Source: EURLEX
Language: en
Format: md

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# 52011SC1207

**COMMISSION STAFF WORKING PAPER KOSOVO\* 2011 PROGRESS REPORT /\* SEC/2011/1207 final \*/**

  

TABLE OF CONTENTS

1........... Introduction.................................................................................................................... 1

1.1........ Preface........................................................................................................................... 1

1.2........ Context.......................................................................................................................... 1

1.3........ Relations between the EU and
Kosovo........................................................................... 1

2........... Political criteria............................................................................................................... 1

2.1........ Democracy and the rule of law........................................................................................ 1

2.2........ Human rights and the protection
of minorities................................................................... 1

2.3........ Regional issues and international
obligations..................................................................... 1

3........... Economic criteria............................................................................................................ 1

3.1........ The existence of a functioning
market economy................................................................ 1

3.2........ The capacity to cope with
competitive pressure and market forces within the Union.......... 1

4........... European standards........................................................................................................ 1

4.1........ Internal market............................................................................................................... 1

4.1.1..... Free movement of goods................................................................................................ 1

4.1.2..... Movement of persons, services and
right of establishment................................................ 1

4.1.3..... Free movement of capital................................................................................................ 1

4.1.4..... Customs and taxation...................................................................................................... 1

4.1.5..... Competition.................................................................................................................... 1

4.1.6..... Public procurement......................................................................................................... 1

4.1.7..... Intellectual property law.................................................................................................. 1

4.1.8..... Employment and social policies,
public health policy........................................................ 1

4.1.9..... Education and research................................................................................................... 1

4.1.10... WTO issues................................................................................................................... 1

4.2........ Sectoral policies............................................................................................................. 1

4.2.1..... Industry and SMEs......................................................................................................... 1

4.2.2..... Agriculture and fisheries.................................................................................................. 1

4.2.3..... Environment................................................................................................................... 1

4.2.4..... Transport policy............................................................................................................. 1

4.2.5..... Energy............................................................................................................................ 1

4.2.6..... Information society and media......................................................................................... 1

4.2.7..... Financial control............................................................................................................. 1

4.2.8..... Statistics......................................................................................................................... 1

4.3........ Justice, freedom and security........................................................................................... 1

4.3.1..... Visa, border management, asylum
and migration.............................................................. 1

4.3.2..... Money laundering........................................................................................................... 1

4.3.3..... Drugs............................................................................................................................. 1

4.3.4..... Police............................................................................................................................. 1

4.3.5..... Fighting organised crime and
terrorism............................................................................. 1

4.3.6..... Protection of personal data............................................................................................. 1

Statistical Annex........................................................................................................................... 1

1.
Introduction
1.1.
Preface

Since March 2002, the Commission has
reported regularly to the Council and Parliament on progress made by the
countries of the Western Balkans region.

This report largely follows the same
structure as in previous years. The report:

–
briefly describes the relations between Kosovo[1]
and the Union;

–
analyses the political situation in Kosovo in
terms of democracy, the rule of law, human rights, protection of minorities and
regional issues;

–
analyses the economic situation in Kosovo;

–
reviews Kosovo's capacity to implement European
standards, that is gradually to approximate its legislation and policies with
the acquis, in line with the Stabilisation and Association Process, and
European Partnership priorities.

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

The report is based on information gathered
and analysed by the Commission. Many other sources have been used, including
contributions from the Kosovo authorities, the EU Member States, the EU Special
Representative in Kosovo, the EU rule of law mission (EULEX), European
Parliament reports[2] and information from
various international and non-governmental organisations.

The Commission draws detailed conclusions
regarding Kosovo in its separate communication on enlargement[3],
based on the technical analysis contained in this report.

1.2.
Context

Following the ruling of the Constitutional
Court in autumn 2010, the President of Kosovo stepped down and new elections
were called for December. The new assembly convened in February and elected a
President. The election process was challenged from the constitutional
perspective and the Constitutional Court played an important role through the
way it exercised its responsibilities. As a result, a new President was elected
in line with Kosovo's constitution. This period was marked by limited results
on the reform agenda.

During the reporting period, Serb communities
south of the River Ibër/Ibar have increased cooperation with Kosovo authorities
and participation in their representative institutions. Their turnout in
elections was higher and they also participated in the census. In northern
Kosovo, integration has not progressed. Serbia-supported municipalities in the
north did not cooperate sufficiently with UNOPS and the Commission to allow a
census to proceed in this part of Kosovo. Serbs in the north supported by local
political leaders also challenged the authority of EULEX.

At the end of July, the situation escalated
in northern Kosovo when Kosovo decided to impose an embargo on Serbian goods in
retaliation to a Serb blocking of goods since 2008 on the grounds of the non
recognition of the "Customs of Kosovo" stamp. The decision on an
embargo followed a failure to reach an agreement on Kosovo customs stamps within
the framework of the EU facilitated dialogue between Belgrade and Pristina,
which was launched following last year's UN General Assembly resolution. The
unilateral deployment of Kosovo police at gates 1 and 31 in northern Kosovo led
to violence, resulting in the death of a Kosovo police officer. Calm was
restored with the help of KFOR, the NATO-led military presence. In September,
the issue of customs stamps was resolved in the context of the
Belgrade/Pristina dialogue. The implementation of the agreement resulted in
widespread blockades in the north, including at the gates 1 and 31. Violent
incidents also occurred. The tensions in northern Kosovo need to be defused,
and free movement of people and goods re-established. All actors need to play
their part in this process. In the light of the situation in northern Kosovo,
Serbia interrupted its participation in the dialogue at the end of September.

The dialogue has proven to be the main way
to address differences between the two parties. Agreements were also reached on
civil registries, free movement of persons and cadastre records. The agreements
reached need to be implemented in
good faith. Kosovo's generally constructive approach in
the dialogue marks progress in its commitment to the EU.

To date, Kosovo has been recognised by 81
UN Member States, including 22 EU Member States.

During the
reporting period, the UN Secretary-General issued four reports on Kosovo – in
October 2010 and in January, May and August 2011. He noted that Kosovo
authorities had increased their efforts to establish a close engagement with
the European Union and enjoyed visibility at the international level. He also
pointed out that the dialogue between Belgrade and Pristina had the potential
to bridge the differences between the sides and to resolve a series of
long-standing issues that affect the lives of the people on the ground.

KFOR has also continued to help maintain
security in other parts of Kosovo. During the reporting period, its presence
was reduced to just over 6,000. In this context, the Kosovo police have taken
over responsibility for protecting several cultural and religious sites. They
have also taken over the task of security along the border with the former
Yugoslav Republic of Macedonia and Montenegro.

Kosovo did not meet the conditions for a Stand-By Arrangement with
the International Monetary Fund and consequently the Fund did not disburse its
macro-financial assistance. Therefore, the Commission could not disburse
another tranche of its macro-financial assistance to Kosovo. The Kosovo
government needs to take urgent steps to address the budgetary deficit.

1.3.
Relations between the EU and Kosovo

Kosovo is participating in the
Stabilisation and Association Process (SAP). The 2011 cycle of meetings under
the SAP dialogue (SAPD) was completed in July. During the reporting period,
seven sectoral meetings were held on the following sectors: justice, freedom
and security; agriculture; economy, statistics and financial control; internal
market, competition, health and consumer protection; transport, environment,
energy and regional development; innovation, human capital, social policies and
information society; and trade, industry, customs and taxation. On 30 June,
Kosovo hosted the second SAPD civil society dialogue meeting, followed by the
plenary meeting on 1 July. Kosovo also hosted a high-level conference on
the inclusion of the Roma, Ashkali and Egyptian communities in May. To promote
economic dialogue, the fiscal surveillance mechanism with the European
Commission continued, with meetings being held twice a year.

In December 2010, in the context of the
early general election, the European Parliament deployed an official seven-member
election observation delegation to Kosovo. In January 2011, a two-member
European Parliament delegation observed the repeat elections in five
municipalities. The Commission deployed a three-member election expert mission.
The EU Special Representative's (EUSR) office organised a diplomatic election
watch. In May, the fourth European Parliament–Kosovo inter-parliamentary
meeting took place in Pristina.

EULEX has continued to operate across Kosovo and fulfil its mandate.
The cooperation of Kosovo authorities with EULEX has been mixed. The mission
has strengthened its presence and activities in northern Kosovo especially
following the events of summer when Kosovo Police special units tried to deploy
to gates 1 and 31. The Mitrovicë/Mitrovica court is staffed solely by EULEX
judges. The situation in northern Kosovo has posed specific challenges to the
mission.

The EU re-confirmed its commitment to Kosovo, including the northern
part, by opening an information point in northern Mitrovicë/Mitrovica. The EU
House has extended its presence and has permanent staff from EULEX, EUSR and
the Commission. Mr Feith's term as EU Special Representative (EUSR) came to an
end; he continues to act as International Civilian Representative. In May, a
temporary EUSR was appointed. The Italian Ambassador to Kosovo is continuing to
carry out his mandate as facilitator for the north. The Head of the Greek
liaison office in Pristina is continuing his mandate as facilitator for the
protection of religious and cultural heritage in Kosovo. Both have made major
contributions in their respective areas.

Kosovo continues to benefit from the Instrument for Pre-accession
Assistance (IPA), the Instrument for Stability (IfS) and other sources of
funding. Kosovo is participating in the IPA multi-beneficiary programmes. The
multiannual indicative planning document for 2011-2013 was adopted on 27 June.
During 2011, a total of € 68.7 million granted in the IPA annual programme
for 2011 was allocated in close coordination with the Ministry for European
Integration and government institutions. The EU pre-accession assistance is
focusing on support for the rule of law, the economy, trade and industry, and
for public administration reform.

2.
Political criteria

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

2.1.
Democracy and the rule of law

Parliament

In October 2010, one of the parties
withdrew from the coalition government and the acting President of Kosovo
called early general elections for 12 December. Following a no-confidence vote,
the assembly dissolved on 2 November. The Central Election Commission organised
early general elections in less than 40 days.

Based on the rulings by the competent
bodies, the Central Election Commission organised repeat elections: on 9
January in the municipalities of Skenderaj/Srbica, Gllogoc/Glogovac and
Deçan/Dečane and at two additional polling centres, one in the
municipality of Malishevë/Mališevo, the other in Lipjan/Lipljan, and on 23
January in the municipality of Mitrovicë/Mitrovica. Over 40% of the votes cast
had to be recounted. The repeat elections, recounts and delayed publication of
results damaged the credibility of the process and the legitimacy of the
results.

On 7 February, the Central Election
Commission announced the certified Kosovo-wide election results. The turnout
was just above 45%. Participation in the six Serb majority municipalities
increased. In the three northern municipalities, the turnout was negligible.

There were serious
shortcomings in the electoral process. Challenges remain in terms of compliance
with international standards and simplicity of the current system and past
impunity with regard to electoral fraud. A total of 502 persons have been
indicted for fraud related to the general elections at municipal prosecution
offices in Kosovo. By the end of June, only 18 verdicts had been rendered. With
the exception of one case, the Kosovo prosecutors filed appeals against all
verdicts, due to the mild rulings. Kosovo needs to deal more decisively with
cases of electoral fraud. Kosovo needs to address the shortcomings and to
ensure political will at all levels to conduct fair elections at every stage of
the process.

The assembly convened again on 21 February.
On 21 and 22 February, the Speaker of the assembly, the President of Kosovo and
the government were elected. Subsequently, the election of the President was
challenged by a group of members of the assembly before the Constitutional
Court. On 28 March, the Constitutional Court ruled that the presidential
election of 22 February had been "unconstitutional". Following an
agreement between the coalition parties (the Democratic Party of Kosovo – PDK
and the New Kosovo Alliance – AKR) and the main opposition party (the
Democratic League of Kosovo – LDK), a new President – Ms Atifete Jahjaga – was
elected on 7 April in accordance with the constitution. The tri-partite
agreement also established that constitutional and electoral reforms, including
direct election of the President of Kosovo, needed to occur within specified
timeframes.

In its fourth mandate, the assembly
re-elected the former speaker again for the new legislature. The Presidency was
reduced from nine to six members. Five members of the assembly were elected as
Deputy Presidents, three from the largest groups and two from the non-Albanian
communities. In an attempt to streamline their work, the assembly reduced the
number of assembly committees from 16 to 13. Cooperation between the European
Integration Committee and the Ministry of European Integration has improved.
The Committee needs to be strengthened, in particular its administrative
capacity, and to ensure overall coordination and monitoring of the European
integration action plan, and to effectively scrutinise legislation for
compliance with European standards.

After the dissolution of the assembly on 2
November 2010, all pending draft laws were sent back to the office of the Prime
Minister. Since the beginning of its fourth mandate, the Assembly adopted a
budget and a number of reform laws. It also adopted two resolutions, the first
in March on the Belgrade/Pristina dialogue and the second in April on European
integration. The European integration action plan was adopted in April.

The assembly's strategic programme for
2012-2014 is under revision. The assembly has not yet adopted its new rules of
procedure in line with the new mandate. Oversight of the executive branch by
the assembly needs to be strengthened. Government representatives do not attend
plenary sessions on a regular basis. Requests by the assembly for written
reports from the government are not sufficiently met. Public hearings remain
sporadic and civil society is not effectively involved in any assembly debate.
There is no institutionalised platform that would allow a regular dialogue
between the assembly and civil society organisations. There are concerns as
regards the adherence to the assembly's rules of procedure. The adoption of the
law on the Special Chamber of Supreme Court without a review by the Committee
on legislation and judicial matters, as required by the rules, is an example.

The assembly's monitoring and research capacity
still remains weak. The legislative procedure needs to be strengthened in order
to ensure cross-sectoral expertise. The office for legal affairs,
standardisation and harmonisation is understaffed, thus undermining effective,
in-depth scrutiny of legislation. The assembly's capability to scrutinise
compliance with EU norms effectively needs to be enhanced.

The assembly still lacks a legal department
that would provide legal advice to the administration leadership, the president
and the presidency only and would represent the assembly in courts. The
capability of the assembly administration to provide legal advice and formal
opinions to the assembly on constitutional issues also remains very weak.

Concerns remain about management of human
resources by the assembly secretariat. A new regulation outlining the
organisation and responsibilities of the assembly administration was adopted in
October 2010 and is being implemented. The regulation is not fully aligned with
the legislation in force, such as the law on civil servants and the law on
salaries of civil servants. A merit-based recruitment procedure needs to be
applied in order to avoid political interference. The assembly needs to
introduce stronger mechanisms to oversee budget expenditure during the course
of the financial year. The staff training budget remains largely unspent. In
February 2011, the Constitutional Court ruled that the law on rights and
responsibilities of members of the assembly was not in line with the law on
pensions. Therefore, the pension age for members needs to be raised from 55 to
65.

Overall, the
assembly followed the decisions of the Constitutional Court on the re-election
of the President. There were serious shortcomings in
the process of general elections. Kosovo needs to take urgent steps to address
these by simplifying the system, making it more transparent, and investigating
and prosecuting cases of electoral fraud. Limited
progress has been achieved on strengthening oversight of the government by the
assembly, on improving scrutiny of proposed legislation in line with European
integration priorities or on the government and assembly working together on a
shared reform programme. There are concerns as regards adherence of the
assembly to its rules of procedure.

Government

On 22 February, the assembly voted on a new
coalition government formed by members of the PDK, AKR and minority parties.
The current Government has six Deputy Prime Ministers and 19 ministers, of whom
three are also Deputy Prime Ministers. The Deputy Ministers include three Serbs
and eight from other communities.

The new government adopted its legislative
strategy in March, followed by its annual work plan in April. The government
rules of procedure were revised. In March, the government adopted a regulation establishing
and strengthening the role of the European integration departments within the
ministries. Now, they also perform strategic policy and external assistance
coordination functions. The Ministry of European Integration holds regular
weekly meetings with these departments, thus ensuring a better flow of
information and coordination between these key stakeholders. The
inter-ministerial council on European integration matters met twice during the
reporting period. The overall inter-institutional architecture governing the
European integration process needs to be further strengthened and to be
synchronised and managed more effectively. The European integration working
groups do not meet regularly.

The Ministry of European Integration, and
in particular civil servants dealing with European integration matters,
significantly enhanced the management of the second cycle of the Stabilisation
and Association Process dialogue. This ensured continuity of the overall
process even under difficult institutional circumstances. In March, the
Ministry adopted an action plan outlining ten key European integration
priorities of general nature for the Kosovo government. More focused
identification of specific goals and measurable results would guide the
government's efforts better. Furthermore, the Ministry mobilised the government
and assembly to deliver on key priorities. The government also adopted a
revised European Partnership Action Plan in March. The structure of the
document was improved and the list of activities streamlined. Further efforts
are needed in order for the document to become a monitoring tool and strategic
guidance for the government, by identifying more clearly what can realistically
be achieved during the 12 months covered by the plan.

In October 2010, the law on local
self-government was amended. The strategic plan on capacity-building in
municipalities was completed in March 2011 and training has been provided. The
Ministry of Local Government adopted a regulation on assessment of the legality
of municipal acts. An instruction on the responsibilities of municipalities in
the process of European integration was also issued. An indicator-based system
for assessing the performance of municipalities was developed which is now
operating in every municipality except three in the north. The Ministry has
made some progress on supervising local authorities. Budgetary constraints and
the lack of access to land remain major obstacles to the economic development
of municipalities. Contradictory interpretations of legislation on local
self-government continue to create obstacles in cooperation between central and
local levels of administration. The situation needs to be resolved, including
by forwarding the matters to the competent courts.

The efforts on decentralisation have
continued. The government needs to find solutions for the long-term
sustainability of the newly created Serb-majority municipalities. Their
administrative capacity also needs to be further strengthened. As a result of
opposition from the Serbia-supported structures in northern Kosovo,
decentralisation could not progress in this region.

Overall,
mixed progress can be reported in this area. The government strengthened the
European integration departments in individual ministries and the Ministry of
European Integration has continued to build up its coordinating role. Further
efforts are needed to improve implementation, in the line ministries, of the
reform agenda, based on actions identified in the Stabilisation and Association
Process dialogue. Significant progress has been achieved on decentralisation.
Municipalities continue to face challenges in terms of capacity and resources.
The integration of municipalities and Serb communities in northern Kosovo is a
particular challenge.

Public administration

There has been limited progress with public
administration reform. The revised public administration strategy for the
period 2010-2013 which was adopted by the government in September 2010 has not
yet been implemented. An inter-ministerial working group responsible for
drafting an action plan implementing the public administration reform strategy
was established in November 2010. The action plan has not yet been finalised,
thus significantly delaying implementation of the reforms envisaged. The overall
process is hampered by lack of financial resources and insufficient political
support. In its first meeting since September 2010, the inter-ministerial
committee on public administration reform adopted four strategic development
plans in July.

In the field of civil service reform, some
important regulations and administrative instructions were adopted, such as the
regulation on working hours and on job descriptions, and in particular the
regulations on the appointment of senior civil servants and on the civil
register of civil servants. A regulation delimiting the administrative
responsibilities of the Office of the Prime Minister and ministries was adopted
as part of the measures to implement the law on state administration. Some
additional staff were recruited to the civil service department, but the
institutional framework in the public administration continues to suffer from
the reported lack of adequate resources. The legal framework necessary
for the implementation of the civil service primary legislation is still not
complete. Implementation of the laws on state administration and on
administrative procedures has been limited.

The Kosovo Institute of Public
Administration has provided a series of training sessions, in particular for
public procurement officers. The administrative and financial capacity and the
coordinating function of the Institute remain weak. This affects its capability
to provide a more rational strategic approach to capacity-building for civil
servants.

The law on access to public documents was
adopted in October 2010 and is in the initial stages of implementation. Most
requests come from the media, but no statistics are being kept. The Independent
Oversight Board is directly accountable to the assembly. It deals with complaints
from civil servants and monitors implementation of the civil service
legislation. The Board has organised outreach activities in municipalities on
the civil service laws adopted in 2010. Its effectiveness is limited since most
of its decisions are not executed by the relevant public institutions.
Furthermore, some of its responsibilities overlap with those of the Ministry of
Public Administration.

The Ombudsperson of Kosovo remains a weak
institution, due to the lack of political support to ensure its proper
functioning and financial independence. The recommendations made by the
Ombudsperson require the support of the Office of the Prime Minister in order
to ensure that they are implemented. Recruitment of the deputies of the
Ombudsperson has still not been completed. In June 2011, the Ombudsperson
presented a special report to the Kosovo Assembly. The report identifies
insufficient human and financial resources as well as the lack of adequate work
premises in Pristina and other municipalities as key challenges. The assembly
and government need to address this situation urgently.

During 2010, the Ombudsperson received a
total of 1,233 visits from individuals who were seeking advice and help. By 1
September 2011, the Ombudsperson institution received about 1,000 complaints.
The Ombudsperson needs to improve communication with the public on the results
of his work.

External audit also needs to be further
developed, since it serves as a driver for improving the public administration
and ensuring accountability. In addition to the internal audit offices in the
ministries, there is the Office of the Auditor General, which responds directly
to the Assembly and whose mandate and duties are defined by the Constitution
and by a law. By September 2011, the Office had 124
positions, which all were filled. With regard to
e-government, lack of coordination has led to the situation that different
branches of the administration are not connected and that only limited
e-government services are provided to citizens.

