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Europaudvalget 2009
SEK (2009) 1336
Offentligt

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 14.10.2009

SEC(2009) 1336

COMMISSION STAFF WORKING DOCUMENT

MONTENEGRO 2009 PROGRESS REPORT

accompanying the

COMMUNICATION FROM THE COMMISSION

TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

Enlargement Strategy and Main Challenges 2009-2010

{COM(2009) 533}

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TABLE OF CONTENTS

1.1.

1.2.

1.3.

2.1.

2.2.

2.3.

3.1.

3.2.

4.1.

4.1.1.

4.1.2.

4.1.3.

4.1.4.

4.1.5.

4.1.6.

4.1.7.

4.1.8.

4.1.9.

Introduction .................................................................................................................. 4

Preface.......................................................................................................................... 4

Context ......................................................................................................................... 4

Relations between the EU and Montenegro................................................................. 5

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

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

Human rights and the protection of minorities .......................................................... 13

Regional issues and international obligations ............................................................ 18

Economic criteria ....................................................................................................... 20

The existence of a functioning market economy ....................................................... 20

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

.................................................................................................................................... 25

European standards .................................................................................................... 27

Internal market ........................................................................................................... 27

Free movement of goods............................................................................................ 27

Movement of persons, services and right of establishment ....................................... 29

Free movement of capital........................................................................................... 30

Customs and taxation ................................................................................................. 31

Competition................................................................................................................ 32

Public procurement .................................................................................................... 32

Intellectual property law ............................................................................................ 33

Social policies, employment and public health policy............................................... 34

Education and research .............................................................................................. 35

4.1.10. WTO issues ................................................................................................................ 36

4.2.

4.2.1.

4.2.2.

4.2.3.

4.2.4.

Sectoral Policies ......................................................................................................... 36

Industry and SMEs..................................................................................................... 36

Agriculture and fisheries ............................................................................................ 37

Environment............................................................................................................... 38

Transport policy ......................................................................................................... 40

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4.2.5.

4.2.6.

4.2.7.

4.2.8.

4.3.

4.3.1.

4.3.2.

4.3.3.

4.3.4.

4.3.5.

4.3.6.

Energy ........................................................................................................................ 42

Information society and media................................................................................... 43

Financial control......................................................................................................... 44

Statistics ..................................................................................................................... 44

Justice, freedom and security ..................................................................................... 45

Visa, bordermanagement, asylum and migration....................................................... 45

Money laundering ...................................................................................................... 47

Drugs .......................................................................................................................... 49

Police.......................................................................................................................... 49

Fighting organised crime and terrorism ..................................................................... 50

Protection of personal data......................................................................................... 52

STATISTICAL ANNEX..........................................................................................................

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COMMISSION STAFF WORKING DOCUMENT

Montenegro 2009 Progress Report

1.1.

NTRODUCTION

Preface

Since March 2002 the Commission has reported regularly to the Council and the Parliament

on progress made by the countries of the Western Balkans region.

The Commission issued progress reports focusing exclusively on Montenegro since 2006.

This report:

– briefly describes relations between Montenegro and the Union;

– analyses the political situation in Montenegro in terms of democracy, the rule of law,

human rights, protection of minorities and regional issues;

– analyses the economic situation in Montenegro;

– reviews Montenegro’s capacity to implement European standards, i.e. to gradually

approximate its legislation and policies to the

acquis,

in line with a Stabilisation and

Association Agreement and the European Partnership priorities.

This report covers the period from early October 2008 to mid-September 2009. Progress is

measured on the basis of decisions taken, legislation adopted and measures implemented. As a

rule, legislation or measures which are being prepared or awaiting parliamentary approval

have not been taken into account. This approach ensures equal treatment across all reports and

permits an objective assessment.

The report is based on information gathered and analysed by the Commission. Many

additional sources have been used, including contributions from the government of

Montenegro and from the EU Member States, European Parliament reports

and information

from various international and non-governmental organisations.

The Commission draws detailed conclusions regarding Montenegro in its separate

communication on enlargement

, based on the technical analysis contained in this report.

1.2.

Context

Montenegro is a potential candidate for EU membership. The Stabilisation and Association

Agreement between Montenegro and the EU was signed in October 2007. An Interim

Agreement was signed on the same date and entered into force in January 2008. The

The rapporteur for Montenegro until September was Mr. Marcello Vernola. Since September, the new

rapporteur is Mr. Charles Tannock.

Enlargement Strategy and Main Challenges 2009-2010 (COM(2009) 533 of 14.10.2009).

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Commission delegation in Montenegro has been operational since November 2007. In

December 2008 Montenegro applied for membership of the European Union. In April 2009

the Council decided to implement the procedure laid down in Article 49 of the Treaty on

European Union. Accordingly, the Commission was requested to submit to the Council its

Opinion on the application by Montenegro. The Commission started work on its Opinion by

sending Montenegro a comprehensive list of questions relating to the Copenhagen criteria and

the conditions set for the stabilisation and association process. This report in no way

prejudges the analysis to be made by the Commission in its Opinion on Montenegro’s

application for EU membership.

1.3.

Relations between the EU and Montenegro

Montenegro is participating in the

Stabilisation and Association Process.

Implementation of

the

Interim Agreement

(IA) has continued. Ratification of the

Stabilisation and

Association Agreement

(SAA) progressed. By 1 September 2009 22 EU Member States had

confirmed ratification of the SAA. Montenegro is continuing to implement its commitments

under the SAA and to prepare for full implementation of the SAA once it is ratified. This is a

key priority of the European Partnership. The bodies provided for by the Interim Agreement

operated smoothly.

The EU is providing guidance to the Montenegrin authorities on reform priorities as part of

the

European Partnership.

Implementation of the European Partnership by Montenegro is

progressing. Dialogue on European integration issues continued in the enhanced permanent

dialogue and in the bodies provided for by the Interim Agreement. In March 2009 a

political

dialogue

was held between the EU (troika) and Montenegro.

The visa facilitation and readmission agreements between Montenegro and the European

Community continued to be implemented. In the framework of the

visa liberalisation

dialogue, Montenegro has made important progress in the areas of justice, freedom and

security and has fulfilled the majority of the roadmap benchmarks. Therefore, the

Commission proposed in July 2009 lifting the visa obligation for Montenegrin citizens. This

proposal is subject to Montenegro meeting the outstanding criteria before the Council of the

EU takes its decision, after consultation of the European Parliament.

As a potential candidate for EU membership, Montenegro aligned itself with 121 CFSP

declarations from a total of 128 relevant declarations adopted by the EU during the reporting

period.

Since 2007 Montenegro has been receiving pre-accession

financial assistance

from the

Instrument for Pre-Accession Assistance (IPA), which is being implemented by the European

Commission delegation in Podgorica since September 2008. Montenegro has continued to

prepare for decentralised management of EC aid.

In 2009 a total of €33.3 million was allocated to Montenegro. The main focus areas are rule of

law, including justice and police reform, labour and safety at work, environmental protection

railways, State financial management and audit, and alignment to internal market legislation.

EU financial support has been provided to

civil society

development under the Civil Society

Facility. Under the national IPA programme for 2009, €2.2 million have been earmarked for

Council Decision 2007/49/EC.

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projects aiming to enhance civil society organisations contribution to the social, economic and

political development of Montenegro, in areas such as social welfare, special education,

preventive health, inter-cultural dialogue, transparency and accountability of the public

administration, judiciary and parliament.

In response to the economic crisis, an IPA

crisis package

has been created, comprising €200

million for the Western Balkan region which are expected to leverage investments of at least

€1 billion, co-financed by the partner financial institutions. The country will benefit from a

share of multi-beneficiary funds for competitiveness, SMEs, energy efficiency and banking

sector regulation. In addition, the country benefits from Montenegro-earmarked multi-

beneficiary funds to accelerate the infrastructure investments. €5 million were committed to

the Infrastructure Project Facility for a project on water infrastructure in mountain

municipalities.

Provisional application of Protocol 8 of the SAA started in November 2007. As a result,

Montenegro can join

Community programmes

which are open to Western Balkan countries.

Montenegro participates in the 7th Framework Programme for research and technological

development and in the specific programme on entrepreneurship and innovation, which is part

of the Competitiveness and Innovation Framework Programme (2007-2013). Montenegro is at

the final stage of its preparations to participate in the European Community’s Culture

Programme.

OLITICAL CRITERIA

This section examines the progress made by Montenegro towards meeting the Copenhagen

political criteria, which require stability of institutions guaranteeing democracy, the rule of

law, human rights and respect for and protection of minorities. It also monitors regional

cooperation, good neighbourly relations with enlargement countries and Member States and

compliance with international obligations, such as cooperation with the International Criminal

Tribunal for the former Yugoslavia (ICTY).

2.1.

Democracy and the rule of law

Constitution

Establishment of the legal and institutional set-up required for an independent country, which

is a key European Partnership priority, is almost complete. One of the last pieces of legislation

required, the Law on State Property which regulates ownership and transfer of State and

municipal property, was adopted. The deadline for adoption of legislation provided for by the

Law on Implementation of the Constitution was further extended to April 2010.

Parliament

In January 2009 parliament adopted a decision to call early elections, which were held in

March 2009. According to the international election observation mission led by the

OSCE/ODIHR, the elections met almost all international and European commitments.

However, remaining shortcomings and challenges still need to be addressed. The electoral

framework has to be harmonised with the Constitution, including on minority representation.

Further work is also needed on ensuring full separation between State and party structures in

the electoral administration and ensuring transparent allocation of parliament seats. A new

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Law on State Property provides a framework ensuring clear separation of State and party

premises, including during elections, but has yet to be implemented.

Voter turn-out in the parliamentary elections was less than in the previous elections but

remained high at 66%. The coalition for European Montenegro led by outgoing Prime

Minister Milo Djukanovic increased its majority and won 48 out of 81 seats.

There has been some progress in the work and functioning of parliament. Work on

strengthening political consensus, particularly on European integration issues, has continued.

The National Council for EU Integration continued to contribute to EU integration. The

government reported on progress with EU integration at every session of the Committee for

International Relations and European Integration. This further raised the level of involvement

of this committee in the integration process. As regards control mechanisms, this committee

called ministers to hearings on several occasions.

Parliament adopted 124 laws, which is a 30% increase compared to 2007. This intense

activity is welcome as Montenegro continues to complete its legal framework following

independence and taking into account alignment with the

acquis communautaire.

However,

parliament's capacity to scrutinise legislation and monitor its implementation needs to be

enhanced.

In December 2008 a new set of rules on organisation of the parliamentary administration were

adopted. The rulebook provides for establishment of six more ‘bureaus’ within the

Parliament's Administration Service, including a Bureau for EU Integration. One of its tasks

is to give an independent assessment of alignment of draft legislation with the

acquis.

The

new rules provide for increasing the parliamentary administration’s human resources. A part

of these resources has already been made available. Further efforts have been made to provide

for staff training.

Steps have been taken to improve use of the working bodies and observance of the rules of

procedure. Efforts have been made to bring parliament closer to citizens, for example by

means of visits and brochures. Parliament continued its work on oversight of defence and

security bodies,

inter alia

by organising a hearing of the director of the police in December

2008. This practice needs to continue and expand. Civilian and democratic oversight of

defence and security bodies is a key priority of the European Partnership.

The Committee for International Relations and EU Integration has upgraded its contacts with

the European Parliament. It holds the chairmanship of the conference of the parliamentary

committees for EU integration of Western Balkan countries for 2008-2009. In this context,

Montenegro successfully hosted a well-attended regional parliamentary conference in Cetinje

in March 2009.

Parliament’s work and operation still need to be consolidated in several areas. Planning needs

to be improved. Inspection and control mechanisms are underused. The supervisory role of

parliament generally remains weak.

At present administrative and other resources required for parliament’s work, including expert

support, remain insufficient. Staff and expert support for committees are rudimentary.

The temporary solution for TV coverage of parliamentary debates, following the

disagreement between the government and opposition on this topic, expired in March 2009.

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No solution has been proposed for the new parliament’s mandate. Until then public TV

committed to cover parliamentary debates in line with an earlier arrangement with political

parties.

Neither the newly established Bureau for EU integration nor the Committee for International

Relations and EU Integration yet have sufficient capacity to scrutinise independently

alignment of draft legislation with the EU

acquis.

Further progress remains necessary on mature and consensual functioning of parliament.

From October 2008 to March 2009 two opposition parties boycotted parliamentary work due

to the government’s recognition of the independence of Kosovo

. This boycott hindered

contribution of a diversity of views for development of new legislation.

Overall,

there have been some improvements in the functioning of parliament. The

parliamentary parties’ overall commitment to working on the basis of consensus, in particular

on EU integration, remains a solid basis for further democratic development. The National

Council for EU Integration has yet to achieve its full potential Further efforts are needed to

enhance parliament’s efficiency as a legislative and oversight body. Aligning electoral

legislation with the Constitution remains a priority.

Government

Following the March 2009 parliamentary elections, a new government headed by the outgoing

Prime Minister was elected by parliament in June 2009. It has three Deputy Prime Ministers

(DPMs), amongst them a new DPM for the political system, four new ministries (Ministry for

EU integration, Ministry for Environment and Urban Planning, Ministry of Labour and Social

Welfare and Ministry of Health).

Building on the 2009 work programme of the previous government, the new government

programme gives priority to European and Euro-Atlantic integration, dealing with the

consequences of the economic crisis and ensuring sustainable growth in Montenegro,

including raising the standard of living, balanced regional development and key infrastructure

projects. The fight against organised crime and corruption along with judicial reform continue

to be government priorities.

The government maintained

including civil society and

developing new legislation.

thorough needs assessment

implementation.

a strong pace for adoption of new legislation. Stakeholders,

international organisations, were continuously involved in

However, new legislation has not always been based on a

and on identification of priorities and of means for full

The management structures of most government bodies, including ministries, have not

substantially changed and in many cases remain over-centralised. Further strengthening of the

middle-management level would make decision-making more effective. The human resources

of the Secretariat for EU Integration (SEI) and line ministries have not been substantially

improved, due to government cost-cutting measures in response to the economic crisis.

Progress remains necessary on monitoring implementation of policies and laws and receiving

feedback.

Under UNSCR 1244/1999.

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The Deputy Prime Minister and the SEI consistently raised the profile of the EU integration

process and related requirements as Montenegro moved forward with its EU membership

application. The SEI made some progress on issues related to translation of EU texts and

efforts have been made to harmonise vocabulary used by State bodies on EU issues. A plan

was adopted to improve government cross-checking of draft legislation with the EU

acquis

means of an article-by-article check by the SEI. In June 2009 the SEI was converted into a

fully fledged Ministry for European Integration and the post of the Deputy Prime Minister

was converted to Minister for European Integration to head the new ministry. The new set-up

is expected to streamline coordination on European integration issues.

Awareness of EU integration issues within line ministries was further raised by organising

round tables on EU affairs for civil servants. The EU offices in line ministries have become

more effective as they have grown more familiar with the demands of their role. In general,

the standard of contributions by the Montenegrin authorities to regular meetings with the

European Commission under the stabilisation and association process has been maintained.

As regards local government, the 2009 action plan on local government reform was adopted

in March 2009. A joint central/local government commission reviewed draft legislation on

local governance. However, implementation of reforms remains limited. Implementation of

the 2008 local government action plan, under the supervision of a joint central/local

government commission, has not advanced very far. No report on implementation of the 2008

action plan has been adopted.

Overall,

the government has continued to put together the structures needed as a result of

independence. The framework for coordination of European integration activities has been

made more effective. Human resources in ministries and relevant agencies to address

European integration issues need to be further strengthened. Local self-government reform

remains a key challenge.

Public administration

Some progress has been made on upgrading the country’s administrative capacity and on

reforming the public administration, a key European Partnership priority.

A Law on State Property adopted in January 2009 defined State and municipal property and

clarified the ownership of premises used by State bodies. A Law on Conflicts of Interest of

Public Servants adopted in December 2008, provided a detailed definition of public officials

and increased transparency requirements in the public administration. A commission to

oversee compliance with the new Law was appointed in July 2009. A Law providing for

internal audit units in government bodies was adopted in November 2008, but implementation

has not yet started. These legal provisions strengthen the overall framework for transparency

and accountability. Establishment of the central human resources register by the human

resources management authority (HRMA) is almost complete. The HRMA continued to

conduct training programmes for civil servants Recruitment procedures to the public

administration are generally based on public vacancy announcements, but the concept of

merit-based recruitment and promotion of civil servants is not provided for in the legislation

and is not implemented in practice. Several activities have been organised to raise awareness

of job opportunities in the public sector. Overall, the HRMA lacks the administrative capacity

to promote and monitor implementation of the Civil Service Law.

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The Ombudsman’s Office dealt with 541 complaints in 2008, around 80 % of which were

resolved. As in previous years, the majority concerned the work of courts, in particular the

long duration of court proceedings, followed by the public administration, the prosecution

service and municipalities. Most recommendations made by the Ombudsman’s Office were

followed up. A Deputy Ombudsman for children's rights has been appointed in July 2009.

However, the Law on the Ombudsman has still to be fully aligned with the Constitution.

Further enhancement of the office's capacities is required, as well as an improvement to its

premises' accessibility.

Implementation of the national training strategy for municipalities has begun. However,

implementation of the 2008 local government action plan has been limited, while progress on

building up local authorities’ administrative and management capacity remains slow. No

progress has been made on municipalities’ capacity for financial management, including

budgeting, public procurement and allocation of grants. Lack of computerisation in many

municipalities hinders efficiency and increases the risk of corruption.

Overall,

some progress has been made on strengthening the legislative framework for the

public administration. There was some progress on human resources management but, due to

the government’s cost-cutting measures, there has been no overall strengthening of human

resources. Significant efforts are required to establish a professional, accountable, transparent

and merit-based civil service, free of political interference. Further reform is required in the

fields of financial control, public procurement and licensing procedures. To this effect,

internal control mechanisms need to be established throughout the public administration.

