The western Balkan countries of Albania, Bosnia and Herzegovina, Kosovo, Montenegro, Serbia, and the Republic of Macedonia share the desire to join the European Union. Two of these countries — Albania and Macedonia — are particularly close to accession. we spoke to several lawyers to learn more about how accession could affect the business landscape and the work of lawyers in the two countries.
Balkan Background in Berlin
European leaders concluded years ago that strengthening the integration of the Balkan region as a whole would produce faster and more effective results than focusing on the countries separately. From this idea the so-called “Berlin Process” was born in 2014, when Chancellor Angela Merkel hosted the first Conference of the Western Balkan States in the German capital to consider the future enlargement of the European Union, begin the process of revitalizing multilateral ties between the Western Balkans and EU member states, and improve regional cooperation in the Balkans on infrastructural and economic matters. This first conference was followed by a 2015 Vienna Summit and a 2016 Paris Summit and, this past summer, by a 2017 Trieste Summit.
Six countries are currently recognized as candidates for EU membership: Albania, Iceland, Macedonia, Montenegro, Serbia, and Turkey (although Iceland suspended negotiations in 2013). In addition, both Bosnia and Herzegovina and Kosovo have been officially recognized as potential candidates, and Bosnia and Herzegovina has submitted a membership application.
Countries seeking to become members of the European Union must meet the so-called “Copenhagen criteria,” defined at a 1993 meeting of the European Council in Copenhagen, which include being stable democracy that respects human rights and the rule of law; possessing a functioning market economy; and accepting the obligations of membership, including EU law.
After years of preparation and the adoption of new laws by Albania and Macedonia in order to harmonize their internal legislation with EU directives, and pursuant to the Berlin Process, the long process to EU membership appears closer than ever to completion. Unsurprisingly, lawyers in these two markets believe their countries would, indeed, reap significant benefits from accession.
Alert in Albania
Albania was first recognized by the European Union as a potential candidate in 2000 and signed the Stabilization and Association Agreement in 2006, which completed the first major step towards full EU membership. The country then formally applied for EU membership in 2009 – the same year it joined NATO – and five years later, in 2014, the Council of the European Union agreed to grant Albania official candidate status. Formal accession negotiations with the EU may begin as soon as this spring.
Lawyers in the country are optimistic that those talks will happen – and confident about what the results of accession would be. Perparim Kalo, Managing Partner at Kalo & Associates, believes that even if immediate accession is unlikely, formal negotiations towards the goal will inevitably bring more work – and hence more business – to local law firms. According to Kalo, “on the one hand, this step would increase the transparency and the fairness of doing business with governmental institutions on public tenders. In the past many projects have suffered from a lack of transparency and the bureaucratic nature of the system. On the other hand, the Albanian government would benefit from new EU funds to involve the private sector and continue now at a higher scale infrastructure projects like building of roads, bridges, hospitals, laboratories, and so on. In such a lineup, lawyers have three options: to represent the financial institutions and government entities as contracting authority/employer, or the private sector.”
Continued progress towards accession, Kalo believes, would include improving the credibility and predictability of Albanian court process and rulings by eliminating corrupt judges and prosecutors. “This would definitely give more security to investors,” he says. “Today, when they think about Albania, they think of a corrupt judicial system, so many don’t come here in fear that they’ll lose the rights under their contracts. A more transparent and reliable system would relax businesses, would loosen up the entrepreneurial spirit. We are hopeful that the Berlin Process, which aims to strengthen the region’s EU perspective by improving economic stability, legal services, and cooperation, not only within the region, but also with the EU countries, will be a great help in this.”
Finally, Kalo says, a third level of benefit could come from the Albanian government’s potential access to previously unavailable financial sources to improve the status of strategic investors. “If someone is interested in areas that are not well-developed yet in Albania, like tourism, or energy, they get the status of privileged investors, and the government must give them special incentives. Such status will of course generate benefits for the economy of the country and the public at large.”
Besnik Duraj, Partner at the Drakopoulos Law Firm in Tirana, is also enthusiastic about potential EU accession. “This for sure would change the economic and the legal market landscape in the years to come,” he says. “It would not only open up doors to EU funds to pour in the country, but would also show foreign investors that the Albanian legal system is much more mature than they think.”
Duraj believes that Albanian law is already becoming more complex and sophisticated as a result of the country’s commitment to approximating EU regulations. “Foreign companies investing in Albania are driving us towards the adaptation of higher standards. They started to reevaluate their internal regulations concerning data protection, even for their subsidiaries in Albania, and this motivates local businesses to keep up. As a result there are some niche practice areas that have started to gain a well-deserved importance, such as data protection, competition law, IT, etc. We are seeing a lot of work in these particular industries, and in the future I believe many more will follow.”
In the meantime, Duraj says, the Albanian legal market is stagnant. “We have had no substantial growth in the economy lately, and this reflects on the legal market as well. If eight years ago you could see a yearly increase in the employment rates, you don’t see that anymore. There is not much room for newcomers. In my personal opinion, traditional players are holding their ground, and even though smaller firms are popping up regularly, I don’t see the new ones representing a particular threat to the already established firms. In a fragile economy, with a small market like Albania, opening a new office now, doesn’t really make any economic sense.”
Ultimately, both Kalo and Duraj believe that Albania’s accession to the EU would be beneficial not only for the country itself, but for the whole Western-Balkan region, providing more stability for its neighbors as well.
