Commission staff working document - Croatia - 2008 progress report accompanying the Communication from the Commission to the European Parliament and the Council - Enlargement strategy and main challenges 2008-2009 {COM(2008) 674}
Date: 2008-11-05
Institutions: European Commission
Subjects: Croatia, accession to the European Union, enlargement of the Union, pre-accession strategy, report

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 5.11.2008 
SEC(2008) 2694 

COMMISSION STAFF WORKING DOCUMENT 

CROATIA 2008 PROGRESS REPORT 

accompanying the 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Enlargement Strategy and Main Challenges 2008-2009 

{COM(2008) 674} 

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TABLE OF CONTENTS 

1. 

1.1. 

1.2. 

1.3. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

4.5. 

4.6. 

4.7. 

4.8. 

4.9. 

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

Preface.......................................................................................................................... 4 

Context ......................................................................................................................... 4 

Relations between the EU and Croatia......................................................................... 5 

Political criteria ............................................................................................................ 6 

Democracy and the rule of law .................................................................................... 6 

Human rights and the protection of minorities ............................................................ 9 

Regional issues and international obligations ............................................................ 15 

Economic criteria ....................................................................................................... 17 

The existence of a functioning market economy ....................................................... 17 

The capacity to cope with competitive pressure and market forces within the Union
.................................................................................................................................... 23 

Ability to assume the obligations of membership...................................................... 26 

Chapter 1: Free movement of goods .......................................................................... 26 

Chapter 2: Freedom of movement for workers .......................................................... 28 

Chapter 3: Right of establishment and freedom to provide services ......................... 29 

Chapter 4: Free movement of capital ......................................................................... 30 

Chapter 5: Public procurement................................................................................... 31 

Chapter 6: Company law............................................................................................ 32 

Chapter 7: Intellectual property law........................................................................... 33 

Chapter 8: Competition policy ................................................................................... 34 

Chapter 9: Financial services ..................................................................................... 35 

4.10.  Chapter 10: Information society and media ............................................................... 37 

4.11.  Chapter 11: Agriculture.............................................................................................. 38 

4.12.  Chapter 12: Food safety, veterinary and phytosanitary policy .................................. 39 

4.13.  Chapter 13: Fisheries.................................................................................................. 40 

4.14.  Chapter 14: Transport policy ..................................................................................... 41 

4.15.  Chapter 15: Energy .................................................................................................... 42 

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4.16.  Chapter 16: Taxation.................................................................................................. 43 

4.17.  Chapter 17: Economic and monetary policy.............................................................. 44 

4.18.  Chapter 18: Statistics.................................................................................................. 45 

4.19.  Chapter 19: Social policy and employment ............................................................... 46 

4.20.  Chapter 20: Enterprise and industrial policy.............................................................. 48 

4.21.  Chapter 21: Trans-European networks....................................................................... 49 

4.22.  Chapter 22: Regional policy and coordination of structural instruments .................. 49 

4.23.  Chapter 23: Judiciary and fundamental rights ........................................................... 51 

4.24.  Chapter 24: Justice, freedom and security ................................................................. 56 

4.25.  Chapter 25: Science and research .............................................................................. 59 

4.26.  Chapter 26: Education and culture............................................................................. 60 

4.27.  Chapter 27: Environment ........................................................................................... 61 

4.28.  Chapter 28: Consumer and health protection............................................................. 63 

4.29.  Chapter 29: Customs union........................................................................................ 64 

4.30.  Chapter 30: External relations.................................................................................... 65 

4.31.  Chapter 31: Foreign, security and defence policy...................................................... 66 

4.32.  Chapter 32: Financial control..................................................................................... 67 

4.33.  Chapter 33: Financial and budgetary provisions........................................................ 68 

STATISTICAL ANNEX 

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COMMISSION STAFF WORKING DOCUMENT 

CROATIA 2008 PROGRESS REPORT 

1. 

INTRODUCTION 

1.1. 

Preface 

Since March 2002, the Commission has reported regularly to the Council and the Parliament 
on progress made by the countries of the Western Balkans region. 

This report on progress made by Croatia in preparing for EU membership largely follows the 
same structure as in previous years. The report: 

briefly describes the relations between Croatia and the Union; 

–  analyses the situation in Croatia in terms of the political criteria for membership; 

–  analyses the situation in Croatia on the basis of the economic criteria for membership; 

–  reviews  Croatia's  capacity  to  assume  the  obligations  of  membership,  that  is,  the  acquis 

expressed in the Treaties, the secondary legislation, and the policies of the Union. 

The  period  covered  by  this  report  is  from  1  October  2007  to  3  October  2008.  Progress  is 
measured on the basis of decisions taken, legislation adopted and measures implemented. As a 
rule,  legislation  or  measures  which  are  under  preparation  or  await  parliamentary  approval 
have not been taken into account. This approach ensures equal treatment across all reports and 
permits an objective assessment. 

The  report  is  based  on  information  gathered  and  analysed  by  the  Commission.  In  addition, 
many  sources  have  been  used,  including  contributions  from  the  government  of  Croatia,  the 
Member States, European Parliament reports1, and information from various international and 
non-governmental organisations. 

The Commission draws detailed conclusions regarding Croatia in its separate communication 
on enlargement2, based on the technical analysis contained in this report. 

1.2. 

Context 

The  European  Council  of  June  2004  granted  the  status  of  candidate  country  to  Croatia. 
Accession  negotiations  with  Croatia  were  opened  in  October  2005.  The  Stabilisation  and 
Association Agreement between Croatia and the EU was signed in October 2001 and entered 
into force in February 2005. 

1 
2 

The rapporteur for Croatia is Mr Hannes Swoboda. 
Enlargement Strategy and Main Challenges 2008-2009. 

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1.3. 

Relations between the EU and Croatia 

Accession negotiations with Croatia have continued. Negotiations have now been opened on 
21 out of 35 chapters (science and research, education and culture, economic and monetary 
policy,  enterprise  and  industrial  policy,  customs,  intellectual  property  rights,  services, 
company law, statistics, financial services, financial control, information society and media, 
consumer  and  health  protection,  external  relations,  financial  and  budgetary  provisions, 
TENs,  transport,  energy,  free  movement  of  workers,  social  policy  and  employment,  free 
movement  of  goods)  and  provisionally  closed  on  four  (science  and  research,  education  and 
culture ,enterprise and industrial policy, external relations).  

Of  the  remaining  chapters,  discussion  continues  in  Council  on  seven  draft  EU  negotiating 
positions (justice freedom, security, taxation, free movement of capital, CFSP/ESDP, regional 
policy  and  coordination  of  structural  instruments  and  environment,  food  safety,  veterinary 
and  phytosanitary  policy).  The  Commission  is  preparing  draft  EU  negotiating  positions  in 
three cases (agriculture and rural development, fisheries and public procurement). 

Based  on  the  overall  good  progress  being  made  by  Croatia,  in  March  2008  European 
Commission President Barroso stated that in the 2008 Enlargement package, the Commission 
would  present  an  indicative  timetable  for  the  technical  conclusion  of  the  negotiations  in 
2009,  provided  a  number  of  conditions  were  met  by  Croatia.  The  first  condition  relates  to 
Croatia  meeting  all  opening  benchmarks  by  June  2008.  This  is  largely  done,  with  the 
exception  of  2  chapters  (judiciary  and  fundamental  rights;  competition  policy)  As  regards 
judiciary  and  fundamental  rights,  Croatia  must  make  final  efforts  to  meet  the  outstanding 
elements of the opening benchmarks. Regarding opening benchmarks for competition policy, 
Croatia  must  make  further  efforts,  in  particular  as  regards  shipbuilding.  Secondly,  Croatia 
must  comply  with  all  legal  obligations  under  the  Stabilisation  and  Association  Agreement 
(SAA).  In  this  regard,  overall  compliance  is  largely  assured.  Croatia  has  agreed  with  the 
Commission a solution for eliminating the discriminatory taxation of cigarettes. The country 
needs  to  pursue  efforts  as  regards  the  restructuring  of  shipbuilding.  Thirdly,  Croatia  must 
continue  to  comply  with  the  general  conditionalities  of  the  Stabilisation  and  Association 
Process  especially  concerning  war  crimes  trials,  refugee  return  issues  as  well  as  full 
cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY). This 
has largely been assured. Fourthly Croatia urgently needed to improve its management of EU 
financial assistance under the PHARE and IPA programmes. Here, good progress was made, 
which  now  needs  to  be  translated  into  concrete  progress  on  the  ground  (see  below).  Lastly 
Croatia must suspend all aspects of the Ecological and Fisheries Protection Zone, with respect 
to EU vessels. This has been achieved. 

The  political  and  economic  dialogue  between  the  EU  and  Croatia  has  continued.  Political 
dialogue meetings were held in Luxembourg in April at ministerial level and in May 2008 in 
Zagreb  at  senior  official  level.  Economic  dialogue  meetings  were  held  in  Luxembourg  in 
April at ministerial level and in July 2008 at senior official level. These meetings focused on 
the  main  challenges  faced  by  Croatia  under  the  Copenhagen  political  and  economic  criteria 
and reviewed progress being made towards fulfilment of Accession Partnership priorities. 

Implementation  of  the  Stabilisation  and  Association  Agreement  (SAA)  has  largely 
continued  without  major  difficulty.  The  main  exceptions  have  been  continued  non- 
compliance  with  certain  state  aid  provisions,  in  particular  as  regards  aid  granted  to  the 
shipbuilding  sector,  as  well  as  the  existence  of  an  excise  duty  regime  for  cigarettes 
incompatible with the SAA. In October, Croatia agreed with the Commission a solution for 

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the  discriminatory 

eliminating 
improving 
implementation  of  SAA  provisions  on  access  to  real  estate  has  not  been  sustained.  An 
Enlargement Protocol to the SAA to take account of the accession of Romania and Bulgaria 
was signed in July 2008. 

taxation  of  cigarettes.  Previous  progress 

The  EU  provides  guidance  to  the  authorities  on  reform  priorities  through  the  Accession 
Partnership.  Progress  on  these  reform  priorities  is  encouraged  and  monitored  through  the 
bodies  of  the  SAA.  The  SAA  Association  Council  met  in  April  2008  and  the  SAA 
Association  Committee  in  December  2007.  Seven  sectoral  sub-committees  have  been  held 
since  November  2007.  Based  on  the  Accession  Partnership,  Croatia  adopted  its  national 
programme for EU accession in spring 2008. 

Financial  assistance  is  provided  under  the  new  Instrument  for  Pre-accession  Assistance 
(IPA)  from  2007.  The  2008  IPA  programmes  amounted  to  €146  million.  This  assistance  is 
concentrated  on  institution  building  and  preparation  for  the  implementation  of  the  EU's 
common  agricultural  policy  and  cohesion  policy.  In  addition,  Croatia  continued  to  benefit 
from regional and horizontal programmes. Croatia has taken a number of important steps to 
address weaknesses identified by the Commission in Croatia's management of pre-accession 
aid. These steps have led to strengthened management and control bodies. A track record of 
improved implementation is needed.  

As regards support to civil society under IPA, a €3 million grant scheme will be launched to 
support  civil  society  projects  in  the  following  sectors:  transparency  and  accountability  of 
public administration and fight against  corruption,  anti discrimination as well as  sustainable 
development. In addition, a €20 million contribution under IPA for cross border cooperation 
with Italy, Slovenia and Hungary as well as participation in ERDF programmes will promote 
dialogue  between  local  and  regional  authorities.  Cross  border  cooperation  has  also  been 
expanded to Serbia, Montenegro, Bosnia and Herzegovina with a contribution of €4.4 million. 

Participation  of  Croatia  in  an  increasing  number  of  Community  programmes  is  also  an 
important tool to implement civil society dialogue. 

2. 

POLITICAL CRITERIA 

This  section  examines  the  progress  made  by  Croatia  towards  meeting  the  Copenhagen 
political  criteria,  which  require  stability  of  institutions  guaranteeing  democracy,  the  rule  of 
law,  human  rights  and  respect  for  and  protection  of  minorities.  It  also  monitors  regional 
cooperation, good neighbourly relations with enlargement countries and Member States, and 
respect for international obligations, such as cooperation with the UN International Criminal 
Tribunal for the former Yugoslavia. 

2.1. 

Democracy and the rule of law 

Parliament 

Parliamentary  elections  were  held  in  November  2007.  The  elections  were  free  and  fair.  As 
regards  the  electoral  roll,  some  legislative  improvements  are  needed  to  ensure  adequate 
verification and updating of residence data, which serves as the basis for entry on the electoral 
roll. 

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The  permanent  State  Election  Commission  is  now  operational  at  State  level.  However, 
adequate staff has not yet been recruited at the local level and further training for all members 
is needed. 

Parliament  nominated  three  new  judges  to  the  Constitutional  Court.  As  with  previous 
nominations, the election procedure was held with limited parliamentary and public scrutiny. 

The  Parliament  decided  to  lift  the  immunity  from  prosecution  of  one  MP  facing  serious 
criminal charges. It did not, however, agree to lift his immunity from being held in custody. 
The decision was in contradiction to that of the previous Parliament. This decision was taken 
despite  the  seriousness  of  the  charges  and  the  potential  effects  on  witnesses'  willingness  to 
testify. 

Government 

A  new  government  was  formed  following  parliamentary  elections  in  November  2007.  The 
centre-right coalition led by HDZ has a majority of 83 seats out of 153. For the first time the 
eight minority MPs are official coalition partners and a member of the Serb party, the SDSS, 
took one of the Deputy Prime Minister posts and became a member of the cabinet. 

The  Parliament  adopted  amendments  to  the  ratification  of  the  European  Charter  on  Local 
Self-Government thereby enabling implementation of the full scope of the Charter. 

Public administration 

Some  progress  has  been  made  on  public  administration  reform.  The  government  adopted  a 
Public Administration Reform Strategy for the period 2008 – 2011 as well as a proposal for a 
revised  General  Administrative  Procedures  Act  in  September  2008.  Further  implementing 
legislation for the Law on Civil Service was adopted. The Civil Service law itself was further 
amended to allow for the planned depoliticisation and to introduce whistleblower protection. 
A  new  Administrative  Inspection  Act  was  adopted.  This  Act  foresees  a  higher  degree  of 
improved 
independence  and  responsibility  of  administrative 
implementation  of  supervision  measures.  The  number  of  employees  at  the  Central  State 
Office  for  Administration  (CSOA)  increased  from  114  to  120.  The  professional  skills  and 
competences of the staff have been improved by various forms of training. In April 2008 the 
government adopted the 2008 Civil Service Training Plan. Various e-Government initiatives, 
especially  the  HITRO.HR  (One-stop-shop)  project,  and  the  HITROREZ  (Regulatory 
Guillotine) project have been high on the government agenda. 

inspectors  as  well  as 

However,  the  legal  basis  for  building  a  modern  and  professional  civil  service  is  still 
incomplete.  Major  weaknesses  in  administrative  procedures  remain  and  an  overhaul  of  the 
relevant  legislation  is  still  pending.  A  new  salary  system  is  required  and  the  draft  Law  on 
Civil  Service  Salaries  has  not  yet  been  adopted.  The  Civil  Service  Law  is  not  implemented 
coherently  across  the  state  administration  due  to  varying  capacities  of  the  relevant 
departments,  the  preponderance  of  agencies  and  subordinate  entities  with  operational 
autonomy, and lack of sufficient supervision and follow-up. There is a very limited delegation 
of decision-making responsibilities from the managerial level to civil servants. The process of 
de-politicisation of public administration is still at an early stage. Weaknesses in management 
and administrative capacity of institutions in charge of public administration reform remain. 
The  civil  service  continues  to  suffer  from  high  staff  turnover  and  a  lack  of  qualified 
personnel.  There  are  insufficient  capacities  for  human  resources  management.  Full 

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effectiveness  of  various  e-government  initiatives  rely  on  the  correct  enforcement  of  the 
underlying legal framework, which is neither complete nor properly enforced. 

There  have  been  considerable  delays  in  the  implementation  of  Croatia's  programme  for 
decentralisation.  Currently  there  is  insufficient capacity  of  public  administration  at  national, 
regional and local level to manage decentralisation reforms, and to ensure that such reforms 
actually meet their objectives. The Decentralisation Commission has not become the driving 
force  for  the  decentralisation  process.  The  local  government  level  is  not  properly  organised 
and their interest organisation – Association of Towns and Municipalities (SAVEZ) – remains 
weak. 

Overall,  some  progress  has  been  achieved  in  the  area  of  public  administration  reform. 
However, public administration remains weak and the required reforms continue to represent 
a major challenge for Croatia. A clear political commitment and further sustained efforts are 
needed. 

Civilian oversight of the security forces 

Reform of the security and intelligence system has continued. The  necessary legislation  has 
been  adopted  and  gaps  in  the  existing  legal  framework  have  been  addressed.  With  the  new 
legislation  adopted,  in  particular  the  Law  on  Security  Checks,  the  intelligence  services' 
conduct  and  scope  of  control  has  improved.  However,  the  legitimate  interest  of  the  state  to 
protect certain information and the right of the public to have access to it are not yet properly 
balanced. 

Overall, civilian control of the security services is generally assured. 

Judicial system  

Implementation of the judicial reform strategy has continued even if adequate monitoring of 
its measures has not been possible due to weak administrative capacity. There has been some 
progress with new legislation such as the adoption of a new misdemeanour Act and a new Act 
on  the  seats  and  jurisdiction  of  courts,  a  first  step  in  the  court  rationalisation  process.  The 
system of judicial inspection is starting to show results. A revised Action Plan addressing all 
major reform issues was adopted in June 2008. However, in certain areas the action plan lacks 
measurable  objectives  that  will  allow  effective  monitoring  of  its  implementation.  While  the 
action plan is a step forward, implementation will be crucial and concrete results are needed. 
The  case  backlog  remains  large  and  the  length  of  judicial  procedures  excessive.  Court 
rationalisation  has  not  yet  begun  in  earnest  and  the  current  plans  lack  ambition.  Further 
improvements  in  the  accountability,  professionalism  and  competence  of  the  judiciary  are 
required.  

With regard to domestic prosecutions for war crimes, Croatia continues to be active in trying 
war  crimes  cases  on  its  own  initiative,  with  around  thirty  trials  in  the  past  year.  A  more 
balanced  approach  is  slowly  becoming  evident  with  a  greater  willingness  to  prosecute 
perpetrators irrespective of ethnicity. Further progress has been made on regional cooperation 
on war crimes matters. The State Attorney issued instructions to prosecutors in October 2008 
aimed  at  addressing  the  problem  of  a  common  standard  of  criminal  accountability  for  war 
crimes  not  being  applied  irrespective  of  ethnicity.  Many  such  crimes  remain  unprosecuted, 
often due to a combination of a lack of evidence, unwillingness of witnesses to come forward, 
e.g. due to intimidation, and unwillingness or reluctance of police and prosecutors. The issue 

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of in absentia verdicts from the 1990s has not yet been adequately addressed. Limited use is 
made of the possibility to transfer cases from local to specialised war crimes courts.  

Overall,  reforms  in  the  judiciary  continue  but  only  at  a  relatively  slow  pace.  Significant 
challenges  remain.  Currently,  effective  dispensation  of  justice  for  citizens  is  not  always 
assured. (See also chapter 23 - Judiciary & fundamental rights) 

Anti-corruption policy  

There has been some progress in the fight against corruption. The legal framework to combat 
corruption has been further improved. A revised Anti-Corruption Strategy accompanied by an 
Action  Plan  containing  specific  measures  in  a  number  of  fields  prone  to  corruption  was 
adopted  in  June  2008.  A  new  inter-ministerial  coordination  system  for  monitoring  anti-
corruption  efforts  is  in  place.  The  Office  for  the  Fight  Against  Corruption  and  Organised 
Crime,  USKOK,  continues  to  become  more  active  and  has  issued  indictments  in  some 
important cases. USKOK's role is more widely acknowledged and reports to it of suspected 
corruption have increased significantly, particularly as regards abuse of office cases.  

However, corruption still remains widespread. The administrative capacity of state bodies for 
fighting corruption continues to be insufficient. The police need to become more effective in 
the  fight  against  corruption  and  organised  crime.  Implementation  of  anti-corruption  efforts 
has  continued  to  lack  strong  co-ordination  and  efficient  non-partisan  monitoring.  While  the 
total  number  of  corruption  cases  investigated  so  far  has  increased,  the  actual  number  of 
prosecutions remains low. There continues to be weaknesses in the work of the National Anti-
Corruption  Council  both  in  legislative  and  practical  terms.  There  was  little  progress  in 
preventing  conflicts  of  interest.  The  Committee  for  the  Prevention  of  Conflict  of  Interest 
continues  to  be  beset  by  problems,  including  the  resignation  of  its  chairperson  following 
corruption  allegations.  A  culture  of  political  accountability  is  lacking.  Further  efforts  are 
required in tackling high level corruption.  

(See also chapter 23 - Judiciary & fundamental rights) 

2.2. 

Human rights and the protection of minorities 

Observance of international human rights law 

As  regards  ratification  of  human  rights  instruments,  Parliament  ratified  the  Council  of 
Europe Convention on Suppression of Terrorism. The Additional Protocol to the Convention 
on  cybercrime,  concerning  the  criminalisation  of  acts  of  a  racist  and  xenophobic  nature 
committed through computer systems, has also been ratified. 

Parliament  ratified  the  European  Convention  on  the  Compensation  of  Victims  of  Violent 
Crimes. The convention will enter into force at a later date to be determined on the basis of 
the Law regulating signings and execution of the international treaties. 

The European Court of Human Rights (ECtHR) delivered 29 judgements in 2007 finding 
that Croatia had violated the ECHR. As in previous years, the majority of judgements related 
to the violation of the right to a fair trail and the length of the proceedings under Article 6 of 
the European Convention of Human Rights (ECHR). The ECtHR found violations of the right 
to fair hearing in a number of cases in which the local court failed to issue verdicts following 
previous judgements on violation of this right by the Constitutional Court. The ECtHR court 
continued to condemn Croatia for violation of Article 3 – inhuman and degrading treatment 

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concerning  prison  conditions.  A  total  of  636  new  applications  to  the  ECtHR  were  made 
during  the  reporting  period.  The  total  number  of  pending  applications  before  the  Court 
regarding Croatia is 882. 

As  regards  promotion  and  enforcement  of  human  rights,  Croatia  adopted  in  November 
2007  an  Action  Plan  for  the  protection  and  promotion  of  human  rights  2008-2011. 
Enforcement  of  rights  continued  to  be  negatively  affected  by  shortcomings  in  the  judicial 
system, however. 

Overall,  international  human  rights  law  is  respected  in  Croatia  with  some  specific 
shortcomings related to the length of trials and shortcomings of the judicial system. 

Civil and Political Rights 

Concerning the prevention of torture and ill-treatment and fight against impunity, there 
has  been  an  increased  number  of  complaints  from  citizens  regarding  the  excessive  use  of 
force  by  the  police.  In  this  context,  the  Ombudsman  has  called  for  more  transparent 
procedures for the determination of police responsibility as well as better regulation of police 
actions.  

A prominent case of forced hospitalisation brought into question the functioning of the police 
and  institutions  of  the  health  and  social  system.  The  case  in  question  constitutes  a  serious 
violation  of  human  rights  and  illustrates  the  failure  of  the  system  on  a  number  of  different 
levels. Nobody has suffered any consequences to date for the misconduct as identified by the 
Parliament's human rights committee. 

As  regards  impunity,  many  war  crimes  are  still  unprosecuted,  especially  those  where  the 
victims are of a minority ethnicity (Serbs). In particular in smaller towns there is a lack of will 
to prosecute these cases. 

As regards access to justice, Parliament adopted a new Law on Legal Aid in May 2008 aimed 
at  improving  the  currently  limited  system.  The  Law  requires  a  significant  build  up  of  the 
structures  for  its  implementation  as  well  as  the  adoption  of  several  by-laws.  The  actual 
provision of legal aid is foreseen to be available to citizens as of 1 February 2009. 

Amendments  to  the  Law  on  Attorney  Service  were  adopted  which  envisage  Parliamentary 
control over attorneys' tariffs. Currently tariffs are set independently by the Bar Association 
and are linked to the length of procedure. These tariffs are too high for the majority of citizens 
thus preventing their access to the judicial system. 

With regard to the prison system, first measures have been taken aimed at improving prison 
conditions, in particular the increase of accommodation capacity. However, there continues to 
be room for improvement. The lack of capacity has been exacerbated by stricter provisions in 
the  Criminal  Code,  providing  for  longer  prison  terms,  and  the  continued  backlog  of  cases 
resulting in a longer pre-trial detention. 

Freedom  of  expression  including  freedom  and  pluralism  of  the  media  is  provided  for  in 
Croatian law and is generally respected. Further progress has been made in following up the 
recommendations of the 2004 joint expert mission for changes to the laws on electronic media 
and on Croatian radio and television. (See also Chapter 10 - Information society and media)  

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However, Cases of physical attacks as well as death threats against journalists have gained in 
prominence  and  require  more  thorough  investigations.  Journalists  working  on  corruption 
cases  or  organised  crime  are  increasingly  targeted.  There  has  been  limited  success  in 
identifying  and  prosecuting  perpetrators.  Two  journalists  have  been  recently  murdered. 
Editors and journalists continue to report undue political pressure. This raises concern about 
freedom of expression, particularly at the local level. 

There have been no particular difficulties as regards freedom of assembly and association. 

Civil  society  organisations  continue  to  play  an  important  role  in  the  promotion  and 
protection of human rights, democracy and protection of minorities. However, they continue 
to have difficulty influencing policy debate and remain relatively weak in analytical capacity. 

There have been no particular problems in the exercise of freedom of religion. 

Overall,  with  some  specific  exceptions,  civil  and  political  rights  continue  to  be  reasonably 
well  respected  in  Croatia.  However,  shortcomings  as  regards  impunity  for  war  crimes  and 
access to justice require further attention. 

Economic and Social Rights 

As regards women's rights and gender equality, implementation of the national policy for the 
promotion of gender equality continued. Activities to mark 2007 as the year against violence 
against women, including family violence, continued. In December 2007, a national strategy 
for protection against domestic violence 2008-2010 was adopted. A new Gender Equality Act 
was adopted in July 2008. In the new parliament 32 members (21%) out of a total number of 
153 are women.  

However, there has been an increase in the reported number of acts of family violence. Raised 
public awareness is one explanation. There has been further improvement in police work in 
cases of family violence. Centres for social welfare did not show such diligence, however and 
do not always promptly exercise their legal authority. They also suffer from lack of qualified 
and  trained  staff.  Croatia  remains  a  country  of  transit  and  destination  for  female  victims  of 
trafficking.  

Gender  equality  policy  in  the  field  of  employment  needs  more  effective  implementation, 
especially  as  regards  access  to  employment  and  maternity  and  child  care  entitlements. 
Capacity to cover all reported cases of discrimination in employment needs to be improved. 
Weakness in the legal system, especially with regard to the length of proceedings, negatively 
affect the employment rights of women. See also Chapter 19 – Social policy and employment  

As  regards  children's  rights,  in  October  2007  amendments  to  the  Family  Law  introduced 
changes  regarding  adoption,  custody  and  maintenance  for  children.  The  main  aim  is  to 
reinforce child maintenance in cases of divorce as well as the support to children born out of 
wedlock. Full implementation will be vital, given the high number of children currently left 
without financial support. 

The  Ombudsman  for  Children  continued  to  play  an  important  role  in  the  overall  promotion 
and protection of children rights in Croatia. The number of individual complaints and general 
initiatives  increased  in  comparison  to  2006  by  63%.  This  increase  is  probably  the 
consequence  of  improved  public  visibility  of  the  Ombudsman  as  well  as  of  the  opening  of 
three regional offices. 

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However, the increase in cases has stretched existing resources. Follow-up by line ministries 
to  the  inquiries  and  recommendations  from  the  Ombudsman  is  in  many  cases  missing.  The 
implementation of measures envisaged under the National Plan of Activities for the rights and 
interest  of  children  for  the  period  of  2006-2012  has  been  delayed.  The  main  problems 
affecting  children  continue  to  stem  from  violence  in  the  family,  general  parental  relations 
connected  to  the  custody  and  support  of  children,  but  also  from  weak,  understaffed  and 
overburdened social welfare institutions and correctional facilities. There is a general lack of 
educated experts to provide advice to families. There has been no consolidated approach of 
the institutions towards the problems regarding child protection issues, including a prevention 
role  of  the  educational  institutions.  While  the  Law  on  Foster  Care  strives  to  improve  the 
quality  of  foster  care,  it  also  brings  new  restrictions  and  conditions  for  fostering  that  has 
caused a decline in the number of foster families. Judicial backlogs and lack of trained judges 
further  deteriorate  the  situation  of  children,  particularly  in  families  at  risk  of  separation  or 
unpaid alimony cases. There is a lack of data on child poverty. 

An Act on the Ombudsman for Persons with Disabilities entered into force in January 2008. 
The  first  such  Ombudsman  was  appointed  by  Parliament  in  May  2008.  A  National 
Implementation Plan on Social Inclusion 2007-2008 has been produced. However, continued 
efforts  are  needed  as  regards  socially  vulnerable  and/  or  persons  with  disabilities.  The 
relevant  legislation  is  not  sufficiently  enforced.  No  tangible  progress  has  been  made  in  the 
field  of  de-institutionalisation,  including  for  children  with  disabilities,  even  though,  with 
decentralisation, it is among the priorities set out in the Joint Inclusion Memorandum and the 
related  National  Implementation  Plan.  Civil  society  organisations  involved  in  delivering 
community based services need to be adequately supported in order to develop sufficiently an 
alternative to institutionalisation.  

With  regard  to  labour  and  trade  union's  rights,  there  has  been  some  progress  (See  also 
Chapter  19  –  Social  policy  and  employment).  In  a  difficult  socio-economic  climate  trade 
unions are playing an increasingly prominent role in public debate. However, workers’ rights 
are still negatively affected by a weak labour inspectorate and a poorly functioning judiciary.  

