Source: EURLEX
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# 52011SC1204

**COMMISSION STAFF WORKING PAPER MONTENEGRO 2011 PROGRESS REPORT /\* SEC/2011/1204 final \*/**

  

TABLE OF CONTENTS

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

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

1.2........ Context.......................................................................................................................... 3

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

2........... Political criteria............................................................................................................... 5

2.1........ Democracy and the rule of law........................................................................................ 5

2.2........ Human rights and the protection
of minorities................................................................. 15

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........... Ability to assume the
obligations of membership............................................................. 32

4.1........ Chapter 1: Free movement of goods............................................................................. 32

4.2........ Chapter 2: Freedom of movement
for workers.............................................................. 34

4.3........ Chapter 3: Right of establishment
and freedom to provide services................................. 35

4.4........ Chapter 4: Free movement of
capital............................................................................. 36

4.5........ Chapter 5: Public procurement...................................................................................... 37

4.6........ Chapter 6: Company law.............................................................................................. 39

4.7........ Chapter 7: Intellectual property
law............................................................................... 40

4.8........ Chapter 8: Competition policy....................................................................................... 41

4.9........ Chapter 9: Financial Services........................................................................................ 42

4.10...... Chapter 10: Information society
and media.................................................................... 44

4.11...... Chapter 11: Agriculture and rural
development.............................................................. 45

4.12...... Chapter 12: Food safety,
veterinary and phytosanitary policy......................................... 46

4.13...... Chapter 13: Fisheries.................................................................................................... 47

4.14...... Chapter 14: Transport policy........................................................................................ 48

4.15...... Chapter 15: Energy....................................................................................................... 49

4.16...... Chapter 16: Taxation.................................................................................................... 51

4.17...... Chapter 17: Economic and Monetary
policy.................................................................. 52

4.18...... Chapter 18: Statistics.................................................................................................... 53

4.19...... Chapter 19: Social policy and
employment.................................................................... 54

4.20...... Chapter 20: Enterprise and
industrial policy................................................................... 56

4.21...... Chapter 21: Trans European
Networks......................................................................... 57

4.22...... Chapter 22: Regional policy and
coordination of structural instruments........................... 58

4.23...... Chapter 23: Judiciary and
fundamental rights................................................................. 59

4.24...... Chapter 24: Justice, freedom and
security...................................................................... 64

4.25...... Chapter 25: Science and research................................................................................. 69

4.26...... Chapter 26: Education and culture................................................................................. 70

4.27...... Chapter 27: Environment.............................................................................................. 71

4.28...... Chapter 28: Consumer and health
protection................................................................. 73

4.29...... Chapter 29: Customs Union.......................................................................................... 75

4.30...... Chapter 30: External relations....................................................................................... 76

4.31...... Chapter 31: Foreign, Security and
Defence Policy......................................................... 77

4.32...... Chapter 32: Financial control........................................................................................ 78

4.33...... Chapter 33: Financial and
budgetary provisions............................................................. 79

Statistical Annex......................................................................................................................... 80

1.
Introduction
1.1.
Preface

Since March
2002, the Commission has reported regularly to the Council and Parliament on
progress made by the countries of the Western Balkans region. This is
the first report on Montenegro's progress
since the Commission published its Opinion on the country's application for
membership of the European Union in November 2010 and the European Council
granted Montenegro candidate status in December 2010.

This report on
progress made by Montenegro on preparing for EU membership:

– briefly describes relations between Montenegro and the Union;

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

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

– reviews developments as regards Montenegro's
capacity to assume the obligations of membership, that is the acquis expressed
in the Treaties, the secondary legislation and the policies of the Union.

This report
covers the period from October 2010 to September 2011. Progress is measured on
the basis of decisions taken, legislation adopted and measures implemented. As
a rule, legislation or measures which are being prepared or awaiting
parliamentary approval have not been taken into account. This approach ensures equal
treatment across all reports and permits an objective assessment.

The report is
based on information gathered and analysed by the Commission. Many sources have
been used, including contributions from the government of Montenegro, the EU
Member States, European Parliament reports[1] and
information from various international and non-governmental organisations.

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

1.2.
Context

The
Stabilisation and Association Agreement between Montenegro and the EU was
signed in October 2007 and entered into force in May 2010.

Montenegro
presented its application for membership of the European Union on 15 December
2008. Following a request by the Council, the Commission submitted its Opinion
on Montenegro's application in November 2010. In December 2010, the European
Council granted Montenegro candidate country status. In its conclusions, the
Council noted that the opening of accession negotiations will be considered by
the European Council, in line with established practice, once the Commission
has assessed that the country has achieved the necessary degree of compliance
with the membership criteria and, in particular, has met the key priorities set
out in the Commission's Opinion[3]. The Council invited the
Commission to focus its 2011 progress report on implementation of these key
priorities in particular.

1.3.
Relations between the EU and Montenegro

Montenegro is
participating in the Stabilisation and Association Process.

Overall,
Montenegro continued to implement its obligations under the Stabilisation
and Association Agreement (SAA) smoothly.

The political
and economic dialogue between the EU and Montenegro has continued, notably
within the SAA bodies. The Stabilisation and Association Committee met in May
2011 and the Stabilisation and Association Council in June 2011. Seven
sub-committee meetings have been held since October 2010. In June 2011, the
Stabilisation and Association Council decided to establish two Joint
Consultative Committees as fora for dialogue between the EU Committee of the
Regions (CoR) and Montenegro's local authorities on the one hand and between
the European Economic and Social Committee (EESC) and social and economic
stakeholders in the country on the other. Montenegro participated for the first
time (including by submitting a pre-accession economic programme) in the
multilateral economic dialogue between the Commission, EU Member States and candidate
countries in the context of the EU fiscal surveillance procedure, including by
attending a meeting at ministerial level in May 2011.

The EU
maintains a dialogue with the authorities and provides guidance on reform
priorities. Progress on reforms is encouraged and monitored by the SAA bodies.
Following the release of the Commission Opinion in November 2010, the
Commission has held an intense dialogue with Montenegro with a view to
monitoring implementation of the key priorities set out in the Opinion. The
government adopted an action plan to address the key priorities which,
overall, has been implemented consistently and systematically. Furthermore,
Montenegro is currently preparing an updated version of its National Programme
for Integration, the country's programme for the adoption of the acquis.

Visa
liberalisation for Montenegrin citizens travelling
to the Schengen area has been in force since 19 December 2009. Implementation
of the visa-free regime has been smooth so far. To ensure the
continued implementation of the commitments, a post visa liberalisation
monitoring mechanism was established in view of increased numbers of asylum
seekers from the region. The Commission presented its first monitoring report
to the European Parliament and the Council in June 2011. An agreement on
readmission between the European Union and Montenegro has been in force since
January 2008.

The EU provides
financial assistance to Montenegro under the Instrument for
Pre-accession Assistance (IPA). For the period 2007-2013, IPA allocations to
Montenegro total € 235.2 million. The IPA allocation for 2011 is €
34.1 million. The 2011-2013 Multiannual Indicative Planning Document (MIPD) for Montenegro was presented to the IPA
Committee in March 2011. The main sectors for EU support during this period
will be justice and home affairs, public administration, the environment and
climate change, transport, social development and agriculture and rural
development. Assistance is also being provided to help the country prepare for decentralised
management of the IPA programme. Montenegro benefits also from regional and
horizontal IPA programmes. It is participating in four cross-border cooperation
programmes with neighbouring Western Balkan countries and a fifth, with Kosovo[4],
is under preparation. Montenegro is also participating in the transnational
cooperation programmes under the European Regional Development Fund and in the
IPA Adriatic cross-border programme with Member States.

EU financial
support has been provided for development of civil society under the
Civil Society Facility.

The IPA
programme is currently managed by the EU Delegation in Podgorica. Montenegro's
preparations for transfer of management of component I of the IPA programme
from the EU to the national authorities have further advanced.

Montenegro is participating in the
following EU programmes: the Seventh Research Framework Programme; the
Entrepreneurship and Innovation Programme and the Information Communication
Technologies Policy Support Programme, both under the Competitiveness and
Innovation Framework Programme, Culture and Customs 2013.

2.
Political criteria

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

2.1.
Democracy and the rule of law

Establishment of the legal and
institutional set-up required for an independent country is complete. The
political consensus on State-building has been further consolidated.

Parliament

As regards the
legislative framework for elections, one of the key priorities set out in the
Opinion, amendments to the Law on election of municipal councillors and members
of parliament were adopted by a two-thirds majority in parliament in September
2011, thus harmonising it with the Constitution and addressing the main
OSCE/ODIHR and Venice Commission recommendations on elections. These amendments
implement the constitutional commitment to authentic representation of
minorities by introducing a system of affirmative
action for representation in parliamentary elections extended to all minorities.
They improve the technical side of voting and offer better safeguards for
equality of votes.

The powers of
the State Election Commission and the system of appointments of its members
have been further clarified and political representation of opposition parties
in local election commissions has been strengthened. The
law also provides for establishing a secretariat of the State Election
Commission to assist in administration of elections, as recommended by the
Venice Commission and the OSCE/ODIHR. Issues related to the allocation
of mandates have been clarified and transparency has been introduced in the
publication of results. Exit polls are explicitly allowed. Provisions on media
and the prohibition to use State resources for electoral campaigning have been
strengthened.

These legal
advances need to be complemented in the future as regards a number of pending
OSCE/ODIHR and Venice Commission recommendations, in particular those related
to the dissolution of coalitions and their funding obligations, and the
extension of the mandate of the Central Election Commission to municipal
elections. The issue of the constitutional two-year residency requirement
before citizens can obtain the right to vote (while reduced to six months for
local elections) remains unaddressed for national elections. Although the new
provisions provide for 30% of female candidates on the candidate
list, gender equality is still not guaranteed in practice as the law does
not stipulate that candidates of each gender should be ranked high enough on
the list to have a realistic opportunity for being allocated a mandate.

Mechanisms to
ensure transparency, accountability and control of financing of election
campaigns have been enhanced by a new Law on financing of political parties.
Significant efforts will be needed to implement it fully, following its entry
into force in January 2012.

With regard to
parliament's legislative and oversight role, another key priority set out in
the Opinion, parliament has continued its intensive legislative activity. Its administrative capacity to support
parliamentary committees has been strengthened, in particular the International
Relations and European Integration Committee, which is in charge of
coordinating relations with the EU and making sure that new legislation is
compatible with the EU acquis. Since February 2011, the secretary of
each parliamentary committee prepares a report on each proposed draft law with
the aim of streamlining discussions and adoption. The technical and documentary
support provided by the research department has been considerably strengthened.
Most parliamentary committees have adopted an annual work plan and parliament's
internal document management procedures have been improved. European
integration is a key priority for parliamentary work and consensus between
parliamentary parties on EU-related matters remains high. The National Council
for European Integration (NCEI) held a conference on the seven key priority
areas identified in the Opinion in May 2011, providing a forum for discussion
between parliamentary political forces, the government and other stakeholders.
However, the NCEI's work and administrative capacity remain uneven. Its role in
Montenegro's EU integration process still needs to be further clarified and
developed.

Parliament's
role of oversight and control of the government has been strengthened, in
particular in the areas of security and defence. A number of hearings,
including a control hearing, were held. The number of parliamentary questions
increased. Measures have been taken to improve transparency and interaction
with civil society.

However,
parliament is not yet using the full array of oversight tools. In oversight
hearings, parliamentary committees do not systematically adopt conclusions and
follow-up is limited. Parliament's rules of procedure have not been changed to
make it easier for opposition parties to initiate oversight proceedings. In the
case of oversight of anti-corruption activities, the members of the national
branch of the global organisation of parliamentarians against corruption were
appointed in July 2011, as provided for in a 2007 parliament resolution.
However, no special committee of inquiry has been established. Parliament's
cooperation with civil society needs to be further enhanced.

The role of the
Parliamentary Committee for International Relations and European Integration is
often limited to formal checks of the statement of compatibility of new
legislation with the EU acquis provided by the government. No further
compatibility checks take place. The administrative capacity of parliament –
albeit strengthened – remains weak and needs to be further consolidated.
Parliament's capacity to ensure high-quality legislation in general remains
limited and needs to be enhanced. All parliamentary committees still lack
sufficient qualified staff.

Efforts to
strengthen parliament's administrative and expert capacity and to upgrade its
administration have continued. Staff numbers increased from 73 in December 2010
to 90 in May 2011. A large number of training sessions have been provided for
staff. However, administrative capacity and other resources required for
professional, efficient and transparent work by parliament, including expert
support for committees, are limited overall. The lack of office space and
technical equipment persists, including for Members of Parliament. Financial
and other constraints need to be addressed. Training of existing staff and
recruitment of qualified new staff are to be pursued.

Overall, the legislative and institutional framework for elections has been
considerably enhanced, in line with the recommendations made by the Venice Commission
and OSCE/ODIHR. Parliament's functioning has further improved. Consensus
between parliamentary parties on EU-related matters remains high. Progress has
been made on strengthening parliament's legislative and oversight functions, by
means of stronger support to parliamentary committees, better planning of
parliamentary work and closer oversight, notably in the areas of defence and
security. However, further sustainable efforts are needed to consolidate
parliament's legislative and oversight role and to enhance its administrative
capacity. Parliament's capacity and means to scrutinise draft legislation
against the EU acquis need to be upgraded. The role of the National
Council for European Integration in Montenegro's EU integration process remains
to be further developed. Parliament's cooperation with civil society is to be
further enhanced.

Government

On 21 December 2010, then Prime Minister
Milo Đukanović resigned from office. On 31 December, parliament
approved the new government led by Prime Minister Igor Lukšić, formed by
the same coalition as the outgoing government. It has two Deputy Prime
Ministers and 15 ministers, one of whom is female.

A number of changes were made to the
structure of the government. The Ministry for Foreign Affairs and European
Integration took over coordination of European integration from the stand-alone
Ministry for European Integration, which was abolished.

The main priorities of the government
remain European integration and economic reform, while action has also been taken
to strengthen the partnership and consultation mechanisms with the various
stakeholders, including civil society. In February 2011, following
consultations with a broad range of stakeholders, the government adopted an
action plan addressing the key priorities set out in the Commission Opinion.
Overall, this action plan has been implemented consistently and systematically.
Responsibility for overall coordination of implementation of the action plan
lies with the Prime Minister, while the Ministry for Foreign Affairs and
European Integration provides technical support and prepares regular oral and
written progress reports to the government.

Due to the focus on the key priorities,
progress in other areas of European integration remained uneven. While results
remain satisfactory, the abolition of the stand-alone Ministry for European
Integration has had a negative effect on the administrative capacity involved
in coordination of European integration, which needs to be substantially
strengthened.

With regard to
local self-government, amendments to the Law on local finances and to the Law
on property tax were adopted in December 2010 and entered into force on 1
January 2011. In October 2010, Montenegro ratified the additional protocol to
the European Charter of Local Self-Government on the right to participate in
the affairs of a local authority. In June 2011, the Government adopted the
2011-2016 development strategy for inter-municipal cooperation in Montenegro,
together with the 2011-2013 Action Plan for its implementation. However,
enactment of the Law on territorial organisation and of amendments to the
sectoral laws is still pending.

Overall, with the new government in office, government coordination and
policy-making has further improved, particularly the quality of consultations
with civil society. However, the overall capacity of
ministries to produce high-quality legislation and impact assessments remains
limited. The administrative capacity involved in
coordination of European integration, including financial assistance, remains
weak and needs to be substantially strengthened. Legislative amendments with a
view to establishing a transparent, efficient and
accountable administration at local level are still
pending.

Public
administration

One of the main
government activities in the reporting period was to complete essential steps
in public administration reform, a key priority set out in the Opinion.

The Public
Administration Reform Strategy for 2011-2016, with the accompanying action plan
(AURUM), was adopted by the government in March
2011. The strategy includes introducing European standards covering recruitment
and promotion and measures to increase the efficiency of the State
administration. It also envisages an overall reduction of employment in the
public sector; yet, it does not specify how this would be achieved without
affecting the performance and efficiency of services. Some measures have already been taken to introduce
economies of scale and integrate bodies whose activities have been disparate
and uncoordinated (e.g. the various State inspection services).

Some important
steps forward have been taken to reform the legal framework governing the civil
service, in particular by adopting two essential pieces of legislation: the Law on civil servants and State employees and the Law on general
administrative procedure.

Amendments
to the Law on general administrative procedure were enacted by the parliament
in June 2011. These amendments constitute a
first step towards the reform of administrative procedures. Work has been
launched to prepare a comprehensive reform with a view to laying the
foundations for a modern, citizen-oriented administration. To this end, in July
the government adopted a policy paper, containing the main principles and elements for a new law
on administrative procedures in line with European values, legislation and
practice. It simplifies processes in
public administration in line with the principles of efficiency and
effectiveness, enforcing transparency and objectivity, accessibility to
citizens and NGOs and openness to the use of modern information and
communication technologies.

A new Law on
civil servants and State employees, based on the principles of merit-based
recruitment and promotion, was adopted by the parliament in July 2011. It lays
down the main foundations for the establishment of a de-politicised and
professional public administration acting effectively and impartially. It
improves protection of persons who report possible cases of corruption
(whistleblowers) and prescribe the obligation to adopt plans of integrity in
the public sector. The law will start applying in January 2013 after the end of
a transition period. Preparations for its application are under way. In July
the parliament adopted amendments to the Law on salaries of civil servants and
state employees, which provides for a
transparent salary system for employees financed from the State budget.

In a further positive development, amendments to the Law on public
administration, enacted by parliament in July, envisage streamlining of the
existing fragmented public administration structure, enforcing accountability
and improving the implementation of long-term reform plans. The introduction of
the functions of State secretaries and Directors general splits clearly the
political and the administrative levels in ministries.

In April 2011,
the government adopted a revised rulebook on the internal organisation and job
descriptions of the Human Resources Management Authority (HRMA). Its legal
mandate is further enhanced by the new Law on civil servants and State
employees, which a gives the HRMA a stronger role in monitoring implementation
of civil service legislation and developing policies for human resources
management.

The capacity of the State Audit Institution
(SAI) has been strengthened but it needs to recruit more auditors to enhance
its capacity to perform audits; also, its managerial and administrative
autonomy has to be enhanced. The principles of sound
financial management in the public administration have been reinforced by the
Law on public internal financial control adopted in March 2011. (See also Chapter
32 - Financial control.)

Key
e-government legislation has been put in place and campaigns to promote it were
launched by the new Information Society Ministry. The relevant parts of the
Strategy for Development of the Information Society for 2009-2013 are being
implemented and this needs to continue.

Cooperation
between the Ombudsman, government and civil society has been tightened.
His influence has increased substantially and in the vast majority of cases the
Ombudsman's recommendations are followed by the relevant institutions, albeit
with significant delays. The current financial and human resources of the
Ombudsman's Office are not sufficient to carry out all its tasks efficiently.
The new Law on the Ombudsman was adopted in July.

Overall, Montenegro has taken important steps to address the main
challenges posed by the public administration reform. The Government
adopted and started to implement a public administration reform strategy. An
improved legal framework in the area of civil service and state administration
aiming at efficiency, de-politicisation and merit-based recruitment has been
adopted. Legislation regulating administrative procedures has been amended and
a further comprehensive reform has been launched. The HRMA has been
strengthened. Preparations for implementation of the adopted legislation have
to be stepped up and focus on enforcing de-politicisation, professionalism and
effectiveness and impartiality of the administration, including through
merit-based recruitment and promotion. The capacity of the Ombudsman and of the
State Audit Institution needs to be further enhanced. Implementation of the
Public Administration Reform Strategy needs to take due account of the need to
rationalise administrative structures and strengthen administrative capacity,
notably in areas related to European integration, while ensuring the financial
sustainability of public administration.

Civilian oversight
of the security forces

Parliament adopted a new Law on
parliamentary oversight in the fields of security and defence, which provided
additional clarity regarding parliament's role in civilian oversight by
defining the obligations of all parties involved.

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

Montenegro has
made progress on judicial reform, notably in the form of reinforcing the
independence, accountability, impartiality and efficiency of judges and
prosecutors, one of the key priorities set out in the Opinion.

Preparations
have focused on legislative reforms at sub-constitutional level with the aim of
strengthening judicial independence and impartiality within the limits provided
by the current Constitution. Amendments to the Laws on courts, the Judicial
Council and the State prosecution office were enacted by the parliament in July
2011. In parallel, the process of amending the Constitution was launched and
advanced, with a view to further enhance judicial independence by means of
de-politicised and merit-based appointments of the Judicial and Prosecutorial
Councils' members and of State prosecutors, and strengthen the accountability
of the judiciary.

With regard to
the independence of the judiciary, amendments to the Law on the State
prosecution office provided for changes in the composition of the Prosecutorial
Council and broadened its scope of action, including on the appointment of the
Special prosecutor and in disciplinary proceedings. Amendments to the Law on
the Judicial Council provided for increased transparency and involvement of the
judiciary in the procedure of appointment of judges and renowned jurists to the
Judicial Council, and the involvement of the latter in the process of proposing
candidates for the post of Supreme Court President. Candidates for this
position have to meet henceforth stricter criteria, introduced by the
amendments to the Law on courts. Criteria for first-time appointment of judges
and deputy State prosecutors and their subsequent promotion, as well as for the
appointment of court presidents and the permanent tenure of State prosecutors
have also been laid down. A legal obligation to apply written, anonymous tests
for selection of magistrates has been introduced. In September 2011, the
Judicial Council appointed the members of the Commission responsible for
conducting these tests for the selection of judges. The new criteria for
selecting entrants to the judicial system reduce the room for discretion by the
Judicial and Prosecutorial Councils and thereby improve transparency in the
selection process. However, these selection criteria have not yet been applied
in practice. Some of them lack clarity, while the weighting of individual
criteria is not fully satisfactory. The merit-based elements of the career
system need to be further strengthened.

The procedure
to amend the Constitution in the area of the judiciary was launched by the
government in June 2011. In July the parliament enacted the decision in
principle and charged its Committee for Legal and Constitutional affairs to
draft constitutional amendments. A number of alternative amendments were
drafted and sent to the members of parliament in July. The amendments envisage
new arrangements on the set-up of judicial institutions, aimed at limiting
political influence in appointments and broadening judicial independence,
notably through the increase of the number of Judicial Council members coming
from the judiciary and a new appointment procedure of the Supreme Court
President, involving the Judicial Council. Provisions enhancing the capacity
and the independence of the Constitutional Court are also envisaged.

With regard to the accountability of
the judiciary, amendments to the Law on courts provided an exhaustive list of
all possible reasons for disciplinary action against judges and – for the first time –
presidents of courts. Amendments to the Law on the Judicial Council provided
for the establishment of a commission for monitoring implementation of the code
of ethics for judges and the autonomy of action of the disciplinary commission. Members
of the latter were appointed in September 2011. Disciplinary sanctions have
also been strengthened. Amendments to the Law on the State prosecution office
provided for the adoption of a code of ethics by the enlarged session of the
Supreme State Prosecutor's Office and list all possible reasons for
disciplinary action against prosecutors. Initial efforts have been made to
establish a track record on fighting corruption within the judiciary.
Nonetheless, corruption and conflict of interest rules are still insufficiently
monitored in the judiciary. Both judges and prosecutors continue to enjoy
functional immunity from prosecution. Since the entry into force of the
Constitution in 2007, two judges have been stripped from their functional
immunity. Procedures for removing functional immunity need to be strengthened
to ensure full accountability of judges and prosecutors under criminal law. Publicity
of court rulings, although foreseen, is not implemented in practice.

Concerning the impartiality
of judges, random allocation of cases is being consistently implemented in a
number of courts with the aid of an IT system. However, de facto
limitations, particularly in smaller courts, do not fully guarantee random
allocation in every case. The IT system in place allows
case-tracking and automatic allocation of cases but not statistical reporting or electronic filing
of judicial acts.

The envisaged
constitutional amendments are expected to significantly reduce the legal
possibilities for disproportionate political influence over appointments of
magistrates and prosecutors, thus reinforcing judicial independence and
prosecutorial autonomy. The envisaged provisions notably foresee that state
prosecutors will not longer be appointed by the parliament as well as a new
composition of the Prosecutorial Council. Once adopted and in order to become
fully operational, these amendments are to be completed with provisions for
merit-based judicial appointments via a country-wide single recruitment system
and a coherent and stronger system of accountability.

Regarding the efficiency of the
judiciary, Montenegro has taken further measures to reduce the backlog of
cases. With circa 12,000 unresolved complex cases from previous years in
all courts in Montenegro at the end of 2010, the backlog was approximately 7%
lower in 2010 than in 2009.
However, concerns persist about the reliability of the
statistics and the soundness of the method used. The statistical
indicators do not provide complete information about courts' performance, the
duration of case-handling and the human and financial resources allocated, thus creating problems with the consistency of data and effective
follow-up. The Law on notaries introduced a notary system aiming to reduce the
burden on courts and administrative bodies. 34 notaries took up duties in July
2011. The new Law on enforcement and security of claims, enacted by the
parliament in July 2011, transferred powers for civil enforcement to the
bailiffs. However, enforcement of civil decisions in particular remains weak.
Concerns persist over the long duration of court proceedings. The Law on the
right to trial within a reasonable time is not yet implemented effectively, as
a majority of complaints are rejected on procedural grounds and parties are not
properly notified. The constitutional provision on the right to legal remedy
does not fully comply with Article 13 of the European Convention on Human
Rights.

The 2011 budget for the judiciary amounts
to € 26,5 million, which represents 0,83 % of the GDP. Yet, the majority of the
funds have been allocated for the salaries of magistrates, prosecutors and
administrative staff.
Efforts have been made by the authorities to remedy
shortfalls in the judiciary's infrastructure and equipment, but they continue
to hinder efficiency. The deadlines for a number of measures in the action plan
for implementation of the judicial reform strategy (2007-2012) have been
revised. No developments can be reported as regards streamlining the court
network. Montenegro continues to be one of the countries with the highest
number of basic courts, magistrates, prosecutors and administrative staff in
Europe. Determined steps are to be taken to streamline the courts system.

As of 26 August
2011, the new Criminal Procedure Code (CPC) is applied in all Montenegrin
courts. The Law on misdemeanours was amended in December 2010. Also, the Law on
free legal aid and the Law amending the Criminal Code were adopted in April 2011, aligning their provisions with the new
CPC and allowing its application. Twenty nine additional deputy State
prosecutors have been appointed and a number of trainings on CPC provisions
have been delivered to prosecutors and judges. However, shortcomings remain
with regard to the training of judges and prosecutors. There are no permanent
mandatory courses and no set curricula. In addition, the Judicial Training
Centre depends on scarce financing from the central budget and international
donors. Training with set curricula for all members of the judiciary remains to
be established. The training provided on implementation of the new CPC remains
insufficient, in particular for judges, and is to be enhanced following the
full entry into force of the CPC.

