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Europaudvalget 2006-07
KOM (2006) 0649 Bilag 1
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COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 08.11.2006

COM (2006) 649

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT AND THE COUNCIL

Enlargement Strategy and Main Challenges 2006 – 2007

Including annexed special report on the EU's capacity to integrate new members

{SEC (2006) 1383}

{SEC (2006) 1384}

{SEC (2006) 1385}

{SEC (2006) 1386}

{SEC (2006) 1387}

{SEC (2006) 1388}

{SEC (2006) 1389}

{SEC (2006) 1390}

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT AND THE COUNCIL

Enlargement Strategy and Main Challenges 2006 - 2007

NTRODUCTION

Enlargement has been at the heart of the EU's development over several decades. The very

essence of European integration is to overcome the division of Europe and to contribute to the

peaceful unification of the continent. Politically, EU enlargement has helped respond to major

changes such as the fall of dictatorships and the collapse of communism. It has consolidated

democracy, human rights and stability across the continent. Enlargement reflects the EU's

essence as a soft power, which has achieved more through its gravitational pull than it could

have achieved by other means.

Economically, enlargement has helped to increase prosperity and competitiveness, enabling

the enlarged Union to respond better to the challenges of globalisation. This has brought

direct benefits for Europe as a whole. Enlargement has increased the EU's weight in the world

and made it a stronger international player.

The accession of Bulgaria and Romania on 1 January 2007 will complete the fifth

enlargement, following the accession of ten Member States in May 2004. Rigorous

preparations have paved the way for their smooth integration into EU institutions and policies.

The ten new Member States have reached an excellent level of compliance with EU law and

have made a significant contribution to the work of the EU institutions. They have generated

increased levels of economic activity, trade and investment, and have produced high rates of

economic growth.

The present enlargement agenda covers the countries of the Western Balkans and Turkey.

These countries have been given the perspective of becoming EU members once they fulfil

the necessary conditions. The countries are at various stages on their road towards the EU.

Croatia and Turkey are negotiating their accession. The former Yugoslav Republic of

Macedonia became a candidate country in December 2005. The other Western Balkan

countries are making progress towards fulfilling their European perspective.

The EU enlargement agenda faces a number of major challenges in 2006-07. These

challenges relate in particular to the accession negotiations with Turkey, the question of

Kosovo’s future status, relations with Serbia, and Bosnia and Herzegovina’s assumption of

greater ownership of its governance. These issues are important in their own right and touch

on geo-political questions affecting the security and stability of Europe as a whole. The

journey towards membership has value in itself, even if accession is many years away. As this

journey involves many challenges, the EU needs to remain engaged throughout the process.

The pre-accession strategy and negotiations with candidates and potential candidates should

be pursued in a rigorous manner, fully respecting the agreed conditions. The EU will provide

financial support through the newly-established Instrument for Pre-Accession Assistance from

January 2007. This financial support will focus on priorities identified in the Accession

Partnerships and European Partnerships.

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EU enlargement is an historical project based on a vision of a united Europe and its global

role. This project needs to be broadly shared and supported by the peoples of Europe to ensure

full democratic legitimacy. The key decisions leading to a country’s accession are taken by

democratically elected bodies in each Member State and in the Union.

Member States need to take the lead in explaining why enlargement is in the EU's interest.The

Commission is ready to improve the flow of objective information in user-friendly form, and

to work together with Member States and the European Parliament to communicate more

effectively with the public on the enlargement process.

The European Council will hold a debate on enlargement at its meeting in December 2006.

The Council stated, in its conclusions of December 2005, that the strategy tabled by the

Commission last year was a good basis for the 2006 enlargement debate. This strategy

underlines that a carefully managed enlargement can extend and deepen European integration.

It is based on three basic principles: consolidating existing commitments towards countries

engaged in the process, applying fair and rigorous conditionality, and intensifying

communication with the public on enlargement.

The EU has taken the concerns on the pace of enlargement seriously. To avoid an overstretch

of commitments, the EU honours existing commitments towards countries already in the

process, but is cautious about assuming any new commitments.

Rigorous conditionality is applied to all candidate and potential candidate countries. Any new

steps in the accession process depend on each country’s progress in making political and

economic reforms. As the accession process is a long term effort, it is necessary to keep the

countries motivated to continue reforms. The EU also needs to increase transparency in the

process.

The EU's own institutions need to be reformed, in line with the European Council conclusions

of June 2006. A new institutional settlement should have been reached by the time the next

new member is likely to be ready to join the Union. The EU's financing is another important

issue for the future. The EU's ability to take in new members while maintaining the

momentum of integration will be even more important in the future. The Commission’s

special report, annexed to this paper, sets out an approach designed to ensure that the EU

retains its capacity to function effectively while pursuing an enlargement agenda which is

designed to meet the challenges of the years ahead.

Not all European countries are involved in the enlargement process. The EU has established a

variety of relations with other countries, including through the European Economic Area,

bilateral ties with Switzerland, the European Neighbourhood Policy, and a strategic

partnership with Russia. The European Neighbourhood Policy aims to enhance prosperity,

stability and good governance in the countries neighbouring the EU though a deeper political

relationship and economic integration, The Commission will shortly put forward proposals for

reinforcing the European Neighbourhood Policy.

Building on the EU's existing strategy, the present paper outlines an approach to draw lessons

from the fifth enlargement, to support countries on their way to membership, to foster public

support for further enlargement, to address the enlargement challenges, and to ensure the EU's

integration capacity. This is the basis for building a renewed consensus on enlargement.

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HE FIFTH ENLARGEMENT

Enlargement has shown its enduring value as one of the EU’s most effective policies,

successfully contributing to peace, stability and democratic development throughout the

continent. The ten Member States which joined in 2004 have continued their smooth

integration into EU institutions and policies. The new Member States' democratic political

systems have, on the whole, continued to function well. They have an excellent level of

compliance with EU law and have made a significant contribution to the work of the EU’s

institutions. The EU's institutions have continued to function effectively. Enlargement has

increased the EU’s weight in international political and economic life and added to the EU’s

negotiating strength in different fora. It has also enriched the Union's cultural heritage.

As well as having increased security and stability in Europe, enlargement has also brought

economic benefits. The new Member States are rapidly catching up with the old Member

States. The old Member States have benefited from new trade and investment opportunities

Enlargement has been beneficial overall for the EU economy and helped it face better the

challenges of globalisation

. The progressive adoption of the euro by the new Member States,

starting with Slovenia on 1 January 2007, will further contribute to this positive trend.

The enlarged Union has meant a more efficient division of labour and made the EU better

equipped to compete globally. Overall, the latest enlargement has acted as a catalyst for

economic growth and modernisation in the EU. A number of major studies have made this

clear recently. For example, concrete benefits are seen in the three Member States which

introduced the free movement of labour, upon the accession of the ten new Member States.

They have seen benefits in terms of increased national income and tax revenues and shrinkage

of the grey economy. Workers from new Member States have helped to overcome skills

shortages in the labour market and have adapted well to their new cultural environment

In the

light of these experiences, a further five Member States have opened their labour markets and

another two have partially opened them

The preparation of Bulgaria and Romania for EU membership has proceeded in accordance

with rigorous conditionality, with full EU support. Both countries introduced far-reaching

reforms in the course of the accession negotiations. Nonetheless, the Commission’s

monitoring reports of October 2005, May 2006 and September 2006 highlighted areas of

particular concern where further efforts were needed. As a result of the progress made,

Bulgaria and Romania will be in a position to take on the rights and obligations of

membership on 1 January 2007. The September report set out strict conditions to ensure

continued progress in the reform process in these countries before and after accession. It also

drew attention to the provisions in the

acquis

and in the Accession Treaty to ensure that EU

policies and institutions will continue to function effectively. The Commission will not

hesitate to use these mechanisms at any time, if the need arises.

The accession of Bulgaria and Romania demonstrates to countries at an earlier stage in their

preparations for membership that their ultimate goal is achievable. It also provides a number

Commission Communication – Enlargement, Two Years After – An Economic Success –

COM(2006)200 of 03.05.2006.

Commission Communication - Report on the Functioning of Transitional Arrangements set out in the

2003 Accession Treaty (period 1 May 2004 – 30 April 2006) – COM(2006)48 of 08.02.2006.

Full opening: May 2004: Ireland, United Kingdom, Sweden - May 2006: Spain, Greece, Finland,

Portugal - July 2006: Italy. Partial opening: Belgium, France.

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of lessons which are now being incorporated into the pre-accession strategy. Thus it is clear

that issues such as judicial reform and the fight against corruption and organised crime need

to be tackled at an early stage. The Commission, for example, is promoting greater awareness

of how best to ensure the independence, impartiality and effectiveness of the judiciary and to

prevent corruption. In addition, the Commission underlines the need for sustained reforms in

the public administration. An accountable and efficient civil service, based on professional

career development criteria, enables a country to prepare efficiently for accession and

subsequently operate as a Member State. This is to the benefit of the country as a whole.

Overall, the fifth enlargement has been a considerable success. The benefits will continue to

be felt many years ahead. Over 100 million new EU citizens, with rising incomes, will help to

drive the European economy forward. Enlargement has brought higher standards of

democracy and the rule of law in Europe. It strengthened the security of all EU citizens and

increased prosperity in the Union.

HE ENLARGEMENT PROCESS

EU enlargement policy is today based on three basic principles: consolidation of

commitments, conditionality and communication.

Consolidation of the EU enlargement agenda means that the Union is cautious about assuming

any new commitments, but honours its existing commitments towards countries already in the

enlargement process. The EU has started accession negotiations with Turkey and Croatia and

offered a European perspective to the other countries of the Western Balkans. This

commitment is a strong incentive for the countries to continue their reforms.

Rigorous but fair conditionality is applied to all candidate and potential candidate countries.

Every step forward depends on each country’s own progress in meeting the necessary

conditions at each stage of the accession process. This approach helps to consolidate reforms

and to prepare new Member States to fulfil their obligations upon accession.

For enlargement to be a success, the EU must ensure the support of its citizens. Member

States need to take the lead in communicating effectively the enlargement process and in

particular the benefits that it offers for EU citizens. Democratic legitimacy remains essential

for the EU accession process.

3.1.

Accession negotiations

Accession negotiations with Croatia and Turkey opened in October 2005 as was unanimously

agreed by the Member States, providing further encouragement for political and economic

reform in these countries and for good relations with their neighbours. They are conducted on

the basis of clear and rigorous negotiating frameworks agreed unanimously by the Council.

The pace of negotiations depends on the pace of reforms on the ground.

During the accession negotiations arrangements are established under which the candidate

countries commit themselves to applying the whole body of EU legislation and policies,

known as the

acquis.

Countries need to accept and implement the

acquis,

and to adhere to the

political objectives of the Treaties. The negotiations allow the candidate countries and the EU

to agree on measures that may be necessary to facilitate integration. Each country is judged on

its own merits: the negotiations offer countries the opportunity to demonstrate their ability to

complete the necessary reforms and meet all membership requirements.

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The negotiations proceed in a structured manner. Since October 2005, the “screening” process

has brought together hundreds of experts from Turkey, Croatia and the Commission to

explain the

acquis,

assess the countries’ level of alignment, and examine their plans for

implementation. The screening process has just been completed for all the

acquis

chapters.

After a chapter has been screened, the Member States decide, upon a Commission

recommendation, on whether the chapter can be opened for negotiations, or on the

benchmarks to be met by the candidate country before negotiations can be opened. When

opening negotiations, the Union tables its common position, including benchmarks that have

to be met to provisionally close the chapter.

Benchmarks are a new tool introduced as a result of lessons learnt from the fifth enlargement.

Their purpose is to improve the quality of the negotiations, by providing incentives for the

candidate countries to undertake necessary reforms at an early stage. Benchmarks are

measurable and linked to key elements of the

acquis

chapter. In general, opening benchmarks

concern key preparatory steps for future alignment (such as strategies or action plans), and the

fulfilment of contractual obligations that mirror

acquis

requirements. Closing benchmarks

primarily concern legislative measures, administrative or judicial bodies, and a track record of

implementation of the

acquis.

For chapters in the economic field, they also include the

criterion of being a functioning market economy.

If a candidate country no longer fulfils the opening benchmarks in a chapter that is under

negotiation, the Commission may propose that negotiations be suspended on that chapter. If a

candidate country no longer fulfils the closing benchmarks in a chapter that has been

provisionally closed, the Commission may propose to the Member States that accession

negotiations on that chapter be re-opened.

The Union expects negotiating countries to comply with the political criteria and to work

towards higher standards throughout the negotiations. The results of dialogue with the

countries on their success in addressing issues under the political criteria will be fed into the

negotiation process. The Commission will prepare the dialogue with Member States and

report back to them in the relevant Council bodies. In addition, the current negotiating

framework provides for a chapter on Judiciary and Fundamental Rights, under which the

political issues are to be addressed. This permits progress in crucial areas to be kept under

close scrutiny.

Current negotiating frameworks provide for accession negotiations to be suspended in case of

serious and persistent breach of the principles of liberty, democracy, respect for human rights

and fundamental freedoms and the rule of law. Increased attention to political reforms will

improve the quality of the accession negotiations and stimulate the necessary reforms in the

candidate countries.

Henceforth, the results of dialogue with the countries on their economic reform will also be

fed into the negotiation process. The Commission will prepare the dialogue with Member

States and report back to them in the relevant Council bodies. This dialogue focuses on the

fulfilment of economic criteria and on convergence with the EU economies. It is essential

that, before accession, acceding countries are functioning market economies able to compete

on the internal market. Pre-accession assistance will be focused more precisely to help

meeting this objective.

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3.2.

Pre-accession strategy

The Accession Partnerships and European Partnerships are the central element of the pre-

accession strategy. Based on the findings of the Commission’s progress reports on each

country, the Partnerships set out the priorities for these countries to make progress towards the

objective of EU membership. They also provide a framework for EU assistance towards

achieving this objective. The current partnerships were decided by the Council earlier this

year. The Commission intends to review them at the end of 2007. The Commission is now

proposing a European Partnership for Montenegro, following independence.

Instrument for Pre-accession Assistance

From 1 January 2007, the Commission will use a new financial tool for promoting

modernisation, reform and alignment with the

acquis,

the Instrument of Pre-Accession (IPA).

This will entirely replace previous assistance instruments such as Phare, Cards, Ispa and

Sapard. Candidate countries and potential candidate countries are eligible for funding under

the new instrument. A single set of rules and procedures and more flexibility will provide

greater impact and value for money in the allocation of EU funds. The Western Balkan

countries and Turkey will benefit from almost €11.5 billion over the next seven years. The

Commission is presenting a multi-annual financial framework, which sets out indicative

amounts for allocation of IPA funds for each country and for each major component.

As the essential tasks of post-conflict reconstruction have been attained in Serbia, Montenegro

and the former Yugoslav Republic of Macedonia, the European Agency for Reconstruction

will phase out its activities by the end of 2008. Aid implementation, with priorities adjusted to

the new realities, will be taken over by the Commission’s delegations and, when they are

ready, by the countries’ own authorities. The introduction of IPA also provides the occasion

for closer coordination with the European Investment Bank, the European Bank for

Reconstruction and Development, the World Bank and other international financial

institutions. The Commission will build on existing co-operation, to ensure, with its partners,

that the most cost-effective mix of grants and loans is mobilised to support modernisation and

development throughout the region.

Implementing the road-map for the Western Balkans

All the Western Balkan countries have made progress towards realising their European

perspective, on the road-map put forward by the Commission last year in its enlargement

strategy paper. Each country advances on its own merits, depending on its success in meeting

the requirements. In particular, a country’s satisfactory track-record in implementing its

obligations under the Stabilisation and Association Agreements (including trade-related

provisions) is an essential element for the EU to consider any membership application.

At Salzburg in March 2006, building on the Thessaloniki agenda, the EU reiterated its

commitment that the future of the countries of the Western Balkans lies within the European

Union and called on the countries to take stronger ownership of the process of regional co-

operation. Regional co-operation remains essential to long-term stability, economic

development and reconciliation in the Western Balkans.

The countries of South-East Europe this year agreed to establish a new framework, with

greater ownership, based around the South East Europe Co-operation Process. A Regional

Co-operation Council will be established, bringing together representatives of South East

Europe with those of the international community. The Commission strongly supports this

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process. The Commission also welcomes the entry into force in 2006 of the Energy

Community Treaty and the Agreement on a European Common Aviation Area.

The EU will promote people-to-people contacts, both by making available more scholarships

to students and researchers and by simplifying visa procedures. Croatian citizens are exempt

from short-term visa requirements. The Commission has proposed that the Council authorises

the Commission to negotiate visa facilitation agreements with the other countries of the

region, with a view to concluding these agreements in 2007. The proposal covers also

readmission, except for Albania with which the EU already signed a readmission agreement.

Furthermore, the EU will continue to provide assistance in key areas such as energy,

transport, and economic co-operation.