Overall, there has been limited progress on public administration reform.
Some laws and regulations have been adopted. Efforts to implement the
strategies and legislation adopted need to be stepped up. Furthermore, the
skills of the civil service need to be significantly improved. Kosovo needs to
build a professional public administration free of political interference. This
is a key European Partnership priority and needs to be a high political
priority. Strengthening the capacity of institutions in charge of public
administration on the one hand and of independent institutions on the other,
notably the Ombudsperson, is of the utmost importance.

Civilian oversight of the security
forces

There has been limited progress in civilian
oversight of the security forces. Kosovo still needs to implement the
legislation on classification of information and security clearance. Scrutiny
of the security service and of the Kosovo Security Force by the relevant
committees in the assembly needs to be improved. Furthermore, the main political
parties in Kosovo continue to operate their own security networks.

Judicial system

Kosovo has made progress in the judicial sector. The Constitutional
Court has issued a number of key decisions, which made a significant impact.
Institutions ensured that these judgments were followed. In September, the
Constitutional Court ruled on the issue of functional immunity of the deputies
of the assembly, the president and the members of government. Besides
confirming that none are immune for actions taken and decisions made outside
the scope of their responsibility, the decision also sets out in which cases
and circumstances arrests or detention may or may not occur.

Kosovo authorities have continued
implementing the adopted judicial reform legislation, notably the laws on the
Judicial and Prosecutorial Councils, on courts and on prosecution. The annual
budget for the judiciary is about € 17 million for 2011. In 2010 it was
about € 14 million, which is estimated at 0.34% of 2010 GDP. Kosovo
adopted a law on civil aspects of international child abductions in October
2010 and the law on witness protection in July. The law on criminal liability
of legal persons for criminal offences, the law on international legal
cooperation in criminal matters, extradition and transfer of sentenced persons,
and the law on the Special Chamber of the Supreme Court were all adopted at the
end of August. Implementation of the law on the Special Chamber of the Supreme
Court presents considerable challenges in view of the shortage of qualified
local judges. The law also limits the role of EULEX in the Chamber, which is an
issue of concern, given the fact that the mission's strong involvement
decreases potential for controversies over Chamber's decisions.

With the aim of implementing the law on
mediation, the mediation committee certified 74 mediators, out of which 50 have
been submitted to the Ministry of Justice in order to obtain the license. They
received training and pilot mediation centres were opened in Gjilan/Gnjilane
and Pejë/Peć with donor support. Implementation of the notary law has
started. Further efforts are needed to establish fully functional notary
system.

The department responsible for
international legal cooperation within the Ministry of Justice has continued to
exercise its duties in a professional and efficient manner. Its capacity has
been strengthened. In 2011, bilateral agreements on legal cooperation in
criminal matters, extradition and transfer of sentenced persons were signed
with the former Yugoslav Republic of Macedonia and Turkey. Other bilateral
agreements are being negotiated. Beyond this legal framework, international
legal cooperation based on reciprocity is taking place with many other
countries. The Kosovo Ministry of Justice acts on requests for mutual legal
assistance received from non-recognising countries, either directly or via
UNMIK or EULEX. UNMIK remains the formal point of contact with Interpol and the
ICTY. Direct mutual legal assistance between Serbia and Kosovo is
non-functional. On 12 August, a technical arrangement on mutual legal
assistance was signed between the Ministry of Justice and EULEX, under which
EULEX assumes the role of an intermediate between the Ministry of Justice and
states, which did not recognise Kosovo, and will facilitate the processing of
requests for mutual legal assistance from those countries.

Salaries for judges and prosecutors have
been increased, as provided for in the relevant laws, further strengthening the
independence of judges. The Kosovo Judicial Council has started to
address shortcomings within the judiciary. The Council adopted an action plan
for the implementation of the law on courts. It adopted a strategy to reduce
the backlog of cases in October 2010 and started implementing it on 1 January
2011. By the end of July, the backlog (which was set by the strategy at 161,273
on reference date 31 December 2008) was reduced by around 26% to a total of
around 119,000 cases. The total number of pending cases was 211,588 cases (of
which 111,704 backlog cases in the regular courts - 76,030 of those are
execution cases for non-payment of utilities), whereas the minor offences
courts have 99,031 pending cases (7,284 of which are backlog cases). A
specialised enforcement unit was set up for civil enforcement cases, with
offices in five courts. Around 30 enforcement clerks were hired.

The Director of the Council's secretariat was appointed and has
taken major steps to improve the functioning of the secretariat. The Council
assumed full responsibility for recruiting, vetting and selecting candidates
for judicial positions and established an office for judicial and prosecutorial
assessment and vetting for supporting the selection process. The office needs
to play an important role in ensuring accountability of judiciary. Of a
total of 399 judges foreseen for Kosovo courts, 244 positions were filled and
the Council published vacancy notices for another 112 posts open. The
distribution of the remaining 43 positions will be done based on the new law on
courts, which restructures the court system in Kosovo. The number of
applications for reappointment from members of minorities has continued to be
lower than needed to fill all the posts. As part of the reappointment process,
three judges (out of a total of seven) were appointed to the Special Chamber of
the Supreme Court and one judge was appointed to the appeal panel of the
Special Chamber. On 11 August, four Kosovo Albanians and one Kosovo Serb were
appointed by the Kosovo President as Supreme Court judges. This brings the total
number of judges at the Supreme Court to 16.

The Council has also organised training for court officials on
implementation of the manual on court management and on case management
information system. It also appointed the disciplinary panel in February, but
still needs to appoint the other committees indicated in the law on the
Judicial Council. Some disciplinary proceedings against judges or prosecutors
were reported, but none of them resulted in dismissal. The Judicial Council has
not yet reached its full composition. The Council adopted rules for the
election of members by their peers to fill the positions vacated by the
prosecutors who are now members of the Kosovo Prosecutorial Council and
organised the election process. Two judges from the first instance level were
elected. The Assembly still needs to appoint three members of the Council,
including two judges from minority communities.

The law on the Kosovo Prosecutorial Council entered into force on 1
January. All nine members of the Prosecutorial Council were appointed and the
Council has started working. It took over certain responsibilities from the
Ministry of Justice and the Kosovo Judicial Council and its two key bodies are
now in operation: the disciplinary committee and the panel for recruiting new
prosecutors to fill the 45 vacancies. Some administrative and organisational
regulations were approved by the Council and the recruitment process is
ongoing. The Council assigned special prosecutors to deal with organised crime,
economic crime, corruption and trafficking of human beings in all district
courts and municipal courts. It is important that cooperation between
prosecutors and the police continues to improve, notably in the fight against
organised crime, for which the Council needs to develop its prosecutorial
policy and strategy in line with the law.

Progress has been made on adjudicating cases pending after the March
2004 riots. The criminal procedures were finalised at first instance; the
majority of the civil cases are considered inadmissible.

The judicial system remains weak and efficiency
needs to be enhanced. Implementation of the manual on court management is at an
early stage. Data and case management is still weak. There are still reports of
threats and intimidation against judges, especially in sensitive cases such as
on property rights. This is a serious concern as regards impartiality of
judiciary. Appropriate security and protection measures therefore need to be
taken to provide judges and court staff with a secure working environment and
effective safeguards against threats or intimidation. Political interference in
the work of the judiciary is still a concern.

Rule of law continues to be a cause for
concern in northern Kosovo. The Mitrovicë/Mitrovica court still consists solely
of EULEX judges and prosecutors and is operating with limited capacity. This
limits access to justice and undermines rule of law. Forty-two criminal cases
have been adjudicated, but civil cases are not being processed. Civil cases
have been pending for more than three years since the normal activities of the
court were halted in March 2008, raising concerns about the right to a trial
within reasonable time. Currently, no municipal or minor offence courts are
functioning in northern Kosovo, apart from the Mitrovicë/Mitrovica court
staffed by EULEX.

There are serious concerns about
transparency when it comes to implementing the law on pardons. The acting
President (partially) pardoned 103 prisoners in February 2011 (compared to 62
in February 2010). Many of them were serving sentences for serious crimes.

Overall,
Kosovo has made progress in this area. The Constitutional Court has made a
number of key judgments. The Judicial Council has started addressing key
priorities and the Prosecutorial Council has started operating. The successful
completion of the reappointment process has increased self-confidence among the
local judiciary. The judicial system is still weak. Interference in the
workings of justice persists, endangering its independence and impartiality.
Improvements are needed in the efficiency of court proceedings and enforcement
of decisions.

Anti-corruption policy

Kosovo has made some progress on tackling
corruption. The implementation of the anti-corruption strategy is monitored by
an Anti-Corruption Agency. The Agency is also the responsible authority to
monitor the implementation of the law on preventing conflicts of interest in
exercising public functions, which was amended in August. The law on
declaration, origin and control of property of senior public officials and on
declaration, origin and control of gifts of all public officials, the law on
protection of informants (whistleblowers) and the law on public procurement
were also adopted at the end of August. An
anti-corruption coordinator was appointed within the Office of the State
Prosecutor and one prosecutor per district prosecution office was assigned to
corruption cases. Steps have been taken to strengthen the Kosovo
anti-corruption task force and to ensure that seconded police officers and
appointed experts will be able to contribute effectively. Similar steps have
been taken to improve cooperation between prosecutors. A mixed panel of local
and EULEX judges has convicted senior officials and politicians. The indictment
against officials of the customs department was dismissed on legal grounds by a
pre-trial EULEX judge of the Pristina court. The prosecution has appealed
against this decision.

The increase in the salaries of judges and
the completion of the reappointment process were positive steps to prevent
corruption in judiciary. The 2011 campaign on the declaration of assets led to
an increase in the number of declarations by officials. 96% (1830) of officials
made declarations, which were published online. Cases have been initiated against
84 persons who did not disclose their assets. The Anti-corruption Agency has
stepped up its awareness-raising activities, by means of campaigns and targeted
training. The Agency has sufficient capacity to perform its tasks. Law
enforcement agencies have strengthened their disciplinary structures.

There have been some convictions on
corruption-related cases. Since January 2009, a total of thirty verdicts have
been issued by mixed panels of EULEX judges and Kosovo judges, thirty
defendants were found guilty, nine were acquitted. On other corruption cases,
216 cases are inherited from previous years and 92 were reported in the period
October 2010 – July 2011. 75 cases have been resolved at first level instance
(40 of which with a condemnatory judgement) in this period.

Kosovo continues to face significant
challenges in fighting corruption. The adopted legislation now needs to be
fully implemented. The capacity to investigate this type of crime, and the
level of expertise, remains limited. Law enforcement and judicial authorities
need to be more pro-active in this area. Cooperation between the
Anti-Corruption Agency, the police and the prosecution needs to be further
improved. Declarations of assets by public officials continue to show
discrepancies between the assets declared and actual revenue. Most political
parties did not fully comply with their reporting obligations to the office for
political party registration. Furthermore, necessary amendments to the law on
financing of political parties have not yet been adopted. Breaches of
procurement rules continue to be an issue of concern in the context of
corruption. Citizens regularly encounter corruption in police, customs
and court services. Major efforts are needed to fight the widespread corruption
in education and health care.

Overall,
some progress has been achieved in the fight against corruption, notably by
starting to tackle some of the corruption cases and improving the legislative
framework. Structures in place to deal with corruption have also improved. The
legislative framework is still not complete. There is a need to tackle this
challenge more proactively, in particular by law enforcement and judiciary.
This needs to done within their own ranks as well. Corruption remains prevalent
in many areas and continues to be a very serious concern. It also affects
access by citizens to public services.

2.2.
Human rights and the protection of minorities

Observance of international human rights
law

Kosovo is a member of neither the UN nor
the Council of Europe. Consequently, it is not in a position to ratify the
relevant international human rights instruments. Kosovo is not
subject to the frameworks set up by these international bodies for regular
reporting and cooperation on human rights (including the European Court of
Human Rights). Kosovo's Constitution contains strong provisions to secure
international standards on human rights. Alongside a catalogue of rights, the
Constitution makes the operative provisions of numerous international human
rights instruments binding within the legal order of Kosovo. Kosovo is aiming
to engage with European and international monitoring bodies beyond the ongoing
informal communication.

During the reporting period, the government
submitted a report to the Committee on the Rights of the Child. This
cooperation with ad hoc arrangements for reporting to the UN Treaty
bodies is a positive step. It made it possible for Kosovo to provide a report
on implementation of the Convention for the Elimination of all Forms of
Discrimination against Women.

Promotion and enforcement of human
rights remain a
major challenge. Training has been organised to build up the capacity of the
human rights units. The enforceability of legal and administrative remedies for
human rights infringements needs to be improved at all levels. The range of
institutions and bodies dealing with human rights at central and municipal
levels is too dispersed and at times overlapping. Communication and
coordination between the different institutions and bodies dealing with human
rights at central and local levels and with the Ombudsperson are weak. These
bodies need to be streamlined and their mandate clarified in order to make
better use of their limited expertise and resources.

Overall,
this area remains a major challenge. The institutional set-up promoting and
enforcing human rights needs to be simplified. Appropriate resources need to be
allocated. Efforts to enhance monitoring and reporting mechanisms need to be
stepped up and to focus on improving the enforcement of existing legislation
and policies. Ensuring full respect for human rights is a key European
Partnership priority.

Civil and political rights

The government needs to continue its
efforts to address torture and ill-treatment, including the fight
against impunity. The number of reported cases involving police and
prison staff has decreased. EULEX is monitoring and following allegations of
possible ill-treatment at Dubravë/Dubrava prison and working closely with the
Kosovo Correctional Service intervention team.

Overall,
further efforts are needed to prevent torture, ill-treatment and impunity.

Kosovo has achieved some progress as
regards the prison system. Living conditions in Kosovo's
detention facilities have improved. The first steps have been taken to
establish a sustainable mechanism for monitoring local detention in order to
coordinate the efforts of the various local organisations and institutions
monitoring detention. A cooperation agreement between the Ombudsperson, the
Kosovo Rehabilitation Centre for Torture Victims and the Council of Defence of
Human Rights and Freedoms aimed at setting up such a mechanism entered into
force in May. The Kosovo Correctional Service has introduced a methadone
treatment programme, which has improved the situation of drug addicts among the
prison population.

Some outstanding issues need to be
addressed. Only a small number of the approximately thirty sublegal acts to
implement the law on execution of penal sanctions have entered into force. Due
to the lack of space in pre-trial detention centres and the increase in the
number of detainees (from 369 in August 2010 to 545 in June 2011), the Kosovo
Correctional Service transferred some detainees to Dubravë/Dubrava prison,
where they are housed in a separate block from sentenced prisoners. The
Correctional Service continues to face difficulties securing funds for
refurbishment. Construction of the high-security prison needs to be finalised
as soon as possible. Cooperation with the Mitrovicë/Mitrovica detention centre
and the headquarters has improved and is now satisfactory. This facility is not
suitable for long-term prisoners.

Currently, the Correctional Service has no
electronic information system that can record and provide reliable date on the
prison population. This makes it impossible to plan effective social
reintegration programmes. Corruption within the prison system needs to be
addressed.

Overall,
some progress can be reported in relation to correctional services. Kosovo is
continuing to address its objectives in this area.

In the case of access to justice,
there has been limited progress. Mechanisms for assisting victims of
trafficking and domestic violence exist. Legal aid offices have also been
opened. Court liaison offices are in operation across the regions, but their funding
and resources need to be fully ensured. Major challenges such as the backlog of
cases persist. The Mitrovicë/Mitrovica court continues to function with limited
capacity under EULEX. Access to justice for victims of trafficking, both
children and women, needs to be improved. Further efforts are needed to ensure
legal aid in Kosovo, including adopting the appropriate law.

Overall,
Kosovo has made limited progress in this area. A number of obstacles still
limit access to justice. Kosovo is at an early stage of ensuring such an
access.

As regards freedom of expression,
limited progress can be reported. The transparency of media ownership is
guaranteed by a law and the law is properly enforced. The Independent Media
Commission delivered the media monitoring of the election campaign for the
first time. The ministerial human rights units have received training on the
law on access to public documents. Enforcement of this law requires that the
roles and responsibilities of the ministries involved be clarified.

Five media professionals and one mayor were
indicted for alleged threats and defamatory comments towards an independent
investigative journalist. Journalists continue to face political pressure and
intimidation, which is threatening the still fragile investigative journalism.
The amendment to the Criminal Code putting an end to defamation as a criminal
offence still needs to be adopted. The professional standards in journalism
need to be enhanced.

Efforts to draft new laws on the
Independent Media Commission and the public broadcaster RTK have contributed to
increased awareness on European standards. The editorial independence of the
public broadcaster RTK is not guaranteed. RTK also lacks sustainable financing.
The current budget-only funding has severely undermined the RTK's independence.
Other media depend heavily on financing from the public sector and
publicly-owned companies. The assembly still needs to appoint its members to
the Independent Media Commission. Legislation guarantees sufficient time for minority
programmes on the RTK, but this is not observed in practice.

Overall,
Kosovo continues to face considerable challenges in this area, including
political interference.

Freedom of assembly and association continues to be exercised in Kosovo. Various demonstrations took
place in Kosovo. The newly-amended law on freedom of association in NGOs
ensures that their right to association is not hindered. With regard to the
development of civil society organisations, little progress can be reported.
The President of Kosovo has invited several representatives of civil society to
advise her. The institutions need to find ways to ensure more structured
cooperation with civil society. Public understanding of the role of civil
society remains low. It is a concern that civil society is subject to undue
political pressure and intimidation if its activities do not correspond to the
views of authorities.

Overall,
there has been a mixed progress on efforts to fully guarantee freedom of
assembly and association. The environment in which NGOs operate needs to be
improved. The government, the assembly and municipalities need to cooperate
more effectively with civil society.

In relation to freedom of thought,
conscience and religion, there has been some progress. Kosovo police has
continued taking over responsibility from KFOR for guarding historical and
religious sites, including Serbian Orthodox ones. Only three sites remain under
KFOR protection. Kosovo furthered its renovation activities of Serbian Orthodox
sites in cooperation with relevant participants from the Serbian Orthodox
Church and from the Serbian authorities. The Orthodox seminary restarted its
activities in its historical premises in Prizren. Kosovo has launched
consultations on the amendments to the law on freedom of religion notably to
put an end to the current requirement for all religious
communities to register as NGOs. Demonstrations on religious ground took place peacefully in
Pristina. Religious leaders have participated jointly
in some religious events. The construction of the catholic cathedral in the
centre of Pristina is ongoing. Students took action to clean the Jewish
cemetery in Pristina. However, a number of religious
heritage sites have been vandalised, including Serbian Orthodox churches and
Orthodox and Muslim cemeteries. The mechanisms for reporting and following up
such activities need to be improved.

Overall, there
has been a mixed progress on freedom of thought, conscience and religion, the
transfer of responsibility for protecting religious and cultural sites to the
police has continued smoothly. Tolerance towards religions remains fragile.
Lack of respect towards symbolic sites and believers, irrespective of religion,
persists.

Economic and social rights (see also
Chapter 4.1.8 – Social policies, employment and public health)

In the areas of women's rights and
gender equality, some progress can be reported. The position of women in
politics has improved with the election of Ms Atifete Jahjaga as the Kosovo
President and the appointment of three women as Deputy Prime Ministers,
including the negotiator in the Belgrade/Pristina dialogue and the Minister for
European Integration. The labour law extended the right to maternity leave. In
implementing this law, attention needs to be paid to the vulnerability of women
in the labour market. Implementation of the law for the protection against
domestic violence has continued. To this end, the Agency for Gender Equality
and the Kosovo Judicial Institute have provided training to legal staff on the
protection from domestic violence. A public debate on this issue was held in
Gjilan/Gnjilane. Leaflets were also published. The Ministry for the Kosovo
Security Force established a human rights unit, which also deals with gender
equality and hired three officers. At municipal level, trainings have been
provided and capacity enhanced.

Domestic and gender-based violence
continues to be a challenge in Kosovo. The relevant legislation needs to be
implemented and monitored. Services for victims of domestic violence and
trafficking are partially funded by the government but remain heavily dependent
on donor funding. The long-term reintegration of victims, including their
economic stability and access to justice, needs to be provided. Positive
measures need to be enforced to empower women as victims of trafficking and
domestic violence. High drop-out rates amongst girls and the
under-representation of women on the labour market, including in the public
sector, require concrete action by authorities. The Agency for Gender Equality
has continued facilitating, promoting and monitoring implementation of the
Gender Equality Programme (2008-2013).

Overall,
some progress can be reported in women's rights. The relevant institutions need
to be strengthened and the budget increased in order for the legislation to be
implemented fully.

Protection of children's rights
has improved with the implementation of the juvenile justice code and its
monitoring process. In March, the annual report on children's rights was
published. The Council for Child Protection and Justice for Children was
established. It needs to focus on implementing the strategy and action plan for
children's rights for 2009-2013. Kosovo opened learning centres in a handful of
municipalities to fight against drop-out among the Roma, Ashkali and Egyptians.
These efforts need to continue.

The social assistance scheme is being
revised based on necessary consultations and taking account of budgetary
constraints. Child protection remains weak and the child poverty rate is over
48%. Children are at greater risk of poverty than the general population, in
particular among the Roma, Ashkali and Egyptian communities. Poor maternal care
and child nutrition and healthcare are additional challenges reflected in the
high level of child mortality. Forced begging by children continues to be
widespread. Kosovo needs to strengthen its child protection system.