Overall, progress has been made in the area of judicial reform. The legal
framework regarding the independence of the judiciary and the autonomy of the
public prosecution office has been improved at sub-constitutional level and the
process of constitutional reform has advanced. Provisions on the accountability
of judges and prosecutors have been strengthened. Significant efforts will be
needed in the period ahead to ensure completion of the legal reform and
effective implementation of the newly adopted legislation. A country-wide single
recruitment system based on anonymous tests for first-time judicial
appointments remains to be established. Systematic training for all judges and
prosecutors, in particular on new legislation and EU law, has yet to be put in
place. Efforts to reduce the case backlog before courts have been stepped up,
but the methodology used needs to become more consistent. The lack of adequate
infrastructure and equipment continue to hinder judicial efficiency. Full
publicity of court rulings needs to be ensured. The judiciary still has to
demonstrate its independence, accountability and efficiency in practice,
particularly by producing convincing results, including final decisions on
corruption and organised crime cases at all levels.

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

Progress can be
reported in the fight against corruption, one of the key priorities set out in
the Opinion. Montenegro has made significant efforts to strengthen the legal
framework needed for combating corruption and to address outstanding
recommendations of the Group of States against Corruption (GRECO). Amendments
to the Law on conflict of interest were enacted in July 2011, with the aim of
remedying legislative gaps identified in GRECO first and second evaluation
rounds. Steps have also been taken to address the recommendations made in the
third GRECO evaluation round covering the financing of political parties and
incriminations. The provisions of the Criminal Code regulating criminal
offences of active and passive bribery have been amended, with a view to ensure
alignment with the Council of Europe's Criminal Law Convention on Corruption
and its additional protocol. A new Law on political party financing, enacted in
July 2011, brought important legislative improvements in this area. A new Law
on public procurement was enacted in July 2011, aimed at reducing opportunities
for corruption and increasing transparency in this field. The new Law on civil
servants and State employees provided legal protection for whistleblowers.

Some progress
has been made on repressing corruption. Steps have been taken to strengthen the
institutional and administrative capacity of the prosecutors and police to
fight corruption. A special anti-corruption investigation team has been
established, made up of representatives of the police administration, the
Office for prevention of money laundering and terrorism financing, the tax and
customs administrations, and reporting to the Special Prosecutor for organised
crime, corruption, terrorism and war crimes. Montenegro has made efforts to
establish a solid track record of proactive investigations, prosecutions and
convictions in corruption cases at all levels, which is part of the Opinion key
priority on anti-corruption. In December 2010, a High
court judge was sentenced in second instance to seven years of imprisonment for
passive bribery. Nine persons were sentenced in first
instance to imprisonment for abuse of official positions and bribery in June
2011. During the reporting period, 28 persons have been indicted in three cases
of abuse of official position and bribery. Among them is a high level corruption case, involving the
at the time Mayor of Budva, his Deputy and a Member of Parliament.

Prevention has
been tightened, with a number of awareness-raising campaigns and opinion polls
conducted by the Directorate for Anti-corruption Initiatives (DACI). In July
2011, the Government adopted a risk assessment of areas vulnerable to
corruption. Six areas of particular risk have been identified: local
self-government, spatial planning, public procurement, privatisation, education
and healthcare. The assessment acknowledged the need for more precise
mechanisms for implementation and monitoring of anti-corruption initiatives as
well as improvement of the reporting methodology used by the Tripartite
Commission for corruption and organised crime cases. The Judicial Training
Centre adopted training programme for judges and prosecutors in the area of
anti-corruption and conducted a number of trainings and seminars in this field.
Specific trainings have been provided to judges and prosecutors to facilitate
implementation of the new Criminal Procedure Code.

Progress has
been made in the implementation of the government's anti-corruption strategy
and action plan, which is part of the key priority set out in the Opinion. In
July, the Government adopted a revised 2011-2012 Action Plan for the
implementation of the Strategy for fighting corruption and organised crime,
comprising a number of new measures and improved indicators. The National
Commission responsible for monitoring the implementation of the Action Plan
adopted its first report in April 2011. It approved new rules of procedure,
providing the possibility for the National Commission to centralise
corruption-related complaints and request ad hoc reports on corruption
from State agencies. The sessions of the National Commission became fully open
to the public in June 2011. Cooperation with civil society in the fight against
corruption has improved significantly. NGOs have actively contributed to
enhancing the strategic framework, providing evidence for initiating corruption
cases and producing surveys.

However,
corruption remains a serious concern. Implementation of the new anti-corruption
legislation is yet to start. Proper impact assessments need to be developed,
including plans for the necessary human and financial resources and
preparations for implementation. The full entry into force of the new
provisions of the CPC and the Criminal Code has not been sufficiently prepared
and will require additional training, in particular for judges. The independence of the judiciary remains a
matter of concern affecting the determination to combat corruption.

Despite a
positive trend, the track record in combating corruption needs to be further developed. Final convictions remain limited, in
particular for high-level corruption cases. The number of corruption cases in
which seizure or confiscation of assets were ordered is still very low.
Provisions of the CPC and the Criminal Code on extended confiscation of
criminal assets have not yet been used. No progress can be reported as regards
the work of the State agency responsible for the confiscation of criminal
assets. Further efforts are needed to strengthen its institutional and
administrative capacity. The capacity of prosecutors and police to conduct
financial investigations, trace criminal assets and present related evidence
before the courts remains to be improved. The level of inter-agency cooperation
and information exchange between the different law enforcement agencies and the
prosecutor's office remains to be enhanced. Cooperation and coordination
between police and prosecutors in particular need to be improved. Prosecutors'
lack of access to the national database of the police and their possibility to
delegate investigation to the police only in exceptional circumstances
considerably hamper implementation of the new CPC. Use of special investigative
measures is impeded by the lack of adequate equipment and specialised human
resources.

Implementation
of the new legislation on financing of political parties and election campaigns
is yet to start. Concern remains over the insufficiently dissuasive and
undifferentiated sanctioning system, the regime and ceiling of membership fees,
as well as the capacity of the State Electoral Commission (SEC) to ensure a fully
effective independent oversight. Few sanctions for non-compliance with
the law have been applied by the supervisory bodies. The asset declarations of
civil servants are still not being checked on substance to identify illicit
enrichment. There is still no second-instance body responsible for supervising
implementation of the Law on free access to information, nor have there been
amendments to the law. The rules of procedure of the
public administration, including appointment and internal control, have not
fully integrated every aspect of prevention of corruption and conflicts of
interest. Disciplinary provisions remain inefficiently implemented in practice.

Overall, implementation of the government's anti-corruption strategy and
action plan, part of the key priority identified in the Opinion, has continued.
The strategic and legislative frameworks have been
strengthened in the key areas of political party financing, conflicts of
interest, whistleblowers, incrimination and public procurement. Risk analyses of areas vulnerable to corruption were completed
with a view to further fine-tuning prevention policies. The technical and administrative capacity for preventing and fighting
corruption has been upgraded. Steps have been made to
establish a solid track record of proactive investigations, prosecutions and
convictions in corruption cases at all efforts, which is part of the Opinion
key priority on anti-corruption. Yet, efforts need to be stepped up to further
develop it. The number of final
convictions, in particular for high-level corruption cases, remains low. Use of
special investigative measures continues to be impeded by the lack of adequate
equipment and specialised human resources. Inter-agency coordination and, in
particular, cooperation between prosecutors and the police need to be further
improved. Implementation of the legislative framework remains uneven. The newly
enacted provisions in the areas of conflict of interest and political party
financing need to be implemented with determination. There continues to be a
need for stronger monitoring of corruption and conflicts of interest in the
judiciary. Corruption remains prevalent in many areas and continues to be a
serious problem.

2.2.
Human rights and the protection of minorities (see also chapter 23 - Judiciary &
fundamental rights)

Observance of international human rights
law

With regard to ratification
of international human rights instruments, Montenegro has complied with all its
formal post-accession commitments before the Council of Europe and has also
ratified the Convention on the Protection of Children
against Sexual Exploitation and Sexual Abuse. It has also signed the Council of
Europe Convention on Preventing and Combating Violence against Women and
Domestic Violence. However, the Constitution (Article 20) has not yet been
aligned with Article 13 of the European Convention on Human Rights (ECHR) to
safeguard the right to an effective remedy before national authorities for
violations of rights under the Convention. Implementation of international
human rights standards continues to be restricted to cases of conflicts with
domestic legislation.

As regards the European
Court of Human Rights (ECtHR), efforts are being made to improve
national courts' compliance with ECtHR case law, in particular by
providing training for judges and prosecutors and ensuring better dissemination
of the relevant case law. During the reporting period, the Court delivered 2
judgements finding that Montenegro had violated rights guaranteed by the
European Convention on Human Rights (ECHR). One related to freedom of
expression, the other to the right to a trial within a reasonable time. A total
of 275 new applications allocated to a decision body have been made to the
ECtHR since October 2010. In September 2011, 820 allocated applications
regarding Montenegro were pending before the ECtHR. Most of these cases are
related to non-implementation of court decisions, non-alignment of domestic
jurisprudence with the case law of the Court, freedom of information, access to
justice and length of procedures, .

As regards promotion
and enforcement of human rights, some progress has been made. The influence
of the Protector of Human Rights and Freedoms (Ombudsman's) Office is
increasing considerably. Its cooperation with civil society has been enhanced
substantially, along with its involvement in promoting the rights of the most
vulnerable groups. The law establishing the Ombudsman as the national authority
for combating discrimination and preventing torture and ill-treatment was
adopted in July. For this law to be properly implemented, the Ombudsman's
Office needs to be provided with sufficient financial and human resources to
carry out its tasks efficiently.

The Ministry
for Human and Minority Rights is involved in anti-discrimination training and
awareness-raising. However, its broader role and leadership of the fight
against discrimination remain limited. The
Parliamentary Committee for Human Rights and Freedoms has stepped up its
activities and cooperation with civil society. Its influence nonetheless needs
to be further strengthened. Courts have started to refer to ECtHR case law.
However, protection of human rights by law enforcement
authorities presents shortcomings, particularly as regards alignment with
European standards and ECtHR case
law.

Civil and political rights

Montenegro made progress on enhancing media freedom, one of the key
priorities set out in the Opinion; the legal framework has been improved and a
sustainable implementation needs now to be ensured.

Some progress has been made on prevention
of torture and ill-treatment and the fight against impunity. The
new Law on the Ombudsman has given him competences in preventing torture and
ill-treatment. Prison staff and members of the security department responsible
for human rights and resolution of incidents have undergone further training.
However, occasional cases of violence continue to be reported, in particular in
police stations. Processing of reported cases continues to be slow. The number
of final judicial decisions remains low.

Some progress has been made regarding the prison
system. The Parliament enacted amendments to the law on execution of
criminal sanctions in July 2011, providing for the establishment of a probation
department within the Ministry of Justice and introducing alternative sanction
measures for minor criminal offenders. Preparations for its implementation are
underway. However, the position of the new Deputy Minister foreseen to lead the
department has not been filled yet. Some rehabilitation work has been carried
out on prison facilities and four new buildings were constructed and put in
use. Furthermore, an amnesty law passed in July last year resulted in the
reduction in the number of detained persons. Yet, prison overcrowding remains a
problem and conditions, although improving, are still not in line with
international standards, notably regarding provision of medical treatment and
family rooms. Detention conditions in Spuz prison have improved, while those in
Bijelo Polje facility remain an issue of concern.

Progress has been achieved on access to
justice, with the adoption of the Law on free legal aid in April.
However, the duration of court proceedings remains a
cause for concern.

Freedom of
expression is, overall, respected in Montenegro.
Progress has been made towards enhancing media freedom, one of the key priorities set out in the Opinion. Provisions related
to defamation and insult have been removed from the Criminal Code. The Supreme
Court laid down guidelines for the courts regulating the level of pecuniary
compensation in defamation cases against media in line with the case law of the
European Court of Human Rights and organised related training for judges. The
number of cases lodged against media for defamation was reduced. Courts have
started to use ECtHR case law to shape their rulings. There have been no
further incidents of physical violence against journalists. High State
officials have promoted a more favourable and safer environment for
investigative journalism.

However, there
have been a few incidents whereby vehicles belonging to a daily newspaper were
set on fire. The attacks were condemned by high state officials, but no
progress was made yet in investigating the case. Furthermore, previous cases of
violence against journalists, including a murder case, have not yet been
properly investigated and processed. Further efforts are needed in this area.
Sound implementation by all courts of the Supreme Court guidelines on the
treatment of defamation remains to be confirmed, including in the appeal cases
pending before the High Court. Compliance of journalists with professional
ethics and standards is still not satisfactory, notably regarding respect of
the privacy and dignity of children in the media. The media self-regulatory
body is not functioning.

The financial
independence of the audiovisual regulator and strengthening of its monitoring
capacity are still lagging behind, pending full adoption and implementation of
administrative decisions and by-laws. Efficiency, professionalism and
independence of the public broadcaster have still not been fully achieved,
notably due to problems with its financial sustainability, an insufficiently merit-based
approach to staff management and adequacy of the representation of civil
society on its board.

Freedom of assembly and association are, overall, respected in Montenegro. Very good progress has been
made on cooperation between State institutions and civil society organisations,
which is one of the key priorities set out in the Opinion. The
institutional framework for such cooperation has been strengthened. The Council
for Cooperation with NGOs has started functioning as an independent advisory
body to the government on issues related to civil society. Contact points for
cooperation with NGOs have been established in all the ministries and most
other State bodies. NGOs are now regularly involved in the legislative and
policy-making or monitoring process, including in such sensitive fields as the
fight against corruption or the efficiency of the judiciary. The highest State
authorities have regular contacts with NGOs, and the attitude of all
stakeholders has become open and constructive. Efforts to improve cooperation
with civil society are also being made at local level. The
legal and regulatory frameworks for NGOs' activities and State financial
support to these organisations have been improved, notably through the adoption
of a new Law on NGOs. The register for civil society organisations has
been updated and digitalised, and it is now available on the website of the
Ministry of Interior. The dialogue with NGOs representing or dealing with the
most vulnerable groups and gender equality is still not fully satisfactory. No
amendments have been made to the Law on volunteer work to alleviate the
conditions for voluntary activities in NGOs.

Regarding freedom of thought, conscience and religion,
inter-faith relations have remained smooth overall.
However, tensions remain between the Serbian and Montenegrin Orthodox Churches
over canonical recognition and property issues, which have occasionally become
factors in party-political relations.

Overall, progress has been made on improving the legal and regulatory framework
and enforcing civil and political rights in Montenegro.
However, shortcomings remain with the fight against ill-treatment and impunity,
access to justice and the prison system. The role of law enforcement
authorities in protecting media freedom remains to be strengthened, in line
with European standards and the case law of the European Court for Human
Rights. The quality and sustainability of the dialogue between the State
institutions and civil society representatives, in particular with NGOs dealing
with the most vulnerable groups, remain to be further strengthened.

Economic and social rights

Montenegro has made progress on
anti-discrimination, which is a key priority set out in the Opinion. The legal
and policy framework has been strengthened; however, implementation remains a
challenge. There has been some
progress with promoting women's rights and gender equality. Training for
labour inspectors and trade unions has been launched, along with public
awareness-raising campaigns on gender equality. Activities to empower women in
employment have been carried out, including in rural areas. The arrangements
guaranteeing equal earnings have been improved. Awareness-raising and
legislative efforts have been undertaken to increase women's representation in
elected offices at national and local levels.

Some progress has been made also on
enforcement of women's rights. The government adopted in June the Strategy for
protection against domestic violence for the period 2011-2015.
Awareness-raising campaigns against domestic violence have been carried out.
One of the NGO-run shelters for victims of domestic violence has received State
financial support until the end of 2011 but it is still not clear whether new
funds will be allocated for 2012. A service has been set up to provide victims
with information on procedures and the steps to be taken. However, state
activities to protect victims of domestic violence are lagging behind. In
particular, sustainable financing of shelters, setting up multidisciplinary
support teams and processing reported cases of violence are not always
satisfactory. Violations of women's employment rights, including to equal pay,
are rather widespread. Women remain under represented in decision making
positions in the public and the private sector.

Some progress has been made on protecting
children's rights. The capacities of the Council for the Rights of the
Child have been strengthened. A network of day-care centres has been set up for
children with disabilities. Awareness-raising campaigns on children's rights
have been stepped up (e.g. for Roma, Ashkalis and Egyptians and for children
with disabilities). However, institutions dealing with enforcement of children's
rights lack the necessary capacity and efficiency. Additional efforts are required
to secure better inclusion and access to education
for children with disabilities, particularly
those with mental difficulties. Deinstitutionalisation and foster or
community-based care remain at an early stage, notably for children from the
Komanski Most institution. Implementation of the strategy on early and
pre-school education and adoption of the Law on juvenile justice are still
pending. Serious violations of children's rights to privacy and dignity by the
media continue to occur.

Progress has been
made with enforcing the rights of socially vulnerable persons and/or
persons with disabilities. The Law against discrimination against
persons with disabilities and the Law on professional rehabilitation and
employment of persons with disabilities have been adopted. Awareness-raising
campaigns and training sessions for civil servants have been carried out. Inclusive educational activities have been launched, in cooperation
with relevant international organisations. The network of day-care centres for children with disabilities has
been extended. Efforts have been made to promote employment of persons with
disabilities, notably by improving the legal framework and stepping up the
activities of employment offices.

However, the legal framework governing the
rights of persons with disabilities is still not fully satisfactory, both
regarding positive action and the sanctions mechanisms. Awareness-raising
activities have not been coordinated with representatives of persons with
disabilities. Access to education and deinstitutionalisation of children, in particular those with a mental disability, is at a
rather early stage. Persons with disabilities have very limited access to
employment, including in public institutions. Operation of the Fund for
employment of persons with disabilities is not fully satisfactory. Public places remain poorly adapted to the needs of these persons.
Conditions in the Komanski Most institution are not fully aligned with European
and international standards, notably regarding accommodation of female inmates
and insufficient separation of adult from juvenile patients. State assistance to persons
with disabilities and their primary carers remains to be strengthened, including the
role of social care centres in this field.

As regards anti-discrimination policies,
one of the key priorities set out in the Opinion, progress has been made.
The Law on the Ombudsman was passed in July; with the new legal provisions, he
has now responsibility over cases of anti-discrimination. The commitment of the
government on this issue has been strengthened; an advisor on human rights and
anti-discrimination was appointed in September in the Prime Minister's office.
A Council for the protection against discrimination has been established,
chaired by the same Prime Minister; it is tasked to monitor and coordinate
activities on anti-discrimination by different authorities. Awareness-raising
campaigns on the inclusion of the most vulnerable groups have been carried out,
along with training for law enforcement agencies and civil servants. A
reporting mechanism has been defined. However, effective implementation of the
anti-discrimination law still remains a challenge; Roma,
Ashkalis and Egyptians, persons with disabilities and lesbian, gay, bisexual
and transgender (LGBT) persons are still subject to discrimination in practice,
including on the part of State authorities. The
capacity of the Ombudsman's Office to effectively address cases of
anti-discrimination remains limited, as well as processing discrimination cases
by law enforcement bodies. Furthermore, the alignment of anti-discrimination law with the acquis remains
limited as there are cases in which it still permits direct discrimination and
it fails to include an obligation for employers to provide reasonable
accommodation for persons with disabilities.

As regards the rights of lesbian, gay, bisexual and transgender (LGBT) persons, some progress has been made. The State authorities, notably at the
highest level, have shown greater openness to respecting the rights and
situation of this population. Government work towards finalising an LGBT action
plan has advanced and a conference to promote anti-discrimination was organised
by the government in September in Podgorica. The Police Directorate signed a
Memorandum of Understanding with the relevant NGO, in order to ensure a
peaceful rally of the gay population. However, LGBT
persons continue to be subject to serious threats, while some cases of violence
have been reported. Legal processing of cases reported to the police has not
started. Involvement of the Ministry of Human and
Minority Rights in protecting the rights of LGBT persons is insufficient.
Public homophobic statements are still being made, including by politicians.

Some progress has been made as
regards labour and trade union rights. The amendments to the Law on the
Social Council enhanced the independence and administrative, technical and
coordination capacity of the national Social Council and strengthened the work
of the social councils at municipal level. However, bipartite social dialogue
and the development of autonomous social dialogue remain insufficient,
especially at local level; the Social Council secretariat provided by the law
has not been set up yet. Yet, implementation and enforcement of labour law
remains a serious challenge. The law on trade union representativeness is being
implemented but procedures to check member lists are not in line with European
standards on data protection.

Limited progress has been made on
property rights. The government set up specific commissions to deal with
denationalisation issues, but the process of restitution remains very slow and
needs to be accelerated. Furthermore, the transparency of the procedure is not
fully ensured. No efforts were made to solve cases of property subject to
restitution which has been privatised in the meantime. The Parliament adopted
in June amendments to the Law on State Survey and Immovable Property Cadastre;
however, the operations of the land register system remain to be improved,
particularly regarding the completeness and accuracy of the data and its
national coverage. No progress has been reported on legal regulation of the
restitution of property taken from religious communities after 1945. Due
to several cases of forgery of property documents, measures have been taken to
strengthen control over the land registry offices.

Overall, Montenegro has made some progress on improving
the legal framework, awareness-raising and training of civil servants regarding economic and social rights.
However, enforcement of these rights remains rather limited, in particular for
the most vulnerable groups and gender equality, including the fight against
domestic violence.

Respect for and protection of
minorities, cultural rights

Some progress has been made in the area of
protection of minorities and cultural rights. The Law on minority
rights was amended to harmonise it with the Constitution and introduce a
guarantee of authentic representation of minorities in parliament and local
assemblies. The amendments also set more precise criteria for the composition
and functioning of Minority Councils. Some progress has been made as regards
cooperation between the authorities and Minority
Councils, notably in the form of regular
meetings with the Ministry of Human and Minority Rights. Inter-ethnic relations are good,
overall, including management of sensitive issues of ethnicity and
language in the population census. There have been occasional tensions, in
particular between Montenegrins and Serbians as regards identity and
language questions. Yet, a broad consensus has been reached on the use of the
official language, and other languages in official use, in schools'
curricula according to the constitutional guarantee to persons
belonging to minority nations and other national communities to obtain
education in their own language. In implementing this agreement attention
should be made to the respect of the sensitivities of the various communities. Persons belonging to minorities remain under-represented
in public institutions. Functioning of
the Minority Fund is still not fully satisfactory when it comes to allocating
funds and monitoring the use made of them.

Progress on inclusion of Roma, Ashkali
and Egyptian (RAE) persons still remains rather limited, despite continuing
efforts by the authorities at national and local levels in cooperation with
relevant international organisations and civil society representatives. Efforts
have been made to implement the strategy for 2008-2012 to improve the status of
Roma, Ashkali and Egyptian population, with the support of a monitoring
commission where representatives of the RAE society are involved. The State has
financed the setting-up of a Roma radio station.

Progress has been made to facilitate civil
registration of RAE population. The amendments made to the law on citizenship
in March 2011 have extended the deadline to request the Montenegrin citizenship
by 31 July 2012, under easier conditions, for those who already resided in
Montenegro before June 2006. However, lack of proper civil registration
continues to affect a large number of RAE persons; a number of domiciled RAE
persons still have not been able to obtain Montenegrin citizenship.
Insufficient pre-school and secondary education enrolment and high drop-out rates,
particularly among girls, remain to be addressed. Scholarships and other forms
of financial support are available for RAE students; however it needs to be
strengthened and mainstreamed through the relevant strategies, aiming at a
better coordination between the different programs in support to education.
Illiteracy remains widespread. Discrimination is prevalent in access to
employment, despite incentives for employers; vocational trainings are offered
to RAE job seekers, but they are not fully adapted to the need of these persons
nor to the opportunities offered by the job market. Recruitment of RAE
graduates in the public sector is at an early stage. Problems still exist with
access for RAE persons to satisfactory living conditions and to social and health
care. Efforts to fight child begging and domestic violence in RAE families need
to be intensified, taking into account the gender dimension in the formulation
of adequate policies. No progress has been achieved regarding political
representation of RAE persons.

Some progress
has been made on improving the situation of displaced persons, which is
one of the key priorities set out in the Opinion. There are currently over
15,000 displaced persons originating from Croatia, Bosnia and Herzegovina and
Kosovo in Montenegro. Since February 2011, the authorities have stepped up
their efforts to give these persons legal status, notably via awareness-raising
campaigns in cooperation with relevant international organisations and closer
cooperation with the countries of origin to facilitate access by the persons
concerned to the necessary supporting personal documents. In July 2011, the
government adopted the "Strategy for Durable Solutions of Issues Regarding
Displaced and Internally Displaced Persons in Montenegro, with special emphasis
on the Konik area". The new strategy replaces the 2009 Action Plan and
confirms the extension of the 7 November 2011 deadline for applications for
foreigner with permanent residence. The deadline for adoption of the amendment
to the law is October 2011. The strategy outlines action for facilitating
access to documents for vulnerable persons. However, mainly due to cumbersome
procedures, including the costs of collecting supporting documents from their
countries of origin, around 30 % of displaced persons submitted relevant
applications and less than 20 % of them obtained legal resident status.
Smaller numbers have obtained temporary status, while around 600 have qualified
for citizenship rights. Return to countries of origin continued but overall
numbers remain limited. Efforts to accelerate the process of
voluntary return for persons originating from Kosovo have been made, but
results remain limited. Further efforts are needed by both Montenegro and
Kosovo to remove remaining obstacles and facilitate return.

According to
the strategy and in line with the extension of the deadline for applying for
permanent residence, the validity of the decree which currently gives
displaced persons access to social and economic rights will be extended. The
strategy also commits to harmonise basic laws with the Law on Foreigners to
ensure full access of displaced persons to economic and social rights. Several
laws still have to be adopted or amended to this effect. Currently, enforcement
of these rights remains insufficient. The new strategy outlines a durable
solution to the Konik area but implementation is still at a very early stage.

Overall, interethnic relations remain smooth in Montenegro. However,
progress on economic, social, cultural and political inclusion of Roma, Ashkali
and Egyptian persons remains limited.

2.3.
Regional issues and international obligations

With regard to
cooperation with the International Criminal Tribunal for the former
Yugoslavia (ICTY), in the reporting period Montenegro neither received
requests for assistance nor had cases referred back to its national authorities
from the ICTY for possible further investigation. Out of the four local war
crimes cases in Montenegro, three are in the trial phase and one in the
pre-trial phase. The government supported the campaign to construct a memorial
for victims of the 1992 deportation war crimes. Yet, so far, treatment by the
Montenegrin court of the case of deportation of Bosniaks in 1992 is not fully
aligned with ICTY case law.

