Source: EURLEX
Language: en
Format: md

*|*

# 52014SC0306

**COMMISSION STAFF WORKING DOCUMENT KOSOVO\* 2014 PROGRESS REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Enlargement Strategy and Main Challenges 2014-2015 /\* SWD/2014/0306 final \*/**

  

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

TABLE OF CONTENTS

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

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

1.1........ Context 3

1.2........ Relations between the EU and Kosovo. 3

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

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

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

2.2........ Human rights and the protection of
minorities. 16

2.3........ Regional issues and international
obligations. 22

3........... Economic criteria. 24

3.1........ The existence of a functioning market economy. 24

3.2........ The capacity to cope with competitive
pressure and market forces within the Union. 28

4........... European standards. 29

4.1........ Internal market 30

4.1.1.      Free
movement of goods. 30

4.1.2.      Movement
of persons, services and right of establishment 31

4.1.3.      Free
movement of capital 32

4.1.4.      Customs
and taxation. 32

4.1.5.      Competition. 33

4.1.6.      Public
procurement 34

4.1.7.      Intellectual
property law.. 35

4.1.8.      Employment
and social policies, public health policy. 35

4.1.9.      Education
and research. 37

4.1.10.    WTO issues. 38

4.2........ Sectoral policies. 38

4.2.1.      Industry
and SMEs. 38

4.2.2.      Agriculture
and fisheries. 39

4.2.3.      Environment
and climate change. 40

4.2.4.      Transport
policy. 41

4.2.5.      Energy. 42

4.2.6.      Information
society and media. 44

4.2.7.      Financial
control 45

4.2.8.      Statistics. 45

4.3........ Justice, freedom and security. 46

4.3.1.      Visa,
border management, asylum and migration. 46

4.3.2.      Money
laundering. 48

4.3.3.      Drugs. 49

4.3.4.      Police. 50

4.3.5.      Fighting
organised crime and terrorism.. 50

4.3.6.      Protection
of personal data. 52

Statistical Annex. 53

1.
Introduction
1.1.
Preface

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

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

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

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

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

- reviews
Kosovo’s capacity to implement European standards, i.e. to gradually
approximate its legislation and policies with the acquis, in line with
the Stabilisation and Association Process.

This
report covers the period from October 2013 to September 2014. Progress is
measured on the basis of decisions taken, legislation adopted and measures
implemented. As a rule, legislation or measures which are under preparation or
awaiting parliamentary approval have not been taken into account. This approach
ensures equal treatment across all reports and enables an objective assessment.

The
report is based on information gathered and analysed by the Commission. Many
sources have been used, including contributions from the Kosovo authorities, the
EU Member States, the EU rule of law mission (EULEX), European Parliament
reports[1] and
information from various international and non-governmental organisations.

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

1.1.
Context

To
date, Kosovo has been recognised by 110 UN member countries, including 23 EU
Member States.

During
the reporting period, the UN Secretary-General continued to provide regular
updates on the implementation of the UN’s mission in Kosovo (UNMIK). He
reported on progress made in the implementation of the First agreement of
principles governing the normalisation of relations of 19 April 2013, the
local elections and developments in the north. He welcomed the decision of the
Council to authorise the negotiations on a Stabilisation and Association
Agreement with Kosovo.

The NATO-led
Kosovo Force (KFOR) has continued to help ensure a safe and secure environment
in Kosovo. During the reporting period, it had some 5, 000 personnel.

1.2.
Relations between the EU and Kosovo

Negotiations
on the Stabilisation and Association Agreement (SAA) between
the EU and Kosovo started in October 2013 and were completed in May 2014. The
chief negotiators initialled the agreement in July 2014. The Commission is now
preparing proposals for Council decisions on signature and conclusion. The
future SAA will be an ‘EU-only’ agreement. Its main elements are enhancing
trade between the EU and Kosovo, the obligation for Kosovo to align its
legislation with the EU acquis in a broad range of sectors, and
the possibility to develop a political dialogue between the EU and Kosovo. The
development of trade and investment and modernisation of the legal and
institutional setup are crucial to Kosovo’s economic restructuring and
modernisation. The SAA anchors Kosovo into the mainstream of EU
relations with Western Balkan countries and confirms Kosovo’s European
perspective in the context of the 1993 Copenhagen criteria.

Kosovo
has continued to address priorities set out in last year’s progress report and
in the feasibility study for a Stabilisation and Association
Agreement.[3]
In particular, progress has been made on the electoral process and on
requirements of the visa liberalisation dialogue. The role of the Assembly and
the government’s capacity to coordinate complex negotiations such as on the SAA
and on trade issues, have been strengthened. However, electioneering throughout
the year and the complex process of government formation after the June
elections has affected progress in some areas.

Kosovo’s
commitment to the EU-facilitated dialogue and normalisation of relations with
Belgrade has been key for the advancement of its European ambitions. Kosovo
needs to continue focusing on the implementation of agreements reached with
Serbia and on progress in the areas identified by the feasibility study to meet
its obligations under an SAA.

In
the context of the Stabilisation and Association Process, Kosovo has
remained engaged in the Stabilisation and Association Process Dialogue (SAPD).
The structured dialogue on the rule of law continued. Discussions focused on
political interference in the judiciary and on further developing Kosovo’s
capacity to assume responsibilities to be transferred by EULEX.

The visa
liberalisation dialogue has been one of the key priorities for Kosovo. To
date, the Commission has issued two reports on Kosovo’s efforts in this process
(February 2013 and July 2014). Expert missions took place in December 2013 and
in March 2014. The fourth meeting of senior officials took place in June 2014.

The
European Investment Bank has been discussing public investment projects with
the government. In 2014, it launched a scheme of loans for small or medium
enterprises (SMEs) with a local private bank. The European Bank for
Reconstruction and Development supports Kosovo’s SMEs through the Western
Balkans Investment Framework. Kosovo became a member of the Council of Europe
Development Bank in November. In June, Kosovo became a member of the Venice
Commission of the Council of Europe.

The EU has
provided financial assistance to Kosovo under the Instrument for
Pre-accession Assistance (IPA) for 2007-13, with a total allocation of € 673.9
million. An additional € 38.5 million was provided through IPA in 2013 to
support the Pristina-Belgrade dialogue, normalisation and integration processes
in Kosovo, including the visa dialogue. Under IPA II, Kosovo will continue to
benefit from pre-accession assistance for 2014-20, with a total indicative
allocation of € 645.5 million. On 20 August the Commission adopted an
indicative strategy paper for the years 2014-20, drafted in partnership with
Kosovo and in consultation with all relevant stakeholders. IPA support
will focus on support for the sectors democracy and governance; the rule of law
and fundamental rights; competitiveness and innovation; education, employment
and social policies; energy; and agriculture and rural development. Kosovo
continues to benefit from support under the IPA multi-beneficiary and regional
programmes and it participates in three cross-border cooperation programmes
with neighbouring Western Balkan countries. The implementation of IPA is
managed by the EU Office in Kosovo.

The
Commission’s proposal to sign and conclude the framework agreement on Kosovo’s
participation in EU programmes is pending Council approval.

In
April, Kosovo agreed to the new mandate for EULEX until June 2016 and to
the establishment of a specialist court. The court is to hear cases arising out
of the investigation led by the Special Investigative Task Force (SITF). Under
the new EULEX mandate, all rule of law institutions are headed by Kosovo
officials. EULEX judges and prosecutors are embedded in Kosovo institutions,
and mixed panels are in principle composed of a majority of Kosovo judges, with
a Kosovo judge presiding. EULEX does not take on new investigations except in
exceptional circumstances. During the reporting period, Kosovo has supported
the work of EULEX and the Special Investigative Task Force. This needs to
continue through amending key legislation, including the Constitution, to set
up the specialist court and its prosecution office.

1.3.
Normalisation of relations between Kosovo and
Serbia

Serbia
and Kosovo have remained engaged in the EU-facilitated dialogue, but progress
has markedly slowed down since March 2014. Early general elections were held in
Serbia in March and in Kosovo in June. Six high level meetings attended by both
Prime Ministers were held between September 2013 and March 2014. Work continued
throughout the reporting period at technical level.

As a result of
intense work in the first months of the reporting period there has been
progress in the implementation of the agreements reached in the dialogue, in
particular the April 2013 ‘First agreement of principles governing the
normalisation of relations’. For the first time, local elections were held
Kosovo wide with the facilitation of the OSCE in November 2013 (and repeated in
North Mitrovicë/Mitrovica in February 2014) and, again for the first time,
municipalities in the north of Kosovo were inaugurated in conformity with
Kosovo law. Kosovo Serbs from both north and south of the Ibar river took part
in the early general elections in June 2014. The establishment of the Association/Community
of Serb majority municipalities is still pending. There has been progress in
the dismantling of the Serbianstructures on police and justice. Serbia took
measures to facilitate the integration of the police and judiciary following
the adoption of an amnesty law by Kosovo. Integration has been completed as
concerns police officers, while integration of other Serbian Ministry of
Interior personnel is still pending. An agreement in principle has been reached
regarding the judiciary, but its finalisation and implementation are still
pending. Integration of civil protection personnel is also pending.

Some progress
has been made in other important areas. Serbia played a constructive role in
ensuring Kosovo’s participation in the South-East European Cooperation Process
(SEECP) at the Bucharest summit in June 2014. Nevertheless, the implementation
of the agreement on representation and participation of Kosovo in regional fora
continued to be problematic. Preparation for the implementation of the energy and
telecoms agreements reached in September 2013 has continued leading up, in the
energy sector, to the signing of an inter-TSO agreement, together with the
approval of an action plan in September 2014.

As concerns the
north of Kosovo, a development fund has been set up to collect revenue at the
northern crossing points. It has received over € 2.9 million to date, but
its board has yet to decide on its use. Implementation of the freedom of
movement arrangements has allowed the use of Serbian and Kosovo ID cards by
residents to enter and exit both Serbia and Kosovo. An agreement was reached to
allow residents in Kosovo to use their ID cards to travel to third countries
through Serbia via six border crossing points. The setting up of new roadblocks
on the north side of the main Mitrovicë/Mitrovica bridge in June 2014 increased
tensions. Despite an agreement by both sides on the need for a joint solution,
the roadblocks known as the ‘Peace Park’ are still in place. Kosovo and Serbian
insurance bureaus have defined the parameters for a commercial agreement on
mutual vehicle insurance cover between Serbia and Kosovo. This progress should
now be confirmed by means of a signed agreement.

Implementation
of other agreements has continued, albeit at a slower pace. Regarding IBM, the
six joint interim crossing points have continued to be operational and
technical agreements on the exact locations and on draft layouts of the
permanent IBM crossing points were reached. However, illegal crossing roads/
by-passes, in particular in the north of Kosovo, continue to be regularly used
to smuggle substantial amounts of goods, as reported by EULEX. Additional
measures need to be taken by Serbia to stop illegal crossings.

As concerns
cadastre, Serbia continues to implement the pilot project, but legislation
necessary to implement the agreement is still pending in Kosovo. The copying of
Kosovo civil registry books located in Serbia has been successfully completed.
The implementation of the agreement on acceptance of university diplomas has
had limited results. The certification of diplomas by the European University
Association has progressed well and 387 diplomas have been certified. However,
Serbia has accepted only five certified diplomas so far, following an
additional nostrification process. The deployment of liaison officers has had
limited impact.

Serbia has
continued to cooperate with EULEX, especially on war crimes, but legal
cooperation on the fight against organised crime needs to improve
significantly. Criticism of the handling by EULEX of several criminal cases
against Kosovo Serbs is counterproductive. The Serbian authorities should
refrain from statements undermining the rule of law. Kosovo needs to continue
the good cooperation with EULEX.

The Serbia
Constitutional Court judged the form in which some dialogue agreements have
been transposed unconstitutional. Serbia needs to find legal solutions for the
implementation of agreements that are sustainable over time and not vulnerable
to legal challenges.

Overall,
Serbia and Kosovo have remained engaged in the dialogue and committed to the
implementation of the April 2013 First agreement of principles governing the
normalisation of relations and other agreements reached in the dialogue,
leading to irreversible changes on the ground. However, progress has slowed
down. Early general elections were held in both Serbia and Kosovo. New momentum
needs to be generated to tackle key outstanding issues and open a new phase in
the normalisation of relations. Progress in this area remains essential for
advancing the European future of both Serbia and Kosovo.

2.
Political criteria

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

2.1.
Democracy and the rule of law

Constitution

No amendments
were made to the Constitution during the reporting period. Kosovo needs to
change its Constitution to reflect its commitment to the establishment of the
specialist court. The Constitution also needs to be modified to ensure that a
majority of Kosovo Judicial Council members are elected by their peers, in line
with Venice Commission recommendations.

Elections

The past year
was marked by the mayoral and municipal elections in the autumn of 2013, and
the early parliamentary elections of 8 June 2014. For the first time general
elections took place throughout Kosovo, including in the four northern
municipalities.

The mayoral and
municipal assembly elections also took place throughout Kosovo according to
Kosovo law. Elections in the north were facilitated by the Organisation for
Security and Cooperation in Europe (OSCE), in line with the First agreement of
principles governing the normalisation of relations. With the exception of
northern Kosovo, where there were several incidents involving violence, no
irregularities were reported. A re-run of the election was necessary in
Mitrovicë/Mitrovica North after ballot boxes were found to have been destroyed.
On 11 January, municipal assembly members in the four northern municipalities
took the oath of office and municipal bodies were formally established. The
mayor-elect of Mitrovicë/Mitrovica North refused to take the oath,
necessitating a re-run of mayoral elections on 23 February.

The overall
turnout for the mayoral and municipal elections was a little above 46 %
(just above 45 % in 2009 elections). The overall turnout for the four
northern municipalities was above 25 %. Candidates from the Citizen’s
Initiative Srpska won the mayoral positions in all four municipalities.

Polling and
counting for the parliamentary elections were transparent and well-organised,
consolidating the positive trend set by the 2013 municipal elections. Election
day passed without incident and voters were able to cast their votes freely.
Participation decreased from 46 % in the 2010 general elections to just
over 42 %. The Democratic Party of Kosovo PDK received just above 30 %,
the Democratic League of Kosovo (LDK) about 25 %, Vetëvendosje (VV) above
13 %, the Alliance for the Future of Kosovo (AAK) above 9 %, Srpska
and the Initiative for Kosovo (NISMA) just above 5 % each.

However, the
general elections were held under a highly compressed preparatory timeframe.
The short preparation time (30 days) negatively affected certain aspects of the
technical process, such as raising voter awareness. It also reduced the time
available to file complaints and appeals prior to election day. The elections
were held under the existing (2008) legislative framework. A series of
shortcomings, including improved delineation of primary and secondary
legislation on elections, adequate timelines for complaints and appeals, and
accuracy of voters’ lists, remain to be addressed to better reflect best
practice and international standards. Kosovo’s recent membership of the Venice
Commission can help in this regard.

Overall,
Kosovo held successful general and local elections. The electoral process in
both cases improved compared to previous elections. The Central Election
Commission managed its responsibilities well, considering the challenging time
schedule for the general elections and the political context in which the local
elections took place. However, Kosovo still needs comprehensive electoral
reform to address recommendations from election observation missions and
experts.

Parliament

The Assembly
continued to support Kosovo’s efforts on European integration and demonstrated
political and institutional unity on some issues of key importance, such as the
dialogue with Serbia, the EULEX mandate and reform efforts. During the first
half of 2014, electoral campaigning ahead of the general elections increasingly
affected the work of the Assembly.

The Assembly
made progress on oversight of the executive and consultation with civil
society. The number of monitoring activities and level of oversight of
implementation of legislation increased. The Assembly regularly reviewed
committee reports on the implementation of laws and adopted recommendations to
improve implementation. The practice of ministers reporting to the Assembly
committees increased. The number of staff supporting the committees has gone
up. The Assembly increased the number of consultations with civil society and
the public through hearings. The Assembly recruited an NGO liaison officer.

Following the
June elections, several attempts were made to constitute the Assembly and
enable the process of government formation to begin. Disagreement on which
party should have the right to nominate the Speaker of the Assembly has led to
political stalemate. The Constitutional Court ruling on the outcome of the
first constitutive session did not break the impasse.

The new Assembly
needs to build on the positive steps taken by the previous legislature. The
Assembly needs to avoid failures to reach a quorum and boycotts of plenary
sessions, which result in delays in decision-making and the adoption of
legislation. The Assembly and its committees still need to expand their
cooperation with line ministries in the legislative and oversight process to
improve the quality of legislation and ensure its implementation. Draft laws
and amendments to legislation need better screening to ensure compliance with
the acquis. The Assembly needs to further develop standards for public
consultation and its committees need to apply them consistently when conducting
hearings.

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

The Assembly
needs to improve the supervision of public companies, independent institutions
and regulatory authorities. In this regard, adequate mechanisms need to be put
in place, such as clear legal bases for reporting and accountability. Among the
key challenges that need to be addressed are delays in the selection of board
members for these institutions and authorities, and the failure to determine
mechanisms for board members’ accountability. Many appointments are made on the
basis of political preferences rather than professional qualifications, or are
delayed due to political disagreements.

The new
legislature needs to adopt new rules of procedure quickly. These rules need to
be in line with EU best practice and be based on the recommendations of the
EU-funded twinning project. The function of the EU integration committee needs
to be further enhanced to reflect its key role in Kosovo’s European integration
process. The independence of the Assembly’s IT infrastructure still has not
been ensured. Preparations of the annual budget need to reflect the need for
budgetary independence of the Assembly. New legislation, including a law on the
Assembly, would be helpful in this regard.

The secretariat
of the Assembly needs to continue to build its expertise on technical issues to
support effective policy making and the capacity to improve scrutiny of draft
legislation and its implementation. The secretariat needs to ensure better
coordination of input from its various departments into the work of the
committees. High staff turnover remains an issue of concern.

Overall, the
Assembly continued to gradually develop its capacity further and improved its
role in democratic governance. The new Assembly should focus on minimising
political and institutional crises. The numerous boycotts of plenary sessions
became an obstacle in this regard. The failure to constitute the new
legislature smoothly and in a timely manner has been a setback. The new
legislature provides a good opportunity to improve oversight of the executive
and supervise the legislative process. It should also be a chance to clarify
the Assembly’s role with regard to the supervision of independent institutions
and regulatory authorities, to develop clear rules of procedure, and to improve
monitoring of the budget.

Government

Following the
general elections, and the protracted negotiations on the formation of a new
government, the previous government remained in office in an acting capacity.

In the course of
negotiations on the SAA, the government, and in particular the Ministries of
European Integration and Trade and Industry, demonstrated their capacity to
coordinate technically and legally complex negotiations with the EU. The
government also reached out to the Assembly and the opposition by inviting the
chair of the European integration committee to take part in the negotiations.

The government
continued to implement EU integration priorities. To support this process, it
adopted an action plan for an SAA in December. The National Council on European
Integration has continued to meet and discuss the main objectives and policy
obligations of further integration with the EU. The Executive Commissions in
charge of the coordination and implementation of SAP Dialogue conclusions
continued to meet. The government has introduced an obligation to prepare a
compliance table to cross-check draft legislation with the EU acquis and
issued a guidance paper on the use of the tables. However, the government needs
to do more to improve strategic planning and coordination among ministries. The
government’s agenda needs to better reflect available resources.

Efforts to
further improve capacity of local government have continued. Following
the local elections, most new municipal assemblies were constituted in a timely
manner and started to carry out their duties. The Ministry for Local Government
Administration (MLGA) has improved its guidance for municipalities by
cross-checking the compliance of municipal acts with the overall legal
framework. The legal guidance is easily accessible on the webpage of the ministry.
The MLGA drafted implementing legislation on the calling and conduct of
municipal assemblies and the composition of municipal assembly committees. It
also prepared an administrative instruction on the review of municipal acts at
central level. In the north, the conformity of municipal statutes with Kosovo
law has been ensured. However, the integration of these municipalities into
Kosovo’s legal framework is making only gradual progress.

Municipal
efforts to increase transparency in decision-making need to continue. A new
administrative instruction on transparency in municipalities has been
implemented in only two municipalities. At the municipal level, the capacity to
budget in line with policies and implementation plans is still underdeveloped,
causing diversions from planned expenditure. Priority setting and the
allocation of financial resources do not always reflect strategic guidance. The
implementation of decentralisation, ensuring adequate support and budget to
municipalities, needs to continue. Municipalities continue to face challenges
with regard to creating conditions for their successful economic development. A
culture of user-friendly public service delivery needs to be developed. Further
guidance from the central level on the obligations of municipalities in the
European integration process is required.

