Source: EURLEX
Language: en
Format: md

*|*

# 52013SC0416

**COMMISSION STAFF WORKING DOCUMENT KOSOVO\* 2013 PROGRESS REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2013-2014 /\* SWD/2013/0416 final \*/**

  

\*          This designation is without prejudice to positions on
status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo
declaration of independence.

TABLE OF CONTENTS

1........... Introduction. 3

1.1........ Preface. 3

1.2........ Context 3

1.3........ Relations between the EU
and Kosovo. 4

1.4........ Normalisation of
relations between Kosovo and Serbia. 5

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

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

2.2........ Human rights and the
protection of minorities. 14

2.3........ Regional issues and
international obligations. 19

3........... Economic criteria. 21

3.1........ The existence of a
functioning market economy. 21

3.2........ The capacity to cope with
competitive pressure and market forces within the Union. 26

4........... European standards. 27

4.1........ Internal market 27

4.1.1..... Free movement of goods. 27

4.1.2..... Movement of persons,
services and right of establishment 29

4.1.3..... Free movement of capital 30

4.1.4..... Customs and taxation. 30

4.1.5..... Competition. 32

4.1.6..... Public procurement 32

4.1.7..... Intellectual property law.. 33

4.1.8..... Employment and social
policies, public health policy. 34

4.1.9..... Education and research. 36

4.1.10... WTO issues. 37

4.2........ Sectoral policies. 37

4.2.1..... Industry and SMEs. 37

4.2.2..... Agriculture and fisheries. 37

4.2.3..... Environment and climate
change. 39

4.2.4..... Transport policy. 40

4.2.5..... Energy. 41

4.2.6..... Information society and
media. 42

4.2.7..... Financial control 44

4.2.8..... Statistics. 44

4.3........ Justice, freedom and
security. 45

4.3.1..... Visa, border management,
asylum and migration. 45

4.3.2..... Money-laundering. 48

4.3.3..... Drugs. 48

4.3.4..... Police. 49

4.3.5..... Fighting organised crime and
terrorism.. 50

4.3.6..... Protection of personal data. 51

1.
Introduction
1.1.
Preface

The Commission reports regularly to the Council and Parliament on
the progress the countries of the Western Balkans region are making towards
European integration, assessing their efforts to comply with the Copenhagen
criteria and the conditionality of the Stabilisation
and Association Process.

This progress
report, which largely follows the same structure as in previous years:

-
briefly describes relations between Kosovo\* and
the European Union;

-
analyses the situation in Kosovo in terms of the political criteria;

-
analyses the situation in Kosovo on the basis of the economic criteria;

-
reviews Kosovo’s capacity to implement European
standards, i.e. to gradually
approximate its legislation and policies with the acquis, in line with
the Stabilisation and Association Process and the priorities set in the
Feasibility study for a Stabilisation and Association Agreement between the
European Union and Kosovo.[1]

This report
covers the period from October 2012 to September 2013.[2] Progress is measured on the basis of decisions taken, legislation
adopted and measures implemented. As a rule, legislation or measures which are
under preparation or awaiting parliamentary approval have not been taken into
account. This approach ensures equal treatment across all reports and enables
an objective assessment.

The report is
based on information gathered and analysed by the Commission. Many sources have
been used, including contributions from the Kosovo authorities, the EU Member
States, the EU rule of law mission (EULEX), European Parliament reports[3] and information
from various international and non-governmental organisations.

The Commission draws detailed conclusions
regarding Kosovo in its separate communication on enlargement,[4] based on the
technical analysis contained in this report.

1.2.
Context

To
date, Kosovo has been recognised by 104 UN Member States, including 23 EU
Member States.

During the reporting
period, the UN Secretary-General has issued four reports on Kosovo. In his
reports, he has expressed appreciation for the key role of the European Union
and the High Representative of the Union for Foreign Affairs and Security
Policy in facilitating the negotiations that resulted in the ‘First agreement
of principles governing the normalisation of relations’ of 19 April. He
commended the leadership in both Pristina and Belgrade for demonstrating a
serious and steadfast commitment to this dialogue.

The NATO-led Kosovo Force (KFOR) has
continued to help ensure security in Kosovo. During the reporting period, its
presence amounted to about 5 000 personnel. The Kosovo police has
progressively been taking over from KFOR the responsibility for protecting
several cultural and religious sites.

1.3.
Relations between the EU and Kosovo

In June, the Council
authorised opening of negotiations for a Stabilisation and Association
Agreement between the EU and Kosovo. The negotiations will be formally
opened this month. Prior to this decision, Kosovo needed to address a number of
priorities set out in a feasibility study (October
2012). It needed to continue to implement in good faith all agreements reached
between Belgrade and Pristina and to engage constructively on the full range of
issues, with the facilitation of the EU. It also needed to take steps on
several short-term priorities in the area of the rule of law, public
administration, protection of minorities and trade.

In April, the Commission
and the High Representative issued a joint report on Kosovo’s progress. The
report concluded that Kosovo had met all the short-term priorities outlined in
the study. On this basis, the Commission submitted a proposal for a Council
decision authorising the opening of negotiations on a Stabilisation and
Association Agreement between the European Union and Kosovo.

Kosovo now needs to focus
on making progress in the following areas identified by the feasibility study
to meet its obligations under a Stabilisation and Association Agreement: the
rule of law, judiciary, public administration, electoral reform and the
Assembly, human and fundamental rights, protection of minorities, trade and
internal market issues, and phytosanitary and veterinary issues.

Kosovo participates in the
Stabilisation and Association Process and it has
engaged constructively in the Stabilisation and Association Process Dialogue
(SAPD). The 2013 cycle of SAPD meetings was completed by a plenary meeting and
a civil society plenary meeting in July. In June, Kosovo engaged in a dialogue
with the EU on public administration reform through a special group on public
administration reform. A Structured Dialogue on the Rule of Law was launched in
2011 to facilitate and monitor progress in the rule of law. To date, two
meetings have taken place, in May 2012 and February 2013.

The visa liberalisation
dialogue has continued during the reporting period. In February, the Commission
issued a first report on Kosovo’s efforts towards visa liberalisation and three
meetings of senior officials have taken place.

In December, Kosovo became
a member of the European Bank for Reconstruction and Development (EBRD) and an
EBRD Country of Operations. In May, Kosovo hosted a donors’ conference on
sustainable energy. In June, the Council of Europe Development Bank (CEB)
agreed for Kosovo to join. On 7 June, the European Investment Bank (EIB) signed
a Framework agreement with Kosovo. The agreement allows the bank to proceed
with the financing of projects in Kosovo and to provide technical assistance.
The EIB’s involvement will also facilitate the co-financing of projects with
other donors and support the implementation of various instruments, such as the
Western Balkans Investment Framework.

Kosovo receives financial
assistance under the Instrument for Pre-accession
Assistance (IPA), the Instrument for Stability (IfS) and other sources of
funding. Kosovo is participating in the IPA multi-beneficiary programmes. In
2013, a total of €71.4 million was allocated to Kosovo under the IPA annual
programme. EU pre-accession assistance is focusing on support for the rule of
law, the economy, trade and industry, and public administration reform. IPA
assistance is implemented by the Commission and the EU Office. The Kosovo
government and the Commission are currently preparing a comprehensive Country
Strategy Paper for the period 2014-2020, which will provide a coherent and
strategic framework for financial assistance under the new Instrument for
Pre-Accession Assistance (IPA II).

As a follow-up to the
Commission Communication ‘Kosovo — Fulfilling its European Perspective’,[5] the Council
authorised the Commission to negotiate a framework agreement with Kosovo to
enable it to take part in EU programmes. In April, following Kosovo’s
acceptance of the text of the framework agreement, the Commission adopted a
proposal to sign and conclude this agreement. The proposal is currently being
discussed by the Council.

In 2012, the EU rule of law mission, EULEX, was reconfigured. EULEX’s
mandate has been extended to June 2014. The mission was downsized by some 25%
and currently operates with two sections: an Executive Division, which works on
the mission’s executive mandate; and a Strengthening Division, which concentrates
on monitoring, mentoring and advising the Kosovo authorities. Overall, during
the reporting period, Kosovo has maintained good cooperation with EULEX. It has
also continued to be fully supportive of the Special Investigative Task Force investigation,
consistent with their previous commitment in this regard. It thereby met the
pertinent short-term priorities specified in the feasibility study. Kosovo
needs to continue actively supporting implementation of the mandate of the
mission, including that of the Special Investigative Task Force.

1.4.
Normalisation of relations between Kosovo and
Serbia

Kosovo and Serbia have actively and constructively participated in
an EU-facilitated dialogue, which was upgraded to a high-level political
process with the facilitation of the High Representative following the 2012
elections in Serbia. Seventeen high-level meetings were attended by both Prime
Ministers since October 2012. A meeting also took place between Presidents
Nikolić and Jahjaga in February and they continued meeting in the context of
various initiatives in June and July. Since January
2013, the meetings of the two Prime Ministers have focused on northern Kosovo
and delivering structures which meet the security and justice needs of the
local population in a way that ensures the functionality of a single
institutional and administrative set up in Kosovo, in line with the December
2012 Council Conclusions.

These discussions
resulted in a ‘First agreement on principles governing the normalisation of
relations’ on 19 April, complemented in May by a comprehensive
implementation plan. This landmark achievement represents a fundamental change
in relations between the two sides. The ‘First Agreement’ includes the
following key elements: the establishment of an Association/Community of Serb
municipalities in Kosovo; the principle of a single police force in Kosovo and
the integration of all police in northern Kosovo into the Kosovo police
service; the principle of integration and functioning of all judicial
authorities within Kosovo’s legal framework; and municipal elections to be held
in the northern municipalities in 2013 facilitated by the OSCE – municipal
elections were subsequently convened on 3 November 2013 and will take place
throughout Kosovo. The two parties have agreed that neither side will block, or
encourage others to block the other side’s progress in their respective EU
paths.

The parties also
reached agreement on energy and telecommunications in September. Implementation
of other agreements reached in the dialogue to date has continued. The
agreement on representation of Kosovo was broadly implemented. Kosovo became a
participant in the Regional Cooperation Council (RCC) in February. Full
application of the principle of inclusive regional cooperation remains to be
ensured; problems such as those encountered with the summit of the South East
European Cooperation Process (SEECP) need to be avoided. As concerns IBM, joint
interim crossing points have been opened at all six gates, which are up and
running. December’s agreement on the protection of religious and cultural
heritage sites is being implemented, but recruitment of Kosovo Serbs needs to
be increased. Implementation of an agreement on liaison arrangements has started
in June. The two sides also agreed to start collecting customs duties and to
set up a fund for the development of northern Kosovo. Regarding free movement,
the ID card travel regime is operational. The agreement on customs stamps
continues to be implemented by both sides. There has also been good progress on
civil registry; implementation should be completed by March 2014. Regarding
cadastre, while implementation has started on the Serbian side, the legislation
necessary to implement the agreement on cadastre has yet to be passed by the
Kosovo side. Implementation of the agreement on acceptance of university
diplomas is proceeding smoothly.

Overall, Kosovo has taken significant steps towards
visible and sustainable
improvement of relations with Serbia, which have already led to a number of
irreversible changes on the ground.

During the reporting
period, a number of security incidents occurred in northern Kosovo. On 19
September, one member of EULEX was killed in an attack on a EULEX convoy in
northern Kosovo. The leadership of both Kosovo and Serbia condemned the attack
in the strongest terms. On 8 March, EULEX initiated a joint operation with the
Kosovo police and KFOR to stop a series of hand grenade attacks in northern Mitrovicë/Mitrovica. Further unrest
was reported following the initialling of the 19 April agreement. Some in the
Kosovo Serb leadership called for a referendum on the agreement and threatened
to boycott its implementation. Pristina’s restraint and inclusive approach,
together with the positive role played by Belgrade, have prevented escalation.

Serbian police stations operating in
northern Kosovo were gradually closed between 14 June and 5 July with no sign
of operational activity since then. Serbian authorities also ceased the payment
of salaries to Kosovo Serb police officers already employed by the Kosovo
police in the north. Since 15 July, parallel Serbian courts and prosecution
offices stopped prosecuting and adjudicating criminal cases in Kosovo. The
integration of Kosovo Serb police officers, judges and prosecutors previously
employed by the Serbian authorities is ongoing. Municipal assemblies in the
four northern municipalities were dissolved.

2.
Political criteria

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

2.1.
Democracy and the rule of law

Parliament

Steps have been
taken to improve the Assembly’s oversight of the government, alignment of
legislative plans between the Assembly and the government, and openness of the
Assembly to civil society. The Assembly has been undertaking activities to
scrutinise the work of the government, notably as regards the results of the
dialogue between Belgrade and Pristina. The Assembly has also been able to
demonstrate political and institutional unity on issues of key importance.

In October
2012, the Assembly adopted a resolution on the dialogue for the normalisation
of relations with Serbia. On 22 April, it approved a resolution on the ‘First agreement
of principles governing normalisation of relations’. The Assembly ratified this
agreement in June and adopted the law on amnesty in July.

The Assembly
has increased the number of thematic parliamentary debates and interpellations
of ministers. During the reporting period, the committees have undertaken
further activities to monitor the implementation of laws and have produced
reports, some of them based on Assembly members’ field visits.

Public
consultations and hearings with civil society and independent experts to
prepare new legislation are becoming a frequent feature. The Assembly has
opened a position for an officer for relations with civil society and donor
coordination. In April, the Assembly adopted its work programme. This programme
combines the 2013 government legislative agenda, the annual work plans for
parliamentary committees and an action plan for negotiations on the
Stabilisation and Association Agreement.

The decision of
the Assembly to debate the so-called Kiqina case (in which former members of
the Kosovo Liberation Army were found guilty of murder) and an attempt to adopt
a decision interfering with the judicial process was a setback for Kosovo’s
efforts to build strong and independent institutions of democratic governance.
This is an issue of serious concern.

Kosovo needs to
finalise the electoral reform process that was launched in 2011. It needs to
ensure that the legal framework for elections better reflects best practice in
the EU and that implementation is in line with international standards.
Oversight of the government needs to be improved, including follow-up to
committee recommendations to ministries. The Assembly also needs to improve its
understanding of its role in the supervision of independent institutions and
regulatory authorities. In this regard, adequate mechanisms need to be set up.
Unclear legal bases for reporting, weak coordination with the government in the
selection of board members and failure to determine mechanisms for holding
board members to account are among the key challenges that need to be
addressed. This would help to ensure the timely appointment of independent and
professional managers and members of the boards of these institutions.

Further efforts
by the Assembly and its committees are required to ensure control of the
budget, especially in areas such as health, agriculture, social assistance,
culture and education. More attention needs to be paid to the reports of the
Office of the Auditor General. The committee on oversight of public finances
also needs to develop a mechanism to follow up the recommendations it gives to
budgetary organisations.

The number of
staff supporting the work of the committees has increased. The capacity of the
committees to scrutinise draft laws remains limited. The Assembly’s secretariat
needs to ensure better coordinated input of its different departments to the
committees. Draft laws as well as amendments to legislation need better
screening for compliance with the acquis. The Assembly needs to improve
the existing rules of procedure, especially to clarify the legal effect and
meaning of various decisions made in plenary. Decoupling the vote on amendments
and the final vote on a law in plenary needs to be considered. During Assembly
and committee deliberations, some shortcomings and violations of the rules of
procedure were noted (for example, insufficient time between tabling a proposal
and its discussion in committee and in plenary).

The financial
independence of the Assembly has improved. The Assembly’s budget committee has
increased its involvement in the government’s consultation on the draft budget
of the Assembly. Further steps are needed to enhance the financial and
administrative independence of the Assembly, notably by improving Assembly’s
rules of procedure, legislation on the Assembly, including a law, and
separating its IT infrastructure from the government.

Overall, the Assembly continues to gradually build its capacities and to
improve its role in democratic governance. The debate on the Kiqina case was a
setback in this regard. The Assembly and its institutions need to focus on
priorities identified in the feasibility study, notably electoral reform,
oversight and control functions, and the financial and administrative
independence of the Assembly.

Government

The Kosovo
government has increased its capacity to address priorities of the European
integration process. Follow-up to the short-term priorities of the feasibility
study clearly shows this, as does preparation for negotiations of the
Stabilisation and Association Agreement. The National Council on European
Integration under the President’s Office has continued to meet and pursue the
objective of consensus-building on European integration.

The government
adopted an ambitious legislative strategy followed by an annual work plan. The
legislative agenda remains subject to frequent changes. A clear institutional
setup and delineation of responsibilities have contributed to better
coordination of the EU agenda and its priorities within the government.
Ministries have also started to follow new requirements for inter-ministerial
consultations. This is a good basis to manage the gradually increasing workload
of the European integration process. The government has improved compliance
with rules of procedure. The introduction of an acquis compliance table
is a step forward and needs to be used systematically. A system of concept
papers preceding draft laws and policy decisions was put in place; a number of
papers have been prepared.

The government,
in close cooperation with the Assembly, still needs to improve its capacity to
verify and confirm acquis compliance of legislation. Forward planning
and cost analysis of implementation of legislation remains a challenge.
Strategies need to be better coordinated to avoid overlap and contradictions.
The implementation of policies and legislation involving several ministries
needs to be improved. The capacity to manage the EU integration agenda is
unevenly spread across the government, especially in terms of quality of human
resources.

The fact that
members of the government still fail to attend parliamentary question sessions
or relevant meetings of parliamentary committees continues to be an issue of
concern. This prevents the Assembly from conducting its oversight function.
Ministries also need to improve their follow-up to requests from parliamentary
committees.

Local
government has also improved its capacity. This
includes examples of addressing returns and reintegration, transparency of
information on management and budget, and reporting on municipal
decision-making. There have been examples of improvements in the organisation
of municipal administration. In October 2012, the Mitrovicë/Mitrovica North
Administrative Office set up by the Kosovo authorities became operational. The
office has 54 employees, of whom about 70% are Serbs, some of whom have faced
sporadic threats and attacks on their possessions during the reporting period.

Municipalities
would benefit from clearer guidance from central level and integrated planning
(policy priorities coupled with budgeting). The work and decisions of
municipalities need to be more transparent. The small and rural municipalities
established in 2009 – 2010 need alternative institutional solutions so that
they can deliver equitable access to services for their constituents. Land
management needs to be addressed to ensure their economic development.

The November
municipal elections will take place under the current legal framework in the
absence of progress on electoral reform. On the basis of the 19 April
agreement, the Association/Community of Serb majority municipalities in Kosovo
is foreseen to be established following the municipal elections. This will
require consistent efforts from all concerned.

Overall, the fundamental structures for governance at both central and local
levels are in place. Capacity varies across different ministries. The municipal
level is still weak. Data collection, financial impact assessments, policy
objectives and inter-ministerial coordination need to play a greater role in
the legislative process. Further efforts are needed to improve implementation
of legislation, accountability and transparency of government, including at
municipal level. Local authorities need more support to continue the process of
decentralisation.

Public
administration

Kosovo met the
short-term priorities of the feasibility study in the area of public
administration. It adopted secondary legislation of
laws on the civil service and on salaries for civil servants. Kosovo has started implementing the strategy and the action plan on
public administration. In June, through the special group on public
administration, Kosovo started a dialogue with the EU on these matters. In
December, the Assembly adopted an interim salary scale for selected independent
oversight institutions such as the Ombudsperson, the Independent Oversight
Board for the Civil Service and the Independent Media Commission.

The Office of
the Auditor General has continued to focus on promoting sound financial
management in public administration and accountability across government. This
includes building up a sustainable performance auditing function. Regional and
international cooperation of the office has increased. The Kosovo Institute for
Public Administration has continued to provide training for civil servants.

The
implementation of the strategy and action plan on public administration reform
continues to be a major challenge for Kosovo. It requires further human and
budgetary resources. The planning of activities needs to be adjusted to reflect
the available resources. The implementation of the law on salaries of civil
servants has been put on hold pending the finalisation of job classification.
The performance appraisal for civil servants needs to start. New legislation is
needed to regulate salaries for high officials and to reform the salary system
in important sectors such as education and health.

