Source: EURLEX
Language: en
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# 52013SC0411

**COMMISSION STAFF WORKING DOCUMENT MONTENEGRO 2013 PROGRESS REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2013-2014 /\* SWD/2013/0411 final \*/**

  

TABLE OF CONTENTS

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

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

1.2........ Context 3

1.3........ Relations between the EU
and Montenegro. 3

2........... Political criteria. 4

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

2.2........ Human rights and
the protection of minorities. 9

2.3........ Regional issues and
international obligations. 10

3........... Economic criteria. 12

3.1........ The existence of a
functioning market economy. 12

3.2........ The capacity to cope with
competitive pressure and market forces within the Union. 16

4........... Ability to take on the
obligations of membership. 18

4.1........ Chapter 1: Free movement
of goods. 18

4.2........ Chapter 2: Freedom of
movement for workers. 20

4.3........ Chapter 3: Right of
establishment and freedom to provide services. 20

4.4........ Chapter 4: Free movement
of capital 21

4.5........ Chapter 5: Public
procurement 21

4.6........ Chapter 6: Company law.. 22

4.7........ Chapter 7: Intellectual
property law.. 23

4.8........ Chapter 8: Competition
policy. 23

4.9........ Chapter 9: Financial
services. 24

4.10...... Chapter 10: Information
society and media. 25

4.11...... Chapter 11: Agriculture and
rural development 26

4.12...... Chapter 12: Food safety,
veterinary and phytosanitary policy. 26

4.13...... Chapter 13: Fisheries. 27

4.14...... Chapter 14: Transport
policy. 27

4.15...... Chapter 15: Energy. 28

4.16...... Chapter 16: Taxation. 30

4.17...... Chapter 17: Economic and
monetary policy. 30

4.18...... Chapter 18: Statistics. 31

4.19...... Chapter 19: Social policy
and employment 31

4.20...... Chapter 20: Enterprise and
industrial policy. 33

4.21...... Chapter 21: Trans-European
networks. 34

4.22...... Chapter 22: Regional policy
and coordination of structural instruments. 34

4.23...... Chapter 23: Judiciary and
fundamental rights. 35

4.24...... Chapter 24: Justice,
freedom and security. 44

4.25...... Chapter 25: Science and
research. 48

4.26...... Chapter 26: Education and
culture. 49

4.27...... Chapter 27: Environment and
climate change. 49

4.28...... Chapter 28: Consumer and
health protection. 51

4.29...... Chapter 29: Customs union. 52

4.30...... Chapter 30: External
relations. 53

4.31...... Chapter 31: Foreign,
security and defence policy. 53

4.32...... Chapter 32: Financial
control 54

4.33...... Chapter 33: Financial and
budgetary provisions. 55

1.
Introduction
1.1.
Preface

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

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

–   briefly describes the relations between Montenegro
and the European 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 Montenegro’s capacity to take on the
obligations of membership, i.e. the acquis expressed in the Treaties,
the secondary legislation, and the policies of the Union.

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

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

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

1.2.
Context

The European Council of December 2010
granted the status of candidate country to Montenegro. Accession negotiations
with Montenegro were opened in June 2012. The Stabilisation and Association
Agreement between Montenegro and the EU entered into force in May 2010.

1.3.
Relations between the EU and Montenegro

After the
opening of accession negotiations, the screening process was conducted.
In line with the new approach for the chapters on judiciary and fundamental
rights, and justice, freedom and security, the screening meetings for these
chapters took place in spring 2012. By July 2013, all screening meetings had
been completed. Two negotiation chapters were opened and provisionally closed,
namely: science and research, and education and culture. In June 2013 the government
adopted the action plans for chapters 23 and 24, which, together, sketch out a
comprehensive reform agenda in the area of the rule of law, including the
judiciary and fundamental rights.

Montenegro is participating in the Stabilisation
and Association Process.

Overall, Montenegro continued to broadly
implement its obligations under the Stabilisation and Association Agreement
(SAA). A Protocol to the SAA to take account of Croatia’s accession to the EU
has been agreed between the EU and Montenegro. The Protocol is currently under
ratification and is being applied on a provisional basis from 1 July 2013. Regular
political and economic dialogue between the EU and Montenegro has continued
through the SAA structures. The Stabilisation and Association Council met in
December 2012 and in June 2013 and various sub-committee meetings have been
held since October 2012. The April stabilisation and association meeting
between representatives of the European Parliament and of the Montenegrin
Parliament was not attended by the opposition Democratic Front, in protest over
alleged irregularities during the presidential elections. Montenegro
participates in the multilateral economic dialogue with the Commission and the
EU Member States to prepare the country for participation in multilateral
surveillance and economic policy coordination under the EU’s Economic and
Monetary Union.

Visa liberalisation for citizens of Montenegro travelling to the Schengen area has been
in force since December 2009. In the framework of the
post-visa liberalisation monitoring mechanism, the Commission regularly
assesses progress made by the country in the implementation of reforms
introduced under the visa roadmap. This also includes an alert mechanism to
prevent abuses, coordinated by Frontex. Within this framework, the European
Commission has regularly submitted its monitoring reports to the European
Parliament and Council. The next report will be presented by the end of 2013. 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 allocation to Montenegro totals €235.7 million. The IPA
National Programme 2012-2013 amounts to €21.3 million and was adopted by the
Commission in December 2012. This programme addresses the priority sectors
identified in the Multi-Annual Indicative Planning Document, in particular the
rule of law, public administration reform, the environment and climate change,
as well as agriculture and rural development. The programme also supports the
alignment of national legislation to the EU acquis in areas such as free
movement of services, competition, food safety, veterinary and phytosanitary
standards. EU financial support has also been provided for the development of
civil society under the Civil Society Facility as well as for regional and
horizontal IPA programmes. Montenegro benefits from support under the IPA
multi-beneficiary and regional programmes. Moreover, it is participating in
five cross-border cooperation programmes with neighbouring Western Balkan
countries, as well as in transnational cooperation programmes with Member
States under the European Regional Development Fund and the IPA Adriatic
cross-border programme. The implementation of IPA programmes is currently
managed by the EU Delegation in Podgorica. Montenegro’s preparations for the
decentralised implementation of IPA programmes by the national authorities have
further advanced, Montenegro having submitted application packages for the
conferral of management for IPA Components I-IV. Montenegro and the Commission
are preparing a comprehensive Country Strategy Paper for the period 2014-2020,
which will provide the strategic framework for the support to Montenegro under
the new Instrument for Pre-Accession Assistance (IPA II).

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; Life Long Learning
(centralised actions); 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 EU
Member States and compliance with international obligations, such as
cooperation with the International Criminal Tribunal for the former Yugoslavia.

2.1.
Democracy and the rule of law

Constitution

In July 2013, parliament
adopted amendments to the Constitution, in the section on the judiciary, which
are broadly in line with the Venice Commission recommendations. The amendments
strengthen the independence of the judiciary by reducing political influence on
the appointment of prosecutors and high-level judicial officials through more
transparent and merit-based procedures, and qualified majority thresholds where
parliament is involved. (For more detailed information, see Chapter 23 —
Judiciary and fundamental rights.)

Elections

Early parliamentary elections took place in
October 2012. The Democratic Party of Socialists — Social Democratic Party —
Liberal Party (DPS-SDP-LP) coalition won 39 seats out of 81, the Democratic
Front 20, SNP 9, Positive Montenegro 7, the Bosniak Party 3, Forca 1, Croatian
Civic Initiative 1, and the Albanian Coalition 1. The formal requirement of 30%
of female candidates in the electoral lists was met. However, only 15% of
elected MPs were women.

Presidential elections were held in April
2013 and resulted in the re-election of Filip Vujanovic. Mr Vujanovic’s
eligibility as a candidate had been unsuccessfully challenged in the
Constitutional Court by the junior partner in the governing coalition, the SDP.
A legal complaint by the other presidential candidate, Miodrag Lekic, filed
after the election in relation to alleged irregularities, resulted in
re-elections in a number of polling stations, without changing the overall result.
After the completion of the appeal procedures, including a ruling by the
Constitutional Court, the State Election Commission announced the final
official results on 22 April. The presidential
elections were ‘professionally and efficiently administered’, according to the
final report of the OSCE/ODIHR, the international observation mission, and
were held in a peaceful and pluralistic environment.

The OSCE/ODIHR report also stated that
electoral legislation needed to be amended in line with a number of previous
OSCE/ODIHR and Venice Commission recommendations. These include issues such as
the right to stand as an independent candidate, the establishment of clearer
procedures for the allocation of seats to minority lists, and the extension of
the Central Election Commission’s mandate for municipal elections.

In its final report, the OSCE/ODIHR raised
issues such as the constitutional two-year residency requirement before
citizens can obtain the right to vote, which it deemed excessive. It
recommended an audit of voter lists, demanded better investigations into alleged misuse of state resources and suggested facilitating requests
for election observation. The OSCE/ODIHR also drew attention to the
recommendations by the Council of Europe’s Group of States against Corruption
(GRECO), which had also stated that rules prohibiting elected officials from
using the administrative resources of their public office in election campaigns
lack enforcement.

Parliament

In protest against
the alleged irregularities in the presidential elections, the largest
opposition parliamentary group, the Democratic Front, suspended its
participation in parliamentary work. Following parliament´s passing, on 31 May,
of two resolutions, one aiming at strengthening trust in the electoral process
and the other enabling an inquiry committee into the issue of the alleged use
of public funds for party political purposes (see below), the Democratic
Front resumed its parliamentary activity.

In March, parliament adopted an action plan
for strengthening the body’s legislative and oversight role, also in response
to the recommendations of the 2012 European Commission’s Progress Report on
Montenegro.

In November, parliament set up a working
group in charge of drafting a resolution on European integration. The adoption of this resolution is expected to define more closely
the role of the parliament and the committee on European integration in the
accession process, as well as the relationship between the committee and other
stakeholders, including the government.

Regarding the
transparency of parliament’s work, additional measures
have been taken to improve interaction with civil society and the public. Parliament replied to all access to information requests received
over the reporting period. The sittings of the parliamentary committees are
open to the public, subject to the approval of each committee’s chair. The
establishment of procedures for acting upon civil initiatives is still in the
preparatory stage.

Parliament’s
oversight role has been enhanced. In March, it adopted
amendments to the law on data secrecy to give members of the Committee on
Anti-Corruption access to confidential data without prior permission. Five
control hearings were held: on the case of alleged
corruption in the privatisation of the company ‘Telekom Crne Gore’, on the Prevlaka border issue with Croatia, on the 2004 murder of a
journalist, on the alleged illegal activities and violation of state interests
regarding the issue of electricity supply to KAP, and on the fulfilment of the
obligations stated in the report of the Council of Europe’s Commission against
racism and intolerance of February 2012. Seven consultative hearings were held
by the Committee on European Integration on issues relating to the work of the
Ministry of Foreign Affairs and European Integration and current developments
in the negotiation process. Consultative hearings were also held by the
Committee on Education, Science, Culture and Sports, and the Administrative
Committee. A committee of inquiry looked into the ‘Telekom Crne Gore’ case.
Since there was no committee majority in favour of concrete conclusions, a technical report was submitted to the plenary.

On 31 May, parliament
formed a committee of inquiry into alleged misuse of public funds for party political
purposes. The committee completed its work at the end of July. Parliament
limited itself to a technical report, which failed to draw political
conclusions. Judicial follow-up remains to be completed. On 31 May, parliament
also set up a working group on building trust in the electoral process. It was
asked to submit to parliament proposals for amendments to relevant legal
framework. The working group already adopted a draft law on a single voters’
list, to replace the law on voters’ register, as well as draft amendments to
the law on personal identity cards. An ad hoc committee was set up to
monitor media reporting during the elections. The
number of parliamentary questions, scrutiny and consultative hearings with
high-level state officials and discussions of reports submitted by various
institutions has increased. Follow-up to the conclusions adopted by
parliamentary committees in oversight hearings remains limited and needs to be
reinforced.

Parliament’s
administrative capacity has been further strengthened, notably by increasing
the number of staff by more than a fifth. Available office space has increased.
Training courses were conducted. Continued efforts are
needed to further enhance parliament’s administrative and expert capacity, in
general and for all parliamentary committees.

Overall, with regard to parliament’s functioning and its legislative and
oversight role, its administrative and expert capacity has been reinforced.
Transparency has further improved. Efforts to enhance parliament’s legislative
and oversight capacity need to continue.

Government

Following the October parliamentary
elections, the new government — headed by Prime Minister Milo Djukanovic — took
office on 4 December.

It kept the same number of ministries (16,
plus 1 minister without portfolio). Minor changes have been made to the
portfolios of three ministries. The number of deputy prime ministers doubled to
four. Thirteen out of 19 members of the previous government participate in the
new cabinet. There are only three female members of cabinet.

The four-year programme of the new
government puts a strong emphasis on EU integration, socio-economic development
and the rule of law.

The government completed the establishment
of the negotiating structure, which comprises 33 working groups for the
chapters under negotiation. Civil society representatives have continued to be
selected for membership of the working groups through calls for expression of
interest.

The administrative capacity and financial
resources of the Ministry of Foreign Affairs and European Integration to
coordinate the EU accession process has been strengthened. As regards
transparency, the government started publishing translations of the screening
reports endorsed by the Council on the Ministry´s website. Also, with a view to
facilitating direct communication with the citizens, in October 2012 the
government launched an internet platform for e-petitions, open to Montenegrin
citizens and foreigners with permanent residence.

Two (not
legally binding) parliamentary resolutions called on the government to
re-nationalise the privately held shares in the highly-indebted aluminium
producer KAP and to commission a long-term sustainability study of the
industry. Parliament also demanded that the state audit institution assess the
company´s debt. The government took no action on this. In July, the acting public prosecutor told the parliamentary
Committee for economy and budget that his office had started collecting
evidence regarding the unlawful supply of electricity to KAP.

With regard to local self-government,
elections were held in four municipalities. There were no developments in the
rationalisation and efficiency of local administration. Implementing legislation for the new law on civil servants and state
employees at local level has not been adopted yet.

Overall, the structures for the accession negotiations have been set up and
include representatives of civil society. The administrative and financial
capacity of the Ministry of Foreign Affairs and European Integration to
coordinate the EU accession process has been strengthened. Additional efforts
have been made to increase transparency and citizen’s participation in the
policy-making process. The overall capacity of ministries to prepare
high-quality legislation and impact assessments needs to be enhanced. As
regards local government, further efforts are needed to establish a
transparent, efficient and accountable administration.

Public
administration

The plan for the reorganisation of the
public sector, which had been endorsed by the government in April 2012, was
finalised and adopted in July 2013. This version provides a sector analysis
with a view to identifying adequate staffing levels and increasing efficiency.
Reorganisation measures continued to be taken and fourteen administrative
bodies were formally incorporated into their parent ministries.

As regards the overall public
administration strategy, the coordination and monitoring mechanism for its
implementation needs to be strengthened. Responsibility for the coordination of
public administration reform is spread among three structures. A consistent
legislative framework for public administration bodies and agencies needs to be
developed.

The adoption of implementing regulations
for the law on inspection control, designed to bring inspections within a
single authority and improve the business climate, is well on track.

The 2011 law on civil servants and state
employees entered into force in January 2013. It lays the foundations for
developing a professional and impartial public administration. Subsequently,
amendments to the law entered into force to restrict the re-employment of
employees who had left the service and had received severance payments. The
majority of necessary implementing legislation has been adopted, including on
the recruitment process and the internal organisation of administrative bodies.
Some ministries have updated their rulebooks on internal organisation. The
process has yet to be completed by all ministries. The law on general
administrative procedures has yet to be revised in line with European standards
and best practice.

The Human Resources Management Authority
has organised a number of training courses and seminars in the fields pertinent
to the work of the public administration. The Authority has been tasked with
monitoring the implementation of the new law on civil servants and informing
the competent inspection authority of potential irregularities. The Authority´s
administrative capacity has been strengthened, notably by increasing the number
of staff from 24 in 2011 to 29 at the end of 2012. Further efforts are needed
with regard to maintaining and updating the central human resources register.

Amendments to the law on the state audit
institution, aimed at strengthening the institution´s financial independence,
remain to be adopted. (See also Chapter 32 — Financial Control).

At the end of 2012, 112 senior officials
and 36 heads of administrative bodies delivered, at the request of the
government, undated resignation letters. Subsequently, a small number of these
resignations were accepted. Even if motivated by the desire to enhance
performance, this practice breaches employment rights and undermines public
officials’ professional independence of undue political influence.

Overall, in the area of public administration reform, the adoption of the
plan for the reorganisation of the public sector and the entry into force of
the new law on civil servants and state employees are positive steps forward.
Proper implementation needs to be ensured. More efforts are needed to implement
the public administration reform strategy. Significant further efforts are
needed to improve and to implement the legislative framework. The undated
resignations are an issue of concern and should be returned to the staff who
signed them.

Ombudsman

The capacity of the Ombudsman’s office
remains limited, despite the additional staff recruited. A number of
awareness-raising activities and seminars have been held; reports on abuse of
children via internet, on prison conditions and on protection from
discrimination have been completed. Monitoring capacity in the area of torture
and ill treatment, and the office’s involvement in bringing cases of
discrimination to court, need to be substantially enhanced. The law on the
ombudsman still presents shortcomings with regard to the office’s independence.

Civil
society

Representatives
of civil society organisations continue to be involved, to some extent, in the
activities of the state and local administration, including working groups on
the EU accession negotiation chapters. However, the transparency of the
government’s procedures for cooperation, consultation and funding of NGOs
should be further enhanced.

Judicial
system

Transparency of the work of the courts has
improved and the backlog of court cases has decreased. Further steps have been
taken to rationalise the court network. Constitutional amendments strengthening
the independence of the judiciary have been adopted. A single countrywide
recruitment system of judges and prosecutors and an objective and merit-based
promotion system have yet to be introduced. Measures need to be taken to
reinforce accountability and integrity safeguards in the judicial system. The
enforcement of civil and administrative decisions remains weak. As regards
domestic handling of war crimes, Montenegro needs to tackle impunity and ensure
that decisions by the Montenegrin judiciary on war crimes cases are in line
with international humanitarian law, reflect the jurisprudence of the
International Criminal Tribunal for the former Yugoslavia and fully apply
domestic criminal law.

For a detailed
analysis of developments in the judicial system, see Chapter 23 — Judiciary
and fundamental rights.

Fight
against corruption

Corruption
remains prevalent in many areas and continues to be a serious problem. The
implementation of the relevant legislative framework has shown a number of
shortcomings, which require further legislative action. The capacity of
supervisory institutions in charge of checking political financing and conflict
of interest still needs to be enhanced. Increased efforts are needed to
establish a credible track record of investigation, prosecution and conviction
in corruption cases, including high-level cases.

For a detailed analysis of developments in
the area of anti-corruption policy, see Chapter 23 — Judiciary and
fundamental rights.

Fight
against organised crime

Additional
efforts are needed in the fight against organised crime. Montenegro is actively
involved in regional and international police and judicial cooperation. Some
progress was made in the fight against drugs trafficking; however, more efforts
are needed in terms of drug seizure. A track record of proactive investigations
and final convictions in other organised crime areas has yet to be established,
including confiscation of criminal assets. Additional efforts are needed to
improve coordination between law enforcement agencies and the judiciary, and to
increase capacity to carry out financial investigations in connection with
complex criminal investigations. The annulment of first-instance verdicts in
cases of organised crime gives rise to serious concern.

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

2.2.
Human rights and the protection of
minorities

Montenegro has further aligned with norms and best practice
stemming from international conventions in this area during the negotiation
process. The law prohibiting discrimination remains to be amended in order to
be aligned with the acquis. Shortcomings persist in the enforcement of
rights, especially in the area of discrimination against vulnerable groups,
notably by judicial authorities. Administrative capacity and financial means to
implement the relevant policies in this area remain limited.