The countries of South-East Europe launched in April 2006 negotiations for a regional free

trade agreement and have set themselves the objective of concluding the agreement by the end

of 2006. The Commission and the Stability Pact fully support this process

. The EU will soon

introduce diagonal cumulation of rules of origin in its agreements with Croatia and the former

Yugoslav Republic of Macedonia, and later to further countries. This will stimulate regional

trade and investment. Albania, Croatia and the former Yugoslav Republic of Macedonia are

already members of the WTO. The efforts that Bosnia and Herzegovina, Montenegro and

Serbia will have to make in the near future to join the WTO will also help them in deepening

their regional trade ties, achieving economic reforms, and implementing future Stabilisation

and Association Agreements.

NSURING PUBLIC SUPPORT FOR ENLARGEMENT

The enlargement agenda provides the Union with the ways and means to address many of the

challenges outlined above. The prospect of EU accession offered to the countries of the

Western Balkans and to Turkey is an important catalyst for reform in these countries. There

are clear benefits on the whole for the EU in terms of growth, stability and security. However,

these need to be better communicated to the public. It is essential to listen to citizens, address

their concerns, and provide factual information. The Member States must take the lead, with

the support of the European Parliament and the Commission. The Member States, with the

support of regional and local authorities and civil society bodies who are closest to the public,

need to communicate the benefits that this policy of enlargement has brought to citizens of the

enlarged EU.

In ensuring public support for enlargement, it is necessary to increase mutual understanding.

To this end, the Commission launched in 2005 a civil society dialogue between the EU and

the candidate and potential candidate countries. This programme aims at promoting

interaction between non-governmental organisations, e.g. student exchange, study visits of

journalists, as well as exchange between women’s organisation, trade unions and business

communities.

The Commission will take the following measures:

The Stability Pact for South-Eastern Europe is a regional policy framework set up by the international

community in June 1999, in order to support the countries' efforts to foster peace, democracy, respect

for human rights and economic prosperity, and to achieve stability in the region as a a whole. It is

currently being transformed into a more regionally owned co-operation process.

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– The Commission supports increased transparency. It recommends that screening reports,

benchmarks for opening negotiation chapters as well as the final EU common positions be

made public.

– The Commission will expand its support for civil society dialogue, building on the

measures taken to date for Turkey and the Western Balkan countries.

– The Commission will promote more “people to people” contacts in areas such as

education, research and culture.

– The Commission will continue to monitor public opinion on enlargement and to listen to

concerns of the public, It will work through its Representations in the Member States and

Delegations in the candidate and potential candidate countries to communicate more

effectively on enlargement policy.

– The Commission will develop user-friendly information in everyday language for the

general public and for specialised users on enlargement policy issues, notably through

targeted web-sites. It will also explain practicalities, in particular how conditionality and

impact assessments are used.

5.1.

AIN CHALLENGES IN

2007

Remaining challenges from the fifth enlargement

Achieving a comprehensive settlement of the Cyprus issue and the unification of the island

remains an important challenge. The Commission welcomes the steps taken in 2006 by the

leaders of the Greek Cypriot and Turkish Cypriot communities towards re-launching a

process leading to a comprehensive settlement under UN auspices. These efforts need to be

substantially stepped up in 2007.

The Commission stands ready to support such efforts as it has in the past. The Council has

adopted two of the three measures proposed by the Commission to end the isolation of the

Turkish Cypriot community. Free movement of Greek and Turkish Cypriots as well as other

EU citizens throughout the island has been ensured through the Green Line Regulation. The

aid programme for the Turkish Cypriot community was adopted and is being implemented.

The regulation on direct trade with the northern part of Cyprus proposed by the Commission

remains to be adopted. Enhanced efforts and a spirit of compromise are needed to enable its

speedy adoption.

5.2.

Croatia

In 2006, Croatia has continued to make progress in terms of the political, economic and

acquis

criteria and implementation of its Stabilisation and Association Agreement. The main

challenge in 2007 will be to build on the progress made, and to accelerate the pace of reforms,

notably in the key areas of judicial and public administration reform, the fight against

corruption and economic reform. Croatia needs to maintain the momentum towards EU

integration through rigorous implementation of its obligations, for example in the areas of

state aid and real estate. Croatia should continue its programme of legislative alignment and

further enhance its administrative capacity.

Candidate Countries

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Good neighbourly relations and regional cooperation remain key and priority should be given

to finding solutions to outstanding bilateral issues, especially on border demarcation. Minority

rights and refugee return will need continued close attention.

Accession negotiations with Croatia have started well. Croatia has taken important steps

following the screening exercise in many fields to adapt its legislation. It is in the process of

developing the necessary administrative capacity. Building on this progress, and provided that

Croatia addresses the challenges discussed above, negotiations can be expected to continue at

a good pace.

Turkey

In 2006, Turkey has continued to make progress in reforms, notably with the recent adoption

of some elements of the 9th reform package. Moreover, the number of reported cases of

torture and ill-treatment is declining on the whole, in line with the zero-tolerance policy, even

though the situation in the South-East gives rise to concerns in this respect. However, the pace

of reforms has slowed down. In 2007, it will be important to undertake determined efforts to

broaden the reform momentum throughout Turkey. It is necessary to ensure freedom of

expression without delay by repealing or amending Article 301 of the Penal Code and by

overall bringing the legislation into line with European standards. Apart from the freedom of

expression, further efforts are needed to strengthen freedom of religion, women’s rights,

minority rights and trade union rights. Civilian democratic control over the military needs to

be asserted, and law enforcement and judicial practice further aligned with the spirit of the

reforms. At the same time, there is a need for Turkey to address the serious economic and

social problems in the South-East and to ensure full enjoyment of rights and freedoms by the

Kurdish population. The Accession Partnership, adopted in January 2006, provides the

yardstick to measure progress in the reforms. Good neighbourly relations remain key. The

Commission will intensify its monitoring of the political criteria.

As stated in the declaration by the European Community and its Member States of 21

September 2005, the EU expects Turkey to ensure full, non-discriminatory implementation of

the Additional Protocol to the Ankara Agreement and the removal of all obstacles to the free

movement of goods, including restrictions on means of transport. Failure to implement its

obligations in full will affect the overall progress in the negotiations. The Commission will

make relevant recommendations ahead of the December European Council, if Turkey has not

fulfilled its obligations. It is also essential that, as stated in the Accession Partnership, Turkey

takes concrete steps for the normalisation of bilateral relations with all EU Member States as

soon as possible.

The former Yugoslav Republic of Macedonia

The designation of the former Yugoslav Republic of Macedonia as a candidate country in

December 2005 gave recognition to this country’s reform achievements. It also provided an

encouragement to pursue reforms on the road towards fulfilling the country's European

perspective.

The former Yugoslav Republic of Macedonia has continued to make progress, although at a

slower pace in 2006. Elections in July took place generally in accordance with international

standards. The shortcomings that were identified need to be fully addressed.

The government faces particular challenges still in implementing reforms of the police and

judiciary, the fight against corruption, and full implementation of the Stabilisation and

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Association Agreement. The continued implementation of the Ohrid Agreement remains

essential to foster a positive climate for reforms. It is important that reform efforts be

sustained in the period ahead on the basis of co-operation and political consensus. Overall,

priority should be given to advancing the pace of reforms in key areas, if progress is to be

made towards the goal of moving ahead in the accession process

5.3.

Albania

Albania has continued to contribute to stability in the region, particularly through its

measured position on the situation in neighbouring countries. EU relations with Albania

advanced with the signature this year of the Stabilisation and Association Agreement. The

priority now is to focus on implementation of the Interim Agreement, which will enter into

force on 1 December 2006, and which covers trade-related issues. With EU support, Albania

is tackling the challenges of political, judicial and economic reform, as well as the fight

against corruption and organised crime. These themes will remain priorities in the period

ahead.

Bosnia and Herzegovina

The European perspective is crucial in encouraging all parties in Bosnia and Herzegovina to

carry out political and economic reform, such as police reform. Full co-operation with

International Criminal Tribunal for the former Yugoslavia (ICTY) is a key part of the

conditionality under which the country can draw closer to the EU. The withdrawal of the

Office of the High Representative (OHR) will give the people and institutions of the country

further ownership of their common destiny. The completion of the negotiations for a

Stabilisation and Association Agreement and its implementation will reinforce the country’s

European perspective. Provided that the conditions are met, these negotiations can be

completed within a couple of months. Constitutional evolution is essential to build a more

functional, sustainable and democratic state. The EU will need to address the question of its

own future representation in the country following the withdrawal of the OHR.

Montenegro

Montenegro achieved independence in June 2006 after a referendum held in a free and fair

manner under conditions agreed with the European Union. Following independence,

Montenegro has begun negotiations on a separate Stabilisation and Association Agreement

(SAA), under new directives which were rapidly agreed by the Council. By engaging with the

EU, Montenegro has the opportunity to meet the challenges of state-building within the stable

and secure setting of the pre-accession process.

It will be important to sustain the pace of reforms and continue co-operation with ICTY, so

that negotiations on an SAA can be concluded in the coming months. Montenegro has much

to do to strengthen its institutions sufficiently to move forward. The key measures are set out

in the European Partnership proposed together with this communication. Priority needs to be

given to judicial reform and to the fight against organised crime and corruption. Montenegro

needs to upgrade its administrative capacity in view of SAA implementation.

Serbia

Potential Candidate Countries

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Serbia is to be commended for its responsible approach following Montenegro’s

independence. The new constitution should pave the way to reinforcing the country’s system

of governance. Serbia has registered success in ensuring macroeconomic stability in pursuing

privatisation, and in attracting foreign direct investment. Economic integration with the EU

has advanced. Serbia has also made further progress with administrative reform. In

negotiations with the EU on a Stabilisation and Association Agreement (SAA), the Serbian

administration demonstrated its considerable institutional capacity. This augurs well for

Serbia's ability to catch up with the other countries of the region on the way to the EU, once

Serbia has met the condition for resuming SAA negotiations.

The Commission does not underestimate the scale of the challenges Serbia faces in current

political conditions. Serbia needs to take a constructive approach on Kosovo. The prospect of

eventual EU accession needs to be credible and made visible for the Serbian population

through the early resumption and rapid conclusion of negotiations for a Stabilisation and

Association Agreement, as soon as Serbia has met the condition of full co-operation with

ICTY. The EU is also working to bring the Serbian people into the European mainstream

through visa facilitation

and by helping Serbia to participate more fully in Community

programmes in areas such as education, youth, research and culture.

Kosovo

The EU has continued to engage with Kosovo, through monitoring the standards, providing

assistance, and working with UNMIK, as well as supporting the status process conducted

under the auspices of the UN Secretary General’s Special Envoy, Mr. Martti Ahtisaari. The

EU will have a major role to play in the status settlement and its implementation, once it is

agreed by the United Nations Security Council.

The status settlement needs to be politically and legally clear and to set out a vision for

Kosovo’s future development. Kosovo’s status question is

sui generis,

and hence sets no

precedent.

This will give a further impetus for the Kosovo authorities to progress on the reforms that are

needed in the key areas of the rule of law, economy, and public administration and provide

the basis for a successful transfer of responsibility from UNMIK. Minority rights remain a

vital issue, as is the participation of minorities in Kosovo's institutions.

The European perspective is crucial to provide all involved with a vision of a common future

in the European Union.

ONCLUSIONS AND

ECOMMENDATIONS

Based on the above analysis, the Commission proposes the following conclusions:

The EU's enlargement policy continues to be based on the three principles of

consolidation, conditionality, and communication. The EU honours the commitments

made to the countries already in the process, but is cautious in assuming any new

See page 10 for more information on visa facilitation.

Under UN Security Council Resolution 1244.

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commitments. The pace of the accession process depends on the pace of reforms in

the candidate country.

The current enlargement strategy, combined with ways and means to ensure the EU's

capacity to integrate new members, forms the basis for a renewed consensus on

enlargement.

The EU's capacity to integrate new members is determined by two factors:

– maintaining the momentum to reinforce and deepen European integration by

ensuring the EU's capacity to function. This is in the interest of both present and

future EU citizens;

– ensuring that candidate countries are ready to take on the obligations of

membership when they join by fulfilling the rigorous conditions set. This is

assessed by the Commission on the basis of strict conditionality.

The EU's integration capacity will be reviewed at all key stages of the accession

process. In its opinions on applications for membership and in the course of

accession negotiations, the Commission will provide impact assessments of

accession on key policy areas. This will help Member States to define EU common

positions for the negotiations of the chapters concerned, including, where relevant,

transition periods or other arrangements.

When assessing the budgetary impact of future accessions, the Commission will

examine the impact on key policies, in particular agriculture and cohesion policies.

The EU must ensure that it can maintain and deepen its own development while

pursuing its enlargement agenda. Institutional reform is needed to improve the

effectiveness of the decision-making of an enlarged EU. A new institutional

settlement should have been reached by the time the next new member is likely to be

ready to join the Union.

The Commission will further improve the quality of the accession process.

Benchmarks can be laid down both for opening and closing negotiation chapters, and

will provide grounds for suspending or re-opening negotiations on individual

chapters. The results of political and economic dialogues will be fed into the

negotiation process. Difficult issues, such as judicial reform and the fight against

corruption, need to be addressed at an early stage of the accession process.

In order to enhance transparency the Commission recommends that key negotiation

documents be made public, including impact assessments, screening reports,

benchmarks for opening chapters and EU common positions for the negotiations.

It is essential to ensure public support for enlargement. Maintaining rigour in the

process and strict conditionality is essential to safeguard this support. So is

confidence about the EU's integration capacity. We also need to communicate

enlargement better. It is important to listen to citizens, address their concerns through

adequate policies and present factual information. Member States have a lead role to

play. The Commission will play its part together with the European Parliament,

national, regional and local authorities, and civil society.

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10.

Croatia has made a good start in the accession negotiations. The country has taken

important steps following the screening exercise in many fields to adapt its

legislation, and is in the process of developing the necessary administrative capacity.

Croatia however needs to considerably step up efforts to meet main challenges such

as judicial reform, the fight against corruption, economic reform and to continue to

fully cooperate with the International Criminal Tribunal for former Yugoslavia.

Good neighbourly relations and regional cooperation remain key.

Turkey continues to sufficiently fulfil the Copenhagen political criteria and has

continued political reforms. However the pace has slowed during the past year.

Significant further efforts are needed in particular on freedom of expression. Further

improvements are also needed on the rights of non-Muslim religious communities,

women's rights, trade union rights and on civilian control of the military. Turkey can

be regarded as a functioning market economy and has improved its ability to take on

the obligations of membership. Good neighbourly relations remain key.

As stated in the declaration by the European Community and its Member States of 21

September 2005, the EU expects Turkey to ensure full, non-discriminatory

implementation of the Additional Protocol to the Ankara Agreement and the removal

of all obstacles to the free movement of goods, including restrictions on means of

transport. Failure to implement its obligations in full will affect the overall progress

in the negotiations. The Commission will make relevant recommendations ahead of

the December European Council, if Turkey has not fulfilled its obligations. It is also

essential that, as stated in the Accession Partnership, Turkey takes concrete steps for

the normalisation of bilateral relations with all EU Member States as soon as

possible.

The designation of the former Yugoslav Republic of Macedonia as a candidate

country in December 2005 gave recognition to this country's reform achievements.

The country has continued to make progress although at a slower pace in 2006. All

Western Balkans countries have made progress following the road-map put forward

by the Commission last year. Each country advances on its own merits. A country's

satisfactory track-record in implementing its obligations under the Stabilisation and

Association Agreements (including trade-related provisions) is an essential element

for the EU to consider any membership application.

11.

12.

13.

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ANNEX 1

Special report on the EU's capacity to integrate new members

INTRODUCTION

This special report is an integral part of its 2006 enlargement strategy paper. Following the

request of the European Council at its meeting of June 2006, it focuses on medium to long

term issues concerning the EU's capacity to integrate new members. It puts forward an

approach for ensuring that Union can maintain and deepen its own development, in terms of

policies and institutions, while pursuing an enlargement agenda with major challenges in the

world today.

In 1993 the Copenhagen European Council concluded that "the Union's capacity to absorb

new members, while maintaining the momentum of European integration, is an important

consideration in the general interest of both the Union and the candidate countries". As set out

in the Commission’s 2005 Strategy Paper and confirmed by the June 2006 European Council,

the pace of enlargement must take into consideration the EU's integration capacity.

The EU must ensure that it can maintain and deepen its own development while pursuing its

enlargement agenda. Institutional reform is needed to improve the effectiveness of the

decision-making of an enlarged EU. A new institutional settlement should have been reached

by the time the next new member is likely to be ready to join the Union.

Enlargement is about sharing a project based on common principles, policies and institutions.

The Union has to ensure it can maintain its capacity to act and decide according to a fair

balance within institutions, respect budgetary limits, and implement ambitious common

policies that function well and achieve their objectives.

The EU’s absorption capacity, or rather integration capacity, is determined by the

development of the EU's policies and institutions, and by the transformation of applicants into

well-prepared Member States. The capacity of would-be members to accede to the Union is

rigorously assessed by the Commission on the basis of strict conditionality. Integration

capacity is about whether the EU can take in new members at a given moment or in a given

period, without jeopardizing the political and policy objectives established by the Treaties.

Hence, it is first and foremost a functional concept. The Commission will in the future prepare

impact assessments at all key stages of the accession process. Where such assessments are

made, the specific characteristics of each country will be taken into account.

