PREPARATORY MEETING for the 12Th Meeting of the EU-Croatia Joint Parliamentary Committee

Mission of the Republic of Croatia to the European Union

PREPARATORY MEETING for the 12th meeting of the EU-Croatia Joint Parliamentary Committee

18 November 2010 Brussels

Exchange of views with Mr. Branko Baričević Ambassador of the Republic of Croatia to the European Union TABLE OF CONTENTS

I. Croatia-EU Relations...... 4 I.1. Progress of the Accession Negotiations ...... 4 I.2. Intensified political dialogue with the European Parliament...... 5 I. 3. Intensified dialogue with the Committee of Regions...... 7 I. 4. Lisbon Treaty ...... 7 II. Political & Administrative criteria ...... 8 II.1. Reform of the Judiciary...... 8 Constitutional Court of the Republic of Croatia ...... 8 Independence – implementation of the uniform, objective and transparent criteria for the selection of the judicial officials ...... 8 Professionalism – the work of the Judicial Academy...... 9 Impartiality ...... 10 Efficiency ...... 10 Rationalization of the court network...... 10 Reduction of pending cases ...... 10 Shortening the court proceedings ...... 11 Introducing modern ITs in judicial system ...... 11 Strengthened Anti-Corruption policy...... 11 Institutional framework for the implementation of the Anti-Corruption Strategy ...... 12 Repressive institutional framework - “USKOK vertical” ...... 12 Legal framework for the fight against corruption and organised crime ...... 12 Statistical monitoring ...... 13 Extended confiscation of the pecuniary gain ...... 13 Interagency cooperation ...... 14 International and regional cooperation ...... 15 Fight against corruption in the judiciary ...... 15 Access to information ...... 16 Conflict of interests...... 16 Public procurement ...... 16 Financing of political parties...... 16 Prevention ...... 16 II.2. Home Affairs...... 16 II.3. Public administration ...... 18 The Strategic framework of the Pubic Administration Reform...... 18 Administrative capacity building ...... 19 Integrity in the civil service ...... 19 Modernisation of the general administrative procedure (and Office Transactions) ...... 20 Human resources development ...... 20 Act on the Salaries of Civil Servants...... 20 Professional education and training ...... 20 Local and regional self-government...... 21 II.4. Civil society...... 21 II.5. Human Rights and Protection of Minorities ...... 22 II.5.1. Human Rights ...... 22 Anti-discrimination...... 22 Gender Equality ...... 23 Children's Rights...... 23 People with disabilities...... 23 Free legal aid...... 24 Prison System...... 24 II.5.2. National Minorities ...... 25 Roma Minority...... 26 III. Specific Stabilisation and Association Criteria ...... 27 III.1. Implementation of the Stabilisation and Association Agreement...... 27 III. 2. Refugee Return ...... 27 III. 3. ICTY & Domestic war crimes proceedings ...... 28 2

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr III.3.1. ICTY...... 28 III.3.2. Domestic war crimes proceedings...... 28 III.4. Regional co-operation...... 29 III.4.1. Multilateral Regional Co-operation...... 29 III.4.2. Bilateral Relations ...... 32 Bosnia and Herzegovina ...... 32 Republic of Serbia...... 33 Republic of Kosovo...... 35 Montenegro...... 36 Republic of Macedonia...... 36 Republic of Albania ...... 37 Republic of Slovenia ...... 38 Italian Republic ...... 40 Republic of Hungary ...... 41 IV. Foreign and Security Policy...... 43 IV.1. Common Foreign and Security Policy ...... 43 IV.2. Union for the Mediterranean ...... 43 IV.3. Common Security and Defence Policy ...... 43 IV.4. NATO ...... 45 IV.5. United Nations...... 45 V. Main Economic Developments ...... 47 V.1. Recent macroeconomic developments...... 47 V.2. Croatia's response to the crisis...... 49 V.3. Investment climate ...... 50 V.4. Foreign Direct Investments (FDI)...... 51 V.5. Trade balance ...... 52 V.6. Tourism ...... 52 VI. ANNEX ...... 53 Shipbuilding ...... 54 EU Financial Assistance (CARDS, Phare, ISPA, SAPARD and IPA) ...... 55

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr I. Croatia-EU Relations

I.1. Progress of the Accession Negotiations

Altogether, negotiations have been opened in all negotiating chapters1 and provisionally closed in twenty-five (25).

Chapters opened (including those provisionally closed)

1. Free Movement of Goods – provisionally closed 2. Freedom of Movement for Workers – provisionally closed 3. Right of Establishment and Freedom to Provide Services – provisionally closed 4. Free Movement of Capital – provisionally closed 5. Public Procurement – provisionally closed 6. Company Law – provisionally closed 7. Intellectual Property Law – provisionally closed 8. Competition Policy 9. Financial Services – provisionally closed 10. Information Society and Media – provisionally closed 11. Agriculture and Rural Development 12. Food Safety, Veterinary and Phytosanitary Policy – provisionally closed 13. Fisheries 14. Transport Policy – provisionally closed 15. Energy – provisionally closed 16. Taxation – provisionally closed 17. Economic and Monetary Policy – provisionally closed 18. Statistics – provisionally closed 19. Social Policy and Employment – provisionally closed 20. Enterprise and Industrial Policy – provisionally closed 21. Trans-European Networks – provisionally closed 22. Regional Policy and Co-ordination of Structural Instruments 23. Judiciary and Fundamental Rights 24. Justice, Freedom and Security 25. Science and Research – provisionally closed 26. Education and Culture – provisionally closed 27. Environment 28. Consumer and Health Protection – provisionally closed 29. Customs Union – provisionally closed 30. External Relations – provisionally closed 31. Foreign, Security and Defence Policy 32. Financial Control – provisionally closed 33. Financial and Budgetary Provisions 34. Institutions – provisionally closed

Croatian accession negotiations have entered the final stage. Croatia has intensified its efforts and stepped up the reforms with a view to meeting all membership criteria and other EU requirements.

In its last Progress Report on Croatia (published in November 2010), the European Commission commended the progress made by Croatia during the last year in all areas of the reform

1 Except Chapter 35, which comes at the very end of accession negotiations. 4

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr process. Croatia's continuous efforts towards meeting the political, economic and acquis criteria for membership in the EU were equally recognised by the Commission.

Croatia is dedicated to the further implementation of the reforms in the areas such as the judiciary and fight against organised crime and corruption, while remaining committed to finalise the adoption of all relevant legislation in these areas by the end of this year. Croatia remains committed to meeting the remaining closing benchmarks as well as presenting track record related to their implementation. Croatia's goal is to complete negotiations by the end of the Hungarian EU Presidency.

I.2. Intensified political dialogue with the European Parliament

The following meetings were held over the past year (update since the briefing in November 2009):

 16-17 November 2009, Chairwoman of the Judiciary Committee of Croatian Parliament Mrs Ana Lovrin participated at the Joint parliamentary Meeting "Building a Citizens' Europe: the Stockholm Programme 2010-2014";

 Shadow Rapporteur on Croatia Mr. Ivo Vajgl (ALDE, Slovenia) paid a working visit to Zagreb on 11 December 2009;

 Former Vice Prime Minister of the Republic of Croatia Mrs Đurđa Adlešič paid two visits to Brussels, on 26 January and on 3 March 2010, and had several meetings with the Members of the European Parliament;

 2-3 March 2010, President of the Croatian Social-Liberal Party (HSLS) Mr. Darinko Kosor met with the leadership of the ALDE Group in the European Parliament;

 4 March 2010, President of the Republic of Croatia Mr. Ivo Josipović paid a visit to Brussels where he met with European Parliament President Buzek, as well as with Council President Van Rompuy and European Commission President Barroso;

 16 March 2010, two Members of the Committee on Gender Equality of Croatian Parliament Dr. Romana Jerković and Mrs Vesna Buterin participated at the conference commemorating International Women’s Day entitled “Violence against Women” organised by the Committee on Women’s Rights and Gender Equality of the European Parliament;

 29-30 March 2010, 11th meeting of the EU-Croatia Joint Parliamentary Committee (JPC) was held in Zagreb;

 8-9 April 2010, Vice-Chairman of the S&D Group and Rapporteur on Croatia Mr. Hannes Swoboda visited Croatia where he met with the state leadership and other high officials;

 3-7 May 2010, in the framework of the IPA 2007 Twining Light Project "Support to the Croatian Parliament for the Preparation for EU Accession”, a study visit to the European Institutions in Brussels was organised for the officials from the Croatian Parliament;

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr  11 May 2010, President of the Social Democratic Party (SDP) and Member of Croatian Parliament Mr. Zoran Milanović had an exchange of views with the members of the S&D Group in the European Parliament;

 7-8 June 2010, Deputy Speaker of the Croatian Parliament and Chairman of the European Integration Committee Mr. Neven Mimica and Chairman of the Croatian Parliament Delegation to the Parliamentary Assembly of the NATO Mr. Krešimir Čosić participated at the Joint Parliamentary Meeting “Towards a European Energy Community for the 21st Century?” held in the European Parliament in Brussels;

 8-9 June 2010, Croatian State Secretary for European Integration Mr. Andrej Plenković participated at the Conference, organised by the Croatian Business Network, "Croatia next EU Member – Economic potential of Croatian regions" which took place in the European Parliament in Brussels under the patronage of Mr. Hannes Swoboda Vice-Chairman of the S&D Group and Rapporteur on Croatia. On the margins of the Conference, State Secretary Plenković met with Mr. Hannes Swoboda, Chairman of the European Parliament’s Delegation to the EU-Croatia JPC Mr. Gunnar Hökmark, Shadow Rapporteur on Croatia Mr. Ivo Vajgl and Spokesperson of the Greens/EFA on Foreign Affairs Ms. Ulrike Lunacek, MEP;

 9-10 June 2010, Member of the Croatian Parliament Ms. Karolina Leaković (SDP), together with the members of SDP Youth, paid a study visit to the European Institutions in Brussels;

 22-25 June 2010, Joint Delegation of the Budgetary Control Committee and the Budgets Committee of the European Parliament paid a visit to Croatia where they met with high state officials and visited several projects funded from the Phare and CARDS programmes;

 9-10 July 2010, Members of the European Parliament, Mr. Hannes Swoboda, Vice- Chairman of the S&D Group and Rapporteur on Croatia, Ms Tanja Fajon, Vice- Chairwoman of the European Parliament’s Delegation to the EU-Croatia Joint Parliamentary Committee, Mr. Ivo Vajgl, Shadow Rapporteur on Croatia, Mr. Zoran Thaler and Mr. Antonio Lopez-Isturiz, Members of the Foreign Affairs Committee, participated at the 5th Croatia Summit "South East Europe Facing Global Challenges", held in Dubrovnik, Croatia;

 30 August 2010, Vice-Chairman of the S&D Group and Rapporteur on Croatia Mr. Hannes Swoboda paid a visit to Croatia during which he was presented with a high state award – the Order of Prince Branimir and held meetings with the state leadership and other high officials;

 4 October 2010, Members of the Croatian Parliament, Mrs Dubravka Šuica and Ms Marijana Petir participated at the Network Meeting of EPP National Parliamentarians responsible for European Affairs and EPP Group Members in the European Parliament

 5 October 2010, State Secretary for European Integration Mr. Andrej Plenković, met with the Chairman of the European Parliament Committee on Foreign Affairs Mr. Gabriele Albertini, during his visit to Brussels where he took part in the European Commission’s press panel on the Danube Region as part of the 8th Open Days: European Week of Regions and Cities;

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr  26 October 2010, Minister for Justice of the Republic of Croatia Mr. Dražen Bošnjaković had an exchange of views with the Members of the European Parliament Committee on Foreign Affairs Working Group on western Balkans;

 8-9 November 2010, Chairwoman of the Croatian Parliament Delegation to the EU- Croatia JPC Mrs. Marija Pejčinović-Burić participated in the Joint Parliamentary Meeting "Beyond the crisis: How should Europe respond to the challenges ahead?" held in the European Parliament in Brussels;

 15 November 2010, Croatian State Secretary Pjer Šimunović held an exchange of views with the members of the European Parliament Subcommittee on Security and Defence;

 16 November 2010, Minister for Foreign Affairs and European Integration of the Republic of Croatia Mr. Gordan Jandroković participated at the EPP Group Conference entitled "Balkans in the Heart of Europe" which was held in the European Parliament in Brussels.

 January – April 2010, Vice-President of the Croatian Parliament Mr Neven Mimica participated in the S & D Observer programme one week per month; while Member of Croatian Parliament Mr Daniel Mondekar participated in the programme form September – December 2010. The programme, which is a precedent in relation to previous enlargement process, will continue to be extended to Croatian unofficial observers in the first half of 2011.

I. 3. Intensified dialogue with the Committee of Regions

With the new mandate of the Committee of the Regions, a Joint Consultative committee with Croatia was established in February this year (the decision had been taken in December 2009). The inaugural meeting of the JCC was held on 15 June 2010 in Dubrovnik where the representatives of the regional and local authorities discussed the latest developments in the relations between Croatia and the EU and its effects on the local and regional level. Special emphasis was also placed on cooperation of national, local and regional government in the time of economic crisis. It is envisaged for the next JCC to take place in December 2010 in Brussels. The establishment of this body will allow better awareness of Croatian local and regional representatives of their future prerogatives within the EU under the subsidiarity principle, while this preparatory phase will contribute to their better links with EU regional and local counterparts.

First Croatian observers in the Committee of the Regions are expected immediately after the signing of the Accession Treaty and nine seats have been allocated for their representation.

I. 4. Lisbon Treaty

As the Lisbon Treaty came into force, Croatia, as a candidate country, closely follows the gradual implementation of the institutional innovations. Croatia is fully supporting the reinforced role of the European Parliament conferred by the Treaty. Croatia counts on the Parliament's timely consent to Croatia's application for membership, having regard to the draft Accession Treaty, upon completion of the accession negotiations. At the last Intergovernmental conference on accession (IGC), held on 5 November 2010 in Brussels, Croatia provisionally closed the Chapter 34 – Institutions, paving the way for Croatia's participation in different EU's institutions and bodies. 7

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr II. Political & Administrative criteria

II.1. Reform of the Judiciary

In 2010, key pieces of legislation concerning the independence, impartiality and the efficiency of the judiciary were adopted, followed by the organizational and institutional setup. The court network and the number of pending cases have been further reduced. The Judicial Strategy Reform (adopted for the first time in 2005, renewed in 2008) is being revised. In May 2010, the Action Plan for the Implementation of the Judicial Strategy Reform has been revised for the second time (adopted in 2005, revised in 2008). The remaining legislation for the completion of the judiciary reform will be adopted by the end of 2010 (Enforcement Act, Private Bailiffs Act, Civil Procedure Code, Mediation Act, Act on Jurisdictions and Seats of Courts, Act on Jurisdictions and Seats of State Attorneys).

Constitutional Court of the Republic of Croatia

Amendments to the Constitution of the Republic of Croatia (June 2010) made changes to the procedure of the appointment of the judges of the Constitutional Court of the Republic of Croatia:

„The Constitutional Court of the Republic of Croatia shall consist of thirteen judges elected by the Croatian Parliament by two-thirds majority of all members from among notable jurists, especially judges, public prosecutors, lawyers and university professors of law in a way and by a procedure prescribed by the constitutional law. The term of office of a judge of the Constitutional Court shall last for eight years ...“2

According to the Constitutional Act on the Implementation of the Constitution adopted on 22 October 2010, the Constitutional Act on the Constitutional Court of the Republic of Croatia will be aligned to the Constitutional provision by 22 October 2011.

Independence – implementation of the uniform, objective and transparent criteria for the selection of the judicial officials

Amendments to the Constitution of the Republic of Croatia (June 2010) – include provisions whose aim is to eliminate the political interference on the appointments of judicial officials and further strengthen the independence of the judiciary by securing the uniform, objective and transparent criteria for the selection of the judicial professionals.

Art. 123 of the Constitution of the Republic of Croatia: “The State Judicial Council (SJC) is independent body which ensures the independence and impartiality of the judicial power in the Republic of Croatia. State Judicial Council, in accordance to the Constitution and law, independently decides on the

2 Unofficial translation 8

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr appointment, promotion, reposting, dismissal and disciplinary responsibility of judges and presidents of courts, except for the president of the Supreme Court of the Republic of Croatia3”.

Following the Constitutional Amendments, the State Judicial Council Act, amendments to the Courts Act and the State Attorney’s Offices Act were adopted by the Croatian Parliament (on 1st October 2010). According to these amendments the members of SJC (and State Attorneys’ Council) will be selected from among their peers: All judges in the Republic of Croatia have the right to propose a candidate and vote for a member of the SCJ, as well as be candidates themselves (except those who were disciplined during last four years). The competent body for the appointment of the SJC members compiles a list of candidates with the highest number of votes, which is being published on the web site of the Supreme Court of the Republic of Croatia. Those candidates from the list who get the biggest number of votes of all judges in the Republic of Croatia will be selected as members of the SJC.

Legislative and institutional changes have been introduced in order to secure uniform, objective and transparent criteria for the selection of the judges and state attorneys as well.

From January 2010, the Judicial Academy has become an independent institution, including the State School for Judicial Officials in itself. The JA is in charge of the initial professional training of trainees and lifelong learning of judicial officials, while the State School became in charge of the two-year education of candidates for judicial officials.

Through their two-years training in the State School, candidates will acquire knowledge and skills for the independent performance of their duties. After they complete their education, and based on their final grades, the State Judicial Council and the State Attorney's Council will make appointments of judges and state attorneys according to the priority list. In September 2010, the first announcement for the candidates to the State School was published (among 300 candidates, 40 will be selected for posts of judges and 20 for state attorneys). The candidates will complete the education program by the end of 2012 and become the first generation of judicial officials appointed in accordance with the new procedure.

In the transitional period until 1 January 2013 when the first generation of judges educated in the State School for Judicial Officials will be appointed, the SJC will apply the new objective and transparent criteria proscribed by 2009 amendments to the Courts Act. On the basis of the provisions of this Act, two announcements of vacancies for positions of a judge were launched in 2010. Following the announcements, the candidates for judges completed written and oral examination. (The members of the SJC were trained how to conduct structural interviews with candidates for judges according to the new legislation).

