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P 201511Z JAN 09
FM AMEMBASSY PRISTINA
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RUEHC/SECSTATE WASHDC PRIORITY 8743
RUCPCIM/CIMS NTDB WASHDC PRIORITY

UNCLAS PRISTINA 000023 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA, EUR/SCE -- PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: EFIN ELAB ETRD YI KV OPIC USTR EINV EGOV KTDB
SUBJECT: KOSOVO 2009 INVESTMENT CLIMATE STATEMENT 
 
REF: STATE 123907 
 
INTRODUCTION 
 
¶1. (U) On February 17, 2008 the Kosovo Assembly declared the 
independence of Kosovo. The United States immediately 
recognized and formally established diplomatic relations with 
Kosovo.  Prior to the declaration, Kosovo was administered by 
the United Nations Interim Administrative Mission in Kosovo 
(UNMIK).  At the time of this writing, Kosovo has been 
recognized by 54 countries, including 22 EU Member States. 
The Constitution of the Republic of Kosovo entered into force 
on June 15, 2008, along with over 40 foundation laws, as 
stipulated by the Comprehensive Settlement Plan formulated by 
UN Special Envoy Martti Ahtisaari.  Although civil authority 
was transferred to the Government of Kosovo (GOK) from UNMIK 
with adoption of the Constitution, the EU-led International 
Civilian Office (ICO) serves as a supervisory authority as 
outlined in Ahtisaari's plan.  Kosovo's current legal system 
is multifaceted and evolving.  Applicable laws include Kosovo 
laws, UNMIK laws and regulations, and any applicable laws of 
the Former Socialist Republic of Yugoslavia that were in 
effect in Kosovo as of March 22, 1989.  This situation has 
resulted in a complex and in some cases incomplete legal 
framework for businesses in Kosovo.  The Government of Kosovo 
is still working on filling legislative gaps that remain, 
with support from the U.S. and other interested international 
donors. 
 
¶2. (U) The political situation in Kosovo remained stable in 
2008, but substantial bureaucratic deficiencies, as well as a 
lack of professional and technical capacity at the local and 
central government level, remain.  Judicial institutions and 
law enforcement agencies currently lack the capacity to fully 
implement and enforce the rule of law.  Court case backlogs 
are increasing.  Corruption is widespread and anti-corruption 
efforts suffer from a lack of cohesive, forceful action and 
follow-through with punitive measures.  The Anti-Corruption 
Agency began operations in 2006 but lacks capacity, political 
support and funding. 
 
¶3. (U) Public administration is inefficient and subject to 
political interference.  The civil service and public finance 
management functions lack full transparency and 
accountability, despite the legal framework in place.  This 
has also hindered accurate and reliable data collection. 
With few exceptions, most data collection in Kosovo has been 
inconsistent and not subject to rigorous methodology, 
resulting in a partial view of how Kosovo's economy is 
performing.  Due to this statistical uncertainty, anecdotal 
reports estimate that Kosovo's parallel economy could be 
anywhere from 30-40 percent of GDP. 
 
¶4. (U) Kosovo continues to participate in the Stabilization 
and Association Process (SAP), the EU's policy framework 
toward the Western Balkans, by following the guidelines of 
the European Partnership.  The SAP steers Kosovo's reform 
process according to EU best practices and European 
legislation.  The Partnership document outlines the main 
priorities that Kosovo needs to fulfill, also taking into 
account the requirements of the Standards for Kosovo, which 
are a series of laws, policies and institutions that the GoK 
must create in the areas of rule of law, property rights, and 
the economy, among others, to help develop a viable, 
sustainable government. 
 
¶5. (U) The European Partnership Action Plan (EPAP) is an 
important component of Kosovo's European integration process, 
and was adopted by the GOK in August 2006.  The EPAP 
incorporates the priorities of the SAP toward the goal of 
European integration, allowing for a joint approach to both 
processes.  Through the EPAP, the GOK also adopted the Plan 
for European Integration 2008-2010, which aims to improve 
inter-governmental coordination and communication between 
Kosovo and the European Union (EU). 
 