The EU has enlarged five times, growing from six to 25 and soon 27 Member States. These

enlargements made a major contribution to the unification of Europe, fostering democracy,

human rights and stability across the continent. They stimulated the development of new EU

policies, in areas such as economic and social cohesion, external relations, and environmental

protection. The internal market, the Schengen area and the euro were developed in parallel.

The fifth enlargement in 2004, soon to be completed with the accession of Bulgaria and

Romania, has increased the EU's weight in the world and generated specific economic gains,

in terms of trade and investment and economic growth. At the same time, the EU has

continued to develop and implement new policies, for example on justice, freedom and

security. Widening the EU has proceeded in parallel with the deepening of European

integration.

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The present enlargement agenda is based on a strategy consisting of three basic principles:

consolidation, conditionality and communication. It covers countries in the Western Balkans

and Turkey which are at different stages on the road towards the EU. These countries have

been given by the European Council the clear perspective of becoming EU members once

they fulfil the necessary conditions. The EU honours existing commitments towards countries

already in the process, but is cautious about assuming any new commitments.

At present, it appears unlikely that a large group of countries will in future accede

simultaneously. The candidates and potential candidates vary considerably in terms of

political and economic development and administrative capacity. Further accessions are likely

to occur in the medium to long term, given the present state of pre-accession preparations.

The EU can successfully welcome new countries provided its own development has

progressed and candidate countries can fulfil their responsibilities as Member States. EU

citizens also need to be ready for further enlargement, with a better understanding of the

issues at stake. This will enhance the democratic legitimacy of the process in terms of public

perception.The approach presented in this paper is based on:

– Ensuring the EU’s capacity to maintain the momentum of European integration;

– Ensuring candidate countries fulfil the rigorous conditions;

– Better communication.

The question of the ultimate borders of the European Union has been raised in recent years.

This has enabled the Commission to draw a number of conclusions. The term 'European'

combines geographical, historical and cultural elements which all contribute to European

identity. The shared experience of ideas, values, and historical interaction cannot be

condensed into a simple timeless formula and is subject to review by each succeeding

generation.

The legal basis of the enlargement is Article 49 of the Treaty on European Union, which

states that “Any

European State which respects the principles set out in Article 6(1) may apply

to become a member of the Union”.

However, this treaty provision does not mean that all

European countries must apply, or that the EU must accept all applications. The European

Union is defined first and foremost by its values.

A SHORT HISTORY OF THE EU'S INTEGRATION CAPACITY

The Union has assessed its capacity to integrate new members in previous enlargements. The

Commission's opinions on applications for membership have served as a basis for the Council

to decide on the opening of accession negotiations. They assessed the candidates' ability to

assume the obligations of membership including their acceptance of EU policies. In the case

of the first four enlargements, the opinions also provided a general analysis of the impact of

accession on the Union, in areas such as the functioning of the rotating Council Presidency,

estimates of net financial transfers based on existing common policies, or the addition of

official EU languages.

The Commission presented in 2004 a study on the issues raised by Turkey's possible

membership, together with its recommendation to open accession negotiations. The study

envisaged that the necessary preparations for accession would last well into the next decade. It

presented estimates of the budgetary impact of Turkey's accession and identified areas where

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this would raise particular challenges: agriculture, cohesion, energy, migration, external

borders, and foreign policy.

In preparing past enlargements the Commission examined in separate policy papers the

implications for the EU of issues common to several applications for membership. The

Commission has emphasised strengthening EU institutions, furthering economic integration

and developing common policies as pre-requisites for European integration.

In 1997, the Commission assessed the likely impact of the fifth enlargement and proposed

budgetary and policy reforms in preparation for accession. A key goal of "Agenda 2000" was

to ensure that EU policies were ready for enlargement.

Economically, the EU had started to prepare the fifth enlargement round as early as 1991,

when the EU signed the first Europe Agreements with Central and Eastern European

countries. As a result of these agreements, the EU quickly became the first trading partner of

these countries. Most of the bilateral trade in industrial goods between the EU and these

countries was liberalised well before accession, which facilitated greatly economic

integration.

Economic integration with Turkey is facilitated by the Customs Union which has stimulated

economic reforms and dynamism. In the Western Balkans, countries are prepared through the

Stabilisation and Accession Agreements which provide for progressive trade liberalisation

and economic assistance. The simultaneous enlargement and modernisation of the Central

European Free Trade Agreement (CEFTA) paves the way for deeper economic integration in

South-Eastern Europe.

The assessment of the EU's ability to integrate new Members continued during the accession

negotiations. The Commission proposed measures to address the impact of enlargement on

the existing Member States in particular policy areas. In the fifth enlargement, these included

the movement of workers and road transport. The Commission's evaluation of the budgetary

amounts necessary for financing the fifth enlargement provided the basis for concluding the

negotiations, including for agriculture payments.

The Union assisted the applicant countries in their preparations for assuming their future

membership obligations. For the fifth enlargement it established a pre-accession strategy. This

included close monitoring and regular reporting on progress made by each country, priority-

setting through accession partnerships, and financial assistance. Far-reaching association

agreements allowed the applicant states to take on some of the rights and obligations of the

acquis before accession in areas of the single market, such as competition policy, intellectual

property, maritime transport and certification for industrial products. Candidate countries

participated in EU agencies and committees. Once the accession treaties were signed, the

acceding countries participated as observers in the law-making process.

This strategy, which aimed at sound preparations by the candidate countries themselves,

facilitated their smooth integration into the EU. Two years after their accession, the ten new

Member States have achieved an excellent level of compliance with EU legislation, as

highlighted in the Commission's internal market scoreboard and reports on the

implementation of EU law. The economic impact of their accession has been positive.

Institutions have continued to function and to take decisions; the new members have played

an active role.

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The Commission conducted a study on the economic dimension of enlargement two years

after the 1 May 2004 round of enlargement. The study shows that the experience from the past

two years has been largely positive

. Eastward enlargement has boosted growth and created

new jobs in the European economy. Careful preparation of the enlargement over the previous

decade has been key to achieve this successful outcome.

A majority of citizens in the EU and in the candidate countries supported enlargement.

Nevertheless, much is at stake and certain anxieties and misapprehensions remain present in

public opinion with regard to enlargement. These need to be addressed.

THE EU'S INTEGRATION CAPACITY TODAY

The Union needs to ensure it can maintain its capacity to function, in the interest of its present

and future citizens. While the Union prepares internally for further institutional reforms, the

carefully managed accession process will continue.

This section presents an approach for assessing the EU's capacity for future enlargements,

building on past experience.

Ensuring the EU’s capacity to maintain the momentum of European integration

The capacity of the Union to maintain the momentum of European integration as it enlarges

has three main components: institutions, common policies, and budget. The Union needs to

ensure that its institutions continue to act effectively, that its policies meet their goals, and that

its budget is commensurate with its objectives and with its financial resources.

Institutions

The EU does not need new institutional arrangements simply for the sake of enlargement; it

also needs them so that the current Union can function better. The Union needs to ensure that

its institutions and decision-making processes remain effective and accountable, for the sake

of current Member States as well as in view of further enlargement.

In previous enlargements, the integration of the acceding countries into the EU institutions

formed part of the accession negotiations. The resulting adjustments to the institutional

provisions were made in the respective Accession Treaties. The latest enlargement was

preceded by institutional reforms. The institutional provisions of the Accession Treaties with

the ten new Member States that joined in 2004 and with Bulgaria and Romania are based on

the Nice Treaty.

The Nice Treaty provides rules for up to 27 Member States, that is, the accession of Bulgaria

and Romania. But the Treaty stipulates that when the Union consists of 27 Member States, the

number of members of the Commission shall be less than the number of Member States. The

number of members of the Commission shall be set by the Council, acting unanimously. This

rule applies to the first Commission following the entry of the 27th Member State. The

Council would also adopt the implementing arrangements for a rotation system based on the

principle of equality.

Commission Communication – Enlargement, Two Years After – An Economic Success –

COM(2006)200 of 03.05.2006.

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The Nice Treaty does not provide for adaptations to the composition and functioning of the

other institutions for a Union of more than 27 Member States. The allocation of seats in the

European Parliament and the weighting of votes in the Council are clearly central to the EU's

capacity to take decisions. Therefore, before any further enlargement, the EU will have to

decide on the scope and substance of those institutional reforms.

Enlargement will also have practical implications for the functioning of the institutions, such

as the use of languages. An assessment of the impact of enlargement on EU institutions will

be included in Commission opinions on any future application for EU membership.

A new institutional settlement should have been reached by the time the next new member is

likely to be ready to join the Union. Making the EU function better is as much in the interest

of future prospective Member States as of the enlarged Union.

EU policies

Past enlargements have strengthened EU policies, as new Member States have brought their

own national experience and policy orientations to the European enterprise. The present

acquis, in areas as diverse as cohesion policy, agriculture, fisheries, environmental protection,

external relations, transparency, accountability and European citizenship reflect, in part, the

impact of past enlargements. Some EU policies would bring even greater benefits if expanded

to more countries under the right conditions, for example the internal market or the area of

justice, freedom and security.

The Union needs to be in a position, as it enlarges, to continue developing and implementing

common policies in all areas. Assessment of the impact of enlargement on EU policies will

take place at all key stages of the enlargement process.

Each Commission opinion on a country's application for EU membership will in future

include an assessment of the impact of its accession on EU policies. This will also be reflected

in the framework which establishes the terms of reference for the accession negotiations.

The negotiation frameworks for Croatia and Turkey envisage a set of measures to enable their

smooth integration in EU policies. They also lay down measures to ensure the proper

functioning of EU policies after enlargement, such as transition periods, derogations, specific

arrangements and permanent safeguards.

The Commission will examine the impact of future enlargements on agriculture and cohesion

policies when assessing the budgetary impact of enlargement. This will take into account the

future evolution of these policies.

In the course of accession negotiations, the Commission will provide substantial assessments

of the impact of accession on key policy areas, including the movement of persons, border

management, agriculture, cohesion policy and transport. Similar assessments will be

conducted in the areas of energy policy and foreign and security policies, also taking into

account the EU's strategic motives to enlarge in terms of increased stability, foreign and

security policy assets, or secure energy supply. This will enable Member States to define the

EU common positions for the negotiations in the chapters concerned, including, where

relevant, transition periods or other arrangements, with a full understanding of the likely

impact.

EU Budget

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The Union needs to be in a position to continue financing its policies in a sustainable manner.

The impact of enlargement on the EU budget will be carefully assessed throughout the

enlargement process. Each Commission opinion on a country's application for EU

membership will provide estimates of the budgetary impact.

Before any further accession, the EU will need to decide on the overall budgetary means

required. On that basis, the Commission will propose, in any future accession negotiations, a

package of necessary financial measures. The Commission's analysis will take account both

of the budgetary aspects and of the increased economic dynamism generated by accessions.

Ensuring that candidate countries fulfil the rigorous conditions

Conditionality is one of the pillars of the Commission's enlargement strategy. Good

preparation by candidate countries facilitates their smooth integration into the EU. Further

improvement in the quality of preparations has become crucial as the scope of EU activities

has developed. This warrants the strict application of conditionality during the pre-accession

phase, and thorough fulfilment of the requirements at each stage of the accession process.

As part of the pre-accession strategy the Commission will closely monitor the progress made

by each enlargement country. This monitoring will be based on the political, economic and

acquis

criteria for membership. The Commission will pay particular attention to the

establishment of the structures needed to ensure the rule of law. This includes administrative

and judicial capacity and the fight against fraud and corruption. These issues should be

tackled at an early stage of the pre-accession process.

Based on its findings, the Commission will propose short and medium term reform priorities

for the Accession or European Partnerships covering each country. These policy frameworks

have proved to be an effective means for setting priorities during preparation for the fifth

enlargement. The Commission will propose updates regularly. Financial assistance to support

the enlargement countries will focus on the reforms identified as partnership priorities. The

introduction in 2007 of a single new financial instrument to cover all pre-accession needs, will

make EU support for membership preparations more effective.

Association agreements with the enlargement countries play a central role in the countries'

preparations. The Commission will verify compliance with the obligations. A satisfactory

track record in implementing bilateral obligations is an essential element for the EU to

consider any membership application.

Progress in accession negotiations will be determined by success in fulfilling the accession

requirements set out in the negotiating frameworks, assessed on each country's own merits.

Candidate countries will be expected to demonstrate success in meeting precise benchmarks

before a negotiation chapter can be opened or closed. Failure to meet a benchmark could lead

to negotiations on the chapter concerned being suspended or reopened.

In future, there will be a closer link between progress in political reforms and the overall pace

of the negotiations. The results of dialogue with the countries on their progress in meeting the

political criteria for membership will be fed directly into the negotiation process. The

Commission will prepare the dialogue with Member States and report back to them in the

relevant Council bodies. New arrangements have been set up in the Council framework to

ensure that officials from Member States responsible for monitoring progress with reforms

and officials responsible for accession negotiations meet in the same working group.

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In addition, the current negotiating framework provides for a chapter on Judiciary and

Fundamental Rights, under which the political issues are to be addressed. This permits

progress in crucial areas to be kept under close scrutiny. Accession negotiations may be

suspended, in case of serious and persistent breach of the principles of liberty, democracy,

respect for human rights and fundamental freedoms and the rule of law.

Henceforth, the results of dialogue with the countries on their economic reform will also be

fed into the negotiation process. The Commission will prepare the dialogue with Member

States and report back to them in the relevant Council bodies. This dialogue focuses on the

fulfilment of economic criteria and on convergence with the EU economies. It is essential

that, before accession, acceding countries are functioning market economies able to compete

in the internal market. Pre-accession assistance will be focused more precisely to help meet

this objective.

Together with the negotiation framework and the establishment of benchmarks to open or

close negotiation chapters, these arrangements will ensure a rigorous approach to accession

negotiations.

While countries may wish to set their own target dates for accession in order to steer their

reform efforts, the EU should refrain from setting such dates until accession negotiations are

close to completion. The principle should be maintained that the date for the completion of

accession negotiations will depend on the progress made by the country itself.

Better communication

Democratic legitimacy is essential to the EU enlargement process. Every key decision leading

to a country's accession is taken unanimously by the democratically elected governments of

the Member States and candidate countries. National parliaments ratify the decision. The

European Parliament, whose members are directly elected, must give its assent.

Democratic legitimacy also means a Europe which listens to the expectations of its citizens

and addresses their concerns through adequate policies. For any of its policies, including

enlargement, the EU has to win the support of its citizens. Maintaining rigour in the process

and strict conditionality is essential to safeguard this support. So is confidence about the EU's

integration capacity. In addition, better communication is an essential part of EU’s

enlargement policy. Previous enlargements have generally garnered support from public

opinion, but have also led to doubts and misapprehensions. Citizens need to be better prepared

for future enlargements.

The EU needs to communicate better the advantages and the challenges of enlargement. It is

primarily the task of the Member States and the candidate countries to explain and defend the

choices they have made. Leaders at national, regional and local level are best placed to

understand the concerns of their constituents and to communicate directly with them. Member

States which are themselves committed to the enlargement process need to explain better to

citizens the concrete benefits they expect from enlargement. The Commission will play its

part together with the European Parliament, national, regional and local authorities, academic

institutions and think tanks, and civil society. In particular, the Commission will improve the

availability of factual information in user-friendly form. This concerns both enlargement

policy issues, and practicalities such as the application of conditionality through monitoring

reforms, setting benchmarks, and making impact assessments.

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The Union, its Member States and candidate countries need to intensify their efforts to foster

mutual knowledge and understanding and develop ownership of the common European

project. Sustained efforts are needed over many years. The Civil Society Dialogue established

with Turkey in 2004 and extended to the Western Balkan countries in 2006 should be further

developed. The Commission intends to extend this dialogue to further sectors of society and

economy. It will do so in liaison with the Economic and Social Committee and the Committee

of the Regions as well as other bodies active in the field. It is important to involve the citizens

in this dialogue and to address anxieties and misapprehensions.

The Commission supports greater transparency as a means to bring the enlargement process

closer to the citizens. The Commission already publishes its opinions on applications for

membership as well as its reports on each country's progress. It has also published the

negotiating frameworks for Croatia and Turkey. Other key documents related to the accession

negotiations should now be made public. In the fifth enlargement, this was the practice of a

number of candidates with respect to their own negotiation position. The Commission

considers that screening reports, benchmarks for opening negotiation chapters as well as EU

negotiation positions should be made public via the web.

The approach outlined in this report will reinforce the democratic basis for the enlargement

process. It is in the interest of all stakeholders in this process to avoid a gap between policy

makers on the one side and the public on the other side. Lessons learned in the course of the

fifth enlargement will assist the Union when carrying the process forward in the years ahead.

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ANNEX 2

Conclusions on Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav

Republic of Macedonia, Montenegro, Serbia, Kosovo

, Turkey

Albania

As regards

political criteria,

Albania has made some progress on democracy and the rule of

law, including fighting corruption, which is a key European Partnership priority. A

constructive policy towards the region has been maintained. More work is needed on other

Partnership priorities.

Some progress has been made on

democracy and the rule of law.

However, this progress has

been uneven. The

parliament

is assuming a full role politically and its committee on European

integration has been very active. The parliament is now more transparent and its relations with

other constitutional bodies have been effective, but it still faces technical and administrative

shortfalls. More co-operation between government and opposition is needed to enable

important work, such as electoral reform and addressing Stabilisation and Association

Agreement (SAA) obligations, to go ahead.