The fight
against ill-treatment requires increased attention from the authorities; prison
conditions need to be brought into line with international standards in this
area. Despite recent convictions and investigations into cases of violence
against the media, a number of old and recent cases of threats and violence
against journalists, including attacks against media property, need to be
solved by stepping up investigations and prosecutions. The recent rise in cases
is a cause for concern. Efforts to privatise state-owned print media have been
unsuccessful. Some progress has been achieved in introducing a media
self-regulation funding model. Promotion of professional and ethical standard
should continue.

Consolidation
of the legal and policy framework in the field of economic and social rights
continued. They need to be brought closer in line with international and EU
standards in this area, and the capacity of the state authorities strengthened,
especially in the field of justice.

Montenegro’s
2013-2014 presidency of the Roma Decade is an important opportunity to enhance
its commitment to improving the situation of the Roma, Ashkali and Egyptian
(RAE) population not just in Montenegro, but at regional level. These groups
face discrimination in everyday life, especially in terms of economic and
social rights. Violence against women, in particular Roma women, and domestic
violence persist. The adoption of a strategy on lesbian, gay, bisexual,
transgender and intersex (LGBTI) rights and convictions in cases of attacks on
LGBTI individuals are positive examples of the authorities’ commitment in this
area. Still, violence and hate speech against LGBTI individuals continue, and
have increased since the July 2013 Pride parade in Budva, which showed a high
level of homophobia in the country to be addressed by the authorities. Attacks
are rarely reported; criminal offences need to be properly prosecuted and
penalties reinforced. Activists are still exposed to discrimination.

For a detailed
analysis of developments in the area of human rights and the protection of
minorities, see Chapter 23 — Judiciary and fundamental rights. For
developments in the areas of trade union rights, anti-discrimination and equal
opportunities, see also Chapter 19 — Social policy and employment.

2.3.
Regional issues and international obligations

With
regard to cooperation with the International Criminal Tribunal for the
former Yugoslavia (ICTY), Montenegro neither received any requests for
assistance nor had cases referred back to its national authorities by the Court
for possible further investigation. (For domestic handling of war crimes see
2.1 — Judicial system.)

Montenegro
still maintains a 2007 bilateral immunity agreement with the United States,
granting exemptions from the jurisdiction of the International Criminal
Court. This does not comply with the EU Common 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 in the
framework of accession negotiations.

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 and displaced persons as a
result of the armed conflicts in ex-Yugoslavia during the 1990s. The
implementation of the Regional Housing Programme, which aims at providing
housing solutions for the most vulnerable refugees and displaced persons in the
four countries and is extensively supported with EU financial assistance, has
started with the approval of the first round projects by the international
donors in April. Joint regional information campaigns on the programme have
been carried out throughout the region. However, the implementing capacities of
the partner countries need to be further improved and a series of documents and
procedures need to be finalised in order for the approved country projects to
start. Efficient project implementation units and rigorous beneficiary
selection procedures as well as beneficiary data cross checking remain to be
established. The good cooperation overall between the partner countries on the
process and the housing programme, and on civil documentation and pensions
issues, needs to continue.

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 also continues to actively participate
in regional initiatives, including the South-East European Cooperation Process,
the Regional Cooperation Council, the Central European Free Trade Agreement,
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 on regional
reconciliation.

Montenegro
took a leading role in strengthening regional cooperation at the highest
political level, through its proposal for the establishment of the ‘Western
Balkan Six’ initiative, which aims at bringing together the region’s leaders in
an effort to enhance cooperation on European integration. In this context,
close cooperation with the Regional Cooperation Council is important. A meeting
of the proposed ‘Western Balkans Six’, at political directors’ level, took
place in July.

Montenegro continues to maintain good bilateral
relations with other enlargement countries and neighbouring EU Member States.
However, the delimitation of borders with Croatia, Serbia, Bosnia and
Herzegovina and Kosovo\* is still pending. In May, Montenegro,
Albania, Bosnia and Herzegovina and Croatia signed a memorandum of
understanding for cooperation on the Trans-Adriatic Pipeline and Ionian
Adriatic Pipeline projects. A bilateral convention on regional
cooperation under Article 15 of the SAA has not yet been concluded with
Albania; such a convention will also have to be concluded with Serbia,
following the recent entry into force of its SAA.

Agreements were signed in various fields
with Albania, including on mutual protection of classified information,
education and electronic exchange of customs data. The agreement on border
railway transport was ratified in March. A protocol of cooperation between the
police of the two countries during the summer tourist season was signed in
June. A treaty on extradition with Bosnia and Herzegovina was ratified
in March. Negotiations to finalise a border agreement continued.

The
agreement with the former Yugoslav Republic of Macedonia on police
cooperation was ratified in March. The agreement on readmission of persons
residing without authorisation and the agreement on the conditions of travel
for the nationals of the two countries entered into force in December 2012. An
agreement on cooperation and mutual assistance on customs issues was signed in
March.

The prime minister of Serbia visited
Montenegro in September. The agreement on police cooperation with
between the two countries entered into force in March. An agreement on
consular protection and services in third countries was ratified in July. A
readmission agreement was signed. A joint special task force for fighting
corruption and crime is operational and has already resulted in police actions
in the two countries. There were no developments in the dispute between the
Orthodox churches in the two countries.

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

Montenegro
and Turkey worked closely in the field of economic cooperation and
tourism. The two countries signed a readmission agreement and a consular
protection agreement. Agreements in the field of science and health were also
signed.

Montenegro
and Croatia signed agreements on cooperation in the field of economy and
tourism. The amended local border traffic agreement has not been signed yet.
The temporary agreement on the Prevlaka peninsula continues to be implemented
smoothly, at technical level. A joint commission on border demarcation was set up
in February to solve the Prevlaka issue. The two countries agreed to submit the
border demarcation issue to the International Court of Justice only if
bilateral negotiations failed.

 In
November, Montenegro and Italy signed an agreement on cooperation in the
field of the environment. Two agreements on enhancing the application of the
European Convention on Extradition and the European Convention on Mutual
Assistance in Criminal Matters were signed in July, as well as an agreement on
scientific cooperation.

Overall, Montenegro continues to meet the Stabilisation and Association
Process conditions on cooperation with the International Criminal Tribunal for
the former Yugoslavia and regional cooperation. A number of bilateral issues
with neighbouring countries are still open, notably 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 2013, the country presented its second
Pre-accession Economic Programme (PEP), covering the period 2013-2015. The
priority is still to strengthen
fiscal and financial stability as a prerequisite for long-term economic growth. Overall, the
political consensus on market economy fundamentals and economic policy was
broadly maintained.

Macroeconomic stability

After two years of moderate growth, the
economy entered into recession in 2012. Real GDP contracted by 2.5%, pulled downward by the poor performance
of industry, construction, transport, financial services and agriculture.
Industrial production contracted by 7% year-on-year, driven by the decline in manufacturing, particularly
the metals industry. On the expenditure side, private consumption and investments remained
weak, due to stagnant
disposable income and the decline of construction
works. Net exports had a positive impact on growth with
stronger tourism partly compensating for the fall in merchandise exports (-18%
year-on-year). The average per-capita income in purchasing power standards
represented 42% of the EU-27
average in 2012.

The economy came out of recession in 2013
with real GDP expanding by 1.1%
in the first quarter of 2013, and by 3.4% in the second quarter thanks to the
positive performance of industrial production, and notably utilities. Other
sectors, like construction, forestry, transportation, and retail trade recorded
annual expansion but their overall contribution to growth remains limited. GDP
growth slowed somewhat in the second quarter of 2013. In the first half of
2013, industrial output grew by 10.4% year-on-year, maintaining a similar pace
in July and August too. In the first six months of 2013 the value of finalised
construction works recorded 1.8% annual growth, and the number of tourists
increased by 4% year-on-year, supporting 6.5% year-on-year increase of retail
sales. However, private domestic demand still remains subdued due to the
contraction of wages, low credit and a stagnant labour market. Overall,
growth has been largely driven by external demand and one-off base effects,
compensating for a still weak domestic demand.

In 2012, the
merchandise trade deficit widened to 44% of GDP from 40.4% of GDP a year
before. The increase in tourism revenues and higher surpluses from transfers of
Montenegrin workers abroad did not suffice to fully compensate for the expansion of the trade deficit. As a result,
the 2012 current account deficit 19% of GDP. In the four quarters to June 2013,
the current account deficit narrowed to some 16% of GDP as the aggregated
balances of services, current transfers and income were
in surplus while the trade deficit contracted as a
result of the improvement in
the energy balance. In 2012, after two consecutive years of contraction, net foreign direct investment (FDI) climbed by 16.6% year-on-year to 14.7% of
GDP. In the four quarters to June 2013, net FDI totalled 14.2% of GDP. Net
errors and omissions remain a
substantial source of finance,
related to unrecorded revenues from tourism, remittances and other unregistered
cash payments totalling 7.7% of GDP in 2012. Overall, despite some
improvement, external imbalances still remain very large.

Unemployment
remains very high at nearly 20%, practically unchanged since 2010 according to
the Labour Force Surveys. In 2012, labour market participation improved
marginally to 50% compared to 49% a year before. Regional disparities are
significant. In the coastal and central regions, the unemployment rate is 10% and 15.6% respectively, but it rises
to 36.7% in northern Montenegro.
At national level, both the number of employed and the
number of unemployed persons increased by 2.6%
year-on-year in 2012. Long-term unemployment remains a serious concern, since
68% of unemployed persons have been out of work for more than two years.
Unemployment particularly affects
the young (15-24 years), who
account for more than 40% of the total. Poor labour market dynamics have also
been reflected in wage
moderation. Average gross wages contracted in real terms by 3% in 2012 and by
1% in the first half of 2013. Overall, a poorly performing labour market
with low participation and high unemployment rates, particularly among the
young and the long-term unemployed, remains a serious challenge.

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 financial
system. The Central Bank of
Montenegro (CBM) did, however, test the scope for
curbing lending interest rates in November 2012. Rates
on new corporate and household loans were capped, during a six-month period, at
14% and 15% respectively. The measure mostly provided relief for those new property or
tourism investment loans whose rates were above these thresholds. Yet, the CBM decided
not to renew the measure. At aggregated level, the weighted average lending
interest rate contracted moderately, from 11.3% in October 2012 to 10.3% until
June 2013.

Average
consumer price inflation accelerated somewhat to 4.1% in 2012 compared with 3.1% a year earlier, on the back of
administrative price increases for electricity and water as well as higher or new excises on tobacco, alcohol,
carbonated drinks and coffee. Inflationary pressures eased in the first six months of 2013 as consumer
disposable income contracted due to a personal income tax hike in February 2013. The consumer price index
declined further to 2.2% in June, down from 3.9% a year before, as a result of
the deceleration of prices of housing (which includes utilities), alcoholic
beverages and tobacco, transport, as well as restaurants and hotels. In July,
when the upper VAT rate was increased, CPI inflation accelerated to 2.7%
year-on-year, but declined again to 2.2% in August. The impact of the VAT hike
on inflation remained marginal as the tax increase did not apply to items
benefitting from the reduced rate (i.e. some 50% of the consumer basket). Overall,
inflation remains moderate.

In 2012, despite fiscal consolidation
efforts, the government had difficulties meeting its budgetary targets. The
budget deficit remained high, at 5.6% of GDP, considerably higher than the
deficit target of 2.4% GDP, reflecting weaker than expected growth
together with the activation of
state guarantees and the accumulation of tax arrears. General government
spending broadened to 47% of GDP, from 45% a year before representing a
substantial deviation from the planned figure of 41%. Social security transfers increased
moderately (by 0.7%) driven by the increase in military pension beneficiaries, while public
sector gross wages decreased
marginally.

In the first half of 2013, the government
pursued fiscal consolidation through a set of new fiscal measures, including a
freeze on pensions and limits on salary increases for public enterprises and members of the
parliament. Revenue measures consisted of increases of the personal income tax rate from 9% to 15% for salaries above the national average, and as of July, of the upper VAT rate. In the first half of
the year, total revenue grew by 5.3% year-on-year, supported by accelerating economic activity, higher tax
rates and more efficient collection, while saving measures reduced expenditures
by 5.2% year-on-year. As a result, the general government deficit fell to 1.9%
of annual GDP, compared with
3.9% in the same period a year before. The stock of cumulated tax arrears since
the outbreak of the crisis is estimated at some 11% of GDP.

In July 2013, prompted by the Finance Ministry, the Commercial Court launched bankruptcy
proceedings for the aluminium factory KAP. The government took over some of KAP’s debts totalling some 3% of
GDP, when two state guarantees were called. The Ministry of Finance managed to
postpone parts of the debt payment to 2014. In view of strengthening fiscal
discipline the government proposed in July 2013 a budget and fiscal
responsibility law (i.e. fiscal rules), setting upper limits for public debt
and budget deficit at 60% and 3% of GDP respectively. The bill, which is yet to
be adopted by parliament, also foresees an independent fiscal council (within
the existing state audit institution) to evaluate the government’s economic
policy and report to the parliament. Overall, fiscal risks remain high.
The fiscal position of the government remains challenged by substantial
contingent liabilities and growing debt.

In 2012, the public debt increased to 54% of GDP. External indebtedness expanded by 22% year-on-year in 2012 and accounts for three quarters of total public debt. State guarantees amounted to an additional 12% of GDP at the end of 2012. The public debt climbed to
52.5% in August following the activation of KAP’s state guarantees. Given the
shallowness of the domestic financial markets, Montenegro largely relies on
foreign markets to finance its debt. Overall, roll-over needs keeps
rising, together with the risks
related to dependence on foreign investor sentiment.

The limited scope for monetary and exchange rate policies and the country’s vulnerable external situation
imply a strong role for fiscal and structural policies in
safeguarding macro-financial stability. In that sense,
the recent efforts to strengthen fiscal consolidation represent a further step
to improve the policy mix. However, ensuring fiscal sustainability, coping with
a weak external position, and public debt reduction, especially after the KAP bankruptcy, remain major challenges.

Interplay of market forces

In 2012, the
state had majority ownership in some 30 companies, some of them in the process
of liquidation or bankruptcy. The most important ones are concentrated in network
industries and the aluminium-bauxite conglomerate. The tenders for the dairy
Zora and part of the agricultural company Montepranzo were successfully closed.
However, the sales of the
publishing house Pobjeda and the institute for physical therapy failed. The
government renegotiated, and in two cases cancelled, the sales contracts of hotels whose new owners failed
to invest in them. Some
companies, like Montenegro Post and a few attractive state-owned tourist resorts, are being successfully developed as concessions under
public-private partnership schemes. Overall, the privatisation process,
while relatively advanced, suffered some setbacks due to unsatisfactory investors’ offers and some cancellations due to failures
in post-privatisation investment.

In 2012 fuel prices were removed from the list of
administered prices and their
aggregated weight reduced in the harmonised index of consumer prices basket to
5.5%, from 10.7% a year before.
At the beginning of 2013, the domestic energy market was further opened after
the liberalisation of prices for large industrial consumers. In 2013,
the weight of administrative prices in the consumer basket was revised upwards
to 7.4% after electricity and
bread were given greater weight
in the annual household budget survey. Overall, the influence of the
state in price dynamics remains limited.

Market entry and exit

In 2012, 3 540 new businesses were registered, or 6.5% less than in 2011. However, a more favourable
environment in the first half of 2013 reversed the trend, with new
registrations rising to 2 367, or 21% more than in the same period a year
before. Montenegro has made
some improvements in terms of the environment for starting a business. After the introduction of electronic business
registration in May 2012, further measures to facilitate registration were
implemented at regional level too. An electronic portal was opened to simplify
procedures for granting business licences and to reduce the cost of and the time
required for obtaining permits. In spring 2013, the parliament adopted amendments to the law on spatial planning and construction, shortening deadlines for issuing construction permits, increasing the
number of ‘objects of public interest’ exempted from communal fees and
utility charges during construction, and introducing government oversight of municipal fees. Concerning market exit, in 2012 the number of
liquidations totalled 1 894, declining 9.4% compared to 2011. However, in
the first half of 2013 the number of liquidations rose to 1 067, increasing
by 25% year-on-year. The time to clear bankruptcy is estimated at two years, with a recovery rate of 43%. Overall, procedures for market entry were further simplified, while some limited progress
has been achieved in making bankruptcy proceedings less cumbersome.

Legal system

Judicial
proceedings, in particular to enforce commercial contracts, are reported to be slow and burdensome. Some
progress has been made on
simplifying government legislation and using regulatory impact analysis. After the introduction of a ‘regulatory guillotine’ in 2012, less than half of the relevant recommendations have been followed so far. In order to streamline
caseload, the parliament
adopted a law on out-of-court enforcement of commercial contracts by bailiffs. However,
the implementing legislation for it is not complete. A land register is
in place but modernisation of the land registry is still under way. The Tax Administration is tackling the informal economy mostly by stepping up surveillance of undeclared economic activities. In June 2013, the
law on prevention of illegal business came into force. To prevent tax evasion,
the law limits cash transactions (including for salaries), increases banks
transparency on money transactions, and prohibits the establishment of new business
for owners of companies undergoing bankruptcy proceedings. Overall,
further efforts are required to improve the legal system and tackle corruption with the aim of improving the business
environment.

Financial sector development

The withdrawal
of foreign parent bank funding
from Montenegrin bank deposits
abated towards the end of 2012 thanks to calmer financial markets and stronger
deposit growth (9% year-on-year in 2012 and in the first half of 2013; compared
to 1.5% in 2011). In 2012, the guarantee for banks
deposits was raised from €35 000
to €50 000. After several years of contraction,
bank lending started to grow in 2013, expanding by 4.6% year-on-year in
the first half of the year. The ratio of non-performing loans (NPL) increased
to 16.9% of total loans at the end of 2012 compared with 15.5% a year earlier. At the end of 2012, loan-loss provisions
covered 40% of NPLs, which net of provisions represented 68% of banks’ capital.
Following the introduction in
January 2013 of international accounting standards (IAS/IFRS), loans previously recorded as losses are required to be transferred back onto the banks’ balance sheets.
In the first half of 2013, the NPL ratio worsened, reaching 18.5% at the end of June.

Following the central bank’s recommendations resulting from the stress tests performed in
2012, three banks raised their capital by the end of the year. However, at the end of 2012 the aggregate
capital of commercial banks fell by 5.4% year-on-year as lenders wrote off
losses. Consequently, the capital adequacy ratio (CAR) declined to 14.7% at the
end of 2012 compared to 16.5% a
year before. In the first six months to June 2013, bank’s capital expanded by
4%, improving the CAR to 15.5%. Some 83% of banks’ capital
remains foreign-owned and 2.7% in public ownership. Banks’ return on assets and on equity remained negative in 2012, at 2.1% and 18.3%
respectively, reflected in the negative profitability of the financial sector
in 2012, with an aggregated
loss of €56 million compared with a €3 million loss a year earlier. The rebound of economic activity in
the first six months of 2013 conveyed positive return
on assets and on equity of banks (1.3% and 9.2% respectively), along with an aggregated profit of €18.5 million. Overall, the banking sector continues to deleverage,
increasingly relying on deposits to fund their loans. The high level of
non-performing loans still weighs on credit supply, constraining investments
and growth.

The domestic
non-bank financial sector remains shallow. The insurance segment recorded 3.2%
annual growth in 2012, supported by government subsidies on insurance for
agriculture. Insurance companies’ gross premium represents some 2% of GDP. Non-life
insurance continues to dominate its product structure
with a market share of 86% compared with 14% for life premiums. Leasing contracts offer an aggregated value
of around 4% of GDP. However, most of these contracts (97%) are for the purchase of vehicles rather
than productive equipment. The
stock exchange’s annual
turnover fell by 44.6% to €32.7 million in 2012, after increasing by 7.6% to €59 million a
year earlier. Overall, the small size of the
domestic financial market makes the country highly dependent on external
financing, and therefore, vulnerable to shifts in market conditions.