A comprehensive law on anti-discrimination was adopted in July 2008, signifying important 
progress.  This  law  is  aimed  at  full  alignment  with  EU acquis.  However,  anti-discrimination 
legislation  has  generally  not  been  applied  vigorously.  To  date  there  has  only  been  one 
criminal  conviction  for  hate  crime.  There  has  been  no  conviction  for  the  initiation  of  racial 
and other hatred. There has been limited reaction of the authorities to various expressions of 
an  extreme  nationalist  character  which  could  be  considered  as  incitement  to  national  and 
religious  hatred.  There  are  no  statistics  on  judicial  cases  to  track  the  nature  and  extent  of 
discrimination. Support to the victims of discrimination is marginal. The level  of protection 
against discrimination in practice and its judicial prosecution is not in line with EU standards. 
(See also Chapter 19 – Social policy and employment). 

Property  rights  are  generally  assured.  However,  there  are  outstanding  cases  of  delayed 
property repossession and problems with compensation for the use of private property taken 
under  war  legislation  from  the  1990s.  The  Ombudsman  again  warned  of  the  lack  of  proper 
administrative  decisions  that  should  be  issued  for  persons  applying  for  housing  care  and 
compensation  for  the  use  of  their  property.  Non-issuance  of  such  administrative  decisions 
prevents  the  claimants  pursuing  their  right  to  appeal.  The  process  of  restitution  and 
compensation for property nationalised after World War II continues to go slowly. 

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legal  protection  for  economic  and  social  rights 

Overall, 
is  partially  guaranteed. 
Implementation  of  women's  and  children's  rights  and  protection  against  all  forms  of 
discrimination needs to be further improved in practice. 

Minority Rights, Cultural Rights and Protection of Minorities 

Some progress has been made with regard to the implementation of the Constitutional Law on 
National Minorities (CLNM). An Action Plan for implementation of the CLNM was adopted 
in June 2008 which covers all main issues and relevant institutions. A department for national 
minorities  was  established  in  the  Central  State  Administration  Office  (CSAO).  The  CSAO 
adopted an employment plan for 2008. This plan foresees the recruitment of 158 members of 
national minorities at the central level and 44 in the offices of the State Administration in the 
Counties. The capacity of the local councils of national minorities (CNMs) to advise the local 
government on matters of concern for minorities has improved. Most of the CNMs have been 
provided  with  premises  and  funding.  In  2008,  the  State  council  for  national  minorities 
received around €5.7 million from the state budget for national minority associations. This is 
an increase of 19% compared to 2007. 

However,  implementation  of  the  CLNM's  provisions  in  practice  presents  a  mixed  picture. 
Some  provisions  are  implemented  well,  others  only  to  a  limited  extent.  Problems  persist, 
particularly in terms of under-representation of minorities in state administration, the judiciary 
and  the  police.  The  plan  for  employment  in  the  administration  at  County,  Town  and 
Municipality  level  is  still  not  adequate.  A  long–term  strategy  to  implement  the  CLNM 
minority  employment  provisions  is  still  lacking.  Adequate  statistics  to  allow  proper 
monitoring are still missing. No details of implementation of the 2007 targets are available. 
Despite  increased  financial  support,  CNMs  are  not  sufficiently  recognised  yet  as  advisory 
bodies  by  the  majority  of  local  authorities.  Moreover,  their  independence  and  influence  is 
affected by the fact that they depend on the budget of the town authority or council. 

With regard to cultural rights, the education provisions of the CLNM and other laws relevant 
to minorities are generally being implemented satisfactorily. With regard to the perception of 
national minorities in the media, negative stereotyping has further decreased. There continues 
to  be  little  progress  with  regard  to  the  production  and/or  broadcasting  of  programmes  for 
minorities in their languages by public radio and TV stations, as envisaged under the CLNM. 
Initiatives promoting greater integration, reconciliation and tolerance as well as joint activities 
within the current system should be further encouraged.  

With regard to the Serb minority, there have been some positive developments. For the first 
time,  an  ethnic  Serb  has  been  appointed  to  one  of  the  Deputy  Prime  Minister  posts.  There 
have been fewer reports of apparently ethnically motivated attacks against the Serb minority 
and  the  Orthodox  Church.  Police  investigations  of  such  incidents  have  improved,  although 
few cases end in prosecutions. Moreover, a number of ethnically motivated incidents occurred 
over  the  summer,  which  could  have  a  detrimental  impact  on  the  willingness  of  refugees  to 
return.  Members  of  the  Serb  minority,  including  those  who  remained  in  Croatia  during  the 
war, face difficulties concerning access to employment, especially in the war affected areas. 
Discrimination continues particularly in the public sector at the local level. Croatia needs to 
encourage a spirit of tolerance and take appropriate measures to protect those who may still be 
subject to threats or acts of intimidation. 

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There has been some progress on the various outstanding issues regarding refugees. 

More  than  2,100  refugees  and  1,100  displaced  persons  returned  to  their  place  of  origin  in 
Croatia  in  2007.  The  total  number  of  Croatian  Serbs  registered  as  returnees  to  Croatia 
increased to almost 143,000 although the estimated level of actual return could be less than 
60% of this figure. An Action Plan for the accelerated implementation of the Housing Care 
programmes  was  adopted  in  June  2008.  Reconstruction  of  housing  has  continued.  The 
programme  to  reconnect  public  infrastructure  in  certain  return  villages  is  ongoing  without 
major difficulties. Mine clearance operations have continued. 

However,  a  number  of  obstacles  to  sustainable  return  of  Serb  refugees  remain,  principal 
among them being housing, particularly for former tenancy rights holders. Implementation of 
the Croatian government's housing care programmes  within and outside the areas of special 
state  concern  (ASSC)  for  the  former  tenancy  rights  holders  who  wish  to  return  to  Croatia 
continues to be slow, although implementation has picked up in recent months.  

Outside  the  ASSC,  only  around  530  (12%)  of  4,560  requests  have  been  solved  definitely. 
There are a further 1,360 (30%) positive decisions awaiting action. 1,806 are still waiting to 
be  processed  (40%)  and  864  received  a  negative  decision  (19%).  The  target  date  for  full 
implementation outside the areas of special state concern has been brought forward to 2009. 

Of  8,668  applications  inside  the  ASSC,  4,788  (55%)  families  have  been  allocated  an 
apartment  out  of  the  6,816  positive  decisions,  a  slight  increase  on  last  year.  However,  653 
administrative decisions are still pending and 1,199 were decided negatively. For both inside 
and outside, the negative decisions are under revision, with the help of UNHCR, before they 
will be sent to the applicants.  

The  Government’s  benchmark  for  2007  to  provide  1,400  accommodation  units  inside  and 
outside the ASSC has been largely met. For the remaining 60 cases, Croatia has introduced 
the possibility of daily compensation payments until the foreseen accommodation is available. 
598 cases of the 2008 target of 1,400 have been solved.  

As regards reconstruction of housing, some 2,700 units were reconstructed in 2007/2008 and 
approximately 1,500 will be reconstructed in 2008/2009. This will leave an estimated 2,500 
housing  units  still  to  be  reconstructed  depending  on  the  outcome  of  appeals.  There  remain 
approximately 8,700 outstanding appeals against negative eligibility decisions, many of which 
have  been  pending  for  four  years.  Housing  assistance  has  also  been  extended  to  applicants 
with rejected reconstruction claims. 

54  houses,  of  which  45  waiting  for  a  court  decision,  remain  to  be  repossessed  and  handed 
over  to  their  rightful  owners.  There  is  still  slow  progress  on  repossession  of  occupied 
agricultural land. The repair programme for houses damaged or looted prior to repossession is 
coming to an end. 

Apart from housing, other key concerns facing returnees are employment, enduring hostility 
in  certain  localities  and  "convalidation",  or  the  validation  of  working  years  concerning 
pension rights, of those residing in the parts of Croatia not under Croatian government control 
during the 1990s. In this regard it is positive that the Government has taken various decisions 
reopening the possibility for these pension rights to be accessed. 

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The situation of the Roma minority in Croatia continues to improve and the administration is 
developing an increasingly positive and pro-active approach. Some progress is being made on 
the  pre-school  education  of  Roma  under  the  government’s  action  plan  for  the  Decade  of 
Roma  Inclusion  2005-2015.  Funding  is  also  increasing.  The  number  of  Roma  children 
completing  primary  education  and  pre-schooling  has  increased.  The  issue  of  lack  of  legal 
status  of  Roma  without  citizenship  is  being  resolved.  For  the  first  time,  a  member  of  the 
Roma minority has been elected to the Croatian Parliament. 

However,  most  Roma  remain  excluded  from  mainstream  Croatian  society  and  face  difficult 
living conditions. Unemployment remains endemic. Measures with regard to education need 
to  be  integrated  into  more  systematic  policies.  Problems  persist  also  in  terms  of  access  to 
employment,  adequate  housing,  social  protection  and  healthcare,  and  in  general  attitudes  in 
society,  where  discriminatory  attitudes  prevail  towards  Roma  and  other  vulnerable  groups. 
Coordination  among  Roma  groups  should  be  enhanced  and  their  expertise  for  effective 
implementation  should  be  strengthened.  Problems  remain  regarding  the  participation  of  the 
Roma community in the education system, even when specific programmes are available. 

Overall, the position of minorities in Croatia continues to improve. However, many problems 
remain for the Serb and Roma minority. Some progress on outstanding refugee return issues 
was made but efforts to ensure sustainability of refugee return need to be accelerated. 

(see also chapter 23 - Judiciary & fundamental rights) 

2.3. 

Regional issues and international obligations 

Compliance with the Dayton/Paris and Erdut Peace Agreements has overall been ensured. 

Croatia  continues  to  cooperate  with  the  International  Criminal  Tribunal  for  the  former 
Yugoslavia  (ICTY).  However,  there  are  some  problems  of  access  by  ICTY  to  certain 
documents  in  Croatia.  Croatia  needs  to  ensure  a  full  and  proper  investigation  into  the 
whereabouts  of  the  missing  files.  The  ICTY  trial  against  Gotovina,  Cermak  and  Markac 
started  in  March.  Before  the  beginning  of  the  trial,  one  of  the  indictees  breached  on  two 
occasions  the  conditions  of  his  provisional  release.  Upon  request  of  the  Tribunal,  he  was 
arrested and transferred to the ICTY detention centre. The indictee's misconduct triggered the 
resignation  of  the  Minister  of  Interior,  who  had  accompanied  the  indictee  on  a  hunting  trip 
during one of the above mentioned breaches. 

An  initial  verdict  was  reached  in  the  trial  against  Rahim  Ademi  and  Mirko  Norac,  the  only 
war  crimes  case  transferred  from  the  ICTY  to  Croatian  jurisdiction.  After  initial  problems 
where protected witnesses failed to give their testimony, the system of giving testimonies via 
video link has improved. In May 2008 a conference on regional cooperation in prosecution of 
war  crimes  was  held  with  the  participation  of  chief  prosecutors  from  Croatia,  Bosnia  and 
Herzegovina, the former Yugoslav Republic of Macedonia, Montenegro and the war crimes 
prosecutor  from  Serbia.  However,  there  are  still  obstacles  to  the  transfer  of  cases  and 
extradition  of  suspects  in  cases  of  war  crimes  and  crimes  against  humanity  between  Bosnia 
and Herzegovina, Croatia, Montenegro and Serbia. This exacerbates the problem of impunity. 

Croatia has not concluded any bilateral immunity agreements granting exemptions from ICC 
jurisdiction and its policy regarding the International Criminal Court (ICC) is aligned with 
the EU Common Positions on the integrity of the Rome Statute as well as related EU guiding 
principles.  

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Some  progress  has  been  made  with  regard  to  implementation  of  the Sarajevo  Declaration, 
which aimed to finalise the regional refugee return process by the end of 2006. By reopening 
the possibility for validating pension claims, one of the two main outstanding issues has been 
tackled by Croatia. Further efforts are needed to resolve the outstanding issues, in particular 
how  to  deal  with  compensation  claims  of  those  who  lost  occupancy  and  tenancy  rights 
(OTRs) in Croatia. 

Regional cooperation and good neighbourly relations form an essential part of the process of 
Croatia's moving towards the European Union. 

A  number  of  bilateral  visits,  agreements  and  continued  engagement  by  Croatia  in  regional 
initiatives  have  contributed  towards  the  aim  of  further  improvement  of  relations  between 
Croatia and its neighbours. 

Croatia has actively participated in the transition from the Stability Pact to a more regionally 
owned  framework  with  the  South  East  European  Cooperation  Process  (SEECP)  and  the 
Regional  Cooperation  Council  (RCC).  The  RCC  Secretariat  was  formally  inaugurated  in 
April.  A  former  State  Secretary  of  the  Croatian  Ministry  of  Foreign  Affairs  was  appointed 
secretary-general.  Croatia  actively  participates  also  in  other  regional  initiatives  such  as  the 
Adriatic-Ionian  Initiative  (chairmanship  from  June  2007  to  May  2008)  and  the  Migration, 
Asylum  and  Refugees  Regional  Initiative  (MARRI).  Croatia  is  a  party  to  the  Energy 
Community  Treaty  and  the  Central  European  Free  Trade  Agreement  (CEFTA)  and  a 
signatory of the Agreement on the European Common Aviation Area (ECAA).  

The  application  of  Croatia's  ecological  and  fishing  protection  zone  (ZERP)  also  for  EU 
Member  States  entered  into  force  on  1st  January  2008.  However,  in  line  with  earlier 
commitments, the Croatian Parliament decided in March 2008 on the suspension of the zone 
for EU Member States until a common agreement between the countries concerned is found. 
The Croatian Parliament’s decision effectively solves the ZERP issue. 

Croatia  accepted  the  acquis  of  the  Barcelona  process  and  participated  in  the  launch  of  the 
Barcelona Process: Union for the Mediterranean in July 2008, thus becoming a full member 
of the process. 

Bilateral  relations  with  other  enlargement  countries  and  neighbouring  member  states 
continue  to  develop.  There  has  been  some  progress  towards  finding  definitive  solutions  to 
various  open  bilateral  issues  between  Croatia  and  its  neighbours,  particularly  as  regards 
settlement of border disputes. 

Croatia  continues  to  have  good  relations  with  Albania  and  the  former  Yugoslav  Republic  of 
Macedonia. 

Bilateral  relations  with  Bosnia  and  Herzegovina  remain  stable.  An  agreement  on  police 
cooperation has been concluded. The Croatian Parliament ratified the bilateral agreement on 
dual  citizenship. There  has  been  no  progress  on  border  issues.  Ratification  of  the  2005 
Agreement  on  Demarcation  of  the  Land  and  River  Borders  remains  on  hold.  The  Peljesac 
bridge  project  remains  an  open  political  issue.  There  have  been  no  developments  on  the 
agreement  on  the  use  of  the  Port  of  Ploče.  Other  unresolved  issues  include  property  and 
refugees.  

Regarding  relations  with  Montenegro,  a  working  group  on  outstanding  issues,  including 
property, chaired by the ministers of justice has been created and met twice. Agreements on 

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cooperation  in  the  field  of  defence  and  in  water  management  have  been  signed.  Business 
relations have been enhanced. With regard to the open border issue, the two countries agreed 
to settle border demarcation at Prevlaka through international arbitration at the International 
Court of Justice. A joint commission is being established to prepare the legal framework. The 
temporary border regime in place continues to function smoothly. 

Relations  with  Serbia  are  stable  but  have  been  affected  by  Croatia's  decision  to  recognise 
Kosovo3. The provisional visa-free regime remains in force. There has been some progress in 
cooperation on missing persons and on war crimes prosecutions. There has been no progress 
in  delimiting  the  border.  Other  open  matters  include  property  related  issues,  in  particular 
claims for compensation for lost occupancy and tenancy rights, refugee return, and Croatia’s 
genocide lawsuit before the International Court of Justice, on which hearings began in May 
2008. 

Croatia continues to have good relations with Hungary and Italy. 

Relations with Slovenia, while generally well developed, continue to be affected periodically 
by  difficulties  linked  to  outstanding  border  issues.  Croatia  and  Slovenia  have  in  principle 
agreed  to  involve  a  third  party  to  resolve  the  border  issue.  Joint  commissions  have  been 
established and held their first meetings. However, there is neither agreement on the body to 
be entrusted with arbitration nor on the precise subject of final arbitration. There has been no 
progress  in  resolving  the  open  issues  of  Ljubljanska  Banka/SFRY  Succession  Agreement 
(guarantee of foreign currency deposits). There has been some progress on outstanding issues 
related  to  the  Krško  nuclear  power  plant,  notably  through  the  creation  of  a  special  fund  by 
Croatia for future decommissioning costs. 

The issue of the non-application of the ecological and fishing protection zone in the Adriatic 
to EU Member States is resolved. 

Croatia has received an invitation to join the North Atlantic Treaty Organisation (NATO), and 
the Protocol of Accession to the Washington Treaty has been signed. 

3. 

ECONOMIC CRITERIA 

In examining the economic developments in Croatia, the Commission's approach was guided 
by the conclusions of the European Council in Copenhagen in June 1993, which  stated that 
membership  of  the  Union  requires  the  existence  of  a  functioning  market  economy  and  the 
capacity to cope with competitive pressure and market forces within the Union. 

3.1. 

The existence of a functioning market economy 

Economic policy essentials 

The  country  participates  in  the  EU  Pre-Accession  Fiscal  Surveillance  procedure.  The  Pre-
accession Economic  Programme (PEP) 2008-2010, submitted in December 2007, presents a 
coherent  medium-term  framework  for  economic  policies.  If  fully  implemented,  it  would 
improve  the  functioning  of  markets  and  support  sustainable  growth  and  real  convergence. 
Political  consensus  on  the  essentials  of  market  economy  has  been  maintained.  However,  an 

3 

Under UNSCR 1244/1999 

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ad-hoc  approach  to  economic  policies  has  often  prevailed  and  a  deepening  of  structural 
reforms has not figured among the governments' top priorities. The structural reform agenda 
has  moved  slowly  and  there  has  often  been  a  gap  between  legislative  intent  and  actual 
implementation.  Policy  coordination  within  the  government  as  well  as  the  government's 
communication with the Croatian National Bank (CNB) has not been systematically enforced. 
Overall,  consensus  on  the  fundamentals  of  a  market  economy  has  been  maintained,  but  the 
government's  approach  to  economic  policy  and  reform  has  sometimes  lacked  a  strategic 
medium-term orientation.  

Macroeconomic stability 

In 2007, annual GDP growth showed a marked acceleration to 5.6%, up from 4.8% in 2006, 
but started to slow in the last quarter of the year. Growth continued to be fuelled by strong 
domestic demand. Private consumption in 2007 recorded the highest growth rate since 2002 
and accelerated strongly to 6.2%, from 3.5% a year before. It remained driven by strong, but 
slowing  credit  growth  and  debt  repayments  to  pensioners,  the  latter  amounting  to  1.2%  of 
GDP. The growth of public consumption also increased markedly to 3.4%, to a large extent 
resulting  from  pre-election  spending  increases.  Both  private  and  public  investment  slowed 
and total investment growth decelerated from 10.9% to a still robust 6.5%. Both the growth of 
exports  and  imports  declined  to  5.7%  and  5.8%,  respectively,  and  the  contribution  of  net 
exports to GDP growth remained negative. On the supply side, the industrial sector added the 
strongest contribution to growth. Also, the good performance of some services, in particular 
financial  intermediation,  retail  trade  and  tourism  supported  the  economic  expansion.  In  the 
first half of 2008, economic growth decelerated markedly to 3.8% year-on-year, down from 
6.8% in the same period a year ago, partly due to slowing exports. At the  same time, some 
rebalancing  took  place,  as  consumption  moderated  amid  stronger  investment  activity. 
Average  per-capita  income  in  2007  rose  to  55%  of  the  EU-27  average4  from  52%  in  2006. 
Overall, the economic performance remained robust amid some moderation of growth. 

The current account deficit continued to widen, from 7.9%of GDP in 2006 to 8.7% in 2007 
and to 10.5% in the four quarters to June 2008, mainly due to a rising trade deficit. Relatively 
strong  domestic  demand  and  imports,  higher  world  commodity  prices  as  well  as  a  recent 
decline  in  export  growth  resulted  in  a  widening  of  the  trade  gap  to  26.3%  of  GDP5.  As  in 
previous years, roughly two thirds of the trade gap were covered by the surplus in services, 
mainly  tourism  and  transport.  The  deficit  in  the  income  balance  dropped  somewhat  due  to 
higher  income  on  equity  investments  and  on  foreign  exchange  reserves.  The  surplus  in 
transfer payments declined, mainly due to lower government revenues from abroad. In sum, 
despite  strong  tourism  revenues  and  higher  income  from  abroad,  external  deficits  have 
continued  to  widen,  on  the  back  of  strong  import  demand,  higher  world  commodity  and 
energy prices and lower export growth. 

FDI remained the main source of foreign financing. In the four quarters to June, the value of 
net  FDI  inflows  declined  by  13.5%  year-on-year,  representing  7.7%  of  GDP  and  thus 
financing a still large part of the current account deficit. Net inflows were largely driven by 
the recapitalisation of  banks  as well as by investments in wholesale trade and the insurance 
sector,  while  greenfield  investments  remained  shallow.  Owing  to  continued  net  capital 
inflows,  official  foreign  reserves  increased  to  around  €  9.3  billion  by  end-December  2007, 
and further to € 9.8 million in August 2008, equivalent to around 5.5 months of total imports. 

4 
5 

In purchasing power standards. 
In the 12 months to June 2008 

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The  stock  of  external  debt  continued  to  increase  markedly  by  14%  in  the  twelve  months  to 
August 2008, but the share of short-term debt remained relatively low at 13.2%. The external 
debt ratio reached 87.8% of GDP at end-20076, up from 85.5% a year before. The share of the 
domestic  banking  sector  in  total  external  debt  declined,  as  banks  reduced  their  outstanding 
external obligations during 2007, also in response to central bank measures aimed to contain 
banks'  foreign  borrowing.  The  corporate  sector  increased  its  external  indebtedness 
significantly,  partly  reflecting  the  circumstance  that  domestic  banks  were  encouraging  their 
corporate clients to borrow directly from parent banks abroad, thus circumventing their own 
borrowing restrictions. The increased exposure of the domestic non-tradable corporate sector 
to  foreign  borrowing  has  become  a  cause  for  concern  and  warrants  careful  monitoring.  In 
sum,  capital  inflows  remained  strong  and  external  debt  continued  to  rise,  driven  by  strong 
foreign borrowing by the corporate sector. 

So far, the international financial crisis has only mildly affected the Croatian economy and its 
financial  sector.  However,  a  widening  current  account  deficit  and  a  high  level  of  external 
indebtedness  create  important  external  financing  needs  requiring  significant  capital  inflows. 
To  that  extent,  the  external  imbalances  render  the  Croatian  economy  vulnerable  to  possible 
disruptions  in  capital  flows.  The  risk  of  a  sudden  stop  or  reversal  of  capital  flows  seems 
limited, but the pace of cross border lending, which has become an important financing source 
for  the  domestic  corporate  sector,  could  be  affected.  Higher  risk  premiums  and  refinancing 
costs have already started putting some pressure on the external side. The comfortable foreign 
exchange  reserve  position  serves  as  an  important  cushion  in  the  event  of  slowing  capital 
inflows.  The  Croatian  authorities  lifted  the  marginal  reserve  requirement  for  banks'  foreign 
borrowing to boost their foreign exchange liquidity. Moreover, the deposit insurance law was 
amended  by  Parliament,  leading  a  fourfold  increase  of  the  guaranteed  amount  of  household 
deposits (to € 56,000).  

Positive  trends  on  the  labour  market  continued.  Data  from  the  labour  force  survey  confirm 
strong employment growth of 2.7% in 2007, which contributed to an increase in the average 
employment rate to 57.1%, up from 55.6% in 2006. The unemployment rate (ILO) fell from 
11.1% in 2006 to 9.6% in 2007. Unemployment declined for all age groups, but still remained 
high for the young population (at around 24%). The long-term unemployment rate decreased 
to 5.9% (2006: 6.7%). The officially registered unemployment rate declined to 12.4% in July 
2008,  compared  to  13.7%  in  July  2007.  Labour  market  developments  continued  to  be 
characterised by a relatively low job turnover, suggesting rigidities and limited employment 
restructuring.  The  growth  of  average  gross  wages  stayed  at  6.2%  in  2007,  as  in  2006,  and 
accelerated  to  7.1%  in  the  first  half  of  2008.  Average  real  wage  growth  declined,  however, 
due to rising inflation. Overall, the labour market performance continued to improve, but high 
youth and long-term unemployment and limited job turnover remain a cause for concern. 

No  major  changes  occurred  with  respect  to  monetary  policy.  Following  the  positive 
experience  of  previous  years  in  stabilising  inflation  expectations  through  a  stable  exchange 
rate,  the  tightly  managed  float  remained  in  place.  Exchange  rate  stabilisation  has  also 
contributed  to  mitigating  significant  balance  sheet  risks  under  a  highly  euro-ised  financial 
system. In the last quarter of 2007 and in 2008, the CNB intervened three times in the foreign 
exchange market and purchased euro for a total amount of around EUR 712 million. Despite a 
continued surge in capital inflows, the nominal exchange rate of the kuna vis-à-vis the euro 

6 

According to a new reporting system of the CNB, starting in December 2007, the external debt-to-GDP 
ratio amounted to 88.6% at end-2007. 

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has  been  kept  stable.  The  average  daily  exchange  rate  fluctuated  within  a  very  small  range 
between 7.16 and 7.35 kuna per euro and appreciated by 2.4% in the twelve months to end-
September  2008.  Overall,  the  stable  exchange  rate  policy  has  served  the  country  well  and 
remained a factor of monetary and financial stability.  

Reacting to stronger inflationary pressures the CNB gradually increased its marginal repo rate 
from  late  2007  onwards.  Moreover,  the  CNB  continued  to  rely  on  administrative  and 
prudential  measures  in  order  to  contain  strong  capital  inflows  and  rapid  credit  growth. 
Marginal  reserve  requirements  on  banks'  foreign  borrowing  as  well  as  credit  controls 
remained in place.7 They were partly adjusted in late 2007 and 2008 to more effectively raise 
domestic  banks'  borrowing  costs.  Partly  as  a  result  of  these  measures,  the  annual  growth  of 
domestic credit to the private sector decelerated from around 23% in 2006 to 15% in 2007 and 
to  11.2%  in  August  2008.  Both  the  growth  of  lending  to  private  households  and  to  the 
corporate  sector  dropped.  The  moderation  of  lending  to  the  corporate  sector,  however,  also 
reflects ongoing financial disintermediation of lending, as some corporations turned to direct 
borrowing from abroad. Overall, in an attempt to contain rapid credit growth, monetary policy 
continued to rely on administrative measures and credit controls. 

Average annual inflation decreased slightly in 2007 to 2.9%, down from 3.2% in 2006. This 
was due to low carry-over effects from 2006 and low inflation throughout the first half of the 
year. However, inflation accelerated significantly in the second half of 2007 to 5.8% year-on-
year  in  December,  and  further  to  6.4%  in  September  2008,  compared  to  2.1%  in  December 
2006. This acceleration was mainly due to supply shocks linked to considerable increases in 
the prices of agricultural, food and energy products. Moreover, big increases in administered 
utility  prices,  most  of  which  are  controlled  by  local  governments,  also  added  to  higher 
inflation.  To  some  extent,  increases  in  household  disposable  incomes,  arising  in  particular 
from  pension  debt  repayments  and  higher  government  transfers,  added  to  price  pressures. 
There  is  evidence  that  rising  inflation  has  led  to  second-round  effects.  Core  inflation 
accelerated  to  6.5%  in  August  2008,  compared  to  3%  a  year  before,  and  producer  price 
inflation  reached  one  of  the  highest  levels  ever  recorded  (11%).  Overall,  inflation  has 
increased markedly on the back of higher commodity and energy prices and strong domestic 
demand. 

Fiscal developments in 2007 and in the first half of 2008 benefited from a growing economy 
and strong revenues, which increased by 13% and 11.5% year-on-year, respectively. Current 
spending recorded an increase of 10.8% in 2007 and 10.2% in the first half of 2008, fuelled 
by  a  strong  rise  in  spending  on  goods  and  services  as  well  as  on  subsidies.  In  2007,  the 
general  government  deficit  was  reduced  as  planned,  to  1.6%  of  GDP,  down  from  2.5%  in 
2006  (in  ESA  95  terms).  However,  fiscal  accounts  do  not  include  a  number  of  off-budget 
operations,  such  as  debt  repayments  to  pensioners  (1.2%  of  GDP  in  2007)  and  quasi-fiscal 
activities of the State Development Bank (HBOR). Therefore, the actual fiscal policy stance 
has  been  more  expansionary  than  the  headline  budget  figures  suggest.  A  revised  budget  for 
2008 was adopted in July and foresees a budget deficit that is slightly lower than originally 
planned  (1.3%  instead  of  1.6%  of  GDP),  although  the  main  reason  for  this  is  the  ad-hoc 
exclusion  of  the  public  motorway  company  from  the  general  government  accounts.  As  in 
previous  years,  the  revised  budget  provides  for  higher  than  originally  projected  revenues. 
They are again used to repay health sector arrears, but also to compensate private households 

7 

However,  on  10  October  2008,  the  central  bank  revoked the  application  of  the  Decision on  Marginal 
Reserve Requirements in an attempt to boost foreign exchange liquidity of the banking sector. 

EN 

20 

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for higher energy prices, and to provide additional funds for regional development as well as 
for science and education. The stock of general government debt stood at 37.8% of GDP at 
end-2007, down from 40.8% a year before, and fell further to 34% by June 2008. However, 
adjustments  for  the  stock  of  issued  State  guarantees  and  the  debt  of  the  State  Development 
Bank (HBOR) would raise the stock of debt by around 10 percentage points of GDP. Overall, 
deficit  reduction  continued  as  planned,  but  actual  fiscal  policy  has  been  more  expansionary 
than the reported figures suggest. Stronger expenditure restraint remains essential in view of 
higher  inflation  and  widening  external  imbalances  and  as  a  way  to  better  support  monetary 
policy.  

