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2004 assessment of the Stabilisation and Association process
The 2004 Annual Report on the Stabilisation and Association process (SAP) for South East Europe provides an assessment of the progress of Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia and Serbia and Montenegro (including Kosovo). It is the key indicator of their readiness to move closer to the European Union (EU). With the annual report, the Commission presents its first proposals for European Partnerships. The Annual Report and the European Partnerships combine to guide the countries through their transition and help them move closer to the European Union. They will help the countries with their reforms and preparations for future membership.
Croatia is not included in the report because of its application for EU membership. It is the subject of a separate Commission report published at the same time as the notice of the accession application.
Report from Commission of 30 March 2004: The Stabilisation and Association Process for South East Europe - Third Annual Report [COM(2004)202 final - Not published in the Official Journal].
The 2004 Annual Report is divided into three parts, the first of which summarises progress made during the year by the individual countries, and looks at the development of cooperation within the region. The second part gives a political and economic assessment of each country and evaluates its implementation of the reforms and follow-up on the recommendations of previous reports. The last part contains the Commission's proposals for the first European Partnerships, which identify the short- and medium-term priorities that the countries need to address.
THE STABILISATION AND ASSOCIATION PROCESS AND ITS INSTRUMENTS
The three main instruments of the Stabilisation and Association Process (SAP) are the stabilisation and association agreements (SAAs), autonomous trade measures and financial assistance.
On 9 April and 29 October 2001, two SAAs were signed, one with the former Yugoslav Republic of Macedonia and one with Croatia. Both countries subsequently submitted applications for accession to the EU. Despite feasibility studies carried out in 2003, Albania, Bosnia and Herzegovina and Serbia and Montenegro still do not fulfil the required conditions for signing ASAs. Kosovo benefits from all the elements of the SAP except the possibility of contractual relations with the EU.
The introduction of the EU's exceptional trade measures for the Western Balkans in September 2000 provided the region with uniform and wide-ranging free access to the Union's market for almost all goods. So far it appears that Albania and Serbia and Montenegro have benefited most from the measures.
To benefit fully from the EU's trade measures, the countries need to increase competitiveness, diversify production, raise economic operators' awareness of the potential of the trade measures and bring their standards (particularly health standards) into line with those of the EU.
Community assistance for the region is financed mainly through the CARDS programme. The EU has allocated around EUR 5 billion to this programme for the period 2000-2006. The main focus of Community assistance has gradually shifted from infrastructure rehabilitation and democratic stabilisation to institution building and justice and home affairs.
An additional EUR 71 million was allocated to the Western Balkans in the 2004 budget. The Commission has adopted a revised financial programme for 2005 and 2006, which foresees an annual increase of some EUR 70 million for the Western Balkans. In addition, since 1992 the EC has committed around EUR 1 billion in macro-financial assistance, of which EUR 873 million had been disbursed by the end of 2003.
Future needs in the Western Balkans will remain substantial, and not all of them can be met by the present level of assistance under the CARDS programme. The Commission has therefore introduced new forms of support. These include twinning and extending the provision of TAIEX (Technical Assistance and Information Exchange Office) services to the Western Balkans.
THE COUNTRIES' PROGRESS IN THE STABILISATION AND ASSOCIATION PROCESS
The countries of the Western Balkans have continued to make progress. The security situation is stabilising, although the eruption of ethnic violence in Kosovo in March 2004 was a serious set-back. Reform of public administration and defence is under way. Regional cooperation is increasing. There is little progress in the fight against organised crime and corruption. Administrative and judicial reforms are slow and implementation and enforcement of legislation weak.
Ensuring fully functioning democratic systems of government remains one of the main challenges in the region. The functioning of government institutions is still hampered by internal political conflicts. However, the performance of the parliaments has improved in several countries.
Civil society is not yet adequately developed in some of the Western Balkan countries, although the situation is gradually improving. Efforts should be stepped up to reform the education systems, and to support the non-governmental youth organisations, whose active participation in society can help ensure an open and pluralistic democracy.
There has been limited progress in public administration reform. Another challenge for all the countries in the region is reform of the judicial system. Many of the problems highlighted in last year's annual reports have not been dealt with.
Work has continued to fight corruption. Most countries have adopted anti-corruption strategies and set up bodies to monitor their implementation. However, objectives are often unclear or unrealistic and resources are inadequate.
Respect for human and minority rights is guaranteed in the constitution or by law in all the countries concerned, but application of these provisions needs to be improved. Gender equality is not sufficiently ensured and domestic violence remains a problem.
Many refugees and internally displaced persons are still returning to their homes, but many are settling in other countries.
The Western Balkan countries have made progress in adopting and implementing media legislation in line with European standards. However, further progress is needed to transform state broadcasters into genuine public service broadcasters and to ensure free access to information, and guarantee the freedom and independence of the media, full independence of regulatory bodies, etc.
