Commission Opinion on Serbia's application for membership of the European Union

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

Commission Opinion on Serbia's application for membership of the European Union

A.          INTRODUCTION

a)           Application for membership

Serbia presented its application for membership of the European Union on 22 December 2009. Subsequently, on 25 October 2010, the Council of the European Union requested the Commission to submit its opinion on this application, in line with the procedure laid down in Article 49 of the Treaty on  European Union, which states that "Any European State which respects the values referred to in Article 2 and is committed to promoting them may apply to become a member of the Union. The European Parliament and national Parliaments shall be notified of this application. The applicant State shall address its application to the Council, which shall act unanimously after consulting the Commission and after receiving the consent of  the  European Parliament, which shall act by a majority of its component members. The conditions of eligibility agreed upon by the European Council shall be taken into account".

Article 2 states that "the Union is founded on the values of respect for human dignity, freedom,  democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism,  non-discrimination, tolerance, justice, solidarity and equality between women and men prevail".

This is the legal framework within which the Commission submits the present Opinion.

The Feira European Council in June 2000 acknowledged that Western Balkan countries participating in the Stabilisation and Association Process were 'potential candidates' for EU membership. The European perspective of these countries was further confirmed by the Thessaloniki European Council in June 2003 which endorsed the 'Thessaloniki Agenda for the Western Balkans'. This agenda remains the cornerstone of EU policy towards the region.

The European Council of December 2006 renewed the EU's commitment "that the future of the Western Balkans lies in the European Union" and reiterated that "each country's progress towards the European Union depends on its individual efforts to comply with the Copenhagen criteria  and  the  conditionality  of  the  Stabilisation  and  Association  Process.  A  country's satisfactory  track  record  in  implementing  its  obligations  under  a  Stabilisation  and Association Agreement (SAA), including trade-related provisions, is an essential element for the  EU  to  consider  any membership  application".  At  the Sarajevo  EU-Western  Balkans ministerial meeting on 2 June 2010, the EU reiterated its unequivocal commitment to the European perspective of the Western Balkans and that the future of these countries lies in the European Union.

In line with the Treaty requirements, the current assessment is made in terms of the conditions of eligibility laid down by the European Council. In Copenhagen in June 1993, the European Council concluded that: 

"Accession will  take  place  as  soon  as  a  country  is  able  to  assume  the  obligations  of membership by satisfying the economic and political conditions required.

Membership requires:

–  that the candidate country has achieved stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities;

–  the existence of a functioning market economy, as well as the capacity to cope with competitive pressure and market forces within the Union;

–  the ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union".

The Union's capacity to absorb new members, while maintaining the momentum of European integration, is also an important consideration in the general interest of both the Union and the candidate countries.

In December 1995, in Madrid, the European Council referred to the need "to create the conditions for the gradual, harmonious integration of [the applicant] countries, particularly through  the  development  of  the  market  economy,  the  adjustment  of  their  administrative structures and the creation of a stable economic and monetary environment".

The Stabilisation and Association Process (SAP) conditionalities were defined by the Council on 31 May 1999. They include cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) and regional cooperation. As a fundamental element of the SAP, these conditions are integrated into the Stabilisation and Association Agreement (SAA) with Serbia, currently under ratification, and also into the  Interim Agreement (IA) on trade and trade-related matters, which entered into force on 1 February 2010.

In December 2006, the European Council agreed that "the enlargement strategy based on consolidation,  conditionality  and  communication,  combined  with  the  EU's  capacity  to integrate new members, forms the basis for a renewed consensus on enlargement".

In the present Opinion, the Commission analyses Serbia's application on the basis of the country's capacity to meet the criteria set by the Copenhagen European Council of 1993 and the  conditionality  of  the  Stabilisation  and  Association  Process.  Serbia's  track  record  in implementing  its  obligations  under  the  Stabilisation  and  Association  Agreement  and  the Interim Agreement on trade and trade-related matters is also examined.

