Stability Pact: Annual Report 2003

Annual Report of the Special Co-ordinator on the Activities of the Stability Pact in 2003

Executive Summary

The Thessaloniki EU-Western Balkans Summit in June 2003 was a watershed in the relations between the European Union and the countries of the Western Balkans. It has clearly dominated all the activities relating to South Eastern Europe since the beginning of the year and - through the Thessaloniki Agenda, which was endorsed by the Summit - will continue to guide activities of the EU in general, but also the Stability Pact in its work in the coming months and beyond.

The Thessaloniki Agenda has also highlighted yet again the complementary roles of the Stabilisation and Association Process and the Stability Pact. The Thessaloniki Agenda specifically calls on the Stability Pact to explore ways to fully develop the regional cooperation element of the SAP and requests the Stability Pact to support and facilitate regional cooperation in a number of specific areas, such as regional free trade, further development of the Regional Energy Market, freedom of movement, cross-border cooperation on the local level as well as fighting organised crime and corruption. By having Bulgaria, Romania and Moldova as additional Stability Pact partners beyond the five SAP countries, the Stability Pact acts as a horizontal platform between the SAP, the Accession Process and Moldova for these regional cooperation processes, bridging existing gaps.

In the region itself, the apologies exchanged between the Presidents of Croatia and Serbia and Montenegro for past wrongs committed by any citizen of one country against any citizen of the other, were an important sign of the improving situation in South Eastern Europe. Together with the subsequent apology by the President of Serbia and Montenegro towards Bosnia and Herzegovina they indicate a growing acceptance that good-neighbourly relations and regional cooperation are a necessity for the further development of the region. The exchange also serves as an example for other parts in the region, where past injustices still hamper political and economic progress. Overcoming these differences through regional cooperation and reconciling the peoples of the region for a joint future is one of the overarching aims of the Stability Pact.

In accordance with his mandate, Special Coordinator Erhard Busek has closely coordinated the activities of the Stability Pact with EU institutions, EU Member States and other Stability Pact partners. The Informal Consultative Committee (ICC), which includes the SEECP chair as a regional representative, has continued to be of particular relevance in this context. In its efforts to further integrate Kosovo into regional processes, the Stability Pact includes UNMIK in Stability Pact activities wherever possible. Options have been further developed to increase the involvement of the incoming EU members of Central and Eastern Europe in the activities of the Stability Pact, making use of their Transformation Experience gained in the course of recent political, economic and social transition processes.

Significant progress has furthermore been made in the six Core Objectives of the Stability Pact, Local Democracy / Cross Border Cooperation (LODE/CBC), Media, Energy and other Regional Infrastructure, Trade and Investment, Fighting Organised Crime and Managing and Stabilising Population Movements as well in the overarching activity area defence and security.

In the Working Table on Democracy and Human Rights, the Stability Pact has been promoting LODE/CBC as a cornerstone for broader regional cooperation and thus attracted increased and targeted donor interest. Strong support has been received from various political levels in SEE and from implementing agencies and organizations working on the ground. Regarding media development, the Media Task Force has supported the drafting of media legislation and monitored its implementation. It also successfully facilitated additional support to the production of quality television programming through the coordination of donors and implementing partners, and ensured support for local journalism education.

In the Working Table on Economic Reconstruction and Development, the main focus has been on improving the overall economic climate. The Trade Working Group has ensured finalisation and progress on implementation of the network of 21 free trade agreements throughout the region (as of 25 November 20 FTAs have been signed, 14 are in force and one final FTA will be signed before the end of the year). Together with the efforts to improve the investment climate, this will significantly improve the prospects for sustainable development in SEE. Just as important for the development of the region is the energy and infrastructure sector. Funding was secured for additional five major regional infrastructure projects and a regional strategy for transport is about to be finalised. Furthermore, agreement was reached on the expansion of the Regional Electricity Market (REM) to the gas sector and initial steps taken towards a legally binding treaty on the REM.

In the activity area of the Working Table on Security issues, fighting organised crime has been recognised as essential for the development of the region and requires sound judicial systems and efficient law enforcement institutions. To this end, a set of interlinked instruments has been established, including the Stability Pact Initiative against organised crime (SPOC), the Stability Pact Task Force on Trafficking in Human Beings (SPTF), and the Stability Pact Anti-Corruption Initiative (SPAI). The activities of the Stability Pact in this field have focused on capacity building, improving the legal framework and cross-border cooperation with the focus on prevention, protection and prosecution. The overall aim of the Migration Asylum Refugee Return Initiative (MARRI) - the second Core Objectives in this Working Table - is to adapt the national strategies to handle population movements in the region in a more comprehensive manner to make ethnic inclusion sustainable, with a perspective to rendering national action more effective in the areas of asylum, legal and illegal migration, as well as border management. The initiative has focused its activities in the initial part of the year on the consolidation of a Programme of Action to further these aims.

I. Introductory Note

The Regional Table in Thessaloniki in December 2002 has agreed to focus the work of the Stability Pact on six Core Objectives and a number of other activity areas, which have been continued on a lower level of intensity. Within each of the Core Objectives a set of achievables for 2003 have been agreed, which have guided the work in the three Working Tables. After an account of the activities of the Special Co-ordinator in pursuit of his mandate, the report will give a outline of the activities in the three Working Tables, focusing on the six Core Objectives.

II. Activities of the Special Co-ordinator

The EU-Western Balkans Summit in Thessaloniki of June 2003 was a watershed in the relations between the European Union and the countries of the Western Balkans, dominating all activities relating to South Eastern Europe in 2003. It has also highlighted yet again the complementary roles of the Stabilisation and Association Process and the Stability Pact. The Thessaloniki Agenda, which was endorsed by the Summit, specifically calls on the Stability Pact to explore ways to fully develop the regional cooperation element of the SAP and requests the Stability Pact to support and facilitate regional cooperation in a number of specific areas, such as regional free trade, further development of the Regional Energy Market, freedom of movement, cross-border cooperation on the local level as well as fighting organised crime and corruption.