Meanwhile in Macedonia
Observers in the Republic of Macedonia, Albania’s eastern neighbor, expect this year to be better than last, both in new policies of significance and a more viable economy. Although it was the first Balkan country to sign a Stabilization and Association Agreement with the EU in 2001, the process seemed stuck in mud for many years. The country finally submitted its membership application in 2004, thirteen years after its independence from Yugoslavia. Today, however, Macedonia remains locked in what appears to be an insoluble dispute with Greece over the country’s name, with Greece blocking formal accession talks as long as the country insists on using the name, which Greece insists belongs exclusively to its own northern province. However, there is increased hope in the region that a solution can be found, opening the door to serious negotiations about EU accession.
“Right now, everybody is waiting to see the outcome of the name dispute negotiations between Greece and Macedonia, which are expected to move the whole legal market in a more positive direction,” reports Gjorgji Georgievski, Partner at ODI Law in Skopje. “Besides the name dispute, the political crisis for the past three years has also left serious consequences on the economy. If the name dispute is resolved, Macedonia’s prospects of joining the EU will grow. I am sure that this will be a big incentive for foreign investors to enter the market, meaning a greater influx of work for law firms.”
According to Georgievski, Macedonia already has benefited from pre-accession EU instruments and funds - especially for infrastructure - and as soon as the country receives a date for the negotiation process, he expects it to become a more attractive destination for foreign investors as well. “Everyone who wants to invest in a foreign country seeks stability,” he says, “and expects that the country’s local legislation will be aligned and implemented in accordance with EU standards.”
And Biljana Joanidis Velichkovska, Managing Partner at Skopje’s Joanidis Law Firm, reports that Macedonia already managed to harmonize most of its legislation with EU directives. “A lot of new laws emerged in the country in the beginning of 2018,” she says, “like laws for amnesty, for data protection, for personal income tax, and one that attempts to make Albanian the country’s second official language. All these needed to be clarified in order to reflect the EU directives, and slowly, we are implementing them.”
In fact, the language law Velichkovska refers to is still in Parliament, and its implications remain controversial in the country. Ethnic Albanians make up about a quarter of Macedonia’s 2.1 million population, and the new law would allow them to use Albanian in communications with all official institutions throughout the country. This means that Macedonian residents would be able to obtain official documents in Albanian throughout the whole country – not only in municipalities with an ethnic Albanian majority. “This obviously will affect the legal market as well,” she says, “for court proceedings must adapt too. Firms will have to hire people who speak both languages, or in towns where more than 20% of the population is of Albanian nationality, courts must provide translators.”
Ultimately, Velichkovska is encouraged about recent developments. “Just recently a NATO representative was in Macedonia, and she said that the country is on the right track, but more reforms still need to be done. We have to raise our electoral standards, ensure better media freedom and pluralism in the press, and strengthen our court reforms. The most important condition is evidently the name dispute, but we are optimistic.” Indeed, she says “joining NATO would mean stability for the country, it could give more guarantees for foreign investors, to be more secure on their deals. It would be good for the legal market and for all Macedonians who work and live here.”
Inevitably, increased perceptions of stability and transparency will result in more foreign investment, and thus more business for the law firms in the market. At the moment, Gjorgji Georgievski says, Macedonia has a small legal market that is dominated by solo practitioners, with only a few corporate law firms – and the market is not particularly busy. “During 2017 unfortunately, we did not have a lot of M&A activity,” Georgievski says. “In the second half of the year, law firms were mostly busy with litigation, financing, infrastructure and construction advice.” Still, he insists that he and his peers at other firms have started 2018 with optimism, eager to see what new legislation and procedures the coming months will bring.
The View from Inside
Wolf Theiss Partner Luka Tadic-Colic, whose own country – Croatia – was the last to join the EU, in 2013, can attest to the effect of accession on investment and law firm business. He says, “for the legal markets in the region, accession will be a positive change.” Indeed, he suggests that current candidates can learn useful lessons from those who went through the process before them. “In a way these newcomers are lucky, for they can use the precedents from other countries, can learn from our experience, in order to keep up with the developments.”
Tadic-Colic recalls that even though the top law firms in his country already had high standards before the country joined the EU, Croatia’s laws at the time were often poorly drafted, vague, and open to multiple – and often conflicting – interpretations. “Organizationally, laws related to the financial sector, crediting institutions, the energy sector, property law, and so on, needed to be copied into the domestic law, which was a huge effort. Our Parliament was passing dozens of laws a week just to harmonize the regulations, then to implement them in time. The administrative apparatus of the state had a lot of work until people got used to the changes, and I presume that the same situation will surface in Albania and Macedonia as well.”
The changes in the legal system, of course, necessitated change in the law firms. Indeed, Tadic-Colic says, the change of Croatia’s legal landscape resulting from the incorporation of EU laws required firms to adapt, and to hire younger lawyers who were educated on EU laws and able to come up to speed on the new legal environment fairly quickly. The M&A upswing was immediately noticeable as well. “On a large scale we saw a lot of family businesses coming into Croatia, from neighboring countries primarily, or people just buying off existing Croatian family businesses. With accession to the EU they felt that certain safe-guards had appeared in the business sector, and that the country had become a safer investment then it had been before.”
Albania and Macedonia hope to join those States which, in joining the EU, have reaped significant financial benefits. The most critical step in this process is to improve legislation and reform judicial and political systems sufficiently to indicate readiness to the EU to and demonstrate transparency, predictability, and stability to potential investors. The Western Balkan countries of Albania and Macedonia appear to be moving forward on this process now, and they seem determined to make their accession an impending reality.”
We would like to thank the following lawyers for their contribution to this article:
- Besnik Duraj, Partner, Drakopoulos Law Firm
- Gjorgji Georgievski, Partner, ODI Law Firm
- Biljana Joanidis Velickovska, Managing Partner, Law firm Joanidis
- Perparim Kalo, the Managing Partner, Kalo & Associates
- Luka Tadic-Colic, Managing Partner, Wolf Theiss
This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.