Professionalism – the work of the Judicial Academy

In April 2010, an announcement of vacancies for 82 trainees in 39 judicial bodies was published on the basis of the 2009 Judicial Trainees in Judicial Bodies and Bar Examination Act, which defines uniform, transparent and objective criteria for the selection of trainees in courts and state attorneys’ offices. Based on the results of the written examination conducted on 16 July 2010 a priority list of candidates was established. Candidates shall be appointed after structural interview according to the priority list.

3 Unofficial translation 9

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr In order to ensure adequate premises for the work of the Judicial Academy, especially the State School for Judicial Officials, on 6 September 2010 JA has moved to the new premises.

Impartiality

Further steps have been taken in the area of strengthening the judicial ethics and professional responsibility of judges (and state attorneys accordingly).

According to the State Judicial Council Act failure to act in accordance to the decision of the higher court concerning the obligation to adjudicate in a certain period of time on the claim for the right to a trial within a reasonable time constitutes a disciplinary offence.

Furthermore, a disciplinary offence constitutes (among others): - failure by a judge to provide with the declaration of assets or to provide with false or untrue information about his assets, and especially - failure by a judge to bring decisions without justified reason - a negative valuation of the judge’s work

Presidents of courts will be dismissed from the position of the president especially if he/she violates the rules about the allocation of cases to judges or infringes the independence of the judge in a certain case.

Systematic training concerning professional ethics, professional duties and responsibilities of judicial officials have been held through special educational activities of the JA.

Efficiency

New proposals of the Enforcement Act and the Private Bailiffs Act with the aim of developing an efficient and effective enforcement system in Croatia by simplifying the procedure, reducing the duration of the procedure and unburdening courts will be adopted by the end of 2010.

Rationalization of the court network

In 2009 and 2010, the number of the courts network (municipal and misdemeanour) in the Republic of Croatia has been reduced by 41%, while the number of municipal state attorneys’ offices has been reduced by 23%.

Reduction of pending cases

Unresolved cases. There has been a constant trend of declining the number of unresolved court cases. On 30 June 2010, overall number of unresolved cases was 778,127, which is almost 50% less then in 2004 (1,640,365) and 10.60% less than in the same period in 2009. Remarkably good results have been achieved at misdemeanour courts, due to the implementation of the 2008 Misdemeanour Act. According to May 2010 Action Plan for Resolving Old Cases at the Most Burdened Croatian Courts (Zagreb and Split municipal civil courts) measure of strengthening human resources at those courts have been initiated (procedure of the selection and appointments of the judicial counsellors and staff). The number of unresolved land registry backlog has been resolved. Land registers in Croatia were digitalized, and all land register files verified. Currently, the project of establishing the Common Information System (CIS) of the cadastre of real estate and land registers has been

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr underway. The average number of days for the registration of mortgage is 6 days, while land- registry excerpts are issued the same day.

Shortening the court proceedings

In January 2010, a modern and reformative new Act on Administrative Disputes was adopted. The Act transposes the European standards defined in Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (the administrative dispute as a dispute of full jurisdiction; consistent implementation of the principles of oral hearing; better accessibility of administrative court instances, etc.). The introduction of two-instance administrative adjudication makes access to administrative courts easier for citizens, ensures greater legal security and better protection of the rights of parties against decisions and acts issued by public bodies. Along with improving the quality of protection, it will considerably increase the capacity of the administrative adjudication branch in the Republic of Croatia, thus resulting in greater efficiency, shorter procedures and fewer backlogs. On 1 January 2012, four administrative courts and the High Administrative Court of the Republic of Croatia will replace the present structure in conducting administrative proceedings.

First experiences in the implementation of the new Criminal Procedure Act, which entered into force on 1 July 2009, as regards corruption and organised crime cases proved to have simplified and accelerated court proceedings. The new Act reformed the criminal procedure in the Republic of Croatia: the court investigation has been abolished and the prosecutorial investigation has been introduced, while the preliminary proceedings changed. For all other criminal offences the Criminal Procedure Act will enter into force on 1 September 2011.

Introducing modern ITs in judicial system Within the framework of the e-company project, the work of commercial courts has been significantly improved by making online registration of companies possible. In July 2010, the Parliament adopted the Act on Amendments to the Courts Register Act. The Amendments to the Act are directed to the continuation of informatization and modernization process of the court register initiated with the e-company project. With the goal of ensuring a more effective organization of the judicial system, ICMS – the Integrated Court Case Management System – is being introduced in the Croatian courts, while the State Attorneys’ Office is to have the CTS - Prosecutorial Case Tracking System. In 2010, the ICMS has been introduced in 46 courts and 10 permanent offices. All municipal courts now have a program of e-statistics which enables statistical monitoring of the work of all municipal courts and of every judge. The revised Action plan provides further IT development in the judiciary.

Moreover, a single IT system for free legal aid has been created, which connects state administration offices with the central IT system at the Ministry of Justice.

Strengthened Anti-Corruption policy

The strategic anti-corruption framework of the Republic of Croatia was defined by 2008 Anti- Corruption Strategy and accompanying Action Plan (revised 2010) focusing the anti-corruption activities on strengthening the legal and institutional framework, preventing and suppressing corruption, promoting international cooperation, and strengthening anti-corruption awareness and cooperation with civil society. 11

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Institutional framework for the implementation of the Anti-Corruption Strategy

Coordinating Committee for the Monitoring of the Implementation of Anti-Corruption Strategy and its Action Plan is a governmental body established in April 2008 with the Prime Minister as a president and technical support provided by the Anti-Corruption Sector (Ministry of Justice). The heads of institutions involved in the implementation of anti-corruption measures are members of the Committee. Within the Croatian Parliament National Council for Monitoring the Implementation of the Anti-Corruption Strategy and its Action Plan was established in 2008. The Council holds regular sessions related to the implementation of the anti-corruption measures and special topic- related sessions. As of May 2008, the Council has been chaired by the member from the strongest opposing political party in Parliament and it is composed of 2 members from the ruling party, 2 members from the opposing parties and 5 members from the rank of prominent public figures. The National Council has been actively cooperating with the NGOs: especially with the GONG (Croatia's leading election support NGO) and Transparency International Croatia regarding issues such as the right of access to information and raising public awareness about the corruption. Commission for the Suppression of Conflict of Interest in the Exercise of Public Office is a parliamentary body established in 2004, which controls the implementation of the Law on the Prevention of the Conflict of Interests in the Performance of the Public Duties. As of 9 October 2008, the Commission has been chaired by prominent public figures, and composed of 3 members from the ruling parties, 3 members from the opposing parties and 5 members from the rank of prominent public figures (including the president).

Repressive institutional framework - “USKOK vertical”

Office for the Suppression of Corruption and Organised Crime (USKOK) is a specialised department of the State Attorney’s Office of the Republic of Croatia established in 2001.

“USKOK vertical” is a structure of specialised police, prosecutorial and court bodies established in 2009 with the aim to more efficiently prosecute the perpetrators of criminal offences of corruption and organised crime. Administrative capacities of USKOK have been strengthened recently by employing 3 deputy state attorneys.

National Police Office for the Suppression of Corruption and Organised Crime was established within the Ministry of Interior, with strategic headquarters in Zagreb and operational departments in Zagreb, Rijeka, Split and Osijek. It has been in function since 16 September 2009.

Specialised court chambers at Zagreb, Split, Rijeka and Osijek county courts, competent exclusively for cases of corruption and organised crime, have been in function since 1 March 2009 (56 judges were appointed after security checks).

Legal framework for the fight against corruption and organised crime

Act on the Office for the Suppression of Corruption and Organized Crime brought in 2001 is the lex specialis for the prosecution of the corruption and organized crime criminal cases

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr - 2005 amendments to the Act brought major changes to the Act which concerned significant broadening of USKOK’s competences (to criminal offences of giving and getting bribe, money laundering) - 2007 amendments to the Act further broadened USKOK’s competences to the criminal offence of the misuse of the official authorities and powers - 2009 new Act on the Office for the Suppression of Corruption and Organized Crime was brought - On October 5, 2010 amendments to the Act on the Office for the Suppression of Corruption and Organized Crime were adopted by the Croatian Parliament. The amendments relate to the extending of the USKOK′s competence to the investigation and prosecution of the criminal offences of tax fraud.

The Criminal Procedure Act (entered into force on 1 July 2009 for corruption and organized crime cases) reforms considerably the investigative phase of procedure by abolishing court investigation and introducing the so called "prosecutorial" investigation i.e. designing the role of the state attorney as a leader during the preliminary (investigative) procedure.

Police Powers Act (entered into force on 1 July 2009) secures, inter alia, alignment of new police role to a main role of state attorney during the investigation phase of criminal proceedings.

Court Rules of Procedure (October 2008) define corruption cases to be dealt with as a priority as well as strict time limits for conducting procedural activities.

Amendments to the Constitution of the Republic of Croatia, adopted in June 2010, confirmed autonomous and independent status of the State Audit Office, which audits, according to the State Audit Act, “public incomes and expenditures, financial statements and financial transactions of government units and local and regional self-government units, legal entities being partly or wholly financed from the budget, public enterprises, companies and other legal entities owned in major part by Republic of Croatia or local and regional self-government units, use of EU funds and funds of international organizations or institutions for financing of public needs”.

Statistical monitoring

USKOK has developed a statistical system for monitoring the results of investigations, of the court procedure and judgments in cases of organized crime and corruption. USKOK is also entering data into the information system of the Supreme Court of the Republic of Croatia which enables unified statistical monitoring of handling of corruption and organized crime cases before specialized court chambers.

USKOK’s statistics for 2008-August 2010 period:

period criminal investigations indictments 1st level verdicts final verdicts charges of convictions 2008 773 238 230 73 68 2009 842 270 180 192 166 1 Jan – 30 Aug 2010 586 77 94 139 130

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Extended confiscation of the pecuniary gain

2008 Criminal Code amendments introduced the extended confiscation of property gains which were acquired by criminal offence under the jurisdiction of USKOK (until then USKOK acted on the basis of the general provision on the confiscation of the property gains). According to the amended Art. 82 of the Criminal Code, it is assumed that the total property of the perpetrator of the offence within the USKOK jurisdiction was acquired as property gain of a criminal deed unless the perpetrator proves that the origin is legal. Consequently, the burden of proof that the property of the perpetrator of the criminal offence was acquired in a legal manner is „transferred“ to the perpetrator.

So far, in 2009 and 2010 the confiscation of assets has been adjudicated in more than 150 final judgments for petty corruption cases and in one final judgment for high level corruption in line with the aforementioned Art. 82 of the Criminal Code (confiscated 35,000,00 EUR and 3,670,076,30 KN), while appeals have been lodged against several more non-final judgments for high level corruption in which the confiscations of assets was adjudicated as well.

In all medium and high level corruption cases pending at courts, the assets of the perpetrators of the criminal offences have been frozen until the final judgments will be reached. In 2009, in USKOK’s cases 3,960,076,70 KN, EUR 80,000,00, movables estimated to worth 527,000,00 KN, stocks worth 4,400,000,00 KN and real estate worth 8,000,000,00 KN were frozen. In the same period 28,631,525,65 KN and 424,484,00 EUR were confiscated in total.

Constitutional changes, adopted in June 2010, provided for new provision concerning the statute of limitation and the confiscation of the pecuniary gains gained during the Homeland war:

“No statutory limitation shall apply to criminal offences of war profiteering, nor to criminal offences connected to the process of conversion and privatization perpetrated during the Homeland war and the peaceful reintegration, warfare and immediate threat to the independence and territorial integrity of the State, prescribed by the law, neither other criminal offences which, pursuant to international law, are not subject to the statute of limitations. The pecuniary gain, gained by those criminal offences or connected to them shall be confiscated.”

The draft Act on the Procedure for the Confiscation of Proceeds of Crime and Misdemeanour was adopted by the Government in July 2010, and referred to the Parliament for adoption. According to the draft Act, the Central State Administration Office for the Management of State Assets will be authorized for the management of the confiscated pecuniary gain.

Interagency cooperation

Inter-agency cooperation is prescribed by strict legal rules (Act on USKOK) and further elaborated in memorandums of understandings.

Signed memorandums and agreements:

- Memorandum of Understanding between the Tax Administration and the USKOK has been amended. In line with the amendments, employees of the Tax Administration would spend part of their working time in USKOK as investigators in property

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr investigations. Likewise, USKOK's advisors working on property investigations have been chosen to be sent for six months training to the Tax Administration in order to gain knowledge needed for the financial investigations.

- Protocol on the Cooperation of the State Attorney’s Office and the Police Directorate

- Agreement on Data Exchange in the Pre-investigation Procedure between the Police Directorate and USKOK

- Agreement between the Ministry of Economy, Labour and Entrepreneurship (MELE) and USKOK encompasses enhanced cooperation on exchange of information, mutual expert assistance and training.

Seminar on the “Special financial investigation techniques for the corruption criminal offences” was held in October 2010 with a view to strengthen interagency cooperation and contribute to the professionalization of judges, state attorneys, police and customs officers.

International and regional cooperation

Act on the Office for the Suppression of Corruption and Organized Crime provides for the international cooperation in the prosecution of criminal offences within the competence of USKOK.

Agreements with the neighbouring countries were signed on the exchange of evidence in the cross-border criminal cases.

In 2007, the Agreement on Cooperation between the Republic of Croatia and Eurojust was signed. The Agreement entered into force in 2008.

On 29 June 2010, the Republic of Croatia and the Republic of Serbia signed the Agreement on Extradition of persons suspected or convicted of crimes related to organized crime and corruption. Pursuant to the Agreement, one Croatian national has been extradited to the Republic of Serbia.

The Extradition Agreement between Republic of Croatia and Montenegro was signed on 1 October 2010.

On 10 February 2010, the amendments to the existing Agreement on the Execution of the Final Court Decisions in Criminal Matters between Croatia and Bosnia and Herzegovina were signed, thus removing the possibility for people with dual citizenship to avoid serving their prison sentences. According to the Agreement, until 1 September 2010, Croatia referred 36 final judgements to the competent bodies of Bosnia and Herzegovina for the purpose of recognition and serving a custodial sentence. So far, one person has accepted serving a custodial sentence in Bosnia and Herzegovina.

Fight against corruption in the judiciary

In June 2010, Croatian Parliament adopted Amendments to the Constitution of the Republic of Croatia which gave new impetus to the independence of the judiciary: new Act on the State Judicial Council has been adopted, according to which the members of the SJC will be elected by their peers (judges will propose and elect members of the SJC). By the end of the January 2011 new SJC will be elected according to new rules.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Access to information

Constitutional amendments of June 2010 introduced the right of access to information in the possession of bodies vested with public powers as a constitutional right. Consequently, the Amendments to the Act on the Right to Access to Information are expected to be adopted by the Croatian Parliament by the end of 2010.

Conflict of interests

There is a legislative framework on conflict of interest at state level and the level of local and regional self-governments (Act on the Prevention of Conflict of Interest in the Exercise of Public Office, Act on Civil Servants in Local and Regional Self-Government).

On 15 July 2010, the Act on Amendments of the Act on the Prevention of Conflict of Interest in the Exercise of Public Office (OG 92/10) was adopted.

Special attention has been paid to the education of public administration in understanding the notion of conflict of interests. In October 2010, 3 seminars attended by 40 attendees were aimed at the representatives of the local self governments.

Public procurement

Comprehensive legislative package in public procurement system which was adopted (Concession Act, Public-Private Partnership Act and Public Procurement Act) has been aligned with relevant EU acquis, institutionally backed up by Central Procurement Office and State Commission for Supervision of Public Procurement Procedure.

Financing of political parties

New Act on Financing Political Activities and Election Campaigns is expected to be adopted by the Croatian Parliament by the end of 2010.

Prevention

Government has been determined to achieve “zero tolerance to corruption”. Efforts are being invested in the education of judges, public prosecutors, civil servants and whole society on the harmfulness of corruption. Training of the public administration officials has been held with an emphasis on work transparency and integrity.

II.2. Home Affairs

Croatia has continued to align national legislation and strengthen its institutional capacities for the full implementation of the acquis in the area of asylum and migration.

The Asylum Act entered into force on 1 January 2008, and the Croatian Parliament passed the Act on Amendments to the Asylum Act on 2 July 2010, thus completing the alignment of the Act with the acquis in the area of asylum.

At the beginning of April 2010, preparations for the drawing up and adopting the Act on Amendments to the Aliens Act (OG 79/07, 36/09) commenced. These amendments are aimed at

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr a more precise definition of certain provisions, and at rectifying the drawbacks identified in the implementation of the Act in practice, as well as full alignment with the provisions of Council Directive 2004/38/EC of the European Parliament and of the Council of 29 April 2004 on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States, with the Directive 2008/115/EC of the European Parliament and of the Council of 16 December 2008 on common standards and procedures in Member States for returning illegally staying third-country nationals, final alignment with the relevant legal instruments of the EU in the field of visas and Regulation (EC) No 562/2006 of the European Parliament and of the Council of 15 March 2006 establishing a Community Code on the rules governing the movement of persons across borders (Schengen Borders Code). The Act on Amendments to the Aliens Act will be send into Governmental procedure by the end of 2010.

Croatian Visa Database (CVD) was put into operation in December 2009. The CVD has been introduced in all the major visa issuing bodies in the Republic of Croatia, in all police administrations and stations, and in all diplomatic missions and consular posts. The CVD represents the basis for the future Croatian Visa Information System, and in the course of 2010 and 2011, the CVD will continue to be developed and upgraded, along with other preparatory tasks, in order to meet the demands of the EU and ensure readiness to join the EU Visa Information System. In 2011, it is planned to implement the test phase of collecting biometric data from visa applicants in certain diplomatic missions and consular offices.

Second generation of the biometric passports began to be issued by the Zagreb Police Administration on 29 June 2009, and from 18 January 2010 in all Ministry of the Interior police administrations and police stations in the Republic of Croatia. The Croatian biometric passport fully meets the requirements defined by EU legislation on security standards and biometrics in passports and travel documents issued by the Member States. The biometric passport form contains an electronic data storage medium containing biometric data (biometric facial image and fingerprints), as well as other personal data referring to the passport holder. The e-passport system was introduced by the end of September 2010 in all Croatian diplomatic missions and consular offices.

