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# 52012SC0333

**COMMISSION STAFF WORKING DOCUMENT SERBIA 2012 PROGRESS REPORT accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2012-2013 /\* SWD/2012/0333 final \*/**

  

TABLE OF CONTENTS

1........... Introduction. 4

1.1........ Preface. 4

1.2........ Context 4

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

2........... Political Criteria. 6

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

2.2........ Human rights and the
protection of minorities. 13

2.3........ Regional issues and
international obligations. 18

3........... Economic criteria. 22

3.1........ The existence of a
functioning market economy. 22

3.2........ The capacity to cope with
competitive pressure and market forces within the Union. 27

4........... Ability to take on the
obligations of membership. 29

4.1........ Chapter 1: Free movement
of goods. 29

4.2........ Chapter 2: Freedom of
movement for workers. 30

4.3........ Chapter 3: Right of
establishment and freedom to provide services. 31

4.4........ Chapter 4: Free movement of capital 31

4.5........ Chapter 5: Public
procurement 32

4.6........ Chapter 6: Company law.. 33

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

4.8........ Chapter 8: Competition. 34

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

4.10...... Chapter 10: Information
society and media. 36

4.11...... Chapter 11: Agriculture and
rural development 37

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

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

4.14...... Chapter 14: Transport
policy. 40

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

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

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

4.18...... Chapter 18: Statistics. 44

4.19...... Chapter 19: Social policy
and employment 45

4.20...... Chapter 20: Enterprise and
industrial policy. 47

4.21...... Chapter 21: Trans-European
networks. 47

4.22...... Chapter 22: Regional policy
and coordination of structural instruments. 48

4.23...... Chapter 23: Judiciary and
fundamental rights. 49

4.24...... Chapter 24: Justice,
freedom and security. 52

4.25...... Chapter 25: Science and
research. 55

4.26...... Chapter 26: Education and
culture. 56

4.27...... Chapter 27: Environment and
climate change. 57

4.28...... Chapter 28: Consumer and
health protection. 60

4.29...... Chapter 29: Customs union. 61

4.30...... Chapter 30: External
relations. 62

4.31...... Chapter 31: Foreign,
security and defence policy. 62

4.32...... Chapter 32: Financial
control 63

4.33...... Chapter 33: Financial and
budgetary provisions. 64

1.
Introduction
1.1.
Preface

Since March
2002, the Commission has reported regularly to the Council and the Parliament
on progress made by the countries of the Western Balkans region. This report on
progress made by Serbia in preparing for EU membership largely follows the same
structure as in previous years. The report:

–          briefly
describes the relations between Serbia and the Union;

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

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

–          reviews
Serbia’s capacity to take on the obligations of membership, i.e. the acquis expressed
in the Treaties, the secondary legislation, and the policies of the Union.

This report
covers the period from October 2011 to September 2012. 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 other
sources have also been used, including contributions from the government of
Serbia, the EU Member States, European Parliament reports[1] and information from various
international and non-governmental organisations.

The Commission
draws detailed conclusions regarding Serbia in its separate communication on
enlargement[2],
based on the technical analysis contained in this report.

1.2.
Context

The European
Council granted Serbia the status of candidate country on 1 March 2012, on the
basis of the Commission Opinion on Serbia’s membership application adopted on
12 October 2011. The Council concluded on 5 December 2011 that the opening of
accession negotiations will be considered by the European Council, in line with
established practice, once the Commission has assessed that Serbia has achieved
the necessary degree of compliance with the membership criteria, in particular
the key priority of taking steps towards a visible and sustainable improvement
of relations with Kosovo\*, in line with the conditions of the Stabilisation and Association
Process.

1.3.
Relations between the EU and Serbia

Serbia
is participating in the Stabilisation and Association Process.

The
Stabilisation and Association Agreement was signed, along with the Interim
Agreement on trade and trade-related matters,
in April 2008. It provides a framework of mutual commitments on a wide range of
political, trade and economic issues. The Interim Agreement entered into force
on 1 February 2010. At the 14 June 2010 Foreign Affairs Council, Ministers
agreed to submit the Stabilisation and Association Agreement to their
parliaments for ratification. The process is close to
completion, with ratification still pending in only one Member State.

Serbia has built a positive track record in implementing
the obligations of the Stabilisation and Association Agreement and the Interim
Agreement on trade and trade-related matters.
An interim committee and a number of sub-committees meet annually, to discuss
topics including the internal market, competition, transit traffic, trade,
customs, taxation, agriculture and fisheries. In general terms, Serbia is
meeting its SAA/IA commitments in these areas and cooperation is progressing
well.

In January 2012, the
Serbian government adopted a revised and updated version of the National
Programme for the Integration of Serbia in the European Union for the period
2008–2012, taking account of the Commission’s Opinion.

Political dialogue meetings at ministerial level have been held since 2003.
Policy dialogue between the European Commission and the Serbian authorities has
been taking place as part of Enhanced Permanent Dialogue (EPD) since
2003. Inter-parliamentary meetings between members of the European Parliament
and of the Serbian parliament have been held annually since 2006. Several EPD
meetings covered sectors of the SAA that are not included in the Interim
Agreement, such as energy, the environment, social policy, justice, freedom and
security.

Serbia participates in the multilateral economic
dialogue with the Commission and the EU Member States. The aim of this
dialogue is to prepare Serbia for participation in multilateral surveillance
and economic policy coordination under the EU’s Economic and Monetary Union. In
this context, was invited for the first time to the
Council meeting on pre-accession fiscal surveillance in
May 2012.

Visa liberalisation for citizens of Serbia travelling to the Schengen area has been in force
since December 2009. The Commission set up a
post-visa-liberalisation monitoring mechanism to assess whether the
implementation of reforms introduced by the country was consistent with the
visa roadmap and sustainable. This was complemented by an alert mechanism to
prevent abuses. The Commission presented its
second monitoring report to the European Parliament and the Council in December
2011 and adopted the third in August 2012. A readmission agreement
between the European Union and Serbia has been
in force since January 2008.

Financial assistance is provided through the Instrument for Pre-Accession
Assistance (IPA). IPA assistance is currently managed centrally by the EU
Delegation in Belgrade. Serbia is preparing for decentralised management of IPA
funds. The Multiannual Indicative Planning Document for the period 2011–2013
adopts a sector-based approach focusing assistance on the following seven
sectors: justice and home affairs; public administration reform; social
development; private sector development; transport; the environment, climate
change and energy; and agriculture and rural development. In addition, the
country continues to benefit from various regional and horizontal programmes.
Cross-border cooperation is also used to promote capacity building and dialogue
between the local and regional authorities of neighbouring countries, namely
Bulgaria, Hungary, Romania, Bosnia and Herzegovina, Croatia and Montenegro.

Overall, between 2001 and 2012, the EU committed over
€ 2.2 billion to Serbia in the form of grants and € 5.8 billion in
the form of soft loans. For the period 2007-2012, the Commission has earmarked
€ 1,176 million for IPA projects to be implemented in the country.

Civil society
in Serbia has received extensive financial support from the EU under the IPA
Civil Society Facility and national programmes, as well as through the European
Instrument for Democracy and Human Rights. Aid objectives include involving
civil society more widely in decision-making and increasing the capacity of
independent civil society organisations. Support for civil society under 2011
programmes stands at over € 4.2 million.

Serbia participates in a number of EU programmes:
the Seventh Framework Programme for research and technological development,
PROGRESS, the Competitiveness and Innovation Programme, the Information and
Communication Technologies Policy Support Programme, the Culture Programme, the
Customs Programme and the Fiscalis Programme.

2.
Political Criteria

This section examines the progress made by
Serbia 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 (ICTY).

2.1.
Democracy and the rule of law

Constitution

The Constitution is largely in line with
European standards. However, some provisions still need to fully reflect the
recommendations of the Venice Commission in its Opinion of March 2007, in
particular those allowing control by political parties over parliamentary
mandates and those providing for an excessive parliamentary role in
appointments and dismissals, particularly in the judicial system.

Parliament

Serbia held
parliamentary and local elections at their normal term in May 2012, together
with provincial elections in Vojvodina. Early presidential elections were also
held in May 2012, after the incumbent, President Boris Tadic, decided to
resign, which streamlined the electoral calendar. Serbia agreed to OSCE
facilitation in organising electoral operations for its parliamentary and
presidential elections in Kosovo. The Anti-Corruption Agency started to
implement the 2011 legislation on the financing of political parties and to
monitor the electoral campaigns. The elections were free, fair and peaceful and
were described as ‘competitive, held in a conducive environment and
professionally organised’ by international observation bodies in spite of a
certain lack of transparency in the proceedings of the State Electoral
Commission and in the administration of the new single voters’ registry. These
bodies made recommendations to improve the electoral administration. Media reporting
was also noted as insufficiently balanced and analytical, which pointed to the
wider need to clarify the issue of media ownership. Several opposition parties
made allegations of fraud which have not been elucidated by the authorities so
far.

The leader of the Serbian Progressive Party (SNS), Tomislav
Nikolic, won in the presidential election against the incumbent Boris Tadic,
the leader of the Democratic Party (DS). The SNS list secured the largest
number of MPs, with 73 seats out of 250, followed by the DS list with 67 seats.
The list led by the Socialist Party of Serbia (SPS) came third with 44 seats.
The Democratic Party of Serbia (DSS) secured 21 seats, the list led by the
Liberal Democratic Party (LDP) 19 seats and the Union of Regions of Serbia
(URS) 16 seats. The remaining 10 seats were gained by parties representing
minorities. Most of these parties are in favour of Serbia’s joining the EU. The
Serbian Radical Party, which opposes Serbia’s EU integration efforts, did not
reach the threshold for entering parliament.

The new
parliament was constituted in May 2012. In line with the 2011 electoral reform,
MPs were for the first time appointed in the order in which they appeared on
the electoral lists and the practice of ‘blank resignations’, by which MPs
tendered resignation letters to their parties at the beginning of their term of
office, is now prohibited. There are 84 women in parliament, representing 34%
of all MPs. Members of ethnic minorities continue to be represented in parliament. In line with the 2010 rules of procedure,
working bodies were streamlined, with the aim of making the parliament more
effective. Opposition chairs a number of committees, including the Committee
for European Integration, but no longer those covering finance and security and
internal affairs.

In the 2011
autumn session, several laws arising from the National Plan for Integration
into the EU were adopted. Parliamentary activities slowed down in the run-up to
and during the electoral campaign. Following the
set-up of parliamentary bodies end of July, work has resumed; urgent procedures
with limited consultation and discussion time have been applied to several new
pieces of legislation, including problematic changes to the central bank law.

The parliament
developed its use of public hearings, including one on its role in the EU
integration process in January 2012 and another on access to IPA funds in March
2012. Parliamentary oversight of the work of
the executive remained weak. There were no regular sessions of questions to the
government from December 2011 to July 2012. The work
in committees remained reactive, with core debates taking place in the plenary.

Overall, the elections were competitive,
professionally administered and peaceful throughout the country. The 2011
electoral framework legislation was implemented but results of the monitoring
of the financing of political parties are still awaited.
Legislative activity was cut short by the approach of the elections, but other parliamentary activities continued normally.
The authorities need to follow up the
recommendations of the OSCE/ODIHR election observation mission.

Government

Following the
parliamentary elections, a new coalition government took office in July, on the
basis of an agreement between SNS, SPS, URS and two smaller parties, with the
leader of SPS assuming the position of Prime Minister. The new Prime Minister
has pledged to accelerate the EU agenda of reforms with the aim of opening
accession negotiations.

All over the reporting period, the government
demonstrated its commitment to EU integration, notably by continuing to
implement the relevant provisions of the Interim Agreement, in line with the
agreed liberalisation schedule. It undertook, with the support of the Serbian
European Integration Office (SEIO), the Coordination Body for accession to the
EU and the European Integration Council, to follow up on the recommendations of
the Commission’s Opinion and adopted a third revision of its National Programme
for EU Integration (NPI) in January 2012. The government has been drafting a
number of laws aimed at further alignment of national legislation with European
standards and adopted new implementing legislation on regulatory impact
assessment. There has been some improvement in
its monitoring of the annual work programme. However, the drafting process
continues to lack transparency, sufficient structure and time for effective
consultation of all interested parties, which would also make the legal
environment more predictable. The implementation and monitoring of adopted
legislation needs to be improved. Ministries do not always follow up and even
in some instances openly challenge the opinions and recommendations of
independent regulatory bodies, including the State Audit Institution. The
General Secretariat of the Government needs to be strengthened to be able to
drive the policy system towards greater effectiveness and high-quality output.

As regards local self-government,
the legislation on municipal finance needs to be clarified and properly implemented
to ensure that municipal funding is predictable. There
is no available overview of the functions delegated to municipalities.
Responsibilities have continued to be transferred without ensuring sufficient
capacity and resources at local level. The National Council for
Decentralisation continues to be inactive. Consultation of local authorities
when deciding on new legislation or amendments to existing laws that have
implications at local level needs to be further improved.

Overall, the outgoing government completed a full term
in office and the new government is up and running since July. Both were active
in pursuing the country’s strategic goal of EU integration. However, the
government continues to lack a consistent, structured approach to consulting
stakeholders and needs to develop its monitoring of the preparation and
implementation of new legislation. The legal framework for local
self-government remains to be clarified and properly implemented.

Public
administration

Little progress has
been achieved regarding public administration reform. The Law on Administrative Inspection, which governs procedures for checking
that administrative bodies comply with administrative law, was adopted in
November 2011. The Public Administration Reform Council continued to address
only administrative and technical issues and did not actively steer the
implementation of the Public Administrative Reform Strategy which remains
insufficient. Greater political commitment, better coordination, and increased
financial and human resources are needed to bring about administrative reform.

The legislative
framework is still incomplete. New legislation on general administrative
procedures and on local government employees and salaries is yet to be adopted.
The Law on Administrative Disputes still needs to be fully aligned with
European standards for judicial review of administrative acts.

The policy
planning and coordination system needs to be improved to steer policy
development and produce consistent work plans for the public administration.
Administration and management capacity at local level are weak and significant
disparities between municipalities persist. The Law on
Civil Servants does not apply to local government employees.

The recruitment
and career system is not yet fully merit-based and recruitment is still prone
to political influence. Local government does not have a merit-based and professional human resources service. A number of
appointments to senior civil service positions are still pending. Selection procedures
are not applied uniformly and managers still have too much discretion when
choosing candidates from lists drawn up by selection panels following
competitions. Temporary employees are still not recruited according to competitive criteria and contracts are allocated without
internal or public competition. Changes in the administration envisaged by the
new government should not be detrimental to its capacity to make further
progress in the alignment with and implementation of the acquis.

A new training programme for civil servants was adopted in
2012 and several training courses were delivered. However, only a small
percentage of civil servants, and in particular a very small percentage of
managers, took part in training. Induction training is not provided.

Several independent regulatory bodies continue to face logistical
constraints. Parliament needs to resume the review of their annual reports and
improve follow up of legislative proposals tabled by such bodies. As regards
restructuring of public agencies, due consideration has to be given to the need
to maintain the capacities and entitlements to implement the acquis. In
some cases, when prescribed by the acquis, the independence of such
bodies needs to be preserved.

The Ombudsman’s Offices continued to be
effective and have increased their accessibility. The term of office of the
State Ombudsman was renewed by parliament in August 2012. The number of
citizens’ complaints has increased. The largest number of reported violations
relates to governance. Changes to the Law on the Ombudsman, which should
enhance the Ombudsman’s independence, still have not been adopted. The
Ombudsman’s recommendations were not sufficiently followed up.

The Commissioner for Information of Public
Importance and Personal Data and Protection continued to be active and his term
of office was renewed by parliament in December 2011. Some progress has been
made in the implementation of legislation ensuring access to information of
public importance. However the recommendations of the
Commissioner are still not sufficiently followed up (See also, for data
protection, Chapter 23 - Judiciary and fundamental rights).

The State Audit Institution (SAI) of Serbia
continued to gradually build up its capacities by recruiting further auditors and
the term of office of its president was renewed by parliament in September
2012. The SAI has now approximately 130 staff, including over 100 auditors. The
SAI also continued to work on improving audit methodology and increased audit
coverage (See also Chapter 32 — Financial control).

Amendments to the central bank law adopted
in August 2012 have seriously undermined the independence of the National Bank
of Serbia (See also Chapter 17 – Economic and monetary policy).

Overall, public administration reform is proceeding at a slow pace and is
hampered by insufficient political commitment. The legislative framework needs
to be completed and fully aligned with international standards. Implementation
of the existing laws and strategy needs to be improved. Merit-based recruitment
and promotion systems should be developed and implemented. The follow-up of the
recommendations ofindependent regulatory bodies needs to be stepped up.

Civilian
oversight of security forces

There was little progress on civilian oversight
of security forces. A specific parliamentary committee for civilian
oversight of security services was set up in July, in line with the 2010 rules
of procedure. Parliamentary oversight remained limited in practice. The legal
framework for the security and intelligence services’ monitoring of
communications needs to be clarified. Provisions of the Law on Military
Security and Military Intelligence Agencies which allowed sensitive data
related to citizens’ communications to be monitored without a court order were
ruled unconstitutional by the Constitutional Court in April 2012. There are
allegations that the unclear legal situation has led to abuses. A law on access
to state security files remains to be adopted.

Judicial
system (See also Chapter 23 - Judiciary and fundamental rights)

Serbia has made
little progress on judicial reform.

Amendments aimed at improving the
efficiency of the Constitutional Court were adopted in December 2011.
Deliberations in panels of eight or three judges are now allowed for certain
decisions, whilst a full Court session remains the normal format for important
cases. In line with the recommendations of the Venice Commission,
constitutional changes and further measures need to be adopted to reduce the
growing backlog. In particular, cases involving breaches of the right to trial
within a reasonable time, which account for 40% of the Constitutional Court
backlog, could be delegated to the Supreme Court of Cassation.

As for the independence of the
judiciary, the High Judicial Council (HJC) and the
State Prosecutorial Council (SPC) took
over the administration of the budget of courts and prosecution services in
March 2012; the Ministry of Justice remains in charge
of IT and capital expenditures in the court system and funding of the courts’
administrative staff. The HJC and the SPC have yet to finalise the appointments
of court presidents and public prosecutors. The HJC and the SPC have not yet
adopted rules on regular evaluation of the work and performance of serving
judges and prosecutors. The foreseen evaluation of the magistrates newly
recruited in 2009 for a three year term is in particular pending. A proper
merit-based career system for judges and prosecutors remains to be fully
developed. It is still possible to enter the judicial profession, in particular
at higher levels, on the basis of unclear criteria without having passed
through the Judicial Academy. The legal framework still leaves room for undue
political influence over the judiciary, in particular as regards parliament’s
power to appoint judges and prosecutors — including the President of the
Supreme Court of Cassation and the Republic Public Prosecutor — and its
direct participation in the work of the HJC and the
SPC.

The re-appointment procedure carried out
for judges and prosecutors in 2009/2010 and the review process conducted to
correct its shortcomings were overturned in July 2012 by the Constitutional
Court as not meeting the required standards. The Court revoked all the
decisions of the HJC and the SPC on the non-re-appointment of judges and
prosecutors that had been appealed and instructed the Councils to reinstate all
of them within 60 days. For the judges, the Court considered inter alia that
the HJC did not apply the required quorum and breached the requirement of
impartiality. In this respect, the Court objected to the participation of
ex-officio members — the President of the Supreme Court, the head of the
parliamentary committee and the Minister of Justice — and the member
representative of the lawyers to both the first decision on re-appointment and
the review process. The Court also considered that the presumption of
suitability required that judges could only be dismissed by the positive votes
of the majority of the HJC members, which was not the case as three of them
were in part or fully unavailable to act (one resigned and was replaced 3
months later, another faced criminal proceedings and a third one faced a
procedure for incompatibility of duties as dean of a law faculty). For the
prosecutors, similar shortcomings were found which invalidated the SPC’s
assessment that the petitioners did not fulfil the criteria of worthiness,
professional qualification and competence. In particular, the Constitutional
Court found that the review process unfairly placed the burden of proof on the
petitioners and that the Council’s decisions were often based on facts and
assertions that could not be challenged by the petitioners. As a results, the
Serbian authorities need to evaluate how to the judicial reform can be further
advanced after most non-reappointed judges and prosecutors are to be
reintegrated further to the rulings of the Constitutional Court.

The impartiality
of judges has continued to be broadly ensured thanks in particular to automated
allocation of court cases, which has now been introduced in all commercial
courts and general courts. New case management software has been introduced in
the Administrative and Appellate Courts in Belgrade and the Supreme Court of
Cassation in July 2012.

To ensure accountability,
steps were taken to set up a disciplinary system. The HJC introduced a
disciplinary prosecutor and commission, which handled a little number of cases
and took a few final decisions. The SPC adopted Rules on disciplinary procedure
and liability in July 2012 which remain to be fully aligned with European
standards. The SPC has yet to set up disciplinary bodies and establish a track
record of investigating and imposing penalties in disciplinary cases. The
higher courts and the Ministry continued internal inspections on technical and
administrative matters in the courts, identifying shortcomings in registering
and handling of court cases.

A number of laws came into force aimed at
improving the efficiency of the judiciary and applying international
standards in national courts. The Judicial Academy selected a new generation of
students and provided a variety of in-service training programmes for judges,
prosecutors, judicial staff and attorneys, which still need to be systematised
and structured. The judicial budget for 2012 remained
stable at some € 213 million (around 0.65% of GDP). In 2011, the
courts received 2.23 million new cases, resolved 2.65 million cases and were
left with a backlog of 3.34 million cases. The new Civil Procedure Code has been in force
since February 2012, aimed at increasing efficiency in civil procedure, which
accounts for two-thirds of all cases before the Serbian courts. The first private bailiffs were sworn in and first notaries
selected in May 2012. However, the entry into force of the law on public notaries was postponed to 2013. Major imbalances in the
workload of judges persist between courts, particularly between those in
Belgrade and other courts. A comprehensive analysis of the functioning
of the new court network is needed in terms of cost, efficiency and access to
justice. The quality of judicial statistics needs to be improved.

The new Criminal Procedure Code has been
applied in organised crime and war crimes cases since January 2012 (and is to
be applied in all criminal cases as of January 2013). It introduces a new model
of criminal investigation, giving the prosecution the lead role in collecting
the evidence and presenting it before the court. One aim is to shorten the
investigative phase, but this will require that the prosecution services rise
to the complexity of their new role. The fully adversarial system raises
questions regarding procedural safeguards, in particular the ability of poorer
defendants to finance an effective defence, a concern echoed by the Ombudsman
and the Commissioner for Free Access to Information of Public Interest. At the same time, the prosecution service still has to
demonstrate its ability to obtain convictions in high-level cases against
well-funded defence teams. A careful analysis of the implementation of
the legal framework on abuse of office or authority also needs to be conducted
in order to ensure that it is consistent and proportionate. Generally, Serbia
needs to ensure that procedural safeguards are applied consistently across the
country.

The Administrative Court continued to
increase its activity while the inflow of new cases was steady and so managed
to reduce the backlog by some 2,500 cases to 17,711 by the end of 2011.
However, administrative judges’ expertise needs to be developed, particularly
in areas such as asylum, consumer protection, state subsidies and competition.

Overall,
little progress was made, mostly in enforcing new legislation aimed at
improving the efficiency of the judicial system. The review of reappointments
of judges and prosecutors did not correct the existing shortcomings and was
overturned by the Constitutional Court who ordered the reinstatement of all
judges and prosecutors that had appealed their non-reappointment. Cases
returned by the Constitutional Court will need to be processed diligently and
in accordance with the Constitutional Court’s decisions. A system of
professional evaluation, effective disciplinary rules and stronger integrity
safeguards remains to be established. In order to restore the confidence of the
citizens, the authorities will need to consider additional measures to
strengthen the independence, impartiality, competence, accountability and
efficiency of the judiciary, in particular: transparent criteria for
appointments of judges and prosecutors; initial and in-service training under
the Judicial Academy’s responsibility, together with appraisal of serving
judges and prosecutors, including of the newly appointed ones in 2009;
integrity safeguards; court rationalisation. To meet these challenges, a new
strategy on judicial reform is needed, together with an action plan to
implement the strategy, based on a functional review of the judiciary.