Kosovo
authorities need to ensure appropriate follow-up to the recommendations of the
Independent Oversight Board for the Civil Service. Currently, this is not the
case for a significant number of the recommendations. The share and the
distribution of civil servants belonging to minorities across ministries need
to be in line with the legislation. Kosovo also needs to review the
organisation of public administration at the municipal level, notably delegated
competences and the appointment of directors.

Overall, Kosovo enacted secondary legislation of laws
on the civil service and on salaries of civil servants. Public administration reform continues to be characterised generally
by a lack of professionalism and motivation on the part of staff. There is also
political interference in the civil service. Kosovo needs to focus on
priorities set out in the feasibility study, notably implementing legislation,
as well as the strategy and action plan.

Ombudsman

Kosovo met the
short-term priorities of the feasibility study in relation to the Ombudsperson.
The number of staff and budget of the Ombudsperson institution have been
increased. The government allocated new premises to the institution. It now has
the necessary resources to perform its duties. The government respected the
Ombudsperson’s independence by not modifying the office’s budget when
submitting the overall budget to the parliament. The budgetary independence of
the Ombudsperson needs to be made sustainable. During 2012, the Ombudsperson
received 20% more petitions from the public than the previous year. Kosovo
authorities need to improve their implementation of the Ombudsperson’s
recommendations.

Civilian
oversight of the security forces

The parliamentary Committee on Internal Affairs,
Security and Supervision of the Kosovo Security Force has scrutinised a greater
number of laws than in the previous reporting period. Oversight of
the Kosovo Intelligence Agency has also improved and the relevant parliamentary
committee has met more frequently. Only members of parliament with clearance
issued by an office under the direct responsibility of the intelligence agency
may take an effective role in the committee. Further efforts are needed to
ensure adequate civilian oversight of the security forces. The Assembly needs
to improve its professionalism and expertise on security matters. In July, the
North Atlantic Council declared that the Kosovo Security Force had reached full
operational capacity.

Civil
society

The task forces on European integration and
the National Council on European integration have continued to involve
representatives of local civil society. The government’s strategy and action
plan on cooperation with civil society for 2013-2017 was prepared with the
involvement of civil society representatives. It was adopted in July.
Cooperation between civil society organisations and the institutions of Kosovo
continues to be ad hoc. Even when public consultations on draft legislation
take place, follow-up is often unsatisfactory. There is limited public funding
for e.g. social services delivered by civil society on behalf of the
authorities. The central and local authorities need to improve cooperation with
civil society, notably as regards defining and executing public policies.

Judicial
system

In
January, a new court system was introduced and a new criminal code and criminal
procedure code entered into force. The Supreme Court issued a formal opinion to
rectify ambiguities concerning the retroactive application of transitional
provisions regarding the admission of pre-trial evidence in cases that started
before the new procedure code entered into force. Focus now needs to be on
implementation of the legislation. Implementing legislation on the
certification system for translators and interpreters needs to be adopted. In
general, a review of the new court and prosecutorial system is needed to assess
progress.

A law on the state advocacy office was
adopted. The Kosovo Judicial Institute has continued to provide legal education
training focusing on capacity building. In July, an entry exam for judges and
prosecutors was successfully organised. Kosovo concluded bilateral agreements
on mutual legal assistance with Albania and Italy. The Ministry of Justice acts
on requests for mutual legal assistance received from non-recognising
countries, either directly or via EULEX. The United Nations Interim
Administration Mission in Kosovo (UNMIK) remains the formal point of contact
with Interpol. Kosovo needs to enhance its capacities and experience to be an
effective partner in the context of mutual legal assistance.

As
regards independence and impartiality, cases of political
interference in the judiciary were reported. This includes points made by the
government and the Assembly on rulings regarding war crimes (Kleçka and Drenica
group). This was also noted by the Supreme and Constitutional Courts. There was
also an attempt by the Assembly to investigate a case that had been through all
the steps of the judicial procedure (Kiqina case). In reviewing a criminal case
(involving a municipal president) in January, the Constitutional Court, by
taking up the case and referring it back to the Supreme Court for review,
wrongfully suggested that it could take upon itself to act as an (additional)
court of last instance.

In
2012, 0.47% of GDP was spent on the budget for the judiciary. Both Judicial and
Prosecutorial Councils adopted codes of ethics. The Judicial and Prosecutorial
Councils have strengthened the necessary procedures and signed memoranda of
understanding with the police to ensure appropriate security and protection
measures for judges, prosecutors and other judicial staff. Kosovo still needs
to do more to mitigate the risks of indirect forms of intimidation or influence
on staff in the judiciary and on witnesses.

Two
members of the Judicial Council still need to be appointed. To guarantee
judicial independence, a substantial majority of the Judicial Council’s members
need to be elected by their peers. Kosovo needs to make the necessary changes
to allow for this. The Constitutional Court has nine judges including three
international judges. Not all positions on the Constitutional Court have been
filled, which may pose a challenge to constitute the quorum of seven judges.
The Judicial Council has filled 334 out of a total of 404 positions and 125 of
the 146 prosecutor positions are filled. Both Judicial and Prosecutorial
Councils continue to face challenges in filling vacancies reserved for persons
belonging to minorities. The Judicial and Prosecutorial Councils need to ensure
that persons nominated for the position of judge or prosecutor have the
necessary professional experience and meet the conditions set. Passing the
initial legal education programme needs to remain part of the eligibility
criteria for a candidate to qualify as a judge or a prosecutor.

As
regards accountability, the Judicial Council adopted implementing
legislation on the organisation and activities of the Council, and on the
appointment and evaluation of judges. A panel for the evaluation of the
performance of judges has conducted the first evaluations in view of the
confirmation of judges’ initial mandates. Disciplinary sanctions were imposed
in 14 cases by the Judicial Council (in 2013) and in 11 cases by the
Prosecutorial Council (2012 and 2013). None of them resulted in dismissal. The
code of conduct for judges needs to be strengthened. The disciplinary
regulations in both Councils need to be adjusted to ensure that the
disciplinary procedures and policies on the fight against corruption in the
judiciary lead to concrete results.

As
regards efficiency, the Judicial Council has established the new court
structure. It swiftly appointed new presidents of the court of appeal and basic
courts. The Judicial and Prosecutorial Councils adopted regulations on the
internal organisation and operation of the courts and prosecutor’s offices,
thus finalising the framework for the implementation of the court reform.
Delays in the transfer of cases have been kept to a minimum. The workload of
the courts is under review. Court administration as well as case allocation in
prosecution offices and courts needs to be improved. The current lack of
available courtrooms is expected to improve in the future as a result of
ongoing renovations.

The
new prosecutorial system required setting up a new appellate prosecution office
and a switch to a system of seven basic prosecution offices in addition to the
special prosecution. The Prosecutorial Council and the State Prosecutor
generally transferred case files within a reasonable time. However, some cases,
including election fraud cases, were not transferred until March. There has
only been limited progress with regard to cases involving fraud during the
general elections of 2010. All 232 indictments have been filed, but as of
September 2013, a substantial number remain to be adjudicated.

The
implementation of the two-year strategy to reduce the backlog of cases
accumulated until December 2008 resulted in a backlog reduction of about 65%,
leaving about 63 500 cases unresolved. In addition, Kosovo needs to
address the backlog of cases that has built up over more recent years. At the
end of 2012, the total number of cases pending before the Kosovo basic courts
was over 218 740. This increased to over 235 000 cases in 2013,
partly due to court reform, which led to the inclusion of minor offences cases in
the statistics. In the current case registration system, it is possible that
the same case is counted several times. Case allocation and management systems
still need to be fully implemented. There is a large number (over 100 000)
of decisions that still need to be executed. As part of the strategy to fight
corruption and organised crime, a new law on enforcement procedures introduced
a private bailiff system with the aim to reduce the execution backlog. Kosovo
has to ensure an adequate oversight of these private actors.

At
the Mitrovicë/Mitrovica basic court only criminal trials have been held by
EULEX during the reporting period.

The
work of the special prosecution has slowed down; the limited number of local
prosecutors are unable to take on new cases, due to the existing workload.
Seven out of fifteen positions for local prosecutors need to be filled. Kosovo
needs to increase efforts to recruit them, since its work and jurisdiction are
vital for the handling of important, high-level and sensitive cases. At the
moment, there is a lack of capacity and commitment to investigate crimes that
fall under the jurisdiction of the special prosecution.

To ensure better access to justice,
legal aid offices have been established in 11 municipalities. Kosovo also has a
mobile legal aid clinic. Kosovo authorities need to pay particular attention to
access to justice for victims of human trafficking, women and children. A total
of 99 mediators are licenced and six mediation centres operate across Kosovo.
During 2012 and 2013, more than 300 cases have been referred to the mediation
centres. Almost half of the cases have been successfully completed during the
mediation process.

Overall,
Kosovo needs to address priorities of the feasibility study. Political
interference in the work of the judiciary remains a serious concern. The
Judicial and Prosecutorial Councils need to respond decisively to attacks
against individuals and the judicial institutions. Other branches of government
need to do the same. Security needs of judicial personnel, witnesses and
plaintiffs need to be addressed. Kosovo needs to ensure the efficient
implementation of legislation. It needs to pay particular attention to the
harmonisation of primary and implementing legislation. The jurisdiction of the
special prosecution needs to be maintained and local capacity strengthened. The
backlog of cases requires continued efforts. Improved data processing and case
management would help in this regard.

Fight against corruption

The
anti-corruption legislative framework is largely in place. Amendments to the
law on political party financing were adopted addressing earlier shortcomings
(e.g. regulating donations from legal entities providing goods and services to
government bodies). The revised Criminal Code introduced criminal offences for
conflict of interest, and for false declarations of assets by public officials,
or their failure to report assets. In February, the Assembly adopted a new
anti-corruption strategy and action plan (2013-2017), a short-term priority of
the 2012 feasibility study. For the first time, a corruption risk assessment
covering priority sectors has been attached to the strategy.

During the
reporting period, the special anti-corruption department of the Kosovo police
has launched six investigations in cooperation with EULEX. They covered
criminal acts such as abuse of official duty, giving and receiving bribes, and
fraud. The Anti-Corruption Agency has continued to
coordinate implementation of the strategy, of the laws on declaration of assets
by public officials and on prevention of conflict of interest. The Agency has
sufficient capacity to perform its current tasks. Cooperation between the
Agency and the prosecution has improved. The prosecution now provides
systematic feedback to the Agency on the follow-up of cases. The Prosecutorial
Council also set up a network of prosecutors coordinating corruption in six
basic prosecution offices and in the Pristina office. There has been an
increase in criminal cases against persons in high-level positions both at
municipal and central levels. Continued efforts are necessary to ensure the
accountability of high-ranking officials and politicians.

In 2012, less
than 1% of public officials failed to make a declaration of assets. Pertinent
cases have been sent to the prosecution. When it comes to verification, the
agency first does a preliminary systematic search for missing information or
errors. Subsequently, on roughly 20% of the submissions, substantive controls
are undertaken, with a focus on those categories of officials with a
high-degree of responsibility or exposed to sensitive positions (such as public
procurement), or on cases that appear suspicious. First steps have been taken
to improve reporting on the fight against corruption. In November, the Prosecutorial
Council adopted a strategy on inter-institutional cooperation in the fight
against organised crime and corruption.

The main issue
of concern remains the implementation of the legal and policy frameworks.
Cooperation among the agencies involved continues to be weak. False
declarations and conflicts of interest are still treated as administrative
offences, whereas the Criminal Code provides for a criminal offence. This
discrepancy needs to be addressed as a matter of priority. The number of cases followed
up by the prosecution remains below 10%. Only very few cases result in a filed
indictment. To improve implementation, other authorities (tax administration,
financial investigation unit and prosecution) need to provide the necessary
information to the Anti-Corruption Agency.

The new
anti-corruption strategy is not underpinned by a budget or an estimation of
necessary resources. It lacks binding mechanisms for the institutions to comply
with their responsibilities. Implementation of the strategy and action plan
requires more ownership by all involved actors, continuous support at the
highest political level and commitment from all involved. The risk assessment
of vulnerable areas needs to be revised regularly.

On prevention
of conflict of interest, the agency noted that more than 800 public officials
have more than two jobs (some up to five). The agency recommended that
officials are not allowed to hold at the same time more than one job involving
a certain degree of (financial) responsibility. There has been no follow-up on
this advice. Moreover, there are still cases in which persons do not stop their
active involvement in a private business, or they do not provide the Agency
with the required declaration to this end when taking up a public post.

The
institutional setup to deal with corruption remains complex. The system is
fragmented, with unclear roles and responsibilities. There is no common system
of statistics. The National Anti-Corruption Council was set up with the aim to
ensure responsibility and accountability of involved institutions in the fight
against corruption. However, the council does not meet regularly. Additionally,
its meetings are in public and the number of participants has increased. This
raises concerns with regard to its effectiveness and authority.

The
anti-corruption taskforce within the special prosecution, composed of local and
international prosecutors, Kosovo police investigators and anti-corruption
experts, lacks two out of five local prosecutors. This considerably slows down
investigations, even if two prosecutors have been allocated to the taskforce on
a temporary basis. Furthermore, taskforce members from the police lack office
space and essential equipment. Forensic financial accounting expertise is
missing. In addition to the taskforce, local prosecution offices are also
responsible for the fight against corruption. Their results have been limited.

Overall, Kosovo met the short-term priorities of the feasibility study. It
adopted a new anti-corruption strategy and Kosovo has maintained commitment to
the fight against corruption. To meet its obligations under the Stabilisation
and Association Agreement, Kosovo needs to implement
the legislative and policy frameworks, and provide concrete evidence of results
in the fight against corruption. Effective prevention of corruption at all
levels of society needs to be given higher priority.

Fight against organised crime

During the
reporting period, Kosovo met the short-term priorities of the feasibility
study. Its political leaders and law enforcement and judicial authorities
maintained their commitment to deliver results in the fight against organised
crime. They have continued to work in partnership with EULEX on practical
operational matters on a daily basis. Kosovo adopted new strategies and action
plans against organised crime, narcotics and terrorism. It also has a strategy
and an action plan against trafficking in human beings. The Assembly also
approved a law on the confiscation of assets and revised the law on the prevention
of money laundering and financing of terrorism. The Compact on joint rule of
law objectives was signed in November by Kosovo, the EUSR and EULEX.

As set out in
the feasibility study, to meet its obligations under the Stabilisation and
Association Agreement, Kosovo needs to focus on implementing the policy and
legislative frameworks. It needs to provide concrete evidence of results in
fighting organised crime, especially on prevention of and fighting against
trafficking in human beings, drugs (and their precursors), and weapons
trafficking. The reliability of statistics needs to improve.

For a detailed analysis of the developments
in the fight against organised crime, see 4.3 — Justice, Freedom and
Security.

2.2.
Human rights and the protection of minorities

Kosovo’s
constitution lists international human rights instruments which are
directly applicable in Kosovo and form an integral part of Kosovo’s legal
framework. As Kosovo is neither a party to any of the international human
rights instruments, nor a member of the Council of Europe, its reporting
remains ad hoc.

As regards promotion
and enforcement of human rights, the relevant Assembly committee has been increasingly holding the
government accountable. This relates in particular to the unsatisfactory implementation
of recommendations issued by the Ombudsperson. The key challenge for Kosovo is to improve implementation of the
existing legal framework and enforcement of decisions remedying human rights
infringements. The complex and overlapping institutional setup for reporting on
these rights, as well as their promotion and protection, needs to be simplified
and streamlined, both at central and local levels.

Kosovo has continued to address the prevention of torture and ill-treatment in
prisons, including the fight against impunity. The
correctional services received two complaints of torture and ill-treatment
in 2012. After investigation both cases were dismissed. In 2013, no complaints
have been received. A steering committee composed of the Ombudsperson, the
Kosovo Rehabilitation Centre for Torture Victims and the Council for the
Defence of Human Rights is monitoring the situation in this regard in detention
centres. The members of the steering committee need to further enhance their
experience and resources to carry out balanced and accurate inspections.

The prison system, in particular the
Dubravë/Dubrava Correctional Centre, continues to face significant challenges.
Medical treatment is insufficient. Important concerns relate to corruption,
nepotism, smuggling and discrimination in the prison system. Some prisoners
enjoy ‘extended privileges’ and abuse the system. This increases the risk that
they may be able to carry on in criminal activities from the prisons, including
intimidating witnesses. Kosovo also needs to develop adequate categorisation of
prisoners. The internal complaints mechanism needs to be made more efficient
and effective.

On freedom of expression, the
Assembly modified the two articles of the Criminal Code on criminal liability
of the media and protection of journalists’ sources, as set out in the
feasibility study. Kosovo authorities (the President, the Office of Prime
Minister and Minister for European Affairs) promptly condemned and demanded an
investigation into attacks on the offices of the magazine Kosovo 2.0, which had
published a special issue focusing on sex topics, including sexual orientation
and gender identity issues. An EULEX prosecutor and a prosecutor from the
Pristina basic prosecution office filed an indictment against three Kosovo
citizens for their involvement in the attack on Kosovo 2.0.

Legislation covering freedom of expression
is fragmented (14 laws in total) and ineffective. The laws establish a total of
ten institutions responsible for this area. Implementing legislation is
necessary to define the exact scope and activities of these institutions.
Currently, there is overlap. Kosovo does not have a comprehensive law on the
media, leaving key areas regarding operation of the media unregulated. This
includes issues such as the autonomy of journalists and editors, protection of
professional standards in journalism, the right to conscientious objection for
journalists, and the right of reply and correction for citizens.

Threats against journalists and editors
have continued to be reported and journalists continue to face political
pressure and intimidation. The Association of Professional Journalists of
Kosovo was active in condemning attacks against media and journalists
throughout 2012. However, following the appointment of a new board in April,
several board members left, citing close ties between the chairwoman and
business and political representatives. Professional standards in both
broadcast and print journalism need to be improved, with a particular focus on
online media.

The independence of the Independent Media
Commission has been hindered by a lack of resources, and political interference
in the appointments of the commission and its board of appeals. One member of
the commission and two members of the board of appeals were appointed despite
their ineligibility. One member of the commission is still to be nominated.
Much of the commission’s work was paralysed by its council’s unlawful decision
to dismiss the CEO. This decision was reversed by the court.

Kosovo public broadcaster’s (RTK) long-term
financial sustainability is still uncertain. The current funding model is based
exclusively on the state budget, which undermines RTK’s editorial independence.
The RTK’s board should have eleven members – public personalities who have
demonstrated political impartiality. Three members have yet to be appointed, as
a consequence of politicisation of their appointment by the Assembly. (See
4.2.6 — Information Society and Media)

Freedom of assembly and association continues to be exercised in Kosovo. During the reporting period,
there have been several public protests and gatherings against the government
and assembly decisions. Public and opposition movements are free to express
their discontent with government policies.

Freedom of thought, conscience and
religion continues to be exercised in Kosovo. The
Orthodox seminary functions well in its historical premises in Prizren. Kosovo
has been ready to support the reconstruction of Serbian Orthodox Church sites.
Contacts between religious leaders of the Kosovo Albanian Catholic Church,
Islamic leaders and Serbian Orthodox leaders have been more regular and
relations have been improving. A Catholic cathedral is being constructed in the
centre of Pristina. Kosovo police has been taking over responsibility for the
protection of historical and religious sites from KFOR. To date, only Visoki
Dečani Monastery remains under KFOR protection. The protection of the Peć
Patriarchate was transferred from KFOR to Kosovo police in August.

A number of religious heritage sites have
been subject to petty theft and vandalism, including Serbian Orthodox churches
and Orthodox and Muslim cemeteries. In February, the widespread desecration of
Serbian Orthodox cemeteries revealed the vulnerability of sites of value to the
Serbian community in Kosovo during times of political strain. The mechanisms
for reporting and following up such activities need to be improved.