The Opinion was prepared following a methodology similar to that used in previous Opinions. The Commission organised a number of expert missions to Serbia concentrating mainly on the  fields  covered  by  the  political criteria.  This  approach  allowed  an  assessment  of the administrative capacity of Serbian institutions and of the way legislation is implemented. It also  helped  to  better  identify  remaining  challenges  and  priorities  for  future  action.  The Commission has analysed both the present situation and the medium-term prospects. For the purpose of this Opinion and without prejudging any future date of accession, the medium- term perspective has been defined as a period of five years.

The detailed analysis on which this Opinion is based is contained in a separate document (Analytical Report accompanying the Opinion on Serbia's application for membership of the European Union)1. In line with the renewed consensus on enlargement, the analytical report provides initial estimates of the impact of the future accession of Serbia in some key policy areas. The Commission will provide more detailed impact assessments for these policy areas at later stages of the pre-accession process. In addition, the EU accession treaty for  Serbia would  involve  technical  adaptation  of  the  EU  institutions  in  the  light  of  the  Treaty  on European Union.

b)           Relations between the EU and Serbia

Relations between the EU and Serbia have developed since the democratic changes of 2000, initially with the Federal Republic of Yugoslavia and then, from 2003 onwards, with the State Union of Serbia and Montenegro. The EU continued its relations with the Republic of Serbia, as the successor of the State Union, when Montenegro became independent in 2006.

Serbia is participating in the Stabilisation and Association Process. The Stabilisation and Association Agreement provides a framework of mutual commitments on a wide range of political, trade and economic  issues. It was signed, along with the Interim Agreement on trade and trade-related matters, in April 2008. EU ministers agreed to submit the SAA to their parliaments for ratification and the EU agreed to implement the Interim Agreement on trade and trade-related matters as soon as the Council decided that Serbia was fully  cooperating with  the  International Criminal  Tribunal  for  the  former  Yugoslavia.  Serbia  started  on  1

January 2009 to implement the Interim Agreement. The Interim Agreement entered into force on 1 February 2010. At the 14 June 2010 Foreign Affairs Council, ministers agreed to submit the Stabilisation and Association Agreement to their parliaments for ratification. The process is still under way. In general terms, Serbia has built a positive track record on implementing the obligations imposed by the Stabilisation and Association  Agreement and the Interim Agreement. Whenever problems arose, Serbia took a constructive and transparent approach to resolve them promptly and effectively.

A European Partnership with Serbia was adopted by the Council in 2004 and updated in

2006 and 20082.

Political dialogue meetings at ministerial level have been held since 2003. Policy dialogue between the European Commission and the Serbian authorities has been taking place in the framework  of  the  Enhanced  Permanent  Dialogue  (EPD)  since  2003.  Inter-parliamentary meetings between representatives of the European Parliament and of the Serbian parliament have been held annually since 2006. The Interim Committee under the IA and a number of sub-committees meet annually, notably on the internal market,  competition, transit traffic, trade, customs, taxation, agriculture and fisheries. Several sub-EPD meetings are covering all sectors of the SAA that are not included in the Interim Agreement, such as energy, the environment, social policy, justice, freedom and security.

Serbia participates in an economic dialogue with the Commission and the EU Member States. In this framework, Serbia presented in January 2011 an update of its annual Economic and Fiscal Programme (EFP).

1                     SEC(2011) 1208.

2                     OJ L 80, 18.3.2008, p. 46.

Visa liberalisation for Serbian citizens travelling to the Schengen area was granted by the Council, after  consultation with the European Parliament, as of 19 December 2009. This decision was based on substantial progress in the areas of justice, freedom and security and fulfilment of the specific conditions set out in the roadmap for visa liberalisation. The rules for visa-free travel have been respected by the vast  majority of travellers. To ensure the continued  implementation  of  the  commitments,  a  post  visa  liberalisation  monitoring mechanism was established in view of increased numbers of asylum seekers from the region. The Commission presented its first monitoring report to the European Parliament and the Council in June 2011. An agreement on readmission between the European Union and Serbia has been in force since January 2008.

