Communication from the Commission to the Council and the European Parliament - Enlargement strategy and main challenges 2008-2009 {SEC(2008)2692} {SEC(2008)2693} {SEC(2008)2694} {SEC(2008)2695} {SEC(2008)2696} {SEC(2008)2697} {SEC(2008)2698} {SEC(2008)2699}
Date: 2008-11-05
Institutions: European Commission
Subjects: Türkiye, Western Balkans, 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 
COM(2008) 674 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Enlargement Strategy and Main Challenges 2008-2009 

{SEC(2008)2692} 
{SEC(2008)2693} 
{SEC(2008)2694} 
{SEC(2008)2695} 
{SEC(2008)2696} 
{SEC(2008)2697} 
{SEC(2008)2698} 
{SEC(2008)2699} 

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COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 

Enlargement Strategy and Main Challenges 2008-2009 

1. 

INTRODUCTION 

Enlargement  is  one  of  the  EU's  most  powerful  policy  tools.  It  serves  the  EU's  strategic 
interests in stability, security, and conflict prevention. It has helped to increase prosperity and 
growth opportunities, to improve links with vital transport and energy routes, and to increase 
the EU's weight in the world. In May 2009, the EU will mark the fifth anniversary of the 2004 
enlargement. 

The  present  enlargement  agenda  covers  the  Western  Balkans  and  Turkey,  which  have  been 
given the perspective of becoming EU members once they fulfil the necessary conditions. The 
European perspective has contributed to peace and stability, and enabled partners to cope with 
major challenges, such as Kosovo's declaration of independence, while maintaining regional 
security.  It  provides  in  both  the  Western  Balkans  and  Turkey  strong  encouragement  for 
political and economic reform. It is in the EU's strategic interest to keep up the momentum of 
this process, on the basis of agreed principles and conditions. This interest to project stability 
is  all  the  more  apparent  in  the  light  of  recent  challenges  to  stability  to  the  East  of  the  EU, 
including in the southern Caucasus. 

Turkey’s  strategic  importance  to  the  EU  has  further  increased  in  key  areas  such  as  energy 
security,  conflict  prevention  and  resolution  and  regional  security  in  the  Southern  Caucasus 
and  the  Middle  East.  The  country's  engagement  with  the  EU,  through  the  negotiations  and 
related reforms which are underway, makes it a stronger force for stability in a region facing 
many challenges. The present security environment in Europe also calls for the consolidation 
of stability and enhancement of reform in the Western Balkans.  

Against  this  background,  the  consistent  implementation  of  the  renewed  consensus  on 
enlargement,  as  defined  by  the  December  2006  European  Council,  is  more  important  than 
ever.  This  consensus  is  based  on  the  principles  of  consolidation  of  commitments,  fair  and 
rigorous  conditionality  and  better  communication  with  the  public,  combined  with  the  EU's 
capacity to integrate new members.  

The  EU  has  taken  steps  to  improve  the  quality  of  the  enlargement  process,  considering  in 
particular the lessons learned from previous enlargements. Greater focus is now given at an 
early stage to the rule of law and good governance. The pace at which a candidate or potential 
candidate approaches the EU reflects the pace of its political and economic reforms as well as 
its  capacity  to  assume  the  rights  and  obligations  of  membership  in  accordance  with  the 
Copenhagen criteria. 

The  year  ahead  will  be  a  crucial  one  in  addressing  challenges  in  the  Western  Balkans.  The 
progress  of  the  Western  Balkan  countries  towards  EU  membership  can  be  accelerated, 
provided they meet the necessary conditions. Croatia is expected to reach the final phase of 
accession  negotiations  by  the  end  of  2009  if  it  has  taken  the  necessary  preparatory  steps. 
Further reforms in the former Yugoslav Republic of Macedonia will bring the country closer 

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to  the  EU.  For  the  potential  candidates,  progress  could  result  in  candidate  status  when  they 
have demonstrated their readiness.  

The  pace  of  accession  negotiations  with  Turkey  reflects  the  pace  of  reform  as  well  as  the 
country's fulfilment of the relevant conditions. Turkey now needs to renew its political reform 
effort.  

The international financial crisis has so far had only a limited direct impact on the economy 
and  the  financial  sector  of  the  Western  Balkans  and  Turkey.  However,  the  significant 
widening  of  the  current  account  deficit  experienced  by  most  countries  raises  their 
vulnerability to external shocks. Both external credit and FDI are likely to slow as a result of 
the global financial crisis. 

As  regards  the  Cyprus  issue,  the  leaders  of  the  Greek  Cypriot  and  Turkish  Cypriot 
communities  started  full-fledged  negotiations  on  a  comprehensive  settlement  under  the 
auspices  of  the  United  Nations.  The  Commission  supports  their  efforts  and  stands  ready  to 
provide technical advice on issues within EU competence. 

The European Union is stronger with stable, prosperous and democratic neighbours. Working 
together on the basis of shared values and common interests, the EU and its neighbours can 
more  effectively  address  current  challenges.  The  Union  will  also  intensify  its  relations  with 
European  Neighbourhood  Policy  partners  to  the  East  and  South  to  further  enhance  mutual 
security  and  prosperity.  The  Eastern  Partnership  under  preparation  as  well  as  the  Barcelona 
Process: Union for the Mediterranean will be particularly important in this regard. 

The  present  communication sets  out the progress made and the key challenges faced by the 
countries  engaged  in  the  enlargement  process.  It  outlines  the  Commission's  approach  to 
guiding and supporting their efforts in the coming year. 

2. 

IMPLEMENTING THE RENEWED ENLARGEMENT CONSENSUS 

2.1. 

State of play of progress made and remaining challenges in the countries 

Western Balkans 

The  Western  Balkans  have  moved  closer  to  the  EU  over  the  past  year,  as  the  region  made 
progress,  albeit  uneven,  in  reforms  and  in  meeting  established  criteria  and  conditions. 
Stability has been maintained in the region and the situation remained generally calm after the 
declaration of independence and the entry into force of the constitution in Kosovo. The region 
continued to enjoy high growth rates, thanks in particular to domestic and foreign investments 
while,  in  general,  reforms  progressed  and  overall  living  standards  improved.  The  Regional 
Cooperation  Council  (RCC)  took  over  from  the  Stability  Pact,  strengthening  ownership  of 
regional cooperation in South East Europe by the countries directly concerned. 

Still, the Western Balkans are today confronting a number of testing issues which could affect 
security, stability and prosperity in the region. Reform and reconciliation have yet to become 
entrenched.  In  much  of  the  Western  Balkans,  state-building,  consolidation  of  institutions  as 
well  as  better  governance  constitute  priority  concerns.  In  most  countries  a  professional, 
impartial and accountable civil service remains to be set up. The enforcement of the rule of 
law,  notably  through  judicial  reform  and  the  fight  against  corruption  and  organised  crime, 
remains a major issue throughout the region. Dialogue among political forces and a spirit of 

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insufficient, 

compromise  are  still 
issues.  Unresolved 
neighbourhood issues persist. Average inflation picked up. Current account deficits have risen 
significantly.  Unemployment  remains  very  high  in  some  countries.  Further  reforms  of 
employment and social policies are needed. Macro-economic challenges have risen, due to a 
less favourable external environment, in particular the international financial crisis.  

including  on  ethnic-related 

At a country level, the following developments can be reported. 

Croatia's accession negotiations have entered their decisive phase, thus demonstrating to the 
region as a whole that the perspective of EU membership is a reality, in line with the Union's 
commitments provided the necessary conditions are fulfilled. 

In the former Yugoslav Republic of Macedonia, progress has been made in a number of key 
areas  highlighted  in  the  Commission's  communication  of  March  20081,  in  particular  as 
regards  judicial  reform,  and  police  reform,  and  implementation  of  requirements  under  the 
Stabilisation and Association Agreement. However, violent incidents and serious irregularities 
marred  parliamentary  elections.  A  constructive  political  dialogue  and  decisive  action  are 
needed to implement reforms in accordance with the Accession Partnership priorities. 

Albania has continued to make progress on key political reforms. The interim agreement with 
the  EU  entered  into  force  two  years  ago  and  is  now  being  implemented  smoothly  on  the 
whole.  However,  the  rule  of  law  and  ensuring  the  proper  functioning  of  state  institutions 
remain  major  challenges.  Administrative  and  enforcement  capacity  requires  further 
improvement. 

Political reforms have gone ahead in Montenegro. Implementation of the interim agreement, 
which entered into force at the beginning of this year, is progressing smoothly on the whole. 
However,  there  is  a  need  to  pursue  judicial  reform  and  to  entrench  the  rule  of  law,  which 
remain  major  challenges.  Administrative  and  enforcement  capacity  require  further 
improvement. 

The  signing  of  the  Stabilisation  and  Association  Agreement  (SAA)  with  Bosnia  and 
Herzegovina confirmed the EU’s commitment to the country’s European future. Bosnia and 
Herzegovina began implementing the interim agreement in July. But constitutional elements 
established  by  the  Dayton/Paris  peace  agreement  have  been  challenged  by  key  political 
leaders in both entities, and EU related reforms have stagnated. Consensus remains weak on 
key reform priorities. 

Following presidential and parliamentary elections, Serbia has renewed its commitment to a 
European future based on shared values. The SAA was signed and the interim agreement will 
start being implemented as soon as the Council ascertains that Serbia is fully cooperating with 
the  International  Criminal  Tribunal  for  the  former  Yugoslavia  (ICTY).  The  arrest  and 
bringing to justice of Radovan Karadzic was a major step forward but this process needs to be 
completed.  Serbia  has  shown  that  it  has  the  administrative  capacity  to  make  substantial 
progress towards the EU. However, over the past year reforms were delayed. Judicial reform 
and preventing corruption remain important challenges. 

1 

Western Balkans: enhancing the European perspective - COM(2008)127 final of 5.3.2008. 

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The new reality in Kosovo2 has led to the reconfiguration of the international presence. This 
should  facilitate  the  deployment  of  the  EULEX  mission  which  is  now  underway.  The 
situation  in  Kosovo  is  sui  generis  and  cannot  be  considered  as  creating  a  precedent.  The 
European  Council  stated  the  EU's  readiness  to  assist  Kosovo's  political  and  economic 
development  through  a  clear  European  perspective,  in  line  with  the  EU  perspective  of  the 
region.  The  constitution  adopted  by  Kosovo  is  in  line  with  European  standards  and  a 
considerable amount of key legislation has been adopted. However, major challenges remain, 
notably  to  strengthen  institutions,  to  entrench  the  rule  of  law,  and  to  enhance  dialogue  and 
reconciliation between the communities. 

Turkey 

The year was marked by strong political tensions. The Chief Public Prosecutor applied to the 
Constitutional  Court  to  close  the  governing  party  for  anti-secular  activities.  The  Court 
eventually decided not to follow the request of the Prosecutor and imposed instead a financial 
penalty. This helped to avert a serious political crisis and should provide fresh opportunities to 
restore dialogue and a spirit of compromise between political parties.  

The EU has strongly condemned terrorist attacks by the PKK which have claimed many lives. 
The Turkish armed forces carried out several operations against PKK bases in northern Iraq. 

Turkey has played a constructive role in its neighbourhood and the wider Middle East through 
active  diplomacy.  Following  the  crisis  in  Georgia,  it  proposed  a  Caucasus  Stability  and 
Cooperation Platform to promote dialogue between the countries of that region. President Gül 
paid a visit to Yerevan, the first visit ever of a Turkish President since the independence of 
Armenia. Turkey undertook efforts as a mediator between Israel and Syria and conducted a 
dialogue with Iran on the nuclear issue.  

Turkey's  geo-strategic  position  gives  the  country  a  vital  role  in  the  EU's  energy  security, 
particularly  diversification  of  energy  sources.  Closer  energy  cooperation  between  the  EU, 
Turkey, as well as other states in the region - both suppliers and transit countries - is essential. 
Existing and future pipeline projects are a resource for all countries through whose territory 
they pass, notably for Turkey. The timely completion of the Southern Gas Corridor through 
the swift realisation of the planned projects, and notably the Nabucco gas pipeline, is among 
the EU's highest energy security priorities. 

The  current  government  came  to  power  on  the  basis  of  free  and  fair  elections  in  July  2007 
with a strong mandate for reform. It renewed its commitment to the EU accession process and 
related reforms and announced work on a new constitution. Some progress was achieved in 
the  areas  of  freedom  of  expression  and  the  rights  of  non-Muslim  religious  communities. 
Article 301 of the Penal Code was amended with the intention of strengthening safeguards for 
freedom of expression. The Parliament adopted a new law on foundations, which addresses a 
number  of  problems  faced  by  the  non-Muslim  religious  communities.  Furthermore,  the 
Government  decided  to  complete  the  South-East  Anatolia  Project  (GAP)  for  the  economic 
development of the southeast of the country. 

However, a new impetus now needs to be given to reform, in order to strengthen democracy 
and human rights, to modernise and develop the country and to bring it closer to the EU. The 

2 

Under UN Security Council Resolution 1244/99. 

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rules  on  political  parties,  constitutional  reform,  freedom  of  expression,  and  women's  rights 
require particular attention. 

Turkey's  economy  continued  to  perform  relatively  well,  and  macro-economic  stability  has 
been preserved in spite of a slower GDP growth. The international financial crisis has led to a 
correction of asset prices and currency, without seriously affecting the banking sector so far. 
However,  the  considerable  external  financing  needs  increase  the  vulnerability  to  external 
shocks. Turkey is now a functioning market economy in terms of the Copenhagen economic 
criteria.  It  should  be  able  to  cope  with  competitive  pressure  and  market  forces  within  the 
Union in the medium term, provided that it continues to implement a comprehensive reform 
programme to address structural weaknesses. In addition, Turkey's economic interdependence 
with the EU increased. 

2.2. 

Pre-accession instruments: addressing the key challenges 

The  Commission  has  made  full  use  of  its  pre-accession  instruments  for  addressing  the  key 
challenges of state building, good governance, the rule of law, and civil society development, 
based  on  the  2007  enlargement  strategy  document.  This  has  already  yielded  significant 
results. 

Continued efforts were made to improve the quality of the enlargement process, including by 
laying down rigorous benchmarks as conditions for opening and closing negotiating chapters, 
and by issuing further impact studies on key policy areas. 

The  Council  adopted  Commission  proposals  for  Accession  and  European  Partnerships  that 
include  these  key  priorities.  The  Commission  has  intensified  political  dialogue,  with  the 
partnerships  as  main  reference  documents.  Progress  was  also  made  on  economic  dialogue 
through the pre-accession fiscal surveillance mechanism. 

Partnership priorities guided programming and delivery of aid under the Instrument for Pre-
accession  Assistance  (IPA),  leading  to  increased  support  for  fundamental  reforms.  IPA 
support  amounts  to  €1.4  billion  for  2008.  Of  the  €840  million  earmarked  for  transition 
assistance and institution building in national IPA programmes, 33 % is now used to enhance 
governance, encourage administrative and judicial reform, strengthen the rule of law, support 
the  fight  against  corruption  and  organised  crime,  promote  human  rights,  protect  minorities, 
and develop civil society. Rapid-response  assistance  from  EU  member state  officials is also 
provided  through  TAIEX  and  SIGMA3.  Medium-term  assistance  to  those  reforms  includes 
twinning networks between public administrations and grant schemes for NGO projects. 

The Commission has taken initiatives to coordinate IPA support with that of the International 
Financial Institutions (IFIs) and other donors. This increases the leverage of  IPA  support in 
the  area  of  economic  and  social  development.  An  Infrastructure  Projects  Facility  has  been 
launched  with  the  European  Investment  Bank  (EIB),  the  European  Bank  for  Reconstruction 
and  Development  (EBRD)  and  the  Council  of  Europe  Development  Bank  (CEB).  It 
constitutes  an  important  move  towards  establishing  a  Western  Balkans  Investment 
Framework  by  2010,  as  agreed  by  the  Commission,  the  EIB,  the  ERBD  and  the  CEB  and 
endorsed by the June European Council. Other initiatives include an energy efficiency facility 

3 

TAIEX:  Technical  Assistance  and Information Exchange, run by  the  Commission  - SIGMA:  Support 
for Improvement of Governance and Management, an OECD programme supported by the Commission 
in the enlargement context. 

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as  well  as  a  single  instrument  for  SME  development:  the  European  Fund  for  South  East 
Europe. This benefits tens of thousands of small businesses across the region.  

The transition from implementation of pre-accession assistance by the European Agency for 
Reconstruction  (EAR)  to  the  Commission  delegations  and  offices  in  Belgrade,  Podgorica, 
Pristina  and  Skopje  has  been  completed.  The  agency  will  be  phased  out  on  31  December 
2008.  The  eventual  goal  is  for  partners  themselves  to  take  over  the  implementation  of 
assistance, when they demonstrate their readiness to do so. 

The Commission organised in July a Donor Conference for the socio-economic development 
of Kosovo which resulted in a total pledge of €1.2 billion, with the European Union and its 
member states contributing nearly €800 million. This support should provide a considerable 
boost to Kosovo's development. It is essential that the Kosovo government accompany donor 
assistance  by  delivering  on  its  commitments  as  regards  fiscal  discipline,  public  expenditure 
management and economic policy reform. 

Special  attention  has  been  given  to  people-to-people  contacts  in  line  with  the  2007 
enlargement  strategy  document.  Visa  facilitation  and  readmission  agreements  entered  into 
force  with  all  countries  concerned  in  January  2008  and  the  Commission  is  conducting  a 
dialogue  on  visa  liberalisation  with  them.  In  this  context,  roadmaps  for  visa  liberalisation 
were  established,  setting  out  clear  and  realistic  benchmarks  for  the  lifting  of  the  visa 
obligation.  Measures  aimed  at  increasing  people-to-people  contacts  also  include  more 
mobility  opportunities  for  undergraduate  and  graduate  students  under  the  Erasmus  Mundus 
programme  and  additional  funds  for  youth  exchanges  and  partnership  under  the  Youth  in 
Action programme. The Tempus programme continued to provide support to higher education 
reform through partnerships between universities. 

Following  the  establishment  of  the  Energy  Community,  negotiations  have  begun  for  the 
creation  of  a  Transport  Community  with  the  Western  Balkans  with  the  aim  of  signing  an 
agreement in the course of 2009. Progress has also been made towards implementation of the 
European  Common  Aviation  Area  (ECAA).  In  the  field  of  environment  a  new  regional 
cooperation  mechanism  is  being  developed  to  jointly  tackle  the  environmental  challenges 
linked to pre-accession. 

In  response  to  the  international  financial  crisis,  the  Commission  stands  ready  to  assist  the 
authorities 
its  financial  and  economic 
in 
consequences. 

the  enlargement  countries 

in  managing 

Important  efforts  have  been  made  to  provide  support  for  regional  cooperation  initiatives,  in 
accordance  with  the  Thessaloniki  agenda  and  with  steps  outlined  in  the  Commission's 
communication of March 2008. The newly established Regional Cooperation Council (RCC) 
is operational. It now faces the challenge of ensuring the efficiency of regional activities and 
their  further  streamlining.  Regional  initiatives  supported  by  the  Commission  include 
assistance to the secretariat of the RCC, the Regional School of Public Administration to be 
set  up  in  Danilovgrad  (Montenegro),  a  new  disaster  risk  reduction  initiative,  as  well  as 
cultural heritage rehabilitation and history textbooks projects. The Commission also supports 
cooperation in trade matters through the CEFTA Secretariat. Regarding customs, provisions 

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on  diagonal  cumulation  on  rules  of  origin  between  the  EU  and  some  Western  Balkan 
countries will soon come into effect, thus facilitating regional trade integration4.  

The  Commission  set  up  a  new  financing  facility  under  IPA  to  promote  civil  society 
development and dialogue. Support under the Civil Society Facility for 2008 amounts to some 
€30  million,  geared  towards  capacity  building  at  local  level.  The  Commission  organised  a 
major conference on civil society development in Southeast Europe in April. The conference 
stimulated networking, exchanging best practices and building partnerships. These initiatives 
favour reconciliation among peoples as well as progress on the path towards EU membership. 

Better  communication  with  the  public  is  a  key  principle  of  the  renewed  consensus  on 
enlargement. The Commission is promoting public debate about EU enlargement, both in the 
member states and the enlargement countries, carrying out communication activities for civil 
society organisations, journalists and youth, including the release of video clips, the European 
Street Football Festival in Foca and a competition for young journalists "Enlarge your vision". 
These  initiatives  complemented  communication  efforts  undertaken  by  member  states  and 
partner countries. 

3. 

THE ENLARGEMENT AGENDA IN 2008-2009 

3.1. 

Accelerating the course of the Western Balkans towards EU membership 

The June 2008 European Council reaffirmed its full support for the European perspective of 
the  Western  Balkans.  It  stressed  that  by  making  solid  progress  in  economic  and  political 
reform  and  by  fulfilling  the  necessary  conditions  and  requirements,  the  remaining  potential 
candidates  in  the  Western  Balkans  should  achieve  candidate  status,  according  to  their  own 
merits, with EU membership as the ultimate goal.  

The EU perspective remains essential for the stability, reconciliation and development of the 
Western Balkans, in accordance with the Stabilisation and Association Process (SAP). It is in 
the interest of the European Union, and of Europe as a whole, that the region should go ahead 
as rapidly as possible with political and economic reform, reconciliation among peoples and 
progress  towards  the  EU.  The  EU  should  be  ready  to  accelerate  their  pre-accession 
preparations,  as  soon  as  they  meet  the  necessary  conditions,  and  to  ensure  that  the  region 
continues to benefit from the highest level of political and economic treatment in line with the 
SAP. However, ultimately progress on the way towards membership lies in the hands of the 
people of the region and their leaders, as its pace depends on each country's achievements in 
adopting the necessary reforms. 

The  Commission  is  proposing  in  the  present  communication  an  indicative  roadmap  for 
concluding  the  technical  negotiations  with  Croatia  by  the  end  of  2009,  provided  the 
conditions are met. This is explained in section 3.2. 

Further steps by the former Yugoslav Republic of Macedonia in its progress towards the EU 
will be possible, once the Copenhagen political criteria are met and the key priorities of the 
accession  partnership  are  fulfilled.  In  particular  the  country  needs  to  ensure  free  and  fair 

4 

Diagonal  cumulation  enables  a  country  to  transform  and  export  a  product  under  preferential  trade 
treatment  to  the  EU,  even  though  part  of  the  product's  input  originated  from  another  country 
participating in the scheme. 

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elections. The dialogue between major political parties and actors needs to improve so as to 
permit  the  normal  functioning  of  institutions  and  accelerate  the  pace  of  reforms.  The 
Commission  will  closely  monitor  the  former  Yugoslav  Republic  of  Macedonia's  progress. 
Outstanding key partnership priorities concern establishing a track record of implementation 
of  the  judicial  reforms,  ensuring  an  impartial  and  non-politicised  police  service,  continuing 
the  fight  against  corruption  in  an  objective  manner,  and  ensuring  that  recruitments  and 
promotion in the civil service are based on professional criteria. 

A  number  of  countries  in  the  Western  Balkans  have  indicated  that  they  are  considering 
submitting applications for membership in the EU. The Commission recalls that a satisfactory 
track record, notably in implementing obligations arising from an SAA, including the trade-
related  provisions,  is  an  essential  element  for  each  country's  progress  towards  membership. 
An application for membership gives rise in due course, upon request from the Council, to a 
Commission opinion assessing the country's readiness and a study on the impact of accession 
on the key policy areas. 

Albania  needs  to  ensure  that  its  2009  parliamentary  elections  are  properly  prepared  and 
conducted.  Montenegro  needs  to  intensify  judicial  reform.  Both  countries  need  to  further 
build  up  their  track  records  of  SAA  implementation,  including  by  improving  their 
administrative and enforcement capacity and by strengthening the rule of law. 

Bosnia and Herzegovina now urgently needs to achieve the necessary political consensus and 
to  proceed  with  reforms,  in  particular  with  a  view  to  assuming  greater  ownership  of  its 
governance. A shared vision on the direction of the country is needed for a smooth operation 
of  institutions,  for  creating  more  functional  and  efficient  state  structures,  and  for  speaking 
with one voice on EU matters. The Peace Implementation Council (PIC) will review later this 
month  the  country's  readiness  for  closure  of  the  Office  of  the  High  Representative.  This 
depends on progress in meeting five specific objectives5 as well as of a positive assessment by 
the PIC of the political situation based on full compliance with the Dayton Peace Agreement. 
The  Commission  stands  ready  to  support  the  efforts  of  Bosnia  and  Herzegovina  towards 
fulfilling these conditions. 

The  June  European  Council  stated  that  Serbia  can  accelerate  its  progress  towards  the  EU, 
including candidate status, as soon as all the necessary conditions are met. The Commission 
considers  that  it  should  be  possible  to  grant  candidate  status  to  Serbia  in  2009  if  these 
conditions are met and in the light of a Commission opinion. Serbia needs to build on positive 
developments through implementing full cooperation with ICTY and pressing ahead with its 
reform  agenda,  leading  to  tangible  progress  in  priority  areas  including  on  strengthening  the 
rule of law and accelerating economic and budget reforms. Serbia has a key role to play in the 
region.  It  is  encouraged  to  take  a  constructive  approach  towards  Kosovo's  participation  in 
regional  initiatives  and  international  fora  and  to  the  EU's  efforts  to  contribute  to  peace  and 
stability in the Western Balkans. 

