Kosovo got a mixed report from the European Commission on October 21 2011, with Brussels noting progress in some areas but highlighting key weaknesses such as the country's failure to establish a market economy.

Kosovo, which declared independence in 2008, is recognised by 22 out of 27 EU states and a large number of Western countries, including the United States, although Kosovo's independence is rejected by Serbia, whose powerful backers include Russia and China.

The EC released a report on Kosovo on October 12 as part of a package of reports on EU hopefuls in the Western Balkans and on Iceland.

Kosovo had continued its efforts to align its legislation with European standards, but challenges remained as to implementation, the EC said.

Kosovo has made progress as regards the political criteria in a number of important areas, the EC said.

Following the general and presidential elections, a government was formed and started to address challenges Kosovo is facing.

The Belgrade/Pristina dialogue was conducted in a generally constructive spirit, until September.

The co-ordination of the European agenda in Kosovo has significantly improved, the report said.

The European integration ministry had strengthened its role and successfully managed a cycle of the Stabilisation and Association Process dialogue, according to the EC.

"People in the north also need to benefit from the European perspective. It is important that Kosovo launches a comprehensive agenda for the north."

The northern part of the country has a large ethnic Serb population.

Judicial reform has continued satisfactorily and important judicial institutions are in place, the EC said of Kosovo.

The general elections were marred by serious shortcomings and allegations of fraud, the Commission said. 

"Perpetrators need to face justice and the electoral reform needs to progress."

The capacity of Kosovo's public administration remains weak, the Commission said.

"Law enforcement and judicial authorities need to further step up their efforts to tackle organised crime and corruption, which remain serious challenges.

"They have to demonstrate track record of investigations and convictions. To this end, the Commission proposes to launch a structured dialogue on the rule of law," the European Commission said.

The Commission said that Kosovo "has made no progress towards establishing a functioning market economy".

Considerable reforms and investments are needed to enable it to cope over the long term with the competitive pressure and market forces within the EU.

The economy has grown, however, there are concerns regarding the long term sustainability of the budget.

Weak economic policy planning and implementation caused the derailment of the IMF Stand-By Agreement reached in 2010.

A non-disbursing staff-monitored programme is running until the end of 2011, which represents a test to regain economic policy credibility.

"Firms continue to be confronted with overall weak policy planning and public administration, weak rule of law, the lack of a reliable electricity supply, inadequate infrastructure and an unskilled labour force. Unemployment remains very high."

Progress has been mixed in aligning Kosovo's legislation with European standards, the EC said. 

The legislative framework has been strengthened in particular as regards trade issues and public procurement.

Kosovo has organised a census in line with international and European standards, although the north did not participate, the report said.

Considering Kosovo's progress on readmission and reintegration of returnees, the Commission will launch a visa dialogue with Kosovo towards the end of the year.

In areas such as the movement of persons, services and right of establishment, money laundering and personal data protection, little progress has been achieved, the EC said.

Much greater efforts were also needed to meet the challenges Kosovo is facing in the protection of its environment, according to the Commission.