As regards women’s rights and gender
equality, the government adopted implementing legislation for the law on
protection against domestic violence. The Judicial Institute has provided
training on these issues for judges, prosecutors, victims’ advocates and social
workers. The Agency for Gender Equality prepared an action plan on the
implementation of the relevant UN resolution. The aim is to strengthen the
position of women in decision-making processes and in security structures, and
to provide redress to survivors of conflict-related sexual violence by means of
improved access to justice and rehabilitation and integration. Legislation
recognising survivors of conflict-related sexual violence as civilian victims
of war has not yet been adopted by the Assembly. Government funding of shelters
for victims of domestic violence and trafficking is not sustainable. The law on
gender equality needs to be amended. Women’s representation both in the public
and the private sectors remains low, especially in senior positions. The
introduction of paid maternity leave of up to nine months has had a negative
impact on the employment of women in some cases, especially in the private
sector. (See 4.1.8 - Employment and social policies,
public health policy)

Regarding children’s rights, the
government approved a new Kosovo youth strategy and action plan 2013-2017. The
Ministry of Culture, Youth and Sports has set up 34 local youth action councils
including some in municipalities established in 2009-2010. Reporting on the
implementation of the strategy and action plan on children’s rights 2009-2013
has improved. Juvenile departments are now established in all courts and
prosecutorial offices. The Ministry of Justice has also trained 15 mediators on
child offender and victim mediation. A review of child protection legislation
needs to be conducted to identify gaps. With regard to child protection, the
system remains fragmented, both at central and local levels. The focus needs to
be on improving implementation of legislation and on decreasing dependence on
international donor support.

As regards
the socially vulnerable and persons with disabilities, Kosovo has improved
its legislative framework. In August, the government adopted the strategy for
the rights of people with disabilities (2013-2023) and an action plan
(2013-2015). The Ministry of Education, Science and
Technology adopted several administrative instructions to improve access to
education for persons with disabilities. The newly-adopted law for blind
persons entered into force in January. Since February, the Assembly has
televised its sessions with sign language interpretation for the deaf. Public
buildings in Kosovo remain largely inaccessible to persons with disabilities.
Access to public spaces for persons with disabilities is inadequate. The
National Disability Council of Kosovo needs to improve its functioning with the
support of the Office on Good Governance. Kosovo authorities also need to
improve their engagement with organisations of disabled persons when preparing
policy documents and legislation. They also need to improve implementation of
commitments made in respect of non-discrimination and inclusion of people with
disabilities.

The law on anti-discrimination is
under revision along with the overall institutional setup. Implementation of
anti-discrimination policies is weak.

In May, the Office on Good Governance held
a roundtable on lesbian, gay, bisexual, transgender and intersex (LGBTI) issues.
This community faces major challenges in Kosovo. It continues to face
discrimination, threats and violence. A religious movement, voicing hate
against the LGBTI community through conventional and social media, was
registered as a political party.

In the area of labour
and trade union rights, the amended law on strikes entered into force. The Socio-Economic Council and
working groups of the Ministry of Trade and Industry have discussed employment
conditions. The labour inspectorate conducted
over 7 000 inspections in the public and private sectors. It issued over 1 800
written warnings and over 150 punitive measures. Trade unions lack the capacity
to participate effectively in decision-making, legislative drafting and policy
dialogue with the government. (See 4.1.8 - Employment
and social policies, public health policy)

As regards property
rights, the Assembly adopted a law on allocation for use and exchange of
real estate of the municipality and laws on the treatment of constructions
without permission and on spatial planning. Out of a total of over 42 500
claims recorded by the Kosovo Property Agency, over 39 000 have been
adjudicated by the Kosovo Property Claims Commission. United Nations High
Commissioner for Refugees offices in Serbia operate as the liaison office for
the Kosovo Property Agency. The number of Kosovo Property Claims Commission
decisions and cases dismissed by the Executive Secretariat stands at about 38 480
of which about 35 500 were served to claimants and about 2 000 to
respondents. The number of Commission decisions implemented during the
reporting period stands at nearly 20 400.

Serious shortcomings persist in the
notification of displaced persons regarding the expropriation of their real
estate. Implementation of eviction orders and property administration across
Kosovo remains a challenge. The outstanding number of evictions stands at about
820 of which about 350 in northern Kosovo. The funding of the Property Agency
remains uncertain and unsustainable. Many unresolved property compensation
claims are before the courts. Second-instance courts often send property cases
back to the first-instance courts for re-trial. Inter-ethnic property disputes
are unduly prolonged. There is no compensation scheme for socially-owned
apartments. The lack of a strategy to regularise informal settlements remains a
concern. The Office of the Property Rights Coordinator in the Office of the
Prime Minister has neither staff nor funding.

Overall, Kosovo legislation is broadly in line with international standards,
although some important laws require improvement. Kosovo needs to focus on
implementation. The structures dealing with the protection, promotion,
enforcement of and reporting on rights need to be streamlined, both at central
and local levels. Political and economic interference with the media, threats
to journalists and the long-term sustainability of the public broadcaster’s
financing remain issues that need to be addressed urgently. The mechanisms and
the overall consciousness and willingness to address anti-discrimination issues
have to be further strengthened. Violent incidents against the LGBTI community
need to be investigated and prosecuted. There also needs to be more focus on
investigating offences against religious sites. Enforcement and protection of
property rights is a key challenge and one of the priorities of the feasibility
study. In particular, Kosovo’s judiciary needs to improve its efforts to
resolve cases rapidly. Kosovo authorities need to do more to reach out to
displaced persons regarding expropriation of their real estate.

Respect
for and protection of minorities, cultural rights

Following the end of supervised
independence in September 2012, Kosovo’s legal framework continues to guarantee
minority representation. It upholds the rights of persons belonging to
minorities, and protects vital interests and cultural rights, including those
of the Serbian Orthodox Church. The Serb-majority municipalities in the south
of Kosovo have been gradually strengthening their capacity. They also
participate in bodies such as the Association of Kosovo Municipalities. The
Office for Community Affairs increased its assistance to socially vulnerable
families and infrastructure projects.

A new Language Commissioner was appointed
in December. The office recruited new staff, launched its website, developed an
on-line complaints form and conducted outreach activities. Language policy
measures proposed by the Commissioner to the Office of the Prime Minister are
still to be adopted. The slow response of law enforcement authorities, in
particular the judiciary, to cases involving persons belonging to minorities
increases their mistrust vis-à-vis Kosovo institutions. Kosovo needs to
increase the proportional representation of minorities in the police and
judiciary.

Following the adoption of the law on the
public broadcaster, a Serbian-language TV channel (RTK2) was licensed. It
started limited broadcasts in June and from August has been fully operational.
At the moment, the channel is only available through cable operators. Access to
education for minority communities remains limited. Language barriers and the
lack of relevant school materials are major obstacles to the integration of
returnees and readmitted children into the education system. There has been no
progress on Serbian-language instruction within the Kosovo curriculum. Serbian
is still not available as a second official language outside areas
predominantly inhabited by Serbs. Students from the Serbian community and a
majority of Roma and Gorani students are enrolled in schools administered by
Serbia.

A mid-term review of the action plan of the
strategy for the integration of Roma, Ashkali and Egyptian communities
(2009-2015) was completed in July. Three actions were identified for
improvement: proper budget allocation, better cooperation between central and
municipal authorities, and better cooperation between the government and civil
society organisations. The Minister for European Integration formally took up
the post of the chair of the inter-ministerial steering committee. The Office
on Good Governance remains responsible for these issues at working level. The
Osterode camp was officially closed in December.

Implementation of the strategy and action
plan remains weak and inconsistent. Non-majority communities continue to face
major challenges. Children suffering from lead contamination require further
care. The closure of the Leposaviq/Leposavić camp still needs to be completed.
Education, social service and civil registration of the Roma, Ashkali and
Egyptian communities need to further improve. Municipalities have committed
themselves to funding six pre-school learning centres for children from these
communities. Other commitments for improving the education (e.g. support
mediators helping these children to integrate into school life), are still to
be implemented. The Romani language is being offered in some pilot classes in
Prizren. However, the teacher concerned is working pro bono and there
are no government–issued textbooks.

Regarding refugees and internally displaced
persons, most of the Municipal Community Safety Councils and the Local
Public Safety Councils have been set up to address the security concerns of all
communities. The functioning of these councils needs to be improved.

The number of voluntary returns decreased
from over 1 140 in 2011 to 970 in 2012. In 2012, a total of 220 families
received housing assistance from the Ministry of Community and Return and from
the international donor community. The Ministry established a working group to
draft a new strategy for Communities and Return since the current strategy
expires in 2013.

The sustainability of the returns process
continues to be undermined by real and perceived security threats (both in
Albanian majority and Serb majority communities). It is further exacerbated by
ongoing incidents affecting returnees and their property, as well as religious
and cultural heritage sites. Limited access to property, blocked or delayed
property restitution proceedings, limited access to public services, and a lack
of economic opportunities also continue to be major obstacles to sustainable
return and reintegration. The obstacles to return and integration of the Roma,
Ashkali and Egyptian communities are of particular concern.

As regards cultural rights, the
Implementation and Monitoring Council, established in February, continues to
facilitate cooperation between Kosovo authorities and the Serbian Orthodox
Church. The council has been meeting on a monthly basis and has been addressing
concerns of the Church. The main challenge for the
council is to ensure its decisions translate into concrete results on the
ground. At the initiative of the Office of the Prime
Minister, the Kosovo police established a special unit to protect Serbian
religious and cultural heritage sites in Kosovo. It covers four regions and
employs 203 Kosovo police officers. The share of Kosovo Serb police officers in
the special unit needs to increase.

Implementation of the law on the historic
centre of Prizren has progressed. By contrast, there has been no progress in
the implementation of the law on Velika Hoča/Hoçë e Madhe. Continued guidance
from the central level is needed to ensure that the laws are fully implemented.
Cooperation between the relevant ministries and between central and local levels
is slowly improving. It needs to be intensified and managed in a more
structured way to secure sustainable progress. In general, implementation of
the legislative framework governing protection of cultural heritage remains
weak. Kosovo authorities need to address frequent breaches of the legislation
negatively affecting the sites. They also need to demonstrate a stronger
commitment to cultural heritage spatial planning. Business interests frequently
prevail over interests of the cultural heritage.

Overall, Kosovo needs to focus on the implementation of the priorities of the
feasibility study. Implementing legislation on protection of minorities and
cultural rights remains an important challenge. Inter-institutional
coordination, including between central and local self-government institutions,
needs to improve. Security incidents and crimes targeting persons belonging to
minorities and their property need to be investigated and prosecuted thoroughly
and promptly. Spatial planning needs to take into account the requirements of
historic and cultural heritage sites. Robust action needs to be taken to stop
illegal construction and to correct illegal construction which has already
taken place.

Resources and efforts need to be more
focused to make progress in implementing the strategy and action plan for the
Roma, Ashkali and Egyptian communities. Kosovo needs to close the
Leposaviq/Leposavić camp. The focus needs to be on education, social service
and civil registration of these communities. Kosovo currently relies heavily on
support from the international community in this area.

2.3.
Regional issues and international obligations

Regarding relations with Serbia, see section
1.4. - Normalisation of relations between Kosovo and Serbia.

Kosovo has continued cooperating with the
international community, including the International Criminal Tribunal for the former Yugoslavia (ICTY), in investigating and prosecuting war crimes. Former Prime
Minister Ramush Haradinaj was acquitted by the
Tribunal in November.

The EULEX police war crimes investigation unit and Kosovo police war
crimes investigation unit conducted a joint investigation in the villages of Babin
Most and Vushtrri/Vučitrn. The investigation resulted in the arrest of two
suspects in the Babin Most case and in a search of their residences. The Kosovo
police special unit and the Kosovo police forensic unit provided operational
support. Kosovo continues to face challenges in investigating war crimes with
its own judicial and law enforcement authorities. EULEX, including the Special
Investigative Task Force, has continued exercising its exclusive executive
mandate in this area.

An inter-ministerial working group dealing with the past and
reconciliation was established in March. It is to address past human rights
violations and violations of international humanitarian law in Kosovo. The
creation of the working group is a positive step, but its practical impact has
yet to materialise.

The unresolved fate of missing persons
from the conflicts in the 1990s is still an issue of humanitarian concern in
the Western Balkans. As of July 2013, a total of 11 859 persons were still
missing as a result of the conflicts in the region, according to International
Committee of the Red Cross (ICRC) figures. Of these, 7 886 cases relate to
the conflict in Bosnia and Herzegovina, 2 246 to the conflict in Croatia
and 1 727 to the conflict in Kosovo The lack of information on new
gravesites, due to a lack of political will, and difficulties in identifying
human remains already exhumed continue to be key obstacles to solving the
remaining cases of missing persons.

The working
group on missing persons chaired by the ICRC has remained the framework within
which the Kosovo authorities have pursued their commitments. The governmental
commission on missing persons has assumed its responsibilities in facilitating
the assessment and exhumation of potential new gravesites and for coordinating
the actions of other stakeholders. However, it lacks high level political
support. It needs to be proactive and build capacity to channel and step up the
search for new information on the fate and whereabouts of missing persons. The
pace of solving cases of missing persons is slow, with only 44 cases solved
over a period of twelve months.

The
EULEX/Department of Forensic Medicine expert review of unidentified human
remains stored at the Pristina morgue were completed. The results were made
public in a report in 2012. 45 persons have been identified. The report also
concluded that not all the remains were a result of the conflict. Policy makers
need to decide on the next steps. The Department of Forensic Medicine does not
have the capacity to meet the standards required for sustainable and adequate
recovery, analysis and identification of human remains. The Ministry of Justice
and the Prime Minister’s Office need to do more to invest in the recruitment
and development of experts needed for a sustainable forensic practice. Special
effort is needed to increase trust from non-Albanian communities in the
department’s work.

Implementation
of the law on missing persons (adopted in 2011) needs to be accelerated. The
resources needed to set up a central register have not yet been allocated. The
adoption of implementing legislation on the central register is still pending.
Increased and improved coordination and cooperation between the governmental
commission and the Department of Forensic Medicine is required.

The absence of a formal agreement between
Kosovo and the former Yugoslav Republic of Macedonia remains an obstacle
to clarifying allegations related to unidentified human remains in the former
Yugoslav Republic of Macedonia.

Overall, the
review of unidentified human remains stored in the Pristina morgue was
completed. There is a lack of political will, expertise and resources to
address the issue of missing persons. Kosovo is at the early stages of
investigating war crimes without international support.

Regional cooperation and good
neighbourly relations are an essential element of
Kosovo’s European integration process. On 28 February 2013, the Regional
Cooperation Council (RCC) decided to amend its statute to allow Kosovo to
become a participant in its own right. The formula for Kosovo’s participation
in the RCC is a good basis for Kosovo to increase and extend its participation
in other regional fora.

Kosovo participates in the South East
Europe Transport Observatory (SEETO) forum, the Energy Community Treaty, the
South East Europe (SEE) Centre for Entrepreneurial Learning, the Regional Rural
Development Standing Working Group in the SEE, the Regional Environmental
Network for Accession, and the Network of Associations of Local Authorities of
the SEE.

Regarding bilateral relations with other
enlargement countries, Kosovo has continued to have very good relations
with Albania with which it signed agreements on the exchange and
protection of classified information, on judicial assistance in penal cases, on
extradition, on transferring sentenced persons, and on cooperation on taxation
and fighting tax evasion.

Bosnia and Herzegovina has not recognised Kosovo. Short-stay visas for citizens of Kosovo
are issued only on invitation from foreign diplomatic missions and
international organisations accredited in Bosnia and Herzegovina, or for
humanitarian reasons.

The wide-ranging contractual framework for
cooperation with the former Yugoslav Republic of Macedonia continued
to develop with the signing of agreements on mutual recognition of pensions, on
advancement and intensification of cultural cooperation, and on the opening of
a new border crossing. Joint monitoring patrols along the border need to
address the challenge of illegal trafficking of goods and illegal migration. A
trade dispute took place in September 2013. The manner in which the situation
at the border escalated over a number of days before being resolved
bilaterally, outside of CEFTA procedures, is a matter of concern.

Concerning Montenegro, negotiations
are under way to conclude agreements on extradition, mutual enforcement of
judicial decisions in criminal matters, and legal assistance in criminal
matters. A joint commission on border demarcation has started work.

Kosovo has maintained very good relations
with Turkey, with which it finalised negotiations on a free trade
agreement.

Overall, the
agreements reached in the context of the Belgrade/Pristina dialogue have
boosted regional cooperation. Demarcation of the border with Montenegro has yet
to be completed.

3.
Economic criteria

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

3.1.
The existence of a functioning market economy

Economic policy essentials

Kosovo has further developed its relations with international financial
institutions. It has continued to successfully implement the 20-month €105
million Stand-By Arrangement (SBA), negotiated with the International Monetary
Fund (IMF) in April 2012. In December 2012, Kosovo became a member of the
European Bank for Reconstruction and Development. In June 2013, Kosovo signed a
Framework Agreement with the European Investment Bank (EIB), which allows the
EIB to finance projects in Kosovo. The Fiscal Surveillance Mechanism with the
European Commission has continued with meetings held twice a year. Kosovo has
also launched preparations for an Economic and Fiscal Programme, which is the
standard economic surveillance procedure for potential candidates. In early
May, the government of Kosovo adopted its medium-term expenditure framework,
covering the years 2014-2016. Overall, the determination to
pursue market-oriented economic policies has been maintained and reforms
accelerated in certain areas.

Macroeconomic
stability

Kosovo’s economy has been less shielded from the adverse effects of
the economic crisis in Europe than in past years, with signs of an economic
slowdown. The general economic situation remains challenging with very high
unemployment. GDP growth came down from 4.4% in 2011 to 2.5% in 2012 and is
likely to have remained subdued in the first half of 2013 as well. More prudent
fiscal policy and rapidly decelerating credit growth have curbed domestic
demand, supressing the investment activity in particular. Remittances, a major
driver of private consumption, started recovering only in the second half of
2012. The weak economic prospects in a number of countries with significant
Kosovo diaspora increase uncertainty. Economic statistics,
national accounts in particular, remained extremely weak, hampering a
comprehensive assessment of the economic situation. GDP per capita[6] has reached €2 721
in 2012, equal to 11% of the EU-27 average, almost unchanged over its level in
2011. Overall, Kosovo’s economic growth has weakened and remains
fragile.

In 2012, the current account deficit (including official transfers)
shrank to 7.7% of GDP, down from 13.8% of GDP in 2011. Higher current transfers
and lower imports of goods and services helped reduce external imbalances. On
the other hand, the performance of exports of goods deteriorated (down by 1.0%
of GDP), as external demand and prices for metals and metal products, Kosovo’s
main exports, declined. As a result, trade imbalances remained significant,
with a trade deficit of 35.1% of GDP, reflecting an underdeveloped and narrow
domestic production base.

The surplus on the capital and financial
account (excluding changes in reserve assets) stood at 13.2% of GDP in 2012. Net foreign direct investments declined to their lowest level since
2005 to 4.3% of GDP. The structure of investments remained broadly unchanged,
with about half of all incoming foreign direct investment (FDI) going to the
real estate and construction sectors, 12% to financial services, and only 13%
channelled to manufacturing. The deficit in portfolio investments widened to 3.8%
of GDP, but strong inflows of other investments, mostly currency and deposits,
boosted reserve assets, which increased by 5.4% of GDP. Net errors and
omissions remained very high (4.8% of GDP), close to their level in previous
years. Overall, external
imbalances have declined, although they are still very high, especially in
merchandise trade. Net inflows from foreign direct investment fell markedly and
continued to be channelled mainly in non-tradable sectors.

Unemployment is very high at 35.1%, according to Labour Force Survey
(January to June 2012), which, due to methodological changes, does not allow
for comparisons with previous years. The unemployment registry was digitalised
and launched in early 2012. The number of people officially registered as unemployed
decreased by about 22%. However, the sharp reduction mainly reflects changes in
the registration system, rather than an improvement in the labour market
situation. Most of the unemployed are unskilled (60%) and the number of
unemployed with a university education has steadily increased. Structure of the
labour market signals a mismatch between the skills needed on the labour market
and those provided by the education system. Formal employment in the private
sector increased slightly according to data on the number of contributors to
the Kosovo Pension and Savings Trust Fund. The available statistics do not provide a true picture of the labour
market, particularly given the significant informal employment. Overall,
information about the labour market is scarce and patchy. Unemployment has
remained very high, with significant structural weaknesses and skill gaps in
the labour market. There are few job opportunities, especially for new young
entrants.