The

government

has adopted a plan to fulfil European Partnership and SAA obligations. It is

creating structures to co-ordinate the substance of EU reforms and manage the resources to

implement them. Co-ordination between these structures is essential. Better use of expertise in

drafting legislative proposals is needed. The restructuring of many ministries has temporarily

reduced capacity in some areas of the

public administration.

It is important now to build upon

the changes to strengthen effectiveness. Some staff changes have taken place without due

attention to the civil service law. Appointments in the administration continue to be politically

influenced. Public service management, career structures and pay remain poor.

A new law should improve the career structure and case allocation methods for judges.

Transparency has been increased somewhat

in the judicial system.

Some progress has been

made in enforcing judgements. However, overall progress in improving the justice system has

been limited. Progress is needed on improving recruitment procedures for judges and

employment conditions for judicial administrators. The competences of the two judicial

inspectorates need to be properly divided. Co-operation between the police and the judiciary

needs to be improved. Execution of judgements remains poor overall. Legal certainty is

needed to provide a positive climate for trade and investment.

The

fight against corruption

has led to large-scale public service dismissals. The number of

public officials prosecuted for corruption has increased. A high-level anti-corruption task

force has been set up and the law on conflicts of interest has been improved. The High

Inspectorate for Disclosure and Verification of Assets is now more effective and steps have

been taken to increase public administration transparency. Where anti-corruption measures

have gone beyond constitutional limits, the constitutional court has intervened. Further

institutional measures to prevent corruption are now needed, as it remains a serious problem.

The fight against corruption is a priority for the implementation of the SAA.

Under UN Security Council Resolution 1244.

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Limited progress has been achieved regarding

human rights and the protection of minorities.

Human rights training for justice personnel is now obligatory. Pre-trial detention rules have

improved. Albania's ombudsman has been more active on human rights. However,

enforcement of international standards on torture prevention, prison conditions, and the rights

of detainees, particularly in pre-trial detention, remain weak. Recent changes to the

composition of the media supervisory authority should be implemented appropriately. The

legal framework for media freedom remains inadequate and poorly implemented. Fostering

media freedom is a key European Partnership priority. A new executive agency may speed up

property restitution, also a key Partnership priority, but currently the process remains very

slow. Certainty on property ownership is vital to fulfil SAA commitments. Albania has begun

to create a legal framework to protect minorities; implementation of international

commitments remains incomplete and further efforts are needed to promote tolerance.

Albania's Roma strategy has led to some worthwhile initiatives, but suffers from a lack of

resources. Roma children are particularly vulnerable to human trafficking.

Regarding

regional issues and international obligations,

Albania has continued to play a

positive role. It is an active member of regional initiatives in the political, trade,

environmental, economic, security, aviation and energy fields. Albania has further developed

its relations with neighbouring and other countries in the region, notably maintaining a

constructive position on Kosovo.

As regards

economic criteria,

Albania has broadly achieved macroeconomic stability. This

has contributed to its progress towards being a functioning market economy. Further

considerable reform efforts must be vigorously pursued also to enable it to cope with

competitive pressure and market forces within the Union.

Political consensus on the essentials of economic policy has generally been maintained.

Albania broadly maintained macroeconomic stability. Economic growth continued to be

strong and reduced poverty levels. The macroeconomic policy mix remained adequate.

Monetary policy was credible and managed to keep inflation low. Fiscal consolidation further

advanced and reforming the public and tax administration contributed to improved fiscal

stance. Administrative barriers to market entry were reduced.

However, the deficits of external accounts markedly widened and the export base remained

very weak. Albania's legal framework for procurement, privatisation and concessions needs to

be improved. Shortcomings in the business climate, such as legal uncertainty and weaknesses

in law implementation, poor infrastructure, or unreliable power supply impede economic

development. Enforcement of property rights continued to be weak and only marginal

progress was achieved in improving efficiency of the judicial system. Strengthening of the

regulatory and supervisory framework for the non-bank financial sector constitutes a major

challenge. Efforts in tackling and formalizing the considerable grey economy need to be

further accelerated. The privatisation process is not yet completed and the restructuring of

state-owned enterprises, in particular of the electricity utility, needs to be pursued without

delay.

Albania has made progress in aligning its legislation, policies and capacity with

European

standards,

particularly in the fields of fighting organised crime, of customs and of

competition. Pushing forward reform in areas such as public procurement, intellectual

property and veterinary and phytosanitary control is vital for successful SAA implementation.

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Progress has been made in some

internal market

fields, but in others much work will be

needed to fulfill Albania's SAA obligations. There has been some progress in adopting and

monitoring standards. Capacity for accreditation, metrology and market surveillance is being

strengthened, but legislative improvements and better co-ordination are needed. Coherence of

structures for consumer and health protection has improved. They now need to be

strengthened. The SAA includes commitments regarding the

movement of workers,

freedom

services

and freedom of

establishment.

There have been no notable developments

regarding movement of workers.. Discrimination on registration fees for foreign companies

has been removed. Procedures for business registration have been simplified but remain

relatively unclear. Barriers to establishment and restrictions on capital movement remain.

An effective customs system is vital to implement the SAA. Customs revenue has risen

following substantial customs reforms. Progress has been made on computerisation, customs

rules and management of origin. Cooperation between police and customs has been

strengthened. Improved infrastructure and further acquis alignment is now needed. The

administration of taxation has been simplified, and progress made on computerisation and risk

analysis. Further alignment with EU legislation and a comprehensive tax collection and

control strategy are now needed.

Albania has undertaken commitments in the area of

competition

under the SAA. Regarding

anti-trust,

the functioning of the Competition Authority has improved, but it is held back by

the scarcity and inexperience of its staff.

State aid-related

SAA preparations are on track. The

legal framework and inventory is now complete. The State Aid Department's operational

independence now needs to be ensured.

A new

public procurement

law is pending, and public procurement training has been

expanded, but the current legal framework is not in line with the acquis. The Public

Procurement Agency remains weak. Progress in this field is vital for improving public sector

governance, a key European Partnership priority, and for fulfilling SAA obligations.

Regarding

intellectual property rights (IPR)

a trademark, patent and industrial design

database has been launched. An IPR unit has been set up in the customs administration.

However, the copyright office is not yet operational and IPR enforcement remains weak.

Considerable strengthening is required to fulfil SAA commitments.

Progress has been limited in the area of

employment.

Some progress can be reported in the

area of

education,

including approval of national strategies for secondary and vocational

training. However, participation rates in education remain relatively low.

Progress can be reported on some

sectoral policies.

Regarding

industry and SMEs,

a revised

action plan on removing administrative barriers to business and a new umbrella organization

to promote investment, export and SMEs are in place. However, progress on improving the

business environment and reducing the informal economy continues to be slow. Progress in

agriculture

has been very limited. An increase in sales and in investment in some products

has taken place, but productivity and competitiveness remains low. Compliance with EU

veterinary and phytosanitary

requirements, vital to successfully using SAA and interim

agreement trade conditions, remains poor. The

fishery

service controls the landing of fish, but

the illegal damaging of stock continues.

Regarding both

environment

and

transport,

some progress has been made on horizontal

legislation, but implementation and infrastructure development remain weak. The

energy

sector remains very weak. Albania has ratified the Energy Community Treaty and has begun

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to adopt the relevant laws, but electricity losses have increased and bill collection has

dropped. Albania is lagging behind in its preparedness to take on SAA commitments on

information society and media.

Regarding electronic communications and information

technologies, liberalisation laws need to be implemented and enforced. The regulatory

framework is not yet in line with the acquis. The telecommunications regulator is not

sufficiently active. Regarding

financial control,

the Public Internal Financial Control Policy

Paper has been endorsed by the government. Legal and regulatory progress has been made but

it remains at an early stage. There has been reasonable progress in the area of

statistics.

In the field of

justice, freedom and security

there has been progress in some areas; however,

all fields require determined and sustained attention. Training and document security for

visa

administration have improved. No centralised IT network is in place, and legal changes are

still required. New equipment and better co-ordination has led to some progress on

border

management,

but an integrated border management strategy is not yet in place. Border

management infrastructure needs to be strengthened. Laws on

asylum

comply with

international standards, but implementation needs to improve. Albania has improved its

internal coordination and cooperation with neighbouring countries to combat illegal

migration.

It is important that Albania ensures sufficient staffing to fulfil its obligations under

readmission agreements.

Regarding the fight against

money laundering,

the Financial Intelligence Unit (FIU) and the

prosecutor’s office have been reinforced and international cooperation improved, but both

need to be further strengthened and the legislative framework needs to be further developed.

Greater political impetus and better international co-operation have increased arrests of large-

scale

drug

traffickers, but better criminal intelligence capacity, domestic inter-agency co-

ordination and procedures for seized drugs are required. Drug trafficking remains a serious

problem. Efforts are underway to improve the organisation of the

police.

Cooperation with the

customs and intelligence services has improved, but improvement of case management and

internal control structures is needed.

Progress has been made in the

fight against organised crime,

a key European Partnership

priority. Strong political will to tackle organised crime has led to police operations against

major criminal groups. Operational cooperation with Albania's neighbours has greatly

improved. Cooperation between police and the judiciary at central level has somewhat

improved. However, much scope remains for improvement in concrete results. Better co-

ordination between police and judiciary at local level and greater efforts to combat high level

corruption in these bodies are needed. Stronger witness protection is required. The

government has adopted a national strategy against

trafficking in human beings

and improved

structures to implement it. Successful prosecutions and convictions of traffickers have

continued. However, trafficking remains a problem. Further resources and better domestic and

international coordination are required. The police counter-terrorism directorate has seized

large quantities of arms, although infrastructure and inter-agency cooperation needs to be

strengthened. The situation as regards the protection of

personal data

remains a matter of

concern.

Bosnia and Herzegovina

Bosnia and Herzegovina's progress towards meeting the

political criteria

has continued,

although at a slower pace. Key political priorities identified in the European Partnership have

been only partially addressed. A number of important issues remain to be tackled before

negotiations for a Stabilisation and Association Agreement can be concluded.

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Partial progress has been made regarding

democracy and rule of law.

The general elections of

1 October were the first elections since the Dayton/Paris Agreement to be fully administered

by the authorities of Bosnia and Herzegovina. Preliminary conclusions of the OSCE Office

for Democratic Institutions and Human Rights (ODIHR) indicated that these elections

represented a step forward in consolidating democracy and rule of law, and were conducted

generally in line with international standards. However, failure to amend the

Constitution

made it impossible for the elections to comply fully with the requirements of the European

Convention for Human Rights (ECHR).

Some steps have been taken towards ensuring that State-level ministries and institutions have

the necessary resources to implement their tasks, but further efforts are necessary to meet this

key European Partnership priority. Limited progress has been made in providing the State

Parliamentary Assembly

with sufficient technical resources and personnel. State-Entity co-

ordination remains inadequate and no new mechanisms have been put in place to improve it.

Overall performance of the executive and legislative institutions has remained insufficient.

Bosnia and Herzegovina's achievements over recent years in terms of stability and security

have allowed the Peace Implementation Council to decide on the closure of the Office of the

High Representative (OHR) by 30 June 2007. This decision is to be reviewed in early 2007.

The adoption of a comprehensive strategy for

public administration

reform partly addressed a

key priority of the European Partnership. The law on the State Ombudsman was also a

positive development. The Public Administration Coordination Office has been strengthened

and the Civil Service Agencies have improved recruitment procedures. The implementation of

the public administration reform is now necessary to strengthen overall administrative

capacity.

Little progress has been made as regards the key issue of

police reform.

The work of the

Directorate for Police Restructuring has been held back, largely due to Republika Srpska's

approach. This has led to delays in implementing the October 2005 Agreement on police

restructuring, which is a key European Partnership priority.

As regards the

judicial system,

the State Court, the Prosecutor's Office and the High Judicial

and Prosecutorial Council have performed their duties well. They are progressively gaining

ownership and reducing their reliance on the international community. Nonetheless, the

independence of the judicial system needs to be further strengthened, and its efficiency

improved.

A new strategy against

corruption

has been adopted. Corruption remains a serious issue in

Bosnia and Herzegovina. Cases need to be investigated and prosecuted more vigorously.

Limited progress has been made in relation to

human rights and protection of minorities.

The Human Rights Commission within the Constitutional Court has continued to work

efficiently. Enforcement of human rights-related rulings and proper implementation of

international human rights conventions require more attention. Ethnic discrimination remains

a critical issue. Further efforts are needed to combat intolerance and improve prison

conditions. Concrete steps need to be taken to support the Roma minority.

In the framework of freedom of expression and media, the State-level public broadcasting

laws have been adopted. The corresponding Entity-level legislation has been adopted in

Republika Srpska, but not in the Federation. Implementation of the public broadcasting

reform has been partial. The relevant European Partnership priority has not been fully met.

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The Refugee Return Fund is operational and Bosnia and Herzegovina has actively

participated in the Sarajevo process. Further action is necessary to support the return of

refugees and internally displaced persons and, in particular, their social and economic

integration.

Limited progress has been achieved in relation to

regional issues and international

obligations.

Some efforts have been made to ensure cooperation with the ICTY – a key

European Partnership priority – but there is room for improvement. Further action is required

to locate the indictees remaining at large and to fight networks supporting them. There has

been progress in the prosecution of war crimes by the State Court. Prosecution at Entity-level

needs to be improved.

Bosnia and Herzegovina's relations with its neighbours have continued to be good. Some

bilateral issues, notably on border demarcation and trade, remain to be addressed.

As regards

economic criteria,

Bosnia and Herzegovina has made limited progress towards

being a functioning market economy. Considerable additional efforts are also needed in order

to be able to cope with competitive pressure and market forces within the Union.

Coordination on fiscal policies deepened and a value added tax (VAT) was successfully

introduced in January 2006 across the country. The analytical capacity to support policy

making improved to some degree. Economic growth remained robust. Fiscal consolidation

continued. Reported exports picked up in the first half of 2006, supported by the VAT

introduction and increased production for some commodities. Privatisation continued, in

particular in the Republika Srpska, and certain legal changes were adopted to support

enterprise restructuring.

However, reforms in many areas remained slow. Imbalances in the trade and current accounts

continued to be very large, reflecting an insufficiently dynamic enterprise sector and strong

private consumption. The base for economic growth continued to be narrow. The fiscal stance

in the country has not properly reflected the large macroeconomic imbalances. Decision-

making processes on economic and fiscal policy in the country remain complex and not

sufficiently coordinated. In addition, pressures on public spending increased in spite of its

already relatively large size. Also the efficiency of public expenditure is still relatively low.

The business climate and corporate governance remained overall weak. Privatisation and

corporate restructuring was slow, in particularly in the Federation. Large parts of the

enterprise sector are still not sufficiently restructured.

Bosnia and Herzegovina has made limited progress in aligning its legislation and policies with

European standards.

Bosnia and Herzegovina will need to further enhance its capacity to

respond to the requirements of the European Partnership in this respect.

Regarding

internal market,

little has been achieved in the area of

free movement of goods.

Preparations in the field of standardisation, certification, metrology and market surveillance

remain at an early stage and new legislation is not being properly implemented. A lack of

conformity assessment bodies and procedures continues to hinder export capacity. The

establishment of a market surveillance structure based on appropriate product legislation and

the phasing out of contradictory pre-market controls require urgent action.

There are no particular developments to report with regard to the

movement of workers.

Limited progress has been made in the area of

services

and no significant changes have

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occurred in relation to

right of establishment

and

company law.

Banking supervision has not

been brought to the State level and remains an Entity responsibility.

No significant development has taken place in the area of

free movement of capital,

but

Bosnia and Herzegovina's preparations in this area are well underway. Limited additional

progress has been made in relation to

customs rules.

Customs legislation is in place and is

largely aligned to the

acquis.

Its full implementation needs to be ensured, especially in areas

such as origin, valuation and simplified procedures. As for

taxation,

the successful

introduction of the value added tax (VAT) was a positive development. There has been

limited progress in the field of direct taxation.

As regards

competition,

Bosnia and Herzegovina is progressing steadily in the area of anti-

trust control, but no progress has been made with regard to state aid. Some developments have

taken place in the field of

public procurement,

in particular with the establishment of the

Public Procurement Agency and the Procurement Review Body. Limited progress has been

made regarding implementation and enforcement of

intellectual property rights.

Few developments have occurred in relation to

employment policies.

Bosnia and

Herzegovina’s labour market remains challenged by unemployment, a high degree of

fragmentation and the lack of a sound employment policy. Little progress has been made in

the field of

education.

The Higher Education Law and other key laws have not yet been

adopted. Separation of children at schools along ethnic lines remains a serious issue.

Little additional progress has been made towards ensuring the existence of a real internal

market within Bosnia and Herzegovina, which is a key priority of the European Partnership.

As far as

sectoral policies

are concerned, no significant developments can be reported in the

area of

industry and small and medium enterprises (SME).

The industrial strategy and the

SME Development Strategy have not yet been adopted.

Overall, limited progress has been made in the field of

agriculture.