Economic growth in the region was over 4% in 2003 for the fourth year running. Not counting Croatia, the average gross domestic product (GDP) per capita in the region is EUR 1 700.
Inflation has been brought down to a regional average of 3.5%. Public finances improved during 2003. The overall government deficit (before grants) was reduced to 4% of GDP, ranging from about 1.5% of GDP in the former Yugoslav Republic of Macedonia to 5.5% of GDP in Albania.
The countries have all made some progress on structural reforms, but the pace of reform remains modest and further significant measures still need to be introduced. Official unemployment is high in all the countries, which may cause social and political tensions and so further undermine economic and political reform, particularly as it mainly affects young people and minorities. It is estimated that 20 to 25% of citizens in some Western Balkan countries live below the poverty threshold.
International financial assistance in the form of grants and loans remains an important source of budgetary financing. The overall trade deficit remains large, at 25% of GDP in the region in 2003. Foreign direct investment (FDI) grew substantially in 2003 (40% more than in 2002), reaching approximately 5.4% of GDP.
The Commission has established economic dialogues with Albania, Croatia and the former Yugoslav Republic of Macedonia. The first dialogues with Bosnia and Herzegovina and Serbia and Montenegro were expected to be held in the course of 2004. The economic dialogues allow for an exchange of information and views on progress with economic and structural reforms in the countries and help to familiarise the countries with the EU.
THE REGIONAL DIMENSION
Much progress has been made with regional cooperation, as documented in the increasing number of bilateral cooperation agreements between the Western Balkan countries. Refugee return, infrastructural and economic development and the fight against organised crime are examples of areas where the countries need to cooperate closely to achieve results. The Commission also encourages the countries to increase cooperation with EU Member States.
Instances of political and institutional cooperation can be seen in the many agreements concluded on refugee return, border crossings, visa regimes and the fight against terrorism, organised crime and all forms of trafficking.
Regional Trade: To reap the full benefits of trade liberalisation in the region the free trade agreements (FTAs) concluded between countries in the region (as well as with Bulgaria and Romania) at the beginning of 2003 need to be ratified swiftly and implemented. The process of trade liberalisation in the region should continue to facilitate trade and attract foreign direct investment. The countries are encouraged to harmonise their FTAs with a view to establishing a regional free trade area in the medium term.
Cooperation in justice and home affairs: Each county has presented a strategy for the implementation of specific measures focusing on operations to fight organised crime. Two regional priority measures were included in the country strategies. One of these concerns cooperation among Financial Intelligence Units in combating money laundering, and the other development of cooperation between prosecutors in the region. Europol has a mandate to negotiate cooperation agreements with all the countries of the Western Balkans. An EU action plan on drugs covering the EU, the countries of the Western Balkans, Romania, Bulgaria and Turkey was adopted by the Council in June 2003 and is being implemented.
Cooperation in other areas: The progress made with regional cooperation is very clearly demonstrated by the many agreements and sectoral strategies which are beginning to link the region's countries in concerted and complementary undertakings (infrastructure, transport, energy, the environment, science and technology). These agreements and strategies make up a network that will help ensure sustainable growth in the region, and are designed to achieve gradual integration with the EU's networks.
Ensuring the complementarity of regional initiatives: The continued close cooperation between the Stability Pact and the South-East European Cooperation Process (SEECP), as well as the recent establishment of regional offices for several Stability Pact initiatives indicates the growing desire of the region's countries to take control of the reform process.
The European Union has reiterated its expectation that the countries of the Western Balkans may one day join the EU. To do this they will have to fulfil the political, economic and institutional criteria defined at the Copenhagen European Council in 1993 (Articles 6 and 49 of the EU Treaty) and the specific criteria of the SAP (including complete cooperation with the International Criminal Tribunal for the Former Yugoslavia), respect minority rights, offer real opportunities for displaced persons and refugees to return home and demonstrate a clear commitment to regional cooperation.
The Thessaloniki European Council and the EU-Balkans summit of June 2003 proposed including in the SAP instruments which have proved effective in the pre-accession process. This applies in particular to the European Partnerships, whose purpose is to define short- and medium-term priorities on which the countries concerned should focus. The Partnership priorities will also be the basis for programming assistance under the CARDS programme. Preparations for future integration of the Western Balkans into the EU will require considerable resources. As a result of the conflicts of the last decade, the development of functioning market economies in this region is more demanding and will take longer than did the transition in Central Europe. The process is far from complete in the Western Balkans.
There are a number of common issues that set the context for reform efforts in the region. Regional cooperation is a practical means for promoting reconciliation and underpinning reform. Combating organised crime and corruption must also be a continuing priority for accelerating political reform and economic development and irreversibly establishing the rule of law.