Efforts need to continue to prepare fully for implementation of the SAA by upgrading

administrative capacity in the areas covered by the agreement.

Judicial system

Montenegro has made progress in the area of judicial reform, a key European Partnership

priority. The action plan to implement the 2007–2012 judicial reform strategy has been

further followed up. The second report on implementation of the action plan was adopted in

March 2009.

A Law on the Constitutional Court has been adopted with the objective of clarifying the

precise scope of the court's mandate. The new Criminal Procedure Code (CPC) intended to

increase the overall efficiency of the prosecution has been adopted. In particular, it extends

the powers of the public prosecution office, makes prosecution more efficient by placing the

pre-trial procedure in the hands of the public prosecutor, introduces a reversed burden of

proof for confiscation of criminal assets and extends use of special investigative measures to

corruption crimes. Preparatory work on the application of the CPC has started, including

specialised training for prosecutors, judges and the police.

Progress has been made on implementation of key legislation intended to increase the

professionalism and independence of judges and prosecutors. The Prosecutorial Council was

elected, adopted its rules of procedure and became operational. The remaining vacancy in the

Judicial Council, nominated by the parliamentary opposition, has been filled.

Both

the Judicial

and the Prosecutorial Councils have begun to establish a track record of decisions on selection

of judges, deputy prosecutors and prosecutors and on disciplinary proceedings. During the

reporting period, nine judges have been suspended and one has been dismissed by the Judicial

Council. Progress has also been made in reducing the backlog of cases.

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The overall professional capacity of judges and prosecutors has been strengthened by training,

including on anti-corruption. Some training on carrying out investigations has been provided

to prosecutors. Special departments in the high courts for combating organised crime,

corruption, war crimes and terrorism established in September 2008, started dealing with

cases. The capacity of the special prosecutor’s office for fighting organised crime has been

bolstered by additional deputy prosecutors, training and equipment.

Investigation and court proceedings in Montenegro's limited number of domestic

war crimes'

cases have made headway. An out-of-court settlement has been made regarding the survivors

and families of the victims of deportations of Bosnian civilians in 1992 and compensations

have been awarded.

However, there have been no further developments on supplementing the Constitution with

implementing provisions in line with European standards covering the judiciary and the

prosecution service, where there still is political interference. Serious concerns regarding the

independence of judges and prosecutors persist. Scope for political influence exerted on the

prosecution exists through the appointment of the Prosecutorial Council by parliament and the

parliament’s powers to appoint and dismiss the State prosecutors. The unclear division of

responsibility for supervision of the courts between the Ministry of Justice and the Judicial

Council, the participation of the Minister of Justice as a member of the Judicial Council and

the election and dismissal of the president of the Judicial Council by parliament, constitute

further causes for concern regarding the independence of the judiciary.

The efficiency of the judicial system needs to be further enhanced. Judicial enforcement

procedures remain inefficient while lengthy court procedures remain a cause for concern. The

misdemeanour reform strategy needs to be implemented in a way which will avoid creating

further backlogs. The new Law on the Right to Trial within Reasonable Time, granting

compensation to citizens whose trial exceeds a set time-frame, has entered into force, but a

track record has yet to be established. The reliability of court data needs to be improved. The

computerised case management system has yet to be introduced in all courts. Random

allocation of cases in courts has not yet been fully implemented and computerised.

Training programmes to prepare the prosecution service for its role in the pre-trial procedure

under the new Criminal Procedure Code must be further pursued. Modern techniques for

financial investigations are still insufficiently used. The special prosecutor’s office needs

further strengthening in the form of expertise, qualified support staff and equipment. The

capacity of the Ministry of Justice for judicial cooperation has been somewhat strengthened.

However, its internal organisation and procedures, skilled human resources and IT systems

need to be further improved. The ongoing reform of the juvenile justice system has yet to

yield results.

Overall,

Montenegro is moderately advanced in the area of judicial reform. There has been

some progress through the enhancement of the legal framework and the implementation of

legislation. Further efforts are required for the consolidation of the independence,

accountability, integrity and efficiency of the judicial system.

Anti-corruption policy

There has been progress in the fight against corruption, which is a key European Partnership

priority.

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The strategic framework for fighting corruption has been fine-tuned to place greater emphasis

on monitoring implementation of anti-corruption measures from the action plan against

organised crime and corruption. The national commission for monitoring implementation of

the action plan produced its fourth and fifth report.

The legal framework for the fight against corruption has been strengthened with the adoption

of the new Criminal Procedure Code in July 2009, the Law on Prevention of Conflicts of

Interest in Performing Public Functions in December 2008, the Law on Internal Financial

Control in November 2008 and the Law on Financing the Election Campaigns for the

President, Mayors and Presidents of Municipalities of Montenegro in January 2009.

Progress has been made on further enhancing preventive and investigative anti-corruption

bodies. The resources of the Directorate for Anti-Corruption Initiatives (DACI) have been

strengthened and its co-operation with the police has been enhanced. Furthermore, it

intensified its training activities for administrative bodies and the public, as well as the

realisation of reports and researches related to corruption. The human resources and

equipment of the special prosecutor’s office for fighting organised crime, corruption,

terrorism and war crimes have been built up. The specialised high court units for organised

crime and corruption have also been reinforced. Anti-corruption training is available to the

police, border police, customs officers, prosecutors and judges.

Internal control departments within the Police Directorate are starting to build a record of

action against corruption. During the reporting period, twelve corruption charges were

brought against thirteen police officers as a result of internal investigations. In the judiciary,

criminal charges for corruption and abuse of office were brought against three judges.

DACI, NGOs and the media conducted activities to raise awareness of corruption. Two NGOs

actively participated in the work of the national commission for fighting corruption and

organised crime and in screening related draft legislation

However, corruption continues to be a cause of concern in Montenegro. The national action

plan against organised crime and corruption needs to be compiled on the basis of risk

assessments and to include priorities for action. The country’s national legislation is not yet

fully aligned with the international anti-corruption instruments ratified by Montenegro. Some

Group of States against Corruption (GRECO) recommendations have yet to be fully

implemented. Anti-corruption action plans on the level of local administration have been

adopted by eleven out of t 21 municipalities but implementation has begun only in two.

Montenegro still lacks strong and independent supervisory authorities to evaluate asset

declarations and financing of political parties and to monitor and exercise control over

expenditure in the public sector, notably on public procurement, spatial planning and

privatisation. A supervising authority to monitor and ensure compliance with the Law on the

Financing of Political Parties and the Law on the Financing of Election Campaigns for the

President, Mayors and Presidents of Municipalities of Montenegro is yet to be established. As

a result, political parties' compliance with the law is only supervised in relation to allocations

provided by the state budget. Private donations remain uncontrolled, due to the absence of a

supervising authority. The new Law on the Prevention of Conflict of Interests in Performing

Public Functions, adopted in December 2008 includes some improvements but also has some

serious shortcomings and loopholes. Most importantly, it provides for a significant exemption

for parliamentarians, who are allowed to hold executive powers in public companies or

executive agencies. The appointment of the supervising authority by the parliament raises a

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cause for concern. Further, the sanctioning powers of the Commission are limited in scope, as

well as legally problematic especially with regard to politicians. The new Commission has

been appointed in July 2009. Its Rules of Procedure are yet to be adopted.

The administrative bodies for detecting and investigating corruption still lack sufficient staff

with appropriate skills. This applies to the Police Directorate’s internal control unit and unit

for combating organised crime and corruption and, to a lesser extent, to the prosecution

service.

A track record of corruption cases in courts is being built but the number of final convictions

remains low. The investigative capacity of law enforcement bodies remains weak due to

shortfalls in expertise, specialised equipment and working conditions. There is still a

significant lack of expertise in modern financial investigation. In 2008 and the first quarter of

2009, the Police Directorate for organised crime and corruption carried out financial

investigations in five cases which had elements of corruption. Inter-agency cooperation needs

to be further enhanced, as it is still based primarily on bilateral agreements and informal

arrangements. A national coordination unit, intended to bring together the expertise and

databases of the police, customs authorities, tax authorities and the administration for

prevention of money-laundering and financing of terrorism is yet to be created.

Overall,

good progress has been made on strengthening the strategic, legislative and

administrative framework. However, corruption remains prevalent in many areas and

continues to be a particularly serious problem. The commitment of the authorities has not yet

been backed by consistent implementation of anti-corruption legislation. While there is a

positive trend, investigation capacities and co-ordination of law-enforcement agencies remain

weak. There is insufficient supervision in the areas of financing of political parties and

conflict of interests. A solid track record of convictions in corruption cases remains to be

established, particularly in cases of high-level corruption.

2.2.

Human rights and the protection of minorities

Observance of international human rights law

As regards

ratification of human rights instruments,

some progress has been made. In

March 2009 Montenegro ratified the Optional Protocol to the UN Convention against Torture

(OPCAT) Montenegro applied to join the UN Human Rights Council in February 2009. In

June 2009, it signed the Council of Europe Conventions on Exercise of Children's rights, on

Protection of children against sexual exploitation and sexual abuse and on the Adoption of

children. It has not yet ratified the Council of Europe Convention on the avoidance of

statelessness in relation to State succession and the UN Convention on the rights of persons

with disabilities and its optional protocol.

In January 2009 Montenegro appointed a government agent before the

European Court of

Human Rights.

Regarding

promotion and enforcement of human rights,

direct implementation of

international human rights standards remains restricted to cases of conflicts with domestic

legislation. The Constitution contains no explicit provision that ratified international human

rights treaties should be applied in compliance with the practice of international bodies in

charge of interpreting them. The application of the European Convention on Human Rights

(ECHR) with regard to the period before independence has not yet been fully clarified.

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The right to appeal on the basis of the European Convention on Human Rights against

violations which occurred prior to Montenegro’s independence has not yet been clarified.

During the reporting period, the European Court of Human Rights (ECtHR) issued one

judgement finding that Montenegro had violated the ECHR. A total of 249 new applications

were made to the ECtHR since October 2008. As of September 2009, there were 404 cases

pending before the Court.

Overall,

Montenegro has made some progress on improving observance of international

human rights law. Further efforts to align legislation with international human rights standards

and to improve judicial enforcement are needed.

Civil and political rights

Some progress has been made on

prevention of torture and ill-treatment and the fight

against impunity.

The government adopted an action plan for the prevention of torture,

which aims to improve the conditions of detainees, prisoners or patients in neuro-psychiatric

institutions.

Allegations of torture and ill-treatment during arrest and detention continue to be reported. In

2008, the Ombudsman received a higher number of complaints about police ill-treatment than

in the previous year. In six cases, the Ombudsman recommended disciplinary proceedings or

criminal investigations against police officers. Civil society organisations reported an increase

in alleged police assaults in 2008. Overall, torture and ill-treatment remain a sporadic problem

in Montenegro.

The disciplinary procedure for abuse of office and exceeding official powers defined in the

Law on Civil Servants and Public Employees is not fully observed. A need remains to

strengthen internal control mechanisms and take steps to accelerate judicial intervention.

International standards and judicial practice for combating torture need to be fully applied.

As regards

access to justice,

the long duration of court procedures remains a cause for

concern. The right of citizens to a trial within reasonable time is protected by law, yet due to

deficiencies in the procedure, most claims have been rejected. Free legal aid remains limited.

The Law on Free Legal Aid has not yet been adopted. The overall backlog of court cases has

been reduced, but further efforts are necessary.

Some progress has been made regarding the

prison system.

New facilities for specific

categories of detainees have been opened. Video monitoring of detention areas has been

introduced in some police units. Some progress has been made on monitoring of detention

facilities by external bodies.

However, most detention facilities in Montenegro are not yet differentiated and specialised for

specific categories of detainees. Detention facilities lack sufficient capacity for all detainees.

Conditions in some police detention facilities are unsatisfactory. Staff in detention facilities

lacks training. Reform of the probation/parole system remains pending. Overall, conditions of

detention facilities are not yet in line with international standards and as recommended by the

Ombudsman.

Some progress can be reported on

freedom of expression.

A lengthy trial of a high-profile

murder case of a daily newspaper owner has been concluded and a conviction has been made.

Some progress was also achieved on investigation of violence against journalists. However,

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there is still cause for concern. New incidents of mistreatment have been reported.

Defamation cases against journalists continue to be used as a means of exerting pressure

against independent journalism and courts impose disproportionate fines in such cases.

Intimidating statements by state officials on the role of media and NGOs are a cause of

apprehension. The Law on Free Access to Public Information is still being implemented with

uneven results.

There were set-backs in the implementation of the Law on Electronic Communications due to

the delay in establishing the Agency for Electronic Communications and to a disagreement

between the Agency for Electronic Communications and the Broadcasting Agency on powers

regarding frequency allocation. Delays in frequency allocation procedures raise concerns

about political interference. The independence of the members of the governing council of the

Agency for Electronic Communications remains questionable, as they are appointed by the

government. Implementation of the Law on Electronic Communications remains

unsatisfactory. Media transparency remains insufficient.

Regarding

freedom of assembly and association,

there are no restrictions to report.

Some progress has been made on the role of

civil society organisations.

Several NGOs

continue to have a high public and political profile. A strategy for cooperation between the

government and NGOs was adopted in January 2009. Civil society organisations continue to

be consulted by the government and are represented in the National Council for European

Integration. However, the mechanism by which civil society members are elected to the

National Council for European Integration has to be clarified.

The number of registered NGOs has increased to 4,600, but only a small minority of them are

active. Civil society groups do not yet participate in the Radio/Television Council of

Montenegro.

As regards

freedom of religion,

relations between the major religious groups (Orthodox,

Islamic and Roman Catholic) remain satisfactory. However, the conflict between the Serbian

and Montenegrin Orthodox churches in Montenegro over official recognition and property

ownership continues.

Overall,

there has been some progress in the area of civil and political rights. However,

further efforts are necessary on prevention of ill-treatment, freedom of expression and access

to justice. The capacity and differentiation of detention facilities need to be enhanced.

Economic and social rights

Limited progress has been made on protection of

women’s rights,

including the issue of

domestic violence and protection of victims. A government campaign on violence against

women was launched in 2008. The speed of processing cases in courts and the attitude within

the police teams specialising in family violence have improved somewhat.

The number of cases of domestic violence reported to the police is still small. However,

domestic violence remains widespread. The Law on Protection from Violence in the Family

has still not been adopted. There is a lack of financial support for organisations providing

services to victims or for the victims themselves. The protection given to victims of violence

remains unsatisfactory and municipal social care centres still need to be improved. Sexual

harassment, as defined in the Labour Law, needs to be duly prosecuted.

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In the field of gender equality, some progress has been achieved. Implementation of the action

plan for gender equality (2008-2012) has started. The Office for Gender Equality has

established a forum for dialogue with civil society and a university pilot project on gender

studies. Government ministries and bodies have started reviewing documents from a gender

equality angle. Women remain well represented at working and middle management levels in

the public administration. A law which will prohibit discrimination based on gender is

pending.

Women remain underrepresented in decision-making processes and in leading positions both

in the public administration and in the private sector. Only 6% of top positions in the 2006-

2009 government mandate were occupied by women. In the new government mandate there is

one woman in a ministerial position. In parliamentary elections in March 2009 only 14% of

candidates were women, while in the new parliament only 11% of members of parliament are

women. More than 80% of the illiterate population are women. Overall, the Law on Gender

Equality has not yet resulted in mainstreaming gender equality policy in parliament, ministries

and across the public administration. Efforts in this field must be intensified.

In practice, limited progress has been made on women’s rights. Women remain

underrepresented in top public and private sector positions. It is necessary to continue

improving protection against and raising awareness of gender-based discrimination, in

particular on the labour market.

Limited progress has been achieved concerning

children’s rights.

A Deputy Ombudsman for

children’s rights has been appointed in July 2009. The council on child rights has begun to

meet on an ad hoc basis. A local day-care centre for children with disabilities was opened and

three local centres are being constructed. Efforts were made to improve school enrolment of

Roma children and avoid their marginalisation.

However, further reforms remain necessary. There is still a gap between the goals of the

national strategy on development of child and social protection and implementation in

practice. The Law on Child and Social Protection has not yet been brought into line with the

UN Convention on the Rights of the Child and with international practice. The council on

child rights has no systematic work programme. Capacity to monitor children’s rights remains

weak. Child protection from violence is inadequate, as most cases of violence against and

between children remain unreported. Capacity for data collection in the social and judicial

sectors needs to be further strengthened. Development of alternative, community-based care

services needs to be accelerated.

Concerning

socially vulnerable persons and/or persons with disabilities,

some progress

has been achieved. Laws on travel concessions for people with disabilities and on movement

of blind persons with the assistance of guide dogs were adopted. Construction of a centre for

professional rehabilitation and integration of people with disabilities and of several centres for

disabled children has begun. However, the Law on Professional Rehabilitation and

Employment of Disabled People, which places an obligation on employers to adapt their

premises to the needs of employees with disabilities, is not sufficiently enforced.

Regarding

labour rights and trade unions,

the Law on Strikes was brought into line with the

Constitution, expanding the right to strike to public administration employees.

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In the area of

anti-discrimination policies,

adoption of the Law on Prohibition of

Discrimination is still pending. Lesbian, gay, bisexual and transgender (LGBT) people are

marginalised and discriminated against in Montenegrin society.

Regarding

property rights,

a Law on Private Property Relations was adopted in March 2009.

It provides for equal treatment of foreign citizens with Montenegrin citizens on acquiring

movable and immovable property. A Law on State Property, which clearly defines the

property belonging to the State and municipalities, was adopted. However, property

restitution has been slow. The Ombudsman’s Office reported fewer complaints regarding

restitution of property in 2008, than in previous years.