Overall,
child protection remains weak. Mechanisms and processes need to be developed to
enforce children's rights. Child protection needs to benefit from a functional
multi-sectoral approach.

Limited progress has been achieved on socially
vulnerable persons and/or persons with disabilities. Training
sessions in this area enhanced the administrative capacity and need to
continue. The Council for Persons with Disabilities was established to
coordinate enforcement of legislation. The first report on the implementation
of the action plan for people with disabilities (2009-2011) was published. This
plan and the law on vocational training and employment for people with
disabilities need to be better enforced, and their implementation monitored.
Adequate actions at municipal level are also required.

Overall,
more efforts are needed to improve the daily life of socially vulnerable groups
and persons with disabilities.

The government has continued to carry out a
few awareness-raising campaigns on the anti-discrimination law. The low
level of confidence in the courts is discouraging for the victims of
discrimination. More efforts are needed to combat all forms of discrimination,
which is a major issue of concern. Enforcing the relevant legislation, in
particular the anti-discrimination law, remains imperative. Monitoring the
implementation of legislation in this area is still insufficient.

The Constitution prohibits discrimination
on the basis of sexual orientation. The anti-discrimination law also provides a
high degree of protection for the lesbian, gay, bisexual and transgender (LGBT)
community. Practical enforcement of the legislation remains a challenge. There
is still a lack of awareness on LGBT issues, which are not discussed openly. There
is limited knowledge and understanding on the part of law enforcement officers
about the rights of this community. Socially-accepted lack of tolerance towards
individuals identifying themselves as having a different sexual orientation
requires more political commitment. The members of the LGBT community face
threats or the risk of violence.

Overall,
more efforts are needed to raise general awareness about anti-discrimination
measures and to implement the existing legislation.

In the area of labour and trade union
rights, some progress has been achieved. The law on labour was adopted in
November 2010. This improves working conditions notably in terms of work-contracts.
It also introduces paid maternity-leave up to 9 months. The Socio-Economic
Council became operational and the law on the Socio-Economic Council was
adopted regulating its organisation, mandate, and actions. Labour inspectorates
were reorganised, but they lack the necessary capacity to monitor labour
conditions throughout Kosovo. The law on trade-unions was adopted clarifying
the employees' rights to establish and participate in trade unions. There are
concerns as to the alignment of the law on strikes with the European Charter
for Fundamental Rights and international standards.

Overall,
labour and trade union rights are largely guaranteed. The implementation of the
existing legislation will be crucial to make changes tangible.

As regards property
rights, there has been a mixed progress. A range of laws were adopted
improving the legal framework (law on cadastre, amendments to the law on the establishment of the immovable property
rights register, the law on taxes on immovable
property, the law on allocation for use and exchange of immovable property of
municipalities, and the law amending the law on expropriation). The
municipality of Pristina adopted a regulation to initiate the process for
legalisation of illegal constructions. The local judge of the Supreme Court
panel for appeals against contested Property Agency decisions was appointed,
making the panel operational. The government appointed its property rights'
coordinator to improve enforcement of law in this area. The Kosovo Cadastral
Agency has launched a project to register apartments in the major cities of
Kosovo. All municipal land registry offices are now connected to the central
Kosovo Cadastral Agency and records are available both centrally and in the
municipal offices. Out of the 41,222 claims recorded by the Kosovo Property
Agency, 30,649 have been adjudicated by the Kosovo Property Claims Commission.
18,365 adjudicated claims which were overturned due to incorrect physical
notification during the period 2006 to 2009 have been re-notified. UNHCR
offices in Serbia operate as the liaison office for the Kosovo Property Agency.

The number of
valid Property Claims Commission decisions stands at 17,076, of which 11,712
were delivered to successful claimants. Of 4,526 requests received, 3,133 were
implemented, 1,069 by repossession, and 1,268 were placed under the
administration of the Property Agency. Implementation of eviction orders and
property administration in the northern part of Mitrovicë/Mitrovica remains a
challenge. The funding of the Property Agency remains unsustainable.
Approximately 21,000 property compensation claims remain unresolved before the
courts. Second-instance courts often send property cases back to the
first-instance court for a re-trial. This is due to irregularities either in
the judgment or in the proceedings, and leads to a repeat of trials.
Inter-ethnic property disputes are unduly prolonged before the local courts.
There is no compensation scheme for socially-owned apartments. The law on sales
of apartments where occupancy rights exist has still not been adopted. The lack
of a strategy to regularise informal settlements remains a concern. While the
expropriation procedures are applied satisfactorily and property owners
compensated, proper consultation and notification of the displaced owners by
the authorities are not adequately carried out. This leads to additional
backlog of cases in the courts.

Overall, the weak implementation of the property-related legislation is the
major obstacle to protecting and enforcing property rights.

Respect for
and protection of minorities, cultural rights

There has been some progress in the respect for and protection of minorities.
Decentralisation and support for the newly-founded Serb-majority municipalities
are positive developments. This process needs greater attention and political
will to solve outstanding issues, such as land management. The work of the
Communities Consultative Council has continued. Its members have contributed to
the review of government activities and policies affecting communities,
especially via its working groups on education and on issues concerning the
Roma, Ashkali and Egyptian communities. During the reporting period, a Kosovo
Croat was appointed to the Council, thus making the forum more representative.
The Council is increasingly consulted by executive bodies. The number of
incidents affecting the minority population has increased as a consequence of
events that triggered tensions between Kosovo and Serbia.

Limited
progress can be reported on access to education for minority communities. The
newly adopted laws on pre-university education and higher education contain
provisions as to the representation of non-Albanian communities in educational
councils and authorities regulating and supervising the education system. The
new law on higher education incorporates all higher education providers
including the Serbian-speaking university. Finalising the new framework
curricula was the pre-condition for drafting the curricula in Serbian and other
languages of communities. It is now in place and the drafting of the subject
curricula needs to begin. Registration of Roma pupils has slightly increased. The Roma language curriculum was published as an elective course in
three languages (Albanian, Roma and Serbian).

Many school
textbooks are still not available in the mother-tongue of the Turkish, Bosniak
and Roma communities. Moreover, there is still no Serbian curriculum made
available by Kosovo, nor is Serbian available as the second official language
in any of the public schools outside of the areas predominantly inhabited by
Serbs. In many cases, access to secondary mother-tongue education for the
Turkish and Bosniak communities is hindered by the lack of curricula translated
into their own language or the low quality of textbook translations. Training
for teachers teaching in the languages of communities needs to be enhanced, in
particular regarding new curricula.

The teaching staff of Serbia-supported
schools has started to sign contracts with Kosovo municipal education
directorates. Gorani teachers have not signed any contracts with the
municipality of Dragash/Dragaš and have therefore been prevented from using the
Kosovo-administered school premises.

There has been little progress on the use
of languages. The legal framework generally meets international standards on
linguistic rights. The Language Commission has started receiving complaints.
Newly-established municipalities have adopted regulations on the use of
official languages. The implementation of the law on the use of official
languages remains inadequate. The lack of sufficient human and financial
resources jeopardises access to multilingual public services and also effective
participation in public life. The impact of the Language Commission is very
limited due to the lack of human resources and the complicated institutional
structures dealing with fundamental rights.

International support has improved the position of minority media,
especially in Serbian. The Serbian television producers have launched the
"TV Mreža" network linking four Serbian-language television stations
around Kosovo and covering 80% of the Kosovo Serb population. The Kosovo Media
Association radio network in Serbian broadcasts throughout Kosovo.

The public broadcaster (RTK) has allotted
times below the legal provisions for programmes in the Serbian, Roma, Bosnian,
Gorani and Turkish languages. The plan to establish a second public channel to
broadcast in Serbian or any non-Albanian languages has not been finalised. The
Fund for the Support of Media of Minority, Multi-ethnic and Other Special
Groups has not been operational since collection of the public broadcasting fee
for the RTK was suspended by a court decision in October 2009. As a result, the
5% of the total fee collected earmarked for the fund is not available.

Overall, limited
progress has been achieved regarding access to education for minority
communities. The main challenge remains the lack of curricula and textbooks in
minority languages. Teachers also need more training where such new curricula
exist. Kosovo authorities need to step up their efforts in this area, notably
to allocate adequate resources to educate minority communities. Little progress
can be reported on the use of languages. Implementation of the legal framework
is inadequate. Multilingual public services are not in place. The position of
minority media, especially in Serbian, has improved.

Regarding the Roma, Ashkali and Egyptian
(RAE) communities, mixed progress has been achieved. In October 2010, the lead-contaminated
camp at Çesmin Lug/Česmin Lug was closed and all the accommodation was
demolished. Its residents along with other families from Osterode were
resettled in Roma Mahalla in south Mitrovicë/Mitrovica where municipal
authorities allocated land for their housing. The government has promoted the
civil registration of these communities, including by offering such
registration free of charge. A report on the implementation of the Strategy for
the Integration of Roma, Ashkali and Egyptian communities was published. Kosovo
participated in the Roma Decade steering committee as an observer, allowing it
to engage with key players on regional Roma issues.

Osterode camp has not yet been closed
because public land for its remaining residents (nine families) has not been
allocated. Kosovo still lacks a comprehensive plan to regulate informal RAE
settlements. The lack of civil status registration is a further serious
obstacle to access to services. Reintegration of repatriated Roma, Ashkali and
Egyptians is a concern. The authorities need to increase their commitment to
address urgent issues affecting the lives of the Roma, Ashkali and Egyptian
communities notably their access to education, healthcare, housing and social
protection.

Overall,
there has been some progress on integrating minority communities. Kosovo has
achieved good results by closing the lead-contaminated camp of Çesmin
Lug/Česmin Lug and increasing civil registration of the Roma, Ashkali and
Egyptian communities. These efforts need to continue to foster their
socio-economic integration.

In the area of refugees and internally displaced persons (IDPs),
little progress can be reported. From January to December 2010, a total of
2,261 members of minorities returned voluntarily to Kosovo, which marks the
highest return rate in the last six years. The voluntary return process was
affected by the difficult political and economical environment in the first
semester of 2011. The budget dedicated to voluntary return was considerably
reduced by the government. Municipalities face difficulties to provide social
housing for returnees without property.

The government needs to step up its efforts to take the lead in
addressing the issue of IDPs. The municipalities alone are still not able to
respond to the immediate and long-term needs of IDPs and returnees, due to a
lack of funds allocated for that purpose. There is an inconsistency between
municipal return strategies and the action plan prepared by the Ministry for
Communities and Returns.

IDPs continue to face a number of risks, particularly lack of
personal identity and property documentation, deplorable living conditions and
lack of access to basic socio-economic rights. Moreover, the non-recognition of
administrative documents between Kosovo and Serbian institutions further
affects access to services and property restitution for IDPs. Attacks on
returnees are rare. If they happen, they are not always subject to proper
follow-up by the police and the judiciary.

A clear strategy to tackle the caseload of IDPs is needed. In terms
of the return process, the main challenges are the continued and heightened
socio-economic problems, education and property ownership issues, lack of
funding, inter-ethnic tensions in some of the areas and lack of commitment on
the part of the institutions.

Overall, the return process remains a
challenge for Kosovo. Limited access to property, delayed property restitution
proceedings and the scarcity of economic opportunities continue to be the main
obstacles to sustainable returns. Many displaced persons are still living in
difficult conditions. Pristina and Belgrade need to cooperate to tackle this
issue.

Regarding the enforcement of cultural
rights, limited progress can be noted. The Director of the
Department of Cultural Heritage in the Ministry of Culture was appointed. The
secretariat of the Council for Cultural Heritage became operational.
Cooperation between the relevant ministries and between central and local
levels is slowly improving, but needs to be intensified and managed in a more
structured way to secure sustainable progress. The Kosovo Police instructed all
regional police stations to tighten patrols at cultural and religious heritage
sites. The laws on Prizren and on Hoçë e Madhe/Velika Hoča have not been
adopted.

Implementation of the legislative framework
governing protection of cultural heritage remains weak. The comprehensive list
of cultural heritage sites qualifying for protection, as provided for by the law
on cultural heritage, has still not been adopted. As a result, many
historically protected items remain vulnerable. This results in breaches of the
law. A stronger commitment for cultural heritage spatial planning is needed.

Overall, there has been limited progress on cultural rights. Kosovo has
improved coordination and brought new structures into operation. Implementation
of the legislative framework remains weak.

2.3.
Regional issues and international obligations

Cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) has continued.

As regards missing persons, as of
September 2011, there were still approximately 14,000 people missing from the
conflicts in the region. Of these, some 10,000 were related to the conflict in
Bosnia and Herzegovina, 2,000 to the conflict in Croatia and over 1,800 to the
conflict in Kosovo.

Kosovo adopted a law on missing persons. It is the first legal
framework that guarantees recognition of the right-to-know and
right-to-reparation to the families of the missing, as well as the legal status
of the missing persons. The Working Group on Missing Persons, a bilateral forum
that brings together the Belgrade and Pristina delegations for dialogue and
exchanges of information on missing persons in Kosovo, has remained the
framework within which the Pristina authorities have pursued their commitments.
Excavation and de-mining work has continued at the Zhilivoda/Žilivode and
Kosharë/Košare sites, where human remains of ethnic Serbs are allegedly buried.
Most of the work is being carried out by the Kosovo Security Force with the
involvement of the Government Commission on Missing Persons, an
inter-ministerial body. Experts from the EULEX Department on Forensic Medicine,
in cooperation with the Kosovo Security Force, conducted site assessments at
Lake Livoq/Livoc and near the village of Zhilivoda/Žilivode. The operation at
Lake Livoq/Livoc found no remains of missing persons. Kosovo authorities need
to provide new information from their own sources on the alleged gravesites.

The unidentified human remains stored at the Pristina morgue
continue to be a cause for concern. The lack of a formal agreement between
Kosovo and the former Yugoslav Republic of Macedonia is an obstacle to
clarifying allegations related to unidentified human remains in the former
Yugoslav Republic of Macedonia.

EULEX has continued investigating war
crimes cases. It has conducted a number of operations,
including arrests and convictions in war crimes cases involving senior
political figures. In the 'Geci trial', a mixed panel of the
Mitrovicë/Mitrovica district court sentenced four former KLA commanders and
members to imprisonment for terms between seven and fifteen years for (amongst
others) war crimes against the civilian population. In the Kleçkë/Klečka
case, the indictment was confirmed, charging the ten defendants with various
counts of war crimes against the civilian population and prisoners of war in
1999. In this case, a former minister who is also a senior political figure of
the ruling party was arrested by EULEX. A resolution adopted by the Parliamentary
Assembly of the Council of Europe on inhuman treatment of people and illicit
trafficking in human organs in Kosovo raised serious allegations related to the
conflict of 1999. EULEX has established a special Brussels-based task force with a liaison office in Pristina to
investigate these allegations. The authorities are
cooperating with EULEX in this investigation. Kosovo still lacks its own
capacities and political commitment to investigate war crimes cases with its
own judicial and law enforcement authorities.

Overall, there has been mixed progress in this area. The missing persons
file requires greater political commitment, supported by financial and
technical resources provided by the government to ensure adequate engagement.
Unless adequately addressed, the issue will continue to fuel resentment, hinder
reconciliation and adversely affect the overall political climate in Kosovo.
The authorities are cooperating with EULEX in the investigation of allegations
raised in the resolution adopted by the Parliamentary Assembly of the Council
of Europe.

Kosovo's
Constitution stipulates Kosovo's external representation. But some parties
insist on Kosovo's participation with UNMIK presence for regional initiatives
signed by UNMIK. This causes challenges to regional participation. Kosovo did not participate in the Regional
Cooperation Council (RCC) Board meetings between June 2010 and May 2011. It
did, however, participate, as part of the UNMIK/Kosovo delegation, at the RCC
Annual Meeting in Montenegro in June 2011 and at the Board meeting of September
2011. A new coordinator of the RCC office was appointed in May. Even though
there is a streamlined procedure for holders of Kosovo passports to obtain
visas to attend RCC activities in Bosnia and Herzegovina, the visa procedure
remains cumbersome and time-consuming for other regional events held there.

On 1 January, Kosovo, with UNMIK, took over
as chair of the Central European Free Trade Agreement (CEFTA). During the
reporting period, it organised four meetings under its Presidency, including a
meeting on deputy ministerial level. Within the Belgrade/Pristina dialogue an
agreement has been found on the customs stamps. Goods have started flowing in
both directions in September.

Kosovo has continued to participate in the
Energy Community Treaty, the European Common Aviation Area Agreement and the
South-East Europe Transport Observatory. It is formally represented in these
three regional cooperation fora by UNMIK. The Kosovo institutions attend most
regional and international meetings for which UNMIK facilitation is required,
thereby enabling Kosovo to remain included in regional/international fora.

Kosovo has continued to participate as an
observer in the Investment Compact for South-East Europe, which is designed to
improve the investment climate and encourage private-sector development in the
region through the implementation of reforms enhancing domestic and foreign
investment. Kosovo has also continued to be fully involved in implementation
projects, such as the EU-funded Regional Competitiveness Initiative. Kosovo
supports the RECOM initiative on reconciliation.

The demarcation process with Montenegro has
not progressed, notwithstanding the existence of a commission specifically
responsible for this process.

Overall, an
agreement remains to be found on a sustainable solution for participation by
both Kosovo and Serbia in regional fora. This is essential for inclusive and
functioning regional cooperation. Demarcation of the border with Montenegro
needs to be finalised.

3.
Economic criteria

In examining economic developments in
Kosovo, the Commission's approach is 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

As a consequence of the political
instability and early elections, the 2011 budget was not passed by the Assembly
until the end of March. In April the government adopted its medium-term expenditure
framework (MTEF), covering the years 2012-2014. The SDR 92.7 million (€ 109
million) Stand-By Arrangement (SBA), negotiated with the IMF in mid-2010, went
off track, notably due to a significant wage increase in the government sector.
A non-disbursing IMF Staff Monitored Programme (SMP), running until the end of
2011, was agreed upon in June. The SMP, which entails conditionality, is an
important test and attempt to regain credibility in economic and fiscal
policy. Overall, the determination to pursue market-oriented economic
policies has been maintained, but measures were adopted that introduced severe
distorsions in the economy. Designing and implementing a coherent and credible
economic strategy, linking policy priorities, structural reforms and public
expenditure, remain a major challenge.

Macroeconomic stability

The economic situation is challenging. The
large increases in the budget deficit over the last two years have not managed
to spur economic growth significantly. The 2010 national accounts data are
still not available, but external and fiscal imbalances increased, driven by
another year of public-sector expansion. Private consumption growth is likely
to have remained subdued due to the almost unchanged remittances, low job
creation and accelerating inflation. The contribution of government's final
consumption to real GDP growth, although supported by nominally increasing
public expenditure, has been constrained by a continuous winding-down of the
donors consumption. Government investment remained buoyant, but there are
uncertainties surrounding private investment developments, as bank lending and
foreign capital inflows have been channelled mainly into non-investment
activities in the services sector. Exports of goods and services performed
impressively, increasing by 36%. Starting from a very low base, they increased
their share in GDP to about a fifth. Imports of goods and services also
increased in double-digits, althought at a lower rate, widening the negative
contribution of net exports to growth by about 1 percentage point. Economic
statistics remained weak, hampering a comprehensive assessment of the economic
situation. GDP per capita[4] is estimated to have
risen at € 2,385 in 2010, equal to 9.7% of the EU-27 average (9.6% in
2009). Overall, Kosovo's economic growth remained weak and fragile.

In 2010, led by a doubling of base metals
exports, total exports of goods increased nominally by more than 70%. In 2011
they continued performing strongly, although their growth went down
significantly to 19% by the end of July. Exports' share of GDP rose to 7.4%, up
from the very low 4.5% in 2009, driven by strong foreign demand and high
commodity prices. This positive trend masks an underlying weakness, as base
metals increased their share in total exports to almost two-thirds, revealing a
lack of diversification and the predominance of low value added goods in the
exports' structure. Imports of goods rose by 11% in 2010 and accelerated their
growth to 14% by the end of July 2011. Their share in GDP climbed to 49%, up
from 47.3% in 2009. The imports structure shifted towards intermediate and
consumption goods at the expense of capital goods.

The coverage ratio, i.e. exports of goods
as a percentage of imports (12-month moving average), has increased and stood
at 14.1% in July 2011. The net exports of goods displayed a better performance
than in 2009, but the deficit in goods and services worsened from 39.2% of GDP
in 2009 to 40.5% in 2010. The surplus in services dropped substantially due to
a significant increase in imports of construction services starting in the
second quarter of 2010. In the first seven months of 2011, the trade deficit
widened to € 1,122 million compared with € 992 million in the
corresponding period of the previous year, as gains on the exports side were
more than offset by increased imports of goods.