Montenegro has aligned with the Council Decision
advancing universal support for the International
Criminal Court and promoting the widest possible participation in it[5].
However, it still maintains the
2007 bilateral immunity agreement with the United States granting exemptions
from the jurisdiction of the International Criminal Court. This does not comply
with the EU common positions on the integrity of the Rome Statute or the
related EU guiding principles on bilateral immunity agreements. Montenegro
needs to align with the EU position.

Significant
progress was made with regard to the Sarajevo Declaration Process,
launched on 31 January 2005. Bosnia and Herzegovina, Croatia, Montenegro and
Serbia are cooperating within this process to find solutions for refugees who
were displaced as a result of the armed conflicts in the former Yugoslavia
between 1991 and 1995. The countries have continued to make progress on a
number of outstanding issues, such as data exchange, civil documentation,
public information, pensions and trust fund mechanisms, in the established
regional working groups. Following the meetings of June and September 2011,
Bosnia and Herzegovina, Croatia, Montenegro and Serbia agreed on a number of
issues, including on the text of a joint declaration to be signed at a
ministerial conference in November 2011 in Belgrade. A regional multi-year
programme aimed at addressing the needs of the most vulnerable refugees, has
also been agreed, together with a donors' conference to be held in the first
half of 2012 in Sarajevo.

Regional cooperation and good
neighbourly relations form an essential part of
Montenegro's process of moving towards the European Union. Montenegro continues
to be strongly involved in developing regional cooperation. Over the reporting
period, it chaired the Central European Initiative (CEI), the South-East
European Cooperation Process (SEECP), the US-Adriatic Charter, the
Adriatic-Ionian Initiative (AII), the Regional Anti-Corruption Initiative (RAI)
and the Multinational Advisory Group of the Centre for Security Cooperation.
Montenegro has also renewed its partner status in the sectoral dialogue in the
Organisation for Black Sea Economic Cooperation (BSEC). Within the SEECP, in
March Montenegro endorsed the Regional Strategic Document and Action Plan on
Justice and Home Affairs 2011-2013. Montenegro is also continuing to
participate actively in the Regional Cooperation Council (RCC), the Central
European Free Trade Agreement (CEFTA), the Energy Community Treaty, the
European Common Aviation Area Agreement, and the EU Strategy for the Danube
region. Montenegro continues actively to support the Igman initiative on
reconciliation, which brings together NGOs from Bosnia and Herzegovina,
Croatia, Serbia and Montenegro. Montenegro supports the RECOM initiative.

As regards regional
judicial and police cooperation, Montenegro has ratified and started to
implement extradition agreements with Croatia and Serbia covering own nationals
involved in serious and organised crime. An equivalent agreement was also
signed with the former Yugoslav Republic of Macedonia. Agreements on police
cooperation were signed with Croatia and Serbia. Montenegro ratified the
agreements with Bosnia and Herzegovina on mutual legal assistance in
civil and criminal matters and on mutual recognition of decisions in criminal
matters.

Montenegro
continues to maintain good bilateral relations with other enlargement
countries and the neighbouring EU Member State Italy. However,
delimitation of borders with Croatia, Serbia, Bosnia and Herzegovina and Kosovo
remains pending. The agreement on dual citizenship with the former Yugoslav
Republic of Macedonia remains the only agreement of this kind with another
country in the region.

Relations with
Albania have remained good. Cooperation between the two countries focused
on economic and trade relations.

Relations with Bosnia
and Herzegovina have continued to improve. Three agreements were signed
relating to border crossings for local and international transport and defence.
Agreements on cooperation in the field of tourism and exchange of data with
regard to social insurance entered into force.

Montenegro
continued to maintain good relations with Croatia. The two countries signed an agreement on the extradition of citizens
sentenced for corruption and organised crime. A number
of technical meetings have been held to prepare the joint submission of the
Prevlaka border delimitation to the International Court of Justice, but no
substantial progress has been achieved to date. The temporary agreement continues
to function smoothly, but a permanent solution is necessary.

Relations with
the former Yugoslav Republic of Macedonia remained good. Bilateral
agreements were signed on economic and social cooperation and on cooperation in
the fields of education, science and technology. Agreements on bilateral
investment protection and on coordination of social security systems were
concluded. Furthermore, the two countries have also signed an agreement on
extradition of citizens involved in organised crime, corruption and money
laundering.

Relations with Serbia remained good,
overall. Cooperation is developing, in particular in the economic,
environmental and scientific fields. Serbia opened a
consulate-general in Herceg Novi. However, some issues concerning the dissolution
of the State Union still remain to be solved, such as finalisation of the
distribution of assets and liabilities and citizenship rights, particularly
concerning dual citizenship.

Montenegro
continued to maintain good relations with Kosovo.
A bilateral agreement relating to registration of displaced
persons from Kosovo living in Montenegro entered into force on 29 June. A
readmission agreement was signed on the same day. Yet, the demarcation process
has not progressed, notwithstanding the existence of a commission specifically
responsible for it. The issue of explicit recognition of the Montenegrin
minority in Kosovo remains pending.

Relations with Turkey
are good. Turkey provided humanitarian assistance to Montenegro following the
floods that affected the country in December 2010.

Overall, Montenegro continues to satisfy the Stabilisation and Association
Process conditionality on cooperation with the ICTY and regional cooperation,
despite some outstanding bilateral issues.

3.
Economic criteria

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

3.1.
The existence of a functioning market economy

Economic policy essentials

Montenegro
has been playing an active part in the EC fiscal surveillance and reporting
arrangements applying to potential candidate countries since 2006. It participated
for the first time in the EU multilateral fiscal surveillance procedure for
candidate countries, including the ministerial dialogue with the ECOFIN Council
in May 2011. The country's 2011 Economic and Fiscal Programme presented a
cautious macroeconomic baseline accompanied by an expenditure-based fiscal
consolidation framework, plus a wide structural reform agenda that was consistent
with past priorities. Meanwhile, a domestic political consensus was maintained
on the fundamentals of a market economy. Overall, economic policy
remained consistent.

Macroeconomic stability

The
economy started to recover in 2010 from the effects of the crisis, growing by
2.5%, after contracting by 5.7% a year earlier. The first signs of
revitalisation appeared in the second quarter of 2010 after 18 months of
continuous contraction. Growth was driven by net exports, private consumption
and changes in inventories. From the supply side, the turn around of the global
metal market gave an additional boost to local industries, raising total
industrial production by 17.5% in 2010. Manufacturing output accelerated
further by 9.6% on average during the first seven months of 2011. However, the
overall industrial production rose much more modestly, by 0.2% year-on-year in
July, as the utility sector output still remained below previous year level by
-30%. The construction sector accelerated rapidly in the last quarter of 2010,
with the value of performed construction works expanding by 13% in 2010,
compared with the contraction of 21% recorded a year earlier. The value of
finalised construction works expanded in the first six months of 2011 by 30.8%
year-on-year. Retail sales which had shown a modest increased in 2010 (1.6%)
increased further during the first half of 2011 by 14.3% year-on-year. Average
per-capita income in purchasing power standards amounted to 40% of the EU-27
average in 2010, down from 41% in 2009. Overall, a modest recovery of
the economy is underway.

While
domestic demand remained subdued in 2010, industry's recovery contributed to a 20%
increase of total merchandise exports, with exports of aluminium accounting for
41% of this increase. At the same time, merchandise imports remained virtually
flat. As a result, the large trade deficit dropped to 42% of GDP in 2010, from
46% a year earlier. After a successful tourism season the surplus in services
increased by 16%, supporting the contraction of the current account deficit in
2010 down to a still very high 25% of GDP, from 30% a year earlier. The current
account deficit contracted further during the first half of 2011 by 12.5%
year-on-year to 22.4% of GDP in annualised terms. The improvement was mainly
driven by a widening surplus on the services and income accounts. In 2010 the
current account deficit was largely covered by net FDI and net portfolio
investments, contributing 17% and 6% of GDP respectively. In the first half of
2011 net FDI inflows contracted by 45% year-on-year to 13% of GDP or 60% of the
current account deficit. The surge in net portfolio investments during the same
period contributed with additional 11% of GDP, financing 40% of the deficit. Overall,
despite the continuous expansion of merchandise exports, these still remain
below pre-crisis levels.

Unemployment in 2010 remained high at 19.7%,
up from 19.1% a year earlier. Employment contracted by 7.1% in the same period.
The unemployment rate continued growing in 2011. It reached 19.9% in the second
quarter of 2011. According to the Agency for Employment (AEM), recorded employment
improved during the first half of 2011; increasing by 6.6% year-on-year, while
job vacancies increased by 18% year-on-year. The AEM registered unemployment
rate decreased to 11% in July 2011, down from 12.2% at the end of 2010. There
remain significant discrepancies in labour statistics between Labour Force
Surveys (LFS) and the Agency for Employment (AEM) administrative records. Further
efforts are also needed to address the high level of informal employment, estimated
by the AEM at 20% of total employment in 2010. Overall, the labour
market deteriorated during 2010, but shows mixed signs of improvement in 2011.

Consumer
prices remained subdued during 2010, thanks to a reduction in food prices, and
the reduction of annually adjusted electricity prices. Headline inflation
averaged at 0.5% in 2010 and picked up slightly to reach 0.7% year-on-year in
December. Inflation accelerated further in 2011, averaging 2.9% on the first
seven months of the year driven by food, transport, health and communication
prices, as well as the increases in excise rates on alcohol and tobacco. Overall,
price stability was generally maintained amid recent external pressures.

Unilateral
euroisation implies that there is only limited scope for the use of domestic monetary
policy instruments. The Central Bank's capabilities as lender of last resort
are restricted and the ultimate stability of the financial system relies on its
banks' supervision and on the soundness of the government fiscal policy. The
banking system seems to have stabilised somewhat in 2010 and the Central Bank
has been strengthening its supervisory capacities. Bank deposits contracted by
1.9% in 2010 but they recorded positive growth rates during the first half of
2011. However, the aggregated level of bank loans remained in negative territory
during the same period, contracting by 12.4% year-on-year at the end of June
2011. The seven mid-sized and smaller banks recorded
12% annual credit growth in the first half of 2011, while the four largest
registered 32% contraction. Overall, the largest banks could not support the economy by
providing new credits as they were pursuing their consolidation.

In
2010, the consolidated budget deficit stood at 5% of GDP, including tax arrears
worth some 2% of GDP. Moreover, the level of contingent liabilities due to
extended guarantees represented 10.3% of GDP at the end of 2010. Budget
revenues totalled 42% of GDP. The effects of the crisis translated into the contraction
of 1.8% in VAT revenues and tax receipts down by 5.1%, plus the sharp 63% contraction
of corporate income tax owing to the weak financial position of businesses. Revenues
from personal income tax, social security contributions and local taxes exceeded
the plan. Public expenditures reached 45% of GDP, as gross wages increased by
2.4% and social protection transfers (mostly pensions) by 4%, while subsidies
contracted by 12% compared with the planned spending level. Implementation of capital
expenditure remained flat and lower than planned as the highway works were
postponed. The consolidated deficit reached 1.6% of GDP in the first half of
2011. Public debt without state guarantees accounted for 41% of GDP in 2010 as
against 38% a year earlier. The increase was a consequence of the rapid
expansion of the external debt, which accounts for 72% of the total. The public
debt increased further following the new issue of Eurobonds in April 2011, reaching
45% of GDP by the end of June. Overall, past efforts at expenditure
control have resulted in large arrears accumulation and led to substantial
contingent liabilities.

The
global economic and financial crisis has posed a challenge to Montenegro's
policy framework. The fact that Montenegro is using the euro as its sole legal
tender, and has therefore abandoned standard monetary policy tools, leaves
fiscal policy as the main effective policy instrument. The quality of public
finances was improved with the adoption of important structural reforms, such
as the public pension system, the streamlining of public employment, or a new
financing scheme for local self-governments, although the full effect of these
reforms will take still some time to get through. The Montenegrin economy
remains constrained by limited diversification and competitiveness. Overall,
despite the implicit constraints in the form of a limited set of policy tools,
the overall macroeconomic stability improved compared to 2010.

Interplay of market forces

The
majority of state ownership in the economy remains predominantly concentrated
in transport (rail, port, airline and airports), and to a lesser extent in the
metal and electric power industries, as well as in a few miscellaneous
companies. In 2010, only maritime operator services of the port of Bar were
successfully privatised, as well as some property of tourist company Budvanska
Rivijera and the Bijela shipyard. The privatisation process suffered from the
global crisis. Some companies repeatedly failed to attract interest from
investors (in the case of the port container terminal and rail cargo due to the
need for prior reconstruction of the railways) or went into bankruptcy
proceedings (the steel mill and the tobacco factory). In August 2011 Italian
power utility A2A, which owns 44% of Montenegro state power company EPCG, waived
its right to acquire majority ownership after the government reversed a 2009
decision to majority-privatise the company. Overall, majority state
ownership remains concentrated in network industries.

Only
a limited number of products are currently subject to administrative price
control, including medicines, bread and fuels. Meanwhile the Energy Regulatory
Agency (ERA) establishes electricity prices in relation to production cost
thresholds. In addition, local authorities may control the prices of certain utility
services (water supply, sewerage, refuse collection). In the absence of
controls on the price of food other than bread, the government approved the
payment of two one-off cash benefits in 2011 (totalling € 2 million)
targeting the most vulnerable social groups. Administered prices accounted for
10.7% of the harmonised index of consumer price (HICP) in 2010. Overall,
the influence of the state in price dynamics remains limited.

Market entry and exit

In
2010 there were 3,695 new companies registered in Montenegro, which is an
increase of 6.8% in the number of new registrations compared with 2009. Improvement
in market entry was achieved with the establishment in May 2011 of a 'one-stop
shop' for new company registration and simultaneous tax and customs listing
instead of having to deal with three different institutions and procedures as was
previously the case. So far, registration is possible at the central registry
of the commercial court, but not yet at the regional units of the tax
administration. Additional support to the business environment was provided in
the form of amendments to the Law on Administrative Fees adopted in March 2011,
which reduced or simply abolished payment for a series of administrative and
customs documents. The number of bankruptcy cases in 2010 fell to 2,196,
compared to 6,150 a year earlier. A new Bankruptcy Law came into force in
January 2011. The new law significantly shortens deadlines and enables
submitting a legally enforceable restructuration plan together with the bankruptcy
petition, against which creditors' claims are to be settled. Another novelty is
the possibility for the debtor's company to be sold as a single legal entity, which
increases its chances of survival. Overall, market entry and exit
mechanisms were further improved.

Legal system

For
the acquisition of real estate the Property Relations Law and the entry into
force of the Stabilisation and Association Agreement provide the same treatment
to both EU citizens and nationals. The Law on State Surveying and Immovable
Property Cadastre was adopted by the parliament in June 2011. The main
improvement concerns the shortening of deadlines for registration of immovable
property to eight days compared with thirty days before, while authorities are
obliged under the new law to make a decision within fifteen days of the
submission of the request. Meanwhile, the modernisation of the current cadastre
register continues with the addition of a newer digitalised information system.
Overall, property registration procedures continue to improve.

In
July 2011 the parliament adopted the Law on Enforcement and Securing of Claims.
The new law shortens delays in procedure and recognises mortgage contracts and
notarial deeds as enforceable documents. It also allows enforcement against
immovable property, including their public sale within a limit of 50% of its
market value. Enforcement against monetary claims is also tightened up. Although
the strategic and legislative framework to combat corruption has been
strengthened, its implementation remains uneven and corruption continues to be
a cause for concern. Overall, the new law on Enforcement and Securing of
Claims laid the basis for swifter enforcement of contracts. However, weaknesses
in the rule of law and prevalent corruption continue to have an adverse effect
on the business environment and remain a major challenge.

Financial sector development

Total bank loans accounted for 71% of GDP in
2010, compared to 80.4% the year before. Loans to the private sector remained
constant at 98% of total credit. The ownership structure is largely dominated
by foreign capital (83% of total), followed by private domestic shares (15%)
and state ownership (2%). The banking sector remains highly concentrated, with
four banks accounting for 68% of total assets. Financial intermediation
remained subdued until May 2011 when two of the largest banks recovered from a
long period of credit inactivity. In the case of Crnogorska Komercijalna Banka
(CKB) it had to clearout its balance sheet, while Prva Banka's lending was
banned by the Central Bank for a period of two and half years until the bank
was recapitalised and improved its liquidity. The Central Bank has remained
very active, developing secondary legislation with a view to strengthening the
resilience of the system to future shocks. In 2011 it adopted several
decisions, namely on open market operations, on conditions for lending to banks
to maintain their liquidity, on approving last resort financial aid to banks,
on international reserves management, on the establishment of the Investment
Committee, on capital adequacy and, on mandatory reserves. Overall,
financial legislation improved.

The
interest rate spreads have been widening, as lending rates have been rising
(from 9.63% in 2010 up to 9.72% in June 2011) while deposits rates contracted
from 3.26% in 2010 to 3.06% in June 2011, the latter trend reflecting an
overall improvement of banks' liquidity. The capital adequacy ratio (CAR) rose
from 11% in 2009 to 15.9% in 2010 and 15.3% in June 2011, remaining above the
minimum legal threshold of 10%. However, the share of non-performing loans
(NPL) raises concerns. It has been increasing, reaching 25.3% of total loans in
June 2011. Some banks still recorded losses and weak profitability. In the
first half of 2011 the aggregated loss of banks totalled € 9 million,
compared to 47 million loss a year earlier. At the end of 2010, the combined
return on average assets (ROA) was ‑2.7% and the return on average equity
(ROE) ‑27.3%. During the first half of 2011 the situation improved
relatively, recording ROA of ‑0.6% and ROE of ‑6.3% by the end of
June. Overall, the financial situation of the banking sector and the
increasing share of non-performing loans continued to reflect the fallout of
the crisis, and remain a cause for concern.

The
leasing market remained virtually stagnant during 2010 as the value of their
contracts was less than 0.9% of GDP compared with 1.1% a year earlier. Leasing
showed signs of recovery in the first half of 2011, expanding by 3.3% year-on-year.
The insurance market recorded a new entrant in 2011, raising the number of
active companies in the country to 12. However, the sector still remains highly
concentrated, with one company accounting for 53% of total premiums. Non‑life
insurance dominates the market (86.6% of the total in 2010), of which
compulsory motor vehicle insurance accounts for 56%. In 2010, the combined
turnover of the two stock exchanges experienced a sharp contraction of
86% year-on-year, mostly as a result of the high base level following the
partial privatisation of the electric power company a year earlier. In October
2010 the two stock exchanges merged to form the Montenegro Stock Exchange,
operating as a single entity from January 2011 onwards. The parliament adopted
a law on takeover of joint stock companies in March 2011 to improve the
protection of shareholders, while streamlining takeover procedures. In June
2011, the Securities Commission issued the first licence to a domestic
brokerage company for margin trading. The stock market turnover further
declined in 2011, contracting by 31% year-on-year in August. Overall,
non-banking financial institutions continued to play a limited role as a source
of private sector financing.

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

Existence of a functioning market economy

The
financial sector has still to recover from the fallout of the crisis. The
persistence of external and internal imbalances and the risks as regards public
finances from contingent liabilities present a challenge for the economy. Unemployment
remained high. The stabilisation measures taken, coupled with a prudent fiscal
stance, have reinforced the overall macroeconomic stability. Overall,
market mechanisms endured the global turmoil but potential vulnerabilities
remain.

Human and physical capital endowment

The
reform of the education and training system remains very important given the mismatch
of skills with the labour market and the need to improve competitiveness. Reforms
have been focused on vocational education and training (VET) following the
adoption of the amendments to the Law on VET in July 2010. Several education
programmes have been prepared and updated: one for lower vocational education,
31 for three-year VET, 65 for four-year secondary VET and one for higher VET.
Furthermore, social partners (trade unions and
employers association) as well as the chamber
of commerce and the employment agency have been also
more involved. In order to align market needs more closely with academic
curricula, three sectoral commissions (construction, agriculture and tourism)
were established in 2010, tasked with proposing the development of VET
qualifications. Overall, education reforms continued.

Almost
70% of the needs for seasonal employment are covered by foreign workers. In June
2011 the parliament amended the Law on Employment and Work of Foreigners,
simplifying administrative procedures for contracting foreign labour. Active employment
measures carried out during 2010 included programmes for education and
professional training, public works programmes, credits for self-employment, as
well as other activities such as career guidance, specialisation courses, etc. Overall,
progress was recorded in the form of an improvement in several aspects of the
labour market, but efforts should be sustained in order to increase labour
participation rates.

Half
of total public investments in physical capital are allocated to the national
roads programme, representing some 2% of GDP in both 2009 and 2011. Investments
on railways infrastructure (around 1% of GDP per year) are largely concentrated
in reconstruction of existing sections, mostly financed from loans from
International Financial Institutions. Total public investments in airports,
telecommunications and the port of Bar represented less than 0.3% of GDP. As
regards telecommunications, broadband connections rose by 4% during 2010,
raising the penetration ratio to 35%. The incumbent Crnogorski Telekom enjoys a
98% share of the fixed telephony market, and m:tel 2%. In May 2011, the
government adopted the plan for the development of business zones, enabling
municipalities to create communally equipped areas for the establishment of
entrepreneurial activities. Overall, the country needs to invest further
in modernisation and the development of human capital and infrastructures in
order to support domestic companies in their efforts to expand into foreign
markets.

Sectoral and enterprise structure

Two
of the main domestic manufacturing industries (aluminium and steel) have launched
major restructuring programmes in the past few years. However, although the KAP
aluminium factory managed to implement its expensive social programme and
return to pre-crisis production growth rates, the ironworks company Zeljezara
Niksic succeeded in modernising its working capital but failed to agree on the
implementation of the social programme after two years of negotiations with the
trade unions. This led to insolvency proceedings in April 2011 and the
immediate implementation of a social programme for a majority of its 1,410 employees
(by the end of August some 750 of them had already received redundancy payments).
The company has presented a restructuration plan to be decided upon by the
commercial court in early October. As for network industries, following the
unbundling of the operations and infrastructure services in the Port of Bar and
the railways, reforms are currently focused on implementing their social
programmes ahead of a new attempt at privatisation. In the energy sector, the
power grid operator (CGES) increased its share capital in January 2011 with the
entry of an Italian investor providing a 22% stake whereas state ownership
decreased to 55%. Reforms in the telecommunications industry were focused on
technological upgrading. Overall, the ongoing restructuring in several
key industries established the basis for further investments.

The
contraction of employment recorded during 2010 affected mostly the
manufacturing, construction and extraction industries as well as agriculture.
As a result, the share of employment in industry and construction contracted to
20% in 2010 from 21% of total employment a year earlier and the primary sector
to 6.2% from 6.5% in 2009. Meanwhile, the share of employment in services increased
further to 74% in 2010 compared to 73% in 2009. The informal sector, fuelled by
weaknesses in tax and expenditure policies, as well as in law enforcement,
including the fight against corruption, remains large. Overall, the
sectoral structure of the economy continued to shift towards services. The
informal sector presents an important challenge.

Data
from the Tax Administration show that there were 27,515 SMEs active in 2010, of
which micro-enterprises are the predominant group, representing 53% of the
total, followed by entrepreneurs (including those registered as self-employed)
with 39%, small enterprises with 6% and medium-sized enterprises with 2%. SMEs
account for 73% of total employment in the country, although the average size
of these companies is quite small as most of them take on fewer than 10
workers. Their share of total exports remains slightly above 30% of total
exports. Given that hey find access to credit more difficult, the public
Investment Development Fund started in 2010 to support SMEs by means of bank
guarantees and credits co-financed with commercial banks. It facilitated 107 loans
in 2010 for a total of €9 million, plus an additional €3 million from
associated commercial banks. The Fund's activities have been extended in 2011
by a €5 million factoring facility, the establishment of a guarantee fund
covering up to 50% of SMEs loans with commercial banks, as well as a budget of
€3 million to support agriculture businesses. These subsidised loans for
agriculture have a proportional larger impact in a sector that attracted but
0.4% of total commercial loans in 2010 (or €9 million). The weak quality of
credit portfolios of the domestic banks and risk aversion has led to
persistently high lending interest rates (9.2% on average). The high cost of
finance remains a major obstacle to setting up and developing companies. Overall,
a significant share of entrepreneurial activities remains concentrated in
non-tradable services.

State influence on competitiveness

Total State aid granted in 2010 amounted to
€72 million, or 2.3% of GDP. Of this, around two thirds were allocated to the
aluminium factory KAP. The Niksic steelworks
received additional 7%, but the call for insolvency proceeding in 2011 put an
end to the subsidies to this company. Other companies, like the tobacco
factory, the daily newspaper Pobjeda or the national TV broadcaster, received
each less than 2% of this aid. Following the surge in global oil prices, the
government also introduced in May 2011 a temporary scheme for the partial
refund of excise duties on fuel for agriculture machinery, construction,
transport and food processing industries. Overall, direct State aid has
been declining, although the sizeable amount of state guarantees cumulated in
the last years remain a matter of concern.

Economic integration with
the EU

Openness of the economy, defined as the total
value of exports and imports of goods and services, increased slightly in 2010
to 99% of GDP. The main foreign destination for domestic products remains the
EU, which accounted for 56% of total merchandise exports in 2010 (up from 48%
in 2009), followed by CEFTA countries with 34% (down from 40% in 2009). Yet,
most of Montenegro's imports originated from neighbouring CEFTA countries, with
40% of total trade in, compared with 38% from the EU. Import shares from both
regions remained practically unchanged in 2010 compared with the previous year.
Investments from the EU-27 represented 50% of total FDI inflows in 2010,
compared with 80% a year earlier, largely reflecting the deal by the electric
power company with Italian investors in 2009. Real effective exchange rate
(REER) estimates based on inflation (CPI) suggest that, following a period of
substantial appreciation in 2009, international competitiveness stabilised
during 2010. Overall, trade openness and integration with the EU remain substantial.

4.
Ability to assume the obligations of membership

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

4.1.
Chapter 1: Free movement of goods

There has been no progress in the area of general
principles. Montenegro needs to ensure that its legislation is compatible
with Articles 34 to 36 of the Treaty on the Functioning of the EU and the
related case law of the European Court of Justice.

In the case of horizontal
measures, some progress can be reported.

In the area of standardisation, some
progress has been made as regards adoption of European standards (ENs). By the
end of August 2011 the Institute for Standardisation of Montenegro (ISME) had
adopted 6,280 ENs as Montenegrin standards. A National Standardisation Strategy
has been drafted but not adopted. The capacity of the ISME is gradually
improving, but it is still hampered by limited resources. Its annual budget
totals € 0.5 million and its human resources remain limited.
Montenegro has not yet sealed its membership of the European Telecommunications
Standards Institute (ETSI). As an EU candidate country, it still remains an
affiliated member of the European Committee for Standardisation (CEN) and the
European Committee for Electrotechnical Standardisation (CENELEC).