5 

1° Acceptable and sustainable resolution of the issue of apportionment of property between State and 
other  levels  of  government;  2°  Acceptable  and  sustainable  resolution  of  defence  property;  3° 
Completion  of  the  Brčko  final  award;  4°Fiscal  sustainability  (promoted  by  an  agreement  on  a 
permanent  ITA  coefficient  methodology  and  establishment  of  a  National  Fiscal  Council); 
5°Entrenchment of the rule of law (demonstrated by adoption of a National War Crimes Strategy, of a 
Law on aliens and asylum and of a National Justice Sector Reform Strategy). 

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The socio-economic development of Kosovo is crucial to the well-being of its population and 
for the stability of the wider region. The European Council stated in June that, in line with the 
rest  of  the  Western  Balkans,  Kosovo  has  a  clear  EU  perspective.  The  EU  expects  Serbia  to 
take a constructive line on EULEX deployment and encourages Kosovo Serbs to participate in 
Kosovo's  development.  The  regular  dialogue  between  the  Commission  and  the  Kosovo 
authorities  on  reforms  will  intensify.  The  Commission  will  explore  all  avenues  to  promote 
Kosovo's involvement in regional cooperation and calls on all parties to adopt a constructive 
approach  in  this  regard.  It  will  evaluate  means  to  further  Kosovo's  political  and  socio-
economic  development,  and  will  examine  how  Kosovo  can  progress,  as  part  of  the  region, 
towards integration with the EU in the context of the Stabilisation and Association Process. 
The outcome of this analysis will be presented in a feasibility study in the autumn of 2009. 

Good  neighbourly  relations  and  regional  cooperation  remain  key  in  advancing  towards  EU 
membership  and  as  such  constitute  a  central  element  of  the  Stabilisation  and  Association 
Process.  Nearly  all  regional  partners  have  unresolved  bilateral  issues  with  their  neighbours, 
including  border  disputes.  The  Commission  will  continue  to  monitor  developments  in  this 
respect  and  urges  all  partners  to  address  bilateral  issues  as  a  priority.  Significant  efforts  are 
needed  to  enhance  judicial  cooperation  on  criminal  matters,  including  for  investigations  on 
domestic war crimes. 

People-to-people contacts make the European perspective tangible for citizens. 

The  Commission  will  continue  to  closely  monitor  the  correct  implementation  of  the  visa 
facilitation  agreements.  It  will  monitor  the  implementation  of  the  roadmaps  for  visa 
liberalisation  and  will  support  the  countries  in  meeting  the  benchmarks  set  out  in  the 
roadmaps. The pace of the  visa dialogue will depend on the results obtained  by  each  of  the 
countries. Provided the benchmarks are met by a country, the Commission may propose, on a 
country-by-country basis, lifting of the visa obligation in the course of 2009. 

The  Commission  will  also  double  the  funds  allocated  to  scholarships  for  students  of  the 
Western Balkans under IPA 2009. 

Participation  in  Community  programmes  and  agencies  has  proved  useful  in  bringing 
institutions and citizens of partner countries closer to the EU. The Commission will encourage 
greater  participation  by  beneficiaries  from  these  countries  in  programmes  that  are  open  to 
them. It will also explore possibilities to open further programmes to the potential candidates. 
As  regards  Community  agencies,  the  Commission  will  seek  to  offer  further  participation 
possibilities,  including  observer  status  for  all  enlargement  countries  in  the  meeting  of  the 
management boards or expert groups. The Commission proposes to upgrade the opportunities 
and  conditions  for  participation  offered  to  potential  candidate  countries.  The  EU  could  co-
finance up to 90% of the country contribution to a Community programme or Agency in the 
first  year  of  participation  through  IPA.  In  the  following  years,  that  contribution  would 
decrease, in percentage or in real amounts. The total level of co-financing for the Community 
programmes,  other  than  research  and  development  ones,  should  in  principle  remain  around 
10% of the national IPA programmes. 

Increased  participation  of  civil  society  organisations  in  the  reforms  undertaken  in  the 
enlargement  countries  is  a  strong  determinant  for  the  pace  and  quality  of  the  accession 
process,  as  well  as  in  attaining  public  support  for  accession.  Further  capacity  building  and 
networking  projects  will  be  funded  as  part  of  the  new  Civil  Society  Facility,  including  the 
'People  2  people'  visitor  programme,  the  setting  up  in  the  first  half  of  2009  of  technical 

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support offices in each country, and support schemes to civic partnerships in the areas such as 
environment,  energy  efficiency,  health  and  safety  at  work,  as  well  as  the  fight  against 
corruption, organised crime and trafficking. Under IPA 2009 support schemes to civil society 
partnerships will give priority to sectors such as culture, minorities and business associations. 

Ensuring public support remains a crucial goal for the EU enlargement policy. Member states 
in particular have a responsibility to foster public understanding of the challenges and benefits 
of enlargement. Partner countries need to play their part in explaining to their own citizens the 
conditions for progress towards the EU. The Commission will continue to treat enlargement 
as a priority area of its communication policy and will carry out further actions to support and 
complement their efforts by providing factual information and encouraging debate among key 
opinion formers. 

3.2. 

Furthering accession negotiations 

Croatia 

Croatia has made good overall progress three years after the opening of negotiations. 21 out 
of  35  chapters  have  been  opened  and  four  chapters  have  been  provisionally  closed6. 
Following an acceleration of work over the past months, Croatia has now fulfilled the opening 
benchmarks for all but two chapters.  

Overall, Croatia continued to comply with the general conditionality of the Stabilisation and 
Association  Process  (SAP).  It  now  largely  complies  with  its  obligations  under  the 
Stabilisation and Association Agreement and has agreed with the Commission a solution for 
eliminating the discriminatory taxation of cigarettes. Over the past months Croatia has taken 
significant steps to improve its management of EU pre-accession funds, although it will still 
need to demonstrate concrete results in improving its management. 

In  the  light  of  the  overall  progress  to  date,  it  should  be  possible  to  reach  the  final  stage  of 
accession  negotiations  with  Croatia  by  the  end  of  2009,  provided  that  Croatia  fulfils  all  the 
necessary conditions. With this in mind the Commission proposes an indicative road map for 
concluding  technical  negotiations.  This  indicative  timetable  may  need  to  be  adapted 
depending  on  progress  made  in  meeting  the  conditions.  Croatia  needs  to  devote  substantial 
further  efforts  in  order  to  complete  the  work  on  the  benchmarks  set  out  in  the  negotiating 
chapters. The country needs to pursue reform efforts, in particular in the judiciary and public 
administration,  the  fight  against  corruption  and  organised  crime,  the  promotion  of  minority 
rights,  including  refugee  return,  the  pursuit  of  war  crime  trials,  and  access  for  ICTY  to 
documents. Croatia must also make substantial further efforts in restructuring shipyards. The 
Commission will closely monitor the fulfilment of commitments undertaken by Croatia. 

Turkey 

Now that Turkey has averted a political crisis linked to the constitutional court case against 
the  ruling  party,  it  needs  to  reinvigorate  the  process  of  political  reform.  The  closure  case 
highlighted the importance of amending the rules governing political parties so as to ensure 
transparent financing mechanisms and to bring the provisions on the closure of parties in line 
with  European  standards  and  best  practices.  Legislation  is  also  necessary  to  reinforce  the 
defence  of  citizens'  rights  irrespective  of  personal  beliefs  or  political  affiliations,  and  to 

6 

Research and development; education and culture; enterprise and industrial policy, external relations. 

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establish  an  ombudsman  function.  Judicial  reform  needs  to  be  pursued.  Greater  dialogue  is 
needed among the country's different political forces in order to build a consensus favourable 
to reform. 

Continued  efforts  are  required  to  promote  women's  rights  and  gender  equality,  guarantee 
freedom  of  expression  and  freedom  of  religion  in  practice,  prevent  corruption,  reinforce 
cultural  rights  for  all  citizens,  strengthen  civilian  control  over  the  military,  and  bring  the 
legislation on trade unions into line with ILO and EU standards. 

Following the start of full fledged negotiations between the leaders of the Greek Cypriot and 
Turkish Cypriot communities on a comprehensive settlement of the Cyprus issue, it is crucial 
that Turkey continues supporting a solution and the efforts of the UN. 

Good neighbourly relations remain key. Turkey is expected to ensure full, non discriminatory 
implementation  of  the  Additional  Protocol  to  the  Association  Agreement  and  to  make 
progress  towards  normalisation  of  bilateral  relations  with  the  Republic  of  Cyprus.  The  EU 
will continue to follow up and review progress made on the issues covered by the Declaration 
of 21 September 2005, in accordance with the Council Conclusions of 11 December 2006. 

The adoption of a National Programme for the Adoption of the Acquis (NPAA) to address the 
priorities  of  the  Accession  Partnership  will  constitute  an  important  signal  of  Turkey's 
willingness to relaunch its reform effort. The pace of accession negotiations reflects the pace 
of reform as well as Turkey's fulfilment of the relevant conditions. 

*** 

EU public opinion on future enlargement is influenced by perception of past enlargements. It 
is essential to listen to citizens, address their concerns, and provide further information so that 
the public can see both the benefits and challenges clearly. 

2009 will mark the fifth anniversary of the entry of new member states in the Union and will 
coincide with the 20th anniversary of the fall of the Berlin Wall. In this context, the incoming 
Czech  Presidency  will  organise  a  major  event  to  mark  the  anniversary  of  the  2004 
enlargement. The Commission will provide its full support to this event and will present on 
that occasion a study on the impact of the fifth enlargement on the EU's economy. 

4. 

CONCLUSIONS AND RECOMMENDATIONS 

Based on the above analysis, the Commission puts forward the following conclusions: 

1. 

2. 

Enlargement  serves  the  EU's  strategic  interests  in  stability,  security  and  conflict 
prevention. It has helped to increase prosperity and growth opportunities, to improve 
links  with  vital  transport  and  energy  routes,  and  to  increase  the  EU's  weight  in  the 
world.  The  present  enlargement  agenda  covers  the  Western  Balkans  and  Turkey, 
which have been given the perspective of becoming EU members once they fulfil the 
necessary conditions. 

The consistent implementation of the renewed consensus on enlargement, as defined 
by  the  December  2006  European  Council,  gains  importance  in  the  light  of  recent 
challenges to stability to the East of the EU, including in the southern Caucasus. 

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3. 

4. 

5. 

6. 

7. 

8. 

9. 

The EU has taken steps to improve the quality of the enlargement process. Based on 
the  analysis  set  out  in  the  2007  enlargement  strategy  paper,  greater  focus  is  being 
given  at  an  early  stage  to  the  rule  of  law  and  good  governance,  including  the  fight 
against corruption and organised crime, administrative and judicial reforms, and civil 
society development. 

Good  neighbourly  relations  and  regional  cooperation  remain  key.  The  peaceful 
settlement of disputes remains a priority for all parties. 

In  the  light  of  the  overall  progress  to  date,  it  should  be  possible  to  reach  the  final 
stage  of  accession  negotiations  with  Croatia  by  the  end  of  2009,  provided  that 
Croatia  fulfils  all  the  necessary  conditions.  With  this  in  mind  the  Commission 
proposes  an  indicative  road  map  for  concluding  technical  negotiations.  This 
indicative timetable may need to be adapted depending on progress made in meeting 
the conditions. Croatia needs to devote substantial further efforts in order to complete 
the work on the benchmarks set out in the negotiating chapters. The country needs to 
pursue  reform  efforts,  in  particular  in  the  judiciary  and  public  administration,  the 
fight  against  corruption  and  organised  crime,  the  promotion  of  minority  rights, 
including  refugee  return,  the  pursuit  of  war  crime  trials,  and  access  for  ICTY  to 
documents.  Croatia  must  also  make  substantial  further  efforts  in  restructuring 
shipyards.  The  Commission  will  closely  monitor  the  fulfilment  of  commitments 
undertaken by Croatia. 

Turkey needs to renew political reform efforts, in order to strengthen democracy and 
human rights, to modernise and develop the country and to bring it closer to the EU. 
The  pace  of  accession  negotiations  reflects  the  pace  of  reform  as  well  as  Turkey's 
fulfilment  of  the  relevant  conditions.  Turkey  is  expected  to  ensure  full,  non-
discriminatory  implementation  of  the  Additional  Protocol  to  the  Association 
Agreement and to make progress towards normalisation of bilateral relations with the 
Republic of Cyprus. 

As  regards  the  Cyprus  issue,  the  leaders  of  the  Greek  Cypriot  and  Turkish  Cypriot 
communities  started  full-fledged  negotiations  on  a  comprehensive  settlement  under 
the auspices of the United Nations. The Commission supports their efforts and stands 
ready to provide technical advice on issues within EU competence. It calls on both 
leaders  to  make  decisive  progress  and  on  Turkey  to  contribute  to  a  favourable 
climate for such a comprehensive settlement. 

The former Yugoslav Republic of Macedonia needs to ensure the holding of free and 
fair elections, to improve the dialogue between major political parties and actors, and 
to  fulfil  outstanding  key  partnership  priorities.  The  Commission  will  continue  to 
monitor closely progress in these areas. 

The  progress  of  the  Western  Balkan  countries  towards  EU  membership  can  be 
accelerated,  provided  they  meet  the  necessary  conditions.  For  the  potential 
candidates,  this  could  result  in  candidate  status  when  they  have  demonstrated  their 
readiness, in accordance with established procedures. 

10. 

Implementation of the interim agreements with Albania, Montenegro and Bosnia and 
Herzegovina  is  progressing;  the  rule  of  law  remains  a  major  challenge,  and 
administrative and enforcement capacity requires further improvement. In particular, 

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Albania  needs  to  ensure  proper  preparation  and  conduct  of  its  2009  parliamentary 
elections.  Montenegro  needs  to  make  particular  efforts  to  pursue  judicial  reform. 
Bosnia  and  Herzegovina's  political  leaders  need  to  reach  a  common  vision  on  the 
direction  of  the  country,  to  speak  with  one  voice  on  EU  and  international  matters, 
and to achieve consensus on the key reforms required for European integration. 

Serbia needs to build on positive developments through full cooperation with ICTY 
and  tangible  progress  in  priority  reform  areas.  The  Commission  considers  that  it 
should be possible to grant candidate status to Serbia in 2009, if the conditions are 
met and in the light of a Commission opinion assessing the country's readiness.  

Kosovo  has  a  clear  European  perspective,  in  line  with  the  rest  of  the  Western 
Balkans.  In  the  autumn  of  2009,  the  Commission  will  present  a  feasibility  study 
evaluating means to further Kosovo's political and socio-economic development, and 
examining  how  best  Kosovo  can  progress  as  part  of  the  region  towards  integration 
with the EU in the context of the Stabilisation and Association Process. 

The Commission is taking measures to make the European perspective tangible for 
citizens  in  the  Western  Balkans.  Provided  that  the  benchmarks  set  out  in  the 
roadmaps for visa liberalisation are met, the Commission may propose, on a country-
by-country  basis,  lifting  the  visa  obligation  in  the  course  of  2009.  Funding  for 
scholarships  for  students  of  the  Western Balkans will  double  in 2009. Negotiations 
for  a  Transport  Community  with  the  Western Balkans will be carried forward with 
the aim of signing an agreement in the course of 2009.  

Assistance  under  the  Instrument  for  Pre-Accession  Assistance  (IPA)  will  further 
focus on core reform issues. This is reflected in the revised Multi-annual Indicative 
Financial  Framework  covering  2010-2012,  which  the  Commission  is  presenting 
today.  Implementation  of  the  new  Civil  Society  Facility  will  continue  in  2009. 
Greater  participation  by  partner  countries  in  Community  programmes  and  agencies 
will be encouraged. 

Coordination  with  International  Financial  Institutions  (IFIs)  and  other  donors 
increases  the  leverage  of  IPA  support.  The  Commission  will  move  towards 
establishing  a  Western  Balkans  Investment  Framework  by  2010  as  agreed  with  the 
European Investment Bank, the European Bank for Reconstruction and Development 
and the Council of Europe Bank. 

The  international  financial  crisis  has  so  far  had  only  a  limited  direct  impact  on  the 
Western Balkans and Turkey. The Commission stands ready to assist the authorities 
in the enlargement countries in managing its financial and economic consequences. 

In May 2009, under the Czech Presidency, the EU will mark the fifth anniversary of 
the 2004 enlargement. The Commission will present on that occasion a study on the 
impact of the fifth enlargement on the EU's economy. 

Public  support  for  enlargement  is  crucial.  It  is  important  for  authorities  in  the 
member  states  and  EU  institutions  to  foster  public  understanding  of  the  Union's 
interest in enlargement. 

11. 

12. 

13. 

14. 

15. 

16. 

17. 

18. 

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ANNEX 1 

A road map for reaching the final stage 
of accession negotiations with Croatia 

In  line  with  the  negotiating  framework  and  the  December  2006  European  Council 
conclusions, the pace of the accession negotiations depends on Croatia meeting the necessary 
conditions. In accordance with the own merits principle, progress in the negotiations depends 
on  Croatia  implementing  the  necessary  political,  economic,  legislative  and  administrative 
reforms.  The  country  needs  to  pursue  reform  efforts,  in  particular  on  judiciary  and  public 
administration,  the  fight  against  corruption  and  organised  crime,  minority  rights,  including 
refugee return, war crimes trials, and access for ICTY to documents in Croatia, as well as the 
restructuring of shipyards.  

Given  the  close  link  of  these  issues  with  the  accession  negotiations,  Croatia  will  need  to 
demonstrate  concrete  results  in  fulfilling  its  obligations  under  the  Stabilisation  and 
Association  Agreement,  complying  with  the  general  conditionality  of  the  Stabilisation  and 
Association Process (SAP) and improving its management of EU pre-accession funds. 

Opening of the remaining chapters: 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

Free movement of capital 

Public procurement 

Competition policy) 

Agriculture and rural development 

Food safety, veterinary and phytosanitary policy 

Fisheries  

Taxation 

Regional policy 

Judiciary and fundamental rights 

Justice freedom and security 

Environment 

Foreign, security and defence policy. 

The  Commission  suggests  that  the  accession  conference  make  every  effort  to  open  the 
outstanding  chapters  by  the  end  of  2008,  if  made  possible  by  Croatia's  meeting  of  the 
necessary conditions, and any remaining ones early in 2009.  

Regarding opening benchmarks for the chapter competition policy, Croatia must make further 
efforts,  in  particular  as  regards  shipbuilding.  Regarding  the  chapter  on  judiciary  and 

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fundamental rights, Croatia must make final efforts in order to meet the outstanding elements 
of the opening benchmarks. 

Provisional closing of the remaining chapters: 

31 chapters remain to be closed. This depends on Croatia meeting the closing benchmarks that 
have been set. 

Croatia  has  requested  a  substantial  number  of  transitional  arrangements  in  certain  chapters 
which  increases  the  need  for  further  negotiations  and  therefore  may  delay  the  provisional 
closure of a chapter. 

In order to reach the final phase of the accession negotiations by the end of 2009, it would be 
necessary for Croatia to complete its work on the closing benchmarks sufficiently in time as 
to allow for the closure of chapters according to the following priority schedule: 

Priority schedule for the remainder of 2008 

– 

– 

– 

– 

Intellectual property law 

Economic and monetary policy 

Trans-European networks 

Customs union 

Priority schedule for the first half of 2009 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

Right of establishment and freedom to provide services  

Company law 

Financial services 

Information society and media 

Transport policy 

Energy 

Statistics 

Social policy and employment 

Consumer and health protection 

Foreign, security and defence policy 

Financial control 

Priority schedule for the second half of 2009 

– 

Free movement of goods  

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– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

Freedom of movement of workers  

Free movement of capital 

Public procurement 

Competition policy 

Agriculture and rural development 

Food safety, veterinary and phytosanitary policy 

Fisheries 

Taxation 

Regional policy and coordination of structural instruments 

Judiciary and fundamental rights 

Justice, freedom and security 

Environment 

Financial and budgetary provisions 

Institutions 

Other issues. 

Subject  to  Croatia  maintaining  overall  progress  in  its  preparations,  the  Commission  will 
present  a  Communication  in  the  course  of  2009  on  a  financial  package  for  the  accession  of 
Croatia. 

The  Commission  further  recommends  that  the  Council  set  up  the  ad-hoc  technical  working 
party  for  the  drafting  of  the  Accession  Treaty,  on  the  basis  of  texts  prepared  by  the 
Commission. This group may work in parallel to the negotiations and could therefore start its 
work during the first half of 2009. In parallel, Croatia needs to ensure the timely availability 
of the translation of the acquis in its official language. 

The indicative timetable put forward in this roadmap may need to be adapted depending on 
progress by Croatia. The Commission will continue to support Croatia in its preparations for 
accession  and  to  continue  to  help  it  with  expertise,  including  by  making  full  use  of 
instruments such as TAIEX and twinning, and through well targeted financial assistance. 

The  Commission  will  closely  monitor  that  the  commitments  undertaken  by  Croatia  in  the 
negotiations  are  fulfilled  and  will  report  on  its  findings.  It  will  make  use  of  regular  peer 
assessment  missions,  including  as  regards  the  rule  of  law,  as  well  as  of  all  other  available 
tools. 

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ANNEX 2 

Conclusions on Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav 
Republic of Macedonia, Montenegro, Serbia, Kosovo7, Turkey 

Albania 

As regards political criteria, Albania has continued to make progress on democracy and the 
rule of law. Based on cross-party consensus, key reforms have made headway. However, the 
culture of dialogue between political parties and the proper functioning of the state institutions 
require further consolidation. The 2009 parliamentary elections need to be properly prepared 
so as to demonstrate the democratic maturity of the country. Albania needs to further build up 
its administrative capacity. Despite some progress, the fight against corruption and organised 
crime remains a major challenge. 

Some  progress  has  been  made  on  democracy  and  the  rule  of  law.  Albania's  parliament 
adopted  major  constitutional  amendments,  including  on  electoral  reform,  based  on  a  broad 
consensus between the two largest parties. A new electoral code remains to be adopted in time 
for  the  2009  parliamentary  elections.  Albania  has  made  some  progress  in  strengthening  its 
government structures to implement SAA commitments and to coordinate work towards EU 
integration.  However,  further  strengthening  of  capacity  and  strategic  planning  remains 
necessary.  In  the  area  of  public  administration,  major  efforts  are  needed  to  establish  an 
independent,  efficient  and  merit-based  civil  service.  There  continue  to  be  appointments  in 
breach  of  the  civil  service  law.  Full  implementation  of  the  civil  service  law,  including  the 
official career structure, will be key to progress. 

There has been some progress on reforming the judicial system. Important legislative acts on 
the  organisation  of  the  judiciary  have  been  adopted.  Court  infrastructure  has  started  to 
improve  but  remains  inadequate.  A  comprehensive  reform  strategy  for  the  judiciary  is 
missing. Major legislative acts regarding the functioning of the High Court of Justice and the 
Prosecutor's  Office  are  pending.  Enforcement  of  judgements,  particularly  in  civil  cases, 
remains slow. The problem of backlogs continues and court infrastructure remains inadequate. 
The  judiciary  has  continued  to  function  poorly  and  much  remains  to  be  done  to  ensure  its 
independence, transparency and efficiency. 

The  government  has  continued  its  efforts  in  the  fight  against  corruption,  which  is  a  key 
European  Partnership  priority.  An  overall  anti  corruption  strategy,  with  its  action  plan,  was 
adopted  but  implementation  has  not  started  and  monitoring  mechanisms  remain  to  be 
assessed.  Electronic  procedures  have  been  introduced  for  taxation  and  public  procurement. 
Anti-corruption investigations led to the dismissal and, in some cases, arrest of a number of 
officials.  The  perception  of  corruption  has  improved.  However,  corruption  remains 
widespread and constitutes a particularly serious problem. The institutional arrangements and 
inter-agency coordination in the fight against corruption remain weak. Fighting corruption in 
the  judiciary  remains  a  key  issue.  A  thorough  investigation  of  the  Gerdec  explosion  case  is 
needed. Much work is still needed on all aspects of the issue, including judicial accountability 
and transparency of political party funding. 

7 

Under UNSCR 1244/99. 

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Some progress has been achieved regarding human rights and the protection of minorities. 
The  legislative  framework  is  broadly  in  place.  Some  efforts  have  been  made  to  prosecute 
cases of ill treatment in pre-trial detention. New prisons and pre-trial detention centres have 
been  built.  However,  considerable  efforts  are  still  required  to  protect  human  rights  and 
prosecute  those  accused  of  violations.  Regarding  access  to  justice,  legislation  is  in  place  to 
provide  free  legal  aid,  but  it  is  not  applied  effectively.  Very  poor  detention  standards, 
exacerbated by overcrowding, remain an issue of serious concern. 

Albania has made further progress on freedom of expression. The legal framework on media 
policy has improved, but better implementation of the existing legislation is required. Further 
efforts are needed in order to decriminalise defamation and to ensure freedom of information 
and independence of the public broadcasting regulator. 

There is a favourable legal framework for civil society organisations. A Civil Society Fund to 
promote NGOs has been established, but implementation mechanisms are not in place. Civil 
society  organisations  remain  weak  and  their  participation  in  policy-making  requires  further 
strengthening.  