Policy is still being

developed at Entity level and coordination is insufficient. The development of a

comprehensive agricultural strategy is delayed, partly due to the lack of the necessary legal

and institutional framework at State level. Implementing legislation has been adopted in the

veterinary field. Implementation remains limited, mainly due to inadequate human and

financial resources and weak coordination between State and Entity veterinary services.

Bosnia and Herzegovina's preparations in the field of

environment

remain at an early stage. A

State-level Environmental law to create the framework for nationwide, harmonised

environmental protection has not been adopted and the State Environment Agency has not

been set up.

Sustained progress continues regarding Bosnia and Herzegovina’s involvement in developing

the trans-European

transport

network. Bosnia and Herzegovina is implementing the June

2004 Memorandum of Understanding on the South East Europe Core Regional Transport

Network. It has signed the European Common Aviation Area Agreement (ECAA), aimed at

creating a single European aviation market where EU aviation standards are applied. It has

made significant progress in alignment to the aviation acquis.

Some positive developments have taken place in the field of

energy.

The Energy Community

Treaty has been ratified. In the electricity sector, transmission has been unbundled, and the

Independent System Operator (ISO) and the Transmission Company (Transco) have been

legally established. Nonetheless, the transfer of assets and liabilities between ISO and Transco

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remains to be completed. This is preventing these bodies becoming fully operational. A

countrywide energy strategy has not yet been developed.

As regards

information society and media,

the independent Communications Regulatory

Authority has been active in preparing for effective competition in the telecommunications

market. However, limited progress has been made on public broadcasting and the

establishment of the Information Agency. No significant developments have occurred in the

area of

public internal financial control

(PIFC).

Steps have been taken in the field of

statistics,

in particular with the signature of a co-

operation agreement between the country's statistics institutions at State and Entity level.

Nonetheless, further significant efforts are necessary to establish an effective, EU-compliant

statistics system in Bosnia and Herzegovina.

In the area of

justice, freedom and security,

some progress has been made in the fields of

visa

administration, border management, asylum and migration.

The lifting of visa requirements

for all EU citizens has been confirmed. Bosnia and Herzegovina has concluded several

readmission agreements with EU Member States and third countries, and it has expressed

readiness to negotiate such an agreement at EU-level. The number of visas issued at the

border-crossing points has been reduced. There has been further progress in establishing a

functioning asylum system and in addressing illegal migration. Some progress has been made

on border management, with the update of the 2005 National Integrated Border Strategy and

the finalisation of the Integrated Border Management Action Plan. However, funds for their

implementation are lacking. There is room for improvement as regards border controls.

Shortcomings in staffing and facilities still need to be addressed in all areas.

Limited progress has been made on

money laundering.

The Financial Intelligence Unit (FIU)

within the State Investigation and Protection Agency (SIPA) remains inadequately staffed. No

new legislation against money laundering has been adopted and law enforcement remains

limited. Some steps have been taken as regards the fight against

drugs

through the adoption of

the Law on the Prevention of Narcotics and Precursor Abuse. A State-level drug policy in line

with EU standards needs to be developed.

Bosnia and Herzegovina has made some progress as regards the

fight against organised

crime, trafficking in human beings and terrorism.

A national strategy to combat organised

crime has been adopted. The legal framework to fight organised crime is in place, although

law implementation needs to improve further. SIPA has conducted more investigations and

arrests. It needs now to reach its full capacity, notably in terms of staff. The 2005-2007

National Action Plan for Combating

Trafficking in Human Beings

is being implemented.

Inconsistencies between State- and Entity-level legislation continue to hinder prosecution.

Bosnia and Herzegovina has also adopted a strategy to fight

terrorism.

As regards

data

protection,

the law on the protection of personal data has been adopted, but the Data

Protection Agency has not yet been established. The situation as regards protection of

personal data remains a matter of concern.

Croatia

Croatia continues to meet the

political criteria.

Progress has been made overall but further

sustained efforts are required in a number of areas. The short-term priorities of the Accession

Partnership have been partially addressed.

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Democracy and the rule of law

have been further strengthened. However, there is

considerable scope for improvement in the judiciary, public administration and in the fight

against corruption. Significant improvements in these areas are indispensable if a solid basis

for full implementation of the

acquis

is to be created.

Work preparing a strategy for

public administration reform

has begun. The Government

adopted a policy paper in September 2006 committing it to drafting a revised General

Administrative Procedure Act by July 2007. However, the adoption of an overall strategic

framework for addressing this crucial issue is long overdue. The existing legal administrative

system is cumbersome and needs simplification. The wide discretionary scope in legislation

leads to inefficiency and legal uncertainty and facilitates corruption. A new civil service law

entered into force in January 2006 and some related implementing legislation has been

adopted. However, the civil service continues to suffer from undue political influence, high

staff turnover and a lack of qualified personnel.

Implementation of a

judicial reform

strategy, a key Accession Partnership priority, has begun.

Legislative and organisational changes have been made aimed at improving the functioning of

the judiciary. The case backlog has been reduced but remains large. Reform is at an early

stage and the judicial system continues to suffer from severe shortcomings. More needs to be

done to reduce the length of court proceedings, improve case management, rationalise the

court network and ensure proper enforcement of judgements. To ensure impartiality the

procedures for the appointment, training and disciplining of judicial officials need to improve.

A new

anti-corruption

programme was adopted in March 2006. The Office for the Prevention

of Corruption and Organised Crime (USKOK) has been strengthened. Measures have recently

been taken in some hitherto uninvestigated corruption cases. These actions partially address a

key priority under the Accession Partnership. However, corruption remains a serious problem.

Many allegations of corruption remain uninvestigated and corrupt practices usually go

unpunished. Implementation of the anti-corruption programme is at an early stage. USKOK

and other bodies involved in this programme need further strengthening and coordination

among them needs to be improved. Full implementation of the programme and strong

political will to step up efforts are needed, especially on high level corruption.

In the area of

human rights and the protection of minorities

progress continues to be made,

albeit at a slow pace. An appropriate legal framework is in place. However, actual

implementation of legislation needs to be accelerated.

In June 2006 the Penal Code was amended to,

inter alia,

abolish prison sentences for libel and

to include a wider definition of "hate crime". With regard to minorities, there has been a

significant increase in funding and greater attention paid by the Government to the action plan

under the Decade of Roma Inclusion. High level politicians have demonstrated commitment

to integrating minorities.

However, more efforts are needed to combat intolerance and to encourage reconciliation as

well as to properly investigate and prosecute those responsible for apparently ethnically

motivated crimes. Implementation of the Constitutional Law on National Minorities continues

to be slow, particularly as regards its employment provisions for minorities. These issues are

key priorities under the Accession Partnership. A comprehensive strategy and action plan on

all forms of discrimination has not yet been adopted.

There have been instances of political interference in the media. Plans aimed at improving

women’s and children’s rights have been adopted and should now be implemented.

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As regards

regional issues and international obligations,

full cooperation with the

International Criminal Tribunal for the former Yugoslavia (ICTY) has continued, as required

by a key Accession Partnership priority and overall compliance with the Dayton and Erdut

agreements has been ensured. The prosecution of war crimes in Croatia has continued to

improve. However, bias against Serb defendants still needs to be fully addressed. The issue of

witness protection is being tackled seriously by the State Prosecutor, this issue is not being

addressed sufficiently in the wider judicial system. yhas become more acute. Progress on

refugee return - a key Accession Partnership priority - has been uneven. While the issues of

reconstruction and repossession have generally been well addressed, implementation of

housing care programmes for former tenancy rights holders wishing to return to Croatia is

particularly weak; no progress has been made on validating pension rights. Efforts to create

the economic and social conditions necessary for the sustainability of refugee return need to

be accelerated.

There has been continued general progress in the area of regional cooperation. This progress

needs to be sustained. However, little progress has been made towards finding definitive

solutions to various pending bilateral issues with Croatia’s neighbours, particularly as regards

border demarcation. This issue is a key Accession Partnership priority. Efforts are needed to

further develop cooperation and good neighbourly relations.

As regards

economic criteria,

Croatia can be regarded as a functioning market economy. The

country should be able to cope with competitive pressures and market forces within the Union

in the medium term, provided that it vigorously implements its reform programme to remove

the significant remaining weaknesses.

Political consensus on the essentials of economic policy has generally been maintained.

Stability-oriented macroeconomic policies have contributed to low inflation, exchange rate

stability and a slight acceleration of growth. Private investment has risen and unemployment

has declined. Gradual fiscal consolidation has continued, backed by strong revenue growth.

Some measures have been taken to better control health care spending. Business registration

procedures have been further simplified. The banking sector has continued to grow and a new

supervisory agency for the non-banking financial sector has been established. Road

infrastructure has improved. Further progress has been made in enhancing competition in the

telecommunication sector. Initial steps have been taken to restructure the loss-making railway

system. Croatia's economy is well integrated with that of the EU.

However, significant and rising imbalances in the trade and current accounts and a high

external debt imply potential risks to macroeconomic stability. Subsidies to loss-making

enterprises and a high level of current spending continue to burden the government budget.

The pace of structural reforms has generally been slow. Little progress has been made in

implementing privatisation plans and in enterprise restructuring. The development of a more

vivid private sector has been hampered by deficiencies in public administration and the

judiciary, undermining market entry and exit procedures and the enforcement of property and

creditor rights. State intervention in the economy remained significant. Increased efforts are

required to raise participation in lifelong learning.

Croatia has improved its

ability to take on the obligations of membership.

In most areas

there has been some progress, mainly in terms of legislative alignment. Progress has varied

considerably between chapters As regards the overall level of alignment and administrative

capacity, much remains to be done. Short-term priorities under the Accession Partnership

remain to be fulfilled in many areas.

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Progress in

free movement of goods

has been limited and uneven. Progress on new and global

approach has not been matched in the old approach area. Considerable efforts are still needed

on legislation and administrative capacity across the board. On

free movement of workers

there has been limited progress. Considerable efforts are needed in terms of developing

capacity for coordination of social security systems. Limited progress has been made on the

right of establishment and the freedom to provide services.

Overall alignment is reasonable,

although considerable efforts are still required in some areas. Croatia made some progress on

the

free movement of capital.

However increased efforts are needed, especially as regards

money laundering and procedures for acquisition of real estate by EU nationals.

Progress in the area of

public procurement

has been limited. Considerable further efforts are

needed to design an overall strategy for alignment and to strengthen the institutional set-up.

As regards

company law

progress has been good. There were significant legislative changes

in the field of corporate accounting and auditing. Alignment is on track, although monitoring

and enforcement of corporate compliance requires continued efforts. Some progress has been

made on

intellectual property law,

particularly on enforcement. However continued efforts

are needed.

In the field of

competition policy,

Croatia has continued to make some progress, both as

regards anti-trust and state aid. However, it needs to intensify its efforts. There is a need for

important further legislative alignment, strengthening of administrative capacity and a more

efficient enforcement record. Viable restructuring plans in steel and shipbuilding sectors need

to be urgently adopted. Fiscal aids remain problematic. The relevant obligations under the

Stabilisation and Association Agreement remain to be fulfilled.

Croatia has made some progress on

financial services,

particularly by enhancing the

alignment of insurance legislation and by establishing an integrated supervisory authority for

the non-banking sector. Alignment is moderately advanced but efforts need to increase.

Some progress has been made in the area of

information society and media.

Competition in

the telecoms market has been enhanced. Alignment in electronic communications and

information technologies is moderately advanced. However, further strengthening of Croatian

Agency for Telecommunications is needed. Further legislative alignment is also needed in the

media and audiovisual field.

agriculture

reasonable progress has been achieved, notably on the implementation ofrural

development programmes, quality policy and organic farming. However, setting up of

administrative structures for the implementation, management and control of the Common

Agricultural Policy is at an early stage. Concerning

fisheries,

Croatia has made some progress

with further alignment on resource and fleet management and some strengthening of

inspection services. Increased efforts are needed to close some major gaps including the

establishment of a computerised fishing fleet register, VMS, data collection and a

strengthened inspection system. State aids also need to be aligned. Some progress was made

in aligning the

veterinary, phytosanitary and food policy.

Substantial efforts are needed

however, including the adoption of a comprehensive food safety strategy as well as the

necessary framework legislation.

Good progress has been made in

transport policy.

Alignment has continued on road, air and

maritime transport. Further implementing legislation needs to be adopted, however, and

increased efforts are needed notably as regards administrative capacity. On

energy

there has

also been some progress, including on security of energy supply and on the internal energy

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and gas market. Croatia ratified the Energy Community Treaty. However, increased efforts

are needed, particularly on energy efficiency, nuclear safety and regulatory strengthening.

There has been limited progress on

taxation.

Overall progress with legislative alignment

remains limited. The tax administration needs to be modernised significantly and IT

interconnectivity improved. Croatia has made some progress in the field of

economic and

monetary union.

Overall, preparations are well underway. However, further efforts are

needed, especially to ensure full independence of the Central Bank. Croatia has made good

progress across the board on

statistics.

Continued efforts and especially sustainable national

funding are necessary.

As regards

social policy and employment,

limited progress has been made.. Considerable

efforts are needed to strengthen the weak administrative capacity in this area. Croatia has

made uneven progress on

enterprise and industrial policy.

While there has been good

progress on the business environment and SME policy, major challenges remain on enterprise

restructuring, in particular in the steel and shipbuilding sectors. Some progress has been made

Trans European Networks.

There has also been some progress on

regional policy and

coordination of structural instruments.

However, considerable efforts are needed to set up the

administrative structures necessary for implementation of EU funding.

As regards the

judiciary and fundamental rights

some progress has been made. However,

significant improvements are needed on judicial reform and in the fight against corruption.

There is further scope for improvement in fundamental rights. In the area of

justice, freedom

and security

Croatia has made progress, particularly in border management, visa policy and

asylum. However, the integrated border management action plan should be updated and

equipment needs upgrading. Considerable andsustained efforts are needed to strengthen

enforcement and administrative capacity, particularly as regards organised crime.

Reasonable further progress has been made in the chapters

science and research

and

education and culture.

In both cases, a good overall level of preparation has been reached. As

regards the

environment

good progress has been made overall, especially on air and water,

nature protection, chemicals and GMOs. However, in view of the scope and complexity of

this chapter, very significant efforts are still needed. Administrative capacity is weak and

strategies for financing the significant investments necessary are lacking. On

consumer and

health protection

Croatia has made limited progress. Much legislative alignment remains and

market surveillance is far from EU standards.

In the area of the

Customs union,

Croatia has made some progress, notably by further aligning

customs procedures and customs protection of intellectual property rights. However,

significant strengthening of administrative capacity and IT interconnectivity is necessary.

Croatia has made some progress in the area of

external relations.

As regards

Foreign,

Security and Defence Policy,

progress has continued. Croatia has continued to systematically

align with EU declarations and other CFSP instruments.

There has been some progress on

financial control,

notably as regards Public Internal

Financial Control, external audit and protection of the Euro against counterfeiting. More

capacity for internal audit and financial management is needed, however. Structures to protect

the EU’s financial interests need to become operational. No particular progress has been made

financial and budgetary provisions.

The former Yugoslav Republic of Macedonia

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As noted in last year's Opinion on its application for membership, the former Yugoslav

Republic of Macedonia is well on the way to satisfy the

political criteria.

However, the pace

of reforms has slowed down in 2006 and the country needs to step up its efforts. The short

term political priorities in the European Partnership have been partially addressed.

The continued implementation of the Ohrid Framework Agreement has contributed to the

country's stability and to consolidating

democracy and the rule of law.

To achieve further

progress, all political parties need to make the necessary efforts to build consensus, in full

compliance with the letter and spirit of the Agreement.

The former Yugoslav Republic of Macedonia made progress in strengthening the electoral

process to prepare for the July

parliamentary

elections. The legal and institutional framework

for elections has been reformed, in line with ODIHR recommendations and a key priority of

the European Partnership. In July, the electoral process was conducted largely in accordance

with international standards. However, there were still irregularities before and during the

elections. Major efforts will be required to ensure that standards are fully met during the next

elections. A constructive dialogue, in particular in Parliament, among all political parties in

the government and the opposition is needed to ensure the proper functioning of the

institutions.

As regards

public administration reform,

the 2000 Law on Civil Servants has been further

implemented. Steps were taken to improve the management of the administration and

transparency in public decisions. The decentralisation process has moved forward and public

services started to improve. Continued strong commitment from the government and the

municipalities is required to address the remaining challenges. However, appointments and

dismissals in the administration continue to be politically influenced. Large scale changes

occurred in the administration after the change of government. Independence and

professionalism of the administration, as well as administrative capacity, need to be

strengthened.

An important reform of the

judicial system

has been initiated, as required in the European

Partnership. The constitutional and legal framework for an independent and efficient judiciary

is now largely in place. Successful implementation of the reform remains a major challenge

and a key priority of the European Partnership, which will require continuous efforts and a

sustained track record. Further steps remain to be undertaken to secure effective rule of law

throughout the country. The adoption of a new police law met a key priority of the European

Partnership, after delays which slowed down the reform in the police. Constructive

cooperation is needed between the government and the opposition to ensure its smooth

implementation.

The legal and institutional framework for

fighting corruption

has been strengthened. The

cooperation and coordination among the bodies involved have improved. However,

corruption remains widespread. Many allegations of corruption have yet to be investigated.

Full implementation of the legislation and strong political will to step up efforts are needed.