The Republic of Croatia has made a substantial progress in the field of border management and has been continuously implementing the activities foreseen in the Integrated Border Management Strategy and in the accompanying Action Plan for its implementation, in the Schengen Action Plan and in other strategic documents, in order to be able to fully ensure the fulfilment of EU requirements concerning control of the external border upon the accession to the European Union. Since their adoption, Croatia has updated the Strategy and Schengen Action Plan, while the Integrated Border Management Action Plan is updated on an annual basis. Croatia has been annually assessing the achieved results, monitoring that the activities of all strategic documents are complementary, and envisaging new activities.

During 2009, the Government of the Republic of Croatia allocated additional HRK 172,091,642 (cca 23 mil. EUR) to secure technical equipment for the Border Police in the period 2010-2012. During 2010 the procurement in the amount of HRK 135 million (cca 18 mil. EUR) has been contracted. The most important pieces of equipment include the procurement of the sea and river vessels, IT equipment for the installation of the National Border Management Information System (NBMIS) to border crossing points, vehicles, thermal imaging devices and night vision devices. Further implementation of the new NBMIS, which speeds up the process of carrying out border checks due to its optical readers for travel documents, fingerprint readers, licence plate readers for vehicles and a vehicle counter is underway. The NBMIS will be operational at all border crossing points on the future external border by the end of 2011.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr For the purposes of blue border surveillance, the Maritime Police Development Strategy, along with the accompanying Action Plan for the period from 2011 to 2013 was adopted by the Government on 21 October 2010. This document established the strategic framework for implementation of an efficient system for the surveillance of the maritime border in accordance with the EU standards. Pursuant to the Exchange of Letters by the Head of the Border Directorate and the Director of the Frontex Agency on 29 April 2010, the Action Plan for the Implementation of Bilateral Activities and Measures 2010 – 2011 has been conciliated and formalised, in line with the “Working Agreement on the Establishment of Operational Co-operation between the Ministry of the Interior of the Republic of Croatia and the European Agency for the Management of Operational Co-operation at the External Borders of the Member States of the European Union”.

In order to create the conditions for more successful international police co-operation, Croatia has signed 35 bilateral agreements and 12 bilateral acts, and further 2 agreements on police cooperation within the framework of international bodies (with the SECI Centre and EUROPOL). At the same time, Croatia has been participating in the work of INTERPOL, EUROPOL and the SECI Centre. Deployment plan envisages 10 police liaison officers to be sent to international organisations and individual states where there is a need and interest for more intensive cooperation. A police liaison officer has been already deployed to EUROPOL. In 2010, deployment procedure for 4 other police liaison officers to Republic of Austria, Republic of Serbia, State of Israel and INTERPOL are expected to start. In 2010, with a view to strengthening bilateral police co-operation in the field of combating organised crime, the Ministry of the Interior of the Republic of Croatia and the Ministry of the Interior of the Republic of Serbia initiated specific arrangements, with a view to establishing a joint Centre for the Fight against Organised Crime, in line with the Agreement between the Government of the Republic of Croatia and the Government of the Republic of Serbia on Police Co-operation. During 2010, the project "International Police Co-operation of Police in Uniform during Tourist season in Croatia" successfully continued. In comparison to the previous year, the number of participating police forces has risen from 6 to 8+1 (Republic of Austria, the Republic of Hungary, the Slovak Republic, the Czech Republic, the French Republic, Federal Republic of Germany as well as the Free State of Bavaria, the Republic of Poland and Interpol) and the number of police officers to be engaged has been raised from 51 to 60. Their role is the establishment of better communication between the Croatian police and their own nationals and vice versa, with an aim that foreign guests enjoying a more comfortable stay. On 29 October 2010, for the first time, Ministry of the Interior launched public consultations on a draft of the new Police Act, which is aimed to elevate professionalism and career in the police service with transparent management of human resources.

II.3. Public administration

The Strategic framework of the Pubic Administration Reform

The Public Administration reform Strategy, adopted in March 2008, is currently under revision and the Ministry of Public Administration (MoPA) is working on a document containing the evaluation of the measures that have been fulfilled together with the timetable for the measures yet to be carried out. The revision is based on the Expert Committee Report and the recommendations of the SIGMA experts.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Administrative capacity building

Simultaneously with drafting of the Act on Salaries in the Public Sector the process of drafting the amendments to the Civil Service Act is being performed, primarily in the area of increasing the mobility of civil servants (single procedure of reassignment institute within the civil service) and the appraisal system as far as the evaluation criteria and procedure are concerned. The proposal on upgrading the appraisal system is based on the proposals and opinions submitted by the state administration bodies and the Study on the Evaluation of the Performance Assessment of civil servants in six EU Member States, produced by SIGMA.

The Government of the Republic of Croatia has adopted the Regulation on Job Classification in Administrative Bodies of Local and Regional Self-Government Units in May 2010. The Regulation entered into force in June 2010.

Plan on cutting the number of employees in the central state administration by 5 percent has been scheduled to finalise by the end of November 2010, including the bestow process of excess civil servants and retraining of civil servants (clause 'two for one' - two civil servants leaving the service and one employed). Currently, there is an ongoing process of collecting the data on the number and structure (profile) of employed civil servants who can be retired and the process of drafting the criteria for defining the excess of civil servants.

MoPA adopted (mid May) the 2010 Civil Service Employment Plan for State Administration Bodies, Professional Services and Offices of the Government of the Republic of Croatia, wherein recruitment is planned only for civil servants with work experience in the implementation of IPA programmes, in line with the Decision of the Government on activities to be conducted by ministries and other institutions included in the implementation of IPA programmes by the end of 2010, with a view to obtaining the license to operate the system of EU pre-accession programme management without ex-ante control by the Delegation of the European Union.

The recruitment of 462 civil servants with specific work experience, in order to meet the obligations towards the European Union, will be conducted after carrying out a justification analysis of the recruitment procedures by the Ministry of Public Administration and the Office of the Chief Negotiator with the European Union.

Integrity in the civil service

Institutional framework comprises of the following bodies: the Ethics Department within the Ministry of Administration (a total capacity of 5 civil servants), ethics commissioners and the Ethics Commission introduced through the Amendments to the Code of Ethics adopted on 14 November 2008 (OG 134/08).

A total of 319 ethics commissioners are appointed in state administration and judicial bodies in order to provide more efficient cooperation of the Ethics Department and state bodies with regard to promotion of ethical standards.

Ethics Commission was set up as an independent body with the task to promote ethical principles in state bodies by issuing communications and warnings. The Ethics Commission has six members – two representatives of civil servants, two representatives of trade unions, one representative of the Croatian Parliament Staff Service and one representative of NGOs, who acts as its chairperson.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Modernisation of the general administrative procedure (and Office Transactions)

With a view to aligning special procedural laws with the new General Administrative Procedure Act (GAPA), as part of a Danish bilateral assistance programme, implementation of the project “Preparation for the Implementation of the new General Administration Procedure Act – Alignment of Existing Special Procedural Laws” is in final phase. Over hundred special acts are colliding with the provisions of the new GAPA.

In that view, the Ministry of Public Administration has proposed to the Government of the Republic of Croatia to adopt a Conclusion on the Harmonisation of the Procedural Provisions of the Special Acts with GAPA. The proposed Conclusion obliges the central state administration bodies to draft proposals for amendments on the acts (in the administrative area the determined scope of work) in which the procedural provisions are to be harmonised with GAPA within six months.

Training on GAPA implementation has been systematically carried out. The tender documentation for the implementation of the project under the IPA 2008 programme “Implementation of the GAPA”, worth EUR 1,666,667, was published on 19 October 2010. The project consists of three components: efficient monitoring of implementation of the General Administrative Procedure Act (GAPA), carrying out training activities with the aim of efficient implementation of the Act, and strengthening awareness in the private sector and among citizens concerning benefits of application of the new Act.

Human resources development

In June 2010, the Croatian Government adopted the Decision on Maintaining a Staff Register for State and Public Services, under which MoPA, in cooperation with the Ministry of Finance and the Central State Office for e-Croatia prepared a detailed specification of functionality requirements and of the content of the register (July 2010) and submitted it to the Financial Agency. The fully operational register will be in place by no later than 31 March 2011. The establishment of the register will facilitate, inter alia, better quality of the statistical processing of data on the staff, data analysis and human resources management. In the recruitment field, it will be possible to plan recruitment needs and ways to fill vacancies, as well as follow the execution of recruitment plans in a better way.

Act on the Salaries of Civil Servants

Currently there is a process of appointing the members of the Committee for drafting the Act on Salaries in the Public Sector (comprising of representatives from civil service and public service trade unions) and of preparing of the first Draft Proposal of the Act, aiming at standardising the salary system in the public service and state bodies and local and regional self-government officers and proposing the appraisal system taking into account the performance assessment of the civil and public servants and employees. This proposal is aiming at avoiding the rigid salary system where the salary category depends entirely on the post and the number of years in the service without taking into account the performance appraisal system of the civil servants and employees.

Professional education and training

Training of civil servants at all levels has been carried out continuously at the Civil Service Training Centre. Anti-corruption seminars, basic and advanced courses, are continuously 20

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr carried out at the Centre. Furthermore, as a part of sensibilisation of the civil servants and local civil servants and employees and as a part of raising the awareness of the consequences of the corruption a manual with the working title “Suppression of Corruption” and the brochure “Corruption – a Serious Problem” have been completed and published. With a view to train regional and local officials and servants on the topic of the prevention of conflicts of interest, preparations have been made for training trainers for implementation of the educational programme on the suppression of corruption, and for the development and implementation of specialist training programmes related to the suppression of corruption. These programmes will start by the end of 2010 in state administration offices in the regional and local self-government units

Local and regional self-government

In terms of local self-government reform the Government of the Republic of Croatia in July 2010 adopted Guidelines and Principles for Functional Decentralisation and Territorial Organisation. Objectives of local-self government reform and criteria for optimal territorial organisation were established as well as principles for implementation of functional decentralisation and territorial organisation.

The database on local and regional self-government units, completed in July 2010, contains the relevant demographic, geographic, economic, social and institutional information for over 90% of all local and regional self-government units. The processing and analysing the data in order to create the models of territorial reorganisation is in progress. The working group for decentralisation and territorial reorganisation, comprising of representatives of line ministries, associations of local authorities, trade unions, employer’s association, academic community and experts was established on 23 September 2010 and held its first meeting on 22 October 2010.

II.4. Civil society

Civil society organisations (CSO) have played a very important role at creating policies which affect the general public. In that respect, CSO representatives have been included in the working groups conducting negotiations between the EU and Croatia, and have also been directly involved in drafting of Action Plans by IPA Programme components. Together with the Government, civil society organisations actively participate in the shaping of crucial public policies in Croatia and the fostering of regional cooperation.

EU-Croatia Joint Consultative Committee aims to establish supplementary forms of dialogue between the EU and Croatia, foster public discussions on implications of Croatian membership in the EU as well as contribute to strengthening civil society by promoting dialogue between economic and social interest groups. The Committee‘s fields of activities also include all economic and social issues related to the Stabilisation and Association Agreement (SAA). So far, the Committee held seven meetings. At the last EU-Croatia JCC Meeting, that took place on April 8 in Brussels, EU representatives and Croatian civil society organisations discussed the latest development in Croatian accession negotiations, with particular emphasis on economic and social rights and transport policy. The 8th meeting of the EU-Croatia JCC is scheduled to take place in January 2011 in Zagreb.

In May 2010, the Government adopted the Report on Allocation of Financial Support for Projects and Programmes of Civil Society Organisations (CSOs) in 2009, together with recommendations for enhancement of the financial support system. The total financial support

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr provided in 2009 was EUR 51 million at the county level, EUR 63.5 million at the city level and EUR 29.7 million at the municipality level in the Republic of Croatia.

Code of Practice on Consultation with the Interested Public in Procedures of Adopting Laws, Other Regulations and Acts (Code) was adopted by the Government in November 2009. The Code establishes good practices (minimum standards and measures) for the participation of the interested public in procedures of adopting and implementing laws, other regulations, and other acts in the implementation of the National Anti-Corruption Strategy and its Action Plan. Furthermore, Government Office for NGOs (GOfNGOs) has finalised the Guidelines for implementation of the Code and CSOs were included in the consultation process.

Within IPA 2008 I component, the GOfNGOs closed a Call for Proposals for three grant schemes within the project Enhancing the capacities of the civil society sector for the monitoring of implementation of the EU Acquis in the field of combating corruption and overall transparency, in the field of anti-discrimination strategy, and in the field of waste and water management, transport, regional development, sustainable use of natural resources and environmental safety. The value of the project is over 3 million EUR.

Within IPA 2009 I component, a project Enhancing the Sustainability and the Development of Civil Society Organizations as Proactive Social Actors in the Implementation of the EU Acquis was endorsed by two grant schemes: in the field of democratisation, human rights and refugee return and in the field of innovative social service delivery programmes in Areas of Special State Concern. The value of the project is 2,450,000 EUR. Furthermore, a project within IPA 2010 (Component I) has been prepared and is expected to be endorsed.

In the field of Community Programmes, the project ‘Emigration—Yesterday and Today’ of the Town of Rijeka (together with partners from Bulgaria and Slovenia) won the Golden Star Award as one of the best projects in 2009 in the category of city twinning.

II.5. Human Rights and Protection of Minorities

II.5.1. Human Rights

On 30 July 2009, the Government accepted the integral Report on the Implementation of Measures included in the National Programme for the Protection and Promotion of Human Rights 2008-2011. The detailed analysis of data on the implementation of individual measures showed that the implementation of the National Programme for the Protection and Promotion of Human Rights 2008-2011 was very successful in its first year of implementation.

With the latest Constitutional Amendments from June 2010, the Ombudsman's rights and duties are strengthened in order to more effectively protect and promote human rights and freedoms guaranteed by the Croatian Constitution, laws and international conventions. The Ombudsman and other commissioners of the Croatian Parliament enjoy immunity.

Anti-discrimination

On 1 January 2009, the Anti-discrimination Act entered into force. Based on the Act, in December 2009, the Government decided that the Office for Human Rights would be in charge of monitoring the implementation of the action plans of the National Anti-discrimination Plan 2008-2013.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr “The Guide to the Anti-discrimination Act”, available in Croatian and English, deals with anti- discrimination law and the Anti-discrimination Act, the scope and reach of the Anti- discrimination Act, forms of discrimination, prohibition of discrimination and exceptions to prohibition, the institutional framework, procedures before the court, proving discrimination and the burden of proof in EU law, penal provisions, and the relationship between the Anti- discrimination Act and the Constitution and other laws prohibiting discrimination.

In January 2010, the Office for Human Rights issued the Decision on tasks and setting up of the Expert Working Group for Monitoring the Implementation of Action Plans for the implementation of the National Anti-discrimination Plan 2008-2013.

In March 2010, the first meeting of the Working Group for Monitoring Hate Crimes was held in the premises of the Office for Human Rights. With regard to taking a stand against hate crimes, the Republic of Croatia, as one of the OSCE members, signed the Memorandum of Understanding with OSCE/ODIHR on the training of police officers (2007) and has been keeping statistics of hate-motivated acts. The Working Group discussed the situation in the field regarding recognition and reporting of hate crimes and, ultimately, the prosecution of such crimes.

Gender Equality

Implementation of measures under the National Policy to Promote Gender Equality 2006- 2010 has continued. Numerous activities have been carried out, including cooperation with non- governmental organisations, county commissions for gender equality and co-ordinators in the bodies of state administration, as well as participation in discussions, seminars and round tables.

In February 2010, the Government adopted the Report on the Implementation of the National Policy for the Period from October 2006 to December 2008. Analysis of the measures included in the National Policy to Promote Gender Equality 2006-2010 shows that considerable progress was made in all programme areas. Preparations for the drawing-up of the new national policy to promote gender equality for the period from 2011 to 2015 are under way.

Children's Rights

In December 2009, the Report on the Implementation of the National Plan of Activities for the Rights and Interests of Children 2006–2012 for 2008 was adopted by the Government. Out of the 124 measures set out in 2008, 110 have been completed while 14 are still ongoing. The Report on the implementation of measures for 2009 was adopted in August 2010.

In January 2010, the Croatian Parliament passed the Act on the Ratification of the European Convention on the Exercise of Children's Rights.

People with disabilities

National Strategy to Create Equal Opportunities for Persons with Disabilities for the Period 2007– 2015 was adopted in 2007.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr A co-operation Agreement was signed with the United Nations Development Programme (UNDP) concerning the implementation of the project entitled "Support in the Application of Mechanisms for Monitoring and Evaluating Measures Included in the National Strategy to Create Equal Opportunities for Persons with Disabilities 2007-2015".

Free legal aid

The Act on Free Legal Aid entered into force on 1 February 2009. The institutional framework for the system of free legal aid is organised in a way that in the Ministry of Justice there is the Department for Free Legal Aid performing second-instance activities in the procedure of approving free legal aid, and also the activities of administrative supervision in relation to the implementation of the Act, as well as maintaining the Register of Associations Authorised to Providing Free Legal Aid. The bodies of state administration in the counties were designated as first-instance bodies competent for the approval of submitted applications. Court protection against acts issued by the said body is ensured by the Administrative Court of the Republic of Croatia.

A network of 20 state administration offices and branch offices enables greater accessibility to citizens for the submission of requests for the approval of free legal aid. Civil servants in state administration offices are in charge of providing aid to citizens in completing requests for the approval of the use of free legal aid.

So far, 82 civil servants in the offices of state administration in the counties have received training, and study visits to Hungary and the Netherlands were organised. On 23 October 2009, a Round Table "Experiences in the application of the Free Legal Aid Act" was held. In addition, training for second-instance bodies and authorised civil society associations which provide legal aid was also organized. For the purpose of informing citizens about the possibilities of using free legal aid, ways of using it and having it approved, flyers and posters were printed and distributed at municipal courts, county state administration offices and social welfare centres.

