Source: EURLEX
Language: en
Format: md

*|*

# 52013SC0412

**COMMISSION STAFF WORKING DOCUMENT SERBIA 2013 PROGRESS REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2013-2014 /\* SWD/2013/0412 final \*/**

  

TABLE
OF CONTENTS

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

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

1.2........ Context 3

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

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

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

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

2.2........ Human rights and
the protection of minorities. 10

2.3........ Regional issues and
international obligations. 11

3........... Economic criteria. 14

3.1........ The existence of a
functioning market economy. 14

3.2........ The capacity to cope with
competitive pressure and market forces within the Union. 19

4........... Ability to take on the
obligations of membership. 21

4.1........ Chapter 1: Free movement
of goods. 21

4.2........ Chapter 2: Freedom of
movement for workers. 22

4.3........ Chapter 3: Right of
establishment and freedom to provide services. 23

4.4........ Chapter 4: Free movement
of capital 23

4.5........ Chapter 5: Public
procurement 24

4.6........ Chapter 6: Company law.. 24

4.7........ Chapter 7: Intellectual
property law.. 25

4.8........ Chapter 8: Competition
policy. 25

4.9........ Chapter 9: Financial
services. 26

4.10...... Chapter 10: Information
society and media. 27

4.11...... Chapter 11: Agriculture and
rural development 28

4.12...... Chapter 12: Food safety,
veterinary and phytosanitary policy. 28

4.13...... Chapter 13: Fisheries. 29

4.14...... Chapter 14: Transport
policy. 30

4.15...... Chapter 15: Energy. 31

4.16...... Chapter 16: Taxation. 33

4.17...... Chapter 17: Economic and
monetary policy. 34

4.18...... Chapter 18: Statistics. 34

4.19...... Chapter 19: Social policy
and employment 35

4.20...... Chapter 20: Enterprise and
industrial policy. 37

4.21...... Chapter 21: Trans-European
networks. 37

4.22...... Chapter 22: Regional policy
and coordination of structural instruments. 38

4.23...... Chapter 23: Judiciary and
fundamental rights. 39

4.24...... Chapter 24: Justice,
freedom and security. 49

4.25...... Chapter 25: Science and
research. 53

4.26...... Chapter 26: Education and
culture. 53

4.27...... Chapter 27: Environment and
climate change. 54

4.28...... Chapter 28: Consumer and
health protection. 56

4.29...... Chapter 29: Customs union. 57

4.30...... Chapter 30: External
relations. 58

4.31...... Chapter 31: Foreign,
security and defence policy. 59

4.32...... Chapter 32: Financial
control 60

4.33...... Chapter 33: Financial and
budgetary provisions. 61

1.
Introduction
1.1.
Preface

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

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

–   briefly describes the relations
between Serbia and the European Union;

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

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

–   reviews Serbia’s capacity to
take on the obligations of membership, i.e. the acquis expressed in the
Treaties, the secondary legislation, and the policies of the Union.

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

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

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

1.2.
Context

The European Council of
March 2012 granted the status of candidate country to Serbia. In April 2013,[3] finding that Serbia had met the key priority of
taking steps towards visible and sustainable improvement of relations with
Kosovo\*, as set out in its 2011 opinion on
Serbia’s membership application,[4]
the Commission recommended to the Council that accession negotiations be
opened. The European Council decided on opening accession negotiations with
Serbia on 28 June 2013. It endorsed the Council’s recommendation that the
Commission submit without delay a proposal for a framework for negotiations in
line with the European Council’s December 2006 conclusions and established
practice and incorporating the new approach to the chapters on the judiciary
and fundamental rights and justice, freedom and security as well as steps
towards normalising relations between Belgrade and Pristina. The Commission
tabled its proposal in July. The Commission was also asked to carry out an
analytical examination of the EU acquis which started in September.

The next step is
adoption by the Council of the framework for negotiations with Serbia, to be
confirmed by the European Council at its usual session on enlargement, with a
view to holding the first intergovernmental conference with Serbia in January
2014 at the very latest.

Continued visible and sustainable progress in the
normalisation of relations with Kosovo, including the implementation of agreements
reached so far, will remain essential.

Serbia will have to sustain the momentum of reforms over
time in the key areas of the rule of law, particularly judicial reform and
anti-corruption policy, independence of key institutions, media freedom, anti-discrimination
policy, the protection of minorities and the business environment.

Serbia needs to maintain its commitment to regional
cooperation and reconciliation.

1.3.
Relations between the EU and
Serbia

Serbia
is participating in the Stabilisation and Association Process.

The Stabilisation and
Association Agreement between the
EU and Serbia (SAA) was signed in
April 2008 and entered into force on 1 September 2013. It replaces the Interim
Agreement on trade and trade-related matters (IA) which had entered into force
on 1 February 2010.

Serbia has continued to
build a satisfactory track record in implementing the obligations of the SAA
and IA. An
agreement has been reached on the adaptation of the trade provisions of the SAA
in order to take into account Croatia's accession to the EU and with a view to
maintaining traditional trade flows. Further
efforts are needed in particular in the areas of state aid control, where the
independence of the Commission for State Aid Control needs to be further
established and the exemption of enterprises under privatisation from state aid
rules need to be repealed.

Regular
political and economic dialogue between the EU and the country has continued
through the SAA/IA structures and
in the framework of the Enhanced Permanent Dialogue (EPD). The Interim
Committee met in January and seven sub-committee and sectoral EPD meetings were
held. Serbia participates in the multilateral economic dialogue with the
Commission and the EU Member States to prepare the country for participation in
multilateral surveillance and economic policy coordination under the EU’s
Economic and Monetary Union.

The EU-Serbia
Inter-Parliamentary Committee met in Brussels in March and the European
Parliament adopted an opinion on the Commission’s progress report on Serbia in
April. The Committee of the Regions Working Group on the Western Balkans held
its annual meeting in Novi Sad on 26 June. On 10 July, the European Economic
and Social Committee adopted an opinion on relations with civil society in
Serbia.

The Serbian government
adopted an action plan in December 2012 to follow up on all the findings of the
Commission’s 2012 progress report; in February 2013 it adopted a National Plan
for the Adoption of the Acquis (NPAA) for the period 2013-2016.

Visa liberalisation for citizens of Serbia travelling to the Schengen area has
been in force since December 2009. In
the framework of the post-visa liberalisation monitoring mechanism, the
Commission regularly assesses progress made by the country in the implementation
of reforms introduced under the visa roadmap. This also includes an alert
mechanism to prevent abuses, coordinated by Frontex. Within this framework, the
European Commission has regularly submitted its monitoring reports to the
European Parliament and Council. The next report will be presented by the end
of 2013. A readmission agreement
between the European Union and Serbia has been in force since January 2008.

Financial assistance is provided through the Instrument for Pre-Accession
Assistance (IPA). The assistance follows a sector-based approach focusing on
the following seven sectors: justice and home affairs; public administration
reform; social development; private sector development; transport; the
environment, climate change and energy; and agriculture and rural development.
In addition, the country continues to benefit from various regional and
horizontal programmes. Cross-border cooperation is also used to promote
capacity building and dialogue between the local and regional authorities of
neighbouring countries, namely Bulgaria, Hungary, Romania, Bosnia and
Herzegovina, Croatia and Montenegro.

For the period 2007-2013, the Commission has earmarked €1 384
million for IPA projects to be implemented in the country. IPA assistance is
currently managed centrally by the EU Delegation in Belgrade. Preparations for
decentralised management of IPA funds are being finalised and conferral of
management powers is expected by the end of 2013. The government and the
Commission are currently preparing a comprehensive Country Strategy Paper for
the period 2014-2020, which will provide a coherent and strategic framework for
financial assistance under the new Instrument for Pre-Accession Assistance (IPA
II).

Serbia participates in
a number of EU programmes: the Seventh Framework Programme for research
and technological development, Progress, the Competitiveness and Innovation
Programme, the Culture Programme, the Europe for Citizens Programme, the
Customs Programme and the Fiscalis Programme.

1.4.
Normalisation of relations
between Serbia and Kosovo

Serbia and Kosovo have
actively and constructively participated in the EU-facilitated dialogue, which
was upgraded to a high-level political process with facilitation by the High
Representative following the Serbian elections of May 2012. Seventeen high-level
meetings were attended by both Prime Ministers since October. A meeting also
took place between Presidents Nikolic and Jahjaga in February and they
continued meeting in the context of various initiatives in June and in July.
Since January 2013, the meetings of the two Prime Ministers have focused on
northern Kosovo and on delivering structures which meet the security and justice
needs of the local population in a way that ensures the functionality of a
single institutional and administrative set-up in Kosovo, in line with the
December 2012 Council Conclusions.

These discussions
resulted in the 19 April ‘First agreement on principles governing the
normalisation of relations’, complemented in May by a comprehensive
implementation plan. This landmark achievement represents a fundamental change
in relations between the two sides. The ‘First Agreement’ includes the
following key elements: the establishment of an Association/Community of Serb
municipalities in Kosovo; the principle of a single police force in Kosovo and
the integration of all police in northern Kosovo in the Kosovo police force;
the principle of integration and functioning of all judicial authorities within
Kosovo’s legal framework; and municipal elections to be held in the northern
municipalities in 2013 and facilitated by the OSCE – municipal elections were
subsequently convened on 3 November 2013 and will take place throughout Kosovo.
The two parties have agreed that neither side will block or encourage others to
block the other side’s progress on their respective EU paths.

The parties also
reached agreements on energy and telecommunications in September. Implementation
of other agreements reached in the dialogue to date has continued. The
agreement on representation of Kosovo was broadly implemented. Kosovo became a
member of the Regional Cooperation Council (RCC) in February. Full application
of the principle of inclusive regional cooperation remains to be ensured;
problems such as that encountered with the summit of the South East European
Cooperation Process (SEECP) need to be avoided. On IBM, joint interim crossing
points have been opened on all six border gates and are up and running.
December’s agreement on the protection of religious and cultural heritage sites
is being implemented. Implementation of the agreement on liaison arrangements
started in June. The two sides have also agreed to start collecting customs
duties and to set up a fund for the development of northern Kosovo. Regarding
free movement, the ID card travel regime is operational. The agreement on
customs stamps continues to be implemented by both sides. There has also been
good progress on civil registry and implementation should be completed by March
2014. Regarding cadastre, while the implementation has commenced on the Serbian
side, the legislation necessary to implement the agreement on cadastre has yet
to be passed by the Kosovo side. Implementation of the agreement on acceptance
of university diplomas is proceeding smoothly. Serbia’s cooperation with EULEX
has continued to improve. Direct high-level contacts and regular contacts at
operational level continue to facilitate cooperation, e.g. in the fight against
organised crime. Serbia needs however to follow-up requests under the police
protocol with EULEX, eg. vehicle registration documents.

On 19 September, one
member of EULEX was killed in an attack on a EULEX convoy in northern Kosovo.
The leaderships of both Serbia and of Kosovo condemned the attack in the
strongest terms.

Overall, Serbia has taken significant steps towards
visible and sustainable improvement of relations with Kosovo, which have
already led to a number of irreversible changes on the ground.

2.
Political criteria

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

2.1.
Democracy and the rule of
law

Constitution

The Constitution is largely in line with European
standards. Some provisions still need to fully reflect the recommendations of
the Venice Commission in its opinions of 2007 and of 2013, particularly with
regard to the role of parliament in judicial appointments.

Parliament

Parliament has been very active in the first year of the
legislature and has enacted several important pieces of legislation aiming at
alignment with the EU acquis. The consultation process has improved,
with extensive use of public hearings. Parliament’s work has been made more
transparent by the new practices of publishing voting records and transcripts
of plenary debates on the internet and live streaming of plenary debates and
committees’ sessions. But urgent procedures with limited consultation and
discussion time have continued to be used extensively to enact legislation. A
women’s parliamentary network was set up in February. Parliamentary oversight
over the executive has improved, with the prime minister and deputy prime
ministers participating in regular sessions of oral questions, the government
presenting an annual work programme for 2013 and ministers submitting quarterly
reports to the corresponding committees. Parliament has been actively reviewing
the results of the EU-facilitated dialogue between Serbia and Kosovo and
approved with an overwhelming majority a report from the government following
the 19 April ‘First Agreement’. A committee of inquiry into Serbia’s
budgetary allocations to Kosovo was set up in April.

Parliamentary committees have developed a more proactive
approach. The Committee for European Integration has continued its review of
reports submitted by the government, with active support from the corresponding
parliamentary department. Independent Regulatory Bodies submitted annual
reports for 2012 which were debated by the relevant committees before
conclusions were examined by the plenary in July. But parliament has still
given only limited consideration and follow-up to their findings and
recommendations.

Elections

The Anti-Corruption Agency eventually released its final
report on the financing of 2012 elections at all levels in May (See also
Chapter 23 — Judiciary and fundamental rights). Allegations of electoral
fraud made in the 2012 elections were dismissed by the prosecution in October.
Serbia still needs to introduce changes into the electoral framework in line
with recommendations from the OSCE/ODIHR.

Overall, the
transparency of parliament’s work and its consultation process has improved and
there was progress in oversight of the executive. Urgent procedures are still
often applied, unduly limiting time and debate for scrutiny of draft
legislation. Parliament needs to develop a more proactive approach to the
consideration and follow-up of recommendations of Independent Regulatory
Bodies. Serbia has not yet enacted changes to the electoral framework as
recommended by OSCE/ODIHR.

Government

The coalition government has remained united in
demonstrating commitment to joining the EU and to EU-facilitated dialogue with
Kosovo. It has been increasingly consistent in practice, in terms of policy
priorities, decision-making and the public conduct of its members, with all
crucial policy decisions being adopted unanimously. In March, the government
amended its rules of procedure, significantly extending the holding of public
consultations and making it compulsory to carry out impact assessments in
consultation with the Office for the Regulatory Reform and Impact Analysis. The
transparency of the legislative drafting process should be further enhanced and
sufficient time given for effective consultation of all interested parties to
ensure a more predictable legal environment. More attention also needs to be
given to the implementation and monitoring of enacted legislation. The
government’s General Secretariat needs to be further strengthened to contribute
to greater coordination of sectoral policies and effectiveness of
policy-making. Too often, sectoral ministries take policy decisions relating to
EU standards in isolation. The government needs to follow up the findings and
recommendations of independent regulatory bodies actively and to keep a record
of this follow up. At the end of the reporting period, a new cabinet was sworn
in on the basis of a new coalition in agreement, which now excludes the United
Regions of Serbia (URS). 11 out of 22 positions have been renewed, but the
government leadership remained unchanged.

In September, the
structures for the accession negotiations were established, including a
coordinating body chaired by the prime minister, and Serbia’s Chief Negotiator
was appointed. The Serbian European Integration Office continued to effectively
coordinate government activities relating to the EU integration process. In
February, the government adopted the National Plan for the Adoption of the Acquis
(NPAA) for the period 2013-2016. It replaces the National Programme for
Integration (NPI) for 2008-2012 under which 88% of the planned legislation was
reported having been enacted. In December, the government adopted an action
plan to address findings of the 2012 progress report. The National Council for
European Integration has not yet been re-established.

As regards local self-government, the provincial assembly
of Vojvodina adopted in May 2013 a declaration ‘on the Protection of
Constitutional and Legal Rights of the Autonomous Province of Vojvodina’. A law
on own resources for Vojvodina has yet to be adopted, as prescribed by the
Constitution. Implementation of the existing legal framework for local
government remains very limited. The National Council for Decentralisation has
not met nor has the new inter-ministerial Municipal Finance Commission and none
of the tools needed to monitor functions delegated to municipalities have yet
been developed. Responsibilities have continued to be exercised at local level
without proper analysis of the capacity and resources required. The legislation
on municipal finance needs to be properly implemented with regard to calculation
of the earmarked transfers by line ministries. Consultation of local
authorities on new legislation that has local implications remains very
limited. (See also Public administration and Chapter 32 - Financial control).

Overall, the
government has actively pursued the EU integration agenda, demonstrating
consensus in key policy decisions. The framework regulating the consultation
process has been improved but implementation needs to be stepped up. The legal
framework for local self-government remains to be clarified and properly
implemented.

Public administration

The government
undertook to develop a new public administration reform (PAR) strategy covering
all key aspects of the horizontal PAR as well as an action plan for 2013-16.
These preparations are based on an active consultative process and working
groups involving all key stakeholders. The PAR strategy is expected to be
adopted until end of 2013. The Ministry of Justice and Public Administration is
now taking the lead on public administration reform but still needs to enhance
its ability to coordinate a PAR agenda.

The necessary institutional and administrative capacity for
policy planning and coordination needs to be enhanced. So far political
coordination of PAR has been insufficient. The Public Administration Reform
Council has been now formally re-established under the leadership of the Prime
Minister, but the Council has yet to take up its duties.

With regard to the legislative framework, a new Law on
General Administrative Procedures and a Law on local government employees and
salaries have yet to be adopted. The Law on Administrative Disputes has not yet
been fully aligned with European standards for judicial review of
administrative acts.

A merit-based civil service system in central and local
government needs to be put in place. Recruitment, particularly for managerial
and middle-management positions, is an issue of serious concern, as a
substantial proportion has been conducted through non-transparent procedures.
Recruitment of local employees is regulated by the Labour Law, as the Law on
Civil Servants does not apply to local government employees. Administrative and
management capacity at local level is weak and significant disparities between
municipalities persist. Training needs to be given more importance in
professional development.

The government has
shown the will to rationalise the organisation of public administration and to
streamline subordinate bodies and agencies. However, only partial actions have
been initiated, and a clear and comprehensive organisational policy has yet to
be determined. Recruitment and human resources management for subordinate
bodies and independent regulatory bodies do not follow a consistent regulatory
framework.

Serbia has taken new steps to address the logistical
constraints affecting Independent Regulatory Bodies (See also Parliament,
Government and Ombudsman). The Commissioner for Information of Public
Importance and Personal Data Protection remained active both within the
government and with the media and civil society. The number of requests from
citizens has increased. His office was allocated new premises in August which
should allow expanding its administrative capacity, when they become functional
as from October 2013. Serbia’s State Audit Institution (SAI) has continued to
build up capacity and now has approximately 190 staff, including around 150
auditors. The SAI has improved and widened its audit coverage to include local
self-government and state-owned companies, but it remains under-resourced for
full audit capacity. Performance audit work has not started yet (See also
Chapter 32 — Financial control).

Overall,
public administration reform remains hampered by the lack of clear steer and
coordination structures. The system remains fragmented, with unclear lines of
accountability and low policy development and coordination capacity.
Recruitment and promotion need to be further reformed and developed to achieve
a transparent, merit-based civil service system. Much recruitment is still
conducted through non-transparent procedures. Follow-up of the recommendations
of independent bodies needs to be built into the system.

Ombudsman

The State Ombudsman’s offices at both central and local
level and the office of the Ombudsman of Vojvodina continued to be active, with
an increase in the number of citizens’ complaints. Most of the reported
infringements relate to administrative procedures. The number of
recommendations followed up by the government and parliament increased
slightly, but follow-up needs to be more systematic, especially in the area
where the Ombudsman acts as the national preventive mechanism against torture.

Civilian oversight of the security forces

The Law on Military Security and Military Intelligence
Agencies, which allowed sensitive data on itemised telephone bills and
localisation to be monitored without a court order, was amended in February to
require a high court order to be obtained before access to such data is
granted. The new parliamentary committee has been proactive in the legislative
process, supervision of the security services and cooperation with independent
bodies. In March, the Committee adopted a decision regulating in detail the
direct oversight of the security services through control visits, inspections
and reports to the plenary. Control visits were made to all three security
agencies in the course of June and July, and the Committee in particular
inspected the legality of the use of special measures for the secret collection
of data. Upon an initiative of the Committee, the State Audit Institution for
the first time audited the civilian state security agency (BIA). A law on
access to state security files has yet to be adopted.

Civil society

Civil society organisations continued to play an important
role in social, economic and political life, and in promoting democratic
values. The sector continued to grow. The office for cooperation with civil
society produced its first annual report on budget spending on associations and
other civil society organisations, covering the 2011 budget.

Judicial system

New five-year strategy on the judiciary was adopted in
July, together with implementing action plan. Following last year’s
Constitutional Court rulings, previously non-reappointed judges and
prosecutors, representing approximately one third of the total, were
re-appointed. Major legislative improvements were made. However, the
legislative and constitutional framework still leaves room for undue political
influence and need to be amended. To ensure accountability in the judiciary,
professional appraisal rules need to be adopted and codes of ethics and
disciplinary rules more systematically applied, where relevant, to prosecutors
and judges. The size of the backlog of cases continues to raise concern. There
are still major imbalances in the workload of judges and the length of
proceedings remains excessive in many cases. Further reforms require a
comprehensive functional analysis of the judiciary in terms of cost, efficiency
and access to justice. The implementation of the recent changes to the
legislation on ‘abuse of office‘ should be carefully monitored with a view to a
comprehensive review of economic crimes. The means and expertise of the
Judicial Academy should be increased and the legislative and institutional
framework adapted to allow it to become the compulsory point of entry to the
judicial profession.

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

Fight against corruption

A new strategy for the period 2013-2018 has been adopted in
July, together with a related action plan. Implementation of GRECO
recommendations has continued. Investigations into corruption cases have been
stepped up, especially in high-level cases, resulting in particular in criminal
charges filed against two former ministers and the sentence in first instance
of a former president of a commercial court to six and a half years of prison
for abuse of office. The Anti-Corruption Agency’s operations continued, mostly
in relation to the control of the financing of political parties. The
implementation of the legal framework and the efficiency of anti-corruption
institutions need to be improved. A proactive approach to investigating
corruption needs to be maintained and result into final convictions, included
in high profile cases. The judiciary needs to gradually build up a solid track
record of convictions in this regard, particularly in cases of misuse of public
funds. The Anti-Corruption Agency needs to make full use of its capacity, in
particular for checks on the funding of electoral campaigns. The law
enforcement bodies need to gain expertise, in particular in financial
investigations, and to become more proactive. There is no efficient and
comprehensive legal framework to protect whistle-blowers. Continued political
direction and improved support for institutions is needed, along with more
effective inter-agency coordination in order to significantly improve
performance in combating corruption.

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

Fight against organised crime

The institutional
framework to fight against organised crime is in place. Regional and
international cooperation has led to some results. Criminal investigations have
been launched in a number of cases. However, final convictions remain rare. The
capacity to carry out financial investigations in parallel with complex
criminal investigations needs to be built up, and a track record of proactive
investigations and final convictions in organised crime cases needs to be
established. The dependence of the police on the security intelligence agency
to carry out certain special investigative measures in criminal investigations
is not in line with EU standards.

For a detailed analysis of developments in this area,
see Chapter 24 — Justice, freedom and security.

2.2.
Human rights and the
protection of minorities

The legislative
and institutional framework for the observance of international human rights
law is in place. Further efforts to ensure full implementation of the legal
framework and international instruments are needed.

In the area of media freedom, defamation was
decriminalised. The creation of an ad hoc Commission tasked with shedding light
on cases of unsolved murders of journalists contributed to re-launching some
investigations. However, no progress was made in the implementation of the
media strategy. Transparency in media ownership and financing of the sector
still needs to be comprehensively addressed, particularly as regards direct
state financing. Reports of orchestrated media campaigns in certain tabloids
against the opposition, coalition partners or independent bodies, detailing
investigations or announcing arrests, based on anonymous or leaked sources from
the police investigation or prosecution, raise concerns. Some activities have
taken place regarding the protection of the rights of the lesbian, gay,
bisexual, transgender and intersex (LGBTI) population. However, sufficient
political support is still lacking and a pride parade that was to be held on 28
September in Belgrade was again banned, for the third year in a row, on
security grounds. Further efforts are needed to address complaints and in
particular alleged ill-treatment, improve conditions in the prison system and
ensure access to justice. Further attention needs to be given to actively
protecting the media, human right defenders and other vulnerable groups,
including the Roma and LGBTI persons, from threats and attacks from radical groups.