In 2010, the current account deficit
(including official transfers) widened to 16.0% of GDP, up from 15.4% in 2009.
This increase was driven mainly by the deteriorating services account. At the
same time, the surplus on the income account improved to 3.1% of GDP as
investment income outflows declined by about 40% over the previous year.
Current transfers remained significant at 21.6% of GDP. Net workers'
remittances, a major source of financing domestic demand, increased by about 6%
but their share of GDP remained almost unchanged at 10.2%. The surplus on the
capital and financial account (12.3% of GDP) fell short of the size of the
current account deficit. Net foreign direct investments increased to 7.5% of
GDP, about a third of which went into real estate and construction and another
22% into financial services. There was a spike of about 50% in FDI inflows in
manufacturing, associated with the completion of privatisation deals rather
than new green-field investments. Over 2010, currency and deposits held abroad
were converted into portfolio investments abroad (equity and debt securities).
This was accompanied by an increase in the central bank reserve assets. Net
errors and omissions of 3.7% of GDP are high in comparison with the 1.5% in
2009 and pose a problem when it comes to proper analysis of economic
developments. Overall, external imbalances are high, especially in trade
in goods, and production-enhancing foreign investment inflows have remained
limited.

Unemployment was very high at 45.4%,
according to the latest official data from the Labour Force Survey 2009. No
data are available on the unemployment rate in 2010 because the Labour Force
Survey was cancelled due to financial constraints. In 2010, the number of
registered unemployed went down by about 1%, mostly in the unskilled segment.
Nevertheless, by the end of June 2011 unskilled unemployed still accounted for
60% of total registered job-seekers. Unemployed with university education,
although a relatively small number, have steadily increased and approached
4,000, signalling problems in the functioning of and the links between the
labour market and the education system. Data from the Kosovo Pension and
Savings Trust Fund indicate that in 2010 the number of contributors increased
by 2.3% or 5,213 people, almost equally divided between the government and
non-government sectors. The statistics available do not provide a true picture
of the labour market, particularly given the significant informal employment. Overall,
information about the labour market is scarce and doubts about its accuracy
persist. Unemployment remained very high and the economy did not create enough
jobs to reduce pressures on the labour market and offer job opportunities,
especially to young new entrants.

The annual average inflation was 3.5% in
2010. Monthly inflation rates accelerated sharply from mid-2010 on and in the
first quarter of 2011. By March 2011 inflation peaked at double-digit levels of
10.8% (year-on-year), before it slowly decelerated to the still high 5.3% by
the end of August. Food prices were the main contributor to inflation with 3.5
percentage points, followed by energy-related items with 0.9. Core inflation
(non-food and non-energy) reached a high of 1.6% in May, after it had usually
remained below 1%, spurred, inter alia, by the government promise to increase
government-sector wages substantially. About 90% of all goods in the consumer
basket exhibited increasing prices, indicating broad-based inflationary
pressures. The inflation level and structure have hit the poor
disproportionally and put under strain consumption patterns dependent on remittances.
Overall, inflation has been volatile and risen to high levels.

Kosovo is using the euro as legal tender.
Consequently, the Central Bank of Kosovo (CBK) has only limited policy
instruments. The growth in broad money (IMF definition[5])
stood at 18.7% by the end of July 2011. Its dynamics throughout the period was
influenced by the reduction in public non-financial corporations' deposits due
to the withdrawal by the government of dividends from the publicly-owned
telecommunications company. The monetisation of the economy, measured by the
ratio of average broad money to GDP, increased slightly, from 39.8% in 2009 to
40.4% in 2010. Stricter bank supervision led to reclassification of some loans
and an increase in non-performing loans, which reached 5.9% of total loans by
mid-2011. The central bank has put the biggest micro-finance institution under
direct administration. This case has highlighted weaknesses in the legislation,
in particular on the licensing of micro-finance institutions. Overall,
the monetary framework continued to function relatively well, although there is
room for improvement, in particular in regulation and supervision of the
financial sector.

The budget deficit increased from 0.7% of
GDP in 2009 to 2.7% in 2010, driven by surging expenditures and lower dividend
receipts. The underlying deficit was much higher – 5.5% of GDP – if one-off
receipts, particularly a € 85 million dividend and a € 30 million
budget grant, are taken into account. In addition, there has been a significant
increase in unpaid invoices, which stood at 0.7% of GDP at the end of 2010.
Total revenue (excluding dividends and grants) increased by about 1 percentage
point to 25.3% of GDP. Total primary expenditure increased by about 0.7
percentage points to 30.7% of GDP. Two thirds of the underlying revenue
continued to be collected as border taxes on consumption, while direct tax
revenue decreased in not only relative but also absolute terms. Current
expenditure reached 18.1% of GDP, up from 17.7% in 2009, underpinned by a
strong increase in spending on wages and salaries. Social transfers went up by
0.3 percentage points to 4.8% of GDP. Total subsidies, capital transfers and
net lending to publicly owned enterprises went down by 1.3 percentage points to
3.2% of GDP, due to a reduction in spending on the Kosovo Energy Corporation.
Capital expenditure increased from 9.9% to 10.7% of GDP, although all
categories of capital expenditure, other than those related to construction of
the highway linking Pristina and Tirana, had been cut significantly by 2.2% of
GDP. The government deposits available at the central bank dropped from € 342
million (8.7% of GDP) in 2009 to € 244 million (5.9%) at the end of 2010.
Government debt to the World Bank and the IMF stood at 6.2% of GDP.

Due to the early dissolution of parliament,
the 2011 budget was delayed and was not adopted by the new Assembly until
March. It envisages a 17% increase in revenue (excluding dividends and grants)
over 2010, 17.2% higher total primary expenditure, and a budget deficit of € 227
million (4.7% of GDP). The budget foresees that the deficit would be financed
by direct grants, privatisation receipts from the sale of Post and
Telecommunications of Kosovo (PTK) and borrowing from international financial
institutions, most of which are unlikely to materialise in 2011. In the first
eight months of 2011, budgetary execution has been marked by strong tax revenue
performance (17% annual growth) driven mostly by equally strong imports of
goods. In the first quarter, expenditure lagged behind, especially at municipal
level, but by end of August total expenditure accelerated and increased by more
than 24%. The budget turned into a deficit of € 16.6 million mainly
because of particularly strong increases in spending on wages and salaries
(25%) and capital outlays (61%). The Ministry of Finance took steps to improve
the transparency of budget execution and started uploading preliminary monthly
information about budget revenue and expenditure onto its website. However,
budgetary transparency could be further improved. Overall, the financing
of the 2011 budget is facing significant risks.

In 2010, in an attempt to rationalise and
bring predictability to economic policy, Kosovo entered a Stand-By Arrangement
with the IMF. The agreement allowed sufficient room and time for adjustment of
the significant fiscal imbalances. Nevertheless, after a series of ad hoc
measures, the programme derailed. In addition to the Labour Law adopted in the
last session of the previous Assembly, a number of initiatives with a
potentially significant negative impact on the level and quality of government
expenditure were taken without prior analysis of their economic and budgetary
impact.

The government decision to increase
government employees' wages substantially (by 30 to 50%), later incorporated in
the 2011 budget despite the objections raised by the European Commission and
the IMF, was highly detrimental to fiscal sustainability and the quality of
spending. In mid-July 2011, the government entered into a new agreement with
the IMF – a non‑disbursing Staff Monitored Programme (SMP) due to run
until the end of 2011. Under the programme, the government committed to
consolidation measures totalling € 35 million and to set aside a reserve
of € 60 million as unallocated expenditure for 2011, the release of which
is linked to announcement of the winner of the PTK privatisation bid. This
reserve is crucial for preserving a minimum level of government bank balances
by the end of 2011. However, keeping it is likely to imply cuts in non-highway
capital spending, which is one of the most growth-enhancing categories of
expenditure. The implementation of the SMP is an important test and an attempt
to restore credibility to economic and fiscal policy. Overall, fiscal planning
and the quality of public finances deteriorated further and policy
predictability, consistency and transparency remain serious challenges.

Economic development continued to be marked
by fragile growth and significant domestic and external imbalances, aggravated
by poor fiscal policy. In particular, the high inflation and dysfunctional
labour market pose major challenges for economic and social cohesion and the
significant economic uncertainty remained an obstacle to job creation and
private-sector development. In 2011, in an attempt to remedy some of the major
policy weaknesses, the government presented an economic vision and action plan
for economic reform. This is commendable for the leading role given to the
private sector in sustainable economic development. However, the plan lacks
prioritisation and sequencing of proposed measures. It relies on an optimistic
macroeconomic scenario. Careful assessments and proper fiscal impact analyses
of most of its measures are still due. In addition, the plan's medium-term
budget deficit target of 2% of GDP is inconsistent with the 0.5% deficit
envisaged in the MTEF. Overall, the proper functioning of the
macroeconomic policy mix is increasingly threatened by the unpredictable fiscal
policy and unsustainable growth in government expenditure.

Interplay of market forces

About 90% of the publicly-owned enterprises
(POEs) had operating profits in 2010, but a few big energy and mining companies
continued to suffer large losses and have been a significant drain on the budget.
The Privatisation Agency of Kosovo continued the privatisation of socially
owned enterprises (SOEs). Mainly small businesses were privatised, with the
exception of a big cement factory (which will secure employment for the 500
workers for three years). Limited progress was made with liquidating SOEs: only
one in 2010. The privatisation of publicly owned enterprises had temporarily
stalled because of the early dissolution of parliament. The process of
privatising PTK resumed in the spring. In June 2011 two companies, out of the
five which had declared interest, qualified for the next stage. In September,
the government gave two additional weeks for expression of interest to the
companies which had not qualified in June. This extension potentially undermines
the credibility of the privatisation process. The privatisation of KEK
Distribution and Supply (KEDS) also proceeded, with four companies
pre-qualifying to participate in it. The transaction for development of the New
Kosovo Power Plant (NKPP) continued to suffer delays, partly related to the
future energy market model and the long-term power purchase agreement between
the NKPP and KEDS, which still needs to be finalised in detail. Overall,
there has been some progress with the privatisation process, especially
concerning publicly owned enterprises.

Market entry and exit

The business register now includes 105,000
companies. Data from the Tax Administration of Kosovo (TAK) show that around
half of them are actually inactive. In order to be deregistered after becoming
inactive, companies have to present the business register with a statement from
TAK that all outstanding tax obligations have been fulfilled. So far, online
registration of companies is possible only at the 'one stop shops' or municipal
business centres that have been established in 22 municipalities. Businesses
continued to suffer from power cuts and most firms identified corruption and
red tape as major impediments to doing business. As part of its economic
development action plan, the government announced its goal of improving the
business environment substantially. To this end, it plans a number of measures,
including a comprehensive reform to remove 50% of licence and permit
requirements in the medium term. Overall, weak administration, unreliable
electricity supply and deficient rule of law continued to hinder market entry
and exit.

Legal system

The legal system continued to suffer from
poor accessibility and efficiency. Weak enforceability of contracts remained
one of the main concerns of companies and investors in Kosovo. It is also one
of the factors explaining the relatively high interest rates charged by
commercial banks to the private sector. The Kosovo court system, in cooperation
with EULEX, is investigating several high-profile corruption cases. Senior
officials and politicians have been convicted.

There has been some progress regarding
property rights infrastructure. All Municipal Cadastre Offices are now
connected to the central Kosovo Cadastral Agency and records are available in
both places. Over the last few years, both registered transactions and
mortgages have increased, indicating use of property as collateral. A total of
5,364 mortgages were registered in 2010 and 2,712 in the first eight months of
2011. It takes about 15 days for the Municipal Cadastre Offices to register a
transaction. Some land registry books remain in Serbia. An agreement on
cadastre was reached within the framework of Belgrade/Pristina dialogue. The
agreement needs to be implemented. Expropriation procedures are not always
applied and property owners are not always consulted or adequately compensated.
Overall, the existing legal framework is underdeveloped and its
implementation remained poor. The difficult, lengthy and costly legal
enforcement of contracts and prevalent corruption continued to hamper the
business environment.

Financial sector development

The financial sector expanded by 13.7% in
2010, taking the total value of assets to € 3.2 billion or about 78% of
GDP. The banking sector is predominant and accounted for 77% of all assets,
followed by pension funds (15.4%), microfinance institutions (4.3%), insurance
companies (3.1%) and financial intermediaries (0.2%). The number of commercial
banks (eight), pension funds (two) and insurance companies (eleven) remained
the same, whereas two microfinance institutions had their licences revoked in
2010 (reducing their number to 17). The degree of concentration of the banking
system remains high, with 77.4% of the assets managed by three banks. About 90%
of the assets in the sector are held by banks under foreign ownership. In 2010,
boosted by growing interest income, the retained profit of the banking sector
increased by 30%. The return on average assets remained unchanged at 1.4% ,
whereas the return average equity increased to 14.9% compared with 13.9% in
2009. Non-performing loans increased from 4.3% of total loans in 2009 to 5.9%
in mid-2011 but the banking system's capital adequacy ratio remained solid
above 17%. While interest income continued to rise moderately in the first half
of 2011, provisions for loans and other assets losses have doubled in comparison
to the same period in 2010 and suppressed profitability. Overall,
financial intermediation continued to deepen and, despite increasing
non-performing loans, the banking sector remained stable and profitable.

Credit gained some speed, increasing by 13.2%
(year-on-year) in 2010 to 35% of GDP. Its growth accelerated to 15.3% by the
end of July 2011, with both households and non-financial corporations rates of
annual credit growth in the double-digits – 17.2% and 13.2%. Almost all of the
increased corporate lending went to the services sector, in particular to
wholesale and retail trade, and, partly, to the construction sector. The share
of lending exposure to manufacturing and agriculture decreased over the period,
reflecting the low level of domestic production and the high dependence of the
economy on imports. The maturity of loans was extended slightly and loans with
a maturity longer than two years increased to 73% of the total loan portfolio
in 2010, up from 70% in 2009. This trend was reversed sharply in May, following
a spike in borrowing of up to two years, whereas the long-term loan segments
stagnated.

In 2010, total deposits increased to 47.1%
of GDP, up from 44.6% in 2009. Deposits structure and growth rates have been
skewed because of significant withdrawals of deposits of public non‑financial
corporations related to payments of PTK dividends. Total deposits grew by 15.7%
by the end of July. Household deposits, which made up about 70% of the total,
have had a remarkably robust growth, increasing by about 18%. The
loans-to-deposits ratio increased over 2010 to 75.3%, and then further to 81.2%
in July 2011, close to the informal benchmark of 80% loans-to-deposits ratio.
The 12-month moving average effective interest rate on deposits was on a clear
downward path over the period and stood at 3.5% in July. The average effective
interest rate on loans has also gone down a bit to 14.5%, but the average
spread remained above 11 percentage points. Overall, the deposit base
and credit activity continued to increase but lending conditions remained
tight.

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

Existence of a functioning market
economy

Macroeconomic stability is increasingly
threatened by unpredictable fiscal policy in an environment of persistent and
increasing domestic and external imbalances. The vulnerabilities of the policy
mix increased due to the significant budgetary deficit and limited financing
options. Unemployment is very high, revealing deep structural problems in the
economy. Overall, the weak rule of law, corruption, high level of
informal activities, and ad hoc policies have increased economic
uncertainty and deep structural problems continued to hamper the economy.

Human and physical capital

Some progress was made with access to
education, given the considerable investment in school infrastructure,
specifically for basic education (grades 1-9) . Education is one of the largest
government programmes, accounting for about 13% of total spending (3.9% of GDP),
although resources allocated to it still remain relatively low. Due to the high
proportion of school-age children in Kosovo's population, spending per pupil is
lagging even further behind. More than half of all the teachers in elementary
and secondary schools are only with secondary or higher education. Educational
results are generally poor. About 42% of all secondary school students managed
to pass the 2011 final exam ('Matura') at the first trial in June and the pass
rate of vocational school pupils was only 25%. In 2010, the Ministry of
Education, Science and Technology (MEST) produced a comprehensive sector
strategy (2011‑2016) which recognises the importance of an inclusive
system of education by expanding access to basic and upper secondary education
and renewing plans for expanding pre-school education. In August 2011 the
government has officially adopted the strategy. Kosovo still lacks accurate
data on the number of students and the employment rate of graduates. Schools
continue to operate on multiple shifts. The research capacity of universities
and research institutes in Kosovo remains very weak. The Investment Promotion
and the Small and Medium-sized Enterprise (SME) Agencies have set up an online
catalogue of education institutions in Kosovo in order to enhance cooperation
and transfers of expertise and technology to SMEs. Overall, the
education sector is still affected by the lack of adequate facilities and
characterised by poor outcomes.

Total investment stood at around 30% of GDP
in 2010, almost unchanged over the previous year. Public investments
(predominantly in road infrastructure) expanded but the growth in private
investments appears to have been curtailed, judging from the 13% annual
reduction in imports of capital goods. Construction of a highway towards Tirana
continued and the first 34 km are scheduled to be opened to traffic by the
end of October 2011. However, the scale of the project is not proportionate
either to the forecast traffic or to the available resources and is crowding out
other expenditure. Not much has been done to improve energy infrastructure and
efficiency. Overall, there were marginal improvements in physical
capital. The efficiency of government capital spending is questionable and
information about the level and structure of private investments remained
scarce.

Sectoral and enterprise structure

Kosovo's enterprise sector remains
dominated by small and micro-enterprises. About 99.7% of the enterprises employ
less than 50 people, contributing about 60% of the overall turnover in the
economy. Access to and the cost of finance remained problematic, mainly due to
the high risks in the economy. Measures to improve access to finance for SMEs
are envisaged in the SME strategy adopted in July 2011.

In order to attract investors, the
government is considering long-term power purchase agreements of up to 20 years
between the new generation company and the distribution and supply company. In
a similar vein, it is contemplating recommending a possible multi‑annual
ban on new entrants to the market for mobile telephone service-providers.
Measures such as these would hinder competition. In 2010, KEDS's billing and
collection rates improved slightly, supported by the lack of electricity price
increases, but they still remain low.

The informal sector is fuelled by
weaknesses in tax and expenditure policies and, in law enforcement, including
the fight against corruption and organised crime. It reduces the tax base and
the efficiency of economic policies. As a measure to combat the informal
economy, the Kosovo tax administration continued to issue fiscal numbers and to
install fiscal cash registers. However, these registers are still not
systematically used. Overall, the enterprise structure remained
unchanged. The large informal sector poses a big challenge.

State influence on competitiveness

A Law on State aid was adopted in July
2011.Under this law, State aid will be granted mainly for social purposes. The
Law provides for the State Aid Commission to approve State aid, which will be
monitored by the Competition Commission. Budget subsidies and capital transfers
to publicly owned enterprises totalled 1.7% of GDP in 2010, down from a high of
2.4% in 2009. Another 1.5% of GDP were channelled to support the investment
programme of the Kosovo Electricity Company. Electricity prices remained
unchanged, below cost-recovery levels. The government has set up a limited
grant scheme consisting of coupled payments to cereal and livestock farmers and
matching grants for the dairy, fruit and vegetables sectors at farm level. It
has also announced plans to substantially increase direct agricultural
subsidies which, in view of the level of development of the sector, may be
inefficient in comparison with other more structural support measures. Overall,
state interference in the economy remained high but broadly unchanged.

Economic integration with the EU

The openness of the economy, measured by
the value of imports and exports of goods and services in relation to GDP,
increased to 81.2% from 70.5% in 2009. Exports to the EU Member States
recovered from a slump in 2009 and grew by 84%, accounting for 45% of total
exports of goods. Exports to CEFTA countries increased by 33%, although their
share declined from 32% to 24%. Since the beginning of 2011, after the expiration
of the autonomous trade measures and due to a delay in their renewal, Kosovo no
longer benefits from preferential access to the EU market. The EU and CEFTA
countries remained the main origin for Kosovo's imports, with shares of 38.3%
(39% in 2009) and 37.2% (35.8% in 2009) respectively. With about two thirds of
the new foreign investment inflows in 2010, the EU countries were the biggest
investors in Kosovo. Overall, economic integration with the EU remains
significant.

4.
European standards

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

4.1.
Internal market
4.1.1.
Free movement of goods

There has been limited progress in the area
of standardisation. Four new
technical committees on agri-food, leather, toys and recreation, and
information technology were established
bringing the total number of such committees up to 18. An administrative
instruction on the organisation and functioning of these technical committees
was adopted. To date, around 3,400 European standards (ENs) were adopted as
Kosovo standards, including a number of harmonised standards related to New Approach
directives. The Agency is still not a member of any European or international
standardisation organisation. Kosovo also needs to develop a medium-term
strategy for standardisation.

There has been some progress on conformity
assessment. The law on technical requirements for products and conformity
assessment was amended in August. Two administrative instructions were adopted
in 2010 aiming to transpose the harmonised acquis on lifts and on
electromagnetic compatibility. 17 testing laboratories and 1 inspection body
were accredited in accordance with EN/ISO standards, covering food analysis for
water and fuel chemical testing, as well as physical-chemical and mechanical
testing of construction materials.

There has been some progress on accreditation.
The law on accreditation and the administrative instruction on the composition
and functioning of the Council for Accreditation were amended. The
Accreditation Directorate, which continues to operate under the Ministry of
Trade and Industry, revised its quality management systems documentation. The
Directorate has a cooperation contract with the European corporation for
accreditation (EA) and applied in November 2010 to sign a bilateral agreement
with the EA under the conditions applicable to signatories of the EA
multilateral agreement in the field of testing laboratories. The pre-peer
evaluation assessment took place in May. The Directorate also became a member
of the International Laboratory Accreditation Cooperation (ILAC) in July, and
of the International Accreditation Forum (IAF) in 2010.