The Ministry of Justice has a record of 30 registered associations and 2 legal clinics for providing legal aid.

Until 21 October 2010, there were 7052 requests for the approval of free legal aid, out of which 5033 requests were accepted, 1359 denied, 252 rejected and 245 discounted. 163 requests are pending.

Prison System In July 2009, the Government adopted the Action Plan for Improving the Prison System of the Republic of Croatia from 2009 to 2014. The AP foresees essential measures for the building of new capacities and the adaptation of the existing ones; new recruitment; procurement of equipment; restructuring of the Prison System Directorate and the formation of the Probation Directorate. In the course of 2009, new legislative and implementing regulations (ordinances) were adopted or amendments to the existing legislative and implementing regulations (ordinances) were made by which the institutional protection of human rights of persons deprived of freedom is being aligned with the acquis communautaire.

The project of building the penitentiary in Glina along with its facilities was successfully completed in 2009. Special departments for elderly prisoners and disabled persons were adapted in the penitentiaries in Lepoglava, Lipovica-Popovača and Valtura. To further improve the infrastructural and accommodation capacities in the prison system, the implementation of 24

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr four projects of building new and adapting the current accommodation capacities in the prison system began. The projects involve a new prison hospital for 106 persons and a prison for 376 persons in Zagreb, a new wing of the penitentiary and prison in the area of Šibenik for 600 persons, and the adaptation of the prison premises in Varaždin for 37 persons. With respect to the probation system, the basic legal framework of the probation system was set up with the adoption of the Probation Act (in December 2009). The institutional framework was established with the adoption of the Regulation on amendments to the Regulation on the internal order of the Ministry of Justice by which the Directorate for Probation was set up with ten employees (in September 2009), and with the establishment of 12 probation offices.

II.5.2. National Minorities

Council for National Minorities on State Level is the central body for national minorities which links institutions and ensures the protection of national minorities’ interests at the state level. It consists of parliamentary representatives, representatives from expert, cultural, religious and scientific ranks and representatives of minority associations and national minorities’ councils. It was established in order to enhance the participation of national minorities in public life, particularly by discussing and proposing measures aimed at improving the realisation and protection of the rights and freedoms of national minorities.

In 2006, a total of HRK 131,527,332 (EUR 18 million) of State Budget was spent for various purposes, ranging from training, preservation and development of cultural heritage, cultural programmes, publishing, programmes for the Roma and other activities, while in 2009, HRK 171,142,070 (EUR 23,8 million) was allocated, which is an increase of 24%.

Croatia provides for the representation of national minorities in the representative bodies both at state and at local and regional levels. With the Act on the Election of Representatives to the Croatian Parliament, the representatives of national minorities have the right to 8 seats in Parliament.

At the last Croatian parliamentary elections, held on 25 November 2007, 8 out of 153 deputies have been elected to represent national minorities in the Croatian Parliament (representatives of the Czech (1), Serbian (3), Italian (1), Bosniak (1), Hungarian (1) and Roma (1) national minorities and who, at the same time, representing also Slovak, Albanian, Montenegrin, Slovenian, Austrian, Bulgarian, German, Jewish, Polish, Romanian, Ruthenian, Turkish, Ukrainian and Vallach national minorities).

The Office for National Minorities, in co-operation with the Council for National Minorities on State Level, organised a seminar on the analysis of the work of national minority councils and representatives in Umag on 18 and 19 March 2010.

In June 2010, the Parliament adopted the Amendments to the Constitution of the Republic of Croatia which now lists in the preamble all 22 national minorities in the Republic of Croatia.4 Amendments to the Constitutional Act on the Rights of National Minorities of June 2010 strengthen the rights of national minorities in a way that the coordinating committees of national minority councils are enabled to acquire legal capacity, and members of national minorities have better representation in representative bodies.

4 The national minorities in the Republic of Croatia are: Serbian, Czech, Slovak, Italian, Hungarian, Jewish, German, Austrian, Ukrainian, Ruthenian, Bosniak, Slovenian, Montenegrin, Macedonian, Russian, Bulgarian, Polish, Roma, Romanian, Turkish, Vallach, Albanian and others. 25

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Under the Constitutional Act on the Rights of National Minorities, national minorities have the right to representation in the bodies of state administration and local self-government and in judicial bodies. The bodies of state administration and local self-government have the duty to adopt recruitment plans for a specific number of national minorities' members who receive priority in recruitment subject to equal conditions. In the appointment of judges or deputy state attorneys, account is taken of the representation of national minorities.

The Act on Local and Regional Self-Government guarantees national minorities the right to proportional representation in the representative bodies of local and regional self-government units as well as in the executive and administrative bodies of those units.

On 1 July 2010, the Government adopted the Sixth Report on the Implementation of the Constitutional Act on the Rights of National Minorities.

Members of national minorities have the right of priority in cases of seeking employment under equal conditions pursuant to Article 22 of the Constitutional Act on the Rights of National Minorities. However, they have right to invoke this priority.

On 31 August 2010, out of 8,043 civil servants and employees in judicial bodies, 273 were members of national minorities whereas out of 520 civil servants and employees in the Ministry of Justice, 19 were members of national minorities. Out of 1,896 judges, there were 1,821 Croats, 38 Serbs, 2 Italians, 2 Montenegrins, 6 Bosniacs, one representative of Hungarian, Russinian, Macedonian, Slovenian, Czech and Jewish national minority and 21 non-aligned. Out of 581 state attorneys and deputy state attorneys, there were 561 Croats, 14 Serbs, 2 Montenegrins and one representative of Italian, Russinian, Czech and Slovak national minority. Furthermore, members of national minorities, when applying for a job, often do not use the possibility to evoke their minority status.

Roma Minority

For the purpose of implementing the National Programme for the Roma and the Action Plan for the Decade of Roma Inclusion, 2009 State Budget resources have been increased from EUR 2.383.306 in 2008 to EUR 5.287.397 (including resources from EU funds) in 2009, which is an increase of more than 122% in comparison with the previous year, and a sixfold increase from the first year of its implementation.

Progress has been achieved in the pre-school education where the number of Roma children attending pre-school education doubled in the last four years (from 345 in the school year 2005/06 to 734 in 2009/10), and of those attending elementary schools quadrupled (1013 vs. 4186 for respective school years). All Roma high school pupils and students in the higher education system receive state scholarships. Currently, 25 Roma teaching assistants (13 women and 12 men) are employed in elementary schools. All pre-school Roma children have been included in vaccination programmes.

Regarding the living conditions of the Roma community, Croatia is systematically working on the legalization of Roma settlements and improvement of their infrastructure. The European Commission donations through the PHARE 2005 and PHARE 2006 programmes, and the funds from the Croatian State Budget for the Roma Support Project, have been used for the development of the entire infrastructure (construction of roads, water supply and electrical network) in four Roma settlements in Međimurje County. The total value of these works amounts to EUR 4,071,429, out of which EUR 1,238,429 were allocated from the Croatian State Budget. Within the IPA 2008 programme, the complete infrastructure of two more Roma settlements in the Međimurje County (Orehovica and Sitnice) will be developed, for which

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr purpose the European Commission has allocated EUR 2.5 million, with EUR 833,330 co-financing from the Croatian State Budget.

In order to increase employment of Roma, the Croatian Government adopted a programme including public works, training and employment of registered Roma job seekers. The employment of the Roma in duration of 24 months is subsidised in the form of co-financing the cost of labour for the employer, calculated on the basis of a net salary of 1,500 kunas ( EUR 205). In 2009, the Croatian Employment Service co-financed the employment of 223 people belonging to the Roma national minority, and it co-financed the employment of 29 people for a period of 24 months. 203 people belonging to the Roma national minority were engaged in public works. III. Specific Stabilisation and Association Criteria

III.1. Implementation of the Stabilisation and Association Agreement

Parallel to the progress of the accession negotiations, Croatia has intensified the implementation of the Stabilisation and Association Agreement (SAA), which entered into force on 1 February 2005. The SAA has been efficiently implemented.

Since November 2009, six Subcommittee meetings took place: Subcommittee on Innovation, Technological, Development and Social Policy on 23 March in Zagreb, Subcommittee on Internal Market, Trade, Industry, Customs and Taxation on 6 May in Zagreb, Subcommittee on Agriculture and Fisheries on 27 May in Brussels, Subcommittee on Economic and Financial Issues and Statistics on 15 June in Zagreb, Subcommittee on Transport, Environment, Energy and Regional Development on 13 July in Zagreb, Subcommittee on Justice and Home Affairs on 15 July in Zagreb. The Stabilisation and Association Council took place on 23 March 2010 in Brussels, while Stabilisation and Association Committee is planned for 8 December 2010 in Zagreb.

III. 2. Refugee Return

As of the beginning of the return process in 1995, the totals of 347,807 returnees were registered in Croatia. The Government spent in total 5.3 billion EUR in order to facilitate the refugee return process while international donations amount solely for 5 percent of the amount spent.

In June 2010, the Government adopted a Revised Action Plan for Accelerated Implementation of the Housing Care Programme Within and Outside the Areas of Special State Concern for Refugees - Former Tenancy Right Holders Wishing to Return to the Republic of Croatia with a view to accelerating the process of providing a housing to the former tenancy right holders.

The activities planned for 2007 (1,400 apartments) and 2008 (1,427 apartments) are fully met.

Due to the economic crisis, the targets that Croatia has set for 2009 will be thus realized by the end of 2010 (1,265 apartments) and in 2011 (805 apartments). Budget was cut in relation to purchasing flats outside of the Areas of Special State Concern. However, Croatia managed to increase the budget for construction in the Areas of Special State Concern.

Reconstruction of the houses damaged or destroyed in the war is almost finished. So far, more than 147,150 houses and flats were reconstructed and approximately EUR 2.3 billion were

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr allocated from the State Budget to this end. In the past years, 80 percent of the beneficiaries of reconstruction are returnees of the Serbian nationality.

The issue of validation of the years of pensionable service and the realisation of the right to pension was resolved by adopting the Ordinance on the procedure for the validation of decisions and individual acts in the area of pension insurance (18 December 2007) and the Regulation Implementing the Convalidation Act (20 June 2008). On 31 August 2010, statistical data showed that out of 22,136 requests for the convalidation of years of service, 19,781 (89.36%) were resolved, and 2,355 requests (10.34%) are still being processed.

Since obtaining authentic documentation is one of the major problems, the guidelines that have been drawn up on the manner of collecting documentation may be considered as a positive step in processing requests. This is also true of the meetings organised with external actors (NGOs, political parties, archives and companies in bankruptcy) with a view to finding a way to collect employment documentation.

III. 3. ICTY & Domestic war crimes proceedings

III.3.1. ICTY

Croatia continues full cooperation with the ICTY. Croatia has fulfilled all of the 883 requests for assistance received from the Office of the Prosecutor.

In regard to one request which the Prosecution considers to have been partially fulfilled, Croatia and especially the Task Force established by the Prime Minister, delivered dozens of reports to the Trial Chamber and the OTP, explaining the comprehensive administrative and police investigation which was launched in order to find the documents or establish their status. (The investigation included interviews, searches, examinations and criminal charges for destroying or concealing archival material. Until now criminal charges were submitted against 23 persons, on the basis of which 14 were indicted and 4 convicted).

After an intensive process that lasted for more than two years, the ICTY Trial Chamber recognized a proactive role and efforts of the Government in search of the required documents and decided not to issue a subpoena to Croatia. On 26 July 2010 The Trial Chamber issued a decision rejecting the Prosecution's request (submitted in June 2008) for issuance of a subpoena to the Croatian Government for delivery of documents or information on the missing artillery documents estimating that it is impossible to determine with certainty the existence of these documents.

The Task Force, however, continues conducting further activities.

On 20 October 2010, the ICTY Chief Prosecutor Serge Brammertz held talks in Zagreb with the Prime Minister Jadranka Kosor and the members of the Government Council for Cooperation with the ICTY. The Government once again reiterated its willingness to meet all requests from the ICTY prosecution and take measures that would make the cooperation with the ICTY as successful as possible.

III.3.2. Domestic war crimes proceedings

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr With respect to war crimes proceedings in Croatia, significant progress was achieved regarding numerous issues: the use of video conferences in the procedure; strengthening the procedural position of witnesses/injured parties by providing them with institutional support; strengthening the procedural position of the accused by providing suitable court-appointed defence counsels; widening of confidentiality of investigations; improving the regional co-operation of state attorneys in the prosecution of perpetrators of war crimes by creating a unified database of war crimes committed in the region.

War crime trials conducted in Croatia in 2009 showed the professionalism of the Croatian courts in terms of ensuring impartial trials, not burdened by ethnic bias. The Ministry of Justice made an analysis of the judgments rendered in war crime cases for the period 2005 – 2009 in order to identify whether there was ethnic bias in war crime proceedings. The analysis showed a balanced approach in sentencing all criminal offenders, irrespective of their ethnic origin. In line with the defined measures, video-link testimonies are increasingly used in Croatia. During 2009, video-link questioning was conducted at county courts in Zagreb, Rijeka, Vukovar with the Republic of Serbia in five proceedings, the Republic of Bosnia and Herzegovina in two proceedings and Norway in one proceeding. In order to achieve the full integrity of war crimes proceedings, in 2008 and 2009 special attention was given to judgments issued in absentia, and prosecutorial standards for the processing and sanctioning of war crimes were defined. Legal framework for in absentia convictions was further improved by the provisions of the Criminal Procedure Act (relevant provisions entered into force on 1 January 2009). Article 501 of the Criminal Procedure Act allows the criminal proceedings terminated by a final in absentia judgment to be reopened to the benefit of the defendant regardless of his presence. Judges and state attorneys were educated in relation to those provisions on the renewal of in absentia proceedings. Competent authorities reviewed and appraised cases where judgments had been issued in absentia, procedures pending investigation or the raising of an indictment, and renewed or suspended proceedings in cases where there were grounds to do so. The review of judgments issued in absentia is an ongoing process and authorities are being regularly updated (so far, there have been 17 requests for renewals regarding 95 perpetrators). All measures defined in the Action Plan for work on war crimes cases of the State Attorney's Office and the Ministry of the Interior have been successfully performed. War crimes proceedings are being carried out impartially and professionally, regardless of the ethnic affiliation of the perpetrator. As a result of the implementation of the measures included in the action plans, and of the earlier activities, in 2008 – 2010 period progress was made in relation to many issues. The State Attorney's Office of the Republic of Croatia continues its successful regional cooperation on the mutual exchange of data and legal assistance in work on war crimes cases. 4th Regional Conference on issues relating to the criminal prosecution of perpetrators of war crimes of State Attorneys and Prosecutors was held on 28 May 2010. Participants agreed that during the past year co-operation was successful and that strengthening co-operation between prosecutors in the region, contribute to solving unprocessed war crimes.

III.4. Regional co-operation

III.4.1. Multilateral Regional Co-operation

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr During the past year, Croatia continued to play an active role in a wide range of regional organizations and initiatives, giving its contribution to the regional development and strengthening of good neighbourly relations and political dialogue in the SEE region. A comprehensive approach to regional co-operation through the application of the principle of regional ownership, with a view to developing full potential of project-oriented co-operation, is the priority of cross border and trans-national activities of the Republic of Croatia. Croatia supports the European perspective of the SEE countries as the best guarantee for the overall prosperity of the entire region. Therefore Croatia is actively and continuously transferring to the SEE countries the experience and knowledge it has gained in its own European integration process.

EU Strategy for the Danube Region (EUSDR) Croatia joined the process of development of the EUSDR from its inception, recognizing its huge potential as the first European common policy for the sustainable management of the entire Danube river basin. During the consultation phase of the EUSDR development process, it has conducted a series of activities on the national and regional level, in order to provide best possible input for the Strategy’s Action Plan. In July 2010, representatives of the Croatian national authorities, headed by the MFAEI State Secretary for European Integration and EUSDR National Coordinator Mr. Andrej Plenković, met in Brussels with the representatives of the DG Regio. On this occasion the Croatian side presented to the EC Croatian priorities and flagship projects for implementation in the framework of the EUSDR. In October 2010, at the last meeting of the National Contact Points also taking place in Brussels, Croatia expressed its interest to be a coordinator for the following Priority Areas of the Action Plan: Priority Area 5: To manage environmental risks, Priority Area 8: To support the competitiveness of enterprises, Priority Area 6: To preserve biodiversity, landscapes and the quality of air and soils, and Priority Area 1: To improve mobility and intermodality.

South East European Cooperation Process (SEECP) Within the framework of the South East European Cooperation Process (SEECP) Croatia participated at the Meeting of the Speakers of Parliament held in Antalya in June 2010. In the end of June 2010 Croatia was represented at the highest level at the final meetings of the Turkish Chairmanship-in-Office of SEECP held in Istanbul and gave its contribution to the adoption of the Istanbul Declaration. In the September 2010 Croatia participated at the initial meeting held under the Montenegrin C-i-O and offered its assistance and support to the priorities and the Programme of Activities presented by the new Presidency.

Regional Cooperation Council (RCC) The Republic of Croatia actively supports work of the Regional Cooperation Council by participating in numerous initiatives under its auspices. Through adoption of the Strategy and Work Programme 2011-2013 (June 2010) and with relevant proposals within, Croatia gave an additional impetus to regional cooperation in the SEE. By accepting continuation of „Ljubljana Process 2“ under the authority of RCC (RCC Board Meeting, Sarajevo, 16 September 2010) Croatia expressed its willingness to promote regional care of cultural and traditional heritage in SEE. Croatia expects intensive work on recent RCC project of SEE Investment Committee, as well as regional cooperation of SEE Universities. Having an active role in work of the RCC Financial Sub-Committee, Croatia is aware of demands that financial responsibility of member states, needed for normal functioning of RCC, goes along with its increased political importance within. The consultations among relevant Croatian Government bodies regarding the Concept Paper on the establishment of the High-Level Expert Group on Regional Development Projects in SEE (HLEG RCC project) are in progress, which will result with notable proposals, aiming to improve project cooperation in the Region. The Croatian Government supported the candidacy of Mr. Hido Biščević for the 2nd term of office as the RCC Secretary General (June 2010).