The ISME has established two technical
committees on automotive fuels in May and Eurocodes in construction in July.
More efforts will be required in order to convert the working groups on
aluminium, food safety, concrete, energy efficiency, occupational health and
safety and human resources management into viable technical committees. The
first step to connect ISME IT system with CEN/CENELEC system was completed,
allowing ISME to report in an automated and integrated way on the adoption of
the standards. As a result, data management and data
quality at the ISME have improved significantly, with an error rate of less
than 0,5% detected when importing new data fields from the CEN. However, the
administrative capacity of the ISME needs to be further strengthened with a
view to ensuring the institute's self-funding and sustainability and
reinforcing its role in meeting the objectives of the national strategy.

Limited progress can be reported on conformity
assessment. Further harmonisation of the Law on technical requirements for
products and conformity assessment with the general principles of the new
approach and the horizontal acquis of 2008 is required. So far, very few conformity assessment bodies (CABs) have shown
interest in becoming designated and, in the future, notified CABs.

Good progress can be reported in the field
of accreditation. The number of accredited
bodies has increased to 17. However,
only two of them (related to lifts and construction products) are operating in
the New Approach fields. The administrative capacity of the Accreditation
Body of Montenegro (ATCG) is improving. In November 2010, the ATCG hosted the
26th General Assembly of the European cooperation for Accreditation (EA). It
still needs to establish a public body representing the interests of the
various stakeholders and to adopt the national strategy for accreditation.

There has been progress on metrology.
The administrative capacity of the Bureau of Metrology (BoM) has been
strengthened. In 2010, the BoM moved to new premises, which were refurbished to
meet international requirements for metrology laboratories. New equipment has
enhanced the testing capacity of the laboratories for mass, length,
temperature, pressure, volume, electrical quantities, time and frequency and
for controls on pre-packed products. However, constant re-calibration needs to
be ensured and the required resources to be secured by the government. The
broken metrological traceability chain was re-established in the fields of
mass, length and pressure, temperature and electrical quantities. The BoM has
launched pilot on-the-ground inspections (e.g. on taximeters and weighing
instruments). However, human resources remain very limited. The April 2010
organisation chart for the BoM envisages 67 posts, but only staff of 25 is
currently employed. Additional resources will be required to install an
integrated IT system to cover all the activities of the BoM. The Bureau also
needs to step up its efforts to obtain national accreditation for its
laboratories. The BoM became a member of the European Association of National
Metrology Institutes (EURAMET) in June.

Some progress can be reported on market
surveillance. A Coordination Body for Market Surveillance composed of
representatives of several inspectorates was set up at the end of 2010 and a
process of setting up a unified market inspection has been launched. The Law on
general product safety and the Law on technical requirements for products and
conformity assessment will need to be revised in view of full alignment with
Regulation (EC) 765/2008.

In March 2011, the national system for
exchanges of information on dangerous products (national RAPEX) was tested on
the first notification of a dangerous product. The IT application for the
Market Inspectorate is now operational but will need to be upgraded for use by
the whole market surveillance system. A new proactive approach including
guidelines for market surveillance was developed and tested by pilot
inspections of selected products in the first half of 2011.

No progress can be reported in the 'Old
Approach' product legislation.

More efforts will be required to transpose
and implement the eleven 'New and Global Approach' directives, which are
currently in the pipeline, i.e. transposition of the acquis on
construction products, machinery, low-voltage equipment, electromagnetic
compatibility, radio equipment and telecommunications terminal equipment,
recreational craft, lifts, common provisions for both measuring instruments and
methods of metrological control, non-automatic weighing instruments, pressure
equipment and noise emissions from outdoor equipment. Transposition of the 'New
and Global Approach' product legislation is substantially delayed by the lack
of clear ownership and the wide division of responsibilities across different
ministries. Coordination mechanisms both at inter-institutional level and
within the Ministry of Economic Affairs need to be strengthened.

Regarding procedural
measures, no progress was made.

Conclusion

Montenegro has made some progress in the
field of free movement of goods and preparations in this area are moderately
advanced. Montenegro needs to strengthen its institutional and administrative
capacity, enhance cooperation between the relevant State institutions and align
the horizontal legal framework with the EU legislation. Considerable additional
efforts are also needed to start transposing the product-specific acquis
into Montenegrin legislation.

4.2.
Chapter 2: Freedom of movement for workers

There has been
some progress in the area of access to the labour market. A Law amending the Law on employment and work of
foreigners, aiming at simplifying existing procedures and
reducing requirements for issuing work permits, was adopted in June 2011.
However, to comply with EU law on free movement of workers, EU nationals may
not be subject to any work permit requirement as from accession.

There has been some progress regarding
preparations for future participation in the EURES (European Employment
Services) network, particularly in planning the establishment within the
Employment services of new administrative structures dedicated to EURES.

There has been little progress in the field
of coordination of social security systems. Montenegro has ratified
cooperation agreements with Austria, Belgium, the former Yugoslav Republic of
Macedonia, Switzerland and signed such an agreement with Slovenia. Negotiations
are under way with the Slovak Republic, Bulgaria,
Greece, France, Bosnia and Herzegovina, Croatia,
Ukraine and Turkey. These new bilateral agreements are based on the same
principles as the EU regulations on coordination of social security. No further
progress was made towards strengthening administrative capacity.

There were no developments as regards the European
health insurance card.

Conclusion

Little progress has been made in the field
of freedom of movement for workers. Montenegro continued to conclude and
implement new bilateral agreements, notably with Member States. However,
institutional capacity remains limited. In the area of freedom of movement for
workers, alignment with the acquis is still at an early stage.

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

Progress can be reported on the right of
establishment. The Montenegrin legislation and the procedures for
entry in the commercial register remain non-discriminatory against foreign,
including EU, operators and the country started to address its objectives.
Regarding the issuing of construction permits, there has been some progress on
preparing legislative reforms. Amendments to six laws on waters, agricultural
land, protection and rescue, geological researches, electronic communication
and spatial planning and construction to simplify the procedure for issuing
construction permits were adopted by the parliament in July. The one-stop shop
for business registration within the Central Registry of the Commercial Court
(CRCE) has been operational since May, while in the future the one-stop shop
will be integral part of the Tax Administration. Amendments to the laws on tax
administration, accounting and auditing and business organisation were adopted
by the parliament in June. When implemented, the number of procedures will be
reduced from seven to three. The CRCE will continue functioning within the Tax
Administration.

As regards freedom to provide
cross-border services, little progress has been reported on transposition
of the Services Directive. Apart from harmonising basic legislation,
implementation of the Services Directive will require designating a central
coordination body or unit which will liaise with all ministries and other
bodies involved.

In the case of postal services,
little progress can be reported. Montenegro's primary legislation follows the
principles and objectives laid down in the acquis and further efforts
have been made in the form of preparation of a new Law on postal services. With
effect from January 2011, the government moved responsibility for electronic
communications and postal services from the Ministry of Transport and Maritime
Affairs to the Ministry for the Information Society. Certain responsibilities
are also being exercised by the Ministry of Finance, especially for setting the
tariffs for reserved postal services. This practice raises substantive concerns
about ensuring the independence of the national regulatory authority (NRA) and
will have to be further addressed. The national regulatory authority for postal
services (NRA) is the Agency for Electronic Communications and Postal Services.
The tender commission to choose a contractor for restructuring the universal
postal operator has been established.

There have been no developments regarding
the universal service obligation. As regards administrative capacity, a head
inspector for electronic communications and postal services was appointed in
October 2010. However, the number of staff dealing with postal services in the
ministry and the NRA has not increased.

There has been good progress in the field
of mutual recognition of professional qualifications. The Law on
recognition of foreign qualifications for regulated professions was adopted by
parliament in March 2011. Under this Law, evidence of formal education of
nationals of EU Member States is recognised as if it had been acquired in
Montenegro. Several by-laws will have to be adopted to implement the law. The
Law on the national qualifications framework entered into force in January 2011
and is now being implemented. The rulebook on recognition of foreign
certificates entered into force in February 2011. However, further adjustments
to the legal framework are needed. This should include eliminating all
nationality, residence and inappropriate language requirements plus reciprocity
clauses and introducing a legal distinction between the professions of doctor,
dentist and pharmacist, as regards both training for and access to the these
professions. Further adjustments will also need to be made to the education and
training conditions for the professions benefiting from automatic recognition
of professional qualifications on the basis of harmonised minimum training
requirements.

Conclusion

Overall, little
progress has been reported on the right of establishment and freedom to provide
services. On the right of establishment progress has been achieved and
legislative reforms have advanced in the case of issuing construction permits.
Little progress was reported on the right to provide cross-border services.
Considerable efforts need to be made on alignment of legislation on the
Services Directive and also on administrative capacity and inter-institutional
cooperation. Montenegro has made little progress towards aligning its national
postal legislation with the acquis and the full independence of the NRA
and integrity of its regulatory functions still need to be ensured. Further
adjustments to the legal framework in the field of mutual recognition of
professional qualifications are needed.

4.4.
Chapter 4: Free movement of capital

Regarding capital
movements and payments, foreign direct investment (FDI) continued to be a
key factor in economic development in Montenegro. According to Central Bank
data, FDI in Montenegro totalled approximately € 643 million in 2010.
Of this, 40% was invested in companies and banks and 29% in real estate, while
25,5% covered inter-company debt and 5,5% other investments. 50,1% of these
inflows originated from EU countries, compared with 64% over the period
2000-2009.

No legislative developments can be reported
on free movement of capital and on payment systems. Moreover, the government's
privatisation agenda was not entirely met. There was a decline in the real
estate sector, notwithstanding the fact that EU citizens are treated as
nationals when it comes to acquisition of immovable property.

As regards payment systems, the
Central Bank of Montenegro adopted the "Decision on mandatory elements of
payer transfer orders" in March 2011. According to the decision, each
transfer of funds must contain all the information necessary to comply with the
relevant EU Regulation.

With regard to the fight against
money laundering progress can be reported. In September 2010 the government
adopted the Strategy for Preventing and Combating Terrorism, Money Laundering
and Terrorist Financing for the period 2010–2014 together with the Action Plan
for implementing the Strategy for the period 2010–2012. A National Commission
for implementing the Strategy was established, made up of representatives from
all the relevant institutions. The government submitted amendments to the Law
on prevention of money laundering and terrorism financing to parliament in
January 2011. These are intended to bring it closer to the acquis. New
definitions and obligations were introduced, plus new provisions for including
complete information on the payer in electronic transfers of funds (see
above under 'payment systems'), which will tighten up the preventive
system. More efforts are needed for the adoption of the law.

The Insurance Supervision Agency adopted
guidelines on risk analysis on money laundering and procedures for indentifying
suspicious transactions. Reporting of suspicious transactions by the banking
sector increased. However, banks are still the only entities reporting. There
have still been no convictions for terrorist financing and very few for money
laundering. Due to lack of funds, professional training and upgrading of the IT
systems remain incomplete

The rulebook on the internal organisation
of the Administration for Prevention of Money Laundering was adopted by the
government in February 2011 with the aim of building up its capacity. This
administration serves as the national Financial Intelligence Unit (FIU) and
currently employs 28 staff (out of 38 posts assigned), compared with 26 last
year, due to limited State funds. However, high staff turnover is hampering
effective functioning of the FIU. In October 2010 it signed agreements on
exchanges of financial intelligence data with Moldova, San Marino and Israel
and updated similar agreements with the Russian Federation, Slovenia and Aruba.
These bilateral agreements strengthened cooperation with other countries in
this field.

In March 2011
the Insurance Supervision Agency issued guidelines on risk analysis on money
laundering and procedures for identifying suspicious transactions.

Cooperation between the Central Bank of
Montenegro, the Securities and Exchange Commission, the Insurance Supervision
Agency and the Ministry of Finance was tightened by establishing the Council
for Financial Stability in September 2010. In December 2010 the Council decided
to collect and exchange data and information of significance for the stability
of the financial system (see also Chapter 9 – Financial services).

Conclusion

While capital movements have been
essentially liberalised, full alignment of Montenegro's legislation with the acquis
and strengthening of its administrative and supervision capacity are still
pending. In the case of combating money laundering and financing of terrorism,
some progress was made, mainly in the form of the adoption of a strategy and
guidelines. Closer cooperation between the financial supervisory authorities
and enforcement agencies has also been achieved. However, there are gaps and
risks in the system for reporting suspicious transactions and the activities of
supervisory authorities remain unfocused. Streamlining of the system for
reporting suspicious transactions, backed up by a proactive approach by the
FIU, are required for successful action in this field.

4.5.
Chapter 5: Public procurement

The general principles of public
procurement in the internal market have been partly transposed in the Montenegrin
legislation. Now efforts will have to focus on implementation and enforcement.

Good progress can be reported in the
area of public procurement, including the award of public contracts. The
new Law on public procurement was adopted by the parliament in July. While the
new law brought progress, full harmonisation with acquis has not been achieved
yet. The related implementing legislation still needs
to be finalised. Additional resources will be required
to carry out the planned intensive training campaign and to bring the newly
established helpdesk at the Public Procurement Directorate fully into operation
to support enforcement of the law. Establishment of the new inspection service
on public procurement will require appropriate financial resources. The 2009
Law on concessions is neither compatible with the relevant EU directive, nor
with key provisions of the remedies directive.

Administrative
capacity for public procurement is gradually improving. In 2010, over 780
public procurement officers and other staff directly involved in public
procurement were trained. The two key institutions – the Public Procurement
Directorate (PPD) and the Commission for the Control of
Public Procurement Procedures (PPC) – are showing
growing self-confidence, but the limited human and
financial resources assigned are constraining law enforcement, especially as
far as the PPC is concerned. The independence of the concessions review body,
the Concessions Commission, needs to to be ensured. Its powers are defined in
very general terms and its institutional capacity needs to be improved.

Since the PPC
was established it has adopted 1,053 decisions, of
which 330 were issued in 2010 and 140 in the first four months of 2011. In
2010, the Administrative Court cancelled the vast majority of the PPC decisions
(60 out of 76) challenged in court, which is a cause for particular concern.
Half of the Administrative Court's negative rulings were for formal procedural
issues and not related to the quality of the procurement procedures.

Monitoring of
signed contracts has to be enhanced. Streamlining and reducing the large number
of contracting authorities and training them would allow more effective
monitoring of the public procurement contracts.

As regards the remedies
system, the Public Procurement Law meets the main requirements of the
Remedies Directive. However, the legislation has to be more detailed and fully
aligned with the Directive.

Improvements
have been made to transparency and the fight against corruption and
maladministration in the tendering process. The Annual Report on Public
Procurement in Montenegro for 2010 adopted by the government in June shows that in 2010 a total of 1,687 public tender procedures
were launched, worth € 467,369,416, and only 185 contracts were signed under a
negotiated procedure without prior publication (10%), which indicates a small
improvement in transparency. The increasing number of bidders per tender and of
complaints may also be interpreted as indicators of greater transparency and
awareness of bidders' rights. However, more efforts are required to launch the
newly developed IT system for publication of procurement notices, which
structures the information on the various tenders more systematically, so that
the various stages of procurement procedures can be followed. The number of
reports on public procurement submitted to the PPD by the contracting
authorities has increased, but keeping track of all direct contracts signed
without a tender procedure remains an issue.

In 2010, the PPC signed a cooperation
agreement with the State Audit Institution (SAI) which envisages joint
activities against corruption and other forms of illegal behaviour during the
public tender process. The SAI regularly audits public procurement procedures
and makes structural recommendations, which were discussed in parliament and at
numerous round-table meetings in 2010. However, more efforts will be required
to put the SAI's recommendations into action. The main concerns remain poor
contract preparation and changes in contract conditions after the contract has
been signed. The latter is not in line with the acquis and is allowed
only in specific circumstances and without changing the essential terms of the
contract.

Conclusion

Good progress can be reported in the area
of public procurement, but further steps still need to
be taken towards alignment with the acquis and adoption of the relevant
implementing legislation. Administrative capacity has been strengthened and the transparency of the procedures has improved somewhat.
Conditions to prevent and fight corruption in public procurement are being put
in place. Yet, the overall institutional set-up for
public procurement, with a high number of contracting authorities, raises
concerns about the capacity fully to implement the legislation on procuring and
tendering and to ensure proper monitoring of contracts.

4.6.
Chapter 6: Company law

As regards company
law, Montenegrin legislation is largely consistent with the EU acquis,
but some discrepancies remain to be addressed. In July, 2011 the
parliament adopted draft amendments to the Business Organisation Law, which
aims to harmonise requirements for publishing data on business organisations
and the grounds for cancelling formation of such organisations. In March 2011
parliament adopted the Law on takeovers of joint stock
companies, which is almost fully
aligned with the Takeover Bids Directive.

As regards electronic signatures, the Root Certificate Authority at
national level was established in December 2010. Nevertheless, e-signature is not operational yet.

As regards corporate accounting and
auditing, draft amendments to the Law on accounting
and auditing have been adopted by the parliament in June. An independent public oversight body for auditors and a quality control system need
to be clearly planned and established. Progress has been achieved in relation
to auditing, since the law specifies which companies require a mandatory audit,
the competent authority to carry out an audit, and the auditors' licences. The Central Registry of the Commercial Court does not have enough
administrative capacity to report in timely manner on the percentage of limited
liability companies that have submitted their financial statements. Nevertheless, according to the Tax Administration out of 24,007
registered limited liability companies, 14,787 (61.59%) submitted their
financial statements in 2010. The
amendments to the Law on accounting and auditing envisage that the financial statements of limited liability
companies will have to be submitted to the Tax Administration only.

Conclusion

Good progress can be reported in the
field of company law. In most fields Montenegro's company law is aligned with
the EU acquis. Amendments to the law on accounting and auditing are in
the right direction. Yet, an independent public
oversight body for auditors and a related quality control system, along with a
system of investigations and penalties need to be established.

4.7.
Chapter 7: Intellectual property law

In the area of copyright
and neighbouring rights, a revised Law on copyright and related rights was
adopted in July.

In the area of industrial
property rights, the Trademark Law, the Law on protection of topographies
of semi-conductors and the Law on the legal protection of industrial designs
were adopted in December 2010. While the adoption of these texts helped to
align Montenegrin legislation more closely with the acquis, serious
discrepancies remain. The Trademark Law does not include a provision concerning
the validity of the filing date. The Patent Law does not provide for an
implementing regulation conferring legal powers to regulate certain matters
related to procedures envisaged in the Law properly. Montenegro should urgently
amend the Trademark Law and the Patent Law and then adopt relevant implementing
legislation. There are minor deficiencies and discrepancies of the Industrial
Design Law with the acquis.

Early in 2011 the Montenegrin Intellectual
Property Office (MIPO) moved to secure premises. Currently a database and
register system are in use, providing a high level of document security. MIPO
is implementing the Industrial Property Automation System, with the cooperation
of the World Intellectual Property Organisation (WIPO) and the European Patent
Office (EPO). However, it has not completely fulfilled its legal obligations
with regard to technical infrastructure for processing intellectual property
rights. There have been no improvements on a configured network, workflow
management tools and working procedures. Limited expertise in intellectual
property remains a problem.

Regarding enforcement
of intellectual property rights, Montenegro started preparing a National
Strategy on Intellectual Property. The Government adopted in June the Decree on
customs authorities` treatment of goods reasonably suspected of infringing
intellectual property rights. In 2010 a limited number of specialised training
courses took place to build the capacity of judges from the basic and commercial
courts and to train market inspectors and customs officers. Customs control
capacity has also been built up. Awareness-raising sessions on copyright issues
were organised by public and professional associations, chambers of commerce
and academic institutions. The upgraded version of the intellectual property
database (INES +) was installed at the Montenegrin Customs Administration and
Market Inspection Authority in October 2010.

The Commercial
Court received 25 cases in the area of trademarks and the
protection of copyrights in 2011. All cases are processed. In 10 cases, the
procedure has been completed, while in eight cases the decision was the first
instance decision (in which action is being taken on appeal). In the remaining
seven cases the procedure is in progress.

However, the
continuing lack of human and financial resources and expertise are preventing
the agencies from being more effective. Efforts on training and
awareness-raising need to be strengthened, both for the public and for officials.
Additional significant efforts are needed to increase efficiency and
coordination between the relevant agencies.

Conclusion

Some progress
can be reported in intellectual property law. The legislative framework on
intellectual property is partially aligned with the acquis. The
Trademark Law and the Patent Law need to be amended, and then their
implementing legislation should be urgently adopted.

The MIPO
premises have been secured and human resources and capacity-building have
improved. Awareness-raising and capacity-building efforts have also taken place
within enforcement agencies. However, additional strengthening of
administrative capacity is vital for further progress in this area. Montenegro
will have to make further efforts to align with the EU acquis in this
area and to implement it effectively in the medium term.

4.8.
Chapter 8: Competition policy

Regarding anti-trust and mergers,
progress has been made in the legislative field. The current legal and
institutional framework complies with EU competition rules in most respects;
however some adjustments are still needed. The draft Law on competition
protection, which establishes the powers of the Competition Protection
Administration (CPA) as an independent agency, will amend the previous
definition of a dominant position and introduce specific procedural provisions
in line with the EU acquis. More efforts are needed to ensure the
adoption of the law and the relevant by-laws.

The amendments to the Misdemeanours Law and
the amendments to the Law prescribing financial fines for misdemeanours were
adopted by the parliament in July. They empower the Misdemeanours Court to
impose fines between 1 and 10% of turnover on companies infringing the
competition rules. The Misdemeanours Law also provides for fines of up to €
4,000 for individuals found guilty of an offence against the competition rules.

As regards the administrative capacity of
the CPA, little progress has been made. This body currently employs 12 staff,
of whom only five are case-handlers. This number is insufficient in view of the
tasks assigned to the CPA by law. Resources remain a critical issue. However,
there is an improvement in the law enforcement record. During the reporting
period 13 mergers were approved. No mergers were prohibited and one was
authorised, subject to conditions. Two applications for individual exemption
from prohibition were approved with certain restrictions. The CPA adopted three
decisions on abuse of a dominant position, one of them launched ex-officio
and concluded in July. In two other ex-officio cases the investigation
is still ongoing. Further investment in the
administrative, investigative and managerial capacity of the Competition
Protection Administration is required.

In the field of State aid some
progress can be reported. The SAC and the
State Aid Monitoring Unit (SAMU) within the Ministry of Finance adopted 19
decisions during the reporting period. In 15 of these cases the SAC found the
State aid to be compliant, in one non-compliant and in three cases the SAC decided
that the notified aid did not constitute State aid. The SAC initiated its first
ex-officio case, which was completed by banning the grant given by the Ministry
of Culture until notification of the existing aid.

The limited number of employees is insufficient for the
SAMU to carry out its tasks and hinders the creation of a credible enforcement
record of adequately reasoned decisions. The actual operational independence of
the SAC and the SAMU needs to be further guaranteed. A
State aid inventory has been compiled and is updated regularly. The programme
for aligning the existing State aid rules is being implemented.

The process of alignment of the legal
framework on State aid control to EU rules was initiated but it has not been
completed.

The amount of
State aid provided to the KAP aluminium company and to the steel company
Željezara Nikšić and its compatibility with Montenegro's
obligations under the Stabilisation and Association Agreement remain unclear. Montenegro
has provided only limited evidence on the
considerations taken into account for establishing the risk premium charged for
the State guarantee issued to back up the loans to these companies. Additional data are needed to calculate the exact amount of aid
given in the form of State guarantees for the relevant loans. Željezara
Nikšić was declared bankrupt in April 2011. Its owner status remains
unclear, which further delays decisions about the company's future. The
reconstruction plan for the Nikšić bauxite mines should secure the
long-term viability of the company.

No progress has
been made in the field of liberalisation of regulated sectors. Before
advancing in this area, it will be necessary to further analyse and monitor
undertakings enjoying special or exclusive rights. In sensitive sectors (i.e.
electronic communications, energy, transport, financial services, etc)
regulated by sector specific legislation, legal amendments may still be needed
to decrease the market entry barriers in order to enhance competition.

Conclusion

There has been some progress in competition
policy. Yet, challenges remain on the administrative capacity of the CPA and
the State aid bodies. Furthermore, the alignment of the legal framework on
State aid control to EU rules has not been completed. The full respect of the
State aid commitments under the Stabilisation and Association Agreement remains
a cause for concern. The operational independence of the State aid authority
needs to be further guaranteed. As regards metal industry, authorities need to
ensure full transparency on the amount of State aid provided to the aluminium
and steel companies. Decisions about the ownership of the steel company which
was declared bankrupt need to be taken without delay.

4.9.
Chapter 9: Financial Services

There has been good progress in the area of
banks and financial conglomerates. Important Basel II requirements,
especially regarding the core capital that banks need to keep aside to respond
to potential financial and operational risks, have been introduced. New
regulations aimed at complying with the Capital Requirements Directive with
respect to own funds, credit risk mitigation, large exposure, counterparty
credit risk and home/host issues were adopted in May 2011. However, they have
yet to enter into force.

Financial stability arrangements compliant
with the EU acquis and EU best practice were made. A Financial Stability
Council was established in September 2010 as a consultative body on financial
stability, improving the framework for cooperation between the three regulatory
institutions: the Central Bank, the Insurance Supervision Agency and the
Securities and Exchange Commission. Internal crisis management plans were
adopted by all financial supervisory institutions. Progress has been made
regarding the Central Bank's supervisory role, in the form of improvements in
its internal organisation and capacity and in exchanges of information with
other supervisory authorities.

There has been some progress in the deposit
guarantee scheme. A new Deposit Protection Law came into force in August 2010,
but is not yet fully aligned with the EU acquis. Deposit guarantees are
set at € 20,000, which will gradually increase to € 50,000 by 2013.
Preparations for alignment with the financial collateral arrangements are well
advanced.

There has been some progress with the
administrative capacity of the Central Bank to fulfil its supervisory role. All
staff of the Central Bank's banking supervision department have received
extensive training on how to implement the Basel II requirements.

There have been no significant developments
as regards insurance and pensions, where preparatory work has been
continuing on amendments to the Insurance Law and the Law on compulsory
insurance in transport, in order to align them with the EU acquis.
Alignment with the acquis on occupational pension funds remains to be
addressed.

There has been some progress with the
administrative capacity of the Insurance Supervision Agency. The
relevant staff received extensive training to prepare them for applying the
Solvency II requirements. However, the human resources of the Agency have not
been increased and several posts remain to be filled.

As regards financial
markets infrastructure, the new Bankruptcy Law adopted in January is
aligned with, and partly transposes into Montenegrin legislation, the relevant
directives and regulations on settlement finality in payment and securities
settlement systems. In the cases of Directive 2002/47/EC on financial
collateral arrangements as regards linked systems and credit claims and
Directive 2009/44/EC amending the Settlement Finality Directive and the
Financial Collateral Arrangements Directive there is no progress and the
relevant legislation is still under discussion.