The  rationalisation  of  public  spending  remained  a  key  public  finance  objective.  The 
implementation of the social benefits reform strategy adopted in (April) 2007 continued. Its 
aim  is  to  reduce  the  number  of  benefits  and  to  achieve  a  better  targeting  of  social  welfare. 
However,  means-  and  income-tested  benefits  as  a  share  of  total  benefits  have  remained 
relatively  small  while  categorical  benefits  still  account  for  the  large  majority  of  social 
benefits.  Although  some  institutional  progress  has  been  made  with  the  establishment  of  a 
personal  identification  number  and  one-stop  shops,  the  social  welfare  system  remained 
burdened by complex eligibility criteria and inefficient administration. No new measures have 
been taken to effectively address the health sector's financial difficulties and arrears continued 
to  accumulate.  In  particular,  the  reform  of  co-payment  exemptions  through  a  wider  use  of 
means-  and  income-testing  has  made  little  progress.  In  the  context  of  the  2008  budget 
revision, the government - as in the previous year - bailed out health sector payments arrears. 
No  measures  have  been  taken  to  reform  the  pension  system's  first  pillar.  Overall,  limited 
progress has been achieved in terms of increasing the efficiency of public spending. 

The government declared itself committed to a comprehensive Treasury Reform Strategy as a 
sound basis for improving expenditure management and budget control systems. The role of 
the Ministry of Finance in the budget preparation process has been strengthened. Continued 
progress  was  achieved  in  enhancing  institutional  and  analytical  capacity  for  setting  up 
medium-term  macroeconomic  and  fiscal  frameworks.  However,  public  finances  still  suffer 
from  the  absence  of  a  real  medium-term  expenditure  framework  which  links  defined  policy 
priorities to the budget planning process. Some progress has been made in enhancing public 
debt  management  capacity,  but  a  fully-fledged  strategy  is  still  lacking.  Transparency  of  the 
issuance  policy  has  remained  weak  and  raises  concerns  about  asymmetric  access  to 
information  by  potential  market  participants.  Efforts  were  made  to  reconcile  current  budget 
statistics  with  ESA  95  standards,  but  important  quasi-fiscal  operations  as  well  as  local 
governments  remained  unrecorded,  seriously  undermining  budget  transparency.  Overall, 
analytical  and  institutional  capacity  in  public  finance  has  been  further  strengthened,  but 
strategy-based budget planning and debt management remained generally weak. 

The  direction  of  macroeconomic  policies  has,  on  the  whole,  been  appropriate  to  contain 
potential  external  vulnerabilities.  Given  the  limited  scope  for  monetary  policy  discretion 
under heavy financial euro-isation, the onus of containing the savings-investment gaps in the 
economy  has  remained  largely  on  fiscal  policy.  Fiscal  consolidation  has  so  far  benefited 
markedly from strong revenue growth. However, a credible and sustainable fiscal adjustment 
process  requires  much  more  efforts  in  accelerating  social  benefit,  health  care  and  pension 
reforms to bring down the relatively high public spending ratio.  

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Interplay of market forces 

The  state  continued  to  gradually  withdraw  from  the  productive  sector.  The  sale  of  7%  of 
shares  of  the  national  oil  company  INA  was  successfully  completed  in  late  2007.  In  June 
2008,  the  government  sold  4.2%  of  Hrvatski  Telekom  (HT)  and  12.5%  of  a  fertilizer 
company. In all three cases shares were sold to current and former employees. However, the 
privatisation  of  assets  held  by  the  State  Privatisation  Fund  made  only  limited  progress.  A 
major  corruption  investigation  into  the  Fund  in  2007  led  to  a  de  facto  suspension  of  the 
privatisation process. In early 2008, the government appointed a new head, as well as a new 
Fund management board, and changed decision making procedures to lend a new impetus to 
the  process.  Up  until  September  2008,  the  State  Privatisation  Fund  had  sold  or  liquidated 
some 30 companies and the remaining portfolio still comprised around 891 companies, with 
the State keeping a majority holding in 97 of them. A number of tenders did not succeed in 
attracting  the  interest  of  potential  investors.  The  private  sector’s  share  in  output  and 
employment  has  risen  to  slightly  above  or  close  to  70%,  respectively.  Overall,  progress  in 
privatisation has been uneven and continued to be undermined by institutional weaknesses. 

Market entry and exit 

Company registration procedures have been further simplified. The average time and number 
of  procedures  needed  to  set  up  a  business,  as  well  as  average  registration  costs,  have  been 
reduced further. The number of newly registered companies grew by 1.4%8 and the stock of 
active  businesses  increased  by  13%  year-on-year  in  March.  An  e-register  of  national 
regulations has been produced, allowing all regulations to be found in one place. On the other 
hand,  Croatia's  performance  continues  to  be  relatively  unsatisfactory  in  several  measures  of 
the  quality  of  the  business  environment.  Limited  progress  has  been  made  in  advancing  the 
"Regulatory  Guillotine"  project  aimed  at  simplifying  or  eliminating  regulations  that  are 
deemed  unnecessary.  Doing  business  in  various  sectors  remained  hampered  by  lengthy  and 
cumbersome procedures for obtaining licences or authorisations at the national and municipal 
level.  Overall,  further  progress  has  been  made  in  simplifying  company  registration,  but  the 
to  suffer  from  excessive  regulations  and  ad-hoc 
business  environment  continued 
requirements. 

Legal system 

Further  progress  was  made  in  reducing  the  backlog  of  cases  before  Croatian  courts.  During 
2007,  the  backlog  was  reduced  by  6.1%  compared  to  2006.  However,  there  is  still  a  large 
backlog  (969,100  cases  at  end-2007)  and  the  judicial  system  has  remained  inefficient.  The 
weaknesses of the judicial system may discourage economic actors from taking cases to court 
and undermine effective enforcement of creditor and property rights. 

Development of the financial sector 

The financial sector, still dominated by banks, represented around three quarters of total assets 
at  end-2007.  Some  95%  of  banks  are  privately  owned  and  the  share  of  foreign  ownership 
remained high at 90%. The number of banks was unchanged at 33, which is relatively high in 
relation  to  the  market  size.  The  degree  of  market  concentration  has  remained  at  a  moderate 
level and has generally not been an impediment to market competition. The five largest banks 

8 

Last quarter 2007 and first quarter 2008 compared to same period a year before 

EN 

22 

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together accounted for a market share of around 68% at the end of 2007, down from 72% in 
2006.  The  spread  between  the  weighted  average  of  new  kuna-denominated  loans  and  new 
kuna-denominated deposits did not change significantly. Domestic private credit rose to 73% 
of  GDP  in  2007,  up  from  69%  in  2006.  Overall,  the  largely  private  and  foreign-owned 
banking sector remained the key player in financial intermediation.  

that  have  been 

The  banking  sector  has  become  more  resilient  as  a  result  of  a  number  of  prudential  and 
supervisory  measures 
to  address  potential  macro-financial 
taken 
vulnerabilities. Additional capital requirements were imposed on fast-growing banks, and risk 
weights on un-hedged foreign currency loans were increased. Banks' capital adequacy, asset 
quality and profitability remained at comfortable levels. The share of non-performing assets 
remained  at  a  relatively  low  level  of  3.2%  in  June  2008,  although  this  indicator  may 
underestimate  portfolio  risks  during  periods  of  strong  asset  growth.  However,  the  banking 
system still has to contend with interest and exchange rate induced credit risks, as the majority 
of  loans  are  based  on  variable  interest  rates  and  linked  to  foreign  exchange.  Very  good 
progress  has  been  made  in  the  central  bank  in  fostering  the  analytical  capacity  to  produce 
forward-looking financial sector stability assessments. Overall, additional prudential measures 
served to make a generally sound banking system even more resilient and reduced potential 
macro-financial risks. 

The share of non-banking financial sector assets in total financial sector assets increased from 
23.4% at end-2006 to 26 % by end-2007, also due to the strong asset growth of investment 
funds  and  mandatory  pension  funds.  In  2007,  domestic  stock  markets  generally  benefited 
from  the  strong  growth  of  non-bank  institutional  investors  and  increased  interest  from  the 
general public in equity investments, although the turnover remained low. This resulted in a 
strong  increase  in  the  stock  market  index  by  60%,  taking  market  capitalisation  to  around 
128% of GDP at end-2007, as against 79% in 2006. Since the start of the year, the Croatian 
stock market has been rather volatile and the Zagreb stock exchange index lost around 50% in 
the first ten months. Market capitalisation had declined to 90% of GDP in June 2008. Bond 
market  capitalisation  amounted  to  13%  of  GDP  in  June  2008,  slightly  lower  than  a  year 
before,  as  the  market  capitalisation  of  the  corporate  sector  declined.  The  supervision  and 
regulation  of  the  non-banking  financial  sector  has  gradually  improved.  The  previously 
unregulated  leasing  sector  has  been  brought  under  the  oversight  of  the  non-bank  supervisor 
HANFA.  Also,  HANFA  and  the  Croatian  stock  exchange  have  adopted  the  Croatian 
Corporate  Governance  Codex,  which,  if  properly  applied,  should  enhance  the  transparency 
and efficiency of the capital market. In general, notwithstanding the growth of some market 
segments, capital markets remained shallow, with little turnover.  

3.2. 

The  capacity  to  cope  with  competitive  pressure  and  market  forces  within  the 
Union 

Existence of a functioning market economy 

Macroeconomic  stability  has  been  largely  maintained  and  has  allowed  economic  agents  to 
make decisions in a climate of stability and predictability, thus supporting the functioning of 
market mechanisms. However, significant state interventions in the economy as evidenced by 
a  high  spending  ratio  and  high  subsidies,  as  well  as  prevailing  obstacles  to  private  sector 
development, continued to partly undermine a more growth-oriented allocation of resources, 
constraining the potential for higher productivity and catching-up. 

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Human and physical capital  

Reforms  in  the  education  sector  have  continued  under  the  Education  System  Development 
Plan for 2005-2010. Further steps were taken to improve the quality of education at all levels. 
A national programme aims to increase the rate of enrolment in and completion of secondary 
education and to reduce the percentage of early school leavers. However, the education sector 
continued  to  suffer  from  out-dated  curricula  and  poor  equipment.  The  joint  assessment  of 
employment  priorities  was  signed  by  the  Commission  and  the  Croatian  authorities.  The 
government continued to implement active labour market policies. These include training and 
employment subsidies for young people without work experience, the long-term unemployed, 
older  persons  and  vulnerable  groups.  However,  although  there  was  a  slight  increase  in 
employment  and  participation  rates,  the  levels  remained  relatively  low  -  at  57%  and  63.2% 
respectively in 2007. Overall, the labour market continued to suffer from mismatches between 
supply and demand. 

Investment continued to be robust in 2007 and 2008, albeit growing at a slower pace, and the 
fixed  investment  ratio  remained  high  at  around  30%  of  GDP  in  2007.  Total  spending  on 
research  and  development  remained  at  the  relatively  high  level  of  around  0.9%  of  GDP. 
Public  investment  in  transport  remained  strong.  In  particular,  investments  in  new  highways 
amounted  to  1.9%  of  GDP  and  resulted  in  a  further  expansion  of  the  network.  Most  of  the 
core  main  lines  of  the  rail  network  are  sufficiently  well  maintained  to  allow  a  competitive 
freight  transport  business.  FDI  continued  to  play  a  significant  role.  The  total  stock  of  FDI 
reached  EUR  17.6  billion  (47%  of  GDP).  The  largest  share  of  cumulative  FDI  inflows  is 
accounted for by the financial sector (36%), followed by manufacturing (27%), and post and 
telecommunications  (10%).  There  has  still  been  little  greenfield  investment,  and  private 
investments  in  the  processing  and  manufacturing  industry  have  remained  relatively  low, 
limiting technological change and export potential. To conclude, strong levels of investment 
continued to be concentrated in transport infrastructure and the services sector. 

Sector and enterprise structure 

The loss-making, state-owned aluminium company (TLM) was sold following lengthy tender 
procedures  and  negotiations.  Subsequently,  the  new  owner  submitted  a  restructuring 
programme  to  the  government.  Following  the  privatisation  of  the  two  steel  mills,  the 
government adopted a revised National Restructuring Plan for the steel industry. In the area of 
shipbuilding, the government adopted revised individual restructuring plans, as well as taking 
a  decision  to  restructure  six  shipyards  through  a  process  of  privatisation.  The  privatisation 
process is expected to start immediately and to be completed by the end of 2009. However, 
details  concerning  methods  and  conditions  for  sale  have  not  yet  been  agreed.  Overall,  there 
has been mixed progress with the restructuring of large loss-making companies.  

The restructuring of the loss-making large railway carrier has made very limited progress. The 
objectives of the business plan for 2007, in particular significant staff reductions and a wage 
freeze,  were  not  met.  The  envisaged  reduction  of  the  working  ratio  in  2007  did  not 
materialise,  and  the  ratio  even  started  to  worsen  in  2008.  The  railway  sector  continued  to 
require high levels of budget support (above 1% of GDP in 2007). Low productivity and high 
unit labour costs continue to undermine its long-term viability, necessitating vigorous action, 
including staff lay-offs and the closure of non-profitable lines. Four railway subsidiaries were 
tendered  for  privatisation,  but  have  not  yet  been  sold.  The  liberalisation  of  the 
telecommunication industry continued. The Croatian Telecommunications Agency continued 
with  activities  aimed  to  stimulate  market  competition  by  improving  market  access  to  new 

EN 

24 

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service providers. This led to further price reductions and to a larger choice of tariff packages 
for customers. New fixed line competitors raised their market share further from 13% to a still 
modest  19%,  but  the  incumbent  Croatian  Telecom  remained  by  far  the  dominant  operator. 
The liberalisation of the energy sector continued to advance gradually with the opening of the 
electricity  market  to  private  households  as  of  1  July  2008.  While  this  marks  an  important 
formal  step  towards  more  competition,  the  large  public  energy  company  HEP  remained  de 
facto the only energy supplier. Moreover, the restructuring of HEP has not seen any progress. 
Overall, the reform of network industries made headway, but the railway sector needs much 
deeper restructuring in order to ensure its long-term viability and competitiveness. 

The already large service sector increased its share of total output to 63%. Agriculture's share 
of  output  declined  further  to  6.8%  in  2007.  The  share  of  construction  and  industry  together 
accounting  for  around  32%,  remained  unchanged.  Agriculture's  declining  share  of 
employment fell to 13%, while industry and construction rose to above 30% and the services 
sector maintained its share of around 56%. Given the already large service sector, there were 
only marginal shifts in the sector structure of the economy. 

The small and medium-sized enterprise (SME) sector continued to grow in 2007, representing 
more than 40% of the corporate sector's total assets, 66.2% of total employment and 65% in 
total  investment.  SMEs  generated  more  than  45%  of  GDP  and  accounted  for  an  increasing 
share  (above  40%)  of  total  exports.  The  government  decided  to  extend  the  existing  support 
schemes for SMEs by adopting a new medium-term programme (2008-2012). However, the 
sector  continued  to  suffer  from  a  cumbersome  regulatory  framework  and  inefficiencies  in 
public  administration.  Access  to  longer-term  financing  remained  difficult,  particularly  for 
newly established businesses. Overall, the SME sector has gained in importance, despite the 
remaining administrative obstacles. 

State influence on competitiveness  

The government has taken short-term measures to alleviate the impact of higher energy prices 
on  households,  such  as  increasing  income  tax  allowances  and  granting  subsidies  to  the 
electricity  company.  However,  as  price  subsidies  are  linked  to  the  level  of  consumption,  it 
remains  doubtful  whether  these  measures  will  be  effective  in  targeting  the  most  vulnerable 
parts of the population. Also, they may risk distorting necessary price signals. The role of the 
Competition  Agency  in  monitoring  and  controlling  State  aid  has  been  further  strengthened, 
but the relatively low staffing levels continued to be an urgent problem. The total amount of 
subsidies in the 2007 and 2008 general government budgets remained high - at 2.6% of GDP - 
and a large share has still been provided to loss-making companies. Horizontal aid accounts 
for  only  a  small  share  of  total  subsidies.  Overall,  state  intervention  in  the  enterprise  sector 
remained substantial. 

Economic integration with the EU 

Croatia  is  an  open  economy  with  total  trade  in  goods  and  services  representing  more  than 
100%  of  GDP.  Apart  from  the  export  of  transport  equipment  (mainly  ships),  tourism 
continued  to  be  the  biggest  source  of  export  revenue,  representing  almost  18%  of  GDP  in 
2007.  The  EU  has  continued  to  be  the  most  important  trading  partner,  although  its  share  in 
total  Croatian  exports  and  imports  fell  by  a  few  percentage  points  to  60.9%  and  64.8%, 
respectively.  At  the  same  time,  Croatia  has  expanded  its  trade  with  neighbouring  countries, 
also reflecting ongoing regional trade integration. Around 97% of FDI inflows originate from 

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EU  Member  States.  Overall,  integration  with  the  EU  in  the  areas  of  trade  and  investment 
remained very high, and trade with neighbouring countries has continued to grow. 

The  average  growth  in  real  wages  stood  at  around  3%  in  2007,  and  remained  in  line  with 
estimated  changes  in  average  labour  productivity,  with  the  result  that  real  unit  labour  costs 
remained largely unchanged. The nominal effective exchange rate of the kuna appreciated by 
3.2% as a result of strong upward movement against the US dollar. In real effective terms9, 
the kuna appreciated at a somewhat higher rate (3.8%), reflecting a slightly faster growth of 
domestic  producer  prices  relative  to  producer  prices  abroad.  Overall,  standard  indicators  do 
not point to significant changes in export price competitiveness. 

4. 

ABILITY TO ASSUME THE OBLIGATIONS OF MEMBERSHIP 

This section examines Croatia’s ability to assume the obligations of membership – that is, the 
acquis as expressed in the Treaties, the secondary legislation and the policies of the Union. It 
also  analyses  Croatia’s  administrative  capacity  to  implement  the  acquis.  The  analysis  is 
structured in accordance with the list of 33 acquis chapters. In each sector, the Commission's 
assessment  covers  progress  achieved  during  the  reporting  period,  and  summarises  the 
country's overall level of preparations. 

4.1. 

Chapter 1: Free movement of goods 

Good progress can be reported regarding alignment on general principles. Croatia adopted in 
November 2007 an Action Plan for compliance with Articles 28 to 30 of the EC Treaty, which 
defines  specific  tasks  for  compliance,  sets  up  target  dates  for  national  and  local  authorities, 
and defines the necessary institutional structures to enable the removal of all measures having 
an  equivalent  effect  to  quantitative  restrictions  on  imports  and  exports.  This  was  a  key 
element in the accession negotiations on this chapter.  

Good  progress  can  also  be  reported  in  the  area  of  horizontal  measures.  Key  horizontal 
legislation and the Strategy for the implementation of the acquis in the field of free movement 
of  goods  were  adopted  in  November  2007.  The  Strategy  provides  for  a  comprehensive 
framework  for  effective  implementation  of  EC  legislation,  complemented  by  realistic 
milestones and measures to enhance  administrative capacities. Nevertheless, particularly the 
Law  on  Technical  Requirements  for  Products  and  on  Conformity  Assessment  and  other 
relevant horizontal legislation still need further alignment with the acquis, especially with the 
new framework acquis relating to the marketing of products. 

As  regards  standardisation,  by  the  end  of  August  2008  the  Croatian  Standards  Institute 
(HZN) had transposed 10,695 harmonised European standards. The number of HZN staff has 
increased  to  61  as  of  September  2008.  HZN  is  an  affiliate  member  of  the  European 
Committee  for  Standardisation  (CEN)  and  the  European  Committee  for  Electrotechnical 
Standardisation  (CENELEC).  Further  efforts  are  needed  on  the  part  of  HZN  to  ensure  the 
timely adoption of its strategies and action plans, as well as European standards, in order to 
complete  the  preparations  for  CEN/CENELEC  membership  by  December  2008.  The 
reorganisation  of  the  infrastructure  of  the  technical  committees  is  underway  with  154 
restructured committees as of end-August. 

9 

As measured on the basis of producer prices 

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Concerning conformity assessment, the ordinance on the form, content and graphic symbol of 
the  conformity  marking  (CE)  for  products  confirming  compliance  with  the  prescribed 
technical requirements entered into force in May 2008. 

In  the  area  of  accreditation,  the  Croatian  Accreditation  Agency  (HAA)  has  in  July  2008 
adopted its development strategy for 2008 – 2010. It has continued to promote accreditation 
among  governmental  institutions  responsible  for  harmonisation  under  the  new  and  old 
approach acquis. By August 2008 HAA had accredited a total of 123 conformity assessment 
bodies. HAA has 22 permanent employees, 59 lead assessors (HAA employees and external 
associates),  88  technical  assessors  (mostly  external  associates)  and  117  experts  (external 
associates).  European  Co-operation  for  Accreditation  (ECA)  has  started  a  pre-evaluation 
process in June 2008 for granting the signatory status of its multilateral agreement to HAA. 

As  regards  metrology,  the  National  Strategy  in  the  field  of  metrology  (2007-2013)  was 
adopted at government level in May 2008. This lays the foundation for the setting up of the 
new metrology infrastructure, including the National Metrology Institute, and for financing its 
development. A regulation on the establishment of the institute has been passed in June 2008, 
and preparations for its setting-up have started. 

Regarding  market  surveillance,  there  is  some  progress  to  report  with  regard  to  the  State 
Inspectorate's  administrative  capacity  and  enforcement  measures.  The  Regulation  on  the 
internal organisation of the State Inspectorate was amended in December 2007. This reform 
allows recruitment of new market inspectors. It also introduced new departments, such as the 
Department for European Integration, and expanded the scope of work of others, such as the 
Departments  for  Conformity  Testing  and  for  Consumer  Protection.  Within  the  latter 
department, two new sections were created: the Section for the Control of the Sale of Products 
and Supply of Services, and the Section for Products Notification and Information Exchange 
(Rapid  alert  system  for  non-food  products  -  RAPEX), for which  the National Contact Point 
was  established.  Guidelines  for  the  control  of  the  trade  in  and  labelling  of  textiles  and 
footwear and guidelines for the placing on the market of personal protective equipment have 
also been produced. 

In terms of administrative capacity in the Ministry of Economy, Labour and Entrepreneurship 
(MELE),  there  has  been  progress  in  the  Department  for  Internal  Market  Coordination.  The 
department  is  responsible  for  alignment  and  implementation  of  technical  legislation,  overall 
policy coordination with other ministries and agencies and for the application of Articles 28 to 
30 of the EC Treaty. In the first quarter of 2008 the new organisation of the Department was 
adopted and the number of staff was increased to 20. 

Overall,  as  regards  horizontal  measures,  basic  structures  for  harmonisation  with  EU 
legislation are in place. Further, appropriate capacity building measures are required to enable 
Croatian institutions to become full members of the relevant European organisations. 

There has been some progress in sectors covered by the old approach acquis, most notably in 
the  field  of  motor  vehicles,  textiles  and  medicinal  products  for  human  use  and  veterinary 
medicinal products. Two Ordinances, on the pricing of medicinal products and on the criteria 
for  including  products  on  the  list  of  medicines  respectively,  were  adopted  in  June  2008. 
However, they seem to need amending to be fully compatible with the acquis. Further efforts 
are needed in order to reach full legislative alignment and necessary administrative capacity, 
particularly with regard to pharmaceuticals, chemicals, cosmetics and motor vehicles. 

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Although  the  legislative  alignment  with  the  new  and  global  approach  acquis  has  been 
advancing, many of the national alignment measures have still to be verified. Further efforts 
are  still  needed,  particularly  with  regard  to  low  voltage  equipment,  toys,  machinery, 
equipment  and  protective  systems  intended  for  use  in  potentially  explosive  atmospheres, 
construction  products,  gas  appliances,  pressure  equipment  and  simple  pressure  vessels, 
cableway installations, noise emissions by outdoors equipment, emissions of pollutants from 
non-road mobile machinery engines, and eco-design requirements for energy-using products. 

As  regards  procedural  measures,  there  is  some  progress  to  report.  In  June  2008,  Croatia 
adopted a Regulation laying down procedures for the provision on notification in the field of 
standards, technical regulations and conformity assessment procedures and of regulations on 
information  society  services  which  aims  at  transposing  Directive  98/34/EC  as  amended  by 
Directive  98/48/EC.  Secondary  legislation  has  been  adopted  as  regards  acquisition  and 
possession of weapons. 

Conclusion 

Good progress has been made on alignment of legislation with the acquis on free movement 
of goods. Although alignment with the acquis in this chapter is well underway, some elements 
are  not  yet  in  place.  Adjusting  the  conformity  assessment  infrastructure  and  market 
surveillance activities remains a major challenge. Croatia needs to make considerable efforts 
and  continue  the  process  of  alignment  with  the  acquis  and  its  effective  implementation  and 
enforcement,  and  develop  before  accession,  policies  and  instruments  that  are  as  close  as 
possible to those of the EU. 

4.2. 

Chapter 2: Freedom of movement for workers 

Some progress has been made in the area of access to the labour market. Amendments to 
the  Act  on  Pension  Insurance  Companies  and  the  Payment  of  Pensions  Based  on 
Individualised Capital Savings were adopted in October 2007 aiming at enabling cross-border 
payment of pension benefits in the supplementary pension scheme. 

Some progress can be reported on future participation in the EURES network. Amendments 
to the Act on Employment Mediation and Unemployment Rights were adopted in July 2008 
aiming  at  ensuring  equal  treatment  of  EU  migrant  workers  and  Croatian  citizens  as  regards 
assistance  by  the  national  employment  office.  The  organisational  structure  of  the  Croatian 
Employment  Service  is  being  adjusted  and  administrative  capacity  strengthened  as  regards 
services related to mobility and free movement of labour. Gaps remain in the language skills 
of potential EURES advisers and, with a view to the required connection to the EURES Job 
Mobility Portal upon accession, in ensuring that all job vacancies of the Public employment 
services  are  displayed  on  its  public  website  and  can  therefore  be  made  available  for 
publication on the Portal. In this area, Croatia is already moderately advanced. 

There  has  been  no  significant  progress  on  co-ordination  of  social  security  systems. 
Sufficient administrative capacity has not yet been developed to apply the acquis in this field. 

Preparations  are  ongoing  for  the  introduction  of  the  European  Health  Insurance  Card  as 
from accession. 

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Conclusion 

Some progress has been made on this chapter. A satisfactory level of legal alignment has been 
reached. However, Croatia’s legislation is not yet in line with the EU rules on access to the 
labour  market.  Sustained  efforts  are  also  needed  to  develop  the  necessary  administrative 
capacity, notably for the co-ordination of social security systems, which is a key element for 
the accession negotiations in this chapter. 

4.3. 

Chapter 3: Right of establishment and freedom to provide services 

Limited  progress  can  be  reported  on  the  right  of  establishment.  The  new  Veterinary  Act 
adopted  in  2007  removed  certain  restrictions,  such  as  a  requirement  to  hold  Croatian 
citizenship in order to exercise in private practice, and will apply with effect from the date of 
accession. The Law on pre-school education was amended in order to remove the distinction 
between Croatian and foreign physical and legal entities for the purpose of authorisation to set 
up kindergartens in Croatia. Under the amended Law on institutions, with effect from the date 
of  Croatia's  accession  to  the  EU,  Croatian  and  foreign  legal  and  physical  persons  will  have 
equal right of establishment of institutions.  

Numerous restrictions on the right of establishment still exist in many sectors, in the form of 
citizenship,  residence  and  disproportionate  language  requirements,  plus  a  mandatory 
minimum  duration  (six  months  uninterrupted)  for  certain  economic  activities  and  the  one-
office rule.  

There has been some progress regarding the freedom to provide cross-border services. The 
amendments  to  the  Company  Law  (which  were  adopted  in  October  2007  and  entered  into 
force  in  April  2008)  introduced  a  distinction  between  provision  of  services  on  a  temporary 
basis  and  permanent  establishment,  hence  making  it  possible  for  foreign  entrepreneurs  to 
provide  cross-border  services  without  establishing  a  branch  office.  Cross-border  company 
mergers have been regulated, but the amendments will not become applicable until the date of 
accession.  However,  several  restrictions  that  hamper  cross-border  provision  of  services 
remain in both general and sectoral acts. The amendments to the Act on physical planning and 
construction introduced some potentially discriminatory measures as regards EU companies. 

Some  progress  has  been  made  in  the  field  of  postal  services,  where  the  level  of  legislative 
alignment is already relatively high. The Strategy for Postal Services Market Development in 
the Republic of Croatia and the Action Plan for implementation of the Strategy were adopted 
in  March  2008.  The  Strategy  proposes  a  timeframe  for  further  liberalisation  of  the  postal 
services  market  in  Croatia.  The  amendments  to  the  Postal  Act,  which  entered  into  force  in 
July 2008, strengthened the supervisory power of the regulatory body. With the adoption of 
the Law on Electronic Communications the Council for Postal Services was merged together 
with the Croatian Agency for Telecommunications into single Agency for Post and Electronic 
Communications. The tasks and objectives regarding the regulation of postal sector in Croatia 
did  not  change  with  this  transformation.  Provisions  on  further  liberalisation  of  the  postal 
market  will  not  enter  into  force  until  1  January  2010,  when  the  price  limits  and  reduced 
reserved  area  for  items  of  correspondence  up  to  50  g  will  be  in  line  with  the  EU  acquis. 
According  to  the  above  mentioned  Strategy  it  is  envisaged  that  the  postal  market  would  be 
fully  liberalized  by  the  end  of  2012.  However,  the  exclusive  rights  in  the  postal  sector  in 
Croatia are broader than provided for in the acquis and there is not yet any possibility for a 
natural person to apply for a licence.  