Overall, the
Kosovo government gave clear proof of its ability to coordinate the European
integration agenda, notably with regard to negotiations on the SAA. The
government also improved guidance to municipalities on implementation of
legislation. Following the municipal elections, all main structures at
municipal level have been put in place across Kosovo. However, at both central
and local levels, Kosovo needs to focus on improving strategic planning and the
links between planning and budgeting on the basis of collected data, policy
coordination and financial impact assessments. The executive needs to turn its
focus to ensuring that legislation and policies are implemented in practice.
Good communication with the Assembly, including regular responses of the
government to parliamentary questions and strong inter-ministerial coordination
will be key in this regard.

Public
administration

Kosovo has a strategic
framework for public administration reform in place with the 2010 public
administration reform strategy and the action plan for the period 2012-14. The
strategy is comprehensive, including the main aspects such as policy
management, budgetary planning and execution, organisation of public administration
and human resources management. The government adopted a roadmap for 2014 to
address the remaining key reform challenges in the current action plan. The
coordination structure for strategy implementation and its monitoring mechanism
were reformed in 2013 to improve the tracking of policy implementation and
legislation in this area. A Special Group on Public Administration
Reform, established as a forum for policy dialogue between the Commission and
Kosovo, met in December to discuss and monitor implementation of the reform
strategy.

The
implementation of the strategy has been a major challenge and there have been
very limited results. In designing the new strategy, the new government needs
to set more realistic objectives. These should be backed up with strong
political support, clear implementation and budget planning, and be supported
by adequate numbers of qualified staff.

Kosovo has made
some progress regarding policy development and coordination. It prepared
standards for public consultation on legislation and adopted a regulation on
financial impact assessment. It also introduced a new action plan for the
partnership for open governance (2014-16). The Office of the Prime Minister and
the Ministry of European Integration are jointly responsible for ensuring
sufficient policy coordination. This structure ensures a basic level of
preparedness for the increase in workload related to the European integration
process. The government’s annual work plan has become a platform enabling the
government to plan and coordinate its agenda. The structure of this document
has improved, and so has ministerial input.

However, the
plan needs to be made more strategic. Information included in the work plan
needs to be better linked to government priorities, to sector strategies, the
medium-term expenditure framework and the budget available. The capacity in
ministries to plan and budget, and to scrutinise draft proposals remains
limited. The work of the Office for Good Governance, Human Rights, Equal
Opportunities and Non-discrimination needs to be streamlined. The main
challenges for the government and other relevant institutions remain the
implementation of policies and legislation, and respecting commitments under
the future SAA. The government needs to build on good practices established
during the SAA negotiations to address these challenges. Linking policy and
legislation with budgets, and the availability of qualified staff are key to
delivering on this task. In general, the interinstitutional coordination mechanisms
in place need to be used better and the recommendations of the Special Group on
Public Administration Reform need to be implemented.

With regard to public
service and human resources management, political interference in public
administration persists, both at central and local level. Further efforts are
needed to fully implement relevant provisions on the prevention of corruption
and promotion of integrity in the civil service, in particular by providing
targeted training for civil servants. Secondary legislation to the laws
on the civil service is still outstanding. Pending completion of the job
classification catalogue, there have been further delays in implementing the
laws on civil servants and on salaries of civil servants. The share and distribution
of civil servants belonging to minorities across ministries and institutions
need to be in line with the legislation. A salary increase of 25 % for all
public servants without any performance assessment, as introduced in the run-up
to the general elections, is an issue of concern. According to the
International Monetary Fund, the increase in salaries will result in
significant pressure on the budget.

Very limited
progress has been made to further improve accountability and service
delivery. The laws on administrative procedures and normative acts are
still to be adopted. Implementation of the law on access to public documents
remains unsatisfactory. Kosovo also needs to review the organisation of public
administration at municipal level, notably delegated competences and the
appointments of directors.

Kosovo has not
addressed public financial management reforms systematically, as part of
a comprehensive reform plan. Rather, there have been isolated reform efforts in
different public finance sub-systems, such as in revenue administration or
public internal financial control, with modest results. In April, Kosovo
adopted its medium-term expenditure framework, which covers the years 2015-17.
The document lacks a strategic approach. The annual budgeting process is based
on the line-item approach. Debt management policy has yielded some results, as
debt is still low and sustainable, although domestic borrowing has increased.
Implementation of public internal financial control is still at an early stage,
as the managerial accountability principle has not yet been embedded in
management culture. The Office of the Auditor General has continued to play an
important role as an independent institution in promoting change in public
financial management through its audit reports.

Overall,
there has been very limited progress in this area. The new government needs to
make a serious political commitment to public administration reform. The slow
pace of reform in this area continues to pose one of the greatest challenges in
Kosovo’s European integration process. The setup and structure of the central
coordinating institutions provide only a basic level of preparedness for the
increase in the workload due to the implementation of the SAA. Better strategic
planning and improved links with budgeting are required. Kosovo needs to
finalise the legislative framework for the civil service and ensure its
implementation, in particular the job catalogue and performance appraisal.
Kosovo needs to adopt and enforce a law on general administrative procedures.
Kosovo would benefit from engaging in more comprehensive public financial
management reform.

Ombudsman

The Ombudsperson
Institution in Kosovo has continued to perform and act as a defender of the
rights of Kosovo citizens vis-à-vis the administration. The annual report of
the Ombudsperson states that 2 047 cases were received, 23 % more
than the previous year. The government has taken the positive step to allocate
a budget for a much needed new building for the institution.

The politicisation
of the selection procedure has stalled the appointment of an Ombudsperson. The
institution is currently led by an Acting Ombudsperson and the mandates of the
five deputies will expire in October 2014. Pressure has been mounting in
municipalities to expel the field offices of the institution from municipal
buildings. This is a serious concern. Kosovo authorities both at central and
local level need to ensure that the Ombudsperson’s inquiries and
recommendations are adequately followed up. The new government needs to ensure
the budgetary independence of the institution when preparing next year’s
budget.

Overall, the
Ombudsperson Institution of Kosovo continued to gradually improve its work
across Kosovo. However, other authorities and institutions in Kosovo need to
improve the quality of their responses to the institution’s inquiries. A new
Ombudsperson needs to be selected on the basis of a fair and depoliticised
selection process. Budgetary independence needs to be ensured.

Civilian
oversight of the security forces

There has been
moderate progress in the work of the Parliamentary Committee on Internal
Affairs, Security and Supervision of the Kosovo Security Force. The committee
increased the number of meetings and its members were better prepared. Ministers
were more frequently invited to public hearings and answered concerns of
parliamentarians. The committee also prepared a monitoring report on the
implementation of the Law on the Kosovo Police and on expenditure by the police
and the Ministry of Internal Affairs. The intelligence agency still issues
security certificates to members of the committee, although the committee is
responsible for the agency’s supervision. In general, concerns related to
unprofessional and partisan security vetting by the service remain. The
Assembly needs to increase its capacity and improve its expertise to supervise
this area.

Civil
society

An empowered
civil society is a crucial component of a democratic system and should be
recognised and treated as such by Kosovo institutions. Civil society continued
to participate in the work of the National Council on European Integration. The
Assembly appointed an NGO liaison officer, and the Assembly’s relations with
civil society have improved. The government’s capacity to implement the
strategy for cooperation with civil society (2013-17) is still weak. The Joint
Advisory Council which is to monitor its implementation only started its work
in April 2014. The government has appointed its participants to the advisory
council, and civil society has opened a call for expressions of interest.
Cooperation and consultation between civil society and the Kosovo institutions,
notably with the government, continue to be ad hoc and unsatisfactory. Civil
society involvement, if requested at all, comes only at the end of the
legislative process rather than at its beginning. Civil society does not
systematically receive feedback on its recommendations. This needs to be
improved. Plans to include provisions in the Law on Money Laundering, obliging civil
society to request dispensation for all donations above € 1 000 from
one single source and for all spending above € 5 000 from one single
source, are a cause for concern, especially since criteria for granting
dispensation are not included.

Judicial
system

Kosovo’s
judicial structures adapted well to the 2013 structural reform. In April 2014,
Kosovo agreed to the new EULEX mandate. As a rule the mixed panels (EULEX and
Kosovo judges), now have a majority of Kosovo judges, and a Kosovo presiding
judge. Pending full integration of the judicial system in the north, the trials
at Mitrovicë/Mitrovica basic court continued to be held with panels consisting
exclusively of EULEX judges and prosecuted exclusively by EULEX prosecutors.

In July, the
Constitutional Court ruled that the selection process of a new chief state
prosecutor, finalised in June, had to be repeated. An acting chief state
prosecutor has been appointed for the following the retirement of the previous
chief state prosecutor in August. Proper legal remedies against decisions of
the prosecutorial and judicial councils should be introduced to avoid that the
only resort against their decisions is the Constitutional Court.

Preliminary
findings of the criminal justice review initiated by the Ministry of Justice
concluded that discrepancies or gaps in various criminal laws would be followed
up in a second report before decisions on possible amendments would be made. In
cooperation with all stakeholders the Ministry of Justice prepared a rule of
law assistance strategy.

Regarding
judicial independence, budgets for both councils increased compared to
the previous year. The 2014 budget for the judicial council is € 20.8
million, and for the prosecutorial council € 6.8 million.

Public
statements by politicians about high-level corruption and war crimes cases have
decreased, in particular after an open discussion in the structured dialogue on
the rule of law. Harassment of judges and prosecutors in the media and the
absence of an effective response from the relevant institutions continue to be
a serious concern. Attempts to influence ongoing investigations and court cases
need to be effectively sanctioned. This needs to be strongly supported by
political will.

The new
legislature needs to ensure the appointment of judicial council members. The
previous legislature did not meet its constitutional obligation to appoint the
last two members of the council, leaving the council with eleven instead of
thirteen members. In August 2014, the mandate of three additional council
positions expired. The council is now without the legal quorum of nine members.
The Assembly needs to urgently appoint the five council members. A majority of
the judicial council members should be elected by their peers, in line with
Venice Commission recommendations.

As regards the
functioning and accountability of the judiciary, the judicial council
adopted regulations on the performance of its disciplinary committee, on the
promotion of judges, and on its strategic plan 2014-19. The prosecutorial
council also adopted a regulation on the performance evaluation of prosecutors.

More needs to be
done to ensure the functioning and accountability of the judiciary. In order to
ensure full implementation of the laws on the judicial and prosecutorial
councils, both councils still need to adopt several pieces of implementing
legislation. The laws on courts, the state prosecutor, the judicial council and
the prosecutorial council, also need to be harmonised to address
inconsistencies on issues such as dismissal, appointment, transfer,
disciplinary system and procedures for the review of decisions taken by the
councils. Implementation of regulations on performance and evaluation and on
disciplinary procedures is important, as are transparent and merit-based
nomination and selection criteria.

The
prosecutorial council faces delays in hearing appeals against decisions of the
disciplinary committee due to difficulties in reaching a quorum. Assessment of
the legislation on the composition, chairmanship and membership of the
prosecutorial council may be necessary to overcome such obstacles. The
disciplinary system for judges and prosecutors needs to be aligned to international
standards.

Although obliged
by law, there is neither a systematic publication of court decisions, nor a
systematic development of jurisprudence, raising transparency and
accountability concerns.

As regards efficiency,
the judicial council adopted a new strategy to reduce the backlog of cases. The
prosecutorial council increased the number of positions for local prosecutors
in the special prosecution office by three to a total of eighteen, of which
twelve are filled. A local special prosecutor is the acting head of the office,
while EULEX prosecutors only take on new investigations in exceptional
circumstances. Four basic courts and the appeals court are now equipped with
special rooms for protected witnesses.

As regards
judicial alternatives to the courts, there are now 68 certified and licensed
notaries. Fourteen private enforcement agents have been certified. In addition,
mediation centres are having a positive impact. The number of cases referred to
mediation centres has increased considerably (699 in the period September
2013-March 2014, compared to 104 in the same period a year before). The same
applies to the number of cases resolved (350 compared to 38). Public awareness
of mediation and mediation centres needs to be improved.

Due to stricter
provisions on electoral violations in the new Criminal Code and a very
proactive approach by the prosecution prior to and during election time, the
courts received fewer cases in 2013 (54) and 2014 (15). These cases were
treated with priority and effectively than the 2010 electoral fraud cases, of
which a considerable number are still pending in court.

Although the
courts and prosecution offices adapted well to the 2013 structural changes, the
full implementation of reforms that should lead to more efficiency, is still
pending. The case backlog is one of the key concerns. The courts are not
implementing the KJC instruction on the prioritisation of backlog cases. At the
end of 2013, the courts completed 419 422 cases leaving 466 255 cases
pending (a clearing rate of 80.3 %). The Fiscal Division of the
Administrative Department of the basic court in Pristina was established only
in January 2014 and is not yet fully operational. It is already facing a
significant number of appeal cases against customs appeals sector decisions.
The effectiveness of the special chamber of the Supreme Court (SCSC), handling
privatisation cases, needs to be improved. Due to a lack of judges there are
delays in the work of the SCSC; the number of active cases is around 18 000.

Neither case allocation
nor case management IT systems exist, and there is no centralised criminal
record database, which hampers the efficiency of the judicial system. Drafting,
critical reasoning, and legal argumentation skills need to be improved and
there is a lack of judges and prosecutors in key specialised areas such as
financial crimes and procurement, war crimes and sexual violence. The
difficulty to recruit prosecutors and judges from minority communities leaves
those communities underrepresented in the courts and prosecution offices, at
all levels.

As regards access
to justice, out of a total of thirteen legal aid offices, the eight offices
previously sponsored by the United Nations Development Programme (UNDP) have
been closed. Kosovo authorities need to step up efforts to improve access to
justice for children, women and victims of human trafficking. Implementing
legislation related to the certification of court translators and interpreters
needs to be adopted.

Kosovo
established a network of focal points for international legal cooperation
composed of eight prosecutors and seven judges. Implementing legislation on
legal assistance was adopted. Bilateral agreements on legal cooperation are in
place with five countries, and cooperation based on reciprocity takes place
with many others. Cooperation with regard to non-recognising countries is
facilitated by EULEX.

Overall,
there has been some progress in the judiciary. Kosovo has started to address
some of the priorities but there continue to be serious concerns regarding the
independence, accountability, impartiality and efficiency of judges and
prosecutors. Other challenges include the preparations for the transition of
responsibilities from EULEX to Kosovo, the integration of the judicial system
in the north into the Kosovo institutional structures, as well as the need for
specialisation and improved quality of performance. The Kosovo judiciary needs
to address the backlog, and, irrespective of public or political opinion, file
indictments based on gathered admissible evidence and deliver well-reasoned
judgments in a timely manner. Transparent and merit-based recruitment and
evaluation of judges and prosecutors, as well as a properly functioning
disciplinary mechanism, are important steps towards improving the functioning
of the judiciary.

Fight
against corruption

The President’s
anti-corruption council met four times in the reporting period. All
institutions and authorities involved in the fight against corruption, as well
as civil society representatives are part of the council. Following comments in
last year’s report its meetings are no longer held in public. The
recommendations of this council merit systematic follow-up to ensure a
harmonised and effective approach in the fight against corruption.

The implementation
of the anti-corruption strategy and action plan fails to generate effective
results, due to weak political support. The annual report shows that for the
period June-December 2013, the Anti-Corruption Agency (ACA) considered that
only 54 % of actions were being implemented or were partially implemented.
The ACA’s oversight function regarding the implementation of the strategy
should be strengthened. The agency lacks the necessary analytical capacity to
conduct risk assessments in sectors vulnerable to corruption. The quality of
pre-investigation reports needs to improve to ensure better follow-up, and the
prosecution needs to continue to ensure and provide feedback to the ACA.

The Law on
Declaration, origin and control of high public officials and declaration,
origin and control of gift for all public officials has been aligned with the
Criminal Code so that now the failure to declare assets and false declarations
is classified as a criminal offence. Senior public officials are obliged to
declare their property to the ACA before 31 March each year. Declarations are
also required when taking or leaving office, or if the agency so requests. Out
of a total of 3 869 senior public officials falling under the obligation,
99.25 % made a declaration. The agency has the capacity to verify the
origin and veracity of the assets declared.

As regards
corruption in procurement, the Anti-Corruption Agency selects and inspects
procurement cases and has provided 28 opinions to the contracting authorities
(public institutions) in 2013. All recommendations the agency provided on the
cases it inspected were taken up and procurement activities were terminated.

The agency, in
cooperation with civil society and municipalities, has developed a ‘hot line’
to report corruption through municipal websites. The agency needs to organise
more awareness-raising campaigns encouraging citizens to report corruption.

The Law on
Prevention of the Conflict of Interest in the exercise of public office still
needs to be aligned with the Criminal Code. In 2013, the ACA found over 1 400
cases of senior officials holding multiple functions funded by the Kosovo
budget, including as board members of public enterprises. This is not a
criminal offence in itself, but could present a potential risk of conflict of
interest, especially for judges, prosecutors and senior officials. Regarding
the Law on Declaration, origin and control of high public officials and
declaration, origin and control of gift for all public officials, the number of
convictions is low and sanctions imposed do not deter. A standardised
declaration form and verification guidelines with objective criteria should be
developed. The sample quantity should increase, giving prioritisation to ‘risk
groups’.

Political
parties generally do not meet their obligations under the Law on Political
Party Financing. Implementation and enforcement of the law is weak. The Central
Election Commission office in charge of monitoring implementation lacks
capacity and resources.

Relations
between the criminal investigation authorities and the ACA have improved. In
most cases, the
ACA received confirmation from the prosecution and the Kosovo Police if
criminal procedures were initiated on cases reported by the ACA.

With involvement
of relevant stakeholders, the prosecutorial council developed a criminal
offences case tracking mechanism and published its first annual report on 2013,
including corruption cases. A report covering the period January-June 2014
included also economic crimes. The chief state prosecutor adopted an
instruction defining ‘high-level corruption’ and assigned the special
prosecution office to deal with such cases. In November 2013, the prosecutorial
council made a decision to prioritise corruption cases and appointed
anti-corruption focal points in each prosecution office. The judicial council
issued a similar instruction to the courts.

The
anti-corruption task force, consisting of four Kosovo Police officers and three
special prosecutors, referred only five new criminal cases to the special
prosecution office. The majority of corruption cases are handled in the
prosecution office and the basic court in Pristina. It is important that these
offices have sufficient staff willing to handle this extra caseload, especially
with the high priority given to corruption cases. Despite the high priority,
results have been limited, with very few corruption cases resulting in judicial
rulings.

In the
appointment procedure of the members of the Procurement Review Board the
Assembly disregarded the recommendation of the Independent Selection Board,
which had concerns on the list of appointees, including an ongoing corruption
investigation.

Overall,
Kosovo has made limited progress and is at an early stage in the fight against
corruption. Even though Kosovo judicial and prosecutorial councils prioritised
corruption cases there is no track record of convictions. Corruption remains
prevalent in many areas, including in public procurement, and continues to be a
serious problem that needs to be addressed urgently. Real political commitment
is needed to translate efforts into actual results in the fight against
corruption. There also needs to be further strengthening of interinstitutional
cooperation. The judiciary needs to be enabled to fight this phenomenon
effectively. At the same time prosecutors and judges need to demonstrate more
accountability by handling cases more efficiently and delivering results.

Fight
against organised crime

Kosovo has taken
some steps to improve the fight against organised crime. It has continued to
improve its legislative framework, notably by adopting implementing legislation
on money laundering. The investigative capacity of the police is generally
good. Cooperation with EULEX has intensified and is assessed as very good. The
number of drug-related crime investigations has gone up and some human
trafficking groups have been dismantled.

Kosovo is at an
early stage of delivering results in the fight against organised crime, which
continues to be a serious challenge. The total number of indictments and
judgments in cases of trafficking in narcotics and trafficking in human beings
remains low. Law enforcement agencies have been reluctant to initiate financial
investigations. As a result, the number of confiscations and sequestrations
ordered by the judiciary and executed by the police continues to be low. There
is a lack of expertise among prosecutors and judges in specialist areas such as
financial crime and procurement fraud. This expertise is essential to deal with
corruption.

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

2.2.
Human rights and the protection of minorities

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

On the promotion
and enforcement of human rights, Kosovo’s next steps need to draw on the
reform proposal on non-judicial human rights institutions from a joint
EU/Council of Europe project. Kosovo needs to simplify the institutional
framework, strengthen its capacities and clarify the roles of various civil and
public service actors, reinforce the Ombudsperson Institution and ensure
effective, consistent monitoring and reporting mechanisms, including with civil
society. Kosovo needs to adopt the laws on anti-discrimination, Ombudsperson
and gender equality as a package, so as to ensure coherence and complementarity
in human rights legislation. The human rights strategy needs to be updated,
including implementing mechanisms as set out in the human rights law package,
to provide for a sustainable, long-term strategic approach. Human rights issues
at all levels need to be put higher on the political agenda, in particular as
concerns enforcement. The government needs to become less donor-dependent in
this sector.

