Source: EURLEX
Language: en
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# 52012SC0331

**COMMISSION STAFF WORKING DOCUMENT MONTENEGRO 2012 PROGRESS REPORT accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2012-2013 /\* SWD/2012/0331 final \*/**

  

TABLE OF CONTENTS

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

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

1.2........ Context 4

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

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

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

2.2........ Human rights and
protection of minorities. 12

2.3........ Regional issues and
international obligations. 16

3........... Economic criteria. 17

3.1........ The
existence of a functioning market economy. 17

3.2........ The capacity to cope with
competitive pressure and market forces within the Union. 21

4........... Ability to take on the
obligations of membership. 23

4.1........ Chapter 1: Free movement
of goods. 23

4.2........ Chapter 2: Freedom of
movement for workers. 25

4.3........ Chapter 3: Right of
establishment and freedom to provide services. 26

4.4........ Chapter 4: Free movement
of capital 27

4.5........ Chapter 5: Public
procurement 28

4.6........ Chapter 6: Company law.. 29

4.7........ Chapter 7: Intellectual
property law.. 29

4.8........ Chapter 8: Competition
policy. 30

4.9........ Chapter 9: Financial
services. 31

4.10...... Chapter 10: Information
society and media. 32

4.11...... Chapter 11: Agriculture and
rural development 33

4.12...... Chapter 12: Food safety,
veterinary and phytosanitary policy. 34

4.13...... Chapter 13: Fisheries. 35

4.14...... Chapter 14: Transport
policy. 35

4.15...... Chapter 15: Energy. 36

4.16...... Chapter 16: Taxation. 37

4.17...... Chapter 17: Economic and
monetary policy. 38

4.18...... Chapter 18: Statistics. 39

4.19...... Chapter 19: Social policy
and employment 39

4.20...... Chapter 20: Enterprise and
industrial policy. 42

4.21...... Chapter 21: Trans European
Networks. 42

4.22...... Chapter 22: Regional policy
and coordination of structural instruments. 43

4.23...... Chapter 23: Judiciary and
fundamental rights. 44

4.24...... Chapter 24: Justice,
freedom and security. 50

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

4.26...... Chapter 26: Education and
culture. 55

4.27...... Chapter 27: Environment and
climate change. 56

4.28...... Chapter 28: Consumer and
health protection. 58

4.29...... Chapter 29: Customs union. 60

4.30...... Chapter 30: External
relations. 60

4.31...... Chapter 31: Foreign,
security and defence policy. 61

4.32...... Chapter 32: Financial
control 62

4.33...... Chapter 33: Financial and
budgetary provisions. 63

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 second 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 take on 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 2011 to September 2012. Progress is measured on
the basis of decisions taken, legislation adopted and measures implemented. As
a rule, legislation or measures which are 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.

1.3.
Relations between the EU and Montenegro

The Commission recommended opening accession
negotiations with Montenegro in October 2011. This recommendation was
reiterated in May 2012. Following a positive decision by the Council, endorsed
by the European Council, accession negotiations with Montenegro were opened in
June 2012. The screening of the chapters on judiciary and fundamental rights,
and justice, freedom and security took place in spring, in line with the new
approach for these chapters. Screening reports to be prepared by the Commission
for these chapters will provide substantial guidance, including on the tasks to
be addressed in the action plans to be adopted by the Montenegrin authorities,
which will constitute the opening benchmarks. The screening of the remaining
chapters started in September, with the chapters on science and research,
education and culture, and public procurement.

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 Stabilisation and
Association Committee met in July and five sub-committee meetings have been
held since October 2011. The stabilisation and associations
meetings between representatives of the European Parliament and of the
Montenegrin parliament continued to be held bi-annually. Members of the
Joint Consultative Committee between the EU Committee of the Regions and
Montenegro’s local authorities have been appointed in March. A Civil Society Joint
Consultative Committee between the European Economic and Social Committee and civil
society organisations of Montenegro held its inaugural meeting in October 2012.

Montenegro participates in multilateral economic dialogue
with the Commission and the EU Member States. The aim of this dialogue is to
prepare Montenegro for participation in multilateral surveillance and economic
policy coordination under the EU’s Economic and Monetary Union. The dialogue included
a ministerial meeting in Brussels in May 2012.

Visa liberalisation for citizens of Montenegro travelling to the Schengen area has been in force
since December 2009. The Commission set up a
post-visa-liberalisation monitoring mechanism to assess whether the
implementation of reforms introduced by the country was consistent with the
visa roadmap and sustainable. This was complemented by an alert mechanism to prevent
abuses. The Commission presented its second
monitoring report to the European Parliament and the Council in December 2011
and adopted the third in August 2012. A readmission agreement between
the European Union and 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. Adopted in November 2011, the 2011-2013 Multiannual
Indicative Planning Document (MIPD) for Montenegro entered into force on 1
March 2012. The revised IPA Regulation transferring Montenegro from Annex II
(potential candidates) to Annex I (candidates) entered into force on the same
date. The IPA National Programme 2011 came to € 26 million and was adopted
by the Commission in November 2011. The total IPA allocation for 2012 is € 35 million
and € 34,6 million for 2013. Like the 2011 programme, the 2012-2013
national programme for Montenegro is focused on the priority sectors identified
in the MIPD, in particular the rule of law, public administration reform, the environment
and climate change. Montenegro also benefits from regional and horizontal IPA
programmes. It is participating in five cross-border cooperation programmes
with neighbouring Western Balkan countries; including in the new 2011-2013 cross-border
cooperation programme with Kosovo\* adopted in December 2011. Montenegro
is also participating in transnational cooperation programmes under the
European Regional Development Fund and in the IPA Adriatic cross-border
programme with Member States. The IPA programme is currently managed by the EU
Delegation in Podgorica. Montenegro’s preparations for transferring management
of components I and II of the IPA programme from the EU to the national
authorities have advanced further.

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

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 2011, both under the Competitiveness and
Innovation Framework Programme; Culture 2007-2013; 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.

2.1.
Democracy and the rule of law

Parliament

Following parliament’s decision in July
2012 to shorten its mandate, the President called for early parliamentary
elections to be held on 14 October.

As regards the legislative framework for
elections, the law on the election of municipal councillors and members of
parliament, adopted in September 2011, has started to be implemented. All
parliament’s seats have been awarded on the basis of the candidates’ order on
the electoral lists, unlike previously, when half of them were awarded at the
discretion of the candidate list submitter. The president and nine members of
the State Election Commission were appointed by the parliament in December
2011. The new provisions providing for 30% of female candidates on the
candidate lists were, for the first time, implemented in elections held in two
municipalities in April. Nevertheless, women remain underrepresented in the parliament.

The electoral legislation needs to be amended
in line with a number of pending OSCE/ODHIR and Venice Commission
recommendations, in particular as regards the dissolution of coalitions and
their funding obligations, and the extension of the Central Election Commission’s
mandate to municipal elections. The issue of the constitutional two-year
residency requirement before citizens can obtain the right to vote remains
unaddressed for national elections. No sanctions are provided for certain
provisions of the law, in particular with regard to the restriction for public
officials to participate in election campaigns.

The parliament amended its rules of
procedure in May, which entered into force in July. The new rules provide for more
regular control hearings and enhanced guarantees for draft legislation
presented by the opposition parties to be examined by the parliament. They also
provide for the setting-up of stand-alone parliamentary committees on European
integration and anti-corruption matters, chaired by opposition MPs. As a
result, the National Council for European Integration has been abolished.
European integration remains a key priority for parliamentary work.

There has been further progress with regard
to the transparency of the parliament’s work. At the request of civil society
organisations, it started publishing the voting record of individual MPs on its
website in December 2011. A new law adopted in November 2011 regulates the
Parliament’s relations with lobbyists. Further measures have been taken to
improve interaction with civil society and the public. The human rights and
freedoms parliamentary committee has been tasked to deliberate on petitions and
complaints submitted by citizens and civil society. However, procedures for
acting upon civil initiatives have not been adopted yet.

The parliament
has continued its intensive legislative activity, which
has included a number of areas relating to European integration,
such as preventing money laundering and the financing of terrorism, and auditing
EU funds. The work of the research department has been strengthened. The role
and the capacity of the parliament in monitoring the process of bringing
Montenegro’s laws into line with EU law have been enhanced. The new rules of
procedure tasked the parliamentary committees to monitor the implementation and
the compliance of new legislation with the EU acquis in the areas of
their competence. Their capacity and expertise are to be further strengthened
in this regard.

Parliament’s
oversight role has been enhanced, notably through the adoption of a law on
parliamentary inquiry, amendments to the parliament’s rules of procedure and to
the law on data secrecy, as well as a steady increase in the number of
parliamentary questions, scrutiny and consultative hearings with high-level
state officials and discussions of reports submitted by various institutions. The
defence parliamentary committee has been tasked by the new rules of procedure
to monitor the work of all security bodies and for the first time, under the
law on parliamentary oversight of the security and defence sector, it examined
the activity report of the police and the state of security. As regards
parliamentary oversight of anti-corruption matters, in February the parliament
decided, for the first time, to open a parliamentary investigation and
establish a committee of inquiry in charge of collecting information and
preparing a report on alleged corruption in the privatisation of the company ‘Telekom
Crne Gore’. The law on parliamentary inquiry, enacted in July, defined the
scope of work of the committee of inquiry and provided it with the possibility
to request information from all state and local bodies and legal entities. Follow-up
to the conclusions adopted by parliamentary committees in oversight hearings is
limited and needs to be reinforced.

The Parliament’s
administrative capacity has been strengthened, notably through increased staff
numbers, from 100 in October 2011 to 122 in August 2012, and a number of
training courses. Continued efforts are needed to further enhance the parliament’s
administrative and expert capacity, for all parliamentary committees too. Office
space and technical equipment is lacking, even for MPs. Training of existing
staff and the recruitment of qualified new staff need to be pursued.

Overall,
progress has been made with regard to Parliament’s functioning and its
legislative and oversight role in matters including the rule of law.
Implementation of recently adopted legislation on elections has started, and
the administrative and expert capacity of the parliament has been reinforced.
Transparency has improved and stand-alone committees on European integration
and on combating corruption have been provided for. Efforts undertaken to enhance
the parliament’s legislative and oversight capacity need to be pursued.

Government

The composition of the government changed in
March and July. The Parliament appointed a new Minister for Foreign Affairs and
European Integration, following the resignation of his predecessor. A new Minister
for Minority Rights was appointed, while the Deputy Prime Minister and Minister
of Justice took over the human rights portfolio. A new Minister of Defence was
also appointed.

In December, the government appointed the
Chief Negotiator for Montenegro’s accession negotiations, who also became State
Secretary for European Integration and National Coordinator for the IPA. In
February, the government adopted a decision on the structure of accession
negotiations with the EU. The working groups for negotiations on chapters 23 and
24 were set up in March, while those for chapters 5, 25 and 26 in July. They
include representatives of civil society. The working groups for the remaining
chapters are being gradually appointed.

In December, the government adopted a
rulebook for the internal organisation of the Ministry of Foreign Affairs and
European Integration with the aim of strengthening its structures and human
resources. The administrative capacity for the coordination of European
integration and the accession negotiations of most of the acquis
chapters needs to be substantially strengthened.

The government’s
rules of procedure, adopted in December and in force since January, introduced
mandatory impact assessments for draft legislation and required the government
to submit its work programme to the parliament. The rules also provided for
enhanced public consultations on draft legislation and strengthened expert
support for the government’s working bodies. Two related decrees were adopted, setting
out procedures for cooperating with NGOs and for conducting public debates. The
government also adopted its 2012 work programme and an analysis of the
implementation of laws and by-laws, concluding that law enforcement is
deficient in certain areas and adopting a number of follow-up measures.

With regard to local
self-government, a law on the territorial organisation of Montenegro was
enacted in November and the law on local self-government amended in July, with
a view to enhancing the transparency, efficiency and accountability of the administration
at local level. An obligation was introduced for the municipal authorities to
publish all contracts with natural or legal persons on their official websites.
In June, the government adopted an analysis of the functioning of the local
self-government, which contains recommendations for further legislative
amendments. Local administration needs to be rationalised and its efficiency
strengthened.

Overall,
government policy-making has further improved. The structures for the accession
negotiations are gradually being set up and include representatives of civil
society. The administrative capacity for the coordination of European
integration, including financial assistance, needs to be further strengthened
to meet the requirements of the accession negotiations. The overall capacity of
ministries to produce high-quality legislation and impact assessments needs to
be enhanced. As regards local government, further efforts are needed to
implement recent legislation and to establish a transparent, efficient and
accountable administration.

Public
administration

During the reporting period, Montenegro
continued to work on modernising its public administration. Comprehensive
reform of the public sector was launched, led by the Ministry of the Interior
and the Ministry of Finance, aimed at rationalisation and modernisation.

In April, the government endorsed a
2012-2016 plan for reorganising the public sector with a view to increasing its
efficiency, as part of the broader reform in this field. The plan presents an
initial analysis of the state institutions affected by the reform, and sets out
an initial timeline and actions. It aims to make better use of budget resources
by making the salary system more uniform and transparent and by identifying
overlaps. At the same time, it lays the basis for the building capacity in
areas relating to European integration. The plan covers the state
administration, all public authorities and all institutions which have either been
set up by the government or financed, even partly, by the state budget. Follow-up
to the measures included in the reorganisation plan need to be ensured to
accomplish effective progress in the public administration’s rationalisation
process. The implementation of the public administration reform strategy
(AURUM) has to benefit from better coordination and monitoring mechanisms.

With a view to streamlining public
administration and increasing its efficiency, the government continued to adopt
relevant implementing legislation. In December the government adopted a decree
on the organisation of the state administration, reducing the number of public
procurement entities and facilitating internal auditing. The decree was amended
in April to re-establish the financial autonomy of some independent bodies.

For the purpose of rationalising the public
administration, the parliament amended the Law on Inspection Control to bring inspections
within a single authority and improve the business environment. Implementing
regulations are still needed.

The Law on Salaries of Civil Servants and
State Employees was amended in November and February, widening its scope to
cover employees in State funds. The law allows the parliamentary services and
administrative services of the judiciary to adjust the variable part of their employees’
salaries. A corresponding action plan was endorsed by the government. The Law
on General Administrative Procedures remains to be revised in line with
European standards and best practice.

Since January 2012, impact assessments have
been carried out for new legislation and submitted to the government together
with the opinion of the Ministry of Finance on the impact that the
implementation of the new law will have on the state budget. To increase
transparency, the government adopted additional implementing legislation aimed
at strengthening cooperation between state administration bodies and
non-governmental organisations.

The Human Resources Management Authority
(HRMA) organised a number of training courses in fields relevant to the work of
the public administration, together with international partners. The HRMA’s
capacity to coordinate training activities throughout the administration and its
remit need to be strengthened.

With regard to the State Audit Institution
(SAI), several steps have been taken to improve audit methodology. The SAI’s
powers were extended to auditing of political party financing via amendments to
the Law on Political Party Financing. A strategy for the development of this
institution was endorsed by the government in April. Additional amendments to
the law, aimed at strengthening SAI’s independence with regard to financial
management and staff recruitment, have not yet been adopted. The SAI’s capacity
needs to be reinforced especially with regard to its new powers. (See also
Chapter 32 – Financial control)

As regards e-government, a decree which
entered into force in November allows all state institutions to use electronic
management of documents in their work.

The Ombudsman’s administrative capacity
and budget have been strengthened. The Ombudsman’s cooperation with civil
society is continuously improving, and the influence of the office has
generally increased. Yet, the law on the Ombudsman remains to be aligned with
the acquis, for what concerns its independence. The financial and human
resources of the Ombudsman have been strengthened but need to increase.

Overall,
Montenegro has taken further steps to address the challenges of public
administration reform. The legislative framework and the implementation of the
recent legislation need to be improved, in a financially sustainable manner and
with adequate verification mechanisms. The capacity of the Ombudsman has been
reinforced but needs to be further enhanced.

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

With regard to the independence and
impartiality of the judiciary, implementation
of the legislation on courts, the Judicial Council and the State prosecutor’s
office, amended in July 2011 to strengthen judicial accountability and
independence, continued. The Judicial Council and the Prosecutorial Council
adopted rules of procedure setting out their organisational structure,
functioning and decision-making procedures. The new Judicial Council was
constituted in June and the new Prosecutorial Council in July. The first
written tests for judges were held in February, in accordance with the new
criteria. Future work needs to focus on setting up a single, country-wide
recruitment system for judges and prosecutors, based on transparent and
objective criteria. The promotion criteria for judges and prosecutors lack
clarity and objectivity due to the lack of periodical professional assessment
of judges and prosecutors’ performance. The work of the Judicial and
Prosecutorial Councils is hampered by insufficient administrative capacity and
budget allocations. The ongoing constitutional revision, aimed at adressing
undue political influence in the judiciary, needs
to be completed in line with European standards.

Random allocation of cases continues to be
ensured in courts with the aid of an IT system, with the exception of smaller
courts with limited staff.

Concerning the accountability of the judiciary, all
decisions of the Administrative Court and the Appellate Court became publicly
accessible. Commissions for monitoring compliance with
the Codes of Ethics of judges and prosecutors were appointed. Members of the Disciplinary
Commissions were appointed, together with two staff to investigate complaints
of corruption in the judiciary. However, corruption and conflict of interest
are still insufficiently monitored in the judiciary. The disciplinary system
needs to be further strengthened and differentiated in line with the principle
of proportionality, and the Disciplinary Commission’s dual role in
investigating and deciding on disciplinary proceedings reviewed. Procedures for
removing professional immunity need to be strengthened to ensure that judges
and prosecutors are fully accountable under criminal law. A reliable system of
professional evaluation of judges and prosecutors still needs to be
established. Plans to publish all court rulings have been only partially
implemented.

Regarding the efficiency of the
judiciary, the backlog of cases has been further reduced by approximately 4%. Seven further notaries were appointed, bringing their total number to
40 out of the 65 foreseen notary posts. Following the entry into force of the
Law on Enforcement and Security of Claims, transferring powers for civil
enforcement to the bailiffs, the Parliament enacted the Law on Public Bailiffs in
December. Initial steps have been taken to rationalise the court network, but
Montenegro remains one of the countries with the highest number of basic courts,
judges, prosecutors and administrative staff per capita in Europe.
Due to this high administrative cost, there are not enough budget resources to
implement the new Law on Free Legal Aid or to remedy shortfalls in
infrastructure and equipment, which continue to hinder judicial efficiency. The
quality of judicial statistics needs to be improved and a system to monitor the
length of trials introduced. Enforcement of civil decisions remains weak, as
bailiffs have yet to be recruited. The independence and the administrative and
financial capacity of the Judicial Training Centre need to be strengthened and
initial training with set curricula for all members of the judiciary
established.

Overall,
Montenegro has made some progress on the judiciary. Implementation of recently
adopted legislation has started. Progress has been made with regard to the
publication of court rulings and the case backlog. The
process of constitutional reform to stengthen the independence of the judiciary
in line with European standards remains incomplete. Further efforts are needed
to ensure merit based appointments and career development, as well as to
strengthen accountability and integrity safeguards within the judiciary.

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

Some progress has been
made in the fight against corruption. The strategy for fighting
corruption and organised crime and the revised 2011-2012 action plan are being
implemented. The overall institutional framework for monitoring implementation
of the action plan is working well.

Montenegro has further strengthened its
anti-corruption legal framework, with a view to ensuring alignment with the
relevant European and international standards. Amendments to the Labour Law
enacted by the parliament in November extended protection for whistleblowers to
cover the private sector. Amendments to the Law on Free Access to Information
were enacted by the parliament in July. Amendments to the Law on Political Party
Financing were enacted in December, covering supervisory institutions and in-kind
contributions and fixing the ceiling for membership fees at 10 % of a
member’s annual income. Recently adopted legislation on conflicts of interest
and public procurement started to be implemented. The
mechanisms for checking on the funding of political parties and electoral
campaigns and imposing penalties need to be reinforced and set out in legislation.
Civil servants’ asset declarations are still not being checked on
substance to establish cases of illicit enrichment. The
professional capacity and independence of the supervisory institutions, in
particular the State Election Commission, the State Audit Institution and the
Commission for the Prevention of Conflicts of Interest, need to be enhanced.
The control system for public procurement remains to be strengthened.

Some progress was made on prevention of
corruption. In December, the Directorate for Anti-Corruption Initiatives (DACI)
was transferred to the Ministry of Justice to ensure better coordination of
anti-corruption activities. The DACI conducted a number of awareness-raising
campaigns on reporting corruption and on the protection of whistleblowers.
Civil society organisations have continued to actively contribute to enhancing
the strategic framework and have provided evidence in corruption cases. The recommendations
contained in the risk assessment of areas vulnerable to corruption started to
be implemented. Judges and prosecutors have been given training on combating
corruption, in particular to help them implement the new Criminal Procedure
Code. Measures have been taken to prevent corruption in the judiciary. A
special allowance has been given to judges working on organised crime and
corruption cases, and two staff were appointed to assist the Disciplinary
Commission with checking on complaints of corruption in the judiciary. Nonetheless,
asset declarations made by judges and prosecutors are not yet cross-checked
against other data and mechanisms to prevent corruption in the judiciary need
to be further strengthened. The DACI’s capability needs to be upgraded and its capacity
to monitor implementation of the government’s action plan for fighting corruption
and organised crime reinforced.

Some progress has been made on suppression
of corruption. The full entry into force of the new Criminal Procedure Code in
September 2011 has helped to speed up the criminal investigation procedure and has
reduced the risk of information leakage. In June, the parliament amended the
Law on Custody of Seized and Confiscated Property to define the methods of management
of seized or confiscated proceeds of crime. The institutional and operational
capacity of prosecutors, judges and police to fight corruption has been
strengthened through further training support and additional equipment. The use
of special investigative measures is more systematic and a special
investigative team has been operational in the Special Prosecution Office since
October 2011. Its capacity needs to be increased, in particular by acquiring access
to relevant databases. Inter-agency cooperation has improved to a certain
extent, but needs to be further developed.