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Some  progress  has  been  made  on  mutual  recognition  of  professional  qualifications,  but 
improvement  still  needs  to  be  made.  The  Legal  Profession  Act  was  amended  in  September 
2008,  aligning  with  the  acquis  by  allowing  upon  accession  EU  lawyers  to  provide  legal 
services and to dispense legal counsel in Croatia, including in the form of law firms, and to 
establish  subsidiaries.  A  new  law  has  been  adopted  with  the  aim  to  align  with  commercial 
agents'  directive.  The  minimum  training  requirements  for  the  medical  professions  (doctors, 
dentists,  midwives,  nurses,  pharmacists)  are  still  not  in  line  with  the  acquis.  As  regards 
dentists, the professional and academic title ("stomatology") used is not recognised under the 
acquis.  The  nurses  training  at  secondary  and  higher  school  level,  the  midwifery  secondary 
level education and the in-service training at the 5th year for pharmacists, all fall short of the 
requirements set out in Directive 2005/36/EC. Legal or administrative provisions laying down 
the  minimum  training  requirements  to  be  respected  by  all  training  institutions  are  still 
missing.  

In  September  2008,  amendments  to  several  acts  in  the  health  sector  were  adopted  to  waive 
Croatian citizenship requirements and to bring language requirements in line with the aquis. 
These changes will be applicable as of the accession date. The administrative capacity of the 
authorities dealing both with mutual recognition of qualifications and with coordination and 
alignment  with  the  acquis  as  regards  freedom  to  provide  services  needs  to  be  strengthened. 
However, the preparations in the field of mutual recognition of professional qualifications are 
well on track. 

Conclusion 

Some  progress  has  been  made  on  this  chapter,  notably  on  the  right  of  establishment  and 
freedom  to  provide  cross-border  services.  However,  further  substantial  work  is  required  in 
order to align Croatia's legislation fully with the acquis in this chapter, as various obstacles to 
the right of establishment and freedom to provide services remain in both the general and the 
sectoral  legislation.  Overall,  alignment  with  the  acquis  is  at  a  reasonable  level,  although 
considerable  efforts  are  still  required  in  some  areas.  Strengthening  of  the  related 
administrative capacity is required. 

4.4. 

Chapter 4: Free movement of capital 

Some  progress  can  be  reported  concerning  capital  movements.  As  regards  real  estate,  the 
administrative  capacity  of  the  Ministry  of  Justice  was  reinforced  in  order  to  expedite  the 
processing of applications from foreigners for permission to purchase. This has resulted in a 
substantial reduction of the backlog of pending requests from EU nationals. Procedures have 
been speeded up for all applicants, applications have been processed on a non-discriminatory 
basis and transparency of the process has improved. However, in recent months a slowdown 
in  the  processing  of  applications  was  noted.  As  regards  other  capital  movements,  some 
discriminatory  provisions  still  remain  in  Croatian  legislation,  in  particular  concerning 
institutional investors, including “golden shares”, and the use of assets in building societies. 
Clauses  that  are  not  in  line  with  the  acquis  have  even  been  introduced  in  privatisation 
contracts concluded during the reporting period. 

There has been some progress in the area of payment systems. External payment operations 
were  further  liberalised  by  allowing  residents  to  freely  accept  payments  from  non-residents 
and  to  allow  payments  to  non-residents  in  domestic  currency  without  any  limitations.  The 
rules on statistical reporting of credit transactions with non-residents were modified in order 
to remove capital restrictions. 

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laundering  (AML), 

As  regards  anti-money 
the  Croatian  government  adopted  a 
comprehensive action plan aimed at reinforcing the legal and institutional framework. A new 
AML law was adopted in July 2008 and will enter into force in January 2009. It constitutes a 
major  step  forward  in  strengthening  Croatia's  AML  regime  by  aligning  it  substantially  with 
the acquis and Financial Action Task Force recommendations. Some marginal amendments to 
the AML legislation will be necessary to achieve full alignment. Croatia ratified the Council 
of  Europe  Convention  on  Laundering,  Search,  Seizure  and  confiscation  of  the  proceeds  of 
crime and on financing of terrorism. However, institutional capacity needs to be strengthened. 
Monitoring  and  supervision  of  reporting  entities  remains  inadequate,  especially  outside  the 
banking sector, and the enforcement record (including convictions, confiscations, seizures and 
asset  freezing)  is  still  weak  Moreover,  further  efforts  are  required  in  improving  anti-money 
laundering  legislation,  ensuring  effective  implementation,  strengthening  the  FIU  and 
improving inter-agency cooperation. 

Conclusion 

There has been some progress in this chapter, mainly as regards the processing of applications 
for permission to acquire real estate by EU nationals and the adoption of an action plan and 
new legislation in the area of anti-money laundering. Overall a reasonable level of alignment 
has been achieved, although further efforts will be needed especially with implementation and 
enforcement. 

4.5. 

Chapter 5: Public procurement 

Good  progress  can  be  reported  in  the  area  of  improving  the  overall  public  procurement 
system, including general principles deriving from the Treaty. The new Public Procurement 
Act entered into force in January 2008. This law brought Croatian legislation further in line 
with  the  acquis  in  terms  of  the  award  of  public  contract  and  remedies.  Implementing 
regulations were also adopted. Further amendments to the Public Procurement (PP) Act were 
adopted in October. A New Concessions Act was also adopted. In June 2008 the Government 
of Croatia adopted a Comprehensive strategy on the development of the public procurement 
system (including concessions and Public Private Partnerships) and an Action Plan outlining a 
clear timeframe for each of the actions needed for public procurement reform, which is being 
implemented according to its timeframe. 

As regards award of public contracts, E-procurement regulations and their implementation 
require  further  development  in  order  to  increase  the  transparency  and  efficiency  of  public 
procurement.  The  level  of  knowledge  of  Public  Procurement  legislation  remains  low  and 
further development of administrative capacity is required both at central and local level. In 
particular the procuring entities do not have enough knowledge of the legislation and of the 
procurement  procedures.  However 
includes  a 
comprehensive training programme including all involved stakeholders. 

the  strategy  adopted 

in  June  2008 

Besides  the  relevant  parts  under  the  Public  Procurement  Act  there  has  been  no  further 
development  on  legislative  alignment  in the area of remedies. The competence  of the State 
Commission  for  the  Supervision  of  Public  Procurement  Procedures  does  not  yet  cover 
remedies  on  concessions.  The  State  Commission  has  established  a  good  reputation  over  the 
last years. It has made some necessary staff recruitments during the past 12 months and shows 
a  good  track  record  in  solving  cases.  To  increase  transparency  all  decisions  of  the  State 
Commission have been published on its web-site since April 2008. 

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Regarding administrative capacity a government decision of March 2008 tasked the Ministry 
of  Economy,  Labour  and  Entrepreneurship  (MELE)  with  the  responsibility  for  coherent 
policy making, coordination and implementation of the public procurement system. In MELE, 
the Directorate for Public Procurement System has been set up to replace the former Public 
Procurement Office. In order to ensure coherence, MELE closely cooperates, both on political 
and technical level, with other stakeholders of the procurement system: Ministry of Finance 
(concessions),  PPP  Sector  at  the  Trade  and  Investment  Promotion  Agency  (TIPA) 
(implementation  of  PPP  projects)  and  State  Commission  for  the  Supervision  of  Public 
Procurement  Procedures  (independent  review  body).  Since  the  government  decision,  all  the 
affected  state  authorities  (MELE,  Ministry  of  Finance,  State  Commission,  TIPA)  have 
increased their staff. 

Conclusion 

Good  progress  can  be  reported  in  this  chapter  in  particular  in  terms  of  establishing  the 
necessary institutional set-up capable of managing the public procurement policy and in terms 
of a adoption of a comprehensive strategy. However, further legislative alignment is needed 
and administrative capacity remains to be improved at all levels of the procurement system. 
Emphasis  should  now  be  put  on  the  proper  and  effective  implementation  of  the  new  Public 
Procurement  Act.  Anti-corruption  measures  also  need  to  be  embedded  at  all  levels  of  the 
system  covering  both  the  legal  framework  and  its  functional  application  ensuring  greater 
transparency and efficiency. 

4.6. 

Chapter 6: Company law 

Further progress has been recorded in the field of company law, where Croatian legislation is 
largely aligned with the acquis. The Act on Amendments to the Companies Act entered into 
force in April 2008 except for the provisions of Article 142, which will enter into force on the 
date of accession of Croatia to the EU. The Court Register Act was amended at the same time 
in  order  to  be  in  line  with  the  provisions  of  the  First  Company  Law  Directive.  A  new 
application  connecting  court  registries  into  a  single  database  of  registered  entities  has  been 
operational since April 2008. 

The Bankruptcy Act, the Act on the Introduction of the Societas Europea (SE) and European 
Economic Interest Group (EEIG) were enacted in October 2007 and will come into force as of 
the  day  of  accession.  An  alignment  with  Council  Directive  2001/86/EC  supplementing  the 
Statute  for  a  European  Company  with  regard  to  the  involvement  of  employees  is  still 
outstanding.  

The Act on Takeover of Joint Stock Companies was published in October 2007 and ensures 
the implementations of the provisions of the 13th Company Law Directive. 

There has been good progress in the field of corporate accounting. The new Accounting Act, 
which had been adopted in October 2007, entered into force in January 2008. The provisions 
regulating  the  application  of  the  International  Accounting  Standards  (IAS)  and  the 
International  Financial  Reporting  Standards  (IFRS)  and  the  provisions  regulating  audit  of 
annual financial reports (mandatory for all large and medium-sized enterprises and all other 
listed companies or companies that are prepared to be listed) will be applicable as of Croatia's 
accession  to  the  EU.  In  March  2008  the  new  Croatian  Financial  Reporting  Standards  were 
adopted.  Ordinances  on  the  layout  and  content  of  annual  accounts  and  on  register  of  new 

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accounts were also adopted). Overall, the level of approximation with the acquis in the area of 
accounting seems satisfactory. 

The  Tax  Administration  as  the  institution  in  charge  for  enforcement  of  the  new  accounting 
Law received some training. However, the number of staff remained unchanged. 

There has been limited progress in the field of auditing. Work on the new Audit Act is at the 
final stage. The Chamber of Auditors needs further strengthening to be able to ensure proper 
implementation of financial reporting standards. 

Conclusion 

Overall, some progress can be reported in this chapter. Alignment with the acquis in the area 
of  company  law  is  on  track,  but  continued  efforts  are  required  for  implementation  of  the 
recently  adopted  amendments  regulating  accounting  and  strengthening  of  administrative 
capacity. 

4.7. 

Chapter 7: Intellectual property law 

There  has  been  good  progress  in  the  field  of  copyright  and  neighbouring  rights.  In  January  2008 
Croatia  became  a  full  member  of  the  European  Patent  Office  (EPO).  An  interpretative 
statement  on  collective  rights  management  societies  has  been  adopted,  thus  providing  for 
further alignment with the EU acquis.  

The amendments to the Civil Procedure Act shortened civil procedures. Croatia still needs to 
align  its  criminal  procedural  law  with  the  Convention  on  cyber-crime  concerning  copyright 
and  related  rights.  There  has  been  some  progress  on  industrial  property  rights,  as 
implementing legislation was adopted to complete the legislative framework. Minor changes 
to  legislation  on  patent,  trade  marks  and  topographies  of  semiconductors  are  still  needed  to 
achieve full alignment with the acquis. 

Good progress can be reported on enforcement. The State Intellectual Property Office (SIPO) 
has developed the methodology for collection of statistical data on enforcement, which will be 
used for the annual reporting. In comparison with the previous reporting period, there was a 
significant  increase  in  the  number  of  misdemeanour  proceedings  launched  in  response  to 
investigations by the State Inspectorate. The Board of Appeal within SIPO was appointed in 
June 2008. Although numerous workshops and seminars on protection of intellectual property 
rights  have  been  held  for  judges  and  State  attorneys,  further  specialised  training  for  the 
judiciary and overall awareness raising is still needed. 

As regards administrative capacity, guidelines for applicants were published by SIPO and an 
information  centre  (INCENTIV)  was  opened  in  January  2008.  Esp@cenet  –  an  on-line 
searchable  patent,  trademark  and  industrial  design  database  available  to  the  public  –  was 
completed  in  April  2008.  As  regards  inter-institutional  cooperation,  the  Customs  Agency 
started  to  notify  the  Ministry  of  Justice  and  the  State  Inspectorate  regularly  in  the  event  of 
reasonable  suspicion  of  IPR  infringements  related  to  goods  subject  to  customs  procedures. 
However, further efforts are needed to improve cooperation between all authorities engaged in 
IPR enforcement.  

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Conclusion 

Good progress can be reported both on legislative alignment and on enforcement. Alignment 
with the acquis is at a very high level. However, some minor changes are still needed. Further 
efforts are required to strengthen the administrative capacity for enforcement of IP rights and, 
especially, to raise awareness amongst stakeholders. Continued attention has to be paid to the 
fight against piracy and counterfeit goods.  

4.8. 

Chapter 8: Competition policy 

There  has  been  no  further  alignment  of  Croatian  legislation  with  the  acquis  in  the  field  of 
anti-trust including mergers. 

As regards administrative capacity, in 2008 15 economists and lawyers out of 45 employees 
of  the  Croatian  Competition  Agency  (CCA)  were  dealing  with  competition  cases.  Although 
new  personnel  have  been  employed,  there  have  also  been  staff  losses.  There  is  a  need  to 
increase CCA administrative capacity. 

In the course of 2007 the CCA brought 56 substantial decisions in the field of antitrust and 
mergers  and  in  the  first  quarter  of  2008  9  decisions  were  brought.  .  Of  these  there  were  25 
concentration  cases,  24  of  which  were  approved  unconditionally.  One  concentration  was 
conditionally approved in the retail and press distribution sector. In addition, one prohibited 
agreement was identified in the bus transport sector. Two cases of abuse of dominant position 
were confirmed in telecommunications and press distribution markets. In both abuse cases the 
remedies imposed by the CCA were fulfilled by the undertakings within the given deadlines. 
In  addition,  the  CCA  has  dealt  with  27  cases  pertaining  to  the  promotion  of  the  culture  of 
competition. In the first quarter of 2008 another 9 substantial decisions were adopted, seven 
of  which  concerned  mergers  that  were  approved  in  the  first  phase.  In  the  second  quarter  of 
2008, 16 decisions were adopted including 7 unconditional approvals of mergers. The CCA 
has  continued  to  provide  the  Government  with  assessments  of  draft  laws  as  well  as  other 
expert opinions. 

The  Misdemeanour  Court  in  Zagreb  has  completed  proceedings  against  one  undertaking 
entering  into  a  prohibited  agreement  with  another.  For  the  first  time  a  significant  fine  was 
imposed both against the company and the responsible persons. However, an efficient system 
for  imposing  fines  to  allow  CCA  decisions  to  have  a  deterrent  effect  but  also  leniency  and 
judicial control have not been remedied. 

Progress has been made in the area of state aid. 

Croatia completed in June its state aid inventory and provided data for all state aid measures 
for  the  remaining  sectors  of  aluminium,  metal,  textiles,  leather  and  shoes,  automobiles  and 
tourism. 

An action plan with a clear timetable for alignment of the aid schemes identified in the state 
aid inventory as incompatible with the obligations resulting from the SAA was submitted to 
the Commission in June. 

With regard to the state aid enforcement record, between 1 January and September 2008, the 
CCA  took  26  decisions  and  initiated  ex  officio  monitoring  proceedings  to  control  that  state 
aid has been granted in compliance with the applicable rules and schemes. 

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In  April  2008  the  CCA  expressed  its  positive  opinion  on  the  scheme  of  a  regional  state  aid 
map  in  accordance  with  its  compliance  with  the  acquis.  The  map  was  adopted  by  the 
Government  in  May  2008.  This  adoption  facilitates  the  phasing  out  of  incompatible  aid 
schemes  and  their  replacement  with  compatible  support  measures.  This  is  in  particular  the 
case  with  the  Investment  Promotion  Act  and  its  implementing  provisions  that  entered  into 
force in 2007, and a series of incompatible fiscal aid measures for which full alignment with 
the acquis was achieved in June 2008. 

In the shipbuilding sector, the CCA carried out in February 2008 an analysis of six proposed 
restructuring plans for the time period from 2007 to 2012. The CCA concluded that it was not 
possible, on the basis of these plans, to establish any prospects for long-term viability under 
market conditions. This assessment was submitted to the Ministry of Economy, Labour and 
Entrepreneurship  (MELE)  which  revised  the  restructuring  plans  and  submitted  new  ones  to 
the CCA and to the Commission in May 2008. In the same month, the government adopted a 
Decision to privatise all Croatian shipyards. Steps taken thus far by Croatia do not provide a 
sufficient basis for ensuring compliance with EU and SAA rules.  

In the case of the steel industry, good progress has been achieved in the privatisation process 
of  the  two  steel  mills.  On  the  basis  of  individual  business  plans  submitted  by  the  mills  and 
assessed by the CCA, the National Restructuring Plan for the steel industry was revised and 
adopted by the government on 30 June 2008. Provided that some minor adjustments are made, 
the National Restructuring Plan for steel of 30 June 2008 is acceptable in terms of Protocol 2 
to the Stabilisation and Association Agreement. 

Conclusion 

Some progress has been achieved on this chapter, in particular as regards state aid to the steel 
sector as well as the drawing up of a regional aid map and the alignment of fiscal aid schemes 
However,  significant  efforts  are  required  in  particular  as  regards  restructuring  aid  to  the 
shipyards, which must be addressed in the context of their foreseen privatisation. 

4.9. 

Chapter 9: Financial services 

There has been substantial progress in the field of banks and financial conglomerates. The 
Credit Institutions Act and the Act on Electronic money were adopted in September 2008 and 
related regulations are expected to be completed by the end of 2008. The Acts and expected 
subordinate  legislation  aim  to  fully  align  Croatian  banking  legislation  with  the  acquis,  in 
particular  with  the  Capital  Requirements  Directive.  The  Acts  will  enter  into  force  as  of 
January 2009; however credit institutions should adjust their operations to the requirements of 
the  new  law  by  1  July  2009,  while  some  provisions  will  become  applicable  only  upon 
accession.  The  framework  for  risk-focused  supervision  is  still  evolving,  but  the  current 
supervisory  techniques  and  risk  management  processes  do  not  appear  to  pose  any  risks  for 
successful Basel II implementation. Home-host supervisory coordination has been improved, 
although  more  emphasis  needs  to  be  put  on  cross-sector  cooperation  and  cross-border 
coordination  for  crisis  preparedness  and  management.  The  process  of  transforming  savings 
and loan co-operatives into credit unions or savings banks continued at a good pace. 

The  Croatian  Financial  Services  Supervisory  Agency  (HANFA)  and  the  Croatian  National 
Bank  (HNB)  are  in  the  process  of  adoption  of  appropriate  ordinances  for  layout  and  the 
content of annual accounts for entities under their supervision. 

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There has been some progress on financial market infrastructure. The Law on Settlement 
Finality  in  Payment  Systems  and  in  Systems  for  Settlement  of  Financial  Instruments  was 
adopted  in  September  2008  with  the  aim  to  align  with  the  acquis.  .  Insolvency  and  finality 
rules  were  aligned  with  the  acquis.  The  Act  will  enter  into  force  in  January,  although 
provisions relating to allowing the provision of services by EU credit institutions by means of 
the EU passport will be applicable upon accession. 

Some  progress  can  be  seen  in  the  field  of  insurance,  where  Croatia's  legislation  already 
complies to a large extent with the EU acquis. New Insurance Act was adopted in July 2008 
with the aim of aligning in particular with the reinsurance acquis. In October 2007 the Law on 
Pension Insurance Companies and Payment of Pension Annuities on the Basis of Individual 
Capitalised Savings was amended. It introduces provisions allowing a Member State entity, as 
sponsor,  to  procure  their  pension  insurance  for  employees  in  Croatia  and  voluntary  pension 
funds  of  MS  to  operate  in  Croatia,  as  of  the  date  of  Croatia’s  accession  to  the  EU.  It  also 
enables pension payments to be made from Croatia into EU Member States without limitation 
and  regulates  in  more  detail  the  protection  of  the  right  to  a  pension  after  membership  of  a 
pension fund is terminated. The Law also allows an intermediary to be insured by an insurer 
from  an  EU  Member  State  and  the  European  Economic  Area,  as  from  the  date  of  Croatia’s 
accession to the EU. HANFA continues to adopt necessary secondary legislation to complete 
new legal framework. 

Some  progress  can  be  reported  in  the  area  of  securities  markets  and  investment  services. 
The new Capital Markets Act was adopted in July 2008 and will enter into force on 1 January 
2009, except for some provisions that come effective as of Croatia’s accession into the EU. 
The law aims at full alignment with the acquis and foresees the establishment of the Fund for 
the protection of investors, which would include all investment companies. HANFA has also 
adopted a number of implementing measures. 

As  regards  administrative  capacity,  the  National  Bank’s  Prudential  Regulation  and  Bank 
Supervision Department continued to increase staff numbers (reaching 105 in total). HANFA 
has strengthened its supervision department, by adding 10 new staff over the last year; it now 
has  122  employees,  most  of  whom  deal  with  supervisory  tasks.  Monitoring  of  trade  on  the 
Zagreb  Stock  Exchange  was  improved  with  the  implementation  of  a  new  trading  platform. 
HANFA  has  taken  robust  enforcement  action  in  several  cases,  including  the  suspension  of 
dubious  trading  in  shares  of  a  high  profile  company.  Transparency  of  the  insurance  market 
was increased: all insurance companies were obliged to make their data available online for a 
period covering the previous three years. The Register of Leasing Objects, incorporating data 
on  approximately  140,000  leasing  objects  (vehicles,  vessels,  aircrafts,  machines  and  other 
equipment)  became  operational  in  October  2007  and  is  available  on  HANFA’s  web  site. 
Nevertheless,  some  weaknesses  remain.  Disclosure  of  financial  statements  by  listed 
companies remains inadequate. The rules to prevent market abuse are not always clear, and 
enforcement  of  these  rules  needs  to  be  further  strengthened.  Pursuant  to  changes  in  the 
Misdemeanour  Act  and  in  both  insurance  and  securities  legislation,  HANFA  can  not  only 
propose  but  also  directly 
impose  pecuniary  sanctions.  More  generally,  HANFA's 
administrative  capacity  and  its  arrangements  for  consultation  with  the  private  sector  need 
further strengthening. 

Conclusion 

Good  progress  can  be  reported  on  this  chapter.  Legislative  alignment  is  well  underway,  but 
additional  attention  is  needed  regarding  its  proper  implementation.  Both  of  the  supervisory 

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authorities,  i.e.  the  CNB  and  the  HANFA,  need  to  intensify  their  efforts  to  improve  their 
supervision function and consultative interaction with the sector. 

4.10.  Chapter 10: Information society and media 

There  has  been  significant  progress  in  the  field  of  electronic  communications  and 
information technologies. An Electronic Communications Act was adopted in June 2008. It 
is a significant step forward towards completing alignment with the acquis in this field, which 
is a key element for the accession negotiations in this chapter. Liberalisation of the sector has 
progressed  significantly,  in  particular  in  the  broadband  market  (growth  of  53.7 %  in 2007 
compared to 2006 with a notable increase in unbundled loops), as well as in the fixed market 
with some emerging competition. Ported numbers in the fixed and in the mobile markets have 
also  increased  significantly.  As  a  result  of  this,  a  general  decrease  of  prices  for  private  and 
business  users  has  been  observed.  However,  although  the  mobile  market  continues  to 
represent  the  driving  force  behind  the  development  of  telecommunication  services  in  the 
country with a penetration rate of about 120% at the end of the second quarter of 2008, the 
issue  of  construction  permits  and  site  sharing  continues  to  create  difficulties.  This  could 
endanger the future expansion of the mobile market. 

The Croatian Telecommunications Agency has enhanced its capacity and organisation, among 
others through the creation of a new Section for Consumer Protection and Network Security 
in  November  2007.  Since  July 2008,  after  a  merger  with  the  Postal  Services  Council,  it 
operates as the Croatian Post and Electronic Communications Agency. However, there is not 
sufficient  transparency  in  enforcing  regulations  for  securing  competitive  safeguards  to 
alternative  operators,  including  cost  accounting  and  accounting  separation  obligations 
imposed on dominant operators. Preparations in this area are well advanced. 

Substantial progress has been made in the area of information society services and electronic 
commerce.  An  Act  on  Amendments  to  the  Electronic  Commerce  Act  was  adopted  in 
May 2008 and an Act on Amendments to the Electronic Signature Act in July 2008. The new 
Law  on  Electronic  Media  ensures  protection  of  conditional  access  services  in  line  with  the 
acquis.  A  Strategy  for  the  Development  of  Electronic  Businesses  for  the  period 2007–2010 
was  adopted  by  the  Government  in  December 2007  and  a  Strategy  from  switching  from 
analogue to digital broadcasting of TV programmes in July 2008. Preparations in this area are 
reaching completion. 

Good  progress  can  be  reported  also  in  the  field  of  audiovisual  policy.  The  remaining 
amendments to the Law on Electronic Media were adopted in March 2008 bringing it in line 
with  the  Television  without  Frontiers  Directive  and  allowing  the  participation  of  Croatia  in 
the Media 2007 programme. The Law introduced also some improvements in the regulatory 
framework including some safeguards against political interference and the promotion of self-
regulation in the media. Public  debate  on media legislation, held during spring  2008, ended 
with  a  conclusion  that  the  present  legislative  framework  provides  for  a  professional  and 
independent functioning of the HRT Programme Council and the Electronic Media Council. 
Nevertheless,  some  interference  in  the  media  landscape  by  mainly  economic  and  partly 
political interest groups has continued. As regards administrative capacity, a Media Desk was 
established within the Audiovisual Centre at the Ministry of Culture as a support structure for 
the implementation of Media Programme 2007 (2007–2013). Preparations in this area are well 
on track. 

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Conclusion 

Substantial  progress  has  been  made  in  this  chapter,  especially  as  regards  legal  alignment. 
Important  steps  have  been  taken  towards  liberalisation  of  the  electronic  communications 
market  and  towards  media  reform.  However,  although  a  good  level  of  alignment  with  the 
acquis  in  this  chapter  has  been  reached,  the  substantial  progress  already  made  in  regulation 
needs to be sustained for due functioning of the electronic communications market. 

4.11.  Chapter 11: Agriculture 

Limited  progress  was  achieved  as  regard  horizontal  issues.  The  implementation  of  the 
Integrated  Administrative  and  Control  System  (IACS)  is  still  at  an  early  stage.  A 
comprehensive  strengthening  of  administrative  capacity,  including  staff  recruitment  and 
training as well as establishment of appropriate administrative procedures, is needed in order 
to ensure that direct payments for farmers can be handled correctly from the day of accession. 
A National Programme for the development of the Land Parcel Identification System (LPIS) 
was  adopted  in  November  2007.  Currently,  preparatory  activities  for  the  implementation  of 
LPIS  in  the  whole  territory  of  Croatia  are  in  progress,  but  efforts  need  to  be  enhanced. 
Preparations for the Paying Agency are at an early stage. A project is on-going as regards the 
Farm Accountancy Data Network (FADN), but the preparation for further alignment with EU 
methodology needs to be accelerated. 

As regards common market organisation, some progress can be reported on the preparation 
of  certain  sectors.  The  present  system  for  supporting  and  regulating  agriculture  in  Croatia 
differs  substantially  from  the  reformed  Common  Agricultural  Policy  as  coupled  direct 
payments still constitute the largest part of national aid. Enhanced preparations are required as 
regards  the  administration  of  quotas,  price  reporting,  monitoring  and  in  particular  the  EU's 
system  of  de-coupled  direct  payments.  Some  progress  has  been  made  in  preparing  the 
vineyard register. 

A national strategy for rural development has been adopted in May 2008, which foresees 
the  implementation  of  a  national  investment  support  scheme  complementary  to  EU  funds 
provided under SAPARD and IPARD. Croatia has continued to make progress to absorb EU 
funds under the SAPARD programme. However, it still faces difficulties regarding validation 
of implementing procedures. A rural development programme under the Instrument for pre-
accession, IPARD, has been approved by Commission Decision in February 2008. Based on 
experience from SAPARD, progress has been made concerning the setting-up of a monitoring 
system,  the  legislative  framework  for  operating  the  managing  authority  as  well  as  the 
appointment of the managing personnel. However, substantial effort will still be necessary in 
order to achieve the accreditation of the IPARD Agency and conferral of management powers 
by  the  Commission  which  is  expected  in  the  first  half  of  2009.  The  implementation  of 
SAPARD and IPARD creates a good basis for the setting up of the administrative structures 
for  rural  development  that  will  be  required  after  accession.  It  is  however  crucial  that  these 
preparations are enhanced. 

Croatia is well prepared for accession in the areas of quality policy and organic farming. A 
new Act has been adopted for the transposition of Council Regulation (EC) 510/2006 on the 
protection of geographical indications and designations of origin for agricultural products and 
foodstuffs. 

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Conclusion 

Progress  in  this  chapter  has  been  very  uneven.  In  the  areas  of  quality  policy  and  organic 
farming  the  situation  is  already  well  advanced.  In  rural  development,  good  experience  has 
been gained in the context of pre-accession assistance. However, the capacity of absorption of 
EU funds under pre-accession Rural Development programmes needs to be improved. Efforts 
need to be substantially intensified in relation to horizontal issues especially with regards to 
the Paying Agency and IACS including the LPIS. The present system in Croatia for support 
linked to production differs from the reformed CAP. This issue should be addressed urgently 
and alignment of the support system commenced in order to prepare a smooth transition to the 
CAP. 

4.12.  Chapter 12: Food safety, veterinary and phytosanitary policy 

The  Strategy  for  Transposition,  Implementation  and  Enforcement  of  the  acquis  for  Food 
Safety,  Veterinary  and  Phytosanitary  Policy,  adopted  in  March  2008,  provides  a  framework 
with  detailed  time  schedules  and  action  plans  and  is  a  key  element  for  the  accession 
negotiations in this chapter. It will be an instrument for the comprehensive work that is still 
required to ensure full compliance in this field before the day of accession. 