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

Existence
of a functioning market economy

Macroeconomic
stability was broadly preserved. The country came out of recession in 2013
driven by external demand. Domestic demand remains subdued and the unemployment
rate high. Credit started to slowly flow back into the economy, but the high
level of non-performing loans still weigh on bank capitalisation and hence, on
credit supply. External imbalances, albeit declining, still remain very high.
The government pursued further fiscal consolidation measures. However, the
fiscal position weakened burdened by substantial liabilities from the bankrupt
aluminium industry.

Human and physical capital endowment

Employers
complain about the lack of university graduates with the right set of skills.
However, further reform of the education and vocational training systems has
been delayed due to budgetary constraints. So far, government efforts are
focused on subsidies for
employers to recruit those with
more difficulties into the
labour market as well as young graduates without working experience. The large
number of workers in early retirement remains a particular issue for the sustainability of public
finances. Overall, more efforts are needed to promote skills in order to
build the capacity of businesses to meet international competitive pressure.

A substantial
part of investment in infrastructure is funded externally through FDI and
international financial institutions. Work on the power transmission line for the interconnection project with
Italy started in 2013 and will develop the local and regional electricity
markets. The construction of several small hydropower plants is under way, and in June 2013, a tender for
additional concessions on eight watercourses was launched. Work on two wind power plants has been delayed pending the release of the urban plans. In July 2013 the Podgorica-Niksic railway line, linking the two largest
cities together with the steel
factory and bauxite mines to the port of Bar, was reopened after several years’ closure for upgrading. In the tourism
sector, the second phase of Porto Montenegro and work in Lustica peninsula and Kumbor are ongoing. Overall, capacity increase in transport, energy, and tourism sectors are setting the basis for future exports and
overall growth performance.

In 2012, gross expenditure on research and
development (R&D) represented some 0.4% of GDP, roughly
the same as a year before. The private sector accounts for barely 27% of this figure. Overall, although public institutions participate actively
in European research programmes, private sector involvement remains limited (See Chapter 25 — Science and research).

Sector and enterprise structure

The development
of a regional electricity market is under way, and
includes preparation of the interconnection
infrastructure between the Italian and Balkan peninsulas through Montenegro and new connections between regional power systems, increased capacity and the establishment of the South-East European Coordinated
Auction Office in Podgorica. In May 2013, the government signed a memorandum of understanding with Albania,
Croatia and Bosnia and Herzegovina as a preliminary step towards developing a domestic gas market
connected to the Ionic-Adriatic pipeline. The postal market has been formally
liberalised. The restructuring of Montenegro Airlines is being implemented
before re-listing the company for privatisation. The future of the aluminium
industry remains uncertain. The company is bankrupt and (if accepted) a restructuring plan would still require
substantial investment and subsidies. Overall, Montenegro’s industrial structure is shifting from aluminium towards energy. At the same time, the overall structure of
the economy is shifting towards
services. In 2012, a breakdown of average employment by sectors showed 76% of workers to be employed in services, of which 24% were employed
in wholesale and retail trade. Industry accounted for 18% (with 7% in manufacturing, 6% in construction, 2.4% in utilities and 1% in
mining), and agriculture (including forestry and fishing) 5.6%. Overall,
the expansion of the service sector is mostly in the non-tradable sector.

Small and
medium-sized enterprises (SMEs)
find it difficult to access credit. Public-sector support for SMEs remains limited. The value of financial relief provided by the
state Investment and Development Fund (IDF) to SMEs in 2012 was €14 million. The IDF also provides some
credit lines for start-ups and
factoring facility. Some public support is also available to organise public export promotion
programmes, including participation in trade fairs, trade missions and market
research studies.

The informal
sector is large and is fuelled by weaknesses in tax and expenditure policies
and in law enforcement, including the fight against corruption. In an effort to reduce the informal economy, the government
strengthened controls on excise goods, retail trade records and the labour market. Overall,
credit constraints and unfair competition from the
large informal sector remain major challenges for the
development of SMEs.

State influence on competitiveness

In 2012, the
government allocated €42 million or 1.3% of GDP in state aid, of which 84% was
allocated to Montenegro Airlines. Yet, the state aid report does not cover the
support to KAP for the supply in electricity, state guarantees or tax arrears. Parliament’s decision in April 2013 to keep
loss-making KAP going implies that state aid would continue until the company is thoroughly restructured or liquidated. Under
the Stabilisation and Association Agreement and EU competition rules, any state
aid must be temporary and
accompanied by compensatory measures, and depends on a restructuring plan ensuring the long-term viability of the company. Overall, state aid has been largely concentrated on two
companies: KAP and Montenegro Airlines.

Economic
integration and convergence with the EU

In 2012,
Montenegro’s trade openness fell by 4% to 69% of GDP, due to the contraction
of exports. Sales to Italy, Hungary and Greece plunged by between 60% and 90% over the year,
reducing the EU’s share to
36.8% of Montenegro’s total
trade in 2012, from 41.3% the year before. The
CEFTA countries increased their
share to 47.5% of Montenegro’s total trade in 2012,
from 44% a year earlier. In the six months to June 2013, the share of trade
with the EU and CEFTA decreased marginally to 36.4% and 47.1%
respectively. In 2012, the EU accounted for 50% of total investment
in Montenegro. Russia is still
the single largest investor in Montenegro, with 25% of total
FDI, of which 82% is in real
estate. CEFTA countries accounted for 5% of total net
FDI. The reduction of production costs through wage moderation preserved Montenegro’s external competitiveness to some extent. Overall, trade
integration with the EU remains high.

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 have been no developments as concerns
general principles. As regards horizontal measures, following the
entry into force, in the previous year, of the law on technical requirements
for product and conformity assessment, two implementing regulations on
conformity marks and recognition documents were adopted in December 2012.
Further alignment remains to be achieved, e.g. in the meaning and terms of use
of the CE marking.

The strategy for introducing free movement
of goods still needs to be elaborated and adopted in order to plan for
Montenegro’s alignment with the acquis in this chapter, enhance
coordination, and strengthen administrative capacity to ensure effective
implementation. No progress has been made on reviewing existing implementing
and technical legislation with a view to ensuring compliance with Articles
34-36 of the TFEU.

As regards standardisation, by
September 2013 the Institute for Standardisation of Montenegro (ISME) had
adopted over 10 000 standards, 31% of which are harmonised European
standards according to the ‘New Approach’. The ISME set up six new technical
committees, which brings the total to 14. The ISME successfully introduced
Internal Rules for Standardisation, thus meeting one of the criteria for full
membership of CEN/CENELEC. Further efforts are needed to meet all membership
criteria, e.g. introducing real-time synchronisation of developing standards
with the European Committee for Standardisation (CEN), the European Committee
for Electrotechnical Standardisation (CENELEC) and the European Telecommunications
Standards Institute. A strategy for the development of standardisation has not
yet been adopted. While capacity is gradually improving, resource limitations
remain a concern.

In the area of conformity assessment,
the framework law still needs to be amended in line with the acquis and
a large body of implementing legislation remains to be adopted. The
requirements for designating conformity assessment bodies need to be further
clarified and specified.

As regards
accreditation, in December 2012 the Accreditation Body of
Montenegro (ATCG) adopted new rules on participation in inter-laboratory
comparisons and schemes for examining qualifications, in line with the
standards of the European and international organisations for accreditation
(EA/ILAC/IAF). A formal application to sign the EA Multilateral Agreement has
not been submitted yet. Since January 2013, the ATCG granted accreditation to
two more testing laboratories for drinking water and physical noise, while two
accreditations were voluntarily revoked. In total, 19 conformity assessment
bodies have been accredited so far, but interest in accreditation remains low.
There has been no progress on adopting a strategy for accreditation.

As regards metrology, implementing
legislation was adopted in June 2013 to further align with the EU Directives on
Measuring Instruments and on Non-Automatic Weighing Instruments. The Bureau of
Metrology (BoM) improved its internal management, reporting and information
system. In March 2013, the BoM applied to the ATCG for accreditation of three
laboratories working in the area of mass, length, and temperature. BoM
resources remain limited. This hampered calibration activities in 2012 and
impedes the accreditation of the metrological laboratories. In October
2012, the BoM joined the International Association of Assay Offices. The BoM
actively participates in the work of EURAMET Technical Committees and in
international inter-laboratory comparisons. The strategy on metrology has yet
to be adopted.

In the area of market surveillance,
the new single market inspection authority was strengthened and now comprises
28 inspection services. Five other inspection services have yet to be included.
Internal procedures are needed to ensure uniform and coordinated application of
market surveillance activities across the different inspection services. The
annual plan for market surveillance for 2013 was drafted in March 2013. The new
laws on general product safety and on market surveillance still need to be
pursued to further align the legal framework with the acquis.

As regards ‘Old Approach’ product
legislation, in November 2012 the Ministry of Health adopted guidelines on
good distribution practice for wholesale medicines in line with the 2011 law on
medicines.

There have been no developments as regards
the ‘New and Global Approach’ product legislation.

In the area of procedural measures,
in January 2013 Montenegro adopted a regulation on notification procedures in
the field of technical regulations, standards, conformity assessment procedures
and regulations on information society services. The capacity of the quality
infrastructure department of the Ministry of Economy, currently three staff
members, needs to be strengthened to ensure effective coordination among the
various stakeholders, especially on legislative and enforcement issues. No
progress was made on alignment with the acquis on the acquisition and
possession of weapons and on cultural goods.

Conclusion

Limited progress was made in the area of
free movement of goods. Montenegro needs to strengthen capacity and improve
coordination and ownership to further align with and implement the acquis.
Overall, preparations in the area of free movement of goods are relatively
advanced.

4.2.
Chapter 2: Freedom of movement for workers

In the area of access to the labour market, the current
legislation still requires EU nationals to obtain work permits. An analysis has
been made of a unified procedure for issuing work and residence permits for
foreigners. Preparations in this area are starting.

In preparation for future participation in
the EURES (European
Employment Services) network, a EURES department is
being set up in the new employment agency, and further training of potential
EURES advisers has been provided. Preparations in this area have started.

Administrative capacity for the coordination of social security systems
has been strengthened slightly. A bilateral social security agreement with
Croatia was signed in July 2013, and negotiations on the relevant
co-operation agreements with Slovakia and Bosnia and Herzegovina continued.
Preparations in this area are starting.

Preparations for the European Health Insurance Card still
need to be launched.

Conclusion

Some progress has been made in the field of
freedom of movement for workers. Steps have been taken
to strengthen administrative capacity. Overall, alignment with the acquis is
still at an early stage.

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

In the field of the
right of establishment, company registration procedures are advancing at
central level. The new electronic portal for business licences was launched in
December 2012 to further simplify procedures and reduce both the cost of and
time required for licensing. Additional efforts to implement the reforms are
needed at local level.

As regards freedom to provide
cross-border services, preparations for transposing the Services Directive
began. The council for promoting the business environment, regulatory and
structural reforms set up a working group in February to coordinate
transposition of the Services Directive and related regulations into national
legislation.

In the area of postal
services, the postal market has been fully opened from the beginning of
2013. Legislation to implement the law on postal services has been adopted.
After public-private partnership tenders for Montenegro’s postal service
failed, it remains in the privatisation plan for 2013. The administrative
capacity of the national regulatory authority remains unchanged.

In the field of
mutual recognition of professional qualifications, there were no further
legislative developments. There is still a need to draft a list of regulated
professions and to harmonise study programmes with the minimum requirements of
the acquis. Administrative capacity needs to be strengthened.

Conclusion

Overall, some progress was made on the
right of establishment and freedom to provide services. Substantial efforts are
still needed to align the legislation and implement the acquis on mutual
recognition of professional qualifications.

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.

Regarding the payment
system, there were some developments.

With regard to the fight against money
laundering, implementing legislation on information on the payer in
electronic transfers was adopted in November 2012.

Inter-agency
co-operation needs to be strengthened and a coordinating body to manage this
system needs to be established, since the current memoranda of understanding
between institutions are not enforced effectively. The Ministry
of Finance, the Administration for the Prevention of Money Laundering and
Terrorist Financing (APMLTF), and the Central Bank of Montenegro jointly worked
on drafting the third progress report on anti-money laundering and terrorism
financing submitted to the Council of Europe’s Moneyval, which noted progress
in this field, and adopted the report in December 2012.

The APMLTF’s capacity
remains unchanged. It conducted an organisational and legal review which served
to identify strategic objectives and legal shortcomings. Its IT system still
needs to be updated so that it can support the workflow effectively. The APMLTF
has a very high staff turnover and the human resources issues must be addressed
before proceeding with the IT investment needed.

The supervisory
authorities’ administrative capacity for conducting anti-money laundering
inspections still needs to be strengthened. Similarly, further efforts are
needed to improve awareness to ensure adequate implementation of the anti-money
laundering rules, and to enhance co-operation between the APMLTF, the
regulators/supervisory bodies and the sectors concerned in enforcing anti-money
laundering legislation.

Conclusion

Little progress was made on free movement
of capital. As regards combating money laundering and terrorism financing,
further efforts are needed. Major efforts are required to enforce legislation,
enhance inter-agency coordination and establish a track record of fighting
money laundering and financial crime. Overall, preparations are moderately
advanced.

4.5.
Chapter 5: Public procurement

As regards the general principles applying to public
procurement in Montenegro, legislation on concessions, utilities, and defence
procurement has yet to be harmonised with the acquis. Further alignment
of procurement methods and consultancy services is required. Transparency needs
to be improved, particularly as regards updating the concessions register and
the publication of concession contracts and of payments. The internal rules for
enhancing integrity need to be further developed.

As regards the award of public contracts,
steps were taken to consolidate the number of contracting authorities, which
fell from over 1 000 to 679 in the course of 2012. Further efforts are
needed to enhance the use and effectiveness of framework agreements and central
purchasing. The 2012 annual report on public procurement was adopted by the
government in July 2013.

The Public Procurement Authority (PPA)
employs currently 15 staff out of 18 posts on its organisation chart adopted in
April 2013. The PPA trained 540 procurement staff at central and local level in
2012. Montenegro set up a certification programme and 14 procurement officers
obtained a professional qualification in public procurement. The new IT system,
introduced in 2012 and refined in 2013, allows constant monitoring of the
procedures, with basic indicators, quick compilation of annual data, and
improved transparency for traditional procurement procedures. Currently there
are 3 000 registered users, 15% of which are foreign users.

The implementation of the new public
procurement law that entered into force in January 2012 remains a concern. The
PPA’s responsibilities, e.g. in monitoring and assessing contract
implementation and the risk of irregularities, analysing infringements and
deviations from good practice, and providing legislative advice, still need to
be clarified and strengthened. Major problems were detected with procurement in
the health sector in 2012.

Montenegro has not yet secured the
resources to set up an effective inspection service for contracts lower than €500 000.
This jeopardises the correct implementation of the law and supervision of
contract procedures and the contracts awarded. The one appointed inspector
conducted 45 checks in 2012, and, in 2013, 28 checks on tender procedures below
€500 000. This resulted in the cancellation of three public procurement
procedures.

In November 2012, the state audit
institution issued recommendations on the public procurement system, including
on unrealistic planning, non-transparent procedures and overuse of direct
agreements, failure to appoint public procurement officers, cases where single
public procurement contracts had been split into several contracts, and poor
reporting. In 2013, the Ministry of Finance established
an action plan to follow-up on these recommendations.

As regards remedies, the State
Commission for the Control of Public Procurement (SCCPP) has consolidated its
operations since having been set up in 2012. In 2012, the SCCPP reviewed 682
cases, 95% of which were completed, and conducted 49 controls on contracts
above €500 000. Statistics show that 42% of all appeals submitted to the
SCCPP were upheld and one third of the procurement procedures checked were
partially or fully cancelled. However, the high rate of rejection of SCCPP
decisions by the administrative courts is an issue of concern.

Conclusion

Some progress has been made in the area of
public procurement. Montenegro is still at an early stage with regard to
harmonisation with the acquis on utilities, concessions, and defence
procurement, and needs to strengthen implementation and enforcement capacity at
all levels. Overall, preparations in the area of public procurement are
moderately advanced.

4.6.
Chapter 6: Company law

National legislation concerning company law is largely
aligned with the acquis.

Electronic
applications for company registration were introduced in May 2012. Montenegro
decided to postpone the adoption of new legislation on corporate accounting and
auditing following substantial revision of the EU acquis.

An Agreement
with the World Bank on a project to set up a body for public supervision was signed
in August 2013.

Conclusion

Little progress was made 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, have yet to be adopted. Overall, preparations remain moderately
advanced.

4.7.
Chapter 7: Intellectual property law

Legislation on intellectual property is largely in line with the acquis.

In the area of copyright
and neighbouring rights, the regulation on depositing and registering
copyright works and related rights was adopted.

In the area of industrial
property rights (IPR), the regulation on the procedure for
recognition, changes and renewal of the validity of industrial design was
adopted. The amendments to the law on legal protection of industrial design
were adopted. The Nice Agreement concerning the international classification of
goods and services for the purposes of the registration of marks was ratified.
The protocol amending the TRIPS Agreement was ratified. IT infrastructure in
the Montenegro Intellectual Property Office is weak. There is no effective
patent or trademark database. Financial investment in IT is not sufficient and
its lack is impeding progress.

Regarding enforcement,
the Ministry of Economy drafted its first report on the implementation of the
IPR strategy 2012-2015. Effective monitoring and implementation of the strategy
needs additional efforts and resources. The number of judges specialised in IPR
matters in the commercial court has increased from three to five, a significant
improvement. There is no specialisation in the first instance civil courts.
There are two customs officers working directly on IPR issues. The market
inspectorate is responsible for IPR investigations but inspectors do not specialise
in IPR. Capacity within the police and prosecution in IPR enforcement is weak.
There is no staff specialisation and training is scarce. Overall, there is a
good enforcement record in the commercial court and the customs administration,
with the exception of criminal prosecution.

Conclusion

Some progress was made in the area of
intellectual property. Legislation is largely in line with the acquis.
Further efforts are needed to improve staffing levels and IT infrastructure and
to implement the acquis effectively in the medium term. Overall,
preparations are advanced.

4.8.
Chapter 8: Competition policy

As regards anti-trust and mergers, the new law on
competition, further aligning the national legislation with the acquis,
entered into force in October 2012. Additional secondary legislation was also
adopted.

The new Agency for Protection of
Competition (APC) was founded in February 2013 and became formally operational
in March. The number of case-handlers increased from five to seven.

There has been no improvement in Montenegro’s
enforcement record, mainly due to its focus on reorganising the activities of
the new Agency. As regards mergers, the APC approved 15 out of 19 merger
requests submitted (two were withdrawn, two are still pending). ACP launched
three ex officio cases, which resulted into imposing the first periodic
fine for failure in data delivery. On abuse of dominant position, the ACP dealt
with six cases, in only one of which did it establish abuse of dominant
position. Two ACP decisions were partially or fully endorsed by the
administrative court. The capacity of the judiciary to deal with complex
competition cases needs to be strengthened.

As regards state aid, the government
amended the decree on state aid notification and the Ministry of Finance
revised the rulebook on the annual report. State aid secondary legislation has
yet to be fully aligned with the acquis. A number of existing fiscal aid
measures need to be adjusted to align them with the acquis.

