 25 years

Long-term unemployment share

Unemployment rate by NUTS III region
County of Zagreb
County of Krapina-Zagorje
County of Sisak-Moslavina
County of Karlovac
County of Varaždin
County of Koprivnica-Križevci
County of Bjelovar-Bilogora
County of Primorje-Gorski kotar
County of Lika-Senj
County of Virovitica-Podravina
County of Požega-Slavonia
County Slavonski Brod-Posavina
County of Zadar
County of Osijek-Baranja
County of Šibenik-Knin
County of Vukovar-Sirmium
County of Split-Dalmatia
County of Istria
County of Dubrovnik-Neretva
County of Međimurje
City of  Zagreb

1998

1999

2000
% of population

2001

2002

62.8
55.3
61.7
49.4

16.5
23.5
6.7
53.3

11.6
10.7
12.6
31.0

46.0

60.2
53.2
60.2
47.7

62.2
51.3
57.4
45.5

% of total

11.7
22.7
5.9
59.4

16.7
23.9
6.6
52.9
% of labour force
14.5
13.5
15.7
39.2
% of all unemployed
50.2

17.0
15.9
18.2
43.1

53.6

62.2
51.8
59.0
44.9

15.5
23.1
6.3
55.0

16.3
14.4
18.7
41.7

55.3

62.9
53.6
60.1
47.4

14.9
23.0
6.6
55.4

14.4
13.3
15.8
34.4

53.1

% of labour force
20,0
17,1
27,4
31,1
17,6
16,9
27,2
18,9
25,5
26,2
26,0
33,7
31,4
28,7
36,4
37,7
29,1
15,2
24,4
19,3
11,6

23,0
19,4
32,2
33,1
17,8
18,4
28,9
19,8
27,9
28,7
27,9
34,5
32,2
30,8
38,8
40,1
30,1
14,9
24,9
19,1
13,3

24,4
20,5
35,0
32,9
18,2
21,0
31,3
18,9
30,9
32,9
29,5
36,3
33,0
32,4
39,6
40,8
30,8
14,9
26,3
19,8
13,9

Unemployment  rate  on  county  level  (NUTS  III)  given  according  to  administrative  sources  as  of  31  March,  so 
data are no comparable with unemployment rate from LFS. Data on county level exclude persons in employment 
in police and defence. 

128 

 
 
  
 
 
 
Unemployment rate (%  of labour force)

18
16
14
12
10

8
6
4
2
0

1998

1999

2000

2001

2002

129 

 
 
  
 
 
INFRASTRUCTURE 

Railway network 

Length of motorways

INDUSTRY AND AGRICULTURE 

Industrial production volume indices
Gross agricultural production volume indices

STANDARD OF LIVING 

Number of cars 
Main telephone lines
Number of subscriptions to cellular mobile services
Number of Internet subscriptions

:

1998

103.7
110.1

1998

222.2
349.4
39.3
8.7

1998

48.2

1999

2000
in km per 1000 km2
48.2

48.2

2001

2002

48.2

48.2

330.4

381.6

410.6

428.8

454.9

km

1999

2000
previous year = 100
98.6
98.8

101.7
88.7

2001

2002

106.0
108.5

105.4
107.7

2001

1999

2000
per 1000 inhabitants
233.5
360.3
79.3
16.5

256.8
329.9
253.8
33.8

269.4
401.9
390.1
53.8

2002

280.1
411.3
572.4
83.5

2002

Subscriptions to cellular mobile services include both prepaid and post-paid users. 

Internet subscriptions include subscribers via modem and via leased lines. 

TERTIARY EDUCATION 

1998

1999

2000
in % of total age group (18-24)

2001

Participation rate for persons aged 18 to 24 

27.3

26.1

28.2

29.5

31.6

The  figures  about  tertiary  education  are  calculated  as  percentage  of  enrolled  students  in  tertiary  education 
divided by total population aged 18-24. The total number of population aged 18-24 is (with exception of 2001) 
estimated  

130 

 
 
  
 
 
 
 
 
AREAS OF SPECIAL 
STATE CONCERN (ASSC)

VARAŽDINSKA

MEÐIMURSKA

KRAPINSKO-ZAGORSKA

ZAGREBAÈKA

PRIMORSKO-GORANSKA

KARLOVAÈ KA

KOPRIVNIÈKO-KRIŽEVAÈKA

VIROVITIÈKO-PODRAVSKA

GRAD
GRAD
ZAGREB
ZAGREB

OSJEÈKO-BARANJSKA

ISTARSKA

BJELOVARSKO-BILOGORSKA

VUKOVARSKO-SRIJEMSKA

Borders

State border

Municipality border

County border

Coast

The ASSC Groups

ASSC I

ASSC II

ASSC III

SISAÈKO-MOSLAVAÈKA

BRODSKO-POSAVSKA

LIÈKO-SENJSKA

POŽEŠKO-SLAVONSKA

ZADARSKA

ŠIBENSKO-KNINSKA

SPLITSKO-DALMATINSKA

DUBROVAÈKO-NERETVANSKA

131