There has been some progress on metrology.
The law on metrology was adopted in October 2010 which enables transposition of
the New Approach directives. Implementing provisions for pre-packages and
measuring units were adopted, as were administrative instructions in the fields
of thermometry, electronic power meters, electronic meters of reactive energy,
flow of fluids except water and non-automatic weighing instruments.
Compatibility of the existing metrology legislation with the acquis has
not yet been assessed. The Metrology Department currently employs a staff of
12. The two laboratories of the Metrology Department, based in Pristina and in
Prizren, started their operations in 2010. These laboratories do not yet meet all
relevant international standards as there are no documented quality management
systems, calibration procedures or verification procedures for measuring
instruments. The Metrology Department became a liaison organisation of the
European Association of National Metrology Institutes in October 2010.

There has been some progress in the area of
market surveillance. A new law on market inspectorate and surveillance
which takes account of Regulation (EC) 765/2008 on accreditation and market
surveillance entered into force in September 2010. Its compatibility with the
horizontal acquis has not yet been assessed. Two administrative
instructions were adopted in 2011 for the organisation and functioning of the
Market Inspectorate and for the legal documents of the Inspectorate. There is
still no detailed strategy for market surveillance in Kosovo. The division of
responsibilities between the market inspectorate and the metrology department
is still not clearly defined. Over 3000 inspections were conducted between September
2010 and March 2011. Lack of laboratories to test products hinders effective
market surveillance activities. The procedure for destroying confiscated
dangerous products remains a challenge because of an incomplete legal
framework, and the absence of appropriate premises.

No legislative progress has been made
concerning consumer protection. The implementation of the consumer
protection action plan 2010-2014 has continued, and awareness-raising campaigns
have been intensified. One citizens advisory centre was opened and a website
listing dangerous products is online. The administrative capacity has not
improved.

Overall,
some progress has taken place in the legal framework. Approximation with the EU
acquis in the area of free movement of goods is limited. Better coordination of, and a strategy for the alignment process for
the whole of the European acquis for Free Movement of Goods is needed. Further
progress in the approximation of product specific legislation is necessary. The
administrative capacity for the legislative approximation, implementation and
enforcement are inadequate. Adequate human resources need to be dedicated to
completing the legal framework and to implementing the existing provisions.
Considerable efforts are still needed in this area.

4.1.2.
Movement of persons, services and right of
establishment

Limited
progress has been achieved in the area of free movement of persons.
Kosovo has started preparations for developing and negotiating bilateral social
security agreements with EU member states and countries in the region at the
beginning of 2011. Following the entry into force of the law on work permits
and employment of foreign citizens in March 2010, a total of 1682 work permits
for foreigners have been issued. Institutional capacities in the area of free
movement of persons remain limited.

Limited
progress has been achieved regarding the freedom to provide services.
A database on services-related legislation was completed in June. Statistics on
services continues to be insufficiently available.

There has been
limited progress on postal services. The telecommunications regulatory
authority adopted implementing legislation on licensing fees for postal
operators providing postal services on the territory of Kosovo. A separate
department for postal services was established within the telecommunications
regulatory authority, as called for by last year's law on postal services, and
recruited the senior postal services officer. Administrative capacity still
needs to be further strengthened.

Some progress
can be reported in the area of financial services. The law on deposit
insurance created the legal base for establishing the Deposit Insurance Fund of
Kosovo. Its Board was appointed in July, including the Governor of the Central
Bank, a representative of the ministry of Finance, representative of SCAAK
(association of certified accountants) and one expert in banking recruited
through a public selection. The assessment of the regulatory and supervisory
regime led to a roadmap for the migration from a rule-based CAMEL approach
(capital adequacy, asset quality, management, earnings, and liquidity) to a
more forward-looking risk-based supervision approach. Capital adequacy criteria
are only partially aligned with those of Basel II. The Central Bank has the
capacity to implement an effective supervision of the financial sector.

There has been
some progress in the area of insurance. The assembly adopted a law on
compulsory third party insurance, which establishes a national bureau for
insurance and a fund to which insurance companies have to contribute. This fund
will ensure that green card holders in Kosovo get paid in case of damage. This
is a precondition for Kosovo applying to the Council of Bureaux for Green Cards
for temporary membership (in the absence of UN membership), foreseen for the
beginning of 2012.

There has been
some progress in the area of securities. Further steps have been taken
to develop a capital market. For this purpose, in the framework of the 2009 law
on public debt, an open market operations unit was set up anticipating future
auctions of government securities. The unit is part of the asset management
directorate of the Central Bank.

There has been
little progress regarding the right of establishment. Alignment with EU
standards on the recognition of professional qualifications is limited.

Some progress
has been made in the area of company law. The law on business
organisations adopted in June brings the legal framework closer to
EU standards and strengthens provisions on avoiding conflicts of interest and
requirements with regard to external audits of companies. The number of
municipal business centres or 'one-stop-shops' to set up companies has been
increased from 8 to 22 (see also chapter 4.2.1 on SME policy). The law
on accounting and audit has been implemented.

Overall, alignment with European standards in the area of movement of
persons, services and right of establishment as well as company law is at an
early stage. Administrative capacity needs significant reinforcement, in particular
in the area of postal services. Alignment and administrative capacity
concerning financial services are more advanced.

4.1.3.
Free movement of capital

There has been
limited progress concerning free movement of capital, in the context of
an already liberal regime. There are no restrictions regarding foreign
ownership or investment in the financial sector or in other assets. As an
illustration, foreign banks control around 80% of Kosovo's banking sector. In
2011, overall foreign direct investment increased compared to its level in
2010, reaching 7.6% of GDP. Kosovo does not have a stock exchange or a
financial market.

Limited
progress has been made on payment systems. The Central Bank developed
software for the introduction of a real-time gross settlement system which is
part of the National Payment Strategy. Actual implementation of this strategy
awaits adoption of the law on payments. As regards international payments,
efforts to negotiate an interim SWIFT code (an ISO 3166-1 user assigned code)
in the absence of UN membership have not been successful.

Overall, the system for capital movements is very liberal. Further reform
is needed to introduce Basel II risk requirements, and to establish a legal
framework in line with EU standards on the free movement of capital and payment
systems. The capacity of the Central Bank to supervise the sector is adequate.

4.1.4.
Customs and taxation

There has been
some progress in the area of customs. The
Customs Service adopted amendments to the administrative instruction on disciplinary
procedures to counter allegations of unprofessional conduct of customs staff. Overall revenue collected by the Customs Service until the end of
July 2011 amounted to € 426.8 million, compared to € 359.5 million in
the same period of 2010. The internal anti-corruption
unit deals with a backlog of cases from 2010. The
Independent Review Board for appeals by businesses and taxpayers of the Tax
Administration and Customs Service still has over 2500 cases to handle and its
decisions are often of poor quality. The independence and impartiality of this
board needs to be strengthened.

Before the incidents at the gates 1 and 31
in northern Kosovo at the end of July, EULEX Customs registered goods declared
to them and instructed drivers to report to the Kosovo Customs Terminal at
south Mitrovicë/Mitrovica. Kosovo Customs operated one static checkpoint on
each of the main roads from gates 1 and 31, several kilometres south of the
gates, where they made a limited check on some of the vehicles. The Customs
service estimated that roughly 25% of the commercial vehicles did not comply
with the instructions and diverted to other locations in the north before
reaching the Kosovo Customs checkpoints.

In the scope of the Belgrade/Pristina
dialogue, an agreement has been reached on customs stamps. Kosovo lifted its
embargo on Serbian goods and Serbia and Bosnia and Herzegovina recognised
Kosovan stamps. Free movement of goods has been re-established. The gates 1 and
31 are staffed by a mixed team of EULEX and Kosovo Police and Customs from both
ethnicities.

Cooperation agreements have been signed
with the former Yugoslav Republic of Macedonia and with Slovenia aimed at
harmonising trade statistics. A protocol on electronic exchange of data on
prior arrival has been signed with Montenegro. Preparatory work to replace the
present Customs Data Processing System with Asycuda World (Automated System for
Customs Data), provided by UNCTAD, has continued.

Overall,
Kosovo's customs legislation is largely in line with the EU Customs Code. The
Independent Review Board needs to function more effectively and reduce the
backlog of cases.

There has been
some progress in the area of taxation. The Tax Administration of Kosovo adopted an administrative
instruction in November which clarified the powers of units such as the tax
investigation unit and the unit dealing with appeals. The Tax Administration
started to implement the 2010 tax compliance strategy and the strategy plan
2010-15. The Strategy led to shorter procedures for dealing with non-filing tax
payers, refund claims and appeals. At the same time, the implementation of the
strategy would be further enhanced by upgrading the Administration's IT system
- SIGTAS.

As of April
2011, companies applying for a fiscal number receive it within one day and
checks are performed afterwards. During 2011, 8,800 fiscal numbers were issued,
taking the total to 48,800, which is still less than the total number of firms
registered by the business registration agency (around 105,000). The fiscal
numbers can be used as a good indicator of active businesses, showing that a
significant number of activities remain unregistered. Total tax revenue until
end July 2011 was € 138 million, compared to € 117 million over the
same period of the previous year.

Overall, there has been some progress in the area of taxation, mostly
related to the implementation of reforms to support the tax compliance
strategy.

Some progress has been made as regards administrative
and operational capacity of the Kosovo customs. The Customs Service's
anti-smuggling units have conducted a number of operations to tackle smuggling
and tax evasion. Large intelligence-led operations have led to seizure of
significant quantities of alcohol, much of it counterfeit. There have been
increased efforts to tackle illicit and counterfeit pharmaceuticals. An
organisational review was conducted and it confirmed the significant modernisation efforts of the
Customs Service, even if some
gaps remain and further effective reforms and modernisation need to be
implemented.

In terms of the
tax administration's administrative and operational capacity, its regional
offices introduced performance indicators to measure the quality of their
services to tax payers. A risk management unit was established to increase the
capacity to identify risk to revenues originating from economic activities.
More than 9,000 businesses have been equipped with electronic fiscal devices.
Tax payer awareness activities have also increased and internal training of
officers has continued. The Tax Administration has carried out more compliance
visits at firms and – together with the police – checks of trucks related to
goods of unclear origin. In the fourth quarter of 2010, an interface was
established with the commercial banks in Kosovo in order for all tax payments
made through these banks to be automatically registered by the Tax
Administration. An organisational review concluded that
creditable efforts in the modernisation process have already been undertaken by
TAK. A range of gaps still remain, and therefore further effective reforms and
modernisation need to be implemented.

Overall, enforcement of customs has improved,
notably in the areas of the fight against smuggling and counterfeiting, but
efforts need to be further enhanced. Administrative
capacity to enforce tax payments and to reduce the large informal sector
remains low. In this regard, the efficiency of the work and cooperation between
the Tax Administration, the courts and the police needs to be enhanced.

4.1.5.
Competition

There has been
some progress in the area of competition. The legislative framework for anti-trust
and mergers has improved through implementing legislation complementing the
2010 law on protection of competition. This legislation includes statutes and
working methods of the Kosovo Competition Authority and the implementation of
the merger rules. The competition law is to a large extent now compliant with
EU standards, but still needs to be aligned further, e.g. as regards the
definition of a dominant market position. The turnover thresholds for the
obligation to notify planned mergers ought to be adjusted to a level
appropriate to the size of the Kosovo economy.

Some progress
may equally be noted in enforcing competition rules. The Kosovo Competition
Authority adopted decisions concerning breaches of competition rules by
companies active in the markets for retail motor fuel, fiscal cashiers and
insurance. Fines were imposed on certain companies in these sectors. Actual
payment of fines is subject to the outcome of any appeals by the companies. The
Authority has not adopted any merger decision and it has continued to build up
experience. The Authority suffers from a lack of experienced staff and still
does not have its own premises. It is housed in the Kosovo Parliament building.
More resources need to be devoted to advocacy on competition rules, especially
among SMEs.

The law on State
aid was adopted in July and will enter into force on 1 January 2012. This
law foresees a State Aids Commission consisting of representatives of various
ministries, civil society and the private sector. Monitoring of approved State
aid will be carried out by the Kosovo Competition Authority.

Overall, some progress has been made in the field of competition.
Implementation of anti-trust and merger policy is still at an early stage. The
competition law needs to be amended to be aligned more closely with the EU acquis.
The administrative capacity of the Kosovo Competition Authority is insufficient
for the tasks assigned to it and existing staff need further training.
Alignment of State aid policy is at a very early stage and there is no track
record of implementation.

4.1.6.
Public procurement

Progress can be reported in the area of
public procurement. A first version of the law on public procurement was
adopted in November 2010. It contained a number of provisions that
significantly diverged from the public procurement directives and exposed
procurement officers to political interference and pressure, and thus
undermining the transparency and accountability of the overall process and
opening up opportunities for corruption. A new version of the law was adopted
in August 2011, which addresses most of the deficiencies of the previous law
and significantly increases the compatibility with EU standards. It also
reinforces the independence of procurement officers.

The Public Procurement Regulatory
Commission issued several administrative instructions, which regulate, inter
alia, the use of languages in public procurement documents, public opening of
proposals and examination, evaluation and comparison of proposals, the use of
selection criteria, etc. The Commission submitted its 2010 Report to the
Parliament for approval. Around 13,500 contracts were signed in 2010, of which
open procedures accounted for 85% of the total number of contracts whereas the
restricted procedure was not used. Direct single source procedures decreased in
2010 thus accounting for 7% of contracts in 2010. 430 complaints have been
received and reviewed by the Procurement Review Body in 2010. Framework
contracts are still not used. This would reduce the number of tenders and would
allow for better price conditions.

Measures against cases of misconduct in the
tendering procedures have been undertaken in several cases by issuing
directives to the contracting authorities concerned. The Procurement Review
Board had to issue only one fine to a contracting authority who did not comply
with the directive. The minimum amount of fines is relatively modest (€ 5,000)
and does not have a sufficiently dissuasive effect.

161 contracting authorities currently
operate in Kosovo. The current law provides that the procurement officers have
to undertake up to 15 days training within one year, compared to 10 under the
previous rules. Training is provided by the Kosovo Institute of Public
Administration and in cooperation with the Public Procurement Regulatory
Commission. 489 procurement officers were certified after attending the
training.

There are overlaps between the three public
procurement bodies (Procurement Agency, Procurement Review Board and
Procurement Regulatory Commission), and the division between regulatory and
executive powers is not entirely defined. Efficient cooperation and
inter-institutional co-ordination mechanisms need to be improved.

Overall, the
procurement legislation is not yet in line with European standards. Kosovo
still needs to complete and improve the legal framework in the public
procurement area. Notably, the law on public private partnerships and
concessions needs to be amended to meet the requirements of the acquis.
The three public procurement bodies need to cooperate more efficiently.
Awareness of public procurement procedures by contracting authorities and
economic operators needs to be raised and independence of public procurement
officers needs to be further strengthened.

4.1.7.
Intellectual property law

There has been some progress concerning
legislative aspects of intellectual property rights.

There has been little progress in the area
of copyright and related rights. An anti-counterfeiting strategy is yet
to be developed. No collecting societies exist in Kosovo.

There has been good progress concerning the
legislation in the area of industrial property rights. The 2010 laws on
patents, trademarks and industrial designs were amended in July with the aim to
make them compliant with the EU legislation. A Trademark Database was
established, but is not yet functional. At the same time, the digitalisation of
data for over 10,000 applications was finalised in May. In 2010, 1,480
decisions on trademarks and 147 on patents were taken. In 2010, the Industrial
Property Office received 550 applications on trademarks, 85 on patents and 4 on
industrial designs. The backlog of applications remains very high, with 17,000
trademarks 4,000 designs and 500 patents outstanding. Proceedings remain
lengthy. The Industrial Property Office is still understaffed and its premises
are not adequate.

Some progress has taken place in enforcing
intellectual property rights. An Intellectual Property Rights Unit was
established within the Kosovo Customs and became fully operational in January.
Risk profiles on goods that may infringe property rights were drafted and
awareness activities on intellectual property rights have increased.

A memorandum of understanding between the
Customs Service and the Industrial Property Office was signed. The division of
competences between Customs and the Ministry of Environment and Spatial
Planning still needs to be clarified. The Customs Service has made efforts to
enforce IPRs, goods have been seized (and in some cases destroyed) and
significant fines were imposed. In general, counterfeit products and piracy
remain issues of concern in Kosovo. Punitive measures against industrial
property rights infringements still need to be clarified. Destruction
procedures for goods harmful to public health are not fully defined. They
cannot be put into practice because of gaps in the legislative framework as
well as inadequate administrative capacity, including adequate facilities to
destroy dangerous goods.

Piracy is widespread and commerce of
pirated material takes place in public view without sanction. Kosovo needs to carry
out a rigorous assessment of the scale of the challenge in order to design the
most appropriate tools and put in place the necessary institutional framework
to fight piracy.

Overall,
Kosovo has started efforts to align its legislative framework with European
standards in the area of intellectual property rights. Some steps have been
taken to increase administrative capacity in this area. The overall capacity
remains insufficient and enforcement continues to be a challenge.
Counterfeiting and piracy remain issues of serious concern in Kosovo.

4.1.8.
Employment and social policies, public health
policy

Kosovo has made some progress in the field of employment policy.
By implementing the Employment Strategy 2010-2012, it has further contributed
to create new employment opportunities, notably through public work schemes.
The Ministry of Labour and Social Welfare endorsed a sectorial strategy and its
related action plan 2011-13 focusing on job creation policies and the
development of active employment measures. Implementation of the employment
strategy has started, focussing on young people, persons with disabilities,
social assistance beneficiaries and people suffering from poverty. The public
employment service has pursued its proactive registration of job seekers.
Resources and capacities are not sufficient to cope with all disadvantaged
people who are mostly outside of the labour market. Some efforts have been made
to modernise employment bureaus. At the same time, their capacity needs to be
strengthened. Social partners have little influence in drafting the employment
strategies.

Employment rates remain very low and youth unemployment and
long-term unemployment are alarmingly high. Additional commitments from the
government to address the challenge and decisive action by the government are
needed.

Some progress can be reported as regards social policies.

The adoption of the labour law has strengthened the legal
framework. The cost of its implementation may not be sustainable. Its
implementation requires close monitoring, notably to pay attention to a
possible increased vulnerability of women on the labour market, due to the
newly-provided extended maternity leave.

In the area of health and safety at work, limited progress
has been made. Labour inspectors are also operating in municipalities of
Obiliq/Obilić, Shtërpcë/Štrpce
and Graçanicë/Gračanica. The labour inspectorate still needs to improve
its efficiency in exercising its duties. The number of labour inspectors
remains insufficient. Accidents that happen at the work place need to be
registered.

Some progress has been made in the field of social dialogue.
The law on trade unions was adopted, regulating their establishment and
mandate. The new law on the socio-economic council was adopted. The
socio-economic council became operational. Discussions took place between
social partners on setting the minimal wage. The dialogue between the
government, employers' organisations and trade-unions needs to be improved. The
bipartite social dialogue at branch- and company-levels requires additional
promotion. The lack of reliable data on trade union membership prevents
representative unions from being designated.

There has been
limited progress in the area of social inclusion including
anti-discrimination (see also Political criteria). The minimum
standards for five different social services were determined. They represent a
template for the standards of other social services, which are currently being
drafted. The procedures to license providers of social services were developed.
The Roma, Ashkali and Egyptian minority communities continue to face the most
serious challenges in terms of social inclusion. In the
area of gender equality, some progress can be reported. Kosovo adopted its programme and action plan against domestic violence.
Actions to protect the victims of domestic violence have continued with the
active involvement of civil society organisations. They are monitored by the
government, which is partially financing these activities, notably the
enforcement of the law. Research on gender equality has improved. The implementation and enforcement of the legislation require further
efforts to affect positively the situation of women. In order to address high
female unemployment, more job opportunities are needed. The low representation of women in key sectors of society remains a
concern. Lack of employment opportunities is an overall challenge to
achieving a higher level of social inclusion. In order to implement and monitor
policy effectively, official statistics on social exclusion and poverty are
required, as well as adapted resources.

Limited progress can be reported on social
protection. Decentralisation of social services has continued. At the same
time, adequate resources for this process have not been secured. The law on
social assistance scheme and the law on social and family services were not
adopted. There were cases of undue political interference in the appointment of
certain directors of the centres for social work in municipalities.

There has been some progress in the area of
public health policy. The health information system strategy and action
plan 2010-2020 were adopted and Kosovo has started its implementation. The
implementation of the 2009 health strategy continues. The legislative framework
was strengthened by the adoption of twelve administrative instructions. The
tobacco law continues to be implemented. Awareness-raising campaigns as well as
site inspections have been intensified. The provisions concerning smoking in
public areas need to be enforced. Laws on health and health insurance still
need to be adopted. Statistical data at municipal level remains limited. Very
little progress has been made in implementing the blood, tissues and cells
legislation. Kosovo's child mortality rate continues to be high.

The fight against drug abuse has not yet
been addressed and neither has the policy on prevention of non-communicable
diseases. There has been very little progress in implementation of breast,
cervical and colorectal cancer screening programmes in accordance with
the EU Council Recommendation.