As  regards  general  food  safety,  Croatia  has  made  good  progress  in  adopting  implementing 
ordinances  based  on  the  Food  Act  that  is  already  in  compliance  with  EU  requirements. 
Substantial  efforts  are  however  still  required  to  prepare  secondary  food  safety  legislation. 
Further efforts are required to ensure the necessary administrative and control capacity. 

Good  progress  has  continued  in  the  veterinary  field  based  on  the  Veterinary  Act  that  is 
already  in  accordance  with  EU  requirements.  With  regard  to  animal  identification  and 
registration  of  animal  movements,  which  are  key  elements  for  the  accession  negotiations, 
measures have been adopted with a view to ensure a compliant system for identification and 
registration  of  bovines.  Implementing  activities  have  started  for  pigs,  ovine  and  caprine 
animals. 

Good progress has been made in the control of Classical Swine Fever by the adoption of an 
action plan for control and eradication based on a non-vaccination approach. The action plan 
which  is  a  key  element  for  the  accession  negotiations  contains  all  necessary  elements 
including  reinforcement  of  the  administrative  capacity  of  the  diagnostic  laboratories  and 
intensified  controls.  Substantial  well-targeted  efforts  will  be  required  to  ensure  the  correct 
implementation of the action plan. 

Good progress can be reported with regard to the placing on the market of food and feed. 
Croatia  carried  out  a  first  assessment  of  all  food  establishments  with  regard  to  their 
compliance or non-compliance with EU standards. This was a key element for the accession 
negotiations  and  will  enable  the  setting  up  of  a  national  programme  for  the  upgrading  of 
establishments  for  food  of  animal  origin,  such  as  slaughterhouses,  meat  processing  plants, 
dairies, and fish. The large majority of these establishments (including those for animal by-
products)  do  at  present  not  fulfil  EU  structural  requirements  and  comprehensive  efforts  are 
required to bring them into compliance with EU structural requirements at accession. Efforts 
are also required as regards the quality of raw milk. 

In the field of animal welfare, only limited progress has been made. 

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Good progress continued in the area of phytosanitary issues with the adoption of secondary 
legislation  and  the  start  of  implementing  activities  notably  for  a  plant  passport  system  and 
authorisation  of  plant  protection  products.  Progress  has  continued  in  the  sector  of  plant 
protection  products.  Registration  of  products  as  required  by  the  acquis  commenced  in  late 
2007. A strategy was adopted for the Institute for Plant Protection in Agriculture and Forestry. 
Work has continued to enhance the capacity of phytosanitary inspectors and the necessary IT-
systems. In the seed sector programmes relating to the testing for Distinctness Uniformity and 
Stability (DUS) of varieties registered in the Croatian list of agricultural varieties have been 
set up. Substantial efforts are still required in the phytosanitary field, in particular as regards 
adoption of implementing legislation and the strengthening of administrative capacity. 

Conclusion 

Good  progress  has  been  made  overall  in  particular  with  the  passing  of  implementing 
legislation.  Further  efforts  are  required  in  particular  as  regards  animal  welfare,  as  well  as 
strengthening of the administrative and inspection capacity. 

4.13.  Chapter 13: Fisheries 

Some  progress  can  be  reported  in  the  areas  of  resource  and  fleet  management  and 
inspection and control. Implementing legislation concerning landing declarations and sales 
notes  entered  into  force  in  January  and  June,  respectively.  The  Fisheries  Directorate  was 
restructured in March to cover the main areas  of the Common Fisheries Policy better and a 
three-year  employment  plan  was  adopted.  The  newly  established  coast  guard  service  has 
taken  on  certain  responsibilities  for  fisheries  inspection.  Some  differences  from  the  acquis 
remain in Croatia's technical measures for resource management. Gaps in fleet management 
include  the  absence  of  an  entry-exit  scheme.  Installation  of  the  satellite  based  vessel 
monitoring  system  (VMS)  on  board  of  the  vessels  concerned  and  establishment  of  the 
fisheries  monitoring  centre  (FMC)  need  to  be  completed.  The  administrative  capacity  and 
equipment  of  the  fisheries  inspection  services  require  substantial  strengthening.  Overall, 
preparations  in  the  area  of  resource  and  fleet  management  and  inspection  and  control  have 
started. 

Limited  progress  can  be  reported  on  market  policy.  Wholesale  fish  markets  have  been 
developed  in  Rijeka  and  Poreč.  Croatia  does  not  yet  have  producers'  organisations  and 
currently uses different marketing standards. Preparations in this area have only just started. 

There has been no particular progress on structural action and state aid. Croatia still needs 
to set up and strengthen the institutional framework to implement the EU's structural policy 
and  to  prepare  the  required  strategy  documents.  It  will  also  have  to  end  state  aid  which  is 
incompatible with the acquis, such as the current fleet modernisation programme. 

No particular developments can be reported in the area of international agreements. Croatia 
is generally implementing the recommendations issued by the relevant international fisheries 
organisations, such as the GFCM and ICCAT. 

Conclusion 

Croatia has made some progress in the field of fisheries. Overall,  preparations have started. 
Gaps  remain  in  the  areas  of  fleet  management,  inspection  and  control,  structural  action  and 
state aid. Croatia will need to step up its efforts to close these gaps. 

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4.14.  Chapter 14: Transport policy 

Some  progress  can  be  reported  in  the  field  of  road  transport.  The  Law  on  Road  Traffic 
Safety  and  the  Law  on  Maximum  Working  Time,  Compulsory  Breaks  for  Mobile  Workers 
and Road Transport Recording Equipment was adopted in May 2008.  

The Government adopted the decree to increase the staff of the Ministry of the Sea, Transport 
and Infrastructure by 350 new employees, but the administrative capacity to enforce the rules 
relating to road transport acquis, including roadside checks is inadequate. 

There has been some progress in the area of rail transport. Croatia signed the "Addendum to 
the  Memorandum  of  Understanding  on  the  Development  of  the  South  East  Europe  Core 
Regional  Transport  Network  for  a  South  East  European  Railway  Transport  Area"  in 
December  2007.  The  railway  network  statement  has  been  published  in  December  2007. 
Subordinate regulations remain to be drafted in order to achieve alignment with the acquis on 
safety and interoperability. Following the adoption of the Railway transport safety act in 2007 
the Ministry has formed working groups for drafting the necessary implementation rulebooks. 
The  Croatian  Parliament  adopted  in  March  2008  the  National  programme  for  railway 
infrastructure,  covering  the  period  of  2008-2012.  Certain  aspects  of  the  railway  reform  as 
regards the railway institutions and full independence of the essential functions remain to be 
completed. 

There  has  been  some  progress  in  the  area  of  inland  waterways  transport.  The  Act  on 
navigation and inland waters harbours was adopted in October 2007. In May 2008 Croatian 
parliament adopted the Inland waterways transport strategy for the period 2008-2018. The act 
addresses the recognition of EU vessel and boatmasters' certificates, as well as access to the 
market.  The  first  stage  for  deploying  river  information  services  has  been  completed  and 
further  preparations  in  this  area  are  underway.  While  relevant  Ministerial  regulations  still 
remain to be enacted, the basic legislative framework has been aligned. 

No progress can be reported in the field of combined transport. 

Some  progress  can  be  reported  in  the  area  of  air  transport.  The  Act  amending  the  Act  on 
obligatory  and  property  legal  relations  in  air  traffic  was  adopted  in  May  2008.  Croatia  has 
also ratified in May 2008 the  European  Common Aviation Agreement  (ECAA), whose first 
transitional  phase  remains  to  be  implemented.  This  will  require  some  efforts  and  structural 
changes  in  the  Ministry/Civil  Aviation  Authority.  Furthermore  the  Civil  Aviation  Agency 
capable  of  effectively  enforcing  the  acquis  has  not  yet  been  operationally  established,  a 
supervisory authority for air traffic control has not yet been designated, the Single European 
Sky legislation has still to be enforced, as well as the ban on Chapter 2 aircraft, legislation on 
ground  handling  and  slot  allocation  has  not  yet  been  aligned  with  the  relevant  Community 
rules. 

Good  progress  can  be  reported  in  the  area  of  maritime  transport,  in  particular  regarding 
safety  issues.  However,  the  detention  rate  of  Croatian  flagged  vessels  following  port  State 
controls  in  the  area  covered  by  the  Paris  Memorandum  of  Understanding  remains  high. 
Croatia has adopted in July 2008 the amendments to the maritime code as regards registration 
of  ships  and  yachts.  The  maritime  transport  market  remains  largely  closed.  Legislation  on 
maritime cabotage remains unaligned with the acquis. 

As  regards  the  state  aid  in  this  sector  Croatia  has  not  yet  aligned  its  legislation  with  the 
relevant case law of the Court of Justice. 

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Croatia  intends  to  take  part  in  the  activities  of  the  Galileo  satellite  navigation  programme 
when operational. 

Conclusion 

Overall,  there  has  been  progress  on  alignment  with  the  acquis.  Croatia  needs  to  establish  a 
competent  and  effective  railway  regulatory  body.  It  has  to  separate  the  essential  functions 
from  the  entity  providing  transport  services.  A  safety  authority  as  well  as  investigation  and 
notified bodies need to be set up as early as possible. Further alignment with EU acquis on 
road  transport  and  on  the  establishment  of  common  rules  for  certain  types  of  combined 
transport of goods is needed. An action plan for the rapid implementation of the EU aviation 
legislation  including  reinforcing  administrative  capacity  is  required  as  well  as  alignment  of 
the remaining legislation with that of the acquis. 

4.15.  Chapter 15: Energy 

There  has  been  little  progress  in  the  area  of  security  of  supply.  The  mandatory  90-day 
average  of  stocks  has  not  been  reached.  The  Compulsory  Stocks  Agency  is  in  operation. 
There  are  no  developments  in  relation  to  the  establishment  of  a  crisis  management  body  or 
emergency  plans.  There  have  been  limited  developments  in  relation  to  legislation  on 
authorisation for prospection, exploration and production of hydrocarbons. 

There has been progress in the area of the internal electricity market. Since July 2008 the 
electricity market has been opened for all customers. However, in practice HEP remains the 
only  supplier  of  electricity  on  the  market.  There  have  been  no  developments  in  relation  to 
HEP’s  privatisation.  With  Croatia's  entry  into  the  inter-TSO  compensation  mechanism,  all 
transit fees have been abolished. Preparations in this area are advancing. 

As regards the state aid Croatia has not yet aligned its legislation with the relevant acquis in 
this area. 

Only limited progress can be reported in the area of renewable energy sources (RES). The 
2008 target of biofuels for 2008 has been set at 1.21% of the overall fuel consumption on the 
domestic market. 

Administrative capacity in energy efficiency and RES needs significant strengthening. 

There has been progress regarding gas markets. Implementing legislation related to liquefied 
petroleum gas (LPG) has been adopted. INA remains the only supplier of natural gas in the 
country. 

Limited  progress  has  been  made  in  the  field  of energy  efficiency. Implementing  legislation 
related  to  energy  labelling  of  household  appliances  has  been  enacted.  Croatia  still  needs  to 
ensure compliance related to high-efficiency cogeneration (CHP), energy end-use efficiency 
and energy services. No progress has been made in transposition of the acquis related to the 
energy performance of buildings. 

Progress  has  been  made  in  the  field  of  nuclear  energy.  A  fund  for  covering  Croatia's 
liabilities  in  connection  with  the  decommissioning  of  the  Krško  Nuclear  Power  Plant, 
including  the  disposal  of  radioactive  waste  and  spent  nuclear  fuel,  has  been  established. 
Implementing  legislation  related  to  the  disposal  and  management  of  radioactive  waste, 
protection  of  citizens  and  the  environment,  monitoring  of  imports  and  exports  of  materials 

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which may contain radioactive sources has been enacted. However, the disposal of all types of 
radioactive waste is still a pending issue. 

Progress has also been achieved in the area of nuclear safety and radiation protection. In 
the area of radiation protection, the National Plan and programme of protection from ionising 
radiation has been adopted. Implementing legislation related to the monitoring of radioactive 
substances in the environment, food, residential and working environments has been adopted. 
In  addition,  implementing  legislation  in  the  measurement  and  protection  of  workers  and 
citizens  exposed  to  ionising  radiation,  quality  assurance  and  other  issues  related  to 
radiological and physical safety of sources of ionising radiation has been ratified. Progress in 
this area is advancing well. 

A new organisational structure for the State Office for Nuclear Safety, and actions to further 
align the legislation on radiation protection with the acquis, are underway. However, further 
efforts are required to strengthen administrative capacity of the nuclear regulatory bodies and 
to  ensure  adequate  division  and  coordination  of  responsibilities  between  the  Ministry  of 
Health  and  Social  Welfare  and  the  two  State  Offices  for  Nuclear  Safety  (SONS)  and 
Radiation Protection (SORP). 

Overall, alignment with the acquis is well advanced. 

Conclusion 

Overall,  there  has  been  good  progress.  However,  significant  efforts  are  still  needed  to  align 
with  the  acquis,  particularly  in  energy  efficiency.  Sustained  efforts  will  also  be  needed  for 
meeting Accession Partnership priorities related to the strengthening and the independence of 
the  regulatory  authority  and  administrative  capacity,  in  particular  in  energy  efficiency  and 
renewable energy sources. 

4.16.  Chapter 16: Taxation 

No  progress  can  be  reported  in  the  area  of  indirect  taxation.  Croatia's  legislation  on  VAT 
remains  partially  in  line  with  the  acquis.  Substantial  changes  are  needed,  in  particular  as 
regards reduced or zero rates, the scope of the reduced rates and of exemptions, the exclusion 
of free zones from the fiscal territory, the special schemes and the lack of legislation on VAT 
refunds to non-established traders. On excise duties substantial changes are needed on product 
coverage,  rates  and  duty  suspensions.  In  October,  Croatia  agreed  with  the  Commission  a 
solution for eliminating the discriminatory elements of its excise duty system for cigarettes, so 
to  address  its  incompatibility  with  the  SAA.  In  the  area  of  indirect  taxation  Croatia  has  not 
addressed the Accession Partnership priorities. 

No progress has been made in the area of direct taxation, where Croatia has not addressed 
the Accession Partnership priorities. 

No progress can be reported on administrative cooperation and mutual assistance. 

There  was  some  progress  with  operational  capacity  and  computerisation.  The  excise 
department  in  the  customs  administration  was  re-organised  into  four  units,  to  mirror  the 
structure  of  the  EU  legislation.  Attention  should  be  paid  to  adequate  staffing  of  this 
department, with a view to establishing the system for movement under suspension. Work on 
IT interconnectivity has progressed, albeit with some delays, and projects to develop the VAT 
information exchange system and the excise movement control system have started. Both the 

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tax and customs administrations remain heavily dependent on external expertise on IT matters 
and in need of reinforcement of their internal capacity. 

Conclusion 

There  has  been  very  limited  progress  on  this  chapter.  No  progress  was  made  on  legislative 
alignment.  Even  though  the  overall  structure  of  the  tax  legislation  is  similar  to  the  acquis, 
substantial efforts are required in all areas. Croatia has agreed with the Commission a solution 
for  eliminating  the  discriminatory  taxation  of  cigarettes.  Substantial  further  efforts  are  also 
required to strengthen the administrative capacity, including regarding IT interconnectivity. 

4.17.  Chapter 17: Economic and monetary policy 

Significant  progress  can  be  reported  on  alignment  with  the  acquis  governing  monetary 
policy.  Croatia  adopted  a  revised  Law  on  the  Croatian  National  Bank  (CNB)  aimed  at  full 
alignment  to  the  relevant  acquis.  The  new  Law  provides  for  the  full  independence  of  the 
central  bank,  in  particular  by  clarifying  the  issue  of  accountability  of  the  central  bank.  The 
new  law  also  regulates  its  future  integration  into  the  European  System  of  Central  Banks. 
Furthermore,  the  new  legal  framework  strengthens  the  institutional,  financial  and  personal 
independence of the CNB.  

Good progress was made regarding the elimination of the legislative provision providing for 
privileged access for public authorities to financial institutions. In March 2008, amendments 
to the Act on the Croatian War Veterans and their Family Members Fund were adopted. As of 
the date of Croatia’s accession into the EU, the Fund may invest its assets not only into debtor 
securities of the Republic of Croatia and securities the Republic of Croatia is guaranteeing but 
also into securities issued by the EU or OECD member states without restrictions. However, 
some  provisions  that  give  rise  to  privileged  access  for  public  authorities  to  financial 
institutions still remain in Croatian legislation, notably in the Deposit Insurance Act. 

In  March  2008  the  Croatian  National  Bank  (CNB)  issued  a  Decision  providing  the  legal 
basisfor establishing a National Centre for Fight Against Counterfeiting, a National Centre for 
Analysis  of  Bank  Notes  and  a  National  Centre  for  Analysis  of  Coins,  within  the  CNB.  The 
purpose of these centres will be to undertake and implement measures for the prevention of 
counterfeiting and detection of counterfeited coins and bank notes. Currently these tasks are 
performed by a unit in the Ministry of Interior. Overall, preparations in the field of monetary 
policy remain well on track. 

In the area of economic policy, the country has made some progress in its alignment with the 
acquis, particular in improving the institutional and technical capacity for setting up medium-
term  macroeconomic  and  fiscal  frameworks.  Croatia  submitted  its  fourth  Pre-Accession 
Economic  Programme,  covering  the  period  2008-2010,  in  December  2007.  It  presents  a 
largely sound and coherent medium-term macroeconomic and fiscal framework and a broad 
agenda for structural reforms. Croatia submitted its fourth fiscal notification in March 2008. 
Reporting  of  fiscal  data  on  the  basis  of  ESA  95  has  improved.  However,  with  respect  to 
policy  implementation,  an  ad-hoc  approach  to  economic  policies  has  often  prevailed  and  a 
deepening  of  structural  reforms  has  not  figured  among  the  governments'  top  priorities.  The 
structural reform agenda has moved slowly and there has often been a gap between legislative 
intent  and  actual  implementation.  Policy  coordination  within  the  government  as  well  as  the 
government's  communication  with  the  Croatian  National  Bank  (CNB)  has  not  been 
systematically  enforced.  Overall,  in  the  field  of  economic  policy  Croatia  has  made  further 

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progress in designing medium-term economic policy strategies, but the actual implementation 
of core reforms has often been weak.. 

Conclusion 

There  has  been  significant  progress  in  the  area  of  economic  and  monetary  policy.  Overall 
alignment with the acquis in the area of economic and monetary policy is well advanced. 

4.18.  Chapter 18: Statistics 

Good progress can be reported concerning the statistical infrastructure. The Central Bureau 
of Statistics (CBS) has been placed under the direct responsibility of the Prime Minister. This 
will  strengthen  its  coordinating  role.  Also  the  budget  of  the  CBS  for  2008  has  been 
substantially increased. The Annual Implementation Plan for Statistical Activities in 2008 and 
a  programme  of  statistical  activities  covering  2008–2012  (mid-term  plan)  were  adopted  in 
May 2008. Cooperation between the CBS and the other main producers of official statistics 
has  improved.  As  regards  administrative  capacity,  a  new  Director  General  of  the  CBS  was 
finally appointed in May 2008. Individual training plans for CBS staff are being developed. 
However, there has been only little progress in the actual increase of staff. Most of the new 
posts  have  not  been  yet  filled.  Notably  the  IT  department  has  suffered  a  high  rate  of 
departures  of  skilled  staff  and  has  a  lot  of  problems  in  recruiting  new  staff.  Moreover,  the 
reorganisation of the regional statistical offices has not yet taken place, and the preparation of 
a dissemination strategy of statistics is advancing only moderately. The Accession Partnership 
priority has been partially met. Preparations in this area are on track. 

Little progress can be reported in the field of classifications and registers. The classification 
according to NACE Rev.2 has not been implemented due to IT staff shortages. The quality of 
the business register is being improved but remains far from satisfactory. Preparations in this 
field are only moderately advanced. 

Good progress has been made in the area of sectoral statistics. As regards social statistics, a 
national methodology for a survey on income and living conditions is being developed. Good 
progress  has  been  achieved  in  labour  force  statistics,  government  finance  statistics,  external 
trade  statistics  and  in  the  timely  transmission  of  data  to  Eurostat.  Concerning  agricultural 
statistics,  some  progress  has  been  made,  in  particular  with  a  view  to  obtaining  comparable 
agricultural  structure,  agromonetary  and  dairy  data.  Nevertheless,  the  methodology  and 
organisational set-up for collecting agricultural statistics are not yet in line with the acquis. In 
the area of macro-economic statistics, key national accounts indicators and the methodology 
used  are  still  not  in  line  with  the  acquis  (ESA  95).  These  are,  together  with  agricultural 
statistics, key elements for the accession negotiations on this chapter. The structural business 
statistics  are  being  revised  with  the  objective  of  providing  data  on  all  sectors,  including  at 
regional level. However, a full alignment of the business statistics with the acquis has not yet 
been  completed.  The  Accession  Partnership  priority  has  been  partially  met.  Preparations  in 
this area are well on track. 

Conclusion 

Overall,  good  progress  has  been  made  on  modernising  the  statistical  infrastructure.  A 
satisfactory  level  of  legal  alignment  has  been  reached.  However,  gaps  remain  in  terms  of 
strengthening  the  administrative  capacity  for  producing  statistics.  As  regards  sectoral 
statistics, the key areas of agricultural and macro-economic and business statistics are not yet 

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in line with the acquis. Continued efforts are required to align legislation with the acquis and 
to implement and enforce it effectively. 

4.19.  Chapter 19: Social policy and employment 

There  has  been  limited  progress  in  the  area  of  labour  law.  Amendments  to  the  Act  on 
Employment  Mediation  and  Unemployment  Rights  were  adopted  in  July  2008  aiming  at 
addressing shortcomings in the field of part-time work. Legislation aiming at transposing the 
acquis  in  the  areas  of  European  Works  Council,  the  European  Company,  the  European 
Cooperative Society  and  the protection of employees in the event  of the insolvency of their 
employer  has  been  adopted.  As  regards  administrative  capacity,  a  new  Regulation  on  the 
internal  organisation  of  the  Ministry  of  Economy,  Labour  and  Entrepreneurship  (MoELE) 
was adopted in March 2008 in view of strengthening the organisation of the Directorate for 
Labour and the Labour Market and hiring additional staff, but its implementation is lagging 
behind.  In  general,  shortcomings  persist  as  regards  legal  alignment  and  administrative 
capacity. The amendment of the Labour Act is still outstanding. This is a key element for the 
accession negotiations on this chapter. The State Inspectorate is lacking appropriate resources. 
Preparations in this area are on track. 

Good  progress  can  be  reported  in  the  field  of  health  and  safety  at  work.  The  Act  on 
Amendments to the Occupational Safety and Health Act was adopted in July 2008. This is a 
key element for the accession negotiations on this chapter. Legal alignment has continued also 
with the adoption of legislation aiming at transposing the acquis on use of work equipment, 
on  minimum  requirements  for  work  on  board  fishing  vessels,  on  noise,  on  electromagnetic 
fields  and  on  temporary  or  mobile  construction  sites.  However,  implementation  and 
enforcement  capacity  is  still  not  sufficiently  developed,  and  sufficient  funding  of 
implementation remains a problem. The Labour Inspectorate is not sufficiently mobile either. 
In  order  to  remedy  the  situation,  the  Regulation  on  the  internal  organisation  of  the  State 
Inspectorate was amended in December 2007 allowing for an additional hiring of 53 labour 
inspectors  (27  in  the  area  of  labour  relations  and  26  in  the  area  of  safety  at  work). 
Preparations in this area are well underway. 

As regards social dialogue, there has been some progress. Tripartite social dialogue is already 
well  established,  and  the  influence  of  social  dialogue  on  the  decision  making  process  and 
policy design has slightly improved. Tripartite social dialogue has resulted, inter alia, in the 
Act on minimum wage. Awareness-raising and training activities have continued, especially 
as  regards  mediation  of  labour  disputes.  However,  the  existing  autonomous  collective 
bargaining still takes place mainly at company level. Sectoral social dialogue continues to be 
poor,  and  agreements  at  this  level  are  rare.  Representativeness  criteria  for  participation  of 
trade  unions  in  collective  bargaining  have  not  been  adopted  yet.  The  capacity  of  social 
partners continues to be weak. Preparations in this area are moderately advanced. 

Good  progress  has  been  made  in  the  area  of  employment  policy.  The  Joint  Assessment  of 
Employment Policy Priorities (JAP) was signed in May 2008. It examines the main strengths 
and  challenges  for  the  Croatian  labour  market  with  a  view  to  EU  accession  and  Croatia’s 
future  participation  in  the  EU  employment  strategy.  In  the  framework  of  the  National 
Employment  Action  Plan  for  2005–2008,  funds  earmarked  for  the  implementation  of  active 
labour market measures under the 2007 Annual Programme for Employment Incentives have 
been increased. The fight against undeclared work has continued allowing a continuing rise in 
the employment rate (57 % in 2007 compared to 55.4 % in 2006). The unemployment rate has 
continued to fall (9.6 % in 2007 compared to 11.2 % in 2006). However, youth and long-term 

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unemployment  remain  persistent  challenges.  Also  regional  disparities  are  still  considerable, 
and the qualification and skills levels of the Croatian labour force are lower than in the EU. 
Preparations in this field are well on track. 

There has been some progress in the preparations for the European Social Fund. Activities 
are ongoing to refine the internal procedures and to complete the setting up of administrative 
capacities in the  Operating Structure.  Training plans  are being developed.  In March 2008, a 
Directorate  for  International  Cooperation  in  the  Field  of  Labour  and  Social  Security  was 
established  in  the  MoELE  to  perform  the  tasks  of  the  body  responsible  for  the  Operational 
Programme  for  IPA  component  IV  (Human  Resources  Development)  and  for  priorities  and 
measures.  However,  administrative  and  management  capacity  is  not  yet  sufficiently 
developed with a view to the future implementation of the ESF. This is a key element for the 
accession negotiations on this chapter. Preparations in this field are moderately advanced. 

Some  progress  can  be  reported  in  the  field  of  social  inclusion.  A  second  Joint  Inclusion 
Memorandum  (JIM)  follow-up  seminar  was  held  in  March 2008  in  Zagreb.  A  National 
Implementation  Plan  for  Social  Inclusion  (2007–2008)  was  adopted  by  the  Government  in 
April 2008 and the National Implementation Report on the JIM follow-up process 2007–2008 
was  adopted  in  July 2008.  A  strategy  on  decentralisation  of  social  services  has  been 
developed,  and  some  activities  have  been  undertaken  in  the  first  phase  of  a  long  process  in 
securing de-institutionalisation for particular target groups, namely the elderly.  

However, the overall progress in meeting the priorities and measures set out in the JIM has 
been  slow,  and  the  use  of  a  coherent  monitoring  and  evaluation  system  to  assess  policy 
reforms in this field continues to be weak.  

As regards administrative capacity, the Regulation on the internal organisation of the Ministry 
of Health and Social Welfare was adopted in March 2008 establishing two new departments 
in  the  Ministry  related  to  social  inclusion.  However,  the  position  of  the  Director  of  the 
Department for Social Welfare at the Ministry has not yet been filled. As regards people with 
disabilities, an Ombudsman for Persons with Disabilities was appointed by the Parliament in 
May  2008  and  its  office  is  being  set  up.  A  Civil  Service  Recruitment  Plan  for  2008  was 
adopted in March 2008 aiming at the employment of 128 persons with disabilities. However, 
budgetary  constraints  continue  to  limit  the  scope  of  the  rights  of  people  with  disabilities  to 
health and special care and their social integration. The cooperation of the Government with 
the civil society organisations is not sufficient to create an adequate net of community-based 
services.  (See  Political  criteria  –  Economic  and  social  rights)  Preparations  in  this  area  are 
moderately advanced. 

Limited progress can be reported in the field of social protection. Reforms in the pension and 
health care systems are ongoing. As regards pensions, progress is being made in extending the 
effective  working  life  and  in  decreasing  the  share  of  retirement  contributions  in  GDP. 
However, universal coverage and adequacy of pensions is not yet ensured. Poverty among the 
elderly  as  well  as  the  large  number  of  women  of  pensionable  age  not  receiving  pensions 
remain a concern. Preparations in this field have started. 

There has been good progress in the field of anti-discrimination. An anti-discrimination act 
was  adopted  in  July 2008  aimed  at  completing  legal  alignment  in  this  field.  This  is  a  key 
element  for  the  accession  negotiations  on  this  chapter.  A  National  Programme  for  the 
Protection and Promotion of Human Rights 2008–2011 was adopted in November 2007, and 
the  National  Plan  to  Combat  Discrimination  in  September 2008.  However,  the  level  of 

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protection against discrimination in practice and its judicial prosecution is still not in line with 
EU  standards.  Vulnerable  groups  and  ethnic  minorities,  particularly  the  Serb  and  the  Roma 
minorities,  continue  to  face  significant  discrimination  in  economic  and  social  life  (See 
Political  criteria  –  Economic  and  social  rights).  The  Ombudsman’s  office  has  not  yet  been 
transformed into an independent Equality Body. The limited statistics currently available do 
not  allow  monitoring  of  discrimination  on  different  grounds,  as  required  by  the  acquis. 
Preparations in this field are on track. 

Good  progress  can  be  reported  on  equal  opportunities.  A  new  Gender  Equality  Act  was 
adopted  in  July 2008  after  the  Constitutional  Court  issued  a  decision  in  January  2008  to 
abrogate the former Act on the grounds of its formal non-compliance with the Constitution of 
Croatia. This is a key element for the accession negotiations on this chapter. Legislation was 
also adopted in March 2008  aiming at transposing the acquis on statutory social security as 
well  as  in  July  2008  in  the  field  of  parental  leave.  Awareness-raising  activities  on  gender 
equality  have  continued  in  different  areas.  However,  the  Ombudsman’s  office  has  not  yet 
been  transformed  into  an  independent  Equality  Body.  Also  the  effective  implementation  of 
gender equality policies is not always ensured (See Political criteria – Economic and social 
rights). Preparations in this field are well advanced. 