Overall,

there has been limited progress in the area of economic and social rights. Major

legislation such as the Law against Discrimination and the Law on Protection from violence

in the Family is yet to be adopted. Domestic violence remains a cause for concern. The

protection of women against all forms of violence needs to be considerably strengthened.

Implementation of strategies and legislation addressing vulnerable groups needs to be

accelerated.

Minority rights, cultural rights and protection of minorities

Overall, minority rights are respected. There is a broad and adequate legal framework

safeguarding them, including

cultural rights,

on the basis of the constitution. Yet, the Law on

Minority Rights and Freedoms has not yet been harmonised with the Constitution regarding

minority representation. While preserving the existing tolerance and mutual respect between

Montenegro’s varied ethnic groups, there is a need to adopt legislation in order to address

outstanding issues in this area. Also the constitutional provision on ‘proportionate

representation’ of national minorities in public services needs to be clarified.

Montenegro needs to resolve the status of around 16,200

displaced persons

from Kosovo.

Their re-registration has been announced by the authorities. Displaced persons from Kosovo

face great difficulties in gaining access to employment, due to restrictions imposed by the

Law on Employment and Work of Foreigners. Construction of accommodation for displaced

Roma from Kosovo was initiated in June 2008. Overall, displaced persons from Kosovo live

in very difficult economic and social conditions partly due to their unresolved legal status.

Another particular cause for concern is the situation of the Konnik refugee camp close to

Podgorica.

A re-registration of displaced persons from Croatia and Bosnia and Herzegovina which has

been recently completed, has found 5,648 of them residing in Montenegro. A legal framework

to address their status has been put into place. Displaced persons can either be registered as

refugees if they fulfil the requirements of the Law on Asylum, and subsequently be able to

apply for Montenegrin citizenship, or as foreigners with permanent residence under the Law

on Foreigners. Montenegro must ensure the effective implementation of these laws. Between

March 2008 and September 2009, a total of 270 displaced persons acquired Montenegrin

citizenship by naturalisation. The European Partnership priorities regarding abolition of all

discriminatory provisions in key fields, affecting refugees and displaced persons and creating

the conditions for integration of those who choose to remain in Montenegro, have not yet

been fulfilled.

The situation of the

Roma, Ashkali and Egyptian

(RAE) communities remains a cause for

concern. A census conducted by the national statistical office in October 2008, has found a

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total of more than 10,000 RAE in Montenegro. However, this figure is disputed by Roma

representatives. The government is cooperating with international organisations and civil

society groups on projects to improve the situation of the RAE population in line with the

strategy under the Decade of Roma inclusion initiative. Regarding access to education, there

has been some progress on enrolment of RAE pupils in primary and secondary schools and on

addressing marginalisation in schools. The Ministry of Education and Science has dispersed

RAE pupils across schools to avoid segregation, introduced a policy of affirmative action to

secure acceptance of RAE students in secondary schools, conducted an awareness-raising

campaign to encourage acceptance of RAE pupils, and special training for teaching RAE

pupils.

However, further efforts are needed to improve the situation of the RAE population. As

regards education, scholarship funding for RAE students remains at a token level and almost

fully dependent on external donors. The unemployment rate among the Roma population

remains around 80%, while the illiteracy rate is around 70% and even higher among women.

There remains a lack of appropriate housing for the RAE community. Although the strategy

recognises the lack of documentation and civil registration amongst the RAE population, only

limited efforts have been made, in the form of encouraging local authorities to register the

RAE population. It is estimated that a big percentage of the RAE population currently lack

birth or citizenship certificates. The social and economic situation of the RAE population in

Montenegro remains a cause for serious concern. They face marginalisation and lack of

integration into society.

Overall,

there has been some progress on strengthening the framework for minority

protection. However, implementation is still lagging behind,

inter alia,

due to the lack of

reliable data and a relatively limited budget. Montenegro must effectively resolve the status of

displaced persons and work on improving their access to economic and social rights, which

remains limited. Roma continue to face very difficult living conditions and discrimination,

particularly regarding access to education, social protection, health care, employment and

adequate housing.

2.3.

Regional issues and international obligations

Satisfactory cooperation with the

International Criminal Tribunal for the former

Yugoslavia (ICTY),

a key European Partnership priority, is continuing.

Investigation and court proceedings in Montenegro’s limited number of domestic

war crimes

cases made headway or were concluded in cooperation with other countries in the region. The

"Kaluđerski Laz" and "Morinj"

trials are continuing. In April 2009 investigation of the

"Bukovica"

case was completed. The government agreed to pay an out-of-court

compensation settlement to the survivors and families of the victims of deportations of

Bosnian civilians in 1992. Several persons have been indicted for this crime. An investigation

was opened by the Chief Prosecutor in 2009 concerning possible war crimes by former

Yugoslav army pilots in Dubrovnik in the 1990s.

In the "Kaluđerski Laz" case, charges have been brought against eight people. The victims were

civilians of Albanian origin. In the "Morinj" detention camp case, charges have been brought against six

persons.

In the Bukovica case, charges have been brought against seven persons. The victims were civilian

muslims.

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Montenegro maintains the 2007 bilateral immunity agreement with the United States granting

exemptions from the jurisdiction of the

International Criminal Court.

This does not comply

with the EU Common Positions on the integrity of the Rome Statute or the related EU guiding

principles on bilateral immunity agreements. Montenegro needs to align with the EU position.

Montenegro adopted a Law on Cooperation with the ICC in July 2009.

There has been little progress in the

Sarajevo Declaration

process which aimed to finalise

the regional refugee return process by the end of 2006. While Montenegro continued to work

to a greater or lesser extent on its roadmap, there has been limited discussion on

implementation issues on either a bilateral or a regional basis.

Regional cooperation

and good neighbourly relations form an essential part of the process of

moving towards the European Union. Montenegro is actively participating in regional

initiatives, including the South East European Cooperation Process (SEECP) and will take

over its chairmanship in 2010-2011. Montenegro is also actively involved in the Regional

Cooperation Council (RCC). In 2009 Montenegro holds the chairmanship of the Central

European Free Trade Agreement (CEFTA) and also participates in the Energy Community

Treaty and the European Common Aviation Area Agreement (ECAAA).

The Regional School for Public Administration (ReSPA) in Danilovgrad near Podgorica has

become operational.

Montenegro has continued to foster good

bilateral relations with other enlargement

countries and neighbouring EU Member State

Italy. Cooperation with neighbouring

countries intensified particularly in the areas of cross-border cooperation and science and

technology.

Relations with

Albania

have developed further. Agreements on cooperation in science and

technology and in culture were signed and concrete steps against organised crime taken. The

construction of the joint border crossing point at Muriqan/Sokobine was completed.

Relations with

Bosnia and Herzegovina

have further intensified. Following the signature of

the Agreement on cross-border cooperation, joint border patrols have been set up. Agreements

on cooperation in the areas of culture, education and science as well as a readmission

agreement have been signed.

Cooperation with

Croatia

has been further strengthened. An agreement on protection of

minorities was signed. The joint working group on resolving property issues and the council

on economic relations both held meetings. An agreement on cooperation in science and

technology was signed. Progress has been achieved towards settling the bilateral border issue

between Croatia and Montenegro. The two countries have been co-operating on preparing

their submission to the International Court of Justice on delimiting the border at Prevlaka. The

temporary border agreement is functioning well.

Cooperation with

the former Yugoslav Republic of Macedoniа

has been strengthened. An

agreement on dual citizenship was signed, as were agreements on cooperation on EU affairs,

air traffic, tourism, agriculture and protection in the event of natural disasters. Defence

cooperation has been intensified. Negotiations on an agreement on social security are

ongoing.

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Relations with

Serbia

continue to be affected by the Montenegrin decision to recognise

Kosovo’s independence. The Montenegrin Ambassador was declared

persona non grata

October 2008. A new Ambassador was accredited to Belgrade in September 2009.

Cooperation in the defence sector was good and the Serbian Minister for Defence visited

Podgorica in February 2009. The Montenegrin President visited Belgrade in May 2009.

Economic cooperation remains good. On the basis of a bilateral agreement, Serbian

diplomatic and consular missions in some countries continue to provide services to

Montenegrin citizens. Negotiations on dual citizenship are ongoing but progress has been

limited. Agreements on judicial cooperation and joint border patrols were signed. Police

cooperation in the fight against organised cross-border crime was strengthened. Talks on

border demarcation are ongoing.

Relations with

Turkey

have remained good. Agreements were signed on free trade and on

bilateral defence cooperation.

Bilateral relations with

Italy,

Montenegro's neighbouring EU Member State, have further

developed. The EU is Montenegro’s main trading partner.

Overall,

Montenegro has further improved its active cooperation in the region, by intensifying

its participation in multilateral initiatives and organisations and by further fostering bilateral

relations.

CONOMIC CRITERIA

In examining the economic developments in Montenegro, the Commission’s approach was

guided by the conclusions of the European Council in Copenhagen in June 1993, which stated

that membership of the Union requires the existence of a functioning market economy and the

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

3.1.

The existence of a functioning market economy

Economic policy essentials

Montenegro submitted its third Economic and Fiscal Programme (EFP), covering the period

2009-2011, by the end of January 2009. However, its assumptions became very quickly

outdated due to the crisis. Yet, the fiscal strategy of the government continued to focus on

keeping the budget deficits within 3% of GDP in both 2009 and 2010 despite the negative

impact of the crisis and the cost of the measures adopted to mitigate its effects. Meanwhile,

the government coalition partners overcame some of the previous discrepancies of views on

economic policy.

Overall,

the domestic consensus on economic policy essentials has been

maintained.

Macroeconomic stability

The economy continued to grow strongly at around 8% in real terms in 2008 driven by strong

demand and, on the supply side, by construction and services. However, at the end of 2008

industrial output contracted on the poor results of manufacturing, and the metal industry in

particular. This sector suffered from decline in external demand in the context of the

international crisis and the subsequent collapse of commodity prices. In the first half of 2009

the economy contracted by 3.5%, as the negative effects of the crisis extended to several key

sectors (i.e. basic metals, financial services, and construction). Industrial production

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contracted on average by 20% year-on-year in the first six months of 2009, as manufacturing

output went down by 33%. Only three manufacturing industries (chemicals, foodstuffs and

printing) and the utility sector expanded in the first half of the year compared with the

previous one. On the other hand, after a bad spring the tourism industry recovered during the

summer. Yet, as a consequence of the robust economic growth witnessed during most of

2008, Montenegro’s per capita income, measured in purchasing power standards (PPS), rose

to 46% of the EU27 average, compared with 41% a year earlier.

Overall,

after the high

growth in 2008, the economy contracted in 2009 mainly due to the impact of the global crisis

on the real economy.

In 2008, the current account deficit remained very large at 29% of GDP, despite the strong

cutback in merchandise imports (45% year-on-year) in the last quarter of the year due to the

sharp deceleration of the banks’ lending activity. The surplus of the balance of services was

on a declining trend. The factor income balance deteriorated in 2008, as compensation paid to

the increasing number of foreign workers outpaced incomes from Montenegrins working

abroad. The cool-down of the real estate market in 2008 resulted in a decline of FDI inflows

by 17.4% year-on-year. Yet, the sizeable outflows associated to this market also decreased,

which contributed to sustain net FDI levels at 17% of GDP. Foreign loans increasingly

covered the financing gap of the current account deficit. The moderation of both domestic

demand and imports related to foreign investments continued during the first half of 2009,

resulting in a significant narrowing of the trade deficit by 36.6% year-on-year and a moderate

contraction of the current account deficit to 22% of GDP (annualised). The faster decrease of

FDI outflows by 53.2% over the year offset the decline in inflows (16.6%), so that on a net

basis FDI still expanded to 16% of GDP, covering 80% of the current account deficit.

Overall,

as a consequence of the crisis, the large current account deficit declined until June

2009, while net FDI remained resilient.

The labour force survey (LFS, according to the ILO definition) revealed that the

unemployment rate declined by 3 percentage points to 16.8% during 2008. More recent data

from the Employment Agency shows that the official unemployment rates for 2009 also

continued contracting until end-August. Meanwhile employment continued growing during

2009 by some 5% year-on-year. The unbalanced regional distribution of the workforce and its

limited mobility remain a rigidity factor, favouring continued inflows of foreign workers. Yet,

the government relies on the significant share of temporary non-resident workers to cushion

imbalances on the local labour market.

Overall,

labour market indicators improved on

favourable seasonal effects, despite diminishing economic activity.

In 2008 macroeconomic stability was also challenged by high prices. Yet, after peaking in

August 2008 close to 10%, the average annual inflation declined to 7.4% by the end of the

year. The consumer price index further slowed down to 2.1% year-on-year in July 2009 as

housing and transport prices exerted a downward pressure. With the euro as sole legal tender

the room for autonomous monetary policy remained limited. The Central Bank of Montenegro

(CBCG) continued to use prudential requirements, in particular reserve requirements, as

intervention tools. The CBCG has been very active trying to preserve the stability of the local

Montenegro unilaterally uses the euro as legal tender, without participating in the euro area. In October

2007 the Council adopted a declaration on the

de facto

use of the euro in Montenegro which is due to

exceptional circumstances.

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financial system. In autumn 2008 the growth of broad money supply

turned negative due to

serious withdrawals of bank deposits. The CBCG intervened by urgently adopting a set of

measures for protecting the banking system, consisting in a full guarantee for deposits and the

possibility of government credit support for eventual liquidity shortfalls of banks.

Overall,

inflation has been decelerating as the economy cooled down.

The lending activity of commercial banks expanded by 23% year-on-year in 2008, as

compared with 165% a year before. The moderation was initially the consequence of the

Central Bank measures to bring the lending boom down to sustainable levels. The credit

portfolio reached 83% of GDP in 2008 up from 80% a year earlier, while bank deposits

declined by 6.7% year-on-year. During the first half of 2009 the liquidity shortage triggered

by the withdrawal of deposits constrained the lending capacity of the banking sector. The

contraction of deposits reached 11.7%, while credit growth dropped by 5.9% since the start of

the year.

Overall,

the liquidity of the banking system was challenged by the problems in the

second largest lender and the effects of the global financial crisis.

In 2008 the budget execution yielded a surplus of 0.5% of GDP. Consolidated public

expenditures increased significantly, reaching 44% of GDP from 41% of GDP in 2007,

boosted by rising transfers to social security institutions and to households. This expansionary

increase in spending commitments put additional pressure on fiscal policy as of early 2009,

when the local repercussions of the crisis resulted in lower fiscal revenues than planned.

Nonetheless, the authorities reacted promptly by curtailing spending and still maintaining a

budget surplus of 0.4% of GDP in the first half of 2009. The government revised the 2009

budget in July, notably by reducing capital investments, expenditures in goods and services

and planning wage cuts in public administration, in order to maintain the deficit at 2.6% of

GDP. Loans from foreign private banks were subscribed and a minority stake in the power

utility (EPCG) was sold to a foreign partner. However, other fiscal risks, in particular the

contingent liabilities linked to the restructuring packages for the metal industries and the

liquidity problems in the banking sector.

Overall,

public finances have come under increased

pressure in 2009, but the authorities managed to limit the deficit by curtailing spending,

borrowing and selling assets.

In 2008 the public debt remained broadly unchanged in GDP terms at 26.8%. Public debt

further increased in the first half of 2009 to 28.4% of projected annual GDP. Public domestic

debt increased by 9% since the beginning of the year, while the public external debt grew

faster, by 15% since end-2008, mostly due to investments in infrastructure co-financed by

international financial institutions. During the third quarter of 2009, the government

subscribed two loans worth 3.4% of GDP from foreign private banks for financing the state

budget, bringing public debt above 30% of GDP at the end of the year.

Overall,

debt

obligations are rising due to infrastructure spending and loans to finance the emerging budget

deficit.

Macroeconomic policy has been driven to a large extent by the financial crisis. It focused on

implementing a more prudent fiscal policy and accelerating structural reforms in several

sectors. For instance, developing a more market-oriented approach to highway construction

by involving the private sector through Public-Private Partnerships (PPPs), reducing the fiscal

The broad measure of money (M21) aggregate consists of deposits of banks with the Central Bank and

demand and term deposits with banks and the Central Bank, in euros and other currencies, including

deposits of the central government.

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burden on labour to increase competitiveness, or developing the legislative framework for the

financial system with the adoption of legislation based on EC Directives. The Central Bank

has also contributed to macroeconomic stability by timely adapting monetary policy to fast-

evolving circumstances. In 2008 the CBCG introduced a restrictive policy to reduce the

exposure of the economy to the surge of a credit bubble. In 2009 it reversed its path, easing

reserve requirements to release more liquidity into the financial system.

Overall,

structural

reform policies combined with a timely adaptation of the fiscal and monetary policy to the

international crisis impact, are contributing to recovery.

Interplay of market forces

The share of the private sector in the economy is very large as the public sector is mostly

reduced to network industries (utilities and transport). Moreover, the influence of the public

sector in price dynamics is practically limited to the energy sector. The energy regulator

establishes electricity prices in relation to production cost thresholds. In June 2009, the

Administrative Court annulled the energy regulator’s decision to increase electricity prices.

As a result, some €20 million from the overhead prices are being returned to consumers

gradually by decreasing prices for electricity until the debt is settled. The privatisation process

also suffered from the global crisis as some successful bidders failed to conclude a sales

agreement. This was notably the case with the auctions of the tobacco retailer Duvankomerc,

and the publisher Pobjeda. A few publicly owned companies failed repeatedly to attract

interest from investors, such as the appliances factory Obod or the insurance company

Lovćen. In these cases, new privatisation methods are proposed and companies are being

slated for sale again. Further progress has been recorded in the privatisation of key energy and

transport systems. The government sold a minority stake in the power utility (EPCG),

providing the possibility for the new partner to acquire majority control of the company after

five years. The railway transportation company and the port of Bar have already established

their freight units as completely independent companies, preparing their privatisation through

concession deals. However, restructuring of the aluminium and steel plants remains a

considerable challenge.