Anti-corruption
policy (See also Chapter 23 – Judiciary and fundamental rights)

Serbia has made
little progress in the fight against corruption. Progress was made mainly
regarding enforcement of the legislation. Implementation of outstanding GRECO
recommendations continued. The amendments to the Law on Health Care and the Law
on Advocates include provisions on conflict of interest. The Government has not yet finalised its National
Anti-Corruption Strategy for 2012–2016 and the corresponding Action Plan. There has been little evidence in practice of the
coordinating role officially assigned to the Minister of Justice under the
previous government. A specific responsibility in this area was entrusted to
the First Deputy Prime Minister in the new Serbian government.

The Anti-Corruption Agency’s operations, which focus on
prevention, increased. The Agency started to implement the 2011 Law on the
Financing of Political Activities. It adopted implementing legislation on the
monitoring of electoral campaigns and set up an extensive network for the
monitoring of the 2012 elections. It also collected annual financial reports
from a majority of political entities and issued warnings to 10 of them who had
failed to submit such report by the deadline. The Agency continued to make
targeted checks on asset declarations it has received. This activity led to
misdemeanour judgements in two cases, and criminal charges in another. The
Agency collected few data for its new registry of legal entities involved in
public procurement in which public officials have shares over 20%. Regarding
cases of dual public functions presenting a risk of conflict of interest, the
Agency took close to 500 decisions in 2011 that are generally being enforced.
However, the Agency has still to establish a track record of effective checks
on party funding. It has not yet made
full use of its powers and needs to improve cooperation with relevant
stakeholders to investigate declarations of assets effectively.

The
Anti-Corruption Council continued to be active in exposing and analysing cases
of systemic corruption. There has been very limited follow-up to its detailed
reports of high-profile corruption cases.

The special prosecutor for corruption and organised crime
launched investigations into 115 corruption cases in 2011. These
included several medium- to high-level cases. There was a
marked increase in the number of lower-level corruption cases for which the
prosecutor’s offices initiated investigations in 2011, but in the great
majority of such cases sanctions remained lenient. Further efforts are needed to establish a track record of prosecution and
conviction, particularly in high-level cases. The law enforcement bodies need
to become more proactive and develop their ability to conduct financial
investigations. There was little action to protect
whistleblowers.

Internal checks by the customs administration and the
police have continued to result in a sizeable number of cases being
investigated and penalties imposed. Public procurement, management of public
enterprises, privatisation procedures and public expenditure remain areas of
serious concern, in which independent supervision and capacity for the early
detection of wrongdoing and conflicts of interest are underdeveloped. Health
and Education remain particularly vulnerable to corruption. Comprehensive risk
analyses for areas vulnerable to corruption are needed. Coordination between
all stakeholders needs to be strengthened to ensure effective prevention and
prosecution of corruption cases.

Overall, the implementation of the legal framework for fighting corruption
has continued. The Anti-Corruption Agency’s operations increased, mostly in
relation to the financing of political parties. However, corruption remains
prevalent in many areas and continues to be a serious problem. A new
Anti-Corruption Strategy and Action Plan are still awaited. The implementation
of the legal framework and the efficiency of anti-corruption institutions need
to be significantly improved. Further efforts are needed to adopt a more
proactive approach to investigating and prosecuting corruption and the
judiciary needs to gradually build up a solid track record of convictions,
including in high-level cases, particularly in cases of misuse of public funds.
Stronger political direction and more effective inter-agency coordination are
needed to significantly improve performance in combating corruption.

2.2.
Human rights and the protection of minorities (See also Chapter 23 – Judiciary and
fundamental rights)

Observance of international human rights law

Serbia has already ratified all of the
main international human rights instruments.

During the reporting period, the European Court of Human Rights (ECtHR) delivered
judgments on 40 applications finding that Serbia had violated rights guaranteed
by the European Convention on Human Rights (ECHR). The bulk of the judgments so
far relate to the excessive length of court cases and to non-enforcement of
domestic judgments. Due enforcement of ECtHR’s rulings in cases of compensation
of workers from State owned enterprises, for which a decree was taken by the
government in March 2012, is needed. A total of 4.833
new applications have been submitted to the ECtHR since September 2011,
bringing the total of pending applications to 9.478. The
number of filed applications against Serbia is steadily growing and now
represents 6% of all filed applications with the Court.

There is some progress in the promotion
and enforcement of human rights. Various activities aimed at promoting
tolerance, anti-discrimination and respect for human rights were carried out.
Different occasions such as those marking International Human Rights Day,
International Women’s Day, International Roma Day and Pride Day were used to
raise public awareness of human rights issues. Various training courses were
held for judges, prosecutors, legal practitioners, prison officers and police
officers. However, the implementation of relevant international instruments
needs to be further improved.

Overall, the
legislative and institutional framework for the observance of human rights is
in place and some active measures were taken to ensure its implementation.
However, further efforts to implement international instruments are required.

Civil and political rights

Some progress has been made on the prevention
of torture and ill-treatment of persons deprived of their liberty. The
Ombudsman, acting as of January 2012 as National Prevention Mechanism against
torture, held its first inspections of prisons, psychiatric hospitals, police
stations and social care centres. Poor living conditions, unsatisfactory
healthcare and a lack of adequate and specific treatment programmes are still a
matter of concern. There are no adequate legal safeguards for the placement and
treatment of people with mental disabilities involuntarily placed in
psychiatric or social care institutions. The internal control system for the
police needs significant strengthening in terms of staff and training and needs
to improve its response to allegations of ill-treatment.

Some
progress has been made regarding the prison system. The Action plan implementing the Strategy for the reduction of
prisons’ overcrowding was adopted in November 2011. Some improvements were made to prison
infrastructure and a new prison facility with 450 places was opened near
Belgrade in February 2012. However, the prison system continued to face serious
problems due to overcrowding with a number of prisoners over 11,500 for some 5
to 6,000 places. Further efforts are needed to improve living conditions,
healthcare and provide adequate treatment programmes for prisoners. Alternative
sanctions need to be introduced on a larger scale. There are not enough frontline prison staff. An efficient probation
system remains to be introduced.

Constitutional guarantees of access to
justice are in place. However, the length of court
proceedings and the backlog of cases continue to remain issues of concern. Legislation
and funding for an effective system of free legal aid still need to be
developed.

The legal framework to ensure freedom of
expression is in place. As regards the media, several working groups have
been set up to implement the Media Strategy adopted in October 2011 and its
accompanying action plans. The Republican Broadcasting Agency (RBA) has
improved the transparency of its work and has enhanced its technical capacity
for monitoring broadcasters. However, violence and threats against journalists
remain of concern, although their frequency has decreased slightly. The Serbian
authorities have continued to provide police protection for journalists and
media outlets which have received threats. Investigations into murders of
journalists dating back to the late 1990s/early 2000s and into recurring
threats against journalists have so far failed to identify the perpetrators. A
more comprehensive and proactive approach by the police and the judiciary
remains essential. Monitoring of discriminatory or hate
speech by the RBA needs to be improved. The procedure by which RBA members are
appointed continues to raise concerns about the independence of this body.
Access to advertising in the media remains under the control of a few economic
and political actors, entailing a significant risk of influence on the media
and of self-censorship. Transparency of media ownership has yet to be ensured.
The implementation of the media strategy needs to be speeded up.

Freedom of assembly and association is constitutionally guaranteed and in
general respected. 91 political
parties, including 53 representing minorities, were registered as of August
2012. In December 2011 the Constitutional
Court ruled that a decision by the Ministry of the Interior not to allow the
2009 Pride Parade to take place in the location registered by the organisers
was a violation of freedom of assembly. However, while a Pride festival could
take place in Belgrade from 30 September to 7 October 2012, the Pride
Parade itself, scheduled for 6 October 2012, was banned by the Serbian
authorities on security grounds, for the second year in a row. The activities of extreme
right-wing organisations and of violent groups of so-called sports fans
continue to be a major cause of concern. The Constitutional Court banned a
second such organisation in June 2012. Criminal proceedings were initiated in
April 2012 against 12 persons suspected of having taken part in the attacks of
foreign diplomatic missions in Belgrade, including EU embassies, in February
2008. So far, one of the suspects was acquitted in first instance.

Civil society organisations continue to
play an important role in social, economic and political life, and in promoting
democratic values. The Office for Cooperation with Civil Society has been very
active in raising awareness both among the public and among state institutions
of the importance of involving civil society and citizens in decision-making.
It has also established cooperation with other countries in the region. The
Office has been allocated sufficient means, including financial resources, and
now functions at full capacity.

Freedom of thought, conscience and religion is guaranteed and generally respected.
Religiously motivated incidents declined. In addition to 7 religious
communities recognised as traditional communities under a law passed in 2006,
18 religious organisations have been registered. The lack of transparency and
consistency in the registration process continues to be one of the main
obstacles preventing some smaller religious groups from exercising their
rights, which also led to limit the access to church services in some minority
language. A Constitutional Court ruling on the 2006
law which differentiate between traditional and other religious organisations
is still awaited. The Ombudsman’s 2011 annual report stressed continuing
problems with regulating religious classes and the status of teachers of
religion, particularly relating to the Islamic faith. Some media continued to
propagate negative comments and hate speech against smaller churches.

Overall, there has been some progress on civil and
political rights. The legal framework for freedom of expression is in place but
violence and threats against journalists remain of concern. The implementation
of the media strategy needs to be speeded up. Freedom of assembly and
association are constitutionally guaranteed and in general respected. The
Office for Cooperation with Civil Society has been very active. Freedom of
thought, conscience and religion is in general respected but the registration
process for religious communities continues to lack transparency and
consistency. The National Mechanism for Prevention of Torture began work but
needs further strengthening. Although one new facility was opened, overcrowding
in the prison system remains a grave concern. On access to justice, an
effective system of free legal aid still needs to be developed.

Economic
and social rights (See also Chapter 19 – Social policy and employment)

There has been some progress relating to women’s
rights and gender equality. Serbia signed the Council of Europe Convention
on Preventing and Combating Violence against Women and Domestic Violence in
April 2012. A general protocol on procedures and cooperation between
institutions, agencies and organisations in situations of domestic and
partner-relationship violence was adopted in November 2011. The protocol aims
to provide better protection for victims. A telephone helpline for victims of
domestic violence was introduced in November 2011. A new shelter for up to 20
victims of domestic violence was opened in Pancevo in January 2012, bringing
the number of such centres to 13. However, violence against women remains an
area of concern. The action plan for the implementation of the
National Strategy for Prevention and Suppression of Violence against Women
has yet to be adopted. Very often, domestic violence goes unreported and
greater coordination is needed, e.g. on collecting and sharing data between all
actors in the system for protecting women from violence. Women continue to be
discriminated against in the labour market.

Children’s rights are guaranteed by the Constitution and broadly respected. Little
further progress has been achieved in this area. There has been a steady
reduction in the number of children with disabilities placed in residential
care institutions and an increase in the availability of community services for
family members with disabilities. A media campaign to eradicate violence in
schools has started and a telephone helpline for victims of juvenile violence
was introduced in November 2011. However, both juvenile violence and violence
against children continue to grow and are of great concern. Children’s rights,
particularly the rights of those belonging to vulnerable groups such as Roma,
poor children, children with disabilities, children without parental care and
street children, are unevenly protected. There are an increasing number of
children living in poverty. Inclusive education is still not fully developed.
The school drop-out rate is high among Roma children, children with
disabilities and children living in remote areas. Too many Roma children are
still being enrolled in special schools.

Some progress has been made concerning the socially
vulnerable and/or persons with disabilities. The overall legislative
framework is in place for the protection, inclusion and education of socially
vulnerable persons and persons with disabilities. Efforts have been made to
promote their rights, education and inclusion in the labour market. Deinstitutionalisation
efforts have further continued, in tandem with the development of
community-based services. However, the number of vulnerable persons registered
with the National Employment Service remains extremely low. Access to public
buildings for persons with disabilities needs to be further improved,
especially in rural areas. Overall, social integration of persons with
disabilities remains limited and as that of other vulnerable persons it needs
further improvement.

There has been
some progress on anti-discrimination policies. Serbia’s
anti-discrimination legislation is broadly in line with
European standards on combating racism and racial discrimination. The Equality Protection Commissioner’s
office was active in raising awareness on discrimination and existing
mechanisms for protection against discrimination. It received 450 citizens’
complaints and dealt with 360 cases. The number of citizens’ complaints has
been increasing, indicating greater awareness of this problem. The groups most discriminated against are the
Roma, persons with disabilities and sexual minorities, who, together with human
rights defenders, often face hate speech and threats. Certain aspects of the
Serbian anti-discrimination law are not in line with the acquis, notably
the scope of exceptions from the principle of equal treatment, the definition
of indirect discrimination and the obligation of reasonable accommodation for
disabled employees. The police response to attacks against the lesbian,
gay, bisexual and transgender (LGBT) population has slightly improved. Several
physical attacks and threats on members of the LGBT population and those
promoting LGBT rights continued to occur and the 2011 and 2012 pride parades
were banned because of security threats. For the first time, a Pride Day was
marked in June 2012 by events co-sponsored by the government and civil society
but so far, the new government has taken no further initiative towards the
better inclusion of the LGBT population and a greater understanding across
society.

Labour and
trade unions rights are guaranteed by the
Constitution and broadly respected but no further
progress has been made. The 1996 law on strike is not
in line with the EU and ILO standards, in particular as regards possible
restrictions to the right to strike. Criteria for social partners’
representativeness in social dialogue are still an issue: several registered
trade unions are still not recognised and concerns remain as to the criteria
for participation of employers’ organisations. Social dialogue remains limited.
The Economic and Social Council was not consulted regularly on draft laws and
its meetings were often not attended by government officials. At local level,
dialogue has generally been non-existent.

Progress was achieved concerning property
rights. Implementation of the 2011 Law on Restitution has started. The
Agency for Restitution was set up in January 2012 and invited former owners of
properties nationalised after World War II, or their heirs, to submit claims
for restitution between 1 March 2012 and 1 March 2014. The Agency has started
processing the claims and has taken a number of decisions on restitution in
kind. Given the ceiling of € 2 billion available for financial
compensation, the corresponding individual decisions will only be taken after
the deadline for submissions has expired, when the total number of claims is
known. A Law on Rehabilitation adopted in December 2011 clarified the procedure
and conditions under which members of the occupying forces recruited in Serbia
during World War II can be rehabilitated, making them and their heirs
eligible under the Law on Restitution.

Overall, the
legal framework for the protection of social and economic rights is in place.
However, discrimination based on race, ethnicity, gender, age and sexual
orientation is widespread and further measures to fight all forms of
discrimination are needed, together with efficient mechanisms to improve the
protection of women and children against any form of violence. Social dialogue
needs to be improved and the issue of social partners’ representativeness
criteria resolved. Implementation of the 2011 Law on Restitution has started.

Respect
for and protection of minorities, cultural rights

A comprehensive
legal framework for the protection of minorities is in place, in line
with the Framework Convention on National Minorities of which Serbia is party,
and generally respected. A Governmental Office for Human and Minority Rights
was established as of August 2012, taking over the functions ensured by the
previous Directorate within the Ministry for Human and Minority Rights, Public
Administration and Local Self-Government. Regular
financial reports by the national minority councils to the Office for Human and
Minority Rights have been introduced. The 2011 population census included
provisions facilitating the participation of minorities such as translation of
the questionnaire in nine languages and participation of minority languages
speaking enumerators. However, implementation of the legislation needs to be
further improved. The Republican Council for National Minorities has remained
inactive. The Bosniak minority council has not yet been formally constituted. The recommendations made by the Serbian independent bodies with a
view to improving the electoral framework for the national minority councils
have not yet been followed up. The legislation is in place but implementation
at field level remains uneven throughout the entire territory of Serbia.
Generally, Vojvodina is more advanced while South and South-West Serbia lag
behind, due in part to a lack of available funding. Coordination between the
central and local level needs to be further improved as well as awareness on
the minority issues legal framework, including from the minorities themselves.
Further improvements are also needed regarding information and education in
minority languages, including the provision of all the necessary textbooks.

The inter-ethnic
situation in the Autonomous Province of Vojvodina remained good.
Elections for the Provincial Assembly took place in May 2012. There have been
only sporadic inter-ethnic incidents. Reactions to such incidents by provincial
officials and the police were adequate but the legal process needs to be
improved as the prosecution continued to treat them as misdemeanour cases
rather than criminal offences. The Provincial Ombudsman’s 2011 annual report
noted that out of 1,237 complaints 65 were related to minority issues (5.25%).
The law on Vojvodina’s own resources, required by the Constitution, has yet to
be adopted. The Constitutional Court invalidated in
July 2012 some provisions of the law regulating the competences of Vojvodina.

As regards the municipalities of Presevo,
Bujanovac and Medvedja, the situation continued to be stable overall,
although there were sporadic incidents. An Albanian/Serbian Department of
Economics was opened in Bujanovac in October 2011 as a branch of the Novi Sad
Faculty of Economics and 69 students were enrolled. Students from Presevo and
Bujanovac were granted scholarships to study at Novi Sad University. Several
textbooks in Albanian were provided for the 2011 school year. In April 2012 the
government and the municipal authorities reached an agreement on state
investment in small and medium-sized enterprises in the three municipalities.
Following calls by their political parties, Albanians however massively
boycotted the October 2011 population census and partially boycotted the May
2012 parliamentary elections. Albanians continue to be underrepresented in the
public administration and local public companies. The area remains among the
poorest in Serbia and requires further commitment from the State authorities
for its economic development.

Regarding the Sandzak area, the
situation has been stable overall. The campaign for parliamentary and municipal
elections was calm and no incidents were recorded. Parties from Sandzak which
participated in the elections in April 2012 signed a code of conduct for the
campaign and largely abided by it. The Bosniak community continued to be
underrepresented in the local administration, judiciary and police. A 2011
recommendation to a municipal administration by the Equality Commissioner to
ensure the use of the Bosniak language and Latin alphabet has not been
followed. The Ombudsman also issued recommendations in April 2012 to ensure
adequate use of the Bosniak language in four municipalities. No solution was
found to the outstanding issue of the election of the Bosniak national minority
council, nor has the issue of the two rivalling Islamic communities been
resolved. The area remained significantly underdeveloped, with a high
unemployment rate and a lack of adequate infrastructure and investment. It
requires further commitment from the State authorities for its economic
development.

There has been
some improvement in the position of the Roma population. Serbia has continued to take an active part in the Decade of Roma Inclusion
2005–2015 and has undertaken to implement the
operational conclusions of the June 2011 EU-Serbia social inclusion seminar on
Roma issues. The government
signed in April 2012 a Memorandum of Understanding with the Ombudsman and the
UNHCR to provide assistance on the registration of legally ‘invisible persons’
and changes were brought to the law of non-contentious procedures in August
2012 aimed at facilitating later registration in the birth registry. The
measure allowing undocumented Roma to register using a provisional address has
yet to be implemented. Active measures to increase social inclusion of the Roma
have continued. The enrolment rate of Roma children in the education system has
increased. 170 Roma teaching assistants have been employed together with 75
health mediators. The school drop-out rate for Roma children remains however
high. The 2012–2014 Action Plan for the implementation of the Roma Strategy has
not yet been adopted. Most of the Roma population lives in informal settlements
under difficult conditions. Some positive steps to comply with international
standards were taken regarding the relocation of Roma evicted from such
informal settlements. Further sustained efforts are required to fully comply
with international standards on forced evictions. The Roma population, and
especially Roma women, are the most discriminated against in the labour market.
The Roma minority continues to face discrimination, social exclusion and high
unemployment. Roma women and children are still frequently subject to family
violence, which often goes unreported.

According
to the UNHCR, there are around 66.000 refugees
and 210.000 internally
displaced persons in Serbia. The number of collective centres fell further
from 29 to 24. The programme for supporting municipalities which prepare local
action plans for the improvement of the status of refuges and IDPs has
continued and some improvement has been recorded concerning the displaced
persons housing situation. However, the living conditions of many refugees and
internally displaced persons are still difficult. Many are unemployed and live
in poverty. Internally displaced persons who do not have personal documents are
in a particularly difficult position as they are not able to exercise their
basic rights.

Overall, the legal framework for the protection of
minorities is in place and generally respected. Some positive steps were taken
to improve the situation of minorities, including the Roma. Regular financial
reporting by the national minority councils has been introduced. Additional
efforts are needed to ensure effective implementation of minority legislation
throughout the territory of Serbia and address known shortcomings. Serbia needs
to do more to support the socio-economic development of Sandzak and Presevo,
Bujanovac and Medvedja. The Roma, refugees and internally displaced persons
continue to face a difficult situation.

2.3.
Regional issues and international obligations

There are no
outstanding issues in connection with Serbia’s compliance with the Dayton/Paris
Peace Agreement. In the framework of the Special Parallel Relations
Agreement between the Republika Srpska and Serbia, a joint session of the
governments of Serbia and the Republika Srpska took place in Belgrade in
December 2011, leading to the signing of four agreements on internal affairs,
IT, the environment and agriculture.

Cooperation
with the International Criminal Tribunal for the former Yugoslavia (ICTY)
continued to be fully satisfactory. Serbia continued to provide smooth and
swift access to documents and witnesses, in support
of ongoing or planned ICTY trials. The June report of ICTY prosecutor Brammertz
regretted the lack of action against the network of aid to ICTY fugitives. The
War Crimes Prosecutor started criminal proceedings against an aid network in
June 2012. A new trial against a previously identified group of 10 people
suspected of aiding Ratko Mladic to evade justice was also restarted. However,
Serbia must still further intensify its efforts in the conduct of more in-depth
investigations into the fugitive networks in order to achieve visible results.

Domestic processing of war crimes continued with a
number of new indictments, first-instance judgments and final convictions.
Cooperation and exchanges of information with Croatia and EULEX developed in
2012. However, serious problems with witness protection hinder the handling of
sensitive cases. A review of the 1990s indictments by military courts in the
case of Croatia was completed and findings shared with Croatia. A similar exercise
involving discussions with EULEX is ongoing in relation to events in Kosovo. An
agreement with Bosnia and Herzegovina on sharing evidence remains to be
concluded.

Serbia’s policy
regarding the International Criminal Court is in line with the EU’s guiding
principles and the EU Common Positions on the integrity of the Rome Statute.
Serbia does not have any bilateral immunity agreements.

Serbia made some progress towards a visible
and sustainable improvement in relations with Kosovo, the key priority
set out in the Commission’s Opinion on Serbia’s membership application. Serbia
continues to contest Kosovo’s declaration of independence and to actively
oppose recognition by third parties but has participated in a dialogue with
Pristina since March 2011. Additional agreements were
reached in that dialogue in February 2012 on regional cooperation and
representation of Kosovo and on integrated management of border/boundary
crossing points (IBM), in the run-up to the March European Council which
granted Serbia candidate status. Implementation of these agreements was long
delayed. Serbia adopted at first an overly restrictive internal instruction
regarding the participation of Serbian delegations in regional meetings and
conditions to be observed for its acceptance of Kosovo’s participation. Soon
after formation of a new government, a revised instruction was adopted in
September 2012 which, subject to continued implementation, enables
inclusiveness of regional cooperation. Serbia eventually signed the IBM
technical protocol in September 2012 but it has yet to be implemented. Other
agreements reached in this dialogue between March and September 2011 regarding
freedom of movement, civil registries, customs stamps and mutual acceptance of
diplomas are being implemented, except for cadastre, on which Kosovo still
needs to adopt a law. Some areas are facing technical difficulties, e.g.
vehicle insurance and car number plates for the freedom of movement agreement.
Gates 1 and 31 remained mostly closed or only partially open, while there has
been considerable traffic using unregulated crossing points into and from
Serbia.

Serbia was constructive in accepting OSCE
facilitation in Kosovo for the holding of its parliamentary and presidential
elections there and in not calling local elections in Kosovo. Serbia continued
to fund and to maintain its structures, particularly in northern Kosovo, including not only hospitals and schools, but
municipal administrations, security services and judicial structures. Cooperation
with EULEX has improved. Direct high-level contacts facilitated operational
cooperation. Cooperation in combating organised crime has improved but needs to
be further developed in regard to some specific cases.

Following the elections
and a new leadership in Serbia taking up office, Serbia needs to continue to
engage constructively in the next phase of the dialogue in order to achieve
further progress towards a visible and sustainable improvement of relations
with Kosovo.