There has been further progress on strengthening women's rights. New legislation on gender 
equality was adopted. A strategy to prevent domestic violence was adopted but has not been 
implemented.  The  protection  of  women  against  all  forms  of  violence  is  insufficient  and 
remains  an  issue  of  serious  concern.  There  has  been  further  progress  on  children's  rights. 
Amendments  to  the  criminal  code  were  adopted  regarding  the  exploitation  of  children  but 
more  efforts  are  needed  to  address  child  labour.  Juveniles  can  now  be  given  sentences  of 
community  service  or  be  put  on  probation.  School  attendance  rates  among  Roma  children 
have improved somewhat. However, full implementation is hindered by lack of resources. A 
social protection strategy for 2008-2013 was adopted, but lacks implementation mechanisms. 
Support  mechanisms  for  socially  vulnerable  people  and  people  with  disabilities  remain 
limited. Better co-ordination of government agencies is needed. Regarding anti-discrimination 
policy, there has been little progress on the legal framework.  Lack of progress in amending 
labour legislation hampers the development of social dialogue. 

There has been progress on consolidating property rights. The initial registration of real estate 
is  almost  completed  and  the  process  of  valuing  property  for  assessing  restitution  and 
compensation  claims  is  ongoing.  Unresolved  property  issues  have  undermined  efforts  to 
develop a functional land market and kept foreign investment below potential.  

Albania took some measures to fulfil its commitments on the protection of minorities, notably 
to promote the use of minority languages. Improvement is needed, in particular by collecting 
reliable data on the size and situation of minorities. Some steps have been taken to improve 
the situation of the Roma, particularly on school registration, but the impact of these measures 
has been limited.  Better coordination and adequate resources are needed for participation in 
the Roma Decade and to implement existing strategies. The Roma minority continues to face 
very  difficult  living  conditions  and  discrimination,  with  poor  access  to  education,  social 
protection, health care, housing and employment. 

Regarding  regional  issues  and  international  obligations,  Albania  has  continued  to  play  a 
constructive  role  in  maintaining  regional  stability  and  fostering  good  relations  with  other 
Western Balkan and neighbouring EU countries. The country participated actively in regional 
cooperation,  including  the  newly  established  Regional  Cooperation  Council  (RCC)  and  the 
Central  European  Free  Trade  Agreement  (CEFTA).  As  regards  the  International  Criminal 

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19 

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Court, the bilateral immunity agreement with the United States is not in line with the relevant 
EU common position and guiding principles. 

The  economy  of  Albania  continued  to  grow  at  a  relatively  fast  pace.  Inflationary  pressures 
loosened. 
imbalances  widened  and 
were  contained,  but  external 
Macroeconomic  stability  was  broadly  maintained,  supported  by  a  wide  range  of  structural 
reforms.  The  business  environment  improved.  However,  unreliable  energy  supply,  poor 
infrastructure, and weak rule of law and contract enforcement continued to hinder economic 
development.  

the  fiscal  stance 

As  regards  the  economic  criteria,  Albania  made  further  progress  towards  establishing  a 
functioning market economy. A continuation of structural reforms and sizeable investment in 
infrastructure  and  education  are  needed  in  order  to  enable  the  economy  to  cope  with 
competitive pressures and market forces within the Union over the long term.  

Political  consensus  on  the  fundamentals  of  market-oriented  economic  policies  and 
macroeconomic stability has been maintained. The economy coped well with strong pressures 
from  rising  global  food  prices,  and  achieved  an  improvement  in  the  labour  market 
performance.  The  administration  of  public  finances  improved,  resulting  in  higher  tax 
revenues.  Privatisation  of  large-scale  state-owned  companies  progressed  and  business 
registration procedures were extensively simplified.  

Measures  were  taken  to  improve  labour  force  skills  and  to  promote  investments  in 
infrastructure  and  enterprise  restructuring  progressed.  The  government  intensified  its  fight 
against  corruption  and  tax  evasion.  The  financial  sector  remained  sound,  with  increasing 
transparency in the credit market. State-induced distortions of competition remained limited.  

However,  macroeconomic  risks  increased  as  the  current  account  deficit  widened,  mainly 
driven by increased demand for energy and machinery imports. Exports remained limited, and 
were  well  below  the  level  of  imports.  On  the  financing  side,  capital  inflows  remained 
relatively  small.  A  delayed  fiscal  consolidation  also  contributed  to  the  existing  aggregate 
savings-investment  gap,  given  the  increases  in  public  investments  in  infrastructure.  The 
unfinished restructuring of the loss-making state-owned power corporation remained a fiscal 
risk.  

Unreliable energy supply continued to hinder economic development. The competitiveness of 
the  economy  remained  hampered  by  shortages of qualified staff  and a  limited capital stock, 
including  poor 
remained 
unproportionally  high.  The  large  informal  sector  is  fuelled  by  weaknesses  in  tax  and 
expenditure policies, as well as in law enforcement, including the fight against corruption and 
organised  crime.  The  informal  sector  remains  an  important  challenge,  as  it  reduces  the  tax 
base and the efficiency of economic policies.  

infrastructure.  Employment 

the  agricultural 

sector 

in 

Albania  has  made  progress  in  aligning  its  legislation,  policies  and  capacity  with  European 
standards  and  in  implementing  its  Interim  Agreement  commitments.  Progress  continued  in 
areas  such  as  customs  and  competition.  In  other  areas,  such  as  energy,  transport  and 
intellectual  property  rights,  progress  has  remained  limited.  Progress  on  veterinary  and 
phytosanitary control is still necessary in order to benefit fully from trade concessions under 
the  Stabilisation  and  Association  Agreement  (SAA).  Further  efforts  are  needed  to  improve 
administrative capacity for the non-trade-related provisions of the SAA and for effective law 
implementation. 

EN 

20 

   EN 

 
There has been progress in some internal market fields, but further efforts are needed in order 
to fulfil Albania's SAA obligations. Progress in adopting European technical standards and in 
accreditation  has  continued.  Some  improvements  in  the  areas  of  metrology  and  market 
surveillance have taken place, but further efforts are required. The legislative framework on 
consumer  protection  improved.  No  significant  progress  can  be  reported  on  the  right  of 
establishment. Certain restrictions on liberalisation of movement of capital remain in place.  

Progress  continued  on  customs'  administrative  capacity.  Infrastructure  at  border  crossing 
points is being improved. Customs revenue continued to rise, while tariff reductions under the 
Interim  Agreement  were  implemented  on  time.  However,  strategies  for  information 
technology  and  training  need  to  be  defined  and  further  improvements  in  infrastructure  and 
alignment  with  EU  practices  are  required.  There  has  been  progress  in  taxation.  Income  and 
corporate  tax  revenues  have  increased.  However,  tax  collection  remains  low,  particularly  at 
the  local  government  level.  Tax  collection,  control  strategy  and  further  alignment  with  EU 
legislation and practices need to be further strengthened.  

Progress  continued  in  the  area  of  competition.  The  Competition  Authority  was  further 
strengthened, by imposing anti-trust fines in key sectors. The legislative framework is largely 
in  line  with  the  acquis,  but  further  efforts  are  needed  to  implement  it.  Albania  has  made 
further  progress  towards  meeting  its  state  aid  obligations  under  the  Stabilisation  and 
Association Agreement. An inventory of aid schemes has been completed.  

Limited  progress  can  be  reported  as  regards  public  procurement.  E-procurement  procedures 
have  been  introduced,  but  further  legislative  approximation  is  required,  particularly  in  the 
areas of concessions and utilities. Capacity at the Public Procurement Agency has improved, 
but  requires  further  strengthening.  The  impartiality  of  the  review  procedures  needs  to  be 
ensured.  Current  procedures  for  handling  complaints  do  not  meet  international  standards. 
Amendments to the Customs code in relation to intellectual property rights (IPR) and a law 
on industrial property rights were adopted. However, IPR enforcement remains weak and the 
number  of  infringement  cases  brought  to  court  is  low.  The  capacities  of  the  Patent  and 
Copyright  offices  remain  weak.  Considerable  further  efforts  are  required  to  fulfil  Interim 
Agreement obligations on IPR. 

There  has  been  some  progress  in  approximating  to  European  standards  on  employment  and 
social  policies.  Programmes  have  been  put  in  place  to  foster  the  employment  of  vulnerable 
groups. The labour inspectorate was strengthened, but its capacity to enforce labour rights is 
limited. Occupational health and safety standards remain poor. Continued progress has taken 
place in public health. Some progress has been made on education. The education budget has 
continued  to  increase.  A  new  digitalised  central  system  for  university  admissions  was 
introduced. Access for students with disabilities has improved. However, secondary schools 
enrolment in rural areas remains low. There has been some progress in the field of research, 
but capacity requires further strengthening. 

Progress can be reported on some sectoral policies. Regarding industry and SMEs, progress 
has been made in implementing the European Charter for Small Enterprises. Some progress 
can be reported on agriculture, particularly as regards the legislative framework and in setting 
up  rural  development  structures.  The  legal  framework  on  food  safety,  veterinary  and 
phytosanitary  policy  has  improved,  but  compliance  with  EU  standards  remains  poor,  and 
further efforts are needed to strengthen institutional capacity. There has been some progress in 
the  area  of  fisheries  regarding  inspection,  control  and  international  cooperation.  Law 
enforcement and implementation require further attention. 

EN 

21 

   EN 

 
Regarding  environment,  horizontal  legislation  has  improved,  but  implementation  and 
enforcement are lagging behind. The administrative capacity for environmental policy making 
and enforcement needs to be strengthened.  

Some  progress  can  be  reported  in  the  field  of  transport.  Albania  continues  to  actively 
participate 
the  South  East  Europe  Transport  Observatory.  However,  substantial 
improvements are still needed in all transport sectors. 

in 

There  was  limited  progress  in  the  energy  sector.  Albania  made  progress  towards 
implementing  EU  legislation  in  line  with  its  Energy  Community  Treaty  commitments. 
Progress continued on the restructuring of the electricity company and efforts are underway to 
improve its financial situation. However, the energy sector remains in a critical state. Security 
of electricity supply is not ensured as generation capacity is not sufficient to meet domestic 
demand, and limited interconnection capacity continues to hinder imports.  

Some progress can be reported regarding information society and media. New legislation on 
electronic  communications  and  e-signature  was  adopted  and  market  liberalisation  started. 
However, the regulatory framework is not yet in line with the acquis and the capacity of the 
telecommunications regulator is inadequate. On audiovisual policy the administrative capacity 
of  the  broadcasting  authority  was  strengthened,  but  technical  resources  remain  limited. 
Regarding  financial  control,  a  new  budget  law  was  adopted.  However,  managerial 
accountability and financial control are at an early stage. Progress has been reasonable in the 
field  of  statistics.  The  capacity  of  the  Albanian  statistical  office  improved.  Most  statistical 
classifications are in place, in line with EU standards. Alignment is moderately advanced.  

In  the  field  of  justice,  freedom  and  security,  some  progress  has  been  made  in  most  areas, 
albeit  unevenly.  Further  improvement  is  needed  overall.  Regarding  visas,  a  reliable  civil 
registry  and  address  system  is  being  set  up  to  improve  document  security.  The  law  on 
foreigners was adopted. The EC-Albania readmission agreement has been in place since 2006. 
The  EC-Albania  visa  facilitation  agreement  entered  into  force  and  the  visa  liberalisation 
dialogue was launched. Biometric passports in line with EU standards need to be issued. The 
visa regime is not yet in line with EU standards. 

Border  control  has  been  improved  as  a  result  of  a  new  law  on  border  management,  better 
infrastructure  and  inter-agency  co-operation.  Implementation  of  the  integrated  border 
management strategy has started. However, staffing levels and training for the border police 
needs strengthening. Cross-border cooperation needs to be enhanced. There is little progress 
to  report  on  asylum  policy.  The  review  of  the  legal  framework  for  approximation  to  EU 
standards  has  not  been  completed.  Implementation  capacity  remains  weak  and  inter-agency 
cooperation needs strengthening. Some progress can be reported in the area of migration. A 
central  return  and readmission unit was established  to oversee regional readmission centres. 
Migration checks at borders are more effective, but considerable further efforts are needed. 

Limited  progress  has  been  made  in  preventing money  laundering.  The  legal  framework  and 
cooperation  between  banks  and  financial  institutions  on  money  laundering,  have  improved. 
However,  enforcement  capacity  to  confiscate  assets  remains  low.  Investigation  resources, 
inter-agency cooperation and enforcement capacity need to be further improved. 

Limited  progress  can  be  reported  in  the  fight  against  drugs,  and  drug  trafficking  remains  a 
serious  concern.  Drug-related  prosecutions  have  increased.  Better  infrastructure  for  pre-trial 
storage  of  seized  drugs  has  been  built.  However,  strong  determination  is  needed  to  achieve 

EN 

22 

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sufficient results in this area, while detection measures and equipment at borders need to be 
improved. 

Progress  continued  on  policing,  with  the  implementation  of  the  new  police  law. 
Implementation  of  the  Europol  strategic  agreement  and  of  the  South  East  Europe  Police 
Cooperation  Convention  has  started.  However,  police  management,  staffing,  training,  and 
internal control structures need to be further strengthened. More efforts are needed to develop 
reliable crime statistics. 

Limited  progress  can  be  reported  in  the  fight  against  organised  crime,  which  remains  a 
serious  problem  and  is  affecting  the  rule  of  law  and  the  business  environment.  A  national 
strategy to fight organised crime was adopted. The legal framework improved. Co-operation 
with Interpol has improved, allowing a number of international arrest warrants to be executed. 
However, efforts to combat organised crime are undermined by corruption and poor witness 
protection. Difficulties in cooperation between police and prosecutors continued to reduce the 
effectiveness of investigations. 

A strategy to combat trafficking in human beings has been adopted. Much remains to be done, 
particularly  in  terms  of  victim  protection.  More  political  will  and  better  coordination  are 
needed  for  the  implementation  of  the  anti-trafficking  strategy,  particularly  regarding  victim 
protection.  Albania  remains  a  significant  country  of  origin  for  trafficking  in  human  beings, 
both  for  sexual  exploitation  of  women  and  girls  and  forced  labour.  Internal  trafficking  of 
women and children is on the increase. 

Good  progress  can  be  reported  on  the  protection  of  personal  data.  The  legal  framework  is 
now  in  place  and  an  independent  data  supervisory  authority  has  been  appointed.  However, 
adequate resources are needed for the proper implementation of its mandate. 

Bosnia and Herzegovina  

Bosnia  and  Herzegovina  has  made  limited  progress  in  addressing  political  criteria  in  line 
with  the  European  Partnership.  Following  progress  in  four  key  areas  set  out  by  the 
Commission  and  the  Council  in  20058  the  Stabilisation  and  Association  Agreement  (SAA) 
was  signed  in  June  2008.  However,  the  lack  of  consensus  on  the  main  features  of  state 
building, frequent challenges to the Dayton/Paris peace agreement and inflammatory rhetoric 
have  adversely  affected  the  functioning  of  institutions  and  have  slowed  down  reform.  A 
shared vision by the political leaders on the direction of the country and on the key EU-related 
reforms,  as  well  as  ability  to  speak  with  one  voice  on  EU  and  international  matters,  are 
essential elements for the country's further progress towards the European Union. Bosnia and 
Herzegovina  also  needs  to  further  build  up  its  administrative  capacity,  in  particular  at  the 
State level, and to increase its anti-corruption efforts.  

Regarding democracy and the rule of law, there has been limited progress towards creating 
more functional and efficient state structures and no progress on constitutional reform. Bosnia 
and  Herzegovina's  system  of  governance  continues  to  involve  international  presence.  The 

8 

1)  Implementation  of  police  reform  in  compliance  with  the  October  2005  agreement  on  police 
restructuring;  2)  full  co-operation  with  the  ICTY;  3)  adoption  and  implementation  of  all  necessary 
public  broadcasting  legislation;  and  4)  development  of  the  legislative  framework  and  administrative 
capacity to allow for proper implementation of the SAA. 

EN 

23 

   EN 

 
                                                 
closure  of  the  Office  of  the  High  Representative  (OHR)  is  conditional  on  Bosnia  and 
Herzegovina's progress in addressing specific requirements9. 

The  municipal  elections  in  October  2008  were  held  in  accordance  with  international 
standards.  There  has  been  some  progress  in  improving  the  efficiency  of  the  Parliamentary 
Assembly  of  Bosnia  and  Herzegovina.  The  assembly  adopted  a  number  of  important  laws 
based  on  the  European  Partnership  during  the  first  half  of  2008,  but  its  work  has  been 
adversely  affected  by  the  political  climate,  systematic  voting  along  ethnic  lines  and 
insufficient administrative resources. As regards the government at State level, consensus on 
European integration helped to move the legislative agenda forward until the spring of 2008. 
However,  reforms  have  stagnated  in  recent  months.  Internal  tensions  and  fragmented  and 
uncoordinated policy-making between the State and the Entities remain the main obstacles to 
efficient work by the State-level government. Lack of political will and capacity problems in 
government and parliament continue to delay the adoption of legislation. The Directorate for 
European  Integration  has  continued  to  play  an  important  role  in  promoting  European 
integration,  but  has  been  adversely  affected  by  limited  resources  for  personnel  and  the 
difficult  political  climate.  The  lack  of  a  recent  population  census  is  a  serious  handicap  for 
policy planning in Bosnia and Herzegovina as a whole.  

Some  progress  has  been  made  in  the  area  of  public  administration,  but  further  efforts  are 
needed.  The  public  administration  reform  co-ordinator's  office  has  been  strengthened.  The 
public administration reform strategy, which is a key European Partnership priority, is being 
implemented.  The  public  administration  reform  fund  has  become  operational.  Coordination 
between  the  State-  and  Entity-level  Civil  Service  Agencies  has  improved,  with  joint 
involvement  in  several  large-scale  training  schemes.  Nonetheless,  sustained  efforts  remain 
necessary  to  prevent  political  interference,  to  limit  the  role  played  by  ethnic  identity  in 
appointments,  and  to  establish  a  professional  and  efficient  civil  service  based  on  merit  and 
competence.  The  process  of  drafting  the  Law  on  State  property,  which  is  a  condition  for 
closure of the OHR, has been very slow. The appointment of the four State Ombudsmen and 
the transfer of the Ombudsmen's competences to the State-level have been delayed.  

Bosnia and Herzegovina has continued to make progress in improving the judicial system. A 
National Strategy for Development of the Justice Sector, which aims to further strengthen the 
independence,  accountability,  efficiency,  professionalism  and  harmonisation  of  the  judicial 
system, has been adopted. The High Judicial and Prosecutorial Council continued its efforts to 
improve the situation in the judiciary. However, the fragmentation of the judicial system and 
complexity  of  the  legal  framework  continue  to  hamper  the  operation  of  the  judiciary. 
Problems persist with the prosecution of organised crime and of war crimes in the Entities and 
the Cantons. The independence, accountability and efficiency of the judicial system need to 
be further enhanced. The jurisdiction and the competences of the State-level judicial agencies 
to  operate  freely  in  Republika  Srpska  have  been  challenged  by  the  Republika  Srpska 
government, which is a serious cause for concern.  

9 

These cover five objectives 1) Acceptable and sustainable resolution of the issue of apportionment of 
property  between  State  and  other  levels  of  government;  2)  Acceptable  and  sustainable  resolution  of 
defence  property;  3)  Completion  of  the  Brčko  final  award;  4)  Fiscal  sustainability  (promoted  by  an 
agreement  on  a  permanent  ITA  coefficient  methodology  and  establishment  of  a  National  Fiscal 
Council); and 5) Entrenchment of the rule of law (demonstrated by adoption of a National War Crimes 
Strategy, of a Law on aliens and asylum and of a National Justice Sector Reform Strategy) as well as 
two specific conditions: 1) signing of the SAA and 2) a stable political situation. 

EN 

24 

   EN 

 
                                                 
Bosnia  and  Herzegovina  has  achieved  little  progress  in  the  fight  against  corruption,  which 
remains widespread and constitutes a serious problem. The National Anti-Corruption Strategy 
is not properly implemented. Convictions for corruption remain very limited. Transparency of 
public  administration  activities  is  hampered  by  political  pressure  on  public  external  audit 
institutions  and  corruption  watchdogs.  Bosnia  and  Herzegovina  needs  strengthened 
commitment and determined action against corruption.  

There  has  been  limited  progress  as  regards  human  rights  and  protection  of  minorities. 
Bosnia  and  Herzegovina  has  ratified  all  the  major  UN  and  international  human  rights 
conventions  including,  in  July  2008,  the  revised  European  Social  Charter.  However, 
implementation of international human rights conventions needs to improve. In a number of 
cases the decisions of the Human Rights Commission of the Constitutional Court of Bosnia 
and Herzegovina have not been properly implemented. 

There has been some progress in addressing civil and political rights. Steps have been taken 
to  support  civil  society  development.  The  establishment  of  the  Civil  Society  Board  is  a 
positive development, even though civil society organisations remain weak overall and their 
participation  in  policy-making  requires  further  strengthening.  The  funds  needed  for  the 
construction of the State-level prison have been secured. However, there continues to be no 
unified  practice  of  criminal  sanctions  between  the  State  and  the  Entities.  Ill-treatment  of 
inmates  and  detainees  continues  to  be  a  problem.  Prosecution  of  perpetrators  remains  low. 
Access to justice in civil and criminal trials remains a matter of concern, and equality before 
the law is not always guaranteed.  

The State and the Entity constitutions provide for the freedom of expression and  media, the 
freedom  of  assembly  and  association  and  the  freedom  of  religion.  However,  there  has  been 
little additional progress in these areas, and better implementation of the existing legislation is 
required.  The  Federation  public  broadcasting  law  has  been  adopted,  even  though  full 
harmonisation with the relevant state-level legislation is still required. All broadcasting laws 
will need to be properly implemented in order to meet this key European Partnership priority. 
There  have  been  attempts  to  withhold  financial  resources  from  the  public  broadcasting 
system. There have been further cases of physical attacks against journalists and editors.  

There has been limited progress in the area of economic and social rights. Sustained efforts 
are  needed  regarding  the  protection  of  women  against  all  forms  of  violence.  Although  an 
Action  Plan  for  children  is  in  place,  problems  in  the  fields  of  health,  social  protection, 
education  and  domestic  violence  against  children  remain.  Inadequacies  in  social  welfare 
systems adversely affect the conditions of vulnerable groups, including the mentally ill. The 
ratification of the revised European Social Charter is a progress, but the complex system of 
government and the fragmentation of legislation continue to hamper social dialogue across the 
country.  Progress  has  continued  in  the  areas  of  property  rights  and  land  administration 
reform.  The  mandate  of  the  Commission  for  Property  Claims  of  Displaced  Persons  and 
Refugees  has  been  extended  to  address  residual  property  repossession  cases.  Bosnia  and 
Herzegovina's legal framework includes provisions to protect economic and social rights, but 
overall, implementation remains poor. 

There  has  been  some  progress  in  the  area  of  cultural  rights  and  minority  rights.  The  State-
level Council of National Minorities has been established, and a National Minorities Council 
is  operational  in  Republika  Srpska.  Further  steps  need  to  be  taken  to  improve  the 
implementation of the Law on national minorities, and the State-level Constitution needs to be 
changed to allow access of minorities to all political functions. Separation of children within 

EN 

25 

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schools along ethnic lines remains an issue. Bosnia and Herzegovina has joined the Decade 
for  Roma  inclusion  2005-2015.  An  Action  Plan  on  Roma  housing,  health  and  employment 
and  a  coordination  mechanism  are  in  place.  However,  the  Roma  minority  continues  to  face 
very  difficult  living  conditions  and  discrimination,  with  poor  access  to  education,  social 
protection,  health  care,  housing  and  employment.  The  lack  of  civil  registration  continues  to 
hinder their access to basic social and economic rights.  

Concerning refugees and internally displaced persons, further improvements were recorded in 
the security situation, but little additional progress has been achieved in improving the socio-
economic integration of those who have returned. 

As  regards  regional  issues  and  international  obligations,  Bosnia  and  Herzegovina  has 
continued  to  participate  actively  in  regional  cooperation  initiatives,  including  the  Regional 
Co-operation  Council  (RCC)  whose  headquarters  were  established  in  Sarajevo  in  February 
2008, and in CEFTA. Bosnia and Herzegovina has maintained satisfactory cooperation with 
the ICTY, which is a key European Partnership priority. As regards the International Criminal 
Court,  the  bilateral  immunity  agreement  with  the  United  States  is  not  in  line  with  the  EU 
common  position  and  principles.  Bosnia  and  Herzegovina  is  still  subject  to  the  monitoring 
procedure  concerning  its  obligations  and  commitments  relating  to  its  membership  to  the 
Council of Europe.  

On  the  whole,  Bosnia  and  Herzegovina's  relations  with  its  neighbours  have  been  good,  but 
there has been very little progress in resolving outstanding issues, including trade- and border-
related matters with Croatia and Serbia.  

The economy of Bosnia and Herzegovina has continued to expand rapidly. Macroeconomic 
stability weakened as a result of widening external deficits, higher inflation, and expansionary 
fiscal  policies.  The  persistence  of  very  high  unemployment  and  low  labour  market 
participation in the country remains a major cause of concern together with diverging reform 
paths between the entities. 

As regards the economic criteria, Bosnia and Herzegovina has made some uneven progress 
towards  becoming  a  functioning  market  economy.  Further  considerable  reform  efforts  must 
be  pursued  with  determination  to  enable  the  country  to  cope  over  the  long  term  with 
competitive pressure and market forces within the Union. 