The annual average rate of inflation was 2.5% in 2012. After having
been elevated for several months in the second half of 2012, year-on-year
inflation fell to 1.2% in August 2013. This moderation was mainly driven by the
base effect and lower food and energy prices. Energy goods had a deflationary
impact for the first time in last three years. Services inflation also came
down markedly. Core inflation (non-food, non-energy) has been stable, close to
1%, gravitating around its long-term average. Overall, inflation has
declined and continued to be driven mainly by food and energy prices.

Kosovo is using the euro as its legal tender. Consequently, the
Central Bank of Kosovo (CBK) has only limited policy instruments. The growth in
broad money supply has declined markedly and stood at 4.6% year-on-year by the
end of July 2013, as compared to 9% a year ago. However, the monetisation of
the economy, measured by the ratio of average broad money to GDP, increased
from 40.7% in 2011 to 43% in 2012. The framework for providing emergency
liquidity assistance became operational and the authorities funded a special
reserve fund with €46 million. Overall, the monetary framework has
continued to function relatively well.

The 2012 budget deficit turned out close to target at 2.6% of GDP.
Total revenue grew by only 1.8% and decreased to 26.9% of GDP from 27.3%
in 2011. As economic activity cooled down, border taxes and non-tax revenue
underperformed, while savings in spending on goods and services at central
level and in non-highway capital expenditure compensated for lower revenues
both at central and municipal level. Nevertheless, total expenditure increased
by 5.3% for the year or by 0.7 percentage points, to 29.6% of GDP. Current expenditure reached 18.1% of GDP, up
from 17.4% in 2011, driven by increases in all major categories. Capital
expenditure and net lending decreased slightly by 0.2 percentage points, to
11.2% of GDP and more than 40% of these were spent on a single project, the
highway to Albania. Government deposits available at the central bank increased
from €160 million (3.4% of GDP) in 2011 to €216 million (4.4% of GDP) at the
end of 2012. In 2012, the authorities started issuing domestic treasury bills
with 3- and 6-month maturity, extended to one year maturity in April 2013.
Supported by excess bank liquidity and stringent budgetary execution, yields
have steadily declined and fluctuated around 0.5% and 1.5% for 3-month and
6-month bills respectively, in the third quarter of 2013. Total government debt
increased by €156 million, but remained low at 8.3% of GDP by end-2012, of
which close to a fifth was domestic debt. Budget transparency improved further
and the Ministry of Finance started publishing quarterly information on
government debt level and structure on its website.

In December 2012, the Assembly adopted the 2013 budget, envisaging a
€181 million (3.5% of GDP) consolidated deficit. The budget contains fiscal
adjustment measures, mostly in raising additional non-tax revenue from lignite
royalties and one-off sale of telecoms licences. To guard against unforeseen
fiscal risks, the budget also includes a contingency reserve of €20 million in
unallocated spending commitments. An allocation of about 0.5% of GDP is
envisaged for launching another big, multiannual road transportation project, a
highway linking Pristina with Skopje. The 2013 budget performance was broadly
on track by the end of July. The consolidated deficit was €6.6 million, which
is significantly lower than the corresponding period last year. Revenue growth
was boosted by the base effects and domestic tax revenues. By the end of July,
year-on-year increase in total expenditure was 1.3%. Even though the current
expenditures, subsidies and transfers increased significantly (by 1.6% of GDP),
reduced non-highway capital spending kept the total expenditure at a modest
level.

In April, the winning bidder for the privatisation of 75% of the
state-owned telecom PTK was selected. However, the privatisation process has
experienced delays, with the ultimate completion remaining uncertain. On the
other hand, a number of initiatives with potentially significant impact on
budget sustainability are being prepared in healthcare, municipal finance, and
benefits to war veterans and political prisoners. In that regard, PTK is a key
deal expected to bring €277 million to the budget.

In July, with amendments to the law on public finance management and
accountability, the parliament introduced a legally-binding fiscal rule to be
implemented as of 2014. The rule envisages a 2% of GDP ceiling on the general
government deficit. Overall, budget performance remained broadly on
track, in a challenging economic and social environment, but further efforts
are needed to limit budget exposure to a number of new expenditure initiatives.

In 2012, growth and domestic demand weakened, as some of the major
factors that had previously supported it, fiscal expansion, strong remittances
and buoyant credit growth, were curtailed or decelerated. In the framework of
an IMF-supported programme, significant steps have been taken to rein in
government spending and improve financial stability. However, significant domestic
and external imbalances persist. Structural weaknesses and skills gaps in the
labour market remain significant and there are few job opportunities,
especially for young entrants, aggravating an already difficult social
situation. Overall, Kosovo managed to broadly maintain macroeconomic and
fiscal stability, despite evident signs of weakening economic growth. Fiscal
policy remained prudent and the macroeconomic policy mix has improved. Further
significant efforts are needed to improve the structural characteristics of the
economy.

Interplay of market
forces

Out of 61 state-owned enterprises, 44 are managed by municipalities.
Among those centrally managed, six enterprises had operating profits in 2012.
This includes the Kosovo Energy Corporation and the Post and Telecommunications
of Kosovo (PTK), which also paid €45 million in dividends to the budget. A few
companies in the transport, water and waste sectors have continued to suffer
losses. They have remained a significant drain on the budget, although to a
lesser extent than in previous years. The Privatisation of the Kosovo
Electricity Distribution and Supply Company (KEDS) was successfully completed
when Turkish consortium Calik-Limak took over the company in May 2013. The
privatisation of 75% of shares of the state-owned telecom PTK, initially
envisaged to be concluded by July, is delayed. The Privatisation Agency of
Kosovo (PAK) has continued privatising mainly small businesses. Total proceeds
from the beginning of the privatisation process reached €574.4 million, with
2012 proceeds contributing €16.7 million. Limited progress has been made in
liquidating enterprises from PAK’s portfolio. In 2012, only two liquidation
proceedings were closed and 179 firms remain in the process of liquidation.
Proceeds from asset sales of enterprises in liquidation reached €62.7 million,
of which €11.3 million were collected in 2012. Overall, the
privatisation of state-owned enterprises has progressed, although unevenly,
while the privatisation and liquidation of enterprises from PAK’s portfolio
lagged behind.

Market entry and exit

During 2012, 2 261 new businesses were registered, a rise of
over 20% compared to the previous year. On the other hand, 334 businesses
closed, or 16.7% more than in 2011. Businesses consider the lack of access to
finance, power cuts, unfair competition (among local enterprises) and
corruption as the main obstacles to doing business. Overall, weak
administration, unreliable electricity supply and deficient rule of law have
continued to hinder private sector development even though some progress has
been made with regard to market entry.

Legal system

The legal system has continued to suffer from poor accessibility and
efficiency, delays and a backlog of unresolved cases. Weak enforceability of contracts
has remained one of the main concerns of companies and investors in Kosovo. It
is also one of the factors explaining the relatively high interest rates
charged by commercial banks to the private sector. It has contributed to the
rise in non-performing loans. There has been some progress regarding the
property rights infrastructure, although the accuracy of data could be further
improved. While expropriation procedures are applied in a broadly satisfactory
manner and property owners are mostly compensated, the authorities do not carry
out proper consultation and notification of displaced owners. Registered
transactions and mortgages have continued to rise, indicating increasing use of
property as collateral and acceptance by banks of cadastral records data for
loan purposes. In 2012, the overall value of mortgages increased by 49%,
reaching €1.3 billion. Some land registry books remain in Serbia. An agreement
on cadastral records was reached within the framework of the Belgrade-Pristina
dialogue. Appropriate legislation still needs to be passed to implement the
agreement. Overall, there has been an increasing use of property as
collateral. The existing legal framework is underdeveloped and its
implementation has remained poor. Difficult, lengthy and costly legal
enforcement and prevalent corruption has continued to hamper the business
environment.

Financial sector
development

In 2012, Kosovo’s financial sector expanded by 8.5% with assets
worth €3.8 billion. The banking sector remained predominant and accounted for
74% of all financial sector assets, followed by pension funds (19.5%). The
total number of banks operating in Kosovo rose to nine in 2012, as a new bank
entered the market. The number of pension funds (2) and insurance companies
(13) has remained unchanged. Concentration of the banking system remains high,
with 70% of assets managed by the three largest banks. Almost 90% of the assets
in the sector are held by banks under foreign ownership. Profits in the banking
sector reached €19.2 million in 2012, a significant (46.7%) decrease compared
to 2011. The proportion of non-performing loans rose to 7.6% of total loans on
June, from 5.8% at the end of 2011. This is due to the deterioration in credit
quality in the trade, real estate and construction sectors. Nonetheless,
non-performing loans remain adequately provisioned and banks continue to hold
considerable excess liquidity.

More stringent regulatory requirements as regards capital, which
took effect in the autumn 2012, have put some of the banks’ soundness
indicators under pressure. Some banks fell below the regulatory minimum of 12%
and had to be recapitalised. However, the average capital adequacy ratio stood
at 16% at the end of July 2013. Amendments to the deposit insurance law,
adopted in December, envisage an increase of the threshold for insured deposits
from the current €2 000 to €5 000 by 2018. The capital of the Deposit
Insurance Fund has been strengthened and a resolution was adopted to increase
its reserve fund to 8-9% of all insured deposits over a period of 14 years.

In April 2013, the Constitutional Court issued a ruling that
declared a number of articles of the 2012 law on banks, microfinance
institutions and non-bank financial institutions incompatible with the
Constitution. The articles in question refer to the possibility for NGO
microfinance institutions to become joint stock companies. Overall,
there have been important steps to strengthen financial stability and
supervision, although there is significant scope for further improvements.
Non-performing loans increased and banks’ capital adequacy and profitability
indicators worsened, although the system as whole has remained rather stable.

Credit activity decelerated strongly, from double-digit growth
levels to around 4% by the end of 2012. However, the share of total loans and
lease financing in GDP increased marginally to 36.3%. Since the beginning of
2013, commercial banks have extended €87 million in new loans, 4% less than in
the corresponding period the previous year. The decline has been particularly
pronounced in new investment loans for non-financial corporations, which have
dropped by 29%, while consumer and mortgage loans increased strongly, by 45%
and 17%, respectively.

A survey conducted by the central bank showed that banks applied
stricter criteria for loans, mostly due to a negative perception of the overall
economic situation. Loans to the trade sector continued to dominate the loan
portfolio, accounting for 36% of it by the end of June 2013. Lending continued
to be domestically financed; the loans-to-deposits ratio fell to 77.5%,
limiting the risks of crisis spill-over through cross-border financing.

In 2012, deposits increased by 8.3%,
amounting to €2.3 billion or 46.4% of GDP by the end of the year. By the end of
July, growth in deposits decelerated and remained at 4.6%. The already good
liquidity position of the banking system has improved further and commercial
banks increased their holdings at the central bank to about €300 million. The
average interest rate spread between loans and deposits declined slightly, but
remained at a high 9.85% in 2012. In early 2013, banks’ interest income growth
turned negative for the first time ever, while interest expenditure and
provisions have continued growing, reducing banks’ profitability. Overall,
the deposit base has continued to increase at a robust rate, while lending
activity has decelerated and lending conditions have remained tight.

3.2.
The capacity to cope with competitive pressure
and market forces within the Union

Existence of
a functioning market economy

Macroeconomic stability has been largely preserved, against the
backdrop of the economic crisis in Europe and persistently high domestic and
external imbalances. In a difficult environment, some steps have been taken to
strengthen the financial system’s framework, improve the business environment
and limit budget expenditure. At the same time, significant further efforts are
needed to develop a competitive private sector and to anchor fiscal
sustainability. Overall, the weak rule of law, a
large informal economy and an underdeveloped policy framework have continued to
hamper the economy.

Human and physical
capital

Some progress has been made in the education sector, especially as
regards the systems and procedures for implementing a sector-wide approach to
education. In line with the vocational professional education framework, new
vocational training centres have been opened, curricula have been reviewed and
a standardised certificate of accreditation has been developed for several
vocational occupations. Education has remained one of the largest government
programmes, accounting for about 4% of GDP. However, the resources allocated to
it still remain relatively low. The modernisation of the public employment
service has continued and the Employment Management Information System is
operational, maintaining a database of jobseekers. Overall, there has
been some progress in the education sector. However, it is still affected by
the lack of adequate facilities, maintenance and quality assurance. It is
characterised by poor results which do not sufficiently meet the requirements
of the labour market. Significant investment in human capital is necessary to
support Kosovo’s socio-economic development.

Total investment is estimated to have declined in 2012.
Nevertheless, it stood at a relatively high level of around 31% of GDP.
Government investments (predominantly in road infrastructure) have slightly
increased and remained high at 11% of GDP, while there appears to have been a
slump in private investment. There has been little involvement of the private
sector in key areas such as water and wastewater, road and railway services.
The construction of the highway (R7) towards Tirana has continued and is
scheduled for completion in 2013. Work on a new highway to Skopje is due to
start towards the end of 2013, with an allocation of €28 million (0.5% of GDP),
provided the revenue of the sale of PTK is available. In the area of energy
infrastructure, The Calik Limak consortium took over the Kosovo Electricity
Distribution and Supply Company (KEDS) in May 2013 and has committed €300
million to modernise and operate the distribution network. Little has been done
to improve energy efficiency. Information about the level and structure of
private investment has remained scarce. Overall, besides road
infrastructure, there were marginal improvements in physical capital.
Government capital spending remained focused mostly on highway construction, at
the expense of other sectors’ needs.

Sectoral and enterprise
structure

Kosovo’s enterprise sector remains dominated by small and
micro-enterprises. Retail trade continues to be the dominant sector, with a
share of 31.3% of all new enterprises, marking a small decline in the overall
share in comparison to past years. There is a large informal sector fuelled by
weaknesses in tax and expenditure policies and in law enforcement, including
the fight against corruption and organised crime. It reduces the tax base and
the efficiency of economic policies. Access to finance and its cost have
remained a challenge. In 2013, the government joined an EU-financed project
which supports export-oriented micro enterprises and SMEs. The project’s
objective is to improve their technology and increase production capacity. Overall,
the retail trade sector became slightly less dominant in the overall enterprise
structure, largely because of the growth in newly-registered enterprises in
agriculture. The large informal sector continues to pose a major challenge.

State influence on
competitiveness

Budget subsidies and capital transfers to publicly-owned enterprises
(POEs) declined slightly, to about 1.1% of GDP in 2012. Subsidies were granted
to POEs in energy, railways, district heating, water and waste, and the Trepča
Mines. The government has continued with the grant scheme consisting of coupled
payments to cereal and livestock farmers and matching grants for the dairy, fruit
and vegetables sectors at farm level. In 2013, the government extended the
coupled payment to other sectors (e.g. maize, sunflower and horticulture) and
extended matching grants to forestry, irrigation schemes, aromatic plants and
support to less favoured areas. Within the energy sector, the energy regulator
(ERO) approved an increase in electricity prices of 8.9% in 2012 and refused
further increases in 2013. Overall, state interference in the economy
has declined, but remains high. The institutional framework to monitor and
approve state aid has still not been established.

Economic integration
with the EU

The openness of the economy, measured by
the value of imports and exports of goods and services in relation to GDP, has
remained stable around 71.2%. The share of exports to EU Member States
decreased in comparison to 2011. It accounted for almost 39.6% of total exports
of goods (43% in 2011). The share of exports to Central European Free Trade
Agreement (CEFTA) countries increased significantly to approximately 37.8% of
total exports (26% in 2011), especially on account of increased exports to
Albania and Montenegro. EU and CEFTA countries have remained the main origin of
Kosovo’s imports, with shares of about 39% and 34% respectively. With about one
third of overall investments, EU countries remain the biggest investors in
Kosovo. Overall, economic integration with the EU remains significant.

4.
European standards

This section
examines Kosovo’s capacity to gradually approximate its legislation and policies
with the acquis in the areas of the internal market, sectoral policies
and justice, freedom and security, in the context of the Stabilisation and
Association Process. It also analyses Kosovo’s administrative capacity. In each
sector, the Commission’s assessment covers progress achieved during the
reporting period, and summarises Kosovo’s overall level of preparation.

4.1.
Internal market
4.1.1.
Free movement of goods

In February, the Ministry of Trade and Industry adopted an overall
strategy on free movement of goods, which prioritises the adoption of
regulations in this area. Implementing legislation on the Professional Council
of Standardisation was adopted. A database system for standards was put
in place. Memoranda of understanding were signed with the standardisation
agencies of Albania, the former Yugoslav Republic of Macedonia and Turkey.
During the reporting period, nearly 1 200 European standards (ENs) were
adopted as Kosovo standards. Most of these standards, however, have not been
translated into Kosovo’s official languages.

As regards conformity
assessment, fourteen regulations were adopted on technical requirements
(nine covered by new approach directives, five under the old approach
directives). Two regulations were adopted on products that pose a risk to
consumers (notification and rapid exchange of information). One inspection body
for oil products (ISO 17020) and fifteen testing laboratories were accredited
in accordance with EN/ISO standards. Two testing laboratories and two
inspection bodies were certified in accordance with EN/ISO in the field of
petroleum-based liquid fuels.

With regard to accreditation,
implementing legislation was adopted on the form, content and usage of the
accreditation logo. Two accreditations have been withdrawn because the accredited
bodies did no longer conform with the legislative requirement. Staff of the
Accreditation Directorate has increased by two accounting officers to a total
of five.

On metrology,
a law on precious metals and several administrative instructions were adopted,
including on agency fees, weights and other requirements for testing. Memoranda
of understanding were signed with Turkey and Albania. In December, the
department in charge of metrology, industrial and scientific metrology and
metrological supervision within the Ministry of Trade and Industry was
designated as an agency. Its capacity has also increased. Fifteen out of twenty
vacancies have been filled. The capacity of staff to take full advantage of the
technical assistance provided remains limited. Several laboratories were
established in Pristina and Prizren, but their operations are not fully in line
with the necessary qualitative standards.

Regarding market
surveillance, the law on the market inspectorate and the law on general
product safety were amended in May. The market surveillance department was
reorganised and transformed into an agency. Cooperation agreements with customs
for verification of non-food industrial products, and with the Ministry of
Culture, Youth and Sports on the protection of intellectual property rights and
combating piracy were concluded. During the reporting period, over 1 500
inspections have been carried out. Over 60 cases have been taken to court. The
courts took six decisions.

Amendments to
the law on consumer protection were adopted in November. The law covers areas previously not addressed, including labelling,
auction sales, discounts, advanced payments, door-to-door contracts, financial
services (consumer credit, interest rate), contracts for overdrafts and credit
cards, unfair consumer contract terms, unfair commercial practices, misleading
commercial practices, aggressive commercial practices, comparative and
misleading advertisements and purchase, and sales over the internet. Implementing legislation on labelling and declaration of goods was
also adopted.

The consumer
protection department within the Ministry of Trade and Industry was
restructured. It has three posts, one of which still needs to be filled. The
respective roles of the consumer protection department and market inspectorate
are defined. The structure of the Consumer Protection Council was updated. It
comprises seven members, including the Ministry of Trade and Industry, the Food
and Veterinary Agency, representatives of business, civil society and one
independent expert.

Nearly 220
complaints have been filed over the reporting period. About 120 have been
resolved. The office for consumer protection developed a new database and an
advanced website aimed at improving communication with customers. A programme
of awareness-raising for consumers was implemented.

Overall,
Kosovo has taken steps to improve alignment with the acquis, notably
with regard to consumer protection. Further efforts are still required in the
area of product safety legislation. Administrative capacity, professionalism
and expertise need to be improved to ensure better implementation of
legislation. Ministries and various agencies active in this area need to
improve their coordination.

4.1.2.
Movement of persons, services and right of establishment

On movement of persons, Kosovo negotiated bilateral social
security agreements with Austria, Germany and Switzerland. It concluded an
agreement on insurance periods on entitlement to benefit from pension rights
with the former Yugoslav Republic of Macedonia. Considerable efforts are
required to ensure alignment and implementation of legislation by Kosovo in
this area.

