The report notes the issue of war crimes trials, saying they are still ethnically biased against Croatian Serbs, as well as the issue of restitution of Serb refugees' property.
Despite the constitutional protection of minorities, the efforts by the Ivo Sanader Cabinet and the improved situation for minorities, in practice there still exists an open and sometimes strong discrimination against Serbs and Roma, reads the report.
The State Department notes that the Croatian government generally cooperated with the Hague war crimes tribunal and significantly improved the situation, but that the arrest of Ante Gotovina remains an issue.
The report notes the issue of the government's eagerness to locate the runaway ex-general, saying that lack of progress in tracing him has brought into question the government's efforts to meet its legal and political commitments to the UN court.
According to the report, although the Constitution guarantees judicial independence, last year the judiciary was to some extent under political influence as well as faced with close to one million backlog cases, financing problems and lack of qualified personnel.
The report also notes that electronic media were subjected to political pressure and that attempts were made to influence reporting on national television.
The State Department mentions discrimination against Serbs in the judiciary, employment, housing and freedom of movement.
The report says that international observers noted a certain progress in the objectivity of rulings in war crime trials, but remained concerned about the judiciary being ethnically biased. Although the number of individuals tried for war crimes was lower than in 2002 and 2003, most of the accused continued to be ethnic Serbs.
The report says that 67 percent of all Serbs accused of war crimes were found guilty, as opposed to only 25 percent of Croat indictees. In the first 10 months of 2004, the Serbs accounted for 23 of 27 people arrested for war crimes, three of the three accused, 85 of the 105 on trial, nine of the 12 acquitted, and 18 of the 20 convicted. In absentia trials, despite efforts to reduce this practice, referred nearly only for Serbs.
The report notes that Croatian Serbs continued to be arrested on war crimes charges, although the number was reduced. Of the 23 arrested in the first 10 months of 2004, 21 was acquitted, and in most cases the authorities either withdrew the indictments of amnestied the accused.
The report says that 25 Croatian Serbs are still in prison following convictions in non-transparent, politicised trials.
International observers are still concerned that fear from arrest for war crimes, often based on weak evidence, prevents some Serb refugees from returning to Croatia, the report says, adding that 20 of the 25 Serbs arrested for war crimes were returnees.
Despite an overall increase in tolerance towards Serbs, the report notes a deteriorating situation in Dalmatia, mentioning harassment of local Serbs and the Orthodox clergy in Kistanje, Sibenik, Zadar, Zemunik Gornji, Sotin, and Vodice. The report also mentions poor understanding and protection on the part of the police.
The State Department mentions isolated reports on political influence on local courts, mentioning that in August the Supreme Court quashed the acquittal Judge Slavko Lozina handed down in the Lora war crimes trial in Split and requested a retrial. The report says the new panel of judges was biased towards the accused Croats, ruling in September against keeping them in custody event though in the past they missed court appearances.
According to the State Department, most courts stopped with collectively convicting people tried in absentia, in part thanks to efforts by the chief state prosecutor and the justice ministry.
The report notes that the government stepped up refugee return efforts, notably in the reconstruction and restitution of illegally occupied homes. About 80 percent of reconstruction assistance went to Serbs, and the number of legally and illegally occupied property decreased significantly. The report says, however, that the government did not carry out its plan to help Serb refugees return by providing state accommodation to those who held tenancy rights outside previously war-struck areas.
The report states that in property restitution cases the law implicitly favoured Croats and that 1,750 mostly Serb refugees were unable to get hold of their Croat-occupied property. According to government estimates, 54 houses are still illegally occupied while most are legally occupied until the government provides alternative accommodation for the temporary tenants.
Concerning the Roma, the report notes that they are faced with many obstacles, including language, lack of education, citizenship and identity documents, high unemployment, and widespread social discrimination.
The report reads that government officials tried to influence Croatian Television (HTV), noting that in May a minister and a deputy prime minister demanded that an editor retract a news item that was released and threatened with the imposition of VAT on TV subscription.
The report also notes that in September, the parliament speaker voiced dissatisfaction with national television's news programme and said that the HTV Act should be changed so as to enable personnel changes in the news programme.
The report further says that a meeting with the HTV leadership heard threats of cancellation of subscription unless the situation in the news department was changed.
The State Department also notes that local electronic media are subject to political pressure as most are at least partly owned by the local authorities.