Conclusion 

Good  progress  has  been  made  on  this  chapter.  A  good  level  of  legal  alignment  has  been 
reached.  Gaps  remain  in  relation  to  completing  legal  alignment.  Strengthening  the 
administrative  capacity  in  good  time  before  accession  to  ensure  proper  implementation  and 
enforcement of the acquis in this field remains the key element for the accession negotiations 
on this chapter. 

4.20.  Chapter 20: Enterprise and industrial policy 

Substantial progress has been made in the area of enterprise and industrial policy principles. 
Croatia adopted a comprehensive industrial strategy in line with the acquis.  

As  regards  SME  policy,  Croatia  continues  to  implement  the  actions  and  guidelines  of  the 
European Charter for Small Enterprises. Overall, it has made considerable progress in al areas 
of  the  Charter.  The  implementation  capability  in  this  field  is  relatively  well  structured  and 
resourced  and  framed  in  a  concise  set  of  SME  strategies  and  operational  plans.  There  is  a 
better  distribution  of  roles  between  the  Ministry  of  Economy,  labour  and  Entrepreneurship 
(MELE) and the SME agency (HAMAG), whilst HAMAG should increasingly be taking on a 
much  broader  role  in  SME  policy  implementation.  Croatia  has  made  progress  in  further 
aligning with the EU SME definition but full alignment still needs to be ensured. 

As  regards  the  business  environment,  the  HITRO.HR  initiative  to  speed  up  company 
registration, and HITRO.REZ to cut regulatory burdens on SME's are encouraging and require 
further  strengthening.  Despite  these  initiatives,  Croatia  still  has  to  make  further  efforts  in 
order  to  reduce  costs  and  time  of  registration  and  licensing.  The  development  of  online 
registration for crafts (e-crafts) is positive and could be extended to all types of companies. 

Croatia  has  made  substantial  progress  on  enterprise  and  industrial  policy  instruments. 
Croatia  joined  the  CIP  Community  Framework  programme  in  October  2007  and  it  has 
submitted  a  successful  bid  under  the  Enterprise  Europe  Network  which  the  programme 
finances.  Croatia  has  made  progress  in  further  aligning  its  legislation  with  the  Directive  on 
combating late payments but the alignment still needs to be completed. Croatia is advancing 

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with  the  introduction  of  online-applications  and  e-services,  for  various  payments  and 
applications, a smart card for business services and a web-based “business navigator”. There 
is  recognition  of  the  importance  of  a  further  push  in  the  fields  of  competitiveness  and 
innovation. 

Croatia  has  made  progress  with  regard  to  sectoral  policies.  It  has  developed  sectoral 
approaches  and  strategies  in  key  sectors,  such  as  the  textile  industry,  leather  and  leather 
products,  the  chemical  industry,  and  wood  processing  industry.  Croatia  has  successfully 
privatised  its  steel  sector;  the  national  restructuring  plan  for  the  steel  sector  and  individual 
business  plans  require  full  implementation.  Croatia  has  taken  the  decision  to  privatise  its 
shipbuilding industry, but further significant efforts will be needed to fully restructure it (see 
competition policy chapter). 

Conclusion 

Croatia has made good progress on this chapter. There has been good progress on SME policy 
as well as with the industrial strategy and restructuring of the steel industry. In other sectors, 
such as shipbuilding, significant efforts are required. 

4.21.  Chapter 21: Trans-European networks 

Croatia has made good progress in the development of the transport networks. In July 2008 
Croatia and the European Commission came to an agreement on the future Croatian TEN-T 
network and priority projects of European Interest in the framework of this network. This will 
be the focus of the future Croatian investments in upgrading the relevant infrastructure to the 
TEN-T standards. 

The Trans-European Network in Croatia will consist in a multimodal network including main 
road, rail, inland waterway, river ports, seaport and airports of the country. 

As  regards  energy  networks,  Croatia  has  been  active  in  developing  interconnections  of  its 
electricity network with those of neighbouring countries and EU Member States. 

There has been progress on telecommunications networks. The Croatian Parliament ratified in 
March  2008  the  Memorandum  of  Understanding  between  the  Republic  of  Croatia  and  the 
European  Community  on  the  participation  of  the  Republic  of  Croatia  in  the  Community 
Programme  “ICT  Policy  Support  Programme  (ICT  PSP)  of  the  Competitiveness  and 
Innovation Framework Programme (2007 to 2013)” and it entered into force in May 2008. 

Conclusion 

Overall,  Croatia  has  made  good  progress  regarding  the  development  of  the  transport  and 
energy networks in line with the design and objectives of the TEN – Transport network and 
TEN – Energy network. 

4.22.  Chapter 22: Regional policy and coordination of structural instruments 

Some  progress  can  be  reported  on  the  legislative  framework.  In  March  2008,  the  Croatian 
Government  adopted  an  Action  Plan  for  meeting  EU  cohesion  policy  requirements  as  key 
element in the accession negotiation under this chapter. The action plan describes the state of 
play of preparations, sets out all the measures that Croatia needs to take before its accession 
and  demonstrates  its  recognition  of  the  main  challenges  and  key  issues  to  be  addressed. 

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Progress can also be noted as regards alignment of national legislation with Community rules 
in  the  areas  of  public  procurement,  –  with  the  new  Public  Procurement  Act  in  force  since 
January 2008 – competition, state aid and the environment. (See also the relevant Chapters.) 
However, Croatia still needs to pursue its efforts in order to meet the regulatory requirements 
for cohesion policy, mainly by amending the Budget Act to ensure full multi-annual budget 
programming and budget flexibility and by adopting the Regional Development Act that will 
provide  a  broad  legal  framework  for  implementation  of  the  regional  policy.  Preparations  in 
this area are fairly advanced. 

There  has  been  good  progress  with  the  institutional  framework.  An  application  to  the 
Commission  for  the  accreditation  of  the  institutional  set  up  for  the  implementation  of  the 
structural  funds  precursor  instrument  IPA  (Instrument  for  Pre-Accession  Assistance) 
components III and IV after formal designation of the structures was submitted in April. An 
Audit  Authority,  as  a  separate  and  independent  agency,  was  appointed  in  June.  Croatia  has 
also  identified  the  coordinating  authority,  certifying  authority,  audit  authority  and  the 
managing  authorities  and  intermediate  bodies  that  will  be  responsible  for  managing 
operational  programmes  under  the  future  Structural  and  Cohesion  Funds.  Croatia  needs  to 
formalise  (by  legal  act)  this  designation  of  institutional  structures;  it  needs  to  ensure  an 
adequate  separation  of  functions  in  particular  within  ministries,  as  applicable  between 
Managing  Authorities  and  intermediate  bodies.  Croatia  also  needs  to  complete  the  full 
designation of structures notably as regards regional level implementation structures but also 
as regards the intermediate bodies. 

As  regards  territorial  organisation,  Croatia  has  introduced  a  classification  establishing  three 
statistical and planning regions at Nomenclature of Territorial Units for Statistics (NUTS) II 
level, in line with the relevant regulations and with the Commission's suggestions. 

Preparations in this area are advancing. 

There has been some progress in the area of administrative capacity. Croatia is carrying out 
a systematic analysis of the organisational, staff and training needs for the IPA and Structural 
Funds.  A  training  strategy  for  the  Structural  Funds  preparations  was  prepared  in  June. 
However,  capacity  building  needs  remain  large  in  some  ministries  and  strengthening 
administrative  and  absorption  capacity  remains  a  priority  for  Croatia.  The  current  lack  of 
institutional  capacity  has  directly  influenced  absorption  capacity  with  respect  to  ISPA.  In 
order to successfully absorb IPA and Structural Funds in the future, significant strengthening 
is  required.  Project  preparation  and  strengthening  of  the  organisational  and  managerial 
capacities of future  beneficiaries  also needs to be increased at all levels, including  the local 
government  level.  Ownership  should  be  developed  and  ensured  at  all  appropriate  levels, 
especially at local level. Preparations in this area are advancing. 

Some progress can be reported in the area of programming. Inter-ministerial working groups 
under the coordination of the Central State Office for Development Strategy have drawn up a 
Strategic  Coherence  Framework  2006-2013  and  4  Operational  Programmes,  which  were 
adopted by the Commission in November/December 2007. Croatia's Action Plan for meeting 
EU  cohesion  policy  requirements  defines  practical  steps  to  prepare  the  National  Strategic 
Reference  Framework  along  with  eight  sets  of  operational  programmes.  Efforts  need  to  be 
made  to  ensure  that  national  and  sectoral  strategies  are  coordinated  within  programming 
documents. Croatia needs to considerably improve its capacity for the timely preparation of 
good quality and mature project proposals submitted under Phare programmes as well as for 
IPA component III and IV operational programmes. Preparations in this area are advancing. 

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Progress  was  made  in  the  monitoring  and  evaluation  of  the  operational  programmes. 
Operating  structures  have  set  up  sectoral  monitoring  committees  (SMC)  to  monitor  the 
implementation  of  OPs.  The  first  two  SMC  meetings  for  each  OP  were  held  in  December 
2007 and June 2008. The membership and rules of procedure of the SMCs have been agreed 
with the Commission. The first meeting of the (all components) joint IPA committee was held 
in July 2008. Croatia is still at an early stage of establishing its electronic monitoring system. 
Substantial  work  still  lies  ahead.  It  still  needs  to  define  functionalities  of  the  system, 
formulate  technical  specifications,  obtain  technical  assistance  for  setting  up  its  system  and 
make it operational. Preparations in this area are advancing. 

Although some progress can be reported in the area of financial management and control 
(see also chapter 32 – Financial control), Croatia is still at an early stage of establishing its 
financial  management  and  control  systems  for  the  future  Structural  and  Cohesion  Funds. 
Croatia needs to build up its capacity in these fields. Preparations in this area are at an early 
stage. 

Conclusion 

Some progress can be reported in this chapter. Croatia still needs to make efforts to establish 
the institutional and administrative capacity necessary to meet the regulatory and operational 
requirements  stemming  from  Community  cohesion  policy.  Overall,  Croatia  is  partially 
aligned with the acquis in this chapter. 

4.23.  Chapter 23: Judiciary and fundamental rights 

There has been some progress in the area of the judiciary. 

As regards the independence of the judiciary, there has been some progress. The State Judicial 
Council’s  (SJC)  capacity  to  manage  the  selection  of  judges  has  been  marginally  improved. 
However,  the  capacity  to  systematically  interview  candidates  remains  limited.  Amendments 
to the Courts Act and a new Act on Trainees in Judicial Bodies and the Bar Exam were passed 
which  foresee  the  introduction  of  improvements  to  the  procedure  for  the  appointment  of 
judges  and  judicial  trainees.  Currently,  the  selection  procedure  for  judges  and  prosecutors, 
judicial  trainees,  and  court  advisors  remains  deficient,  lacking  transparency  and  the 
application of uniform, objective criteria. The provisions on penal immunity for judges have 
not  been  re-assessed  in  line  with  the  need  for  transparency  and  accountability  within  the 
judiciary. 

The evaluation of the work of judges has improved, based inter alia on the methodology for 
assessing  judges'  performance  adopted  in  September  2007.  The  work  of  the  judges  is 
evaluated  annually  and  non-fulfilment  of  the  quota  of  decisions  may  lead  to  disciplinary 
procedures.  This  methodology  is  also  used  to  evaluate  the  performance  of  judges  under  the 
five  year  probation  period,  which  remains  in  place.  So  far,  only  four  judges  were  not 
appointed permanently 

As  regards  the  impartiality  of  the  judiciary,  the  State  Judicial  Council  has  continued  to 
conduct  disciplinary  procedures  initiated  by  court  presidents  and  the  Ministry  of  Justice.  In 
2007, there were nineteen disciplinary proceedings resulting in two reprimands, four fines and 
one acquittal. Four cases were suspended or withdrawn and eight cases are on-going. Further 
information  on  the  legal  grounds  of  the  cases  is  not  available.  A  new  code  of  ethics  for 
attorneys was adopted in February 2008. The code introduced an annual reporting obligation 
on  disciplinary  procedures  conducted  by  the  State  Prosecutor  Council.  This  should  improve 

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the  transparency  of  disciplinary  proceedings  against  attorneys,  which  has  hitherto  been 
lacking . 

As  regards  professionalism  and  competence  in  the  judiciary,  a  full  time  Director  of  the 
Judicial  Academy  was  nominated  in  May  2008.  The  Judicial  Academy’s  budget  was 
increased. The Judicial Academy, supported by an Advisory Board and Programming Council 
has  developed  a  training  policy.  This  introduces  regular  training  needs  assessments  and 
adaptation of the training programmes to up-coming legislation and EU acquis. However the 
Judicial  Academy  still  lacks  staff.  The  Regional  Centres  of  the  Judicial  Academy  still  lack 
resources and adequate premises.  

In relation to the efficiency of the judiciary, the Supreme Court continues to monitor closely 
the backlog and supports the transfer of non-disputed enforcement cases to public notaries as 
well as mainly civil cases to less burdened courts. Changes to the Misdemeanour Act entered 
into  force  in  January  2008  aimed  at  relieving  misdemeanour  courts  of  minor  cases  by 
transferring work to administrative bodies. The backlog of pending cases before all courts has 
been  reduced  by  around  7%  to  937,000  cases.  Efforts  have  been  made  to  accelerate  the 
solving of old cases and establish more reliable statistics on the backlog. 

However, statistical tools have principally been improved in relation only to municipal court 
cases. Previous reductions in the backlog have not been sustained and the number of old cases 
remains  high.  The  roots  of  the  backlog  and  lengthy  proceedings  have  not  been  tackled 
adequately. The reform of civil procedure started in 2003 has not shown clear results. While 
further  amendments  to  the  civil  procedure  code  were  adopted  in  July,  there  has  been  no 
proper  assessment  of  the  previous  measures’  impact  on  case  duration.  Misdemeanour  cases 
account for 37% of the backlog. More than half of these cases are dismissed because of the 
statute of limitation. Changes to the Misdemeanour Act extended the statute of limitation for 
misdemeanour cases from two to four years. While this will lead to the expiry of the statute of 
limitation in fewer cases, it could have a negative impact on the case backlog. The handling of 
administrative  cases  also  continues  to  face  particular  challenges.  The  Administrative  Court 
still needs to be made a court of full jurisdiction.  

One  of  the  main  problematic  areas  remains  enforcement  cases,  out  of  which  approximately 
50%  fail  because  of  the  lack  of  a  proper  notification  system  to  the  parties.  Reform  of  the 
system of enforcement of court decisions has begun. However, this continues to constitute a 
major obstacle to the efficient functioning of the courts.  

There continues to be limited progress in the rationalisation of the courts network and many 
issues remain open. Steps taken so far are unambitious. The law on the seat and jurisdiction of 
courts adopted by Parliament in July 2008 foresees full rationalisation of municipal courts by 
2019  with  a  reduction  from  108  to  67  municipal  courts.  It  remains  unclear  how  this 
rationalisation  will  be  implemented  in  practice.  There  is  no  plan  for  the  rationalisation  of 
other  types  of  court:  commercial  courts,  misdemeanour  courts,  county  courts  or  state 
prosecution offices. 

With  regard  to  the  infrastructure  and  equipment  of  courts,  there  has  been  limited  progress. 
The  pilot  testing  of  the  integrated  case  management  system  (ICMS)  was  finalised  in  four 
courts and testing has begun in several other courts. However, the foreseen roll-out of ICMS 
to  60  courts  by  2009  is  behind  schedule.  Misdemeanour  courts  continue  to  suffer  from  a 
shortage of equipment and a very low standard of premises. 

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The  system  of  judicial  inspections  has  shown  good  results.  However  the  inspections  have 
been  carried  out  mainly  in  municipal  courts  and  not  in  other  courts  or  prosecution  offices. 
With  only  five  part-time  inspectors,  the  Ministry  of  Justice  does  not  have  the  capacity  to 
enlarge the inspections to other courts. 

The introduction of court-mediation in the Commercial court has been successful. The same 
concept  was  introduced  at  8  municipal  courts  in  2007.  However  the  number  of  mediation 
cases  has  been  increasing  rapidly  and  judges  have  difficulty  in  dealing  with  them.  The 
incentive  to  deal  with  mediation  cases  is  lacking  and  the  backlog  of  cases  has  started  to 
increase, especially at Zagreb Municipal court. There is no proper mediation strategy in order 
to focus ADR out-of court. 

Implementation of the judicial reform strategy has continued even if adequate monitoring of 
its measures has not been possible due to weak administrative capacity. A revised Action Plan 
addressing  all  major  reform  issues  was  adopted  in  June  2008.  However,  in  certain  areas  it 
lacks  measurable  objectives  that  will  allow  effective  monitoring  of  its  implementation.  The 
Strategic Planning unit in the Ministry of Justice has become a  Directorate in charge of the 
monitoring of the reform of justice and anti–corruption strategy and has been reinforced with 
additional staff. However, there is no statistical department nor a Directorate for IT issues to 
cover  the  roll-out  of  the  case  management  system  in  the  courts.  There  has  been  a  lack  of 
leadership and ownership in reform implementation. 

There has been some progress in the area of anti-corruption policy and measures. 

A revised anti-corruption strategy as well as an action plan containing specific measures in a 
number of fields prone to corruption was adopted in June 2008. A new coordination system 
based on a working group at the level of State Secretary is now in place aimed at improving 
coordination  of  all  Ministries  and  other  bodies  involved  in  the  implementation  of  the  plan. 
The  Strategic  Unit  which  had  been  created  at  the  Ministry  of  Justice  in  order  to  follow  the 
implementation  of  the  previous  plan  has  been  up-graded  to  the  level  of  Directorate  and 
strengthened with additional staff. The new strategy and action plan are an improvement on 
the  previous  national  anti-corruption  programme  and  its  mini  action  plans.  However,  the 
action  plan  lacks  measurable  objectives  that  will  allow  an  effective  monitoring  of  its 
implementation. It is too early to evaluate the concrete impact of administrative strengthening 
of the Ministry of Justice. 

New  members  of  the  National  Council  to  monitor  the  implementation  of  the  plan  were 
appointed  after  the  November  2007  elections.  Its  new  Chairman  declared  the  intention  to 
break with the previous practice and to increase the pro-active approach of the Council. The 
structure of the Council will be strengthened with administrative staff. However, the concrete 
effects  of  the  guiding  role  which  the  Council  should  have  within  the  anti-corruption  policy 
have not yet materialised. 

The  legal  framework  to  combat  corruption  is  largely  in  place.  Amendments  to  the  law  on 
Conflict of Interest further strengthen the  legal  tools to  fight  corruption, including  a limited 
increase in sanctions. However, an adequate system to deal with conflicts of interest remains 
to be put in place. The principle of conflict of interest is little understood at all levels of public 
administration.  There  are  still  no  public  written,  interpretive  guidelines  for  public  officials. 
The Committee for the Prevention of Conflict of Interest continues to be beset by problems, 
including the resignation of its chairperson following corruption allegations. Due to the lack 
of  administrative  capacity,  this  committee  conducted  only  a  limited  number  of  conflict  of 

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interest  proceedings.  The  discussion  on  conflict  of  interest  remains  a  partisan  issue  with  a 
consequent negative impact on its policing. There is insufficient supervision and control with 
regard to the implementation of asset declarations. Although a Law on Financing of Political 
Parties is in place, the important issue of financing of election campaigns has not been fully 
addressed. The Government established a working group in September to analyse the existing 
law.  

In  terms  of  suppression  of  corruption,  the  anti-corruption  body,  USKOK,  has  continued  to 
become  more  active.  The  number  of  USKOK  investigations  has  increased  and  indictments 
issued in some important cases. USKOK's role is more widely acknowledged and reports to it 
of  suspected  corruption  have  increased  significantly,  particularly  as  regards  abuse  of  office 
cases. However, few actual prosecutions have followed. Law enforcement agencies and other 
state  bodies  involved  in  the  fight  against  corruption  continue  to  be  more  reactive  than 
proactive. Further efforts are required in tackling high level corruption as well as in the field 
of  public  procurement.  The  police  need  to  become  more  effective  in  the  fight  against 
corruption and organised crime. Inter agency cooperation requires further improvement.  

Overall, corruption at the political, economic and institutional level, including the judiciary, 
as  well  as  the  general  tolerance  of  petty  corruption remains  widespread and poses a serious 
problem.  Corruption  in  Croatia  is  aided  by  a  lack  of  good  governance,  transparency  and 
accountability in public administration and by a lack of ethics codes and codes of conduct in 
the public and private sectors. A culture of political accountability is lacking. There has been 
some progress with the promotion of integrity within the public administration but this needs 
to  be  further  strengthened.  Awareness-raising  activities  coordinated  between  all  bodies 
involved in the national anti corruption programme also need to be further pursued. 

As regards fundamental rights, there have been some developments.  

As regards the right to protection of personal data, the Parliament passed amendments to the 
Data  Protection  Act  in  March  2008  aimed  at  aligning  it  with  the  acquis,  in  particular  the 
establishment  of  personal  data  protection  officers.  However,  full  alignment  with  the  Data 
Protection Directive and the Council of Europe instruments remains to be completed.  

Some  steps  were  taken  to  address  shortcomings  in  prison  conditions.  A  shortage  of  prison 
staff and capacity remains, however. 

Freedom of expression including freedom and pluralism of the media continue to be provided 
for  in  Croatia.  However,  editors  and  journalists  continue  to  report  undue  political  pressure. 
There have been cases of threats and attacks against journalists, particularly those working on 
corruption cases or organised crime.  

The  Office  of  the  Ombudsman  for  Persons  with  Disabilities  was  created  and  a  National 
Implementation  Plan  on  Social  Inclusion  2007-2008  produced.  However,  continued  efforts 
are  needed  as  regards  socially  vulnerable  and/or  persons  with  disabilities.  In  the  area  of 
mental  health,  the  policy  of  providing  care  through  community-based  services  instead  of  in 
institutions has shown no tangible progress. 

A comprehensive law on anti-discrimination was adopted in July 2008, signifying important 
progress.  However,  the  level  of  protection  against  discrimination  in  practice  and  its  judicial 
prosecution is not yet in line with EU standards. The functioning of the police and institutions 
of the health and social system displayed certain weaknesses. 

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Plans aimed at improving women’s and children’s rights have continued to raise awareness. 
However,  further  improvements  in  implementation  need  to  be  made.  Implementation 
measures regarding the protection of children's rights also have to be accelerated.  

A  new  Law  on  Legal  Aid  as  well  as  legislation  on  attorneys'  tariffs  were  adopted  aimed  at 
improving  access  to  justice,  which  has  been  hampered  over  the  past  year  by  limits  of  the 
existing  system  of  legal  aid,  high  lawyers'  fees  and  weaknesses  in  the  judicial  system. 
Provision  of  free  legal  aid  under  the  new  system  is  foreseen  as  of  February  2009. 
Implementation of the law will require new administrative structures to be set-up, including 
the  employment  of  53  new  civil  servants.  In  addition,  several  by-laws  are  to  be  adopted 
including those regarding the remuneration for attorneys.  

Some progress has been made with regard to minorities. An action plan for implementation of 
the  Constitutional  Law  on  National  Minorities  (CLNM)  was  adopted  as  was  a  recruitment 
plan  for  2008  for  minorities  in  the  State  administration.  Funding  for  minorities  was  further 
increased. The Roma minority has continued to receive attention, with improvements in pre-
school education. All eight minority MPs are in the governing coalition, and a Serb has been 
appointed to one of the Deputy Prime Minister posts.  

However,  many  problems  remain  for  minorities.  Croatia  needs  to  encourage  a  spirit  of 
tolerance towards the Serb minority and take appropriate measures to protect those who may 
still be subject to threats or acts of discrimination, hostility or violence. Minorities continue to 
face particular difficulties in the area of employment, both in terms of under-representation in 
state  administration,  the  judiciary  and  the  police  as  well  as  in  the  wider  public  sector.  The 
Roma minority faces particularly difficult living conditions and challenges remain in the areas 
of  education,  social  protection,  health  care,  and  employment.  Legal  provisions  and 
programmes  need  to  be  implemented  with  more  determination,  and  adequate  monitoring 
assured, especially in the area of employment.  

There  has  been  some  progress  on  refugee  return  issues.  An  action  plan  for  the  accelerated 
implementation  of  housing  care  programmes  was  adopted  with  a  target  completion  date  of 
end  2009.  Important  decisions  were  taken  opening  up  the  possibility  of  validating  pension 
rights.  Reconstruction  of  housing  has  continued.  The  target  for  2007  to  provide  1,400 
accommodation units out of a total of 12,500 applications under the housing care programmes 
for  former  tenancy  rights  holders  has  been  largely  met.  However,  implementation  of  these 
programmes  remains  weak.  The  Government’s  implementation  targets  are  behind  schedule. 
Only  12%  of  cases  have  been  resolved  definitively  in  the  urban  areas.  Efforts  to  create  the 
economic and social conditions necessary for the sustainability  of refugee return need to  be 
accelerated. 

As regards EU citizens' rights, amendments to the Aliens' Act were passed aimed at aligning 
with  the  acquis.  However,  further  legislative  changes  will  be  needed  to  achieve  full 
alignment.  

Conclusion:  

Croatia has made some progress on this chapter. Reforms in the judiciary continue but at only 
a relatively slow pace. Significant challenges remain. Most tools are in place to fight against 
corruption  but,  given  the  scale  of  the  problem,  these  are  not  being  deployed  with  sufficient 
vigour.  Legal  provisions  on  fundamental  rights  are  in  general  adequate,  but  despite  some 
progress, a number of important challenges remain in terms of implementation. 

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4.24.  Chapter 24: Justice, freedom and security 

There  has  been  some  progress  in  the  field  of  migration.  The  Action  Plan  for  the 
implementation  of  the  migration  policy  was  adopted  by  the  Government  in  May  2008.  It 
covers  a  short  period  (2007-2008)  and  tackles  issues  such  as  legal  and  illegal  migration, 
protection  of  asylum  seekers  and  other  refugees,  and  suppression  of  trafficking  in  human 
beings.  The  new  Aliens  Act,  entered  into  force  in  January  2008.  It  restricts  inter  alia  the 
conditions  for  a  temporary  residence  permit  and  for  family  reunification  for  non-Croatian 
citizens.  

The  illegal  migration  deportation  centre  at  Ježevo  remains  overcrowded.  The  number  of 
illegal migrants fell in 2007 to about 4,000 compared to 5,564 in 2006. However, there has 
been an increase in illegal unaccompanied minors, who make up 12% of total illegal migrants 
in  2007.  There  are  no  specific  treatment  and  accommodation  facilities  for  minors  and 
vulnerable  groups.  The  number  of  forced  returns  has increased by 3%  (2,439  cases in 2007 
compared to 2,348 in 2006). There has been no increase in the number of staff at the Ministry 
of Interior for dealing with forced return and illegal migrants. 

Croatia has 24 readmission agreements in force. Seven of these still have to be aligned with 
the EU model. Further readmission agreements are to be finalised with Serbia, Montenegro, 
Slovakia, Ukraine, Moldova and Cyprus. 

Some  progress  can  be  reported  in  the  field  of  asylum,  as  the  new  Asylum  Act  entered into 
force  in  January  2008.  The  Commission  for  asylum  (second  instance  appeal  body  replacing 
the  former  Government  Commission  for  asylum)  was  formed  in  April  2008.  A  full-time 
president  of  the  Commission  was  appointed,  together  with  four  part-time  members,  two  of 
whom  come  from  civil  society  and  the  academic  world.  Although  this  is  a  step  in  the  right 
direction,  there  is  still  concern  regarding  the  independence  of  this  Commission,  given  the 
oversight  role  of  the  authorities  in  the  appointment  process.  In  March  2008,  five 
implementing  acts  for  the  Ministry  of  the  Interior  were  adopted  covering  accommodation 
forms  and  data  collection;  legal  aid,  financial  aid,  and  medical  examinations.  However, 
further alignment of the legislation with the acquis in this area is needed. 

The  case  workers  in  the  Ministry  of  the  Interior  have  received  training  on  the  Refugees 
Convention and the EU acquis, as well as a manual on case handling, the direct outcome of 
which is the improved quality of the procedure for determining refugees' status. On the other 
hand, the restricting of personal interviews in the accelerated procedure for asylum seekers is 
a matter of concern. 

The number of asylum seekers in Croatia continues to increase, with 170 procedures in 2007 
(compared to 105 in 2006) and already 50 for the first quarter of 2008. Croatia granted asylum 
status in two cases. Even if Croatia is still a transit country (50% of the asylum seekers leave 
Croatia  before  their  case  is  settled),  the  increase  in  applications  is  likely  to  expand  after 
Croatia's  accession  to  the  EU.  Current  staffing  levels  are  not  adequate  to  meet  this  future 
demand. 

To  date,  a  number  of  asylum  seekers  applying  at  the  border  or  at  the  illegal  migrants' 
detention  centre  of  Jezevo  have  been  detained  and  convicted  of  illegal  entry.  This  shows  a 
very restrictive interpretation of the new law.  

Some progress has been made concerning Visa policy. Following the new Aliens Act, a new 
Regulation  on  the  Visa  Regime  entered  into  force  in  May  2008,  which  further  aligned  with 

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EU  rules.  The  visa  requirement  for  citizens  from  Serbia  and  Montenegro  has  again  been 
suspended,  until  end  of  2008.  IKOS,  the  information  system  which  forms  the  basis  of  the 
future  Croatian  Visa  Database,  has  now  been  implemented  in  68  of  the  72  diplomatic 
missions and consular posts and should be completed. 

The number of visas issued at the borders increased again in 2007, reaching over 8,300 visas - 
a 60% increase over 2006. Croatia should aim to minimise the issuing of visas at the border to 
exceptional cases. Currently there is limited equipment available at the borders to detect false 
or  forged  documents.  The  system  for  issuing  visas  is  also  still  not  unified  or  consistent. 
Croatia also  needs  to  step up its  preparations  for the introduction of  biometric identifiers in 
passports and travel documents.  