Montenegro’s track record in combating
corruption has improved. Three second-instance and four first-instance verdicts
have been issued against 29 individuals for abuse of office and bribery. Among
those convicted to imprisonment are the former Mayor of Budva, his deputy, a
member of the parliament and a number of municipal officials. Nevertheless, corruption remains widespread and continues to be a serious cause for
concern. It continues to represent an important
vulnerability in law enforcement investigations of
organised crime. A track record of combating corruption
needs to be steadily built up, particularly in terms of
investigations and convictions in high-level corruption cases. The capacity of
prosecutors and police to conduct financial investigations, trace criminal
assets and present related evidence before the courts needs to be improved. Inter-agency
cooperation and information exchange, in particular between police and
prosecutors, needs to be further enhanced. There are still no corruption cases in
which seizure or confiscation of assets was ordered. The independence of the
judiciary remains a matter of concern affecting the country’s determination to
combat corruption.

Overall, some
progress has been made on fighting corruption. Implementation of
recently-adopted legislation in the key areas of political party financing,
prevention of conflicts of interest and public procurement has started. The capacity of the supervisory
institutions, in particular the State Election Commission, the State Audit
Institution and the Commission for the Prevention of Conflict of Interest, needs
to be enhanced. Montenegro has further developed its track record of investigations,
prosecutions and convictions in corruption cases, but their number remains low
and there are still no seizure or confiscation of assets ordered for corruption
offences. Corruption remains widespread and continues to be a serious cause for
concern, hindering law enforcement investigations of organised crime.

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

Observance
of international human rights law

As regards international human rights
instruments, Montenegro signed the third optional protocol to the
convention on the rights of the child in February and ratified the Hague
Convention on protection of children and cooperation in respect of
inter-country adoption in March, to prevent children being sold for adoption.
Nevertheless, the Constitution (Article 20) is not yet in line with Article 13
of the European Convention on Human Rights (ECHR), in relation to safeguarding
the right of an effective remedy before the national authorities for violations
of rights under the convention. Montenegro has not yet started the ratification
process for the Convention on Reduction of Statelessness. Its implementation of
international human rights standards needs to be stepped up and the national
legislation brought into line.

As regards the European Court of Human
Rights (ECtHR), efforts have been made to ensure national courts’
compliance with ECtHR case law, partly by holding training courses for judges
and prosecutors. During the reporting period the ECtHR delivered judgments on 17
applications finding that Montenegro had violated rights guaranteed by the ECHR,
most of them relating to freedom of expression, protection of property and the
right to a fair trial. A total of 264 new applications have been submitted to
the ECtHR since September 2011, bringing the total of pending applications to 851.

With regard to the promotion and
enforcement of human rights, some progress has been made. The
administrative capacity and budget of the Protector of Human Rights and
Freedoms (the Ombudsman) have been strengthened; this institution produced three
reports analysing the state of police premises used for detainees, protection
from discrimination, and the situation of child begging. The Parliamentary
Committee for Human Rights and Freedoms endorsed these reports between October
and November, demonstrating increased involvement in the promotion of human
rights. The Ombudsman’s cooperation with civil society is continuously
improving.

The authorities, including those at the
highest level, showed a more positive attitude towards human rights discourse. In
March, the Justice and Human Rights portfolios were merged under the Deputy
Prime Minister. The human rights role of the state prosecutor remains limited.
The capacity of the Ombudsman needs to be further strengthened. Shortcomings
persist in the protection of human rights by judicial and law enforcement
authorities, some of them in relation to alignment with European standards and
ECtHR case law.

Civil and
political rights

Progress was made in the prevention of
torture and ill-treatment and the fight against impunity. The
Ombudsman started to implement the monitoring mechanism; a deputy ombudsman was
specifically appointed in June to monitor the prevention of ill-treatment.
Nevertheless, competence in this area needs to be further developed and staff need
further training. The number of reported cases of ill-treatment remains low,
while processing of reported cases continues to be slow. The legal and
institutional framework for prohibiting ill-treatment still needs to be brought
into line with international standards, particularly with regard to prison
conditions and the treatment of convicted persons.

Some progress has been made as regards the prison
system; the legal and policy framework was enhanced. An action plan for improving
the prison system was adopted and it is being implemented. The prison
administration was transferred in December under the Ministry of Justice,
ensuring better coordination; yet, the capacities of the relevant staff have to
be enhanced. The newly adopted law on alternative sanctions has started to be
implemented but further efforts are needed to reduce the prison population,
especially the non-violent offenders, since prison overcrowding remains a
concern. Living conditions in prisons have improved, but are still not fully in
line with international standards, in particular as regards education, prison
regime, healthcare and medical treatment. The detention conditions in Bijelo
Polje remain of particular concern.

With regard to access to justice,
some progress has been made. The Law on Free Legal Aid came into effect in
January and relevant services are now available in all the basic courts in
Montenegro. Nevertheless, certain categories of people are not covered.
Administrative capacity needs further development. The length of court
proceedings remains an issue of concern.

Progress has been made in promoting freedom
of expression. The decriminalisation of defamation helped to improve the
media environment. The authorities continued to promote a more favourable
environment for journalists. In June 2012 the parliament adopted the Law on Amnesty,
which, inter alia, enables the President to grant a pardon for individuals
convicted of defamation and insult, even in the absence of a request. There
have been first instance convictions in some recent cases of violence against
journalists; yet, efforts to investigate and prosecute cases of violence
against journalists need to be stepped up. The media environment remains highly
politicised and divided.

Additional staff were hired to increase the
monitoring capacity of the Electronic Media Agency, but the self-sustainability
and monitoring capacity of the audiovisual regulator are a concern. Recent
amendments to the law on electronic media put the regulator’s independence at
risk. Reform of the public broadcaster, aimed at making it more modern and
self-financing, has to continue.

Progress has been made with regard to freedom
of assembly and association. Cooperation between state institutions and
civil society organisations is improving. Dialogue with NGOs dealing with
social reform and gender equality needs to be further strengthened.

Freedom of thought, conscience and
religion is generally ensured; tensions persist
between the Serbian and Montenegrin Orthodox Churches, notably with regard to
property issues.

Overall,
good progress was made in improving the legal and administrative framework for civil
and political rights in Montenegro, and enforcing them. The Ombudsman’s power
to act against ill-treatment needs to be enhanced, and living conditions in
prisons require improvement. Efforts to investigate and prosecute old cases of
violence against journalists need to be stepped up.

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

Little progress has been made with regard
to women’s rights and gender equality. The strategy for implementing the
law on protection from family violence was adopted. However, domestic violence
is still an issue of concern. Implementation of the legal and institutional
framework for promoting and enforcing gender equality is hindered by the
scarcity of human and financial resources. Women remain under-represented on
the labour market.

Some progress has been made with regard to children’s
rights. The Ombudsman is more involved in their protection.
Awareness-raising campaigns have been launched. The Law on Juvenile Justice was
adopted in December 2011. The Ombudsman’s capacity in relation to children’s
rights and those of the Council on the Rights of the Child need to be further
enhanced.

Some progress has been made with regard to
the rights of the socially vulnerable and/or persons with disabilities. In
March, the government adopted the Action Plan for the integration of persons
with disabilities 2012-2013. The law on disabled persons still presents
shortcomings as regards conformity with the EU acquis. The Council for
the care of disabled persons was established in May. The monitoring and
sanction mechanisms of institutions dealing with persons with disabilities need
to be further strengthened.

Some progress has been made in the area of anti-discrimination
policies. The Ombudsman produced various reports on human rights issues, which
were discussed by the parliamentary committee on human rights. The Ombudsman’s
capacity remains limited despite the appointment of new staff; the relevant
legislation still presents several shortcomings, e.g. concerning the Ombudsman’s
independence. The anti-discrimination law also needs to be amended, to bring it
in line with the acquis. The implementation of anti-discrimination
policies and the monitoring and enforcement of human rights need to continue.
As regards the rights of lesbian, gay, bisexual and transgender (LGBT) persons,
some progress has been made. The government showed greater openness to promoting
and defending LGBT rights and has taken concrete steps to this end. The Prime
Minister’s adviser on human rights and protection against discrimination has
continued to be active on LGBT rights. A shelter and a counselling line for
LGBT persons are active. The authorities ensured the rapid identification and
arrest of the alleged perpetrators who attacked in September an actor and the director
of a video against homophobia; yet, more generally, the authorities’ handling
of LGBT rights cases remains slow. LGBT persons, as well as civil society
activists engaged in promoting and protecting LGBT rights, are still subject to
discrimination.

Labour and trade unions rights are generally respected; yet, more attention
is needed to ensure full transparency of representativeness and the right to
establish new unions, in line with the relevant national regulations. Negotiations
on a new collective agreement have not yet finished and social dialogue needs
to improve. The capacity of the Social Council remains limited. Amendments to
the Labour Law are still required to bring it into line with the EU acquis
and implementation remains a challenge.

Little progress has been made in the area
of property rights. The process of restitution is not yet fully ensured
and the work of the relevant commissions is proceeding slowly. Displaced
persons with permanent residence in the country still face discrimination in relation
to access to land.

Overall,
Montenegro has made progress on social and economic rights, by consolidating
the relevant legal and institutional framework. The more positive attitude of
the authorities has contributed to the promotion of these rights, but
additional financial allocations, and skilled human resources, need to be
deployed to enforce them. The handling of violations of social and economic
rights needs to improve.

Respect
for and protection of minorities, cultural rights

As regards the promotion and protection of minorities
and cultural rights, progress has been made. The implementation of the
Law on Minority Rights has continued. The Minority Fund has some shortcomings
regarding the implementation of the projects it finances. Interethnic relations
in the country are generally good, but Roma are still underrepresented in the
public institutions.

Progress has been made on the inclusion of Roma,
Ashkali and Egyptians. The strategy for improving the status of Roma and
Egyptians in Montenegro 2012-2016 and the Action Plan for 2012 were adopted by
the government in April, in line with the operational conclusions of the social
inclusion seminar on Roma issues; their implementation is slow. Some progress
has been made to facilitate civil registration, in particular of displaced
persons among the Roma, Ashkali and Egyptian population. Nevertheless,
discrimination is prevalent in access to employment and to social and health
care, although a limited number of measures were undertaken to facilitate
employment and education.

Progress has been made on resolving the
issues of displaced persons. In September 2011, the government set up a
Coordination Board to oversee implementation of the Strategy for finding durable
solutions to the status of displaced and internally displaced persons in
Montenegro, with particular focus on the Konik area. The government provided a
quick and efficient emergency response to the fire in Konik camp in July, which
left 800 Roma IDPs homeless. In November, the parliament adopted the amendment
to the Law on Foreigners which extended the deadline for applications for the
status of foreigner with permanent residence to 31 December 2012. The number of
applications has increased. An office of the Ministry of the Interior opened in
Konik camp for some months, to facilitate the registration of displaced
persons. The temporary decree enabling access to social and economic rights for
displaced persons was also extended, to June 2013. Additional measures and amendments
are needed to ensure full access to economic and social rights for both
foreigners with permanent residence and displaced persons.

The detailed urban plan proposing changes
to the Konik area was adopted in February, setting the framework for the
construction of housing for the existing population; yet, the capacity within
the government to effectively implement projects on this scale needs to be
improved. The Law on Social Housing has not yet been adopted.

Overall,
Montenegro made progress in the protection of minorities and cultural rights.
The adoption of the Strategy to improve the situation of the Roma, Ashkali and
Egyptian population and the relevant Action Plan are positive developments to
this end, but the inclusion of the Roma, Ashkali and Egyptians needs to be
improved, in particular through the implementation of the relevant policy
documents, as they still face discrimination. Progress in granting legal status
to displaced persons has continued, but there are still gaps in access to
economic and social rights for these people.

2.3.
Regional issues and international obligations

With regard to cooperation with the International
Criminal Tribunal for the former Yugoslavia (ICTY), Montenegro neither
received requests for assistance nor had cases referred back to its national
authorities from the ICTY for possible further investigation.

Three out of four local war crimes cases
in Montenegro are still open. Four members of the former Yugoslav People’s Army
were convicted in January for war crimes committed in the Morinj camp in
1991-92. A new trial has started in the case of the deportation of Bosniaks in
1992. The processing of war crime cases needs to be stepped up and fully
aligned with international human rights and humanitarian case law.

As regards the International Criminal
Court, Montenegro still maintains a 2007 bilateral immunity agreement with
the United States, granting exemptions from the jurisdiction of the Court. This
does not comply with the EU Common Position on the integrity of the Rome
Statute or with the related EU guiding principles on bilateral immunity
agreements. Montenegro needs to align with the EU position.

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

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. It is also continuing to actively participate in regional
initiatives, including the South East European Cooperation Process (SEECP), the
Regional Cooperation Council (RCC), the Central European Free Trade Agreement
(CEFTA), the Energy Community Treaty and the European Common Aviation Area
Agreement. Montenegro has continued to support the Igman Initiative on
reconciliation, which brings together NGOs from Bosnia and Herzegovina,
Croatia, Serbia and Montenegro. Montenegro also supports the RECOM initiative.

As regards regional judicial and police
cooperation, an agreement on extradition between Montenegro and the former Yugoslav
Republic of Macedonia entered into force in 2012. A memorandum of cooperation
was signed with the police authorities of Bosnia and Herzegovina, aimed at
improving the joint fight against organised crime, corruption, terrorism and
drug trafficking. A similar agreement was signed with the former Yugoslav
Republic of Macedonia in March.

Montenegro continues to maintain good bilateral
relations with other enlargement countries and with neighbouring EU member
state Italy. However, the delimitation of borders with Croatia, Serbia,
Bosnia and Herzegovina and Kosovo remains pending.

Cooperation intensified with Albania in economic and trade
relations. The two countries initialled an agreement on cooperation in
education and signed an agreement on recovery of Albania’s debt to Montenegro,
an agreement on opening a joint border crossing point, and a cooperation plan
on defence.

Relations with Bosnia and Herzegovina
remained good. Agreements
were signed and/or ratified in various fields of cooperation, including international
transport, mutual protection of classified information, legal aid and
enforcement of court decisions. A dual citizenship agreement was concluded in
June.

Montenegro continued to have good relations
with Croatia. The two countries signed an agreement on mutual
enforcement of court decisions in criminal matters and a memorandum on
cooperation in the area of health. The temporary agreement on Prevlaka
continues to function smoothly. There has been no further progress in the
procedure for submitting the border demarcation to the International Court of
Justice.

Cooperation with the former
Yugoslav Republic of Macedonia was further strengthened. The extradition
agreement entered into force, as did agreements on economic cooperation and on
the EU accession process. Agreements on the readmission of persons residing
without authorisation and on police cooperation were signed.

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

Montenegro continued to maintain good
relations with Kosovo, even though border demarcation has not
progressed. The return of those displaced persons willing to come back to
Kosovo is proceeding slowly.

Relations with Turkey are good. The
two countries signed a number of agreements on protection and promotion of
investments, air transport and social security, and a memorandum of
understanding on education. Montenegro and Turkey worked more closely together
in the field of economic cooperation.

Overall,
Montenegro continues to satisfy the Stabilisation and Association Process
conditionality on cooperation with the ICTY and regional cooperation. Certain
bilateral issues with neighbouring countries are still unsolved, especially in
the area of border demarcation.

3.
Economic criteria

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

3.1.
The existence of a functioning market economy

Economic policy essentials

In January 2012
the country presented its first Pre-accession Economic Programme (PEP),
covering the period 2012-2014. The priority of the programme is to reinforce
economic and financial stability by continuing with fiscal consolidation and
structural reforms. Overall, the political consensus on market economy
fundamentals and economic policy remained strong.

Macroeconomic stability

The economy
continued to recover in 2011 for a second consecutive year, with real GDP growing
at a similar growth rate as in 2010 (at around 2.5%). In 2011 the recovery was
primarily driven by private consumption fed by continued increases in tourism,
whereas the contribution of net exports to growth dropped significantly,
reflecting import developments and the recovery of commodities exports. Retail
sales increased by 15% at constant prices, reflecting demand from tourism.
Nonetheless, domestic demand still remained constrained as bank lending further
contracted, investments slowed down, employment growth remained limited, and
net wages rose only marginally. In the first half of 2012, economic activity
slowed down. The value of construction works contracted in real terms by 16%
year-on-year in the first half of 2012, after recording an average expansion of
7% in 2011. Industrial output declined by 7.5% year-on-year in the first six
months of 2012, due to a decrease in electricity production and mining , while
manufacturing recorded 4% expansion. Still, domestic consumption continues to
be resilient, as reflected by the increase in retail sales by 9% in real terms
in the first half of 2012, once more supported by tourism. Average per-capita
income in purchasing power standards rose to 43% of the EU average in 2011, up
from 41% in 2010. Overall, although the economy is still in the process
of recovering, the performance of several sectors remains weak.

The current
account deficit contracted to 19% of GDP in 2011, compared to 25% a year
earlier. The improvement was driven by an increase in the surplus of the
balance of services from 13% of GDP in 2010 to 16% in 2011. However, the trade
deficit still accounts for 40% of GDP. The income balance shifted from a
deficit to a surplus, while current transfers improved marginally. On the
financial account, net FDI inflows contracted markedly, totalling 12% of GDP,
compared to 18% a year before. As a result of lower net capital inflows, the
central bank had to use foreign exchange reserves equivalent to 3% of GDP to
finance the high current account deficit, underlining vulnerabilities related
to the high reliance on external financing. In the first half of 2012 the trade
deficit deteriorated following a sharp decline in exports as a result of the
contraction of industrial production as well as terms of trade losses in
aluminium, causing an 8.7% year-on-year expansion of the current account deficit
to 14.5% of annual GDP. The surpluses in the services and current transfers’
balances improved significantly compared to the previous year, but were
partially offset by the negative results in the income balance. The financial
account surplus contracted by 9% year-on-year while the capital account deficit
came close to balance. Net FDI inflows contracted to 4.3% of annual GDP from 5.6%
a year earlier while net loans inflows (i.e. other investments) reached 3% of
GDP, largely reflecting government financing operations. Net errors and
omissions accounted for additional 6% of GDP. Overall, the large
external imbalances deteriorated, reflecting weak export capacity.

Unemployment
was very high at 20% on average in 2011 and in first half of 2012, according to
the Labour Force Survey (LFS) Although employment declined markedly by -6.4% in
2011 compared to the previous year, the rate of contraction decelerated in the first
half of 2012 (‑0.9%). The activity and employment rates remained low at around
57% and 46% respectively during 2011 and the first half of 2012. There remain
significant discrepancies in labour statistics between Labour Force Surveys
(LFS) and the Agency for Employment (AEM) administrative records. Slow labour
market dynamics have been reflected in the moderation of wages. In the first
half of 2012 the average gross wage grew by nominal 0.7% year-on-year. In
December 2011, amendments to the labour law introduced several changes with the
aim of encouraging job creation. These amendments limit the length of
fixed-term contracts to 24 months, and put an end to the possibility of an
unlimited number of renewals. They regulate temporary employment agencies. They
also reduce collective dismissal costs and limits the room for discretionary
labour dispute resolution. Additional amendments were introduced in the law on
employment of foreigners and disabled persons to facilitate their hiring. Also
in December, the parliament adopted the laws on recognition of foreign
professional diplomas and qualifications. Overall, the performance of
the labour market remained weak.

Unilateral
euroisation implies that there is limited scope for monetary policy discretion.
Changes in reserve requirements remained the key tool for steering liquidity in
the system. In November 2011, the central bank further lowered the reserve
requirement ratios to 9.5% for deposits with maturity of up to one year, and to
8.5% for deposits with maturity over one year.

Inflation reached
3% in 2011, a significant increase after a deflationary episode in 2010.
However, core inflation remained low, at around 1%. Consumer price inflation
accelerated to 3.9% in June 2012. The main contributors were alcohol and
tobacco reflecting a pronounced base effect from the increase in excises duties
at the beginning of the year. Increases were also recorded in accommodation
services (i.e. restaurants and hotels), food, as well as fuels and housing, the
latter as a consequence of the increase in water supply prices and electricity
tariffs. Overall, inflationary pressures have been increasing.

In 2011, the
consolidated budget deficit reached 5.4% of GDP, up from the 5% deficit
recorded the previous year. Total revenues fell to 39% of GDP in 2011, down
from 42% a year earlier. Tax income remained broadly stable in 2011, with the
corporate income tax and value added tax revenues recording some moderate
growth over the year. However, social security contributions declined and the
accumulation of tax arrears reached almost 1% of GDP during 2011, weakening
revenue performance. Consolidation efforts translated into a reduction of general
government expenditures to 44.6% of GDP, compared to 47.2% the year before.
Spending was reduced on several items such as supplies and services, as well as
on regular maintenance and capital expenditure. However, the impact of early
retirements granted to workers from restructured companies offset efforts to
cut expenditure. Further revenue shortfalls in the first quarter of 2012
(around 12% lower than to the same period last year), followed by the call of a
state guaranteed loan to the aluminium plant worth 1% of GDP, resulted in a
budget deficit of 3.2% of GDP in April, compelling the government to adopt a
budget rebalance in May. The revised 2012 budget comprises additional
expenditure cuts of 0.3% of GDP and tax increases for additional 0.7% of GDP.
The budget deficit broadened further to 3.5% of GDP in May, to stabilise at
3.7% in both June and July. Overall, the stability of public finances is
challenged by a receding economy and substantial contingent liabilities.

Contracting
external demand, falling aluminium prices as well as production, and lower
capital inflows have exposed the country to stronger external financing and
liquidity constraints. 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. As a response,
the authorities have continued to aim at tightening fiscal policy, notably
through public spending adjustments. Overall, macroeconomic stability
has been broadly maintained, but risks and uncertainties persist due to the
high reliance on external financing.