Significant
progress has been made as regards the Sarajevo Declaration Process, which
brings together Bosnia and Herzegovina, Croatia, Montenegro and Serbia
and aims at finding sustainable solutions for the refugees who were displaced
as a result of the armed conflicts in ex-Yugoslavia during the 1990s. The four
countries signed a ministerial declaration in November 2011 in Belgrade,
renewing their political commitment to bringing this chapter to a close. They
agreed on a Regional Housing Programme assisting some 27,000 households or
74,000 individuals. The programme was presented for international donor support
at the Sarajevo April 2012 donors’ conference, which resulted in some
€ 265 million being pledged. Programme implementation is at an early
stage. Good cooperation needs to continue between the four countries on all
outstanding issues in the process, including data exchange and statistics,
civil documentation and pension rights.

The
unresolved fate of missing persons from the conflicts in the 1990s
remains a humanitarian concern in the Western Balkans. As of August 2012, there were still
approximately 13,250 people missing from the conflicts in the region. Of
these, some 9,550 were related to the conflict in Bosnia and Herzegovina,
approximately 1,900 to the conflict in Croatia and over 1,800 to the conflict
in Kosovo. In the past year approximately 1,100 remains were identified at
regional level. The lack of
information on new gravesites and difficulties in identifying exhumed human
remains continue to be the key obstacles to solving the remaining cases of
missing persons. The Working Group chaired by the ICRC remained the framework
within which the Belgrade and Pristina authorities maintained dialogue and
exchanged information on persons unaccounted for in relation to the 1998–1999
events in Kosovo. It met twice since September 2011 and held two briefing
sessions for the families of the missing, while only 45 cases were solved.
Although modest, the progress was achieved mostly owing to the information
provided by the Serbian authorities and obtained from international archives.
Regarding cooperation between Serbia and Croatia, progress has been limited. No
formal meetings of the bilateral Commission on Missing Persons were held.
Sustained efforts and enhanced political commitment are needed towards identifying
gravesites and clarifying the fate and whereabouts of people still unaccounted
for.

Regional cooperation
and good neighbourly relations form
an essential part of the process of Serbia’s moving towards the European Union.
In 2012 Serbia held the chair of the South East Europe Cooperation Process
(SEECP), the Migration, Asylum, Refugees Regional Initiative (MARRI), the
Adriatic-Ionian Initiative (AII) and the Black Sea Economic Cooperation (BSEC).
It continues to play an active part in the Regional Cooperation Council (RCC),
the Central European Free Trade Agreement (CEFTA), the Energy Community Treaty
and the European Common Aviation Area Agreement. The new RCC Secretary General
was appointed following a proposal from Serbia. Serbia supports the RECOM
initiative on reconciliation and the Igman Initiative. However, the agreement
reached on regional cooperation and the representation of Kosovo in the
framework of the Belgrade/Pristina dialogue did not immediately result in
either smoother or fully inclusive regional cooperation. Between March and
August 2012 Serbia chose to walk out of or boycott meetings that did not
strictly follow its own interpretation but eventually applied a more flexible
approach from September 2012 onwards.

Serbia has good bilateral relations with
other enlargement countries and with neighbouring EU Member States overall.
Then President Tadic participated in February 2012 in a trilateral summit of
Presidents of Serbia, Bosnia and Herzegovina and Croatia at Jahorina and in the
summit of Presidents of Serbia, Croatia, Slovakia and the Czech Republic in
Prague. A first trilateral meeting of the Ministers of the Interior of Serbia,
Montenegro and Bosnia and Herzegovina took place in April 2012. However, some
unhelpful statements for reconciliation in the region were made by the new
Serbian President, Mr Nikolic, at the time of his election and taking office,
such as that denying the qualification of genocide for the crimes in
Srebrenica. Several regional leaders decided not to attend the inauguration of
the new president. Serbia needs to continue to make a positive and constructive
contribution to regional cooperation and reconciliation.

Relations with Albania remained
good. Several high-profile bilateral meetings took place. An agreement on
veterinary cooperation was signed in April 2012. A readmission agreement and an
agreement on reciprocal movement of citizens were also signed.

Relations with Bosnia and Herzegovina
remained good. The speaker of the Serbian Parliament paid a visit to Bosnia and
Herzegovina in December 2011, the Minister of Foreign Affairs of Bosnia and
Herzegovina visited Belgrade in March 2012 and the Serbian Prime Minister
visited Sarajevo in September 2012. Then President Tadic visited Republika
Srpska on several occasions. Border demarcation remains an open issue.

Relations with Croatia are stable,
regardless of a number of outstanding issues (e.g. border demarcation and
missing persons). The two countries are working on a bilateral agreement on war
crimes prosecution. There have been no tangible results with regard to border
demarcation concerning the Danube. The Serbian government submitted its written
pleadings supporting its counter-suit against Croatia before the International
Court of Justice on genocide allegations in November 2011. A protocol on the
return to Croatia of cultural assets taken during the war in the 1990s was
signed, thus resolving an outstanding bilateral issue.

Relations with the former Yugoslav
Republic of Macedonia continued to be good. There were reciprocal
presidential visits in December 2011 and January 2012, which were held in a
positive atmosphere. Agreements on travelling conditions and on compensation
for health protection were signed. There were no developments regarding the dispute
between the Orthodox churches in the two countries.

Relations with Montenegro remained
good, overall. The Serbian Prime Minister led a senior delegation on a visit to
Podgorica in December 2011. The Montenegrin President attended the inauguration
of the Serbian President. The two governments signed a number of agreements on
sectoral policies, an agreement on cooperation on air traffic control and a
protocol on cooperation in resolving the fate of missing persons. There were no
developments regarding the dispute between the Orthodox churches in the two
countries.

Relations with Turkey remained good.
The prime ministers met in November 2011 and there were several other
reciprocal visits at ministerial level.

Serbia’s relations with neighbouring EU
Member States Bulgaria, Hungary and Romania remained
generally good. Serbia and Romania expanded cooperation on the regulation of
the status of their respective national and religious minorities and agreed in
March 2012 to a Joint Statement on the Protocol on the second session of the
Inter-Governmental Commission on National Minorities. The issue of protection
of minorities in Serbia was raised in different contexts by Romania as being of
particular concern. Both countries have started to address this bilateral issue
through the mediation of the OSCE High Commissioner on National minorities as
well as in the framework of their bilateral joint commission.

Overall, Serbia’s
international obligations are generally complied with. Serbia continued to fully cooperate with the International Criminal
Tribunal for the former Yugoslavia (ICTY). Domestic processing of war crimes
cases continued. Serbia maintained a good level of relations with its
neighbours and active involvement in regional cooperation, notably by chairing
the South East Europe Cooperation Process (SEECP) and a number of other
regional initiatives.

Serbia still needs to achieve further
progress towards a visible and sustainable improvement in relations with
Kosovo, the key priority set out in the Opinion. New results were achieved in
the dialogue with Pristina, with agreements in the areas of regional
cooperation and representation and integrated management of border/boundary
crossing points. However, implementation of these agreements was long delayed.
Serbia’s interpretation of the agreement on regional cooperation and the
representation of Kosovo was eventually clarified soon after the formation of a
new government and, based on initial implementation, is no longer hampering the
inclusiveness of regional cooperation. Serbia eventually also signed the IBM
technical protocol in September 2012 which has yet to be implemented.
Implementation of other agreements on freedom of movement, the land registry,
civil registries, customs stamps and mutual acceptance of diplomas has overall
moved forward. Serbia’s new leadership has underlined its commitment to
implement all agreements already reached in the dialogue with Pristina as well
as to begin tackling the broader political issues. Fulfilment of this
commitment is key to moving to the next phase of Serbia’s EU integration.

3.
Economic criteria

In examining economic developments in
Serbia, 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

In January
2012, the government submitted to the European Commission its Economic and
Fiscal Programme (EFP) for the period 2012-14. The programme’s growth
projections are optimistic, especially for 2012, and the plausibility of its
targets is constrained by an outdated macroeconomic and fiscal scenario. The
programme would have benefited from a more detailed description of policy
measures to lead towards the declared objectives — sustainable growth based on
exports and investment.

Serbia entered
into a precautionary Stand-By Arrangement (SBA) with the International Monetary
Fund (IMF) in September 2011. The completion of the first review has been
postponed because the 2012 budget deviated from the agreed fiscal programme.
After the elections at all levels in May, the new government is facing the
challenge to urgently address the increasing fiscal imbalances and present and
implement a comprehensive structural reform agenda. The independence of the
central bank has been seriously challenged by the adoption of amendments to the
Law on the National Bank of Serbia (NBS) in August.

Overall, economic reforms have mostly stalled in the election period. The
consensus on the fundamentals of a market economy has been broadly preserved
but needs to be reinvigorated in order to improve economic performance and
enhance the resilience of the economy.

Macroeconomic
stability

In 2011, Serbia’s
GDP increased by 1.6% in real terms. The pace of recovery slowed down
significantly in the second half of the year and economic indicators point to a
further deterioration of the economy, which contracted by an estimated 1.3% in
the first and 0.6% in the second quarter of 2012. Growth in 2011 was rather
narrow‑based as key sectors stagnated and even declined. This was
particularly visible in manufacturing, real estate and agriculture, which grew
by less than one per cent, and in wholesale and retail trade, which fell
strongly by a real 5.5% compared to the previous year. Average per capita
income in purchasing power standards rose to 35% of the EU average in 2011 from
34% in 2010. Overall, the economic recovery proved fragile and the
economy has entered another phase of contraction.

Serbia’s
external position has been affected by the slowdown in the EU economy and in
the region. After remaining stable at around 7% of GDP for about two years, the
current account deficit increased to around 9% of GDP in 2011 and continued
expanding to double-digit levels in the first half of 2012. A major drop in
current transfers, mainly private remittances, was the main factor driving the
deterioration in 2011, while trade and net factor income deficits remained
broadly unchanged. After a peak in 2009-2010, remittances declined to about 7%
of GDP, a level closer to their medium–term average. In 2011, both exports and
imports of goods and services increased in euro terms by double‑digit
rates. Still, the trade deficit remained relatively high at 17.2% of GDP and
the surge in exports of the last two years has stalled. Export growth
decelerated strongly in the last months of 2011 and even turned negative in
early 2012, as foreign demand declined and particularly bad weather reduced
general economic activity in the country, before rebounding slightly in the
second quarter. Imports decelerated too but continued growing by close to 6% in
euro terms in the first half of the year. As a result, the trade deficit
expanded by 15% over that period.

The inflow of
net foreign direct investments was significant in 2011 but turned negative in
the first half of 2012. Portfolio and other investment inflows increased last
year, on the back of significant government borrowing, while banks and other
sectors reduced their liabilities. In September 2011, the government issued a
USD 1 billion 10‑year Eurobond. Short‑term commercial bank debt was
reduced by two thirds, pushing the share of total short-term debt to below 3%
of the external debt stock. This helped reduce Serbia’s total external debt to
below 80% of GDP in 2011. In the first half of 2012, banks continued to reduce
their foreign liabilities. However, the external debt rose to 80% of GDP by
end-July as its valuation increased following significant dinar depreciation in
this period. In 2011, the central bank was able to increase significantly its
reserves, but these gains were reversed in 2012 as FDI and portfolio investment
inflows fell sharply and the bank intervened heavily to support the falling
dinar. Nevertheless, by the end of August, foreign exchange reserves remained
at a comfortable level, covering about seven months’ worth of imports. Overall,
the external adjustment remains unfinished, with significant and growing trade
and current account deficits. External financing has weakened recently but
short‑term risks are dampened by the still ample foreign exchange
reserves and the favourable external debt structure, with a strong prevalence
of long‑term debt.

In 2011 labour
market indicators deteriorated for a third year in a row and worsened further
in 2012. The unemployment rate climbed to 25.5% in April, from 23% in 2011 and
19.2% in 2010. Both activity and employment rates declined to their lowest
levels in a decade. Most of the unemployment is structural as around three
quarters of all unemployed have been without a job for more than a year. The
economic growth of last year has not been conducive to employment creation and,
according to the labour force survey, the number of employed people decreased
by 6%. Employment declined even in sectors which had positive growth rates,
implying gains in labour productivity and probably increasing informalities.
Public administration, education and health care were a notable exception to
this pattern and continued to expand. Employment continued to decline in the
first half of 2012, with the number of registered employed falling by 1.5%
compared to the same period in the previous year. Gross and net wages increased
on average by a nominal 11% in 2011 and stagnated in real terms. Following the
unfreezing of public sector salaries in early 2011, real wages have been
growing by 2-3% since mid-2011. Their increase accelerated by the end of 2011
and in the first half of 2012, mostly due to base effects and rapid
deceleration in inflation. Following a 13% increase in April, the minimum wage
has reached almost half of the average wage. Overall, labour market
conditions deteriorated sharply and unemployment and sustainable employment
creation represent a major challenge.

The monetary
policy framework remained unchanged and the National Bank of Serbia maintained
its commitment to price stability. The amendments to the Law on the National
Bank adopted in August 2012 seriously challenged its independence, undermining
the confidence in the monetary policy. The central bank lowered its
end-of-the-year inflation target from 4.5% in 2011 to 4% in 2012, still within
an unchanged tolerance band of ±1.5 percentage points. The target was missed by
a wide margin throughout 2011, notwithstanding a gradual reduction of annual
inflation to 7.0% by end-2011, compared to 10.2% a year before. Inflation was
mainly driven by food prices, while energy and transport became the main
sources of inflationary pressure in early 2012. As food prices moderated
strongly and even declined for a few months in the spring of 2012, inflation
continued to fall, reaching 2.7% in April, thus moving below the NBS target
band. The central bank reduced its key interest rate, in several steps in line
with falling inflation, from a peak of 12.5% in April 2011 to 9.5% in April
2012. Since then, on the back of renewed pressure from food prices, affected by
a drought in the summer, inflation accelerated again, reaching 7.9% in August.
The exchange rate of the dinar vis-à-vis the euro remained broadly stable in
the second half of 2011. However, it has come under pressure since the
beginning of 2012. Political uncertainties linked to the general elections and
the formation of a new government, weaker net foreign currency inflows and
deteriorating budget performance have led to a depreciation of the dinar, and
by end September 2012 it had lost about 10% against the euro since the
beginning of the year. In view of the high euroisation of the economy and
significant pass‑through effects to inflation, the central bank
intervened heavily on the market. It sold more than € 1.3 billion and
increased the dinar share in the foreign exchange required reserves in an
attempt to stem the fall of the dinar. Moreover, since June the bank increased,
in three steps, its main policy interest rate to 10.5%. Overall,
inflation has been volatile and general uncertainty, weaker net foreign currency
inflows, and increasing budget deficits have weakened the dinar.

Fiscal
performance has deteriorated. The overall budget deficit increased to 5.0% of
GDP in 2011, up from 4.7% a year earlier, and compared to a deficit target of
4.6% of GDP in the revised budget adopted in October 2011. The higher than
projected budget deficit resulted from lower economic growth and
underperforming revenues, especially in the second half of the year. Almost all
revenue categories, with the exception of excise duties (due to rises in
effective rates) and corporate income tax, have decreased in real terms. Total
revenue fell by 1.5 percentage points to 41.0% of GDP in 2011, while total
expenditure decreased by 1.2 percentage points but remained high at 46.0% of
GDP. Most of the expenditure categories have declined, with the biggest drops
recorded in subsidies, social assistance and capital expenditure. However,
spending on wages and pensions remained significant, pointing to a major
imbalance in the structure of public expenditure. Following the rapid increase
in government debt over the previous few years, interest payments to service
the debt went up to 1.4% of GDP.

The original
2012 budget law targeted a reduction in the deficit to 4.25% of GDP. However,
due to a strong acceleration in expenditure in the first half of the year, the
deficit target had quickly become unattainable. In the first six months, total
expenditure grew by a real 8.5%, driving the budget deficit to around 3.3% of
GDP, more than 50% higher in comparison with the same period last year. There
were strong real increases in capital expenditure, subsidies, purchases of
goods and services and interest payments. In September, the newly-elected
government announced a rebalancing of the 2012 budget, targeting an annual
deficit of 6.7% of GDP. Most of the adjustment is expected to come from the
revenue side, to be coupled with expected savings mainly due to lower
indexations of wages and pensions. However, expenditure pressures related to
additional spending on pensions, agricultural subsidies and support for some of
the state-owned banks put at risk the achievement of the revised, and not very
ambitious, 2012 deficit target.

Government debt
continued to rise rapidly in 2012, driven both by the widening deficit and the
depreciation of the dinar. It approached 55% of GDP by the end of July, far
above the legally binding threshold of 45% of GDP, requiring the government to
present a special programme to bring the debt back below 45% of GDP over the
medium term. The deteriorating fiscal performance, among other factors,
triggered a downgrade of Serbia’s long‑term sovereign credit rating in
August. Overall, the budget deficit in 2011 remained high for a third
year in a row and continued to increase at a rapid pace in 2012. Government
debt went above the legally binding threshold already at the end of 2011 and
continued to increase in 2012. The adoption and implementation of urgent and
decisive consolidation measures, backed by systemic reforms of the public
sector in order to restore public finance sustainability, remain a key
challenge.

After several
years of loose fiscal policy, fiscal space to cushion further shocks in the
economy has been limited and fiscal sustainability is increasingly challenged.
Delays in structural reforms are also weighing on the budget and the efficiency
of policy responses. High budget deficits have constrained the effectiveness of
the macroeconomic policy mix and the main burden of adjustment fell on monetary
policy. Moreover, monetary policy continues to be restricted by the high degree
of euroisation of the economy, which complicates the attainment of official
objectives of inflation targeting and preserving financial stability.
Overall, the policy mix is relatively imbalanced. Loose fiscal policy and a
number of structural weaknesses overburden monetary policy.

Interplay
of market forces

Price
liberalisation has stalled and has even been partially reversed. The prices of
about 22% of the goods and services in the consumer price index basket are
administered and, for some of the goods, are kept below cost-recovery levels. The state has introduced indirect price control
for certain groups of goods (basic foodstuffs). A government decree, in place
until the end of 2012, caps retail trade margins for these products at 10%. The government has continued to control prices of public utilities
directly, but also indirectly by setting a limit on increases in the prices of
communal and public city transport services which are under the control of the
local authorities. Overall, the state control over prices continues to
be substantial and price liberalisation has stalled.

State influence
in the economy remains high, due also to the predominant share of state
ownership in major sectors of the Serbian economy such as energy (electricity
and gas), railway and air transport and telecommunications. State‑owned
companies, which are overstaffed in general, employ more than 10% of all
employees in legal entities. They make a loss of around € 1 billion a year
or about 40% of all losses in the economy. Privatisation of socially-owned
companies has practically come to a halt. In 2011 only two enterprises were
sold through a public tender (with sales receipts amounting to € 1.0
million and investment commitments of € 4.3 million) and two enterprises
were sold through auctions. As a result of delayed privatisation, cancellation
of contracts or re-nationalisation, the state still has control over a number
of large companies in the manufacturing sector. Currently, the portfolio of the
Privatisation Agency consists of 408 companies. There are 171 companies under a
restructuring procedure and most of the remaining firms are to be sold through
bankruptcy or liquidation.

In early 2012,
the majority state‑owned Telecom Srbija bought back 20% of its shares
from a foreign investor. With this buy‑back, the 1997 privatisation of
49% of Telecom Srbija has been completely reversed (29% had been bought back
already in 2003). In April, the Serbian government decided to distribute 6.94%
of the shares in Telecom Srbija to the company’s current and former employees,
while another 15% was offered to all citizens. In another privatisation
reversal, in February 2012, the Serbian government bought back from US Steel
the ailing steel mill in Smederevo for a symbolic USD 1. Later, production at
the mill, one of Serbia’s main exporters and employers, has been temporarily
suspended. The steel mill has been running up large losses in the last few
years and, until the government is able to re‑privatise the company, it
will have to secure at least the maintenance costs, adding to government
liabilities. Overall, in a difficult economic environment, the
privatisation process has been very slow and even partially reversed.
Sustaining competitive markets remains a key challenge.

Market
entry and exit

Some steps have
been taken to facilitate market entry. The ‘one-stop shop’ has further
shortened the registration procedure, which now takes only two days on average
(five days is still the legal maximum, with the principle of ‘silent consent’
in place). The registration fee stands at € 45 and the required capital
for setting up a limited liability company has been reduced from € 500 to
less than € 1. The setting‑up of new businesses is still seriously
hampered by difficulties in obtaining construction permits and the process of
dealing with construction permits and land remains costly and lengthy.
Regulatory reform (the ‘regulatory guillotine’) is ongoing, although it has
slowed lately. In an attempt to revive it, a new Strategy for regulatory reform
2011-2014 was adopted in late 2011.

The Law on
Bankruptcy has introduced automatic bankruptcy for companies if their accounts
are blocked for a certain period and, since the beginning of 2012, this period
has been reduced from two to one year. Under the Law, the National Bank of
Serbia is required to provide the commercial courts with information about
these companies, so that bankruptcy proceedings can be launched. In the first
half of 2012, it notified the courts about 11,231 companies with blocked
accounts — about 50% more than in the same period the previous year. Overall,
some steps have been made to simplify and speed up market entry, but red tape
and difficulties in obtaining construction permits remain important obstacles.
The bankruptcy procedure for companies that have been over-indebted has speeded
up.

Legal
system

The
establishment of a real estate registry and a digital registration system has
been completed. The new system will be able to provide quick and accurate
information about real estate ownership, and this should facilitate contracts
and investment decisions. Restitution legislation has been adopted but its
enforcement remains to be tested. The Law on Planning and Construction and its
amendments have led to differences in interpretation and thus in implementation
at municipal level, which increases uncertainties for investors.

The uneven
execution of laws, slow or non-existent enforcement, and proliferation of
different administrative fees and charges increase the uncertainty and the cost
of doing business. Moreover, the informal economy remains strong and is a major
hindrance to fair competition and business development. Overall, legal
predictability and enforcement of court decisions remain weak. Corruption and
unclear property rights continue to hamper economic activities.

Financial
sector development

The Serbian
financial system is dominated by the banking sector, which had a 92% share of
total assets in 2011. A total of 33 banks are operating in the country,
unchanged from a year earlier. By the end of March 2012, foreign ownership had
risen to about 74% of the banking sector and 21 banks operating in Serbia are
owned by foreign entities. The five largest banks accounted for 47% of the
total assets of the sector. There are nine state-owned banks, holding about a
19% market share, while the market share of domestic private banks is small at
around 7%. Since the end of 2011, banking sector assets increased by 8.5%,
accounting for approximately 94% of GDP by the end of July.

Capitalisation
of the banking sector declined but still remains high. The average capital
adequacy ratio stood at 17.3% in March 2012, well above the prescribed minimum
of 12%. Deposits, of which over 75% are denominated in foreign currency,
represent around 57% of the total liabilities of the banking sector. Similarly,
loans account for some 60% of banking sector assets. About 70% of the loans are
denominated in or linked to a foreign currency, predominantly the euro. More
than half of all loans are granted to the corporate sector, while close to a
third are extended to households. The quality of bank assets worsened, with the
gross non-performing loans ratio reaching 20.4%, from 17.1% a year before.
Banks profitability deteriorated in the course of 2011 and the return on equity
decreased to just 0.2%. However, this negative development was mainly caused by
the significant loss accumulated by Agrobanka. The bank has been put in
receivership in the end of 2011, after the central bank established that the
level of the bank’s capital is not consistent with the degree of risk taken by
the bank. The financial situation of Agrobanka did not improve and, in May, the
Central Bank revoked its licence and granted an operating licence to the
newly-established Nova Agrobanka, which took over all the liabilities and part
of the receivables of the old bank. The new bank has been partially
recapitalised by the Deposit insurance agency and the government. Following the
failure of Agrobanka, in August the central bank took additional measures to
increase its supervision of the banking system, focusing in particular on banks
with significant share of custody accounts and state ownership. Overall,
the banking sector remained well‑capitalised and liquid, but a weakening
economy and depreciating dinar point to a growing risk of further deterioration
in the quality of the loan portfolio. Bank supervision has been tightened,
following the discovery of significant losses in one of the small banks.

The main index
BelexLine of the Belgrade stock exchange fell by around 20% in 2011. This
negative trend continued in the first nine months of 2012 and the index lost a
further 10.6%. At the end of 2011, there were 28 insurance companies operating
in Serbia, up from 26 a year earlier. Altogether 21 of them are in majority
foreign ownership, while seven rely on predominantly domestic capital. The
insurance sector’s share in the total financial sector increased slightly, to
4.4% in 2011. The annual growth of premiums stood at a modest 1.4%, down from a
5.6% rise in 2010. The market was dominated by the non-life insurance segment,
which accounted for 83% of the total. Overall, the role of the
non-banking financial sector remained marginal.