As regards the right
of establishment and the freedom to provide cross-border services, the
Assembly adopted a number of laws in 2012: the law on external trade (including
trade in services), the law on safeguard measures on imports and the law on
consumer protection (covering the sale of products and provision of services as
well as consumer financial services).

The Ministry of
Trade and Industry set up a database of trade in services. Alignment with the acquis
is at a very early stage and there are several restrictions for third country
nationals to providing services in Kosovo. Kosovo is currently negotiating the
liberalisation of trade in services within CEFTA. The Qualifications Authority
of Kosovo has approved and registered six professional qualifications in Kosovo’s
system, which is aligned with the European qualifications framework. The
Qualifications Authority has accredited twelve providers of professional
training programmes. Alignment with the acquis on the mutual
recognition of professional qualifications and professional training
programmes is still limited.

The law on postal
services foresees a reserved area for letter/parcel under one kilogram.
Efforts to further liberalise the market are ongoing, but need to be
intensified to ensure full liberalisation of the sector. Kosovo is also
undertaking steps to ensure competition in the electronic communications
market. A total of nineteen new telecommunications service providers and one
operator for postal services were licensed in 2012.

Regarding financial
services, the law on deposit insurance was amended in December. The change
allows for a gradual increase in the size of insured deposits (from the current
€2 000 to €5 000 in 2018) in parallel with the growth expected in the
deposit insurance fund. The revised law reduces the maximum timeframe for
repayments to insured depositors from 60 to 30 days. It also improves
information-sharing and collaboration between the deposit insurance fund and
the central bank.

Implementing
legislation introducing some of the Basel II risk requirements was adopted. The
changes include the regulation on liquidity risk management, the regulation on
operational risk management and the regulation on bank capital adequacy. The central
bank needs to finalise its review of existing legislation. The insurance sector
expanded in 2012. Its weight in the overall financial sector remains relatively
low, comprising only 3.4% of total financial assets. At the same time, the
insurance market represents 2.7% of GDP.

Concerning
securities, an electronic trading platform established by the central bank
became operational. The government successfully issued 3-month, 6-month and
12-month treasury bills. External debt represents 6.5% of GDP. Domestic debt is
1.4% of GDP. All borrowing activities, including external and domestic debt,
have been in line with the annual debt strategy. During the reporting period,
the debt-to-GDP ratio reached 8.4%.

On company
law, the business registration process has been simplified. The provision
requiring the deposit of minimum start-up capital for limited liability
companies was removed. The start-up capital for joint stock companies was
reduced to €10 000. A business registration fee was also abolished. The
Kosovo Business Registration Agency carries out the registration of all
businesses. Foreign-owned companies are allowed to open and run a business
under the same conditions as locally-owned businesses as long as they are
registered with the agency. In an effort to decentralise and facilitate setting
up and registering a business, 28 one-stop-shops now offer services in
different municipalities.

Overall,
alignment with European standards on movement of persons, services and rights
of establishment, as well as company law, is still at a very early stage.
Administrative capacity and a gap analysis are needed, especially on the free
movement of services. Alignment and administrative capacity in financial
services are more advanced.

4.1.3.
Free movement of capital

Movement of capital is largely
liberalised in Kosovo. A new foreign-owned bank entered the banking market in
November 2012. Currently, nine foreign banks control almost 90% of Kosovo’s
banking sector. In 2012, overall foreign direct investment decreased
significantly (by 41.9%) compared to 2011, standing at 6.6% of GDP.

A law on payments
systems was adopted in April. It aims to establish a legal infrastructure
for licensing, authorisation, supervision and regulation of payment
institutions, operators of payment, and clearing and securities settlements
systems. In June, SWIFT attributed a code to the central bank.

The basic legal
framework is liberal and non-discriminatory in the area of real estate purchase
by non-Kosovans. Administrative provisions prevent non-Kosovo citizens from
actually exercising this right.

Overall, the
system for capital movements is very liberal. There are no restrictions
regarding foreign ownership or investment in the financial sector.
Administrative restrictions exist concerning immovable property. This needs to
be addressed. The capacity of the central bank to supervise the sector is
adequate. More emphasis needs to be put on a risk-based approach.

4.1.4.
Customs and taxation

Concerning customs, Kosovo has further improved its
infrastructure, administrative capacity and international cooperation. The
Automated System for Customs Data (ASYCUDA) has been fully operational since
autumn 2012. In early 2013, customs was internally restructured to streamline
controls and to make audits more effective. This process also sought to improve
cooperation with the Kosovo Tax Administration and to avoid duplication of
efforts through joint operations and controls.

Kosovo customs
signed cooperation agreements with Austria, Poland and Italy, reaching a total
of eleven mutual assistance agreements. Since late 2012, the Systematic
Electronic Exchange of Data (SEED) has been fully operational between Kosovo
customs and the customs of Albania, the former Yugoslav Republic of Macedonia
and Montenegro. Kosovo is encouraged to sign and ratify the Pan-Euro-Med
Convention on rules of origin.

Customs procedures between Kosovo and
Serbia have further progressed with the opening of joint interim crossing
points in December 2012 and January 2013 at six locations, including the two
crossing points in northern Kosovo, as per the IBM agreement. The establishment
of these co-located crossing points has allowed daily cooperation between both
administrations and regular exchange of information. On 17 January 2013,
both parties concluded an agreement for the restoration of customs controls at
the two crossing points (gates 1 and 31). The adoption
of the Kosovo law on budget in July allowed for the establishment of a development
fund for the north, which is to be financed by levies to be collected at the
two crossing points. In the meantime, the administrative border/boundary line
between Kosovo and Serbia remains vulnerable to illicit activities.

Kosovo customs
collected revenue worth approximately €844 million in 2012. This is 2.2% more
than in 2011, but €32 million below projected revenues, partly due to a
reduction in imports. In the first six months of 2013, €360 million in revenue
was collected, approximately 2% more than in 2012, but 7% less than projected.
In the same period, customs imposed fines in the amount of about €261 000.
This is significantly less than over €886 000 collected in the same period
of last year.

The new
Criminal Code introduced some changes as regards competence and the
qualification of offences. Since more offences are now qualified as criminal
there is a bigger role for the prosecution in the investigative phase. Customs
can apply discretion in dealing with minor offences by the application of
administrative fines.

Concerning taxation,
a number of laws were amended in 2012. This includes legislation on tax
administration and procedures, personal income tax, value added tax, games of
chance and corporate income tax. The tax administration and Business
Registration Agency signed a memorandum of understanding to facilitate business
registration. Efforts have been made to increase voluntary compliance with
taxation. Claims for returns on VAT, withholding tax and pension contributions
can now be filed electronically.

Revenue
collected by the tax administration amounted to €396.9 million in 2012, a 9%
increase on 2011. This is still insufficient to represent a sustainable source
of revenue. Additionally, it represents a smaller percentage of GDP than in
2011. In the first half of 2013, the collected revenue amounted to €148.1
million. VAT represents the highest percentage of tax collected at about 47%,
with corporate tax at just over 22%, followed by tax at source and tax on
individual businesses.

Regarding administrative
and operational capacity, the on-line system is increasingly used by tax
payers. The tax administration is connected to the information systems of
government institutions such as customs, the central bank and some ministries.
The tax administration’s investigation unit has
fourteen officers following the move to other duties of
part of the investigation unit’s staff in February. It
has achieved limited results during the reporting
period. In 2012, it issued seventeen fines worth a total of about €6 800.
The tax intelligence unit has two staff. The tax administration needs to
modernise its IT platform and its procedures to improve efficiency.

The Independent
Review Board for appeals by businesses and taxpayers against the tax
administration and customs has taken steps to tackle the backlog of cases. Its
efficiency has improved since the beginning of 2013. The board treated 690
cases in six months. However, the backlog is unlikely to be cleared by the end
of the year. In July, there were still nearly 1 200 cases pending. The
government still needs to extend the mandate of the board.

Overall,
Kosovo legislation on customs is largely in compliance with the EU’s Customs
Code. Good efforts have been made on the collection of customs duties and on
the international cooperation. Intelligence gathering, investigations and risk
management are improving, as staff gains experience. Customs and tax
administration need to continue in building their administrative capacities
further. Enforcement of tax legislation remains a major challenge. Collection
of direct taxes has increased, but remains below sustainable levels. The tax
administration needs a new IT platform to improve its performance. The fight
against the informal economy and tax evasion needs to be prioritised and its
efficiency significantly increased.

4.1.5.
Competition

Regarding anti-trust and mergers, some implementing
legislation was issued. The Kosovo Competition Authority adopted several
decisions. This includes decisions on prohibited agreements in interurban
transport ticket prices, on determining and raising the price of bread and
flour, a decision concerning the suspicion of abuse of dominant position in the
cement market, and two merger decisions in the dairy and electricity
distribution sectors.

The authority
has also issued non-binding opinions and recommendations to the government on
specific drafts of legislation and decisions. This includes the laws on tobacco
and public transport, and decisions to protect the production of cement in
Kosovo. The authority has also monitored the banking and insurance sector for possible
collusive behaviour. It found none, but issued a warning to insurance companies
to prevent such practices.

The authority
needs to continue increasing its capacity, notably as regards the expertise and
experience of its staff. The authority is still housed in the Assembly building
and does not have its own premises. Furthermore, management of the authority
and its procedures need to be significantly improved. These shortcomings put
serious constraints on the authority’s activities. They need to be addressed as
a matter of priority. More needs to be done to increase awareness of
competition rules and their advocacy.

The law on state
aid has been in force since January and forms the basis of Kosovo’s state
aid regime. Rules of procedure and notification format entered into force in
October 2012. The State Aid Commission and the State Aid Office (within the
Competition Authority) were established. State aid control legislation needs to
be completed with secondary legislation on the basis of the acquis. Internal
rules of procedures to prevent potential conflicts of interest between the
requesting and granting authority are still needed. The members of the State
Aid Commission have been appointed, but the office is not yet operational due
to the lack of suitable premises. No request regarding state aid has been
addressed to the State Aid Office during the reporting period.

Overall,
implementation of the anti-trust and merger policy is still at a very early
stage. The competition law is partially aligned with the acquis. The
administrative capacity of the Kosovo Competition Authority is insufficient for
the tasks assigned to it. Alignment of state aid policy is at a very early
stage and there is no track record of implementation.

4.1.6.
Public procurement

Implementing legislation accompanying the law on public procurement
was adopted. The Procurement Review Body and the Central Procurement Agency
adopted their internal work regulations. The Public Procurement Regulatory
Commission submitted its 2012 Report to the Assembly for approval. Over 12 000
contracts were signed in 2012. Economic operators are
adequately informed about public procurement legislation.

Nearly 380
complaints have been received and about 330 have been processed. This is a
slight decrease in comparison to the previous reporting period. The number of
cases returned for re-evaluation and retendering in conjunction with violations
found by the review body indicates that unclear technical specifications
continue to be issued in Kosovo. Currently the review
body is not operational since the mandate of three out of the four members of
the board has expired in August.

The Central
Procurement Agency carries out procurement on behalf of contracting authorities
for internationally-funded projects, but not for central purchasing, although
it is part of its core mandate. The agency has fifteen staff, of which seven
are certified procurement officers.

There are 166
contracting authorities in Kosovo. All procurement officers have received some
training provided by the Kosovo Institute for Public Administration. Out of 600
officers, 530 are certified. However, the current training system needs to be
expanded to enable all procurement officials to attend training as required by
the law on public procurement.

In high level
trials in which EULEX judges and prosecutors are engaged, nine people were
found guilty for procurement-related corruption charges. EULEX has several
ongoing investigations into public procurement-related corruption. Corruption
in public procurement is a recurring issue and public perception of the
transparency and fairness of public procurement has deteriorated.

Overall, the
legal framework generally complies with EU standards and is non‑discriminatory.
The capacity of all bodies involved needs to be further improved. It is
important to avoid long periods during which key positions are not filled.
Contract management and planning capacity need to be strengthened. Awareness
needs to be raised as regards public procurement procedures and their implementation,
and corruption needs to be addressed more effectively by Kosovo authorities.

4.1.7.
Intellectual property law

On copyright and neighbouring rights, the law on mediation and the
regulation on private copy schemes were adopted to improve alignment with the acquis.
However, their key implementing provisions are still missing. The government
adopted a strategy against piracy in October 2012, and set up a task force to
implement it. The aim of the task force is to tackle copyright infringements,
to increase the productivity of the creative industry and to fight the informal
economy. The task force, which is composed of public bodies, market operators
and organisations with economic and social interests in copyright, took its
first actions in August. It seized 10 000 CDs containing music, films,
video games and computer programmes. The market inspectorate has initiated
procedures and cases will be filed with the competent courts.

The Office for
Copyright and Related Rights is adequately staffed. Seven mediators were
recruited under the current law to facilitate contacts between collecting
societies and broadcasters. Staff needs further training to improve its
expertise. In practice, two licences were granted to collecting societies, one
for music and the other for audio-visual works. Both organisations are in the
process of tariff negotiations.

As regards industrial
property rights, new legislation on geographical indications was adopted in
May. Implementing legislation was also adopted in relation to the Industrial Property
Office Appeals Committee, registration of patents, industrial designs and
trademarks. The Industrial Property Automation System is fully functional. The
Committee of Appeals was established. The National Intellectual Property
Council is in place, but it has not been meeting regularly. Procedures are
still lengthy, especially for trademarks, and there is a persistent backlog of
applications, as the Industrial Property Office does not have enough staff.

With regard to enforcement,
a special chamber within the commercial department of the Basic Court of
Pristina is in charge of dealing with intellectual property rights cases. The
customs unit for intellectual property rights has drawn up an action plan with
specific objectives and duties. The police do not have a unit specialised in
intellectual property rights and the expertise of police officers in this field
is limited. The legislation on enforcement is not aligned with the new EU
regulation on confiscation, storing and destruction of goods.

Overall, the
legislative framework is largely aligned with the acquis, with the
exception of enforcement. Administrative capacity in this area remains weak,
especially within the Office for Copyrights and related Rights and the
Industrial Property Office, despite the number of staff in place. Enforcement
continues to be a challenge, notably as regards human resources, coordination,
legislation and infrastructure. First promising enforcement actions have taken
place recently.

4.1.8.
Employment and social policies, public health
policy

Regarding employment policy and service delivery, the
employment management information system was technically upgraded and it was
launched in April. This allows the employment offices to carry out better
profiling and targeting of the most vulnerable groups and aims to contribute to
more efficient job-matching.

The Ministry of
Labour and Social Welfare has continued to implement active labour market
policies through its network of seven regional employment centres and 23
municipal employment offices, and its Vocational Training Centres in
cooperation with private sector enterprises. Software for the labour market
information system has been developed, but is not yet operational. Intermediary
databases were created and installed within institutions that already had
internal databases. Employment policies are to benefit from the 2012 labour
force surveys conducted by the statistical office. To improve the links between
the labour market and educational institutions, the Ministry of Education, Science
and Technology adopted a strategy and an action plan for professional practice.

The capacity of
ministries and other institutions to conduct a thorough analysis and to design
policy and programme interventions remains limited. Technical capacities, human
resources or physical infrastructure are the constraints. Budget allocation for
active labour market measures (less than 1% of the consolidated budget) is
insufficient to effectively address the needs. The implementation of active
labour market measures remains funded by donors, with very limited support from
the Kosovo budget, and therefore lacks sustainable financing.

The situation
for youth has largely remained the same, especially for those most
marginalised. This group is negatively affected by the lack of appropriate
government mechanisms to implement existing policy. The most recent survey has
shown that 75% of young people want quality education (formal and informal) as
a matter of priority. In the survey, carried out by the Ministry of Culture,
Youth and Sports in the course of the development of the new youth strategy and
action plan 2013-2017, 25% of interviewees said that informal education had a
key role in their professional development. Youth unemployment (for those aged
15-24) is estimated at 73%, with 30% of youth seeking financial and
institutional support for starting up businesses. Low activity and employment
rates overall, notably among women, the high share of informal sector, and very
high unemployment remain serious concerns for Kosovo’s socio-economic
development.

On social
policies, the labour law needs to be amended and its implementation
needs to be supported by adequate financial resources. The law on health and
safety at work was adopted in May. The labour inspectorate organised
training for health and safety inspectors. In 2012, 62 workplace accidents were
reported (seventeen fatalities, 45 serious bodily injuries). The labour
inspectorate has 49 inspectors. This is insufficient.

In terms of social
dialogue, administrative instructions were issued that will allow
registration of collective agreements. The law on strikes was amended. Budget
has been earmarked for the Social Economic Council. However, social partners,
especially trade unions, have limited capacity. Most trade unions, with the
exception of those in health and education, lack basic management and advocacy
skills. There is also insufficient legal expertise to assist in the legislative
process.

With regard to social
inclusion, Kosovo needs to focus on improving the regular monitoring and
assessment of results-oriented outcomes of current social policies, including
development of evidence-based policies. Local capacity needs to be considerably
strengthened. This also applies to social partners for policy development, implementation
and monitoring in the employment and social inclusion policy areas.

As regards social
protection, the licensing of social services providers has started and the
2013–2017 Strategy for Decentralisation of Social Services was adopted.
However, decentralised social services are not effectively implemented.
Municipalities are not fully implementing responsibilities for social service
decentralisation and the budget formula for decentralisation, developed in
2012, is not yet operational. Dedicated grants earmarked for all social
services in municipal budgets need to be allocated to ensure effective
decentralisation. Better inter-ministerial coordination of actions and
allocation of resources is required to provide effective services.

On equal opportunities,
the Kosovo Programme on Gender Equality (2008-2013) will end at the end of this
year. The government needs to evaluate its implementation carefully and to take
into account lessons learnt as it begins drafting the next programme and action
plan in this area. The provision of the labour law that introduces paid
maternity leave of up to nine months has had a negative impact on the
employment of women in some cases, especially in the private sector.

On public
health policy, an amended health law entered into force in May. The
perinatal mortality rate has continued to decline following improvements in
maternal and child health services. Those from the Roma, Ashkali and Egyptian
communities affected by lead contamination continue to receive medical support.
However, insufficient financial resources hamper implementation of the overall
health-related legal framework and policies. The lack of statistical data on
health, especially on mother and child health, remains a concern. The capacity
and functioning of the Health Information System needs to be improved to ensure
reliable statistical health data at central and municipal levels. Covering the
entire territory remains a challenge.

The amended tobacco
control law, adopted in April, introduced 100% smoke free public spaces.
It complies with the WHO guidelines of the Framework Convention on Tobacco
Control. With the exception of the ban on oral tobacco, tobacco legislation has
been brought closer to the European standards.

In the field of communicable diseases,
the National Institute of Public Health reports 95% immunisation coverage,
except among Roma, Ashkali and Egyptian communities.

On patients’ rights in cross-border
healthcare, bilateral agreements are being implemented.

As regards mental
health, stigmatisation of those affected needs to be addressed. Further
investment in training, infrastructure, community mental healthcare and
inter-ministerial cooperation is needed.

In the field of
cancer screenings, initial activities have taken place. Further efforts,
including a cancer control programme and additional funding, are needed before
screening programmes can be started. An action plan for 2013–2015 addressing
the issue of rare diseases has been developed.

In general, the
health sector is not considered a priority. Public spending on health remains
the lowest in the region and allocations are inefficiently managed.
Out-of-pocket expenditure is high (40-60%). This continues to hamper the
fulfilment of basic needs for mother and child health, nutrition and public
health. Further investment in the health sector (infrastructure, quality and
delivery) is required to ensure access to health services for all citizens. The
principles of accountability and distribution of responsibilities, and the
process of drafting, reviewing, implementing and enforcing legislation and
allocating budgets need to be reinforced. Planned reforms need to be adopted
and implemented.

Overall,
Kosovo faces major challenges in these areas. The focus needs to be on
continuous improvement of legislation, and more efficient, better targeted use
of limited financial resources allocated to these areas. Particular attention
needs to be paid to improving prospects of employment, especially for young
people.