A comprehensive anti-discrimination strategy was adopted in
June. A law on mental disability was adopted in May. Further positive measures
have been taken to protect children’s rights. Additional efforts are needed to
guarantee women’s rights in order to tackle domestic violence and improve
gender equality, particularly in the workplace. The social integration of
persons with disabilities needs to be further improved.

The legal framework providing for minority protection is in
place and generally complied with. However, consistent implementation of the
legal framework on the protection of minorities throughout Serbia needs to be
fully ensured, notably in the areas of education, use of language, and access
to the media and religious services in minority languages. The recommendations
of the June 2011 EU-Serbia seminar on Roma inclusion have been actively
followed up and a new set of operational conclusions addressing the remaining
gaps was jointly agreed in September. Further sustained efforts remain needed
to improve the situation of the Roma and of refugees and displaced persons.

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

2.3.
Regional issues and
international obligations

Regarding relations with
Kosovo, see section 1.4 - Normalisation of relations between Serbia and
Kosovo.

There are no outstanding
issues regarding Serbia’s compliance with the Dayton/Paris Peace Agreement.
In the framework of the Agreement on Special Parallel Relations, joint
sessions of the governments of Republika Srpska and Serbia and a session of the
Cooperation Council were held.

Serbia has maintained full
cooperation with the International Criminal Tribunal for the
former Yugoslavia (ICTY). Serbia has continued to respond to
requests for assistance in a timely manner and has intensified efforts to
investigate support networks responsible for helping ICTY fugitives.
Proceedings are ongoing in 22 cases on charges of harbouring ICTY indictees and
10 people were sentenced on the basis of plea-bargaining. A repeat trial in a
case relating to aid provided to Ratko Mladić has resumed in June 2013.
Following the acquittals on appeal in the Gotovina/Markač and Haradinaj cases
in November, which were met with outrage and bitterness in Serbia and beyond in
the region, Serbian high officials criticised the decisions and, on the
occasion of a UN General Assembly thematic debate in April, questioned the
contribution of international justice to regional reconciliation. The
government extended its financial assistance to all Serb ICTY detainees or
convicts and their families in March.

In the area of domestic
processing of war crimes, a protocol
on cooperation on exchange of information and evidence in war crimes cases was
signed between the war crimes prosecutors of Serbia and Bosnia and Herzegovina
in January. The two sides have been meeting regularly since then to expand
cooperation in practice. Cooperation
and exchanges of information with Croatia and EULEX continued. The courts
processed cases more efficiently and the judges performed better under new
procedural rules. The number of persons indicted in 2012 was low and there was
no progress in investigating high-level officers involved in war crimes. Courts
continued to pass mild sentences. Serious problems in the system of witness
protection have not been addressed and assistance to victims has not improved.
Victims are only allowed to be assisted by members of the Bar, when they would
benefit from assistance by experienced human rights experts.

Serbia’s policy
regarding the International Criminal Court is in line with the EU’s guiding
principles and the EU Common Positions on the integrity of the Rome Statute.
Serbia does not have any bilateral immunity agreements.

Progress has been made as regards the Sarajevo
Declaration Process, which brings together Bosnia and Herzegovina, Croatia,
Montenegro and Serbia and aims at finding sustainable solutions for the
refugees and displaced persons as a result of the armed conflicts in
ex-Yugoslavia during the 1990s. The implementation of the Regional Housing
Programme, which aims at providing housing solutions for the most vulnerable
refugees and displaced persons in the four countries and is extensively
supported with EU financial assistance, has started with the approval of the
first round projects by the international donors in April. Joint regional
information campaigns on the programme have been carried out throughout the
region. However, the implementing capacities of the partner countries need to
be further improved and a series of documents and procedures need to be
finalised in order for the approved country projects to start. Efficient
project implementation units and rigorous beneficiary selection procedures as
well as beneficiary data cross checking remain to be established. The issue of
refugees’ pensions within the bilateral working group between Croatia and
Serbia still needs to be addressed. The good overall cooperation between the
partner countries on the process and the housing programme needs to continue.

The unresolved fate of missing persons from the
conflicts in the 1990s is still an issue of humanitarian concern in the Western
Balkans. As of July 2013, a total of 11 859 persons were still missing as
a result of the conflicts in the region, according to International Committee
of the Red Cross (ICRC) figures. Of these, 7 886 cases relate to the
conflict in Bosnia and Herzegovina, 2 246 to the conflict in Croatia and 1 727
to the conflict in Kosovo. The lack of information on potential gravesites and
difficulties in identifying the already exhumed human remains continue to be the
key obstacles to solving the remaining cases of missing persons. Belgrade and
Pristina held two meetings to address these issues in the framework of the
ICRC-chaired Working Group on Missing Persons. Forty four cases have been
resolved, owing mostly to the information provided by the Serbian authorities
and international stakeholders. Serbia and Croatia resumed formal contacts on
missing persons and in July, a first session of the re-established bilateral
working group took place in Zagreb with the two sides agreeing to meet four
times a year. As a result of the judicial cooperation between the two
countries, a gravesite with 13 victims was found and exhumed near Vukovar.
However, the process remains slow overall and greater political commitment,
supported with financial and technical resources, is needed.

Regional cooperation and good neighbourly relations are an essential element of Serbia’s European
integration process. Serbia continued to actively participate in regional
initiatives and organisations, such as the Migration, Asylum, Refugees Regional
Initiative (MARRI), the Central European Initiative (CEI), the Regional
Cooperation Council (RCC), the Central European Free Trade Agreement (CEFTA),
the Energy Community Treaty (ECT) and the European Common Aviation Area
Agreement (ECAA). The new RCC Secretary General comes from Serbia. In April,
Serbia hosted a regional ministerial conference on the fight against organised
crime, corruption and judicial cooperation. A trilateral presidential summit
took place between Serbia, Turkey and Bosnia and Herzegovina in May, preceded
by an economic and trade ministerial meeting in March. In June, the Serbian
President appointed a personal envoy to the Regional Commission for
Establishing the Facts about War Crimes (RECOM).

As concerns bilateral relations with other enlargement
countries and neighbouring EU Member States, the Serbian leadership stepped
up high-level contacts with neighbouring countries with renewed impetus since
January. After his disputable statements on Srebrenica and Vukovar, the Serbian
President made a number of particularly welcome gestures that contributed to a
spirit of reconciliation. Following the entry into force of the SAA on 1
September 2013, Serbia will have to conclude bilateral conventions on regional
cooperation, under Article 15 of the SAA, with Albania, Montenegro and the
former Yugoslav Republic of Macedonia.

The Serbian foreign minister visited Albania in
October 2012 for the first such visit in eight years. However, bilateral relations were strained at times, with each
side blaming the other for declarations or actions in the Presevo valley which
raised tensions.

Relations with Bosnia and Herzegovina have improved.
In April, the Serbian President publicly asked for forgiveness for crimes
committed by any individual in the name of Serbia and the Serbian people,
including in Srebrenica. A key development was the signing of a protocol on
cooperation on the prosecution of perpetrators of war crimes, crimes against
humanity and genocide. An agreement on readmission and one on extradition,
which excludes war criminals, were also signed. There were many high-level
reciprocal visits, a Joint Commission for Economic Cooperation was inaugurated
and a memorandum of understanding on cooperation in the EU integration process
was signed in December. Border demarcation remains to be addressed.

Relations with the former Yugoslav Republic of
Macedonia were further upgraded. A first joint government session was held
in Belgrade in June, at which agreements were signed on health and interior
issues and the mixed committees on minorities and economic cooperation were
reactivated. An agreement on legal assistance in civil and criminal matters
entered into force. An agreement on mutual enforcement of court decisions in
criminal cases was ratified, and an agreement on cooperation on the process of
EU integration was signed. There were no developments in relation to the
dispute between the Orthodox churches in the two countries, which both Prime
Ministers signalled in January should not be an obstacle to deeper cooperation.

The Serbian Prime Minister visited Montenegro in
September. The agreement on police cooperation entered into force in
March. A readmission agreement and an agreement on consular protection and
services in non-EU countries were signed. A joint special task force for
fighting corruption and crime is operational and has already resulted in police
actions in the two countries. There were no developments in the dispute between
the Orthodox churches in the two countries.

The Serbian President visited Turkey in February and
again in May for the trilateral meeting with Turkey and Bosnia and Herzegovina,
on which occasion a protocol on commercial and economic cooperation was signed.
Agreements with Turkey were signed in June on the areas of mutual legal
assistance in civil and trade matters and in criminal matters and extradition.

The Serbian President visited Bulgaria in September.
A social security agreement entered into force in February. A joint contact
centre for police and customs cooperation was opened in December. An agreement
on the implementation of the gas interconnection between Serbia and Bulgaria
was signed in December.

The Serbian President and Prime Minister attended the
ceremony marking Croatia’s accession to the EU in July, a culminating
point in a series of high level reciprocal visits that started with the
Croatian Prime Minister’s visit to Belgrade in January. A joint mixed
commission was formed in March to address open bilateral issues (genocide
suits, refugees, pensions, border demarcation and missing persons) and Croatia
shared in July an updated list of persons facing criminal investigation or
indictments for war crimes.

Reciprocal presidential visits marked by reconciliatory
statements and apologies for crimes committed during WWII sealed a new phase in
relations with Hungary. A new border crossing was opened in May and a
trilateral memorandum of understanding on internal affairs was signed by
Serbia, Austria and Hungary.

Serbia and Romania continued cooperation on the
protection of minorities in line with their Joint Protocol of March 2012.
Consultations continued under the auspices of the OSCE High Commissioner on
National Minorities. The Serbian Prime Minister visited Bucharest in May.

Overall, Serbia
generally complied with its international obligations. Serbia continued to
fully cooperate with the International Criminal Tribunal for the former
Yugoslavia. Serbia maintained good relations with its neighbours and was
actively involved in regional cooperation.

3.
Economic criteria

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

3.1.
The existence of a
functioning market economy

Economic policy
essentials

In January 2013, the government submitted to the European
Commission its Pre-Accession Economic Programme (PEP) for the period 2013-2015.
The programme foresees a mild and plausible recovery by 2% in 2013 and further,
rather optimistic, acceleration of real GDP growth to 3.5% and 4% in the
following two years. A fiscal consolidation package, mostly on the revenue
side, was adopted in the autumn of 2012. Revenue underperformance and
expenditure pressures led to another set of consolidation measures in July and
to a rebalancing of the budget, increasing the 2013 deficit target from the
initial 3.6% of GDP to an estimated 5.3% of GDP. Some steps to address the
numerous obstacles to growth have been taken, but the adoption and
implementation of a number of important structural reforms has been delayed.
The pre-cautionary Stand-By Arrangement (SBA) with the IMF expired in March
2013, without being activated and no new arrangement has been concluded. Overall,
in view of the difficult economic situation, economic reforms have progressed
slowly. Achieving a sustainable fiscal position and tackling the numerous
obstacles to growth remains a challenge.

Macroeconomic stability

In 2012, Serbia went through another recession and the
economy contracted by 1.7%. Domestic demand weakened significantly in the last
quarter when private consumption fell by 2% and gross fixed capital formation
by 3.4%. Loose fiscal policy, which had boosted government expenditure and led
to a strong public consumption growth in the pre-election period, was reversed
by the year’s end and exports remained the only driver of growth. Real GDP grew
by 2.1% in the first and by 0.7% in the second quarter. However, economic
growth has been uneven, concentrated in few sectors, and employment stagnated.
Private consumption has continued to decrease and import growth lost pace.
Activity in key sectors such as construction and retail trade continued to
decline. Average per capita income in purchasing power standards stood at 35%
of the EU average in 2012, unchanged from the year before. Overall, the
economy is slowly emerging from another recession but growth remains weak and
narrowly based.

The economy is still facing significant external
imbalances. In 2012, the current account deficit increased to 10.5% of GDP,
driven mainly by an expanding trade deficit. However, this trend was reversed
by the end of the year and, in the first half of 2013 the annualised current
account deficit shrank by half in euro terms to an estimated 5.7% of GDP. By
July, exports of goods and services were up by 20% in euro terms, explaining
the bulk of the current account adjustment while, due to falling domestic
demand, imports remained subdued. Despite a slowdown in the EU economies
hosting significant Serbian diaspora, private remittances increased strongly by
13% in the first seven months.

External financial flows have been volatile and government
borrowing replaced private sector inflows as the main source of financing of
the current account deficit. Due to significant outflows, net foreign direct
investment fell to 0.8% of GDP in 2012. It gained some ground in 2013, but
remained far below pre-crisis levels, as domestic risks and weak EU economy
supressed inflows. Wholesale trade, construction and financial services sectors
attracted more than half of all net foreign investment in the country, while
inflows into sectors that could potentially boost export capacity remained
marginal. Portfolio investment increased as a result of significant government
borrowing (three rounds of eurobonds denominated in US dollars, totalling about
€2.5 billion). In the first half of 2013, banks continued to reduce their
foreign liabilities. The central bank foreign exchange reserves stood at a
comfortable €10.7 billion in August, covering more than seven
months’ worth of imports. Private sector external debt has remained fairly
stable; however, since September, rising government indebtedness has kept total
external debt high, at 83.7% of GDP by the end of June. Overall,
external imbalances have been falling but remain significant. Government
borrowing replaced private sector inflows as the main source of financing of
the current account deficit.

In 2012, the unemployment rate increased to a record high
of 23.9%. According to the April Labour Force Survey, the employment rate
reached an eleven‑year low, while the activity rate edged slightly up but was
still very low at 47.9%. Only about one person in three above the age of 15 was
employed. Employment in the unreformed public sector remained largely intact.
Long-term and youth unemployment have been persistently high and unemployment
is very high almost everywhere throughout the country. There are a number of
restrictions related to severance payments, duration of fixed-term employment,
industry-wide collective agreements, termination of employment, payroll calculation
and compensations which are obstacles to job creation and reduce labour
flexibility. The first signs of economic recovery in 2013 did not spill over to
the labour market. The number of registered employed continued to fall and
registered unemployment crept up. Since September last year, gross and net
wages have been declining in real terms. In the first seven months of 2013,
real wages fell by 4.3% on average. Departing from regular indexation rules,
due to the difficult economic situation, the government increased wages in the
public sector by 2% in October and April although, at 11% of GDP in 2012, total
government spending on wages and salaries remains relatively high. Overall,
unemployment is very high and sustainable employment creation represents a
major challenge. Labour market rigidities are significant.

The monetary policy framework remained unchanged and the
National Bank of Serbia reconfirmed its commitment to inflation targeting. In
November, parliament passed amendments to the Law on the National Bank, which
aimed at correcting some of the amendments of August 2012, which had undermined
the independence of the central bank. Until April, annual inflation remained at
double-digit levels, spurred by a legacy from 2012 of depreciating currency,
hikes in indirect taxes and high food prices, and the inflation target (4% ±1.5
percentage points) was missed by a wide margin. However, since November monthly
inflation rates have come down, averaging 0.2% in the period until August, due
to weak domestic demand, mostly stable exchange rate and delayed adjustments in
administered prices. These factors, along with base effects and food price
moderation because of better agricultural season, supported rapid disinflation
over the summer and inflation fell to 7.3% in August.

The central bank responded to the elevated inflation by
tightening its stance, raising the key interest rate in every month from
September (10.5%) to February (11.75%). As inflationary pressures started
dissipating, in May the bank lowered its key rate by half a percentage point,
to 11.25%, followed by another cut to 11.00% in June. Reduced political risks,
improving external accounts and tighter monetary policy have broadly stabilised
the exchange rate. From September to April, the dinar appreciated vis-à-vis the
euro by around 4% and, although this trend was reversed in early June, by early
September 2013 the dinar was still stronger than a year ago. The central bank
continued interventions to smoothen excessive daily volatility on the foreign
exchange market. In view of the high degree of euroisation of the economy and
significant pass‑through effects on inflation, the relatively stable exchange
rate played a significant role in stabilising inflation. Overall,
inflationary pressures have receded, helped by a stronger dinar, subdued
domestic demand and a better agricultural season. However, inflation remains
inherently volatile, heavily dependent on unstable food prices and exchange
rate fluctuations.

In 2012, an election year, budget expenditures went
off-track across almost all major categories, reaching their highest level in
years. Most importantly, previous small gains in expenditure consolidation, in
particular in compensation of employees, subsidies and pensions, have been
wiped out. In a revised budget, adopted in September 2012, the new government
took a number of consolidation measures, mostly on the revenue side.
Nevertheless, the deficit overshot by far the initial target of 4.25% and
reached 6.4% of GDP and was even higher if expenditure on bank
recapitalisations and called guarantees are taken into account.

Building on the measures adopted in the autumn, the 2013
budget envisaged a sharp deficit reduction to 3.6% of GDP. However, tax revenue
underperformed from the beginning of the year, putting this target beyond
reach. By the end of April, the general government deficit stood at 46% of the
planned for the year. The higher than expected deficit prompted another round
of measures in May and led to a full budget revision, adopted by the parliament
in July. The May measures were mainly on the revenue side and included a
reduction of the wage tax and increases of employees’ social security
contribution and of the property tax base. The July revision raised the annual
deficit target from 3.6% to an estimated 5.3% of GDP. It envisaged cuts in
ministries’ expenditure allocations, fixed indexation of wages and salaries by
0.5% in October 2013 and increases in some outlays. The government also adopted
a public sector reform programme, including an action plan to finalise
enterprise restructuring by mid-2014. By the end of August, total revenue
declined by 4.1%, while public expenditure have been kept largely in check and
declined by 5.8% in real terms. However, quasi-fiscal expenditure, related to
bank recapitalisations and payments on called guarantees, have been
significant, undermining budget transparency and weighing heavily on public
finances. Overall, a series of measures, mostly on the revenue side,
failed to deliver the expected reduction of the deficit. Expenditure
inefficiencies and the high level of spending on wages and pensions still need
to be addressed in a systematic way.

Fiscal rules were breached and government debt
significantly exceeded the 45% of GDP limit, reaching close to 60% in 2012. In
line with legislative requirements, the government presented a programme of
reducing government debt, according to which, and in a rather optimistic
scenario, it will take until 2020 until the debt falls again below the 45%
threshold. In 2013, the high budget deficit and new government borrowing
continued to push the debt up. Since the beginning of the year,
government-guaranteed debt and called guarantees have also increased,
reflecting continued government support of loss-making public enterprises.
Taking advantage of the favourable international environment and declining
interest rates on the domestic government bonds market, in April the government
prepaid some €330 million of its obligations towards the
London Club. Interest payments to service the debt went up by 55% to 2.0% of
GDP in 2012 and increased further in 2013. Overall, the adoption and
implementation of a credible medium-term fiscal adjustment programme, backed by
systemic reforms of the public sector to restore fiscal sustainability and stem
further rise in the government debt, is urgently needed.

Recent fiscal consolidation efforts have been mainly on the
revenue side where the space for further measures has been largely exhausted,
with the exception of decreasing costly tax expenditures and improving
collection. Some small steps have been taken to reduce and restructure current
expenditure and to tackle spending inefficiencies but the big and unreformed
public sector remains a significant drain on the budget. High export growth has
softened the effects of depressed domestic demand and reduced external
imbalances, relieving some of the depreciating pressures on the dinar.
Inflation decelerated but monetary policy continues to be restricted by
unstable food prices, irregular administered price adjustments and the high
degree of euroisation of the economy. Overall, achieving a proper policy
mix is still a challenge. Revenue‑based fiscal adjustment has largely reached
its limits and monetary policy efficiency remains constrained.

Interplay of market forces

Due to changes in consumer prices’ basket, the proportion
of administered prices fell by 2 percentage points to 20%. Since the beginning
of the year, gas prices were adjusted twice, while a planned electricity price
increase was postponed several times until August, when the price was raised on
average by 11.3% (10.9% for households). As of 2013, the electricity and gas
markets have been liberalised for big consumers connected to the transmission
network which need to buy energy at strictly market prices. The government
continued to control prices of some public utilities indirectly by setting a
limit on increases in the prices of communal and public city transport services
which are under the control of the local authorities. In November, the
government adopted new criteria for wholesale and retail price formation for
medicines for human consumption issued on prescription. The government decree
which capped retail margins at 10% for basic foodstuffs expired at the end of
2012. Overall, price liberalisation has advanced but state control over
prices remains significant.

The state holds predominant stakes in major sectors such as
energy, transport and telecommunications. Some legislative efforts were made to
improve the operation of public companies, which continued to be poorly
managed, largely overstaffed and loss making. A law on public companies was
adopted, setting criteria and delineating a procedure for the appointment of
companies’ management. The government continued to provide state guarantees for
liquidity loans to major companies and ‘ad hoc’ subsidies to selected
manufacturing state-owned enterprises to cover capital investment in
modernising their equipment. Some of the large state-owned companies have been
tendered (unsuccessfully) for privatisation or are in the process of setting up
strategic partnerships with foreign investors. In April, with significant
support from the state, the government partially re-started production in the
loss-making steel mill in Smederevo.

In order to revive the privatisation of socially owned
enterprises, the Law on Privatisation was amended in December 2012, enabling
creditors’ forced collection of their claims against entities subject to
privatisation after 30 June 2014. An action plan to restructure 179 of these
companies was adopted in June, with a view to privatising the viable ones
(fully or partially) and selling off assets and initiating bankruptcy
procedures for those enterprises that have no market prospects. In line with
the plan, a bankruptcy procedure for 26 enterprises has already been initiated.
Overall, some steps have been taken to revive the privatisation process,
especially regarding enterprises undergoing restructuring. The state presence
in the economy remains significant and state-owned companies continued to
accumulate losses.

Market entry and exit

The introduction of the ‘one-stop shop’ business
registration system in 2009 has significantly improved the efficiency and speed
of the registration procedure. As of October 2012, the fee for obtaining a
company registration code, assigned by the Statistical Office, was abolished.
However, market entry is still hampered by lengthy and costly procedures for
granting various permits, notably construction permits. With amendments to the
Law on Planning and Construction, adopted in late December, the requirement for
converting use rights into ownership rights in order to receive a construction
permit, for land obtained through privatisation, was abolished for one year. In
May, the Constitutional Court suspended the execution of this provision until
determining its constitutionality. In the first half of 2013, the number of
companies with blocked accounts reached 44.7 thousand, marking a drop of around
25% since September. Overall, red tape and difficulties in obtaining
construction permits continue to be important obstacles for business expansion.

Legal system

While the legal basis has developed further, the implementation
of laws needs to be seriously strengthened. The uneven and slow enforcement of
laws has an impact on the cost of doing business. The backlog in the courts is
still substantial and companies — aware of the limitations of the system —
often avoid using the courts as a legal solution to their problems. Enforcement
of restitution legislation, which is expected to improve legal clarity over
real estate ownership, is ongoing. By August 2013, about 25% of all submitted
claims were resolved. A new Law on
Public Procurement, increasing transparency and including measures to prevent
corruption and conflicts of interest, was adopted in December. The informal economy remains strong and is a
major hindrance to fair competition and business development. Corruption harms
the business environment, although the fight against it has intensified. Overall,
legal predictability and enforcement of court decisions remain weak. Some
progress has been made in improving property rights. Further concrete steps should be taken swiftly to improve the business environment.