There  has  been  some  progress  with  regard  to  External  borders  and  Schengen  the  revised 
Integrated Border Management Action Plan was adopted in December 2007. The Coast Guard 
Law was adopted at the end of 2007, making the Navy responsible for the Coast Guard, and 
dividing responsibilities between the Coast Guard (outer waters), and Maritime Police (inner 
waters). An Inter-Ministerial Committee proposed a slight reduction in the number of Border 
Crossing-Points (BCPs) from 189 to 173, by eliminating some sea border crossing points, but 
no  decision  has  been  taken  on  this  issue.  The  total  staff  of  the  Border  Police  has  remained 
broadly  unchanged  at  just  over  5,000,  and  is  well  below  the  statutory  staffing  figure.  A 
competition to hire 1,400 new police officers, of whom 800 were to be assigned to the Border 
Police, was held in May 2008. The installation of an encrypted communication system (Tetra) 
has  been  extended  to  the  BCPs  at  the  sea  border,  the  islands  and  in  Zagreb.  The  National 
Border Management Information System (NBMIS) is being deployed to some further BCPs, 
albeit at a slow pace owing to some technical problems, and it now covers nine BCPs. 

Cross-border  co-operation  works  well  on  a  local  level  at  all  borders.  Cross-border  co-
operation  at  national  level  continues  to  be  constrained  by  the  absence  of  formal  bilateral 
agreements with countries at the future external border. Croatia signed a working arrangement 
with  FRONTEX  in  April  2008  which  provides  a  good  basis  for  cooperation.  Inter-service 
cooperation at the border should be strengthened. 

Efforts  to  train  Border  Police  staff  have  continued.  However,  the  Border  Police  is  still 
hampered by several shortcomings, such as a serious shortage of staff, limitations in general 
and specialised training, lack of equipment and poor infrastructure both at headquarters and at 
BCPs. In particular, further efforts are needed in establishing an overall management policy of 
BCPs, starting from a decision on their total amount and location. Croatia should also speed 
up the roll-out of the NBMIS system to cover the whole border. 

As  regards  judicial  cooperation  in  criminal  and  civil  matters,  there  is  only  limited 
progress. The Agreement on Co-operation with EUROJUST was signed in November 2007, 
but  it  needs  to  be  ratified  by  the  Parliament.  Further  alignment  as  regards  protection  of 
personal  data  is  needed  before  the  agreement  will  be  able  to  enter  into  force.  Judicial 
cooperation  is  currently  based  on  the  conventional  approach.  This  means,  in  practice,  that 
recognition and enforcement of decisions by foreign courts has to go through the "exequatur" 
process  at  the  Municipal  or  Commercial  courts.  The  recognized  decision  is  enforced 
according to Croatian law, which is slow and inefficient. Direct execution of foreign decisions 
is not possible. Croatia has not aligned with the Framework Decision on the execution in the 
EU  of  orders  freezing  property  and  evidence  or  with  the  Framework  Decision  on  the 
application  of  mutual  recognition  of  financial  penalties.  The  Croatian  legal  order  does  not 
allow direct involvement between judicial authorities.  

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Furthermore,  in  Croatia  every  offence  which  has  been  committed  in  the  territory  of  Croatia 
may be retried in Croatia, irrespective of a foreign judgment. This exception to ne bis in idem 
applies even if the offence was committed partly in Croatia and partly in a foreign State which 
has already delivered a judgment. The conditions to implement the Framework Decision on 
the European  Arrest Warrant are not  in place, as Croatia’s Constitution does not allow it to 
extradite  Croatian  citizens.  Croatia  is  a  party  to  the  Council  of  Europe  Convention  on  the 
Transfer  of  Sentenced  Persons  (1983).  It  has  not  signed  the  Additional  Protocol  to  the 
Convention  (1997).  Croatia  has  not  yet  acceded  to  the  Hague  Convention  on  Jurisdiction, 
applicable law, recognition, enforcement and co-operation in respect of parental responsibility 
and measures for the protection of children. 

Regarding the status of victims in criminal proceedings, Croatian law is not aligned with the 
Framework decision in a number of areas. These include notifying the injured party that the 
perpetrator  has  been  released  after  serving  the  sentence,  acquiring  testimonies  by  means  of 
devices  for  picture  and  sound  transmission  (video  and  phone  conferences),  establishing  a 
service for assistance to victims of criminal offences and as regards training of staff.  

Some  progress  has  been  made  as  regards  police  cooperation.  Since  February  2008,  a 
Croatian liaison officer has been stationed at Europol. Agreements on police cooperation have 
been  signed  with  France  and  Austria.  Croatia  is  actively  involved  in  regional  co-operation 
initiatives, including SECI. Reorganisation of the Criminal Police has started, but needs to be 
fully implemented. 

However, within the Ministry of Interior decision making continues to be very complex and 
highly centralised. The human resources system of the police remains inadequate in terms of 
career  development  and  resource  management.  There  is  no  overall  strategy  or  a  Mission 
Statement for the Croatian police force. 

While significant progress has been made, Croatia still needs to fully complete its institutional 
response  to  the  issue  of  small  arms  and  light  weapons,  by  improving  in  particular  the 
effectiveness of the arms transfer licensing system.  

Some  progress  has  been  made  in  the  area  of  organised  crime.  A  high  level  inter-sectoral 
group  within  the  police  has  adopted  a  national  intelligence  model,  which  in  turn  led  to  the 
preparation  of  the  first-ever  National  Threat  Assessment  (NTA)  which  was  adopted  by  the 
Ministry  of  Interior  in  late  2007  and  has  been  shared  with  Europol.  The  NTA  has  been 
instrumental in the significant increase in intelligence reports and in developing police work 
in 2008. This signifies a marked shift of strategy and philosophy for the Croatian Police. An 
IT  system  for  inter-Ministerial  exchange  of  information  has  been  completed  (iCIS).  A 
Protocol  on  Co-operation  was  concluded  with  the  Ministry  of  Finance  to  enhance  inter-
agency  cooperation,  exchange  of  information,  crime  prevention  and  training.  The  co-
operation  protocol  with  USKOK,  which  entered  into  force  in  early  2007,  is  being 
implemented.  The  number  of  investigations  is  increasing.  However,  concrete  results  are 
needed  in  the  fight  against  organised  crime,  which  is  a  matter  of  concern.  Improvements 
introduced  are  yet  to  lead  to  significant  convictions.  The  police  need  to  become  more 
effective.  Weaknesses  in  the  judicial  system  also  negatively  affect  the  authorities'  ability  to 
effectively tackle organised crime. 

Good  progress  has  been  made  with  regard  to  the  trafficking  of  human  beings.  An  Action 
Plan to combat trafficking in persons was adopted by the Government in December 2007. A 
new  standard  operating  procedure  (SOP)  has  been  jointly  elaborated  by  the  Ministry  of 

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Interior, the State Prosecutor, and Ministry of Social Services. A new protocol has also been 
drawn  up  and  signed  between  the  Ministry  of  Interior,  the  Ministry  of  Social  Services  and 
their  NGO  partners.  Several  workshops  and  awareness  initiatives  were  organised  over  the 
period, including at regional level. Thirteen victims were discovered in 2007. 

Limited progress can be reported in the fight against terrorism. Croatia signed the Council of 
Europe Convention on laundering, search, seizure and confiscation of the proceeds of crime 
and on the financing of terrorism, but this has yet to be ratified. Croatia needs to continue to 
strengthen its capacity in the fight against terrorism, in particular by continuing alignment of 
its  legislation,  strengthening  its  administrative  capacity  and  developing  inter-agency 
coordination. 

Good  progress  has  been  made  in  the  field  of  fight  against  drugs.  Croatia  signed  the 
Agreement on Illicit Traffic by Sea, thus implementing Article 17 of the 1988 UN Convention 
against illicit traffic in narcotic drugs and psychotropic substances. The National Focal Point 
(NFP) became operational and delivered the first Annual Report to the European Monitoring 
Centre for Drugs and Drug Addiction (EMCDDA) in January 2008. Standards for therapeutic 
communities and a model for precursor control have been elaborated and adopted. A model 
for partnership co-operation between the national drug office and the districts has also been 
adopted.  The  Police  recorded  7,900  criminal  cases  involving  drugs  in  2007  (which  is 
commensurate with the level of each of the past 5 years). 

Limited  progress  can  be  reported  in  the  field  of  customs  co-operation.  In  October  2007 
Croatian Customs became a full member of MARINFO. 

Conclusion 

Croatia has made some progress in this chapter, particularly as regards the fight against drugs 
and dealing with trafficking of human beings. However, significant efforts are needed in the 
area  of  external  borders,  in  terms  of  human,  financial  and  technical  resources,  in  order  to 
ensure that EU requirements are met upon accession. Also, concrete results are needed in the 
fight against organised crime, which is a matter of concern. Croatia needs to step up its efforts 
to ensure the necessary administrative capacity to implement and enforce the EU acquis upon 
accession.  

4.25.  Chapter 25: Science and research 

Good  progress  has  been  made  in  research  policy.  Two  new  bodies,  the  Strategic  and 
Technology  Council  and  the  Council  for  the  National  Innovation  System,  were  created  in 
April 2008. This should allow for taking fully into account the innovation dimension in the 
research policy. Organisational changes at the level of the Ministry of Science have also taken 
place  in  view  of  strengthening  administrative  capacity.  However,  a  fully  transparent  system 
for  evaluation  and  monitoring  of  national  research  grants  remains  to  be  ensured  in  order  to 
increase scientific excellence. 

Good  progress  has  been  made  on  participation  in  the  EC  Framework  Programmes.  The 
grants  awarded  under  the  7th  Framework  Programme  for  Research  and  Technological 
Development  (FP7)  continue  to  demonstrate  Croatia’s  increased  absorption  capacity. 
However,  full  participation  in  the  thematic  collaborative  cooperation  has  not  yet  been 
reached.  The  national  contact  points  function  well,  but  still  lack  administrative  capacity. 
Croatia  has  confirmed  its  interest  in  becoming  associated  also  to  the  Seventh  Euratom 
Framework Programme. 

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With a view to further integration into the European Research Area, a “National 3 % Action 
Plan”  was  adopted  in  April 2008.  This  was  a  significant  development.  It  includes  a  list  of 
objectives and measures and envisages the establishment of a system of indicators in view of 
increasing investments into science and research to 3 % of the GDP. Steps have been taken to 
increase the administrative capacity for the implementation of the Action Plan. However, the 
entities  responsible  for  implementation  of  the  specific  measures  are  not  yet  clearly  defined. 
Steps have also been undertaken to ensure mobility of researchers. However, the share of the 
private  sector  in  investment  in  research  is  low  and  there  are  not  enough  young  people 
attracted to science. 

Conclusion 

Good  progress  has  been  made  on  this  chapter,  but  further  efforts  remain  necessary.  The 
research  capacity  at  national  level  needs  to  be  strengthened  which  in  turn  will  lead  to 
increased  participation  under  the  FP7.  Implementation  of  research  policy  and  related  action 
plans needs to be ensured in order to further integrate into the European Research Area. 

4.26.  Chapter 26: Education and culture 

Good  progress  has  been  achieved  in  the  field  of  education,  training  and  youth.  The 
education  reform  process  has  continued  under  the  Education  System  Development  Plan  for 
2005–2010.  Croatia  is  participating  in  the  EU  Education  and  Training  2010  Work 
Programme.  Additional  efforts  have  been  made  in  the  development  of  a  national 
qualifications framework (NQF). Implementation of the Bologna process in higher education 
has  continued.  The  Law  on  primary  and  secondary  Education,  adopted  in  July 2008, 
incorporates  the  principle  of  non-discrimination  in  access  to  education  for  EU  citizens  and 
provisions  for  alignment  with  the  acquis  on  education  of  children  of  migrant  workers.  A 
Strategy  for  Development  of  the  Vocational  Education  System  in  the  Republic  of  Croatia 
2008–2013 was adopted in July 2008. As regards administrative capacity, staff and budgetary 
resources  of  the  Agency  for  Vocational  Education  and  Training  and  the  Agency  for  Adult 
Education  have  been  further  increased.  However,  implementing  legislation  related  to  the 
Adult Education Act is still pending. 

Good  progress  has  been  made  in  the  preparation  for  the  management  of  the  Community 
Lifelong  Learning  and  Youth  in  Action  Programmes.  The  legal  framework  has  been 
completed. Work plans for preparatory measures to be implemented in the second semester of 
2008 and in 2009, including adequate training for the National Agency, have been submitted. 
The  respective  Accession  Partnership  priorities  in  the  field  of  education,  training  and  youth 
have been partially met. 

Good  progress  can  also  be  reported  in  the  field  of  culture.  Croatia  has  made  efforts  to 
facilitate  deeper  participation 
the 
Memorandum of Understanding on its participation in the Europe for Citizens Programme.  

the  Culture  Programme.  Croatia  has  ratified 

in 

Conclusion 

Good overall progress has been made in the area of education, training, youth and culture. A 
good  level  of  legal  alignment  has  been  achieved.  Croatia  should  continue  its  efforts  for 
preparing for the management of Life Long Learning and Youth in Action programmes. 

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4.27.  Chapter 27: Environment 

There  has  been  some  progress  with  the  horizontal  legislation.  Full  transposition  of  the 
environmental  impact  assessment  (EIA)  and  strategic  environmental  assessment  (SEA) 
directives  was  achieved  through  the  adoption  of  implementing  regulations.  Implementing 
legislation  related  to  the  rules  for  subsidies  in  environmental  protection  was  also  adopted. 
Directive on environmental liability is  still not fully transposed. Enforcement of  its existing 
provisions  remains  low.  Work  on  the  establishment  of  the  Environmental  Protection 
Information  System  (EPIS)  is  ongoing.  The  Act  on  Ratification  of  the  Memorandum  of 
Understanding  on  Croatia's  participation  in  the  Community  Civil  Protection  Financial 
Instrument was adopted. 

Some  progress  has  been  achieved  in  the  area  of  climate  change.  An  action  plan  for  the 
implementation  of  the  United  Nations  Framework  Convention  on  Climate  Change  (UN 
FCCC)  and  its  Kyoto  protocol  has  been  adopted.  The  national  inventory  reports  on 
greenhouse gas (GHG) emissions for 2007 and 2008 have been submitted to the Convention 
Secretariat.  Further  work  is  required  in  the  areas  of  GHG  emission  allowance  trading, 
establishment  of  a  national  GHG  registry  and  Croatia’s  participation  in  the  EU  Emissions 
trading scheme (EU ETS). 

Good  progress  can  be  reported  in  the  field  of  air  quality.  The  Air  Protection  Act  has  been 
amended  to  ensure  further  alignment  with  the  acquis.  Further  Protocols  to  the  Long-Range 
Transboundary  Air  Pollution  Convention  (LRTAP)  have  been  ratified.  In  addition,  the 
National  Air  Quality  Protection  and  Improvement  Plan  for  the  Period  2008-2011  has  been 
adopted.  Implementing  legislation  related  to  the  use  of  organic  solvents,  fuel  economy  and 
CO2  emissions  of  new  passenger  vehicles,  as  well  as  to  establishment  of  zones  and 
agglomerations by air category was also adopted. Work on the establishment of the national 
air quality monitoring and management system is ongoing. The programme for monitoring the 
quality  of  liquid  fuels  for  2008  has  been  adopted.  The  government  continues  to  decide 
annually  on  the  quantity  of  fuel  on  the  market  that  does  not  comply  with  the  prescribed 
quality standards. Transposition of the new acquis related to ambient air quality and cleaner 
air for Europe and emission ceilings related to atmospheric pollutants is required. Preparations 
in this area are progressing well. 

There has been some progress with waste management. The Waste Act has been amended. 
Implementing  legislation  related  to  management  of  construction  waste,  categories  and 
operating  conditions  for  landfills  and  the  management  of  sewage  sludge  in  agriculture  have 
been  enacted.  The  Environmental  Protection  and  Energy  Efficiency  Fund  is  financing  the 
remediation  of  illegal  landfills  and  sites  containing  hazardous  waste.  Ten  further  landfills 
have been remedied. Full alignment with the acquis in management of waste from extractive 
industries,  hazardous  waste  and  shipments  and  trans-boundary  movement  of  waste  is  still 
required. Preparations in this area are advancing. 

Little progress can be reported in the water sector. The Water Management Strategy has been 
adopted. The national monitoring programme is being prepared. A programme of monitoring 
bathing  water  quality  has  been  launched.  Adoption  of  the  new  Water  Act,  the  new  Water 
Management Financing Act and of implementing legislation is still pending. Preparations in 
this area require substantial efforts. 

Some  progress  can  be  reported  in  the  field  of  nature  protection  with  the  enactment  of 
implementing legislation related to the establishment of the ecological network. This provides 

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the administrative framework for the designation of actual protected areas under Natura 2000. 
Designation  of  protected  areas  has  not  taken  place  yet.  Additional  efforts  are  needed  in  the 
sector to be in line with the acquis. 

Some  progress  has  been  achieved  in  the  area  of  industrial  pollution  control  and  risk 
management. Progress in the alignment with the integrated pollution prevention and control 
(IPPC) and Seveso II directives is advancing slowly. The Protocol on Pollutant Release and 
Transfer Registers has been ratified. The legal basis for the implementation  of the pollutant 
register has been enacted but the register remains to start operating in practice. Activities on 
the reconstruction of one oil refinery in order to improve air and fuel quality are underway. 
Coordinated inspections of IPPC installations are starting to take place. Investments related to 
the alignment of industrial facilities with the air quality and large combustion plants directives 
need  to  be  increased.  The  clean-up  of  sites  contaminated  with  asbestos  is  continuing. 
Significant  efforts  will  be  required  to  align  with  the  acquis  and  build  up  administrative 
capacity in this area. 

Good progress can be reported on chemicals and genetically modified organisms (GMOs). 
The Chemicals Act has been amended to ensure further alignment with the acquis and the law 
implementing  REACH  has  been  enacted.  Implementing  legislation  related  to  labelling  and 
packaging, and sorting of chemicals has been enacted. Further alignment with the acquis has 
been  achieved  by  amending  the  Biocides  Act.  The  National  Chemicals  Strategy  has  been 
adopted.  In  relation  to  GMOs,  implementing  legislation  has  been  adopted  related  to  the 
keeping  of  the  Register  of  GMOs  and  risk  assessment  for  placing  GMOs  on  the  market. 
Preparations in these areas are progressing well. 

Little progress can be reported in the noise sector. Preparations in this area are still at an early 
stage. 

There  has  been  progress  related  to  forestry.  Implementing  legislation  related  to  data 
collection,  observation  and  registers  related  to  forest  fires  has  been  enacted.  Preparations  in 
this area are advancing. 

Progress has been made to increase administrative capacity. The Action plan for setting up 
the  necessary  administrative  capacities  at  national,  regional  and  local  level  and  required 
financial resources for implementing the acquis has been adopted. However, capacity for the 
implementation of the acquis remains overall weak, particularly at the local level. There is a 
particular need for training in the implementation of new legislation to both the administration 
and  economic  operators  which  will  be  obliged  to  comply  with  the  new  legislation.  Due 
consideration  should  also  be  given  to  improving  the  coordination  mechanisms  between  all 
institutions/bodies involved in environmental protection. 

Conclusion 

Overall, good progress has been achieved in the environment chapter, especially in the areas 
of air quality, chemicals and GMOs. Considerable efforts will be needed to further align with 
and  implement  the  acquis  in  the  water,  industrial  pollution  control  and  risk  management, 
climate change and horizontal sectors. Substantial efforts will be needed in the forthcoming 
period to meet the requirements of the environment chapter especially as regards investments. 

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4.28.  Chapter 28: Consumer and health protection 

There has been some progress in the field of consumer protection. As regards administrative 
capacity, the Consumer Protection Department in the Ministry of Economic Affairs, Labour 
and Entrepreneurship is being reorganised into four sections and staff being increased up to 
17. In February 2008, the National Consumer Protection Council became an advisory body to 
the  Government.  The  Council  comprises  representatives  of  state  administrative  bodies  in 
charge  of  consumer  protection,  representatives  of  Croatian  Chamber  of  Economy,  Croatian 
Chamber of Trades and Crafts, consumer protection associations and independent consumer 
protection specialists which are appointed for four years. Government funding for consumer 
organisations has further increased and support for regional counselling centres has continued. 
Activities for raising awareness on consumer protection have continued in the context of the 
2007  Year  of  Consumer  Education  in  Croatia.  As  for  consumers’  access  to  justice,  the 
mechanisms for out-of-court settlement of consumer disputes are not sufficiently developed or 
known  by  consumers.  As  a  consequence,  they  treat  only  a  small  percentage  of  possible 
consumer protection cases. Preparations in this field are advanced. 

Some progress can be reported in the field of product-safety related issues. RAPEX contact 
point has been established within the State Inspectorate. The underlying network of local and 
sectoral  authorities  responsible  for  market  surveillance  as  well  as  their  interconnection  is 
under construction. Legal alignment of the Croatian general product safety legislation with the 
acquis  is  at  an  advanced  stage.  However,  coordination  between  the  RAPEX  central  contact 
point and local authorities as well as due enforcement of measures on general product safety 
remain outstanding. Preparations in this field are well on track. 

Good  progress  has  been  made  in  the  area  of  non-safety  related  issues.  Amendments  to  the 
Civil Obligation Act were adopted in March 2008 aiming at completing legal alignment in the 
fields  of  the  sale  of  consumer  goods  and  associated  guarantees  as  well  as  package  travel. 
However,  shortcomings  remain  as  regards  legal  alignment.  In  particular,  an  effective 
enforcement  mechanism  against  unfair  terms  in  consumer  contracts  is  outstanding. 
Preparations in this field are well advanced. 

Some progress can be reported in the area of public health. 

Good progress has been made in the area of tobacco. The WHO Framework Convention on 
Tobacco Control was ratified in March 2008. Legislation was adopted in October 2008 aimed 
at completing legal alignment in the fields of tobacco advertising and tobacco products. This 
is a key element for the accession negotiations on this chapter. Preparations in this field are 
reaching completion. 

Some  progress  has  been  made  in  the  field  of  communicable  diseases.  The  Act  on  the 
protection of the population against communicable diseases was amended in September 2008. 
A manual on definitions of infectious diseases to be reported was published by the Croatian 
National Institute of Public Health in December 2007. Contact persons and institutions for the 
Early Warning and Response System (EWRS) have been appointed. Preparations in this field 
are well advanced. 

Some  progress  can  be  reported  in  the  area  of  blood.  As  regards  restructuring  of  blood 
transfusion  services,  a  basic  transfusion  network  is  being  established  since  December 2007, 
and  the  number  of  blood  collection  and  processing  units  is  being  reduced  from  21  to  9. 
Provision  of  software  and  hardware  to  all  blood  transfusion  centres  has  started.  However, 

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administrative capacity is not yet sufficiently developed, especially in the Ministry of Health 
and in inspection departments, a serious adverse events and reactions reporting system is not 
operational,  and  quality  management  of  all  blood  transfusion  centres  is  not  ensured. 
Preparations in this field are well advanced. 

Limited progress can be reported in the field of tissues and cells. Legal alignment in the field 
of reproductive cells is still outstanding. This is a key element for the accession negotiations 
on  this  chapter.  Administrative  capacity  is  not  yet  sufficiently  developed,  especially  in  the 
Ministry  of  Health  and  in  inspection  departments.  A  serious  adverse  events  and  reactions 
reporting  system  is  not  in  place.  Facilities  for  handling  tissues  and  cells  have  not  yet  been 
upgraded, restructured and licensed according to the EU technical requirements. Preparations 
in this field are underway. 

No  progress  can  be  reported  in  the  field  of  mental  health.  A  Mental  Health  Promotion 
Strategy  is  being  drafted.  However,  community-based  services  remain  insufficiently 
developed as an alternative to institutionalisation, and financial resources allocated to mental 
health care are still scarce. The Accession Partnership priority in this field has therefore not 
been met. Preparations in this field are starting. 

Good progress has been made in the field of colorectal cancer screening, and legislation has 
been  adopted  aiming  at  completing  legal  alignment  in  the  area  of  electromagnetic  fields.  A 
focal point for the area of non-ionising radiation has been appointed in the Ministry of Health. 
Preparations in these areas are well on track.  

Conclusion 

Overall, some progress has taken place in the area of consumer and health protection. A good 
level  of  legal  alignment  has  been  reached.  However,  legislation  in  the  fields  of  consumer 
product safety and public health, in particular on reproductive tissues and cells, is not yet in 
line with the acquis. Continued efforts are required, also to implement and enforce legislation 
effectively.  In  the  area  of  consumer  product  safety,  Croatia  should  focus  on  establishing  a 
proper  interconnection  between  RAPEX  central  contact  point  and  competent  local  and 
sectoral  authorities.  In  the  field  of  public  health,  attention  should  be  paid  to  adequate 
administrative  capacity,  serious  adverse  events  and  reactions  reporting  systems  as  well  as 
upgrading and restructuring of facilities for handling blood, tissues and cells in order to meet 
EU technical requirements. 

4.29.  Chapter 29: Customs union 

Good  progress  has  been  made  in  the  area  of  customs  legislation.  The  Regulation  on  the 
customs tariff for 2008 entered into force in January 2008 and aligned the Croatian tariff with 
the  2008  Combined  Nomenclature.  Duty  relief  applies  to  all  pharmaceutical  products.  The 
Act  amending  the  Customs  Act  and  its  implementing  regulation  entered  into  force  in  July 
2008  and  aligned  the  provisions  regulating  non-preferential  origin,  the  guarantee  in  transit 
procedures,  entry  of  debt  in  accounts,  the  time  limits  for  payment  of  customs  debt  and 
deferred payment and other privileges. The list of narcotic drugs, psychotropic substances and 
plants was adopted in April 2008 and aligned with the classification laid down by the acquis. 
Most  of  the  fees  charged  by  the  customs  authorities  have  been  abolished;  the  others  will 
remain in force until 31 December 2008. 

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Some  discrepancies  with  the  acquis  remain  in  allocation  of  quotas,  duty  relief,  duty 
exemptions  for  passengers  and  the  internal  transit  arrangements.  Overall,  alignment  of  the 
customs rules with the acquis is well on track. 

Good  progress  can  also  be  reported  on  administrative  and  operational  capacity.  The 
internal  audit  department  has  been  reinforced  and  now  has  a  staff  of  17  officials;  relevant 
auditing  procedures  have  been  adopted, 
including  for  compulsory  reporting  and 
implementation of recommendations emerging from the audits. The IT-based centralised risk 
analysis system was rolled out to all customs offices. As it is still in its initial phase, it needs 
continuous  upgrading  to  keep  it  effective.  The  strengthening  of  the  audit  department, 
combined with deployment of the centralised system of risk analysis and with improved post-
clearance  controls,  has  ensured  more  uniform  application  of  customs  procedures  across  all 
customs offices, which was a requirement in the accession negotiations. Work has continued, 
albeit with some delays, on computerisation and interconnectivity, another key requirement in 
the  accession  negotiations.  The  Croatian  customs  administration  still  has  very  limited  in-
house capacity to guarantee the continuity of its IT services and remains heavily dependent on 
external companies. Areas where progress was uneven were the fight against corruption, with 
a  very  limited  number  of  cases  reported,  and  detection  of  infringements  of  intellectual 
property,  illegal  arms  and  protected  species,  which  remained  weak  and  concentrated  in 
specific  customs  offices.  Overall,  in  the  area  of  administrative  and  operational  capacity, 
Croatia has consistently addressed its targets and priorities. 

Conclusion 

Croatia  has  made  good  progress  on  legislative  alignment  as  well  with  its  administrative 
capacity by developing the conditions for uniform application of customs rules. Progress has 
also continued in the area of IT interconnectivity. Efforts need to continue in the remaining 
areas of legislative alignment, to fight against corruption, to create the conditions for effective 
implementation of customs rules and to make further progress on IT interconnectivity. 

4.30.  Chapter 30: External relations 

There has been good progress in the field of the common commercial policy. In May 2008, 
Croatia  adopted  an  action  plan  for  the  remaining  preparations  in  terms  of  legislation  and 
bringing international agreements into conformity with the acquis which is a key element for 
the accession negotiations in this chapter. This action plan also foresees continuous training in 
all  relevant  areas.  A  revised  Trade  Act  preparing  for  the  application  of  the  common 
commercial  policy  was  adopted  in  July  2008.  Croatia  needs  to  continue  to  cooperate  and 
coordinate closely with the Commission and to align with the policies and positions of the EU 
towards  third  countries  and  within  international  organisations,  particularly  the  World  Trade 
Organisation. 

With regard to export insurance, Croatia has further aligned its legislation with the acquis and 
published  rules  on  State  aid  for  short-term  export  loans  insurance.  In  relation  to  dual-use 
goods,  Croatia  continued  to  align  to  with  the  revised  list  of  dual-use  items  and  technology. 
Croatia simplified the procedure for issuance of export and import permits for dual-use goods, 
strengthened  provisions  on  the  fight  against  illicit  exports  and  started  various  training 
activities  in  order  to  enhance  administrative  capacity.  It  needs  to  continue  to  work  on  the 
remaining  adjustments  and  on  further  enhancing  its  administrative,  control  and  reporting 
capacity  for  dual-use  goods.  Overall,  preparations  in  the  area  of  the  common  commercial 
policy are well on track. 

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In the area of bilateral agreements with third countries, Croatia actively participates in the 
work of the Central European Free Trade Agreement (CEFTA), which entered into force for 
all signatory parties in November 2007. Croatia signed a trade and cooperation agreement as 
well  as  an  investment  agreement  with  Vietnam.  Croatia  also  signed  bilateral  investment 
agreements with Lithuania and Azerbaijan. Croatia has analysed all its existing agreements, in 
particular all investment and trade-related agreements in order to bring them, upon accession, 
into conformity with the acquis. Croatia will now need to continue implementing the Action 
plan as adopted to this effect. Preparations in this area are well advanced. 