4.1.9.
Education and research

The government adopted an adult education law in December and
revised the law on vocational education and training in February. The law on
higher education was complemented by eleven administrative instructions
finalised in 2012. In
February, in the context of the second joint annual review for education, the
Ministry of Education, Science and Technology produced a sectoral progress
report and an aide memoire setting out policy priorities for 2013-2014.

Government
expenditure on education rose slightly to 4.1% of GDP, primarily due to an
increase in teachers’ salaries, while spending per pupil remains low. At the end of 2012, the ministry finalised the Kosovo core
curriculum. Ten schools are involved in a pilot of the Kosovo curriculum
framework and the core curriculum. In higher education,
a ministerial decision on quality reform of teacher training programmes of
Pristina University was adopted. Pristina University prepared a concept on how
to introduce these reforms over the next five years. A
new public university was opened in Peja/Peć. Implementation of the agreement
on the acceptance of university diplomas, reached in the Belgrade/Pristina
dialogue in July 2011, has been progressing.

Regarding equal
access to quality education, students from the Roma, Ashkali and Egyptian
communities have lower registration rates, higher drop-out rates, and poor
levels of academic performance. The same applies to children with disabilities.

Pre-school
education is not adequately supported. Half of registered schools work in two
shifts; many others in three shifts. Schools lack science laboratories, sports
facilities and appropriate school building maintenance. The ministry allocates
a larger budget to the Vocational Education and Training (VET) centres of
competence than to other VET schools, which receive insufficient resources. In
higher education, greater
efforts are needed to increase quality of the undergraduate and post-graduate
programmes, and to ensure that education programmes are better suited to the
needs of the labour market. Data availability remains a challenge.

As regards research
and innovation, the law on scientific research activities was revised and
adopted in March. The law foresees an increase of the national research funding
to 0.7% of the annual budget. Kosovo has taken some steps to strengthen
capacity. Kosovo has continued to seek cooperation opportunities under the
seventh EU research framework programme and with other EU networks. However,
Kosovo’s level of participation in the research framework programme has stagnated
compared to 2012. The financial
resources, the administrative capacity and commitment are still too weak to
successfully cooperate on research and innovation within the EU. More needs to be done to stimulate
participation of private enterprises in research, development or innovation
activities.

Overall,
quality development and quality assurance remain a challenge across the
education sector. Capacity at municipal levels needs to be strengthened. Closer
cooperation with the private sector would help to improve the relevance and
quality of training programmes and research activities. Much more emphasis is
needed on improving access to and quality of education for marginalised groups,
especially for children from the Roma, Ashkali and Egyptian communities, and
those with disabilities. On
research and innovation, some encouraging developments have taken place. More
efforts are necessary to strengthen Kosovo’s research and innovation capacity
and to facilitate Kosovo’s integration into the European Research Area.

4.1.10. WTO issues

Kosovo is not a member of the WTO and has taken no formal steps to
join.

4.2.
Sectoral policies
4.2.1.
Industry and SMEs

As regards industrial
policy and SMEs, Kosovo has continued the simplification of its
legislation. In February, the Assembly adopted a law on economic zones. The law
defines the role of the government and municipalities in establishing free
economic zones, referring in particular to free zones, industrial parks,
technological parks and business incubators. In March, the government adopted a
strategy on private sector development 2013 – 2017 aimed at developing a
competitive private sector. To this end, the strategy identifies strategic
industrial sectors and prioritises for alignment with EU rules in the area of
free movement of goods and trade.

Kosovo has been implementing the Small
Business Act. Company registration fees are inexpensive and company
registration certificates are issued within a few days. Kosovo has eliminated
business registration fees and minimum capital requirements for limited
liability companies. Minimal capital requirements for joint stock companies
have been reduced from €25 000 to €10 000 and the business
registration process has been streamlined. Compliance costs remain quite high.
The protection for investors has increased with the introduction of a
requirement for shareholder approval of related-party transactions.

Regular
meetings of trade policy-related working groups have contributed to better
coordination and cooperation among agencies for SME development, investment
promotion and chambers of commerce. Other actors such as the broader business
community still need to be more involved in policy setting.

Bankruptcy
legislation is in place. It is not systemic and its implementation is at an
early stage.

The business
environment in Kosovo remains challenging. Access to finance is considered one
of the main obstacles hindering SME development. Weak legal enforcement of
contracts and business regulation hinder further growth. Online company
registration is only possible at 28 ‘one-stop-shops’ or municipal business
centres. Elsewhere, companies need to comply with notification procedures and
obtain a municipal licence to start a business.

Overall, the
business environment has been improving over the past few years. However, it
remains a challenge, especially for SMEs. The government needs to introduce
regulatory impact assessment. Kosovo needs to focus more on enforcing
contracts, reducing unnecessary business regulation and creating an environment
that facilitates access to finance. The authorities need to continue developing
the institutional framework for SME policy implementation. Implementation of
the SME development strategy and action plan needs to continue and needs to be
better monitored.

4.2.2.
Agriculture and fisheries

Regarding agriculture and rural development policy, Kosovo adopted ten laws and thirteen administrative instructions to
improve alignment of its legislation with the acquis. The budget of the Ministry of Agriculture, Forestry and Rural
Development has risen by 10% compared with 2012. The government has continued
its payments scheme, which consists of coupled payments to cereal and livestock
farmers. This was extended to new sectors including dairy, fruit and wine.
Specific rural development projects were granted to assist the restructuring of
the sector. The paying unit of the ministry was upgraded to an agency managing
and controlling aid. Kosovo has taken steps to create a risk guarantee fund to
facilitate loans to farmers and agri-food processors. Use of data from the Farm
Accountancy Data Network has increased.

To
implement both the strategy on land consolidation 2010-2020 and the law five
administrative instructions were issued. Land consolidation schemes have taken
place in three municipalities. Illegal construction on agricultural land
remains a challenge. Advisory services for farmers are not systematic and are
hampered by a lack of secondary legislation. Last year’s law on organic
agriculture has not been implemented in the absence of a control authority and
commission on organic production. There are persistent discrepancies in
statistics between those of Eurostat, Kosovo’s statistical office and the
ministry, on EU-Kosovo agriculture trade.

In the
forestry sector, a forest management board was established. Two new national
park laws have changed the framework of operations for the state forest sector.
The government still needs to take a decision on the institutional model for
the sector. The level of illegal logging remains a major concern despite last
year’s law strengthening sanctions. A lack of coordination between bodies puts
at risk Kosovo’s efforts to fight forest fires.

As regards food
safety and veterinary control, a number of laws, (the food law,
veterinary law, sanitary inspection law and livestock law) were amended. They
were accompanied by extensive standard operating procedures and guidelines for
inspectors. However, implementation and enforcement of legislation is lagging
behind. The annual and multiannual control plan for
animal disease is incomplete and outdated.

The
transfer of inspection competences from municipalities to the Kosovo Food and
Veterinary Agency has not yet been finalised. Some steps have been taken to set
up an animal identification, registration and movement control system. At the
same time, the level of reporting of animal movements and their recording in
the database needs to be improved.

The
Kosovo Food and Veterinary Agency needs to implement its control measures on
animal smuggling and illegal slaughtering. The budget of the agency remains
low. Equipment and staffing at the Kosovo Food and Veterinary Laboratory have
improved, but the laboratory has not yet been accredited. The range of testing
services it can provide is limited. There is no system for collecting and
processing animal by-products. The assessment of dairy and meat processing
establishments, slaughterhouses and cold storage warehouses was completed in
2012. The strategy to upgrade these establishments needs to be established.

On phytosanitary
control, the plant protection law was amended. The list of plant diseases
present in Kosovo has not been finalised. As regards genetically modified
organisms, work on a framework law was suspended. In the fisheries
sector, most European standards do not apply to Kosovo, which has no marine
fishing.

Overall,
Kosovo authorities have a sufficient legal framework to exercise their tasks
and obligations. They now need to focus on implementation. Improvements in the
capacity of veterinary and phytosanitary authorities are necessary. The limited
budget allocated to food safety, veterinary and phytosanitary control remains
the main challenge. The Ministry needs to strengthen the paying agency’s
administrative capacity to administer and control coupled payments and grant
schemes. It also needs to use the coupled payments and matching grants systems
to encourage beneficiaries to comply with other obligations (such as the animal
identification, registration and movement control system, farm and land
register and implementation of food safety standards). The extension of support
to other subsectors of agriculture and rural development needs to be assessed
carefully to avoid spreading the schemes’ limited resources too thinly and
overburden already limited administrative capacity.

4.2.3.
Environment and climate change

Alignment of Kosovo’s environment legislation has
been limited to the adoption of the law on water and adoption of a number of
administrative instructions on waste and industrial pollution. New staff
(mainly environment inspectors) at both central and local levels were
recruited. However, the lack of technical staff at both levels is still a
significant challenge.

Additional
air
quality monitoring stations were installed and the network now
covers the whole territory. However, the system’s operation and maintenance
need to be improved and qualified technical staff needs to be recruited,
particularly to process and publish the data. The air polluters’ inventory
needs to be compiled and pollution from the main sources accurately measured,
especially pollution from the Kosovo A power plant. Substantial efforts are
needed to implement EU standards.

With
regard to waste
management, a number of implementing acts to manage end-of-life
vehicles were adopted. Capacity at municipal level related to management of
waste including both landfill and waste separation and recycling is still very low. Implementation of European standards on
waste management is at a very early stage.

On water quality, a new law on water was adopted. The law will need adaptation to be in
line with the EU’s water framework directive. Vulnerable and protected areas
were designated, but the implementing legislation is incomplete and monitoring
needs to be improved and expanded to cover all sources of pollution. Use of
fertilisers and their impact on water resources need to be regulated. The
drinking water supply system remains poorly developed and a significant part of
the population is still not connected. Investment in this sector is
insufficient.

Regarding
nature
protection, laws designating two national parks (‘Bjeshkët e Nemuna’
and ‘Sharri’) were adopted. However, there are as yet no implementing rules and
there is still no monitoring of the protected areas. The legislative framework
for nature protection and biodiversity needs to be adjusted to comply with the
Environmental Impact Assessment and Strategic Environmental Assessment.
Implementing legislation (identifying protected areas and species) for the
existing nature protection law has still not been approved.

Kosovo
adopted industrial
pollution prevention control guidelines. It also adopted a
set of administrative instructions on the form and content of an application
for an integrated permit and on procedures for the development and approval of
Best Available Techniques.

Regarding
chemicals, Kosovo adopted an administrative instruction on risk assessment. There
are no developments to report on noise, civil
protection, and horizontal legislation.

Kosovo
has neither a comprehensive climate policy nor a strategy, and there are
no developments to report regarding alignment with the climate acquis. Six stationary installations for the purpose of future implementation
of an emissions trading system were identified and an inventory of greenhouse
gases (2008-2009) was prepared.

Kosovo
needs to undertake concrete steps to align with and implement the EU climate acquis, starting from the monitoring mechanism legislation. In line with the
EU Green Paper on ‘A 2030 framework for climate and energy policies‘ Kosovo is
invited to start reflecting on its climate and energy framework for 2030.
Inter-institutional cooperation with the Ministry of Economic Development and
the Ministry of Transport needs to be established to
enable the adoption of low carbon growth policies. Kosovo participated actively in the work on the climate under the
Regional Environmental Network for Accession. Efforts are needed to raise
awareness at all levels and to promote cooperation among all relevant
stakeholders.

Administrative
capacity within the environment and climate change sectors remains
weak. Inter-institutional cooperation is fragile and inconsistent. The quality
of environment reporting needs to be improved. There is no financial mechanism
to support investment in environmental projects. Capital investment, in
particular for sewage systems, wastewater treatment plants and waste treatment
and disposal systems remains outside the government’s expenditure plans.

Overall,
preparations in the fields of environment and climate change are still at an
early stage. The legal and institutional framework to implement EU standards is
partially in place. The capacity to implement and enforce legislation at
central and local level needs to be strengthened. The budget allocated to the
sector is insufficient. Environmental and climate standards are not
mainstreamed into other policies, particularly energy, transport, forestry,
agriculture and industry. Kosovo lacks sufficient human, administrative and
capital capacities to implement EU environmental and climate standards. The
power sector is the main source of air, water and soil pollution. Heavy
investment is required to connect Kosovo’s citizens to drinking water and waste
water networks. There is a lack of capacity to process waste. Kosovo needs to adopt
its environmental strategy, to establish a climate strategy and a system for
greenhouse gas monitoring and reporting, and to complete its greenhouse gas
inventory.

4.2.4.
Transport policy

Regarding trans-European transport networks, Kosovo
has continued to participate actively in implementing the 2004 memorandum of
understanding on development of the South-East Europe Core Regional Transport
Network and in the South-East Europe Transport Observatory. The construction of
the Morine-Merdare segment of Route 7 is under way. The tender for the
Pristina-Skopje highway (Route 6) is under way. Financing for the last segment
of Route 7 (which connects to Merdare) has not yet been secured.

The
budget for infrastructure maintenance of national roads rose by 15% in 2013 but
is still insufficient. The current transport strategy, with a heavy emphasis on
building new roads, only adds to the imbalance in the transport sector, in
favour of the least environmental friendly mode and crowds out investment for
other modes of transport, particularly railways. The revised multi-modal
transport strategy (2012-2021) and action plan (2012-2016) have not yet been
approved.

In road
transport, the law on road transport was adopted in May and the law on
transport of dangerous goods was adopted in March. The law on road transport
foresees alignment with legislation on driving hours as well as the use of
digital tachographs. The road safety strategy and action plan have not been
approved, due to their cost. The law on road safety needs to be harmonised with
the acquis. The rate of traffic accidents remains high particularly as regards
fatalities of children and pedestrians. Limited inspection capabilities,
outdated vehicles, and the low quality of road infrastructure beyond the main
roads hamper the enforcement of legislation.

In rail
transport, the unbundling of the railway infrastructure manager (Infrakos)
and the train operator (Trainkos) is complete. Both entities are licensed and
certified for safety by the railway regulatory authority. The 2013 network
statement and infrastructure charging scheme was approved. The national vehicle
register and the infrastructure register are complete. The rail authority is
now operational, but it lacks capacity. Its budget is insufficient for it to carry
out its tasks effectively as railway infrastructure and
passenger operations were funded on the basis of service contracts only. Infrakos cannot set its own user charges as required by the EU acquis. A railway safety and accident investigation function needs to be set
up. Kosovo railways continue to be affected by a serious lack of human and
financial resources.

In air
transport, the implementation of the first-phase requirements of the
European Common Aviation Area Agreement into national legislation is complete.
Civil aviation inspectors have now participated in international training
programs and received international certification. The Kosovo Civil Aviation
Authority is still not part of the Safety Assessment of Foreign Aircraft (SAFA)
programme. However, the authority enacted a SAFA regulation on ramp inspections
on third-country aircraft and participates in information collection and
exchange. The Air Navigation Services Agency law has still not been adopted.
The continued lack of certification of the Air Navigation Service Provider is
an issue of concern. Kosovo’s aviation sector continues to suffer due to
overflight restrictions imposed by Serbia for flights coming in and out of
Pristina. The control of the upper airspace of Kosovo is in the process of
being designated to Hungarocontrol.

Overall,
alignment with the EU transport acquis has continued. Kosovo has made
progress in the railway and aviation sectors. Kosovo (including its transport
operators) cannot join many of the international or European bodies regulating
transport or the relevant sector associations. The regulatory institutions need
further strengthening. Further efforts to improve road safety and to increase
investment in the railway sector are required. Adoption of the Air Navigation Services Agency law is an
urgent priority.

4.2.5.
Energy

The energy sector continues to face challenges even if power cuts
are now less frequent. Electricity distribution suffers from significant
technical losses, and investment in energy efficiency and renewable sources of
energy is insufficient to meet Kosovo’s 2020 goals.

On security
of supply, Kosovo has not started preparing to implement the acquis
on mandatory oil stocks. Current stocks are estimated at a level of four days
of consumption. Investment and maintenance have improved the reliability of the
power transmission system.

In September
2013, Kosovo and Serbia reached an agreement on energy under the EU-facilitated
dialogue. The agreement sets out the way to resolve the long-standing dispute
between the two on Kosovo’s electricity transmission system operator’s (KOSTT)
complaint against its Serbian counterpart for breach of the applicable regional
mechanisms in which the Energy Community secretariat found against Serbia. The
agreement provides that KOSTT and its Serbian counterpart, Elektromreza Srbije,
sign an operational agreement within three months of the agreement. It also
foresees that a Serbian power supply company will operate legally in the north
of Kosovo.

As regards the internal
energy market, the tender for building a new lignite power plant was
revised to exclude the existing Kosovo B plant. The procedure is suffering
significant delays and is unlikely to be concluded within the planned time
framework. In December, the government re-launched the activities of three
working groups to prepare for Kosovo A’s decommissioning. However, there has
been no operational progress in advancing the process. Kosovo has not submitted
the roadmap for implementing the large combustion plant directive to the Energy
Community Secretariat.

The government
finalised privatisation of the electricity distribution and supply functions in
May. The legal deadline to unbundle the distribution and supply functions has
been missed. All non-household customers are now legally eligible to purchase
electricity from the supplier of their choice. They continue to be supplied at
regulated tariffs following a decision by the Energy Regulatory Office that the
market is not sufficiently competitive.

The corporation’s
performance on billing and collection has improved, but the proportion of power
supplied that is paid for remains low: losses (technical and non-technical)
account for about 34% of all energy available for sale. The level of bill
collection has improved to 91% of all electricity billed. However, the
corporation’s employees are regularly exposed to violence and physical attacks
when performing their tasks in the field.

The Energy
Regulatory Office completed the review of energy tariffs for 2013-2017, and
maintained existing electricity tariffs for 2013. The decision, made after
government intervention, has undermined the office’s independence. The
government needs to design a financial mechanism to target vulnerable customers
that cannot afford rises in electricity prices. Steps have been taken on
eliminating cross subsidies between consumer categories.

On renewable
energy, in January, the government adopted its national renewable energy
targets for 2013-2020, committing it to a 29.4% target share of energy from
renewable sources in gross final consumption by 2020. This is even higher than
the binding 25% target which follows from the Energy Community renewable energy
obligation for 2020. The renewable energy action plan still needs to be
approved by the Ministry of Finance. The regulatory office licensed some 67 MW
in small hydroplant capacity and 30 MW of wind capacity in December. To achieve
the targets, further support measures (smooth administrative procedures and
financial schemes) are needed.

The law on energy
efficiency was adopted. The energy efficiency fund has still not been
established. The national mid-term energy efficiency plan 2013-2015 still needs
to be approved by the Ministry of Finance. Implementing legislation promoting
energy efficiency by end-users was adopted in November. New legislation which aligns
with the framework directive on energy labelling has also been adopted.
Implementation of the combined heat and power (co-generation) project at the
Kosovo B power plant started in October. Lack of energy efficiency statistics
is the main obstacle to reporting on energy savings. Energy efficiency planning
at local/municipal level has improved slightly. However, local capacity remains
weak.

In nuclear
safety and radiation protection, Kosovo is adopting its framework law to
prepare to implement the EU nuclear safety and radiation protection acquis.
The Radiation Protection and Nuclear Safety Agency needs to increase its
capacity for regulatory measures and to recruit more staff. Storage for
radioactive waste needs to be established. There is no responsible organisation
for radioactive waste management.

Overall,
Kosovo needs to begin alignment with the acquis on security of supply.
It needs to continue its alignment to and implementation of the electricity,
oil and nuclear safety and radiation protection acquis. Efforts to
decommission Kosovo A need to be accelerated. Kosovo needs to strengthen its
institutional capacity in the field of energy market regulation and nuclear
safety, in particular safeguarding the energy regulator’s independence and
establishing transparent mechanisms to set energy prices. The agreement on
energy reached with Serbia offers a unique opportunity to resolve a number of
Kosovo’s energy issues. Kosovo needs to implement its side of the agreement.