Overall,

the privatisation process is quite advanced and state

intervention in the economy has remained limited except for temporary rescue operations in

strategic sectors such as basic metals and banks.

Market entry and exit

The Council for the elimination of business barriers, established in mid 2008, continued its

activity in 2009. Achievements in the relevant period included the simplification of

administrative procedure for obtaining construction permits and reviewing technical

documentation and enhancement of transparency through the relevant authorities' obligation

of publishing related documentation on their website. The operation of new trade outlets does

not require any longer municipal license but a simple announcement of intent for record

purposes. In addition, the authorities have also established a website for gathering online

requests from entrepreneurs to remove further barriers. However, electronic signature

legislation still needs to be implemented in order to benefit from the full potential of online

business and administrative transactions. Market exit procedures have been reduced to six

months on average. In the first half of 2009, in spite of the crisis, registration of new

enterprises continued at an average of 212 new limited liability companies per month

compared with 284 during 2008. During the first five months of 2009 the Commercial Court

registered 134 bankruptcy procedures, a similar number to that recorded during the same

period a year before (138). The backlog of ongoing cases decreased to 139, practically

converging with the number of newly opened files. Additionally, 284 companies applied for

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voluntary liquidation under the Law on Insolvency, and were subsequently removed from the

registry of the Commercial Court.

Overall,

market entry has improved and exit procedures

have been further streamlined.

Legal system

Three key pieces of legislation regulating property rights were adopted in 2009. The

Concession and the State Property Laws introduced more comprehensible concession rights

on public properties and resources, with the possibility of extension of such contracts up to 90

years. The Property Relations Law provides the same treatment to foreign citizens as to

nationals for acquiring movable and immovable property, although some limitations still

remain for foreigners purchasing agricultural land, for which the new law provides long-term

leasing as an alternative. Recourse to the judicial system increased as previous reluctance to

resolve commercial disputes through official circuits is fading away, also due to the negative

effects of the crisis. During the first half of 2009 the Commercial Court received 5,200 cases

(compared with 1,279 a year before). However, the large informal sector is fuelled by

weaknesses in tax and expenditure policies, as well as in law enforcement, including the fight

against corruption and organised crime. The informal sector remains an important challenge,

as it reduces the tax base and the efficiency of economic policies.

Overall,

the new property

laws improved legal certainty facilitating foreign investors’ engagement in large projects.

However, the fight against corruption and tackling the large informal economy remain major

challenges.

Financial sector development

The size of the banking sector in terms of assets stabilised at 99% of GDP by the end of 2008,

compared with 106% a year earlier. However, banks assets further contracted to 88.7% of

GDP by end-June 2009 as deposit withdrawals and negative lending growth persisted. The

sector remained highly concentrated, with three banks holding 63.9% of the banking sector’s

assets and 58.8% of total deposits. Excessive risk taking by Prva Banka -the second largest

bank- without due concern for prudent banking practices, resulted in stability risks for the

whole sector. Faced also with the effects of an international crisis threatening the domestic

market, the Central Bank together with the government adopted several measures for the

protection of the banking system. A full guarantee for all deposits, and the possibility of

government credit support for liquidity shortfalls or for recapitalisation were granted. In an

attempt to improve positions of both lenders and debtors and to create more space for bank

lending activities, the CBCG also introduced additional measures to create more favourable

conditions for loans restructuring and further reduced the rate of mandatory reserves on

existing deposits to 10%, with no reserve requirements for new deposits. The government also

intervened by providing a credit support of € 44 million (about 1.3% of 2008 GDP) to Prva

Banka in exchange for this bank's shares placed as collateral. The bank has meanwhile

managed to repay 75% of the loan. The withdrawal of deposits set off in October 2008,

occurring at a rate of 18% until February 2009, moderated to an average monthly contraction

of 0.2% in the second quarter of 2009. As a result, during the first half of 2009 the banking

system lost deposits for some 5.7% of GDP, most of it from the two biggest banks. End-June

2009, the average capital adequacy ratio came down to 11.9%, close to the stipulated 10%

minimum level, while the ratio of non-performing loans

climbed to 8.9%, compared with

Considering the Central Bank of Montenegro’s stricter classification of past-due loans as any loan that

is past due for more than 61 days, compared with the Basel II classification of after 90 days.

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3.9% a year before. In June 2009 the average weighted effective lending interest rate peaked

at 9.38%, while the weighted average deposit effective interest rates recorded 3.80%, down

from 9.40% and 4.10% respectively in December 2008.

Overall,

the stability of the financial

system was maintained under very difficult circumstances.

The domestic insurance market further expanded by a more modest 18% year-on-year in

2008, following a 28.7% expansion of billed premiums a year before. End 2008 there were 11

companies active in the sector, after several new firms entered the market. The sector remains

highly concentrated, with one company holding a 61% market share. The industry accounts

for some 3% of GDP and is primarily made up of compulsory insurance. Its life insurance

segment is developing fast from a very low base and accounted in 2008 for some 12% of total

premiums (compared with 4.5% a year before). The leasing market continued its rapid

expansion in 2008, increasing contract value by 42.2% year-on-year, representing 4.9% of

GDP (compared to 4.1% a year before). The majority of leasing contracts relate to real estate

and vehicle purchases. The two stock exchanges showed signs of recovery in May 2009 as the

markets were positively influenced by the sale of a minority stake in the power utility EPCG.

In May, after more than one year of continuous deterioration, the aggregate capitalisation rose

to 147% of GDP, from 116% in the previous month.

Overall,

while the non-banking financial

sector continued expanding, capital markets went through a severe correction.

3.2.

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

Union

Existence of a functioning market economy

Quick responses to a fast-changing and difficult global economic environment prevented a

deep deterioration of macroeconomic stability, as employment was preserved, prices

moderated and the public deficit was contained. Macroeconomic stability was seriously

challenged by an expansionary fiscal stance in 2008, followed by liquidity problems in the

banking sector, and current contingent liabilities in the metal sector. Apart from direct support

to metal smelters and one bank, the authorities’ rescue plans focused on accelerating

structural reforms and preserving the stability of the financial system. To this end, the

government provided credit guarantees to international banks for extending loans to domestic

lenders which freely decided on the final allocation of credit.

Overall,

the functioning of

market mechanisms was challenged by the magnitude of adjustments taking place in the

external accounts and the financial sector.

Human and physical capital

In the context of still persistent labour demand, several educational reforms were

implemented to align the supply side with market requirements, not least the Law on National

Vocational Qualifications, and the strategies for introducing didactic software in education

and for establishing the qualification framework. For young managers having already

graduated, the Agency for Employment (ZZZ) together with the Directorate for Small and

Medium-Sized Enterprises (SMEDA) implemented practical training programmes. The

Agency continued its activities with academic institutions, providing professional guidance,

but also adopting programmes for the integration of minorities into the workforce as well as to

improve work participation rates, especially in the poorer northern region.

Overall,

the skills

mismatch remains an important issue. In some labour intensive sectors the country needs to

resort to foreign workers to sustain economic growth.

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Gross fixed capital formation (GFCF) as a share of GDP reached 24% in 2007. Estimates for

2008 suggest a ratio of 30% of GDP. Almost 40% of FDI invested in 2008 went into real

estate, 30% in domestic companies and banks and a similar amount in intercompany debt

(namely foreign banks towards local subsidiaries). Public capital spending increased in 2008,

reaching 9.3% of GDP, compared with 6.7% a year earlier. However, during the first half of

2009, further moderation in credit expansion and budget spending cuts reduced capital

formation.

Overall,

worsening economic conditions did not stop restructuring in energy and

transport as well as the launch of major concessions for private investments in tourism and

highways.

Sectoral and enterprise structure

The crisis exacerbated the weakness of the main industries of the country –basic metals

production– already hampered by excessively high production costs. To restructure and

address the structural problems of the aluminium smelter, and the more cyclical ones of the

steel mill, the government provided credit guarantees and a redundancy programme to

proceed with technological upgrades and labour cuts. In the energy sector, after the separation

of the transmission unit from the power company (EPCG), establishing tariffs for the use of

the network and the adoption of secondary legislation, all necessary preconditions were

formally met for the development of competition and establishment of the electricity market.

Meanwhile, the government sold in July a minority stake in the utility, retaining a 55% share.

The new partner may later acquire majority control in EPCG subject to successful

implementation of the investment programme. The railway transportation company and the

port of Bar separated their freight units, thus preparing the ground for their privatisation also

with a view to securing the necessary capital for their modernisation. The national air carrier,

Montenegro Airlines, implemented the first stage of its restructuring by transformation into a

shareholder company.

Overall,

a significant restructuring of strategic enterprises and sectors

is underway.

The structure of the economy continued shifting towards services. More than 70% of total

employment during 2008 was recorded in services. Public administration employees

in total

services decreased by 2%, while the private sector witnessed an increase of 4% year-on-year,

driven by large increases in the number of hotel and restaurant workers, but also transport and

financial activities. Yet the largest share of tertiary labour remains wholesale and retail trade

(20% of total labour). The industrial sector represented 22% of the total workforce, but is on a

declining trend. The participation of workers in agriculture, forestry and fishing represented

some 8% of total employment.

Overall,

most of the advertised employment vacancies (63%)

concerned jobs in tourism, construction and trade sectors, confirming that the economic shift

to these activities continues.

Small and medium-sized enterprises (SMEs) are proving their resilience as the number of

bankruptcies in 2009 remained at the same level as a year before although the number of

unpaid invoices reported by the Central Bank payment system has been rising. The SME

sector represents some 60% of GDP and employs 67% of the total workforce. Most

companies (77%) have less than 10 employees and deal largely in retail and repair services.

They still face a number of persistent difficulties, such as revolving existing loans, obtaining

municipal permits or the absence of spatial planning documents.

Overall,

SMEs went through

Including: public administration, social insurance, education, health and social workers.

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very difficult conditions, confronting increasing payment arrears, diminishing demand and

stricter conditions to obtain bank loans.

State influence on competitiveness

Government intervention in the economy expanded with the adoption of several initiatives in

support of those sectors most affected by the crisis, namely banking and metallurgy. Since the

start of the crisis until mid-2009 state guarantees amounted to 9% of GDP, of which 42%

were for loans to the aluminium complex KAP and the bauxite mine RBN (partially

renationalised), 47% to banks and 8% to the steel mill Niksic. The measures approved to

protect banks depositors benefited both local and foreign lenders operating in the country. The

authorities also adopted a programme reducing electricity prices for the most vulnerable

categories of the population, as well as for SMEs. In addition, the major industrial companies

(the steel mill and the aluminium factory) saw their temporary subsidies for the purchase of

electricity extended on condition of achieving major restructuring.

Overall,

increased state

intervention occurred as a reaction to the unfolding crisis.

Economic integration with the EU

As a consequence of the crisis the annualised level of openness of the economy decreased in

the first half of 2009 to 50.6% of GDP, from 83% a year earlier. The main foreign destination

for domestic products remains the EU, which accounts for 57.8% of the total (down from

64.6% in 2008), followed by CEFTA countries (40.2%, up from 33.4% in 2008). The

reversed trend was confirmed for imports, which mostly originate from neighbouring CEFTA

countries (53.3%, up from 50% a year before), followed by the EU (38.2%, down from 41.4%

in 2008).

Overall,

trade openness remained high, although the severe contraction of the metal

industry brought down the main export of the country, traditionally oriented to the EU market.

UROPEAN STANDARDS

This section examines Montenegro's capacity gradually to approximate its legislation and

policies to the

acquis

related to the internal market, sectoral policies and justice, freedom and

security, in line with the Stabilisation and Association Agreement and the European

Partnership priorities. It also analyses Montenegro's administrative capacity. In each sector,

the Commission's assessment covers progress achieved during the reporting period and

summarises the country's overall level of preparations.

4.1.

4.1.1.

Internal market

Free movement of goods

Some progress can be reported on

standardisation.

The internal rules and procedures have

been drafted for the Institute for Standardisation (ISME) which is responsible for planning,

developing, approving, publishing and maintaining Montenegrin standards and related

documents. ISME has increased its staff to 16 and moved to new premises which provide the

necessary working conditions. Besides the database developed under the former State Union,

Montenegro is currently developing its own database of national standards. ISME has so far

adopted about 1,800 Montenegrin standards, of which 85% are European standards. ISME has

begun to develop a network of technical committees involving all the main stakeholders

(professional associations, scientists and government authorities) in the most relevant sectors.

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In July 2009 ISME became an affiliate member of the European Committee for

Electrotechnical Standardisation (CENELEC).

Limited progress can be reported with

conformity assessment.

The government has adopted

by-laws implementing the Law on Technical Requirements and Conformity Assessment.

These include decrees on methods and procedures for conformity assessment of products and

procedure of notification in the area of technical regulations, standards and conformity

assessment procedures. Enquiry points for technical regulations and standards have yet to be

established.

Limited progress can be reported in the field of

accreditation.

The new Law on Accreditation

was adopted in July 2009. The Accreditation Body of Montenegro (ABM) signed a

contractual agreement with the European co-operation for Accreditation (EA) in November

2008 and became an associate member of the International Laboratory Accreditation

Cooperation (ILAC) in April 2009. It received a number of applications but accredited no new

bodies. Improving coordination with other parts of the quality infrastructure and enhancing

the administrative capacity of the ABM itself are preconditions which must be met before the

quality infrastructure can function properly.

Some progress has been made as regards

metrology.

A new Law on Metrology was adopted

in December 2008. A by-law on legal units of measurement was also adopted in February

2009. The Bureau of Metrology has a staff of 28 out of the 34 planned. The bureau became an

associate member of WELMEC (European Cooperation in Legal Metrology) in April

2009.Conditions in five laboratories (for mass, length, electrical quantities, temperature and

pressure) are still not up to the required standard.

There has been limited progress in the area of

market surveillance.

The administrative

capacity of the Market Inspectorate and of the other authorities carrying out market

surveillance activities has been strengthened. However, by-laws necessary to implement the

Law on General Product Safety have not been adopted yet. Among these are also rules on

methods of exchange of information on dangerous products which would set the legal basis

for the Market Inspectorate to become the future national contact point for the RAPEX system

in the future. Further efforts are needed to raise administrative capacity in this field, to

develop and implement a market surveillance strategy with adequate coordination and

cooperation between relevant authorities, to create a market surveillance information

exchange system and to introduce modern risk assessment techniques for market control.

Good progress was made in the area of

consumer protection.

The focus was on

implementing the national consumer protection programme (NCPP) and the corresponding

action plan. The government adopted a report on the first year of implementation of the NCPP

(April 2008–March 2009). Cooperation with NGOs dealing with consumer protection was

strengthened as a result of implementation of the NCPP and for the first time the State

provided funds to NGOs for consumer protection-related activities. Twenty members of the

arbitration board on consumer protection, the body in charge of out-of-court settlement of

disputes, were appointed in December 2008 for a four-year mandate. The first case was

handled and other cases are now before the board waiting for decision. Awareness-raising

activities on the existence and purpose of the arbitration board are needed, along with further

development of the capacity of board members.

Overall,

preparations in the area of free movement of goods continued, even though they are

not very advanced in the area of market surveillance. Montenegro still needs to strengthen its

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institutional and administrative capacity further, improve cooperation between the relevant

State institutions and accelerate transposition of the product-specific

acquis

into its national

legislation.

4.1.2.

Movement of persons, services and right of establishment

Further progress has been made on

movement of persons

and access to the labour market.

The Law on Employment and Work of Foreigners, regulating the movement of labour force

by introducing a work permit system with annual quotas entered into force in January 2009.

By-laws necessary for the implementation were adopted, including one to fix the quota of

work permits for foreigners in 2009. The Law on Foreigners relating to terms and conditions

of entering, movement and stay of foreigners was adopted in December 2008.

As regards

coordination of social security,

the social insurance agreements ratified between

Montenegro and Luxembourg, Hungary and Switzerland brought significant improvements

for Montenegrins working abroad.

In the process of finalising negotiations for accession to the World Trade Organisation

(WTO), Montenegro ensured extensive liberalisation as regards freedom to

provide services.

Work permits and quotas as foreseen by the mentioned Law on Employment and Work of

Foreigners apply also as precondition for individual cross-border service-providers. No work

has been done on the distinction between the arrangements applicable to cross-border

provision of services by EU operators in Montenegro and to service-providers established in

Montenegro.

There has been some progress in the banking sector. Following adoption of the Law on

Banks, the Central Bank adopted a further set of related by-laws to be implemented by all

banks by March 2009. In particular, the minimum capital adequacy ratio was increased from

8% to 10% and the system for reporting by banks was improved by direct connection with the

Central Bank. The Central Bank concluded memoranda of understanding with a number of

home supervisors of foreign banks, covering seven of the nine countries which operate bank

subsidiaries in Montenegro. In response to the global economic crisis, in October 2008 the

government adopted a Law on Measures for Protection of the Banking System and related

implementing legislation, to be applied until the end of 2009. The law provides for a full

government guarantee for the deposits of physical and legal persons. In addition it provides

the possibility of government guarantee for inter-bank loans against shares as collateral,

government credit support, Central Bank short term loans and provision of additional capital

or obligatory capital provision for individual banks. These last are also allowed to temporarily

use of up to 50% of their mandatory reserves.

Further alignment with the

acquis

is still required, in particular regarding the Capital

Requirements Directive. Further strengthening of administrative capacity is still needed,

particularly of supervisory capacity with an increased focus on risk-based supervision,

consolidated supervision and cross-sector and international cooperation, including with home

supervisors.