¶6. (U) In July 2008, the European Commission convened a donor 
conference in support of Kosovo's socio-economic development, 
attended by representatives from 37 countries and 17 
international organizations.  Over 1.2 billion euro 
(approximately 1.7 billion U.S. dollars) was pledged for 2008 
and 2009 to cover Kosovo's financing needs for socio-economic 
development, as identified in the GOK's Medium Term 
Expenditure Framework (2008-2011). 
 
¶7. (U) Institutional capacity building has continued with 
some success, most notably within the Ministry of Finance and 
Economy.  Progress in key structural reform areas, such as 
public enterprise restructuring and law enforcement, has been 
limited.  The privatization of socially-owned enterprises 
(SOE) continued in 2008, after responsibility was transferred 
from the Kosovo Trust Agency, a former UNMIK entity, to the 
Privatization Agency of Kosovo (PAK).  The new Kosovo-run PAK 
has launched three waves of privatization since beginning 
operations in August, tendering 313 SOEs from which 551 new 
companies were formed.  The SOE privatization process has 
generated 391 million euro (approximately 550 million U.S. 
dollars) since 2004, and has garnered the interest of 9,882 
local and foreign investors, according to PAK.  Kosovo's 
three largest exporters are privatized companies: 
Ferronikeli (nickel), M & Sillosi LLC (flour) and LlamKos 
(steel).  Ferronikeli was purchased for 30.5 million euro 
(around 42.8 million U.S. dollars) by a Kazakh-Swiss 
consortium, and is the largest foreign investment to date 
from privatization initiatives. 
 
¶8. (U) From June 15, the GOK's Ministry of Finance and 
Economy became responsible for the administration of 
publicly-owned enterprises (POEs).  Kosovo's major public 
companies and utilities - Pristina International Airport, 
Kosovo Energy Corporation (KEK), Post and Telecommunications 
of Kosovo (PTK), Kosovo Railways, district heating 
enterprises, and landfill, water and waste management 
companies - were all incorporated in 2005-2006. 
Incorporation has clarified these companies' legal status and 
established proper management and oversight procedures.  The 
GOK has announced its intention to concession Pristina 
International Airport before the end of 2009. 
 
¶9. (U) An Energy Regulatory Office was established in June 
2004, allowing Kosovo to become a signatory (through UNMIK) 
to the Energy Community Treaty, which established a regional 
energy market in South East Europe in October 2005. 
Electricity in Kosovo is produced by two lignite-fired 
thermal power plants, known as Kosovo A and Kosovo B, using 
1950s and 1970s technology, and a small hydropower plant. 
Although the power plants have a production capacity of 1478 
megawatts (MW), the two facilities are only producing 800 MW 
at this time.  The hydropower plant produces an additional 32 
MW.  Poor management, severe capital under-investment, and 
lack of preventive maintenance has led to chronic power 
shortages and outages in Kosovo.  Most transmission lines are 
operational following post-conflict repairs, but substations 
remain in poor technical condition.  These conditions have 
resulted in KEK being unable to meet customer needs in 2008, 
requiring Kosovo to import electricity in order to make up 
some of this deficit. 
 
¶10. (U) In 2008, the GOK approved the unbundling of Kosovo's 
electricity distribution network to form a new company for 
privatization sometime in 2009.  Private sector participation 
in the network distribution and supply side of KEK is 
anticipated to improve and expand the distribution network, 
increase billing and collections, reduce electricity losses, 
and improve the security of supply and overall service 
quality. 
 
¶11. (U) In cooperation with the World Bank, the Ministry of 
Energy and Mining solicited expressions of interest from 
private investors in 2006 for a new energy development 
project intended to address Kosovo's unmet and growing 
demands for power.  The project entails construction of a new 
power plant ("New Kosovo", formerly titled "Kosovo C") with 
an anticipated production capacity of 2100 MW, the 
development of a coal mine for the New Kosovo plant and the 
two existing power plants, and refurbishment of certain 
production units of Kosovo A.  The New Kosovo Project 
Steering Committee announced a short-list of four consortia, 
including three  which include American firms that will have 
the opportunity to bid on the tender once issued.  Requests 
for proposals are expected to be solicited in 2009. 
 
¶12. (U) The GOK, with financial assistance from the World 
Bank, has also engaged consultants to conduct preliminary 
environmental and social assessments for the construction of 
the new hydro power plant at Zhur, in western Kosovo.  The 
Zhur hydro power plant is envisaged to produce a maximum of 
300 MW of electricity.  The study is expected to be completed 
in early 2009. 
 
