Communication from the Commission to the European Parliament and the Council - Enlargement Strategy and Main Challenges 2006 – 2007 Including annexed special Report on the EU's capacity to integrate new members {SEC(2006) 1383} {SEC(2006) 1384} {SEC(2006) 1385} {SEC(2006) 1386} {SEC(2006) 1387} {SEC(2006) 1388} {SEC(2006) 1389} {SEC(2006) 1390}
Date: 2006-11-08
Institutions: European Commission
Subjects: Türkiye, Western Balkans, accession to the European Union, enlargement of the Union, pre-accession strategy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.11.2006 
COM(2006) 649 final 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Enlargement Strategy and Main Challenges 2006 – 2007 
Including annexed special report on the EU's capacity to integrate new members 

{SEC(2006) 1383} 
{SEC(2006) 1384} 
{SEC(2006) 1385} 
{SEC(2006) 1386} 
{SEC(2006) 1387} 
{SEC(2006) 1388} 
{SEC(2006) 1389} 
{SEC(2006) 1390} 

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COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Enlargement Strategy and Main Challenges 2006 - 2007 
Including annexed special report on the EU's capacity to integrate new members 

1. 

INTRODUCTION 

Enlargement  has  been  at  the  heart  of  the  EU's  development  over  several  decades.  The  very 
essence of European integration is to overcome the division of Europe and to contribute to the 
peaceful unification of the continent. Politically, EU enlargement has helped respond to major 
changes such as the fall of dictatorships and the collapse of communism. It has consolidated 
democracy,  human  rights  and  stability  across  the  continent.  Enlargement  reflects  the  EU's 
essence as a soft power, which has achieved more through its gravitational pull than it could 
have achieved by other means.  

Economically,  enlargement  has  helped  to  increase  prosperity  and  competitiveness,  enabling 
the  enlarged  Union  to  respond  better  to  the  challenges  of  globalisation.  This  has  brought 
direct benefits for Europe as a whole. Enlargement has increased the EU's weight in the world 
and made it a stronger international player. 

The  accession  of  Bulgaria  and  Romania  on  1  January  2007  will  complete  the  fifth 
enlargement,  following  the  accession  of  ten  Member  States  in  May  2004.  Rigorous 
preparations have paved the way for their smooth integration into EU institutions and policies. 
The ten new Member States have reached an excellent level of compliance with EU law and 
have made a significant contribution to the work of the EU institutions. They have generated 
increased levels of economic activity, trade and investment, and have produced high rates of 
economic growth. 

The  present  enlargement  agenda  covers  the  countries  of  the  Western  Balkans  and  Turkey. 
These  countries  have  been  given  the  perspective  of  becoming  EU  members  once  they  fulfil 
the  necessary  conditions.  The  countries  are  at  various  stages  on  their  road  towards  the  EU. 
Croatia  and  Turkey  are  negotiating  their  accession.  The  former  Yugoslav  Republic  of 
Macedonia  became  a  candidate  country  in  December  2005.  The  other  Western  Balkan 
countries are making progress towards fulfilling their European perspective. 

The  EU  enlargement  agenda  faces  a  number  of  major  challenges  in  2006-2007.  These 
challenges  relate  in  particular  to  the  accession  negotiations  with  Turkey,  the  question  of 
Kosovo’s  future  status,  relations  with  Serbia,  and  Bosnia  and  Herzegovina’s  assumption  of 
greater ownership of its governance. These issues are important in their own right and touch 
on  geo-political  questions  affecting  the  security  and  stability  of  Europe  as  a  whole.  The 
journey towards membership has value in itself, even if accession is many years away. As this 
journey involves many challenges, the EU needs to remain engaged throughout the process. 

The pre-accession strategy and negotiations with candidates and potential candidates should 
be pursued in a rigorous manner, fully respecting the agreed conditions. The EU will provide 
financial support through the newly-established Instrument for Pre-Accession Assistance from 

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January  2007.  This  financial  support  will  focus  on  priorities  identified  in  the  Accession 
Partnerships and European Partnerships. 

EU  enlargement  is  an  historical  project  based  on  a  vision  of  a  united  Europe  and  its  global 
role. This project needs to be broadly shared and supported by the peoples of Europe to ensure 
full  democratic  legitimacy.  The  key  decisions  leading  to  a  country’s  accession  are  taken  by 
democratically elected bodies in each Member State and in the Union.  

Member  States  need  to  take  the  lead  in  explaining  why  enlargement  is  in  the  EU's  interest. 
The Commission is ready to improve the flow of objective information in user-friendly form, 
and to work together with Member States and the European Parliament to communicate more 
effectively with the public on the enlargement process. 

The European Council will hold a debate on enlargement at its meeting in December  2006. 
The  Council  stated,  in  its  conclusions  of  December  2005,  that  the  strategy  tabled  by  the 
Commission  last  year  was  a  good  basis  for  the  2006  enlargement  debate.  This  strategy 
underlines that a carefully managed enlargement can extend and deepen European integration. 
It  is  based  on  three  basic  principles:  consolidating  existing  commitments  towards  countries 
engaged  in  the  process,  applying  fair  and  rigorous  conditionality,  and  intensifying 
communication with the public on enlargement. 

The EU has taken the concerns on the pace of enlargement seriously. To avoid an overstretch 
of  commitments,  the  EU  honours  existing  commitments  towards  countries  already  in  the 
process, but is cautious about assuming any new commitments. 

Rigorous conditionality is applied to all candidate and potential candidate countries. Any new 
steps  in  the  accession  process  depend  on  each  country’s  progress  in  making  political  and 
economic reforms. As the accession process is a long term effort, it is necessary to keep the 
countries  motivated  to  continue  reforms.  The  EU  also  needs  to  increase  transparency  in  the 
process.  

The EU's own institutions need to be reformed, in line with the European Council conclusions 
of June 2006. A new institutional settlement should have been reached by the time the next 
new member is likely to be ready to join the Union. The EU's financing is another important 
issue  for  the  future.  The  EU's  ability  to  take  in  new  members  while  maintaining  the 
momentum  of  integration  will  be  even  more  important  in  the  future.  The  Commission’s 
special  report,  annexed  to  this  paper,  sets  out  an  approach  designed  to  ensure  that  the  EU 
retains  its  capacity  to  function  effectively  while  pursuing  an  enlargement  agenda  which  is 
designed to meet the challenges of the years ahead.  

Not all European countries are involved in the enlargement process. The EU has established a 
variety  of  relations  with  other  countries,  including  through  the  European  Economic  Area, 
bilateral  ties  with  Switzerland,  the  European  Neighbourhood  Policy,  and  a  strategic 
partnership  with  Russia.  The  European  Neighbourhood  Policy  aims  to  enhance  prosperity, 
stability and good governance in the countries neighbouring the EU though a deeper political 
relationship and economic integration, The Commission will shortly put forward proposals for 
reinforcing the European Neighbourhood Policy. 

Building on the EU's existing strategy, the present paper outlines an approach to draw lessons 
from the fifth enlargement, to support countries on their way to membership, to foster public 

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support for further enlargement, to address the enlargement challenges, and to ensure the EU's 
integration capacity. This is the basis for building a renewed consensus on enlargement. 

2. 

THE FIFTH ENLARGEMENT 

Enlargement  has  shown  its  enduring  value  as  one  of  the  EU’s  most  effective  policies, 
successfully  contributing  to  peace,  stability  and  democratic  development  throughout  the 
continent.  The  ten  Member  States  which  joined  in  2004  have  continued  their  smooth 
integration  into  EU  institutions  and  policies.  The  new  Member  States'  democratic  political 
systems  have,  on  the  whole,  continued  to  function  well.  They  have  an  excellent  level  of 
compliance  with  EU  law  and  have  made  a  significant  contribution  to  the  work  of  the  EU’s 
institutions.  The  EU's  institutions  have  continued  to  function  effectively.  Enlargement  has 
increased the EU’s weight in international political and economic life and added to the EU’s 
negotiating strength in different fora. It has also enriched the Union's cultural heritage. 

As  well  as  having  increased  security  and  stability  in  Europe,  enlargement  has  also  brought 
economic  benefits.  The  new  Member  States  are  rapidly  catching  up  with  the  old  Member 
States.  The  old  Member  States  have  benefited  from  new  trade  and  investment  opportunities 
Enlargement  has  been  beneficial  overall  for  the  EU  economy  and  helped  it  face  better  the 
challenges of globalisation1. The progressive adoption of the euro by the new Member States, 
starting with Slovenia on 1 January 2007, will further contribute to this positive trend. 

The  enlarged  Union  has  meant  a  more  efficient  division  of  labour  and  made  the  EU  better 
equipped  to  compete  globally.  Overall,  the  latest  enlargement  has  acted  as  a  catalyst  for 
economic  growth  and  modernisation  in  the  EU.  A  number  of  major  studies  have  made  this 
clear  recently.  For  example,  concrete  benefits  are  seen  in  the  three  Member  States  which 
introduced the free movement of labour, upon the accession of the ten  new  Member  States. 
They have seen benefits in terms of increased national income and tax revenues and shrinkage 
of  the  grey  economy.  Workers  from  new  Member  States  have  helped  to  overcome  skills 
shortages in the labour market and have adapted well to their new cultural environment2. In 
the light of these experiences, a further five Member States have opened their labour markets 
and another two have partially opened them3. 

The preparation  of Bulgaria  and  Romania for EU  membership  has  proceeded  in  accordance 
with  rigorous  conditionality,  with  full  EU  support.  Both  countries  introduced  far-reaching 
reforms  in  the  course  of  the  accession  negotiations.  Nonetheless,  the  Commission’s 
monitoring  reports  of  October  2005,  May  2006  and  September  2006  highlighted  areas  of 
particular  concern  where  further  efforts  were  needed.  As  a  result  of  the  progress  made, 
Bulgaria  and  Romania  will  be  in  a  position  to  take  on  the  rights  and  obligations  of 
membership  on  1  January  2007.  The  September  report  set  out  strict  conditions  to  ensure 
continued progress in the reform process in these countries before and after accession. It also 
drew attention to the provisions in the acquis and in the Accession Treaty to ensure that EU 

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3 

Commission Communication – Enlargement, Two Years After – An Economic Success – COM(2006) 
200, 3.5.2006. 
Commission Communication - Report on the Functioning of Transitional Arrangements set out in the 
2003 Accession Treaty (period 1 May 2004 – 30 April 2006) – COM(2006) 48, 8.2.2006. 
Full  opening:  May  2004:  Ireland,  United  Kingdom,  Sweden  -  May  2006:  Spain,  Greece,  Finland, 
Portugal - July 2006: Italy. Partial opening: Belgium, France. 

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policies  and  institutions  will  continue  to  function  effectively.  The  Commission  will  not 
hesitate to use these mechanisms at any time, if the need arises. 

The accession of Bulgaria and Romania demonstrates to countries at an earlier stage in their 
preparations for membership that their ultimate goal is achievable. It also provides a number 
of lessons which are now being incorporated into the pre-accession strategy. Thus it is clear 
that issues such as judicial reform and the fight against corruption and organised crime need 
to be tackled at an early stage. The Commission, for example, is promoting greater awareness 
of how best to ensure the independence, impartiality and effectiveness of the judiciary and to 
prevent corruption. In addition, the Commission underlines the need for sustained reforms in 
the  public  administration.  An  accountable  and  efficient  civil  service,  based  on  professional 
career  development  criteria,  enables  a  country  to  prepare  efficiently  for  accession  and 
subsequently operate as a Member State. This is to the benefit of the country as a whole. 

Overall, the fifth enlargement has been a considerable success. The benefits will continue to 
be felt many years ahead. Over 100 million new EU citizens, with rising incomes, will help to 
drive  the  European  economy  forward.  Enlargement  has  brought  higher  standards  of 
democracy and the rule of law in Europe. It strengthened the security of all EU citizens and 
increased prosperity in the Union. 

3. 

THE ENLARGEMENT PROCESS 

EU  enlargement  policy  is  today  based  on  three  basic  principles:  consolidation  of 
commitments, conditionality and communication. 

Consolidation of the EU enlargement agenda means that the Union is cautious about assuming 
any new commitments, but honours its existing commitments towards countries already in the 
enlargement process. The EU has started accession negotiations with Turkey and Croatia and 
offered  a  European  perspective  to  the  other  countries  of  the  Western  Balkans.  This 
commitment is a strong incentive for the countries to continue their reforms. 

Rigorous but fair conditionality is applied to all candidate and potential candidate countries. 
Every  step  forward  depends  on  each  country’s  own  progress  in  meeting  the  necessary 
conditions at each stage of the accession process. This approach helps to consolidate reforms 
and to prepare new Member States to fulfil their obligations upon accession. 

For  enlargement  to  be  a  success,  the  EU  must  ensure  the  support  of  its  citizens.  Member 
States  need  to  take  the  lead  in  communicating  effectively  the  enlargement  process  and  in 
particular the benefits that it offers for EU citizens. Democratic legitimacy remains essential 
for the EU accession process. 

3.1. 

Accession negotiations 

Accession negotiations with Croatia and Turkey opened in October 2005 as was unanimously 
agreed  by  the  Member  States,  providing  further  encouragement  for  political  and  economic 
reform in these countries and for good relations with their neighbours. They are conducted on 
the  basis  of  clear  and  rigorous  negotiating  frameworks  agreed  unanimously  by  the  Council. 
The pace of negotiations depends on the pace of reforms on the ground. 

During  the  accession  negotiations  arrangements  are  established  under  which  the  candidate 
countries  commit  themselves  to  applying  the  whole  body  of  EU  legislation  and  policies, 

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known as the acquis. Countries need to accept and implement the acquis, and to adhere to the 
political objectives of the Treaties. The negotiations allow the candidate countries and the EU 
to agree on measures that may be necessary to facilitate integration. Each country is judged on 
its own merits: the negotiations offer countries the opportunity to demonstrate their ability to 
complete the necessary reforms and meet all membership requirements. 

The negotiations proceed in a structured manner. Since October 2005, the “screening” process 
has  brought  together  hundreds  of  experts  from  Turkey,  Croatia  and  the  Commission  to 
explain  the  acquis,  assess  the  countries’  level  of  alignment,  and  examine  their  plans  for 
implementation. The screening process has just been completed for all the acquis chapters.  

After  a  chapter  has  been  screened,  the  Member  States  decide,  upon  a  Commission 
recommendation,  on  whether  the  chapter  can  be  opened  for  negotiations,  or  on  the 
benchmarks  to  be  met  by  the  candidate  country  before  negotiations  can  be  opened.  When 
opening negotiations, the Union tables its common position, including benchmarks that have 
to be met to provisionally close the chapter. 

Benchmarks are a new tool introduced as a result of lessons learnt from the fifth enlargement. 
Their  purpose  is  to  improve  the  quality  of  the  negotiations,  by  providing  incentives  for  the 
candidate  countries  to  undertake  necessary  reforms  at  an  early  stage.  Benchmarks  are 
measurable and linked to key elements of the acquis chapter. In general, opening benchmarks 
concern key preparatory steps for future alignment (such as strategies or action plans), and the 
fulfilment  of  contractual  obligations  that  mirror  acquis  requirements.  Closing  benchmarks 
primarily concern legislative measures, administrative or judicial bodies, and a track record of 
implementation  of  the  acquis.  For  chapters  in  the  economic  field,  they  also  include  the 
criterion of being a functioning market economy. 

If  a  candidate  country  no  longer  fulfils  the  opening  benchmarks  in  a  chapter  that  is  under 
negotiation, the Commission may propose that negotiations be suspended on that chapter. If a 
candidate  country  no  longer  fulfils  the  closing  benchmarks  in  a  chapter  that  has  been 
provisionally  closed,  the  Commission  may  propose  to  the  Member  States  that  accession 
negotiations on that chapter be re-opened. 

The  Union  expects  negotiating  countries  to  comply  with  the  political  criteria  and  to  work 
towards  higher  standards  throughout  the  negotiations.  The  results  of  dialogue  with  the 
countries on their success in addressing issues under the political criteria will be fed into the 
negotiation  process.  The  Commission  will  prepare  the  dialogue  with  Member  States  and 
report  back  to  them  in  the  relevant  Council  bodies.  In  addition,  the  current  negotiating 
framework  provides  for  a  chapter  on  Judiciary  and  Fundamental  Rights,  under  which  the 
political  issues  are  to  be  addressed.  This  permits  progress  in  crucial  areas  to  be  kept  under 
close scrutiny. 

Current negotiating frameworks provide for accession negotiations to be suspended in case of 
serious and persistent breach of the principles of liberty, democracy, respect for human rights 
and  fundamental  freedoms  and  the  rule  of  law.  Increased  attention  to  political  reforms  will 
improve the quality of the accession negotiations and stimulate the necessary reforms in the 
candidate countries. 

Henceforth, the results of dialogue with the countries on their economic reform will also be 
fed  into  the  negotiation  process.  The  Commission  will  prepare  the  dialogue  with  Member 
States and report back to them in the relevant Council bodies.  This dialogue focuses  on the 

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fulfilment  of  economic  criteria  and  on  convergence  with  the  EU  economies.  It  is  essential 
that, before accession, acceding countries are functioning market economies able to compete 
on  the  internal  market.  Pre-accession  assistance  will  be  focused  more  precisely  to  help 
meeting this objective. 

3.2. 

Pre-accession strategy 

The  Accession  Partnerships  and  European  Partnerships  are  the  central  element  of  the  pre-
accession  strategy.  Based  on  the  findings  of  the  Commission’s  progress  reports  on  each 
country, the Partnerships set out the priorities for these countries to make progress towards the 
objective  of  EU  membership.  They  also  provide  a  framework  for  EU  assistance  towards 
achieving  this  objective.  The  current  partnerships  were  decided  by  the  Council  earlier  this 
year.  The  Commission  intends  to  review  them  at  the  end  of  2007.  The  Commission  is  now 
proposing a European Partnership for Montenegro, following independence. 

Instrument for Pre-accession Assistance 

From  1  January  2007,  the  Commission  will  use  a  new  financial  tool  for  promoting 
modernisation, reform and alignment with the acquis, the Instrument of Pre-Accession (IPA). 
This  will  entirely  replace  previous  assistance  instruments  such  as  Phare,  Cards,  Ispa  and 
Sapard. Candidate countries and potential candidate countries are eligible for funding under 
the  new  instrument.  A  single  set  of  rules  and  procedures  and  more  flexibility  will  provide 
greater  impact  and  value  for  money  in  the  allocation  of  EU  funds.  The  Western  Balkan 
countries and Turkey will benefit from almost € 11.5 billion over the next seven years. The 
Commission  is  presenting  a  multi-annual  financial  framework,  which  sets  out  indicative 
amounts for allocation of IPA funds for each country and for each major component. 

As the essential tasks of post-conflict reconstruction have been attained in Serbia, Montenegro 
and  the  former  Yugoslav  Republic  of  Macedonia,  the  European  Agency  for  Reconstruction 
will phase out its activities by the end of 2008. Aid implementation, with priorities adjusted to 
the  new  realities,  will  be  taken  over  by  the  Commission’s  delegations  and,  when  they  are 
ready, by the countries’ own authorities. The introduction of IPA also provides the occasion 
for  closer  coordination  with  the  European  Investment  Bank,  the  European  Bank  for 
Reconstruction  and  Development,  the  World  Bank  and  other  international  financial 
institutions. The Commission will build on existing co-operation, to ensure, with its partners, 
that the most cost-effective mix of grants and loans is mobilised to support modernisation and 
development throughout the region. 

Implementing the road-map for the Western Balkans 

All  the  Western  Balkan  countries  have  made  progress  towards  realising  their  European 
perspective,  on  the  road-map  put  forward  by  the  Commission  last  year  in  its  enlargement 
strategy paper. Each country advances on its own merits, depending on its success in meeting 
the  requirements.  In  particular,  a  country’s  satisfactory  track-record  in  implementing  its 
obligations  under  the  Stabilisation  and  Association  Agreements  (including  trade-related 
provisions) is an essential element for the EU to consider any membership application. 

At  Salzburg  in  March  2006,  building  on  the  Thessaloniki  agenda,  the  EU  reiterated  its 
commitment that the future of the countries of the Western Balkans lies within the European 
Union and called on the countries to take stronger ownership  of the process of regional co-

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operation.  Regional  co-operation  remains  essential  to  long-term  stability,  economic 
development and reconciliation in the Western Balkans. 

The  countries  of  South-East  Europe  this  year  agreed  to  establish  a  new  framework,  with 
greater  ownership,  based  around  the  South  East  Europe  Co-operation  Process.  A  Regional 
Co-operation  Council  will  be  established,  bringing  together  representatives  of  South  East 
Europe  with  those  of  the  international  community.  The  Commission  strongly  supports  this 
process.  The  Commission  also  welcomes  the  entry  into  force  in  2006  of  the  Energy 
Community Treaty and the Agreement on a European Common Aviation Area. 

The EU will promote people-to-people contacts, both by making available more scholarships 
to students and researchers and by simplifying visa procedures. Croatian citizens are exempt 
from short-term visa requirements. The Commission has proposed that the Council authorises 
the  Commission  to  negotiate  visa  facilitation  agreements  with  the  other  countries  of  the 
region,  with  a  view  to  concluding  these  agreements  in  2007.  The  proposal  covers  also 
readmission, except for Albania with which the EU already signed a readmission agreement. 
Furthermore,  the  EU  will  continue  to  provide  assistance  in  key  areas  such  as  energy, 
transport, and economic co-operation. 