The institutional framework for supervision of the non-banking financial sector continued to

improve. Thirteen by-laws related to the umbrella laws on insurance and several by-laws

related to securities were adopted. The agency for insurance supervision recruited additional

staff, bringing the total to 10 out of the 17 planned. Further recruitment of staff and upgrading

of implementation capacity are needed. In February 2009 the Securities Commission signed

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the Multilateral Memorandum on Cooperation with the International Organisation of

Securities Commissions (IOSCO).

As far as postal services are concerned, a strategy for the postal sector was adopted in

December 2008.

Limited progress can be reported on the

right of establishment.

The Property Relations Law

introduced the same treatment to foreign citizens as to nationals for acquiring movable and

immovable property, however with some limitations for agricultural land, providing for long-

term leasing as an alternative (See

points 3.1 The existence of a functioning market economy,

and 4.1.3. Free movement of capital).

No progress can be reported on recognition of

professional qualifications. An updated operational plan for elimination of business barriers

has not yet been developed.

No further progress can be reported regarding

company law.

A Law on Insolvency

Procedures is at the drafting stage and the draft Law on Takeovers of Joint Stock Companies

is before the government.

Some progress has been made in the areas of accounting and auditing. Amendments to the

Law on Accounting and Auditing introduced,

inter alia,

requirements on the transparency of

reporting, quarterly electronic reporting and supervision. The new law provides for

establishment of an accounting and auditing council, an advisory body to promote accounting

and auditing regulation and good practices. The government adopted a strategy and action

plan to promote financial reporting. However, gaps remain in establishment of an independent

public oversight system. The division for accounting and auditing in the Finance Ministry

currently carries out inspections but is understaffed. The planned supervisory authority has yet

to be established.

Overall,

in the areas of free movement of persons, services and right of establishment,

Montenegro partly meets the targets and priorities set.

4.1.3.

Free movement of capital

There has been further progress in the field of free

movement of capital.

A Law on State

Property and a Law on Property Relations were adopted in February 2009. Conditions for

acquisition of movable and immovable property have been clarified, however some

restrictions remain on foreign natural and legal persons owning property in Montenegro and

therefore the new legal framework does not yet allow treatment completely equivalent to that

given to Montenegrin nationals. Limits are imposed on acquisition of ownership rights over

inter alia

forests and forest land, agricultural land, cultural monuments of special importance,

real estate within one kilometre of the land border or islands.

With reference to

payment systems,

a new Law on National Payment Operations was

adopted in October 2008, regulating transfers of funds, inter-bank transfer settlements,

electronic means of payment and establishment and control of payment operations. Twelve

related by-laws were also adopted.

Overall,

Montenegro has met the priorities and objectives set in the area of free movement of

capital.

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4.1.4.

Customs and taxation

Further progress was achieved in the area of

customs.

The customs tariff nomenclature was

harmonised with the 2009 EU Combined Nomenclature and duties were reduced in line with

the Interim Agreement. The Convention on Temporary Admission (Istanbul Convention) was

ratified. Fees for customs services have been harmonised with Article VIII of GATT, but not

yet with the SAA and the

acquis.

In relation to the previous year the total amount of duties and taxes collected by the customs

administration increased by 6.5%. New division and database for dealing with infringements

of intellectual property rights has been set up within the customs administration (See

point

4.1.7 Intellectual property law).

A joint border crossing point with Albania became

operational in June 2009. Further training on rules of origin, valuation of imported goods and

protection of intellectual property rights was organised for both customs officers and

economic operators. An agreement on integrated border management has been signed with the

police and the health administration. Montenegro signed with Serbia an agreement on

facilitating border controls on goods transported by rail. An agreement on mutual assistance

on customs matters with Moldova was signed and ratified by parliament. Montenegro also

participates in a regional project in order to exchange pre-arrival customs information with

neighbouring countries, in order to facilitate trade and enforce customs legislation. To

enhance cooperation with EU customs administrations and the Commission, Montenegro

asked to join the Community’s Customs 2013 Programme. The customs administration

currently employs 579 staff out of the 669 planned. Recruiting and retaining staff is a

recurring problem, which weakens the administrative capacity of the institution. No business

or IT strategy has been adopted.

Overall, legislative alignment with the

acquis

is well on track and the customs administration

has been able to manage implementation of the SAA. However, further alignment is still

required in areas such as origin, transit and simplified procedures, customs valuation and

customs fees. A business and IT strategy needs to be developed and attention needs to be paid

to strengthening the administrative capacity in terms of project management skills and quality

assurance. The fight against corruption remains a key priority.

Further progress can also be reported on

taxation.

With reference to direct taxation, personal

income tax was reduced from 15% to 12%. In the case of corporate taxation, legislative

amendments cut the tax rates on dividends from 15% to 9% and eliminated double taxation of

profits paid by subsidiaries to parent companies. As for indirect taxation, amendments to the

Law on Excise and related by-laws improved alignment with the

acquis,

in particular on

increasing excise on cigarettes, other tobacco products and mineral oils with effect from

October 2009. The legislation is, however, not yet completely aligned with the European

standards. This applies, in particular, to the excise arrangements for energy products and

small producers of alcoholic beverages, to zero or reduced VAT rates or special VAT

schemes and to the principles of the code of conduct for business taxation which have not yet

been implemented. Amendments to the Law on Administrative Taxes improved alignment

with Article VIII of GATT.

In 2008 the gross tax and contributions collected by the tax

administration

were 26.5%

higher than in 2007. In the first quarter of 2009 they were 10.5% higher than the planned

budget revenue. A project is under way to introduce both a single tax registration form and a

single tax return form. To improve operation of its tax system, Montenegro asked to join the

Community’s Fiscalis 2013 Programme. The tax administration currently employs 613 staff

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out of the 744 planned. Its main needs remain additional long-term recruitment and

professional training. IT strategy is in place. Project management skills and quality assurance

methods have not yet been introduced.

Overall,

alignment with the

acquis

is on track, although further alignment is still required.

Further progress towards modernising the tax administration is also needed, with particular

emphasis on tax collection and controls, including effective use of risk analysis. The effort to

reduce informal economy needs to continue. A business and IT strategy needs to be developed

and project management skills and quality assurance have to be introduced.

4.1.5.

Competition

Limited progress can be reported in the field of

anti-trust.

Efforts are still required to adopt

the new Law on Competition Protection, to further improve the existing legislation, transform

the existing Administration for Competition protection (ACP) into a fully independent

Competition Protection Authority (CPA) and establish a system of deterrent fines.

Implementing rules are also still to be adopted.

Between October 2008 and August 2009 the ACP decided twelve merger cases and examined

two case of abuse of a dominant position. The ACP is gradually improving its capacity with

the aid of training courses. Out of a planned staff of thirteen, the ACP currently employs ten.

Its administrative capacity needs to be further enhanced to allow it to exercise its future

investigation, decision-making and sanction powers and eventually secure full professional

and financial independence. Additional efforts are also required to raise public awareness of

competition policy.

Further progress can be reported in the area of

State aid.

The government adopted a new draft

Law on State Aid Control in April 2009 and prepared a series of by-laws with the aim of

further alignment with the

acquis.

The State Aid Control Commission (SACC) continued strengthening its administrative

capacity with the aid of training. From October 2008 to August 2009 the SACC took eleven

decisions and three conclusions. A department for control of state aid was set up within the

Finance Ministry in November 2008. It currently employs three persons. However, the

capacity of both the SACC and the state aid department still needs to be strengthened to

enable them to assess complex state aid cases autonomously and to play an active and visible

role in the design of government support to national operators. A preliminary inventory of

state aid schemes was compiled, but additional efforts are required in order to complete it.

Overall,

Montenegro partially meets its targets in the area of competition. Further

improvement of the framework for protecting competition and upgrading of the relevant

administrative capacity are required. In particular, the State aid control system needs to be

strengthened and the capacity of the SACC and the State aid department needs to be

enhanced.

4.1.6.

Public procurement

Some progress has been made in the public procurement system, notably in the form of

adoption of implementing legislation, training to support contracting entities and awareness-

raising in the private sector.

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A new Law on Concessions was adopted in January 2009. However, it falls short of the

requirements of the

acquis.

Improvements have been made with regard to transparency. The State Commission for the

Control of Public Procurement Procedures (PPC) publishes its decisions and all complaints on

its website. All tenders are currently published on the Public Procurement Directorate’s (PPD)

website. There has been no progress towards introducing electronic procurement.

The 2006 Public Procurement Law established a complex framework for qualification of

bidders and documentation requirements. The two key institutions – the PPD and the PPC –

currently employ 15 and 8 staff respectively. They both require additional staff.

Administrative capacity in general needs further upgrading, in particular as regards anti-

corruption activities and integrity. Procurement officers and procurement departments within

the contracting entities have not yet been sufficiently developed. The new Law on

Concessions does not distinguish clearly between concession contracts and public contracts.

Further work is needed on the definitions for works concessions and the relevant

implementing legislation has yet to be adopted. The Concession Committee should be set up

to handle complaints about the award of concessions, keep a concession register and approve

the use of certain procedures. Additional efforts are needed to introduce a separate

procurement system for utilities and fully transpose the Utilities Directive. The introduction of

e-procurement needs to be started and centralised procurement seriously considered by the

authorities.

Overall,

Montenegro partially meets its targets in the area of public procurement.

Further efforts are needed to align the legislation with European standards and to build up the

administrative capacity.

4.1.7.

Intellectual property law

Some progress has been made in the field of

intellectual property rights

and

industrial

property rights.

The legislative framework has been improved with the adoption of a Law on

Patents which is generally in line with international and EU standards. Implementing

legislation remains to be adopted. Amendments to the Regulation concerning the validity of

existing intellectual property rights were made to eliminate legal gaps related to the validity of

national IP rights and to bring the procedures into line with international agreements.

Following the amendments to the Decree on the fees for customs services, since January 2009

holders of IPR are not required to pay a fee for processing requests for IPR protection. A

uniform request form is being introduced to ensure equal treatment by the customs authorities,

in compliance with the model laid down by Commission Regulation 1891/2004. An

agreement on the extension of European patents to Montenegro was signed with the European

Patent Office (EPO) in February 2009 allowing the validity of European patents on the

territory of Montenegro but has not been ratified yet.

The Montenegrin Intellectual Property Office (MIPO) is gradually improving its capacity.

Also, a division for intellectual property was established in the customs administration. It

prepared an information brochure for the public on customs measures to protect IPR and

combat counterfeiting and piracy. In September 2008 an intellectual property database, based

on the UK model, was installed (See

point 4.1.4 Customs and taxation).

Customs staff dealing

with IPR attended a number of training courses and international conferences. As for judicial

protection, the Podgorica commercial court established a specialised intellectual property

division.

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However, an IPR strategy is not yet in place and further strengthening of the legislative

framework remains necessary. The administrative capacity of the MIPO is insufficient,

especially in terms of human resources, as it currently employs 17 out of the 22 staff planned,

premises and IT capacity (network, databases and registers). The market inspectorate also

needs further strengthening, including establishment of a specialised unit to deal with IPR

infringements and the hiring of specialised market inspectors. Further measures are also

required to develop an information system connecting the various bodies involved and

supporting the data exchange and to introduce modern risk assessment for performing market

control. The number of police staff dealing with IPR infringements is still insufficient.

Specialised training needs to be provided for judges working in this sector. Further efforts are

needed to improve overall cooperation and coordination between enforcement bodies,

including the Market Inspectorate, and also cooperation with rights-holders.

Overall,

preparations in the area of IPR protection are at an early stage, in particular with

regard to the institutional and enforcement capacity for dealing with complex IPR cases and

public awareness of protection of intellectual property rights.

4.1.8.

Social policies, employment and public health policy

In the area of

social policies,

as regards

labour law

the legal framework remains the 2008

Labour Law.

The legislation on

health and safety at work

has yet to be brought in line with European

standards. A Law on Labour Inspection was adopted in December 2008, but the capacity of

the Ministry of Labour and Social Welfare, including its labour inspection department,

remains weak. There are currently 11 safety at work inspectors in charge of labour inspection.

With regard to tripartite

social dialogue,

the government decided to establish an agency for

peaceful settlement of labour disputes, as required by the Labour Law, but it is not yet

operational. In April 2009, the Social Council signed a memorandum on social partnership in

view of addressing the impact of the global economic crisis. A working group for monitoring

the economic crisis was established in June 2009 that can propose measures to the Social

Council in case of severe disturbances on the labour market. Nevertheless, the role of social

partners in the decision making process remains limited. Amendments to the Law on Strikes

gave public servants the right to strike. Collective labour disputes are generally not solved by

mutual agreement. Bipartite social dialogue needs to be further developed, in particular at

national and sectoral levels.

As regards

social inclusion and anti-discrimination,

reliable data and comprehensive analyses

are needed to provide a sound basis for social inclusion policies. Particular attention needs to

be paid to territorial aspects of poverty. Fighting poverty and promoting social inclusion

needs to be further prioritised. Several laws governing the rights and status of disabled

persons have been adopted, but have yet to be implemented. As regards anti-discrimination,

little progress can be noted on the adoption of a comprehensive anti-discrimination law. (See

also point 2.2 Human rights and the protection of minorities, section on social inclusion, anti-

discrimination and equal opportunities.)

As regards

social protection,

the Law on Basic Social Benefits was amended and the Law on

Pension and Invalid Insurance was adopted. Implementation of the strategies for social and

child protection, for social protection for the elderly and for the inclusion of disabled persons

in Montenegro together with the related action plan for 2008 and 2009 remains slow.

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In the field of

employment policy,

a small decrease in unemployment was reported by the

Employment Agency despite the contracting demand resulting from the crisis. The two large

activation programmes implemented early 2009 have contributed to counteract the impact of

the crisis on unemployment. Their longer term impact needs to be carefully monitored.

Structural unemployment, uneven regional employment, undeclared work and skills

mismatches are still problems that are insufficiently addressed. The Employment Agency

produces unemployment statistics and the National Statistical Office (MONSTAT) conducts

the labour force survey in line with the relevant legislation. The Ministry of Health, Labour

and Social Welfare has been divided into the Ministry of Health and the Ministry of Labour

and Social Welfare.

In the area of

public health policy,

laws were adopted on emergencies, health inspection,

drug abuse, health-related databases and health inspections. Strategies on fighting chronic

non-contagious diseases and managing medical waste were put in place.

However, currently the healthcare system does not meet the needs of the population. Further

efforts are needed to reform primary health centres, improve health service quality and patient

safety and provide equal access to healthcare. Legislation concerning human blood and tissues

and cells quality and safety, tobacco control and reporting of communicable diseases is not

yet fully aligned with European standards and has not yet been implemented. Guidelines for

implementation and action plans still need to be developed. There are still significant gaps

with regard to communicable diseases (an early warning and response system is not yet in

place). Cancer screening is currently not organised, traceability of human blood and tissues

and cells quality and safety is lacking and the blood transfusion system needs to be reformed.

The budget for health policy remains very limited.

In the field of mental health, further efforts are needed to create community-based services as

an alternative to institutionalised healthcare, together with specific healthcare for children and

young people with mental health problems. Adequate financial resources and trained

healthcare personnel are needed to improve the quality of health services in this area.

Overall,

Montenegro has continued to address its priorities in the area of employment and

social policies. However, compliance with European standards needs to be further improved

and the country’s capacity to implement the new legislation effectively needs to be enhanced.

With the exception of labour market analysis, more reliable statistics for social policies are

needed as a basis for further intervention. Further efforts are also required to strengthen

administrative and institutional capacity in the area of public health.

4.1.9.

Education and research

As regards access to

education,

primary and secondary school enrolment rates remain high.

Four new private universities have been established specialising in management of traffic and

communications, humanities, information technology and international tourism and hotel

management.

The Ministry for Education and Science has been reorganised and now employs 72 staff out

of the 99 planned. The government adopted a strategy for the establishment of a Montenegrin

qualification framework (MQN) for 2008-2010 and a strategy on introducing educational

software in schools. In December 2008, a Law on National Professional Qualifications was

adopted.

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Further steps were taken to upgrade the quality assurance system for universities. A quality

assurance system is now in operation at the University of Montenegro. The faculties of

Business Management, of State and European Studies, and of Foreign Languages at the

Mediterranean University have been re-accredited, while two other private universities are in

the process of re-accreditation.

Future challenges in the field of education include finalising the establishment of the National

Qualifications Framework, improving recognition of informal learning, strengthening the

links between higher education and vocational training and the labour market.

In the field of culture, Montenegro has finalised talks for inclusion in the Community’s

Culture Programme as of 2010 and has established a cultural contact point to promote the

programme and assist potential applicants.

As regards

research,

a special department dealing with science, research and technological

development was established within the Ministry of Education and Science. Montenegro

participated actively in the Seventh EC Framework Programme for research and technological

development (FP7). It nominated observers for various programme committees and the

European Strategy Forum on Research Infrastructure and managed its financial contribution.

Information days on FP7 were organised in order to encourage participation and several

cooperation projects are under way. Montenegro has also been very active in international

cooperation in the Steering Platform for the Western Balkan countries. However, more efforts

could be made to involve small and medium-sized enterprises and on Marie Curie projects.

Based on the strategy on scientific research activities for the period 2008-2016, Montenegro

has taken a number of steps towards integration into the European Research Area, such as

introduction of a young researcher programme.

Overall,

further progress has been made in the fields of education and culture. There has been

good progress on research, particularly on strengthening the institutional framework and on

participation in FP7.

4.1.10. WTO issues

Montenegro's legislation has been brought in line with WTO requirements. The country

concluded all its bilateral negotiations with working party members in 2008 and the country’s

accession conditions were agreed. However, Montenegro’s accession to the WTO continues

to be blocked by a Ukraine request for radical tariff reductions and wide-ranging

commitments in access to services markets, including many sensitive sectors, which was only

made in December 2008.

Efforts are required to strengthen the management and administrative capacity necessary for

proper implementation of the commitments made to WTO members.

4.2.

4.2.1.