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

Existence
of a functioning market economy

Economic
recovery has stalled and macroeconomic stability has weakened as domestic and
external imbalances increased. Delayed reforms and the economic slowdown have
exposed and aggravated structural weaknesses, such as
low employment and volatility in prices and exchange rates. State presence and influence in the economy remains significant and
has even increased. The private sector continued facing major obstacles. Key laws are in place, but the rule of law remains weak. Overall,
the functioning of market mechanisms is hampered by distortions, excessive
state involvement and legal uncertainty.

Human and
physical capital

At present,
there is still a large gap between demand for and supply of skilled workforce —
with some professions oversupplied and others lacking. Enrolment in education
in both primary and secondary schools is high and is increasing over time. The
number of people with higher education is low (currently 6.5 % of the
population) but is envisaged to increase sharply in the course of this decade
according to the draft education strategy for the period until 2020. Important
elements of the strategy are the introduction of mandatory secondary education
and the plans to reform vocational training, bringing it closer to the needs of
the labour market. To back the achievement of its goals, the strategy envisages
an increase in public spending on education to 6% of GDP in 2020, up from 4.2%
in 2011. Overall, further steps remain to be taken to implement a
strategy of reforming the education and training system in order to improve its
performance and respond better to labour market needs.

Serbia
continues to need significant investments to improve and upgrade its physical
infrastructure. Government investments have been constrained by a difficult
budgetary situation and declined to 3.5% of GDP. Nevertheless, works on major
transport corridors (such as pan-European Corridor X) progressed, albeit
slowly, but investments outside the main corridors are lagging behind. Energy
efficiency continues to be low and energy infrastructure, in particular
electricity generation and distribution, needs further investments. Net FDI
more than doubled in 2011, reaching 5.8% of GDP. A large share of the inflows
related to a single non‑greenfield investment in the retail sector and
part of the remaining inflow has benefited from budget subsidies. Besides
trade, the other two sectors which attracted most of the FDI were manufacturing
and financial and insurance activities. Overall, the physical
infrastructure needs large investments. Government investments have been
constrained by an increasing budget deficit and FDI has been channelled mostly
to non-tradable sectors.

Sectoral
and enterprise structure

The shares of
agriculture and industry edged up slightly in 2011, reaching 10.4% and 27.7% of
total value added respectively, while the share of services fell from 63.0% to
61.9%. Employment declined across the three sectors but the fall was more
marked in agriculture — its share in total employment dropped from 21.5% in
April 2011 to 20.4% in April 2012. The share of industry remained broadly
unchanged and employment in services increased to 53.4% of the total. Weak tax
and expenditure policies and poor law enforcement, including in the fight
against corruption, continue fuelling a sizeable informal sector. Overall,
the economy continued to be dominated by services and the share of agriculture
remained significant. The informal sector is a significant challenge.

State
influence on competitiveness

State subsidies
reported in 2011 were 6% higher than in 2010, representing 2.6% of GDP. Of the
total State aid granted in 2011, only 16.3% was in the form of horizontal aid,
41.1% was for regional aid, 22.1% was sectoral aid, and 20.5% went for
agriculture. There was barely any aid to training and to research and
development. Most of the aid was given in subsidies (close to 60%) and as tax
incentives (31% of total). The state-controlled monopolistic structures remain
in a number of sectors (e.g. energy, transport, infrastructure, postal
services, telecommunications, broadcasting, agriculture and the environment)
and the state continued to subsidise heavily the transport sector, which
received almost a fifth of all aid. Overall, the state continues to
substantially influence competitiveness by providing significant and wide‑ranging
forms of State aid.

Economic
integration with the EU

The EU remains
Serbia’s main trading partner, accounting for 57.7% of the country’s total
exports and 55.6% of its total imports in 2011. While the share of exports to
the EU has increased somewhat, the share of imports has decreased slightly. The
CEFTA countries accounted for 14% of Serbia’s trade in 2011, having declined
from 14.8% in 2010. The share of net FDI inflows from the EU in total net FDI
inflows reached 88% in 2011. Real gross wage growth, at 0.3% in 2011, was
considerably smaller than average labour productivity growth, which translated
into a fall in real unit labour costs. In real effective terms (deflated by
inflation), the dinar appreciated by 4.4% in 2011. However, by end of July
2012, the real effective exchange rate of the dinar weakened by 8%. Overall,
trade integration with the EU remained high.

4.
Ability to take on the obligations of membership

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

4.1.
Chapter 1: Free movement of goods

No progress can be reported regarding general
principles. There was no further alignment of Serbia’s legislation with Articles
34 to 36 of the Treaty on the Functioning of the European Union and the
relevant case law of the European Court of Justice.

There was little progress in relation to horizontal
measures. The legal framework along the the EU principles and the
horizontal acquis has been adopted. However, the full alignment
of the horizontal legislation remains to be achieved. The overall framework
also needs to be completed with the adoption of the remaining implementing
legislation on metrology. Two implementing regulations in the metrology field
were adopted in June 2012: on emergency measurements and on conditions for
performing the verification measuring instruments. The administrative
capacity needs improvement, especially regarding further training in the field
of metrology. The long-term Quality Infrastructure Strategy for relevant
horizontal institutions still needs to be adopted.

Good progress was achieved in the area of standardisation.
By September 2012, the Institute for Standardisation of Serbia (ISS) had
approximately adopted 80% of the European standards (ENs) required for
membership of the European Committee for Standardisation (CEN) and the European
Committee for Electrotechnical Standardisation (CENELEC), which the Institute
will apply to join in 2013. The total number of standards applied as national
ones stood at 18.294; the number of CEN standards applied stood at 11.875,
CENELEC standards at 5.231 and ETSI standards at 260, in total 17.366. The
number of withdrawn conflicting Serbian standards was 6.395. The ISS has 250
technical committees. The number of full-time employees has increased from 62
to 64. The ISS was certified for information security management systems and
for quality management systems to EN ISO standards. The overall administrative
capacity of the Institute has improved.

No particular progress can be reported in
the area of conformity assessment.

Good progress can be reported in the field
of accreditation. The Accreditation Body of Serbia (ABS) became a full
member of the European cooperation for Accreditation (EA) in May 2012, of the
International Accreditation Forum (IAF) in December 2011 and of the
International Laboratory Accreditation Cooperation (ILAC) in May 2012. It has
received the signatory status of the EA Multilateral Agreement in the fields of
testing laboratories, calibration laboratories, medical laboratories,
inspection bodies and certification bodies for certifying products. It has also
broadened its scope of accreditation. The ABS currently has 35 full-time staff
members but needs additional qualified human resources. At the end of the
reporting period Serbia had 473 accredited conformity assessment bodies.

Little progress can be reported in the area of metrology. Serbia still needs to align its
legislation to the EU acquis on pre-packaging and units for
measurements. Overall framework laws are in place, but implementing legislation
remains to be adopted. Pursuant to the Law on Metrology, the Directorate for
Measures and Precious Metals (DMDM) of the Ministry of Economic Affairs and
Regional Development offers time distribution services over the internet as
Serbia’s national time calibration reference. The Directorate has also
increased the number of calibration and measurement capabilities services which
are published in the database of the Bureau for Weights and Measurements
(BIPM). The Directorate has increased the number of its employees from
120 to 126.

Progress can be reported in the area of market
surveillance. The adoption of the framework market surveillance law brought
this area closer to the 2008 horizontal acquis. A new contact point has
been designated for the EU’s rapid alert system RAPEX. Cooperation amongst
different market inspectorate services progressed with the creation of a joint
body for the surveillance of chemicals, comprising representatives of the
Market, Sanitary and Environmental Protection Inspectorates, and the Chemicals
Agency. The Product Safety Council was established and became fully operational
as of autumn 2011, comprising representatives of the authorities, chambers of
commerce and consumer protection groups. However, market surveillance remains highly
fragmented and needs consolidation. Furthermore the Law on General Product
Safety needs to be further aligned with the relevant EU acquis.

Little progress can be reported in the
field of ‘Old Approach’ product legislation. Serbia still needs to align
its legislation with the acquis e.g. on pre-packaging, units for
measurements and emissions of pollutants from non-road engines. The alignment
of crystal glass and textiles and footwear legislation has been postponed until
2013 and 2014 respectively.

Concerning ‘New
and Global Approach’ product legislation, progress was made. Serbia has to
further align its legislation, e.g. in the field of field of measurement
instruments, non-automatic weighing instruments, toy safety, construction
products, cableway installations, recreational craft and noise emissions from
outdoor equipment.

No progress can be reported concerning procedural measures. Serbian legislation remains to be aligned with the acquis in
the field of civil firearms and of the return of cultural objects unlawfully
removed from the territory of an EU Member State

Conclusion

Some progress
was made in the area of free movement of goods. EU standards continue to be
adopted and the Serbian accreditation body became a full member of the EA.
Serbia has progressed in the adoption of product legislation. Market
surveillance remains highly fragmented. Implementation of the legislation,
administrative capacity and coordination among institutions need to be
enhanced. Overall, preparations in the area of free movement of goods are
moderately advanced.

4.2.
Chapter 2: Freedom of movement for workers

There has been no progress in the area of access
to the labour market. The Law on Employment of Foreigners remains to be
adopted by the parliament.

Little progress can be reported as regards
future participation in the EURES (European Employment Services)
network. A national vacancy database has not been established yet.

There has been some progress as regards coordination
of social security systems. An agreement with Bulgaria was approved in the
parliament in December 2011. Agreements were signed with Austria in January
2012 and with Slovakia in March 2012. An electronic system of exchange of
information has been established among ex-Yugoslav republics, although for the
time being the system operates with Slovenia only. However, public
administration resources have remained limited and prevented any development in
strengthening the capacity of social security institutions.

No developments were reported in the area
of the European Health Insurance Card.

Conclusion

There has been some progress in the area of
freedom of movement for workers, specifically related to the coordination of
social security systems. Further improvements are nevertheless needed and
preparations for future participation in EURES must be stepped up. Overall,
preparations in this area are moderately advanced.

4.3.
Chapter 3: Right of establishment and freedom to
provide services

With regard to the right of
establishment, some progress was made, in particular in relation to
registration in the Register of business entities. (See Chapter 6 — Company
law)

There has been no progress regarding the freedom
to provide cross-border services. Serbia needs to align its
legislation with the Services Directive. The capacity of the administration in
charge of the service sector was downsized.

No progress can be reported in the field of
postal services. The public postal operator remains to be corporatised
and its operational processes modernised. The administrative capacity of the Regulatory Agency (RAPUS) needs
to be reinforced, in particular its ability to supervise implementation of the
regulatory framework.

There was no progress in the area of mutual
recognition of professional qualifications. Serbia still needs to adopt
legislation on the recognition of qualifications for regulated professions.

Conclusion

Little progress was made in the area of the
right of establishment and freedom to provide services. Efforts need to be made
to align the legislation on the freedom to provide services and also to boost
administrative capacity and interinstitutional cooperation. Full alignment with
EU postal services legislation remains to be achieved. Overall, in the area of
the right of establishment and freedom to provide services, Serbia is
moderately advanced.

4.4.
Chapter 4: Free movement
of capital

Serbia made progress in the area of
capital movement, with the adoption by the National Bank of Serbia (NBS) of
implementing legislation based on the amendments to the May 2011 Law on Foreign
Exchange Operations. These decisions further liberalise several types of
international transactions. The obligation to notify the Ministry of Economic
Affairs when investing abroad was abolished in February 2012.

However, several restrictions remain, including
on short-term capital operations and the acquisition of real estate.
Agricultural land cannot be owned by foreign individuals or legal entities.
Construction land — and properties on such land — can be owned by foreign
individuals or legal entities, but only provided that there is reciprocity with
the purchaser’s home country.

There was no progress in the area of payment systems. Serbian legislation
largely remains to be aligned with the acquis.

There was some progress in the fight
against money laundering. The Administration for Prevention of Money
Laundering (APML) takes part in the Egmont Group and Moneyval meetings on a
regular basis. It signed a cooperation agreement in December 2011 with the
Securities Commission on the exchange of information in the fight against money
laundering and terrorist financing. It also signed memoranda of understanding
with the financial intelligence units of Hungary and Estonia in November and
December 2011 respectively, and with those of Australia, Belarus, Finland and
Columbia in July 2012. The APML adopted guidelines for assessing the risk of
money laundering and terrorist financing. It introduced a new internal
organisation to optimise its analytical and supervisory
capacities in March 2012. However, its capacity has not been reinforced. Its
staff numbers are stagnating, no adequate business premises have been provided
and the plan to set up a training centre has not yet been implemented.

Conclusion

There was some progress in the area of
capital movements, albeit focused on the liberalisation of capital
transactions. Further efforts are needed to align the legislation for
short-term capital operations, real estate and payment systems with the acquis.
There has been some progress in the fight against money laundering. In this
area, implementation needs to be stepped up. Overall, Serbia’s alignment in the
area of the free movement of capital is moderately advanced.

4.5.
Chapter 5: Public procurement

Some progress
was achieved as regards the general principles. The Law on Public
Private Partnerships (PPPs) and Concessions was adopted in November 2011. It
establishes the PPP as a legal instrument for the first time in the Serbian
legal system. The law also establishes an intergovernmental Commission for
Public Private Partnerships (CPPP) as a collective advisory body. However, the
government strategy for upgrading the public procurement system largely remains
to be implemented.

There was
limited progress regarding the award of public contracts. In fulfilling
its supervisory role, the Public Procurement Office (PPO) detected
irregularities in negotiated procedures representing a total of more than
€ 28 million in 2011 and € 68 million in the first half of 2012. The
CPPP started operating in March 2012 and is supported by a technical
secretariat consisting of three employees of the Ministry of Finance and
Economy. However, implementing legislation is still missing, and the staff of
the Ministry of Finance and Economy needs to be trained on the award of PPP
contracts. The Department for Public Procurement in the Ministry of Economy and
Finance, which is responsible for legislative initiatives, had its staff
increased from 2 to 6 employees.

However, the
administrative capacity of the Budgetary Inspectorate of the Ministry of Economy
and Finance, in charge of monitoring application of the public procurement law,
needs to be strengthened so that it can effectively follow up on the many
irregularities detected. In general, tendering authorities do not take
appropriate action often enough in cases of established misuse of public money.
Overall, institutional cooperation in this field remains weak and needs to be
strengthened.

Good progress
was made with regard to the remedies system. The Republic Commission for
the Protection of Rights in Public Procurement Procedure (‘Republic Commission’),
which is the second-instance body in the procedure for reviewing the award of
public contracts, has considerably strengthened its administrative and
enforcement capacities. Its staff increased from 9 to 38 employees and it has
moved to new, weel-equipped offices. With the entry into force of the Law on
PPPs and Concessions, the Republic Commission has been given additional
responsibility to decide on complaints in relation to the award of PPPs and concessions.
The monitoring and scrutinising of implementation of the Republic Commission’s
decisions and the notification of cases of non-compliance to the relevant state
institutions has stated. The Republic Commission has started to act more
transparently by making its decisions public and has set up a new website.
However, in general, the work of the Republic Commission is still at an early
stage. It needs to build a solid enforcement record, by further ensuring that
its decisions are implemented.

Conclusion

There has been
some progress in the field of public procurement, particularly in the area of public-private partnerships. Serbia needs to
keep up steady efforts to implement its legislative framework on public
procurement, and in particular to avoid irregularities in the use of the
negotiated procedure. Effective coordination between the main stakeholders,
including audit and judicial institutions, needs to be ensured. The enforcement
record and administrative capacities of the Budgetary Inspection of the
Ministry of Finance in charge of supervision of public
procurement needs to be substantially strengthened.
Overall, alignment in the area of public procurement is moderately advanced.

4.6.
Chapter 6: Company law

Good progress was made in the area of company
law. A package of new laws and amendments adopted in December 2011
regulates the establishment, organisation and closure of business entities
along with their registration and the procedure followed by the Business
Registers Agency. These new provisions substantially lower the amounts of
capital necessary to establish limited liability companies. The new legislation
is meant to simplify the business environment and to further align with EU
legislation, thereby facilitating business start-ups.

The Business Registers Agency continues to
operate the Register of business entities efficiently.

There was no progress reported in the areas
of corporate accounting and auditing. Full alignment with the
Eighth Company Law Directive and with the acquis in the area of independent
public oversight, quality assurance and investigations remains to be achieved.

Conclusion

Good progress was made in the area of
company law, with the entry into force of the new law in February 2012 and the
adoption of several amendments to this law. For corporate accounting and
auditing, efforts should be stepped up in the areas of independent public
oversight, quality assurance and investigations. Overall, alignment in the area
of company law is well advanced.

4.7.
Chapter 7: Intellectual property law

Good progress
was made in the area of copyright and neighbouring rights. The Law on
Copyright and Related Rights was amended in December 2011 with a view to
further aligning it with the acquis. Implementing legislation for the
Law on Optical Discs was adopted in March 2012 with the aim of reducing the
high piracy rate. The Commission for Copyright and Related Rights started
taking decisions on tariffs in cases where no agreements were reached with
collective rights management organisations.

Good progress
has also been made in relation to the legislative framework on industrial
property rights. The Law on Protection of Trade Secrets was adopted in
September 2011. The Law on Protection of Plant Breeders’ Rights was amended in
November 2011, allowing Serbia to start the procedure for joining the
International Union for the Protection of New Varieties of Plants (UPOV). A new
Law on Patents was adopted in December 2011. It further aligns with the acquis.
However, the 2009 Law on the Protection of Topographies of Integrated Circuits
remains to be further aligned with the acquis.

Some progress
was registered in the field of enforcement. The Intellectual Property
Office (IPO) conducted a large number of training events for government
enforcement agencies and organised promotional activities for stakeholders. No
solution has yet been found to the issue of the long-term financial
sustainability of the IPO. The Customs Administration of Serbia developed its
IT capacity for use in IPR protection. The level of counterfeit goods that it
has seized has gone up. The administrative fee for submitting a request for
intellectual property rights enforcement has been revoked, leading to an
increase in requests. In the course of 2011, the Tax Administration was
involved in launching three registers (of producers, of distributors and of
software) in collaboration with IPR holders, with a view to facilitating its
work and its checks. The Market Inspectorate of the Ministry of Foreign and
Domestic Trade and Telecommunications was given the use of twelve warehouses
across Serbia for the storage of counterfeit and pirated goods. The number of
goods that it confiscated in the first half of 2012 significantly increased
with respect to 2011.

However, the
number of checks carried out by the Tax Administration has declined. A formal
coordination mechanism between the institutions in charge of IPR protection is
still lacking. The participation of economic operators and consumers in
preventing counterfeiting and piracy remains limited.

Regarding
judicial protection of intellectual property rights, the Law on Territorial
Organisation of Courts in Serbia still needs to be amended to allow judges to
specialise and IPR cases to be concentrated in a limited number of courts.
Further specialisation of prosecutors, judges and court panels handling IPR
cases remains to be ensured.

Conclusion

Good progress
was made in the alignment of Serbian intellectual property law with the acquis.
The national IPR strategy 2011-2015 is being implemented and capacity has been
strengthened. A formal coordination and cooperation
mechanism between the institutions in charge of IPR protection still needs to
be established. Specialisation of prosecutors, judges and court panels handling
IPR cases needs to be ensured. Overall, alignment in the area of intellectual
property law is advanced.

4.8.
Chapter 8: Competition

Some progress
can be reported in the area of anti-trust and mergers. The implementing
legislation was adopted for applying the competition rules to associations of
undertakings and for detecting bid rigging in public procurement procedures.
The Commission for the Protection of Competition (CPC) started to apply the
leniency programme for parties involved in cartels. The CPC adopted five
decisions on restrictive agreements and one decision on abuse of a dominant
position. It took five decisions on fines. It approved 73 mergers under the
summary procedure and carried out one investigation in which it prohibited a
concentration in the sugar production sector. This negative merger decision, as
well as a decision on abuse of dominance adopted in 2009, were overturned on
appeal on procedural grounds and turned back to the CPC in order to take a new
decision. The CPC completed a sector analysis of the oil market in October 2011
and initiated one in the milk sector in August 2012.

The CPC
improved its competences in administrative and procedural law. It strengthened
its capacity by hiring three economists. International cooperation with a
number of peer competition authorities has been established. The CPC has also
concluded cooperation agreements with sector regulators, such as RATEL and the
Energy Agency.

However, the
Law on Competition still contains shortcomings that need to be addressed in the
future, not least the short three-year statutory limitation period and the fact
that the CPC must pay interest on fines overturned on appeal. The timeframe for
in-depth merger investigations could also be extended. Also, sector-specific
decrees on price regulation adopted without prior consultation with the CPC may
undermine the effectiveness of competition policy in Serbia. The financial plan
of the CPC for 2012 was adopted by the government in November 2011. The
increase in staff; foreseen in this plan, has however not materialised, due to
a lack of office space. With 31 employees, the CPC’s capacity remains
insufficient. The capacity of the judiciary to assess complex competition cases
also needs to be strengthened. Capacity building and advocacy activities among
the judiciary as well as with other state bodies that have limited knowledge
and awareness of the benefits of competition policy must be stepped up.

There has been
some progress in the area of State aid. A first comprehensive State aid
report was adopted in September 2011. In addition, the government adopted the
list of State aid schemes that need to be aligned with the acquis. A
decree on the rules for granting State aid was amended in December 2011 to
broaden its scope to public enterprises. The number of notified State aid
measures increased substantially, thanks to increased awareness among relevant State
aid grantors at all levels of government. The Commission on State Aid Control
(CSAC) took 148 decisions, including 78 conclusions in the ex post
control procedure. Eight ex post control procedures were launched ex
officio.

However,
further efforts are needed to make aid grantors notify their projects before State
aid is disbursed and to ensure the timely alignment of existing State aid
schemes. The Commission’s enforcement record needs to be strengthened and its
operational independence is still to be demonstrated. Cooperation and
coordination needs to be stepped up between the CSAC and all bodies granting State
aid.

Concerning liberalisation
of specific sectors, a number of Serbian undertakings continue to enjoy, de
facto or de jure, special or exclusive rights, e.g. in the fields of
energy, transport, infrastructure, postal services, telecommunication services,
broadcasting, agriculture and the environment. Additional efforts need to be
made towards market liberalisation in line with the acquis.

Conclusion

Some progress
was made in the area of competition. The competition authority strengthened its
capacity and the State aid authority developed its enforcement record. The
record in ex ante notifications of State aid measures should be
improved. In both the anti-trust and mergers and State aid fields, additional
advocacy measures are needed. Overall, alignment in the area of competition
policy is moderately advanced.

4.9.
Chapter 9: Financial services

Some progress can be reported in the area
of banks and financial conglomerates. The preparations for full
implementation of Basel II standards have advanced. New decisions on
harmonising bank capital adequacy, risk management rules and bank data
disclosure with Basel II were implemented by the National Bank of Serbia (NBS)
in December 2011. The decision on the classification of bank balance sheet
assets and off-balance sheet items was also implemented in December 2011; it
aims to ease the burden of supervisory provisions and align with the Basel II
regulatory framework. Strengthening of the supervisory capacity of the NBS is
ongoing. The amendments to the Law on the NBS adopted in August 2012 will
result in the establishment of a specific Authority for the Supervision of
Financial Institutions (which include banks, insurance companies and voluntary
pension funds), within the NBS. However, the Basel III requirements have not
yet been implemented and alignment with the latest acquis on deposit
guarantees remains to be achieved.

There was little progress in the area of insurances
and occupational pensions. Some amendments to the Law on Compulsory
Traffic Insurance, which were adopted in October and December 2011, have
contributed to further alignment. The amendment to the Insurance Law, which was
adopted in December 2011, postponed the separation of composite insurance
companies until December 2012. The administrative capacity of the NBS’
Insurance Supervision Department was reinforced by the hiring of two new
employees. The NBS signed a new memorandum of cooperation with the Insurance
Supervision Agency of Slovenia in October 2011. It carried out nine on-site
inspections in eight insurance companies in 2011 and three in the first half of
2012. Nine measures requiring the elimination of irregularities were imposed.
Alignment with the Solvency II Directive and the rules on occupational pension
funds remains to be achieved.

There was no progress in further aligning
with the acquis in the area of financial market infrastructure.