Serbia signed the Energy Community Treaty in October 2005 and the European Common

Aviation Area (ECAA) agreement in June 2006.

In  October  2008,  the  government  of  Serbia  adopted  the  National  Programme  for  the Integration of  Serbia into the European Union for the period 2008-2012. A revised and updated version was adopted in December 2009. In December 2010 the government adopted an Action Plan on fulfillment of priorities set in the European Commission's 2010 Progress Report, with the aim of increasing focus and achieving  additional results on the reform agenda, ahead of the present Opinion.

Serbia has been receiving EU financial assistance since 2001. Overall, between 2001 and

2011, the EU committed over €2 billion to Serbia in the form of grants and €5.8 billion in the form of soft loans. From 2001 to 2006, Serbia benefited from EU CARDS assistance worth

€1,045 million. Since 2007, CARDS has been replaced by the Instrument for Pre-Accession Assistance (IPA), under which Serbia received assistance worth €974 million between 2007 and 2011. The assistance under the IPA is designed to support the reforms undertaken as part of the European integration process, with  a focus on the rule of law, institution-building, approximation with the EU acquis, sustainable economic and social development and support to civil society.

Serbia participates fully in a number of EU programmes under the financial perspective 2007-

2013:  the  7th  Framework  Programme  for  research  and  technological  development, PROGRESS,  the  Competitiveness  and  Innovation  Programme,  the  Information  and Communication  Technologies  Policy  Support  Programme,  the  Culture  Programme,  the Customs Programme and the Fiscalis Programme. IPA funds are used to meet part of the costs of participation in these programmes.

B.          CRITERIA FOR MEMBERSHIP

1.           POLITICALCRITERIA

The present  assessment  is  based  on  the  Copenhagen  criteria  relating  to  the  stability  of institutions  guaranteeing  democracy,  the  rule  of  law,  human  rights  and  respect  for  and protection of minorities, as well as on the conditionality of the Stabilisation and Association Process.

Serbia is a parliamentary democracy. Its constitutional and legislative framework is largely in line with European principles and standards and its institutions are well developed. Serbia is committed  to  its  objective  of  membership  of  the  European  Union  and  since  2008  has increasingly  focused  its  efforts  on  the  EU-related  reform  agenda.  The  government  has upgraded some  of  its  procedures  and  parliament  has  become  far  more  effective  in  its legislative activity under the current legislature. The legislative process would benefit from more thorough preparation and greater emphasis on consultation of stakeholders. Capacity for parliamentary oversight and governmental policy planning, coordination and implementation remains to be further developed. Serbia has set up all the necessary independent regulatory bodies. The rules governing the parliamentary review of their annual reports have been clarified  even  though  the  follow-up  of  recommendations  by  independent  and  regulatory bodies needs to be strengthened. The public administration is in general well developed, in particular at central level. The principle of a merit-based career system needs to be fully implemented.  Serbia  has  established  a  Statute  for  the  Province  of  Vojvodina  and  has undertaken to transfer some competences to the municipal level.

Since  2001,  elections  have  been  consistently  conducted  in  Serbia  in  accordance  with international standards. The electoral legislation was recently brought into line with European standards. It now provides that the appointment of MPs follows the order of the lists presented to the voters and it puts an end to the practice  of  'blank resignations', by which MPs were tendering  resignation  letters  to  their  parties  at  the  beginning  of  their  mandate.  This consolidates the free exercise of parliamentary mandates, a principle which needs,  in  due course, to be fully enshrined in the Constitution.

The legal and institutional framework for the rule of law in Serbia, including the fight against corruption and organised crime, has been enhanced, particularly following substantial reforms in  the  judiciary,  the  setting-up  of  the  Anti-Corruption  Agency  and  the  stepping-up  of international  cooperation  in  criminal  matters.  This  has  led  to  initial  results.  The  main challenges remain in the areas of the judiciary, the fight against  corruption and the fight against organised crime. In particular, a proactive approach in the fight against  corruption leading to a credible track record of opened investigations and final convictions remains to be built up. An extensive framework for civilian control of the security forces is in place.