Sectoral Policies

Industry and SMEs

Some slight progress can be reported on

SME

policy. Montenegro remains committed to

applying the European Charter for Small Enterprises. It is also a full member of the

Entrepreneurship and Innovation Programme (EIP) under the Competitiveness and Innovation

Framework Programme (CIP). A local consortium led by the European Information and

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Innovation Centre joined the Enterprise Europe Network in November 2008. An interactive

SME website came into operation at the beginning of 2009. It allows the introduction of

online requests for removal of barriers.

Further legislative progress was made towards simplifying administrative procedures and

shortening the time taken for reviewing technical documentation and issuing construction

permits and certificates of occupancy. The law on craftsmanship was adopted in July 2009.

The network of nine business centres was expanded by adding two more, one in Plav the other

in Kolasin. An IT business incubator has come into operation in Podgorica, with four

businesses assisted up to now. A business start-up centre was established in Bar to support

newly established SMEs in cooperation with local business and educational establishments.

However, the regulatory impact assessment for the new legislation has not yet been

established. No progress was made in extending the silent-is-consent principle to other

spheres of public administration apart from business registration.

The process of developing Montenegro's industrial strategy has not advanced and the

administrative capacity for industrial policy remains weak. An operational plan for removal of

business barriers for 2009 has not been adopted. No progress can be reported on establishment

of a credit guarantee fund (CGF) for SMEs. No progress has been made on cluster policy.

Implementation of the strategy for lifelong entrepreneurship learning for 2008-2013, which

envisages introducing entrepreneurial learning as a key skill in primary and secondary

schools, is at an early stage.

Overall,

Montenegro has started to address its priorities in the area of industrial policy and

has partly met them as regards SME policy. However, further efforts are required to remove

barriers to business, especially at local level, including speeding up licences and permits and

fully implementing measures such as a CGF, incubators and clusters.

4.2.2.

Agriculture and fisheries

Some progress was achieved on

agriculture and rural development policy.

Laws on

agriculture and rural development and on an agricultural census were adopted by the

parliament in July 2009. Amendments to the Tobacco Law and to the Law on Fertilisers were

also adopted. Montenegro ratified the International Plant Protection Convention in December

2008.

The government adopted a national programme for food production and rural development for

the period 2009-2013. This builds on the strategy for food production and rural development

and further aligns Montenegro’s agricultural policy with the EU agricultural policy. The

budget for agriculture and rural development was increased by 20% compared with 2008. A

pilot census conducted in October 2008 successfully tested the instruments for the main

agricultural census which was postponed to April 2010.

Direct support continued to be provided to the livestock sector in the form of headage

payments. Different models for support for the plant production sector (modernisation of

production of vegetables in greenhouses, direct support per hectare to seed-potato growers

and certain cereal growers and production support for tobacco growers) also remained in

place for several thousand beneficiaries, as did investment support for primary production.

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A phytosanitary administration was established in the Ministry of Agriculture, Forestry and

Water Management and experts to work on rural development issues were recruited.

However, administrative capacity as regards rural development within the Ministry of

Agriculture remains very limited and further upgrading is needed in order to start preparation

for the IPARD framework. Staffing needs to be augmented.

In the area of

food safety, veterinary and phytosanitary policy,

adoption of implementing

regulations improved legislative alignment with the

acquis

and the institutional framework.

The phytosanitary administration came into operation and currently employs 18 staff out of

the 28 planned. In accordance with the Law on Plant Variety Protection, a department for

plant variety protection was established within the phytosanitary administration.

Regarding food safety, the government adopted implementing regulations on control of food

of plant or animal origin and a residue monitoring programme. The Law on Ratification of the

International Plant Protection Convention was adopted. The phytosanitary administration

established a department for food safety.

The veterinary administration was restructured in November 2008 and a department for public

health was established. In accordance with the Veterinary Law, the 2008 annual health

protection programme was implemented and a programme for 2009 was adopted. The

recently established veterinary administration continued to upgrade its administrative capacity

and the veterinary diagnostic laboratory improved its equipment and staffing. Assessment of

agri-food establishments for compliance with EU requirements has started.

The government adopted a national strategic plan for the

fisheries

sector for 2009-2013 which

sets objectives for the development of aquaculture and marine fisheries, including scientific

assessment of fish stocks. The number of staff responsible for fisheries in the Ministry of

Agriculture has been increased. A draft Law on Marine Fisheries is before parliament.

Overall,

some progress can be reported on the strengthening of the legal framework, however,

implementation of legislation still needs to be enhanced. Further strengthening of the

administrative capacity of bodies in charge of phytosanitary policy and food safety is

required. An integrated food safety system still needs to be established. The administrative

capacity of the Ministry of Agriculture, Forestry and Water Management, in particular as

regards rural development, needs to be strengthened.

4.2.3.

Environment

Progress has been made as regards

horizontal legislation.

The government adopted a national

environmental policy setting out national priorities and addressing cross-cutting issues, such

as the need to bring gradually all environmental protection issues together under a single

ministry. The decree on the amount of fees, the manner of calculation and payment of fees

related to the pollution of the environment has been brought in line with the provisions of the

Interim Agreement to the SAA (See

point 4.2.4 Transport Policy).

Alignment of the relevant

environmental legislation with the

acquis

is moderately advanced. A national committee for

approval of clean development mechanism projects was established. The Espoo Convention

on Environmental Impact Assessment in a Transboundary Context and the Aarhus

Convention on Access to Information, Public Participation in Decision-Making and Access to

Justice in Environmental Matters were ratified. Further efforts are required on implementation

and enforcement of legislation.

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In the area of

air quality,

considerable work is under way, but little tangible progress has

been achieved. Amendments to the Air Quality Law aiming to improve harmonisation with

EU standards and a rulebook on air quality assessment are being developed, but alignment

towards four directives on air quality, laying down the remaining definitions and air quality

standards, needs to be finalised. Regarding air quality assessment, emission inventories need

to be prepared. The national and local emission inventory for 2006 was updated in October

2008. Implementing legislation on air quality is also required. Gaps to be filled include

identifying conglomerations and zones, establishing a monitoring programme and database

and making data available to the public.

Limited progress has been made in the field of

waste management.

Financial and

administrative limitations delayed implementation of the Waste Management Law from

1 November 2008 to 1 January 2010. Further work is required to develop the necessary by-

laws. Implementation of the strategic plan for waste management continued. A regulation was

published on the criteria, amount and method of payment of fees for waste management.

Feasibility studies and environmental impact assessments on six regional sanitary landfill

locations were finalised and projects are being designed. However, alignment with European

standards needs considerable strengthening and acceleration, in particular concerning the

landfill Directive and the waste shipments regulation.

Limited progress can be reported on

water quality.

A Law on Water Management and

Financing was adopted. In spite of some progress, the degree of alignment to the Drinking

Water Directive remains very low. Alignment with European standards needs to be improved

substantially. Further efforts are required to improve implementation and enforcement.

Some progress can be reported in the field of

nature protection.

A Nature Protection Law

established the legal framework for Natura 2000. Related by-laws have not yet been adopted.

A number of international conventions and agreements were ratified, e.g. the Convention on

the Conservation of European Wildlife and Natural Habitats (Bern Convention), the

Convention on the Conservation of Migratory Species of Wild Animals (Bonn Convention),

the Agreement on the Conservation of Cetaceans of the Black Sea, Mediterranean Sea and

Contiguous Atlantic Area (ACCOBAMS), the European Landscape Convention and the

Convention on the Protection of Underwater Cultural Heritage. A Law on Mountain Trails

and amendments to the Law on National Parks were adopted. A decision on establishment of

the Nature Protection Institute was adopted. Further awareness-raising efforts are needed in

this field. Inspection measures and sanctions have not yet been adopted. The level of

alignment has improved, but implementation and enforcement remain challenges.

Preparations in this area are at an early stage.

Some progress can be reported on

industrial pollution control and risk management,

although there are no signs of transposition of the Mining Waste Directive. The Convention

on Transboundary Effects of Industrial Accidents was ratified. Montenegro has aligned with

almost all the relevant legislation, but implementation and enforcement remain challenges.

There was no progress in the areas of

chemicals

and

genetically modified organisms

(GMOs).

Implementation and enforcement in both fields remain weak. Preparations in these

areas are at an early stage.

There was no progress on

noise

abatement.

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Further efforts are needed to strengthen the

administrative capacity

of all institutions

involved in environmental policy-making and enforcement.

Following establishment of the new government, responsibility for the environment and

spatial planning was assigned to the new Ministry of the Environment and Spatial Planning.

Previously it had been divided between the Ministry of Tourism and the Environment and the

Ministry of Economic Development (spatial planning). This redistribution of powers did not

affect the administrative capacity in these areas, which remains limited.

An Environmental Protection Agency (EPA), with a wide range of responsibilities in

implementing and enforcing environmental legislation, was formally established by

government decree. A director was appointed and an operating budget allocated for 2009. So

far the EPA has employed 14 permanent staff out of the 60 or so planned. In particular,

environmental impact assessment (EIA) need to be properly carried out by the EPA whenever

legally required and in proper coordination between all relevant authorities, including in cases

(such as small-scale energy projects or in connection with the implementation of the spatial

plan) where a local authority issues the permit and decides on the scope and final approval of

EIA. Proper inspections need to be made possible at all levels, central and local. The limited

resources of the EPA raise serious concerns about the ability of the new agency to perform its

functions.

The sharing of responsibility for the water sector between the Ministry of the Environment

and Spatial Planning and other ministries must be clarified. Coordination between the bodies

involved in environmental protection issues, particularly in inspection activities, needs to be

improved. There has been a considerable increase in the number of inspections conducted by

the ecological inspectorate. However, the lack of implementation capacity at local level and

poor coordination between central and local government are continuing to limit enforcement

capacity. Further upgrading of the administrative capacity of the ecological inspectorate is

necessary.

The government established ‘Project Consulting’ (PROCON), a company in charge of

managing projects in the field of communal services and environmental protection, primarily

providing related logistical support to municipalities.

Overall,

Montenegro has made some progress on legislative alignment with European

standards. However, implementation and enforcement need to be further strengthened.

Particular attention needs to be paid to strengthen administrative capacity and to establish

effective inspection services. Work on awareness-raising on environmental protection issues

needs to be continued. Environmental protection, in particular in coastal areas and national

parks, remains a cause for concern.

4.2.4.

Transport policy

In the field of

trans-European transport networks,

Montenegro has continued to actively

participate in the implementation of the 2004 Memorandum of Understanding on the

development of the South East Europe Core Regional Transport Network, and in the South

East Europe Transport Observatory (SEETO) particularly by updating and implementing the

Multi-annual Plan 2009-2013. Continued cooperation in the framework of SEETO and further

improvement in the quality of the existing road and rail infrastructure are needed.

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road transport,

Montenegro continued to allow unrestricted Community transit traffic

through its territory. The decree amending the amount of fees, the manner of calculation and

payment of fees related to the pollution of the environment, so called "Eco-tax", has been

brought in line with the Interim Agreement to the SAA. The amendment ensures eco-tax

proportionality for foreign heavy goods vehicles entering Montenegro territory. However,

proportionality of the same tax applying to other EU vehicles coming to Montenegro and not

covered by the Interim Agreement remains a concern. Amendments to the Law on Road

Traffic Safety were adopted. In January 2009 Montenegro became a member of INTERBUS.

Progress in the road haulier sector was limited both on adoption and on implementation of

harmonised legislation. The Law on Contracts for Carriage by Road was adopted by

parliament.the Law on Digital Tachographs remains to be drafted. The draft strategy to

improve road traffic safety has yet to be adopted. The traffic safety situation remains

unsatisfactory and additional prevention measures are necessary.

In the field of

rail transport,

unbundling of the railway company into an infrastructure

company (Montenegrin Railway Infrastructure) and an operator (Railway Transport of

Montenegro) was followed by establishment of the commissions for privatisation of the newly

established companies. A border-crossing agreement was concluded with Serbia in March

2009, but it appears not to be in line with EU open access provisions (See

point 4.1.4 Customs

and taxation).

However, no progress was reported on implementation of rail safety rules. The

Railway Directorate which under the new government regulations, will take over

responsibility for the rail transport department from the Transport Directorate has not yet been

set up.

In the field of

maritime transport,

there is limited progress to report. Restructuring of the

national port at Bar through privatisation was launched. The port was divided into five limited

liability companies. Privatisation will be implemented in two phases. The first phase, putting

out to tender the Marina Bar port authority, started. The new regulator, the Port

Administration provided for by the Law on Ports, has not yet been set up. On safety issues,

the rate of detention of Montenegrin vessels in the area covered by the Paris memorandum of

understanding reached an appalling 33% in 2008, indicating clear flag State insufficiencies

that need to be addressed. Security issues also require particular attention.

There are no developments to report in the fields of

inland waterways

and

combined

transport.

Concerning

air transport,

alignment of national legislation on aviation with the

acquis

progressed. The 2008 Law on Civil Aviation came into force with effect from February 2009.

Bilateral air services agreements have been signed with the former Yugoslav Republic of

Macedonia and initialled with Croatia and Switzerland. However, the Law on Civil Aviation

needs to be amended in line with the recommendations made in the 2008 ECAA assessment

report to ensure compliance with the European Common Aviation Area (ECAA) Agreement.

A civil aviation safety committee has still not been established and this is preventing

implementation of a civil aviation safety programme. The Montreal Convention has yet to be

ratified and Montenegro has not yet become a full member of the European Joint Aviation

Authorities (JAA). Relations with the European Aviation Safety Agency (EASA) have been

put on a formal footing by a working arrangement signed on 7 July 2009. The administrative

capacity of the relevant authorities is not yet up to the standards for proper enforcement of the

aviation

acquis.

Despite Montenegro serious engagement in the recent set up of air traffic

national bodies, staff available is limited. Additional efforts are necessary to ensure the

appropriate level of alignment with European standards. Montenegro's participation in the

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Single European Sky Committee and in the Implementation of the Single European Sky in

South Eastern Europe (ISIS) Programme will be beneficial in this regard.

Overall,

Montenegro’s preparations are moderately advanced in the cases of road and rail

transport, but still at an early stage for air and maritime transport. Progress on safety aspects

and a systemic approach to development of transport is still limited. Considerable efforts are

required to establish adequate administrative capacity and implement the

acquis.

4.2.5.

Energy

Regarding

security of supply,

the new Energy Law remains to be adopted. It will address oil

stocks, security of electricity and gas supply and cogeneration.

Regarding the

internal energy market,

in line with the national energy development

strategy, an action plan for the period 2008-2012 was adopted in October 2008. It reflects the

general objectives of the EU’s energy policy. The electricity market was opened for all non-

household consumers with effect from 1 January 2009. The regulator has adopted rules on

qualified buyers of electricity, on designation of the public electricity supplier and on

approval of market rules.

Progress on restructuring the State electricity company (EPCG) has continued. Following the

decision to unbundle EPCG, five daughter companies were established. The Company Law

was amended to allow unbundling of transmission and the setting-up of a transmission

company and a holding company – EPCG AD. Four of the five daughter companies, dealing

with generation, supply, distribution and construction, remain part of the holding company.

The transmission joint stock company was fully unbundled in April 2009. EPCG AD is being

partly privatised by means of a capital increase and sale of 18.3% of its shares to Italian

power company A2A. In the next stage, the plan is to turn the four remaining companies into

independent joint stock companies. Restructuring is due to be completed by the end of 2009.

Decisions to award eight concessions to build and operate small hydroelectricity plants were

adopted. A decision determining feed-in tariffs from small hydroelectricity plants was

adopted.

Preparation are being made for putting out to tender construction of large hydroelectricity

plants, based on a concession.

There has been little tangible progress in relation to

renewable energy.

Several programmes and awareness-raising campaigns to promote

energy efficiency

were

conducted as part of the Montenegrin Year of Energy Efficiency. The adoption of the Law on

Energy Efficiency remains hereby of key importance.

A Law on

Nuclear Safety and Radiation Protection

has been adopted in August 2009.

Within the Environmental Protection Agency a regulatory body responsible for protection

against ionising radiation was established. However, alignment with the

acquis

would require

improvement of the regulatory infrastructure and enhancement of its technical capacity. The

existence of hundreds of radioactive lightning rods spread all over the country still constitutes

a radiological thread that needs to be addressed.

Overall,

some progress can be reported in some energy sectors. Steps have been taken

towards meeting the requirements of the Energy Community Treaty, such as the opening of

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the electricity market for non-household consumers, but further efforts are required.

Promoting energy efficiency and renewable energy sources is crucial.

4.2.6.

Information society and media

Some progress has been made on

electronic communications and information

technologies.

The liberalisation of the sector has continued. Even though narrowband is still

predominant for connecting to the internet, as of January 2009 the broadband penetration rate

was 5.5% and alternative operators held around 20% of this important growth market. The

mobile penetration rate was 184%.

The Agency for Electronic Communications and Postal Services (EKIP), established by the

Law on Electronic Communications, has come into operation. Its statutes, work programme

and operational and financial plans were adopted. The agency increased its human resources.

Rulebooks on the annual fees for numbers and addresses and on use of radio frequencies have

been adopted. Rules on (higher) annual fees for numbers and addresses as well as for the use

of frequencies were adopted. So far no comprehensive market analysis has been performed by

EKIP. However, the Law on Electronic Communications defines significant market power

(SMP) operators in its transition articles and accordingly new licences were issued to these

operators. In 2009 EKIP launched the market analysis and designation of operators holding

SMP process.

However, implementation of the Law on Electronic Communications was delayed by the late

nomination of the new board and the executive director of the Electronic Communications

Agency. The procedure for appointing the members of the board remains a cause for concern

regarding their independence. The late establishment of the agency delayed adoption of

implementing legislation, including rulebooks on number portability and local loop

unbundling. The administrative capacity of the department for telecommunications policy in

the Ministry of Transport, Maritime Affairs and Telecommunications remains weak.