The administrative capacity of the State Aid
Control Unit (SACU) at the Ministry of Finance, acting as a secretariat for the
State Aid Control Commission (SACC), was reinforced slightly with the
recruitment of a new official, but its operational capacity still needs to be
built up. In 2012, SACC assessed 10 notifications on state aid and launched one
ex officio investigation. Nine of the notifications were approved. Given
its institutional set-up, the SACC/SACU’s independence from the state-granting
bodies, in particular, remains to be secured. Its decisions and recommendations
should be binding to the parliament and the government.

There has been some progress regarding
major state aid cases; aid been granted to Montenegro Airlines and in the steel
sector. Subsidies to the aluminium plant KAP remains an issue of serious
concern. The company is highly indebted, loss-making and poses a risk to public
finances. EU rules and the requirements of the Stabilisation and Association
Agreement for restructuring aid must be complied with. The SACC/SACU’s annual
report was adopted by the government and submitted to the parliament in July
2013.

As regards liberalisation, the period of
exclusive rights for postal services granted to Montenegro Post expired in
December 2012.

Conclusions

Some progress was made as regards the
alignment of the legislative framework with the acquis. The independence
of the competition authorities, particularly in the state aid field, needs to
be demonstrated through the enforcement record, which still needs to be
significantly improved. Special attention needs to be given to the aluminium
plant KAP. Overall, preparations are moderately
advanced.

4.9.
Chapter 9: Financial services

As regards banks
and financial conglomerates, implementing legislation amending the decision
on minimum standards for credit risk management in banks came into force as of
January 2013. In line with that, implementing legislation was adopted to bring
banks’ obligations in line with the International
Accounting Standards. As of January 2013, a new deposit
guarantee threshold of €50 000 is in place, and the deadline for payment
of guaranteed deposits has been reduced from 45 to 20 working days.

In the area of insurance and
occupational pensions, following the entrance into force of the new law on
compulsory insurance in transport and amendments to the law on insurance,
relevant implementing legislation was adopted by the end of 2012. Rulebooks on
detailed conditions for granting licences to operate an insurance business, and
on the content of opinions of the authorised actuary, were adopted in 2013.

The Insurance
Supervision Agency has significantly improved its human resources and it now
has 20 employees. The Agency is upgrading its staff’s capacity in
relation to actuarial education and accounting. The
Agency performed eight on-site inspections of insurance companies and four off
site besides regular quarterly off site inspections of all insurance companies.

There were no
developments on financial market infrastructure.

In the area of securities
markets and investment services, legislation implementing the law on
investment funds was adopted. The Securities and Exchange Commission co-signed
a memorandum of cooperation in the area of Alternative Investment Funds by the
European Securities and Markets Authority (ESMA). New software application for
the control of investment funds has yet to be introduced. A new law on capital
markets has been drafted and will replace the current law on securities.

Conclusion

There has been
some progress in the field of financial services, in particular in aligning
banking legislation with International Accounting Standards, adopting
implementing legislation in the area of insurance and the securities markets,
and strengthening insurance supervision capacity. Substantial efforts are still
required to align with and implement the existing acquis. Overall, the
level of alignment is moderately advanced.

4.10.
Chapter 10: Information society and media

As regards electronic communications and
information and communications technologies (ICT), a new law on electronic
communications was adopted by parliament in July 2013, entering into force
in August 2013, aligning with the acquis on conditional access and
aiming at aligning with the 2009 EU telecom package. The new law requires the
Agency for Electronic Communications and Postal Services (EKIP) to transfer any
budget surplus to the state budget until 1 January 2016. It also foresees
that the parliament can dismiss the President and the members of the Council if
it fails to adopt the Activity report with the Financial statement. EKIP has
completed analyses of seven markets. Assessments have been made and operators
have been issued with instructions in line with the market assessment
conclusions. EKIP has focused on improving capacity and resources by providing
training for its staff. The Ministry for Information Society and
Telecommunications has increased its capacity to process appeals from service
providers in line with the previous law. The government has introduced a
one-euro tax on all SIM cards and internet and cable connections as a temporary
measure. After two years, no decision has yet been made by the constitutional
court on the appeal EKIP lodged against legislative amendments of
September 2011, providing for the automatic dismissal of its board and executive
director if its financial report is not approved by parliament. Montenegro
recorded fast growth rates in the fixed broadband penetration and it reached
14.2% of the population according to the latest available data.

As regards information society services,
the work of the computer incident response team was further developed, with 12
rulebooks adopted by the government in September 2012. A strategy on cyber-security
was adopted in September 2013. An Analysis of the condition of
e-government in Montenegro for 2012 was adopted by the government in
June 2013 and implementation of the e-Government Portal project has
continued.

In the area of audio-visual policy,
amendments to the law on electronic media were adopted in January 2013,
requiring the Agency for Electronic Media to transfer any budget surplus to the
state budget. Parliament also obliged the Agency to amend its financial plan
for 2013. This clearly undermines the Agency’s independence. The overall
capacity of the Agency to fulfil its tasks is weak, and in particular its
monitoring capacity remains limited. As regards digitisation, equipment has
been delivered and installed. Uncertainties still remain over whether the
second phase of the digitisation process will be launched in time to meet the
deadlines (17 June 2015). The public service broadcaster has made some
efforts to restructure. The key financial challenges it faces are to meet
digitisation needs and to provide — with the existing financial resources —
high quality content for three TV channels (two radio channels), including a
parliamentary channel.

Conclusion

There has been
some progress in the area of information society and media. A good level of
legal alignment has been reached. There are persistent concerns as regards EKIP’s
independence notably because of the lack of a Constitutional Court decision on
the EKIP appeal. In the area of audio-visual policy, the independence of the
Agency for Electronic Media continues to be undermined by parliament. First
steps have been taken to reform the public service broadcaster, but its
financial sustainability is a concern. Overall, preparations are on track.

4.11.
Chapter 11: Agriculture and rural development

In the area of horizontal issues,
some efforts are being made to de-link direct support measures from production,
but the majority of production remains closely linked. Direct support measures
will need to be brought into line with the acquis, by decoupling
them from production and introducing a system of payment entitlements.

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

As regards rural development,
support for national rural development measures continued. The operational
manual for the fourth public call for investments in agriculture holdings was
published in February 2013. The rural development programme under the
Instrument for Pre-Accession Assistance for Rural Development (IPARD) remains
under preparation.

The Head of the Payments Sector has been
appointed. Currently the sector has 25 members of staff involved in
preparations for IPA component V (IPARD), while the sector for rural
development has five employees.

The Ministry of Agriculture and Rural
Development has set up a working group to monitor activities related to
establishing the decentralised management and control systems for IPA component
V (IPARD). The accreditation package for the IPARD operational structures was
presented to the National Fund in July for national accreditation. Preparations
are at an early stage in this area.

In the field of quality policy,
implementing legislation under the law on designations of origin, geographical
indications and designations of traditional specialty agricultural products and
foodstuffs needs to be adopted. Preparations in this area are moderately
advanced.

As regards organic farming, the law
on organic production has yet to be adopted. Preparations in this area are
moderately advanced.

Conclusion

There has been
some progress as regards agriculture and rural development policy. The
Agriculture and Rural Development national strategy needs to be prepared and
additional capacity building is required to ensure future implementation of the
IPA rural development programme. Overall, alignment with the acquis is
at an early stage.

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

As regards general food safety, a
strategy for the transposition and implementation of the acquis in this
area is under preparation. The implementing legislation on microbiological
criteria for food safety was adopted. A rulebook on microbiological food safety
criteria was adopted. The revised law on food safety has yet to be adopted.
Preparations in this area are at an early stage.

In the area of veterinary policy,
the multiannual programme for the eradication of rabies has continued and the
effectiveness of the vaccination campaigns was evaluated based on laboratory
analyses conducted by the veterinary diagnostic laboratory. The laboratory was
equipped and the staff trained for this purpose. Monitoring of classical swine
fever in wild boars was conducted. 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, a feasibility study has been
finalised on the establishment of a rendering plant for disposal of animal
by-products in accordance with EU standards. No decision has been made yet on
the source of funding or whether to opt for a regional solution. Preparations
in this field are at an early stage.

In the area of food safety rules,
the Ministry of Agriculture and Rural Development has adopted a programme for
monitoring residues in animals and products of animal origin intended for human
consumption for 2013. The programme for 2012 has been implemented. Preparations
in the area of food safety rules are not very advanced.

As regards specific rules for feed,
preparations are at an early stage.

In the area of phytosanitary policy,
the International Convention for the Protection of New Varieties of Plants was
ratified. Implementing legislation was adopted on a range of issues including
the registration of operators. Capacity-building activities for the
administration, laboratory staff and inspection continued. Preparations in the
area of the phytosanitary sector are moderately advanced.

There were no developments on alignment and
implementation of the acquis in the area of genetically modified
organisms (GMOs).

Conclusion

Some progress
was made in the field of food safety, veterinary and phytosanitary policy.
Further efforts are needed on all aspects of this policy area, in particular on
further legislative alignment with the acquis. Overall, preparations
remain at an early stage.

4.13.
Chapter 13: Fisheries

There were no
developments as regards resource and fleet management.

In the area of
inspection and control, fishery inspection capacity remains limited. Three rulebooks in the field of marine fisheries and mariculture
were adopted. Serious efforts are needed to ensure
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. No developments
have taken place in the area of administrative capacity.

There were no developments as regards structural
actions, market policy, state aid, or international
agreements on fisheries.

Conclusion

No progress was
made in the field of fisheries. Efforts are needed to strengthen administrative
capacity, align legislation with the acquis and implement EU standards,
in particular in the areas of resource and fleet 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

As regards road transport, the new
law on road traffic safety entered into force in January 2013 and Montenegro
drafted an action plan for implementing the road safety strategy for 2013,
setting the framework for further improvement of existing road safety
legislation and for the implementation of measures to rebuild the road
infrastructure. In the area of passenger rights, Montenegro adopted amendments
to the law on contracts in road transport to ensure further alignment with the acquis.
The new law on transport of dangerous goods is yet to be adopted. Further
alignment is needed in road safety, notably concerning vehicle roadworthiness
inspections and roadside checks, driving licences, professional drivers’
qualification and training, infrastructure safety.

In the area of rail transport, the
agreement on border railway transport between Montenegro and Albania was
ratified in March 2013. Further alignment with EU legislation remains necessary
for the agreement with Serbia. The new Railway law was adopted in May 2013
aiming at setting a new regulatory framework for managing the railway
infrastructure and transport services, defining the competences of the Railway
Directorate as the regulatory body, and improving the competitiveness and
quality of transport. A five-year business plan was prepared by the Railway Directorate
for 2013-2017, but it has not yet been endorsed by the government. Further
alignment with the acquis in the area of rail transport safety is
needed, in particular with regard to the train driver licenses and
interoperability. The track access charges for freight trains are at €3 per
train km of a 1 000 t train, which is rather high, whereas charges for
passenger trains only amount to €0.2. The latter seem to be below direct costs
and thus not in line with EU rules.

Montenegro has limited inland waterways
transport, which is currently regulated under the same provisions as
maritime transport. Lake Skadar and the connecting rivers need to be
reclassified as inland waterways, with limited applicability of relevant EU acquis
in this area.

There were no developments as regards combined
transport.

In the area of air transport, the
national Commission for Investigation of Accidents and Serious Incidents in
Civil Aviation was appointed in September 2012, establishing the fundamental
principles governing the investigation of civil accidents and incidents. New
rulebooks aiming at aligning the national legislation with the EU acquis
on working time and technical requirements for cabin crew were adopted.
Following a review mission by the European Commission in September 2012 to
assess the implementation of legislation under Annex 1 of the European Common
Aviation Area (ECAA) Agreement, it was concluded that Montenegro had stepped up
progress towards meeting the phase 1 requirements under the ECAA agreement and
that the great majority of these requirements had been complied with. Some
matters, especially in the field of economic regulation, had not been
adequately transposed into the national legislation.

As regards maritime transport, the law on
safety of maritime navigation as well as implementing legislation is not
adopted yet. Parliament adopted in May 2013 the amended law on ports, providing
for the new organisation of port infrastructure and adjustment of concession
policies. In the area of sea pollution prevention, the international convention
MARPOL 73/78 Annex VI was ratified in March 2013. Montenegro needs to make
additional efforts to become a full member of the Paris memorandum of
understanding on Port State Control. Professional capacity needs to be
enhanced, with properly qualified, trained and authorised officers, in
particular harbourmasters, and remains a major challenge.

Conclusion

There has been
some progress in the field of transport policy. Further progress needs to be
made in the rail transport sector concerning interoperability, setting up an
accident investigation body, and ensuring the independence of the railway
regulator. The safety and security requirements in the maritime sector and
standards for the transport of dangerous goods by road have still not been
adopted. Overall, preparations in this area are advanced.

4.15.
Chapter 15: Energy

The Energy
Development Strategy for the period to 2030 is yet to be adopted.

In the area of security
of supply, the decree on mandatory strategic stocks of oil and petroleum
products still needs to be adopted. Currently there are no strategic reserves
of petroleum products or crude oil in Montenegro. Montenegro has no
stockholding body.

As regards the internal energy market,
the Energy Regulatory Agency has further developed implementing legislation
which fulfils some of the preconditions for establishing a functioning energy
market. Most secondary legislation to the 2010 energy law has now been adopted.
All eligible customers connected to the distribution system remain entitled to
be supplied at regulated tariffs. The energy regulator granted in September
2012 a second licence for energy retail supply to the state-owned company,
Montenegro Bonus. As of the end of 2012, the three customers connected directly
to the transmission system (large industrial clients) can no longer be supplied
under regulated tariffs. Two of them concluded supply contracts, but the
largest customer, the Aluminium Plant Podgorica (KAP) did not negotiate any
contract. Its subsequent unauthorised and unpaid electricity consumption has
put an important burden on the Montenegrin electricity system and has caused a
serious imbalance in the Montenegrin electricity system, which is part of a
synchronous system. These imbalances therefore had to be compensated by other
producers in the Continental European region, with significant financial
consequences. The accumulated imbalance was compensated through an extraordinary compensation program. Full compensation was
achieved by the end of July. Since mid-June KAP has an electricity supply
contract. The government of Montenegro has taken over the control of KAP.

The
distribution company remains integrated in the Montenegrin Electric Power
Company (EPCG). There has been no progress with regard to the development of a
gas market in Montenegro. Montenegro became an observer to the Energy Charter
in November 2012. Montenegro began preparations for alignment with the Third
Energy Package by 1 January 2015, in line with its obligations under the Energy
Community Treaty.

As regards renewable
energy, implementing legislation for issuing energy licences has been
amended. Montenegro risks running late on its obligation to align with the
Renewable Energy Directive, which is due by 1 January 2014. Further
streamlining of administrative procedures including simplified procedures for
smaller installations and provisions on guarantees of origin will be needed to
achieve full transposition of provisions on administrative procedures,
regulations and codes. Under a Decision by the Ministerial Council of the
Energy Community taken in October 2012, Montenegro’s target for renewable
sources as a proportion of gross final consumption of energy is 33%. A national
renewable energy action plan is yet to be adopted. Measures for the regulation
of biofuels and the promotion of renewable energy in transport have not been
introduced yet. A third round of tenders for the construction of small
hydropower plants was published.

In the field of
energy efficiency, implementing legislation on energy performance of
buildings and energy audits has been adopted. Full alignment with the acquis
on labelling and energy performance of buildings remains to be achieved,
and the country will need to work on alignment with the 2012 Energy Efficiency
Directive. Projects on improving the energy efficiency of public buildings and
on raising public awareness are ongoing. Administrative capacity for the
promotion of energy efficiency is limited.

As regards nuclear
energy, nuclear safety and radiation protection, in November 2012 the
International Atomic Energy Agency (IAEA) conducted an ad hoc inspection
as a follow-up to two National Reports and Declarations of Nuclear Materials.
IAEA inspectors confirmed the accuracy of inventory data on nuclear materials
provided by Montenegro. The government adopted the third and fourth National
Report and Declaration of Nuclear Materials in Montenegro in, respectively,
March and May 2013. Montenegro has not acceded yet to the Convention on Nuclear
Safety and the amended Convention on the Physical Protection of Nuclear
Materials. As regards administrative capacity, the number of staff remains
unchanged.

Conclusion

Some progress
can be reported in the area of energy. Some implementing legislation for the
internal energy market has yet to be adopted. Montenegro still needs to adopt
the necessary acts concerning oil stocks reserves, and the ten-year work
programme (national renewable energy action plan) on the development of
renewable energy sources. Preparations in the area of energy are moderately
advanced.

4.16.
Chapter 16: Taxation

As regards indirect taxation, amendments to the VAT law were
adopted to raise the general rate from 17 to 19%, expand the tax base and
combat the informal economy by introducing higher fines for tax offences. Amendments
to the excise law came into force in August 2013. The law provides for a
gradual increase in the cigarette excise duty, and the elimination of the
coffee excise duty as from January 2015. Preparations in the area of indirect
taxation are moderately advanced.

In the area of direct taxation, the
law on personal income tax was amended as of February 2013, in line with fiscal
consolidation measures, temporarily increasing personal income tax on gross
monthly salaries of over €720 from 9% to 15%. The measure applies until the end
of 2013. Preparations in the area of direct taxation are moderately advanced.

To improve tax compliance, as of July 2013
the tax administration will publish a quarterly list of the 100 largest tax
debtors that fail to service their tax debts for more than a year.

As regards administrative cooperation
and mutual assistance, Montenegro is yet to begin alignment with the EU
legal framework for administrative cooperation with EU Member States.
Significant efforts still need to be made in this area.

In the areas of operational capacity and
computerisation of the tax administration, strengthening the IT systems
for interconnectivity and interoperability with the EU systems remains one of
the biggest challenges for the Tax Administration. Upgrading the administration’s
strategic management capacity and the training structure and capacity remains a
major challenge. A comprehensive business and IT strategy, including training,
needs to be put in place. Preparations in this area are not very advanced.

Conclusion

Limited progress
was made in the area of taxation. The Tax Administration needs to upgrade its
management and training capacity and to set out an overall business and IT
strategy, establish the appropriate legal framework for alignment with the acquis,
and the corresponding structures for its implementation, including on
cooperation and mutual assistance. Overall, Montenegro’s alignment with the acquis
is moderately advanced.

4.17.
Chapter 17: Economic and monetary policy

As regards monetary policy, implementing legislation limiting the central bank’s independent use of property was amended
in April to strengthen the principle of central bank independence. Legislation
needs to be aligned with the acquis on monetary financing and privileged
access by the public sector to financial institutions. Montenegro does not have
standard monetary policy tools at its disposal, as it uses the euro as its sole
legal tender, which leaves fiscal policy as the main effective policy
instrument.

In the area of economic policy, Montenegro submitted
its second Pre-accession Economic Programme (PEP) to the European Commission in
January, covering the period 2013-2015. As part of
budget planning, the government produces guidelines for macroeconomic and
fiscal policy, which include a three-year mid-term plan. The government pursued fiscal consolidation through a set of new
fiscal measures, such as increased personal income tax, VAT and limits on
salary increases. This led to an improved fiscal performance in 2013, but
unwinding contingent liabilities is putting public finances under stress. The financing of the budget deficit is based on a three-year central
government debt management strategy drafted in consultation with the central
bank. While the analytical work has been enhanced compared with the previous
PEP, the analysis of external sustainability and of competitiveness remains
limited, and there are still some data inconsistencies. Capacity for economic
policy formulation and coordination needs to be strengthened. Further efforts
are needed to improve fiscal reporting and to align with ESA95 standards.

Conclusion

There was
limited progress in the area of economic and monetary policy. Additional
efforts are needed in particular regarding monetary financing and privileged
access by the public sector to financial institutions. Montenegro’s
present use of the euro, decided by the Montenegrin authorities in exceptional
circumstances, is fully distinct from euro-area membership. Overall, alignment
in the area of economic and monetary policy is moderately advanced.