As regards the prevention
of torture and ill-treatment in prisons, an inspection programme that
monitors the work of correctional services has been established. No violations
against internationally recognised human rights standards have been identified
in the reporting period. There is no systemic ill-treatment of detainees in the
prison system. Implementing legislation has been brought in line with EU
standards. The first high security prison was taken into official use in May
2014. Unjustified prolonged detention continues to be a challenge for the
criminal justice system. EULEX took over three cases as the local judiciary did
not finalise proceedings within the legal timeframe for detention. The
detention centre in Mitrovicë/Mitrovica is still used as a prison. Corruption
in the correctional services is a growing concern. The government needs to take
decisive action to address it. Some detainees continued to enjoy ‘privileges’,
for instance by opting for regular hospitalisation outside the correctional
facility. These events had an adverse impact on significant judicial cases.
Internal investigations against correctional staff involved have led to
disciplinary sanctions.

On freedom of
expression, elementary pluralism of the media landscape is provided by
independent dailies and several broadcasters. The Assembly adopted a law on
protection of journalistic sources and appointed four new members to the board
of the Independent Media Commission, giving the board a total of five members,
out of the seven envisaged. This provides the board with the quorum required to
carry out its tasks. The candidates selected met the legal requirements, even
if the appointment process favoured political affiliation rather than
independence. These appointments ended almost two years during which the
commission was without proper governance, which compromised its authority and
ability to ensure market transparency. It also delayed a number of key
decisions, such as digitisation of analogue broadcasts.

A verdict was
reached in the ‘Kosovo 2.0’ case, in which a launch party for a special issue
of the magazine on sex, sexual orientation and gender identity was attacked.
All three defendants were found guilty and received suspended sentences. One of
the charges was withdrawn as it was covered by the law on amnesty. There were a
few defamation cases, but the journalists involved were acquitted.

There has been a
change in the leadership of the local journalists’ organisation. This has the
potential to improve the reputation of the organisation. Kosovo’s press council
is recognised as a platform capable of further developing professional
self-regulation.

However, the
legislative and institutional framework in this area remains fragmented and
ineffective. Issues such as the autonomy of journalists and editors, protection
of professional standards in journalism, the right to conscientious objection
for journalists, and the right to reply and correction for the public remain
unregulated by law. Editorial codes of conduct at individual media outlets
would also be helpful in this regard. Threats and attacks, also from the police
and public officials, on journalists persist. Instances of hate speech
continue, mostly online, including in the social media.

Economic
sustainability of the media is not ensured. Kosovo does not have effective
rules for media ownership transparency. This results in excessive concentration
and breaches of independence. Government advertisements have had an impact on
the editorial policies of some of the media. The long-term financial
sustainability of Kosovo’s public broadcaster (RTK) continues to be uncertain.
Its current funding comes predominantly from the state budget, which undermines
its editorial independence. The RTK union has pointed to corruption and a lack
of transparency in RTK’s employment and recruitment policy. (See also 4.2.6
— Information society and media)

Kosovo citizens
have continued to exercise their freedom of assembly and association throughout
Kosovo. There were several public protests against various levels of government
during the reporting period.

There has been
sustained progress in the field of freedom of thought, conscience and
religion. The Orthodox seminary continues to function well in its
historical premises in Prizren, and its student population is growing. Kosovo
remains ready to support the reconstruction of Serbian Orthodox Church sites
left unfinished by the Reconstruction Implementation Commission. Interaction
among religious leaders of all faith traditions has become more regular. There
have been no reports of serious incidents linked to the protection of
historical and religious sites, for which the Kosovo Police took over
responsibility from KFOR. One incident was reported at the Visoki Dečani
Monastery, which is still protected by KFOR. The delay in finding a solution to
an ongoing land dispute between the municipality of Deçan/Dečane and the Visoki
Dečani Monastery is a concern. It contributes to persistent tensions between
the monastery, the municipality and the local community. Numerous incidents of
petty theft and vandalism at religious heritage sites, including Serbian
Orthodox monasteries and churches and Orthodox and Muslim cemeteries, continue
to be a challenge for Kosovo’s authorities. These incidents need to be followed
up systematically and adequately. The Law on Religion needs to be adopted.

With regard to women’s
rights and gender equality, in January the government adopted an action
plan for the implementation of the UN Security Council Resolution 1325 on
Women, Peace and Security. In March, the Assembly amended legislation with a view
to recognising survivors of conflict-related sexual violence. In September
2013, standard operating procedures for protection from domestic violence were
created by the Agency for Gender Equality and the National Coordinator against
Domestic Violence. In March 2014, the Office of Good Governance launched a
protocol on the prevention of violence in institutions of pre-university
education. Three municipalities established coordination mechanisms on domestic
violence with civil society representatives. The issue of sexual violence
during the conflict is getting more attention from politics and the public. A
petition on sexual violence during the conflict, asking the UN Secretary
General to report about these crimes, was signed by more than 100 000
people.

Challenges
remain in the field of domestic violence and gender-based violence. Kosovo
needs to establish a system of regular data collection on gender-based violence
across all institutions. Women’s practical access to inheritance of property
remains a challenge, although the law provides for it. Cadastral and
registration officers need to register all co-owners of property, including
women, to improve protection of their rights. Kosovo needs to develop a
long-term reintegration programme to address the needs of women (and children),
including relocation, subsidised housing, employment and counselling. Women’s
representation remains low, especially in senior positions, both in the public
and the private sector. There is also a need for further training and awareness-raising,
notably in rural areas. The law on gender equality needs to be adopted as part
of the human rights laws package.

As regards children’s
rights, juvenile departments established in the courts and prosecutors’
offices are operational. This contributes to a continuing, sustainable trend of
using alternative educational measures by the probation service. Child
protection case management roundtables and coordination mechanisms need to be
scaled up. Child protection services need more municipal budget to help prevent
and protect children from all forms of violence. The government needs to take
into account the recommendations from a joint EU/UNICEF project on juvenile
justice. The government should not delay payments for social schemes dedicated to
children in foster care and children with permanent disabilities. The Ministry
of Education, Science and Technology needs to ensure the availability of
personal assistants for children with disabilities, in line with the commitment
made in its strategy.

Kosovo has
improved its legal framework for the socially vulnerable and/or persons with
disabilities. In December, the government adopted a programme on the
provision of sign language (2013-16). A law on paraplegics and tetraplegics is
to be adopted. Equal access to quality education for persons with disabilities
and persons from the Roma, Ashkali and Egyptian communities remains very
limited, despite the commitment to inclusive education. In the absence of
adequate medical facilities, health care and rehabilitation services for
persons of very low income, in particular persons with disabilities and elderly
persons living in poverty, are inadequate. Implementing legislation for a law
for blind persons is still to be adopted. The government needs to address the
lack of assistant teachers for children with special needs. With stronger
support from the Office for Good Governance, the disability council needs to
improve its coordinating role in implementing the strategy for the rights of
people with disabilities (2013-23) and its action plan (2013-15).

The Law on Anti-discrimination
needs to be adopted and aligned with the laws on the Ombudsperson and gender
equality. Cases of hate speech, targeting mainly members of sexual minorities
and ethnic minorities, are rarely investigated. Preventive measures such as
awareness raising remain scarce. Kosovo’s political leaders need to do more to
promote tolerance.

In December, the
government adopted a decision to establish an advisory and coordinating group
for the rights of the lesbian, gay, bisexual, transgender and intersex
(LGBTI) community. The group still has to prove its practical impact.
Threats against LGBTI activists continue. A first pride walk was held in
Pristina on 17 May to mark the day against homophobia.

In the area of labour
and trade union rights, the government and the Social Economic Council
signed a General Collective Agreement that lays down rights and obligations of
employers and employees. With limited human resources (50 inspectors covering
both labour, and health and safety issues) the labour inspectorate carried out
over 8 000 inspections and issued more than 120 fines amounting to about € 274 000
in 2013. This number is very low, considering the number of registered active
businesses in Kosovo (53 335). The implementation of the Law on Labour
remains unsatisfactory. Participation of women in the workforce is low and
there continues to be maternity-related discrimination. Implementation of the
Law on Strikes also remains unsatisfactory, due to the lack of communication
between strike organisers and authorities. The representation of employees
within the Social Economic Council does not have the support of the vast
majority of trade unions and is therefore not representative. (See also
4.1.8 — Employment and social policies, public health policy)

Progress on property
rights remains slow. The office of the property rights coordinator has been
strengthened. The Law on Treatment of Construction without a Permit was
promulgated in December. There has been some improvement in compliance with
legal obligations during the expropriation process. Regarding the Kosovo
Property Agency (KPA), which resolves property claims resulting from the armed
conflict, out of a total of 42 684 claims, 1 357 remain to be
adjudicated by the Property Claims Commission. The number of implemented
decisions stands at 29 871. Implementing decisions in difficult cases
(i.e. where illegal construction occurred) is problematic. The KPA, as
highlighted in a case before the Constitutional Court, needs to develop legal
mechanisms and procedures for the solution of such cases. More than 900
evictions remain outstanding, of which over 350 cannot be executed because they
are in the north of Kosovo. Illegal re-occupation of properties remains a significant
challenge. The funding of the KPA continues to be unsustainable.

The compensation
scheme for conflicting successful claims foreseen under the regime of the KPA’s
predecessor is still not in place, raising human rights concerns given that
most cases were filed and decided many years ago.

The strategy to
regularise informal settlements still needs to be adopted. The new Law on the
Kosovo Property Comparison and Verification Agency is still pending.

The (civil)
courts regularly dismiss the many unresolved property compensation claims (‘stayed
cases’) referring to the armed conflict. Other property disputes are often sent
back to first-instance level for re-trial. Inter-ethnic property disputes are
unduly prolonged. Overall, the courts are
overburdened by the large number of pending claims.

Overall,
Kosovo has made some progress on the protection of human rights. The
Independent Media Commission became functional after a period of almost two
years without proper governance. The perpetrators of violence against the
Kosovo 2.0 journal were convicted. In general, human and fundamental rights
continue to be broadly guaranteed in Kosovo. However, the main challenge is
implementation of the legal framework, including at local level. The conditions
for freedom of expression and media need to be put in place. Kosovo needs to
effectively address persistent threats and attacks on journalists and LGBTI
activists. Property rights need to be enforced effectively. The package of
human rights laws needs to be adopted. Kosovo urgently needs to simplify the
system of numerous bodies and institutions dealing with the protection of human
rights.

Respect
for and protection of minorities, cultural rights

Kosovo has a
good legal framework for safeguarding and protecting its minorities but
implementation needs to improve. In August 2014, the new members of the
Community Consultative Council under the President’s Office were appointed.
They should continue to meet on a regular basis to discuss and address the main
issues affecting communities in Kosovo. The public broadcaster’s channel in the
Serbian language (RTK 2) continued to broadcast. The channel also reported
objectively on municipal elections and gave equal air time to each political
party, as envisaged in the Law on Elections and as reported by the European
Union Election Observation Mission. The Office for Community Affairs needs to
continue the process of improving the employment of non-majority communities
within the Kosovo civil service and public enterprises. The office launched a
process to address the issue of diploma acceptance by the University in
Mitrovicë/Mitrovica for potential public servants or employees of public
companies.

The Office of
the Language Commissioner has continued to function. The office received 45
complaints already in 2014, against twelve in 2013; 36 were resolved through
mediation. The office provided language classes in Albanian and Serbian for
civil servants in fourteen municipalities with the aim of improving service to
the public. The language policy measures need to be adopted. Kosovo authorities
both at central and local level need to focus on further improvements in the
overall implementation of the law on the use of languages. This needs to be
underpinned by strong political support.

The security
situation for non-majority communities has remained stable. However, the
majority of ethnically-motivated incidents targeted Kosovo Serbs. Theft and
damage to properties were reported as the most frequent types of incidents,
while those directly involving persons decreased. In Kosovo Serb return areas,
the perceived or real threat to security remains an issue of concern,
especially in some rural communities. Kosovo authorities need to do more to
bring the perpetrators of inter-ethnic incidents to justice. The Municipal
Community Safety Councils have been established throughout Kosovo. Their
functioning and efficiency differ widely. The councils need to do more to
address security concerns and ensure participation of all ethnic and religious
communities.

A conference was
held on the Roma, Ashkali and Egyptian communities in November. Kosovo
now needs to accelerate the implementation of the action plan of the strategy
(2009-15), taking into account priorities as identified in the Priorities
Framework (2014-15) of April and the conclusions of the November conference.
This includes applying a new framework enabling evidence-based monitoring of
results achieved and developing new policy commitments for the period beyond
2015. In December 2013, the main building of Leposaviq/Leposavić camp was
closed, following the resettlement of 31 families.

In general,
Roma, Ashkali and Egyptian communities continue to face major challenges,
notably difficult socio-economic circumstances, a lack of education, weak
health care and discrimination. Regarding equal access to quality education,
students from the Roma, Ashkali and Egyptian communities have lower
registration rates, higher dropout rates, and poor levels of academic
performance. Statistics on the dropout rates need to become more reliable.
Mediators continued to engage with these communities to reduce dropouts,
especially in schools with a higher concentration of pupils from these
communities. Access to civil registration continues to be a concern and needs
to be ensured. Kosovo needs to strengthen coordination and interinstitutional
cooperation at central level and between central and local levels. The
authorities need to make better use of the expertise of the relevant civil
society groups. Adequate budget allocation is needed to make tangible progress
in the implementation of the strategy and action plan. Allocating land in
municipalities to returning Roma, Ashkali and Egyptian communities is crucial
for their successful integration.

Regarding
refugees and internally displaced persons (IDPs), there has been some
progress. In 2014, the municipalities of Klinë/Klina and Gjakovë/Djakovica
allocated land to some of the IDPs from the Konik camp in Montenegro. This
needs to be followed by additional government funding to facilitate the actual
return and reintegration of the families concerned. The adoption of the
strategy for communities and return (2014-2018), and subsequent trainings for
municipal officers, marked a positive development towards sustainable solutions
for returnees. The return and reintegration in some minority-managed
municipalities (such as Novobërdë/Novo Brdo, Partesh/Parteš and Shtërpcë/Štrpce)
have shown that returnee families are finding it easier to reintegrate in such
communities.

However, the number
of voluntary returns decreased in 2013 (close to 800, compared to 1 040 in
2012). The low number of returns during 2013 can be largely attributed to a
lack of funding and socio-economic prospects in Kosovo. The Ministry for
Communities and Returns and Municipal Offices for Communities and Return are
still not collecting and maintaining data on the number and location of
returnees.

Regarding cultural
rights, the Implementation and Monitoring Council continues to facilitate
cooperation between the Kosovo authorities and the Serbian Orthodox Church.
Meetings have continued to take place, albeit not always regularly. Concerns of
the Church and the Kosovo authorities have been addressed resulting in a number
of concrete actions. An ongoing challenge for the Council is to build on
results achieved to establish sustainable trust between the parties. To this
end, it is key that confidential matters are not exploited for political gains
by either side. An online cultural heritage database was established, providing
information on monuments, archaeological sites, spiritual or movable heritage.

The special unit
of the police protecting Serbian religious and cultural heritage sites in
Kosovo continues to function well, covering four regions and employing 203
Kosovo Police officers. The immediate challenges facing this unit are to
improve communication with the resident Orthodox clergy in monasteries and to
ensure the availability of sufficient and adequate equipment, such as vehicles,
camera surveillance, generators and lighting at sites.

Implementation
of the Law on the Historic Centre of Prizren has been hampered by a lack of
support from the municipality. Meetings of the Cultural Heritage Council took
place and it has reached a number of decisions related to building permits.
However, the municipality needs to provide the Council with the necessary
remuneration, equipment and staff, in order for it to function as foreseen by
the law. The recently established Task Force set up to deal specifically with
illegal construction in Prizren is encouraging, but its effectiveness is still
to be proven. There has been no progress in the implementation of the Law on
the village of Velika Hoča/Hoçë e Madhe. The village council has yet to be
established and in August it was decided to further postpone the implementation
of the law, even though the original deadline for implementation was February
2013. Administrative instructions were distributed in April to both
municipalities to help with the implementation of both laws. Continued close
guidance from central level is needed to ensure full implementation of these
laws, since capacity at the municipal level is weak.

In general,
frequent breaches of legislation across Kosovo negatively affecting religious
and cultural heritage sites have continued. Implementation of the general
legislative framework governing the protection of cultural heritage remains
weak. Illegal construction is a major concern, particularly within Special
Protective Zones. Punitive measures against those in breach of laws need to be
applied consistently, and illegal construction which has already taken place
should be dealt with in accordance with the law. Kosovo authorities,
particularly at the local level, need to demonstrate a stronger commitment to
protecting cultural heritage. The new government needs to engage actively in
this process.

Overall,
there has been some progress in the area of respect for and protection of minorities.
Land has been allocated to some internally displaced persons from Montenegro.
The Implementation and Monitoring Council has facilitated better protection of
the cultural and religious heritage of the Serbian Orthodox Church. However,
Kosovo needs to step up its efforts to ensure implementation of legislation and
the policy framework, such as the Laws on the Historic Centre of Prizren and on
Velika Hoča /Hoçë e Madhe and the action plan on the integration of Roma,
Ashkali and Egyptian communities. Realistic policy commitments on Roma, Ashkali
and Egyptian communities beyond 2015 need to be developed. Security incidents
and crimes targeting persons belonging to minorities and their property need to
be investigated and prosecuted thoroughly and promptly.

2.3.
Regional issues and international obligations

In relation to war
crimes, on 24 April the Assembly of Kosovo ratified the exchange of letters
between the President and High Representative Ashton on the EULEX mandate. It
also provided for the relocation of sensitive judicial proceedings to hear
cases arising out of the investigation led by the Special Investigative Task
Force, addressing the allegations of the 2011 Council of Europe Parliamentary
Assembly report. Amendments to key legislation, including the Constitution,
need to be adopted by the new legislature to establish the specialist court and
its prosecution office. EULEX continues to investigate and prosecute war
crimes. The local judiciary is still unable to fully pursue cases of this kind.
Cooperation continued with the International Criminal Tribunal for the former
Yugoslavia (ICTY), in investigating and prosecuting war crimes.

The government
needs to approve the rules of procedure of the inter-ministerial working group
on dealing with the past and reconciliation and it needs to adopt a
transitional justice strategy. In general, there continues to be insufficient
political support and a lack of proper mechanisms to gather information
relevant for investigations regarding war crimes and missing persons. Witness
intimidation continues to be a concern, although the police has made good
progress establishing a witness protection directorate.

The
unresolved fate of missing persons from the conflicts of the 1990s
remains a humanitarian concern in the Western Balkans. As of August, a total of
11 155 persons were still missing according to the International Committee
of the Red Cross (ICRC). Of these, 7 282 cases relate to the conflict in
Bosnia and Herzegovina, 2 163 to the conflict in Croatia and 1 710 to
the conflict in Kosovo. Ascertaining the fate of missing persons remains vital
for reconciliation and stability in the region. Greater political commitment
and renewed efforts are needed.

The
working group on missing persons, chaired by the ICRC, remained the framework
within which Kosovo pursued commitments and maintained a dialogue with
Belgrade. Since October 2013, the two delegations have met three times.
Exhumations in Rudnica, Raska (Serbia) started in April and were completed on
22 August 2014. It is expected that a number of additional missing persons’
cases will be solved this year. The handover of identified human remains to the
families concerned should be swift and professional.

The
lack of information on new sites and difficulties in identification of exhumed
human remains continue to be key obstacles. A lack of political support seems
to underlie the fact; no new information on the fate and whereabouts of missing
persons was provided by the governmental commission on missing persons. The
Kosovo delegation to the working group needs engage more proactively.

The Kosovo
Department of Forensic Medicine (DFM) does not have the full capacity to meet
the required standards for sustainable forensic practice. The government needs
to recruit and develop the necessary expertise. Concrete steps are needed to
identify human remains stored at the Pristina morgue. There needs to be more
and better coordination and cooperation between the Office on Missing Persons
and DFM. Specific efforts are needed to integrate staff from non-Albanian
minorities into both departments. The adoption of implementing legislation on
the establishment of a central register, and on the closure of cases, is
urgent.

Regional
cooperation and good neighbourly relations form an
essential part of Kosovo’s process of moving towards the EU. The Kosovo
authorities have continued to be active in this regard. Since June,
Kosovo participates in the Migration, Asylum, Refugees Regional Initiative.
Kosovo takes part in the Central European Free Trade Agreement.