The  countries  of  South-East  Europe  launched  in  April  2006  negotiations  for  a  regional  free 
trade agreement and have set themselves the objective of concluding the agreement by the end 
of 2006. The Commission and the Stability Pact fully support this process4. The EU will soon 
introduce diagonal cumulation of rules of origin in its agreements with Croatia and the former 
Yugoslav Republic of Macedonia, and later to further countries. This will stimulate regional 
trade and investment. Albania, Croatia and the former Yugoslav Republic of Macedonia are 
already  members  of  the  WTO.  The  efforts  that  Bosnia  and  Herzegovina,  Montenegro  and 
Serbia will have to make in the near future to join the WTO will also help them in deepening 
their  regional  trade  ties,  achieving  economic  reforms,  and  implementing  future  Stabilisation 
and Association Agreements. 

4. 

ENSURING PUBLIC SUPPORT FOR ENLARGEMENT 

The enlargement agenda provides the Union with the ways and means to address many of the 
challenges  outlined  above.  The  prospect  of  EU  accession  offered  to  the  countries  of  the 
Western Balkans and to Turkey is an important catalyst for reform in these countries. There 
are clear benefits on the whole for the EU in terms of growth, stability and security. However, 
these need to be better communicated to the public. It is essential to listen to citizens, address 
their concerns, and provide factual information. The Member States must take the lead, with 
the  support  of  the  European  Parliament  and  the  Commission.  The  Member  States,  with  the 
support of regional and local authorities and civil society bodies who are closest to the public, 
need to communicate the benefits that this policy of enlargement has brought to citizens of the 
enlarged EU. 

In ensuring public support for enlargement, it is necessary to increase mutual understanding. 
To this end, the Commission launched in 2005 a civil society dialogue between the EU and 

4 

The Stability Pact for South-Eastern Europe is a regional policy framework set up by the international 
community in June 1999, in order to support the countries' efforts to foster peace, democracy, respect 
for  human  rights  and  economic  prosperity,  and  to  achieve  stability  in  the  region  as  a  a  whole.  It  is 
currently being transformed into a more regionally owned co-operation process. 

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the  candidate  and  potential  candidate  countries.  This  programme  aims  at  promoting 
interaction  between  non-governmental  organisations,  e.g.  student  exchange,  study  visits  of 
journalists,  as  well  as  exchange  between  women’s  organisation,  trade  unions  and  business 
communities. 

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The Commission will take the following measures: 

–  The  Commission  supports  increased  transparency.  It  recommends  that  screening  reports, 
benchmarks for opening negotiation chapters as well as the final EU common positions be 
made public. 

–  The  Commission  will  expand  its  support  for  civil  society  dialogue,  building  on  the 

measures taken to date for Turkey and the Western Balkan countries. 

–  The  Commission  will  promote  more  “people  to  people”  contacts  in  areas  such  as 

education, research and culture. 

–  The Commission will continue to monitor public opinion on enlargement and to listen to 
concerns of the public. It will work through its Representations in the Member States and 
Delegations  in  the  candidate  and  potential  candidate  countries  to  communicate  more 
effectively on enlargement policy. 

–  The  Commission  will  develop  user-friendly  information  in  everyday  language  for  the 
general  public  and  for  specialised  users  on  enlargement  policy  issues,  notably  through 
targeted  web-sites.  It  will  also  explain  practicalities,  in  particular  how  conditionality  and 
impact assessments are used. 

5. 

MAIN CHALLENGES IN 2007 

5.1. 

Remaining challenges from the fifth enlargement  

Achieving  a  comprehensive  settlement  of  the  Cyprus  issue  and  the  unification  of  the  island 
remains  an  important  challenge.  The  Commission  welcomes  the  steps  taken  in  2006  by  the 
leaders  of  the  Greek  Cypriot  and  Turkish  Cypriot  communities  towards  re-launching  a 
process leading to a comprehensive settlement under UN auspices. These efforts need to be 
substantially stepped up in 2007.  

The Commission stands ready to  support such  efforts as it has in the past. The  Council has 
adopted  two  of  the  three  measures  proposed  by  the  Commission  to  end  the  isolation  of  the 
Turkish Cypriot community. Free movement of Greek and Turkish Cypriots as well as other 
EU citizens throughout the island has been ensured through the Green Line Regulation. The 
aid  programme  for  the  Turkish  Cypriot  community  was  adopted  and  is  being  implemented. 
The regulation on direct trade with the northern part of Cyprus proposed by the Commission 
remains to be adopted. Enhanced efforts and a spirit of compromise are needed to enable its 
speedy adoption. 

5.2. 

Candidate Countries 

Croatia 

In  2006,  Croatia  has  continued  to  make  progress  in  terms  of  the  political,  economic  and 
acquis criteria and implementation of its Stabilisation and Association Agreement. The main 
challenge in 2007 will be to build on the progress made, and to accelerate the pace of reforms, 
notably  in  the  key  areas  of  judicial  and  public  administration  reform,  the  fight  against 
corruption  and  economic  reform.  Croatia  needs  to  maintain  the  momentum  towards  EU 

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integration  through  rigorous  implementation  of  its  obligations,  for  example  in  the  areas  of 
state aid and real estate. Croatia should continue its programme of legislative alignment and 
further enhance its administrative capacity. 

Good neighbourly relations and regional cooperation remain key and priority should be given 
to finding solutions to outstanding bilateral issues, especially on border demarcation. Minority 
rights and refugee return will need continued close attention. 

Accession  negotiations  with  Croatia  have  started  well.  Croatia  has  taken  important  steps 
following the screening exercise in many fields to adapt its legislation. It is in the process of 
developing the necessary administrative capacity. Building on this progress, and provided that 
Croatia addresses the challenges discussed above, negotiations can be expected to continue at 
a good pace. 

Turkey 

In 2006, Turkey has continued to make progress in reforms, notably with the recent adoption 
of  some  elements  of  the  9th  reform  package.  Moreover,  the  number  of  reported  cases  of 
torture and ill-treatment is declining on the whole, in line with the zero-tolerance policy, even 
though the situation in the South-East gives rise to concerns in this respect. However, the pace 
of reforms has slowed down. In 2007, it will be important to undertake determined efforts to 
broaden  the  reform  momentum  throughout  Turkey.  It  is  necessary  to  ensure  freedom  of 
expression  without  delay  by  repealing  or  amending  Article  301  of  the  Penal  Code  and  by 
overall bringing the legislation into line with European standards. Apart from the freedom of 
expression,  further  efforts  are  needed  to  strengthen  freedom  of  religion,  women’s  rights, 
minority rights and trade union rights. Civilian democratic control over the military needs to 
be  asserted,  and  law  enforcement  and  judicial  practice  further  aligned  with  the  spirit  of  the 
reforms.  At  the  same  time,  there  is  a  need  for  Turkey  to  address  the  serious  economic  and 
social problems in the South-East and to ensure full enjoyment of rights and freedoms by the 
Kurdish  population.  The  Accession  Partnership,  adopted  in  January  2006,  provides  the 
yardstick  to  measure  progress  in  the  reforms.  Good  neighbourly  relations  remain  key.  The 
Commission will intensify its monitoring of the political criteria. 

As  stated  in  the  declaration  by  the  European  Community  and  its  Member  States  of  21 
September 2005, the EU expects Turkey to ensure full, non-discriminatory implementation of 
the Additional Protocol to the Ankara Agreement and the removal of all obstacles to the free 
movement  of  goods,  including  restrictions  on  means  of  transport.  Failure  to  implement  its 
obligations  in  full  will  affect  the  overall  progress  in  the  negotiations.  The  Commission  will 
make relevant recommendations ahead of the December European Council, if Turkey has not 
fulfilled its obligations. It is also essential that, as stated in the Accession Partnership, Turkey 
takes concrete steps for the normalisation of bilateral relations with all EU Member States as 
soon as possible. 

The former Yugoslav Republic of Macedonia 

The  designation  of  the  former  Yugoslav  Republic  of  Macedonia  as  a  candidate  country  in 
December 2005 gave recognition to this country’s reform achievements. It also provided an 
encouragement  to  pursue  reforms  on  the  road  towards  fulfilling  the  country's  European 
perspective. 

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The former Yugoslav Republic of Macedonia has continued to make progress, although at a 
slower pace in 2006. Elections in July took place generally in accordance with international 
standards. The shortcomings that were identified need to be fully addressed.  

The  government  faces  particular  challenges  still  in  implementing  reforms  of  the  police  and 
judiciary,  the  fight  against  corruption,  and  full  implementation  of  the  Stabilisation  and 
Association  Agreement.  The  continued  implementation  of  the  Ohrid  Agreement  remains 
essential  to  foster  a  positive  climate  for  reforms.  It  is  important  that  reform  efforts  be 
sustained  in  the  period  ahead  on  the  basis  of  co-operation  and  political  consensus.  Overall, 
priority  should  be  given  to  advancing  the  pace  of  reforms  in  key  areas,  if  progress  is  to  be 
made towards the goal of moving ahead in the accession process. 

5.3. 

Potential Candidate Countries 

Albania 

Albania  has  continued  to  contribute  to  stability  in  the  region,  particularly  through  its 
measured  position  on  the  situation  in  neighbouring  countries.  EU  relations  with  Albania 
advanced  with  the  signature  this  year  of  the  Stabilisation  and  Association  Agreement.  The 
priority  now  is  to  focus  on  implementation  of  the  Interim  Agreement,  which  will  enter  into 
force on 1 December 2006, and which covers trade-related issues. With EU support, Albania 
is  tackling  the  challenges  of  political,  judicial  and  economic  reform,  as  well  as  the  fight 
against  corruption  and  organised  crime.  These  themes  will  remain  priorities  in  the  period 
ahead. 

Bosnia and Herzegovina 

The European perspective is crucial in encouraging all parties in Bosnia and Herzegovina to 
carry  out  political  and  economic  reform,  such  as  police  reform.  Full  co-operation  with 
International  Criminal  Tribunal  for  the  former  Yugoslavia  (ICTY)  is  a  key  part  of  the 
conditionality  under  which  the  country  can  draw  closer  to  the  EU.  The  withdrawal  of  the 
Office of the High Representative (OHR) will give the people and institutions of the country 
further  ownership  of  their  common  destiny.  The  completion  of  the  negotiations  for  a 
Stabilisation and Association Agreement and its implementation will reinforce the country’s 
European  perspective.  Provided  that  the  conditions  are  met,  these  negotiations  can  be 
completed  within  a  couple  of  months.  Constitutional  evolution  is  essential  to  build  a  more 
functional, sustainable and democratic state. The EU will need to address the question of its 
own future representation in the country following the withdrawal of the OHR. 

Montenegro 

Montenegro  achieved  independence  in  June  2006  after  a  referendum  held  in  a  free  and  fair 
manner  under  conditions  agreed  with  the  European  Union.  Following  independence, 
Montenegro  has  begun  negotiations  on  a  separate  Stabilisation  and  Association  Agreement 
(SAA), under new directives which were rapidly agreed by the Council. By engaging with the 
EU, Montenegro has the opportunity to meet the challenges of state-building within the stable 
and secure setting of the pre-accession process. 

It will be important to sustain the pace of reforms and continue co-operation with ICTY, so 
that negotiations on an SAA can be concluded in the coming months. Montenegro has much 
to do to strengthen its institutions sufficiently to move forward. The key measures are set out 

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in the European Partnership proposed together with this communication. Priority needs to be 
given to judicial reform and to the fight against organised crime and corruption. Montenegro 
needs to upgrade its administrative capacity in view of SAA implementation. 

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Serbia 

is 

to  be  commended  for 

Serbia 
its  responsible  approach  following  Montenegro’s 
independence. The new constitution should pave the way to reinforcing the country’s system 
of governance. Serbia has registered success in ensuring macroeconomic stability in pursuing 
privatisation,  and  in  attracting  foreign  direct  investment.  Economic  integration  with  the  EU 
has  advanced.  Serbia  has  also  made  further  progress  with  administrative  reform.  In 
negotiations  with  the  EU  on  a  Stabilisation  and  Association  Agreement  (SAA),  the  Serbian 
administration  demonstrated  its  considerable  institutional  capacity.  This  augurs  well  for 
Serbia's ability to catch up with the other countries of the region on the way to the EU, once 
Serbia has met the condition for resuming SAA negotiations. 

The  Commission  does  not  underestimate  the  scale  of  the  challenges  Serbia  faces  in  current 
political conditions. Serbia needs to take a constructive approach on Kosovo. The prospect of 
eventual  EU  accession  needs  to  be  credible  and  made  visible  for  the  Serbian  population 
through  the  early  resumption  and  rapid  conclusion  of  negotiations  for  a  Stabilisation  and 
Association  Agreement,  as  soon  as  Serbia  has  met  the  condition  of  full  co-operation  with 
ICTY.  The  EU  is  also  working  to  bring  the  Serbian  people  into  the  European  mainstream 
through  visa  facilitation5  and  by  helping  Serbia  to  participate  more  fully  in  Community 
programmes in areas such as education, youth, research and culture. 

Kosovo6 

The EU has continued to engage with Kosovo, through monitoring the standards, providing 
assistance,  and  working  with  UNMIK,  as  well  as  supporting  the  status  process  conducted 
under the auspices of the UN Secretary General’s Special Envoy, Mr. Martti Ahtisaari. The 
EU will have a major role to play in the status settlement and its implementation, once it is 
agreed by the United Nations Security Council. 

The  status  settlement  needs  to  be  politically  and  legally  clear  and  to  set  out  a  vision  for 
Kosovo’s  future  development.  Kosovo’s  status  question  is  sui  generis,  and  hence  sets  no 
precedent. 

This will give a further impetus for the Kosovo authorities to progress on the reforms that are 
needed in the key areas of the rule of law, economy, and public administration and provide 
the  basis  for  a  successful  transfer  of  responsibility  from  UNMIK.  Minority  rights  remain  a 
vital issue, as is the participation of minorities in Kosovo's institutions.  

The European perspective is crucial to provide all involved with a vision of a common future 
in the European Union. 

5 
6 

See page 10 for more information on visa facilitation. 
Under UN Security Council Resolution 1244. 

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6. 

CONCLUSIONS AND RECOMMENDATIONS 

Based on the above analysis, the Commission proposes the following conclusions: 

1. 

2. 

The  EU's  enlargement  policy  continues  to  be  based  on  the  three  principles  of 
consolidation, conditionality, and communication. The EU honours the commitments 
made  to  the  countries  already  in  the  process,  but  is  cautious  in  assuming  any  new 
commitments. The pace of the accession process depends on the pace of reforms in 
the candidate country. 

The current enlargement strategy, combined with ways and means to ensure the EU's 
capacity  to  integrate  new  members,  forms  the  basis  for  a  renewed  consensus  on 
enlargement. 

3. 

The EU's capacity to integrate new members is determined by two factors: 

–  maintaining  the  momentum  to  reinforce  and  deepen  European  integration  by 
ensuring the EU's capacity to function. This is in the interest of both present and 
future EU citizens; 

–  ensuring  that  candidate  countries  are  ready  to  take  on  the  obligations  of 
membership  when  they  join  by  fulfilling  the  rigorous  conditions  set.  This  is 
assessed by the Commission on the basis of strict conditionality. 

The  EU's  integration  capacity  will  be  reviewed  at  all  key  stages  of  the  accession 
process.  In  its  opinions  on  applications  for  membership  and  in  the  course  of 
accession  negotiations,  the  Commission  will  provide  impact  assessments  of 
accession on key policy areas. This will help Member States to define EU common 
positions  for  the  negotiations  of  the  chapters  concerned,  including,  where  relevant, 
transition periods or other arrangements. 

When  assessing  the  budgetary  impact  of  future  accessions,  the  Commission  will 
examine the impact on key policies, in particular agriculture and cohesion policies. 

The  EU  must  ensure  that  it  can  maintain  and  deepen  its  own  development  while 
pursuing  its  enlargement  agenda.  Institutional  reform  is  needed  to  improve  the 
effectiveness  of  the  decision-making  of  an  enlarged  EU.  A  new  institutional 
settlement should have been reached by the time the next new member is likely to be 
ready to join the Union. 

The  Commission  will  further  improve  the  quality  of  the  accession  process. 
Benchmarks can be laid down both for opening and closing negotiation chapters, and 
will  provide  grounds  for  suspending  or  re-opening  negotiations  on  individual 
chapters.  The  results  of  political  and  economic  dialogues  will  be  fed  into  the 
negotiation  process.  Difficult  issues,  such  as  judicial  reform  and  the  fight  against 
corruption, need to be addressed at an early stage of the accession process. 

In order to enhance transparency the Commission recommends that key negotiation 
documents  be  made  public,  including  impact  assessments,  screening  reports, 
benchmarks for opening chapters and EU common positions for the negotiations. 

4. 

5. 

6. 

7. 

8. 

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9. 

10. 

11. 

12. 

13. 

It  is  essential  to  ensure  public  support  for  enlargement.  Maintaining  rigour  in  the 
process  and  strict  conditionality  is  essential  to  safeguard  this  support.  So  is 
confidence  about  the  EU's  integration  capacity.  We  also  need  to  communicate 
enlargement better. It is important to listen to citizens, address their concerns through 
adequate policies and present factual information. Member States have a lead role to 
play.  The  Commission  will  play  its  part  together  with  the  European  Parliament, 
national, regional and local authorities, and civil society. 

Croatia has made a good start in the accession negotiations. The country has taken 
important  steps  following  the  screening  exercise  in  many  fields  to  adapt  its 
legislation, and is in the process of developing the necessary administrative capacity. 
Croatia however needs to considerably step up efforts to meet main challenges such 
as judicial reform, the fight against corruption, economic reform and to continue to 
fully  cooperate  with  the  International  Criminal  Tribunal  for  former  Yugoslavia. 
Good neighbourly relations and regional cooperation remain key. 

Turkey  continues  to  sufficiently  fulfill  the  Copenhagen  political  criteria  and  has 
continued  political  reforms.  However  the  pace  has  slowed  during  the  past  year. 
Significant further efforts are needed in particular on freedom of expression. Further 
improvements  are  also  needed  on  the  rights  of  non-Muslim  religious  communities, 
women's rights, trade union rights and on civilian control of the military. Turkey can 
be regarded as a functioning market economy and has improved its ability to take on 
the obligations of membership. Good neighbourly relations remain key. 

As stated in the declaration by the European Community and its Member States of 21 
September  2005,  the  EU  expects  Turkey  to  ensure  full,  non-discriminatory 
implementation of the Additional Protocol to the Ankara Agreement and the removal 
of  all  obstacles  to  the  free  movement  of  goods,  including  restrictions  on  means  of 
transport. Failure to implement its obligations in full will affect the overall progress 
in the negotiations. The Commission will make relevant recommendations ahead of 
the December European Council, if Turkey has not fulfilled its obligations. It is also 
essential that, as stated in the Accession Partnership, Turkey takes concrete steps for 
the  normalisation  of  bilateral  relations  with  all  EU  Member  States  as  soon  as 
possible. 

The  designation  of  the  former  Yugoslav  Republic  of  Macedonia  as  a  candidate 
country  in  December  2005  gave  recognition  to  this  country's  reform  achievements. 
The country has continued to make progress although at a slower pace in 2006. All 
Western Balkans countries have made progress following the road-map put forward 
by the Commission last year. Each country advances on its own merits. A country's 
satisfactory track-record in implementing its obligations under the Stabilisation and 
Association  Agreements  (including  trade-related  provisions)  is  an  essential  element 
for the EU to consider any membership application. 

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ANNEX 1 

Special report on the EU's capacity to integrate new members 

INTRODUCTION 

This  special  report  is  an  integral  part  of  its  2006  enlargement  strategy  paper.  Following  the 
request  of  the  European  Council  at  its  meeting  of  June  2006,  it  focuses  on  medium  to  long 
term  issues  concerning  the  EU's  capacity  to  integrate  new  members.  It  puts  forward  an 
approach for ensuring that Union can maintain and deepen its own development, in terms of 
policies and institutions, while pursuing an enlargement agenda with major challenges in the 
world today. 

In  1993  the  Copenhagen  European  Council  concluded  that  "the  Union's  capacity  to  absorb 
new  members,  while  maintaining  the  momentum  of  European  integration,  is  an  important 
consideration in the general interest of both the Union and the candidate countries". As set out 
in the Commission’s 2005 Strategy Paper and confirmed by the June 2006 European Council, 
the pace of enlargement must take into consideration the EU's integration capacity.  

The EU must ensure that it can maintain and deepen its own development while pursuing its 
enlargement  agenda.  Institutional  reform  is  needed  to  improve  the  effectiveness  of  the 
decision-making of an enlarged EU. A new institutional settlement should have been reached 
by the time the next new member is likely to be ready to join the Union.  

Enlargement is about sharing a project based on common principles, policies and institutions. 
The  Union  has  to  ensure  it  can  maintain  its  capacity  to  act  and  decide  according  to  a  fair 
balance  within  institutions,  respect  budgetary  limits,  and  implement  ambitious  common 
policies that function well and achieve their objectives. 

The  EU’s  absorption  capacity,  or  rather  integration  capacity,  is  determined  by  the 
development of the EU's policies and institutions, and by the transformation of applicants into 
well-prepared Member States. The capacity of would-be members to accede to the Union is 
rigorously  assessed  by  the  Commission  on  the  basis  of  strict  conditionality.  Integration 
capacity is about whether the EU can take in new members at a given moment or in a given 
period,  without  jeopardizing  the  political  and  policy  objectives  established  by  the  Treaties. 
Hence, it is first and foremost a functional concept. The Commission will in the future prepare 
impact  assessments  at  all  key  stages  of  the  accession  process.  Where  such  assessments  are 
made, the specific characteristics of each country will be taken into account. 