To this end and in accordance with his mandate as the EU Special Representative for the Stability Pact, Special Co-ordinator Busek has closely coordinated activities of the Stability Pact with EU institutions and Member States, in particular with the past Greek, the current Italian and the incoming Irish Presidencies, the Council Secretariat and the European Commission (EC). This was of particular importance regarding the preparation of the Thessaloniki EU-Western Balkans Summit. Close coordination with the Greek EU Presidency in the run-up to the Summit was essential in ensuring an enhanced regional cooperation element in the Thessaloniki Agenda, which was also reflected in a reinforced role for the Stability Pact. The Report on SP-SAP Complementarity, requested by the EU in November 2002, was prepared well in advance of the Summit and highlighted the complementary role of the Stability Pact vis-à-vis the SAP. Close co-operation has continued with the Italian EU Presidency regarding the implementation of the Thessaloniki Agenda approved by the Summit. In this respect, the Informal Consultative Committee (ICC) has proved to be an important forum for coordination with the European Council, Commission (DG Relex), and Presidency as well as the Chair of the South East European Cooperation Process (SEECP). Excellent cooperation also exists with other Commission services in thematic areas such as trade and energy.

Close cooperation has also been ensured with other Stability Pact partners to avoid duplication of efforts; among them the OSCE, Council of Europe, OECD, the International Financial Institutions, as well as the United Nations and its various specialised sub-organisations. Regular coordination meetings with the other regional initiatives have also been continued, to prevent duplication and ensure greatest impact of activities.

A special focus of SC Busek's engagement has been on improving the investment climate in the region as a precondition for long-term stabilisation of South Eastern Europe. This theme runs through several of the core objectives of the Stability Pact, namely trade liberalisation, infrastructure and energy, fighting organised crime and corruption, as well as managing population movements and other Stability Pact activities, such as the Business Advisory Council for South Eastern Europe (BAC). All of these are necessary components of an overall and interlinked strategy to improve the investment climate in SEE.

The apologies exchanged between the Presidents of Croatia and Serbia and Montenegro for past wrongs committed by any citizen of one country against any citizen of the other, were an important sign of the improving situation in South Eastern Europe. Together with the subsequent apology by the President of Serbia and Montenegro towards Bosnia and Herzegovina they indicate a growing acceptance that good-neighbourly relations and regional cooperation are a necessity for the further development of the region. The exchange also serves as an example for other parts in the region, where past injustices still hamper political and economic progress. Overcoming these differences through regional cooperation and reconciling the peoples of the region for a joint future is one of the overarching aims of the Stability Pact.

Supporting the efforts of the SEECP to enhance regional cooperation is one of the prime goals of the Stability Pact. Close cooperation has continued with the SEECP under the Chairmanship of Bosnia and Herzegovina and initial talks have been launched with the incoming Romanian SEECP-Chair. In the context of fighting organised crime, two Ministerials in June and October were jointly organised by the SEECP and SPOC. This is another important sign of enhanced regional ownership of the process. A further sign of regional ownership is the establishment of the SPAI regional office in Sarajevo. Together with the Regional Arms Control Verification and Implementation Assistance Centre (RACVIAC) in Zagreb, the SEE Clearinghouse for Small Arms and Light Weapons in Belgrade and the SPOC Secretariat in Bucharest, responsibility is increasingly being transferred to the region itself.

As part of his mandate and in support of various Stability Pact activities, SC Busek has maintained high-level political contacts in the region and internationally with Stability Pact partners. In view of political progress in Bosnia and Herzegovina, the Special Co-ordinator visited Sarajevo several times to obtain greater political commitment to the principal goals of the Stability Pact and urged enhanced engagement in regional cooperation efforts. Following the new constitutional set-up of Serbia and Montenegro, continuous close high-level discussions were held with Belgrade and Podgorica to clarify political responsibilities and resolve deadlocks in key policy areas, in particular concerning the outstanding free trade agreements. Close coordination with the EU Presidency, the European Commission and other players ensured a unified message being sent to the region. Close cooperation has also been ensured with the Office of the High Representative in Bosnia and Herzegovina. Special Co-ordinator Busek furthermore travelled to the United States twice for consultations regarding the US involvement in South Eastern Europe and received full support for the activities of the Stability Pact.

The fourth Parliamentary Conference under the auspices of the Stability Pact Parliamentary Troika was held in Brussels in May, focusing on 'A new EU Policy for SEE' in view of the Thessaloniki EU-Western Balkans Summit. The Special Coordinator has furthermore focused his efforts on bringing parliamentarians from the region together on thematic issues of common interest, thus establishing informal networks. These efforts will be further pursued in 2004.

In its efforts to further integrate UNMIK/Kosovo into the regional processes, the Stability Pact includes UNMIK where possible in Stability Pact activities in accordance with UNSC Resolution 1244. Since 2002 UNMIK/Kosovo has been successfully included in most Stability Pact activities, among them the Regional Energy Market, the Trade Working Group, the Regional Balkans Infrastructure Study (REBIS), the Investment Compact, the electronic SEE initiative, the Police Forum, the activities of the SEE Small Arms Clearinghouse, the MARRI initiative, the Task Force against Human Trafficking and, most recently, the Social Cohesion Initiative during the Bucharest Ministerial Conference on Employment. Furthermore, efforts were successful to ensure cooperation with the Bucharest based Transborder Crime Fighting Centre. While special arrangements had to be found for some of the initiatives, UNMIK/Kosovo has become an accepted partner in Stability Pact activities, ensuring overall integration of UNMIK/Kosovo into regional activities. Nevertheless, in some areas status-related obstacles regarding the inclusion of UNMIK/Kosovo remain.