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Adriatic-Ionian Initiative (AII) During the current Montenegrin C-i-O Croatia continues to be actively engaged in all considerations on the future of the AII. Given the Croatia’s interest in the Adriatic Sea, Croatia stressed its intention to support the initiative to elaborate with its partners - EU Member States - a strategy for an Adriatic Ionian macro-region.

Southeast European Cooperative Initiative (SECI) As part of the SECI Initiative, Croatia has continued its engagement in strengthening of capacities in combating organized trans-border crime through the work of several SECI task forces. After signing of the SELEC Convention Croatia continued to actively participate in preparing the Action plan for the transition of SECI Centre to SELEC.

Central European Initiative (CEI) During the previous period, Croatia has maintained successful cooperation within the Central European Initiative paying particular attention to the issues pertaining to the human resource development and environment protection. It has continued to actively advocate the principles of regional ownership and project-oriented cooperation and thereby proposed joint regional activities. In mid-November 2009, Croatia actively participated in the meeting of prime ministers of the Central European Initiative, where Montenegro took over the chairmanship of initiative from Romania. Croatia highly commends strong backing given by the CEI Executive Secretariat to the CEI activities. When discussing CEI’s involvement in the context of the EU macro-regional strategies (i.e. EUSDR), it ought to be stressed that any CEI involvement in EU macro-regional strategies has to be envisaged in such a way as to serve the strengthening of Central European cohesion and counteract divisions by bringing together regions, sub-regions and countries of the whole CEI area.

Alps-Adriatic Working Community During the last six months Croatia continued to be an active participant of various activities organized by the AAWC. It has participated in regular meetings of the Troika (Presidium) and Commission of the Executive Officers. In preparation for its next year’s presidency over the Working Community, Croatia has initiated consultations on the national and regional level in order to fine-tune its two-year presidency programme.

Migration, Asylum, Refugees Regional Initiative (MARRI) The Republic of Croatia continued with active approach to the issue of migration, asylum and refugees in the region. Full confrontation of illegal migration, smuggling and trafficking of human beings maintains to be a proactive Croatian policy. Currently, Croatia is in procedure to appoint its State Official to the MARRI Regional Centre in Skopje and its assignment will start in a short period.

International Sava River Basin Commission (ISRBC) Under the current Croatian chairmanship, the ISRBC continues to produce important legal instruments related to the implementation of the Framework Agreement on the Sava River Basin (FASRB). Furthermore, the ISRBC engaged very actively in the process of development of the EU Strategy for the Danube Region, providing the EC with the input related to the Sava River. Many important activities proposed by the ISRBC were included in the EUSDR Action Plan, and ISRBC will play a leading role in implementation of several significant projects.

Danube Commission During the past period Croatia continued to actively contribute to the work of the Danube Commission, both through its representative in the Danube Commission Secretariat in Budapest, and through participation in the meetings of different expert working groups.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr III.4.2. Bilateral Relations

Bosnia and Herzegovina

In the spirit of good-neighbourly cooperation Croatia and Bosnia and Herzegovina have dynamic and partnership relations which are based on the respect of the principles of the territorial integrity and the sovereignty of B-H, and the sovereignty and equality of three constituent peoples and all citizens of B-H. These principles have been stressed during the Croatian Prime Minister Kosor and President Josipović’s visits to B-H in April and May 2010.

As a co-signatory of the Dayton Agreement, Croatia observes the situation in B-H with particular attention. Croatia supports the unity of B-H and state structure that would reflect true equality of the three constituent peoples, as well as the reforms aimed at establishing a functional state with a European perspective. Croatia welcomes the efforts of the Spanish and Belgian Presidency of the EU and the International Community aimed at establishing a sustainable political consensus among the Bosnian leaders on the European perspective of their country and the implementation of the required Constitutional amendments.

Croatia strongly supports the continuation of talks on constitutional amendments in B-H after the October elections, with the aim of establishing a more functional state, on the basis of full equality of the three constitutive peoples. The new amendments should provide full equality for Croat people, thus improving their present position. Croatia strongly supports B-H’s Euro-Atlantic ambitions. The Euro-Atlantic perspective of Bosnia and Herzegovina and all other countries in the region is the best way to achieve permanent stability and peace in the South East Europe.

In the last period the two countries exchanged a number of high level visits. In March 2010, the Chairman of the Council of Ministers Nikola Špirić visited Croatia. In April 2010, President Ivo Josipović paid a two-day official visit to B-H, where he met the members of the Presidency, held a speech at the Parliamentary Assembly, visited two villages in Federation where atrocities were committed against Bosniaks and Croats, and met the representatives of the B-H Croat political parties in Mostar. In May 2010, President Ivo Josipović, together with the President and the Prime Minister of Republika Srpska Rajko Kuzmanović and Milorad Dodik, and Democratic Action Party leader Sulejman Tihić, visited sites of war crimes atrocities against Bosniaks, Croats and Serbs in B-H - Kozarac site of atrocities committed against Bosniaks, and Briševo and Sijekovac, places where Croats and Serbs were killed during the war in B-H. Also in May 2010, President Ivo Josipović of Croatia, Boris Tadić of Serbia and Filip Vujanović of Montenegro, and the Chairman of the Presidency of B-H Haris Silajdžić attended a meeting of the Igman Initiative in Sarajevo and signed a declaration reaffirming the conclusions of the Zagreb Summit, held 10 years ago, which encouraged stronger regional cooperation.

PM Kosor visited Sarajevo in May 2010 where she participated at the First regional meeting of European Peoples Party. On the margins of the meeting PM Kosor met the members of the B-H Presidency Haris Silajdžić and Željko Komšić.

The first Joint Government Session of the Croatian Government and the Council of Ministers of B-H was held in Split on 21 June 2010, resulting in Agreements in the area of cross-border cooperation: construction of roads (border crossing near Gradiška, Metković 2, bridges over river Sava), judiciary, police, environment protection, and economy. Special emphasis was put on the Croatia’s technical support to B-H in the area of Euro-Atlantic integrations.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr During the joint session two countries signed the Agreement on cooperation in information society and electronic communications, and initialled the Agreement on police cooperation in the fight against cross-border crime (this Agreement was consequently signed on 17 September 2010). The conclusion of the Joint Session was that the two countries would continue to solve all bilateral issues in good faith.

At the Joint Government Session an invitation to determine fields of cooperation in Euro- Atlantic processes was given to B-H Directorate for European Integration. Croatia offered its help in the drafting of the ANP (Annual National Plan). Regular expert level consultations regarding NATO process are already taking place. Croatia continues to provide B-H with technical assistance in relation to Euro-Atlantic integrations. Croatia handed over the translation of the EU acquis communautaire to B-H in March 2010. The Agreement on Mutual Execution of Court Judgements in Criminal Matters, signed in February 2010, entered into force on 18 September 2010.

Croatia started negotiations with B-H on amending bilateral agreements on supervision and border control, as well as cross-border traffic in order to harmonize its system with the future Schengen regime. Special attention is given to the construction of new border crossing and to the changes in interstate agreements regulating the border crossings, their number and categories. The meeting of the Interstate Diplomatic Commission for Borders was held in Zagreb on 5 July 2010. A meeting of a Working group for the preparation on the negotiation for changing the bilateral international agreements on border crossings between Croatia and B-H was held on 28 July 2010. Croatia intensified bilateral cooperation with B-H regarding the return of the remaining refugees. Respective ministries set up a joint working group which deals with solving the issues of the remaining refugees from both sides through the exchange of information which should facilitate return. The Croatian Government continues to implement assistance programs intended for the return of Croatian refugees to B-H based on interstate agreements aimed at creating conditions for their sustainable return, and to contribute to financing of educational, cultural, scientific and health programmes and projects of interest for the Croatian people in B-H.

Economic co-operation: in 2009, the overall trade exchange between B-H and Croatia amounted to EUR 1.37 billion, making B-H the fifth most important trading partner of Croatia for that year, accounting for 6 % of its total foreign exchange. 12.9% of total Croatian exports are placed on the B-H market, and imports from that country account for 2.7% of total Croatian imports. However, due to recession, in 2009 Croatian exports to B-H decreased by 34% and the imports from that country by 27%. Croatian trade surplus amounted to EUR 560 million. During the first nine moths of 2010, trade exchange between the two countries increased by 4% comparing to the same period last year. From 1993 until July 2010, Croatian companies invested altogether EUR 510 million in Bosnia and Herzegovina, while the B-H companies in the same reporting period invested EUR 80 million in Croatia.

Republic of Serbia

Croatia advocates good neighbourly and partnership relations with Serbia in order to resolve remaining outstanding issues and strengthen stability in Southeast Europe. Prime Ministers Jadranka Kosor and Mirko Cvetković met in Zagreb in May 2010, during the EBRD Annual Conference, when Croatian translation of the EU acquis communautaire was delivered to Serbia. A number of meetings held at presidential level in 2010 led to the official visit of President Ivo Josipović to Serbia on 18 and 19 July.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr President Tadić visited Vukovar on 4 November 2010. At that occasion, he paid respect and apologized to 200 Croatian victims of Serb war crimes, patients taken from the Vukovar hospital to Ovčara, the site of the massacre, near Vukovar after the fall of the city in November 1991. After visiting Vukovar, President Tadić together with President Josipović paid respect to 19 Serb war crime victims in the village of Paulin Dvor near Osijek (December 1991). During his visit President Tadić also met with the Croatian PM Kosor.

The cooperation of state bodies (defence, justice, internal affairs, science and technology, culture etc.) is regular. The Agreement on cooperation in the field of defence was signed by the representatives of two governments on 8 June 2010, and the Agreement on Extradition of persons suspected or convicted of crimes related to organized crime and corruption on 29 June 2010, both significantly contributing to the quality of bilateral relations and to regional stability.

Both countries agree that there are no political obstacles for the resolution of the remaining outstanding issues, such as the determination of the border in the Danube region, implementation of the Succession Agreement, return of cultural artefacts taken from Croatia during the Homeland War, issues concerning refugees, minorities (Croatian in Serbia and Serbian in Croatia) etc.

The sixth meeting of the Interstate Diplomatic Commission for Identifying-Determining Border Line and Preparing an Agreement on the State Border between the Republic of Croatia and the Republic of Serbia, was held in Zagreb on 29 April, followed up by a meeting of a Mixed Expert Group in Belgrade on 1 July 2010. The next meeting is expected to take place on 19 November 2010.

Within the ongoing process of return of cultural heritage artefacts, 33 items were delivered back to the Republic of Croatia at the meeting of the Mixed Commission for the return of Cultural Artefacts from Serbia to Croatia in Belgrade on 27 October 2010, where further steps regarding the return were reaffirmed.

As a follow-up to the Conference „Durable solutions for refugees - cooperation of the countries in the region“, held in Belgrade in March 2010, a third bilateral meeting between Croatia and Serbia took place in July 2010 in Belgrade. The UNHCR also participated at the meeting in order to establish the accurate data on refugees as well as harmonization of deregistration methodology and the UNHCR is expected to present its analysis of the data received by the two sides. Other activities by the countries involved relate to developing a regional project on closing the collective centres for refugees, i.e. a donor conference is planned to this end and help was asked from the UNHCR to motivate the potential donor community.

The fourth session of the Intergovernmental Mixed Committee for monitoring the implementation of the Agreement on the protection of the Croatian minority in Serbia as well as Serbian minority in Croatia was held in Zagreb and Vukovar on 17 and 18 June 2010.

Economic co-operation: in 2009, the overall trade exchange between the two countries was EUR 602 million, out of which Croatian exports to Serbia amounted to EUR 400 million and the imports from Serbia to EUR 201 million. Croatian surplus in the mutual trade exchange was EUR 199 million. In 2009, the overall trade balance was reduced by 27% when compared with 2008. During the first nine moths of the year 2010 the trade exchange between the two countries has decreased by 5%. In the last ten years, Croatian companies invested altogether EUR 424 million in Serbia, mainly in the services sector, agriculture and industry. 10% of total Croatian investments abroad went to the Serbian market.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Republic of Kosovo

Croatia is developing very good bilateral relations with the Republic of Kosovo. After the establishment of diplomatic relations between the two countries and Croatia’s opening of its embassy in Priština, in February 2010, Kosovo opened its embassy in Zagreb.

Former Croatian President Stjepan Mesić visited Kosovo on 8 January 2010, when he held talks with the President of the Republic of Kosovo and the Speaker of the Kosovo Parliament. President Josipović met Kosovo President Fatmir Sejdiu on the occasion of his inauguration in February 2010 in Zagreb. The Prime Ministers Jadranka Kosor and Hashim Thaçi met during Croatia Summit (8-9 July 2010). Croatian Foreign and EU Integration Minister Gordan Jandroković met his Kosovo counterpart Besim Beqaj on 30 August 2010 during the Bled forum (Slovenia).

Croatia supports integrity and indivisibility of territory of Kosovo and the recent UN General Assembly resolution on Kosovo. In the period after the recognition of Kosovo's independence, Croatia maintained a balanced approach towards both Kosovo and Serbia, in accordance with its intention to develop comprehensive political relations with all the countries in the region, and thus contribute to the prosperity and stability of the region.

Croatia strongly supports Kosovo’s participation in regional meetings, considering it of great importance for the stability, security and prosperity of the region. It is essential to find a modality for Kosovo’s inclusion in all relevant regional initiatives.

Croatia considers the role of the EU and International Community in Kosovo to be crucial for the strengthening of Kosovo’s European perspective. Therefore, Croatia supports the intensive engagement of the EU in Kosovo, and welcomes the deployment of EULEX mission throughout the Kosovo territory. Presently, four Croatian policemen and three judicial representatives are participating in the EULEX mission, and Croatia strongly supports and welcomes EULEX efforts to fight organized crime, corruption, smuggling and trafficking at all levels. Additionally, two Croatian military helicopters with crews of 20 troops are deployed to Kosovo in the framework of the KFOR peace keeping efforts. Croatia is also an active member of the International Steering Group for Kosovo.

Croatia is very active in providing assistance and transfer of know-how to Kosovo experts in a number of fields (justice system and service sector, financial sector, building of institutions and transfer of experience and skills in the accession process to the EU). In this regard, several delegations of experts from Kosovo have visited Croatia.

Economic co-operation with Kosovo is intensifying. Croatia supported membership of the Republic of Kosovo in EBRD (on the basis of membership of Kosovo in the IMF and the World Bank).

According to the Central Bureau of Statistic, the trade exchange between Croatia and Kosovo in 2009 amounted to EUR 55.8 million, which is a 11.6% increased when compared to 2008. Out of that amount, the Croatian exports to Kosovo accounted for EUR 54.3 million, or increased by 9.2% and the imports accounted for EUR 1.5 million, which is a 211% increase. The trade exchange in the first eight months of 2010 amounted to EUR 34.8 million (33.37 million – Croatian exports to Kosovo and 1.43 million imports). Croatian trade surplus in the first eight months amounted to EUR 31.9 million. Croatian trade surplus amounted to EUR 52.8 million. Croatia expects that the membership of both countries in CEFTA will give additional impetus to the increase of trade commodities exchange and the strengthening of economic cooperation. 35

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Montenegro Bilateral relations between Croatia and Montenegro remain good and friendly with regular exchange of top level visits. President of the Republic of Croatia, Ivo Josipović, paid his first official visit to Montenegro on 1 and 2 July 2010. Two states continue their intensive cooperation in the area of European and Euro-Atlantic Integration. The representatives of the National Council for European Integration of Montenegro visited Croatia in October 2010 and on this occasion the expert consultations on the EU accession process were held at the MFAEI of RC. In order to support the Montenegrin efforts towards the NATO accession, a briefing to Montenegro’s Ministry of Defence spokesperson on public diplomacy and public information campaign aimed at raising public support for NATO membership was held also in October at the MFAEI. Croatian and Montenegrin Foreign Ministers met at the margins of the Croatia Summit in Dubrovnik in July 2010. They agreed to hold a second official meeting of the Interstate Mixed Commission tasked to draft a Special Agreement which will represent the basis for the preparation of the legal procedure for the border demarcation between Croatia and Montenegro before the International Court in Hague. The second meeting is expected to be held by the end of this year. Ministers jointly concluded that the border demarcation does not represent an outstanding issue between the two states. Croatia and Montenegro have so far signed 29 bilateral agreements. In order to strengthen judicial co-operation, the Agreement on Extradition between the two countries was signed on 1 October 2010. Also, the commencement of negotiations to conclude the Agreement on Legal Assistance in Civil and Criminal Matters and Agreement on the Mutual Execution of Court Decisions in Criminal Matters was agreed upon. Negotiations on conclusion of agreements concerning different areas of cooperation are in progress: Consular Affairs (provision of consular assistance and visa issuing to Montenegrin nationals in certain Croatian consulates in USA, Australia and Chile), Environmental Protection, Investment Promotion and Protection, and Economic Co-operation. The Agreement on Investment Promotion and Protection and the Agreement on Economic Co-operation currently in force were signed previously with the Federal Republic of Yugoslavia, and Montenegro took them over when it became independent. In order to align these agreements with the EU acquis, Croatia has initiated negotiations to amend them.

Croatia and Montenegro are planning to begin negotiations on concluding an Agreement on Local Border Traffic and an Agreement on Border Crossing Points (after Croatia concludes the alignment of its legislation regarding border crossing points and local border traffic with EU standards), and an Agreement on Police Co-operation.

Economic co-operation: In 2009, the total trade exchange increased by 21% in comparison to the previous year, reaching EUR 158.4 million. Out of this sum, exports from Croatia amount to EUR 120.5 million, which is a 4% decrease comparing to 2008, while Montenegrin exports to Croatia amount to EUR 37.9 million, making an increase of 706% in comparison with the 2008. During the first nine moths of year 2010, trade exchange between the two countries decreased by 2%. In the last ten years, the Croatian companies invested altogether EUR 35 million in Montenegro

Republic of Macedonia

Relations between Croatia and Macedonia are without open issues, and are continuously enhanced through intensive political dialogue at the highest levels. President of Macedonian Parliament Trajko Veljanoski visited Zagreb on 8 and 9 October 2009, Croatian Prime Minister Jadranka Kosor visited Skopje on 10 November 2009, Croatian President Stjepan Mesić paid a

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr farewell visit to Skopje on 3 December 2009, President of Macedonia Gjorge Ivanov visited Zagreb to attend the presidential inauguration on 18 February 2010, Macedonian Foreign Minister Antonio Milošoski visited Zagreb on 9 March 2010 and Croatian President Ivo Josipović visited Skopje on 12 July 2010.