There has been
little progress in the areas of securities markets and investment
services.

Montenegro will need to implement the 2010
Prospectus Directive. There is still no legislation in place on investor
compensation schemes and credit-rating agencies. The EU acquis on
undertakings for collective investment in transferable securities has not been
transposed yet. However, preparations are well advanced in order the
legislation to be largely aligned with the acquis.

Conclusion

There has been some, but uneven, progress
in the field of financial services. Elements of Basel II requirements have been
introduced and cooperation between the three regulatory institutions has been
tightened. However, legislative alignment in the areas of insurance and
occupational pension funds, financial infrastructure, securities markets and
investment services remains to be achieved. Despite some improvements in staff training,
the administrative capacity of the Central Bank and Insurance Supervision
Agency require further strengthening.

4.10.
Chapter 10: Information society and media

Progress can be
reported in the field of electronic communications and information technologies.
In December 2010, the telecommunications portfolio was transferred from the Ministry of Transport and Maritime Affairs to the Ministry of the Information Society, which became the
Ministry of the Information Society and Telecommunications. The regulator, the
Agency for Electronic Communications and Postal Services (EKIP), has built up
its administrative capacity and been allocated sufficient resources to perform
its tasks. EKIP developed its activities in the form of adoption of
implementing legislation, preparatory work for market analyses and decisions on
significant market power (SMP). It has
significantly stepped up its work on consumer protection issues, forcing
operators to apply the letter of the law strictly and to publish their tariffs
and general conditions. A company has been selected to be the universal service
provider for a five-year period and another to provide universal telephone
directory and inquiry services. The number of appeals against EKIP decisions
increased. A majority of decisions were confirmed in appeal. Yet, the capacity
of the Ministry of the Information Society and Telecommunications to act as a
second instance is fairly limited. The appointment procedure improved with the
adoption in July 2011 of the amendments to the Law on electronic
communications, enabling the Parliament to take over from the government the
responsibility to identify, propose and appoint members of the Council,
including the Chairman. However, the appellative and supervisory powers of the
Ministry of the Information Society and Telecommunications over EKIP (which were transferred to this Ministry from the
Ministry of Transport and Maritime Affairs) still endanger the regulator's
independence. Implementation of the Law on electronic
communications through the adoption of secondary legislation and introduction of competitive safeguards is still at an early
stage. This particularly affects the fixed telephony market, which is strongly dominated by the incumbent operator. Competition has
emerged on the mobile telephony market with three operators having similar
market shares (as well as having same spectrum usage rights in all three
bands). Several spectrum licenses for fixed wireless access have been awarded.
Overall, while the mobile broadband penetration is high (with penetration level
standing at around 23% of the population), the fixed broadband market (at
around 8%) is underdeveloped by EU standards.

As regards information society services, some progress can be reported, notably in e-government and e-registry.
The level of alignment with the EU Directive on conditional access services is
now quite high. In April 2011, Montenegro
signed a Memorandum of Understanding for its participation in the European
Commission's Information and
Communication Technologies Policy Support Programme (ICT-PSP). No
progress has been made on further aligning the Law on electronic signatures and
e-commerce with the acquis.

Good progress has been made in the area of audiovisual
policy. The parliament adopted in December 2010 a decision appointing
members to the Council of the Electronic Media Agency. Three members have been
appointed for a period of five years and two for four years. The Council
appointed in February 2011 the Director of the Electronic Media Agency. It also
adopted key documents such as the statutes and Code of Conduct of the Agency
and the standing orders of the Council. Implementing legislation was adopted as
well, providing for the financial independence of the audiovisual regulator,
improvement of its monitoring capacity and proper implementation of the Law on
electronic media. Yet, implementation of this legislation is still at an early
stage. A new Law on digital broadcasting, which sets a deadline for the digital
switchover (1 January 2013), was adopted in July 2011.

Two rulebooks providing for the better
protection of minors have been adopted.

Conclusion

There has been
some progress in the field of electronic communications and information society
services in the form of legislative alignment. However, efforts remain to be
made to implement the legislation fully and to introduce competitive safeguards
ensuring level playing field for all operators. Administrative capacity of the
Agency for Electronic communications and Postal Services has been strengthened.
Yet, concerns about its independence remain. The administrative capacity of the
new Ministry of the Information Society and Telecommunications remains limited,
especially in the telecommunications sector. Good progress has been made in the
area of audiovisual policy, in particular on aligning with the acquis.
The Electronic Media Agency has been strengthened, but its capacity remains
inadequate to monitor the market effectively. Overall, preparations in the area
of the information society and media are moderately advanced.

4.11.
Chapter 11: Agriculture and rural development

Little progress has been made on horizontal
issues, in particular as regards establishment of the structures necessary
for management of the common agricultural policy, such as a paying agency and
an integrated administrative and control system.

In 2011, funding for the agricultural
budget remains low, similar to previous years at around € 20 million. It
covers a number of areas, including market support measures, rural development
and support for general services. Roughly 22% of the budget is targeted at
direct support measures linked to production of livestock and crops. Budget
allocation to rural development is positive, but access to financing for rural
dwellers remains a concern.

The government adopted a rulebook on the
internal organisation of the Ministry of Agriculture and Rural Development
providing for strengthening the administrative capacity in this field.

The full results of the agricultural census
are awaited. They are necessary to provide a good statistical basis for
policymaking on agriculture and rural development.

There as been
little progress in the field of rural development. A first draft of a Instrument
for Pre-accession Assistance for Rural Development (IPARD) programme has been prepared. Yet, the National Fund, the future
paying agency and the managing authority still have insufficient resources.

Some progress can be reported with regard
to quality policy. A law was adopted in March 2011 on designation
of origin, geographical indications and traditional specialities guaranteed for
agricultural and food products. This new law is broadly aligned with the EU acquis
in this area. Yet, further efforts are needed to implement and enforce this
policy.

Some progress has been made concerning organic
farming. The number of registered organic producers continued to increase.
The Organic Agriculture Development Programme for 2009-2012 is being
implemented, providing support for investment in organic agriculture with the
help of donor funding.

Conclusion

There has been some progress in the field
of agriculture and rural development. However, progress on policy
development and on using the available financial assistance in the field of
rural development has been fairly limited. In this regard, the results of the
agricultural census should provide a good basis of precise agricultural
statistics to advance with agriculture and rural development policy.
Preparations on basic institutions for programming and managing IPARD need to
be accelerated. Overall, in the area of agriculture and rural development,
alignment with the acquis remains at an early stage.

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

Little progress has been made as regards general
food safety. An evaluation of the food safety legislation in force
concluded that a new framework law compliant with the EU legislation needs to
be adopted. The laboratory capacity was increased by acquiring new equipment
and accrediting certain methods of analysis, including the Veterinary
Diagnostic Laboratory.

Some progress has been made towards
alignment with the acquis in the area of veterinary policy. A Law
on livestock breeding, aiming at aligning with the EU guidelines, was adopted,
as was implementing legislation. Measures were taken to organise official
controls prescribed under the 2010 Operational Programme on Animal Health
Protection. The Law on animal identification and registration was
amended, with the result of improving the system and of extending it to sheep
and goats. The Veterinary Information System was brought into operation. A
Laboratory Information Management System was installed at the Veterinary
Diagnostic Laboratory and the relevant staff trained. Campaigns were conducted
to raise public awareness in this area. Yet, certain animal disease contingency
plans are still not in place and a comprehensive programme for controlling and
monitoring transmissible spongiform encephalopathy
(TSE) has yet to be assembled. The new veterinary draft law, which has been
open to public debate, is pending.

No progress can be reported concerning the placing
on the market of food, feed and animal by-products.

There was very limited progress in the
implementation of food safety rules, mainly consisting in the adoption
of a monitoring programme for nitrates in food of plant origin. As regards specific
rules for feed, legislation on feeding stuffs intended for particular
nutritional purposes and on certain products used in animal nutrition is yet to
be adopted.

Little progress has been made in the phytosanitary
sector. A new Law amending and supplementing the Law on plant health
protection was adopted with the aim of further alignment with the acquis.
Implementing legislation on control of the major potato diseases and on the
list of authorised substances for plant protection products was adopted. Some
progress was made on strengthening laboratory capacity for control of seed and
seed material and for pesticide residue analysis through the purchase of new
equipment. Training for administration staff continued.

No progress has been made with alignment
and implementation of the acquis in the area
of genetically modified organisms.

Conclusion

There has been
some progress in the field of food safety, veterinary and phytosanitary policy.
In the area of general food safety, Montenegro has improved its laboratory
capacity. Yet, a framework law aligned with the acquis has yet to be
adopted. Regarding veterinary policy, some progress has been made on legal
alignment, capacity-building and implementation but implementing legislation
remains to be adopted. Little progress has been made as regards alignment with
the phytosanitary acquis. Overall, in the area of food safety,
veterinary and phytosanitary policy, alignment with the acquis remains
at an early stage.

4.13.
Chapter 13: Fisheries

On the basis of the Law on marine fisheries
and aquaculture, new implementing legislation was adopted to secure closer
harmonisation of national fishery policy with the acquis. However, further
efforts remain to be made to align this new legislation fully with the acquis.
The administrative capacity of the Fisheries Unit of the Ministry of
Agriculture and Rural Development has been strengthened.

Progress has been made in the field of resource
and fleet management. The Fishery Information System was further developed
to make it compatible with the relevant EU requirements. The fleet register has
been brought into operation, just after the precondition of issuing of licences
for commercial fishing for 2011 was met.

Little progress has been made in the areas
of inspection and control. The capacity of the fishery inspectorate has
improved but remains limited. It employs only three full-time inspectors, not
enough to perform all the necessary controls. Preparations have started for
meeting the upcoming obligation to record all catches by electronic means and
submit this information, also electronically, to the competent authorities. No
progress has been made on ensuring systematic processing of logbooks,
adequately registering catches and landings and using sales notes. In this
respect, no progress was made towards meeting the requirement for systematic
cross-checking between the catch composition and logbook records.

There have been
no developments as regards structural action and State aid. Montenegro
provided only very limited support to the fisheries sector, mainly targeting
the fishing fleet and aquaculture.

No progress can be reported in market
policy, including with establishing producers' organisations and collecting
market data.

Montenegro has concluded no new international
agreements on fisheries. There have been no new developments regarding
Montenegro's application to join the International Commission for the
Conservation of Atlantic Tunas (ICCAT). No difficulties were reported with
implementation of existing agreements.

Conclusion

In the field of fisheries, some progress
can be reported on strengthening the legal framework, upgrading administrative
capacity, enhancing inspection and control of marine fishery resources and
performing more reliable and systematic collection of data on the fishing
fleet, catches and landings, the biological state of the fish stocks and
socio-economic data. Overall, preparations are on track.

4.14.
Chapter 14: Transport policy

Some progress can be reported in the area
of road transport. Following the amendments to the Law on road transport
adopted in December 2010, the market for both national and international goods
and passenger transport operations is regulated in compliance with acquis
principles and the four criteria for access to the occupation of road haulage operator and road passenger transport operator (professional competence, financial standing, good repute and
effective establishment). In the case of discriminatory
road charges towards EU vehicles, environmental charges
(so-called eco-tax) were abolished in July 2011 for heavy goods vehicles and
the government adopted in September a decree abolishing these charges for all
other vehicles. Yet, this decree remains to be implemented. . As regards the technical acquis,
implementing legislation was enacted on requirements to be met by road vehicles
in terms of dimensions, total weight, axle load, environmental protection,
devices and equipment. Mandatory driving times and rest periods and use
of tachographs are aligned with the social acquis. However,
implementation of the rules on digital tachographs in the
European Agreement concerning the work of crews of vehicles engaged in
international road transport (AETR
Agreement) has been delayed. Road safety regulations have become
stricter, particularly on safety features of road infrastructure and
enforcement of speed limits, but, overall, road safety remains a concern.

There has been little progress concerning rail
transport. The Law adopted in July 2010 on contractual relations in railway
transport, including passenger and freight, introduced rules on passenger
rights and obligations. The national legislation has not yet been aligned with
the third railway package and the most recent EU legislation. Further
alignment of the legislation on rail transport safety, in particular with the
Directives on train driver licences and interoperability, is on track, but not
adopted yet. The absence of infrastructure charges for passenger trains
does not comply with EU standards. The administrative capacity of the
Railway Authority, which is not yet fully operational, remains particularly
weak. The authority should be given powers to impose penalties or to demand any
information from railway companies. The interoperability Directive has yet to
be transposed and implemented. The Montenegrin institutions will need technical
assistance to complete this task. The border crossing agreement signed between
Montenegro and Serbia needs to be further aligned with EU legislation. Four
protocols were signed under this agreement, at the levels of policy, customs,
veterinary inspections and railway companies. The agreement with Albania is
being negotiated with a view to agreeing on a common border station.

There is no inland
waterway transport in Montenegro.

No progress can
be reported on combined transport.

In the area of
air transport, some progress was made with implementation
of the European Common Aviation Area (ECAA) Agreement. However, the issues of
the independence of the accident investigation body and of implementation of
the safety management system at the airport, as required by the Montreal
Convention, still need to be addressed. The air transport law has still to be
adopted. As regards the social acquis, implementing legislation was
adopted on working hours, flying time, daily, weekly and annual rest periods,
duration of transport and readiness, number of take-offs and landings, health
and national implementing measures to protect aircraft crew members. The
Directive on groundhandling was implemented but further efforts are needed to
improve its application. No assessment of the capacity of the airport was made.
From an air traffic management (ATM) perspective, good progress was made
towards fulfilling the ATM obligations in the ECAA Agreement. Significant
efforts will be needed to implement the associated legislation and secure a
sustainable structure for the National Supervisory Authority.

Some progress was made on maritime
transport. In 2010, under the Paris Memorandum of Understanding (PMoU), no
ships flying the Montenegrin flag were stopped. Steps were also taken to use
the services of EU-recognised classification societies. The process of
ratification of relevant IMO conventions was also initiated. On 4 May 2011 the
PMoU Port State Control Committee agreed that Montenegro can be granted
cooperating member status in the framework of the PMoU. Progress was made in
the fields of pollution from vessels and handling of waste, with the adoption
in April 2011of a new Law on protection of the sea from pollution by vessels.

No progress can
be reported on satellite navigation.

Conclusion

There has been some progress in transport
policy, in particular road and air transport, but further efforts remain to be
made to align fully with the transport acquis and to implement it
effectively in the medium term. Particular attention needs to be paid to
alignment with the third railway package and to sound implementation of social
and technical rules in road transport as well as of safety and security
requirements in the maritime sector. Decisions to
abolish discriminatory road charges for EU vehicles have been adopted. Yet,
they need to be fully implemented. Preparations in the
area of transport policy are moderately advanced.

4.15.
Chapter 15: Energy

A document outlining Montenegro's energy
policy until 2030 was adopted by the government in March 2011. Its priorities
are security of supply, developing a competitive energy market and sustainable
energy development, including energy efficiency.

Little progress was made in the area of
security of supply. The decree on mandatory strategic stocks of oil and
petroleum products has not been adopted yet. As regard participation of
the country in regional gas infrastructure projects, Montenegro signed in May a
Memorandum of Understanding (MoU) and Cooperation with Trans-Adriatic Pipeline
AG with the aim of exploring opportunities for
developing natural gas markets and increasing diversity of supply in South-East
Europe.

There has been little progress in the field
of the internal energy market. Legislation for implementing the Energy Law adopted in April 2010
remains to be adopted. Montenegro
has not yet aligned with the third internal energy market package. The transparency of
operations of the transmission company is improving but does not fully meet the
requirements of the acquis (such as publishing network charges and
investment forecasts). The Energy Regulatory Agency fulfilled some of the preconditions
for establishing a functioning energy market, by adopting substantial
implementing legislation and rules. Yet, electricity prices do not cover costs,
which is an obstacle to genuine opening of the market. The distribution company
remains integrated in the Montenegrin Electric Enterprise (EPCG), although the
energy Law requires its legal unbundling. The government signed in August 2011
a MoU with the Italian company A2A, redefining the terms of EPCG privatisation
and recapitalisation. The government will retain majority ownership in EPCG.
The MoU also allows for the possibility of a merger of Pljevlja coal mine with
EPCG and the construction of Moraca hydro power plants.

No gas
infrastructure has been built and no implementing legislation concerning the
gas market has been adopted.

There has been
some progress in the area of renewable energy. Implementing legislation
aiming to improve alignment of national legislation with the Renewable Energy
and Cogeneration Directives was adopted. However, further efforts should be
made towards setting up a regulatory environment that would foster the
increased use of renewable energy sources in all sectors, as required by the EU
renewable energy acquis.

As regards energy efficiency, the
National Energy Efficiency Action Plan, which covers the period 2010-2012, was
adopted by the government in December 2010. Montenegro has no firm plans to
implement the new EU Regulation on the labelling of tyres.

Progress has
been made regarding nuclear energy, nuclear safety and radiation protection,
Montenegro has ratified the Joint Convention on the safety of spent fuel
management and the safety of radioactive waste management. A national emergency
plan for radiation/nuclear accidents was adopted by the Ministry of Interior in
March 2011; its compliance with the acquis and with international
standards remains to be verified. This is also the case for all radiation
protection regulations. There is no programme of environmental monitoring of
radioactivity in compliance with Articles 35 and 36 of the Euratom Treaty. The
licence for the storage facility for radioactive waste has not been issued.
Regarding administrative capacity, there is still no specific department
assigned to nuclear issues within the Environmental Protection Agency and
staffing levels devoted to radiation protection management with the Agency are
insufficient. Furthermore, there is no separate or ring-fenced budget for
regulation in this area.

Conclusion

Some progress
can be reported in the area of energy. A new strategy on energy policy until
2030 was adopted. Further efforts should be made towards adopting legislation
concerning oil stocks and setting up a regulatory environment that would foster
the increased use of renewable energy sources in all the sectors, as required
by the EU renewable energy acquis. Legislation for implementing the
Energy Law remains to be adopted. Administrative capacity is still limited in
all sectors. Preparations in the area of energy are moderately advanced.

4.16.
Chapter 16: Taxation

Limited progress can be reported as regards
legislative alignment with the EU acquis in the area of indirect
taxation, especially as regards VAT. A new Decree allowed
deferred payment of customs debt (duties and VAT), within 30 days after
acceptance of the customs declaration. The Law on excise duties was
amended in December 2010 to increase the duties on cigarettes and other
tobacco products and on beer. Despite this progress, further improvements
remain to be made in order fully to align the structure, scope and level of
excises with the EU acquis.

Limited progress was made in the area of
direct taxation. In March 2011 the Tax Law was
amended in order to have corporate financial reports submitted to the Tax
Administration, in line with the one-stop shop principle. Tax relief provisions
that could lead to harmful tax competition were not formally assessed and need
further elaboration. The 2008 Law on free zones was amended to repeal the
exemption from corporate income tax granted to users and operators, but other
provisions, among others related to financial services or transparency, remain
to be addressed.

As regards administrative cooperation
and mutual assistance, agreements on administrative cooperation have
been reached with five tax administrations.

Operational capacity and computerisation
of the tax administration have been improved by
introducing an integrated registration and collection
system. By applying the one-stop-shop principle, the
service registration of activity for customs, VAT and excises can be concluded
at one place. The capacity of the audit and collection departments of the Tax
Administration and its management has been strengthened
by training on use of the computerised tax collection risk assessment
system. However, insufficient human resources in the IT department are preventing full use of the system and
jeopardising the overall progress of the Tax Administration in the IT
field. No progress has been made regarding the
internal control system of the Tax Administration.

Conclusion

Progress has been made in the area of
taxation, principally in the form of development of a computerised registration
and collection system. However, the capacity of the Tax Administration is
limited, amongst other things, by the lack of staff for its IT activities.
Further efforts remain to be made to increase the effectiveness of the data
systems in the fields of administrative cooperation and internal control.
Preparations in the area of taxation are on track.

4.17.
Chapter 17: Economic and Monetary policy

As regards monetary policy, under
the Central Bank Law, the Central Bank of Montenegro has adopted its statutes and passed important decisions on open
market operations, on liquidity loans to banks, on last-resort financial
assistance, on supplying bank notes and coins to banks, on eligibility and
verification of authenticity and return into circulation of euro banknotes and
coins, on treatment of suspected instances of euro banknotes and coins and
other activities to protect euro against counterfeiting, on establishing the
investment committee, on guidelines on allocation of funds for the
implementation of monetary policy instruments, on reserve requirements, on the
Credit Registry, on Capital Adequacy, and on international reserve management. The Central Bank Law needs to be further adapted
to the provisions of EU legislation on withdrawal, replacement and destruction of worn-out
banknotes and coins. . The law also has to safeguard institutional
and personal independence, especially regarding the case of the Governor of the
Central Bank. There was also no progress regarding the privileged market access
for the State of Montenegro by the Insurance Act. .

In December 2010 the Financial Stability Council adopted decisions on the collection
and exchange of data and information of importance for financial system
stability and on the list of persons responsible for delivery of data and
information to the Financial Stability Council. The
Security Commission and the Insurance Supervisory Authority adopted their
Contingency Plans, but those of the Ministry of Finance and the Central Bank
are still pending. Therefore, the Financial Stability Council has not passed
yet the National Contingency Plan for crisis management at the financial system
level.

Overall, more efforts are needed for
completing the legal framework with detailed arrangements regarding the
liquidity of banks. Montenegro needs also to implement legislation on central
bank independence, monetary financing, privileged access to public-sector
financial institutions and protection of the euro.

In the area of economic policy, Montenegro
submitted its 2011 Economic and Fiscal Programme (EFP) to the European
Commission, covering the period 2010-2013. The EFP is an integral part of
Montenegro's policy coordination and economic planning process. It presents
recent macroeconomic developments and the structural reform framework,
including possible future macroeconomic scenarios. The EFP broadly meets EU
requirements on format and content. However, further analysis is needed to
confirm the solidity of the EFP's medium-term projections. Structural reform
measures need to be more detailed. This is particularly important in view of
the forthcoming submission by Montenegro of its pre-accession economic
programme in 2012.

Conclusion

Overall, progress can be reported in the
field of economic and monetary policy. Montenegro completed the legal framework
with detailed provisions on reserve requirements, on
the credit registry and on the withdrawal, replacement and destruction of
worn-out banknotes and coins. Nevertheless, it will have to make
substantial efforts to complete its alignment with the acquis and
implement legislation effectively in the medium term, focusing on issues
related to central bank independence, monetary financing and privileged access
to public-sector financial institutions. Montenegro's present use of the euro
is distinct from euro area membership. The implications for Montenegro's
monetary system will have to be defined in detail and addressed in future
accession negotiations.

4.18.
Chapter 18: Statistics

There has been limited
progress on statistical infrastructure. The revised Statistical Law has
to be adopted to provide a favourable framework for development of a strong
statistical system in Montenegro. The coordination of the national statistical
system needs to be reinforced by strengthening both the coordinating role and
the administrative capacity of the national statistical office (Monstat).

The lack of human
resources – notably of specialised statistics experts – and sufficient office
space became even more critical in the reporting period.

As regards classification and registers,
there has been good progress. The Law on the national statistical
classification of economic activities, based on the European NACE Rev. 2
classification, was adopted in March 2011. Further improvements have been made
to the statistical business register. A regular survey for updating the
business register has been established. The national classification of
occupations, harmonised with the International Standard Classification of Occupations
(ISCO-08), is being implemented. Monstat has developed a metadata prototype and
has started preparing metadata documentation for several domains.

There has been good progress in sector
statistics. In April 2011 Montenegro successfully conducted the population
and housing census in line with international standards. Preliminary results
were published in May 2011, followed by the first results by municipality in
July. The first results of the agricultural census carried out in June 2010
were published in March 2011. Monstat has made progress in the area of
agro-monetary statistics, with the introduction of three new pilot surveys
covering expenditure and prices.

Progress can be reported in the area of
national accounts. Monstat has started experimental calculation of quarterly
GDP in constant and current prices. Development of sectoral accounts is
progressing. With regard to price statistics, good progress was noted. In
February 2011 Monstat launched monthly releases of the harmonised index of
consumer prices. Progress has been made on business statistics. The structural
business statistics for 2008 were published, and further improvements were made
for the 2010 survey. Regarding short-term statistics, improvements have been
made to the methods for existing surveys, including the industrial production
index. Monstat made progress in harmonising the tourism survey on arrivals and
overnight stays with EU standards and has published the preliminary results of
the tourism satellite accounts in July. Data transmission to Eurostat needs to
improve as Montenegro currently transmits only a limited number of datasets to
Eurostat (e.g. external trade statistics and purchasing power prices).
Montenegro will have to make considerable and sustainable efforts to align with
the acquis in the areas of agricultural, business and macroeconomic
statistics.

Conclusion

Good progress can be reported in the area
of statistics, but, overall, significant challenges remain before Montenegro
reaches a satisfactory level of alignment with the acquis. Weaknesses in
the areas of agricultural, business and macroeconomic statistics need to be
addressed as a matter of urgency. The statistical infrastructure needs to be
improved as a matter of urgency, including adequate human and financial
resources. Preparations are moderately advanced.

4.19.
Chapter 19: Social policy and employment

There has been little progress in the area
of labour law. Amendments to
the labour law, aiming at addressing part of
the adjustment still required in order to align national legislation with the acquis,
have not been adopted yet. Moreover, implementation
and enforcement of existing labour law remains a serious challenge.

There has been limited progress in the area
of health and safety at work. Education and training has been provided
to labour inspectors, social partners and persons engaged in activities related
to safety at work. Awareness-raising activities were stepped up by closer
cooperation with the European Agency for Safety and Health at Work. However,
there has been no progress on adopting legislation implementing the Safety at
Work Law and transposing EU Directives into national law. The number of labour
inspectors in the area of occupational health and safety is insufficient.
Agencies for Health and Occupational Safety and
Health sections within the Labour department of the Ministry of Labour
and Social Welfare have not been established yet.

There has been
some progress in the social dialogue. The Law on the Social Council has
been amended, establishing the Social Council as a legal entity. This should
clear the way for full independence of this body and significantly improve
administrative and technical operations. The Law sets out to strengthen the
work of the Social Council at municipal level and improve communication and
cooperation with the Council at national level. It also introduces registration
of municipal councils at the Ministry of Labour and Social Welfare, which
should stimulate the partners at local level. However, the Social Council
secretariat provided by the law has not been set up yet. Employees and
employers started to submit requests to the Agency for peaceful resolution of
labour disputes in order to resolve individual or collective cases. The Agency
started to produce its track record. New amendements to the General Collective
Agreement were adopted in November 2010, introducing inter alia a minimum wage
and rules for its determination through collective bargaining. However, the
General Collective Agreement expires 31 December 2011. Progress on development
of bipartite social dialogue remain slow. The Law on trade union
representativeness is being implemented but the procedures to check
representativeness (trade union members lists) are not in line with data
protection clauses, including those in the EU Charter of Fundamental Rights.