Some  progress  can  be  reported  on  development  policy  and  humanitarian  aid.  A  new 
department responsible for developmental cooperation was established within the Ministry of 
Foreign  Affairs  and  European  Integrations  in  November  2007.  Croatia  currently  does  not 
collect  statistics  on  development  and  humanitarian  aid  in  line  with  OECD/ODA  standards, 
however, progress has been made towards meeting the standard. Croatia will need to establish 
the  required  legal  framework  in  this  area.  Generally,  preparations  in  this  area  are  well 
advanced. 

Conclusion 

Croatia has made further progress in this chapter. Provided Croatia continues preparations as 
scheduled and improves its administrative capacity, it should be able to apply the acquis and 
participate  in  the  common  commercial  policy  upon  accession.  Continued  efforts  are  also 
needed in the areas of development policy and humanitarian aid.  

4.31.  Chapter 31: Foreign, security and defence policy 

The  regular  political  dialogue  between  the  EU  and  Croatia  has  continued  to  cover  foreign 
policy  issues.  (Concerning  neighbourly  relations  with  other  enlargement  countries  and 
member states, see the section 2.3 under Political criteria.) 

Concerning  Common  Foreign  and  Security  Policy  (CFSP),  Croatia  has  continued  to 
systematically  align  itself  with  EU  common  positions,  declarations,  and  statements.  With 
regard  to  administrative  capacity,  further  training  activities  have  taken  place  in  order  to 
develop future capacity to work with the EU CFSP structures. The post of "Political Director" 
in  the  Ministry  for  Foreign  Affairs  and  European  Integration  remains  to  be  formally 
established. 

In  the  area  of  restrictive  measures,  legislative  alignment  remains  advanced.  However,  a 
continued strengthening of interagency coordination is required. 

As  regards  non-proliferation,  the  legislative  framework  for  arms  control  is  satisfactory. 
However,  there  remains  a  need  to  further  strengthen  implementation  and  enforcement 
capacity  as  well  as  transparency  of  arms  related  information.  A  comprehensive  National 
Strategy for the Control of Small Arms and Light Weapons remains to be adopted. 

With regard to the cooperation with international organisations, Croatia has, as a member of 
the UN, OSCE and the Council of Europe, been fully involved in the policy making of these 
organisations. Since January, Croatia has been a non-permanent member of the UN Security 
Council. As regards the International Criminal Court, see Political criteria – Regional issues 
and international obligations. 

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66 

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There  have  been  no  particular  developments  with  regard  to  security  measures  or  classified 
information). 

Croatia has remained committed to the development of the European Security and Defence 
Policy  (ESDP)  including  through  further  training  and  administrative  capacity  building. 
Croatia has made further commitments to actively participate in civilian operations within the 
ESDP in order to strengthen the EU’s crisis management capacity, in particular in Kosovo10. 
Croatia has continued to take part in international peacekeeping efforts and has increased to 
41  its  personnel  currently  participating  in  nine  UN  peacekeeping  missions.  Moreover,  200 
Croatian armed forces personnel are deployed in Afghanistan (ISAF). 

Conclusion 

Croatia has continued to make progress in this chapter. Overall, Croatia has reached a good 
level  of  alignment  in  the  area  of  Foreign,  Security  and  Defence  Policy.  In  order  to  be  fully 
prepared for accession, Croatia needs to strengthen implementation and enforcement of arms 
control  including  transparency  of  arms-related  information,  and  to  further  improve  capacity 
for full implementation of CFSP-ESDP. 

4.32.  Chapter 32: Financial control 

Good progress can be reported in the area of public internal financial control (PIFC). 

As regards the regulatory framework, in November 2007 the Croatian government adopted an 
independent  development  strategy  on  PIFC  for  local  and  regional  self-government  units.  A 
Code of Ethics for Internal Auditors was approved in January 2008. Furthermore, the Internal 
Auditors' Charter and the rulebooks on internal audit of budget users and on public financial 
management and control were updated in March 2008. In July 2008 the new Budget Law was 
adopted, removing inconsistency with provisions of the PIFC law. Furthermore, the financial 
inspection  was  made  compatible  with  the  PIFC  approach  with  the  new  Regulation  on 
Budgetary Control in July 2008. 

As  regards  the  institutional  framework,  the  work  and  responsibilities  of  the  Central 
Harmonisation  Unit  (CHU)  have  been  further  streamlined  and  enhanced.  However,  the 
capacity of the CHU and all budget users at central and local levels needs to be strengthened 
and there is a need for more sustainable training arrangements that would allow the CHU to 
better focus on PIFC methodology development and co-ordination. 

There has been little progress in the area of external audit, a key element for the accession 
negotiations in this chapter. Although the new Strategic Plan for 2008-2012 was adopted in 
December 2007 and the relevant work program for 2008 is being implemented together with 
continuous training for external auditors, the capacity of the SAO to perform audit activities 
needs to be enhanced, especially in the field of auditing of EU funds. Croatia also has to make 
appropriate proposals on how to comply with the need to consolidate the independence of the 
SAO. 

Some progress has been made on protection of the EU's financial interests, a key element 
for  the  accession  negotiations  in  this  chapter.  Although  two  regulations  were  adopted  in 
March 2008, including provisions on irregularity reporting on EU funds and on the scope of 

10 

Under UN Security Council Resolution 1244 

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67 

   EN 

                                                 
the  work  of  the  Budget  Supervision  Sector  within  the  State  Treasury  of  the  Ministry  of 
Finance,  acting  as  the  AFCOS,  the  above-mentioned  legal  framework  should  be  further 
improved  to  cover  the  overall  mechanism  of  the  anti-fraud  coordination  system  to  be 
established  in  the  country.  In  this  regard,  an  Anti-Fraud  Strategy  together  with  a  detailed 
Action Plan covering the specific role and responsibilities of all bodies involved in the system 
is  required.  The  administrative  capacity  of  the  AFCOS  needs  to  be  further  enhanced, 
especially with regard to coordinating procedures for recovery of EU funds and their role in 
SF management after accession. Public awareness of anti-fraud issues should be raised, based 
on establishment of an efficient system for fraud prevention, detection and follow-up. 

Good progress can be reported on protection of the euro against counterfeiting, which is a 
key  element  for  the  accession  negotiations  in  this  chapter.  In  November  2007,  the  Croatian 
National  Bank  adopted  a  decision  on  medals  and  tokens  similar  to  euro  coins  which  lays 
down the procedures for handling suspicious banknotes and coins and for protection against 
counterfeiting.  It  also  signed  cooperation  agreements  on  prevention  of  counterfeiting  of  the 
euro  with  the  Ministry  of  the  Interior,  the  European  Central  Bank  and  the  European 
Commission (OLAF). In March 2008, the Croatian National Bank endorsed the Decision on 
establishment  of  the  National  Counterfeit  Centre,  the  National  Analysis  Centre  and  the 
National Coin Analysis Centre that will enter into force on 1 March 2009. However, further 
efforts are needed to ensure efficient implementation of the regulations and to strengthen the 
capacity of the new centres. 

Conclusion 

Overall,  some  progress  has  been  made  by  Croatian  authorities  towards  fulfilling  their 
obligations under this chapter. Continued efforts are needed to establish a strong and adequate 
PIFC  system,  covering  the  institutional  framework.  In  particular,  improvements  are  still 
needed  in  the  legal  basis  for  the  functional  independence  of  the  SAO  and  in  anti-fraud 
strategy.  Moreover,  the  overall  capacity  of  the  CHU  and  of  all  budget  users  at  central  and 
local levels needs to be further enhanced. 

4.33.  Chapter 33: Financial and budgetary provisions 

There has been some progress on this chapter. The unit for the coordination and management 
of the own resources system in the Ministry of Finance is gradually developing its capacity to 
play the coordination role required of it from accession. The relevant institutions responsible 
for the system of own resources have been defined and an informal working group comprising 
representatives of all key institutions has been established. 

Although the acquis in this area does not require transposition, Croatia will need to build the 
capacity  of  its  coordination  unit,  further  develop  cross-institutional  cooperation  and  adopt 
implementing rules so as to ensure from accession the correct calculation, collection, payment 
and  control  of  own  resources  and  reporting  to  the  EU  in  line  with  the  acquis.  As  regards 
traditional  own  resources,  A&B  accounts  and  OWNRES-reporting  need  to  be  developed,  a 
system for sugar levies and for writing-off irrecoverable debts introduced and post clearance 
control improved. 

The  capacity  to  calculate  the  VAT  base,  especially  the  Weighted  Average  Rate,  required 
significant strengthening. The concrete tasks, responsibilities and relations of key institutions 
in  the  own  resources  system  require  further  streamlining  through  the  development  and 
implementation of working procedures, guidelines and manuals. 

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68 

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For the GNI resource, further implementation of the ESA 95 concept is needed, together with 
enhancing the exhaustiveness of national accounts and GNI calculations.  

Croatia needs to continue its efforts in underlying policy areas linked to the application of the 
own  resources  system,  in  particular  customs,  taxation,  statistics  and  financial  control.  This 
includes setting up effective instruments to combat customs duty and VAT fraud so that the 
financial interests of the EU can be protected. 

Conclusion 

There  has  been  some  progress  in  this  chapter,  notably  the  development  of  a  coordination 
structure for own resources. Overall, Croatia has reached a good level of alignment with and 
capacity to implement the acquis. Administrative capacity of the coordination structure needs 
to be further built up and rules and procedures for implementing own resources put in place. 

EN 

69 

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STATISTICAL ANNEX 

STATISTICAL DATA (as of 29 September 2008) 
Croatia 

Basic data 
Population (thousand) 
Total area of the country (km²) 

National accounts 
Gross domestic product (GDP) (million national currency) 
GDP (million euro) 
GDP (euro per capita) 
GDP (in Purchasing Power Standards (PPS) per capita) 
SI: GDP (in PPS per capita, EU-25=100) 
SI: Growth rate of GDP (national currency, at constant prices, % change on previous year) 
SI: Employment growth (national accounts, % change on previous year) 
Labour productivity growth: GDP growth per person employed (% change on previous year) 
SI: Unit labour cost growth (national accounts, % change on previous year) 
SI: Labour productivity (GDP in PPS per person employed, EU-25=100) 
Gross value added by main sectors (%) 

Agriculture 
Industry 
Construction 
Services 

Final consumption expenditure, as a share of GDP (%) 
Households and NPISH, as a share of GDP (%) 
General government, as a share of GDP (%) 
Gross fixed capital formation, as a share of GDP (%) 
Changes in inventories, as a share of GDP (%) 
Exports of goods and services, relative to GDP (%) 
Imports of goods and services, relative to GDP (%) 

Industry 
Industrial production volume index (2000=100) 

Inflation rate 
SI: Consumer price index (CPI), (total, % change on previous year) 

Balance of payments 
Balance of payments: current account total (million euro) 
Balance of payments current account: trade balance (million euro) 

Note

1) 

Note
2) 
2) 
2) 

2) 

2) 
2) 
2) 
2) 
3) 
3) 
3) 
2) 
2) 
2) 
2) 

Note
4) 

Note

Note

1998 
4 537e 
56 542 

2000 

1999 
4 527e  4 498e b
5 498e 
56 542 

2001 
4 439e 
56 542 

2002 
4 445e 
56 542 

2003 
4 443e 
56 594 

2004 
4 442e 
56 594 

2005 
4 444e 
56 594 

2006 
4 443e 
56 594 

2007 
4 441e 
56 596 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

137 604 141 579  152 519  165 640 181 231 198 422 214 983 231 349 250 590  275 078 
37 497 
19 272 
8443e 
4248e 
: 
7 400e 
: 
42.0e 
5.6 
2.5 
: 
-3.0 
: 
5.8 
: 
0.9 
: 
51.8e 

34 221 
26 216 
5901e 
7702e 
9 800e  10 600e 11 100e 11 700e 
45.6e 
5.3 
0.6 
4.7 
2.4 
57.5e 

24 448 
5501e 
9 300e 
43.7e 
5.6 
4.2 
1.6 
1.5 
55.5e 

22 138 
4987e 
8 600e 
41.8e 
4.4 
-5.4 
10.4 
-5.3 
55.3e 

19 955 
4437e 
8 200e 
41.3e 
2.9 
4.0 
-1.2 
-3.3 
50.5e 

18 677 
4125e 
7 400e 
40.0e 
-0.9 
-3.3 
2.6 
4.2 
52.1e 

47.9e 
4.3 
: 
: 
: 
59.4e 

48.1e 
4.8 
: 
: 
: 
59.1e 

47.0e 
4.3 
: 
: 
: 
58.4 

28 677 
6456e 

31 263 
7035e 

9.4 
25.0 
6.6 
59.0 
85.5 
60.1 
25.4 
23.3 
0.7 
39.6 
49.2 

1998 
99.8 

1998 
: 

1998 
: 
: 

9.6 
24.6 
5.3 
60.4 
85.4 
58.9 
26.5 
23.3 
-0.3 
40.9 
49.3 

1999 
98.3 

1999 
4.0 

8.8 
24.7 
4.6 
61.9 
84.9 
60.1 
24.8 
21.8 
-1.6 
47.1 
52.3 

9.0 
24.3 
4.9 
61.8 
82.1 
60.1 
22.0 
22.3 
1.6 
48.4 
54.5 

8.7 
23.0 
5.3 
63.1 
81.9 
60.4 
21.6 
24.3 
4.8 
45.3 
56.4 

7.0 
22.8 
6.3 
63.9 
79.7 
58.8 
21.0 
28.6 
2.5 
47.1 
57.9 

7.5 
23.4 
6.6 
62.5 
78.3 
57.9 
20.4 
28.1 
2.5 
47.5 
56.4 

7.3 
23.8 
6.5 
62.4 
77.4 
56.9 
20.5 
28.1 
2.9 
47.1 
55.5 

7.1 
23.5 
6.8 
62.6 
76.1 
56.0 
20.1 
29.9 
2.9 
47.9 
56.8 

6.8 
23.3 
6.8 
63.0 
75.9 
55.8 
20.1 
30.0 
2.8 
47.7 
56.3 

2000 
100.0 

2001 
106.0 

2002 
111.8 

2003 
116.3 

2004 
120.6 

2005 
126.7 

2006 
132.4 

2007 
139.8 

2000 
4.6 

2001 
3.8 

2002 
1.7 

2003 
1.8 

2004 
2.1 

2005 
3.3 

2006 
3.2 

2007 
: 

1999 
-1 429 
-3 102 

2000 
-568 
-3 492 

2001 
-821 
-4 595 

2002 
-2 099 
-5 958 

2003 
-1 889 
-6 971 

2004 
-1 434 
-6 724 

2005 
-1 976 
-7 518 

2006 
-2 696 
-8 344 

2007 
-3 226 
-9 434 

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Balance of payments current account: exports of goods (million euro) 
Balance of payments current account: imports of goods (million euro) 
Balance of payments current account: net services (million euro) 
Balance of payments current account: net income (million euro) 
Balance of payments current account: net current transfers (million euro) 

of which government transfers (million euro) 

Foreign Direct Investment (FDI) in the reporting economy (million euro) 

Public finance 
General government deficit/surplus, relative to GDP (%) 
SI: General government debt, relative to GDP (%) 

Financial indicators 
Gross foreign debt of the whole economy, relative to GDP (%) 
Gross foreign debt of the whole economy, relative to total exports (%) 
Money supply: M1 (banknotes, coins, overnight deposits, million euro) 
Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) 
Money supply: M3 (M2 plus marketable instruments, million euro) 
Total credit by monetary financial institutions to residents (consolidated) (million euro) 
Interest rates: day-to-day money rate, per annum (%) 
Lending interest rate (one year), per annum (%) 
Deposit interest rate (one year), per annum (%) 
euro exchange rates: average of period - 1 euro = … national currency 
Effective exchange rate index (2000=100) 
Value of reserve assets (including gold) (million euro) 

External trade 
Trade balance: all goods, all partners (million euro) 
Value of exports: all goods, all partners (million euro) 
Value of imports: all goods, all partners (million euro) 
Terms of trade (export price index / import price index) 
Share of exports to EU-27 countries in value of total exports (%) 
Share of imports from EU-27 countries in value of total imports (%) 

Demography 
Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) 
Net migration rate: immigrants minus emigrants (per 1000 inhabitants) 
Infant mortality rate: deaths of children under one year of age per 1000 live births 
Life expectancy at birth: male (years) 
Life expectancy at birth: female (years) 

: 
: 
: 
: 
: 
: 
: 

1998 
: 
: 

1998 
47.6 
119.4 
1 846 
: 
: 
9 131 
10.3 
20.1 
9.6 
7.140 
: 
2 400 

1998 
: 
: 
: 
: 
: 
: 

1998 
-1.2 
9.8 
8.2 
: 
: 

4 138 
7 240 
1 545 
-465 
594 
-123 
1 363 

1999 
-7.1 
33.0 

1999 
54.5 
133.0 
1 805 
: 
: 
8 587 
9.3 
20.9 
9.5 
7.580 
95.4 
3 013 

1999 
: 
: 
: 
: 
: 
: 

1999 
-1.5 
4.1 
7.7 
: 
: 

4 977 
8 469 
2 470 
-505 
959 
25 
1 141 

2000 
-7.5 
40.1 

2000 
61.4 
130.2 
2 373 
: 
: 
9 483 
6.9 
20.6 
8.2 
7.643 
100.0 
3 783 

2000 
: 
: 
: 

: 
: 

2000 
-1.5 
5.3 
7.4 
70.5 
77.8 

5 327 
9 923 
3 303 
-628 
1 099 
65 
1 467 

2001 
-6.8 
41.3 

2001 
61.4 
125.9 
3 216 
: 
: 
11 891 
3.0 
19.5 
6.6 
7.482 
98.7 
5 334 

2001 
: 
: 
: 
-4.0 
: 
: 

2001 
-1.9 
3.8 
7.7 
71.1 
78.1 

5 296 
11 253 
3 285 
-578 
1 152 
32 
1 138 

2002 
-4.9 
39.8 

2002 
61.9 
136.1 
4 148 
: 
: 
15 119 
1.3 
16.5 
5.4 
7.413 
96.5 
5 651 

2002 
-6 139 
5 188 
11 327 
3.6 
66.1 
71.9 

2002 
-2.4 
1.9 
7.0 
71.2 
78.3 

5 575 
12 546 
4 933 
-1 095 
1 245 
71 
1 762 

6 607 
13 331 
4 769 
-670 
1 192 
3 
950 

7 220 
14 738 
5 318 
-959 
1 184 
10 
1 468 

8 464 
16 808 
5 710 
-1 170 
1 107 
-9 
2 745 

9 193 
18 626 
6 309 
-1 144 
1 043 
-17 
3 597 

2003 
-6.2 
40.4 

2004 
-4.8 
42.2 

2005 
-4.0 
44.0 

2006 
-3.0 
40.9 

2007 
-2.6 
38.1 

2003 
75.8 
151.3 
4 432 
: 
: 
16 526 
4.3 
15.0 
3.8 
7.569 
93.7 
6 554 

2003 
-7 071 
5 439 
12 510 
0.4 
68.3 
73.3 

2003 
-2.9 
2.7 
6.3 
71.4 
78.4 

2004 
80.0 
161.0 
4 505 
: 
: 
18 417 
5.9 
14.4 
3.8 
7.497 
90.4 
6 436 

2004 
-6 901 
6 454 
13 354 
11.3 
65.8 
71.0 

2004 
-2.1 
2.6 
6.1 
72.0 
79.0 

2005 
82.4 
168.6 
5 263 
: 
: 
22 836 
3.4 
13.1 
3.9 
7.401 
89.2 
7 438 

2005 
-7 880 
7 069 
14 950 
-15.3 
63.3 
67.9 

2005 
-2.1 
1.9 
5.7 
71.8 
78.8 

2006 
85.5 
172.2 
6 606 
: 
: 
27 274 
2.4 
12.1 
4.0 
7.325 
: 
8 725 

2006 
-8 853 
8 252 
17 105 
8.2 
64.3 
67.2 

2006 
-2.0 
1.6 
5.2 
72.5 
79.3 

2007 
87.8 
179.2 
7 901 
: 
: 
30 863 
5.6 
12.1 
4.2 
: 
: 
9 307 

2007 
-9 832 
8 855 
18 686 
4.2 
60.9 
64.8 

2007 
-2.4 
1.3 
5.6 
72.3 
79.2 

Note 
5) 

Note 

6) 

Note 

7) 

Note 

8) 

EN 

71 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Labour market 
Economic activity rate (15-64): share of population aged 15-64 that is economically active (%) 
SI: Employment rate (15-64): share of population aged 15-64 that is in employment (%) 

Share of male population aged 15-64 that is in employment (%) 
Share of female population aged 15-64 that is in employment (%) 

SI: Employment rate of older workers (55-64): share of population aged 55-64 that is in 
employment (%) 
Employment by main sectors (%) 

Agriculture 
Industry 
Construction 
Services 

SI: Unemployment rate: share of labour force that is unemployed (%) 

Share of male labour force that is unemployed (%) 
Share of female labour force that is unemployed (%) 

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed 
(%) 
SI: Long-term unemployment rate: share of labour force that is long-term unemployed (%) 

Note
9) 
9) 
9) 
9) 

1998 
62.8 
55.3 
61.7 
49.4 

9) 

25.6 

9) 
9) 
9) 
9) 
9) 
9) 
9) 

9) 

16.5 
23.5 
6.7 
53.2 
11.7 
10.6 
12.9 

31.0 

10) 

5.4 

1999 
62.6 
53.2 
59.0 
47.8 

25.9 

16.7 
23.9 
6.6 
52.8 
14.5 
13.5 
15.7 

39.2 

7.3 

2000 
62.2 
51.3 
57.4 
45.5 

24.2 

11.7 
22.7 
5.9 
59.6b 
17.0 
15.9 
18.2 

43.1 

9.1 

2001 
62.2 
51.8 
59.0 
44.9 

2002 
62.9b 
53.4b 
60.5b 
46.7b 

2003 
62.4 
53.4 
60.3 
46.7 

23.7 

24.8b 

28.4 

15.6 
23.1 
6.3 
55.0 
16.3 
14.4 
18.7 

41.7 

10.1 

15.5b 
22.6b 
7.2b 
54.6b 
14.7b 
13.2b 
16.5b 

34.4 

8.9b 

16.9 
22.1 
8.1 
52.8 
14.1 
12.8 
15.6 

35.8 

8.4 

2004 
63.7 
54.7 
61.8 
47.8 

30.1 

17.0 
21.4 
8.2 
53.2 
13.6 
12.0 
15.6 

33.8 

7.3 

2005 
63.3 
55.0 
61.7 
48.6 

32.6 

17.3 
20.5 
8.2 
54.0 
12.6 
11.6 
13.8 

32.0 

7.4 

2006 
62.6 
55.6 
62.0 
49.4 

34.3 

14.2 
20.9 
8.4 
56.3 
11.1 
9.8 
12.7 

28.8 

6.7 

2007 
63.2 
57.1 
64.4 
50.0 

35.8 

13.0 
21.8 
8.8 
56.4 
9.6 
8.4 
11.2 

24.0b 

5.9 

Social cohesion 
Average nominal monthly wages and salaries (national currency) 
Index of real wages and salaries (index of nominal wages and salaries divided by the CPI) 
(2000=100) 
SI: Early school-leavers: share of population aged 18-24 having not completed upper 
secondary education and not currently in education or training (%) 

Note
11) 

1998 

2000 
1999 
4 131.0  4 551.0  4 869.0

2001 
5 061.0

2002 
5 366.0

2003 
5 623.0

2004 

2005 
5985.0b  6 248.0

2006 

2007 

6 634.0  7 047.0 

11) 

92.4 

98.4 

100.0 

99.2 

103.2 

106.1 

112.2b 

113.4 

116.6 

120.4 

9) 

: 

: 

: 

: 

8.3 

8.4 

6.2 

4.8 

5.1 

3.9b 

Standard of living 
Number of passenger cars per 1000 population 
Number of subscriptions to cellular mobile telephone services per 1000 population 

Infrastructure 
Density of railway network (lines in operation, per 1000 km²) 
Length of motorways (thousand km) 

Innovation and research 
SI: Spending on human resources (public expenditure on education) relative to GDP (%) 
SI: Gross domestic expenditure on research & development, relative to GDP (%) 
SI: Percentage of households who have Internet access at home (%) 

Environment 
SI: Total greenhouse gases emissions, CO2 equivalent (tons, 1990=100) 
SI: Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP 2004) 
SI: Share of renewable energy in electricity consumption (%) 
SI: Road freight transport as a share of total inland freight transport (modal split of freight 
transport) (%) 

EN 

Note

Note

Note

Note

72 

1998 
222.2 
39.3 

1999 
233.5 
79.3 

2000 
254.1 
251.2 

2001 
269.3 
389.9 

2002 
280.2 
520.9 

2003 
291.3 
571.4 

2004 
301.3 
638.7 

2005 
311.7 
821.7 

2006 
323.4 
989.9 

2007 
336.1 
1 135.0 

1998 
47.8 
0.3 

1998 
: 
: 
: 

1998 
78.1 
346.0 
38.3 

1999 
47.8 
0.4 

1999 
4.2 
1.0 
: 

1999 
81.3 
345.8 
45.1 

2000 
47.8 
0.4 

2000 
4.5 
1.2 
: 

2000 
81.2 
330.1 
40.0 

2001 
47.8 
0.4 

2001 
4.2 
1.1 
: 

2001 
84.9 
321.9 
42.7 

2002 
47.8 
0.5 

2002 
4.3 
1.1 
: 

2002 
88.7 
330.3 
33.9 

2003 
47.7 
0.6 

2003 
4.5 
1.1 
: 

2003 
93.8 
321.1 
29.4 

2004 
47.7 
0.7 

2004 
: 
1.2 
: 

2004 
94.6 
308.3 
41.0 

2005 
47.7 
0.8 

2005 
: 
1.0 
: 

2005 
: 
297.6 
58.1 

2006 
47.7 
0.9 

2006 
: 
0.9 
: 

2006 
: 
285.9 
60.5 

: 

: 

: 

75.9 

76.4 

76.2 

76.6 

76.0 

74.8 

2007 
47.7 
1.0 

2007 
: 
: 
: 

2007 
: 
: 
: 

74.0 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 

1998 
3 983 
1 825 
31 
1 282 
3 991 
8 037 
10.9 

1999 
3 570 
1 394 
9 
1 267 
4 427 
7 959 
12.2 

2000 
3 562 
1 328 
0 
1 355 
4 174 
7 819 
10.7 

2001 
3 730 
1 232 
0 
1 642 
4 166 
7 959 
12.2 

2002 
3 689 
1 200 
0 
1 732 
4 967 
8 624 
12.3 

2003 
3 727 
1 138 
0 
1 789 
4 985 
8 828 
12.7 

2004 
3 852 
1 079 
0 
1 796 
5 090 
8 842 
13.3 

Note 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

12) 

110.1 

98.8 

88.7 

108.5 

107.7 

84.1 

111.9 

443 
1 166 
510 
653 
3 209 
1 233 
: 

438 
1 362 
567 
641 
2 881 
1 114 
: 

1 169 
427 
1 234 
608 
626 
2 312 
482 
196 

1 178 
438 
1 234 
632 
674 
2 829 
965 
208 

1 181 
417 
1 286 
677 
716 
3 080 
1 183 
218 

1 200 
444 
1 347 
673 
686 
2 014 
678 
154 

1 201 
466 
1 489 
848b 
708 
3 067 
1 260 
150 

2005 
3 781 
1 017 
0 
1 854 
5 234 
8 902 
13.1 

2005 

91.3 

1 185b 
471 
1 205 
931 
813 
3 039 
1 338 
286 

2006 
4 128 
985 
0 
2 204 
4 866 
8 948 
13.0 

2007 
: 
: 
: 
: 
: 
: 
12.5 

2006 

2007 

104.4 

96.0 

1 169 
483 
1 488 
783 
870 
3 034 
1 560 
304 

1 201 
467 
1 348 
738 
883 
2 534 
1 583 
281 

Energy 
Primary production of all energy products (thousand TOE) 
Primary production of crude oil (thousand TOE) 
Primary production of hard coal and lignite (thousand TOE) 
Primary production of natural gas (thousand TOE) 

Net imports of all energy products (thousand TOE) 
Gross inland energy consumption (thousand TOE) 
Electricity generation (thousand GWh) 

Agriculture 
Agricultural production volume index of goods and services (producer prices, previous 
year=100) 
Total utilised agricultural area (thousand hectare) 
Livestock: cattle (thousand heads, end of period) 
Livestock: pigs (thousand heads, end of period) 
Livestock: sheep and goats (thousand heads, end of period) 
Production and utilisation of milk on the farm (total whole milk, thousand tonnes) 
Crop production: cereals (including rice) (thousand tonnes, harvested production) 
Crop production: sugar beet (thousand tonnes, harvested production) 
Crop production: vegetables (thousand tonnes, harvested production) 
SI:Structural Indicator 
e: estimate  
f: forecast 
p: provisional 
b: break in serie 
1. 
2. 
3. 
4. 
5. 
6. 
7. 
8. 
9. 
10. 
11. 

12. 

EN 

Land area. 
For 2005-2007, data is based on quarterly values. 
For 2005-2007, data is based on quartely values; NPISH is not included. 
Gross series; include NACE Sections C to E. 
GFS 1986 basis. Privatisation revenues are excluded and reclassified to the financing of the balance. 
1999-2006, source: Eurostat. 
Calculated on the basis of exports and import values expressed in US dollars; break in series in 2004: change in methodology as of 1 January 2004. 
Total number of migrants includes Croatian citizens and permanently resident foreigners who reported/unreported their place of permanent residence in the Republic of Croatia at the Ministry of Interior. 
For 1998-2001, data refer to the second half of the year; in 2007, data refer to the annual average of quartely data. 
For 1998-2001, data refer to the second half of the year and long-term unemployment refers to thirteen months or more; in 2007, data refer to the third quarter.  
For the period 1998-2003, the persons employed in crafts, trades and as free-lances, as well as in the police and defense-related activities are excluded; from 2004 onwards the number of persons employed in the 
police and defense-related activities are included. 
Since 2005, data is obtained by using the interview method based on a selected sample. 

73 

EN