Financial sector development

Part of the banking system has been under stress, which has
prompted state intervention, costly recapitalisations and consolidation of
state-owned banks. In October, parliament passed a law allowing assets and
liabilities from problematic state-owned banks to be transferred to viable
banks. On this basis, the cases of two troubled banks (Agrobanka and
Development Bank of Vojvodina) have been resolved with unlimited coverage of deposits.
Further steps in bank consolidation were made when Telenor Serbia, a major
telecom operator in the country, took over the local KBC Banka, while Société
Générale Bank assumed KBC’s clients and portfolio. A total of 31 banks were
operating in mid-2013 — two less than a year earlier. The banking sector
continued to dominate the financial system, accounting for 93% of total assets
in 2012. Within the banking sector, foreign-owned banks are preponderant. As of
June, there were 21 foreign banks, accounting for three quarters of the assets,
almost 80% of lending and 70% of all bank deposits. There were also seven banks
controlled by the state and only three small private banks. Financial
intermediation remained broadly unchanged and banking sector assets amounted to
91.8% of GDP by the end of 2012.

Capital adequacy indicators improved and the regulatory
capital to risk-weighted assets of the system stood at 20.2% in June, well
above the required minimum of 12%. The level of Euroisation remained high, with
about 81% of deposits and 72% of households and enterprises loans denominated
in or linked to foreign currency. Lending activity decelerated significantly
and, excluding the exchange rate effect, domestic lending growth fell to 1% in
June. Corporate loans declined the most, especially after subsidised lending
was suspended due to exhaustion of funds, while household lending increased
only marginally. Commercial banks opted for low-risk investments, increasing
their holdings at the central bank and reducing external liabilities. A weak
labour market and falling incomes have undermined the growth of non-monetary
sector deposits, which has steadily decelerated. The quality of the loan
portfolio worsened, mainly in its corporate sector segment, and the gross non-performing
loans ratio reached 19.9% in June. In December, the central bank amended its
Decisions on Risk Management and on the Classification of Bank Balance Sheet
Assets and Off-balance Sheet Items with the aim of facilitating the resolution
of accumulated non-performing loans. Following the closure of Agrobanka, which
had made significant losses, bank profitability improved. Still, a number of
small banks, holding a combined market share of around 15%, continued to run
losses. Overall, banking sector capitalisation and liquidity indicators
remained strong. However, credit growth stagnated, non-performing loans are
high and vulnerabilities need to be addressed.

The main index of the Belgrade Stock Exchange BelexLine has
increased by 28% (from September) by early April, before losing more than half
of this gain during the summer. The insurance sector remains underdeveloped,
with a ratio of total premiums to GDP at 1.8% and per capita premiums of about €75.
The sector is dominated by non-life insurance, which accounted for 80.7% of
total premiums. The number of insurance companies remained unchanged at 28, of
which 24 were engaged exclusively in insurance business and 4 in reinsurance. Most of the companies (21) were under majority foreign ownership and they
dominated the market with a share of 90.8% in life premiums, 57.6% in non-life
premiums, 68.8% in total assets and 65.5% in employment. The insurance sector’s
share of total financial sector assets increased slightly, to 4.5% in 2012. The
assets controlled by voluntary pension funds have increased but are still
marginal at 0.5% of GDP, while the importance and operations of leasing
companies continued to decline. Overall, the non-banking financial
sector remains underdeveloped.

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

Existence of a functioning market economy

State presence in the economy remains significant, while
the private sector is weak and unprotected as the rule of law is not systematically observed. Economic
reforms have progressed slowly. Domestic and external deficits remain high and
there are significant structural rigidities and obstacles to growth. Overall, the
functioning of market mechanisms remains hampered by distortions and legal
uncertainty.

Human and physical capital

The gap between supply and demand of skilled workforce
remains and the education system continues to educate a workforce that does not
necessarily correspond to the needs of the economy. As a consequence, the main
features of the labour market are high unemployment of people with lower and
intermediate education, and high long-term and youth unemployment. In October
2012, the government adopted an education strategy, which envisages a number of
measures to improve the quality of education at all levels by 2020. However,
action plans for implementing the strategy have so far not been drafted and
funding is constrained by the need to pursue expenditure-based fiscal
consolidation. Active labour market programmes remain underfunded and do not seriously
address youth and long-term unemployment. Overall, the education
strategy is ambitious but its implementation is a challenge.

Serbia continues to need significant investment to improve
and upgrade its physical infrastructure, which has been neglected for many
years. Government investment increased to 3.7% of GDP in 2012 but remains low
and declined by 37% in real terms in the first eight months of 2013. Works on
major transport corridors are progressing slowly, delayed in part by land
expropriation issues, overlapping competencies of different institutions and
lack of project documentation. Energy efficiency continues to be low and energy
infrastructure, in particular electricity generation and distribution, needs
further investment. Steps have been taken to secure foreign financing for big
infrastructure projects in the transport and energy sectors, which may help to
speed up work on strategically important projects. Greenfield foreign direct
investment (FDI) has been marginal, despite continued provision of costly
government subsidies. Overall, the physical infrastructure needs
substantial investment. Government investment is constrained by the tight
financial conditions and the urgent need of further fiscal consolidation.
Securing financing for large transport and energy projects need to be in line
with public debt sustainability.

Sectoral and enterprise structure

Following particularly bad weather in the winter and a
drought in the summer, in 2012 the value added in agriculture declined by 17%
and its share of gross value added dropped to 10.4% from 10.8% a year earlier.
Industry’s share also fell, from 29.3% to 28.7%, while services increased their
share to 61% of GDP. Employment remained roughly unchanged across the sectors.
The informal sector, driven by labour law rigidities and taking advantage of
weaknesses in tax and expenditure policies and in law enforcement, remained
significant. Overall, the economy is dominated by services, although
agriculture’s share remains high. The informal sector is a significant
challenge.

State influence on competitiveness

State aid reported in 2012 was 7% higher than in 2011,
representing 2.6% of GDP. Of the total state aid granted in 2012, 35.8% was
regional aid, 13.6% was in the form of other horizontal aid, 22% was sectoral
aid, and 28.6% went to agriculture. There was very little aid given to training
and to research and development. Most of the aid was given in subsidies (close
to 60%) or as tax incentives (32.6% of total). State-controlled, monopolistic
structures remain in a large number of sectors and the state continued to
subsidise heavily the transport sector, which received almost a fifth of all
aid. State aid control needs to be enforced consistently and the exemption from
state aid rules given to enterprises that are being privatised still needs to
be abolished. New state aid measures need to be systematically notified before
being put into force. The Commission for State Aid Control still has to
demonstrate its independence through ex post controls and use of the provision
on recovery of unlawful state aid. Overall, the state continues to
substantially influence competitiveness by providing significant and
wide-ranging forms of state aid.

Economic integration with the EU

The EU remains Serbia’s
main trading partner, accounting for 58.1% of its total exports and 58.2% of
its imports in 2012. Shares of both Serbia’s exports to the EU and imports from
the EU have increased slightly in comparison to 2011. Serbia’s exports to the
EU have grown faster than its imports, resulting in an increase in the export
to import ratio vis-à-vis the EU from 48% in 2009 to 60% in 2012. The CEFTA
countries accounted for 32.4% of total exports and 10.4% of total imports in
2012. The share of net FDI inflows from the EU in total net FDI inflows stood
at 64% in 2012. The average real gross wage growth was 1% in 2012, while
average labour productivity growth was negative, translating into an increase
in real unit labour costs. In real effective terms (deflated by inflation), the
dinar depreciated on average by 7.7% in 2012. However, the depreciating trend
was turned around in August 2012 and by August 2013 the dinar strengthened by
10.4%. Overall, trade integration with the EU remained high.

4.
Ability to take on the obligations of
membership

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

4.1.
Chapter 1: Free movement of
goods

There were no
developments regarding the general
principles.

As regards horizontal measures, Serbia has further
aligned legislation with the EU acquis by adopting the remaining
implementing legislation on metrology in January. Staffing levels in the ministry in charge of horizontal
coordination remain to be strengthened.

In the area of standardisation,
the Institute for Standardisation of Serbia (ISS) has adopted almost 94% of the
European standards (ENs) required for membership of the European Committee for
Standardisation (CEN) and the European Committee for Electrotechnical
Standardisation (CENELEC). Serbia has not yet applied for membership of
CEN and CENELEC. The total number of EU standards and other deliverables
applied nationally stood at 21 191, including 14 912 CEN
standards, 5 963 CENELEC standards and 316 European
Telecommunications Standards Institute (ETSI) standards. The number of
conflicting Serbian standards and related documents withdrawn was 10 779. The ISS currently has 215 active technical committees.
The Institute has 66 full-time employees, making its overall administrative
capacity adequate.

In the area of conformity
assessment, a number of conformity assessment bodies have been designated
in accordance with the relevant EU Directives: 7 for the Machinery Directive, 4
for the Low Voltage Directive, 4 for the Electromagnetic Compatibility
Directive, 7 for the Lift Directive, 8 for the Pressure Equipment Directive,
and one for the Radio and Telecommunications Terminal Equipment Directive.

In the field of accreditation,
the Accreditation Body of Serbia (ABS) signed the International Laboratory
Accreditation Co-operation (ILAC) Mutual Recognition Agreement for the field of
calibration, testing, and inspection, and the International Accreditation Forum
(IAF) Multilateral Agreement for product certification fields. New fields of
accreditation were established for several New Approach Directives. For the
first time a national certification body was recognised by the European
Commission (EC), a body performing certification of organic products in line
with the acquis, allowing Serbia to freely export and place its organic
products on the EU market. By June, the ABS had granted accreditation to 535
bodies, including 313 testing, 53 calibration, and 9 medical laboratories, and
125 inspection bodies, plus 21 certification bodies for products, 9 for
management systems and 2 for persons. Staffing levels of the ABS remain
insufficient to handle these new tasks.

In the area of metrology, the Directorate for
Measurements and Precious Metals became a contact member of EURACHEM and Serbia
was included in EURAMET’s Metrology Programme for Innovation and Research
(EMPIR) for the first time. 23 rulebooks for the implementation of the framework
law have been adopted. Overall, the administrative capacity of the Directorate
is sufficient.

In the area of market surveillance, after a period
of low activity, the Product Safety Council restarted its regular operations in
January, to include representatives of relevant groups. Inter-institutional
co-operation and co-operation with the civil society sector, businesses and
academia has improved. The administrative capacity of the joint body for
surveillance of chemicals and biocidal products needs to be reinforced.

In the field of ‘Old Approach’ product legislation,
Serbia has aligned its legislation with the acquis on pre-packaging and
units for measurements. It has yet to align its legislation with the acquis in
a number of areas, including emissions of pollutants from non-road engines,
crystal glass, textiles and footwear.

As regards ‘New and Global Approach’ product legislation,
Serbia has adopted legislation and aligned its legislation to the relevant
directives in the field of personal protective equipment, equipment in the
potential explosive atmosphere (ATEX Directive), noise emissions from outdoor
equipment, and non-automatic weighing instruments (NAWI Directive). It has
updated the list of standards in the field of electromagnetic compatibility,
machinery safety, low voltage electrical equipment and general product safety,
non-automatic weighing instruments, and radio and telecommunications terminal
equipment. However, further alignment is needed inter alia in the areas
of construction products, cableway installations, recreational craft,
cosmetics, and toy safety.

As regards procedural measures, the law on dual use
of goods remains to be adopted. Serbian law has yet to be aligned with the acquis
on civil firearms as well as the return of cultural objects unlawfully
removed from the territory of an EU Member State.

Conclusion

Progress was made in
the area of free movement of goods. Serbia continued with the alignment of
horizontal legislation. 94% of EU standards have been adopted. The Serbian
accreditation body signed additional Multilateral Agreements and Mutual
Recognition Agreements, while the Directorate for Measures and Precious Metals
was admitted to EURACHEM. Stronger emphasis needs to be put on administrative
capacity and coordination between institutions. Overall, preparations in the
area of free movement of goods are moderately advanced.

4.2.
Chapter 2: Freedom of
movement for workers

In
the area of access to the labour market, the Law on Employment of
Foreigners has yet to be adopted by the parliament.

Objectives were defined
by the National Employment Service in preparation for Serbia’s participation in
the EURES (European Employment Services) network. The National
Employment Service’s vacancy database is incomplete, as there is no obligation
on employers to register all vacancies centrally.

As regards coordination
of social security systems, bilateral agreements with Austria,
Bulgaria and Slovakia entered into force. The electronic system of exchange of
information among former Yugoslav republics remains limited, operating only
with Slovenia. Due to limited public administration resources, the capacity of
the social security institutions still needs strengthening.

Preparations as regards
the European Health Insurance Card have not started yet.

Conclusion

Little progress was
made in the area of freedom of movement of workers, apart from preparations for
participation in EURES. Overall, preparations in this area are moderately
advanced.

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

There
were no developments in the area of the right of establishment.

As regards the freedom
to provide cross-border services, a general law aligning Serbian
legislation with the Services Directive needs to be adopted. The capacity of
departments dealing with the service sector needs strengthening.

In the field of postal services, the postal strategy
for 2013-2016 was adopted in April. The administrative capacity of the postal
regulator (RAPUS) is now sufficient. The administrative capacity of the line
ministry’s inspectorate is weak, so quality monitoring is inadequate. The
public postal operator has modernised its operational processes but the sector
has not yet been corporatized.

Legislation on mutual recognition of professional
qualifications has yet to be adopted.

Conclusion

Little progress was
made in the area of the right of establishment and freedom to provide services.
Efforts to further align the legislation with the acquis and to improve
administrative capacity in this field are needed. Overall, in the area of the
right of establishment and freedom to provide services, preparations are
moderately advanced.

4.4.
Chapter 4: Free movement of
capital

In
the area of capital movements and payments, amendments to the Law on
Foreign Exchange Operations were adopted in December. The amendments further
liberalise capital transactions, for both natural and legal persons.
Limitations still exist regarding short-term capital transactions, while
deposits by residents continue to be partially liberalised. Long-term capital
transactions are fully liberalised. Restrictions on the acquisition of real
estate, especially agricultural land, remain.

Serbian legislation on payment
systems still needs to be aligned with the acquis.

As regards the fight
against money laundering, Serbia initiated the National Risk Assessment
process. The Agency for Prevention of Money Laundering
(APML) signed memoranda of understanding (MoU) with Argentina, Andorra, Panama,
Denmark and Portugal, bringing the total number of signed MoUs to 42. The APML
does not have adequate business premises, which complicates the recruitment of
additional staff and the establishment of a training centre.

Conclusion

There was limited
progress in the area of capital movements. Serbia needs to make further efforts
to align its legislation with the acquis for short-term capital
movements, real estate and payment systems. Overall, alignment in the area of
the free movement of capital is moderately advanced.

4.5.
Chapter 5: Public
procurement

In
the field of general principles, a new Law on Public Procurement was
adopted in December and entered into force in April. It provides for further
alignment with the acquis. It introduces provisions for the prevention
of corruption and conflicts of interest and aims to improve the transparency
and integrity of the public procurement system. It strengthens the powers of
Public Procurement Office (PPO) and the Republic Commission for the Protection
of Rights in Public Procurement Procedures (‘Republic Commission’). The PPO
adopted five rulebooks for the implementation of the new law in March. It also
published nine standard model documents and one set of guidelines in July to
facilitate the new procurement practice. The public procurement portal was
upgraded and the Common Procurement Vocabulary was adopted. The national
strategy and action plan for upgrading the public procurement system need to be
aligned with the new law. Two implementing decrees for the Law on Public
Private Partnerships (PPPs) and Concessions were adopted.

As regards the award of
public contracts, the PPO notes a decreasing trend in irregularities in the
use of the negotiated procedure for the first quarter of 2013. The PPO is
recruiting eight new employees, but further reinforcement of its administrative
capacity is needed. The Budgetary Inspectorate of the Ministry of Economy and
Finance took action against irregularities in public procurement procedures
worth €17 million. Its administrative capacity needs to be strengthened. In the
area of PPPs and concessions, three projects of a mainly concessionary nature
and two PPP projects were approved by the PPP Commission (CPPP). The
administrative capacity of the CPPP remains limited. Institutional co-operation
on public procurement, including audit and judicial institutions, is improving,
notably between the PPO, the Republic Commission and the State Audit
Institution, but still needs to be strengthened. In general, tendering
authorities do not take appropriate action often enough in cases of established
misuse of public money.

In the field of remedies,
new members of the Republic Commission were appointed by the parliament in
March in line with the new Law on Public Procurement. A new organisational
structure and rules of procedure were adopted in July. The number of cases
received by the Republic Commission increased by 23% in 2012, and the number of
cases solved increased by 31%. It has continued to actively monitor the
implementation of its decisions. It has continued to build up its
administrative and enforcement capacity to a total of 40 employees. The
Republic Commission still needs to build its credibility and a solid
enforcement record, by further ensuring that its decisions are implemented.

Conclusion

There has been good
progress in the field of public procurement. The new Law on Public Procurement
further aligns the legislation with the acquis and improves public
procurement procedures. The capacities in this area and in particular of the
PPO remain insufficient. Effective coordination between the main stakeholders
needs to be ensured. Overall, alignment in the area of public procurement is
moderately advanced.

4.6.
Chapter 6: Company law

In
the area of company law, the Business Registers Agency published
founding acts and statutes as required in the Law on Economic Entities. The
Agency started running the register of chambers of commerce in January. The
electronic registration process is still not operational.

In the areas of corporate
accounting and auditing, the Law on Accounting adopted in July
aims to ensure further implementation of the Fourth and the Seventh Company Law
Directives. The Law on Auditing adopted in July further harmonises national
legislation with the Eight Company Law Directive.

Conclusion

Progress was made in
the area of company law. In the field of corporate accounting and auditing, two
new laws were adopted, in order to achieve further alignment with the acquis
in this area. Overall, alignment in the area of corporate law is
well advanced.

4.7.
Chapter 7: Intellectual
property law

In
the area of copyright and neighbouring rights, certain amendments to the
law on intellectual property rights, adopted in December, are not in line with
the acquis. These provisions need to be harmonised no later than five
years after entry into force of the Interim Agreement. A new Law on the
Protection of Topographies of Semiconductor Products was adopted in June and
further aligns the Serbian legislation with the acquis. The
Commission for Copyright and Related Rights was abolished and its
responsibilities were transferred to the Intellectual Property Office (IPO).
The IPO needs additional capacity to cover these new responsibilities.

In the field of industrial
property rights, in January, the Law on Trademarks was amended to further
align with the acquis and Serbia became a member of the International
Union for the Protection of New Varieties of Plants (UPOV).

In the field of enforcement,
the IPO conducted a large number of training events for government enforcement
agencies and SMEs. The customs administration introduced a web application for
electronic exchange of information with right holders. Seizures of counterfeit
goods decreased over the reporting period. The Tax Administration increased the
number of checks by 74% in 2012. They showed that the use of illegal software
has decreased in Serbia. The Market Inspectorate of the Ministry of Trade and
Telecommunications received an increased number of requests and confiscated
more goods for the whole year 2012.

Full alignment with the
enforcement directive needs to be ensured. There is still no formal
coordination mechanism between the institutions in charge of IPR protection.
Implementation of the national IPR strategy and action plan 2011-2015 has been
delayed. No solution has yet been found to the issue of the IPO’s long-term
financial sustainability. The participation of economic operators and consumers
in the prevention of counterfeiting and piracy remains limited. Specialisation
of prosecutors, judges and court panels to handle IPR cases remains to be
ensured.

Conclusion

Limited progress was
made in the area of intellectual property law. Enforcement was improved,
although formal coordination between stakeholders and effective implementation
of the national IPR strategy remain to be ensured. The changes to the law on
copyright regarding fee collection and exemptions constitute a step backwards
in alignment to the EU acquis. Overall, alignment in the area of
intellectual property law is advanced.

4.8.
Chapter 8: Competition
policy

In the field of anti-trust and mergers,
the CPC adopted four decisions on restrictive agreements, one decision on abuse
of dominance, and 62 decisions on mergers in summary procedure, and it carried
out three investigation procedures on mergers that were conditionally approved.
Six CPC decisions were partially or fully confirmed by the courts while two
were overturned. The CPC resumed its sector analysis of the oil market in 2012
and continued its analysis of the milk sector. The CPC signed a memorandum of
understanding with its Russian counterpart.

Conflicting legislation, limiting the scope and
effectiveness of competition law, notably on price regulation, has been adopted
without prior consultation of the CPC. The CPC’s financial plan for 2013 is
still awaiting government approval. With 30 employees, the CPC’s capacity
remains insufficient. The capacity of the judiciary to assess complex
competition cases needs to be strengthened. Competition advocacy needs to be
stepped up.

In the area of state
aid, the Commission for State Aid Control (CSAC) adopted 111 decisions,
including 41 conclusions initiating ex-post control, compared to 148
decisions over the previous period. The majority of the existing state
aid schemes, including the fiscal aid schemes, still need to be aligned with
the acquis. The rules on aid to the provision of services of general
economic interest need to be aligned with the acquis. An effective
mechanism must be implemented to ensure the respect of the de minimis
aid threshold and of cumulation rules. The exemption from state aid rules for
companies in the process of being privatised needs to be repealed. The CSAS
needs to demonstrate its operational independence, particularly from state aid
granting bodies. Further efforts are needed to ensure that aid measures are
notified to the CSAC and approved before being granted. A decree subsidising
the sale of cars produced in Serbia was adopted in March without the CSAS being
notified or approving it. It was incompatible with the Interim Agreement and
with the acquis and was subsequently repealed.

Concerning liberalisation
of specific sectors, a number of Serbian undertakings continue to enjoy special
or exclusive rights, de facto or de jure, e.g. in the fields of
transport, infrastructure, postal services, telecommunication services,
broadcasting, agriculture, the environment and, to some extent, energy.
Additional efforts need to be made to move towards market liberalisation in
line with the acquis.

Conclusion

No progress was made in
the area of competition. Serbia’s record on ex ante notifications of
state aid measures needs to be improved. The legislation on state aid control
must be aligned with the acquis and applied to all undertakings, including
those in the process of being privatised. In both anti-trust and state aid
fields, additional advocacy measures are needed. Overall, alignment in the area
of competition policy is moderately advanced.

4.9.
Chapter 9: Financial
services

In the area of banks
and financial conglomerates, some measures were adopted to address the
issues of non-performing loans and bank restructuring. In October, the Law on
Takeover of Assets and Liabilities of Certain Banks, aimed at maintaining the
stability of the financial system, was adopted. The National Bank of Serbia
(NBS) adopted decisions on risk management by banks, on bank capital adequacy
and on classification of assets. The capacity of the NBS’ newly created
Administration for Supervision of Financial Institutions was increased. Full
implementation of the Basel II standards has yet to be achieved. The NBS has
postponed the adoption of its own strategy for the full implementation of Basel
III standards; however, some elements of these standards have already been introduced.
Alignment with the latest acquis on deposit guarantees remains to be
achieved.

In the area of insurance
and occupational pensions, the NBS has continued to supervise insurance
companies and has increased the number of on-site controls. Alignment with the
Solvency II directive has yet to be achieved. There have been no changes in
legislation relating to occupational pension funds.

There were no
developments in the area of financial market infrastructure.

In the area of the securities
market and investment services, the by-laws adopted by the Securities
Commission in 2012 have been implemented. There has been no further alignment with the acquis
on rating agencies or on undertakings for collective investment in transferable
securities (UCITS).