Interplay of market forces

The share of administered prices
in the harmonised index of consumer prices (HICP) basket remained unchanged in
2011, at 10.7%. Administered prices concern: bread, electricity, water supply,
sewerage collection, refuse collection, fuels, public pre-primary institutions,
compulsory vehicle insurance and administrative fees. The telecommunications
and energy markets were further liberalised. At present, the Agency for
Electronic Communications and Postal Services (EKIP) can regulate prices only if
a company has a dominant market position. The energy regulator no longer sets
the price of coal for electricity generation. Overall, the influence of
the state in price dynamics is being limited by the independence of market
regulators.

In April 2012 the
Parliament requested the government to renationalise the ailing aluminium
company and to execute the collateral of a state guaranteed loan after the
majority owner of the company failed to honour it. However, at the time being
the execution is being delayed. At the same time, the bankruptcy of the Niksić steel
plant ended with the successful sale of all the factory assets (including 21.9% of state-owned shares) to a Turkish steel maker. Several
transport companies, including railways, port and the national airlines have
been listed in the privatisation plan for 2012. In the first half of 2012 calls
for tenders were launched for the tobacco factory (NDKP), the Institute for
Physical Therapy, as well as the container and bulk cargo terminal of the port
of Bar. In July 2012, the privatisation council concluded a 90-year lease
contract to develop a tourism resort on the former barracks site of Kumbor
(Kotor Bay). However, negotiations on the sales agreement for newspaper Pobjeda
and for dairy Zora are not yet concluded. Overall,
the privatisation process resumed after two years of stagnation.

Market entry and exit

In 2011 there were 3,072
new enterprises registered in Montenegro, or 17% less compared to 2010. The
pace of registration recovered during the first half of 2012, totalling 1,948 new
businesses. The
procedure for electronic registration of companies through the eGovernment
portal became operational in May 2012 and the application of the regulatory
guillotine further pursued. Line ministries started in mid-2012
monitoring the implementation of amendments to or revocation of parts of the
legislation identified in the regulatory impact assessments as creating
barriers to businesses. Credit constraints and the slow and lengthy process of
granting municipal licences still hamper investment prospects and delay the
establishment of new businesses. The number of bankruptcy cases has fallen
significantly to 565 in 2011, compared to 2,196 a year before, although
reaccelerated to 824 in the first half of 2012. Overall, while some
improvement has been recorded in market entry procedures and bankruptcy
recovery, further efforts are still required to facilitate municipal licences.

Legal system

In December 2011, the parliament
enacted the Law on Public Bailiffs, transferring powers for the civil
enforcement of commercial contracts to these new legal officers. However,
enforcement of civil decisions remains weak and bailiffs are yet to be
recruited. There have been no further legislative developments in the field of
property rights after the adoption in June 2011 of the Law on State Surveying
and the Land Registry. The modernisation of the land registry’s current
electronic system continues. Although the strategic and legislative framework
to combat corruption has been strengthened, its implementation remains uneven. In order to address weaknesses in tax as well
as in law enforcement, the government adopted in May 2012 a series of measures
to combat the grey economy, increasing the number of inspection controls,
notably on excise products, retail turnover accounts, and labour market
registration. As a result, in May and June 2012 there were 5,700 inspections
resulting in 1,400 infringement reports and two criminal charges. Overall, a new system has been
introduced to improve the efficiency of civil enforcement of claims. However, weaknesses
in the rule of law and corruption continue to have an adverse effect on the
business environment and remain a major challenge.

Financial sector development

The repair of the balance sheets of banks
continued during 2011 and 2012. Banks (of which 83% of capital is foreign-owned
while 2.7% remains in state ownership) have sold part of their non-performing
assets to their international parent banks or to factoring companies.
Consequently, total bank assets contracted by the end of 2011 by 4.5%
year-on-year, to some 86% of GDP, and further declined to 83% of GDP at the end
of July 2012. The share of total gross loans has
stabilised since October 2011 until July 2012 at around 57% of GDP, and most of this credit (94%) has been extended to the private
sector. However, total bank lending still contracted by 11% year-on-year
in 2011 and by 4% in the first seven months of 2012. Yet, a return of
confidence is being recorded in the recovery of banks’ deposits, growing by 1.5%
year-on-year in 2011 and accelerating to 4% in July 2012. Moreover, foreign
companies increased their saving in local banks (by 11% year-on-year in July
2012) for the first time since August 2009.

The interest rate spread of more than 6
percentage points (average lending interest rates were 9.73% in December 2011
compared to deposit rates of 3.08%) suggests there is room for increased
efficiency in financial intermediation and the high risk aversion related to
the still elevated ratio of non-performing loans (NPL). The NPL ratio fell to
15.5% of total loans at the end of 2011 compared to 21.5% a year before. In
2011, the liquidity of the banking sector remained above the minimum legal
requirement of 10%. The capital adequacy ratio (CAR) further improved to 16.5%
in 2011, up from 15.9% a year earlier. The profitability of the financial
sector also improved compared to the previous year, although it still remained
negative at the end of 2011. The sector recorded an aggregated loss of € 3
million in 2011, compared to € 82 million a year before. However, in the
first half of 2012 credit activity still remained negative while NPLs were on
the rise again, reaching 17% in June, and the CAR ratio declined to 14.5% due
to negative financial results of some banks. Overall, weaknesses remain
in the financial sector. Although deposits are gradually flowing back into the
system, banks’ capital and lending are declining.

In 2011, there were five leasing companies, the
same as a year before, and they recorded an annual increase in the value of contracts
of 11% in real terms, totalling 1% of GDP, a modest figure compared to the
volume of bank loans. Most contracts related to passenger cars (86%) followed
at distance by commercial vehicles (8%). In 2011, the Montenegro stock exchange
index plunged by 35% and continued contracting during the first eight months of
2012 by 21% compared to the same period a year before. Furthermore, market
capitalisation fell in August 2012 by 6.6%, although the total turnover surged
by 122% year-on-year to € 5 million. Overall, the share of
non-bank financial intermediaries remains low.

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 gained in stability,
but is still unable and too risk averse to provide much needed credit to the
economy. Unemployment remained high. Although market mechanisms are becoming
more efficient, the aluminium plant indebtedness presents a potential risk for
public finances.

Human and physical capital
endowment

The recent educational reform focuses on the qualification
system, which consists of several types of external examinations –on grounds of
recommendations from industry and businesses– and aims to improve the quality
of education and to align curricula with professional needs (see Chapter 26). The first Matura
and vocational exams were organised for the 2011/2012 school year. Its results
are now replacing entrance examinations to universities and other institutions
of higher education at the end of high school. However, a high share of
students from vocational and technical (VET) schools enrols in the university
instead of entering the labour market, while employers report shortages for
graduates with the right set of skills. Some 20% of persons with vocational
education after primary school and 16% of persons with tertiary education
remained unemployed in 2011. Overall, labour law reforms and measures to
improve the quality of the education system have been initiated, but further
efforts are required to re-align skills mismatches.

Investments in Montenegro rely heavily on
foreign savings, with FDI inflows playing a key role in improving economic
competitiveness, diversifying the industrial base and raising the productive
capacity of the economy. Despite a sharp slowdown, annual net FDI inflows have
remained above 10% of GDP, indicating sustained investor interest. However,
investments have been largely focused on real estate, totalling 39% of total
equity investments in Montenegro in 2011, while companies and banks received
33%, and a still significant 28% share concerned the settlement of
inter-company debt. The liberalisation of telecommunications and energy has
facilitated the opening of their respective markets (see Chapters 10, 14 and
15). However, important constraints are still present in energy, transport
and environmental infrastructures. Overall, the country needs to attract
further investments to develop its infrastructures.

In 2011 some 0.4% of GDP was invested in research
and development, compared to 0.1% a year before. The Ministry of Science, with
the support of the World Bank, commenced the project on higher education
research for innovation and competitiveness. The Ministry also supported five
initiatives by Montenegrin teams to participate in EU research projects. The
ministry also co-financed scientific professional training abroad, doctoral and
master studies and the publishing of scientific papers in reference scientific
journals. Overall, Montenegrin institutions have started to participate
more actively in European research programmes although private sector
participation still remains insufficient.

Sector and enterprise structure

The steel company, one of the country’s two
large metal producers, was eventually sold in June 2012 after several
unsuccessful tenders. However, the situation of the aluminium plant (KAP)
remains uncertain as the company still needs to go through major restructuring.
Meanwhile, further progress was recorded in network industries. The liberalisation of the electronic
communications market has been completed. In November 2011 the Law on Postal
Services was adopted and the national postal service was converted into
a joint stock company, laying the basis for
the complete opening of this market. The energy market was further liberalised.
In March 2012 the government adopted the restructuring plan for Montenegro
Airlines. The opening of the air transport market has been formally achieved.
However, although the legislative work for the opening of the railways and the
maritime transport markets was initiated, it has not yet been concluded (see
Chapter 14- Transport policy). Overall, the restructuring of
network industries is facilitating the opening of their respective markets.

There has been little change in the sectoral
structure of the economy. The services sector remains the largest, accounting
for some 70% of GDP. Agriculture represents about 9% of GDP, industry 14% and
construction 7%. The informal sector remains large and is fuelled by weaknesses
in tax and expenditure policies, as well as in law enforcement. SMEs account
for some 66% of total employment. SMEs are still confronted with difficult
access to credit. Some financial relief continued to be provided through the
Investment and Development Fund (IDF) which increased the number of loans and
established a factoring facility. However, the total amount of this support
represented only 1.4% of total banks loans to private companies in 2011. The
IDF project for development of business zones continues with the development
phase in Podgorica and the selection of two new zones: in Berane and Kolasin.
However, public sector financial cutbacks and organisational difficulties have
led to a decline of support available to SMEs. The IDF established a credit
guarantee scheme in April 2011, although no guarantees have been issued so far.
Overall, the large informal sector and difficulties to obtain credit
represent two major challenges for enterprise development.

State influence on
competitiveness

Some progress has been recorded in the
functioning and independence of regulators. In May 2012 the Agency for
Electronic Communications and Postal Services instructed the incumbent operator
to enable other companies to use the capacities of the cable infrastructure.
Also in May, the Commission for the Control of Public Procurement annulled two
important public tenders due to procedural irregularities, revealing increased
independence despite the risk of interruption of the provision of medicines or
internet services to the public administration. State aid was marginally
reduced, from 2.3% of GDP in 2010 down to 2% in 2011. In May 2012 the
Montenegrin Commission for State Aid Control ruled for the government to
recover from the aluminium company € 30 million of state guarantees paid
to a bank after the firm failed to service a loan. Overall, direct
public support remains limited, but state guarantees are high and represent a
risk for public finances.

Economic
integration and convergence with the EU

Montenegro became a full member of the World
Trade Organisation in April 2012. The total value of exports and imports of
goods and services increased to 101% of GDP in 2011, compared to 94% a year
before. However, the importance of the EU as the main trading partner has
decreased somewhat, as the EU received 50% of total merchandise exports,
compared to 56% a year earlier. The share of imports of goods from the EU fell
moderately to 36%, from 38% a year before. The CEFTA market remains the second
largest for Montenegro exports, receiving some 40% of its outbound trade in
2010 and 2011. The share of imports from CEFTA countries continued increasing,
from 40% to 43%. Foreign direct investments decreased substantially in 2011.
However, the share of EU investments expanded further, totalling 53% of total
inflows into the country compared to 50% a year before. The Real Effective
Exchange Rate (CPI-based) began to depreciate in 2011 (by 3.2%) after having
stabilised the year before, thus marginally contributing to improved external
competitiveness. Overall, while trade integration with the EU has
somewhat slowed, the EU remains the main destination for Montenegro’s exports
and the main source for FDI.

4.
Ability to take on the obligations of membership

This section examines Montenegro’s ability to take on the obligations of membership — that is, the acquis
as expressed in the Treaties, the secondary legislation and the policies of
the Union. It also analyses 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. Some progress has been achieved in the case of horizontal
measures. The new Law on Technical Requirements for Products and Conformity
Assessment, the Law on Market Inspection and the Law on Inspection Surveillance
were adopted in November 2011. Further alignment with the acquis remains
to be achieved in both areas. The Law on Technical Requirements for Products
and Conformity Assessment is still non-compliant with the acquis in several
aspects, e.g. in the meaning and terms of use of the CE marking.

In the area of standardisation good
progress can be reported. The capacity of the Institute for Standardisation of
Montenegro (ISME) is gradually improving, despite its limited financial and
human resources. By the end of August 2012, ISME adopted 8409 European and
international standards, and completed the public inquiry on 400 standards. 34%
of adopted standards are harmonised standards in the meaning of the ‘New
Approach’. The compliance with the membership criteria of the European
Committee for Standardisation (CEN) remains to be fulfilled. ISME still has to
adopt most of its rules of procedure. The majority of internal rules remain to
be adopted. ISME has established six new Technical Committees, bringing the
total number to eight. An information service on standards was established in
compliance with the acquis. Further investment will be required to
develop a complete ICT system enabling real-time synchronisation on developing
standards with CEN, the European Committee for Electrotechnical Standardisation
(CENELEC) and the European Telecommunications Standards Institute (ETSI). The
National Strategy for Standardisation has not yet been approved by the
government.

Some progress can be reported in the area
of conformity assessment. The new Law on Technical Requirements for
Products and Conformity Assessment created a legal framework for conformity
assessment for certain products even though the law still needs to be amended
to be in line with the acquis. The requirements for the designation for
the conformity assessment bodies have been decided, although they need to be
further clarified and specified. Conformity assessment bodies (CABs) are still
showing limited interest in becoming designated bodies despite the fact that
two bodies were prepared to implement the functions of notified bodies. The new
strategy on conformity assessment needs yet to be adopted.

Good progress can be reported in the field
of accreditation. In November, the Accreditation Body of Montenegro
(ATCG) became a full member of the European cooperation for Accreditation (EA).
This was preceded by the adoption of new rules for cross-border accreditation,
witnessing and information security. Three technical committees were
established. The ATCG strengthened all its bodies, including the Accreditation
Committee and the Complaints Committee, and accredited two more CABs, while
revoking the accreditation of one CAB bringing the total number of accredited
CABs to 19. The established Register of accredited CABs in Montenegro is well
maintained and available on the internet. The ATCG has developed and implements
a surveillance plan, including monitoring visits and re-assessment of
accredited organisations. The application for the EA MLA (Multilateral
Agreement) signatory status in the areas of testing laboratories and inspection
bodies needs still to be prepared.

There has been progress in the area of metrology.
After becoming a CGPM (General Conference on Weights and Measures) associate,
Montenegro signed in October 2011 the CIPM MRA (Mutual Recognition Arrangement
of the ‘Comité International des Poids et Mesures’). Limited resources remain
of concern, particularly with a view to the necessary calibration activities. A
metrological traceability chain was established also in the remaining areas.
The Bureau of Metrology set up a quality management system in line with the
requirements of standard ISO/IEC 17025 for the laboratories of mass, length and
temperature. These and the remaining metrology laboratories have yet to be
accredited, and the strategy for metrology development adopted.

There has been good progress as regards market
surveillance. In November, Montenegro adopted a Law on Market Inspection
and the Law on Inspection Surveillance. The new Regulation, adopted in December
2011 and amended in 2012, on the organisation and method of operation of the
state administration established a single inspection authority called the
Market Inspection (uniting 34 inspection services in charge of market
surveillance of non food products) as an independent body. The head of the
authority was selected in May, but not all old inspections have been integrated
so far. The reform in the inspection service remains to be completed with the
adoption of the necessary implementing legislation and the finalisation of the
operational and procedural set-up of the authority. The revision of the General
Product Safety Law and the planned new market surveillance law need to be
pursued.

Coordination in the market surveillance
area was strengthened. A Memorandum on Cooperation between the Market
Inspectorate and the Customs Authority was signed in February 2012. The
Coordination Body for Market Surveillance (CBMS) is taking the lead in ensuring
smooth coordination. In March 2012, the CBMS adopted the 2012 National
Programme for Market Surveillance, based on the individual annual market
surveillance programmes of each inspection service. In April the government
adopted the report of the Coordination Body for 2011 with a list of competences
of different inspections by groups of products.

The Market Inspectorate improved the market
surveillance methodology and internal operational rules, and substantially
trained its staff. The newly introduced IT system allows the planning,
recording and tracking of market surveillance operations to be improved and
establishes a good basis for introducing a proper risk management system. A new
web-page of the Market Inspectorate was launched at the end of 2011.

As regards the ‘Old Approach’ product
legislation, some progress was made with the adoption in November of the
new Law on Pharmaceuticals and rulebooks on pre-packaged products and on
bottles as measuring containers. The Agency for Drugs and Medical Devices
established a reference laboratory for identification of forgeries and created
a database providing information on relevant stakeholders. The Ministry of
Transport and Maritime Affairs established a Department for Motor Vehicles to
develop and ensure the adoption of technical regulations for the type approval
of motor vehicles. The Law on Traffic Safety, regulating motor vehicles in use,
has yet to be adopted, as does the new Law on Chemicals.

Little progress was registered in the area
of ‘New and Global Approach’ product legislation. Rulebooks on
electromagnetic compatibility as well as radio equipment and telecommunications
terminal equipment were adopted and entered into force in July.

In the area of procedural measures,
no progress was made.

Conclusion

Overall, Montenegro has made some progress
in the area of free movement of goods. Additional efforts, better coordination
and stronger ownership are needed to further align with the acquis.
Overall, preparations in the area of free movement of goods are relatively
advanced.

4.2.
Chapter 2: Freedom of movement for workers

There has been no further progress in the
area of access to the labour market. Existing legislation still requires
work permits for EU nationals. To comply with EU law on the free movement of
workers, EU nationals must not be subject to any work permit requirement as
from accession. Preparations in this area are at an early stage.

There has been some progress regarding
preparations for future participation in the European Employment Services (EURES)
network, with the initial establishment of new administrative structures within
the employment services, and training of potential EURES advisers. Preparations
in this area have been launched.

There has been little progress in the field
of coordination of social security systems. Montenegro has ratified a
cooperation agreement with Slovenia and signed an agreement with Turkey.
Negotiations are currently under way with the Slovak Republic, Bosnia and
Herzegovina and Croatia. There was no progress towards strengthening administrative
capacity. Preparations in this area are at an early stage.

There were no developments as regards the European
Health Insurance Card. Preparations in this area still need to be launched.

Conclusion

Little progress has been made in the field
of freedom of movement for workers. Overall, alignment with the acquis
is still at an early stage.

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

There has been little progress in the field
of the right of establishment. The implementation of recently amended
legislation (on water, agricultural land, protection and rescue, geological
research, electronic communication and spatial planning) faced some hurdles at
local level. Following its establishment within the central registry of the Commercial
court, the one-stop shop for business registration became an integral part of
the tax administration in March. However, registration is not yet possible at
the regional units of the tax administration. Electronic company registration
became operational in May through e-government portal. Some progress has been
achieved at central government level. However, additional efforts in
implementing the reforms are still needed at local level.

As regards freedom to provide
cross-border services, no progress can be reported on transposition of the
Services Directive. Designation of a central body to coordinate its
implementation and other related activities are at the planning stage.

Good progress can be reported in the area
of postal services. A new Law on Postal Services was adopted in November
with a view to further aligning the national legislation with the acquis.
This law sets a new regulatory framework for postal services, providing for
further liberalisation of the postal market and its full opening as of the
beginning of 2013, which is in line with the timeframe of the ‘second group’ of
countries under Directive 2008/6/EC (‘Third Postal Directive’). The law also
provides for the independence of the national regulatory authority, sets up
instruments for ensuring the sustainability of the universal postal service,
and simplifies the procedure for issuing an authorisation. Legislative
alignment is very advanced (with Directive 2002/39/EC, the ‘Second Postal
Directive’) and only some minor issues are pending, which could be introduced
in the envisaged implementing legislation. Montenegro’s postal service changed
its legal status into a joint stock company in January and preparations are
ongoing for a public-private partnership tender. The administrative capacity of
the national regulatory authority remains limited.

There has been some progress in the field
of mutual recognition of professional qualifications. The Law on
Recognition of Foreign Qualifications for Access to Regulated Professions
entered into force in April. The law partly transposes Directive 2005/36/EC on
the recognition of professional qualifications by setting out the general
framework for the recognition of foreign diplomas. There is still a need to
strengthen administrative capacity.

Conclusion

Some progress can be reported on the right
of establishment and freedom to provide services. Montenegro made good progress
towards aligning the new law on postal services with the acquis. On the
right of establishment, legislative reforms need to be implemented.
Considerable efforts are still needed regarding the alignment of legislation
with the Services Directive, on mutual recognition of professional
qualifications and as regards interinstitutional cooperation. Overall,
preparations in this area are moderately advanced.

4.4.
Chapter 4: Free movement of capital

As regards capital movements and payments, Montenegro has essentially liberalised them, but further efforts are
needed to fully align legislation with the acquis.

No legislative developments can be reported
on free movement of capital or on payment systems.

With regard to the fight against money
laundering, some progress can be reported. Amendments to the law on
prevention of money laundering and terrorism financing were adopted in
February. Further to the recently issued Financial Action Task Force (FATF)
2012 report, a new series of anti-money laundering initiatives will require
further amendments to the existing legislation and strengthening of the
administrative capacity.

Cooperation between the Ministry of
Finance, the Administration for the Prevention of Money Laundering and
Terrorist Financing (APMLTF), the Central Bank of Montenegro, the Securities
and Exchange Commission and the Insurance Supervision Agency was improved by
means of a Memorandum on cooperation and data exchange in the area of
prevention of money laundering and terrorist financing, signed
in December. The police are not a party to the Memorandum and the current
arrangements for receiving information on suspicious transactions from the
APMLTF are time-consuming and delay
financial investigations.

Montenegro produces a low level of
suspicious transaction reports and accounts for a large document flow
(estimated at about 300,000 documents per year). Of the 34 reports of
suspicious transactions (in the period September 2011–March 2012), 24 came from
the banking sector. There have been very few convictions for money
laundering.

The IT system
of the APMLTF needs to be updated so that it can support the workflow
effectively. There is a need to establish a clear IT policy, including plans to
update and maintain the current hardware and obtain software allowing data
analysis, and to allocate funds under the national budget.