The provision of health services does not
adequately reach minority communities. The availability of data on the health
status of the Roma, Ashkali and Egyptian (RAE) communities is limited. In the
framework of the resettlement of lead-affected Roma, Ashkali and Egyptian)
communities, the Ministry of Health endorsed a lead screening and treatment
protocol. A family medicine centre in Mitrovicë/Mitrovica is responsible for
carrying out specific treatments to children diagnosed with high blood lead
level. Levels of lead contamination in the Mitrovicë/Mitrovica area remain
high. Full vaccination coverage in the RAE communities is lower than in other
communities. From January 2011 the institute for public health carried out a
vaccination campaign, inoculating more than 800 children from the RAE
communities against various diseases.

In the area of mental health,
provisions on mentally disabled persons need to be included in the health
strategy action plan. Adequate funding for proper restructuring of the sector
is needed. Further actions are needed to promote inclusion of people with
mental health problems, notably in the education system, and their empowerment.

In general, the Ministry of Health
continues to be affected by a lack of adequate funds and capacity. The health
sector's low budget still hampers the fulfilment of basic needs for mother and
child healthcare.

Overall,
some progress can be reported in the employment, social policies and public
health sectors. The legislative framework was improved notably by the adoption
of the labour law, the law on trade-unions and the health information system
strategy. At the same time, the administrative capacity remains limited and
enforcement of legislation requires rapid action.

4.1.9.
Education and research

There has been
some progress in the field of education, notably as regards the
legislation. The Education Strategy Paper 2011-2016 was finalised and a budget
was allocated for its implementation. The revised legislation for preschool,
primary, secondary and higher-education was adopted as well as policies for
tackling the high drop-out rates of students, and violence at school. The
Curriculum Framework was finalised. The participation in Tempus is increasing
and the awareness about its benefits for public and private education
institutions is improving. The administrative capacity to manage Tempus
projects was strengthened. The European Association for Quality Assurance in
Higher Education granted associate status to the Kosovo Accreditation Agency.

The revised legislation foresees a number
of new bodies, funding of which is not yet secured. Greater attention is needed
on quality management and quality assurance in education, particularly in the
field of teacher training and the system of student and teacher assessment.
There was an undue political interference in the appointment of certain school
directors. Various programmes run by the Faculty of Education of Pristina
University have not met the accreditation standards of the Accreditation
Authority. The law on adult education and the law on vocational education
training need to be reviewed to bring them in line with other legislation such
as the law on national qualifications. The institutional capacity of the
Qualifications Authority needs to be improved to implement further the law on
the National Qualifications Framework. The draft procedures on the validation
of qualifications and accreditation of the Vocational Education and Training
providers require field testing and effective implementation. The Council for
Vocational Education and Training needs to become fully operational. Women's
access to vocational training needs to be strengthened. Kosovo needs to develop
statistics and data on education, including the number of students and the
employment rate of graduates.

Inclusive
education requires increased awareness, attention and actions, notably to
enhance the situation of marginalised groups such as children from minorities
and children with disabilities. Schools and local authorities need to ensure
equal opportunity to education for children from vulnerable groups. The
strategy for integration of RAE in education provides a good framework.
Learning centres for Roma pupils were opened. Simplified school registration of
Roma pupils, which was guaranteed through an administrative instruction,
remains to be enforced by the directors of schools. Pro-active measures to
encourage enrolment and retention of Roma, Ashkali and Egyptian children need
to be implemented.

The high proportion
of school-age children in the population and characteristics of the education
system require enhanced commitments and resources from the government to
develop capacities at central and municipal levels to implement the
legislation.

On research
and innovation, limited progress can be reported on the alignment with
European standards. At the same time, it was declared a priority policy in
2010. The national science programme was implemented, funding research projects
in the six priority areas for a total amount of € 1 million. Some support
was granted to facilitate access to publications in Albanian language, one of
the official languages. To stimulate the scientists, a prize was organised for
the best Kosovan researcher of the year and the new researcher of the year.
Participation in the Seventh European Research Framework Programme (FP7) has
slightly increased in terms of submissions, but was very limited in successful
and funded projects.

There has been no progress with respect to
investment in research. Substantial efforts are thus
necessary to contribute to the objectives and targets of the European Research
Area and Innovation Union.

Overall,
Kosovo is gradually progressing towards its priorities on education and
research. The implementation of the legislative framework needs to be enhanced
through improved coordination between central and local levels and by
allocating more resources. Achieving progress in research requires additional
and sustained efforts.

4.1.10.
WTO issues

Kosovo is not a member of the WTO and has
not taken any formal steps to join it.

4.2.
Sectoral policies
4.2.1.
Industry and SMEs

There has been
some progress in the area of industry and SMEs. In July, the
Government adopted the Strategy on SME Development for the period 2012-2016
with the vision 2020. The goals of the strategy are
built around the principles of the Small Business Act for Europe. The SME Support Agency, in the Ministry of Trade and Industry, is the main
institution responsible for implementing this strategy. The Agency,
together with the Chamber of commerce and the regional development agencies
have increased efforts for better coordination and communication between
educational institutions and SME's in Kosovo.

The business
register includes 105,000 companies. Data from the Tax Administration, based on
the fiscal numbers issued, suggests that only less than half of them are
actually active. To deregister after becoming inactive, companies have to
present to the business register a statement from the Tax Authority that all
outstanding tax obligations were fulfilled. Online company registration has
only been possible at the 'one-stop-shops' or municipal business centres that
were established in 22 municipalities. Full online business registration is
still not possible.

The Ministry of
Trade and Industry adopted an industrial strategy in 2009. The government still
needs to endorse it. Industry and SME development in general continues to
suffer from difficulties with the legal enforcement of contracts, unreliable
electricity supply and limited and expensive access to finance.

Overall, coordination and cooperation need to be increased between relevant
actors in the area of enterprise and industrial policy (agencies for SME
development and investment promotion, chambers of commerce, banking
association, courts, regional development agencies, etc.). The implementation
plan for the SME and industrial strategies needs to be adopted, adequate budget
allocated and the responsible authorities need to be strengthened.

4.2.2.
Agriculture and fisheries

In the area of agriculture
and rural development policy, there has been limited legislative activity.
Changes to the law on wine were adopted in July, entailing further
specifications regarding classification, assessment and determination of the
geographical protected origin.

The Ministry
and the Kosovo Food and Veterinary Agency need to assume new tasks related to
direct payments and the transfer of inspection powers from municipalities to
the Agency. The overall 2011 budget for both institutions is some 7% lower than
in 2010. The farm register is being upgraded to include data from other
registers, such as the animal registry and the vineyard register. The small
average size of farms in Kosovo, the many subsistence farmers and the large
informal part of the agricultural sector complicate data-gathering for the farm
accountancy data network. This in turn affects policy-making. Discrepancies
continue to exist between EUROSTAT and the Statistical Office of Kosovo figures
on EU-Kosovo agricultural trade.

The Ministry
has continued its scheme of coupled payments to farmers, in the sectors of
cereals and livestock, and aid for processing and marketing for the dairy,
meat, fruit and vegetables sectors at farm level, through the Payment Unit
established last year in the Ministry. Advisory services do not yet inform
farmers how to apply for the grants. Commercial funding from Kosovo's banks
remains costly (often prohibitively so) for farmers both in terms of interest
rates and collateral requested.

Following last
year's changes to the law on forest management, many forestry competences were
transferred to municipalities, several of which drafted long-term forest
management plans. This allows long-term licences for wood logging to be issued,
in turn leading to a more sustainable forest management. In January, the forest
management annual operation plan was finalised by the Kosovo Forests Agency.

As regards
food safety, veterinary and phytosanitary, the Monitoring and Scientific
Boards of the Kosovo Food and Veterinary Agency were appointed at the beginning
of 2011. The transfer of inspection competences from municipalities to the
agency, as provided for by last year's food law, has still not been completed.
This transfer needs to be finalised to control the continuing illegal animal
trade and slaughtering and to strengthen the controls at livestock markets.
Other challenges in this respect include the limited number of veterinary
inspectors.

In December,
the process of identifying and registering small ruminants and pigs started
with the aim to complete it in a year's time. The IT infrastructure for the
animal identification, registration and movement control system is still not
fully operational. Animal registration continues to be hindered by
non-reporting of animal births and movement, as well as smuggling and illegal
slaughtering.

Tender
processes are underway for equipment at the laboratory of the Food and
Veterinary Agency. This laboratory does not have sufficient staff and the
infrastructure of the phytosanitary and veterinary border inspection points
remains poor. No facilities for processing animal by-products exist. A
feasibility study for establishing a rendering plant was completed. Discussions
on urgently-needed landfill disposal as an interim solution have not yet led to
any concrete results.

Four food
hygiene regulations (deriving from new EU hygiene package) were adopted. In
October 2010, the Food and Veterinary Agency completed an assessment of dairy
establishments, slaughterhouses and meat processing plants, as a first step to
drafting a strategy for upgrading these establishments. A working group was
established in the area of plant protection to compile a list of all plant
diseases currently present in Kosovo.

Most of the
European standards on fisheries do not apply to Kosovo, which has no
marine fishing.

Overall, Kosovo has made limited progress in the area of agriculture and
food safety. Implementation of the legislative framework remains the main
challenge, linked to administrative capacity building in the various
institutions involved and the low budgets allocated to these sectors. Animal
registration, disposal of animal by-products and evaluating agrifood
establishment as a first step to their upgrade deserve particular attention.

4.2.3.
Environment

As regards environment, there has
been limited progress in the area of horizontal legislation. An
administrative instruction on participation and information of public
stakeholders in the Environmental Impact Assessment procedures was adopted in
July. Other implementing rules on Environmental Impact assessment and on
Strategic Environmental Assessment were also adopted. The implementation of the
law on environmental impact assessment has begun, but the quality of reports
requires improvement. The Environmental Crime Directive was partially
transposed. Cooperation between NGOs and the Ministry needs to be strengthened.
Civil Society organisations are not sufficiently involved and consulted in
policy-making. Public debate on environmental matters has to be further developed.
10 capital projects were implemented from the Environmental Action Plan;
another 11 are in the process of being carried out.

There has been some progress in the area of
air quality. Administrative instructions determining (inter alia)
norms of air quality, monitoring points and number and frequency of
measurements were adopted in 2010, another administrative instruction on norms
of air quality was adopted in July. Three first stations of the air quality
monitoring network came online, others are expected during 2011. The
agglomerations and zones have not yet been identified and the air polluters'
inventory also remains to be compiled. Inter-institutional cooperation between
the Ministry of Environment and the Ministry of Energy has improved. The energy
sector continues to be the main source of emissions of dust, SO2 and
NOX, which are substantially above the EU limits.

There has been little progress in the area
of waste management. The Law on waste has not yet been adopted. Waste
recycling and separation are still not tackled. The rate of waste bill
collection slightly increased in 2010, but it remains low. Local Environmental
Action Plans drafted by Municipalities include also a waste management
component.

With regard to water quality, there
has been very little progress. The law on water has not yet been adopted.
Kosovo currently has two waste water treatment plants; one more is in the
process of being completed. Vulnerable zones and protected areas have not yet
been designated and there is still no water quality monitoring programme. The
drinking water supply system remains poorly developed and a significant part of
the population is still not connected. Investments in this sector have been
insufficient. The rate of water bill collection slightly increased in 2010, but
in general, it still remains low.

Little progress has been achieved in the
field of nature protection. Several administrative instructions related
to last year's law on nature protection were adopted. The strategy and action
plan on biodiversity were adopted in July. Institutional and administrative
capacity in this field remains very weak.

Limited progress has been achieved in the
area of industrial pollution control and risk management. Administrative
instructions on the forms and content of an application for integrated permit,
and on procedures for the development and approval of Best Available Techniques
reference documents, as well as for the prevention of major accidents were
adopted.

In the area of chemicals, there has
been little progress, with the adoption of an administrative instruction on
risk assessment. There have been no developments as regards, noise and civil
protection.

There has been little progress in the area
of climate change. Kosovo is not a Party to the UN Framework Convention
on Climate Change. Kosovo has no climate change strategy, but is beginning to
compile its inventory of greenhouse gases. Kosovo participated actively in the
climate work under the Regional Environmental Network for Accession (RENA).
Kosovo needs to take concrete steps towards transposing and implementing the EU
climate acquis, particularly the Monitoring Mechanism Decision.

The administrative capacity remains
very weak in the field of environment and climate change. Further efforts are
required to improve the institutional arrangements to ensure co-ordination and
cooperation among the institutions involved in the environment sectors. Efforts
need to be made to separate political from operational functions in the
Ministry. In September, the administrative
instruction related to the organisation and structure of the Kosovo
Environmental Protection Agency (KEPA) was signed, incorporating the
hydro-meteorological institute under KEPA. The Strategic Development Plan for
the Ministry of Environment has not yet been adopted.

The budget of the Ministry of Environment,
although already insufficient, was decreased. This has a major negative impact
on the ability of various institutions to perform their functions effectively.
The Waste and Water Regulator also continues to be affected by the lack of
human resources and face significant financial constraints.

Overall, alignment
with European standards in the area of environment and climate change remains
at an early stage. There has been very limited progress in adopting
legislation. Implementation and enforcement of existing legislation is poor.
Environment and climate change continue to be a low priority for Kosovo. There
is an urgent need for awareness-raising and strategic planning in the field of
environment and climate change. Further efforts are required to improve the
institutional arrangements in order to ensure co-ordination and cooperation
among the institutions involved in environment and climate change. The budget
devoted to the sector is insufficient to meet Kosovo's huge environmental
challenges, in particular the considerable investments needs in infrastructure.
Water and air quality require substantial attention to meet minimum
requirements for human health.
Kosovo needs to take steps towards establishing climate
policies, particularly related to the EU climate change acquis.

4.2.4.
Transport policy

In the area of Trans-European
networks, Kosovo has continued to participate actively in implementing the
2004 Memorandum of Understanding on development of the South-East Europe Core
Regional Transport Network and in the South-East Europe Transport Observatory. The
construction of Route 7 has continued. Some rehabilitation and maintenance was
carried out for Route 6. Kosovo's main road infrastructure project (the highway
to the Albanian border), remains an issue of concern due to its
disproportionately high costs as a share of Kosovo's total budget, which
continues to crowd out investments in other transport areas. The Multi-modal
Transport Strategy and Action Plan is being updated and some operational
objectives being modified.

There has been limited progress in the area
of road transport. New criteria for licensing freight transport
operators were adopted in an administrative instruction. The Road Safety
Council has not met since September 2010 and the Road Safety Programme has been
suspended in practice. The rate of traffic accidents, whilst slightly
decreasing in 2010, remains very high. Vertical and horizontal signalling is
insufficient. The new Division for Transport Policies in the Ministry of
Infrastructure (which covers planning) still lacks adequate financial and human
resources.

Some progress can be reported in rail
transport. The unbundling of Kosovo railway infrastructure (Infrakos) and
the train operations is underway: the 2 new companies (Trainkos and Infrakos)
were registered in September. Their operational and financial unbundling still
needs to happen. The network statement was drafted by Kosovo Railways, but has
not been published as track access charges are still being discussed. The
Railways Regulatory Body is now operational, but it lacks both staff and
capacity; its budget is insufficient to carry out its tasks effectively. The
Railway Safety and Accident investigation functions need to be separated. The
Joint Border Crossing Agreement with the former Yugoslav Republic of Macedonia
was signed. Kosovo Railways continue to be affected by serious lack of human
resources and adequate financial allocation. A feasibility study for rail route
10, which is part of the regional core network, was completed, but no IFIs are
interested.

There is no progress to report on combined
transport.

There has been some progress in the area of
air transport. Implementation into national legislation has been
progressing as regards economic regulations and other fields required in the
first phase of the European Common Aviation Area Agreement (ECAA). As regards
some of the legislation required under phase two, national implementation
measures were adopted, but are subject to quality check. Pristina International
Airport was reclassified as being 'schedules facilitated' from July following a
capacity analysis. Kosovo still needs to implement elements of the EU
Regulation on allocation of slots.

The Kosovo Civil Aviation Authority (KCAA)
is not a part of the system standardisation and safety assessment on foreign
aircrafts, as a consequence of disagreement on status. The first aviation
medical centre was approved in January and it issued its first medical
certificates for air traffic controllers in March. Laws establishing air
navigation services as well as accident investigation still need to be adopted.
In Air Traffic Management Kosovo continues to make good progress as regards
regulatory convergence with the associated acquis, its ECAA obligations,
with the focus now being on implementation and ensuring a sustainable structure
for the National Supervisory Authority. Kosovo's aviation sector continues to
suffer as a result of overflight restrictions imposed by Serbia for flights
coming in and out of Pristina, which has a financial impact for the air
operators and an environmental impact for the region.

Overall, alignment
with the EU transport acquis is ongoing. Kosovo continues to make solid
progress in aviation, but is hampered by issues linked to status. The
development of railways contrasts with the low budgets devoted to this
transport mode, a consequence of the oversized investment in one road project.
Further efforts to improve road safety and to develop Kosovo Railways are
required.

4.2.5.
Energy

The energy
sector continues to suffer serious problems. Power cuts continue to occur as a
consequence of the energy utility's dire financial condition resulting from
difficulties regarding electricity billing and collection.

There has been
no development regarding security of supply. Kosovo still has no
strategy to reach the required level of oil reserves. Implementation of
investment and maintenance consistent with the electricity transmission
development plan 2010-2019 has made Kosovo's transmission system more reliable.
Kosovo's electricity transmission system operator still does not participate in
regional mechanisms to plan and remunerate electricity transit, due to
differences over its status. The resulting lack of control imperils the
stability of Kosovo's power system and Kosovo loses out on transit revenue.

Some progress
has been made regarding the internal energy market and implementation of
the Energy Community Treaty. In October, the Assembly adopted implementing
legislation to the laws on energy, electricity and the energy regulator to
align Kosovo further with the EU's second internal energy market package. Work
on the development of the new lignite-fired Kosovo power plant has continued. A
final request for proposals was sent out to the four preselected bidders. At
the end of 2010, coal exploitation has started at the Sibovc Mine, which is to
be offered to investors as part of the New Kosovo Power Plant. Difficulties
with regard to expropriation make it impossible to uncover the necessary coal
mass, endangering coal supply to existing power plants in the near future. The
legal unbundling of the distribution and supply functions of the Kosovo Energy
Corporation has not taken place, despite the obligation to do so under the law
on electricity and the Energy Community Treaty. The privatisation of the
distribution and supply functions of Kosovo Energy Corporation is yet to be
concluded. Until completion of the new Kosovo power plant project, the other
functions remain integrated in Kosovo Energy Corporation. The Serbian
electrical power utility maintains an unlicensed branch in the north of Kosovo.
As a result, Kosovo lacks control of its own network, which deprives Kosovo
Energy Corporation of revenue, particularly since power is deviated from the
Gazivoda hydropower plant to supply the north.

In March, the
Government began implementing the action plan for decommissioning the remaining
operational units of Kosovo A in order to comply with the Large Combustion
Plants Directive. The planned closure has been delayed with respect to the
commitment taken by the Prime Minister in 2009.

The Energy
Regulatory Office has maintained existing electricity tariffs, due to falling
import prices and ongoing government subsidies to Kosovo Energy Corporation.
With a view to the upcoming privatisation of the Corporation's distribution and
supply functions and for tariffs to reflect actual cost levels a gradual
increase is unavoidable. A decrease in government subsidies would facilitate
this process. The Corporation's performance on billing and collection has
improved, but remains an issue of concern. The proportion of power supplied
that is actually paid for remains dangerously low: losses (whether technical or
non-technical) account for more than 30% of energy available for sale),
resulting in a loss of some € 100 million. As a result of investments,
transmission losses were reduced. Low levels of bill collection (and
non-cost-recovery tariffs) continue to fuel an unsustainable growth in power
demand.

The law on energy
efficiency was adopted in June. The accompanying action plan, aiming to
increase efficiency by 9% in 2018, has still not been adopted. The law foresees
alignment with the acquis in areas such as energy labelling, ecodesign,
energy performance of buildings and energy end-use efficiency. In addition, it
provides the legal basis for establishing an energy efficiency agency and lays
down the procedures for setting up an energy efficiency fund to promote
projects on energy efficiency and renewable energy sources. In September,
Kosovo adopted a Heating Strategy, the aim of which is, inter alia, to
reduce the use of electricity for space heating. Further technical preparations
have been made for the cogeneration project at the Kosovo B power plant, to use
waste heat to produce district heating, thereby also reducing CO2
emissions. The actual investment is in doubt given the district heating sector's
financial difficulties.

The first draft
of the simplified renewable energy action plan was prepared within the
framework of the Energy Community. A binding target for the share of renewable
energy in the final energy consumption in 2020 is prepared for Kosovo within
the framework of the Energy Community. Three international companies expressed an interest in constructing
the 300 MW Zhur hydropower plant. There were 15 applications for constructing
other small hydro power plants with a total capacity of 128 MW. The first three
wind turbines in Kosovo, with a total capacity of 1.35 MW became operational and
the regulator authorised an additional wind energy capacity of 126 MW. Kosovo
needs to make further efforts to increase the share of renewable energy in the
final energy consumption and to take measures to promote the use of biofuels in
transport.