4.2.6.
Information society and media

Regarding electronic communications and
information and communication technologies
(ICT), the law on electronic communications was
adopted in October 2012, aiming to transpose the 2009 EU regulatory framework.
The government adopted a decision for further liberalisation of the mobile
market by making the
900 and 1 800 MHz bands technology neutral, which allows deployment of new
wireless broadband services. The
government is in the process of privatising 75% of the shares of the incumbent,
Post and Telecommunication Kosovo. The telecom regulator made
progress in implementing competitive safeguards, such as carrier selection. In March, the government adopted the Digital Agenda for Kosovo
2020, a policy document covering electronic communication and ICT. The fixed
broadband penetration rate per population remains low at 8% according to the
latest available data

Issues related to Kosovo’s status hamper its ability to implement the acquis fully. Kosovo
does not have an internet domain name. It is not a member of the International
Telecommunication Union (ITU) and therefore has an insufficient allocation of
spectrum, including for digital switchover.

Kosovo does not have its own country code and continues to use three
different country codes for fixed and mobile telephony. This creates
additional costs, reduces Kosovo’s control over its system and is an obstacle,
e.g. to implementing EU rules on number portability. However, in September,
Kosovo and Serbia reached an agreement on telecoms under the EU-facilitated
dialogue. The agreement provides for Kosovo being allocated a 3-digit dial code
from the ITU as of 2015. It also provides for Telekom Srbija to operate legally
in Kosovo until 2015.

On information
society services, the Digital Agenda for Kosovo document outlines the main
priorities and objectives of the national information society policy, aligning
with the Digital Agenda for Europe strategy. A new law on e-governance entered
into force in May. Last year’s law on information society services aims to
facilitate usage of electronic transactions, payments and e-signatures. The
April law on information society government bodies established an Agency for
Information Society at the Ministry of Public Administration. In general, administrative
capacity in this field remains weak. Effective cooperation among the relevant
government bodies needs to be strengthened. There are no concrete plans to
start collecting information society statistics.

On audiovisual policy, the Independent Media
Commission has not legislated on must-carry requirements for cable operators.
Most cable operators carry Kosovo-wide and local TV stations on a fee basis
(and drop them in case of late payments). This seriously limits the audience’s
right of access to terrestrial free-to-air channels. The strategy for digital switch-over
prepared by the Commission is not aligned with the acquis and did not
provide a sufficient technical and financial framework for a transparent and
open process. It was returned to the Commission for completion. The work of the Commission
has been severely hampered by political interference in appointments to its
board and its appeal body, and a lengthy and unlawful attempt to dismiss its
CEO (see Political criteria 2.2 - Human rights and the protection of minorities).

The public service broadcaster, Radio and Television Kosovo (RTK)
remains dependent on financing from the Kosovo budget. The Assembly has still
not provided for sustainable financing of the RTK. One year after the adoption of the law, the
RTK board is still not complete (with three members out of eleven missing). The election of the majority
of the RTK board was overshadowed by political interference, as were
appointments to its management. RTK’s second TV channel (in Serbian language)
has been fully operational from August,
although it is currently available only through cable operators. The Minority
Media Fund has not distributed any financing since 2012. The Fund lost its
regular funding when the RTK subscription fee was suspended in 2009.

Overall, Kosovo needs to
continue efforts to complete the legal framework in this area. Regulatory
bodies need to be strengthened. The independence and capacity of both the
telecoms regulator and the media regulator have been challenged by political
interference, low salaries and lack of resources. As a matter of urgency,
Kosovo needs to ensure
efficient implementation of digital switch-over and to develop a solution for the sustainable funding of
the public service broadcaster. In addition, the Independent Media Commission
needs to have its independence from political interference preserved but also
to demonstrate it can carry out its tasks. The agreement on telecoms reached
with Serbia offers a unique opportunity to resolve a number of Kosovo’s
telecoms issues. Kosovo needs to implement its side of the agreement.

4.2.7.
Financial control

On public internal financial control, implementing
legislation on certification of internal auditors in the public sector was
adopted in January. It includes general eligibility requirements, but makes no
reference to a specific training curriculum or to an examination for
certification. The number of operational internal audit units in the public
sector has increased to over 65, with over 130 internal auditors in total.
However, most internal audit units are staffed with only one or two auditors
and are therefore too small to be effective. A total of 48 audit committees
were established.

Understanding
of the concept of managerial accountability for internal control is low. The
legal framework is only partly applied in most budget organisations. The
Central Harmonisation Unit for Financial Management and Control has been
involved mainly in the development of procedures for budget organisations and
in preparing the annual report. Due to its current position and mission
statement, the unit has limited capacity to lead financial management and
control reform. The position and staffing of the unit still have to be brought
to the same level as the Central Harmonisation Unit for Internal Audit to
advance public internal financial control reform.

On external
audit, the Office of the Auditor General is an independent institution that
plays a role in fighting corruption and promoting change in public finance. The
office now has 140 staff. In 2012, 115 audit reports were prepared. Emphasis is
being placed on consolidating the quality of financial audit and improving
management and performance audit. The implementation of the new development
strategy has started in May accompanied with a one-year plan expiring in
September 2014. The strategy focuses on the sustainability of the institution
and the achievement of EU best practices.

Overall, the
basic legal framework for public internal financial control is in place, but
substantial efforts are required to implement the concept of decentralised
managerial accountability and internal audit. The Central Harmonisation Unit
for Financial Management and Control needs to be repositioned to advance the
reform of public internal financial control. The staffing of internal audit
units requires further attention. On external audit, efforts need to be
maintained, especially on implementation of the new development strategy.

4.2.8.
Statistics

With regard to statistical
infrastructure, restructuring of the statistical agency has started, as
envisaged by the law on official statistics. Four of the five new staff
foreseen were recruited by August. The management of
the statistical agency has been strengthened through the establishment of
performance indicators. In January, a strategic
plan 2013-2017 was adopted as well as an annual work
programme. The administrative capacity of the
statistical agency remains weak and this hampers the production of core
statistical products.

On classifications
and registers, the introduction of the European classification of economic
activities NACE Rev. 2 into the business register has started. The business
register is operational, but the routines of keeping the registry need to be improved. Further efforts are
needed to implement the NACE Rev. 2.

As regards sectoral
statistics, the law on the agriculture census was adopted in December 2012
and the agriculture pilot census was successfully implemented in November 2012.
Preparations for the agriculture census are progressing well. Results of the
population and housing census held in 2011 were published successfully.

On other
sectoral statistics, there have been limited results. The macroeconomic
statistics of the Ministry of Finance were prepared in a timely manner, but
significant improvements are necessary in the area of economic statistics,
especially in national accounts and business statistics.

Cooperation
between the statistical agency and other institutions has improved. However,
many data are not yet available electronically. Better cooperation among data
collecting institutions is necessary to ensure that specific needs are
integrated in the system of data collection, and that the use of
classifications and nomenclatures ensures consistency. Administrative capacity
of the agency remains weak and hampers the production of core statistical
products.

Overall,
Kosovo has undertaken efforts to prepare the agricultural census and to improve
the statistical infrastructure. Due to the limited resources of the statistical
agency, there have been modest results in other areas. The administrative
capacity of the statistical agency needs to be strengthened to fulfil its role
as a data provider for evidence-based decision and strategic policy making.
Because of limited resources, the agency continues to face challenges in
producing reliable statistics on time, and in line with European standards and
international methodologies. To strengthen the
management capacity of the agency, it is important to guarantee the continuity
of top management of the agency in the long-term. In the short-term,
recruitment and appointments need to be based on professional competences.

4.3.
Justice, freedom and security
4.3.1.
Visa, border management, asylum and migration

Kosovo’s new visa regime entered into force in July. The new
regime establishes a common list of countries whose citizens must hold a visa
or are exempt from the visa requirement when entering Kosovo. Visas are to be
issued by consulates. Only by way of derogation and subject to conditions can
visas be issued at border/boundary crossing points. There are no bilateral
seasonal visa waiver agreements in place with third countries. New implementing
legislation was issued on the passport application procedure. It requires the
authorities to take fingerprints from children over the age of 12, in line with
the acquis.

As of July
there are over 1 470 000 valid Kosovo ID-cards, over 772 000
valid Kosovo passports (without chip) and over 270 000 valid Kosovo
biometric passports (with chip). A new contract for the production of biometric
passports (with chip) was signed in April. A contract for biometric ID-cards
was signed in August.

Implementing
regulations, such as rules of procedure regarding visas
issued at the border/boundary crossing points, need to be drafted. The
investigation into corruption allegations related to the contracting of
production of biometric passports (the disappearance of €1.4 million from the
Ministry of Internal Affairs in October 2012) is still ongoing.

The visa
liberalisation dialogue, launched in January 2012, has continued. In February,
the Commission issued a first report with a focus on legislation. Following its
recommendations, Kosovo amended six laws and adopted two new laws. Document
fraud and irregular migration to certain EU Member States has significantly
increased in 2013. Kosovo is encouraged to adopt and implement the necessary
reforms, including in these two areas.

A total of ten
pieces of implementing legislation have been adopted for the law on civil
status of 2011. A new civil status system has been launched in February. It
introduces one central database for civil status data, merging the electronic
data from the previous civil registry and civil status databases. Registration
of civil status events is now linked to individual citizens with the PIN as a
unique personal identifier. Certificates will be issued using the civil status
data from the central database. The Civil Registration Agency and the Kosovo
Cadastral Agency are in the process of linking each individual to an official
address. The process of handing over EULEX-certified copies of civil registry
books located in Serbia is ongoing and over 6 300 books were certified by
the end of July. The copies allow for the verification of civil status data.

The uniform
implementation of the law on civil status and the newly-introduced civil status
registration system give rise to numerous challenges that need to be addressed,
including difficulties with the new certificates. Training for municipal
officers is required as well as increased supervision and inspections. More
resources need to be deployed to carry out spot-check audits of the processes
to ensure they are consistent with procedures and instructions. To ensure that
mistakes do not enter the system, the accountability of the management levels
needs to be enforced. Improved communication and coordination between central
and municipal level is essential in this regard. The lack of consistent
registration of deaths, especially in rural areas, remains a concern.

Regarding border
management, most of the structures for integrated border management (IBM)
are now in place. The three border agencies involved in integrated border
management (border police, customs and the Food and Veterinary Agency)
cooperate through the National IBM Executive Board under the guidance and
direction of a national coordinator. In January, the National Centre for Border
Management was officially opened. A new law on integrated border management
cooperation, a revised strategy and an amendment to the law on border control
and surveillance were adopted. Implementing legislation and standard operating
procedures have not yet been adopted. As part of the Dialogue on the implementation of the IBM protocol,
Kosovo and Serbia agreed on a procedure for mutual legal assistance. The
procedure entered into force in March and is facilitated by EULEX.

The EU-funded
border management IT system (BMS) is fully operational at all crossing points
as well as in regional and central police command centres. The new joint
control centre at Vermicë/Vermica houses both Kosovo and Albania border police.
Six co-located crossing points with Serbia have been opened. EULEX maintains
its presence there. Freedom of movement has been implemented at all six points,
and cooperation from both sides is positive and constructive. There are regular joint and synchronised
border police patrols with Albania, the former Yugoslav Republic of Macedonia
and Montenegro.

The Centre for
Border Management is open but not yet fully operational and cooperation between
agencies is weak. The police have yet to sign a maintenance contract for the
border management IT system. The border demarcation with Montenegro still needs
to be completed.

The law on asylum
was revised to better reflect international standards and the acquis.
Information leaflets in nine languages are distributed at relevant crossing
points, police stations and offices that deal with foreigners. The asylum
centre has adequate capacity and satisfies technical standards for accommodating
asylum seekers. There were 41 asylum requests in the first half of 2013 (45 in
2012).

The
implementing legislation needs to be updated in line with the new asylum law.
There is no reliable database for asylum-seekers and no functional migration
database. There is therefore no link between the Department of Citizenship,
Asylum and Migration and the police responsible for the initial screening. This
opens the possibility for asylum seekers who have left Kosovo to come back and
request asylum with a different identity. Comparison of fingerprints for
identity verification cannot be processed during the initial screening. There
are also concerns about the data protection of asylum seekers. This is due to
the absence of a reliable database and the incorrect implementation of the
provisions as concerns the authority to input data into the database.

Lacking
information on the origin of refused asylum seekers and the absence of identity
documents remain major obstacles to the removal of unsuccessful asylum seekers.
There is a lack of appropriate interpretation services. This hampers
communication with asylum seekers during their initial case screening.
Cooperation between institutions involved in the return policy needs to be
improved at all levels.

Kosovo has not
granted a refugee status to anyone. The majority of asylum seekers leave Kosovo
before a decision is taken. In April, the second instance body, the National
Commission for Refugees, granted for the first time subsidiary protection to
one asylum seeker whose claim had been rejected at first instance. Kosovo has
yet to develop protection-sensitive entry mechanisms to manage mixed migratory
flows and to allow individuals truly in need of international protection access
to asylum procedures. There is a lack of communication between the different
institutions and a lack of capacity and training. The Asylum Centre needs
adequate funding and trained staff.

On migration,
Kosovo amended the law on foreigners. A strategy on migration and a migration
profile is still to be adopted. The revised regulation on the reintegration of
repatriated persons was adopted in August. Twenty-one countries are now covered
by bilateral readmission agreements. The lack of readmission agreements with
countries of origin or transit is a concern when it comes to determining the
origin of an asylum seeker who is refused and/or has no identity documents.

Kosovo
readmitted nearly 4 200 nationals in 2012 (over 2 500 from Western
Europe). Up until July 2013, over 2 000 persons were repatriated (over 1 400
forced and nearly 600 voluntarily, over 730 from minority communities).The
airport reintegration office of the Ministry of Internal Affairs has operated
well. Awareness campaigns targeting irregular migration have been organised and
need to continue.

The new
department of reintegration lacks adequate staffing and capacity. There is a
lack of coordination and communication between the airport office and the
ministry’s division for readmission. Not all arrivals are announced in time,
leaving some repatriated persons unregistered upon arrival. Salaries for some
staff in the reintegration office were paid from the 2012 reintegration fund, a
practice which needs to stop. The
reintegration case management system developed by the Ministry of Internal Affairs
has been introduced, but is not yet fully operational. Harmonisation of the
implementing legislation with the revised law on foreigners remains
outstanding.

Kosovo needs to
pay more attention to the challenges faced by readmitted persons from non-majority
communities. This includes limited access to healthcare, education, social
assistance and adequate housing. Cooperation between sending countries and the
Kosovo authorities needs to be strengthened to address shortcomings in the
civil registration process. This issue persists for a limited number of
individuals (born in the country of asylum) for whom an original birth
certificate is not supplied.

Overall,
Kosovo has adopted new legislation and policies in this
area. Implementation is at an early stage and many challenges remain to be
addressed. With regard to integrated border management, Kosovo needs to improve
intra- and inter-agency cooperation. Information
gathered needs to be made suitable for strategic threat assessments. With
regard to re-integration, sufficient human resources need to be allocated to
the new department of the Ministry of Internal Affairs. Coordination needs to
be significantly improved between ministries, but also between central and
local levels. Kosovo authorities need to pay more attention to the needs
(notably education, employment and housing) of persons from non-majority
communities. Further efforts are necessary to ensure that databases/case
management systems for migration and reintegration are reliable and functional.

4.3.2.
Money-laundering

A strategy for the prevention of money laundering was adopted in
2012. Amendments to the law on prevention of money laundering and financing of
terrorism entered into force in March. The revised law broadens and strengthens
the mandate of the financial intelligence unit (FIU). The police and the FIU
signed a memorandum of understanding in February. The appointment of the police
liaison officer is still pending. The FIU signed a
memorandum of understanding with the NGO
registration department within the Ministry of Public Administration to enable
better monitoring of financial obligations of reporting entities. The FIU has
strengthened its relations with banks in Kosovo. It signed a memorandum of
understanding with the Central Bank of Kosovo allowing for joint inspections of
the Bank and Unit.

In 2012, the
police investigated 120 cases involving money laundering; 150 suspects were
arrested, 800 criminal charges were pressed and over 460 cases were sent for
prosecution. There are no statistics on the total estimated damage caused.
During the reporting period the FIU dealt with over 120 cases of potential
money laundering/terrorist financing. About 40 cases were finalised and close
to 80 cases are still under investigation. The police directorate for economic
crime and corruption opened 200 new cases in the first half of 2013. In the
same period, the FIU received over 100 requests for information from other
agencies, such as police, customs and tax administration. There has been an
increase in the number of reports on suspicious transactions (about 130 in
2011, just over 200 in 2012 and over 120 to date).

Cooperation
between the FIU and customs is good. Illegal activity in the import and export
of large amounts of money at Pristina airport has been incorporated into the
routine work of customs. This has been made a priority. There was a reduction
in seizures of cash in 2012 compared to 2011 as a result of an intensive
awareness campaign leading to an increase in declarations of cash at departure.

The action plan
for the strategy on the prevention of money laundering has not yet been
adopted. Implementing legislation and standard operating procedures are needed
to enhance the implementation of the new law on prevention of money laundering
and financing of terrorism. The cooperation and coordination between the
relevant public sector institutions on these issues need to be standardised. In
addition, awareness of and participation by the private and third sector need
to be enhanced. The FIU’s analytical and investigative capacity needs to be
strengthened. An assessment of internal and external money laundering/terrorist
financing threats needs to be carried out. Considering the nature of the data
handled by the FIU, the internal and external security system needs to be
improved. Due to the complexity of economic and financial crimes and anti-money
laundering, the expertise of judges, prosecutors and staff working on such
cases needs to be improved.

Overall,
Kosovo has continued to improve its legislation in this area. However,
enforcement now needs to be improved. Law enforcement and judicial institutions
need to improve their expertise to be able to tackle this complex type of
crime.

4.3.3.
Drugs

Kosovo adopted
the 2012-2017 strategy and action plan on the fight against drug trafficking.
There was a significant increase in drugs seizures by the police from 2011 to
2012, notably as concerns heroin, cocaine and cannabis. For 2013, there is a
relative decrease of seized quantities. Small but regularly recurring seizures
of synthetic drugs have been recorded. The number of drug-related cases
increased from nearly 290 in 2011 to just over 400 in 2012. There are now
eighteen drug detection dogs in Kosovo.

As regards
prevention and harm reduction, the government decided to establish a ‘drugs
observatory’ within the Ministry of Internal Affairs to promote and support
research and monitoring of drugs. Once established, it will report to the
European Monitoring Centre for Drugs and Drug Addiction. The involvement of the
police in the prevention of drug use has increased. Awareness campaigns in
secondary schools have been organised in cooperation with the Ministry of
Health and EULEX. The methadone programme is being implemented in five
locations. During the first half of 2013, nearly 120 persons have been
undergoing methadone treatment.

Kosovo
continues to be a transit and storage region primarily for heroin involving
local organised crime groups. The significant increase in seizures of cannabis
in 2012 suggests that Kosovo is a transit route for the trafficking of cannabis
from plantations in Albania. The customs administration needs to make continued
and sustained efforts to detect and seize narcotics at the border/boundary.

Overall, the
increase in police resources dealing with drugs has had some positive results
in terms of seizure of drugs. Separate financial investigations or
investigations combined with criminal investigations into trafficking or the
possession of narcotics need to be reinforced by appointing more analysts and
financial investigators.

4.3.4.
Police

The police is widely perceived as the most
trusted ‘rule of law’ institution in Kosovo. It established a special unit to
protect and secure cultural and religious sites. The police has become more
proactive in creating and maintaining partnerships with all communities. The
basis for this approach is the community policing strategy and action plan for
2012-2016 and the municipal community safety councils. Most municipal community
safety councils have been set up. Some need to enhance their activities.

Kosovo, EULEX and other EU experts are
working together on a witness protection directorate within the police. The
directorate is operational, but requires additional resources and capacity
building. Implementing legislation on witness protection was adopted and a
memorandum of understanding between the police and EULEX was signed. The police
also established child-friendly interview rooms in seven regional stations. An
association of women in the police was established to promote police work for
women and addressing challenges women face in pursuing a career within the
police. A strategy on intelligence-led policing was adopted in February.

The division of responsibilities between
the independent police inspectorate and the disciplinary standards unit of the
police are clear and cooperation is good. In 2012, the inspectorate received
nearly 1 080 complaints against police officers. Criminal reports have
been filed in over 120 cased and over 770 cases have been referred to the
disciplinary unit. Enforcement of disciplinary measures is still a challenge
and some important criminal investigations are not seriously addressed.