Following the adoption of the rulebook on
the internal organisation of the APMLTF in 2011, there was no further increase
in the number of staff. One staff vacancy in this administration, which serves
as the national Financial Intelligence Unit (FIU), was filled, bringing the
total to 29 staff out of 38 posts assigned.

The administrative capacity of the
supervisory authorities to conduct anti-money laundering inspections in the
supervised institutions needs to be enhanced. Similarly, further efforts are
needed to improve the awareness of the obligated sector to ensure adequate
implementation of the anti-money laundering rules, and to enhance cooperation
between the APMLTF, the regulators/supervisory bodies and the obligated sector
in enforcing anti-money laundering legislation.

In January, the administration signed
agreements on exchanges of financial intelligence data with Japan and Canada.

Conclusion

Little progress can be reported on free
movement of capital although preparations are on track. Full alignment with the
acquis, as regards payment systems and strengthening administrative
capacity, mainly in the area of the fight against money laundering, will need
to be further pursued. As regards combating money laundering and financing of
terrorism, preparations are still at a relatively early stage. Major efforts
are required to enforce legislation, enhance inter-agency coordination and
establish a track record on fight against money laundering and financial crime.
Overall, preparations are on track.

4.5.
Chapter 5: Public procurement

There has been good progress as regards the
general principles applying to public procurement in Montenegro. The new
law on public procurement and the related bylaws, which entered into force in
January, aligned to a large extent the general principles with those of the EU acquis.
The new law covers the remedies system, taking the alignment forward in this
area. Further work is required to bring the legislation on concessions,
utilities and defence procurement into line with the acquis.

In the second half of 2011, a number of
implementing provisions were adopted. In order to strengthen procurement
capacity and reduce the risk of conflicts of interest, the government adopted
in December 2011 the Decree on the functioning of the state administration,
which aims to transfer the management of the public procurement procedures of
34 independent and semi-independent bodies to the competent line ministry. The
impact of the decree will be to reduce the number of contracting authorities
and procurement procedures. Montenegro adopted a new strategy for public procurement
for the period 2011-2015 in December 2011 and established a coordinating body
to monitor its implementation. Resources for implementing the strategy still
need to be ensured.

As regards the award of public contracts,
some progress has been achieved with the entry into force of the new public
procurement (PP) law. The helpdesk at the Public Procurement Directorate is
operational. The Public Procurement Directorate launched a new portal on public
procurement in January 2012, which publishes the procurement notices, award
decisions and procurement plans of the contracting authorities. The system is
only available in the Montenegrin language. It provides for more transparency
but needs to be further developed.

The administrative capacity for public procurement
continues to improve. The new rulebook on internal organisation and job
descriptions of the Public Procurement Administration (PPA) was adopted by the
government in November 2011. The staffing of the PPA is 14. The new
organisation of the PPA envisages the establishment of the new inspection
service, which is expected to monitor the regularity and timeliness of
procedures for contracts below € 500,000. This complements a similar
function of the State Commission for contracts with a value above € 500,000,
and is independent of the general complaints review mechanism, which is also
operated by the State Commission. The competences of the inspection service and
its powers need to be clarified by precise implementing provisions, and
sufficient staff needs to be allocated. Furthermore, clearer separation of the
functions of the different units needs to be ensured to avoid any possible
overlaps with the PPA’s advisory and approval function. The PPA organised
training activities to familiarise contracting authorities with the new PP law.
Guidelines on the implementation of the new PP law were prepared and seminars
were held on anti-corruption policy and the prevention of conflicts of
interest. Yet further efforts in terms of training and additional staffing are
needed to increase the enforcement capacity.

As regards the remedies system, good
progress has been achieved with the system being covered by the new PP law. A
new State Commission for the Control of Public Procurement Procedures (SCPP)
was established on 23 February 2012. The new Commission has a staff of 6 and
has obtained stronger powers and competences. A complaint fee of 1% of the
contract value, with a maximum of € 8,000, has been introduced. Since its
establishment until 14 September 2012, SCPP has performed 26 controls of public
procurement procedures and the average time for completing a case was 10 days.

Conclusion

Overall, good progress has been achieved in
the area of public procurement. Implementation of the new legislation remains a
concern. The legislative framework for concessions remains to be aligned with
the acquis. The role, powers and competences of the future inspection
services need to be clarified and sufficient staff provided. Preparations in
the area of public procurement are moderately advanced.

4.6.
Chapter 6: Company law

As regards company law, there were
no further developments. The national legislation is largely aligned with the acquis.

As regards electronic signatures, the Root
Certificate Authority at national level (Montenegro Post) issued more than
2,500 digital certificates, mostly to legal entities. Following the first wave
of digital certificate issuance, the certificate authority receives 4-5
requests per day.

With regard to corporate accounting and
auditing, there are no further developments. Work on the amendments to the
Law on Accounting and Auditing is ongoing. The amendments are to establish an
independent public oversight body for auditors and a quality control system.

Conclusion

Little progress can be reported in the
field of company law. New amendments to the Law on Accounting and Auditing,
establishing an independent public oversight body for auditors and a related
quality control system, are yet to be adopted. Overall, preparations are
moderately advanced.

4.7.
Chapter 7: Intellectual property law

In the area of copyright
and neighbouring rights, the Regulation implementing the Copyright Law was
adopted.

In the area of industrial
property rights the Implementing Regulation on
Trademarks was adopted in October 2011. The amended Trademark Law was adopted
by the parliament in July. The Regulation implementing the Patent Law remains
to be adopted.

The Regulation implementing the Law on
Legal Protection of Industrial Design entered into force in March. Amendments
to the Law on Legal Protection of Industrial Design have not yet been adopted.

In March, the Patent Law Treaty and the
Vienna Agreement establishing the International Classification of the
Figurative Elements of Marks entered into force in Montenegro.

Montenegro adopted the Law on Confirmation
of the Nice Agreement Concerning the International Classification of Goods and
Services for the Purposes of the Registration of Marks.

Installation of the Industrial Property
Automation System (IPAS) by the World Intellectual Property Office (WIPO) has
started and will take one year to complete. This will delay improvements in
workflow management and working procedures. The European Patent Office (EPO)
has started installation of a database of patents which will replace the IPAS
module originally planned. Both systems will improve workflow management and
working procedures. Improvements have been made to the system of electronic
archiving.

Investment in information technology (IT)
equipment has been improved. However, the lack of IT competence and of
sufficient financial resources impedes further progress, although the IPR
capacity of existing staff is very good.

The decree on the organisation of public
administration, adopted by the government in December 2011, recognises MIPO as
an independent body. However, it limits significantly its independence as it
concentrates the financial, procurement and other management functions in the
Ministry of Economic Affairs. The decree also provides the framework for the
establishment of the Inspection Directorate, which will include industrial
property (IP). The decree entered into force in April 2012, but implementation
remains to be achieved.

Regarding enforcement, the
government adopted the national intellectual property strategy 2012-2015 in
December 2011, with the aim of improving the enforcement of IP and achieving
faster economic growth through its effective use. Sufficient resources and
close monitoring will be crucial for the implementation of this strategy. The
legal framework on enforcement needs to be streamlined and further aligned with
the acquis.

The Commercial Court received 22 cases in
the area of protection of property law. All cases have been processed. In two
cases, the procedure was final and legally binding. In two procedures it was
decided to continue the procedure.

The IPR enforcement capacity within the
administrative and judicial system remains weak. There are no specialised IP
courts in Montenegro, and the competent authority to appeal against a decision
made by the IP Office is the Ministry of Economic
Affairs. Another challenge is the lack of registered IP
professionals able to represent legal or natural persons in proceedings before
the competent authority. The IP Office does not currently maintain a register
of selected representatives, and lawyers only need to be registered at the
Montenegrin Bar Association.

Conclusion

Some progress can be reported in the area
of intellectual property. Further efforts are needed to align with the acquis
in this area and to implement it effectively in the medium term. Overall,
preparations are moderately advanced.

4.8.
Chapter 8: Competition policy

Regarding anti-trust and mergers,
some progress has been made.

The Parliament adopted a new Law on
Competition in July, with a view to further aligning the national legislation
with the competition acquis. The new Law shall enter into force in
October 2012. The new Law provides for the establishment of an operationally
independent agency within 90 days from the entry into force of the law. The
adoption of the implementing provisions remains to be finalised.

The enforcement record in this area is
slightly improving.

The Authority for Competition Protection
(ACP) adopted 13 decisions authorising proposed mergers in 2011 and five for
the first months of 2012. One notification was revoked due to withdrawal and
two cases are under investigation. All mergers were authorised without
remedies. As regards abuse of a dominant position, the ACP dealt with seven
cases in 2011 and six cases in the first seven months of 2012. Two cases for
the whole period started ex-officio and six cases were suspended. Two cases are
still under investigation. In five cases, the ACP adopted decisions finding
that firms had abused their dominant market positions. One decision of 2011 was
annulled by the administrative court on procedural ground. The ACP also carried
out a number of surveys. The administrative capacity of the ACP needs to be
enhanced and the enforcement record improved.

In the area of State aid, progress
was made. Amendments to the Law on State Aid Control were adopted in November
to better align the national legislation with the acquis and to
strengthen the operations of the State Aid Control Commission (SACC). In
December, the government took a decision requiring all legal acts on the basis
of which State aid may be granted to be submitted to the SACC for evaluation of
their compliance with the Law on State Aid Control, prior to their submission
to the government. The rulebook on the contents of the annual report on State
aid granted was revised to include more precise instructions on the method for
analysing the effectiveness of State aid granted. In July the Parliament
adopted the 2011 Report.

Seven sectoral
laws were amended and aligned with the State aid acquis by the end of
December 2011. However, the Law on Ports still needs to be adopted. The
government adopted its Decision on the Regional Aid Map in March 2013. The State
aid inventory, available on the newly established SACC website, is regularly
updated with its decisions.

The SACC took 14 decisions in 2011 and 10
in the first half of 2012. Out of the 24 cases, 18 resulted in decisions
finding the measures compliant, one resulted in a decision finding that the
measure was non-compliant and in four cases it was concluded that the notified
aid did not constitute State aid as per the provisions of Article 2 of the Law
on State Aid Control. The SACC has started three ‘ex officio’ investigations,
two of which have been concluded (one with a Decision on compliance and one with
a Decision on recovery of State aid) and one is still pending. In June, the
SACC is expected to deliver the 2011 Annual report on State aid control.

Aid measures to
the sensitive sectors need to be brought in line with Montenegro’s obligations
under the Stabilization and Association Agreement, particularly as regards the
aluminium plant KAP and sensitive sectors.

Conclusion

Some progress has been made in the area of
competition. Further efforts are needed to align Montenegro’s legislation with
the acquis and to ensure the operational independence of the competition
authority. Special attention needs to be given to the enforcement of State aid
rules, particularly in the areas of State aid to the sensitive sectors.
Overall, preparations in the field of competition policy are moderately
advanced.

4.9.
Chapter 9: Financial services

There has been some progress in the area of
banks and financial conglomerates. A Decision on Public Disclosure of
Information and Data by Banks was adopted. It brings the Central Bank
Regulation in line with Directive 2006/48/EC, thus implementing Pillar III of
the Basel requirements. The Decision on Bank Reporting to the Central Bank
pursuant to the Banking Law was amended to harmonise reporting forms for own
funds and capital requirements for risks with the new Capital Adequacy
Decision.

The Decision on Large Exposures of Banks,
adopted by the Central Bank in March, further aligns the national legislation
with the acquis on calculation and treatment of large exposures. The
Decision on Minimum Standards for Credit Risk Management in Banks, together
with the guidelines for identifying connected parties, was adopted by the
Central Bank in April and will come into force as of the beginning of 2013.

A Decision on the Establishment of the
Advisory Committee, as the standing advisory body of the Central Bank Council,
was adopted in October 2011. Members of the Advisory Committee have to be
Montenegrin or foreign citizens with recognised professional experience.
Alignment with the new acquis on deposit guarantee schemes remains to be
achieved.

There has been little progress in the area
of insurance and occupational pensions. On the basis of the law on
compulsory vehicle insurance, the Insurance Supervision Agency adopted the
rulebook on the content of the form of the insurance policy for motor vehicle
liability. The Decision on Determining Level of Border Insurance was adopted. A
new insurance law transposing the relevant EU directives remains to be adopted.
The insufficient administrative capacity of the Insurance Supervision Agency
remains an issue of concern.

There has been little progress as regards financial
market infrastructure. The Law on Financial Collateral was adopted by the
government in March.

Some progress can be reported in the area
of securities markets and investment services. The Law on Investment
Funds was adopted in November, regulating the conditions for the establishment
and operation of investment funds and managing companies of investment funds
and other issues relevant for the functioning of investment funds. It is
partially aligned with the 2009 Directive on the coordination of laws,
regulations and administrative provisions relating to undertakings for
collective investment in transferable securities (UCITS). The Securities
Commission, the trade regulatory and supervisory body in Montenegro, also
adopted 12 regulations for the implementation of the funds.

The Securities Commission adopted Rules on
Business Secrets, aiming at harmonising the legislation with the acquis on
Markets in Financial Instruments Directive, and Rules on the content, deadlines
and the method of publishing of financial reports by the issuers of securities.

Conclusion

There has been some progress in the field
of financial services. Progress has been made in adopting legislation on public
disclosure of information and data by banks, on calculation of large exposures
and on UCITS. Substantial efforts are required to align with and implement the
existing acquis in the areas covered by this chapter. Overall, the level
of alignment remains moderately advanced.

4.10.
Chapter 10: Information society and media

Progress can be reported in the field of electronic
communications and information and communications technologies (ICT).
The administrative capacity of the Agency for Electronic Communications and
Postal Services (EKIP) has improved. After completing the first round of market
analyses and further analysing five additional markets in 2011, EKIP has
made progress in implementing competitive safeguards, including reference
offers for interconnection and wholesale broadband access published by the
incumbent, number portability in fixed and mobile markets and regulatory
obligations enabling national roaming and access to mobile virtual network
operators. There are three competing mobile operators in the country, while the
incumbent dominates both the fixed telephony and broadband markets (having 81%
of broadband connections). At the end of 2011, the fixed broadband penetration
rate per population was moderate at 13.6%. As for rights of way, the market
players continue to face administrative difficulties in deploying fixed and
mobile networks. The appellate and supervisory powers of the Ministry of the
Information Society and Telecommunications over EKIP still endanger the
regulator’s independence. EKIP has also launched an appeal before the
Constitutional Court against recent legislative amendments whereby the power of
appointing the board of EKIP was transferred from the government to the parliament,
as the new rules provide for the automatic dismissal of the board and EKIP’s
executive director if its financial report is not approved by the parliament.

Montenegro has started to address its
priorities in this area.

As regards information society services, good progress can be reported. Legislation implementing the Law on
Electronic Signature has been adopted, as well as a new national strategy for
information society development 2012–2016 containing specific strategies
on electronic communications and broadband development. The information society
strategy identifies the growth of broadband as a key national priority,
projecting to achieve the Digital Agenda for Europe objectives by 2016. A
Computer Emergency Team (CERT) has been established. A law on e-governance is
under preparation. There has been no progress in further aligning the Law on
e-Commerce with the acquis. Preparations in this area are on track.

Little progress has been made in the area
of audiovisual policy. The public broadcaster is undergoing a structural
reform, aimed at ensuring its financial independence and sustainability and
reaching the European standards for public service broadcasting. Amendments to
the Law on Electronic Media have been adopted, requiring the Agency for Electronic
Media to submit operational and financial plans and reports to parliament for
approval. This clearly undermines the independence of the Agency. Although the
Agency for Electronic Media has slightly increased its capacities with respect
to monitoring of media, it still fails to monitor it outside the capital.
Amendments to the Law on Digital Broadcasting were adopted by the Parliament in
June 2012 whereby the digital switchover process has been postponed with a
new deadline of 17 June 2015. This raises potential concerns about the
timely implementation of the digitalisation process. Despite the fact that the
new management of the state broadcaster RTCG has made significant efforts to
improve the quality of programmes and has boosted ratings, the key challenges
remain restructuring and digitisation of the radio and television stations.
Preparations in this area have started.

Conclusion

There has been some progress in the field
of information society and media. However, independence of the regulatory bodies
has been undermined by amendments to the legislation. Overall, preparations are
moderately advanced.

4.11.
Chapter 11: Agriculture and rural development

In the area of horizontal issues
there has been little progress. During the reference period, the national statistics
body Monstat published further booklets on agricultural data, concluding the
findings from the 2010 agriculture census. The bulk of the agricultural budget
for 2012 remains targeted at direct support measures linked to production.
While some efforts are being made to de-link from production, support measures
will gradually need to be brought more into line with EU rules, decoupling them
from production. Support for rural development measures is increasing due
mainly to grant support under a World Bank project.

In the area of common market
organisation preparations still need to be launched.

Some progress has been made in the field of
rural development. The rural development programme under the Instrument
for pre-accession (IPARD) was submitted; however it still needs to be further
amended before adoption. Within the Ministry of Agriculture and Rural
Development, the sector for rural development was appointed as the Managing
Authority and the sector for payment as the IPARD agency. Establishment of the
management and control system under IPARD is slow. Resources are very limited
and the appointment of staff to the IPARD operating structures is not very
advanced. The administrative capacity and the legal framework are not yet
sufficiently prepared to meet the objectives of the national action plan
towards IPARD accreditation. Preparations are at an early stage in this area.

There has been progress in the field of quality
policy. Following the adoption of the Law on Geographical Indications in
2011, a guide to registration procedures has been prepared for advisors and
producers. Further implementing legislation is in the pipeline and efforts need
to continue to provide information about and encourage active participation in
the schemes. Preparations in the area of quality policy are moderately
advanced.

Progress is being made in the area of organic
farming. A national action plan for organic production in the period
2012–2017 was adopted to support the development of organic farming and the
processing and consumption of organic products in the domestic market. A Law on
Organic Production has been adopted. Preparations in the area of organic
farming are moderately advanced.

Conclusion

Progress has been made in the area of
agriculture and rural development. Efforts are needed to develop an appropriate
legal framework to meet the objectives of the national action plan towards
accreditation for the management of rural development funds. Overall, alignment
with the acquis is at a very early stage in this area.

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

Little progress can be noted as regards general
food safety. Training of staff covering numerous thematic areas in the food
safety field has been provided. Still, the Law on Food Safety remains to be
adopted. Amendments to the Law on Inspection Surveillance were adopted,
establishing a unified body responsible for veterinary and phytosanitary
inspections, though concerns on efficiency remain. Preparations in this area of
the acquis are at an early stage.

Progress has been made in the area of veterinary
policy. The programme on the eradication of rabies has started. Training of
veterinary staff continued. Montenegro adopted a new Veterinary Law. Increased
effort is needed to adopt animal disease contingency plans and the
comprehensive programme for controlling and monitoring transmissible spongiform
encephalopathy. Preparations in the field of veterinary policy are at an early
stage.

With regard to the placing on the market
of food, feed and animal by-products, no progress can be reported.
Preparations in this field are at an early stage.

There was limited progress in the
implementation of food safety rules. Montenegro has adopted a monitoring
programme for pesticide residues in food of animal and plant origin and a
programme for monitoring residues of veterinary medicinal products.
Preparations in the area of food safety rules are not very advanced.

No progress can be reported as regards specific
rules for feed. Legislation on feedingstuffs intended for particular
nutritional purposes and on certain products used in animal nutrition still
needs to be adopted. Preparations in the area of specific rules for feed are at
an early stage.

There has been some progress with regard to
phytosanitary policy. Amendments to the law on seed materials of
agricultural plants were adopted with a view to aligning it with the acquis.
Rulebooks on phytosanitary measures to prevent the introduction and spread of
several harmful organisms have been adopted. The Plant Pathology Laboratory
started applying the compatibility methods for the identification of certain
harmful organisms. The administrative capacity of the phytosanitary
inspectorate has been strengthened through the recruitment of one additional
phytosanitary inspector. Training of staff continued. Preparations in the area
of the phytosanitary sector are moderately advanced.

No progress has been made with regard to
alignment and implementation of the acquis in the area of genetically
modified organisms (GMOs). Preparations in this area still need to be
launched.

Conclusion

There has been limited progress in the
field of food safety, veterinary and phytosanitary policy. Efforts are needed
in all aspects of this policy area, in particular with regard to further
alignment with the acquis, the reinforcement of control capacity in the
veterinary field, and the assessment of hygiene standards in food and feed
establishments. Overall, alignment with the acquis in this area remains
at an early stage.

4.13.
Chapter 13: Fisheries

No progress can be reported as regards
further alignment of the relevant legislation with the fisheries acquis.
The administrative capacity of the fisheries unit in the Ministry of
Agriculture and Rural Development has been strengthened by taking on two additional
advisors.

As regards resource and fleet management,
limited progress can be reported. The fishery information system has been
further developed. Staff of the Institute of Marine Biology were trained in
assessing the biological state of the fish stocks. Efforts continued towards
setting up a vessel monitoring centre. Preparations in this area of the acquis
are at an early stage.

There has been limited progress in the area
of inspection and control. The fishery inspectors received training to
improve their abilities to inspect and monitor fishing activities in accordance
with the relevant EU Regulations and practices. However, the capacities of the
fishery inspectorate remain limited. Increased efforts are needed to ensure the
systematic processing of data from logbooks, adequate registration of catches
and landings, the use of sales notes and systematic cross-checking between
catch composition and logbook records. Preparations in the area of inspection
and control are not very advanced.

In the areas of structural actions,
market policy and State aid, no progress has been made. Preparations in
these areas are still to be launched.

Montenegro has
concluded no new international agreements on fisheries. There have been
no developments regarding Montenegro’s application to join the International
Commission for the Conservation of Atlantic Tunas (ICCAT). Montenegro has
started to address its objectives.

Conclusion

Some progress was made in the field of
fisheries. Efforts are needed with regard to alignment of legislation with the
fisheries acquis, and implementation of EU standards, in particular in
the areas of resource management, inspection and control, market policy,
structural policy and State aid policy. Overall, preparations in this area are
at an early stage.