There has been no progress towards enhancing consumer protection.

There have been further developments regarding

information society services.

A new

Ministry for the Information Society was established on 3 January and turned into the

Ministry for Economic Policy and the Information Society with the formation of the new

government in June 2009. It is responsible for information and communication technology

initiatives in all government bodies. An information society strategy for 2009-2013 was

adopted in February 2009. Laws on personal data protection and on personal names were

adopted. However, the Conditional Access Directive has not yet been transposed. Human

resources at the Ministry for Economic Policy and the Information Society are still weak.

Electronic signature legislation is in the process of implementation.

In the area of

audiovisual policy and the media,

a Law on Public Service Broadcasting was

adopted in December 2008. It abolished the steering committee of Radio Television

Montenegro (RTCG) and transferred its powers to the RTCG Council, which has nine

members appointed by parliament. However, the political independence of the public service

broadcaster has to be ensured. Licence fees for radio and television were abolished. RTCG is

now financed from the State budget. It receives 1.2% of the annual budget. This provides the

public broadcaster with stable financial resources.

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The responsibilities of the Agency for Electronic Communications and of the Broadcasting

Agency under the Law on Electronic Communications regarding frequency licensing remain

unclear. A disagreement between the two agencies regarding their competences contributed to

delays in allocating a frequency to a private TV station.

Overall,

some progress has been made regarding the information society and the media.

However, progress in this sector has been hindered by the late implementation of the Law on

Electronic Communications. Concerns remain about the independence of the Electronic

Communications Agency. Disagreements on responsibility for frequency licensing are giving

rise to concern and related competences and procedures require urgent clarification. Further

strengthening of the legislation and related implementing regulations is needed. Greater focus

needs to be put on implementing the national information society strategy. The effectiveness

and independence of the public service broadcaster need to be ensured.

4.2.7.

Financial control

Some progress can be reported in the area of

public internal financial control

(PIFC), in line

with Montenegro’s PIFC policy paper. The Law on PIFC was adopted in November 2008,

followed by implementing legislation focusing on financial management and control (FMC)

systems and internal audits (IA) in the public sector. A Central Harmonisation Unit for both

FMC and IA is in place and internal audit units are being set up in line ministries. Further

efforts are required, however, to draft new and align existing implementing legislation.

Considerable awareness-raising at all levels of the administration and training remain

necessary.

In the area of

external audits,

progress can be reported. The numbers of qualified State

auditors and of audits undertaken are increasing. The State Audit Institution is steadily

developing its administrative capacity to ensure efficient external audit. Parliament adopted

the institution’s annual report for the period from October 2007 to October 2008, accepting all

the proposed conclusions.

Overall,

Montenegro’s preparations in the fields of PIFC and external audit are at an early

stage.

4.2.8.

Statistics

There has been some progress on

statistical infrastructure.

The government adopted a

development strategy for statistics for 2009-2012. The new strategy gives the Statistical

Office of Montenegro (MONSTAT) the coordinating role for developing a statistical system

in compliance with the European Statistics Code of Practice. However, an action plan and

financial resources for implementing the strategy are still not available. The Statistical Law

needs to be revised to match the objectives of the strategy.

Currently MONSTAT employs 135 people, out of 203 posts allocated by the organisation

chart adopted in April 2008. The process of filling the new posts has been constrained by the

lack of office space. Management capacity remains relatively weak, with three positions for

assistant directors vacant for a whole year. Retaining skilled staff remains a problem.

Some progress was made on data dissemination policy. A release calendar for 2009 was

published on MONSTAT’s website in December 2008. A multiannual statistical work

programme for 2009-2013 was adopted, providing the basis for the annual plans. Efforts are

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required to implement the annual plans effectively. A memorandum of understanding remains

to be signed with the Central Bank to ensure provision of timely and high-quality statistics,

particularly in relation to GDP in accordance with ESA 95, the European System of Accounts.

Progress in the field of

classifications and registers

has been limited.

As regards

sector statistics,

progress can be reported. MONSTAT conducted the pilot

population and housing census in June 2009. The pilot agricultural census was conducted in

2008 and the agricultural census law was adopted in July 2009. The preparations for the

agricultural census in April 2010 are well advanced. Some progress has been made on

business statistics, but generally the availability of business statistics, especially short-term

statistics, needs to be improved. Efforts are still needed to ensure that the 2011 population and

housing census is carried out in a timely manner in line with EU standards. As regards

macroeconomic statistics, cooperation with the customs administration has improved, leading

to better timeliness and quality in the monthly external trade statistics. The consumer price

index is now published monthly. Compliance with ESA 95 has progressed, but much remains

to be done. MONSTAT still does not produce quarterly national accounts. The quality and

timeliness of data need to be improved; annual national accounts should be published by

September, in line with EU standards. Transmission of trade data to Eurostat needs to be

improved.

Overall,

some progress can be reported in the area of statistics and Montenegro has started to

address its targets. However, its administrative capacity remains weak and the legislative

framework needs to be further improved and completed. Substantial efforts remain necessary

in all areas in order to improve compliance with EU standards.

4.3.

4.3.1.

Justice, freedom and security

Visa, bordermanagement, asylum and migration

Good progress has been made in the area of

visa policy

and in the wider framework of the

visa liberalisation dialogue. In particular, Montenegro has taken important steps towards the

benchmarks set in the road map for visa liberalisation and met the majority of them, allowing

the Commission to include Montenegro in its proposal of July 2009 for visa free travel.

Montenegro has established sound procedures for applying for and issuing travel documents,

supported by suitable technology and equipment. By September 2009, it has issued 122,190

new biometric passports in line with EU and international standards. Replacement of old-style

travel documents by new biometric passports is expected to be completed by the end of 2009.

The Law on Foreigners entered into force in January 2009. A new Visa Regulation, based on

the Schengen rules, entered into force in March 2009. The visa policy is not yet fully in line

with European standards. Montenegro still has limited capacity for issuing visas in the

Ministry of Foreign Affairs and at its few diplomatic and consular missions. There is no

electronic database or other IT system linking consular offices issuing visas with the Foreign

Ministry. Processing applications on paper hinders effective control of applicants, in

particular when visas are issued at border crossing points. The sector for migration, visas and

readmission in the Ministry of the Interior and Public Administration needs to be reinforced in

terms of both expertise and human resources. Montenegro has started to address its priorities

in the area of visa policy, but further work is required. As regards

border management,

Montenegro made progress. It has continued to implement its integrated border management

(IBM) strategy and the associated action plan. Cross-border cooperation is working well

under both formal and informal arrangements. The border police carry out regular joint

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patrols with the Albanian border police and the Croatian police. Reconstruction of the Bozaj

border crossing point (BCP) was completed and work has started on reconstruction of the

Dobrakovo BCP. The Sukobin-Muriqan joint BCP with Albania was opened in June 2009.

There has been some improvement in the equipment at BCPs, although the availability of

integrated passport readers remains limited and there are no devices for taking fingerprints.

At the end of 2008 a memorandum of understanding on cooperation on IBM, was signed

between the Ministry of the Interior and Public Administration, the Police Directorate, the

Customs Directorate, the Veterinary Directorate and the phytosanitary administration. A

working arrangement with FRONTEX was signed in June 2009. Five additional border

crossing points were connected to the Police Directorate’s central database and have access to

the Interpol database.

However, new legislation on State border control, including border surveillance, and related

implementing legislation which will ensure further alignment with the Schengen

acquis

have

yet to be adopted. The border demarcation with Serbia and Kosovo is still pending.

Surveillance systems are lacking at both the blue and green borders and the equipment used

for border checks is not yet adequate. A basic training curriculum for border police needs to

be established. Further development of specialised and advanced training for experienced

border police staff (with special reference to intelligence personnel) is needed in order to

boost the capacity to prevent and detect cross-border crimes. Inter-agency cooperation on

border management requires further improvement by establishing a national coordination unit

or multi-agency information centre, in particular to allow on-line sharing of information

between institutions for their day-to-day work. Progress can be reported in relation to

establishment of a risk analysis system. However, more trained intelligence officers are

required at all levels. Linking all border crossing points into a network with online access to

the national database and to the Interpol database must be addressed as a priority.

Overall,

Montenegro has made good progress on addressing priorities in the area of border

management but needs to maintain the pace of reforms.

Limited progress has been made in the area of

asylum,

although the legislative and

institutional frameworks are almost complete. The Law on Asylum provides a broad spectrum

of rights. There are very limited numbers of asylum-seekers in Montenegro: in 2008 there

were seven and to date in 2009 there have been 13.

In practice, asylum-seekers and recognised refugees face certain obstacles, including difficult

access to the labour market. The mixed judicial/administrative nature of the State Asylum

Appeal Commission needs to be clarified. The law provides for no judicial recourse against its

decisions. Its staff requires training on asylum issues. Construction of the planned reception

centre for asylum-seekers has not yet begun. Currently accommodation for asylum-seekers is

provided by the bureau for the care of refugees. Proper implementation of the asylum

legislation needs to be ensured, including due examination of asylum applications and

provision of judicial review in the event of refusal.

Overall,

Montenegro has started to address priorities in the area of asylum. However, further

efforts are needed on implementation of legislation.

Some progress has been made on

migration.

The Law on Foreigners and the Law on

Employment and Work of Foreigners have been in force since January 2009. The Law on

Foreigners broadly reflects the principles laid down in the Directive on common standards

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and procedures for returning illegally staying third-country nationals. A number of

implementing laws related to the Law on Foreigners need to be adopted. The border police

department for foreigners and fighting illegal migration and the Ministry of the Interior’s

department for migration, visas and readmission deal with migration issues. The strategy for

integrated migration management for 2008-2013 and the action plan for 2008-2009 were

adopted in November 2008. A council for monitoring implementation of the strategy has been

established. No problems have been observed with implementation of the readmission

agreement between Montenegro and the European Community. At the end of 2008 Albania,

Bosnia and Herzegovina, Croatia, Montenegro, the former Yugoslav Republic of Macedonia

and Serbia signed a memorandum of understanding on setting up a system for sharing

statistical data on illegal migration and participating in the regional system of advance

notification.

However, the human resources and specialist knowledge on migration issues within the

Ministry of the Interior need to be strengthened. Cooperation with other public institutions, in

particular with the Employment Office, on unlawful employment of migrants remains weak.

Integration of migrants and reintegration of Montenegrin nationals readmitted under

readmission agreements have not yet been sufficiently addressed. Further progress is needed

on collection of data on migration. Detention facilities for those foreign nationals who

illegally overstay are not yet adequate.

Montenegro needs to ensure effective implementation of the legal framework aimed at

resolving the status of displaced persons from Bosnia Herzegovina and Croatia and resolve

the status of displaced persons from Kosovo.

Overall,

there has been good progress in the area of migration. Further efforts are needed on

implementation of legislation and enhancement of administrative capacity and institutional

cooperation. The issue of internally displaced persons needs to be resolved.

4.3.2.

Money laundering

Some progress has been achieved in the fight against money-laundering. Legislation

implementing the Law on the Prevention of Money-Laundering and Terrorist Financing was

adopted in December 2008. These two regulations put in place rules and procedures for

reporting cash transactions over €15,000 and suspicious transactions and for organising data-

keeping, data protection, compliance officers’ professional training and internal control within

the entities reporting to the anti-money-laundering administration. In March 2009, one further

piece of implementing legislation was adopted on drafting guidelines for risk analysis for the

purpose of preventing money laundering and terrorism financing. Police and prosecutors have

received training on identification and detection of money-laundering and confiscation of

criminal assets.

The directorate for prevention of money-laundering and terrorism financing is maintaining

databases on suspicious transactions, cash transactions over a given threshold and court-

registered real estate sales contracts. Analysts from the directorate also have access to

statistical reports on deposits and withdrawals and on investors in capital markets. However,

the Directorate lacks an important software database (IBASE), which would facilitate national

and international cooperation and exchange of data with law enforcement agencies. It

currently employs 25 staff of the foreseen 34 posts. A reporting entities register makes it

possible to monitor reporting trends. The scope of reporting entities has been extended but the

number of suspicious transactions reported decreased over 2008.

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The requirements for identification of beneficial owners by the reporting entities, especially

by casinos and estate agencies, have been tightened up and one report of a suspicious

transaction has already been received from an estate agency.

However, Montenegro’s effectiveness in fighting money-laundering needs to be enhanced. Its

legislation is not yet fully in line with the UN Convention against Transnational Organised

Crime and the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic

Substances. A quarter of the anti-money-laundering administration’s posts have not been

filled; staff turnover is high and remuneration low. The statistics produced are not yet reliable.

A clear set of management statistics needs to be agreed so that the appropriate data are

collected on a routine basis.

During 2008 only one report of a suspicious transaction was made by a money service bureau

and none by lawyers or notaries. Tighter control needs to be exercised over funds invested in

real estate. Only five of the eleven commercial banks in total submitted STRs in 2008 and

2009 and about half of all STRs originate from two banks. Reporting entities’ understanding

of their obligations to report to the anti-money-laundering administration needs to be

improved, as does supervision of compliance by reporting entities. This calls for greater

capacity in the anti-money-laundering administration.

The March 2007 list of indicators for identifying suspicious customers and transactions needs

to be updated. The capacity for a risk-based approach to dealing with suspicious transactions

reported to the anti-money-laundering administration and the resulting implementation record

remain weak. The necessary guidelines are not yet in place. Analysts with the necessary

training are needed for the directorate.

The capacity of the police and the prosecution service to investigate cases of money-

laundering remains insufficient. Only a small, though increasing number of money-laundering

cases were forwarded to the prosecution service by the police. The prosecution service still

lacks expertise in this field. In 2008 three financial investigations were conducted by the

police in cooperation with the special prosecutor for fighting organised crime. There is a need

to strengthen the human resources further, along with the expertise and technical capacity of

the police and prosecutors, particularly for financial investigations. Between September 2008

and August 2009 there was no conviction on money-laundering.

The capacity for conducting financial investigations and awareness of their importance in the

anti-money-laundering administration, the police and the prosecution service needs to be

improved. More effective inter-agency cooperation is necessary to reduce bureaucracy and

ensure regular feedback on investigations. This will require, amongst other things, revision of

the current memoranda on cooperation between the anti-money-laundering administration, the

police and the prosecutor’s office.

Overall,

Montenegro has continued to address its priorities, but money-laundering remains a

serious problem linked to organised crime and corruption. Clear determination to prevent and

combat money-laundering is needed. The fall in the number of investigations and of reports of

suspicious transactions and the fact that there were no convictions for money-laundering are

causes for concern.

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4.3.3.

Drugs

Montenegro has made some progress in the fight against drugs. The national strategic

response to narcotics and the associated action plan are being implemented under the

coordination of a new National Drugs Office. For the first time a survey on the use of alcohol,

tobacco and drugs was conducted in line with the EU method. Preventive activities have

continued. Police and customs officers have received training on control of precursors and

smuggling of drugs. A drug manual has been distributed to border police officers. There was

an upward trend in seizures of most types of drugs during the reporting period. International

cooperation on law enforcement in drug cases has improved.

However, a Law on Precursors has not still been adopted. Montenegro remains a key link on

the transit routes for drugs. Domestic drug consumption is increasing. The capacity of the

police to fight drug-related crime continues to be insufficient. The police department

responsible for combating drug-related crime is still not properly staffed and equipped.

Instruments such as witness protection and under-cover agents are infrequently used, partly

due to the inherent difficulty of using such tools in a very small, socially tightly-knit country.

The National Drug Office has become operational but is understaffed. The planned national

information unit on drugs, which will be responsible for collecting and documenting

information on drug addicts, has yet to be established. Problems persist with prevention of

drug addiction and with treatment and rehabilitation of addicts. Inter-agency and international

cooperation on law enforcement needs to be strengthened.

Overall,

Montenegro has started to address its main priorities, but further action is needed.

The institutional framework for fighting drug-related crime has been reinforced and seizure

levels have increased. However, drug trafficking, in particular by groups engaged in organised

crime, remains a serious cause for concern. Drug abuse is continuing to rise and there is still a

lack of reliable statistics.

4.3.4.

Police

Some progress was made in the area of policing and police reform over the reporting period.

The internal reorganisation continued. Staff has been receiving extensive training. The Police

Academy continued to build its capacity for general and specialised training for various levels

of staff, including specialised training for criminal and border police. A track record is being

established in the area of internal control. Disciplinary measures have been imposed on 124

police officers while from February to July 2009, criminal charges were brought against 27

police officers. Pilot implementation of intelligence-led policing has started in two regional

police units – Bar and Budva, including the outpost of Ulcinj. A pilot project on community

policing has also been successfully implemented in all regional police units. A modern

forensic centre has started work. New equipment was provided to the police and new police

uniforms were introduced.

The police have been actively participating in international police cooperation and a number

of joint operations conducted. Under the Convention on Police Cooperation for South-East

Europe (Vienna Convention), the Montenegrin police were involved in cross-border

cooperation and exchanged intelligence with the police services of neighbouring countries.

However, the professional capacity of the police still needs to be improved, in particular as

regards use of modern investigation and analysis techniques, the availability of basic

infrastructure and equipment and a comprehensive IT network. Equipment and facilities need

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to be upgraded, in particular for the organised crime department. Police staff specialising in

the fight against organised crime need to remain focused on this field rather than diverted to

other tasks. Operational effectiveness and security require that dissemination of intelligence

and operational data need to be based on the ‘need to know’ principle rather than on

hierarchical channels of communication.

Data maintenance rules and compilation of statistics in the Police Directorate need to be

improved. The overall number of policemen remains high compared with crime rates. The

police internal control unit needs to be further strengthened. The overall reform of the police

needs to continue with the adoption of a new Law on the Police, taking into account the new

Criminal Procedure Code and strengthening police integrity and understanding of the role of

the police as a provider of services to the public. Control of access to weapons and explosives

needs to be tightened up. The strategic cooperation agreement with Europol has been ratified

in August 2009.