Some progress was made in reaching consensus on the fundamentals of economic policy, and 
inter-entity  cooperation  in  economic  policy  areas  has  improved.  A  commitment  to  improve 
fiscal coordination was made through the adoption of the law on the National Fiscal Council 
and the inauguration of the Fiscal Council under the new law in early September. Agreement 
was reached on the allocation of indirect taxes. The currency board arrangement continued to 
function  smoothly  and  financial  stability  was  maintained  for  the  most  part  despite 
international  volatility  and  the  high  growth  rates  of  domestic  lending.  Some  labour  market 
indicators improved. High corporate and income tax rates in the Federation were reduced and 
legislative measures were taken to avoid double taxation in the country.  

The  business  environment  improved  somewhat  in  the  areas  of  business  registration, 
bankruptcy procedures and land registration. The SME sector is benefiting from better access 
to financing. FDI surged in 2007, driven by the large privatisations in Republika Srpska and 
fully covered the current account deficit. The upgrading of physical capital accelerated, also 
supported by rapidly growing public investment in Republika Srpska. 

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The  fiscal  slippage,  which  began  in  2006,  continued  in  2007  and  2008.  In  the  Federation, 
fiscal  risks  have  risen  owing  to  large  commitments  on  social  spending  made  against 
decelerating budget revenues. In addition, the public sector wage policy has been loosened at 
all government levels through wage increases and indexation mechanisms that weaken fiscal 
sustainability and private sector competitiveness. Restructuring and liquidation of state-owned 
enterprises advanced slowly, with only marginal progress being made in privatisation in the 
Federation. Unemployment has remained very high.  

The  shift  in  the  structure  of  production  towards  higher  value-added  activities  remains 
sluggish.  The  weak  productive  capacity  and  structural  rigidities  -  high  rates  of  social 
contributions,  distorted  wage-setting  mechanisms,  high  and  poorly  targeted  social  transfers 
and low labour mobility – hamper job creation. The business environment is still affected by 
administrative  inefficiencies.  The  large  informal  sector  is  fuelled  by  a  weak  regulatory 
framework,  by  inappropriate  tax  and  expenditure  policies,  and  by  weaknesses  in  law 
enforcement,  including  the  fight  against  corruption  and  organised  crime.  This  remains  an 
important challenge, as it reduces the tax base and the efficiency of economic policies. 

Bosnia and Herzegovina has made some progress in aligning its legislation and policies with 
European standards. The implementation of customs-related provisions following the entry 
into force of the Interim Agreement on 1 July 2008 has generally been satisfactory. However, 
Bosnia and Herzegovina's administrative capacity needs strengthening and the country needs 
to build up its track record of SAA implementation. 

Bosnia  and  Herzegovina  has  made  some  progress  in  addressing  European  Partnership 
priorities in areas of the internal market. As regards free movement of goods, limited progress 
has  been  made  in  the  fields  of  standardisation,  certification  and  market  surveillance. 
Continued  efforts  remain  necessary  in  order  to  approximate  the  legal  framework  to  EU 
legislation  in  this  area  and  to  develop  the  necessary  administrative  capacity.  The  Law  on 
pharmaceuticals and medical devices has been adopted, which will contribute to achieving a 
single  internal  market  within  Bosnia  and  Herzegovina  in  this  sector.  The  Council  for 
Consumer Protection has become fully operational.  

Limited progress has been made as regards services, right of establishment and company law. 
There  has  been  progress  as  regards  business  registration.  However,  no  progress  has  been 
made towards the establishment of a single State-level supervisory agency for banking and the 
adoption of State-level legislation on leasing and obligations.  

There have been no new developments in the area of free movement of capital, but Bosnia and 
Herzegovina's  preparations  in  this  area  are  on track.  Progress  has  been  made  in  the  field  of 
customs, as regards both legislative alignment and administrative capacity. Customs strategies 
–  especially  for  training,  information  technology  and  other  areas  –  need  now  to  be  defined. 
There has also been progress in addressing European Partnership priorities related to taxation. 
A national fiscal council was inaugurated in September 2008. VAT collection improved as a 
result of growing economic activity and the increasing number of registered VAT taxpayers.  

As regards competition, Bosnia and Herzegovina has made some progress in the field of anti-
trust control. The Competition Council has increased its activities, even though there has been 
no  further  legislative  alignment  with  the  acquis.  No  progress  has  been  made  in  the  field  of 
state aid, and the legislation for and establishment of an operationally independent State aid 
monitoring  authority  remain  pending.  There  has  been  only  limited  progress  in  the  field  of 
public  procurement.  Proper  implementation  of  public  procurement  procedures  across  the 

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country  is  not  yet  ensured.  Little  progress  has  been  made  regarding  the  enforcement  of 
intellectual  property  rights.  The  legislative  framework  is  incomplete  and  implementation 
capacity needs to be strengthened. 

Limited  progress  was  made  on  social  and  employment  policies.  Coordination  and  strategic 
planning in the public health sector has improved. A Conference of Health Ministers has been 
established and meets regularly. Some steps have been taken towards the implementation of 
the WHO Framework Convention, even though implementation needs to improve. However, 
social  and  employment  legislation  and  policies  remain  extremely  fragmented.  The 
institutional set-up of the country continues to be a serious handicap to the development of the 
necessary co-ordinated approaches.  

Some  progress  has  been  made  with  the  European  standards  in  the  field  of  education. 
Coordination  between  the  fourteen  ministries  of  education  in  the  country  has  improved 
slightly  as  a  result  of  the  establishment  of  a  Conference  of  Ministers.  A  state  level  law  on 
vocational training has been adopted. Bosnia and Herzegovina has also taken additional steps 
towards implementing the Bologna reforms. However, harmonisation of legislation at Entity 
and  Canton-level  has  not  been  completed  and  implementation  across  the  country  is  uneven. 
As  regards  research,  the  procedure  to  associate  the  country  to  the  Seventh  Research 
Framework  Programme  (FP7)  has  been  launched,  which  should  increase  the  research 
opportunities with EU partners. Nonetheless, significant efforts remain necessary in order to 
increase research capacity in the country.  

Bosnia  and  Herzegovina  is  relatively  advanced  in  its  preparations  to  join  the  WTO,  but  it 
needs to step up its efforts to meet its own objective of early accession.  

Bosnia  and  Herzegovina  has  made  some  progress  in  addressing  European  standards  on  a 
number of sectoral policies. There has been limited progress in the area of industry and small 
and  medium  enterprises  (SME).  No  country-wide  SME  Strategy  has  been  adopted.  The 
industry policy strategy also remains outstanding.  

Some  progress  has  been  made  in  approximation  with  EU  policies  in  the  area  of agriculture 
and  fisheries.  The  State-level  Law  on  agriculture,  food  and  rural  development  has  been 
adopted.  However,  there  has  been  no  progress  on  setting  up  the  State-level  Ministry  of 
Agriculture.  The  development  of  a  comprehensive  agricultural  strategy  has  been  delayed. 
There  has  been  limited  progress  in  the  fields  of  food  safety,  veterinary  and  phytosanitary 
policies. Problems remain owing to inadequate human and financial resources and weak co-
ordination  between  State  and  Entity  services.  Bosnia  and  Herzegovina's  preparations  in  the 
field of environment remain at an early stage. A State-level environmental law to create the 
framework for a nationwide, harmonised environmental protection has not been adopted and 
the State environment agency has not been set up. 

Bosnia  and  Herzegovina  has  made  some  progress  in  the  transport  sector,  both  on 
strengthening  its  institutional  set  up  and  on  adjusting  the  regulatory  framework.  There  has 
been  progress  on  development  of  the  trans-European  transport  networks,  but  substantial 
reforms and alignment are still required as regards railways. The country continues to actively 
participate  in  the  South  East  Europe  Transport  Observatory.  The  market  for  commercial  air 
carriers  has  been  opened  following  ratification  of  the  European  Common  Aviation  Area 
(ECAA) Agreement. However, the ECAA Agreement should be applied consistently. Further 
efforts  are  needed  to  complete  the  transformation  of  the  institutional  set-up  and  ensure  the 
conditions for market opening in all transport modes. 

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Limited progress has been made in the field of energy. As a party to the Energy Community 
Treaty, Bosnia and Herzegovina needs to implement the relevant EU energy legislation, but it 
is significantly lagging behind in a number of energy-related areas. Reforms in the gas sector 
in particular are delayed. In the electricity sector, transmission has been unbundled, and the 
independent  system  operator  (ISO)  and  the  transmission  company  (Transco)  are  in  place. 
However,  developments  regarding  Transco,  in particular  a  proposal  by  Republika  Srpska  to 
split the company along Entity lines, put the progress achieved in the electricity sector at risk. 
No comprehensive energy strategy has been developed. 

Bosnia  and  Herzegovina  has  made  some  progress  in  the  areas  of  information  society  and 
media. With the adoption of the Federation Public Broadcasting Law, the legal framework for 
public  broadcasting  in  Bosnia  and  Herzegovina  has  been  completed,  even  though  some 
alignment  with  the  relevant  state-level  legislation  is  still  required.  The  independence  of  the 
Communications Regulatory Authority has been further challenged by new staff salary rules 
and  difficulties  in  appointing  a  director  general.  No  progress  has  been  made  on  the 
establishment  of  a  State-level  information  agency.  Some  limited  progress  has  been  made  in 
the area of financial control. 

Some progress has been made in the area of statistics. However, the co-operation agreement 
between  the  country's  statistics  institutions  at  State  and  Entity  level  has  not  been  properly 
implemented.  Due  to  political  divergences,  a  decision  confirming  that  the  census  will  be 
conducted  in  2011  has  still  not  been  taken.  Significant  efforts  are  necessary  to  establish  an 
effective, EU-compliant statistical system in Bosnia and Herzegovina. 

In  the  area  of  justice,  freedom  and  security,  progress  has  continued  in  the  fields  of  visa 
administration,  border  management,  asylum  and  migration.  Nonetheless,  efforts  directed  at 
further improvements in all these areas need to be pursued. The Visa Facilitation Agreement 
between  the  EC  and  Bosnia  and  Herzegovina  entered  into  force  in  January  2008.  A  visa 
liberalisation dialogue with the European Commission has been launched. Further steps have 
been taken towards the introduction of biometric passports. However, further improvement of 
the citizen identification protection system (CIPS) is required, including a secure and effective 
management  of  the  system.  A  new  integrated  border  management  (IBM)  strategy  has  been 
adopted.  A  State  Border  Management  Commission,  in  charge  of  IBM  coordination  and 
implementation of the strategy, was established in July 2008. Further action is now needed to 
improve the cooperation between the different authorities at the borders. Further progress has 
been  made  in  establishing  a  functioning  asylum  system.  Some  progress  has  been  made  on 
migration.  A  temporary  reception  centre  for  irregular  migrants  was  opened  in  May,  but  the 
new migration strategy has still to be adopted. Bosnia and Herzegovina has implemented well 
the  Readmission  Agreement  with  the  European  Communities,  which  entered  into  force  in 
January 2008.  

Limited  progress  has  been  made  on  preventing  money  laundering.  Cooperation  at 
international  level  has  improved,  and  the  Council  of  Europe  Convention  on  laundering, 
search,  seizure  and  confiscation  of  the  proceeds  of  crime  and  financing  of  terrorism  has 
entered  into  force.  However,  domestic  legislation  remains  to  be  harmonised  with  the 
Convention. Furthermore, the Financial Intelligence Unit (FIU) in the State Investigation and 
Protection Agency has not been significantly reinforced in terms of staff numbers. Increased 
efforts  are  needed  to  strengthen  the  administrative  capacity  to  prevent  money  laundering. 
Some  steps  have  been  taken  in  the  fight  against  drugs,  and  the  Commission  on  Narcotic 
Drugs has been established. However, Bosnia and Herzegovina has not adopted a strategy on 

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illicit drugs or a corresponding action plan. Drug trafficking remains a serious problem, which 
requires sustained efforts. 

Progress has been made with regard to the operation of the police. The adoption of relevant 
police legislation, which will provide for seven new agencies at State level, is positive. These 
laws now need to be implemented without delay and the directors of the new agencies need to 
be appointed. Some steps have been taken to facilitate the work of the State Investigation and 
Protection Agency. However, Bosnia and Herzegovina's police forces remain fragmented, and 
competences  related  to  communications  systems,  databases,  computer-based  investigation, 
criminal analysis systems and forensics remain divided.  

Bosnia  and  Herzegovina  has  made  limited  progress  as  regards  the  fight  against  organised 
crime, which remains a matter of serious concern and affects the rule of law and the business 
environment. Implementation of the strategy to combat organised crime has been insufficient. 
The legal framework is in place, but law implementation needs to improve. Little follow-up 
has been given to the 2006 anti-terrorism strategy. Bosnia and Herzegovina has adopted a new 
national action plan for combating trafficking in human beings for 2008-2012. The Council of 
Europe  Convention  against  Trafficking  in  Human  Beings  has  entered  into  force.  However, 
implementation needs to improve. Bosnia and Herzegovina is a country of origin, transit and 
destination  for  trafficking  in  human  beings.  This  remains  a  matter  of  concern.  The  State 
agency for data protection is not yet operational.  

Croatia 

Croatia continues to meet the political criteria. Progress has been made across the board but 
further  sustained  efforts  are  still  required  in  a  number  of  areas,  including  judicial  and 
administrative  reform,  the  fight  against  corruption,  minority  rights  and  refugee  return.  The 
Accession Partnership priorities have been partially addressed. 

Democracy  and  the  rule  of  law  have  been  further  strengthened.  Both  government  and 
parliament have continued to function well. However, there is considerable scope for further 
improvement in the judiciary, in the public administration and in the fight against corruption. 
Significant  improvements  in  these  areas  are  essential  to  create  a  solid  basis  for  full 
implementation of the acquis. 

Some  progress  has  been  made  on  public  administration  reform.  The  government  adopted  a 
Public  Administration  Reform  Strategy,  a  proposal  for  a  revised  General  Administrative 
Procedures  Act  and  improvements  were  made  to  the  Civil  Service  law.  The  capacity  of  the 
Central  State  Office  for  Administration  was  strengthened.  Various  e-Government  initiatives 
have been taken. However, the legal basis for building a modern and professional civil service 
is still incomplete. Not all regulations necessary for implementation of the Civil Service Law 
have been adopted. This law is not implemented consistently across the state administration. 
An  overhaul  of  legislation  on  administrative  procedures  is  still  pending.  The  administrative 
system  still  lacks  efficiency.  Weaknesses  in  human  resources  management  remain  and  the 
civil  service  continues  to  suffer  from  high  staff  turnover  and  a  lack  of  qualified  personnel. 
There have been considerable delays in decentralisation. Further sustained efforts are needed 
across the board. 

Some progress has been made on reform of the judicial system. New legislation was adopted 
and a revised Action Plan addressing all major reform issues was approved in June 2008. The 
system  of  judicial  inspection  is  starting  to  show  results.  A  more  balanced  approach  in  war 

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crimes  proceedings  is  slowly  becoming  evident,  with  a  greater  willingness  to  prosecute 
perpetrators  irrespective  of  ethnicity.  However,  the  case  backlog  before  the  courts  remains 
large and the length of judicial procedures excessive. Court rationalisation has not yet begun 
in earnest. Further improvements in the accountability, professionalism and competence of the 
judiciary  are  required.  A  common  standard  of  criminal  accountability  for  war  crimes  is  not 
being applied irrespective of ethnicity. Many such crimes remain unprosecuted. The issue of 
in absentia verdicts from the 1990s has not been adequately addressed. Overall, reforms in the 
judiciary  continue  but  at  a  relatively  slow  pace,  and  concrete  results  are  needed.  Currently, 
effective dispensation of justice for Croatian citizens is not always assured. 

There has been some progress in the fight against corruption. The legal framework has been 
further improved and a revised anti-corruption strategy and action plan adopted. 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  intensify  its 
activities. However, corruption remains widespread. Implementation of anti-corruption efforts 
still lacks strong co-ordination and efficient non-partisan monitoring and institutional capacity 
requires  strengthening.  The  police  need  to  become  more  effective  in  the  fight  against 
corruption  and  organised  crime.  The  total  number  of  corruption  cases  prosecuted  has 
increased  but  the  number  of  actual  convictions  remains  low.  Further  efforts  are  required  in 
tackling  high  level  corruption.  There  has  been  little  progress  in  preventing  conflicts  of 
interest. A culture of political accountability is lacking.  

Some progress has been made in the area of human rights and the protection of minorities. 
Human rights protection is broadly ensured but certain important challenges remain in terms 
of implementation. Sustained efforts are needed on minority rights and refugees return. 

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 the limits of the 
existing legislation and weaknesses in the judicial system. Some steps were taken to address 
shortcomings in prison conditions. However, a shortage of prison staff and capacity persists 
and the new legal aid system remains to be implemented 

Freedom  of  expression,  including  freedom  and  pluralism  of  the  media,  is  provided  for  in 
Croatian law and is generally respected. However, there have been cases of threats and attacks 
against  journalists,  particularly  those  working  on  corruption  cases  or  organised  crime.  Two 
journalists  have  been  recently  murdered.  Editors  and  journalists  continue  to  report  undue 
political pressure. 

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

The  Office  of  the  Ombudsman  for  Persons  with  Disabilities  was  set  up  and  a  National 
Implementation  Plan  on  Social  Inclusion  2007-2008  was  produced.  However,  continued 
efforts are needed as regards the socially vulnerable and 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,  in  practice  the  level  of  protection  against  discrimination  and  its  judicial 

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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. 

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.  An  ethnic  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  difficult  living  conditions  and  challenges  remain  in  the  areas  of 
education,  social  protection,  health  care,  housing  and  employment.  Legal  provisions  and 
programmes  need  to  be  implemented  with  more  determination,  and  adequate  monitoring 
needs to be ensured, 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 which open up the possibility of validating pension 
rights. Reconstruction of housing has continued. So far, 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.  Only  12%  of  cases  have  been  resolved  in  the  urban  areas.  The 
Government’s  implementation  targets  are  behind  schedule,  although  implementation  has 
picked up in recent months. Other key concerns facing returnees include enduring hostility in 
certain  localities,  and  employment.  Efforts  to  create  the  economic  and  social  conditions 
necessary for the sustainability of refugee return need to be accelerated. 

As regards regional issues and international obligations, co-operation with the International 
Criminal  Tribunal  for  the  former  Yugoslavia  (ICTY)  has  continued.  However,  there  are 
problems of access for ICTY to certain documents in Croatia which must be resolved. Overall 
compliance  with  the  Dayton/Paris  and  Erdut  agreements  has  been  ensured.  Impartial 
prosecution of cases transferred from ICTY to Croatian jurisdiction as well as of domestically 
initiated cases needs to be ensured.  

There  has  been  continued  general  progress  in  the  area  of  regional  co-operation.  Croatia  has 
continued  to  participate  actively  in  regional  initiatives,  including  the  new  Regional 
Cooperation  Council  and  CEFTA.  Important  progress  was  made  when  Croatia  again 
suspended the implementation of the ecological and fishing protection zone for EU vessels, in 
line  with  earlier  commitments.  Some  progress  was  made  on  certain  open  bilateral  issues 
between  Croatia  and  its  neighbours.  However,  further  progress  is  required  towards  finding 
definitive solutions to the various bilateral issues which remain open, particularly as regards 
borders. Efforts are needed to further develop co-operation and good neighbourly relations.  

The  economy  of  Croatia  continued  to  benefit  from  a  solid  performance.  Growth  has 
decelerated  as  domestic  demand  has  started  to  ease.  Macroeconomic  stability  has  been 
preserved, but inflation has risen considerably, largely due to higher energy and food prices. 

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So far, the Croatian economy has been only mildly affected by the financial turbulences, but 
higher external deficits and debt levels have increased external vulnerabilities. The process of 
structural  reforms  has  generally  been  slow.  There  is  an  urgent  need  to  build  on  existing 
progress by further improving the business environment.  

As regards the economic criteria, Croatia is a functioning market economy. It should be able 
to cope with competitive pressures and market forces within the Union in the medium term, 
provided that it further implements its comprehensive reform programme with determination 
in order to reduce structural weaknesses.  

Political  consensus  on  the  fundamentals  of  a  market  economy  has  been  maintained.  In  an 
increasingly  uncertain  international  environment,  stability–oriented  macroeconomic  policies 
have  been  preserved.  The  stable  exchange  rate  policy  has  served  the  country  well  and 
remained a factor of financial stability. Fiscal consolidation led to a further reduction of the 
general government deficit, but the existence of quasi-fiscal operations may imply additional 
fiscal risks and undermines budget transparency. Economic growth remained solid with some 
rebalancing, as consumption slowed and private investment picked up further.  

The labour marked benefited from high employment growth and unemployment continued to 
decline.  The  technical  and  institutional  capacity  in  public  finance  was  further  strengthened. 
Additional  prudential  measures  led  to  a  stronger  resilience  of  the  generally  sound  banking 
sector and reduced macro-financial risks. Croatia's economy is well integrated with the EU.  

However,  the  government's  economic  policy  has  sometimes  lacked  a  clear  medium-term 
orientation.  The  structural  reform  agenda  has  moved  slowly  and  there  has  often  been  a  gap 
between the adoption of policy strategies and their actual implementation. The government's 
communication with the Central Bank has at times been weak, adversely affecting the quality 
of  policy  coordination.  Higher  inflation  and  rising  external  imbalances  pose  risks  to 
macroeconomic stability and require stronger fiscal consolidation. Limited progress has been 
achieved  in  increasing  the  efficiency  of  public  spending,  in  particular  in  the  health  sector. 
Social spending remained high and was not properly targeted, leading to inefficiencies. Public 
finances still suffer from a lack of strategy-based budget planning and implementation.  

Significant  subsidies  to  enterprises  have  not  been  used  effectively  for  restructuring  and 
privatisation  continued  at  an  uneven  pace.  Further  progress  has  been  made  in  facilitating 
business  registration  procedures  but  private  sector  initiative  continued  to  be  hampered  by 
excessive regulations and ad-hoc requirements, potentially undermining market entry and exit 
procedures. Reinforcing and deepening structural reforms with more determination remains of 
high importance.  

Croatia has improved its ability to take on the obligations of membership. Preparations for 
meeting EU requirements are moving forward at a steady pace and there is a high degree of 
alignment with EU rules in a number of sectors. In most areas there has been some progress, 
principally  in  terms  of  legislative  alignment  but  also  as  regards  administrative  capacity 
building.  In  a  number  of  chapters  the  good  progress  made  in  previous  years  has  been 
sustained. However, significant efforts lie ahead and as regards the overall level of alignment 
and administrative capacity, much remains to be done. 

Good progress has been made on alignment of legislation with the acquis on free movement of 
goods.  Alignment  with  the  acquis  in  this  chapter  is  well  underway.  However,  adjusting  the 
conformity assessment infrastructure and market surveillance activities remains an important 

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challenge.  Considerable  efforts  are  needed  to  continue  the  process  of  alignment  with  the 
acquis and its effective implementation and enforcement. 

Some progress has been made on the free movement of workers. 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, in particular for the coordination of social security systems.  

Some progress has been made but further substantial work is required regarding the right of 
establishment  and  freedom  to  provide  services.  Various  obstacles  remain  in  this  regard. 
Overall, alignment is moderately advanced, but considerable efforts are still required in some 
areas. Strengthening of the related administrative capacity is required. 

There  has  been  some  progress  on  the  free  movement  of  capital,  mainly  as  regards  the 
processing  of  applications  for  permission  to  purchase  real  estate  by  EU  nationals  and  the 
adoption of an action plan and new legislation in the area of anti-money laundering. Overall 
alignment  is  moderately  advanced,  but  further  efforts  will  be  needed,  especially  on 
implementation and enforcement. 

Good  progress  can  be  reported  in  the  area  of  public  procurement,  with  the  necessary 
institutional  set-up  in  place  and  a  comprehensive  strategy  adopted.  However,  further 
legislative  alignment  is  needed  and  administrative  capacity  remains  to  be  improved.  Anti-
corruption  measures  need  to  cover  the  legal  framework  and  its  functional  application, 
ensuring greater transparency and efficiency. 

Some  progress  can  be  reported  in  the  field  of  company  law.  Alignment  is  on  track,  but 
continued efforts are needed to implement of the recently adopted amendments and strengthen 
the administrative capacity. 

In the field of intellectual property law, good progress can be reported. Legislative alignment 
is at a very high level. Further efforts are required to strengthen the administrative capacity 
for  enforcement  of  IP  rights,  to  raise  awareness  amongst  stakeholders  and  to  continue  the 
fight against piracy and counterfeiting. 

Some progress has been achieved on competition policy, in particular as regards state aid to 
the  steel  sector  as  well  as  the  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. 

Good progress can be reported on financial services. Legislative alignment is well underway, 
but  additional  attention  is  needed  regarding  its  proper  implementation.  Both  supervisory 
authorities  need  to  intensify  their  efforts  to  improve  their  supervision  function  and 
consultative interaction with the sector. 

Substantial progress has been made in the field of information society and media, especially 
as  regards  the  liberalisation  of  the  electronic  communications  market  and  media  reform.  A 
good level of alignment with the acquis in this chapter has been reached, but additional efforts 
are required for due functioning of the electronic communications market. 

Progress in the area of agriculture and rural development 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 but 

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the  capacity  to  absorb  EU  funds  in  this  area  needs  to  be  improved.  Efforts  need  to  be 
substantially  and  urgently  strengthened  with  regard  to  the  Paying  Agency,  IACS  and  the 
LPIS. The present system of support in Croatia linked to production differs from the reformed 
CAP. Alignment of the support system should be commenced in order to prepare for a smooth 
transition to the CAP. 