¶13. (U) The mining sector has traditionally been an important 
contributor to Kosovo's economy but declined in the 1990's 
from lack of investment in equipment, facilities and 
development of new mines.  Kosovo has a varied geology 
containing a range of exploitable metal and mineral deposits. 
 A geophysical survey completed by the Joint 
Airborne-Geosciences Capability in 2006-2007 revealed higher 
than expected deposits of gold, chrome and nickel, as well as 
aluminum, copper, iron metals and lead-zinc deposits.  The 
Independent Commission for Mines and Minerals (ICMM) 
regulates Kosovo's minerals sector, issues exploration and 
mining licenses, and ensures legislative compliance with 
international mining, environment and safety standards.  ICMM 
also provides key technical information to prospective 
bidders.  This sector has significant foreign investment 
potential. 
 
 
¶A.  OPENNESS TO FOREIGN INVESTMENT 
 
¶14. (U) The GOK and the Ministry of Trade and Industry (MTI) 
actively promote foreign investment in Kosovo.  In January 
2001, UNMIK adopted Regulation 2001/3 on Foreign Investment 
in Kosovo, and the Kosovo Assembly passed the Foreign 
Investment Law in November 2005, promulgated by UNMIK in 
April 2006.  Under this law, foreign firms operating in 
Kosovo are granted the same privileges as domestic 
businesses, with the exception that foreign investors may not 
hold more than 49 percent ownership in businesses producing 
or selling military products (Reg. No. 2001/3, Section 6). 
Currently, only international security firms are permitted to 
carry weapons, creating a market for foreign firms 
specializing in armed guard services.  New business 
registration with MTI's official registry has steadily 
increased, indicating some local enterprise development. 
Since 1999, over 90,000 private businesses have been 
registered, although MTI states that over half of these 
businesses are technically inactive.  All business license 
applications are processed by the Agency for Business 
Registration in Pristina and normally issued within three 
business days, making Kosovo one of the easiest places in the 
region to set-up a business. 
 
¶15. (U) While the basic legislation of a market-oriented 
economy is in place, determining property ownership remains a 
challenge.  These legal uncertainties, in addition to weak 
law implementation and poor contract enforcement, continue to 
hinder economic growth and investment.  All commercial laws 
are available to the public in English on the Kosovo 
Assembly's Website at www.assembly-kosova.org/?cid=2,191 and 
on the UNMIK website at 
www.unmikonline.org/regulations/unmikgazette/ index.htm. 
 
 
¶B.  CONVERSION AND TRANSFER POLICIES 
 
¶16. (U) Section 9 of UNMIK Regulation 1999/24 and Article 9 
of the Foreign Investment Law guarantees unrestricted use of 
income from foreign investment, after taxes and other 
liabilities.  This includes transfers to other foreign 
markets or foreign currency conversions.  All currency 
conversions and transfers are processed in accordance EU 
banking procedures.  Conversions are made at the market rate 
of exchange.  Foreign investors are permitted to open bank 
accounts in any currency. 
 
 
¶C.  EXPROPRIATIONS AND COMPENSATION 
 
¶17. (U) Section 7 of UNMIK Regulation 1999/24 and Article 8 
of the Foreign Investment Law protect foreign investments 
from expropriation, and guarantees due process and timely 
compensation payment for valid claims.  In April 2005, UNMIK 
approved an eminent domain clause in order to prevent 
lawsuits deriving from property expropriations and sales 
occurring as part of the privatization process.  This clause 
only applies to cases of SOE privatization. 
 
 
¶D.  DISPUTE SETTLEMENT 
 
¶18. (U) Section 17 of UNMIK Regulation 1999/24 and Chapter 4 
of the Foreign Investment Law assign jurisdiction for 
business dispute resolution to Kosovo courts.  However, 
foreign investors are free to agree upon arbitration or 
another, alternative dispute resolution mechanism.  The 
results of arbitration are enforceable by local courts.  The 
Foreign Investment Law stipulates investors select from the 
following standards for investment dispute arbitration: 
 
a. the International Center for Settlement of Investment 
Disputes (ICSID) Convention, if both the foreign investor's 
country of citizenship and Kosovo are parties to said 
convention at the time of the request for arbitration; 
 
b. the ICSID Additional Facility Rules, if the jurisdictional 
requirements for personal immunities per Article 25 of the 
ICSID Convention are not fulfilled at the time of the request 
for arbitration; 
 
c. the United Nations Commission on International Trade Law 
Rules.  In this case, the appointing authority referred to 
therein will be the Secretary General of ICSID; or 
 
d. the International Chamber of Commerce Rules. 
 