In the area of nuclear
safety and radiation protection, the Radiation Protection and Nuclear
Safety Agency is in the process of establishment under last year's law on
protection from non-ionising radiation, ionising radiation and nuclear
security. The Director and two technical personnel were appointed, and further
recruitments are underway. There is no operator for radioactive waste
management. Last year's law is very general and needs to be amended in order to
transpose the EU nuclear safety and radiation protection acquis.
Considerable further efforts are needed for Kosovo to transpose this acquis
and align with international standards.

Overall, the authorities have made some progress on legal alignment and on
the implementation of the Energy Community Treaty. In order to attract
investment, continued efforts are needed to improve electricity billing and
collection performance and to move to non-subsidised, cost reflective tariffs.
Further efforts are required to improve energy efficiency in all relevant sectors
including establishing monitoring mechanisms as well as improving the use of
renewable energy in all sectors. Kosovo continues to be negatively affected by
Serbian interference in its power system.

4.2.6.
Information society and media

There has been little progress as regards electronic
communications and information technologies. The 2007 telecommunications
sector policy is scheduled to be reviewed this year. The Telecommunications
Regulatory Authority (TRA) adopted several implementing regulations: regulation
on market analyses and definition of the providers with significant market
power, regulation on full and shared unbundling of the local loop and the
sub-loop, and the regulation for the provision of access and interconnection.
Kosovo is lagging behind with implementing competitive safeguards and still has
no international dialling code, nor an internet country code top domain name.
Unlicensed (Serbian) mobile companies continue to operate in Kosovo. This
interferes with Kosovo's spectrum management.

The process for privatising Post and
Telecommunication Kosovo (PTK) is ongoing, but procedural delays have a
negative impact on the regulatory development of the market. Management of the
telecommunications sector was transferred to the Ministry of Economic Development,
but with no improvement on administrative capacity. The regulator's human and
financial capacity to ensure implementation and enforcement is insufficient,
and the TRA has difficulties attracting and retaining staff. The regulator's
financial independence is undermined as it is financed entirely from the state
budget.

There have been no developments in the area
of information society. The law on information society government bodies
has not been adopted. This law is important to create a legal basis for an
eGovernment Agency and a Government Forum for Information Society. The division
of responsibilities and tasks between the different ministries and government
levels on the information society issues needs to be clarified.

Some progress can be reported in the area
of audiovisual policy. The Independent Media Commission (IMC) issued
several regulations such as the regulation on protection of minors and
children, regulation for the IMC license fee and regulation on cable operators
aiming to align legislation in Kosovo with the EU audiovisual media services
directive. For the first time, IMC monitored the election campaign. The IMC
Council also completed the process of licensing terrestrial broadcasters and
cable operators. During 2010, the IMC has renewed the operational licences of
all existing TV stations that use a frequency to broadcast. There are no
must-carry requirements to the cable operators when it comes to inclusion of
Kosovo-wide and local terrestrial TV stations in cable packages. Most of the
cable operators are carrying Kosovo-wide and local TV stations only on a
fee-basis (and drop them from their package in the case of late payments),
which seriously limits the audience' right of to access to the terrestrial
free-to-air channels.

The Assembly of Kosovo has yet to complete
the appointment of five IMC Council members. The Supreme Court has not
appointed the members/ chair of the IMC Media Appeals Board. The administrative
capacity of the Commission has been strengthened, but low salaries relative to
the industry make it difficult for the IMC to attract and retain staff.

The Assembly has continued the process of
amending the law on the Independent Media Commission and Broadcasting. A draft
which failed to preserve the IMC's independence in line with European standards
on broadcast regulation was withdrawn. The IMC has made some progress with
respect to the digitalisation process including establishing five working
groups. A digitalisation strategy has not yet been adopted. Kosovo is not a member
of the International Telecommunication Union (ITU) and has therefore not been
in a position to request digital frequencies. Serbia has asked the ITU to
allocate one frequency on Kosovo's behalf. This is insufficient.

The Assembly of Kosovo has failed to take
actions as concerns sustainable funding of Kosovo's public broadcaster Radio
and Television Kosovo. At the same time, there have been extensive discussions
and an unsatisfactory draft law was withdrawn in August. Its funding came from
the Kosovo Budget on an ad hoc basis during 2011, and the broadcaster's budget
was reduced from € 10.5 million to around € 8 million. The lack of
sustainable funding undermines RTK's independence.

As public fee
collection for RTK was suspended, the broadcaster failed to allocate 5% of this
fee to the fund supporting minority, multiethnic and
other special media, as required by law. Disbursement of the fund, which
restarted in 2009, was therefore halted again. Minority media were not provided
with information on allocation of the initial funds, even after several
official requests. Inconsistencies between the law on
defamation and insults and the criminal code have still not been resolved.
According to European standards defamation is not a criminal offence. Kosovo
does not apply the penal provisions on defamation, but since they remain on the
statute book, legal uncertainty persists.

Overall, the
administrative capacities of both regulatory bodies and
the Ministry need to be strengthened. In electronic communications, Kosovo
needs to complete introduction of competitive safeguards and build up capacity
to enforce regulatory decisions. As a matter of urgency, Kosovo needs to
develop a solution for the sustainable funding of the public-service
broadcaster: the current budget-only funding undermines RTK's independence. In
addition, the forthcoming Independent Media Commission law needs to preserve
the IMC Council's independence.

4.2.7.
Financial control

There has been
some progress on public internal financial control. An updated PIFC
Policy Paper was adopted in May. The Central Harmonisation Unit for financial
management and control published a manual for managers in budget organisations
in order to adhere to last year's adopted treasury rule on financial management
and control. Training material in the field of FMC is being developed. An
administrative instruction was adopted on the tasks and functioning of internal
audit committees in budget organisations. Training in the area of internal
audit has continued, leading to more internal auditors being certified. This
certification process needs to continue and the absolute number of internal
auditors needs to increase. The Central Harmonisation Unit on Internal Audit
completed a manual on risk and data management and started a program to raise
awareness among ministers, permanent secretaries and CEO's of publicly owned
enterprises on the relevance of internal audit.

The Office of
the Auditor General updated its corporate development strategy. The main
objective to be achieved by 2014 is the establishment of the Office as a
sustainable institution, carrying out its business according to international
best practices and ensuring that audited bodies address recommendations
effectively. As of September 2010, the Office has conducted a limited number of
performance and management audits, as well as financial management and control
health checks in all budget organisations not fully audited to ensure that all
budget spenders are visited each audit season. The number of regular audits has
increased and fewer audits of municipalities are contracted out to private
audit firms.

Overall, some progress has been made on financial control. Concerning
internal audit, the basic legal framework is in place and the attention is now
to be shifted towards its implementation. Practical implementation of public
internal financial control has remained at an early stage. Internal audit needs
to progress from compliance testing to being used as a managerial tool. Further
awareness-raising is required to develop a greater understanding of
accountability within management and to embed financial management and control
systems. External audit practice is progressing well.

4.2.8.
Statistics

There has been
some progress as regards the statistical infrastructure. The cooperation
of the Statistical Office of Kosovo's with other institutions has improved. The
amendments to the law on tax procedures now allow the tax administration to
provide the Office with the necessary administrative data for the statistical
business register. The statistical infrastructure of Kosovo needs to be
strengthened. The Office lacks the necessary resources as well as the legal
framework to carry out its mandate.

There has been
limited progress on classifications and registers. Efforts
are needed to implement the European classification of economic activities NACE
Rev. 2 (NACE = Statistical nomenclature of economic activities in the
European community).

As regards sector
statistics, some progress has been made. Very good progress has been
achieved in the area of population statistics. In April, Statistical
Office conducted the Housing and Population Census. Throughout the preparatory
phase, the Office met all operational deadlines and was ready to dispatch close
to 5,000 enumerators on 1 April. In seven municipalities the enumeration was
extended by four days due to under-enumeration or technical difficulties. A
post-enumeration survey was conducted in order to verify the quality of data.
An intense one-month campaign had preceded the enumeration phase. Special
outreach efforts were made to inform minority communities about the census.
Preliminary data were published in June. Processing of more detailed data sets
is ongoing.

Enumeration in the three northern
municipalities and in northern Mitrovicë/Mitrovica could not take place. UNOPS
(United Nations Office for Project Services) had been mandated to implement the
census in the northern municipalities, but the lack of cooperation of the
Serbia-supported municipalities prevented UNOPS from conducting the enumeration.

As regards
other areas of sector statistics, limited progress has been achieved. This
is mainly due to the resources spent on the census and the limited budget of
the Statistical Office: both the labour force survey and the agricultural
household survey were cancelled in 2010 due to lack of resources. Macroeconomic
statistics were produced in a timely manner. Since
November, the Ministry of Finance publishes monthly public expenditure and
revenue data on its website. The Economic Accounts for
Agriculture were published for the first time in July 2011, covering the period
2005-2008.

Overall, some progress has been achieved in the area of statistics. The
authorities conducted the population and housing census in a satisfactory
manner. This provides an important basis for improving statistics in Kosovo.
The census could not be organised in northern municipalities. Due to the
limited resources of the Statistical Office, progress has slowed down in other
areas. The legal framework needs to be improved and the capacity of the
Statistical Office needs to be strengthened. Statistics are essential for
evidence-based decision making, and the lack of reliable statistics in Kosovo
needs to be addressed as a priority.

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

Kosovo has no visa policy. The government has launched the procedure for establishment a visa
policy system, and the Ministry of Foreign Affairs has put in place a working
group for this purpose. In compliance with the law on foreigners, the Ministry
of Internal Affairs has started implementing the "visitors
procedure", whereby foreigners are required to send a number of documents
before coming to Kosovo.

By the end of June, more than 827,000
passports were issued in total by the civil register agency, around 1,600 of
which to Kosovo Serbs. The small number of valid UNMIK travel documents (30)
will expire in December 2011. Some Kosovo residents have kept the old Yugoslav
passport, which remains valid until December 2011.

The amended law on civil status was adopted
in June. The Ministry of Internal Affairs has started addressing shortcomings
of its civil registration system through the digitalisation process by
finalising the scanning of 14,000 civil status registry books (4 million records).
This will be followed by the second phase of entering the data into the new
central civil status database.
The database needs to be integrated with the Kosovo
civil register. The inspectorate unit of the civil registration agency,
established in early 2011 with a mandate to check the integrity of the
processes related to civil status, civil registry books, vehicle registration
and issuing of driving licences, is working well albeit with limited capacity.

Preparations for issuing Kosovo biometric passports
have continued. The process of issuing biometric passports needs to be
accompanied by an accurate and reliable civil registration. The cooperation
between local embassies/offices and the agency for civil registration needs to
be strengthened to improve the proper handling of reported fraud involving
civil status certificates or ID documents.

Overall,
Kosovo is at an early stage as regards the visa policy.

In relation to border management, Kosovo has made some progress. The
improved version of the EU-funded border management IT system became
operational at almost all BCPs as well as in regional and central police
command centres. The joint task force of Customs and Police Services which was
established to fight cross-border criminality and smuggling has started
producing joint risk assessments. The three agencies involved in integrated
border management (border police, customs and the Food and Veterinary Agency)
have organised joint patrols along the border line. Joint operational actions
have also been organised at border crossing points. Many structures of the
integrated border management have been put in place.

Agreements enabling joint and synchronised police patrols of borders
were signed between Kosovo and Albania and the former Yugoslav Republic of
Macedonia. The joint patrols have been launched. Kosovo border police issued a
new standard operating procedure for checking procedures at borders. Kosovo
Police took over the responsibility from KFOR for the surveillance of the
border with the former Yugoslav Republic of Macedonia and Montenegro. The
border demarcation process with Montenegro has not yet started.

In January, the customs signed two memoranda of understanding with the
Kosovo Intelligence Agency and with the State Prosecutor's office with the aim
to strengthen cooperation. The
border police and customs signed a cooperation protocol in May aimed at
improving cooperation on border procedures, the fight against illegal
trafficking and the implementing the integrated border management.

The quality and consistency of border
checks still need to be improved. The integrated border management principles
are not sufficiently implemented in practice. The joint operational centre for
border control is not fully operational, as the border police do not have
access to its own databases. Further synergies between the different
stakeholders are needed in order to develop and implement common operational
plans, use common equipment and integrate data management systems on the basis
of the adopted standard operating procedures. Insufficient exchange of
information with regional and international partners impedes the fight against
cross-border crime. The north of Kosovo remains a particular challenge for
integrated border management.

Overall,
Kosovo has made some progress, but it is still at an early stage of addressing
the challenges of integrated border management.

In the area of asylum, progress has
been achieved. Kosovo has faced an increase in asylum requests (31 persons
claimed asylum in 2009, in 2010 this number reached 271, and there were 147
requests in the first half of 2011). With a proper implementation of the new
asylum model introduced in 2010, the numbers are expected to come down in the
future. The number of asylum seekers in procedure was 25 in July. Most of the
applicants misused the asylum procedure to legalise their entry and stay in
Kosovo before continuing their journey towards EU countries.

Based on the law on asylum, Kosovo
authorities have systematised issuance of identification documents to asylum
seekers. By the end of June, over 300 first instance decisions were issued by
Department of Citizenship, Asylum and Migration. Most of the decisions taken
regarding asylum requests were negative decisions in abstentia (the
asylum seekers having already left Kosovo). Only a limited number of cases were
adjudicated based on merit. An explanatory guide about the rights and
obligations of asylum seekers was developed and disseminated. The asylum
system, established with EULEX assistance, allows Kosovo to abide by its
international obligations, enabling Kosovo to distinguish between persons who
need international protection and those who do not. The implementation remains
a challenge.

There are shortcomings in the asylum procedure. Capacity and training
is currently insufficient. The lack of appropriate interpretation services
hampers communication with the asylum seekers and the initial screening of the
case, determining the origin of the person, and the operational information
that can be acquired. There is a lack of adequate premises for those asylum
seekers who are awaiting return after their claims were rejected. The capacity
of the asylum centre is limited to 25. If the centre is full, asylum seekers
are housed in hotels. The lack of readmission agreements with the countries of
origin or transit is also a major concern. There are cases for determining
refugee status that were not processed within the time period foreseen in the
law. The capacity of the national commission for refugees to deal with the
appeals against a decision in first instance is insufficient. From the seven
appeals made against the first instance decision, the national commission for
refugees ruled negatively in six cases. No appeals have been made to the
Supreme Court.

There are also cases for which a negative decision was issued and no
appeal has been submitted. These rejected asylum seekers have remained
accommodated in the temporary facilities, awaiting execution of the return
decision or any other measure. A reliable
database for asylum-seekers is still lacking. There is a simple database, but
the link between the Department
of Citizenship, Asylum and Migration and the police responsible for the initial screening, is still
missing. All these challenges contribute to the
fact that the majority of asylum seekers leave Kosovo even before the
procedures are finalised.

Overall,
progress has been made on asylum. Kosovo needs to continue addressing the
remaining challenges.

Kosovo has achieved progress in the field
of migration. The Department of Citizenship, Asylum and Migration issued
residence permits and ID cards to foreigners. There has been an increase of
irregular migrants attempting to enter Kosovo through air or land borders,
particularly with the former Yugoslav Republic of Macedonia and Albania. Kosovo
border police prohibited entry to some of them on the basis of the law on
foreigners.

Kosovo signed
new agreements on readmission with third countries. A total of thirteen
countries are covered by such agreements (Albania, Austria, Belgium, Czech
Republic, Denmark, France, Germany, Luxembourg, Montenegro, the Netherlands,
Norway, Slovenia and Switzerland). The Department of Citizenship, Asylum and
Migration has continued to deal with readmission requests from European countries
in an efficient way. Kosovo has achieved considerable progress with regard to
reintegration of repatriated persons. It has strengthened its capacity for
reintegrating repatriated persons, including at municipal level. Over € 3
million were allocated for reintegration of repatriated persons under the 2011
budget. An office dealing with repatriated persons was opened at the airport.
There have been renewed efforts to train municipal officials and improve the
communication with and information to repatriated persons. Civil registration
has improved. Inter-ministerial coordination has improved as well as the
communication and coordination between central and local levels. Temporary
services, such as medical care, transport and accommodation are in place and
provided. Cooperation with international organisations has improved.

Kosovo needs to make additional progress in
managing migration flows, based on a professional integrated information
system. This would make tracking the repatriated persons and their needs
possible, as well as provide reliable statistical data and information. The
number of proposals for reintegration assistance to repatriated persons from
municipalities is increasing, but is still low. Only a limited number of
persons have benefited from the reintegration fund. Updated and upgraded
trainings are necessary. Exchange of information between sending countries and
Kosovo needs to be strengthened. Repatriation offices still need to be
established in four municipalities. Unemployment continues to be an obstacle to
reintegrated repatriated persons.

Kosovo also needs to make further efforts
to ensure full alignment with the acquis on legal migration notably on
the right to family reunification.

Overall,
progress has been achieved on migration. Readmission has continued to function
satisfactorily and there has been considerable improvement as regards
reintegration of repatriated persons, notably at the municipal level. Efforts
to tackle irregular migration need to continue. Some challenges in the
reintegration process remain and sustained efforts and commitments in this area
need to continue.

4.3.2.
Money laundering

Kosovo has made limited progress in
addressing economic/financial crime and money-laundering. Implementing legislation on the prevention of money-laundering is
largely in place. A gradual transfer of the
responsibilities of the Financial Intelligence Centre from EULEX to Kosovo
authorities has started. A Kosovan Director for the Centre was appointed in
March. EULEX has retained some executive powers. The
organisational framework dealing with economic, financial and money-laundering
crimes is complex. The financial investigation unit under the Directorate for
Investigation of Organised Crime is only responsible for so-called integrated
cases (financial cases closely connected to organised crime), but not for
independent financial crime cases. The Directorate for Economic Crime and
Corruption Investigation of the Kosovo Police (DECCI) and the newly established
anti-corruption task force, supervised by the Special Prosecutor's Office
(SPRK-ACTF), deal with all types of financial crimes. DECCI tackles regular
financial crime and money-laundering cases and the SPRK-ACTF focuses on high
profile and complex cases.

The eight banks of Kosovo have improved the
quality and reliability of their financial reports to the Financial
Intelligence Centre. Exchange offices and money
remitters have also improved the way they fulfil their reporting obligations.
The cooperation between the Centre and the customs has remained good and one
Kosovo customs officer was seconded inside the Centre as a financial analyst
and liaison officer. In 2010, the Directorate for Economic Crime and Corruption
investigated over 700 cases from which about 500 with known perpetrators were
sent to the prosecution. Over 170 suspects were arrested. The estimated damage
is around € 27 million. The Agency for the
management of confiscated and sequestrated assets, established in 2010, is
almost fully staffed. The staff has received some training. EULEX has also trained
judges and prosecutors on the application of the existing legislation on
confiscation of assets. Very few assets have been confiscated to date.

The level of cooperation between the Centre
and the reporting entities is mixed. NGOs have to fulfil their financial
reporting obligations towards the NGO registration office in the Ministry of
Public Administration. This reporting is not systematic, which is a matter of
concern, because of the heterogeneous status of NGOs in Kosovo. Under the
current anti-money-laundering law, unlike the previous UNMIK regulation 2004/2,
business organisations do not have to report cash-based transactions for more
than € 10,000 to the Centre. The capacity of Kosovo to investigate and
prosecute economic crimes remains limited. Follow-up by law enforcement bodies
to reports sent by the Centre is limited. The confiscation of assets in cases
of money-laundering and economic crime needs to be strengthened and addressed
at an earlier stage of the investigation.

Large amounts of money continue to be
invested in real estate, restaurants and casinos without adequate supervision.
Business-related financial transactions on private accounts and large numbers
of entities doing business without being registered continue to be widespread.
The operation launched in 2010 with the aim of identifying illegal activity in
relation to the import and export of large amounts of money at Kosovo's airport
remained ad hoc. This has not been incorporated into the routine work of
customs.

Prosecutors and judges lack experience and
specialisation in this area. There are major difficulties to identify, monitor
and confiscate earnings from crimes connected to organised groups. There are
gaps in the existing legislation, especially with the money-laundering provisions
and sanctions of the criminal code. These are inadequate, and need to be
addressed urgently.

Overall,
money-laundering remains an issue of serious concern and Kosovo is at an early
stage in this area. Kosovo continues to lack the adequate technical and human
resources to address these crimes.

4.3.3.
Drugs

Kosovo has made limited progress in the
fight against drugs-trafficking. Flows continue to include heroin and synthetic
drugs coming from the Middle East through Turkey and the former Yugoslav
Republic of Macedonia along one of the main Balkan routes to European markets,
and cocaine coming through Albania and Montenegro. Drug shipments are
repackaged in Kosovo and sent to European markets in smaller amounts. The
domestic market has also grown, notably for cocaine. There are movements of
narcotics across the borders involving trucks, buses and private vehicles.

There are some tangible results in the
fight against drug-trafficking. The police have increased the number of arrests
for narcotics offences including trafficking offences; around 200 narcotic
related cases were investigated between October and end of June resulting in
over 300 arrested suspects. In the first half of 2011, the police made more
than 200 arrests. About 180 of those arrested were detained awaiting court
procedure. Some criminal groups involved in drug-trafficking were dismantled.
Kosovo has also carried out some joint operations with neighbouring countries.
Cooperation and exchange of data with Albania and with Montenegro is good and first
contacts with colleagues from the former Yugoslav Republic of Macedonia have
taken place. The Directorate for Investigation of Drug Trafficking of the
police has built up its capacities and recruited new staff. It participated in
a joint exercise on controlled delivery of illicit drugs involving cooperation
with other law enforcement agencies of Kosovo and third countries. Data
collection and data registration methodology have improved. Following the
ongoing implementation of the strategy against drugs there is an improved
cooperation between police, customs and correctional services.

