EU report sees Croatia progress but reform needed

BRUSSELS, Oct 31 (Reuters) Croatia needs to move faster on reforming its judiciary and fighting corruption to keep its bid to become the European Union's next member on track, a European Commission report will say next week.

The annual progress report released yesterday says Zagreb's accession negotiations have reached full cruising speed, with talks under way on 14 of the 35 policy areas into which EU law is divided, but it is up to Croatia how fast they move forward.

''There is considerable scope for further improvement in the judiciary, public administration and the fight against corruption,'' an excerpt seen by Reuters said.

Croatia started EU accession talks in 2005 along with Turkey but has forged ahead and is the only candidate likely to make it to the 27-nation bloc in the next five years, diplomats say.

The draft said some first results had appeared in the fight against graft, ''however corruption remains widespread''.

An EU source said the report will cite continuing problems with state aid to industry in the former Yugoslav republic and call for faster progress in restructuring the steel and shipbuilding industries.

But it will say democracy and the rule of law have been strengthened and macroeconomic stability maintained.

In one-third of the ''chapters'' or policy areas, Croatia has to meet benchmarks set by the EU before talks can be opened.

''This means it is really in Croatia's hands how quickly these chapters can be opened and closed,'' the source said.

The source said the EU hoped Zagreb would also make progress after a general election on November 25 to resolve bilateral disputes with Slovenia over borders and with Slovenia and Italy on a disputed ecological and fisheries protection zone.

GLOOMY SURVEY Despite the criticism, Croatia is one of the few bright spots in what is expected to a relatively gloomy survey of the countries of the Western Balkans, all of which have long-term prospects of joining the EU.

Serbia's progress has been stalled by its failure to arrest and hand over wanted Bosnian Serb war crimes indictee Ratko Mladic to a UN tribunal for trial on genocide charges, and the report notes Belgrade has still not achieved full cooperation.

EU Enlargement Commissioner Olli Rehn will consult the chief UN war crimes prosecutor, Carla del Ponte, again before deciding next week whether to initial an agreement on closer ties with Serbia, the first rung on the EU ladder.

The report says Serbia ''needs to show a more constructive approach'' on the future of the breakaway province of Kosovo.

Belgrade adamantly rejects the majority Kosovo Albanians' demand for independence.

Montenegro, which broke from a union with Serbia last year after a referendum, signed such a Stabilisation and Association Agreement with Brussels this month and is expected to get a relatively positive report.

Bosnia's SAA has been held up by the ethnically divided country's inability to agree so far on police reform. Brussels welcomed a weekend agreement among Muslim, Croat and Serb political leaders to get the stalled reform back on track but stopped short of saying it would now sign the agreement.

The EU source said the Commission would not recommend opening membership negotiations next year with Macedonia, an official EU candidate since 2005, because of political problems that have stalled key judicial reforms.

Nor would there be much progress to report on Albania because of ''the usual problem of the need for political consensus to move ahead with key reforms'', the source said.

EU officials also fear that increased tension in the Western Balkans over the future of Kosovo once talks end in December could further dampen the momentum for reforms.

REUTERS SYU HS0940