Moreover, Special Co-ordinator Busek is closely coordinating his activities with the other international actors in the region, such as SRSG Holkeri and EUSRs Ashdown and Brouhns, further developing the Sub-regional Co-operation in and around Kosovo. Apart from the general involvement of UNMIK/Kosovo in Stability Pact activities, several initiatives have been undertaken to open more specific discussions between Kosovo and its neighbours.

In May the Ohrid Conference on Border Management and Security- organised under the auspices of the Stability Pact together with countries of the region and the EU, NATO and the OSCE - was an important effort to develop a coherent and concerted approach to these issues in the region. The objective is the establishment of open but controlled and secure borders across the entire region by improving the efficiency of border management and increasing coordination at various levels - internal, bilateral and multilateral. A first Review Meeting was held in Belgrade in November. Given the highly sensitive topic of borders, the fact of beginning cooperation in this field is in itself remarkable.

In consultations with the Central and Eastern European candidate countries Special Co-ordinator Busek stressed the value of their Transformation Experience and explored possibilities of making use of this knowledge for the countries of South Eastern Europe. Exploring the possibilities of the emerging foreign assistance programmes of the future Central European EU member states in South Eastern Europe, two high-level workshops were held in May (Vienna) and October (Bratislava). The amount of already ongoing support activities from CE to SEE is impressive. Agreement was reached to further develop this exercise and focus on thematic issues of common interest, both horizontally (e.g. investment promotion, cross-border cooperation,) and vertically (e.g. foreign aid management).

The Regional Table and the three Working Tables met in Dubrovnik (Cavtat) 26-27 May to take stock of achievements since the beginning of the year. Following the decision of the Thessaloniki Regional Table of December 2002, the three Working Table and the Regional Table meetings were held back to back on two consecutive days for the first time. The new format proved useful in ensuring a more focused debate on the core objectives, as well as allowing for cross-table discussions. The next meeting of the Regional Table and the three Working Tables will be held in the same format in Tirana, 04-05 December. The Working Tables sessions will take stock of overall achievements in the respective Tables and highlight particular challenges, while the Regional Table will review progress of its strategic objectives and provide guidance for future Stability Pact activities. Special reference should be made to the valuable support given to the Special Coordinator by the Chairs of the three Working Tables.

The decision of the Regional Table in Thessaloniki 2002 to streamline and focus the work of the Stability Pact, together with the clear mandate of the Thessaloniki Summit for the Stability Pact to complement the regional cooperation element of the SAP has clarified and strengthened the role of the Stability Pact significantly.

III. Working Table on Democracy and Human Rights

The activities of the Working Table on Democracy and Human Rights are focused on the areas of Local Democracy / Cross Border Cooperation and Media. Furthermore, parliamentary cooperation, gender issues, human rights and issues regarding national minorities, as well as reconciling for the future are subjects covered by this Working Table.

1. LOCAL DEMOCRACY AND CROSS-BORDER COOPERATION

This Stability Pact initiative was established in November 2002, with the aim of facilitating systematic cooperation of local actors (governmental, civic, and business) across national borders to provide the practical underpinning to regional cooperation in SEE. The Stability Pact's role is focused on donor coordination, the support and development of Euroregions in SEE, encouraging the decentralization process and local capacity building through the support of twinning and training activities.

Activities in 2003
The Stability Pact Secretariat in Brussels assumed the responsibility for the LODE/CBC Executive Secretariat in February 2003. Based on a review of ongoing activities, the LODE/CBC Core Group of implementing agencies subsequently agreed that the Stability Pact could bring significant added value to the area of Local Democracy and Cross Border Cooperation by providing the political support for cross-border cooperation on the local level and facilitating capacity building for local authorities. The LODE/CBC Steering Committee met for the first time on 16 April in Brussels and chose the Vice Mayor of Szeged, Jozsef Kozma, as its Chair, thus creating a link to the Szeged Process.

The Stability Pact and some of the associated partners - namely the CoE - and implementing agencies supported the finalisation of the Nis-Skopje-Sofia Euroregion, which was officially launched in September. Under the auspices of the Working Table and with financial support from the Swiss government, a network of National Associations of Local Authorities in South Eastern Europe (NALAS) was established. Capacity building at the local level (public finances, urban planning, local administration) is the key priority and area of activity for NALAS.

The mapping exercise of existing activities in LODE/CBC, conducted in cooperation with the Local Government Initiative of the Open Society Institute, now provides an overview of donor activity and ongoing projects in SEE. It is a tool to help both donors and beneficiaries set priorities, giving a clear picture where synergies can be created and where gaps exist. A systematic analysis of this information will help guide the process.

LODE/CBC is promoting the creation of donor partnerships and through the Core Group, which has brought together "friendly donors" (representing both governments and foundations) to set priorities. Through this mechanism, the United States have pledged 1.2 million USD over a 3-year period to support cross border activities in priority border regions (e.g. Euroregions).

Strong support was received from various political levels in SEE and from implementing agencies and organizations working on the ground. Stability Pact has been most successful in promoting LODE/CBC as a priority. Cross Border cooperation has been recognised as a cornerstone for broader regional cooperation and thus attracted increased and targeted donor interest. However, obstacles still need to be removed for the signing of the Ohrid/Prespa Euroregion legal statute.

Future Challenges
The process of establishing Local Democracy and Cross Border Cooperation as a functioning Stability Pact initiative has been successful. The future role of the Stability Pact in this core objective will be two-fold: to ensure support for local capacity building and cross-border cooperation on a political level; as well as to facilitate support for existing Euroregions in specific thematic areas (e.g. reconciliation, economic issues, capacity building and easing border crossings in immediate border areas). The challenge will be to keep up the momentum of support in this issue and to ensure that Cross Border Cooperation structures (e.g. Euroregions) become self-sustaining, viable entities.