As regards

human rights and the protection of minorities,

implementation of the Ohrid

Agreement has gone ahead. In general, inter-ethnic relations have continued to improve.

However considerable further efforts are needed in a number of fields. The Penal Code was

amended to abolish prison sentences for libel. Mechanisms for investigating ill-treatment of

detainees need to be strengthened, including through the co-operation between the

Ombudsman and the Ministry of Interior. Telecommunication tapping still takes place in

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absence of a proper legal framework. Further efforts are needed to develop trust between

ethnic communities. The representation of the different communities in the public

administration is uneven. There has been some progress in the implementation of the action

plans under the 2005-2015 Decade of Roma Inclusion. However, the situation of the Roma

community continues to cause concerns.

Regarding

regional issues and international obligations,

the former Yugoslav Republic of

Macedonia has maintained full cooperation with the International Criminal Tribunal for the

former Yugoslavia. Further progress in the reform of the judiciary is essential to prepare for

the transfer of the cases to be returned by the ICTY. The country maintained a constructive

position on Kosovo status talks. The bilateral non-surrender agreement with the United States

of America is still not in line with the relevant EU guiding principles concerning

arrangements between a state party to the Rome Statute of the International Criminal Court

and the USA.

The former Yugoslav Republic of Macedonia has remained an active partner in regional

cooperation. Bilateral relations with neighbours have developed; however, there has been no

progress on the name issue, which remains an open problem. Renewed efforts are needed,

with a constructive approach, to find a negotiated and mutually acceptable solution on the

name issue with Greece, under the auspices of the UN, thereby contributing to regional

cooperation and good neighbourly relations.

As regards

economic criteria,

the former Yugoslav Republic of Macedonia is well advanced

in establishing a functioning market economy. Continued stabilisation and reform efforts are

needed to enable it to cope with competitive pressure and market forces within the Union in

the medium-term.

The country has maintained a broad consensus on the essentials of economic policies. As a

result of a sound policy mix, macroeconomic stability and predictability have further

increased. Inflation has remained under control. Public sector accounts have been kept close

to balance and the relatively low level of public sector debt has declined further. Price and

trade liberalisation are largely completed, and the privatisation of state-owned enterprises has

proceeded. Barriers to market entry and exit have been reduced by simplifying and

accelerating bankruptcy and, in line with a key priority of the European Partnership,

registration procedures. The financial sector's stability has improved. Furthermore, measures

have been taken to improve the quality of human capital and to upgrade the country's

infrastructure. Foreign direct investment inflows increased significantly, mainly driven by

privatisation efforts. Economic integration with the EU is well advanced.

However, the functioning of the market economy is still impeded by institutional weaknesses,

such as the slow speed of administrative procedures, corruption, red tape and a low degree of

legal certainty. Shortcomings in the judiciary continue to be bottlenecks, impeding a faster

improvement in the business climate. Furthermore, labour and financial markets are still

poorly functioning, which hinders the reduction of the particularly high unemployment and

hampers credit provision to enterprises. The education system does not sufficiently reflect the

country's needs. These factors allowed only moderate economic growth. The considerable

informal sector continues to cause major distortions in the economy. The commodity structure

of exports is very concentrated.

The country has made further efforts to improve its

ability to assume the obligations of

membership.

The country still faces major challenges in implementing and effectively

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enforcing the legislation. There was some progress in the fulfilment of the short-term

priorities of the European Partnership.

In the

free movement of goods,

there was

some

progress as regards horizontal measures.

However, most of the sectoral

acquis

remains to be transposed and implemented.

Development has been limited in the area of

free movement of workers

and preparations are at

an early stage. There has been no progress on the

right of establishment and freedom to

provide services.

Further efforts are needed to align with the

acquis.

Some progress has been

made in the area of

free movement of capital,

in particular as regards payment systems.

However, further efforts are needed. In particular, the legislative and institutional framework

regarding money-laundering needs to be reinforced.

Significant progress can be reported in the area of

public procurement

where the basis for

developing an effective public procurement system has been established. However, further

efforts will be needed, in particular in setting up an effective remedy system. Notable progress

has been made in the area of

Company law,

in particular the introduction of the one-stop-shop

system for company registration, as requested by the European Partnership. Further efforts are

needed to ensure the effective implementation of the rules adopted. On

Intellectual property

law,

there has been some progress in particular in the area of industrial property rights.

However, efforts need to be stepped up to strengthen enforcement capacity, administrative

structures and political will to fight piracy and counterfeiting in order to comply with the

SAA. Preparations to align with the

acquis

are still at an early stage.

In the field of

competition,

some progress can be reported, mostly limited to the legal

framework. Considerable efforts are needed to implement existing legislation much more

effectively, in particular as regards the functioning of the Commission for Protection of

Competition.

There was some progress in the area of

financial services,

as the country has continued its

efforts to align its national legislation with EU standards in the various sectors. Nonetheless,

some deficiencies remain, in particular as regards the standard of supervision in the banking

and the insurance sectors.

Progress has been notable in parts of the area of

information society and media.

There was

further alignment of the legislation in the areas of electronic communications and information

technologies, as well as in the audiovisual sector. However, progress is needed in the

liberalisation of the telecommunications market, ensuring the principle of non discrimination

between operators and the independence of the regulatory authority in order to end the breach

of the Stabilisation and Association Agreement and meet a key priority of the European

Partnership.

There has been some progress in the area of

agriculture and rural development.

Alignment

has been initiated but is at an early stage. Progress has been made in parts of the area

food

safety, veterinary and phytosanitary policy.

However, the enactment and implementation of

legislation to align with the

acquis

is lagging behind. Preparations to align with the

acquis,

where relevant, in the area of

fisheries

are at an early stage.

Good progress has been made in some areas of

transport policy.

However, considerable

efforts to align and strengthen the administrative capacity in all transport sectors are needed.

There has been notable progress in part of the energy sector. Adoption of implementing

legislation is a matter of priority, in particular in view of commitments under the Energy

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Community Treaty which was ratified by the former Yugoslav Republic of Macedonia in May

2006.

Progress in the legislative alignment could be reported in the area of

taxation.

However,

significant efforts will be needed to further align legislation, ensure effective implementation

of the legislation, as well as to strengthen the administrative capacity in the area of tax

collection.

Progress in the area of

economic and monetary policy

has been limited. However, overall,

preparations are well advanced. There has been some progress in the area of

statistics.

Further

alignment with the

acquis

is needed and administrative capacity needs to be substantially

strengthened.

Notable progress has been made in the area of

social policy and employment,

mainly in the

field of labour and equal opportunities legislation. However, much of the

acquis

remains to be

transposed, notably in the area of health and safety at work, and considerable efforts in the

employment policy are required to address the difficult labour market situation. There has

been limited progress in the area of

enterprise and industrial policy.

The country still lacks

industrial, technology and innovation strategies and further efforts are needed to develop

instruments and sector policies. As regards Trans-European networks, the former Yugoslav

Republic of Macedonia participates in the regional initiatives. The need for substantial

financial input remains a bottleneck to upgrade the infrastructures. Progress has been limited

in the area of

regional policy and co-ordination of structural instruments.

Considerable

efforts will be needed to align the legislation on regional development and strengthen the

institutional framework and administrative capacity.

In the area of the

judiciary and fundamental rights,

the Constitution and the legal framework

were amended to allow for the implementation of the judiciary reform. Some progress has

been made in the legal and institutional framework to fight corruption. However, improving

the independence and the efficiency of the judiciary remains a major challenge and very

strong political will is needed to tackle corruption. There is further scope for improvement in

fundamental rights. The situation as regards protection of personal data remains a matter of

concern. There has been progress in parts of the area of

justice, freedom and security,

notably

as regards migration and visa policy, and border management. Further implementation of the

border management strategy is needed. Progress has been more limited in judicial

cooperation, police cooperation, the fight against organised crime and drugs. Considerable

efforts and sustained efforts are needed to strengthen enforcement and administrative

capacity.

The former Yugoslav Republic of Macedonia has started to prepare a more integral policy in

the field of

science and research.

Progress has been made in the area of

education and

culture.

As regards

environment,

some progress has been made to strengthen the legislative

framework. However, preparations to align with the

acquis

in this chapter are at an early stage

and very significant efforts will be needed to ensure the implementation and the enforcement

of the legislation. On

consumer and health protection,

some legislative progress has been

made, mainly in the area of safety related measures. Further legislative alignment is needed as

well as sustained efforts to establish a functioning system of consumer and health protection

throughout the country.

Substantial legislative progress took place in the area of

customs union.

Fees which were

breaching the SAA have been abolished, in line with a key priority of the European

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Partnership. However, further strengthening of the administrative capacity in terms of staff, IT

and other equipment will be necessary to allow enforcement of the legislation.

There has been progress in some areas of

external relations,

in particular in the field of dual

use goods and regional integration through the CEFTA initiative. Progress has been made in

parts of the area of

foreign, security and defence policy.

Further alignment will be needed,

notably as regards international restrictive measures.

Legislative progress has been made in the area of

financial control.

However, considerable

efforts will be needed, in particular to strengthen the public internal financial control, external

audit and anti-fraud capacities. In the area of

financial and budgetary provisions,

progress has

been limited. However, basic principles and institutions are in place.

Montenegro

As regards

political criteria,

Montenegro has made some progress. It has broadly addressed

the key priorities of the European Partnership, but significant results remain to be produced.

Montenegro has managed smoothly the overall process leading to independence including the

organisation and conduct of the referendum on 21 May 2006 in line with the requirements of

the Constitutional Charter and the recommendations of the European Union. Montenegro is in

the process of putting in place the legal and institutional set-up required by its new

competences as an independent state. In particular, it will have to adopt a new Constitution.

The Constitution should be in line with European standards and adopted by a broad

consensus. Montenegro will also have to sign and ratify the international agreements to which

the State Union of Serbia and Montenegro was a party.

Regarding

democracy and the rule of law,

the parliamentary

elections

of 10 September 2006

were conducted in line with international standards.

The

government

and the

parliament

have made sustained efforts to increase their efficiency.

The government has set up coordination mechanisms in key areas of its activity. The

parliament has adopted new rules of procedure. Elements for the establishment of a political

consensus on key choices including on European integration have started to emerge. This

process needs to be pursued with determination and reflected in particular in the work of the

parliament.

Progress in establishing the legislative framework for

public administration

reform has

continued and a new recruitment system is in place. The training of civil servants has been

upgraded. However, the public administration continues to suffer from serious weaknesses. Its

de-politicisation and professionalism need to be fully ensured, in line with a key European

Partnership priority.

The overall strengthening of the

judicial system

has continued. This is a key European

Partnership priority. The adoption of a law on judicial training and the establishment of a state

Judicial Education Centre have been steps to the right direction. However, problems of

efficiency and independence in practice remained. The emerging consensus on judicial

reforms should be followed by concrete steps on implementation and plans should be finalised

soon and matched by the allocation of appropriate resources. Appointments and advancement

of judges and prosecutors needs to be de-politicised and based on professional and objective

criteria.

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Willingness to advance in the area of the

fight against corruption

has increased, in particular

through the adoption of a number of planning documents by the Government and in

improvements in reporting. The Anti-Corruption directorate has started to send cases to

competent bodies. However, corruption remains a widespread problem in Montenegro and the

overall legal and institutional set-up presents loopholes which allow for corruption and limit

the capacity of the state to effectively prevent and prosecute corruption. The Parliament failed

to amend the law on conflict of interest, which needs to be substantially reviewed and

enforced with determination.

In the area of

human rights and protection of minorities

Montenegro is at an early phase in

the process of putting in place a legal and institutional set-up following independence. In the

next period particular attention needs to be paid to constitutional guarantees for human and

minority rights, including in prisons, religious freedom, non-discrimination and the situation

of Roma and refugees. Media independence and professionalism need to be strengthened and

the law on access to information be implemented with more determination. The independence

of the broadcasting authority should be maintained.

Concerning

regional issues and international obligations,

co-operation with the ICTY

currently satisfactory, in line with a key European Partnership priority. This should be

maintained. The ongoing investigation in relation to the case of the disappearance of a number

of Bosnian refugees in 1992 is a matter of concern. Montenegro is committed in

regional

cooperation.

It is an active participant of regional initiatives such as in the fields of aviation,

transport infrastructure and energy. It enjoys good relations with neighbouring countries.

Following independence, the smooth settlement of pending issues with Serbia has been a

contribution to regional stability. Montenegro maintained a constructive approach on Kosovo,

which was a key priority under the European Partnership.

As regards

economic criteria,

Montenegro has made some progress towards being a

functioning market economy. Further reform efforts must also be pursued in order to enable it

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

The country has maintained a broad consensus on the essentials of economic policies.

Macroeconomic stability is getting firmer. In particular, economic growth has gained pace

and inflation has remained subdued. Public debt has been reduced and budgetary revenues

increased further. Foreign direct investment remained robust. Price liberalisation is almost

complete. The privatisation programme is well advanced and business registration has been

further facilitated. The capacity of the judiciary to deal with commercial disputes has

improved. Financial intermediation has deepened and the restructuring of network industries

is underway.

However, economic growth remains dependent on a few key sectors and enterprises. External

imbalances widened. The labour market remains rigid and unemployment high. The financial

audit system, both for internal and external controls, needs to be upgraded. The business

environment is still hampered by the regulatory environment, including at municipal level.

The level of infrastructure investment is low. Debt and arrears from some public enterprises to

the government are very significant. The state aid structure must be strengthened. A system of

ex ante control of all new aid measures needs to be set up. Public enterprises are still awaiting

further restructuring and the privatisation plan is only partly completed. Trade openness and

trade integration with the EU has recently risen, but is still at fairly modest levels.

Privatisation procedures need to be efficient and fair.

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Montenegro has made some progress in approximating its legislation and policies with

European standards

in most areas and has advanced in strengthening its administrative

capacity in particular in coordination of European integration matters including on the

negotiation of an SAA. However, it is still at an early stage of preparations and considerable

resources need to be allocated for finalisation of the legislative process and implementation.

Concerning

internal market,

Montenegro has started legislative and administrative

preparations to fully assume the new competences in the fields of standardisation,

certification, metrology, market surveillance and intellectual property rights. Consumer and

health protection including veterinary, fisheries and phyto-sanitary controls remain also at an

early stage of preparation. Improvement is needed in reinforcing implementation of

intellectual property rights legislation. Montenegro will also have to accede to all international

agreements in this area the State Union was a party to. .

Progress has been made in the area of

services

and the

right of establishment

and

free

movement of capital.

Customs

reform has advanced but significant problems remain regarding the legal framework

and the implementation of rules of origin. An adaptation to the EU standards in this area is

essential for the conclusion and subsequent implementation of the Stabilisation and

Association Agreement. Duty free shops have recently been established at land borders,

which is a matter of concern, as it increases the risk of smuggling. Reforms in the area of

taxation should be pursued.

Some progress has been achieved in the area of

competition.

However, further progress is

needed in establishing the operational independence and providing resources for the

competition authority and in advancing preparations to introduce and implement the legal

framework for state aids. Some progress has been made in the field of

public procurement

and

currently prepared amended legislation and secondary legislation is expected to strengthen the

performance of the relevant bodies. However, the overall implementation of public

procurement legislation has not been satisfactory and needs to be upgraded. Progress in all

these fields is essential for the implementation of the SAA. Limited progress has been

registered in relation to

employment policies.

Unemployment is still a significant problem in

Montenegro, with inadequate actions to match needs and skills. Much of the

acquis

remains

to be transposed, notably in the area of health and safety at work and gender equality. In the

field of

education,

ongoing reforms mean that integration into the European area of Higher

Education in the context of the Bologna process is on track. However, significant efforts are

still needed to develop skills in line with the requirements of the economy.

As far as

sectoral policies

are concerned, Montenegro has moderately advanced in

implementing the European Partnership priorities in the area of industry and SMEs. However,

Montenegro has made little progress in streamlining licensing systems. The business

environment needs to be improved by simplifying administrative procedures. The steel sector

requires restructuring to achieve viability and competitiveness.

Some progress has been made in the field of

agriculture.

Strategies for agricultural

development and fisheries have been adopted by the Government and put up for public

discussion. Montenegro has designed plans for the development of the veterinary sector.

Overall it has moderately advanced on reforms with EU support and allocation of budget

resources. However, implementation is still below European standards and needs to be

upgraded.

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Preparations in the field of

environment

remain at an early stage. Strategic and legislative

documents have been adopted but the environment-related administrative capacity in

management and control bodies should be substantially strengthened.

As for

transport

and

energy,

some progress can be reported. Montenegro is participating

actively in regional transport networks and deciding its priorities accordingly. Progress has

been registered in the adoption of the law on road transport. In energy progress has been

registered in particular in the area of restructuring of the electricity and gas sectors and in

promoting energy efficiency. Montenegro has ratified the Energy Community Treaty.

Progress has been noticed in the areas of

public internal financial control

and external

audit.

The State Audit institution progressed in strengthening its capacity. However, Montenegro

will have to substantially upgrade its system of internal and external control and the State

Audit institution should be upgraded into a supreme audit institution with constitutional

guarantees and in line with EU best practices.

statistics,

some progress has been made regarding the establishment of a national statistical

system in Montenegro. However, the overall quality of statistics remained low. The Statistical

Office of Montenegro and the other parts of the national statistical system need substantial

upgrading in order to implement commitments and to deliver timely, reliable and accurate

statistics in accordance with EU standards.