Kosovo takes
part in a number of regional meetings in line with arrangements on its regional
representation and participation agreed between Pristina and Belgrade in 2012.
For example, Kosovo takes part in the Regional Cooperation Council and is
invited to participate in meetings of the South-East European Cooperation
Process at all levels on a permanent basis and on equal terms. However, the agreed
formula has not led to Kosovo’s inclusion in all regional organisations and
fora.

Regarding
bilateral relations with other enlargement countries, Kosovo has continued
to have very good relations with Albania, with which it signed a
declaration on cooperation and strategic partnership aiming to boost economic
growth. Bilateral agreements were concluded in the areas of health, tourism,
culture, taxation, use of joint border customs points, energy, unification of
the employment market, the opening of joint consular offices, and on
collaboration on the use of the EU acquis translated into Albanian.

Bosnia and
Herzegovina has not changed its stance on the recognition of
Kosovo. Short-stay visas for Kosovo citizens are issued only by invitation from
foreign diplomatic missions and international organisations accredited in
Bosnia and Herzegovina, or for humanitarian reasons. As a reciprocal measure,
Kosovo introduced a visa obligation for the citizens of Bosnia and Herzegovina
as of January. In August, Kosovo blocked the imports of food of animal origin
from Bosnia and Herzegovina; in this regard, Kosovo should not impose
requirements going beyond those agreed in the context of the Central European
Free Trade Agreement.

Cooperation with
the former Yugoslav Republic of Macedonia has continued on the basis of a
large number of bilateral agreements. Agreements on mutual recognition of
pensions and on strengthening cultural cooperation entered into force. An
agreement for the opening of a new joint border crossing point in
Belanovce-Stančik was ratified.

Concerning
Montenegro, an agreement on recognition of pension rights was signed in
December, while agreements on police cooperation, on the opening of joint
border crossings, on local border traffic as well as protocols on joint border
patrols and border cooperation were signed in March. The joint commission on
border demarcation continued its work. A protocol on cooperation in the fight
against trafficking in human beings was signed in April.

Kosovo has
maintained very close relations with Turkey.

Overall, some
progress has been achieved on war crimes and missing persons, notably with
regard to excavations in Rudnica, Raska (Serbia). Ascertaining the
fate of missing persons remains vital for reconciliation and stability in the
region. Greater political commitment and proactive engagement is necessary. On
regional cooperation, Kosovo has made further progress and has maintained good
relations with its neighbours. Kosovo needs to continue to be pragmatic and
constructive in these efforts. Delineation of the border with Montenegro needs
to be finalised.

3.
Economic criteria

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

Monitoring of
the economic criteria needs to be seen in the context of the increased role of
economic governance in the enlargement process, as welcomed by the General
Affairs Council of 17 December 2013 and the Council Conclusions of 18 February
2008, where the Council asked the Commission to use community instruments to
promote economic and political development for Kosovo.

3.1.
The existence of a functioning market economy

Although Kosovo’s
economy grew uninterruptedly since 2001 much of its growth can be attributed to
the low base effects as genuine sources of sustainable growth remain absent.
High and persistent external imbalances, somewhat mitigated by significant
inflow of worker remittances, showcase a weak production base and lack of
international competitiveness. Inefficient and heavily subsidised POEs, and ad
hoc decision making, characterise Kosovo’s public sector. Although measures
such as the introduction of the fiscal rule were enacted, their reinforcement
mechanisms remain weak. The labour market is characterised by low participation
and high unemployment rates. Large shares of youth, long term and unskilled
unemployed show deeply embedded structural rigidities. The widespread
informal economy, weak rule of law and lack of fiscal predictability remain
major obstacles to doing business and improving competition and
productivity in the economy. Significant further efforts are
needed to develop a competitive private sector and anchor fiscal sustainability.

Economic
policy

Consensus on the
essentials of key economic policies was broadly maintained, though
dissent
between the ruling coalition and the opposition on the privatisation
process of Post
and Telecom of Kosovo (PTK) led to a two-month
deadlock in the assembly and also delayed the adoption of the 2014 government
budget. Efforts to develop relations with international financial institutions
were sustained. The European Investment Bank re-launched its operations in the
second half of 2013 and Kosovo became a member of the Council of Europe
Development Bank in November 2013. A 20-month precautionary IMF standby
arrangement (SBA) was successfully concluded in December 2013. The 2014 budget
plan was the first that complied with a fiscal rule. However, the government’s
pre-election decision in March 2014 to increase salaries, pensions and other
benefits to levels significantly higher than envisaged in the initial budget
altered the structure of expenditure at the expense of growth-enhancing capital
spending and raised questions regarding the transparency and credibility of
fiscal policy. Overall, the pursuit of market-oriented economic policies
slowed and the predictability of economic policies weakened as a result of ad
hoc approaches in policymaking.

Macroeconomic
stability

Economic growth
rebounded in 2013 to 3.4 % from 2.8 %
in 2012, driven by private consumption and a marginal
improvement in net exports, with a negligible contribution from
investments. Due to better economic performance of the main diaspora countries
higher remittances underpinned private consumption. The positive net exports
contribution was influenced by subdued domestic demand rather than an
improvement in international competitiveness, as imports contracted
substantially. A narrow and internationally uncompetitive
production base, deficient infrastructure, particularly in the energy sector,
discouraging business environment and significant skill gaps in the labour
market impeded job creation, despite
continuous positive growth. GDP per capita[4]
reached € 2 800 in 2013, equal to 11 % of the EU-28 average. Overall,
Kosovo’s economic growth accelerated, but long term sustainable sources of
growth are lacking.

External
accounts improved in 2013, but remained
heavily imbalanced. The current account deficit narrowed to 6.4 % of GDP,
1.1 percentage points lower than in 2012. The trade deficit was brought down to
31.6 % of GDP (2.5 percentage points lower than in 2012) as a result of
contracting imports due to weak domestic demand, lower energy prices and
somewhat rising goods exports. Concerns that the narrowing of
the trade deficit was only temporary rather than of structural nature were
reinforced in 2014 as goods exports decreased 0.4 % and imports inched up
1.2 % thus increasing the trade deficit by1.4 % in the first seven
months of the year.

Worker
remittances rose by 6.4 % and together with higher current transfers to the non-government
sector helped narrow the
current account deficit. Financing of the current account deficit depended
primarily on net foreign direct investment, which reached 4.5 % of GDP, up
from 4.2 % of GDP in 2012. Economic uncertainty, credit tightening, and an
increase in investment abroad led to a net outflow of portfolio and other
investments of 2.9 % of GDP compared to the inflow of 3.6 % of GDP in
2012. Net errors and omissions, although notably improved (1.3 percentage
points lower than in 2012), stood at 3.4 % of GDP still covering a
substantial part of the total current account deficit. Overall, despite
improvements in the trade deficit, significant imbalances persisted,
largely due to a weak production base.

According to the
2013 labour force survey, the labour participation rate among the working age
population somewhat increased but still remains unacceptably low at 40.5 %,
indicating limited employment opportunities, together with low human capital
endowment. Unemployment decreased slightly to 30 %, but remained highest
in Europe. The total number of registered job seekers however rose by 3.1 %
in 2013 and further 1.5 % by June 2014. The share of unskilled workers
among the total unemployed (57.2 % in June 2014), showcases an urgent need
for more active labour market policies, prequalification schemes and vocational
trainings. In December 2013, the law on the Employment Agency (whose main task
is defined as implementing employment and vocational training policies) was
adopted. However, no budget allocation was made for the agency for 2014.
Statistics regarding the labour market remained inadequate and outdated,
hampering a sound analysis of the situation. Overall, there have been limited
efforts to improve labour market conditions. More efforts and funding should be
made to support active labour market policies, which remained insufficient, and
to produce adequate data on employment.

The scope of
monetary policy tools is limited, as Kosovo uses the euro as legal tender
without access to European Central Bank facilities. The total assets
of the financial system, (excluding Central Bank of Kosovo assets) expanded by
10.5 % and reached 83 % of GDP in 2013 from 78 % a year earlier.
Due
to a decline in demand and tighter bank standards, credit growth slowed down
further to 2.4 % by the end of 2013 from 3.8 % a year earlier.
Deposits growth continued at a rate of 8.3 %. The loans to deposits ratio
decreased from 77.4 % in 2012 to 73.7 % in 2013 pointing to
significant scope for deeper financial intermediation and abundance of
liquidity in the banking sector. Both loan and deposit average interest rates
declined throughout 2013 and 2014, reaching 10.8 % and 0.7 %
respectively in July 2014.

The annual
average rate of inflation continued to moderate to 1.8 % in 2013, owing to
stagnant international food and energy prices. Core inflation (non-food,
non-energy) remained unchanged at 1.2 %. The disinflationary trend
continued in 2014, bringing down the annual rate of inflation to 1 % by
the August.

Although
fiscal performance deteriorated in 2013, compared to 2012, the budget deficit
remained below the initial plan and stood at 3.1 % of GDP. Total revenues
declined by 0.7 %, as border tax revenues contracted, due to lower volume
of imports, and underperforming other own sources of revenue (administrative
taxes, fines and penalties, participation fees, licences etc.) Total
expenditure increased by 1.6 %, as spending cuts mostly at the expense of
non-highway capital outlays offset the effect of rising current expenditure. As
a result, non-highway capital spending stayed almost 25 % below its
projected level. Capital expenditure decreased to 9.9 % of GDP from 10.9 %
of GDP in 2012. To finance part of the deficit, and to take advantage of excess
liquidity in the banking sector, the government continued issuing domestic
treasury bills with progressively longer maturities. In March 2013 a two year
maturity bond was issued for the first time. Thus, the total public debt (domestic
and external) ratio increased by 0.8 percentage points to 8.9 % of
GDP at the end of 2013 according to national data. As the PTK privatisation did
not materialise, effectively stripping the government of an estimated 277
million EUR, the budget deficit was partly financed through the withdrawal of
government deposits, which were reduced to 2.9 % of GDP, their lowest
level since 2008, and well below the 4.5 % of GDP threshold implied by the
fiscal rule.

The 2014 budget
was to be the first one anchored by the new fiscal rule limiting the total
deficit to 2 % of GDP. However, in March, the government
adopted a decision to increase salaries of all civil servants as well as social
pensions by 25 % (and for retired Trepça miners by 50 %) followed by
spending initiatives for former political prisoners and war veterans. These
increases in salaries and pensions, significantly higher than envisaged in the
adopted budget, are to be funded by wage
contingencies, cuts in goods and services expenditures, and by reassigning
funds earmarked for civil service reform. As the financing of these initiatives
relies to a significant extent on one-off effects, at the expense of delaying
important reforms, it raises concerns over the accumulation of government
arrears and rising government deficits in the future. These measures could also
hurt Kosovo’s price competitiveness by pushing up economy-wide labour costs.

Overall,
macroeconomic and fiscal stability was preserved in 2013, but the unbalanced
pattern of public sector wage policies with large ad hoc hikes typically
occurring in election years severely deteriorates the transparency,
predictability and credibility of fiscal policy, complicates fiscal planning
and shifts the composition of spending towards less growth-friendly expenditure.
The fiscal rule should be strengthened with stricter enforcement mechanisms to
avoid a repetition of pre-electoral spending excesses in the future.

Interplay
of market forces

The private
sector’s share in GDP has remained unchanged at an estimated 70 % in 2013.
Amidst criticisms of corruption and lack of transparency in the sale of
Socially Owned Enterprises (SOE) assets, the Privatisation Agency of Kosovo
(PAK) continues to implement its mandate in expediting the sale and liquidation
of SOEs under its administration. In 2013 PAK finalised only two liquidation
processes and another six liquidation processes in 2014 (as of March).
Following one failed attempt, and several delays in 2013, privatisation of the
PTK was called off in December 2013, amid numerous corruption allegations and
growing opposition by some opposition parties and the civil society.
Furthermore, PAK’s ability to operate efficiently and in accordance with its
mandate was brought into question, when by August 2014, a series of board
member resignations and mandate terminations, which were not adequately
addressed by the Assembly of Kosovo, resulted in the lack of a board quorum.

Among centrally
managed enterprises, only Kosovo Energy Corporation and PTK continued to
operate with a profit in 2013. Subsidies to Publicly Owned Enterprises (POEs)
in the field of energy imports, central heating, transportation and water
amounted to 0.5 % of GDP, a decrease of 0.25 percentage points compared to
2012. The government control and regulation of the electricity, central heating,
water supply and waste, and post-telecommunications services prices, via
independent agencies, remained unchanged.

Overall, very
limited progress has been achieved in privatisation and liquidation of
enterprises in PAK’s portfolio. The failure of the PTK privatisation and legal
uncertainty surrounding PAK raise concerns regarding the future and
transparency of the privatisation agenda. Some marginal improvements are
exemplified by the reduction of subsidies to POEs.

Market
entry and exit

Regulations adopted
in 2013, and the establishment of one-stop shops, have reduced the time needed
for company registration, to one day for individual businesses, and to three
days for limited liability companies and joint stock companies. Kosovo would
benefit from addressing numerous other obstacles to private sector development,
such as weak administrative capacity, lack of access to finance, underdeveloped
infrastructure especially in electricity supply, deficient rule of law,
widespread informal economy and inadequate professional education. During 2013,
the number of newly registered businesses declined by 1.8 % to 9 421 while the number of exits rose by
28 % to 1 508 compared to the previous year. The
total number of active registered businesses stood at 68 309 in September
2014. Overall, amid some progress in simplifying business registration,
private sector development remains hampered by numerous obstacles.

Legal
system

The basic legal
framework on the purchase of real estate by foreigners is compliant with EU
rules. However, further efforts are required to review the civil code, and administrative practices are still an obstacle to equal treatment.
Regarding the implementation of agreements in the framework of the
Pristina-Belgrade Dialogue, all certified copies of civil registry books
located in Serbia were handed over to Kosovo. Legislation required to implement
the agreement on cadastre still needs to be adopted. While expropriation
procedures are applied in a broadly satisfactory manner, the authorities do not
carry out proper consultation with displaced property owners. The judiciary
system has continued to suffer from poor accessibility, inefficiency, delays
and growing backlog of unresolved cases. Overall, despite some progress
made in civil registry and cadastral records, the judiciary framework, and
notably its implementation, remains underdeveloped. Ensuring a properly
functioning judiciary system remains an important task. Weak institutional
capacity for legal enforcement, delays in courts and prevalent corruption have
continued to hinder the business environment.

Financial
sector development

The financial system
of Kosovo is dominated by the banking sector, which holds 72.3 % of the
total financial sector assets. The faster pace of small bank assets growth contributed
to declining degree of the sector’s concentration. The banking sector liquidity
and capital buffers were further strengthened and remain well above their
minimum regulatory requirements. On the other hand, the ratio of non-performing
loans to total loans increased to 8.2 % by July 2014, compared to 7.5 %
at the end of 2012. The increase was partially due to the slowdown of credit
growth and relatively subdued growth in the last two years, which in turn
affected the capacity of borrowers to repay loans. The announced introduction
of SWIFT and IBAN codes for all bank accounts in Kosovo banks, in 2015, should
enable easier and safer money transfers, full transparency and a more efficient
fight against money laundering. Overall, the
tightening of credit standards, together with foreign banks’ policies towards
increasing parent banks’ capitalisation ratios and the decline in demand for
enterprise loans decelerated total credit activity, and contributed to
preserving good liquidity positions despite the increase in the non-performing
loans ratio.

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

Human
and physical capital

Very limited
progress has been made in improving the quality of the education sector. Total
public spending on education decreased slightly, by 0.1 percentage points, to
3.8 % of GDP in 2013, still less than
the
average
for low
and middle income countries (4.3 %). Attempts to
address the evident skills mismatch in the labour market were made when
a legal framework for the establishment of the Agency for Vocational Education
and Training and Adult Education was put in place. However the agency itself is
not yet operational. An action plan and a framework for quality assurance have
been developed to monitor the quality and performance of vocational education
and training schools. Moreover, the National Qualifications Authority, an
independent public regulatory institution responsible for monitoring the
training and assessment institutes, has established procedures for validation
and accreditation. Overall, insufficient funding, the low level of
cooperation between vocational schools and enterprises to conduct practical
learning and delays in the implementation of policies to provide the skills
required by the labour market remain as the major problems.

In 2013, total
investment declined and stood at 27.6 % of GDP (down
from 29 % of
GDP in 2012) with the private share increasing as the government contracted its
non-highway related investments. The construction of a highway to Tirana has
been completed and the preparatory works for the new highway to Skopje have
started in July 2014. Investments in the transmission and distribution networks
have improved network stability and reduced technical losses. Power cuts have
become less frequent, but an explosion at the highly polluting Kosovo A thermo
power plant in June 2014 led to a temporary shutdown of its operations causing
additional uncertainty in electricity supply. Nearly half of all incoming
foreign direct investment went to the non-tradable sector, in particular real
estate and construction, while the share of FDI channelled to manufacturing
declined to only 7 % (from 14 % in 2012). There was no greenfield
investment. Overall, there has been very limited progress in the
improvement of physical capital besides road infrastructure. Higher priority
should be given to sectors such as education, energy efficiency and water
distribution. FDI inflows, by large degree, seem to be financing consumption
rather than investment which could spell balance of payments problems in the
future.

Sectoral
and enterprise structure

Kosovo’s private
sector seems to be fragmented and unable to benefit from efficiency gains
brought by exploring economies of scale as SMEs with fewer than 250 employees
account for 97 % of total employment. Wholesale and retail trade continues
to be the dominant sector, with a share of 30.3 % of all new enterprises,
followed by the service sector and real estate, with approximately 20 %.
The large informal sector fuelled by weaknesses in both tax policies and law
enforcement continues to hinder fair competition and to harm the business
environment. It also hinders improvements in productivity by constraining
entrepreneurs’ access to capital, broader markets and technologies. Overall,
Kosovo’s private sector remains underdeveloped. The large informal economy, low
access to finance and its high cost continue to pose major challenges. Reducing
the share of the informal economy remains a challenge.

State
influence on competitiveness

The government
has extended the grant scheme consisting of coupled payments in agriculture
sector. In addition to previously existing schemes, direct payments to
agriculture were introduced. Co-financing grant schemes to micro, small and medium-sized
enterprises, worth a total of € 1 million were introduced. In 2014, the
government declared three new free economic zones (Prishtinë/Priština,
Mitrovicë/Mitrovica, Gjakovë/Dakovica and Prizren). However, this was done
without the required national plan, on a rather ad hoc basis. The institutional
setup to screen, approve and monitor existing and planned state aid schemes has
not yet been established and no inventory of the state aid scheme is available.
The Competition Authority in charge of establishing and securing a competitive
environment is not operational. In June 2013, the Ministry of Trade and
Industry launched a feasibility study on the credit guarantee scheme aiming to
provide credit to businesses at subsidised interest rates. However, the
implementation process has not yet started due to several delays. Overall,
the state interference in the economy remains high. There was no progress
regarding institutional capacity to control state aids as subsidies are still
being provided without a proper strategy and evaluation. The Competition
Authority needs to become functional to enable progress towards establishing a
functioning competitive market.

Economic
integration with the EU

Kosovo’s
openness to trade decreased in 2013 as total trade stood at 66.4 % of
GDP compared to 70.4 % of GDP in 2012. EU and Central
European Free Trade Agreement (CEFTA) countries continue to be the main trade
partners with shares of total trade at 43.8 % and 28.5 %
respectively. EU countries remain the biggest foreign investors in Kosovo, with
a share of 35 % of overall investment. Overall, the EU remained Kosovo’s
biggest trade and investment partner.

4.
European standards

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

4.1.        Internal market
4.1.1.
Free movement of goods

The
Ministry of Trade and Industry (MTI) has made gradual progress towards
implementing the strategy on free movement of goods adopted in February 2013.
Kosovo has continued the internal restructuring of the Ministry, which is in
charge of horizontal coordination. The bodies responsible for metrology,
accreditation, standardisation and market surveillance have been transformed
into agencies. The division for quality infrastructure in the ministry provides
policy guidance and support to align Kosovo legislation with the EU acquis.
Staffing levels need to be increased in all agencies.

As
regards standardisation, during the reporting period 1 575 European
standards (ENs) have been adopted as Kosovo standards bringing the total number
to 6 520.
Standards are normally bought from the recognised National Standards Body of
Albania and adopted through the cover page method. Kosovo is a member of
neither ISO (International Organisation for Standardisation) nor CEN/CENELEC
(European Committees for Standardisation and for Electrotechnical
Standardisation). Awareness raising in the private sector on the use
and importance of standards needs to be improved.