The EU has enlarged five times, growing from six to 25 and soon 27 Member States. These 
enlargements  made  a  major  contribution  to  the  unification  of  Europe,  fostering  democracy, 
human rights and stability across the continent. They stimulated the development of new EU 
policies, in areas such as economic and social cohesion, external relations, and environmental 
protection.  The internal market, the Schengen area and the euro were developed in parallel. 
The  fifth  enlargement  in  2004,  soon  to  be  completed  with  the  accession  of  Bulgaria  and 
Romania, has increased the EU's weight in the world and generated specific economic gains, 
in  terms  of  trade  and  investment  and  economic  growth.  At  the  same  time,  the  EU  has 
continued  to  develop  and  implement  new  policies,  for  example  on  justice,  freedom  and 
security.  Widening  the  EU  has  proceeded  in  parallel  with  the  deepening  of  European 
integration. 

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The  present  enlargement  agenda  is  based  on  a  strategy  consisting  of  three  basic  principles: 
consolidation, conditionality and communication. It covers countries in the Western Balkans 
and  Turkey  which  are  at  different  stages  on  the  road  towards  the  EU.  These  countries  have 
been  given  by  the  European  Council  the  clear  perspective  of  becoming  EU  members  once 
they fulfil the necessary conditions. The EU honours existing commitments towards countries 
already in the process, but is cautious about assuming any new commitments. 

At  present,  it  appears  unlikely  that  a  large  group  of  countries  will  in  future  accede 
simultaneously.  The  candidates  and  potential  candidates  vary  considerably  in  terms  of 
political and economic development and administrative capacity. Further accessions are likely 
to occur in the medium to long term, given the present state of pre-accession preparations. 

The  EU  can  successfully  welcome  new  countries  provided  its  own  development  has 
progressed  and  candidate  countries  can  fulfil  their  responsibilities  as  Member  States.  EU 
citizens  also  need  to  be  ready  for  further  enlargement,  with  a  better  understanding  of  the 
issues at stake. This will enhance the democratic legitimacy of the process in terms of public 
perception. The approach presented in this paper is based on: 

–  ensuring the EU’s capacity to maintain the momentum of European integration; 

–  ensuring candidate countries fulfil the rigorous conditions; 

–  better communication. 

The question of the ultimate borders of the European Union has been raised in recent years. 
This  has  enabled  the  Commission  to  draw  a  number  of  conclusions.  The  term  'European' 
combines  geographical,  historical  and  cultural  elements  which  all  contribute  to  European 
identity.  The  shared  experience  of  ideas,  values,  and  historical  interaction  cannot  be 
condensed  into  a  simple  timeless  formula  and  is  subject  to  review  by  each  succeeding 
generation. 

The  legal  basis  of  the  enlargement  is  Article  49  of  the  Treaty  on  European  Union,  which 
states that “Any European State which respects the principles set out in Article 6(1) may apply 
to  become  a  member  of  the  Union”.  However,  this  treaty  provision  does  not  mean  that  all 
European  countries  must  apply,  or  that  the  EU  must  accept  all  applications.  The  European 
Union is defined first and foremost by its values. 

A SHORT HISTORY OF THE EU'S INTEGRATION CAPACITY 

The Union has assessed its capacity to integrate new members in previous enlargements. The 
Commission's opinions on applications for membership have served as a basis for the Council 
to  decide  on  the  opening  of  accession  negotiations.  They  assessed  the  candidates'  ability  to 
assume the obligations of membership including their acceptance of EU policies. In the case 
of the first four enlargements, the opinions also provided a general analysis of the impact of 
accession on the Union, in areas such as the functioning of the rotating Council Presidency, 
estimates  of  net  financial  transfers  based  on  existing  common  policies,  or  the  addition  of 
official EU languages. 

The  Commission  presented  in  2004  a  study  on  the  issues  raised  by  Turkey's  possible 
membership,  together  with  its  recommendation  to  open  accession  negotiations.  The  study 
envisaged that the necessary preparations for accession would last well into the next decade. It 

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presented estimates of the budgetary impact of Turkey's accession and identified areas where 
this  would  raise  particular  challenges:  agriculture,  cohesion,  energy,  migration,  external 
borders, and foreign policy. 

In  preparing  past  enlargements  the  Commission  examined  in  separate  policy  papers  the 
implications  for  the  EU  of  issues  common  to  several  applications  for  membership.  The 
Commission  has  emphasised  strengthening  EU  institutions,  furthering  economic  integration 
and developing common policies as pre-requisites for European integration.  

In  1997,  the  Commission  assessed  the  likely  impact  of  the  fifth  enlargement  and  proposed 
budgetary and policy reforms in preparation for accession. A key goal of "Agenda 2000" was 
to ensure that EU policies were ready for enlargement. 

Economically,  the  EU  had  started  to  prepare  the  fifth  enlargement  round  as  early  as  1991, 
when  the  EU  signed  the  first  Europe  Agreements  with  Central  and  Eastern  European 
countries. As a result of these agreements, the EU quickly became the first trading partner of 
these  countries.  Most  of  the  bilateral  trade  in  industrial  goods  between  the  EU  and  these 
countries  was  liberalised  well  before  accession,  which  facilitated  greatly  economic 
integration. 

Economic integration with Turkey is facilitated by the Customs Union which has stimulated 
economic reforms and dynamism. In the Western Balkans, countries are prepared through the 
Stabilisation  and  Accession  Agreements  which  provide  for  progressive  trade  liberalisation 
and  economic  assistance.  The  simultaneous  enlargement  and  modernisation  of  the  Central 
European Free Trade Agreement (CEFTA) paves the way for deeper economic integration in 
South-Eastern Europe. 

The assessment of the EU's ability to integrate new Members continued during the accession 
negotiations.  The  Commission  proposed  measures  to  address  the  impact  of  enlargement  on 
the existing Member States in particular policy areas. In the fifth enlargement, these included 
the movement of workers and road transport. The Commission's evaluation of the budgetary 
amounts necessary for financing the fifth enlargement provided the basis for concluding the 
negotiations, including for agriculture payments. 

The  Union  assisted  the  applicant  countries  in  their  preparations  for  assuming  their  future 
membership obligations. For the fifth enlargement it established a pre-accession strategy. This 
included close monitoring and regular reporting on progress made by each country, priority-
setting  through  accession  partnerships,  and  financial  assistance.  Far-reaching  association 
agreements allowed the applicant states to take on some of the rights and obligations of the 
acquis before accession in areas of the single market, such as competition policy, intellectual 
property,  maritime  transport  and  certification  for  industrial  products.  Candidate  countries 
participated  in  EU  agencies  and  committees.  Once  the  accession  treaties  were  signed,  the 
acceding countries participated as observers in the law-making process. 

This  strategy,  which  aimed  at  sound  preparations  by  the  candidate  countries  themselves, 
facilitated their smooth integration into the EU. Two years after their accession, the ten new 
Member  States  have  achieved  an  excellent  level  of  compliance  with  EU  legislation,  as 
highlighted 
the 
implementation  of  EU  law.  The  economic  impact  of  their  accession  has  been  positive. 
Institutions have continued to function and to take decisions; the new members have played 
an active role. 

internal  market  scoreboard  and  reports  on 

the  Commission's 

in 

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The  Commission  conducted  a  study  on  the  economic  dimension  of  enlargement  two  years 
after the 1 May 2004 round of enlargement. The study shows that the experience from the past 
two years has  been largely  positive7. Eastward enlargement has boosted growth and created 
new jobs in the European economy. Careful preparation of the enlargement over the previous 
decade has been key to achieve this successful outcome. 

A  majority  of  citizens  in  the  EU  and  in  the  candidate  countries  supported  enlargement. 
Nevertheless, much is at stake and certain anxieties and misapprehensions remain present in 
public opinion with regard to enlargement. These need to be addressed. 

THE EU'S INTEGRATION CAPACITY TODAY 

The Union needs to ensure it can maintain its capacity to function, in the interest of its present 
and future citizens. While the Union prepares internally for further institutional reforms, the 
carefully managed accession process will continue.  

This  section  presents  an  approach  for  assessing  the  EU's  capacity  for  future  enlargements, 
building on past experience. 

Ensuring the EU’s capacity to maintain the momentum of European integration 

The capacity of the Union to maintain the momentum of European integration as it enlarges 
has  three  main  components:  institutions,  common  policies,  and  budget.  The  Union  needs  to 
ensure that its institutions continue to act effectively, that its policies meet their goals, and that 
its budget is commensurate with its objectives and with its financial resources. 

Institutions 

The EU does not need new institutional arrangements simply for the sake of enlargement; it 
also needs them so that the current Union can function better. The Union needs to ensure that 
its institutions and decision-making processes remain effective and accountable, for the sake 
of current Member States as well as in view of further enlargement. 

In  previous  enlargements,  the  integration  of  the  acceding  countries  into  the  EU  institutions 
formed  part  of  the  accession  negotiations.  The  resulting  adjustments  to  the  institutional 
provisions  were  made  in  the  respective  Accession  Treaties.  The  latest  enlargement  was 
preceded by institutional reforms. The institutional provisions of the Accession Treaties with 
the ten new Member States that joined in 2004 and with Bulgaria and Romania are based on 
the Nice Treaty. 

The Nice Treaty provides rules for up to 27 Member States, that is, the accession of Bulgaria 
and Romania. But the Treaty stipulates that when the Union consists of 27 Member States, the 
number of members of the Commission shall be less than the number of Member States. The 
number of members of the Commission shall be set by the Council, acting unanimously. This 
rule  applies  to  the  first  Commission  following  the  entry  of  the  27th  Member  State.  The 
Council would also adopt the implementing arrangements for a rotation system based on the 
principle of equality. 

7 

Commission Communication – Enlargement, Two Years After – An Economic Success – COM(2006) 
200, 3.5.2006. 

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The Nice Treaty does not provide for adaptations to the composition and functioning of the 
other institutions for a Union of more than 27 Member States. The allocation of seats in the 
European Parliament and the weighting of votes in the Council are clearly central to the EU's 
capacity  to  take  decisions.  Therefore,  before  any  further  enlargement,  the  EU  will  have  to 
decide on the scope and substance of those institutional reforms. 

Enlargement will also have practical implications for the functioning of the institutions, such 
as the use of languages. An assessment of the impact of enlargement on EU institutions will 
be included in Commission opinions on any future application for EU membership. 

A new institutional settlement should have been reached by the time the next new member is 
likely to be ready to join the Union. Making the EU function better is as much in the interest 
of future prospective Member States as of the enlarged Union.  

EU policies 

Past enlargements have strengthened EU policies, as new Member States have brought their 
own  national  experience  and  policy  orientations  to  the  European  enterprise.  The  present 
acquis, in areas as diverse as cohesion policy, agriculture, fisheries, environmental protection, 
external  relations,  transparency,  accountability  and  European  citizenship  reflect,  in  part,  the 
impact of past enlargements. Some EU policies would bring even greater benefits if expanded 
to  more  countries  under  the  right  conditions,  for  example  the  internal  market  or  the  area  of 
justice, freedom and security. 

The Union needs to be in a position, as it enlarges, to continue developing and implementing 
common policies in all areas. Assessment of the impact of enlargement on EU policies will 
take place at all key stages of the enlargement process. 

Each  Commission  opinion  on  a  country's  application  for  EU  membership  will  in  future 
include an assessment of the impact of its accession on EU policies. This will also be reflected 
in the framework which establishes the terms of reference for the accession negotiations. 

The negotiation frameworks for Croatia and Turkey envisage a set of measures to enable their 
smooth  integration  in  EU  policies.  They  also  lay  down  measures  to  ensure  the  proper 
functioning of EU policies after enlargement, such as transition periods, derogations, specific 
arrangements and permanent safeguards. 

The Commission will examine the impact of future enlargements on agriculture and cohesion 
policies when assessing the budgetary impact of enlargement. This will take into account the 
future evolution of these policies. 

In the course of accession negotiations, the Commission will provide substantial assessments 
of  the  impact  of  accession  on  key  policy  areas,  including  the  movement  of  persons,  border 
management,  agriculture,  cohesion  policy  and  transport.  Similar  assessments  will  be 
conducted  in  the  areas  of  energy  policy  and  foreign  and  security  policies,  also  taking  into 
account  the  EU's  strategic  motives  to  enlarge  in  terms  of  increased  stability,  foreign  and 
security policy assets, or secure energy supply. This will enable Member States to define the 
EU  common  positions  for  the  negotiations  in  the  chapters  concerned,  including,  where 
relevant,  transition  periods  or  other  arrangements,  with  a  full  understanding  of  the  likely 
impact. 

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EU Budget 

The Union needs to be in a position to continue financing its policies in a sustainable manner. 
The  impact  of  enlargement  on  the  EU  budget  will  be  carefully  assessed  throughout  the 
enlargement  process.  Each  Commission  opinion  on  a  country's  application  for  EU 
membership will provide estimates of the budgetary impact. 

Before  any  further  accession,  the  EU  will  need  to  decide  on  the  overall  budgetary  means 
required. On that basis, the Commission will propose, in any future accession negotiations, a 
package of necessary financial measures. The Commission's analysis will take account both 
of the budgetary aspects and of the increased economic dynamism generated by accessions. 

Ensuring that candidate countries fulfil the rigorous conditions 

Conditionality  is  one  of  the  pillars  of  the  Commission's  enlargement  strategy.  Good 
preparation  by  candidate  countries  facilitates  their  smooth  integration  into  the  EU.  Further 
improvement in the quality of preparations has become crucial as the scope of EU activities 
has developed. This warrants the strict application of conditionality during the pre-accession 
phase, and thorough fulfilment of the requirements at each stage of the accession process. 

As part of the pre-accession strategy the Commission will closely monitor the progress made 
by  each  enlargement  country.  This  monitoring  will  be  based  on  the  political,  economic  and 
acquis  criteria  for  membership.  The  Commission  will  pay  particular  attention  to  the 
establishment of the structures needed to ensure the rule of law. This includes administrative 
and  judicial  capacity  and  the  fight  against  fraud  and  corruption.  These  issues  should  be 
tackled at an early stage of the pre-accession process. 

Based on its findings, the Commission will propose short and medium term reform priorities 
for the Accession or European Partnerships covering each country. These policy frameworks 
have  proved  to  be  an  effective  means  for  setting  priorities  during  preparation  for  the  fifth 
enlargement. The Commission will propose updates regularly. Financial assistance to support 
the  enlargement  countries  will  focus  on  the  reforms  identified  as  partnership  priorities.  The 
introduction in 2007 of a single new financial instrument to cover all pre-accession needs, will 
make EU support for membership preparations more effective. 

Association  agreements  with  the  enlargement  countries  play  a  central  role  in  the  countries' 
preparations.  The  Commission  will  verify  compliance  with  the  obligations.  A  satisfactory 
track  record  in  implementing  bilateral  obligations  is  an  essential  element  for  the  EU  to 
consider any membership application. 

Progress  in  accession  negotiations  will  be  determined  by  success  in  fulfilling  the  accession 
requirements  set  out  in  the  negotiating  frameworks,  assessed  on  each  country's  own  merits. 
Candidate countries will be expected to demonstrate success in meeting precise benchmarks 
before a negotiation chapter can be opened or closed. Failure to meet a benchmark could lead 
to negotiations on the chapter concerned being suspended or reopened. 

In future, there will be a closer link between progress in political reforms and the overall pace 
of the negotiations. The results of dialogue with the countries on their progress in meeting the 
political  criteria  for  membership  will  be  fed  directly  into  the  negotiation  process.  The 
Commission  will  prepare  the  dialogue  with  Member  States  and  report  back  to  them  in  the 
relevant  Council  bodies.  New  arrangements  have  been  set  up  in  the  Council  framework  to 

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ensure  that  officials  from  Member  States  responsible  for  monitoring  progress  with  reforms 
and officials responsible for accession negotiations meet in the same working group. 

In  addition,  the  current  negotiating  framework  provides  for  a  chapter  on  Judiciary  and 
Fundamental  Rights,  under  which  the  political  issues  are  to  be  addressed.  This  permits 
progress  in  crucial  areas  to  be  kept  under  close  scrutiny.  Accession  negotiations  may  be 
suspended,  in  case  of  serious  and  persistent  breach  of  the  principles  of  liberty,  democracy, 
respect for human rights and fundamental freedoms and the rule of law. 

Henceforth, the results of dialogue with the countries on their economic reform will also be 
fed  into  the  negotiation  process.  The  Commission  will  prepare  the  dialogue  with  Member 
States and report back to them in the  relevant Council bodies. This  dialogue focuses on the 
fulfilment  of  economic  criteria  and  on  convergence  with  the  EU  economies.  It  is  essential 
that, before accession, acceding countries are functioning market economies able to compete 
in the internal market. Pre-accession assistance will be focused more precisely to help meet 
this objective. 

Together  with  the  negotiation  framework  and  the  establishment  of  benchmarks  to  open  or 
close  negotiation  chapters,  these  arrangements  will  ensure  a  rigorous  approach  to  accession 
negotiations. 

While  countries  may  wish  to  set  their  own  target  dates  for  accession  in  order  to  steer  their 
reform efforts, the EU should refrain from setting such dates until accession negotiations are 
close  to  completion.  The  principle  should  be  maintained  that  the  date  for  the  completion  of 
accession negotiations will depend on the progress made by the country itself. 

Better communication 

Democratic legitimacy is essential to the EU enlargement process. Every key decision leading 
to a country's accession is taken unanimously by the democratically elected governments of 
the  Member  States  and  candidate  countries.  National  parliaments  ratify  the  decision.  The 
European Parliament, whose members are directly elected, must give its assent. 

Democratic  legitimacy  also  means  a  Europe  which  listens  to  the  expectations  of  its  citizens 
and  addresses  their  concerns  through  adequate  policies.  For  any  of  its  policies,  including 
enlargement, the EU has to win the support of its citizens. Maintaining rigour in the process 
and strict conditionality is essential to safeguard this support. So is confidence about the EU's 
integration  capacity.  In  addition,  better  communication  is  an  essential  part  of  EU’s 
enlargement  policy.  Previous  enlargements  have  generally  garnered  support  from  public 
opinion, but have also led to doubts and misapprehensions. Citizens need to be better prepared 
for future enlargements.  

The EU needs to communicate better the advantages and the challenges of enlargement. It is 
primarily the task of the Member States and the candidate countries to explain and defend the 
choices  they  have  made.  Leaders  at  national,  regional  and  local  level  are  best  placed  to 
understand the concerns of their constituents and to communicate directly with them. Member 
States which are themselves committed to the enlargement process need to explain better to 
citizens  the  concrete  benefits  they  expect  from  enlargement.  The  Commission  will  play  its 
part together with the European Parliament, national, regional and local authorities, academic 
institutions and think tanks, and civil society. In particular, the Commission will improve the 
availability  of  factual  information  in  user-friendly  form.  This  concerns  both  enlargement 

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policy issues, and practicalities such as the application of conditionality through monitoring 
reforms, setting benchmarks, and making impact assessments. 

The Union, its Member States and candidate countries need to intensify their efforts to foster 
mutual  knowledge  and  understanding  and  develop  ownership  of  the  common  European 
project. Sustained efforts are needed over many years. The Civil Society Dialogue established 
with Turkey in 2004 and extended to the Western Balkan countries in 2006 should be further 
developed. The Commission intends to extend this dialogue to further sectors of society and 
economy. It will do so in liaison with the Economic and Social Committee and the Committee 
of the Regions as well as other bodies active in the field. It is important to involve the citizens 
in this dialogue and to address anxieties and misapprehensions. 

The Commission supports greater transparency as a means to bring the enlargement process 
closer  to  the  citizens.  The  Commission  already  publishes  its  opinions  on  applications  for 
membership  as  well  as  its  reports  on  each  country's  progress.  It  has  also  published  the 
negotiating frameworks for Croatia and Turkey. Other key documents related to the accession 
negotiations should now be made public. In the fifth enlargement, this was the practice of a 
number  of  candidates  with  respect  to  their  own  negotiation  position.  The  Commission 
considers that screening reports, benchmarks for opening negotiation chapters as well as EU 
negotiation positions should be made public via the web.  

The approach outlined in this report will reinforce the democratic basis for the enlargement 
process. It is in the interest of all stakeholders in this process to avoid a gap between policy 
makers on the one side and the public on the other side. Lessons learned in the course of the 
fifth enlargement will assist the Union when carrying the process forward in the years ahead. 

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ANNEX 2 

Conclusions on Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav 
Republic of Macedonia, Montenegro, Serbia, Kosovo8, Turkey 

Albania 

As regards political criteria, Albania has made some progress on democracy and the rule of 
law,  including  fighting  corruption,  which  is  a  key  European  Partnership  priority.  A 
constructive  policy  towards  the  region  has  been  maintained.  More  work  is  needed  on  other 
Partnership priorities. 

Some progress has been made on democracy and the rule of law. However, this progress has 
been uneven. The parliament is assuming a full role politically and its committee on European 
integration has been very active. The parliament is now more transparent and its relations with 
other constitutional bodies have been effective, but it still faces technical and administrative 
shortfalls.  More  co-operation  between  government  and  opposition  is  needed  to  enable 
important  work,  such  as  electoral  reform  and  addressing  Stabilisation  and  Association 
Agreement (SAA) obligations, to go ahead. 