Some progress can be reported in the area
of securities markets and investment services. The Securities Commission
adopted 22 pieces of implementing legislation in order to regulate more
precisely the capital market legal framework. Amendments to the Law on
Takeovers of Joint-stock Companies entered into force in February 2012. They
aim to further align the new Serbian Capital Market Law and Company Law with
the acquis. The Securities Commission adopted a new statute in
September 2011 which defines its organisation, competences and procedures. Its
capacity to file criminal charges was extended. It signed a declaration of
cooperation with securities regulatory authorities from Bosnia and Herzegovina,
Croatia, the former Yugoslav Republic of Macedonia, Montenegro and Slovenia in
November 2011. However, there has been no progress in further
aligning with the acquis on
rating agencies and on undertakings for
collective investment in transferable securities (UCITS).

Conclusion

Some progress was made in the area of
financial services. Steps were taken towards implementation of the Basel II
requirements. Serbian legislation must be further aligned with the acquis
and effectively implemented in the medium term. Overall, alignment in
the area of financial services is moderately advanced.

4.10.
Chapter 10: Information society and media

Some progress can be reported in the areas
of electronic communications and information and communications technology
(ICT). The General Authorisation Regime applies to
all types of communication services since January
2012. The National Regulatory Agency (RATEL) completed the first round
of market analysis in 2011 and adopted the specific regulatory obligations for
operators with significant market power in November 2011. These cover the seven
markets listed in the Commission’s 2008 Recommendation and two additional
retail markets. RATEL acquired observer status at the
Body of European Regulators for Electronic Communications in April 2012. At the end of 2011, the overall broadband penetration per population
stood at 13.4% (EU average being 27.7%). Preparations
for introduction of the emergency number 112 have started. However, the implementation of laws and competitive safeguards
generally lags behind. Decision-making is often not
transparent, creating uncertainty for market players. Specialised expertise of
judges handling telecom cases needs to be developed. The
radio spectrum provisions remain to be aligned with the EU regulatory
framework. The parliament adopted
in December 2011 a Law on Cinematography directing 10% of RATEL’s revenues to ‘national
cinematography’, thereby constraining its financial independence. The capacity
of the units responsible for ICT and digital administration within the Ministry
of Culture, Media and Information Society remains insufficient.

In the field of
information society services, little progress was achieved. A National Broadband Council was set up in April 2012. As regards e-government, in spite of the recent improvements, the
overall IT capacity in the country needs to be strengthened, especially at
local level. However, the sequencing of transition to digital phases remains to
be determined. There is a major digital divide in electronic access and a
broadband strategy needs to be finalised. Further alignment with the
conditional access and e-commerce EU legislation is needed.

There was little progress as regards audiovisual
policy, particularly in the implementation of the
Media Strategy which aims at aligning with the EU acquis in this area.
The working groups for drafting the new Law on Public Information and Law on
Public Service Broadcasting were set up. The Action Plan for the implementation
of the Media Strategy, covering the issue of State aid to the media and its alignment
with the acquis as of 1 January 2012, remains to be implemented. The
government adopted in March 2012 amendments to the Strategy for switchover from
analogue to digital broadcasting of radio and television programmes, shifting
from a single switchover date, originally scheduled for 4 April 2012, to a
phased approach so that the final analogue TV
switch-off date is set on 17 June 2015. The first digital network was
launched in April 2012 with a digital test signal accessible to 50% of the
territory across Serbia, with national broadcasting without analogue signal
switch-off. Switchover from analogue to digital signal remains to be fully
ensured. Provisions allowing for the financing of certain media from the State
budget remain to be brought into line with the EU acquis as it
constitutes State aid.

Conclusion

Little progress can be noted in the area of
information society and media. Regarding electronic communications, the general
authorisation regime for telecom providers came into force in full and some key
competitive safeguards were introduced. The switchover from analogue to digital
broadcasting has begun. However, the telecom regulators’ financial independence
needs to be improved and Serbia’s legislative framework remains to be aligned
with the acquis. Overall, alignment with the acquis in the area
of information society and media is moderately advanced.

4.11.
Chapter 11: Agriculture and rural development

Limited
progress was made regarding horizontal issues. The 2012 agricultural
budget was increased by 19% compared to the previous year. Direct aid payments
account for more than 90% of the support measures. There was an increase in the allocation for rural development
measures in the budget. The livestock sector continues to benefit from headage
payments and milk subsidies. These are linked to compliance by producers with
legislation on animal identification, registration and movement control and
participation in national animal health measures. Direct payments will
gradually need to be brought into line with EU rules, decoupling direct aid
payments from production. Support measures continue to be reviewed and revised
on an annual and ad hoc basis. This does not provide
security and predictability for producers and processors to engage in the
required investments to modernise and prepare for the absorption of future EU
assistance and competitive pressures in an increasingly liberalised economic
environment. The Agricultural and Rural Development Strategy for the period
2011–2020 has not yet been adopted.

Progress can be
reported with regard to establishing a reliable database for policy decisions
and monitoring policy impact. Preparations for the agricultural census are
ongoing and the census is expected to be carried out in the autumn of 2012.
Structures to implement the Farm Accountancy Data Network (FADN) are being
established with key responsibilities assigned, core staff appointed and trial
data collection under way. Preparations are under way
for setting up an Integrated Administration and Control System (IACS).

The Market
Inspection Division of the Ministry of Agriculture, Trade, Forestry and Water
Management carried out a total of 2,507 inspections in the market surveillance
area in 2011, including compliance with technical regulations and product
safety. However, administrative capacities in terms of training and material
assets remain inadequate.

Preparations in
the area of horizontal issues are on track.

Some progress can be reported with regard
to alignment with the common market organisation. The adoption of
legislation in line with the acquis is continuing, with the adoption of
implementing regulations on fruit juice in October 2011 and coffee and chicory
in 2012. Implementing legislation was also adopted in the wine sector, on a
vineyard register in September 2011, on quality standards for wine with
geographical indication and on labelling in November 2011, and on the testing
of grape must, wine and other products in December 2011. Work has begun on
viticulture zoning. The vineyard register was opened in June 2012. Three
oenological laboratories have been authorised to carry out analyses. However,
the capacity of the administration in charge of the wine market organisation
needs to be strengthened. A law on spirit drinks is in preparation with a view
to aligning with the acquis in the spirit sector. Preparations in this
area remain at an early stage.

Regarding rural development,
progress can be reported concerning the preparations for the management and
control system under the Instrument for Pre-Accession Assistance in Rural
Development (IPARD). The Department for Rural Development in the Ministry of
Agriculture, Trade, Forestry and Water Management (MATFWM), which is planned to
become the future Managing Authority, is finalising its organisational
structure and procedures as provided for in the IPARD programme. The
Directorate for Agrarian Payments, which at present has an allocation of 105
posts, needs to strengthen its capacity in order to implement the pre-accession
assistance. The capacity of the National Fund and the
Audit Authority still needs to be supported so that they can fulfil their role
in the implementation of IPARD. Preparations in the area of rural
development are on track.

Little progress
can be reported in the area of quality policy. Efforts
have focused on promoting the opportunities which the Law on Geographical
Indications offers to producers and processors. Preparations in this area have
started.

Progress in organic
farming is limited. The Ministry established a
task force to prepare a national action plan for the development of the organic
sector in Serbia over the next 5 years. Preparations in the area of organic
farming are at an early stage.

Conclusion

There has been progress in the area of
agriculture and rural development, including with regard to agricultural
statistics. Structures and resources for the implementation of rural
development under IPARD have advanced well, but additional capacity building is
still essential. Overall, in the area of agriculture and rural development,
alignment with the acquis remains at an early stage.

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

Little progress has been made as regards general
food safety principles. The Food Safety Law already includes most of the
principles required in the acquis. Some of the features introduced by
the Food Safety Law started to be applied, such as the principle of risk
analysis and the implementation of hazard analysis and critical control points
(HACCP). Both have to be improved further and associated IT systems need to be
upgraded. Both the skills base and the equipment of the authorities responsible
for official controls and policymaking have been improved but further
strengthening is needed. The process of aligning the labelling of foodstuffs
with the acquis has started. However, enforcement of the law needs to be
improved. The National Reference Laboratories Directorate is severely
understaffed and thus unable to perform the duties assigned to it by the Food
Safety Law. Preparations in the area of general food safety are moderately
advanced.

Some progress can be reported in the
alignment and implementation of the acquis in the field of veterinary
policy. Implementing legislation has been adopted in this field along
with instructions for applying it. Veterinary IT systems are being upgraded.
Serbia started participating in the EU Trade Control and Expert System (TRACES)
in January 2012. Instructions were adopted for risk analysis at pig farms based
on bio-safety questionnaires. The first three campaigns for oral vaccination of
foxes against rabies resulted in the number of registered cases of rabies in
wild animals in 2011 falling by 75% in comparison to 2009. A system for the
identification and registration of bovines is in place and the registration of
sheep and goats has started. However, the registration of sheep and goats and
their movements needs to be completed. Preparations in the veterinary field are
moderately advanced.

Some progress has been made as regards the placing
on the market of food, feed and animal by-products. Serbia has adopted and
implements new national hygiene rules for food and feed establishments.
However, the national upgrading programme for establishments still needs to be
prepared. The national system for the management of animal by-products needs to
be upgraded in order to comply with EU requirements. In this area, Serbia has
started to address its priorities.

Some progress has been made on phytosanitary
policy. A strategy was adopted for the introduction of a plant passport
system, along with a manual for its implementation. Implementing legislation on
plant health was adopted in December 2011 and March 2012. However, Serbia’s
phytosanitary inspection procedures are outdated and need to be improved. The
procedure for registering new plant protection products is not yet aligned with
the acquis. Although parts of the legislation on the placing on the
market of plant protection products have been transposed, alignment with the acquis
still needs to be completed. A pesticide residues monitoring programme meeting
EU requirements has yet to be put in place. The capacity of the national
reference laboratory and of the regional laboratories for control of seed and
seed material and for pesticide residue analysis requires further strengthening
to meet EU requirements. Preparations in the area of phytosanitary policy are
on track.

There was no progress in the area of genetically
modified organisms, where Serbia still needs to bring its legislation into
line with the acquis. This is also one of the conditions for Serbia to
become a WTO member. Preparations in this area are at an early stage.

Conclusion

Some progress was made in the area of food
safety, veterinary and phytosanitary policy. Further strengthening of the
administrative capacity of the institutions involved in monitoring food chain
safety, in particular the veterinary, phytosanitary and national reference
laboratories, is needed. Efforts are needed as regards upgrading of food and
feed establishments, the management of animal by-products and genetically
modified organisms. Overall, preparations in the area of food safety,
veterinary and phytosanitary policy are moderately advanced.

4.13.
Chapter 13: Fisheries

EU requirements on resource and fleet
management and inspection and control do not apply to inland fishing
and are therefore not applicable to Serbia, except for control of marketing and
traceability of fishery products. There has been no progress on the
establishment of a national catch certification scheme for imports and exports
of fishery products.

No progress can be reported on structural
action for small-scale commercial fisheries and inland fisheries. Serbia
does not have an operational fisheries programme that could be a basis for the
introduction of structural measures.

Some progress can be reported in market
policy. Another export facility was added to the list for exports of
fishery products to the EU in 2012. No developments can be reported on
establishing producers’ organisations and collecting market data. The capacity of the administration dealing with management
and control for imports and exports of fishery products remains to be enhanced
and brought into line with the obligations of the common fisheries policy.

Some progress can be reported regarding State
aid. Aquaculture producers received aid to buy juvenile fish, and fisheries
organisations are eligible to apply for subsidies for the protection and
sustainable use of fish in order to improve the catch per unit effort, the
preservation of the diversity of ichthyofauna and the ecological integrity of
aquatic systems.

Serbia signed international agreements
in the veterinary and food safety area, which also covers fishery products,
with the former Yugoslav Republic of Macedonia, Bosnia and Herzegovina, Uruguay,
Algeria and Montenegro. Furthermore, an agreement on the protection and
sustainable use of the Danube salmon population in the River Drina was signed
in March 2012 with Bosnia and Herzegovina.

Conclusion

Some progress can be
reported under this chapter with the signing of some international agreements.
However, the collection of market data needs to be improved and a national
catch certification scheme for imports and exports of fishery products needs to
be established. Overall, preparations in the area of fisheries are moderately
advanced.

4.14.
Chapter 14: Transport policy

Some progress can be reported in the area
of road transport. The Law ratifying amendments I-VI to the European
Agreement on the work of crews of vehicles engaged in international road transport
(AETR) and the Law ratifying the Agreement on the international carriage of
perishable foodstuffs and on the special equipment to be used for such carriage
(ATP) were adopted in December 2011. The digital tachograph system has been
introduced and in January 2012 the Road Traffic Safety Agency started issuing
memory cards for digital tachographs. The Agency has continued to increase its
capacity and 47 of the 65 planned posts are filled. A Road Safety Coordination
Body to coordinate work on reducing the number of traffic accidents was
established in September 2011. Implementing legislation remains to be adopted
to comply with the EU rules on access to the international road market and to
the occupation of road transport operator, the driving and rest periods of
drivers engaged in domestic transport and the transport safety conditions for
tunnels. The transparency of the fees charged for special transport operations
exceeding the permitted vehicle dimensions, total mass and axle load needs to
be ensured. Further alignment with recent road safety and dangerous goods acquis
is still necessary.

There has been
little progress in rail transport. The further transformation of Serbian
railways JSC into a holding with four different daughter companies is on-going.
The new Law on railways and the railway safety and interoperability Law have
not been adopted. The independence of the infrastructure manager from the
railway operator, fair access to the market and
transparent infrastructure charging system remain to be achieved. The market remains virtually closed due to the high cost of the
license and its maximum duration of one year. The
network statement has not been published. The railway
regulatory body and independent accident investigation body have not been set
up. The Border Crossing Agreement between Montenegro and Serbia needs to be
further aligned with the EU legislation.

Some progress
was made in the area of inland waterway transport. Implementing
legislation on the programme, method and cost of a special examination for
navigation safety inspectors, and on the format of the official navigation
safety inspector’s identity card was adopted in February 2012. A Rulebook on
the qualification and conditions for obtaining certificate for competence of
onboard crew member of merchant inland waterway vessels was adopted in July
2012. The implementation of River Information Services is ongoing also for the
River Sava.

Little progress
can be reported in the area of combined transport. The project
documentation for the construction of an intermodal terminal in Belgrade was
completed in March 2012.

Good progress
can be reported in the area of air transport. In all 22 regulations
implementing the Law on Air Transport have been published. Some of these
provisions amend the responsibilities of the independent body for investigating
accidents and serious incidents and the inspection oversight duties of the
Civil Aviation Directorate, with the aim to align national law with the
relevant EU rules. Implementation of the requirements under the first
transitional phase of the European Common Aviation Area Agreement (ECAA)
continued. The Law on Obligations and the Basics of Property Relations in Air
Transport, aiming to align national provisions with with the EU legislation on
passengers’ rights, was adopted in November 2011. A specific national body to
enforce the law has yet to be established. Provisions aligning with the EU and
international rules (Montreal Convention) on air carrier liability in the event
of accidents have been introduced. Further national provisions intending the
alignment with the Single European Sky legislation has been achieved, in
particular concerning the provision of air navigation services (ANS), the
methodology for determining and calculating the ANS charges, the regulation of
air space management, and the interoperability of the ATM systems.
Implementation of the rules on slot allocation, ground handling and airport
charges needs to be concluded.

Little progress
can be reported in the area of maritime transport. The Law on Maritime
Navigation has been adopted and entered into force in November 2011.

No progress was
made in the area of satellite navigation. Serbia has announced its
intention to take part in the Galileo satellite navigation programme.

Conclusion

Some progress
can be reported in the area of transport policy, particularly in road, inland
waterways and air transport. Further strengthening of capacity is needed, in
particular for enforcement and inspection. The new Law on Railways and the Railway
Safety and Interoperability law need to be adopted. Attention needs to be paid
to fair market access; further efforts need to be made in separation of
infrastructure manager and railway operator, as well as a properly defined
regulator. Overall, Serbia is moderately advanced in its alignment with
the acquis in the area of transport policy.

4.15.
Chapter 15: Energy

Little progress
was made as regards security of supply. As regards oil stocks, the draft
Law on Commodity Reserves, regulating the compulsory reserves of oil and oil
derivatives, remains to be adopted. A feasibility study for the Serbian part of
the South Stream gas pipeline was completed in April 2012. The company
South-Stream Srbija was established in December 2011 to carry out all
activities involved in implementation of the project. The feasibility study for
construction of the Nis-Dimitrovgrad gas interconnector linking Serbia to
Bulgaria has been finalised, but the financing of the project needs to be
secured.

As regards the
internal energy market, little progress was made. The 2011 Energy Law is
largely in line with the requirements of the Energy Community but the adoption
of implementing legislation is progressing slowly. The
unbundling of distribution and supply functions in the publicly owned
generation, distribution and supply electricity company Elektroprivreda Srbija
(EPS) has not yet been achieved. The electricity market
has been opened for all non-household consumers. The energy regulator approved the new methodologies for establishing the costs
for connection to electricity and gas transmission and distribution systems and
the cross-border capacity allocation rules for electricity for 2012. However,
no eligible customers have switched supplier. All eligible customers connected
to the distribution system are entitled to be supplied at regulated tariffs
until 2013. EPS, holds a de facto monopoly, due to the persistence of
regulated prices which are set at levels below the market price. Under the new Energy Law, the tasks and powers of the
Energy Agency of the Republic of Serbia (AERS) are largely in line with the
second package of the EU energy acquis, but the implementation of the
new law will require an increase in the AERS’ staff and further capacity
building. Adoption of the Electricity Market Code is still pending.
Serbia needs to start preparing for alignment with the EU’s third internal
energy market package. The state-owned Srbijagas has not been unbundled. It
remains a fully integrated company and is the only wholesale supplier on the
market.

Further to the
complaint against Serbia issued under the Energy Community dispute settlement
mechanism on the absence of compensation for electricity transit to the Kosovo
electricity transmission system and market operator (KOSTT) and the allocation
of cross-border capacities, the Energy Community Secretariat issued a Reasoned
Opinion in October 2011. According to that opinion, Serbia has failed to fulfil
its obligations under the Energy Community Treaty. Since then Serbia has not
addressed the issue referred to in this opinion.

There has been
little progress in renewable energy and energy efficiency. The Energy
Law is partly in line with the Renewable Energy Sources Directive.
Revised feed-in tariffs, which were due by the end of 2011, have not yet been
adopted. The administrative procedures for issuing construction permits,
licensing and network connections remain the biggest obstacle to the uptake of
renewables. Further efforts need to be taken to strengthen administrative
capacity and create a regulatory environment that fosters the increased use of
renewable energy sources in all sectors. Serbia has not yet adopted the planned
framework law on rational use of energy. A first annual programme for financing
energy efficiency projects in the public sector was adopted in March 2012, with
a budget of € 13 million.

There has been some
progress in nuclear safety and radiation protection. The Agency for
Protection from Ionising Radiation Protection and Nuclear Safety (SRPNA) has
issued legislation to implement the Law on Ionising Radiation Protection and
Nuclear Safety. The transfer of inspection functions from the line ministries
to the SRPNA has not yet been achieved. Effective financial independence and
sufficient levels of staff and funding are needed to ensure that the Agency
functions properly, particularly for licensing nuclear facilities. Serbia still
needs to adopt a national programme for spent fuel and develop a national
strategy for radioactive waste management and the decommissioning of its RA
research reactor at Vinča. Further efforts are required to improve the
radiological situation at the Vinča site, to abandon the Kalna mine and to
improve radioactive waste management at national level.

Conclusion

Little progress can be reported in the area
of energy. Further efforts are needed to achieve real market opening,
unbundling and cost-reflective tariffs. Framework legislation on rational use
of energy as well as legislation on commodity reserves remains to be adopted.
The role and independence of the AERS and the nuclear
regulator need to be strengthened. As a matter of urgency, Serbia needs
to address the issue referred in the Reasoned Opinion of the Energy Community.
Overall, preparations in the area are moderately advanced.

4.16.
Chapter 16: Taxation

There was little progress on alignment in
the area of indirect taxation. The law on excise duties was
amended in December 2011 to further approximate with the acquis on
tobacco taxation. The excise duties charged on the retail price were increased.
The concept of weighted retail price — similar to the one in the EU — has also
been introduced, replacing the most popular price as the basis for calculating
the minimum excise duty. Legislation
on other excise goods and on issues such as movement and control, excise
warehouses and storage or the concept of taxpayer remains to be aligned with
the acquis.

Little progress was achieved in direct
taxation. Amendments to the Property Tax Law were adopted in October 2011,
postponing a tax increase until after 2012. Changes were made to the law on tax
on profits in December 2011 to provide certain tax reliefs for companies
undergoing financial restructuring. Tax reliefs were introduced for profits
generated by production in free zones. The amendments to the Law on Tax
Procedure and Tax Administration were adopted in December 2011 aim to
strengthen fiscal discipline and clarify some tax procedures. They also allow
companies undergoing financial restructuring to pay their taxes in instalments
over a longer period.

Some progress was made as regards administrative
cooperation and mutual assistance. The B-6 (Balkan countries) agreement on
cooperation among tax administrations in the region was extended to Croatia.
Agreements on avoidance of double taxation were signed with Canada, Georgia and
Tunisia in April 2012, while the agreements with Montenegro and Iran came into
force as of 1 January 2012.

Progress was made in the area of operational
capacity and computerisation. The Serbian Tax Administration (STA) has
started to implement its corporate strategy for 2011-2015. It adopted in
December 2011 the 2012 compliance plan focussing on taxpayers with a poor
compliance record. The Large Taxpayers Office has hired an additional 22 staff
and has increased the number of taxpayers under its jurisdiction by more than
20%. It has introduced a new operational plan aimed at boosting total tax
revenues. The STA started routinely
publishing data about its biggest debtors. The Contact Centre — which started
operating in 2011 — has become a key customer service unit. As of April 2012,
all VAT payers have the option of declaring their tax electronically. However,
the IT system needs to be further improved. A better coordination in the STA is
necessary.

Conclusion

Some progress can be noted in the area of
taxation. The corporate STA strategy is being implemented, but modernisation
needs to continue. Tackling the grey economy remains a challenge. Substantial
efforts are required to improve the IT system and communication with taxpayers
and to further align the legislation on excise duties. Overall, preparations in
the area of taxation are moderately advanced.

4.17.
Chapter 17: Economic and monetary policy

No progress can be reported in the area of monetary
policy. The National Bank of Serbia’s (NBS)
independence has been seriously challenged by the adoption by the Parliament of
amendments to the Law on the NBS in August 2012. These amendments, which inter
alia force the immediate replacement of the Governor - within 90 days after
their entry into force and without proper justification - led to the
resignation of the incumbent Governor, one vice Governor and several NBS
Council Members. Another amendment violates the EU Treaty by removing the right
of judicial review in case of dismissal of the Governor.

As regards economic
policy, Serbia continues to participate in pre-accession economic policy
surveillance. It submitted its 2012 economic and fiscal programme (EFP) in
January. This programme covers the period 2012-2014, providing an overview of
expected macroeconomic developments. As regards the
macroeconomic and fiscal framework, the programme gives a clear overview of
past economic developments, in line with the requirements. As regards the
structural reforms framework, the programme fails to provide fully convincing
action plans as regards the medium-term policy priorities. As a candidate
country, Serbia has also been included in the bi-annual Economic Forecast
prepared by the European Commission.

As regards fiscal responsibility, the level
of public debt has exceeded the maximum set by national legislation at 45% of
GDP and is now over 55%. In view of the huge financing needs, the problem of a
possible further rise in government debt remains acute. The capacity for
economic policy formulation and coordination needs to be further improved.

Conclusion

No progress was made in the area of
economic and monetary policy. The amendments to the Law on the NBS seriously
challenge the independence of the central bank and thus, constitute a
significant step back in the alignment to the EU acquis. The capacity
for economic policy formulation and coordination needs to be improved. Overall,
in the area of economic and monetary policy, Serbia is moderately advanced in
addressing the acquis.

4.18.
Chapter 18: Statistics

Some progress was made in the area of statistical
infrastructure. A plan for statistical surveys in 2012 was adopted in
December 2011. The Statistical Office of the Republic of Serbia (SORS) also
adopted the procedure for granting access to non-identifiable individual data
for scientific/research purposes. The action plan for harmonisation with the
European Statistics Code of Practice based on the results of the Light Peer
Review is under timely implementation.

Given the tasks required to comply with the
acquis, the number of qualified staff at the SORS will need to be
increased over the next few years.