In 2004 the Stability Pact will focus on supporting the process of decentralization and local governance reform, including fiscal decentralization and transparency. Furthermore, the Stability Pact will aim to provide political support for the development and implementation of concrete local and regional cross-border activities relating to trade, economic development, cultural and social programs, and for addressing key political obstacles to cross-border cooperation. It will continue to provide a forum for creating partnerships among interested donors and for information exchange with implementing partners. Together with the SEECP and Council of Europe a ministerial meeting will be organised aiming at the adoption of a political agreement to further the development of cross-border and inter-territorial cooperation between local communities in SEE. The agreement could for example take the form of a MoU and endorse the goals of the Council of Europe Outline Convention on Trans-frontier Cooperation between Territorial Communities or Authorities and its Protocols. Capacity building for local actors, such as associations of local authorities will be another focus, e.g. through education and training programmes, partnerships, and transfer of experience from the incoming Central European EU member states, at both local and national levels of government.

2. MEDIA

By forging cooperation between donors, international organisations and recipients, the Stability Pact Media Task Force (MTF) assists the development of independent and professional media within SEE. The aim being to enhance the position of independent media and standards of journalism in South Eastern Europe, through legislative reform, production of quality programmes and increased strength of local institutions for journalism training. Broadly composed Media Working Groups in all SEE countries ensure full involvement of local actors and coverage of regionally felt needs.

Activities in 2003
Together with the Working Groups in each SEE-country, the Stability Pact MTF selected 20 project proposals for submission to bilateral donors. Of these, 19 were approved and received funding. Implementation of all of them is underway.

Work has started on implementation of broadcast legislation in Montenegro. In five countries the implementation of procedures on "Access to Information" is being improved by training officials and raising awareness activities. In three countries, defamation legislation is being reformed to curtail abuse. The draft broadcast law in the Former Yugoslav Republic of Macedonia is finished and has been submitted to the government. Monitoring of the implementation of broadcast legislation in Bulgaria has commenced. The Stability Pact has supported these legislative processes by arranging and ensuring the necessary political and technical support.

The amount of support provided to production of quality television programmes has significantly increased due to the involvement of the Stability Pact MTF through the coordination of donors and implementing partners. Shooting of nine television series should result in well over the 30 hours of programming originally planned for. The programmes address corruption, reconciliation, youth culture, social issues and the consequences for people being separated by the war. In addition, the Stability Pact MTF promoted the cross-border exchange of television programmes to boost information and mutual understanding, as well as ensuring close cooperation with the European Commission in the development of support to TV production under the CARDS regional programme.

In support of local journalism education the Stability Pact MTF mobilized funds for schools of journalism in Podgorica, Bucharest and Sarajevo. As a result, summer courses were introduced and new courses started this September. A recent overview of support to media in Southeast Europe, prepared by the Stability Pact MTF, showed that an increasing amount of funding for training now goes directly to local institutions. This overview was provided to all donors and helps guide their future financial support within SEE.

The objectives in the fields of television production and local journalism training have been completely achieved. No obstacles were encountered in these fields in the current period. In the field of legislation, progress was made in several countries, yet delays in other countries need to be addressed. The remaining obstacles are mainly in the implementation of broadcast regulation and the slow processing by governments and parliaments of required changes in media legislation.

An overview of media legislation in SEE prepared by the Stability Pact MTF shows that remaining shortcomings are limited to three particular countries. While implementation remains an issue, most aspects of media related legislation have been addressed in SEE countries.

Future Challenges
The goal of the Stability Pact MTF is to keep media reform on the agenda and to ensure that legal changes are implemented. This requires continued SAP tracking, EU support, coordination of donors/delegations as well as increasingly self-sustainable media outlets and local institutions. More specifically in 2004 the aim will be to support local capacity building by facilitating the production of television programs on issues of social relevance to be broadcast throughout SEE; to adopt and support implementation of reformed broadcast legislation in one remaining country; as well as to amend defamation laws in two remaining countries. Beyond that, the focus of the MTF will move to monitoring and supporting implementation of relevant media legislation promoted by the Stability Pact to date.

IV. Working Table on Economic Reconstruction and Development

The key initiatives within the Working Table on Economic Reconstruction and Development are modernising the infrastructure, particularly energy and transport, as well as facilitating sustainable economic development through the creation of a liberal environment for trade and stimulating foreign and domestic investment. The Working Table also encourages the region to take advantage of the opportunities created by the rapidly evolving information society and to ensure that the vitally important dimension of social cohesion is addressed.

1. ENERGY AND OTHER REGIONAL INFRASTRUCTURE

The aim within this activity area is to ensure that both the countries of SEE and the international community take a regional strategic approach to infrastructure development. This should be based on co-financing and institutionalised partnership, including transport (roads, rail, air), energy and telecommunications, with a view to prioritising capital investment in order to benefit from economies of scale.

Activities in 2003
In the field of Energy the implementation of the MoU on a Regional Electricity Market of 2002 - the so-called Athens Process - is driven jointly with the European Commission. The Stability Pact’s role is to ensure regional political support and ownership; to promote a common strategy among the donors; and encourage private sector involvement to foster restructuring and investment in this crucial sector for the overall economic development of the region.

Building on the experience of the first Industry Round Table (organised by the Stability Pact in February and hosted by the Czech Government in Prague), a second Industry Round Table with CEOs or high-level representatives of major utility companies of the region and from Western companies was organised in Sofia in October, along with a donor meeting.

Furthermore, the Stability Pact together with the European Commission organised two SEE energy weeks hosted by the Italian Government in Rome in March and the Bulgarian Government in Sofia in October. Both events included a series of meetings of the different governing and co-ordination bodies established under the MoU.

To ensure political commitment to the process at the highest level, the Stability Pact organised a high level meeting of energy advisers to SEE Prime Ministers in Vienna in June. This meeting also provided the opportunity to discuss the options available to transform the MoU into a legally binding international agreement, leading to the agreement by the European Commission to explore the options for assuming a more important role in the proposed agreement. The Commission, with the support of the Italian Presidency, is now seeking a mandate to negotiate from the European Council. The Special Co-ordinator played an important role in this process of consensus building towards a more ambitious foundation for the Regional Energy Market.