The government has adopted a plan to fulfil European Partnership and SAA obligations. It is 
creating  structures  to  co-ordinate  the  substance  of  EU  reforms  and  manage  the  resources  to 
implement them. Co-ordination between these structures is essential. Better use of expertise in 
drafting legislative proposals is needed. The restructuring of many ministries has temporarily 
reduced capacity in some areas of the public administration. It is important now to build upon 
the  changes  to  strengthen  effectiveness.  Some  staff  changes  have  taken  place  without  due 
attention to the civil service law. Appointments in the administration continue to be politically 
influenced. Public service management, career structures and pay remain poor. 

A  new  law  should  improve  the  career  structure  and  case  allocation  methods  for  judges. 
Transparency  has  been  increased  somewhat  in  the  judicial  system.  Some  progress  has  been 
made in enforcing judgements. However, overall progress in improving the justice system has 
been  limited.  Progress  is  needed  on  improving  recruitment  procedures  for  judges  and 
employment  conditions  for  judicial  administrators.  The  competences  of  the  two  judicial 
inspectorates need to be properly divided. Co-operation between the police and the judiciary 
needs  to  be  improved.  Execution  of  judgements  remains  poor  overall.  Legal  certainty  is 
needed to provide a positive climate for trade and investment. 

The fight against corruption has led to large-scale public service dismissals. The number of 
public  officials  prosecuted  for  corruption  has  increased.  A  high-level  anti-corruption  task 
force  has  been  set  up  and  the  law  on  conflicts  of  interest  has  been  improved.  The  High 
Inspectorate for Disclosure and Verification of Assets is now  more effective and steps have 
been  taken  to  increase  public  administration  transparency.  Where  anti-corruption  measures 
have  gone  beyond  constitutional  limits,  the  constitutional  court  has  intervened.  Further 
institutional measures to prevent corruption are now needed, as it remains a serious problem. 
The fight against corruption is a priority for the implementation of the SAA. 

8 

Under UN Security Council Resolution 1244. 

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Limited progress has been achieved regarding human rights and the protection of minorities. 
Human rights training  for  justice  personnel is now  obligatory. Pre-trial detention  rules  have 
improved.  Albania's  ombudsman  has  been  more  active  on  human  rights.  However, 
enforcement of international standards on torture prevention, prison conditions, and the rights 
of  detainees,  particularly  in  pre-trial  detention,  remain  weak.  Recent  changes  to  the 
composition  of  the  media  supervisory  authority  should  be  implemented  appropriately.  The 
legal  framework  for  media  freedom  remains  inadequate  and  poorly  implemented.  Fostering 
media freedom is a key European Partnership priority. A new executive agency may speed up 
property  restitution,  also  a  key  Partnership  priority,  but  currently  the  process  remains  very 
slow. Certainty on property ownership is vital to fulfil SAA commitments. Albania has begun 
to  create  a  legal  framework  to  protect  minorities;  implementation  of  international 
commitments  remains  incomplete  and  further  efforts  are  needed  to  promote  tolerance. 
Albania's  Roma  strategy  has  led  to  some  worthwhile  initiatives,  but  suffers  from  a  lack  of 
resources. Roma children are particularly vulnerable to human trafficking. 

Regarding  regional  issues  and  international  obligations,  Albania  has  continued  to  play  a 
positive  role.  It  is  an  active  member  of  regional  initiatives  in  the  political,  trade, 
environmental, economic, security, aviation and energy fields. Albania has further developed 
its  relations  with  neighbouring  and  other  countries  in  the  region,  notably  maintaining  a 
constructive position on Kosovo. 

As  regards  economic  criteria,  Albania  has  broadly  achieved  macroeconomic  stability.  This 
has  contributed  to  its  progress  towards  being  a  functioning  market  economy.  Further 
considerable  reform  efforts  must  be  vigorously  pursued  also  to  enable  it  to  cope  with 
competitive pressure and market forces within the Union. 

Political  consensus  on  the  essentials  of  economic  policy  has  generally  been  maintained. 
Albania  broadly  maintained  macroeconomic  stability.  Economic  growth  continued  to  be 
strong  and  reduced  poverty  levels.  The  macroeconomic  policy  mix  remained  adequate. 
Monetary policy was credible and managed to keep inflation low. Fiscal consolidation further 
advanced  and  reforming  the  public  and  tax  administration  contributed  to  improved  fiscal 
stance. Administrative barriers to market entry were reduced. 

However,  the  deficits  of  external  accounts  markedly  widened  and  the  export  base  remained 
very weak. Albania's legal framework for procurement, privatisation and concessions needs to 
be improved. Shortcomings in the business climate, such as legal uncertainty and weaknesses 
in  law  implementation,  poor  infrastructure,  or  unreliable  power  supply  impede  economic 
development.  Enforcement  of  property  rights  continued  to  be  weak  and  only  marginal 
progress  was  achieved  in  improving  efficiency  of  the  judicial  system.  Strengthening  of  the 
regulatory  and  supervisory  framework  for  the  non-bank  financial  sector  constitutes  a  major 
challenge.  Efforts  in  tackling  and  formalizing  the  considerable  grey  economy  need  to  be 
further  accelerated.  The  privatisation  process  is  not  yet  completed  and  the  restructuring  of 
state-owned  enterprises,  in  particular  of  the  electricity  utility,  needs  to  be  pursued  without 
delay.  

Albania  has  made  progress  in  aligning  its  legislation,  policies  and  capacity  with  European 
standards,  particularly  in  the  fields  of  fighting  organised  crime,  of  customs  and  of 
competition.  Pushing  forward  reform  in  areas  such  as  public  procurement,  intellectual 
property and veterinary and phytosanitary control is vital for successful SAA implementation. 

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Progress  has  been  made  in  some  internal  market  fields,  but  in  others  much  work  will  be 
needed  to  fulfill  Albania's  SAA  obligations.  There  has  been  some  progress  in  adopting  and 
monitoring standards. Capacity for accreditation, metrology and market surveillance is being 
strengthened, but legislative improvements and better co-ordination are needed. Coherence of 
structures  for  consumer  and  health  protection  has  improved.  They  now  need  to  be 
strengthened. The SAA includes commitments regarding the movement of workers, freedom 
of  services  and  freedom  of  establishment.  There  have  been  no  notable  developments 
regarding  movement  of  workers.  Discrimination  on  registration  fees  for  foreign  companies 
has  been  removed.  Procedures  for  business  registration  have  been  simplified  but  remain 
relatively unclear. Barriers to establishment and restrictions on capital movement remain.  

An  effective  customs  system  is  vital  to  implement  the  SAA.  Customs  revenue  has  risen 
following substantial customs reforms. Progress has been made on computerisation, customs 
rules  and  management  of  origin.  Cooperation  between  police  and  customs  has  been 
strengthened.  Improved  infrastructure  and  further  acquis  alignment  is  now  needed.  The 
administration of taxation has been simplified, and progress made on computerisation and risk 
analysis.  Further  alignment  with  EU  legislation  and  a  comprehensive  tax  collection  and 
control strategy are now needed. 

Albania  has  undertaken  commitments  in  the  area  of  competition  under  the  SAA.  Regarding 
anti-trust, the functioning of the Competition Authority has improved, but it is held back by 
the scarcity and inexperience of its staff. State aid-related SAA preparations are on track. The 
legal  framework  and  inventory  is  now  complete.  The  State  Aid  Department's  operational 
independence now needs to be ensured. 

A  new  public  procurement  law  is  pending,  and  public  procurement  training  has  been 
expanded,  but  the  current  legal  framework  is  not  in  line  with  the  acquis.  The  Public 
Procurement Agency remains weak. Progress in this field is vital for improving public sector 
governance,  a  key  European  Partnership  priority,  and  for  fulfilling  SAA  obligations. 
Regarding  intellectual  property  rights  (IPR)  a  trademark,  patent  and  industrial  design 
database  has  been  launched.  An  IPR  unit  has  been  set  up  in  the  customs  administration. 
However,  the  copyright  office  is  not  yet  operational  and  IPR  enforcement  remains  weak. 
Considerable strengthening is required to fulfill SAA commitments. 

Progress  has  been  limited  in  the  area  of  employment.  Some  progress  can  be  reported  in  the 
area  of  education,  including  approval  of  national  strategies  for  secondary  and  vocational 
training. However, participation rates in education remain relatively low. 

Progress can be reported on some sectoral policies. Regarding industry and SMEs, a revised 
action plan on removing administrative barriers to business and a new umbrella organization 
to promote investment, export and SMEs are in place. However, progress  on  improving the 
business environment and reducing the  informal economy continues to be slow. Progress in 
agriculture  has  been  very  limited.  An  increase  in  sales  and  in  investment  in  some  products 
has  taken  place,  but  productivity  and  competitiveness  remains  low.  Compliance  with  EU 
veterinary  and  phytosanitary  requirements,  vital  to  successfully  using  SAA  and  interim 
agreement trade conditions, remains poor. The fishery service controls the landing of fish, but 
the illegal damaging of stock continues. 

Regarding  both  environment  and  transport,  some  progress  has  been  made  on  horizontal 
legislation,  but  implementation  and  infrastructure  development  remain  weak.  The  energy 
sector remains very weak. Albania has ratified the Energy Community Treaty and has begun 

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to  adopt  the  relevant  laws,  but  electricity  losses  have  increased  and  bill  collection  has 
dropped.  Albania  is  lagging  behind  in  its  preparedness  to  take  on  SAA  commitments  on 
information  society  and  media.  Regarding  electronic  communications  and  information 
technologies,  liberalisation  laws  need  to  be  implemented  and  enforced.  The  regulatory 
framework  is  not  yet  in  line  with  the  acquis.  The  telecommunications  regulator  is  not 
sufficiently  active.  Regarding financial  control,  the  Public  Internal  Financial  Control  Policy 
Paper has been endorsed by the government. Legal and regulatory progress has been made but 
it remains at an early stage. There has been reasonable progress in the area of statistics. 

In the field of justice, freedom and security there has been progress in some areas; however, 
all fields require determined and sustained attention. Training and document security for visa 
administration  have  improved.  No  centralised  IT  network  is  in  place,  and  legal  changes  are 
still  required.  New  equipment  and  better  co-ordination  has  led  to  some  progress  on  border 
management,  but  an  integrated  border  management  strategy  is  not  yet  in  place.  Border 
management  infrastructure  needs  to  be  strengthened.  Laws  on  asylum  comply  with 
international  standards,  but  implementation  needs  to  improve.  Albania  has  improved  its 
internal  coordination  and  cooperation  with  neighbouring  countries  to  combat  illegal 
migration. It is important that Albania ensures sufficient staffing to fulfil its obligations under 
readmission agreements. 

Regarding the fight against money laundering, the Financial Intelligence Unit (FIU) and the 
prosecutor’s  office  have  been  reinforced  and  international  cooperation  improved,  but  both 
need to be further strengthened and the legislative framework needs to be further developed. 
Greater political impetus and better international co-operation have increased arrests of large-
scale  drug  traffickers,  but  better  criminal  intelligence  capacity,  domestic  inter-agency  co-
ordination  and  procedures  for  seized  drugs  are  required.  Drug  trafficking  remains  a  serious 
problem. Efforts are underway to improve the organisation of the police. Cooperation with the 
customs  and  intelligence  services  has  improved,  but  improvement  of  case  management  and 
internal control structures is needed. 

Progress  has  been  made  in  the  fight  against  organised  crime,  a  key  European  Partnership 
priority.  Strong  political  will  to  tackle  organised  crime  has  led  to  police  operations  against 
major  criminal  groups.  Operational  cooperation  with  Albania's  neighbours  has  greatly 
improved.  Cooperation  between  police  and  the  judiciary  at  central  level  has  somewhat 
improved.  However,  much  scope  remains  for  improvement  in  concrete  results.  Better  co-
ordination between police and judiciary at local level and greater efforts to combat high level 
corruption  in  these  bodies  are  needed.  Stronger  witness  protection  is  required.  The 
government has adopted a national strategy against trafficking in human beings and improved 
structures  to  implement  it.  Successful  prosecutions  and  convictions  of  traffickers  have 
continued. However, trafficking remains a problem. Further resources and better domestic and 
international  coordination  are  required.  The  police  counter-terrorism  directorate  has  seized 
large  quantities  of  arms,  although  infrastructure  and  inter-agency  cooperation  needs  to  be 
strengthened.  The  situation  as  regards  the  protection  of  personal  data  remains  a  matter  of 
concern. 

Bosnia and Herzegovina 

Bosnia  and  Herzegovina's  progress  towards  meeting  the  political  criteria  has  continued, 
although at a slower pace. Key political priorities identified in the European Partnership have 
been  only  partially  addressed.  A  number  of  important  issues  remain  to  be  tackled  before 
negotiations for a Stabilisation and Association Agreement can be concluded. 

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Partial progress has been made regarding democracy and rule of law. The general elections of 
1 October were the first elections since the Dayton/Paris Agreement to be fully administered 
by  the  authorities  of  Bosnia  and  Herzegovina.  Preliminary  conclusions  of  the  OSCE  Office 
for  Democratic  Institutions  and  Human  Rights  (ODIHR)  indicated  that  these  elections 
represented a step forward in consolidating democracy and rule of law, and were conducted 
generally  in  line  with  international  standards.  However,  failure  to  amend  the  Constitution 
made  it  impossible  for  the  elections  to  comply  fully  with  the  requirements  of  the  European 
Convention for Human Rights (ECHR).  

Some steps have been taken towards ensuring that State-level ministries and institutions have 
the necessary resources to implement their tasks, but further efforts are necessary to meet this 
key  European  Partnership  priority.  Limited  progress  has  been  made  in  providing  the  State 
Parliamentary  Assembly  with  sufficient  technical  resources  and  personnel.  State-Entity  co-
ordination remains inadequate and no new mechanisms have been put in place to improve it. 
Overall performance of the executive and legislative institutions has remained insufficient.  

Bosnia  and  Herzegovina's  achievements  over  recent  years  in  terms  of  stability  and  security 
have allowed the Peace Implementation Council to decide on the closure of the Office of the 
High Representative (OHR) by 30 June 2007. This decision is to be reviewed in early 2007.  

The adoption of a comprehensive strategy for public administration reform partly addressed a 
key  priority  of  the  European  Partnership.  The  law  on  the  State  Ombudsman  was  also  a 
positive development. The Public Administration Coordination Office has been strengthened 
and the Civil Service Agencies have improved recruitment procedures. The implementation of 
the  public  administration  reform  is  now  necessary  to  strengthen  overall  administrative 
capacity.  

Little  progress  has  been  made  as  regards  the  key  issue  of  police  reform.  The  work  of  the 
Directorate  for  Police  Restructuring  has  been  held  back,  largely  due  to  Republika  Srpska's 
approach.  This  has  led  to  delays  in  implementing  the  October  2005  Agreement  on  police 
restructuring, which is a key European Partnership priority.  

As regards the judicial system, the State Court, the Prosecutor's Office and the High Judicial 
and  Prosecutorial  Council  have  performed  their  duties  well.  They  are  progressively  gaining 
ownership  and  reducing  their  reliance  on  the  international  community.  Nonetheless,  the 
independence  of  the  judicial  system  needs  to  be  further  strengthened,  and  its  efficiency 
improved.  

A  new  strategy  against  corruption  has  been  adopted.  Corruption  remains  a  serious  issue  in 
Bosnia and Herzegovina. Cases need to be investigated and prosecuted more vigorously. 

Limited  progress  has  been  made  in  relation  to  human  rights  and  protection  of  minorities. 
The  Human  Rights  Commission  within  the  Constitutional  Court  has  continued  to  work 
efficiently.  Enforcement  of  human  rights-related  rulings  and  proper  implementation  of 
international human rights conventions require more attention. Ethnic discrimination remains 
a  critical  issue.  Further  efforts  are  needed  to  combat  intolerance  and  improve  prison 
conditions. Concrete steps need to be taken to support the Roma minority.  

In  the  framework  of  freedom  of  expression  and  media,  the  State-level  public  broadcasting 
laws  have  been  adopted.  The  corresponding  Entity-level  legislation  has  been  adopted  in 

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Republika  Srpska,  but  not  in  the  Federation.  Implementation  of  the  public  broadcasting 
reform has been partial. The relevant European Partnership priority has not been fully met.  

The  Refugee  Return  Fund  is  operational  and  Bosnia  and  Herzegovina  has  actively 
participated  in  the  Sarajevo  process.  Further  action  is  necessary  to  support  the  return  of 
refugees  and  internally  displaced  persons  and,  in  particular,  their  social  and  economic 
integration.  

Limited  progress  has  been  achieved  in  relation  to  regional  issues  and  international 
obligations.  Some  efforts  have  been  made  to  ensure  cooperation  with  the  ICTY  –  a  key 
European Partnership priority – but there is room for improvement. Further action is required 
to  locate  the  indictees  remaining  at  large  and  to  fight  networks  supporting  them.  There  has 
been progress in the prosecution of war crimes by the State Court. Prosecution at Entity-level 
needs to be improved.  

Bosnia  and  Herzegovina's  relations  with  its  neighbours  have  continued  to  be  good.  Some 
bilateral issues, notably on border demarcation and trade, remain to be addressed.  

As  regards  economic  criteria,  Bosnia  and  Herzegovina  has  made  limited  progress  towards 
being a functioning market economy. Considerable additional efforts are also needed in order 
to be able to cope with competitive pressure and market forces within the Union. 

Coordination  on  fiscal  policies  deepened  and  a  value  added  tax  (VAT)  was  successfully 
introduced  in  January  2006  across  the  country.  The  analytical  capacity  to  support  policy 
making  improved  to  some  degree.  Economic  growth  remained  robust.  Fiscal  consolidation 
continued.  Reported  exports  picked  up  in  the  first  half  of  2006,  supported  by  the  VAT 
introduction  and  increased  production  for  some  commodities.  Privatisation  continued,  in 
particular  in  the  Republika  Srpska,  and  certain  legal  changes  were  adopted  to  support 
enterprise restructuring. 

However, reforms in many areas remained slow. Imbalances in the trade and current accounts 
continued  to  be  very  large,  reflecting  an  insufficiently  dynamic  enterprise  sector  and  strong 
private consumption. The base for economic growth continued to be narrow. The fiscal stance 
in  the  country  has  not  properly  reflected  the  large  macroeconomic  imbalances.  Decision-
making  processes  on  economic  and  fiscal  policy  in  the  country  remain  complex  and  not 
sufficiently  coordinated.  In  addition,  pressures  on  public  spending  increased  in  spite  of  its 
already relatively large size. Also the efficiency of public expenditure is still relatively low. 
The  business  climate  and  corporate  governance  remained  overall  weak.  Privatisation  and 
corporate  restructuring  was  slow,  in  particularly  in  the  Federation.  Large  parts  of  the 
enterprise sector are still not sufficiently restructured.  

Bosnia and Herzegovina has made limited progress in aligning its legislation and policies with 
European  standards.  Bosnia  and  Herzegovina  will  need  to  further  enhance  its  capacity  to 
respond to the requirements of the European Partnership in this respect. 

Regarding  internal  market,  little  has  been  achieved  in  the  area  of  free  movement  of  goods. 
Preparations  in  the  field  of  standardisation,  certification,  metrology  and  market  surveillance 
remain  at  an  early  stage  and  new  legislation  is  not  being  properly  implemented.  A  lack  of 
conformity  assessment  bodies  and  procedures  continues  to  hinder  export  capacity.  The 
establishment of a market surveillance structure based on appropriate product legislation and 
the phasing out of contradictory pre-market controls require urgent action.  

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There  are  no  particular  developments  to  report  with  regard  to  the  movement  of  workers. 
Limited  progress  has  been  made  in  the  area  of  services  and  no  significant  changes  have 
occurred in relation to right of establishment and company law. Banking supervision has not 
been brought to the State level and remains an Entity responsibility.  

No  significant  development  has  taken  place  in  the  area  of  free  movement  of  capital,  but 
Bosnia  and  Herzegovina's  preparations  in  this  area  are  well  underway.  Limited  additional 
progress  has  been  made  in  relation  to  customs  rules.  Customs  legislation  is  in  place  and  is 
largely aligned to the acquis. Its full implementation needs to be ensured, especially in areas 
such  as  origin,  valuation  and  simplified  procedures.  As  for  taxation,  the  successful 
introduction  of  the  value  added  tax  (VAT)  was  a  positive  development.  There  has  been 
limited progress in the field of direct taxation. 

As  regards  competition,  Bosnia  and  Herzegovina  is  progressing  steadily  in  the  area  of  anti-
trust control, but no progress has been made with regard to state aid. Some developments have 
taken  place  in  the  field  of  public  procurement,  in  particular  with  the  establishment  of  the 
Public  Procurement  Agency  and  the  Procurement  Review  Body.  Limited  progress  has  been 
made regarding implementation and enforcement of intellectual property rights.  

to  employment  policies.  Bosnia  and 
Few  developments  have  occurred 
Herzegovina’s  labour  market  remains  challenged  by  unemployment,  a  high  degree  of 
fragmentation and the lack of a sound employment policy. Little progress has been made in 
the  field  of  education.  The  Higher  Education  Law  and  other  key  laws  have  not  yet  been 
adopted. Separation of children at schools along ethnic lines remains a serious issue. 

in  relation 

Little  additional  progress  has  been  made  towards  ensuring  the  existence  of  a  real  internal 
market within Bosnia and Herzegovina, which is a key priority of the European Partnership.  

As far as sectoral policies are concerned, no significant developments can be reported in the 
area  of  industry  and  small  and  medium  enterprises  (SME).  The  industrial  strategy  and  the 
SME Development Strategy have not yet been adopted. 