Good  progress  has  been  made  overall  concerning  food  safety,  veterinary  and  phytosanitary 
policy, 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. 

Croatia has made  some  progress in the field of fisheries. Preparations have started but 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. 

There has been progress in the field of transport. Croatia still needs to establish a competent 
and effective railway regulatory body. Further efforts are required regarding the enforcement 
of EU rules on road transport, combined transport of goods, as well as the implementation of 
the EU aviation legislation, including reinforcing administrative capacity. 

Overall, there has been good progress regarding energy. However, significant efforts are still 
needed,  particularly  in  energy  efficiency,  and  the  independence  and  strengthening  of  the 
regulatory authority and in administrative capacity. 

On  taxation,  Croatia  has  made  very  limited  progress.  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 efforts are also required 
to strengthen the administrative capacity, including IT interconnectivity. 

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. 

On  statistics,  overall,  good  progress  has  been  made.  A  satisfactory  level  of  legal  alignment 
has  been  reached.  However,  efforts  are  required,  in  particular  on  the  strengthening  of 
administrative capacity, agricultural and macro-economic and business statistics. 

Good  progress  has  been  made  on  social  policy  and  employment.  A  good  level  of  legal 
alignment has been reached, although some gaps remain. Further efforts are required in order 
to  strengthen  the  administrative  capacity  in  good  time  before  accession  to  ensure  proper 
implementation and enforcement. 

Croatia  has  made  good  progress  on  enterprise  and  industrial  policy,  in  particular  regarding 
SME policy as well as the industrial strategy and restructuring of the steel industry. In other 
sectors, such as shipbuilding, significant efforts are required. Overall, Croatia has achieved a 
good level of alignment. 

Regarding  Trans-European  Networks,  Croatia  has  made  good  progress  and  continues  to 
actively participate in the South East Europe Transport Observatory.  

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Some  progress  can  be  reported  in  the  area  of  regional  policy  and  the  coordination  of 
structural  instruments.  Croatia  still  needs  to  make  efforts  to  establish  institutional  and 
administrative capacity. Overall, Croatia is partially aligned with the acquis in this chapter. 

Croatia has made some progress regarding judiciary and fundamental rights. Reforms in the 
judiciary continue but at 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. 

Croatia has made some progress in the area of justice, freedom  and  security, particularly as 
regards  the  fight  against  drugs  and  dealing  with  trafficking  of  human  beings.  However, 
significant efforts are needed in the management of external borders. Concrete results are also 
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.  

Good progress has been made in the areas of science and research and education and culture. 
Overall,  a  good  level  of  alignment  has  been  achieved  but  some  further  efforts  remain 
necessary.  

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 with regard to water, 
industrial  pollution  control  and  risk  management,  climate  change  and  horizontal  sectors. 
Substantial efforts will be needed as regards investments. 

Some progress has taken place in the area of consumer and health protection. A good level of 
legal  alignment  has  been  reached.  However,  further  efforts  are  required  in  the  fields  of 
consumer product safety, including for the RAPEX alert system, and the public health acquis 
on tobacco and on reproductive tissues and cells  

In the area of the customs union, Croatia has made good progress. Efforts are still needed in 
order to continue legislative alignment, to create the conditions for effective implementation 
of customs rules and to make further progress on IT interconnectivity. 

Croatia has made further progress concerning the area of external relations. Alignment is well 
on track in this area.  

Croatia has continued to make progress in the area of Foreign, Security and Defence Policy. 
Overall,  Croatia  has  reached  a  good  level  of  alignment  but  needs  to  strengthen 
implementation  and  enforcement  of  arms  control  including  transparency  of  arms-related 
information. 

Regarding financial control, Croatia has made some progress. Continued efforts are needed to 
establish  a  strong  and  adequate  PIFC  system,  in  particular  in  relation  to  the  management 
system for EU funds. 

There  has  been  some  further  progress  on  financial  and  budgetary  provisions,  notably  the 
development  of  a  coordination  structure  for  own  resources.  Overall,  Croatia  has  reached  a 
good level of alignment. 

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The former Yugoslav Republic of Macedonia 

The  former  Yugoslav  Republic  of  Macedonia  made  some  progress  in  the  course  of  the  last 
year but does not yet meet the political criteria. The parliamentary elections of 2008 did not 
meet key international standards and the recommendations of the OSCE/ODIHR need to be 
fully addressed. The lack of constructive political dialogue between major political parties and 
actors  adversely  affected  the  functioning  of  the  political  institutions;  increasing  efforts  to 
foster political dialogue are now being made. Steps have been taken to address key Accession 
Partnership priorities and further efforts are required. 

The implementation of the Ohrid Framework Agreement is contributing to the consolidation 
of democracy and the rule of law. The adoption of a law on languages marked an important 
step  forward  in  relations  among  the  ethnic  communities  of  the  country.  Further  efforts  in  a 
constructive spirit are needed to fulfil the objectives of the Ohrid Agreement. 

The  conduct  of  the  early  parliamentary  elections  of  2008  was  marred  by  violence  and 
irregularities. The authorities have begun to bring the perpetrators to justice and to address the 
OSCE/ODIHR  recommendations  on  the  conduct  of  elections,  notably  by  amending  the 
electoral  code.  A  new  government  coalition  of  a  multi-ethnic  character  was  established  in 
July. Opposition parties boycotted the new Parliament for a prolonged period and Parliament 
made  extensive  use  of  emergency  procedure  to  adopt  legislation.  Significant  further  efforts 
are needed to improve and sustain political dialogue.  

As regards public administration reform there has been some progress with the introduction 
of salary incentives and the adoption of a continuous training system, as required by the law 
on the civil service. However, little progress has been made to ensure that senior recruitments 
are  based  on  professional  qualifications.  Priority  needs  to  be  given  to  creating  a  stable, 
professional and merit-based civil service. The role of the Civil Servants Agency needs to be 
strengthened  and  the  capacity  of  the  human  resources  units  in  line  ministries  needs  to  be 
increased.  Implementation  of  police  reform  has  progressed.  The  eight  new  regional 
commanders  and  all  38  new  local  commanders  have  been  appointed  as  required  by  law. 
Training  of  police  officers  has  continued  and  human  resource  management  improved. 
However,  the  politicisation  of  the  senior  levels  of  the  police  in  some  areas  raises  serious 
concerns.  

Good  progress  has  been  made  on  judicial  reform.  The  new  Court  of  Appeal  and  the  new 
Administrative Court and the Judicial Council are functioning and the new Council of Public 
Prosecutors has started to meet. The Academy for training judges and prosecutors is in place 
and new IT systems have been introduced into the courts. However, further strengthening of 
the  judiciary  is  required  as  regards  its  independence,  efficiency,  human  resources  and 
budgetary  framework.  The  vacancies  in  the  prosecution  service  need  to  be  filled.  Case 
backlogs  persist  and  a  track  record  of  implementation  of  the  recent  reforms  remains  to  be 
established,  in  particular  as  regards  the  impartiality,  accountability  and  efficiency  of  the 
judiciary.  

Further  progress  has  been  made  in  implementing  anti-corruption  policy.  The  government's 
Action Plan has been allocated a specific budget. Special investigation measures may now be 
used in corruption cases. An Action Plan against conflict of interest has been adopted. There 
have been convictions in some high-profile cases. The perception of corruption has somewhat 
improved.  However,  corruption  remains  widespread  and  constitutes  a  particularly  serious 
problem.  Further  steps  are  necessary,  in  particular  to  strengthen  operational  coordination 

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amongst  law  enforcement  agencies  and  to  implement  provisions  on  financing  of  political 
parties and campaign financing. 

The legal and institutional framework for the protection of human rights and of minorities is 
broadly  in  place.  Nevertheless,  further  efforts  are  required  to  improve  implementation  in  a 
number of fields.  

Allegations  of  ill-treatment  by  the  police  need  to  be  more  effectively  investigated  and 
prosecuted.  The  prison  infrastructure  is  being  gradually  renovated.  Action  is  needed, 
however,  to  eliminate  inhuman  and  degrading  conditions  and  to  establish  professional 
management.  As  regards  women's  rights,  a  national  strategy  against  domestic  violence  has 
been adopted and the legal provisions concerning rape have been strengthened. Nonetheless, 
sustained efforts are needed regarding the protection of women against all forms of violence. 
Regarding children's rights, compulsory education has been extended and the law on juvenile 
justice  has  entered  into  force.  However,  efforts  to  protect  children's  rights  need  to  be 
strengthened. 

Regarding cultural rights and minority rights there has been some progress in implementing 
the strategy for equitable representation, in line with the Ohrid Framework Agreement. A law 
on  languages  has  been  adopted  which  provides  for  greater  use  of  the  Albanian  language  in 
parliament. A law on the advancement and protection of the rights of the smaller communities 
was adopted which, in particular, provides for a specialised agency to be set up. 

However,  the  authorities  need  to  make  further  efforts  to  promote  integration  of  the  ethnic 
communities  of  the  country,  particularly  in  education.  The  concerns  of  the  smaller  ethnic 
minorities are not sufficiently addressed. Little progress can be reported regarding the Roma. 
The relevant action plans are being implemented slowly. Roma still face very difficult living 
conditions  and  discrimination,  with  poor  access  to  education,  social  protection,  health  care, 
housing and employment. 

Regarding  regional  issues  and  international  obligations,  the  former  Yugoslav  Republic  of 
Macedonia  has  cooperated  fully  with  the  International  Criminal  Tribunal  for  the  former 
Yugoslavia  (ICTY).  The  judicial  reforms  necessary  to  ensure  proper  handling  of  the  cases 
referred back to the national authorities were adopted and the relevant training of judges and 
prosecutors  has  been  undertaken.  As  regards  the  International  Criminal  Court,  the  bilateral 
immunity  agreement  with  the  United  States  is  not  in  line  with  the  relevant  EU  common 
position and principles. 

The country has continued to participate actively in regional initiatives, including in the new 
Regional  Cooperation  Council  (RCC).  The  country  assumed  the  first  chairmanship  of  the 
2006 Central European Free Trade Agreement (CEFTA) after its entry into force.  

A  joint  committee  was  established  on  border  demarcation  with  Kosovo  and  is  approaching 
completion of the process. The government decided to recognise the independence of Kosovo 
in October. 

The former Yugoslav Republic of Macedonia has generally good relations with countries in 
the  region.  However,  relations  with  Greece  were  further  affected  by  the  unresolved  name 
issue.  Actions  and  statements  which  could  negatively  impact  on  good  neighbourly  relations 
should  be  avoided.  Maintaining  good  neighbourly  relations,  including  a  negotiated  and 

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mutually  acceptable  solution  to  the  name  issue,  under  the  auspices  of  the  UN,  remains 
essential. 

The economy  of the  former  Yugoslav Republic of Macedonia  has maintained solid growth. 
However,  the  less  favourable  international  economic  environment  contributed  to  a  sharp 
deterioration in the external accounts and a rise in inflation. Progress with structural reforms 
has continued and business environment has been improved. However, the persistence of very 
high  unemployment  remains  a  major  cause  for  concern.  Institutional  weaknesses  and 
deficiencies  in  the  rule  of  law  continue  to  impede  the  smooth  functioning  of  the  market 
economy and have a negative bearing on the business climate. 

As  regards  the  economic  criteria,  the  former  Yugoslav  Republic  of  Macedonia  is  well 
advanced. It has moved closer towards becoming a functioning market economy. It should be 
able  to  cope  with  competitive  pressures  and  market  forces  within  the  Union  in  the  medium 
term, provided that it vigorously implements its comprehensive reform programme in order to 
reduce significant structural weaknesses. 

The country has maintained a broad political consensus on the essentials of economic policy. 
The policy mix remained largely in line with macroeconomic stability and predictability. The 
country's  growth  performance  has  remained  solid.  The  quality  of  public  finances  was 
improved  by  reducing  tax  rates  and  increasing  efficiency  in  tax  collection  as  well  as  by 
increased spending for infrastructure and education. The relatively low level of public sector 
debt  has  been  maintained.  Improved  tax  collection  points  to  some  success  in  reducing  the 
informal economy. 

FDI inflows increased markedly during the last year. Privatisation is largely completed. The 
share of the private sector in total output accounts for about 80% of the value added. Price and 
trade  liberalisation  has  been  accomplished  practically  in  all  sectors.  Bankruptcy  procedures 
have  been  further  shortened  and  property  registration  has  been  accelerated.  Financial 
independence  of  supervisory  and  regulatory  agencies  has  been  somewhat  strengthened. 
Financial  intermediation  has  increased.  Competition  in  the  network  industries  has  been 
improved.  In  addition,  measures  have  been  taken  to  improve  the  quality  of  human  capital. 
Economic integration with the EU is well advanced. 

However,  the  deterioration  in  the  country's  external  balances  has  increased  external 
vulnerabilities,  making  fiscal  discipline  even  more  important.  Labour  markets  are  still 
functioning  poorly;  very  high  unemployment  rates  persist.  The  functioning  of  the  market 
economy is still hampered by institutional weaknesses and the need to strengthen the rule of 
law.  Public  administration  remains  inefficient  and  in  some  sectors  the  degree  of  legal 
certainty is still low, which has a negative bearing on the country’s attractiveness for foreign 
investment.  The  judiciary  continues  to  be  a  bottleneck,  and  regulatory  and  supervisory 
agencies sometimes still lack the resources to function effectively.  

Despite efforts to reduce the unregistered economy, the informal sector remained sizeable. It 
is fuelled by a weak regulatory framework, and by weaknesses in law enforcement, including 
the  fight  against  corruption  and  organised  crime.  The  informal  sector  remains  an  important 
challenge as it reduces the tax base and the efficiency of economic policies.  

The former Yugoslav Republic of Macedonia has made further efforts to improve its ability 
to assume the obligations of membership. There was some progress in the fulfilment of the 
priorities of the Accession Partnership. However, the country still faces major shortcomings 

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in  implementing  and  effectively  enforcing  legislation.  Adequate  human  and  financial 
resources for the full implementation the acquis are lacking.  

In  the  area  of  free  movement  of  goods,  administrative  capacity  has  improved  but  it  is  still 
insufficient  to  ensure  proper  enforcement.  Most  of  the  sectoral  acquis  has  still  to  be 
transposed  and  implemented.  There  has  been  limited  progress  in  the  areas  of  freedom  of 
movement  for  workers  and  right  of  establishment  and  freedom  to  provide  services,  where 
alignment of legislation with the acquis remains at an early stage. Good progress was made as 
regards approximation of legislation in the area of free movement of capital. Administrative 
capacity and the enforcement record on combating money laundering are not sufficient. 

Substantial  progress  has  been  made  in  the  area  of  public  procurement.  However,  the  newly 
adopted legislation on concessions and public-private partnerships is not yet aligned with the 
acquis. Current efforts on training for the contracting authorities and economic operators on 
the new public procurement rules need to be sustained. Good progress has been made in the 
area  of  company  law,  where  legislative  alignment  is  satisfactory.  In  the  area  of  intellectual 
property law, progress has been made with strengthening the legal framework and enhancing 
the  administrative  capacity.  The  enforcement  record  is  slowly  improving  but  further  efforts 
are needed in order to reach a satisfactory level in tackling piracy and counterfeiting.  

Good,  but  uneven,  progress  can  be  reported  in  the  area  of  competition  including  state  aid 
policy.  The  competition  authority  still  needs  more  and  better  qualified  staff  and  adequate 
funding. The ex-ante control of state aid is not sufficiently effective. 

There  has  been  progress  in  legislative  alignment  with  the  acquis  in  the  area  of  financial 
services.  Deficiencies  persist  in  the  administrative  capacity  of  the  supervisory  bodies,  in 
particular as regards insurance, where enforcement is particularly insufficient.  

In the area of information society and media, significant progress can be reported in alignment 
with  the  acquis  on  electronic  communications,  including  application  of  enforcement 
measures.  This  has  brought  more  competitive  conditions  to  the  benefit  of  consumers. 
However,  the  financial  situation  of  the  Broadcasting  Council  and  the  public  service 
broadcaster remain a cause for concern.  

In  the  area  of  agriculture  and  rural  development,  progress  in  policy  development  has  been 
followed  by  increases  in  the  administrative  capacity  of  the  relevant  institutions  and  better 
implementation, although alignment with the acquis remains at an early stage. There has been 
modest progress in the area of food safety, veterinary and phytosanitary policy, mainly related 
to legislation. Administrative capacity has been strengthened, but is not yet adequate to ensure 
proper implementation of the acquis. There has been progress in legislative alignment in the 
area of fisheries, where administrative capacity has still to be developed.  

Good  progress  can  be  reported  in  the  area  of  transport  policy.  However,  administrative 
capacity in all sectors remains insufficient. Regulatory bodies and safety authorities have yet 
to become operational in the fields of land, air and rail transport. The reforms undertaken in 
railways still need further implementation. 

Progress has been made in the energy sector, in particular as regards legislative alignment and 
liberalisation  of  the  electricity  market.  However,  certain  outstanding  issues  related  to  tariffs 
and  electricity  distribution  still  require  attention.  The  administrative  capacity  to  enforce  the 

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energy-efficiency  policy  and  radiation  protection  regulations  has  improved,  but  requires 
further strengthening. The degree of independence of the regulators remains inadequate.  

The level of legislative alignment in indirect taxation is sufficient but needs to be improved in 
direct  taxation.  Administrative  capacity  for  tax  collection  has  markedly  improved  and  tax 
revenue  has  increased,  but  efforts  are  still  needed  to  ensure  effective  implementation  and 
enforcement of tax legislation. The significant efforts made to curb corruption in this sector 
need to be continued. 

There  has  been  some  progress  in  legislative  alignment  with  the  acquis  and  administrative 
capacity in the area of economic and monetary policy. In the area of statistics, progress has 
been  made  towards  improving  both  the  statistical  infrastructure  and  sector  statistics. 
Alignment of the classifications with the acquis has advanced well. Further efforts are needed 
in order to achieve and maintain sufficient quality in the statistics. 

Limited  progress  can  be  reported  in  the  area  of  social  policy  and  employment.  A  moderate 
level  of  legal  alignment  has  been  reached.  While  administrative  capacity  is  slowly  being 
strengthened,  it  remains  insufficient  to  implement  properly  the  legislation  and  policies 
adopted.  

Good  progress  has  been  made  in  the  field  of  enterprise  and  industrial  policy,  in  particular 
regarding the regulatory framework and the sector policies.  

Progress  has  been  made  in  the  area  of  trans-European  networks.  The  country  continues  to 
participate  actively  in  the  South-East  Europe  Transport  Observatory.  The  sizeable  financial 
resources needed to upgrade the infrastructure remain a major impediment.  

Some progress can be reported in the area of regional policy and coordination of structural 
instruments,  although  substantial  work  still  lies  ahead  for  the  implementation  of  the 
components of IPA serving as pre-cursors to the Structural Funds. Administrative capacity at 
regional and local level and in the line ministries needs to be significantly strengthened.  

Some  progress  has  been  made  in  the  area  of  judiciary  and  fundamental  rights.  As  regards 
judicial reform, the judicial council is functioning, the Council of public prosecutors has been 
established and the law on the public prosecutor's office has been adopted. However, further 
strengthening  of  the  judiciary  is  required  as  regards  its  independence,  efficiency,  human 
resources  and  budgetary  framework.  The  law  on  criminal  procedure  was  amended  to  allow 
the use of special investigative measures in corruption cases. The anti-corruption Action Plan 
was allocated a specific budget. Further efforts are necessary, notably as regards financing of 
political parties and election campaigns. Concerning fundamental rights, a law on languages 
was adopted which allows for further use of the Albanian language in public life. However, 
further efforts are needed to address the concerns of the smaller ethnic minorities, including 
the Roma.  

In  the  area  of  justice,  freedom  and  security,  the  operational  capacity  of  the  competent 
authorities  has  further  improved.  Progress  can  be  reported  in  police  cooperation,  the  fight 
against  organised  crime,  migration,  asylum,  and  visa  policy  as  well  as  border  management. 
The legislation is largely in place and implementation is under way. The visa facilitation and 
readmission  agreements  between  the  EC  and  the  former  Yugoslav  Republic  of  Macedonia 
entered  into  force  in  January  2008.  A  visa  liberalisation  dialogue  with  the  European 
Commission has been launched. There has been good progress in fulfilling the benchmarks of 

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the roadmap for visa liberalisation, notably as regards the introduction of biometric passports. 
Progress  has  been  made  with  profiling  and  breaking  up  criminal  groups  involved  in  human 
trafficking, but the country remains a country of origin, transit and destination for trafficking 
in  human  beings.  The  politicisation  of  senior  police  officers  has  led  to  abuse.  Overall 
administrative capacity has to be further strengthened and organised crime remains a serious 
concern, which affects the rule of law and the business environment.  

In  the  field  of  science  and  research,  progress  has  been  made  on  organisation  of  research 
cooperation at national level, but capacity is still insufficient. The first year of participation in 
FP7 has produced good results. Substantial efforts to facilitate integration into the European 
Research Area remain necessary.  

Progress has been good in the area of education and culture, although capacity to implement 
the enacted legislation remains insufficient. The country should continue its efforts to prepare 
for management of the Lifelong Learning and Youth in Action programmes. 

Progress has been made in developing the legislative framework in the field of environment in 
particular  as  concerns  horizontal  legislation  and  the  air  and  waste  sectors.  A  substantial 
amount  of  implementing  legislation  has  still  to  be  prepared.  Some  sectors,  such  as  water 
quality  or  nature  protection  are  lagging  behind.  Administrative  capacity  requires  substantial 
strengthening and, although significant efforts have been made to increase financial resources, 
investments  in  environmental  infrastructure  are  still  largely  insufficient.  In  the  area  of 
consumer and health protection, progress has been made in building the institutional capacity 
for consumer protection and increasing funding for public health. However, an effective and 
transparent  market  surveillance  system  is  not  yet  in  place.  Administrative  resources  are  not 
sufficient to allow full implementation of legislation, strategies and action plans in the area of 
public health. 

Substantial  progress  has  been  made  in  the  area  of  customs  union.  Revenue  collection  has 
increased substantially and good results have been achieved in combating cross-border crime. 
The customs legislation is well aligned with the acquis, but still has to be further harmonised. 
Administrative  and  operational  capacity  has  improved  significantly  and  the  fight  against 
corruption has led to tangible results. 

There  has  been  some  progress  in  the  alignment  with  the  EU's  external  relations  policy,  in 
particular  as  a  result  of  implementation  of  the  CEFTA,  as  well  as  in  the  area  of  foreign, 
security and defence policy. Further efforts are needed to strengthen administrative capacity in 
these areas. 

In the area of financial control, limited progress has been made on aligning and implementing 
the legislation. The administrative capacity of the institutions responsible for public internal 
financial control and external audit has been strengthened, but is still inadequate to meet the 
obligations  arising  from  the  acquis.  In  the  area  of  financial  and  budgetary  provisions  some 
progress  has  been  made  on  combating  VAT  and  customs  fraud.  Appropriate  coordination 
structures, implementing rules and administrative strengthening in the area of own resources 
will be needed in due course.  

Montenegro 

Montenegro has made important progress in addressing the political criteria, in improving its 
legal  framework  and  in  strengthening  its  institutional  capacity  in  line  with  the  European 

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Partnership.  Implementation  of  the  constitution  proceeded  well.  However,  Montenegro  still 
needs to enhance its efforts to implement reforms. Particular efforts are needed to complete 
the judicial reform. Despite some progress, the fight against corruption and organised crime 
remains a major challenge. Political consensus remains strong on EU-related issues, but needs 
to  be  broadened  on  other  areas  of  state-building.  Administrative  capacity  needs  to  be 
enhanced. 

Democracy  and  the  rule  of  law  have  been  strengthened.  There  has  been  some  progress  in 
implementing  the  new  constitution  adopted  in  October  2007.  However,  there  is  a  need  to 
improve governance and the functioning of the judiciary and to show greater political will to 
achieve results in the fight against corruption. 

Parliament established a Council on European Integration which is headed by a member of 
the  opposition.  Legislative  activity  has  been  intense.  However,  parliament  needs  further  to 
consolidate its capacity and effectiveness as a law-making and political oversight body.  

The  government  has  continued  to  adapt  to  the  requirements  created  by  the  country's 
independence.  It  has  further  improved  its  coordination  of  European  integration.  But 
management and capacity, in particular in line ministries, remain weak.  

Progress  has  been  made  in  strengthening  the  legislative  framework  for  the  public 
administration.  Some  progress  has  been  made  in  human  resources  management  and  local 
government  reform.  However,  lack  of  human  and  financial  resources,  along  with  structural 
weaknesses  and  corruption,  continue  to  hamper  the  overall  effectiveness  of  the  public 
administration. Administrative capacity remains limited. In key areas, such as urban planning 
and  environmental  protection,  existing  administrative  structures  and  capacity  are  inadequate 
and  need  improvement.  There  is  a  need  to  further  improve  civil  service  legislation  and  to 
ensure  its  coherent  implementation.  The  ombudsman's  office  was  strengthened  with  the 
creation of two deputy ombudsman posts but its overall effectiveness remains limited. 