The Stability Pact participated in the meeting of the Permanent High Level Group in Athens on 9 September, where the modifications to the MoU were discussed to include the gas sector. These subjects were discussed further at a second high-level meeting of energy advisors of the Prime Ministers organised in Sofia on 23 October. At the same time, an industry forum and a donors meeting was held to support these efforts. The Ministerial meeting on energy in Athens of 08 December is expected to approve the expansion of the initiative to the gas sector as well as open the way for negotiations on a legally binding treaty.

Since the signing of the initial MoU in Athens in November 2002, the work of the Stability Pact in this area was focused on raising awareness for the Athens Process, identifying key issues for its success and defining a road map with specific steps to be undertaken by all stakeholders, including donors. SEE countries are making concrete progress in implementing the MoU and the various donors are supporting their efforts.

In the field of Infrastructure, the Infrastructure Steering Group (ISG) created under the auspices of the Stability Pact and chaired by the European Commission is the main co-ordinating body for regional infrastructure, including energy. The ISG meets 2-3 times per year.

In the area of Transport Infrastructure, the main focus of the ISG in 2003 has been to secure agreement on a core transport network in South Eastern Europe, particularly among the five SAP countries. Following an initial meeting in February, two further High Level Meetings between ISG members and the SEE countries in June and October reviewed the results of the EC-led REBIS study, finalised the composition of the core transport network and agreed mechanisms to facilitate its implementation. A MoU on the Regional Transport Network was prepared and should be signed in early 2004. Along with the electricity MoU (see above) this means that there will be an agreed regional strategy for key infrastructure sectors in SEE. Five new projects have been added to the list of Regional Infrastructure Projects, bringing the total to 51 with financing secured and approximately 35 projects under construction.

A technical meeting between representatives of all IFIs and key bilateral donors involved in infrastructure projects in Albania and representatives of the various Albanian institutions was organised by the Stability Pact in July to facilitate the identification of common obstacles to implementation and agree on actions to be taken to resolve these. The first phase of the EC-funded study on regional air traffic management has been completed in October. The study is intended to be the basis for the development of an EC led assistance project to improve air safety and air traffic management in SEE and towards a seamless system in line with the European Commission's Single Sky initiative.

The Stability Pact is also in discussions with the Chair and Secretariat of the ISG regarding the evolving role of the ISG and how best to build on success to date and maintain momentum in infrastructure development in SEE. The ISG has maintained its momentum and is enjoying increasing support from the International Financial Institutions (IFI), the European Commission and the SEE countries as a mechanism to develop a co-ordinated, strategic regional approach to infrastructure development in SEE. The agreement on the Core Regional Transport Network and the forthcoming MoU are tangible evidence of this.

Future Challenges
Sustained political support in the various member countries up to the highest levels as well as private sector involvement are vital if the regional energy and other infrastructure initiatives are to succeed. The next steps include consolidating the emerging agreement around the expanded energy MoU, which should be signed at a Ministerial Meeting in December 2003, and launching negotiations on a multilateral and legally binding agreement to be signed in 2004. At the same time, the Stability Pact will use all opportunities to foster the necessary political consensus to ensure implementation of the MoU and to promote the REM with international investors, pointing to the enhanced security provided by the forthcoming treaty. Following the expected signing of the Transport MoU, the Stability Pact will continue to encourage approval of new regional projects and facilitate removal of bottlenecks to project implementation, particularly along key corridors and border crossings. Options will be explored to improve the environment for public private partnerships (PPPs) as an additional source of finance for relevant infrastructure projects. The Stability Pact will also support the evolution of the ISG mandate to ensure continued progress in infrastructure in SEE.

2. TRADE AND INVESTMENT

In order to support the development of a business climate conducive to investment, trade and employment and hence ensure sustainable economic development, the Stability Pact uses a variety of interlinked instruments designed to address the weaknesses in the policy framework, overcome political obstacles, tackle administrative and bureaucratic barriers and highlight the commercial opportunities and business potential in the region. These instruments include the Stability Pact Trade Working Group, the Investment Compact, the Business Advisory Council and the electronic SEE (eSEE) Working Group as well the activities of the Special Co-ordinator and the Chair and Director of the Working Table in fostering political consensus and participating in high profile promotion activities.

Activities in 2003
In the field of Trade Liberalisation, the Stability Pact Trade Working Group (TWG) has met four times in 2003, culminating in a Ministerial meeting of the Group on 13 November, hosted by the Italian EU Presidency in Rome. Negotiations on the network of 21 Free Trade Agreements (FTAs) required under the Stability Pact Trade MoU were brought to a successful conclusion at the Rome ministerial. Fourteen agreements are in force, the others are at different stages of ratification, while Serbia and Montenegro and Romania have committed themselves to sign the final outstanding agreement before the end of the year. The significant delays encountered in completing the network of FTAs were largely due to the internal difficulties in Serbia and Montenegro relating to constitutional adjustments. Political interventions on this and other issues by the Special Co-ordinator, the European Commission (Commissioners Patten and Lamy) and the EU Presidency have been conducted in close co-ordination with the Stability Pact. Four agreements with Moldova have been finalised and negotiations on the remaining three have been opened. UNMIK has attended the Stability Pact Trade Working Group meetings including the Ministerial meeting and is participating in relevant technical assistance activities organised under its auspices. A statement was adopted at the Ministerial meeting committing the SEE countries to full implementation of the FTAs and examining options for further trade liberalisation in the region, including the development of a Free Trade Area and the promotion and liberalisation of trade in services.