In the area of

justice, freedom and security,

some progress has been achieved concerning

border management.

Montenegro has assumed full responsibility in the area of

visa policy,

asylum and migration

following independence. Preparations have started to put in place the

legal and institutional framework required for implementation.

Some progress has been registered in the area of

anti-money laundering.

The Directorate

against Money Laundering, which operates as a Financial Intelligence Unit, upgraded its

cooperation with law enforcement bodies and with neighbouring countries. However,

coordination and exchange of information needs to be substantially enhanced.

Some progress has been made in the fight against

drugs.

Montenegro is a transit country for

drug trafficking, and drug use is increasing.

Some progress has been made regarding overall

police

restructuring. However, the resources

and means available for police, in particular in the area of the fight against organised crime,

remain inadequate.

Montenegro has achieved some progress as regards the

fight against organised crime.

action plan to implement the strategy for the fight against corruption and organised crime was

adopted in August 2006. It should be followed by an upgrading of the implementation

capacity of law enforcement bodies. Some progress has been achieved in the

fight against

trafficking in human beings.

A shelter for victims has been established with public funding.

Preparations are advancing to prepare a law on the protection of personal data, a key

requirement of the SAA. The situation as regards protection of personal data remains a matter

of concern. Montenegro is in the process of upgrading its capacities in the area of the fight

against

terrorism.

Serbia

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As regards

political criteria,

Serbia has made progress in line with the European Partnership.

However, a number of challenges remain to be addressed. In particular, Serbia has not yet met

its international obligation to fully co-operate with the ICTY, which is the condition for

resuming the Stabilisation and Association Agreement negotiations.

Concerning

democracy and rule of law,

further to Montenegro's independence Serbia has

become the successor state of the State Union of Serbia and Montenegro, in accordance with

the State Union Constitutional Charter. The authorities have handled by this process in a

responsible manner. The resolution of issues between the two Republics has been proceeding

smoothly. Serbia has taken over the State Union policies and institutions. This process is not

yet fully completed.

The adoption of a new

Constitution

is a welcome development. However, there are some

areas of concern, related in particular to the independence of the judiciary. The constitutional

framework needs to be soundly developed and implemented to strengthen democracy and rule

of law, and to ensure its future compatibility with EU membership. As regards Kosovo, its

future status will be determined by the political process established under UNSCR1244.

The Serbian

Parliament

has continued with intensive legislative activity. It has become more

transparent and open to the general public. The revision of its rules of procedure is welcome.

However, its functioning has shown some weaknesses. In particular some members of the

Parliament were deprived of their mandates in a controversial manner. The

Government

activities have become more transparent. The European Integration Office has continued its

good work, notably with regard to the Action Plan for the implementation of the European

Partnership. However, the lack of coordination within the Government persisted. The line

ministries still have widely varying capacities and resources to deal with European integration

issues.

As regards the

public administration reform,

a key priority of the European Partnership, there

has been further progress in setting the legal framework for the civil service. This is now in

line with general European standards. Serbia has a good administrative capacity in a number

of areas. This capacity needs to be developed further throughout the administration. The

Parliament has not yet appointed an Ombudsman as required by the relevant law.

The reform of the

military

has continued but with difficulties and resistance from some

elements within the army. Civilian oversight of the military, which is a key European

Partnership priority, is still insufficient. The new Constitution and the revised parliamentary

rules of procedures set out the bases for a more effective civilian oversight.

The

judicial

reform strategy has been adopted and its implementation has started. However,

the independence of the judiciary, an issue which mentioned in a key priority of the European

Partnership, is still affected by political influence. Positive trends can be seen as regards

speeding up of proceedings in commercial courts. Still, the efficiency of the administration of

justice is not satisfactory. The establishment administrative and appellate courts has been

delayed further.

The National strategy and the relevant Action Plan for

fighting against corruption

were

adopted. Tangible results were achieved in some sectors. However, corruption remains a

source of concern. A clear and effective institutional set-up still needs to be put in place.

As regards

human rights and the protection of minorities,

overall the human rights situation

has continued to improve. The State Union Ministry for Human and Minority Rights has been

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replaced by an Office under the Prime Minister. However, the performance of the Office

remains to be tested. The new law on churches and religious organisations does not guarantee

the equal treatment of religious groups. A comprehensive anti-discrimination law is still

lacking and further efforts are needed to promote tolerance. Further efforts are also needed to

prevent torture. The issue of property restitution remains outstanding.

Measures have been taken to promote the participation of members of

minorities

in the

education system and their representation in public administration. Problems persisted,

however, in the area of information in minority languages. The interethnic situation in

Vojvodina has continued to improve. The situation in South Serbia remains tense. In Sandžak,

incidents have occurred within the Bosniak community. The Government has adopted a

number of Action Plans concerning Roma people. However, their situation remains

precarious. Local integration of refugees, in particular the most vulnerable ones, remains

difficult.

As regards

regional issues and international obligations,

Serbia has continued to contribute

regional

co-operation and to pursue policies aimed at improving relations with its

neighbours. Progress has been made concerning regional co-operation in the fields of

aviation, transport infrastructure and energy. Serbia has not yet met its international obligation

to fully co-operate with the ICTY, which is a key priority of the European Partnership. The

Serbian authorities participate in the political talks on the future status of Kosovo, launched in

2005 under UN auspices. However, Belgrade has discouraged the participation of Kosovo

Serbs in the Provisional Institutions of Self-Government. Serbia needs to take a constructive

approach in line with the key priority of the European Partnership.

As regards

economic criteria,

Serbia has made notable progress towards being a functioning

market economy. Stabilisation and reform efforts need also be continued in order to enable it

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

Consensus on the direction of economic policy and reform has generally been maintained in

2005. Economic growth has continued. The current account deficit has narrowed, helped by

recovering exports. Foreign currency reserves have been boosted by strong capital inflows in

the form of privatization proceeds as well as corporate and commercial banks’ foreign

borrowing. Foreign direct investment (FDI) has continued to grow predominantly related to

privatisation. Monetary policy has been tightened and fiscal consolidation continued in 2005

due to cuts in expenditure and strong tax receipts. General government debt has declined.

Tangible progress has been made in pension reform and company registration. Privatisation of

socially-owned companies and of the banking sector has advanced. Preparations for

restructuring and privatisation of state-owned companies have intensified. There was a certain

progress in creating the necessary regulatory framework for network industries. Economic

integration with the EU advanced.

However, inflation and external deficits remained relatively high. Since early 2006, fiscal

consolidation has stopped. The envisaged acceleration of public investment risks jeopardising

further fiscal consolidation and macroeconomic stability. External debt has risen as borrowing

of the private sector has increased. Unemployment has further risen. Greenfield investment

remained negligible. The enterprise sector remained overall weak, also due to lack of

competition in domestic markets and slow progress in corporate restructuring, privatisation

and market exit procedures. The new bankruptcy legislation is not yet applied frequently.

Capital markets remained in an infant stage. State intervention in the economy has remained

prevalent.

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Serbia has made good progress to approximate its legislation and policies with

European

standards

in most areas. Overall, Serbia has continued to strengthening its administrative

capacity to be able to implement the SAA properly. However, on its way towards future

integration into the EU, efforts are needed for completing the legislative process and

implementation notably in areas where there are strong vested interests.

Serbia has advanced well in its legal and administrative approximation to the EU

internal

market

acquis.

With the objective to fulfil the requirements of the Stabilisation and

Association Agreement, Serbia has made sustained efforts to approximate the country's

legislation to that of the EU during the past year. Particular progress is reported in the areas of

standardisation, conformity assessment and accreditation, metrology, movement of services,

anti-trust, company law and customs.

The legislative framework in the area of

standardisation, certification and metrology is now in place and needs to be implemented. A

set of laws in financial services has been adopted to further approximate rules to the EU. An

independent anti-trust body has finally been set up. The customs administration has made

substantial progress in the control and management of the customs legislation.

In some areas Serbia needs to make efforts not only to implement but also to fully benefit

from the future Agreement. Serbia needs to strengthen administrative structures, particularly

in some the areas such as

taxation, state aid control, public procurement, intellectual property

rights and consumer protection.

The legislative framework is relatively well advanced in

public procurement and in intellectual property rights. Further efforts are needed to reach

adequate implementation and enforcement. Serbia needs to revise discriminatory taxation of

foreign goods and to commit itself to the EU code of conduct on business taxation. The legal

framework for state aid control remains to be adopted and the administrative capacity,

strengthened. The Consumer Protection Council needs to be further reinforced.

In relation to

sectoral policies,

Serbia has made good progress in a number of areas:

education, employment and social policy,

SME policy, agriculture policy, statistics, energy,

aviation and transport infrastructure.

Serbia has established a new legal framework for higher

education. Serbia has continued implementing effectively the European SME Charter. Serbia

has made further efforts to reform and modernise its agricultural sector and has actively taken

part in the improvement of transport networks in the region. Serbia has signed the European

Common Aviation Area Agreement. Serbia is actively participating in the implementation of

the Memorandum of Understanding on the Development of the Core Regional Transport

Network and the South East Europe Transport Observatory. Serbia has ratified the Energy

Community Treaty.

In certain areas more efforts are needed to fulfil the future SAA obligations and the priorities

of the European Partnership. This includes EU approximation in the area of

food safety,

environment, information society and financial control.

On food safety, administrative

capacity needs to be further strengthened, especially in the phytosanitary area. Concerning

environment, Serbia needs to strengthen administrative capacity, to develop new legislation

and to ensure proper implementation and enforcement. As regards information technologies,

the telecommunication regulatory authority needs to be strengthened to improve competition

in the sector. As regards the media, the legal framework raises concerns, notably in relation to

the capacities of the regulatory body. In the area of financial control, Serbia needs to

introduce a strategy to establish a Public Internal Financial Control system.

As regards

justice, freedom and security,

Serbia has taken over the relevant State Union

competences in the areas of

visa

administration,

border management, asylum

and

migration.

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The Law on Foreigners which is to define the future visa regime has still to be adopted. The

national integrated border management strategy and the implementing action plan were

adopted. The Law on State Borders has not been adopted. The transfer of border control from

the military to the civilian authorities is proceeding. In the field of asylum, the implementing

legislation to regulate procedures for reception and protection of the asylum seekers remains

to be adopted. There is a lack of adequate infrastructure and qualified staff. A number of

readmission agreements has been signed. The legal and financial framework for integration of

people who have been readmitted is still lacking. Some results have been achieved in the fight

against illegal migration but this continues to be an area of concern.

The implementation of the new Law on

Police

has been rather slow. The legislation on the

security services has not yet been adopted. Concerning the fight against

money laundering,

the legislation has been improved but there is still insufficient cooperation between the

competent agencies.

Organised crime

remains a source of serious concern. The action plan to implement the

National Strategy for the fight against Organised Crime has not yet been finalised. There is a

need to further reinforce specialised services within police, especially the ones tasked with

investigating financial crime. Appropriate legislation on seizure and freezing of assets, bank

accounts and the proceeds of crime remains to be adopted. The implementation of the Law on

Witness Protection has revealed deficiencies. Concerning

trafficking in human beings,

the

criminal legislation has been amended and there have been some first convictions.

Terrorism

and its financing have been introduced as specific offences in the Criminal Code. The

ratification and implementation of the relevant international conventions needs to be

accelerated. The situation as regards protection of

personal data

remains a matter of concern.

Kosovo

As regards

political criteria,

Kosovo has remained stable and made progress in the transfer of

responsibilities to the provisional institutions of self government (PISG). Increased efforts are

needed to strengthen the rule of law. Key short-term priorities of the European Partnership

have only been partly addressed.

As regards

democracy and the rule of law,

the

status issue

has dominated Kosovo's politics.

The main Kosovo Albanian political parties have developed a more constructive dialogue

which will need to be sustained. The focus on status has led to the swift implementation of

some UN standards but has delayed reforms. The status settlement should provide the basis

for a stable democracy for all Kosovans regardless of their ethnic background, consolidating

the rule of law and promoting human and minority rights. Kosovo's institutions must start to

develop a vision for Kosovo's future beyond status with a focus on sound policy-making,

prudent fiscal policies, efficient institutions and good governance at all levels.

Progress has been made in strengthening the

Assembly's

role. An important reform package

was adopted, improving executive oversight, financial accountability and transparency.

However, Assembly committees are not always able to fulfil their role in the legislative

process, partly due to a lack of qualified staff working for the secretariats of the committees.

They do not yet have the practice of appointed

rapporteurs.

The succession of the late President Rugova and the establishment of a new

government

went

smoothly. Kosovo's progress under the Stabilisation and Association Process is now a top

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government priority. The government established an agency for European integration and

adopted an action plan to address European Partnership priorities.

As regards

public administration,

the provisional institutions have set up an independent

oversight board and a senior public appointments committee. They have established new

ministries of justice and of the interior. The government has made some progress in

improving its coordination and policy-making capacities. The authorities exercise limited

control over certain Kosovo Serb areas, particularly in the northern municipalities. However,

Kosovo’s administrative capacity remains weak and the civil service overstaffed. A

comprehensive reform of the civil service is needed. Appointments in the administration

continue to be politically influenced.

As regards the

judicial system,

the Kosovo Judicial Council and the Kosovo Judicial Institute

were set up. Substantial responsibilities were transferred to the provisional institutions in

order to increase local ownership and accountability. The current role of the Assembly in the

appointment of judges and prosecutors undermines the independence of the judiciary and

allows political and ethnical considerations to interfere in what should be an objective and

technical recruitment process. Kosovo’s judicial institutions have made little progress in civil

and criminal justice. The backlog of cases has increased and judgements are not always

enforced. Rendering judgements in the high profile cases in relation to the March 2004 riots

remains problematic due to a lack of diligence in case investigations by the police, lenient

sentencing and a lack of cooperation from witnesses.

In response to a key European Partnership priority, the government approved an anti-

corruption

action plan, an anti-corruption council was established and the Assembly

appointed the director of the anti-corruption agency. Nevertheless, corruption in Kosovo is

still widespread and little progress has been made in effectively tackling corruption.

In the area of

human rights and the protection of minorities

an advisory panel has been

established to deal with complaints from persons claiming to be the victims of

human rights

violations by UNMIK. The mandate of the international ombudsperson expired at the end of

2005 and the assembly nominated a Kosovan acting ombudsperson.

In spring 2006, the President and the Prime Minister started a highly visible outreach

campaign towards

minorities.

Both called on minority communities to consider Kosovo their

home and to work together with Kosovo’s provisional institutions of self government.

However, minorities continue to be in a disadvantaged position and further efforts are needed

to combat intolerance. There have been a number of violent attacks against Kosovo Serbs

particularly during the summer of 2006. The conditions remain difficult for a sustainable

return of refugees and displaced persons.

Relations between Kosovo Serbs and Kosovo Albanians have remained strained. Belgrade has

discouraged the Kosovo Serbs' participation in the provisional institutions and Kosovo Serbs

have continued to boycott them.

Concerning

regional issues and international obligations,

Kosovo has enhanced its

participation in regional fora and cooperation initiatives, a key European Partnership priority,

particularly in the areas of transport and energy. A free trade agreement with the former

Yugoslav Republic of Macedonia entered into force and free trade agreements were signed

with Croatia and Bosnia and Herzegovina.

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As regards

economic criteria,

Kosovo has made limited progress towards being a functioning

market economy. Considerable additional efforts are also needed in order to be able to cope

with competitive pressure and market forces within the Union.

Consensus on the essentials of economic policy in Kosovo has been broadly maintained.

Monetary stability continued to be underpinned by the use of the euro as sole legal tender.

Fiscal policy has been tightened, reflecting a rapid decline in donors' support and foreseeable

exhaustion of the reserve of accumulated cash deposits. In line with a key European

partnership recommendations, a medium-term economic policy framework for Kosovo has

been established, which aims at ensuring a sustainable fiscal stance. The first Medium-Term

Expenditure Framework was adopted, providing a consolidated overview of budget and off-

budget financing needs, including public investment projects. Privatisation of socially-owned

enterprises progressed markedly. Considerable progress has been achieved in the

incorporation of publicly-owned enterprises which is a key European Partnership priority.

However, macroeconomic stability has not yet been satisfactorily achieved so far, mainly due

to the fragile fiscal and unsustainable external position. Unemployment remains high, also

due to excessive labour costs. These costs also dampen private sector development and export

competitiveness. Serious challenges remain in implementing the policy commitments taken

by the authorities, in particular as regards a sustainable fiscal policy stance over the medium

term. An inefficient judiciary and legal uncertainty with respect to enforcement of property

rights continue to hamper economic activity. Access of small and medium-sized enterprises to

external finance is limited. Infrastructure remains insufficient and often of poor quality. The

power supply remained unreliable, hindering economic development. Restructuring of

publicly-owned enterprises, in particular of the Kosovo Energy Corporation, need to be

further accelerated.

Kosovo has made good progress to approximate its legislation and policies with

European

standards.

However, limited progress has been made on the effective implementation and

enforcement of legislation passed. More efforts are needed to create an administrative

environment that will ensure further approximation to European standards.