Some progress has been made on reforming the judiciary. Montenegro has adopted an action 
plan and legislation implementing the new constitution. Special departments in high courts for 
combating  organised  crime,  corruption,  war  crimes  and  terrorism  were  established  in 
September  2008.  However,  core  reform  legislation  to  ensure  the  independence  and 
accountability  of  the  judiciary  is  still  missing.  The  overall  efficiency  of  the  judicial  system 
remains low. Backlogs in civil and criminal cases and excessively lengthy procedures remain 
a cause for concern. Criminal procedures in the case of the deportation and disappearance of 
more than 80 Bosnian civilians in 1992 have still not been finalised. 

There has been some progress in strengthening the strategic and administrative framework for 
the fight against corruption. The perception of corruption has somewhat improved. However, 
implementation remains weak and results have so far been limited. Key legislation, such as a 
new  law  on  conflict  of  interest,  has  not  yet  been  adopted.  Montenegro  lacks  strong  and 
independent  supervisory  or  audit  authorities.  The  investigation  capacity  of  the  law 
enforcement authorities continues to be insufficient, resulting in a very low number of final 
convictions in corruption cases. Corruption remains widespread and is a particularly serious 
problem. 

There  has  been  some  progress  in  the  area  of  human  rights  and  protection  of  minorities, 
where  Montenegro  remains  broadly  in  line  with  European  standards.  The  guarantee  of 
retroactive  application  of  the  European  Convention  on  Human  Rights  (ECHR)  needs  to  be 

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clarified  in  the  Law  on  the  implementation  of  the  constitution.  Multi-annual  strategies  for 
social and child protection, for integration of persons with disabilities and for protection of the 
elderly  were  adopted  in  November  2007  but  the  conditions  have  not  yet  substantially 
improved in practice. Broader public attention and adequate legislation are needed to address 
implementation 
domestic  violence  against  women.  Progress 
mechanisms,  improving  protection  and  awareness-raising  from  gender-based  discrimination. 
In view of recent incidents involving attacks against journalists, freedom of expression needs 
to  be  better  protected.  Investigations  in  such  cases  need  to  be  thorough.  Violence  and 
defamation cases against journalists are a cause for concern. The conditions for civil society 
organisations  remain,  for  the  most  part,  satisfactory  but  there  is  room  for  improvement  in 
cooperation between government and civil society. Regarding property rights, the process of 
restitution  and  compensation  is  proceeding  and  complaints  against  decisions  taken  by  the 
three first instance regional restitution commissions continue to be filed. 

is  needed  on  defining 

Montenegro made some progress on strengthening the framework for minority protection by 
adopting a minority policy strategy and a national Roma strategy, forming national minority 
councils  and  establishing  specific  funding  mechanisms.  However,  most  implementing 
measures, including distribution of funds, have still to be put in place. Inter-ethnic relations 
are  smooth  but  social  and  economic  rights  of  displaced  persons,  among  them  many  Roma 
from Kosovo, are not yet guaranteed. The Roma, Ashkali and Egyptian communities continue 
to  face  very  difficult  living  conditions  and  discrimination,  with  poor  access  to  education, 
social  protection,  healthcare,  housing  and  employment.  The  recently  adopted  government 
strategy covering the period 2008-2012 now needs to be implemented. 

Regarding regional issues and international obligations, Montenegro has continued to play a 
constructive  role  in  the  region  and  to  participate  actively  in  regional  cooperation,  including 
the  newly  established  Regional  Cooperation  Council  (RCC)  and  the  Central  European  Free 
Trade  Agreement  (CEFTA).  Cooperation  with  the  International  Criminal  Tribunal  for  the 
former  Yugoslavia  (ICTY)  remains  satisfactory  and  Montenegro  has  signed  cooperation 
agreements on war crime cases with the state prosecution services of Serbia and Croatia.  

Good  relations  and  cooperation  with  neighbouring  states  were  further  fostered.  Bilateral 
cooperation  has  further  progressed.  In  particular,  progress  has  been  achieved  in  settling 
bilateral border issues between Montenegro and Croatia, as they decided jointly to refer the 
Prevlaka  peninsula  case  to  the  International  Court  of  Justice.  Montenegro  recognised  the 
independence of Kosovo10 in October 2008. 

As regards the International Criminal Court, the bilateral immunity agreement with the United 
States is not in line with the relevant EU common position and guiding principles. 

The  economy  of  Montenegro  has  continued  to  expand  vigorously.  The  pace  of  structural 
reforms  accelerated  and  institutional  capacities  were  reinforced.  Macroeconomic  stability 
weakened due to rising inflation and external vulnerabilities. Shortcomings in the rule of law 
and their resolution remain the key challenge for economic development. 

As regards economic criteria, the country has made further progress towards establishing a 
functioning market economy. Completion and swift implementation of the ongoing reforms is 

10 

Under UNSCR 1244/99. 

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required to cope in the medium term with competitive pressure and market forces within the 
Union. 

Economic  growth  remained  robust,  driven  by  strong  inflows  of  FDI  and  domestic  demand, 
further  lowering  the  unemployment  rate.  The  deceleration  of  lending  growth  of  commercial 
banks  to  more  sustainable  levels  in  2008  reinforced  macroeconomic  stability.  The  strong 
fiscal  position  enabled  additional  capital  investment  and  a  further  reduction  of  the  external 
public  debt.  The  privatisation  process  accelerated,  reducing  the  exposure  of  public  finances 
and enhancing competitiveness.  

Restructuring of the transport and energy sectors got underway. Regulation and functioning of 
the financial services sector improved with the revision and implementation of a new banking 
law, and the setting-up of an insurance supervisory agency. The Council for the elimination of 
business  barriers  was  established.  The  upgrading  of  human  resources  continued  with  the 
implementation  of  more  efficient  training  programmes.  Economic  integration  with  the  EU 
remains high. 

However,  the  current  account  deficit  reached  unprecedented  levels,  and  the  structure  of  its 
financing  became  less  favourable.  The  fiscal  stance  remained  accommodative  despite  the 
temporary  nature  of  the  cyclical  upswing.  Headline  inflation  increased  due  to  rising  energy 
and  food  prices.  The  mismatch  and  shortages  of  labour  skills  drove  wages  upwards. 
Privatisation of some companies failed due to lack of investor interest. 

Industrial production remained relatively volatile. Export capacity of small and medium-size 
enterprises  is  still  very  limited.  Market  entry,  property  registration  and  delivery  of  building 
permits suffer from administrative weakness. The large informal sector is fuelled by a weak 
regulatory  framework  and  by  weaknesses  in  law  enforcement,  including  the  fight  against 
corruption and organised crime. It remains an important challenge as it reduces the tax base 
and the efficiency of economic policies.  

Montenegro  has  made  further  progress  in  alignment  with  European  standards.  On  the 
whole,  the  Interim  Agreement  is  being  implemented  smoothly  since  1  January  2008.  Good 
progress  was  achieved  in  the  areas  of  free  movement  of  services,  customs  and  taxation, 
agriculture, road transit traffic and research. Some progress can also be reported with regard 
to the creation of the legal framework in the areas of free movement of goods, competition, 
public  procurement,  intellectual  property  rights,  education,  employment  and  social  policies, 
industry and SMEs, food safety, justice, freedom and security. However, further improvement 
in completion of legislation, institutional set-up and administrative capacity are still needed in 
these  areas.  Particular  efforts  are  needed  on  justice,  freedom  and  security.  Progress  in 
transport,  energy,  environment  and  information  society  remained  uneven.  Progress  has  not 
been satisfactory in statistical system development. 

As  regards  the  internal  market,  Montenegro  has  made  some  progress  in  addressing  related 
European Partnership priorities. In the area of free movement of goods, the establishment of 
institutions continues. But Montenegro needs further to strengthen the related administrative 
and  human  capacities,  to  enhance  cooperation  between  the  relevant  state  institutions  and  to 
align the horizontal legal framework with Community legislation. Additional efforts are also 
needed on the sector-specific acquis.  

The  legislative  framework  in  the  field  of  free  movement  of  persons  was  improved  with  the 
adoption  of  the  Law  on  employment  and  work  of  foreigners,  which  will  be  applied  from  1 

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January  2009.  Progress  in  the  area  of  free  movement  of  services  was  significant,  due  to  the 
liberalisation  in  the  framework  of  the  ongoing  WTO  accession  negotiations.  Regarding  the 
right of establishment, the company law was amended in order to align it further with the EU 
company directives.  

Progress was also made in the field of free movement of capital by amending the legislation 
on foreign currency and capital operations by revoking some protective measures.  

Good progress was achieved in the field of customs and taxation. Legislation has been further 
aligned  with  the  acquis.  However,  a  continuous  effort  is  needed  with  both  alignment  and 
improvement of tax collection. The administrative capacity of the customs and tax authorities 
needs to be further enhanced, including the effective use of risk analysis and computerisation. 
The fight against corruption remains a priority. 

Regarding  competition,  the  institutional  set-up  continued  with  the  establishment  of  the 
administration  for  competition  protection  and  of  the  state  aid  control  commission.  Their 
operational  independence  will  need  to  be  ensured  and  their  administrative  capacity 
strengthened. 

Progress  continued  in  the  public  procurement  system.  In  some  areas,  such  as  utilities, 
concessions  and  public-private  partnerships,  alignment  remains  poor.  Staff  of  the  public 
procurement  agency  have  received  training  but  its  administrative  capacity  needs  further 
strengthening. 

Further  progress  still  needs  to  be  made  on  intellectual  property  rights  protection.  The 
Montenegrin  Intellectual  Property  Office  (IPO)  was  officially  opened  on  28  May  2008,  but 
the institutional and enforcement capacity and the level of public awareness are still limited.  

Further progress was made to develop employment policies and legislation, with the adoption 
of  the  labour  law,  but  implementation  capacities  are  still  lagging  behind.  Regarding  social 
policies  and  the  protection  of  vulnerable  groups,  where  Montenegro  continues  broadly  to 
fulfil  its  requirements,  some  progress  was  made  on  the  legislative  framework  and  with  the 
establishment of the Social Council as a platform to enhance social dialogue. 

While  some  initial  steps  have  been  undertaken  by  the  government  on  public  health  policy, 
overall progress has been limited. 

There has been progress in the area of education. The legal framework for education and the 
quality  assurance  system  has  been  strengthened.  Further  progress  is  needed  to  implement  a 
comprehensive  lifelong  learning  policy.  There  has  been  good  progress  on  research, 
particularly  on  development  of  a  strategy  and  on  regional  and  international  cooperation, 
including with the EU. 

Montenegro’s accession to the WTO has entered its final stage. Progress was recorded at both 
multilateral and bilateral levels, including the deal reached in April with the EC. 

As far as sectoral policies are concerned, progress can be reported in the area of industry and 
SMEs,  although  it  is  still  limited  in  the  harmonisation  and  acceleration  of  the  procedure  for 
issuing licences and permits and in the setting up of business facilities. 

In  the  area  of  agriculture  and  rural  development,  food  safety,  veterinary  and  phytosanitary 
issues,  as  well  as  fisheries,  progress  can  be  reported  on  the  legislative  reform  and 

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development planning. Nevertheless, implementation needs to be enhanced and an integrated 
food safety system established. 

Some  progress  has  been  achieved  in  terms  of  alignment  with  the  acquis  in  the  field  of 
environment.  Significant  efforts  are  needed,  however,  on  implementation  and  enforcement. 
Special attention needs to be paid to strengthening administrative capacity and to establishing 
of  effective  inspection  services.  Further  efforts  should  be  put  into  raising  awareness  of 
environment protection issues. Overall, environmental protection, in particular in coastal areas 
and national parks, is a matter of concern.  

There  has  been  progress  in  the  liberalisation  of  transport,  in  particular  with  regard  to  road 
transit  traffic.  Restructuring  of  railways  is  being  implemented  but  access  conditions  to  the 
infrastructure  are  yet  to  be  defined.  Progress  in  road  safety,  maritime  transport,  and  in 
systemic approach to transport development has been limited. Substantial efforts are required 
in implementing the aviation acquis. Montenegro continues to actively participate in the South 
East Europe Transport Observatory. 

Progress in the energy sector can be reported but it remains uneven. Continued efforts are still 
needed to meet the requirements of the Energy Community Treaty. 

Some progress has been made in the field of information society and media. However, there 
are  concerns  on  the  independence  of  the  new  Electronic  Communications  Authority. 
Moreover, the transfer of competences to the new regulator may have an important negative 
financial impact on the Broadcasting Agency.  

Developments  in  public  internal  financial  control  and  external  audit  are  at  an  early  stage. 
Considerable  awareness-raising  efforts  and  training  on  the  new  systems  are  required.  The 
independence  and  capacity  of  the  State  Audit  Institution  will  need  to  be  substantially 
strengthened. 

Limited progress has been made in the production of statistics and the administrative capacity 
remains  very  weak.  The  statistical  office  (MONSTAT)  has  serious  difficulties  to  fulfil  its 
obligations and continues to lack professional independence. Substantial efforts are needed in 
all areas in order to reach a level in line with EU standards. 

In the area of justice, freedom and security, Montenegro has started to address its priorities 
but implementation remains limited.  

Montenegro  made  progress  in  the  area  of  visa  policy.  The  EC-Montenegro  visa  facilitation 
and readmission agreements entered into force in January 2008. A visa liberalisation dialogue 
with  the  European  Commission  has  been  launched.  Montenegro  adopted  relevant  new 
legislation  and  started  issuing  biometric  travel  documents.  However,  the  visa  regime  is  not 
fully in line with European standards and further efforts are needed to fulfil the criteria set out 
in the roadmap on visa liberalisation.  

Regarding  border  management,  Montenegro  has  started  to  implement  the  integrated  border 
management  strategy  and  the  action  plan  and  to  strengthen  the  cooperation  between  the 
border police and customs services. However, a new law on state border surveillance is still 
missing. The technical equipment at several border crossing-points is insufficient. 

In the areas of asylum and migration, progress has been uneven. Some progress was made in 
the  field  of  asylum  with  the  adoption  of  secondary  legislation  and  the  establishment  of  the 

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office on asylum and the state asylum appeal commission. In the area of migration however, 
preparations remain at an early stage. A law on foreigners has yet to be adopted. The newly 
adopted  migration  strategy  has  to  be  implemented  effectively.  A  detention  centre  for  illegal 
migrants is still lacking.  

Some progress has been made in the area of money laundering with the adoption of a new law 
on  the  prevention  of  money  laundering  and  terrorist  financing.  Secondary  legislation  now 
needs to be adopted and implementing capacity enhanced. Competencies and capacities of the 
financial  intelligence  unit  remain  limited.  The  investigative  capacity  of  law  enforcement 
bodies  is  still  insufficient.  Money  laundering  remains  a  serious  cause  for  concern  and 
significant further efforts are needed to prevent and combat it. 

A new anti-drug strategy has been adopted and further training was provided to border police 
and  customs  staff,  but  drug  transit  and  trafficking,  in  particular  by  organised  crime  groups, 
remain a matter of serious concern. Drug abuse and drug-related crime in the country continue 
to rise. Montenegro has started to address its priorities but further action is needed. 

Modest  progress  was made in the area of policing. Internal reorganisation of the police and 
training  sessions  continued,  but  equipment,  facilities  and  professional  capacity  need  to  be 
further improved.  

Some  progress  was  made  in  the  fight  against  organised  crime,  in  particular  in  the  form  of 
adopting  an  updated  action  plan  and  setting  up  special  departments  for  organised  crime  in 
high courts. However, organised crime remains a matter of serious concern which affects the 
rule  of  law  and  the  business  environment.  A  new  criminal  procedure  code  has  not  yet  been 
adopted.  Investigations  remain  poor  and  lead  to  very  few  final  convictions.  There  has  been 
little progress in preventing the trafficking in human beings. Montenegro remains a country of 
origin,  transit  and  destination.  Investigations  in  this  area  are  rare  and  a  more  proactive 
approach for identifying and assisting victims is needed. 

There has been limited progress in the area of personal data protection. In the absence of a 
new  legislative  act  and  an  independent  and  efficient  supervisory  authority,  existing  data 
protection rules remain unimplemented, which is a matter of serious concern. 

Serbia  

Serbia has made some progress on fulfilling the political criteria in line with the European 
Partnership. The Stabilisation and Association Agreement  (SAA)  was  signed  in  April  2008, 
marking  a  milestone  in  EU-Serbia  relations.  Significant  progress  was  made  on  cooperation 
with the International Criminal Tribunal for the former Yugoslavia (ICTY). Full cooperation 
remains  a  key  international  obligation  which  must  be  fully  complied  with.  In  the  Council 
conclusions of 29 April 2008 EU ministers agreed to submit the SAA to their parliaments for 
ratification  and  the  Community  agreed  to  implement  the  Interim  Agreement  as  soon  as  the 
Council  decides  that  Serbia  is  fully  cooperating  with  the  ICTY.  In  the  course  of  the  year, 
political  life  in  Serbia  was  dominated  to  a  considerable  extent  by  the  declaration  of 
independence  of  Kosovo11.  Divisions  between  political  parties  on  major  policy  issues 
adversely  affected  the  activities  of  parliament  and  government,  leading  to  early  legislative 
elections. Since the Presidential and legislative elections there has been increased stability in 

11 

under UNSCR 1244/99 

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government and greater consensus on European integration. The new government, formed in 
July 2008, has begun to address key political priorities and to accelerate the reform process.  

In  the  areas  of  democracy  and  the  rule  of  law,  there  has  been  some  progress  on  adopting 
legislation  to  implement  the  new  constitutional  framework.  However,  further  reforms  are 
needed  to  ensure  that  the  constitutional  provisions  on  the  judiciary  are  implemented  in  line 
with European standards.  

Parliament ratified the SAA in September 2008 and has begun work on a legislative package 
addressing European standards in a number of areas. However, legislative output was limited 
and  few  laws  were  adopted  during  the  reporting  period.  Parliamentary  reform  has  been 
delayed  and  the  issue  of  party  control  over  the  mandates  of  members  of  parliament  has  not 
been  addressed.  The  capacity  of  the  parliamentary  committees  remains  limited  and  election 
legislation has still to be revised.  

Government activities during much of the reporting period were affected by issues relating to 
Kosovo and a lack of consensus regarding relations with the EU. The new government, which 
took  office  in  July  2008,  has  made  a  commitment  to  strengthen  ties  with  the  EU  and  to 
advance  the  reform process.  Policy coordination in general between ministries and agencies 
needs  to  be  improved.  There  was  some  progress  in  legislative  reform  in  relation  to  local 
government. There is a need for further improvement and alignment with European standards 
in this area.  

Serbia  has  good  overall  capacity  in  the  area  of  public  administration.  European  integration 
structures  have  been  strengthened  and,  under  the  coordination  of  the  Serbian  European 
Integration  Office,  the  Serbian  administration  actively  participated  in  the  preparation  of  the 
National  Programme  for  EU  Integration  which  was  adopted  by  the  Serbian  government  in 
October  2008.  The  newly  established  Office  of  the  State  Ombudsman  was  active  in 
responding to citizens' requests for assistance and in proposing numerous amendments to draft 
legislation. Independent and regulatory bodies have performed relatively well under difficult 
conditions.  Greater  determination  needs  to  be  shown  by  the  Serbian  authorities  to  empower 
independent regulatory bodies and to ensure that they operate more effectively. Further efforts 
need to be made to strengthen professionalism and accountability throughout the civil service. 

Progress  was  made  towards  ensuring  civilian  oversight  of  the  security  forces  with  the 
adoption of a number of laws. Reform in this sector still has to be completed and parliament 
needs to ensure effective democratic oversight.  

In the area of judiciary, the Constitutional Court resumed its duties following the appointment 
of  its  President  and  10  out  of  its  15  judges.  Training  and  employment  conditions  for 
magistrates  have  further  improved.  Reform  of  the  judicial  system  is  still  at  an  early  stage, 
however,  and  the  legislative  framework  to  implement  judicial  reform  is  not  fully  in  place. 
Administrative  and  appellate  courts  have  not  been  established.  Further  efforts  need  to  be 
made  by  Serbia  to  ensure  the  independence,  accountability  and  efficiency  of  the  judicial 
system.  

There was some progress in the fight against corruption. Amendments to the law on financing 
political parties, and the law establishing an anti-corruption agency, which also contains new 
rules  on  conflict  of  interest,  were  adopted  in  October  2008.  The  Civil  Law  Convention  on 
Corruption and the Additional Protocol to the Criminal Law Convention on Corruption were 
ratified in November 2007. However, a clear anti-corruption strategy is still lacking. There is 

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a  lack  of  sufficiently  independent  oversight  bodies  covering  party  financing,  conflict  of 
interest,  public  procurement  and  privatisation  and  there  has  been  limited  practical  results. 
Overall, corruption remains widespread and constitutes a serious problem in Serbia.  

The overall framework for respect of human rights and the protection of minorities in Serbia 
is  in  place.  The  constitution  contains  guarantees  for  civil  and  political  rights  which  are 
generally  protected.  However,  these  rights  were  affected  by  the  climate  in  the  country 
immediately following the declaration of independence of Kosovo. There were a number of 
incidents  involving  inflammatory  language  and  violence  against  civil  society  organisations, 
human  rights  defenders  and  some  sections  of  the  media.  Existing  constitutional  and  legal 
guarantees  in  this  area  need  to  be  fully  enforced.  There  have  been  reforms  of  the  prison 
system. However, overcrowding, violence and drug abuse pose serious problems. 

The  legal  provisions  for  protection  of  economic  and  social  rights  are  largely  in  place  in 
Serbia.  The  legal  framework,  however,  needs  to  be  further  developed,  including  a 
comprehensive anti-discrimination law. Legislation needs to be fully implemented. In the area 
of  women's  rights,  the  Ministry  for  Labour  and  Social  Affairs  has  been  active  in  furthering 
women's  rights.  However,  a  specific  law  on  gender  equality  and  the  national  strategy  to 
improve women's position and enhance gender equality have not yet been adopted. Protection 
of women and children against all forms of violence needs to be improved. Further efforts are 
needed to  improve the social inclusion of children, persons with  disabilities and vulnerable 
groups,  in  particular  access  to  health  and  proper  education.  With  regard  to  property  rights, 
legislation  on  restitution  has  not  yet  been  adopted,  preventing  the  proper  launching  of  the 
restitution process. 

Minority rights in Serbia are generally respected. Legislation to regulate national councils on 
minorities has, however, not been adopted. There were a number of incidents in Vojvodina in 
the  period  immediately  following  the  declaration  of  independence  of  Kosovo,  in  particular 
against the Albanian national minority. The situation in southern Serbia remained stable but 
tense,  whereas  the  situation  in  Sandžak  has  worsened  following  a  deepening  of  divisions 
within the Muslim community. Insufficient attention has been paid to resolving the status of 
refugees and internally displaced persons. The Roma minority continues to face very difficult 
living  conditions  and  discrimination,  with  poor  access  to  education,  social  protection, 
healthcare, housing and employment. The lack of civil registration continues to  hinder  their 
access to basic social and economic rights. 

As  regards  regional  issues  and  international  obligations,  Serbia  has  made  significant 
progress  on  improving  cooperation  with  the  ICTY,  by  arresting,  and  transferring  to  The 
Hague, indictees Stojan Župljanin and Radovan Karadžić. Full cooperation with the ICTY is 
an international obligation which must be fully complied with, and one of the key priorities of 
the European Partnership.  

Serbia  actively  participated  in  regional  initiatives,  including  the  newly  established  Regional 
Cooperation Council (RCC). Serbia cooperated constructively in ensuring the implementation 
of the Central European Free Trade Agreement (CEFTA). Serbia has insisted that the Kosovo 
authorities  be  represented  by  UNMIK  in  regional  groupings.  It  is  important  that  Serbia 
demonstrates a constructive attitude towards Kosovo's participation in regional initiatives and 
international fora. 

Relations between the EU and Serbia have been affected by the declaration of independence 
of Kosovo. In February 2008 a demonstration against the declaration of independence ended 

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in  violence  with  several  protestors  attacking  foreign  diplomatic  missions  in  Belgrade, 
including EU embassies. The EU condemned these attacks and urged the Serbian authorities 
to do all in their powers to prevent further violence.  

Serbia has vowed to use only peaceful means and has exercised restraint in its response to the 
declaration  of  independence  by  the  Kosovo  assembly.  The  Serbian  government  has  taken 
legal and diplomatic measures to contest the legality of the declaration of independence. The 
Serbian  authorities  recalled  serving  ambassadors  from  countries  that  recognised  Kosovo, 
including  EU  Member  States.  Serbian  ambassadors  who  had  been  withdrawn  from  EU 
Member States have since returned to their posts. In October 2008, the UN General Assembly 
voted in favour of a resolution tabled by Serbia, seeking a non-binding advisory opinion from 
the  International  Court  of  Justice  (ICJ)  on  the  legality  of  the  Kosovo  declaration  of 
independence.  

Serbia  has  opposed  reconfiguration  of  the  international  civilian  presence  in  Kosovo  and 
EULEX  deployment  unless  authorised  by  the  UN  Security  Council.  Serbia  organised 
municipal  elections  in  Kosovo  in  May  2008  in  spite  of  UNMIK  opposition  and  has 
strengthened  parallel  institutions  in  Kosovo,  including  the  establishment  of  an  assembly  of 
municipalities. 

The  economy  of  Serbia  continued  to  grow  strongly.  However,  progress  in  macroeconomic 
stabilisation  was  mixed.  The  continuing  reversal  of  fiscal  consolidation  added 
to 
macroeconomic risks. Structural reforms slowed down and the high level of unemployment, 
as well as rising inflationary pressures, remained major challenges. 