Conclusion

Some progress was made in the area of financial services.
Steps were taken to address the issue of non-performing loans and bank
restructuring. Additional efforts are needed, e.g. to align Serbia’s rules with
the requirements of Basel III and the Solvency II and UCITS directives.
Overall, alignment in the area of financial services is moderately advanced.

4.10.
Chapter 10: Information
society and media

As regards electronic communications and information and
communications technology (ICT), an annual action plan (2013-2014) to
implement the 2010-2020 e-communications strategy was adopted in March. In
October a frequency allocation plan was adopted, allowing the use of the 900
and 1 800 MHz bands for e-communications on a
technology neutral basis that enables deployment of new wireless broadband
services. The fixed broadband penetration rate increased to 13.5% of the
population according to the latest available data, which is low compared to the
EU average of 28.2%. The penetration rate of mobile services, including 3G,
exceeds the EU average, while mobile broadband is still low at 3.5%, below the
EU average of 8.8%. Serbia still needs to fully align with the 2009 EU
regulatory framework. The amendments made to the budget law and the law on
public sector salaries in September 2012 have had an impact on the National
Regulatory Agency’s (RATEL) operational independence and its ability to recruit
and retain competent staff. Competitive
safeguards need to be fully implemented, notably in the fixed telephony market.
Implementation of fixed number portability has been postponed. The emergency number 112 has yet to be
introduced.

In September, Serbia and Kosovo reached an agreement on
telecommunications under the EU-facilitated Dialogue. The agreement provides
for Telekom Srbija to operate legally in Kosovo until 2015. It also provides
for Kosovo being allocated a 3-digit Dial Code from the International
Telecommunications Union as of 2015.

In the field of information society services, an
action plan for 2013-2014 for the information society strategy 2010-2020 was
adopted in August and a working group was set up in March to develop a national
broadband network. Further alignment with conditional access and EU legislation
on e-commerce is needed. The administrative and inspectorate capacity of the
line ministry and its units responsible for ICT and digital administration
remains insufficient. Overall IT capacity needs to be strengthened, especially
at local level.

As regards audiovisual policy, the implementation of
the Media Strategy, aimed at alignment with the EU acquis in this area,
has not progressed. The digital switchover needs to be handled efficiently to
meet the June 2015 deadline. Provisions allowing media financing from the state
budget need to be brought into line with the EU acquis on state aid.

Conclusion

Some progress was made in the area of information society
and media with the adoption of several action plans implementing the
information society and respectively e-communications strategies. The legislative
framework needs to be further aligned with the acquis and competitive
safeguards in electronic communications need to be fully implemented. The issue
of the telecom regulator’s budgetary and operational independence raises
concerns. Media strategy implementation needs to step up. Serbia needs to
implement its commitments made in the agreement on telecommunications reached
with Kosovo. Overall, alignment with the acquis in the area of
information society and media remains moderately advanced.

4.11.
Chapter 11: Agriculture and
rural development

As regards horizontal issues, the law on
agricultural and rural development subsidies was adopted in January providing
for production-linked payments, quality premiums and rural development
measures. The law introduced an acquis-like instrument of cross
compliance but support measures coupled to production are not in line with the acquis.
The agricultural census — the first in 50 years — was completed and preliminary
results were published in January. Administrative capacity for the Farm
Accountancy Data Network continues to be developed. The number of participating
holdings increased from 42 to 173. A strategy for Agricultural and Rural
Development has yet to be adopted. Administrative capacity needs to be
strengthened, particularly vacant senior level positions in the agricultural
administration affecting the quality and pace of decision-making. An Integrated
Administration and Control System (IACS) has yet to be established.

As regards alignment
with the acquis in the area of common market organisation, the
legal basis for the system
of geographical indications has been established in the wine sector. Over 1 600
vineyard parcels with a surface of some 1.400 ha have been entered in the
vineyard register. The capacity of
the administration in charge of the wine market organisation requires further
strengthening. A draft law on spirit drinks needs to be further aligned with
the acquis before adoption.

In the area of rural development, the operating
structures for the IPA rural development programme are being developed.
However, capacity must be strengthened at the Managing Authority, the future
Paying Agency, and the Audit Authority in order to continue the development of
the management and control system. Strong links with stakeholders through the
extension service and rural finance institutions have yet to be put in place.

As regards quality policy, a system of labelling and control of agricultural farm
products and foodstuffs with Protected Designation of Origin and Protected
Geographical Indication is being established. In the area of organic farming, the national action
plan for the development of the organic sector in Serbia has yet to be adopted.

Conclusion

Some progress has been
made in the area of agriculture and rural development. The law on agricultural
and rural development subsidies provides for a clearer and more predictable
planning framework for rural operators. However, the Agricultural and Rural
Development Strategy has yet to be adopted and additional capacity building is
required to ensure future implementation of the IPA rural development
programme. Overall, in the area of agriculture and rural development, alignment
with the acquis remains at an early stage.

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

In the field of general
food safety principles, the aflatoxins crisis highlighted the shortcomings
of the Serbian food and feed safety system, in particular the lack of a
well-established national reference laboratory. To address this, a working
group was established to prepare the necessary legal provisions. The
National Reference Laboratories Directorate in the Ministry of
Agriculture is still severely understaffed and unable to perform its duties.
Most of the laboratories’ staff are administrative staff. Regarding food
safety rules and specific rules for feed, a rulebook on a rapid
alert system for food and feed was adopted in June.

As regards alignment
with and implementation of the acquis in the field of veterinary
policy, the new campaign for oral vaccination of foxes against rabies
finished successfully. Rabies cases in animals have decreased significantly,
with only 19 being registered in 2012 and only 4 being registered in the first
half of 2013. A system of registration of holdings of bees has been established
and over 300 000 beehives have been registered. The system of
registration of the movement of sheep and goats needs to be finalised. No new
developments took place regarding the registration of cattle.

As regards the placing
on the market of food, feed and animal by-products, the new hygiene rules
for food and feed establishments are partly aligned with the acquis. A
new national monitoring and control programme on food and feed safety is being
prepared. Serbia still needs to adopt a programme on upgrading
establishments. The national system for the management of animal by-products
remains weak and needs to be upgraded in order to comply with EU requirements.

In the area of phytosanitary
policy, a plant passport system was established and registration of
operators has started. The specific procedures for border phytosanitary
inspections were revised. However, the country’s phytosanitary procedures need
to be further aligned with the acquis. In February, a rulebook was
published setting out the annual programme for post-registration control of
residues of plant protection products in food of plant and animal origin. A
pesticide residues monitoring programme for 2013 has been adopted. The
procedure for registering new plant protection products needs to be further
aligned with the acquis. A new rulebook on detailed conditions for
variety testing was adopted in October. In January, Serbia became a full member
of the International Union for the Protection of New Varieties of Plants. The Phytosanitary
Laboratory remains the weakest part of the National Reference Laboratories
Directorate and its capacity needs to be strengthened.

As regards genetically
modified organisms (GMOs), the GMO Law has not been aligned with EU
legislation. This remains the key condition for Serbia to become a WTO member.

Conclusion

There has been little
progress in the area of food safety, veterinary and phytosanitary policy,
mainly limited to the veterinary field. A reliable system of national reference
laboratories needs to be set up to improve general food safety. In addition,
further capacity building is needed in the area of food and feed
establishments, animal by-products and phytosanitary policy. The GMO law needs
to be aligned with EU legislation to enable WTO accession. Overall,
preparations in the area of food safety, veterinary and phytosanitary policy
are moderately advanced.

4.13.
Chapter 13: Fisheries

EU requirements on resource
and fleet management and inspection and control do not apply to inland
fishing and are therefore not applicable to Serbia, except for control of
marketing and traceability of fishery products. A working group for the
establishment of a national certification scheme was set up in April. A
national catch certification scheme for imports and exports of fishery products
has yet to be adopted.

As regards structural
actions for small-scale commercial fisheries and inland fisheries, Serbia
still does not have structural measures in place. In the field of market
policy, there were no developments regarding the establishment of producers’
organisations and the collection of market data. The capacity of the
administration managing and controlling the imports and exports of fisheries’
products needs to be strengthened and brought into line with the acquis.

As regards state aid,
the Law on Subsidies in Agriculture and Rural Development adopted in January
provides for support to fish producers for consumption and for breeding of
brood fish. The Environmental Protection Fund ceased to exist in October and
its budget and functions have not been re-established elsewhere in the
administration. This has a negative impact on protection measures, particularly
measures on protected fish species.

There have been no new
developments as regards international agreements in this area.

Conclusion

Little progress was
made on fisheries. A national catch certification scheme for imports and
exports of fishery products and a system for the collection of market data need
to be set up. Overall, preparations in the area of fisheries are moderately
advanced.

4.14.
Chapter 14: Transport policy

In the area of road transport, several amendments to
implementing legislation on classification and technical requirements for motor
vehicles and trailers, weight and dimensions for vehicles, and on testing of
vehicles have been adopted. Implementing legislation on safety conditions in
tunnels, on special transport, on training programme and exams for drivers of
vehicles carrying dangerous goods, on placing, securing and marking the cargo
and on issuing permits for international road transport of goods for national
haulers have been adopted. The director and assistant director of the
administration for transport of dangerous goods were appointed. The Road
Traffic Safety Agency has increased its capacity to 50 of the 65 planned posts.
The transparency of the fees charged for special transport operations exceeding
the permitted vehicle dimensions, total mass and axle load has been ensured.
Road safety remains a concern with a high, but decreasing, number of fatal road
traffic crashes per year. Further alignment with recent road safety and
dangerous goods acquis is still necessary. Implementing legislation on
driving and rest periods of drivers engaged in domestic transport has not yet
been adopted.

As regards rail transport, the new law on railways
was adopted in May. The law provides for transformation of the Serbian
railways, Zeleznice Srbije, into a group whereby the dominant railway
undertaking includes both passenger and freight operations. The law introduces
several safeguards to prevent the operator from constraining the independence
of the infrastructure manager. The new law has reinforced the role of the
railway directorate. The railway
directorate now assumes the functions of licensing body, regulatory body and
safety authority Different loan
agreements for rolling stock and track improvements have been pursued and
partially concluded. The role of the railway regulator needs to be upgraded,
including the powers to make decisions on the structure of the infrastructure
manager and enforce cooperation and regulatory decisions by fines. The Railway
Safety and Interoperability Law has not yet been adopted. Fair access to the
market and a transparent infrastructure charging system have yet to be achieved
as the market remains virtually closed. Serbian railways continue to deny
access to a domestic freight operator, while new entrants to the market have
been discouraged by lengthy certification procedures. The network statement has
not been published. No public service obligation contracts have been signed on
national or local level. Independent accident investigation body has not been
set up. The Border Crossing Agreement between Montenegro and Serbia needs to be
further aligned with EU legislation to ensure independence of the
infrastructure manager.

In the area of inland waterway transport, the
implementation of River Information Services has been finalised for the Danube
River and also for the River Sava in March. More than 160 commercial vessels and
50 governmental vessels have been equipped with AIS technology for tracking and
tracing. The Director of the Port Governance Agency has been appointed.
Amendments to the law on navigation and ports on inland waters were adopted in
December, harmonising the procedures for the technical inspection of vessels.
The Directorate for Inland Waterways was moved to the Ministry of Transport
without this affecting negatively its staff or work. The Law on Vessel
Nationality and Registration was adopted. Implementing legislation was adopted
on medical requirements and examinations for crew members on inland navigation
vessels, on inland waterways, and on methods and navigation zones for
conducting trial voyages for vessels.

As regards combined transport, construction of the
first modern intermodal terminal in Belgrade has not started yet. Implementing
legislation on supporting measures for intermodal transport, on incentive
measures for road carriers and on loading units on railway is yet to be
adopted, following the adoption of the new law on railways in May.

In the area of air transport, sixteen pieces of
implementing legislation have been adopted. The Civil Aviation
Directorate (CAD) drafted the list of air carriers that are subject to an
operating ban within the European Union. There was significant progress towards
the fulfilment of requirements under the first transitional period of the
European Common Aviation Area Agreement, especially in the areas of economic
regulation and security. Transposition of requirements under the second
transitional period of the Agreement is also well advanced, particularly in the
field of economic regulation. A national body to enforce the law on passenger
rights has been established. The area of Aviation Safety was assessed positively
by the European Aviation Safety Agency (EASA) in October. The CAD started implementing EU regulations on licensing
flight crews, as confirmed by the EASA. The CAD implements corrective
actions plans, in line with EASA’s recommendations. Implementation of the rules on slot allocation, ground
handling and airport charges is yet to be concluded.

As regards maritime transport, the Law on Vessels
Nationality and Registration was adopted in January. The Law on Maritime
Navigation needs to be harmonised with the 2006 Maritime Labour Convention and
other ILO conventions.

No progress was made in the area of satellite navigation.
Serbia’s participation in the Galileo satellite navigation programme is yet to
be implemented.

Conclusion

Some progress was made in the area of transport policy,
particularly in road, inland waterways and air transport. Further strengthening
of administrative capacity is needed, in particular for enforcement and
inspection. Further work is required towards market opening in the area of railways
and setting up the required institutional structures. Overall, Serbia is
moderately advanced in its alignment with the acquis in the area of
transport policy.

4.15.
Chapter 15: Energy

In the field of security of supply, the draft Law on
Commodity Reserves, regulating the compulsory reserves of oil and oil
derivatives, has yet to be adopted. The Law on the South Stream Gas Pipeline
was adopted, together with a decree on the spatial plan for its construction. These
pieces of legislation implement the Inter-Governmental Agreement (IGA) between
Serbia and Russia on the South Stream Gas Pipeline, which raises concerns
regarding its compatibility with the Energy Community obligations. Serbia and
Bulgaria signed a memorandum of understanding on the interconnecting gas
pipeline between the two countries. The project preparation is ongoing
and on track but financing needs to be secured. No progress was achieved as
regards the alignment to the provisions on security of supply for natural gas.
However, the continued upgrade of capacity of the underground storage in
Banatski Dvor is strengthening security of supply.

Good progress was made in the area of the internal
energy market. The Energy Agency of the Republic of Serbia (AERS) approved
electricity market rules and rules on supplier switching. The electricity and
gas market have been liberalised as of January for large consumers connected to
the transmission network, who have no longer the right to be supplied by the
public supplier at regulated tariffs. Of the 26 customers of electricity
concerned, one switched to a different supplier while the others remained with
the incumbent company EPS under market based prices. The electricity balancing
market has been operational since January. The Electricity Market code has been
adopted for both transmission and distribution. The gas transmission system
code was approved by AERS in August. In October, AERS approved new cross-border
capacity allocation rules on electricity, enabling coordinated capacity
allocation. In November, AERS approved agreements between Serbia’s transmission
system operator EMS and its Romanian and Hungarian counterparts on coordinated
capacity allocation. The government has adopted the decree on the establishment
of supplier of last resort, but the unbundling of distribution and supply
functions in the publicly owned generation, distribution and supply electricity
company EPS has not been finalised yet. The government has adopted the Decree
on the Protection of Vulnerable Customers, setting out criteria and measures
for protection. Secondary legislation in the gas sector, on price methodology
for access to the distribution network, determination of connection costs to
the transmission and distribution system and a rulebook on licensing has been
adopted. The state-owned gas company Srbijagas has not yet been unbundled. It
remains a fully integrated company and is the only wholesale supplier on the
market. Yugorosgas, another vertically integrated company, has also not yet
been unbundled. The implementation of the Energy Law and alignment with the
third package of the EU energy acquis will require an increase in the
AERS’ staff as well as further capacity building and strengthening of
independence.

In September, Serbia and Kosovo reached an agreement on
energy under the EU-facilitated dialogue. Through the implementation of the
agreement, Serbia will uphold its respective obligations under the Energy
Community Treaty of which it has been in breach so far. The agreement provides
that the Serbian transmission system operator (TSO) Elektromreza Srbije signs
with Kosovo’s TSO, KOSTT, an operational agreement within three months. The
agreement also foresees that a Serbian power supply company will operate
legally in the North of Kosovo.

In the area of renewable energy and energy efficiency,
the government has adopted the decree on feed-in tariffs for electricity
produced from renewable energy sources. The level of tariffs will be adjusted
annually in line with the inflation rate in the euro zone. All by-laws required
for the implementation of the incentives system to renewables have been
adopted. In September, amendments to the Energy Law were adopted in
order to close the Energy Efficiency Agency and merge it within the Ministry of
Energy, Development and Environmental Protection. A national renewable energy
action plan was adopted by the government in June. The
new law on energy efficiency was adopted in March. Implementing legislation has
yet to be adopted. The law on
construction and planning was amended to bring it in line with the Directive on
energy performance of buildings. Administrative
capacity in this area is very limited. Further simplification of administrative
procedures for issuing necessary permits and network connections is necessary.

In the areas of nuclear energy, nuclear safety
and radiation protection, the inspection functions have not been
transferred to the Serbian Radiation Protection and Nuclear Safety Agency
(SRPNA), but remain with the Ministry for Education, Science and Technology
Development. Environmental radioactivity monitoring at national level has been
temporarily suspended due to a lack of financial means. Effective financial
independence, funding and sufficient staffing (currently standing at 20 of the
planned 35 posts) are needed to ensure that the Agency functions properly. In
September, SRPNA issued a licence for radioactive waste management and use of
temporary storage facilities of radioactive waste to Serbia’s public company for nuclear facilities. Serbia still needs to adopt a national
strategy for radioactive waste management and prepare an action plan for the
decommissioning of its research Reactor A at Vinča. A national programme for
spent fuel has not been adopted yet. Further efforts are required to improve
the radiological situation at the Vinča site and abandoned Kalna mine and to
improve radioactive waste management at national level.

Conclusion

Progress was made in the area of energy, in particular the
electricity market, renewable energy and energy efficiency. Through the
implementation of the agreement reached on energy with Kosovo under the
EU-facilitated Dialogue, Serbia will meet its Energy Community obligations,
contributing to a significant normalisation of energy relations with Kosovo.
Additional efforts are needed to achieve further market opening, unbundling and
cost-reflective tariffs. By-laws in the field of energy efficiency and
legislation on commodity reserves have yet to be adopted. The role and
independence of the energy regulator AERS and the nuclear regulator SRPNA need
to be strengthened. Serbia needs to implement its commitments made in the
agreement on energy reached with Kosovo. Overall, preparations in the area of
energy are moderately advanced.

4.16.
Chapter 16: Taxation

In the area of indirect
taxation, excise legislation changed again in December after a number of
laws on various indirect taxes (such as excise duties and VAT) were amended in
the context of fiscal consolidation. On cigarettes, the excise tax structure
was aligned with the EU acquis and the excise duties increased. Excise
rates on oil derivatives were harmonised in order to further align them with
the EU acquis. However, other energy sources such as coke, heavy fuel
oil, natural gas and electricity remain untaxed and some exemptions granted for
specific use of oils, are not in line with EU legislation. VAT legislation was
brought closer into line with EU legislation. The VAT rate increased from 18%
to 20%. Legislation on other excise goods and on issues such as movement and
control, excise warehouses and storage or the concept of taxpayer remains to be
aligned with the acquis.

As regards direct
taxation, amendments to the Law on Personal Income Tax were adopted,
increasing the rate from 10 to 15% for revenues from capital, capital gains and
revenues from insurance. Amendments to the Law on Tax on Profits increased the
rate of tax on company profits from 10% to 15%. Conditional deferring or
writing-off of tax debts helped companies with financial problems to pay their
tax liabilities. New corporate tax legislation was also further harmonised with
the EU Parent Subsidiary Directive and the Directive on Interest and Royalties.

In the field of administrative
cooperation and mutual assistance, Serbia continued to participate in
cooperation meetings between the B-6 (Balkan countries) tax administrations.
Agreements on avoidance of double taxation were signed with Palestine, the
United Arab Emirates and Vietnam.

In the area of operational
capacity and computerisation, the Serbian Tax Administration (STA)
continued to implement its corporate strategy for 2011-2015. The STA became
responsible for gambling activities. The number of electronic services has
increased as annual income tax and excise duty declarations were allowed to be
made electronically as of January. Work is ongoing to introduce electronic
declarations for salary taxes and contributions. Training and education of
taxpayers have resulted in an increased number of electronic declarations via
the tax administration portal. Staffing levels at the STA have increased. Risk
management training has started for SMEs. Rights and obligations are not always
clearly stated, making them subject to interpretation. Procedures may also
differ from one region to the other. Individuals within the tax authorities
have substantial discretionary powers, and there is no adequate control
mechanism in place. Tackling the grey economy remains a challenge.

Conclusion

Some progress can be noted in the area of taxation. The
corporate STA strategy continues to be implemented but better coordination
within the STA remains necessary. Modernisation of the IT system and
communication with taxpayers continued but need to be further strengthened.
Overall, preparations in the area of taxation are moderately advanced.

4.17.
Chapter 17: Economic and
monetary policy

As regards monetary
policy, in November, amendments
to the Law on the National Bank (the National Bank of Serbia, NBS) were
adopted, aimed at correcting some of the amendments of August 2012 which
challenged the independence of the Bank. The November amendments set out the
procedure for replacing vice-governors and members of the Council of Governors
and reintroduced the possibility of legal recourse for dismissed NBS officials.
The NBS maintains a floating rate
policy for the dinar, but the effectiveness of this policy option is limited
and has led to exchange rate volatility.

As regards economic
policy, Serbia continues to participate in pre-accession economic
surveillance. It submitted its 2013 economic programme — Pre-accession Economic
Programme for 2013 — to the Commission in January. The programme covers the
period 2013-2015. It provides the macroeconomic framework for the three years
and explains the authorities’ strategy of shifting to a new paradigm built upon
tradable sectors and underpinned by stronger investments and net exports. While
identifying major challenges, the programme still needs to further clarify the
pace and sources of fiscal consolidation, address the need to further
strengthen fiscal rules and provide a roadmap for the implementation of
structural reforms. As regards fiscal responsibility, the public debt has
further increased to 60% of GDP which is over the legal ceiling of 45% in
national legislation. The capacity for economic policy formulation and coordination
remains insufficient.

Conclusion

There has been some progress in the area of economic and
monetary policy. The issue of the NBS’s independence has been addressed with
amendments to the law and there were no signs of political interference. Capacity
for economic policy formulation remains insufficient. Overall, in addressing
the acquis in the area of economic and monetary policy, Serbia is
moderately advanced.

4.18.
Chapter 18: Statistics

As regards statistical
infrastructure, the capacity of the Statistical Office of the Republic of
Serbia (SORS) needs to be strengthened. An agreement on cooperation for the
production of national health accounts was signed in June 2013 between SORS and
the Ministry of Health, the Institute of Public Health, the Fund of Health
Insurance and the Ministry of Finance and Economy.

In the field of classifications
and registers, the issue of regional statistical classification (future
NUTS classification) remains open due to the need to clarify its territorial
scope. This goes beyond the scope of technical expertise and requires a
political decision.

As regards sectoral
statistics, several reports on the results of the population census have
been published since October with one or more monographs released each month.
The first results of the agriculture census were released in February. A first
wave of the survey on income and living conditions (SILC) was conducted in
May-June. Statistics on social protection according to EU standards have
been developed. An action plan for the production, delivery and transmission of
national accounts data was adopted in December. Transmission of data to
Eurostat has increased substantially.

Conclusion

Good progress was made in the area of statistics. The
population and agriculture censuses have been finalised successfully. Sectoral
statistics have been further developed. To fully implement the acquis in
statistics comprehensively the Statistical Office of Serbia requires more
staff. The issue of regional statistical classification should be solved.
Overall, Serbia is advanced in the area of statistics.