Overall,  limited  progress  has  been  made  in  the  field  of  agriculture.  Policy  is  still  being 
developed  at  Entity  level  and  coordination  is  insufficient.  The  development  of  a 
comprehensive  agricultural  strategy  is  delayed,  partly  due  to  the  lack  of  the  necessary  legal 
and institutional framework at State level. Implementing legislation has been adopted in the 
veterinary  field.  Implementation  remains  limited,  mainly  due  to  inadequate  human  and 
financial  resources  and  weak  coordination  between  State  and  Entity  veterinary  services. 
Bosnia and Herzegovina's preparations in the field of environment remain at an early stage. A 
State-level  Environmental  law  to  create  the  framework  for  nationwide,  harmonised 
environmental  protection  has  not  been  adopted  and  the  State  Environment  Agency  has  not 
been set up. 

Sustained progress continues regarding Bosnia and Herzegovina’s involvement in developing 
the  trans-European  transport  network.  Bosnia  and  Herzegovina  is  implementing  the  June 
2004  Memorandum  of  Understanding  on  the  South  East  Europe  Core  Regional  Transport 
Network. It has signed the European Common Aviation Area Agreement (ECAA), aimed at 
creating  a  single  European  aviation  market  where  EU  aviation  standards  are  applied.  It  has 
made significant progress in alignment to the aviation acquis. 

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31 

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Some positive developments have taken place in the field of energy. The Energy Community 
Treaty  has  been  ratified.  In  the  electricity  sector,  transmission  has  been  unbundled,  and  the 
Independent  System  Operator  (ISO)  and  the  Transmission  Company  (Transco)  have  been 
legally established. Nonetheless, the transfer of assets and liabilities between ISO and Transco 
remains  to  be  completed.  This  is  preventing  these  bodies  becoming  fully  operational.  A 
countrywide energy strategy has not yet been developed. 

As  regards  information  society  and  media,  the  independent  Communications  Regulatory 
Authority  has  been  active  in  preparing  for  effective  competition  in  the  telecommunications 
market.  However,  limited  progress  has  been  made  on  public  broadcasting  and  the 
establishment of the Information Agency. No significant developments have occurred in the 
area of public internal financial control (PIFC).  

Steps  have  been  taken  in  the  field  of  statistics,  in  particular  with  the  signature  of  a  co-
operation  agreement  between  the  country's  statistics  institutions  at  State  and  Entity  level. 
Nonetheless, further significant efforts are necessary to establish an effective, EU-compliant 
statistics system in Bosnia and Herzegovina. 

In the area of justice, freedom and security, some progress has been made in the fields of visa 
administration, border management, asylum and migration. The lifting of visa requirements 
for  all  EU  citizens  has  been  confirmed.  Bosnia  and  Herzegovina  has  concluded  several 
readmission  agreements  with  EU  Member  States  and  third  countries,  and  it  has  expressed 
readiness  to  negotiate  such  an  agreement  at  EU-level.  The  number  of  visas  issued  at  the 
border-crossing  points  has  been  reduced.  There  has  been  further  progress  in  establishing  a 
functioning asylum system and in addressing illegal migration. Some progress has been made 
on border management, with the update of the 2005 National Integrated Border Strategy and 
the finalisation of the Integrated Border Management Action Plan. However, funds for their 
implementation  are  lacking.  There  is  room  for  improvement  as  regards  border  controls. 
Shortcomings in staffing and facilities still need to be addressed in all areas. 

Limited progress has been made on money laundering. The Financial Intelligence Unit (FIU) 
within the State Investigation and Protection Agency (SIPA) remains inadequately staffed. No 
new  legislation  against  money  laundering  has  been  adopted  and  law  enforcement  remains 
limited. Some steps have been taken as regards the fight against drugs through the adoption of 
the Law on the Prevention of Narcotics and Precursor Abuse. A State-level drug policy in line 
with EU standards needs to be developed.  

Bosnia  and  Herzegovina  has  made  some  progress  as  regards  the  fight  against  organised 
crime,  trafficking  in  human  beings  and  terrorism.  A  national  strategy  to  combat  organised 
crime has been adopted. The legal framework to fight organised crime is in place, although 
law  implementation  needs  to  improve  further.  SIPA  has  conducted  more  investigations  and 
arrests.  It  needs  now  to  reach  its  full  capacity,  notably  in  terms  of  staff.  The  2005-2007 
National  Action  Plan  for  Combating  Trafficking  in  Human  Beings  is  being  implemented. 
Inconsistencies  between  State-  and  Entity-level  legislation  continue  to  hinder  prosecution. 
Bosnia  and  Herzegovina  has  also  adopted  a  strategy  to  fight  terrorism.  As  regards  data 
protection,  the  law  on  the  protection  of  personal  data  has  been  adopted,  but  the  Data 
Protection  Agency  has  not  yet  been  established.  The  situation  as  regards  protection  of 
personal data remains a matter of concern. 

Croatia 

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Croatia  continues  to  meet  the  political  criteria.  Progress  has  been  made  overall  but  further 
sustained efforts are required in a number of areas. The short-term priorities of the Accession 
Partnership have been partially addressed. 

Democracy  and  the  rule  of  law  have  been  further  strengthened.  However,  there  is 
considerable  scope  for  improvement  in  the  judiciary,  public  administration  and  in  the  fight 
against corruption. Significant improvements in these areas are indispensable if a solid basis 
for full implementation of the acquis is to be created.  

Work  preparing  a  strategy  for  public  administration  reform  has  begun.  The  Government 
adopted  a  policy  paper  in  September  2006  committing  it  to  drafting  a  revised  General 
Administrative  Procedure  Act  by  July  2007.  However,  the  adoption  of  an  overall  strategic 
framework for addressing this crucial issue is long overdue. The existing legal administrative 
system is cumbersome and needs simplification. The wide discretionary scope in legislation 
leads to inefficiency and legal uncertainty and facilitates corruption. A new civil service law 
entered  into  force  in  January  2006  and  some  related  implementing  legislation  has  been 
adopted.  However,  the  civil  service  continues  to  suffer  from  undue  political  influence,  high 
staff turnover and a lack of qualified personnel. 

Implementation of a judicial reform strategy, a key Accession Partnership priority, has begun. 
Legislative and organisational changes have been made aimed at improving the functioning of 
the  judiciary.  The  case  backlog  has  been  reduced  but  remains  large.  Reform  is  at  an  early 
stage and the judicial system continues to suffer from severe shortcomings. More needs to be 
done  to  reduce  the  length  of  court  proceedings,  improve  case  management,  rationalise  the 
court  network  and  ensure  proper  enforcement  of  judgements.  To  ensure  impartiality  the 
procedures for the appointment, training and disciplining of judicial officials need to improve. 
A new anti-corruption programme was adopted in March 2006. The Office for the Prevention 
of Corruption and Organised Crime (USKOK) has been strengthened. Measures have recently 
been taken in some hitherto uninvestigated corruption cases. These actions partially address a 
key priority under the Accession Partnership. However, corruption remains a serious problem. 
Many  allegations  of  corruption  remain  uninvestigated  and  corrupt  practices  usually  go 
unpunished.  Implementation of the anti-corruption programme is at an early stage. USKOK 
and  other  bodies  involved  in  this  programme  need  further  strengthening  and  coordination 
among  them  needs  to  be  improved.  Full  implementation  of  the  programme  and  strong 
political will to step up efforts are needed, especially on high level corruption. 

In the area of human rights and the protection of minorities progress continues to be made, 
albeit  at  a  slow  pace.  An  appropriate  legal  framework  is  in  place.  However,  actual 
implementation of legislation needs to be accelerated. 

In June 2006 the Penal Code was amended to, inter alia, abolish prison sentences for libel and 
to  include  a  wider  definition  of  "hate  crime".  With  regard  to  minorities,  there  has  been  a 
significant increase in funding and greater attention paid by the Government to the action plan 
under the Decade of Roma Inclusion. High level politicians have demonstrated commitment 
to integrating minorities. 

However,  more  efforts  are  needed  to  combat  intolerance  and  to  encourage  reconciliation  as 
well  as  to  properly  investigate  and  prosecute  those  responsible  for  apparently  ethnically 
motivated crimes. Implementation of the Constitutional Law on National Minorities continues 
to be slow, particularly as regards its employment provisions for minorities. These issues are 

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key priorities under the Accession Partnership. A comprehensive strategy and action plan on 
all forms of discrimination has not yet been adopted. 

There  have  been  instances  of  political  interference  in  the  media.  Plans  aimed  at  improving 
women’s and children’s rights have been adopted and should now be implemented.  

As  regards  regional  issues  and  international  obligations,  full  cooperation  with  the 
International Criminal Tribunal for the former Yugoslavia (ICTY) has continued, as required 
by  a  key  Accession  Partnership  priority  and  overall  compliance  with  the  Dayton  and  Erdut 
agreements  has  been  ensured.  The  prosecution  of  war  crimes  in  Croatia  has  continued  to 
improve. However, bias against Serb defendants still needs to be fully addressed. The issue of 
witness  protection  is  being  tackled  seriously  by  the  State  Prosecutor.  However,  this  issue  is 
not being addressed sufficiently in the wider judicial  system.  Progress on refugee return - a 
key Accession Partnership priority - has been uneven. While the issues of reconstruction and 
repossession  have  generally  been  well  addressed, 
implementation  of  housing  care 
programmes  for  former  tenancy  rights  holders  wishing  to  return  to  Croatia  is  particularly 
weak; no progress has been made on validating pension rights. Efforts to create the economic 
and social conditions necessary for the sustainability of refugee return need to be accelerated.  

There has been continued general progress in the area of regional cooperation. This progress 
needs  to  be  sustained.  However,  little  progress  has  been  made  towards  finding  definitive 
solutions to various pending bilateral issues with Croatia’s neighbours, particularly as regards 
border demarcation. This issue is a key Accession Partnership priority. Efforts are needed to 
further develop cooperation and good neighbourly relations. 

As regards economic criteria, Croatia can be regarded as a functioning market economy. The 
country should be able to cope with competitive pressures and market forces within the Union 
in the medium term, provided that it vigorously implements its reform programme to remove 
the significant remaining weaknesses. 

Political  consensus  on  the  essentials  of  economic  policy  has  generally  been  maintained. 
Stability-oriented  macroeconomic  policies  have  contributed  to  low  inflation,  exchange  rate 
stability and a slight acceleration of growth. Private investment has risen and unemployment 
has  declined.  Gradual  fiscal  consolidation  has  continued,  backed  by  strong  revenue  growth. 
Some measures have been taken to better control health care spending. Business registration 
procedures have been further simplified. The banking sector has continued to grow and a new 
supervisory  agency  for  the  non-banking  financial  sector  has  been  established.  Road 
infrastructure has improved. Further progress has been made in enhancing competition in the 
telecommunication sector. Initial steps have been taken to restructure the loss-making railway 
system. Croatia's economy is well integrated with that of the EU.  

However,  significant  and  rising  imbalances  in  the  trade  and  current  accounts  and  a  high 
external  debt  imply  potential  risks  to  macroeconomic  stability.  Subsidies  to  loss-making 
enterprises  and  a  high  level  of  current  spending  continue  to  burden  the  government  budget. 
The  pace  of  structural  reforms  has  generally  been  slow.  Little  progress  has  been  made  in 
implementing privatisation plans and in enterprise restructuring. The development of a more 
vivid  private  sector  has  been  hampered  by  deficiencies  in  public  administration  and  the 
judiciary, undermining market entry and exit procedures and the enforcement of property and 
creditor rights. State intervention in the economy remained significant. Increased efforts are 
required to raise participation in lifelong learning.  

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Croatia  has  improved  its  ability  to  take  on  the  obligations  of  membership.  In  most  areas 
there  has  been  some  progress,  mainly  in  terms  of  legislative  alignment.  Progress  has  varied 
considerably  between  chapters  As  regards  the  overall  level  of  alignment  and  administrative 
capacity,  much  remains  to  be  done.  Short-term  priorities  under  the  Accession  Partnership 
remain to be fulfilled in many areas. 

Progress in free movement of goods has been limited and uneven. Progress on new and global 
approach has not been matched in the old approach area. Considerable efforts are still needed 
on  legislation  and  administrative  capacity  across  the  board.  On  free  movement  of  workers 
there  has  been  limited  progress.  Considerable  efforts  are  needed  in  terms  of  developing 
capacity for coordination of social security systems. Limited progress has been made on the 
right of establishment and the freedom to provide services. Overall alignment is reasonable, 
although considerable efforts are still required in some areas. Croatia made some progress on 
the  free  movement  of  capital.  However  increased  efforts  are  needed,  especially  as  regards 
money laundering and procedures for acquisition of real estate by EU nationals.  

Progress in the area of public procurement has been limited. Considerable further efforts are 
needed to design an overall strategy for alignment and to strengthen the institutional set-up. 
As regards company law progress has been good. There were significant legislative changes 
in the field of corporate accounting and auditing. Alignment is on track, although monitoring 
and enforcement of corporate compliance requires continued efforts. Some progress has been 
made  on  intellectual  property  law,  particularly  on  enforcement.  However  continued  efforts 
are needed.  

In  the  field  of  competition  policy,  Croatia  has  continued  to  make  some  progress,  both  as 
regards anti-trust and state aid. However, it needs to intensify its efforts. There is a need for 
important  further  legislative  alignment,  strengthening  of  administrative  capacity  and  a  more 
efficient enforcement record. Viable restructuring plans in steel and shipbuilding sectors need 
to  be  urgently  adopted.  Fiscal  aids  remain  problematic.  The  relevant  obligations  under  the 
Stabilisation and Association Agreement remain to be fulfilled. 

Croatia  has  made  some  progress  on  financial  services,  particularly  by  enhancing  the 
alignment of insurance legislation and by establishing an integrated supervisory authority for 
the non-banking sector. Alignment is moderately advanced but efforts need to increase.  

Some progress has been made in the area of information society and media. Competition in 
the  telecoms  market  has  been  enhanced.  Alignment  in  electronic  communications  and 
information technologies is moderately advanced. However, further strengthening of Croatian 
Agency for Telecommunications is needed. Further legislative alignment is also needed in the 
media and audiovisual field. 

In agriculture reasonable progress has been achieved, notably on the implementation ofrural 
development  programmes,  quality  policy  and  organic  farming.  However,  setting  up  of 
administrative  structures  for  the  implementation,  management  and  control  of  the  Common 
Agricultural Policy is at an early stage. Concerning fisheries, Croatia has made some progress 
with  further  alignment  on  resource  and  fleet  management  and  some  strengthening  of 
inspection  services.  Increased  efforts  are  needed  to  close  some  major  gaps  including  the 
establishment  of  a  computerised  fishing  fleet  register,  VMS,  data  collection  and  a 
strengthened inspection system. State aids also need to be aligned. Some progress was made 
in  aligning  the  veterinary,  phytosanitary  and  food  policy.  Substantial  efforts  are  needed 

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however,  including  the  adoption  of  a  comprehensive  food  safety  strategy  as  well  as  the 
necessary framework legislation.  

Good progress has been made in transport policy. Alignment has continued on road, air and 
maritime  transport.  Further  implementing  legislation  needs  to  be  adopted,  however,  and 
increased efforts are needed notably as regards administrative capacity. On energy there has 
also  been  some  progress,  including  on  security  of  energy  supply  and  on  the  internal  energy 
and  gas  market.  Croatia  ratified  the  Energy  Community  Treaty.  However,  increased  efforts 
are needed, particularly on energy efficiency, nuclear safety and regulatory strengthening.  

There  has  been  limited  progress  on  taxation.  Overall  progress  with  legislative  alignment 
remains  limited.  The  tax  administration  needs  to  be  modernised  significantly  and  IT 
interconnectivity  improved.  Croatia  has  made  some  progress  in  the  field  of  economic  and 
monetary  union.  Overall,  preparations  are  well  underway.  However,  further  efforts  are 
needed,  especially  to  ensure  full  independence  of  the  Central  Bank.  Croatia  has  made  good 
progress across the board on statistics. Continued efforts and especially sustainable national 
funding are necessary. 

As  regards  social  policy  and  employment,  limited  progress  has  been  made.  Considerable 
efforts  are  needed  to  strengthen  the  weak  administrative  capacity  in  this  area.  Croatia  has 
made  uneven  progress  on  enterprise  and  industrial  policy.  While  there  has  been  good 
progress on the business environment and SME policy, major challenges remain on enterprise 
restructuring, in particular in the steel and shipbuilding sectors. Some progress has been made 
on  Trans  European  Networks.  There  has  also  been  some  progress  on  regional  policy  and 
coordination of structural instruments. However, considerable efforts are needed to set up the 
administrative structures necessary for implementation of EU funding. 

As  regards  the  judiciary  and  fundamental  rights  some  progress  has  been  made.  However, 
significant  improvements  are  needed  on  judicial  reform  and  in  the  fight  against  corruption. 
There is further scope for improvement in fundamental rights. In the area of justice, freedom 
and security Croatia has made progress, particularly in border management, visa policy and 
asylum.  However,  the  integrated  border  management  action  plan  should  be  updated  and 
equipment  needs  upgrading.  Considerable  andsustained  efforts  are  needed  to  strengthen 
enforcement and administrative capacity, particularly as regards organised crime. 

Reasonable  further  progress  has  been  made  in  the  chapters  science  and  research  and 
education and culture. In both cases, a good overall level of preparation has been reached. As 
regards  the  environment  good  progress  has  been  made  overall,  especially  on  air  and  water, 
nature  protection,  chemicals  and  GMOs.  However,  in  view  of  the  scope  and  complexity  of 
this  chapter,  very  significant  efforts  are  still  needed.  Administrative  capacity  is  weak  and 
strategies  for  financing  the  significant  investments  necessary  are  lacking.  On  consumer  and 
health protection Croatia has made limited progress. Much legislative alignment remains and 
market surveillance is far from EU standards.  

In the area of the Customs union, Croatia has made some progress, notably by further aligning 
customs  procedures  and  customs  protection  of  intellectual  property  rights.  However, 
significant  strengthening  of  administrative  capacity  and  IT  interconnectivity  is  necessary. 
Croatia  has  made  some  progress  in  the  area  of  external  relations.  As  regards  Foreign, 
Security and Defence Policy, progress has continued. Croatia has continued to systematically 
align with EU declarations and other CFSP instruments.  

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36 

   EN 

 
There  has  been  some  progress  on  financial  control,  notably  as  regards  Public  Internal 
Financial  Control,  external  audit  and  protection  of  the  Euro  against  counterfeiting.  More 
capacity for internal audit and financial management is needed, however. Structures to protect 
the EU’s financial interests need to become operational. No particular progress has been made 
on financial and budgetary provisions. 

EN 

37 

   EN 

 
The former Yugoslav Republic of Macedonia 

As  noted  in  last  year's  Opinion  on  its  application  for  membership,  the  former  Yugoslav 
Republic of Macedonia is well on the way to satisfy the political criteria. However, the pace 
of reforms has slowed down in 2006 and the country needs to step up its efforts.  The short 
term political priorities in the European Partnership have been partially addressed. 

The  continued  implementation  of  the  Ohrid  Framework  Agreement  has  contributed  to  the 
country's  stability  and  to  consolidating  democracy  and  the  rule  of  law.  To  achieve  further 
progress,  all  political  parties  need  to  make  the  necessary  efforts  to  build  consensus,  in  full 
compliance with the letter and spirit of the Agreement. 

The  former  Yugoslav  Republic  of  Macedonia  made  progress  in  strengthening  the  electoral 
process to prepare for the July parliamentary elections. The legal and institutional framework 
for elections has been reformed, in line with ODIHR recommendations and a key priority of 
the European Partnership. In July, the electoral process was conducted largely in accordance 
with  international  standards.  However,  there  were  still  irregularities  before  and  during  the 
elections. Major efforts will be required to ensure that standards are fully met during the next 
elections.  A  constructive  dialogue,  in  particular  in  Parliament,  among  all  political  parties  in 
the  government  and  the  opposition  is  needed  to  ensure  the  proper  functioning  of  the 
institutions.  

As  regards  public  administration  reform,  the  2000  Law  on  Civil  Servants  has  been  further 
implemented.  Steps  were  taken  to  improve  the  management  of  the  administration  and 
transparency in public decisions. The decentralisation process has moved forward and public 
services  started  to  improve.  Continued  strong  commitment  from  the  government  and  the 
municipalities  is  required  to  address  the  remaining  challenges.  However,  appointments  and 
dismissals  in  the  administration  continue  to  be  politically  influenced.  Large  scale  changes 
occurred  in  the  administration  after  the  change  of  government.  Independence  and 
professionalism  of  the  administration,  as  well  as  administrative  capacity,  need  to  be 
strengthened. 

An  important  reform  of  the  judicial  system  has  been  initiated,  as  required  in  the  European 
Partnership. The constitutional and legal framework for an independent and efficient judiciary 
is now largely in place. Successful implementation of the reform remains a major challenge 
and  a  key  priority  of  the  European  Partnership,  which  will  require  continuous  efforts  and  a 
sustained track record. Further steps remain to be undertaken to secure effective rule of law 
throughout the country. The adoption of a new police law met a key priority of the European 
Partnership,  after  delays  which  slowed  down  the  reform  in  the  police.  Constructive 
cooperation  is  needed  between  the  government  and  the  opposition  to  ensure  its  smooth 
implementation. 

The  legal  and  institutional  framework  for  fighting  corruption  has  been  strengthened.  The 
cooperation  and  coordination  among  the  bodies  involved  have  improved.  However, 
corruption  remains  widespread.  Many  allegations  of  corruption  have  yet  to  be  investigated. 
Full implementation of the legislation and strong political will to step up efforts are needed.  