Croatia supports Macedonia's efforts to join both the EU and NATO, and has been assisting it in the process by sharing its own experience and expertise. Altogether 38 bilateral agreements have been signed between Croatia and Macedonia. The signing of agreements in the fields of preventing and combating corruption as well as the protection against natural and technological disasters is underway.

Economic co-operation: Trade and economic relations are good, and there are further plans on improvement. The two governments established a governmental committee with the aim to resolve specific issues in bilateral economic relations. Due to the global recession, the overall trade exchange between Croatia and Macedonia in 2009 amounted to EUR 215 million, which represents a decrease of 25% in relation to the previous year, whereas Croatian exports to Macedonia amounted to EUR 87 million, representing a decrease of 11%, and Croatian imports from Macedonia amounted to EUR 128 million, representing a decrease of 33%. Turnover data for the first seven months of the year 2010 shown that trade decrease is slowing down. Croatian exports to Macedonia amounted to EUR 75 million, representing a decrease of 2%, and Croatian imports from Macedonia amounted to EUR 59 million, representing a decrease of 23%.

Republic of Albania

Relations between Croatia and Albania are without any open issues, and underlined by a continuous and rising bilateral and multilateral cooperation. The emphasis is placed on partner relations within the North Atlantic Treaty Organization where both countries jointly advocate the strategy for the sustainable stability of the South East Europe, and the integration of the countries of the region in the EU and NATO. Special attention is also paid to the extensive exchange of experience and knowledge in the process of approaching the European Union membership.

The Croatian Chief Negotiator Vladimir Drobnjak visited Albania on 4 and 5 December 2009, and during 2010 a number of Croatian expert missions went to Albania with the aim of sharing Croatian experience in the European integration processes. President of Albania Bamir Topi visited Zagreb to attend the President Josipović's inauguration on 18 February 2010, the Deputy Prime Minister of Croatia Đurđa Adlešić visited Tirana on 23 and 24 February, and the Albanian Deputy Prime Minister and Foreign Minister Ilir Meta visited Zagreb on 29 March 2010. Other ministerial and high level visits were exchanged during 2010.

In the area of economy, cooperation is focused on enhancing regional transport and energy capacities, as well as mutual trade and investments. Croatia supports Albania in obtaining visa free regime with the Schengen countries, and has temporarily suspended the requirement of tourist and transit visas for Albanian citizens in the period 1 July until 31 October 2010. In addition to the regional project of the Adriatic-Ionian highway, energy supply has been underlined as an important area for future cooperation, especially the possible realization of the (in principle agreed to) regional project of the Ionian-Adriatic Gas Pipeline.

Economic co-operation: The two countries attach special importance to the improvement of bilateral trade and economic cooperation, as well as to the projects of regional significance. The trade exchange between Croatia and Albania amounted to EUR 28.8 million in 2009, of which Croatian exports amounted to EUR 26.6 million or 9.5% less then in the same period in

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr 2008, whilst Albanian imports amounted to EUR 2.1 million or 39.2% less. Croatian trade surplus amounted to EUR 26.6 million. The trade exchange in the first eight months of 2010 amounted to EUR 44.39 million, or increased by 82 %. Exports from Croatia accounted to EUR 42.43 million, or increased by 97%, while imports totalled EUR 1.96 million.

Republic of Slovenia In the second half of 2009 and throughout 2010, the bilateral relations between the Republic of Croatia and the Republic of Slovenia were marked by paving the way towards resolving the main open issues between the two countries. The Government of the Republic of Croatia remains committed to continue the process of dialogue with Slovenia, which includes the protection of interests of both states and peoples.

Croatian PM Jadranka Kosor and Slovenian PM Borut Pahor reached an agreement on un- blocking Croatia’s accession negotiations with the EU and to resume negotiations on the settlement of the bilateral border dispute on 11 September 2009. They signed the Border Arbitration Agreement in Stockholm on 4 November 2009, witnessed by Swedish PM Reinfeldt for the Presidency of the Council of the European Union. This agreement opened a new chapter in strengthening the good neighbourly relations between Croatia and Slovenia. Croatia’s Parliament (Sabor) ratified the Arbitration Agreement on 20 November 2009 with a vast majority (vote of 129:6 – the ratification required two thirds majority). At the legislative referendum held on 6 June 2010, the Slovenian citizens also voted in favour of the ratification of the Border Arbitration Agreement. Croatia welcomed the results of the referendum and expects Slovenia not to place any more obstacles in its negotiation process, as Slovenian PM Pahor publicly repeated on several occasion. Both sides ratified the Border Arbitration Agreement, and all the procedural timelines mentioned in the Border Arbitration Agreement shall begin to apply as of the date of signature of Croatia’s EU Accession Treaty.

Bilateral talks on other open issues have continued in the first half of January 2010 when the Croatian Prime Minister Kosor (13 January) and the former Croatian President Mesić (14 January) paid visits to the Republic of Slovenia. At the meeting in Kranjska Gora on 13 January, Croatian and Slovenian Prime Ministers agreed on establishing the Joint Croatian - Slovenian Commission on open issues (which had its first meeting in Zagreb on 29 March, the second one in Ljubljana on 23 April 2010, and the latest one on 12 October 2010 in Zagreb). They also agreed the Joint Mixed Committee for Economic Cooperation between Croatia and Slovenia to resume its work (that had its 9th meeting in Zagreb on 13 – 14 April), and on launching a Joint Initiative to organize a Conference of Regional Heads of State and Government with EU officials. The Conference “Together for the European Union: Contribution of the Western Balkans to the European Future” took place in Slovenia (Brdo near Kranj) on 20 March 2010.

The follow-up conference of the so-called Brdo Process took place in Zagreb on 6 July 2010, when the regional transport ministers met. At the next meeting in Brdo near Kranj, Slovenia, on 26 July 2010, Croatian, Slovenian and Serbian transport ministers agreed on strengthening cooperation in the field of railway traffic, especially regarding the transit corridor X. On 30 July in Belgrade, the ministers adopted a Declaration in which they supported the establishment of a joint company to consolidate the transport of goods on corridor X "Cargo 10". The joint railway company began to operate on 4 October 2010. Through the initiation of the Brdo Process, Croatia and Slovenia sent a strong message of partnership and commitment to regional cooperation based on common European values to all SEE countries. The two sides agreed on going on with the process and the Slovenian side will organize a meeting of regional justice ministers, whereas the Croatian side plans to organize a meeting of the ministers for economic affairs (or energy).

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr During the Croatia Summit in Dubrovnik, 9-10 July 2010, Croatian Prime Minister Kosor met with Slovenian Prime Minister Pahor and they discussed the Croatian negotiations with the EU. The two Prime Ministers met again in Bohinj (Slovenia) on 31 July 2010, on which occasion they reached an agreement on the direction of the possible mode to settle the issue of the debt of Ljubljanska Banka towards Croatian account holders, in accordance with the treaties concluded and respecting individuals’ rights. At its meeting on 14 October 2010, the Croatian Government adopted the conclusion that Croatia would officially state its readiness to continue the negotiations on the issue of foreign currency savings of Croatian depositors in Ljubljanska Banka before the Bank for International Settlements (BIS) in Basel, in line with Annex C of the Agreement on Succession to the Former Yugoslavia. Croatian Government emphasizes that the agreement between the governments does not restrict the rights of individuals, and the final result must be the repayment of debt to Croatian citizens, depositors of Ljubljanska Banka. After the announcement of Croatian Government regarding Ljubljanska Banka, the Government of the Republic of Slovenia gave its support for the provisionally closure of Chapter 4 of the Croatian negotiations with the EU. The agreement on resolving the issue of the Ljubljanska Banka debt, as well as the activities of the Joint Croatian-Slovenian Commission on open issues, have given further impetus to the improvement of the overall relations.

Croatian PM Kosor and Slovenian PM Pahor also met in Lovran, Croatia, on 23 October 2010, and agreed on stronger economic cooperation including joint appearance on third markets.

The first meeting of new Croatian President Josipović and Slovenian President Türk took place in Zagreb on 18 February 2010, on the margins of Josipović’s Inauguration Ceremony. Croatian President Ivo Josipović paid his first official visit to Slovenia on 12 March 2010. It was the first official bilateral state visit of the new Croatian President, additionally highlighting and confirming friendship between the two countries. Croatian and Slovenian presidents stated that the efforts of the two governments to solve open bilateral issues and Croatia’s forthcoming EU membership were turning a new page in relations between the two countries. After that, the two presidents unofficially met several times at various economic and cultural events, e.g. in Buzet, Croatia, 6 July 2010; Dubrovnik, Croatia, 10 July 2010; and in Ljubljana, Slovenia, 13 August 2010. On 2 October 2010, the two presidents opened a bridge for traffic that connects Hum na Sutli in Croatia and Rogatec in Slovenia. President Josipović and President Türk attended the sixth world congress of the International League of Humanists (IHL) in Zagreb on 25 October 2010.

Slovenian Foreign Minister Samuel Žbogar paid his first working visit to Croatia on 21 May 2010, hosted in Karlovac by Croatian Minister of Foreign Affairs and European Integration Gordan Jandroković. The ministers discussed bilateral issues, with a special emphasis on the overview of the activities of the Joint Commission for Open Issues between the two states, the conclusions from the 18th session of the Standing Joint Commission for the Implementation of the Agreement on Local-Border Traffic and Co-operation (held in Zagreb on 18 May 2010), as well as other topics of mutual interest, especially in regard of the SEE region. At the end of May 2010, ministers Jandroković and Žbogar published a Joint Letter titled “Reconnecting the Southeast Europe”. Croatian and Slovenian Ministers of Foreign Affairs met in Jesenice na Dolenjskem, Slovenia, on 28 July 2010, to prepare the meeting of two Prime Ministers, which took place in Bohinj on 31 July 2010. The Ministers also met during the “Bled Stategic Forum” on 30 August 2010, where they agreed on resuming the work of the Joint Croatian - Slovenian Commission on open issues. The two foreign Ministers met again in Split on 18 October 2010, on the occasion of opening the new premises of the Slovenian Consulate General. They emphasized their commitment to support the countries of Southeast Europe in strengthening regional cooperation and their progress towards the EU.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Economic co-operation: Economic relations between the two countries are traditionally very good. With a volume of trade worth EUR 1.43 billion in 2009, a 25 % decrease over 2008 as a result of the global recession, Slovenia is among the most important trading partners of Croatia. Croatian exports to Slovenia in 2009 amounted to EUR 557 million (25% decrease to 2008), whereas import from Slovenia totalled EUR 871 million (25% decrease). The overall trade exchange between the two countries in the first eight months of 2010 amounted to EUR 995 million (6% increase over the same period of 2009). The Croatian exports accounted to EUR 432 million (20% increase), and the imports from Slovenia to EUR 563 million (3% decrease). In 2009, 1.01 million Slovenian tourists visited Croatia, accounting for 5.6 million overnight stays. Regarding the overall number of overnights, Slovenian tourists occupy the second place, and as regards the total number of visits of foreign tourists to Croatia, they occupy the third place. In the first nine months of 2010, Croatia was visited by more than a million tourists from Slovenia (6 % increase over the same period of 2009), accounting for 6.6 millions of overnight stays (11 % increase).

Italian Republic Bilateral relations between the Republic of Croatia and the Italian Republic are intensified at all levels during the last two years. Official visits are exchanged at the highest level, and political consultations held on a regular basis. Strong and clear support to Croatia in the final phase of EU accession is visible at the highest levels of the Italian state policy. Efforts are underway to resolve the remaining outstanding issues based on the respect of already concluded treaties and within the framework of the common European future. The second meeting of the Coordination Committee of Ministers of Croatia and Italy took place on 15 September 2010 in Zagreb, representing the continuation of the implementation of the Memorandum on Cooperation between the Government of the Republic of Croatia and the Government of the Italian Republic signed in January 2009. On that occasion, the two Ministers of Foreign Affairs, Gordan Jandroković and Franco Frattini, signed a Joint Declaration. The Ministers of Agriculture, Petar Čobanković and Giancarlo Galan signed also the Memorandum of Understanding on Agriculture and Rural Development. The Prime Minister of the Republic of Croatia, Jadranka Kosor, paid a visit to the Italian Republic on 8 February 2010, when she met with the Prime Minister Berlusconi in Milan. Croatian President Ivo Josipović along with his Slovenian and Italian counterparts, Danilo Türk and Giorgio Napolitano held a trilateral meeting in Trieste in Italy on 13 July 2010, where they also attended the symbolic "concert of friendship" given by the young musicians from all three countries. President of the Chamber of Deputies of the Italian Parliament Ginafranco Fini paid a return visit to the Republic of Croatia and met with the President of the Croatian Parliament Luka Bebić on 21 September 2010.

Economic co-operation: Italy is Croatia’s main foreign partner and biggest export market. In 2009, total commodity exchange between two countries amounted to EUR 3.77 billion, or 30% less than in 2008. Total trade in the first six months of this year shows signs of recovery (increase of Croatian export to Italy by 29% compared to the same period of 2009, while Croatian imports from Italy remained more or less at the same level).

According to the statistics of the Croatian National Bank that includes first quarter of 2010, Italy has taken eighth place on the list of foreign investors to Croatia.

Italy is also one of the most important tourist emitting markets. The Italians were the second largest group of foreign visitors in Croatia in 2009 considering the number of arrivals. The 40

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr number of Italian tourists that visited Croatia during the summer of 2010 was around 5% lower then in 2009.

In order to support the development of the economic relations between the two countries, the Second Economic Forum was held on 10 June in Milan, during which Croatia presented legal framework and investment opportunities in several Croatian Counties.

Republic of Hungary Bilateral relations with Hungary are dynamic and exemplary. The partnership of the two countries is underpinned by very good co-operation in the areas of politics, economics, borders and culture, and by a high degree of reciprocal protection of minorities.

Further strengthening and broadening of the overall bilateral co-operation is encouraged through regular visits at all levels, joint sessions of the Governments and the work of the Mixed Committee for Co-operation between the Governments.

Hungarian President Pál Schmitt paid an official visit to Croatia on 1 October 2010 and was received by Croatian President Ivo Josipović, Parliament Speaker Luka Bebić and Prime Minister Jadranka Kosor. Croatian President Josipović paid an official visit to Budapest on 16 March 2010. Presidents of Croatia, Hungary and Serbia, Ivo Josipović, László Sólyom and Boris Tadić, held a trilateral meeting on 16 April 2010 in Pecs, Hungary.

Former Hungarian Parliament Speaker Pál Schmitt paid an official visit to Croatia on 13 and 14 July 2010. Schmitt was received by Croatian Parliament Speaker Luka Bebić, Prime Minister Jadranka Kosor and Minister of Foreign Affairs and European Integration Gordan Jandroković. During the official visit, the two Parliament Speakers closed the IPA 2007 Twinning Light Programme “Support to the Croatian Parliament for the Preparation for EU Accession”.

Croatian Prime Minister Jadranka Kosor paid a working visit to Hungary on 22 July 2010 and met with Hungarian Prime Minister Viktor Orbán and Former Parliament Speaker Pál Schmitt. The two Prime Ministers discussed energy and infrastructure issues, energy security of Central and South East Europe, Croatian accession to the EU, minority issues and the future dynamics of bilateral cooperation. Hungarian Deputy Prime Minister and Minister of Public Administration and Justice, Tibor Navracsics, participated in the conference entitled "Functioning of the judiciary in terms of EU membership" on 10 September 2010 in Zagreb. At the margins of the conference, Deputy Prime Minister Navracsics was received separately by Croatian President Ivo Josipović, Prime Minister Jadranka Kosor and Minster of Justice, Dražen Bošnjaković. Former Croatian Deputy Prime Minister, Đurđa Adlešič, met with Hungarian Deputy Prime Minister and Minister for Public Administration and Justice Tibor Navracsics in Veszprem, Hungary, on 6 July 2010. At the meeting the Deputy Prime Ministers discussed numerous topics (economy, tourism, demining process of a part of the Croatian-Hungarian state border).

Croatian Minister of Foreign Affairs and European Integration, Gordan Jandroković, paid a working visit to Hungary, on 28 October 2010, and met with his counterpart Minister Janos Martony. Also, as a representative of the Hungarian Government, Minister of Foreign Affairs Janos Martonyi participated in the Croatia Summit in July 2010 in Dubrovnik. Croatian Minister of Foreign Affairs and European Integration, Gordan Jandroković, met (designated) Hungarian Minister of Foreign Affairs Janos Martonyi on 20 May 2010 in Zagreb.

A quadrilateral meeting of Ministers of Foreign Affairs of Croatia, Hungary, Greece and Serbia, Gordan Jandroković, Péter Balázs, Dimitris P. Droutsas and Vuk Jeremić, was held on 29 April

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr 2010 in Budapest. The next day a trilateral meeting of Ministers of Foreign Affairs of Croatia, Hungary and Serbia took place also in Budapest.

The parliaments of the two countries co-operated in the framework of the IPA 2007 Twinning Light Programme “Support to the Croatian Parliament for the Preparation for EU Accession” which was funded by the European Union in the total amount of € 241,582.76. The project was closed in July 2010 with further valuable inputs from various European parliaments.

Close co-operation has taken place between the competent bodies for implementing the Hungary-Croatia Cross-border Co-operation Programme, such as in the programme elements for using EU funds for cross-border co-operation between the two states in the financial period from 2007 to 2013. Under the Programme, 42 projects have been selected and signed, and 94 additional proposals were submitted in the framework of the second call for project proposals which ended in September 2010, including a joint application of a project called “Rehabilitation of land mine contaminated sites in Drava-Danube area”.