Regarding
conformity assessment, Kosovo has adopted regulations in the area of toy
safety, machinery, conformity marking and household electrical appliances. In
the area of general product safety, regulations on the rapid information
exchange system to products posing a risk to the health and safety of consumers
were adopted in November. A regulation on technical approvals for construction
products was adopted in November and basic requirements for construction works
were approved in May. The notification procedure, regulation on exchange
information and notification of technical regulations, conformity assessment
procedures and standards have been adopted and are in use as of April.

With
regard to accreditation, the Kosovo General Accreditation Directorate
(KAD) has been transformed into an agency. The assessment of KAD carried out by
the European Cooperation for Accreditation in 2012 identified a number of
non-conformity issues that have now been addressed. There has not yet been a
full evaluation of KAD. Four inspection bodies, 22 testing laboratories and one
calibration laboratory have been accredited by the Directorate of Accreditation
of Kosovo. One accreditation was withdrawn in the reporting period due to
non-conformity. Fees for accreditation go into the general budget and are not
directly channelled into KAD’s budget.

On metrology,
the laboratories on mass, flow and volume, electrical measurement, precious
metals, and thermometry are operational. The Agency of Metrology has improved
its capacity to fulfil its supervision functions. The laboratories on time and
frequency, as well as length and force, are only partially operational. In
general, the level of operational capacity of laboratories needs to be raised
to meet the necessary qualitative standards.

In
relation to market surveillance, two administrative instructions have
been adopted and a significant number of inspections have been undertaken by
market inspectorates. Several thousand goods (including toys, electrical and
mechanical equipment and sports equipment) were seized due to their
non-compliance with safety requirements.

Communication
and coordination mechanisms between authorities responsible for market
surveillance in Kosovo need to be improved and the procedures concerning
enforcement need clarification. The establishment of the National Inspection
Council has been postponed.

With regard to consumer
protection, Kosovo has enacted implementing provisions on labelling,
presentation and advertising of food products to implement the law passed in
2012. The Consumer Protection Council, composed of representatives of the
government, the private sector and civil society organisations, has been
established and meets once a month. It is responsible for designing
and monitoring the implementation of the National Programme for Consumer
Protection and advises on issues concerning market surveillance. A
number of awareness-raising activities were carried out, including broadcasts
on the public TV channel (RTK) and major radio stations. In the reporting
period, 149 complaints have been filed with the Department of Consumer
Protection, of which 99 have been resolved.

Overall,
Kosovo has continued to improve the alignment of its legislation with the acquis
in the area of free movement of goods. Its administrative capacity has also
improved, notably through the reorganisation of the MTI. Further efforts are
needed to strengthen administrative capacity to ensure enforcement of
legislation, and to provide valuable services to industry. Coordination between
ministries and various agencies needs to be improved.

4.1.2.
Movement of persons, services and right of
establishment

On movement
of persons, Kosovo concluded an agreement with Montenegro on insurance
periods for entitlement to benefit from pension rights.

As
regards the freedom to provide services, in November 2013 the Assembly
adopted a law on licences and the permit system, establishing general rules on
issuing and certifying permits and professional licensing. The database on trade
of services established at MTI has been improved. A horizontal law on services
still needs to be adopted and further efforts are required to ensure that
sectoral legislation does not encroach on the acquis in the area of free
movement of services.

On postal
services, the Regulatory Authority of Electronic and Postal Communications
has approved the pricelist for the universal postal services for both the
Kosovo and international market. Two operators for postal services were
licensed in 2014.

Regarding
the mutual recognition of professional qualifications, only four
professions (accountants, architects engineers and lawyers) are currently
regulated by law. Foreign professional qualifications are recognised as long as
they are certified by an authority accredited in the country of origin.
Alignment with the acquis in the area of recognition of professional
qualifications and professional training programmes is at an early stage.

In
the area of financial services, the Law on Securities was adopted.
Kosovo still has to align its legislation with the current rules on insurance
and occupational pensions (Solvency I). The central bank has continued its
review of existing legislation, including an assessment of compliance with the
Basel II and III requirements. The market for financial services is at an early
stage of development.

On company
law, in December 2013, Kosovo adopted a law on foreign investment
establishing equal treatment between foreign and local investors and no
discrimination towards foreign investors on the basis of citizenship, origin,
residency, and place of establishment of business or control. Business
registration has been simplified further. The legal framework for corporate
accounting and auditing is weak; this affects the
capacity of companies to obtain loans, and slows down the development of a
financial market. Kosovo needs to align the requirements concerning accounting
and reporting with international standards.

Overall,
there has been mixed progress in this area. Alignment with European standards
in the area of movement of persons, services and right of establishment as well
as company law remains at an early stage. Kosovo needs to focus on the gap
analysis and alignment of Kosovo legislation with the EU acquis, in
particular in the area of free movement of services. Kosovo needs to adopt and
enforce legislation on corporate reporting, accounting and auditing. This would
contribute to its economic growth.

4.1.3.
Free movement of capital

Movements
of capital are largely liberalised in Kosovo. Regulations on
supervision of micro-finance institutions were adopted in September 2013. These
address loopholes in the legislative framework. The number of foreign-owned
banks in the Kosovo banking market has stayed the same, with nine foreign banks
controlling almost 90 % of Kosovo’s banking sector. As for the acquisition
of real estate, including the purchase of land, by non-Kosovo citizens, the
constitutional legal framework enables foreigners to purchase real estate.
However, provisions in sectoral laws and administrative practices prevent them
from exercising this right. The identification of these obstacles by Kosovo is
ongoing and their removal would help increase foreign investment.

Regarding
the payments system, two regulations, on clearing and settlements of
accounts, and on direct debit schemes’ electronic interbank clearing system,
were approved to implement the law adopted in April 2013. Further efforts are
required to continue alignment with the acquis in the area of payment
services. SWIFT assigned a country code to Kosovo in June 2013, and the Central
Bank of Kosovo was connected to SWIFT in December 2013. In August, Kosovo was
assigned the IBAN format registration numbers.

As
regards the fight against money laundering and
terrorism financing limited progress has been made. In general,
legislative and operational structures are in place but tangible results in in
the fight against economic and financial crimes are lacking.

Overall,
some progress took place, in particular concerning micro-finance institutions.
Capital movements remain largely free, there are no restrictions regarding
foreign ownership or investment in the financial sector, and the capacity of
the central bank to supervise the sector is adequate. However, provisions in
administrative acts, implementing acts and administrative procedures prevent
foreigners from purchasing real estate. Kosovo needs to identify these
obstacles and start removing them.

4.1.4.
Customs and taxation

Concerning
customs, Kosovo adopted legislation on customs relief and offence
procedures. The administration continued to improve its administrative and
organisational capacity. The customs and the tax administration merged their
investigation departments. Controls within the new organisational structure
were streamlined in January to prevent corruption and to facilitate trade. This
new approach resulted in the collection of an additional € 18 million
compared to the first three months of 2013, despite reduced rates and less
trade. The relationship between customs, other rule of law institutions and the
business community has been strengthened.

Between 1 January
and 31 July 2014, Kosovo Customs opened 18 new internal investigation cases
affecting 50 staff members. The customs declaration processing system (ASYCUDA)
is fully operational and supports paperless customs
declarations, simplified procedures and transit
operations, also at border/boundary crossing points in northern Kosovo. However, registration of traders with the
relevant Kosovo institutions in the north remains low. Kosovo and Albania
agreed to take joint action to fight illegal trade and facilitate legitimate
trade. As of December, the Systematic Electronic Exchange of pre-arrival Data
(SEED) between Kosovo customs and Serbian customs became operational. However,
there are still inconsistencies between the Customs and Excise Code and the
Criminal Code which hinders the fight against customs crime. The administrative
border/boundary line between Kosovo and Serbia remains vulnerable to illicit
activities, including smuggling, particularly in the north of Kosovo.

In the field of taxation,
a strategy for preventing and combating the informal economy, money laundering
and financing of terrorism 2014-18 and its action plan were adopted in January.
Regarding administrative and operational capacity, the tax administration has
strengthened its human, administrative and IT capacity. Electronic services
have been further developed, including submission of electronic filling for tax
returns, electronic tax verification and tax payments and Business Registration
Centres (one-stop-shop). In all, 19 070 businesses have been equipped with
fiscal cashiers/devices. However, as the informal economy is estimated to
represent 30 to 35 % of GDP, the tax administration needs to modernise its
IT platform and its procedures to improve efficiency.

VAT represents
nearly 49 % and corporate
tax 22 % of tax revenues. The
total tax income raised by the tax administration was 4 % of GDP for 2013.
A detailed risk response plan for 2014, aiming to increase the proportion of
direct tax revenues, was adopted in December. Although the collection of direct taxes has increased, it is still not
sustainable and in 2013, tax arrears remained too high, at more than € 279
million, which is 54 % of total revenues collected. Tax collection in
northern Kosovo takes place on a voluntary basis. Training courses have been
provided both in-house and to employees of other Kosovo institutions and
agencies. In December, the mandate of the Independent Review Board was extended
for a year, with the aim to address the backlog of administrative appeal
procedures.

Overall,
there has been limited progress in customs and taxation. Kosovo
customs legislation is largely compliant with the EU’s Customs
Code. However, discrepancies between the Customs and Excise Code and the
Criminal Code need to be urgently addressed. The fight against the informal
economy and tax evasion needs to be given priority and its efficiency
significantly increased, including in the north of Kosovo. The tax
administration needs a new IT platform to improve its performance. The customs
and tax authority should take steps to prevent any undue political influence
over their institutions.

4.1.5.
Competition

Regarding
anti-trust and mergers, the Law on the Protection of Competition was
amended in February so as to further align Kosovo legislation with the EU acquis.
The provisions on mergers and acquisitions, the definition of abuse of dominant
position and the scope for block exemption were amended.

The
Kosovo Competition Authority (KCA) was reorganised and includes a decision-making
body, the Competition Commission, and its Secretariat, the administrative and
investigation body. In 2013, the KCA carried out investigations on agreements
and suspected abuse of dominant position in various fields, including
interurban transport ticket prices, the cement market and broadcasting. Two
decisions of the KCA were appealed before the basic court in Pristina, in cases
concerning the insurance sector and the fiscal cashiers sector. The court
upheld the KCA decisions and imposed a € 1.2 million fine on the companies
involved.

The
Competition Commission has not been operational since November 2013 due to
delays in the appointment of four out of five members whose mandate had come to
an end. In the absence of a quorum (at least three members) of the Competition
Commission, the KCA has not been able to fulfil its mandate. The KCA is
inadequately staffed and most of the positions in the organigramme are yet to
be filled. Staff lack appropriate training, particularly in market
investigation. The KCA is still hosted in the premises of the Assembly, which
puts serious constraints on its activities. In addition to fulfilling its
essential needs, the KCA also needs adequate internal control systems and
information systems to provide quality information to support management
decision-making and to ensure that information is classified, recorded,
maintained and reported in compliance with legal requirements.

The
Law on State Aid adopted in early 2013 requires further amendments to
bring it in line with European standards, in particular to ensure the
independence of the State Aid Commission. The State Aid Commission has not
reviewed any request regarding state aid, although its members have been
appointed. The State Aid Office, currently established as a department of the
KCA, is understaffed. Appointments have yet to be made, and officials lack
proper premises. As a consequence, the Office does not have the capacity to
screen existing aid schemes. It still does not receive information on aid
schemes granted by other central or local administrations in a systematic way.

Overall,
there has been very limited progress in the area of competition. The
implementation of anti-trust and mergers policy remains at an early stage and
is weaker than in previous years. The Kosovo Competition Authority faces
substantial challenges in terms of investigative and decision-making capacity.
Similarly, state aid policy remains at a very early stage and there is no track
record of implementation. These gaps are a cause for concern. In
view of a future Stabilisation and Association Agreement, substantial efforts
are needed in these areas. Issues related to staffing, facilities and training
need to be addressed as a matter of priority.

4.1.6.
Public procurement

In
March 2013, the Assembly amended the law governing public procurement. The new
law deviates from the acquis by establishing a preference of 10 points
to domestic bidders in tenders where the criterion of most economically
advantageous tender applies, and a preference of 15 % to domestic bidders
in tenders where the criterion of the lowest offered price applies. The
implementing provisions of these amendments are still due.

During
the reporting period, some 12 500 contracts were awarded. Of these, almost
90 % were attributed under the open procedure. The Procurement Review
Board (PRB) was not operational from August 2013 to March 2014, when the
Assembly appointed the board’s new members. The Assembly disregarded the
recommendation of the Independent Selection Board, which had concerns regarding
some of the appointees, including an ongoing corruption investigation.
Meanwhile, the suspension of PRB operations has created considerable delays and
backlogs in processing complaints. Out of 279 complaints economic
operators filed with the PRB while its operations were suspended, only 24 were
reviewed (just over 8 %), while the remaining 255 were dismissed, as the
deadline for their processing had expired. These cases can now only be
addressed by ordinary courts, which also face delays in adjudicating cases. The
quality and transparency of the PRB’s decisions remains questionable.

Since
resuming its operations the PRB received 320 appeals, of which 246 were already
processed. Of these, 74 cases were returned for re-evaluation, whereas in 52
cases, the review panel decided to annul the whole tender process.
Irregularities in tender dossiers and in evaluations confirm that unclear
technical specifications and skewed award criteria continue to be an issue of
concern. More than three years after the establishment of the Central
Procurement Agency (CPA), the Ministry of Finance has still not adopted the
list of common items to be procured, preventing the CPA from fulfilling its
core mandate. The Director of the Agency was appointed in June 2014. The Public
Procurement Regulatory Commission’s 2013 annual report was approved by the
Assembly in April. 5 517 notifications for award of contract were
published since October 2013. There are 173 contracting authorities in Kosovo.
The training system needs to be improved to enable all procurement officials to
benefit from capacity building activities. In
May 2013, the Public Procurement Regulatory Commission
began with the ex-ante monitoring of contract notices. 289 notices have been
checked since the practice was introduced.

Overall,
there has been very limited progress on public procurement. The legal framework
has diverged from EU standards with the introduction of new discriminatory
provisions for foreign bidders. The existence of many entities involved in procurement
represents a risk of corruption. Accountability and transparency needs to be
improved and corruption needs to be effectively addressed. The capacity of all
bodies involved in the procurement system needs to be strengthened. The remedy
system has been dysfunctional and the appointment procedure for Procurement
Review Board members raised serious concerns. Failure to process complaints
filed during the suspension of the board has adversely affected the credibility
of the procurement system.

4.1.7.
Intellectual property law

On copyright
and neighbouring rights, the Law on Copyright was amended and
aligned further with the acquis. However, it still requires implementing
provisions on private copy schemes and digital piracy. The task force
established by the government in 2013 has delivered awareness-raising
activities and seized several thousand counterfeited goods. The Office for
Copyright and Related Rights is adequately staffed and trained to carry out its
mandate. There are two collecting societies. Negotiations on fees with
broadcasters did not lead to an agreement, despite the involvement of
mediators.

With
regard to industrial property rights, amendments concerning patents,
industrial designs and trademarks were adopted and aligned further with the acquis.
The legislative framework for geographical indications is overall in place and
the Agency
for Industrial Property received its first applications. The
Industrial Property Agency has now more staff, including a new director, but
they still require adequate training to perform tasks effectively and handle
the current backlog of applications. The National Intellectual Property Council
was convened in March, more than a year since its last meeting.

With
regard to enforcement, a special chamber within the commercial
department of the basic court of Pristina is in charge of dealing with
intellectual property rights cases. Kosovo customs
have carried out operations against goods violating intellectual property
rights, both in response to requests by rights holders and ex officio.
The market inspectorate has also initiated proceedings before the competent
court. The police do not have a unit specialised in intellectual property
rights and its expertise in this field is limited. Legislation needs to be
aligned with the new EU regulation on confiscation, storing and destruction of
goods.

Overall, the
legislative framework is partially aligned with the acquis and further
action is needed to approximate legislation with the latest developments in
this sector. Kosovo needs to focus on increasing human resources in
intellectual property law and improving their expertise, as well as on
coordination between enforcement authorities to fulfil obligations stemming
from the future SAA.

4.1.8.
Employment and social policies, public health
policy

As
regards employment policy, the employment sector strategy
2014-2020 and its action plan need to be adopted.

According to the
latest Labour Force Survey (LFS), Kosovo continues to face an unemployment rate
of around 30 %, very low labour market participation and employment rates,
especially among women (around 20 % and 13 % respectively). Nearly 70 %
of the unemployed are long-term unemployed. The unemployment rate among young
people aged 15-24 was about 56 %. The number of
unemployed registered at the Ministry of Labour and Social Welfare remained
unchanged at around 270 000 in the first half of 2014, a
number substantially higher than that measured by the LFS. The number of
unemployed university graduates remains high, representing 2.4 % of the
total number of registered jobseekers, pointing to a substantial skills
mismatch. The Public Employment Service helped to find 4 729 jobs for
jobseekers, out of which 1 590 went to women. The number of people trained
by the employment service during this period was 2 093, of whom 945 (or 45 %)
were women. Compared to the previous year, there has been a slight decrease in
training due to a lack of financial support to promote employment. The Law
Establishing the Employment Agency was adopted. Funds have yet to be committed
for its implementation, which is expected to start in 2015.

The Public
Employment Service continued its reforms throughout 2013. The employment
management information system is now complete and operational in all employment
offices. The system is also integrated into the Kosovo Tax Administration.
This allows for improved monitoring of people’s labour market status,
administration of social assistance payments and positioning of those in need
in the relevant schemes.

Kosovo needs to
step up efforts to activate jobseekers through active labour market measures to
reduce structural unemployment. The budget for expanding active labour market
measures remains low and is insufficient to address needs effectively.

On social
policies, implementation of the Law on Labour remains unsatisfactory. The
law needs to be amended, notably with regard to working contracts, maternity
leave, medical leave and inspectorate oversight. Effective implementation of
the Law on Health and Safety at the Workplace is necessary to prevent numerous
deaths and injuries in the workplace. In 2013, 54 workplace accidents were
reported, of which 17 were fatal. The Labour Inspectorate needs to reduce the
informal part of the construction sector more efficiently.

The number of
labour inspectors remains too low. Only 50 inspectors cover implementation of
the laws on labour and on health and safety at work. The labour inspectorate
needs to be further strengthened in terms of training, staffing and additional
equipment.

On social
dialogue, the government and the Social and Economic Council (SEC) have
signed the General Collective Agreement of Kosovo, which lays down rights and
obligations of employers and employees. No concrete plans or timelines for its
implementation are included. The representation of employees within the SEC
does not have the support of the majority of trade unions. Election and
membership criteria need to be modified and the capacity and the functioning of
the SEC need strengthening to improve the quality of the social dialogue.

As regards social
inclusion, Kosovo needs to give greater priority to active labour market
measures targeting those from the most vulnerable groups, including to measures
connected to the decentralisation of social services. Regular monitoring of the
quality and impact of such measures is needed.

On social
protection, licencing of individual social and family service
providers have continued and preparations for licensing of legal
subjects/organisations have started. The Law on Pension Schemes funded by the
State was adopted. Social protection schemes have limited impact on
poverty reduction due to budgetary constraints. The
decentralisation of social services is still not fully or effectively
implemented by the municipalities, and the budget formula for decentralisation
developed in 2012 is not yet operational. Dedicated grants earmarked for all
social services in municipal budgets need to be allocated to ensure means for
effective decentralisation of social services. Better inter-ministerial coordination
of actions and allocation of resources is required to provide effective social
services.

On equal
opportunities, maternity leave provisions in the Labour Law need to
be enforced to eliminate discrimination of women at the workplace. This is considered
as having a negative impact on the employment of women, especially in the
private sector. The Agency for Gender Equality needs to produce a report on the
implementation of the programme on gender equality (2008-13) before drafting a
new programme for 2014 and beyond. The Law on Gender Equality needs to be
amended and adopted as part of the so-called human rights law package. (See
also 2.2 — Human rights and protection of minorities)

On public
health policy, the health sector strategy 2014-2020 and the Law on Health
Insurance were adopted. Administrative instructions on health data, health
professionals, licensing, marketing and medical treatment were issued. The
Chamber of Health Professionals was established. The Health Information System
has been further deployed. Public health spending remains among the lowest in
the region. This hinders implementation and enforcement of sector reforms and
policies. Out-of-pocket payments continue to impede access to healthcare for
all. Child mortality remains among the highest in Europe. Kosovo is not a
member of the South-Eastern European Health Network.

The
legislation on tobacco control is enforced by means of inspections. The communicable
diseases system, infrastructure and reporting need to be further developed.
The reported prevalence of HIV/AIDS remains a concern, due to the lack of
reliable data. On blood, tissues, cells and organs, the Law on
Transplantation of Tissues and Cells was adopted. On patients’ rights
in cross-border healthcare, initial activities need to be further
developed. On pharmaceuticals, amendments to the Law on Medical
Products and Devices were adopted. The supply of pharmaceuticals to
secondary and tertiary levels is now decentralised.