4.19.
Chapter 19: Social policy
and employment

In the field of labour law,
further amendments to the labour law, relating to maternity leave were adopted.
Measures aimed at achieving a more flexible labour market, as announced in the
fiscal strategy in November, remain to be adopted. Further efforts are needed
in this area.

The process of
alignment with EU Directives on health and safety at work advanced, with
further alignment on the remaining EU directives on electromagnetic waves and
on optical radiation in December. Work is ongoing on amendments to the Law on
Health and Safety at Work with additional implementing legislation. A new
strategy on health and safety at work for the period 2013-2017 is in
preparation. The register of injuries at work is under construction. The Labour
Inspectorate continues to carry out inspections as well as awareness-raising
activities, despite a reduction in its staffing levels.

In the area of social
dialogue, the National Economic and Social Council (NSEC) met four times
during the reporting period. The NSEC was consulted on several amendments to
laws in the areas of employment, labour and education. Its work is still
hampered by the problem of representativeness, as there is no agreement on
criteria for the selection of trade unions. No agreement was reached between
the government and the Socio-economic Council on setting the annual minimum
wage level. As a consequence, the government decided in April to keep the minimum
net wage at RSD 115 per hour for 2013. No new local councils have been
established, while the work of the current 18 remains symbolic. There is no
comprehensive record of collective agreements. Employers’ organisations at
local level and bilateral social dialogue require strengthening. The weak
social dialogue, notably at tripartite level, is an area of serious concern.

In the area of employment
policy, the annual performance agreement between the Ministry of Labour,
Employment and Social Policy (MoLESP) and the National Employment Service (NES)
was adopted in June. The National Employment Action Plan for 2013,
adopted in December, gives priority to youth employment and to redundant
workers. The budget favours employment subsidies instead of additional education
and training. Local employment plans now include local and regional funds on
top of the budget allocated under the National Action Plan for Employment. Over
2000 unemployed Roma participated in measures under the 2012 National Action
Plan. The Labour Force Survey completed in October showed slight
improvements in labour market indicators; however, the impact of employment
policies remains limited notably on long-term, undeclared work and youth
unemployment. The coverage of active labour market measures remains at 15% of
the registered unemployed. The national budget approved for active labour
market measures in 2013 still represents 0.1% of GDP. It is still too low to
ensure appropriate coverage of the unemployed based on needs. The modernisation
of NES continued, direct mediation is now available throughout Serbia. Further
consolidation of implementing structures in the MoLESP remains necessary.
Additional efforts are needed to ensure better targeted and efficient labour
market measures and to develop a strategic approach to employment, especially
in a context of limited financial resources, increasing unemployment and
deteriorating economic growth.

There were no
developments as regards preparations for the European Social Fund.

In the area of
social inclusion, implementing legislation required under the Law on Social
Welfare was adopted in May. The social welfare chamber, an independent
organisation of welfare protection workers, started operations in January. Amendments
to the Law on Professional Rehabilitation and Employment of Persons with
Disabilities were adopted in April. The public fund for professional
rehabilitation and enhancement of the employment of people with disabilities
covered approximately 6 500 people with specific measures on employment
and professional development. The number of social assistance recipients has
increased. The 2012–2014 action plan to implement the national strategy to
improve the status of the Roma was adopted in June. The recommendations of the
June 2011 EU-Serbia seminar on Roma inclusion have been actively followed up
and a new set of operational conclusions addressing the remaining gaps was
jointly agreed in September. The Roma community continues to be exposed to
multiple forms of exclusion, while the range of social services and initiatives
to promote their inclusion remains to be improved. Development of
community-based services across the country remains limited. (See also
Chapter 23 – Judiciary and fundamental rights)

In the field of social protection, the deficit in
the pension fund remains large, despite a limit on the indexation of pensions. In
the absence of sufficient funds for the payment of pensions, transfers from the
budget continue to be the largest single item on the expenditure side. Due to
insufficiently developed mechanisms of enforcement and control, the overall
sustainability of the pension and health funds remain at risk. Serbia continued
to develop the statistics and data needed to monitor social inclusion and set
up an integrated social protection statistics system, in line with EU
practices. In February, an improved database was introduced and included
state-level and local indicators. Comprehensive restructuring and reforms are
needed in order to regain sustainability. Integrated/cross-sectoral social
services need to be further developed.

In the field of anti-discrimination,
the strategy on the fight against discrimination (2013-2018) was adopted in
June. The Commissioner for Protection of Equality received 465 citizens’
complaints, and issued 56 opinions, 117 recommendations and 3 opinions on laws
in 2012. It filed charges for violation of the Law on Prohibition of
Discrimination in 5 cases and issued 19 warnings and announcements. The office
of the Commissioner was active in awareness-raising, e.g. on mechanisms for
protection against discrimination. The police response to attacks against LGBTI
has slightly improved. Some provisions of the Anti–Discrimination Law have yet
to be aligned with the acquis. This includes the scope of exceptions
from the principle of equal treatment, the definition of indirect
discrimination and the obligation to provide reasonable accommodation for
disabled employees. The most discriminated groups remain the Roma, women,
people with disabilities and sexual minorities, who often face hate speech and
threats. Serbian authorities need to develop a proactive approach towards the
better inclusion of the LGBTI population and a greater understanding across
society. (See also Chapter 23 – Judiciary and fundamental rights)

As regards equal
opportunities between women and men, the Gender Equality Directorate in
MoLESP started to carry out public awareness campaigns, but its administrative
capacity remains weak. Labour legislation needs to be fully implemented,
particularly regarding the dismissal of pregnant women and women on maternity
leave, sexual harassment and inequality in promotion and salaries. (See also
Chapter 23 – Judiciary and fundamental rights)

Conclusion

Some progress can be
reported in the area of social policy and employment, especially in the fields
of health and safety at work, social inclusion and anti-discrimination. Social
protection systems, labour relations and social dialogue remain to be
substantially strengthened. Employment and social policies continue to be
affected by adverse economic conditions and scarce public finances. Overall,
Serbia has started to address its priorities in this area.

4.20.
Chapter 20: Enterprise and
industrial policy

In the area of enterprise
and industrial policy principles, preparations for the new strategy for
competitive and innovative SMEs for 2014-2020 continue. Information about upcoming public-private
consultations (PPCs) is publicly available and registration is open to all
interested participants. The SME Council did not increase its activity and
staffing levels remain to be increased.

In March, the law on
limiting payment deadlines entered into force, setting a 45-day payment
deadline for public sector debts to private businesses and a 60-day deadline
for payments between companies in the private sector. This is not yet in line
with the EU directive on late payments.

In the field of enterprise
and industrial policy instruments, Serbia continues to implement the Small
Business Act and to participate in projects under the European Entrepreneurship
and Innovation Programme (EIP). Its SME definition is in line with that of the
EU in terms of company size.

Legislation affecting
the business environment has been reviewed and simplified. The regulatory
guillotine process has now been extended to secondary business-related
legislation with an impact on SMEs. Mandatory regulatory impact assessments
(RIA) are applied systematically for new laws and regulations.

The legal framework for
access to finance has improved. The Development Fund provides small
credit-guarantee schemes and public start-up funding. However, the number of
market participants and the value of equity transactions remain low. Further
efforts are needed in relation to company registration, business incubators and
access to finance for SMEs.

No new development took
place in sector policies.

Conclusion

Some progress was made
in the area of enterprise and industrial policy. The institutional framework
for SME policy and SMEs access to finance improved. Measures taken to improve
the business environment, in particular on the business impact assessment for
new legislation is a welcome development. Serbia continues to implement the
Small Business Act in an appropriate manner. Overall, preparations in this area
are on track.

4.21.
Chapter 21: Trans-European
networks

In the area of trans-European transport networks
(TEN-T), Serbia continued to participate in the work of the South-East Europe
Transport Observatory (SEETO) on implementing the memorandum of understanding
on the development of the South-East Europe Core Regional Transport Network.
Implementation of the action plan for the construction of road corridor X has
advanced. The works contracts for several remaining sections of the E80 and
motorways have been signed. The implementation of several major projects to
develop project documentation for rail corridor X has started. Different loan
agreements for rail have been pursued and partially concluded. Several infrastructure projects for enhancing
navigation conditions on the inland waterways network along the River Danube
and the River Sava have been concluded or are in progress. As regards the
airport of Belgrade tenders for apron and passenger bridge improvements haven
been concluded. Limited progress
has been made in the implementation of the action plan for the construction of
Road Route 4 (Belgrade-Bar), also referred to as ‘Corridor XI’.

As regards trans-European energy networks (TEN-E),
Serbia continues to support the implementation of the Gas Ring Project for
South-East Europe, in line with corresponding plans of the Energy Community.
The MoU between Serbia and Bulgaria for the construction of the
Nis-Dimitrovgrad gas interconnector has been signed in December. Project
preparation is on track but financing needs to be finalised. Regarding
electricity, the Serbian part of the Nis-Lescovac-Vranje border interconnection
became operational in December. The feasibility study, concept design and
environmental impact assessment for the new electricity interconnection between
Romania and Serbia (Resita-Panchevo) was finished.

Conclusion

Serbia has made some progress in the area of trans-European
networks. It continues to develop its transport and energy networks and
participates actively in the work of the SEETO and of the Energy Community.
Major challenges remain in terms of financing the new interconnections between
energy and transport networks. Overall, preparations in the area of
trans-European networks are moderately advanced.

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

With regard to the legislative
framework legislation in policy areas that support the implementation of
regional policy are not fully in line with the acquis.

As regards the institutional framework, Serbia has
continued to prepare for the introduction of the decentralised management
system for IPA components I and II. The conferral of management of these
components is in the final stage of verification. Following the decision not to
open IPA components III and IV under the current financial perspective, the
relevant projects will be implemented under IPA component I. Work is ongoing to align the programming and
implementation structures of the national regional policy with EU regional
policy, in view of the next financial perspective (2014- 2020) and with the
ultimate goal of increasing the absorption and co-financing capacity of the
EU-funded programmes.

With regard to administrative
capacity, the Commission has completed an audit in preparation for
transferring management of IPA components I and II and has noted that further
efforts are needed to ensure an adequate staff retention policy in line with
the anticipated workload.

In the field of programming,
Serbia has made significant efforts to prepare for a sectoral approach under
the IPA from 2014 onwards. The lack of coherent sectoral strategies and of
strategically developed investment plans, resulting in a weak project pipeline,
remains an issue of concern in some sectors. The capacity of potential final
beneficiaries to produce project documentation in line with IPA requirements
needs to be improved. In the area of monitoring and evaluation, sectoral
monitoring committees for all sectors of IPA components I and II have been
established and they have met regularly.

In the field of financial
management, control and audit, the financial management and control systems
have been further developed to comply with the decentralised management
requirements of IPA components I and II. The capacity of the Audit Authority
needs to be enhanced.

Conclusion

There has been progress
in the area of regional policy and coordination of structural instruments. Serbia is in the process of acquiring valuable
experience in the management of EU funds under the Decentralised Implementation
System (DIS), as it is in the final stage for the conferral of management for
two IPA components. Adequate
implementation capacity needs to be ensured under the decentralised
implementation system. Programming needs to be improved, especially in terms of
preparing a solid investment project pipeline based on relevant strategies.
Overall, preparations in this area are moderately advanced.

4.23.
Chapter 23: Judiciary and
fundamental rights

Judicial system

Regarding judicial
reform, the Serbian authorities have undertaken to implement the Constitutional
Court’s rulings of 2012 which overturned the non-reappointment of judges and
prosecutors, leading to the reintegration of some 800 magistrates, representing
one third of the total number.

The High Judicial and
State Prosecutorial Councils (HJC and SPC) reappointed all the previously
non-reappointed magistrates to their courts or prosecution offices, or to the
jurisdictions that replaced them, within the 60-day deadline set by the
Constitutional Court. In addition, some 900 magistrates recruited in 2009 on a
probationary basis were granted permanent tenure in December.

The parliament adopted
a new national judicial reform strategy for the period 2013-2018 in July,
following a consultative process involving key stakeholders. The strategy takes
stock of problems encountered in the implementation of the previous strategy
adopted in 2006 and is built around the key principles of independence,
impartiality and quality of justice, competence, accountability and efficiency
of the judiciary. It aims to strengthen the HJC and SPC and make them
accountable, as the bodies mandated by the Constitution to guarantee the
independence of the judiciary. It also acknowledges the need for changes in the
Serbian Constitution to address the lack of real judicial independence seen in
many features of the current system. The strategy also aims to strengthen the
framework for recruitment, evaluation, discipline and ethics within the
judiciary. An increase in resources for the Judicial Academy is provided, to
enable it to become the compulsory point of entry to the judicial profession. A
‘strategy implementation commission’, composed of representatives of major
stakeholders, will be responsible for monitoring and measuring progress in the
implementation of the strategy. The related action plan adopted in August
details concrete measures to meet the strategy’s objectives, particularly in
critical areas such as harmonising jurisprudence, reducing the backlog
of court cases, and distributing the workload. The smooth and timely
implementation of the action plan is a crucial milestone.

Regarding the independence
of the judiciary, the current constitutional and legislative framework
still leaves room for undue political influence, in particular when it comes to
appointments and dismissals, and needs to be amended. Following a
Constitutional Court ruling in December that stated that the legal basis for
the election in 2009 of the first president of the Supreme Court in its then
temporary composition was unconstitutional, a new acting president of the
Supreme Court, thus ex-officio acting president of the HJC, was elected in
February. The HJC has finalised the proposals for the elections of the
president of the Supreme Court of Cassation, the presidents of the
Administrative, Commercial Appellate and Higher misdemeanour Courts, together
with the presidents of the three Appellate Courts in Belgrade, Nis and
Kragujevac. These proposals remain to be endorsed by parliament to become
definitive. Once the new Court and Prosecution’s office network is adopted, the
HJC and SPC   will have to finalise the appointment of the remaining Court
presidents and public prosecutors, to be further endorsed by parliament.
Responsibility for proposing and allocating the budget for the courts and
prosecution services remained shared between the HJC and SPC, on the one hand,
and the Ministry of Justice, on the other. The first 18 graduates from the
initial programme of the Judicial Academy were appointed, but the institution
remains largely understaffed and underequipped. Further legislative and
institutional changes are needed for the Academy to face the challenge of
becoming the compulsory point of entry to the judiciary. The HJC and SPC have
yet to finalise the process of adopting rules on regular appraisal of the work
and performance of judges, court presidents and prosecutors.

The impartiality
of judges continues to be broadly ensured. Legal provisions on conflicts of
interest and on random allocation of cases are in place. However, different
electronic data management software continued to operate in parallel in the
appellate, administrative, and supreme courts, while electronic case management
has not yet been set up in the misdemeanour courts or prosecutors’ offices.

In relation to accountability,
one judge was sanctioned following disciplinary procedures in 2013, convicted
to a salary reduction of 40% for a period of one year. The disciplinary
authorities for prosecutors were appointed by the SPC in May and first cases
were processed, leading to the dismissal of a Deputy Public Prosecutor in May.
A code of ethics for prosecutors and deputy public prosecutors has just been
adopted, in October. The procedure for lifting the functional immunity of
judges, prosecutors and members of the Councils remain largely unused. The
implementation of those control mechanisms needs to be stepped up, especially
since allegations of corruption in the judiciary persist.

As regards the efficiency
of the judiciary, the Judicial Academy continued initial and in-service
judicial training for judges, prosecutors and attorneys. This still needs to be
systematised and structured, especially in terms of developing expertise in
certain areas (economic crime in particular). The judicial budget for 2012
remained stable (around 0.65% of GDP). In 2012, the backlog of courts cases was
not reduced significantly (more than three million cases were still pending at
the end of 2012). The Constitutional Court resolved an increased number of
cases following the reform carried out last year. However, its backlog remains
of particular concern (more than 12 000 pending cases at the end of 2012),
especially in terms of cases related to breaches of the right to trial within a
reasonable time The entry into force of the law on public notaries was postponed
to 2014 because too few candidates passed the public notaries’ examination. The
number of bailiffs increased after a second group of candidates who had passed
an exam was appointed in April, but remains insufficient to meet the target set
by the law for its implementation. Bailiffs are mainly concentrated in
Belgrade.

Adjustments to the
court and prosecutor’s office networks are currently planned and are aimed at
ensuring optimal allocation of the reappointed magistrates, balancing their
individual wishes and constitutional rights not to be moved from one place to
another without their consent with the needs of the whole judiciary in terms of
access and proximity. There are still major imbalances in the workload of
judges and the length of proceedings remains excessive in many cases. Further
reform of the court network will require a comprehensive analysis, notably in
terms of cost, efficiency and access to justice. The quality of statistics
needs to be improved.

Amendments to the
Criminal Code included the criminalisation of aiding abuse of the right to
asylum in a foreign country; the decriminalisation of defamation, and of ‘unauthorised
public comments on court proceedings’; the recognition of discriminatory
motivating factors such as ethnic origin, religion, gender identity or sexual
orientation as an aggravating circumstance of certain crimes and the
recognition that no statute of limitations applies for sex offences committed
against children. The offence of ‘abuse of office’ was also amended to redefine
the way it applies to private operators. Open cases under Article 359 of the
Criminal Code are being re-examined, on a case-by-case basis. Most of those
already re-examined were re-qualified, under the new offence of ‘abuse of
position by a responsible person’ (new Article 234 of the Criminal Code). So
far only a very limited number of cases under the competence of the general
jurisdiction prosecutors’ offices were waived. The implementation of this new
provision applying to private operators should be carefully monitored including
with a view to a comprehensive review of economic crimes.

General implementation
of the adversarial procedure under the new Criminal Procedure Code, which puts
the prosecution in the lead for criminal investigations both in the
pre-investigative and investigative phases, was postponed to October. Some
training aimed at enhancing the capabilities of the judiciary and prosecution
in this regard was conducted. However, in the absence of a free legal aid
system aimed at granting poorer defendants an effective defence, and of the
infrastructure and equipment necessary to obtain good quality evidence,
concerns about procedural safeguards in the new system remain. Moreover, the
planning affectation in terms of human resources, financial and infrastructure
remains unclear. The implementation of the new Criminal Procedure Code will
have to be carefully monitored.

The Administrative
Court has resolved all cases older than three years and 9551 cases during the
first six months of 2013. However, it continued to face an increasing inflow of
cases (11315 new cases for the first six months of 2013, compared to 4 938
new cases in 2012) and has not been able to reduce the number of pending cases
(more than 23 200 pending cases at the end of June, compared to more than
21 500 at the end of 2012). The elaboration and implementation of a
unified backlog-clearance programme foreseen in the new action plan for the
implementation of the national judicial reform strategy for the period
2013-2018 should be a priority in this regard. Training of administrative
judges in specific areas such as asylum, consumer protection, state subsidies
and competition needs to be further developed.

Inconsistency in case-law
remains a concern, especially at the level of appellate courts.

A reform of minor offences courts was conducted in July
with a view to improving access to justice. However, differences in
workload within the judiciary, the high average length of proceedings, the
backlog of cases and the lack of a free legal aid system are major obstacles in
practice. The general introduction of the adversarial model in criminal
proceedings, based on equality of the parties, as from October 2013, raises
additional concerns in this framework, and will need to be carefully monitored.

Anti-corruption policy

Anti-corruption
policy has been underpinned by a strong ‘zero tolerance’ message from the
government. Following broad stakeholder consultation, a new strategy on the
fight against corruption for the period 2013-2018 was adopted in July, together
with a related action plan in August. The strategy aims at both a structural
approach dealing with issues such as good governance, independent institutions,
internal and external audit and control, and protection of whistle-blowers, together
with a sectoral approach addressing corruption in most sensitive sectors such
as public procurement, urbanism and spatial planning, the judiciary, police,
education and health. The Ministry of Justice and Public Administration is
responsible for coordinating the implementation of the strategy and action
plan, while the Anti-Corruption Agency is responsible for monitoring them. The
action plan provides for detailed measures to implement the strategy, with a
focus on most vulnerable areas, such as the improvement of financial
investigation capacity and making illicit wealth a criminal offence. A mid-term
review of the action plan is provided, with a view to assessing first measures
implemented under the action plan and possibly amending or adjusting some of
the longer term measures. This mid-term review should be used as a way to
conduct a reality and feasibility check of the implementation of the strategy
and action plan, to ensure that both are turned into concrete results. The
implementation of the strategy and action plan will test Serbia’s preparedness
and willingness to proceed forward. It remains crucial that adequate resources
are allocated.

Implementation of outstanding Council of Europe
Anti-Corruption Group (GRECO) recommendations has continued and the Criminal
Code was amended in December to comply with the recommendations of the
incriminations chapter of GRECO’s third evaluation round of September 2012.

On the prevention side, the Anti-Corruption Agency has
initiated a public anti-corruption awareness campaign, was submitted 2.112
public authorities’ integrity plans and has developed and is applying
corruption risk analysis of draft legislation. The Agency also increased its
activities in the field of training and education (3 679 participants
underwent various educational programs in 2012, compared to 1 883 in
2011). The Agency increased its cooperation with some stakeholders and improved
its methodology for investigating targeted declarations of public officials’
assets. The methodological changes introduced a mandatory step requiring
verification and comparison of the data contained in asset and income
declarations with the data held by at least four authorities: the Ministry of
the Interior, the Tax Administration, the Business Registers Agency, and the
Republic Geodetic Authority. The number of procedures related to control of
property and revenues of public officials in 2013 increased (283), out of which
the majority (182), refers to officials who had not submitted the report of
property and revenues within the deadline prescribed by law. The Agency filed
seven criminal charges due to reasonable suspicion that a public official did
not report property to the ACA or gave false information about the property,
with an intention of concealing facts about the property, including against a
member of the national assembly, two against former members of parliament, one
against a member of a Management Board and one against a mayor. In May, the
Agency also adopted its first report ever on the financing of electoral
campaigns, for 2012. Annual financing was reported by two thirds of political
groups. The Agency submitted 53 requests for misdemeanour procedures on the
grounds of inappropriate use of funds, untimely submission of annual financial
reports and non-submission of electoral campaign financial reports. However,
cases of illicit wealth will have to be addressed in line with the provisions
of the action plan on the fight against corruption. Track records of asset
declarations and checks on party funding need to be established. Detection and
resolution of cases of conflict of interest remains at an early stage since
although more files than ever were processed, very few charges were filed
during the reporting period. Half of the public authorities obliged to draft
Integrity Plans did not fulfil their obligations without any statutory
sanctions being provided.

The Anti-Corruption Council continued to be active in
exposing and analysing cases of systemic corruption, in its advisory role to
the government. A working group within the Ministry of Interior has been tasked
with following up the high-profile corruption cases, including those pointed
out by the Council. As a result of the work undertaken by this working group,
the prosecution for organised crime and corruption raised seven indictments,
including against two former ministers, and well-known businessmen. One trial
was completed at first instance level, sentencing in particular to four years
of prison a judge and to six and half years a former president of a commercial
court, while five and nine years sentences were respectively issued against a
former director of a company and a banker, for abuse in a business operation.

The number of investigations launched in 2012 by the
special prosecutor for corruption and organised crime in high-level corruption
cases increased slightly (140 new investigations, compared to 115 in 2011). The
same applies to investigations launched from other public prosecutors’ offices
during the same period (2 690 new investigations, compared to 2 270
in 2011). The Constitutional Court clarified that the prolongation of pre-trial
detention during the investigations should not violate constitutional right to
a reasonable duration of pre-trial detention. However, the ratio of convictions
remains relatively low. Further efforts are needed to establish a track
record of prosecution and conviction, particularly in high-level cases. The law
enforcement bodies need to become more proactive. Lack of internal capacity and
expertise in financial investigations and of technical equipment for special
investigative measures hampers the effectiveness of investigations.
Inter-institutional cooperation between law enforcement agencies needs to be
improved. Civil society continues to play a limited role. Effective
whistle-blowing protection mechanisms have yet to be established. Internal
control departments lack equipment and human capacity.