Limited progress has been made in the area
of employment policy. The labour market has further deteriorated in 2010
and showed only modest improvements in 2011. The activity rate stabilized at
60% for the 15-64. There has been a slight increase of the employment rate in
2011 (at 39.6% in the second half of 2011 compared to 38.9% in the same period
of 2010) but with persisting significant gender gap and a continuous increase
of unemployment, close to 20% in mid-2011. The high incidence of long-term
employment continued (at around 80% of total unemployed in the second half of
2011 according to Monstat) as well as youth unemployment (at 37.3% in the same
period.) The low rate of employment, persisting skills mismatch and gaps
between the north and other parts of the country remain causes for concern. An
evaluation of implementation of the National Action Plan for Employment (NAPE)
found that the strategy for employment and human resources development for the
period 2007-2011 is delivering on most of the objectives. Montenegro
continued to implement a wide range of active labour market measures, e.g.
public works, seasonal employment, job subsidies, co-financing of apprentices,
training, retraining and credits for self-employment. However, they remain
insufficiently targeted at the needs of vulnerable groups. Funding for active
measures remained low and even decreased by 25% in 2010, due to budget
restrictions. Five career guidance centres for information and vocational
orientation have been established within the public employment service. However,
a large share of unemployed are not registered at the PES and remain without
active support. An action plan for the suppression of undeclared work (developed with
ILO assistance) has been adopted by the Social Council. Implementation has
started with a focus on awareness-raising and information for the labour
inspectorate and social partners.

There has been limited progress in
preparations for the European Social Fund. Work on setting up the
operating structure for implementing the programme has been launched. However,
administrative capacity within the government bodies and municipalities
involved is still insufficient (see also Chapter 22 — Regional policy
and coordination of structural instruments).

Limited progress has been made on social
inclusion. The economic deceleration has caused an increase in poverty. In
2010, almost 7% of the Montenegrin population were living below the absolute
poverty line (set at € 170 per month), as compared with 4,9% in 2008. Poverty
is more widespread among the rural population in the north. Progress on
development of databases and indicators, as used in the EU to monitor social
inclusion and social protection, remains slow. Additional efforts are needed to
ensure the social integration of Roma, Ashkali and Egyptians.

As regards people with disabilities,
adoption in July 2011 of the Law on prevention of discrimination against people
with disabilities and amendments to the Law on vocational rehabilitation and
employment of persons with disabilities is a good step forward. However,
the extent and substance of the new Law will need further adjustments in order
to comply fully with the acquis. Strong awareness campaigns addressing
the social inclusion of people with disabilities were conducted throughout the
country. Yet, state financial support remains low and no progress was made on
developing national reliable data.

Some progress can be reported in the field
of social protection, notably of pensions, where a process was launched
progressively to increase the statutory retirement age and equalise it for both
genders and to reform the 'bonus-malus' system to remove incentives for early
retirement. Amendments to the pension insurance scheme were adopted in January
2011. However, introduction of funded pension schemes based on mandatory
savings was postponed and funding for the current pension system is not
sustained. Overall, the public finance situation is having a negative effect on
the social reforms.

There has been progress in the area of anti-discrimination.
The Law on the protector of human rights and freedoms (Ombudsman) giving
details of the Ombudsman's role in the fight against discrimination was adopted
in July 2011. Training activities for the police and civil servants took place.
However, implementation of the existing legislation remains weak. The Ombudsman's
Office lacks the financial and administrative means necessary to act
effectively. Amendments to the Anti-Discrimination Law expected to further
align with the acquis have not yet been adopted. As regards lesbian, gay, bisexual, and transgendered
person's rights, the new
government has demonstrated greater openness and a proactive approach
illustrated by large awareness campaigns and involvement in planning the 'pride
parade'. Yet, cases of discrimination against the LGBT community did not
receive appropriate attention from public authorities. Cooperation between the
Ministry of Human and Minority Rights and relevant civil society bodies need to
be further strengthened

Little progress can be reported on equal
opportunities. Effective implementation of existing legislation in this
area remains a challenge. Awareness-raising campaigns and training for civil
servants were organised. Local action plans for gender equality were prepared
in six municipalities and adopted in three of them. Progress on improving the
equal pay legislation and introducing parental leave remain slow.

Conclusion

Little
progress has been made in the area of social policy and
employment. Amendments to the labour law
remain to be adopted and further efforts to be made in the area of
health and safety at work to align legislation with the acquis. The legislative framework for the Social Council
and inclusion of persons with disabilities has been strengthened but there has
been little progress overall regarding social inclusion. Some steps have been
taken to reform pensions. In the area of anti-discrimination, the Law on
the Ombudsman has been adopted and some progress was made in awareness-raising.
Yet, the measures taken to address discrimination against socially vulnerable
groups remain insufficient. Important steps were made regarding
the tripartite social dialogue but concern remains as to the trade unions'
representativeness. The capacity of the Public Employment Service needs
to be strengthened, along with active labour market measures in order to
address low activity and employment rates and the mismatch between the skills
available and needs. The situation of public finance negatively affects reforms
in the social area. .Promotion of gender equality, including by means of equal
pay, remains weak. Overall, in the areas of social policy and employment,
alignment with the acquis remains at an early stage.

4.20.
Chapter 20: Enterprise and industrial policy

Progress can be reported in the area of enterprise
and industrial policy principles. A new development strategy for 2011-2015
for small and medium-sized enterprises (SMEs), prepared in close cooperation
with business representatives, was adopted by the government in January 2011.
The action plan for its implementation for the year 2011 was prepared in March
and is monitored by the coordination team established for this purpose. In
June, the Government adopted a similar strategy which
is focused on promotion of competitiveness at the micro level in the period
2011-2015, previously adopted by the Council for Promotion of Competitiveness.
The latter was established in November 2010 aiming at coordinating all relevant
activities. Further action, pratcularly improved coordination of various
institutions and better data on the SME sector, is needed to secure the
effectiveness of these strategies.

In designing and implementing the SME
policy, Montenegro is applying the principles of the Small Business Act and
participates in the process of monitoring led by the European Commission and
the OECD.

In the area of business registration,
further progress has been achieved by implementing the 'Unified registration of
enterprises' in tax administration. However, additional efforts are needed in
this area. Montenegro is continuing its efforts on promoting entrepreneurial
education and strengthening the technological capacity of SMEs, but further
work remains to be done.

There has been some progress in the area of
enterprise and industrial instruments. Montenegro is continuing to
participate in the Entrepreneurship and Innovation Programme. The Investment
and Development Fund (IDF) started its funding operations, both directly and
via intermediaries, and has started assessing possible cooperation with
international financial institutions. However, it is too early to assess the
effectiveness of its instruments.

Coordination of institutional support to
SMEs between the Ministry of Economy, the Directorate for Development of SMEs
(SMEDD)and its the regional and local centres, the Chamber of Commerce and
financial institutions (IDF, micro-credit providers and commercial banks) is
developing but needs to be further strengthened

No progress was made with preparation of an
industrial strategy. The assessment of the existing sectoral policies,
necessary for formulating future industrial policy, is also lacking.

Conclusion

There has been some progress in enterprise
and industrial policy. Montenegro is continuing to develop an enterprise policy
in line with EU principles, particularly in the area of support for SMEs.
However, industrial policy remains to be developed and efforts to formulate a
policy in strategically important manufacturing sectors need to be intensified.

4.21.
Chapter 21: Trans European Networks

Limited
progress can be reported in the area of trans-European transport networks.
Montenegro continued to participate in the implementation of the Memorandum of
Understanding on development of the South East Europe Core Regional Transport
Network and in the activities of the South East Europe Transport Observatory.
However, further efforts remain to be made towards joint development of
projects of regional interest with neighbouring countries. Upgrading road and
rail links in the comprehensive network remains a priority. As regards the
preparations for development of the Bar-Boljare motorway project to link the
port of Bar to the border with Serbia (SEETO route IV), efforts are being made,
with support from the European Investment Bank, to review the project in order
to cut the costs and secure its financial viability. Concerning rail network
infrastructure, no progress can be reported. As regards the port of Bar, after
the procedure for privatisation of the cargo terminal failed in April 2010, a
privatisation plan was adopted in March 2011. Before re-launching the
procedure, the government intends to increase its share in the company to 66%
and to adopt a social programme for voluntary departures of staff.
Implementation of this social programme is a crucial factor in attracting interest
in privatisation.

There has been
progress on in the area of trans-European energy networks. A new 400 kV
overhead transmission line (OHL) for interconnection with Albania came into
operation. As regards the underwater interconnection cable with Italy,
agreements between Montenegro and the Italian company Terna were signed in
November 2010 and published on the Ministry of Economy's website. Public
hearings were organised on the draft detailed spatial plan and the draft
strategic environmental impact assessment concerning the 400 kV OHL line
linking the coast (Lastva) with the north of the country (Pljevlja). These two
documents were adopted by the government in July 2011 after their approval by
the Environmental Protection Agency and the publication of the report on the
public hearings. A feasibility study for this 400 kV OHL was approved
by the Steering Committee of the Western Balkans Investment Framework
and will be developed from September 2011 under the EC Infrastructure Project
Facility. Montenegro signed in May 2011 a Memorandum of Understanding and
Cooperation with Trans-Adriatic Pipeline AG on exploring opportunities in the
natural gas market. The national transmission system needs to be updated
and work remains to be done on a gasification strategy for the country.

Conclusion

Little progress has been made in the area
of trans-European networks. Regarding TEN-T infrastructure, further work
remains to be done on improving road and rail links. Progress regarding the
TEN-E network was mainly related to improving electricity interconnection
lines. Regarding gas, interconnections with neighbouring countries remain to be
developed (within the Energy Community gas ring) and national transmission
systems updated. Preparations in the area of trans-European networks are still
not very advanced.

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

Some limited
developments can be reported as regards the legislative framework. A Law
on regional development was adopted in April 2011, although not mandatory under
EU cohesion policy.

Little progress was made on establishment
of the institutional framework. The government adopted a road map and
action plan with a view to achieving accreditation under components III
(regional development) and IV (human resources development). The national IPA
coordinator (NIPAC), the competent accrediting officer (CAO), the national
authorising officer (NAO), the heads of operating structures and the Strategic
coordinator (SG) have been appointed. A decree which defines function and
composition of the different operating structures was adopted in June 2011. In
compliance with this decree, human resources were allocated to the different
operating structures. Yet, administrative capacity, in terms of the necessary staff
and training, is still weak. In view of Montenegro's recently achieved
candidate country status and the eligibility for IPA components III and IV
which it is conferring, preparations are lagging behind and need to be speeded
up.

With regard to administrative capacity,
limited progress was made. A gap assessment has started. Although numerous
training courses have been organised, administrative capacity remains weak.

In the area of programming, limited
progress was made. Montenegro prepared a number of draft documents: a strategic
coherence framework and two operational programmes, one on regional development
(component III), the other on human resources management (component IV).
However, essential elements are missing such as the implementing provisions,
allocation of financial resources, conduct of the ex-ante evaluation and the
strategic environmental assessment. The quality and maturity of projects need
to be improved in order to comply with the IPA component III and IV
requirements and rules.

In the areas of
monitoring and evaluation no progress has been made in developing a
roadmap to monitor and evaluate the quality and impact of development
programmes.

Capacity
building and training has been provided to the financial
management and control structures with the result of increased knowledge
and skills. The new law on the Audit Authority is pending and full independence
of the AA still needs to be ensured.

Conclusion

Little progress
has been made in the field of regional policy and coordination of structural
instruments. Establishment of structures for implementing IPA components III
and IV need to be completed as a matter of urgency. Appropriate administrative
capacity needs to be developed, notably in areas such as strategic planning,
project development, project management and financial management and control.
Recruitment and training policies need to be adopted as soon as possible.
Overall, preparations in the area of regional policy and coordination of
structural instruments are at a very early stage.

4.23.
Chapter 23: Judiciary and fundamental rights (see alsoPolitical
criteria)

Regarding the independence of the judiciary,
some progress was made. The amendments to the Laws on courts, the Judicial
Council and the State prosecution office improved to certain extend the legal
framework by reducing the possibilities for disproportionate political
influence. Amendments to the Laws on the Judicial Council and the State
prosecution office laid down the criteria for first-time appointment of judges
and deputy State prosecutors and their subsequent promotion, for the
appointment of court presidents and for the permanent tenure of State
prosecutors. These amendments also introduced, for the first time, a legal
obligation to apply written, anonymous tests for selection of magistrates. Members
of the Commission responsible for conducting these tests for the selection of
judges were appointed in September 2011. The new criteria for
selecting entrants to the judicial system reduce the room for discretion by the
Judicial and Prosecutorial Councils and thereby improve transparency in the
selection process. In parallel to the adoption of sub-constitutional changes, the
Parliament enacted in July the decision in principle to amend the Constitution
with the aim to strengthen judicial independence. Yet, with the current
Constitution still in place, concerns persist over the appointment of the
Supreme Court President and the Supreme State Prosecutor by parliament by
simple majority. The appointment of the judges of the Constitutional Court is
still not fully compliant with European standards. The limited mandates of the
Supreme State Prosecutor and the Heads of Prosecutors Offices remain
problematic. The merit-based elements of the career system need to be
substantially strengthened and a country-wide single recruitment system remains
to be established.

Concerning the impartiality of
judges, rules on conflict of interest and a code of conduct are in place. The
rules for random allocation of cases do not yet guarantee genuinely random case
allocation, as de facto limitations, particularly in smaller courts, continue
to exist.

As regards the accountability of the
judiciary, initial steps have been taken to establish a track record
on fighting corruption within the judiciary. Amendments to the Law on the
Judicial Council provided for establishing a commission for monitoring
implementation of the code of ethics for judges. Amendments to the Law on the
State prosecution office provided for adoption and monitoring of a code of
ethics for prosecutors and list all possible reasons for disciplinary action
against prosecutors. The Law on courts now lists all possible reasons for
disciplinary action against judges and court presidents. These amendments
strengthen the principle of security of tenure by introducing clearly defined
legal grounds for disciplinary action against or dismissal of judges and
prosecutors. Implementation of these principles is crucial to increase
transparency and ensure proper implementation of the code of ethics. Members of
the Disciplinary commission were appointed in September 2011. Both judges and
prosecutors continue to enjoy functional immunity. This broad protection from
prosecution is an issue of concern.

Regarding the efficiency
of the judiciary, further measures have been taken to reduce the backlog of
cases in courts. With circa 12,000 unresolved complex cases from
previous years in all courts in Montenegro at the end of 2010, the backlog was
approximately 7% lower in 2010 than in 2009. Yet, concerns persist about the
reliability and quality of judicial statistics. The IT system in place allows
case tracking and automatic allocation of cases but not statistical reporting
and filing of judicial acts. The Law on notaries introduced a notary system
aiming to reduce the burden on courts and administrative bodies. 34 notaries
took up duties in July 2011. The new Law on enforcement and security of claims,
enacted by the parliament in July 2011, transferred powers for civil
enforcement to the bailiffs. However, enforcement of civil decisions in
particular remains weak. Concerns persist over the long duration of court
proceedings. The Law on the right to trial within a reasonable time is not yet
implemented effectively. The constitutional provision on the right to legal
remedy does not fully comply with Article 13 of the ECHR.

The 2011 budget for the judiciary amounts
to € 26,5 million, which represents 0,83
% of the GDP. However, with over 80% of the funds allocated for the salaries of
magistrates and administrative staff, there were not sufficient budgetary
resources to remedy shortfalls in the infrastructure and equipment, which
continue to hinder efficiency. No developments can be reported as regards
streamlining the court network. Montenegro continues to be one of the countries
with the highest number of basic courts, magistrates, prosecutors and
administrative staff in Europe. Efforts need to be stepped up to streamline the
courts system.

The new Criminal Procedure Code (CPC) fully
entered into force on
26 August 2011 and is now applied in all Montenegrin
courts. The Laws on misdemeanours and on free legal aid together with the Criminal Code have been aligned
with the new CPC. 29 additional deputy State prosecutors have been appointed
and a number of prosecutors and judges have received training on CPC rules.
However, the capacity of State prosecutors to implement the new legislation and
ensure proactive guidance and coordination of police and other law enforcement
agencies remains insufficient. Enhanced training on implementation of the new
CPC remains essential.

Some progress
can be reported in anti-corruption policy. Steps have been taken to
address outstanding GRECO recommendations in the form of amendments to the Law
on conflicts of interest and to the Criminal Code, enacted in June and July
2011 respectively. A new Law on political party financing, adopted in July 2011,
improved the legislative framework in this area. Furthermore, the new Law on civil servants and State employees
provided legal protection for whistleblowers in the public administration. A
new Law on public procurement was enacted in July 2011, with the aim of reducing
opportunities for corruption and increasing transparency in this field.

As regards
repressive measures, the institutional and administrative capacity of the
prosecutors and police to fight corruption has been partially strengthened. A special
anti-corruption investigation team has been established, made up of
representatives of the police administration, the Office for prevention of
money laundering and terrorism financing and the tax and customs
administrations and reporting to the Special Prosecutor for organised crime,
corruption, terrorism and war crimes. Yet, inter-agency cooperation remains
insufficient. Coordination between police and prosecution is hampered by the
lack of interconnected databases and restrictive provisions on delegating
investigations to law enforcement agents. Intelligence-led policing is still at
initial stage and remains to be implemented across the country. There is still
no clear division of competences between the different anti-corruption bodies
and the overall coordination of the implementation of anti-corruption efforts needs
to be greatly improved.

Most of the corruption
cases prosecuted are for abuse of official positions and bribery. In December 2010, a High court judge was sentenced in second
instance to seven years of imprisonment for passive bribery. Nine persons were sentenced in first instance in June 2011 to
imprisonment for abuse of official positions and bribery in a cadastre case. During
the reporting period, three cases were initiated against 28 persons for abuse
of official position and bribery, among whom are the former Mayor of Budva, his
Deputy and a Member of Parliament. In 2010, the competent organisational units
filed criminal charges against 12 police officers for 13 criminal offences involving
elements of corruption (11 for abuse of official position and two for passive
bribery). Despite a positive trend, the track record of investigations and
convictions needs to be further developed. Final court rulings, in particular
for high-level corruption cases, remain limited. Financial investigations have
to be conducted more systemically, as a common method of investigating serious
crime. The number of cases in which seizure or confiscation of assets were
ordered remains low. There are still no cases in which the new provisions of
the CPC and the Criminal Code on extended confiscation of criminal assets have
been used.

In the area of
corruption prevention, the Government adopted in July a risk analysis of areas vulnerable
to corruption, which identified six areas of particular risk: local
self-government, spatial planning, public procurement, privatisation, education
and healthcare. Among the recommendations of this analysis are the introduction
of more precise mechanisms for implementation and monitoring of anti-corruption
initiatives as well as improvement of the reporting methodology used by the
Tripartite Commission for corruption and organised crime cases. In July, the
Government adopted a revised 2011-012 Action Plan for the implementation of the
Strategy for fighting corruption and organised crime, comprising 106 new
measures and improved indicators. The Directorate for Anti-corruption
Initiatives (DACI) organised a number of relevant awareness-raising campaigns
and opinion polls. Cooperation with civil society in the area of anti-corruption
has improved significantly. The Judicial Training Centre adopted training
programme for judges and prosecutors in the area of anti-corruption and
conducted five trainings and seminars in this field, attended by 291
participants.

98% of State
officials and 95% of local officials submitted their asset declarations for
2010/2011 within the deadline set by the law. For the first time a public
official has been brought to court for failure to submit asset declaration.
Yet, the asset declarations of civil servants are still not being checked on
substance in order to establish cases of illicit enrichment. In 2010, the
Criminal Court asked the Commission for Prevention of Conflicts of Interest to
initiate misdemeanour procedures against 615 public officials who had failed to
submit complete declarations of interest, which resulted in 382 final decisions
and misdemeanour fines totalling € 23,000. Amendments have been introduced in
the Conflict of Interest law to strengthen the competences of the Commission
for Prevention of Conflict of Interest. Yet, these will enter into force only
in March 2012. Concern remains over the capacity of the Commission to perform
its supervisory role adequately. Also, there is no uniform template for
declarations of interest.

Few sanctions
have been applied to the political parties which breached the rules on
financing. In 2010, seven political parties received a warning for submitting
their reports on expenditure in election campaigns after the deadline set by
the law and one party was fined for not submitting a report. Whereas the new
law on political party financing brings important improvements, concern remains
over the insufficiently dissuasive and undifferentiated sanctioning system, as
well as the regime and ceiling of membership fees. Further legislative changes
and important administrative strengthening will be needed to ensure a fully
effective independent oversight by the State Electoral Commission (SEC), which will become supervisory authority with the entry into force
of the law in January 2012.

Montenegro is continuing to improve the
legal and institutional framework for protection of fundamental rights.
However, sound implementation of the existing legislation and strengthening
administrative capacity in this area are lagging behind.

Some progress has been made against
torture and ill-treatment. A new Law passed in July has tasked the
Ombudsman to prevent torture and ill-treatment. However, occasional cases of
violence in police stations continue to occur. Reported cases are still
processed slowly. The number of final verdicts remains low. Some progress can
be reported with the prison system. The legal and institutional
framework is improving.
The Amnesty law passed last year has contributed to
make prisons less overcrowded. Some rehabilitation work has been carried out on
prison facilities and four new buildings were constructed and put in use.
However, prison conditions still do not fully comply with European standards. Freedom
of expression is, overall, respected in Montenegro. Progress has been made
towards enhancing media freedom. However, sound implementation of the
regulatory framework has still to be confirmed. Investigation of past cases of
violence and of continuing threats against investigative journalists is lagging
behind, as is journalists' compliance with professional ethics standards.

Freedom of assembly and association are, overall, respected in Montenegro. Very good progress has been
made on cooperation between State institutions and civil society
organisations, which is a key priority of the Opinion.

Some progress has
been made in promoting and protecting women's rights. The government
adopted in June the Strategy for protection against domestic violence for the
period 2011-2015; however, state activities to effectively protect victims of
domestic violence are lagging behind. Access for women to employment rights and
to decision-making posts in public and private sector are not being
sufficiently addressed.

As regards children's rights, some progress has been made on
improvement of the legal, regulatory and institutional framework. The
capacities of the Council for the Rights of the Child have increased. However, the situation is not fully satisfactory when it
comes to strengthening the institutions dealing with children's rights,
protecting the rights of children with disabilities and without parental care
or respecting children's privacy.

Some progress has been made with the rights
of persons with disabilities. However, they continue to face
problems with access to economic and social rights, notably to education and
employment. Deinstitutionalisation is at an early stage and conditions of the
Komanski Most institute are not yet in line with European and international
standards.

As regards anti-discrimination
policy, efforts have been made. The Law on the Ombudsman was passed in
July; he has now responsibility over cases of anti-discrimination. An advisor
on human rights and anti-discrimination was appointed in September in the Prime
Minister's Office. A Council for the protection against discrimination has been
established, to monitor and coordinate the work of the authorities in this
field. Awareness-raising campaigns and trainings for civil servants have been
organized. However, the effective implementation of the legal and institutional
framework on anti-discrimination remains a challenge, and its alignment with
the acquis it is still limited. The most vulnerable groups continue to
face discrimination, including by public entities.

Some progress has been made as regards labour
and trade union rights. However, bipartite social dialogue
and the development of autonomous social dialogue remain insufficient,
especially at local level. Implementation and enforcement of labour law remains
a serious challenge.

Limited progress has been made on property
rights. The process of restitution remains very slow. The Parliament
adopted in July amendments to the law on state survey and immovable property
cadastre; yet, functioning of the cadastre system remains to be further
improved. As regards minorities, the interethnic climate in Montenegro
remains smooth. Progress has been achieved on harmonising the legal framework
with the Constitution. Some effort has
been put to facilitate civil registration of Roma, Ashkali and Egyptian
population. However, RAE persons
continue to be the most vulnerable group facing discrimination in access to
economic, social, cultural, economic and political rights. The situation of displaced RAE persons is a
matter of concern, particularly in the Konik area.

As regards personal
data protection, some progress has been made. The Agency for Protection of
Personal Data has been established and started functioning, although still
lacking of an adequate allocation in terms of human resources and financing. It
is actively involved in protection of personal data. However the Agency has not
yet established a prior-checking system, as stipulated by the Data Protection
Directive. Its capacities for investigation and analysis need to be further
developed and its independence needs to be fully ensured in practice. Legislation
on retaining certain personal data has yet to be aligned with the Data
Retention Directive. A proper balance has still not been struck between the Information
Secrecy Act, the Law on protection of personal data and the Law on free access
to information.

There were no developments regarding EU citizens' rights.

Conclusion

Overall, Montenegro
has made some progress in this area, notably as a result of its efforts to
address the relevant key priorities set out in the Commission Opinion. Further
sustained efforts will be needed to align with the acquis in this
chapter, in particular to implement and enforce it effectively in the medium
term. Further strengthening of administrative and implementation capacity is needed.

4.24.
Chapter 24: Justice, freedom and security

There has been
some progress on migration. A new strategy for integrated management of
migration for 2011-2016 and the corresponding action plan for 2011-2012 have
been adopted. The police developed software for online reporting by hotels of
short-term stays by foreigners. The readmission agreement with the EU continues
to be implemented smoothly. Montenegro signed a bilateral readmission agreement
with Kosovo and ratified the existing readmission agreement with Albania.
Construction of a reception centre for foreigners is in its final phase. The
number of irregular migrants detected increased in 2011, partly due to the
events in the southern Mediterranean region. Further efforts are needed to
ensure full alignment with the acquis on legal migration, notably on right to
family reunification, long-term residence and conditions of admission of
third-country nationals for the purposes of studies. Steps are to be taken to
strengthen administrative capacity and to improve inter-agency cooperation. In
this area, the country is advanced.

Some progress
has been made in the area of asylum. Amendments to the Law on foreigners
were enacted in July, with the aim of bringing it closer to the EU acquis and
international standards. A national database for checking asylum seekers'
personal data, including fingerprints, has been set up. Reception conditions
for asylum applicants have improved, but further efforts are needed to ensure
that they have access to healthcare, education and personal documents.
Construction of a centre for asylum-seekers is under way. Both the law on
asylum and the law on foreigners are yet to be fully implemented and harmonised
with the EU acquis and international standards. The quality of
adjudication of asylum claims needs to be improved. The State Asylum Appeals
Commission has continued to render its decisions on asylum cases mainly
on procedural rather than substantive aspects. During the reporting
period, out of 96 asylum applications submitted, 57 were rejected as
groundless, 37 procedures were suspended and 3 persons were granted subsidiary
protection. In this area, the country is moderately advanced.

