BRUSSELS - Kosovo has the capacity to move forward in EU integration, but it faces numerous challenges in combating organised crime and corruption and establishing the rule of law, the European Commission (EC) annual report on Kosovo presented in Brussels on Wednesday says.

The Kosovo authorities have displayed a solid capacity to coordinate plans for EU integration, the EC states, adding that Kosovo has completed the negotiations concerning the Stabilisation and Association Agreement and started the talks concerning a visa liberalisation.

However, practical results in the battle against corruption and organised crime and in establishing an independent judiciary are still lacking, according to the report.

Besides that, this year was marked by the parliamentary election held in May, but with no parliament formed yet, which is a serious problem, the EC points out.

The report commends the authorities in Pristina for their support to EULEX and the Special Investigative Task Force that investigated the organ trafficking claims made in a report by Dick Marty, but it is also stressed that the legal framework needed for the investigation to get its closure in court is yet to be adopted.

The only area where the EC noted significant progress is the normalisation of the relations with Belgrade, with the continuation of that process and the implementation of the Brussels agreement playing a key role for Kosovo's EU integration in the future.

The situation in northern Kosovo remains tense, the EC notes, demanding from all sides that they continue supporting EULEX, and stressing that the mission should be allowed to operate everywhere in Kosovo.

More effort should be invested to incorporate the Serb municipalities in northern Kosovo into Kosovo's legal system, the report reads.

Market economy does not exist yet in Kosovo and the gray economy has a significant presence, the EC believes.

The need for structural economic reforms that would reduce unemployment has reached the level of urgency, and reforms are also necessary in the election system, public administration and protection of minority rights, the report says.

The EC concluded by asking that the preparations to shut down the Kosovo A hydroelectric power station be faster and expressd concern for the Kosovo authorities' lack of interest in the protection of the environment and people's health.