English is the official language in the event of a commercial 
legal dispute. 
 
¶19. (U) Kosovo's commercial court has jurisdiction over 
disputes involving shipping, intellectual property rights and 
unfair trade practices.  The court's effectiveness has been 
undermined by extremely long delays in the adjudication of 
commercial court cases and poor enforcement of existing laws. 
 These impediments also adversely affect utility bill and 
overdue loan collections. 
 
¶20. (U) Municipal courts handle bankruptcy procedures for all 
companies except SOEs, according to Kosovo bankruptcy law. 
The Pristina Municipal court has a special bankruptcy 
division. 
 
¶21. (U) The Special Chamber of the Supreme Court on Kosovo 
Trust Agency Related Matters was established under Section 1 
of UNMIK Regulation 2002/13.  The Special Chamber is composed 
of three international and two local judges who handle 
disputes and claims related to privatization and economic 
restructuring.  The Special Chamber has primary jurisdiction 
over appeals against the decisions of the KTA, as well as 
creditor, ownership and property claims brought against SOEs 
and POEs, and claims arising from the privatization and 
liquidation of SOEs.  The procedures for claimants wishing to 
institute proceedings are detailed in UNMIK Regulation 
2003/23.  A new Special Chamber law is being drafted to 
handle related cases for the KTA successor agency, the 
Privatization Agency of Kosovo (PAK). 
 
¶22. (U) For criminal cases, the Criminal Code of Kosovo and 
the Kosovo Code of Criminal Procedure apply.  The criminal 
court structure includes the Supreme Court of Kosovo, 
District Courts, Municipal Courts and Courts of Minor 
Offenses, including a High Court of Minor Offenses.  Per 
100,000 inhabitants, the Kosovo judicial system has 19 judges 
and prosecutors, and three courts, which is close to European 
standards.  Despite the high proportion of judges, 
prosecutors and courts, a significant backlog of cases remain 
pending, pointing to a significant need for improved 
efficiency and capacity of the justice system. 
 
 
¶E.  PERFORMANCE REQUIREMENTS/INCENTIVES 
 
¶23. (U) GoK does not specify performance requirements as a 
condition for establishing, maintaining or expanding an 
investment in Kosovo.  A 16 percent across-the-board value 
added tax (VAT) applies as of January 2009.  In order to 
encourage investment, businesses importing capital goods are 
granted a six-month VAT payment deferment upon presentation 
of a bank guarantee.  Suppliers may export goods without 
being required to collect VAT from the foreign buyer. 
Suppliers may claim credit for taxes on inputs, either by 
offsetting those taxes against gross VAT liabilities or by 
claiming a refund. 
 
¶24. (U) In September 2000, the EU formally recognized Kosovo 
as an autonomous customs territory and amended its General 
System of Preferences, eliminating quantitative restrictions 
for most industrial products from Kosovo.  By June 2002, the 
EU granted preferential treatment to all imports from Kosovo, 
removing remaining tariff ceilings for industrial products, 
including steel and textiles, and improving access to EU 
markets for agricultural products.  Kosovo customs is working 
to harmonize certificates of origin standards with EU 
customs.  In December 2008, the United States designated 
Kosovo a beneficiary developing country under the Generalized 
System of Preferences (GSP) program. 
 