An exercise to identify non-tariff barriers impeding regional trade, so that action can be taken to progressively eliminate these, was launched by the TWG, including seeking views from the private sector via the BAC. Several workshops/seminars have been held under Stability Pact auspices focused on FTA implementation including resolution of trade disputes, customs co-ordination, standards and intellectual property, and information exchange/public awareness.

Co-ordination of strategy and activities is achieved through the TWG, which comprises senior trade policy officials from the SEE countries, the European Commission, World Bank, World Trade Organisation and several bilateral donors. The group is currently chaired by Albania, and its annual strategy and action plan is adopted by consensus. The peer pressure and transparency inherent in the functioning of the Trade Working Group contributed to finalisation of the network of FTAs. An analysis of the agreements commissioned by the TWG concluded that the agreements in general comply with the stringent terms of the MoU.

The group’s regular meetings and constant information exchange provide a forum for identification and resolution of barriers to FTA implementation, including identification of non-tariff barriers and the need for increased harmonisation of the FTAs. The delays in the ratification of four FTAs by Serbia and Montenegro have been a major topic at recent meetings and the TWG has coordinated steps to overcome the political and technical difficulties involved. The TWG is also a good medium for co-ordination and co-operation of strategy and technical assistance among the international community e.g. exchange of policy reports, listing of all trade related technical assistance projects, EC/US co-operation on seminars.

In the field of Investment Facilitation, a key concern of the Stability Pact’s Investment Compact (IC) is to ensure that the countries implement the agreed priority critical time bound reforms designed to improve the investment climate. Updated reports on Progress in Policy Reforms in SEE were published in April and in October. A variety of workshops and meetings were held under individual IC components, including Promotion of Private Investment, support for small and medium enterprises (SME) and Governance and Regulatory Reform. The main donors held meetings in February and October to ensure better co-ordination.

Foreign Investors Councils (FIC) are now active in all Stability Pact countries and efforts are underway to ensure co-operation on a regional basis. Other IC activities included support for the publication of a White Book on Investment in Serbia issued by the Serbian Foreign Investment Council and efforts to strengthen individual Country Economic Teams (CET). IC Project Team missions travelled to the Former Yugoslav Republic of Macedonia and Moldova. A Ministerial meeting took place in July at which Ministers reaffirmed their commitment to improving the regional investment climate and agreed on further actions. SEE roundtables on investment promotion took place in Switzerland and Japan.

The Business Advisory Council held three meetings (Sarajevo, Rome and Bucharest) and a fourth is planned for Belgrade in December. These meetings provide a structured and focused channel through which Governments of the host country can obtain the private sector's perspective on current and planned policies, particularly in areas such as trade liberalisation, SME development and improving the climate for foreign direct investment (FDI). The business missions that accompany the BAC meetings also highlight business opportunities in the region.

The Special Co-ordinator and senior Stability Pact staff participated in several high profile events designed to promote business in the region, including the World Economic Forum in Athens and the International Herald Tribune Eastern European Investment Summit in Bucharest.

The SEE countries stated that the regular progress reports are valuable instruments for creating awareness, facilitating inter-ministry discussion on policy issues and highlighting progress made. The interim reviews have concluded that most countries are on track with reforms, although implementation is weak in some areas. The establishment of Foreign Investors Councils in all countries combined with the BAC meetings and interventions has ensured improved dialogue between the private sector and governments.

Future Challenges
The overall challenge continues to be to contribute to improving the trade and investment climate in SEE through the efficient use of the variety of instruments available. In line with the Thessalonki Agenda, the focus of the SP Trade Working Group will be on ensuring that outstanding FTAs are ratified and that all FTAs are fully implemented in conformity with the MoU standards. Activities to eliminate non-tariff barriers will need to be intensified and a review conducted on impact to date of the FTAs in force for over 12 months. Furthermore, the efficiency of the FTAs needs to be improved through increased harmonisation of the scope and scale of the agreements in line with EU regulations and WTO obligations as well as further options identified to liberalise trade in goods and services so that an economically efficient free trade area evolves in SEE. Regarding investment, the main challenge is to maintain pressure to continue improving the investment climate through monitoring the on-going identification and implementation of reforms while not neglecting the social dimension and facilitating greater involvement of the private sector in providing structured information and feedback to governments. The important contribution of FDI to employment generation will also be highlighted and the Special Co-ordinator and other senior officials from the Pact as well as the BAC will maintain the high profile promotion of the region as a source of trade and investment opportunities.

OTHER ACTIVITY AREAS

The Initiative for Social Cohesion has promoted activities in all five sectors, agreed as priorities within the initiative, i.e. Employment, Social Dialogue, Social Protection, Housing, and Health.

In line with other activities of the Working Table to promote sustainable economic development in the region, a Ministerial Conference on Employment was held in Bucharest 30 October. A Declaration was signed by Ministers, committing the Governments of SEE to cooperate in the areas of employment policies and the reform of labour market institutions in order to contribute to the overall goal of increasing employability.

In the area of Social Dialogue, the Balkan Forum of the European Trade Union Confederation agreed in September to focus its activities on arbitration issues and the establishment of a network of labour courts throughout SEE. Progress has already been made in bringing employers and employees together to discuss common issue.

In support of Social Protection, CARDS funding was ensured for the Coordination Centre for Social Policy to be established in Ljubljana. Furthermore, the network of experts on pension system reforms has been strengthened with the help of the CoE. A system of exchange of pension and social benefits in the Balkan countries is to be established as a next step. A meeting organised in Bled in November focused on the need to improve contribution collection mechanisms.

A high-level Conference on Housing Reform was held in Paris in April 2003 providing an opportunity to identify the main economic, social and financial challenges faced by this sector in SEE as well as outlining a number of policy responses, including the formulation and implementation of national housing policy strategies and action plans and mechanisms to share experiences and review progress. A follow-up meeting was held in Zagreb in November.