Independent supervision and capacity for early detection of
wrongdoing and conflicts of interest in public enterprises, privatisation
procedures and public expenditure are underdeveloped. Local corruption needs
attention. Health and education remain particularly vulnerable to corruption.
Comprehensive risk analyses for areas vulnerable to corruption are needed.

Fundamental rights

Serbia has ratified all of
the main international human rights instruments. In January, Serbia presented the Report on Human Rights for the
Universal Periodic Review — Second Cycle. The UN Human Rights Council made 144
recommendations to be followed up by 2 016, of which 77 relate to LGBTI
rights.

During the reporting period, the European Court of Human
Rights delivered 11 judgements on 177 applications finding that Serbia had
violated the European Convention for the Protection of Human Rights and
Fundamental Freedoms. The number of new applications increased, putting Serbia
fifth in the list of states with the highest case-count. The largest number of
judgments refers to violation of the right to a fair trial due to the length of
the procedure and to the non-enforcement of domestic judgments. Due enforcement
of rulings is particularly needed in cases of compensation of workers from
state-owned enterprises, administrative decisions, and the resumption of
payment of pensions earned in Kosovo. As of September, there were over 12 200
eligible cases pending before the Court regarding Serbia, and 108 cases pending
before the Committee of Ministers in charge of supervising the execution of
judgments.

In relation to the promotion and enforcement of human
rights, the government’s Office for Human and Minority Rights has carried
out a significant number of activities involving other state bodies including
training courses for judges, prosecutors, legal practitioners, prison officers
and police officers. Its administrative capacity remains to be strengthened.

As regards the prevention of torture and ill-treatment,
the Ombudsman, acting as the national preventive mechanism against torture,
periodically visited places where persons are or may be deprived of their
liberty and detained under the order of a public authority, focusing on police
stations. The Law on the Protection of Rights of Persons with a Mental
Disability, adopted in May, introduces basic legal safeguards for persons with
mental disabilities involuntarily placed in psychiatric institutions. The
Constitutional Court recognised for the first time ever a violation of the
right to physical and mental integrity of a prisoner in July. Unsatisfactory
healthcare together with a lack of adequate and specific treatment programmes
in prisons remain a matter of concern. Due to poor living conditions in police
detention facilities, district prisons tend to be increasingly used as unlawful
police detention facilities. Police instructions on handling persons in police
custody have been issued, but have yet to be implemented through adequate
training to prevent ill-treatment. An internal effective non-judicial mechanism
for reviewing complaints remains to
be strengthened.

When it comes to the prison system, a new strategy
for further development of the correctional system 2013-2020, together with a
new Law on Enforcement of Criminal Sanctions and first ever Law on Probation
have yet to be adopted. The November 2012 amnesty law had an immediate effect
on overcrowding. Amendments to the Criminal Code introduced the possibility of
conditional release. The number of alternative sanctions, such as home
imprisonment monitored by electronic tagging and community service orders,
increased. Vocational training was offered to prisoners in three of the main
prisons (Pozarevac, Nis and Sremska Mitrovica) through pilot programmes.
However, the prison system continued to face serious overcrowding with
10 500 prisoners for some 8 500 places. Further efforts are needed to
improve living conditions and healthcare and to provide adequate treatment
programmes for prisoners. Alternative sanctions need to be introduced on a
larger scale. Frontline prison staffing remains insufficient.

As regards freedom of expression, defamation was
decriminalised in December, while hate speech was recognised as an aggravating
circumstance. A commission specially tasked to look into unsolved cases of
murdered journalists from 1999 and 2001 was created and is actively
cooperating with prosecution services. Amendments to the law on public
information now prevent public authorities from setting up public companies in
the media sector. However, further steps are still needed to ensure an
effective implementation of the media strategy. Direct state financing and
control of the media, including the local level, still needs to be
comprehensively addressed. Uncertainty about models of financing of the two
public service broadcasters (RTS and RTV) puts in question their survival and
are a reason of concern given RTV’s role regarding broadcasting in minority
languages. The procedure by which the Republican Broadcasting Agency’s members
are appointed continues to raise concerns. Legislative instruments on public
information and the media together with public service broadcasters and
electronic communications have yet to be adopted. Threats and violence
against journalists remain a significant factor in self-censorship. Although
criminal charges are increasingly filed for incitement to ethnic, racial and
religious hatred and intolerance, final convictions remain rare. Media
campaigns based on anonymous or leaked sources are frequent. Such
campaigns, detailing investigations or announcing arrests, undermine trust in
the judicial institutions, violate personal data laws and challenge the
presumption of innocence.

Freedom of assembly and association is constitutionally guaranteed and in general
respected. Ninety-one political parties, including 53 representing minorities,
were registered as of September 2013. A working group to draft and implement a
strategy and an action plan for fighting sport-related violence was set up in
March.

The public assembly law has yet to be fully aligned with
the Constitution. While a Pride festival could take place in Belgrade from 21
to 27 September, the Pride Parade itself, scheduled for 28 September, was
banned by the Serbian authorities on security grounds, for the third year in a
row. This decision contradicted the ruling of the Constitutional Court of April
that the 2011 ban on the Pride Parade violated the right to freedom of
assembly. The activities of extreme right-wing organisations and of violent
groups of so-called sports fans continue to be a major cause for concern.
Extreme right-wing organisations published blacklists of media organisations,
NGOs, and prominent human rights defenders they described as ‘traitors’ and
incited violence against them. The authorities have not taken appropriate
action.

Freedom of thought, conscience and religion is guaranteed and in general respected.
Religiously motivated incidents declined. In addition to 7 religious
communities recognised as traditional communities under a law adopted in 2006,
another 18 religious organisations have been registered so far. The lack of
transparency and consistency in the registration process continues to be one of
the main obstacles preventing some smaller religious groups from exercising
their rights, and access to church services in some minority languages is not
fully guaranteed in practice. The rulebook on the register of churches and
religious communities includes disputable provisions and may lead to
contravention of the principle of state neutrality towards the internal affairs
of religious communities.

Relating to women’s rights and gender equality, a
Council for Gender Equality was set up in April as an inter-ministerial body
tasked with proposing measures and initiatives to improve gender equality. Two
special protocols on procedures for police officers and procedures at social
work centres regarding instances of violence against women in the family and in
partner relationships were adopted in February and March respectively. The
protection of women against all forms of violence needs to be strengthened and
mechanisms for coordinating the collection and sharing of data between all
relevant actors in the system enhanced. The Council of Europe Convention on
Preventing and Combating Violence against Women and Domestic Violence has yet
to be ratified. The action plan for the national strategy for prevention and suppression
of violence against women remains to be adopted. Local gender equality commissions have yet to be set up in a
number of municipalities. Labour legislation needs to be fully implemented,
particularly regarding the dismissal of pregnant women and women on maternity
leave, sexual harassment and inequality in promotion and salaries.

In the area of children’s rights, legislation providing for no statute of
limitations for sex offences against children was adopted in April. The new
legislation also provides for stricter surveillance and police measures for
people convicted of similar offences, extending beyond the end of the prison
sentence in order to prevent subsequent offences. The total number of children
in institutional care decreased further. However, the number and difficult
situation of disabled children in large-scale institutions remains of concern.
Roma children, who are over-represented in the state care system, are at higher
risk of living in poverty, of leaving school early, of being victims of
domestic violence and of being placed into care. This is particularly the case
for those children living in Roma settlements. Further efforts are needed to
protect children from violence, especially violence among children and young
people. Cross-sector coordination to detect, refer and respond to cases of
violence against children exists only in less than 20% of municipalities.
Alternative sanctions for juvenile offenders have yet to be developed.

Regarding socially vulnerable and/or persons with disabilities,
amendments to the Law on Vocational Rehabilitation and Employment of Persons
with Disabilities were adopted in April providing for incentives for employers
to recruit persons with disabilities replacing the former system of penalties.
The Law on the Protection of Persons with Mental Disabilities, introducing
basic legal safeguards for the placement and treatment of people with mental
disabilities involuntarily placed in psychiatric institutions, and the Law on
Patients’ rights were adopted in May. Deinstitutionalisation efforts have
further continued, in tandem with the development of community-based services. However, oversight of living conditions in social care institutions
and psychiatric hospitals should be strengthened. The involuntary psychiatric
hospitalisation procedure and the regulations on depriving people with
psychosocial and intellectual disabilities of their liberty should be aligned
with the case law of the European Court of Human Rights. The social integration
of persons with disabilities generally needs to be further improved.

Serbia’s anti-discrimination legislation is broadly
in line with European standards on combating racism and racial discrimination.
A comprehensive anti-discrimination strategy 2013–2018 was adopted in June. It
aims at combating discrimination against people and groups that are more
exposed to discrimination and discriminatory practices, such as the Roma,
women, LGBTI persons, persons with disabilities and children. Changes to the
Criminal Code recognised motivating factors such as ethnic origin, religion or
sexual orientation as an aggravating circumstance of certain ‘hate’ crimes. The
Equality Protection Commissioner’s office has continued to be active in raising
awareness on discrimination and existing mechanisms for protection against
discrimination and received an increased number of complaints from citizens.
Its capacity needs to be improved to cope with the increasing flow of
complaints. However, certain aspects of the anti-discrimination legislation have
yet to be aligned with the acquis, notably the scope of exceptions from
the principle of equal treatment, the definition of indirect discrimination and
the obligation to make reasonable accommodation for disabled employees. The
groups most discriminated against are the Roma, women, persons with
disabilities and LGBTI persons who, together with human rights defenders, often
face hate speech and threats.

Some activities
regarding the protection of lesbian,
gay, bisexual, transgender and intersex (LGBTI) persons have taken place and there has generally been a
more active processing of discrimination cases against the LGBTI population, as
a result of police training, the development of court practices and improved
cooperation with LGBTI persons as witnesses. The Novi Sad Appellate Court
delivered Serbia’s first ruling on discrimination in the work place based on
sexual orientation. However, a pride parade that was to be held on 28 September
in Belgrade was again banned, for the third year in a row, on security grounds.
This raises a number of concerns regarding the lack of sufficient political
support for the protection of the rights of LGBTI population, the lack of
implementation of the constitutionally guaranteed rights of freedom of
expression and assembly as well as the authorities’ capacity to handle threats
from radical groups.

Regarding labour and
trade unions rights, which are guaranteed by the Constitution and broadly
respected, the 1996 Law on Strike has yet to be aligned with International
Labour Organisation conventions. The criteria for selecting representative
social partners have not been revised. Disagreements on these criteria between
the main trade unions continue to block the work of the Economic and Social
Council; its meetings are not regularly attended by government officials, and
its role remains limited. The Council is not regularly consulted on draft laws
within its area of competence. At local level, tripartite social dialogue
remains generally non-existent. (See also Chapter 19 – Social policy and
employment).

With regards to property
rights, the Agency for Restitution continued to implement the 2011
Law on Restitution. Former owners continue to submit claims for restitution.
The Agency receives about 1 000 claims per month (21 500 had been
received by September) and has adopted about 6 100 decisions. By
September, about 2 700 ha of agriculture land and forests, 1 400
apartments and business premises and 135 000 m2 of construction land had
been returned to their owners — at an estimated value of about €300 million.
The special law on restitution of Holocaust-era Jewish properties has not yet
been adopted.

The legal framework
providing for respect for and the
protection of minorities and cultural rights is in place and generally upheld, in line with
the Framework Convention on National Minorities to which Serbia is party. The
government’s Office for Human and Minority Rights has carried out a significant
number of activities but its administrative capacity needs to be strengthened.
A traineeship programme has been set up, offering opportunities in the state
administration to members of under-represented minorities. Measures have been
implemented to broadcast TV programmes in Romanian and language classes have
started to be constituted in Eastern Serbia. The framework for the national
minority councils has yet to be revised in line with the recommendations made
by the independent bodies. The newly re-established, in May, National Council
for Minorities has not yet met. Consistent
implementation of the legal framework on the protection of minorities
throughout Serbia needs to be fully ensured, notably in the areas of education,
use of language, and access to media and religious services in minority
language.

The Autonomous Province of Vojvodina offers a high degree
of protection of minorities and the inter-ethnic situation remained generally
good. Sporadic inter-ethnic incidents were recorded, but their overall number
continued to decrease. Measures to prevent and prosecute such incidents were
agreed in March between central and regional authorities. There have been
appropriate reactions to such incidents by provincial officials and the police,
but the prosecution continued to treat them as misdemeanours rather than
serious criminal offences. The Provincial Ombudsman’s 2012 report noted that
out of 1 248 complaints, 65 (5%) related to minority issues. The political
climate was strained over the issue of autonomous status for the province and
marked by occasional tensions as a number of parties and political movements
started to actively contest the authority and views of the province’s ruling
coalition. Increased activity by extreme right-wing organisations is a cause of
concern.

Regarding the municipalities of Presevo,
Bujanovac and Medvedja, there were some tensions over the issue of
monuments to former members of forces which took part in the 1999-2000
conflicts. Talks have resumed between ethnic Albanian leaders and the new head
of the government’s Coordinating Body leading to a regular dialogue taking
place on improving the situation in the area. After consultations with representatives of ethnic
Albanians, in June the government adopted a comprehensive agenda with measures
ranging from integration into public administration to education and economic
recovery. The Albanian/Serbian
Department of Economics in Bujanovac continued its work. Further scholarships
to study at Novi Sad University were granted to students from Presevo and
Bujanovac. Additional textbooks in the Albanian language were provided for the
2012 school year. A first Investment Potential Fair was held for the three
municipalities in April by the government and the chamber of commerce. Ethnic
Albanians remain underrepresented in the public administration and in local
public companies. The area remains among the poorest in Serbia and requires
further commitment from the state authorities for its economic development.

As regards the Sandzak area, the inter-ethnic
situation remained stable. A curriculum in the Bosnian language was adopted by
the National Education Council in November and preparatory classes started in
February with a view to the regular introduction of classes in this minority
language as of the 2013/2014 school year. In July, the government adopted a
decision extending the programme of publication of free textbooks in minority
languages to the Bosniak language too. The Bosniak community continued to be
underrepresented in the local administration, judiciary and police. The issue
of the election of the Bosniak national minority council and the issue of the
two rival Islamic communities have yet to be solved. The area remains
significantly underdeveloped, with a high unemployment rate and a lack of
adequate infrastructure and investment. It requires further commitment from the
state authorities for its economic development.

Regarding the Roma,
the 2012–2014 action plan to implement the national strategy to improve the
status of the Roma was adopted in June. The recommendations of the June 2011
EU-Serbia seminar on Roma inclusion have been actively followed up and a new
set of operational conclusions addressing the remaining gaps was jointly agreed
in September. Governmental coordination on the issue has improved. A new
procedure to ensure that ‘legally invisible persons’ are registered has started
to be implemented and has led to encouraging initial results. Additional
sustainable housing solutions have been provided. The sustained support
provided to 170 teaching assistants resulted in a further increase in the
enrolment rate for Roma children in the education system, notably at pre-school
level. Further support for a 75-strong health mediators’ network has had a
similar impact on health indicators. Some encouraging results have been
achieved through employment measures targeting the Roma, particularly in
Vojvodina.

However, the Roma still
face difficult living conditions, especially those living in informal
settlements where adequate access to water and electricity is not ensured.
Compliance with international standards on forced evictions and relocations
still needs to be systematically ensured. The Roma continue to be subject to
discrimination, particularly regarding access to social protection, health,
employment and adequate housing. The legal provision allowing social welfare
centres to be used as a temporary address for registration purposes has yet to
be implemented. The Roma population, and especially Roma women, are the most
discriminated against in the labour market and continue to face social
exclusion and high unemployment rates. The school drop-out rate for Roma
children remains high. Roma women and children are still frequently subject to
family violence, which often goes unreported. Roma children remain
over-represented (25%) in the care institutions. Further sustained efforts, including
financial efforts, are needed to ensure full implementation of Serbia’s Roma
strategy and action plan and to address the difficult situation of the Roma
population.

According to the UNHCR,
there are around 57 000 refugees and 209 000 internally displaced
persons (IDPs) in Serbia. The number of collective centres was further
reduced from 24 to 18, providing housing for 2 438 displaced persons. The
programme for supporting municipalities which draft local action plans to
improve the status of refugees and IDPs has continued and some improvement has
been made concerning displaced persons, with further provision of sustainable
housing solutions. Nevertheless, the living conditions of many refugees and
internally displaced persons are still difficult. Many are unemployed and live
in poverty. Internally displaced persons who do not have personal documents are
in a particularly difficult position as they are not able to exercise their
basic rights. Some progress has been achieved as a result of the adoption of
the Law on Permanent and Temporary Residence, which allows IDPs to apply for
residence using the address of a social welfare centre, but the new provision
still needs to be fully implemented in practice.

As regards protection of personal data, the office
of the Commissioner for Free Access to Information of Public Importance and
Personal Data and Protection was allocated new premises in August which should
allow expanding its administrative capacity, when they become functional as
from October 2013. The Commissioner received an increased number of complaints,
mostly concerning police evidence, together with medical and social care
documentation, without being allocated further resources. The legal framework
needs to be further aligned with EU standards in several areas, especially
interception and data protection. An action plan implementing the strategy
still needs to be adopted.

Conclusion

There has been some progress in the area of judiciary and
fundamental rights. Reforms are on the right track. Their implementation will
test Serbia’s preparedness and willingness to proceed forward.

A new five-year strategy and action plan on the judiciary
were adopted. Previously non-reappointed magistrates were re-appointed
following last year’s Constitutional Court rulings. Intensive legislative
activity took place. However, further reforms will require a comprehensive
functional analysis of the judiciary in terms of cost, efficiency and access to
justice, as well as constitutional amendments.

A new strategy and action plan on the fight against
corruption 2013-2018 have been adopted. The number of investigations,
particularly in high-level cases, increased. Implementation of GRECO
recommendations has continued. The implementation of the legal framework and
the efficiency of anti-corruption institutions need to be improved. The
Anti-Corruption Agency needs to make full use of its capacity, in particular
with a view to introducing tougher checks on the funding of electoral campaigns
as soon as possible. The law enforcement bodies need to gain expertise, in
particular in financial investigations, and to become more proactive. There is
no efficient mechanism to protect whistle-blowers. Conflicts of interest need
to be addressed.

Regarding fundamental
rights, a comprehensive anti-discrimination strategy was adopted. Defamation
was decriminalised. A law on mental disability was enacted. Some activities
have taken place regarding the protection of the rights of the LGBTI
population. However, sufficient political support is still lacking and a pride
parade that was to be held in Belgrade was again banned, for the third year in
a row, on security grounds. The authorities need to pay special attention to
protecting media organisations, human right defenders and other vulnerable groups,
including the Roma and LGBTI population from threats and attacks from radical
groups. The implementation of the media strategy remains to be stepped up.
Further efforts are needed to improve conditions in the prison system. Further
efforts are also required to strengthen the data protection legal framework.
The legal framework providing for protection of minorities is in place and
generally respected. It has yet to be fully and consistently implemented
throughout Serbia, notably in the areas of education, use of language, and
access to the media and to religious services in minority languages. While
progress was made, further sustained efforts are needed to improve the
situation of the Roma and of refugees and displaced persons.

4.24.
Chapter 24: Justice, freedom
and security

Visa liberalisation for citizens of Serbia travelling to the Schengen area has
been in force since December 2009. In order to ensure ongoing implementation of
Serbia’s commitments, a post-visa-liberalisation monitoring mechanism has been
established. Serbia is also participating in the reinforced reporting mechanism
agreed following up to the Joint
Declaration on visa-free travel
adopted in Tirana in November. The
Commission will present its fourth monitoring report to the European Parliament
and the Council before the end of 2013. The Serbian national authorities
continued to cooperate in counteracting the phenomenon of unfounded asylum
applications in EU and Schengen countries. Nevertheless, the number of citizens
making unfounded asylum applications abroad is still high. With more than 15 900
applications in 2012 according to Frontex (a 38% increase compared to 2011),
Serbian nationals remained one of the largest groups of asylum applicants in
the EU (especially in Germany). In turn, the number of Serbian citizens finally
granted asylum remained stable in 2012 compared to 2011 (310), with a
recognition rate of around 1%, which continues to indicate largely unfounded
nature of these asylum claims. Serbian authorities took further measures,
including operational cooperation with Member States and awareness raising
campaigns, in order to inform citizens of the consequences of abusing the visa-free
regime. Since the introduction in December of a new criminal offence relating
to facilitation of abuse of the visa-free regime, operational controls have
been carried out on tourist agencies and passenger transport companies. Border
controls, surveillance patrols and risk analysis have been enhanced. However,
despite slight improvement, long-term policies to improve the social and
economic inclusion of the most vulnerable groups of the population most likely
to migrate, including Roma, need to be stepped up in order to make a practical
impact on the situation. Further efforts in these areas need to continue
systematically and be properly funded.

In the field of migration management, Serbian border
authorities demonstrated in general a proactive attitude. They achieved results
as regards interceptions of irregular migrants at border crossing points and in
between border crossing points. The number of irregular migrants detected
passing through Serbia whose final destination is the EU has increased: more
than 13900 illegal border-crossings were reported by Serbia in 2012. This
number is 34% higher than in 2011. A similar trend was observed with detections
of migrants hiding in means of transport when trying to illegally cross the
border (988 cases or 36% more than in 2011 according to Frontex). This
represents four out of ten detections by western Balkan countries. The Law on
Migration Management, adopted in November, identifies the Commissariat for
Refugees and Migration as a central focal point in migration management
policies and establishes a unified
system for data and information collection of relevance to migratory movements.
Coordination with other
administrative bodies, in particular the newly established migration councils
competent at local level, needs to be ensured and sufficient means allocated.

Serbia needs to make further efforts to ensure respect of
the rights of asylum seekers and progressive alignment with the EU acquis on
legal migration. The readmission
agreement between the EU and Serbia continued to be implemented without
significant problems, although capacity and resources for integrating returnees
from the readmission process are very limited. 6 282 persons were returned
to Serbia from EU Member States in 2012 (5 150 in 2011). Under the
Agreement, new bilateral implementing protocols have been signed with the Czech
Republic and Greece. The main countries from which people return are, in order
of decreasing numbers, Germany, Sweden, Switzerland, Denmark, France and the
Netherlands. Joint-patrolling at the new external border with Croatia
needs to be established. Overall,
migration management in Serbia continues to be moderately advanced.

Regarding asylum, claims are still temporarily
processed by the Border Police Asylum Unit. The Asylum Office intended to
operate as the first instance body has
yet to be established in line with the 2007 Law on Asylum. A unified national
database for checking the personal data and fingerprints of foreigners,
including asylum seekers, is being developed but remains to be put in
operation. From over 2 723 applications in 2012 (3 134 in 2011), only
three of those that were maintained
were granted positive protection decisions (none in 2011). The criteria of safe
countries of origin and the list of safe non-EU countries have yet to be fully
aligned with the acquis. The lack of adequate asylum processing, where applicants are neither referred to nor registered in the asylum procedure
as the Asylum Law requires, tends to encourage asylum applicants to see Serbia
as a transit country for entering the EU illegally. Additional reception
facilities with adequate conditions for asylum seekers are also needed,
especially since access to the asylum procedure is dependent on accommodation
at an asylum centre. Overall, Serbia continues to be in the early stages of
aligning with EU asylum policy.