Croatia and Hungary have high level of the mutual protection of minorities. In the framework of the latest Constitutional changes in Croatia, the Constitutional Law on the Rights of the National Minorities has been amended thus enabling the national minorities which make up less than 1.5% of the population, including the Hungarian minority, dual voting rights, and legal personality to the National minority’s co-ordinations. Co-operation has also intensified in the area of cross-border environmental protection and the ecologically important area of the rivers Mura, Drava and Danube, which is supposed to be declared a cross-border biosphere reserve as part of UNESCO's Man and Biosphere Programme (a Joint Declaration on the establishment of the Hungarian-Croatian Trans-Boundary Biosphere Reserve was signed at the Third Joint Session of the two Governments in September 2009).

The Protocol between the Ministries of Foreign Affairs of the two states which will enable the actual implementation of the Agreement between Croatian and Hungarian Governments on the cooperation in the field of handling visa applications at the Embassy of the Republic of Hungary in the Republic of Moldova was signed on 28 October 2010 in Budapest. Agreement between the Government of the Republic of Croatia and Government of the Republic of Hungary on Cooperation in Construction, Maintenance, Reconstruction and Removal of Operational Disturbances of Pipelines for Transportation of Hydrocarbons Crossing the Mutual State Border was signed on 22 July 2010 in Budapest.

Economic co-operation: In 2009, the economic crisis has lead to considerable decrease in trade between Croatia and Hungary, and the total trade balance was EUR 625.1 million. The exports amounted to EUR 132.4 million or 43% less than a year ago, and the imports from Hungary amounted to EUR 492.7 million or 25.6% less when compared with 2008. In January - August 2010, the trade between Croatia and Hungary was EUR 405.57 million or 0.3% more than in the same period 2009. In the first nine months of 2010, Croatia was visited by 263,500 Hungarian tourists, which marks a 0.9% increase towards the same period in 2009.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr IV. Foreign and Security Policy

IV.1. Common Foreign and Security Policy

Croatia has demonstrated a high level of compatibility of its foreign and security policy with the objectives of the Common Foreign and Security Policy. Within the limits of its current candidate country status Croatia is trying to approach CFSP issues as pro-actively as possible. The framework for dialogue between the Republic of Croatia and the EU in the field of foreign, security and defence policy is formed by the Stabilisation and Association Agreement, the European Council conclusions of 2003 in Thessaloniki and the accession negotiations. The degree of alignment of Croatia’s foreign and security policy with CFSP is high, which is reflected in Croatia’s systematic alignment with the EU declarations, common positions and statements whenever it has been invited to join, both in Brussels/Zagreb (at the invitation of the General Secretariat of the Council), as well as in international organisations (the UN in New York, Geneva and Vienna, and OSCE).

As a candidate country, Croatia is regularly (twice per year) invited to informal meetings of EU ministers of foreign affairs (Gymnich), as well as to meetings of the EU Troika with candidate countries concerning human rights and UN-related issues.

IV.2. Union for the Mediterranean

Croatia has hosted on October 18-20, 2010, in Dubrovnik, the Union for the Mediterranean (UfM) Senior officials meeting as well as the Anna Lindh Foundation Board of Governors meeting.

In March 2010, Croatia has also become member of the Union for the Mediterranean Parliamentary Assembly (ex-EMPA), thereby completing its participation in all the dimensions of the UfM.

“Mediterraneanism” is a major component of the Croatian identity, rooted in geography and its cultural and historical heritage. With fifteen resident embassies in the Mediterranean region, Croatia testifies to its commitment to dialogue and cooperation in this region.

Further to the official inauguration of the UfM Secretariat in Barcelona, Croatia is actively participating in establishing the right framework for the promotion of common projects vital to the citizens of the region – it is also actively taking part in all UfM ministerial conferences and technical meetings, as it strongly believes that consolidated political cooperation and the reinforced project dimension will help the Mediterranean to regain its role as a region of peace, tolerance and prosperity.

IV.3. Common Security and Defence Policy

Throughout 2010 Croatia has continued to actively participate in the Common Security and Defence Policy and has been regularly invited to consultations related to security and defence 43

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr issues. The Croatian Defence Minister and other MoD representatives took part in the EU Troika briefings and subsequent political dialogue for the defence ministers of the non-EU European NATO members and other countries which are candidates for accession to the EU in Göteborg (September 2009), Brussels (November 2009), and Palma de Mallorca (February 2010). In line with the changes arising from the entry into force of the Lisbon Treaty, in May 2010 a delegation of the MoD participated in the political dialogue meeting between Catherine Ashton, the High Representative of the Union for Foreign Affairs and Security Policy, and representatives from EU candidate countries and European NATO members.

Croatian diplomatic and military representatives participated in the EU Political and Security Committee meetings on the implementation of the EU operations in the formats PSC + 6 (November 2009, February and November 2010) and informal meetings of PSC + 8 (May and September 2010), as well as at the meeting of the EU Military Committee in the format EU MC + 6 in February and November 2010. Croatia also participated in the EUBG co-ordination conference in April and October 2010.

Throughout 2010 the Republic of Croatia continued to make a tangible contribution to the EU crisis management operations and the concept of the EU Battlegroups. Since 7 July 2009, Croatia has been part of the EU operation off the Somali coast (EU NAVFOR Somalia - ATALANTA) through engagement of officers on partner vessels and in Operation Command Headquarters. During 2010, two Croatian officers were deployed to Dutch and Italian frigates and one officer to the Operation Command Headquarters in Northwood, UK.

Croatia also participates in the EU civilian missions, in the EULEX Kosovo, currently with four police and three judicial and administrative officers, and in EUPOL Afghanistan, with two police officers. In addition Croatia has loaned two Armored Personnel Carriers (APCs) to EULEX Kosovo, which are currently being used by the Special Police Department of the Mission within two of its integrated police units. Pursuant to the EU request for the extension of the lease of two armored personnel carriers to the EULEX mission in Kosovo, the Government of the Republic of Croatia has approved the extension of the lease until the end of 2011.

Croatia also continues to provide Host Nation Support (HNS) to the EUFOR ALTHEA operation in Bosnia Herzegovina. To this end, Croatia has made available its seaports, airports, military facilities, air space and air traffic control services.

Croatia continued with efforts aimed at inclusion in the EUBG which will be in stand-by status under Germany’s leadership in the second half of 2012. Croatia will participate in the EUBG with motorised infantry company, a horizontal construction platoon, and HQ personnel. In December 2009, Croatia signed a letter of intent on the establishment of this EUBG, and negotiations on the Memorandum of Understanding are underway. The Croatian Government also approved participation in the Nordic Battlegroup in the first half of 2011 with two helicopters (Mi171Sh), enabled and equipped for MEDEVAC and transport tasks, together with 21 personnel. On 29 October 2010 Croatia signed the Letter of Intent on the participation in the Nordic Battlegroup and sent its troops on training to Sweden. In this way, Croatia is directly contributing to EU capacity building in crisis management and conflict prevention, as well as in strengthening EU military capacity.

Regarding regional co-operation in defence and military matters, Croatia actively participates in a series of regional initiatives: South East Europe Defence Ministerial (SEDM), Quadrilaterale (and MLF), Southeast Europe Clearinghouse (SEEC), South-East European Co-operation Process (SEECP) and Adriatic and Mediterranean projects – ADRION and V-RMTC (Virtual Regional Maritime Traffic Centre). In the first half of 2010, Croatia assumed presidency over the US- Adriatic Charter.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr In the context of strengthening regional cooperation, on 31 May 2010 Croatia signed a Memorandum on cooperation in the field of defence with Macedonia, and on 8 June 2010 the Agreement on Cooperation in the field of defence with Serbia.

Croatian participation in Peacekeeping operations: Croatia currently participates in 14 peacekeeping missions throughout the world – 9 UN missions, 3 EU missions and operations and 2 NATO operations with altogether 483 participants (460 soldiers, 19 policemen, 3 judicial officers and 1 diplomat).

IV.4. NATO

When Croatia became a member of NATO (April 2009), it agreed to share the values and responsibilities of the circle of allied states. Membership in NATO contributes to Croatia’s national security, simultaneously strengthening its position in the international community. The Republic of Croatia recognises a strategic interest in membership of the Alliance, the firmest guarantee of its security, and the best framework for involvement in preserving and promoting regional, European and international security, along with transatlantic alliance and partnership, the values and interests of which it shares entirely. During the first year of membership, the activities of the defence system of the Republic of Croatia in NATO focused primarily, on the one hand, on supporting activities which strengthen the capability of the Alliance in terms of joint, collective defence, as its basic task, and which strengthen the capacity to respond to crises and the need for peacekeeping operations, and, on the other hand, on the process of Croatia’s full integration into NATO. Croatia has become involved, through its representatives at all levels, in the regular mechanism of political and security consultations, and in the transformation processes within the Alliance itself, through contributing to the production of a new strategic concept and new NATO structures.

With the aim of contributing to joint security, co-operation has continued in allied operations which aim to eliminate threats to Euro-Atlantic security, primarily in Afghanistan, and to stabilise the region of South East Europe. From 2009, Croatia is involved in operations in Kosovo. As a member of NATO, Croatia is currently providing active support for NATO operations in Afghanistan (ISAF), Kosovo (KFOR) and in the Mediterranean region (Operation Active Endeavour).

In addition, Croatia makes a recognisable contribution through supporting the Euro-Atlantic aspirations of states in the region, through specific, practical co-operation focusing on sharing Croatian experience with neighbouring countries and supporting the development of their capabilities for participating in international peacekeeping operations. The perspective for Euro-Atlantic integration for all the countries of Southeast Europe has been enhanced by Croatia’s membership of NATO.

IV.5. United Nations

From 2008 to 2009, Croatia held a mandate as a non-permanent member of the UN Security Council (UNSC). During this period, Croatia co-operated actively with the permanent and non-permanent European members of the Security Council and with representatives of the European Union and Member States on many issues on the UNSC agenda. In the same period, Croatia presided over the Counter-Terrorist Committee established pursuant to Resolution 1373, and the Working Group for Establishing Resolution 1566. Croatia was also a vice-chair of the Sanctions Committee for Sudan and Somalia.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Croatia will continue to make an active contribution to the work of the United Nations and its bodies, focusing further on preserving global peace and security, and relying on experience gained through membership in the UNSC, as well as the experience of post-war reconstruction and peace-building, the development of democratic institutions and the rule of law. Accordingly, Croatia has again presented its candidature for membership in the Peace-building Commission for 2012-13. In addition, it has presented its candidature for renewing its non-permanent membership of the Security Council for 2030-31, and of the Economic and Social Council for 2013-15. The Croatian candidate was recently elected for the third time for the Committee on the Elimination of Discrimination against Women (CEDAW) for 2011-2014, while the former Croatian Minister of Justice Ivan Šimonović became a UN Assistant Secretary-General in mid-2010, with the task of monitoring the exercise and protection of human rights throughout the world.

Croatia is currently providing 123 members of the Armed Forces of the Republic of Croatia in seven UN peacekeeping missions. Along with this, Croatia provides a valuable contribution to training programmes for participation in peacekeeping missions (by organising training programmes in Croatia and by sending trainers for such programmes abroad).

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr V. Main Economic Developments

V.1. Recent macroeconomic developments

Main macroeconomic indicators 2006 2007 2008 2009

Population (m) 4.440 4.436 4.434 4.429 GDP at market prices (€ bn) 39.102 42.833 47.370 45.379 GDP per capita (€) 8,807 9,656 10,683 10.245 GDP per capita in PPS (%, EU-27=100) 57 60 63 64 Real GDP growth (%) 4.7 5.5 2.4 -5.8 Inflation rate (average y-o-y; %) 3.2 2.9 6.1 2.4 Unemployment rate (%, ILO, +15y) 11.2 9.6 8.4 9.1 Exports of goods & services (% GDP) 43.5 42.7 42.0 35.6 Imports of goods & services (% GDP) 50.2 50.1 50.1 39.4 Current account balance (% GDP) -6.9 -7.6 -9.2 -5.4 External debt (€ bn) 29.274 32.929 39.125 43.089 External debt (% GDP) 74.9 76.9 82.6 94.9 International reserves (€ bn) 8.725 9.307 9.121 10.376 International reserves (months of imports of G&S) 5.3 5.2 4.6 7.0 Exchange rate (HRK: EUR, 31 Dec) 7.35 7.33 7.32 7.31 Foreign direct investment – FDI (€ bn) 2.8 3.7 4.2 2.1 Budget balance (% GDP) -2.6 -2.0 -1.8 -4.3 Public debt (% GDP) 36.0 33.4 29.3 35.3 Sources: CBS, MoF, CNB, Eurostat

In 2009, Croatian economy seriously experienced effects of the global financial and economic crisis. In 2009 real GDP dropped by 5.8%; forecast for 2010 is that real GDP growth of -1.6% will be recorded. Real GDP declined by 2.5% in the first and the second quarter of 2010 as compared to the same periods of 2009. Available high frequency indicators for the third quarter of 2010 point to a further decline in economic activity but at a somewhat slower pace; some positive results have been recorded in industrial production and retail; while construction sector still sees slowdown in activity. Official forecast (Ministry of Finance) expects real GDP growth equal to 1.5% in 2011 and 2.0% in 2012.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Eurostat reports Croatia reaching 64% of EU-27 average GDP per capita in 2009, which is highest among the candidate countries and higher than some of the 12 new Member States. In 2009, average GDP per capita was equal to EUR 10,245, while per capita income adjusted for the purchasing power standard (PPS) amounted to EUR 15,100.

GDP per capita in 2009 in PPS (EU27=100)

Turkey Slovenia Slovakia Romania Po rtugal Poland Malta Macedonia Lithuania Latvia Hungary Greece Es tonia Cz ech R. Cy prus Croatia Bulgaria EU27

0 20 40 60 80 100 % Only EU Member States and Candidate Countries below the EU27 average Source: Eurostat, 2009

Croatian monetary policy continued to be geared at maintaining price stability. Over the last sixteen years domestic economic environment was characterised by low and stable inflation. However, in 2008 there was a marked increase in average annual inflation rate when it reached the peak of 5.8%. Last year saw moderation and in 2009 average rate of inflation was 2.2% (as measured by HICP, methodology comparable to EU MSs). The price developments over the first nine months of 2010 were characterised by a slowdown in overall consumer price inflation in Croatia, with the annual inflation rate decreasing from 1.9% in the December 2009 to 1.4% in September 2010. A prospect for inflation in the coming period is to remain stable at the low levels.

The exchange rate of the Croatian kuna remained broadly stable over the recent periods. Foreign exchange system of tightly managed float remains in place and exchange rate stability is the main nominal anchor for the price stability in Croatia. Importantly, this policy stance helped mitigate potential exchange rate induced credit risk in a highly euroised Croatian economy, thus contributing to preserving stability. The existing managed float exchange rate regime pursued by the CNB, along with the maintained relative stability of the kuna exchange rate against the euro, indicate that Croatia should not have any difficulties

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr maintaining exchange rate stability within the exchange rate mechanism (ERM II), once it joins it. Data on daily kuna/euro exchange rate movements over the last two years confirm this stability and rather narrow margins of fluctuation - from the beginning of August 2008 to the end of July 2010, the daily kuna/euro exchange rate moved within a range between –2.4% and 2.8% around the average exchange rate which stood at HRK 7.28/EUR.

Adverse labour market trends started to be seen in the period after the onset of the economic crisis and slowing of the economic activity. In the second quarter of 2010 unemployment rate (according to Labour Force Survey) was 12.4% (increased by 3.5 percentage points compared to the same quarter of 2009). Average registered unemployment rate was equal to 16.4% in August 2010. In the area of government finance, fiscal consolidation that had started in 2004 has continued, but since the last quarter of 2008 public finance came under increasing pressure. According to the ESA 95 methodology, the Consolidated General Government deficit, i.e. net lending/borrowing accounted for 1.4% of GDP in 2008, while in 2009 was equal to 4.1% of GDP. In August 2010 the Parliament adopted supplementary budget for 2010. Based on the new plan for 2010, net lending/borrowing of the Consolidated General Government is set at HRK -17.2 billion, equalling 5.2 per cent of GDP. In 2009, the General Government debt accounted for 35.4% of GDP. At the end of June 2010, the General Government debt reached HRK 122.6 billion or 37.0% of the expected GDP for 2010. In July 2010 the Government successfully issued an international Eurobond in the amount of USD 1.25 billion and two domestic bonds, first in the amount of HRK 1.5 billion and second in the amount of EUR 650 million.

In 2009, external imbalances reduced - deficit of the balance of payments' current account narrowed for the first time after a 5-year period of continuous growth (reflecting the effects of the global economic crisis on the volume of Croatian trade, as well as the availability of external financing). The current account deficit contracted from 9.2% of GDP in 2008 to 5.4% of GDP in 2009. The first half of 2010 saw a further contraction of the current account deficit, mainly coming from an additional correction of the merchandise trade imbalance. Gross external debt continued to increase in 2009, but at a much slower pace than in previous years, reaching a total of EUR 43.1 billion at end-December 2009. The annual growth rate was halved, from 17.6% in 2008 to 8.8%. The debt-to-GDP ratio was equal to 94.5% at the end of 2009. In the first half of 2010 gross external debt increased by EUR 0.5 billion compared to the end of 2009.

After a slight and temporary fall in the first half of 2009, official foreign currency reserves recovered and stood at EUR 10.4 billion at end-2009, which is equivalent to around 7 months of imports. Croatia's financial system has remained stable and has coped well with the spillover of the global financial crisis to domestic markets. Banks did not face direct losses in the wake of global crises as they had no toxic assets. However, an increase in the ratio if non- performing loans has been seen – from 7.9% at end-2009 to 9.5% at end-July 2010. Despite this rise in NPL ratio, banks are very resilient thanks to their high capital adequacy (average capital adequacy at the end of the first quarter 2010 was equal to 19%). Banks' profitability also remained high – return on assets (ROA) was equal to 1.3% and return on average equity (ROAE) was 7.6% (at the end of the first quarter 2010).