Substantial reforms of the judiciary were pursued in Serbia following the adoption of the national  strategy  in  2006  and  intensified  in  2009  and  2010.  Independence  and  self- administration were strengthened with the establishment of the new High Judicial and State Prosecutorial Councils, which have been functioning in their permanent compositions since April 2011. A re-appointment procedure for all  judges and prosecutors was undertaken in December 2009, aiming in particular at raising their professional and integrity standards. The initial  significant  shortcomings  identified  in  that  procedure  are  in  the  course  of  being addressed by a review process for which there are clear guidelines. The review process remains to be satisfactorily completed, in a transparent manner, in line with these guidelines. A revision of the role given by the Constitution to parliament on appointments and dismissals in the judiciary will need to be undertaken in due course, to further reduce the risk of undue political influence. Several steps have been  taken to increase the efficiency of the judicial system. The court network was restructured and the number of courts reduced, leading to a better  distribution  of  workload.  An  Administrative  Court  was  set  up  and  a  Law  on enforcement of court decisions adopted in May 2011. Further efforts are still needed to improve the functioning of the judiciary, reap the full benefits of the restructured network of courts and ultimately increase public trust. Efforts to strengthen the execution of judgments and further reduce the important backlog of pending cases are to be pursued.

The legal and institutional framework for fighting corruption is, overall, in place in Serbia. An Anti-Corruption Agency was established and is competent in the areas of integrity of public officials  and  control  of  party  funding.  Its  resources  were  recently  further  increased.  An enhanced framework for controlling financing of political parties' activities and electoral campaigns has been established in line with European standards. The Minister of Justice was appointed coordinator for the fight against corruption. The authorities have launched a review of the outdated strategy and action plan for  the fight against corruption. The State Audit Institution has started to play a useful role in controlling public expenditure and uncovering irregularities.  The  customs  administration  and  the  police  have  stepped  up  their  internal controls resulting in a greater number of cases being investigated and sanctioned. Steps have also been taken towards specialisation of the law enforcement agencies and a greater number of cases have been prosecuted. Corruption remains prevalent in many areas and continues to be a serious problem. Stronger  political will is essential in order to significantly improve performance in combating corruption. Enhanced  investigation capacity and coordination of law enforcement bodies are indispensable. The track record of  investigations, prosecutions and final convictions in corruption cases at all levels needs to be gradually and significantly built up. There are also concerns regarding supervision of public procurement, privatisation, spatial planning and construction permits.

In the fight against organised crime, the legal framework developed by Serbia is generally adequate and capacity has improved, including on international cooperation. This has led to significant results, such as the  dismantling of a major international drug-trafficking ring. Money laundering and drug smuggling are key  areas of concern and the track record of investigations and convictions needs to be built up further. Capacity for proactive and better coordinated investigations and enhanced cooperation at regional and international levels also remain to be further developed. Technical capacity to carry out special investigative measures should  be developed within the law enforcement bodies, under the direct control of the judiciary.

The legal and policy framework for human rights and the protection of minorities in Serbia is, overall, in line with European standards. The Constitution guarantees a wide range of  human  rights  and  fundamental  freedoms  and  recognises  the  possibility  of  filing  a Constitutional  appeal  as  the  final  remedy  for  protection  of  human  rights.  However, implementation  of  the  legislation  needs  to  be  stepped  up.  Advanced  training  of  the administration, the police and the judiciary remain to be developed to ensure more active and consistent application of standards in this field.

Human rights are generally respected in Serbia. The Ombudsman and the Commissioner for access to  information and data protection are playing an increasingly effective role in the oversight of the  administration. The legal framework to combat discrimination has been substantially improved and  mechanisms have been set up to oversee its implementation, which  is  at  an  early  stage.  The  authorities  have  also  been  paying  growing  attention  to safeguarding the respect of the freedom of assembly and freedom of association and the role of civil society. The newly adopted media strategy aims at substantially clarifying the legal and market environment in which media outlets are operating. More comprehensive  and proactive action is expected from the relevant institutions in cases of threats and violence against  journalists and media, emanating notably from radical groups. The current prison conditions are a matter of serious concern. A long awaited law on restitution as well as a new law on public property were adopted. Transparent and non discriminatory implementation of both laws has to be ensured and further measures taken to fully establish legal clarity over property rights. The Commission will monitor the implementation  and application of these laws.