4.14.
Chapter 14: Transport policy

Good progress can be reported on road
transport. The road fees for foreign-registered cars and the eco-tax for
heavy vehicles were repealed. Montenegro adopted in December the action plan
for implementing the road safety strategy for 2012, but the new law on road
safety has yet to be adopted. Further alignment with recent road safety and
dangerous goods acquis is still necessary. Implementing legislation on
driving time, rest periods of drivers and recording equipment for road
transport was adopted, as well as on road marking, driving licences and fees
for oversized and overweight vehicles. In March, Montenegro began issuing
memory cards for digital tachographs in line with the obligation arising from
the Agreement on the work of crew vehicles engaged in international transport
and the acquis.

There has been some progress in the area of
rail transport. With regard to the strategy of restructuring of the
railway of Montenegro, two phases have been completed. Infrastructure charges
for passenger trains were published in the network statement for year 2012.
However, Montenegro still needs to transpose the interoperability directive.
The administrative capacity of the newly established Railway Directorate was
strengthened, but the independence of the rail
regulatory body from the line ministry needs to be secured. As regards to the
border crossing agreements, further alignment with EU legislation needs to be
made for the agreement with Serbia, while an agreement with Albania still needs
to be signed.

There is no inland waterway transport
in Montenegro.

No progress can be reported on combined
transport.

In the area of air transport, good
progress took place with regard to implementing the European Common Aviation
Area (ECAA) Agreement, with the adoption of the new Civil Aviation Law,
covering crucial issues such as safety, security and air traffic management.
Furthermore, two conventions of the International Civil Aviation Organisation
(ICAO) were ratified.

In the area of maritime transport good
progress has been made. The transfer of competencies for providing ship
inspection services and issuing relevant certificates for vessels registered
under the flag of Montenegro to the International Association of Classification
Societies continued. As regards the Paris Memorandum of Understanding on Port
State Control (PMoU), Montenegro achieved a 0% detention rate in 2011, but it
still needs to make progress in order to become a full member of the PMoU.

An accident investigation body for rail,
air and maritime transport still remains to be established.

No progress can be reported on satellite
navigation.

Conclusion

There has been good progress in the area of
transport, in particular as regards road, rail and maritime transport, but
there is a need to ensure effective implementation of the acquis.
Further progress remains to be made in the rail transport sector concerning
inter-operability, setting up an accident investigation body, as well as the
independence of the rail regulator. Overall, preparations in this area are
advanced.

4.15.
Chapter 15: Energy

Montenegro still needs to finalise an
update of the energy development strategy and of the action plan for the period
until 2030.

No progress can be reported in the area of security
of supply. A decree on mandatory strategic stocks of oil and petroleum
products has been developed, but adoption is yet to be finalised.

There has been some progress in the area of
the internal energy market. The Energy Regulatory Agency adopted
implementing legislation which fulfils some of the preconditions for
establishing a functioning energy market and increasing the energy sector’s
competitiveness. Permanent tariff methodologies for transmission, distribution
and final consumers, applying incentive-based regulation for the first time in
Montenegro, set the basis for efficient price regulation. However, the tariffs
are not fully cost-reflective. All eligible
customers connected to the distribution system remain entitled to be supplied
at regulated tariffs. The distribution company remains integrated in the
Montenegrin Electric Power Company (EPCG), and the deadline for its legal
unbundling is the end of 2012. In January 2012 the Market Operator (COTEE Ltd.)
was established as a separate legal entity. Market rules were approved by the
regulator in July 2012. New and non-discriminatory rules for allocation of
cross border capacity have been introduced. There has been no progress with
regard to the development of a gas market in Montenegro. Montenegro needs to
start preparing for alignment with the EU’s ‘third internal energy market
package’.

Some progress can be reported as regards renewable
energy sources (RES). Montenegro adopted implementing legislation based on
the Energy Law for the promotion of electricity produced
from renewable energy sources in the internal electricity market, including the
establishment of differentiated feed-in tariffs. The
work programme for the use of renewable energy sources (RES) over a ten-year
period has yet to be adopted. The implementation of projects for small hydro
power plants is progressing as planned. As regards the hydro power plant on the
Morača River, the tender for the construction work failed, as no bid was
received by the extended deadline of 30 September 2011. The existing Memorandum
of Understanding between the Montenegrin government and the Italian company A2A
allows for the possibility for EPCG to build the plants, and EPCG presented a
technical solution for this project in January. There is a successful ongoing
project providing 0% interest bank loans for solar water heating to households.

There was little progress in the field of energy
efficiency; a revision of the energy efficiency legislation is under
preparation, in order to ensure alignment with the acquis. The government
adopted an operational plan for improving the energy efficiency of the state
administration bodies for 2012.

Good progress has been made regarding nuclear
energy, nuclear safety and radiation protection. The strategy for
protection against ionising radiation, radiation safety and radioactive waste
management with an accompanying action plan was adopted in September 2011. In
November and December 2011, rulebooks were issued on conditions for obtaining a
permit for the management radioactive waste storage and methods of collecting,
processing and storing radioactive waste, respectively. In addition, a
programme on systematic examination of radioactivity in the environment for the
year 2012 was adopted.

The country submitted to the International
Atomic Energy Agency its first National Report under the Joint Convention on
the Safety of Spent Fuel Management and on the Safety of Radioactive Waste
Management. Also, this document is one of the commitments stemming from the
Joint Convention on the safety of spent fuel management and the safety of
radioactive waste management. The first National Report and Declaration on
Nuclear Materials, stemming from the agreement with the International Atomic
Energy Agency, was adopted in December 2011. Following public debates,
Montenegro issued in June 2012 its first license for a radioactive waste
storage facility. As regards administrative capacity, the Environmental
Protection Agency established a new department responsible for radiation safety
and protection against ionising radiation. This department currently employs 10
people.

Conclusion

Some progress
can be reported in the area of energy. Additional implementing legislation for
the internal energy market remains to be adopted. Montenegro still needs to
adopt the necessary acts concerning oil stocks reserves, as well as the
ten-year work programmes on the development of RES. Overall, alignment with the
acquis is at an early stage in this area.

4.16.
Chapter 16: Taxation

Little progress
can be reported as regards legislative alignment with the acquis in the
area of indirect taxation, especially as regards VAT. Legislation
on deferred payment of customs debt (duties and VAT) entered into force in
January 2012. Amendments to the law on excise duties entered into
force in January and April 2012, reducing excise duties on diesel fuel,
increasing the rates on cigarettes and alcoholic drinks, and introducing this
tax for coffee and carbonated soft drinks. Further improvements remain to be
made in order fully to align the structure, scope and level of excise duties
with the acquis. Preparations in the area of indirect taxation are at an
early stage.

Little progress
was made in the area of direct taxation. Amendments to the personal
income tax law, the corporate profit tax law, and the law on mandatory social
contributions were adopted in February 2012 with the aim of aligning tax relief
provisions with State aid rules and introducing a more detailed procedure for
the taxation of capital gains. Preparations in the area of direct taxation are
at an early stage.

Little progress
can be reported as regards administrative cooperation and mutual assistance.
An agreement with Serbia on avoiding double taxation has been ratified. In due
time, Montenegro will have to align with the EU legal framework for
administrative cooperation with EU Member States and prepare for putting into
operation the Central Liaison Office (in the Tax Administration) and the Excise
Liaison Office (in the Customs Administration). Preparations in this area still
need to be launched.

There has been
some progress in operational capacity and computerisation of the tax
administration, which underwent major organisational and structural changes
through reinforcement of the IT department and the creation of a large
taxpayers unit. There has been progress in developing the internal control
system by establishing a separate department for internal control, with clearly
defined procedures for internal control and the fight against corruption. The
IT sector remains understaffed and lacks training with a view to the
preparations needed for interconnectivity and interoperability with the EU
systems. Further efforts are needed to upgrade the administration’s management
capacity, especially on the strategic level. To develop the mandatory VAT
Information Exchange System and the Excise Movement Control System, an overall
functional business and IT strategy needs to be established, endowed with
sufficient budget and accompanied by action plans. Preparations in this area
are not very advanced.

Conclusion

Little progress
was made in the area of taxation, with developments consisting primarily in the
establishment of new departments within the tax administration. Further efforts
are needed to develop an overall business and IT strategy. Overall, in the area
of taxation, Montenegro’s alignment with the acquis is at an early
stage.

4.17.
Chapter 17: Economic and monetary policy

As regards monetary policy, there
was no progress in further alignment of the Central Bank law with the relevant
EU legislation. The Central Bank legislation still needs to be aligned with the
acquis on withdrawal, replacement and destruction of worn-out banknotes
and coins. Institutional and personal independence, especially of the Governor
of the Central Bank, needs to be safeguarded. The Insurance Act provides
privileged access for the state to financial institutions. 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.

In the area of economic policy,
Montenegro submitted its first pre-accession economic programme (PEP) to the
European Commission in January, covering the period 2012-2014. The PEP has
taken over the role of the former EFP as a policy coordination instrument and
has contributed to the preparation of the main national fiscal documents. It
presents recent macroeconomic developments and a comprehensive medium-term
macroeconomic and fiscal framework, with a broad range of structural reform
areas. The PEP meets EU requirements on format and content. However, it fails
to provide in-depth analysis of external sustainability and competitiveness
issues. The capacity for economic policy formulation and coordination needs to
be further strengthened.

Further work is needed to improve fiscal
reporting and to align with ESA95 standards.

Conclusion

There was some progress in the area of
economic and monetary policy. Substantial efforts still have to be made to
complete alignment with the acquis, in particular regarding the Central
Bank’s independence, monetary financing and privileged access of the public
sector to financial institutions. The capacity for economic policy formulation
and coordination needs to be further strengthened. Montenegro’s present use of
the euro, decided by the Montenegrin authorities in exceptional circumstances,
is fully distinct from euro-area membership. Overall, the level of alignment in
the area of economic and monetary policy is moderately advanced at this stage.

4.18.
Chapter 18: Statistics

There has been good progress on statistical
infrastructure. The new law on official statistics and the official
statistical system of Montenegro was adopted in March, with a view to ensuring
compliance with the European Statistics Code of Practice.

The lack of sufficient human resources and
office space remains an issue of concern. Monstat currently employs 98 people
and a recruitment procedure for 11 new employees was launched.

As regards classifications and
registers, some progress has been made. The NACE Rev. 2 classification has
been implemented in several domains, including for agricultural, financial and
short-term statistics.

There has been good progress in sectoral
statistics. Progress has been made on national accounts. The compilation of
sectoral accounts for 2009 and 2010 is under preparation. The experimental
calculation of quarterly GDP in constant and current prices was completed.

As regards short-term statistics and the
Harmonised Index of Consumer Prices, further improvements were made. Monstat
published the first results of the new survey on use of information and
communication technologies in Montenegro as well as the results of the new
survey on industrial waste. Monstat has carried out the pilot survey for
Statistics on Income and Living Conditions (EU-SILC). The regular SILC survey
will start in 2013 and will provide data for the structural indicators of
social cohesion. Monstat widely published data from the Population and Housing
Census and the final results of the Agricultural census. Further efforts are
needed as regards the transmission of data to Eurostat. In general, Monstat
needs to improve sectoral statistics.

Conclusion

Good progress can be reported in this area.
Montenegro still has to make serious and sustained efforts to align with the acquis
as regards agricultural, business and macroeconomic statistics. Overall,
preparations in the area of statistics are moderately advanced.

4.19.
Chapter 19: Social policy and employment

There has been good progress in the area of
labour law. Amendments to the Labour Law were adopted in
November 2011 with the aim of aligning it with the acquis. The law
on peaceful settlement of labour disputes was also amended in
November 2011 with a view to making the settlement of labour disputes more
efficient and safer. The selection and training of staff for the Agency for
peaceful resolution of labour disputes has been finalised and capacity building
improved. However, implementation and enforcement of the legislation remains a
serious challenge. Preparations in this area are on track.

There has been little progress in the area
of health and safety at work. A Directorate for Inspection Affairs was
established in July including the Inspection of Labour. The training of
labour inspectors and social partners engaged in occupational safety and
awareness-raising activities have continued. Inspection capacity has somewhat
improved, and the total number of fatal, serious and collective injuries at
work went down in 2011 compared to 2010. There has however been no
progress as regards legal alignment and the number of labour inspectors remains
insufficient. Only nine out of the 12 positions for labour inspectors
dealing with occupational health and safety are filled. This represents an
approximate ratio of one inspector per 23,555 workers (while the ILO
recommendation is for one inspector per 10,000 workers). The Agency for Health
and Occupational Safety has not been
established yet. Preparations in this area are at an early stage.

There has been little progress as regards social
dialogue. Trade unions’ membership of the Social Council has been aligned
on their representativeness. This should improve the consistency of the
procedure to determine representativeness at different levels (national and
branch level), remove employers’ insight into trade union membership and
address the previous data protection problems. Negotiations on a new General
Collective Agreement have not been concluded. The capacities of the Social
Council have not been strengthened. The Social Council secretariat provided by
the law has not been set up yet due to lack of funding. Only three social
councils at municipal level are functioning properly. Concerns remain as to the
effective recognition of all trade unions. Bipartite social dialogue still
remains underdeveloped. Preparations in this area have started.

Little progress has been made in the area
of employment policy. A national strategy for employment and human
resource development for the period 2012–2015 and a national action plan
for employment for 2012 were adopted in December 2011. Changes to the
provisions on fixed-term contracts should contribute to reducing labour market
duality. The labour market situation deteriorated in 2011 and there has
been no tangible improvement in 2012. Unemployment continued to increase
and is at 20 %, and the labour market participation and employment rates
remained at their low levels (at around 57% and 46% respectively). Registered
unemployment significantly underestimates the number of actual jobseekers. High
gender and regional gaps in activity, employment and unemployment persist. Only
a third of the unemployed receive unemployment benefits. As a consequence of
the crisis and rising unemployment, more resources had to be allocated to cash benefits
and the financial allocations to active labour market measures were reduced.
Nonetheless, some 41% of the registered unemployed benefited from active
support and Montenegro maintained its broad range of active labour market
programmes. Their impact needs to be better monitored. A Law on Vocational
Training of University Graduates was adopted by the Parliament in
July 2012 providing traineeships for young unemployed professionals
without working experience. However, in general, skills mismatches remain a
serious issue. As regards undeclared work, an operational Plan for combating
the grey economy was adopted by the Government in May 2012. Preparations
in this area are at an early stage.

There has been limited progress in
preparations for the European Social Fund. An Operational Programme has
been prepared. However, administrative capacity within the line ministries
involved is still insufficient, in terms of both numbers of staff and
expertise. Preparations in this area have started. (See also Chapter 22 —
Regional policy and coordination of structural instruments)

Little progress has been made on social
inclusion. The transition from institutional to community-based care is at
an embryonic stage. Progress in implementing the measures set out in the strategic
plans adopted for poverty reduction, Roma, people with disabilities and other
socially excluded people is being hindered by the lack of adequate human and
financial resources. Preparations in this area are at an early stage.

As regards people with disabilities, an
action plan for implementing the strategy for integration of people with
disabilities 2012–2013 was adopted in March. The Council for protection of
people with disabilities is functional and currently recruiting new staff.
However, the Law on Prohibition of Discrimination of People with Disabilities
still presents shortcomings. There has been little progress as regards
employment of people with disabilities. Access to buildings remains a concern. (See
also Political criteria — Economic and social rights)

No progress can be reported in the field of
social protection. Progress in the field of administrative and fiscal
decentralisation of social services remains limited. Funded pension schemes
based on mandatory savings have not yet been introduced. Funding for the
current pension system is not sustained. Preparations in this area are at an
early stage.

There has been some progress in the area of
anti-discrimination. The Council for protection against discrimination
is now operational, and its financial and administrative capacities have been
strengthened. Fifteen members of the Council were appointed in February ,
including representatives from the Roma community and one member representing
civil society organisations dealing with lesbian, gay, bisexual and transgender
(LGBT) rights. Anti-discrimination campaigns and training for civil servants
have continued. Authorities have continued to actively promote a positive
environment for LGBT rights, but cases of discrimination against the LGBT community
still occur. The national legislation still presents several shortcomings, e.g.
concerning the Ombudsman’s independence. Neither is the anti-discrimination
legislation in line with the acquis as regards definitions. Involvement
of the Ombudsman’s Office in this area still remains limited despite the
appointment of new staff. Preparations in this area are on track. (See also
Political criteria — Economic and social rights)

Some progress can be reported on equal
opportunities. Amendments to the Labour Law adopted in
November introduce parental leave for the first time as a concept distinct
from maternity leave. Several activities on gender equality have been carried
out at local level, mainly by civil society organisations. Financial and human
resources for efficient functioning of gender equality mechanisms and for
implementation of the activities foreseen by the Gender Equality Action Plan
remain too limited. Roma women experience double discrimination — as members of
a minority group and as women. Montenegro has started to address its priorities
in this area. (See also Political criteria — Economic and social
rights)

Conclusion

Some progress
has been made in the area of social policy and
employment. Further efforts are needed in the area of health and safety at
work. The capacity of the Public
Employment Service also needs to be strengthened, along with activation
approaches in order to address low activity and employment rates and the
mismatch between the skills available and needs. Measures and policies for
poverty reduction and for Roma inclusion need to be strengthened. The situation
of public finance continues to adversely affect reforms in the social area. Increased efforts are needed to implement the
planned reforms in the area of pensions. Overall, Montenegro has started to
address its priorities in this area.

4.20.
Chapter 20: Enterprise and industrial policy

There has been little progress in the area
of enterprise and industrial policy principles. The action plan for
implementing the strategy for the development of small and medium-sized
enterprises 2011-2015 has not yet been adopted. The coordination, monitoring
and implementation capacities in this area are not yet fully established.
Following the National Partnership for Entrepreneurial Learning Council meeting
in December, no further development can be reported as regards the drafting of
an action plan 2012-13 for implementing the strategy for lifelong
entrepreneurial learning 2008-2013. There has been no further progress as
regards the coordination of various institutions to secure the effectiveness of
the strategies in force.

The company registration process has been
unified, eliminating the need for municipal registration, and a single
identification number — the Tax Identification Number — has been introduced.
Company and tax registration are conducted simultaneously. Online registration
is under preparation. Montenegro still lacks a centralised online portal for
SMEs.

The government decided to introduce
Regulatory Impact Assessment for sub-legal acts from January. Training has been
provided in this respect. The issue of how the Regulatory Impact Assessment
will be systematically and effectively implemented remains to be determined.

Business services need to be further
improved and diversified. The current SME voucher scheme is a positive step in
this direction.

There has been no progress in the area of enterprise
and industrial instruments. Montenegro continues to participate in the
Entrepreneurship and Innovation Programme, in particular in the Entrepreneurship
and Innovation specific Programme (EIP). The Investment and Development Fund
(IDF) continued its funding operations, mainly via loans. Its credit guarantee
scheme has not yet issued any guarantees. There is not yet any assessment of
the effectiveness of IDF instruments.

The Decree on the organisation of the
public administration was adopted in December, stipulating that the SME
Development Directorate (SMEDD) falls under the supervision of the Ministry of
Economic Affairs. No further progress can be noted in the coordination of
institutional support to SMEs between the Ministry of Economic Affairs, the
Directorate for Development of SMEs (SMEDD), the Chamber of Commerce and the
relevant financial institutions (IDF, micro-credit providers and commercial
banks). The lack of capacity, the involvement of stakeholders at central and
local level in SME development, and access to finance are some of the areas of
concern to be tackled in developing the private sector.

Assessment of the existing sectoral
policies, necessary for formulating future industrial policy, is still
lacking.

Conclusion

There has been
little progress in the area of enterprise and industrial policy. Various
strategies and institutions exist, however, further efforts are needed to
ensure the development and the implementation of this policy.

4.21.
Chapter 21: Trans European Networks

Some progress can be reported in the area
of transport networks. Montenegro has continued to participate in the
Memorandum of Understanding on the development of the South East Europe
Regional Transport Network, which has now been included (as indicative) in the
European Commission’s proposal for the revision of TEN-T guidelines. Upgrading
road and rail links included in the SEETO comprehensive network remains a
priority.

As regards the preparations for developing
the Bar-Boljare motorway project (SEETO route IV), a study reassessing a number
of technical options for project implementation from the point of view of the
economic viability of the project has been developed with support from the
European Investment Bank. As regards the port of Bar, the cargo terminal and
general freight was included in the 2012 privatisation plan. Before relaunching
the procedure, the government has taken a loan from the EBRD to purchase
equipment necessary for terminal operations and to finalise the social
redundancy programme for voluntary staff departures. These are seen as crucial
preconditions in attracting interest in this privatisation.

There has been some progress in the area of
energy networks. As regards the underwater interconnection cable with
Italy, project implementation continues. The implementation of a project for a
400 kV overhead line linking the coast (Lastva) with the north of the country
(Pljevlja) is ongoing. There were no developments with regards to the
development of a natural gas strategy. Montenegro participates in the
Interstate Committee established by the members of the Energy Community who
signed a Memorandum of Understanding and Cooperation with Trans-Adriatic
Pipeline AG. A comprehensive feasibility study on the Trans-Adriatic Pipeline
project was launched in February.

Conclusion

Some progress has been achieved in the area
of Trans-European Networks. As regards the transport networks infrastructure,
significant work remains to be done on improving road and rail links. Gas
interconnections with neighbouring countries need to be developed and the
national transmission system upgraded. Overall, preparations in this area are
still at an early stage.

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

Little progress can be reported as regards
the legislative framework. Legislation was
adopted defining the organisation and responsibilities for decentralised
management under IPA components preparing for the Structural Funds and the
Cohesion Fund. Compliance with related EU policies, in particular on
competition, State aid, public procurement, environment and equal
opportunities, has not yet been fully achieved. Preparations in this area are
at an early stage.

Good progress was made as regards the
establishment of an institutional framework. Appointments were completed in 2011 but corresponding implementing and operational agreements remain to be signed. A high-level working group on the preparation
for decentralised management was established in the last quarter of 2011,
headed by the competent accrediting officer (CAO). The group met on a regular
basis with a view to speeding up the preparations for
decentralisation of IPA. Preparations in this area
are advancing.