As  regards  the  economic  criteria,  Serbia  made  some  progress  towards  establishing  a 
functioning  market  economy.  Further  efforts  are  needed  to  enable  Serbia  to  cope  in  the 
medium term with the competitive pressures and market forces within the Union. 

Consensus  on  the  fundamentals  of  a  market  economy  was  broadly  maintained.  The  new 
monetary policy framework of inflation targeting enabled Serbia to meet the inflation targets 
in 2007. There was some progress in privatisation. Financial intermediation continued to grow 
from a still relatively low level. Significant progress was made with the development of the 
non-banking financial sector. 

However,  external  imbalances  widened,  the  quality  of  financing  deteriorated,  foreign  debt 
rose, and the degree of macro-vulnerability increased also in the light of the global financial 
crisis. Fiscal policy remained expansionary, contributing to growing external imbalances and 
resurfacing  inflationary  pressures  in  2008.  Despite  high  economic  growth  rates  in  recent 
years,  unemployment  remained  a  major  challenge.  At  the  same  time,  the  economy  suffered 
increasingly  from  a  shortage  of  skilled  employees.  There  was  some  progress  with  regard  to 
the privatisation of state-owned companies and banks. Foreign investment has been affected 
by the unstable political climate.  

A  competitive  and  dynamic  private  sector  has  not  yet  been  fully  established.  Excessive 
bureaucratic requirements and complex legislation continued to hamper market entry and exit. 
Legal predictability and trust in the legal system remained limited, in particular as far as the 
effective  enforcement  of  property  rights  were  concerned.  Although  having  declined,  state 
influence on competitiveness remained high. The large informal sector is fuelled by a weak 
regulatory  framework,  by  inappropriate  tax  and  expenditure  policies,  and  by  weaknesses  in 

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law  enforcement,  including  the  fight  against  corruption  and  organised  crime.  It  remains  an 
important challenge as it reduces the tax base and the efficiency of economic policies. 

In the area of European Standards, compliance with the obligations under the SAA, and in 
particular the Interim Agreement, is a key priority of the European Partnership. The Serbian 
government  took  a  decision  in  October  2008  to  implement  the  Interim  Agreement  by  1 
January 2009. Serbia remains well placed to implement the SAA and the Interim Agreement, 
thanks  to  its  good  administrative  capacity.  In  order  to  benefit  from  and  achieve  full 
compliance with the obligations of the SAA, Serbia will need to make further efforts, notably 
in the form of adoption and implementation of legislation, and to strengthen its administrative 
and enforcement capacity, including for regulatory bodies.  

Serbia has made some progress in the areas of the internal market. However there have been 
few  developments  in  terms  of  legislative  alignment.  In  the  field  of  free  movement  of  goods 
progress  was  made  on  standardisation,  accreditation  and  conformity  assessment.  Further 
improvements  are  needed  to  strengthen  institutional  and  administrative  capacity  and  the 
legislative framework. Legislation on standardisation, metrology and product safety needs to 
be upgraded and Serbia needs to start establishing a market surveillance structure.  

Preparations in the areas of movement of persons, services and the right of establishment are 
moderately  advanced.  Greater  efforts  are  needed  to  ensure  legislative  alignment  with  the 
acquis,  especially  in  the  areas  of  company  law  and  banking.  The  capacity  of  supervisory 
bodies  in  the  financial  services  sector  needs  to  be  further  developed.  The  Securities 
Commission was recently strengthened, but still has insufficient powers to fully carry out its 
functions in line with international standards. In the area of free movement of capital, capital 
flows with Bosnia and Herzegovina have been further liberalised and cooperation in banking 
supervision  with  the  former  Yugoslav  Republic  of  Macedonia  has  improved.  Overall, 
preparations to meet SAA obligations are moderately advanced in this area. 

Improvements  in  the  administrative  capacity  of  the  customs  and  taxation  administrations 
yielded  positive  results  in  fighting  illicit  trafficking  and  smuggling  and  improving  tax 
collection. New ad valorem and specific duties on cigarettes became applicable in line with 
the  acquis.  However,  further  strengthening  is  necessary  in  order  to  improve  the  customs 
infrastructure. Serbia needs to make further efforts to meet EU standards in the area of direct 
taxation.  

There  has  been  some  progress  in  implementing  competition  legislation.  The  administrative 
capacity  of  the  Commission  for  the  Protection  of  Competition  was  strengthened.  Further 
efforts  are  needed  to  align  the  existing  anti-trust  legislation  with  the  requirements  of  the 
Interim  Agreement.  The  enforcement  capacity  of  the  competition  authorities  needs  to  be 
further improved. Serbia has not yet adopted a legislative framework for state aid, nor has it 
established an operationally independent state aid authority or a system of ex-ante control. In 
the area of public procurement, procedures have become more transparent. However, Serbia 
still  lacks  a  modern  and  fully  effective  public  procurement  system.  Additional  efforts  are 
needed in the form of amending the legislation and strengthening the capacity to implement 
the requirements of the SAA.  

In  the  area  of  intellectual  property  law,  the  capacity  of  the  Intellectual  Property  Office  was 
strengthened.  However,  its  administrative  capacity  and  its  independence  need  to  be  further 
developed to ensure greater consistency and more effective enforcement of rules. The process 

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of granting patents has been streamlined in line with European standards. Some progress has 
been made in the field of enforcement, leading to seizures of counterfeit goods.  

As  concerns  approximation  to  European  standards  in  the  areas  of  employment  and  social 
policies,  the  implementation  record  has  partly  improved,  but  is  still  inadequate.  Legislation 
has  still  to  be  adopted  in  the  field  of  social  policies  and  public  health  and  administrative 
capacity  needs  to  be  strengthened.  In  the  area  of  mental  health  community-based  services 
need  to  be  further  developed  as  an  alternative  to  institutionalisation.  There  has  been  little 
progress in the area of education. Administrative capacity, coordination between institutions 
and links with the labour market need to be strengthened. In the area of science and research 
Serbia  has  participated  successfully  in  the  Seventh  Research  Framework  Programme. 
However  Serbia  has  still  to  develop  an  integrated  research  policy  including  increased 
investment  and  mobility  of  researchers.  Serbia  is  relatively  advanced  in  its  preparations  to 
join the WTO, but needs to step up its efforts to meet its own objective of early accession. 

As regards sectoral policies, in the areas of industry and SMEs Serbia remains committed to 
the  European  Charter  for  Small  and  Medium-sized  enterprises,  in  particular  through 
improving cooperation between public and private stakeholders. However, it needs to adopt a 
new industry policy in line with the EU approach.  

In  the  area  of  agriculture,  there  have  been  some  improvements  in  administrative  capacity. 
However,  an  appropriate  legislative  framework  needs  to  be  adopted  and  further  efforts  are 
needed  to  strengthen  administrative  capacity.  Little  progress  has  been  made  in  the  area  of 
rural development and the phytosanitary area.  

In  the  area  of  environment,  Serbia's  preparations  remain  at  a  moderately  advanced  level. 
Enforcement of legislation at all levels has still to be improved. Water management still lacks 
a comprehensive legal and institutional framework.  

Some progress has been made in the area of transport. Serbia continues to actively participate 
in  the  South  East  Europe  Transport  Observatory.  Implementation  of  the  first  phase  of  the 
European Common Aviation Area (ECAA) has continued but the agreement has not yet been 
ratified. Serbia adopted a new strategy for the development of rail, road, water, air and inter-
modal  transport,  including  the  extension  of  Corridor  X.  However,  this  strategy  needs  to  be 
followed up by action plans and sector-based legislative and administrative measures. 

There  was  some  progress  in  the  area  of  energy.  Tariff  systems  for  electricity  transmission 
have  been  upgraded  and  the  markets  for  non-household  consumers  have  been  opened  up. 
However,  Serbia  still  needs  to  adopt  amendments  to  its  Energy  Law  and  to  strengthen  its 
administrative capacity in order to fulfil the requirements of the Energy Community Treaty.  

Little progress has been made in the areas of information society and media. Regulations on 
electronic  signature  were  adopted,  but  the  inadequate  legal  framework  and  limited 
institutional and regulatory capacity continue to undermine further developments in electronic 
communications, information society services and audiovisual policy. 

In the area of financial control, a comprehensive policy on Public Internal Financial Control 
is still not in place. Overall, Serbia is at a very early stage of preparations for introducing a 
modern  and  effective  system  of  public  financial  control.  Internal  audit  units  have  not  been 
established in all ministries. The State Audit Institution is not yet operational.  

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Serbia  is  moderately  advanced  in  fulfilling  the  requirements  of  the  SAA  and  the  European 
Partnership in the area of statistics. Administrative capacity needs to be further strengthened.  

There  has  been  moderate  progress  in  the  area  of  justice,  freedom  and  security.  The  visa 
facilitation and readmission agreements between the European Union and Serbia entered into 
force  in  January  2008  and  a  visa  liberalisation  dialogue  has  started.  However,  Serbia's  visa 
regime is not fully in line with European standards. Serbia started to issue biometric passports 
in August 2008. In  the area  of border  control, a new law on protection of the state borders 
was  adopted  in  October  2008.  However,  implementation  of  the  national  integrated  border 
management strategy and the action plan has been slow. Equipment of border crossing-points 
is uneven.  

Following the adoption of the new legislation on asylum, Serbia took over responsibility for 
handling  asylum  cases  from  the  UNHCR.  However,  procedural  weaknesses  persist  and 
implementing legislation needs to be adopted. Progress in the area of migration was slow. In 
particular, reintegration of returnees needs to be improved. 

Money laundering continues to be a serious problem. A national strategy for the prevention of 
money laundering and financing of terrorism was adopted by government in September 2008, 
but  relevant  legislation  has  still  to  be  adopted.  Effective  measures  to  enforce  and  assess 
reports  on  suspicious  transactions  are  not  in  place  and  the  investigation  capacity  of  the  law 
enforcement authorities is insufficient.  

Serbia is located on one of the major Balkan routes for smuggling drugs. Serbian authorities 
seized a significant amount of drugs during the reporting period. However, a national strategy 
and action plan on preventing drug abuse and reducing supply have not been adopted. Drug 
trafficking remains a serious concern. 

The  professional  capacities  of  the  police  have  improved  as  a  result  of  additional  training 
activities,  but  the  differences  between  services  remain  considerable.  Structural  problems 
persist, such as a lack of coordination, transparency and clear division of responsibilities. 

The  fight  against  organised  crime  remains  a  matter  of  serious  concern  for  Serbia  which 
affects  the  rule  of  law  and  the  business  environment.  New  legislation  on  seizure  of  assets 
acquired  through  criminal  acts  and  on  criminal  liability  of  legal  persons  was  adopted  in 
October 2008. However, the legal framework is still incomplete, due to the delayed entry into 
force of the new Criminal Procedure Code.  A national strategy and an action plan have not 
been  adopted.  The  efficiency  of  the  special  prosecutor's  activities  is  hampered  by  the  short 
term  of  office.  International  police  cooperation  and  the  capacity  of  the  specialised  police 
services to investigate financial crime remain insufficient. Management capacities for seized 
assets  acquired  through  criminal  acts  are  not  in  place  and  provisions  on  confiscation  of  the 
proceeds of crime are not sufficiently implemented. 

Serbia  continues  to  be  a  country  of  origin,  transit  and  destination  for  trafficking  in  human 
beings.  Some  efforts  were  made  in  terms  of  investigations  and  indictments,  but  there  have 
been  an  increasing  number  of  Serbian  victims.  Efforts  have  to  be  stepped  up  to  improve 
cooperation between state authorities and the NGO sector and to support victims better.  

In  the  area  of  data  protection,  Serbia  signed  the  relevant  Council  of  Europe  protocol  and 
adopted a new legislation on data protection. However, in the absence of an independent and 

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efficient  data  protection  supervisory  authority,  existing  data  protection  rules  have  not  been 
implemented.  

Kosovo12  

Kosovo declared independence on 17 February 2008 and adopted a constitution, which came 
into force on 15 June. In February the EU decided to establish an ESDP rule of law mission 
(EULEX)  in  Kosovo  and  appointed  a  Special  Representative.  EULEX  is  currently  being 
deployed.  The  UNSG  has  started  reconfiguring  the  United  Nations  Mission  in  Kosovo 
(UNMIK).  UNSCR  1244/99  continues  to  be  the  international  legal  framework  for  the  UN's 
mandate in Kosovo. The European Council of December 2007 and June 2008 stated the EU's 
readiness  to  assist  Kosovo's  economic  and  political  development  through  a  clear  European 
perspective, in line with the European perspective of the region.  

As  regards  political  criteria,  Kosovo  has  made  some  progress  in  addressing  key  European 
Partnership  priorities.  The  constitution  that  was  adopted  in  April  is  in  line  with  European 
standards.  A  considerable  amount  of  key  legislation  was  adopted.  This  now  needs  to  be 
implemented. Strengthening the rule of law, anti-corruption policy, the fight against organised 
crime and enhancing dialogue and reconciliation between the communities are major political 
challenges. Relations between Kosovo Albanians and Kosovo Serbs continue to be strained, 
especially  in  northern  Kosovo.  Following  the  declaration,  the  security  situation  remained 
relatively calm, with the exception of two serious incidents in northern Kosovo - destruction 
of  two  border  posts  and  storming  of  the  Court  house  in  Mitrovica  -  which  resulted  in  one 
fatality and many injuries. Parallel Serb institutions prevent the government from exercising 
its authority throughout Kosovo. 

Regarding democracy and rule of law, overall stability has been maintained despite a number 
of  incidents.  Kosovo's  political  leaders  have  continued  to  cooperate  with  the  international 
community. The complex legal context hinders the rule of law. Kosovo institutions continue 
to require strengthening at all levels. 

The assembly took some steps to strengthen its structures. Representatives of the Kosovo Serb 
community  resumed  participation  in  its  work  after  a  boycott  following  the  declaration  of 
independence.  Shortcomings  remain  to  be  addressed  in  the  functioning  of  the  assembly, 
notably  the  insufficient  capacity  to  scrutinise  draft  legislation  and  to  exercise  parliamentary 
control over government. 

A  new  government  took  office  in  January  2008.  It  gave  priority  to  European  integration 
matters  and  adopted  its  Plan  for  European  Integration  and  the  European  Partnership  Action 
Plan. However, reforms have been delayed as the work of the government was affected to a 
considerable  extent  by  status  and  other  issues  related  to  Kosovo's  declaration  of 
independence. Further capacity-strengthening and strategic planning remain necessary. Inter-
ministerial coordination and the interaction between the government and the assembly need to 
be improved. 

Public  administration  in  Kosovo  is  weak  and  inefficient.  The  public  administration  reform 
strategy and related action plan still require effective implementation at both central and local 

12 

Under UNSCR 1244/99 

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levels.  Major  efforts  are  needed  to  establish  the  framework  for  a  professional,  efficient, 
independent and merit-based civil service free from political interference. 

As regards the judicial system, the assembly approved a number of important laws aimed at 
strengthening the functioning of the judiciary. The Coordination Council for Rule of Law has 
started  to  operate.  However,  the  judicial  system  is  still  weak.  A  comprehensive  plan  to 
streamline  applicable  and  often  competing  law  is  needed.  The  court  system  faces  serious 
human  resources  and  organisational  challenges  and  the  backlog  of  cases  continues  to  be  a 
major  problem.  Witness  protection  is  ineffective.  Parallel  courts  applying  Serbian  law 
continue to operate. 

As  regards  the  fight  against  corruption,  the  anti-corruption  agency  (KAA)  improved  its 
working  methods  and  efficiency.  However,  corruption  remains  widespread  and  continues  to 
be a very serious  problem.  An anti-corruption strategy and action plan are still needed. The 
institutional  framework  to  tackle  corruption  is  unclear,  and  the  KAA's  resources  are 
inadequate. 

The  constitution  provides  guarantees  for  the  respect  of  human  rights  and  the  protection  of 
minorities. Legal safeguards to ensure respect of human rights have been established. There 
continues  to  be  a  need  for  stronger  political  determination  and  effective  monitoring. 
Following the declaration of independence, the government continued to reach out to ethnic 
minorities,  in  particular  Kosovo  Serbs.  However,  more  determined  efforts  are  required  in 
order to integrate the Kosovo Serb and other communities. 

There  has  been  some  progress  on  civil  and  political  rights.  The  legal  aid  system  is 
operational.  There  has  been  progress  in  improving  the  prison  system  in  Kosovo,  but 
challenges  remain,  notably  as  regards  standards  for  high-security  prisons.  Some  limited 
progress was made in the area of freedom of expression. However, defamation continues to be 
a criminal offence. The media continue to be vulnerable to political interference. Freedom of 
association  and  assembly  is  guaranteed  under  the  constitution  but  the  relevant  legal 
framework is not yet in place. The capacity of civil society organisations remains weak.  

Economic  and  social  rights  are  only  partially  guaranteed.  Sustained  efforts  are  needed 
regarding the protection of women and children against all forms of violence. Integration and 
protection  of  socially  vulnerable  groups  and  people  with  disabilities  are  not  ensured. 
Implementation  of  anti-discrimination  legislation  is  poorly  monitored  and  citizens  are  not 
informed  of  its  provisions.  Little  progress  has  been  achieved  in  the  area  of  property  rights. 
Delays in implementing legislation and obstruction have led to violations of rights. The fact 
that  Kosovo  authorities  are  not  allowed  access  to  the  land  register  in  Belgrade  is  a  major 
obstacle to progress in this area. Enforcement of legislation on respect of religious property 
needs to be strengthened (e.g. the municipalities of Dečani/Deçan and Đakovica/Gjakovë are 
in breach of the legislation on the inviolability of Orthodox Church property). 

As regards minority rights, cultural rights and the protection of minorities, progress has been 
made in the area of minority and cultural rights legislation. The legal framework provides for 
participation  of  ethnic  minorities  in  Kosovo  society.  However,  Serbia  has  discouraged  the 
Kosovo  Serb  community  from  taking  part.  There  have  been  no  major  inter-ethnic  incidents 
but  sporadic  outbreaks  continue  to  be  reported.  Living  conditions  of  minority  communities 
continue to be poor. As concerns  returnees,  refugees  and internally displaced people, some 
progress was made, such as the approval of the reintegration strategy in October 2007, but the 
returns  process  slowed  down  after  the  declaration  of  independence  and  remains  a  key 

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challenge.  The  Roma,  Ashkali  and  Egyptian  communities  continue  to  face  very  difficult 
living  conditions  and  discrimination,  with  poor  access  to  education,  social  protection, 
healthcare, housing and employment. Further efforts by the government are required for the 
protection and integration of all minorities. 

Concerning  regional  issues  and  international  obligations,  Kosovo  participates  actively  in 
regional  co-operation  initiatives.  Kosovo,  as  well  as  Serbia,  needs  to  demonstrate  a 
constructive  attitude  regarding  its  continued  participation.  UNMIK  has  offered  to  facilitate 
arrangements  for  Kosovo's  continuing  engagement  in  international  agreements.  A  joint 
committee  started  work  on  border  demarcation  with  the  former  Yugoslav  Republic  of 
Macedonia. 

The economy of Kosovo has grown at a higher rate than in previous years. However, growth 
remains  too  low  to  absorb  the  additional  labour  supply  offered  by  a  young  and  growing 
population. Macroeconomic performance was marked by volatile budget outcomes, growing 
inflation,  very  high  unemployment  and  external  imbalances.  The  consensus  on  economic 
policy essentials was weakened by the government's focus on political developments and by 
increased  budget  volatility.  Economic  development  is  further  hampered  by  a  standstill  in 
privatisation,  erratic  energy  supply,  weak  rule  of  law,  limited  productive  capacity,  poor 
infrastructure and inadequate education.  

As  regards  the  economic  criteria,  Kosovo  has  made  very  limited  and  uneven  progress 
towards establishing a functioning market economy. A continued drive for reform and sizable 
investments in infrastructure and education are necessary to enable Kosovo to cope over the 
long term with competitive pressure and market forces within the Union. 

Overall,  economic  policies  remained  market-oriented.  The  government  presented  a 
comprehensive Medium-Term Expenditure Framework 2009-2011 (MTEF). Growth slightly 
picked  up  compared  with  previous  years  and  economic  activity  is  increasingly  driven  by 
private-sector dynamism. Foreign direct investment rose. Financial intermediation in Kosovo 
deepened  further.  Some  procedures  for  market  entry  and  exit  by  businesses  have  been 
smoothened and economic integration with the EU continued. 

However, the consistency and reliability of economic policies were weakened in an uncertain 
political environment. Stronger fiscal consolidation than planned in 2007 was followed by an 
expansionary  budget  plan  in  2008,  leading  to increased  budget  volatility.  The  budget  is  not 
used as an efficient instrument of fiscal policy and does not contribute to the predictability of 
economic developments. Instead, it responds to ad hoc spending pressures. Inflation resumed 
and  unemployment  remained  very  high.  The  external  accounts  remained  precarious,  as  the 
trade deficit widened further and Kosovo continued to lack export capacity.  

Privatisation  was  temporarily  suspended  in  2008,  following  a  ruling  by  the  Supreme  Court, 
which  called  into  question  the  method  of  privatisation  and  the  transition  from  the  UNMIK 
Kosovo  Trust  Agency  (KTA)  to  the  Privatisation  Authority  of  Kosovo.  The  lack  of  quality 
statistics  remained  a  serious  obstacle  for  designing  good  policies.  Major  constraints  for 
private-sector  development  include  the  unreliable  energy  supply,  a  mismatch  of  skills  and 
poor  physical  infrastructure.  Companies  have  uneven  access  to  finance  and  the  interest-rate 
spread between deposits and loans remained very high. The large informal sector is fuelled by 
a  weak  regulatory  framework,  by  inappropriate  tax  and  expenditure  policies  and  by 
weaknesses  in  law  enforcement,  including  the  fight  against  corruption  and  organised  crime. 

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This remains an important challenge, as it reduces the tax base and the efficiency of economic 
policies.  

Kosovo has made some progress in approximating its legislation and policies with European 
standards,  notably  in  areas  such  as  customs,  agriculture  and  free  movement  of  goods. 
However,  little  progress  has  been  made  on  effective  implementation  and  enforcement  of 
legislation.  More  efforts  are  needed  on  further  approximation  to  and  implementation  of 
European  standards,  in  particular  on  fighting  organised  crime,  money  laundering,  drugs, 
taxation, energy and employment. 

Progress in implementing the European Partnership priorities in the area of the EU internal 
market  has  been  mixed.  There  has  been  some  progress  in  establishing  the  necessary 
horizontal infrastructure required by EU legislation on free movement of goods, but alignment 
with  European  standards  continues  to  be  limited  in  this  area.  Considerable  efforts  are  still 
needed  to  develop  the  infrastructure  and  to  upgrade  the  relevant  administrative  capacity  in 
order to ensure adequate transposition and implementation of European standards. There has 
been  little  progress  in  the  areas  of  free  movement  of  persons,  services  and  right  of 
establishment, in which alignment remained limited and only some progress concerning free 
movement of capital.  

There has been some progress in the area of customs. Customs legislation is largely aligned 
with  EU  legislation,  but  significant  efforts  are  needed  to  enforce  legislation  to  fight 
counterfeit  goods  and  smuggling.  The  absence  of  effective  customs  controls  in  northern 
Kosovo, where customs authorities are prevented from operating, deprives the government of 
important revenue and gives rise to extensive smuggling. Kosovo's legislation in the area of 
taxation is only partially aligned. Tax collection remains extremely weak, largely due to the 
size of the informal economy and to ineffective controls. There has been no progress in the 
area of competition. As regards public procurement, progress has been mixed. The framework 
law complies with European standards, but its implementing provisions are still lacking and 
there  is  no  comprehensive  strategy  for  further  development.  Limited  progress  was  made  as 
regards  intellectual  property.  Legislation  against  property  rights  infringements  came  into 
force, but enforcement remains very weak. 

Little  progress  can  be  reported  on  approximation  to  European  standards  in  the  employment 
and  social  sectors.  The  absence  of  a  strategic  and  legislative  framework  and  lack  of 
administrative capacity are obstacles to the development of adequate employment policies and 
social protection in Kosovo. The public health sector is in a very poor state and is not given 
sufficient  attention  by  the  government.  On  education,  some  progress  can  be  reported  in 
approximating to EU standards. The government committed itself to invest more in this sector 
as a matter of priority and the Ministry of Education has continued to improve the quality of 
teaching  and  learning  in  higher  education.  However,  education  continues  to  be  affected  by 
severe resource constraints. Progress in the area of research continues to be limited. 

As  regards  sectoral  policies,  limited  progress  can  be  reported  on  approximating  to  EU 
standards in the field of industry and SMEs.  

There  has  been  some  legislative  progress  in  the  area  of  agriculture  and  fisheries.  Some 
elements  of  the  Agricultural  and  Rural  Development  Plan  for  2007-2013  have  begun  to  be 
implemented. Public support for agricultural development increased but remains at a very low 
level  considering  agriculture's  potential  importance  for  Kosovo's  economy.  A  clearer 

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separation of responsibilities is needed between the different agricultural services (including 
the veterinary and phytosanitary administration) at central and local levels. 

As  regards  the  environment,  there  has  been  some  progress,  mainly  in  the  area  of  horizontal 
legislation,  notably  related  to  environmental  impact  assessment.  Further  efforts  are  still 
required in most sectors on transposition, implementation and enforcement of legislation. The 
lack of human and financial resources at both central and local levels remains to be addressed. 
Appropriate  coordination  mechanisms  between  all  institutions  dealing  with  environmental 
protection also need to be put in place.  