There was some progress in the area of classifications
and registers. The revised classification of activities, NACE rev.2, has
been further applied to time series of national accounts. The issue of the
regional statistical classification (future NUTS) remains open. This goes
beyond the scope of technical expertise and requires a political decision.

There was good progress in the area of sectoral
statistics. The population census was carried out in 2011; field work has
been completed and data processing is ongoing. Preparations for the agriculture
census are under way. Implementation of the acquis on agricultural
statistics needs further attention. As regards social statistics, the survey of
income and living conditions (SILC) is about to be introduced. The SORS has to
step up preparations for the comprehensive delivery of national accounts data
according to ESA 95 and its transmission programme.

Conclusion

Good progress can be reported in the area
of statistics. The population and housing census was carried out according to
plan. The capacity of the Statistical Office of the Republic of Serbia will
have to be reinforced over the next few years in order to allow comprehensive
implementation of the statistical acquis. Overall, Serbia is moderately
advanced in the area of statistics.

4.19.
Chapter 19: Social policy and employment

There has been no progress in the field of labour
law. Further efforts are needed in this area.

There has been some progress in the area of
health and safety at work. Serbia has adopted rules further aligning its
legislation with the acquis on exposure to vibrations, to noises and to
carcinogens or mutagens at work. The Labour Inspectorate carried out a
considerable number of inspections, and training and awareness-raising
activities targeting workers and social partners continued. Preparations in
this area are well on track.

There has been little progress in the area
of social dialogue, which continues on a tripartite basis within the
Economic and Social Council at national level. The issue of representativeness
of member organisations continues to hamper the work of the Council. The
Council is still not being consulted on a regular basis on labour-related draft
laws, which remains a major problem for its work. An agreement on the minimum
wage was signed in April 2012 by all members of the Economic and Social
Council. At local level, 18 Economic and Social Councils are in operation, of
which two were recently established. However, they lack financial resources,
have no work programmes and do not meet regularly. The weakness of employers’
organisations at local level is a further obstacle.

There has been some progress as regards employment
policy. The annual performance agreement between the Ministry of Economic
Affairs and Regional Development (MoERD) and the National Employment Service
(NES) was concluded in March 2012. The National Employment Action Plan for 2012
has been adopted in accordance with the priorities specified in the National
Employment Strategy 2011-2020. Two new measures were introduced in order to
address the problems of unemployed people without working experience or
qualifications. A specific decision was adopted on co-financing of local
employment measures for 134 local employment plans and 15 licences were issued
to private employment agencies. Also in 2012, a special public call for
inclusion of Roma and people with disabilities in active employment measures
was published. The administrative capacities of the MoERD and the NES have been
further developed. Employment policy was transferred
from the Ministry of Economy back to the Ministry of Labour and Social Policy.

However, the annual budget for active
labour market measures was reduced by 14% compared to 2011 and the total
allocations for active employment policy continue to represent only 0.1% of
GDP. As a result, the ‘First Chance’ programme, in favour of youth employment,
will not be expanded. The coverage of active labour market measures remained
limited as only 20% of the unemployed participated in labour market measures
and only a third of them became employed in 2011. Employment policies failed to
impact meaningfully on the labour market situation which further deteriorated.
Undeclared work remains high, at an estimated 17% of the work force, youth
unemployment increased and activity and employment rates decreased, notably for
women. Additional efforts are needed to ensure better targeted and efficient
labour market measures and to develop a strategic approach to employment,
especially in a context of limited financial resources, increasing unemployment
and deteriorating economic growth. Preparations in this area are on track.

There has been some progress as regards
preparations for the European Social Fund. The MoERD has reorganised the
employment department and provided intensive training for all staff.
Preparations in this area are on track.

There has been some progress in the field
of social inclusion. The adoption of implementing legislation on welfare
allowances and the introduction of earmarked transfers to local municipal
governments for community services have provided a basis for the implementation
of the Law on Social Welfare. Social services are being improved. The law has
introduced new concepts in terms of accessibility to social services, including
the right for beneficiaries to complain. Active measures to increase social
inclusion of the Roma have continued. The enrolment rate of Roma children in
the education system has increased. 170 Roma teaching assistants have been
employed together with 75 health mediators. However, the availability of
community-based social services across the country remains limited. The Roma
community, one the most vulnerable groups, is exposed to multiple forms of
exclusion and is particularly in need of cross-sectoral coordinated support. The
strategy to improve the situation of disabled people for 2007-2015 is being
applied. The first results of implementation of the Law on Professional
Rehabilitation and Employment of People with Disabilities are positive.
Preparations in this area are on track.

No progress can be reported in the area of social
protection. As a result of the deterioration of the Serbian economy, which
has affected many businesses, but also due to insufficiently developed
mechanisms of enforcement and control, the pension and health fund deficits
have increased further. In the absence of sufficient funds for the payment of
pensions, transfers from the budget have become the largest single item on the
expenditure side. The health insurance fund has accumulated debt which was
estimated to stand at about € 790 million in February 2012. Comprehensive
restructuring and reforms are needed in order to regain sustainability.
Integrated/cross-sectoral social services need to be further developed. Preparations in this area are not very advanced.

There has been some progress in the field
of anti-discrimination. The capacities of the Commissioner for the
Protection of Equality have been improved. Office space has been provided, and
the office has 18 staff. In 2011, the Commissioner issued 98 opinions and 17
recommendations to public authorities for the establishment of equality, and
filed charges for violation of the Anti-discrimination Law in three cases.
However, further efforts are needed to establish a track record of prosecutions
and final convictions for offences related to discrimination. A number of
provisions of the Serbian Anti-discrimination Law are not in line with the acquis:
exceptions granted to religious institutions are too wide, there is no mention
of the obligation to provide reasonable accommodation to disabled employees,
the definitions of indirect discrimination and instruction to discriminate are
not in line with the acquis, and the role of NGOs and associations in
judicial proceedings is not explicitly provided for. Those most exposed to
discrimination are Roma, women, persons with disabilities and the LGBT
population. They are frequently victims of intolerance, hate speech and even
physical attacks. Public officials have been reluctant to publicly condemn such
incidents. Serbian authorities need to develop a proactive approach towards the
better inclusion of the LGBT population and a greater understanding across
society. Serbia has started to address its priorities in this area.

No progress can be reported on equal
opportunities between women and men. Implementation of the Strategy for the
enhancement of women’s position and gender equality (2010-2015) and the related
Action plan needs to be followed up better. Implementation of the National
Strategy for Prevention and Elimination of Violence against Women should also
be continued. Further streamlining of the administrative capacities of bodies
dealing with gender equality is needed as women remain exposed to
discrimination and lower salaries, pensions and employment rates. Preparations
in this area are moderately advanced.

Conclusion

Some progress can be reported in the area
of social policy and employment, especially in the fields of employment policy,
health and safety at work and social inclusion. However, employment policies in
general are affected by adverse economic developments and limited budget
allocations and need to be enhanced. Increased efforts are also needed to
restructure and reform social protection and regain sustainability. Overall,
Serbia has started to address its priorities in this area.

4.20.
Chapter 20: Enterprise and industrial policy

Progress was made in the area of enterprise and industrial policy principles. A new definition of SMEs was adopted in December 2011 in line with
the EU recommendation. The strategy for the development of competitive and
innovative small and medium-sized enterprises for the period 2008-2013
continued to be implemented. The SME policy is also part of a number of other
strategies, such as the industrial development and regional development
strategies adopted in 2011. The Business Council established at the Chamber of
Commerce is working well. The SME Council has not been active.

Implementing legislation on measures to
prevent delayed payments by the public sector to business operators was adopted
in October 2011. It partly aligns Serbian legislation with the Late Payment
Directive and sets the maximum deadline for payment at 60 days. So far, the new
rules have had a limited effect. Serbia still needs to pass legislation against
delayed payments between businesses. Substantial delays in payments between
economic operators persist, resulting in their chronic illiquidity.

Regarding enterprise
and industrial policy instruments progress has been
made; Serbia continues to implement the Small Business Act and to participate
in other projects under the European Entrepreneurship and Innovation Programme
(EIP). However, further efforts are needed in relation to company registration,
business incubators and access to finance for SMEs.

The Innovation Fund has started working,
providing grants for innovations. The Agency for Regional Development supports
the establishment of incubators. The Development Fund has no new funds
available for loans, but channels the repayments of old loans into some new
projects, such as support for women entrepreneurship.

No progress has been registered in relation
to sector policies.

Conclusion

Progress was made in the area of enterprise
and industrial policy. Serbia implements the Small Business Act in an
appropriate manner and other preparations in enterprise and industrial policy
are on track.

4.21.
Chapter 21: Trans-European networks

Some progress
was made in the area of trans-European transport networks (TEN-T).
Serbia cooperated actively in the implementation of the Memorandum of
Understanding on the development of the South East Europe Regional Transport
Network (SEETO). The SEETO transport network has been integrated into Serbia’s
Strategy for the development of railway, road, waterway, air and intermodal
transport from 2009 to 2015. Implementation of the action plan for the
construction of road corridor X has advanced. The procurement procedures have
started for several remaining sections on the E80 (Nis-Dimitrovgrad) and E75
(Nis-former Yugoslav Republic of Macedonia) motorways and the Belgrade bypass. Several major projects to
develop project documentation for rail corridor X are under way or in preparation.

Some progress
was made in carrying out infrastructure projects and enhancing navigation
conditions on the inland waterways network along the River Danube and the River
Sava including River Information Services.

As regards
trans-European energy networks (TEN-E) little progress was made. The feasibility study and general design for the South Stream gas
pipeline were prepared. (See Chapter 15 — Energy) Serbia continues to support implementation of the Gas Ring project
for south-east Europe. The feasibility study for
construction of the Nis-Dimitrovgrad gas interconnector linking Serbia to
Bulgaria has been finalized. However, the financing for the project needs to be
secured. Concerning electricity, the construction of section 2
(Leskovac-Vranje-border substation) of the electricity line from Nis to the
border with the former Yugoslav Republic of Macedonia was completed in November
2011. Construction of the Leskovac and Vranje substations is ongoing. Further project documentation for an interconnection project with
Romania, connecting Pancevo (Serbia) to Resita (Romania), is being prepared. As
regards oil infrastructure, Serbia continues to support the planned
pan-European oil pipeline.

Conclusion

Serbia has made
some progress in the area of trans-European networks. It is continuing to
develop its transport and energy networks and to participate actively in the
work of the South East Europe Transport Observatory and the Energy Community.
However, major challenges remain in terms of financing the new interconnections
between energy and transport networks. Overall, preparations in the area of
trans-European networks are moderately advanced.

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

There has been
little progress on the legislative framework impacting on regional
policy. The government adopted in May 2012 the updated Decree on the
Decentralised Management of EU Pre-accession Assistance under the Instrument
for Pre-accession (IPA). Efforts are needed in all areas relevant for implementation
of the cohesion policy in line with the acquis.

There has been
progress with regard to the institutional framework, not least in terms
of preparing the operating structures for the implementation of all IPA
Components. Units for programming and implementation of IPA have been
established. However, efforts are needed to avoid the parallel systems, namely
for national policy and for the Cohesion Policy.

Progress can be
reported with regard to administrative capacity. Serbia finalised
preparations under the Roadmap and Action Plan for decentralised management of
IPA funds for Components I-IV and in June 2012 submitted the accreditation
package for the conferral of management of these Components. Considerable additional
efforts are required in order to ensure adequate administrative capacity in
line with the future workload.

There has been
some progress in the area of programming. The Serbian government has
further developed the draft Strategic Coherence Framework and the Operational
Programmes (OPs) for IPA Components III and IV, providing a good basis for the
next financial perspective and the relevant policy areas. Interministerial
coordination has improved. Despite efforts to prepare a pipeline of projects,
the lack of strategically developed investment plans remains an obstacle.
Projects continue to be selected on an ad hoc basis rather than on the basis of
strategic sectoral priorities. Coordination between the operating structures
responsible for programming and final beneficiaries, and the capacity of final
beneficiaries to develop project documentation in line with the EU standards,
are still not sufficient.

Some progress
can be reported with regard to monitoring and evaluation. The
secretariat of the National IPA Coordinator (NIPAC) is responsible for
monitoring and evaluating programmes. The sectoral working groups are
increasingly taking on more ownership of programming and will be gradually
transformed into sectoral monitoring committees.

There has been
good progress in the area of financial management, control and audit. The
Audit Authority now has minimum staffing, including three auditors. Further
staffing and improvement of audit capability is required.

Conclusion

Progress was noted in the area of regional
policy and coordination of structural instruments. Serbia has completed the
preparatory stages for the decentralised management of IPA for four Components.
Adequate implementation capacity needs to be further ensured. Programming needs
to be improved, especially in terms of preparing a solid project pipeline based
on relevant strategies. Overall, preparations in this area are advancing.

4.23.
Chapter 23: Judiciary and fundamental rights (See also Political Criteria)

Serbia has made
only little progress in the area of the judiciary.

There was little progress regarding the independence
of the judiciary. The High Judicial Council (HJC)
and the State Prosecutorial Council (SPC) took over the administration of the
budget of courts and prosecution services in March 2012. However, the legal
framework still leaves room for undue political influence over the judiciary. There
were shortcomings in the composition of the HJC. The
HJC and the SPC have not yet finalised the appointments of court presidents and
public prosecutors. The HJC and the SPC have not yet adopted rules on regular
evaluation of the work and performance of serving judges and prosecutors. The
foreseen evaluation of the magistrates newly recruited in 2009 for a three year
term is in particular pending.

The HJC and SPC finalised the review
procedure for non-reappointed judges and prosecutors on the basis of objective
guidelines. The review was intended as an additional remedy to address the
petitioners’ claims without limiting their right to subsequent judicial review
by the Constitutional Court. The review was open to external monitoring, based
on individual hearings and concluded with individual, detailed, written
decisions. However, it was not conducted fully in line with the letter and
spirit of the guidelines. Serious procedural shortcomings were identified,
including lack of quorum and voting patterns in the HJC. This raised concerns
that contrary to the guidelines the ex-officio members (the President of the
Supreme Court of Cassation, the Minister of Justice and the President of the
Parliamentary Committee for Judicial Affairs), who had participated in the
initial reappointment procedure, had substantially influenced the decisions
taken on the basis of the review commissions’ proposals. Evidence used in the
decisions was not always admissible according to the guidelines or was
introduced at too late a stage. For these reasons, in two rulings in July 2012,
the Constitutional Court revoked all the decisions
taken by the HJC and SPC of non-re-appointment challenged by the petitioners so
far and instructed the HJC and the SPC to reinstate all of them. Cases returned by the
Constitutional Court will need to be re-examined diligently and in full
accordance with the Constitutional Court’s rulings.

The impartiality of judges continues
to be broadly ensured thanks in particular to automated allocation of court
cases, which has now been introduced in all commercial courts and courts of
general jurisdiction. In order to enforce accountability,
the SPC adopted a first set of Rules on disciplinary procedure and liability in
July 2012, which needs to be further aligned with EU standards. The HJC has started to investigate and impose
penalties in disciplinary cases.

The Judicial Academy has a key role to play
in ensuring that professional standards and merit-based principles are applied
in the judiciary. A second generation of new students was selected and the
Academy provided a variety of in-service training programmes for judges,
prosecutors, judicial staff and attorneys. A proper
merit-based career system for judges and prosecutors remains to be fully
developed. It is still possible to enter the judicial profession, in particular
at higher levels, on the basis of unclear criteria without having passed
through the Judicial Academy.

A number of laws came into force aimed at
improving the efficiency of the judiciary and applying international
standards in national courts. In 2011, following a
new accounting methodology, the courts received 2.23 million new cases,
resolved 2.65 million cases and were left at the end of the year with a backlog
of 3.34 million cases. However, major
imbalances persist in the courts’ workload and a comprehensive analysis of the
functioning of the new court network is needed. The quality of statistics needs
to be improved. Amendments aimed at improving the
efficiency of the Constitutional Court were adopted but the Court continued to
face a significant and rapidly growing backlog of cases.

Serbia has made
little progress on anti-corruption policy. The
Government has not yet finalised its National Anti-Corruption Strategy for
2012-2016 nor its corresponding Action Plan.

The Anti-Corruption Agency’s operations increased, mainly
focusing on prevention. The Agency started to implement the 2011 Law on the
Financing of Political Activities, and continued to make targeted checks on
asset declarations collected and to process cases of dual public functions
presenting a risk of conflict of interest. However, the Agency has still to
establish a track record of effective checks on party funding
and electoral campaign. It also needs to improve cooperation with relevant
stakeholders to investigate declarations of assets effectively. There was little action to protect whistleblowers. There
has been no further follow-up to the reports of the Anti-Corruption Council on
high-profile cases.

The special prosecutor for corruption and organised crime
launched new investigations in 115 corruption cases in 2011, while 2770 ones
were launched from other public prosecutors’ offices during the same period. These
included several medium- to high-level cases. Further
efforts are needed in order to establish a track record of prosecution and
conviction, particularly in high-level cases. The law enforcement bodies need
to become more proactive and develop their ability to conduct financial
investigations.

Public procurement, management of public enterprises,
privatisation procedures and public expenditure remain areas of serious
concern, especially in the Health and Education domains, in which independent
supervision and capacity for early detection of wrongdoing are underdeveloped.
Comprehensive risk analyses for areas vulnerable to corruption are needed.
Coordination between all stakeholders needs to be strengthened to ensure
effective prevention and handling of corruption cases.

Little progress has been made in the area
of fundamental rights.

Regarding the prevention of torture and
ill-treatment the Ombudsman carried out his first
inspections acting as the newly designated National Prevention Mechanism. Overcrowding
in the prison system, poor living conditions in detention facilities,
unsatisfactory healthcare and the lack of adequate and specific treatment
programmes are still a matter of concern. The internal control of the police needs
to be enhanced. Alternative sanctions need to be introduced on a wider scale. Constitutional guarantees on access to justice are in place.
Legislation and funding for an effective system of free legal aid still need to
be developed. The legal framework providing for freedom of expression
and the media is in place. Attacks and threats against journalists have
decreased slightly but a more comprehensive and proactive approach by the
police and the judiciary remains essential. Transparency of media ownership
still needs to be fully ensured and the implementation of the media strategy
needs to be speeded up. Freedom of assembly and association is
constitutionally guaranteed and in general respected. The Serbian
Constitutional Court developed its case law regarding freedom of assembly. Freedom of thought, conscience and religion is guaranteed and generally respected. The lack of
transparency and consistency in the registration process continues to be one of
the main obstacles preventing some smaller religious groups from exercising their
rights.

There has been some progress relating to women’s
rights and gender equality. Serbia signed the Council of Europe
Convention on preventing and combating violence against women and domestic
violence. A special telephone line and a new shelter for victims of domestic
violence were opened. However, violence against women still remains an area of
concern and there is no coordinated collection and sharing of data on violence
against women and violence in the family. As regards children’s rights,
little progress has been achieved. A special telephone line for victims of
juvenile violence was introduced. Children’s rights are unevenly protected.
Some Roma children are still being enrolled in special schools. Some progress
has been made concerning the socially vulnerable and/or persons with
disabilities, notably with regard to their promotion, education and
inclusion on the labour market and the development of community-based services.
There has been some progress in the area of anti-discrimination policies.
Serbia’s anti-discrimination legislation is broadly in line with European
standards on combating racism and racial discrimination. The Equality
Protection Commissioner’s office was active in raising awareness of
discrimination and ways of addressing it. Police improved their response to
attacks against some groups. However, discrimination based on ethnicity,
gender, and sexual orientation remains widespread. Serbian authorities need to
develop a proactive approach towards the better inclusion of the LGBT
population and a greater understanding across society. No progress has been
made regarding labour and trade union rights. Several registered
trade unions are still not recognised. Concerns remain as to the criteria for
social partners’ representativeness in the social dialogue which remained
limited at both national and local level. Regarding property rights,
implementation of the 2011 law on restitution has started.

Limited progress
has been made regarding respect for and protection of minorities and cultural
rights. The legal framework is in place and generally respected. Some
positive steps were taken to improve the situation of minorities, including the
Roma. However, additional efforts are needed to ensure effective implementation
of the legislation throughout the territory of Serbia and to address
shortcomings. Roma, refugees and internally displaced persons continue to face
a difficult situation. Additional efforts are required to comply with
international standards on forced evictions.

There has been no progress regarding the protection
of personal data. The legal and
institutional framework is broadly in place. Several provisions of the Law on
Protection of Personal Data are not fully in line with EU standards. An action
plan implementing the strategy still needs to be adopted. The office of the
Commissioner for Free Access to Information of
Public Importance and Personal Data Protection, faced with a constant increase
in the number and complexity of the cases, still lacks sufficient resources. Further
efforts are needed in order to ensure the collection and processing of personal
data in line with EU standards.

There were no developments in relation to EU
citizens’ rights.

Conclusion

There has been
little progress regarding the judiciary and fundamental rights. The review of reappointments of judges and prosecutors did not
correct the existing shortcomings and was overturned by the Constitutional
Court who ordered the reinstatement of all judges and prosecutors that had
appealed their non-reappointment. A new strategy for judicial reform, based on
a functional review of the judiciary, is needed. Implementation of the legal
framework to fight corruption has continued. However, a new Anti-Corruption
Strategy and Action Plan are still pending. Stronger political direction, more
effective inter-agency coordination and a proactive approach in investigating
and prosecuting corruption are needed. Regarding fundamental rights, the
legislation is in place and broadly respected. Freedom of expression is in general
guaranteed but the implementation of the media strategy needs to be speeded up.
Discrimination based on ethnicity, gender, and sexual orientation remains
widespread and further measures to fight all forms of discrimination are
needed. A proactive approach towards better inclusion of the LGBT population
and a greater understanding across society is needed. Some positive steps were
taken to improve the situation of minorities, including the Roma, but
additional efforts are needed to achieve consistent implementation of the
legislation across Serbia. Overall, Serbia has started to address its
priorities regarding alignment with the acquis in the area of the
judiciary and fundamental rights.

4.24.
Chapter 24: Justice, freedom and security

Visa liberalisation for citizens of Serbia travelling to the Schengen area has been in
force since December 2009. In order to ensure on-going implementation of the
commitments taken, a post visa liberalisation monitoring mechanism has been
established. The Commission presented its second monitoring report to the
European Parliament and the Council in December 2011 and adopted the third in
August 2012. The increase observed in the previous years in the number of
unfounded asylum applications by Serbian citizens under the visa-free regime
was stopped in 2011, following decisive measures by the Serbian authorities. It
nevertheless increased again in the first months of 2012. With more than 13,900
applications in 2011 and more than 5000 in the first seven months of 2012,
Serbian nationals remained one of the highest-ranked nationalities of asylum
applicants in the EU. This nonetheless corresponded to a 25% decrease in 2011
applications compared to 2010 (more than 17,000 applicants at that time). The
number of Serbian citizens finally granted asylum in EU Member States remained
stable in 2011 (310) compared to 2010 (315). Efforts to address this issue need
to be strengthened. Overall, Serbia is moderately advanced in addressing the
unfounded asylum applications by Serbian citizens under the visa free regime.

There has been no progress regarding migration
management. The number of irregular migrants passing through Serbia and whose
final destination is the EU has increased: about 9,500 irregular migrants were
registered in 2011, as compared to 2010, when approximately 2,500 were
recorded. The 2012 Action Plan for the implementation of the migration
management strategy was adopted in May 2012. Coordination amongst bodies
responsible for implementing the migration strategy still needs to be improved
and sufficient financial means allocated. The readmission agreement between the
EU and Serbia continued to be implemented without significant problems,
although the capacities and resources for integrating returnees from the
readmission process are very limited. Some 5,150 persons were returned to
Serbia from an EU Member States in 2011 (3,979 in 2010). Under the Agreement, a
new bilateral implementing protocol has been concluded with Estonia. The main
countries from where returns take place are, by decreasing number, Germany,
Sweden, Switzerland, Denmark, France and the Netherlands. Overall, migration management in Serbia continues to be moderately
advanced.

Regarding asylum, no progress has
been made. Claims are still temporarily processed by the Border Police Asylum
Unit, as the Asylum Office intended to operate as the first-instance body has
not yet been formally established. The mandate of the Asylum Commission, the
second-instance body, was renewed in September 2012 and its members were appointed.
The number of asylum claims has increased. Criteria for verifying safe
countries of origin and the list of safe third countries still remain to be
fully aligned with the acquis. A new reception centre is being built but
additional reception facilities for asylum seekers are needed. Capacities and
practices, including staff training, need to be improved. A national database
for checking personal data and fingerprints of asylum-seekers is still missing.
Overall, Serbia continues to be in the early stages of
implementing the asylum policy.