The legal and institutional framework for respecting and protecting minorities in Serbia is in place.  The  Constitution  guarantees  specific  rights  to  members  of  national  minorities  in addition to the rights  guaranteed to all citizens and provides a legal basis for the National Minority  Councils.  Political  representation  of  minorities  is  ensured.  At  State  level,  the Ombudsman and the Commissioner for Equality are exercising their prerogatives in this area. Serbia has established a comprehensive strategy for the integration of Roma and is currently progressing  in  its  implementation.  Active  social inclusion  measures  have  been  taken,  in particular in the fields of health, education and housing. Measures have recently been taken to alleviate  obstacles to the registration of 'legally invisible persons' which will improve their access to basic rights.  Further serious efforts, including financial resources, are needed in order to improve the status and socio-economic conditions of the Roma, who continue to be the most vulnerable and marginalised minority,  as  illustrated by the high number of illegal settlements. The situation of refugees and internally displaced  persons remains a concern, even though significant progress was achieved in recent years in reducing the  number of collective centres.

Serbia  generally  fulfils  the  conditions  of  the  Stabilisation  and  Association  Process. Cooperation with the International Criminal Tribunal for the former Yugoslavia has greatly improved since 2008 to a now fully satisfactory level, as best illustrated by the arrests and transfers to the Hague tribunal of Radovan Karadzic in 2008, Ratko Mladic and Goran Hadzic in 2011. Serbia is committed to pursuing this cooperation  at the same level. It participates actively in regional initiatives and has taken significant steps to foster  reconciliation. The agreement reached with Bosnia and Herzegovina, Croatia and Montenegro in the Sarajevo Declaration Process on durable solutions for refugees and IDPs is a major achievement. Serbia has made  good progress in its bilateral relations with other enlargement countries, particularly Croatia, Bosnia and Herzegovina and Montenegro, while continuing to maintain good  relations  overall  with  neighbouring  EU  Member  States.  A  number  of  outstanding bilateral issues remain with its neighbours, in particular regarding border demarcation.

Serbia does not recognise Kosovo3's unilateral declaration of independence. It maintains its structures in  Kosovo and organised parallel municipal by-elections in May 2008, which is inconsistent with UNSCR 1244/1999. On the basis of the UN General Assembly resolution adopted on 9 September 2010, which had  been tabled jointly by Serbia and the 27 EU Member States, a process of dialogue between Belgrade and Pristina started in March. It has been conducted in a generally constructive spirit until September and it has led to agreements on several issues: free movement of goods and persons, civil registry and cadastre. The agreements reached to date need to be implemented in good faith. Further results remain to be achieved to  implement, as a matter of priority, the principles of inclusive and functioning regional cooperation and to  provide sustainable solutions on EU acquis-related matters in sectors such as energy and telecommunications. All sides need to play their part in defusing the tension in northern Kosovo and allow for free movement of persons and goods, for the benefit of the people of the region.

3                     Under UNSCR 1244/1999

2.           ECONOMIC CRITERIA

The present  assessment  is  made  on  the  basis  of  the  Copenhagen  criteria  related  to  the existence  of  a  functioning  market  economy,  as  well  as  the  capacity  to  cope  with competitive pressure and market forces within the Union.

There is a broad political consensus in Serbia on the fundamentals of a market economy as well as a track record in the implementation of economic reforms. Serbia achieved a degree of macroeconomic stability that  allows economic operators to make decisions in a climate of predictability. The economic policies of the past decade supported steady growth of close to

5% on average, gradually declining inflation and a general improvement of living standards. However, the  global financial and economic crisis exposed the vulnerabilities of a growth paradigm, which was based on  domestic demand financed largely by borrowing abroad, as well as the ensuing limitations of the policy mix  to respond effectively to adverse external shocks. Recently, substantial progress has been made towards  strengthening the financial framework  and  the  quality  of  public  finances,  which  would  underpin  a  shift  to  more sustainable and balanced growth, driven by exports and investment. The free interplay of market  forces has developed, albeit at a slow and uneven pace, through privatisation and liberalisation of trade and prices. Progress has been achieved in facilitating market entry and exit. Economic integration with the EU is high.