Some progress can be reported as regards administrative
capacity. A gap assessment of IPA components preparing for the Structural
Funds and the Cohesion Fund was completed and an action plan to address
identified gaps was drawn up. This plan contains the list of identified gaps,
as well as recommendations for addressing them in the course of the ongoing gap
plugging phase. In line with the workload analysis of relevant authorities
undertaken by Montenegro, increased efforts are required to recruit and
properly train staff for the defined operating structures. The development of internal procedural manuals has to be finalised without delay. Preparations in this area are at an early stage.

Good progress has been made in the area of programming.
In March, the government adopted the Strategic Coherence Framework and the two
operational programmes, namely one for regional development and one for human
resources development. The quality and maturity of projects need to be further
improved in order to comply with the requirements of IPA components preparing
for the Structural Funds and the Cohesion Fund.
Preparations in this area are moderately advanced.

Limited progress can be reported in the
field of monitoring and evaluation. Discussions on a concept for a management information system have started. Training
of staff of the operating structures continued in matters including monitoring indicators. Preparations in this
area are at an early stage.

Progress can be reported as regards financial
management, control and audit. Pilot internal
audits, covering the ministries involved in the management of IPA components
preparing for the Structural Funds and the Cohesion Fund, were completed in the
period from November 2011 to March 2012. The purpose of the pilot audits was to
strengthen the financial management and control systems in line with the
requirements for decentralised management of these IPA components. In February, legislation providing for an independent audit
authority for EU funds was adopted. The actual establishment of this body, the
recruitment of the auditors and the definition of the internal organisation and
working procedures remain to be completed. Preparations to establish financial
management and control systems for the future Structural Funds and the Cohesion
Fund are at an early stage.

Conclusion

Some progress has been made in this area,
in particular with regard to the institutional framework and programming.
Montenegro needs to strengthen administrative capacity in the established IPA
structures and adequately prepare them for the future. Overall, preparations in
the area of regional policy and coordination of structural instruments have
started.

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

Progress has been made in the area of the judiciary.
Judicial reform has continued. The action plan to implement the judicial reform
strategy for the period 2007-2012 was revised in December, amending a number of
measures on the independence and efficiency of the judiciary and the relevant
deadlines. Implementation of the strategy and the action plan has advanced.

With regard to the independence and
impartiality of the judiciary, procedures for amending the
Constitution are still ongoing with a view to further enhancing judicial
independence, in particular through a de-politicised and merit-based system of
appointments of members of the Judicial and Prosecutorial Councils and of state
prosecutors. Draft constitutional amendments were enacted by the Parliament
with the required 2/3 majority in September 2011. The Parliamentary Committee
for Legal and Constitutional Affairs adopted a set of constitutional amendments
in May, which have yet to be submitted to a plenary vote.

Implementation of the legislation on courts,
the Judicial Council and the State prosecutor’s office continued. In June, the
new Judicial Council was constituted and the presidents and members of the
Disciplinary Commission and of the Commission for conducting the written tests
for first-time appointment of judges were appointed from among its new members.
The new Prosecutorial Council was constituted in July. In September, its
president was elected and the Disciplinary Commission and the Commission for
conducting the written tests for first-time appointment of prosecutors
established. The Judicial Council and the Prosecutorial Council adopted their
rules of procedure, setting out their organisational structure and their
operational and decision-making procedures. The first written tests for judges
were held in February and 13 judges have been appointed so far, in accordance
with the new criteria. Nevertheless, vacancies continue to be published for
specific courts and a single, country-wide recruitment system on the basis of
transparent and objective criteria remains to be established for judges and
prosecutors. The amended legislation on the Judicial Council and the State
prosecutor’s office established a set of promotion criteria for judges and
prosecutors. The criteria lack clarity and objectivity due to the lack of
regular professional assessment of judges’ and prosecutors’ performance.
Objective criteria and clear procedures for the permanent transfer of judges
and prosecutors have not been introduced yet. The functioning of the Judicial
and Prosecutorial Councils is hampered by their insufficient administrative
capacity and budget.

Random, automated allocation of court cases
continues to be ensured in courts with the aid of an IT system, except for
smaller courts with few staff.

Some progress was made in the field of accountability of the judiciary. All decisions of the Administrative Court
and the Appellate Court became publicly accessible. Commissions
for monitoring compliance with the Codes of Ethics of judges and prosecutors
were appointed in October 2011. The Commission for monitoring compliance with
the judges’ Code of Ethics acted on two complaints, both of which were rejected
as unfounded. The judges’ Code of Ethics was amended in March. Further efforts
have been made to establish a track record of fighting corruption in the
judiciary. A special allowance has been given to those judges working on
organised crime and corruption, and two staff were appointed to help the Disciplinary
Commission investigate complaints of corruption in the judiciary. Nonetheless,
corruption and conflicts of interest are still insufficiently monitored in the
judiciary and a reliable system of checking the asset declarations of judges
and prosecutors needs to be established. A disciplinary procedure against one
judge was launched in January, resulting in a warning. No disciplinary
proceedings have been brought against prosecutors so far. The disciplinary
system needs to be further strengthened and differentiated in line with the
principle of proportionality. The Disciplinary Commission’s dual role in
investigating and deciding on disciplinary proceedings needs to be reviewed,
and information on the outcome of disciplinary proceedings published in an
appropriate form. Procedures for removing professional immunity need to be
strengthened to ensure that judges and prosecutors are fully accountable under
criminal law. A reliable system of professional evaluation of judges and
prosecutors still needs to be established. Plans to publish all court rulings
have been only partially implemented.

Regarding the efficiency
of the judiciary, Montenegro has taken further measures to reduce the backlog
of cases. With around 11,500 unresolved cases from previous years in all
courts at the end of 2011, the backlog was approximately 4% lower in 2011 than
in 2010. Only the Basic Court in Podgorica has an increased backlog due to the
high number of civil cases. Four further notaries were
appointed in January and three in May, bringing their total number to 40 out of
the 65 foreseen notary posts. Following the entry into force of the Law on
Enforcement and Security of Claims, transferring powers for civil enforcement
to the bailiffs, the Parliament enacted the Law on Public Bailiffs in December.
Nonetheless, enforcement of civil decisions remains weak, bailiffs still need
to be recruited and the functioning of the bailiff system needs to be assessed.

With a view to
increasing the efficiency of the overall judicial system, the Judicial Council
began setting up special units of judges dealing with
juvenile justice at the High Courts of Podgorica and Bijelo Polje. The
parliament enacted a Juvenile Justice Code in December and the Judicial
Training Center adopted a dedicated programme for training of judges and
prosecutors. Ammendments to the law on Mediation, enacted in May, regulated the
status of the Mediation center. As regards access to
justice, following the entry into force of the Law on Free Legal Aid in January
2012, three implementing acts were adopted and free legal aid offices were opened in all basic courts. The
implementation of the law is hampered by the offices’ insufficient budget. The 2012 budget for the judiciary and the prosecution is € 24.9
million, which represents approximately 0.75 % of the GDP. As the salaries of
magistrates and administrative staff continue to account for most of this
total, there are not enough resources to remedy deficiencies in infrastructure
and equipment, which continue to hinder efficiency. Initial steps have been
taken to rationalise the court network, but Montenegro continues to be one of the
countries with the highest number of basic courts, judges, prosecutors and
administrative staff per capita in Europe.

The current IT
system allows case-tracking, automatic allocation of
cases and electronic filing of judicial acts but is not yet used for statistical
reporting or for assessing the performance of courts. The
statistical indicators used do not provide full information about courts’
performance, the duration of trials or the human and financial resources
allocated. This lack of information creates problems with the consistency of
data and effective follow-up. The quality of judicial statistics needs to be
improved and a system to monitor the length of trials introduced. The
independence and the administrative and financial capacity of the Judicial
Training Centre needs to be strengthened and initial training with set
curricula for all members of the judiciary introduced.

Some progress has been
made on anti-corruption policy. The strategy for fighting corruption and
organised crime and the revised 2011-2012 action plan are being implemented. Preparations are ongoing for the adoption of the action plan for the
period 2013-2014. The overall institutional framework
for monitoring implementation of the action plan is working well. In June, the
Government adopted an analysis of the anti-corruption institutional framework
and a study on the effects of setting up an anti-corruption authority.

Montenegro has made additional efforts to
further strengthen its anti-corruption legal framework, with a view to ensuring
alignment with the relevant European and international standards. Amendments to
the Labour Law enacted by the parliament in November 2011 extended protection
for whistleblowers to cover the private sector. Amendments to the Law on Free
Access to Information were enacted by the parliament in July 2012, with a view
to expanding the range of publicly available information and ensuring
compliance with the Council of Europe Convention on Access to Official
Documents and international standards in this field. Amendments to the Law on
Political Party Financing were enacted in December 2011, covering supervisory
institutions and in-kind contributions and fixing the ceiling for membership
fees at 10 % of a member’s annual income. The State Audit Institution
(SAI) is now responsible for auditing political parties’ annual balance sheets
and reports on election campaign costs, while the State Election Commission is
in charge of monitoring the implementation of other aspects of the law. The
professional capacity and independence of the State Election Commission and the
State Audit Institution need to be strengthened to ensure fully effective
independent oversight. The mechanisms for checking on the funding of political
parties and electoral campaigns and imposing penalties need to be reinforced
and set out in legislation. The sanctioning system remains insufficiently
dissuasive and undifferentiated, while reporting and accounting obligations for
political parties need to be further strengthened. Very few sanctions have been
applied so far to political parties for breachng the rules on financing. The
implementation of the political party financing rules needs to be improved and
the pro-active approach of the supervisory bodies ensured.

Following the full entry into force of the
amended law on conflict of interest prevention in March, all 36 MPs who were
also members of management boards of state-owned companies resigned from these
positions and all 16 MPs who also held executive positions (including two
mayors) resigned from one of their posts.
97% of State officials and 93% of local officials
submitted asset declarations for 2011/2012 within the deadline set by the law.
The Commission for the Prevention of Conflicts of Interest made 321 requests to
initiate misdemeanour procedures for non-compliance with the law, which
resulted in 176 judgements. Asset declarations by civil servants are still not
being checked on substance to establish cases of illicit enrichment. The Commission
for the Prevention of Conflicts of Interest continues to lack the legal mandate
for control of unjustified enrichment, access to banking information and
databases held by other state entities, and the administrative and professional
capacity needed to perform its supervisory role adequately.

Recently amended legislation on public
procurement started to be implemented. However, no notifications have been sent
so far from the Public Procurement Commission to the prosecution and the
control system needs to be strengthened. There is only one ongoing criminal
procedure related to corruption in public procurement; no training has been
provided to law enforcement officers and judges on such cases.

Some progress was made on prevention of
corruption. In December, the DACI was transferred to the Ministry of Justice to
ensure better coordination of anti-corruption activities. The DACI conducted a
number of awareness-raising campaigns on reporting corruption and on the
protection of whistleblowers. Civil society organisations have continued to
actively contribute to enhancing the strategic framework and have provided
evidence in corruption cases. The recommendations contained in the risk
assessment of areas vulnerable to corruption started to be implemented, in particular
in the areas of education, spatial planning and public procurement. Since
September 2011, 178 complaints of corruption were received by the relevant
institutions, out of which 140 were submitted to the prosecution and the police
for further processing. Judges and prosecutors have been given training on
combating corruption, in particular to help them implement the new Criminal
Procedure Code. Asset declarations submitted by judges and prosecutors are not
yet cross-checked against other data and measures to prevent corruption in the
judiciary need to be further strengthened. No disciplinary proceedings have
been launched against judges for corrupt behaviour. The DACI’s capability needs
to be upgraded and its capacity to monitor implementation of the government’s
action plan for fighting corruption and organised crime reinforced.

Some progress has been made on suppression
of corruption. The full entry into force of the new Criminal Procedure Code in
September 2011 has helped to speed up the criminal investigation procedure and
has reduced the risk of information leakage. In June, the parliament amended
the Law on Custody of Seized and Confiscated Property to define the methods of
management of seized or confiscated proceeds of crime. The institutional and
operational capacity of prosecutors, judges and police to fight corruption has
been strengthened through further training support and additional equipment.
The use of special investigative measures is more systematic as a result of the
enhanced administrative and technical capacity of the Special Checks Unit. 9
representatives of the police force, the office for prevention of money
laundering and terrorism financing, and the tax and customs administrations
were appointed to the special investigation team, which became operational in
October 2011. The team has been given additional financial resources; however,
its capacity needs to be increased, in particular by acquiring access to
relevant databases. Inter-agency cooperation has improved to a certain extent,
but needs to be further developed.

Montenegro has further developed its track
record of investigation, prosecution and conviction in corruption cases. Second
instance verdicts have been issued against seven officials of a public company
in Budva and four employees of the public property administration of Ulcinj
sentenced to imprisonment for abuse of their official positions, and one
customs officer convicted of bribery. 17 persons have been convicted to
imprisonment in first instance for abuse of office and bribery, including the
former Mayor of Budva, his deputy, a member of the parliament and four
municipal officials. Agreement on settlement was reached with five persons,
among whom the former Mayor of Ulcinj. Court hearings
are ongoing in two cases against 24 police, border police and customs officers
accused of abuse of official position and bribery. During the reporting period,
23 persons have been indicted for abuse of office or bribery, including the
President and a judge of a Basic Court and three employees of the Ministry of
Interior. An investigation is ongoing against the former and current directors
of a public company in Budva for alleged abuse of office. Internal checks
performed by the customs administration, the tax administration and the police
resulted in 119 cases being investigated and appropriate measures taken in 35
cases.

Nonetheless, corruption remains widespread and continues to give serious cause
for concern, allowing also for the infiltration of organized crime groups into
the public and private sectors. A track record of combating corruption needs to be steadily built up, in particular in terms of
investigations, prosecutions and convictions in high-level corruption cases.
The fact that all of the high-level corruption cases have been brought on the
basis of evidence provided by a third party remains a matter of concern. There
are still no corruption cases in which seizure of assets was ordered. CPC and
Criminal Code provisions on confiscation and extended confiscation of criminal
assets have not been used so far. The professional capacity of the Public
Property Administration, responsible for the management of proceeds of crime
needs to be strengthened. The capacity of prosecutors and police to conduct
financial investigations, trace criminal assets and present related evidence
before the courts needs to be improved. Inter-agency cooperation and
information exchange, in particular between police and prosecutors, needs to be
further enhanced. Prosecutors’ lack of access to relevant databases and
insufficient capacity hamper effective implementation of the CPC. The
administrative capacity of the Special Prosecution Office for fighting
organised crime, corruption, the financing of terrorism and war crimes needs to
be strengthened. The independence of the judiciary remains a matter of concern,
which affects the country’s determination to combat corruption.

Montenegro has continued to improve the
legal and institutional framework on the protection of fundamental rights.
Nevertheless, shortcomings persist, especially in the enforcement of these
rights. Administrative capacity and financial means to implement the laws
remain limited.

Progress has been made in the prevention
of torture and ill-treatment and the fight against impunity. The Ombudsman
started to implement the monitoring mechanism. Processing of reported cases of
ill-treatment continues to be slow and the relevant legal and institutional
framework still needs to be brought into line with international standards,
particularly with regard to prison conditions and the treatment of convicted
persons.

Some progress has been made as regards the prison
system; the legal and policy framework was enhanced but the administrative
capacity remains to be reinforced. The use of alternative sanctions has helped
to reduce the prison population but should be further pursued, as prison
overcrowding remains a concern. As a consequence, living conditions in prisons
have improved but are still not fully in line with international standards as
regards education, prison regime, healthcare and medical treatment.

Some progress has been made with regard to access
to justice. The Law on Free Legal Aid came into effect in January 2012 and
relevant services are now available in all basic courts. The length of court
proceedings remains an issue of concern.

Progress has been made in promoting freedom
of expression. The decriminalisation of defamation and the alignment of the
national system with the case law of the European Court of Human Rights have
helped to improve the media environment. The new law on amnesty allows the
President to pardon individuals convicted of defamation. Efforts to investigate
and prosecute old cases of violence against journalists need to be stepped up.

Progress has been made with regard to freedom
of assembly and association. The legal framework has improved.
Representatives of civil society organisations are regularly involved in the
activities of the state administration, including working groups on the EU
accession negotiation chapters.

Freedom of thought, conscience and
religion is generally ensured, but tensions persist
between the Serbian and Montenegrin Orthodox Churches, notably with regard to
property issues.

Little progress has been made with regard
to women’s rights and gender equality. The strategy for implementing the
law on protection from family violence was adopted. Nonetheless, domestic
violence is still an issue of concern. Women are largely under-represented in
the top political and managerial positions in the country.

Some progress has been made with regard to children’s
rights. The Law on Juvenile Justice was adopted in December 2011. The
introduction of victim-offender mediation as an alternative measure for
children in conflict with the law continued to yield good results. A law on
social and child welfare has yet to be adopted. Further efforts are needed to
ensure better inclusion and access to mainstream education for children with
disabilities.

Some progress has been made with regard to
the socially vulnerable and/or persons with disabilities. An action plan
for the integration of persons with disabilities 2012-2013 was adopted in
March. Yet, there are no sanctions for breaking the law on disabled persons.
Steps were taken towards deinstitutionalisation, and relevant training given to
social workers.

Some progress has been made in the area of anti-discrimination
policies. The Ombudsman produced three reports on human rights issues,
which were discussed by the parliamentary committee on human rights. The Council
for the protection against discrimination is now operational. A number of
awareness-raising and training activities for civil servants have been held to
build capacity in this field. Yet, the law on the Ombudsman, as well as that on
anti-discrimination, remain to be aligned with the acquis. Some progress
has been made with regard to the rights of lesbian, gay, bisexual and
transgender (LGBT) persons. The government showed greater openness to promoting
and defending LGBT rights. The first conviction for an attack against a
representative of the LGBT community was issued; the authorities ensured the
rapid identification and arrest of the alleged perpetrators who attacked in
late September an author and director of a video against homophobia. However,
processing of cases related to LGBT rights remains slow and LGBT persons, as
well as civil society activists engaged in promoting and protecting LGBT
rights, continue to be subject to discrimination.

Labour and trade unions rights are generally respected. Yet, more attention is needed to ensure
full transparency of representativeness and the right of constitution of new
unions, in line with the relevant national regulations. Negotiations on a new
collective agreement have not yet finished. Social dialogue needs to improve.

Little progress has been made in the area
of property rights. The commissions for denationalisation have continued
their work. Restitution of property is still slow and procedures are
cumbersome.

Progress was
made with regard to the respect for and protection
of minorities and cultural rights. Interethnic relations in the
country are generally good.

Progress was made on the inclusion of Roma,
Ashkali and Egyptians, especially in ensuring civil registration of displaced
persons among them. A strategy for 2012-2016 and an action plan were adopted by
the government in April 2012; their implementation is slow. Limited measures
were taken to facilitate education and employment. Drop-out and unemployment
rates remain high, especially for women. Roma, Ashkali and Egyptians still have
problems with access to satisfactory living conditions and to social and health
care. Roma are still underrepresented in public institutions. Progress in
resolving the issues of displaced and internally displaced persons has been
significant. The deadline for applications for the status of foreigner with
permanent residence has been extended to 31 December 2012 and the number of
applications has increased. An office of the Ministry of the Interior opened
temporarily in Konik camp to facilitate the registration of displaced persons
living there. The government provided a quick and efficient emergency response
to the fire in Konik camp in July, which left 800 Roma IDPs homeless.

The temporary decree on access to social
and economic rights for displaced persons was also extended, to June 2013. Its
implementation needs to continue. The urban plan proposing changes to the Konik
area was adopted in February 2012, but the government’s capacity to implement
projects on such a scale is poor. The Law on Social Housing has not yet been
adopted.

Good progress has been made as regards
strengthening the right of individuals to personal data protection. The
Law on Personal Data, the Information Secrecy Act and the Law on Free Access to
Information were adopted. Further efforts are needed to implement the national
legislation in line with the EU acquis in this area.

There were no developments regarding EU
citizens’ rights.

Conclusion

Montenegro has made some progress in the
area of the judiciary and fundamental rights. Implementation of recently
adopted legislation has started. Progress has been made with regard to the
publication of court rulings and the backlog of court cases. The
constitutional reform aimed at strengthening judicial independence has not been
completed yet. A single, country­wide recruitment system and a system to monitor
the length of trials need to be set up, the court network rationalised and the
reliability of judicial statistics improved. Further efforts are needed to ensure
merit based appointments and career development, as well as to strengthen
accountability and integrity safeguards within the judiciary. Montenegro has
strengthened its anti-corruption legal framework and further developed its
track record of investigation, prosecution and conviction in corruption cases,
but greater efforts are needed in this respect. Corruption remains widespread
and continues to be a serious cause for concern,
allowing also for the infiltration of organized crime groups into the public and
private sectors. The number of final convictions
remains low and there are still no corruption cases in which seizure or
confiscation of assets were ordered. The existing legal and institutional
framework for the protection of fundamental rights has been further
strengthened. The decriminalisation of defamation
contributed to improving the media environment. The process of granting legal
status to displaced persons has further advanced. Social inclusion of Roma,
Askhali and Egyptians has to continue, in particular through the implementation
of the relevant policy documents. Shortcomings persist in the protection of
human rights by judicial and law enforcement authorities. Efforts to
investigate and prosecute old cases of violence against journalists need to be
stepped up. Further sustained efforts will be needed to align with the EU acquis
and international standards in this field. Overall, preparations in this area
are moderately advanced.

4.24.
Chapter 24: Justice, freedom and security

Some progress can be noted in the area of
migration. The second phase of construction of the centre for foreigners,
related to equipment and premises, is being completed. Amendments to the law on
foreigners were passed in November 2011, postponing the deadline for submitting
requests for foreigner status for displaced persons to the end of 2012. A
number of relevant by-laws better regulated foreigners’ conditions. The number
of irregular migrants in 2011 increased to 1,504 (1,160 in 2010). Montenegro
signed a readmission agreement with the former Yugoslav Republic of Macedonia
in March and ratified the existing readmission agreements with Kosovo and
Switzerland. Further efforts are still needed to ensure full alignment with the
acquis on legal migration, not least on the right to family
reunification, long-term residence and conditions of admission of third-country
nationals for the purposes of studies, research and highly qualified
employment. The readmission agreement with Serbia is still pending.