V.2. Croatia's response to the crisis

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr As global financial and economic crisis started affecting Croatian economy more severely in the last quarter of 2008 and the consequences of the crisis and tighter credit conditions combined with economic slowdown in Croatia's major trading partners (from EU) started to be seen in markedly slower growth, the policy mix and different measures taken by the government were successful in limiting the effects of crisis on Croatian economy and financial system. Timely monetary measures taken by the Croatian National Bank proved to be successful in preventing the spill-over of the international financial crisis onto the Croatian banking sector. Combination of the measures taken before the full breakout of the financial crisis has resulted in moderation of credit growth and, therefore, lower credit risk that Croatian banks are facing after the onset of the crisis, more than doubling of the capital of Croatian banks in two years prior to the crisis, and reduction of the balance sheet risk in the economy. Changes of monetary policy instruments since end-2008 have substantially improved the foreign currency liquidity of the Croatian banking system. In 2009, the Government adopted three supplementary budgets (fiscal savings of 2.5% of GDP) as well as a set of ten anti-recession measures as a response to unfavourable macroeconomic conditions caused by the spill over of the global financial and economic crisis. In the beginning of 2010, in close cooperation with the Croatian National Bank, Croatian Bank for Reconstruction and Development and commercial banks, Croatian Government adopted new measures with a view to enhance economic recovery and development and to preserve current and create new jobs. The aim is to help mobilize existing liquidity on the market, and channel it towards solid real sector companies. Stimulating credit activity and securing favourable conditions for economic recovery will also be supported by a newly established Guarantee Fund for partial risk coverage of the new placements by credit institutions with active participation of the state.

In April 2010, Government adopted a comprehensive Economic Recovery Programme, containing a wide range of short-term and medium-term measures to boost economic recovery and growth. The programme is based on stability, sustainability and social responsibility. The intention behind all the measures to be conducted is to address various structural challenges in Croatian economy. In addition to measures in fiscal policy, Economic Recovery Plan includes a series of measures towards reducing government interference in economic flows and igniting a new investment cycle with economically measurable long- term effects, coupled with maximum private sector participation. Nearly 70 % of the measures will be achieved during 2010. Croatian Parliament adopted supplementary budget for 2010 in August this year. Under the new plan, the total revenue of the Consolidated General Government for 2010 amounts to HRK 124.3 billion which represents a decline of HRK 5.8 billion in comparison to the previous plan. Total expenditure in 2010 amount to HRK 141.5 billion which is an increase of HRK 391.2 million in comparison to the previous plan. Based on the new plan for 2010, net lending/borrowing of the Consolidated General Government is set at HRK -17.2 billion, equalling -5.2% GDP.

Overall, policy response to the global crisis has been appropriate and has contributed to preserving macrofinancial stability. The policy response to the crisis was broadly adequate and overall conducive to safeguarding macro-financial stability under very difficult external conditions; as confirmed by the EU economic and finance ministers within the annual ministerial dialogue with candidate countries (May 2010).

V.3. Investment climate

Croatia is open to investments and Croatian government continues to have as a goal a further increase in foreign investment. NATO membership and nearing EU accession continue to 50

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr motivate both reform and continuation of stability oriented policies, in turn improving the investment climate of the country. Reform momentum is best reflected in growing number of areas aligned with acquis communautaire.

Global financial crisis was alleviated by prudent domestic macroeconomic policies that as a consequence provided relatively stable business environment throughout turbulent economic times. Dialogue between social partners facilitated undisturbed functioning of economy while introducing stringent but sound measures. Case backlog often cited as a burden to investment climate and potential growth, decreased 10% last year. Further progress is foreseeable as Croatia progresses towards conclusion of chapter 23 dealing with a rule of law. After it overtook 7 economies last year, Croatia improved its ranking also this year by outperforming additional 5 countries, according to the latest World Bank Doing Business Report published on 4th November this year. Croatia is among 10 economies that made the largest strides in creating their regulatory environment more favorable to business in the past 5 years.

Berthelsmann Transformation Index that attempts to picture progress towards democracy and free market economy of 128 countries worldwide placed Croatia 15th and 16th in its 2010 report.

Croatia has a developed infrastructure and solid level of social capital, which provides basis for further development of future knowledge-based economy. The Newsweek magazine ranked Croatian overall education system 22nd best among 100 countries in the world, whereas World Economic Forum placed higher science and math education the same rank among 139 countries. Well educated labor force is important source of future competitiveness for both Croatia and the EU.

All major rating agencies recognized stability during the crisis by giving investment grades to Croatia, thereby providing undisturbed inflow of foreign investment to both public and private sector. Spreads on Croatian government bonds stabilized in line with improving macroeconomic conditions and global business.

V.4. Foreign Direct Investments (FDI) The global economic crisis has exerted an immensely negative influence on the overall global FDI flows. UNCTAD World Investment Report 2010 estimates that FDI inflows worldwide plummeted by 37% to USD 1114 billion in 2009, following a 16% decline in 2008. Subsequently, Croatia did not escape the global plunge in FDI inflows, recording a decrease by 49.4% to EUR 2.13 billion (4.7% of GDP) of FDI inflows in 2009 compared to EUR 4.21 billion in 2008. Yet, compared to the rest of the world, in 2008 Croatia still recorded an increase in FDI inflows by 14.4%. The first two quarters in 2010 record FDI inflow of 645.8 million bringing the total FDI stock to EUR 24.704 billion. Foreign direct investments were primarily channelled towards the sectors of Financial intermediation, except insurance and pension funds, Wholesale trade and commission trade, Other business activities and Extraction of crude petroleum and natural gas. As for the countries of origin, the FDI originates mainly from The Netherlands, Austria, Luxembourg, Hungary, Germany and Slovenia. Accordingly, the Croatian outward FDIs, after an immense increase from EUR 211.2 million in 2007 to EUR 972.8 million in 2008 (460% increase) recorded a slight decrease to EUR 918.7 million in 2009 (5.6%). The first two quarters in 2010 record FDI outflow of EUR 210.2 million thus totalling the outward FDIs stock to EUR 4.29 billion. Croatian investors mainly invested in sectors Manufacture of coke, refined petroleum products, Water transport, Manufacture of chemicals and chemical products and Wholesale trade and 51

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr commission trade. Target markets of the Croatian FDIs were The Netherlands, Syrian Arab Republic, Bosnia and Herzegovina and Russian Federation.

V.5. Trade balance

In 2009, Croatian trade exchange amounted to EUR 22.7 billion, which is a decrease by 25.2% compared to 2008. Croatia exported goods worth EUR 7.5 billion (down by 21.6% compared to 2008), whereas Croatian imports amounted to EUR 15.2 billion (down by 26.9% compared to 2008). In 2009 Croatia covered 49.4% of its imports by exports. In 2009, Croatia mainly exported Petroleum oils and oils obtained from bituminous minerals (not crude) (8.11% of total exports), Ships, boats and similar vessels for the transport of persons or goods (6.72%), and Electrical transformers, static converters and inductors (4.36%). In 2009, Croatia mainly imported Petroleum oils and oils obtained from bituminous minerals (crude) (8.38% of total imports), Motor vehicles for the transport of persons (not of h. 8702) (3.39%), and Medicaments, therapeutic, prophylactic use, in dosage (2.92%). Croatia's main exports markets in 2009 were Italy with 19.2% of total exports, Bosnia and Herzegovina with 12.85% and Germany with 11.01%. With 15.39% of overall imports Italy also tops Croatia's list of suppliers for imports in 2009, followed by Germany with 13.53% and the Russian Federation with 9.5%. In regional terms, Croatia exported 60.52% of its 2009 total exports to the European Union, while it imported 62.72%. The EU is followed by the CEFTA members where Croatia exported 21.31% of its total exports, whereas importing 5.12%. In the first eight months of 2010, Croatia exported goods worth EUR 5.67 billion (15.2% increase compared to the first eight months of 2009), while importing goods worth EUR 9.79 billion (2.6% decrease compared to the first eight months of 2009). Those figures bring the imports coverage by exports to 58%.

V.6. Tourism

The tourism sector in Croatia represented around 15% of the country’s GDP in 2009, while the total foreign exchange revenues amounted to EUR 6.4 billion. With regard to its stabilising role in the balance of payments, the tourism is one of the most important economy sectors. It dynamizes labour market and brings high seasonal employment. It is vibrant sector that contributes also to a wide range of key EU objectives: sustainable development, job creation, social and regional cohesion, protection of natural and cultural heritage and EU citizenship, to name a few. Croatian region of Istria was ranked second best worldwide by the Lonely Planet magazine for 2011.

The results of this year's tourist season show that more than 6 million tourists visited Croatia in the first seven months of 2010. Foreign component represents 85% of total arrivals. Croatia saw a 7% rise in foreign arrivals during the period, which more than offset domestic decrease of around 7%, bringing total arrivals to a 4% increase. Number of overnight stays increased by 1.5% (nearly 30 million nights), due to 3% increase of foreign stays, which is in line with expectations. The tourism revenue is projected to stabilize or slightly increase this year after a steep decline in 2009.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Most of the tourists who came from abroad in the first seven months (5 million, making above 26 million overnight stays) are from the EU countries mostly from Germany, Slovenia, Italy, Austria, Czech Republic and France. The number of tourists from Japan, Poland, Spain, the Netherlands, Russia and the neighbouring countries, notably Serbia also increased substantially compared to the last year. VI. ANNEX

Shipbuilding EU Financial Assistance (CARDS, Phare, ISPA, SAPARD and IPA) Status of the Accession Negotiations’ Process with Croatia

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr Shipbuilding

The second round of tendering procedure for privatisation of the six Croatian shipyards was launched in February and lasted till 19 May 2010. Four offers were received - two for Brodotrogir d.d. Trogir (MORE TROGIR d.o.o. Split and JADRANSKA ULAGANJA d.o.o. Zagreb), one for Brodograđevna industrija Split d.d. Split (DIV d.o.o. Samobor), and one for Brodograđevna industrija 3. Maj d.d. Rijeka (CROWN INVESTMENT GmbH Germany on behalf of A -Tec Industries, AG Wien (Austria). In September 2010, following the first assessment of the bids, the Government decided to continue the privatisation process according to the mandatory conditions set out in the tender with the following bidders: - DIV d.o.o. Samobor with regard to Brodograđevna industrija Split d.d. Split (including BSO); - Jadranska ulaganja d.o.o. Zagreb with regard to Brodotrogir d.d. Trogir; and - Crown Investment GmbH with regard to Brodograđevna industrija 3. MAJ d.d. Rijeka.in September

The Croatian Competition Agency (CCA) carried out a preliminary assessment of the restructuring plans submitted by the above mentioned potential buyers and requested some additional information. New and improved drafts of the restructuring plans have been submitted to the CCA for assessment during September and October 2010. On 22 October 2010, the CCA forwarded draft restructuring plans for Brodograđevna industrija Brodosplit and 3. MAJ to the European Commission for review. The draft restructuring plan for Brodotrogir shipyard is to be communicated to the European Commission during the first week of November. Situation in the three remaining shipyards, for which no bid was received, is elaborated below.

Regarding Uljanik, in light of positive trends of its economic and financial situation the process of enacting a decision by the CCA and the European Commission confirming that Uljanik d.d. is not a company in difficulty is underway. A decision by the EC on the status of Uljanik is expected once Uljanik reimburses the state aid it has received since 1 March 2006 with compound interest. In order for the aid to be considered as recovered, Uljanik and the Croatian Government must sign a compensation agreement, in line with the conditions agreed with the Commission. In addition, Uljanik has to accept that the future concession fee will need to be calculated based on market principles, in line with the previous agreement reached with the Commission. Following several rounds of consultations with the EC, final documentation for Uljanik should be submitted shortly, and the Commission decision confirming that Uljanik is no longer considered to be shipyard in difficulty could then be taken during November 2010.

The status of Brodosplit - Brodogradilište specijalnih objekata d.o.o. is to be resolved within the frame of the privatisation process of the shipyard Brodograđevna industrija Split d.d. (Brodosplit).

For Brodogradilište Kraljevica d.d.; the third round of privatisation was launched on November 3rd and it will last till November 18th, 2010 along the lines of tender conditions previously agreed with the European Commission and already applied in previous two tender procedures.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr EU Financial Assistance (CARDS, Phare, ISPA, SAPARD and IPA)

SUMMARY. In the period 2001-2012, total allocation of EU financial assistance to Croatia amounts to 1.39 billion € (roughly 150 m€ annually) comprising of three different assistance programme(s) with different implementation systems requiring different institutional set-up and implementation modalities at the national level at the same time; namely: CARDS programme (262 m€), pre-accession programmes PHARE (132.56 m€), ISPA (60 m€) and SAPARD (25 m€), and the new pre-accession programme IPA with its 5 components (910.2 m€ /2007-2012/).

The use of pre-accession programmes demands a set-up of implementation systems on a decentralised basis which needs to be verified by the European Commission (EC) services before granting the EC accreditation. Since 2006 Croatia manages and implements the funds on a decentralised basis with continuous monitoring by the European Commission.

Substantial efforts in reinforcing the administrative and institutional capacity and in strengthening the overall system for the management of pre-accession assistance are continuously being undertaken, with a view to preparing adequately for implementation of cohesion and rural policies upon the accession to the EU.

The confirmation of undertaken efforts are Commission decisions on conferral of management powers to Croatia and signatures of financing agreements for IPA Components I, II, III and IV in November and December 2008, thus enabling decentralised IPA implementation and use of IPA funds in Croatia from 2009. Croatian institutions are preparing for decentralised management without ex-ante controls for IPA components I-IV. Conferral of management powers (without ex-ante controls) for IPA Component V – IPARD was granted to Croatia in November 2009.

CARDS. From 2001 until 2004, Croatia was a beneficiary of the CARDS programme, with total allocation (CARDS national component) of 262 m€, focusing on institutional and administrative capacity building and legislative alignment with the acquis communautaire in line with the Stabilisation and Association Process. The implementation of CARDS 2004 (46.5 m€), on a decentralised basis, has successfully terminated (the end date for execution of contracts: 31/12/2009). High contracting rate was achieved - 94.61%, out of which 93.97% was paid out.

PHARE, ISPA, SAPARD. For these pre-accession programmes Croatia had set up implementing structures and was conferred the management powers by the EC in February 2006 (PHARE, ISPA) and September 2006 (SAPARD). Under decentralised implementation system, Croatia has terminated the pre-accession programme PHARE 2005 (71.5 m€). 90.35% of contracted financial means was paid out to final beneficiaries while the implementation of the pre-accession programmes PHARE 2006 (61.06 m€) and ISPA (60 m€) is still ongoing. Good results were achieved in contracting of the PHARE 2006 programme (contracting rate 86.92%). Current contracting rate within ISPA programme is 95.77%.

Within the terminated SAPARD programme (25 m€), which was implemented under extended decentralised implementation system, Croatia paid out almost 50% of total allocated funds to the final beneficiaries.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr IPA. In parallel to implementation of the PHARE, ISPA and SAPARD programmes, in close cooperation with the EC, Croatian administration prepared operating structures for all 5 IPA components. The total amount in the period 2007-2012 foreseen for Croatia under IPA amounts to 910.2 m€. The legal basis for the use of IPA in Croatia (Framework Agreement between Croatia and EC) entered into force in November 2007. Croatian system set up for use of pre-accession assistance was approved by Commission decisions on the conferral of management powers to Croatia (Component I – 28/10/2008; Component II – 14/11/2008; Component III – 29/10/2008 and 3/11/2008; Component IV – 1/12/2008; Component V – IPARD - 30/11/2009).

Under the Component I, Financing agreements for IPA 2007, IPA 2008 and IPA 2009 have entered into force. Projects within IPA 2007 and 2008 are already being implemented, while procurement procedure within IPA 2009 has started. Programming for IPA 2010 has been finished. The procedure of adopting necessary EC decisions is ongoing. After good results achieved in contracting of the PHARE programme, similar is expected within IPA 2007 Component I National Programme, as well as within IPA 2008 and 2009.

Under the Component II, 6 programmes for cross-border co-operation (CBC) with neighbouring countries and 2 transnational programmes in the period 2007-2013 were adopted. The respective financing agreements for CBC Programmes between Croatia and its neighbours have entered into force. Joint technical secretariats are operational. The calls for proposals are being published and projects are being selected.

Under the Components III and IV, 4 operational programmes for the period 2007-2009 were adopted (transport, environmental protection, regional competitiveness, human resources development). The modification procedure of 2007-2009 OPs, adding new financial allocations for the years 2010 and 2011, was completed. All financing agreements for Component III and IV have entered into force. Within the framework of 4 operational programmes various projects are under implementation.

Following the follow-up reports for IPA Components I, II, III and IV sent to the EC services with an overview of all the improvements in Croatian system for use of pre-accession funds, EC auditors carried out missions to Croatian institutions in November 2009 (Components I, II and IV) and March 2010 (Component III) in order to verify the functioning of system. The follow-up audits confirmed that internal control procedures are satisfactory and no blocking findings have been detected.

The IPARD Plan 2007-2013 under the Component V was adopted by Commission Decision in February 2008. The EC decision on conferral of management of aid for measures 101 (investments in farms) and 103 (processing and marketing of agricultural and fisheries products) was adopted on 30/11/2009. Until now three calls for applications were published (under the first call 17 projects were contracted, with the total value of support of HRK 35 mil; applications received under second call are being processed while third call is still opened - until 5/11/2010).

Croatian institutions are constantly monitoring the implementation of pre-accession assistance in line with the principles of sound financial management and regularly reporting to European Anti-Fraud Office. Various irregularities and a very limited number of cases of suspicion on fraud have been reported so far by Croatian authorities, but no cases of fraud have been confirmed.

Croatian institutions are preparing for the next step necessary before the accession to the EU: waiving of ex-ante controls, currently performed by the EU Delegation to Croatia, in order to establish decentralised management without ex-ante controls for IPA components I-IV. It is envisaged that Croatian institutions will apply for the conferral of management powers without 56

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr ex-ante controls in spring of 2011. Croatia has already determined the institutional set-up for use of EU structural instruments upon the accession to the EU. A relevant decision of Croatian Government was adopted on 6 October 2010.

Mission of the Republic of Croatia to the EU Avenue des Arts / Kunstlaan 50 – 1000 Bruxelles / Brussel – Tel. (32-2) 507 54 11 – Fax (32-2) 646 56 64 – http://eu.mfa.hr