There has been
some progress on visa policy. Bilateral agreements concluded with
Bulgaria, Croatia and Serbia complemented the country's limited consular
network, as their consular offices issue visas for Montenegro in a number of
third countries. In 2010, a total of 2,258 visas were issued, out of which
Montenegrin consular offices issued 1,773, Bulgarian 406 and Serbian 79. There
is still neither an online link between the diplomatic and consular missions
and the Ministry of Foreign Affairs and European Integration's (MFAEI) national
visa system nor a visa sticker with security features. The number of visas
issued at the border is still relatively high, which is a cause for concern.
The administrative and technical capacity of the MFAEI and of the country's
diplomatic and consular network need to be upgraded. The country has not
yet fully aligned its legislation with the EU negative and positive lists.
Preparations in this area are progressing slowly.

Visa
liberalisation for Montenegrin citizens travelling to the Schengen area has
been in force since 19 December 2009. Implementation of the visa-free regime
has been smooth so far, with small numbers of asylum-seekers and irregular
migrants detected in the Schengen area. To ensure the continued implementation
of the commitments, a post visa liberalisation monitoring mechanism was
established in view of increased numbers of asylum seekers from the region. The
Commission presented its first monitoring report to the European Parliament and
the Council in June 2011.

Progress can be
reported in the field of external borders and Schengen. The integrated
border management strategy and action plan have been implemented. All 28 border
crossing points have been equipped with the necessary IT equipment, including
passport readers, and have online access to the national and Interpol
databases. A system for electronic surveillance of the blue border has been set
up and a video monitoring system was installed in the ports of Bar and Kotor. A
risk assessment on green and blue border safety has been adopted. Cooperation
with Frontex is good and Montenegro was involved in a joint operation. The
institutional and administrative capacity of the border police has been
strengthened, notably with the aid of training based on common EU standards.
Further efforts are needed to maintain the capacity of the border police and
avoid frequent rotation of trained staff. The security of the blue border and
the border with Kosovo need to be substantially strengthened. Preparations in
the area of external borders and Schengen are advanced.

There has been
good progress in judicial cooperation in civil and criminal matters. As
regards civil matters, Montenegro ratified the Hague Conventions on the taking
of evidence abroad in civil and commercial matters, and on the service abroad
of judicial and extrajudicial documents in civil and commercial matters.
Practical enforcement of both the national and international legal frameworks
needs to be improved.
As regards judicial cooperation in criminal matters,
the legal framework for fighting serious and organised crime at regional and
international levels has been strengthened. Montenegro ratified an
extradition agreement with Croatia covering own nationals, amended the existing
extradition agreement with Serbia and signed an equivalent accord with the former
Yugoslav Republic of Macedonia. The agreements with
Bosnia and Herzegovina on mutual legal assistance in civil and criminal matters
and on mutual recognition of decisions in criminal matters were also ratified
in December 2010. However, the legal framework is not yet complete. Further
efforts are needed to align it fully with the acquis, in particular by
applying legislation on the European evidence warrant and the principle of
mutual recognition of judgments and probation decisions. The capacity of the
Ministry of Justice to implement the existing framework for judicial
cooperation in criminal matters remains to be strengthened. Montenegro needs to
make sure that it meets all the criteria, notably on personal data protection,
to conclude cooperation agreement with Eurojust. Preparations in this area are
progressing.

Progress has
been made in the area of police cooperation and the fight against organised
crime. Montenegro stepped up its efforts to strengthen the fight against
organised crime based on threat assessment and proactive investigations,
increased cooperation with regional and EU partners, efficient processing of
criminal intelligence and enhanced law enforcement capacities and coordination,
and to develop a solid track-record in this area, which is a key priority set
out in the Opinion. Regional and international police cooperation has improved,
and the number of investigations and convictions in the area of organised crime
has gradually increased. During the reporting period, Montenegro successfully
conducted a number of police operations in close cooperation with Interpol,
Europol and some EU Member States, which lead to the indictment of 22 persons.
An international law enforcement coordination unit (ILECU) has been formally
established to improve cooperation and investigations in cases with a foreign
dimension. Montenegro continued to cooperate with Interpol and other relevant
organisations. The police signed a bilateral agreement with the Italian police
on cooperation in the fight against organised crime and drug trafficking.
Similar bilateral police cooperation agreements were signed with Serbia and
Croatia.

The policy
framework in this area has improved. An action plan for the period 2010-2012
for the fight against organised crime and corruption has been adopted, along
with a police development and operational strategy for the period 2011-2013.
The new Criminal Procedure Code (CPC) became fully applicable in August 2011.
It established a prosecutor-led investigation model, extended the use of
special investigative measures, introduced the reverse burden of proof for
property of suspicious legal origin and extended confiscation of criminal
assets. The legislative framework and institutional framework for witness
protection is in compliance with international standards.

During the reporting period, financial
investigations in two cases have lead to the temporary seizure of assets,
amounting to over € 20 million. An
organised crime threat assessment has been developed and further steps were
taken to establish an intelligence-led policing (ILP) model. A joint
investigation team has been put in place and an undercover unit set up within
the Criminal Police Directorate. The institutional and administrative capacity
of the police has been strengthened, including with the aid of training courses
to improve its capacity to fight organised crime and corruption. Specific
training on the new provisions of the CPC has been given to law enforcement
agents, judges and prosecutors.

Yet, insufficient information-sharing
between prosecutors and law enforcement agents and restrictive provisions on
delegating investigations to the police are hampering smooth implementation of
the new CPC. Cooperation and coordination between police and prosecution need to
be improved. Use of special investigative measures is rare and hampered by the
lack of adequate equipment and specialised human resources. The new Law on
internal affairs and amendments to the rulebook on the internal organisation of
the police are still to be adopted. Frequent rotation of trained police
officers in expert areas is a challenge in terms of maintaining capacity and
professionalism.

Police and prosecutors' capacity to conduct
financial investigations, trace criminal assets and present related evidence
before the courts remains to be strengthened. Intelligence-led policing is
still at an initial stage and remains to be implemented across the country. The
ILECU is not yet fully functional and crime mapping is at initial stage.
Further efforts are needed to strengthen the financial capacity and autonomy of
the Witness Protection Unit (WPU). The level of inter-agency cooperation
remains insufficient and impeded by the lack of a national integrated
intelligence system. Operational cooperation with Europol needs to be put in
place and a liaison officer posted.

Progress has been made in the fight against
money laundering. A new rulebook on the internal organisation and job
descriptions of the Administration for prevention of money laundering and
terrorism financing has been adopted. The number of staff of the Financial
Intelligence Unit (FIU) has been increased slightly. Inter-agency cooperation
on crime suppression has been stepped up under an agreement signed by the
relevant authorities in December 2010. Cooperation with other countries has
been strengthened by bilateral agreements on exchanges of financial
intelligence data signed with Moldova, San Marino and Israel. Similar
agreements with the Russian Federation, Slovenia and Aruba have been updated.

The Insurance
Supervision Agency adopted guidelines on risk analysis on money laundering and
procedures for identifying suspicious transactions. Reporting of suspicious
transactions by the banking sector has increased. However, banks are still the
only entities reporting. The overall level of reporting of suspicious
transactions by relevant bodies remains insufficient to allow proactive
investigations by prosecutors. Suspicious transactions are still reported on
paper forms which encumbers the procedure. The Law on the prevention of money
laundering and terrorism financing remains to be amended in line with MONEYVAL
recommendations. High staff turnover and limited technical capacity are
hampering effective functioning of the FIU. The analytical capacity of law
enforcement agencies in this area needs to be increased. There have been only
two final convictions for money laundering in the reference period.

Some progress has been made with regard to trafficking
in human beings. Montenegro ratified the Council of Europe Convention on
the protection of children against sexual exploitation and sexual abuse. The
government adopted an action plan defining the activities in the fight against trafficking in human beings for the period
2010-2011. Fifteen trafficking offenders were given prison sentences in 2010.
Substantial public awareness-raising and training activities continued. There
is a good cooperation with civil society organisations in this area. At the
same time, identification and protection of victims, especially children, and
other vulnerable groups need to be strengthened considerably. Only one victim
of trafficking was identified during the reporting period. More efforts are
needed in order to protect victims and make their reintegration into society
easier.

Montenegro has made progress with
addressing challenges posed by organised crime. Further work needs to focus on
putting in place and using the various instruments necessary for efficient
police and investigative work, including intelligence-led policing,
establishing an integrated intelligence information system, strengthening
proactive investigations and interagency cooperation. Effective implementation
of the new Criminal Procedure Code is the key to achieving sustainable results
in this area. Further efforts are needed in the fight against trafficking in
human beings and fight against money laundering in particular. Preparations in
the area of anti-money laundering are progressing slowly. In the fight against
trafficking in human beings, Montenegro is moderately advanced.

There has been
some progress in the fight against terrorism. The government adopted a
strategy for preventing and combating terrorism, money laundering and terrorist
financing for the period 2010–2014, along with an action plan for implementing
the strategy for the period 2010–2012. A National Commission for implementing
the strategy has been established, made up of representatives from all the
relevant institutions. The special counter-terrorism unit in the Police
Directorate received training.

Capacity to
detect and address activities possibly linked to terrorism remains limited. The
lack of a uniform inter-agency information system at national level, allowing
transmission of classified documents, considerably hinders counter-terrorism
efforts. Preparations in this area are moderately advanced.

Progress can be
reported on cooperation in the field of drugs. The Law on prevention of
misuse of drugs was enacted by parliament in May 2011, thus completing the
national legislative framework. During the reporting period, Montenegro
successfully conducted a number of police operations, in close cooperation with
the police forces of EU Member States and the US Drug Enforcement Agency, which
led to the seizure of higher quantities of cocaine and the arrest and
prosecution of members of organised crime organisations. Regional and
international police cooperation has been strengthened with the ratification
and implementation of bilateral agreements on the subject of organised crime
with Croatia, Serbia and Italy. A National Office on Drug Prevention has been
established within the Ministry of Health and a threat assessment on drug
trafficking completed. Some progress has been made in relation to drug
prevention in schools and detention centres.

Drug
trafficking remains a major concern, as Montenegro is one of the main Balkan
routes for drug trafficking to and from the EU. The amount of seizures remains
low. In the reference period, just 728 kg of marijuana, 6 kg of heroin and a
small quantity of other drugs were seized. Measures to fight infiltration of
the legal system by organised crime organisations need to be stepped up, as
does cross-border police cooperation. The administrative and technical capacity
of the law enforcement agencies to fight drug-related crime has to be
strengthened. Law enforcement cooperation and coordination, in particular to
ensure the security of the blue border, needs to be reinforced. A focal point
for cooperation with the European Monitoring Centre for Drugs and Drug Addiction
(EMCDDA) remains to be appointed. Further efforts are needed on drug prevention
and on treatment and rehabilitation of drug users. Preparations in this area
are progressing.

Some progress
has been reported on customs cooperation. A customs cooperation
agreement was signed with Serbia in November 2010. The Customs Administration
carried out a gap analysis of customs blueprints, which highlighted the need to
initiate the procedure for accession to the Convention on mutual assistance and
cooperation between the Member States (Naples II). The Convention on the use of
information technology for customs purposes has not been ratified yet. The
technical and administrative capacity of customs services needs to be further
upgraded and cooperation with other law enforcement agencies enhanced in order
to fight organised crime effectively. Preparations in this area are
progressing.

For the fight
against counterfeiting of the euro,
see Chapter 32 – Financial control.

Conclusion

Further
progress has been made on strengthening the legal and institutional framework
in the area of justice, freedom and security. Some progress has been made in
the field of migration and asylum, but further efforts are needed to ensure
proper reception conditions for asylum-seekers and irregular migrants. Visa
policy requires further alignment. Progress has been made in the area of border
management. Good progress has been achieved on strengthening judicial
cooperation, particularly in criminal matters. A new strategy was adopted for
fighting terrorism. Progress has been made on addressing challenges in the
fight against organised crime, in particular in the form of closer
international and regional cooperation. The number of related investigations
and arrests, notably in the area of drugs trafficking, increased slightly.
Further efforts to tackle drug trafficking are needed. Intelligence-led
policing and inter-agency cooperation also need to be improved. Financial
investigations in two major cases led to the temporary seizure of assets of significant
amount. Yet, the overall number of financial investigations and confiscations
of criminal assets remains low. Investigation and prosecution mechanisms have
to be strengthened, in particular in the areas of trafficking in human beings
and money laundering. Amendments to the laws on internal affairs and on
preventing money laundering are still pending. Preparations in this area are on
track.

4.25.
Chapter 25: Science and research

Good progress
can be reported in the area of research and innovation policy. Political commitment and
administrative capacity were strengthened by the creation in December 2010 of a
new Ministry of Science, responsible for policymaking and funding of research
activities. In addition, the government established in February 2011 a new
Council for Scientific and Research Activity comprising 11 members representing
the public and private sectors, research institutes and academics.

With respect to
research cooperation under the Seventh EU Framework Programme (FP7),
Montenegro organised several information days, participated regularly in FP7
management meetings and built a good functioning network of national contact
points. It has also taken action to stimulate participation by Montenegrin
research entities in FP7 by granting financial support to successful
applicants. However, in terms of successful projects, progress is moderate.

Montenegro is
actively pursuing research opportunities with other international partners and
has concluded several bilateral science and technology agreements with
neighbouring countries and international partners such as COST, EUREKA and
NATO.

Some progress
was made towards integration into the European Research Area (ERA). Montenegro
has taken several further measures to implement the National Strategy for Science
and Research Activities (2008-2016). A new Law governing scientific research
activity was adopted in December 2010. It sets out conditions for State funding
for both public and private institutions in 14 research programmes and priority
areas in line with FP7. Montenegro has also taken several decisions to increase
use of information technology for research purposes. The government has set up
an electronic information system on scientific and research activities which
aims at processing automatically all information of interest to scientific
activities in Montenegro and abroad. It has also adopted an information and communications
technology (ICT) development plan to assess use of ICT for
scientific research activities, review the legislation adopted in the
ICT field and analyse the networking between ICT companies and scientific
research institutes. In January 2011, a strategy for development of SMEs
was adopted, covering the period 2011-2015. It focuses on creating better
business conditions and entrepreneurship for SMEs and includes several measures
to stimulate and monitor research activities of SMEs which, in turn, will
contribute to the Innovation Union. In March 2011, an Action Plan on Mobility
of Scientists was adopted containing measures aiming at strengthening inward,
outward and inter-sectoral mobility over the period 2011-2012 and, in doing so,
preparing for adoption of the European Charter and Code of Conduct for the
recruitment of researchers. EURAXESS, the mobility portal organised by the
University of Montenegro which is the bridgehead organisation, has been fully
operational since November 2010. Montenegro launched a feasibility study on
establishing science parks and centres of excellence.

In the absence
of valid statistics, it has not been possible to monitor progress on investment
in research, but the level is still very low (estimated at 0,13% of GDP in
2008). The Ministry of Science and the Statistical Office are currently
carrying out a statistical survey in line with EU standards.

Conclusion

Good progress
can be reported in the areas of science and research. The institutional and
legislative framework for scientific research activities has been strengthened
and several measures have been taken to improve the mobility of researchers.
However, investment in research remains weak and further efforts are needed in
order to establish stronger links between the scientific community and the
private sector and stimulate public and private investment in scientific
research activities. Further efforts are also required to increase
participation in the Seventh EU Framework Programme for research activities.
Preparations for the Innovation Union need to be duly considered. Overall, the
action taken is in line with and contributes to the objectives set at EU level
for research and innovation. Preparations in this area are well on track.

4.26.
Chapter 26: Education and culture

Some progress has been made in the fields
of education and training. The legislative framework has been
strengthened. A new Law on the national qualifications framework and a
corresponding action plan covering the period 2011-2012 were adopted in
December 2010. In December also, Amendments to the Law on pre-school education
were adopted in compliance with the strategy for early and pre-school
education, providing for the enrolment of five-year-olds in primary school
(2010-2015). The first Law on adult education was adopted in March 2011. Yet,
planned educational reforms are slow in being implemented and the human and
financial resources of the newly established Ministry of Education and Sports
(formally Education and Science) are weak. Montenegro's participation in the latest PISA helps to identify gaps in the
education reform. As regards inclusive education, the
Law on education of children with special needs was amended to provide further
support. In addition, implementation of the existing legislation on inclusive
education for vulnerable groups and children with disabilities is continuously
improving. There was some progress with vocational education and training (VET)
consisting mainly in the adoption of a set of rulebooks on examination and
evaluation of formally and informally acquired knowledge. Yet, the VET system
needs to be modernised with a view to responding better to labour market needs
(see also Economic criteria).

Implementation of the Bologna process in
higher education continued. A strategy for quality assurance and another for
higher education development and financing were adopted in March and April 2011
respectively. The challenge remains to be in the implementation phase of these
strategies, in part due to the limited administrative capacity. Members of the
new Higher Education Council have been appointed in accordance with the amended
Law on higher education. The new Council comprises thirteen members appointed
for four years. As regards student mobility, students' participation in various
European mobility programmes has been increasing constantly. The Tempus
programme remains the most important instrument for reforms in higher education
in Montenegro.

In the field of youth policy,
progress has been made regarding participation by Montenegro in the Youth in
Action Programme's European Voluntary Service (EVS) and cooperation with the
countries neighbouring the EU.

Some progress can be reported in the field
of culture. Montenegro is participating in the EU Culture
programme. It submitted in March 2011 a request to join the Europe for Citizens
programme.

Conclusion

Some progress can be reported in the area
of education and culture. Quality assurance mechanisms and a national
qualification framework have been adopted, in line with the Bologna process.
Yet, implementation is still a challenge. The visibility of and access to the
Youth in Action programme have been enhanced. Cooperation with neighbouring
countries has been strengthened via the Tempus programme. Further efforts will
be required to ensure inclusive education for vulnerable groups and children
with special needs. Capacities for sound financial management and financial
control still need to be strenghened in a view of Montenegro's participation in
the decentralised EU programmes. Overall, in the area of education and culture,
alignment with the acquis is moderately advanced.

4.27.
Chapter 27: Environment

Little progress has been made in the area
of the environment. As regards horizontal legislation, a new Law
on offences providing for special sanctions for environmental violations was
adopted in January 2011. This law aims at aligning with the Directive on
environmental crime but further efforts will be needed to align fully this law
with the acquis, especially as regards criminalisation of specific
offences, criminal penalties and sanctions other than fines. An 'Aarhus Centre'
was opened in April 2011 with the main goal of improving access to information,
public participation in decision-making and access to justice in environmental
matters. Implementation of environmental impact assessments has improved, but
involvement of civil society and other stakeholders is still insufficient. No
progress was achieved on aligning national legislation with the acquis as
regards access to environmental information, access to justice, environmental
liability and strategic environmental
assessment provisions on trans-boundary aspects.

Some progress have been made in the field
of air quality by adopting implementing legislation on air quality
monitoring and limit values for the pollutant content in liquid fuels and for
emissions from stationary sources. Laws on ratification of the three protocols
on long-range transboundary air pollution were adopted in June 2011. However,
setting up an air monitoring system and identifying conurbations and zones are
still at an early stage. No improvement can be reported in the administrative
capacity in this field.

Progress on waste management was
limited to adoption of implementing legislation relating to
permits, import and export of waste and treatment of certain waste streams. As
regards infrastructure, the first recycling centre has begun operating in
Podgorica. Most waste, however, is still disposed of in open sites or multiple
unauthorised dumps. Development of an integrated waste management system is at
an early stage and little progress was achieved, in particular, with
construction of regional landfills in line with EU standards.

No progress can
be reported in the field of water quality. Insufficient investment,
unclear division of responsibilities between the authorities and lack of
coherence in their action are seriously hampering progress in this area.

In the field nature protection, some
progress can be reported with regard implementing legislation – a number of
rulebooks have been adopted on different aspects of management and protection
of wild fauna and flora. However, implementation of the Habitats and Birds
Directives, including building up scientific data for designation of protected
areas and future Natura 2000 sites, is lagging behind.

As regards industrial
pollution and risk management some progress was made in aligning with the Waste
Incineration and Solvents Emissions directives.

Some progress can be reported in the field
of chemicals, mainly related to ratification of the
Stockholm and Rotterdam Conventions.

As regards the fight against noise,
a new Law on noise protection was adopted in May 2011.

Regarding climate change,
Montenegro made little progress on general policy developments. Significant
awareness-raising is required at all levels. The issue of climate change is
integrated scarcely or not at all into sectoral policies, strategies and plans,
with the exception of the national forest policy. A National Policy and Action
Plan for Climate Change are still missing. At the international level,
Montenegro supported the EU's position at COP16 in Cancun and has associated
with the Copenhagen Accord but has not formulated pledges for greenhouse gas
(GHG) emissions reduction. Montenegro submitted the first national
communication under the UNFCCC in October 2010 and development of the second is
under way. The country participated actively in the climate work under the
Regional Environmental Network for Accession (RENA).

As regards the EU climate acquis,
the national legislation is at an early stage of alignment. A Decree on
limit values for the pollutant content in liquid fuels of petroleum origin has
been in force since 1 January 2011. Further efforts are required towards
convergence with the EU Monitoring Mechanism Decision. No progress was made on
preparing for inclusion of Montenegro's installations in the EU emissions
trading system (EU ETS). Concrete
steps are needed to gradually move towards taking a GHG reduction target in
order to be able to implement EU climate acquis, especially the EU
Emissions Trading Scheme and to join the EU Effort-Sharing. As far as ozone-depleting substances and
fluorinated gases are concerned, Montenegro continues to implement the Montreal
Protocol, but needs to take further steps to align with the EU legislation.
Montenegro associated itself with the Declaration adopted at the 22nd
meeting of the Parties to the Montreal Protocol on the global transition away
from HCFCs and CFCs.

Some progress was made regarding administrative
capacity. Following the government reshuffle in December 2010,
responsibility for environmental policies was transferred to the Ministry for
Sustainable Development and Tourism and the part of the ministry responsible
for the environment was restructured, based on a new organisation chart. A new
department in charge of waste management and municipal development was created.
However, this has not yet resulted in any significant improvement in
administrative capacity. In particular, the heavy
reliance on temporary staff and high turnover within the
ministry remains an issue. The administrative capacity of the Environmental
Protection Agency (EPA) has improved. However, the EPA's inspection section
needs to be reinforced. While the general number of inspections at
national level is increasing, there are problems with handling inspections
properly, recording breaches and filing infringement cases for further
prosecution. Administrative capacity as well
as technical and financial resources need to be considerably strengthened for
the country to be able to align with and implement the requirements of the EU
climate change policy and legislation.

Conclusion

Montenegro has made little progress with
alignment and implementation of the acquis in the field of the
environment and climate change. Progress is mainly related to adoption of
implementing legislation on waste management and nature conservation and
ratification of some international environmental agreements. The
administrative capacity of the Environmental Protection Agency has improved.
Montenegro needs to speed up its strategic planning in all sectors and find
sustainable funding for implementation. The environment and climate change has
to be integrated into other sectors more systematically, in particular energy.
Capacity for environmental impact assessments needs to be improved and
substantive public consultations held. The capacity of the administration at
national and local level responsible for environment and climate change needs
to be strengthened.

4.28.
Chapter 28: Consumer and health protection

There has been
progress in the area of consumer protection. The annual report on the
Implementation of the National Consumer Protection Programme (NCPP) for
2010-2012 and its corresponding action plan was adopted in July 2011 by the
government. Implementation is on track but the Department in charge within the
Ministry of Economy needs to be strengthened in order to enhance coordination
and further improve implementation. The administrative capacity of the
Arbitration Board, responsible for settling consumer disputes, requires also
strengthening. There are only two non-governmental organisations actively
involved in consumer protection, both of which suffer from a serious lack of
resources. The Council for cooperation of governmental and non-governmental
bodies, established in April 2010, does not involve any of them yet. Awareness
of consumer protection still needs to be raised as the majority of the
population (87 %) believes that it is not sufficiently informed.

There has been
some progress on product safety issues. In compliance with the Law on
general product safety and with the aim of further aligning with the acquis,
a rulebook establishing Montenegrin standards on general product safety has
been adopted. A body has been established for coordinating the activities of
State and non-State authorities responsible for market surveillance, providing
guidelines and monitoring objectives set in the market surveillance strategy (see
also Chapter 1 – Free movement of goods).

There has been some progress as regards non-safety-related
issues. A new Law on tourism, partly transposing the Package Travel
Directive, was adopted in October 2010. The new Law on consumer protection has
yet to be adopted to align national legislation with several EU
Directives including those dealing with unfair commercial practice, unfair
terms of contract and injunctions, distance selling, certain aspects of
timeshares and sale of consumer goods and with Commission recommendations on
arbitration and mediation in disputes.

There has been some progress in the area of
public health. e-health is fully integrated into the primary healthcare
system but its implementation is still slow. Efforts to upgrade healthcare
information systems need to continue in order to guarantee safe management of
patient data.

Amendments to the Law limiting use of tobacco
products were adopted in June 2011. Yet, smoking remains a serious
problem which is having negative effects on public health and more efforts are
needed to address it.

With regard to communicable diseases,
an action plan to implement international health regulations and a 2010-2014 strategy
for the fight against HIV/AIDS have been adopted in June 2011. The aim of this
strategy, in line with EU and international commitments and strategies, is to
keep Montenegro a low-prevalence country for HIV, to ensure universal access to
HIV prevention and treatment interventions and to improve the quality of life
of people living with HIV through a coordinated multi-sectoral response.
However, surveillance and response mechanisms need strengthening, in particular
with reference to the groups at greatest risk.

Improvements
were made to the legislative framework on blood but further efforts are
needed to establish a modern blood transfusion system in line with EU standards
and to achieve self-sufficiency in securing safe blood and blood products.
No progress can be reported in the field of tissues and cells and in organ
donation and transplantation.

Limited
progress can be noted in the field of mental health. An action plan for
mental health improvement in Montenegro (2011-2014) was adopted in August 2011
by the National Mental Health Commission. Yet, implementation of the national
strategy is still slow, due to limited administrative capacity and limited
availability of qualified staff.

In the field of cancer prevention
and control, adequate resources need to be allocated to organise and implement
the national programme for early detection of breast cancer adopted in June
2010. Implementation of the screening programmes on breast, cervical and
colorectal cancer needs to be accelerated. There is no specific policy document
– a national strategy or action plan – to prevent and reduce alcohol-related
harm that could be assessed against the EU strategy on alcohol.

Conclusion

Overall, some progress has been made in the
fields of consumer and health protection. Montenegro continues to make progress
towards alignment with the EU consumer policy and the EU health strategy.
However, further efforts are required to align national legislation with the acquis
and build up administrative capacity. In the area of consumer protection,
support for consumer organisations needs to be increased and awareness-raising
activities stepped up. Concerning health, both monitoring and evaluation need
to be strengthened when it comes to communicable diseases, notably with regard
to vulnerable communities. Implementation of a modern blood transfusion system
is still pending. Attention needs to be paid to alignment with EU legislation
in the fields of tissues, cells and organs.