On mental
health, the Forensic Psychiatry Institute is now under the Ministry of
Health. Mental health services and community-based mental health care based on
EU guidelines and best practices need to be improved. On drug abuse
prevention, an addiction treatment service and methadone therapy services
were established in five hospitals and two prisons. Kosovo cooperates with the
European Monitoring Centre for Drugs and Drugs Addiction. House-to-house
vaccination campaigns, treatment for lead contamination and information
campaigns are used to address health inequalities for Roma, Ashkali and
Egyptians. On nutrition, primary and mother and child healthcare needs
to be further developed. On cancer screenings, initial activities
need to be further developed. The rare diseases action plan
2013-15 needs to be further implemented.

Overall, there
has been some progress in the area of employment, social and health policies.
Preparations are at an early stage and employment and social challenges remain
considerable. Kosovo needs to implement and enforce the Law on Labour. Kosovo
needs to adopt an employment sector strategy (2014-2020). Implementation of
inspection legislation needs to be further developed. The social protection
system is still underdeveloped. In the area of public health, the
health sector action plan implementing the strategy needs to be adopted.

4.1.9.
Education and research

The
Ministry of Education, Science and Technology (MEST) set out education
policy priorities for 2014-2015 and complemented the legal framework for the
implementation of performance assessment of teachers to support the process of
teachers’ licensing. Implementation of the Kosovo curriculum framework and core
curriculum continued in 2013 in ten pilot schools with the aim of adding
another 84 pilot schools.

Only 3 % of
children attend preschool education services. Education and training programmes
(for both pre-university and university level education) need to improve
support for applied and practical work, to complement theoretical teaching and
learning practices. The government has taken actions to
prevent dropping out of school, including workshops with parents, students and
the community at large, but further efforts are needed. Students from minority
communities have received targeted financial support. However, children from
Roma, Ashkali and Egyptian communities and children with
disabilities continue to face limited access to quality education.

Little progress
has been made in developing a clear strategic plan for higher education
institutions in Kosovo. Contested academic credentials led to protests and the
resignation of the University Rectorate. Improved transparency of the
University recruitment procedures of academic staff is required. In addition,
the quality of higher education and its relevance to the labour market need to
be greatly improved. Accuracy and availability of data in the education sector
remains a serious challenge.

The government
adopted a Law on Vocational Education and Training (VET). The current VET
system does not properly meet the labour market needs in Kosovo. An action plan
and framework for quality assurance for monitoring the quality of vocational
education and training schools has been developed. The National Qualifications
Authority set up procedures for validation and accreditation of vocational
training programmes and made progress comparing and approximating the
National Qualifications Framework with the European Qualifications Framework
during the first half of 2014. The Agency for Vocational Education
and Training and Adult Education for technical support became operational
during the spring of 2014.

As a result of
the dialogue agreement on university diplomas, graduates from Kosovo and
Serbian universities can have their higher education diplomas certified by the
European University Association. Kosovo participates actively in the Western
Balkans Platform on Education and Training.

The Youth in
Action programme continued involving young people from Kosovo in international
youth activities such as youth exchanges and the European Voluntary Service and
offered youth workers the opportunity to cooperate within training and
networking activities.

Kosovo has taken
limited action to strengthen research and innovation capacity. The
budget for research remains too limited to create competitiveness and implementation
suffers from budgetary constraints and administrative capacity needs to be
strengthened. A strategy for innovation was designed, but has yet to be
adopted. Kosovo’s participation in the EU framework programme for research
(FP7) has continued to stagnate. Linkages between research and businesses are
very weak. In November 2013, Kosovo organised a successful event in Pristina on
the new EU research and Innovation Programme Horizon 2020 and has expressed
interest in becoming associated. Research and innovation entities from Kosovo
are eligible for participation and funding as a third country. The list of
Horizon 2020 National Contact Points has been notified, indicating increased
administrative capacity. Kosovo also attended the regional Horizon 2020 launch
event in March in Budva (Montenegro). Kosovo has been active in cooperating at
regional level and co-signed the Western Balkans Regional R&D Strategy for
Innovation adopted in October 2013.

Overall,
progress in the area of education has been slow. More efforts are needed to
improve access to quality education for marginalised groups, including for
children with disabilities and children from Roma, Ashkali and Egyptian
communities. The labour market relevance and the quality of education need to
be greatly improved. More efforts are needed to strengthen Kosovo’s research
and innovation capacity through boosting investment in the sector and by taking
action to facilitate the integration of Kosovo into the European Research Area
and its contribution to the Innovation Union.

4.1.10.
WTO issues

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

4.2.
Sectoral policies
4.2.1.
Industry and SMEs

As regards industrial policy and SMEs,
Kosovo has continued to simplify its legislation. In January 2014, a new Law on
Foreign Investment entered into force. Certain aspects of the business environment have been improving
over the past few years, in particular procedures to establish new companies.
Online company registration is possible at 28 one-stop shops. Full online
company registration has not yet been established.

Implementation of
the Small Business Act needs to be prioritised. This implementation is still in
an early phase. The implementation of the private sector development strategy
(2013–17) and its action plan (2013–15) needs to be ensured and monitored.
Consultation of the business community during the drafting of laws, strategies
and impact assessments is essential. The Investment Promotion Agency of Kosovo
and the Small and Medium Enterprise Agency were merged into the Kosovo
Investment and Enterprise Support Agency. The business environment in Kosovo
remains challenging. The main obstacles to SME development and further growth are access to finance, weak legal
enforcement of contracts and business regulation, weak competition and weak
judiciary, as well as the large informal economy and corruption.

Overall,
limited progress was made on industrial and SME policy. To improve the business
environment, Kosovo needs to improve conditions for enforcing contracts, reduce
unnecessary administrative barriers, promote the fight against the informal
economy and corruption, and develop a financial market. The government needs to
introduce a regulatory impact assessment. The SME development
strategy and action plan need to be based on clear timelines whose
implementation needs to be ensured and monitored.

4.2.2.
Agriculture and fisheries

Regarding agriculture
and rural development policy, the government has continued with its payment
scheme extending direct payments to some new sectors (poultry, vineyards and
planting material). The volume of direct payments has almost doubled compared
to 2012 and now stands at € 12 million.

Kosovo needs to
systematically implement its own minimum national standards for operators to
benefit from national payment schemes. The management and financial control of
direct payments and rural development measures needs to be strengthened by
upgrading and updating the Farm Register, the Animal Register, and the Vineyard
Register. The Internal Audit Unit urgently needs to be established at the
Agriculture Development Agency.

The new Law on
Spatial Planning is intended to reorganise the system for urban zoning. Rural
land management plans need to be established at municipal level. Coordination
between stakeholders involved in construction permits and zoning needs to be
strengthened to avoid illegal changes of agricultural land use. The
effectiveness of land consolidation, establishing a transparent land market,
enforcing sanctions and preventing illegal construction on agricultural land
still remain obstacles to implementing the Law on Spatial Planning. There are
still discrepancies between Eurostat and Kosovo statistics on agriculture
trade. Further efforts are needed to implement the Law on Organic Production,
and to establish a functioning control authority and a commission on organic
production.

In the forestry
sector, efforts have been made to impose sanctions on illegal logging. However,
the volume of illegal logging is still too high for sustainable forest
management. The institutional model for the sector has not yet been agreed.

As regards
food safety and veterinary control, a package of laws (the
food law, veterinary law, sanitary inspection law and livestock law) has not
been approved. The Food and Veterinary Agency (KVFA) nevertheless adopted
extensive standard operating procedures and guidelines for inspectors.
Implementation and enforcement of existing legislation is not systematic. The
annual control plan has been completed and approved, but the multiannual
control plan for animal disease is still being drafted.

Inspection
competences are still not transferred from municipalities to the KVFA; this
should finally take place by 1 January 2015 after three years of delay. Four
regional KVFA offices are now operational and a further two need to be created.
There have been limited developments to improve and systematise data management
in the database for animal identification, movement, and registration. Kosovo
needs to achieve full registration of slaughtered animals both in
slaughterhouses and on farms, and to clear the database of all dead animals.

Two vehicles
were procured for transferring samples from the border to laboratories. The
main KVFA laboratory has improved its technical capacity and has obtained ISO
certification for a series of tests. It is well equipped, but lacks the budget
for maintenance and supply contracts, as well as for the calibration of
machines.

Illegal trade,
particularly in animals from Serbia, continues to be a problem: 90 % of
the animals quarantined after illegally entering Kosovo came from Serbia. The
EU has funded preparatory work to build a rendering plant to dispose of animal
by-products and will fund its construction over the next few years. Kosovo has
secured the co-funding and it will now have to ensure the accompanying
measures, in particular the network of collection points. The process of
upgrading establishments to EU standards has not yet begun and the upgrade
strategy (including closing down those that are not compliant) has not been
adopted, although Kosovo completed the risk-based assessment of agri-food
establishments in meat processing, dairy, slaughterhouses and cold storage in
2012.

On
phytosanitary controls, the plant protection law was amended, and it
now includes the list of notifiable plant diseases. Implementing this law
remains a challenge. As regards genetically modified organisms (GMOs),
work on a framework law was suspended. In the fisheries sector, most
European standards do not apply to Kosovo, which has no marine fishing.

Overall, Kosovo is still at an early stage of harmonisation with
the acquis in these areas. Kosovo has made steady progress in
developing and extending its own direct payment scheme. The legal framework for
food safety is mainly in place and the institutions concerned work well,
despite very limited resources. Establishing the Internal Audit Unit in Kosovo’s
paying agency and strengthening its management need to be prioritised. Kosovo
needs to enforce its spatial planning rules and prosecute illegal construction
on agricultural land. Kosovo needs to transfer food and veterinary inspection
capacities to the KFVA so as to help systematise entering data into the animal
identification, movement and registration database. It must also secure the
budget for maintenance, supply and calibration at the main laboratory.

4.2.3.
Environment and
climate change

On
environment, the Law on the Inspectorate of Environment, Waters, Nature,
Spatial Planning and Construction was adopted in October 2013. Some
administrative instructions have recently been adopted. The implementation of
legislation to address increasing environmental challenges in Kosovo remains
incomplete.

As regards air
quality, the Air Quality Monitoring System, which now covers the whole of
Kosovo, is fully equipped and includes an advanced analytical laboratory.
However, the monthly air quality reports that the Kosovo Environmental
Protection Agency (KEPA) publishes since March 2014 provide very basic
information on only 10 locations. There is no air polluter’s inventory and
pollution from the main sources needs to be measured accurately (in particular
from the Kosovo A power plant). Lack of maintenance and calibration jeopardises
the accuracy of air quality monitoring.

The Ministry of
Environment is drafting a master plan for waste management and is
considering private sector involvement. The government approved secondary
legislation on the state of the waste catalogue and on the cadastre of
environmental pollutants. The basic waste management concepts and definitions
need to be developed, including recycling and recovery. There are serious
challenges to implement the 2012 law, since the capacity of municipalities,
waste and landfill operators and overall funding for investments is still very
low. There is no appropriate infrastructure for storing or treating hazardous
waste. Therefore, Kosovo either exports its hazardous waste or mixes it with
household waste in landfill sites.

In the area of water,
Kosovo has not established River Basin Authorities or an independent water
management authority (as envisaged in last year’s law). Investment needs in
water security are considerable (leaking pipe losses are estimated at around 75 %
of the water carried). Water utilities are hampered by low collection levels.
The water resource monitoring system is incomplete. Kosovo does not have a
groundwater monitoring system. Most of the surface water measuring stations
(some provided through past EU assistance) no longer function due to stolen and
vandalised equipment. Monitoring of the quality of drinking water has improved
because of increased capacity (also funded by the EU) at the Institute of
Public Health and an administrative instruction to monitor the chemical
parameters of drinking water. However, the institute faces difficulties due to
insufficient funding to operate and maintain the donated equipment.

In the area of nature
protection, two laws on national parks were adopted last year, as well as
administrative instructions and planning documents. The Ministry of Environment
and Spatial Planning began measures to combat illegal construction activities
in the ‘Sharri’ national park. Activities for the establishment of the Natura
2000 network of protected areas have not started. Institutions in this area
remain weak in terms of the numbers and skills of civil servants and state
inspectors for nature protection.

The new
administrative instruction on cadastre of environmental pollutants was adopted
in 2013, marking modest progress in the area of industrial pollution and
risk management. Only one permit has been issued, for the main cement
plant. A law on chemicals was adopted.

Regarding climate
change, the climate change framework strategy, comprising the low emissions
development strategy and adaptation strategy, has not been adopted. As regards
legislative developments, by-laws on substances that deplete the ozone layer
and on fluorinated greenhouse gases, and on consumer information on fuel
economy and CO2 emissions of new passenger cars were adopted.
Priority needs to be given to alignment with the Monitoring Mechanism
Regulation. The national report on greenhouse gases (GHG) is under preparation.
Interinstitutional cooperation between the Ministry of Economic Development,
the Ministry of Infrastructure and the Ministry of Environment and Spatial
Planning needs to be established to enable adoption and implementation of
low-carbon growth policies.

Administrative
capacity
within the environment and climate sectors is weak. KEPA’s capacity needs to be
strengthened to improve, inter alia, the quality of GHG inventory and reports.
The budget of the ministry remains insufficient. Funding for investments, in
particular for sewage systems, wastewater treatment, and waste treatment and
disposal systems, remain outside government expenditure plans. There was no
progress in establishing a mechanism to finance environmental projects, in
particular the operating costs of environment monitoring institutions and
capital investments. An eco tax collected during car registration contributes
to the Kosovo budget and is not allocated to any environmental projects.

Overall, Kosovo
has not progressed beyond the very initial stages of harmonisation with the acquis
in these areas. There has been little progress on new legislation and
implementing existing laws. Environment and climate need to become government
priorities. The quality of environmental reporting needs to improve to better
inform government policies. Kosovo urgently needs to secure financing of monitoring
institutions, particularly to ensure the maintenance of existing air and water
monitoring networks, and to establish a system for GHG monitoring and
reporting. Kosovo needs to adopt a climate strategy and action plan, in line
with the expected EU 2030 policy framework on climate and energy.

4.2.4.
Transport policy

Regarding
trans-European transport networks, Kosovo has continued to participate
actively in implementing the 2004 memorandum of understanding on the
development of the South-East Europe Core Regional Transport Network and in the
South-East Europe Transport Observatory. Kosovo should focus on the development
and prioritisation of projects on the routes defined in the indicative
extension of the TEN-T to the Western Balkans region. Segments 1 to 9 of the
Morine-Merdare highway (Route 7) were inaugurated in November. Financing for
the last segment up to Merdare has yet to be secured. A € 600 million
contract to construct the Pristina-Skopje highway (Route 6) was signed in July.
The new terminal at Pristina airport was inaugurated in October 2013.

The maintenance
budget for national roads rose by 12 % in 2014, but it is still
insufficient to ensure routine and periodic maintenance. The current transport
strategy is heavily skewed towards road transport, favouring a less
environmental friendly mode, to the detriment of railways. There are plans to
increase investment in railway infrastructure (€ 10 million a year for
2014-16) but this is still below the level needed. The revised multi-modal
transport strategy (2012-21) and action plan have still not been approved.

On road
transport, the road safety strategy and its action plan need to be approved.
The Law on Road Safety needs to be harmonised with the acquis. Kosovo
needs to align with legislation on market access and the profession of road
transport operator, and digital tachographs. The rate of traffic accidents
remains high, particularly as regards child and pedestrian fatalities. Limited
inspection capabilities, outdated vehicles, and the low quality of
infrastructure outside the main roads hamper the enforcement of legislation.

In rail
transport, the Rail Regulatory Authority (RRA) is now operational, but
lacks technical capacity as well as the independence required for the licensing
process and market regulation. Several RRA board members have yet to be
appointed. The regulator licensed a new entrant in March, but revoked the
licence shortly under pressure from the incumbent operator. A railway safety
and accident investigation body was set up in the Prime Minister’s Office, but
it is not yet operational due to lack of staff. Kosovo railways continue to be
affected by a serious lack of human and financial resources.

In air
transport, the implementation of the first-phase requirements of the
European Common Aviation Area Agreement into national legislation is nearly
complete, with nearly all legal acts still to be transposed. The Kosovo Civil
Aviation Authority is still not part of the Safety Assessment of Foreign
Aircraft programme. In March, the Assembly adopted the Law on the Air
Navigation Services Agency, establishing the criteria for recruiting its
members. Implementing legislation needs to be adopted to ensure the
professionalism of air navigation and safety services. The air navigation
service provider still needs to be certified. Kosovo’s aviation sector
continues to suffer from restrictions imposed by Serbia for flights coming in
and out of Pristina. Control of the upper airspace of Kosovo was assigned to
Hungarocontrol, and in April 2014 this airspace was reopened.

There was no
progress regarding intermodal transport. Kosovo needs to develop a
balanced intermodal environmentally-friendly and competitive transport and
mobility system.

Overall,
little progress has been made in the transport sector. Kosovo is still at an
early stage of harmonisation with the acquis. Kosovo still cannot join
many of the international or European bodies regulating transport or the
relevant sector associations. The regulatory institutions need to be more
independent and to be further strengthened. Further efforts to improve road
safety are required. Efforts to alignment with the transport acquis need
to be stepped up, especially in road transport. The decision to revoke a rail
licence already given was a regression in Kosovo’s alignment with EU standards
in railways.

4.2.5.
Energy

The energy
sector continues to face problems, even if some progress has been made, especially
in relations with Serbia. Power stability is almost constant and cuts are now
infrequent. Helped by a clement winter, fuel/oil imports dropped to 11.4 %
of supplied demand. Following the privatisation of the electricity distribution
and supply functions, information on billing collection is not publicly
available. Neither the government’s energy strategy 2013-22 nor the
accompanying action plan 2014-16 were approved by the Assembly.

On security
of supply, investment and maintenance continue to improve the reliability
of the power transmission system and to reduce transmission losses.
Distribution network losses have also decreased, but they still remain high at
nearly 31 %. Kosovo has no legal framework to harmonise with the acquis
on mandatory oil stocks. An obligatory oil reserves division was
established within the Department of State Reserves. Current stocks are
estimated to correspond to a mere four days of consumption. In July, the Energy
Community Secretariat initiated a dispute settlement procedure against Kosovo
for levying customs duties on petroleum product imports. Kosovo has contributed
to the energy security stress test carried out by the European Commission in
the framework of the European Energy Security Strategy.

Following
last September’s dialogue agreement on energy, Kosovo’s transmission system
operator (TSO) KOSTT and its Serbian counterpart, Elektromreza Srbije,
signed a framework agreement in February. An inter-TSO agreement was signed on
15 September representing a significant step in normalising energy relations
between Kosovo and Serbia.

As
regards the internal energy market, the tender for a new lignite power
plant reached a critical point when the call for proposals was issued in April
2014. In October 2013, the government adopted a decision to dismantle three
facilities (heating, chemical and gasification plants) at the Kosovo A power
plant. Preparations for decommissioning are suffering significant delays. The
three Kosovo A working groups do not have the technical capacity to prepare
detailed plans. Kosovo is highly unlikely to meet its obligations under the
Energy Community Treaty to implement the large combustion plant directive, and
has not prepared the national emissions plan as required by this directive. In
June, an explosion at the hydrogen laboratory at Kosovo A killed two workers.
Two of the three units are still out of operation, contributing significantly
to a major energy gap.

Account
unbundling between categories of customers has not been implemented, and legal
unbundling between electricity distribution and public supply is still pending.
Very little progress has been made on market opening and on enabling household
customers to select the supplier of their choice by 1 January 2015. The Energy
Regulatory Office (ERO) concluded the 2014 tariff review process only in July,
with a 4.75 % electricity tariff increase. A further 5.18 % increase,
to cover electricity imports and the repair costs of Kosovo A, was introduced
from 1 September. ERO’s independence continues to be undermined by government
intervention and interference in ERO’s budgetary process, and a failure to
appoint members to the ERO board. The government has not designed a mechanism
to support vulnerable customers.

The
existing renewable energy policy framework has yet to produce
significant results. The regulatory office authorised three 30 MW in hydropower
projects and one 0.9 MW wind-powered electricity plant, none of which are
producing power. Heavy authorising and licensing procedures continue to jeopardise
Kosovo reaching its Energy Community target of producing 25 %
of its energy from renewable sources by 2020. Kosovo
still needs to transpose the 2009 renewables directive, and to create a
mechanism to monitor
progress in reaching its 2020 targets. In November, Kosovo adopted a national
renewable energy action plan 2011-20. There are no developments in meeting EU
requirements for the use of biofuels in transport. Kosovo has yet to
establish a certification scheme and a certification body.