There has been
some progress on visa policy. As regards requirements to be met as of
accession to the Schengen area, a new software and a Visa Centre which offers
an online, prompt and more transparent procedure in line with the Visa
Information System (VIS) has been operational since May 2012.

The list of
countries for which a visa is required needs to be brought fully into line with
the acquis. Overall, Serbia is moderately
advanced in aligning its visa policy with European standards.

Progress has been achieved in the area of external
borders and Schengen. The coordination body for implementing the Integrated
Border Management (IBM) strategy has become operational. Serbia has continued
to improve the infrastructure and equipment at border crossing points by
completing installation of the TETRA system. Additional border police posts
have been connected with the central database of the Ministry of the Interior.
Serbia has been involved in joint operations, regular exchanges of data and
best practices, and training activities with Frontex; it participates in the
Western Balkans Risk Analysis Network. International cooperation continued to
improve and an agreement between Serbia and Hungary on border control of road,
railway and water traffic was signed in January 2012. Police cooperation with
Bulgaria has also been enhanced with the establishment of joint patrols on the
Serbian-Bulgarian border. However, the revised IBM strategy and its action
plan, the protocol on information exchange among services, the concept for
joint training among services, and the guidelines for risk analysis in border
policing still need to be adopted. Operational coordination between border
police, customs and phytosanitary services remain to be improved. Further
modernisation and upgrading of equipment and infrastructure is needed, both at
border crossing points and for surveillance purposes, including access to
relevant Interpol databases. The border police needs to further improve its
risk analysis capacities. Overall, Serbia continues to be moderately advanced
on border management.

Some progress
was achieved regarding judicial cooperation in civil and criminal matters.
Further efforts were made to streamline practical cooperation, especially at
regional level. Agreements were signed in November 2011 with Slovenia on mutual
legal assistance in the enforcement of court judgments and with the former
Yugoslav Republic of Macedonia on extradition of own citizens. Cooperation
continued with Croatia in matters of extradition, enforcement of criminal
judgments and war crimes processing. However, further improvements are still
needed to ensure practical enforcement of the legal framework. Action is also
needed to ensure effective cooperation with Eurojust. Overall,
Serbia remains moderately advanced in the areas of
judicial cooperation in civil and criminal matters.

Serbia has made progress in the area of police
cooperation and the fight against organised crime. The law on Police was
amended in December 2011 to better define police cooperation at operative level
through joint actions, teams and exchange of liaison officers. Measures have
been taken to improve the methodology and standards of police work, including
an information booklet on anti-corruption for police officers. Cooperation
between relevant agencies has improved within the country, in the region and
internationally, leading to good results in a number of high-profile
investigations into organised crime groups. An agreement on police cooperation
was signed with the former Yugoslav Republic of Macedonia in November 2011. A
secure link at the Ministry of the Interior has been established for improving
cooperation with Albania, Bosnia and Herzegovina, Croatia, Montenegro and the
former Yugoslav Republic of Macedonia. The Ministry of the Interior signed an
amendment to the bilateral technical agreement with Europol in March 2012 and
an expert mission from Europol took place in December 2011. However, organised
crime still remains a serious concern in Serbia. Final convictions remain rare.
Capacity to carry out complex, in particular financial, investigations needs to
be built up. Specialised services, in particular the unit for witness
protection, still lack sufficient staff, resources and adequate premises.
Cooperation and information flow between law enforcement agencies needs to be
improved. Statistical data needs to be harmonised and a centralised criminal
intelligence system still remains to be established. Risk assessments and crime
mapping need to be used more broadly and intelligence-led policing is to be
developed. The capacity of the police to carry out, independently of the
security intelligence agencies, certain special investigative measures in
criminal investigations needs to be established in line with EU standards. Overall,
Serbia is moderately advanced as regards police cooperation and the fight
against organised crime.

Regarding seizure of assets, out of 134
requests to confiscate assets, 63 were approved in full, 14 partially and 36 denied
in 2011. There was a significant increase in the staff of the Directorate for
assets seizure. However, further sustained efforts are needed to enhance the
effectiveness of legislation in this area. Coordination between the prosecutors
and institutions involved in asset recovery needs to be further improved. The
Directorate and the Financial Investigation Unit (FIU) lack sufficient means
and technical expertise. Specialised training on financial instruments needs to
be provided to judges and prosecutors in order to be able to process adequately
data provided by the FIU and open financial investigations when justified.

Some progress
was achieved in the fight against money laundering. (See also Chapter 4 —
Free movement of capital) The number of identified cases of tax fraud and
of final convictions for money laundering offences has increased. However, the
staff and analytical capacity of the Administration for the Prevention of Money
Laundering need to be further built up. The number of suspicious transactions
identified remains low and reporting, especially from outside the banking
sector, needs to develop. Law enforcement and judicial authorities still lack
expertise to handle money laundering cases. Overall,
Serbia is moderately advanced in the fight against
money laundering.

Serbia remained
a country of origin, transit and destination for trafficking in human beings.
Some steps were taken to implement the action plan of the national strategy
to combat human trafficking. A temporarily seized house was in October 2011
turned into a safe house for victims of trafficking. However, the strategy and
associated action plan remain to be updated. A uniform database for criminal
reports and proceedings and a specific monitoring mechanism in this area have
not been established. The effective compensation and social inclusion of
victims, through a special fund, in line with existing EU standards remains to
be ensured. Overall, Serbia is moderately advanced in
fighting trafficking in human beings.

Serbia has made little progress regarding
the fight against terrorism. Within the Security Information Agency, a
unit was created for combating international organised crime, including money
laundering and terrorist financing. However, a national database and more
efficient information exchange procedures need to be established and
inter-agency cooperation improved. Overall, Serbia is
moderately advanced in fighting terrorism.

Some progress was achieved concerning cooperation
in the field of drugs. An interministerial commission for controlled
psychoactive substances was established in November 2011. Actions were taken in
education and anti-drugs campaigning. A national report on the drug situation
and an action plan for a drug information system were developed in cooperation
with the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA). The
national focal point for EMCDDA, aimed at further improving cooperation and
coordination at national level and strengthening data collection, is now
operative since February 2012. Good results were achieved in international and
regional cooperation and several joint actions led to a number of arrests and
drugs seizures at border crossing points with Croatia, Bulgaria and Hungary.
Operational information exchanged with Interpol led to successful actions in
countering increased activities of some criminal groups. However, Serbia
remains on the main drug trafficking routes. The national focal point for
European Monitoring Center for Drugs and Drug Addiction, aimed at further
improving cooperation and coordination at national level and strengthening data
collection, is now operative. Destruction of seized drugs still remains
to be ensured. Overall, Serbia is moderately advanced
regarding the cooperation in the field of drugs.

Concerning customs cooperation (see
also Chapter 29 – Customs Union), some progress was achieved. The Customs
Administration of Serbia (CAS) concluded agreements on international
cooperation with Azerbaijan, Belarus and Georgia. Implementation of the
integrated border management strategy and action plan has continued. The CAS
engaged in joint cases with all agencies from neighbouring countries and
continues to take an active part in international activities concerning the
fight against illegal trade in goods such as narcotics, oil and cigarettes and
cross-border movement control. However, Serbia still needs to align its legal
framework with EU legislation on the use of technology for customs purposes and
to ratify and implement the ‘Naples II’ Convention on mutual assistance and
cooperation between customs administrations. Overall, Serbia is moderately
advanced regarding the cooperation in the field of customs.

For protection of the euro against counterfeiting, see Chapter 32 — Financial control.

Conclusion

Serbia made some
progress in the area of justice, freedom and security. Serbia is actively
involved in international police and judicial cooperation and law enforcement
agencies generally have sufficient capacity to carry out standard
investigations. Additional efforts are needed to increase capacities to carry
out complex investigations and to strengthen coordination between law
enforcement agencies and the judiciary. A track record of proactive
investigations and final convictions in organised crime cases needs to be built
up. Overall, preparations in the area of justice, freedom and security are
moderately advanced.

4.25.
Chapter 25: Science and research

Some progress
has been made regarding research and innovation policy. Serbia has taken
actions to stimulate innovation and strengthen its research infrastructures However,
public investment in research remains at 0.5% of GDP, below the national
target, and the number of researchers has not increased.

Regarding framework
programmes, Serbia’s participation in the 7th EU Research Framework
Programme (FP7) remains good, although further efforts are necessary in order
to involve more small and medium-sized enterprises, obtain Marie Curie actions
and participate successfully in the specific programme ideas governed by the European
Research Council. Serbia has continued to promote research cooperation with EU
and other international partners and is well integrated in a number of key
research themes. Serbia participates actively in COST and EUREKA actions. The
implementation of the Memorandum of Understanding on scientific and
technological cooperation between Serbia and the Joint Research Centre (JRC) is
well on track.

Serbia became an associate member of the
European Organisation for Nuclear Research (CERN) in February 2012.

Regarding the European
Research Area, Serbia has started to apply the European Charter and Code of
Conduct on the recruitment of researchers. The national Euraxess portal is
functioning well. Since May 2012, Serbia is a founding member of a European
research infrastructure consortium in the area of nanotechnology and material
science – C-ERIC. With respect to the Innovation Union, an Innovation Fund was
established delivering grants in support of innovation to companies in the IT,
biotechnology, nanotechnology and agro-food sector. Construction of research
infrastructure and purchase of scientific equipment has progressed well, but a
Research Infrastructure roadmap, in accordance with the European Strategic
Forum for Research Infrastructures is still missing. The implementation and
monitoring of the action plans and national targets in particular on investment
and on mobility of researchers remains generally weak and needs to be improved.

Conclusion

Some progress was registered in the area of
science and research. Both public and private investment in research remains
low and Serbia generally needs to reinforce its national research capacity and
monitoring as well as implement the actions envisaged. Overall, preparations in
the area of science and research are on track.

4.26.
Chapter 26: Education and culture

Limited
progress has been made in the field of education and training. Serbia’s
higher education institutions continue to operate according to Bologna
standards. Serbia is one of the leading partner countries in the Tempus
programme. It has made some progress as regards the social inclusion of
children from marginalised groups, including through the introduction of
pedagogical assistants and greater enrolment of Roma children. As regards
quality assurance in elementary schools, a new version of the final exam has
been introduced and reforms are ongoing.

However,
implementation of educational reforms remains slow and the human and financial
resources of the Ministry weak. Capacities for sound financial management and
control still need to be strengthened in view of Serbia’s participation in EU
programmes. There has been limited progress regarding the introduction of a
National Qualifications Framework in higher education. The Serbian vocational
education and training (VET) system needs further reforms and modernisation,
including the introduction of new curricula, with a view to responding better
to labour market needs.

In the field of
youth policy, progress has been made in implementing the youth law and
strategy. Out of 131 established youth offices across Serbian municipalities,
115 have adopted local action plans. Serbia remains an active participant in
the Youth in Action programme with 40 accredited organisations. The Ministry of
Youth and Sports has been active in supporting youth volunteering initiatives
and providing career guidance to young people across Serbia.

Little progress
can be reported in the field of culture. Serbia is actively
participating in the EU Culture programme. The highest number of applications
for the literary translation component of this programme came from Serbia.

Conclusion

Little progress can be reported in the area
of education and culture. There was progress in making the education system
more socially inclusive, and in introducing quality assurance standards in
elementary education. Better implementation of higher education reforms remains
a challenge and reforms in the VET sector still need to be speeded up.
Financial management and financial control still need strengthening in view of
Serbia’s participation in the future Education, Youth and Sport programme.
Overall, in the area of education and culture, alignment with EU standards is
moderately advanced.

4.27.
Chapter 27: Environment and climate change

As regards the environment, some
progress was made with regard to horizontal legislation. Serbia adopted
its National Environmental Approximation Strategy in October 2011. A Strategy for the Implementation of the
Aarhus Convention was adopted in December 2011. A law ratifying Serbia’s
accession to the Pollutant Release and Transfer Register (PRTR) of the UN
Economic Commission for Europe was adopted in October 2011. The National Strategy for Sustainable Use of Natural Resources and Goods
was adopted in May 2012. The Serbian Environmental Protection Agency (SEPA) has been
designated to host and manage Serbia’s E-PRTR database. To date around 60% of
the estimated 600 operators that fall under reporting obligations are using the
system. Although the alignment with the Environmental Impact Assessment
Directive is fully achieved, the implementation needs to be improved, in
particular the public consultation process and the quality of the dialogue with
the NGOs. Some progress can be reported with regard to air quality. The
Law ratifying the Protocol on heavy metals and the Law ratifying the Protocol
on persistent Organic Pollutants have been adopted in January and March 2012
respectfully. Air quality monitoring was further enhanced with the
commissioning of a national calibration laboratory for air monitors and an
analytical laboratory for air pollutants at SEPA. However, SEPA’s capacity and
budget for air quality-related work alone is largely insufficient.

Progress can be reported in the area of waste
management. The Law on Mining and Geological Research regulating the
management of mining waste was adopted in November 2011. Implementing
legislation on environmentally sound disposal of waste containing persistent
organic pollutants was adopted in September 2011. With the adoption of
implementing legislation on procedures for the
management of TiO2-containing waste, alignment with the acquis
on hazardous waste legislation has been largely completed. However, Serbia still needs to fully align with the Waste Framework
Directive. Preparation of national plans for specific hazardous waste streams,
e.g. asbestos, batteries, accumulators, electrical and electronic equipment,
waste oil is progressing well. Concessions for two EU-compliant regional
landfills have been granted to private operators. The collection rate of
household waste has increased from 60% to 72%. Pilot projects for primary waste
segregation have been launched in selected communities. A system of data
collection, registration and reporting on waste is operational as part of the
national register of pollution sources. However, disparities between urban and
rural areas remain. The participation of waste generators in providing relevant
data needs to be improved. So far, four landfills were built under a concession
agreement.

Some progress can be reported in the area
of water quality. Serbia has aligned its legislation with EU acquis
on emission limit values (ELVs) for water pollutants and deadlines for
complying with them, as well as on parameters of ecological and chemical status
of surface and of chemical and quantitative status of ground waters. The
process of characterising the Serbian part of the Danube River Basin Management
Plan has been completed in line with the Water Framework Directive. Progress
has been made in the construction of wastewater treatment plants: one waste
water treatment plant in Subotica has been completed while the construction of
plants in Vrbas, Kula, Leskovac and Sabac is ongoing. Funds and own resources
are allocated with priority to waste water collection and treatment. However,
the service levels continue to be very low. The capacity of the Ministry of
Agriculture’s Water Directorate needs to be substantially enhanced.

The Law on Public Utility Services is
largely in line with the tariff principles of the Water Framework Directive.
However, cost-covering tariffs for water remain to be introduced in the Water
Law. The development of the groundwater monitoring network needs to advance.

Little progress can be reported in the area
of nature protection. Three protected areas (Gutavica, Paljevine,
Bukovicka Banja Park) were established in December 2011. Organisation of the work of Natura 2000 stakeholders has been
clarified and pilot management plans for selected
protected areas have been prepared. The first import and
export certificates under the Convention on International Trade in Endangered
Species (CITES) were issued and licensing of zoos commenced in line with the
provisions of the EU Zoos Directive. However, the administrative capacity in relation to protected areas is
insufficient. The involvement of NGOs in the national nature protection effort
is lagging behind.

Little progress was made in implementing
the legislation on industrial pollution and risk management. The
integrated approach to permitting must be institutionalised and the
administrative capacity strengthened. Thirty four safety reports and
emergency plans have been received from operators of upper tier installations
belonging to Seveso establishments. The risk management group is sufficiently
staffed. However, its administrative capacity remains to be improved.

Good progress can be
reported in the area of chemicals. The Law
amending the Law on Chemicals and the Law amending the Law on Biocidal Products
were adopted in December 2011. A joint body comprising three inspectorates,
namely the Environment Inspectorate, the Trade Inspectorate and the Sanitary
Inspectorate was established. The
downstream legislation (annexes) with regard to the Registration,
Evaluation, Authorisation and Restriction of Chemicals (REACH), the Classification,
Labelling and Packaging of Chemical Products (CLP) and the Biocidal Products Directive (BPD) has been
updated to follow the changes in the EU legislation. The helpdesk of the Serbian Chemicals Agency (SHemA)
acquired in December 2011 observer status with the European Chemicals Agency.
Law enforcement has improved with the implementation of annual plans for the
inspection and supervision of industry/manufacturing as regards the
classification and labelling of chemicals and biocides. An inspection campaign
was performed during the summer. The administrative capacity of SHemA was
increased to 42 staff members. However, in September,
the Agency was abolished and its activities were transferred to the Ministry of
Energy, Development and Environmental Protection. It should be ensured that the
agency’s transferred competences and administrative capacity are preserved.

There is no progress to
report in the area of noise pending the designation of competent
authorities, the identification of areas for strategic noise mapping and the
drawing-up of corresponding action plans.

Regarding civil protection, in
October 2011 a bilateral agreement on emergency
assistance was concluded with Slovakia, and
letters of intent were signed with France.
In March 2012 a memorandum of understanding on
emergency management was signed with Italy. A bilateral Serbia-Russia
humanitarian centre was opened in Nis in April 2012. Cooperation with the EU
Civil Protection Mechanism in order to develop a regional approach with a
strong EU dimension to disaster prevention, preparedness and response remains
to be ensured.

The administrative capacity in the
environment sector needs to be strengthened.

In the area of climate change, no progress was made on general policy development; a
comprehensive climate strategy is still to be developed. Climate considerations
are being increasingly integrated in the energy policy, but substantial efforts
are required in order to fully integrate climate change into sectoral policies
and strategies.

Serbia
regularly associated itself with EU positions in the international context.
While having previously associated itself also with the Copenhagen Accord and
having submitted an assessment of its mitigation potential to the UNFCCC, the
country did nevertheless not yet put forward a mitigation commitment by 2020.
Serbia should consider taking mitigation commitments consistent with those of
the EU and its Member States for the purpose of the post-2020 climate agreement
to be reached by 2015. Limited progress was achieved in alignment with climate acquis.
Serbia took initial steps to identify stationary installations for the purpose
of future implementation of an emissions trading system (ETS). All Serbian
aircraft operators who participate in the EU ETS have developed and submitted
their monitoring plans and CO2 emission reports for 2010 and 2011. The
legislation on geological storage of carbon dioxide, and ozone-depleting
substances was partially aligned. In January 2012 the first centre for recovery
and recycling of hydrochloric fluorocarbons (HCFCs) was established. Serbia
started reflection on a future ETS. Significant efforts are required to
strengthen the country’s monitoring, reporting, and verification capacities
because the respective EU legislation sets the foundation for progress with the
entire EU climate acquis.

Serbia
participated regularly in the climate work under the Regional Environmental
Network for Accession (RENA). A successful high level event was organised in
February 2012 under RENA on EU-Serbia Climate Cooperation. There continues to
be a significant need for awareness-raising at all levels. Initiatives to raise
awareness and promote co-operation between stakeholders should be further
intensified.

Steps are taken
to recruit further staff in the Ministry of energy, environmental development
and protection. However, the shortage of administrative capacity and ad hoc
inter-institutional cooperation are delaying the preparation and implementation
of a climate policy in line with the acquis. The administrative
structure on climate change should be considerably strengthened, and capacity
building support is required in order to address the significant capacity,
cooperation and coordination needs in the area.

Conclusions

Some progress
has been achieved in the area of the environment. Alignment with the
environmental acquis and the ratification of international environmental
conventions continued. Significant further efforts are needed in order to
implement the national legislation, especially in the areas of water
management, industrial pollution control and risk management, nature protection
and air quality. The strengthening of the administrative capacity should remain
a priority. Little progress was achieved in alignment with the climate acquis.
Considerable efforts are required on awareness-raising on opportunities and
challenges of climate action, setting a more strategic approach for the
country, aligning with and implementing EU climate acquis, as well as
strengthening administrative capacity and inter-institutional cooperation.
Overall, Serbia has started to address its priorities in the field of
the environment and climate change.

4.28.
Chapter 28: Consumer and health protection

There has been
some progress in the area of consumer protection. As regards horizontal
aspects, cooperation with consumer protection organisations has improved,
as have awareness-raising and education campaigns for consumers. However, the
administrative capacity of the Department for Consumer Protection within the
Ministry of Agriculture, Trade, Forestry and Water Management, and
coordination with line ministries and regulatory bodies remain weak. The
National Council for Consumer Protection has not been yet established.

There has been
no progress as regards product safety-related issues. Tools and
procedures for the mediation process remain to be strengthened in order to
ensure proper and effective enforcement of consumer protection rules and market
surveillance. There was no further legal alignment.

There has been
some progress with regard to non-safety related issues. Legislation on
consumer credit has been further aligned with the acquis. However,
further alignment of the law on protection of users of financial services is
required.

There has been
no progress in the area of public health. Overall financial
sustainability of the public health system in Serbia is seriously endangered by
the poor financial situation of the public health fund.

There has been
no progress in the area of tobacco control. Complete alignment
with EU tobacco legislation has yet to be achieved.

Little progress
has been made in the area of communicable diseases. Some case
definitions for reporting communicable diseases, including clinical, laboratory
and epidemiological criteria, are still missing and EU case definitions have to
be progressively adopted. The surveillance and response capacity remains
limited and requires modernisation, in particular in the form of human
resources and material. More attention is needed for effective implementation
of the national HIV/AIDS strategy and awareness raising.

There has been
no progress in the area of blood, tissues, cells and organs. Further
efforts are needed to implement the Law on Organ Transplantation. The
administrative and technical capacity of the Directorate for Biomedicine in the
Ministry of Health needs to be strengthened.

There has been
no progress to report in the field of mental health. Administrative
capacity is still very weak and inadequate to ensure implementation of the
Strategy for the development of mental healthcare. Community-based mental
health services should be further supported as an alternative to institutional
care, across the life-span. Further action needs to be taken to promote
inclusion of people with mental health problems and ensure equal enjoyment of
basic human rights and equal access to employment, education and social
services.

Regarding cancer
screening, implementation of the national screening programmes for
cervical, breast and colorectal cancers is ongoing. Additional efforts are
needed to implement the EU guidelines in this field. There has been some
progress in the area of drug abuse prevention as regards measures to
curb the supply of illicit drugs and also in the provision of needle exchange
and substitution treatment in the framework of HIV prevention. There was no
development in the area of alcohol consumption.

Conclusion

There has been some progress in the area of
consumer and health protection. Efforts need to focus on implementing the existing
legislative framework and further aligning with the acquis.
Institutional coordination between the relevant actors and administrative
capacity in both the areas of consumer protection and public health need to be
strengthened. Overall, preparations in the area of consumer and health
protection are moderately on track.

4.29.
Chapter 29: Customs union

There has been
good progress on customs legislation. The Serbian government amended the
decree on customs tariff nomenclature in November 2011 with the aim of aligning
it with the 2012 EU Combined Nomenclature and with the liberalisation schedule
of the Interim Agreement. Serbia increased duty relief for postal packages in
October 2011. However, the rules are still not fully in line with the acquis.
The Law on the Customs Service remains to be established and the classification
practice is to be upgraded to EU standards.

Legislation has
been adopted on customs-related security initiatives, including authorised
economic operators. This legislation remains to be implemented. A regulation on
the application of measures for the protection of intellectual property rights
was adopted. However, the Customs Administration of Serbia (CAS) still needs to
utilise fully the electronic exchange of data with IPR holders. An adequate
legislative framework on cultural goods is to be established. The provisions on
cash control remain to be aligned with the acquis. Preparations in the
area of customs legislation are on track.

There has been
some progress concerning administrative and operational capacity. The
CAS has continued to improve its administrative capacity to effectively enforce
the customs legislation. It applied integrity procedures for customs officials
and stepped up the fight against corruption. Post-clearance controls and risk
analysis systems were further strengthened by adopting a strategy for
post-clearance audit, systematisation of procedures and setting up of an
electronic database of customs offenders. Auditing has been reinforced and the
central customs administration has been authorised to carry out audits of
individual customs offices. In December 2011, the State Audit Institution
reported on faultless 2010 financial records for the CAS in December 2011.The
coordination between CAS and the Ministry of Finance and Economy has also
improved and new instructions have been issued on cooperation between the two
entities. The CAS is establishing a fully functioning IT system based on
interconnectivity between its various departments. Around 90% of customs
declarations are submitted electronically and the concept of electronic
signature introduced. However, the Customs Declaration Processing System (CDPS)
should be renewed or upgraded and a properly equipped and functioning customs
laboratory is needed.