The amount of seizures remains low: in the
first half of 2011, over 30 kg of heroin, nearly 90 kg of marijuana, 2.5 kg of
cocaine and nearly 700 ecstasy tablets were seized. The judiciary follow-up
remains inadequate. There is a lack of experienced and specialised prosecutors.
The position of counter-narcotics coordinator remains vacant. The resources to
implement the counter-narcotics policies are insufficient (lack of staff,
working space and equipment) and an intelligence-led approach is also lacking.
With the exception of some trained officers, there is also no proper undercover
unit in the police. Canine units are present at some border/boundary crossing
points and working in accordance with the plan of border police department.
Other police units can call in the assistance of canine units, if required, but
their services are not frequently called on. Data sharing with Montenegro and
the former Yugoslav Republic of Macedonia is still limited. There are serious
shortcomings in addressing the challenges of local drug demand, including the
inappropriate in-treatment capacities at the hospital. The methadone
maintenance programme remains unavailable.

Overall,
Kosovo's efforts in fighting drug-trafficking have not been sufficient to
address the challenge Kosovo is facing in this area.

4.3.4.
Police

Kosovo has made some progress as regards
policing. The police General Director appointed in October 2010 took a number
of decisions improving the functioning of the police, i.e. by better
integrating the crime pillar, and aiming to limit the level of political
influence. The annual action plan for 2011 was adopted and is implemented in
line with the 2011-2015 development plan. The six months review of the
organisation was completed and led to the adoption of an improved
organisational structure. Kosovo finalised the information strategic plan,
which is the outline of an overall plan that aims to make police IT
developments sustainable during the next years. The law
on the police inspectorate was adopted and the responsibilities between the Inspectorate and the police standards unit were clarified. The
police regional commander in Prizren was arrested and indicted as part of a war
crime investigation. The contracts of four of the seven police station
commanders in northern Kosovo were terminated, based on a recommendation from
the senior appointments and disciplinary commission of the police.

The police also established the
International Law Enforcement Coordination Unit in June to facilitate
cooperation with law enforcement agencies from third countries. The Interpol
liaison office is still under UNMIK responsibility and some Kosovo police
officers are detached to this office. Cooperation between the UNMIK Interpol
liaison office, Kosovo police and judicial authorities has improved. In 2010,
the UNMIK office facilitated an increased number of published international
arrest warrants against internationally wanted persons for provisional arrest
(27 compared to 4 in 2009 and 12 in 2008) and seven extraditions from/to Kosovo
were carried out.

The cooperation of Kosovo police with EULEX
was not consistent during the reporting period. Joint investigations on some
criminal cases have been initiated. Police took over from KFOR the full
responsibility of protecting some religious sites. It successfully supervised
events such as the Kosovo elections or the enthronement of the new head of the
Raska-Prizren diocese of the Serbian Orthodox Church.

There was undue political interference in
senior police appointments and the conduct of sensitive police operations.
Police have made limited progress in implementing the community policing
methodology in all regions. There has been no systematic contact between police
with municipalities in the local public safety committees. New police stations
have not been established in all newly established municipalities. The Police
Inspectorate, under direct control of the Ministry of
Internal Affairs, still does not have a chief executive and has not initiated any investigations in 2011. The
collection of data has improved, but the ability to transform information into actionable intelligence continues to be limited. Intelligence-led
policing remains a challenge. There are serious challenges in terms of managing
human resources. A performance-based indicators system and a promotion system
still need to be established. The operations pillar of police lacks the
capacity in terms of strategic planning and analytical capabilities. The traffic
directorate lacks the capacity needed to generate traffic analysis in order to
develop a traffic policing strategy. The capacities of police in the area of
developing ICT infrastructure need to be further strengthened.

The environment for policing in northern
Kosovo has remained challenging.

Overall,
police have taken on increased responsibilities. Police need to address
structural and organisational challenges and improve its ability to fight
complex types of crime. Steps need to be taken to avoid political interference
in police matters.

4.3.5.
Fighting organised crime and terrorism

Limited progress has been achieved in
tackling organised crime. Cooperation with EULEX in organised crime
cases was good at the level of police and prosecutors. The police successfully
provided close protection to special prosecutors involved in investigations of
organised crime cases. Kosovo police has started building up capacities to deal
with witness protection. Seized assets have been temporarily stored in the
premises of the Kosovo correctional service. The police have increasingly used
and rewarded informants in organised crime cases and improved their legal
interception capabilities. In the absence of a law on interception of
telecommunications, police signed agreements with telecommunications operators,
providing a legal framework for initiating lawful interception. Future
legislation on interception needs to clearly distinguish between judicial
interception and interception for intelligence services, in line with European
best practice.

A number of investigations, indictments and
convictions were achieved in organised crime cases. Some operations targeted
government officials and premises. There were six convictions (by mixed panels
of EULEX and Kosovo judges), and five cases pending trial. Six cases were
brought to main trial between January and June (four handled by Kosovo special
prosecution office and two by EULEX prosecutors). In June, in the Tisza river
verdict – a case of smuggling of migrants – a mixed panel of Kosovo and EULEX
judges at the district court in Pristina sentenced seven defendants to a total
of 66 years in prison (terms ranging from 2 to 19 years) and € 450,000 in
fines for their role in the death of fifteen persons who drowned in the river
Tisza trying to cross the border between Serbia and Hungary in October 2009.
Regional cooperation was important in this case and the lead in the case was
taken by Kosovo rule of law institutions. The case inter alia exposed an
organised crime group that offered migrants illegal passage to EU countries and
other European countries, making significant illicit profits.

Cross-border crime detection capacities
remain low. The flow of information between the Department against Organised
Crime and regional police centres is not at an appropriate level. Logistical
challenges, including lack of office space, staffing, identification of secure
locations for covert activities, insufficient vehicles and specialised
equipment remain issues of concern. The Department is slow in adapting to
constantly changing criminal techniques and changes in legislation. Only minor
cases were initiated by the police. The current weak Kosovo witness protection
programme and legislation does not provide the public with the necessary
confidence to cooperate with the authorities as witnesses.

Overall,
Kosovo's capacities to fight organised crime are still at an early stage.
Serious efforts are needed to address these challenges, in particular witness
protection.

Kosovo has made some progress in tackling trafficking
of human beings. Kosovo remains a place of origin, transit and destination
for victims of trafficking. The trend of local women trafficked within Kosovo
and in countries throughout Europe for the purpose of sexual exploitation has
continued. There was an increase in the number of underage victims trafficked
for sexual exploitation. Child-trafficking and exploitation for the purpose of
begging remain at high levels. The number of identified victims increased
slightly during the reporting period.

The strategy and action plan against
trafficking of human beings for 2011-2014 was adopted on 1 September and a
trafficking awareness campaign was organised in autumn 2010. The
inter-ministerial working group on anti-trafficking has continued to meet on a
regular basis. A national coordinator was appointed and is in charge of
ensuring the strategy's implementation.

The efficiency and capacity of the police
Directorate for Investigation of Trafficking in Human Beings has increased. The
police identified over 20 cases of trafficking of human beings. They arrested
more than 70 suspects and identified more than 30 victims of trafficking. The
rate of convictions remains very low. Only one organised crime case concerning
trafficking of human beings was brought to trial in the first half of 2011
(Medicus case) after the indictments were confirmed by a mixed appeal panel of
EULEX and Kosovo judges at Pristina District Court. The prosecution of this
case is under the supervision of Kosovo's special prosecution office.

The overall number of identified victims
remains relatively low with an average of one victim for every ten raids
conducted. The capacity of Kosovo prosecution and courts to investigate,
prosecute and render judgments in trafficking cases is still limited.
Trafficking in human beings is rarely followed-up by courts from an organised
crime perspective. Perpetrators, even if acting in a group, are indicted
individually, thus receiving lower sentences than if they were indicted as
acting in a group.

Overall,
Kosovo has made some progress in tackling trafficking in human beings, but
enhanced efforts are needed to enforce the strategies and legislation. The
judicial follow up remains largely ineffective and capacities need to be
strengthened.

Kosovo has made limited progress in the fight
against terrorism. Implementing legislation on the prevention of
money-laundering and financing of terrorism is largely in place. There are
concerns about extremist groups, both religious and nationalistic and illegal
cross-border traffic in Kosovo. The extradition of a terrorist suspect to the
US for prosecution failed, due to the lack of a valid extradition agreement.

Kosovo's capacity to enforce relevant
legislation and strategic documents such as the Kosovo security strategy, the
counter-terrorism strategy, the law on prevention of money-laundering and
financing of terrorism remains a concern. The Directorate on Counter Terrorism
faces some operational and organisational challenges. There is a lack of
strategic planning capacity, which means very few investigations have been
undertaken. Surveillance capacities have increased due to the fusion of the
police counter terrorism surveillance and organised crime surveillance units in
the last police reform. The link to the Kosovo intelligence agency is kept only
on a strategic level outside of the Directorate. When it comes to the fight
against terrorism, cooperation with countries in the region is limited and the
Directorate is not directly involved.

Overall, in
the fight against terrorism Kosovo needs to make further efforts to
enforce its policies and legislation.

4.3.6.
Protection of personal data

Kosovo has made little progress on personal
data protection. In May, the Assembly approved the five council members (chief
national supervisor and four national supervisors) of the agency for the
protection of personal data proposed by the government, which was followed by
the establishment of the agency in July. Awareness of data protection remains
very low. Capacities of all institutions to comply with data protection
legislations continue to be very limited. In the absence of mechanisms
regulating the use of personal data, the newly-introduced procedure to register
SIM cards involving the collection of personal data by mobile operators raises
concerns.

Overall, the
lack of personal data protection remains an issue of serious concern. Kosovo
needs to make major efforts in this area.

Statistical Annex

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

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

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

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

Population (thousand) || || : || : || : || 1 985 || 2 016 || 2 041 || 2 100 || 2 127 || 2 153 || 2 181p || 2 208p

Total area (km²) || || 10 887 || 10 887 || 10 887 || 10 887 || 10 887 || 10 887 || 10 887 || 10 887 || 10 887 || 10 887 || :

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

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

Gross domestic product (GDP) (million euro) || 1) || : || 1 624 || 1 735p || 1 797p || 2 913p || 3 003p || 3 120p || 3 394p || 3 851 || 3 912p || :

GDP (euro per capita) || || : || : || : || 905p || 1 427p || 1 451p || 1 486p || 1 593p || 1 789p || 1 795p || :

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

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

Real GDP growth rate (growth rate of GDP volume, national currency, % change on previous year) || || : || : || 1.2p || 3.1p || : || : || : || : || : || : || :

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 || || : || : || : || : || : || : || : || : || : || : || :

Industry || || : || : || : || : || : || : || : || : || : || : || :

Construction || || : || : || : || : || : || : || : || : || : || : || :

Services || || : || : || : || : || : || : || : || : || : || : || :

Final consumption expenditure, as a share of GDP (%) || || : || 163.1 || 151.6 || 147.5 || 110.3p || 112.1p || 111.1p || 112.3p || 112.8p || 109.4p || :

Gross fixed capital formation, as a share of GDP (%) || 2) || : || 40.7 || 34.5 || 29.3 || 20.0p || 19.7p || 21.1p || 21.9p || 24.4p || 26.2 || :

Changes in inventories, as a share of GDP (%) || || : || : || : || : || 4.0 || 4.3 || 4.5 || 4.4p || 4.1p || 3.6 || :

Exports of goods and services, relative to GDP (%) || || : || 16.6 || 12.5p || 10.4p || 10.7p || 11.1p || 14.1p || 15.1p || 14.8p || 15.6p || :

Imports of goods and services, relative to GDP (%) || || : || 120.4 || 98.6p || 87.1p || 45.0p || 47.3p || 50.8p || 53.7p || 56.0p || 54.8p || :

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

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

Industrial production volume index (2000=100) || || : || : || : || : || : || : || : || : || : || : || :

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

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

Annual average inflation rate (CPI, % change on previous year) || || : || : || : || 1.3 || 1.1 || 1.4 || 0.6 || 4.4 || 9.4 || 2.4 || 3.5

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

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

Balance of payments: current account total (million euro) || || : || 228 || -104 || -204 || -209 || -248 || -226 || -354 || -629 || -604 || -684

Balance of payments current account: trade balance (million euro) || || : || -646 || -890 || -941 || -983 || -1 079 || -1 173 || -1 368 || -1 668 || -1 673 || -1 735

Balance of payments current account: net services (million euro) || || : || 10 || -23 || -14 || -19 || -8 || 29 || 59 || 81 || 121 || 37

Balance of payments current account: net income (million euro) || || : || 141 || 154 || 152 || 138 || 139 || 159 || 186 || 164 || 83 || 125

Balance of payments current account: net current transfers (million euro) || || : || 723 || 655 || 599 || 655 || 700 || 759 || 769 || 794 || 866 || 889

of which government transfers (million euro) || || : || 809 || 661 || 490 || 372 || 348 || 320 || 245 || 256 || 401 || 361

Net foreign direct investment (FDI) (million euro) || || : || : || : || : || 43 || 108 || 284 || 431 || 342 || 281 || 311

Foreign direct investment (FDI) abroad (million euro) || || : || : || : || : || 0 || 0 || -6 || -10 || -25 || -11 || -3

of which FDI of the reporting economy in EU-27 countries (million euro) || || : || : || : || : || : || : || : || 0 || -9 || -2 || -1

Foreign direct investment (FDI) in the reporting economy (million euro) || || : || : || : || : || 43 || 108 || 289 || 441 || 366 || 291 || 315

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || : || : || : || : || : || : || 340 || 212 || 184 || 188

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

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

General government deficit/surplus, relative to GDP (%) || || : || : || 8.4 || 2.2 || 2.7 || : || : || : || : || : || :

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

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

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

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

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

Money supply: M1 (banknotes, coins, overnight deposits, million euro) || || 761 || 971 || 998 || 891 || 713 || 572 || : || : || : || : || :

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || || 761 || 1 096 || 1 126 || 1 111 || 1 128 || 1 092 || : || : || : || : || :

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

Total credit by monetary financial institutions to residents (consolidated) (million euro) || || 3 || 26 || 87 || 233 || 374 || 514 || 637 || 892 || 1 183 || 1 289 || 1 459

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

Lending interest rate (one year), per annum (%) || 3) || : || : || : || : || 14.7 || 14.4 || 14.5 || 14.6 || 14.8 || 14.1 || 14.3

Deposit interest rate (one year), per annum (%) || 3) || : || : || : || : || 2.8 || 2.9 || 3.0 || 3.3 || 4.2 || 4.0 || 3.4

euro exchange rates || 1) || 1.000 || 1.000 || 1.000 || 1.000 || 1.000 || 1.000 || 1.000 || 1.000 || 1.000 || 1.000 || 1.000

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

Value of reserve assets (including gold) (million euro) || || 62 || 296 || 337 || 423 || 311 || 278 || 356 || 647 || 670 || 501 || 587

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

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

Value of imports: all goods, all partners (million euro) || || : || : || : || : || 1 050.4 || 1 180.0 || 1 314.6 || 1 576.1 || 1 930.0 || 1 933.8 || 2 157.7

Value of exports: all goods, all partners (million euro) || || : || : || : || : || 56.6 || 48.9 || 81.7 || 147.3 || 196.4 || 165.3 || 288.1

Trade balance: all goods, all partners (million euro) || || : || : || : || : || -993.8 || -1 131.1 || -1 232.9 || -1 428.8 || -1 733.6 || -1 768.5 || -1 869.6

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

Share of exports to EU-27 countries in value of total exports (%) || || : || : || : || : || 29.3 || 37.9 || 35.7 || 42.6 || 47.7 || 43.1 || 44.9

Share of imports from EU-27 countries in value of total imports (%) || || : || : || : || : || 40.3 || 38.4 || 34.2 || 35.2 || 36.2 || 39.0 || 38.3

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

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

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || : || : || : || 12.8 || 14.1 || 14.5 || 12.6 || 12.4 || 12.7 || 12.5 || :

Infant mortality rate: deaths of children under one year of age per 1000 live births || || : || : || 11.2 || 15.1 || 11.8 || 9.6 || 12.0 || 11.1 || 9.7 || 9.9 || :

Life expectancy at birth: male (years) || || : || : || : || : || : || : || : || : || : || : || :

Life expectancy at birth: female (years) || || : || : || : || : || : || : || : || : || : || : || :

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

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

Economic activity rate (15-64): share of population aged 15-64 that is economically active (%) || || : || 45.6 || 52.8 || 50.3 || 46.2 || 49.2 || 52.3 || 46.8 || 46.2 || 48.1 || :

\* Employment rate (15-64): share of population aged 15-64 in employment (%) || || : || 19.6 || 23.8 || 25.3 || 27.7 || 28.5 || 28.7 || 26.2 || 24.1 || 26.1 || :

Employment rate male (15-64) (%) || || : || 31.1 || 39.4 || 42.8 || 46.4 || 45.8 || 46.1 || 40.1 || 37.7 || 39.7 || :

Employment rate female (15-64) (%) || || : || 8.1 || 8.8 || 8.3 || 9.9 || 11.7 || 11.8 || 12.7 || 10.5 || 12.5 || :

Employment rate of older workers (55-64): share of population aged 55-64 in employment (%) || || : || 16.7 || 18.4 || 20.1 || 23.9 || 25.2 || 26.3 || 24.6 || 23.8 || 27.9 || :

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

Agriculture || || : || : || : || : || : || : || : || : || : || : || :

Industry || || : || : || : || : || : || : || : || : || : || : || :

Construction || || : || : || : || : || : || : || : || : || : || : || :

Services || || : || : || : || : || : || : || : || : || : || : || :

Unemployment rate: share of labour force that is unemployed (%) || || : || 57.1 || 55.0 || 49.7 || 39.7 || 41.4 || 44.9 || 43.6 || 47.5 || 45.4 || :

Share of male labour force that is unemployed (%) || || : || 51.8 || 45.2 || 40.3 || 31.5 || 32.9 || 34.6 || 38.5 || 42.7 || 40.7 || :

Share of female labour force that is unemployed (%) || || : || 69.9 || 74.5 || 71.9 || 60.7 || 60.5 || 61.6 || 55.2 || 59.6 || 56.4 || :

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) || || : || 80.0 || 77.7 || 74.9 || 66.5 || 70.5 || 75.5 || 70.0 || 73.0 || 73.0 || :

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || : || 47.6 || 47.3 || 42.7 || 34.9 || 34.7 || 41.1 || 37.1 || 38.9 || 37.1 || :

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

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

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

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

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

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

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

Number of passenger cars per 1000 population || || : || : || : || : || : || 50.1 || 69.9 || 68.7 || 74.1 || : || :

Number of subscriptions to cellular mobile telephone services per 1000 population || || : || : || : || 158.7 || 169.5 || : || : || : || 376.2 || 369.1 || :

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

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

Density of railway network (lines in operation, per 1000 km²) || || : || : || : || : || 39.5 || : || : || : || : || 30.6 || :

Length of motorways (thousand km) || || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0.6 || 0.6

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Primary production of hard coal and lignite (thousand TOE) || 4) || : || : || 3 853 || 4 507 || 3 944 || 4 455 || 4 553 || 4 681 || 5 466 || 7 842 || 7 960

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

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

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

Electricity generation (thousand GWh) || || : || : || 3.2 || 3.2 || 3.5 || 4.0 || 4.0 || 4.3 || : || 5.3 || 5.5

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

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

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

Total utilised agricultural area (thousand hectare) || || : || 539 || : || : || : || : || : || : || : || : || :

Livestock: cattle (thousand heads, end of period) || || 289 || 347 || 319 || : || 335 || 352 || 382 || 322 || 342 || 344p || :

Livestock: pigs (thousand heads, end of period) || || 59 || 75 || 110 || : || 55 || 47 || 68 || 40 || 27 || 51p || :

Livestock: sheep and goats (thousand heads, end of period) || || 193 || 230 || 116 || : || 106 || 152 || 113 || 152 || 180 || 217p || :

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

Crop production: cereals (including rice) (thousand tonnes, harvested production) || || : || 459 || 396 || : || 408 || 441 || 392 || 295 || 438 || 411p || :

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

Crop production: vegetables (thousand tonnes, harvested production) || || : || 169 || 135 || : || 150 || 159 || 172 || 117 || 176 || 144p || :

: =
not available

p =
provisional

e =
estimated value

b =
break in series

\* =
Europe 2020 indicator

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

Footnotes:

1)              Euro is the currency
in use.

2)              Investment: including
Donor sector, General government, Private investment (Housing and Other).

3)              Since 2008, interest
rate on loans includes disbursement fee charged by banks.

4)              Local production of
coal in thousand tones.

[1]               Under UNSCR 1244/1999

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

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

[4]               A measure using PPP is not available for Kosovo. The
calculation is based on the population estimates of the 2011 census.

[5]               Including deposits excluded from broad money.

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