4.18.
Chapter 18: Statistics

As regards statistical infrastructure, Monstat adopted internal rules on matters such as quality
management, financial management and control, statistics dissemination strategy
and methods of keeping records on individual users of statistical data.
Statistical confidentiality was strengthened with the adoption of regulations
on keeping statistical data. Financial and human resources and office space
continue to be a critical issue.

In the area of classifications and registers,
in January 2013, Monstat adopted a rulebook on statistical registers
(business, agricultural, and spatial). At the end of 2012, the existing
metadata were further improved and the business register was made compliant
with the EU common framework for business registers. Implementation of NACE
Rev.2 classification was expanded into more statistical areas.

In the area of sectoral statistics,
concerning national accounts, Monstat published in December 2012 the annual GDP
for 2010 and 2011. As regards agriculture, Monstat produced the first version
of the Statistical Farm Register and in October 2012 issued the national
methodological report on the farm structure survey 2010. In February 2013,
Monstat published research and development statistics. In the framework of
structural business statistics, Monstat published the number and structure of
business enterprises in Montenegro for 2011. Monstat completed the calculation
of PRODCOM statistics for 2011. Alignment with the acquis has advanced
in the areas of environment, energy price, labour market, income and living
conditions statistics. Particular efforts are needed to send all statistical
data to Eurostat.

Conclusion

Good progress
was made in the area of statistics. The main issue of concern remains Monstat’s
inadequate human and financial resources. Montenegro has to ensure further
investment in a number of statistical areas and full harmonisation with the EU’s
statistical standards and methodologies. Overall, preparations in the area of
statistics are moderately advanced.

4.19.
Chapter 19: Social policy and employment

In the field of labour law,
amendments to the labour law were adopted in December 2012 with the aim of
further aligning with the acquis. Implementation and enforcement of the
legislation remains a challenge. Preparations in this area have started.

In the area of health and safety at work,
a Department for Health and Safety at Work has been established in the Ministry
of Labour and Social Welfare (MLSW). Labour inspectors have been trained in some
areas of the acquis. The capacity of the Directorate for Inspection
Affairs, including the labour inspectorate, is not adequate due to limited
financial resources and the lack of an adequate IT system. Preparations in this
area are starting.

In the field of social dialogue,
amendments to the law on trade union representation were adopted in
July 2013 to increase transparency. Despite staff shortages, the Social
Council has met regularly and provided opinions/recommendations on a number of
important pieces of draft legislation and issues, including negotiations on a
new general tripartite collective agreement which are in the final phase. A
working group has also been set up to draft amendments to the law on the social
council in order to create the legal basis for setting up the Council’s
secretariat. Bi-partite social dialogue remains weak, especially in the private
sector. Preparations in this area are at an early stage.

In the area of employment policy, an
action plan for employment and human resource development for 2013 was adopted
in December 2012. It focuses on measures and activities directed particularly
at young people and the long-term unemployed, but it was not fully implemented
due to budgetary constraints. The labour market situation remains critical:
activity and employment rates further declined in 2012 to 50% and 40.1%
respectively as compared with 57% and 46% in 2011. Unemployment contracted
marginally, but still remained high at 19.7% on average in 2012 (2011: 20%)
according to the EU Labour Force Survey. According to the employment agency,
the registered unemployment rate was 13.5% at the end of 2012, but climbed to
14.2% in the first quarter of 2013 (compared with 13.6% a year before). A law
on the prevention of illegal businesses was adopted in June 2013. A
working group has been set up to propose measures to combat the grey economy
and an action plan for 2013 prepared. Undeclared work continues to be an
obstacle to increasing regular employment. Preparations in this area are at an
early stage.

As regards preparations for the European
Social Fund, Montenegro’s strategic coherence framework was endorsed by the
Commission in December 2012. A new section for programming and implementing EU
funds was set up in March 2013 as an independent unit within the MLSW.
Despite the provision of training, administrative capacity in the relevant line
ministries 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)

In the area of social inclusion, a
new law on social and child protection was adopted by parliament in
May 2013. In January 2013, an action plan, covering 2013, for the
2012–2016 strategy for improving the position of Roma, Ashkali and Egyptian
(RAE) population was adopted. A strategy for social protection of the elderly
2013–2017 was adopted in June 2013. Training continued in the field of
education and care for vulnerable children (the RAE population and children
with disabilities). Guidelines were adopted for their inclusion into the
mainstream education system. The number of day-care centres for children with
disabilities increased. As regards people with disabilities, amendments
to the law on spatial development, adopted in July 2013, foresee some
measures to improve accessibility. Yet, overall access to buildings, including
education and medical facilities, remains a concern. The law on prohibition of
discrimination against people with disabilities continues to present
shortcomings. Preparations in this area have started.

In the field of social protection,
the first phase of introduction of the Social Card / Social Welfare Information
System in Montenegro (SWIS) has started. The introduction of standards for
service delivery, and professional empowerment of service providers to meet
them, is pending. A large number of training courses on planning, development,
delivery and sustainability of social services have been provided. Progress on
administrative and fiscal decentralisation of social services continues to be
limited. Funded pension schemes based on mandatory savings have not yet been
introduced. Further measures are needed for improving the sustainability of the
pension system. Preparations in this area are at an early stage.

In the area of anti-discrimination,
training and promotion of anti-discrimination have continued with the aim of
raising awareness and capacity to provide protection against discrimination
particularly at local level. National legislation in this area still presents
shortcomings, e.g. concerning the Ombudsman’s independence. The financial and
administrative capacity of the Council for Protection against Discrimination is
not yet adequate. Awareness among judges of the anti-discrimination acquis is
not widespread. Preparations in this area are on track. (See also
Chapter 23 — Judiciary and Fundamental rights)

In the field of equal opportunities,
a second action plan for the Achievement of Gender Equality for the period
2013–2017 was adopted in January 2013. Specialised seminars and trainings
continued to be carried out in order to strengthen judges’ and prosecutors’
capabilities with regard to gender equality and anti-discrimination. The Human
Resources Management Authority continued with its own training programme
targeting civil servants and state employees. There was limited strengthening
of financial and human resources to ensure that gender equality mechanisms work
well and that the gender equality action plan is implemented. Women remain
under-represented in the labour market. Montenegro has started to address its
priorities in this area. (See also Chapter 23 — Judiciary and
Fundamental rights)

Conclusion

Some progress
was made in the area of social policy and employment. The labour market
situation remains critical; resolute action is needed to address low activity
and employment rates and the mismatch between the skills available and needs,
partly through increasing the capacity of the public employment service to
implement activation policies. Efforts should be stepped up as regards poverty
reduction, improving the inclusion of the RAE population, people with
disabilities and other vulnerable groups. Further measures are needed to
improve the sustainability of the pensions system, and to set up
community-based services as an alternative to institutionalisation. Further
efforts are also needed in the area of health and safety at work and with a
view to improving the transparency and functioning of social dialogue. Overall,
Montenegro has started to address its priorities in this area.

4.20.
Chapter 20: Enterprise and industrial policy

In the area of enterprise and industrial
policy principles, action plans for 2013 were adopted for the strategies
for life-long entrepreneurial learning 2008-2013, for the development of small
and medium-sized enterprises (SMEs) 2011-2015 and for improving competitiveness
at the micro level 2011-2015.

Montenegro implements the Small Business
Act and made progress in simplifying legislation and using regulatory impact
analysis. A new electronic portal for business licences (www.licenca.me) was
launched in December 2012 providing all available information on business
licensing, including the application forms, fees, information on documents
needed, and contact points in the relevant institutions. While public-private
consultations are held on a regular basis, there is as yet little evidence that
stakeholders’ feedback is effectively and systematically taken into
consideration.

As regards enterprise and industrial instruments,
Montenegro’s Investment and Development Fund signed a credit arrangement with
the European Investment Fund to provide direct credit support to SMEs. Overall,
available public sector support for SMEs remains low. SMEs still find it
difficult to access credit, with other sources of finances, including risk
capital, guarantee schemes, and venture capital, being in the early stages of
development.

Under the national programme for
encouraging cluster development in the northern region and less-developed
municipalities, financial support was provided for three clusters. Sixteen
companies received support under the voucher scheme project for innovative
SMEs.

Conclusion

There has been
little progress in the area of enterprise and industrial policy. The lack of
administrative capacity and fragmented strategies impede the effectiveness of
the instruments that have been put in place. A strategic effort to promote
skills at all levels in sectors where Montenegro has significant trade with the
EU will be important to improve competitiveness and ensure preparedness for
competitive pressures and market forces within the Union.

4.21.
Chapter 21: Trans-European networks

In the area of
Trans-European transport networks, Montenegro has continued to
participate in the work under the memorandum of understanding on the
development of the South-East Europe Regional Transport Network. Upgrading road
and rail links included in the South-East Europe Transport Observatory (SEETO)
comprehensive network remains a priority.

As regards
preparations for developing the Bar-Boljare motorway project (SEETO route 4),
Montenegro focused its efforts on implementation of the new dual carriageway /
single carriageway route for the Podgorica–Mateševo section. The government
proposed a Chinese company to construct the priority section of the highway.
This represents a huge investment in new roads, which might add to imbalances
in the transport sector and crowd out investment in other transport modes.
Preparations for the main project design are ongoing. As regards the
privatisation of the port of Bar, a Turkish company was ranked first for the
privatisation of the majority stake in the cargo and the general freight
terminal.

In the area of
trans-European energy networks, implementation of the underwater
interconnection cable with Italy continues. The implementation of a project for
a 400 kV overhead line linking the coast (Lastva) with the north of the country
(Pljevlja) has advanced further. As regards gas, Montenegro participates in the
Interstate Committee set up by the members of the Energy Community who signed a
memorandum of understanding and cooperation with the Trans-Adriatic Pipeline AG
(TAP). TAP was recently selected as the pipeline that will transport Azeri gas
into the EU.

Conclusion

Some progress
has been made in the area of Trans-European Networks. Significant work remains
to be done on improving road and rail links. Further efforts need to be made to
upgrade the electric transmission system. Overall, preparations in this area
are moderately advanced.

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

As regards the legislative framework,
the relevant national policies (competition, state aid, public procurement,
environmental protection, transport, anti-discrimination, gender equality) are
not yet fully in line with the EU standards and requirements or the SAA.
Preparations in this area are still at an early stage.

As regards the institutional framework,
all key appointments have been made in the two IPA operating structures. Euro
bank accounts for each of the two operational programmes (Regional Development
and Human Resources Development) were opened in December 2012. Preparations for
decentralised management continued with the finalisation of the
manuals of procedures along with the operational and implementation agreements.
Following the results of the compliance assessment for the two programmes, the
accreditation of the national structures were finalised in March 2013. The
accreditation package was submitted to the European Commission in March 2013
for both programmes and the European Commission audit reports are under
preparation. The organisational set up still needs to be completely aligned
with the audit findings and recommendations. Preparations in this area are now
moderately advanced.

In the area of administrative capacity,
the insufficient number of staff in place in IPA bodies and institutions, the
organisational set-up and financial independence of the audit authority are
major outstanding issues.

In the area of programming, the
Commission approved the strategic coherence framework in December 2012. It
adopted the operational programme for human resources development in October
2012, and drafting of project identification sheets is at an advanced stage. The
operational programme for regional development was adopted in December 2012.
The quality and maturity of projects need to be further improved to comply with
the requirements for the IPA components preparing for the structural funds and the
cohesion fund. Project preparation and strategic planning capabilities need to
improve. Preparations in this area are now moderately advanced.

In the area of monitoring and
evaluation, the development and installation of a comprehensive and
computerised management information system, accessible and usable by all
concerned bodies, is still at early stage. Preparations in this area still need
to be launched.

In the field of financial management,
control and audit, the audit authority was registered for legal, tax and
statistical purposes in November 2012. It moved out of the premises of the
state audit institution to its own offices in March 2013. Full segregation of
the audit authority from the state audit institution will only be achieved when
it has its own human resources management, accounting and archiving function.
The organisational chart was approved in February 2013. Of the five employees
trained to audit IPA funds, none was selected. Currently the audit authority
has a staff of four (one senior and one junior auditor, the chief auditor and a
translator). The deputy chief auditor has still to be appointed. The audit
methodology and manuals of procedure have not yet been finalised. The audit
software is still to be installed and training to be done. The capacity of the
audit authority remains an issue of concern. Preparations in this area are not
very advanced.

Conclusion

Some progress
was made in the area of regional policy and coordination of structural
instruments. Overall, preparations in this area are at an early stage. The main
issues of concern remain the staffing of the IPA operating structures, the
organisational set-up, and the operational and financial independence of the
audit authority.

4.23.
Chapter 23: Judiciary and fundamental rights

In June 2013,
the government adopted the action plan for Chapter 23, which addresses the
recommendations made in the screening report and constitutes the benchmark for
opening negotiations on this chapter. The action plan covers the areas of
judicial reform, anti-corruption, and fundamental rights. It has been developed
in close consultation with the European Commission, relevant stakeholders,
civil society and international organisations.

Judicial system

Judicial reform
has proceeded slowly. The judicial reform strategy for
the period 2007-2012 and the revised action plan have been partially
implemented. The adoption of the new judicial reform strategy for the period
2012-2018 is still pending.

As regards the independence and
impartiality of the judiciary, in July 2013 parliament adopted
amendments to the Constitution designed to enhance the independence of the
judiciary, in particular by reducing political influence on the appointment of
prosecutors and high-level judicial officials through more transparent and
merit-based procedures and increased majority thresholds where parliament is
involved. The main areas which were reformed in line with the recommendations
of the Venice Commission and European standards are the appointment and
dismissal of the President of the Supreme Court, the composition and
competences of the Judicial Council, the election and dismissal of judges of
the Constitutional Court as well as the appointment and dismissal of the
Supreme State Prosecutor and prosecutors. Parliament also adopted the
constitutional law on implementation of the constitutional provisions, setting
deadlines for the alignment of the relevant legislation with the new rules. In
September, parliament adopted amendments to the law on the judicial council,
the law on courts, the law on the constitutional court and the law on the state
prosecution, with a view to aligning them with the recent constitutional
amendments.

In July 2013 parliament adopted amendments
to the Criminal Code, which introduce a new provision on obstruction of
justice, making undue interference in the work of judicial officials punishable
by imprisonment.

The Judicial
Council appointed six judges. The selection criteria continue to be vague and
are not assessed on the basis of clearly-defined indicators. The grounds for decisions
are not fully documented. Uniform, objective, and transparent assessment of
candidates is yet to be guaranteed. Vacancies continue
to be published for specific courts, and a single, countrywide recruitment
system based on transparent and objective criteria has yet to be established
for judges and prosecutors. It should be complemented by a system of voluntary,
horizontal, permanent transfer. A fair, fully merit-based and transparent
system of promotion for judges and prosecutors needs to be established,
together with periodic professional assessment of their performance.

The functioning
of the Judicial and Prosecutorial Councils continues to be hampered by
insufficient staffing and budgets. The transparency of the Judicial Council’s
work needs to be further increased.

Random
allocation of court cases continues to be ensured in courts, except in smaller
courts with few staff. Since April 2013, all court cases have been assigned
electronically using the Judicial Information System.

Most court
decisions have become publicly accessible but they are not published in a
timely manner. In March, the Supreme Court adopted guidelines on access to
information.

In comparison
with Council of Europe and EU member states, and bearing in mind the size of
the population of Montenegro, the Montenegrin president issued a very high
number of presidential pardoning decisions (2012: 366; 2013: 299 until July).
In August 2013, parliament adopted an amnesty law leading to the release,
shortening or abolishing the sentences of 380 convicted criminal offenders. It
is a matter of concern that this amnesty law was passed without prior risk and
impact assessment. It needs to be avoided that such practices lead to impunity
and counteract efforts in the area of fighting corruption and organised crime.

In the field of
accountability of the judiciary, five disciplinary proceedings
were initiated against judges; three cases were dismissed, while two
proceedings are still pending. The disciplinary system needs to be improved to
fully comply with the principles of legality and proportionality and to reduce
discretion in the application of disciplinary rules. 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. Additional measures
should be taken to raise citizens’ awareness of existing complaint mechanisms,
in particular the Code of Ethics. Immunity rules and their practical application
need to be clarified in line with best practice to
ensure full accountability of judges and prosecutors under criminal law.

As to efficiency,
the courts continued to reduce the backlog of cases, by approximately 6%
during 2012. The basic courts cut the backlog by 14%. The growing backlog of
the commercial courts and the administrative court remains a matter of concern.
Following the enactment of the law on bailiffs in December 2011, the relevant
by-laws were adopted and training for bailiff candidates conducted. Recruitment
of bailiffs is still awaited. The enforcement of civil and administrative
decisions remains weak. A reliable statistical system to measure the recovery
rate, costs, and duration of enforcement proceedings has yet to be established.

The length of
trials is still a matter of concern. Montenegro needs to continue giving
priority treatment to and monitoring old cases. The possibility of referring
cases from higher to lower instances without going into the merits of the case
is one of the main reasons for lengthy trials; this option could be limited to
extraordinary circumstances in accordance with European best practice.

Following the
adoption of amendments to the law on mediation in May 2012, a number of by-laws
have been adopted. Most cases
of mediation relate to family cases and cases involving juvenile offenders;
regarding civil and commercial matters, recourse to mediation is rare. The use
of mediation needs to be promoted, e.g. through providing specialist training
for judges and awareness-raising.

The 2013 budget for the judiciary and the
prosecution is €26.1 million (0.8% of GDP), of which €20.3 million is allocated
to the judiciary. The salaries of magistrates and administrative staff continue
to account for the bulk of this, thus reducing the scope for remedying
shortcomings in infrastructure and equipment. The prosecution is struggling to
cover the cost of criminal proceedings.

Further steps have been taken with a view
to rationalising the judicial network. In February, the Ministry of Justice
adopted an analysis on the rationalisation of the judicial network. It
recommends streamlining the network of misdemeanour courts, merging the two
commercial courts, and hearing cases of organised crime, corruption, terrorism
and war crimes only in one special division of the Podgorica High Court. A plan
for implementing the recommendations was adopted in June 2013.

The Judicial
Information System (PRIS) started to be used for statistical reporting, thereby
increasing the reliability of data. The statistical
indicators used do not yet provide full information about the duration of
trials and courts’ performance. Further improvements to
the judicial IT system in accordance with relevant indicators are needed to
ensure reliable and consistent data and to introduce a
system to monitor the length of trials.

A medium- and
long-term human resources strategy needs to be developed. Standards for the
workload of judges and standard timeframes for proceedings for specific types
of cases and/or specific courts have yet to be set as a basis for determining
the resources needed to eliminate the backlog and to resolve the influx of new
cases and allocating them efficiently.

The Judicial
Training Centre continued to provide initial and continuous training to judges
and prosecutors. The independence and the
administrative and financial capacity of the centre need to be strengthened.

As regards access
to justice, the implementation of the law on free legal aid through the
free legal aid offices established in all basic courts continues to be hampered
by the offices’ insufficient budget and the lack of public awareness. Free
legal aid services are inaccessible to some ethnic groups due to linguistic
barriers. The timeframe established by law for deciding whether an application
meets the eligibility criteria is considered to be extremely short.