 
¶F.  RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
¶25. (U) UNMIK regulations and the Foreign Investment Law do 
not interfere with the establishment, acquisition or sale of 
interests in enterprises by private entities.  Ownership 
rights can be extended to foreign investors.  Foreign 
investment is not subject to approval by the Government of 
Kosovo, except when such approval is required for similar 
 
domestic businesses.  The following rights also apply: 
 
a. foreign investors may transfer property rights, including 
permits, to other legally qualified persons in the same 
manner and to the same extent as domestic investors; 
 
b. foreign investors have the right to purchase residential 
and non-residential property to the same extent as domestic 
businesses; 
 
c. foreign investors with less than a majority stake in an 
investment shall be protected as domestic minority 
shareholders in accordance with applicable law; 
 
d. foreign investments are subject to the same tax 
obligations as domestic businesses; and 
 
e. foreign investors may establish subsidiary enterprises, 
branches and representative offices in the same manner and to 
the same extent as domestic businesses. 
 
 
¶G. PROTECTION OF PROPERTY RIGHTS 
 
¶26. (U) UNMIK Regulation 2002/22 promulgated the law adopted 
by the Kosovo Assembly to establish an immovable property 
rights register, as a method of protecting private land 
ownership.  The Kosovo Cadastral Agency (KCA) has authority 
for the overall administration of the official register, with 
municipal cadastral offices recording immovable property 
rights in the official register under the authority of the 
KCA.  Liens against movable property are protected under 
UNMIK Regulation 2001/5, detailing the specific procedures by 
which liens can be created, enforced and applied against 
third parties.  This regulation applies to all transactions, 
regardless of form, intended to create a lien.  UNMIK 
Regulation 2002/21 promulgated the law adopted by Kosovo 
Assembly on mortgages, establishing a uniform system for 
securing and registering and liens against immovable 
property, and to create a mortgage and lien registry. 
 
¶27. (U) However, the resolution of residential, agricultural 
and commercial property rights remains a serious and 
contentious issue in Kosovo.  Most property records were 
destroyed or removed to Serbia by the Serbian government 
during the last conflict, making determination of rightful 
ownership for the majority of properties complex at best. 
There have been cases of up to 20 ownership claims to a 
single property, presenting a variety of ownership documents 
as proof.  The Kosovo Property Agency (KPA), formerly the 
Housing and Property Directorate (HPD), has been tasked with 
adjudicating roughly 40,000 property disputes from March 23, 
1989 to October 13, 1999, and working toward resolution of 
agricultural and commercial property claims.  Until the 
disputes are resolved, no new properties can be registered 
with the agency.  In the meantime, property sales and 
transfers, some involving false documents, are on-going, 
further complicating the resolution process.  In addition to 
the KPA, Kosovo's court system has its own large backlog of 
property cases. 
 
¶28. (U) Section 10 of UNMIK Regulation 2001/2 ensures 
protection of intellectual property rights (IPR), authorizing 
enforcement of trademark, copyright and patent laws, and any 
related international conventions.  The Industrial Property 
Rights Office was established in 2007 within the Ministry of 
Trade and Industry, tasked with intellectual property rights 
protection.  Several pieces of legislation have been passed 
on IPR protection, including patent, trademark, industrial 
design and copyright laws.  The 1981 Yugoslav Law on 
Protection of Inventions, Technical Improvements and 
Distinctive Signs, and the 1991 Law on Authors Rights are 
also considered applicable law in Kosovo's courts.  Effective 
inter-agency coordination on implementing intellectual 
property rights protection laws remains a challenge but is 
improving, as the GOK becomes more aware of its 
responsibilities in this area.  A number of counterfeit 
consumer goods (notably CDs, DVDs, clothing items and 
computer software) are available for sale and traded openly. 
Although Kosovo is not a counterfeit goods producer, the 
development of a strong intellectual property rights regime 
will encourage future investment and economic development in 
Kosovo. 
 
 
¶H.  TRANSPARENCY OF THE REGULATORY SYSTEM 
 
¶29. (U) In order to promote fair and open competition for 
government tenders, as well as transparency in the 
procurement and regulatory process, the GOK publishes the 
rules, regulations and procedures of the tendering process on 
the following websites:  www.assembly-kosova.org and 
www.pm-ksgov.net.  As Kosovo continues to establish 
regulatory institutions, procedures for obtaining licenses 
and permits can vary widely, with a corresponding variance in 
process transparency. 
 
¶30. (U) The Public Procurement Agency in the Kosovo Ministry 
of Public Services manages bulk procurement and services 
provisions for the GOK.  All Public Procurement Agency 
tenders are advertised in English, Albanian and Serbian.  The 
Public Procurement Regulatory Commission recently initiated 
procurement audits of the various Kosovo ministries, 
municipal authorities and agencies receiving funds from the 
Kosovo consolidated budget. 
 