In terms of
trade facilitation, the CAS implements the system for exchanging pre-arrival
information with Bosnia and Herzegovina, Montenegro and the former Yugoslav
Republic of Macedonia. It continues to actively engage in international
activities concerning the fight against illegal trade in goods (narcotics, oil
and cigarettes) and cross-border movement control.

Customs procedures
between Kosovo and Serbia have stabilised further since the adoption of two
Belgrade-Pristina dialogue agreements on customs stamps and integrated border
management (IBM). However, the situation at gates 1 and 31 remains complicated
in terms of procedures to be applied. The Serbian side eventually signed the
Implementation Protocol on IBM in September 2012, but it has yet to be
implemented. In the meantime, the Administrative Border/Boundary Line (ABL)
between Kosovo and Serbia remains vulnerable to illicit activities. Trade in
goods between Serbia and Kosovo remains handled by the Serbian Tax
Administration and its Special Department and not by the Serbian customs. This
includes most excise goods. Customs procedures to guarantee the application of
the acquis at the ABL with Kosovo have yet to be introduced.

Preparations in the
area of administrative and operational capacity are on track.

Conclusion

Serbia made
good progress in the area of the Customs Union with the adoption of new laws
and sustained efforts to enhance its administrative capacity, in particular in
the audit and post-clearance sector. Coordination between the customs
administration and the Ministry of the Economy and Finance in charge of customs
policy needs to be further improved. Serbia also needs to ensure the proper
application of the acquis at the ABL with Kosovo. Customs related
security legislation should be implemented and the CDPS system renewed or
upgraded. Overall, preparations in the area of the Customs Union are well on
track.

4.30.
Chapter 30: External relations

Some progress
was made in the area of the common commercial policy. Serbia is in the
final stage of the procedure for joining the World Trade Organisation (WTO).
However, the finalisation of its WTO membership remains dependent on the pace
at which bilateral negotiations are completed, in particular with Ukraine.
Serbia also needs to adopt a WTO-compliant law on genetically modified
organisms.

The Law on
Foreign Trade Transactions was amended in November 2011 in order to harmonise
it with the Law on Customs, company law and the Law on Foreign Exchange
Transactions. Regarding organisational changes, the group for the foreign trade
system and safeguard measures within the Ministry of Foreign and Domestic Trade
and Telecommunications has experienced considerable downsizing. No decision
introducing final safeguard measures against importers has been taken. No
progress was registered in terms of administrative capacity for improved
coordination between various ministries.

Concerning the export
credits scheme, the Serbian Export Credit and Financing Agency continues
to cover both short-term and medium-/long-term export credit insurance.

In relation to dual-use
export controls, Serbia continues to participate in relevant international
fora and to comply with the European Union list of dual-use goods and
technologies. The national control list for dual-use
goods and military equipment was adopted and aligned with relevant acquis.
However, administrative capacities in this area remain insufficient, requiring
more staff and training.

In the area of
bilateral agreements with third countries, Serbia is currently negotiating a
free trade agreement (FTA) with Ukraine. The renegotiation of its trade
arrangements with the Russian Federation and Belarus are ongoing, since the two
countries now form a customs union with Kazakhstan. Serbia has ratified three
more bilateral investment treaties (BITs) with Azerbaijan, Kazakhstan
and Indonesia and has signed one with Algeria.

Conclusion

Some progress
has been made in the field of external relations. Accession to the WTO is
pending the completion of bilateral negotiations. Overall, preparations in the
area of external relations are moderately advanced.

4.31.
Chapter 31: Foreign, security and defence policy

Political
dialogue through regular political consultations
between the EU and Serbia continued and covered foreign policy issues. (Concerning
relations with other enlargement countries and Member States, see Political
criteria 2.3 — Regional issues and international obligations)

As regards the common
foreign and security policy (CFSP), Serbia has significantly
improved its record of alignment. When invited to, Serbia aligned itself with
69 out of 70 relevant EU declarations and Council decisions (99% alignment).
(As regards the International Criminal Court, see Political criteria 2.3
— Regional issues and international obligations)

Serbia
continued to implement the UN Security Council’s restrictive measures.
However, the Law on Restrictive Measures remains to be adopted together with a
system for tracking Serbia’s implementation of EU restrictive measures.

Regarding conflict
prevention no particular developments can be reported.

Regarding non-proliferation,
a first EU-Serbia political dialogue at working level on conventional arms
issues took place in April 2012. Serbia applied for membership of the Nuclear
Suppliers Group in 2012. Serbia’s 2008 application to join the Wassenaar
Arrangement on export controls for conventional arms and dual-use goods and
technologies is being processed. The National Coordinator for the
implementation of the small arms and light weapons strategy was appointed in
December 2011. An Action Plan for the implementation of this strategy remains
to be adopted. Serbia has yet to fully align with the acquis laying down
common rules governing exports of military technology and equipment.

Serbia
continued to engage actively in cooperation with international organisations
(UN, OSCE, Council of Europe, etc.). It was designated in February 2012 for the
chairmanship of the OSCE for 2015 and in June 2012 for the presidency of the
67th UN General Assembly.

As regards security
measures, in February 2012 Serbia ratified the May 2011 agreement with the
EU on security procedures for exchanging and protecting classified information.

Concerning the common
security and defence policy (CSDP), in February 2012 Serbia ratified
the June 2011 agreement establishing a framework for Serbia’s participation in civil
and military crisis management operations. Serbia participates in the EU
Navfor-Atalanta Somalia operation and EUTM Somalia operation with one member
each. Serbia attended the EU Battlegroups conference in April 2012. Following
the granting of candidate status, Serbia started to participate in meetings of
the EU Military Committee in March 2012.

Conclusion

Serbia significantly improved its alignment
with EU declarations and Council decisions in the field of CFSP and showed
continued commitment to participate in EU civil and military crisis management
operations. Overall, preparations in the area of foreign, security and defence
policy are well on track.

4.32.
Chapter 32: Financial control

There was limited
progress in the area of public internal financial control (PIFC).
Implementing legislation on internal audit (IA) and financial management and
control (FMC) was further aligned with international standards in December
2011. It now better defines managerial accountability and separation of the
roles of a manager and an accountant. The Central Harmonisation Unit (CHU)
continued to focus on technical activities, especially training and
certification of internal auditors.

However, the
PIFC Policy Paper needs updating, because the action plan is largely outdated.
Also the Budget System Law needs to be amended, especially regarding provisions
on FMC and inspection. Managerial accountability and FMC are still understood
in a narrow sense. FMC focuses on the legality and regularity of financial
transactions, without explicit consideration of economy, efficiency and
effectiveness. More awareness-raising with senior public sector managers is
needed to increase their understanding of their specific role and responsibilities
in setting up internal control systems and of the role of an internal auditor
within their organisation. Preparations in this area
are at an early stage.

There was
progress in the area of external audit. The State Audit Institution
(SAI) continued to gradually build up its capacities, and further auditors were
recruited The SAI has now approximately 130 staff,
including over 100 auditors. A strategic development plan for 2011-15 was
adopted by the SAI Council in November 2011. The SAI continued to work on
improving audit methodology. It also further increased audit coverage. However,
the SAI Law does not provide for full financial and operational independence in
line with the standards of the International Organisation of Supreme Audit
Institutions (INTOSAI). The SAI is still in the institution-building phase, as
it has only operated for four years. It is under-resourced, and the audit
coverage is still rather limited. Performance audit work has not yet started.
In addition, according to the requirements of the SAI Law, the SAI continues to
have a specific responsibility to submit requests for filing misdemeanour
and/or criminal charges to the competent authority. This responsibility, which
rather should be part of wider budget inspection activities, takes up some of
the SAI’s limited resources that could be instead used for additional audit
work. Preparations in this area are at an early stage.

There was no progress
in the area of protection of the
EU’s financial interests. Serbia
has not yet designated an authority as a contact point for cooperation with the
European Commission. Preparations in this area are at
an early stage.

There was
limited progress in the area of protection of the euro against
counterfeiting. Serbian authorities continued to participate in relevant EU
and international training programmes. The National Bank is still in the
process of reorganising the procedures for technical analysis and processing of
information on counterfeit bank notes and coins in order to act as a national analysis
centre. Preparations in this area are not very advanced.

Conclusion

Some progress
was made in the area of financial control, particularly as regards external
audit. Substantial efforts are needed to develop public sector financial
management and control based on the underlying concept of managerial
accountability. Overall, preparations in this chapter are still at an early
stage.

4.33.
Chapter 33: Financial and budgetary provisions

No progress
can be reported in the field of traditional own resources, the VAT
resource and the GNI resource. (For progress in the underlying
areas, see Chapters 16 — Taxation, 18 — Statistics, 29 — Customs union and 32 —
Financial control)

With regard to administrative
infrastructure, the administrative capacity of the institutions in the
underlying policy areas needs to be further strengthened. Also, a fully
operational coordination structure is required in order to ensure the correct
calculation, accounting, forecasting, collection, payment and control of own
resources and reporting to the EU for implementation of the own resources
rules. Effective tools to fight tax evasion and fraud and reduce the informal
economy need to be further developed.

Conclusion

There has been no progress regarding
financial and budgetary provisions. The necessary administrative
infrastructure, including coordination and organisational and procedural links
between various institutions involved in the own resources system, needs to be
developed in due time. Overall, preparations in this area are at an early
stage.

Statistical Annex

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

Serbia || || || || || ||

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

Basic data || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Population (thousand) || || 7 505 || 7 398 || 7 366 || 7 335 || 7 307 || 7 276

Total area of the country (km²) || || 77 474 || 77 474 || 77 474 || 77 474 || 77 474 || 77 474

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

National accounts || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Gross domestic product (GDP) (million national currency) || || 762,178 || 2,276,886 || 2,661,387 || 2,720,084 || 2,881,891 || 3,175,025e

GDP (million euro) || || 12 819 || 28 474 || 32 679 || 28 952 || 27 968 || 31 143e

GDP (euro per capita) || || 1 708 || 3 849 || 4 437 || 3 947 || 3 828 || 4 280e

GDP (in Purchasing Power Standards (PPS) per capita) || || : || 8 188 || 8 940 || 8 340 || 8 406 || :

GDP per capita in PPS (EU-27 = 100) || || : || 33 || 36 || 36 || 35 || :

Real GDP growth rate (growth rate of GDP volume, national currency, % change on previous year) || || 5.3 || 5.4 || 3.8 || -3.5 || 1.0 || 1.6e

Employment growth (national accounts, % change on previous year) || || 2.0 || 2.3 || 1.0 || : || : || :

Labour productivity growth: GDP growth per person employed (% change on previous year) || || 3.5 || 4.5 || 4.5 || : || : || :

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 || || 19.5 || 10.1 || 10.4 || 9.4 || 9.9 || 10.4e

Industry || || 24.6 || 22.5 || 21.9 || 22.3 || 22.5 || 23.0e

Construction || || 3.3 || 5.1 || 5.5 || 4.8 || 4.6 || 4.7e

Services || || 52.6 || 62.3 || 62.2 || 63.5 || 63.0 || 61.9e

Final consumption expenditure, as a share of GDP (%) || || 104.0 || 96.9 || 97.1 || 99.6 || 99.8 || :

Gross fixed capital formation, as a share of GDP (%) || || 10.7 || 24.3 || 23.8 || 18.8 || 17.8 || :

Changes in inventories, as a share of GDP (%) || || 1.0 || 4.7 || 6.0 || -0.7 || -0.5 || :

Exports of goods and services, relative to GDP (%) || || 25.6 || 30.6 || 31.4 || 29.4 || 36.0 || :

Imports of goods and services, relative to GDP (%) || || 41.3 || 56.5 || 58.2 || 47.1 || 53.0 || :

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

Industry || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Industrial production volume index (2005=100) || || 94.3 || 108.5 || 110.0 || 96.1 || 98.5 || 100.6

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

Inflation rate || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Annual average inflation rate (CPI, % change on previous year) || || 93.3 || 6.5 || 11.7 || 8.4 || 6.5 || 11.0

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

Balance of payments || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Balance of payments: current account total (million euro) || || 282 || -5 053 || -7 054 || -2 084 || -2 082 || -2 968

Balance of payments current account: trade balance (million euro) || || -2 602 || -7 069 || -8 501 || -5 118 || -4 774 || -5 514

Balance of payments current account: net services (million euro) || || 272 || -261 || -185 || 18 || 5 || 161

Balance of payments current account: net income (million euro) || || 7 || -599 || -922 || -502 || -670 || -758

Balance of payments current account: net current transfers (million euro) || || 2 605 || 2 876 || 2 554 || 3 518 || 3 356 || 3 143

of which government transfers (million euro) || || 652 || 166 || 163 || 197 || 193 || 206

Net foreign direct investment (FDI) (million euro) || || 184 || 1 821 || 1 824 || 1 372 || 860 || 1 827

Foreign direct investment (FDI) abroad (million euro) || || -14 || -692 || -193 || -38 || -143 || -122

of which FDI of the reporting economy in EU-27 countries (million euro) || || : || -53 || -78 || -28 || -33 || -84

Foreign direct investment (FDI) in the reporting economy (million euro) || || 198 || 2 513 || 2 018 || 1 410 || 1 003 || 1 949

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || 1 813 || 1 470 || 808 || 778 || 1 690

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

Public finance || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

General government deficit/surplus, relative to GDP (%) || || : || -2.0 || -2.6 || -4.5 || -4.7 || -5.0e

General government debt relative to GDP (%) || || 104.8 || 31.2 || 26.9 || 34.0 || 43.5 || 46.5e

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

Financial indicators || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Gross foreign debt of the whole economy, relative to GDP (%) || || 85.6 || 60.2 || 64.5 || 77.7 || 85.0 || 77.5e

Gross foreign debt of the whole economy, relative to total exports (%) || || 407.3 || 197.3 || 207.6 || 265.3 || 236.2 || 210.3

Money supply: M1 (banknotes, coins, overnight deposits, million euro) || 1) || 975 || 3 141 || 2 717 || 2 695 || 2 401 || 2 807

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || 2) || 1 141 || 4 928 || 4 459 || 4 555 || 3 891 || 4 663

Money supply: M3 (M2 plus marketable instruments, million euro) || 3) || 2 101 || 11 407 || 11 198 || 12 573 || 12 899 || 14 339

Total credit by monetary financial institutions to residents (consolidated) (million euro) || || 4 866 || 10 771 || 12 926 || 14 863 || 17 544 || 18 995

Interest rates: day-to-day money rate, per annum (%) || || : || 8.3 || 18.4 || 9.5 || 12.0 || 8.5

Lending interest rate (one year), per annum (%) || || 16.9 || 12.5 || 20.3 || 12.0 || 14.0 || 12.3

Deposit interest rate (one year), per annum (%) || || : || 7.5 || 15.3 || 7.0 || 9.0 || 7.3

euro exchange rates: average of period - 1 euro = … national currency || 4) || 59.458 || 79.964 || 81.441 || 93.952 || 103.043 || 101.950

Effective exchange rate index (2005=100) || 5) || 125.6 || 106.2 || 105.8 || 122.1 || 115.3 || 127.1

Value of reserve assets (including gold) (million euro) || || : || 9 634 || 8 162 || 10 602 || 10 002 || 12 058

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

External trade || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Value of imports: all goods, all partners (million euro) || || : || 13 501.0 || 14 316.0 || 10 386.0 || 12 475.0 || 13 925.0

Value of exports: all goods, all partners (million euro) || || : || 6 615.0 || 5 157.0 || 4 094.0 || 7 067.0 || 8 058.0

Trade balance: all goods, all partners (million euro) || || : || -6 886.0 || -9 159.0 || -6 293.0 || -5 408.0 || -5 868.0

Terms of trade (export price index / import price index) || 6) || 103.1 || 102.6 || 97.6 || 100.9 || 99.6 || 99.2

Share of exports to EU-27 countries in value of total exports (%) || || : || 58.1 || 48.5 || 46.7 || 58.7 || 59.0

Share of imports from EU-27 countries in value of total imports (%) || || : || 55.1 || 51.4 || 52.9 || 54.8 || 53.7

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

Demography || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || -2.7 || -4.7 || -4.6 || -4.6 || -4.8 || -5.1

Infant mortality rate: deaths of children under one year of age per 1000 live births || || 10.2 || 7.1 || 6.7 || 7.0 || 6.7 || 6.3

Life expectancy at birth: male (years) || || 69.6 || 70.9 || 71.3 || 71.4 || 71.4 || 71.6

Life expectancy at birth: female (years) || || 75.0 || 76.5 || 76.6 || 76.7 || 76.6 || 76.8

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

Labour market || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Economic activity rate (20-64): share of population aged 20-64 that is economically active (%) || || : || 67.3 || 67.0 || 64.7 || 63.7 || 64.1

\* Employment rate (20-64): share of population aged 20-64 in employment (%) || || : || 55.2 || 57.8 || 54.1 || 51.2 || 49.2

Employment rate male (20-64) (%) || || : || 65.1 || 67.5 || 63.0 || 59.2 || 56.8

Employment rate female (20-64) (%) || || : || 46.5 || 48.9 || 46.4 || 43.5 || 41.7

Employment rate of older workers (55-64): share of population aged 55-64 in employment (%) || || 42.1 || 33.5 || 37.6 || 35.4 || 32.8 || 31.4

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

Agriculture || 7) || : || 20.8e || 25.1e || 23.9be || 22.3e || 21.2e

Industry || 7) || : || 23.4e || 19.9e || 20.1be || 21.0e || 21.5e

Construction || 7) || : || 6.1e || 6.3e || 5.2be || 5.0e || 5.3e

Services || 7) || : || 49.7e || 48.6e || 50.8be || 51.7e || 52.0e

Unemployment rate: share of labour force that is unemployed (%) || || 13.3 || 18.3 || 13.6 || 16.3 || 19.2 || 23.0

Share of male labour force that is unemployed (%) || || 11.5 || 16.0 || 11.9 || 14.8 || 18.4 || 22.4

Share of female labour force that is unemployed (%) || || 15.7 || 21.2 || 15.8 || 17.8 || 20.2 || 23.7

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) || || 46.4 || 43.7 || 35.2 || 41.6 || 46.2 || 50.9

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || 9.0 || 14.8 || 9.7 || 10.5 || 13.3 || 16.9

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

Social cohesion || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Average nominal monthly wages and salaries (national currency) || 8) || 8 691.0 || 38 744.0 || 45 674.0 || 44 147.0b || 47 450.0 || 52 733.0

Index of real wages and salaries (index of nominal wages and salaries divided by the CPI/HICP) (2000=100) || 8) || 118.4 || 266.1 || 275.7 || 275.6b || 277.4 || 277.9

\* Early school leavers - Share of population aged 18-24 with at most lower secondary education and not in further education or training (%) || || : || 12.6 || 11.6 || 9.3 || 8.2 || 8.5

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

Standard of living || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Number of passenger cars per 1000 population || 9) || 184.2 || 199.7 || 201.8 || 223.2 || 214.3 || 230.5

Number of subscriptions to cellular mobile telephone services per 1000 population || || 251.1 || 1 142.6 || 1 194.2 || 1 351.3 || 1 357.0 || 1 399.4

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

Infrastructure || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Density of railway network (lines in operation, per 1000 km²) || || 49.2 || 49.2 || 49.2 || 49.3 || 49.3 || 49.3

Length of motorways (km) || || 370 || 370 || 465 || 495 || 495 || 595

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

Innovation and research || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Spending on human resources (public expenditure on education in % of GDP) || || 2.4 || 3.5 || 3.6 || 3.8 || 3.7 || :

\* Gross domestic expenditure on R&D in % of GDP || || : || : || 0.4 || 0.9 || 0.8 || :

Percentage of households who have Internet access at home (%) || || : || 26.0 || 33.2 || 37.0 || 39.0 || 41.2

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

Environment || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

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

Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP) || || : || 660.7 || : || : || : || :

Electricity generated from renewable sources in % of gross electricity consumption || || 43.3 || 37.9 || 35.1 || 39.3 || 37.4 || :

Road share of inland freight transport (% of tonne-km) || || 13.8 || 15.9 || 16.3 || 23.6 || 27.8 || 30.5

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

Energy || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Primary production of all energy products (thousand TOE) || || : || 8 797 || 9 441 || 9 487 || 9 876 || :

Primary production of crude oil (thousand TOE) || || : || 654 || 652 || 676 || 929 || :

Primary production of hard coal and lignite (thousand TOE) || || : || 7 073 || 7 369 || 7 330 || 7 226 || :

Primary production of natural gas (thousand TOE) || || : || 198 || 231 || 232 || 342 || :

Net imports of all energy products (thousand TOE) || || : || 7 260 || 7 477 || 5 046 || 6 320 || :

Gross inland energy consumption (thousand TOE) || || : || 14 996 || 15 620 || 14 657 || 15 093 || :

Electricity generation (thousand GWh) || || 31.0 || 37.0 || 37.0 || 38.0 || 38.0 || :

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

Agriculture || Note || 2001 || 2007 || 2008 || 2009 || 2010 || 2011

Agricultural production volume index of goods and services (producer prices, previous year=100) || || 118.0 || 92.0e || 108.0 || 101.0 || 99.4 || 100.9

Total utilised agricultural area (thousand hectare) || || 5 077 || 5 053 || 5 055 || 5 057 || 5 052 || 5 056

Livestock: cattle (thousand heads, end of period) || 10) || 1 128 || 1 087 || 1 057 || 1 002 || 938 || 937

Livestock: pigs (thousand heads, end of period) || 10) || 3 587 || 3 832 || 3 594 || 3 631 || 3 489 || 3 287

Livestock: sheep and goats (thousand heads, end of period) || 10) || 1 612 || 1 756 || 1 760 || 1 647 || 1 604 || 1 590

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || 11) || 1 594 || 1 562 || 1 548 || 1 488 || 1 471 || 1 445

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 12) || 9 001 || 6 212 || 8 833 || 9 111 || 9 280 || 9 066

Crop production: sugar beet (thousand tonnes, harvested production) || || 1 806 || 3 206 || 2 300 || 2 798 || 3 325 || 2 822

Crop production: vegetables (thousand tonnes, harvested production) || || 1 283 || 1 128 || 1 277 || 1 257 || 1 314 || 1 305

: =
not available

- =
not applicable

p =
provisional

e =
estimated value

b =
break in series

\* =
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
money supply M1 consists of currency in circulation and funds in gyro, current
and other accounts belonging to the owners of money balances in banks’
liabilities, including money balances in the accounts of local government
bodies, i.e. Accounts from which payments can be made with any restrictions.

2)            The
money to M1, supply M2, in addition includes other dinar deposits, both
short-and long-term.

3)            The
money supply M3, in addition to M2, includes short-and long term foreign
currency deposits (without the so called frozen foreign currency savings.

4)            The
annual average exchange rate is calculated as an arithmetic mean of official
middle exchange rates of the national currency (dinar) against a unit of
foreign currency applied on working days.

5)            Index
of nominal effective exchange rate adjusted for the ratio of domestic consumer
price index to the weighted sum of indices of consumer prices in the euro area
and US.

6)            From
2004 onwards the data are not comparable with the previous years as since
January 2004 Uniform Customs Document harmonized with EU regulations has been
used.

7)            2004
- 2009, data were provided according to NACE Rev. 1.1.

8)            From
January 2009, the Statistical Office of the Republic of Serbia is expanding the
coverage of units. Besides the salaries and wages paid to legal entities’
employees, from January 2009, salaries and wages paid to employees working in
unincorporated enterprises have been also included in calculation of average
salaries and wages.

9)            Ministry
of Interior Affaires excluded the vehicles that were not registered before the
given deadline (1 month).

10)          Since
2006, the reference date is 1 December (instead 15 January as it was before).

11)          In
million litres, includes cows and sheep milk.

12)          No
rice production; since 2005, triticale is included.

[1]               The rapporteur for Serbia is Mr Jelko Kacin.

[2]               Enlargement Strategy and Main Challenges 2012-2013,
COM(2012) 600.

\*               This designation is without prejudice to positions on
status, and is in line with UNSCR 1244/99 and the ICJ Opinion on the Kosovo
declaration of independence.

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