The SEE Health Network has become a recognised vehicle for achieving the goals set by the SEE Ministers of Health in the Dubrovnik Pledge, signed in September 2001, under which they agreed to harmonise health policies so as to improve efficiency and professionalism in their respective health services. Three regional projects in the fields of mental health, food safety, and regarding the control of communicable diseases are ongoing.

V. Working Table on Security Issues

The core objectives of the Working Table on Security Issues, the fight against organized crime and managing and stabilising population movements, are both within the area of Justice and Home Affairs. It is important though to also emphasise the activities undertaken in the field of Security and Defence regarding security sector reform, including support for the conversion of military bases to civilian use and the retraining of former military personnel, and in the areas of the non-proliferation of illicit small arms and light weapons and the establishment of open but controlled borders. Also, the progress made within the Disaster Prevention and Preparedness Initiative deserves to be highlighted as a very promising example of growing regional cooperation.

1. ORGANISED CRIME

Organised crime is in many ways undermining the political and economic development prospects of the countries of SEE. Fighting organised crime is thus essential for the development of the region and requires sound judicial systems and efficient law enforcement institutions. The activities of the Stability Pact are thus aimed at capacity building, improving the legal framework and cross-border cooperation with the focus on prevention, protection and prosecution.

To this end, a set of interlinked instruments has been established, including the Stability Pact Initiative against organised crime (SPOC), the Stability Pact Task Force on Trafficking in Human Beings (SPTF) and the Stability Pact Anti-Corruption Initiative (SPAI). Close cooperation furthermore has been established with the Transborder Crime Fighting Centre in Bucharest. Related initiatives include the Ohrid process on Border Management and Security, the SEE Small Arms Clearinghouse as well as MARRI (see below).

Activities in 2003
In support of greater coordination among anti-crime operations, and enhanced inter- and intra-agency cooperation and coordination, both within SEE and with EU and other international law enforcement agencies, the SPOC Contact & Advisory Group and the Regional Steering Group were merged into a SPOC Board in May 2003. A Department Head of the Austrian Criminal Service was elected to be the SPOC Board Chairman.

A Roadmap for the years 2003/2004 was developed outlining, among others, the necessary legislative reforms in the sector, potential projects and issues requiring ministerial-level attention.

Improvement of data protection and data processing were the focus of two joint SEECP-SPOC ministerial meetings in Sarajevo thus fostering the development of mechanisms to allow for extended exchange of information, crucial in the fight against organised crime. Moreover, the two Ministerials focused on witness protection mechanisms and the implementation of the Palermo UN Convention against Transnational Organised Crime. They should be considered in follow-up to the November 2002 London Conference on Organised Crime and leading up to the EU-Western Balkans Justice and Home Affairs Ministerial 28 November 2003.

Due to the pending decision by the European Council to allow Europol to enter a cooperation agreement with the Bucharest based Transborder Crime Fighting Centre, an operational arrangement between the two could not be developed to date. While working relations were established, conditions for a formal agreement between Europol and the Transborder Crime Fighting Centre should be met in 2004.

The Organised Crime Training Network (OCTN) was established under the auspices of the Stability Pact. Beginning in early 2004 OCTN will start training middle-ranking officers of specialised organised crime units in SEE, focusing on capacity-building and network creation. Close coordination and cooperation with the Association of the European Police Colleges (AEPC) - a partner in this endeavour - and the Association of the Police Chiefs in SEE (SEPCA) is being ensured.

In September 2003 in Sarajevo the Steering Group of the Stability Pact Anti-Corruption Initiative agreed on the SPAI work plan for 2004 and beyond. The meeting took place in the premises of the newly established Regional Office.

The primary focus of the Stability Pact Task Force on Trafficking in Human Beings is the implementation of the Statements on Commitments signed by Ministers of all SEE countries in Palermo (2000), Zagreb (2001) and Tirana (2002).

The aim of SPOC and related initiatives is to facilitate result-oriented dialogue between local, regional and international agencies on fighting organised crime. Furthermore, ensuring sustainability through enhanced regional ownership is an important goal. Through the establishment of functioning secretariats for SPOC and SPAI in the region, in Bucharest and Sarajevo respectively, important steps have been made in both directions.

Future Challenges
The Stability Pact will continue to stimulate and monitor closely the implementation of the UN Convention against Transnational Organised Crime (Palermo TOC) in particular through the creation of witness protection mechanisms. Moreover, it will continue to facilitate dialogue between the Transborder Crime Fighting Centre and other law enforcement agencies, particularly Europol, with the aim of increasing formal operational exchanges on organised crime investigations. A further aim is to continue to support sustainable, national and regional anti-trafficking policies to address trafficking in human beings; to assist, backed-up by the newly created SPAI Regional office, all the SEE countries in their efforts to draft and implement National Action Plans and appropriate legislation to fight corruption, and to offer training programmes for the judiciary and law enforcement in this respect.

2. MANAGING AND STABILISING POPULATION MOVEMENTS

Encouraged by the support received at the Thessaloniki Summit, the Migration Asylum Refugee Return Initiative (MARRI) aims to adapt the strategies to handle population movements in the region in a more comprehensive manner to make ethnic inclusion sustainable, with a perspective to rendering national action more effective in the areas of asylum, legal and illegal migration as well as border management. The merger of the Migration and Asylum Initiative (MAI) and the Refugee Return Initiative (RRI) within the first six months of 2003 resulted in a single, more streamlined and focused approach.

Activities in 2003
The "Programme of Action" (PoA) of the Migration, Asylum, Refugee Return Regional Initiative (MARRI) was endorsed, in principle, at a meeting of the MARRI Steering Committee in July 2003. The MARRI PoA was developed in support of and complementarity to the Stabilisation and Association Process (SAP).

Facilitated by MARRI, the Nordic Consultative Group of JHA Ministers invited their counterparts from the Western Balkan countries to a joint meeting in September 2003 to discuss improved cooperation to support the SAP countries. One of the outcomes of the consultations was the possible establishment of the "Regional Forum", involving the five SAP states, as an instrument to ensure regional responsibility and operational capacities.