As regards domestic
handling of war crimes, in the case of the deportation of Bosnian refugees
(1992), the Appellate Court confirmed in May 2013 the second first-instance
judgment rendered by the Podgorica High Court in November 2012, which acquitted
all nine indicted former officials of the Montenegrin Ministry of Interior.
This judgement is final now and concludes the second, out of four, local war
crimes trials. The first-instance trial against eight former members of the
Yugoslav Army indicted for war crimes in Kaludjerski laz (1999) has been
ongoing since 2009. In November 2012, one defendant was released on bail. In
July 2013, the Podgorica High Court rendered a decision on the third
first-instance trial in the case of war crimes committed against prisoners of
war and civilians in the Morinj camp (1991). Four defendants were sentenced to
the same low prison sentences as in the second first-instance judgement of
January 2012. Montenegro needs to make efforts to tackle impunity. All
outstanding reports of war crimes need to be duly followed up. Decisions by the
Montenegrin judiciary on war crimes cases need to be in line with international
humanitarian law, to reflect the jurisprudence of the International Criminal
Tribunal for the former Yugoslavia, and to fully apply domestic criminal law.
The charges of command responsibility, co-perpetration or aiding and abetting
have so far not been used. Montenegro needs to ensure that civilian victims
have access to justice and reparations.

Anti-corruption policy

Implementation
of the strategy for fighting corruption and organised
crime and the revised 2011-2012 action plan has continued. The action plan for 2013-2014 was adopted in May 2013. Some 100
measures (almost one third) of the previous action plan have not been
implemented and were included in the new action plan. Also, the action plan for
Chapter 23 envisages a set of ambitious measures in the area of
anti-corruption. Montenegro needs to strengthen its overall capacity to
properly implement and monitor all actions foreseen to prevent and fight
corruption. So far the impact of anti-corruption measures has been limited.

Some efforts were made to strengthen the
legal and institutional anti-corruption framework. The new parliamentary
Anti-Corruption Committee, chaired by an opposition MP, was set up. In March
2013, parliament adopted amendments to the law on data secrecy, allowing
members of the Anti-Corruption Committee to access classified data without
prior permission.

The recent parliamentary elections had a
number of shortcomings with regard to the implementation of the current
legislation on political party financing. A working group has been established
in order to improve the legal framework (see also section 2.1 – Parliament).
The recommendations made by OSCE/ODIHR also need to be addressed as part of
this process. The reporting and accounting obligations of political parties
need to be enhanced and made more transparent. Significant efforts need to be
made to prevent the abuse of state resources for electoral campaigns. In July
2013 parliament adopted amendments to the Criminal Code, which introduced the
criminal offence of abuse of state resources. Rules on party and campaign financing need to be better enforced.
Dissuasive penalties should be introduced and applied in practice. An effective
monitoring system before and during election campaigns needs to be ensured. The
independence and the financial and human resources of the state election
commission need to be reinforced in order to ensure effective exercise of its
supervisory and monitoring function. The state audit institution also requires
additional resources, in particular additional qualified auditors. The
remaining recommendations by the Council of Europe’s Group of States against
Corruption (GRECO) need to be fully implemented.

As regards control of conflict of interest
and checks on asset declarations, the law on internal affairs was amended in
July 2013 to require about 500 high-ranking police officials to disclose their
assets. Not all state and local officials submitted asset declarations within
the deadline set by the law. The Commission for the Prevention of Conflict of
Interest initiated proceedings against 602 officials who failed to submit their
asset declarations for 2012/2013 (September 2012 - September 2013) in time. In
508 of these cases, misdemeanour proceedings have been launched, out of which
so far 400 cases have been resolved; fines were imposed in 101 cases (for a total
amount of €24 950), reprimands were issued to 240 public officials. The
Commission also launched proceedings against 222 officials who provided
incorrect information in their asset declarations. Due to the practice of
discontinuing proceedings if public officials provide additional information
and correct their asset declarations, only 15 misdemeanour proceedings have
been launched; four cases have been resolved: one case was dismissed; one case
has led to a small fine; and two officials were reprimanded. Between September
2012 and September 2013, around 2 200 assets declarations were checked and
compared with the data of the real estate administration, the securities
commission, the tax administration, and the public procurement administration.
Cross-checking of data needs to be improved. In March, the Commission for the
Prevention of Conflict of Interest signed a memorandum of understanding with
the directorate for real estate but it does not yet have access to all relevant
databases held by other state entities. The Commission still lacks the power to access banking information
and check for illicit enrichment. The Commission should carry out its tasks in
a more proactive manner, and also focus on uncovering cases of illicit wealth
through systematically cross-checking declarations of assets with data from
other databases, on the basis of risk assessments. Cooperation with law
enforcement institutions on uncovering illegal acts needs to be stepped up.
Increased attention needs to be given to checking on conflict of interest,
where there is a risk of public officials taking official decisions that
benefit themselves or persons close to them. The Commission has launched
procedures against 22 public officials for failure to declare a possible conflict
of interest in the performance of their duties. Dissuasive penalties need to be
applied.

Montenegro needs to strengthen
implementation capacity at all levels in order to reduce irregularities in the
implementation of the law on public procurement by different contracting
authorities. The lack of transparency of certain procedures, failure to appoint
public procurement officers, splitting of single public procurement contracts
into several contracts and poor reporting create conditions conducive to corruption.
Targeted training for prosecutors and judges on public procurement issues
should be provided. Monitoring and control measures need to be increased, both
in the phases of ex-ante control and contract implementation. (See
also Chapter 5 — Public procurement)

The Directorate
for Anti-Corruption Initiatives (DACI) continued to implement awareness-raising
campaigns and provide training and workshops on integrity plans for public
officials. The government adopted guidelines on drafting integrity plans for
civil servants. State institutions, including courts, have appointed integrity
managers responsible for the preparation and implementation of the integrity
plans. The customs administration adopted a new code of ethics, which entered
into force in January 2013. In July 2013, amendments to the criminal code were
adopted, containing a provision that renders dismissals of whistle-blowers
punishable. Whistle-blower protection needs to be made more effective in
practice in order to facilitate reporting of corruptive acts.

Training of
civil servants on the amended law on free access to information, which entered
into force in February 2013, has started. Effective application of the
provisions on prevailing public interest, including where corruption is involved,
and with regard to sensitive information of economic value, has yet to be
tested. The independence of the agency for personal data protection and free
access to information should be strengthened. Its administrative capacity to
implement the law should be reinforced through additional staff and training.

In January, the
government adopted an analysis of the implementation of the criminal procedure
code and a working group has been set up to draft amendments aimed at
overcoming the legal and institutional shortcomings it identified. Based on an
analysis of the rationalisation of the court network adopted in February,
jurisdiction for cases of organised crime, corruption, terrorism and war crimes
is to be concentrated in one specialised division of the Podgorica High Court.
By-laws to the law on management of seized and confiscated assets were adopted
in October to improve the management of seized or confiscated proceeds of crime
and provide the legal basis for their sale.

The
institutional and operational capacity of prosecutors, judges and police to
fight corruption has been enhanced through further training support but remains
insufficient. The special investigative team in the special prosecution office
still lacks direct access to relevant databases, as well as human and financial
resources, in particular financial expertise. The professional capacity of the
Public Property Administration, responsible for the management and sale of
proceeds of crime, needs to be reinforced. The capacity to carry out systematic
financial investigations in corruption cases needs to be enhanced. Inter-agency
cooperation has improved to a certain extent but needs to be further developed,
including between the prosecution and police in the pre-trial phase. The
prosecution’s leading role needs to be strengthened. Montenegro participates in
the Regional Judicial Training Network established by the Regional
Anti-Corruption Initiative as an initial step to the establishment of a
framework for integrated anti-corruption legal education in the region.

Progress in developing a track record of
investigation, prosecution and conviction in corruption cases remains limited,
especially with regard to high-level corruption cases. There were no final
convictions in high-level corruption cases. The first-instance verdict of abuse
of office and bribery involving a former Mayor of Budva and a national MP was
annulled on procedural grounds by the Court of Appeal and the case returned to
the first-instance court for retrial. Two financial investigations are ongoing
but, in general, financial investigations are not used systematically. There
are still no corruption cases in which seizure of assets has been ordered.

Following the release of audio tapes of the
ruling party’s meetings, the prosecution, after initial hesitation, launched an
investigation into the alleged abuse of state resources and violation of the
right to equal employment for electoral purposes. So far no indictments have
been issued. In addition to the prosecutorial investigation, parliament carried
out an inquiry about the alleged abuse of public resources and violation of the
right to equal employment. The parliamentary inquiry resulted in the adoption
of a technical report without any concrete recommendations for establishing political
responsibility. (See also section 2.1 – Parliament.)

Infiltration of organised crime in the
public and private sectors is a serious cause for concern. The areas of
construction and spatial planning, education, healthcare and public procurement
continue to be extremely vulnerable to corruption.

Frequent changes to the relevant
legislation, slow processing of high-profile cases of corruption and the
quashing of verdicts hinder the effectiveness of the fight against corruption.
There is no proactive attitude of law enforcement authorities to look into
allegations of corruption, especially those involving high-level officials. A
high rate of the investigations into reported corruption-related offenses never
result in an indictment. The acquittal rates at first instance and in the
appeal courts are high. Shortcomings with regard to the independence and
accountability of the judicial system remain a serious matter of concern and
hamper the fight against corruption.

Fundamental rights

Overall, Montenegro improved its respect for international
human rights. It became a member of the UN Human Rights Council in January.
It was reviewed under the second cycle of the Universal Periodic Review in
January, during which it received 124 recommendations, of which it accepted 109
and took 15 under examination. The Council of Europe Convention on Preventing
and Combating Violence against Women and Domestic Violence was ratified in
March 2013. The Constitution (Article 20) has yet to be aligned with Article 13
of the European Convention on Human Rights (ECHR), in relation to safeguarding
the right to an effective remedy before the national authorities for violations
of rights under the Convention. The ratification process for the Convention on
Reduction of Statelessness is still pending. The implementation of
international human rights standards needs to continue; the national
legislation still requires further alignment.

Montenegro continued to cooperate with the European Court
of Human Rights (ECtHR), including on ensuring national courts’ compliance
with the Court’s case law. New training courses for judges and prosecutors took
place. The Court delivered judgments on six applications finding that
Montenegro had violated rights guaranteed by the ECHR, most of them relating to
the right to a fair trial and to an effective remedy. A total of 192 new
applications have been submitted to the Court since September 2012, bringing
the total of pending applications to 889.

With regard to the promotion and enforcement of human
rights, the Protector of Human Rights and Freedoms (the Ombudsman) has
received more staff, while the budget of the Ombudsman has been reduced for
2013. The parliamentary Committee for human rights and freedoms endorsed the
Ombudsman’s reports on abuse of children via internet; on prisons conditions
and on protection from discrimination – as well as the Ombudsman general report
for 2012. The Committee’s cooperation with the Ombudsman and civil society
continues to be good.

Following the
formation of the new government in December, a new Ministry for Human and
Minority Rights was created, independent from the Ministry of Justice. The
capacity of the Ministry, as well as of the Ombudsman, still needs to be
strengthened. Shortcomings persist in the protection of human rights by
judicial and law enforcement authorities, especially as regards vulnerable
groups.

In the field of prevention of torture and ill-treatment
the law on the ombudsman remains to be amended to define the duties stemming
from the institution’s role as the national preventive mechanism. In February,
three police officers were sentenced to seven months of imprisonment each for
ill-treating a detainee in 2008; yet, the case was annulled by Podgorica High
Court in June for procedural reasons and returned for a new trial. Processing
of such cases remains slow and impunity remains a matter of concern, especially
in cases where members of law enforcement authorities are involved. The
treatment of convicted persons and detainees needs to be brought in line with international
standards.

The legal and policy framework governing the prisons system
has improved. Accommodation capacity has been expanded. A special detention
unit for juveniles and women has been set up. Facilities have been built to
allow prisoners to work on the prison premises. Additional efforts are needed
to increase the use of alternative sanctions, as well as to organise activities
to contribute to socialisation and rehabilitation of detainees. A new amnesty
law, passed in July, contributed to reduce prisons’ overcrowding; however, the
adoption of this law lacked a prior risk analysis and impact assessment.

Freedom of
expression has continued to be ensured, e.g. with
the recent start of more serious investigations into cases of violence against
journalists and the pronouncement of verdicts in some cases. Two final rulings
found individuals guilty of violence against two reporters, in one case, and of
endangering the safety of a journalist, in the other. In January, a former
police officer was fined by a basic court for threatening and endangering the
safety of a journalist; another police officer was charged with jeopardising
the safety of an investigative journalist. Courts in Montenegro have been
generally abiding by the case law of the European Court of Human Rights;
training on its standards — given by the judicial training centre — continued.
Still, the involvement of public officials, in particular police officers, in
cases of intimidation and assaults against journalists remains a source of serious
concern, as does the recent rise in cases of violence against journalists.
All old and recent cases of threats and violence need to be thoroughly
investigated and prosecuted.

Efforts to
privatise state-owned print media have been unsuccessful. Concerns remain that
the state is in breach of the law on the media, which prohibits the state from
founding print media. Concerns persist also regarding possible state aid and
advertising funding allocated to print media in 2012, which were not in line
with public procurement rules and could jeopardise competitiveness on the media
market. Some mainstream media have not established any self-regulation.
Promotion and enforcement of professional and ethical standards remain a
challenge for most media.

Montenegro continues to uphold freedom of assembly and
association.

Freedom of thought, conscience and religion continues to
be guaranteed and enforced; however, tensions persist between the Serbian and
the Montenegrin Orthodox Churches, especially on property issues. The 1977 law
on the legal status of religious communities still applies, while the adoption
of the new law is pending.

Regarding women’s rights and gender
equality, in March, parliament ratified the Council of Europe Convention on
Preventing and Combating Violence against Women and Domestic Violence. The
first shelter for women and children victims of domestic violence was opened in
Podgorica in December and is operated by a local NGO, with an initial support
from the government. The 2013-2017 Gender Equality Plan and the implementation
programme for 2013-2014 was adopted by the government in January and aims at
eliminating gender discrimination in the labour market and ensuring better
protection from domestic violence. While the formal requirement that women
comprise at least 30% of candidates on electoral lists has been met, women
remain under-represented in parliament and in managerial positions. Efforts are
needed to ensure gender equality in the labour market.

Children’s rights have been
strengthened by the ratification of the Optional Protocol to the Convention on
the Rights of the Child on the communications procedures, as well as by the
introduction of provisions in the criminal code sanctioning sexual abuse,
trafficking and forced marriage involving children. A new law on social and
child protection was adopted in May, while an accompanying strategy followed in
July; the new national action plan for children was also adopted in July. The
Ministry of Labour and Social Welfare and the Ministry of Education launched
the first national child protection database with a view to providing reliable
data on the situation and needs of children.

The situation of the socially vulnerable and/or
persons with disabilities has not improved. The amendments to the Law on
spatial development, adopted in July, foresee some measures to improve access
to buildings to persons with reduced mobility. Yet, overall access to
buildings, including education and medical facilities, remains a concern. The
law on prohibition of discrimination against persons with disabilities contains
a number of shortcomings and needs to be amended. The financial support paid to
employers for employing persons with disabilities is insufficiently protected
against misuse. Monitoring and sanction mechanisms in this area remain
insufficient.

In the area of anti-discrimination
policies, the Ombudsman continued to promote the protection of all
vulnerable social groups, despite its limited resources. The
anti-discrimination law remains to be amended, to bring it in line with the acquis.

The government adopted a strategy for
enhancing the quality of life of lesbian, gay, bisexual, transgender and
intersex (LGBTI) persons for 2013-2018. The authorities fully supported the
first Pride parade which took place in Budva in July. Yet, assaults on the
participants showed a high level of homophobia in the country which needs to be
addressed. The police charged 32 persons for indecent and reckless behaviour
during the parade.

Labour and trade unions rights are generally
respected; in July amendments to the law on representativeness were adopted,
aiming at improving these rights. Bi-partite social dialogue remains
unsatisfactory and the role of the Social Council is still limited. Fully
transparent representation and the right to form new unions need to be ensured.
Negotiations on the new general collective agreement are ongoing.

With regard to property rights, restitution of
property, in line with Montenegro’s legislation, is still slow, due to
cumbersome procedures and a lack of administrative capacity. Displaced persons
permanently resident in Montenegro still face discrimination with regard to
access to land.

Montenegro continues to ensure respect for and the protection
of minorities and cultural rights. Interethnic relations in the country
continue to be good. However, the Minority Fund continues to operate with
significant shortcomings, notably regarding the allocation of funds and proper
implementation of projects.

As for the inclusion of Roma,
Ashkali and Egyptians, the 2013 action plan to implement the strategy for
improving the status of Roma and Egyptians in Montenegro was adopted by the
government in January. Following the fire in the Konik camp in July last year,
the government responded efficiently and provided the necessary assistance in
cooperation with international stakeholders. All 800 persons who lost their
homes have been re-housed in temporary mobile containers and connected to the
electrical grid; concerns remain as regards the poor water supply in the camp.
Vulnerable groups, including Roma, have been included in the law on social
housing adopted by the parliament in July, requiring relevant local and
national authorities to swiftly assume their responsibilities. Action plans for
Roma integration in the municipalities of Bijelo Polje, Berane and Ulcinj have
been finalised and adopted by the local assemblies.

Discrimination remains prevalent in access to employment and
to social and healthcare. Based on the current electoral law, the Roma are
underrepresented on the political level. Measures have been taken to facilitate
education and employment, but drop-out rates and unemployment among Roma remain
high, especially for women.

Since December 2012, there have been no working meetings of
the Coordination Board in charge of overseeing the implementation of the
strategy for finding durable solutions to the status of internally displaced
persons. Some 58% of this group have applied for permanent or temporary
residence, of which 37% acquired permanent residence as of May. Serious
obstacles to obtaining status remain, including: problems with subsequent birth
registration; the cost of obtaining documents; the situation of extremely
vulnerable people; confusion over the legal provisions on the number of years
in different residence categories which can be counted towards Montenegrin
citizenship. The temporary decree on access to social and economic rights for
displaced persons has been amended to prolong its validity until June 2014.

As regards protection of personal data, efforts need
to be stepped up to ensure appropriate implementation of the relevant
legislation. In September 2013 the Ministry of Interior terminated a
controversial agreement with a private telecommunications company, following a
ruling that found the agreement in breach of data protection legislation. The
right balance needs to be struck between the right to free access to
information and the rules on protection of personal data.

Conclusion

Overall,
Montenegro has made some progress in the area of the judiciary and fundamental
rights. Transparency of the work of courts has improved and the backlog of
court cases has fallen. Further steps have been taken with a view to
rationalising the court network. The constitutional amendments aimed at
strengthening judicial independence have been adopted. A single countrywide
recruitment system for judges and prosecutors and an objective and merit-based
promotion system have yet to be introduced. Measures need to be taken to
strengthen accountability and integrity safeguards in the judicial system. The
budget allocated to the judiciary is insufficient. The enforcement of civil and
administrative decisions remains weak. As regards domestic handling of war
crimes, Montenegro needs to make efforts to tackle impunity and to ensure that
decisions of the Montenegrin judiciary on war crimes cases are in line with
international humanitarian law, reflect the jurisprudence of the International
Criminal Tribunal for the former Yugoslavia, and fully apply domestic criminal
law. In the area of anti-corruption, the implementation of the relevant
legislative framework has shown a number of shortcomings which require further
legislative action. The capacity of supervisory institutions in charge of
controlling political financing and conflict of interest needs to be enhanced.
Corruption remains prevalent in many areas and continues to be a serious
problem. Infiltration of organised crime groups in the public and private
sector needs to be addressed. Increased efforts are needed with regard to the
development of a credible track record of investigation, prosecution and
conviction in corruption cases, including high-level cases. Annulments of
first-instance verdicts in cases of corruption and organised crime give rise to
concern. The number of final convictions remains low and no seizure or
confiscation of assets has taken place yet in corruption cases. Serious
consideration needs to be given to the reasons for a considerable share of
investigations into corruption-related offences not resulting in an indictment.
Some progress has been made in the area of fundamental
rights, notably through the transposition of international instruments into
national legislation. However, shortcomings persist in the protection of human
rights by judicial and law enforcement authorities, particularly as regards
vulnerable groups, especially the Roma, the lesbian, gay, bi- and trans-sexual
population and disabled persons. Further efforts are needed to prevent and
combat violence against women, in particular Roma women, and domestic violence.
Old and recent cases of threats and violence against journalists have not been
resolved yet and efforts to process them need to be stepped up. Further efforts
are also needed to ensure appropriate implementation of data protection
legislation.