Some progress can be reported in the field of transport, which has suffered from decades of 
underinvestment.  Kosovo  has  increased  its  investment  in  transport  infrastructure  from  2008 
on,  especially  in  road  building  and  maintenance.  It  continues  to  actively  participate  in  the 
South  East  Europe  Transport  Observatory.  However,  the  capacity  to  implement  European 
transport standards remains weak, especially in the railway sector. Kosovo needs to develop 
its capacity to implement investment projects on infrastructure and rolling stock. 

There  has  been  some  progress  in  the  area  of  energy,  particularly  in  building  up  the 
institutional capacity of the ministry, regulator and transmission System Operator (KOSTT). 
However,  energy  shortages  are  still  frequent  and  major  problems  remain  to  be  solved.  The 
financial  viability  of  the  power  utility  needs  to  be  improved,  by  reducing  commercial  and 
non-technical losses and ensuring more effective bill collection. Stability of supply needs to 
increase and infrastructure needs upgrading. Kosovo’s impending lignite shortfall needs to be 
addressed. 

In the area of information society and media, some progress was made. The Press Council and 
the  Media  Institution  are  functioning  properly.  Market  liberalisation  progressed  as  a  second 
mobile  telephone  operator  started  to  offer  services.  However,  the  various  regulatory  bodies 
face budgetary restrictions. 

There has been some progress in the field of financial control, but only limited progress on 
statistics  where  concerns  persist  about  administrative  capacity  and  the  ability  of  the 
institutions to cooperate in collecting and processing data. 

As regards justice, freedom and security, there has been some limited progress. Kosovo has 
no  visa  regime  in  place  to  regulate  access  of  third-country  nationals  to  its  territory.  Some 
progress  was  made  in  improving  the  framework  for  Integrated  Border  Management.  The 
government has started issuing Kosovo passports. The border police have no effective control 
over the crossing points in northern Kosovo, for which responsibility remains with UNMIK.  

The assembly has adopted an asylum law but the Ministry of Interior has limited capacity to 
handle asylum cases or cases of involuntary returns of Kosovo citizens. There is no reception 
centre  for  asylum-seekers  or  involuntary  returnees.  A  law  on  migration  still  needs  to  be 
adopted. 

Progress  in  combating  money  laundering  has  been  insufficient.  The  determination  and 
capacity to fight against money laundering have to be increased considerably. The judiciary 
and  law  enforcement  continue  to  lack  the  expertise  to  fight  economic  and  financial  crime 
effectively.  There  is  a  shortage  of  specialised  prosecutors.  There  are  no  facilities  for  proper 
storage  of  evidence.  Communication  between  the  relevant  services  and  institutions  remains 
poor. The fight against money laundering remains a key challenge. 

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Drug  trafficking  continues  to  be  a  serious  concern.  Kosovo  is  one  of  the  main  trafficking 
routes for drugs in the Southern Balkans. There is no action plan or strategy to combat drug 
trafficking. Statistics are unreliable and intelligence-gathering capacity is insufficient.  

Progress was made in the field of policing with the adoption of laws on the police and on the 
police  inspectorate.  However,  implementation  of  an  effective  crime-reduction  strategy 
requires  sustained  determination  and  sufficient  police  capacity.  Kosovo  has  a  multi-ethnic 
police  force.  However,  some  Kosovo  Serb  police  officers  boycott  the  Kosovo  Police  (KP). 
The KP cannot ensure effective policing in some Serb-majority areas. 

Organised  crime  continues  to  be  a  serious  problem,  which  affects  the  rule  of  law  and  the 
business  environment.  There  is  no  strategy  to  fight  organised  crime.  The  legislative 
framework  is  still  incomplete.  Legislation  is  needed  on  confiscation  of  assets,  witness 
protection and undercover agents. A reliable land register is required to allow the confiscation 
of real-estate assets. In order to tackle organised crime effectively determined and sustained 
efforts are required on the part of the authorities.  Kosovo continues to be an area of origin, 
transit  and  destination  for  trafficking  in  human  beings.  A  strategy  and  an  action  plan  have 
been adopted in July, but enforcement is inadequate. 

There are no developments on protection of personal data. There is still no general legislation 
on data protection. No independent data protection supervisory authority has been set up yet. 

Turkey  

Turkey continues to sufficiently fulfil the Copenhagen political criteria. The Constitutional 
Court did not enact the Chief Prosecutor's request to dissolve the ruling party and ban 71 of its 
prominent  members,  but  imposed  financial  sanctions,  thus  averting  a  major  political  crisis. 
Turkey  now  has  a  fresh  opportunity  to  advance  reforms  and  establish  a  climate  of  dialogue 
and  pluralism.  Some  progress  has  been  achieved  in  the  areas  of  freedom  of  expression,  the 
rights of non-Muslim religious communities, and in promoting the economic development of 
the South-East. However, a consistent and comprehensive programme of political reforms is 
needed, in particular reform of the Constitution. Significant further efforts are needed on most 
areas related to the political criteria. 

As regards democracy and the rule of law, the new President played a positive role by calling 
for  further  political  reforms  and  working  actively  to  improve  relations  with  Armenia. 
However,  the  lack  of  dialogue  and  of  a  spirit  of  compromise  between  the  main  political 
parties had a negative impact on the functioning of the political institutions and on the process 
of political reforms. The work of the newly elected parliament was affected to a considerable 
extent by legal cases aimed at dissolution of the governing party and of one of the opposition 
parties. 

As  regards  local  governance,  the  recently  adopted  local  administration  laws  need  to  be 
implemented and the financial resources of local governments increased. 

There has been little progress on public administration reform. The civil service system needs 
to be reformed. 

As  regards  civilian  oversight  of  the  security  forces,  full  civilian  supervisory  functions  and 
parliamentary  oversight  of  defence  expenditure  need  to  be  ensured.  Senior  members  of  the 
armed forces have continued making statements on issues going beyond their remit. 

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As  regards  the  judiciary,  work  to  prepare  judicial  reform  has  made  progress.  However, 
concerns remain about the independence and impartiality of the judiciary. There has been no 
progress  on  the  composition  of  the  High  Council  of  Judges  and  Prosecutors  or  on 
establishment  of  the  regional  courts  of  appeal.  There  is  a  need  to  improve  the  quality  of 
investigations of the police and the gendarmerie to ensure a fair trial. 

There  has  been  limited  progress  in  the  area  of  anti-corruption.  Corruption  remains 
widespread.  The  continuing  absence  of  an  overall  strategy,  action  plan  and  coordination 
mechanism is a cause for concern. Turkey needs to develop a track record of investigations, 
prosecutions and indictments. 

Concerning  human  rights  and  the  protection  of  minorities,  progress  has  been  limited. 
Turkey  has  continued  to  enforce  the  European  Court  of  Human  Rights  (ECtHR)  judgments 
but  further  efforts  are  needed.  There  has  been  no  progress  on  ratification  of  international 
human  rights  instruments.  The  institutional  framework  for  promoting  and  enforcing  human 
rights still needs to be upgraded. Introduction of an ombudsman system is long overdue. 

The Turkish legal framework includes a comprehensive set of safeguards against torture and 
ill-treatment.  However,  more  efforts  are  needed  on  implementation  of  the  zero-tolerance 
policy. Reports of cases of ill-treatment and torture, in particular outside places of detention, 
are  a  cause  for  concern.  In  this  context,  ratification  of  the  optional  protocol  to  the  UN 
Convention  against  Torture  (OPCAT)  and  the  fight  against  impunity  for  human  rights 
violations remain key issues. 

There  has  been  some  progress  in  the  efforts  to  strengthen  the  safeguards  for  freedom  of 
expression, in particular through the amendment of Article 301 of the Turkish Criminal Code. 
However,  Turkey  needs  to  establish  an  adequate  track  record  on  the  implementation  of  the 
revised article. In addition, all legal restrictions need to be addressed with a view to ensuring 
full  respect  of  freedom  of  expression,  in  law  and  in  practice,  in  line  with  the  European 
Convention  of  Human  Rights  (ECHR)  and  the  ECtHR  case  law.  In  the  light  of  certain 
pressures  on  the  exercise  of  the  freedom  of  the  press  and  of  the  electronic  media,  vigilance 
and monitoring are required in this area. 

Further  efforts  are  needed  to  ensure  freedom  of  assembly  in  practice,  in  line  with  European 
standards, as arbitrary limitations and disproportionate use of force against demonstrators still 
occur.  There  have  been  some  improvements  to  the  legal  framework  on  freedom  of 
association. However, some associations face excessive administrative difficulties or judicial 
proceedings. Furthermore, in the light of the recurrent closure cases against political parties, 
the legal provisions on political parties need to be amended in line with the case law of the 
ECtHR and best practice in EU Member States, as outlined by the Council of Europe's Venice 
Commission. 

As  concerns  freedom  of  religion,  the  adopted  Law  on  foundations  addresses  a  number  of 
outstanding  property-related  issues  concerning  non-Muslim  communities.  However,  a  legal 
framework in line with the ECHR has yet to be established, so that all non-Muslim religious 
communities  and  Alevis  can  function  without  undue  constraints.  Turkey  needs  to  make 
further  efforts  in  order  to  create  an  environment  conducive  to  full  respect  of  freedom  of 
religion in practice. 

The  overall  legal  framework  guaranteeing  gender  equality  and  women's  rights  is  broadly  in 
place  but  further  efforts  are  needed  to  ensure  full  enjoyment  of  these  rights  in  practice. 

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Further  significant  efforts  need  to  be  made  to  address  the  gap  between  men  and  women  in 
economic  participation  and  opportunity,  educational  attainment,  access  to  healthcare  and 
political  empowerment.  Efforts  to  prevent  honour  killings  and  domestic  violence  have 
continued, but these issues remain a serious problem and efforts need to be stepped up. 

There  has  been  progress  on  children's  access  to  education,  social  services  and  the  juvenile 
justice  system.  However,  efforts  need  to  continue  in  all  areas  related  to  children's  rights, 
including administrative capacity, education, the juvenile justice system and child labour. 

Legislation is still needed to ensure that trade union rights are fully respected in line with EU 
standards and the relevant International Labour Organisation (ILO) conventions, in particular 
the rights to organise, to strike and to bargain collectively. 

The situation with regard to minority rights remains unchanged. Turkey made no progress on 
alignment with European standards. Some limited progress was made on cultural rights but 
restrictions continue, in particular on the use of languages other than Turkish in broadcasting, 
in political life and when accessing public services. There are no opportunities to learn these 
languages  in  the  public  or  private  schooling  systems.  There  has  been  no  progress  in  the 
situation  of  the  Roma,  who  frequently  face  discriminatory  treatment  in  access  to  adequate 
housing,  education,  social  protection,  health  and  employment.  Demolitions  of  Roma 
neighbourhoods, in some cases involving forced evictions, continue. 

As  regards  the  East  and  South-East,  the  government's  decision  to  complete  the  South-East 
Anatolia Project is a step in the direction of addressing the economic and social difficulties of 
the region. Further efforts are needed to create the conditions for the predominantly Kurdish 
population  to  enjoy  full  rights  and  freedoms.  Compensation  of  internally  displaced  persons 
(IDPs) has continued. However, the government lacks an overall national strategy to address 
the IDP issue. The village guard system remains to be phased out. 

Terrorist attacks by the PKK, which is on the EU list of terrorist organisations, continued and 
claimed many lives. 

With  regard  to  regional  issues  and  international  obligations,  Turkey  has  expressed  public 
support  for  the  resumption  of  fully  fledged  negotiations  under  UN  auspices  to  find  a 
comprehensive  settlement  of  the  Cyprus  problem.  However,  there  has  been  no  progress 
towards normalisation of bilateral relations with the Republic of Cyprus. Turkey has not fully 
implemented the Additional Protocol to the Association Agreement and has not removed all 
obstacles to the free movement of goods, including restrictions on direct transport links with 
Cyprus. 

Relations with Greece have evolved positively. Further confidence-building steps have been 
taken, but no agreement was reached on border disputes. Turkey continues to play a positive 
role  in  the  Western  Balkans.  Relations  with  Bulgaria  remain  positive.  Good  neighbourly 
relations remain key. 

The  economy  of  Turkey  continued  to  perform  relatively  well,  although  growth  fell  below 
potential largely owing to a slowdown in domestic demand following severe monetary policy 
tightening. Macroeconomic stability has been preserved. Inflation has increased significantly, 
mainly  as  a  result  of  higher  food  and  energy  prices.  The  structural  reform  process  has 
accelerated somewhat, in particular in the first half of 2008. Despite some recent initiatives, 

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further  progress  is  necessary  to  correct  labour  market  imbalances  and  address  the  skills 
mismatch. 

As regards the economic criteria, Turkey is a functioning market economy. It should be able 
to  cope  with  competitive  pressure  and  market  forces  within  the  Union  in  the  medium  term, 
provided  it  implements  its  comprehensive  reform  programme  in  order  to  address  structural 
weaknesses. 

Over  the  past  year,  Turkey  has  implemented  a  strong  stabilisation  programme.  Now  it  is 
entering a new stage in its development strategy aimed at raising its growth potential through 
higher  public  investment,  job  creation  and  sectoral  reforms.  The  economy  has  so  far 
performed  well  in  spite  of  the  global  financial  turbulence  and  the  domestic  political 
uncertainty. 

Long-term  capital  inflows  remained  high,  leading  to  an  increase  in  official  reserves.  Fiscal 
performance has been satisfactory, although the government missed the 2007 fiscal targets. In 
June 2008, the authorities approved a 5-year Medium Term Fiscal Framework. 

New  initiatives  to  boost  investment  in  infrastructure  are  aiming  to  reduce  the  very  high 
regional  disparities.  Significant  progress  was  made  in  the  area  of  price  liberalisation, 
particularly in the energy sector. Privatisation continued with a number of major operations. 
In spite of several bouts of instability during 2007-2008, the financial sector has so far shown 
remarkable resilience. 

However,  inflationary  pressures  have  increased,  in  part  due  to  higher  oil  and  commodity 
prices. Considerable external financing needs stemming from large external deficits, coupled 
with  the  private  sector's  significant  reliance  on  external  financing  and  a  sizeable  -  albeit 
falling - debt stock, make Turkey potentially vulnerable to changes in investor sentiment. Job 
creation continues to be hampered, notably by a skills mismatch between labour demand and 
supply  and  by  rigid  employment  practices.  Structural  rigidities  in  the  labour  market 
particularly  hinder  any  increase  in  female  and  youth  employment.  The  skills  of  the  labour 
force are still not adapted to the needs of a rapidly growing emerging economy. Allocation of 
state  aid  lacks  transparency.  The  large  informal  sector,  fuelled  by  weaknesses  in  the 
regulatory framework, inappropriate tax and expenditure policies and weak law enforcement, 
reduces  the  tax  base  and  the  efficiency  of  economic  policies.  In  particular,  too  often  SMEs 
operate in the grey economy and therefore continue to have insufficient access to finance and 
know-how. 

Turkey improved its ability to take on the obligations of membership. Progress was made 
in  most  areas.  Alignment  is  advanced  in  certain  areas,  such  as  free  movement  of  goods, 
intellectual  property  rights,  anti-trust  policy,  energy,  enterprise  and  industrial  policy, 
consumer  protection,  statistics,  Trans-European  Networks,  and  science  and  research. 
However, alignment needs to be pursued, in particular in areas such as environment, state aid, 
public procurement, social policy and employment, company law, food safety, veterinary and 
phytosanitary  policies  and  free  movement  of  services.  A  number  of  important  obligations 
taken  on  by  Turkey  as  part  of  its  Customs  Union  with  the  EU  remain  unfulfilled.  The 
disproportionate  use  of  safeguard  measures  and  longstanding  trade  irritants  are  having  an 
impact on proper functioning of the Customs Union. Turkey's administrative capacity to cope 
with the acquis needs further improvement. 

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With  regard  to  free  movement  of  goods,  the  level  of  alignment  of  product  legislation  and 
horizontal  measures  is  advanced,  except  on  market  surveillance  and  metrology.  However, 
certain  technical  barriers  to  trade  persist.  Some  progress  was  made  on  the  right  of 
establishment and the freedom to provide services. Alignment remains at an early stage. As 
regards  free  movement  of  capital,  Turkey  made  some  progress  on  capital  movements, 
payments  and  the  fight  against  money  laundering  but  efforts  are  needed  to  strengthen  the 
enforcement  capabilities.  There  has  been  good  progress  in  the  area  of  financial  services, 
especially as regards the tightening of prudential and supervisory standards. 

In  the  area  of  public  procurement,  mixed  progress  has  been  made.  The  designation  of  the 
Ministry of Finance as overall policy coordinator is a positive development, but needs to be 
complemented  by  a  comprehensive  strategy  identifying  the  necessary  reforms.  Turkey's 
public  procurement  system  is  only  partially  aligned  with  the  EU  system.  On  company  law, 
Turkey made little progress. The new commercial code has not been adopted. With regard to 
intellectual  property  law,  legislative  alignment  is  relatively  advanced.  Coordination  and 
cooperation  between  the  public  bodies  responsible  for  Intellectual  Property  rights  and  their 
awareness  has  improved.  However,  implementation  and  enforcement  need  substantial 
strengthening.  With  regard  to  information  society  and  media,  Turkey’s  level  of  alignment 
with the audiovisual acquis remains limited. There is no progress to report on adoption of the 
new electronic communications law. 

With regard to competition, the level of alignment continues to be well advanced in the area 
of  anti-trust.  However,  there  was  no  progress  on  adoption  of  the  state  aid  legislation, 
establishment  of  the  state  aid  monitoring  authority  and  implementation  of  the  transparency 
commitments. Finalising the National Restructuring Programme for the steel industry remains 
a  priority.  In  the  area  of  agriculture  and  rural  development,  alignment  remains  limited. 
Substantial  progress  has  been  made  with  building  the  capacity  necessary  to  implement 
IPARD. Nevertheless, further efforts are needed to complete the necessary administrative and 
control  structures.  Turkey  has  not  removed  technical  barriers  to  trade  of  beef  meat  and  live 
bovine  animals.  In  fisheries,  no  progress  was  made  in  establishing  the  necessary  legislative 
framework.  There  has  been  limited  progress  in  the  areas  of  resources,  fleet  management,  and 
inspection and control. In both agriculture and fisheries, implementing capacities are at an early 
stage.  Concerning  food  safety,  veterinary  and  phytosanitary  policy,  alignment  is  at  an  early 
stage. A Framework Law on veterinary services, food and feed has yet to be adopted. Work 
on  identification  and  registration  of  animals  is  progressing.  Avian  influenza  outbreaks  have 
been successfully contained. Effective control of other animal diseases, in particular foot and 
mouth disease, remains a major cause for concern. 

Some progress was made on transport policy. Alignment in the road sector has continued but 
further improvement of the implementation capacity is required. Turkey made little progress 
in  the  railway  sector.  Turkey  made  limited  progress  in  air  transport.  The  lack  of 
communication  between  air  control  centres  in  Turkey  and  the  Republic  of  Cyprus 
compromises  air  safety.  Progress  on  maritime  transport  is  uneven.  In  the  area  of  Trans 
European  Networks,  some  progress  was  made.  The  Transport  Infrastructure  Needs 
Assessment  (TINA)  has  been  finalised  but  there  is  still  a  lack  of  a  more  reliable  system  of 
classified  transport  data.  In  the  field  of  energy,  there  was  some  but  uneven  progress. 
Competition remains limited after the adoption of the framework laws on the electricity and 
natural gas markets. National targets for energy efficiency and renewable energy have yet to 
be set. 

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On  taxation  there  was  some  progress  in  the  legislative  field.  Modernisation  of  the  Tax 
Administration  has  led  to  better  service  to  the  taxpayer  and  improved  revenue  collection. 
However, the discriminatory taxation of alcoholic and tobacco products continued. 

The  administrative  capacity  in  the  area  of  statistics  improved.  However,  further  progress  is 
still  needed  concerning  mainly  agricultural  and  macroeconomic  statistics  and  business 
registers. 

Some progress was made in the area of economic and monetary policy. Several shortcomings 
still  exist,  in  particular  regarding  full  independence  of  the  central  bank,  the  monetary 
financing of the public sector and privileged access by the public sector to financial markets. 
Concerning  employment  and  social  policy,  Turkey  has  made  some  progress  through  the 
adoption  of  the  Employment  package  and  the  Law  on  social  insurance  and  general  health 
insurance. However, ensuring full trade union rights and combating undeclared work require 
particular  attention.  Further  efforts  are  also  needed  in  order  to  combat  child  labour  and  to 
update  and  finalise  the  strategic  documents  in  this  area.  Gender  equality  in  economic  and 
social life needs to be improved. 

Progress continued on enterprise and industrial policy, with the adoption of the SME Strategy 
and Action Plan. Overall, Turkey has a high level of alignment. Good progress was achieved 
in  the  area  of  science  and  research.  Overall,  Turkey  is  on  track  for  integration  in  the 
European  Research  Area.  In  the  field  of  education  and  culture  progress  was  made  towards 
adapting  the  Turkish  education  system  to  the  EU  structure  and  qualifications  framework. 
Turkey participated successfully in the Community programmes. 

In the field of regional policy and coordination of structural instruments, progress was made 
on  building  the  capacity  necessary  to  implement  IPA  components  III  and  IV.  However, 
further  efforts  are  required  to  set  up  the  necessary  administrative  and  control  structures  at 
central and local levels. 

As regards the judiciary, there has been some progress, in particular on the establishment of a 
judicial reform strategy. However, concerns remain about the independence and impartiality 
of  the  judiciary.  These  are  issues  that  the  reform  strategy  is  expected  to  address.  Limited 
progress can be reported on anti-corruption. The government has continued to implement its 
initiatives  in  this  area.  However,  there  is  no  legislation  in  place  setting  out  rules  on  the 
transparency  of  election  campaign  financing.  There  has  been  no  progress  in  limiting  the 
immunity of Members of Parliament. An anti-corruption strategy and action plan need to be 
developed  and  to  receive  the  political  support  necessary  for  implementation.  As  regards 
fundamental rights, there has been some legislative progress. Vigorous further efforts need to 
be made to ensure full respect of the fundamental rights set out by the ECHR and the case law 
of the ECtHR. 

Concerning  justice,  freedom  and  security,  some  progress  can  be  reported,  particularly  to 
prevent trafficking in drugs and in human beings. Alignment with the acquis in this chapter is 
underway,  but  sustained  efforts  are  required  in  areas  such  as  visa  policy  and  judicial  co-
operation in criminal matters. Sustained efforts are also needed in the fight against organised 
crime,  which  remains  a  matter  of  concern.  The  capacity  to  manage  asylum  and  migration 
needs to be improved. Efforts need to be stepped up to implement the national action plan on 
integrated  border  management.  Turkey  needs  to  resume  negotiations  on  a  readmission 
agreement with the European Community. 

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On environment, Turkey made progress in the area of air quality, waste management and in 
strengthening  the  administrative  capacity  at  central  level.  Nonetheless  the  overall  level  of 
alignment  remains  low.  Turkey  made  no  improvements  in  the  areas  of  industrial  pollution, 
risk management and GMOs.  

A  satisfactory  level  of  alignment  has  been  reached  in  the  field  of  consumer  and  health 
protection.  Progress  was  made  as  regards  enforcement  of  market  surveillance  and  product 
safety,  but  more  efforts  remain  to  be  done  in  the  field  of  non  safety  related  issues.  The 
consumer  movement  in  Turkey  remains  weak.  Turkey  made  some  progress  in  the  area  of 
health protection. 

As  regards  the  Customs  Union,  Turkey  has  reached  a  high  level  of  alignment.  However, 
alignment  is  not  complete  with  regard  to  free-trade  zones,  customs  duty  relief,  the  fight 
against  counterfeit  goods  and  post-clearance.  Turkey  has  also  reached  an  advanced  level  of 
alignment in the area of external relations but has not associated fully with EU positions in 
the WTO and in the OECD. 

Moderate  progress  has  been  achieved  in  the  area  of  financial  control.  Legislation 
implementing  the  Public  internal  financial  control  Law  is  in  place,  but  a  number  of 
amendments relating to internal control need to be approved. Permanent structures are needed 
to cooperate with the European Anti-Fraud Office on protection of the EU financial interests 
and  for  contacts  with  the  Commission  departments  responsible  for  protection  of  the  Euro 
against  counterfeiting.  With  regard  to  financial  and  budgetary  provisions,  there  were  no 
particular developments. 

Turkey's close alignment with EU Foreign, Security and Defence Policy continued. Turkey is 
contributing  substantially  to  the  ESDP  and  seeking  greater  involvement  in  its  activities. 
However,  Turkey  objects  to  EU/NATO  co-operation  which  would  involve  all  EU  Member 
States.  

Turkey's  has  enhanced  its  role  as  a  positive  factor  for  regional  stability  and  has  played  a 
significant part in advancing progress in relations between its regional partners, especially in 
the Middle East and in the Caucasus. In the course of the conflict in Georgia, Turkey played a 
conciliatory  role  and  proposed  to  set  up  a  "Caucasus  Co-operation  and  Stability  Platform". 
The Turkish President's visit to Armenia marked a new encouraging step in bilateral relations 
and opened up the prospect of normalisation of relations. However, Turkey's land border with 
Armenia remains closed. 

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