In working with key partner organisations, MARRI has successfully brought the issue of sustainability into the planning and implementation process. Nevertheless, the number of returns has decreased compared to 2002. This should be seen as an indicator that those willing to return would mostly have done so by the end of the year. Combining all countries, the target of durable solutions for 100,000 IDPs and refugees has been achieved. Nevertheless, the sustainability of these returns remains challenging due to the difficult economic environment.

The bi-lateral issue of pension payments between Serbia and Montenegro and Croatia was resolved in March 2003 and an inter-banking agreement introduced. A comprehensive return agreement between Serbia and Montenegro and Bosnia and Herzegovina was signed in October 2003. The development of a housing programme has successfully continued, with an increasing involvement of the private sector. The Council of Europe Investment Bank (CEB) and the World Bank under the auspices of the Stability Pact hosted a regional housing policy and finance conference in April 2003. The regional data and information exchange project is now underway, working to support government’s efforts to manage data in line with international data protection standards.

Regarding the National Action Plans (NAP), the country team in Bosnia and Herzegovina has been re-activated and has resumed its work. The Netherlands, now leading the Albania country team, has conducted expert missions and work on the NAP is ongoing. Implementation of the NAP in Croatia and the Former Yugoslav Republic of Macedonia is underway. The development of a NAP in Serbia and Montenegro was delayed due to the constitutional changes.

The actors involved in MARRI agreed on a common regional framework and are now engaged in defining their activities. MARRI is concentrating on implementation of the PoA. The complementarity to ongoing efforts and programmes, in particular the SAP and CARDS, is the key for developing synergies.

The proposed change of emphasis, suggesting that refugees should now be regarded as citizens with equal and unimpeded access to basic rights, may offer a final solution to the pending cases of the close to one million persons still displaced in SEE. Sustainability of solutions is at stake due to the difficult social and economic circumstances and in the interest of stability, a better freedom of choice must be ensured.

Future Challenges
The focus of the Stability Pact in 2004 will be to continue to facilitate the realisation of sustainable solutions for the remaining refugees and displaced persons, while moving overall to a broader approach of non-discriminatory access to rights and citizenship. Furthermore, MARRI will aim to facilitate the establishment of a Regional Forum on Migration, Asylum, Visa, Border Management and refugee issues with regular meetings on political and expert level. This will be connected with the gradual transfer of MARRI support structures to the region by the end of 2004. The regional data exchange project should be expanded to the whole region as well as to the full scope of work in support of other MARRI activities. Moreover, MARRI stands ready to make the experiences gained in the return process between Bosnia and Herzegovina, Croatia and Serbia and Montenegro available to support the return process regarding Kosovo.

DEFENSE AND SECURITY ISSUES

Although cross-border military threats in SEE have become unlikely, the Stability Pact considers it important to keep the security sector reform, the collection of small arms and light weapons (SALW), military downsizing, fostering security dialogues, assisting civil-military cooperation, and effective border management on its agenda.

The Conference on Border Security and Management was held in Ohrid in May 2003. The objective was to assist in the establishment of open but controlled borders, and to develop an integrated border management system in accordance with EU standards. The first review meeting of the Ohrid Border Process was held in Belgrade on 5 November 2003 and revealed that all parties involved have started the reform processes, which were spelled out in the Ohrid Way Forward Document, albeit starting from very different levels and encountering different obstacles and challenges. All countries have started bringing their national legislation in line with the commitments undertaken in Ohrid, in particular regarding legislation on civilian border authorities and related laws on foreigners and asylum. The international partners of the process have underlined their continued commitment and support.

The Stability Pact in cooperation with NATO has successfully launched programmes to assist the transition to civilian life of discharged military personnel in Albania, Bulgaria, Croatia and Romania. Cooperation in this area has also started with Serbia and Montenegro and the Former Yugoslav Republic of Macedonia. The process of conversion of military bases to civilian use has started in Bulgaria and Romania.

The proliferation and circulation of illicit Small Arms and Light Weapons (SALW) throughout SEE is linked with organised crime and increases the risk of terrorism. The South Eastern Europe Clearinghouse for the Control of Small Arms and Light Weapons (SEESAC) continues to play a central role in the Stability Pact approach to SALW issues. Two Regional Steering Groups for the Control of SALW in SEE have met in 2003. SEESAC's organisational and operational expertise complemented the activities of National Focal Points and of other partners to deliver a cohesive response to continuing problems caused by SALW.

The Regional Arms Control Verification and Implementation Assistance Center (RACVIAC) concentrated its activities on providing a regional forum for more comprehensive discussions on politico-military issues. In order to retrain more discharged military personnel and to convert military bases, RACVIAC will gradually have to rely more on staff recruited from the region, while sustaining its multinational structure, in order to strengthen regional ownership.

The Disaster Prevention and Preparedness Initiative (DPPI) supports cooperation and coordination across borders in order to ensure the safety for citizens as well as the environment. DPPI was engaged in project facilitation and implementation. DPPI has established a fruitful cooperation with the IFRC, UNDP, UN OCHA, NATO, HELP Germany, Swedish Rescue Services Agency, Swiss Agency for Development and Cooperation, RACVIAC, OSCE, OHR, European-Mediterranean Seismological Centre and the East-West Institute. A number of training events on core DPPI issues were held. The Joint Fire-fighting Unit is providing an example of the cooperation. The Unit is shared by Bosnia and Herzegovina, Croatia and Montenegro and expected to have its focal operation theatre at the three-country-crossing near the Adriatic Sea. DPPI will support the countries to establish agreements, rules and regulations for border crossing to ensure rapid disaster/humanitarian assistance. It will also support them to develop, adopt and enforce state of art disaster emergency legislation and other codes designed to prevent and mitigate disasters in line with guidelines and common practices.