As  regards  human  rights  and  the  protection  of  minorities,  implementation  of  the  Ohrid 
Agreement  has  gone  ahead.  In  general,  inter-ethnic  relations  have  continued  to  improve. 
However considerable further efforts are needed in a number of fields. The Penal Code was 
amended to abolish prison sentences for libel. Mechanisms for investigating ill-treatment of 

EN 

38 

   EN 

 
detainees  need  to  be  strengthened,  including  through  the  co-operation  between  the 
Ombudsman  and  the  Ministry  of  Interior.  Telecommunication  tapping  still  takes  place  in 
absence  of  a  proper  legal  framework.  Further  efforts  are  needed  to  develop  trust  between 
ethnic  communities.  The  representation  of  the  different  communities  in  the  public 
administration is uneven. There has been some progress in the implementation of the action 
plans  under  the  2005-2015  Decade  of  Roma  Inclusion.  However,  the  situation  of  the  Roma 
community continues to cause concerns.  

Regarding  regional  issues  and  international  obligations,  the  former  Yugoslav  Republic  of 
Macedonia  has  maintained  full  cooperation  with  the  International  Criminal  Tribunal  for  the 
former Yugoslavia. Further progress in the reform of the judiciary is essential to prepare for 
the transfer of the cases to be returned by the ICTY. The country maintained a constructive 
position on Kosovo status talks. The bilateral non-surrender agreement with the United States 
of  America  is  still  not  in  line  with  the  relevant  EU  guiding  principles  concerning 
arrangements  between  a  state  party  to  the  Rome  Statute  of  the  International  Criminal  Court 
and the USA. 

The  former  Yugoslav  Republic  of  Macedonia  has  remained  an  active  partner  in  regional 
cooperation. Bilateral relations with neighbours have developed; however, there has been no 
progress  on  the  name  issue,  which  remains  an  open  problem.  Renewed  efforts  are  needed, 
with  a  constructive  approach,  to  find  a  negotiated  and  mutually  acceptable  solution  on  the 
name  issue  with  Greece,  under  the  auspices  of  the  UN,  thereby  contributing  to  regional 
cooperation and good neighbourly relations. 

As regards economic criteria, the former Yugoslav Republic of Macedonia is well advanced 
in establishing a functioning market economy. Continued stabilisation and reform efforts are 
needed to enable it to cope with competitive pressure and market forces within the Union in 
the medium-term. 

The  country  has  maintained  a  broad  consensus  on  the  essentials  of  economic  policies.  As  a 
result  of  a  sound  policy  mix,  macroeconomic  stability  and  predictability  have  further 
increased. Inflation has remained under control. Public sector accounts have been kept close 
to  balance  and  the  relatively  low  level  of  public  sector  debt  has  declined  further.  Price  and 
trade liberalisation are largely completed, and the privatisation of state-owned enterprises has 
proceeded.  Barriers  to  market  entry  and  exit  have  been  reduced  by  simplifying  and 
accelerating  bankruptcy  and,  in  line  with  a  key  priority  of  the  European  Partnership, 
registration procedures. The financial sector's stability has improved. Furthermore, measures 
have  been  taken  to  improve  the  quality  of  human  capital  and  to  upgrade  the  country's 
infrastructure.  Foreign  direct  investment  inflows  increased  significantly,  mainly  driven  by 
privatisation efforts. Economic integration with the EU is well advanced. 

However, the functioning of the market economy is still impeded by institutional weaknesses, 
such as the slow speed of administrative procedures, corruption, red tape and a low degree of 
legal  certainty.  Shortcomings  in  the  judiciary  continue  to  be  bottlenecks,  impeding  a  faster 
improvement  in  the  business  climate.  Furthermore,  labour  and  financial  markets  are  still 
poorly  functioning,  which  hinders  the  reduction  of  the  particularly  high  unemployment  and 
hampers credit provision to enterprises. The education system does not sufficiently reflect the 
country's  needs.  These  factors  allowed  only  moderate  economic  growth.  The  considerable 
informal sector continues to cause major distortions in the economy. The commodity structure 
of exports is very concentrated.  

EN 

39 

   EN 

 
The  country  has  made  further  efforts  to  improve  its  ability  to  assume  the  obligations  of 
membership.  The  country  still  faces  major  challenges  in  implementing  and  effectively 
enforcing  the  legislation.  There  was  some  progress  in  the  fulfilment  of  the  short-term 
priorities of the European Partnership. 

In  the  free  movement  of  goods,  there  was  some  progress  as  regards  horizontal  measures. 
However,  most  of  the  sectoral  acquis  remains  to  be  transposed  and  implemented. 
Development has been limited in the area of free movement of workers and preparations are at 
an  early  stage.  There  has  been  no  progress  on  the  right  of  establishment  and  freedom  to 
provide services. Further efforts are needed to align with the acquis. Some progress has been 
made  in  the  area  of  free  movement  of  capital,  in  particular  as  regards  payment  systems. 
However, further efforts are needed. In particular, the legislative and institutional framework 
regarding money-laundering needs to be reinforced. 

Significant  progress  can  be  reported  in  the  area  of  public  procurement  where  the  basis  for 
developing  an  effective  public  procurement  system  has  been  established.  However,  further 
efforts will be needed, in particular in setting up an effective remedy system. Notable progress 
has been made in the area of Company law, in particular the introduction of the one-stop-shop 
system for company registration, as requested by the European Partnership. Further efforts are 
needed to ensure the effective implementation of the rules adopted. On Intellectual property 
law,  there  has  been  some  progress  in  particular  in  the  area  of  industrial  property  rights. 
However,  efforts  need  to  be  stepped  up  to  strengthen  enforcement  capacity,  administrative 
structures  and  political  will  to  fight  piracy  and  counterfeiting  in  order  to  comply  with  the 
SAA. Preparations to align with the acquis are still at an early stage. 

In  the  field  of  competition,  some  progress  can  be  reported,  mostly  limited  to  the  legal 
framework.  Considerable  efforts  are  needed  to  implement  existing  legislation  much  more 
effectively,  in  particular  as  regards  the  functioning  of  the  Commission  for  Protection  of 
Competition. 

There  was  some  progress  in  the  area  of  financial  services,  as  the  country  has  continued  its 
efforts to align its national legislation with EU standards in the various sectors. Nonetheless, 
some deficiencies remain, in particular as regards the standard of supervision in the banking 
and the insurance sectors. 

Progress  has  been  notable  in  parts  of  the  area  of  information  society  and  media.  There  was 
further alignment of the legislation in the areas of electronic communications and information 
technologies,  as  well  as  in  the  audiovisual  sector.  However,  progress  is  needed  in  the 
liberalisation of the telecommunications market, ensuring the principle of non discrimination 
between operators and the independence of the regulatory authority in order to end the breach 
of  the  Stabilisation  and  Association  Agreement  and  meet  a  key  priority  of  the  European 
Partnership. 

There  has  been  some  progress  in  the  area  of  agriculture  and  rural  development.  Alignment 
has been initiated but is  at an early stage.  Progress  has  been  made  in  parts  of  the  area food 
safety,  veterinary  and  phytosanitary  policy.  However,  the  enactment  and  implementation  of 
legislation  to  align  with  the  acquis  is  lagging  behind.  Preparations  to  align  with  the  acquis, 
where relevant, in the area of fisheries are at an early stage. 

Good  progress  has  been  made  in  some  areas  of  transport  policy.  However,  considerable 
efforts to align and strengthen the administrative capacity in all transport sectors are needed. 

EN 

40 

   EN 

 
There  has  been  notable  progress  in  part  of  the  energy  sector.  Adoption  of  implementing 
legislation  is  a  matter  of  priority,  in  particular  in  view  of  commitments  under  the  Energy 
Community Treaty which was ratified by the former Yugoslav Republic of Macedonia in May 
2006. 

Progress  in  the  legislative  alignment  could  be  reported  in  the  area  of  taxation.  However, 
significant efforts will be needed to further align legislation, ensure effective implementation 
of  the  legislation,  as  well  as  to  strengthen  the  administrative  capacity  in  the  area  of  tax 
collection. 

Progress  in  the  area  of  economic  and  monetary  policy  has  been  limited.  However,  overall, 
preparations are well advanced. There has been some progress in the area of statistics. Further 
alignment  with  the  acquis  is  needed  and  administrative  capacity  needs  to  be  substantially 
strengthened. 

Notable progress has been made in the area of social policy and employment, mainly in the 
field of labour and equal opportunities legislation. However, much of the acquis remains to be 
transposed,  notably  in  the  area  of  health  and  safety  at  work,  and  considerable  efforts  in  the 
employment  policy  are  required  to  address  the  difficult  labour  market  situation.  There  has 
been  limited  progress in the area of enterprise and industrial policy. The country still lacks 
industrial,  technology  and  innovation  strategies  and  further  efforts  are  needed  to  develop 
instruments  and  sector  policies.  As  regards  Trans-European  networks,  the  former  Yugoslav 
Republic  of  Macedonia  participates  in  the  regional  initiatives.  The  need  for  substantial 
financial input remains a bottleneck to upgrade the infrastructures. Progress has been limited 
in  the  area  of  regional  policy  and  co-ordination  of  structural  instruments.  Considerable 
efforts  will  be  needed  to  align  the  legislation  on  regional  development  and  strengthen  the 
institutional framework and administrative capacity. 

In the area of the judiciary and fundamental rights, the Constitution and the legal framework 
were  amended  to  allow  for  the  implementation  of  the  judiciary  reform.  Some  progress  has 
been made in the legal and institutional framework to fight corruption. However, improving 
the  independence  and  the  efficiency  of  the  judiciary  remains  a  major  challenge  and  very 
strong political will is needed to tackle corruption. There is further scope for improvement in 
fundamental  rights.  The situation  as  regards protection  of personal data  remains  a  matter  of 
concern. There has been progress in parts of the area of justice, freedom and security, notably 
as regards migration and visa policy, and border management. Further implementation of the 
border  management  strategy  is  needed.  Progress  has  been  more  limited  in  judicial 
cooperation,  police  cooperation,  the  fight  against  organised  crime  and  drugs.  Considerable 
efforts  and  sustained  efforts  are  needed  to  strengthen  enforcement  and  administrative 
capacity. 

The former Yugoslav Republic of Macedonia has started to prepare a more integral policy in 
the  field  of  science  and  research.  Progress  has  been  made  in  the  area  of  education  and 
culture.  As  regards environment,  some  progress  has  been  made  to  strengthen  the  legislative 
framework. However, preparations to align with the acquis in this chapter are at an early stage 
and very significant efforts will be needed to ensure the implementation and the enforcement 
of  the  legislation.  On  consumer  and  health  protection,  some  legislative  progress  has  been 
made, mainly in the area of safety related measures. Further legislative alignment is needed as 
well as sustained efforts to establish a functioning system of consumer and health protection 
throughout the country. 

EN 

41 

   EN 

 
Substantial  legislative  progress  took  place  in  the  area  of  customs  union.  Fees  which  were 
breaching  the  SAA  have  been  abolished,  in  line  with  a  key  priority  of  the  European 
Partnership. However, further strengthening of the administrative capacity in terms of staff, IT 
and other equipment will be necessary to allow enforcement of the legislation. 

There has been progress in some areas of external relations, in particular in the field of dual 
use goods and regional integration through the CEFTA initiative. Progress has been made in 
parts  of  the  area  of  foreign,  security  and  defence  policy.  Further  alignment  will  be  needed, 
notably as regards international restrictive measures. 

Legislative  progress  has  been  made  in  the  area  of  financial  control.  However,  considerable 
efforts will be needed, in particular to strengthen the public internal financial control, external 
audit and anti-fraud capacities. In the area of financial and budgetary provisions, progress has 
been limited. However, basic principles and institutions are in place. 

Montenegro 

As regards political criteria, Montenegro has made some progress. It has broadly addressed 
the key priorities of the European Partnership, but significant results remain to be produced.  

Montenegro has managed smoothly the overall process leading to independence including the 
organisation and conduct of the referendum on 21 May 2006 in line with the requirements of 
the Constitutional Charter and the recommendations of the European Union. Montenegro is in 
the  process  of  putting  in  place  the  legal  and  institutional  set-up  required  by  its  new 
competences as an independent state. In particular, it will have to adopt a new Constitution. 
The  Constitution  should  be  in  line  with  European  standards  and  adopted  by  a  broad 
consensus. Montenegro will also have to sign and ratify the international agreements to which 
the State Union of Serbia and Montenegro was a party.  

Regarding democracy and the rule of law, the parliamentary elections of 10 September 2006 
were conducted in line with international standards.  

The government and the parliament have made sustained efforts to increase their efficiency. 
The  government  has  set  up  coordination  mechanisms  in  key  areas  of  its  activity.  The 
parliament has adopted new rules of procedure. Elements for the establishment of a political 
consensus  on  key  choices  including  on  European  integration  have  started  to  emerge.  This 
process needs to be pursued with determination and reflected in particular in the work of the 
parliament. 

Progress  in  establishing  the  legislative  framework  for  public  administration  reform  has 
continued  and  a  new  recruitment  system  is  in  place.  The  training  of  civil  servants  has  been 
upgraded. However, the public administration continues to suffer from serious weaknesses. Its 
de-politicisation  and  professionalism  need  to  be  fully  ensured,  in  line  with  a  key  European 
Partnership priority. 

The  overall  strengthening  of  the  judicial  system  has  continued.  This  is  a  key  European 
Partnership priority. The adoption of a law on judicial training and the establishment of a state 
Judicial  Education  Centre  have  been  steps  to  the  right  direction.  However,  problems  of 
efficiency  and  independence  in  practice  remained.  The  emerging  consensus  on  judicial 
reforms should be followed by concrete steps on implementation and plans should be finalised 
soon and matched by the allocation of appropriate resources. Appointments and advancement 

EN 

42 

   EN 

 
of judges and prosecutors needs to be de-politicised and based on professional and objective 
criteria. 

Willingness to advance in the area of the fight against corruption has increased, in particular 
through  the  adoption  of  a  number  of  planning  documents  by  the  Government  and  in 
improvements  in  reporting.  The  Anti-Corruption  directorate  has  started  to  send  cases  to 
competent bodies. However, corruption remains a widespread problem in Montenegro and the 
overall legal and institutional set-up presents loopholes which allow for corruption and limit 
the capacity of the state to effectively prevent and prosecute corruption. The Parliament failed 
to  amend  the  law  on  conflict  of  interest,  which  needs  to  be  substantially  reviewed  and 
enforced with determination. 

In the area of human rights and protection of minorities Montenegro is at an early phase in 
the process of putting in place a legal and institutional set-up following independence. In the 
next  period  particular  attention  needs  to  be  paid  to  constitutional  guarantees  for  human  and 
minority rights, including in prisons, religious freedom, non-discrimination and the situation 
of Roma and refugees. Media independence and professionalism need to be strengthened and 
the law on access to information be implemented with more determination. The independence 
of the broadcasting authority should be maintained.  

Concerning  regional  issues  and  international  obligations,  co-operation  with  the  ICTY  is 
currently  satisfactory,  in  line  with  a  key  European  Partnership  priority.  This  should  be 
maintained. The ongoing investigation in relation to the case of the disappearance of a number 
of  Bosnian  refugees  in  1992  is  a  matter  of  concern.  Montenegro  is  committed  in  regional 
cooperation. It is an active participant of regional initiatives such as in the fields of aviation, 
transport  infrastructure  and  energy.  It  enjoys  good  relations  with  neighbouring  countries. 
Following  independence,  the  smooth  settlement  of  pending  issues  with  Serbia  has  been  a 
contribution to regional stability. Montenegro maintained a constructive approach on Kosovo, 
which was a key priority under the European Partnership.  

As  regards  economic  criteria,  Montenegro  has  made  some  progress  towards  being  a 
functioning market economy. Further reform efforts must also be pursued in order to enable it 
to cope with competitive pressure and market forces within the Union. 

The  country  has  maintained  a  broad  consensus  on  the  essentials  of  economic  policies. 
Macroeconomic  stability  is  getting  firmer.  In  particular,  economic  growth  has  gained  pace 
and  inflation  has  remained  subdued.  Public  debt  has  been  reduced  and  budgetary  revenues 
increased  further.  Foreign  direct  investment  remained  robust.  Price  liberalisation  is  almost 
complete.  The  privatisation  programme  is  well  advanced  and  business  registration  has  been 
further  facilitated.  The  capacity  of  the  judiciary  to  deal  with  commercial  disputes  has 
improved. Financial intermediation has deepened and the restructuring of network industries 
is underway.  

However, economic growth remains dependent on a few key sectors and enterprises. External 
imbalances widened. The labour market remains rigid and unemployment high. The financial 
audit  system,  both  for  internal  and  external  controls,  needs  to  be  upgraded.  The  business 
environment  is  still  hampered  by  the  regulatory  environment,  including  at  municipal  level. 
The level of infrastructure investment is low. Debt and arrears from some public enterprises to 
the government are very significant. The state aid structure must be strengthened. A system of 
ex ante control of all new aid measures needs to be set up. Public enterprises are still awaiting 
further restructuring and the privatisation plan is only partly completed. Trade openness and 

EN 

43 

   EN 

 
trade  integration  with  the  EU  has  recently  risen,  but  is  still  at  fairly  modest  levels. 
Privatisation procedures need to be efficient and fair. 

Montenegro  has  made  some  progress  in  approximating  its  legislation  and  policies  with 
European  standards  in  most  areas  and  has  advanced  in  strengthening  its  administrative 
capacity  in  particular  in  coordination  of  European  integration  matters  including  on  the 
negotiation of an SAA. However, it is still at an early stage of preparations and considerable 
resources need to be allocated for finalisation of the legislative process and implementation.  

internal  market,  Montenegro  has  started 

Concerning 
legislative  and  administrative 
preparations  to  fully  assume  the  new  competences  in  the  fields  of  standardisation, 
certification,  metrology,  market  surveillance  and  intellectual  property  rights.  Consumer  and 
health protection including veterinary, fisheries and phyto-sanitary controls remain also at an 
early  stage  of  preparation.  Improvement  is  needed  in  reinforcing  implementation  of 
intellectual property rights legislation. Montenegro will also have to accede to all international 
agreements in this area the State Union was a party to. 

Progress  has  been  made  in  the  area  of  services  and  the  right  of  establishment  and  free 
movement of capital.  

Customs reform has advanced but significant problems remain regarding the legal framework 
and the implementation of rules of origin. An adaptation to the EU standards in this area is 
essential  for  the  conclusion  and  subsequent  implementation  of  the  Stabilisation  and 
Association  Agreement.  Duty  free  shops  have  recently  been  established  at  land  borders, 
which  is  a  matter  of  concern,  as  it  increases  the  risk  of  smuggling.  Reforms  in  the  area  of 
taxation should be pursued. 

Some  progress  has  been  achieved  in  the  area  of  competition.  However,  further  progress  is 
needed  in  establishing  the  operational  independence  and  providing  resources  for  the 
competition  authority  and  in  advancing  preparations  to  introduce  and  implement  the  legal 
framework for state aids. Some progress has been made in the field of public procurement and 
currently prepared amended legislation and secondary legislation is expected to strengthen the 
performance  of  the  relevant  bodies.  However,  the  overall  implementation  of  public 
procurement  legislation  has  not  been  satisfactory  and  needs  to  be  upgraded.  Progress  in  all 
these  fields  is  essential  for  the  implementation  of  the  SAA.  Limited  progress  has  been 
registered in relation to employment policies. Unemployment is still a significant problem in 
Montenegro, with inadequate actions to match needs and skills. Much of the acquis remains 
to be transposed, notably in the area of health and safety at work and gender equality. In the 
field  of  education,  ongoing  reforms  mean  that  integration  into  the  European  area  of  Higher 
Education in the context of the Bologna process is on track. However, significant efforts are 
still needed to develop skills in line with the requirements of the economy. 

As  far  as  sectoral  policies  are  concerned,  Montenegro  has  moderately  advanced  in 
implementing the European Partnership priorities in the area of industry and SMEs. However, 
Montenegro  has  made  little  progress  in  streamlining  licensing  systems.  The  business 
environment needs to be improved by simplifying administrative procedures. The steel sector 
requires restructuring to achieve viability and competitiveness. 

Some  progress  has  been  made  in  the  field  of  agriculture.  Strategies  for  agricultural 
development  and  fisheries  have  been  adopted  by  the  Government  and  put  up  for  public 
discussion.  Montenegro  has  designed  plans  for  the  development  of  the  veterinary  sector. 

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Overall  it  has  moderately  advanced  on  reforms  with  EU  support  and  allocation  of  budget 
resources.  However,  implementation  is  still  below  European  standards  and  needs  to  be 
upgraded. 

Preparations  in  the  field  of  environment  remain  at  an  early  stage.  Strategic  and  legislative 
documents  have  been  adopted  but  the  environment-related  administrative  capacity  in 
management and control bodies should be substantially strengthened. 

As  for  transport  and  energy,  some  progress  can  be  reported.  Montenegro  is  participating 
actively  in  regional  transport  networks  and  deciding  its  priorities  accordingly.  Progress  has 
been  registered  in  the  adoption  of  the  law  on  road  transport.  In  energy  progress  has  been 
registered  in  particular  in  the  area  of  restructuring  of  the  electricity  and  gas  sectors  and  in 
promoting energy efficiency. Montenegro has ratified the Energy Community Treaty. 