 
¶I.  EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
¶31. (U) The Central Bank of Kosovo (CBK) is an independent 
body responsible for fostering the development of 
competitive, sound and transparent banking and financial 
sectors.  This includes supervising and regulating Kosovo's 
banking sector, insurance industry, pension funds and other 
micro-finance institutions, and performing a number of other 
normal central bank tasks, including cash management, 
transfers, clearing, management of funds deposited by the 
Ministry of Finance and Economy or other public institutions, 
collection of financial data and management of a credit 
register.  The CBK is not authorized to grant loans to banks. 
 
¶32. (U) Kosovo's banking system and non-financial enterprises 
are not prepared to finance large investment projects in the 
private sector.  In the past three years, there has been 
minimal private investment in Kosovo outside of real estate 
construction and development.  About 80% of bank loans are 
short-term credits with interest rates ranging from 12-14%. 
Most deposits are demand deposits. 
 
¶33. (U) The insurance sector is small but has grown steadily 
in recent years.  At the end of 2008, there were nine 
licensed insurance companies in Kosovo. 
 
 
¶J.  POLITICAL VIOLENCE 
 
¶34. (U) In 2008, there were some isolated incidents of 
inter-ethnic and politically-motivated violence and sporadic 
political protests, but none of these events adversely 
affected Kosovo's political stability.  The UN-authorized, 
NATO-led peacekeeping Kosovo Force (KFOR) maintains internal 
security and defense against external threats.  KFOR also 
assisted UNMIK's multinational civilian police corps (UN 
International Police or CIVPOL) in its role as uniformed and 
criminal police.  CIVPOL transferred basic policing functions 
to the Kosovo Police Service (KPS), and continued to provide 
oversight and monitoring until UNMIK was replaced by the 
European Union's Rule-of-Law Mission in Kosovo (EULEX). 
EULEX commenced operations on December 9, 2008 and replaced 
UNMIK Police throughout Kosovo, providing advice and 
mentoring to Kosovo's rule-of-law institutions.  The Kosovo 
Protection Corps (KPC), a civilian emergency preparedness 
service, is trained to respond to civil and medical 
emergencies but will be replaced by the Kosovo Security Force 
(KSF) in 2009. 
 
 
¶K.  CORRUPTION 
 
¶35. (U) Corruption in Kosovo remains widespread in government 
and private industry, adversely affecting commercial 
development.  The Law on the Suppression of Corruption was 
passed in May 2005, and stipulated the creation of an 
Anti-Corruption Agency to address this problem.  This agency 
is tasked with, among other duties, preparing an 
anti-corruption strategy for Assembly approval, conducting 
administrative investigations of alleged corruption cases, 
and monitoring proper implementation of the Corruption Law. 
Citizens can report suspected corruption via a toll-free 
hotline or through the Anti-Corruption Agency's website.  In 
March 2008, the Anti-Corruption Agency announced that it had 
received 61 reports of corruption in 2007, estimated to have 
cost the government 31 million euros (approximately 40 
million U.S. dollars).  The Agency estimated that corruption 
had cost the government six million euros (7.8 million U.S. 
dollars) by July 2008. 
 
¶36. (U) In 2008, the government took additional legislative 
steps to combat corruption.  Since March, government 
officials are now required to disclose all gifts received, as 
stipulated by the Law on Suppression of Corruption.  This new 
law will be supplemented by legislation (currently in draft 
form) requiring government officials to file asset 
declarations upon entry and exit from government service. 
Since 2003, a Financial Intelligence Unit (FIU) staffed by 
Italian Guardia di Finanza officers conducted financial 
inspections of public bodies and enterprises, as well as 
other organizations funded by the Kosovo Consolidated Budget. 
 The FIU also has the authority to conduct criminal 
investigations. 
 
¶37. (U) Additionally, Section 15 of Regulation 2001/3 states 
that foreign investors shall observe business practices 
consistent with existing European standards, including: 
 
-- the Convention on Laundering, Search, Seizure, and 
Confiscation of the Proceeds of Crime (Council of Europe, 
Strasbourg, 8 July 1990); 
 
-- the Convention on Combating Bribery of Foreign Government 
Officials in International Business Transactions 
(Organization for Economic Cooperation and Development, 
Paris, 21 November 1997); and 
 
-- the Criminal Law Convention on Corruption (Council of 
Europe, Strasbourg, 27 January 1999). 
 