4.29.
Chapter 29: Customs Union

Some progress has been made in the customs
legislation. The Decree on harmonisation of the customs tariff nomenclature
for 2011 has been adopted with the aim of aligning the nomenclature of the
national customs tariff with the EU Combined Nomenclature for 2011. The Law on
administrative fees has been amended to abolish all customs-related
administrative fees that were not in line with the Stabilisation and
Association Agreement and the EU acquis. A new Decree allowed deferred
payment of customs debt, within 30 days after acceptance of the customs
declaration. Legislation providing stronger protection of intellectual property
rights was adopted in June 2011 with the aim of aligning with the acquis. The
new rulebook on cash controls, which includes details and procedures for moving
cash into or out of the country and penalties for failing to declare such
movements, entered into force on 29 June 2011.

The Montenegro customs authorities have
made progress on building up their administrative and operational capacity and
adopted a Business Change Management Plan, setting the timeframe for
implementing the blueprints guidelines. Moreover, the administration
established an action plan covering, amongst other things, trade facilitation
and improved risk analysis. The customs authorities finalised the database for
human resources management. On the basis of the training strategy, the newly
created Division for Training organised systematic training for customs
officers and business representatives. Montenegro joined the CUSTOMS 2013
programme. Further efforts are needed to strengthen internal control in order
to prevent and detect corruption and other misconduct effectively. The
department in charge of post-clearance controls needs to be strengthened so
that it can systematically plan and operate a posteriori controls
compensating for the reduction in physical and documentary checks.

In October 2010 Montenegro extended the
functions of its national Customs Information System by adding new IT modules
for transit, simplified procedures and customs tariffs. The latter follows a
similar structure to the EU TARIC 2 application. No progress was made with
future membership of the Common Transit Convention.

Conclusion

Some progress
has been achieved in customs legislation, mainly consisting of aligning the
combined nomenclature with the EU Combined Nomenclature and abolishing all
administrative customs fees which were not in line with the Stabilisation and
Association Agreement and the acquis. However, further efforts remain
necessary in areas such as management of quotas, security-related provisions
and aligning with the EU customs legislation. In the areas of administrative
and operational capacity, Montenegro needs to reinforce implementation of
existing procedures and working methods. Additional efforts are needed on
internal control, post-clearance control and prevention and detection of
corruption and misconduct. Preparations for possible accession to the
Convention on a Common Transit Procedure should be stepped up.

4.30.
Chapter 30: External relations

There has been some progress in the field
of common commercial policy.

The country has generally continued to
coordinate with the European Commission and to align with the policies and
positions of the EU towards third countries and with international organisations.

Montenegro is not yet a
member of the World Trade Organisation (WTO). It redoubled its efforts
to ensure swift accession to the WTO, but accession
negotiations are still pending.

Montenegro does not yet
operate any formal export credit scheme. No progress was made on
aligning national legislation in this context. Montenegro's legislation
concerning export controls for dual-use goods is not yet fully in line
with the acquis. The Law on foreign trade in arms, military equipment and dual-use goods is not fully aligned with EU
legislation, especially on brokering and transit provisions for dual use.

Montenegro is currently
negotiating bilateral free trade agreements with Belarus and Kazakhstan.
The negotiations for a free trade agreement with EFTA countries were concluded
in July. It is scheduled to be signed in November and enter into force in July
2012. Montenegro continues to play an active and constructive role within
CEFTA. Parliament adopted a number of laws ratifying the most recent bilateral
investment agreements and agreements on trade and economic cooperation (e.g.
with the former Yugoslav Republic of Macedonia, the Czech Republic, Malta,
etc.).

Limited progress has been made on
strengthening the administrative capacity of the Department for multilateral
trade cooperation and international economic relations in the Ministry of
Economy. It needs to be reinforced in terms of both human resources and general
trade-related expertise. The inter-ministerial coordination mechanism already
in place needs further strengthening.

As regards development
policy and humanitarian aid policies, no developments have been observed.
Donor activities are still taking place on an ad hoc basis.

Conclusion

Some progress has been made in the area of
external relations. Coordination of positions in international organisations
with the EU has been smooth. However, further awareness of Montenegro's
obligations in this area will be needed, together with strengthening
institutional and administrative capacity on multilateral trade issues and
development and humanitarian aid.

4.31.
Chapter 31: Foreign, Security and Defence Policy

The regular political
dialogue between the EU and Montenegro continued to cover foreign policy
issues. (Concerning relations with other enlargement countries and Member
States, see Political criteria 2.3 — Regional issues and international
obligations.)

As regards the common foreign and
security policy (CFSP), in the reporting period Montenegro aligned itself,
when invited, with 66 out of 67 EU declarations and Council decisions (99%
alignment). (As regards the International Criminal Court, see Political criteria
2.3 — Regional issues and international obligations.)

Fifteen more countries have recognised
Montenegro as an independent State. However, there are still 51 countries that
have not yet recognised Montenegro since it gained independence in 2006.

There have been
delays in appointment of a Political Director and European Correspondent.

Montenegro has
implemented all United Nations Security Council and EU restrictive measures.

No additional
developments can be reported concerning conflict prevention.

As regards non-proliferation,
Montenegro is participating in some, but not all, international export control
arrangements and instruments concerning the non-proliferation of weapons of
mass destruction. Compliance with international commitments on small arms and
light weapons (SALW), including the aims of the EU strategy on SALW, is
continuing, with the aid of national laws and control systems. Regarding
nuclear safeguards, Montenegro ratified the Comprehensive Safeguards Agreement
and its Additional Protocol with the IAEA in December 2010.

With regard to cooperation
with international organisations, Montenegro presented its first Annual
National Programme within the first NATO Membership Action Plan (MAP) in
October 2010. Montenegro's broad Council of Europe post-accession monitoring
was changed to dialogue-based monitoring.

As regards security
measures, Montenegro continued its work on practical arrangements necessary
to comply with the Council Decisions on information security, including on
handling of classified information. In particular, it has adopted the security
arrangements for implementing the Agreement on security procedures for the
exchange and protection of classified information between Montenegro and the
European Union. Preparations for introducing the communication networks for
associated countries (Associated Countries Network, ACN) are ongoing.

As regards the common
security and defence policy (CSDP), and in particular civil and
military crisis management, an agreement between the EU and Montenegro,
establishing a framework for Montenegro's participation in EU crisis management
operations, was signed in February 2011. Montenegro continues to participate in
international operations such as ISAF in Afghanistan, UNMIL in Liberia and EU
NAVFOR Atalanta.

Conclusion

Montenegro has
made progress in this chapter. The country has aligned itself with all EU
declarations and Council Decisions and has continued to make a strong
contribution to regional stability. However, necessary legal and administrative
measures remain to be adopted, together with the appropriate adjustments.

4.32.
Chapter 32: Financial control

The legislative
framework for introducing public internal financial control (PIFC) was
completed in 2010 with the adoption of the secondary legislation required,
including a rulebook on establishment of financial management and control (FMC)
systems, instructions on annual reporting on FMC systems and internal audit
(IA) and amendments to the State Treasury directions

Implementation needs to be strengthened.
The capacity of the financial units to support management needs to be
significantly reinforced. The understanding of delegation, empowerment and
managerial accountability is still weak and needs to be consolidated and put
into practice. A more systematic approach is needed to ensure that the relevant
capacity is created and maintained in both the central harmonisation unit (CHU)
and budget users.

Some progress can be reported on
establishment of internal audit. The administration is finding it
difficult to recruit audit staff and too few auditors have so far been
appointed. Substantial efforts and resources will be required to introduce
international standards in internal audit.

In the case of external audit,
further progress can be reported. With a view to reinforcing the independence
of the State Audit Institution (SAI), the PIFC Law was amended in March 2011 to
exempt the SAI from the obligation to submit an annual report on its FMC system
and IA to the Ministry of Finance. The SAI is actively examining additional
measures to ensure that its independence is in line with international
standards

The SAI's
capacity is steadily increasing. In addition to the
audit of the annual financial statement of the government, 13 individual audits
were conducted. But while all the SAI's
administrative posts have been filled, 33% of the auditor posts are currently
vacant. Efforts are required to adopt the law on the operation of the Audit
Authority (AA), through which it will be formally separated from the SAI and
ensure the AA's resources for its future operations. Administrative and managerial autonomy of SAI has to
be ensured

Little progress
can be reported on protection of the EU's financial interests. An
anti-fraud coordination service (AFCOS) directly reporting to the Minister of
Finance was established to coordinate cooperation with OLAF. However, formal
confirmation is still awaited. Its administrative capacity remains limited.
Further steps are needed to identify all the national authorities which need to
be involved in cooperating with OLAF, to form an AFCOS network and to prepare
the legal basis for its operations. Limited progress can be reported in the
fight against counterfeiting of the euro. Training programmes on
detection of forged banknotes continued, but overall investigative capacity in
this area remains limited.

Conclusion

Montenegro has made progress in the field of financial control.
However, the country needs to implement its financial management and control
systems and to develop the internal audit function. Development of external
audit remains on track. Montenegro is still at an early stage of developing
cooperation with OLAF. Capacity to fight counterfeiting
of the euro needs to be enhanced.

4.33.
Chapter 33: Financial and budgetary provisions

There have been no particular developments
as regards traditional own resources, VAT resources and GNI resources.
For progress in the underlying policy areas, see chapters 16 –
Taxation, 18 – Statistics, 29 – Customs union and 32 – Financial control.

As regards administrative infrastructure,
institutions are in place in the underlying policy areas indirectly affecting
the own resources system. However, in addition to further strengthening these
institutions, a fully operational coordination structure will be required to
ensure correct calculation, forecasting, collection, payment and control of own
resources and reporting to the EU on implementation of the rules on own
resources.

Conclusion

Overall, there are no significant
divergences between the systems in Montenegro and the EU in terms of basic
principles and institutions for the underlying policy areas affecting correct
application of the rules on own resources. In due course, a coordinating body
will have to be set up to streamline and steer pre-accession preparations in
the own resources field. The administrative framework for the application of
the own resources rules is not yet in place.

Statistical Annex

STATISTICAL DATA (as of 30.09.2011) || || || || || || || || || || || ||

Montenegro || || || || || || || || || || ||

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

Basic data || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Population (thousand) || 12) || 612 || 615 || 617 || 619 || 621 || 623 || 624 || 625 || 628 || 630 || 619b

Total area of the country (km²) || || 13 812 || 13 812 || 13 812 || 13 812 || 13 812 || 13 812 || 13 812 || 13 812 || 13 812 || 13 812 || 13 812

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

National accounts || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Gross domestic product (GDP) (million euro) || 1) || 1 066 || 1 295 || 1 360 || 1 510 || 1 670 || 1 815 || 2 149 || 2 681 || 3 086 || 2 981 || 3 104

GDP (euro per capita) || 2) || 1 750e || 2 113e || 2 208e || 2 435e || 2 684e || 2 912e || 3 443e || 4 280e || 4 908 || 4 720 || 5 006

GDP (in Purchasing Power Standards (PPS) per capita) || || : || : || : || : || : || 6 900 || 8 400 || 10 000 || 10 800 || 9 700 || 9 800 e

GDP per capita in PPS (EU-27 = 100) || || : || : || : || : || : || 31 || 35 || 40 || 43 || 41 || 40e

Real GDP growth rate (growth rate of GDP volume, national currency, % change on previous year) || || : || 1.1 || 1.9 || 2.5 || 4.4 || 4.2 || 8.6 || 10.7 || 6.9 || -5.7 || 2.5

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

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

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

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

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

Agriculture and fisheries || 3) || 12.4 || 11.9 || 12.2 || 11.6 || 10.9 || 10.4 || 10.1 || 8.5 || 9.3 || 10.0 || 9.2

Industry || 3) || 19.1 || 20.8 || 20.0 || 19.2 || 18.8 || 17.1 || 16.0 || 13.6 || 13.5 || 13.6 || 13.5

Construction || 3) || 4.3 || 3.9 || 4.1 || 3.4 || 3.5 || 3.6 || 4.3 || 4.2 || 7.7 || 6.5 || 6.1

Services || 3) || 64.2 || 63.5 || 63.8 || 65.8 || 66.9 || 68.9 || 69.5 || 73.7 || 69.5 || 69.9 || 71.2

Final consumption expenditure, as a share of GDP (%) || || 91.9 || 100.2 || 105.8 || 101.0 || 99.4 || 99.8 || 104.2 || 108.5 || 113.8 || 106.2 || 105.6

Gross fixed capital formation, as a share of GDP (%) || || 16.9 || 17.5 || 14.6 || 13.3 || 17.0 || 18.0 || 21.9 || 32.3 || 38.3 || 26.7 || 21.1

Changes in inventories, as a share of GDP (%) || || 5.5 || 5.9 || 4.1 || 2.1 || -0.4 || -0.3 || 3.6 || 1.5 || 2.3 || 0.4 || 1.7

Exports of goods and services, relative to GDP (%) || || 36.8 || 38.4 || 35.4 || 30.6 || 42.0 || 43.6 || 49.4 || 44.4 || 39.6 || 32.1 || 34.7

Imports of goods and services, relative to GDP (%) || || 51.1 || 62.0 || 59.9 || 47.0 || 58.1 || 61.1 || 79.1 || 86.7 || 94.0 || 65.4 || 63.1

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

Industry || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Industrial production volume index (2005=100) || || 87.7 || 86.8 || 87.7 || 89.5 || 101.8 || 100.0 || 100.9 || 100.9 || 99.1 || 67.5 || 79.4

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

Inflation rate || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Annual average inflation rate (CPI, % change on previous year) || || : || : || : || : || : || : || : || : || 9.2 || 3.4 || 0.5

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

Balance of payments || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Balance of payments: current account total (million euro) || || : || : || -175 || -102 || -120 || -311 || -687 || -1 078 || -1 584 || -896 || -778

Balance of payments current account: trade balance (million euro) || || : || : || -433 || -359 || -416 || -674 || -1 010 || -1 607 || -2 102 || -1 372 || -1 317

Balance of payments current account: net services (million euro) || || : || : || 100 || 112 || 148 || 196 || 197 || 439 || 399 || 385 || 446

Balance of payments current account: net income (million euro) || || : || : || 76 || 88 || 86 || 20 || 36 || 31 || 46 || 5 || -22

Balance of payments current account: net current transfers (million euro) || || : || : || 82 || 58 || 62 || 147 || 90 || 59 || 73 || 85 || 114

of which government transfers (million euro) || || : || : || : || : || : || 6 || 7 || 2 || 9 || 5 || 16

Net foreign direct investment (FDI) (million euro) || || : || : || 87 || 39 || 51 || 399 || 470 || 568 || 582 || 1 066 || 552

Foreign direct investment (FDI) abroad (million euro) || || : || : || 0 || 5 || 2 || 4 || 26 || 115 || 74 || 33 || 22

of which FDI of the reporting economy in EU-27 countries (million euro) || || : || : || 0 || 0 || 1 || 3 || 2 || 7 || 6 || 2 || 19

Foreign direct investment (FDI) in the reporting economy (million euro) || || : || : || 87 || 44 || 53 || 403 || 496 || 683 || 656 || 1 099 || 574

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || : || 73 || 32 || 38 || 337 || 300 || 461 || 378 || 782 || 287

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

Public finance || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

General government deficit/surplus, relative to GDP (%) || || : || : || : || -2.4 || -2.0 || -2.0 || 3.4 || 6.6 || 0.5 || -4.4 || -5.0

General government debt relative to GDP (%) || || : || : || 84.5 || 47.1 || 44.5 || 38.3 || 32.6 || 27.5 || 29.0 || 38.3 || 41.0

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

Financial indicators || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

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

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

Money supply: M1 (banknotes, coins, overnight deposits, million euro) || 4) || : || : || : || 285 || 291 || 351 || 484 || 592 || 512 || : || :

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || 5) || : || : || : || 403 || 437 || 615 || 1 099 || 1 557 || 1 209 || : || :

Money supply: M3 (M2 plus marketable instruments, million euro) || 6) || : || : || : || 494 || 547 || 867 || 1 587 || 2 728 || 2 339 || : || :

Total credit by monetary financial institutions to residents (consolidated) (million euro) || || : || : || 125 || 199 || 279 || 374 || 843 || 2 213 || 2 754 || 2 358 || 2 152

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

Lending interest rate (one year), per annum (%) || || : || : || : || : || : || 12.1 || 10.3 || 9.3 || 9.4 || 9.4 || 9.6

Deposit interest rate (one year), per annum (%) || || : || : || : || : || : || : || : || 3.4 || 4.1 || 3.9 || 3.3

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

Effective exchange rate index (2000=100) || || : || : || : || : || : || : || : || : || : || : || :

Value of reserve assets (including gold) (million euro) || || : || : || 55 || 50 || 60 || 173 || 329 || 490 || 337 || 397 || 416

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

External trade || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Value of imports: all goods, all partners (million euro) || || : || : || : || : || : || 974.3 || 1 457.4 || 2 073.1 || 2 529.7 || 1 654.2 || 1 657.3

Value of exports: all goods, all partners (million euro) || || : || : || : || : || : || 460.6 || 441.1 || 454.7 || 416.2 || 277.0 || 330.4

Trade balance: all goods, all partners (million euro) || || : || : || : || : || : || -513.7 || -1 016.2 || -1 618.4 || -2 113.6 || -1 377.2 || -1 327.0

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

Share of exports to EU-27 countries in value of total exports (%) || || : || : || : || : || : || 53.5 || 66.5 || 69.2 || 62.2 || 48.3 || 55.9

Share of imports from EU-27 countries in value of total imports (%) || || : || : || : || : || : || 45.3 || 47.4 || 45.4 || 42.7 || 37.5 || 37.7

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

Demography || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || 6.1 || 5.5 || 4.8 || 4.3 || 3.4 || 2.4 || 2.5 || 3.0 || 4.1 || 4.4 || :

Infant mortality rate: deaths of children under one year of age per 1000 live births || || 11.1 || 14.6 || 10.8 || 11.0 || 7.8 || 8.4 || 11.0 || 7.4 || 7.5 || 5.7 || :

Life expectancy at birth: male (years) || || : || : || : || : || : || 71.4 || 71.5 || 72.1 || 72.8 || 73.1 || :

Life expectancy at birth: female (years) || || : || : || : || : || : || 77.0 || 76.6 || 77.2 || 78.1 || 77.9 || :

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

Labour market || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Population (15-64): total of population aged 15-64 (thousand) || || : || : || : || : || : || : || : || : || : || : || :

Population in economic activity (15-64): total of population aged 15-64 that is economically active (thousand) || || : || : || : || : || : || 254.3 || 251.5 || 261.5 || 264.2 || 262.1 || 259.1

Total employment (15-64): total of population aged 15-64 that is employed (thousand) || 7) || 181.8 || 176.6 || 177.6 || 168.5 || 187.3 || 176.5b || 176.7 || 210.7 || 219.4 || 211.7 || 207.9

Economic activity rate (15-64): share of population aged 15-64 that is economically active (%) || 7) || 60.4 || 57.1 || 59.1 || 58.9 || 51.7 || 59.0b || 58.4 || 61.0 || 61.2 || 60.3 || 59.3

\* Employment rate (15-64): share of population aged 15-64 in employment (%) || 7) || 38.5 || 37.1 || 37.7 || 36.2 || 37.4 || 40.9b || 41.0 || 49.2 || 50.8 || 48.8 || 47.6

Employment rate male (15-64) (%) || 7) || 46.2 || 45.6 || 46.6 || 44.5 || 46.5 || 46.2b || 47.8 || 56.6 || 58.3 || 56.0 || 54.3

Employment rate female (15-64) (%) || 7) || 30.6 || 29.0 || 29.0 || 28.1 || 28.8 || 35.6b || 34.8 || 41.9 || 43.5 || 41.6 || 41.0

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

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

Agriculture || || : || : || : || : || : || : || : || : || : || 6.5 || 6.2

Industry || || : || : || : || : || : || : || : || : || : || 14.0 || 13.9

Construction || || : || : || : || : || : || : || : || : || : || 6.7 || 6.1

Services || || : || : || : || : || : || : || : || : || : || 72.8 || 73.9

Unemployment rate: share of labour force that is unemployed (%) || || 19.3 || 21.2 || 20.7 || 22.7 || 27.7b || 30.3 || 29.6 || 19.3 || 16.8 || 19.1 || 19.7

Share of male labour force that is unemployed (%) || || : || : || : || : || : || : || : || 18.1 || 15.9 || 18.0 || 18.9

Share of female labour force that is unemployed (%) || || : || : || : || : || : || : || : || 20.9 || 17.9 || 20.4 || 20.7

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

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || : || : || : || : || : || : || : || : || : || 15.6 || :

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

Social cohesion || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Average nominal monthly wages and salaries (national currency) || || 181.0 || 211.0 || 149.1 || 173.9 || 195.3 || 213.1 || 246.0 || 338.0 || 416.0 || 463.0 || 479.0

Index of real wages and salaries (index of nominal wages and salaries divided by the CPI/HICP) (2000=100) || || 100.0 || 91.6 || 109.7 || 119.3 || 130.9 || 139.7 || 156.4 || 179.9 || 195.2 || : || :

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

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

Standard of living || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Number of passenger cars per 1000 population || || 185.2 || 161.0 || 166.8 || 171.8 || 176.1 || 190.9 || 244.7 || 285.6 || 298.5 || 283.9 || 260.1

Number of subscriptions to cellular mobile telephone services per 1000 population || || : || 639.6 || 775.5 || 674.4 || 778.7 || 872.0 || 1 127.4 || 1 097.9 || 1 611.5 || 2 496.5 || 2 201.4

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

Infrastructure || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Density of railway network (lines in operation, per 1000 km²) || || 18.1 || 18.1 || 18.1 || 18.1 || 18.1 || 18.1 || 18.1 || 18.1 || 18.1 || 18.1 || 18.1

Length of motorways (thousand km) || || : || : || : || : || : || : || : || : || : || : || :

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

Innovation and research || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

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

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

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

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

Environment || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

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

Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP) || || : || : || : || : || : || : || 493.8 || 384.4 || : || : || :

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

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

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

Energy || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Primary production of all energy products (thousand TOE) || || : || : || : || : || : || : || 982 || 795 || 1 136 || 622 || 1 267

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

Primary production of hard coal and lignite (thousand TOE) || || : || : || : || : || : || : || 982 || 795 || 1 136 || 622 || 1 267

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

Net imports of all energy products (thousand TOE) || || : || : || : || : || : || : || -49 || 9 || -25 || -18 || -20

Gross inland energy consumption (thousand TOE) || || : || : || : || : || : || : || 933 || 804 || 1 111 || 606 || 1 268

Electricity generation (thousand GWh) || || 2.7 || 2.5 || 2.3 || 2.7 || 3.3 || 2.9 || 3.0 || 2.1 || 2.8 || 2.8 || 4.0

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

Agriculture || Note || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010

Agricultural production volume index of goods and services (producer prices, previous year=100) || || 95.0 || 107.0 || 106.0 || 101.0 || 104.0 || 99.0 || 102.0 || 89.0 || : || : || :

Total utilised agricultural area (thousand hectare) || 8) || 518p || 518p || 518p || 518p || 518p || 517p || 517 || 516 || 516 || 516 || 516

Livestock: cattle (thousand heads, end of period) || 9) || 179e || 178e || 183e || 175e || 169e || 118 || 115 || 109 || 106 || 101 || 119

Livestock: pigs (thousand heads, end of period) || 9) || 19e || 21e || 22e || 24e || 27e || 11 || 13 || 10 || 10 || 12 || 12

Livestock: sheep and goats (thousand heads, end of period) || 9) || 293e || 244e || 241e || 252e || 254e || 255 || 249 || 222 || 209 || 200 || 244

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || 10) || 197e || 194e || 198e || 203e || 209e || 186 || 178 || 173 || 160 || 152 || 179

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 11) || 3p || 4p || 5p || 4p || 3p || 3p || 3 || 2 || 3 || 3 || 17b

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

Crop production: vegetables (thousand tonnes, harvested production) || || : || : || : || : || : || : || : || : || : || : || 151

: =
not available

p =
provisional

e =
estimated value

b =
break in series

\* =
Europe 2020 indicator

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

Footnotes:

1)             No official national
currency exists. Euro is the currency in use.

2)             Mid-year estimate of
population used to calculate per capita values; the data are without Financial
Intermediation Services Indirectly Measured (FISIM).

3)             Data according to NACE
Rev 1.1.

4)             As of 31 December.
Instead of standard M1, data under national definition of M0 are provided.
Monetary base (M0) is comprised of banks` deposits with the CBM (settlement
account and reserve requirement account) and the estimated amount of cash in
circulation. Monetary aggregate M1 is comprised of M0, demand deposits by the
non-banking sector held with banks and the CBM, in euro and other currencies,
excluding deposits by the Central Government. Monetary aggregate M11 comprises
M1 increased by the Central Government’s demand deposits in euro and other
currencies. Monetary aggregate M2 includes M1 and the non-banking sector’s time
deposits with banks, in euro and other currencies, excluding deposits by the
Central Government. Monetary aggregate M21 comprises M2 increased by the
Central Government’s time deposits in euro and other currencies.

5)             As of 31 December.
Instead of standard M2, data under national definition of M11 are provided.

6)             As of 31 December.
Instead of standard M3, data under national definition of M21 are provided.

7)             Age group refers to
persons aged 15 or more years until 2004; from 2005 onwards age group 15-64 is
used.

8)             Agricultural area
includes: arable land, and area under pastries, fishponds and ponds.

9)             Number of livestock in
1000 including enterprises and cooperatives and households.

10)           Calculated net quantity
in 1000 tonnes; including enterprises and cooperatives, and households.

11)           Including households,
enterprises and cooperatives; from 2010, data includes all cereals (wheat, ray,
barley, oats, grain maize, buckwheat); from 2000 to 2009 only data on wheat
included.

12)           The figure for 2010 is
estimated on the results of the 2011 population census, the figures from 2003
to 2009 are to be revised.

[1]               The rapporteur for Montenegro is Mr Charles Tannock.

[2]               Enlargement Strategy and Main Challenges 2011-2012 - COM(2011)
666.

[3]               The key priorities concern the following areas: legislative framework for elections and Parliament's legislative and
oversight role; public administration reform; judicial reform; fight against
corruption; fight against organised crime; media freedom and cooperation with
civil society; implementation of the anti-discrimination framework and the
situation of displaced persons. For the full text of
the key priorities, please see COM (2010) 670.

[4]               Under UNSCR 1244/1999

[5]               Council Decision 2011/168/CFSP of 29 March 2011.

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