Progress has been noticed in the areas of public internal financial control and external audit. 
The  State  Audit  institution  progressed  in  strengthening  its  capacity.  However,  Montenegro 
will  have  to  substantially  upgrade  its  system  of  internal  and  external  control  and  the  State 
Audit  institution  should  be  upgraded  into  a  supreme  audit  institution  with  constitutional 
guarantees and in line with EU best practices. 

In statistics, some progress has been made regarding the establishment of a national statistical 
system in Montenegro. However, the overall quality of statistics remained low. The Statistical 
Office  of  Montenegro  and  the  other  parts  of  the  national  statistical  system  need  substantial 
upgrading  in  order  to  implement  commitments  and  to  deliver  timely,  reliable  and  accurate 
statistics in accordance with EU standards.  

In  the  area  of  justice,  freedom  and  security,  some  progress  has  been  achieved  concerning 
border  management.  Montenegro  has  assumed  full  responsibility  in  the  area  of  visa  policy, 
asylum and migration following independence. Preparations have started to put in place the 
legal and institutional framework required for implementation.  

Some  progress  has  been  registered  in  the  area  of  anti-money  laundering.  The  Directorate 
against  Money  Laundering,  which  operates  as  a  Financial  Intelligence  Unit,  upgraded  its 
cooperation  with  law  enforcement  bodies  and  with  neighbouring  countries.  However, 
coordination and exchange of information needs to be substantially enhanced.  

Some progress has been made in the fight against drugs. Montenegro is a transit country for 
drug trafficking, and drug use is increasing.  

Some progress has been made regarding overall police restructuring. However, the resources 
and means available for police, in particular in the area of the fight against organised crime, 
remain inadequate. 

Montenegro  has  achieved  some  progress  as  regards  the  fight  against  organised  crime.  An 
action plan to implement the strategy for the fight against corruption and organised crime was 
adopted  in  August  2006.  It  should  be  followed  by  an  upgrading  of  the  implementation 
capacity  of  law  enforcement  bodies.  Some  progress  has  been  achieved  in  the  fight  against 
trafficking in human beings. A shelter for victims has been established with public funding. 
Preparations  are  advancing  to  prepare  a  law  on  the  protection  of  personal  data,  a  key 
requirement of the SAA. The situation as regards protection of personal data remains a matter 

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of  concern.  Montenegro  is  in  the  process  of upgrading its capacities in the area of the fight 
against terrorism. 

Serbia 

As regards political criteria, Serbia has made progress in line with the European Partnership. 
However, a number of challenges remain to be addressed. In particular, Serbia has not yet met 
its  international  obligation  to  fully  co-operate  with  the  ICTY,  which  is  the  condition  for 
resuming the Stabilisation and Association Agreement negotiations. 

Concerning  democracy  and  rule  of  law,  further  to  Montenegro's  independence  Serbia  has 
become the successor state of the State Union of Serbia and Montenegro, in accordance with 
the  State  Union  Constitutional  Charter.  The  authorities  have  handled  by  this  process  in  a 
responsible manner. The resolution of issues between the two Republics has been proceeding 
smoothly. Serbia has taken over the State Union policies and institutions. This process is not 
yet fully completed. 

The  adoption  of  a  new  Constitution  is  a  welcome  development.  However,  there  are  some 
areas of concern, related in particular to the independence of the judiciary. The constitutional 
framework needs to be soundly developed and implemented to strengthen democracy and rule 
of  law,  and  to  ensure  its  future  compatibility  with  EU  membership.  As  regards  Kosovo,  its 
future status will be determined by the political process established under UNSCR1244. 

The Serbian parliament has continued with intensive legislative activity. It has become more 
transparent and open to the general public. The revision of its rules of procedure is welcome. 
However,  its  functioning  has  shown  some  weaknesses.  In  particular  some  members  of  the 
Parliament  were  deprived  of  their  mandates  in  a  controversial  manner.  The  Government 
activities  have  become  more  transparent.  The European  Integration  Office  has  continued  its 
good  work,  notably  with  regard  to  the  Action  Plan  for  the  implementation  of  the  European 
Partnership.  However,  the  lack  of  coordination  within  the  Government  persisted.  The  line 
ministries still have widely varying capacities and resources to deal with European integration 
issues.  

As regards the public administration reform, a key priority of the European Partnership, there 
has been further progress in setting the legal framework for the civil service. This is now in 
line with general European standards. Serbia has a good administrative capacity in a number 
of  areas.  This  capacity  needs  to  be  developed  further  throughout  the  administration.  The 
Parliament has not yet appointed an Ombudsman as required by the relevant law. 

The  reform  of  the  military  has  continued  but  with  difficulties  and  resistance  from  some 
elements  within  the  army.  Civilian  oversight  of  the  military,  which  is  a  key  European 
Partnership priority, is still insufficient. The new Constitution and the revised parliamentary 
rules of procedures set out the bases for a more effective civilian oversight. 

The judicial reform strategy has been adopted and its implementation has started. However, 
the independence of the judiciary, an issue which mentioned in a key priority of the European 
Partnership,  is  still  affected  by  political  influence.  Positive  trends  can  be  seen  as  regards 
speeding up of proceedings in commercial courts. Still, the efficiency of the administration of 
justice  is  not  satisfactory.  The  establishment  administrative  and  appellate  courts  has  been 
delayed further.  

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The  National  strategy  and  the  relevant  Action  Plan  for  fighting  against  corruption  were 
adopted.  Tangible  results  were  achieved  in  some  sectors.  However,  corruption  remains  a 
source of concern. A clear and effective institutional set-up still needs to be put in place. 

As regards human rights and the protection of minorities, overall the human rights situation 
has continued to improve. The State Union Ministry for Human and Minority Rights has been 
replaced  by  an  Office  under  the  Prime  Minister.  However,  the  performance  of  the  Office 
remains to be tested. The new law on churches and religious organisations does not guarantee 
the  equal  treatment  of  religious  groups.  A  comprehensive  anti-discrimination  law  is  still 
lacking and further efforts are needed to promote tolerance. Further efforts are also needed to 
prevent torture. The issue of property restitution remains outstanding. 

Measures  have  been  taken  to  promote  the  participation  of  members  of  minorities  in  the 
education  system  and  their  representation  in  public  administration.  Problems  persisted, 
however,  in  the  area  of  information  in  minority  languages.  The  interethnic  situation  in 
Vojvodina has continued to improve. The situation in South Serbia remains tense. In Sandžak, 
incidents  have  occurred  within  the  Bosniak  community.  The  Government  has  adopted  a 
number  of  Action  Plans  concerning  Roma  people.  However,  their  situation  remains 
precarious.  Local  integration  of  refugees,  in  particular  the  most  vulnerable  ones,  remains 
difficult. 

As regards regional issues and international obligations, Serbia has continued to contribute 
to  regional  co-operation  and  to  pursue  policies  aimed  at  improving  relations  with  its 
neighbours.  Progress  has  been  made  concerning  regional  co-operation  in  the  fields  of 
aviation, transport infrastructure and energy. Serbia has not yet met its international obligation 
to fully co-operate with the ICTY, which is a key priority of the European Partnership. The 
Serbian authorities participate in the political talks on the future status of Kosovo, launched in 
2005  under  UN  auspices.  However,  Belgrade  has  discouraged  the  participation  of  Kosovo 
Serbs in the Provisional Institutions of Self-Government. Serbia needs to take a constructive 
approach in line with the key priority of the European Partnership. 

As regards economic criteria, Serbia has made notable progress towards being a functioning 
market economy. Stabilisation and reform efforts need also be continued in order to enable it 
to cope with competitive pressure and market forces within the Union. 

Consensus on the direction of economic policy and reform has generally been maintained in 
2005. Economic growth has continued. The current account deficit has narrowed, helped by 
recovering exports. Foreign currency reserves have been boosted by strong capital inflows in 
the  form  of  privatization  proceeds  as  well  as  corporate  and  commercial  banks’  foreign 
borrowing.  Foreign  direct  investment  (FDI)  has  continued  to  grow  predominantly  related  to 
privatisation. Monetary policy has been tightened and fiscal consolidation continued in 2005 
due  to  cuts  in  expenditure  and  strong  tax  receipts.  General  government  debt  has  declined. 
Tangible progress has been made in pension reform and company registration. Privatisation of 
socially-owned  companies  and  of  the  banking  sector  has  advanced.  Preparations  for 
restructuring and privatisation of state-owned companies have intensified. There was a certain 
progress  in  creating  the  necessary  regulatory  framework  for  network  industries.  Economic 
integration with the EU advanced. 

However,  inflation  and  external  deficits  remained  relatively  high.  Since  early  2006,  fiscal 
consolidation has stopped. The envisaged acceleration of public investment risks jeopardising 
further fiscal consolidation and macroeconomic stability. External debt has risen as borrowing 

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of  the  private  sector  has  increased.  Unemployment  has  further  risen.  Greenfield  investment 
remained  negligible.  The  enterprise  sector  remained  overall  weak,  also  due  to  lack  of 
competition  in  domestic  markets  and  slow  progress  in  corporate  restructuring,  privatisation 
and  market  exit  procedures.  The  new  bankruptcy  legislation  is  not  yet  applied  frequently. 
Capital markets remained in an infant stage. State intervention in the economy has remained 
prevalent. 

Serbia  has  made  good  progress  to  approximate  its  legislation  and  policies  with  European 
standards  in  most  areas.  Overall,  Serbia  has  continued  to  strengthening  its  administrative 
capacity  to  be  able  to  implement  the  SAA  properly.  However,  on  its  way  towards  future 
integration  into  the  EU,  efforts  are  needed  for  completing  the  legislative  process  and 
implementation notably in areas where there are strong vested interests.  

Serbia  has  advanced  well  in  its  legal  and  administrative  approximation  to  the  EU  internal 
market  acquis.  With  the  objective  to  fulfil  the  requirements  of  the  Stabilisation  and 
Association  Agreement,  Serbia  has  made  sustained  efforts  to  approximate  the  country's 
legislation to that of the EU during the past year. Particular progress is reported in the areas of 
standardisation, conformity  assessment and accreditation, metrology, movement of services, 
anti-trust,  company 
the  area  of 
standardisation, certification and metrology is now in place and needs to be implemented. A 
set of laws in financial services has been adopted to further approximate rules to the EU. An 
independent  anti-trust  body  has  finally  been  set  up.  The  customs  administration  has  made 
substantial progress in the control and management of the customs legislation. 

law  and  customs.  The 

legislative  framework 

in 

In  some  areas  Serbia  needs  to  make  efforts  not  only  to  implement  but  also  to  fully  benefit 
from the future Agreement. Serbia needs to strengthen administrative structures, particularly 
in some the areas such as taxation, state aid control, public procurement, intellectual property 
rights  and  consumer  protection.  The  legislative  framework  is  relatively  well  advanced  in 
public  procurement  and  in  intellectual  property  rights.  Further  efforts  are  needed  to  reach 
adequate implementation and enforcement. Serbia needs to revise discriminatory taxation of 
foreign goods and to commit itself to the EU code of conduct on business taxation. The legal 
framework  for  state  aid  control  remains  to  be  adopted  and  the  administrative  capacity, 
strengthened. The Consumer Protection Council needs to be further reinforced.  

In  relation  to  sectoral  policies,  Serbia  has  made  good  progress  in  a  number  of  areas: 
education,  employment  and  social  policy,  SME  policy,  agriculture  policy,  statistics,  energy, 
aviation and transport infrastructure. Serbia has established a new legal framework for higher 
education. Serbia has continued implementing effectively the European SME Charter. Serbia 
has made further efforts to reform and modernise its agricultural sector and has actively taken 
part in the improvement of transport networks in the region. Serbia has signed the European 
Common Aviation Area Agreement. Serbia is actively participating in the implementation of 
the  Memorandum  of  Understanding  on  the  Development  of  the  Core  Regional  Transport 
Network  and  the  South  East  Europe  Transport  Observatory.  Serbia  has  ratified  the  Energy 
Community Treaty. 

In certain areas more efforts are needed to fulfil the future SAA obligations and the priorities 
of  the  European  Partnership.  This  includes  EU  approximation  in  the  area  of  food  safety, 
environment,  information  society  and  financial  control.  On  food  safety,  administrative 
capacity  needs  to  be  further  strengthened,  especially  in  the  phytosanitary  area.  Concerning 
environment,  Serbia  needs  to  strengthen  administrative  capacity,  to  develop  new  legislation 
and to ensure proper implementation and enforcement. As regards information technologies, 

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the telecommunication regulatory authority needs to be strengthened to improve competition 
in the sector. As regards the media, the legal framework raises concerns, notably in relation to 
the  capacities  of  the  regulatory  body.  In  the  area  of  financial  control,  Serbia  needs  to 
introduce a strategy to establish a Public Internal Financial Control system.  

As  regards  justice,  freedom  and  security,  Serbia  has  taken  over  the  relevant  State  Union 
competences in the areas of visa administration, border management, asylum and migration. 
The Law on Foreigners which is to define the future visa regime has still to be adopted. The 
national  integrated  border  management  strategy  and  the  implementing  action  plan  were 
adopted. The Law on State Borders has not been adopted. The transfer of border control from 
the military to the civilian authorities is proceeding. In the field of asylum, the implementing 
legislation to regulate procedures for reception and protection of the asylum seekers remains 
to  be  adopted.  There  is  a  lack  of  adequate  infrastructure  and  qualified  staff.  A  number  of 
readmission agreements has been signed. The legal and financial framework for integration of 
people who have been readmitted is still lacking. Some results have been achieved in the fight 
against illegal migration but this continues to be an area of concern.  

The  implementation  of  the  new  Law  on Police has  been rather slow.  The legislation on  the 
security  services  has  not  yet  been  adopted.  Concerning  the  fight  against  money  laundering, 
the  legislation  has  been  improved  but  there  is  still  insufficient  cooperation  between  the 
competent agencies.  

Organised  crime  remains  a  source  of  serious  concern.  The  action  plan  to  implement  the 
National Strategy for the fight against Organised Crime has not yet been finalised. There is a 
need  to  further  reinforce  specialised  services  within  police,  especially  the  ones  tasked  with 
investigating financial crime. Appropriate legislation on seizure and freezing of assets, bank 
accounts and the proceeds of crime remains to be adopted. The implementation of the Law on 
Witness  Protection  has  revealed  deficiencies.  Concerning  trafficking  in  human  beings,  the 
criminal legislation has been amended and there have been some first convictions. Terrorism 
and  its  financing  have  been  introduced  as  specific  offences  in  the  Criminal  Code.  The 
ratification  and  implementation  of  the  relevant  international  conventions  needs  to  be 
accelerated. The situation as regards protection of personal data remains a matter of concern. 

Kosovo 

As regards political criteria, Kosovo has remained stable and made progress in the transfer of 
responsibilities to the provisional institutions of self government (PISG). Increased efforts are 
needed  to  strengthen  the  rule  of  law.  Key  short-term  priorities  of  the  European  Partnership 
have only been partly addressed. 

As regards democracy and the rule of law, the status issue has dominated Kosovo's politics. 
The  main  Kosovo  Albanian  political  parties  have  developed  a  more  constructive  dialogue 
which will need to be sustained. The  focus on status has led to the swift implementation of 
some UN standards but has delayed reforms. The status settlement should provide the basis 
for a stable democracy for all Kosovans regardless of their ethnic background, consolidating 
the rule of law and promoting human and minority rights. Kosovo's institutions must start to 
develop  a  vision  for  Kosovo's  future  beyond  status  with  a  focus  on  sound  policy-making, 
prudent fiscal policies, efficient institutions and good governance at all levels.  

Progress  has  been  made  in  strengthening  the  Assembly's  role.  An  important  reform  package 
was  adopted,  improving  executive  oversight,  financial  accountability  and  transparency. 

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However,  Assembly  committees  are  not  always  able  to  fulfil  their  role  in  the  legislative 
process, partly due to a lack of qualified staff working for the secretariats of the committees. 
They do not yet have the practice of appointed rapporteurs. 

The succession of the late President Rugova and the establishment of a new government went 
smoothly.  Kosovo's  progress  under  the  Stabilisation  and  Association  Process  is  now  a  top 
government  priority.  The  government  established  an  agency  for  European  integration  and 
adopted an action plan to address European Partnership priorities.  

As  regards  public  administration,  the  provisional  institutions  have  set  up  an  independent 
oversight  board  and  a  senior  public  appointments  committee.  They  have  established  new 
ministries  of  justice  and  of  the  interior.  The  government  has  made  some  progress  in 
improving  its  coordination  and  policy-making  capacities.  The  authorities  exercise  limited 
control over certain Kosovo Serb areas, particularly in the northern municipalities. However, 
Kosovo’s  administrative  capacity  remains  weak  and  the  civil  service  overstaffed.  A 
comprehensive  reform  of  the  civil  service  is  needed.  Appointments  in  the  administration 
continue to be politically influenced. 

As regards the judicial system, the Kosovo Judicial Council and the Kosovo Judicial Institute 
were  set  up.  Substantial  responsibilities  were  transferred  to  the  provisional  institutions  in 
order to increase local ownership and accountability. The current role of the Assembly in the 
appointment  of  judges  and  prosecutors  undermines  the  independence  of  the  judiciary  and 
allows  political  and  ethnical  considerations  to  interfere  in  what  should  be  an  objective  and 
technical recruitment process. Kosovo’s judicial institutions have made little progress in civil 
and  criminal  justice.  The  backlog  of  cases  has  increased  and  judgements  are  not  always 
enforced. Rendering judgements in the high profile cases in relation to the March 2004 riots 
remains  problematic  due  to  a  lack  of  diligence  in  case  investigations  by  the  police,  lenient 
sentencing and a lack of cooperation from witnesses. 

In  response  to  a  key  European  Partnership  priority,  the  government  approved  an  anti-
corruption  action  plan,  an  anti-corruption  council  was  established  and  the  Assembly 
appointed  the  director  of  the  anti-corruption  agency.  Nevertheless,  corruption  in  Kosovo  is 
still widespread and little progress has been made in effectively tackling corruption. 

In  the  area  of  human  rights  and  the  protection  of  minorities  an  advisory  panel  has  been 
established to deal with complaints from persons claiming to be the victims of human rights 
violations by UNMIK. The mandate of the international ombudsperson expired at the end of 
2005 and the assembly nominated a Kosovan acting ombudsperson. 

In  spring  2006,  the  President  and  the  Prime  Minister  started  a  highly  visible  outreach 
campaign towards minorities. Both called on minority communities to consider Kosovo their 
home  and  to  work  together  with  Kosovo’s  provisional  institutions  of  self  government. 
However, minorities continue to be in a disadvantaged position and further efforts are needed 
to  combat  intolerance.  There  have  been  a  number  of  violent  attacks  against  Kosovo  Serbs 
particularly  during  the  summer  of  2006.  The  conditions  remain  difficult  for  a  sustainable 
return of refugees and displaced persons. 

Relations between Kosovo Serbs and Kosovo Albanians have remained strained. Belgrade has 
discouraged the Kosovo Serbs' participation in the provisional institutions and Kosovo Serbs 
have continued to boycott them. 

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Concerning  regional  issues  and  international  obligations,  Kosovo  has  enhanced  its 
participation in regional fora and cooperation initiatives, a key European Partnership priority, 
particularly  in  the  areas  of  transport  and  energy.  A  free  trade  agreement  with  the  former 
Yugoslav  Republic  of  Macedonia  entered  into  force  and  free  trade  agreements  were  signed 
with Croatia and Bosnia and Herzegovina. 

As regards economic criteria, Kosovo has made limited progress towards being a functioning 
market economy. Considerable additional efforts are also needed in order to be able to cope 
with competitive pressure and market forces within the Union. 

Consensus  on  the  essentials  of  economic  policy  in  Kosovo  has  been  broadly  maintained. 
Monetary  stability  continued  to  be  underpinned  by  the  use  of  the  euro  as  sole  legal  tender. 
Fiscal policy has been tightened, reflecting a rapid decline in donors' support and foreseeable 
exhaustion  of  the  reserve  of  accumulated  cash  deposits.  In  line  with  a  key  European 
partnership  recommendations,  a  medium-term  economic  policy  framework  for  Kosovo  has 
been established, which aims at ensuring a sustainable fiscal stance. The first Medium-Term 
Expenditure Framework was adopted, providing a consolidated overview of budget and off-
budget financing needs, including public investment projects. Privatisation of socially-owned 
enterprises  progressed  markedly.  Considerable  progress  has  been  achieved 
the 
in 
incorporation of publicly-owned enterprises which is a key European Partnership priority. 

However, macroeconomic stability has not yet been satisfactorily achieved so far, mainly due 
to  the  fragile  fiscal  and  unsustainable  external  position.  Unemployment  remains  high,  also 
due to excessive labour costs. These costs also dampen private sector development and export 
competitiveness.  Serious  challenges  remain  in  implementing  the  policy  commitments  taken 
by the authorities, in particular as regards a sustainable fiscal policy stance over the medium 
term.  An  inefficient  judiciary  and  legal  uncertainty  with  respect  to  enforcement  of  property 
rights continue to hamper economic activity. Access of small and medium-sized enterprises to 
external finance is limited. Infrastructure remains insufficient and often of poor quality. The 
power  supply  remained  unreliable,  hindering  economic  development.  Restructuring  of 
publicly-owned  enterprises,  in  particular  of  the  Kosovo  Energy  Corporation,  need  to  be 
further accelerated.  

Kosovo  has  made  good  progress  to  approximate  its  legislation  and  policies  with  European 
standards.  However,  limited  progress  has  been  made  on  the  effective  implementation  and 
enforcement  of  legislation  passed.  More  efforts  are  needed  to  create  an  administrative 
environment that will ensure further approximation to European standards. 