Developments in this area are well on
track.

Some progress has been made with regard to
asylum. The implementation of the Law on Foreigners has continued, with the
adoption of a number of by-laws on record keeping in asylum, and on concrete
assistance to asylum seekers. The establishment of the centre for asylum
seekers has been completed and will be ready to begin operations once the
permits are issued. Montenegro received 239 applications for asylum, out of
which only one resulted in subsidiary protection. Further efforts are required to
align the national legislation with the acquis and the international
standards in this area, including the need to make the national database for
checking asylum seekers’ personal data fully functional. Second instance
decision-making on asylum cases needs further improvement.

The country is moderately advanced in this
area.

Some progress has been made on visa
policy. In 2011, a total of 996 visas were issued in third countries for
entry to Montenegro. The number of visas issued at the border decreased to 120
in 2011 (280 in 2010) and continued to decrease during 2012. The country has
partially aligned its legislation with the EU positive and negative lists
contained in Regulation 539/2001. Decisions on the temporary suspension of the
visa requirements for the nationals of Armenia, Azerbaijan and Kazakhstan have
been adopted for the summer season. There is still no electronic link between
the diplomatic and consular missions and the national visa system of the
Ministry of Foreign Affairs and European Integration (MFAEI), nor is there a
visa with security features. The country is moderately advanced in this area.

Progress can be
reported in the field of external borders and Schengen. The integrated
border management strategy and action plan have continued to be implemented,
including by rehabilitating certain border facilities and opening a new one at
the border with Serbia. Additional technical equipment has been provided; capacity
building and training were delivered. Cooperation with Frontex has continued to
be good; Montenegro has continued to implement its Common Core Curricula and
was involved as an observer in a joint operation. Regular coordination meetings
on border issues and joint patrolling took place with the authorities of the
neighbouring countries. Preparations are ongoing to establish common contact
points with Bosnia and Herzegovina and with Kosovo. Further efforts are needed
to ensure that IT equipment is in place at the BCPs, regularly train the border
police and avoid frequent rotation of trained staff. The security of the blue
border and the border with Kosovo remains to be substantially strengthened,
including the controls at the main ports. These latter would increase the
security of the entire maritime sector. A risk assessment still needs to be
carried out.

Preparations in
the area of external borders and Schengen are advanced.

Progress can be reported in the area of judicial
cooperation in civil and criminal matters. As regards civil matters, in
February Montenegro ratified the Convention on jurisdiction, applicable law,
recognition, enforcement and cooperation in respect of parental responsibility
and measures for the protection of children. Bilateral relations in the field
of civil matters have continued with the neighbouring countries and with
certain Member States. A proposal for the Act on Private International Law was
adopted by the government in June. As regards judicial cooperation in criminal
matters, the legal framework for fighting serious and organised crime at
regional and international levels has been further strengthened. In September
2011, Montenegro ratified an agreement with Croatia on mutual enforcement of
judgments in criminal matters. Further efforts are needed to fully align the
legal framework with the acquis, in particular by applying the
legislation on the European evidence warrant and the principle of mutual
recognition of judgments and probation decisions. Montenegro needs to meet all
the criteria, including on personal data protection, to conclude the cooperation
agreement with Eurojust.

Preparations in this area are on track.

Progress has been made in the area of police
cooperation and the fight against organised crime. The country has
continued to extend international and regional cooperation in these fields, as
well as to reinforce its legal framework and administrative capacities. Joint
investigative operations with other countries of the region, and with EU Member
States, Interpol and Europol, resulted in an increase in the number of
indictments, arrests and convictions in the field of organised crime. An
agreement on extradition and an agreement on police cooperation were
respectively ratified and signed with the former Yugoslav Republic of
Macedonia. A police cooperation agreement with Croatia, to strengthen public
security and prevent criminal activities during the tourist season was signed
in May 2012. The police authorities from Montenegro and Bosnia and Herzegovina
signed a memorandum of cooperation on jointly fighting corruption, organised
crime, drug trafficking and terrorism. A secure connection between Europol and
Montenegro was put in place in April; an operational agreement remains to be
signed and the liaison officer remains to be appointed.

The policy and
legal frameworks in this area have been improved. The Law on Internal Affairs
was enacted by the Parliament in July. It foresees the transfer of the Police
Directorate under the authority of the Ministry of Interior and Public
Administration, to ensure political accountability and better coordination on
law enforcement matters. Attention needs to be put to ensure independent and
transparent oversight on the police, detailed rules to deal with complaints
against the police, and fair recruitment process. Since September 2011, the new
Criminal Procedure Code is being implemented by all relevant state bodies. More
specialised organisational units within the police have been introduced. An
action plan for combating organised crime was adopted in January, introducing
operational measures and indicators in line with the priorities identified in
the 2011 organised crime threat assessment (OCTA). OCTA’s classified version
needs to be made available to the Office of the Special Prosecutor, given its
leading role in the investigations against organised groups’ affiliates. The
capacities of the witness protection unit in the police have been reinforced,
through the provision of adequate training and relevant IT equipment, including
for secure communication. Montenegro has ratified the Council of Europe’s
Convention on Cybercrime and the additional protocol, and incorporated their
provisions in the Criminal Code. A contact point for cybercrime is active
within the police.

The intelligence-led policing (ILP) model
is being implemented and the capacities of the relevant department reinforced,
including for the activities of the special investigative team (SIT). The track
record of cases on organised crime has continued to develop[3], but needs to advance further.
In May, the High Court in Bijelo Polje sentenced two members of a criminal
organisation involved in money laundering, drug trafficking and smuggling to
six and eight years’ imprisonment, fines of more than € 12 million and
financial compensation to the state of € 21.4 million. A new investigation
was opened in June for a case of cybercrime, against 10 individuals accused of
computer fraud. Three new indictments have been raised, for a case of document
forgery (June) and two of drugs trafficking (in June and July, respectively). A
number of trials are ongoing.

Financial
investigations have led to the temporary seizure of assets amounting to over
€ 40 million. Amendments to the Law on Management of Seized and
Confiscated Property were enacted in June, extending the definition of property
and improving its management. Still, relations between the prosecution service
and the police within the framework of the new CPC need to be clarified and
improved, including in conducting financial investigations. Additional
equipment and specialised staff are needed to increase the capacities of the
law enforcement authorities to investigate and manage complex cases; their
access to relevant databases and criminal intelligence information has to be
ensured. Trainings need to be delivered to the judicial authorities, to
increase their specialisation in the field of organised crime. Efforts are
still required to align the legal framework on witness protection and the
extradition procedures with the acquis. To ensure the full
implementation of the ILP system throughout the country, further training and
capacity building for the police is needed, both at local and central level.
The Public Property Administration needs to be further strengthened,
particularly by upgrading the skills of the staff in charge of valuing and
managing temporarily seized and confiscated assets. The preparation of
implementing legislation in this area has to be finalised, as well as
inter-institutional cooperation needs to be improved, in order to ensure smooth
and timely enforcement of court decisions on seizure or confiscation of
criminal assets. The overall number of financial investigations and seized
assets remains low, due to the very weak administrative capacity in this field.

Some progress can be reported in the fight
against money laundering. The Law on Prevention of Money Laundering and
Terrorist Financing was amended in February 2012 with the aim of aligning it
with the acquis. The relevant body opened 107 new cases and has taken an
active part in a financial investigation led by the Special Prosecutor,
resulting in two indictments for money laundering against six individuals. A
memorandum on inter-institutional cooperation and data exchange in the
prevention of money laundering and terrorist financing was signed
in December; nevertheless, the police are still not part of it. The
current procedures whereby the police receive information on suspicious
transactions from the APMLTF delay financial investigations and need to be
revised. The IT system of the APMLTF needs to be reviewed and updated to support
the workflow effectively. The track record of financial investigations needs to
be further developed. Montenegro produces a low level of suspicious transaction
reports, mainly from the banking sector; the capacities of the relevant
institution need to be reinforced to check all obligors. The number of
convictions for money laundering remains very low.

Some progress has been made with regard to
trafficking in human beings. The preparation of a new
national strategy for combating trafficking in human beings for the period
2012–2018 is in its final phase, following a public debate organised in July.
During the reporting period four people were identified as victims and hosted
in the shelter for human trafficking, for which more adequate premises have
been found. Still, the capacities of the law enforcement and judicial
authorities in dealing with cases of trafficking in human beings need to be
reinforced. Identification and protection of victims, especially children and
women, need to be further strengthened. The country is moderately advanced in
this area.

Montenegro has made progress in the field
of police cooperation and in the fight against organised crime. The track
record has continued to develop, but needs to advance further. Tackling
organised crime through all means of the legal system presents particular
challenges for the country. Regional and international cooperation was
reinforced through the signature of agreements and joint operations. Still, the
results achieved, including the administrative capacities and interagency
cooperation in the field of organised crime have to be pro-actively
consolidated, particularly in the field of financial investigations, while the
legal framework needs to be completed. A national criminal intelligence system
still remains to be established. Its lack hampers the effectiveness of the law
enforcement bodies, which has to be enhanced. Prosecutor’s leading role in
investigations still needs to be strengthened. Increased efforts are required
in the fight against money laundering and trafficking in human beings,
including to identify and reintegrate victims.

Preparations in this area are moderately
advanced.

Limited progress can be reported in the fight
against terrorism. Execution of the action plan for implementing the relevant
strategy has continued, including through specialised training for the judicial
and law enforcement authorities. The relevant report was adopted in July.
However, the capacity to detect and address in a coordinated way activities
possibly linked to terrorism remains limited. Efforts remain to be made to
fully align the national legislation with the acquis. Preparations in
this area are moderately advanced.

Progress can be reported on cooperation
in the field of drugs. The division for the fight against drugs within the
police directorate was reorganised, and the responsibilities for prosecuting
smuggling and trafficking have been centralised at the criminal police
department; its capacities have been strengthened through specialised training
and the purchase of equipment to be used in anti-drug operations. Montenegro
successfully conducted a number of police operations in this area, in close
cooperation with Interpol, Europol, EU Member States’ police forces, the US
Drug Enforcement Agency and the neighbouring countries, which resulted in the
arrest and prosecution of a number of members of criminal organisations.
Awareness-raising activities on drugs were conducted in schools and at local
level.

However, drug
trafficking is still a major concern, since Montenegro is in the transit area
on the smuggling route to and from the EU. The amount of seizures remains very
low. The legal framework and administrative capacities
have to be strengthened, and are still to be aligned with the acquis. A
focal point for cooperation with the European Monitoring Centre for Drugs and
Drug Addiction (EMCDDA) has been appointed but is not yet operational, due to
the limited financial and human resources. Further efforts are needed on drug
prevention and on the treatment and rehabilitation of drug users. Preparations
in this area are progressing.

Some progress can be reported on customs
cooperation. A division responsible for capacity building was established
within the customs administration.

Further efforts
are needed to align the legislative framework with the acquis in this
field: no progress can be reported in relation to accession to the Common
Transit Convention. The procedure for accession to the Convention on mutual
assistance and cooperation between the Member States (Naples II) has not yet
been initiated, and the Convention on the use of information technology for
customs purposes has not yet been ratified.

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

Conclusion

Overall, Montenegro has made some progress
in the area of justice, freedom and security. Alignment with the acquis
in the field of migration, asylum and visa has started. The construction of the
centre for foreigners and the one for asylum seekers is being finalised. Implementation
of the integrated border management strategy and action plan is on track. In
the area of police cooperation and the fight against organised crime, the
country has continued to extend its international and regional network and to
reinforce its legal framework and administrative capacities. Joint
investigative operations with other countries of the region, as well as with EU
Member States, Interpol and Europol, resulted in an increase in the number of
indictments, arrests and convictions in the field of organised crime. The
policy and legal frameworks in this area have improved. Further sustained
efforts will be needed to align with the acquis in this chapter,
especially in the fields of asylum, visa, external borders and Schengen, the
fight against organised crime, and to develop a solid track record of
investigations, convictions and drugs seizures. The capacity to implement the
legal framework in judicial cooperation in civil and criminal matters has to be
reinforced. Increased efforts are required in the fight against money
laundering and in addressing trafficking in human beings. The country is
moderately advanced in this area.

4.25.
Chapter 25: Science and research

Good progress has been made in the area of research
and innovation policy. The budget for funding research projects at national
level has been increased and several measures have been taken to strengthen
research and innovation capacity. Preparations in this area are on track.

Some progress has been made with regard to
research cooperation under the Seventh EU Research Framework Programme
(FP7). Montenegro has strengthened its administrative capacity by expanding the
network of national contact points and has organised Information Days and
training sessions on research cooperation with European and other international
partners (e.g. China). Successful participation has slightly increased, but
remains particularly weak in terms of participation of SMEs and Marie Curie
grants under the Specific Programme ‘People’. Further efforts are necessary
with a view to participating in the next EU Research and Innovation Programme ‘Horizon 2020’.
Preparations in this area are on track.

Some progress can be noted with regard to
Montenegro’s integration into the European Research Area (ERA). The
budget for the national funding programme has increased and has been allocated
in a transparent and competitive manner and in line with EU priorities in terms
of thematic areas. Funding has also been used to stimulate mobility of
researchers. Montenegro has become a full member of EUREKA and applied for
membership in COST. Collection of statistics on investment in research has
improved. The level of investment in research has increased from 0.13% to 0.45%
of GDP. However, the level of investment by the private sector remains very
low. Further steps have been taken to establish the first centre of excellence.
A business plan to establish a Science and Technology Park has also been
prepared aiming at improving the transfer of knowledge and cooperation between
academia and industry. Several measures have been taken to encourage SMEs to
innovate. Further efforts based on the Innovation Union flagship are, however,
necessary, in particular preparation for the self-assessment tool. Preparations
in this area are on track.

Conclusion

Good progress has been made in the area of
science and research. Further efforts are necessary to strengthen research and
innovation capacity at national level and facilitate integration into the
European Research Area. The level of investment in research needs to be further
increased in particular from the private sector and by stimulating public and
private investment in scientific research activities. Overall, preparations are
on track.

4.26.
Chapter 26: Education and culture

There has been some progress in the fields
of education, training and youth. Strategies and action plans have been
adopted in the areas of elementary education, lifelong learning and vocational
education. The number of children included in pre-school education has
continued to increase. More Roma, Ashkali and Egyptian (RAE) children are
attending school (1,582 children enrolled in 2012) due to the inclusive
education programme implemented by the Ministry of Education and Sports. They
are also provided with free textbooks and school supplies.

Montenegro has established the legal
framework for Bologna reforms and the process of implementation is underway.
The third cycle of studies requires attention and support in reinforcing the
research component and following international standards. The number of
students at the public University of Montenegro has increased from 2,931
in 2003 (the year when Montenegro adopted the Bologna process) to 18,464
(2011), putting a strain on the university’s limited resources and challenging
its capacity. Almost 75% of pupils from technical schools in secondary
education enrol in university courses instead of entering the labour market,
and employers report shortages of finding graduates with the right skills in
sectors such as tourism. A review of the enrolment policy for universities and
the objectives of the VET schools is therefore necessary to match skills to the
labour market needs. More emphasis should also be put on implementation of the
Law on National Qualifications Framework. The National Qualifications Council
has set up ten sectoral commissions made up of members of the private sector
and government officials to help establish a better connection between
education providers and employers, i.e. the labour market. Montenegro’s results
in PISA scores and the participation of Montenegrin students in competitive EU
scholarship programmes remain low. Preparations in this area are starting.

Some developments can be reported in the
area of culture. Montenegro was one of the countries selected for the
European Union Prize for Literature in 2011 as part of the activities financed
through the Programme. Information Days have been organised to promote the
Programme. An MoU has been prepared for participation in the Europe for
Citizens programme. Preparations in this area are on track.

Conclusion

Some progress has been made in the area of
education and culture. Higher education reform and modernisation of the
vocational education and training system need to be further addressed.
Implementation of educational reforms remains a challenge. Overall,
preparations are moderately advanced.

4.27.
Chapter 27: Environment and climate change

Little progress has been made in the area
of the environment. With regard to horizontal legislation, the
parliament amended the Law on Strategic Environmental Assessment (SEA) to
ensure full transposition of the SEA Directive. Further efforts are needed to
implement the Environment Impact Assessments (EIA) and SEA. No progress was
made with regard to access to environmental information, access to justice and
environmental liability. Public consultations with civil society and other
stakeholders need to improve. A second ‘Aarhus Centre’ was opened, covering the
northern part of the country.

Some progress was made in the area of air
quality. Part of the NEC Directive was transposed by the Decree on maximum
national emissions of certain pollutants. The rulebook on air quality
monitoring was adopted pursuant to the Law on Air Protection. The government
adopted a decree determining types of pollutants, threshold values and other
air quality standards. Air quality standards have been further harmonised, in
particular those related to suspended particulates. Two new automatic stations
for air quality monitoring have been placed in the municipalities of Pljevlja
and Podgorica. A regulation has been adopted transferring part of the
competences of the Environmental Protection Agency to the public institution ‘Centre
for eco-toxicological testing of Montenegro’. Pursuant to the Law on Air
Protection, the Ministry of Sustainable Development and Tourism adopted the new
Monitoring Programme of Fuel Quality of Petroleum Origin.

Some progress is noted in the area of waste
management with the adoption of the new Law on Waste Management.
Preparation and implementation of municipal waste management plans are at an
early stage. The development of an integrated waste management system is at an
early stage, with waste continuing to be disposed of in open sites or in
multiple unauthorised dumps. Limited progress has been made in relation to
waste infrastructure, in particular the construction of regional landfills.

With regard to water quality, no
progress can be reported. Efforts to develop and adopt water quality
legislation should be stepped up. Monitoring networks and water management
plans are at an early stage of development, as is the infrastructure for waste
water treatment.

In the field of nature protection,
little progress can be reported. A decree on the organisation and functioning
of the public administration was adopted by the government, providing for the
Nature Protection Institute to be placed under the authority of the Agency for
Environmental Protection. Implementation of the Habitats and Birds Directives
and the development of scientific data for the designation of protected areas
and future Natura 2000 sites remain at an early stage.

As regards industrial pollution control
and risk management, some progress was made with the adoption of the
programme for bringing certain industries in line with the Law on Integrated
Environmental Pollution Prevention and Control.

Some progress can be reported in the field
of chemicals, mainly due to the adoption of a new Law on Chemicals. The
new law designates the Ministry of Sustainable Development and Tourism and the Environmental
Protection Agency (EPA) as the competent authorities for chemicals, and lays
down rules on the classification, packaging and labelling of chemicals and the
transport, import and export of hazardous chemicals.

Some progress was made in the area of noise
through the adoption of a rulebook on limit values for noise in the
environment.

As regards civil protection, little
progress can be reported with regard to the preparation of strategies for
protection from and prevention of floods. The Ministry of Interior has
established a national Urban Search and Rescue team, and a national flood
rescue team. At the international level, Montenegro signed an agreement with
the Republic of Slovakia on cooperation and mutual assistance in case of
natural and other disasters. However, Montenegro is still at an early stage in
policy development for the civil protection sector. Significant efforts are
needed on the reinforcement of administrative capacities.

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

Montenegro regularly associated itself with
the EU positions in the international context. While having previously
associated itself also with the Copenhagen Accord, the country has not yet put
forward a mitigation commitment by 2020. Montenegro should consider taking
mitigation commitments consistent with those of the EU and its Member States
for the purpose of the post-2020 climate agreement to be reached by 2015.

As regards
alignment with the climate acquis, Montenegro is still at a very early
stage. Montenegro took initial steps to identify stationary installations for
the purpose of future implementation of an Emissions Trading System. Alignment
advanced only with F-gases and ODS Regulations, and with the Fuel Quality
Directive. Significant efforts are required to strengthen the country’s
monitoring, reporting, and verification capacities

Montenegro
participated regularly in climate work under the Regional Environmental Network
for Accession (RENA). A successful high level event was organised in June 2012
under RENA on EU-Montenegro Climate Cooperation. Efforts are needed to raise
awareness at all levels and to promote cooperation between all relevant
stakeholders

Some progress
was made regarding administrative capacity. The administrative capacity
of the EPA has improved. Under the recently adopted decree on the organisation
of the public administration, the Hydro Meteorological Office and the
Seismological Office were merged into a single institution called the Hydro
Meteorological and Seismological Office. The heavy reliance on temporary staff
and the high staff turnover remain issues of concern. The shortage of
administrative capacity to address climate change and the ad hoc
inter-institutional cooperation are delaying the preparation and implementation
of a climate policy in line with the acquis. The administrative
structure on climate change should be considerably strengthened, and capacity
building support is required in order to address the significant capacity,
cooperation and coordination needs in the area of climate change.

Conclusion

Montenegro has made little progress in the
area of environment and climate change. There are first signs of
improvement with the adoption of legislation on waste management, air quality
and chemicals and with regard to the administrative capacity and efforts
undertaken towards aligning with the climate acquis. Further attention
is needed in the areas of water quality and waste management. The effective
implementation of the EIA and SEA acquis needs to be ensured.
Considerable efforts are required to align with and implement the environment
and climate acquis, as well as to strengthen administrative capacity and
inter-institutional cooperation. Environment and climate change considerations
need to be more systemically taken into account in other policy fields and
planning documents. The lack of political priority and adequate financing, as
well as limited awareness of environmental and climate requirements are
hampering progress in this field. Preparations in this area are still at an
early stage.