As regards visa
policy, a unified visa information system which would allow a swift
exchange of information among the authorities is still lacking. The list of
countries for which a visa is required has yet to be fully aligned with the acquis.
Overall, Serbia is moderately advanced in aligning its visa policy with
European standards.

In the area of
external borders and Schengen,
the Integrated Border Management (IBM) strategy was revised in November to
enhance the capacity of the coordination body for its implementation. Serbia
has continued to improve the infrastructure and equipment at border crossing
points by completing the installation of an immigration and case management
system and increasing operational field equipment (special cameras, scanners,
fingerprint capturing devices and detection devices). Operational biometric
system solutions at borders, such as the existing Automatic Fingerprint
Identification System (AFIS) and Facial Image Identification System (FIIS) have
also been upgraded. Serbia has been increasingly involved in joint activities
with Frontex and the Western Balkan Risk Analysis network. Operational coordination between border police,
customs and phytosanitary services needs to be improved. The connectivity of the databases from and to
the biometric devices needs to be enhanced in order to support the operations
of the Border Police. Analytical, communication, procedural, training and
technical capabilities need to be strengthened in order to effectively counter
irregular migration. Human resources’ risk analysis capacities need to be
enhanced. Overall, Serbia continues to be moderately advanced on border
management.

As part of the Dialogue
on the implementation of the IBM protocol, Serbia and Kosovo agreed on a
procedure for mutual legal assistance. The procedure entered into force in
March and is facilitated by EULEX.

As regards judicial cooperation in civil and criminal
matters, three agreements with
the former Yugoslav Republic of Macedonia were ratified (one on cooperation in
civil and criminal matters, one on the mutual enforcement of court decisions in
criminal matters and one on extradition of own citizens), together with one
with Slovenia (on mutual enforcement of court decisions in criminal matters),
while three were signed with Turkey (on mutual legal assistance in civil and
commercial matters on the one hand, and in criminal matters on the other hand,
and on extradition) and one with
Bosnia and Herzegovina (on
extradition). A memorandum of understanding on cooperation in
judicial matters was signed with Germany. Serbia signed the fourth additional
protocol to the Council of Europe Convention on Extradition. Serbia also ratified the 2007 Hague Protocol
on the Law Applicable to Maintenance Obligations. An operational agreement with
Eurojust has yet to be signed. Overall, Serbia remains moderately advanced in
the areas of judicial cooperation in civil and criminal matters.

In the field of police cooperation and the fight against
organised crime, the
institutional framework to fight against organised crime is in place.
Operational coordination and cooperation between law enforcement authorities,
together with regional and international cooperation have yielded some results
in high profile investigations into organised crime groups. A bilateral
agreement on police cooperation with Montenegro came into force in March. Some
measures have been taken towards improving the methodology and standards of the
police, including in strategic planning and reform of human resources
management. Nevertheless, organised
crime remains a serious concern in Serbia. Although criminal investigations
have been launched in a number of cases, final convictions remain rare. The
capacity to carry out financial investigations in parallel with complex
criminal investigations needs to be built up. Certain specialised services, in
particular the unit for witness protection, continue to lack sufficient staff,
resources and adequate premises. Existing regional instruments of cooperation
need to be fully used in order to strengthen joint strategic and operational
measures. A centralised criminal intelligence system and harmonised statistical
data remain to be established. An integrated IT system linking the police,
prosecution and the courts now appears necessary to enhance the effectiveness
of the fight against organised crime. Risk assessments and crime mapping need
to be used more broadly and intelligence-led policing needs to be developed.
The dependence of the police on the security intelligence agency to carry out
certain special investigative measures in criminal investigations is not in
line with EU standards. In particular, the legal framework does not clearly
distinguish between interception for criminal investigation and interception
for state security, contrary to European best practices, while data retention
rules comply with the EU acquis on data retention. An operational
agreement with Europol has yet to be signed. Overall, Serbia is moderately
advanced as regards police cooperation and the fight against organised crime.

In relation to cybercrime,
a Ministry Instruction has been issued governing the seizure and handling of
digital evidence and 180 police officers and senior managers have received
basic training including a booklet on first response procedures to high-tech
crime. However, structured training and adequate resources remain necessary.
The High-Tech Crime Unit (HTCU), responsible for cybercrime investigation since
2010 within the Ministry of the Interior, lacks sufficient resources and needs
to strengthen its capabilities in order to manage the increasing volume and
complexity of its tasks. The introduction of specialist tools and techniques
are needed to bring the unit up to modern operational international standards.
In order to optimise the fight against cyber-crime, partnership with the
private and public sectors and academia have to be concluded. Overall, the
fight against cyber-crime in Serbia is at an early stage.

30 requests for seizure
of assets were approved in full in 2012, 9 partially and 19 denied,
while out of 14 requests for confiscation of assets submitted, 3 were approved
in full, 1 partially, 4 denied and 6 are still pending. A new law on recovery
of the proceeds from crime was adopted in May, which allows extended
confiscation through a reverse burden of proof. The Directorate responsible for
the seizure of assets needs appropriate resources in terms of staff and
capabilities, together with storage
space. Data registration by the Directorate needs to be improved to satisfy
requirements on security, accessibility and protection of sensitive data. Coordination between the prosecutors, the FIU,
and the institutions involved in asset recovery needs to be further improved,
together with training for judges and prosecutors.

The Administration for
the Prevention of Money Laundering (APML) intensified reporting on suspicious
transactions and cooperation with prosecution services. It continued training
courses for its staff and awareness-raising activities for reporting entities.
APML made further efforts to improve national and international cooperation in
the investigation and processing of offences. Nevertheless, APML still lacks
sufficient human resources and analytical capacity to systematically identify
suspicious cases. The level of reporting of suspicious transactions remains
low, in particular outside the banking sector, and especially in the real
estate sector, currency exchange offices and insurance companies. An effective
system for monitoring and analysing cash transactions needs to be put in place
and made operational. Judiciary and law enforcement services lack expertise in
handling money laundering cases. A track record of financial investigations and
final convictions in money laundering cases needs to be built up. A new
strategy for fighting money laundering has yet to be adopted. Overall, Serbia
is moderately advanced in the fight against money laundering.

Serbia remained a country of origin, transit and
destination for trafficking in human beings. Awareness campaigns
have been conducted and training was organised for operational stakeholders. An
increased number of investigations are being launched. A new Centre for the
Protection of Victims of Trafficking has been established, but is not yet fully
operational. A comprehensive, multi-disciplinary and victim-oriented approach
to trafficking still needs to be developed. Victims’ identification needs to be
improved, together with their access to assistance,
support and protection. A new
anti-trafficking strategy and action plan for 2013‐2018 are pending adoption. Overall, Serbia is moderately advanced in fighting
trafficking in human beings.

As regards the fight against terrorism, the Criminal Code was amended to introduce
relevant criminal offences in line with international standards and the EU acquis.
A new strategy and implementing action plan for fighting terrorism have yet to
be finalised, together with a new
law on freezing of assets proceeding from terrorism. A national database and more efficient exchange of
information are still needed, while internal organisation and inter-agency
cooperation also need further improvement. Overall, Serbia is moderately advanced in fighting
terrorism.

As regards cooperation in the field of drugs, a new
strategy for the period 2013-2020 has yet to be finalised. Serbia has shown commitment and operational
capacity in contributing to the dismantling of international drug trafficking
groups. A stronger focus on drugs prevention is needed. The national focal
point for the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA)
is not yet fully operational and should strengthen its capacity to adequately
perform data collection and reporting. The country is on the main Balkans drug trafficking routes
and continued and sustained efforts are needed by all involved law enforcement
relevant agencies, including the customs administration, to detect and seize
narcotics at the borders. Consumption remains a matter of concern. Cooperation
between law enforcement bodies has to be improved and the process of accreditation for the Forensic Institute
of the Serbian police needs to be completed. Effective destruction of seized drugs is still a concern.
Overall, Serbia is moderately advanced regarding cooperation in the
field of drugs.

Concerning customs
cooperation (See also Chapter 29 — Customs union), Serbia’s customs
administration engaged in joint cases with agencies from neighbouring countries
and continues to take an active part in international activities concerning the
fight against illegal trade in goods such as narcotics, oil and cigarettes and
cross-border movement control. However, Serbia still needs to align its legal
framework with EU legislation on the use of technology for customs purposes.
Overall, Serbia is moderately advanced regarding the cooperation in the field
of customs.

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

Conclusion

Serbia made some
progress in the area of justice, freedom and security. Serbia is actively
involved in international police and judicial cooperation. A track record of
proactive investigations and final convictions in organised crime cases needs
to be established. Additional efforts are needed to improve coordination
between law enforcement agencies and the judiciary and to increase capacity to
carry out financial investigations in parallel with complex criminal
investigations. Migration management and asylum policies also need to be
significantly strengthened and the asylum procedures need to be put in line
with EU standards. Overall, Serbia is moderately advanced in the area of
justice, freedom and security.

4.25.
Chapter 25: Science and
research

In the area of research and innovation policy, the
level of investment in research stagnated at around 0.5% of GDP, below the
national target specified in the strategy for scientific and technological
development for the period 2010-2015 and well below the EU 2020 target of 3%.
The action plan implementing this strategy has still not been adopted.

Concerning participation in framework programmes,
Serbia continues to be successful in the Seventh EU Research Framework
Programme (FP7) but further efforts are necessary in particular in preparation
of participation in Horizon 2020 to involve more small and medium-sized
enterprises and obtain Marie Sklodowska-Curie grants. Serbia has also been
successful in COST and EUREKA actions. Serbia successfully participated for the
first time as third country in the FP7 Euratom programme. Serbia expressed an
interest in becoming associated to the next EU research and innovation programme
Horizon 2020 and started preparations on this.

Regarding the European
Research Area, a Research Infrastructure roadmap, in accordance with the
European Strategic Forum for Research Infrastructures standards, has yet to be
adopted. No actions to strengthen the human capital building have been taken.
Concerning the Innovation Union, Serbia took some actions such as supporting
the Business Technology Incubator of technical faculties in Belgrade. The
Innovation Fund started to disburse some grants to stimulate innovative
companies in different sectors. Further efforts are necessary, including the
adoption of a national strategy on innovation.

Conclusion

Limited progress was registered in the area of science and
research. Public and private investments in research remain low. National
research capacity and the implementation and monitoring of the actions
envisaged remain to be improved. Overall, preparations in the area of science
and research are on track.

4.26.
Chapter 26: Education and
culture

In the field of education
and training, a strategy on the development of education up to 2020 was
adopted by the government in November. The strategy is in line with EU’s 2020
educational goals and envisages mandatory secondary education, stronger links
with the labour market and economic development, the objective of sharply
increasing the number of persons with higher education by 2020 and to increase
investment in education from the current 4.5% to ca. 6% of GDP. In June, a
legislative package on education was adopted: The Law on Elementary Education
and Upbringing and the Law on Secondary Education and Upbringing provide for
increasing education opportunities for vulnerable groups and reinforce quality
assurance. The Law on Education of Adults brings substantial improvements in
adult education, implementing experiences and recommendations from pilot
projects. The revision of vocational education profiles (VET) has been
initiated, thus mainstreaming numerous VET pilot projects implemented over the
past ten years.

However, the implementation of education reforms needs to
be improved. An action plan for the implementation of the strategy on the
development of education has yet to be adopted. The reform of the VET system,
which does not match labour market needs, has yet to be fully carried out,
notably regarding systematising new pilot programmes in VET schools. Quality
assurance reforms in primary and secondary education have been slow. The lack
of an efficient system of recognition of diplomas represents a serious
impediment to graduates for further schooling and employment. A National
Qualifications Framework for all levels of education has yet to be introduced.
Serbia’s participation in the EU’s lifelong learning programme has yet to be
decided.

The implementation of the youth law and strategy is
ongoing with an increasing number of registered youth organisations, youth
offices and local action plans. The Ministry of Youth and Sports is supporting
young people with volunteering activities as well as internships and career
counselling programmes. Serbia has further increased its participation in the
EU’s ‘Youth in Action’ programme.

In the field of culture, Serbia signed a memorandum
of understanding in November and started to participate in, and actively
promote, the ‘Europe for Citizens’ programme through the Office for Cooperation with Civil Society. It also continued to participate in the EU’s
Culture programme.

Conclusion

Good progress has
been made in the area of education and culture with the adoption of the
strategy on the development of education and a new comprehensive legislative
package. The strategy remains to be followed-up with a realistic action plan and
roadmap for its implementation. Educational reforms’ implementation remains
slow and further efforts are needed with a view to ensure a holistic approach
to match education with labour market needs. Overall, preparations for aligning with EU standards are moderately advanced.

4.27.
Chapter 27: Environment and climate change

In the area of the environment,
as regards horizontal legislation, an agreement on operating a
fourth local Aarhus centre was reached. The first National Ecoregister for
Environmental Information in electronic form was launched in January. In 2012,
197 operators in total reported their data to the Serbian pollutant release and
transfer register, according to the European
Regulation on Pollutant Release and Transfer thresholds (of 270 with a reporting obligation). Reports are mainly
lacking from agricultural and mining operators. Serbia has established the Serbian
node of the European Environmental Information and Observation Network
(EIONET), which connects 23 national providers of environmental monitoring
data, including the public health institutes and statistical office. Further
inter-institutional agreements, unified reporting formats and financing need to
be ensured to guarantee proper functioning. The implementation of the
Environmental Impact Assessment Directive needs to be improved, as regards
particularly the public consultation process.

As regards air
quality, a regulation setting out zones and agglomerations and a list of
air quality categories were adopted in October. An air quality management plan has been adopted for the
city of Bor, whereas those for Belgrade and Novi Sad are under preparation.

In the area of waste
management, a new regional waste management centre has been opened in
Pirot. Serbia has 6 EU compliant regional sanitary landfills currently
functioning. The collection rate of household waste has increased from 72% to
78%. Other forms of waste management need to be developed in order to use
landfilling only as a last resort. Non-compliant landfills need to be closed
more quickly and enforcement of waste legislation enhanced. Full alignment with
the Waste Framework Directive is yet to be achieved. New investments in the
area of waste should focus more on waste separation and recycling. An
investment pipeline linked to strategic priorities remains to be developed.
Progress in hazardous waste management has been impeded by the cancellation of
the previously applied system of product charges.

As regards water
quality, a Regulation on the Annual Water Monitoring Programme was adopted
in April. Completion of the surface and groundwater monitoring network is
pending, as is the alignment of the geographical remit of the river basin
management authorities to the boundaries of the river basins. Strategic
investment planning in water pollution abatement continues to be hampered by
the absence of a national water protection strategy. The delineation of
competences between the national and local levels for infrastructure projects
needs to be clarified. Projects charged with flood risk mapping have been
concluded and vulnerability and flood risk maps for about 50% of Serbia’s
flood-prone areas are in place. The construction of plants in Vrbas, Kula,
Leskovac and Sabac has not yet been completed. The capacity of the Ministry of
Agriculture’s Water Directorate remains to be enhanced.

As regards nature
protection, the implementation of the CITES Convention has improved. The
institutional framework for designating and managing the Natura 2000 sites
needs to be confirmed and methodological and resource problems with regard to
habitats and species data collection, mapping and monitoring resolved. The
delineation of competences between local and national levels needs to be
clarified and local governments’ resources increased.

In the field of industrial
pollution and risk management, 105 out of an estimated 161 integrated
pollution prevention and control (IPPC) installations have submitted their
requests for integrated permits. Six permits have so far been issued. The
current practice of having separate water and waste permits is not in line with
the requirements of the IPPC Directive. Linkages between environmental impact
assessments and IPPC need to be strengthened and their synergies exploited.
Capacity at central and local level for issuing IPPC permits is insufficient.
Intra- and interinstitutional cooperation needs to be established. Minimum
standards for assuming statutory duties at local level are yet to be ensured
before competencies are devolved. The public participation foreseen in the
integrated permitting process needs to be significantly enhanced.

As regards chemicals
management, the closure of the Chemicals Agency in September and the
transfer of its mandate to the Ministry of Energy, Development and
Environmental Protection have removed the legal basis for carrying out
statutory duties related to issuing permits and decisions. Serbia needs to re-instate
a sound legal basis for chemicals management. Joint inspections under the Law
on Chemicals have been discontinued. The advanced level of competence in this
domain should be preserved in the new structure and the legislation applied
again.

In the area of noise,
targets should be defined to meet the national deadlines for
implementing the provisions of the law on the protection against environmental noise
in 2015 and 2016.

As regards civil
protection, in January, the National Emergency Management Headquarters has
been transformed into the National Platform for Disaster Risk Reduction. The intergovernmental agreement between Russia and Serbia on the establishment
of the Nis humanitarian centre was ratified in December. In order to develop a
regional approach with a strong EU dimension to disaster prevention,
preparedness and response, cooperation needs to be ensured with the EU Civil
Protection Mechanism, which Serbia, as a candidate country, can join. The
bilateral agreement with France on emergency assistance has not yet been
signed. The implementation of Action plans related to the National Strategy for
Protection and Rescue, and for Disaster Risk Reduction and the Strategy for
Fire Protection, adopted in 2011 and 2012 respectively, has not yet been completed.

Regarding climate
change, the country does not yet have a comprehensive countrywide climate
policy or strategy. Serbia regularly associated itself with EU positions in the
international context. While having previously associated itself also with the
Copenhagen Accord and having submitted an assessment of its mitigation
potential to the UNFCCC, the country nevertheless has not yet put forward a
commitment for mitigation by 2020. Serbia should consider making mitigation
commitments consistent with those of the EU and its Member States for the
purpose of the post-2020 climate agreement to be reached by 2015. Also, in line
with the EU Green Paper ‘A 2030 framework for climate and energy policies’,
Serbia is invited to start reflecting on its climate and energy framework for
2030.

As regards alignment
with the climate acquis, Serbia adopted implementing legislation on the
quality of petrol and diesel fuels. 157 stationary installations for the
purpose of future implementation of an emissions trading system were
identified. Significant efforts are required to strengthen the country’s
monitoring, reporting, and verification capacity. Serbia participated regularly
in climate work under the Regional Environmental Network for Accession (RENA).
Awareness-raising at all levels and relevant initiatives need to be further
intensified. An administrative structure on climate change with adequate human
and financial resources and clearly defined responsibilities is yet to be
established. Inter-institutional cooperation and coordination, and capacity in
the area, need to be improved.

Conclusion

Little progress has been made in the areas of environment
and climate change. Significant additional efforts are needed to further align
with EU policies in areas such as water, waste management, air quality and
nature protection. Implementation of the existing legislation needs to be
improved and related capacity maintained. Efforts under way to strengthen
inspection and enforcement need to be accompanied by removing inconsistencies
and incompleteness in legislation that prevent effective enforcement. Public
participation and consultation in the decision-making processes need to be
strengthened. Considerable efforts are required to adopt a more strategic
approach for the country, align with and implement the EU climate acquis,
and to strengthen administrative capacity and inter-institutional cooperation
and awareness-raising. An investment pipeline linked to strategic priorities
needs to be developed. Overall, priorities in the fields of environment and
climate change have started to be addressed.

4.28.
Chapter 28: Consumer and
health protection

In the area of consumer
protection, as regards horizontal aspects, the National Council for
Consumer Protection was established in October and cooperation with consumer
protection organisations has continued to improve, as has implementation of the
existing legislative framework. The strategy for consumer protection 2013-2018
was adopted in July. The administrative capacity and coordination of the departments
in charge of consumer protection in the line ministries need be reinforced as
well as their cooperation with consumer protection organisations.

As regards product
safety-related issues, a product safety council was established in June
with the role of introducing new standards in market surveillance for non-food
products, and further aligning this sector with EU standards. Tools and
procedures for the mediation process and the legal framework for out-of-court
settlement of consumer protection disputes still need to be strengthened. There
was no further legal alignment.

As regards non-safety
related issues, further alignment of the law on the protection of users of
financial services is still required.

In the area of public health, the overall financial
sustainability of the public health system in Serbia is still seriously
endangered by the poor financial situation of the public health fund.

There were no developments in the area of tobacco
control.

In the area of communicable diseases, some case definitions
for reporting communicable diseases, including clinical, laboratory and
epidemiological criteria, are still lacking and EU case definitions have to be
progressively adopted. Surveillance and response capacity remains limited and
requires modernisation, in particular in the form of human resources and
equipment. More attention is needed for effective implementation of the
national HIV/AIDS strategy and awareness raising. Additional efforts are needed
in particular in surveillance of antimicrobial resistance.

In the area of blood, tissues, cells and organs,
further efforts are needed to implement the Law on Organ Transplantation. The
administrative and technical capacity of the Directorate for Biomedicine in the
Ministry of Health needs to be strengthened.

In the field of patients’ rights in cross-border
healthcare, the government adopted a Law on Patients’ Rights governing the
rights of patients in the use of healthcare and the manner in which they
exercise and protect such rights.

In the field of mental
health, in March the government adopted a Law on the Protection of Persons
with Mental Health Problems which regulates mental healthcare system including
procedures, organisation and conditions of treatment as well as retention of
persons with mental disorders. Community-based mental health services should be
further supported and developed.

In the area of drug
abuse prevention, measures to curb the supply of illicit drugs and to
provide needle exchange and substitution treatment to prevent HIV were taken. As regards cancer screenings, full
implementation of the national screening programme for colorectal and cervical
cancers has yet to be achieved. Some progress can be noted in the field of rare
diseases, especially in providing more sustainable funding for treatment
and implementation of legislation.

Conclusion

There has been some progress in the area of consumer and
health protection, in particular with regard to the strategy on consumer
protection. Further efforts need to continue on implementing the existing
legislative framework, to pursue alignment with the acquis and its full
implementation. Institutional coordination between the relevant actors and
administrative capacity in both areas need to be strengthened. The overall
financial sustainability of the public health system in Serbia needs to be
strengthened. Overall, preparations in this area remain moderately advanced.

4.29.
Chapter 29: Customs union

As regards customs
legislation, the Customs Law was amended in November and was further
aligned with the acquis and with national legislation, particularly with
some provisions of the Budget System Law. The Serbian government amended the
decree on customs tariff nomenclature in November with the aim of aligning it
with the 2013 EU Combined Nomenclature and with the liberalisation schedule
under the Interim Agreement.

Further harmonisation is
needed in the field of customs legislation. The Law on the Customs Service
remains to be adopted. An adequate legislative framework on cultural goods is
missing. The provisions on cash control have yet to be aligned with the acquis.
The same goes for duty relief on imports of new production equipment. Legislation
on customs-related security initiatives and authorised economic operators has
yet to be implemented. The Serbian parliament ratified the Pan-Euro-Med
Convention on Rules of Origin.

As regards administrative
and operational capacity, the Customs Administration (CAS) has continued to
improve its administrative capacity to effectively enforce the customs
legislation. It continued to apply integrity procedures for customs officials
and to step up the fight against corruption. Post-clearance controls and risk
analysis systems are implemented following the two respective strategies.
Simplification of customs procedures continued and the number of companies
making use of such procedures increased. Coordination between the CAS and the
Ministry of Finance and Economy is strengthening. The CAS is aiming to
establish a functioning IT system based on interconnectivity between various
departments. Over 95% of customs declarations are submitted electronically and
the concept of electronic signature has been introduced. About 17% of
declarations are subject to documentary or physical inspections. The electronic
application for the protection of Intellectual Property Rights is used by around
45% of the rights holders. In terms of trade facilitation, the electronic
system for exchanging pre-arrival information with Bosnia and Herzegovina,
Montenegro and the former Yugoslav Republic of Macedonia is functioning well.