The
Law on energy efficiency needs to be revised to align with the latest EU
acquis. The government approved a mid-term energy efficiency plan
2013-15 targeting a 3 % saving. The implementation of the energy
performance of buildings directive remains a challenge due to poor cooperation
on construction standards between the Ministries of Economic Development, and
Environment and Spatial Planning. There are still barriers to financing energy
efficiency investments, despite the involvement of international financial
institutions. Kosovo has still not established its own national energy
efficiency fund. The combined heat and power project at the Kosovo B power
plant is progressing. Lack of energy efficiency statistics continues to be an
obstacle to reporting on energy savings. There has been progress in municipal
energy efficiency planning, but local capacity needs strengthening.

In nuclear
safety and radiation protection, the planned new law has not been adopted.
The regulatory agency has increased staff numbers. Its licensing and
inspections capacity remains limited. There is no radiation monitoring and no
radiological emergency plan. Kosovo has not chosen a site to store radioactive
waste, despite receiving EU assistance for this.

Overall, there
was very little progress in alignment and Kosovo is still at a preliminary
stage of harmonisation with the acquis in this area. Kosovo needs to
start implementing the acquis on security of supply. Kosovo needs to
continue its alignment with and implementation of the electricity, oil and
nuclear safety and radiation protection acquis. It needs to step up
efforts to implement its own energy efficiency and renewable energy plans and
targets. Kosovo needs to strengthen its institutional capacity in the field of
energy market regulation and nuclear safety, in particular safeguarding the
energy regulator’s independence and establishing transparent mechanisms to set
energy prices.

4.2.6.
Information society and media

Regarding
electronic communications and information and communication technologies,
the regulation on the general authorisation regime was adopted in April.
Kosovo is making progress in using the excess capacity of existing
communication infrastructure of public service operators (railways, energy
operators and road infrastructure) for electronic communications. The regulator
allowed 3G/LTE technologies to be deployed by the existing operators in
December, and the incumbent operator announced the start of 3G/LTE services in
September and 4G in December 2014. At the end of 2013, the privatisation of 75 %
of the shares of the incumbent, Post and Telecommunications of Kosovo,
collapsed, due to a failure to muster a parliamentary majority to sign the
contract. The penetration rate of fixed telephony remains the lowest in the
region, and it decreased to 4.16 % during the first quarter of 2014 (down
12 % compared to the same period in 2013). The fixed broadband penetration
rate increased slightly to above 8 %.

The
first auction for broadband wireless access spectrum was completed in December.
Kosovo is implementing agreements with its neighbours to harmonise radio
frequencies in cross-border areas. The regulator continues to deal with
complaints on electronic communication services, and has imposed economic
sanctions in four cases. The regulator has not seen any improvements in its
financial and organisational independence, and experienced a 15 % cut in
budget (in line with a general government decision to compensate the increase
in public sector salaries with cuts in all budgetary organisations). Progress
in implementing competitive safeguards remains slow.

Kosovo
still does not have its own country code and continues to use three different
codes for fixed and mobile telephony. Last year’s agreement between Kosovo and
Serbia on telecoms, which envisaged that Kosovo will be allocated a three-digit
dial code from the International Telecommunications Union (ITU), has yet to be
implemented as Kosovo does not agree with the modalities of the allocation of
this code by the ITU.

On information
society services, the Information Society Agency is still being
consolidated. Open governance and online citizen participation is promoted
through the project ‘Today I Decide’. Kosovo is not able to produce
Eurostat-compatible information and communication technology statistics.

On audiovisual
policy, the Independent Media Commission (IMC) has not adopted a strategy
for digitalisation. The IMC’s lack of activity was partly caused by a failure
to appoint members of its Council. Kosovo needs to step up efforts to prepare for
the digital switchover process in 2015, including adopting the legislation and
making technical preparations. Since Kosovo is not a member of the ITU, its
frequencies are under the authority of Serbia. The public service broadcaster,
RTK, remains dependent on state financing from the Kosovo budget, which
undermines its editorial independence. Kosovo has still not found a way to
ensure RTK’s financial independence. The RTK Board is now complete, although
political preferences were the main criteria during the Assembly’s selection
process.

Overall,
Kosovo needs to continue efforts to complete the legal framework in this area.
It is still at a very early stage of harmonisation with the information society
and media acquis. Regulatory bodies need to be strengthened. The
independence and capacity of both the telecoms regulator and the media
regulator have been challenged by political interference and lack of resources.
In addition, the Independent Media Commission needs to demonstrate it can carry
out its tasks. As
a matter of urgency, Kosovo needs to implement the digital switchover and to
develop a solution for sustainable funding of the public service broadcaster.

4.2.7.
Financial control

On public
internal financial control, in line with the Law on Public Finance Management
and Accountability, Kosovo has merged the two Central Harmonisation Units (CHU)
in the Ministry of Finance, (the CHU for financial management and control and
the CHU for internal audit) into one unit. To improve annual reporting on the
functioning of financial management systems, the CHU issued a new
self-assessment checklist, which was completed and returned by 58 out of 96
budgetary institutions in 2013. In 2014 some 60 internal auditors were
certified.

On external
audit, the National Audit Office plays an important role in the oversight
of public spending and improving public financial management and good
governance. In April, a new law on the Auditor General and the National Audit
Office, aiming to improve the functional, financial and operational
independence in line with the standards of the International Organisation of
Supreme Audit Institutions (INTOSAI), was not adopted by the Assembly, but sent
back for review. The law would also have paved the way for the appointment of a
new Auditor General. The mandate of the previous Auditor General expired in
August.

Overall,
some progress has been made in implementing the legal framework for public
internal financial control. Substantial efforts are still required to implement
managerial accountability and decentralised internal audit. The capacity of the
Central Harmonisation Unit needs to be strengthened. Kosovo should ensure swift
adoption of an INTOSAI-compliant law on the National Audit Office and the
appointment of an Auditor General. Preparations are at an early stage in the
areas of public internal financial control and external audit and have yet to
be started in the area of protection of the EU’s financial interests.

4.2.8.
Statistics

On statistical
infrastructure, the restructuring of the statistical agency is on track. In
March 2014, the report on the 2013 annual plan on statistics was completed,
stating that the 2013 plan was fully implemented, including the reorganisation
of the statistical agency. In addition to internal procedures for measuring
productivity that were already in place, baseline values were set for the
performance assessment framework for productivity in 2013 and target values for
2017. This enables management to measure progress. However, the administrative
capacity and financial resources of the statistical agency remain weak. This
prevents the agency from taking full advantage of international support
available and hampers sustainable production of core statistical products, in
particular economic data. All agency staff, especially new recruits, need
additional training both on quality issues and statistical methods and tools.

As regards classifications
and registers, the introduction of the European classification of economic
activities NACE Rev. 2 into the business register was completed. The extent and
quality of the recoding between NACE 1.1 and NACE Rev. 2 is still to be
assessed. The IT solution to handle different versions of the business register
still needs to be put in place, together with procedures for updating and maintaining
the register. There are not enough dedicated staff to maintain the register
adequately.

On sectoral
statistics, the agriculture census has been postponed twice, due
to local and general elections. It is scheduled to take place in November 2014.
There
has been limited progress on other sectoral statistics. More statistics were
published. Quarterly national accounts are a priority for the statistical
agency although some of the primary statistics are not available on a quarterly
basis. Many data are not available to the general public in electronic format.
Cooperation with other producers of official statistics needs to improve to
ensure consistency and comparability.

Overall, some
progress has been made on the internal organisation and management of the
statistical agency. In general, Kosovo is at an early stage of aligning its
statistics with European standards. The agency continues to lack resources to
produce reliable statistics on time and in line with European standards and
international methodologies. The production of essential data on economic
aggregates and employment remains limited. The independence of the Kosovo
Agency of Statistics and its coordinating role needs to be further reinforced
and secured in the Law on Official Statistics. Availability of essential data
for evidence-based policies needs to be addressed as a priority and data needs
to be better advertised and disseminated for use by the general public and
investors.

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

As
regards visa policy, from July 2013 to July 2014 a total of 1 076
visas were issued, of which a fairly large number (113) were issued at one of
the eight border crossing points, where legally visas can be issued only in
exceptional circumstances. For reciprocity reasons, in January Kosovo added
Bosnia and Herzegovina to the list of countries requiring a visa to enter
Kosovo. The measure is not conducive to efficient and effective regional
cooperation.

Kosovo issues
biometric passports and, since December, also biometric ID cards.

The process of
handing over to Kosovo all EULEX-certified copies of civil registry books (12 391)
located in Serbia was completed in March. Improved quality of data is important
with a view to their subsequent use (i.e. in social security, election lists).
The Civil Status Registration System (CSRS) introduced in February 2013
continues to be improved. Civil status certificates are issued mainly on the
basis of data contained in the CSRS. By September 2014 data relating to almost
1.3 million persons were cross-checked at one of the municipal civil status
registration offices. Returned certified copies need to be digitised and
uploaded in the system so as to allow for the systematic verification of
registered civil status data. The Ministry of Internal Affairs issued
implementing legislation introducing better control over potentially abusive
name changes, and adopted standard operating procedures to improve birth,
marriage and death registration processes.

Corruption allegations
related to the contracting of the production of biometric passports are still
before the court. In February, ten persons, including a member of the Assembly,
were arrested on charges of criminal activities related to the issuing of visas
at the Italian embassy in Kosovo. Charges followed a joint investigation
between Kosovo Border Police and EULEX, under the auspices of the special
prosecution office.

More resources
in the Civil Registration Agency (CRA) are needed to ensure improved and
systematic supervision, inspection and spot-check audits. Management
accountability needs to be enforced to ensure civil registry mistakes do not
enter the system. Communication and coordination between central and municipal
level needs to be improved and training for municipal officers intensified.

The CRA and the
Kosovo Cadastral Agency are in the process of linking each person to an
official address. In all, seventeen municipalities still need to fulfil their
legal obligation to name their streets.

Regarding border
management, the core legislation, including secondary legislation,
strategies and action plans, and standard operating procedures are mostly in
place. A development plan (period 2014-17) for the national centre for
border management was adopted in April. A joint inter-agency training course on
the Integrated Border Management (IBM) code of ethics was delivered to staff
working at border/boundary crossing points. A Joint Intelligence, Risk and
Threat Analysis Unit with representatives of all three IBM authorities, was set
up.

A package of
bilateral agreements and protocols in the area of border control was signed
with Montenegro. The three joint border control agreements signed in 2013 with
Albania are being implemented and the Joint Police Cooperation Centres
established at the border points with Albania are fully operational. Joint
patrols are carried out with Albania, Montenegro and the former Yugoslav
Republic of Macedonia. All six interim IBM BCPs with Serbia are operational.
Technical agreement on their exact location and on draft designs for the
construction of permanent IBM crossing points was reached. Following the entry
into force on 20 March 2013 of the ‘Procedures on Mutual Legal Assistance’
(Annex to the IBM Agreement), Kosovo has sent around 2 000 requests to
Serbia, and received 1 100 replies. Kosovo received approximately 180
requests from Serbia, and answered around 130.

First-line
border checks are not always performed systematically and biometric data are
often not recorded in the system, either due to power or internet failures or
traffic volume. The Kosovo Police has thus far been unable to put in place a
maintenance contract for the EU-funded border management IT system, which may
hinder effective border control. Kosovo continues to face challenges in
conducting systematic risk analysis to prevent and detect illegal cross-border
activities effectively. There needs to be better communication on intelligence
requirements from the central to the regional and local level. The National
Centre for Border Management has yet to be made fully operational in line with
the Development Plan. The border delineation with Montenegro has still not been
completed.

On asylum, some
implementing legislation was adopted. There were 50 asylum requests in the
first half of 2014 (62 in 2013). Asylum-seekers are referred to the asylum
centre for the entire duration of the procedure. They enjoy freedom of movement
and have access to all basic services, including healthcare, legal aid and
psychosocial support. The period between the submission of the application and
the first-instance decision was reduced from an average of two months to three
weeks. Kosovo authorities granted subsidiary protection at first instance to
three persons in 2013 and one person in 2014. Most applicants leave Kosovo
before the procedure is completed.

Assessments in
adjudications are insufficiently substantiated. More needs to be done to
identify and profile persons in need of international protection, as well as to
facilitate the identification of country of origin of undocumented individuals.
Availability of interpreters needs to be ensured and the possibility of remote
interpretation considered. The appeals system is operational, but appeals
procedures are lengthy. Judges lack training to deal with asylum appeals cases,
which could become problematic in the event of an increased influx of asylum
applicants.

The Ministry of
Internal Affairs manages the database on migration and asylum, which is now in
place, but only partially operational, as it lacks interoperability with other
databases. There is a separate database on readmission and reintegration — the
Reintegration Case Management System. Kosovo has adopted a strategy and action
plan on migration as well as a migration profile

Kosovo has signed
readmission agreements with 22 countries. In 2013 Kosovo readmitted 5 115
persons and there were 1 630 voluntary returnees. In 2014, until July,
Kosovo readmitted 2 174 persons, of which 1 561 were forced and 613
voluntary returnees. The upgraded Department for Reintegration of Repatriated
Persons (DRRP) in the Ministry of Internal Affairs increased the number of
permanent employees to fourteen in 2013, with nine more posts approved. The
temporary staff of the DRRP was still paid from the reintegration fund in 2013,
thus decreasing the resources available to support reintegration. The
appointment of regional coordinators contributed to better cooperation between
central and local authorities and enabled a more effective distribution of
responsibilities. The regulation on reintegration introduced mechanisms to
speed up the review of requests for assistance. It opened up the reintegration
fund to implement medium- to long-term projects on sustainable measures (e.g.
education and employment) by third parties. Guidelines and standard operating
procedures for the implementation of the regulation on reintegration were
adopted in May. More than 95 % of the fund’s € 3.2 million was
allocated or spent in 2013.

The migration
profile needs to include all relevant data on migration policy and needs to be
regularly updated. Awareness of the migration profile as a migration policy
tool among relevant officials needs to be improved. 2013 witnessed a surge in
irregular migration from Kosovo to the EU with the number of Kosovo citizens
refused entry to EU Member States doubling in 2013. The number of Kosovo
citizens found to be illegally staying in Member States increased by half. The
number of asylum applications lodged by Kosovo citizens doubled to 20 215
and the number of rejected readmission applications tripled (albeit from a low
base). Kosovo must take immediate and effective steps to address these
phenomena.

Kosovo needs to
take proactive steps towards concluding readmission agreements with countries
of origin and/or transit. The use of the reintegration case management system
needs to be expanded to ensure proper follow-up of granted assistance and
persons. Municipalities are generally not proactive in providing access to
assistance and information, nor in raising overall awareness. Further training
for municipal return officers is needed. The transparency of reintegration fund
disbursement needs to be improved. More attention needs to be paid to children
who do not speak any of the local languages. Improved education of returnees
continues to be a critical factor in ensuring the sustainability of the
reintegration process.

There is no
functional forced removal system in place; persons found to be staying in
Kosovo illegally or refused asylum-seekers can be returned only on a voluntary
basis. The absence of identification documents, along with missing readmission
agreements with countries of origin and/or transit, are obstacles to removing
unsuccessful asylum-seekers.

Overall,
good progress was achieved on visa and border control by Kosovo putting in
place most legislation, and focusing on its implementation. Kosovo is
moderately advanced in some of these areas. The authorities have demonstrated a
clear political commitment to manage migratory flows effectively, but
considerable efforts are needed to address the dramatic increase in irregular
migrants to the EU. Kosovo needs to step up efforts to conclude readmission
agreements with migrants’ countries of origin and/or transit. Kosovo continues
to face challenges in conducting systematic risk analysis to prevent and detect
illegal cross-border activities effectively.

4.3.2.
Money laundering

The risk
assessment on money laundering and financing of terrorism was approved by the
government in December. To build up a comprehensive risk management mechanism
and address the identified risks, the government established a national
strategy and action plan for the prevention of and fight against the informal
economy, money laundering, terrorist financing and financial crimes (2014-18).
To monitor the implementation of the Strategy and its action plan, quarterly
situation reports are to be prepared. The first situation report was produced
in May 2014 that included relevant information and statistics concerning
financial and economic crimes.

The National
Coordinator for Economic Crime Enforcement was appointed in December. The
Financial Intelligence Unit (FIU) appointed liaison officers to the Kosovo
customs and taxation administrations to improve information exchange and
operational cooperation between the offices. In February, Kosovo submitted its
membership application to the Egmont Group, sponsored by the FIUs of Finland,
Senegal and Slovenia. The membership of FIU Kosovo was discussed at the Egmont
Group’s Plenary in June, after an on-site visit in April.

Reliable
statistics on money laundering remain challenging because of their
fragmentation. According to the 2013 annual report of harmonised statistics
(based on the tracking mechanism developed by the Kosovo Prosecutorial Council
in 2013), there were a total of 56 cases against 207 persons for money laundering
offences in 2013. In total, 25 cases against 116 persons were resolved. Data on
final convictions, however, are not available.

Overall,
limited progress has been made in the fight against money laundering. In
general, legislative and operational structures are in place. However, results
in this field need to be improved considerably. Kosovo still needs to
demonstrate tangible results in the fight against economic and financial
crimes.

4.3.3.
Drugs

Kosovo
maintains good cooperation with EULEX, the EU and neighbouring countries, and
it actively engages in joint international operations on drugs. Kosovo Police
(KP) cooperated in 21 international joint drugs investigations, thirteen cases
with EULEX and five with other Kosovo agencies. KP is moving from a
seizure-oriented approach to more long-term, in-depth investigations. KP’s
prevention and investigating capacities are generally considered sufficient

Implementation
of the strategy and action plan against narcotics (2012 – 2017) is ongoing.
Kosovo continues to be used mainly for transit and storage of heroin and
marijuana. The number of investigations in 2013 went up and there was an
increase in drug possession cases, but a significant decrease in drug seizures.
This is particularly striking, since trafficking routes have not shifted and
the number of drug seizures has gone up in neighbouring countries. Kosovo has a
very low rate of seizures compared to the region as a whole, and a relatively
low conviction rate for drug-related criminal investigations.

There is no
countrywide database of drug users in Kosovo. The results of the first general
population survey (5 000 respondents) provide data on types of drugs used
in Kosovo and on the scale of the problem. This is a good basis for more
evidence-based policymaking to counter the use of drugs. The number of drug
possession cases increased to 428 in 2013, from 348 in 2012. A methadone
programme is being implemented across Kosovo; nearly 100 people have undergone
treatment in the reporting period. As regards prevention, KP has organised
information campaigns, including the distribution of leaflets and talks at
schools.

A National Drug
Report, prepared by the Ministry of Health together with civil society
representatives, has been submitted to the European Monitoring Centre for Drugs
and Drug Addiction (EMCDDA). Kosovo has intensified its cooperation with the
EMCDDA. However, it does not have a functional drug observatory or a national
focal point.

Overall,
there has been limited progress in the fight against drug trafficking. The
number of investigations has increased, but the level of convictions remains low.
The level of drug seizures has decreased and is among the lowest in the region.
In the past few years, Kosovo has started to address the challenges in this
field, notably by increasing its capacity. Results have so far been limited in
terms of successful investigations, indictments, and especially in terms of
actual convictions, in particular when compared to its neighbours. Kosovo must
take resolute action to address drug trafficking across its borders.

4.3.4.
Police

The
Kosovo Police continues to be perceived as the most trusted rule of law
institution in Kosovo. KP has developed its first training strategy (2014-18)
focusing on areas such as improving capacity and developing new expertise, and
advancing cooperation with international institutions and organisations.

A witness
protection directorate has been set up within KP (thirteen staff) and continues
to be supported by EU and EULEX experts. In accordance with the law on witness
protection, the witness protection committee, consisting of the chief state
prosecutor, the head of the KP investigation unit and the director of the
witness protection directorate, was established in September 2013. Kosovo needs
to sign agreements for witness relocation.

More than 800
children were interviewed in the seven child-friendly interview rooms
available. The KP training department distributed guidelines on child-friendly
interviewing to regional stations and offices. The guidelines need to be
integrated in the training academy curriculum to ensure their sustainable use.
A communication strategy and action plan (2014-16) of the Association of Kosovo
Policewomen was prepared. The documents aim to promote police work for women
and to address the challenges women face in pursuing a career in the police.
Community policing is being used more actively, but has yielded limited
results.