4.24.
Chapter 24: Justice, freedom and security

In the area of migration, a centre
for migrants was built, but its opening has been delayed. In April, the
government adopted the new action plan 2013-2014 for implementing the strategy
for integrated migration management. Training on irregular migration continued.
Readmission agreements entered into force with the Benelux and Slovakia, were
ratified with Moldova and signed with Turkey and Serbia. Further efforts are
required to ensure full alignment with the acquis in the field of legal
migration, and to raise the authorities’ awareness of the issues of mixed
migration, integration of migrants and the protection of vulnerable groups in
this area. A return agreement with Kosovo has yet to be signed. Preparations
for aligning legislation with the acquis are moderately advanced.

The country faced a sharp increase in the
number of asylum applications compared to previous years (1 529 in
2012, compared to 239 in 2011). While most of the applicants leave before the
end of the procedure, current reception capacity needs urgent expansion. The
opening of the new asylum-seekers centre has been further delayed, pending
adoption by parliament of a number of relevant by-laws. One person has been
granted refugee status and subsidiary protection has been extended to four
persons. The temporary reception solutions require alignment with minimum
standards, especially with regard to healthcare; risks remain regarding the
exposure of the persons hosted there to smugglers and to illegal activities.
Additional training is required for border police, on the principle of
non-refoulement and humanitarian law standards, and on the state asylum appeals’
commission, to improve the evidence base for decisions. Lack of interpreters
remains an obstacle, as well as the poor inter-service coordination in the
field of asylum. An electronic database of asylum applications has yet to be
established. Preparations for alignment with the acquis are at an early
stage; the law on asylum is only partially aligned, including as regards the
limitation of subsidiary protection to six months.

On visa policy, the country has only
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 Azerbaijan, Armenia and Kazakhstan have
been adopted for the summer season. An electronic link between the diplomatic
and consular missions and the national visa system of the Ministry of Foreign
Affairs and European Integration has not yet been established. Visas for
entering Montenegro are not yet in line with EU standards and lack security
features. Preparations for alignment with the acquis are at an early
stage.

In the field of
external borders and Schengen, the new integrated border management
(IBM) strategy for the period 2013-2016, and action plan, were adopted in
December 2012. The strategy is not entirely in line with the EU concept of IBM.
In July, the law on border control was amended with the aim of further
alignment with the EU acquis. All border crossing points (BCPs) have
been connected to a single information system for performing checks on persons,
vehicles and documents, connected to the national and Interpol databases. Two
new patrol boats have been purchased for the ‘blue border’. Capacity-building
and training continued. The EU Common Core Curriculum has yet to be integrated
— at all levels — into those of the Montenegrin border police. Relations with
neighbouring countries improved; joint patrols with Bosnia and Herzegovina,
Serbia and Albania were carried out. Preparations to establish a common contact
point with Bosnia and Herzegovina and with Kosovo are ongoing. Talks are
ongoing with Kosovo and with Bosnia and Herzegovina on an agreement on the
state border. A similar one with Serbia is being currently negotiated.
Montenegro and Bosnia and Herzegovina have agreed to close the unauthorised
border crossing points between the two countries.

Overall, the
legislative framework on border control is only partly aligned with the acquis.
Considerable efforts are needed to increase effectiveness of the border police
and to modernise the BCPs’ equipment (including for border checks) and border
premises. The security of the green and blue border needs to be strengthened,
e.g. border controls at the main port of Bar. The border police training system
needs to be enhanced, and to raise awareness of issues relating to migration
policy, asylum and the fight against trafficking in human beings. Inter-agency
cooperation requires improvement, especially with customs; under the current
provisions, the border police do not have separate investigative powers.
Measures to fight corruption and other criminal activities at the border, especially
smuggling, need to be reinforced.

In the area of judicial cooperation in
civil and criminal matters, a new law on international legal assistance in
criminal matters was adopted by parliament in July. As regards judicial
cooperation in criminal matters, the legal framework for fighting serious and
organised crime at regional and international level was reinforced: in July, two agreements, to facilitate the implementation of the European
Conventions on Extradition, and on Mutual Legal Assistance in Criminal Matters,
were signed with Italy. In June 2013, the judicial
training centre became an observer in the European Judicial Training Network;
the administrative capacities of the department for international legal
cooperation of the Ministry of Justice were strengthened. Additional efforts are needed to align the national legislation
with the acquis, including on the principle of mutual recognition of
judgments and probation decisions. A new law on international private law has
not been adopted yet. The cooperation agreement with Eurojust is yet to be
signed, pending additional information on the protection of personal data and a
fact finding visit, to take place in October 2013.

As regards police cooperation and the
fight against organised crime, the country has continued to actively engage
at international and regional level, including by ratifying cooperation
agreements with the former Yugoslav Republic of Macedonia, Bosnia and
Herzegovina, and the Czech Republic. An operational
agreement with Europol has not been concluded yet.

Implementing legislation for the law on
internal affairs was adopted. Some of the law’s provisions challenge the role
of the prosecutor in investigations and others allow the Minister to intervene
in police work. Independent and transparent oversight of the police, a fair
recruitment policy and a robust complaints’ mechanism have yet to be
established. Ethical standards of the police need to be strengthened by a
proactive policy, in order to, inter alia, prevent the participation of
police officers in criminal activities. The amendments to the criminal code
adopted in July include provisions on cybercrime, on anti-money laundering and
terrorism financing and on trafficking in human beings, aiming at further
aligning definitions with international standards.

Frequent staff
moves in middle management positions seriously affect the institutional memory
of the police. Specialised units dealing with organised crime are understaffed,
including at regional level. Only foreign witnesses were accommodated under the
witness protection scheme in 2012 and 2013, for short periods of time. There is
no secure platform to store and exchange data between law enforcement agencies.

The special
division of the prosecutor’s office continued to lead the fight against
organised crime; however, its role in this respect should be further enhanced,
as well as its cooperation with the police. The classified version of the
organised crime threat assessment (OCTA) has been made available to the
prosecutor since December 2012. Yet, its special investigative team is still
disconnected from other law enforcement agencies in term of access to relevant
databases, and this hampers its effectiveness. As regards the track record of
cases against organised crime, some verdicts were given in drug smuggling
cases; only a few cases refer to more complicated crimes such as trafficking in
human beings and money laundering. Following annulments of first-instance
judgments for procedural reasons in high-profile cases, serious concerns
persist regarding the lack of legal certainty.

Financial
investigations are still not used systematically. Their overall number, as well
as that of seizures of assets, remains low, due to weak administrative
capacity and insufficient inter-agency cooperation.

As regards cybercrime, the
amendments to the criminal code include provisions to further align the
definition of child pornography with international standards. The police
continue to provide a 24/7 contact point. Still, the capacity of the prosecutor’s
office and of the police in this area is weak, including as regards monitoring
e-sites. Establishing a training scheme for law enforcement agencies on
cybercrime is essential.

In the fight against money laundering,
implementing legislation to the law on prevention of money laundering and
terrorist financing was adopted in December 2012; yet, a new law remains to be
adopted, aiming at strengthening the legal framework and, particularly, the
sanctioning system. The administration for the prevention of money laundering
and terrorist financing conducted an organisational and legal review, adopting
strategic objectives and identifying legal shortcoming. The current IT system
is outdated and needs to be modernised. Montenegro adopted amendments to the criminal
code aiming to address Moneyval recommendations of December 2012. The number of
suspicious transactions reported remains low; additional guidelines and
training are needed for the relevant organisations to raise awareness of their
reporting obligations.

The new national strategy for combating trafficking
in human beings for the period 2012-2018 and the relevant 2012-2014 action
plan have been adopted. The criminal code has been amended to improve the
identification of victims and introduce offences such as trafficking in human
body parts. The code also includes slavery and forced marriage as criminal
offences resulting from trafficking in human beings. A comprehensive,
multi-disciplinary and victim-oriented approach to trafficking still needs to
be developed; identification of victims, as well as investigations,
prosecutions and convictions against human beings traffickers need to be
improved.

Overall, organised crime remains a serious
concern in Montenegro.

As regards the fight against terrorism,
the 2013-2014 action plan for implementing the strategy for the prevention and
suppression of terrorism, money laundering and terrorism financing was adopted
in July. Work to provide secure arms storage in Brezovik has been completed.
Recent amendments to the criminal code also aimed at addressing Moneyval recommendation in the field of
terrorism financing. Overall, the national legislation still needs to be
aligned with the acquis in this area. Preparations
for alignment with the acquis are at an early stage.

On cooperation in the field of drugs,
a strategy for the prevention of drug abuse (2013-2020), identifying priority
areas similar to those of the EU drugs strategy, was adopted together with an
action plan (2013-2016). The law on prevention of drug abuse was amended in
July with a view to further aligning it with EU standards. Montenegro
participated in dismantling drug rings in cooperation with Interpol, Europol,
EU Member States’ and neighbouring countries’ police forces and the United
States. Awareness-raising activities on drugs were conducted in schools and at
local level.

The country is on the main Balkans drug
trafficking routes and continued and sustained proactive efforts by the police
and customs administration are needed to detect and seize narcotics at the
borders, including at all ports. A significant amount of cannabis was seized;
the amounts of heroin and cocaine seized remain very low. A focal point for
cooperation with the European Monitoring Centre for Drugs and Drug Addiction
(EMCDDA) has been appointed and has provided training to staff in the Ministry
of Health and the Ministry of Interior. Yet, the
country is not ready for participating systematically in the cooperation with
the centre, due to a lack of human and budget resources. Preparations for
alignment with the acquis are moderately advanced.

A special unit for international customs
cooperation and European integration has started work. The customs
administration has not yet produced the documents needed to implement the new
computerised transit system. The port of Bar was provided with technical
equipment to improve checks on containers.

Additional efforts are needed to enhance
checks on containers, fight corruption in the customs administration and ensure
closer coordination between customs and police. Particular attention is overall
required to prevent trafficking of drugs and other illegal goods through the
harbours and along the coast.

For measures 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 legal migration, asylum and
visas is still at an early stage; the reception centres for foreigners and that
for asylum seekers need to be made operational without further delay.
Considerable efforts are required to improve the surveillance capacity,
technical equipment and infrastructure at the borders, and to raise the
authorities’ awareness of mixed migration and improve their response to it.
Montenegro is actively involved in regional and international police and
judicial cooperation. Some progress was made in the fight against drugs
trafficking; however more efforts are needed in term of drug seizure. A track
record of proactive investigations and final convictions in other organised
crime areas has yet to be established, including confiscation of criminal
assets. Additional efforts are needed to improve coordination between law
enforcement agencies and the judiciary and to increase capacity to carry out
financial investigations in connection with complex criminal investigations.
The annulment of first-instance verdicts in cases of organised crime gives rise
to serious concern.

4.25.
Chapter 25: Science and research

In the area of research and innovation
policy, Montenegro continued to participate actively in the Seventh EU
Research Framework Programme (FP7) and took several measures and actions in line with the European
Research Area and Innovation Union to strengthen capacity building.

As regards research cooperation under the
Seventh EU Research Framework Programme (FP7), Montenegro actively
promoted cooperation and was successful in a number of capacity building
programmes. The Ministry of Science successfully contributed to the European
Science Days in September 2012 and organised several actions to promote science
and research in particular among young people. Montenegro also continued to
participate successfully in COST and EUREKA actions. Montenegro expressed its
interest in being associated in the next EU research and innovation framework
programme ‘Horizon 2020’ (2014-2020) and started preparing for this. Further
efforts are necessary to engage more in EU collaboration projects and involve
SMEs in the research and innovation chain.

As regards Montenegro’s integration into
the European Research Area (ERA), several actions were taken. In
December 2012, the strategy on scientific research activities 2012–2016 was
notably amended, introducing new instruments and bringing national research
funding more in line with the EU research priorities. Several measures have
been taken to strengthen human capital building and encouraging mobility of
researchers. Montenegro also contributed to the Innovation Union by creating
the first scientific and technological park in Montenegro on Agri-food and
started planning science parks in other areas to stimulate cooperation between
academia and industry.

Conclusion

Good progress has been made in the area of
science and research. Further efforts are needed to address the challenges of
the next research and innovation programme ‘Horizon 2020’ and contribute
to the Innovation Union. Overall, preparations in this area are well on track.

4.26.
Chapter 26: Education and culture

In the field of education, training and
youth, amendments to the Law on Primary Education, the Law on Vocational
Education, the Law on Gymnasiums and the General Law on Education were adopted
by the parliament in July 2013. An initiative for traineeships for graduates
aims at facilitating the transition from education to the labour market.
Enrolment policies and purpose of vocational education and training are being
examined by the Ministry of Education. The necessary rulebooks have been
adopted, together with methodological documents, to implement the law on the
National Qualifications Framework. This needs to be cross-referenced with the
European Qualifications Framework to complete this process. An
inter-departmental working group formed by the Ministry of Education completed
an analysis of Montenegrin students’ results in the international PISA test in
February and drafted recommendations on improving the quality of education. A
memorandum of understanding was signed in May 2013 on the participation of
Montenegro in the centralised actions under the EU Lifelong Learning Programme.
Overall, the quality of school and university education needs to be improved.
The mismatch between education qualifications and the labour market needs to be
addressed. Montenegro has started to address its priorities in this area.

In the area of culture, a memorandum
of understanding was signed in October 2012 allowing Montenegro to participate
in the Europe for Citizens programme. In February 2013, Montenegro became
a member of European Film Promotion. Preparations in this area are well on
track.

Conclusion

Some progress
has been made in the area of education and culture. A good level of legal
alignment has been reached. Non-discrimination between EU and Montenegrin
nationals needs to be guaranteed by the date of accession and alignment with
the EU Directive on the Education of the Children of Migrant Workers assured.
Role and purpose of the various levels and type of education and training need
to be further clarified and linked more to other sectors. Overall, preparations
are advanced.

4.27.
Chapter 27: Environment and climate change

As regards the environment, in the
area of horizontal legislation the parliament amended the law on
environmental impact assessment (EIA) in order to ensure alignment with the EIA
Directive. Further efforts are needed to implement the EIA and Strategic
Environmental Assessments (SEA) Directives. As concerns access to environmental
information, the Environmental Protection Agency opened a regional office and ‘Aarhus
centre’ in Berane in September 2012. Montenegro adopted in August amendments to
the criminal code which furthered the alignment with the acquis on
environmental crime. There were no developments as regards environmental
liability. Public consultations with civil society and other stakeholders need
to be further strengthened.

Under the Law on Air Quality, the
implementing legislation on activities that affect air quality has been
adopted. The national strategy for air quality management and the action plans
for 2013–2016 have been adopted. Administrative capacity in the area of air
quality needs to be strengthened.

In the area of waste management,
Montenegro adopted implementing legislation on waste oil handling, on handling
PCB-containing equipment and waste, on handling and processing construction
waste, and on conditions and methods of disposal of cement asbestos waste.
While the legislative framework is advancing, further efforts are needed for
its implementation and enforcement. The development of an integrated waste
management system remains at an early stage, with waste continuing to be
disposed of in open sites or in multiple unauthorised dumps. Cooperation among
state and local authorities needs to be strengthened. New investments in this
area are needed. They should in particular focus more on waste separation and
recycling.

No progress has been made in the area of water
quality in the past years, which remains to be an issue of concern.
Significant efforts to develop water quality legislation in line with the acquis
and to implement it are needed. Monitoring networks and river basin water
management plans remain at an early stage of development, as does the
infrastructure for waste water treatment.

In the field of nature protection,
the government adopted its second report on the implementation of the
biodiversity strategy and action plan (2010-2015), for the period 2011-2012.
Amendments to the law on nature protection have yet to be adopted by parliament.
Essential articles of the Habitat and Birds Directives are still missing. Development
of scientific data for the designation of protected areas and future Natura
2000 sites remains at an early stage. Administrative capacity needs to be
considerably strengthened, especially with regard to scientific work,
inspection and enforcement.

There were some developments in the area of
industrial pollution control and risk management. During the reporting
period, the first IPPC licences were issued for the landfills ‘Livada‘ in March, ‘‘‘Mozura’’’ in April and
‘Progas Nikšić‘ in July.

In the field of chemicals, the
implementing legislation on classification, labelling and packaging of
chemicals and the legislation on details of contents and method of keeping the
list of classified chemicals was adopted. A strategic plan in the field of
chemicals needs to be developed.

In the area of noise, pursuant to
the law on protection against noise, 12 municipalities have made noise maps of
their areas.

In the area of civil protection,
Montenegro is preparing to join the EU Civil Protection Mechanism. The Sector
for Emergency Management also improved its 24/7 English-speaking contact point
for the Emergency Response Centre of the European Commission.

In the area of climate
change, a comprehensive national climate policy and strategy needs to be
developed and substantial efforts are required to fully integrate climate
considerations into sectorial policies and strategies.

Montenegro
regularly associated itself with the EU positions in the international context.
It has also previously associated itself with the Copenhagen Accord, but has
not yet put forward a mitigation commitment by 2020. Montenegro should consider
making 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. It is also invited to start reflecting on its climate and energy
framework for 2030, in line with the EU Green Paper ‘A 2030 framework for
climate and energy policies‘.

Regarding
alignment with climate acquis, Montenegro is at an early stage. Five
installations were identified for the purpose of future implementation of an
emissions trading system. Significant efforts are required to strengthen the
country’s monitoring, reporting, and verification capacity.

Montenegro
participated regularly in climate work under the Regional Environmental Network
for Accession (RENA). Efforts are needed to raise awareness at all levels and
to promote cooperation between all relevant stakeholders.

Regarding administrative
capacity, training was provided in line ministries. The constant reliance
on temporary staff and the high staff turnover remain to be an issue of
concern. Administrative capacity needs to be strengthened in all areas of the
environment and climate change. Significant capacity and interinstitutional
cooperation and coordination are needed in all areas and in particular in the
areas of water quality and climate change.

Conclusion

Montenegro has
made little progress in the areas of environment and climate change.
Considerable efforts and more strategic planning are needed to ensure alignment
with and implementation of environment and climate acquis. Further
efforts are also needed to strengthen administrative capacity and
interinstitutional cooperation. Resources remain limited and substantial
investments are needed. Cooperation with civil society organisations needs to
be further strengthened. The lack of political priority and adequate financing,
and limited awareness of environment and climate requirements, continues to
hamper progress in this field. Preparations in these areas are still at an
early stage.

4.28.
Chapter 28: Consumer and health protection

In the area of consumer protection,
a second annual report on implementation of the national programme of consumer
protection (NPCP) for the period July 2011 to June 2012 was adopted in
September 2012. A third NPCP (2012–2015) was adopted in October 2012, with
an annual action plan for its implementation. The supervision of implementation
of the NPCP is ensured by an inter-institutional commission established in
March 2013. In April 2013, a rulebook on the internal organisation of the
administration for inspection affairs was adopted. Substantial efforts were
taken to raise awareness of consumers on their rights through an intensive
media campaign. In September 2013, a new IT platform was launched serving as a
central hub for distributing consumer protection information and hosting
software for management of notifications on dangerous products at national
level and a new IT facility for registering and handling consumer complaints by
the various bodies and NGOs. In May 2013, the Consumer Protection Centre of
Montenegro (CEZAP) filed the first collective lawsuit on behalf of
250 persons to protect their rights as regards consumer credits.
Empowering of consumer protection NGOs remains crucial. Montenegro has started
to address its priorities in this area.