Child-friendly interview rooms in police
stations are left unused. This is due to a lack of specialised officers and the
absence of a holistic approach on dealing with children as suspected offenders,
victims or witnesses of crime. More adequate resources are needed in this
field. Implementation of the community policing strategy has started, but
capacities and awareness need to be built up further. The border police also
needs to be part of the community policing programme. Community policing is not yet used effectively as a source of
information for intelligence led-policing. In general, implementing intelligence-led
policing remains a challenge.

Links between
the political level and management of the police are close. The law on
international legal cooperation in criminal matters was adopted in July. The
International Law Enforcement Cooperation Unit in the Ministry of Justice
continues to perform its functions in a professional manner. It processed over
1 600 information requests in the reporting period. The Interpol Liaison
Office is under UNMIK’s responsibility. A Kosovo police officer has been
seconded to this office. In 2012, the UNMIK Liaison Office facilitated 31
International Arrest Warrants against internationally-wanted persons for
provisional arrest (compared to 27 in 2011). Twelve extraditions from/to Kosovo
were carried out in 2012. In 2013, ten extraditions and one deportation have
been facilitated.

Overall,
Kosovo has put in place new structures within the police, notably the witness
protection directorate. It has also improved structures to deal with community
policing. The police need to focus on delivering results in the fight against
organised crime (including drugs, trafficking in human beings and weapons), and
the fight against corruption. More resources are needed for witness protection.
Implementing intelligence-led policing remains a particular challenge.
Enforcement of disciplinary measures needs to be ensured.

4.3.5.
Fighting organised crime and terrorism

During the
reporting period, the Assembly adopted four strategies and action plans on the
fight against organised crime, terrorism, drugs trafficking and on crime
prevention. In November, the Kosovo Prosecutorial Council approved a strategic
plan for inter-institutional cooperation for fighting corruption and organised
crime. A data base (tracking mechanism) was set up in cooperation with the Judicial
Council, police and other agencies. The aim is to ensure overview of
investigations, prosecutions and final court rulings in cases relating to
criminal offences of organised crime, corruption, trafficking in human beings,
arms trafficking, trafficking of drugs and money laundering.

The law on
extended competences for confiscation of assets was adopted in February. The
Agency for the Management of Sequestrated and Confiscated Assets has continued
to function and the volume of confiscated assets has increased slightly. Kosovo became a member of the Camden Asset Recovery Inter-Agency
Network (CARIN) in 2012. Local police and prosecutors
cooperate well with their EULEX counterparts at operational level.

Organised crime
remains a serious concern in Kosovo. Witness intimidation continues to be a concern. The most sensitive
organised crimes and corruption trials continue to be presided over by mixed
panels of local and EULEX judges. The Special Prosecution is in the process of
gradually transferring responsibility for high-profile prosecutions from
international to local ownership. Kosovo enforcement agencies and institutions
need to cooperate in a more structured way with the objective to be more
efficient and effective in investigations.

Kosovo needs to
establish a sound legal framework for the interception of telecommunications. A
clear distinction between judicial interception and interception for
intelligence purposes needs to be made. This is to avoid possible political
influence in criminal cases and to ensure adequate judicial oversight.

Law enforcement
agencies demonstrate hesitation to initiate financial investigations. As a
result the number of confiscations and sequestrations ordered by the judiciary
and executed by the police is low. The judiciary, specifically the prosecutors,
need to use the provisions on confiscation more proactively. The mandate and
the chain of responsibilities of the Agency for the Management of Sequestrated
and Confiscated Assets need to be clarified to all stakeholders involved in the
process. Cooperation between these stakeholders needs to improve considerably.

Considerations
related to the status of Kosovo continue to influence international cooperation
in the fight against organised crime. At the same time, the police was part of
a joint operation with EUROPOL in early 2013.

The new law on
preventing and combating trafficking in human beings and protecting
victims of trafficking, was adopted in July. In nearly 100 cases the police
directorate for the investigation of trafficking in human beings made 180
arrests in the reporting period and 60 victims were identified. Prosecution and
courts have solved only a limited number of the criminal reports and cases in
the same period. Participants of nine criminal groups involved in human
trafficking have been arrested. There were 19 information exchanges with other
countries. A standard operating procedure on victim care has been established
and is implemented. Awareness raising campaigns were organised in 2012 and are
planned for 2013-2014.

In April, in
the Medicus case on illegal organ transplants a mixed panel of two EULEX judges
and one local judge at the Pristina basic court found five persons guilty. They
were sentenced for a total of twenty years for criminal offences of organised
crime, trafficking in human beings and inflicting grievous bodily harm.

Kosovo remains
a place of origin and transit for victims of trafficking for the purpose of
sexual exploitation with an increase in the number of under-age victims. Child
trafficking and child exploitation for the purpose of begging also remain high.
The rate of convictions for these crimes is low. A comprehensive,
multi-disciplinary and victim-oriented approach to trafficking needs to be
developed and identification of victims needs to be further improved.
Appropriate, sustainable government funding for shelters and reintegration of
victims is essential. Victims need to have unhindered access to assistance,
support and protection, including the re-integration of victims upon return.
Cooperation with civil society as well as efforts towards effective prevention
measures need to be stepped up.

The police
established a cybercrime investigations unit in 2011. Cybercrime cases are
identified as criminal offences relating to interference in the computer system
or credit card fraud. They are therefore not registered as specific cybercrime
cases. Since its establishment the unit has investigated 30 cases and provided
assistance to other investigations.

Kosovo’s
strategy on the fight against terrorism mirrors the ‘prevent, protect,
pursue and respond’ strands of the EU’s counter-terrorism strategy. The threat
of terrorism is low, even though there are some concerns with regard to
radicalisation and extremist groups and their financing. This needs to be
monitored.

Overall, a
legal framework is largely in place, but implementation is limited. This is
partly due to a lack of capacity. Kosovo needs to improve the level of
expertise to tackle complex criminal investigations. An increase in resources
for the police in its fight against trafficking in human beings has not yet led
to improvements. Coordinators of the strategies and action plans need to
cooperate better and focus on implementation. Kosovo needs to establish a sound
legal framework for the interception of telecommunications. More proactive
implementation of the new law on confiscation of assets is needed. Cybercrime
is an issue for which Kosovo needs to be better prepared, even if it does not
yet occur often. Equally, there needs to be better preparation and monitoring
when it comes to the fight against terrorism.

4.3.6.
Protection of personal data

The Agency for
Personal Data Protection is almost fully staffed and all pieces of implementing
legislation were adopted. The agency has made determined efforts to raise
awareness of its work through a number of outreach activities targeting public
and private bodies. It has conducted a series of direct, ex officio and general
inspections. The agency also provided comments to draft laws. The agency maintains
one staff member full time in the police.

The agency
continues to face difficulties in recruiting staff from minority communities.
The agency’s operational activities increased, but have yet to gain momentum.
The agency needs to build up its capacity and expertise further. The agency
needs to take a proactive and independent approach to checks in both private
and public sectors. Personal data protection concerns in the police need to be
swiftly addressed.

Overall, personal
data protection in Kosovo is in its early stages. The agency needs to support
the implementation of legislation in both public and private sectors. It needs
to be more proactive and act independently.

Statistical Annex

STATISTICAL DATA || || || || || || || ||

Kosovo || || || || || ||

|| || || || || || ||

Basic data || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Population (thousand) || 1) || : || 2 153 || 2 181 || 2 208p || 1,799 || 1,816

Total area of the country (km²) || || 10 887 || 10 887 || 10 887 || 10 887 || 10 887 || 10 887

|| || || || || || ||

National accounts || || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Gross domestic product (GDP) (million euro) || 2) 3) || 1 624 || 3 940e || 4 008e || 4 291e || 4 776e || :

GDP (euro per capita) || 4) || : || 2 291e || 2 293e || 2 418e || 2 650e || :

GDP (in Purchasing Power Standards (PPS) per capita) || || : || : || : || : || : || :

GDP per capita in PPS (EU-27 = 100) || || : || : || : || : || : || :

Real GDP growth rate (growth rate of GDP volume, national currency,% change on previous year) || 5) || : || 7.2 || 3.5 || 3.2 || 4.5 || :

Employment growth (national accounts,% change on previous year) || || : || : || : || : || : || :

Labour productivity growth: GDP growth per person employed (% change on previous year) || || : || : || : || : || : || :

Real unit labour cost growth (national accounts,% change on previous year) || || : || : || : || : || : || :

Labour productivity per person employed (GDP in PPS per person employed, EU-27 = 100) || || : || : || : || : || : || :

Gross value added by main sectors (%) || || || || || || ||

Agriculture and fisheries || || : || 15.1 || 15.1 || 17.1 || 17.5 || :

Industry || || : || 17.3 || 18.9 || 17.3 || 16.6 || :

Construction || || : || 9.4 || 9.5 || 10.1 || 9.9 || :

Services || || : || 58.3 || 56.5 || 55.6 || 56.1 || :

Final consumption expenditure, as a share of GDP (%) || || : || 110.3 || 107.3 || 106.2 || 105.2 || :

Gross fixed capital formation, as a share of GDP (%) || || : || 23.8 || 25.6 || 27.8 || 28.8 || :

Changes in inventories, as a share of GDP (%) || || : || 4.0 || 3.4 || 3.5 || 3.3 || :

Exports of goods and services, relative to GDP (%) || 6) || : || 15.5 || 16.4e || 19.5 || 20.1 || :

Imports of goods and services, relative to GDP (%) || || : || 53.5 || 52.8 || 56.9 || 57.3 || :

|| || || || || || ||

Industry || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Industrial production volume index (2010=100) || || : || : || : || : || : || :

|| || || || || || ||

Inflation rate || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Annual average inflation rate (CPI,% change on previous year) || || : || 9.4 || -2.4 || 3.5 || 7.3 || 2.5

|| || || || || || ||

Balance of payments || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Balance of payments: current account total (million euro) || || 228 || -461 || -374 || -516 || -658 || -380

Balance of payments current account: trade balance (million euro) || || -646 || -1 650 || -1 652 || -1 752 || -2 059 || -2 073

Balance of payments current account: net services (million euro) || || 10 || 152 || 232 || 187 || 266 || 346

Balance of payments current account: net income (million euro) || || 141 || 164 || 62 || 67 || 114 || 154

Balance of payments current account: net current transfers (million euro) || || 723 || 873 || 983 || 982 || 1 021 || 1 192

of which government transfers (million euro) || || 809 || 224 || 323 || 320 || 322 || 402

Net foreign direct investment (FDI) (million euro) || || : || 342 || 281 || 331 || 379 || 216

Foreign direct investment (FDI) abroad (million euro) || || : || -25 || -11 || -35 || -16 || -16

of which FDI of the reporting economy in EU-27 countries (million euro) || || : || -9 || -2 || -1 || 0 || -5

Foreign direct investment (FDI) in the reporting economy (million euro) || || : || 366 || 291 || 366 || 395 || 232

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || 212 || 184 || 218 || 205 || 86

|| || || || || || ||

Public finance || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

General government deficit/surplus, relative to GDP (%) || || : || : || : || : || : || :

General government debt relative to GDP (%) || || : || : || 6.2 || 6.1 || 5.3e || :

|| || || || || || ||

Financial indicators || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Gross foreign debt of the whole economy, relative to GDP (%) || || : || : || 7.7 || 7.6 || 6.7e || :

Gross foreign debt of the whole economy, relative to total exports (%) || || : || 3.6 || 6.9 || 4.6 || 4.6 || 5.0

Money supply: M1 (banknotes, coins, overnight deposits, million euro) || || 971 || : || : || : || : || :

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || || 1 096 || : || : || : || : || :

Money supply: M3 (M2 plus marketable instruments, million euro) || || : || : || : || : || : || :

Total credit by monetary financial institutions to residents (consolidated) (million euro) || || 26 || 1 183 || 1 289 || 1 459 || 1 698 || 1 763

Interest rates: day-to-day money rate, per annum (%) || || : || : || : || : || : || :

Lending interest rate (one year), per annum (%) || 7) || : || 14.8 || 14.1 || 14.3 || 13.7 || 13.8

Deposit interest rate (one year), per annum (%) || 7) || : || 4.2 || 4.0 || 3.4 || 3.7 || 3.6

euro exchange rates: average of period - 1 euro = … national currency || 2) || 1.000 || 1.000 || 1.000 || 1.000 || 1.000 || 1.000

Effective exchange rate index (2005=100) || || : || : || : || : || : || :

Value of reserve assets (including gold) (million euro) || || 286 || 670 || 577 || 635 || 575 || :

|| || || || || || ||

External trade || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Value of imports: all goods, all partners (million euro) || || : || 1 930 || 1 934 || 2 146 || 2 492 || 2 488

Value of exports: all goods, all partners (million euro) || || : || 196 || 165 || 292 || 319 || 270

Trade balance: all goods, all partners (million euro) || || : || -1 734 || -1 769 || -1 854 || -2 173 || -2 218

Terms of trade (export price index / import price index) || || : || 1.0 || 1.0 || 1.2 || 1.0 || :

Share of exports to EU-27 countries in value of total exports (%) || || : || 47.7 || 43.1 || 45.1 || 42.8 || 39.6

Share of imports from EU-27 countries in value of total imports (%) || || : || 36.2 || 39.0 || 38.5 || 38.0 || 39.0

|| || || || || || ||

Demography || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || : || 12.7 || 12.5 || : || 11.4bp || 11.3

Infant mortality rate: deaths of children under one year of age per 1000 live births || || : || 9.7 || 9.9 || : || 12.1e || 11.4

Life expectancy at birth: male (years) || || : || : || : || : || 68.0e || 69.0

Life expectancy at birth: female (years) || || : || : || : || : || 71.9e || 71.0

|| || || || || || ||

Labour market || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Economic activity rate (20-64): share of population aged 20-64 that is economically active (%) || || : || : || : || : || : || :

\* Employment rate (20-64): share of population aged 20-64 in employment (%) || || : || : || : || : || : || :

Employment rate male (20-64) (%) || || : || : || : || : || : || :

Employment rate female (20-64) (%) || || : || : || : || : || : || :

Employment rate of older workers (55-64): share of population aged 55-64 in employment (%) || || 16.7 || 23.8 || 27.9 || : || : || :

Employment by main sectors (%) || || || || || || ||

Agriculture || || 6.2 || 8.0 || 6.2 || : || : || :

Industry || || 16.9 || 15.4 || 15.5 || : || : || :

Construction || || 8.6 || 8.6 || 7.9 || : || : || :

Services || || 68.3 || 65.3 || 67.5 || : || : || :

Unemployment rate: share of labour force that is unemployed (%) || || 57.1 || 47.5 || 45.4 || : || : || 35.1

Share of male labour force that is unemployed (%) || || 51.8 || 42.7 || 40.7 || : || : || :

Share of female labour force that is unemployed (%) || || 69.9 || 59.6 || 56.4 || : || : || :

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) || || 80.0 || 73.0 || 73.0 || : || : || :

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || 47.6 || 38.9 || 37.1 || : || : || :

|| || || || || || ||

Social cohesion || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Average nominal monthly wages and salaries (national currency) || || : || : || : || : || : || :

Index of real wages and salaries (index of nominal wages and salaries divided by the CPI/HICP) (2000=100) || || : || : || : || : || : || :

\* Early school leavers - Share of population aged 18-24 with at most lower secondary education and not in further education or training (%) || || : || : || : || : || : || :

|| || || || || || ||

Standard of living || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Number of passenger cars per 1000 population || || : || 74.1 || : || 90.6p || 111.2e || 111.3

Number of subscriptions to cellular mobile telephone services per 1000 population || || : || 376.2 || 369.2 || : || : || :

|| || || || || || ||

Infrastructure || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Density of railway network (lines in operation, per 1000 km²) || || : || : || 30.6 || 30.3 || 30.6 || 30.6

Length of motorways (km) || || :z || :z || :z || :z || :z || 60

|| || || || || || ||

Innovation and research || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Spending on human resources (public expenditure on education in% of GDP) || || : || : || : || : || : || :

\* Gross domestic expenditure on R&D in% of GDP || || : || : || : || : || : || :

Percentage of households who have Internet access at home (%) || || : || : || : || : || : || :

|| || || || || || ||

Environment || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

\* Greenhouse gas emissions, CO2 equivalent (tons, 1990=100) || || : || : || : || : || : || :

Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP) || || : || : || : || : || : || :

Electricity generated from renewable sources in% of gross electricity consumption || || : || : || : || : || : || :

Road share of inland freight transport (% of tonne-km) || || : || : || : || : || : || :

|| || || || || || ||

Energy || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Primary production of all energy products (thousand TOE) || || : || : || : || : || : || :

Primary production of crude oil (thousand TOE) || || : || : || : || : || : || :

Primary production of hard coal and lignite (thousand TOE) || 8) || : || 5 466 || 7 842 || 7 960 || 8 212 || 8 028

Primary production of natural gas (thousand TOE) || || : || : || : || : || : || :

Net imports of all energy products (thousand TOE) || || : || : || : || : || : || :

Gross inland energy consumption (thousand TOE) || || : || : || : || : || : || :

Electricity generation (thousand GWh) || || : || : || 5.3 || 5.5 || 5.7 || 5.9

|| || || || || || ||

Agriculture || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Agricultural production volume index of goods and services (producer prices, previous year=100) || || : || : || : || : || : || :

Total utilised agricultural area (thousand hectare) || || 539 || : || : || : || : || :

Livestock: cattle (thousand heads, end of period) || || 347 || 342 || 344 || 357e || 362e || 314

Livestock: pigs (thousand heads, end of period) || || 75 || 27 || 51 || 51e || 51e || 56

Livestock: sheep and goats (thousand heads, end of period) || || 230 || 180 || 217 || 229e || 247e || 123

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || || : || : || : || : || : || :

Crop production: cereals (including rice) (thousand tonnes, harvested production) || || 459 || 438 || 411 || 423e || 430e || 428

Crop production: sugar beet (thousand tonnes, harvested production) || || : || : || : || : || : || :

Crop production: vegetables (thousand tonnes, harvested production) || || 169 || 176 || 144 || 248e || 254e || 135

: =
not available

:z
= not applicable

b =
break in series

e =
estimated value

p =
provisional

\* =
Europe 2020 indicator

The balance of payments
sign conventions are used for FDI. For FDI abroad a minus sign means investment
abroad by the reporting economy exceeded its disinvestment in the period, while
an entry without sign means disinvestment exceeded investment. For FDI in the
reporting economy an entry without sign means that investment into the
reporting economy exceeded disinvestment, while a minus sign indicates that
disinvestment exceeded investment.

Footnotes:

1) The number of population is based on recent census year 2011 and estimates that KAS have for 3 north municipalities who didn't participate in the Census and natural growth for the period Aprill 15-31 December 2011.

2) Euro is the currency in use.

3) The figures for the years 2008 - 2010 has been revised due to the revisons of  BoP data.

4) GDP figures are revised based on the data of  Census Population in april 2011.

5) 2008 - 2010, figures are revised due to the revision of BOP data in CBK (December  2011) for the years 2008-2010. These changes had influenced in the growth rate of GDP for the mentioned years.

6) Values distorted by a very high ratio of imports to exports of goods and services.

7) Since January 2008 interest rate on loans includes disbursement fee charged by banks.

8) Local production of coal in thousand tones.

\*               This designation is without prejudice to positions on
status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo
declaration of independence.

[1]               COM(2012) 602 final.

[2]               In April 2013, the Commission and the High Representative of the Union for Foreign Affairs and
Security Policy issued an ad hoc joint report on
specific issues on which the Council had, in December 2012, requested
additional information, JOIN(2013) 8 final of 22.04.2013.

[3]               The rapporteur for Kosovo is Ms Ulrike Lunacek.

[4]               Enlargement Strategy and Main Challenges 2013-2014,
COM(2013) 700.

[5]               COM(2009) 534.

[6]               A measure using PPS is not available for Kosovo.

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