Cooperation
between the independent police inspectorate (PIK) and the KP disciplinary unit
continues to be good. From September 2013 to July 2014 (PIK) handled 217
complaints resulting in nineteen arrests, 57 suspensions and nine transfers.
Based on the 120 cases in which the KP disciplinary unit decided that
complaints were founded, 165 officers were found guilty.

In March, Kosovo
signed a police cooperation agreement with Montenegro, bringing the total
number of police agreements with third countries to six. Kosovo detached Kosovo
Police Liaison Officers, to Austria, France and Turkey. In 2013, the
International Law Enforcement Cooperation Unit dealt with a total of 3 608
information exchanges with other countries on cross-border cases. International
law enforcement cooperation involving Kosovo continues to be hampered by
differences on Kosovo’s status. There is no operational or strategic agreement
between Kosovo and Europol. UNMIK is the formal point of contact with Interpol.

Intelligence-led
policing remains weak. The current Kosovo Police Information System does not
include information submitted from KP officers and does not contribute to
effective analysis, essential in intelligence-led policing to expose and
investigate organised crime. There is no capacity to build a strategic overview
of the organised crime situation in Kosovo. A functioning intelligence model
(effective gathering, analysing and dissemination of information) would help to
create a comprehensive picture of organised crime, detailing threats and trends
in criminal networks and groups.

Overall,
Kosovo has made some progress and is moderately advanced in
the area of policing. Still, challenges remain in delivering results in
the fight against organised crime and corruption, further cooperation with
other law enforcement authorities, and implementation of intelligence-led
policing. Kosovo needs to sign agreements for the relocation of witnesses.

4.3.5.
Fighting organised crime and terrorism

Implementation
of the strategy and action plan against organised crime (2012-17) is
ongoing. Since 15 June, Kosovo has taken over from EULEX the lead of special
prosecution to deal with high-level cases of corruption and organised crime EULEX
prosecutors are not taking on new investigations except in extraordinary
circumstances. As a rule, mixed panels now have a majority of local judges,
with a local judge presiding. KP drafted its first threat assessment report of
serious and organised crime. The KP Department against Organised Crime
increased its cooperation and joint operations with other agencies, including
Kosovo Border Police and Customs.

A proactive
information exchange between KP and other agencies in identifying trends and
profiling possible traffickers needs to be systemised. The Law on Interception
still needs to be adopted. Kosovo has neither a criminal record database nor an
integrated case management system. The tracking mechanism established by the
Kosovo Prosecutorial Council in 2013 has started tracking progress in
corruption and organised crime cases and produces quarterly reports.

As regards confiscation
of assets, the chief state prosecutor issued an instruction in January,
including a simplified guide for prosecutors to identify material benefits of
crime and seek confiscation. He also assigned confiscation focal points in each
basic prosecution office. The tracking mechanism developed by the prosecutorial
council also includes a database that records information such as prosecutors’
activities to confiscate assets. In December 2013, the office of the National
Coordinator for Economic Crime Enforcement was established. The coordinator
reports directly to the prosecutorial council and also serves as Kosovo’s
representative to the Camden Asset Recovery Inter-Agency Network. Since
mid-2013, KP’s Department against Organised Crime has been taking action to
improve the tracing of assets and to use financial investigations.

However, the
lack of confiscations of assets remains a serious concern. Kosovo’s law
enforcement agencies temporarily confiscate assets but these most often do not
result in a permanent confiscation. In 2013 only 33 assets worth a total of € 1.5
million were confiscated through a court decision. The Agency for the
Management of Sequestrated and Confiscated Assets organised only seven
auctions, which generated just over € 32 000, lower than in 2012. The
number of confiscations ordered remains low, and the prosecution makes little
use of freezing orders. The criminal procedure code’s 72-hour limit on asset
freezing orders seriously hampers the effective freezing of assets.

As regards trafficking
in human beings, the anti-trafficking coordinator launched a series of
public awareness (‘open your eyes’) and information events. In 2013, the KP
directorate for investigations of trafficking in human beings dismantled seven
criminal groups involved in trafficking in human beings. KP identified thirteen
victims and four potential victims; eleven victims were offered shelter.

The overall
number of verdicts in cases of trafficking human beings remains low. Kosovo
continues to be a place of origin, transit and destination of trafficking for
the purpose of sexual exploitation and labour. Child trafficking and child
exploitation for the purpose of begging remain high. The KP tends not to
intervene in cases of child begging. Kosovo needs to focus on implementing the
Law on Preventing and Combating Trafficking in Human Beings, especially with
regard to compensation for victims and sustainable funding for shelters. A
comprehensive, multi-disciplinary and victim-oriented approach to trafficking
needs to be developed and the identification of victims needs to be further
improved. Cooperation with civil society and efforts to improve effective
prevention measures need to be stepped up. Taking these elements into account,
Kosovo needs to evaluate the implementation of its current strategy and action
plan against trafficking in human beings (2011-14) before adopting new ones.
Training courses for judges and prosecutors dealing with cases of trafficking
need to be improved. Other stakeholders such as the border police or labour
inspectors need to be trained on existing standard operating procedures.

KP has an
operational unit dealing with cybercrime.

As regards the fight
against terrorism, a large scale operation with the
deployment of about 1 000 police took place in August 2014 against 40
individuals reportedly fighting with Islamic insurgents in Syria. Due to the
increase in the number of fighters from Kosovo travelling to Syria to be
trained for paramilitary activity, Kosovo prepared a law prohibiting citizens
from joining armed conflicts outside its territory. The law did not pass the
Assembly before it was dissolved in May. Kosovo will need to step up its capacity
to prevent radicalisation, including developing adequate measures to address
the phenomenon of foreign fighters. Kosovo also needs to enhance cooperation
with neighbouring countries to combat terrorism.

Overall,
some
progress has been made in the fight against organised crime. Kosovo is at an
early stage of delivering results. On financial and economic crimes,
law enforcement agencies are reluctant to initiate financial investigations;
prosecutors are not proactive in the use of confiscation provisions. As a
result, the number of permanent confiscations and sequestrations ordered by the
judiciary continues to be low. There is a lack of expertise among prosecutors
and judges in specialist areas such as financial crime and procurement fraud,
essential to adequately deal with corruption. Witness intimidation and
protection continues to be a serious concern. Fighting organised crime and
corruption is fundamental to countering criminal infiltration of the political,
legal and economic systems. Authorities need to show a zero tolerance approach
in the fight against organised crime and corruption.

4.3.6.
Protection of personal data

The strategy on
personal data protection 2014-17 was adopted in January. The National Agency
for Protection of Personal Data is operational and was relocated to a
government-owned building, enabling more funding to be devoted to its core
activities. The agency has continued to raise awareness of its work, and media
coverage of its activities has visibly improved, resulting in an increase of complaints
submitted to the Agency. Working relations with data protection officials
appointed in central governmental institutions have been established. An IT
system for registration has been developed, so there are no technical obstacles
to receiving notifications by data controllers about the data files and
activities processed or carried out by them. Three additional staff were hired
and the number of site inspections increased, also outside Pristina, which is a
positive development. The government consults the agency on some draft legal
acts. The agency has been active at international level and continued to build
close working relations with countries in the Western Balkans.

There is a need
to develop general and specific data security provisions and to ensure their
implementation. In this context, the continued lack of IT competence within the
agency is an issue that needs to be addressed quickly. A more proactive
approach by both the agency and the government is needed to ensure the
appointment of data protection officials in the municipalities. Data-sharing
concerns, in particular in the law enforcement sector, need to be swiftly
addressed. Consultation of the agency on draft legislation needs to be further
improved to ensure that all draft legal acts, in particular codes of procedure,
are reviewed, taking data protection concerns into account.

Overall,
Kosovo has made some progress, but it is still at an early stage when it comes
to implementing provisions on personal data protection. This is still a
developing area of expertise in Kosovo. Sufficient human and financial
resources need to be provided to the personal data protection agency so that it
can proactively address new challenges, in particular data security issues, and
to ensure that enforcement measures are implemented.

Statistical
Annex

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

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

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

|| Basic data || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

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

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

|| National accounts || || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Gross domestic product (GDP) (million euro) || || 1 624 || 4 070 || 4 402 || 4 814 || 5 059 || 5 327 ||

|| GDP (euro per capita) || || : || 2 329 || 2 480 || 2 672 || 2 799 || 2 935 ||

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

|| GDP (in Purchasing Power Standards (PPS) per capita), relative to the EU average (EU-28 = 100) || || : || : || : || : || : || : ||

|| Real GDP growth rate: change on previous year of GDP volume (%) || || : || 3.6 || 3.3 || 4.4 || 2.8 || 3.4 ||

|| Employment growth (national accounts data), relative to the previous year (%) || || : || : || : || : || : || : ||

|| Labour productivity growth: growth in GDP (constant prices) per person employed, relative to the previous year (%) || || : || : || : || : || : || : ||

|| Unit labour cost growth, relative to the previous year (%) || || : || : || : || : || : || : ||

|| \*\*3 year change (T/T-3) in the nominal unit labour cost growth index (2005 = 100) || || : || : || : || : || : || : ||

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

|| Gross value added by main sectors || || || || || || || ||

|| Agriculture, forestry and fisheries (%) || 2) || : || 15.1 || 17.1 || 17.5 || 14.9 || : ||

|| Industry (%) || 2) || : || 18.9 || 17.3 || 16.6 || 20.5 || : ||

|| Construction (%) || 2) || : || 9.5 || 10.1 || 9.9 || 8.2 || : ||

|| Services (%) || 2) || : || 56.5 || 55.6 || 56.1 || 56.4 || : ||

|| Final consumption expenditure, as a share of GDP (%) || || : || 103.7 || 102.6 || 103.3 || 105.2 || 104.0 ||

|| Gross fixed capital formation, as a share of GDP (%) || || : || 27.8 || 29.6 || 30.7 || 26.0 || 24.8 ||

|| Changes in inventories, as a share of GDP (%) || || : || 3.4 || 3.4 || 3.3 || 2.9 || 2.8 ||

|| Exports of goods and services, relative to GDP (%) || || : || 17.1 || 19.9 || 19.6 || 18.2 || 17.4 ||

|| Imports of goods and services, relative to GDP (%) || || : || 52.0 || 55.5 || 56.8 || 52.4 || 49.0 ||

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

|| Industry || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

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

|| Inflation rate and house prices || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Consumer price index (CPI), change relative to the previous year (%) || || : || -2.4 || 3.5 || 7.3 || 2.5 || 1.8 ||

|| \*\*Annual change in the deflated house price index (2010 = 100) || || : || : || : || : || : || : ||

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

|| Balance of payments || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Balance of payments: current account total (million euro) || || 228 || -374 || -516 || -658 || -380 || -339 ||

|| Balance of payments current account: trade balance (million euro) || || -646 || -1 652 || -1 752 || -2 059 || -2 073 || -1 992 ||

|| Balance of payments current account: net services (million euro) || || 10 || 232 || 187 || 266 || 346 || 308 ||

|| Balance of payments current account: net income (million euro) || || 141 || 62 || 67 || 114 || 154 || 122 ||

|| Balance of payments current account: net current transfers (million euro) || || 723 || 983 || 982 || 1 021 || 1 192 || 1 222 ||

|| of which government transfers (million euro) || || 809 || 323 || 320 || 322 || 402 || 342 ||

|| \*\*3 year backward moving average of the current account balance relative to GDP (%) || || : || 9.1 || 11.0 || 11.5s || 11.0s || 9.2s ||

|| \*\*Five year change in share of world exports of goods and services (%) || || : || : || : || : || : || : ||

|| Net inward foreign direct investment (FDI) (million euro) || || : || 276.9 || 331.1 || 378.2 || 213.3 || 241.5 ||

|| Foreign direct investment (FDI) abroad (million euro) || || : || 10.5 || 34.7 || 15.7 || 15.8 || 17.5 ||

|| of which FDI of the reporting economy in the EU-28 countries (million euro) || || : || 2.3 || 1.0 || 0.0 || 5.2 || 10.1 ||

|| Foreign direct investment (FDI) in the reporting economy (million euro) || || : || 287.4 || 365.8 || 393.9 || 229.1 || 259.4 ||

|| of which FDI of the EU-28 countries in the reporting economy (million euro) || || : || 183.8 || 217.9 || 205.3 || 123.2 || 118.0 ||

|| \*\*Net international investment position, relative to GDP (%) || || : || 12.1 || 10.0 || 2.8 || 5.1 || : ||

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

|| Public finance || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

|| General government gross debt relative to GDP (%) || || : || : || : || : || : || : ||

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

|| Financial indicators || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Gross foreign debt of the whole economy, relative to GDP (%) || || : || 7.6s || 7.4s || 6.6s || 7.9s || : ||

|| Gross foreign debt of the whole economy, relative to total exports (%) || || : || 44.5s || 37.1s || 33.9s || 43.5s || : ||

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

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

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

|| Total credit by monetary financial institutions to residents (consolidated) (million euro) || || 26 || 1 289 || 1 459 || 1 698 || 1 763 || 1 806 ||

|| \*\*Annual change in financial sector liabilities (%) || || : || : || : || : || : || : ||

|| \*\*Private credit flow, consolidated, relative to GDP (%) || || : || : || : || : || : || : ||

|| \*\*Private debt, consolidated, relative to GDP (%) || || : || : || : || : || : || : ||

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

|| Lending interest rate (one year), per annum (%) || 3) || : || 14.08 || 14.31 || 13.69 || 13.78 || 11.07 ||

|| Deposit interest rate (one year), per annum (%) || 3) || : || 3.97 || 3.38 || 3.71 || 3.60 || 2.39 ||

|| euro exchange rates: average of period (1 euro = … national currency) || || 1 || 1 || 1 || 1 || 1 || 1 ||

|| Trade-weighted effective exchange rate index (2005 = 100) || || : || : || : || : || : || : ||

|| \*\*3 year change (T/T-3) in the trade-weighted effective exchange rate index, 42 countries (2005 = 100) || || : || : || : || : || : || : ||

|| Value of reserve assets (including gold) (million euro) || || 286 || 501 || 585 || 491 || 760 || 724 ||

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

|| External trade in goods || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Value of imports: all goods, all partners (million euro) || || : || 1 934 || 2 158 || 2 437 || 2 462 || 2 422 ||

|| Value of exports: all goods, all partners (million euro) || || : || 165 || 296 || 306 || 267 || 273 ||

|| Trade balance: all goods, all partners (million euro) || || : || -1 768 || -1 862 || -2 131 || -2 195 || -2 149 ||

|| Terms of trade (export price index / import price index \* 100) (number) || || : || 98 || 125 || 97 || 87 || 97 ||

|| Share of exports to EU-28 countries in value of total exports (%) || || : || 44.4 || 45.5 || 45.5 || 41.1 || 43.5 ||

|| Share of imports from EU-28 countries in value of total imports (%) || || : || 42.0 || 41.0 || 41.5 || 42.6 || 44.8 ||

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

|| Demography || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Crude rate of natural change of population (natural growth rate): number of births minus deaths (per thousand inhabitants) || || : || 12.5 || : || 11.4bp || 11.3 || : ||

|| Infant mortality rate deaths of children under one year of age (per thousand live births) || || : || 9.9 || 8.8 || 12.1e || 11.4 || : ||

|| Life expectancy at birth: male (years) || || : || : || : || 68.0e || 74.1 || : ||

|| Life expectancy at birth: female (years) || || : || : || : || 71.9e || 79.4 || : ||

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

|| Labour market || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Economic activity rate for persons aged 20–64: proportion of the population aged 20–64 that is economically active (%) || || : || : || : || : || : || : ||

|| \*Employment rate for persons aged 20–64: proportion of the population aged 20–64 that are in employment (%) || || : || : || : || : || : || : ||

|| Male employment rate for persons aged 20–64 (%) || || : || : || : || : || : || : ||

|| Female employment rate for persons aged 20–64 (%) || || : || : || : || : || : || : ||

|| Employment rate for persons aged 55–64: proportion of the population aged 55–64 that are in employment (%) || || 16.7 || 27.9 || : || : || 25.8 || : ||

|| Employment by main sectors || || || || || || || ||

|| Agriculture, forestry and fisheries (%) || || 6.2 || 6.2 || : || : || 4.6 || : ||

|| Industry (%) || || 16.9 || 15.5 || : || : || 19.0 || : ||

|| Construction (%) || || 8.6 || 7.9 || : || : || 9.5 || : ||

|| Services (%) || || 68.3 || 67.5 || : || : || 65.0 || : ||

|| Unemployment rate: proportion of the labour force that is unemployed (%) || || 57.1 || 45.4 || : || : || 30.9 || 30.0 ||

|| Male unemployment rate (%) || || 51.8 || 40.7 || : || : || 28.1 || 26.9 ||

|| Female unemployment rate (%) || || 69.9 || 56.4 || : || : || 40.0 || 38.8 ||

|| Youth unemployment rate: proportion of the labour force aged 15–24 that is unemployed (%) || || 80.0 || 73.0 || : || : || 55.3 || 55.9 ||

|| Long-term unemployment rate: proportion of the labour force that has been unemployed for 12 months or more (%) || || 47.6 || 37.1 || : || : || 59.8 || 68.9 ||

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

|| Social cohesion || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

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

|| \*Early leavers from education and training: proportion of the population aged 18–24 with at most lower secondary education who are not in further education or training (%) || || : || : || : || : || : || : ||

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

|| Standard of living || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Number of passenger cars relative to population size (number per thousand population) || || : || : || 90.6p || 111.2e || 111.3 || 125.0 ||

|| Number of mobile phone subscriptions relative to population size (number per thousand population) || || : || 369.2 || 442.3 || 543.7 || 532.5 || : ||

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

|| Infrastructure || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Density of railway network (lines in operation per thousand km²) || || : || 30.6 || 30.3 || 30.6 || 30.6 || 31.0 ||

|| Length of motorways (kilometres) || || 0 || 0 || 0 || 38 || 60 || 80 ||

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

|| Innovation and research || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| Public expenditure on education relative to GDP (%) || || : || 3.6 || 3.8 || 4.1 || 4.0 || : ||

|| \*Gross domestic expenditure on R&D relative to GDP (%) || || : || : || : || : || : || : ||

|| Percentage of households who have internet access at home (%) || || : || : || : || 57 || : || : ||

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

|| Environment || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

|| \*Index of greenhouse gas emissions, CO2 equivalent (1990 = 100) || || : || : || : || : || : || : ||

|| Energy intensity of the economy (kg of oil equivalent per 1 000 euro GDP at 2000 constant prices) || || : || : || : || : || : || : ||

|| Electricity generated from renewable sources relative to gross electricity consumption (%) || || : || : || : || : || : || : ||

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

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

|| Energy || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

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

|| Primary production of hard coal and lignite (thousand TOE) || 4) || : || 7 842 || 7 960 || 8 212 || 8 028 || 8 219 ||

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

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

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

|| Electricity generation (thousand GWh) || || : || 5.3 || 5.5 || 5.7 || 5.9 || 6.2 ||

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

|| Agriculture || Note || 2001 || 2009 || 2010 || 2011 || 2012 || 2013 ||

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

|| Utilised agricultural area (thousand hectares) || || : || 262 || 242e || 243e || 276 || 295p ||

|| Livestock numbers: live bovine animals (thousand heads, end of period) || || 347 || 344 || 357e || 362e || 314 || 321p ||

|| Livestock numbers: live swine (thousand heads, end of period) || || 75 || 51 || 51e || 51e || 56 || 49p ||

|| Livestock numbers: live sheep and live goats (thousand heads, end of period) || || 230 || 217 || 229e || 247e || 123 || 160p ||

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

|| Harvested crop production: cereals (including rice) (thousand tonnes) || || 459 || 411 || 431e || 435e || 442 || 556p ||

|| Harvested crop production: sugar beet (thousand tonnes) || || : || : || : || : || : || : ||

|| Harvested crop production: vegetables (thousand tonnes) || || 169 || 130 || 239e || 247e || 117 || 185p ||

: = not available

b = break in series

e = estimated value

p = provisional

s = Eurostat estimate

\* = Europe 2020 indicator

\*\* = Macroeconomic Imbalance Procedure (MIP) indicator

|||| Footnotes:

||||

1) 2011: data are based on 2011 census data and estimates that the Kosovo agancy of statistics (KAS) have for 3 northern municipalities who did not participate in the Census and natural growth for the period April 15-31 December 2011.

2) Based on NACE Rev. 1.1.

3) Includes disbursement fee charged by banks.

4) Thousand tonnes.

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

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

[2]               Enlargement Strategy and Main Challenges 2014-2015,
COM(2014) 700.

[3]               COM(2012) 602 final.

[4]               A measure using purchasing power standards is not
available for Kosovo.

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