A number of structural weaknesses persist and hamper the economic performance. The state influence in the  economy has remained high due to the slow progress of privatisation and price liberalisation. In spite of the steps towards establishing legal predictability and removing red tape, the business environment continues to be constrained by legal uncertainty. Lengthy enforcement procedures for court decisions undermine trust in the  legal system. Lack of competition in certain sectors and significant infrastructure bottlenecks are a further drag on the economic potential. Foreign direct investment was relatively strong prior to 2008 and, following  a  substantial drop during the economic crisis, has started to slowly recover, but Serbia needs to further improve the investment climate. Against a modest economic recovery, unemployment remains high and the social situation strife. Serbia needs to urgently address structural rigidities on the labour market, including the  mismatch between demand for and supply of skilled workforce. The informal economy remains an important challenge.

3.           ABILITY TO ASSUME THE OBLIGATIONS OF MEMBERSHIP

The ability of Serbia to assume the obligations of membership has been evaluated on the basis of the following indicators:

-     the obligations set out in the Stabilisation and Association Agreement;

-     progress with adoption, implementation and enforcement of the EU acquis.

Overall, Serbia has smoothly implemented its obligations under the Interim Agreement and is generally respecting its commitments under the Stabilisation and Association Agreement.

In 2008 Serbia adopted a National Programme for Integration into the European Union, which is a comprehensive and ambitious plan for the period 2008-2012 providing for approximation of its national  legislation to the EU acquis. Since then, significant progress has been made with adopting legislation aligned  with the EU acquis, particularly on the internal market, statistics, trade-related provisions, customs and  taxation. Administrative capacity is overall well developed and the judiciary is undergoing a significant overhaul. However, the country faces challenges in implementing and enforcing legislation. Particular and continued attention to the fight against corruption will  be expected over time. The country will need to make additional efforts in order to assume the obligations of membership in the medium term.

If it continues its efforts Serbia should, in the medium term, have the capacity to comply with the requirements of the acquis in the following fields:

-     Company law;

-     Fisheries;

-     Taxation;

-     Economic and monetary policy;

-     Statistics;

-     Enterprise and industrial policy;

-     Science and research;

-     Education and culture;

-     Customs union;

-     External relations;

-     Foreign, security and defence policy;

-     Financial and budgetary provisions.

Serbia will have to undertake additional efforts to align with the acquis and to implement it effectively in the medium term in the following fields:

-     Free movement of goods;

-     Freedom of movement for workers;

-     Right of establishment and freedom to provide services;

-     Free movement of capital;

-     Public procurement;

-     Intellectual property law;

-     Competition policy;

-     Financial services;

-     Information society and media;

-     Food safety, veterinary and phytosanitary policy;

-     Transport policy;

-     Energy;

-     Social policy and employment;

-     Trans-European networks;

-     Regional policy and coordination of structural instruments;

-     Consumer and health protection.

Further adjustments of the legal and institutional framework, in particular strengthening of administrative and implementation capacity are needed in the above areas.

Serbia will have to make considerable and sustained efforts to align with the EU acquis and to implement it effectively in the medium term in the following fields:

-     Agriculture and rural development;

-     Judiciary and fundamental rights;

-     Justice, freedom and security;

-     Financial control.

Considerable  adjustments  of  the  legal  and  institutional  framework  and  significant strengthening of administrative and implementation capacity are needed in these areas.

Regarding the environment and climate change, further coordinated and sustained efforts will be needed to align with the EU acquis and to implement it effectively. These should include substantial investments and  strengthening of the administrative capacity for enforcement of legislation in order to achieve compliance on  the most important issues, including climate change, in the medium term. Full compliance with the acquis could be achieved only in the long term and would necessitate higher levels of investment.