4.28.
Chapter 28: Consumer and health protection

There has been some progress in the area of
consumer protection. A Decree on Organisation and Method of Operation of
Public Administration has been adopted by the Government, providing for
the establishment of an Administration for Inspectorial Affairs, which will
comprise almost all inspectorates dealing with supervision of market and
consumer protection. The Market Inspectorate launched its new site with a view
to improving consumer protection awareness. The Arbitration Board has improved
its track record from two cases in 2010 to six cases in 2011. The two
consumer protection NGOs still have limited outreach and weak capacity to
ensure effective public support for improving consumers’ rights. Montenegro has
started to address its priorities in this area.

There has been some progress on product
safety-related issues. Market surveillance activities have continued. The
2012 Annual Market Surveillance Plan covers six product categories and
envisages ten joint inspection activities in the different regions of
Montenegro. Since May 2011, when the National System for the rapid
exchange of information was established, until the end of 2011,
79 dangerous products were monitored by the Market Inspectorate, and one
dangerous product was found. Revision of the current general product safety law
is necessary to ensure alignment with the EU acquis. Montenegro has
started to address its priorities in this area.

No progress can be reported as regards non-safety-related
issues. The Law on Consumer Protection has yet to be adopted to align
national legislation with several EU Directives, including those dealing with unfair
commercial practices, unfair terms of contract and injunctions, distance
selling, certain aspects of timeshares and sales of consumer goods, and with
Commission recommendations on arbitration and mediation in disputes.
Preparations in this area have started.

There has been some progress in the area of
public health. The national strategy for improving the quality of health
protection and the safety of patients was adopted in February 2012.
Implementation of e-health is still slow.

Some progress can be reported as regards
tobacco control. A rulebook on pictorial health warnings on tobacco product
packaging entered into force in January 2012. Enforcement of the law limiting
the use of tobacco products, which extends the areas where smoking is
prohibited, poses challenges. Montenegro has started to address its priorities
in this area.

There has been good progress with regard to
communicable diseases. Amendments to the law on protecting the
population against communicable diseases were adopted in June 2012 aiming
at aligning with the acquis. They expand the list of communicable
diseases and recognise an obligation to define cases in which infectious
diseases that might constitute a threat to global public health need to be
reported, in line with International Health Regulations. An information system
for microbiological diagnostics has been set up in the Institute for Public
health. Montenegro has been downgraded to a high-risk country, mainly due to
challenges with regard to the quality of polio surveillance. Further efforts
are required with a view to developing capacities to prevent HIV transmission
in all health care settings through the provision of safe blood and blood
products. Continued efforts are needed to provide affordable and equitable
treatment, care and support services for all people infected and affected by
HIV. Monitoring and evaluation needs to be strengthened in the area of
communicable diseases, notably with regard to vulnerable communities.
Preparations in this area are on track.

Good progress has been made in the area of blood,
tissues, cells and organs. The Blood Transfusion Institute was registered
in December 2011. It consists of the reference institution in Podgorica
and eight regional units. The Ministry of Health has set up a Commission for
Blood Transfusion as an advisory, multi-disciplinary body. The Statute of the
Blood Transfusion Institute includes plans for putting in place internal and
external monitoring of the quality of work, in line with the acquis.
Training on quality assurance control has started. Several rulebooks have been
adopted in the area of tissues and cells. Preparations in these areas are on
track.

No progress can be reported in the area of patients’
rights in cross-border healthcare. Preparations in this area still need to
be launched.

Some progress can be noted in the field of mental
health. Activities have been initiated to assess the training needs of and
develop training plans and programmes for staff providing mental health
services. The first therapy guidelines for schizophrenia diagnostics have been
developed in cooperation with the WHO. Further efforts are needed to establish
community-based mental healthcare as an alternative to institutionalisation.
Montenegro has started to address its priorities in this area.

Some progress has been made in the field of
drug abuse prevention as regards substitution treatment for drug abusers
and the establishment of a substance abuse register that may help monitor needs
for treatment and care. National programmes for the early detection of cervical
and colorectal cancer were adopted in September 2011. Efforts have
been made to raise awareness of early detection of breast and cervical cancer.
A national strategy for preventing the harmful use of alcohol is under
preparation. Montenegro has started to address its priorities in these areas.

Conclusion

Some progress has been made in the fields
of consumer and health protection. Legal alignment needs to continue in the
area of consumer protection. Overall, preparations in these areas are
moderately on track.

4.29.
Chapter 29: Customs union

Some progress has been made in customs
legislation. Legislation was adopted to align the nomenclature of the
national customs tariff with the EU Combined Nomenclature for 2012. The decree
also contains customs tariffs set by the SAA and FTA agreements that Montenegro
has signed with other countries. The parliament enacted a new law on the
customs tariff with a view to further aligning it with the acquis on the
tariff and statistical nomenclature and the Common Customs Tariff. Preparations
in the area of customs legislation are moderately advanced.

Some progress can be reported in building
up Montenegro’s administrative and operational capacity. Under the
systems for the electronic exchange of pre-arrival data (SEED) project, new
protocols on automated data matching between the customs administrations of
Montenegro and Serbia and Bosnia and Herzegovina were signed in March and June
respectively. Other agreements have been concluded with national bodies and
neighbouring countries for operational cooperation, amongst others at the
border crossing points, for training, intelligence and veterinary and
phyto-veterinary checks. Further efforts are needed to enhance management
capacity, especially at strategic level and through greater involvement of the
business side of the customs administration in leading IT developments. There
is still a clear need for a comprehensive business and IT strategy.
Understaffing of the IT units remains an issue of concern. Further efforts are
still needed to strengthen internal control in order to effectively prevent and
detect corruption and other misconduct. Preparations for future membership of
the Common Transit Convention will need to be stepped up. Preparations are
moderately advanced.

Conclusion

Some progress has been achieved in customs
legislation. A new law on the customs tariff further aligns legislation with
the Common Customs Tariff. In the areas of administrative and operational
capacity, the implementation of existing procedures and working methods needs
to be stepped up. Preparations for possible accession to the Convention on a
Common Transit Procedure need to be enhanced. Overall, preparations in the
field of customs union are moderately advanced.

4.30.
Chapter 30: External relations

Some progress can be reported in the field
of the common commercial policy. Montenegro was formally accepted as a
member of the WTO in December, and officially joined on 29 April. A new law on
foreign trade in dual-use goods entered into force in July, aimed at aligning
with the dual use acquis. No further progress can be recorded regarding
administrative capacity. The department for multilateral trade cooperation and
international economic relations in the Ministry of Economic Affairs needs to
be strengthened. Preparations in the area of the common commercial policy are
moderately advanced.

As regards bilateral agreements with
third countries, Montenegro continued to negotiate bilateral free trade
agreements with Belarus and Kazakhstan in line with its obligations under the
FTA with Russia. A free trade agreement with EFTA countries was signed in
November and entered into force in July. In the context of its WTO accession
negotiations, Montenegro signed a free trade agreement with Ukraine. In
September 2011, a bilateral investment promotion agreement was concluded with
Azerbaijan and ratified by the Parliament in June, as well as the agreement on
economic cooperation with the United Arab Emirates. Montenegro continued to
play an active role within CEFTA.

There are no developments as regards development
policy and humanitarian aid. The required legal framework needs to be
established. Preparations in these areas still need to be launched.

Conclusion

Some progress has been made in the area of external
relations. Montenegro has become a member of the WTO. Overall, preparations in
the area of external relations are moderately advanced.

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 all relevant EU declarations and Council
decisions (100% alignment). (As regards the
International Criminal Court, see Political criteria 2.3 — Regional issues and
international obligations.)

Six more countries
recognised Montenegro as an independent State. There
are still 38 countries that have not yet recognised Montenegro since it gained
independence in 2006.

A Political Director and European
Correspondent were appointed in January. Amendments to the Law on Defence
entered into force in February.

Montenegro implemented all UN 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. In December, Montenegro ratified the amended Protocol II to the
Convention on certain types of conventional weapons (CCW), which entered into
force in June.

With regard to cooperation with
international organisations, in October 2011 Montenegro presented its
second Annual National Programme, launching the second cycle of the NATO
Membership Action Plan (MAP). The second cycle was completed in June 2012.
Since October 2011, Montenegro has been a member of UNESCO’s Executive Board. Montenegro continues to participate in the
international operations ISAF in Afghanistan and UNMIL in Liberia.

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. Preparations for introducing the
communication networks for associated countries (Associated Countries Network)
have advanced.

As regards the common
security and defence policy (CSDP), and in particular civil and military
crisis management, in December Montenegro ratified the agreement with the
EU, establishing a framework for Montenegro’s participation in the EU crisis
management operations. The agreement entered into force in April. Montenegro has been participating in the EU operation ATALANTA in Somalia.

Conclusion

Montenegro has
made some progress in the field of foreign, security and defence policy. Montenegro has aligned itself with all EU declarations and Council
Decisions and has continued to actively contribute to regional stability.
Overall, preparations are moderately advanced in this area.

4.32.
Chapter 32: Financial control

Some progress can be reported in the area
of public internal financial control (PIFC). After the completion of the
legislative framework in 2011, efforts continued to integrate managerial
accountability into the management systems of the Montenegrin public
administration. Financial management and control (FMC) in public bodies has
improved with the appointment of additional FMC managers at national level and
in municipalities, the pilot establishment of FMC systems in selected
ministries, and various training activities. A self-assessment exercise to support
the monitoring of FMC progress was completed. With regard to internal audit,
about half of the entities that are required to set up an internal audit unit
have done so, although not all units have yet appointed audit staff. Some
internal auditors were appointed, although none of them with an internationally
recognised certificate. The Central Harmonisation Unit (CHU) developed an
Internal Audit Manual and recruited auditors were trained on how to use it.
Some pilot audits were launched.

While the legal framework for PIFC is in
place, there is weak capacity to assume legal responsibilities. Montenegro
adopted a strategy for the further development of PIFC for the period
2012-2017, but without explicit plans on how managerial accountability
arrangements will be strengthened. Concerns remain with regard to
implementation capacity. Significant efforts are needed in order to introduce
international standards in internal audit and to address the existing critical
shortage of internal audit staff. A certification programme for auditors needs
to be adopted too. Preparations in the area of PIFC are at an early stage.

Some progress can be reported in the area
of external audit. The introduction of performance audit (PA) has
started with the establishment of a performance audit unit and the intensive
training of auditors. An annual report on activities of
the State Audit Institution (SAI) for the period October 2010-October 2011 was
published in November. The SAI performed 14 audits, thereby broadly fulfilling
its audit plan. The overall efficiency of the SAI continued to improve, and
there was better acceptance of audit recommendations by audited entities.
However, real separation between the SAI and the Audit Authority remains to be
achieved, despite the new Law on the Audit Authority for EU funds, which was
adopted in March. An SAI Strategic Development Plan and improved audit
methodology are in the preparation stage. Amendments to the current legislation
on the SAI need to be adopted to guarantee the SAI’s financial independence.
Preparations in this area are at an early stage.

No progress can be reported in the areas of
protection of the EU’s financial interests and protection of the euro
against counterfeiting. Preparations in these areas are at an early
stage.

Conclusion

There has been uneven progress in the field
of financial control. While the legal framework for PIFC is in place, practical
implementation is lagging behind, particularly at local level. Montenegro needs
to strengthen managerial accountability arrangements in the context of the
public administration reform. Financial independence of the SAI should be
guaranteed in practice. Overall, preparations are at an early stage.

4.33.
Chapter 33: Financial and budgetary provisions

No progress can
be reported as regards traditional own resources, VAT resources
and GNI resources. Montenegro is not yet aligned with the acquis
in these areas. However, differences between the systems in Montenegro and the
EU continue to be limited in terms of basic principles and institutions for the
underlying policy areas affecting correct application of the rules on own
resources. For progress in the underlying policy areas, see Chapters
16 — Taxation, 18 — Statistics, 29 — Customs union and 32 — Financial control.

There has been
little progress in the area of administrative infrastructure. Administrative
capacity of the institutions in the underlying policy areas affecting
indirectly the own resources system (customs, taxation, statistics, financial
control) needs to be further strengthened. In addition, a fully operational
coordination structure will be required in order to ensure the correct
calculation, accounting, forecasting, collection, payment and control of own
resources and reporting to the EU for implementation of the own resources
rules. Preparations in this area are at an early stage. Effective tools to
fight against tax evasion and fraud and to decrease the informal economy need
to be developed.

Conclusion

Limited
progress has been made as regards financial and budgetary provisions. In due
course, a coordinating body needs be set up to steer pre-accession preparations
in the own resources field. The administrative framework for the application of
the own resources rules needs to be established. Overall, preparations are at an
early stage.

Statistical Annex

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

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

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

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

Population (thousand) || 1) || 615 || 625 || 628 || 630 || 616b || 618

Total area of the country (km²) || 2) || 13 812 || 13 812 || 13 812 || 13 812 || 13 812 || 13 812

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

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

GDP (million euro) || 3) || 1 295 || 2 681 || 3 086 || 2 981 || 3 104 || 3 290f

GDP (euro per capita) || || 2 106 || 4 290 || 4 917 || 4 731 || 5 035b || 5 323f

GDP (in Purchasing Power Standards (PPS) per capita) || || : || 9 990 || 10 700 || 9 685 || 10 143b || 10 546f

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

Real GDP growth rate (growth rate of GDP volume, national currency, % change on previous year) || || 1.1 || 10.7 || 6.9 || -5.7 || 2.5 || 2.8f

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 || 4) || 11.9 || 9.1 || 9.3 || 10.0 || 9.2 || :

Industry || 4) || 20.8 || 13.6 || 13.5 || 13.6 || 13.5 || :

Construction || 4) || 3.9 || 7.3 || 7.7 || 6.5 || 6.1 || :

Services || 4) || 63.4 || 70.0 || 69.5 || 69.9 || 71.2 || :

Final consumption expenditure, as a share of GDP (%) || || 100.2 || 108.5 || 113.8 || 106.2 || 105.6 || 105.7f

Gross fixed capital formation, as a share of GDP (%) || || 17.5 || 32.3 || 38.3 || 26.7 || 21.1 || 19.2f

Changes in inventories, as a share of GDP (%) || || 5.9 || 1.5 || 2.3 || 0.4 || 1.7 || :

Exports of goods and services, relative to GDP (%) || || 38.4 || 44.4 || 39.6 || 32.1 || 34.7 || 39.4f

Imports of goods and services, relative to GDP (%) || || 62.0 || 86.7 || 94.0 || 65.4 || 63.1 || 66.3f

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

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

Industrial production volume index (2005=100) || || 86.8 || 100.9 || 99.1 || 67.5 || 79.4 || 71.2

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

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

Annual average inflation rate (CPI, % change on previous year) || || 23.0 || 4.2 || 9.2 || 3.4 || 0.5 || 3.1

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

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

Balance of payments: current account total (million euro) || || : || -1 059 || -1 561 || -881 || -764 || -634

Balance of payments current account: trade balance (million euro) || || : || -1 544 || -2 025 || -1 322 || -1 267 || -1 306

Balance of payments current account: net services (million euro) || || : || 395 || 346 || 350 || 410 || 528

Balance of payments current account: net income (million euro) || || : || 31 || 46 || 5 || -22 || 26

Balance of payments current account: net current transfers (million euro) || || : || 59 || 73 || 85 || 114 || 117

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

Net foreign direct investment (FDI) (million euro) || || : || 568 || 582 || 1 066 || 552 || 389

Foreign direct investment (FDI) abroad (million euro) || || : || 115 || 74 || 33 || 22 || 12

of which FDI of the reporting economy in EU-27 countries (million euro) || || : || 7 || 6 || 2 || 19 || -9

Foreign direct investment (FDI) in the reporting economy (million euro) || || : || 683 || 656 || 1 099 || 574 || 401

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || 461 || 378 || 782 || 287 || 205

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

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

General government deficit/surplus, relative to GDP (%) || || : || 6.6 || -0.4 || -3.6 || -4.9 || -5.4f

General government debt relative to GDP (%) || || : || 27.5 || 29.0 || 38.2 || 40.9 || 45.2f

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

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

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) || 5) || : || 592 || 512 || : || : || :

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || 6) || : || 1 557 || 1 209 || : || : || :

Money supply: M3 (M2 plus marketable instruments, million euro) || 7) || : || 2 728 || 2 339 || : || : || :

Total credit by monetary financial institutions to residents (consolidated) (million euro) || || : || 2 213 || 2 754 || 2 358 || 2 152 || 1 911

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

Lending interest rate (one year), per annum (%) || || : || 9.3 || 9.4 || 9.4 || 9.6 || 9.7

Deposit interest rate (one year), per annum (%) || || : || 3.4 || 4.1 || 3.9 || 3.3 || 3.0

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

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

Value of reserve assets (including gold) (million euro) || || : || 490 || 337 || 397 || 416 || 303

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

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

Value of imports: all goods, all partners (million euro) || || : || 2 073.0 || 2 530.0 || 1 654.0 || 1 657.0 || 1 823.0

Value of exports: all goods, all partners (million euro) || || : || 455.0 || 416.0 || 277.0 || 330.0 || 454.0

Trade balance: all goods, all partners (million euro) || || : || -1 618.0 || -2 114.0 || -1 377.0 || -1 327.0 || -1 369.0

Terms of trade (export price index / import price index) || || : || : || : || : || 106.0 || 100.9

Share of exports to EU-27 countries in value of total exports (%) || || : || 69.2 || 62.3 || 48.4 || 56.1 || 50.0

Share of imports from EU-27 countries in value of total imports (%) || || : || 45.4 || 42.7 || 37.5 || 37.7 || 35.7

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

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

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || 5.5 || 3.0 || 4.1 || 4.4 || 2.9b || 2.2

Infant mortality rate: deaths of children under one year of age per 1000 live births || || 14.6 || 7.4 || 7.5 || 5.7 || 6.7b || 4.4

Life expectancy at birth: male (years) || || : || 72.1 || 72.8 || 72.9 || 73.5 || :

Life expectancy at birth: female (years) || || : || 77.2 || 78.1 || 77.6 || 78.4 || :

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

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

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

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

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

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

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

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

Agriculture || || 3.1e || 8.1e || 7.6e || 6.5e || 6.2 || 5.6

Industry || || 25.8e || 13.8e || 15.3e || 14.0e || 13.9 || 13.0

Construction || || 2.1e || 3.8e || 6.1e || 6.7e || 6.1 || 6.0

Services || || 69.1e || 74.3e || 71.0e || 72.8e || 73.9 || 75.5

Unemployment rate: share of labour force that is unemployed (%) || || 21.2 || 19.3 || 16.8 || 19.1 || 19.7 || 19.7

Share of male labour force that is unemployed (%) || || : || 18.1 || 15.9 || 18.0 || 18.9 || 19.5

Share of female labour force that is unemployed (%) || || : || 20.9 || 17.9 || 20.4 || 20.7 || 20.0

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 (%) || || : || 14.2 || 13.4 || 15.6 || 15.5 || 15.7

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

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

Average nominal monthly wages and salaries (national currency) || || 211.0 || 338.0 || 416.0 || 463.0 || 479.0 || 484.0

Index of real wages and salaries (index of nominal wages and salaries divided by the CPI/HICP) (2000=100) || || 91.6 || 179.9 || 195.2 || 255.0 || 262.1 || 256.6

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

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

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

Number of passenger cars per 1000 population || || 161.0 || 285.6 || 298.5 || 283.9 || 267.1b || 278.2

Number of subscriptions to cellular mobile telephone services per 1000 population || || 639.6 || 1 097.9 || 1 611.5 || 2 496.5 || 2 201.4b || 1 875.0

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

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

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

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

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

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

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 (%) || || : || : || : || : || : || 51.4

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

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

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

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

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

Road share of inland freight transport (% of tonne-km) || || 60.3 || 33.2 || 43.0 || 64.1 || 52.5 || 43.1

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

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

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

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

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

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

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

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

Electricity generation (thousand GWh) || || 2.5 || 2.1 || 2.8 || 2.8 || 4.0 || :

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

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

Agricultural production volume index of goods and services (producer prices, previous year=100) || || 107.0 || 89.0 || : || : || : || :

Total utilised agricultural area (thousand hectare) || 9) || 518p || 516 || 516 || 516 || 516 || 783

Livestock: cattle (thousand heads, end of period) || 10) || 178e || 109 || 106 || 101 || 96 || 87

Livestock: pigs (thousand heads, end of period) || 10) || 21e || 10 || 10 || 12 || 11 || 21

Livestock: sheep and goats (thousand heads, end of period) || 10) || 244e || 222 || 209 || 200 || 198 || 232

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || 11) || 194e || 173 || 160 || 152 || 143 || 202

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 12) || 4p || 2 || 3 || 3 || 17b || 18

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

Crop production: vegetables (thousand tonnes, harvested production) || 13) || : || : || : || : || 151 || 150

: =
not available

- =
not applicable

p =
provisional

f =
forecast

e =
estimated value

b =
break in series

\* =
Europe 2020 indicator

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

Footnotes:

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

2)            For
private agricultural holdings, data on areas are estimates based on data
Overall Cadastre. The data on area are obtained by estimates. Total land
includes: agricultural area, forests and non-agricultural land.

3)            Montenegro
unilaterally uses the euro as the sole legal tender.

4)            Data
according to NACE Rev. 1.1.

5)            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 EUR and
other currencies, excluding deposits by the Central Government. Monetary
aggregate M11 comprises M1 increased by the Central Government’s demand
deposits in EUR and other currencies. Monetary aggregate M2 includes M1 and the
non-banking sector’s time deposits with banks, in EUR and other currencies,
excluding deposits by the Central Government. Monetary aggregate M21 comprises
M2 increased by the Central Government’s time deposits in EUR and other
currencies.

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

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

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

9)            2011,
for private agricultural holdings, data on areas are estimates based on data
Overall Cadastre. The data on area are obtained by estimates.

10)          2001
- 2009 - Number of livestock in 1000, including enterprises and cooperatives and
households.

11)          2001
- 2009, calculated net quantity in 1000 tonnes, including enterprises and
cooperatives, and households.

12)          Includes
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.

13)          2011,
includes households, enterprises and cooperatives.

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

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

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

[3]               For additional details on the track record of cases
of organised crime over the reporting period, see also the report on Montenegro’s
progress in the implementation of reforms of May 2012.

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