Overall,

police reform in Montenegro is moderately advanced.

4.3.5.

Fighting organised crime and terrorism

Some progress can be reported in the fight against

organised crime.

In February 2009 the

second Additional Protocol to the European Convention on Mutual Legal Assistance in

Criminal Matters entered into force. The government adopted the fourth and fifth report on

the action plan for implementation of the programme for fighting corruption and organised

crime. Progress has been made on implementation across a large number of areas, although a

considerable number of measures have been only partially implemented or not yet applied.

The national commission on fighting organised crime and corruption and its tri-partite

commission continued their activities on case monitoring and on harmonising statistics and

methods of analysis.

The newly adopted Criminal Procedure Code considerably strengthens the legislative

framework for fighting organised crime and corruption. The number of deputies and

administrative staff in the special prosecutor’s office for fighting organised crime, corruption,

war crimes and terrorism was increased. The relevant departments in the two high courts have

also been strengthened with the aid of specialised training. The number of investigations and

indictments of organised crime cases increased and a higher number of final convictions were

secured, including in a high-profile case concerning the murder of a journalist. The authorities

have been actively participating in international judicial and police cooperation.

The Police Directorate’s unit for fighting organised crime and corruption conducted six

financial investigations in 2008 and brought six criminal charges. Three financial

investigations were initiated between January and April 2009, of which one concerned an

organised crime case. The investigative and operational capacity of the special verification

unit responsible for collecting and analysing intelligence was further developed and the unit

was equipped with new computers.

However, efforts are still needed to ensure effective implementation of delayed measures

under the action plan for fighting organised crime and corruption. Future strategic priorities

and activities need to be based on a thorough and comprehensive assessment of the real needs

and threats related to organised crime and corruption, taking into account the resources

available for implementation. The quality of statistics needs to be substantially improved in

order to be able to track trends in organised crime and corruption. Coordination, at national

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level, of international judicial cooperation needs to be formalised and improved. The working

procedures, staff and technical equipment of the bodies in charge of international cooperation

on law enforcement, in particular the international police cooperation unit, need to be further

enhanced. If the legislative provisions allowing confiscation of criminal assets are to be

effective, police and prosecutors need further training in financial investigations, so that they

can trace criminal assets and present related evidence before the courts. The State Agency,

which will have the task of dealing with confiscated criminal assets, was established in July

2009. Enhanced efforts are needed to ensure the necessary institutional and administrative

capacity to make it operational.

The Police Directorate’s organised crime unit is understaffed and has no staff at local level.

The working conditions of this unit are inadequate and its professional skills need further

upgrading, especially with regard to modern investigation techniques, including financial

investigation, which is not yet perceived as one of the main tools for tackling organised crime,

corruption and money-laundering.

The surveillance capability of the Police Directorate’s special verification unit is insufficient

to conduct investigations effectively, because of the shortage of skilled staff and some special

equipment. Plans to develop a number of practical tools for law enforcement practitioners -

such as a manual on application of special investigative techniques and a manual on

intelligence-led policing - have still to be implemented. Training and expertise, particularly on

financial investigative methods, need to be improved significantly, as do equipment and

premises.

A cooperation agreement between the Police Directorate and the prosecutor’s office was

signed in June 2009. However, implementation of other planned measures, aimed at

formalising the existing informal inter-agency cooperation and exchange of information,

needs to continue. Operational cooperation between law enforcement agencies could be

improved by the establishment of a national coordination unit allowing direct exchanges of

information and intelligence between the police and the tax, customs and money-laundering

administrations. To ensure greater efficiency, gradual development of the necessary expert

skills and processing procedures is needed, together with production and systematic

dissemination of intelligence and information which will support the full-time work of the

unit.

During the reporting period,, convictions in organised crime have increased. In order to attain

better results, consistent use will have to be made of new legal tools, along with recruiting

additional specialised police and prosecution staff, streamlining procedures, strengthening

inter-agency cooperation and providing specialised training.

Overall,

the institutional, legal and administrative capacity for fighting organised crime has

been strengthened. The improvements to the legislation on criminal procedure are a major

step in the right direction. However, the capacity of the police and judiciary to deal with such

cases remains limited. The inefficiencies in prosecution, trial and sentencing of organised

crime in Montenegro remain a serious cause for concern.

There has been good progress in the fight against the

trafficking of human beings.

Montenegro is continuing to be used primarily as a transit country. The 2009 action plan to

implement the strategy to fight trafficking in human beings was adopted in December 2008. It

includes measures against the trafficking of children. The Council of Europe Convention on

Trafficking of Human Beings entered into force in November 2008. Facilities are in place to

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support and protect victims of trafficking. Shelters and victim assistance schemes are

continuing to be run by NGOs and financed by the government. Their existing capacity is

presently sufficient given the low number of victims of trafficking (four persons in 2007 and

three in 2008). The office of the national coordinator on trafficking in human beings has

carried out extensive work on prevention and public awareness-raising to combat trafficking.

Specialised training has been provided to relevant institutions at national and local levels.

Cases concerning trafficking in human beings have been investigated and concluded with

convictions.

Further measures are necessary to enhance the capacity of the authorities to identify potential

victims. The need for changes to the existing legislation on illegal migration will have to be

examined from this angle.

Overall,

Montenegro has advanced in the area of the fight against trafficking in human

beings, though efforts need to continue.

Limited progress has been made on strengthening coordination between and the capacity of

the law enforcement agencies for

fighting terrorism.

The special counter-terrorism unit

within the Police Directorate received further training and contributed to police operations, for

example by protecting persons and consignments of money. A national strategy against

terrorism still needs to be adopted.

Overall,

Montenegro's framework for fight against terrorism is at an early stage of

preparation.

4.3.6.

Protection of personal data

Some progress was achieved, in the form of adoption of the Law on Protection of Personal

Data at the end of 2008. The Law entered into force but changes to the legislation as aiming at

ensuring the independence of the supervisory authority have not yet been adopted. The

President and members of the Council of the authority were not appointed within the time

frame set out by the law.

Personal data protection has not yet substantially improved. Montenegro still needs to

harmonise its data protection legislation fully with the EU

acquis.

The newly adopted law

does not give sufficient independence to the supervisory authority. The supervisory authority

and the necessary information systems are not yet in place. Other legislation also needs to be

aligned with the Law on Personal Data Protection. The public administration needs to be

trained on its new obligations regarding personal data protection.

Overall,

Montenegro has started to address some of its priorities in this area.

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STATISTICAL ANNEX

STATISTICAL DATA (as of 14 September 2009)

Montenegro

Basic data

Population (thousand)

Total area of the country (km²)

National accounts

Gross domestic product (GDP) (million national currency)

GDP (million euro)

GDP (euro per capita)

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

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

SI: Growth rate of GDP (national currency, at constant prices, % change on previous year)

SI: Employment growth (national accounts, % change on previous year)

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

SI: Unit labour cost growth (national accounts, % change on previous year)

SI: Labour productivity (GDP in PPS per person employed, EU-27=100)

Gross value added by main sectors (%)

Agriculture

Industry

Construction

Services

Final consumption expenditure, as a share of GDP (%)

Gross fixed capital formation, as a share of GDP (%)

Changes in inventories, as a share of GDP (%)

Exports of goods and services, relative to GDP (%)

Imports of goods and services, relative to GDP (%)

Industry

Industrial production volume index (2000=100)

Inflation rate

SI: Consumer price index (CPI), (total, % change on previous year)

Balance of payments

Balance of payments: current account total (million euro)

Balance of payments current account: trade balance (million euro)

Note

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

610

612

615

617

619

621

623

624

625

627

13 812 13 812 13 812 13 812 13 812 13 812 13 812 13 812 13 812 13 812

1999

Note

1999

96.0

1999

2000

1 066

1 750

12.4

19.2

4.3

64.1

91.9

16.9

5.5

36.8

51.1

2000

100.0b

2000

2001

1 295

2 113

1.1

11.9

20.7

3.9

63.4

100.2

17.5

5.9

38.4

62.0

2001

99.0

2001

2002

1 360

2 208

1.9

-19.9e

21.8

12.2

20.0

4.0

63.8

105.8

14.6

4.1

35.4

59.9

2002

100.0

2002

-175

-433

2003

1 510

2 435

2.5

-8.9e

11.4

11.6

19.2

3.4

65.8

101.0

13.3

2.1

30.6

47.0

2003

102.0

2003

-102

-359

2004

1 670

2 684

4.4

2.7e

1.7

10.9

18.7

3.5

66.9

99.4

17.0

-0.4

42.0

58.1

2004

116.0

2004

-120

-416

2005

2006

2007

1 815 2 149p 2 808p

2 912 3 443p 4 484p

31.0

35.0

41.0

4.2

8.6p

10.7p

-11.4e -5.0e 11.7e

15.6

13.6

-1.0

10.4

17.1

3.6

68.9

99.8

18.0

-0.3

43.6

61.1

2005

114.0

2005

-154

-514

10.1p

8.5p

16.0p 13.6p

4.3p

4.2p

69.5p 73.7p

104.2p 104.5p

21.9p 24.3p

3.6p

3.7p

49.4p 46.5p

79.1p 79.0p

2006

115.0

2006

-531

-849

2007

115.0

2007

-643

-1 159

2008

113.0

2008

7.4

2008

-1 006

-1 490

Note

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Balance of payments current account: net services (million euro)

Balance of payments current account: net income (million euro)

Balance of payments current account: net current transfers (million euro)

of which government transfers (million euro)

Net foreign direct investment (FDI) (million euro)

Foreign direct investment (FDI) abroad (million euro)

of which FDI of the reporting economy in EU-27 countries (million euro)

Foreign direct investment (FDI) in the reporting economy (million euro)

of which FDI of EU-27 countries in the reporting economy (million euro)

Public finance

General government deficit/surplus, relative to GDP (%)

SI: General government debt, relative to GDP (%)

Financial indicators

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

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

Money supply: M1 (banknotes, coins, overnight deposits, million euro)

Money supply: M2 (M1 plus deposits with maturity up to two years, million euro)

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

Total credit by monetary financial institutions to residents (consolidated) (million euro)

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

Lending interest rate (one year), per annum (%)

Deposit interest rate (one year), per annum (%)

euro exchange rates: average of period - 1 euro = … national currency

Effective exchange rate index (2000=100)

Value of reserve assets (including gold) (million euro)

External trade

Value of imports: all goods, all partners (million euro)

Value of exports: all goods, all partners (million euro)

Trade balance: all goods, all partners (million euro)

Terms of trade (export price index / import price index, 1998=100)

Share of exports to EU-27 countries in value of total exports (%)

Share of imports from EU-27 countries in value of total imports (%)

Demography

Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants)

Infant mortality rate: deaths of children under one year of age per 1000 live births

Note

1999

5.6

13.4

2000

6.1

11.1

2001

5.5

14.6

100

2002

125

2002

4.8

10.8

112

-5

2003

285

403

494

199

1.000

2003

4.3

11.0

148

-2

-1

2004

291

437

547

279

1.000

2004

3.4

7.8

196

147

381

-4

-3

384

318

2005

351

615

867

374

1.000

173

2005

974

461

-514

53.5

45.3

2005

2.4

9.5

197

467

-26

-78

493

376

2006

484

1 099

1 587

843

1.000

329

2006

1 483

627

-855

62.2

45.4

2006

2.5

11.0

440

525

-115

-71

640

515

2007

592

1 557

2 728

2 213

1.000

512

2007

2 073

487

-1 585

65.6

41.3

2007

3.0

7.4

403

568

-74

-58

641

447

2008

512

1 209

2 339

2 726

1.000

360

2008

2 527

433

-2 094

61.3

41.1

2008

7.5

Note

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Life expectancy at birth: male (years)

Life expectancy at birth: female (years)

Labour market

Economic activity rate (15-64): share of population aged 15-64 that is economically active (%)

SI: Employment rate (15-64): share of population aged 15-64 that is in employment (%)

Share of male population aged 15-64 that is in employment (%)

Share of female population aged 15-64 that is in employment (%)

SI: Employment rate of older workers (55-64): share of population aged 55-64 that is in employment (%)

Employment by main sectors (%)

Agriculture

Industry

Construction

Services

SI: Unemployment rate: share of labour force that is unemployed (%)

Share of male labour force that is unemployed (%)

Share of female labour force that is unemployed (%)

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%)

SI: Long-term unemployment rate: share of labour force that is long-term unemployed (%)

Social cohesion

Average nominal monthly wages and salaries (national currency)

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

SI: Early school-leavers: share of population aged 18-24 having not completed upper secondary education

and not currently in education or training (%)

Standard of living

Number of passenger cars per 1000 population

Number of subscriptions to cellular mobile telephone services per 1000 population

Infrastructure

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

Length of motorways (thousand km)

Innovation and research

SI: Spending on human resources (public expenditure on education) relative to GDP (%)

SI: Gross domestic expenditure on research & development, relative to GDP (%)

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

Environment

SI: Total greenhouse gases emissions, CO2 equivalent (tons, 1990=100)

SI: Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP 2004)

Note

70.7

76.1

1999

58.5

39.2

47.3

31.4

2.6

22.5

3.0

71.8

19.3

1999

164.4

99.9

Note

1999

184.6

1999

18.1

1999

71.1

76.3

2000

60.4

38.5

46.2

30.6

3.4

22.4

3.5

70.8

19.3

2000

181.0

100.0

2000

185.3

2000

18.1

2000

71.4

76.5

2001

57.1

37.1

45.6

29.0

3.1

25.8

2.1

69.1

21.2

2001

211.0

91.6

2001

161.0

639.6

2001

18.1

2001

70.9

75.7

2002

59.1

37.7

46.6

29.0

3.0

26.0

2.1

68.8

20.7

2002

149.1

109.7

2002

166.8

775.5

2002

18.1

2002

70.4

74.9

2003

58.9

36.2

44.5

28.1

1.8

25.7

2.0

70.6

22.7

2003

173.9

119.3

2003

171.8

674.4

2003

18.1

2003

71.0

75.3

2004

51.7b

37.4b

46.5b

28.8b

10.9b

16.5b

3.4b

69.2b

27.7b

2004

195.3

130.9

2004

176.1

778.7

2004

18.1

2004

70.4

74.9

2005

49.9

41.0

42.4

27.6

8.6

16.3

2.9

72.1

30.3

2005

213.1

139.7

2005

190.9

872.0

2005

18.1

2005

70.7

74.8

2006

49.0

41.0

29.0

6.8

14.8

4.7

73.7

29.6

2006

246.0

156.4

2006

1 127.5

2006

18.1

2006

493.8

71.2

76.1

2007

53.0

43.0

48.0

37.0

8.1

13.8

3.8

74.3

19.3

18.1

20.9

2007

338.0

179.9

2007

384.4

71.2

76.1

2008

51.9

43.2

50.8

36.1

7.6

15.3

6.1

71.0

16.8

15.9

17.9

2008

416.0

195.2

2008

Note

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SI: Share of renewable energy in electricity consumption (%)

SI: Road freight transport as a share of total inland freight transport (modal split of freight transport) (%)

Energy

Primary production of all energy products (thousand TOE)

Primary production of crude oil (thousand TOE)

Primary production of hard coal and lignite (thousand TOE)

Primary production of natural gas (thousand TOE)

Net imports of all energy products (thousand TOE)

Gross inland energy consumption (thousand TOE)

Electricity generation (thousand GWh)

Agriculture

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

Total utilised agricultural area (thousand hectare)

Livestock: cattle (thousand heads, end of period)

Livestock: pigs (thousand heads, end of period)

Livestock: sheep and goats (thousand heads, end of period)

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

Crop production: cereals (including rice) (thousand tonnes, harvested production)

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

Crop production: vegetables (thousand tonnes, harvested production)

Note

1999

2.7

1999

106.0

518p

180e

22e

306e

195e

2000

2.7

2000

95.0

518p

179e

19e

293e

197e

2001

2.5

2001

107.0

518p

178e

21e

244e

194e

2002

2.3

2002

106.0

518p

183e

22e

241e

198e

2003

2.7

2003

101.0

518p

175e

24e

252e

203e

2004

3.3

2004

104.0

518p

169e

27e

254e

209e

2005

2.9

2005

99.0

517p

118

255

186

2006

982

-49

933

3.0

2006

102.0

517

115

249

178

2007

795

804

2.1

2007

89.0

516

109

222

173

2008

1 136

-25

1 111

2.8

2008

516

106

209

160

Note

10)

11)

SI = Structural indicators

: = not available

p = provisional value

e = estimated value

b = break in series

1) The data are without Financial Intermediation Services Indirectly Measured (FISIM).

2) As of 31 December. Instead of standard M1, data under national definition of M0 are provided.

3) As of 31 December. Instead of standard M2, data under the national definition of M11 are provided. The monetary aggregate M11 comprises M1 increased by the Central Government’s demand deposits

in euros and other currencies. The monetary aggregate M2 includes M1 and the non-banking sector’s time deposits with banks, in euros and other currencies, excluding deposits of the Central Government.

4) As of 31 December. Instead of standard M3, data under the national definition of M21 are provided. Monetary aggregate M21 comprises M2 increased by the Central Government’s time deposits in euros

and other currencies.

5) No official national currency exists. Euro is the currency in use.

6) Age group refers to persons aged 15 or more years.

7) From 2004 onwards, a new methodology, harmonized with the EU requirements, is used.

8) Agricultural area includes: arable land, area under pastries, fishponds and ponds.

9) Number of livestock in 1 000 including enterprises and cooperatives and households.

10) Calculated net quantity in 1 000 tonnes; includes enterprises and cooperatives, and households.

11) Includes households, enterprises and cooperatives