C.          CONCLUSION AND RECOMMENDATION

In the light of substantial reforms over the last years, Serbia has considerably progressed towards fulfilling  the political criteria related to the stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities, set by the Copenhagen European Council in 1993, as well as the conditions of the Stabilisation and Association Process. Serbia has a comprehensive constitutional, legislative and institutional framework which overall corresponds to European and international standards. Parliament has become far more effective in its legislative activity under the current legislature. The legal and institutional framework for the rule of law is comprehensive, including in the areas of the fight against  corruption and organised crime where initial results were achieved. The legal framework for the protection of human rights and minorities is well developed and has started being implemented. Serbia has reached a fully satisfactory level in its cooperation with ICTY and has taken an increasingly active role in fostering reconciliation in the region. Serbia has agreed to and participated in a process of dialogue with Kosovo to facilitate the lives of the people which has led to several agreements (free movement of persons and goods, civil registry and cadastre) and Serbia has taken initial steps for implementation.

As regards the economic criteria, Serbia has taken important steps towards establishing a functioning  market  economy and achieved a certain degree of macroeconomic stability in spite of the global economic and financial crisis. However, further efforts will be necessary for restructuring the economy and improving the business environment, in particular by strengthening the rule of law and removing red tape, enhancing competition and the role of the private sector as well as tackling rigidities on the labour market. In order to enable it to cope in the medium term with competitive pressure and market forces within the Union, Serbia needs to pursue structural reforms to upgrade the productive capacity of the economy and create a climate conducive to increased foreign investment.

Serbia  has  built  up  a  positive  track  record  in  implementing  its  obligations  under  the

Stabilisation and Association Agreement and the Interim Agreement.

Serbia would be in a position to take on the obligations of membership in the medium term, in nearly all acquis fields, provided that the alignment process continues and that further efforts are made to ensure the  implementation and enforcement of legislation. Particular attention needs to be paid to the areas of agriculture and rural development, judiciary and fundamental rights, justice, freedom and security and financial control. Full compliance with the acquis in the field of the environment and climate change could be achieved only in the long term and would necessitate increased levels of investment.

Based on preliminary estimates, Serbia's accession would have a limited overall impact on European Union policies and would not affect the Union's capacity to maintain and deepen its own development.

The Commission recommends that the Council should grant Serbia the status of candidate country, taking into account progress achieved so far and on the understanding that Serbia re- engages in the dialogue with Kosovo and is moving swiftly to the implementation in good faith of agreements reached to date.

Serbia is  well  on  its  way  towards  sufficiently  fulfilling  the  political  criteria  set  by  the Copenhagen  European  Council  in  1993  and  the  conditions  of  the  Stabilisation  and Association process, provided that progress continues and that practical solutions are found to the problems with Kosovo.

The Commission therefore recommends that negotiations for accession to the European Union should be opened with Serbia as soon as it achieves further significant progress in meeting the following key priority:

-     Further  steps  to  normalise  relations  with  Kosovo  in  line  with  the  conditions  of  the Stabilisation  and  Association  Process  by:  fully  respecting  the  principles  of  inclusive regional cooperation; fully  respecting the provisions of the Energy Community Treaty; finding  solutions  for  telecommunications  and  mutual  acceptance  of  diplomas;  by continuing to implement in good faith all agreements reached; and by cooperating actively with EULEX in order for it to exercise its functions in all parts of Kosovo.

The Commission will present a report on Serbia's implementation of the above key priority as soon as sufficient progress has been achieved.

Serbia is encouraged to maintain the momentum of reforms in pursuing the necessary degree of compliance with the membership criteria, with particular attention to the rule of law, and to continue its constructive  engagement in regional cooperation and in strengthening bilateral relations with neighbouring countries. Implementation of the Interim Agreement, and from its entry into force, the Stabilisation and Association Agreement, are expected to continue. The Commission will continue to support these efforts through the IPA financial instrument.