A new border crossing
on the Serbia-Hungarian border was opened in May. A big challenge remains the
upgrading of the customs declaration processing system (CDPS) and the customs
laboratory.

Customs procedures
between Kosovo and Serbia have further progressed with the opening of joint
interim crossing points in December 2012 and January 2013 at six locations,
including the two crossing points in northern Kosovo, as per the IBM agreement.
The establishment of these co-located crossing points has allowed daily
cooperation between both administrations and regular exchange of information. On
17 January, both parties concluded an agreement for the restoration of customs
controls at the two crossing points (gates 1 and 31). In the meantime, the administrative border/boundary line
between Kosovo and Serbia remains vulnerable to illicit activities.

Preparations in the area
of administrative and operational capacity are on track.

Conclusion

There has been some progress in the area of the customs
union. The Customs Law and legislation on the tariff nomenclature were further
aligned with the acquis. The CDPS system needs to be renewed or
upgraded. Overall, preparations in the area of the customs union are well on
track.

4.30.
Chapter 30: External
relations

In the area of the common
commercial policy, the finalisation of Serbia’s World Trade Organisation
membership remains dependent on the adoption of a WTO-compliant law on
genetically modified organisms and on the completion of bilateral market access
negotiations with a number of countries (in particular USA and Ukraine), mainly
on agricultural products.

Coordination between
various ministries for formulation and implementation of trade and
trade-related policies still needs to improve.

The national control lists
for military equipment and for dual-use goods were adopted and aligned with the
relevant EU lists in November and February respectively. Legislation on dual use goods which would further align Serbian legislation with
the acquis remains to be adopted. Efforts to
join multilateral export control regimes should continue.

As concerns bilateral
agreements with third countries, Serbia is currently negotiating a free
trade agreement (FTA) with Ukraine. Serbia’s trade arrangements with the Russian
Federation, Belarus and Kazakhstan were harmonised, since the three countries
form a customs union. Serbia has ratified bilateral investment treaties (BITs)
with Algeria and the United Arab Emirates. Serbia signed the
Pan-Euro-Mediterranean (PEM) Convention on Rules of Origin in November. It was
ratified by parliament in May. There were no developments in the areas of development
policy and humanitarian aid.

Conclusion

Limited progress has
been made in the field of external relations. Accession to the WTO is moving
slowly. Overall, preparations in the area of external relations are moderately
advanced.

4.31.
Chapter 31: Foreign,
security and defence policy

Political dialogue between the EU and Serbia has continued and
regular political consultations were held. (Concerning relations with other enlargement countries and
Member States, see Political
criteria 2.3 — Regional issues and international obligations)

Concerning the
common foreign and security policy (CFSP), Serbia aligned itself, when
invited, with 31 out of 35 EU declarations and Council decisions (89%
alignment). But at the same time,
Serbia moved one step closer to the Collective Security Treaty Organisation,
obtaining observer status in its Parliamentary Assembly in April.

Serbia continued to
implement the UN Security Councils’ restrictive measures. However, the
Law on Restrictive Measures, that would establish a system for tracking the
implementation of restrictive measures, has yet to be adopted. (Concerning
the International Criminal Court, see Political criteria 2.3 — Regional issues
and international obligations.)

Regarding conflict
prevention, no particular developments can be reported.

Regarding non-proliferation,
Serbia became a member of the Nuclear Suppliers Group (NSG) at the NSG’s
annual plenary meeting in Prague in June. An action plan to implement the
national strategy on small arms and light weapons has been adopted in August. A
working group on the implementation of UN Security Council Resolution 1540 on
the Non-Proliferation of Weapons of Mass Destruction and their Means of
Delivery was set up in December and Serbia hosted a regional seminar regarding
implementation of the Resolution in May. Serbia’s 2008 application to join the
Wassenaar Arrangement on export controls for conventional arms and dual-use
goods and technologies remains dependent on a new law on dual-use goods which
has yet to be adopted. The ratification of the Additional Protocol to the
Nuclear Non-Proliferation Treaty is still pending.

Serbia continued to
engage actively in cooperation with international organisations (UN, OSCE,
Council of Europe, etc.). In September, Serbia completed its presidency of
the 67th UN General Assembly.

As regards security
measures, no particular developments can be reported.

Regarding the common
security and defence policy (CSDP), in February parliament adopted an
annual plan for the use of the Army of Serbia and of other defence forces in
multinational operations and a decision on the participation of members of the
Serbian Army in multinational operations. It continued participation in two EU
civil and military crisis management operations, the EU
Navfor-Atalanta Somalia operation and EUTM Somalia operation, with one member
each. Serbia responded positively in May to the EU invitation to participate in
the EUTM Mali operation and agreed to participate with one medical team and one
training team.

Conclusion

Serbia continued to further align with EU CFSP statements
and declarations and continued to participate in EU civil and military crisis
management operations. Legislation on the tracking mechanism for the
implementation of EU restrictive measures, and on dual-use goods has yet to be
adopted. Overall, preparations in the area of foreign, security and defence
policy are well on track.

4.32.
Chapter 32: Financial
control

In the area of public
internal financial control (PIFC), the action plan of the current PIFC
strategy has been updated. The Central Harmonisation Unit (CHU) has revised the
internal audit manual to broaden the scope of audit activity. The number of
internal auditors has gradually increased. In the area of Financial Management
and Control (FMC), the CHU has organised additional training to budget users on
topics such as risk management techniques and audit trails. The CHU has started
to provide training and methodological guidance also to local government level.
The CHU should gradually move from being a training provider to a strategic
role in training needs analysis and management.

The Budget System Law was amended to clarify provisions on
managerial accountability in 2012. However, FMC continues to be understood in a
narrow sense, focusing too much on the legality and regularity of financial
transactions. Managerial accountability will need to be further explained in
the relevant implementing legislation. There is no coherent strategic
management process in place yet for budget users that would allow full
application of managerial accountability. More awareness-raising among senior
public-sector managers is needed to increase understanding of their specific
role and responsibilities in setting up FMC and of the role of an internal
auditor within their organisation. As the current PIFC strategy is coming to an
end in 2013, a new strategy and an action plan need to be prepared. The role of
centralised budget inspection needs to be regulated so that it is compatible
with PIFC.

In the area of external
audit, the State Audit Institution (SAI) has continued to build up its
audit capacity by recruiting more auditors. The SAI now has approximately 190
staff, including around 150 auditors. The SAI has implemented the 2012 audit
programme with 145 audits as planned. The SAI is still in the
institution-building phase and its audit capacity is insufficient for full
audit coverage. Performance audit work has only recently started. The SAI Law is broadly in line with the standards of the
International Organisation of Supreme Audit Institutions (INTOSAI), but it
should be further strengthened for full operational and financial independence
of the SAI. The law gives the SAI specific
responsibility for submitting requests for filing misdemeanour charges with the
competent authority. This takes up some of the SAI’s limited audit resources
that could instead be used for additional audit work.

There were no developments
in the area of protection of the EU’s financial interests. Serbia still
needs to decide where to set up a contact point for cooperation with the
European Commission.

As regards protection of the euro against counterfeiting,
the National Bank of Serbia (NBS) acts as a national analysis centre and
has concluded agreements facilitating prevention and detection of euro
counterfeiting with the European Central Bank (on banknotes) and the Commission
(on coins). Serbian authorities
have continued to participate in relevant EU and international training
programmes.

Conclusion

Some progress has been made in the area of financial
control. Substantial further efforts are needed to develop public-sector
financial management and control based on the underlying concept of managerial
accountability and to develop full external audit capacity. Overall,
preparations in this area are moderately advanced.

4.33.
Chapter 33: Financial and
budgetary provisions

There were no
developments in the areas of traditional own resources, the VAT resource
and GNI resource. (For
progress in the underlying policy areas, see Chapter 16 — Taxation; Chapter 18 — Statistics; Chapter
29 — Customs union; and Chapter 32 — Financial control).

As concerns the administrative
infrastructure, administrative capacity in the relevant policy areas needs
to be strengthened. A coordinating body to ensure correct calculation,
accounting, forecasting, collection, payment and control of own resources has
yet to be established. The body is also required for reporting to the EU on the
implementation of the own resources rules. Instruments to fight and reduce tax
evasion and fraud and to reduce the informal economy also need to be further
developed.

Conclusion

No progress has been
made with regard to financial and budgetary provisions. A coordinating body to
ensure correct calculation, accounting, forecasting, collection, payment and
control of own resources has yet to be established. Overall, preparations in
this field are at an early stage.

Statistical Annex

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

Serbia || || || || || ||

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

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

Population (thousand) || || 7 505 || 7 366 || 7 335 || 7 307 || 7 276 || 7 241p

Total area of the country (km²) || || 77 474 || 77 474 || 77 474 || 77 474 || 77 474 || 77 474

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

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

Gross domestic product (GDP) (million national currency) || || 762 178 || 2661 387 || 2720084 || 2881 891 || 3 208 620 || 3386169e

GDP (million euro) || || 12 821 || 32 668 || 28 957 || 28 006 || 31 470 || 29 932e

GDP (euro per capita) || 1) || 1 709 || 4 445 || 3 955 || 3 841 || 4 336 || 4 134e

GDP (in Purchasing Power Standards (PPS) per capita) || || : || 8 996 || 8 378 || 8 471 || 8 688 || 9 026e

GDP per capita in PPS (EU-27 = 100) || || : || 36 || 36 || 35 || 35 || :

Real GDP growth rate (growth rate of GDP volume, national currency,% change on previous year) || || 5.3 || 3.8 || -3.5 || 1.0 || 1.6 || -1.7e

Employment growth (national accounts,% change on previous year) || || 2.0 || 1.0 || : || : || : || :

Labour productivity growth: GDP growth per person employed (% change on previous year) || || 3.5 || 4.5 || : || : || : || :

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 || || 19.5 || 10.4 || 9.3 || 9.9 || 10.5 || 10.1e

Industry || || 24.6 || 21.9 || 22.4 || 22.5 || 23.6 || 23.5e

Construction || || 3.3 || 5.5 || 4.8 || 4.6 || 4.9 || 4.3e

Services || || 52.6 || 62.2 || 63.5 || 63.0 || 61.0 || 62.2e

Final consumption expenditure, as a share of GDP (%) || || 104.0 || 97.1 || 99.6 || 99.8 || 96.3 || 96.5p

Gross fixed capital formation, as a share of GDP (%) || || 10.7 || 23.8 || 18.8 || 17.8 || 18.5 || 17.9p

Changes in inventories, as a share of GDP (%) || || 1.0 || 6.0 || -0.7 || -0.5 || 1.7 || 3.4

Exports of goods and services, relative to GDP (%) || || 25.6 || 31.4 || 29.4 || 36.0 || 36.6 || 39.9p

Imports of goods and services, relative to GDP (%) || || 41.3 || 58.2 || 47.1 || 53.0 || 53.0 || 57.7p

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

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

Industrial production volume index (2010=100) || || 96.9 || 113.1 || 98.8 || 100.0 || 102.5 || 100.2

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

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

Annual average inflation rate (CPI,% change on previous year) || || 93.3 || 11.7 || 8.4 || 6.5 || 11.0 || 7.8

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

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

Balance of payments: current account total (million euro) || || 282 || -7 054 || -1 910 || -1 887 || -2 870 || -3 155

Balance of payments current account: trade balance (million euro) || || -2 602 || -8 501 || -4 946 || -4 581 || -5 318 || -5 450

Balance of payments current account: net services (million euro) || || 272 || -185 || 21 || 8 || 163 || 152

Balance of payments current account: net income (million euro) || || 7 || -922 || -502 || -670 || -758 || -798

Balance of payments current account: net current transfers (million euro) || || 2 605 || 2 554 || 3 518 || 3 356 || 3 043 || 2 941

of which government transfers (million euro) || || 652 || 163 || 197 || 193 || 206 || 144

Net foreign direct investment (FDI) (million euro) || || 184 || 1 824 || 1 372 || 860 || 1 827 || 232

Foreign direct investment (FDI) abroad (million euro) || || -14 || -193 || -38 || -143 || -122 || -42

of which FDI of the reporting economy in EU-27 countries (million euro) || || : || -78 || -28 || -33 || -84 || -19

Foreign direct investment (FDI) in the reporting economy (million euro) || || 198 || 2 018 || 1 410 || 1 003 || 1 949 || 274

of which FDI of EU-27 countries in the reporting economy (million euro) || || : || 1 470 || 808 || 778 || 1 690 || -25

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

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

General government deficit/surplus, relative to GDP (%) || || : || -2.6 || -4.5 || -4.7 || -4.9 || -6.4e

General government debt relative to GDP (%) || || 104.8 || 26.9 || 34.0 || 43.5 || 46.0 || 59.0e

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

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

Gross foreign debt of the whole economy, relative to GDP (%) || || 86.1 || 64.5 || 77.7 || 85.1 || 76.7e || 85.9

Gross foreign debt of the whole economy, relative to total exports (%) || || 407.3 || 207.6 || 265.3 || 236.2 || 210.3 || 215.9

Money supply: M1 (banknotes, coins, overnight deposits, million euro) || 2) || 975 || 2 717 || 2 695 || 2 401 || 2 807 || 2 715

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) || 3) || 1 141 || 4 459 || 4 555 || 3 891 || 4 663 || 4 227

Money supply: M3 (M2 plus marketable instruments, million euro) || 4) || 2 101 || 11 198 || 12 573 || 12 899 || 14 339 || 14 438

Total credit by monetary financial institutions to residents (consolidated) (million euro) || || 4 866 || 12 926 || 14 863 || 17 544 || 18 995 || 19 783

Interest rates: day-to-day money rate, per annum (%) || || : || 18.4 || 9.5 || 12.0 || 8.5 || 9.8

Lending interest rate (one year), per annum (%) || || 16.9 || 20.3 || 12.0 || 14.0 || 12.3 || 13.8

Deposit interest rate (one year), per annum (%) || || : || 15.3 || 7.0 || 9.0 || 7.3 || 8.8

euro exchange rates: average of period - 1 euro = … national currency || 5) || 59.458 || 81.441 || 93.952 || 103.043 || 101.950 || 113.128

Effective exchange rate index (2005=100) || 6) || 78.6 || 132.1 || 122.2 || 115.4 || 127.1 || 118.3

Value of reserve assets (including gold) (million euro) || || : || 8 162 || 10 602 || 10 002 || 12 058 || 10 914

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

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

Value of imports: all goods, all partners (million euro) || || : || 16 283 || 11 327 || 12 423 || 14 250 || 14 782

Value of exports: all goods, all partners (million euro) || || : || 7 429 || 5 961 || 7 393 || 8 441 || 8 837

Trade balance: all goods, all partners (million euro) || || : || -8 854 || -5 366 || -5 030 || -5 809 || -5 945

Terms of trade (export price index / import price index) || || 103.1 || 97.6 || 100.9 || 99.5 || 103.5 || 101.8

Share of exports to EU-27 countries in value of total exports (%) || || : || 54.2 || 53.6 || 57.3 || 57.7 || 58.1

Share of imports from EU-27 countries in value of total imports (%) || || : || 55.0 || 56.7 || 55.8 || 55.5 || 58.2

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

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

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) || || -2.7 || -4.6 || -4.6 || -4.8 || -5.1 || -4.9

Infant mortality rate: deaths of children under one year of age per 1000 live births || || 10.2 || 6.7 || 7.0 || 6.7 || 6.3 || 6.2

Life expectancy at birth: male (years) || || 69.6 || 71.3 || 71.4 || 71.4 || 71.6 || 72.2

Life expectancy at birth: female (years) || || 75.0 || 76.6 || 76.7 || 76.6 || 76.8 || 77.3

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

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

Economic activity rate (20-64): share of population aged 20-64 that is economically active (%) || || : || 67.3 || 65.2 || 63.7 || 64.1 || 64.3

\* Employment rate (20-64): share of population aged 20-64 in employment (%) || || : || 58.0 || 54.5 || 51.2 || 49.2 || 48.9

Employment rate male (20-64) (%) || || : || 67.5 || 63.0 || 59.2 || 56.8 || 56.7

Employment rate female (20-64) (%) || || : || 48.9 || 46.4 || 43.5 || 41.7 || 41.1

Employment rate of older workers (55-64): share of population aged 55-64 in employment (%) || || 42.1 || 37.6 || 35.4 || 32.8 || 31.4 || 31.6

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

Agriculture || 7) || : || 25.1e || 23.9be || 22.3e || 21.2e || 21.0

Industry || 7) || : || 19.9e || 20.1be || 21.0e || 21.5e || 21.3

Construction || 7) || : || 6.3e || 5.2be || 5.0e || 5.3e || 5.2

Services || 7) || : || 48.6e || 50.8be || 51.7e || 52.0e || 52.6

Unemployment rate: share of labour force that is unemployed (%) || || 12.2 || 13.6 || 16.1 || 19.2 || 23.0 || 23.9

Share of male labour force that is unemployed (%) || || 10.5 || 11.9 || 14.8 || 18.4 || 22.4 || 23.2

Share of female labour force that is unemployed (%) || || 14.5 || 15.8 || 17.8 || 20.2 || 23.7 || 24.9

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) || || 46.4 || 35.2 || 41.6 || 46.2 || 50.9 || 51.1

Long-term unemployment rate: share of labour force that is unemployed for 12 months and more (%) || || 9.0 || 9.7 || 10.5 || 13.3 || 16.9 || 18.6

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

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

Average nominal monthly wages and salaries (national currency) || 8) || 8 691.0 || 45 674.0 || 44 147.0b || 47 450.0 || 52 733.0 || 57 430.0

Index of real wages and salaries (index of nominal wages and salaries divided by the CPI/HICP) (2000=100) || 8) || 118.4 || 275.7 || 275.6b || 277.4 || 277.9 || 280.4

\* Early school leavers - Share of population aged 18-24 with at most lower secondary education and not in further education or training (%) || || : || 11.6 || 9.3 || 8.2 || 8.5 || 8.1

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

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

Number of passenger cars per 1000 population || 9) || 184.2 || 201.8 || 223.2 || 214.3 || 230.5 || 239.2

Number of subscriptions to cellular mobile telephone services per 1000 population || || 251.1 || 1 194.2 || 1 351.3 || 1 357.0 || 1 399.4 || 1 261.9

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

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

Density of railway network (lines in operation, per 1000 km²) || || 49.2 || 49.2 || 49.3 || 49.3 || 49.3 || 49.3

Length of motorways (km) || || 370 || 465 || 495 || 495 || 595 || 606

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

Innovation and research || Note || 2001 || 2008 || 2009 || 2010 || 2011 || 2012

Spending on human resources (public expenditure on education in% of GDP) || || 3.2 || 4.9 || 5.0 || 4.9 || 4.8 || :

\* Gross domestic expenditure on R&D in% of GDP || || : || 0.4 || 0.9 || 0.8 || 0.8 || :

Percentage of households who have Internet access at home (%) || || : || 33.2 || 37.0 || 39.0 || 41.2 || 47.5

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

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

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

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

Electricity generated from renewable sources in% of gross electricity consumption || || 43.3 || 35.1 || 39.3 || 37.4 || 26.5 || :

Road share of inland freight transport (% of tonne-km) || || 13.8 || 16.3 || 23.6 || 27.8 || 30.5 || :

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

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

Primary production of all energy products (thousand TOE) || || : || 9 441 || 9 487 || 9 876 || 10 504 || :

Primary production of crude oil (thousand TOE) || || : || 652 || 676 || 929 || 1 111 || :

Primary production of hard coal and lignite (thousand TOE) || || : || 7 369 || 7 330 || 7 226 || 7 822 || :

Primary production of natural gas (thousand TOE) || || : || 231 || 232 || 342 || 449 || :

Net imports of all energy products (thousand TOE) || || : || 7 477 || 5 046 || 6 320 || 5 048 || :

Gross inland energy consumption (thousand TOE) || || : || 15 620 || 14 657 || 15 093 || 15 749 || :

Electricity generation (thousand GWh) || || 31.0 || 37.0 || 38.0 || 38.0 || 38.0 || :

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

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

Agricultural production volume index of goods and services (producer prices, previous year=100) || || 118.0 || 108.0 || 101.0 || 99.4 || 100.9 || 82.3

Total utilised agricultural area (thousand hectare) || || 5 077 || 5 055 || 5 057 || 5 052 || 5 056 || 5 052

Livestock: cattle (thousand heads, end of period) || || 1 128 || 1 057 || 1 002 || 938 || 937 || 921e

Livestock: pigs (thousand heads, end of period) || || 3 587 || 3 594 || 3 631 || 3 489 || 3 287 || 3 139e

Livestock: sheep and goats (thousand heads, end of period) || || 1 612 || 1 760 || 1 647 || 1 604 || 1 590 || 1 867e

Production and utilisation of milk on the farm (total whole milk, thousand tonnes) || 10) || 1 594 || 1 566 || 1 503 || 1 486 || 1 461 || 1 478e

Crop production: cereals (including rice) (thousand tonnes, harvested production) || 11) || 9 001 || 8 833 || 9 111 || 9 280 || 9 066 || 5 920

Crop production: sugar beet (thousand tonnes, harvested production) || || 1 806 || 2 300 || 2 798 || 3 325 || 2 822 || 2 328

Crop production: vegetables (thousand tonnes, harvested production) || || 1 283 || 1 277 || 1 257 || 1 314 || 1 305 || 1 054

: =
not available

b =
break in series

e =
estimated value

p =
provisional

\* =
Europe 2020 indicator

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

Footnotes:

1) Apart from difference due to different population figure, this variable might differ due to difference of the variable 1402.Mid-year population figure were used. Data provided as variable 1001 refers to the population at the beginning of the year (figure used only for the recent 2012 estimates).GDP estimations in Euro are based on the average annual exchange rate.

2) The money supply M1 consists of currency in circulation and funds in gyro, current and other accounts belonging to the owners of money balances in banks'liabilities, including money balances in the accounts of local government bodies, i.e. Accounts from which payments can be made with any restrictions.

3) The money supply M2, in addition to M1,includes other dinar deposits,both short-and long-term.

4) The money supply M3,in addition to M2,includes short-and long term foreign currency deposits(without the so called frozen foreign currency savings.

5) The annual average exchange rate is calculated as an arithmetic mean of official middle exchange rates of the national currency (dinar) against a unit of foreign currency applied  on working days.

6) Index of nominal effective exchange rate adjusted for the ratio of domestic consumer price index to the weighted sum of indices of consumer prices in the euro area and US.

7) 2008 - 2009, data were provided according to NACE Rev. 1.1.

8) From January 2009, the Statistical Office of the Republic of Serbia is expanding units coverage. Besides the salaries and wages paid to legal entities’ employees, from January 2009, salaries and wages paid to employees working in unincorporated enterprises have been also included in calculation of average salaries and wages.

9) Ministry of Interior Affaires excluded the vehicles that were not registered before the given deadline (1 month).

10) In million litters, includes cows and sheep milk used for human consumption or processing; since 2006 goat milk is also included.

11) No rice production; Since 2005, triticale is included.

[1]               The rapporteur
for Serbia is Mr Jelko Kacin.

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

[3]               The Commission and the High Representative of
the Union for Foreign Affairs and Security Policy issued an ad hoc joint report
on specific issues on which the Council had, in December 2012, requested
additional information, JOIN(2013) 7 final of 22.04.2013.

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

[4]               COM(2011) 668
final.

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