Violation of these conventions could disqualify a foreign 
investor from doing business in Kosovo. 
 
¶38. (U) There are frequent reports of irregularities in 
public tendering procedures.  The recent revision of the 
Public Procurement Law and a significant increase in public 
audits from the Office of the Auditor General are important 
steps forward.  The Public Procurement Law clearly defines 
the division between executive and regulatory functions, in 
accordance with EU practices.  Tax evasion is high and many 
local and foreign businesses are concerned about the 
professional ethics of government officials, who are 
reportedly accepting bribes or extorting firms in exchange 
for licenses, permits, movement of paperwork or even routine 
public services.  Traditional lending and business practices 
tend to favor personal connections and nepotism over 
creditworthiness. 
 
 
¶L.  BILATERAL INVESTMENT AGREEMENTS 
 
¶39.  (U) Albania was the first country to sign an FTA with 
Kosovo in 2003, followed by Macedonia in 2005.  The 
Kosovo-Macedonia FTA stipulates that Kosovo imports have 
complete, duty-free access to the Macedonian market but in 
reality, Macedonia still imposes duties at the border, 
particularly on agricultural imports.  In 2006 Kosovo signed 
FTAs with Croatia and Bosnia-Herzegovina, and became a 
signatory to the Central European Free Trade Area (CEFTA) and 
EU Common Aviation Area.  CEFTA came into force in July 2007 
and by September 2007 all signatories ratified the agreement, 
including Serbia.  Kosovo is also a member of the Athens 
Process on Energy for the Southeastern Europe Energy 
Community Treaty.  This is a significant step for Kosovo 
toward achieving increased regional cooperation and securing 
alternate sources of energy. 
 
 
¶M. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
¶40. (U) The U.S. Overseas Private Investment Corporation 
(OPIC) has been involved in Kosovo since 2000, providing 
financing, political risk insurance and other investment 
vehicles to American investors. With OPIC assistance, 
American investors are currently involved with projects in 
the energy and real estate development sectors. 
 
 
¶N.  LABOR 
 
¶41. (U) UNMIK approved Regulation 2001/27, the Essential 
Labor Law, remains in force while Kosovo drafts a new 
comprehensive labor law.  The law requires employers to 
observe all applicable employee protections, including a 
40-hour full-time work week, payment of overtime, adhering to 
occupational health and safety standards, respecting annual 
leave benefits and ensuring 90 days of maternity leave.  The 
labor law calls for a minimum wage but does not set an 
amount.  The Ministry of Labor and Social Welfare has created 
a compliance office that has the authority to visit places of 
employment to assess employer adherence to labor law 
requirements.  Labor disputes are adjudicated in local 
courts. 
 
 
¶O. FOREIGN TRADE ZONES/FREE PORTS 
 
¶42. (U) The Kosovo Customs and Excise Code is 
business-friendly, compliant with EU and World Customs 
Organization standards, and addresses topics such as bonded 
warehouses, inward and outward processing, transit of goods, 
and free trade zones, with the aim of facilitating trade and 
stimulating export growth.  In addition to imported goods, 
some Kosovo-produced goods from designated industries can 
also be stored in bonded warehouses, when applicable 
legislation dictates these goods meet export criteria. 
Foreign firms are permitted to import production inputs 
without paying taxes or customs duties for the manufacture of 
export goods. 
 
¶43. (U) The Customs Code permits the establishment of free 
zones for manufacturing and export purposes, but none have 
been established yet. 
 
 
¶P.  FOREIGN DIRECT INVESTMENT STATISTICS 
 
¶44. (U) Kosovo does not currently have a formalized system 
for collecting foreign direct investment data.  However, the 
Investment Promotion Agency of Kosovo estimates over 1600 
foreign companies are currently operating in Kosovo, compared 
to just 360 in 2004.  Top sector investments for foreign 
businesses include trading (63%), service industries (18%), 
manufacturing industries (11.5%) and construction (7.5%). 
KAIDANOW