As regards product safety-related
issues, in the first quarter of 2013, there were 471 inspections in the
area of product safety. These uncovered 13 irregularities related to placing
dangerous products on the market. Three different types of dangerous goods were
found and measures taken. Revision of the current legislation on general
product safety and on market surveillance is ongoing. Montenegro has started to
address its priorities in this area.

As regards non-safety-related issues,
a law on consumer credits was adopted by the parliament in July 2013. In
the first quarter of 2013, the market inspection authority conducted 1 752
checks and established 1 012 irregularities. A law on consumer protection
is being drafted, with a view to completing legal alignment with several EU
directives. Preparations in this area have started.

In the area of public health,
implementation of e-health continues to be slow.

As regards tobacco control, enforcement
of the law limiting the use of tobacco products, which extends the areas where
smoking is prohibited, continues to pose challenges, especially in restaurants.
Montenegro has started to address its priorities in this area.

In the area of communicable diseases,
a national strategy for control of antibiotic resistance for the period
2012–2016 and a national programme of tuberculosis control 2013–2017 were
adopted in September and December 2012, respectively. A Commission
assessment mission on communicable diseases in the framework of the enlargement
process took place in June 2013, providing follow-up recommendations to
optimise the communicable diseases system. A strategy for the preservation and improvement
of reproductive and sexual health 2013–2020 accompanied by an action plan 2014–2015
was adopted in June 2013. Preparations in this area are on track.

As regards blood, tissues, cells and
organs, a rulebook on the method, procedure and medical criteria for
determining the death of persons whose body parts may be taken for
transplantation for treatment purposes was adopted in September 2012. A
number of implementing regulations in the field of blood have been drafted.
Further legal alignment and administrative capacity-building is required.
Preparations in these areas are on track.

In the area of patients’ rights in
cross-border healthcare, preparations still need to start.

In the field of mental health,
training needs and training plans and programmes for front-line staff providing
mental health services have been identified but not yet implemented. Efforts
are needed to introduce community-based mental health services as an
alternative to institutionalisation. Montenegro has started to address its
priorities in this area.

Efforts have 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. In the field of health inequalities, activities are
ongoing to improve the health of Roma. In the field of nutrition, a
national initiative to reduce salt intake was adopted in December 2012.
Efforts to raise awareness of early detection of breast and cervical cancer
have continued and screening programmes are being started. However, further
efforts are required to establish appropriate capacity building. A national
strategy to prevent harmful use of alcohol and alcohol-related disorders
2013–2020 and a national strategy for rare diseases 2013–2020 were
adopted in October 2012 and in January 2013, respectively. Montenegro
has started to address its priorities in this area.

Conclusion

Some progress
has been made in the field of consumer and health protection. Legal alignment
and administrative capacity-building need to continue. Support for consumer
non-governmental organisations is needed. Overall, preparations in these areas
are moderately advanced.

4.29.
Chapter 29: Customs union

As regards customs
legislation, the customs tariff was updated in line
with the 2013 version of the EU Combined Nomenclature. Some specific provisions
on duty relief and suspension of duties were also introduced. The adoption of
amendments to the Customs Law remains pending in parliament.

As regards Montenegro’s
administrative and operational capacity, the customs administration successfully participated in the ‘systems
for the electronic exchange of pre-arrival data’ (SEED) project. A new
electronic system for risk analysis has been put into operation. Customs’
operational capacity to apply simplified procedures and security measures needs
to be further enhanced. Additional efforts are needed to enhance management
capacity through greater involvement of the business side of the customs
administration in leading IT developments. A customs administration business
strategy for 2013-2015 has been adopted. This will need to be followed by the
development of a new IT strategy. Understaffing of the IT units is an issue
which requires constant attention. The implementation of a code of ethics for
customs officers and administration employees was launched at the beginning of
2013. Further efforts are still needed to strengthen internal control in order
to effectively prevent and detect corruption and other misconduct. The customs
enforcement of intellectual property rights and the provision of laboratory
services have to be enhanced and training activities need to be further
developed. Introductory steps have been taken to put in place and implement a customs transit system compliant with the new computerised transit
system (NCTS). This lays the foundations for future membership of the Common
Transit Convention.

Conclusion

Some progress
has been achieved in the area of customs union. Efforts for further alignment
with the acquis need to continue. In the areas of administrative
and operational capacity, the customs administration needs to complete the
development of its IT strategy and to enhance the training structure and
capacity. Preparations for possible accession to the Convention on a
Common Transit Procedure have started but need to be stepped up. Overall,
preparations in the field of customs union are moderately advanced.

4.30.
Chapter 30: External relations

In the field of
the common commercial policy, Montenegro continued to
fulfil the commitments it assumed with its accession to the World Trade
Organisation (WTO). It was accepted as an observer to the WTO Government
Procurement Committee in October 2012. The law on foreign trade in dual-use
goods needs to be further aligned, in particular with a view to improving
control mechanisms.

As regards bilateral agreements with non-EU countries, Montenegro is still
negotiating bilateral free trade agreements with Belarus and Kazakhstan in line
with its obligations under the Free Trade Agreement with Russia. A free trade
agreement with EFTA came into force in full in November 2012. An economic
cooperation agreement with Croatia was signed in February 2013. Montenegro
continued to play an active role in CEFTA.

As regards
development policy and humanitarian aid, a new director in the Ministry of
Foreign Affairs has been appointed to set up relevant
administrative structures and collect information on development activities.
Humanitarian contributions are still decided on a case-by-case basis without a
legislative framework.

Conclusion

Some progress
has been made in the area of external relations. Montenegro continued to fulfil
the commitments it assumed with WTO accession and is setting up a mechanism for
control of dual-use goods. Efforts in the area of development and humanitarian
aid are still at an early stage. Overall, preparations in the area of external
relations are on track.

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), 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.)

There are still
28 countries that have not yet recognised Montenegro since it gained
independence in 2006.

Montenegro
implemented all UN Security Council and EU restrictive measures.

As regards non-proliferation,
Montenegro is participating in some, but not all, international export control
arrangements and instruments concerning 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 July 2013, the government
adopted the strategy for control and reduction of small arms and light weapons
and ammunition and its implementing action plan for the period 2013-2018.

With regard to cooperation
with international organisations, in October 2012 Montenegro presented its
third Annual National Programme, launching the third cycle of the NATO
Membership Action Plan (MAP). 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 the
handling of classified information.

As regards the common security and
defence policy (CSDP), and in particular civil and military crisis
management, in December the government adopted a decision to send members
of the police force to the UN peacekeeping mission in Cyprus (UNFCYP).
Following the EU Political and Security Committee’s invitation to make a
contribution to the European Union Military Training Mission to Mali (EUTM
Mali), Montenegro provided military equipment. 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 with all EU declarations and Council Decisions and has
continued to actively contribute to regional stability. Overall, preparations
in the area of foreign, security and defence policy are on track.

4.32.
Chapter 32: Financial control

In the area of public
internal financial control (PIFC), the Ministry of Finance adopted implementing legislation on both
financial management and control (FMC) and internal audit (IA) in October 2012,
including instructions on FMC reporting, a decree on mandatory establishment of
IA units at central and local level, and instructions on the content and method
of reporting on IA operations. A new code of ethics for
civil servants was introduced in January 2013. A
rulebook on quality assurance in IA for the public sector was published in
February 2013 and a rulebook on quality assurance on FMC was published in June
2013.

The Central Harmonisation Unit organised
its first IA certification programme, resulting in certification of public
sector internal auditors, some of which hold an international certificate. Internal
auditors have been appointed at central and local level. However, a critical
shortage of internal audit staff remains. In June 2013,
the government took the decision to fill all vacant internal audit posts in the
ministries linked to the management of EU funds by the end of September 2013.
As regards FMC, FMC managers were appointed at central level and local level. Overall,
there is insufficient delegation of responsibilities from senior officials,
which hinders the move towards genuine managerial accountability. Risk
management needs to be further developed.

In the area of external audit,
constitutional amendments adopted in July 2013 extended functional immunity to
the State Audit Institution (SAI) Senate members. The SAI has started to
implement the new strategic development plan for the period 2012-17. The SAI
implemented the 2012 audit programme, with 15 audits and conducted 13 audits on
political party financing issuing in total 92 recommendations. In July 2013, parliament
elected the new SAI president as well as a member of the SAI Senate. One
position on the SAI Senate remains unfilled. The current audit capacity of the
SAI, with around 35 audit posts filled, is very limited. Performance audit work
is at a very early stage. Amendments to the law on the SAI enhancing its
financial independence have yet to be adopted. Even though the law on audit of
EU funds of February 2012 provides for the separation of the SAI from the audit
authority, they have yet to be fully segregated in practise.

In the area of protection
of the EU’s financial interests, Montenegro appointed a contact point for
cooperation with the European Commission at the Ministry of Finance in January
2013. The system of reporting on irregularities in the management of the EU
funds has improved following the appointment of irregularity officers and the
establishment of reporting procedures.

As regards
the protection of the euro against counterfeiting,
the National Centre for the Fight against Counterfeiting, the National Centre
for Analysis of Banknotes and the National Centre for Analysis of Coins were
set up. A protocol of cooperation between the Police Directorate and the
Supreme Prosecutor’s Office has been concluded. Montenegro continues to
participate in the Pericles programme.

Conclusion

There has been
further progress in the area of financial control. Montenegro needs to further
improve the application of the managerial accountability principle. Further
strengthening the financial independence and capacity of SAI is also required.
Overall, preparations in this area are moderately
advanced.

4.33.
Chapter 33: Financial and budgetary provisions

As regards traditional own resources,
the VAT resource and the GNI resource, Montenegro is not yet
aligned with the acquis in these areas. (For progress in the
underlying policy areas, see Chapters 16 — Taxation; 18 — Statistics;
29 — Customs union; and 32 — Financial control.

As regards administrative infrastructure,
the administrative capacity of the institutions in the underlying policy areas
indirectly affecting the own resources system (customs, taxation, statistics,
financial control) needs to be further strengthened. A fully operational
coordination structure will be needed to ensure correct calculation,
accounting, forecasting, collection, payment and control of own resources and
reporting to the EU on the implementation of the EU’s own resources rules. Preparations
in this area are at an early stage.

With regards to tools to fight tax evasion
and fraud and to reduce the size of the informal economy, the government’s
efforts in 2013 to continue fiscal consolidation resulted in a new set of
measures. The focus of the action against the informal economy is the labour
market, excisable products and VAT collection.

Conclusion

No progress has been made as regards
financial and budgetary provisions. In due course, a coordinating body needs to
be set up to steer pre-accession preparations in the own resources field. The
administrative framework for applying the own resources rules needs to be
established and the capacity to correctly apply the rules needs to be built up.
Overall, preparations in this area are at an early stage.

Statistical Annex

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

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

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

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

Population (thousand) || 1) || 615 || 628 || 630 || 616b || 618 || 621

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

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

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

Gross domestic product (GDP) (million euro) || || 1 295 || 3 086 || 2 981 || 3 104 || 3 234 || 3 346f

GDP (euro per capita) || 3) || 2 113 || 4 908 || 4 720 || 5 011 || 5 211 || 5 386f

GDP (in Purchasing Power Standards (PPS) per capita) || || : || 10 700 || 9 685 || 10 143b || 10 546 || 10 863f

GDP per capita in PPS (EU-27 = 100) || || : || 43 || 41 || 41 || 43 || 42e

Real GDP growth rate (growth rate of GDP volume, national currency,% change on previous year) || || 1.1 || 6.9 || -5.7 || 2.5 || 3.2 || -0.5f

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 || 9.3 || 10.0 || 9.3 || 9.5 || :

Industry || 4) || 20.8 || 13.5 || 13.6 || 14.8 || 13.6 || :

Construction || 4) || 3.9 || 7.7 || 6.5 || 5.9 || 5.8 || :

Services || 4) || 63.5 || 69.5 || 69.9 || 70.1 || 71.0 || :

Final consumption expenditure, as a share of GDP (%) || || 100.2 || 113.8 || 106.2 || 105.6 || 106.5 || 108.2f

Gross fixed capital formation, as a share of GDP (%) || || 17.5 || 38.2 || 26.8 || 21.1 || 18.4 || 17.9f

Changes in inventories, as a share of GDP (%) || || 5.9 || 2.4 || 0.4 || 1.7 || 1.1 || :

Exports of goods and services, relative to GDP (%) || || 38.4 || 39.5 || 32.1 || 34.7 || 40.2 || 40.3f

Imports of goods and services, relative to GDP (%) || || 61.9 || 94.0 || 65.4 || 63.1 || 66.2 || 67.3f

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

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

Industrial production volume index (2010=100) || || 110.5 || 125.6 || 85.1 || 100.0 || 89.8 || 83.5

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

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

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

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

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

Balance of payments: current account total (million euro) || || : || -1 535 || -830 || -710 || -573 || -588

Balance of payments current account: trade balance (million euro) || || : || -2 025 || -1 322 || -1 267 || -1 306 || -1 389

Balance of payments current account: net services (million euro) || || : || 371 || 401 || 464 || 589 || 612

Balance of payments current account: net income (million euro) || || : || 46 || 5 || -22 || 26 || 54

Balance of payments current account: net current transfers (million euro) || || : || 73 || 85 || 114 || 117 || 135

of which government transfers (million euro) || || : || 9 || 5 || 16 || 6 || 18

Net foreign direct investment (FDI) (million euro) || || : || 582 || 1 066 || 552 || 389 || 462

Foreign direct investment (FDI) abroad (million euro) || || : || -74 || -33 || -22 || -12 || -21

of which FDI of the reporting economy in EU-27 countries (million euro) || || : || -6 || -2 || -19 || 9 || -17

Foreign direct investment (FDI) in the reporting economy (million euro) || || : || 656 || 1 099 || 574 || 401 || 482

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || 379 || 782 || 287 || 205 || 223

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

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

General government deficit/surplus, relative to GDP (%) || || : || -0.4 || -3.6 || -4.9 || -5.4 || -4.0

General government debt relative to GDP (%) || || : || 29.0 || 38.2 || 40.9 || 46.0 || 50.9

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

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

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) || : || 512 || : || : || : || :

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

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

Total credit by monetary financial institutions to residents (consolidated) (million euro) || 8) || : || 2 754 || 2 358 || 2 152 || 1 911 || 1 814

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

Lending interest rate (one year), per annum (%) || || : || 9.4 || 9.4 || 9.6 || 9.7 || 9.5

Deposit interest rate (one year), per annum (%) || || : || 4.1 || 3.9 || 3.3 || 3.0 || 3.2

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) || || : || 337 || 397 || 416 || 303 || 348

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

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

Value of imports: all goods, all partners (million euro) || || : || 2 530 || 1 654 || 1 657 || 1 823 || 1 821

Value of exports: all goods, all partners (million euro) || || : || 416 || 277 || 330 || 454 || 367

Trade balance: all goods, all partners (million euro) || || : || -2 114 || -1 377 || -1 327 || -1 369 || -1 454

Terms of trade (export price index / import price index) || || : || : || : || 106.0 || 100.9 || 95.8

Share of exports to EU-27 countries in value of total exports (%) || || : || 62.2 || 48.3 || 55.9 || 50.1 || 28.6

Share of imports from EU-27 countries in value of total imports (%) || || : || 42.7 || 37.5 || 37.7 || 39.2 || 38.4

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

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

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || 5.5 || 4.1 || 4.4 || 2.9b || 2.2 || 2.5

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

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

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

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

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

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

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

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

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

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

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

Agriculture || || 3.1e || 7.6e || 6.5e || 6.2 || 5.6 || 5.7

Industry || || 25.8e || 15.3e || 14.0e || 13.9 || 13.0 || 11.7

Construction || || 2.1e || 6.1e || 6.7e || 6.1 || 6.0 || 5.7

Services || || 69.1e || 71.0e || 72.8e || 73.9 || 75.5 || 76.9

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

Share of male labour force that is unemployed (%) || || : || 15.9 || 18.0 || 18.9 || 19.5 || 19.3

Share of female labour force that is unemployed (%) || || : || 17.9 || 20.4 || 20.7 || 20.0 || 20.3

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

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || : || 13.4 || 15.6 || 15.5 || 15.7 || 15.6

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

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

Average nominal monthly wages and salaries (national currency) || 9) || 211.0 || 416.0 || 463.0 || 479.0 || 484.0 || 487.0

Index of real wages and salaries (index of nominal wages and salaries divided by the CPI/HICP) (2000=100) || || 91.6 || 195.2 || 255.0 || 262.1 || 256.6 || 248.1

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

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

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

Number of passenger cars per 1000 population || || 161.0 || 298.5 || 283.9 || 267.1b || 278.2 || 279.9

Number of subscriptions to cellular mobile telephone services per 1000 population || || 639.6 || 1 611.5 || 2 496.5 || 2 260.3b || 1 875.0 || 1 595.0

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

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

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 || 2008 || 2009 || 2010 || 2011 || 2012

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

\* Gross domestic expenditure on R&D in% of GDP || || 0.7 || 1.2 || 1.1 || : || 0.4 || :

Percentage of households who have Internet access at home (%) || || : || : || : || : || 51.4 || 55.0

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

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

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

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

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

Road share of inland freight transport (% of tonne-km) || || 60.3 || 43.0 || 64.1 || 52.5 || 43.1 || 51.0

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

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

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

Primary production of all energy products (thousand TOE) || || : || 1 136 || 622 || 1 267 || 791 || :

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

Primary production of hard coal and lignite (thousand TOE) || || : || 1 136 || 622 || 1 267 || 434 || :

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

Net imports of all energy products (thousand TOE) || || : || -25 || -18 || -20 || -408 || :

Gross inland energy consumption (thousand TOE) || || : || 1 111 || 606 || 1 268 || 1 201 || :

Electricity generation (thousand GWh) || || 2.5 || 2.8 || 2.8 || 4.0 || 2.7 || :

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

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

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

Total utilised agricultural area (thousand hectare) || 10) || 518p || 516 || 516 || 516 || 516 || :

Livestock: cattle (thousand heads, end of period) || 11) || 178e || 106 || 101 || 96 || 87 || 85

Livestock: pigs (thousand heads, end of period) || 11) || 21e || 10 || 12 || 11 || 21 || 18

Livestock: sheep and goats (thousand heads, end of period) || 11) || 244e || 209 || 200 || 198 || 232 || 230

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || 12) || 194e || 160 || 152 || 143 || 202 || 159

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 13) || 4p || 3 || 3 || 17b || 18 || :

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

Crop production: vegetables (thousand tonnes, harvested production) || 14) || : || : || : || 151 || 150 || :

: =
not available

:z
= not applicable

b =
break in series

e =
estimated value

f =
forecast

p =
provisional

\* =
Europe 2020 indicator

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

Footnotes:

1) 2010, estimated on the results of the 2011 population census

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

3) 2010-2011, excluding Financial Intermediation Services Indirectly Measured (FISIM). FISIM is calculated separately and at the total level of GVA. Value of FISIM for 2001 is -1885 (in 1.000 EUR).

4) 2001, 2008, 2009, data according to Nace Rev. 1.1. ; 2010-2011,  data according to Nace Rev. 2.

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) 2008 - 2012, the revision of data on loans in accordance with the new definition of loans is in progress. The complete revised data will be available by the end of 2013.

9) 2001, wages in German marks (DEM).

10) 2001 - 2009, agricultural area includes: arable land, and area under pastries, fishponds and ponds; 2011, for private agricultural holdings, data on areas are estimates based on data Overall Cadastre.

11) 2001 - 2009 - Number of livestock in 1000, including enterprises and cooperatives and households.

12) 2001 - 2009, calculated net quantity in 1000 tonnes, including enterprises and cooperatives, and households.

13) 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.

14) 2011, includes households, enterprises and cooperatives.

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

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

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

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