In the area of the

internal market,

some progress has been made on the establishment of a

system for

standardisation, certification, metrology, accreditation

and

conformity assessment.

Little progress can be reported in a number of important areas such as

public procurement,

competition,

and the protection

of intellectual property rights.

Little progress has been made

in the areas of

employment,

social policy and

education.

Limited progress has been made on

the

free movement of capital.

Customs

legislation is broadly in line with the

acquis

and good progress has been achieved in

response to European Partnership priorities in several areas related to administrative capacity

in the customs area (e.g. computerisation, risk analysis, fight against corruption). A revised

Integrated Tariff for Kosovo entered into force. A comprehensive reorganisation of UNMIK

customs took place and the intelligence unit and the investigation unit were strengthened.

Some progress has been made in the area of

taxation,

although domestic tax collection

remains weak.

As regards the development of

sectoral policies,

good progress has been achieved in the

transport

sector as prioritised in the European Partnership. The government adopted a multi-

modal transport policy paper. Kosovo signed the agreement on the establishment of a

European Common Aviation Area.

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There has been some improvement in relation to the restructuring of the

energy

utilities. The

energy regulatory office became operational and issued substantial implementing legislation.

Kosovo ratified the Energy Community Treaty. However, the financial viability and reliability

of the energy sector remain precarious. Bill collection rates remain at unsustainably low levels

and technical losses and theft remain very high.

Regarding the environment, progress has been fairly good in legislative terms. Some progress

has been achieved in the agricultural sector, particularly in the veterinary area. Good progress

has been achieved in the area of

financial control.

Good progress was achieved on

audiovisual

policy and media. The law on Radio and

Television of Kosovo was promulgated in April 2006. Little progress was made in the area of

electronic communications and information society.

There has been some progress in

statistics.

Preparations for a housing and population census

are ongoing. An international monitoring operation has been established to help the statistical

office prepare for the census and ensure it will be carried out in line with international

standards. Efforts have also been undertaken to encourage minority participation in pilot

census exercises. The statistical office's capacities generally remain weak.

As regards

justice, freedom and security,

some progress has been achieved in the areas of

border management.

A memorandum of understanding was signed between the border police

and customs in January 2006 to facilitate integrated border management.

The Financial Information Centre has revised the

anti-money laundering

regulations with

input from the banking and payment authority of Kosovo.

No progress can be reported in the fight against

drugs.

Local policing capacities to fight drugs

need to be strengthened.

The Kosovo police service has continued to make progress towards becoming a professional

police

force. A Kosovan deputy police Commissioner and four Kosovo police service

assistant police commissioners were appointed. Further efforts are needed to develop an

effective police service and strengthen local investigation capacities in relation to corruption

and organised crime

Efforts are underway to intensify the fight against

organised crime

which remains a serious

problem in Kosovo. Criminal networks extend to various socio-economic sectors and into

politics. Finding the highly skilled Kosovan police personnel remains a major challenge.

Legislation is still lacking to keep the identity of informants confidential in court. Little

progress has been made in the fight against

trafficking human beings

and Kosovo remains a

source, transit, and destination point for trafficking. No progress has been made with regard to

the protection of personal data, which is a matter of concern.

Turkey

Turkey continues to sufficiently fulfil the Copenhagen

political criteria

and has continued

political reforms. However the pace has slowed during the past year. Significant further

efforts are needed in particular on freedom of expression. Further improvements are also

needed on the rights of non-Muslim religious communities, women's rights, trade union rights

and on civilian control of the military.

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As regards

democracy and the rule of law,

in the area of

public administration

a law

establishing an Ombudsman was adopted. No progress is reported with regard to civil service

reform.

In the area of

civil-military relations

the parliament passed revised procedures for military

courts enhancing guarantees for defendants. However, senior members of the armed forces

have continued making public statements to influence areas beyond their responsibilities.

There was progress in the area of

judicial reform.

However, implementation of the new

legislation by the judiciary presents a mixed picture so far and the independence of the

judiciary needs to be further established.

There was some limited progress on legislative reforms in the fight against

corruption.

Corruption remains widespread. Anti-corruption policies are weak and the authorities

responsible for the fight against corruption need to be strengthened.

Concerning

human rights and the protection of minorities,

there has been a further decrease

in reports of

torture and ill-treatment.

However, allegations of torture and ill-treatment

outside detention centres and in the South-East give cause for concern. Impunity for

perpetrators of torture also remains a problem. The impact on fundamental freedoms of the

amendments to the anti-terror law needs to be followed closely. Such amendments introduced

a wide list of terrorism offences and weakened guarantees for defendants.

In general, open debate has increased in Turkish society on a wide range of issues, including

traditionally sensitive subjects. Notwithstanding this trend,

freedom of expression

in line with

European standards is not yet guaranteed by the present legal framework. A recent ruling of

the Court of Cassation establishes jurisprudence on Article 301 of the Penal Code which

restricts free speech. Moreover, a significant number of persons have been prosecuted for

expressing non-violent opinions. Article 301 and other provisions of the Turkish Penal Code

that restrict freedom of expression need to be brought in line with the European Convention of

Human Rights (ECHR).

Restrictions on

freedom of assembly

and

freedom of association

have eased, with improved

implementation of measures taken in recent years. However, in some cases security forces

made use of excessive force during demonstrations. Difficulties in establishing associations

promoting a specific cultural identity remain.

With regard to

freedom of religion,

the adoption of a law that was expected to improve the

situation of

religious minorities

has been postponed several times, and there has been no

change in the difficulties faced by the non-Muslim communities on the ground. There has

been no change in the situation of the Alevi community. A legal framework should be

established in line with the ECHR so that all religious communities can function without

undue constraints.

Women's rights

receive growing public attention in Turkey, and civil society is increasingly

able to play a positive role in this area. The legal framework is broadly satisfactory. However,

in practice women's rights are not always protected, in particular in the poorest areas of the

country. 'Honour crimes' need to be investigated more systematically and where appropriate

followed-up with prosecution and convictions.

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There has been little change in the situation as regards

children's rights.

Implementation of

legal provisions concerning education and employment under the age of fifteen needs to be

improved.

trade unions' rights

there was no legislative progress. Turkey does not yet meet EU and

ILO (International Labour Organisation) standards, in particular as regards the right to strike

and the right of collective bargaining.

Turkey's approach to

minority rights

remains restrictive. Turkey did not ratify the

international legal instruments on minority rights. As regards

cultural rights,

limited

broadcasting is allowed in languages other than Turkish. Restrictions on learning such

languages are maintained for the public schooling system. All private establishments offering

courses in Kurdish language closed down in August 2005. General restrictions on the use of

languages other than Turkish remain tight both in political life and when accessing public

services.

Turkey has been the subject of increased terrorist attacks, in particular from the PKK, which

is on the EU list of terrorist organisations. The EU has strongly condemned these terrorist

acts.

There is a need for Turkey to address the serious economic and social problems of the

South

East

and ensure full enjoyment of rights and freedoms by the Kurdish population. The large

numbers of internally displaced persons continues to cause concern.

With regard to

regional issues and international obligations,

Turkey has expressed

continued support for UN efforts to find a comprehensive settlement of the

Cyprus problem.

However, there has been no progress towards normalisation of bilateral relations with the

Republic of Cyprus. Since signing the Additional Protocol to the Association Agreement in

July 2005 Turkey has not moved towards its full implementation and the removal of all

obstacles to the free movement of goods, including restrictions on direct transport links with

Cyprus. At its June 2006 meeting, the European Council recalled that the Council would

review implementation of the Additional Protocol in the course of 2006 and ensure follow-up

to the issues included in the EU declaration of 21 September 2005.

Relations with Greece

have evolved positively but no progress has been made in resolving the

outstanding border dispute. At a meeting of Foreign Ministers of the two countries a new

package of confidence-building measures was agreed. Good neighbourly relations remain

key.

As regards

economic criteria,

Turkey can be regarded as a functioning market economy, as

long as it firmly maintains its recent stabilisation and reform achievements. Turkey should

also be able to cope with competitive pressure and market forces within the Union in the

medium term, provided that it firmly maintains its stabilisation policy and takes further

decisive steps towards structural reforms.

The consensus on the essentials of a market-based economy has remained broadly intact.

Stability-oriented macroeconomic policies have contributed to strong economic growth and

growing resilience to shocks. Budget deficits and government debt levels have been

significantly reduced and some key measures have been taken to enhance the social security

system. The independence of regulatory and surveillance agencies has been confirmed and

special privileges of state-owned banks are being phased out. The privatisation process has

gained momentum. The banking and non-banking financial sectors have continued to deepen,

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and supervision has been further strengthened. The economy has become more open to

foreign trade and investment. The Central Bank and the government continued to implement

disinflation policy.

The relatively high external and government financing needs remain highly vulnerable to

investor sentiment, which implies a potential threat to macroeconomic stability. Therefore,

fiscal consolidation needs to be further strengthened and effectively backed by structural

measures. Combating unregistered employment requires attention. Labour market imbalances

persist. Employment rates are very low and falling, in particular for the female population.

Policy responses to these imbalances were limited and non-wage costs of hiring remained

large. Average educational standards are relatively low and large disparities persisted. The

business environment was negatively affected by barriers to exit and low transparency as

regards state aids. The process of restructuring of the energy sector advanced fairly slowly.

Turkey has improved its

ability to take on the obligations of membership.

In most areas

some progress was made. However, fulfilment of short-term priorities under the Accession

Partnership is lagging behind in many areas. A number of obligations by Turkey under the

Customs Union remain unfulfilled. Much remains to be done to improve the level of

alignment and the institutional and administrative capacity.

Progress in

free movement of goods

has been uneven. There were improvements in areas such

as accreditation, standardisation and conformity assessment. However, a number of provisions

remain contrary to the general principles of free circulation of goods, and technical barriers to

trade continue to exist. On

free movement of workers,

there were no developments. Alignment

with the

acquis

on the

right of establishment

and

the freedom to provide services

remains

limited. Turkey made very little progress on the

free movement of capital.

Alignment is

incomplete in particular concerning the fight against money laundering. Acquisition of real

estate by foreigners is restricted.

Progress in the area of

public procurement

is very limited. The scope of application of the

legislation narrowed through the introduction of exemptions. Turkey does not have an

organisation that guarantees a coherent policy in all areas related to public procurement. As

regards

company law,

some limited progress was made. Turkey has adopted most

international accounting standards. However, these are not legally binding for the majority of

Turkish companies, which are only subject to tax-based reporting requirements. The level of

alignment is low. On

intellectual property law,

alignment is well advanced and administrative

capacity improved. However, further progress remains necessary, in particular on

enforcement addressing organised piracy and counterfeiting. Furthermore, cooperation and

coordination between relevant authorities needs strengthening. Non-specialised lower courts

have difficulty in properly implementing legislation.

Progress in the field of

competition policy

is mixed. Alignment of anti-trust acquis is well

advanced and enforcement by the Competition Authority is satisfactory. However, on state

aid there is no progress: Turkey does not have the necessary legislative framework, nor

administrative structures to implement EU rules. The relevant obligations under the

Association Agreement remain to be fulfilled.

Turkey has made some progress on

financial services.

A new banking law, and insolvency

legislation in the insurance and supplementary pension sectors, are improvements. Alignment

of legislation in insurances is limited. In the area of investment services and securities markets

the investor compensation scheme, cross border provision of services, disclosure

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requirements, and prospectuses need further adaptation. Supervisory capacity needs to be

further strengthened, in particular in the insurance and securities market sectors.

Progress has been made in parts of the

information society and media

areas, including local

broadcasting in other languages. Turkey achieved a good basis for further alignment in

electronic communications and information technologies. Overall alignment in media and

audiovisual policy remains very limited.

agriculture

some limited progress was achieved on rural development. However,

implementation was put into risk by delays in adopting related legislative measures and

administrative structures. Most administrative structures to implement the Common

Agricultural Policy (CAP) remain to be developed. Turkish policy to increasingly link

financial support to the production level is not in line with the reform of CAP. Overall,

alignment is limited. Concerning

fisheries,

Turkey made no progress. Important elements of

the

acquis

are missing in Turkish legislation. Structures to implement the Common Fisheries

Policy are not in place. Limited progress was made in aligning the

veterinary, phytosanitary

and food policy.

Neither the legislative framework nor the administrative structures are in

place to allow implementation of the

acquis.

In general, control systems are weak. The main

difficulty is in the veterinary sector, in particular in view of the animal health situation, the

lack of an effective animal disease control system.

Some progress has been made in

transport policy.

Alignment is fairly advanced on road

transport, but uneven in the other sectors. Implementation and enforcement capacity require

attention. A decision on the structure of the railway sector is pending. International maritime

and air transport agreements are not complemented by the transposition of applicable acquis.

Limited progress was made on

Trans European Networks.

energy

there was some

progress. However, legal alignment is uneven. A framework law for energy efficiency

remains to be developed. The administrative capacity, and the independence of regulatory

bodies, needs strengthening.

There was limited progress on

taxation.

The Turkish fiscal regime is partially in line with the

acquis.

Incomplete are particularly the scope and rates of VAT, the structure and rates of

excise duties, as well as direct taxation in general. All discriminatory elements on the taxation

of alcoholic and tobacco products need to be abolished urgently.

Turkey made progress on the field of

economic and monetary union.

In general, preparations

are well under way. However, legislation to prevent monetary financing of the public sector,

as well as prohibition of privileged access of public authorities to financial institutions is not

in line with the

acquis.

Furthermore, a lack of efficient coordination and cooperation practises

reduces the effectiveness of economic policy. Turkey made some progress in the use of

uniform classifications and the availability of sector

statistics.

Alignment remains limited, but

new legislation is providing significant progress.

Turkey made some limited progress on EU

employment and social policy,

in particular in the

field of social protection and as regards the implementation of the new law for people with

disabilities. However, full respect of trade union rights needs to be ensured. Combating

unregistered employment requires attention. The administrative capacity needs to be enhanced

to ensure implementation.

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Turkey made good progress on

enterprise and industrial policy,

particularly on the legal

establishment of an Investment Support and Promotion Agency. Privatisation, alignment of

the SME definition, and policy programming, also progressed. Alignment is well advanced.

Progress was made on

regional policy and coordination of structural instruments,

notably

with the adoption of the law establishing development agencies. However, the role and

functioning of these agencies raise some concern. Ownership and accountability need

improvement, including considering a repartition of competences between ministries at both

central and regional level . Alignment remained modest.

As regards the

judiciary and fundamental rights

some progress was made. Overall, there was

continued progress in the area of judicial reform. However, implementation of the new

legislation by the judiciary presents a mixed picture so far and the independence of the

judiciary needs to be further established. There has been some progress in the fight against

corruption, notably on increasing transparency in the public administration. However,

corruption remains widespread and anti-corruption authorities and policies are still weak. The

scope of parliamentary immunity is too wide. On fundamental freedoms, limited legislative

progress was made, though implementation of reforms continued.

In the area of

justice, freedom and security,

Turkey made progress on asylum, border

management, the fight against trafficking in human beings, customs and police cooperation.

Alignment is underway, but incomplete in areas such as migration, the fight against organised

crime, money laundering, as well as judicial cooperation in civil and criminal matters.

Some further progress was made on

science and research,

notably in participating in EU

research programmes, and on budget allocations. Further good progress was made in

education and culture.

Alignment in both areas is well advanced.

Alignment is on track as regards waste management and noise. On other aspects, including

international conventions, alignment in the area of

environment

remains low. Lack of progress

on horizontal legislation, in particular on trans-boundary issues and on public consultation, is

of increasing concern. Limited progress in transposing the acquis was achieved in the field of

air quality, nature protection and water quality. When implemented, the amended

Environmental Law will strengthen the institutional capacity. The track record on

enforcement is weak.

consumer and health protection

consumer protection improved, notably through the

introduction of a market surveillance system. The public health area also improved, in

particular by setting up a network for the epidemiological surveillance and control of

communicable diseases. However, in both areas implementation remained weak.

The

Customs union

has prepared Turkey for a high level of alignment in this area. However,

on some specific issues, such as free trade zones, customs duty relief, fight against counterfeit

goods, and post-clearance, legislation is not aligned. The customs administration needs

strengthening, including starting preparations for IT interconnectivity. .

Turkey reached an advanced level of alignment in the area of

external relations.

However,

alignment with the EU's Common Commercial Policy is not complete. Alignment with EU

Common

Foreign and Security and Defence Policy

continued. Turkey has intensified its

foreign policy activity in the Middle East, promoting regional stability. The border with

Armenia remains closed. Turkey participated in ESDP missions. However, Turkey’s

participation in ESDP continues to present difficulties. Turkey continues to block the

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participation of Cyprus and Malta in EU-NATO strategic cooperation. Similarly, Turkey

opposes Cyprus’ accession to the Wassenaar Arrangement. Turkey has yet to sign the

International Criminal Court statute.

There was some progress on

financial control.

Some administrative structures and

implementing legislation are in place. However, the Public Financial Management and

Control Law is not fully operational. Although some temporary measures have been adopted,

structures to protect the EU´s financial interests are not complete yet. In relation to the

financial and budgetary provisions,

Turkey will need to establish in due course the

coordination structures and implementing rules to ensure the correct calculation, collection,

payment and control of own resources.