In  the  area  of  the  internal  market,  some  progress  has  been  made  on  the  establishment  of  a 
system for standardisation, certification, metrology, accreditation and conformity assessment. 
Little  progress  can  be  reported  in  a  number  of  important  areas  such  as  public  procurement, 
competition, and the protection of intellectual property rights. Little progress has been made 
in the areas of employment, social policy and education. Limited progress has been made on 
the free movement of capital. 

Customs legislation is broadly in line with the acquis and good progress has been achieved in 
response to European Partnership priorities in several areas related to administrative capacity 
in  the  customs  area  (e.g.  computerisation,  risk  analysis,  fight  against  corruption).  A  revised 
Integrated Tariff for Kosovo entered into force. A comprehensive reorganisation of UNMIK 
customs  took  place  and  the  intelligence  unit  and  the  investigation  unit  were  strengthened. 

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Some  progress  has  been  made  in  the  area  of  taxation,  although  domestic  tax  collection 
remains weak.  

As  regards  the  development  of  sectoral  policies,  good  progress  has  been  achieved  in  the 
transport sector as prioritised in the European Partnership. The government adopted a multi-
modal  transport  policy  paper.  Kosovo  signed  the  agreement  on  the  establishment  of  a 
European Common Aviation Area. 

There has been some improvement in relation to the restructuring of the energy utilities. The 
energy regulatory office became operational and issued substantial implementing legislation. 
Kosovo ratified the Energy Community Treaty. However, the financial viability and reliability 
of the energy sector remain precarious. Bill collection rates remain at unsustainably low levels 
and technical losses and theft remain very high. 

Regarding the environment, progress has been fairly good in legislative terms. Some progress 
has been achieved in the agricultural sector, particularly in the veterinary area. Good progress 
has been achieved in the area of financial control.  

Good  progress  was  achieved  on  audiovisual  policy  and  media.  The  law  on  Radio  and 
Television of Kosovo was promulgated in April 2006. Little progress was made in the area of 
electronic communications and information society. 

There has been some progress in statistics. Preparations for a housing and population census 
are ongoing. An international monitoring operation has been established to help the statistical 
office  prepare  for  the  census  and  ensure  it  will  be  carried  out  in  line  with  international 
standards.  Efforts  have  also  been  undertaken  to  encourage  minority  participation  in  pilot 
census exercises. The statistical office's capacities generally remain weak.  

As  regards  justice,  freedom  and  security,  some  progress  has  been  achieved  in  the  areas  of 
border management. A memorandum of understanding was signed between the border police 
and customs in January 2006 to facilitate integrated border management. 

The  Financial  Information  Centre  has  revised  the  anti-money  laundering  regulations  with 
input from the banking and payment authority of Kosovo. 

No progress can be reported in the fight against drugs. Local policing capacities to fight drugs 
need to be strengthened. 

The Kosovo police service has continued to make progress towards becoming a professional 
police  force.  A  Kosovan  deputy  police  Commissioner  and  four  Kosovo  police  service 
assistant  police  commissioners  were  appointed.  Further  efforts  are  needed  to  develop  an 
effective police service and strengthen local investigation capacities in relation to corruption 
and organised crime. 

Efforts are underway to intensify the fight against organised crime which remains a serious 
problem  in  Kosovo.  Criminal  networks  extend  to  various  socio-economic  sectors  and  into 
politics.  Finding  the  highly  skilled  Kosovan  police  personnel  remains  a  major  challenge. 
Legislation  is  still  lacking  to  keep  the  identity  of  informants  confidential  in  court.  Little 
progress has been made in the fight against trafficking human beings and Kosovo remains a 
source, transit, and destination point for trafficking. No progress has been made with regard to 
the protection of personal data, which is a matter of concern. 

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Turkey 

Turkey  continues  to  sufficiently  fulfill  the  Copenhagen political  criteria  and  has  continued 
political  reforms.  However  the  pace  has  slowed  during  the  past  year.  Significant  further 
efforts  are  needed  in  particular  on  freedom  of  expression.  Further  improvements  are  also 
needed on the rights of non-Muslim religious communities, women's rights, trade union rights 
and on civilian control of the military. 

As  regards  democracy  and  the  rule  of  law,  in  the  area  of  public  administration  a  law 
establishing an Ombudsman was adopted. No progress is reported with regard to civil service 
reform.  

In  the  area  of  civil-military  relations  the  parliament  passed  revised  procedures  for  military 
courts  enhancing  guarantees  for  defendants.  However,  senior  members  of  the  armed  forces 
have continued making public statements to influence areas beyond their responsibilities. 

There  was  progress  in  the  area  of  judicial  reform.  However,  implementation  of  the  new 
legislation  by  the  judiciary  presents  a  mixed  picture  so  far  and  the  independence  of  the 
judiciary needs to be further established. 

There  was  some  limited  progress  on  legislative  reforms  in  the  fight  against  corruption. 
Corruption  remains  widespread.  Anti-corruption  policies  are  weak  and  the  authorities 
responsible for the fight against corruption need to be strengthened. 

Concerning human rights and the protection of minorities, there has been a further decrease 
in  reports  of  torture  and  ill-treatment.  However,  allegations  of  torture  and  ill-treatment 
outside  detention  centres  and  in  the  South-East  give  cause  for  concern.  Impunity  for 
perpetrators  of  torture  also  remains  a  problem.  The  impact  on  fundamental  freedoms  of  the 
amendments to the anti-terror law needs to be followed closely. Such amendments introduced 
a wide list of terrorism offences and weakened guarantees for defendants.  

In general, open debate has increased in Turkish society on a wide range of issues, including 
traditionally sensitive subjects. Notwithstanding this trend, freedom of expression in line with 
European standards is not yet guaranteed by the present legal framework. A recent ruling of 
the  Court  of  Cassation  establishes  jurisprudence  on  Article  301  of  the  Penal  Code  which 
restricts  free  speech.  Moreover,  a  significant  number  of  persons  have  been  prosecuted  for 
expressing non-violent opinions. Article 301 and other provisions of the Turkish Penal Code 
that restrict freedom of expression need to be brought in line with the European Convention of 
Human Rights (ECHR).  

Restrictions  on  freedom  of  assembly  and  freedom  of  association  have  eased,  with  improved 
implementation  of  measures  taken  in  recent  years.  However,  in  some  cases  security  forces 
made  use  of  excessive  force  during  demonstrations.  Difficulties  in  establishing  associations 
promoting a specific cultural identity remain.  

With regard to freedom  of religion, the adoption of a law that was expected to improve the 
situation  of  religious  minorities  has  been  postponed  several  times,  and  there  has  been  no 
change  in  the  difficulties  faced  by  the  non-Muslim  communities  on  the  ground.  There  has 
been  no  change  in  the  situation  of  the  Alevi  community.  A  legal  framework  should  be 
established  in  line  with  the  ECHR  so  that  all  religious  communities  can  function  without 
undue constraints. 

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Women's rights receive growing public attention in Turkey, and civil society is increasingly 
able to play a positive role in this area. The legal framework is broadly satisfactory. However, 
in practice women's rights are not always protected, in particular in the poorest areas of the 
country. 'Honour crimes' need to be investigated more systematically and where appropriate 
followed-up with prosecution and convictions. 

There  has  been  little  change  in  the  situation  as  regards  children's  rights.  Implementation  of 
legal  provisions  concerning  education  and  employment  under  the  age  of  fifteen  needs  to  be 
improved. 

On trade unions' rights there was no legislative progress. Turkey does not yet meet EU and 
ILO (International Labour Organisation) standards, in particular as regards the right to strike 
and the right of collective bargaining. 

Turkey's  approach  to  minority  rights  remains  restrictive.  Turkey  did  not  ratify  the 
international  legal  instruments  on  minority  rights.  As  regards  cultural  rights,  limited 
broadcasting  is  allowed  in  languages  other  than  Turkish.  Restrictions  on  learning  such 
languages are maintained for the public schooling system. All private establishments offering 
courses in Kurdish language closed down in August 2005. General restrictions on the use of 
languages  other  than  Turkish  remain  tight  both  in  political  life  and  when  accessing  public 
services.  

Turkey has been the subject of increased terrorist attacks, in particular from the PKK, which 
is  on  the  EU  list  of  terrorist  organisations.  The  EU  has  strongly  condemned  these  terrorist 
acts.  

There is a need for Turkey to address the serious economic and social problems of the South 
East and ensure full enjoyment of rights and freedoms by the Kurdish population. The large 
numbers of internally displaced persons continues to cause concern. 

With  regard  to  regional  issues  and  international  obligations,  Turkey  has  expressed 
continued support for UN efforts to find a comprehensive settlement of the Cyprus problem. 
However,  there  has  been  no  progress  towards  normalisation  of  bilateral  relations  with  the 
Republic of Cyprus. Since signing the Additional Protocol  to  the  Association  Agreement  in 
July  2005  Turkey  has  not  moved  towards  its  full  implementation  and  the  removal  of  all 
obstacles to the free movement of goods, including restrictions on direct transport links with 
Cyprus.  At  its  June  2006  meeting,  the  European  Council  recalled  that  the  Council  would 
review implementation of the Additional Protocol in the course of 2006 and ensure follow-up 
to the issues included in the EU declaration of 21 September 2005. 

Relations with Greece have evolved positively but no progress has been made in resolving the 
outstanding  border  dispute.  At  a  meeting  of  Foreign  Ministers  of  the  two  countries  a  new 
package  of  confidence-building  measures  was  agreed.  Good  neighbourly  relations  remain 
key. 

As regards economic criteria, Turkey can be regarded as a functioning market economy, as 
long  as  it  firmly  maintains  its  recent  stabilisation  and  reform  achievements.  Turkey  should 
also  be  able  to  cope  with  competitive  pressure  and  market  forces  within  the  Union  in  the 
medium  term,  provided  that  it  firmly  maintains  its  stabilisation  policy  and  takes  further 
decisive steps towards structural reforms.  

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The  consensus  on  the  essentials  of  a  market-based  economy  has  remained  broadly  intact. 
Stability-oriented  macroeconomic  policies  have  contributed  to  strong  economic  growth  and 
growing  resilience  to  shocks.  Budget  deficits  and  government  debt  levels  have  been 
significantly reduced and some key measures have been taken to enhance the social security 
system.  The  independence  of  regulatory  and  surveillance  agencies  has  been  confirmed  and 
special  privileges  of  state-owned  banks  are  being  phased  out.  The  privatisation  process  has 
gained momentum. The banking and non-banking financial sectors have continued to deepen, 
and  supervision  has  been  further  strengthened.  The  economy  has  become  more  open  to 
foreign trade and investment. The Central Bank and the government continued to implement 
disinflation policy.  

The  relatively  high  external  and  government  financing  needs  remain  highly  vulnerable  to 
investor  sentiment,  which  implies  a  potential  threat  to  macroeconomic  stability.  Therefore, 
fiscal  consolidation  needs  to  be  further  strengthened  and  effectively  backed  by  structural 
measures. Combating unregistered employment requires attention. Labour market imbalances 
persist.  Employment  rates  are  very  low  and  falling,  in  particular  for  the  female  population. 
Policy  responses  to  these  imbalances  were  limited  and  non-wage  costs  of  hiring  remained 
large.  Average  educational  standards  are  relatively  low  and  large  disparities  persisted.  The 
business  environment  was  negatively  affected  by  barriers  to  exit  and  low  transparency  as 
regards state aids. The process of restructuring of the energy sector advanced fairly slowly. 

Turkey  has  improved  its  ability  to  take  on  the  obligations  of  membership.  In  most  areas 
some  progress  was  made.  However,  fulfilment  of  short-term  priorities  under  the  Accession 
Partnership  is  lagging  behind  in  many  areas.  A  number  of  obligations  by  Turkey  under  the 
Customs  Union  remain  unfulfilled.  Much  remains  to  be  done  to  improve  the  level  of 
alignment and the institutional and administrative capacity.  

Progress in free movement of goods has been uneven. There were improvements in areas such 
as accreditation, standardisation and conformity assessment. However, a number of provisions 
remain contrary to the general principles of free circulation of goods, and technical barriers to 
trade continue to exist. On free movement of workers, there were no developments. Alignment 
with  the  acquis  on  the  right  of  establishment  and  the  freedom  to  provide  services  remains 
limited.  Turkey  made  very  little  progress  on  the  free  movement  of  capital.  Alignment  is 
incomplete  in  particular  concerning  the  fight  against  money  laundering.  Acquisition  of  real 
estate by foreigners is restricted.  

Progress  in  the  area  of  public  procurement  is  very  limited.  The  scope  of  application  of  the 
legislation  narrowed  through  the  introduction  of  exemptions.  Turkey  does  not  have  an 
organisation that guarantees a coherent policy in all areas related to public procurement. As 
regards  company  law,  some  limited  progress  was  made.  Turkey  has  adopted  most 
international accounting standards. However, these are not legally binding for the majority of 
Turkish companies, which are only subject to tax-based reporting requirements. The level of 
alignment is low. On intellectual property law, alignment is well advanced and administrative 
capacity 
in  particular  on 
enforcement  addressing  organised  piracy  and  counterfeiting.  Furthermore,  cooperation  and 
coordination  between  relevant  authorities  needs  strengthening.  Non-specialised  lower  courts 
have difficulty in properly implementing legislation.  

improved.  However,  further  progress  remains  necessary, 

Progress  in  the  field  of  competition  policy  is  mixed.  Alignment  of  anti-trust  acquis  is  well 
advanced  and  enforcement  by  the  Competition  Authority  is  satisfactory.  However,  on  state 
aid  there  is  no  progress:  Turkey  does  not  have  the  necessary  legislative  framework,  nor 

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administrative  structures  to  implement  EU  rules.  The  relevant  obligations  under  the 
Association Agreement remain to be fulfilled. 

Turkey  has  made  some  progress  on  financial  services.  A  new  banking  law,  and  insolvency 
legislation in the insurance and supplementary pension sectors, are improvements. Alignment 
of legislation in insurances is limited. In the area of investment services and securities markets 
the 
investor  compensation  scheme,  cross  border  provision  of  services,  disclosure 
requirements,  and  prospectuses  need  further  adaptation.  Supervisory  capacity  needs  to  be 
further strengthened, in particular in the insurance and securities market sectors. 

Progress has been made in parts of the information society and media areas, including local 
broadcasting  in  other  languages.  Turkey  achieved  a  good  basis  for  further  alignment  in 
electronic  communications  and  information  technologies.  Overall  alignment  in  media  and 
audiovisual policy remains very limited. 

In  agriculture  some  limited  progress  was  achieved  on  rural  development.  However, 
implementation  was  put  into  risk  by  delays  in  adopting  related  legislative  measures  and 
administrative  structures.  Most  administrative  structures  to  implement  the  Common 
Agricultural  Policy  (CAP)  remain  to  be  developed.  Turkish  policy  to  increasingly  link 
financial  support  to  the  production  level  is  not  in  line  with  the  reform  of  CAP.  Overall, 
alignment is limited. Concerning fisheries, Turkey made no progress. Important elements of 
the acquis are missing in Turkish legislation. Structures to implement the Common Fisheries 
Policy are not in place. Limited progress was made in aligning the veterinary, phytosanitary 
and  food  policy.  Neither  the  legislative  framework  nor  the  administrative  structures  are  in 
place to allow implementation of the acquis. In general, control systems are weak. The main 
difficulty is in the veterinary sector, in particular in view of the  animal health situation, the 
lack of an effective animal disease control system.  

Some  progress  has  been  made  in  transport  policy.  Alignment  is  fairly  advanced  on  road 
transport, but uneven in the other sectors. Implementation and enforcement capacity require 
attention. A decision on the structure of the railway sector is pending. International maritime 
and air transport agreements are not complemented by the transposition of applicable acquis. 
Limited  progress  was  made  on  Trans  European  Networks.  On  energy  there  was  some 
progress.  However,  legal  alignment  is  uneven.  A  framework  law  for  energy  efficiency 
remains  to  be  developed.  The  administrative  capacity,  and  the  independence  of  regulatory 
bodies, needs strengthening. 

There was limited progress on taxation. The Turkish fiscal regime is partially in line with the 
acquis.  Incomplete  are  particularly  the  scope  and  rates  of  VAT,  the  structure  and  rates  of 
excise duties, as well as direct taxation in general. All discriminatory elements on the taxation 
of alcoholic and tobacco products need to be abolished urgently. 

Turkey made progress on the field of economic and monetary union. In general, preparations 
are well under way. However, legislation to prevent monetary financing of the public sector, 
as well as prohibition of privileged access of public authorities to financial institutions is not 
in line with the acquis. Furthermore, a lack of efficient coordination and cooperation practises 
reduces  the  effectiveness  of  economic  policy.  Turkey  made  some  progress  in  the  use  of 
uniform classifications and the availability of sector statistics. Alignment remains limited, but 
new legislation is providing significant progress.  

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Turkey made some limited progress on EU employment and social policy, in particular in the 
field of social protection and as regards the implementation of the  new law  for people with 
disabilities.  However,  full  respect  of  trade  union  rights  needs  to  be  ensured.  Combating 
unregistered employment requires attention. The administrative capacity needs to be enhanced 
to ensure implementation. 

Turkey  made  good  progress  on  enterprise  and  industrial  policy,  particularly  on  the  legal 
establishment  of  an  Investment  Support  and  Promotion  Agency.  Privatisation,  alignment  of 
the SME definition, and policy programming, also progressed. Alignment is well advanced. 

Progress  was  made  on  regional  policy  and  coordination  of  structural  instruments,  notably 
with  the  adoption  of  the  law  establishing  development  agencies.  However,  the  role  and 
functioning  of  these  agencies  raise  some  concern.  Ownership  and  accountability  need 
improvement, including considering a repartition of competences between ministries at both 
central and regional level. Alignment remained modest. 

As regards the judiciary and fundamental rights some progress was made. Overall, there was 
continued  progress  in  the  area  of  judicial  reform.  However,  implementation  of  the  new 
legislation  by  the  judiciary  presents  a  mixed  picture  so  far  and  the  independence  of  the 
judiciary  needs  to  be  further  established.  There  has  been  some  progress  in  the  fight  against 
corruption,  notably  on  increasing  transparency  in  the  public  administration.  However, 
corruption remains widespread and anti-corruption authorities and policies are still weak. The 
scope  of  parliamentary  immunity  is  too  wide.  On  fundamental  freedoms,  limited  legislative 
progress was made, though implementation of reforms continued.  

In  the  area  of  justice,  freedom  and  security,  Turkey  made  progress  on  asylum,  border 
management, the fight against trafficking in human beings, customs and police cooperation. 
Alignment is underway, but incomplete in areas such as migration, the fight against organised 
crime, money laundering, as well as judicial cooperation in civil and criminal matters. 

Some  further  progress  was  made  on  science  and  research,  notably  in  participating  in  EU 
research  programmes,  and  on  budget  allocations.  Further  good  progress  was  made  in 
education and culture. Alignment in both areas is well advanced. 

Alignment  is  on  track  as  regards  waste  management  and  noise.  On  other  aspects,  including 
international conventions, alignment in the area of environment remains low. Lack of progress 
on horizontal legislation, in particular on trans-boundary issues and on public consultation, is 
of increasing concern. Limited progress in transposing the acquis was achieved in the field of 
air  quality,  nature  protection  and  water  quality.  When  implemented,  the  amended 
Environmental  Law  will  strengthen  the  institutional  capacity.  The  track  record  on 
enforcement is weak. 

On  consumer  and  health  protection  consumer  protection  improved,  notably  through  the 
introduction  of  a  market  surveillance  system.  The  public  health  area  also  improved,  in 
particular  by  setting  up  a  network  for  the  epidemiological  surveillance  and  control  of 
communicable diseases. However, in both areas implementation remained weak. 

The Customs union has prepared Turkey for a high level of alignment in this area. However, 
on some specific issues, such as free trade zones, customs duty relief, fight against counterfeit 
goods,  and  post-clearance,  legislation  is  not  aligned.  The  customs  administration  needs 
strengthening, including starting preparations for IT interconnectivity. 

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Turkey  reached  an  advanced  level  of  alignment  in  the  area  of  external  relations.  However, 
alignment  with  the  EU's  Common  Commercial  Policy  is  not  complete.  Alignment  with  EU 
Common  Foreign  and  Security  and  Defence  Policy  continued.  Turkey  has  intensified  its 
foreign  policy  activity  in  the  Middle  East,  promoting  regional  stability.  The  border  with 
Armenia  remains  closed.  Turkey  participated  in  ESDP  missions.  However,  Turkey’s 
participation  in  ESDP  continues  to  present  difficulties.  Turkey  continues  to  block  the 
participation  of  Cyprus  and  Malta  in  EU-NATO  strategic  cooperation.  Similarly,  Turkey 
opposes  Cyprus’  accession  to  the  Wassenaar  Arrangement.  Turkey  has  yet  to  sign  the 
International Criminal Court statute. 

There  was  some  progress  on  financial  control.  Some  administrative  structures  and 
implementing  legislation  are  in  place.  However,  the  Public  Financial  Management  and 
Control Law is not fully operational. Although some temporary measures have been adopted, 
structures  to  protect  the  EU´s  financial  interests  are  not  complete  yet.  In  relation  to  the 
financial  and  budgetary  provisions,  Turkey  will  need  to  establish  in  due  course  the 
coordination  structures  and  implementing  rules  to  ensure  the  correct  calculation,  collection, 
payment and control of own resources. 

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