Identifier
Created
Classification
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09PRISTINA23
2009-01-20 15:11:00
UNCLASSIFIED
Embassy Pristina
Cable title:  

KOSOVO 2009 INVESTMENT CLIMATE STATEMENT

Tags:  EFIN ELAB ETRD YI KV OPIC USTR EINV EGOV KTDB 
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PP RUEHWEB

DE RUEHPS #0023/01 0201511
ZNR UUUUU ZZH
P 201511Z JAN 09
FM AMEMBASSY PRISTINA
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
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

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